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STATE OF CONNECTICUT, 
 
 GENERAL ASSEMBLY, 
 
 JANUARY SESSION, 1887. 
 
 REPORT 
 
 OF THE 
 
 Special Commission, 
 
 Appointed Under the Resolution of the General 
 Assembly, Approved April 4th, 1884, 
 
 on the subject of 
 
 TAXATION, 
 
 With Bills Recommended, for Adoption and 
 Statistical Tables. 
 
 NEW HAVEN : 
 Hoggson & Robinson, Printeks, Atheneum Building, 
 
 1887. 
 
TABLE OF CONTENTS. 
 
 Page. 
 
 1. Report of the Commission, . . . . ' . .5 
 H. Bills Recommended for Adoption, .... 53 
 An Act Concerning a Tax Commissioner, . . 53 
 An Act to Tax certain Grants of Corporate Fran- 
 chises, 55 
 
 An Act to Impose a Franchise Tax on certain Cor- 
 porations, 56 
 
 An Act to Amend the Laws as to Railroad Taxa- 
 tion, 57 
 
 An Act to Impose a Collateral Inheritance Tax, . 60 
 An Act Concerning Taxation, . . . .65 
 (With Schedule A, form of tax-list, annexed.) 
 
 3. Table of the Grand List of the State for 1885, . . 69 
 
 4. Table giving a Summary of the Grand Lists of the State 
 
 for 1864 to 1885, 113 
 
'To the General Assembly: 
 
 The. Commission appointed by the Act of April 4th, 
 1884, to consider the subject of State Taxation, respect- 
 ffully submit the following report : 
 
 By theiterms of the Act under which the Commission 
 ■was constituted, we were directed " to consider and report 
 to the General Assembly a comprehensive plan for pro- 
 viding a revenue for the State, having due regard to all 
 the tax-paying interests of the State, and avoiding, as far 
 ;as practicable, double taxation." An additional Act, ap- 
 proved March 30th, 1886, gave us power to send for per- 
 sons and papers, and has enabled us to secure much 
 limportant information from all parts of the State. 
 
 At the last Session of the Assembly, we had the honor 
 'to submit a preliminary report, recommending such a 
 ■ change in the apportionment of the State tax among the 
 several towns, as would require each to contribute in pro- 
 portion to its total population, instead of in proportion to 
 its grand list. We then stated that if this measure should be 
 • deemed inexpedient, we should concur with the previous 
 Tax Commissions of 1867 and 1880 in deeming it neces- 
 sary to give the State a closer supervision over the ad- 
 ministration of our entire tax system, by the creation of 
 ,the office of Tax Commissioner. 
 
 In view of the failure of the bill reported by us last 
 year, to meet the approval of the Assembly, we therefore 
 now submit several draft Acts, designed to render our 
 present plan of apportioning State taxes among the towns 
 more.fiir and equal, and to adjust the burden of govern- 
 ment among the various tax-paying interests in such a 
 way as to avoid double taxation and conform to the exist- 
 ing conditions of productive industry and organized capi- 
 
would be apt to be expended with less thought and care. 
 Nor do we think that any fairer mode of supporting the 
 State government can be devised, than that of dividing 
 the burden between its incorporated bodies, and its indi- 
 vidual citizens, in due proportion to the benefits and pro- 
 tection which it gives to each. 
 
 INEQUALITIES IN ASSESSMENTS AND VALUATIONS. 
 
 Were our tax laws faithfully carried out, according to 
 their spirit, or indeed to their letter, fewer complaints of 
 their injustice would be heard. But one great defect in 
 their practical execution, which is admitted by all, con- 
 sists in inequalities of assessment and valuation. This 
 shows itself especially, as between the different towns, 
 and has been specially referred to us for consideration by 
 your honorable body, at the last session, by its action 
 upon House Joint Resolution, No. 47. 
 
 Our statutes (General Statutes, p. 156, Section 17,) re- 
 quire all taxable property to be assessed at the " fair market 
 value thereof and not its value at a forced or auction sale ;" 
 but it is notorious that in few, if any, towns do the assess- 
 ors value real estate at what they think it is fairly worth. 
 On the contrary, they generally first make this appraisal of 
 its actual value, and then put it in the list at a certain pro- 
 portion of such appraisal, varying from thirty-three and a 
 third to seventy-five per cent. Similar reductions are 
 made in valuing personal property, though with less uni- 
 formity, and so perhaps with more injustice. 
 
 RETURNS RECEIVED FROM ASSESSORS THROUGHOUT 
 THE STATE. 
 
 In response to a circular of enquiry, we have obtained 
 returns from assessors in most of the towns in the State, 
 giving their opinion of the practical working of our tax 
 laws in their respective localities. 
 
Table No. i 
 
 State tax 
 on towns 
 
 1906 
 
 1907 
 
 1908 
 
 1909 
 
 1910 $ 454,000. 
 
 191 1 488,000. 
 
 1912 
 
 1913 
 
 1914 1,101,000. 
 
 1915 1,174,000. 
 
 1916 1,751,000. 
 
 Military 
 tax 
 
 Mutual Life 
 Ins. Companies 
 
 Steam 
 Railroads 
 
 Street 
 Railroads 
 
 Non-resident 
 stock 
 
 Principal Ii 
 
 Savings 
 Banks 
 
 'ems of State K 
 
 Insurance 
 Commissioner 
 
 evenue 1906-19 
 
 Succession 
 tax 
 
 ib, inclusive 
 
 Registered 
 Securities 
 
 Telegraph and 
 Telephone 
 
 Highway 
 Obligations 
 
 Automobile 
 fees 
 
 Liquor 
 Licenses 
 
 Net income of 
 miscellaneous 
 corporations 
 
 Mutual and 
 
 Stock Insurance 
 
 tax 
 
 Gross earnings 
 
 of gas, water 
 
 and electric 
 
 corporations 
 
 $157,000. 
 
 $345,000. 
 
 $1,171,000. 
 
 $295,000. 
 
 $156,000. 
 
 $499,000. 
 
 $140,000. 
 
 $ 274,000. 
 
 $141,000. 
 
 
 
 
 
 
 
 
 162,000. 
 
 361,000. 
 
 1,234,000. 
 
 353,000. 
 
 145,000. 
 
 536,000. 
 
 148,000. 
 
 445,000. 
 
 144,000. 
 
 
 
 $ 12,000. 
 
 
 
 
 
 163,000. 
 
 367,000. 
 
 1,303,000. 
 
 230,000. 
 
 134,000. 
 
 556,000. 
 
 155,000. 
 
 278,000. 
 
 l6l,000. 
 
 
 
 62,000. 
 
 
 
 
 
 l6o,000. 
 
 389,000. 
 
 1,424,000. 
 
 230,000. 
 
 134,000. 
 
 567,000. 
 
 157,000. 
 
 341,000. 
 
 162,000. 
 
 
 
 58,000. 
 
 
 
 
 
 173,000. 
 
 407,000. 
 
 1,542,000. 
 
 239,000. 
 
 l6o,000. 
 
 598,000. 
 
 167,000. 
 
 440,000. 
 
 168,000. 
 
 
 
 159,000. 
 
 
 
 
 
 165,000. 
 
 410,000. 
 
 1,338,000. 
 
 455,000. 
 
 206,000. 
 
 630,000. 
 
 l8o,000. 
 
 1,125,000. 
 
 l6o,000. 
 
 $104,000. 
 
 
 231,000. 
 
 
 
 
 
 169,000. 
 
 422,000. 
 
 1,158,000. 
 
 501,000. 
 
 211,000. 
 
 660,000. 
 
 187,000. 
 
 I,o8o,000. 
 
 l6l,000. 
 
 117,000. 
 
 
 254,000. 
 
 
 
 
 
 169,000. 
 
 435,ooo. 
 
 1,055,000. 
 
 556,000. 
 
 220,000. 
 
 688,000. 
 
 199,000. 
 
 840,000. 
 
 184,000. 
 
 129,000. 
 
 
 325,000. 
 
 
 
 
 
 178,000. 
 l8o,000. 
 214,000. 
 
 430,000. 
 454,ooo. 
 463,000. 
 
 937,000. 
 509,000. 
 917,000. 
 
 624,000. 
 582,000. 
 430,000. 
 
 234,000. 
 234,000. 
 252,000. 
 
 705,000. 
 711,000. 
 768,000. 
 
 208,000. 
 224,000. 
 240,000. 
 
 670,000. 
 
 807,000. 
 
 1,311,000. 
 
 252,000. 
 4l6,000. 
 525,000. 
 
 182,000. 
 191,000. 
 200,000. 
 
 $313,000. 
 
 197,000.* 
 
 407,000. 
 
 537,000. 
 769,000. 
 
 $440,000. 
 
 $1,598,000. 
 
 $617,000. 
 
 $200,000. 
 
 '$101,610 + $95,522. 
 
The assessors in only eighteen towns claim to follow the 
 plain requirement of the law, as above quoted, by putting 
 real estate in at its "fair market value" ; and in several of 
 these towns we have reason to believe that this value is 
 generally placed so low as virtually to put it on the basis 
 of an auction sale. In most of the towns there is a cer- 
 tain percentage of the actual value, established by local 
 custom, at which real estate is uniformly assessed, and 
 the rate most commonly taken is sixty-seven per cent., or 
 two-thirds. In some, there is one standard of valuation 
 for buildings and another for lands. In one town in the 
 Eastern part of the State, for instance, we found that 
 houses and barns were assessed at about half their value, 
 and the land at about two-thirds ; in another in the Wes- 
 tern part of the State, we found houses, stores, and im- 
 proved farms assessed at about sixty per cent., factories 
 at about fifty per cent., and unimproved lands at about 
 thirty-three and a third per cent. 
 
 This is an abuse of over sixty years standing, and is 
 based of course, on the fact that as each town pays a State 
 tax of a fixed percentage on its grand list, the towns that 
 figure down their grand lists to the lowest point will pay 
 the least to the State. 
 
 QUE, ANCIENT SYSTEM OF INCOME TAXES. 
 
 It arose in consequence of the change in our whole 
 tax system, made soon after the adoption of our State 
 Constitution in 1819. Until that time, Connecticut 
 from* her earliest history, had followed the plan of taxing 
 incomes rather than property. Those pursuing any 
 trade or profession were assessed 00 an estimate of 
 their annual gains. Real estate was rated not accord- 
 ing to its value, but in proportion to the annual in- 
 come which, on the average, it was deemed likely to 
 produce. Lands, as distinguished from buildings, were 
 put in the list at a fixed rate, for each kind, prescribed by 
 statute. The best meadow land went in at $2.50 an acre, 
 
10 
 
 plough land at $1.67, pasture at $1.34, wood -lots at34 cents, 
 etc. ; not because those sums were deemed to be the value 
 of the lands but because they were thought to represent 
 the average income they would produce. 
 
 Houses and other buildings were in like manner listed 
 at fixed sums, determined by their size, materials, number 
 of fire-places, etc., but all prescribed by the statute itself, 
 and beyond the control of the assessors. 
 
 Under such a system, there was little opportunity for 
 evading taxation. The acreage of each farm, the general, 
 character of each lot, and the dimensions, use, etc., of each 
 building were readly ascertained, and the law then fixed 
 the rate of assessment. No other provision for any re- 
 adjustment or equalization was made than the require- 
 ment that the town assessments should be returned to the 
 General Assembly annually, " that the Assembly may 
 judge whether, on the whole, justice has been done by 
 the listers." (Statutes, Elition of 1796, page 280, Sec. 16.) 
 
 ATTEMPTS TO SECURE ECIUALITY IN VALUATIONS. 
 
 Immediately upon these changes* by which the plan of 
 taxing incomes was replaced in the main by that of taxing 
 property, the difficulty now under consideration manifest- 
 ed itself. At the next session of the Assembly (Session 
 Laws of 1820, p. 448, Sec. 9,) an effort to meet it was 
 made by a provision (repeated in the Revision of 1821, 
 page 449, Sec. 10), constituting the Treasurer and Con- 
 troller (aided the first year by a special tax commissioner 
 appointed for each county), a Board of Equalization, with, 
 substantially the powers now given them in our General 
 Statutes (page 160, Sec. 44.) As these officers have other 
 important public duties to occupy their time, and are not 
 given authority to visit the different towns for purposes 
 of assessment, it is not too much to say that this provision 
 has accomplished substantially nothing. 
 
 * Session Laws of 1819, p. 338. 
 
11 
 
 REPORT ON TAXATION IN 1844. 
 
 In 1843 a Committee was appointed by the General As- 
 sembly to inquire into the subject of taxation, and report 
 what alterations were necessary. They reported in 1844, 
 in favor of requiring every tax-payer to hand in a list, not 
 simply specifying, but valuing the various items of his 
 real estate, and stating also the value of his taxable per- 
 sonal property, (outside of bank-stock), at a gross sum. 
 The oath to be required was that his valuation was 
 just and true. Such lists they proposed to keep open to 
 public inspection, and this they believed sufficient to en- 
 sure their correctness. The Board of Equalization had 
 already proved so inefficient that they recommended its. 
 abolition in these words.* 
 
 " The Committee propose to dispense with the Board of Equali- 
 zation. As now constructed, such a board, cannot perform any 
 effectual" service. If all our taxes were levied by the State, it 
 would be absolutely necessary to provide for a general equalization 
 of assessments; but as the State tax is quite inconsiderable com- 
 pared with those of the separate towns, inequalities in the assess- 
 ments will be of small importance. As long as each town levies 
 for itself and for its own local objects and expenses the principal 
 part of the taxes, the great object to be obtained by our tax law, 
 will be a just assessment of each inhabitant, compared with 
 others of the same town. This object, it is hoped by the com- 
 mittee, may be accomplished by the provisions of the bill which 
 they have prepared." 
 
 The bill reported by this committee was not^adopted- 
 At that period, as stated by them in the words above quot- 
 ed, the expenses of the State were small and its taxes so. 
 light, that the want of a better equalization of burdens, as- 
 between the different towns, was still of little practical 
 moment. But the State tax on towns is now ten-fold 
 greater than it was then, and the evil has become a serious 
 
 * Report, page 9. 
 
10 
 
 plough land at $1.67, pasture at $1.34, wood-lots at34 cents, 
 etc. ; not because those sums were deemed to be the value 
 of the lands but because they were thought to represent 
 the average income they would produce. 
 
 Houses and other buildings were in like manner listed 
 at fixed sums, determined by their size, materials, number 
 of fire-places, etc., but all prescribed by the statute itself, 
 and beyond the control of the assessors. 
 
 Under such a system, there was little opportunity for 
 evading taxation. The acreage of each farm, the general 
 character of each lot, and the dimensions, use, etc., of each 
 building were readly ascertained, and the law then fixed 
 the rate of assessment. No other provision for any re- 
 adjustment or equalization was made than the require- 
 ment that the town assessments should be returned to the 
 General Assembly annually, " that the Assembly may 
 judge whether, on the whole, justice has been done by 
 the listers." (Statutes, Elition of 1796, page 280, Sec. 16.) 
 
 ATTEMPTS TO SECURE EQUALITY IN VALUATIONS. 
 
 Immediately upon these changes* by which the plan of 
 taxing incomes was replaced in the main by that of taxing 
 property, the difficulty now under consideration manifest- 
 ed itself. At the next session of the Assembly (Session 
 Laws of 1820, p. 448, Sec. 9,) an effort to meet it was 
 made by a provision (repeated in the Revision of 1821, 
 page 449, Sec. 10), constituting the Treasurer and Con- 
 troller (aided the first year by a special tax commissioner 
 appointed for each county), a Board of Equalization, with 
 substantially the powers now given them in our General 
 Statutes (page 160, Sec. 44.) As these officers have other 
 important public duties to occupy their time, and are not 
 given authority to visit the different towns for purposes 
 of assessment, it is not too much to say that this provision 
 has accomplished substantially nothing. 
 
 * Session Laws of 1819, p. 338. 
 
11 
 
 REPORT ON TAXATION IN 1844. 
 
 In 1843 a Committee was appointed by the General As- 
 sembly to inquire into the subject of taxation, and report 
 what alterations were necessary. They reported in 1844, 
 in favor of requiring every tax-payer to hand in a list, not 
 simply specifying, but valuing the various items of his 
 real estate, and stating also the value of his taxable per- 
 sonal property, (outside of bank-stock), at a gross sum. 
 The oath to be required was that his valuation was 
 just and true. Such lists they proposed to keep open to 
 public inspection, and this they believed sufficient to en- 
 sure their correctness. The Board of Equalization had 
 already proved so inefficient that they recommended its. 
 abolition in these words.* 
 
 " The Committee propose to dispense with the Board of Equali- 
 zation. As now constructed, such a board- cannot perform any 
 effectual" service. If all our taxes were levied by the State, it 
 would be absolutely necessary to provide for a general equalization 
 of assessments; but as the State tax is quite inconsiderable com- 
 pared with those of the separate towns, inequalities in the assess- 
 ments will be of small importance. As long as each town levies 
 for itself and for its own local objects and expenses the principal 
 part of the taxes, the great object to be obtained by ouf tax law, 
 will be a just assessment of each inhabitant, compared with 
 others of the same town. This object, it is hoped by the com- 
 mittee, may be accomplished by the provisions of the bill which, 
 they have prepared." 
 
 The bill reported by this committee was not^adopted- 
 At that period, as stated by them in the words above quot- 
 ed, the expenses of the State were small and its taxes so. 
 light, that the want of a better equalization of burdens, as- 
 between the different towns, was still of little practical 
 moment. But the State tax on towns is now ten-fold 
 greater than it was then, and the evil has become a serious 
 
 * Report, page 9. 
 
12 
 
 -one. The moment a tax large enough to be felt, is so laid 
 as to bear upon one farm or one town more heavily than 
 on another, which is similarly situated, the injustice doubles 
 the burden. An unjust tax will always be resisted or 
 evaded, and under such circumstances inequality is always 
 injustice. 
 
 COMMISSIONERS OF EQUALIZATION APPOINTED IN 1866. 
 
 An attempt was made, in 1866, to render our State 
 Board of Equalization competent to deal with this question 
 by adding to its members one " Commissioner," for each 
 Senatorial District, who was to be paid $3.00 a day and 
 expenses. It was the duty of each of these Commissioners 
 to go over the grand'list of each town in his district with 
 the first assessor, and, if necessary, examine for himself 
 the property assessed, " collecting facts which shall enable 
 him to make a report to the Board of Equalization-consti- 
 tuted by this Act, of the relative value of the same kind 
 of property in the different towns." (Public Acts of 1866. 
 page 78, Chapter LXXXIII.) 
 
 The next year this Act was replaced bv another, (Public 
 Acts of 1 867, page 1 30 Chap. CXLVI), which required each 
 of the commisioners of equalization to examine, with one of 
 the selectmen in each town " a sufficient number of home- 
 steads known as village property, and not less than ten 
 farms situate in different localities in such town, together 
 with enough of other taxable property to ascertain the 
 average actual cash value thereof," and then, on comparing 
 his valuations thus made with those of the assessors, to 
 " prepare a table showing the actual, as compared with 
 •the assessed value of the different kinds of taxable property 
 in each town, and report the same in tabular form to the 
 Comptroller." The State Board of Equalization was also 
 reconstituted by dropping the District Commissioners, 
 and adding the Commissioner of the School Fund. 
 
13 
 
 REPORT ON TAXATION MADE IN 1868. 
 
 At the same session, a special Commission was created' 
 to take into consideration the subject of taxation, and re- 
 port to the next Assembly. The preamble of the resolution 
 providing for its appointment, recites that " It is believed. 
 a large amount of personal property legally and justly lia- 
 ble to taxation is withheld from and -not placed upon the 
 tax-list," and also " that real estate and personal property 
 are not now assessed at their true relative value." (Private 
 Acts of 1867, page 248.) 
 
 Nathaniel H. Morgan, of Hartford, Charles Shelton, of 
 New Haven, Jeremiah Olney, of Thompson, and Leman 
 W. Cutler, of Watertown, were named as the Commission-- 
 ers. One of these gentlemen had recently held the office 
 of Controller for five years, and another had been for a 
 Jong period the first assessor of our largest town. They 
 made their report in 1868, in which they speak of the evil 
 now under consideration, as follows:* 
 
 '• One of the obvious and peculiar defects of our system is, 
 that it has no central or supervisory head, by which to secure any 
 sort of uniformity in the manlier or efficiency of its administra- 
 tion. It rests solely upon the interested action and determina- 
 tions of more than one hundred. and sixty separate local boards 
 of officers, all acting without concert, conference, or any common 
 control or supervision, and all alike interested, as well as their 
 constituents, by the strongest pecuniary inducements, in the 
 undervaluation and concealment of the taxable resources of their 
 respective towns, in order to evade and reduce their respective 
 State tax apportionments. So general and significant has this 
 practice of undervaluation become, and so palpable were the in- 
 equalities resulting from it, that the General. Assembly, at the 
 two last sessions, appointed boards of valuation, or equalization, 
 with a view to check, in some measure, this growing evil. But 
 when it is considered that the same pernicious influence of self- 
 
 * Report, page 5. 
 
14 
 
 interest which had produced undervaluations by the local town 
 officers, was still left in full operation upon the action of every 
 member of these boards in the valuations in their respective local 
 districts, it is not strange that this intended check should have 
 proved to be of very little practical avail." 
 
 The measure of relief which they recommended for this 
 particular difficulty was the appointment of a Tax Com- 
 missioner. He was to hold office for five years, and dur- 
 ing the first year, of his term was to cause a general reval- 
 uation of the taxable property in each town to be made by 
 State Assessors, appointed by him for each County. 
 
 The bill reported failed to receive the approval of the 
 Legislature, and after four years' trial, the statute as to 
 Commissioners of Equalization was repealed in 1871. 
 
 TAX COMMISSIONER BILL OF 1876. 
 
 In 1876, another bill to create the office of State Tax 
 Commissioner was before the Legislature, and is printed 
 as a proposed law in the Public Acts of the year, page 145. 
 
 REPORT ON TAXATION MADE IN 1881. 
 
 In 1880, the Treasurer, Controller, Secretary and Com- 
 missioner of the School Fund, were appointed as a special 
 Commission to inquire into the conditions and working of 
 the Tax Laws of the State, and report what changes, if 
 any, should be made. They had several public hearings, 
 and reported at length in 1881, specifying many of the 
 evils of our present system and concluding with the fol- 
 lowing recommendations:* 
 
 " In view of the gross inequalities of our valuations, of the 
 imperfections of our statutes, relating to boards of equalization, 
 of the excessive taxes now bearing upon some persons, natural 
 and artificial, we earnestly recommend the immediate appoint- 
 
 * Kcport, page 11. 
 
15 
 
 inent of a wise and competent Commission to prepare in detail 
 for the consideration of the next Legislature, a complete and 
 perfect tax law in place of our present legislation, which with 
 many merits and demerits, is quite like a piece of patch-work. 
 
 " Meantime, if the General Assembly will correct any one of 
 the evils suggested, they will take one step hi the line of the best 
 interests of the State. 
 
 "Possibly the Legislature maybe inclined to make a funda- 
 mental change, and adopt a system of taxation upon a basis 
 radically new, embodying the theories of men who have made 
 taxation the study of a life-time. This may remedy the evils 
 complained of by tax-payers everywhere. But should they pre- 
 fer a temporary expedient, and retain the loose system now in the 
 statutes with the cherished traditions of the people, and the ex- 
 perience of many years; in that case, we earnestly recommend 
 the appointment of a Tax Commissioner, with revisory powers; 
 and we herewith submit a bill providing for his appointment, 
 with an outline of his powers and duties." 
 
 The bill thus recommended was substantially that pro- 
 posed in 1876, but it was not adopted. 
 
 A TAX COMMISSIONER NECESSARY FOE TEE PROPER 
 EXECUTION OF THE LAWS. 
 
 We believe that the time has now come when such a 
 measure must be adopted, in order to make our tax sys- 
 tem accomplish its design. The additional expense at- 
 tached to the creation of a new office, will, we are confi- 
 dent, be repaid many fold to the State itself, by the in- 
 crease of revenue which may fairly be anticipated from 
 the general supervision over its assessment and collection 
 to be exercised by the Tax Commissioner,' while the 
 adjustment of the State taxes between the towns can 
 hardly fail to be made Math more fairness and equality. 
 
 It will be observed that the bill reported requires him 
 to visit every town in the State at least once during his 
 
16 
 
 official term. This will give him an opportunity to exam- 
 ine into the actual working of the law everywhere, to 
 hear any complaints which may be preferred from any 
 quarter, and to give any necessary advice and assistance 
 to the local assessors and boards of relief. 
 
 INEQUALITIES IN ASSESSING PERSONAL ESTATE. 
 
 The inequality of valuations in different towns is by no 
 means confined to real estate. 
 
 Household furniture above $500 in value, for instance, 
 constitutes an item of only $9,500* in one of our cities, 
 while a neighboring town of not more than half the popu- 
 lation returns $12,900.! Danbury and Norwalk together 
 have but $4,000 of it, not half as much as the small town 
 of Stratford alone. 
 
 POLLS. 
 
 Of polls, New Britain returns. more than Hartford, and 
 Vernon more than either ; Naugatuck more than Water- 
 bury; Griswold more than New London. 
 
 CATTLE. 
 
 Cattle are in most of our towns put in at a uniform and 
 •low valuation, whether those of any particular owner are, 
 in fact, worth more or less. Fancy stock, in this way, 
 escape their fair share of taxes. The practice is one con- 
 tinued along from the time of our ancient statutes, which 
 fixed a legal rate of valuation for every creature, accord- 
 ing to its age, without regard to quality; putting two 
 year old cattle in at two pounds, those three years old at 
 three pounds, and those four years old at four pounds4 
 
 * New Britain. t Manchester. J Revision of 1702, page 400. 
 
17 
 
 This law, which, though it fixed an arbitrary value, made 
 it the same for every town, was repealed early in this cen- 
 tury, and there has since been no reason for not assessing 
 horses and other live stock according to their real value 
 in each case. 
 
 ENUMERATION OF HOUSES. 
 
 We may add that our grand list needs the supervision 
 of some central authority to make it accurate, even in so 
 simple a matter as the enumeration of buildings. The 
 number of houses listed in 1880 was 95,047, yet the United 
 States Census of the same year gives the true number as 
 108,458. We have no doubt that the latter figures are the 
 more correct, as in 1877 our own Grand List showed 
 106,108, though that of the next year could show only 
 93,555. In the Grand List of 1885, they number 104,832 ; 
 in that of 1884, only 94.815. No one can imagine that 
 10,000 new houses were erected during that interval. 
 
 GOVERNOR HUBBARD'S RECOMMENDATIONS. 
 
 In a message of His Excellency, Governor Hubbard, to 
 the General Assembly, in 1878, he recommended the ap- 
 pointment of a Commissioner of Corporations, to super- 
 vise the organization of Joint Stock Companies, the pay- 
 ment of their capital stock, and its reduction and increase- 
 In Massachusetts, where the office of Tax Commissioner 
 exists, the same person who performs its duties is also the 
 Commissioner of Corporations, and a similar union of 
 functions might be made here, if thought proper by the 
 Assembly, and would be authorized by the terms of the 
 bill which we report on this subject. 
 
 HOW THE PROBATE RECORDS COMPARE WITH THE 
 TAX LISTS. 
 
 The report of the special committee to enquire into the 
 
 2 
 
18 
 
 subject of Taxation, made to the General Assembly in 
 1844, states that probably more than a third of the per- 
 sonal property owned in the State then paid no taxes. 
 They based their opinions in part upon comparisons, 
 made under their direction, between inventories of estates 
 of deceased persons returned to the Probate Courts, and 
 and the tax-lists of the same individuals made out last pre. 
 ceding their decease. We have made similar comparisons 
 and with similar results, except that the proportion of 
 such property not reached by taxation seems to be much 
 greater now than it was in 1844. 
 
 In the words of a report made to us on this subject by 
 an assessor in one of our larger cities, " the inventory of 
 the estate and the return last made to the assessors by the 
 deceased, show, to speak of it mildly, few points of con- 
 tact." 
 
 We selected six Probate Districts, each in a different 
 county, and employed a competent person in each to go 
 through the records, first of the Probate Court, and then 
 in the assessor's office, and after separating, in the inven- 
 tories of estates, the taxable and non-taxable items, report 
 to us in detail how far the taxable ones appeared in the 
 last tax-list returned by the deceased, if any, and also how 
 the valuations of the same items corresponded, as made 
 by the Probate appraisers and by the assessors. 
 
 In one of these districts, the Probate practice was found 
 to have been too loose for the records to give us any defi- 
 nite information, as inventories of moneyed securities had 
 frequently been accepted which did not itemize them, 
 but gave an appraisal in gross, under some such general 
 description as "stocks, notes, bonds, &c." 
 
 In one District (which we designate in the table given 
 below as District A), our search included every estate 
 probated during the last ten years, and was conducted 
 with the aid of the Judge of. Probate. The amount of 
 taxable property inventoried was $7,000,765 ; that appear- 
 
19 
 
 ing in the last tax-list of the deceased had been assessed at 
 $1,581,861. 
 
 In the other Districts, we directed our searchers to 
 select representative estates, some larger and some smaller, 
 in order to reach a fair average result. District B, (as 
 designated in the table), represents one of our larger 
 ■cities; District C, one of our smaller ones. 
 
 In two Districts we simply collected statistics as to the 
 total amounts of the inventories, without imposing the la- 
 bor of separating the taxable from the non-taxable items. 
 These were District D, representing a large city, and 
 JMstrict E, representing a* manufacturing borough. 
 
 The results are summarized in the following tables : 
 
 TABLE I. 
 
 
 
 
 
 
 Percentage 
 of taxable 
 
 
 
 
 Assessment 
 
 
 
 
 
 of snch of 
 
 
 property in- 
 
 
 Number of 
 
 
 same items 
 
 Value es- 
 
 ventoried 
 
 Probate 
 
 Estates 
 
 Inventory 
 
 as got into 
 
 caping tax- 
 
 not listed 
 
 District 
 
 searched. 
 
 val nation. 
 
 last tax list. 
 
 ation. 
 
 for taxation 
 
 A 
 
 269 
 
 $7,000,765 
 
 $1,581,861 
 
 $5,418,994 
 
 77 
 
 B 
 
 106 
 
 5,756,015 
 
 3,505,614 
 
 2,250,401 
 
 40 
 
 C 
 
 17 
 
 209,301 
 
 46,747 
 
 162,454 
 
 80 
 
 TABLE II. 
 
 Probate 
 District 
 
 Number of 
 
 Estates 
 searched. 
 
 Inventory 
 valuation. 
 
 Valuation 
 of taxable 
 property of 
 the decedents 
 in last grand 
 list. 
 
 Value of their 
 property, 
 not taxed. 
 
 Percentage 
 of their en- 
 tire prop- 
 erty not 
 reached by 
 taxation. 
 
 D 
 
 E 
 
 114 
 15 
 
 $10,643,734 
 610,330 
 
 $5,396,320 
 59,572 
 
 $4,329,643 
 270,696 
 
 44* 
 82 
 
 Seven of the persons whose estates are included in the 
 returns from District E, were not upon the assessment 
 list at all. 
 
20' 
 
 The similar examination of Probate records above re- 
 ferred to as made by the Special Committee on the sub- 
 ject of taxation, which reported to the Assembly in 1844,. 
 included only personal property. Jn one of the Districts- 
 included in the foregoing tables that committee found that' 
 of six estates which they selected for inquiry, the inven- 
 tory valuation of taxable personal property was $127,998, 
 while in the last tax-lists of the decedents they were as- 
 sessed on personal property for $48,997 only, making the- 
 percentage of their taxable personal estate, not listed for 
 taxation, about 61^ per cent. 
 
 We have extended our searches to real estate, in order- 
 to bring out all the facts, and show how universally real 
 estate is undervalued in the grand lists. A large part of 
 the enormous difference between the Probate and tax val- 
 uations in Probate district A, is due to the appraisal of. 
 real estate in an inventory at a much higher figure than it 
 had been assessed. In many instances in this and other- 
 districts, the value put by the appraisers upon the real! 
 estate was found to exceed the entire value of both reall 
 and personal property, as returned to and accepted by the- 
 assessors. 
 
 It is, of course, true that in-many instances property may 
 have been acquired by a tax-payer, between the first of 
 October and the day of his decease in the following year;: 
 but it is equally true that he may have lost or disposed of 
 taxable property during the same interval. 
 
 Such changes of ownership, operating sometimes to in- 
 crease the inventor) 7 and sometimes to diminish it, cannot 
 substantially affect the deductions which must be made 
 from the statistics collected. 
 
 CHANGE OF OXJR TAX SYSTEM- IN. 1850; 
 
 The general system of local taxation now in force dates, 
 only from 1850. Until that year, it had been the practice 
 of Connecticut, from her earliest Colonial days, to select. 
 
21 
 
 ►certain classes of property or persons, and tax them, and 
 them only. In 1850, and 1 851 the new plan was substi- 
 tuted of taxing every kind of property that was not spec- 
 ially exempted, and of laying no taxes on persons, except 
 iifor polls. 
 
 The old theory of taxing property in proportion to its 
 [income-bearing qualities, or productive capacity, which, 
 1 up to this time had been partly kept up, was now totally 
 -abandoned. Prior to 1850, real estate had been listed at 
 'Only 3 per cent, of its true value, while most personal 
 property went in at a higher percentage, according to its 
 productiveness ; much of it, and since 1836, all of it, being 
 rated at 6 per cent. The result, of course, was that real 
 » estate was taxed only half as much as personal estate. In 
 1850, this distinction was abolished, and all taxable prop- 
 erty, made rateable at three per cent, of its value. This 
 preserved the form, though only the form of an income 
 rtax, and was replaced in i860 by the provision that all 
 • property should be listed at its full value. 
 
 In 1850, also, it was first required that tax-payers should 
 rreturn their lists under oath. 
 
 INTANGIBLE PROPERTY NOT REACHED BY THE 
 ASSESSORS. 
 
 The present system has now been tested by the experi- 
 ence of thirty-six years, and it is safe to say that it has by 
 ,no means fulfilled all the expectations of ils framers. In 
 reducing the rate of taxation upon personal estate to the 
 rsame level as that upon real estate, they hoped to bring a 
 . great deal more of personal estate into the tax-list, by less- 
 '-ening the temptation ,to evasion and perjury. The result 
 ■ has shown little accomplished in this direction. Tangible 
 'personal property, that can be seen and handled, was be- 
 fifore, and is still listed and taxed, though with great in- 
 equalities of valuation. But of intangible property, such 
 
22 
 
 as notes,bonds, book-debts, and Western mortgages.a smalF. 
 portion only has ever been reached, and this portion is, of 
 late, growing- less every year. 
 
 A comparison of the grand lists of the State at succes- 
 sive periods of ten years since the time when the present 
 tax system became fully established, shows the following- 
 results in relation to this kind of property: 
 
 
 Bonds. 
 
 .NOU'S, ana money 
 at interest. 
 
 Cash on hand. 
 
 Total. 
 
 1855 
 
 $2,536,321 
 
 116,226,970 
 
 $422,801 
 
 §19,186,092 
 
 1865 
 
 5,177,108 
 
 14,284,821 
 
 1,059,275 
 
 20,521,204 
 
 1875 
 
 5,398,032 
 
 9,938,954 
 
 998,780 
 
 16,355,766 
 
 1885 
 
 5,153,192 
 
 6,931,583 
 
 1,123,949 
 
 13,208,724 
 
 The grand list last completed (for 1885) shows that our 
 total taxable property is assessed at $349,177,597- 
 
 Of this the main items are those of real estate, as fol- 
 lows: 
 
 Houses, .... $141,114,155 
 
 Land, 59,404,041 
 
 Mills, stores, &c, . . 49,893,435 
 
 Quarries, fisheries, &c, . . 1,283,265 
 
 $251, 695,496. 
 
 Deducting these items from the total valuations 
 of the grand list, we have left for all personal prop- 
 erty reached by taxation, $97,482,101- 
 
 Of this, over $30,000,000 is in shares of stock in banks, 
 insurance companies and other corporations ; nearly 
 $24,000,000 ife invested in mechanical and manufacturing - 
 operations ; and over $12,000,000 is employed in trade ; -. 
 leaving not much over $30,000,000 to be distributed 
 among a number of smaller items. 
 
 It will be seen from these figures, that all the intangible 
 property in the list, including the four separate items of 
 State stocks, railroad, city, &c, bonds, money at interest,, 
 and money on hand, together amounts to considerably less- 
 
23 
 
 than 4 per cent, of the grand list. No one can doubt that 
 this is but a very small fraction of the property of this 
 character that is owned in Connecticut, and even of that 
 owned by those who put in sworn tax-lists. Western 
 farm mortgages are bought and sold in our different 
 towns every year to the amount of many millions of dol- 
 lars. The Supreme Court of the State and of the United 
 States have both decided* that such mortgage loans afe 
 taxable under our present laws against the holder, not- 
 withstanding the borrower may pay the taxes on the 
 mortgaged property, where it is situated. Yet thousands 
 of our citizens owning these securities, refuse to list them, 
 and are not without a considerable public sentiment to 
 support them in the refusal. One of the assessors of a 
 farming town in Tolland County stated to us that he 
 doubted if an intelligent board of assessors could be 
 elected there, who favored putting such loans into the 
 tax-list. Another of the persons to whom we applied for 
 information, formerly assessor in one of our leading cities, 
 reported that he had made special efforts, when in office, 
 to get this kind of property into the grand list, and suc- 
 ceeded during his last two years in finding out and adding 
 over $200,000 of it ; but he adds, " That may have had some- 
 thing to do with my defeat, when election came around." 
 A comparison of the Grand Lists of the State from 1864 
 to 1885, as given in the table appended to this Report, 
 will show that the proportion of these intangible securi 
 ties to other taxable property has steadily declined from 
 year to year. In 1855, it was nearly 10 per cent, of the 
 whole; in 1865, about 7*^ per cent.; in 1875, a little over 
 5 per cent; and in 1885, about 3^ per cent. Yet, dur- 
 ing the generation covered by these statistics, the amount 
 of State, railroad and municipal bonds, and of Western 
 mortgage loans, has very greatly increased, and our citi- 
 zens have invested large sums in them in almost or quite 
 
 * Kirtland vs. Hotchkiss, 43 Conn. Reports, 426 ; Hotchkiss vs. Kirtland, 
 100 United States Reports, 491. 
 
24 
 
 every town in the State. Why then do so few get into 
 the tax-list ? The terms of the law are plain, and the 
 penalties for its infringement are probably as stringent as 
 the people will bear. Many attempts have been made, from 
 early times, to create more effectual ones, but with little 
 success. 
 
 VARIOUS LAWS ENACTED TO REACH INTANGIBLE 
 PROPERTY. 
 
 In the beginning of the last century, our statutes pro- 
 vided for the annual election of one or two "able and 
 faithful " men, in every town, as " inspectors," to see that 
 all taxable property was assessed. Their business was to 
 inspect the lists of every tax-payer, and if they detected 
 any taxable property not listed, or temporarily conveyed 
 away, to escape taxation, its rateable value was thereupon 
 forfeited, half to them, and half to the Colony. But after 
 ten years' trial, the forfeiture was reduced to half, and 
 two years later it was abolished and with it the office of 
 inspector." « 
 
 The next plan was for the assessors, if they found taxa- 
 ble property omitted from any man's list, to add it at a 
 four-fold valuation, and to make out a list of those who 
 returned none, but had taxable property, at the same 
 rate.f Half of this valuation, that is twice the rateable 
 value of the omitted property, or about ten or twelve per 
 cent, of its real value, went to the assessors, as a reward 
 for their vigilance. This was the law for over a century, 
 but the additions made were so inconsiderable as to 
 average less than $30,000 in the whole State. In the Re- 
 vision of 1 82 1, the valuation was reduced from four times 
 to three times the rateable value of the property, and the 
 assessors were not given an)- share in it. 
 
 * Revision of 1702, p. 101 ; Acts of 1713, p. 181 ; Acts of 1714, p. 200. 
 t Acts of 1736, p. 445. 
 
25 
 
 In 1836 the assessors were required to add to any tax- 
 payers list " any sum of money, or debt at interest, which 
 they may suppose or have reason to believe is owned by 
 •or due to such person, and liable to be taxed by the pro- 
 visions of this Act, whether the same can be specifically 
 pointed out or not, and which has been omitted by such 
 person in his or her list."* The three-fold penalty also 
 was continued, but it accomplished almost nothing, and 
 the very able report of the Special Committee on Taxa- 
 tion, made to the Assembly in 1844, pronounced it entirely 
 ineffectual. 
 
 By the Act of 185 1, + which recast our general tax sys- 
 tem, it was provided that property of any person not re- 
 turning a list should be listed by the assessors at its- 
 "present, full, fair and just value," and that they should 
 add to any list returned any taxable property omitted ; 
 but the former penalties against delinquents were repealed. 
 
 In 1865, X our present penalty of ten per cent, for not 
 returning a list was established. It will be recollected 
 that five years ago, § an attempt was made to increase it 
 by making the addition 20 per cent, the second year, 30 
 per cent, the third year, 40 per cent, the fourth year, and 
 so on. The result was to raise the total additions, for fail- 
 ure to return lists, in the Grand List of the State for 1883, 
 by $335,000, and in that for 1884, by $389,000, but in 1885 
 such representations were made to the Assembly as to the 
 hardship of the law, in taxing a man on what he did not 
 own, that it was repealed. 
 
 INTANGIBLE PROPERTY SELDOM GETS INTO THE 
 TAX-LIST. 
 
 The truth is, that no system of tax laws can ever reach 
 directlv the great mass of intangible property. It is not 
 
 *Stat. Ed. of 1838, p. 604. t Public Acts of 1851, p. 61, Sees. 33, 34 
 J Public Acts of 1865, p. 199. § Public Acts of 1882, p. 174 
 
26 
 
 to be seen, and its possession, if not voluntarily disclosed, 
 can, in most cases, be only the subject of conjecture. The 
 people, also, in a free government, are accustomed to rea- 
 son for themselves as to the justice and validity of the 
 laws, and too apt to give themselves the benefit of the 
 doubt, where they have in any way the power to construe 
 it for themselves. Such a power is practically given in the 
 form of oath used in connection with our tax-lists, since it 
 refers only to .such property of the parties giving them in. 
 as is taxable according to their best knowledge, remem- 
 brance or belief. The man who does not believe that a 
 Western farm-loan or foreign railroad-bond ought to be 
 taxed is too often ready to swear that, to the best of his 
 belief, it is not liable to taxation. 
 
 DOTJBLE TAXATION. 
 
 The common objection is that it is double taxation to 
 tax both borrower and lender, and while this is no answer 
 to the plain requirements of the present statute, we think 
 that it is worthy of careful consideration by the legislature 
 when deliberating in regard to any change of system. 
 
 The argument was compactly presented by the late 
 Judge Foster, in his dissenting opinion in the case of Kirt- 
 land vs. Hotchkiss, above referred to, where he laid down 
 the following propositions, (42 Conn. Rep., p. 449) : 
 
 " 1st. That a debt is a representative of the property pledged 
 for its payment; a title, equitable, or legal to that property, and 
 
 "2d That the property and the debt, or more strictly, so 
 much of the property as will be absorbed in the payment of the 
 debt, and the debt, constitute together but one subject, for the 
 purpose of taxation. 
 
 " The tax being paid on the preperty without diminution, on 
 account of the debt, nothing remains to be taxed. The debt, in- 
 deed, aside from the property behind it, and of which it is the 
 representative, is simply worthless. 
 
27 
 
 "It should not be forgotten that the duty of the judicial 
 branch of the Government is limited to declaring the law as it 
 exists. Any considerations involving its policy or impolicy belong- 
 properly to the legislative power. It may not, however, be im- 
 pertinent, in view of the result to which this opinion leads, to- 
 remark, that any system of taxation which subjects the affairs, 
 and business of the citizen, at home or abroad, to public scrutiny, 
 will ever be regarded with extreme disfavor. Such inquistorial 
 powers are antagonistic to free institutions, and are repugnant 
 and abhorrent to the feelings and sentiments of a* free people. 
 
 "The great problem of taxation is, how to make it least bur- 
 densome and most productive, while everybody knows it is shame- 
 fully unproductive. 
 
 " A much heavier rate, imposed on visible and tangible prop- 
 erty, which could not be concealed, and would readily be found, 
 would be far more cheerfully borne, and be found far more pro- 
 ductive in practice, than a tax levied on what is sought out and 
 discovered, only after a rigid examination, on oath, of the party. 
 However searching these examinations may be made, it is a noto- 
 rious fact that vast amounts of property escape altogether the 
 grasp of the tax-gatherer, and so .results are now as unequal and 
 unjust as they well can be. The demoralization of the public 
 conscience by the frequent administration of oaths, so often taken 
 only to be disregarded, is an evil of the greatest magnitude. 
 Almost any change would seem to be an improvement." 
 
 Such considerations as these, coupled with the results of 
 an investigation of now nearly three years into the practical 
 working of our tax system , have brought us to the conclusion 
 that all- the items of intangible property ought to be struck 
 out of the list. As the law stands, it may be a burden upon 
 the conscience of many, but it is a burden on the property 
 of few, not because there are few who ought to pay, but be- 
 cause there are few who can be made to pay. Bonds and 
 notes belonging to estates of deceased persons, or infants* 
 are generally traced through the Probate Records, and 
 brought into the tax-list, but those held by an individual, 
 are, for the most part, concealed from the knowledge ol 
 
28 
 
 "the assessors, nor do the}-, in most towns, make much ef- 
 fort to ascertain their existence. The result is that a few- 
 towns, a few estates, and a few persons of a high sense of 
 honesty, bear the entire weight of the tax. 
 
 Such has been the universal result of similar laws else- 
 where. 
 
 The report of the West Virginia Tax Commission in 
 ;i884, says of that State : — 
 
 " At present all the taxes from invisible property come from 
 a few conspicuously conscientious citizens, from widows, exec- 
 utors and from guardians of the insane and infants; in fact, it 
 is a comparatively rare thing to find a shrewd trader Vho 'gives 
 in' any considerable- amount of notes, stocks or money. The 
 truth is things have come to such a condition in West Virginia, 
 that, as regards paying taxes on this class of property, it is al- 
 most as voluntary and is considered pretty much in the same light 
 as donations to the neighborhood church or Sunday-school." 
 
 The report of the New Hampshire Tax Commissioners 
 ; in 1878, is to the effect that three-quarters of all personal 
 property in that State, is not reached by the assessors. 
 
 VERY" FEW BONDS LISTED FOE, TAXATION. 
 
 Similar testimony from other jurisdictions might be 
 adduced, almost without limit, but it will be sufficient to 
 refer to our own official statistics to establish the same 
 results. A glance at the copy of the Grand List of the 
 State for 1885, taken from the records in the Controller's 
 office, and appended to this report, will show, for instance, 
 that a single town, and far from the wealthiest, (Stoning- 
 ton,) pays over one-eighth of the entire tax throughout 
 the State, on this intangible property. New London 
 County altogether returns a valuation of $2,530,824, for 
 this class of securities, and $1,918,711, of this, or more 
 than three-quarrters, comes from Stonington alone. On 
 
29 
 
 the other hand, of the 167 towns in this States, 81 return 
 no bonds at all, in the Grand List, and 128 return no State 
 stocks, There are no bonds to be found in the rich city 
 of Meriden ; none in Vernon and Rockville. Waterbury 
 has but $750; Norwalk but $11,417; Bridgeport but 
 $17,150; New Britain but $6,000. Windham and Tol- 
 land Counties together return but $93,770 and of this 
 sum two towns, Brooklyn and Thompson, make up 
 $77,600, while Putnam returns none, and Windham and 
 Willimantic only $2,970. Of the $896,136 listed in New 
 Haven County, two towns, New Haven and Derby, return 
 $863,286, leaving but $32,850 to be divided among all the 
 rest. 
 
 MONEY ON HAND. 
 
 As to cash on hand on the first of October, an additional 
 reason for abandoning the effort to tax that, is that it must 
 ordinarily be a tax payable out of capital and not out of 
 income. Money lying idle can yield no return to the, 
 owner. He must therefore have it in his possession with 
 the purpose either of spending it, or investing it at an 
 early day ; and when it thus passes out of his hands, it 
 will soon take a form where it becomes productive and 
 justly taxable. But if a mortgage is paid off on the 30th 
 of September, the fact that the creditor may not be able 
 to re-invest the money for a week or two, ought not to 
 subject him to a tax of one or two per cent, upon it. 
 
 It is only since 1850 that our statutes have required this 
 tax, and the receipts from it have been so small as to shbw 
 that public sentiment does not support the enforcement 
 of this law. No one believes that all the cash on hand, in 
 the possession of individual tax-payers, over the exemp- 
 tion allowed, throughout the State, on October 1st, 1875,- 
 was less than a million dollars, or on October 1st, 1885, 
 but about eleven hundred thousand, or on October 1st, 
 
30 
 
 1865, less than half a million, yet such are the figures 
 shown by the official returns. Forty-three towns re- 
 turned no cash on hand in the Grand List of 1885, and 
 among these were thriving communities like Suffield, 
 Darien, Ridgefield, YVatertown and Portland. Of the 
 $167,944 listed in Litchfield County, a single town (Win- 
 chester) contributed nearly half, and the small farming 
 town of Bridgewater returned more than Litchfield, 
 Goshen, New Hartford, New Milford, Morris, Norfolk, 
 North Canaan and Salisbury together. 
 
 In view of these statistics, no one familiar with our 
 State will question that this tax touches very few, and it 
 is our belief that no law could be framed and executed, 
 which would effectually reach such funds for purposes of 
 taxation. 
 
 It is no doubt possible that the change we r.ecommend 
 will make it a little easier for dishonest men to sell out 
 taxable securities at the end of September, and, by turning 
 them into cash, keep their value out of the tax-list. The 
 purchasers of the securities, however, will be taxable for 
 them, and such sales, if made with a view to a re-invest- 
 ment after the first of October, in fraud of the statute, 
 would subject the seller to the penalties of perjury, if he 
 returned a tax-list. If he returned none, the money would 
 not be apt to come to the knowledge of the assessors, 
 whether it was taxable or not. And we may add, that 
 under our present statute, it is within the power of any- 
 one to keep his money in United States notes, or " green- 
 backs," which are exempt from taxation, under the national- 
 Constitution. 
 
 STOCK IN FOREIGN CORPORATIONS. 
 
 In revising the section of our statutes which describes 
 the personal property liable to taxation, we have excluded 
 any reference to shares of stock owned in corporations 
 
31 
 
 out of the State. It is now the settled policy of all our 
 States, as well as of foreign governments, to tax their own 
 corporations or the shares of their stock, whether held by 
 residents or non-residents, as fully as any other property 
 within their jurisdiction. 
 
 Our own statutes have provided for many years that 
 property out of Connecticut, and fully taxed where it is 
 situated, shall not be taxed here, and the result has been 
 substantially to exclude all stocks in foreign corporations 
 from our tax-list We think this provision in our laws to 
 be a just one, and its maintenance necessary to avoid the 
 evil of double taxation. Every corporation is, from the 
 nature of its constitution, fully subject to the laws of the 
 government from which it derives its franchise and re- 
 ceives protection, and its stockholders must sustain the 
 burden of whatever taxation those laws may impose, 
 whether they themselves reside there or not. 
 
 NEW SUBJECTS OF TAXATION. 
 
 In reviewing the subjects of taxation, we have found 
 four, which seem to us hardly to bear their just share of 
 the public burdens. 
 
 They are, corporate franchises, personal property of 
 non-residents, collateral inheritances and successions, and 
 oyster-beds. 
 
 1. CORPORATE FRANCHISES. 
 
 These are the gift of the State, and have a value, inde- 
 pendently of any property which may be acquired and 
 held under them. In several instances, in the earlier his- 
 tory of the State, a bonus was exacted and paid into the 
 treasury, or applied to some public purpose, as the con- 
 dition of granting a charter, and such is now the practice 
 
32 
 
 of some of our sister States. But for many years, we 
 ' have been accustomed to grant corporate franchises, with- 
 out charge, and to tax them, when granted, only in excep- 
 tional cases. Railroads, savings-banks, and a few other 
 classes of corporations may be said to pay such a tax, but 
 all the rest pay only on their property. 
 
 We recommend the adoption of a system of franchise 
 taxes, by which every new corporation formed for ordinary 
 business purposes will pay the State a tax of a dollar on 
 every $1,000 of its capital, and every such corporation now 
 or hereafter organized, will pay an annual tax of twenty 
 cents on every $1,000 of its capital. This will affect all 
 such corporations which do not already pay a direct tax 
 to the State, and will be in addition to the ordinary local 
 tax upon their property. Taxes of this character are not 
 unusual in other States, and we think there can be no- 
 reasonable objection to them. The sum required is large 
 only in case of corporations possessing a very large capi- 
 tal, and presumably very large assets. If their assets are 
 not proportionate to their capital, this franchise tax will 
 be a motive for reducing the latter to its proper dimen- 
 sions. And even, in case of unsuccessful or insolvent 
 corporations, the price exacted is a small one for the 
 immunity they convey to their stockholders from liability 
 for the debts of the concern. 
 
 2. PERSONAL PROPERTY OF NON-RESIDENTS 
 
 As our law now stands, while the real property of non- 
 residents is fully taxed, and their shares of stock in cer- 
 tain corporations pay a State tax of one per cent., most 
 of their other personal property within our jurisdiction 
 escapes taxation altogether.* 
 
 Taxation is the just price of that protection which prop- 
 erty owes to government. If non-residents choose to 
 
 Sprague vs. Lisbon, 30 Conn. Reports, 19. 
 
33 
 
 keep their property under the protection of our laws, it 
 seems to us fair that they should pay for that protection 
 equally with our own citizens. The bill, which we report 
 to accomplish this purpose, will be found to exclude from 
 its operation whatever is here simply transiently, in the 
 ordinary course of business. 
 
 3. COLLATERAL INHERITANCES. 
 
 We also recommend the imposition of a tax on property 
 which goes by inheritance or succession to collateral heirs 
 or others not related to the deceased. 
 
 This is a familiar tax on the Continent of Europe, and 
 in several of our sister States. It lays no burden on com- 
 mon and natural successions, such as from parent to 
 child', or child to parent, but where by a devise or legacy, 
 or by the Statute of Distributions, a benefit is received by 
 a collateral relative, or no relative at all, it seems not un- 
 reasonable to require him to make some slight payment 
 to the government, on whose permission, only, his title is 
 founded. There is no power in the will of the dead, ex- 
 cept such as the statute gives it ; and if, in the absence of 
 any testamentary disposition, their property is given to 
 their next of kin, it is so given by statute and not by 
 right, and the gift made by law may properly be taxed by 
 law. 
 
 The rate of tax recommended is but three per cent, or 
 about half a year's income, and to prevent this from 
 bearing heavily on small inheritances, an exemption is pro- 
 vided as to all under $1,000. 
 
 Not to discourage public and charitable bequests, an 
 exemption is also provided in their favor, so far as re- 
 gards this special succession tax ; leaving them, when 
 received into possession, to pay the same taxes as other 
 property, except such as may be specially exempted by 
 other provisions of law. 
 
 3 
 
34 
 
 4. OYSTER-BEDS. 
 
 The oyster-planting industry has grown to large pro- 
 portions within the last few years. The settlement of the 
 disputed boundary between this State and New York, 
 through Long Island Sound, and the surveys and explor- 
 ations of the Shell Fish Commissioners, made at great ex- 
 pense to the State, have opened to occupation by our citi- 
 zens a vast territory under water, previously unimproved. 
 The State has sold these lands, to be used for the culture 
 of shell-fish, at a low price, and imposes a moderate annual 
 tax upon them, based upon their estimated value. This 
 State assessment has no reference to the value any such 
 lands may have acquired by being planted with oysters, 
 or from being natural oyster beds. The highest assess- 
 ment per acre is now at the rate of $50, but an acre of 
 such land covered with a good growth of oysters may be 
 worth ten or twenty times that sum. The business of 
 deep sea planting is known to be one of large returns, in 
 proportion to the capital invested ; and it seems to us that 
 for oysters growing or grown under such conditions, the 
 owners ought to pay the uslial local taxes, in addition to 
 the slight State tax which is imposed on the ground itself, 
 apart from the oysters, whether cultivated or not. We 
 have therefore specified shell-fish on their beds among the 
 items of personal property to be included in the tax-lists. 
 
 RAILROADS. 
 
 The Commission recommend no radical change in the 
 method of railroad taxation. The present system assumes, 
 with certain minor modifications, that the market value of 
 the stock and bonds and floating debt of a railroad com- 
 pany represents the taxable value of the property itself, 
 and that a tax of one per cent, upon that property is 
 practically the average rate that it would pay, if assessed, 
 
35 
 
 bit by bit, in each town that the line passes through. A 
 ■system of taxation of gross receipts, grading the rate some- 
 what according to the earning capacity of the company, , 
 was once advocated by our own Railroad Commissioners, 
 {though they have since modified their endorsement of it), 
 and is still approved by those of some other States. But 
 your Commission has unanimously reached the conclusion 
 that without a change of system, we may yet effect what- 
 ever improvement is needed in the working of the law. 
 
 In the past twenty years the gross earnings of the rail- 
 roads of this State have increased from $8,027,000 to 
 '$17,389,000, and the net earnings from $2,163,000 to 
 $6,019,000. It is evident, therefore, that the taxation has 
 not been so burdensome as to hamper the development of 
 this important interest, whose growth has been accompa- 
 nied by a steady reduction of charges and increase ot 
 facilities. 
 
 Our system, we believe to be on the whole a just one, 
 as regards those companies whose stock has a settled value, 
 based on the ascertained earning capacity of their prop- 
 erty and franchise. The stock of a dividend-paying road 
 will have a definite market value, corresponding to the 
 rate and regularity of the dividends paid. And while a 
 tax of one per cent, is less than the usual local rates im- 
 posed on other tax-payers in our cities and larger towns, 
 it is more than those laid in many of the smaller ones, and 
 .constitutes, on the whole, a fair average, as regards the 
 taxes paid by other interests. 
 
 In the case ef non-dividend paying stock, however, the 
 real and even the market value must necessarily be to a 
 . great degree uncertain and speculative. It is very much 
 what the directors of the company or the stock-brokers 
 choose -to make it- Favorable reports may give it a sud- 
 den turn upwards, and unfavorable ones succeed the next 
 •day in depressing it. The common stock of the New 
 York and New England road, for instance, during the 
 
36 
 
 year 1885, sold as low as 12^ and as high as 39^3. Dur- 
 ing 1886, it sank at one time to 30, and rose at another to* 
 66y&. The preferred stock of. the same company, which- 
 in 1885 was quoted at from 95 to ill, sold in 1886 from- 
 109^ to 151^. 
 
 The officers of some of the dividend-paying roads have 
 adopted the custom of returning the market value of the: 
 stock at a figure notoriously less than the real price shown 
 by actual sales, on the plea that it is the market value of 
 all the capital stock of their company that is to be ascer- 
 tained, and that if it were all, or any large amount of it,, 
 thrown upon the market at once, this price could not be 
 maintained. It is also true that the same companies have- 
 often returned one market value for their stock to the tax- 
 ing authorities of Connecticut, and another, and much 
 higher one, to those of Massachusetts. A difference of 
 twenty per cent, exists between the last return (1886) of 
 one company to the two States, and in each the actual as- 
 sessment was made, at a rate considerably higher than that 
 returned, though the Connecticut assessment was 13 per 
 cent, below that of Massachusetts. On the other hand,.. 
 some of our companies have made their returns in strict 
 conformity to the market quotations. 
 
 Our Board of Equalization, in view of these circum;- 
 stances and claims, have been led for many years to depart 
 from the standard of actual bids or sales, and either make 
 an appraisal of their own, or adopt that of the company,, 
 itself. The result is, that the assessment of these taxes, 
 has been a frequent cause of complaint, not because of its- 
 actual burden so much as of its relative bearing on differ- 
 ent roads, that is of its inequality; while the State also has--, 
 been deprived of the revenue which the statute meant 
 should be collected. 
 
 The bill which we submit will prevent any such arbi- 
 trary valuation hereafter, in the case of any road which 
 has paid regular and uniform: dividends for two years. 
 
37 
 
 inext before the tax is imposed, and will make the market 
 price the prima facie standard of assessment for all other 
 •companies. The result will probably be a considerable 
 nncrease in revenue to the State, not by changing the 
 principle of the existing statute, but by providing better 
 [machinery for its execution. 
 
 The bill which we report on this subject also makes 
 the year for which the tax returns are made to the Treas- 
 urer end on September 30th, instead of October 1st, and 
 postpones the date for making them till the middle of 
 November. These new dates are those of the present 
 law, as to the returns to the Railroad Commissioners, and 
 the same reasons which led to their adoption there re- 
 quire it here also. The railroad year ends on September 
 30th, and all accounts are balanced as of that date; but 
 the precise figures showing the condition of the company 
 -on that day cannot be got in, and the necessary entries and 
 posting completed for several weeks. To make the re- 
 turns accurate, therefore, this amendment of the law is 
 indispensable. 
 
 Our statutes provide for a reduction from the assessed 
 valuation of the stock and bonds of each road " of the 
 amount of cash on hand." This language has been con- 
 strued by some of the 'roads as meaning any cash assets, 
 such as stocks and bonds. We recommend such a change 
 of phraseology as will make it beyond question that 
 " cash " means money and nothing else. 
 
 The justification for adding to the value of the stock, 
 the amount of all the company owes, in order to get at the 
 total value of its property and franchises, is, of course, that 
 the existence of this indebtedness makes the stock worth 
 just so much less. Some of our roads have sinking funds, 
 accumulating for the ultimate payment of their bonded 
 debt, and one or more have purchased their own bonds, 
 .as investments for the sinking fund. When this is done, 
 .as the debt evidenced by the bonds thus purchased is vir- 
 
38 
 
 tually extinguished, it has seemed to us contrary to the 
 reason of the statute, to include it in the assessed valuation,, 
 for purposes of taxation, and such bonds are therefore ex- 
 cluded in the bill reoorted. 
 
 NATIONAL BANKS. 
 
 The Act of Congress which authorizes the taxation of 
 national banking association under State laws, (U. S. Re- 
 vised Statutes, Sec. 5,219), provides that the rate shall not 
 be 'greater than that assessed upon other moneyed capital 
 in the hands of individual citizens of the State. Our pres- 
 ent State tax of one per cent, on stock of non-residents in 
 national banks and certain other corporations, (General 
 Statutes, page 167, Sections 1 and 2, as amended by later 
 Acts), imposes a fixed rate which may be more or less- 
 than that of the local taxes of the year in the place where 
 the corporation is located. It will be generally found to- 
 be less, but if, in exceptional cases, it should be more, we- 
 think our law should provide for a corresponding reduc- 
 tion in the State tax, on non-residents, in order to keep 
 strictly within the limits of the power granted by Congress. 
 We report, therefore, an amendment of the law to cover- 
 this point. 
 
 MUTUAL INSURANCE COMPANIES AND SAVINGS-BANKS- 
 
 We recommend no changes in the taxation of mutual 
 insurance companies or savings-banks, or of any other cor- 
 porations, except as already specified. 
 
 FORM OF TAX-LIST. 
 
 Our statutes formerly required the Controller to pre- 
 pare and furnish uniform blank forms for tax-lists to the 
 several towns. We recommend the restoration of this, 
 law, and herewith report a form of tax-list which appears. 
 
39 
 
 to us suitable for the purpose. - This is, in large part, 
 thrown into the shape of question and answer, because we 
 have thought it more likely to elicit the exact facts. 
 
 SIGNATURE OF THE PARTY. 
 
 We also recommend a return to our ancient practice of 
 requiring the tax-payer to sign his list. This was a pro- 
 vision of our statutes as early as 1712, and it is more im- 
 portant now than then, since, without such a signature, it 
 would be difficult to make the necessary proof on a prose- 
 cution for perjury in case of a false return. The oath re- 
 quired to the truth of the list will also be more apt to im- 
 press the mind, if it follows an explicit statement subscrib- 
 ed by the party himself, than if, as now, it is administered, 
 often in words quite different from those of the statute, 
 and attested only by the assessor. 
 
 CLOCKS AND WATCHES. 
 
 The form puts clocks under the head of household furni- 
 ture, and specifies no watches as taxable except gold ones. 
 Our practice of making a separate item of clocks and 
 other time-pieces arose during the Revolutionary War, 
 when, in arranging the necessary increase of taxation, the 
 principle was adopted of taxing articles of luxury more 
 heavily than other things. Every gold watch was, there- 
 fore, to be listed at five pounds, and other watches at one 
 pound ten shillings, while wooden clocks went in at one 
 pound, and those with brass or steel works at three 
 pounds. All this was at a time when a house worth a 
 hundred and fifty pounds would only be listed at four 
 pounds ten shillings, so that a man's watch might be taxed 
 more heavily than his residence. In fact, so late as 1815, 
 watches and clocks paid together two-thirds as much in 
 taxes as all the buildings in the State.* 
 
 * Report of Committee on the Subject of Taxation, io 1817, page 5. 
 
40 
 
 The watch or clock which had to be imported a hun- 
 dred yeai _ s ago, and was only to be found in the possession 
 of the rich, is now a necessity to every one, and Connecti- 
 cut has learned to make them so cheaply, as to supply the 
 markets of the world, Such a total change of circum- 
 stances seems to make it proper to change the law. 
 
 We have, however, retained a separate place for gold 
 watches, as these may fairly be called an article of luxury 
 still ; and we are inclined to think that the specific ques- 
 tion put in regard to them, and the omission of any exemp- 
 tion in their favor, will bring many more into the tax-lists 
 than heretofore. 
 
 BUILDINGS TO BE APPRAISED SEPARATELY FROM 
 THE LAND. 
 
 It will be remarked that in this form of list, we have 
 provided for a description and appraisal of buildings sep- 
 arate from the lands. This plan is now pursued in some 
 towns, and we think should be, in all. 
 
 ASSESSORS TO VIEW ALL REAL ESTATE EVERY FIVE 
 
 YEARS. 
 
 In order to render it of any substantial value, the assess- 
 ors ought to have some knowledge themselves, of the 
 character of the improvements, as well as of the land. 
 Many of the town officers, with whom we have been in 
 communication, believe that the law should require a per- 
 sonal inspection of each piece of real estate by the assess- 
 ors, at least' as often as once in five years. Two bills to 
 accomplish this purpose — House Bill IS o. 193, and a substi- 
 tute Bill for House Bill No. 193 — were referred to us, by 
 the last General Assembly, and we believe the principle 
 upon which they, rest to be a sound one. We therefore 
 report, as a substitute for those bills, a bill for an Act 
 
41 
 
 requiring the assessors to inspect all real estate as often 
 as once in five years, unless in any particular town, the 
 Tax Commissioner shall deem it unnecessary. So far as 
 the smaller towns are concerned, by dividing up the town 
 into convenient districts, every house can annually be visited 
 by an assessor, and the proper tax-list made out there, in 
 far less time than it would take for the board to wait until 
 •every householder had called upon them. Such a plan 
 would, if faithfully carried out, accomplish the purpose of 
 -a general revaluation, with little or no additional expense. 
 There are towns where no such valuation has been made, 
 in any way, for thirty or forty years. 
 
 FARMING TOOLS, MECHANICS' TOOLS AND BOOKS. 
 
 We recommend the .repeal of the limit of $200,00 
 now affixed to the exemption from taxation of farming 
 tools, mechanics' tools, and books kept by the owner for 
 his own use. The better the tools our farmers and me- 
 chanics have, and the more books our people keep to 
 read, the better it will be for the general interests of the 
 State. The revenue now derived from these sources is 
 inconsiderable. Only 57 towns return any farming tools 
 for taxation, and of their aggregate value of $186,208, the 
 sum of $134,655 is contributed by a single town, Southing- 
 ton, almost all of which we understand to represent the 
 product of its factories of agricultural implements, which 
 would not be affected by the change proposed. 
 
 SHIPPING. 
 
 The matter of the taxation of shipping was specially 
 referred to us by the last Assembly, by House Bill No. 
 58, a substitute for the same, and House Petition, No. 153. 
 We find that so far as registered shipping engaged in for- 
 eign trade is concerned, such vessels are now exempted 
 
42 
 
 from taxation on their value, by the laws of all the adjoin- 
 ing States, and are taxed only on the basis of their earnings 
 for the preceding year. Our foreign trade is now but 
 small, and what there is of it is mainly carried on by for- 
 eign vessels. We cannot hope to regain any considerable 
 share of it, by our own ships, unless our ship-owners are 
 put upon as favorable a footing as those of New York, 
 Massachusetts and Rhode Island. We therefore recom- 
 mend the passage of the provision in one of the accom- 
 panying bills to reduce our taxes on registered vessels. 
 Coasting vessels and the Sound Steamer lines will not be 
 affected by it. By the Statutes of the United States (Rev. 
 Statutes, Sec. 4,347), only American citizens can engage 
 in the coasting trade, and it therefore needs less protec- 
 tion from State laws. 
 
 EFFECTS OF CHANGES RECOMMENDED. 
 
 Our estimate of the results to the State Treasury of the 
 
 various changes recommended in this report is as follows: 
 
 The Grand List of the State for 1885 amounted to 
 
 $349.i77>S97 
 
 We propose deductions, as 
 follows : 
 
 All farming utensils, $186,208 
 
 Less those returned by 
 
 manufacturers, say, 134,000 §52,208 
 
 All watches except gold ones, say, 10,000 
 
 Books, say, 25,000 
 
 Mechanics' tools, say, . . 5,000 
 Bonds, notes, debts and cash on 
 
 hand, , 13,208,724 
 
 Keduction on registered vessels, say, 75,000 $13,375,932 
 
 Balance remaining, . . . $335,801,665 
 
43 
 
 Amount brought forward, $335,801,665 
 To this is to be added : 
 
 Tangible personal property of non- 
 residents, say, . . . 1,000,000 
 
 Oysters, grown or growing, say, . 100,000 
 
 For ordinary increase of value in 
 two years by erection of new 
 buildings* .... 7,763,602 
 
 For estimated increase of aggregate 
 valuations, from the new pro- 
 visions of the proposed law, as 
 administered under the Tax 
 Commissioner, 3 per cent, on 
 improved real estate, ($190,- 
 007,61'J), .... $5,700,228 
 
 10 per cent, on tangible personal 
 
 property, ($11,099,727), . 1,109,972 
 
 5 per cent, on shares in corpora- 
 tions, ($30,249,338), . . 1,512,466 
 
 5 per cent, on investments in man- 
 ufacturing and merchandizing, 
 ($37,585,992), . . . 1,879,299 19,065,567 
 
 Total, $354,867,232 
 
 * The following table shows the annual increase in the 
 valuation in the Grand List from improvements on real 
 estate during the last six years: 
 
 1880. Increase in value of houses 
 
 over previous year, . $1,661,795 
 
 Increase in value of stores, 
 
 &c, over previous year, 306,758 $1,968,550 
 
 1881. Increase in value of houses 
 
 over previous year, . $1,711,399 
 
 Increase in value of stores, 
 
 &c, over previous year, 93,040 $1,804,489- 
 
 1882. Increase in value of houses 
 
 over previous year, . $2,694,252 
 
 Increase in value of stores, 
 
 &c, over previous year, 2,723,295 $5,417,54T 
 
44 
 
 Amount brought forward, $354,867,232 
 
 A further deduction must be 
 made from this summation for 
 the effects of the Soldier's Ex- 
 emption Act, passed by the last 
 Assembly. 
 
 We estimate that this will subtract. . . . $2,500,000 
 
 Total estimated grand list of 1887, . . $352,367,232 
 
 INCREASE OF TAXES PAID INTO STATE TREASURY. 
 
 The revenue of the State derived directly from corpo- 
 rations will be considerably increased by the measures 
 proposed. 
 
 FRANCHISE TAX ON NEW CORPORATIONS. 
 
 The franchise tax on new corporations or new stock of 
 old corporations, of one-tenth of one per cent., is one 
 which cannot be evaded, and is easily collectable, at little 
 expense. 
 
 From May i, 1885, to May 1, 1886, eighty-seven joint 
 stock companies were incorporated with an aggregate 
 
 1883. Increase in value of houses 
 
 over previous year, . $3,319,492 
 
 Increase in value of stores, 
 
 &c., over previous year, 2,848,839 $6,168,331 
 
 1884. Increase in value of houses 
 
 over previous year, . $4,032,110 
 
 Increase in value of stores, 
 
 &c, over previous year, 441,974 $4,474,084 
 
 1885. Increase in value of houses 
 
 over previous year, . $2,051,319 
 
 Increase in value of stores. 
 
 &c, over previous year, 1,023,745 $3,075,064 
 
 Average increase per year, . . . $3,818,010 
 
45 
 
 subscribed capital of $2,267,200. Such a tax as is propo- 
 sed would have yielded $2,267, during that year, from 
 this source, and $2,027, more would have been received 
 from the increase of stock by joint stock corporations 
 previously organized, during the same period, which 
 amounted to $2,027,800. New stock was issued during 
 the year 1885-6 by our railroad companies to the further 
 amount of $2,530,750. 
 
 During the last session of the Assembly, thirty-two cor- 
 porations received either special charters or permission 
 to increase their capital. The minimum capital author- 
 ized was $6,479,350, and the maximum limit was about 
 twice that amount. 
 
 The tax proposed, if in force last year, would from 
 these specialActs, have yielded from $3,000 to $12,000. 
 
 From both grants ot special charters and new organiza- 
 tions under the general law we may anticipate the receipt 
 of from $5,000 to $10,000 from year to year, unless the 
 number of such organizations is greatly diminished, 
 which perhaps would not be altogether undesirable. A. 
 similar tax in New York, except that the rate is one-eighth 
 of one per cent., is expected by its authorities to yield 
 over $150,000 a year. 
 
 ANNUAL FRANCHISE TAX ON CORPORATIONS. 
 
 The annual franchise tax on all ordinary business cor- 
 porations, though the rate is low, will affect so vast an 
 amount of capital, that the sum realized will be very con- 
 siderable. We estimate it at not less than $25,000. 
 
 RAILROAD TAXES. 
 
 The railroad tax will probably be increased by the new 
 provisions for ascertaining the market value of the stock, 
 &c., by the addition of at least $45,000. 
 
46 
 
 COLLATERAL INHERITANCE TAX. 
 
 The amount to be realized from the collateral inherit- 
 ance tax can be estimated with some degree of probability 
 from the history of the working of similar legislation in 
 other States. In Pennsylvania, such a law has been in 
 existence for over sixty years, except that the rate is 
 heavier and the exemption is but $250. In the year 1880, 
 it yielded a revenue to that State of over $600,000. As it 
 is a tax liable to produce much more in some years than 
 in others, on account of the occasional devolution of ex- 
 ceptionally large estates, we have inquired into the aver- 
 age receipts for ten years, ending with the last year(i883-4) 
 to which the reports in our State library extend, and find 
 that they were $474,532. The assessed valuation of Penn- 
 sylvania in 1880, as given by the U. S. Census of that 
 year, was $1,683,459,016. That of Connecticut by the 
 same census was $327,177,385, or about a fifth as much. 
 Our tax being but three per cent, will produce but three- 
 fifths as much as theirs, (which is five per cent.), on each 
 $1,000. Assuming as we fairly may, that the ratio of col- 
 lateral inheritances to the total amount of property in 
 each State will be about the same, their collateral inherit- 
 ance tax, if in force here, in 1880, would have yielded us 
 about three-fifths of one-fifth of $474,532, that is about 
 $53,147. Allowing for all necessary deductions, on ac- 
 count of the greater exemptions provided in the bill now 
 presented, we think that the natural increase in our ag- 
 gregate wealth since 1880, which has made our grand list 
 for 1885 about $350,000,000, would make the probable 
 amount derivable from the tax in 1887-8, under the super- 
 vision of a capable Tax Commisioner, as much as $50,000. 
 In view of the fact that, the assessed valuations of the 
 two States, as given in the census, are based on those 
 made by the taxing authorities of the States, and that a 
 very large part of the inheritable property in each does 
 not appear in the ordinary tax-lists made up for the pur- 
 
47 
 
 poses of local taxation, we give also another estimate, from 
 the valuations made by the United States officials, them- 
 selves, and also stated in the same census. 
 
 The true value of all the property owned in these States 
 (as distinguished from property actually situated in each), 
 is given as follows :* 
 
 s 1 
 
 Pennsylvania, $5.393,ooo,ooo 
 
 Connecticut, .... 852,000,000 
 
 The whole of this is not inheritable, as it comprehends 
 all property held for public, religious, and charitable uses. 
 The total value of all real estate of this description in the 
 whole country is estimated in this census at $2,000,000,000. f 
 We think that in the older and richer States for every 
 $100,000, thus held in real estate, there is as much as 
 $20,000 more in persunal estate, devoted to similar pur- 
 poses, on perpetual trusts. Such, from the best informa- 
 tion we have been able to obtain, is the case in Connecti- 
 cut. 
 
 Adopting this ratio, and assuming that Pennsylvania 
 and Connecticut, respectively, have as much of such real 
 estate as the other States, on the average, we find that 
 there must be deducted from the total wealth of Pennsyl- 
 vania;!: in order get at what is liable to a succession duty, 
 $271,000,000, and from that of Connecticut, $42,000,000. 
 The inheritable property of the two States in 1880 would 
 thus appear to have been as follows : 
 
 Pennsylvania, . . . $5,122,000,000 
 
 Connecticut, .... 810,000,000 
 
 A ve-ry large part of these sums, it is hardly necessary 
 to remark, does not appear in the Grand List of either 
 State, because it represents the stock or assets of those 
 
 * Tenth Census, Vol. 7, p. 13, Table XII. 
 t Tenth Census, Vol. 7, p. 11, Table X. 
 t Ibid., r- 12, Table XL 
 
48 
 
 classes of corporations which pay their taxes directly into- 
 the State Treasury. Thus, in Connecticut, most of the 
 expenses of the State government are borne by taxes- 
 levied on Savings Banks, Life Insurance Companies, 
 Railroads, &c, and the wealth which is invested in them, 
 not being subject to local taxation, does not enter into the 
 Grand List in any form. 
 
 All the property in the State, other than that held for 
 religious, charitable, or public purposes, must change 
 hands once in each generation, or on the average, three 
 times in a century. There is then, within the jurisdiction 
 of Connecticut, $810,000,000, to pass by the death of its 
 owners to a new possessor once in every thirty-three and 
 . a third years ; or, (assuming, as we may, for the purposes 
 of this computation, that an equal amount will descend 
 every year), $24,324,000 to pass in this way annually. In 
 Pennsylvania, the amount of such annual successions, esti- 
 mated in the same way, would be $153,813,000. 
 
 Pennsylvania received, for the year of the census, from 
 her collateral inheritance tax, $605,441 ; but her average 
 receipts for the ten years embracing 1880, were, as stated 
 above, only $474,532. As her tax is five per cent, it fol- 
 lows that the total amount of collateral inheritances, ex- 
 ceeding $250 in value, (that being the limit of her exemp- 
 tion), annually, would then average twenty times that 
 sum, or $9,490,640. Both States have increased largely 
 in wealth since 1880, and the average receipts from this 
 tax in Pennsylvania, as ascertained from the official reports 
 for the subsequent years, have risen to $558,049. This 
 means an increase in the value of collateral successions to 
 $11,160,980, that is, about 17^ per cent. 
 
 The annual average value of all inheritances and succes- 
 sions in Pennsylvania, on the basis of the Census of 1880, 
 was, as we have stated, $153,813,000, and that of her col- 
 lateral inheritances $9,490,640. The ratio between these 
 amounts is that of 100 to 6-fc. In other words one in- 
 heritance or succession out of every sixteen or seventeen, 
 is a collateral one. 
 
49 
 
 The average annual value of all inheritances and suc- 
 cessions in Connecticut, on the -basis of the same Census, 
 was. as we have also stated, $24,324,000. We think that 
 the ratio between this amount, and that of our annual col- 
 lateral inheritances and successions, would be about the 
 same as that shown in Pennsylvania. This latter amount, 
 then, in 1880, would have been $1,483,764, after deducting 
 those successions which did not exceed $250. 
 
 All this, however, is on the basis of our condition in 
 1880. The annual collateral successions in Pennsylvania, 
 as we have seen, with the growth of the State have in- 
 creased \y% per cent, on the average, between 1880 and 
 1884. Our own growth in accumulated capital has also 
 been rapid during the same period, and continues. In 
 the Census of 1880, we stand fifth in rank among all the 
 States, as respects the average wealth of our citizens, and 
 Pennsylvania seventh* In 1887-8, the first year for 
 which we are estimating, we think our collateral succes- 
 sions and inheritances may be fairly expected to have in- 
 creased as much as twenty per cent, since the average 
 standard of 1880, that is, to the aggregate sum of $1,780,516. 
 The exemptions proposed in the bill reported by us, being 
 considerably greater than those in the Pennsylvania 
 statute, will reduce the amount taxable by say $100,000. 
 Three per cent, on the balance would yield $50,415. 
 
 A single estate owned by a citizen of one of our smaller 
 towns which passed, three years ago, to his nephews and 
 nieces and their representatives, amounted to over two 
 millions and a quarter. Such a succession duty, as we rec- 
 ommend, would have brought into the treasury from this 
 one distribution over $68,000. We may add, that the total 
 grand list of this town for the year preceding his decease 
 was only $758,372, of which bonds, notes, and money on 
 hand constituted together but $24,298. 
 
 * Tenth Census, vol. 7, p. 14, Table XIII. 
 
 4 
 
50 
 
 SUMMARY OF ADDITIONS EXPECTED. 
 
 To recapitulate, we estimate the direct additions to the 
 State revenues as follows : 
 
 Franchise taxes on new corporations, 
 
 $5,000 to 10,000, say, . . . $6,000 
 
 Annual franchise tax on ordinary cor- 
 porations, .... 25,000 
 
 Increase of railroad tax, . . . 45.000 
 
 Collateral inheritance tax, . . 50,000 
 
 Total $126,000 
 
 REDUCTION OF STATE TAX ON TOWNS. 
 
 Our ordinary State tax on the several towns has for 
 some years been \% mills, which on $350,000,000, would 
 call for $437,500. The new additions to our revenue, 
 now recommended, would, as estimated above, yield 
 $126,000. which (without taking into account the saving, 
 in alternate years, anticipated from biennial sessions,) 
 would reduce the amount necessary to be asked of the 
 towns to $311,500. This would enable us to reduce our 
 State tax to less than one mill ; and the consequent relief 
 to the towns will much more than compensate them for 
 the loss over the gain of taxable property, occasioned by 
 dropping from the list the various items exempted by the 
 bills which we have the honor to report. 
 
 BILLS REPORTED FAVORABLY. 
 
 The bills which are annexed hereto, and which in our 
 opinion ought to pass, are the following: 
 
 An Act concerning a Tax Commissioner. 
 
 An Act to tax certain Grants of Corporate Franchises. 
 
51 
 
 An Act to impose a Franchise Tax on certain Corpora- 
 tions. 
 
 An Act to amend the laws as to Railroad Taxation. 
 An Act to impose a Collateral Inheritance Tax. 
 An Act concerning- Taxation 
 
 BILLS REPORTED ON UNFAVORABLY. 
 
 These bills contain all those features of the various bills 
 referred to us by the Assembly at its Sessions in 1885 and 
 1886. which seem to us meritorious, and we therefore 
 herewith return the latter with the recommendation that 
 they do not pass. 
 
 They are severally as follows : 
 
 Introduced and referred at the January Session, 1885 : 
 House Bill, No. 58, relating to Taxation of Vessel 
 property. 
 
 House Petition, No. 153, of H. L. Crandall, et. a/., in 
 aid of House Bill, No. 58. 
 
 Introduced and referred at the January Session, 1886: 
 
 Substitute for House Bill, No. 58, relating to the Tax- 
 ation of Vessel property. 
 
 House Joint Resolution, No. 104, raising a special com- 
 mittee to inquire into the methods of Collecting Taxes. 
 
 House Bill, No. 193, for an Act concerning Assessors. 
 
 Substitute for House Bill, No. 193, for an Act concern- 
 ing Assessors. 
 
 House Bill, No. 233, for an Act in addition to an Act 
 concerning Taxation. 
 
 House Bill, No. 237, for an Act to provide for the Tax- 
 ation of the Property of Railroad Companies. 
 
52 
 
 All of which is respectfully submitted. 
 
 Dated at Hartford, this 20th day of January, 1887. 
 
 William C. Robinson, 
 Isaac W. Brooks, 
 Smith P. Glover, 
 Ira D. Bates, 
 Simeon E. Baldwin, 
 Morris F. Tyler, 
 Charles H. Clark, 
 Samuel A. York, 
 N. Wheeler, 
 
 Special Commission 
 
 on the subject 
 of State Taxation. 
 
53 
 
 State of Connecticut, 
 
 General Assembly. 
 
 January Session, 1887. 
 
 An Act concerning a Tax Commissioner. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened : 
 
 Sec. 1. The Governor shall once in every four years, com- 
 mencing in 1887, during the session of the General Assembly, 
 nominate, and with the advice and consent of the Senate 
 appoint a Tax Commissioner, who shall hold office for four 
 years from the first day of July in the year in which he is ap- 
 pointed, unless sooner removed by the Governor for cause and 
 the Governor shall fill any vacancy occurring during said four 
 years for the unexpired portion of said term, apprising the 
 Senate, if in session, otherwise at the opening of its next ses- 
 sion, of such appointment ; provided that the person appointed 
 to fill the vacancy shall cease to hold the office after sixty days 
 from the time when the Senate is apprised of his appointment, 
 unless they, within said sixty days, give their consent thereto. 
 
 Sec. 2. The Tax Commissioner shall inquire into the execu- 
 tion of the laws relative to taxation, and take all proper 
 measures to aid the due execution thereof, and perform snch 
 other duties as may from time to time be prescribed by law. 
 He shall, before entering upon the duties of his office, take the 
 oath by law provided for executive and judicial officers ; and 
 in the performance of his duties he shall have power to admin- 
 ister oaths to any person. 
 
 Sec. 3. The Tax Commissioner shall visit every town in the 
 State at least once during his term of office, and inquire into 
 the manner in which the laws relating to the listing and assess- 
 ment of property taxable therein are executed by the Assessors 
 and Board of Belief, and whether all persons and property 
 
54 
 
 taxable in such towns are, in fact, justly assessed and taxed, 
 and whether all taxes which are due and collectible are, in fact, 
 collected ; and for the purpose of such inquiry he shall have 
 power to summon any persons in such town before him, and 
 examine them under oath, and to compel the attendance of any 
 such witnesses, and the production of books and papers, by 
 suitable process. If any person disobey such process, or, 
 having appeared in obedience thereto, refuses to answer any 
 question put to him by the Commissioner, the Commissioner 
 may apply in writing to any Judge of the Superior Court, 
 who shall cause such person to come before him, and shall 
 inquire into the facts set forth in such application, and may 
 thereupon commit such person to jail until he shall comply 
 with the provisions of this section. 
 
 Sec. 4. The Tax Commissioner shall be a member of the 
 State Board of Equalization, and shall annually report to said 
 Board the results of his official inquiries. He shall also make 
 an annual report to the General Assembly, in which he shall 
 mention any imperfections in the laws as to taxation, or in 
 their execution, which he may think proper to bring to the 
 notice of the Assembly, and from time to time may suggest 
 any further statutory provisions which he may deem desirable. 
 
 Sec. 5. The Tax Commissioner shall have an office in the 
 Capitol and shall receive ten dollars for each day necessarily em- 
 ployed in the duties of his office, and also his traveling, clerical, 
 and incidental expenses, necessarily incurred in the performance 
 of his official duties, his account for the same being first aud- 
 ited and allowed by the Controller. 
 
 Sec. 6. The modes of summoning witnesses before the Tax 
 Commissioner shall be the same as practiced by justices of the 
 peace in summoning witnesses in the trial of a civil action, and 
 all fees and mileage dife witnesses, or for the service of a sub- 
 poena or capias issued by the Commissioner, or by a Judge of 
 the Superior Court upon the application of the Commissioner, 
 shall be paid by him, and allowed him as part of his incidental 
 expenses. 
 
55 
 
 State of Connecticut, 
 General Assembly. 
 January /Session, 1887. 
 
 An Act to tax certain grants of corporate franchises. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened : 
 
 Sec. 1. No application for a charter for any business corpo- 
 ration having a capital stock, all or any part of which is to 
 be divided into shares and held by shareholders, shall be heard 
 by the General Assembly or any committee thereof, until the 
 parties applying for the same have paid to the Treasurer of 
 the State one hundred dollars. 
 
 Sec. 2. No such business corporation having a capital stock, 
 hereafter incorporated, shall commence to do business, until 
 it shall have paid to the Treasurer of the State a sum equal to 
 one-tenth of one per cent, on the par value of all shares of its 
 capital stock actually subscribed for and al- shares thereof 
 which may have been issued without having been previously 
 subscribed for ; but any chartered corporation shall be cred- 
 ited, as respects such payment, with such sum as it may have 
 paid, agreeably to the preceding section. 
 
 Sec. 3. Every such business corporation which shall here- 
 after increase its capital stock, shall within thirty days after 
 the new stock is subscribed for or issued, pay to the Treasurer 
 of the State a sum equal to one-tenth of one per cent, on the 
 par value of such increase. 
 
 Sec. 4. JS"o certified copy of any charter or organization cer- 
 tificate of any such corporation shall be issued by the Secretary 
 of the State, until the payments required by sections 1 and 2 
 of this Act have been duly made. 
 
56 
 
 State of Connecticut, ■ 
 Geneeal Assembly, 
 Jwnuary Session, 1887. 
 
 An act to impose a franchise tax on certain corporations. 
 
 Be it enacted by the Senate and House of Mepresenlatwes 
 in General Assembly convened : 
 
 Sec. 1. Every corporation, incorporated under the laws of 
 this State and having a capital stock, all or any part of which 
 is divided into shares, and held by shareholders, except railroad 
 companies, express companies, telegraph companies, telephone 
 companies, ecclesiastical societies, cemetery associations, and 
 corporations now or hereaf tpr exempted by law from such taxa- 
 tion, shall on or before the first day of March annually, begin- 
 ning in the year 1888, pay to the Treasurer of the State a tax 
 upon its corporate franchise, of one-fiftieth of one per cent, on 
 the total par value of all shares of its capital stock, actually 
 subscribed for, and all shares thereof which may have been 
 issued without having been previously subscribed for. 
 
 Sec. 2. The treasurer or cashier of every such corporation 
 shall annually on or before the tenth day of January make 
 return in writing under oath to the Tax Commissioner stat- 
 ing the total par value of the capital stock of said corporation, 
 actually subscribed for or issued as aforesaid. 
 
 Sec. 3. The State's Attorney in each County shall sue, in 
 the name of the State, for all such taxes which are reported to 
 him by the Tax Commissioner as overdue and unpaid : and if 
 the judgment recovered in any such action is not paid % when 
 demanded on execution, such default shall be a cause of for- 
 feiture of the franchise of such corporation, which may be en- 
 forced by quo warranto proceedings. 
 
57 
 
 State of Connecticut, 
 Genekal Assembly, 
 January Session, 1887. 
 
 An Act to amend the laws as to Eailroad Taxation. 
 
 Be it enacted by the Senate and House of Representatives 
 in General Assembly convened : 
 
 Section 1. Sections 5 and 6, page 168, of the General Stat- 
 utes are hereby amended so as to read as follows : 
 
 Sec. 5. The secretary or treasurer of every railroad com- 
 pany, any portion of whose road is in this State, or if. 
 such portion of said road is in the hands of a trustee or 
 receiver then such trustee or receiver, shall on or before 
 the fifteenth day of November, annually, deliver to the 
 Controller a sworn statement of the condition and affairs 
 of said company or road, as they existed on the thirtieth 
 day of the preceding September, in the following particu- 
 lars, namely, the number of shares of its stock, and if the same 
 consists of different classes, then of those of each class, and 
 the market value of each share, the amount of its funded and 
 floating debt, and the market value of any of such indebtedness 
 which is below par in value, the number, amount, and market 
 value of any unpaid bonds secured by mortgage on the prop- 
 erty of said company by any of its predecessors in title, and 
 legally convertible into the capital stock of such company, the 
 amount of bonds issued by any town or city of the description 
 mentioned in the twelfth section of Chapter I of this Title, when 
 the avails of such bonds, or stock subscribed and paid for there- 
 with, shall have been expended in such construction, the amount 
 of money actually on hand in cash, in the treasury or in the pos- 
 session of the proper officers or agents of the company or of 
 any such trustee or receiver, the amount paid for taxes dur- 
 ing the year ending on said thirtieth day of September, upon 
 
58 
 
 any dwelling-houses, whether occupied by its employees or 
 not, and upon any real estate not used for railroad purposes, 
 the whole length of the road, and the length of those portions 
 thereof lying without this State. 
 
 Sec. 6. Every such railroad company, trustee or receiver, 
 shall on or before the twenty-fifth day of November, annually, 
 pay to the State one per cent, of the valuation, made and cor- 
 reated by the Board of Equalization, of said stock, and one per 
 cent, of the par value of such funded and floating indebted- 
 ness, as required to be contained in said statement, or if any of 
 said indebtedness is worth less than par, then, one per cent, of 
 its valuation made and corrected by said board, after deducting 
 from such valuations, the amount of any bonds or obligations 
 of said company, or of their market value, if below par, which 
 may be held in trust for said company as a part of any sinking 
 fund belonging to it, and also the amount of money actually 
 on hand in cash, in the treasury or in the possession of the 
 proper officers or agents of the company or of such trustee or 
 receiver on the thirtieth day of the preceding September, and 
 also deducting from said sum required to be paid the amount 
 paid for taxes, during the year ending on said day, upon any such 
 dwelling-houses and upon any real estate owned by it and not 
 used for railroad purposes : and the valuation 60 made and cor- 
 rected by said Board shall be the measure of value of such rail- 
 road, its rights, franchises, and property in this State for pur- 
 poses of taxation ; and this sum shall be in lieu of all other 
 taxes on its franchises, funded and floating debt, and railroad 
 property in this State. 
 
 Sec. H. Section 11, on page 169, of the General Statutes is 
 hereby amended by striking out the words " the Board of 
 Equalization shall examine and correct all statements returned 
 to the Controller as required by either of the nine preceding 
 sections," and substituting therefor the following words : " the 
 Board of Equalization shall meet at the Controller's office at the 
 capitol in every year, on the secular day next succeeding each 
 of the last days above limited for making any of the annual 
 returns to the Controller for purposes of taxation, required 
 by either of the nine preceding sections or from Savings Banks 
 at ten o'clock in the forenoon, to examine and correct such 
 
59 
 
 returns and the valuations required thereon, and to hear any 
 party making such return in regard to such valuations. 
 
 Sec. 3. In case of any railroad company which during the 
 two years ending on the thirtieth day of September, next pro- 
 ceeding the time for making such Annual returns, has paid 
 regular dividends at the same annual rate per cent, on all or 
 any class of its shares of stock, the average market price of such 
 stock, or class of stock, as the case may be, during the last six 
 months of said two years as ascertained by market sales or pub- 
 lished brokers'a quotations of bids or prices, shall be the invariable 
 standard of the value of such shares, to be adopted in making 
 said returns, and by the Board of Equalization in examining 
 and correcting the same. As to all other shares of stock in 
 any.railroad company, the average market price of such shares, 
 during the last six months of said two years, as ascertained by 
 market sales or published broker's quotations of bids or prices, 
 shall be the invariable standard of the value of such shares, to 
 be adopted in making such returns, but in such returns any 
 facts may be stated showing that such market value differs 
 from the true value, and the Board of Equalization in examin- 
 ing and correcting said returns shall regard said market value, 
 as ascertained as aforesaid, as the standard of the value of such 
 shares, unless from the facts so stated, or otherwise, they may 
 think fit to adopt a different valuation. 
 
60 
 
 State of Connecticut. 
 General Assembly, 
 January Session, 1887. 
 
 An Act to impose a Collateral Inheritance Tax. 
 
 Be it enacted ly the Senate and House of Bepresentatives, in 
 
 General Assembly convened : 
 
 Sec. 1. This Act may be cited as " The Collateral Inheri- 
 tance Act." In this Act the word "person" hall be con- 
 strued to include the plural as well as the singular, and artifi- 
 cial as well as natural persons: and the word "property" 
 to include both real and personal estate, and any form of inter- 
 est therein whatsoever, including annuities. 
 
 Sec. 2. All property within the jurisdiction of this State or 
 interest therein, whether belonging to inhabitants of this State 
 or not, and whether tangible or intangible, which shall pass 
 by will or by the intestate laws of this State or by deed, grant, 
 sale or gift made or intended to take effect in possession or 
 enjoyment after the death of the grantor, to any person, in 
 trust or otherwise, other than to or for the use of the father, 
 mother, husband, wife, lineal descendants born in lawful wed- 
 lock, the wife or widow of a son, the husband of a daughter of 
 the decedent, or some strictly public or charitable purpose, 
 shall be subject to a tax of three per cent, of its value, above 
 the sum of one thousand dollars, for the use of the State, and 
 all administrators, executors and trustees, and any such grantee 
 under a conveyance made during the grantor's life, shall be 
 liable for all such taxes until the same shall have been paid, 
 as hereinafter directed. 
 
 Sec. 3. When any person shall bequeath or devise any 
 
 . property to or for the use of father, mother, husband, wife, 
 
 lineal descendant, the wife or widow of a son, or the husband 
 
61 
 
 of a daughter, during life or for a term of years, and the re- 
 mainder to a collateral heir, or to a stranger to the blood, the 
 value of the prior estate shall be immediately appraised in the 
 manner hereinafter provided, and deducted together with the 
 sum of one thousand dollars from the appraised value of such 
 property, and the tax on the remainder shall be payable one year 
 from such appraisal, and together with any interest that may 
 accrue on the same, shall be and remain a lien on said prop- 
 erty till paid to the State, provided however, that any person 
 beneficially interested in such property may elect to give to 
 the Treasurer of the State a bond, to his acceptance with good 
 and sufficient sureties to an amount not less than twice the 
 amount of such tax, conditioned to pay said tax when he 
 shall come into the possession of said property, which said 
 bond shall be filed in the office of the Tax Commissioner ; 
 and upon its filing and acceptance the administrator, executor 
 or trustee shall be discharged of his liability for such tax. 
 
 Sec. 4. Whenever a decedent appoints one or more execu- 
 tors or trustees and in lieu of their allowances makes a bequest 
 or devise of property to them which would otherwise be liable 
 to said tax, or appoints them his residuary legatees, and said 
 bequests, devises or residuary legacies exceed what would be a 
 reasonable compensation for their services, such excess shall be 
 liable to such tax, and the court of probate having jurisdiction 
 of their accounts shall fix such compensation. 
 
 Sec. 5. All taxes imposed by this act shall be payable to 
 'the Treasurer of the State by the executor, administrator, or 
 trustee one year after his appointment, and if the same are 
 not so paid legal interest shall be charged thereon and col- 
 lected from the time said tax became due ; but in cases where 
 by reason of claims made on the estate, or of litigation, or of 
 other unavoidable causes of delay, the estate of the decedent 
 cannot be settled in one year, then said interest shall not be 
 charged for so long a period as such unavoidable causes of 
 delay continue to act. 
 
 Sec. 6. Any administrator, executor or trustee having in 
 charge or trust any property subject to such tax shall deduct 
 the tax therefrom, or shall collect the tax thereon from the 
 legatee or person entitled to said property, and he shall not 
 
62 
 
 deliver any specific legacy or property subject to said tax to 
 any person till he has collected the tax thereon. 
 
 Sec. 7. Whenever any legacy subject to said tax shall be 
 charged upon or payable out of real estate, the heir or devisee 
 before paying the same shall deduct said tax therefrom and 
 pay it to the executor, administrator or trustee, and the same 
 shall remain a charge upon said real estate until it is paid, 
 and payment thereof shall be enforced by the executor, admin- 
 istrator or trustee in the same manner as the payment of the 
 legacy itself could be enforced. 
 
 Sec. 8. If any such legacy be given in money to any person 
 for a limited period, such administrator, executor or trustee 
 shall retain the tax on the whole amount, but if it be not in 
 money he shall make an application to the court having 
 jurisdiction of his accounts to make an apportionment if 
 the case require it, of the sum to be paid into his hands by 
 such legatee, on account of said tax, and for such farther order 
 as the case may require. 
 
 Sec. 9. All administrators, executors and trustees shall have 
 power to sell so much of the estate of the deceased as will en- 
 able them to pay said tax, in the same manner as they may be 
 empowered to do for the payment of his debts. 
 
 Sec. 10. All money retained by any executor, administrator 
 or 1 trustee, or paid into his hands for such tax, shall be paid 
 by him within thirty days thereafter to the Treasurer of the 
 State, whose receipt shall be a proper voucher in the accounts 
 of said executor, administrator or trustee, but he shall not be 
 entitled to charge in his accounts or to be relieved from his lia- 
 bility for such tax unless he shall produce such receipt or a cer- 
 tified copy thereof, except in the cases contemplated in section 
 three of this Act. 
 
 Sec. 11. No inventory of an estate, any part of which may 
 be subject to said tax, shall be accepted or recorded in the 
 court of probate until a copy of the inventory and of the ap- 
 praisal of such part, or if the same cannot be conveniently 
 separated, then a copy of the whole inventory, has been filed 
 by the clerk or the judge of the court of probate with the Tax 
 Commissioner, nor until such commissioner has had a reason- 
 able opportunity to appear and be heard touching the same. 
 
63 
 
 The fees for such copy so filed shall be paid by the executor, 
 administrator or trustee. 
 
 Sec. 12. Whenever any of the real estate of a decedent 
 shall so pass to another person as to become subject to said tax, 
 the executor, administrator, or trustee of the decedent shall 
 inform the Tax Commissioner thereof within six months after 
 he has assumed the duties of his trust, or if the fact is not 
 known to him within that time, then within one month from 
 the time that it does become so known to him. 
 
 Sec. 13. Whenever for any reason the devisee, legatee, or 
 heir who has paid any such tax shall refund any portion of the 
 property on which it was paid, or it shall be judicially deter- 
 mined that the whole or any part of such tax ought not to 
 have been paid, said tax or the due proportional part of said 
 tax shall be paid back to him by the executor, administrator 
 or trustee, or if he shall have paid it over to the Treasurer 
 of the State by such Treasurer; 
 
 Sec. 14. The value of such property as may be subject to 
 said tax shall be taken to be that given it in the inventory of 
 said estate rendered to the court of probate, but the Tax Com- 
 missioner or any person interested in the succession to said 
 property may apply to. the court of probate having jurisdic- 
 tion of the estate, and on such application the court shall ap- 
 point three disinterested persons who shall view and appraise 
 such property for the purposes of said tax, and shall make 
 return thereof to said court, which return may be accepted by - 
 said court in the same manner as the original inventory of such 
 estate is accepted, and if so accepted it shall be binding upon 
 the person by whom the tax is to be paid and upon the State. 
 In the case of an annuity or life estate the value thereof shall 
 be determined by the so-called Actuaries' or Combined Expe- 
 rience Tables, and five per cent, compound interest. 
 
 Sec. 15. The court of probate having either principal or 
 ancillary jurisdiction of the settlement of the estate of the 
 decedent, shall have jurisdiction to hear and determine all 
 questions in relation to said tax that may arise affecting any 
 devise, legacy or inheritance under this Act, subject to appeal 
 as in other cases, and the Tax Commissioner shall represent 
 the interests of the State in any such proceedings. 
 
64 
 
 Sec. 16. The judge of each probate district shall as often as 
 once in six months render to the Tax Commissioner a state- 
 ment of the property within the jurisdiction of his court that 
 has become subject to said tax during such period, the num- 
 ber and amount of such taxes as will accrue during the next 
 six months, so far as the same can be determined from the pro- 
 bate records, the number and amount of such taxes as are due 
 and unpaid, and the amounts thereof payment of which has 
 been postponed under the provisions of this Act. 
 
 Sec. 17. The fees of courts of probate for the duties required 
 of them by this Act shall be, for each order, appointment, de- 
 cree, judgment or approval of inventory or report required 
 hereunder, one dollar ; for the filing and endorsement of each 
 paper, and for copies and records, the fees that are allowed for 
 the same under Title 13, Chapter XXXI, page 184, of the 
 General Statutes. And the administrator, executor, trustee or 
 other person paying said tax shall be entitled to deduct the 
 amount of all such fees paid to the court of probate from the 
 amount of said tax to be paid to the Treasurer of the State. 
 
65 
 
 State of Connecticut, 
 
 General Assembly, 
 
 January Session, 1887. 
 
 An Act concerning Taxation. 
 
 Be it enacted oy the /Senate and House of Representatives 
 in General Assembly convened: 
 
 Section 1. Sec. 12, on page 154 of the General Statutes is 
 hereby amended by striking out in the second and third lines 
 from the bottom of the page the words " not including watches 
 and jewelry of any kind exceeding twenty-five dollars in value " 
 and substituting therefor the following words: "all watches, 
 except those having a gold case ; jewelry of any kind, exceed- 
 ing twenty-five dollars in value ;" also by striking out the 
 words " not exceeding in value two hundred dollars," in said 
 section on the second line of page 155 ; and also by strik- 
 ing out the word "private libraries and books, not exceed- 
 ing two hundred dollars in value, and all public libraries," 
 in the seventh and eighth lines of said pages and substituting 
 therefor these words, "all public and private libraries, and 
 books kept for use by the owner," also by striking out in the 
 thirteenth line of said said page the words " to the value of two 
 hundred dollars." 
 
 Section 2. Section 14, on page 156 of the General Statutes 
 is hereby amended so as to read as follows : 
 
 Sec. 14. Personal property in this State or elsewhere, not 
 exempt by this Title, shall for the purpose of taxation include 
 all horses, asses, cattle, sheep, swine, and other animals, not less 
 
66 
 
 than one year old, vessels, goods, household furniture, (includ- 
 ing plate, paintings, statuary, clocks, and china), gold watches, 
 jewelry, musical instruments, shell fish planted, grown or 
 growing in any of the waters of this State, whether in or out 
 of the jurisdiction of any particular town, shares of stock in 
 banks, national banking associations, trust companies, insur- 
 ance companies, turnpike companies, bridge companies, and 
 plank road companies, incorporated or located in this State, 
 and all tangible chattels belonging to any resident in this 
 State ; and shall be set in his list in the town where he resides. 
 
 Any tangible personal property, of any of the foregoing 
 descriptions, in this State, belonging to persons not resident in 
 the State, shall be liable to taxation in any year, provided it is 
 in the State on the first day of October of the year in which 
 the lists are to be returned for taxation, and has been in the 
 State for such time or times as in all amount to three months 
 during the twelve months next preceding said day. 
 
 All personal property taxable under this Section shall be set 
 in the list at its actual value, except when otherwise by law 
 provided. 
 
 Sec. 3. If the rate of local taxation for town, city, school, 
 and other municipal purposes, in the place where any corpora- 
 tion is located, stock in which, owned by non-residents, is liable 
 to a tax of one per cent, on its market value, under the pro- 
 visions of General Statutes, page 167, Sections 1 and 2, and 
 the subsequent Acts amending the same, in any year preceding 
 the day as of which said market value is to be ascertained, is 
 less in the aggregate than one per cent., then the aggregate 
 rate of such local taxation shall be stated in the annual return 
 made in behalf of said corporation, for the purposes of taxa- 
 tion, and said State tax for said year shall be reduced to the 
 same rate. 
 
 • Sec. 4. All buildings shall be assessed and valued sepa- 
 rately from the land on which they are situated. 
 
 Sec. 5. All real estate in each town shall be viewed and 
 re- valued by the assessors, at least as often as once in five years ; 
 but the Tax Commisioner, for cause shown to his satisfaction, 
 may authorize the assessors in any town to omit or postpone 
 visiting and re-valuing all or any part of the real estate therein 
 for such period as he may designate. 
 
67 
 
 Sec. 6. Registered vessels shall be assessed at a valuation 
 equal to their net earnings during the year ending on the first 
 day of the preceding July, provided they have been actually 
 engaged in a foreign voyage during said year, and any interest 
 in such vessels shall be assessed at such proportion of said 
 valuation, as said interest bears to the whole vessel ; but the 
 owner shall, if required by the assessors, exhibit to them a 
 statement of the earnings and expenses of said vessel during 
 said year, and answer any proper questions touching the same 
 which they may put to him. 
 
 Sec. 7. The Tax Commissioner shall prepare and annually 
 distribute to the several towns suitable printed blanks for the 
 lists of individual tax-payers. The form for said blanks to be 
 distributed for use in 1887, shall be arranged substantially like 
 that annexed to this Act, and marked as Schedule A. 
 
 Sec. 8. Nothing herein shall affect any assessment made, 
 tax laid, or proceeding had, before the time when this Act 
 takes effect. 
 
SCHEDULE A. 
 
 TAXABLE LIST of of 
 
 for 188 
 
 The individual making out the list must sign and swear to it. The questions are to he answered separately hy him in writing. 
 
 & 
 
 H 
 
 A 
 
 & 
 
 H 
 ffl 
 
 
 
 ft 
 H 
 
 (!) 
 
 fi 
 
 NO. 
 
 ITEMS 
 
 Town or city lots, 
 
 Houses or Other buildings on them. [Specify lots and buildings on next page, if necessary.! 
 
 Acres of land, 
 
 Buildings upon the land. [Specify land and buildings on next page, if necessary.] 
 
 Stores, 
 
 Mills and manufactories, 
 
 How many horses and mules do you own ? Give their value in 2d column. 
 
 How many cows ; do you own? _ Give their value in 2d column. 
 
 How many oxen do you own? Give their value in 2d column. 
 
 How many other neat cattle do you own? Give their value in 2d column. 
 
 How many sheep_do you own?. Give their value in 2d column. 
 
 Have you any swine exceeding $50 in value? State amount in 2d column. 
 
 Have you any wheeled vehicles, including bicycles and tricycles? If so, give their value. 
 
 How many gold watches do you own? Give their value in 2d column. 
 
 Do you own any jewelry, exceeding in value $25? If so. give its value in 2d col. 
 
 Do you own any piano-fortes and other musical instruments, exceeding in value $25? 
 
 If so, give their value here, 
 
 Do you own any household furniture (including clacks, paintings, statuary, china, 
 and plate), exceeding in aggregate value $500? 
 
 If so, give their value here, 
 
 Do you own any bridge stock, ferry stock, or turnpike and plank road stock? 
 
 If so, specify amount, company, and value. 
 
 Answer 
 
 Tes or No 
 
 Here. 
 
 Bank and Trust Co. stock owned by you, 
 
 Insurance stock owned by you, 
 
 .__a. 
 
 State here the average amount of goods kept on hand by you for sale during the 
 year, or during such part of it as you have been in business, 
 
 Have you any investment in mechanical and manufacturing operations, not already 
 specified? If so, state its nature and value. 
 
 Have you any investment in regist ered vessels engaged in foreign commerce? 
 
 If - so, state the net revenue therefrom in the year ending October 1st, and the name 
 of the vessel or vessels. 
 
 Have you any investment in other vessels, steamboats, and commerce, excepting 
 registered vessels engaged in foreign trade? If so, state its value, with name of 
 vessel or vessels. 
 
 Have you any other tangible taxable property not already mentioned? 
 
 If so, specify it here, with its value. 
 
 Has your wife any taxable property not included in this list ? 
 Ten per cent, additional for neglecting to make and swear to a list, 
 Poll, 
 
 3 
 
 Owner's 
 Valuation. 
 
 DOLLARS. 
 
 3 
 
 Assessors' 
 Valuation. 
 
 DOLLARS. 
 
 Board of Relief' > 
 Valuation. 
 
 DOLLARS. 
 
 The undersigned hereby declares, on oath, that the foregoing list is a true statement of all h property liable t0 taxation by the town 
 
 and that all h answers given therein are true, according to h best knowledge, remembrance, or belief, on the first day of October 18 and that 
 
 has not conveyed or temporarily disposed of any estate for the parpose of evading the laws relative to the assessment and collection of said Tax in this State. 
 
 Dated at 
 day of 
 
 this 
 
 18 
 
 Subscribed and sworn to before me, 
 
 [Signature here of Taxpayer. ] 
 
 [Signature here of Assessor or justice of the Peace.] 
 
LIST OF 
 
 For 188 
 
 BUILDINGS AND LANDS, WITH A DESCRIPTION THEREOF. 
 
 Lot or Lands, 
 Buildings on same, 
 Lot or Lands, 
 Buildings on same, 
 Lot or Lands, 
 Buildings on same, 
 Lot or Lands, 
 Buildings on same, 
 Lot or Lands, 
 Buildings on same, 
 
 Where situated, Street and Number. 
 
 Bounded North. 
 
 Bounded East. 
 
 Bounded Snuth. 
 
 Bounded West 
 
 No. of 
 Acres. 
 
 Value per 
 
 Acre 
 by Owner. 
 
 Value per 
 
 Acre by 
 
 Assessors. 
 
 Value per 
 Acre by 
 Board of 
 Relief. 
 
 Amount by 
 
 Assessors, 
 
 Amount 
 
 by Board of 
 
 Relief. 
 
 Extracts from the Laivs of Connecticut concerning Taxation. 
 
 " Every person who shall wilfully or corruptly swear, affirm, or testify falsely to any material matter, when an oath or affirmation is required by law, shall be imprisoned in a jail not more 
 than six months, or in the State Prison not more than five years."— Public Acts of 1878, Chapter III. 
 
 Section 2. Section 14, on page 156 of the General Statutes, is hereby amended so as to read as follows: 
 
 Section 14. Personal property in this State or elsewhere, not exempt by this Title, shall for the purpose of taxation include all horses, asses, cattle, sheep swine and other animals not 
 less than one year old, vessels, goods, household furniture (including plate, paintings, statuary, clocks, and china), gold watches, jewelry, musical instruments shell-fish planted grown or 
 growing m any of the waters of this State, whether in or out of the jurisdiction of any particular town, shares of stock in banks, national banking asssociations, trust companies' insurance 
 compames, turnpike companies, bridge companies, and plank-road companies, incorporated or located in this State, and all tangible chattels belonging to any resident in this State- and shall be 
 set in his list in the town where he resides. ~ ' 
 
 Any tangible personal property of any of the foregoing descriptions, in this State, belonging to persons not resident in the State, shall be liable to taxation in any year provided it is in the 
 State on the first day of October of the year in which the lists are to be returned for taxation, and has been in the State for such time or times as in all amount to three months durins the twelve 
 months next preceding said day. 6 
 
 All personal property taxable under this Section shall be set in the list at its actual valuation, except when otherwise by law provided. 
 
 Section 4. All buildings shall be assessed and valued separately from the land on which they are situated.— Public Acts of 1887. 
 
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State of Connecticut 
 
 PUBLIC DOCUMENT— SPECIAL 
 
 REPORT 
 
 OF THE 
 
 Special Commission 
 On Taxation of Woodland 
 
 COMMISSION APPOINTED BY 
 
 < 
 
 THE GENERAL ASSEMBLY 
 
 OF 1911 
 
 PUBLIC ACTS, CHAPTER 45 
 
 APPROVED MAY 2, 1911 
 
 REPORT PRESENTED TO THE GENERAL ASSEMBLY OF 1913 
 
 - HARTFORD 
 Published by the State 
 1912 
 
Publication 
 
 Approved by 
 
 The Board of Control 
 
 THE TUTTLE, MOREHOUSE * TAYLOR PRESS 
 
MEMBERS OF THE COMMISSION 
 
 Rollin S. Woodruff, Chairman New Haven, Conn. 
 
 Ex-Qovernor of Connecticut. 
 
 Herman H. Chapman New Haven, Conn. 
 
 Professor, Yale Forest School. 
 
 Frank H. Stadtmueller Elmwood, Conn. 
 
 Connecticut Forestry Association. < 
 
 William H. Corbin Hartford, Conn. 
 
 Tax Commissioner. 
 
 Samuel N. Spring, Secretary Ithaca, N. Y. 
 
 Ex-State Forester. 
 
 Walter O. Filley, Assistant Secretary New Haven, Conn. 
 
 State Forester. 
 
TABLE of contents 
 
 Page 
 
 Letter of Transmittal 6 
 
 Report to the General Assembly of 1913 : 
 
 Act Creating the Commission 7 
 
 Organization and Work of the Commission 7 
 
 Summary of Principal Points of the Investigation 9 
 
 Recommendations of the Commission 10 
 
 Principal Points of the System Proposed 12 
 
 APPENDIX 
 
 General Discussion of Forest Taxation : 
 
 Forestry as an Investment 18 
 
 The Problem of Forest Taxation 19 
 
 Forest Taxation in Connecticut under the General Property Tax 20 
 Practical Considerations Concerning Revenue from Forest Tax- 
 ation 22 
 
 Forest Taxation in the United States: 
 
 State Legislation 25 
 
 Recent Investigations and Recommendations 28 
 
 The Taxation of Forests in Europe 30 
 
 Forest Taxation Laws in Connecticut 35 
 
 A Survey of Forest Areas in Selected Towns in Connecticut: 
 
 Forest Conditions in the Town of North Haven with Map 36 
 
 Forest Conditions in the Town of Wolcott with Map 38 
 
 Forest Conditions in the Town of Woodstock with Map 41 
 
 Examples of Sale and Assessed Values of Woodland in Connecticut 46 
 
 Extracts from Record of Public Hearing at Hartford 48 
 
 Summary of Information from Connecticut Towns 54 
 
To the General Assembly of the State of Connecticut: 
 
 The Special Commission authorized by the General Assembly 
 of 191 1 to examine and consider the laws of this State, and of 
 other states and countries concerning the taxation of forest land, 
 respectfully submits the following report of its investigations with 
 recommendations, as directed by Chapter 45, Public Acts of 191 1. 
 
 Rollin Si Woodruff, Chairman, 
 Samuel N. Spring, Secretary, 
 William H. Corbin, 
 Frank H. Stadtmueller, 
 Herman H. Chapman, 
 Walter O. Filley. 
 
SPECIAL COMMISSION ON TAXATION OF 
 WOODLAND 
 
 Report to the General Assembly of 1913 
 
 ACT CREATING THE COMMISSION 
 
 The "following act was passed by the Senate and House of 
 Representatives of Connecticut in General Assembly convened in 
 191 1, and approved by His Excellency, Governor Simeon E. 
 Baldwin : 
 
 Chapter 45, Public Acts of 1911. "The state forester and the tax 
 Commissioner, with three other persons whom the Governor shall appoint, 
 shall constitute a commission, serving without compensation, to examine 
 and consider the laws of this state and of other states and countries 
 concerning the taxation of forest lands. Said commission shall report to 
 the next general assembly the result of its investigations with recom- 
 mendations thereon." 
 
 Under the provisions of this law, the Governor appointed Hon. 
 Rollin S. Woodruff, Mr. Frank H. Stadtmueller and Professor 
 Herman H. Chapman members of the Commission. 
 
 ORGANIZATION AND WORK OF THE COMMISSION 
 
 On December 9, 191 1, the Commission was called together at 
 New Haven, Conn., by the State Forester. Ex-Governor Rollin 
 S. Woodruff was elected chairman, and Samuel N. Spring, secre- 
 tary of the Commission. Two subsequent meetings were held 
 in New Haven for consideration of the material gathered 
 through investigations that were in progress and for purposes 
 of reaching final conclusions and recommendations. Walter O. 
 Filley, appointed State Forester of Connecticut to succeed 
 
8 TAXATION OF WOODLAND 
 
 Samuel N. Spring, who resigned September 30, 19 12, was elected 
 assistant secretary of the Commission at its last meeting in 
 September. 
 
 A public ( hearing was held on January 30, 19 12, at the State 
 Capitol, Hartford, as a means of securing at the outset an expres- 
 sion of opinion from persons representing almost every interest 
 in the State, and to gain knowledge at first hand of the problems 
 involved in taxation of woodland under the present system. 
 
 In order to ascertain present conditions of forest taxation in 
 the State, circular letters and lists of questions were sent out 
 during the summer to each first selectman. This work was sup- 
 plemented by personal conferences of representatives of the Com- 
 mission with town officials and others in twenty-four towns in 
 various parts of the State. Methods of forest taxation in other 
 states were ascertained by correspondence with state officials 
 and through the receipt of reports of similar investigations. 
 Through cooperation with the Connecticut Forestry Association 
 several institutes were held in the fall of 1912 at which the sub- 
 ject of forest taxation was discussed. 
 
 A detailed survey of forest areas in three towns representing 
 different conditions was made under direction of the State For- 
 ester. The forest area was mapped by types and the stands of 
 timber in these towns were estimated and classified by age in 
 order to have a practical basis for determining the effect of 
 applying any modified system of taxation. 
 
 This report is based upon the information secured by the above 
 means, but that portion dealing with forest taxation in foreign 
 countries is contributed through the courtesy of Dr. Fred R. 
 Fairchild, Professor of Economics at Yale University, who has 
 made a special study of the subject, both in this country and 
 abroad. The Commission expresses its sincere appreciation of 
 this contribution to the report, and desires also to thank town 
 officials and others who have furnished valuable data. 
 
SUMMARY OF INVESTIGATION 9 
 
 SUMMARY OF PRINCIPAL POINTS OF THE 
 INVESTIGATION 
 
 1. Improved forests mean an increase in the resources of the 
 State. The present Woodland area of Connecticut is estimated 
 to be about one and a half million acres. At least two-thirds of 
 this, or a million acres, will doubtless always remain non-agri- 
 cultural land, fit only for growing trees, because it is too stony, 
 too stfeep, or is otherwise unsuited for agriculture. For many 
 years to come there will be nearly as great an area in forest 
 as at present. Since such a large proportion of the State is best 
 adapted to producing wood and timber, the practice of forestry 
 is highly important if the highest possible revenue is to be 
 secured from forest lands. During the past decade progress has 
 been made in protection of forests from fire, in conservative 
 handling of woodland and in forest planting on non-agricultural 
 lands. A sound State forest policy has been adopted and put 
 into practice. The greatest present need is a system of forest 
 taxation which 'will make the tax burden definite for forest 
 growers. Forests, natural or planted, should bear their just share 
 of taxation, but not the unjust burden possible under the present 
 general property tax. 
 
 2. Forest taxation under the general property tax is unsatis- 
 factory. Woodland is not classified separately for taxation but 
 included with other property. Valuations for purposes of taxa- 
 tion exhibit great inequalities in the same town and between 
 different towns, there being no uniform practice. ( See_ Appendix, 
 p. 46.) Merchantable timberland in most cases is not overtaxed, 
 but there is a growing tendency to increase valuations especially 
 when there is a revaluation. The actual and present value has 
 been' reached in some cases in fixing valuation of merchantable 
 timberland and compels cutting or the bearing of an excessive 
 burden. Cut-over land and forests under 20 years of age has in 
 general too high a valuation, tending to discourage persons from 
 holding cut-over land and improving young forest. 
 
IO TAXATION OF WOODLAND 
 
 3. Section 2320 of the General Statutes an d Chapter 205, Pub- 
 lic Acts of 191 1, have proven ineffective and have not been taken 
 advantage of to any extent. Exemption for a short period is 
 little inducement to plant, since the excessive burden of the gen- 
 eral property tax coming during the best growing period, 20 years 
 to 50 years, offers a great obstacle to investment in a planted 
 forest. 
 
 4. Exemption from taxes for a short period of years on lands 
 planted with forest trees in accordance with certain requirements 
 has proven ineffectual in the eight states now having such laws 
 on the statute books. Detailed investigation of forest taxation in 
 three states and investigations made in 1912 in other states show 
 that the general property tax is unsatisfactory and recommenda- 
 tions have been made favoring an annual tax on the land and 
 a tax on the crop when cut. Laws passed in New York State in 
 1912 have provided, among other changes in tax system, for a 
 land tax and a yield tax. 
 
 5. Other countries have for the most part abandoned the 
 general property tax: i. e., the valuation and assessment of all 
 property under one classification, subject to taxation at a uniform 
 rate without distinction as to character of the property. 
 
 6. A detailed survey of forest areas in three selected towns in 
 Connecticut, and an estimate of the stand, furnished figures by 
 which it was ascertained that, a change to another and more just 
 system of taxation could be effected without seriously lessening 
 town revenue. 
 
 RECOMMENDATIONS OF THE COMMISSION 
 
 The Commission recommends the enactment of a law which 
 Will include the following provisions (see p. 12 for details) : 
 
 (1) Separate classification of forest land for purposes of 
 taxation to be made on application by the owner provided the 
 value of the land alone does not exceed $25 per acre. Certificate 
 
RECOMMENDATIONS 1 1 
 
 of classification to be issued by the State Forester after due 
 examination as to compliance with requirements of the law. 
 
 (2) At time of classification, present true and actual value of 
 land and standing timber to be determined separately, and valua- 
 tions then established to be continued for a term of fifty years, 
 with revaluations to be established at the end of that period and 
 continued for a further term of fifty years. 
 
 (3) When classified, natural forest land to be subject to 
 tax at a rate not exceeding ten mills on both land and timber 
 at the separate valuations established as indicated in (2), and 
 a yield tax to be levied on the timber when cut, at a rate pre- 
 scribed by law and varying with the time during which the land 
 has been classified. Such land when cut clear subsequent to 
 classification, and reforested either naturally or by planting, to 
 be reclassified as young forest under (4) if application for such 
 reclassification is made by the owner; otherwise the land to be 
 taxed at the prescribed rate on the valuation already established 
 for the whole property until end of the fifty year period. 
 
 (4) When classified, land planted with forest trees under 
 specified conditions, or young forest of not more than ten years 
 growth, to be taxed annually at a rate not exceeding ten mills 
 on a valuation of the land alone established as indicated in (2), 
 and a yield tax of ten per cent to be levied on the value of the 
 timber when cut. 
 
 (5) Such new legislation to take effect immediately on pas- 
 sage except as it applies to land already bearing timber of more 
 than ten years growth, and not to take effect with regard to 
 such land until January 1, 1915- 
 
 (6) Section 2320 of the General Statutes and Chapter 205, 
 Public Acts of 191 1, to be amended so that they shall not apply 
 except to lands planted with forest trees prior to the passage of 
 said amendment. 
 
12 TAXATION OF WOODLAND 
 
 PRINCIPAL POINTS OF THE SYSTEM PROPOSED 
 LAND SUBJECT TO CLASSIFICATION: 
 
 Land to be classified for special taxation as forest land should 
 include all non-agricultural lands best suited to forest growing, 
 and exclude all lands which have a higher value for farming or 
 other purposes. It is therefore deemed advisable to restrict the 
 proposed new system of taxation to land not exceeding twenty- 
 five dollars per acre in value and at least five acres in extent. 
 
 Such land would come under two general heads: (i) Old 
 Forest would include all forest land fully stocked with tree 
 growth more than ten years old, either seedlings or sprouts. 
 (2) Young Forest would include: (a) cut-over land and young 
 forests of not more than ten years growth, which is natu- 
 rally fully stocked or is made so by planting; (b) woodland or 
 brush land under-planted so as to assure a fully stocked stand; 
 (c) open land planted with forest trees not less than 1200 to 
 the acre. 
 
 SPECIES TO-BE PLANTED: 
 
 Forest trees, including ash, chestnut, oak, whitewood,or tulip- 
 tree, red pine, Scotch pine, white pine, European larch, Norway 
 spruce and such other species as the State Forester may approve. 
 
 APPLICATION FOR CLASSIFICATION: 
 
 An owner wishing to have land classified so as to come under 
 the new taxation system would be required to apply to the State 
 Forester for such classification and accompany the application by 
 a sworn statement of the town assessors giving what the true and 
 actual value of the land then is. The owner shall also furnish such 
 description of the land as the State Forester may require. When 
 application is made for classification of Old Forest land (with 
 growth more than ten years old), the assessors' sworn statement 
 should give the present true and actual value of the land and 
 the timber thereon separately. If the value of the land alone 
 
PRINCIPAL POINTS 1 3 
 
 exceeds twenty-five dollars per acre it should not be considered 
 for classification. 
 
 EXAMINATION AND CERTIFICATE: 
 
 The State Forester should examine lands for which application 
 for classification has been made and description furnished, but 
 in the case of planted lands not until sufficient time has elapsed 
 for the owner to demonstrate that all requirements of the law 
 have been fulfilled. If he finds the conditions of the law fulfilled, 
 and approves the manner of the planting, he shall issue 'a certifi- 
 cate in quadruplicate, indicating his approval and that the land 
 is thereby classified, the original certificate to be filed in the State 
 Forester's office, one copy in the State Tax Commissioner's office, 
 one copy in the Town Clerk's office in the town where the land 
 is located, and one copy with the owner. 
 
 CONTINUANCE OF CLASSIFICATION: 
 
 Classification as forest land should only be continued so long 
 as proper forest conditions are maintained on the land so classi- 
 fied. Town assessors should report to the State Forester any 
 such land not being maintained for forest purposes. It should be 
 the State Forester's duty to examine the land in question, and 
 if conditions warrant such action, to cancel the classification, 
 sending notice of such cancellation to the State Tax Commis- 
 sioner, the Town Clerk of the town in which the land is located, 
 and the owner. He should be authorized to take similar action 
 on his own initiative. Whenever a classification is cancelled 
 because of failure on the part of the owner to comply with the 
 requirements of the law, he should be required to pay a tax 
 computed in the following manner by the local assessors: the 
 present valuation of both land and forest growth should be 
 established, and the valuation of both at the time of classification 
 deducted from it ; the difference in value should be taxed at the 
 rate of five mills per annum for the number of years the land 
 
14 TAXATION OF WOODLAND 
 
 had been under classification. This provision would apply to 
 lands cleared and used for other purposes before the production 
 of a crop of merchantable timber had been secured, and would 
 be intended to prevent evasion of just taxation under this law. 
 
 RECLASSIFICATION : 
 
 When a timber crop is removed from Old Forest land under 
 classification, and reforestation assured' either naturally from 
 seed and sprouts, or artificially by planting, provision should be 
 made f o* continuance of the then existing classification as Old 
 Forest, or a reclassification as Young Forest, at the option of the 
 owner. If continuance of the existing classification is preferred, 
 the property should be taxed for the balance of the uncompleted 
 fifty year period on the valuation of both land and timber estab- 
 lished at the beginning of that period. If reclassification as 
 Young Forest is desired, application should be made in the pre- 
 scribed way by the owner, and a new valuation of the land alone 
 established for the succeeding fifty years. 
 
 THE TAX ON CLASSIFIED LAND : 
 
 In taxing classified forest land, a different system is necessary 
 for already existing forest from that used for a new forest estab- 
 lished by planting, or by natural growth after cutting. 
 
 (i) New Forest should be taxed annually so long as the 
 land remains thus classified, upon the true and actual value of the 
 land alone as established by the assessors' statement when classi- 
 fication was granted, at a rate not to exceed ten mills, but for not 
 longer than fifty years in any case. At the time the timber is cut 
 a yield tax of ten per cent of the value of the standing timber 
 should be paid by the owner. Whenever a commercial cutting is to 
 be made, the owner of the timber should file with the local assessor 
 and the State Forester a sworn statement of the value of the 
 timber on the stump. The State Forester should have the right 
 to determine the stumpage value if either he or the assessors 
 
PRINCIPAL POINTS IS 
 
 deem it understated by the owner. If the owner is unwilling to. 
 accept the stumpage value so determined, he should have the 
 right of appeal to a special board consisting of the First Select- 
 man and Town Clerk of the town together with the State For- 
 ester. The decision of this board should be final. 
 
 (2) Old Forest (over ten years growth) should be taxed 
 annually at a rate not to exceed ten mills on the valuations estab- 
 lished at the time of classification for both land and timber 
 thereon, so long as the property remains classified, but not to 
 exceed fifty years. At the time the timber is cut a yield tax 
 should be paid by the owner at a graduated rate as given below. 
 The value of the yield should be determined as indicated for 
 New Forest. 
 
 RATES FOR GRADUATED YIELD TAX 
 
 Period after land is classified 
 
 Per cent of yield 
 
 1 to 10 years 
 
 2% 
 
 n to 20 years 
 
 3% 
 
 21 to 30 years 
 
 4% 
 
 31 to 40 years 
 
 5% 
 
 41 to 50 years 
 
 6% 
 
 51 and over 
 
 7% 
 
 EXEMPTIONS FROM YIELD TAX: 
 
 All products of cutting on classified forest lands should be 
 subject to a yield tax as provided above, except material cut for 
 domestic use which is not to be sold, or material removed in 
 the form of thinnings whose stumpage value does not exceed 
 the cost of removal. 
 
 REVALUATION OF LAND AND TIMBER: 
 
 Fifty years from the time of classification, all classified land 
 should be revalued by the local assessors on the basis hereinbefore 
 provided. In the case of land classified as New Forest, the 
 revaluation should be on the land alone, but Old Forest should 
 have a revaluation on both land and timber separately. At the 
 
1 6 TAXATION OF WOODLAND 
 
 end of the second fifty year period, both Old and New Forest 
 should be given a revaluation of land and timber separately, both 
 valuations to be taxed annually at the local rate thereafter. That 
 is, after being classified for one hundred years no distinction 
 should be made between Old Forest and New Forest, each being 
 thereafter subject to the general property tax on both land and 
 timber valued separately. This should in no case relieve the 
 timber from a yield tax of ten per cent when finally cut. 
 
 PRESENT LAWS ON TAXATION OF 
 PLANTED LANDS: 
 
 As Section 2320 of the General Statutes and Chapter 205, 
 Public Acts of 191 1, have proven of little value in encouraging 
 forest planting, and are faulty in principle, it is the opinion of 
 the Commission that they should no longer be kept in force. 
 Since their repeal, however, would work injustice to any who 
 have already taken advantage of these laws, it is recommended 
 than they should be amended so as to apply only to lands planted 
 with forest trees prior to the passage of the amendment. 
 
APPENDIX 
 
GENERAL DISCUSSION OF FOREST TAXA- 
 TION 
 
 FORESTRY AS AN INVESTMENT 
 
 Shall the forest be allowed to deteriorate or shall it be improved in 
 yield and all natural forest soils, not now in forest, be devoted to timber 
 growing? Connecticut has answered this question within the past decade 
 by the adoption of a rational forest policy to promote a state wide 
 practice of forestry, thereby renewing and making greater one form 
 of wealth. Improved forest property and increased wealth means 
 continued and larger receipts in taxes. 
 
 Before considering the problem of taxation of woodland there are 
 some fundamental facts about forestry which should be reviewed. 
 Forestry is the business of raising crops of valuable timber either 
 by planting or by natural reproduction of seedlings or sprouts, brought 
 about by methods of cutting. Methods of conservative management 
 of natural forest, or of planted forest, are determined by foresters 
 from the results of studies of the characteristics and needs of different 
 kinds of trees in their growth under forest conditions on different sites 
 and in relation to market. The object is to grow the largest amount 
 of valuable forest products on a given tract, in the shortest time con- 
 sistent with quality of material, and at minimum expenditure, as well 
 as to provide for another crop equally good or better on the same land 
 after cutting is completed. Forest crops may be improved by cultural 
 methods as any other crops may be. A long time is required to develop 
 a forest crop, from 35 to 100 years, depending on the locality, the site, 
 the species and the kind of product desired. Hence as a long time 
 investment is necessary, reasonable certainty of a satisfactory return 
 will be derrfanded by prospective investors. 
 
 What are the business items to be considered in forest growing? 
 On the side of expenditures there is first, the cost of land itself. This 
 is not likely in Connecticut to be more than $10 to $15 per acre, and 
 much of it will approximate $5. Land that is worth more than 
 $15 probably has a special value for residential purposes, or is capable 
 of development and use for grazing, fruit growing or field crops. Second, 
 there is the cost of starting a forest. Seedlings started by nature cost 
 nothing; planting open land or brush land costs from $5 to $15 per 
 acre. Third, it costs something to protect from fire and for general 
 care of the # property; this is a small figure varying with the forest 
 tract concerned. Fourth, the forest can be improved and maturity 
 hastened by thinning it periodically after it is 25 years old. Returns 
 by selling the product of thinnings may offset such expenses, or such 
 expenditures may be made as the anticipated increase in quantity, form 
 
FORESTRY AS AN INVESTMENT 1 9 
 
 and quality of final yield will warrant. Fifth, it costs a certain amount 
 to cut the forest crop and deliver it to market, depending on location 
 and character of the tract. Sixth, taxes must annually be paid on forest 
 property. 
 
 On the side of receipts from the forest are the returns from thinnings, 
 and from the final harvest of wood and timber. For a given tract and 
 for average stands of the principal Connecticut species, either natural 
 growth or planted timber under specified conditions, such receipts can 
 be predicted with a fair degree of accuracy. Under the present system 
 the one unknown and uncertain factor in forest growing is the amount 
 that must be paid out in taxes during the period from the seedling stage 
 to the mature tree ready for the axe. We can approximate other expend- 
 itures closely, and reckon the final receipts just as for any investment, 
 but we cannot do it for this one item, taxes. This uncertainty is a hin- 
 drance to extensive forest planting, and to putting money into improving 
 the forest and managing it conservatively, in order to increase its yield 
 and provide for continuous forest crops on forest soils. 
 
 Under deteriorated forest conditions and old methods of handling 
 forest lands, Connecticut could not hope to maintain this natural resource. 
 Through activities of the State during the past decade, the idea of con- 
 servative forest management, adequate protection of woodland from 
 forest fires and planting of forest on non-agricultural lands has taken 
 firm hold. The practice of forestry, although as yet somewhat limited 
 in extent, is here to stay. As a result of State activities many persons 
 have undertaken the practice of forestry, chiefly in the improvement of 
 woodland and in forest planting. All fair-minded citizens will agree 
 that forest growing as a business should bear its just share of taxation. 
 It is a well known principle that no one kind of wealth should be favored 
 over another in the matter of taxation, except in view of great public 
 benefit to be derived thereby. On the other hand, reasonable assurance 
 should be given forest investors that their investment will not be discrim- 
 inated against by unjust taxation in the future. 
 
 THE PROBLEM OF FOREST TAXATION 
 
 It is recognized throughout the United States that a change in methods 
 of forest taxation is vitally necessary, not to favor forest growing over 
 other investments, but to provide a rational system of taxation to replace 
 the present general property tax on forests with its possibilities for 
 future injustice. Definiteness and certainty are essential if the business 
 of forestry is to be developed. A special system of taxation is clearly 
 necessary in Connecticut for woodland, whether of planted or natural 
 growth, in order to assure just taxation for those in the business of 
 growing forest crops. Any system recommended for adoption must be 
 based on sound economic principles and must be adapted to meet local 
 conditions, especially with reference to revenue from taxation of wood- 
 land. 
 
20 TAXATION OF WOODLAND 
 
 A yield tax on forests is advocated by some in lieu of all other 
 taxes on such property; that is, when the timber is cut a certain fixed 
 percentage of the stumpage value is collected as a tax. In that case no 
 other taxes on forest property are collected at any time. This operates 
 justly for forest owners and the tax can be collected whenever the forest 
 crop is cut. The percentage is fixed at a figure which will make the 
 forest tax equal the burden borne by other forms of wealth. It makes 
 the amount of future tax definite and an investor can then count upon 
 this expenditure with certainty. There is no burden of taxation while 
 the forest is growing to merchantable size and the tax is paid at the 
 time the income is received. It thus wholly avoids the injustice found 
 under the general property tax. The chief difficulty in applying this 
 system to Connecticut lies in a possible reduction of revenue in towns 
 now depending largely on taxation of woodland as the chief source of 
 town revenue. 
 
 Tax on Land and Yield Tax on Crop When Cut. Following European 
 practice and the system now introduced in one or two states in the United 
 States another plan recommends itself. This is to tax the land alone 
 each year and the timber only when it is cut. This is in general accord 
 with European methods of forest taxation, and the recommendations of 
 those states in this country where special investigations of forest taxation 
 have been made. Under this method the land is taxed and contributes 
 toward annual town revenue, while there is a definite tax on the crop 
 when cut, so that an investor can count on what this future expenditure 
 may be. In this way the crop is not taxed annually and an unjust per- 
 centage of the yield cannot be consumed in taxes. This method is 
 therefore greatly superior to our present system. 
 
 FOREST TAXATION IN CONNECTICUT UNDER 
 THE GENERAL PROPERTY TAX 
 
 Experts in economics agree that the general property tax is wrong, both 
 in theory and in practice, as applying to forest land. Prof. F. R. Fairchild 
 of Yale is authority for the following statement: 
 
 "A property tax strictly enforced must inevitably place an excessive 
 burden upon forests as compared with ordinary investments yielding a 
 regular annual income. It might easily take away from one third to one 
 half of the entire income, and very much more under certain conditions. 
 This answers what the law clearly requires ; that the forest be taxed each 
 year on its true value, land and timber together. Forestry should not 
 be subjected to such an unjust burden." 
 
 Classification: Woodland is not classified separately in Connecticut 
 fqr purposes of assessment. For the most part it is some portion of 
 the local, farm property, or the owner also holds farmland or other 
 property elsewhere in the town. Fields, pasture, meadow and woodland 
 are lumped on tax lists and a total valuation or average value per acre 
 is made by assessors. In the case of revaluation of property in certain 
 
FOREST TAXATION IN CONNECTICUT 21 
 
 towns, the board created for this purpose has classified different kinds 
 of land when revaluing, but then lumped, them in arriving at the total 
 or the average valuation, and subsequently destroyed their classification 
 notes. Only in cases of individual woodlots or woodland owned by non- 
 residents have forest lands been valued separately from farm land for 
 purposes of taxation. 
 
 Valuation: Valuation of forest land for purposes of taxation exhibits 
 great inequalities, fn towns where considerable manufacturing property 
 is located, assessors often know very little about timberlands and such 
 lands go. into the tax lists at the same valuation year after year. In 
 these towns, and in towns where the valuation of woodland is low, 
 owners get little or no reduction after timber is cut. Having taxed 
 it on a low valuation before, the town cannot afford to reduce that 
 valuation. In some cases where a large amount of timber was removed, 
 the board of relief upon application has made a reduction in valuation. 
 In some towns where woodland is an important factor in the income 
 of the town, officials have paid more attention to its valuation. They 
 tax cut-over land very low, sprout land with some years' growth at 
 about $5 per acre, and it is their intention to increase the valuation 
 as the timber gets older and more valuable. This is not done to any 
 greaf extent, though, except in case of revaluation, because the assessors 
 desire to do their work in as short a time as possible, since in most 
 towns they get a very small amount of pay per year for such services. 
 Consequently they depend largely upon the valuations at which property 
 
 previously stood. In the town of — j , Mr. , 
 
 one of the assessors, stated that they intended to value sproutland 
 recently cut over at about $3 per acre, that of ten years' growth at about 
 $5, twenty years' at $7.50, etc., varying according to location, rapidity 
 of growth, etc. Heavy timber they assess at from $75 to $100 per acre. 
 Another assessor has made maps of his town at his own expense and 
 has found much land not on the town list at all. One lot had not 
 been taxed for thirty-eight years. Such detailed work by an assessor 
 is rare in the State. Local tax officials have had, however, to consider 
 , this question of valuing and taxing forest land, and almost unanimously, 
 assessors are in favor of some change in the taxation laws relating to 
 woodlands. Generally, there is an attempt on the part of assessors to 
 fix an average value for woodland, irrespective of age and condition of 
 timber, distance from market, etc. This tends to make valuation too 
 high on cut-over and young sprout land, which can least bear it, and 
 low on merchantable timberland. There is therefore a tendency to sell 
 and not to hold cut-over lands. When revaluations are made, increases 
 are almost always certain in the valuation of merchantable timber. 
 
 Is woodland and timberland at present overtaxed? Generally speaking 
 it is not, but in a few cases the valuation is so high as to force the 
 cutting or sale of merchantable timberland, clearly indicating present 
 tendencies. The assessed value of woodland in proportion to its market 
 value varies widely in different towns in the State, according to reports 
 received by the Commission in answer to a list of questions sent to 
 
2 2 TAXATION OF WOODLAND 
 
 town officials. In several towns cut-over lands and young sprout growth 
 are valued for assessment at ioo to 250 per cent of market value; 
 merchantable woodland has a valuation of 20 to 100 per cent of its mar- 
 ket value. It is evident that older woodland is not now taxed at present 
 and actual value. In very few towns is it reported that a 100 per cent 
 valuation is made. The tendency throughout the State, however, is to 
 increase valuations, and in revaluing to bring the valuation of woodland 
 for taxation purposes nearer to actual and present value. (S|e page 54.) 
 Would classification of property for purposes of taxation be beneficial 
 to forestry practice? Classification is not a new idea. In one town, an 
 abstract of the year 1805 was seen in which land is classified as meadow, 
 cultivated field, brushland, timberland, etc. In so far as it would make 
 owners realize the value of forest property as a separate crop, classifica- 
 tion would probably arouse interest in the proper handling of this 
 valuable adjunct of the farm. Classification accompanied by a more 
 detailed consideration and valuation of woodland would tend to reduce 
 inequalities of present methods or arbitrariness of valuation, but it would 
 not alter the fact that the present general property tax puts an unjust 
 burden on forests if the actual and present value is assessed, the standard 
 set by our present law. In other words, better administration of the 
 present tax system would not relieve forests of the unjust burden* but 
 simply make this injustice more obvious and result in more cutting of 
 immature timber with no inclination to hold or improve forest property. 
 
 PRACTICAL CONSIDERATIONS CONCERNING 
 REVENUE FROM FOREST TAXATION 
 
 How important are the forest areas in Connecticut towns? By refer- 
 ence to the table on page 54 giving statistics on forest taxation it will 
 be seen that the estimated percentage of woodland varies from 10 per 
 cent to 85 per cent of the total area in different towns. 
 
 North Haven has a small area of woodland (see p. 36), and assuming 
 a fair assessed value based on definite knowledge of conditions, we find 
 that the total value of woodland in the town only amounts to three 
 per cent of the 191 1 grand list as published by the State Tax Commis- 
 sioner (see p. 37). Supposing that a yield tax of 15 per cent of the 
 stumpage value of the timber were assessed when the trees were cut, 
 in lieu of all other taxes, it would have but small effect in reducing 
 present revenue in this town, because the woodland areas are of small 
 extent. An annual tax on the land alone at a fair value and a tax 
 on the timber when cut would give North Haven a small annual return 
 from the land tax, and a small but irregular return according as 
 timber was cut and the yield tax collected. Obviously a change 
 in methods of taxing woodland would make little difference in North 
 Haven. On the other hand, North Haven has a large area of 
 waste sand plains which could produce good pine timber if planted. 
 Experiments in the town of Windsor conducted by the Connecticut 
 
REVENUE FROM FOREST TAXATION 23 
 
 Agricultural Experiment Station have already proved the possibility of 
 successfully growing pines on such lands. These North Haven sands are 
 at present unproductive. Forests on these sites would be taxable 
 properties. Encouragement in this investment is needed in the form of 
 a tax system which makes future, taxation a definite expenditure, and 
 not a possibly unjust burden on an uncertain and arbitrary valuation 
 for taxation purposes. Either of the methods mentioned would apply 
 well to North Haven. There are several towns in Connecticut like this 
 one where the woodland area is small and other forms of property yield 
 the principal revenue from taxation. 
 
 Wolcott represents another type of town in the State (see p. 38). 
 Practically the whole town has been cut over and nearly all the present 
 woodland is less' than 21 years' growth. The market value of the wood 
 on these areas is practically nothing, being unmerchantable for the 
 most part. Whatever value there is lies chiefly in the land. The annual 
 cut may be disregarded, being very small and irregular at present. The 
 town depends largely upon woodland, which forms nearly 70 per cent of 
 the total area, and upon farm land, for revenue from taxation. A yield 
 tax in lieu of all other taxes would seriously disturb- financial conditions 
 in the town unless the State collected the yield tax when due and 
 advanced an annual proportion to the town each year. Such a system 
 does not recommend itself in consideration of the present local system 
 of taxation. If, however, the land alone were assessed in Wolcott at 
 a fair fixed value annually and a tax collected on the timber when cut, 
 it would not disturb or decrease the town revenue from taxation of 
 woodland. Exemption from taxation of lands planted with forest trees, 
 if carried out to any extent under the present laws, would tend for the 
 next twenty years, to lower town revenue. These facts are equally true 
 of a good many towns that have very young woodland covering a large 
 proportion of the town, and open waste lands suitable for forest planting. 
 
 In the- town of Woodstock (see p. 41) are to be found still different 
 conditions. The area of forest covers nearly 40 per cent of the town. 
 About two-thirds of this is under 21 years of age but there is still 
 considerable older timber in the town, including much pine. The tim- 
 berland of Woodstock is assessed at values ranging from $5 to $40 
 per acre, depending largely upon the character of the timber. Assuming 
 that the character depends largely on age class, the following assumed 
 values per age class give us the approximate assessed value of forest 
 land in the town : 
 
 Age Class 
 
 Assumed as 
 
 Assessed value 
 
 per acre 
 
 Acreage 
 
 Assessed value of 
 Woodland 
 
 I--20 ' 
 
 $5 ' 
 
 11,031 
 
 ' $55,iS5 
 
 21-40 
 
 20 
 
 3,834 
 
 76,680 
 
 41-60 
 
 30 
 
 SIS 
 
 9,450 
 
 Over 60 
 
 40 
 
 39 
 
 i,45o 
 
 
 15,219 
 
 $142,845 Total 
 
24 TAXATION OF WOODLAND 
 
 The total assessor's valuation for 1910 for the town of Woodstock was 
 $909,114, hence the assessed valuation of the woodland as estimated above 
 is about 15^ per cent of the total assessed value of all property. Assum- 
 ing the above figures, the income to the town from forest land under 
 the present system and a 15 mill tax is $2,143. The Table (see p. 44) 
 shows the present stand to be 152,572 cords of wood and 23,851,000 ft. 
 B.M. of lumber. 
 
 Let us assume a change in the tax system to a 15 per cent yield tax 
 in lieu of other taxes, an annual cut of 1 per cent as sustained yield, the 
 local town tax rate 15 mills, and stumpage values of 50 cents for cord- 
 wood, $6 per M. for lumber. The result may be shown as follows: 
 
 Total Stand 
 
 Annual cut i% 
 
 Amount of 
 Value on the stump Yield Tax 
 at 15* 
 
 152,751 cds. 
 1,751,000 ft. B.M. 
 
 1,525 cds. 
 237,510 ft. B.M. 
 
 $762.50 - $114-37 
 $1,425.00 $213-75 
 
 Total $328.12 
 
 Comparing this total with the present estimated revenue from taxation 
 of woodland in the town, there is an annual reduction in revenue of 
 $1,814.88, providing there were no change in tax rate or valuations. If we 
 assume a valuation of $5 per acre on the land alone at the local rate 
 and a yield tax of 10 per cent on timber when cut, then the income 
 would be $1,141.43 from the tax oh land alone, and $1,360.18 adding the 
 estimated annual return from the 10 per cent yield tax. This would 
 make a decreased annual revenue to the town of $782.87. The grand list 
 of Woodstock, however, is based on a valuation which is considerably 
 below the true and actual value in many cases. A revaluation in which 
 farm land was assessed at its true and actual value separately from the 
 woodland would probably show that there would be no material reduction 
 in income under this latter plan. 
 
 The plan recommended by the Commission would not only provide an 
 equitable and uniform plan of taxation for every one interested in 
 forest growing as a business, but would avoid all possibility of a reduc- 
 tion in the present tax revenue of any town. Classification of forest 
 land would be optional with the owner, and provision would be made 
 for an annual tax not exceeding ten mills on the true and actual value 
 of both land and timber where land at present bearing timber came under 
 classification. An additional tax on the yield from such timber would 
 also be provided for. Thus, no possibility of a reduction in present taxes 
 would be offered a timberland owner, but he would have an opportunity 
 to assure himself against possible injustice in the future if he wished 
 to take advantage of it. Furthermore, the new plan would distinctly 
 encourage investment in forest plantations and cut-over forest lands by 
 providing the certainty regarding future taxation, essential to such invest- 
 ments. The result could not fail to be an increase in the taxable wealth 
 of many towns with a resulting increase in their future revenues from 
 this source. 
 
FOREST TAXATION IN THE UNITED 
 STATES 
 
 STATE LEGISLATION 
 
 IN CONNECTICUT: 
 
 Connecticut has two laws now in force which provide exemption from 
 taxation for forest plantations during a period of twenty years, subject 
 to certain conditions regarding planting and maintenance. The full text 
 of these laws may be found on page 35. No provision is made in 
 regard to natural forest land, which comes under the general property 
 tax laws. 
 
 The purpose of these exemption laws was to encourage forest planting 
 on non-agricultural lands,, but they offer little inducement for investment 
 in such work. On the basis of valuation often placed in Connecticut 
 on young unmerchantable forest growth, we may assume a value of $10 
 per acre on land with tree growth, and an average annual tax of 10 
 mills. The tax would then be ten cents per acre. Under present methods, 
 during the twenty years, we should not expect any increase in valuation, 
 and so there would be no increase in annual tax per acre during this 
 immature stage. This tax relief of ten cents per acre running twenty 
 years, if figured at five per cent compound interest, has a present capital 
 value of $1.25 . an acre. The average cost of planting is about $10 per 
 acre. .What inducement is there to expend eight times the amount oi 
 taxes on land for the privilege of going untaxed twenty years? If one 
 assumed the maximum value of $25 per acre with the same tax rate 
 and period of exemption, the present value of the taxes for twenty years 
 would be only $3.12. The exemption period ends long before the timber 
 is merchantable and afterward the general property tax can impose 
 precisely as unjust a burden as in the case of natural forest land of 
 merchantable value. 
 
 Practically no advantage has been taken of either of these laws. One, 
 Section 2320 General Stats., has been on the books about forty years, and 
 the writer knows of no one who has planted and sought exemption under 
 it. Present interest in forest planting was aroused through active 
 influence of the Connecticut Agricultural Experiment Station, the State 
 Forester and the Connecticut Forestry Association, and has had no relation 
 to either of the laws mentioned. In only four cases has the State Forester 
 been requested to examine tracts planted with forest trees in 1912 under 
 the provisions of the act of 191 1. Since this act sets no limit to the 
 value of land to be planted, there is an excellent -chance to escape taxes 
 on land of high value for residential purposes by planting forest trees. 
 Such action if extensively taken might seriously cut down the income 
 of a town. 
 
26 TAXATION OF WOODLAND 
 
 These laws are clearly ineffectual and are furthermore wrong in 
 principle. What is needed is not discrimination in favor of forest grow- 
 ing by tax exemption, but a just and equitable system of taxation that 
 will permit the owner, to know definitely in advance what the expenditures 
 in taxes must be for a forest investment. 
 
 IN OTHER STATES: 
 
 An examination of the laws of the various states reveals the fact that 
 fourteen states,* including Connecticut, have given forest taxation special 
 consideration in legislation. Thirty-four states tax forests under the 
 general property tax without any special modification. No account is 
 given in this report of those few states that have passed acts simply 
 providing for bounties or prizes, without reference to taxation, for the 
 encouragement of forest planting and the establishment of tree belts. 
 
 The statutes om, forest taxation in eight of the fourteen states may be 
 grouped for consideration. These, consist of acts similar to those of 
 Connecticut, and provide for exemption of taxes for a period of from 
 ten years to thirty years if land is planted with forest trees in accordance 
 with conditions stated in the law. In most cases a low maximum value 
 of land to be planted is fixed by law. The eight states referred to are 
 Alabama, Connecticut, Maine, Massachusetts, New Hampshire, Rhode 
 Island, Vermont and Wisconsin. In New Hampshire the exemption is 
 partial, being a rebate of a certain percentage of all taxes assessed. In 
 addition to exemption of planted lands from taxation for ten years, Massa- 
 chusetts law provides that land not exceeding in value ten dollars per 
 acre, if well stocked with thrifty white pine seedlings not less than 15 
 inches tall, upon proof to assessors shall be exempt from taxation for 
 ten years. A clause provides that exemption cease if merchantable trees 
 are cut or removed, except reasonable improvement cuttings. There is 
 no evidence that these laws have been taken advantage of at all. What 
 has been said of Connecticut's law of similar character applies to these. 
 
 Maine has a law placing an annual tax of V/2 mills on the so-called 
 wild lands in the "Maine Forestry District." This is to provide an 
 annual fund for protection of these forests from fire under a State system 
 of prevention and control. 
 
 The State of Washington exempts all fruit trees (except nursery stock), 
 and forest trees artificially grown. North Dakota grants a bounty on 
 forest planting and on forest tree hedges or windbreaks. This bounty 
 is deducted from farm taxes covering a period of five years. This has 
 no direct bearing on forest taxation. Nebraska's statute simply provides 
 that "The increased value of lands, by reason of live fences and forest 
 trees grown and cultivated thereon, shall not be taken into account in 
 the assessment thereof." 
 
 ♦Alabama, Connecticut, Iowa, Maine, Massachusetts, Michigan, 
 Nebraska, New Hampshire, New York, North Dakota, Rhode Island, 
 Vermont, Washington and Wisconsin. 
 
STATE LEGISLATION 27 
 
 Iowa's law is slightly different but the inducement is not great for 
 forest planting. It provides for the* setting apart of forest or fruit tree 
 reservations that are in private ownership and makes certain requirements 
 as to area of reservation, number, species and care of the trees. If con- 
 ditions are complied with, the reservations are assessed for taxation at 
 $i per acre for eight years from the time of planting and the assessed 
 value is not to be increased on account of the value of the trees planted. 
 Such a law has no application to Connecticut conditions. 
 
 Michigan has a law passed in 191 1 which provides for a tax on the land 
 and a tax on the yield when the trees are cut. This law is in the right 
 direction so far as method of taxation is concerned, but it is much restricted 
 in application and is not based on sound forestry principles. A summary of 
 it follows : A certain limited area on a farm in private ownership, either 
 natural forest containing not less than 170 trees per acre or land to be 
 planted or underplanted so as to have the required number of trees per 
 acre, may be selected as a so-called private forest reservation. The carry- 
 ing out of the law is under the State Board of Agriculture so far as 
 form of application, contract and notice are concerned and regulations 
 concerning planting and cutting. Records of reservations, certificates, 
 license to cut and inspection are in the hands of the county treasurer 
 and township supervisor or assessor. Grazing on such land is forbidden; 
 not more than one-fifth of the trees are to be removed in any one year; 
 trees that die or are removed by cutting must be replaced by planting; 
 twenty-one species of trees are named as forest trees within the meaning 
 of the act and "such other trees as the State Board of Agriculture may 
 recommend." Such private reservations come under the act three years 
 after they are selected, cultivated and maintained according to its provi- 
 sions. All conditions being conformed to, (1) "such value of the private 
 reservation as is over and above $1.00 per acre is exempt from all tax- 
 ation." (2) License having been secured to cut and an estimate of the 
 cash value of the timber on the stump having been made by the assessor, 
 then a tax of five per cent of this valuation is levied and collected by 
 local officials before the timber is cut. Not only are the principles of 
 this law unsound from the forestry standpoint but the number of details 
 required in its administration would seem to be sufficient to discourage 
 the ordinary farmer from attempting to select and maintain a forest 
 reservation. Taxation of forest lands under this law would be low in 
 comparison to that of other forms of property. It applies only to a small 
 part of the farm woodlots and leaves untouched the greater problem of 
 just ,and equitable taxation of large forest areas or extensive waste lands 
 that under right conditions might be planted with forest. 
 
 New York State has three taxation laws passed by the legislature in 
 1912 which deserve special consideration, since they modify methods of 
 forest taxation commonly in use in the United States, and introduce a 
 yield tax. These laws are liberal in providing exemption from taxes or 
 reduction of taxation for forest land, with the evident intention of 
 encouraging the establishment of woodlots 1 to 100 acres in extent by 
 planting or underplanting, the reforestation of unlimited areas of cheap 
 
28 TAXATION OF WOODLAND 
 
 non-agricultural lands, and the improved management of woodlots under 
 the direction of the New York State Conservation Commission's foresters. 
 Revaluation is provided for at the end of a thirty-five year period. As 
 few forest species attain their greatest value within that time, even 
 though they may become of merchantable size, a longer" period before 
 revaluation would be more effective in securing the desired results. 
 
 RECENT INVESTIGATIONS AND RECOM- 
 MENDATIONS 
 
 The taxation of forests under the general property tax has been the 
 subject of special investigation within recent years in Massachusetts, New 
 Hampshire and Wisconsin, detailed reports* having been published con- 
 taining recommendations for special legislation. This year it has been 
 under investigation also in California, Pennsylvania and Maryland either 
 by special Commission or under direction of the State Forester's office. 
 In Massachusetts, Ohio and New Hampshire constitutional amendments 
 have been found necessary to permit state legislation along this line. 
 Such amendments were adopted by vote of the people of the two former 
 states in the fall of 1912. Connecticut, however, requires no con- 
 stitutional amendment to permit legislation since its constitution fully 
 gives this authority to the General Assembly. Results of other investiga- 
 tions are well worth consideration. 
 
 In New Hampshire the general conclusions of the investigation are 
 very similar to those that may be drawn concerning the working of the 
 general property tax in Connecticut and are as follows: — 
 
 "(a) The actual tax burdens imposed on forest lands of the same value 
 are not equal or 'proportionate' as the state constitution requires, either 
 as between the different towns or different taxpayers in the same town. 
 
 (b) In general the law has not been strictly enforced in the past, as 
 is shown by the fact that little or no land reverts to the towns because 
 of unpaid taxes. Sometimes an owner believes that the tax is more 
 than the land can stand, but in such cases a purchaser has always been 
 found. This is due to the fact that growing timber has usually been 
 assessed much below its actual market value, and the burden of taxation 
 thus has been lightened so that the land can carry it. 
 
 (c) In the search for revenue to meet the financial necessities of the 
 towns a strong tendency has recently developed to enforce the law more 
 rigidly, and valuations have in many cases been increased with startling 
 rapidity. This rapid increase in valuation cannot be long continued and 
 applied to cut-over land after the owner has been forced to cut, without 
 causing abandonment. Such has 1 been the result of the policy in Cali- 
 fornia, and in Michigan, where the state has acquired and owns a million 
 and a quarter acres of abandoned tax lands, and to a less extent in other 
 Lake states. 
 
 * Report of the Committee of 1905 to Consider the Laws Relative to 
 taxation of Forest Lands. Bull. No. 9, State Forester's Office, Common- 
 wealth of Mass. 1906. Biennial Report of the New Hampshire Forestry 
 Commission 1907-1908. Taxation of Forest Lands in Wisconsin, Wis- 
 consin State Board of Forestry, 191 1. 
 
RECENT INVESTIGATIONS 29 
 
 (d) As between the farmer and the millman to whom he sells his 
 woodlot, taxes have in the past been very low to the farmer while the 
 timber was in his hands and some attempt has been made to appraise it 
 more nearly at its actual value (or rather to approximate the selling price, 
 which is often unduly low) when it is bought for lumbering. -Usually, 
 however, it is cut at once and the town collects taxes at the new appraisal 
 but one year if at all. The consequence is that the timber escapes its 
 fair charge of the public burdens. 
 
 (e) The present law, granting a percentage exemption to owners who 
 have planted their land to timber, is not taken advantage of to any 
 extent and is wholly inadequate. Most of the land upon which there is 
 growing timber is seeded naturally, and therefore does not come within 
 the law. The exemption ceases wholly in thirty years, at the time when 
 it is to the advantage of the towns as well as to the owner to allow the 
 timber to mature further. Moreover tax exemptions are of questionable 
 expediency and excite hostility to those taking advantage of them." 
 
 The investigator in New Hampshire recommended special legislation. 
 The proposed statute applied to "any land in the State chiefly valuable 
 for the production, of wood and timber and occupied by a natural or 
 planted growth of trees, approximately three-fourths of which do not 
 exceed the age of ten years." It provided for special classification of the 
 land and for an annual tax en the land alone at an average valuation 
 determined by the selectmen and assessors, as well as a tax of fifteen 
 per cent on the stumpage value of the timber when cut. 
 
 In Wisconsin the general conclusions reached in the study of taxation 
 under the general property tax are practically identical with those reached 
 in New Hampshire, and somewhat similar legislation is recommended. 
 In that part relating to woodlots, either natural or planted growth, 
 classification of these under application to the State Board of Forestry 
 is proposed for tracts of not more than 40 acres, with provision that the 
 woodland shall be managed under instructions of said board. Without 
 going into the details of the proposed statute it would provide taxation 
 of the land alone at a valuation not to ' exceed $10 per acre, and a tax 
 of 10 per cent on the stumpage value of the timber when cut, in lieu of 
 any other taxes on the timber. A slightly different recommendation is 
 made for lands in Northern Wisconsin which are essentially forest soils 
 (non-agricultural land). The proposed land tax is there limited to a 
 valuation of $1 per acre, and the stumpage tax on cut timber fixed at 
 10 per cent, as in the rest of the State. Other requirements are the same 
 as stated above. 
 
 The most important conclusions to -be reached from consideration of 
 these investigations in New Hampshire and in Wisconsin are that the 
 general property tax is not satisfactory, is unjust in its burden and gives 
 uncertainty to forest investment. A land tax and a yield tax are favored 
 to replace the general property tax. 
 
THE TAXATION OF FORESTS IN EUROPE 
 
 By FRED ROGERS FAIRCHILD 
 Yale University 
 
 (A part of the following discussion of European forest taxation was 
 delivered in an address before the Fifth Annual Forest Conference at 
 Bretton Woods, N. H., July 19, 1912.) 
 
 The European Tax System in General. — There is a tendency among 
 the progressive states of Europe toward agreement upon the general out- 
 line of tax system. As a rule the tax systems of European states are 
 based primarily upon income, rather than upon property as in the 
 United States. The general income tax is normally the basis of the sys- 
 tem; the tax is usually progressive, the rates increasing with the size of 
 income. There is always a minimum income exempt from taxation. 
 Supplementing the income tax there is apt to be a property tax, or a sys- 
 tem of yield taxes, the purpose of which is to place an extra burden of 
 taxation on what we may call funded incomes, that is, incomes derived 
 from invested capital as distinguished from incomes due to personal 
 service. The above is, of course, a very general statement and numerous 
 exceptions will be found. 
 
 Forests in Europe are ordinarily subject to state taxation and to local 
 or communal taxation. As a rule, forests are Subject to one or more of 
 three important taxes: (1) the income tax, (2) the ground tax, and (3) 
 the property tax. 
 
 The Ground Tax. — The ground tax is a yield tax (Ertragssteuer). It 
 is based upon the productivity of the soil and is measured by the yield 
 which is normally to be expected in view of the general character of the 
 soil and the use to which it is devoted. It is not based upon the actual 
 income received from any particular piece of land. No account is taken 
 of peculiarities either in the management of the property or in the 
 personal situation of the owner. Having determined the quality of the 
 soil and the general character of the forest stand, it is assumed that the 
 management is the same as normally prevails in that region. Also when 
 the prevailing kind of wood and management have been decided upon, 
 no account is taken of peculiarities in the condition of a particular forest. 
 The owner who, by careful management, keeps his forest in unusually 
 good condition pays no extra tax on account of the increased yield 
 resulting. On the other hand, the decrease in yield due to neglect, bad 
 management, or other causes brings no reduction in the normal yield 
 tax. In determining the money value of the yield, use is made of the 
 average prices of timber and other forest products which have prevailed 
 during a number of past years. 
 
FOREST TAXATION IN EUROPE 3 1 
 
 The yield which is taxed is in some cases the gross income. In most 
 cases, however, certain reductions are made for costs. Account is taken 
 of intermediate yields as well as major cuttings, but there is frequently 
 no account taken of incidental incomes, which in some parts of Europe 
 are a matter of considerable importance. Certain more or less arbitrary 
 deductions are ordinarily allowed for loss of yield through accident, 
 though in certain important states no such deductions are permitted. 
 
 The ground tax is administered by means of a cadaster. This is a care- 
 ful survey of all of the lands subject to taxation. In the case of forests 
 it involves the determination of the area, the kind of timber, and the 
 general character of the stand. It also ascertains the prevailing method 
 of management in the particular region and the average prices of forest 
 products during a number of past years. Based upon these facts, the 
 yield which is normally to be expected from a unit of land of each par- 
 ticular class is determined, and this normal yield becomes the basis of 
 taxation. Obviously, the construction of the cadaster is an undertaking 
 involving enormous labor and expense and requiring many years to com- 
 plete. Moreover, when once completed the cadaster tends soon to become 
 obsolete. Changes in method of management, changes in the character 
 of the forest stand, changes in prices of wood, all tend sooner or later 
 to bring about a wide divergence between the assessed yield of the cadas- 
 ter and the yield actually being obtained. The time and expense involved 
 in making a new cadaster are so great that old cadasters have always been 
 allowed to remain in force long after they have ceased to conform even 
 approximately to actual conditions. 
 
 The ground tax cadasters of European nations were established at vari- 
 ous times during the nineteenth century. Practically all of them are 
 to-day Obsolete. Many are from 50 to 100 years old. No great state 
 tp-day, however, seriously considers the making of a new cadaster, being 
 deterred by the enormous expense and labor involved. As a rule the 
 result has favored the forest owners. Forest conditions have generally 
 improved since the cadasters were made and in particular the prices of 
 forest products have risen enormously, with the result that the tax is 
 to-day a far lighter burden than was originally contemplated. With this 
 result, however, goes a tremendous amount of injustice and inequality on 
 account- of the change of conditions since the establishment of the cadas- 
 ter. The rates of the ground tax vary greatly, but are not usually very 
 heavy. 
 
 Another disadvantage of the yield tax system lies in the fact that when 
 a new forest is established the tax must be paid at once, and continues 
 annually in spite of the fact that for many years there is no yield from 
 the forest. Some states make allowance for this by providing that new 
 forests shall be exempt from the ground tax for a definite period of 
 years, averaging from twenty to thirty years as a rule. 
 
 On account of the difficulties inherent in the ground tax, this form of 
 taxation has gradually declined in importance. In only a few states 
 to-day is the ground tax the principal method of taxing forests. In most 
 progressive states the ground tax remains only as a supplementary tax 
 
32 TAXATION OF WOODLAND 
 
 in a system based primarily upon other methods of taxation, or else has 
 been given up entirely as a state tax. As the basis of local taxation it 
 is still important and will doubtless long continue. 
 
 The Income Tax. — Most European states have as a more or less impor- 
 tant part of their revenue system a general income tax. This is a tax 
 upon incomes from certain specified sources, which include pretty much 
 all important sources of income. The income from forestry is subject to 
 the income tax where such a tax exists. As a general rule it may be 
 stated that all receipts, either in money or in kind, are subject to the tax. 
 This includes major cuttings, intermediate yields, and incidental uses, 
 and includes also ordinarily the money value of any forest products taken 
 by the tax-payer for his own personal use. The taxable income is 
 normally the net income, deductions being made for the ordinary costs 
 of administration and management. Deductions are also allowed for 
 interest upon debt and 1 to some extent for depreciation of the capital. 
 Costs of reforesting cut-over areas are regarded as expenses and deducted. 
 Costs of establishing new forests, however, are ordinarily not considered 
 expenses, but rather investment of new capital, and are therefore not 
 deducted. 
 
 The income tax, unlike the ground tax, is a personal tax. Instead of 
 assuming a certain normal income, as is done under the ground tax, the 
 income tax takes account of the actual income received by the individual 
 in question from the particular source specified. In administering the tax, 
 account is taken also of the personal circumstances of the tax-payer, and 
 abatements are allowed where special circumstances have impaired tax- 
 paying ability. In the case of forestry some allowance is ordinarily made 
 for irregularities of income by providing that the taxable income in any 
 year shall be the average of the incomes of the forest for the past three 
 years. Deductions likewise are made for the average . administrative 
 expenditures of the past three years. 
 
 The rates of the income tax vary with the size of the income and are 
 different in different states. It is seldom that the maximum rate exceeds 
 S per cent. 
 
 In many of the European income tax laws the attempt is made to 
 distinguish between income on the one hand and yields which cause reduc- 
 tion of the capital on the other hand, the general rule being that the 
 taxable income is only such as can be obtained without a reduction of the 
 capital source from which it comes. Obviously, this distinction is very 
 difficult to apply in the case of forestry. Much confusion and disagree- 
 ment among authorities has arisen over the application of this part of the 
 law. In some states no attempt is made to make such a distinction, but 
 all forest yields are treated alike as forest income subject to taxation. 
 
 The Property Tax. — The property tax in European countries is to be 
 distinguished from the general property tax with which we are familiar 
 in America. The general property tax is a tax levied upon practically all 
 kinds of wealth at a uniform rate. This sort of tax has long ago been 
 abandoned by most European countries. Switzerland is the one nation 
 where the general property tax is still important. Property taxes, how- 
 
FOREST TAXATION IN EUROPE 33 
 
 ever, in the sense of taxes levied upon the capital value of certain speci- 
 fied kinds of wealth, still continue to occupy a position of more or less 
 importance. 
 
 The basis of the property tax is theoretically the actual value of the 
 property in question. This means the market value, or the value which 
 corresponds to the average customary price at which property of the 
 character in question is sold. In the case of forests it is, of course, obvi- 
 ous that the intention of the law is not easily carried out, since sales of 
 forests are of infrequent occurrence. Where it is impossible to determine 
 the actual selling price of forests it becomes necessary to fall back upon 
 some other method of determining the value. The method usually chosen 
 is to ascertain the normal yield produced by a given forest and then obtain 
 the proper value by capitalizing this yield at some specified rate of inter- 
 est. This, of course, makes the property tax quite similar to the ground 
 tax, though with this great difference: the property tax is based not 
 on an ancient cadaster but upon assessments frequently made and revised. 
 This procedure also introduces serious theoretical questions and adminis- 
 trative difficulties. There is, for instance, much dispute among German 
 foresters over the proper rate of interest for capitalizing forest yields. 
 The property tax has, therefore, shown itself subject to many of the 
 difficulties pointed out in the case of the ground tax. Outside of Switzer- 
 land no important European country makes the property tax its sole or 
 principal tax. Where it exists it usually serves the purpose of a supple- 
 mentary tax for the purpose of placing an extra burden upon funded 
 incomes. 
 
 The rates of the European property taxes vary greatly but are normally 
 very much lower than we are familiar with in this country. 
 
 The Tax Systems of the Principal European States.— Very, few states 
 use all three of the above described taxes. The typical modern system 
 consists of the income tax as a principal tax, with either the ground tax 
 or the property tax as a supplementary tax for the purpose of plac- 
 ing an extra burden upon funded incomes, and upon wealth yielding no 
 income. As has been indicated, the ground tax is to-day falling into dis- 
 use, and the property tax is coming to be the leading supplementary tax. 
 For example, in the German Empire the important states of Prussia, 
 Hesse, Baden, and Bavaria make use of the general income tax with the 
 supplementary property tax. Saxony, Wiirtemberg, and a considerable 
 number of less important states use the general income tax with the 
 supplementary ground tax. A still smallej group of states uses either 
 the ground tax atone or a combination of all three, income tax, property 
 tax, and ground tax. 
 
 Austria uses the general income tax with a supplementary 'ground 
 tax. In Switzerland the property tax occupies a position of greater 
 importance than anywhere else in Europe. The income tax is also of 
 importance. In some cantons we find the one, in some the other, the 
 principal member of the tax system. Where the property tax is the 
 main source of taxation, the income tax is apt to be used also as a sup- 
 plementary tax, and vice versa where the income tax is the principal tax. 
 
34 TAXATION OF WOODLAND 
 
 Local Taxation. — The foregoing discussion has related to state taxa- 
 tion only. It is impossible to form a true idea of European forest taxa- 
 tion without taking account also of the taxation of the local bodies, dis- 
 tricts, counties, communes, parishes, and so forth. The local organiza- 
 tion of European countries is so diverse and their systems of taxation so 
 varied, that it is entirely out of the question to give anything like an 
 adequate account within the limits of this chapter. The following is 
 nothing more than the briefest and most general outline of the subject. 
 As a general rule the local bodies of European countries obtain their 
 revenues, (i) from various contributions from the state or other higher 
 political bodies ; (2) from communal property and public industrial enter- 
 prises; (3) from various fees, licenses* and so forth; and (4) from 
 taxation. Taxation is ordinarily relied upon to make' up whatever defi- 
 cit remains after the revenue from the other sources has been applied to 
 cover expenditures. The taxation of the local bodies as a rule con- 
 sists in additional rates imposed upon the principal state taxes, in some- 
 what the same way as the states, counties, and towns share in the general 
 property tax' in this country, the chief difference being that in Europe 
 the tax is a state tax and the administration in the hands of state offi- 
 cials, the local bodies merely adding their necessary rates. Where a state 
 obtains its revenue, for example, from the income tax and the property 
 tax, local bodies may add their own additional rates to one or both of 
 these taxes. It should be mentioned also that in many states where the 
 ground tax has been given up as a state tax it is still commonly kept in 
 force as a basis for the addition of local rates, and so continues to be 
 a source of local revenue. The rates of the local taxes on income, prop- 
 erty, and soil show the utmost variety. Many of the communes impose 
 no taxes whatever, securing all necessary revenue from the other sources 
 named. Among those communes which impose taxes the rates vary all 
 the way from almost nothing to three or four times the state rate. Maxi- 
 mum limits are often fixed by state law. 
 
 Conclusion. — In general the methods of taxing forests in Europe, while 
 decidedly superior to the American system, are still far from having 
 attained perfection. European foresters have been for years engaged in 
 more or less bitter controversy over alleged theoretical defects of their 
 tax systems as applied to forests, as well as over practical rules of 
 administration. While we have much to learn from European experience, 
 no one familiar with the subject would think of suggesting that any 
 European system be introduced bodily here. Knowledge of European 
 experience will not relieve us of the necessity of developing a system of 
 taxation of our own suited to American conditions. 
 
FOREST TAXATION LAWS IN 
 CONNECTICUT 
 
 General Statutes, Sec. 2320. When any person shall plant land not 
 heretofore woodland, the actual value of which, at the time of planting, 
 shall not exceed twenty-five dollars per acre, to timber trees of any of the 
 following kinds, to wit: chestnut, hickory, ash, white oak, sugar maple, 
 European larch, white pine, black walnut, tulip or spruce not less in num- 
 ber than twelve hundred to the acre, and such plantation of trees shall 
 have grown to an average height of six feet, the owner of such planta- 
 tion may appear before the board of relief of the town in which such 
 plantation is located, and, on proving a compliance with the conditions 
 herein, such plantation of trees shall be exempt from taxation of any 
 kind for a period of twenty years next thereafter. 
 
 Public Acts of 191 i, Chap. 205, Sec. i. Any tract of land, consisting 
 of one acre or more, hereafter planted with forest trees, in the propor- 
 tion of not less than twelve hundred trees to the acre, and such planting 
 having been approved by the state forester as hereinafter provided, and 
 such tract being continued as a tree plantation, shall be exempt from all 
 taxation, from and after the second day of October next following such 
 planting, during the continuance of such tract as a wood or timber lot; 
 provided, that such exemption shall not continue for a period of more 
 than twenty years. 
 
 Sec. 2. The exemption provided by this act shall not apply to tree 
 plantations exempted from taxation under the provisions of section 2320 
 of the general statutes, and the exemption provided by said section 2320 
 shall not apply to tree plantations exempted from taxation by the 
 provisions of this act. 
 
 Sec. 3. The state forester shall examine any tree plantation on request 
 of the owner thereof claiming exemption from taxation thereon under 
 the provisions of this act, and if he approve the manner in which trees 
 have been planted on such plantation and finds that the same complies 
 with the requirements of this act, he may issue- to such owner a certificate 
 to that effect, and, on presentation of such certificate to the assessors 
 of the town in which such plantation is located, said lands shall, be 
 exempt from taxation as hereinbefore provided. 4 
 
 Sec. 4. The expense incurred by the state forester in making the 
 examination provided for by this act shall, subject to the approval of 
 the board of control, be paid by the state. 
 
A SURVEY OF FOREST AREAS IN 
 SELECTED TOWNS IN CONNECTICUT 
 
 (Data from Field Work done under direction of the State Forester 
 in the summer of 1912.) 
 
 FOREST CONDITIONS IN THE TOWN OF 
 NORTH HAVEN 
 
 GENERAL CONDITIONS: 
 
 The woodland in the town of North Haven is broken up into small 
 holdings which are retained by the owners, mostly to supply their own 
 needs for fire wood. The town should be classed among those lightly 
 wooded, since only 18.5 per cent of its total area is covered by a forest 
 growth. Because of the manner in which the land is held the wooded 
 areas are patchy so far as age classes are concerned, and it is difficult 
 to draw definite lines bounding the age classes. The accompanying map 
 and Table 1 show the location of and the areas occupied by the different 
 types and age classes, together with an estimate of the present yield in 
 cordwood alone and also in ties and additional cordwood. The tabula- 
 tion also shows the percentage which the area of each age class bears 
 to the total forest area and to the total area of the town. 
 
 FOREST DESCRIPTION: 
 
 Less than 5 per cent of the forest land is covered by the pine and 
 old field type, the remainder being made up of chestnut and mixed hard- 
 woods. In the mixed hardwood type, chestnut forms a large percentage 
 of the total number of trees, the composition of this type being about 
 as follows: 
 
 Chestnut 60-70 per cent. 
 
 Red, black and white oaks 25-35 " 
 
 Maple, hickory, hemlock, tulip, white ash 5 " 
 
 The pure chestnut type contains 80 per cent or more of chestnut, the 
 remainder being made up for the most part of various species of oaks. 
 The situation in North Haven with reference to the chestnut blight is 
 very serious, especially with the younger age classes. In some sections 
 'of the town at least 80 per cent of the trees in the 1-20 age class is 
 infected, while no section appears to J>e entirely free from the disease. 
 
 ANNUAL CUT: 
 
 The annual cut is very irregular and is mostly in the form of cordwood. 
 Practically all cordwood not used for local domestic purposes is con- 
 
RzverTi'ng to Hardwood. _ 
 
 PitchPmc ISNSSSJ 
 
 MAP OF THE TOWN OF NORTH HAVEN, CONN. 
 
 FORESTED AREAS SHOWN IN COLOR. 
 
FOREST CONDITIONS NORTH HAVEN 37 
 
 sumed by brick companies, who own various woodlots in the town as 
 well as in many surrounding towns, which enables them to cut where 
 such operations can be undertaken most cheaply at a given time. For 
 this reason they sometimes do not cut any wood in certain towns for 
 a year, or more. This was the situation with reference to their holdings 
 in North Haven last year, so that it is not practicable to give a definite 
 figure for the annual cut. The average stumpage value of cordwood 
 in the town is about so cents and varies from 25 cents to $1 per cord, 
 the difference being largely due to the cost of hauling. The maximum 
 price known to have been paid by any of the brick companies is $4.25 
 per cord delivered in their yards. The annual cut in ties is still more 
 irregular than the cut in cordwood and is practically negligible. When 
 sold, first-class ties will bring - 50 cents, and second-class, 35 cents 
 (according to specifications of the railroad company for. 1911-12). . 
 
 LAND VALUES: 
 
 The records in the town clerk's office show but a very few sales of 
 land in the town during recent years so it was not possible to trace 
 actual sales and thus determine market values, but the assessed values 
 give some idea of the market, values, since in North Haven these two 
 values are supposed to be the same. The average valuation placed on 
 cut-over land is $10 per acre. Sprout land yielding cordwood is assessed 
 about $25 per acre. One concrete example of value placed on chestnut 
 pole land was found in a case where five acres sold for $375 or $75 per 
 acre. This particular lot was assessed for only $100, but it is probably 
 an exceptional case. 
 
 SUMMARY AND CONCLUSION : 
 
 Assuming that the present average assessed values per acre of various 
 age classes are as shown in the table below, the total assessable value 
 of the woodlots in the town amounts to $47,980. 
 
 
 
 
 
 Av. Assessed 
 
 Total Assessed 
 
 
 Age 
 
 Glass 
 
 Acreage 
 
 Value per Acre 
 
 Value 
 
 Hardwoods 
 
 1-20 
 
 years 
 
 1,299 
 
 $10.00 
 
 $12,990 
 
 SI 
 
 21-40 
 
 n 
 
 1,110 
 
 25.00 
 
 27,750 
 
 " 
 
 41-60 
 
 tt 
 
 Il8 
 
 60.OO 
 
 7,080 
 
 Pitch pine 
 
 
 
 16 
 
 10.00 
 
 160 
 
 Totals 2,543 $47,98o 
 
 According to the Tax Commissioner's Report for 191 1, Public Document 
 No. 48, State of Connecticut, the total assessors' valuation of taxable 
 property in the town was $1,609,682. It will, therefore, be seen that the 
 taxation value of woodland in North Haven is but a small item in the 
 town's capital, since it amounts to less that 3 per cent of the value 
 shown by the grand list. The tax rate during 1911 was 17 mills, hence 
 
3» 
 
 TAXATION OF WOODLAND 
 
 the income to the town from the taxation of woodlots was only about 
 $815, according to the assessed values assumed above. 
 
 The following table gives the area and an estimate of the present forest 
 in North Haven, in cordwood and ties' according to age classes in each 
 forest type. 
 
 TABLE I. 
 
 Forest Type 
 
 Age 
 Class 
 
 Total 
 Cord- 
 wood 
 
 Number 
 
 of 
 
 Ties 
 
 Ad- 
 ditional 
 Cord- 
 wood 
 
 Area 
 (acres) 
 
 a 
 «.£' 
 
 sgs 
 
 Set* 
 
 ft 
 
 aS 
 
 Sh 
 
 ft 
 
 Mixed Hardwoods . . . 
 
 Mixed Hardwoods. . . . 
 (Cut over) 
 
 Reverting to Forest . . . 
 Pitch Pine 
 
 Over 60 
 
 41-60 
 
 21-40 
 
 1-20 
 
 1-20 
 
 Over 60 
 
 41-60 
 
 21-40 
 
 1-20 
 
 41-60 
 
 1,167 
 
 20,198 
 
 3,713 
 
 3,274 
 
 223 
 
 8,013 
 
 44,729 
 
 1,905 
 
 23,416 
 
 648 
 
 15,502 
 
 2,312 
 
 1,505 
 
 31 
 1,110 
 
 471 
 
 761 
 
 ■'07 
 "07 
 
 16 
 
 1-3 
 43-3 
 18.6 
 30.0 
 
 3>4 
 
 2.7 
 • 7 
 
 .2 
 
 8.0 
 3-5 
 5-6 
 
 .6 
 • 5 
 
 
 
 Totals 
 
 
 28,575 
 
 78,063 
 
 19,976 
 
 2,543 
 
 €00 
 
 18.5 
 
 
 Note. Total area of town 13,723 acres! Forest land equals 18, 
 cent. 
 
 5 per 
 
 FOREST CONDITIONS IN THE TOWN OF 
 WOLCOTT 
 
 GENERAL CONDITIONS: 
 
 Approximately 69 per cent of the total area of the town of Wolcott 
 is woodland at the present time. It is probable that the percentage of 
 woodland in this town will always remain high, since it is estimated that 
 at least 65 per cent of the land now wooded is more suited for the 
 production of wood or timber than for any other purpose. The oldest 
 stands of timber are 21-40 years of age. These occur scattered in small 
 patches throughout the town, but the total area covered by such stands 
 is only about 2 per cent, while the stands in the 1-20 year age class 
 cover about 98 per cent of the wooded area. About 27 per cent of the 
 woodland in this 1-20 year class bears a crop too young to furnish a 
 yield of cordwood for several years to come. Occasional older trees 
 are found through the 1-20 year stands, which account for the 17,907 
 ties shown under the caption "Mixed hardwoods, 1-20" in the tables II 
 and III on page 40. 
 
FOREST CONDITIONS WOLCOTT 39 
 
 FOREST TYPES: 
 
 Three forest types were distinguished, namely: mixed hardwoods, old 
 field, chestnut. 
 
 Mixed hardwood type: The mixed hardwood type predominates in 
 Wolcott since over 89 per cent of the wood area comes under this classi- 
 fication. The composition of this type as it occurs here is about as 
 follows: chestnut 65 per cent, oaks 25 per cent, gray birch 5 per cent, 
 maple 4 per cent, all others 1 per cent. 
 
 Old field type: Under the classification adopted for this report only 
 lands reverting to forest and not pastured were included in this type. 
 Lands bearing a scattered growth of birch and cedar but which are being 
 used for pastures were classed as agricultural rather than as forest land. 
 There is a considerable area of lands of this character in Wolcott. The 
 old field type, as described above, occupies about 10 per cent of the 
 wooded area, the composition being about as follows : gray birch 80 per 
 cent, poplar 5 per cent, red cedar 2 per cent, others 13 per cent. 
 
 Chestnut type: Only about J4 per cent of the wooded area supports a 
 chestnut type. The composition of this type as it occurs in Wolcott is 
 chestnut 80 per cent, oaks 15 per cent, others 5 per cent. 
 
 ANNUAL CUT AND MARKET: 
 
 No satisfactory basis for estimating the annual cut could be found. 
 The normal product of the woodland in Wolcott is cordwood but the 
 annual cut is very irregular. Cordwood is cut and used locally, largely 
 to the exclusion of coal, and , any surplus is hauled either to Waterbury 
 or Bristol, where a ready market is found. As far as shown the only 
 product aside from cordwood cut in Wolcott during the past five years 
 was. ties, and only a few were cut and at irregular intervals. The 
 haul to market varies from two to eight miles. 
 
 VALUES OF FOREST PRODUCTS: 
 
 The local values of forest products are as follows : 
 
 Cordwood delivered at Waterbury $3-75 per cord. 
 
 First class ties (7x9) 70 each 
 
 Second class ties (6x8) 55 
 
 Third class ties (formerly seconds with 5" face) 35 
 
 Telephone poles, 30' with 6" top 2.50 
 
 Telegraph poles, 35' with 6" top and 12", 6' from butt . . 3.00 
 
 SALE AND ASSESSED VALUE OF LAND: 
 
 In general, woodland is assessed for the purpose of taxation at $5 
 to $12 per acre, and agricultural land at $12 to $20 per acre. No reduc- 
 tion in the assessed value of woodland is made when the wood or timber 
 has been cut. The two examples of sales given below are suggestive of 
 the^ true values of certain classes of forest land. 
 
FOREST CONDITIONS — WOODSTOCK 4 1 
 
 FOREST CONDITIONS IN THE TOWN OF 
 WOODSTOCK 
 
 GENERAL CONDITIONS: 
 
 Woodstock contains 39,on acres, of which 15,218 acres or 39 per cent 
 is wooded and 23,793 acres or 61 per cent non-wooded. Of this wooded 
 area the hardwood type occupies 56 per cent, the reverting type 32 per 
 cent, the pine and pure hardwood type together 11 per cent, chestnut 5 
 per cent, and pine plantation 5 per cent. According to age classes stands 
 1 to 20 yearsNald occupy 72.5 per cent, those 21 to 40 years, 25 per cent, 
 those over 40 years about 3 per cent. The present stand of timber in 
 the town is estimated at 152,500 cords of hardwood and 23,700,000 feet of 
 pine lumber. Woodland ■ does not appear to be excessively taxed at pres- 
 ent. The failure of assessors to classify land, however, makes accurate 
 observations on this point difficult. 
 
 FOREST TYPES : 
 
 Chestnut: Only three stands were found with an aggregate area of 
 53 acres or 35/100 of 1 per cent of the wooded area of the town. The 
 type is almost pure with occasional oak, maple or ash. 
 
 Mixed Hardwoods: This covers 8,583 acres, or 56 per cent of the 
 wooded area. Oak, chestnut and hickory make up 80 to 90 per cent of 
 the stand, the remainder being white pine, hemlock, maple, and black, 
 yellow and paper birch in varying proportions. 65 per cent to 70 per 
 cent is oak and chestnut together. Some stands show 55 per cent oak 
 and 15 per cent chestnut, and others have 15 per cent oak and 50 per 
 cent chestnut. In the swamp hardwood type maple and black birch form 
 about 50 percent, and oak and chestnut about 40 per cent. 
 
 White Pine: 1,086 acres, 7 per cent of the wooded area, is covered 
 by this type, which is found chiefly in the west part of town along the 
 north and west boundaries. The composition varies from 100 to 95 per 
 cent in small amounts. In one place 80 per cent pine and 20 per cent 
 gray birch were found. 
 
 Pine-Hardwood: This type occupies 573 acres, nearly 4 per cent of 
 the wooded area. It is confined to white pine and any or all of the hard- 
 woods named under "Mixed Hardwoods." In assigning stands to this 
 type a composition of over 10 per cent hardwoods and less than 80 per 
 cent pine was used as a basis, but the relative value and size of the trees 
 was also considered. Thus a few large pines per acre in a hardwood 
 stand would place it in this type. 
 
 Reverting Type: As a whole this occupies 4,868 acres or 32 per cent 
 of the wooded area, and is composed of gray birch-poplar stands and 
 gray birch-white pine stands. The latter are near the pine and pure hard- 
 wood stands in the north and west, and comprise about 6 per cent of 
 the whole type. The composition is gray birch 50 to 60 per cent, with 
 the balance white pine. 
 
42 TAXATION OF WOODLAND 
 
 ANNUAL CUT: ^ 
 
 This is not a fixed quantity. In 191 1 approximately 1,800,000 B.F. was 
 lumbered. 75 per cent of this was white pine, and the remainder hickory, 
 chestnut, oak, maple, and small quantities of other species. During 1912 
 the total cut is not expected to exceed 600,000, most of which will be 
 pine. The market for poles is spasmodic, there being no general demand 
 for them. Several years ago, at the installation of a telephone line in 
 the town, a local market for poles arose and they brought from $1.75 
 to $2.25, delivered, varying with length and diameter. Since then no poles 
 have been sold nor is any market anticipated until renewals are necessary. 
 Very few ties are marketed except in those parts of the town nearest 
 to the railroads. Even here the market is very irregular and during some 
 years no ties are sold at all. The annual cut of cordwood is 6,000-7,000 
 cords, 5,000-6,000 of which are used locally and about 1,000 cords marketed 
 in Putnam and Southbridge, Mass. 
 
 MARKETS : 
 
 There are but two markets other than the local one, namely, Putnam 
 and Southbridge. Both are about two miles from the Woodstock line. 
 The distances from these markets vary from 3 to 10 miles. The section 
 of Woodstock near Putnam is made up largely of agricultural land while 
 that near Southbridge is well wooded. Consequently the larger share 
 of wood products of Woodstock are marketed at Southbridge. Occasion- 
 ally products are marketed to distant points through Quinnebaug. Cor- 
 porations such as the Diamond Match Co. ship their products from 
 Quinnebaug. 
 
 PRICES OF FOREST PRODUCTS 
 
 On the Stump Delivered • 
 
 Poles No market $i-75 to $2.25 (last sales). 
 
 Ties 80 to io0 First class 500 second 350 
 
 Cordwood $1. to $2 $3.00 to $5.50 per cord. 
 
 W. P. lumber $6. per M $i4--$35. per M. ft. 
 
 Hickory $I2.-$I4. " 
 
 Chestnut $I4.-$i6. " 
 
 REQUIREMENTS AND REGULATIONS: 
 
 White Pine Lumber: The very best clear boards bring $35 per M. 
 The regular mill run brings about $25 per M. Box boards and short 
 pieces bring from $14 to $18 per M. These are not edged at the saw 
 mill but sawed through and through. This allows closer utilization at 
 the box factory. 
 
 Cordwood: When the bigger prices ($4.50 to $5.50) are paid for cord- 
 wood it must contain a large per cent of oak or maple with little or 
 no chestnut. Any considerable quantity of gray birch is also barred. 
 Gray birch alone will bring but $3.00 per cord delivered. Pine is used 
 
LEGEND 
 
 Una Hanlwoat I 
 
 MAP OF THE TOWN OF WOODSTOCK, CONN. 
 
 FORESTED AREAS SHOWN IN COLOR. 
 
FOREST CONDITIONS — WOODSTOCK 43 
 
 very little except in rare cases as a summer fire wood and is not con- 
 sidered salable. 
 
 Poles and Ties: The regular railroad and telephone requirements 
 throughout the State apply. 
 
 VALUE OF FOREST LAND: 
 
 Wooded areas run in actual value from $i per acre up to $250 per acre 
 for the better pine. The lowest assessed value is $1 per acre and the 
 highest about $16 per acre. Farm land in the south and east parts of 
 the town is assessed as high as $50 per acre. 
 
 MISCELLANEOUS : 
 
 There has been but one case in which land was sold for taxes in a • 
 long time. The man in this case allowed the sale to be advertised as 
 a protest on his part against the amount of the assessment, and at the 
 sale he bid the land in himself. Classification of land has not been 
 attempted at all. Farms are put in as a unit regardiess of the quality 
 of different parts. All land belonging to one owner is assessed as a unit. 
 
 Grand list = $ 909,328.00 Tax rate is 15 mills. 
 
 " " = 1,059,329.00 (As corrected by State.) . 
 
 The chestnut disease is not at all prevalent. There was but one tree 
 found in the east center of section showing signs of the fungus. There 
 are two 20 acre, three 4 acre, and a number of smaller plots planted to 
 white pine. There are two older plantations of two or three acres each, 
 both in excellent condition. The older plantations show losses as high as 
 70 per cent. Some of the smaller ones show less than 13 per cent loss. 
 
 There are seven permanent sawmills in the town, all of which run 
 by water power. Several steam portable mills operate in various sections. 
 All of the permanent mills operate intermittently and only in the spring 
 months when there is enough water. In summer the ponds are nearly 
 dry. In the south-west part of the town, near Crystal Lake, there is 
 a box factory in operation. The owner does not cut his own timber but 
 buys it from jobbers. 
 
 SUMMARY: 
 
 The following table gives the area and an estimate of the present 
 forest in Woodstock, — in cordwood, ties and lumber, according to age 
 classes in each forest type. ' 
 
44 
 
 TAXATION OF WOODLAND 
 
 TABLE IV. 
 
 Type 
 
 Age 
 Class 
 
 Area 
 (acres) 
 
 Total 
 Cordwood 
 
 Ties 
 
 Additional 
 Cordwood 
 
 Board Feet 
 
 
 Over 6o 
 41-60 
 21-40 
 
 1-20 
 
 Over 60 
 
 41-60 
 
 21-40 
 
 1-20 
 
 Over 60 
 
 41-60 
 
 21-40 
 
 1-20 
 
 41-60 
 
 , 21-40 
 
 1-20 
 
 1-20 
 
 1-20 
 
 20.23 
 
 1.370 
 
 16,022 
 
 402 
 
 
 
 
 1 ( 
 
 32.67 
 
 829 
 
 . 1,307 
 
 589 
 
 
 ti 
 
 
 
 
 
 
 ' 
 
 
 
 68.46 
 
 2,765.66 
 
 5.749-2Q 
 
 18.67 
 
 131-61 
 
 677-39 
 
 258.47 
 
 II5-I4 
 
 357-88 
 
 99-58 
 
 4.778.09 
 
 90.25 
 54-90 
 
 1.903 
 66,451 
 56,736 
 
 5,014 
 
 1 1 q, 046 
 
 32,754 
 
 1,484 
 53,525 
 54,429 
 
 
 ( t ( > 
 
 
 .1 
 
 
 White Pine 
 
 1,218,628 
 
 «i a 
 
 
 
 
 4,056,350 
 T 3i37o,626 
 
 41 II 
 
 
 
 
 It ( ( 
 
 
 
 
 
 Hardwood, and 
 White Pine 
 
 3,228 
 
 2.799 
 176 
 
 18,930 
 
 150 
 
 7.129 
 4,276 
 
 2,741 
 2,352 
 
 396,676 
 4,707,840 
 
 White Pine . , ) 
 
 
 
 
 
 
 
 White Pine ) 
 
 
 
 
 
 
 
 
 Totals 
 
 
 15,218.20 
 
 152,572 
 
 185,548 
 
 115,522 
 
 23,751,120 
 
 
 
 
 Note : Total area of town, 39,011 acres. Forest area equals 39 per cent 
 
 Tables 5. and 6 give the area occupied by the various forest types and 
 age classes, and the percentage in each case of the total land area of 
 the town and the area of woodland, respectively. 
 
 TABLE V. 
 
 Types 
 
 Area 
 (acres) " 
 
 Per cent of 
 
 total area of 
 
 town 
 
 Per cent of 
 
 area of 
 woodland 
 
 Chestnut 
 
 53 
 8,583 
 1,086 
 
 573 
 4,868 
 
 55' 
 
 0.14 
 22.00 
 
 3-00 
 
 I.+ 
 I2.+ 
 
 O.14 
 
 • CS.35 
 
 56.OO 
 
 7.00 
 
 4.00 
 
 32.OO 
 
 O.36 
 
 Mixed Hardwood 
 
 Pine 
 
 Reverting to forest . . . 
 
 Totals 
 
 15,218 
 
 39.0O 
 
 
 
 
FOREST CONDITIONS — WOODSTOCK 
 
 45 
 
 TABLE VI. 
 
 Age Class 
 
 Acres 
 
 Per cent of 
 total area 
 of town 
 
 Percent, of 
 
 wooded 
 
 area 
 
 1—20 
 
 11,030 
 
 3,834 
 315 
 
 t ■ 39 
 
 28.00 
 
 10.00 
 
 t.oo 
 
 0.10 
 
 73.00 
 25.00 
 
 
 41-60 
 
 
 0.25 
 
 Totals 
 
 15,218 
 
 39.00 
 
 100.00 
 
 TABLE VII. 
 Summary of Woodland Area by Types and Age Classes. 
 
 
 Over 60 
 years 
 
 j'41-60 
 
 21-40 
 
 1-20 
 
 Cut over 
 recently 
 i-S yrs. 
 
 Totals 
 
 Pine 
 
 Reverting to Forest . . 
 
 (acres) 
 20 
 
 19 
 
 (acres) 
 
 68 
 132 
 ii5 
 
 (acres) 
 
 33 
 
 2,766 
 
 677 
 
 358 
 
 (acres) 
 
 4,?55 
 71 
 26 
 
 4,093 
 
 (acres) 
 
 1,494 
 188 ' 
 
 73 
 
 775 
 
 55 
 
 (acres) 
 
 53 
 
 8,583 
 
 1,086 
 
 573 
 4,868 
 
 -, 55 
 
 Totals 
 
 39 
 
 315 
 
 3,834 
 
 8,445 
 
 2,585 
 
 15,218 
 
 Note: Forest area under 21 years old, 11,030 acres; over 20 years old, 
 4,188 acres. 
 
EXAMPLES OF SALE AND ASSESSED 
 VALUES OF WOODLAND IN CONNECTICUT 
 
 (These were secured in various towns by representatives of the Com- 
 mission during the summer of 1912.) 
 Case 1. 14 acres merchantable timber bought in 1904 for $800.00, assessed 
 
 at $140.00 ($10.00 per acre). 
 Case 2. 37 acres bought in 1910 for $200.00. Assessed with rest of farm 
 
 at $10.00 per acre. Has some tie trees on it but not ready to be cut 
 
 for 20 years. 
 Case 3. 27 acres taxed at $20.00 per acre for many years. Revaluation 
 
 raised it to $75.00 per acre. Sale value of tract is approximately 
 
 $5,200.00. 
 
 Case 4. 30 acres bought for $125.00. Assessed at $5.00 per acre. 
 Case 5. 285 acres of land having a fair stand of young pine and chest- 
 nut seedlings. Sold for $4.00 an acre; assessed at $3.50 per acre. 
 Case 6. 12 acres of cut-over land assessed at $10.00 per acre. No buyer 
 
 at offer of land at $2.00 per acre. 
 Case 7. 7 acres saw timber purchased at $40.00 per acre. Assessed at 
 
 $20.00 per acre. Near to market. 
 Case 8. 233 acres of 10 year old sprouts, purchase price $10.00 per acre, 
 
 assessed at $8.00 per acre. 
 Case p. 2,480 acres of rough land mostly oak and chestnut timber, 3 
 
 miles on average from market, assessed at $75,000.00 or approximately 
 
 $30.00 per acre. 
 Case 10. 8 acres cut-over land covered by valueless brush, last sold for 
 
 $10.00 per acre, assessed at $8.00 per acre. 
 Case 11. 162 acres, white pine 70 per cent, and hardwoods 30 per cent, 
 
 (30 acres swamp, 20 acres nothing on it, balance good land) purchased 
 
 at $2,200.00, assessed at $2,600.00. 
 Case 12. 8 acres of saw timber two ,and one-half miles from market, 
 
 last sold for $40.00 per acre, assessed at $20.00 per acre. 
 Case, 13. 37% acres of timber over 80 years old, three miles from market, 
 
 last sold for $70.00 per acre, assessed at $40.00 per acre. 
 Case 14. 2iy 2 acres of woodland just cut over, sold for $5.00 per acre 
 
 and is assessed at $4.00 per acre. 
 Case 15. 10 acres of 15 year old sprouts three miles from market, last 
 
 sold for $12.00 per acre, and is assessed at $7.50 per acre. 
 Case 16. 777 acres of sprout land and swamp, last sold for $6.00 per 
 
 acre, assessed at $6.00 per acre. 
 Case 17. 20 acres of saw timber, two miles from market, last sold for 
 
 $1,600.00, was assessed at $300.00 in 1909. Valuation was raised to 
 
 $1,000.00 in 1911. 
 
SALE AND ASSESSED VALUES 47 
 
 Case 18. 37 acres of 5 year old sprouts last sold for $1.00 per acre, 
 assessed at $100.00 for the lot (1909). Valuation was raised to $370.00 
 in 191 1 • ($10.00 per acre). 
 
 Case 19. 30 acres tie and pole timber, valued at $6o-$6s per acre, assessed 
 at $50.00 per acre. 
 
 Case 20. 31 acres pine bought for $14.00 per acre, assessed for $7.00 per 
 acre (J/2 value), raised to $10.00 per acre; revaluation, raised to 
 $100.00 per acre. Last value probably true market value but owner 
 says he cannot hold it under this tax value. 
 
EXTRACTS FROM THE RECORD OF THE 
 PUBLIC HEARING 
 
 Special Commission on Taxation of Woodlands, 
 State Capitol, Hartford, Jan. 30, 1912. 
 
 A Member of the Commission : — "In a general way we hear the com- 
 mon criticism that woodlands are heavily taxed. Doubtless all of you 
 have heard that remark a great many times. Each town has to collect 
 sufficient revenue to run it, and if one class of property is added to, and 
 another is eased up on, the condition is similar. If you reduce the taxes 
 on forest land you have to make it up on another class. It is a great 
 problem — one of the future — what way our forest lands are taxed, and 
 if any of you gentlemen, and I hope all of you will before you leave 
 this meeting, freely state your theories on this matter, it will be a great 
 help to us." 
 
 Mr. D (representing Massachusetts manufacturers) : — "At 
 
 the present time we have about 3,500 acres in four Connecticut towns. 
 We have increased every year, until at the present time we have some 
 four hundred acres planted. We think we can raise our stock cheaper 
 than we can buy it. We are greatly interested in this subject (taxation), 
 and while up to the present time we have not taken advantage of any 
 of your laws in exempting any of this property, partly because we didn't 
 think they were what they ought to be, and possibly because we didn't 
 need to do it, now that we have done. so much we would like to obtain 
 any benefits to be derived. There are one or two points which ought 
 to be considered, especially your present law requiring 1,200 plants to 
 the acre. In a way that is all right on fine clear land. Anybody who 
 has had experience in planting pines knows that you can get 1,200 trees 
 to an acre on an open section, but if you start in on a piece of land 
 that has been cut over — and in our country where there is brush, stumps, 
 ledges, etc., — you can't get 1,200 to the acre. It seems that that matter 
 should be left to the discretion of the State Forester. * * * The thing 
 I would look for most is to offer inducements to these people to plant. 
 It has been the general custom through our section for farmers to cut 
 and sell the timber until they would simply strip it. They would cut 
 down a tree that would not be over three or four • feet high. They 
 wouldn't leave anything, and the land became almost worthless." 
 
 A Member of the Commission :— " Are you familiar with the methods 
 of assessors at present or for the past few years in handling your 
 property there?" 
 
 Mr. D :— "It differs in the different towns." 
 
 A Member of the Commission: — "Could you state approximately the 
 range of variation in values?" 
 
PUBLIC HEARING 49 
 
 Mr. D : — "I don't know as I could. Some are very rea- 
 sonable and many others are very unreasonable." 
 
 A Member of the Commission : — "Would it be asking too much if 
 you could look this matter up and place before this Commission informa- 
 tion along these lines?" 
 
 Mr. D : — "I should be very glad to do so. There are two 
 
 towns where we own property at the present time and we won't buy 
 any more in them. They assess the land at the highest figure." 
 
 Another Member of the Commission :: — "Wouldn't that same thing apply 
 in other towns?" 
 
 Mr. D : — "Yes, it could. That is why we have left 
 
 Massachusetts and entered Connecticut. In 3,500 acres we have quite 
 a good deal that is very valuable and we are very glad to pay a good 
 tax on it; in fact we want to pay a fair tax, but no more." 
 
 Mr. W (a town selectman) : — "* * * I don't know how 
 
 you are going to tax timberland, I am sure, but there ought to be some dif- 
 ferent method from the present. The assessors in my town do not pretend 
 to tax timber land at its actual value, for they think that the owners of 
 such land cannot afford to pay taxes on such a value. I know of a man 
 
 in who has a very nice piece of pine land. Recently they 
 
 had a. revaluation in that town and put property on a full value basis. 
 As the result they raised the assessment on this piece of woodland to 
 one hundred dollars per acre. The man wants to keep it but can't because 
 he can't afford. to pay such excessive taxes on it." 
 
 A Member of the Commission: — "What proportion of fair value does 
 that one hundred dollar assessment represent?" 
 
 Mr. W : — "I don't know, but I suppose the woodland is 
 
 probably worth the one hundred dollars per acre. A man cannot, how- 
 ever, pay the rate on a hundred dollar assessment per acre for a term 
 of years, because he can't eut an annual crop, rather one in fifty years 
 perhaps." 
 
 A Member of the Commission: — "If that man were taxed at the present 
 and actual value of that pine and paid the tax for so many years, it 
 would eat up a large proportion of the yield, wouldn't it?" 
 
 Mr. W : — "Yes. Mr. D brought out a point 
 
 that ought to be considered — that is to obtain the exemption of land 
 under the new law 1,200 trees have to be planted to the acre. On ledgey, 
 rocky land that is covered with brush and stumps it is impossible to get 
 1,200 pine to the acre." 
 
 A Member of the Commission :— "What proportion of the land in 
 is woodland ?" 
 
 Mr. W 1 : — "I think there is as much timber land as 
 
 agricultural land. I think there is at least one-half of the land in the 
 town utilized as woodland. We have, I think, 200 acres— probably less — 
 150 acres that is old pine, and that is taxed for forty-five dollars per 
 acre. The Connecticut Forestry Association spoke of having a meeting 
 there some time ago, and I hope they will have it in the near future. 
 That is taxed the highest of any land in the town, and the majority of 
 
SO TAXATION OF WOODLAND 
 
 the land would not be much lower on the basis of taxation of land 
 value alone. I don't know how you would get at it on the basis of 
 the average agricultural land value in our town.'' 
 
 Mr. E (a manufacturer) : — "Along that line, I have had 
 
 just a little experience where there was very little value in the land apart 
 from the trees on it. I recently sold a piece of land with timber on it, 
 and it became a question between the lumber man and myself as to who 
 should own the land. He considered it absolutely worthless and he 
 preferred to have me own the land. Another thing; my wife inherited 
 
 some such land in from which the trees had been cut. The 
 
 assessment before the trees were cut was something like $1,200, and after 
 all the trees were cut off the assessment still remained on the books 
 
 of at $800. The tax rate being twenty mills, those- who 
 
 held it thought it a very heavy tax and offered to give it away, but no 
 one came forward for it for several years." 
 
 Mr. H (woodland owner) : — "I want to reiterate what 
 
 this gentleman said. In many instances if you sell a piece of land to 
 a lumber man he says, 'You take the land.' It is worthless unless it 
 can be utilized for agricultural purposes. For that reason I think the 
 land is excessively taxed." 
 
 A Member of the Commission : — "The question of the town's grand 
 
 list is quite a serious one. Take a town like which has 
 
 certain expenses for roads and schools. If one-half of the property 
 of the town is woodland and is exempted for twenty or twenty-five years, 
 
 or until the timber is cut, which Mr. D says should be 
 
 forty years, the town has to look somewhere for a revenue. I have had 
 a great many conversations and discussions with selectmen and assessors 
 about this matter, and they all agree that so much exempted property 
 in a town is a serious menace to the income of the town. If a statute 
 could be passed taxing the property on the -fair valuation of the land, 
 the town would be able to get some revenue from it, and they probably 
 would be willing to exempt the crop. (Until it is ready to cut, Ed.) That 
 would not take out of the list a lot of property on which they would get 
 no income. I think the town's standpoint has to be considered as well 
 as the foresters' in giving him an incentive to utilize waste land for 
 purposes which will be mutually beneficial to the town and the individual." 
 
 Mr. Ed (a lawyer) : — "I came here to listen entirely, but 
 
 from what I have heard here, supplemented by my experience, it seems 
 to me that the question of the taxation of woodlands to-day is different 
 in the different towns. Some of the experiences related here are quite 
 different from the town I have the greatest interest in and knowledge 
 of. My inference has been that timber is not taxed very much. The 
 actual cut timber which is marketed from year to year in my town, I don't 
 think ever goes into the tax list. For as it is sold from year to year 
 you won't find a corresponding change in the tax lists of the owners. 
 I don't think, in the town I have in mind, that you could argue the 
 fact that the timber has ever been taxed. That is my personal opinion. 
 I couldn't complain in the town where I live of the tax. I have a 
 
PUBLIC HEARING SI 
 
 hundred acre tract which I bought five or six years ago. I paid a little 
 less than $2.50 per acre for it, and I put it in the town list at $2.50 
 per acre, and I pay 3J4 cents per acre each year as a tax. Suppose I 
 let that stay for 100 or 50 years, z T A cents per year would only make 
 $3.50 as a tax for 100 years; so I have no grievance against the tax 
 policy of the State." 
 
 Mr. H : — "I have cut over timber land taxed at ten dol- 
 lars per acre. I have appeared before the board of relief several times, 
 and finally offered it to the town for ten dollars per acre, but they didn't 
 take it. Then I told them I would give them a present of ten dollars 
 if they would takte it. After the timber is cut it is worthless and you 
 can't get rid of it." 
 
 Mr. Ed : — "People put a farm in the list at $2,000 and 
 
 the assessment stays at $2,000. Once in a while he may sell off $500 
 worth of timber, but the value don't change on the list. It all figures 
 down to. the question of putting a man's property in for a decent and 
 proper valuation." 
 
 A Member of the Commission: — "I can say that many assessors have 
 told me that they put the forest land in for a fair figure and after the 
 timber is cut they can't lower the price; the town couldn't afford it 
 after taxing it for so long at such a low assessment." 
 
 Mr. Ed : — "I think that is the theory in the cases I know 
 
 of. In practice, I don't know how it works out." 
 
 A Member of the Commission: — "That is the practice, and the theory 
 
 is what the statutes say. In they had a revaluation and 
 
 increased all the property. They put this land in for ten dollars per 
 acre, and approached the meaning of the literal wording of the statute 
 'at fair value.' In many towns the assessors do not follow the statutory 
 basis and are taking the power to themselves, not pretending to assess 
 it for its value. In that way the men who own forests in many towns 
 are not burdened. When the State of Connecticut passed one law that 
 property should be assessed at its actual value, and another providing 
 for the board of equalization to add a sufficient sum to the towns' lists 
 to put it on a fair value basis, they recognized the fact that the towns 
 probably would not put property in at its real value." 
 
 Another Member of the Commission: — "The man who buys land for 
 forestry purposes, as an investor, wants to know about what it will 
 cost him for the various steps he has to take. Under the present system, 
 I think that as a rule the forest property is valued very low, but that 
 gives no assurance as to what the practice may be in the future." 
 
 Mr. El (a lumberman and land owner speaking in refer- 
 ence to taxing woodland) : — "It should be taxed for certain rates for 
 certain periods. The first five years there should be no tax; from five 
 to ten years, five dollars; from ten to fifteen years, ten dollars; from 
 'fifteen to twenty years, thirteen dollars; from twenty to twenty-five 
 years, sixteen dollars; from twenty-five to thirty years, twenty dollars; 
 from thirty to thirty-five years, twenty-five dollars; from thirty-five to 
 
S3 TAXATION OF WOODLAND 
 
 forty years, thirty dollars. In that way as the timber grows up the 
 taxes are increased." 
 
 Mr. G. (a farmer) : — "I have only recently come in, and 
 
 have not heard much of the discussion. I think the forest industry has 
 to be encouraged in some way if anyone is going to reap any benefit 
 from it. At the present time the owners are carrying the burden. In 
 many parts of the state the iand is of very little value, and it becomes 
 less and less from day to day. In my neighborhood forest land is of 
 almost no value whatever, and if the chestnut disease increases, the land 
 will be worthless, for the trees are all dying. ****** On 
 general principles I am opposed to any class legislation (such as an 
 exemption of taxes), and would hesitate to recommend anything of 
 the kind. I don't like the looks of it, however, but can't see any out- 
 look where the owners can continue to hold the land under the present 
 circumstances." 
 
 Mr. B (a fruit grower) : — "I came here to get information. 
 
 I feel and believe that any. man who wants to make money had better 
 stay out of the forestry business. I have been in contact with it because 
 I had to. With the present uncertain expenses connected with the indus- 
 try, particularly that of taxation, a man would be scared away from 
 the idea of planting. There is some objection to putting all the taxes 
 on the crop when ready to remove in the shape of lumber because it 
 will cripple the revenue of the towns, but I can't see why it wouldn't 
 be practical for the State Forester — or some other authority — to -classify 
 the forest lands and put a value on them, which could be well determined 
 from year to year, for a certain period of time. In other words have 
 a graded system of taxation for this class of property. * * * I am 
 sure* investors won't take it up until they know what they are 'up 
 against.' I can't suggest anything that will be of interest to you, but 
 am interested and would like to see a solution of the problem that would 
 be beneficial to the State as well as to the individuals. I was interested 
 the other day in looking up the records o'f land that was offered to me 
 by a corporation. They offered it to me for $100. It was cut off, and 
 it is taxed at a valuation of $300 now. I have no doubt but that they 
 are keeping the land because they can't sell it and I know of land that 
 has been raised 400 per cent also,, which is not altogether forest land — 
 it was waste land four or five years ago. It seems that such land should 
 have a low valuation to start with and give it a chance to develop." 
 
 Extract from a letter from a Connecticut land owner and farmer, 
 read at the public hearing:— "I am distinctly and positively of the 
 opinion, however, that intensive forestry will not make very great prog- 
 ress in Connecticut or anywhere else, unless some change in the tax laws 
 is made so that the owner of woodland will not have to pay repeated 
 annual assessments on property which produces no annual income. Aside 
 from this, however, my own experience leads me to believe that a tax 
 on timber when it is cut would bring more to the community than any 
 system of annual taxation which it would be possible economically to 
 
PUBLIC HEARING S3 
 
 devise, — certainly more than the system now in force. For the present 
 system takes almost no account of the timber value, except when it is 
 extraordinarily high. When timber is cut, the assessment of the land is 
 reduced, but it is almost universal in this state, I believe, to ignore the 
 timber value after it passes the cordwood stage. When the timber is 
 assessed, the rate becomes such as to compel immediate cutting. It is 
 the uncertainty as to when such an assessment will be made that discour- 
 ages the investment of capital in the large acreage of land in the state 
 which is suitable for nothing but forestry, and which ought to be profitably 
 employed." 
 
 Extract from a letter from a Connecticut manufacturer read at the 
 public hearing: — "I am glad you are busy with the question. It would 
 seem to me that we ought to develop along the line of taxing land and 
 timber separately, putting only the most nominal tax on the latter while 
 growing, a little higher while mature, and a fair tax based on market 
 values when cut and sold. We must have such a change in tax laws 
 as will not only cease to penalize holders of forest land but which will 
 encourage owners of land to keep same planted. The large benefits which 
 come to the people, as a whole, from growing timber, justifies us in a 
 policy even of generosity to all timber growers, so that steps such as 
 above, asking only for justice, ought not to be hard to take. I am 
 interested in this matter not only as a citizen but as secretary of an 
 association which has made a beginning in the ownership and conserva- 
 tion of timber land in our suburbs, and because of my connection with 
 a company which is a large consumer of hardwoods of which Connecticut 
 could supply a considerably larger part if forestry in the State were 
 given a good chance." 
 
$2.00 
 
 $42.00 
 
 2.00 
 
 36.00 
 
 2.00 
 
 13-00 
 
 1. 00 
 
 6.00 
 
 •SO 
 
 37.00 
 
 .007 
 
 .013 
 
 SUMMARY OF INFORMATION REGARDING 
 
 TAXATION OF WOODLAND IN 
 
 CONNECTICUT TOWNS 
 
 Number of towns responding in whole or in part, 72. 
 
 Lowest assessed value per acre of any land, 61 towns 50 cents. 
 
 Maximum Minimum Average 
 
 Percentage of Woodland, 61 towns 85% 10% 44% 
 
 Assessed value per acre: 
 
 Farm land, 55 towns $500.00 
 
 Merchantable woodland, 45 towns 500.00 
 
 Non-merchantable woodland, 41 towns . . 50.00 
 
 Cut-over land, 46 towns 25.00 
 
 Assessed value of timberland per acre : 
 
 40 towns 500.00 
 
 Tax rate — 72 towns .023 
 
 Percentage of market value taxed: 
 
 56 towns 100% 50% 88% 
 
 Character of land with lowest assessed value: 
 
 Cut-over 13 towns. 
 
 Damaged by fire or blight 3 
 
 Poor and sandy 4 
 
 Brush 22 
 
 Rocky 12 
 
 Total 54 
 
 Reason for differences in valuation of timberland so far as reported: 
 
 Location 9 towns. 
 
 Quality 8 " 
 
 Value 10 " 
 
 Total 27 
 
 Cut-over land sold for taxes, approximately 800 acres in 66 towns. 
 
State of Connecticut 
 PUBLIC DOCUMENT-SPECIAL 
 
 REPORT 
 
 OF THE 
 
 SPECIAL COMMISSION 
 
 ON 
 
 Taxation of Corporations 
 
 PAYING 
 TAXES TO THE STATE 
 
 AS 
 
 Provided by Chapter 283 of the Public Acts of \9\\ 
 TO THE GENERAL ASSEMBLY OF W3 
 
 HARTFORD 
 
 Published by the State 
 
 1913 
 
PUBLICATION 
 
 APPROVED BY 
 
 THE BOARD OF' CONTROL 
 
 Standard Association, Printers, Bridgeport, Conn. 
 
TABLE OF CONTENTS 
 
 PAGE 
 
 Letter of Transmittal ix 
 
 Introduction .■ x 
 
 Work of the Commission x 
 
 Plan of the Report xii 
 
 CHAPTER I— PUBLIC SERVICE CORPORATIONS IN GENERAL 
 
 I. The Various Methods of Taxing Public Service Corporations 1 
 
 History 1 
 
 The Ad Valorem Basis 1 
 
 Criticism of the Ad Valorem Basis 2 
 
 The Capitalization Basis 3 
 
 Criticism of the Capitalization Basis 4 
 
 The Tax on Earnings : 4 
 
 Net Earnings, vs. Gross Earnings 5 
 
 II. The Gross Earnings Tax — 6 
 
 Advantages of the Gross Earnings Tax 6 
 
 Classification of Corporations Necessary 6 
 
 The Rate of the Gross Earnings Tax 7 
 
 Determination of the Rate of the Gross Earnings Tax — Explan- 
 ation of Method 7 
 
 (1) Measure of the Burden of the General Property Tax 9 
 
 (2) The Rate of Copitalization 10 
 
 (3) The Ratio of Net Earnings to Gross Earnings 11 
 
 Qualifications 11 
 
 Other Tests 12 
 
 Exemption of the Corporations' Securities 13 
 
 III. Experience of Other States in Taxing Public Service Corporations 14 
 
 The Ad Valorem Basis 14 
 
 The "Stock and Bond" (Capitalization) Method 15 
 
 The Gross Earnings Basis 15 
 
 The Experience of Michigan and Wisconsin 15 
 
 IV. Problems of Interstate Commerce 17 
 
 Apportionment of Interstate Earnings 17 
 
 Constitutionality of the Gross Earnings Tax 18 
 
 V. Defects of the Present Method of Taxation in Connecticut 20 
 
 VI. The Opportunity to Promote Uniformity of Taxation among the 
 
 States 21 
 
 CHAPTER II— RAILROAD COMPANIES 
 
 General Summary of Chapter 23 
 
 I. The Present Tax System in Connecticut 24 
 
 General Description 24 
 
 Essential Features 25 
 
 II. Historical Development of the Law 26 
 
 III. Operation of the Present Tax System 30 
 
 The Companies Subject to the Tax, and the Revenue in 1912 . . 30 
 
 IV. Criticism of the Present Tax System 31 
 
 A. The Stock and Bond Method in General 31 
 
 Application to the New York, New Haven and Hartford Railroad 
 
 Company 31 
 
 B Peculiarities of the Connecticut System 33 
 
 Deductions Permitted from the Value of Stock and Indebtedness 33 
 
 (1) Sinking Fund Bonds 34 
 
 (2) Securities Issued to Acquire Securities of Another 
 
 Connecticut Railroad 34 
 
iv REPORT OP SPECIAL TAX COMMISSION 
 
 PAGE 
 
 (3) Securities Issued for Expenditures on Another Road 
 
 Outside the State 34 
 
 (4) Securities Issued to Acquire Securities of Another 
 
 Road Outside the State 35 
 
 (5) Securities Issued to Acquire Securities of Steamboat 
 
 Companies 36 
 
 The New England Navigation Company 37 
 
 (6) Securities Issued for Purchase of Any Non-Railroad 
 
 Property 39 
 
 Apportionment of the Valuation of Securities of Interstate Rail- 
 roads. (1) The Road Mileage Basis 40 
 
 (2) Treatment of Branches 40 
 
 The Resulting Complications 42 
 
 C. Summary of Criticism of the Present Tax Method ... 42 
 
 V. The Gross Earnings Tax 43 
 
 Reasons for Adopting the Gross Earnings Tax 43 
 
 A. The Rate of the Gross Earnings Tax 43 
 
 The Problem of the Rate 43 
 
 The Ratio of Net Earnings to Gross — Steam Roads 44 
 
 Ratio of Net Earnings to Gross — Electric Roads 46 
 
 The Rate of Capitalization 48 
 
 The Tax Rate Indicated ' 49 
 
 Taxes Now Paid 49 
 
 Conclusion as to the Rate of the Gross Earnings Tax 51 
 
 B. Apportionment of Interstate Earnings 52 
 
 Various Possible Methods 52 
 
 Exact Apportionment of Gross Earnings 52 
 
 Cost of Apportioning on Gross Earnings Basis 53 
 
 The All-Track Mileage Basis 53 
 
 VI. Taxation of Railroad Companies in Other States 55 
 
 VII. Conclusions and Recommendations 56 
 
 Summary of Conclusions 56 
 
 Recommendations 57 
 
 Probable Results of the Proposed Tax 57 
 
 CHAPTER III— CAR COMPANIES 
 
 General Summary of Chapter 60 
 
 I. The Present Situation 61 
 
 No State Tax on Car Companies at Present — The Reason 61 
 
 Necessity of Legislation 61 
 
 II. The Gross Earnings Tax 61 
 
 Superiority to Other Methods 61 
 
 The Rate of the Gross Earnings Tax — How Determined 62 
 
 Operating Earnings of the Pullman Company 63 
 
 Operating Earnings of Freight Car Companies 63 
 
 The Rate of Capitalization 65 
 
 Conclusion as to the Rate 65 
 
 Apportionment of Interstate Earnings .!!"""," 66 
 
 III. Taxation of Car Companies in Other States "!.'!.'!!. 66 
 
 IV. Conclusions and Recommendations 67 
 
 Recommendations !.!!'.'.!'.!'.!'.!'. 67 
 
 Estimated Revenue from the Tax on Car Companies !.'.'!.'""! .' 68 
 
 CHAPTER IV— EXPRESS COMPANIES 
 
 General Summary of Chapter 70 
 
 I. The Present Method of Taxation in Connecticut ..!..'.'!!!.'!.'!!!".] 71 
 
 . II. Historical Development of the Law !!!*!!!!!!,""] 72 
 
 III. Operation of the Present Tax System .'.'.'.'.'.'.'.'.'.' .' .' .' ." '. '. 73 
 
CONTENTS v 
 
 PAGE 
 
 The Companies Subject to the Tax, and the Revenue in 1912 73 
 
 IV. Criticism of the Present Tax System 73 
 
 V. The Gross Earnings Tax on All Earnings 74 
 
 Superiority of the Gross Earnings Tax 74 
 
 The Rate of the Gross Earnings Tax — How Determined 76 
 
 Ratio of Net Earnings to Gross 76 
 
 The Rate of Capitalization 76 
 
 Ratio of Taxes Now Paid to Gross Earnings 78 
 
 Taxes Paid by the Principal Express Companies of the United 
 
 States 78 
 
 Conclusion as to the Rate of the Gross Earnings Tax 79 
 
 Companies Operating on Electric Railways 80 
 
 Apportionment of Interstate Earnings 80 
 
 VI. Taxation of Express Companies in Other States 81 
 
 VII. Conclusions and Recommendations 82 
 
 Recommendations 82 
 
 Probable Results of the Proposed Tax 82 
 
 CHAPTER V— TELEPHONE COMPANIES 
 
 General Summary of Chapter '. 83 
 
 I. The Present Method of Taxation in Connecticut 84 
 
 II. Historical Development of the Law 85 
 
 III. Operation of the Present Tax System 87 
 
 The Companies Subject to the Tax, and the Revenue in 1912 . . 87 
 
 IV. Criticism of the Present Tax System 88 
 
 V. The Gross Earnings Tax 89 
 
 Introductory 89 
 
 A. The Rate of the Gross Earnings Tax 90 
 
 The Problem of the Rate 90 
 
 Statistics of the Companies Subject to Taxation 90 
 
 Comparison with a Tax on Market Value of Securities 94 
 
 Comparison with a Tax on Book Value 94 
 
 Comparison with a Tax on Net Plant Value 95 
 
 Comparison with a Tax on Capitalized Net Earnings 96 
 
 Summary of Evidence as to a Fair Rate '. 98 
 
 Ratio of Taxes Now Paid to Gross Earnings 98 
 
 Taxes Paid by the Telephone Companies; of the United States . . 99 
 
 The Taxation of Real Estate 99 
 
 Conclusions as to the Rate of the Gross Earnings Tax 101 
 
 B. The Apportionment of Interstate Earnings 102 
 
 The Problem of Apportionment 102 
 
 Various Methods of Apportionment 102 
 
 Method of Apportionment Recommended 103 
 
 C. The Question of Constitutionally A 104 
 
 VI. Taxation of Telephone Companies in Other States 106 
 
 VII. Conclusions and Recommendations 107 
 
 Recommendations 107 
 
 Probable Results of the Proposed Tax 107 
 
 CHAPTER VI— TELEGRAPH COMPANIES 
 
 General Summary of Chapter 110 
 
 I. The Present Method of Taxation in Connecticut Ill 
 
 II. Historical Development of the Law 112 
 
 III. Operation of the Present Tax System 113 
 
 The Companies Subject to the Tax, and the Revenue in 1912 . . 113 
 
 IV. Criticism of the Present Tax System 113 
 
 The Case Similar to that of Telephone Companies 113 
 
 The Present Tax Insufficient 114 
 
REPORT OP SPECIAL TAX COMMISSION 
 
 PAGE 
 
 V. The Gross Earnings Tax 115 
 
 Introductory 115 
 
 A. The Rate of the Gross Earnings Tax 115 
 
 The Problem — Statistics of the Companies Subject to Taxation 115 
 
 Comparison with Taxes Measured by Certain Other Bases . 117 
 
 Comparison with a Tax on Capitalized Net Earnings 118 
 
 Summary of Evidence as to Rate 119 
 
 Ratio of Taxes Now Paid to Gross Earnings 119 
 
 Conclusion as to the Rate of the Gross Earnings Tax 120 
 
 B. The Apportionment of Interstate Earnings 121 
 
 VI. Taxation of Telegraph Companies in Other States 122 
 
 VII. Conclusions and Recommendations 123 
 
 Recommendations 123 
 
 Probable Results of the Proposed Tax 123 
 
 CHAPTER VII— BANKS, TRUST COMPANIES, AND STOCK INSURANCE 
 
 COMPANIES 
 
 General Summary of Chapter 124 
 
 I. The Present Connecticut Tax System 125» 
 
 II. Historical Development of the Law 126 
 
 III. Operation of the Present Tax System 126 
 
 The Institutions Subject to the Tax, and the Revenue in 1912 . . 126 
 
 Banks and Trust Companies 127 
 
 Stock Insurance Companies 127 
 
 IV. Banks and Trust Companies 127 
 
 A. Criticism of the Present Tax System 127 
 
 Federal Limitation of Bank Taxation 129 
 
 The Connecticut Method of Taxing Banks 130 
 
 Difficulty of Determining Market Value of Shares 130 
 
 Inequality Resulting from Market Value Basis 131 / 
 
 Market Value Subject to Fluctuation 131 
 
 Conclusion 132 
 
 B. Taxation of Bank Shares on Book Value 132 
 
 Superiority of Book Value i 132 
 
 Why Market Value Fails 133 
 
 Can Book Value be Manipulated? 133 
 
 Can the Tax be Evaded by Large Dividends? 134 
 
 The Rate of the Tax 134 
 
 Taxes on Real Estate 134 
 
 C. Taxation of Banking Institutions in Other States 135 
 
 D. Conclusions and Recommendations 136 
 
 Summary and Recommendations 136 
 
 Probable Results of the Proposed Change 136 
 
 V. Stock Insurance Companies 138 
 
 Method of Taxation in Connecticut and in Other States 138 
 
 Advantages of Taxing All Insurance Companies Alike on an 
 
 Income Basis 138 
 
 Reasons for not Changing the Present Classification 138 
 
 Taxation of Insurance Companies on Book Value of Stock 139 
 
 Definition of Book Value of Insurance Companies 139 
 
 Taxation of Stock Insurance Companies in Other States 141 
 
 Conclusions and Recommendations 141 
 
 Probable Results of the Proposed Change 141 
 
 VI. General Summary of Recommendations and Conclusions 143 
 
 Summary 143 
 
 Recommendations 143 
 
 Probable Net Result Upon the Taxes Paid .Hi 
 
 VII. Investment Companies 143 
 
CONTENTS vii 
 
 CHAPTER VIII— MUTUAL INSURANCE COMPANIES 
 
 PAGE 
 
 General Summary of Chapter 144 
 
 I. The Present Method of Taxation in Connecticut 145 
 
 II. Historical Development of the Law 147 
 
 III. Operation of the Present Tax System 149 
 
 The Companies Subject to the Tax, and the Revenue in 1912 . . 149 
 IV. Criticism of the Present Tax System 150 
 
 A. Life Companies 150 
 
 Objections Urged Against the Present System 150 
 
 Examination of Objections — (1) Should Life Insurance be Taxed 
 
 with Special Leniency? 152 
 
 (2) Does the Connecticut System Lead to Unfair Double 
 
 Taxation? v ." 154 
 
 (3) Are the Connecticut Companies Subjected to an Unfair 
 
 Burden in Competition with Companies of Other 
 
 States? 157 
 
 (a) Massachusetts 157 
 
 (b) New York 158 
 
 (c) Pennsylvania 158 
 
 (d) Wisconsin 159 
 
 Conclusions from Criticism of the Present System 159 
 
 B. Insurance Companies Other than Life 160 
 
 V. The Tax on Income Recommended .- 161 
 
 The Problem to be Met 161 
 
 The Plan Proposed 162 
 
 The Rate of the Tax 162 
 
 Probable Result of the Proposed Plan 163 
 
 VI. Taxation of Insurance Companies in Other States 164 
 
 VII. Summary of Recommendations 165 
 
 CHAPTER IX— SAVINGS BANKS 
 
 General Summary of Chapter 166 
 
 , I. The Present Method of Taxation in Connecticut 167 
 
 II. Historical Development of the Law 168 
 
 III. Operation of the Present Tax System 170 
 
 Institutions Subject to the Tax and the Revenue in 1912 170 
 
 IV. Criticism of the Present Tax System 171 
 
 Savings Banks are Moderately Taxed 171 
 
 Should the Tax on Savings Banks be Abolished or Reduced? . . 171 
 
 Fairness of the Present Tax Burden 172 
 
 Exemption of Loans on Connecticut Real Estate 173 
 
 Minor Defects — Taxation of Real Estate 174 
 
 Date on which the Tax is Calculated 174 
 
 Inconsistencies and Inequalities between the Several Classes of 
 
 Institutions 175 
 
 V. Taxation of Savings Banks in Other States 175 
 
 VI. Conclusions and Recommendations 175 
 
 Recommendations 175 
 
 Probable Result of the Proposed Changes 176 
 
 CHAPTER X— BUILDING AND LOAN ASSOCIATIONS 
 
 General Summary of Chapter 177 
 
 I. The Present Situation 177 
 
 II. The Basis of Taxation 177 
 
 III. Statistics of the Associations and Probable Amount of the Tax . . 178 
 
 IV. Taxation of Building and Loan Associations in Other States 178 
 
 V. Recommendations , 178 
 
viii REPORT OF SPECIAL, TAX COMMISSION 
 
 CHAPTER XI— RECOMMENDAITIONS AND GENERAL SUMMARY 
 
 PAGE 
 
 I. Recommendations 181 
 
 Public Service Corporations 181 
 
 Financial Corporations: (1) Banks, Trust Companies and 
 
 Stock Insurance Companies 182 
 
 (2) Mutual Insurance Companies 182 
 
 (3) Savings Banks 182 
 
 (4) Building and Loan Associations 183 
 
 (5) Investment Companies 183 
 
 (6) Reports, Etc 183 
 
 II. Estimated Result of Proposed Changes 183 
 
 The State Revenue 183 
 
 The Town Revenue 184 
 
 APPENDIX 
 
 I. Receipts from Corporation Taxes : State of Connecticut 185 
 
 Railroad Companies 185 
 
 Express Companies 186 
 
 Telephone Companies 187 
 
 Telegraph Companies 188 
 
 Banks, Trust and Investment Companies, and Stock Insurance 
 
 Companies 188 
 
 Mutual Life Insurance Companies 189 
 
 Mutual Fire Insurance Companies 190 
 
 Savings Banks 191 
 
 II. Methods of Taxing Public Service Corporations in Other States . . 192 
 
 Railroad Companies , 192 
 
 Express Companies 204 
 
 Telephone Companies 212 
 
 Telegraph Companies 220 
 
 III. Taxation of Railroad Corporations by the State of Connecticut in 
 
 1912 229 
 
 IV. Report of the New York, New Haven & Hartford Railroad Com- 
 pany to the Tax Commissioner for 1912 232 
 
JOHN J. WALSH, ATTORNEY AT LAW, 
 
 Chairman, 
 
 Norwalk, Conn. 
 
 FRED R. FAIRCHILD, ASSISTANT PRO- 
 FESSOR OF POLITICAL ECONOMY, 
 YALE UNIVERSITY, New H»ven, Conn. 
 
 WILLIAM H. CORBIN, 
 
 tax commissioner, 
 Secretary, 
 
 Hartford, Conn. 
 
 To the General Assembly : 
 
 State of Connecticut. 
 
 Special Commission 
 
 on 
 
 Taxation 
 
 of Certain Corporations 
 Hartford, January 15, 1913. 
 
 Section two of Chapter 283 of the Public Acts of 1911 
 provided for the appointment by the Governor, within sixty 
 days after the passage of the Act, of "a commission of three 
 disinterested persons to examine into the system of the taxa- 
 tion of railroads and street railways located partly or wholly 
 within this state, and also of all other corporations paying taxes 
 to the state, and the statutes relating thereto, and to make such 
 recommendations in connection therewith to the next general 
 assembly as shall seem to them advisable. ' ' 
 
 This Commission so authorized, and thereafter appointed 
 by His Excellency, Governor Baldwin, respectfully submits 
 the following report, giving the results of its investigations, 
 with such recommendations as the conclusions warrant, as re- 
 quired by the statute. 
 
 
 Special Tax Commission. 
 
REPORT 
 
 OF THE 
 
 SPECIAL COMMISSION 
 
 ON 
 
 TAXATION OF CORPORATIONS 
 
 PAYING TAXES TO THE STATE 
 
 INTRODUCTION 
 
 Work of the Commission: — In accordance with the pro- 
 visions of Section 2 of Chapter 283 of the Public Acts of 1911 
 His Excellency Governor Simeon B. Baldwin, on November 
 20, 1911, appointed as members of the Special Tax Commission, 
 as provided, John J. "Walsh of Norwalk, Fred R. Pair- 
 child of New Haven and William H. Corbin of Hartford. 
 
 The Commission organized by electing John J. "Walsh as 
 chairman, and William H. Corbin as secretary. 
 
 So that the ideas of those interested in this matter could 
 be secured, the Commission on January 10th, 1912, sent out a 
 letter to the members of the General Assembly of 1911, the 
 congressional delegation, former governors, many judges and 
 attorneys, representatives of the corporations included in the 
 scope of the investigation, business men's associations, and 
 boards of trade. The letter* was as follows: 
 
 Hartford, Conn., January 10, 1912. 
 Dear Sir: 
 
 Section 2 of Chapter 283 of the Public Acts of 1911 provides as 
 follows : 
 
 "Within sixty days after the passage of this act the 
 governor shall appoint a commission of three disinterested 
 persons to examine into the system of the taxation of rail- 
 roads and street railways located partly or wholly within 
 this state, and also of all other corporations paying taxes 
 to the state, and the statutes relating thereto, and to 
 make such recommendations in connection therewith to 
 . the next general assembly as shall seem to them advisable." 
 The Commission appointed by His Excellency, the Governor, in 
 accordance with the above act wishes to secure all the information 
 possible relative to any practical and desirable changes in any of the 
 present statutes of this State which now govern the taxation of cor- 
 porations paying taxes to the State. 
 
 To this end the Commission desires the co-operation of all inter- 
 ested in this subject, and requests your opinion as to any defects in 
 the present laws of this State relating to the taxation of such cor- 
 porations and your recommendations for improvements. 
 
 An early reply is desired as it is important that these suggestions 
 be received prior to the public hearings which the Commission may 
 hold. 
 
INTRODUCTION xi 
 
 In addition, the Commission would be pleased to receive from you 
 the names of any persons whom you may know, who are specially 
 qualified to give information or assistance in the consideration of 
 this matter. 
 
 Yours truly, 
 Special Commission on Taxation of Certain Corporations. 
 
 In answer to the above letter, a few communications were 
 received which were suggestive, but not nearly so many as the 
 Commission had hoped for. 
 
 On March 8th, 1912, in accordance with due notice, hear- 
 ings were held at the State Capitol in Hartford. In the morn- 
 ing, the taxation of savings banks and savings departments 
 of trust companies was considered. A large number of rep- 
 resentatives of savings banks was in attendance, and the dis- 
 cussion was very informing and suggestive. In the afternoon, 
 the subject of the taxation of the shares of stock of banks, trust 
 and insurance companies was discussed by a large number of 
 representatives of such institutions who were present. There 
 was active argument on the subject of the basis of taxation 
 of such shares ; that is, as to whether it should be on the book 
 value or market value.' 
 
 On March 25th, 1912, hearings were held at the State Cap- 
 itol, Hartford, in the morning on the taxation of mutual in- 
 surance companies other than life, and on the present statutes 
 taxing investment brokers and companies. In the afternoon 
 the taxation of mutual life insurance companies was discussed 
 by representatives of the different companies in the State. 
 
 On April 1st, 1912, hearings were held in the Superior 
 Court Room of the Court House, at New Haven. In the morn- 
 ing, the taxation of express, telephone and telegraph com- 
 panies was discussed by representatives of those companies 
 and others. In the afternoon, the taxation of railroads and 
 street railways was the subject for consideration. Representa- 
 tives of the Mew York, New Haven & Hartford Railroad Com- 
 pany and other railroad corporations participated in the dis- 
 cussion. 
 
 On June 3rd, 1912, the members of the Commission 
 had an interview by appointment with President Hadley of 
 Yale University, who is a recognized authority on railroad 
 finance, and he gave his views of the present Connecticut 
 statutes relative to the taxation of railroad companies. 
 
 All the members of the Tax Commission attended 
 the annual conference of the National Tax Association in Des 
 Moines, Iowa, in September, and derived much benefit from 
 the discussions on the taxation of public service corporations 
 throughout the country and from conferences with members of 
 different State tax commissions. The members of the Com- 
 niission also attended the first and second meetings of the 
 
xii REPORT OF SPECIAL TAX COMMISSION 
 
 Association of New England State Tax Officials, held in Bos- 
 ton, in January and December • respectively. At the latter 
 meeting the statutes covering the taxation of public service 
 corporations in the different States were discussed informally 
 by the officials of the different States and representatives of 
 several public service corporations doing an interstate business, ' 
 and much profit and information was derived. 
 
 The Commission has held a large number of meetings in 
 Hartford and New Havenj and a special effort has been made 
 to present accurate information relative to the taxation of the 
 certain corporations under its jurisdiction in this and other 
 States, and also to present recommendations which will be as 
 fair as possible to the State as well as to the corporations. 
 
 It is proper that special mention should be made of the 
 large amount of work which has been performed by Professor 
 Fairchild in the preparation of the text of the report. 
 
 The Commission also desires to express its appreciation of 
 the great assistance and courteous treatment it has received 
 from the officials of the corporations. All requests for statis- 
 tics and other information have been promptly and fully com- 
 plied with. The Commission also acknowledges its indebted- 
 ness to those officials of the various States who have kindly 
 complied with its requests for assistance in the preparation of 
 the abstracts of the corporation tax laws of the several States. 
 
 Plan of the Report: — In arranging the material contained 
 in this Report the Commission has had in mind not only those 
 who wish to make a thorough study of the subject treated, but 
 also those who may have only time to acquaint themselves 
 with the principal conclusions reached and the recommenda- 
 tions offered. With the exception of the first and last chapters 
 each chapter deals with a particular class of corporations. At 
 the beginning of each chapter there is presented a general sum- 
 mary giving very briefly the principal conclusions reached and 
 the recommendations made in that chapter. A general notion 
 of the contents of the Report may be obtained by simply read- 
 ing these chapter summaries. Throughout the text of the Re- 
 port, minor details, mathematical examples, and technical 
 evidence have generally been printed in small type. The read- 
 er may obtain the substance while saving time by omitting 
 the sections in small type. Liberal use has been made of head- 
 ings and sub-headings in order to enable the reader quickly to 
 find the discussion of any particular topic. Chapter XI, pre- 
 ceding the Appendix, contains a brief summary of the conclus- 
 ions of the entire Report and a statement of all recommenda- 
 tions made. The general arrangement of the Report has made 
 necessary some repetition, which it is hoped will not interfere 
 with its usefulness. 
 
CHAPTER I 
 PUBLIC SERVICE CORPORATIONS IN GENERAL 
 
 I. THE VARIOUS METHODS OF TAXING PUBLIC 
 SERVICE CORPORATIONS 
 
 History: — The early tax laws of Connecticut, as else- 
 where in the United States, made no mention of corporations. 
 Corporations were few in number and it was simply assumed 
 that they would be taxed upon their property under the gen- 
 eral property tax in precisely the same manner as natural per- 
 sons. This was the situation down to the middle of the 
 nineteenth century. By that time corporations had developed 
 greatly in number and importance, and one after another spe- 
 cial methods of taxation began to be devised for the several 
 classes of corporations. The development thus started has fol- 
 lowed different lines in different States, and at different times 
 in the same State, and has resulted in a bewildering variety 
 of methods of taxation. Professor Seligman in his "Essays 
 in Taxation" enumerates and discusses twelve distinct bases of 
 corporation taxes. As a matter of fact almost every possible 
 method of taxing corporations has been tried by some State 
 at some time. Many of the methods developed have been 
 clearly defective in principle and have been proved failures 
 by experience. At the present time it is safe to say that 
 there are only three important methods of taxing public ser- 
 vice corporations which may fairly claim serious consideration. 
 If we are to find the most satisfactory method of such taxation 
 we must find it by choosing one of these three. A brief 
 description and criticism of each of these three methods of tax- 
 ation is therefore in order. 
 
 The Ad Valorem Basis: — By this basis we mean that the 
 tax is imposed upon the value of the property of the corpora- 
 tion; primarily the value of its physical property, although 
 sometimes with an additional amount supposed to represent 
 the value of "intangible property," "good will," "franchise", 
 etc., etc. This was, of course, the original method of taxing 
 corporations under the general property tax, excepting that at 
 the start the valuation was made and the tax imposed by local 
 officials in exactly the same way as for natural persons. This 
 crude method of taxing corporations has been abandoned by 
 practically all of the progressive States. It was long ago given 
 up by Connecticut. The method is entirely indefensible and 
 needs no further discussion here. 
 
 The ad valorem basis, however, as used and advocated 
 2 
 
2 REPORT OP SPECIAL TAX COMMISSION 
 
 in progressive States today is something different in that it 
 involves a more or less expert valuation of the property of the 
 corporation as a whole, made by a State board or officer. As 
 thus administered this method of taxation has been advocated 
 by some authorities and adopted by a number of important 
 States. This method of taxation represents, therefore, an at- 
 tempt to continue the property basis of taxing corporations 
 while providing special machinery in order to obtain a true 
 valuation. 
 
 Criticism of the Ad Valorem Basis : — Even as thus admin- 
 istered, however, the ad valorem basis of taxation is subject to 
 serious difficulties. Whatever method is adopted for obtaining 
 the value of the corporations' property, the operation is diffi- 
 cult and expensive. To be properly performed it requires the 
 work of a large force of experts familiar with the technical 
 details of the businesses of the corporations concerned. At 
 best the element of personal judgment is sure to enter. The 
 responsibility thus placed upon the assessing officers or board 
 is very heavy. Since thousands of dollars in taxes may be at 
 stake, depending merely upon the personal judgment of the 
 official, the motive and opportunity for political interference or 
 corrupt influence on the part of the corporations concerned 
 is evident. 
 
 Besides practical difficulties, important theoretical ques- 
 tions arise. In the majority of cases there is, and can be, no 
 such thing as an actual sale of the property of a public service 
 corporation. The selling price, is, therefore, unavailable as a 
 basis of valuation. Shall the appraisal, then, seek to determine 
 the original cost of the property or the cost of replacement, 
 and if the latter, shall allowance be made for the present con- 
 dition due to depreciation? As illustrating the complicated 
 character of such an appraisal and the heavy cost involved, we 
 may refer to the experience of the State of Michigan. In the 
 years 1900 and 1901 a valuation was made of the property of 
 the railroad companies of Michigan for the purpose of taxa- 
 tion. This was the most thorough and scientific valuation of 
 its sort ever attempted. It involved not only a physical 
 valuation, but also an examination of the financial operations 
 of the railroads. The physical valuation alone occupied a per- 
 iod of nine months and required a corps of some seventy-five 
 engineers, although not all of these were employed during the 
 whole time. The cost of the investigation was an the neighbor- 
 hood of $60,000, which is in addition to an even greater sum 
 required for the expenses of the tax commission, a large part 
 of whose work was devoted to the same object. 
 
 Another difficulty with this method is its rigidity. Valua- 
 
PUBLIC SERVICE CORPORATIONS IN GENERAL 3 
 
 tions when once made are very likely to remain for a consid- 
 erable period of years without serious revision. This is caused 
 partly by the very fact of the difficulty and expense involved 
 in a thorough-going valuation. As a result, such valuations, no 
 matter how successfully made at the start, very soon come to be 
 unreliable. 
 
 Finally, the valuation of property alone is, after all, not a 
 true measure of the worth of the corporation, or of its tax- 
 paying ability. The ordinary public service corporation ob- 
 tains its earnings and its value from sources of which the 
 value of its physical property is only one element. The 
 United States Supreme Court found in the Ohio Express 
 Company cases, that "$23,400 worth of horses, wagons, safes, 
 and so on, produced $275,446 ih a single year." Practically 
 every attempt to tax corporations upon the value of their 
 physical property has shown the insufficiency of this basis 
 by itself, and has led to the attempt to correct the results 
 thus obtained by means of some other measure. Various at- 
 tempts have been made to get at some measure of the value 
 of intangible property, good will, franchise rights, etc. For 
 example, the State of Michigan after making the elaborate 
 investigation mentioned above, was unable to adhere to the 
 values thus obtained for the purpose of taxation, admitting that 
 such values might either exceed or fall short of the true value 
 of ,the whole system of the corporation. The Michigan com- 
 mission was, therefore, compelled to correct its results by fall- 
 ing back upon the earning power of the corporations. 
 
 Enough has probably been said to show the serious de- 
 fects of the method of taxation based upon an appraisal of 
 the value of the "property of the corporations. Connecticut 
 does not at present use this method for the taxation of any 
 class of public service corporations, and it is not likely that the 
 State would seriously consider a change to this method. 
 
 The Capitalization Basis :■■ — By this method we mean the 
 imposition of a tax upon the value of the securities of the cor- 
 poration. This sometimes includes only the value of the 
 stock. To be correct, however, it should include the value 
 of stock and bonds. This is the method at present used by 
 Connecticut in the taxation of railroad corporations, the tax 
 being based upon the market value of stock plus the value 
 of funded and floating indebtedness, the whole~ being 
 apportioned as between Connecticut and other States. As at 
 present employed in Connecticut this method is decidedly un- 
 satisfactory. Its defects will be pointed out in detail in the 
 chapter on railroads. To a considerable extent, however, the 
 weakness of Connecticut's method of taxing railroads is due 
 
4 REPORT OF SPECIAL TAX COMMISSION 
 
 to the numerous exceptions, complications, and other excres- 
 cences which have been gradually added to the system during 
 a long period of-years. Leaving the discussion of these de- 
 fects to the chapter on railroads, it is our purpose here to 
 criticise the fundamental character of this method of taxation. 
 
 Criticism of the Capitalization Basis: — There can be no 
 question that the basis of the value of securities is far prefer- 
 able to that of the physical value of the property. The market 
 value of the securities of a corporation under normal condi- 
 tions represents the real value of the corporation according 
 to the estimate of investors and others who are best qualified 
 to judge. When made to include not only the stock but the 
 bonds, and perhaps also the floating indebtedness, this gives a 
 real measure of the value of the investment in the corporation. 
 There are, however, serious difficulties here also. In the first 
 place it often happens that the securities of a given corporation 
 are not regularly dealt in on the market. Sales may be few 
 and scattered, and such scattered sales are quite apt to be 
 entirely insufficient as a measure of the real value of the cor- 
 poration's securities. The market value of corporation securi- 
 ties is also subject to considerable fluctuation from time to 
 time, due to causes external to the business of the corporation 
 such as the condition of the money market, the general invest- 
 ment situation, etc. Market values are also subject more or 
 less to variations in price due to intentional manipulation of 
 those in control, or the result of speculative dealings or at- 
 tempts to gain control of the management. 
 
 "While it might be admitted that these are all considera- 
 tions which actually do enter into the value of corporation se- 
 curities, yet it cannot be denied that values thus determined 
 are at best a poor index of tax-paying ability. In general the 
 value of the securities of a corporation depends upon the earn- 
 ings which are hoped for. When this is the case, the value of 
 the securities is a true guide for the levying of taxes. Those 
 who object to this basis of taxation do so, consciously or un- 
 consciously, because of the feeling that the market values of 
 securities are frequently based on something other than earn- 
 ing power. Since this is often the case, and in view of the 
 other difficulties involved in the tax on capitalization, the ques- 
 tion naturally arises; why not impose corporate taxation di- 
 rectly upon the earnings themselves? Earnings are generally 
 admitted to be the true index of tax-paying ability, which is 
 sought more or less indirectly by other methods of taxation. 
 
 The Tax on Earnings: — The earnings of a corporation are 
 the real basis of the value of its property, the value of its 
 securities, and its tax-paying ability. This statement will 
 
PUBLIC SERVICE CORPORATIONS IN GENERAL 5 
 
 generally be admitted at once, and it is also demonstrated by 
 the result of the experience of other methods of taxing cor- 
 porations. As a matter of theory, the earnings of a corpora- 
 tion are the only true measure of its value and its tax-paying 
 ability. The basis of earnings is also the simplest in practice 
 and the one that involves the least administrative difficulty. 
 The weight of authority of economists, practical experts, tax 
 commissioners, and others is distinctly in favor of the earnings 
 basis. This is the system which is coming into more and more 
 favor today. 
 
 Net Earnings vs. Gross Earnings: — Before going further 
 into the discussion it is necessary to settle the question whether 
 the tax shall be based upon net or gross earnings. There can 
 be no question that it is net earnings which are the true meas- 
 ure of value. Gross earnings may be large or small according 
 to the amount of operating expenses. The balance left after 
 paying operating expenses out of gross earnings is what gives 
 value to any enterprise. It would appear at first, therefore, 
 that any tax system to be just should be imposed upon net 
 earnings. Here, however, we are at once met with serious 
 practical difficulties. "While it is a simple matter to ascertain 
 the total amount of earnings, it is by no means so simple to 
 determine what should be deducted for expenses. Operating 
 expenses are more or less a matter of bookkeeping definitions. 
 To avoid serious inequality and evasion the tax on net earn- 
 ings would require for administration a thorough examination 
 into the accounts of every corporation taxed, together with 
 strict rules as to how these accounts should be kept. All of 
 this would be required in order to insure that each corporV 
 tion would make exactly the proper deductions from gross 
 earnings to obtain net earnings. It would be a continual 
 source of irritation between the corporations and the taxing 
 officials. It would involve the most disagreeable inquisition 
 into the accounts and business of the corporations, and in the 
 end there would still remain room for personal judgment, thus 
 leaving open the door to political intrigue and corrupt influ- 
 ence. The British system of taxing railroad corporations un- 
 dertook to use net earnings as the basis. The Ontario Com- 
 mission on Railway Taxation in 1905, found, however, that the 
 British attempt to get at net earnings had been virtually aban- 
 doned, allowance for expenses being made by an arbitrary de- 
 duction from gross earnings. 
 
 The practical difficulties in the way of imposing a tax upon 
 net earnings seem overwhelming. A further objection arises 
 from the fact that a corporation might have no net earnings 
 whatever iu a given year, and therefore escape taxation en- 
 
6 REPORT OF SPECIAL TAX COMMISSION 
 
 tirely. While it is true that this might be perfectly just under 
 a tax system based fundamentally upon income, we should 
 bear in mind that the American tax system is today based 
 upon property. The individual whose property has yielded 
 him no income in a given year cannot offer that as a reason 
 why he should not pay taxes upon his property. While the 
 importance of treating corporations and individuals upon the 
 same footing must not be stretched, there can be little doubt 
 that a tax system which would allow corporations having no 
 net earnings to escape taxation entirely would be out of har- 
 mony With the general tax system prevailing in America 
 today. 
 
 II. THE GROSS EARNINGS TAX 
 
 Advantages of the Gross Earnings Tax: — The tax on 
 
 gross earnings avoids all the difficulties inherent in the tax 
 on net earnings. No corporation can do business without hav- 
 ing accounts which will at least show the amount of its gross 
 earnings. Gross earnings are a definite fact, ascertained by 
 a glance at the accounts, and incapable of argument or differ- 
 ence of opinion. The tax on gross earnings can be evaded 
 only by perjury of the most obvious sort and capable of 
 easy detection. The gross earnings tax, therefore, has the 
 great advantage of simplicity, certainty, and ease of ad- 
 ministration. This is an advantage both to the corporation 
 and to the State. The amount of the tax on gross earnings 
 fluctuates with the prosperity or adversity of the business and 
 is* therefore, just to all parties concerned. Moreover, it enters 
 each year into the accounts in a definite ratio, and can thus 
 be counted on in advance. 
 
 Classification of Corporations Necessary: — A serious ques- 
 tion remains to be answered. Will not the tax on gross earnings 
 be distinctly unfair on account of the great diversity between 
 different corporations in their ratios of expenses to earnings? 
 The answer is that such injustice is to be avoided by classifying 
 corporations according to the prevailing ratio of net earnings 
 to gross, and imposing different rates upon the gross earnings 
 of the different classes of corporations. 
 
 Investigation shows, for instance, that the ratio of net earn- 
 ings to gross is fairly uniform for the railroads of the country. 
 In the same way there is a general prevailing ratio of net earn- 
 ings to gross for telephone companies, for express companies, 
 etc. Having determined what this prevailing ratio is for each 
 class of corporations we are enabled to fix rates for each class 
 which will make the tax on gross earnings just to all. It is 
 
PUBLIC SERVICE CORPORATIONS IN GENERAL 7 
 
 true, of course that absolute justice as between individual cor- 
 porations of the same class is not obtained. The resulting in- 
 justice is, however, not great. Careful investigations by the 
 Ontario Commission of 1905 and the California Commission of 
 1906 have demonstrated that no great injustice will result be- 
 tween different corporations engaged in the same business by 
 a tax at a uniform rate upon the gross earnings of all. Some 
 inequality is unavoidable, but the inequality thus resulting is 
 distinctly less than "can be easily shown to result from any of 
 the other schemes of taxation which are before us. No tax 
 system can be absolutely perfect, and it is not a valid objec- 
 tion against a proposed scheme to point out a defect which 
 is present in even greater degree in each of the other possible 
 alternative measures. 
 
 "We conclude, therefore, that the tax on gross earnings 
 presents distinctly the most advantageous method for the taxa- 
 tion of public service corporations. 
 
 The Rate of the Gross Earnings Tax: — In establishing a 
 system of taxation based on gross earnings the first and most 
 important problem is to determine the rates at which the tax 
 shall be imposed upon different classes of corporations. The 
 object is to determine rates which shall tax the different class- 
 es of corporations fairly as compared with the taxation borne 
 . by other forms of wealth. The ratio of net earnings to gross 
 differs as between different classes of corporations, and this 
 makes it necessary to impose the gross earnings tax at differ- 
 ent rates. 
 
 For example, suppose a certain corporation with gross earn- 
 ings of $100,000 had expenses of $80,000, leaving $20,000 of net 
 earnings. Suppose another corporation engaged in a different 
 business, having also gross earnings of $100,000, shows expenses 
 "of $60,000, leaving its net earnings $40,000, or twice the net 
 earnings of the first corporation. It is obvious that a tax upon 
 gross earnings at a uniform rate would impose an unjust burden 
 upon the first corporation, since net earnings are the true meas- 
 ure of what the tax burden should be. This injustice could 
 easily be corrected, however, by imposing different rates. Sup- 
 pose that we wish to impose a tax that shallbe equal to 10 per 
 cent, of net earnings. This would be obtained by a tax of 2 per 
 cent, upon the gross earnings of the first corporation, and by a 
 tax of 4 per cent, upon the gross earnings of the second. In 
 other words, whatever the amount of tax to be obtained, the 
 rate imposed on the gross earnings of the second corporation 
 should be twice the rate imposed upon the first. 
 
 Determination of the Rate of the Gross Earnings Tax— Ex- 
 planation of Method: — The determination of the rate of the 
 gross earnings tax requires, therefore, a careful study of the 
 situation of the different classes of corporations at the out- 
 set. Of the various possible methods of arriving at the proper 
 
8 REPORT OF SPECIAL TAX COMMISSION 
 
 rate the one employed by the California Tax Commision of 
 1906 is undoubtedly the most correct. We must first decide 
 what is the measure of the tax burden to be imposed. Here we 
 may fairly assume, as was done by the California Commission, 
 that the object should be to impose a tax burden upon the cor- 
 porations, which shall be as nearly equivalent as possible to the 
 burden of taxation borne by other wealth under the general 
 property tax. This being the measure qf the burden to be 
 imposed, it then becomes necessary to find what rate imposed 
 upon the gross earnings of the several classes of corporations 
 will produce such a result. We may fairly assume that wealth 
 in general bears a tax burden equal to about 1 per cent, of its 
 true value. This was the result of the investigation of the Cali- 
 fornia Commission, and this is the rate generally agreed to by 
 tax authorities. 
 
 In order to compare a tax upon earnings with a tax upon 
 the capital value of wealth it is necessary to translate the one 
 into the other by means of a rate of capitalization, which in 
 general is the rate of yield normally obtained by investment in 
 the corporations in question. 
 
 For example, if the regular annual net earnings of a certain 
 corporation are $600 and we assume that a fair rate of capital- 
 ization is 6 per cent., the capital value of this corporation is 
 obtained approximately by dividing its net earnings, $600, by 
 the assumed rate, 6 per cent., giving as a result $10,000. If 
 wealth in general is assumed to bear a tax burden of 1 per cent., 
 then this corporation should pay a tax equal to 1 per cent, of 
 $10,000, or $100. $100 is 16.66 per cent, of $600. Therefore 
 a tax of 16.66 per cent, upon the net earnings of this corpor- 
 ation would be equivalent to a tax of 1 per cent, upon its capital 
 value. In general, to obtain the rate of a tax on net earnings 
 which shall be equivalent to a given tax rate on capital value 
 we divide the rate on capital by the rate of interest, or the 
 rate of capitalization. 
 
 Our problem, however, is to find a rate, not on net earnings, 
 but on gross earnings. To return to the above example, let 
 us assume that the. gross earnings of the corporation are $1,800. 
 The net earnings are therefore one-third of the gross. Then, 
 to produce the same amount of tax, the rate imposed upon gross 
 earnings must be one-third of the rate upon net earnings. In gen- 
 eral, whatever is the ratio of net earnings to gross we must multi- 
 ply the desired rate of a tax on net earnings by the ratio of net 
 earnings to gross in order to obtain the equivalent tax rate to 
 be imposed upon gross earnings. 
 
 It is probably not necessary to explain that net earnings are 
 used in this calculation, not as a permanent basis of the tax, but 
 in order to classify corporations at the outset so as to determine 
 proper rates for the gross earnings tax. 
 
 Since we are proposing to collect a tax equal to about 1 per 
 cent, of the capital value of the corporation's property, we 
 must increase the rate of yield by 1 per cent, in order to reach 
 a fair rate of capitalization. To sum up the above dis- 
 
PUBLIC SERVICE CORPORATIONS IN GENERAL 
 
 eussion ; we must ascertain, first, the rate of taxation borne by 
 wealth in general under the general property tax; second, the 
 proper rate at which to capitalize the earnings of each class of 
 corporations, which will be, in general the rate of yield of the 
 investment plus 1 per cent, to allow for the tax; third, the 
 prevailing ratio of net earnings to gross for each cla^s of cor- 
 porations. We then obtain the proper rate of the tax on gross 
 earnings for each class of corporations by dividing the rate 
 of the general property tax by the rate of capitalization and 
 multiplying by the ratio of net earnings to gross. The result 
 will give the rate which, imposed upon gross earnings, will 
 cause a tax burden equivalent to that borne by wealth in gen- 
 eral under the general property tax. This process may be ex- 
 pressed mathematically as follows : 
 
 Let t equal rate of the general property tax (upon full 
 value). 
 
 Let i equal rate of capitalization. 
 
 Let r equal ratio of net earnings to gross earnings. 
 
 Let x equal required rate of the gross earnings tax. 
 
 Then x = 1^1. 
 
 For example, suppose that it is determined that wealth 
 in general is taxed at the rate of 1 per cent, upon its true value. 
 Suppose that inquiry establishes the fact that investment in 
 the securities of the particular class of corporations we are 
 concerned with yields a return of 5 per cent. Suppose, further, 
 that investigation shows that the prevailing ratio of net earn- 
 ings to gross for the class of corporations in question is 30 per 
 cent. Then t is 1%, i is 6% (i. e., 5% + 1%), and r is 30%. 
 Substituting these figures in the formula, we have: 
 
 so 
 
 = loo = 0/6- 
 
 loo * ioo _ J_ = ,„. 
 
 6 
 
 100 
 
 We should conclude, therefore, that the proper rate to im- 
 pose upon gross earnings is 5 per cent., and that if the gross 
 earnings of the corporations in question are taxed 5 per cent, 
 the result will be equivalent to the tax upon wealth in general 
 at the rate of 1 per cent. 
 
 (1) Measure of the Burden of the General Property Tax : 
 
 — The next question is to determine the facts necessary to the 
 application of this formula. The rate of taxation borne by 
 wealth in general is a matter of fact to be determined by- 
 careful investigation. It is obvioug that a mathematically 
 exact result is impossible on account of the prevailing under- 
 valuation of property and our inability to measure exactly 
 what this undervaluation is. Those who have studied the 
 question, however, have generally come to the conclusion that 
 1 per cent, represents about the rate of taxation upon the full 
 value of wealth in general. The California Tax! Commission 
 
10 REPORT OP SPECIAL TAX COMMISSION 
 
 of 1906 came to this conclusion after a very thorough investi- 
 gation of the tax conditions in that State. In Connecticut the 
 average tax rate in 1911 as reported by the Tax Commissioner 
 was 1.38 per cent, on an assessed valuation averaging accord- 
 ing to assessors' reports 89 per cent. This is equivalent to a 
 rate of 1,23 per cent, on the true value. 
 
 We are probably justified then in assuming that 1 per 
 cent, represents the average burden of the general property 
 tax upon the full value of wealth in general. 
 
 (2) The Rate of Capitalization: — The rate of yield ob- 
 tained upon investment in the securities of any given class of 
 corporations is likewise a matter of fact. To obtain the utmost 
 possible exactness requires an elaborate investigation of each 
 corporation. (See the careful study of Mr. W. H. Meyers in 
 U. S. Census Bulletin 21, 1905.) A fair approximation, suffi- 
 cient for our purposes may be obtained by comparing the 
 amount of dividends paid upon stock or interest paid upon 
 bonds with the market value of such stocks or bonds. This 
 will do for normal conditions. Allowance must of course be 
 made for peculiar circumstances. For example, suppose the 
 stock of a given corporation is paying regular dividends at the 
 rate of 9 per cent., by which we mean that each $100 share 
 of stock pays an annual dividend of $9. Suppose that the 
 market value of this stock is $150, which likewise means that 
 each $100 of stock is worth on the market $150. The rate 
 of yield upon an investment in this stock is determined by 
 dividing the annual dividend by the market value of a share 
 of stock. Thus : 
 
 4b- = .06 - 6%. 
 
 This means that 
 investors in the stock in question are willing to accept a yield 
 of 6 per cent, upon their wealth invested in the corporation 
 in question. JSuch an investigation must be undertaken to de- 
 termine what is the average rate of yield upon investments 
 in the securities of each class of corporations with which we 
 are concerned. This is a simple matter for stocks paying re- 
 gular dividends and regularly quoted on the market. It is, 
 of course, obvious that any special circumstances affecting 
 dividends and market value must be taken into account. It 
 is also true that there will be certain corporations for which 
 this method is not practicable. In general, however, for a 
 whole class of corporations engaged in a particular business it 
 is entirely practicable by this method to determine with suffi- 
 cient approach to accuracy the prevailing rate of yield upon 
 investments in the securities. 
 
PUBLIC SERVICE CORPORATIONS IN GENERAL. H 
 
 (3) The Ratio of Net Earnings to Gross Earnings: — 
 The ratio of net earnings to gross must also be determined 
 by investigation. This is the factor in the problem which 
 requires the most extended investigation. It is to be obtained 
 by careful study of the accounts and the business circumstances 
 of the class of corporations concerned. While the investiga- 
 tion must necessarily be technical and somewhat laborious, it 
 is entirely p'ossible by this means to determine with a suffi- 
 cient degree of accuracy what actually is the prevailing ratio 
 of net earnings to gross among the class of corporations con- 
 cerned. 
 
 Qualifications : — The method described above for determin- 
 ing the proper rate of the gross earnings tax is subject to 
 some qualifications owing to the nature of the matters of 
 fact which enter into the' computation. In the first place, the 
 assumption that the rate of the general property tax is about 1 
 per cent, upon the full value of property disregards the fact 
 that a considerable amount of property escapes taxation en- 
 tirely. The rate of 1 per cent, represents the burden of taxa- 
 tion upon wealth which actually is taxed. Just what the 
 result would be if we could take account also of wealth that 
 evades taxation it is, of course, impossible to say. For Con- 
 necticut in particular it is important to remember in this 
 connection that general business corporations are not subject 
 to State taxation and usually escape with a comparatively 
 light burden of local taxes. A tax system for public service 
 corporations based upon this assumption therefore treats such 
 corporations unfairly as compared with the general business 
 corporations. This is a matter, however, which lies outside 
 the scope of your Commission's investigation. Therefore it 
 must be borne in mind that our assumption that wealth in gen- 
 eral bears a tax of 1 per cent, is somewhat higher than would 
 result if we could take an average including all wealth that 
 escapes taxation as well as that that is taxed. 
 
 Secondly, the method of determining the proper rate of 
 capitalization does not lead to mathematically exact results. 
 Some additional allowance might perhaps fairly be made for 
 the fact that large additions of new capital cannot be at- 
 tracted into a business without offering a rate somewhat high- 
 er than satisfies present investors, as shown by the market 
 value of the securities and the rate of dividends paid. For 
 this reason, arid to avoid injustice due to possible inexactness 
 of the method, we may ordinarily take a rate of capitalization 
 somewhat higher than the one determined by the method in- 
 dicated. 
 
 As regards the ratio of net earnings to gross, the cal- 
 culation will usually produce sufficiently correct results 
 
12 REPORT OF SPECIAL TAX COMMISSION 
 
 provided the accounts of the corporations are accurately kept. 
 In many cases, however, the accounting methods of the cor- 
 porations have not made sufficient allowance for depreciation. 
 Where this is shown to be the case allowance must be made 
 by some reduction in the apparent ratio of net earnings to 
 gross. Taking these considerations all together it is likely 
 that the rate of the gross earnings tax as determined by the 
 method here described will be somewhat higher than is actually 
 warranted. In determining the rate of the gross earnings tax, 
 therefore, due consideration should be given to these facts in 
 the final result. 
 
 Other Tests: — The method just described for determining 
 the proper rate of the gross earnings tax upon a given class 
 of corporations is the most scientific one and the one which 
 in general will produce the most accurate results. These re- 
 sults, however, should be checked up by means of other tests 
 which, though less correct, can be made useful in verifying the 
 results or preventing injustice due to exceptional conditions. 
 
 (1) "We may determine the market value of the securi- 
 ties of the corporations, including stocks and bonds and 
 other indebtedness which represents real investment of capital. 
 Then assuming that the value of the securities represents in 
 general the real worth of the property in the corporation, cal- 
 culate the amount of a tax of 1 per cent, upon this value and 
 determine the rate which, applied to gross earnings, would 
 produce this amount. For corporations whose securities are 
 regularly quoted on the market this whole process is a sim- 
 ple mathematical calculation. 
 
 (2) We may perform the same calculation, but take as 
 our starting point the book value of the corporation; that is, 
 the sum of the capital, surplus, and undivided profits, or 
 equivalent items. We then determine what rate imposed upon 
 the gross earnings would produce an amount equivalent to 
 1 per cent, of this book value. 
 
 (3) We may determine the actual value of the physical 
 equipment of the corporation; that is, the net plant value. To 
 avoid a special physical appraisement we may ordinarily ac- 
 cept the book value of the plant. We then calculate what 
 rate, imposed upon gross earnings, will produce a sum equi- 
 valent to 1 per cent, of this plant value. 
 
 Obviously, none of these tests is absolutely reliable, as we 
 have already shown in discussing the proposal to use one or 
 other of these bases as the basis of the tax itself. In parti- 
 cular the plant value is apt to give too low a result, since the 
 actual value of the corporation as a going concern is gen- 
 erally considerably greater than the physical value of its 
 
PUBLIC SERVICE CORPORATIONS IN GENERAL 13 
 
 plant. On the other hand, all other methods are apt to be 
 too severe. The reason for this lies in our assumption that 
 wealth in general is taxed about 1 per cent, of its true value. 
 This point has been discussed above. 
 
 Exemption of the Corporations' Securities: — The gross 
 earnings tax as developed in the preceding sections is intend- 
 ed to be the equivalent of a tax upon the total property of 
 the corporations. The imposition of such a tax should logically 
 carry with it the exemption from taxation of the stocks and 
 bonds of the corporations in t^ie hands of the holders. Taxa- 
 tion of a corporation directly upon the total value of its prop- 
 erty (at a rate determined by the method described above), 
 and taxation also of its securities in the hands of the holders 
 would be a flagrant case of double taxation. This theoretical 
 nroposition is so clear that it needs no further discussion. 
 The practical application is, however, far less simple. As a 
 practical proposition, the necessity of exempting stocks from 
 taxation will hardly be denied, and the difficulties in the way 
 of carrying out the exemption are not so serious. As to the 
 exemption of bonds, the practical difficulties are apt to be 
 great, ff bonds formerly have been subject to taxation, ex- 
 empting them from taxation on the introduction of a new cor- 
 poration tax is a pure gift to the bond holders, and brings no 
 relief to the corporation except that future bond issues may 
 perhaps be made at slightly lower rates of interest. Again, 
 the situation of a given State may be such that it can hardly 
 afford to grant exemption from taxation to all the holders 
 of the bonds .of a given class of corporations simply because 
 it taxes such corporations directly upon their earnings or 
 property. For instance, a State might be the place of residence 
 of a large number of wealthy owners of bonds of a certain 
 interstate corporation which did a very small business in the 
 State. The State tax upon this corporation, based upon its 
 share of the corporation's property or earnings, would be a 
 small matter, and would hardly justify the exemption from 
 taxation of all of the bonds of the corporation owned by citi- 
 zens of the State. This situation is bound to be of common 
 occurrence until some uniformity of taxation by the various 
 States is reached. In the meantime it may often be practically 
 inadvisable to entirely exempt bonds from taxation. 
 
 As regards the Connecticut situation, the Commission has 
 found no practical difficulty in the way of exempting from 
 taxation in the hands of the holders the shares of stock of all 
 corporations which are .directly taxed by the State. This 
 exemption, as a matter of fact, involves only slight change from 
 the present situation, since the shares of stock of the corpora- 
 
14 REPORT OF SPECIAL TAX COMMISSION 
 
 tions now paying taxes to the State are now practically ex- 
 empt from taxation in the hands of the holders. • 
 
 The bonds of railroad corporations paying taxes to the 
 State are already exempt from taxation by statute, and the 
 Commission sees no reason for making any change. The bonds 
 of other corporations paying taxes to the State are at present 
 taxable as personal property in the hands of the owners. The 
 Commission is of the opinion that complete exemption from 
 taxation of the bonds of all corporations paying taxes to the 
 State of Connecticut would not be justified under present con- 
 ditions. This decision is based upon the reasons which have 
 been explained in general terms above. The Commission has 
 concluded that a fair compromise will be the exemption from 
 taxation in the hands of the holders of bonds of corporations 
 holding their charters from the State of Connecticut, while 
 leaving bonds of foreign corporations subject to taxation as 
 at present. This is the recommendation which the Commis- 
 sion has made for each of the classes of corporations which 
 it has investigated. 
 
 III. EXPERIENCE OF OTHER STATES IN TAXING 
 PUBLIC SERVICE CORPORATIONS 
 
 Very few States undertake to tax all public service 
 corporations by the same method. Detailed descriptions 
 of the methods of other States will, therefore, come more 
 properly in the chapters discussing the separate classes of 
 corporations. In the present connection, however, it will be 
 valuable to take a general survey in order to shed light upon 
 the problem from the experience of the States. 
 
 The Ad Valorem Basis : — The majority of the States still 
 cling to the property basis in taxing corporations. Some, of 
 them have not gone beyond the old general property tax. 
 Others have gone further and provided more or less efficient 
 State machinery for the assessment of the property of corpora- 
 tions. Michigan and Wisconsin have advanced farther than 
 any others in the making of exhaustive valuations and the es- 
 tablishment of elaborate machinery for administration of the 
 law. The old idea that corporations must be taxed upon the 
 basis of property dies very hard. This is partly due to popular 
 ignorance which has led people to cling tenaciously to the no- 
 tion that the general property tax is the one and only perfect 
 method of taxation. It is also due in large measure to a 
 very common notion that equality of taxation requires that 
 all subjects be taxed by the same method. This supposed 
 principle is even incorporated in many of the constitutions. of 
 the States, which are thus forced to continue with obsolete 
 
PUBLIC SERVICE CORPORATIONS IN GENERAL 15 
 
 tax methods. It is, however, gradually declining, and the 
 decline is most noticeable in those States which have pro- 
 gressed farthest in wealth and industrial development. The 
 weight of authority is generally against this method. 
 
 The "Stock and Bond" (Capitalization) Method: — A con- 
 siderable number of States uses the value of stocks and bonds, 
 or of stocks alone, as the basis for the taxation of all cor- 
 porations or of certain classes, often in combination with local 
 taxes on property. Massachusetts, New York, and Pennsyl- 
 vania have general corporation tax systems based 
 primarily upon this method. Massachusetts and New 
 York take account of stock only, while Pennsylvania includes 
 bonds. Various other States make more or less use of this 
 method, often in connection with a tax based primarily up- 
 on the value of property. Even Michigan and Wisconsin, at 
 present the chief advocates of the property basis, are unable 
 to avoid considerable use of the stock and bond method. The 
 difficulties with this method of taxation are generally re- 
 cognized even in the States where the system is in use. While 
 it is generally recognized that this method is far superior to 
 the old property basis, few authorities will be found to urge 
 this system as the best method of taxing corporations. 
 
 The Gross Earnings Basis: — Many States today which 
 have departed from the old property basis use the gross earn- 
 ings basis for the taxation of certain classes of corporations. 
 Among such States this is the favorite method for the taxa- 
 tion of telephone companies, telegraph companies, and express 
 companies. It is- also a common method for the taxation of 
 sleeping car and other car companies. Half a dozen States 
 use it as a principal or important secondary method for the 
 taxation of railroads. The weight of authority is most de- 
 cidedly in favor of the gross earnings tax. Without going in- 
 to a discussion of authorities it should be mentioned that 
 most of the recent State reports on this subject have recom- 
 mended the gross earnings basis for the taxation of public 
 service corporations. We may mention in particular the re- 
 ports of the Ontario Commission on Eailway Taxation of 1905, 
 the California Commission of 1906, the Rhode Island Com- 
 mission which reported in 1910, 1911, and 1912, and the Vir- 
 ginia Commission of 1911, all of which recommended the 
 gross earnings basis for public service corporations. To this 
 list might be added a long list of economists and tax experts 
 who have recently urged the superiority of the gross earnings 
 tax. 
 
 The Experience of Michigan and Wisconsin: — The im- 
 portant States of Michigan and Wisconsin after an experience 
 
16 REPORT OP SPECIAL TAX COMMISSION 
 
 of many years with the gross earnings tax as applied to rail- 
 roads, abandoned this method about 10 years ago in favor of 
 the ad valorem basis. This event, being contrary to the gen- 
 eral trend, besides being so important of itself, deserves spe- 
 cial consideration. Thorough accounts of this movement in 
 each of the States have been presented by the Ontario Com- 
 mission and the California Commission as well as in the re- 
 ports of the tax commissions of the two States concerned. 
 "We can give here only a brief summary of what took place. 
 
 Michigan and Wisconsin had both had the gross receipts 
 tax as applied to railroads for a number of years. In both 
 States the method was abandoned after several heated poli- 
 tical campaigns. Michigan attempted to make the change 
 in 1898, but found that her constitution stood in the way. In 
 1899 a tax commission was appointed and charged to investi- 
 gate the subject. This commission, after an extensive inves- 
 tigation, reported in favor of the ad valorem basis. The 
 constitution was accordingly amended in 1900, and in that 
 year and the next a very thorough valuation was made of 
 the railway property of the State. This involved a physical 
 valuation as well as a valuation of the securities. It was car- 
 ried out under expert direction with a large corps of en- 
 gineers, and at heavy expense. The ad valorem method of 
 taxation was then adopted, and after much opposition and 
 litigation was finally upheld in 1906 by the United States Su- 
 preme Court. 
 
 In Wisconsin a similar movement started in 1899. A 
 State tax commission was appointed which, after an inves- 
 tigation, advocated the ad valorem method. After a heated 
 campaign the law was passed in 1903. The valuation of 
 railroad property was not so elaborate or expensive as in 
 Michigan. A permanent State commission was created charg- 
 ed with the duty of valuing railroad property. It is under- 
 stood that the commission depends mainly upon the value 
 of stocks and bonds and upon capitalized earnings. An at- 
 tempt was made to preserve the independence of the commis- 
 sion by providing salaries of $5,000 and fixing the terms of 
 the commissioners at 8 years, with other provisions to avoid 
 sudden changes. 
 
 In both States, therefore, the operation of the law is 
 placed in the hands of a tax commission, and in the last an- 
 alysis the valuation placed upon railroad property uepends 
 upon the judgment of these commissions. Both States still 
 find it necessary to make frequent reference to earnings in 
 order to arrive at a fair valuation of railroad property. 
 
PUBLIC SERVICE CORPORATIONS IN GENERAL 17 
 
 IV. PROBLEMS OF INTERSTATE COMMERCE 
 
 Apportionment of Interstate Earnings: — It is obvious that 
 no State can fairly impose a tax upon the total gross earnings 
 of a corporation derived from business done partly without 
 the State. Just as a tax imposed upon the property of a 
 corporation should fall only upon its property located within 
 the State imposing the tax, so the tax on gross earnings must 
 be imposed only upon such share of the gross earnings as may 
 fairly be assigned to the State imposing the tax. We are for 
 the present concerned only with the question of economic 
 justice as between States and not with any constitutional ques- 
 tion. Where corporations are doing business of an interstate 
 character it is necessary, therefore, to devise some equitable 
 rule by which the gross earnings may be apportioned as be- 
 tween the State imposing the tax and other States. To make 
 the apportionment as exact as possible we should assign to 
 the State imposing the tax all earnings from business perform- 
 ed wholly within the State. We should exclude all business 
 done wholly without the State. We should then assign to 
 the State in question its share of all business which crosses 
 the State line. Th£ latter might be accomplished in any one 
 of a number of ^perent ways. The most obvious is to keep 
 track of each shipment, or message, or, passenger, and appor- 
 tion the earnings according to the mileage covered. Another 
 somewhat similar method is to apportion the earnings from 
 each transaction by a so-called rate prorate, according to 
 which we assign to a given State its share of the charge for 
 each transaction according to the ratio of the rate on the dis- 
 tance covered within the State to the rate for the whole dis- 
 ance covered by the transaction in question. Such a method 
 of apportioning gross earnings would give a high degree of 
 exactness to the apportionment, but is subject to the objec- 
 tion that it involves a complicated system of accounting for . 
 every interstate transaction. This would be burdensome and 
 expensive tfo the companies concerned, would be difficult for 
 the State officials to check up, and would be hard for the 
 general public to understand. Such difficulties as these should 
 be avoided if possible, even though it may be necesary to 
 adopt a less exact and more arbitrary rule of - apportionment. 
 
 In general, a sufficiently exact apportionment of earnings 
 may be made by adopting some arbitrary basis, such as the 
 total number of miles of railroad track in the State as com- 
 pared with the total miles of track of the whole system, or 
 the mileage of wires of a telegraph or long distance telephone 
 company, or the number of telephone instruments within and 
 without the State for a telephone exchange company, etc. 
 Such methods of apportionment have the advantage of being 
 3 
 
18 REPORT OF SPECIAL, TAX COMMISSION 
 
 simple, easily understood, involving no complicated accounts, 
 and being very easily administered. It is not difficult for each 
 class of corporations to discover some such simple method of 
 apportioning to a given State its share of the gross earnings 
 of a corporation doing interstate business. 
 
 Constitutionality of the Gross Earnings Tax: — One of the 
 obstacles which has hindered the development of the gross 
 earnings basis of taxing corporations has been the quite com- 
 mon notion that the taxation of gross receipts from inter- 
 state commerce was forbidden to our States by the Federal 
 Constitution. There can be no question that this popular no- 
 tion comes from ignorance of the decisions of the United States 
 Supreme Court, yet the notion has persisted, and even so able 
 a body as the Ontario Railway Commission of 1905, after a 
 study of American tax systems, was led into the popular error 
 of supposing that the States were without power to levy taxes 
 upon gross receipts from interstate commerce. Since so large 
 a proportion of the public service corporations are engaged in 
 interstate commerce this notion, if it were true, would ob- 
 viously be an effectual bar against this method of taxation. 
 As a matter of fact, however, this notion iaentirely erroneous. 
 
 This subject has been thoroughly stuffed by various au- 
 thorities. A careful examination of the whole subject was 
 made by the California Tax Commission of 1906, which exam- 
 ined a long line of decisions of the United States Supreme 
 Court. Mr. A. B. Holeomb, in a paper read before the Fifth 
 Annual Conference of the International Tax Association in 
 1911, presented a careful summary of the decisions of the 
 Supreme Court on this matter. Willoughby in "Constitutional 
 Law," published in 1910, reviews the subject. Finally, the 
 Supreme Court itself in its opinion in Galveston, Harrisburg, 
 and San Antonio Railway Company vs. Texas — 210 U. S. 217 — 
 took occasion to review a long line of its own decisions upon 
 this matter. In view of the thorough and able study that has 
 been given to this question it is not necessary fdr this Com- 
 mission to discuss -it at length. The conclusions may be 
 briefly stated as follows. 
 
 First of all, there is no question of the general principle 
 that all laws which impose taxes directly upon receipts from 
 interstate commerce are in violation of the Federal Constitu- 
 tion and void. On the other hand, the right of a State to 
 impose taxes upon the property of corporations within its 
 borders is unquestioned, even though the corporations be en- 
 gaged in interstate commerce. Again, a State may value the 
 property of corporations by the "unit rule;" that is, may as- 
 certain the total value of the entire system and then appor- 
 tion to the State in question a share of the entire property 
 
PUBLIC SERVICE CORPORATIONS IN GENERAL 19 
 
 according to the ratio of the mileage within the State to the 
 total mileage of the system, or according to the ratio of busi- 
 ness done within the State to the business of the whole system. 
 In arriving at the value of the property of a corporation a 
 State is free to make its earnings, either net or gross, the 
 basis. The most important recent cases in which this mat- 
 ter has been settled are the following. In Maine vs. Grand 
 Trunk Eailway Company — 142 U. S. 217 — a tax based upon 
 the gross receipts of railway companies was held valid on 
 the ground that it was not a tax directly upon gross receipts, 
 but only made use of gross receipts as a measure of the 
 value of the franchise and property of the company. In Pos- 
 tal Telegraph Company vs. Adams — 155 U. S. 688 — the Court 
 gave the clearest possible statement of the principle that a 
 State tax is valid if it is in commutation of a property tax 
 and does not amount to more than the tax would have been 
 upon the ad valorem basis. Finally, in the case of Galveston, . 
 Harrisburg, and San Antonio Eailway Company vs. Texas — 
 210 U. S. 217 — the Supreme Court of the United States exam- 
 ined its previous decisions and explained all apparent incon- 
 sistencies. The law at issue in this particular case was declared 
 invalid on the ground that it was not the only tax upon the 
 corporation concerned, but was in addition to another tax 
 upon the whole property of the corporation. 
 
 We may sum up this discussion by the following quota- 
 tion from Willoughby's "Constitutional Law:" 
 
 "From the foregoing it would appear that the law with 
 reference to the State taxation of the gross receipts of companies 
 doing an interstate commerce business is not in as definite 
 shape as might be desired. One general principle may, however, 
 be deduced from all the cases. This is, that a state tax is in- 
 valid whatever its form if, in effect, it lays a direct burden upon 
 interstate commerce; and that conversely, a state tax is valid, 
 however measured, or (if we follow the doctrine of Maine vs. 
 Grand Trunk Ry.) whatever its form, which may be fairly held 
 to be a tax on the property of the company, whether tangible 
 or intangible. The tax being thus valid, if valid at all, only as 
 a property tax, its non-payment may never involve a for- 
 feiture of the right of the company to do an interstate commerce 
 business. The doctrine of Maine vs. Grand Trunk Ry. that a 
 tax measured by the gross receipts may be sustained as a fran- 
 chise or excise tax upon the right of the company to do busi- 
 ness in the state is certainly unsound, and is, it would appear, 
 as above indicated.'so recognized in Galveston H. & S. A. R. R. 
 Co. vs. Texas. 
 
 Perhaps the general doctrine which we have been consider- 
 ing is best stated and illustrated in Postal Telegraph Cable 
 Co. vs. Adams (155 U. S. 688) in which it was held that a state 
 has the power to levy on a foreign telegraph company doing both 
 a domestic and an interstate business a franchise tax, the 
 amount thereof being graduated according to the value of the 
 property within the state, such tax being in lieu of all other 
 
20 REPORT OF SPECIAL TAX COMMISSION 
 
 taxes. Though in terms a franchise tax, the tax was held valid 
 as, in fact taking the place of a property tax, which, of course, 
 the state might constitutionally levy." 
 
 It appears, therefore, that there can be no question of the 
 right of a State to impose a tax at a given rate upon the 
 earnings of a corporation as an exclusive tax, and in lieu of 
 all other taxes upon the property of the corporation, provided 
 the resulting burden is fairly measured so as not to be in ex- 
 cess of the burden which would be imposed by a tax on the 
 ad valorem basis. 
 
 V. DEFECTS OP THE PRESENT-METHOD OF TAXATION 
 IN CONNECTICUT 
 
 There are at present four classes of public service cor- 
 porations subject to taxation by the State of Connecticut: 
 (1) railroads, including street and electric railways; (2) ex- 
 press companies; (3) telephone companies; and (4) telegraph 
 companies. There is at present no special taxation of car 
 companies, the reason being that up to the present time prac- 
 tically all sleeping and parlor cars operated in the State have 
 been owned and operated by the railroad corporations them- 
 selves, and their taxation has, therefore, been included in the 
 taxation of railroads. 
 
 Connecticut's taxation of public service corporations 
 presents a decided hodge-podge. There is a different method 
 for each of the four classes. Railroads are taxed on what is 
 known as the "stock and bond" plan, the basis being the sum 
 of the market value of the stock and the value of funded 
 and floating indebtedness. To Connecticut is apportioned a 
 part of this total on the basis of certain road mileage. There 
 are numerous deductions and complications which need not 
 be gone into here. They will be fully explained in the chapter 
 on railroads. 
 
 Express companies are taxed on gross receipts derived 
 from business wholly within the State. No account is taken 
 of any part of the receipts from interstate business. 
 
 Telephone companies are taxed by means of an arbitrary 
 flat rate upon the number of transmitters in use in the State, 
 together with an additional tax at an arbitrary rate per mile 
 upon wires used for interstate messages. 
 
 Telegraph companies are taxed upon mileage of wire at 
 an arbitrary flat rate per mile. 
 
 Of these four methods of taxation, some are distinctly 
 bad, while none are free from defects. Each method will be 
 subjected to criticism in the appropriate chapters following. 
 Apart from individual defects, the very diversity of method 
 
PUBLIC SERVICE CORPORATIONS IN GENERAL 21 
 
 is of itself an evil. Much would be gained if it were pos- 
 sible to subject all public service corporations to one general 
 plan of taxation. As will be shown later, serious defects are 
 to be found in the present method of taxing each class of 
 corporations. Since, therefore, changes are demanded, it be- 
 comes proper to inquire whether or not a single uniform sys- 
 tem can be substituted for the present diversity, and if so, what 
 system of taxing public service corporations presents the 
 greatest advantages with the fewest difficulties. The foregoing 
 discussion has indicated that this is the gross earnings tax. 
 The following Chapters will treat of the special advantages 
 of the gross earnings tax for each of the classes of public 
 service corporations. 
 
 VI. THE OPPORTUNITY TO PROMOTE UNIFORMITY 
 OF TAXATION AMONG THE STATES 
 
 One of the most serious defects in American taxation of 
 corporations is the lack of uniformity of method among the 
 several States. This is a source of constant expense and irri- 
 tation to corporations that must be taxed in a number of 
 different States. It leads to an unfair distribution of revenue 
 as between the different States. In general it is a cause of 
 injustice and irritation to all parties concerned. Any move- 
 ment which promises relief from this situation deserves en- 
 couragement. 
 
 There is reason to believe that Connecticut has an oppor- 
 tunity at the present time to take the lead in a movement which 
 may result in a long step forward toward uniformity of taxa- 
 tion of corporations among the New England States. 
 These States are in general so closely related that 
 there is every reason for seeking uniformity in their methods 
 of taxing the great public service corporations which do busi- 
 ness within their territory. Such uniformity does not exist 
 at present. 
 
 In January, 1912, there was organized the Association of 
 New England State Tax Officials, with representatives from all 
 of the six New England States. The Association has now held 
 two meetings, at both of which the problem of promot- 
 ing uniform tax methods among the New England States was 
 seriously discussed. At the second meeting, held in December 
 1912, a resolution was adopted favoring the principle of uni- 
 formity in the method of taxing public service corporations of 
 similar classes and recommending in particular a uniform rule 
 of apportionment for interstate corporations. If the States of 
 New England are ever able to agree upon a uniform method of 
 taxing public service corporations, the gross earnings tax is 
 
22 REPORT OF SPECIAL TAX COMMISSION 
 
 the one that has the best chance of acceptance. If, at the 
 present time, the State of Connecticut should adopt a scienti- 
 fic and broad-minded plan of taxing all public service cor- 
 porations on their gross earnings, together with a fair basis of 
 apportionment which could be followed by other States with 
 justice to all, a great stimulus would be given the movement 
 toward uniformity among the New England States. Uniform- 
 ity among the New England States might well serve as an 
 example and encouragement to the other States. Connecticut 
 thus has the opportunity to take the lead in this important 
 movement. This consideration is an additional argument in 
 favor of the adoption by the State bf a scientific and fair-mind- 
 ed system of taxing all public service corporations upon their 
 gross earnings. 
 
CHAPTER II 
 RAILROAD COMPANIES 
 
 GENERAL SUMMARY OF CHAPTER 
 
 I. The Present Method of Taxation in Connecticut: — 
 Railroads, both steam and electric, are taxed upon their 
 qapital stock and funded and floating debt at the rate of 1 
 per cent. Apportionment to Connecticut of her share, in the 
 case of interstate roads, is on the basis of road mileage. Up- 
 on this general foundation there has been added a mass of ex- 
 ceptions and complicated features, which are described and 
 criticised in the body of this chapter. 
 
 II. Historical Development of the LaW: — Railroads were 
 first taxed by the State in 1849. This was a tax of V£ of 1 
 per cent, on the shares of stock owned by non-residents. Next 
 year, the tax was extended to all stock, at the rate of 1-3 of 1 
 per cent., increased to % of 1 per cent, in 1862. Horse rail- 
 roads were first included in 1862. In 1864, the present basis 
 was adopted, the tax being upon the capital stock and funded 
 and floating debt. The rate was 1 per cent, on steam roads 
 and % of 1 per cent, on horse roads. In 1865 the rate was 
 made 1 per cent, for all roads. Since then a great many 
 amendments have been made, chiefly for the purpose of allow- 
 ing deductions of securities issued for various purposes, osten- 
 sibly in order to avoid double taxation. 
 
 III. Operation of the Present Tax System :— Tiiere 
 were in 1912, 6 steam railroads and 14 eleetric railroads sub- 
 ject to the State tax. Four steam roads and one electric road 
 have interstate lines. The pne great railway system is the New 
 York, New Haven & Hartford Railroad. Its taxes exceed those 
 paid by all other roads combined. The total revenue of the 
 State from taxes on railroads in 1912 was $1,611,560.76 of 
 which $974,161.24 was paid by the New York, New Haven and 
 Hartford Railroad, $81,288.73 by other steam roads, and $556,- 
 110.79 by electric railways. 
 
 IV. Criticism of the Present Tax System: — The "stock 
 and bond" method of taxing railroads is defective in being 
 only imperfectly related to the earnings and tax-paying ability 
 of the corporations. In Connecticut, for example, the taxes 
 paid by the New Haven Road have declined in spite of great 
 increases in its earnings. In addition, various amendments 
 have been added, which have been unfair to the State, causing 
 further loss of revenue. The present system is also very com- 
 plicated and uncertain, and incapable of effective administra- 
 tion. Its radical amendment is warranted. 
 
24 REPORT OF SPECIAL TAX COMMISSION 
 
 V. The Gross Earnings Tax: — The tax on gross earnings 
 is recommended as the best method for taxing railroads. It 
 has the advantages of fairness to the State and to the corpora- 
 tions. It is simple, certain, and easily administered. The 
 rate should be 4% per cent., which is shown to be justified by 
 all the evidence. Connecticut's share of the earnings of roads 
 lying partly outside the State should be properly apportioned. 
 
 VI. Taxation of Railroad Companies in Other States:— 
 
 A brief summary of the tax systems of other States appears in 
 this chapter. A detailed abstract for each State will be found 
 in Appendix II. 
 
 VII. Recommendations: — The Commission recommends a 
 tax on railroad companies (both steam and electric), measured 
 by their gross operating earnings, the State's share of the 
 earnings of companies doing business partly outside the State 
 to be apportioned on the basis of all track mileage. The rate 
 recommended is 4% per cent. This tax should be in lieu of all 
 other taxes on the railroads or their property used exclusively 
 in the railroad business. The shares of stock and bonds of 
 the companies thus taxed should be exempt from taxation in 
 the hands of the owners. 
 
 The gross earnings tax as recommended would increase 
 the revenue of the State by over $150,000, on the basis of the 
 figures for 1912. As time goes on it would show a continued 
 increase in proportion with the growth of the business of the 
 railroads. 
 
 I. THE PRESENT TAX SYSTEM IN CONNECTICUT 
 
 General Description: — Connecticut taxes railroads by the 
 so-called "stock and bond" method. The main feature of the 
 system is the imposition of a tax of 1 per cent, upon the sum 
 of the market value of the stock plus the value of the bonds 
 and floating indebtedness. For railroads whose lines 
 extend into other States, Connecticut takes a part of this value 
 of stock and indebtedness, represented by the ratio of a cer- 
 tain .part of the miles of road within the State to the total 
 road mileage. This central idea, which is fairly clear and 
 simple, has been modified by exceptions and additions, until 
 the present system is exceedingly complicated. (Gen. Statutes, 
 sec. 2423, as amended by Acts 1907, ch. 115; sec. 2424-2426; sec. 
 2427 as amended by Acts 1903, ch. 173; sec. 2428-2432; sec. 
 2441 as amended by Acts 1907, ch. 115; sec. 2442, 2443- sec. 
 3822, 2330; Acts 1905, ch. 247; Acts 1907, ch. 204; Acts 1911, 
 ch. 283.) 
 
RAILROAD COMPANIES 25 
 
 Essential Features: — Going more into detail, the Connec- 
 ticut system is as follows : The tax is imposed on any railroad 
 company any portion of whose road is in this State. The tax 
 is 1 per cent, of the sum of the market value of the stock as 
 determined by the Board of Equalization plus the par value of 
 the funded and floating indebtedness, but if any of such in- 
 debtedness is worth less^than par, then the market value of 
 such indebtedness is taken. 
 
 From this sum the following deductions are made: (1) the 
 value of any bonds or other obligations of the company held 
 in trust for it as part of its sinking fund, (sec. 2424) ; (2) the 
 amount of stock or funded or floating debt issued to obtain 
 funds for making permanent improvements upon or buying 
 equipment for any railroad in another State (not part of its 
 own road) which it holds by lease or otherwise, (sec. 2427) ; 
 (3) the amount of any stock, bonds, or other evidences of in- 
 debtedness of the company, issued for the purpose of acquiring 
 the stocks, bonds, or other evidences of indebtedness of an- 
 other railroad whose line is wholly or partly in Connecticut, 
 provided the latter railroad continues to include the securi- 
 ties thus acquired in its return for purposes of taxation, (Acts 
 1905, ch. 247 ; 1907, ch. 204, sec. 1) ; (4) similarly, also the 
 amount of stock or funded or floating debt issued for pur- 
 chase of or in exchange for the stock or obligations of any 
 railroad company whose line is outside the State, (sec. 
 2427) ; (5) the amount of stock or funded or floating indebted- 
 ness issued for the purchase of the stock or obligations of any 
 steamboat company operating a line of steamboats in connec- 
 tion with the company's railroad, (Acts 1903, ch. 173) ; (6) the 
 amount of stock or funded or floating debt issued for the pur- 
 chase of any property held by it, other than its railroad and 
 franchises and its real estate in Connecticut not used for rail- 
 road purposes. If the company is unable to state the amount 
 of capital or debt thus issued, it may deduct the actual cost 
 of such property, (Acts 1911, ch. 283, sec. 1). 
 
 In the case of any company whose road lies partly outside 
 the State, the law proceeds as follows ; From the value of its 
 stock and indebtedness, determined with deductions as explain- 
 ed above, there is deducted the value of any branches in Con- 
 necticut which the State Board of Equalization determines are 
 worth less per mile than one-fourth of the average value per 
 mile of the main line. Of the value of stock and indebtedness 
 then remaining there is apportioned to Connecticut that part 
 which is represented by the ratio of the number of miles of 
 road within the State to the total road mileage (not including 
 in either number the branches described above.) To Connec- 
 ticut's share of the valuation thus determined is added the 
 
26 REPORT OP SPECIAL. TAX COMMISSION 
 
 value of the branches previously deducted, as determined by 
 the State Board of Equalization, (sec. 2425). 
 
 The tax is then computed at 1 per cent, of the valuation 
 determined as described above, and from the amount of the 
 tax is .deducted the amount of taxes paid upon real estate in 
 Connecticut not used for railroad purposes. The balance is 
 the amount of tax due to the State, (^see. 2424). 
 
 Each company must report annually to the Tax Commis- 
 sioner the facts required as above for determining the amount 
 of the tax. These reports are examined and corrected if neces- 
 sary by the State Board of Equalization, (sec. 2441). 
 
 This tax is in lieu of all other taxes upon the railroad, its 
 franchises, stock, debt, or property in the State used for rail- 
 road purposes. The stock and bonds of the railroad companies 
 paying the tax are exempt from taxation in the hands of the 
 holders, (sec. 2424). 
 
 The tax must be paid annually on or before November 25. 
 The appropriate officer of each company must deliver to the 
 Tax Commissioner annually on or before November 10 a sworn 
 statement giving certain specified facts necessary to the deter- 
 mination of the tax and the administration of the law. 
 
 The Board of Equalization is required to meet each year 
 on the first secular day after the expiration of the time for 
 making reports by railroad companies, to examine and correct 
 such returns, and to hear any party making such returns. If 
 any such returns are not made, or are erroneously made, the 
 Board is required to make up the return on the best informa- 
 tion it can obtain. This return is reported to the company con- 
 cerned. It is final, and the taxes are to be paid on it. 
 
 The law provides that for companies that have paid regular 
 dividends at the same rate for two years previous to the date 
 of making their report, and for other companies so far as poss- 
 ible, the value of the stock for purposes of taxation shall be the 
 average of the closing prices or bids during the twelve months 
 preceding the date of making the report. When this method is 
 ', impossible, the report must state the price of the last reported 
 
 market sale, and the Board of Equalization may fix the value 
 according to its best judgment. (Sec. 2442, 2443.) 
 
 The law provides for its proper administration in cases 
 where railroads are in the hands of receivers, trustees, mort- 
 gagees, etc., or where railroads have been sold. (Sees. 2428, 
 2431; Acts 1907, ch. 204, sec. 1.) 
 
 II. HISTORICAL DEVELOPMENT OP THE LAW 
 
 The first statute requiring railroad companies to pay a 
 tax to the State of Connecticut was passed in 1849. The stocks 
 and bonds of railroad companies were already taxable as prop- 
 erty of the holders under the general property tax. The act 
 of 1849 provided that upon all shares of stock owned by per- 
 sons living outside the State the railroad should pay to the 
 State annually a tax of % of 1 per cent. "When the road was 
 
RAILROAD COMPANIES 27 
 
 partly outside the Staje the payment should be only in pro- 
 portion to the length of road within the State. The company 
 was given a lien on the stock for reimbursement of the tax. 
 (Acts 1849, ch. 42.) 
 
 The law applied to railroad and turnpike companies that 
 had paid dividends during the preceding year. The companies 
 were required to report, by a sworn statement within the first 
 ten days of October each year, the list of non-resident share- 
 holder! and the number and market value of shares held by 
 each on October 1. The tax was payable on or before October 
 20. Failure of the specified officer of the company to comply 
 with the law was punishable by a fine of $100 in case of a turn- 
 pike company, and $1,000 in case of a railroad company. 
 
 The system was extended the next year by an act impos- 
 ing a tax of one-third of 1 per cent, upon the market value of 
 all of the stock of the companies, regardless of the residence of 
 the owners. This tax took the place of all other taxes on rail- 
 road stock in the State. For railroads lying partly without 
 the State the tax was apportioned according to mileage, as be- 
 fore. The company was given a lien on the stock for re- 
 imbursement of the tax, as before. Railroad stock was made 
 exempt from all other taxes. (Acts 1850, ch. 58.) 
 
 This law applied only to railroad companies. A sworn 
 statement, giving the necessary facts as of July 1, was required 
 of each company on or before July 20 each year. The tax must 
 be paid on or before September 1. For failure to comply with 
 the act a penalty of $100 was imposed, and for failure to pay 
 the tax, a penalty of $10,000. The State Board of Equalization 
 was required to examine and correct the statements made, and 
 if no report were made, to ascertain the value of the stock and 
 assess it accordingly. 
 
 The provision giving the railroad companies a lien on the 
 shares of their stock for reimbursement of the tax paid was 
 omitted from the law in 1851. (Acts 1851, ch. 47, sees. 23-26.) 
 The rate of the tax was increased to % of 1 per cent, in 
 1862, and the law was extended to apply also to horse railroad 
 companies. (Acts 1862, ch. 55.) 
 
 The dates of making the required reports and paying the 
 tax were changed by this statute to "within the first ten days 
 of October" and "on or before the twentieth day of October" 
 respectively; the facts were to be stated as of October 1. Pro- 
 vision is made for making the report and paying the tax by 
 any agent, lessee, etc., in possession of a railroad. When the 
 proper report has not been made, the Board of Equalization is 
 required to make out the required statement themselves from 
 the best knowledge they can obtain, their statement to be final, 
 but they were forbidden to value any stock at less than 10 per 
 cent, of its par value. 
 
 Another act in the same year provided that any tax paid 
 by a lessee of a railroad, under a lease existing on July 10, 1862, 
 should be considered to be paid for the lessor and might be de- 
 ducted from any payment due from the lessee to the lessor on 
 account of the lease. (Acts 1862, special session, ch. 10.) 
 
28 REPORT OF SPECIAL TAX COMMISSION 
 
 The tax was again extended in 1864, by including the 
 funded and floating debt with the stock as the basis of the 
 tax. The rate was increased to 1 per cent, for railroad com- 
 panies, but remained % of 1 per cent., for horse railroad com- 
 panies. Corporations were allowed to deduct from the value 
 of stock and debt the amount of cash on hand. This tax was 
 in lieu of all other taxes on railroad property or franchises in 
 the State. (Acts 1864, ch. 74.) 
 
 The fine for failure to make the required report was in- 
 creased by this law to $500, and the penalty for failure to pay the 
 tax was made twice the amount of the tax. 
 
 The rate on horse railroads was raised to 1 per cent, in 
 1865, making it the same as for steam roads. (Acts 1865, ch. 
 
 116.) 
 
 A law of 1868 provided for deducting the value of real 
 estate not used exclusively for railroad purposes. (Acts 1868, 
 ch, 78.) 
 
 A statute of 1869 provided that all bonds issued by a town 
 or city in aid of the construction of certain Connecticut rail- 
 roads or to raise money to pay for stock subscriptions to such 
 railroads should be exempt from taxation in the hands of the 
 holders, provided that whenever the proceeds of such bonds 
 or stocks have been expended in construction of the railroads, 
 the railroads shall pay to the State a tax of 1 per cent, upon 
 such bonds, whether owned within the State or elsewhere, and 
 upon the stock subscribed by the towns or cities. (Acts 1869, 
 ch. 10). 
 
 In 1871 it was provided that railroads might deduct from 
 their tax the amount of local taxes paid on real estate in Con- 
 necticut not used for railroad purposes. (Acts 1871, ch. 89.) 
 
 A law of 1875 provided that mortgagees, trustees, or pur- 
 chasers who shall come into possession of any railroad shall 
 make the report and pay the taxes required by statute. (Acts 
 1876, ch. 61.) 
 
 Another act of 1875 gives the State a prior lien upon the 
 property of any railroad for unpaid taxes. (Acts 1875, ch. 83.) 
 
 The dates for making the required report and paying the 
 tax were changed in 1876 to "within the first ten days of Jan- 
 uary" and "on or before the 20th day of January," respectively. 
 The facts were to be stated as of January 1. (Acts 1876, ch. 60.) 
 
 An amendment in 1876 provided that, in determining the 
 value of the stock and indebtedness, the value of all branches 
 within the State worth, as determined by the Board of 
 Equalization, less than one-fourth the average value per mile 
 of the trunk road should be deducted. Such branches should 
 also be excluded in apportioning the value of the stock and 
 indebtedness of roads lying partly outside the State. Each such 
 branch should be valued by the Board of Equalization and a 
 tax of 1 per cent, paid on such value. (Acts 1876, ch. 81.) 
 
 In 1881 a law was passed allowing any railroad to deduct 
 from the value of its stock and indebtedness the amount of any 
 
RAILROAD COMPANIES 29 
 
 stock or indebtedness issued to obtain funds for making perma- 
 nent improvements upon or buying equipment for any railroad 
 in another State (not part of its own road) which it held by 
 lease or otherwise. (Acts 1881, ch. 103.) 
 
 The law was amended in 1882 by the provision that the 
 value of funded and floating indebtedness for purposes of 
 taxation should be the par value unless the market value were 
 lower, in which case it should be the market value. (Acts 1882, 
 ch. 139.) 
 
 An act of 1882 provided that the tax on stock and indebted- 
 ness should apply also to any unpaid bonds secured by mort- 
 gage on the railway or railway property of the company by any 
 of its predecessors in the title and which were, at the time of 
 making the required report, entitled to conversion into the 
 capital stock of the company. (Acts 1882, ch. 69.) 
 
 A further amendment, in 1887, permitted railroads to de- 
 duct from the value of their stock and indebtedness the value 
 of any of their own bonds qr other obligations held in trust for 
 them in any sinking fund belonging to them. In this amend- 
 ment also the permission to deduct the amount of cash on hand 
 was withdrawn. (Acts 1887, ch. 117.) 
 
 » This statute also changed the date of making the required 
 
 report to "on or before the fifteenth day of November," stating 
 the facts as of September 30. The date for paying the tax was 
 changed to "on or before the 25th day of November." This law 
 further provides that for companies that have paid regular 
 dividends at the same rate for two years previous to the date of 
 making the report, and for other companies so far as possible, 
 the value of the stock for purposes of taxation shall be the 
 average of the closing prices or bids during the month of Sep- 
 tember preceding. When this method is impossible, the report 
 must state the price of the last reported sale, and the Board of 
 Equalization may fix the value according to its best judgment. 
 
 An amendment in 1893 extended the laws regarding the 
 taxation of railroads to include all street railways of every 
 description. (Acts 1893, ch. 209.) 
 
 In 1895 the railroads were allowed to deduct from the 
 value of their stock and indebtedness for purposes of taxation 
 the amount of their stock issued in exchange for or purchase 
 of the stock or obligations of any railroad company whose 
 road is located outside the State. This act was made to apply 
 to returns made for the years 1893 and 1894. (Acts 1895, ch. 
 74.) 
 
 A similar amendment in 1899 allowed the deduction of 
 stock or funded or floating debt issued for the purchase of the 
 stock or obligations of any steamboat company operating a 
 line of steamboats in connection with the company's railroad 
 line. (Acts 1899, ch. 31.) 
 
 Again in 1903 the law was amended by extending the de- 
 
30 REPORT OP SPECIAL TAX COMMISSION 
 
 duction of stock issued for purchase of or in exchange for 
 stock or obligations of a railroad company whose line is out- 
 side the State to include also funded and floating indebtedness 
 occasioned by such exchange or purchase. See the act of 1895, 
 ch. 74, described above. (Acts 1903, ch. 173.) 
 
 A similar deduction for stock or indebtedness issued for 
 the purpose of acquiring the stock or indebtedness of a rail- 
 road company whose line is wholly or partly within the State 
 was permitted in 1905, with the proviso that the latter company 
 should continue to include the securities thus acquired in its 
 return for purposes of taxation. (Acts 1905, ch. 247.) 
 
 Finally, by an act 'of 1911, each company is allowed to 
 deduct the amount of stock or indebtedness issued for the pur- 
 chase of any property held by it (other than its railroad and 
 franchises and its real estate in Connecticut not used for rail- 
 road purposes.) If the company is unable to state the amount 
 of capital or debt thus issued, it may deduct the actual cost of 
 such property. (Acts 1911, ch. 283, sec. 1.) 
 
 III. OPERATION OP THE PRESENT TAX SYSTEM 
 The Companies Subject to the Tax, and the Revenue in 
 1912: — There were in 1912 six steam railroads and fourteen 
 electric roads in Connecticut subject to the State tax. The list 
 of these roads with the amount of the tax paid by each in 191$! 
 is as follows : 
 
 STEAM RAILROADS 
 
 New York, New Haven & Hartford R. R. Co $ 974,161.24 
 
 Branford Steam R. R. Co 312.00 
 
 Hartford & Connecticut Western R. .R. Co 16,430-18 
 
 New London Northern R. R. Co 17,032.84 
 
 Norwich & Worcester R. R. Co 46,792.32 
 
 South Manchester R. R. Co 721.39 
 
 Total Steam Railroads $ 1,055,449.97 
 
 ELECTRIC RAILWAYS 
 
 Bristol & Plainville Tramway Co $ 7,405.45 
 
 Connecticut Railway & Lighting Co 207,574.34 
 
 Connecticut Co 292,244.59 
 
 Danbury & Bethel Street Railway Co 6,865.86 
 
 Danbury & Harlem Traction Co 360.00 
 
 Groton & Stonington Street Railway Co 10,088.05 
 
 Hartford & Springfield Street Railway Co 11,754.00 
 
 New London & East Lyme Street Railway Co 2,776.47 
 
 Norwich & Westerly Railway Co 3,322.25 
 
 Providence & Danielson Railway Co 462.94 
 
 Shore Line Electric Railway Co 11,442.22 
 
 Tolland County Street Railway Co 500.00 
 
 South Manchester Light, Power & Tramway Co. .. 214.62 
 
 West Shore Railway Co. 1,100.00 
 
 Total Electric Railways $ 556,110.79 
 
 Total All Railroads $1,611,560.76 
 
RAILROAD COMPANIES 31 
 
 Of the steam roads two are wholly within the State. These 
 are the Branford Steam Raihyad Company and the South 
 Manchester Railroad Company. The other four steam railroads 
 lie partly outside the State and their valuation has to be appor- 
 tioned according to road mileage. Of the electric railways 
 only one, the Providence and Danielson Railway Company, re- 
 quired apportionment on account of being partly outside the 
 State. In Appendix III, will be found a .statement showing the 
 value of the stock and indebtedness of the New Haven Road, 
 its mileage within and without the State, and other data on 
 which the tax was computed in 1912. 
 
 The State Revenue in Past Years: — A statement showing 
 the receipts of the State from taxes on railroad companies from 
 the introduction of the first law in 1849 down to 1912 is given 
 in Appendix I. 
 
 IV. CRITICISM OP THE PRESENT TAX SYSTEM 
 A. THE STOCK AND BOND METHOD IN GENERAL 
 
 A general discussion of the method of taxing corporations 
 based upon capitalization has been given in the chapter on 
 public service corporations. (See Chapter I above.) As 
 has been shown, this method of taxation has some good fea- 
 tures.. It has, however, very serious defects. Taxation based 
 on stocks and bonds is sure to be unreliable and very likely 
 to work injustice in practice. This is due to the lack of any 
 constant relation between the value of a corporation's securi- 
 ties and the volume of its business, the amount of its earnings, 
 gross or net, or its tax-paying ability. Market values of 
 stocks, and sometimes of bonds, are subject to sharp fluctua- 
 tions as the result of manipulation or other causes not closely 
 related to the real value of the property. Nowhere is this 
 charge more clearly demonstrated than in the history of Con- 
 necticut's taxation of railroads. 
 
 Application to the New York, New Haven and Hartford 
 Railroad Company: — Taking for example, the New Haven 
 Road, we find that the market value of its stock, upon which 
 taxation is based, has varied greatly within the past few years. 
 The following table shows this : 
 
 VALUATION OF STOCK OP N. Y., N. H. & H. R. R. CO. FOR 
 PURPOSES OF TAXATION 
 
 Bate 
 
 Value 
 
 Date . 
 
 Value 
 
 Date 
 
 Value 
 
 1871 
 
 140 
 
 1876 
 
 140 
 
 1881 
 
 160 
 
 1872 
 
 120 
 
 1877 
 
 140 
 
 1882 
 
 160 
 
 1873 
 
 130 
 
 1878 
 
 140 
 
 1883 
 
 160 
 
 1874 
 
 140 
 
 1879 
 
 140 
 
 1884 
 
 165 
 
 1875 
 
 140 
 
 1880 
 
 155 
 
 1885 
 
 180 
 
32 REPORT OF SPECIAL TAX COMMISSION 
 
 1886 
 
 205 
 
 1887 
 
 210 
 
 1888 
 
 250 
 
 1889 
 
 250 
 
 1890 
 
 225 
 
 1891 
 
 225 
 
 1892 
 
 192 
 
 1893 
 
 180 
 
 1894 
 
 180 
 
 1895 
 
 164% 
 
 1904 
 
 195 
 
 1896 
 1817 
 
 175 
 
 1905 
 
 190 
 
 190 
 
 1906 
 
 165 
 
 1898 
 
 203 
 
 1907 
 
 134 
 
 1899 
 
 210 
 
 1908 
 
 160 
 
 1900 
 
 210 
 
 1909 
 
 160 
 
 1901 
 
 210 
 
 1910 
 
 152y 2 
 
 1902 
 
 215 
 
 1911 
 
 142% 
 
 1903 
 
 185 
 
 1912 
 
 135% 
 
 Of special significance is the great decline in value in re- 
 cent years. Prom a valuation of 250 in 1888 and 1889, the 
 stock has gone down in 23 years to 135y 2 . The latter was the 
 average for 1912. On January 18, 1913, the closing market 
 quotation was 128%, or barely over half the value in 1889. 
 This decline has gone on in spite of the fact that the Company 
 has maintained its regular annual dividends at 8 per cent, 
 without a break since 1895. 
 
 This decline in the value of its stock has accompanied 
 a remarkable growth in the system of the New Haven Road. 
 During these years the road has developed greatly by extend- 
 ing its lines in this and other States. It has also obtained con- 
 trol in various ways of the lines of other railroads. Its busi- 
 ness has increased, as have also its earnings, both gross and 
 net. The following figures show the development of the road 
 during the past two decades in mileage operated, and in gross 
 and net earnings. 
 
 NEW YORK, NEW HAVEN & HARTFORD RAILROAD CO. 
 
 Year Ending 
 
 Miles of Line 
 
 Gross Operating 
 
 /Net Operating 
 
 June SO. 
 
 Operated. 
 
 Revenues. 
 
 Revenues. 
 
 1890 
 
 525.89 
 
 $10,749,168 
 
 $ 3,369,394 
 
 1895 
 
 1,464.21 
 
 27,901,736 
 
 8,837,708 
 
 1900 
 
 2,037.68 
 
 40,325,152 
 
 12,100,312 
 
 1905 
 
 2,087.95 
 
 49,981,948 
 
 14,148,925 
 
 1910 
 
 2,040.80 
 
 62,916,975 
 
 23,312,922 
 
 1912 
 
 2,091.90 
 
 67,359,219 
 
 24,217,202 
 
 With the decline in market value of the stock of the New 
 Haven Road there has been a great increase in the amount 
 of its capital and funded and floating indebtedness. Yet the 
 taxes paid by the Road have by no means kept pace with the 
 development of its system. This is shown by the following 
 statement of the amount of taxes paid by the Company to the 
 State of Connecticut since 1900. 
 
 TAXES ASSESSED AGAINST NEW YORK, NEW HAVEN 
 & HARTFORD RAILROAD COMPANY (*) 
 
 1900 $ 749,788.81 
 
 1901 760,656.51 
 
 1902 807,430.65 
 
 (*)The taxes paid in the three years 1908-1910 were in- 
 creased by the taxes on the trolley lines merged in those years. 
 
RAILROAD COMPANIES 33 
 
 1903 
 
 $ 857,326.18 
 
 1904 
 
 967,309.73 
 
 1905 
 
 927,848.71 
 
 1906 
 
 1,014,568.57 
 
 1907 
 
 1,132,548.54 
 
 1908 
 
 1,334,472.68 
 
 1909 
 
 1,452,265.12 
 
 1910 
 
 1,248,324.22 
 
 1911 
 
 1,076,251.79 
 
 1912 
 
 974,161.24 
 
 It is clear that the New Haven Road's contribution to the 
 State has not merely failed to keep pace with the growth of 
 its business. It has actually declined. The taxes paid in 1911 
 were less than in 1907, and the taxes of 1912 were less than was 
 paid in any year since 1905. "While gross earnings have in- 
 creased since 1905 by 35 per cent., and net earnings by 71 per 
 cent., the State's taxes have increased by only a paltry 5 per 
 cent. 
 
 This result, although largely due to complications in the 
 Connecticut system, to be discussed below, is to some extent 
 inherent in a system of taxation based upon the value of 
 stocks and bonds. Under its operation it is clear that the 
 State of Connecticut has been a loser. 
 
 B. PECULIARITIES OP THE CONNECTICUT SYSTEM 
 
 The taxation of railroads upon stocks and indebtedness 
 is bad enough under the simplest form of the method. In Con- 
 necticut the tax system has been made immeasurably worse by 
 a series of exceptions and other complications added to the 
 statute in the course of its development during a long period 
 of years. Some of these exceptions, possibly all of them, have 
 been due to an honest desire to make the tax system as fair 
 as possible. Nevertheless, the result has been serious loss of 
 revenue to the State, which in many cases cannot be easily 
 justified. It has also resulted in intolerable confusion and a 
 situation which makes effective administration almost impossi- 
 ble. A brief criticism of the peculiarities of the Connecticut 
 system is in order here. 
 
 Deductions Permitted from the Value of Stock and Indebt- 
 edness: — As has been shown the Connecticut statute although 
 based primarily upon the total value of stocks, bonds, and 
 floating indebtedness, nevertheless permits a large number of 
 deductions from this sum. These deductions are all capable 
 of more or less plausible defense on grounds of fairness to the 
 corporations taxed. In, few cases can they be supported with- 
 out qualification. 
 4 
 
34 REPORT OP SPECIAL TAX COMMISSION 
 
 (1) Sinking Fund Bonds: — The provision allowing a rail- 
 road to deduct any of its own bonds held in trust for it in its 
 own sinking fund can hardly be criticized except on the 
 ground of increased complication. It is obvious that when a 
 corporation has paid off its bonds and placed them as an asset 
 in its sinking fund, these bonds no longer represent any in- 
 vestment in the corporation, and hence may properly be de- 
 ducted before imposing a tax upon capitalization. It might 
 possibly be urged that a railroad corporation is under no obliga- 
 tion to hold its own bonds in its sinking fund, and if it chooses 
 to do so it may fairly be called upon to pay the tax upon such 
 bonds. This, however, is at best a minor criticism, and we 
 may pass by this deduction as being fairly justifiable. 
 
 (2) Securities Issued to Acquire Securities of Another Con- 
 necticut Railroad : — Railroads are allowed to deduct any stock 
 or indebtedness issued in order to acquire stock or indebted- 
 ness of other railroads located wholly or partly in Connecticut. 
 This deduction appears fair upon its face, since the law pro- 
 vides specifically that the road issuing the stock must con- 
 tinue to report it for taxation in Connecticut. It would ob- 
 viously be double taxation to tax the acquiring road upon its 
 investment in such stock. However, the method thus chosen 
 for avoiding double taxation is open to criticism. The road 
 which originally issued the securities in question is, presumably, 
 paying to the Sjate a tax upon the value of such securities. 
 It does not follow, however, that the value upon which the 
 first corporation is paying taxes is identical with the amount, 
 of the securities of the other corporation issued for the pur- 
 pose of acquiring the stock in question. It is conceivable that 
 the stocks may have been acquired at an excessive price, in 
 which case the deduction allowed the acquiring road is ex- 
 cessive. 
 
 The object contemplated by this provision of the law 
 would be accomplished with fairness to all concerned if, in- 
 stead of the deduction here allowed, it were provided that any 
 road which had issued stock or obligations to acquire the 
 securities of another road in the State should be allowed to 
 deduct the value at which such securities were taxed to the 
 road from which they were acquired. 
 
 (3) Securities Issued for Expenditures on Another Road 
 Outside the State: — Deduction is allowed for stock and obli- 
 gations issued to obtain funds to expend for permanent im- 
 provement or equipment of another road in another State. 
 This provision also appears fair on its face. The property 
 for which such funds were expended is presumably taxed by 
 the State in which the other road is located and should in 
 
RAILROAD COMPANIES 35 
 
 fairness not be taxed again by Connecticut. It does not nec- 
 essarily follow, however, that this investment is actually taxed 
 at the full amount of the securities issued therefor. Wealth 
 is very rarely taxed at its full purchase price and yet the de- 
 duction allowed is for the full value of all securities issued 
 for the purpose of expenditure upon this property. It is also 
 possible that excessive prices were paid for such property, far 
 in excess of any value at which they will actually be taxed 
 by the State where located. In other words, this arrange- 
 ment, while ostensibly being only for the purpose of pre- 
 venting unjust double taxation, is actually so drawn as al- 
 most certainly to lead to an escape from taxation in Connecti- 
 cut far in excess of the additional taxation imposed by an- 
 other State. There is no way to defend such a provision. A 
 proper arrangement to avoid double taxation would have been 
 to allow the Connecticut road to deduct from the value of its 
 own securities the assessed value in another State of any per- 
 manent improvement or equipment purchased with the pro- 
 ceeds of an issue of its own securities. It may be objected that 
 it would not always be an easy matter to determine separately 
 this assessed value of the property purchased. This, how- 
 ever, is no defense of the present arrangement. It simply calls 
 attention to the difficulties inherent in the stock and bond 
 method of taxation. 
 
 (4) Securities Issued to Acquire Securities of Another 
 Road Outside the State: — Deduction is allowed further for 
 securities issued in order to acquire the stock or obligations 
 of a railroad company whose line is outside the State. This 
 corresponds to a similar deduction in the case of a road wholly 
 or partly within the State. (Number (2) above.) The ap- 
 parent justification and the defect of this deduction are much 
 the same as for the two cases just discussed. The only justi- 
 fication of such deduction is to avoid double taxation of the 
 same wealth. As worded, however, the deduction is almost 
 certain to be in excess of the extra taxation involved. 
 
 Numerous examples might be cited from the case of the 
 New York, New Haven & Hartford Eailroad in proof of this 
 statement. 
 
 The Massachusetts Legislature in 1910 ordered an investi- 
 gation by a commission into the value of the property of the New 
 York, New Haven & Hartford Railroad Company. This com- 
 mission employed a corps of expert engineers and accountants 
 and made a most careful and exhaustive inquiry. Their report, 
 published in 1911,» is a volume of 581 pages and presents a mass 
 of information regarding the property of this Company. It is 
 worthy of mention that the commission had access to the ap- 
 praisal previously made for the Railroad Company by Mr. John 
 F. Stevens, its Vice President. From this report we are able to 
 
36 REPORT OF SPECIAL TAX COMMISSION 
 
 obtain reliable valuations of certain securities of the New Haven 
 Road on account of which deductions were made from the tax- 
 able value of its own stock and indebtedness, under the statute 
 which we are now discussing. 
 
 For example, the New Haven Road deducted from its 
 taxable valuation, in 1910, $2,918,958.38 on account of obli- 
 gations incurred for the purchase of stock of the Berkshire 
 Street Railway Company. The Massachusetts Validation Re- 
 port appraised this stock as worth $1,300,011, a difference of 
 $1,618,947.38. For stock of the Rhode Island Company, ap- 
 praised by the Massachusetts Commission at $6,000,000, the 
 New Haven Road was able to deduct $24,220,978.90, a differ- 
 ence of over $18,000,000. It should be stated in all fairness, 
 that some of the other items show a discrepancy on the other 
 side. Yet the net result is distinctly in the Railroad Com- 
 pany's favor. Of 14 separate classes of stock, for which the 
 comparison is possible, the total appraised value was $30,156,- 
 758.95, whereas the Company deducted $47,780,194.44 on their 
 account, and it is by no means certain that these securities 
 were actually taxed even at their appraised value. 
 
 It should be clear, without further argument, that this 
 deduction is not justifiable. In order to produce simple justice 
 there should be deducted, not the full amount of the securities 
 issued, but rather the value of the securities as assessed for 
 taxation in another State. 
 
 (5) Securities Issued to Acquire Securities of Steamboat 
 Companies: — We come next to the deduction allowed for all 
 stock or indebtedness issued in order to acquire the stock 
 or obligations of a steamboat company operating a line of 
 steamboats in connection with the company's road. It is not 
 easy to defend, this arrangement. The normal assumption is 
 that capital invested in a railroad corporation is intended for 
 use in the railroad business. The tax laws of the State are 
 constructed upon this general understanding. It is true that 
 steamboat companies are not subject to taxation by the State 
 in Connecticut, and that this puts a burden upon steamboat in- 
 vestment by a railroad company if the capital so invested is 
 subject to railroad taxation. However, if a railroad company 
 finds it advantageous to invest part of its capital in steam- 
 boat lines or other businesses this fact would hardly seem to 
 give a fair claim for exemption from taxation upon the capital 
 thus invested. 
 
 It may possibly be argued that the whole intent of the 
 present statutes is to tax the value of the road, and not any 
 other property which the road may have acquired; hence this 
 and some of the preceding deductions are justified. This, how- 
 ever, is not quite a fair statement of the purpose of the present 
 law. If railroad corporations were not taxed directly, all of 
 
RAILROAD COMPANIES 37 
 
 their securities would presumably be taxed as personal property 
 of the owners and the fact of their issue to acquire some prop- 
 erty other than the railroad itself would be no reason for ex- 
 emption. The present tax is in lieu of taxes on the securities 
 in the hands of the holders. No deductions are logically war- 
 ranted except to avoid double taxation of property which can 
 be proved to be already taxed by another method. 
 
 The absurd lengths to which this provision of the statute 
 has led in actual practice are well illustrated by the present re- 
 lation between the New Haven Railroad and the New England 
 Navigation Company, together with the character of the busi- 
 ness and investments of the latter Company. The situation 
 is explained in the following section. 
 
 The New England Navigation Company: — In 1912 there 
 was deducted from the total valuation of the shares of stock 
 and indebtedness of the New York, New Haven & Hartford 
 Railroad Company $63,488,821.78, because of investment in 
 stock and obligations of the New England Navigation Com- 
 pany. 
 
 This Company pays no taxes to the State of Connecticut, 
 and the total taxes paid by it on all its property for the year 
 ending June 30, 1912, were $51,361.18, or .0109 per cent, of its 
 total operating revenue, namely $4,697,614.57. No detailed 
 statement of the assets of this Company is filed with any 
 official of the State of Connecticut. 
 
 The Report of the Joint Commission of Massachusetts on 
 the New York, New Haven & Hartford R. R. Company in 1911 
 (see above), gives the following statement of its assets. 
 
 PROPERTY. Book Value. 
 
 Marine Department, (including $12,134,900 for 
 steamboats and other floating equipment, and 
 $3,506,250 for good-will) $ 17,359,721.75 
 
 New Haven stock, 172,946 shares 29,829,766.51 
 
 New Haven stock, paid subscriptions to 56,893 
 additional shares 7,111,630.50 
 
 Hartford & New York Transportation Co. 131,320 
 shares (par $25 per share) capital stock — entire 
 issue 3,519,954.69 
 
 Hartford & New York Transportation Co., notes — 
 entire issue 200,000.00 
 
 Merchants & Miners' Transportation Co., 25,000 
 shares capital stock—one-half of entire issue . .* 2,500,000.00 
 
 Merchants' & Miners Transportation Co., 4% de- 
 bentures—entire issue, $3,250,000 * 3,250,000.00 
 
 Billard Co., registered gold notes * 14,250,000.00 
 
 Worcester & Connecticut Eastern, 1st mort. 4%% 
 bonds 42,487.50 
 
 Housatonic Power Co., 30,000 shares capital stock 
 -entire issue '•JX'SIHS 
 
 Housatonic Power Co., no tes — entire issue 979,565.23 
 
 ♦Par Value. 
 
38 REPORT OF SPECIAL TAX COMMISSION 
 
 Boston Chamber of Commerce, stock 200.00 
 
 C. S. Mellen, Note 26,000.00 
 
 Accrued Interest 164,503.02 
 
 Total $ 82,218,807.65 
 
 The Boston News Bureau makes the following comment 
 on this statement: 
 
 "This table does not enumerate all the 15 or 20 'holding* and 
 operating electric, gas, power, . water and steamship enter- 
 prises now assembled in New England Navigation Company, but 
 it sufficiently indicates the heterogeneous make-up of the com- 
 pany, which seems to have served as a general repository and 
 clearing house of the New Haven system. The Massachusetts 
 Validation Commission refuses to recognize the 172,946 parent- 
 company shares as other than treasury stock and finally evolves 
 
 "a reduction in the $82,000,000 gross book values to a net ap- 
 praisal of $8,710,174." 
 
 "Incidental disclosures of $14,250,000 Billard Company notes 
 in the balance sheet of the Navigation Company recalls the dis- 
 posal of the New Haven's Massachusetts trolleys (held through 
 New England Investment & Securities Company) two years ago, 
 following a ruling of the Supreme Court, and suggests that the 
 Billard Company notes may really constitute a string on those 
 street railway properties. The Billard Company now has an 
 authorized capital of $2,000,000, and its personnel, while not 
 including any of the New Haven's directors or management, is 
 persistently rumored to be of the 'Mellen family.' " 
 
 In determining the valuation for the purposes of taxation 
 of the stock of the New York, New Haven & Hartford Rail- 
 road Company, the total investment of the Company in the 
 New England Navigation Company is deducted, as stated 
 above. Of the total assets thus enumerated, it will be noted 
 that less than one-third is definitely invested in marine busi- 
 ness or companies; more than one-third is invested in the 
 stock of the New Haven Road, and the balance in various 
 heterogeneous items. 
 
 The Housatonic Power Company operates through owner- 
 ship, or' under lease, to the New Haven Railroad various Con- 
 necticut electric light, power and railway companies, as fol- 
 lows: 
 
 Norwalk & South Norwalk Electric Light Company. 
 
 Norwalk Gas Light Company. 
 
 The Central Railway & Electric Company (Lighting Dept.) 
 
 Greenwich Gas & Electric Lighting Company. 
 
 Naugatuck Electric Light Company. 
 
 Waterbury Traction Company (Lighting Dept.) 
 
 The Branford Lighting & Water Company. 
 
 Village Water Company of Suffleld. 
 
 New Milford Power Company. 
 
 Power Station & Transmission Line at Quassapoag. 
 
 None of these companies are taxed specially in Connecti- 
 cut but are subject only to the general laws taxing the prop- 
 
RAILROAD COMPANIES 39 
 
 erty of general corporations. In the opinion of your Com- 
 mission there should be a separation of the earnings from the 
 marine companies and those of the other affiliated companies 
 grouped under the name of the New England Navigation Com- 
 pany, and the earnings from the latter included for the pur- 
 pose of taxation with those of the steam and trolley companies. 
 
 (6) Securities Issued for Purchase of Any Non-Railroad 
 Property: — Finally we come to the law of 1911, which allows 
 the deduction of stock or indebtedness issued for the pur- 
 chase of any property held by the railroad company other than 
 its railroad and branches and its real estate in Connecticut not 
 used for railroad purposes. Where it cannot state the amount 
 of stock issued for the purchase, the company is allowed to de- 
 duct the actual cost of such property. The principle under- 
 lying this section is the same as those that have been dis- 
 cussed. We simply have here a somewhat more flagrant case. 
 The property in question is, presumably, taxed where located, 
 since it is property not directly connected with the railroad 
 business, and therefore not exempted on account of the tax 
 on the capital of the company. It may fairly be claimed, 
 therefore, that the company should be allowed an offset for 
 taxes paid upon such property since the value of this property 
 is included in the value of the stock and bonds of the corpora- 
 tion. This, however, does not justify any such arrangement 
 as is contained in the Connecticut law. Under the statute 
 deduction is made of the full cost, value of all such property. 
 It is inconceivable that all of this property is actually taxed 
 at its full cost value. Some of it may escape taxation entirely 
 and under prevailing methods of taxation it is practically 
 certain that such of this property as is taxed pays at a 
 value considerably below its cost.' The statute thus gives to 
 the railroad a deduction far in excess of anything that is 
 warranted by a just attempt to prevent double taxation. This 
 end could have been fairly accomplished by providing that 
 the deduction allowed should be the assessed value placed 
 upon such property for purposes of taxation. 
 
 One of the interesting features of this law is that it re- 
 moves all restrictions from the deductions previously allowed 
 in other parts of the tax law. For example, deduction on 
 account of purchase of securities of a steamboat company was 
 limited in the original law of 1903 to a company operating a 
 line of steamboats in connection with the railroad company's 
 railroad. This deduction can now be made under the law of 
 1911, without any restriction. The New England Navigation 
 Company might give up its steamboats entirely, yet all in- 
 vestment in its securities would still be deducted. The law of 
 1903 is therefore entirely superseded and no longer necessary. 
 
40 REPORT OF SPECIAL TAX COMMISSION . 
 
 Again, the wise requirement (see No. (2) above) that de- 
 duction of securities issued to obtain securities of another 
 Connecticut railroad will be allowed, only in case the other 
 railroad lists said securities for taxation, is completely abro- 
 gated by this law. For example, the New Haven Road, hav- 
 ing acquired the stock of the Connecticut Company without 
 the special issue of any additional securities, attempted in 
 1910 to have the entire capital stock of that company deducted. 
 The Board of Equalisation refused to allow the deduction. 
 Under the law of 1911, however, the Company has had no 
 such difficulty. In 1911 and 1912 the New Haven Road has 
 deducted from the value of its securities for purposes of tax- 
 ation $40,000,000, being the par value of this stock. The Con- 
 necticut Company, on the other hand, was taxed on the same 
 stock at a valuation of $26,000;000 in 1911 and $30,000,000 in 
 1912. This means that, under the law, the New Haven Road 
 reduced the value of its own securities for purposes of tax- 
 ation to the extent of $14,000,000 in 1911 and $10,000,000 in 
 1912, a reduction which, though legal, cannot be otherwise 
 justified. 
 
 In brief, the law of 1911 practically removes from the 
 possibility of taxation an almost unlimited amount of property 
 of all kinds and descriptions, without any requirement of evi- 
 dence that this same property has been taxed elsewhere. 
 
 Apportionment of the Valuation of Securities of Inter- 
 state Railroads. — (1) The Road Mileage Basis: — Where a 
 railroad's line lies partly within and partly without the State 
 the statute provides for apportioning to Connecticut her share 
 of the value of the stock and indebtedness of the road upon 
 the basis of mileage of line of road within and without the 
 State. This is a crude rule of apportionment. Being based 
 on road mileage, it counts each mile of line the same as any 
 other. For example, a mile of four track or six track trunk 
 line between New Haven and New York counts exactly the 
 same as a mile of single track of a back-woods branch outside 
 the State. If apportionment is to be based on mileage, all 
 track mileage is the only basis which represents fairly the 
 distribution of a railroad's property and business. As it 
 happens, the simple rule of apportionment according to road 
 mileage would have produced substantial justice up to the 
 present time, had it not been thrown out of joint by Connecti- 
 cut's arbitrary treatment of branch lines. This matter is dis- 
 cussed in the following section. 
 
 (2) Treatment of Branches: — In apportioning the value 
 of the securities of interstate roads, the branch lines in the 
 State of Connecticut which are worth, in the opinion of the 
 
RAILROAD COMPANIES 41 
 
 Board of Equalization, less per mile than one-fourth the aver- 
 age value of a mile of the main trunk line are excluded. The 
 value of such branches is deducted from the value of the 
 securities of the road for purposes of taxation, and the length 
 of such branches is also deducted from the total mileage of 
 the road and the mileage in Connecticut for the purpose of 
 apportionment. These branches are then taxed separately at 
 1 per cent, of their value as thus determined. 
 
 This arrangement has placed upon the Board of Equal- 
 ization a difficult, indeed an impossible, task. The Board is 
 required to make a separate valuation of all branch lines in 
 Connecticut. This is the very thing which the stock and bond 
 method was devised mainly to avoid. There is no way by 
 which the value of a single branch of a railroad system can be 
 satisfactorily determined. On its face, this provision seems to 
 imply an annual physical valuation, and if this statute is re- 
 tained the Board of Equalization should be authorized to 
 secure a physical valuation of all the branch lines and should 
 be given some authoritative formula for determining the aver- 
 age value of a mile of the trunk road, this being another part 
 of the Board's present task. But the difficulty involved in 
 basing railroad taxation on physical valuations is one of the 
 principal causes which have led so many States, including 
 Connecticut herself, to seek other methods of taxation. 
 
 The Board of Equalization is not composed of railroad 
 experts, and its membership is subject to frequent change. 
 It is not possible for it to determine the value of the branch 
 roads, or the average value of the trunk road by any investi- 
 gation of its own under the present statutes. The method in 
 use for many years has been to accept the figures submitted 
 by the railroads in their reports. In short, this part of the 
 law is incapable of effective administration. 
 
 More than this, the arrangement is distinctly unfair to 
 the State of Connecticut. The branch lines located in Con- 
 necticut are taken out and valued separately. In determining, 
 therefore, Connecticut's* ratio of the value of the road re- 
 maining the length of all branch lines in Connecticut is de- 
 ducted from the numerator of the fraction. No such deduc- 
 tion, however, is made for branch lines located outside the 
 State, whose length remains to swell the denominator of the 
 same fraction. For example, the road formerly known as the 
 New Haven & Northampton Railroad has recently been merged 
 with the New York, New Haven & Hartford Railroad Com- 
 pany. The portion in Connecticut is considered as a branch, 
 and the length of this part of the road is not included in the 
 numerator of the fraction which represents the miles in this 
 
42 REPORT OP SPECIAL TAX COMMISSION 
 
 State, but the length of the part of the road which is in 
 Massachusetts is retained in the denominator. 
 
 Connecticut 's share, as determined by this method, is seri- 
 ously reduced, and since this fraction determines Connecticut's 
 share of the valuable trunk line of the railroad, the loss is by 
 no means made up by the tax of 1 per cent, upon the branch 
 lines in Connecticut separately valued. 
 
 The Resulting Complications: — That the Connecticut 
 method of taxing railroads is complicated and confusing will 
 be readily admitted by any one who has read the criticism 
 just preceding. A mere reading of the abstract of the prin- 
 cipal features of the law as given in a previous section would 
 be enough to bring any one to the same conclusion. To reach 
 the same result, one need only glance at the statement given 
 in Appendix III, which shows the operation of the present sys- 
 tem. The verdict may be clinched by still another practical 
 example, namely, the official report of the New York, New 
 Haven & Hartford Railroad Company to the Tax Commission- 
 er, as required under the statute. The full text of this report 
 for the year 1912 is given in Appendix IV. With such evi- 
 dence as this, it will hardly be denied that the present system 
 has been shown to be complicated, uncertain, difficult to ad- 
 minister, and likely at any time to lead to disagreement be- 
 tween the officers of the State and the corporations concerned. 
 
 C. SUMMARY OF CRITICISM OF THE PRESENT 
 TAX METHOD 
 
 The foregoing discussion has shown that Connecticut's 
 method of taxing railroad corporations is highly unsatisfac- 
 tory. It is based upon the so-called stock and bond method. 
 This basis was introduced in the act which was passed in 1864, 
 and which was no doubt adequate at that time. The very great 
 extension of the New York, New Haven & Hartford Railroad 
 has required changes in the taxation statutes which are largely 
 in the form of amendments to the original act. The stock 
 and bond method even in its simplest form is arbitrary and 
 insufficiently related to the business earnings or tax-paying 
 ability of the corporations concerned. As developed in Con- 
 necticut, the present system contains peculiarities which ren- 
 der it unjust to the State, difficult to administer and prac- 
 tically impossible for the ordinary citizen to understand. The 
 result is a law that is antiquated,, inconsistent, illogical, and 
 ill adapted to the physical and financial growth of the great 
 interstate railroad system which it principally affects. The 
 radical amendment of the system is demanded on grounds both 
 of justice and effective administration. 
 
RAILROAD COMPANIES 43 
 
 V. THE GROSS EARNINGS TAX 
 
 Reasons for Adopting the Gross Earnings Tax: — It has 
 been shown in what has gone before that the present system" 
 of taxing railroads in Connecticut is indefensible. To a con- 
 siderable extent, the weakness of the present system is due to 
 features which have been added to the original method by 
 amendments at various times during the past fifty years. 
 Many of these features are not necessarily inherent in the 
 stock and bond method of taxation, which is the basis of the 
 Connecticut system. The present method of taxation might 
 therefore be greatly improved by removing these complicating 
 features and bringing the system back to the fundamental 
 stock and bond method in its simplest form. Even this would 
 involve an entire overhauling and remodeling of the statute. 
 
 It has been fully explained in Chapter I, that for the 
 taxation of public service corporations the gross earnings tax 
 is decidedly superior to other methods. The gross earnings 
 tax is particularly adapted to the taxation of railroads. To 
 substitute for Connecticut's present system a grosfe earnings 
 tax would involve scarcely more radical change than to reform 
 it by perfecting the stock and bond method. As between these 
 alternatives then, youi\ Commission is convinced that the wise 
 course will be the adoption of the gross earnings tax. The 
 only other plan which deserves serious consideration is the 
 ad valorem basis, involving the valuation of the physical 
 and other property of the railroads under the direction of a 
 State Board. As pointed out in Chapter I, this method is 
 inferior to the gross earnings tax. The Commission is of the 
 opinion, therefore, that the wise course is to give up entirely 
 the stock and bond method and adopt at once the tax on gross 
 earnings. 
 
 A. THE RATE OF THE GROSS EARNINGS TAX 
 
 The Problem of the Rate: — The most important question 
 that arises in imposing the gross earnings tax upon any partic- 
 ular class of corporations is, what shall the rate be? The 
 general problem involved has been fully discussed in Chap- 
 ter I. As there explained, approximate justice for a given 
 class of corporations is to be obtained by determining a tax 
 rate which will make the burden upon the corporations 
 practically equivalent to the burden of the general property 
 tax on wealth in general. It has already been shown that with 
 certain qualifications, a rate of 1 per cent, upon true market 
 value may be assumed to be about the rate of taxation normally 
 borne under the general property tax. This assumption is 
 especially justified as regards the taxation of railroads in 
 
44- REPORT OF SPECIAL TAX COMMISSION 
 
 Connecticut, since it is the assumption on which the present tax 
 is based. The Connecticut statute imposes a tax of 1 per cent, 
 on the value of securities supposed to represent the total value 
 of the property of the railroad corporations. The problem 
 then is to determine what rate of tax upon the gross earnings 
 of railroad companies will produce a burden practically equiv- 
 alent to a tax of 1 per cent, upon the value of the property of 
 the corporations. 
 
 In Chapter I, we have explained what is, on the whole, the 
 most accurate method of determining the proper rate of a tax 
 on gross earnings. This method amounts practically to de- 
 termining the equivalent of a tax of 1 per cent, upon the capi- 
 talized value of the net earnings of the corporations in ques- 
 tion, using as the rate of capitalization the rate of yield act- 
 ually obtained by investment in the companies' stock at present 
 market values and present dividend rates. This method has 
 been fully explained in Chapter I. It is essentially 
 the method so skillfully developed and applied by 
 the California Tax Commission of 1906. In brief, the rate of 
 the gross earnings tax is found by dividing the prevailing ratio 
 of net earnings to gross among the corporations concerned by 
 a fair rate of capitalization. 
 
 The Ratio of Net Earnings to Gross — Steam Roads: — We 
 must first determine the prevailing ratio of net earnings to 
 gross among the railroad corporations of the country, and in 
 particular for the railroads operating in the State of Connecti- 
 cut. 
 
 The necessary flacts regarding the operating earnings and 
 expenses of the railroads operating in Connecticut and in the 
 whole United States are shown in the following tables : 
 
 OPERATING EARNINGS AND EXPENSES 
 NEW YORK, NEW HAVEN & HARTFORD RAILROAD 
 
 YEAR, ENDING JUNE 30. 
 1909 1910 
 
 Gross Operating Earnings $56,370,723.79 $62,916,974.17 
 
 Operating Expenses 36,889,092.84 39,604,052.37 
 
 Net Operating Earnings $19,481,630.95 $23,312,921.80 
 
 Ratio Net to Gross 34.56% 37.05% 
 
 1911 1912 
 
 Gross Operating Earnings $64,457,068.03 $67,359,218.56 
 
 Operating Expenses 41,802,473.19 43,142,016.29 
 
 Net Operating Earnings 22,654,594.84 24,217,202.27 
 
 Ratio Net to Gross 35.15% 35.95% 
 
RAILROAD COMPANIES 45 
 
 CENTRAL NEW ENGLAND RAILWAY 
 
 YEAR ENDING JUNE 30: 
 _ 1910 1911 1912 
 
 Gross Operating 
 
 Earnings $3,022,720.19 $3,220,450.21 $3,468,625.81 
 
 Operating Expenses . 1,733,232.66 1,902,364.78 1,766,843.86 
 
 Net Operating 
 
 Earnings $1,289,487.53 1,318,085.43 1,701,781.95 
 
 Ratio Net to Gross .. 42.66% 40.93% 49.06% 
 
 NEW LONDON NORTHERN RAILWAY (*) 
 
 YEAR ENDING JUNE 30: 
 _ 1910 1911 1912 
 
 Gross Operating 
 
 Earnings $1,083,759.11 $1,102,277.25 $1,107,915.22 
 
 Operating Expenses . 891,297.32 910,250.32 883,674.67 
 
 Net Operating 
 
 Earnings 192,461.79 192,026.93 224,240.55 
 
 Ratio Net to Gross . . 17.76% 17.42% , 20.24% 
 
 OPERATING EARNINGS AND EXPENSES, LARGE RAIL- 
 ROADS OF THE UNITED STATES— EASTERN 
 DISTRICT (**) 
 
 YEAR ENDING JUNE 30: 
 1911 1912 
 
 Gross Operating Earnings $1,053,815,197 $1,088,667,662 
 
 Operating Expenses 747,919,206 772,576,134 
 
 Net Operating Revenue 305,895,991 316,091,528 
 
 Ratio Net to Gross 29.03% 29.03% 
 
 LARGE RAILROADS OF THE ENTIRE UNITED STATES (f) 
 
 YEAR ENDING JUNE 30: 
 1911 1912 
 
 Gross Operating Earnings $2,371,976,532 $2,418,918,771 
 
 Operating Expenses 1,639,354,017 1,683,920,242 
 
 Net Operating Earnings 732,622,515 734,998,529 
 
 Ratio Net to Gross 30.89% 30.39% 
 
 The foregoing tables give the operating earnings and ex- 
 penses, together with the ratio of net earnings to gross, of the 
 three railroad companies operating in the State of Connecti- 
 cut. We have not included the South Manchester Eailroad, a 
 small road operating only 2^4 miles of line, and showing, as a 
 result of its operations, net earnings of $54.94 in 1910, and a 
 
 (*) Operated by Central Vermont Railway Company under 
 lease. Figures are from lessee's account. 
 
 (**)27 roads, having operating revenue exceeding $10,000,000 
 in the year ending June 30, 1912. 
 
 (t)63 roads, having operating revenue exceeding $10,000,000 
 in the year ending June 30, 1912. 
 
46 REPORT OF SPECIAL TAX COMMISSION 
 
 net loss of $2,382.33 in 1911, and $9,663.61 in 1912. The New 
 York, New Haven & Hartford Railroad shows a ratio of net 
 earnings to gross in the neighborhood of 36 per cent, during 
 the past four years. The average for the four years 1909 to 
 1912 was 35.68 per cent. The Central New England Railroad 
 shows very high net earnings, its ratio of net to gross averag- 
 ing 44.22 per cent, during the past three years. The New Lon- 
 don Northern Railroad on the other hand shows relatively 
 low net earnings, averaging 18.47 per cent, of its gross earn- 
 ings in the years 1910 to 1912. 
 
 Turning to the general railroad situation of the United 
 States and taking first the total figures for all of the large 
 operating railroads of the United States in the eastern district, 
 we find a ratio of net earnings to gross of 29.03 per cent, in 
 each of the last two years. The situation is only slightly 
 changed if we include all *of the large railroads of the entire 
 United States, the average ratio for the last two years being 
 30.64 per cent. 
 
 The evidence thus presented is so complete and agrees so 
 closely that we are able to arrive at a very fair idea of the 
 prevailing ratio of net earnings to gross among railroad cor- 
 porations. Since the New Haven Road is the one with which 
 we are principally concerned, its situation should be given 
 special weight. The net earnings of the Central New England 
 Railway are evidently abnormally high and should not be al- 
 lowed great influence upon the result. The same holds true 
 of the abnormally low ratio shown by the New London North- 
 ern Railroad. Taking account, therefore, of the fact that the 
 principal railroad system of Connecticut shows a ratio of net 
 earnings to gross of 35.68 per cent., and that the ratio for all 
 the large railroads of the country is about 30 per cent., we 
 may safely take 33 per cent, as a fair average ratio of net 
 earnings to gross for the purposes of our calculation. The Cali- 
 fornia Tax Commission of 1906 arrived at 36 per cent, as rep- 
 resenting the prevailing ratio at that time. 
 
 Ratio of Net Earnings to Gross — Electric Roads : — The fol- 
 lowing table shows the ratio of net earnings to gross of the 
 electric railways operating in Connecticut in 1910 and 1911 
 respectively : 
 
 ELECTRIC RAILWAYS OF CONNECTICUT, RATIO OF NET 
 EARNINGS TO GROSS 
 
 YEAR ENDING JUNE 30: 
 1910 1911 1912 
 
 Bristol & Plainville Tramway Co.(*) 36.07% 33.13% 33.12% 
 Connecticut Co 38.34% 30.57% 36.14% 
 
 (*)A very large part of the earnings of the Bristol and 
 Plainville Co. comes from its electric lighting and gas depart- 
 ments. 
 
RAILROAD COMPANIES 47 
 
 Danbury ft Bethel St. Ry. Co 27.36% 30.76% 29.00% 
 
 Farmington St. Railway Co 45.75% 
 
 Groton & Stonington St. Ry. Co 49.86% 47.92% 32.26% 
 
 Hartford & Springfield St. Ry. Co. ..36.83% 38.38% 36.35% 
 
 New London & East Lyme St. Ry. Co 18.16% 17.70%' 15.52% 
 
 New York ft Stamford Ry. Co. . . . . . . 32.35% 28.82% 
 
 Norwich ft Westerly St. Ry. Co 26.67% 14.31% 36.95% 
 
 Providence & Danielson Railway Co. 5.11% 3.21% 
 
 Shore Line Electric Railway Co 11.70% 30.90% 
 
 It appears that the ratio of net earnings to gross varied 
 somewhat as between the different companies. The average 
 for all the companies was 31.48 per cent, in 1910, 26.00 per 
 cent, in 1911, and 31.01 per cent, in 1912, an average of 29.50 
 per cent for the three years. 
 
 Since the Interstate Commerce Commission has not yet 
 published returns of electric railways, the latest information 
 we have covering the United States at large is Bulletin No. 3, 
 of the United States Census Bureau, published in 1903. From 
 this Report the following figures are given showing the oper- 
 ating earnings and expenses of the street and ele,ctric railways 
 of the United States in 1902, and of the companies operating 
 in Connecticut in that year. 
 
 STREET AND ELECTRIC RAILWAYS, 1902 
 
 Entire United 
 
 States. 799 Op- Connecticut, 
 
 erating Com 21 Operating 
 
 panies. Companies. 
 
 Gross Operating Earnings $247,553,999 $4,284,089 
 
 Operating Expenses 142,312,597 2,773,608 
 
 Net Operating Earnings 105,241,402 1,510,481 
 
 Ratio Net to Gross Earnings ..... 42.51% 35.26% 
 
 From these figures it appears that the electric railways 
 of the United States in 1902 showed net earnings relatively 
 much higher than shown in recent years by the electric rail- 
 ways of Connecticut. This is no doubt in part due to the fact, 
 pointed out by the California Tax Commission of 1906 (see 
 pages 185-191 of their Report), that sufficient allowance for 
 depreciation was not made in these figures. The Census figures 
 show that the ratio of net earnings to gross of the companies 
 operating in Connecticut in 1902 was lower than for the 
 United States at large, although somewhat higher than shown 
 by the Connecticut companies today. Taking account of all 
 of these facts, we may fairly take 33 per cent, as a reasonable 
 compromise between the ratios shown for the Connecticut com- 
 panies at present and ten years ago, and for the companies of 
 the United States at large in 1902. We therefore find the 
 ratio of net earnings to gross among electric railways prac- 
 tically the same as for steam roads. The California Tax Com- 
 
48 REPORT OF SPECIAL TAX COMMISSION 
 
 mission of 1906 also concluded that there was no essential 
 difference between steam and electric railways as regards the 
 ratio of net earnings to gross. 
 
 The Rate of Capitalization: — We must next determine the 
 proper rate for capitalizing the net earnings of railroad com- 
 panies. For this purpose it is necessary to ascertain what is 
 the normal rate of yield upon investment in railroad stocks. 
 This is accomplished roughly by a comparisbn of the market 
 values and dividend rates of the stocks in question. On a 
 previous page, the average market value of the capital 
 stock of the New York, New Haven & Hartford Rail- 
 road for the past forty years is shown. Since 1895 the 
 dividend rate of this stock has been constant at 8 per cent. 
 This gives the following rates of yield for the past ten years. 
 
 NEW YORK, NEW HAVEN & HARTFORD RAILROAD 
 
 Tear. 
 
 Bate of Yield. 
 
 1903 
 
 4.32% 
 
 1904 
 
 4.10% 
 
 1905 
 
 4.21% 
 
 1906 
 
 4.85% 
 
 1907 
 
 5.97% 
 
 1908 
 
 5.00% 
 
 1909 
 
 5.00% 
 
 1910 
 
 5.25% 
 
 1911 
 
 5.61% 
 
 1912 
 
 5.90% 
 
 Average 5.02% 
 
 From the above figures it appears that investment in the 
 stock of the New Haven Rqad at market prices has yielded 
 during the past ten years anywhere from 4.1 per cent, to 5.97 
 per cent., the average yield for the past ten years being almost 
 exactly 5 per cent. A similar study of the other steam rail- 
 roads of Connecticut shows a somewhat lower rate of yield. 
 No great weight should be given to the figures of yield for the 
 stock of the other Connecticut railroads for the reason that 
 none of these roads are independent. They are either oper- 
 ated under leases by other roads or are at least controlled 
 through stock ownership. 
 
 Turning from the State of Connecticut to the United 
 States at large, a somewhat superficial study made by this 
 Commission of the dividend rates and market quotations of 
 the stock of 21 of the leading railroads of the country which 
 paid dividends in 1912 shows rates of yield between 2.54 per 
 cent, and 6.49 per cent. The average for all is 4.9 per cent, 
 which agrees very closely with the rate earned on investment 
 in the stock of the New Haven Road. 
 
RAILROAD COMPANIES 4$ 
 
 For electric roads the material is quite meagre. The yield 
 on investment in the shares of stock of the Connecticut elec- 
 tric railways appears to be somewhat higher than that shown 
 for the steam roads. 
 
 A very exhaustive study of the rate of capitalization for 
 railway net earnings was made in 1904 by Mr. Williaifl J. Meyetfg 
 for the United States Census and published in Census Bulletin 
 No. 21 in 1905. This study was carried out with an elaborateness 
 of plan and refinement of accuracy far beyond anything which 
 your Commission could attempt with the limited time- and menus 
 at its disposal. Although this publication is 1 now eight years 
 old, some of its results may well be presented as evidence upon 
 the question before us. 
 
 Mr. Meyers found the proper rate of capitalization for the 
 New York, New Haven & Hartford Railroad to be 4.941 per cent , 
 as compared with 5.02 per cent, as determined by the compara- 
 tively rough method which we have employed. For the seven 
 railroads of "Group I," (to which the New Haven Road belongs) 
 the rates' of capitalization ranged from 4.314 per cent, to 5.470 
 per cent., averaging 4.846 per cent. 
 
 "We may fairly conclude, therefore, that the normal rate 
 of yield from investment in railroad stocks is about 5 per 
 cent. To this should be added 1 per cent, to allow for taxes, 
 giving 6 per cent, as the rate of capitalization. If, to be on 
 the safe side, we adopt 6.5 per cent, as the rate of capitaliza- 
 tion we shall be well within the facts. 
 
 The Tax Rate Indicated: — On a previous page of this 
 chapter it was shown that the prevailing ratio of net earnings 
 to gross among railroad corporations is about 33 per cent. 
 Dividing this ratio by the rate of capitalization of 6.5 per cent. 
 • gives 5.1 per cent, as the proper rate of the gross earnings tax 
 as indicated by this method. 
 
 Taxes Now Paid: — The method which has been employed 
 in the preceding sections is, on the whole, the most reliable 
 one for determining the proper rate of a gross earnings tax. 
 As has been explained in Chapter I, the results obtained 
 by this method may be verified by certain other tests, the 
 principal ones being the amount of a tax of 1 per cent, 
 upon the market value of the securities of the company, upon 
 the book value as shown by its balance sheet, or upon the net 
 vafoe of the plant. At the present time we are not in possess- 
 ion of sufficiently reliable valuations of railway property to 
 make the last of these tests of much value. For the same 
 reason, little is to be gained by examination of the book value 
 of the corporations as shown by their balance sheets. 0n the 
 Other hand, the test of the market Value of 1 the Securities is 
 particularly available, since this is the present method by Which 
 railroad corporations are taxed by the State of Connecticut. 
 5 
 
50 REPORT OP SPECIAL TAX COMMISSION 
 
 If we take, therefore, the amount of taxes paid under the 
 present system and determine the ratio of the taxes paid to 
 the gross operating earnings of the corporations, properly 
 apportioned to Connecticut, we shall have a valuable check 
 upon the rate as determined by the previous method. It must 
 be remembered in this connection that the taxes at present 
 paid are somewhat less than would be paid under a simple tax 
 of 1 per cent, on the market value of securities, the reason for 
 this being the peculiar features of the Connecticut system 
 which have been analyzed above. 
 
 In using this check we are obliged to limit ourselves to 
 amounts representing the totals for all the companies. 
 
 No conclusions can be drawn regarding any single company, 
 for the reason that the present tax is based upon owned roads 
 whereas the gross earnings tax falls upon operating roads. The 
 roads which pay the tax today will not be the same as those pay- 
 ing the gross earnings tax, and the relative amounts paid by 
 different roads will be different under the two methods. 
 
 The following table shows the total taxes paid in 1910, 
 1911 and 1912, and in addition gives Connecticut's share of 
 the total gross earnings of all the roads in these years. This 
 consists of the entire gross earnings of roads operating only 
 in the State, and of a part of the gross earnings of roads en- 
 gaged in interstate commerce apportioned on the basis of all 
 track mileage. (This basis of apportionment is explained and 
 applied below in this Chapter.) The table then shows the ratio 
 of taxes paid in each year to Connecticut's share of the gross 
 earnings of these years respectively. 
 
 TAXES PAID TO THE STATE OF CONNECTICUT 
 Taxes Paid: 
 
 1910 1911 1912 
 
 Steam Roads $1,338,107.47 $1,157,846.64 $1,055,449.97 
 
 Electric Roads 452,043.10 501,418.23 556,110.79 
 
 Total all Roads .$ 1,790,150.57 $ 1,659,264.87 $ 1,611,560.76 
 
 Connecticut's Share of Gross Earnings: 
 
 Steam Roads $27,040,274.63 $27,536,594.73 $28,074,807.54 
 
 Electric Roads 8,032,366.51 8,570,005.33 9,140,433.12 
 
 Total all Roads .$35,072,641.14 $36,106,600.06 $37,215,240.66 
 
 Ratio of Taxes to Gross Earnings: 
 
 „ . 1910 1911 1913 
 
 Steam Roads 4.95% 4.20% 3.76% 
 
 Electric Roads 5.65% 5.85% 6.08% 
 
 Total all Roads 5.12% 4.59% 4.33% 
 
 The amount of taxes paid by the large railroads of the 
 United States in general, and of the Eastern District, with 
 the ratio of taxes to their gross earnings is shown in the fol- 
 lowing table : 
 
RAILROAD COMPANIES 51 
 
 TAXES PAID BY RAILROADS OF THE UNITED STATES 
 _ 1911 1912 
 
 Eastern District (*) 
 
 Gross Operating Earnings $1,053,815,197 $1,088,667,662 
 
 Taxes Accrued 37,662,642 42,642,370 
 
 Ratio Taxes to Earnings 3.57% 3.92% 
 
 Entire United States (f) 
 
 Gross Operating Earnings $2,371,976,532 $2,418,918,771 
 
 Taxes Accrued 84,348,542 94,371,832 
 
 Ratio Taxes to Earnings 3.56% 3.90% 
 
 It appears that the taxes at present paid by the railroads 
 of Connecticut amount on the whole to considerably over 4 per 
 cent, of their gross earnings, the latter being apportioned to 
 Connecticut on the basis of all track mileage in the case of 
 interstate roads. In the case of steam roads this ratio has 
 decreased very decidedly in the past three years, which agrees 
 with the evidence already presented showing that the taxes 
 paid by the steam roads have been decreasing both relatively 
 and absolutely. Electric railways, on the other hand, not only 
 pay more taxes in proportion to their gross earnings than steam 
 roads, but their ratio has increased during the past three 
 years. A tax upon the gross earnings at the rate of 5 per 
 cent, would be lower than was paid by the electric roads of 
 • the State in any one of the three past years. It would be lower 
 than paid by all the roads together in 1910, but higher than 
 paid in 1911 and 1912. The taxes paid by all roads in the 
 past three years amounted, on the average, to 4.68 per cent, 
 of their gross earnings. These ratios in Connecticut are higher 
 than shown by the railroads of the United States as a whole. 
 The taxes paid by the steam roads of the United States amount- 
 ed to a little over 3^ per cent, of their gross earnings in 1911, 
 and slightly less than 4 per cent, in 1912. 
 
 Conclusion as to the Rate of the Gross Earnings Tax: — 
 
 From all the evidence which has been presented it is the 
 opinion of your Commission that the rate of the gross earn- 
 ings tax on railroad companies should be 4% per cent. This 
 is slightly lower than the rate of 5.1 per cent, indicated by the 
 study which we have made of railroad earnings and of the 
 income obtained from investment in railroad securities. On 
 the other hand, this rate is very close to the rate borne by the 
 railroad companies of Connecticut during the past three years. 
 It is somewhat higher than the rate of taxation borne by rail' 
 road companies in general throughout the Uriitied 'States. 
 Without greatly increasing the tax burden of the Connecticut 
 railroad companies, it will give the State at the outset a slight- 
 
 (*)27 roads, having operating revenue exceeding $10,000,000 
 in year ending June 30, 1912. 
 
 (f)63 roads, having operating revenue exceeding $10,000,000 
 in year ending June 30, 1912. 
 
52 REPORT OF SPECIAL TAX COMMISSION 
 
 ly increased revenue which, under the gross earnings tax, will 
 tend to increase in the future with the development of the 
 business of the companies. 
 
 B. APPORTIONMENT OF INTERSTATE EARNINGS 
 
 Various Possible Methods : — In imposing a tax on the gross 
 earnings of corporations any part &$ whose revenue eomes from 
 interstate commerce, it is necessary to devise a rule far the 
 proper apportionment to a given State of its reasonable share 
 of the gross earnings of such corporations. The general prob- 
 lem of apportioning interstate earnings has been previously 
 discussed. (See Chapter I.) For railroads in particular there 
 are many possible bases. This subject has been ably discussed 
 by Professor B. H. Meyer for the United States Census. His 
 article, entitled "Methods for the Distribution of Railway 
 Values among States," was published in 1905 by the United 
 States Census in its Bulletin No. 21. Professor Meyer men- 
 tions the following ten possible bases for the apportionment 
 of railway values among States. 
 
 I. Single-Track Mileage Basis. 
 II. All-Tracks Mileage Basis. 
 
 III. Basis of Funded and Other Indebtedness. 
 
 IV. Station Population of Railways as a Basis. 
 V. Car-Mileage Basis. 
 
 VI. Cost of Construction. 
 
 VII. Density of Traffic. 
 
 VIII. Gross-Earnings Basis. 
 
 IX. Net-Earnings Basis. 
 
 X. Cost of Reproduction. 
 
 Exact Apportionment of Gross Earnings : — Some of these 
 bases, though theoretically possible, hardly deserve serious 
 consideration. In theory the apportionment according to net 
 earnings obtained within a given State is the most perfect. 
 Perhaps the next best method in theory is the basis of cost of 
 production of plant and equipment. Professor Meyer places 
 these two methods first and in this order. Both of these 
 methods, however, must be rejected on the practical grounds 
 of the complications involved and the great cost of administra- 
 tion. Professor Meyer, after rejecting these two bases, de- 
 cides upon the basis of gross earnings as being superior to the 
 other methods. Tour Commission feels that this basis also 
 should be rejected for the same reasons that apply to the two 
 previously named. "While not so complicated and expensive 
 as the others, the fact remains that the determination of the 
 exact amount of gross earnings due to a given State would 
 require complicated accounting, would be unintelligible to the 
 general public, and would be a difficult matter for the State 
 officials to check up. 
 
RAILROAD COMPANIES 53 
 
 Cost of Apportioning on Gross Earnings Basis : — The cost 
 would also be very great. At the request of your Commission, 
 the New York, New Haven & Hartford Eailroad Company made 
 a test apportionment in the summer of 1912. This was done 
 by taking two sample months, December 1911 and June 1912, 
 and ascertaining exactly the amount of gross earnings, (1) on 
 business entirely within the State of Connecticut, (2) on busi- 
 ness partly within and partly without the State, and (3) on 
 through business crossing the State. The last two were appor- 
 tioned on the mileage prorate basis. The results obtained are 
 highly interesting and were of the greatest service to the Com- 
 mission. In order to do this work for two months only, the 
 railroad found it necessary to employ the spare time of 114 
 clerks, who worked 4,890 hours. The cost for their services 
 was stated as $1,682.80. As a regular rule of apportionment 
 this would require the employment of a staff of clerks devot- 
 ing their entire time to apportioning earnings. 
 
 The All-Track Mileage Basis: — The first requirement in 
 an effective tax system is simplicity and certainty, even at 
 the expense of being somewhat arbitrary. For this reason 
 your Commission is of the opinion that apportionment accord- 
 ing to the basis of all-track mileage is decidedly the best 
 method. All-toack mileage includes, in addition to the main 
 line, the second, third, etc., parallel tracks, and also sidings, 
 spurs, and turn-outs, which thus covers all of the congested 
 tracks at terminals and stations. Professor Meyer summarizes 
 the advantages of the all-track basis of apportionment as fol- 
 lows: 
 
 "The assumption which underlies this method is that where 
 traffic is heavier and more business is done, the all-tracks mile- 
 age is conrgspoadingly great. By assuming that traffic, and hence 
 earnings, varies with total trackage, this method is an indirect 
 vmy of distributing values on the basis of earnings. It is more 
 certain and definite than an earning basis and requires readjust- 
 ments only with changes in the total mileage." 
 
 The number of miles of tracks represents to a reasonable 
 extent the value of the property and the amount of business 
 and earnings. .Above all, the basis of apportionment is per- 
 fectly simple and certain. The number of miles of track is al- 
 ways known, is generally a matter of public record, and can 
 be checked up by the railroads' reports to the Interstate Com- 
 merce Commission and the State Public Utilities Commission. 
 Any citizen can readily understand the system and satisfy 
 himself of its correct application. For the purpose of appor- 
 tionment we should take all tracks operated, whether owned 
 or leased or operated under trackage rights. 
 
 The result of the all-track method of apportionment upon 
 the Connecticut railroads doing an interstate business is shown 
 in the following table: 
 
54 
 
 REPORT OF SPECIAL TAX COMMISSION 
 
 
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RAILROAD COMPANIES 55 
 
 The result of the apportionment of earnings made by the 
 New Haven Road, referred to above, furnishes an interesting 
 comparison between the method of apportionment according 
 to earnings and the all-track mileage basis. The total gross 
 operating earnings of the New Haven Eoad for the year ending 
 June 30, 1912, amounted to $67,359,218.56. The investigation, 
 covering two representative months, December, 1911, and June, 
 1912, showed that the share of this amount properly assigned 
 to Connecticut was as follows ; the earnings from traffic partly 
 in the State and across the State being apportioned on a mile- 
 age prorate basis: 
 
 1. Intra-State: 
 
 Freight $ 1,793,063.94 
 
 Passenger 3,311,013.66 $ 6,104,077.60 
 
 2. Partly in State: 
 
 Freight 7,161,487,56 
 
 Passenger 4,103,917.67 11,265,406.23 
 
 3. Across the State: 
 
 Freight 12,958,979.82 
 
 Passenger 4,718,980.* 17,677,960.73 
 
 Total 34,047,443.56 
 
 According to this method (which, as already shown, would 
 be too complicated and expensive for the basis of the regular 
 annual apportionment) there would be apportioned to Con- 
 necticut 50.55 per cent, of the total gross earnings. As shown 
 already, the proposed apportionment according to all-track 
 mileage would assign to Connecticut 39.53 per cent. The fact 
 that the all-track mileage basis gives to Connecticut somewhat 
 less than her share of earnings apportioned on the more exact 
 basis has been borne in mind in fixing the rate of the gross 
 earnings tax. 
 
 VI. TAXATION OF RAILROAD COMPANIES IN 
 OTHER STATES 
 
 Some aid in the solution of the problem of railroad tax- 
 ation may be obtained from a study of the methods employed 
 in other States. The assistance to be gained from such study 
 is, however, seriously limited by the lack of uniformity among 
 the States. The tax upon gross earnings is perhaps the most 
 important single method, although many States still cling to 
 some form of ad valorem taxation. Most of the States com- 
 bine two or more methods of taxation. In Appendix n will 
 be found a detailed abstract of the laws of each State relating 
 to taxation of railroad companies. All that will be attempted 
 at this point is to present a brief summary of the principal 
 methods employed in other States. 
 
 Fourteen States use the gross earnings tax. In three 
 
§6 REPORT OP SPECIAL TAX COMMISSION 
 
 States this is in lieu of all other taxes. These States, with the 
 rates of the tax, are as follows : Calif ornia, 4% ; Maine, % of 
 1% to 5^2%, according to the amount of earnings, and Minne- 
 sota, 5%. In California and Minnesota the tax is upon earn- 
 ings within the State and a share of interstate earnings. In 
 Maine the tax is on State earnings only. Seven other States 
 have the gross earnings tax in combination with ad valorem 
 taxes upon all or' part of the property of the railroads. Pour 
 other States have the gross earnings tax in combination with 
 some other form of taxation or limited in some special way. 
 
 Next to the gross earnings tax the most important method 
 is ad valorem taxation upon the property of the companies. 
 In eighteen States such taxes are imposed upon the property 
 of the railroad companies, and no other taxes are imposed. 
 In fifteen other States ad valorem taxes are imposed upon all 
 the property of the railroads and are the principal basis of 
 taxation although combined with other taxes. Nine other 
 States use property taxes in some form although relying upon 
 some other methods as the principal tax. 
 
 Only six States tax railroad companies upon the value of , 
 their capitalization. In none of these is this the sole tax, al- 
 though in five States it is the basis of the tax system. Various 
 kinds of special, privilege, and license taxes are used in fifteen 
 of the States. In all cases these taxes are combined with other 
 methods, and in only one case is the special tax the basis of 
 the taxation of railroads. 
 
 As a general rule, street railway companies are taxed 
 essentially the same as steam railroads. No attempt will be 
 made here to go into the difference in detail between street 
 railways and steam roads. The details of the statutes for each 
 State will be found in Appendix II. 
 
 VII. CONCLUSIONS AND RECOMMENDATIONS 
 
 Summary of Conclusions: — From line evidence that has 
 been presented in this Chapter your Commission concludes that 
 the present system of taxing railroad corporations, while per- 
 haps fairly suited to the condition at the time of its adoption 
 in 1864, is not the best method to apply to modern conditions. 
 Moreover, the original system has been so frequently amended 
 that it has become unfair td the State and incapable of effective 
 administration. Through the numerous deductions which have 
 been allowed under successive amendments the railroads of 
 the State, particularly the New York, New Haven and Hart- 
 ford Railroad, have been enabled to escape an increasing part 
 of the burden of taxation which they should fairly be called 
 
BAILEOAD COMPANIES 57 
 
 upon to bear under the original principle of the Connecticut 
 system. The method of apportionment of the valuation of in- 
 terstate roads, in connection -with the arbitrary treatment of 
 branch roads in Connecticut, has further resulted in loss of 
 State revenue and in complications which make the law diffi- 
 cult to understand and almost impossible to administer. Under 
 this system the State's revenue from railroad taxes has failed 
 to keep pace with the development of the railroads themselves. 
 During the past few years the State's revenue has actually de- 
 clined. Since 1905 the New Haven Road, the leading railway 
 system of the State, has increased its gross earnings by 35 per 
 cent, and its net earnings by 71 per cent., whereas its tax to 
 the State has increased by only 5 per cent. The taxes paid to 
 the State by the New Haven Road in 1912 were less than it 
 paid in any year since 1905. 
 
 Your Commission finds that the best method for taxing 
 railroads is the gross earnings tax. This method will lead to 
 substantial justice to the corporations. Imposed at the rate 
 of 4% per, cent., it will yield a state revenue at the beginning 
 somewhat greater than under the present system. In particu- 
 lar this system will preserve a fair proportion between the 
 amount of taxes and the business of the corporations. With 
 the growth in earnings of the railroad companies the State's 
 revenue from railroad taxes will show a steady growth, as 
 compared with :fche stationary and even declining revenue 
 under the present system. The gross earnings tax will be 
 extremely simple and certain. Its essential features can be 
 understood by anybody. Its administration will be simple and 
 easy, and will impose the minimum of labor and expense upon 
 the corporations. 
 
 Recommendations: — The Commission recommends that a 
 tax be imposed upon all companies (corporations, persons, etc.) 
 operating a line of railroad (steam, electric, street, or other 
 railrpad) in this State, said tax to be measured by the total 
 amount of gross operating revenue from all sources whatever. 
 . The tax should be imposed upon earnings from all lines oper- 
 ated, whether owned, leased, or operated under trackage 
 rights. It is recommended that the rate of the tax be 4% per- 
 cent. The Commission further recommends that this tax be 
 in lieu of all other taxes upon the corporations in question or 
 upon their property used exclusively in the railroad business. 
 It is also recommended that th« shares of stock and the bonds 
 of companies paying this tax be exempt from taxation in the 
 hands of the owners. 
 
 .Probable .Results of the Proposed Tax;— The table given 
 below shows the jestimated amount which would have been 
 
58 REPORT OP SPECIAL TAX COMMISSION 
 
 paid by railroads under the proposed gross earnings tax ii 
 1912. The list of roads taxed is somewhat different from thosi 
 taxed under the present system. This is due to the fact tha 
 the present tax is upon roads owned, whereas the gross earning! 
 tax would be imposed only on operating roads. As a resuli 
 the tax would be collected from fewer corporations. Then 
 are in Connecticut today only four 'operating steam roads 
 and nine operating electric roads as compared with six anc 
 fourteen roads respectively subject to the present tax. For t 
 list of the railroads at present paying taxes to the State, witb 
 the amount of tax paid by each in 1912, see section III, of thit 
 chapter. The following table shows the amount of gross earn- 
 ings of each operating road, apportioned in the case of inter- 
 state roads, and the amount of tax due from each under the 
 recommended gross earnings tax. 
 
 GROSS EARNINGS TAX 
 
 FIGURES AS OF JUNE 30, 1912 
 
 Gross Operating 
 NAME OF BAILBOAD. Earnings. Tax at 4% 
 
 (Apportioned.) per cent. 
 
 Steam Railroads: 
 
 N. Y., N. H. & H. R. R $26,627,099.10 $1,264,787.21 
 
 Central N. E. Railway 844,263.52 40,102.52 
 
 New London Northern R. R 579,560.45 27*510.65 
 
 South Manchester R. R 23,894.47 1,154.99 
 
 Total Steam Roads $28,074,807.54 $1,333,655.37 
 
 Electric Railways: 
 
 Bristol & Plainville Tramway(*) $ 220,687.92 $ 10,482.68 
 
 Connecticut 8,075,541.81 383,688.24 
 
 Danbury & Bethel St Railway . . 138,023.19 6,556.10 
 
 Groton & Stonington St. Ry. 118,472.76 5,627.46 
 
 Hartford & Springfield St. Ry. 219,585.46 10,430.31 
 
 New London & East Lyme St. Ry. 47,865.82 2,273.63 
 
 New York & Stamford St. Ry. . . 104,438.04 4,960.81 
 
 Norwich & Westerly Ry 78,564.75 3,731.83 
 
 Providence & Danlelson Ry. (t) 8,476.64 402.64 
 
 Shore Line Electric Railway . . . 128,766.13 6,116.42 
 
 Total Electric Roads $ 9,140,423.12 $ 434,170.12 
 
 Total all Roads .$37,215,230.66 $1,767,725.49 
 
 The following table shows the net result of the gross 
 earnings tax upon the State's revenue by comparing the tax?s 
 
 (*)A very large part of the earnings of this Company cornea 
 from its electric lighting and gas departments. 
 
 (t) Leased to and operated by the Rhode Island Company 
 since July 1, 1911. For the purpose of this estimate it has been 
 assumed that the earnings are the same as in the year ending 
 June 30, 1911. Under a gross earnings tax the Rhode Island 
 Company would be taxed on the part of its earnings apportioned 
 to Connecticut on the all track mileage basis. 
 
 <» 
 
RAILROAD COMPANIES 59 
 
 paid under the present system in 1912 with the estimated 
 amount of the gross earnings tax based on the figures of 1912 
 as shown in the preceding table. 
 
 EFFECT OF GROSS EARNINGS TAX ON STATE REVENUE 
 FIGURES AS OP TEAR ENDING JUNE 30, 1912: 
 
 Increase (+) 
 Tax Paid in 1912. Gross Earnings Tax. Decrease (-) 
 
 Steam Roads $1,055,449.97 $1,333,555.37 +$278,105.40 
 
 Electric Roads 556,110.79 434,170.12 - 121,940.67 
 
 Total $1,611,560.76 $1,767,725.49 +$156,164.73 
 
 The above figures show that the adoption of the gross 
 earnings tax as recommended would mean an increase oi about 
 $156,000 at the outset. This is not, however, the entire result, 
 or even the most important result. Whereas under the present 
 system the revenue from railroad taxes is stationary, or even 
 declining, the gross earnings tax would show in the future a 
 steady growth of revenue proportional to the growth in busi- 
 ness and earnings and tax-paying ability of the railroads. 
 
CHAPTER III 
 CAR COMPANIES 
 
 GENERAL SUMMARY OF CHAPTER 
 
 I. The Present Situation: — There is at present no State 
 tax upon car companies. This omission is doubtless due to the 
 fact that up to the present time practically all parlor and sleep- 
 ing ears operated in the State have been the property of the 
 railway companies themselves and have therefore been reached 
 by the taxes imposed upon railroad companies. The recent 
 transfer by the New York, New Haven & Hartford Railroad 
 Co. to the Pullman Co. of its business of operating parlor and 
 sleeping cars makes it necessary to enact legislation at onee 
 for the taxation of ear companies. Otherwise, Connecticut will 
 in future lose all the taxation upon this class of property or 
 its earnings. There is also no good reason why other com- 
 panies which operate cars on the railroad lines of the State 
 should not pay a fair tax to the State. 
 
 II. The Gross Earnings Tax: — The gross earnings tax is 
 decidedly the best method for the taxation of car companies, 
 being clearly superior to a tax on the value of the property or 
 upon the capitalization of the companies. Imposed at the. 
 rate of 3%% it will place a reasonable burden upon the com- 
 panies concerned. Connecticut's share of the gross earnings 
 of companies doing business partly outside the State should 
 be properly apportioned to the State. 
 
 III. Taxation of Car Companies in Other States : — A brief 
 summary of the tax systems of other States appears in this 
 chapter. 
 
 IV. Recommendations: — The Commission recommends a 
 tax on all car companies operating cars within the State of 
 Connecticut, the tax to be based upon their gross operating 
 earnings, the State's share of the earnings of companies doing 
 business partly outside the State to be apportioned according 
 to the ratio of car mileage within the State to the total car 
 mileage. The rate recommended is 3%%. The gross earnings 
 tax is to be in lieu of all other taxes upon the companies or 
 their property used exclusively in the business. It is estimated 
 that the revenue from the tax upon the Pullman Co. would 
 amount to approximately $11,000. The transfer of car oper- 
 ations from the New Haven Road to the Pullman Company 
 will necessarily mean some loss of revenue to the State, which, 
 however, will be partly offset by the tax upon other car com- 
 panies, the amount of which cannot be foretold. 
 
CAR COMPANIES 61 
 
 I. THE PRESENT SITUATION 
 
 No State Tax on Car Companies at Present — The Reason: 
 
 — The subject of taxation of sleeping car, parlor car, and other 
 companies operating their own cars over the railroads of the 
 State is so closely related to the subject of railroad taxation,, 
 especially in the State of Connecticut, that it properly falls 
 within the field of investigation laid down for this Commission. 
 At the present time there is no statute in Connecticut imposing 
 a State tax upon such companies. The omission of such a 
 statute is doubtless due to the fact that up to the present time 
 practically all sleeping cars and parlor cars operated upon the 
 railroad lines in Connecticut have been the property of the rail- 
 way companies themselves. It is fair to assume that such cars 
 have been reached by the taxes on the railroad companies. 
 
 Necessity of Legislation: — It is clear that whenever amy 
 large number of sleeping and parlor cars comes to be operated 
 over the Connecticut railroads by companies other than the 
 railroads themselves, it will be necessary to impose some tax- 
 ation on such companies in order to avoid the escape from tax- 
 ation of a class of property which heretofore has been reached 
 through the taxes paid by the railroad companies. 
 
 This is indeed the situation at the present time. During 
 the past year, the New York, New Haven & Hartford Railroad 
 concluded an arrangement with the Pullman Company by 
 which the railroad company gives up the operation of parlor 
 cars and sleeping cars, and turns its own cars over to the Pull- 
 man Company. Hereafter the Pullman Company will operate 
 its parlor cars and sleeping cars upon the railroad lines of 
 Connecticut. It is obvious that the State of Connecticut must 
 impose some taxation upon the Pullman Company; otherwise 
 it will lose the source of taxation represented by parlor cars 
 and sleeping cars formerly operated by the railroad companies, 
 without any new revenue to offset the loss. 
 
 Besides the Pullman Company there are various other pri- 
 vate car lines whose cars pass over the railroad lines of the 
 State. There is no good reason why all companies operating 
 their cars in the State of Connecticut should not pay a fair tax 
 to the State. 
 
 It is therefore evident that the State of Connecticut should 
 at the present time adopt a comprehensive system of taxing car 
 companies of all kinds. 
 
 II. THE GROSS EARNINGS TAX 
 Superiority to Other Methods: — As a method of taxing 
 car companies, the gross earnings tax is distinctly superior to 
 other possible method®. (1) The texartion of such companies 
 
62 REPORT OF SPECIAL TAX COMMISSION 
 
 upon property is very difficult and untrustworthy. These com- 
 panies have no property permanently located in Connecticut; 
 practically their only property consists in cars passing through 
 the State. The assignment to any given State of its share of 
 such property is difficult in theory and has never worked satis- 
 factorily in practice. Moreover, property is not the true meas- 
 ure of the value or of the tax-paying ability of such corpora- 
 tions. 
 
 (2) It is also difficult to assess satisfactorily a tax upon 
 the securities of such companies. Aside from the general dif- 
 ficulties inherent in this method it would involve the appor- 
 tionment of the value of the securities as between Connecticut 
 and other States. No method of apportionment presents itself 
 which is free from objection. Moreover, the Pullman Com- 
 pany, which is the principal corporation concerned, is also en- 
 gaged in the manufacture of cars. The value of its securities 
 depends on its manufacturing business, as well as upon its 
 earnings from operating cars. Connecticut is not fairly en- 
 titled to a tax upon the manufacturing business, and it would 
 be very difficult to separate the value of the securities as be- 
 tween manufacturing and operation. And finally, the taxation 
 of corporations upon the value of securities has been proved 
 generally inferior to a tax on gross earnings. It is less just, 
 less simple, and less easily administered. (See Chapter I). 
 
 (3) It has been suggested that an annual license tax of 
 a specified lump sum would be a satisfactory form of taxation. 
 It does not appear to the Commission, however, that argument 
 is necessary to show the inferiority of such a basis of taxation ; 
 a basis purely arbitrary and without any connection with the 
 growth of the business itself. 
 
 Among other States, the gross earnings tax is the one that 
 has, on the whole, worked most satisfactorily, and it is the 
 method that is gaining in favor today. 
 
 The Bate of the Gross Earnings Tax — How Determined:— 
 In seeking to determine the proper rate of the gross earnings 
 tax we are practically limited to one line of inquiry. 
 
 Little is to be gained from 'a study of the market value of 
 the securities of the* corporations involved, or of the book 
 value shown by their balance sheets, since the principal car 
 companies are generally also engaged in other businesses. For 
 example, the Pullman Company has a large manufacturing busi- 
 ness, and among the other principal car lines we find those 
 owned by the great meat packers. And we do not have suffi- 
 cient reliable data regarding the value of the equipment of the 
 car companies to make this a reliable basis of comparison. 
 
 We must therefore base our judgment upon a study of 
 the income and expense accounts of the companies, and try to 
 find the rate which, imposed upon gross earnings, will repre- 
 
CAR COMPANIES 63 
 
 sent a 'fair tax upon the capitalized net earnings of the com- 
 panies. In brief, the rate is to be found by dividing the pre- 
 vailing ratio of net earnings to gross by a fair rate of capital- 
 ization. 
 
 This method of determining the proper rate of the tax on 
 gross earnings has been fully explained in the Chapter on 
 "Public Service Corporations in General." (See Chapter I). It 
 is essentially the method employed by the California Tax Com- 
 mission of 1906, and is on the whole, the most reliable moans 
 of determining the rate of the gross earnings tax. 
 
 Operating Earnings of the Pullman Company:— We must 
 first determine the prevailing ratio of net to gross earnings of 
 the car companies. The only company for which we have de- 
 tailed information up to date is the Pullman Company. This 
 company is, however, the one principally to be affected, and 
 we are justified in basing our conclusions primarily upon its 
 situation. 
 
 The following table shows the facts regarding the Pull- 
 man Company's car operations: 
 
 PULLMAN COMPANY— CAR OPERATIONS* 
 
 Three 
 Tear Ending Tear Ending MonthB Ending 
 June 30,. 1911. July 81, 1912. Sept. 30, 1912. 
 
 Gross Operating 
 
 Earnings $35,697,582 $37,306,471.97 $11,443,549.40 
 
 Operating Expenses .. 25,916,476 29,467,275.82 6;081,468.98 
 
 Net Operating Earnings 9,781,106 7,839,196.15 5,362,080.42 
 Ratio of Net to Gross Earnings 27.40% 21.01% 46.86% 
 
 From these figures it appears that the net earnings of the 
 Pullman Company in 1912 were 21% of the gross earnings. In 
 1911 the ratio was nearly 28%, and in the months of July, 
 August and September, 1912, it was very much higher. The 
 California Tax Commission of 1906 came to the conclusion that 
 the net earnings of the Pullman Company were at that time 
 about 36% of the gross earnings. If we take as the ratio 24%, 
 slightly less than the average of the ratios for 1911 and 1912, 
 we shall apparently be well within the facts. 
 
 Operating Earnings of Freight Car Companies: — The in- 
 formation regarding the business of other car companies is 
 quite meagre. The best information upon the earnings of 
 
 *The figures in the first column, for the year ending June 
 30, 1911, are from the "Preliminary Abstract of Statistics of 
 Common Carriers for the year ending June 30, 1911," issued by 
 the Interstate Commerce Commission. The figures in the second 
 column, for the year ending July 31, 1912, are as reported by 
 the Pullman Company to this Commission. The figures in the 
 third column for the three months ending September 30, 1912, 
 are from The 26th Annual Report of Interstate Commerce Com- 
 mission, for 1912. 
 
64 REPORT OP SPECIAL TAX COMMISSION 
 
 freight ear companies is that given in "The Beport of the 
 United States Commissioner of Corporations on the Beef In- 
 dustry," March 1905, (House Document 382, 58th Congress, 
 3rd Session) .* The facts presented in this Report tend to show 
 that the freight car lines are very profitable. While the evi- 
 dence does not warrant any exact conclusion, it seems to indi- 
 cate a ratio of net earnings to gross somewhere in the neigh- 
 borhood of 50 per cent. It also appears that the cars earn 
 annual profits of from 17 to 20 per cent, on their cost. The 
 evidence on which this conclusion is based may be summar- 
 ized as follows : 
 
 (1) On ^>age 281 the conclusion is reached that the gross 
 earnings from refrigerator cars of the packing companies' were 
 from $200 to $240 per car annually, and that the annual net 
 earnings, after making allowance for depreciation, were from 
 $75 to $150 per car. Taking the lowest figures in each case, we 
 would arrive at a ratio of net earnings to gross, of 37%%. On 
 the other hand, if we take the upper limit in each case, the 
 ratio of net earnings to gross is 62^%. The average of these 
 two ratios is 50%. 
 
 (2) Getting at the result from a somewhat different cal- 
 culation, the same Report shows that the average yearly re- 
 ceipts per car depend upon the average number of miles covered 
 per day. The following table (from page 282 of the Report) 
 shows the estimated yearly receipts from mileage payments 
 per car, assuming various figures for the average daily mileage 
 covered. The table also gives the estimated annual charges per 
 car, including operating expenses, repairs, depreciation, and 
 taxes (which were found to be very small), the average net 
 profits per car, and the ratio of profits to gross mileage receipts. 
 
 PRIVATE REFRIGERATOR CARS IN PACKING HOUSE 
 TRADE 
 
 AVERAGE DAILY MILEAGE. 
 50 75 90 100 125 
 
 Average Yearly Receipts $143.70 $215.57 $258.68 $287.44 $359.27 
 Average Yearly Charges 115.00 115.00 115.00 115.00 115.00 
 
 Average Yearly Profits . 28.70 100.57 143.68 172.44 244.27 
 
 Ratio Profits to Gross 
 
 Receipts 20.00% 46.65% 55.56% 59.99% 67.99% 
 
 (3) Further evidence on this point is given in the same 
 
 Report (page 283) from a statement submitted by the Cudahy 
 
 Packing Company, of Chicago, for refrigerator and tank cars. 
 
 The following table gives this information for three different 
 
 years. 
 
 *For additional information on this subject the reader is 
 referred to an exhaustive series of articles by J. W. Midgley 
 in the Railway Age, Volumes 35 and 36, 1902 and 1903, and a 
 careful monograph by Dr. L. D. H. Weld, entitled "Private 
 Freight Cars and American Railways," in Columbia University 
 Studies, Volume 31, No. 1, 1908. These works both agree sub- 
 stantially with the conclusions of the Report of the Commission- 
 er of Corporations. "Weld finds, however, that the earnings of 
 stock and tanft cars are not so excessive as those of refrigerator 
 cars. 
 
CAR COMPANIES 65 
 
 REFRIGERATOR AND TANK CARS OP CUDAHY PACKING 
 
 COMPANY 
 
 Year Ending October 30. 
 
 1902 1903 1904 
 
 Total Mileage Payments $285,490.93 $274,444.24 $321,882.42 
 Gross Operating Expenses 115,656.34 121,973.89 145,879.00 
 
 Profits 169,834.59 152,470.35 176,003.42 
 
 Ratio Profits to Gross Receipts 59.49% 55.56% 54.68% 
 
 It should be borne in mind that all of these calculations 
 take account only of the receipts from mileage payments. Other 
 earnings, which in some cases are quite considerable, have been 
 disregarded. 
 
 Without attempting to give too great weight to this evi- 
 dence regarding freight car companies, we are at least justified 
 in assuming that the ratio of 24% found for the Pullman Com- 
 pany would not be too high for car companies as a whole. 
 
 The Rate of Capitalization : — We must next determine the 
 proper rate for capitalizing the net earnings of car companies. 
 This is not easy, because the value of the stock and the rates 
 of dividends of the car companies do not usually depend upon 
 the operation of cars alone. Taking the figures of the Pullman 
 Company for what they are worth, we find that the average 
 value of the stock for the year ending July 31, 1912, was 167. 
 The dividend basis is 8%. This gives a rate of yield on the 
 investment of 4.79%. It must be remembered, of course, that 
 neither the dividend paid nor the market value of the stock de- 
 pends alone on the business of operating cars. If we take 
 4.79% as the rate of yield and add 1% to allow for taxes, we 
 obtain a rate of capitalization of 5.79%. A rate of 6 1 / 4% would 
 certainly appear to make liberal allowance for all possibility 
 of error. 
 
 Conclusion as to the Rate: — Having determined that 24% 
 represents fairly the prevailing ratio of net earnings to gross 
 and that 6^% is a fair rate of capitalization, we arrive at 
 3.84% as the proper rate of the gross earnings tax. The Cali- 
 fornia Tax Commission of 1906 concluded, as the result of its 
 investigation, that 4% would be a fair rate for the gross earn- 
 ings tax upon car companies. In view of the evidence which 
 we have presented, your Commission is of the opinion that a 
 rate of 3%% will impose a fair burden of taxation upon the 
 gross earnings of ear companies. This is the same as the rate 
 recommended for telephone companies. 
 
 This rate will be somewhat higher than the ratio of the 
 present taxes paid by the Pullman Company throughout the 
 United States to its total operating earnings. The company's 
 accrued taxes in the year ending June 30, 1911, are reported 
 by the Interstate Commerce Commission as $830,172, which was 
 6 
 
66 REPORT OF SPECIAL TAX COMMISSION 
 
 2.32% of the gross operating earnings. This merely goes to show 
 that the Pullman Company is at present bearing a comparative- 
 ly light burden of taxation throughout the United States. 
 
 Apportionment of Interstate Earnings: — Much of the 
 earnings of private car companies arises from interstate busi- 
 ness. In imposing a tax measured by such business, it is nec- 
 essary to determine an equitable rule for assigning to Con- 
 necticut her share of gross earnings. The most equitable basis 
 of apportionment is the mileage covered by the companies' 
 cars in the State of Connecticut as compared with the total 
 mileage covered. If argument is needed, all that is necessary 
 is a glance at other possible rules of apportionment. For in- 
 stance, the companies might be required to keep account of the 
 exact amount earned by each of their cars within the State of 
 Connecticut. Such a process would involve complicated ac- 
 counts, expensive and burdensome to the companies, unintel- 
 ligible to the public, and difficult to check up by the officers 
 of the State. Such a method of apportionment has already 
 been rejected for the other classes of public service corpora- 
 tions. On the other hand, apportionment according to miles of 
 road operated upon, within the State and without, would be 
 grossly arbitrary and unfair, and the same criticism would 
 hold of the rule of apportionment based upon the number of 
 cars operated within the State and without. That car mileage 
 is the best basis of apportionment seems hardly open to ques- 
 tion. The problem of apportioning the interstate earnings of 
 public service corporations in general is discussed in Chapter I. 
 
 The following statement shows the total mileage covered 
 by cars of the Pullman Company during the year ending July 
 31, 1912, together with the mileage made by the company's 
 cars in Connecticut during that year, and the share of the 
 gross earnings of the company which would be assigned to 
 Connecticut upon this basis. It is to be remembered that up 
 to this time the Pullman Company operated very few cars in 
 Connecticut. 
 
 THE PULLMAN COMPANY 
 
 Total Car Mileage 672,518,408 
 
 Car Mileage in Connecticut 798,533 
 
 Ratio of Mileage in Conn, to Total Mileage 0.12% 
 
 Gross Earnings from Operating Cars $37,306,471.97 
 
 Connecticut's Share of Gross Earnings 44,767.77 
 
 III. TAXATION OF CAR COMPANIES IN OTHER 
 STATES 
 
 The taxation of car companies in the other States is 
 marked by great diversity. Several methods are frequently 
 combined in the system of a single State. The gross earnings 
 tax may fairly be said to be the leading method, though the 
 
CAR COMPANIES 67 
 
 ad valorem basis is still largely used. The following is a brief 
 summary of the principal methods in use by the various States. 
 
 Seventeen States tax car companies upon their gross earn- 
 ings. Six of these have the gross earnings tax in lieu of all 
 others: Arizona, 7% upon earnings from business done within 
 the State; California, 3% upon all earnings from State busi- 
 ness and a share of interstate earnings; Florida, 1%% upon 
 the business done within the State by sleeping and parlor car 
 companies; Maine, 4^% upon the State earnings of palace car 
 companies; Minnesota, 6% upon the earnings of freight line 
 companies, and 4% upon those of sleeping car companies, in 
 both cases the earnings being all those from business within 
 the State and a share of interstate earnings; sleeping car 
 companies, however, are allowed an alternative tax upon an ad 
 valorem basis and generally choose that form; Washington, 
 7% upon the earnings of car companies which transport mer- 
 chandise. 
 
 Eleven other States use the tax on gross earnings in com- 
 bination with some other form of taxation. 
 
 Next in importance to the gross earnings tax, come ad 
 valorem taxes on the property of the companies. In twelve 
 States this is the only tax, while twenty other States use prop- 
 erty taxes in combination with some other forms of taxation. 
 
 The other methods used are taxes on the value of capital 
 stock, or stock and bonds, and various kinds of license taxes, 
 privilege taxes, and other special taxes. 
 
 IV. CONCLUSIONS AND RECOMMENDATIONS 
 
 Recommendations : — Your Commission concludes, therefore, 
 that the State of Connecticut should at the present time adopt 
 a comprehensive method of taxing car companies. It recom- 
 mends that a tax be imposed upon such companies, measured 
 by their gross operating earnings, and at the rate of 3%%. In 
 the case of companies whose business is done partly within and 
 partly without the State, it is recommended that the share of 
 the gross earnings apportioned to Connecticut be such part of 
 the total gross earnings as shall be equal to the ratio of the 
 miles covered by cars in Connecticut to the total car mileage 
 of the company. It is recommended that this tax be in lieu 
 of all other taxes upon the company or its property used ex- 
 clusively in the business. The Commission further recommends 
 that the shares of stock of such companies, and the bonds of 
 such companies as hold their charters from the State of Con- 
 necticut, be exempt from taxation in the hands of the owners. 
 
68 REPORT OF SPECIAL TAX COMMISSION 
 
 Estimated Revenue from the Tax on Car Companies : — The 
 
 Pullman Company has just commenced operating the parlor 
 and sleeping cars used on the New York, New Haven & Hart- 
 ford Railroad. The figures of its earnings and car mileage 
 given in the preceding section, which relate to the year ending 
 July 31, 1912, will therefore not serve as a basis for estimating 
 the probable revenue to be derived from a tax on the com- 
 pany's gross earnings. 
 
 In order to arrive at some idea of the probable revenue 
 to be obtained from the tax on gross earnings of car com- 
 panies, the following figures are given representing the mile- 
 age and earnings of parlor cars, sleeping cars, etc. for the Pull- 
 man Company and the New York, New Haven & Hartford Rail- 
 road Company during the year ending June 30, 1911. 
 
 N.T..N.H.& H. 
 Pullman Co. B.B. Total. 
 
 Gross Earnings from 
 
 Cars $35,697,582 $1,634,803.43 $37,332,385.43 
 
 Total Car Mileage 625,589,998 10,515,610 636,105,608 
 
 Car Mileage in Conn. .. 750,708* 4,266,183t 5,016,891 
 
 Ratio of Car Mileage in 
 
 Conn 0.12% 40.57% 0.79% 
 
 Conn.'s Share of Gross 
 
 Earnings $42,837.10 $663,239.75* $294,925.84 
 
 Tax @ 3%% 1,606.39 24,871.49 11,059.72 
 
 The above table shows Connecticut's share of the gross 
 earnings of the Pullman Co. apportioned according to the ratio 
 of car mileage, together with the amount of a tax on these earn- 
 ings at 3%%. In the same way the second column shows Con- 
 necticut's share of the gross earnings of the New York, New 
 Haven & Hartford Railroad from parlor cars, sleeping cars, 
 etc., with the amount of a tax at 3%%. In the third column, 
 the first three lines are the sums of the corresponding figures 
 in the first two columns, in order to give an idea of what the 
 business of the Pullman Company would have been in this 
 year, assuming it had then operated all of the parlor and 
 sleeping cars on the lines of the New Haven Road. It also 
 shows that under these conditions, Connecticut's share of the 
 total gross earnings of the company apportioned upon the basis 
 of car mileage would have been $294,925.84, upon which the tax 
 at 3%% would have amounted to $11,059.72. This result gives 
 as close an estimate as can be made of the probable revenue 
 
 ♦Estimated, by assuming the ratio to total car mileage to 
 be the same as reported for 1912. 
 
 f Estimated, so as to be in same ratio to total car mileage 
 as the ratio of all track mileage in Connecticut to total all 
 track mileage. 
 
 JEstimated, on basis of all track mileage. 
 
CAR COMPANIES 69 
 
 of the State from a tax upon the gross earnings of the Pull- 
 man Company. It is not possible to give any estimate of the 
 probable revenue from the tax on other car companies. 
 
 The Net Result upon the State Revenue: — Certain conclu- 
 sions from the figures just presented deserve further attention. 
 In the first place, it appears that the transfer of the parlor and 
 sleeping car business of the New Haven Road to the Pullman 
 Company will necessarily result in a loss of revenue to the State 
 of Connecticut. It is apparent that if in the year 1911, while 
 the New Haven Road operated its own cars, both the Pullman 
 Company and the New Haven Road had been taxed upon their 
 gross earnings from the operation of parlor and sleeping cars, 
 the revenue therefrom would have been more than double the 
 amount which we have estimated on the assumption that the 
 whole operation was in the hands of the Pullman Company. 
 The reason for this is to be found in the fact that the New 
 Haven Road obtained very much higher earnings per car mile 
 than did the Pullman Company. The average earnings per car 
 mile of the Pullman Company in the year ending June 30, 1911, 
 were 5.706 cents, whereas the New Haven Road earned on the 
 average 15.55 cents per car mile, or nearly three times as much 
 as the Pullman Company. Turning over these earnings to the 
 Pullman Company simply increases the total gross earnings of 
 that company by so much, and Connecticut is then able to im- 
 pose the tax, not upon the high earnings in the State, but simply 
 upon her share of the total earnings of the Pullman Company 
 apportioned according to car mileage. 
 
 As a matter of fact, the loss is even greater than this, for 
 the reason that the rate recommended for the tax on gross 
 earnings of railroad companies is i%%, whereas the rate 
 recommended for car companies is 3%%. In future the earn- 
 ings of the New York, New Haven & Hartford Railroad Company 
 will, be reduced by the amount earned from the operation of 
 parlor and sleeping cars. This revenue would otherwise have 
 been taxed at the rate of i%%, whereas such part of it as is 
 reached in future by the tax upon the Pullman Company will 
 be taxed only at the rate of 3%%. 
 
 The loss of revenue thus pointed out is a necessary result 
 of the change in the company operating the cars, together with 
 the proposed change in tax system. The only way that it could 
 be avoided would be (1) to apportion to Connecticut the gross 
 earnings actually derived from business in Connecticut, and (2) 
 to impose upon car companies the same rate of tax as is im- 
 posed upon railroad companies. Neither of these expedients is 
 to be seriously considered. We have already shown the com- 
 plications and other evils inherent in such a method of appor- 
 tioning gross earnings (see Chapter I), and the fore- 
 going discussion in the present chapter has made it clear 
 that a tax upon car companies at the rate of 4%% could not be 
 justified. 
 
 Such losses as these are to be expected in connection with 
 a comprehensive change of tax system. The loss after all is 
 only a matter of about $15,000, and it will be offset by corres- 
 ponding gains at other points. The revenue from the tax on 
 other car companies will all be clear gain to the State and will 
 help to offset the loss on parlor and sleeping cars. 
 
CHAPTER IV 
 
 EXPRESS COMPANIES 
 
 GENERAL SUMMARY OF CHAPTER 
 
 I. The Present Method of Taxation in Connecticut: — Ex- 
 press companies are at present taxed by the State upon their 
 gross receipts from business within the State. The rate is 5 
 per cent., except that for companies doing business whblly on 
 electric railways within the State the rate is 2 per cent. 
 
 II. Historical Development of the Law: — The first State 
 tax imposed upon express companies was in 1864. It was a tax 
 of 1 per cent, upon gross receipts received in the State. In 
 1865 the rate was raised to 2 per cent. In 1889 the basis was 
 changed to gross receipts from commerce entirely within the 
 State, and at the same time the rate was changed to 5 per cent. 
 This is the system that has remained in force to the present 
 day, except that in 1905 a special law, relative to express com- 
 panies doing business wholly on electric lines within the State, 
 made the rate of the tax upon such companies 2 per cent. 
 
 III. Operation of the Present Tax System: — There are 
 three express companies subject to the present tax. Adams 
 Express Company and the American Express Company operate 
 on steam roads and pay the 5 per cent rate. The Groton & 
 Stonington Street Railway Company pays the 2 per cent. rate. 
 The total receipts from the tax in 1912 were $19,769.42. 
 
 IV. Criticism of the Present Tax System: — Being based 
 upon business performed within the State only, Connecticut's 
 method of taxing express companies may be described as a 
 partial gross earnings tax. As such it is less scientific and less 
 fair than a tax on all gross earnings properly apportioned. 
 The narrow basis of the tax also requires a relatively high 
 tax rate. 
 
 V. The Gross Earnings Tax on all Earnings: — The tax 
 
 upon all gross earnings is superior to other methods of taxa- 
 tion and likewise superior to Connecticut's partial gross earn- 
 ings tax. An examination of the evidence, both theoretical 
 and practical, shows that the change to all gross earnings 
 should be accompanied by a reduction of the rate to 2 per cent. 
 This is the rate at present paid by electric express companies, 
 all of whose earnings are within the State and therefore taxed. 
 This rate will slightly increase the State's revenue while 
 being also more fair to the companies. Connecticut's share 
 of the gross earnings of companies doing business partly out- 
 side the State should be properly apportioned. 
 
EXPRESS COMPANIES 71 
 
 VI. Taxation of Express Companies in Other States: — 
 
 A brief summary of the tax systems in other States appears 
 in this chapter. A more detailed abstract for each State will 
 be found in Appendix II. 
 
 VII. Recommendations : — The Commission recommends in 
 place of the present tax, a tax on express companies measured 
 by their total gross operating earnings, the State's share of 
 the earnings of companies doing business partly outside 
 the State to be apportioned according to the ratio of miles 
 of routes operated in Connecticut to the total miles of routes 
 operated. The rate recommended is 2 per cent. This tax 
 should apply without distinction to all express companies 
 whether operating on steam or electric railroads. The gross 
 earnings tax is to be in lieu of all other taxes on the companies 
 or their property used exclusively in the business. The shares 
 of stock of all companies thus taxed, and the bonds of com- 
 panies incorporated in Connecticut, are to be exempt from tax- 
 ation in the hands of the owners. The gross earnings tax as 
 recommended would increase the revenue of the State by a 
 few hundred dollars. 
 
 I. THE PRESENT METHOD OF TAXATION IN 
 CONNECTICUT 
 
 Connecticut taxes express companies upon their gross re- 
 ceipts from commerce entirely within the limits of the State. 
 The rate of the tax is 5%, except that for companies doing busi- 
 ness wholly on lines of electric or street railways in the State, 
 the rate is 2%. Each company must report the amount of 
 these receipts annually to the Tax Commissioner, these 
 reports being examined and corrected if necessary by the State 
 Board of Equalization. This tax is in lieu of all other taxes 
 upon the property of the companies used exclusively in the 
 express business. The shares of stock of the companies are 
 exempt from taxation in the hands of the owners. 
 Their bonds are taxable as personal property of the 
 owners. (Gen. Stat., sec. 2433, 2435, 2441; Acts 1905, ch. 
 264; Acts 1907, ch. 204, 268; 1909, ch. 208.) 
 
 The tax is imposed upon every express company, associa- 
 tion, or partnership doing an express business in the State. 
 In case of express business on electric railways, the law also 
 applies to persons doing such business. It must be paid with- 
 in the first 20 days of October each year. It is based upon the 
 gross amount of all express charges received by the company 
 within the State, for commerce entirely within the limits of the 
 State, during the year ending June 30, last. 
 
 The appropriate officer of the company must deliver to the 
 Tax Commissioner, annually, within the first 10 days of 
 October, a sworn statement of the amount of receipts as above. 
 
CHAPTER IV 
 EXPRESS COMPANIES 
 
 GENERAL SUMMARY OF CHAPTER 
 
 I. The Present Method of Taxation in Connecticut: — Ex- 
 press companies are at present taxed by the State upon their 
 gross receipts from business within the State. The rate is 5 
 per cent., except that for companies doing business wholly on 
 electric railways within the State the rate is 2 per cent. 
 
 II. Historical Development of the Law: — The first State 
 tax imposed upon express companies was in 1864. It was a tax 
 of 1 per cent, upon gross receipts received in the State. In 
 1865 the rate was raised to 2 per cent. In 1889 the basis was 
 changed to gross receipts from commerce entirely within the 
 State, and at the same time the rate was changed to 5 per cent. 
 This is the system that has remained in force to the present 
 day, except that in 1905 a special law, relative to express com- 
 panies doing business wholly on electric lines within the State, 
 made the rate of the tax upon such companies 2 per cent. 
 
 III. Operation of the Present Tax System: — There are 
 three express companies subject to the present tax. Adams 
 Express Company and the American Express Company operate 
 on steam roads and pay the 5 per cent rate. The Groton & 
 Stonington Street Railway Company pays the 2 per cent. rate. 
 The total receipts from the tax in 1912 were $19,769.42. 
 
 IV. Criticism of the Present Tax System: — Being based 
 upon business performed within the State only, Connecticut's 
 method of taxing express companies may be described as a 
 partial gross earnings tax. As such it is less scientific and less 
 fair than a tax on all gross earnings properly apportioned. 
 The narrow basis of the tax also requires a relatively high 
 tax rate. 
 
 V. The Gross Earnings Tax on all Earnings: — The tax 
 
 upon all gross earnings is superior to other methods of taxa- 
 tion and likewise superior to Connecticut's partial gross earn- 
 ings tax. An examination of the evidence, both theoretical 
 and practical, shows that the change to all gross earnings 
 should be accompanied by a reduction of the rate to 2 per cent. 
 This is the rate at present paid by electric express companies, 
 all of whose earnings are within the State and therefore taxed. 
 This rate will slightly increase the State's revenue while 
 being also more fair to the companies. Connecticut's share 
 of the gross earnings of companies doing business partly out- 
 side the State should be properly apportioned. 
 
EXPRESS COMPANIES 71 
 
 VI. Taxation of Express Companies in Other States: — 
 A brief summary of the tax systems in other States appears 
 in this chapter. A more detailed abstract for each State will 
 be found in Appendix II. 
 
 VII. Recommendations : — The Commission recommends in 
 place of the present tax, a tax on express companies measured 
 by their total gross operating earnings, the State's share of 
 the earnings of companies doing business partly outside 
 the State to be apportioned according to the ratio of miles 
 of routes operated in Connecticut to the total miles of routes 
 operated. The rate recommended is 2 per cent. This tax 
 should apply without distinction to all express companies 
 whether operating on steam or electric railroads. The gross 
 earnings tax is to be in lieu of all other taxes on the companies 
 or their property used exclusively in the business. The shares 
 of stock of all companies thus taxed, and the bonds of com- 
 panies incorporated in Connecticut, are to be exempt from tax- 
 ation in the hands of the owners. The gross earnings tax as 
 recommended would increase the revenue of the State by a 
 few hundred dollars. 
 
 I. THE PRESENT METHOD OF TAXATION IN 
 CONNECTICUT 
 
 Connecticut taxes express companies upon their gross re- 
 ceipts from commerce entirely within the limits of the State. 
 The rate of the tax is 5%, except that for companies doing busi- 
 ness wholly on lines of electric or street railways in the State, 
 the rate is 2%. Bach company must report the amount of 
 these receipts annually to the Tax Commissioner, these 
 reports being examined and corrected if necessary by the State 
 Board of Equalization. This tax is in lieu of all other taxes 
 upon the property of the companies used exclusively in the 
 express business. The shares of stock of the companies are 
 exempt from taxation in the hands of the owners. 
 Their bonds are taxable as personal property of the 
 owners. (Gen. Stat., sec. 2433, 2435, 2441; Acts 1905, ch. 
 264; Acts 1907, ch. 204, 268; 1909, ch. 208.) 
 
 The tax is imposed upon every express company, associa- 
 tion, or partnership doing an express business in the State. 
 In case of express business on electric railways, the law also 
 applies to persons doing such business. It must be paid with- 
 in the first 20 days of October each year. It is based upon the 
 gross amount of all express charges received by the company 
 within the State, for commerce entirely within the limits of the 
 State, during the year ending June 30, last. 
 
 The appropriate officer of the company must deliver to the 
 Tax Commissioner, annually, within the first 10 days of 
 October, a sworn statement of the amount of receipts as above. 
 
72 REPORT OP SPECIAL TAX COMMISSION 
 
 For failure to make the required report within the time limited 
 the officer is subject to a fine of $500. For failure to pay the 
 required tax, the company shall forfeit twice the amount of the 
 payment due. 
 
 The Board of Equalization is required to meet each year on 
 the first secular day after the expiration of the time for making 
 reports by express companies to examine and correct such re- 
 turns and to hear any party making such returns. If any such 
 returns are not made, or are erroneously made, the Board is 
 required to make up the return on the best information it can 
 obtain. This return is reported to the company concerned. It is 
 final, and the taxes are to be paid on it. 
 
 II. HISTORICAL DEVELOPMENT OF THE LAW 
 
 The first law in Connecticut placing a special tax upon 
 express companies was enacted in 1864. It required every 
 company doing an express business in the State to pay to the 
 State an annual tax of 1 per cent, of the gross receipts from 
 express charges paid to it in the State. This tax was in lieu 
 of all other taxes upon the property of the company used 
 exclusively in its express business. (Acts 1864, ch.. 74.) 
 
 Each company was required to report, by a sworn statement, 
 annually within the first 10 days of October, the amount of 
 gross receipts as above during the year ending September 30 
 last. The tax must be paid within the first 20 days of October. 
 For failure to make the required report, a penalty of $500 was 
 imposed, and for failure to pay the tax, a penalty of twice the 
 amount of the payment due. The State Board of Equalization 
 was required to examine and correct the statements made and, 
 if necessary, make out the required statement themselves from 
 the best knowledge they could obtain, their statement to be 
 final. 
 
 In 1865 the rate was raised to 2 per cent. (Acts 1865, 
 ch. 116.) 
 
 In the same statute the provision was added that in case any 
 company failed to make the report required by law, the State 
 Treasurer was authorized to accept $2,000 from it in lieu of the 
 taxes due. 
 
 Certain minor changes were made in the law from time to 
 time. In 1875 the payment which the State Treasurer was au- 
 thorized to accept in lieu of the tax was increased from $2,000 
 to $4,000. (Acts 1875, ch. 58.) 
 
 An act of 1876 changed the dates of making the reports 
 and paying the taxes from October to January. (Acts 1876, ch. 
 60.) This act was repealed, however, the next year, putting the 
 dates back to October. (Acts 1877, ch. 109.) 
 
 In 1882 the payment to be accepted in lieu of taxes was 
 raised to $10,000. (Acts 1882, ch. 131.) 
 
 An act of 1884 changed the period for which reports were 
 to be made and taxes computed to the year ending June 30 
 last. For 1884, the year was from October 1, 1883 to June 30, 
 1884. (Acts 1884, ch. 65.) 
 
EXPRESS COMPANIES 73 
 
 The first important amendment to the law was made in 
 1889. The basis of the tax was changed by restricting it to 
 commerce entirely within the limits of the State, whereas it 
 had up to this time been based upon the receipts from all com- 
 merce paid in the State. On the other hand, the rate of the 
 tax was increased from 2% to 5%. (Acts 1889, ch. 221.) 
 
 In 1905, the special law relative to express companies 
 doing business wholly on lines of electric or street railways 
 within the State was passed. It provided that such corpora- 
 tions, while subject to practically the same tax system as other 
 express companies, should pay a tax of 2%, instead of 5% as 
 paid by the other companies. (Acts 1905, ch. 264.) 
 
 The law relating to express companies doing business on 
 electric railways was amended in 1909 so as to make it apply 
 to "every corporation, person, or partnership" doing such business, 
 whereas the law formerly specified corporations only. (Acts 
 1909, ch. 208.) 
 
 In 1911, the section which authorized the State Treasurer 
 to accept $10,000 in lieu of the tax from a company which failed 
 to make the required report was repealed. (Acts 1911, ch. 41.) 
 
 III. OPERATION OF THE PRESENT TAX SYSTEM 
 
 The Companies Subject to the Tax, and the Revenue in 
 1912 : — There were in 1912 three express companies doing busi- 
 ness in Connecticut and paying the State tax. One was oper- 
 ating on electric lines only and accordingly paid the 2 per 
 cent. tax. The two other companies paid the regular 5 per 
 cent. rate. The following is a list of the companies, with the 
 amount of their gross receipts from State business during 
 the year ending June 30, 1912, and the amount of tax paid 
 thereon : 
 
 Gross Receipts. Tax Paid. 
 
 Adams Express Co. : $384,655.38 $19,232.77 
 
 American Express Co 7,180.95 359.05 
 
 Groton & Stonington Street Railway Co. 8,879.79 177.60 
 
 Total $400,716.12 $19,769.42 
 
 The State Revenue in Past Years: — A statement showing 
 the receipts of the State from taxes on express companies, 
 from the introduction of the first law in 1864, down to 1912, 
 is given in Appendix I. 
 
 IV. CRITICISM OF THE PRESENT TAX SYSTEM 
 
 Express companies are the one class of corporations to 
 which the State of Connecticut today applies the gross earn- 
 ings tax. They have been taxed upon their gross receipts 
 from the first State law in 1864. The Connecticut method, 
 
74 REPORT OF SPECIAL TAX COMMISSION 
 
 however, takes account only, of receipts for purely intra-state 
 business and is, therefore, only a partial gross earnings tax. 
 No tax whatever is imposed upon any part of the receipts 
 from business which crosses the State line. This narrow basis 
 of the tax is balanced by a rate of 5%, which on its face ap- 
 pears very high when compared with the gross earnings taxes 
 of other States. It should always be remembered that this 
 high rate is a necessary part of a tax based only upon gross 
 earnings from commerce within the State. 
 
 The gross earnings tax, to be a fair measure of tax-paying 
 ability, should be imposed upon earnings from all operations, 
 interstate business being properly apportioned among the 
 States concerned. Connecticut's tax is at best only a rough 
 index of tax-paying ability, the objections to which are in- 
 tensified by the high rate which is necessary. A tax at a 
 lower rate upon all gross earnings, properly apportioned, 
 would be a more scientific and just method and would also put 
 the taxation of express companies in harmony with the gross 
 earnings tax recommended for other public service corpor- 
 ations. 
 
 Complaint has been made to the Commission that the rate 
 of the present tax is too high. The rate undoubtedly appears 
 high when compared with rates of gross earnings taxes in 
 other States. As just stated, however, the high rate must ac- 
 company a tax based upon receipts from State business only. 
 The question remains ; is the burden imposed by the present tax 
 too heavy? This claim has been urged upon the Commission 
 at its hearings. An attempt to arrive at the answer will be 
 found in the following section. For the present it may be 
 stated that the Commission is of the opinion that the present 
 tax bears unequally upon the different companies, thus pro- 
 ducing some injustice, which can be corrected by a tax on all 
 gross earnings at a fair rate. 
 
 V. THE GROSS EARNINGS TAX ON ALL EARNINGS 
 
 Superiority of the Gross Earnings Tax: — The general ad- 
 vantages of the gross earnings tax for public service corpor- 
 ations have been pointed out above (see Chapter I). 
 Connecticut already has a partial gross earnings tax for ex- 
 press companies. At its hearings the Commission has received 
 some suggestions that the method be changed ; for example, to 
 a combination of a tax on property and a gross earnings tax 
 at a lower rate, or to a tax on corporate excess similar to the 
 Massachusetts tax. It was admitted, however, that these sug- 
 gestions were made mainly in the hope that a lower tax burden 
 might result, and it appeared that there was no real objection 
 
EXPRESS COMPANIES 75 
 
 to the gross earnings tax except as to its amount. Believing 
 as it does, that the gross earnings tax is decidedly the best 
 method of taxing public service corporations, the Commission 
 feels that nothing is to be gained by a change to another 
 method. Justice to the companies and to the State can be 
 given under a gross earnings tax at a fair rate. 
 
 The previous section has pointed out the one serious de- 
 fect in the present gross earnings tax. The method should 
 be changed so as to include in the tax all gross earnings, 
 whether arising from State or interstate business. Connecti- 
 cut's share of the total earnings of the companies should be 
 properly apportioned, and the rate should be so calculated as 
 to give justice to the State and to the corporations concerned. 
 
 The Rate of the Gross Earnings Tax — How Determined: — 
 
 The most serious problem in developing a tax system based on 
 gross earnings is the determination of the rate. The various 
 tests by which a fair rate may be determined have been dis- 
 cussed. (See Chapter I). Express companies present a par- 
 ticularly difficult problem. 
 
 We are unable to draw anything more than the most gen- 
 eral conclusion from the value of their securities. The express 
 companies are large holding companies. A very considerable 
 part of their earnings and of the value of their securities comes 
 from investments. Of the total gross income (less express priv- 
 ileges) of the thirteen principal express companies in the United 
 States in the year ending June 30th, 1911, which amounted to 
 $16,535,707.00, only $10,226,352.00 was operating income. The 
 remaining $6,309,355.00 came mainly from investments. The 
 value of the securities of the companies therefore furnishes a 
 very imperfect basis for judging of the proper rate of a tax upon 
 their express operations. Exactly the same argument applies 
 to the book value of the companies as shown by their balance 
 sheets. 
 
 We are also unable to base our judgment upon the value 
 of the property; that is, the plant. The plant of an express 
 company is an utterly inadequate measure of its tax-paying 
 ability. For example, the United States Supreme Court found 
 in the Ohio Express Companies cases that "$23,400 worth 
 . of horses, wagons, safes and so on, produced $275,446 in a single 
 year." 
 
 About the only test applicable to express companies is 
 the study of their operating earnings and expenses. This 
 method of determining the proper rate of the gross earnings 
 tax has been fully explained in the Chapter on "Public Ser- 
 vice Corporations in General." (See Chapter I). It is essent- 
 ially the method employed by the California Tax Commission 
 of 1906, and is on the whole the most reliable means of deter- 
 mining the rate of the gross earnings tax. In brief, the rate 
 is found by dividing the prevailing ratio of net earnings to 
 gross by a fair rate of capitalization. Even this method meets 
 
76 REPORT OF SPECIAL TAX COMMISSION 
 
 with special difficulties, which make the conclusions less re- 
 liable, when applied to express companies. About one-half of 
 the gross earnings of express companies are paid immediately 
 to the railroads as the price of the express privileges; This 
 makes the ratio of net earnings relatively very small. In the 
 following pages we shall undertake to determine as closely as 
 possible a fair rate for the tax on express earnings. 
 
 Ratio of Net Earnings to Gross: — The table on the next 
 page is derived from reports of the Interstate Commerce 
 Commission, from reports by the express companies to this 
 Commission, and from reports of the companies to the Con- 
 necticut Public Utilities Commission. 
 
 From these figures it is evident that the net earnings 
 of the express companies are very small as compared with 
 other public service corporations. As already stated, the prin- 
 cipal cause for this discrepancy lies in the large payments for 
 express privileges. It also appears that the net earnings have 
 been declining rapidly during the past few years. The aver- 
 age ratios of net earnings to gross for the past four years have 
 been as follows: Adams Express Co., 5.37%; American Ex- 
 press Co., 6.89% ; for all the principal companies, 7.99%. The 
 ratio is somewhat lower for the two companies operating in 
 Connecticut than for the express business in general. We may 
 fairly assume about 7%% as a reasonable compromise between 
 the ratio prevailing throughout the country and the ratio as 
 shown by the two companies subject to taxation in Connec- 
 ticut. 
 
 The Rate of Capitalization : — We must next determine the 
 proper rate for capitalizing the net earnings of express com- 
 panies. This is not easy, for the reason that the value of the 
 securities of the companies and the amount of their dividends 
 depend in part upon earnings from investments. Taking the 
 figures for what they are worth, however, we find the following 
 facts: The shares of stock of Adams Express Co.. have no 
 par value; they sold in 1911 at an average price of $240, and 
 in. 1912 at an average of $185. Dividends of $12 per-share were 
 paid each year. This would indicate a return on the invest- 
 ment of 5% in 1911, and 6.49% in 1912. The latter is hardly 
 a normal yield. The stock has fallen greatly, due to expecta- 
 tion of a future decline in dividends. 
 
 The average market value of the stoek of the American 
 Express Co. was $223 in 1911, and $190 in 1912. Dividends of 
 12% were paid each year, which indicates a yield of 5.15% on 
 the investment in 1911, and 6.32% in 1912. Taking the aver- 
 age of the rates of yield for these two companies in 1911 and 
 
EXPRESS COMPANIES 
 
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 1912, we arrive at 5.74%. Adding 1% to allow for taxes would 
 give a rate of capitalization of 6.74%. 
 
 Assuming that 7.5% represents the prevailing ratio of net 
 earnings to gross and that 6.75% is a fair rate of capitaliza- 
 tion, we arrive at 1.11% as the proper rate for the gross earn- 
 ings tax according to this method of calculation. 
 
 Ratio of Taxes Now Paid to Gross Earnings: — The ex- 
 press companies today pay to the State of Connecticut 5% of 
 their gross earnings from Connecticut business. The taxes 
 thus paid amount on the average to just about 2% of Connec- 
 ticut's share of the total gross earnings of the companies ap- 
 portioned, according to miles of route. (The method of ap- 
 portionment and the result of its application are explained in 
 a following section of this Chapter.) Adams Express Company 
 pays somewhat more than 2% — 2.2% in 1912 — , whereas the 
 tax upon the American Express Company amounts to only a 
 very small fraction of Connecticut's share of its entire gross 
 earnings — less than one-third of one per cent, in 1912. These 
 facts are shown in the following table : 
 
 TAXES PAID TO STATE OP CONNECTICUT 
 
 YEAR ENDING JUNE 30TH. 
 1909 1910 1911 1912 
 
 Adams Express Company: 
 Taxes Paid ....$16,718.81 $18,384.62 $18,658.21 $19,232.77 
 Ratio of Gross 
 Earnings (*) 2.05% 2.09% 2.18% 2.20% 
 
 American Express Company: 
 
 Taxes Paid .... 344.68 447.65 524.29 359.05 
 
 Ratio of Gross 
 
 Earnings (*) 0.90% 0.42% 0.45% 0.30% 
 
 Total Both Companies: 
 
 Taxes Paid 17,063.49 18,832.27 19,182.50 19,591.82 
 
 Ratio of Gross 
 Earnings (*) 2.00% 1.91% 1.97% 1.97% 
 
 The Groton and Stonington Street Railway Company, de- 
 riving all of its earnings from business within the State, pays 
 under the present system exactly 2 per cent, of its total gross 
 earnings each year. 
 
 Taxes Paid by the Principal Express Companies of the 
 United States : — From reports of the Interstate Commerce Com- 
 mission we obtain the following facts regarding the tax pay- 
 ments of the twelve principal express companies of the United 
 States. It appears that the companies in general are paying 
 taxes amounting to less than 1 per cent, of their total gross 
 earnings. During the past four years Adams Express Com- 
 pany paid taxes amounting on the average to .64% of its gross 
 earnings. The taxes of the American Express Company 
 
 (*)Gross earnings apportioned to Connecticut according 
 to miles of route. 
 
EXPRESS COMPANIES 79 
 
 amounted on the average to .845% of its gross earnings, where- 
 as all of the twelve companies together paid taxes amounting 
 on the average to .80% of their combined gross earnings. 
 
 TAXES ACCRUED 
 
 YBAB ENDING JUNE 30TH. 
 1909 1910 1911 1912 
 
 Adams Express Company: 
 
 TfliXGS 
 
 Accrued .$145,184.36 $202,234.27 $245,480.00 $224,398.73 
 Ratio of 
 Gross Earnings 0.50% 0.64% 0.75% 0.66% 
 
 American Express Company: 
 TSjXGS 
 
 Accrued .$271,170.80 $302,166.06 $353,358.00 $371,606.09 
 Ratio of 
 Gross Earnings 0.85% 0.83% 0.85% 0.85% 
 
 Total, All Principal Express Companies: 
 
 T&X6S 
 
 Accrued . $906,519.79 $1,126,726.38 $1,315,973.14 $1,430,809.25 
 Ratio of 
 Gross Earnings 0.68% 0.77% 0.86% 0.89% 
 
 Conclusion as to the Bate of the Gross Earnings Tax: — 
 In what has gone before we have sought to determine a fair 
 rate for the tax on gross earnings of express companies by a 
 study of their earnings and expenses. This method has in- 
 dicated a rate of somewhat over 1 per cent. "We have also 
 shown that the principal express companies of the United 
 States pay taxes which amount to somewhat less than 1 per 
 cent, of their gross earnings. The express companies oper- 
 ating in Connecticut, however, are shown to be much more 
 heavily taxed. There can be little doubt that the express com- 
 panies throughout the United States in general, are escaping 
 with a light burden of taxation. On the other hand, it seems 
 to have been shown that the Adams Express Company is pay- 
 ing quite a heavy tax to the State of Connecticut. So far as 
 we are able to test the fairness of the rate, it would seem that 
 this company is justified in asking for some reduction of its 
 State tax. No reduction can fairly be asked by the American 
 Express Company, which has been shown to be escaping to- 
 day with a very light tax to the State of Connecticut. In view 
 of all the facts, your Commission is of the opinion that a rate 
 of 2 per cent, is justified. 
 
 This rate is higher than is borne at present by the express 
 companies of the United States as a whole. But under pres- 
 ent tax methods, the express companies are not taxed as heavily 
 as they should be. Again, the rate is higher than the rate 
 indicated by the theoretical test which we have used. But, 
 as already explained, the character of the property and busi- 
 ness of the express companies makes, any theoretical test es- 
 pecially difficult to apply, and less weight should therefore 
 
80 REPORT OF SPECIAL TAX COMMISSION 
 
 be given to the conclusion thus reached. On the other hand, 
 the 2 per cent, rate is justified by the fact that it is the rate at 
 present imposed upon express companies operating on elec- 
 tric railways, whose earnings are all within the State and there- 
 fore all taxed at present. No complaint regarding the present 
 tax has come to the Commission from such companies. The 
 Commission's recommendation simply puts the other express 
 companies on the same footing as those operating on electric 
 lines. Moreover, this rate will mean a reduction of the taxes 
 paid by the Adams Express Company and an increase in the 
 taxes of the American Express Company. Both results have 
 been shown to be justified. Finally, the 2 per cent, rate will 
 leave the State's revenue practically unchanged, perhaps in- 
 creased by a few hundred dollars (see below). Taking ac- 
 count of all the facts, the rate of 2 per cent, appears to be a 
 fair one to all parties concerned. 
 
 Companies Operating on Electric Railways: — The discus- 
 sion so far has related mainly to express companies operating 
 on steam railways. The conclusions reached may be apphed 
 equally well to companies operating on electric railways. Un- 
 der the method recommended there would seem to be no good 
 reason for making any distinction between the two kinds of 
 companies. There is at present in Connecticut one company 
 doing an express business on lines of electric railway. Under 
 the present Connecticut law this company pays a tax of 2 per 
 cent, upon its gross earnings, all of which arise from business 
 within the State. The method recommended by the Commis- 
 sion would, therefore, make no change whatever in the tax- 
 ation of such companies. 
 
 Apportionment of Interstate Earnings : — If the gross earn- 
 ings tax is to be imposed upon all earnings it becomes neces- 
 sary to adopt a method for apportioning to the State of Con- 
 necticut its share of the total gross earnings. (The problem of 
 the best basis for apportioning the earnings of public service 
 corporations in general has been fully discussed in Chapter I) . 
 For express companies the best basis appears to be 
 the mileage of routes. We reject the basis of the amount 
 actually received for business within the State on account of 
 its complications. No other basis presents itself as worthy of 
 serious consideration. The figures for mileage of routes are al- 
 ways known by every company, they are reported annually 
 to the Interstate Commerce Commission, and are thus a matter 
 of public record which any citizen can verify. This basis is 
 therefore certain, easy to administer, and involves no extra 
 trouble or expense upon the companies concerned. While 
 somewhat arbitrary, it will nevertheless produce reasonable 
 
EXPRESS COMPANIES 81 
 
 justice as between Connecticut and other States. The result 
 of this method of apportionment upon the two express com- 
 panies doing an interstate business in Connecticut is shown in 
 the following table: 
 
 APPORTIONMENT OP GROSS EARNINGS TO CONNECTICUT 
 
 YEAR ENDING JUNE 30, 1912. 
 
 Adams Express American Express 
 
 Company. Company. 
 
 Total Mileage Operated 37,306.26 59,387.52 
 
 Mileage Operated in Connecticut . 955.21 161.09 
 
 Ratio of Mileage in Connecticut . 2.56% 0.27% 
 
 Total Gross Operating Earnings . .$34,191,955.71 $43,714,874.32 
 Connecticut's Share of Gross 
 Earnings 875,314.07 118,030.16 
 
 VI. TAXATION OF EXPRESS COMPANIES IN OTHER 
 
 STATES 
 
 The taxation of express companies in other States is 
 marked by great diversity. Several methods are frequently 
 combined in the system of a single State. The gross earnings 
 tax may fairly be said to be the leading method, though the 
 basis of capitalization and the ad valorem basis are largely 
 used. The following is a brief summary of the principal 
 methods in use by the various States. A more detailed account 
 for each State will be found in Appendix II. 
 
 Twenty-two States tax express companies upon gross 
 earnings. In four of the States this tax is the only one im- 
 posed upon the operative property of express companies and 
 is at the following rates : Arizona, 5% ; California, 2% ; Minne- 
 sota, 6% ; and Wyoming 5%. 
 
 Eight other States have this tax as the principal one 
 upon express companies although combined- with other taxes, 
 such as State or local taxes on real estate or tangible property 
 and State license fees. These States, with the rates of the gross 
 earnings taxes are : Delaware, 5% ; Idaho, 3% ; Kansas, 4% ; 
 Maine, 4% ; New Jersey, 2% ; Rhode Island, 3% ; and Wash- 
 ington, 5%. In California and Maine the tax is on earnings 
 from business within the State and a share of interstate earn- 
 ings. In the other States the tax is on earnings from State 
 business only. 
 
 In ten States the gross earnings tax is used as a supple- 
 mentary tax in connection with taxes on stocks and bonds or 
 ad valorem taxes on property. 
 
 In applying the gross earnings tax, the States of Minne- 
 sota, Kansas, and New Mexico allow the deduction of express 
 privileges from the gross earnings. 
 
 Next to the gross earnings tax, the leading methods of 
 taxing express companies are: (1) ad valorem taxes on the 
 7 
 
82 REPORT OP SPECIAL TAX COMMISSION 
 
 property of the companies; nine States impose no other taxes, 
 and more than half the States make some use of taxes on prop- 
 erty, generally in combination with other taxes. (2) Taxes 
 based on the value of stocks and bonds, generally combined 
 with property or other taxes. (3) License taxes, privilege 
 taxes, and other special taxes, generally in combination with 
 some other form of taxation. 
 
 VII. CONCLUSIONS AND RECOMMENDATIONS 
 
 Recommendations: — Your Commission recommends, there- 
 fore, that in place of the present tax upon express companies 
 there be substituted a tax on such companies measured by the 
 gross operating earnings from all business, both State and 
 interstate. It recommends that the rate be 2 per cent. In the 
 case of companies whose business is done partly within and 
 partly without the State, it is recommended that the share of 
 the gross earnings apportioned to Connecticut be such part of 
 the total gross earnings as shall be equal to the ratio of the 
 miles of routes operated in Connecticut to the total miles of 
 routes operated. It is also recommended that this tax apply 
 to all express companies whether operating on steam or electric 
 railroads. This tax should be in lieu of all other taxes upon 
 the companies or their property used exclusively in the busi- 
 ness. The Commission further recommends that the shares of 
 stock of such companies, and the bonds of such companies as 
 hold their charters from the State of Connecticut, be exempt 
 from taxation in the hands of the owners. 
 
 Probable Results of the Proposed Tax: — The following 
 table gives the amount of the State tax paid by express com- 
 panies in 1912, with the estimated amount which would have 
 been paid in 1912 under the system recommended by the Com- 
 mission. From these figures it appears that the proposed 
 change will mean a slight increase, about $275.00 in the revenue 
 of the State from taxes on express companies. The reduction 
 in the case of Adams Express Co. would amount to a little 
 over $1,700.00, which would be offset by an increase of about 
 $2,000.00 in the tax paid by the American Express Company. 
 
 Present Proposed Increase ( -|- ) 
 
 _ _ State Tax. Tax. Decreased -) 
 
 Adams Express Co $19,232.77 $17,506.28 -$1,726.49 
 
 American Express Co 359.05 2,360.60 + 2,001.55 
 
 Groton & Stonlngton Street 
 
 Railway Co 177.60 177.60 
 
 Total 19,769.42 20,044.48 + 275.06 
 
CHAPTER V 
 TELEPHONE COMPANIES 
 
 GENERAL SUMMARY OF CHAPTER 
 
 I. The Present Method of Taxation in Connecticut: — 
 
 Telephone companies are at present taxed by the State $1.10 
 on each transmitter used in the State, and 35 cents on each 
 mile of wire used for messages which cross the border of the 
 State. In addition the real estate of the companies is subject 
 to local taxation. 
 
 II. Historical Development of the Law: — The first law 
 imposing a special State tax on telephone companies was en- 
 acted in 1882. It taxed the companies 2 per cent, on their 
 gross receipts collected within the State. In 1889, the system 
 was changed to a tax of 70 cents on transmitters and 25 cents 
 on mileage, essentially like the present system. The rate of the 
 transmitter tax was raised to $1.10 in 1907, and the mileage 
 tax was raised to 35 cents in 1911. 
 
 III. Operation of the Present Tax System: — Nine tele- 
 phone companies are subject to the present tax. One company 
 does a long distance business only and is subject practically 
 to the mileage tax alone. Two other companies are taxed on 
 interstate messages, being subject to both transmitter and 
 mileage taxes. The other six companies pay only the trans- 
 mitter tax. The total receipts from the tax in 1912 were 
 $122,226.15. 
 
 IV. Criticism of the Present Tax System: — The present 
 tax has certain distinct advantages. It is simple, easy to under- 
 stand, certain, and easily administered. It has the disadvan- 
 tage of being arbitrary and not closely related to the tax-pay- 
 ing ability of the corporations. It does not keep pace automa- 
 tically with changed conditions. 
 
 V. The Gross Earnings Tax: — The tax on gross earnings 
 is recommended as possessing the advantages of certainty and 
 ease of administration while also relating the tax burden to 
 the ability of the corporations to pay. Imposed at the rate of 
 3% per cent, it would yield a good revenue and impose a bur- 
 den, approximately equal to the burden of the general prop- 
 erty tax on wealth, in general. In fixing the rate at 3% per 
 cent, due allowance has been made for local taxation 
 of real estate, which should continue as at present. Connecti- 
 cut's share of the gross earnings of companies doing business 
 partly outside the State should be properly apportioned to 
 the State. 
 
84 REPORT OF SPECIAL TAX COMMISSION 
 
 VI. Taxation of Telephone Companies in Other States : — 
 A brief summary of the tax systems of other States appears 
 in this chapter. A detailed abstract for each State will be 
 found in Appendix II. 
 
 VII. Recommendations: — The Commission recommends a 
 tax on telephone companies measured by their gross operating 
 earnings, the State 's share of the earnings of companies doing 
 business partly outside the State to be apportioned accord- 
 ing to the number of transmitters in case of companies doing 
 an exchange business, and according to wire mileage in case 
 of those doing a long distance business. The rate recommended 
 is 3%%. It is recommended that real estate be subject to 
 local taxation as at present. The gross earnings tax is to be 
 in lieu of all other taxes except on real estate and property 
 not used exclusively in the telephone business. The shares 
 of stock of all the companies thus taxed,-and the bonds of Con- 
 necticut companies, are to be exempt from taxation in the hands 
 of the holders. 
 
 The tax recommended would increase the revenue of the 
 State from taxes on telephone companies by about $27,000. 
 
 I. THE PRESENT METHOD OP TAXATION IN 
 CONNECTICUT 
 
 Connecticut taxes telephone companies upon their trans- 
 mitters, imposing a tax of $1.10 upon each transmitter rented 
 or furnished by the company and used in the State. The com- 
 panies must pay also a tax of 35 cents on each mile of wire 
 used for transmitting either telephone messages which cross 
 the border of the State or telegraph messages between any 
 two places. 
 
 Bach company must report annually to the Tax Com- 
 missioner the number of its transmitters and the mileage 
 of its wires as above. These reports are examined, and cor- 
 rected if necessary, by the State Board of Equalization. These 
 taxes are in lieu of all other taxes on the personal property 
 of the company used exclusively in the telephone (or telegraph) 
 business, but real estate is subject to taxation in the town 
 where it is located. The shares of stock of the companies are 
 exempt from taxation in the hands of the owners. Bonds of 
 the companies are taxable as personal property of the owners. 
 (Gen. Stat. sec. 2438, as amended by Acts 1909, ch. 191 ; sec. 
 2439, as amended by Acts 1907, ch. 158, Acts 1909, ch. 191, 
 Acts 1911, ch. 172; sec. 2440, sec. 2441; Acts 1907, ch. 204.) 
 
 The tax is imposed upon all corporations, associations, part- 
 nerships, or persons doing a telephonic business in thd State. 
 It must be paid within the first twenty days of October each year. 
 It is based (1) upon the number of telephonic transmitters used 
 
TELEPHONE COMPANIES 85 
 
 in the State on the preceding July 1st, "and which telephonic 
 
 transmitters were furnished or rented by said corporation 
 
 to any person or party for telephone purposes," and (2) upon 
 the number of miles of wire "owned, leased, controlled and oper- 
 ated by said corporation and which said corporation, or 
 
 any person or party, then (on July 1st, last) used either for the 
 transmission of telephonic messages from any place in this or 
 another State across any portion of this State to a place in an- 
 other State, or for the transmission of telegraphic messages be- 
 tween any two places wheresoever." 
 
 The appropriate officer of each company must deliver to the 
 Tax Commissioner annually within the first ten days of 
 October, a sworn statement showing the number of transmitters 
 and the number of miles of wire as above. For failure to make 
 the required report within the time limited the officer is subject 
 to a fine of $500. For failure to pay the required tax the com- 
 pany shall forfeit twice the amount of the payment due. 
 
 The Board of Equalization is required to meet each year on 
 the first secular day after the expiration of the time for making 
 reports by telephone companies, to examine and correct such 
 returns, and to hear any party making such returns. If any such 
 returns are not made, or are erroneously made, the Board is re- 
 quired to make up the return on the best information it can ob- 
 tain. This return is reported to the company concerned. It is 
 final, and the taxes are to be paid on it. 
 
 In case of a company having only one central office or ex- 
 change and having at least 90% of its transmitters located in the 
 same town as its exchange, and not having its lines or exchange 
 connected in any way with any other telephone company or used 
 by any other telephone company, the tax is 70 cents on each 
 transmitter. At the present time there are no companies in the 
 State which come within these restrictions, and no company is 
 therefore entitled to the rate of 70 cents. 
 
 II. HISTORICAL DEVELOPMENT OF THE LAW 
 
 Telephone companies were first made subject to a special 
 state tax in 1882, when the law regarding the taxation of 
 telegraph companies was expanded so as to make its provis- 
 ions apply also to telephone companies. The law made all 
 telephone companies doing business in the State subject to a 
 gross receipts tax of 2 per cent, each year upon all receipts 
 for telephone messages paid to the company within the State. 
 This tax was in lieu of all other taxes on the property of the 
 company used exclusively in the telephone business. (Acts 
 1882, ch. 83) 
 
 The companies were required to report, by a sworn state- 
 ment, annually within the first 10 days of October the amount 
 of gross receipts as above during the year ending Sep- 
 tember 30 last. The tax must be paid within the first 20 days 
 of October. For failure to make the required report a penalty 
 of $500 was imposed, and for failure to pay the tax, a penalty 
 of twice the amount of the payment due. The State Board of 
 Equalization was required to examine and correct the state- 
 ments made and, if necessary, make out the required statement 
 
86 REPORT OP SPECIAL TAX COMMISSION 
 
 themselves from the best knowledge they could obtain, their 
 statement to be final. 
 
 In case any company should fail to make the report re- 
 quired of it by law, the State Treasurer was authorized to accept 
 from it $10,000 in lieu of all taxes due. 
 
 The law was slightly changed in 1884 by an amendment 
 which defined the gross receipts subject to taxation so as to 
 include, in addition to the receipts for messages, also the re- 
 ceipts "for the use of telephone instruments and 
 
 wires." (Acts 1884, ch. 72.) 
 
 The same statute changed the period for which reports 
 were to be made and taxes computed to the year ending June 
 30 last. For 1884, the year was from October 1, 1883, to June 
 30, 1884. (Acts 1884, ch. 72.) 
 
 The first radical change occurred in 1889. The gross re- 
 ceipts tax was now abandoned, for telephone as well as tele- 
 graph companies, both of which had been subject to the same 
 tax since 1882. In 1889 separate systems were enacted for 
 the two classes of corporations. Telephone companies were 
 now made subject to a tax of 70 cents upon transmitters, simi- 
 lar to the system in force at the present time, and a tax of 
 25 cents on each mile of wire used for messages from any State 
 outside Connecticut across a part of Connecticut to another 
 State outside, or for telegraphic messages between any two 
 places. This tax was in lieu of all other taxes on the personal 
 property of the companies used exclusively in the telephone 
 (or telegraph) business, but real estate was subject to tax- 
 ation in the town where located. (Acts 1889, ch. 178.) 
 
 At this time also (1889) the provision of the law of 1882 
 which authorized the State Treasurer to accept $10,000 in lieu 
 of the tax from a company which failed to make the required 
 report was repealed. 
 
 In 1907 the rate of the transmitter tax was increased to 
 $1.10. (Acts 1907, ch. 158.) 
 
 A change in the mileage tax was made in 1909. "When 
 first adopted in 1889, this tax of 25 cents a mile applied to 
 wires used for telephone messages crossing Connecticut in pass- 
 ing from one outside State to another State outside. This 
 clearly excluded messages originating or terminating in ..Con- 
 necticut, though they might cross the State line. This part of 
 the law was now changed so as to include all wires used for 
 messages "from any place in this or another State, across any 
 portion of this State, to a place in another State;" that is, for 
 messages crossing the State line, wherever they might have 
 originated or terminated. The tax remained upon all wires 
 used for telegraphic messages, as before. (Acts 1909, ch. 191.) 
 
 In 1911 the rate of the mileage tax was raised from 25 
 cents to 35 cents. (Acts 1911, ch. 172.) 
 
TELEPHONE COMPANIES 87 
 
 In 1911 was also added the provision reducing the trans- 
 mitter tax to 70 cents in the case of purely local telephone com- 
 panies, as described above. (Acts 1911, ch. 172.) 
 
 III. OPERATION OF THE PRESENT TAX SYSTEM 
 
 The Companies Subject to the Tax, and the Revenue in 
 1912: — There were in 1912 nine telephone companies doing 
 business in Connecticut and paying the State tax. One small 
 company, The Huntington Telephone Company, closely affili- 
 ated with the Southern New England Telephone Company and 
 paying its taxes through that company, is for that reason not 
 reported as subject to the tax. The following is a list of the 
 companies paying the tax to the State, with their respective 
 numbers of transmitters and miles of wire and the amount of 
 the taxes paid. 
 
 Southern New England Telephone Co. 
 
 96,712 transmitters, @$1.10, $106,383.20 
 
 New York Telephone Co. 
 
 2013 miles wire, @35c $ 704.55 
 
 2197 transmitters, @$1.10, 2,416.70 
 
 3,121.25 
 
 Westerly Automatic Telephone Co. 
 
 120 miles wire, @35c, 42.00 
 
 195 transmitters, @$1.10 214.50 
 
 256.50 
 
 Woodbury Telephone Co. 
 
 479 transmitters, @$1.10 526.90 
 
 Farmington Valley Telephone Co. 
 
 238 transmitters, @$1.10, 261.80 
 
 Sharon Telephone Co. 
 
 190 transmitters, @$1.10, 209.00 
 
 East Haven Telephone & Electric Co. 
 
 183 transmitters, @$1.10, 201.30 
 
 Stamford District Messenger & Telephone Co. 
 
 6 transmitters, @$1.10, 6.60 
 
 American Telephone & Telegraph Co. 
 
 32,164 miles wire, @35c, 11,257.40 
 
 2 transmitters, @$1.10, : 2.20 
 
 11,259.60 
 
 Total $122,226.15 
 
 Only three companies were taxed upon wires used for 
 interstate messages. Of these, the American Telephone & Tele- 
 graph Company does a purely long distance business, being 
 taxed on only two transmitters. ^The New York Telephone 
 Company and the Westerly Company do a large exchange 
 business besides the transmission of messages across the State 
 boundary. 
 
 The two large companies doing an exchange business are 
 the Southern New England, with 96,712 transmitters, and the 
 New York Telephone Company, with 2,197 transmitters be- 
 
88 REPORT OF SPECIAL TAX COMMISSION 
 
 sides its long distance wires. The other companies have from 
 6 to 479 transmitters. 
 
 The State Revenue in Past Years: — A statement showing 
 the receipts of the State from taxes on telephone companies, 
 from the introduction of the first law, in 1882, down to 1912, 
 is given in Appendix I. 
 
 IV. CRITICISM OF THE PRESENT TAX SYSTEM 
 
 The most important feature of Connecticut's present sys- 
 tem of taxing telephone companies is its arbitrary character. 
 This is. both an advantage and a defect. The arbitrary tax 
 upon transmitters and wire mileage is simple, easily under- 
 stood by any one, and easy to administer. It is based upon 
 certain objective facts which each company knows and can 
 report without labor or expense. The State officers concerned 
 can easily check the companies' reports and satisfy themselves 
 of their correctness. There is no place for the operation of 
 personal judgment or opinion, and practically no room for 
 evasion of the tax through dishonesty or carelessness on the 
 part of either the officers of the State or of the corporations. 
 In short, the law has all the advantages of ease and certainty 
 of administration. Such advantages are not to be lightly cast 
 aside. 
 
 On the other hand, the tax on transmitters and mileage 
 at arbitrary rates bears no necessary relation to the profits of 
 the business or to the tax-paying ability of the corporation. 
 At a given time, the rates might conceivably be computed 
 carefully so as to place a certain desired burden upon the 
 company in proportion to its profits, or the value of its prop- 
 erty, or some other index of tax-paying ability. There is no 
 evidence that when Connecticut adopted the rate of 70 cents 
 in 1889, and increased it to $1.10 in 1907, this was the 
 result of any such careful computation or was based upon 
 any definite principle of justice. 
 
 And even if the rates when introduced do bear exactly 
 the right relation to ability, changing conditions are sure to 
 destroy this assumed perfect adjustment sooner or later. It is 
 evident that such a change has been taking place in the tele- 
 phone business in this State. The great recent development 
 of the extension instrument and the private branch exchange 
 has meant a decreased average rental for each instrument. 
 Bach new extension transmitter brings only $6 or $8 rental to 
 the company; yet the tax is $1.10, the same as upon a trans- 
 mitter renting for $36.00 or more. It is stated by the South- 
 ern New England Telephone Company that in 1895 their 
 average rental per station was $57.30. In 1902, which marked 
 the start of the recent period of rapid development, the average 
 
TELEPHONE COMPANIES 89 
 
 rental had dropped to $33.52. In 1911 the average was $26.12. 
 Obviously the tax of $1.10 per station is coming to be a heavier 
 and heavier burden. We are saying nothing here as to the 
 actual fairness or unfairness of the rate, but merely calling 
 attention to its failure to conform to any principle of justice. 
 
 Thus far the State has gained at the expense of the tele- 
 phone companies, because of the^flat rate on transmitters. It 
 is entirely possible, however, that the reverse might occur. 
 For example, any increase of rates by the companies would, 
 of course, bring no new tax revenue to the State, in fact might 
 actually reduce the revenue by causing the discontinuance of 
 some stations. The present efforts of the companies to dis- 
 courage the $30.00 party wire station in favor of the private 
 wire at $36.00 tends to increase the company's revenue while 
 adding nothing to the taxes. That the future development of 
 the telephone business may bring about still other changes 
 which cannot be foreseen at the present time is hardly open 
 to question. It is quite possible that the present system might 
 sometime prove disadvantageous to the interests of the State. 
 
 What has been said thus far relates especially to the tax 
 on transmitters. This method of taxation obviously can be 
 used only for telephone companies doing an exchange business. 
 Companies engaged in long distance business would largely 
 escape under a system based upon the number of transmitters. 
 For this reason the Connecticut tax upon mileage of wires 
 used for interstate messages was adopted. The same defects 
 which have been pointed out in connection with the transmit- 
 ter tax are present in even greater degree when it comes to 
 the tax on wire mileage. Wire mileage is even less reliable 
 as an index of tax-paying ability. As will be shown later, 
 the result of this method of taxation in Connecticut has been 
 that, under the rate of 35 cents a mile, the American Telephone 
 & Telegraph Company, the one company doing exclusively 
 long distance business, has been bearing a very light burden 
 of taxation. 
 
 The present basis of the telephone tax is not only arbitrary 
 as applied to a given company under different conditions, but 
 is also very unequal as between different companies. For ex- 
 ample, the tax on transmitters collected in 1912 from the 
 Southern New England Telephone Company amounted to 
 3.38% of the Company's gross earnings during the year ending 
 June 30, 1912, whereas in the case of the small Connecticut 
 companies the tax took anywhere from 4.18% to 7.69% of 
 the gross earnings. 
 
 V. THE GROSS EARNINGS TAX 
 Introductory: — We have seen the fundamental defect of a 
 
90 REPORT OP SPECIAL TAX COMMISSION 
 
 tax based upon an index as arbitrary as the transmitter and 
 the wire mileage. The problem is to discover a basis for tbe 
 tax which will relate it more closely to the tax-paying ability 
 of the companies, while not sacrificing the simplicity, certainty, 
 and administrative advantages of the present system. Tour 
 Commission is convinced that the solution is the tax upon gross 
 earnings. The character of the gross earnings tax, its ad- 
 vantages, and its general manner of operation have been dis- 
 cussed in Chapter I above. It remains here to discuss the par- 
 ticular bearing of the gross earnings tax upon telephone com- 
 panies. 
 
 A. THE RATE OF THE GROSS EARNINGS TAX 
 
 The Problem of the Rate: — The first question that arises 
 in imposing the gross earnings tax upon any particular class 
 of corporations is, what shall the rate be ? As already explained 
 in Chapter I above, approximate justice for a given class of 
 corporations is to be obtained by determining a tax rate 
 which will make the burden upon the corporations practically 
 equivalent to the burden of the general property tax upon 
 wealth in general. . It has also been shown in Chapter I that 
 with certain qualifications, a rate of 1 per cent, upon true 
 market value may be assumed to be about the rate of taxation 
 normally borne under the general property tax. The problem 
 then is to determine what rate of tax upon the gross earnings 
 of telephone companies will produce a burden practically 
 equivalent to a tax of 1 per cent, upon the value of the prop- 
 erty of the companies. The different tests which may be used 
 to determine such a rate for a given class of corporations have 
 been explained in Chapter I. It is now necessary to apply 
 these tests to ascertain a reasonable rate for the tax upon 
 telephone earnings. 
 
 Statistics of the Companies Subject to Taxation : — The fol- 
 lowing statistics are presented relating to the telephone com- 
 panies subject to taxation in Connecticut. All of the com- 
 panies subject to the tax are included except the Stamford 
 District Messenger and Telephone Company. This company's 
 telephone business is so small (it is taxed on- only 6 trans- 
 mitters) that the attempt to present statistics comparable with 
 those of the other companies would be misleading rather than 
 helpful in drawing any conclusions. 
 
 In the case of the small Connecticut companies, no attempt 
 has been made to present the market value of the securities. 
 These are small local companies. They have no bonded debts, 
 their stocks are not regularly on the market, and no conclusion 
 of value can be drawn from a study of the market value of 
 their stock. 
 
TELEPHONE COMPANIES 
 
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TELEPHONE COMPANIES 93 
 
 EXPLANATORY NOTES ON STATISTICS OF TELEPHONE 
 COMPANIES 
 
 The statistics of telephone companies presented here have 
 been obtained in part from the published reports of the com- 
 panies, in part from reports made to the Connecticut Public 
 Utilities Commission, and in part from direct correspondence 
 with the officers of the companies. In all cases the figures have 
 been verified by examination of the statements or accounts of 
 the companies. In this work the Commission has received 
 most courteous and valuable assistance from the officers of the 
 Southern New England Telephone Co. and the American Tele- 
 phone & Telegraph Co. 
 
 We have followed as far as possible the accounting rules 
 of the Interstate Commerce Commission. 
 
 For the purposes of the special problem of taxation it has 
 been necessary to make changes from the figures ordinarily 
 published under certain items. The following explanations 
 will indicate where important changes have thus been made, 
 besides showing how certain other figures have been obtained. 
 
 (1) Bonded Debt and Other Borrowed Capital: — Under this 
 head the attempt has been made to arrive at the actual invest- 
 ment of capital in the business as distinguished from current 
 accounts or mere temporary loans. For a large company having 
 most of its debt funded, (for example the Southern New Eng- 
 land and the New York Telephone Companies) short time notes 
 are not included. For the small cdmpanies which have no 
 bonds, capital is generally obtained by borrowing on notes, and 
 such notes have been included. The attempt has been made to 
 reach the most accurate result possible by studying the state- 
 ment of each company individually. 
 
 (2) Net Book Value: — This figure is intended to show the 
 equity in the corporation's property belonging to investors 
 therein. It is ordinarily represented by capital, surplus, un- 
 divided profits, bonds and such other capital obligations as 
 properly represent an investment in the corporation. These 
 figures are all book values as given in the balance sheets of the 
 companies. 
 
 (3) Net Plant Value: — This item is composed of plant, ma- 
 terials and supplies, real estate, etc., from which is deducted 
 any reserve for depreciation or replacement. These figures also 
 are book values taken from the companies' balance sheets. 
 
 (4) Gross Operating Earnings: — From the amount usually 
 reported under this head has been deducted (a) uncollectible 
 items (the actual amount uncollected during the given year in 
 spite of the fact that some may be collected in a later year.) 
 (b) Refunds, (c) Sums collected by one company as agent for 
 another company; for example, the small Connecticut companies 
 deduct sums collected for tolls and later paid to the Southern 
 New England Co. (d) Earnings from real estate not used ex- 
 clusively in the business. 
 
 (5) Operating Expenses: — From the amount as usually 
 reported under this head there has been deducted (a) uncol- 
 lectible items if previously included as expenses, (b) refunds 
 if previously included, (c) payments to other companies of 
 sums collected as their agents, and (d) all taxes including the 
 Federal Corporation Tax. Taxes are usually considered a proper 
 item of operating expenses. In studying the tax problem, how- 
 ever, it is, of course, necessary to eliminate the taxes here. 
 
94 REPORT OP SPECIAL TAX COMMISSION 
 
 (6) The Small Connecticut Companies: — The- figures for 
 the small Connecticut companies have in some cases to be 
 estimated, involving some exercise of judgment and the oc- 
 casional use of somewhat arbitrary figures. The figures given 
 may be relied upon as representing fairly the actual conditions as 
 determined by a careful study of the statements and accounts 
 of each individual company. 
 
 Comparison with a Tax on Market Value of Securities: — 
 Some indication of what would be a fair tax upon a corpora- 
 tion may be obtained by assuming a tax equal to 1 per cent, 
 of the total value of the corporation's securities. For this pur- 
 pose we may take the market value of the company's stock and 
 add the par value of its bonds, sometimes including certain 
 other obligations. (It might occasionally be necessary to take 
 bonds also at market value. Ordinarily this is not necessary.) 
 This represents approximately the actual value which the 
 market places upon the total investment in the corporation. 
 This is practically the basis of the present method of taxing 
 railroads in Connecticut. 
 
 In the case of the Southern New England Telephone Com- 
 pany, such a tax would amount to $134,857.76, which would be 
 equivalent to a tax of 4.30 per cent, of the gross earnings of 
 the company. In the case of the "Westerly Automatic Tele- 
 phone Company — which has no bonded debt — a tax of 1 per 
 cent, upon the market value of the capital stock would amount 
 to $1,500, which would be equivalent to a tax of 4.08 per cent, 
 of the gross earnings of the company. These two are the only 
 companies to which this test can be applied. The American 
 Telephone & Telegraph Company is a large holding company, 
 and no conclusion as to the fair rate of a tax on gross earnings 
 from operation can therefore be based upon the total value of 
 its capital stock and bonds, since, their value depends largely 
 on income from investments. In the other cases the market 
 value of the stock is not known, and the calculation is there- 
 fore impossible. From the two companies to which we have 
 applied the test it would appear that taxes on gross earnings 
 of 4.30 per cent, and 4.08 per cent respectively would impose 
 a burden equal to 1 per cent, of the value of the securities. 
 
 Comparison with a Tax on Book Value: — A somewhat 
 similar test consists in calculating the amount of a tax of 1 per 
 cent, upon the net book value of the investment, that is, upon 
 the sum of the capital, surplus, undivided profits, and bonded 
 debt, all at book value. The following table shows, for each 
 of the companies to which this test is applicable, the amount 
 of such a tax and the equivalent percentage of gross earnings. 
 The American Telephone & Telegraph Company is omitted for 
 the reason explained above. The New York Company has been 
 
TELEPHONE COMPANIES 95 
 
 included, although it also has extensive stock holdings which 
 affect its book value. 
 
 TAX OF ONE PER CENT. ON NET BOOK VALUE. 
 
 Per Cent 
 Amount of Gross 
 
 of Tax: Earnings: 
 
 Southern New England Telephone Co., $ 103,363.39 3.29% 
 
 New York Telephone Co., 1,937,957.70 5.00% 
 
 Westerly Automatic Telephone Co., 1,442.13 3.94% 
 
 Woodbury Telephone Co 464.45 4.99% 
 
 Farmington "Valley Telephone Co 522.82 8.34% 
 
 East Haven Telephone & Electric Co., . . 57.63 2.20% 
 
 Sharon Telephone Co., 346.12 5.50% 
 
 From this it appears that to impose a burden equal to 
 1 per cent, of the book value of the several companies, the 
 gross earnings would have to be taxed at rates varying all the 
 way from 2.2 per cent, to 8.34 per cent, a fair average being 
 probably somewhere in the neighborhood of 4 per cent. 
 
 Comparison with a Tax on Net Plant Value : — A third test 
 of the proper rate of the gross earnings tax, which is, however, 
 less reliable than the two already used, consists in calculating 
 the amount of a tax of 1 per cent, upon the actual value of the 
 plant belonging to each company. It is, of course, obvious 
 that the mere value of the plant of a telephone company can- 
 not be taken as the full measure of its tax-paying ability. A 
 tax on gross earnings could therefore be fairly imposed at 
 somewhat higher rates than those resulting from this calcu- 
 lation. The following figures showing the results of such a 
 calculation are given for what they are worth. They show 
 for each company the amount of a tax of 1 per cent, upon the 
 net value of its plant, with the equivalent percentage of gross 
 earnings : 
 
 TAX OF ONE PER CENT. ON NET PLANT VALUE 
 
 Per Cent 
 Amount of Oross 
 
 of Tax: Earnings: 
 
 Southern New England Telephone Co.,.$ 103,824.80 3.31% 
 
 New York Telephone Co., 1,040,545.85 2.69% 
 
 Westerly Automatic Telephone Co., 1,351.70 3.69% 
 
 American Telephone & Telegraph Co., . 439,133.39 4.07% 
 
 Woodbury Telephone Co 463.51 4.98% 
 
 Farmington Valley Telephone Co., 281.28 4.49% 
 
 East Haven Telephone & Electric Co., . . 64.38 2.46% 
 
 Sharon Telephone Co., 334.87 5.33% 
 
 From these figures it appears that to impose a tax equal 
 to 1 per cent, of the plant value of the several companies, the 
 gross earnings tax should be imposed at rates varying all 
 the way from 2.46 per cent, to 5.33 per cent. As already sug- 
 gested the rate for the gross earnings tax should properly be 
 somewhat higher than the rates indicated by this calculation. 
 
96 REPORT OP SPECIAL TAX COMMISSION 
 
 Comparison with a Tax on Capitalized Net Earnings:— 
 
 In Chapter I, we have explained at length what is, on the 
 whole, the most accurate method of determining the proper 
 rate of a tax on gross earnings. This amounts practically to 
 imposing a tax equal to 1 per cent, upon the capitalized value 
 of the net earnings of the companies in question, using as the 
 rate of capitalization the rate of yield actually obtained by in- 
 vestment in the companies' stock at present market values and 
 present dividend bases. This is essentially the method em- 
 ployed by the California Tax Commission of 1906. 
 
 As explained in Chapter I, the formula consists in divid- 
 ing the prevailing ratio of net earnings to gross among the, 
 class of corporations concerned by the rate of capitalization 
 found to be proper for this class of corporations, the rate of 
 capitalization being the rate yielded on the average by invest- 
 ment in the stock of the companies plus 1 per cent, for taxes. 
 As already indicated in the discussion, in Chapter 1, the rate 
 of capitalization thus determined may fairly be further in- 
 creased somewhat to allow for the fact that in obtaining new 
 capital a corporation normally finds it necessary to offer a 
 yield somewhat greater than is obtained at the time by inves- 
 tors in its stock. 
 
 "We must first ascertain what is the prevailing ratio of net 
 earnings to gross among telephone companies, and in particu- 
 lar among those subject to taxation by the State of Connecti- 
 cut. The following table gives this fact for each of the com- 
 panies subject to taxation by Connecticut: 
 
 Ratio Net 
 Earnings 
 to Gross. 
 
 Southern New England Telephone Company, 26.66% 
 
 New York Telephone Company, 30.76% 
 
 Westerly Automatic Telephone Company 34.87% 
 
 American Telephone & Telegraph Company, 42.07% 
 
 Woodbury Telephone Company 20.46% 
 
 Farmingon Valley Telephone Company, 50.23% 
 
 East Haven Telephone & Electric Company, 48.76% 
 
 Sharon Telephone Company, 32.39% 
 
 In drawing conclusions from these figures it must be borne 
 in mind that the Southern New England Telephone Company 
 is by all means the most important one in Connecticut and that 
 too much weight must not be given to the results shown by the 
 American Telephone & Telegraph Company on, account of the 
 peculiar character of this company's earnings. Moreover, it 
 must be remembered that aside from the Southern New Eng- 
 land Company the other Connecticut local companies are so 
 small that no great weight must be attached to the results 
 shown by their business. The Southern New England Company 
 shows a ratio of net earnings to gross of 26.66 per cent. All 
 
TELEPHONE COMPANIES 97 
 
 of the other companies, with the exception of one small Con- 
 necticut company, show a considerably higher ratio. We are 
 probably justified in taking 30 per cent, as a moderate esti- 
 mate of the prevailing ratio of net earnings to gross among 
 the telephone companies with which we are specially concerned. 
 This conclusion agrees also very closely with the results of in- 
 vestigations by the United States Census Office. 
 
 The following figures are from special reports entitled 
 "Telephones and Telegraphs, 1902" and "Telephones, 1907," 
 published in 1906 and 1910 respectively. 
 
 TELEPHONE COMPANIES OF THE UNITED STATES 
 
 1902 1907 
 
 All Systems, Commercial and Mutual: 
 
 Gross Operating Earnings $81,599,769 $174,868,918 
 
 Operating Expenses 56,867,062 118,248,576 
 
 Net Earnings 24,732,707 56,620,342 
 
 Ratio of Net to Gross Earnings 30.31% 32.38% 
 
 Commercial Systems, (Exclusive of Mutual): 
 
 Gross Operating Earnings $81,296,444 $174,194,500 
 
 Operating Expenses 56,591,746 117,690,964 
 
 Net Earnings 24,704,698 56,503,536 
 
 Ratio of Net to Gross Earnings 30.39% 32.44% 
 
 From these figures it appears that the prevailing ratio of 
 net earnings to gross for all the telephone companies of the 
 United States in 1902 was a little over 30 per cent, and in 1907 
 a little over 32 per cent. 
 
 We must next determine the proper rate of capitalization. 
 
 , The following table shows the market value of the stock, the 
 
 dividend basis, and the rate of yield of three of the companies 
 
 with which we are specially concerned, being the only ones 
 
 from which both of these facts are obtainable. 
 
 Market 
 Dividend Value of Rate of 
 Bate Stock Yield 
 
 Southern New England Telephone Co., 7% 142 4.93% 
 
 Westerly Automatic Telephone Co., 7% 120 5.83% 
 
 American Telephone & Telegraph Co., 8% 143 5.59% 
 
 If to the rates of yield in the above table we add 1 per 
 cent, to allow for taxes we obtain rates of 5.93 per cent., 6.83 
 per cent., and 6.59 per cent., respectively, for the three com- 
 panies. From this it would appear that 7 per cent, would be a 
 fair rate of capitalization for these companies, after making 
 all proper allowances. The California Tax Commission of 1906 
 took as its rate of capitalization 5.5 per cent., which is the rate 
 ascertained by the United States Census as representing fairly 
 the yield obtained upon investment in the stock of the tele- 
 phone companies of the United States in 1902. In comparison 
 7 per cent, appears liberal. Dividing the ratio of net earnings 
 8 
 
98 REPORT OF SPECIAL TAX COMMISSION 
 
 to gross of 30 per cent, by a rate of capitalization of 7 per 
 cent, we arrive at 4.27 per cent, as the proper rate of the gross 
 earnings tax as indicated by this formula. The California Tax 
 Commission arrived at 3.6 per cent., this result being due, 
 however, to the fact that the ratio of net earnings to gross 
 for the telephone companies in California at that time was 
 found to be about 20 per cent., which is very much lower than 
 the ratio shown by the companies doing business in Connecti- 
 cut at the present time, and. also lower than the average for 
 the whole United States in 1902 and in 1907. 
 
 Summary of Evidence as to a Fair Bate: — The foregoing 
 discussion would seem to point to the conclusion that a gross 
 earnings tax at the rate of 4 per cent, would impose a reason- 
 able burden of taxation upon the telephone companies under 
 consideration. It is obvious, of course, that such evidence as 
 this can never be an absolutely exact indication of what the 
 correct rate should be. Nevertheless, the tests which have been 
 applied agree closely enough to warrant at least the conclu- 
 sion that a 4 per cent, tax on gross earnings would not impose 
 an unreasonable burden on the corporations in question. 
 
 Ratio of Taxes Now Paid to Gross Earnings : — As further 
 evidence upon the fairness of a rate of 4 per cent, on gross 
 earnings we may ask; what taxes are the companies actually 
 paying today? The following table shows the total amount 
 of taxes paid by each company for the year 1912, and also 
 shows what percentage of gross earnings these taxes amounted 
 to. It should be borne in mind that these are the totals 
 of all State and local taxes paid by each of the companies, 
 and that they therefore include taxes paid in other States 
 than Connecticut by companies doing business in other 
 States. The object is to show the present total burden of 
 State and local taxation upon the companies in question. The 
 United States corporation tax is not included. The American 
 Telephone & Telegraph Company has not been included. Being 
 a large holding company, it is impossible to say what part of 
 its total taxes should be assigned to its operating department. 
 
 STATE AND LOCAL TAXES PAID IN 1912 
 
 Ratio 
 of Taxes 
 Total Taxes to Gross 
 
 Paid. Earnings. 
 
 Southern New England Telephone Co., $ 116,839.51 3.72% 
 
 New York Telephone Co., (1911) 1,784,837.57 4.61% 
 
 Westerly Automatic Telephone Co., . . 711.95 1.94% 
 
 "Woodbury Telephone Co., 526.90 5.66% 
 
 Parmington Valley Telephone Co., 261.80 4.18% 
 
 East Haven Telephone & Electric Co., 201.30 7.69% 
 
 Sharon Telephone Co., 412.16 6.56% 
 
TELEPHONE COMPANIES 99 
 
 Prom these figures it appears that the Westerly Company 
 is paying a very moderate tax when measured by gross earn- 
 ings. The Southern New England pays about 3% per cent, 
 of gross earnings while all the other companies are paying 
 taxes considerably in excess of 4 per cent, of their gross earn- 
 ings. A tax on gross earnings at the rate of 4 per cent, would 
 mean a reduced tax burden for these companies, and only a 
 small increase for the Southern New England Company. In 
 particular, the fact again appears that the present tax system 
 is especially heavy upon the small Connecticut companies, if 
 gross earnings are taken as the basis of judgment. 
 
 Taxes Paid by the Telephone Companies of the United 
 States: — Further evidence upon the question of the proper 
 rate of the gross earnings tax on telephone companies appears 
 in the following figures published by the United States Census 
 in 1906 and 1910, in special reports entitled "Telegraphs and 
 Telephones, 1902" and "Telephones, 1907." 
 
 TELEPHONE COMPANIES OP THE UNITED STATES 
 
 1902 1907 
 
 All Systems, Commercial and Mutual: 
 
 Gross Operating Earnings $81,599,769 $174,868,918 
 
 Taxes 2,944,281 6,368,731 
 
 Ratio of Taxes to Gross Earnings . . . 3.609% 3.642% 
 
 Commercial Systems (Exclusive of Mutual) : 
 
 Gross Operating Earnings $81,296,444 $174,194,500 
 
 Taxes 2,940,430 6,358,290 
 
 Ratio of Taxes to Gross Earnings . . . 3.617% 3.650% 
 
 According to these figures, the taxes actually paid by all 
 the telephone companies of the United States amounted to 
 3.61 per cent, of their gross earnings in the year 1902, and 
 3.64 per cent in 1907. 
 
 According to the Annual Report of the Directors of the 
 American Telephone & Telegraph Company for 1911, the total 
 of all taxes paid by the entire Bell Telephone System in the 
 United States in 1911 was $8,965,922, out of total gross earn- 
 ings of $179,477,998. The taxes paid were therefore almost 
 exactly 5% of their gross earnings. It must be kept in mind, 
 however, that the tax accounts of the telephone companies are 
 somewhat misleading, on account of the common practice of 
 including various things that are not taxes (such as assess- 
 ments, fees, expenses of their tax departments, etc.) and on ac- 
 count of the frequent setting up of a somewhat arbitrary tax 
 reserve. 
 
 The Taxation of Real Estate : — In the foregoing inquiry it 
 has been assumed that the rate to be determined is the one 
 which will place a tax burden on the corporations equivalent 
 to the burden of the general property tax upon wealth in 
 
100 REPORT OF SPECIAL TAX COMMISSION 
 
 general. It is obvious, therefore, that the gross earnings tax 
 as thus worked out should be the only tax paid by the corpor- 
 ation within the State; in other words, that it should be in 
 lieu of all other taxes, both State and local, upon the corpora- 
 tion or its property used exclusively in the business. At 
 present telephone companies in Connecticut are subject to tax- 
 ation on their real estate in the towns where it is located, the 
 State tax on transmitters being in lieu of all other taxes except 
 upon real estate and upon other property not used exclusively 
 in the telephone business. It does not seem advisable to deprive 
 the towns of their present right to levy taxes upon real estate 
 of telephone companies. It therefore becomes necessary, in 
 view of the retention of the local real estate taxes, to make 
 proper allowance in the State tax on gross earnings. This ad- 
 justment may be accomplished in either of two ways : 
 
 (1) The companies may be allowed to deduct from the 
 gross earnings tax paid to the State the amount of their taxes 
 upon real estate, the balance being the amount payable to the 
 State treasury. In this way the gross earnings tax is made 
 the measure of the total taxes paid by each company. The 
 company is guaranteed a total tax burden of a certain definite 
 amount of its gross receipts, and it becomes practically a matter 
 of indifference to the company how high its real estate taxes 
 
 .may be. This latter consideration is indeed a defect. Assess- 
 ment of real estate is in the hands of local officers. If the com- 
 pany deducts its real estate taxes from its State tax, it has no 
 motive leading it to resist excessive taxation of its real estate. 
 The towns may place high valuations upon the company's real 
 estate and impose a heavy tax rate, without leading to com- 
 plaint from the company, since its total tax burden is not 
 thereby affected. The result of this may be excessive taxation 
 by the towns at the expense of the State revenue. 
 
 (2) An alternative adjustment would be to leave the com- 
 panies subject to local taxation on real estate without deduc- 
 tion, compensating them for the real estate taxes by a corres- 
 pondingly lower rate of the State tax on gross earnings. This 
 arrangement would avoid the objection to the first method, 
 since it would leave each company with an interest in the local 
 taxation of its real estate, and it would also have the ad- 
 vantage of assuring to the State a revenue which would al- 
 ways amount to a certain definite part of the gross revenue 
 of the companies. ' The State's revenue would be affected 
 neither by excessive local taxation of real estate, nor, on the 
 other hand, by investment of the companies in valuable real 
 estate which might otherwise cut into the State's revenue 
 through deduction of heavy local taxes. 
 
 The Southern New England Telephone Company, the New 
 
TELEPHONE COMPANIES 101 
 
 York Telephone Company and the American Telephone & Tele- 
 graph Company are the only companies paying taxes on real 
 estate in Connecticut. The Southern New England Company 
 held real estate in Connecticut cities, towns, and boroughs, 
 assessed in 1911 at $622,680, and paid real estate taxes during 
 the year ending June 30, 1912, amounting to $10,456.31. The 
 New York Company was assessed in 1912 on its real estate in 
 Connecticut, $15,000 for town purposes and $19,800 for bor- 
 ough purposes. Its total real estate taxes were $352.80 in 1912. 
 The American Telephone & Telegraph Company held real es- 
 tate in Connecticut valued at $9,514, and paid taxes on it 
 amounting to $124.37. 
 
 The real estate taxes of the Southern New England Tele- 
 phone Company amounted to 0.33 per cent of its gross earnings. 
 Corresponding calculations cannot be made for the New York 
 Company and the American Telephone & Telegraph Company 
 without first determining what shares of their gross earnings 
 are to be apportioned to Connecticut. Apportioned according 
 to transmitters, as is to be explained below, the ratio for the 
 New York Telephone Company works out practically the same 
 as for the Southern New England; to be exact, 0.38 per cent. 
 For the American Telephone & Telegraph Company, the real 
 estate taxes paid in Connecticut are an insignificant amount, 
 less than 0,02 per cent, of its gross earnings, apportioned to 
 Connecticut according to wire mileage, (as is explained below). 
 It appears therefore that reduction in the rate of the gross 
 earnings tax by about one-third or one-fourth of 1 per cent, 
 would be a fair allowance for local taxes on real estate. For 
 the reasons stated, your Commission believes that such a reduc- 
 tion in the rate is preferable to allowing the deduction of real 
 estate taxes from the State tax on gross earnings. 
 
 Conclusions as to the Bate of the Gross Earnings Tax: — 
 From all the evidence that has been presented we are warrant- 
 ed in concluding that a gross earnings tax at the rate of 4 per 
 cent, would impose a reasonable burden upon the telephone 
 companies. The reasonableness of the 4 per cent, rate has been 
 shown by comparison with various other possible bases. It has 
 also been shown that the tax at such a rate would be, in most 
 cases, lower than the tax burden actually borne by the cor- 
 porations in question, taking account of the total taxes paid 
 by them at the present time. It has been shown further that 
 in fixing a definite rate an allowance of about one-third or one- 
 fourth of 1 per cent, will be ample to compensate for local tax- 
 ation of real estate. In view of these conclusions, it is the 
 opinion of your Commission that the rate of the gross earnings 
 tax should be 3% per cent., without deduction of taxes upon 
 real estate, which shall continue to be subject to taxation in 
 
102 REPORT OP SPECIAL TAX COMMISSION 
 
 the towns where located. A gross earnings tax at this rate 
 would mean ' an increased revenue so far as the State of Con- 
 necticut is concerned, as is shown in detail below. 
 
 B. THE APPPORTIONMENT OF INTERSTATE 
 EARNINGS 
 
 The Problem of Apportionment: — In all cases where a 
 State taxes the gross earnings of corporations doing business 
 partly outside the State it is necessary to apportion to the 
 State its share of the total earnings. It becomes necessary, 
 therefore, to determine the best method for apportioning to 
 the State of Connecticut her share for taxation of the gross 
 earnings of those telephone companies whose business is done 
 partly outside the State. There are four such companies: 
 the Sharon Telephone Company, the Westerly Automatic Tele- 
 phone Company, the New York Telephone Company, and the 
 American Telephone & Telegraph Company. The first three 
 do an exchange business. The fourth is a long distance com- 
 pany. 
 
 Various Methods of Apportionment : — To make the appor- 
 tionment theoretically exact, we should assign to Connecticut 
 all earnings from business done wholly within the State; we 
 should assign to outside States all business done wholly with- 
 out the State ; we should then assign to Connecticut her share 
 of the business which crossed the State line, according to some 
 equitable basis, the fairest being possibly the number of miles 
 travelled by each message in question. 
 
 "While this method would, of course, result in an exact 
 apportionment of the gross earnings, it is subject to the ob- 
 jection that it would involve a complicated system of account- 
 ing by the companies and would lead to a result which would 
 be difficult to check up by the State officials concerned and 
 which the public would find difficulty in understanding. Such 
 difficulties should be avoided, if possible, by the adoption of 
 some simple rule of apportionment, even though it be some- 
 what arbitrary. 
 
 In the case in question there are three possible methods : 
 
 (1) We may assign to Connecticut that part of the gross 
 receipts which were actually received within the State of Con- 
 necticut. This is a method which was formerly followed in the 
 taxation of telephone companies by this State. 
 
 (2) The State's share of the total gross earnings may be 
 apportioned according to the proportion which the total num- 
 ber of miles of wire in the State bears to the total number of 
 miles of wire of the whole system. 
 
TELEPHONE COMPANIES 103 
 
 (3) The apportionment may be according to the number 
 of telephone transmitters (stations) in the State as compared 
 with the total number in the whole system. 
 
 The first of these methods is too arbitrary. It is largely 
 a matter of accident whether a message crossing the State bor- 
 der is paid for in one State or the other. The location of the 
 main office of the company may lead to a disproportionate part 
 of the revenue (being paid in one State or another. Tins 
 method of apportionment also would be less easy to check up 
 by the State officials than the other methods, which are now 
 to be discussed. 
 
 On the other hand, apportionment either according to 
 wire mileage or according to transmitters avoids these disad- 
 vantages. Both methods are simple, easily understood by any 
 one, based upon data which are always known by the com- 
 panies concerned, and can be readily verified by the State 
 officers. The choice of either method will depend upon thj 
 character of business done. For companies doing an exchan t, i 
 business, the transmitter basis more nearly represents the 
 actual distribution of the earning power of the company. 
 
 It is doubtless for this reason that when Connecticut 
 adopted the present system of taxing telephones, the trans- 
 mitter was taken as the basis; the difference being, of course, 
 that the present tax is a flat rate upon the transmitter, whereas 
 the proposed system would use the number of transmitters only 
 to apportion Connecticut's share of the gross earnings, upon 
 which the tax would . then be based at a definite rate. It is 
 interesting to note that in the case of the New York Telephone 
 Company the earnings actually received in Connecticut are very 
 nearly the same as Connecticut's share of the gross earnings 
 apportioned according to stations. 
 
 Method of Apportionment Recommended: — The Commis- 
 sion therefore recommends that for telephone companies doing 
 an exchange business, whose business extends outside the 
 State of Connecticut, the gross earnings apportioned to Con- 
 necticut be determined according to the number of transmit- 
 ters in Connecticut as compared with the total number of the 
 whole system. The result of this method of apportionment on 
 the companies concerned is shown below; the figures of trans- 
 mitters being as of June 30, 1912 : 
 
 Sharon Oo. Westerly Co. New York Oo. 
 
 Total number of Stations, 311 1,122 838,974 
 
 Stations in Connecticut, . . 190 195 2,039 
 Per Cent, of Stations in 
 
 Connecticut, 61.09% 17.38% 0.24% 
 
 Total Gross Earnings, ...$6,287.41 $36,610.89 $38,727,459.73 
 Gross Earnings Apportioned 
 
 to Connecticut, 3,840.97 6,362.97 92,945.90 
 
 In the case of a company doing a long distance business 
 only, apportionment by transmitters is obviously out of the 
 
104 REPORT OF SPECIAL TAX COMMISSION 
 
 question. Apportionment according to mileage of wires is un- 
 doubtedly the best method. This should be the number of miles 
 of wires, not of line, and should include all wires owned and 
 leased and actually in use during the year in question. The re- 
 sult in the case of the American Telephone & Telegraph Com- 
 pany, the only company concerned, is as follows: 
 
 Total number of miles of wire, 475,924 
 
 Miles of wire in Connecticut, 32,164 
 
 Percentage of mileage in Connecticut, 6.75% 
 
 Total Gross Earnings, $10,788,187.00 
 
 Gross Earnings apportioned to Connecticut, .... 728,202.62 
 
 C. THE QUESTION OF CONSTITUTIONALITY 
 
 As has been shown in Chapter I, there is absolutely no 
 question of the right of a State to impose a tax upon corpor- 
 ations measured by their gross earnings, even though part of 
 these earnings be derived from interstate commerce, provided 
 the tax in question is an exclusive tax in lieu of all other taxes 
 and is so devised as to be a fair commutation of a tax upon 
 the property of the corporations. Since, however, the Com- 
 mission has recommended a tax on gross receipts in addition 
 to the local taxes on real estate, we must ask whether this ar- 
 rangement will cast any doubt upon the constitutionality of 
 the gross earnings tax. 
 
 It has been made clear that the rate recommended for the 
 gross earnings tax was chosen expressly in order to make the 
 sum of the two taxes a fair commutation of the property tax 
 upon the entire property of the corporations. Such an arrange- 
 ment would entirely satisfy the spirit of the decisions of the 
 Supreme Court on this question. The specific question, how- 
 ever, seems never to have been passed upon. 
 
 From the wording of the opinion in Galveston, Harris- 
 burg, and San Antonio Railway Company vs. Texas — 210 U. S. 
 217 — it would appear, however, that such an arrangement is 
 within the power of a State. In reviewing the opinion in Maine 
 vs. Grand Trunk Railway Company the Court said as follows ; 
 
 "This seems at first sight like a reaction from Phila. and 
 So. Mail Steamship Co. case. But it may not have been. The 
 estimated gross receipts per mile may be said to have been made 
 a measure of the value of the property per mile. That the effort 
 of the State was to reach that value, and not to fasten on the 
 receipts from transportation as such, was shown by the fact 
 that the scheme of the statute was to establish a system. The 
 buildings of the railroad and its lands and fixtures outside of 
 its right of way were to be taxed locally, as other property was 
 taxed, and this excise with the local tax were to be in lieu of 
 all taxes. The language shows that the local tax was not ex- 
 pected to include the additional value gained by the property 
 being part of a going concern. That idea came in later. The 
 
TELEPHONE COMPANIES 105 
 
 excise was an attempt to reach that additional value. The two 
 taxes together fairly may be called a commutation tax." 
 
 These words seem to imply clearly that a combination of 
 a tax on gross receipts with a tax on certain of the property 
 of the corporation is legal provided the two taxes together are 
 intended to form a system taxing the total property of the cor- 
 poration. It is, of course, true that this opinion was not ex- 
 pressed with regard to the case before the Court, but is merely 
 a review of an earlier decision in another case. Even so, how- 
 ever, it can apparently be taken as the opinion of the Court 
 on this point. 
 
 In the particular matter before the Court in the Texas 
 case the law in question was declared void on the ground that 
 it was not an exclusive tax, but was in addition to another 
 tax upon the property of the companies. This appears at first 
 to be a contradiction to the interpretation just expressed of the 
 Grand Trunk case. The exact wording used, however, shows 
 that there is no such contradiction. The Texas property tax 
 was apparently a tax on the total property of. the corporation. 
 It appears (to use the words of the Court) "that another tax 
 on the property of the railroad is upon a valuation of that 
 property taken as a going concern." The gross receipts tax 
 was also upon the company as a going concern. For this rea- 
 son the Court held that the gross receipts tax was a direct bur- 
 den upon interstate commerce. 
 
 The distinction between the two cases appears to turn on 
 the fact that the tax upon the property of the Maine railroads 
 was only upon a portion of their property, and that the gross 
 receipts tax was intended to reach the rest of the value of the 
 whole property of the railroads, whereas in the Texas case 
 there were two taxes, both reaching the whole railroad as a 
 going concern. 
 
 It is the opinion of your Commission, in the absence of 
 any more definite ruling on this point, that a tax based upon 
 gross receipts will be valid even though accompanied by an- 
 other tax upon a part of the property of the corporations, pro- 
 vided the two taxes together compose a system placing a fair 
 burden upon the total property of the corporations in lieu of 
 all other taxes. If this judgment is correct, it will then be poss- 
 ible for the State to impose a tax upon the telephone corpora- 
 tions based upon gross earnings, while at the same time leaving 
 the real estate owned by said corporations subject to local 
 taxation, provided proper allowance is made for these local 
 taxes by a corresponding reduction in the tax on gross earn- 
 ings. 
 
 The above opinion has been submitted to the Attorney 
 General of the State, who has given the Commission a verbal 
 
106 REPORT OF SPECIAL TAX COMMISSION 
 
 opinion to the eff ect that the plan recommended is constitu- 
 tional. The same opinion has been expressed by other author- 
 ities to whom the plan has been submitted. 
 
 VI. TAXATION OP TELEPHONE COMPANIES IN 
 OTHER STATES 
 
 Some light on the problem of taxation of telephone com- 
 panies may be obtained from the experience of other States. 
 The value of such comparison, however, is decidedly limited by 
 the great diversity of methods employed and the almost com- 
 plete lack of uniformity in the systems of the several States. 
 In Appendix II of this Report will be found an abstract of 
 the methods employed in the taxation of telephone companies 
 by each of the States in the United States. In the present 
 chapter we shall attempt to give only a very brief summary 
 of the principal methods employed by other States. 
 
 Apart from the old-fashioned tax on the property of the 
 telephone companies, which still prevails in many of the States, 
 the most common method of taxation is the gross earnings tax. 
 Eighteen States make use of the tax on gross receipts to a 
 greater or less extent. In four States it is the only tax im- 
 posed upon the operative property of telephone companies. 
 These States, with the rates imposed are as follows : 
 
 California, 3%%; Maine, 1% to 6%, according to the 
 amount of the earnings (from business wholly within the State), 
 Minnesota, 3% ; Wisconsin, 2% to 5%, according to the amount 
 of the earnings. Except in Maine, the tax is upon earnings 
 from State business and a proportionate share of interstate 
 earnings. 
 
 Four other States use the gross earnings tax (limited to 
 business wholly within the State), as the principal tax, al- 
 though accompanied by other forms of taxation. Rhode Island 
 taxes gross earnings at the rate of 2%, in addition to local 
 taxes on real estate. The District of Columbia imposes a gross 
 earnings tax of 4%, together with a District ad valorem tax on 
 realty. Maryland imposes a 2% gross earnings tax, a tax on 
 capital stock and a tax on real estate. New Jersey taxes gross 
 earnings, at 2%, but allows also local ad valorem taxes on 
 tangible property. 
 
 Nine States accompany the gross earnings tax with an ad 
 valorem tax on all or part of the property of the companies. 
 Vermont allows telephone companies to choose either a gross 
 earnings tax (on earnings' collected within the State), at the 
 rate of 3 per cent., or a tax of 40 cents on each transmitter 
 and 30 cents on each mile of wire. 
 
 Only two other States use methods similar to that of Con- 
 
TELEPHONE COMPANIES 107 
 
 necticut; i. e., select some arbitrary basis for the imposition 
 of the tax. Delaware uses a combination of the tax on trans- 
 mitters and the wire mileage tax. The second State is Ver- 
 mont, as described above. 
 
 Besides these methods the three principal systems in force 
 in other States are: (1) taxes based on the value of the stocks 
 and bonds, (2) ad valorem taxes on the property of the com- 
 panies, and (3) license taxes, privilege taxes and various other 
 special taxes. 
 
 VII. CONCLUSIONS AND RECOMMENDATIONS 
 
 Recommendations: — The Commission accordingly recom- 
 mends the adoption of a State tax upon all telephone 
 companies doing business in the State of Connecticut, the 
 amount of the tax to be measured by the gross earnings, ap- 
 portioning to Connecticut her share of the gross earnings of 
 companies doing business partly within and partly outside the 
 State according to the number of transmitters in the case of 
 companies doing an exchange business, and according to wire 
 mileage in the case of companies doing a long distance business 
 only. It is recommended that the rate be 3% per cent. "We 
 further recommend that this tax be in lieu of all other taxes 
 upon the companies in question or upon their property except- 
 ing real estate and property not used exclusively in the tele- 
 phone business. We recommend that real estate be subject to 
 taxation in the towns where it is located, as at present, and that 
 no deduction be made from the gross earnings tax on account 
 of taxes on real estate. We recommend that the shares of 
 stock of such companies be exempt from taxation in the hands 
 of the holders, and that the bonds of such companies holding 
 their charters from the State of Connecticut be likewise exempt 
 in the hands of the holders. 
 
 Probable Result of the Proposed Tax: — The result upon 
 the various telephone companies and upon the revenue of the 
 State from the adoption of the gross earnings tax is shown 
 in the table on page 109, which gives the State tax paid in 1912 
 by each of the companies and the amount of the tax which 
 would have been paid to the State under the gross earnings 
 tax at the rate of 3% per cent. 
 
 The gross earnings of the American Telephone & Telegraph 
 Company are apportioned according to miles of wire, whereas 
 the earnings of the New York Telephone Company, the Wester- 
 ly Automatic Telephone Company and the Sharon Company 
 are apportioned according to the number of transmitters. 
 
 The Huntington Telephone Company is at present closely 
 associated with the Southern New England Telephone Com- 
 pany, its taxes being paid by the latter company, which also 
 
108 REPORT OF SPECIAL TAX COMMISSION 
 
 includes within the number of its own transmitters the trans- 
 mitters belonging to the Huntington Company. Under the gross 
 receipts tax the Huntington Company would therefore appear 
 as paying the tax on gross receipts, unless the Southern New 
 England Telephone Company should care to assume its taxes; 
 in which case the gross earnings of the Southern New Eng- 
 land Telephone Company and its tax would be correspondingly 
 increased. 
 
 Eeports have not been obtained from the Stamford Dis- 
 trict Messenger and Telephone Company. The business of 
 this company is so small that the omission does not appreciably 
 affect the result. 
 
 From this table it appears that under the 3% per cent, rate 
 the revenue of the State would be increased by $27,405.41, the 
 decrease in the case of the small companies being insignificant 
 when compared with the increase in the case of the American 
 Telephone & Telegraph Company, the Southern New England 
 Telephone Company, and the New York Telephone Company. 
 This estimate is based on the figures of 1912. The future rev- 
 enue of the State would steadily increase in proportion to the 
 growth of the business of the companies. 
 
TELEPHONE COMPANIES 
 
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CHAPTER VI 
 TELEGRAPH COMPANIES 
 
 GENERAL SUMMARY OF CHAPTER 
 
 I. The Present Method of Taxation in Connecticut : — Tele- 
 graph companies are at present taxed by the State 25 cents 
 on each mile of wire in the State. 
 
 II. Historical Development of the Law: — The first law 
 imposing a special State tax on telegraph companies was en- 
 acted in 1862. It was a tax of % of 1 per cent, upon all prop- 
 erty owned by the companies in the State. In 1864 the method 
 was changed to a tax of 1 cent on each message sent from 
 an office in the State. This system lasted only a year, being 
 replaced in 1865 by a tax of 2 per cent, on gross receipts with- 
 in the State. In 1889, the present mileage tax at the rate of 
 25 cents per mile was adopted. 
 
 III. Operation of the Present Tax System: — Two tele- 
 graph companies are subject to the present tax, the Western 
 Union Telegraph Co. and the Postal Telegraph Co. They 
 paid in 1912, $5,061.19 and $1,451.00 respectively, making the 
 total State revenue $6,512.19. 
 
 IV. Criticism of the Present Tax System: — The present 
 tax has the advantages of simplicity, certainty, and ease of ad- 
 ministration. It is defective in being arbitrary and not closely 
 related to the tax-paying ability of the corporations. Under 
 it, the telegraph companies are escaping with a very light tax 
 and the State is receiving only a small fraction of the revenue 
 it would be justified in demanding. 
 
 V. The Gross Earnings Tax: — The tax on gross earnings 
 is recommended as possessing the advantages of certainty and 
 ease of administration, while being better adapted to the tax- 
 paying ability of the companies under all conditions. The rate 
 should be 3 per cent., which would impose a tax fairly equiva- 
 lent to the burden of the property tax on wealth in general. 
 This rate would give the State the revenue to which it is fairly 
 entitled. Connecticut's share of the earnings of companies 
 doing business partly outside the State should be properly ap- 
 portioned to the State. 
 
 VI. Taxation of Telegraph Companies in Other States :— - 
 A brief summary of the tax systems of other States appears 
 in this chapter. A detailed abstract for each State will be 
 found in Appendix II. 
 
 VII. Recommendations: — The Commission recommends a 
 tax on telegraph companies measured by their gross operating 
 
TELEGRAPH COMPANIES HI 
 
 earnings, the State's share of the earnings of, companies doing 
 business partly outside the State to be apportioned according 
 to the number of miles of wire within and without the State. 
 The rate recommended is 3 per cent. The gross earnings tax 
 is to be in lieu of all other taxes upon the companies or their 
 property used exclusively in the business. The shares of stock 
 of all companies thus taxed, and the bonds of Connecticut com- 
 panies, are to be exempt from taxation in the hands of the 
 holders. 
 
 The gross earnings tax as recommended would increase 
 the revenue of the State from taxes on telegraph companies by 
 about $11,000. 
 
 I. THE PRESENT METHOD OF TAXATION IN 
 CONNECTICUT 
 
 Connecticut taxes telegraph companies upon their wire 
 mileage, imposing a tax of 25 cents upon each mile of wire in 
 the State, including the length of all wires strung or used 
 in cables or any other combination. Each company must re- 
 port the total length of its wires annually to the , Tax 
 Commissioner, these reports being examined and corrected, if 
 necessary, by the State Board of Equalization. This tax is in 
 lieu of all other taxes on the personal property of the companies 
 used exclusively in the telegraph business, but their real estate 
 is subject to taxation in the town where it is located. The 
 shares of stock of the companies are exempt from taxation in 
 the hands of the owners. Their bonds are taxable as personal 
 property of the owners. (Gen. Stat., Sec. 2436, 2437, 2440, 
 2441 ; Acts 1907, ch. 204.) 
 
 The tax is imposed upon all corporations, associations, or 
 partnerships doing a telegraph business in the State. It must 
 be paid within the first 20 days of October each year. It is 
 based upon the total mileage of wires "owned, leased, controlled, 
 or operated" by the company within the State on the preceding 
 , July first. 
 
 The appropriate officer of each company must deliver to 
 the Tax Commissioner annually, within the first 10 days 
 of October, a sworn statement of the number of miles of wire 
 as above. For failure to make the required report within the 
 time limited the officer is subject to a fine of $500. For failure 
 to pay the required tax the company shall forfeit twice the 
 amount of the payment due. 
 
 The Board of Equalization is required to meet each year 
 on the first secular day after the expiration of the time for 
 making reports by telegraph companies, to examine and correct 
 such returns and to hear any party making such returns. If 
 any such returns are not made, or are erroneously made, the 
 Board is required to make up the return on the best information 
 it can obtain. This return is reported to the company con- 
 cerned. It is final, and the taxes are to be paid on it. 
 
112 REPORT OF SPECIAL TAX COMMISSION 
 
 II. HISTORICAL DEVELOPMENT OF THE LAW 
 
 A special State tax was first imposed on telegraph com- 
 panies in 1862. It was a tax of % of 1 per cent, upon the value 
 of all property owned by the companies and located in the 
 State. (Acts 1862, ch. 55.) 
 
 The law applied to all telegraph companies incorporated 
 by or doing business in the State. The companies were required 
 to make annually within the first ten days of October a sworn 
 statement of the amount and value of their property in the State 
 as on October 1. The tax was payable on or before October 20. 
 The tax was in lieu of all other taxes upon such property. 
 
 In 1864 the method was changed to a tax of one cent on 
 each message sent during the past year from an office in the 
 State, for which the company was entitled to receive compens- 
 ation. This tax was in lieu of all other taxes upon the com- 
 panies' property. (Acts 1864, ch. 74.) 
 
 The companies were required to report, by a sworn state- 
 ment, annually within the first 10 days of December, the num- 
 ber of messages as above, sent during the year ending Novem- 
 ber 30 last. The tax must be paid on or before December 20. 
 For failure to make the required report a penalty of $500 was 
 imposed, and for failure to pay the tax, a penalty of twice the 
 amount of the payment due. The State Board of Equalization 
 was required to examine and correct the statements made and, 
 if necessary, make out the required statement themselves from 
 the best knowledge they could obtain, this statement to be 
 final. 
 
 This method of taxation remained in force only one year, 
 being superseded in 1865 by a definite gross receipts tax, 
 amounting to 2 per cent, annually on all receipts for telegraph 
 messages paid to the company within the State. This tax was 
 in lieu of all other taxes on the property of the company used 
 exclusively in the telegraph business. (Acts 1865, ch. 116.) 
 
 This law applied to all companies doing a telegraphic busi- 
 ness in the State. They were required to report, by a sworn 
 statement, annually within the first 10 days of October, the 
 amount of gross receipts as above during the year ending Sep- 
 tember 30 last. The tax must be paid within the first 20 days 
 of October. The penalties for failure to make the required re- 
 port, or to pay the tax, remained as before. The work of the 
 Board of Equalization in the matter also remained unchanged. 
 (See above in abstract of Acts 1864, ch. 74.) 
 
 This law remained in force without substantial change un- 
 til 1876. An act of this year changed the dates of making the 
 reports and paying the taxes from October to January. (Acts 
 1876, ch. 60.) This act was repealed, however, the next year, 
 putting the dates back to October. (Acts 1877, ch. 109.) 
 
 The next change in the law was made in 1882, when an 
 amendment was passed allowing the State Treasurer, in case 
 any company failed to make the report required by law, to ac- 
 cept $10,000 from it in lieu of the taxes due. (Acts 1882, ch. 83.) 
 
 A change was made in the law in 1884, when the gross re- 
 
TELEGRAPH COMPANIES 113 
 
 ceipts subject to taxation were denned so as to include, in 
 addition to the receipts for messages, also the receipts "for 
 
 the use of telegraphic instruments and wires. ' ' (Acts 
 
 1884, ch. 72.) 
 
 The same statute changed the period for which reports were 
 to be made, and taxes computed, to the year ending June 30 
 last. For 1884, the year was from October 1, 1883 to June 30, 
 1884. (Acts 1884, ch. 72.) 
 
 The first radical change in the system, since 1865, was made 
 in 1889. The gross receipts tax was now abandoned, and in 
 its place a tax on mileage with the rate of 25 cents per mile 
 was introduced, which has remained in force, without import- 
 ant change, to the present time. (Acts 1889, ch. 178.) 
 
 At this time also (1889) the provision of the law adopted 
 in 1882, authorizing the State Treasurer to accept $10,000 in 
 lieu of the tax from a company which failed to make the re- 
 quired report was repealed. (Acts 1889, ch. 178.) 
 
 III. OPERATION OP THE PRESENT TAX SYSTEM 
 
 The Companies Subject to the Tax, and the Revenue in 
 1912 : — There are at present only two telegraph companies sub- 
 ject to taxation by the State of Connecticut. The "Western 
 Union Telegraph Company paid in 1912 the State tax upon 
 20,244.76 miles of wire, at 25 cents, making a tax of $5,061.19. 
 The Postal Telegraph Cable Company was taxed on 5,804 miles 
 of wire at 25 cents, making a tax of $1,451.00. The total rev- 
 enue to the State in 1912 was $6,512.19. 
 
 The State Revenue in Past Years: — A statement showing 
 the receipts of the State from taxes on telegraph companies, 
 from the introduction of the first law in 1862 down to 1912, 
 is given in Appendix I. 
 
 IV. CRITICISM OP THE PRESENT TAX SYSTEM 
 
 The Case Similar to that of Telephone Companies :— The 
 
 general principles involved in the taxation of telegraph com- 
 panies are very much the same as for telephone companies, 
 and the Connecticut method of taxing telegraph companies 
 is subject to practically the same criticism as has already been 
 discussed in connection with the present taxation of telephone 
 companies. (See Chapter V). It is, therefore, unnecessary 
 here to say more than a few words in criticism of 
 the Connecticut method of taxing telegraph companies. The 
 tax of 25 cents per mile of wire has about the same advantages 
 and disadvantages as the transmitter tax upon telephone com- 
 panies. It has the advantage of certainty, simplicity, and ease 
 of administration, while possessing the disadvantage of being 
 9 
 
114 REPORT OF SPECIAL TAX COMMISSION 
 
 decidedly arbitrary and not closely related to the tax-paying 
 ability of the companies. It is, of course, possible at any par- 
 ticular time to determine a rate upon wire mileage which 
 would result in a fairly equitable tax. Changed conditions, 
 however, would sooner or later be almost sure to disturb this 
 adjustment, unless the rate itself were being continually 
 changed, a procedure which is highly undesirable. 
 
 The Present Tax Insufficient : — For present conditions the 
 25 cent rate is certainly too low. Under it the telegraph com- 
 panies have been escaping with a very low tax as compared 
 with their tax-paying ability judged by any proper basis. That 
 the State of Connecticut has been receiving a very small tax 
 from the telegraph companies will be shown below in the dis- 
 cussion of the gross receipts tax. For the present it is shown 
 that the tax of 25 cents a mile of wire is a relatively light 
 burden of taxation by means of the following figures for the 
 whole systems of the Western Union Telegraph Company and 
 the Postal Telegraph Cable Company (of Connecticut). The 
 figures are as of June 30, 1912. 
 
 Western Union Postal Telegraph 
 Telegraph Co. Cable Co. 
 
 Total wire and conductor mileage . . 1,532,161.38 26,988.00 
 
 Tax of 25c per mile on above mileage $ 383,040.35 $ 6,747.00 
 
 Tax of 1% on net book value 1,470,082.21 46,053.61 
 
 Tax of 1% on net plant value 1,352,360.83 40,269.54 
 
 Tax of 1% on value of stock and 
 
 bonds 1,145,093.06 
 
 The tax of 1 per cent, on the value of stock and bonds has 
 not been calculated for the Postal Company, for reasons which 
 are explained below. (See note.) For the same reasons 
 the other figures given for this company are reliable only for 
 the most general conclusions. 
 
 These figures show what would be the amount of a tax 
 of 25 cents a mile if imposed upon the total wire mileage of 
 each company, as compared with a tax of 1 per cent, upon the 
 net assets of the company, upon the net plant value, and upon 
 the value of the stock and bonds, respectively. It is clear that 
 for the Western Union a tax of 25 cents per mile of wire would 
 amount to only one-third or less, of the tax on any of the other 
 bases, whereas for the Postal such a tax would amount to only 
 about one-sixth of the tax on either of the other bases. 
 
 The total State and local taxes paid by the Western Union 
 Company during the year ending June 30, 1912, amounted to 
 $965,207.82, or nearly three times as much as the tax would 
 have been if based everywhere upon wire mileage at the rate 
 of 25 cents a mile. From these figures it will be clear that 
 Connecticut is getting less than her share of taxes from the 
 telegraph companies. 
 
TELEGRAPH COMPANIES 115 
 
 V. THE GROSS EARNINGS TAX 
 
 Introductory : — As in the case of the telephone companies, 
 the problem before your Commission is to discover a basis for 
 taxing telegraph companies which will relate the tax more 
 closely to the tax-paying ability of the companies while retain- 
 ing so far as possible the certainty and administrative advan- 
 tages of the present system. This end will be accomplished, 
 in the opinion of the Commission, by the gross earnings tax. 
 The general features of the gross earnings tax have already 
 been fully discussed. (See Chapter I). In what follows 
 will be shown the particular bearing of the gross earnings 
 tax upon telegraph companies. Here also the situation 
 is very similar to that of the telephone companies, which has 
 already been discussed. (See Chapter V). Only a brief dis- 
 cussion will, therefore, be necessary at this point. 
 
 A. THE RATE OF THE GROSS EARNINGS TAX 
 
 The Problem — Statistics of the Companies Subject to 
 Taxation : — As in the case of telephone companies, it is assumed 
 that under the property tax wealth in general bears a tax 
 burden equal to about 1 per cent, of its true market value. 
 The problem, therefore, is to determine what rate of tax upon 
 the gross earnings of telegraph companies will produce a bur- 
 den practically equivalent. "With this end in view the statistics 
 on the next page are presented relating to the Western Union 
 Telegraph Company and the Postal Telegraph Cable Company. 
 
 EXPLANATORY NOTES ON STATISTICS OF TELEGRAPH 
 COMPANIES 
 The statistics which are here presented relating to tele- 
 graph companies are similar in character to those which have 
 already been given for telephone companies ,in Chapter V. In 
 general, the notes explaining the statistics of telephone com- 
 panies will apply equally to the figures here given for telegraph 
 companies. The reader is accordingly referred to the explan- 
 atory notes in Chapter V. The following explanations relate 
 in particular to the statistics for telegraph companies. 
 
 (1) The figures relating to the Western Union Telegraph 
 Company have been obtained from published reports of the com- 
 pany and from correspondence with its officers. The Tax At- 
 torney of the Western Union Telegraph Company has been most 
 courteous in furnishing to the Commission all the information 
 which it has requested. 
 
 (2) In spite of repeated requests made by mail and in per- 
 son, the Commission has been unable to obtain anything more 
 than the most fragmentary information from the Postal Tele- 
 graph Cable Company. The figures here presented for that 
 company are based in the main upon the company's report to the 
 Public Utilities Commission of the State of Connecticut. On 
 account of the peculiar organization of the Postal Telegraph 
 
116 
 
 REPORT OP SPECIAL TAX COMMISSION 
 
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TELEGRAPH COMPANIES 117 
 
 Company these figures are of somewhat questionable value. The 
 Postal Telegraph Company with which we are concerned is a 
 Connecticut company, it being the policy of the Mackay Com- 
 panies to incorporate operating companies in many of the States 
 in which they operate. The accounts kept between the Mackay 
 Companies and their various subsidiary companies are of such 
 a character that trustworthy conclusions are scarcely to be 
 drawn from the accounts of . a single subsidiary. With this 
 qualifying statement the figures for the Postal Telegraph Com- 
 pany are hereby presented for what they are worth. 
 
 (3) The capital stock of the Western Union Telegraph 
 Company includes the stock of certain subsidiary companies. 
 
 (4) The figures given for the book value of the Postal Tele- 
 graph Cable Company were obtained by adding the following 
 items: 
 
 Capital stock $ 30.000.00 
 
 Bills and notes payable 4,506,130.71 
 
 Profit and loss 69,230.07 
 
 Total $4,605,360.78 
 
 (5) The figures given for the net book value and the net 
 plant value of the Western Union Telegraph Company are un- 
 doubtedly somewhat excessive, although they are derived from 
 the published reports of the company. This is due to the fact 
 that since the adoption of their present accounting system, near- 
 ly fifty years ago, nothing has been written off for depreciation 
 of plant and equipment. 
 
 Comparison with Taxes Measured by Certain Other 
 Bases: — Based upon the facts given above the following table 
 has been constructed showing what would be the amount of 
 a tax of 1 per cent, imposed upon (1) the market value of the 
 investment, (2) the net value of the assets (at book value), 
 and (3) the net value of the plant. The table also shows the 
 equivalent percentages of gross earnings; that is, the rates of 
 the tax upon gross earnings which would place the same bur- 
 den upon the company. This calculation has been made for 
 the "Western Union Company only. The character of the ac- 
 counts of the Postal Company (as already explained) render 
 valueless any similar calculations from its balance sheet. 
 
 WESTERN UNION TELGRAPH COMPANY 
 
 Per Cent. 
 
 of Gross 
 
 Amount of Tax. Earnings. 
 
 Tax of 1% on Market Value of 
 
 Investment $1,145,093.06 2.81% 
 
 Tax of 1% on Net Book Value 1,470,082.21 3.62% 
 
 Tax of 1% on Net Plant Value 1,352,360.83 3.32% 
 
 From the above figures it appears that if the Western 
 Union Telegraph Company were to be taxed on gross earnings 
 by a rate which would result in a burden equal to 1 per cent, 
 on the market value of the investment, the rate should be 2.81 
 per cent. If the net value of the assets is taken as the basis, the 
 rate should be 3.62 per cent., whereas a rate of 3.32 per cent. 
 
118 REPORT OF SPECIAL TAX COMMISSION 
 
 would give a tax equivalent to a tax of 1 per cent, on the net 
 plant value. In connection with the two last figures it must 
 be remembered (as already pointed out) that the, figures re- 
 ported by the Company for book value and plant value are in 
 excess of the actual values. 
 
 Comparison with a Tax on Capitalized Net Earnings: — 
 
 As explained in Chapter I, the most accurate method of de-- 
 termining the proper rate of the tax on gross earnings consists 
 in finding the rate which would be equivalent to imposing a. 
 tax equal to 1 per cent, upon the capitalized value of the net 
 earnings of the companies in question, using as the rate of 
 capitalization the rate of yield actually obtained by invest- 
 ment in the companies' stock at present market values and 
 present dividend bases. This is essentially the method used 
 by the California Tax Commission of 1906. 
 
 The explanation of this formula need not be repeated at 
 this point. It is explained in full in Chapter I, and has also 
 been applied to telephone companies in the preceding chapter. 
 (Chapter V). In brief, the rate is to be found by dividing 
 the prevailing ratio of net earnings to gross by a fair rate of 
 capitalization. 
 
 In applying this test, the prevailing ratio of net earnings 
 to gross among telegraph companies and, in particular, for the 
 two companies subject to taxation by the State of Connecticut 
 must first be found. From the statistical tables just given, the 
 ratio of net earnings to gross in 1912 is found to be 20.58 per 
 cent, for the Western Union Telegraph Company and 26.11 per 
 cent, for the Postal Telegraph Cable Company. From publi- 
 cations of the United States Census Bureau the corresponding 
 ratio for all of the commercial telegraph systems of the United 
 States taken together may be determined. The following 
 figures are taken from Bulletin Number 102 of the United 
 States Census, published in 1909. The facts given represent 
 the totals for all commercial telegraph systems of the United 
 States for the two years, 1902 and 1907. 
 
 ALL COMMERCIAL TELEGRAPH SYSTEMS OF THE 
 UNITED STATES 
 „ 1902 1907 
 
 Gross Earnings from Telegraph 
 
 Traffic $36,300,569.00 $45,255,187.00 
 
 Operating Expenses 26,592,411.00 36,579,084.00 
 
 Net Operating Earnings 8,708,158.00 8,676,103.00 
 
 Ratio of Net to Gross Earnings . . 24.67% 19.17% 
 
 It is evident that the ratio of net earnings to gross is very 
 nearly the same for the Western Union Company and the 
 Postal Company, and that the ratios for these companies agree 
 closely with those found for all of the telegraph systems of 
 
TELEGRAPH COMPANIES 119 
 
 the country taken together. If 20 per cent, is taken as the pre- 
 vailing ratio of net earnings to gross, the conclusion will be 
 thoroughly justified by the facts in the case. 
 
 The proper rate of capitalization must next be determined. 
 The average market value of the stock of the Western Union 
 Telegraph Company in 1912 was 79. Paying dividends at the 
 rate of 3 per cent., this means a yield on the investment of 
 3.8 per cent. It is impossible to make the same calculation 
 for the Postal Telegraph Company (of Connecticut) . For the 
 whole system of the IVCaekay Companies the corresponding 
 facts are as follows: (1) for the common stock: average mar- 
 ket value in 1912, 84 ; dividend basis, 5 per cent. ; rate of yield 
 on investment, 5.95 per cent.; (2) for the preferred stock: 
 average market value in 1912, 68 ; dividend basis, 4 per cent. ; 
 rate of yield, 5.88 per cent. 
 
 There is a considerable variation between the yield of less 
 than 4 per cent, in Western Union stock and that of nearly 6 
 per cent, in the Mackay Companies. Calling the average 5 
 per cent., and adding 1 per cent, to allow for taxes, would 
 give 6 per cent, as the rate of capitalization. The California 
 Tax Commission of 1906 adopted 5.5 per cent. 
 
 In view of these facts, 6 per cent, would appear to be a 
 fair rate for capitalizing earnings of telegraph companies. 
 Combining the ratio of net earnings to gross of 20 per cent, 
 with the rate of capitalization of 6 per cent, gives 3.33 per 
 cent, as the proper rate of the gross earnings tax as indicated 
 by this method. The California Tax Commission arrived at 
 3.6 per cent, as the result of its investigation under this method. 
 If, in order to be still more liberal, 6.5 per cent, should be 
 chosen as the rate of capitalization, the result would be a rate 
 of 3.1 per cent, for the gross earnings tax. 
 
 Summary of Evidence as to Rate: — The foregoing dis- 
 cussion would seem to indicate that a gross earnings tax at a 
 rate of 3 per cent, would impose a reasonable burden of tax- 
 ation upon the telegraph companies doing business in Connecti- 
 cut. It is obvious, of course, that no mathematically exact re- 
 sult is obtainable. However, the various tests which have 
 been applied agree reasonably with each other and would, in 
 most cases, indicate a rate somewhat higher than 3 per cent. 
 The conclusion that a rate of 3 per cent, upon gross earnings 
 would not impose an unreasonable burden upon the corpora- 
 tions involved is, therefore, warranted. 
 
 Ratio of Taxes Now Paid to Gross Earnings: — The total 
 State and local taxes paid by the Western Union Telegraph 
 Company for the year ending June 30, 1912 amounted to 
 $965,207.82^ which was 2.37 per cent, of its gross earnings. The 
 
120 REPORT OF SPECIAL TAX COMMISSION 
 
 taxes paid by the Postal Telegraph Cable Company during the 
 same year were $2,882.12, as reported to the Connecticut Public 
 Utilities Commission. This was 1.26 per cent, of the gross 
 earnings. The taxes paid by all of the telegraph companies 
 of the United States in 1902 and 1907, with the corresponding 
 ratios to gross earnings, are shown in the following table, 
 which is taken from Bulletin Number 102 of the United States 
 Census, published in 1909. 
 
 ALL COMMERCIAL TELEGRAPH SYSTEMS OF THE 
 UNITED STATES 
 
 1902 1907 
 
 Gross Operating Earnings $35,300,569.00 $45,255,187.00 
 
 Taxes 588,726.00 783,686.00 
 
 Ratio of Taxes to Gross Earnings 1.67% 1.73% 
 
 The gross earnings tax at the rate of 3 per cent, would, 
 therefore, mean a heavier tax than has generally been borne 
 by the telegraph companies of the United States. This is justi- 
 fied, however, by the fact that as at present taxed in most of 
 the States, telegraph companies are escaping with a light bur- 
 den of taxation as compared with other forms of wealth. The 
 principal reason for this is that tangible property of such 
 companies, so far as it is ascertained by the assessors, is a 
 very poor index of the taxation which the companies should 
 be called upon to bear. 
 
 Conclusion as to the Rate of the Gross Earnings Tax: — 
 
 From all the evidence that has been presented your Commission 
 is of the opinion that the rate of the gross earnings tax upon 
 telegraph companies should be 3 per cent. It is true that this 
 will mean a heavier burden of taxation than is at present borne 
 by the telegraph companies of the country, and that it will 
 considerably increase the taxes paid to the State of Connecticut 
 by the two telegraph companies operating in this State. As 
 has already been stated, telegraph companies throughout the 
 United States have heretofore been escaping with a light bur- 
 den of taxation as compared with other forms of wealth. It 
 has also been shown in particular that under the present system 
 Connecticut has obtained far less than her just share of rev- 
 enue from the telegraph companies operating within her bor- 
 ders. (See above in this Chapter). Some increase, therefore, 
 is clearly justified. That the rate of 3 per cent, is a reasonable 
 one has been shown by comparison with various other possible 
 
 The 3 per cent, gross earnings tax should be in lieu of 
 all other taxes upon the companies. The telegraph companies 
 do not at present own real estate in Connecticut. They accord- 
 ingly, are not subject to local taxation at the present time, 
 and would not be subject to local taxation under the gross 
 
TELEGRAPH COMPANIES 121 
 
 earnings tax as recommended. There is no necessity, therefore, 
 as in the case of the telephone companies, for making allowance 
 for local taxation on real estate. 
 
 B. THE APPORTIONMENT OF INTERSTATE 
 EARNINGS 
 
 Since the telegraph companies subject to taxation by Con- 
 necticut are engaged in business also outside the State, the 
 imposition of the tax upon gross earnings requires the apport- 
 ionment to the State of Connecticut of its share of the total 
 gross earnings of the companies. Here again the principles 
 are the same as have already been discussed under telephone 
 companies (see Chapter V), with the difference that, in the 
 case of telegraph companies, practically only two methods of 
 apportionment are available: (1) to assign to the State of Con- 
 necticut that part of the gross receipts actually received with- 
 in the State, (2) to apportion Connecticut's share of the gross 
 earnings according to the number of miles of wire in the State 
 as compared with the total wire mileage. 
 
 The first of these alternative methods is rejected for the 
 same reasons as applied in the case of telephone companies; 
 namely, that it is arbitrary, more or less accidental, and sub- 
 ject to some administrative difficulties. There remains then 
 the basis of wire mileage, which is on all grounds the bes^" 
 method of apportionment for telegraph companies. This 
 method is something easily understood by any one, and is based 
 upon facts which are well-known by the companies concerned 
 and capable of easy verification by the State officers. 
 
 Your Commission, therefore, recommends that for tele- 
 graph companies doing business partly within and partly 
 without the State the gross earnings apportioned to Connecti- 
 cut be determined according to the number of miles of wire 
 owned or leased and actually in use during the past year; 
 that is, the State's share of the gross earnings for purposes 
 of taxation shall bear the same ratio to the total gross earn- 
 ings of the company as the ratio of the number of miles of 
 wire operated within the State to the total wire mileage oper- 
 ated by the company. The result of this method of apportion- 
 ment is shown by the following figures for June 30, 1912. 
 
 Western Union Postal Telegraph 
 Telegraph Co. Cable Co. 
 
 Total wire and conductor mileage . . 1,532,161.38 26,988.00 
 Wire and conductor mileage in 
 
 Connecticut 20,244.76 6,170.00 
 
 Percentage of mileage in Connecticut 1.32% 22.86% 
 
 Total Gross Earnings $40,684,420.64 $229,052.05 
 
 Gross Earnings apportioned to 
 
 Connecticut 537,034.35 52,361.30 
 
122 REPORT OP SPECIAL TAX COMMISSION 
 
 VI.— TAXATION OF TELEGRAPH COMPANIES IN 
 OTHER STATES 
 
 Telegraph companies are taxed in very different ways by 
 the various States, most of which combine one or more methods 
 of taxation. The gross earnings tax, taxes upon the value of 
 stocks and bonds, and ad valorem taxes are all in common use. 
 The following is a brief summary of the principal methods 
 used. A more detailed description of the method of each State 
 will be found in Appendix II. 
 
 Fourteen States impose taxes upon the gross earnings of 
 telegraph companies. In only one of these, California, is it 
 the sole tax; there it is at the rate of 3% per cent, upon 
 earnings within the State and a share of interstate earnings. 
 
 Pour States have this as the principal tax, although used 
 in connection with other methods of taxation. Maine taxes 
 gross earnings l 1 ^ to 6 per cent, according to the amount of 
 earnings. New Jersey also combines an ad valorem tax upon 
 tangible property with a gross earnings tax, the latter being 
 at the rate of 2 per cent. In Rhode Island, telegraph companies 
 pay 2 per cent, upon gross earnings and are taxed upon real 
 estate under the general property tax. Texas has a gross earn- 
 ings tax of 2% per cent., license taxes, and local taxes upon 
 property. New Jersey's tax is upon earnings within the State 
 and a share of interstate earnings. The other States tax State 
 earnings only. 
 
 Eight other States have the gross earnings tax together 
 with ad valorem taxes upon all or part of the property of 
 the companies. 
 
 Vermont allows a 3 per cent, tax upon gross earnings 
 (collected within the State) as an alternative to special license 
 taxes upon wire mileage. 
 
 Besides the gross earnings tax, the principal method of 
 taxing telegraph companies is by means of ad valorem taxes 
 on their property. Sixteen States tax all the property of the 
 companies and impose no other taxes. Fourteen States use 
 the ad valorem tax as the principal tax combined with other 
 methods, and eleven other States make use of property taxes 
 though using some other tax as the principal one. 
 
 In eight States the principal tax on telegraph companies 
 is based on the valuation of stock and bonds or stock only, 
 though in all cases combined with some other form of taxation. 
 
 Only two States base their system of taxing telegraph 
 companies on an arbitrary basis as in the Connecticut system. 
 Delaware has a tax on wire mileage at rates of 60 : cents, 30 
 cents, and 20 cents, upon the longest wire, the second longest 
 wire, and other wires, respectively. Vermont allows the com- 
 
TELEGRAPH COMPANIES 123 
 
 panies to choose between a gross earnings tax of 3 per cent, 
 (on earnings collected within the State) and a license tax of 
 60 cents per mile for the first wire and 40 cents for each ad- 
 ditional wire. A number of other States use special, privilege, 
 and license taxes as supplementary to other taxes which are 
 the main bases of their systems. 
 
 VII. CONCLUSIONS AND RECOMMENDATIONS 
 
 Recommendations: — The Commission accordingly recom- 
 mends the adoption of a State tax upon all telegraph com- 
 panies doing, business in the State of Connecticut, the amount 
 of the tax to be measured by the gross earnings, apportioning 
 to Connecticut her share of the earnings of companies doing 
 business partly within and partly without the State according 
 to the ratio which the total mileage of wires and conductors 
 operated in Connecticut (whether owned or leased) bears to 
 the total wire and conductor mileage operated, whether owned 
 or leased. It is recommended that the rate be 3 per cent. 
 It is further recommended that this tax be in lieu of all other 
 taxes upon the companies in question, or upon their property 
 used exclusively in the telegraph business. The Commission 
 also recommends that the shares of stock of such companies be 
 exempt in the hands of holders, and that the bonds of such 
 companies holding their charters from the State of Connecticut 
 be likewise exempt in the hands of the holders. 
 
 Probable Results of the Proposed Tax: — The result upon 
 the two telegraph companies concerned and upon the revenue 
 of the State from the adoption of the gross earnings tax is 
 shown in the following table which gives the State tax paid 
 in 1912 by each of the companies, and the amount of the gross 
 earnings tax which would have been paid in the same year 
 if taxed as recommended at the rate of 3 per cent. From this 
 table it appears that the proposed system would have in- 
 creased the revenue of the State by a little over $11,000. 
 
 Western Union Postal Telegraph 
 Telegraph Co. Cable Co. Total 
 
 Present State Tax $ 5,061.19 $1,451.00 $ 6,512.19 
 
 Gross Earnings Tax @ 3% 16,111.03 1,570.84 17,681.87 
 
 Increase Tl,049.84 119.84 11,169.68 
 
CHAPTER VII 
 BANKS, TRUST COMPANIES AND STOCK INSURANCE 
 
 COMPANIES 
 
 GENERAL SUMMARY OF CHAPTER 
 
 I. The Present Method of Taxation in Connecticut: — 
 
 Connecticut taxes banks, trust companies and stock insurance 
 companies 1 per cent, upon the market value of all their stock 
 less taxes paid on real estate in Connecticut. The proceeds 
 of the tax are paid to the towns in which the stockholders re- 
 side. The State retains the taxes paid on shares owned by non- 
 residents except that in case of national banks the tax on non- 
 resident stock is paid to the. town where the bank is located. 
 
 II. Historical Development of the Law: — The present 
 system was adopted in 1901 and no important change has been 
 made since. Before that, shares of stock in these corporations 
 were taxable as personal property of the owners. Since 1866 
 the State had collected a tax of 1 per cent, upon the shares of 
 stock owned by persons residing outside the State. 
 
 III. Operation of the Present Tax System: — There were 
 on October 1, 1911, subject to the tax 79 national banks, 4 state 
 banks, 46 trust companies, and 15 stock insurance companies. 
 Excepting the national banks, these are all Connecticut corpor- 
 ations. The amount payable in 1912 was $1,097,602.71, of 
 which $317,627.03 was due from banks and trust companies, 
 and $779,975.68 from insurance companies. 
 
 IV. Banks and Trust Companies: — A. Criticism of the 
 Present Tax System: — The States are practically limited by 
 Federal legislation to the taxation of banks upon the shares 
 of their capital stock. Connecticut's method of taxing the 
 shares of bank stock is excellent, in that the tax is imposed 
 by the State, instead of by local bodies, and is at a uniform 
 rate fixed by statute. The one serious defect is in the require- 
 ment that the tax shall be imposed upon the market value of 
 the shares of stock. Market value is difficult, often impos- 
 sible, to determine; its use leads to inequalities; it is subject 
 to temporary fluctuations.. The law is incapable of satisfactory 
 administration. 
 
 B. Taxation of Bank Shares on Book Value: — Substitu- 
 tion of book value as the basis of taxation would be more equit- 
 able and would make the law certain and capable of effective 
 administration. Certain objections raised to the use of book 
 value do not prove to be serious. The change to book value 
 would necessitate no other change in the present law. The rate 
 
BANKS AND STOCK INSURANCE COMPANIES 125 
 
 of the tax and the deduction for taxes on real estate should 
 remain as at present. 
 
 C. Taxation of Banks in Other States:— A brief sum- 
 mary of the systems of taxing banks in other States appears 
 in this chapter. 
 
 V. Stock Insurance Companies: — While there would be 
 some advantages in taxing all insurance companies alike, by 
 the method recommended for mutual insurance companies, 
 there are important practical reasons for continuing the pres- 
 ent tax upon the shares of stock of stock companies. The tax 
 should be on the book value, which, in the case of insurance 
 companies other than life, should consist of the capital, sur- 
 plus, and one-third of the unearned premium, divided by the 
 number of shares. For a description of the tax systems of 
 other States, see the chapter on Mutual Insurance Companies 
 (Chapter VIII). 
 
 VI. Recommendations: — The Commission recommends 
 that banks, trust companies, and insurance companies be taxed 
 upon the shares of their capital stock essentially as at present, 
 except that the value of the shares be the book value, instead 
 of the market value. For insurance companies other than life, 
 the book value should consist of the sum of capital, surplus, 
 and one-third of the unearned premium, divided by the num- 
 ber of shares. The result of the change would mean an in- 
 crease of about $73,000 in the tax from banking institutions, 
 and a decrease of about $66,000 from insurance companies, 
 leaving a net increase in the total tax of about $7,000. 
 
 VII. Investment Companies: — The Commission recom- 
 mends that no change be made in the present method of 
 taxation. 
 
 I. THE PRESENT CONNECTICUT TAX SYSTEM 
 
 Connecticut taxes banks, trust companies and stock 
 insurance companies 1 per cent, upon the market value of their 
 shares of stock, as determined by the State Board of Equaliza- 
 tion, less the taxes paid on real estate in Connecticut. The 
 proceeds of the tax are paid to the towns in which the stock- 
 holders reside. The State retains the taxes paid on shares of 
 stock owned by persons residing outside the State, except that 
 in case of a national bank the tax on the shares owned by non- 
 residents is paid to the town where the bank is located. Each 
 corporation must report annually to the Tax Commissioner the 
 facts required as above. Real estate belonging to the, corpora- 
 
126 REPORT OF SPECIAL TAX COMMISSION 
 
 tions is subject to taxation in the towns where located. The 
 shares of stock of the corporations are exempt from taxation 
 in the hands of the owners. (Gen. Stat., sec. 2331, as amended 
 by Acts 1903, ch. 204, Acts 1905, ch. 54; sec. 2332-2335.) 
 
 The law applies to "every bank, national banking associ- 
 ation, trust, insurance, investment, and bridge company, whose 
 stock is not exempt from taxation." It must be paid on or be- 
 fore the last day of February. The appropriate officer of each 
 corporation must deliver to the Tax Commissioner, annually 
 within the first fifteen days of October, a sworn statement of 
 the number and market value of its snares of stock, and the 
 names and residences of its stockholders and the number of 
 shares owned by each, the facts being as of October 1, last. For 
 failure to obey the law, the officer is subject to a fine not ex- 
 ceeding $1,000 or imprisonment not exceeding two years, or 
 both. The State Board of Equalization must meet during Octo- 
 ' ber, November and December, and after hearing any persons 
 interested and demanding any further necessary information 
 from the corporations, must fix the value of the shares of stock 
 of each corporation as of October 1, last. The valuation is re- 
 ported to the corporation. The tax is 1 per cent, of the valu- 
 ation thus determined, less the amount of taxes paid by the 
 corporation on real estate in Connecticut during the year end- 
 ing September 30, last. 
 
 II. HISTORICAL DEVELOPMENT OF THE LAW 
 
 The first law imposing a State tax on all the shares of 
 stock of banks, trust companies, and stock insurance companies 
 was enacted in 1901. (Acts 1901, ch. 106.) 
 
 Before that, shares of stock in these corporations had been 
 taxable under the general property tax as personal property of 
 the owners. In 1851 a State law required the banks to report 
 to each town the names of shareholders residing in that town, 
 with the number of shares of stock owned by each, and its 
 market value. (Acts 1851, ch. 47). In 1866, the banks were 
 required to make to the State corresponding reports regarding 
 the shares of stock owned by persons residing outside the State, 
 and to pay to the State a tax of 1 per cent, on the value of such 
 shares. (Acts 1866, ch. 29). This situation remained virtually 
 unchanged down to 1901. 
 
 The statute of 1901 was in all essential features practical- 
 ly the same as the present law, which is described in the pre- 
 ceding section. 
 
 Minor amendments were made by the following statutes: 
 Acts 1901, ch. 165; Gen. Stat., Revision of 1902, sec. 2331; Acts 
 1903, ch. 204; Acts 1905, ch. 54, ch. 157. 
 
 III. OPERATION OP THE PRESENT TAX SYSTEM 
 
 The Institutions Subject to the Tax and the Revenue in 
 1912: — On October 1, 1911, there were in operation in Connecti- 
 cut and subject to the State tax, 79 national banks, 4 State 
 
BANKS AND STOCK INSURANCE COMPANIES 127 
 
 banks, 46 trust companies, and 15 stock insurance companies. 
 Aside from the national banks, these are all corporations char- 
 tered under the laws of Connecticut. 
 
 The total tax payable to the State in 1912 (based on the 
 figures of 1911) was $1,097,602.71, of which $317,627.03 was 
 due from banking institutions and $779,975.68 from insurance 
 companies. There was distributed to the towns where the 
 stockholders resided $886,722.62 (including $1,215.14 paid to 
 the School Fund). The State Treasury retained $210,819.58, 
 as representing tbe tax on certain shares owned by non-resi- 
 by non-residents. 
 
 There were no investment companies or bridge companies 
 subject to the tax in 1912. 
 
 Banks and Trust Companies: — The following table shows 
 the operation of the law and the revenue obtained from the 
 several classes of banking institutions in 1912. 
 
 BANKS AND TRUST COMPANIES 
 
 (FIGURES AS OF OCTOBER 1, 1911.) 
 
 Market Value 
 
 One per Cent. 
 
 Real Estate 
 
 Tax Due 
 
 of 
 
 of 
 
 Taxes 
 
 State 
 
 Capital Stock. 
 
 Market Value. 
 
 Deducted. 
 
 Treasurer. 
 
 National Banks ..$30,766,415.00 
 
 $307,664.15 
 
 $64,705.24 
 
 $242,958.91 
 
 State Banks 1,914,800.00 
 
 19,148.00 
 
 3,462.60 
 
 15,685.40 
 
 Trust Companies 8,210,176.00 
 
 82,101.76 
 
 23,119.04 
 
 58,982.72 
 
 Total $40,891,391.00 
 
 $408,913.91 
 
 $91,286.88 
 
 $317,627.03 
 
 Stock Insurance Companies: — Of the 15 insurance com- 
 panies subject to the tax, there were 4 life companies, two of 
 which maintained also accident departments, 3 casualty, fidel- 
 ity, and surety companies, and 8 fire companies. The table on 
 the next page shows the operation of the law and the revenue 
 obtained from the several insurance companies in 1912. 
 
 The Revenue in Past Years: — A statement showing the 
 receipts by the State Treasurer from taxes on banking institu- 
 tions and stock insurance companies, from 1901 to 1912, with 
 the disposition of the proceeds, is given in Appendix I. 
 
 IV. BANKS AND TRUST COMPANIES 
 A. CRITICISM OF THE PRESENT TAX SYSTEM 
 
 ;- 
 
 In passing judgment upon the present system of taxing 
 banking institutions and stock insurance companies, and in 
 recommending changes, it will be convenient to discuss the 
 two classes of institutions separately. This section will re- 
 late, therefore, to banks and trust companies. Stock insurance 
 companies will be discussed in a later section. 
 
128 
 
 REPORT OP SPECIAL TAX COMMISSION 
 
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BANKS AND STOCK INSURANCE COMPANIES 129 
 
 Federal Limitation of Bank Taxation:— The taxation of 
 banks in the United States has been largely governed by the 
 limitations placed by Congress on the taxation of national 
 banks. The National Banking Act of 1864 provided for cer- 
 tain Federal taxes on national banks, which were to be in lieu 
 of all existing taxes upon the banks. The Act went on to spec- 
 ify, however, that the shares of stock in national banks might 
 be taxed as personal property of the owners under the author- 
 ity of the States in which the banks were located. This pro- 
 vision has remained in force to the present day with only 
 slight changes. The State legislature may determine the 
 method of taxing the shares of stock of national banks sub- 
 ject to two restrictions ; i. e., that the taxation must not 
 be at a higher rate than is imposed upon other moneyed cap- 
 ital, and that the shares owned by non-residents of the State 
 must be taxed only at the place where the bank is located. 
 The real estate of national banks is also expressly subject to 
 State and local taxation, to the same extent as other real 
 estate. 
 
 The exact statement of the National Banking Act which 
 governs State and local taxation of national banks is as follows, 
 being section 5,219 of the revised statutes: 
 
 State Taxation of National Banks: — Nothing herein shall 
 prevent all the shares in any association from being included" 
 in the valuation of the personal property of the owner or holder 
 of such shares, in assessing taxes imposed by authority of the 
 State within which the association is located; but the legislature 
 of each State may determine and direct the manner and place 
 of taxing all the shares of national banking associations located 
 within the State subject only to the two restrictions, that the tax- 
 ation shall not be at a greater rate than is assessed upon other 
 moneyed capital in the hands of individual citizens of such 
 State, and that the shares of any national banking association 
 owned by non-residents of any State shall be taxed in the city or 
 town where the bank is located, and not elsewhere. Nothing 
 herein shall be construed to exempt the real property of associ- 
 ations from either State, county, or municipal taxes, to the 
 same extent, according to its value, as other real property is 
 taxed. 
 
 The result of this statute, as interpreted by a long line 
 of court decisions, is that Congress has virtually specified the 
 method by which the States may tax the national banks; more- 
 over, the requirement that there shall be no discrimination 
 against the stock of national banks as compared with other 
 moneyed capital has been interpreted virtually to mean that 
 this method of taxing national banks is legal only in case other 
 banks are taxed under the same method. As a result, the 
 method prescribed for the taxation of national banks has gen- 
 erally been extended by the States to other banking institu- 
 tions. 
 
 The taxation of the shares of stock in banks may be either 
 10 
 
130 REPORT OF SPECIAL TAX COMMISSION 
 
 by local officers or by the State authorities. In the latter case 
 the shares of stock are valued by some State authority, and 
 the bank is required to pay into the State treasury the tax on 
 all of the shares, acting thus as agent for the shareholders. 
 This method has been upheld by the courts. 
 
 The Connecticut Method of Taxing Banks : — As compared 
 with most of the other States, Connecticut's method of taxing 
 the shares of stock in banks is excellent. While the majority 
 of the States still cling to local assessment and taxation of 
 bank shares, Connecticut is among those States that have given 
 up local taxation and substituted a state tax. It is hardly 
 necessary to say that this change is a great improvement. In 
 the second place, the Connecticut statute provides that after 
 the values of the shares of stock have been properly deter- 
 mined, all shares shall be taxed at a uniform rate of 1 per cent. 
 This legal determination of a uniform rate is greatly superior 
 to methods obtaining in certain other States, where the shares 
 after being valued are taxed either at the various local rates 
 or at an average of the local rates for the whole State. 
 
 Difficulty of Determining Market Value of Shares : — With 
 all of these excellent features, the Connecticut system has just 
 one serious defect; i. e., the method by which the shares of 
 stock are valued. Of the several alternative methods which 
 are possible for the valuation of shares of bank stock, the 
 Connecticut statute directs that the valuation shall be the 
 "market value." 
 
 The necessity of determining the market values of the 
 shares of stock of all banks presents very serious administra- 
 tive difficulties. In certain cases of large city banks, the 
 shares of stock are regularly bought and sold and quoted on 
 the market. The market value is then a matter of public 
 knowledge, and there is no difficulty in determining it for pur- 
 poses of taxation. This case, however, is the exception rather 
 than the rule. Most bank shares are not regularly bought and 
 sold. 
 
 For a very large number of institutions there is, therefore, 
 no market value in the sense of frequent sales at prices which 
 are generally known. In three or four cities of the State the 
 shares of stock of the banks are listed on the local stock ex- 
 change, in some cases at merely nominal values. In the smaller 
 villages and towns there are very few sales of the shares of 
 stock of the local banks. Such sales as there are, are gen- 
 erally made as the result of correspondence and negotiation 
 with an officer of the bank. There is no open market, there 
 is no opportunity to secure any competitive bid. for the stock, 
 and the sale, if made, is at a figure named by the officer of the 
 institution and is very conservative as a rule. 
 
BANKS AND STOCK INSURANCE COMPANIES 131 
 
 In such cases as these, the market value has to be deter- 
 mined from occasional reported sales, from reports made by 
 the bank's officers, from examination of the bank's balance 
 sheet, etc. On such evidence as this, the Board of Equaliza- 
 tion is required to determine the market value of the shares of 
 stock. With all the information it can thus secure from, those 
 who are in a position to know, from' officers of savings banks, 
 and from local brokers, the data are sadly inadequate. 
 
 Inequality Resulting from Market Value Basis:— More- 
 over, the values as thus reported vary widely as between city 
 and country and as between different banks. The shares of a 
 large number of banks, on which the market values are re- 
 ported by the officers of the institutions, are comparatively 
 very low ; in many instances being on a basis of six per cent., 
 or better. In some of the larger cities, either the availability 
 of ready money for conservative investment, the confidence of 
 the local public in the management of the bank, the possibility 
 of a future increase in dividends or capital, or the often senti- 
 mental desire for a local investment causes keen bidding for 
 the comparatively few shares that are offered, with the result 
 that prices are paid which net the investor between two and 
 three per cent. Under the wording of the statute, it appears 
 to be necessary to take as the market value, the very low valu- 
 ations reported for the banks of the rural communities, and 
 the very high, often sentimental, valuations at which the shares 
 of stock of similar institutions are sold in one or two of the 
 cities. This means, on the statutory basis of a tax of 1 per 
 cent., that the burden is very unequally imposed. Some insti- 
 tutions which are perfectly able to pay a tax on a reasonable 
 basis of valuation are not required to do so, and other institu- 
 tions are forced to pay a very high tax because of the senti- 
 mental notions of local investors. The rigid "market value" 
 requirement of the statutes, to be finally determined by the 
 members of the Board of Equalization, gives little opportuntiy 
 for them to exercise their best personal judgment. Obviously, 
 the door is open for continual argument and disagreement be- 
 tween members of the Board and the officers of the various 
 banks. Just as obviously, there ft no possibility of accurately 
 settling the question at issue. 
 
 Market Value Subject to Fluctuation: — Another difficulty 
 with market values is that they are subject to more or less 
 frequent fluctuations. Such fluctuations may be due to 
 changes in the situation of the bank, but they may also be 
 caused by circumstances entirely foreign to the bank's con- 
 dition, such as the situation of the money market, etc. The 
 statute prescribes that the value for taxation must be the mar- 
 ket value on October 1 of each year. This selects an arbitrary 
 
132 REPORT OF SPECIAL TAX COMMISSION 
 
 date, and there is always the possibility that the market value 
 on this date may be either abnormally high or abnormally 
 low. This particular difficulty might be corrected if the statute 
 prescribed, instead of the value on a definite date, an aver- 
 age of the values for a considerable period of time. The Com- 
 mission would recommend that this change at least be made 
 in the present system in case the Legislature does not see fit to 
 change the basis from market to book value. 
 
 Conclusion: — In conclusion then it is clear that the tax- 
 ation of the shares of bank stock upon market value is un- 
 certain, unjust, difficult or even impossible of accurate ad- 
 ministration, and offers just that opportunity for disagree- 
 ment between representatives of the State and of the tax 
 payers which should be carefully avoided in any sound and 
 effective tax system. 
 
 B. TAXATION OF BANK SHARES ON BOOK VALUE 
 
 Superiority of Book Value: — As an escape from the diffi- 
 culties inherent in the determination of market value, your 
 Commission recommends that the shares of stock of banks be 
 assessed at their book value. By this we mean that the value 
 of a share of stock in a given bank shall be determined by add- 
 ing the capital, surplus, and undivided profits, as shown by the 
 bank's statement, and then dividing by the number of the 
 shares of stock. This method of valuing bank shares would 
 do away with the difficxdties described above. In the place 
 of uncertainty, we would have a system certain and easy of 
 administration. A bank's book value is a definite thing, shown 
 at any time by its balance sheet ; there is little room for argu- 
 ment or difference of opinion. The book value is not subject 
 to frequent fluctuations due to the condition of the money 
 market or other external causes. 
 
 Taxation of bank shares upon book value was recommend- 
 ed by the California Tax Commission of 1906, which present- 
 ed a strong argument in favor of this method. The method 
 has also been recommended by other State Tax Commissions. 
 In 1911 a Committee of the National Tax Association, which 
 had made a thorough study of this problem, reported to the 
 Association unanimously in favor of the taxation of bank 
 shares upon book value, expressly recommending this method 
 as superior to all of the other methods used in the various 
 States. Taxation of bank shares upon book value is the method 
 used in California, adopted in accordance with the recommen- 
 dation of the Tax Commission of 1906. New York has used 
 the same system since 1901. Pennsylvania also uses the book 
 value to determine the value of shares of stock. Further dis- 
 
BANKS AND STOCK INSURANCE COMPANIES 133 
 
 cussion of the methods in use in the other States appears later 
 in this chapter. 
 
 Why Market Value Fails:— To the proposal to tax the 
 shares of stock of banks upon book value, certain objections 
 have been raised. In the first place, it is urged that market 
 value is the only true value, that all other values are more 
 or less subject to arbitrary determination, and that the real 
 value of anything is the amount which a purchaser is willing 
 to pay for it. Those who take this position are in direct op- 
 position to others who have urged that market value is not 
 a true value at all. As a general rule it appears that those 
 who are interested in the taxation of financial institutions ap- 
 pear as adherents of one or the other argument according as 
 the tax burden of their particular institutions will be affected. 
 
 So far as the theoretical question goes, it is doubtless true 
 that the real value of anything is the price at which it will 
 sell, and your Commission is not impressed with the argument 
 that the sale price is not normally the real measure of value. 
 This assumes, however, that there are sufficiently frequent 
 sales, so that a fair average price is determined and further- 
 more, that this market price can be known. As has been 
 shown, one objection to using market price as a basis of taxa- 
 tion is the difficulty in determining it, and indeed the prac- 
 tical absence of a real market price in the case of the shares 
 of stock of very many banks. It is this practical difficulty 
 which has made the market value basis incapable of effective 
 administration. Book value does in most cases fairly repre- 
 sent the real value of the shares, according to the judgment 
 of those who are running the business, and it has the absolute- 
 ly necessary quality of being a definite fact easily ascertain- 
 able. 
 
 Can Book Value be Manipulated? — A second objection 
 against the use of book value is that the banks may manipulate 
 book value by making changes in some of the items of their 
 balance sheets. In particular, it has been stated to the Com- 
 mission that basing the tax upon book value of shares would 
 lead many banks to write off certain assets and put in others 
 at lower figures, so as materially to reduce their undivided 
 profits or surplus. This procedure is, of course, open 
 to the officers of any bank. It does not appear likely, how- 
 ever, that any bank would care to scale down its book value 
 below the real value of its assets merely to make a saving in 
 taxation. Such an operation would soon be discovered, and 
 the bank could hardly afford to make public a poor state- 
 ment for the sake of saving a few dollars of taxes. On the 
 other hand, if a bank is led to reduce its book value by writ- 
 
134 REPORT OP SPECIAL TAX COMMISSION 
 
 ing off certain doubtful assets, or reducing assets previously 
 carried at inflated values, the result would appear far from 
 undesirable. Your Commission is not of the opinion that there 
 will be any great evasion of the tax by means of arbitrary re- 
 ductions in book value. 
 
 Can the Tax be Evaded by Large Dividends? — There is a 
 third possible objection to the tax on book value, which de- 
 serves mention. It might be the policy of certain banks to 
 pay out all of their earnings in large dividends, thus keeping 
 the surplus down and showing a low book value of their shares 
 of stock, while at the same time earning large profits for the 
 stockholders and having their stock quoted at correspondingly 
 high market values. Tour Commission does not believe that 
 there is danger of serious tax evasion by this means. If 
 thought worth while, however, it could be prevented by a 
 simple expedient. The statute might provide that whenever 
 the dividends paid during a given year, capitalized at a cer- 
 tain specified rate (as 5 per cent, or 6 per cent.) shall equal 
 an amount greater than the book value of the stock, then the 
 value of the stock for purposes of taxation shall be the said 
 capitalized value of the dividends. This would simply mean 
 that whenever any bank paid dividends exceeding the specified 
 percentage of its total capital, surplus, and undivided profits, 
 the stock would be assumed to be worth the capitalized value 
 of- the dividends rather than the book value shown by the 
 bank's statement. Your Commission does not feel that this 
 matter is a serious one and is therefore not inclined to recom- 
 mend adding to the complications of the tax by adopting this 
 provision. 
 
 The Rate of the Tax: — The Commission sees no reason to 
 recommend a change in the present rate of 1 per cent, on the 
 shares of stock of banks. This is the rate which is generally 
 assumed to represent the average burden of the general prop- 
 erty tax upon other forms of wealth ; it is the rate which has 
 been in force in Connecticut since the adoption of the law. 
 
 It is the commonest rate in those other States where a defi- 
 nite rate is specified by statute. Being considerably less than 
 the average of the rate of the general property tax in Con- 
 necticut, and being imposed on all banking institutions alike, 
 it fully satisfies the requirement of the Federal statute that na- 
 tional banks shall not be taxed at a higher rate than other 
 forms of moneyed capital. The Commission therefore recom- 
 mends that the rate of the tax be 1 per cent, as at present. 
 
 Taxes on Real Estate: — The Federal statute permits the 
 State and local taxation of the real estate of national banks 
 in addition to the tax upon the shares of stock. The present 
 
BANKS AND STOCK INSURANCE COMPANIES 135 
 
 Connecticut statute permits local taxation of the real estate 
 of banks but allows the deduction of such taxes from the tax 
 on capital stock paid to the State. Other States do not al- 
 ways allow such deductions; the State of New York, for in- 
 stance, taxes banks at the rate of 1 per cent, upon the book 
 value of their shares of stock, and in addition allows the taxa- 
 tion of the banks' real estate under the general property tax. 
 The California statute accomplishes practically the same result 
 as the Connecticut law by allowing the deduction of the 
 assessed value of real estate from the value of the shares of 
 stock as determined by the book value. Maryland and North 
 Carolina follow the same method. Pennsylvania, like New 
 York, allows the local taxation of real estate in addition to a 
 tax upon the shares of stock. Your Commission sees no suffi- 
 cient reason for changing the Connecticut system, and recom- 
 mends, therefore, that the real estate of banking institutions 
 be subject to local taxation, and that the taxes thus paid be 
 deducted from the tax paid to the State treasury upon the 
 shares of stock, as under the present system. 
 
 While for some reasons the California method of deducting 
 the assessed value of real estate from the value of the capital 
 stock is preferable to the Connecticut method, there is not here 
 the same reason for making a change as in the case of savings 
 banks and certain other corporations, since the tax on banks 
 is distributed back to the towns. The question of a loss of 
 State revenue through excessive local assessment of real estate 
 does not arise. (See discussion of this point in the Chapter on 
 Savings Banks, Chapter IX.) 
 
 C. TAXATION OF BANKING INSTITUTIONS IN OTHER 
 
 STATES 
 
 The taxation of banks is, of necessity, marked by less 
 diversity than that of many other classes of corporations. The 
 taxes are in practically all cases upon the shares of capital 
 stock. In nearly all cases the rate of the tax upon shares is 
 that of the general property tax upon moneyed capital. In all 
 but one State (New Mexico), real estate of banks is taxed as 
 that of individuals. 
 
 The most important question in the taxation of banks is 
 the method of arriving at the taxable value of the shares of 
 stock. Twenty-one States assess shares at market value. In 
 Virginia it is prescribed that this value shall not be less than 
 the book value. Twelve States assess shares at book value, 
 i. e., the sum of the par value of "the stock, the surplus, and 
 the undivided profits. In certain other States the basis of valu- 
 ation is either not specified by law or is upon some valuation 
 other than market value. 
 
136 REPORT OF SPECIAL TAX COMMISSION 
 
 As a rule, trust companies are taxed in practically the 
 same manner as banks. Where there is a difference in method 
 it usually consists in the addition of a license tax upon trust 
 companies. 
 
 Except in New England and the Eastern States, there are 
 very few mutual savings banks. Stock savings banks are 
 taxed in the majority of the States by essentially the same 
 method as other banking institutions. Some States add a 
 license tax for savings banks. In a few States, however, sav- 
 ings banks are taxed by a method quite different from that of 
 other banks. 
 
 D. CONCLUSIONS AND RECOMMENDATIONS 
 
 Summary and Recommendations: — The Commission finds 
 that the Connecticut system of taxing banking institutions is 
 an excellent one, but that it is subject to one defect; i. e., 
 that the basis is the market value of the shares of stock as de- 
 termined by the Board of Equalization. This provision leads 
 to uncertainty, injustice and controversy, and interferes with 
 effective administration. To remedy this defect, the Commis- 
 sion recommends that the value of shares of stock for purposes 
 of taxation be the book value; i. e., the total of the capital, 
 surplus and undivided profits, as shown by the bank's state- 
 ment, divided by the total number of shares of stock. It is 
 recommended that the bank pay to the State a tax of 1 per 
 cent, upon the total value of all the shares of stock as thus de- 
 termined, less the amount of taxes on real estate in Connecti- 
 cut during the year past. It is recommended that the real 
 estate of banks be subject to local taxation as at present, and 
 that in other respects the law remain unchanged. 
 
 If, for any reason, the Legislature does not see fit to 
 change the market value basis in assessing bank shares, it is 
 recommended that, at least, the market value be the average 
 of the values on a number of days during a considerable period 
 of time, rather than the value on a particular date. The rea- 
 son for this change is to avoid, so far as possible, the influence 
 of temporary market fluctuations. 
 
 Probable Results of the Proposed Change : — The following 
 table gives an idea of the probable results of the change to 
 book value as recommended by the Commission, by showing 
 what the basis of the tax and the corresponding revenue would 
 have been in 1912 if imposed upon book value as recommend- 
 ed. The amount of taxes actually paid in 1912 is also shown 
 for purposes of comparison. The use of book value would have 
 meant in 1912 an increased tax of $73,105.13, of which $59,- 
 
BANKS AND STOCK INSURANCE COMPANIES 
 
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138 REPORT OF SPECIAL TAX COMMISSION 
 
 668.67 would have come from, national banks, $2,734.63 from 
 State banks, and $10,701.83 from trust companies. This in- 
 crease would be largely offset by a corresponding decrease in 
 the tax from insurance companies as is shown later. 
 
 V. STOCK INSURANCE COMPANIES 
 
 Method of Taxation in Connecticut and in Other States: — 
 
 The Connecticut tax system treats stock insurance companies 
 exactly like banks. They are included with banks and trust 
 companies in the statute which imposes a tax of 1% upon the 
 market value of the shares of stock. In thus taxing them 
 the State has made a separation between stock and mutual 
 insurance companies, taxing the latter by an entirely different 
 method. Most of the other States of the United States which 
 impose State taxes upon insurance companies treat both kinds 
 of insurance companies alike. Only a few States make a dis- 
 tinction between stock and mutual companies which is com- 
 parable to that of Connecticut, and only four States, Indiana, 
 Kentucky, Missouri and Tennessee, place stock insurance com- 
 panies and banks upon the same footing, as is done in Con- 
 necticut. In most States the State tax upon insurance com- 
 panies is upon the basis of earnings, usually premiums, and 
 the tax is imposed upon stock and mutual companies alike. 
 
 Advantages of Taxing All Insurance Companies Alike on 
 an Income Basis: — There are many reasons in favor of uni- 
 formity in the taxation of all' insurance companies. The Com- 
 mission is to recommend, in the chapter on Mutual Insurance 
 Companies, that such companies be taxed upon an income basis, 
 and there is something to be said in favor of including stock 
 insurance companies under the same method. The income basis 
 has general advantages which make it superior to the tax on 
 capital stock. Such a plan would also put the taxation of 
 insurance companies in line with the general character of the 
 recommendations- of this Commission for the taxation of pub- 
 lic service corporations. It would also give the undoubted ad- 
 vantages of uniformity of taxation for all Connecticut insur- 
 ance companies and would be in line with the practice of most 
 of the other States. 
 
 Reasons for not Changing the Present Classification: — In 
 
 spite of these advantages the Commission does not feel inclined 
 to recommend such a change in the method of taxing stock in- 
 surance companies. The objections to making such a change 
 are largely practical ones. There are great difficulties in the 
 case of stock insurance companies in the way of develop- 
 ing a method of taxation based on earnings that would be fair 
 both to the State and the companies concerned, and that 
 
BANKS AND STOCK INSURANCE COMPANIES 139 
 
 would not break too abruptly with the present tax system. 
 Chief among these practical difficulties is the fact that under 
 the present system the proceeds of the tax on mutual companies 
 go to the State, whereas the tax on stock companies, though 
 collected by the State, is distributed to the towns according 
 to the residence of the shareholders. 
 
 Taxation of Insurance Companies on Book Value of Stock : 
 
 — For the above and other practical reasons the Commission is 
 led to recommend that the present system of taxing stock com- 
 panies in the same class with banks and trust companies be 
 continued. As in the case of banks, however, it is recommend- 
 ed that in place of the market value, the value of the shares of 
 stock for purposes of taxation be the book value. The reasons 
 for making this change are the same as in the case of banks, 
 and have been discussed at length in a preceding section of 
 this chapter. 
 
 Definition of Book Value of Insurance Companies: — In 
 seeking to obtain the true measure of the book value of the 
 stock insurance companies certain peculiarities of the insur- 
 ance business are met, which make the case less simple than 
 that of banking institutions. By the book value of any cor- 
 poration it is sought to obtain the equity of its stockholders 
 in the assets of the corporation after all liabilities to outside 
 creditors have been accounted for. In the case of a bank this 
 consists simply of the capital, surplus and undivided profits. 
 Obviously in the case of a stock insurance company the capital 
 and surplus represent the property of the stockholders. There 
 is ordinarily no separate item of undivided profits. For a life 
 insurance company, the sum of capital and surplus is all 
 that may fairly be said to belong to the stockholders; the 
 reserve of such a company is so calculated as to be theoretic- 
 ally just sufficient to fulfill the contracts made with the policy- 
 holders, though based, it is true, on somewhat conservative 
 assumptions. 
 
 The sum of the capital and surplus of a fire insurance 
 company would, however, give only an incomplete notion of 
 the equity of its stockholders in the assets of the company. 
 The explanation of this lies in the reserve, or the "unearned 
 premium," which is the more correct name for this item, and 
 is the name used by the Insurance Department of the State of 
 Connecticut. This item represents that part of gross premium 
 received which is assumed not yet to have been earned by the 
 company. Insurance premiums are ordinarily paid in advance, 
 and so long as the period for which the insurance is written has 
 not expired, the company may be assumed to have earned only 
 that part of the premium which represents the ratio of the time 
 elapsed to the total term of the contract. The remainder of 
 
140 REPORT OP SPECIAL TAX COMMISSION 
 
 the premium is said to be unearned. The reserve, or unearned 
 premium, of a fire insurance company thus represents that part 
 of the gross premium which, on the average, is calculated to 
 be still unearned. 
 
 As a matter of fact, this reserve is actually greater than 
 will normally be required to pay the fire losses on policies in 
 force. Or, in other words, the company would be able at any 
 time to close up its business by reinsuring all of its risks for 
 a sum considerably less than its total unearned premium. One 
 reason for this is the fact that a considerable part of the gross 
 premium goes to pay expenses. The exact ratio is variously 
 estimated, but it is safe to say that at least one-third of the 
 gross premium will be used in this way.* Of these expenses, 
 a large majority is paid at the beginning when the first prem- 
 ium is collected. If the business were allowed to run down by 
 paying all current risks, or if the risks were reinsured in an- 
 other company, these expenses, which have already been debit- 
 ed in the year's accounts, would not have to be again met. 
 
 The exact amount of the unearned premium which would 
 be saved to stockholders in case the business were closed up by 
 reinsurance or otherwise has never been exactly calculated. 
 It is generally admitted, however, that on the average one- 
 third is a low estimate. It appears, therefore, that in deter- 
 mining the equity of the stockholders in a fire insurance com- 
 pany we should take account of that part of the reserve which 
 will eventually belong to them after existing losses have been 
 met or handed over to another company, and we will be on the 
 safe side if we assume one-third of the unearned premium as 
 representing that part which will eventually belong to the 
 stockholders. 
 
 It is recognized of course that the principal function of this 
 liberal margin in the surplus of a fire insurance company is to 
 serve as an emergency fund for meeting losses in case of a 
 conflagration. In this respect, however, it is not different from 
 the surplus of a bank, and may just as properly be regarded 
 as belonging to the stockholders for purposes of taxation. 
 
 The conclusions drawn from the foregoing discussion of 
 fire insurance companies may be applied also to accident, casu- 
 alty, etc., companies without serious injustice. The Commis- 
 sion, therefore, is of the opinion that in determining the value 
 of the shares of stock of insurance companies other than life 
 the book value should be defined to consist of the sum of the 
 capital, the surplus, and one-third of the unearned premium. 
 
 *See Kitchin, "Principles and Finance of Fire Insurance," 
 Zartman, "Yale Readings in Fire Insurance," page 212; Report of 
 the Special Legislative Commission of New York, February 1, 
 1911, (The Merritt Commission) page 91. 
 
BANKS AND STOCK INSURANCE COMPANIES 141 
 
 Note: — For a treatment of the technical questions involved 
 in the discussion of the reserve of the stock fire insurance com- 
 panies, the reader is referred to the following authorities: 
 Kitchin, "Principles and Finance of Fire Insurance," London, 
 Effingham Wilson, 1904, pages 212-247; Huebner, "Property In- 
 surance," New York, D. Appleton & Co., 1911, chapter 14, pages 
 153-163; Moore, "Fire Insurance and How to Build," New York, 
 The Baker & Taylor Co., 1903, pages 218-244; Zartman, "Yale 
 Readings in Fire Insurance," New Haven, Conn., Yale University 
 Press, 1909; Report of the Joint Committee of the Senate and 
 Assembly of the State of New York on Insurance Companies 
 other than Life (the "Merritt Commission"), Feb. 1, 1911. 
 
 Taxation of Stock Insurance Companies in Other States: — 
 
 This subject has already been referred to briefly. Since most 
 other States do not distinguish between stock and mutual in- 
 surance companies for purposes of taxation, it will be con- 
 venient to discuss the taxation of other "States for all insur- 
 ance companies together. This has been done in the chapter 
 on mutual insurance companies (Chapter VIII.) to which the 
 reader is referred. 
 
 Conclusions and Recommendations: — The Commission, 
 therefore, recommends that stock insurance companies- be tax- 
 ed upon the value of their shares of stock, as at present, ex- 
 cept that the value for purposes of taxation be the book 
 value, which in the case of life insurance companies shall be 
 the sum of the capital and surplus, and in the case of insur- 
 ance companies other than life shall be the sum of the capital, 
 surplus, and one-third of the unearned premium, in. both cases 
 divided by the number of shares. It is recommended" that in 
 other respects the tax be the same as for banking institutions, 
 i. e., that the rate be 1 per cent, and that from the tax thus 
 computed there be deducted the taxes paid by the companies 
 upon their real estate in Connecticut, such real estate to be sub- 
 ject to taxation in the town where it is located. 
 
 Probable Results of the Proposed Change :— The following 
 table will give an idea of the probable results of the change 
 to book value as recommended by the Commission, by showing 
 what the basis of the tax and the corresponding revenue would 
 have been in 1912 if imposed on. book value as recommended. 
 The amount of taxes actually paid in 1912 is also shown for 
 purposes of comparison. The use of book value in 1912 would 
 have meant a total tax payment from stock insurance com- 
 panies less by $66,000 than was actually paid under the pres- 
 ent system, this decrease being offset by the increase in the 
 tax on banks and trust companies, as is shown below. 
 
 For a list of the companies and the tax paid by each under 
 the present system, see section III of this chapter. 
 
142 
 
 REPORT OF SPECIAL TAX COMMISSION 
 
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BANKS AND STOCK INSURANCE COMPANIES 143 
 
 VI. GENERAL SUMMARY OF RECOMMENDATIONS 
 AND CONCLUSIONS 
 
 Summary: — The Commission finds that the Connecticut 
 system of taxing banking institutions and stock insurance com- 
 panies is, in the main, an excellent one. Its one serious defect 
 is due to taking as the basis of the tax the market value of the 
 shares of stock as determined by the Board of Equalization. 
 
 The Commission finds that it will be best to continue the 
 classification of stock insurance companies with banks for pur- 
 poses of taxation rather than to tax them by the method which 
 is to be recommended for mutual insurance companies. 
 
 Recommendations: — The Commission, therefore, recom- 
 mends that banks, trust companies, and stock insurance com- 
 panies be taxed at 1 per cent, upon the value of their shares 
 of stock as at present, except that the value for purposes of 
 taxation shall be the book value as shown by the statement of 
 the corporation or association. The book value should be de- 
 fined, in the case of banks and trust companies, as the sum 
 of the capital, surplus, and undivided profits; in the case of 
 life insurance companies as the sum of the capital and surplus, 
 and in the case of insurance companies other than life, as the 
 sum of the capital, surplus, and one-third of the unearned 
 premium, in each case divided by the number of shares. It is 
 recommended that real estate be subject to local taxation as at 
 present, the local taxes being deducted from the State tax, and 
 that in other respects the present law remain unchanged. 
 
 Probable Net Result Upon the Taxes Paid: — The change 
 from market value to book value as the basis of assessing the 
 shares of stock of banking institutions and insurance com- 
 panies will result, as we have shown, in some increase in the 
 taxes paid by the banks and trust companies and a correspond- 
 ing decrease in the taxes of the insurance companies. These 
 changes would very nearly offset each other. The net result 
 would be a slight increase in the taxes from all institutions, 
 amounting, on the basis of the figures of 1911, to $7,039.89. 
 This result is shown in the table following : 
 
 (FIGURES AS OF OCTOBER 1, 1911.) 
 Tax Paid Tax Based on Inerease(+) 
 
 Banks & Trust in 191 2 - Book Value. Decrease?— ) 
 
 Companies $ 317,627.03 $ 390,732.16 +-$73,105.13 
 
 Stock Insurance Compani es 779,975.68 713,910.44 - 66,065.2 4 
 
 Total All Institutions . .$1,097,602.71 $1,104,642.60 +$ 7,039.89 
 
 VII. INVESTMENT COMPANIES 
 
 The Commission has investigated the taxation of invest- 
 ment companies and recommends that the present system re- 
 main unchanged. 
 
CHAPTER VIII 
 MUTUAL INSURANCE COMPANIES 
 
 GENERAL SUMMARY OF CHAPTER 
 
 I. The Present Method of Taxation in Connecticut:— 
 
 Mutual insurance companies at present pay a tax to the State 
 of J /4 of 1 per cent, upon what is practically the gross value 
 of their assets, less the amount of taxes paid on real estate in 
 Connecticut. Companies which have stock departments are 
 allowed to deduct the assets belonging to such departments 
 since stock insurance companies are taxed under a different 
 method. There are slight differences in the method of comput- 
 ing the tax as between life companies and other companies. 
 
 II. Historical Development of the Law: — The first State 
 tax upon mutual insurance companies was imposed in 1851. 
 It was a tax of one-third of 1 per cent, upon the "total cash 
 capital" due to mutual insurance. The rate was lowered the 
 next year to y& of 1 per cent., but raised to % of 1 per cent, in 
 3862, and again to 1% per cent, in 1864. It was lowered to 1 
 per cent, in 1865 and to % of 1 per cent, in 1867. In 1872 a 
 distinction was made between life and fire companies and the 
 rate for the former was reduced to V2 of 1 per cent. The rate 
 for life companies was lowered from % of 1 per cent, to ^ of 
 1 per cent, by a gradual reduction covering the years 1882 to 
 1884. In 1903 the rate of the tax on fire companies was also re- 
 duced to ^4 of 1 per cent., and in 1911 the law relating to fire 
 companies was extended to apply to all mutual companies other 
 than life. Numerous changes in the method of computing the 
 tax have been made from time to time and are described in 
 the body of this chapter. 
 
 HI. Operation of the Present Tax System: — There are 
 six life insurance companies and eighteen fire and other com- 
 panies subject to the tax on mutual insurance companies. Two 
 of the life companies are purely mutual ; the others have both 
 stock and mutual departments. The companies other than 
 life are mostly small local companies. The receipts from the 
 tax in 1912 were approximately $429,000, of which about $422, 
 000 was paid by life companies and $7,000 by companies other 
 than life. 
 
 IV. Criticism of the Present Tax System: — It has been 
 urged that the Connecticut tax on life companies is excessive 
 for the following reasons: (1) that life insurance, on account 
 of its nature, should be very lightly taxed, (2) that the Con- 
 necticut tax, in combination with taxes paid to other States, 
 leads to unfair double taxation, and (3) that the Connecticut 
 
MUTUAL INSURANCE COMPANIES 145 
 
 companies are subjected to an unfair burden in competition 
 with companies of other States. Examination of the evidence 
 shows that the first two charges are groundless, whereas there 
 is much truth in the third charge. No criticism has been made 
 of the present system as regards other companies than life. 
 These companies are taxed very lightly under the present 
 system. 
 
 V. The Tax on Income Recommended: — A change from 
 the present system to one based on income is recommended, 
 the new system to be so devised as to reduce gradually the 
 burden on life companies and somewhat increase the tax upon 
 other companies, while not seriously reducing the revenue of 
 the State. The earnings tax will also be in harmony with the 
 system recommended for public service corporations, and will 
 agree more closely with the tax systems of other States. 
 
 VI. Taxation of Insurance Companies in Other States : — 
 A, brief summary of the methods by which other States tax 
 their domestic insurance companies appears in this chapter. 
 
 VII. Summary of Recommendations: — The Commission 
 recommends a tax upon the corporate franchise of every mu- 
 tual insurance company, based upon the sum of its total income 
 from investments (i. e„ total gross interest and rents) and its 
 premiums from Connecticut business. It is recommended 
 that the rate be 4 per cent, in the first year and be reduced by 
 % of 1 per cent, each year until the rate of 3 per cent, is 
 reached, this rate to remain permanently. No deduction should 
 be allowed for taxes on real estate, which should remain sub- 
 ject to local taxation as at present. It is estimated that the 
 proposed plan would reduce the revenue of the State at the be- 
 ginning by about $12,000. It is expected that the future growth 
 of the companies would largely offset the annual reduction in 
 the tax rate, and that after the final rate of 3 per cent, is 
 reached the amount of the tax would increase regularly with 
 the growth of the business of the companies. 
 
 I. THE PRESENT METHOD OF TAXATION IN 
 CONNECTICUT 
 
 •. Connecticut taxes mutual insurance companies chartered 
 by the State upon what is practically the gross value of their 
 total assets. The tax is a tax upon the "corporate franchise," 
 is payable annually, and the rate is V^ of 1 per cent. Mutual 
 insurance companies are separated into two classes, life com- 
 panies, and all other than life companies, with slightly differ- 
 ent methods of computing the tax. 
 
 In the case of a life insurance company, the tax is com- 
 11 
 
146 REPORT OP SPECIAL TAX COMMISSION 
 
 puted as follows : The total amount of its premium notes and 
 the market value of all its other assets are added together. 
 From this sum the following deductions are made: (1) the 
 amount of ascertained and unpaid losses, (2) the market value 
 of the bonds which it owns of the State of Connecticut, or of 
 any town or city in the State issued in aid of railroad con- 
 struction, which are exempt by law from taxation, (3) if the 
 company is in part a stock company, whose stock is otherwise 
 taxable, it may further deduct the market value of the assets 
 belonging to its stock department. The tax is ^4 of 1 per 
 cent, of the balance thus obtained, less the amount of taxes 
 paid by the company on its real estate in Connecticut during 
 the past year. 
 
 In the case of any mutual insurance company other than 
 a life insurance company, the tax is computed as follows: 
 From the total amount of all its assets, the following de- 
 ductions are made: (1) the amount of ascertained and unpaid 
 losses, (2) the market value of the bonds which it owns of the 
 State of Connecticut, or of any town or city in the State, 
 issued in aid of railroad construction, which are exempt by law 
 from taxation, (3) the amount of premium notes held by it. 
 The tax is V± of 1 per cent, of the balance thus obtained. 
 
 Each company must report the facts as above, annually, 
 to the Tax Commissioner, these reports being examined and 
 corrected, if necessary, by the State Board of Equalization. 
 These taxes are in lieu of all other taxes upon the assets of 
 the companies except taxes upon their real estate, and upon 
 the taxable stock of a company that has a stock department. 
 (Gen. Stat., sec. 2444, as amended by Acts 1903, ch. 183, Acts 
 1911, ch. 60; sec. 2445, as amended by Acts 1903, ch. 139, Acts 
 1 911, ch. 70 ; see 2446, as amended by Acts 1903, ch. 184 ; sec. 
 2447-2449; Acts 1907, ch. 204.) 
 
 The law applies to "every insurance company chartered by 
 this State, and doing business in whole or in part upon the plan 
 of mutual insurance, including every company whose policy- 
 holders have a right to participate in its profits." 
 
 The appropriate officer of each company must deliver to the 
 Tax Commissioner, annually, a sworn statement showing the 
 facts as above as of December 31 last. Reports from life in- 
 surance companies must be delivered on or before February 15; 
 from other companies, on or before January 20. Life insurance 
 companies must pay the tax on or before February 25; other 
 companies, on or before January 30. For failure to make the 
 required report within the time limited, the officer is subject 
 to a fine of $5,000. For failure to pay the required tax, the com- 
 pany shall forfeit twice the amount of the payment due. 
 
 The Board of Equalization is required to examine and cor- 
 rect the statements of the companies. In case any such reports 
 are not made, the Board is required to make up the return on 
 the best information it can obtain, which return is final. 
 
MUTUAL INSURANCE COMPANIES 147 
 
 II. HISTORICAL DEVELOPMENT OF THE LAW 
 
 The first act imposing a tax on mutual insurance com- 
 panies was passed in 1851. It imposed an annual tax of one- 
 third of 1 per cent, upon the "total cash capital" which was 
 the proceeds of mutual insurance. (Acts 1851, ch. 47.) 
 
 The law applied to "any insurance company chartered by 
 this State conducted in whole or in part upon the plan of mutual 
 insurance." The tax was based upon the total amount of cash 
 capital, either invested, or on deposit, belonging to said com- 
 panies, being the proceeds of insurance upon the plan of mutual 
 insurance. Each company was required to make a sworn state- 
 ment, annually, on or before October 20, showing the amount 
 of capital as above on October 1 last. The tax must be paid on 
 or before October 20. • For failure to comply with any provision 
 of the law, a penalty of $600 was imposed. 
 
 The rate of the tax was lowered in 1852 to % of 1 per 
 cent. It was also specifically provided that the tax was "in 
 lieu of all other taxes." (Acts 1852, ch. 66.) 
 
 This act changed the penalty for failure to comply with 
 the law to 1 per cent, of the total amount of the capital of the 
 company as described in the law. 
 
 In 1862 the rate was raised to % of 1 per cent, "in lieu of 
 all other taxes upon such capital," except real estate ahove 
 what is necessarv for the conduct of the business. (Acts 1862, 
 ch. 55.) 
 
 This act further changed the time for making the required 
 report to on or before October 10. For failure to make the re- 
 quired report, a penalty of $500 was imposed, and for failure 
 to pay the tax a penalty of twice the amount of the payment 
 due. The State Board of Equalization was required to examine 
 and correct the statements made and, if necessary, make out 
 the required statement themselves from the best knowledge they 
 could obtain, this statement to be final. 
 
 In 1864 the rate was again increased, being made V/2 per 
 cent., or three times the previous rate. No other change was 
 made in the law. (Acts 1864, ch. 74.) 
 
 This rate was lowered in the next vear to 1 per cent. (Acts 
 1865. ch. 116.) 
 
 Important changes in the law were made in 1867. The 
 tax is to be computed as follows: From the total amount of 
 assets derived from mutual insurance is deducted (1) the 
 amount of premium notes held by the company, and (2) the 
 amount of its losses ascertained and unpaid. The tax is 3 A of 
 1 per cent, of the balance remaining. This tax is in lieu of all 
 other taxes upon the assets of the company derived from mu- 
 tual business, except real estate above what is necessary for 
 the conduct of the business. (Acts 1867, ch. 118.) 
 
 In 1869 a statute was passed which exempted from taxa- 
 tion in the hands of the holders all bonds issued by a town or 
 
148 REPORT OF SPECIAL TAX COMMISSION 
 
 city of Connecticut in aid of the construction of certain rail- 
 roads, or issued to subscribe for stock in such railroads; the 
 railroads themselves being taxed by the State upon the amount 
 of such bonds and stock as soon as the sums so obtained had 
 been expended for railroad construction. (Acts 1869, ch_ 10.) • 
 In accordance with this law, the law taxing mutual insurance 
 companies was amended by allowing such companies to deduct 
 from their assets subject to taxation (1) the amount invested 
 in bonds of the State of Connecticut, and (2) the amount in- 
 vested in town and city bonds issued in aid of railroad con- 
 struction as above. These deductions are in addition to the 
 deduction of premium notes and unpaid losses previously al- 
 lowed. The balance remaining is subject to the tax of % of 
 1 per cent. (Acts 1869, ch. 79.) 
 
 A number of minor changes were made in the law in 1871. 
 The date of making the required report was changed to on or 
 before January 20, the facts to be given as of December 31 last, 
 and the tax to be paid on or before January 30. The companies 
 were required to include in the report a detailed list of all assets 
 with their market value. The penalty for failure to make the 
 required report was increased to $5,000. (Acts 1871, ch. 45.) 
 
 Down to 1872 the life insurance companies and fire com- 
 panies were taxed by the same method under identical stat- 
 utes. In 1872 a separation was made, and from that year to 
 the present time the two classes of companies have been sub- 
 ject to slightly different methods of taxation. In the discussion 
 that follows it will be clearly indicated whether the amend- 
 ments apply to life companies, or fire companies, or both. 
 Unless specifically otherwise stated, it may be assumed that 
 previous provisions of law continue to apply to both classes 
 of companies alike. 
 
 The amendment of 1872 related to life companies. The 
 basis of the tax is made the sum of the company's premium 
 notes and the market value of all of its other assets, exclud- 
 ing (1) its non-taxable bonds as before, (2) the amount of 
 money held to pay ascertained losses, and (3) the amount of 
 money required to pay town or city taxes in the State. The 
 rate of the tax on this balance is lowered to V* of 1 per cent. 
 (Acts 1872, ch. 88.) 
 
 Another change relating to life companies appears in the 
 Revision of 1875. Instead of deducting the amount of money 
 required to pay town and city taxes, such companies are direct- 
 'ed to deduct the amount invested in real estate in the State. 
 (General Statutes, Revision of 1875, Title 12, ch. 5, sec. 16.) 
 
 The law relating to life companies was again changed in 
 1875, by the provision that a company which is in part a stock 
 company, whose stock is otherwise taxable, may deduct from 
 its assets subject to taxation the market value of the assets be- 
 
MUTUAL INSURANCE COMPANIES 149 
 
 longing to its stock department. This tax is in lieu of all 
 other taxes upon the assets of the company, except its taxable 
 stock, and its real estate above the needs of the business. (Acts 
 1875, ch. 18.) 
 
 The law made other minor changes relating to life companies. 
 
 (1) Instead of deducting the amount invested in real estate 
 in Connecticut, it is the market value of such real estate which 
 is to be deducted. (2) The date of making the required report 
 is changed to on or before February 15, and the tax is payable 
 on or before February 25. 
 
 At the same time minor changes were made relating to both 
 life and fire companies. (1) The deduction for investment in 
 non-taxable bonds is stated to be the market value of such bonds. 
 
 (2) The tax is now for the first time called a tax on the "cor- 
 porate franchise." 
 
 Provision for a gradual lowering of the rate of the tax 
 upon life companies was made in 1881. The rate was fixed 
 at % of 1 per cent, in 1882, 3-10 of 1 per cent, in 1883, and. % 
 of 1 per cent, thereafter. (Acts 1881, ch. 49.) 
 
 No further changes were made until 1902. In the Revision 
 of this year appears a minor change relating to both life and fire 
 companies. The tax is said to be in lieu of all other taxes upon 
 each company's assets except taxes upon its real estate, etc., 
 omitting the phrase "above what is necessary for its business." 
 (General Statutes, Revision of 1902, sec. 2447.) 
 
 The rate of the tax on fire companies was reduced to y± 
 of 1 per cent, in 1903. (Acts 1903, ch. 139.) 
 
 The law relating to life companies was changed in 1903 
 by providing that the tax should be computed without the for- 
 mer deduction of taxable real estate from the assets, and 
 should then be reduced by the amount of taxes paid on real 
 estate in Connecticut during the past year. (Acts 1903, ch. 
 184.) 
 
 In 1911 the law previously relating to fire companies was 
 extended to apply to all mutual insurance companies other 
 than life companies. (Acts 1911, ch. 60, ch. 70.) 
 
 III. OPERATION OF THE PRESENT TAX SYSTEM 
 The Companies Subject to the Tax and the Revenue in 
 1912: — There were in 1912 six life insurance companies and 
 eighteen fire and other insurance companies subject to the tax 
 on mutual insurance companies. Of the life insurance com- 
 panies, two — the Connecticut Mutual and the Phoenix Mutual 
 
 are purely mutual companies. The other four life insurance 
 
 companies are engaged in non-participating as well as mutual 
 insurance. These six large life insurance companies paid tax- 
 es in 1912 aggregating over $422,000. 
 
 Of the other companies, fifteen are engaged in fire insur- 
 ance The three others are the Hartford County Tobacco 
 
150 REPORT OF SPECIAL TAX COMMISSION 
 
 Growers Mutual Insurance Company, the Mutual Plate Glass 
 Insurance Company, and the Mutual Security Company. As 
 compared with the great life companies, these are comparative- 
 ly small companies. The total taxes paid by these eighteen 
 companies in 1912 was less than $7,000, of which over $5,000 
 was paid by two companies, the Hartford County Mutual Fire 
 Insurance Company and the Middlesex Mutual Assurance Com- 
 pany. The' other thirteen companies together paid less than 
 $1,400. On the next page is a list of the companies subject to 
 the tax together with the data on which the tax is computed 
 as of January 1, 1912, and the amount of the tax paid in 1912. 
 
 The State Revenue in Past Years: — A statement showing 
 the receipts of the State from taxes on mutual insurance com- 
 panies from the introduction of the first law in 1851 down 
 to 1912, is given in Appendix I. The statistics in the Appendix 
 are reported separately for life and fire companies, the latter 
 including all companies other than life. 
 
 IV. CRITICISM OF THE PRESENT TAX SYSTEM 
 A. LIFE COMPANIES 
 
 Objections Urged Against the Present System: — Com- 
 plaint against the present system of taxing mutual life insur- 
 ance companies has been made to the Commission by repre- 
 sentatives of the companies. The burden of this complaint 
 is simply that the present tax is too great. Suggestions have 
 been made from these representatives as to possible changes 
 in the system. The complaint made, however, is not so much 
 against the system as against the heavy burden of taxation 
 imposed; and, where the Commission has received suggestions 
 for a change in system, these suggestions have been frankly 
 made with the idea of resulting in a lower burden of taxation 
 rather than from any desire for a change of system for its own 
 sake. In support of the claim that the present system results 
 in an excessive burden oi* taxation upon the mutual life insur- 
 ance companies, three main lines of argument have been pre- 
 sented to the Commission. 
 
 (1) The first of these is the argument that the business 
 of life insurance is a peculiar one in that it is not engaged 
 in for the purpose of money-making. It exists rather for the 
 sake of protection to persons dependent upon the policyholder 
 after he has passed away. It is further urged that the insur- 
 ance business is an encouragement to thrift, prudence, and 
 care for family and other dependents. As such it is argued 
 that the insurance business deserves peculiarly lenient treat- 
 ment from the State in the matter of taxation. This argument 
 is even pushed to the extreme, when it is claimed that insur- 
 
MUTUAL INSURANCE COMPANIES 
 
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152 REPORT OF SPECIAL TAX COMMISSION 
 
 ance is really a purely charitable undertaking and should, 
 therefore, not be taxed at all, being treated the same as other 
 admittedly charitable or religious institutions. It should be 
 stated, however, that those who have appeared before your 
 Commission have not presented the argument in this extreme 
 form. While admitting that the State of Connecticut is en- 
 titled to some revenue from taxes on insurance companies, 
 they have urged that these taxes should be moderate and not 
 measured by the same standards as are applied to other kinds 
 of wealth. 
 
 (2) Secondly, the claim that the Connecticut taxation of 
 insurance companies is excessive is based upon an analysis 
 of the present system. Connecticut today taxes practically 
 the total assets of her mutual companies. This system, it is 
 urged, cannot be justified either with respect to the ownership 
 of these assets or the location of the wealth which they repre- 
 sent. The assets of the companies belong to policyholders, the 
 great majority of whom reside outside Connecticut. The great 
 majority of the premiums collected by the Connecticut com- 
 panies are drawn from other States. In the case of the Con- 
 necticut Mutual Life Insurance Company, it is stated that the 
 ratio is over 96 per cent, in each case. On the strength of this 
 fact the Connecticut companies are being taxed by the other 
 States in which they do business. Taxation of the total assets 
 would be justified only in case they were all held for policy- 
 holders residing in Connecticut. 
 
 It is also claimed that the Connecticut tax is unjustifi- 
 able in view of the fact that the assets of the insurance com- 
 panies merely represent titles to wealth, a large part of which 
 is physically located outside the State of Connecticut. For 
 these reasons it is claimed that the Connecticut system re- 
 sults in flagrant double taxation and an excessive burden upon 
 the companies, 
 
 (3) A third line of argument in support of the claim 
 that the present Connecticut taxation of insurance companies 
 is excessive, is based upon a comparison of the Connecticut 
 method with the taxes imposed by other States upon their 
 own insurance companies ; in particular it has been urged that 
 the great insurance companies of New York, Massachusetts, 
 Pennsylvania, and Wisconsin are taxed by their home States 
 far less severely than Connecticut taxes her own companies. 
 Nevertheless, the Connecticut companies have to meet the ac- 
 tive competition of their rivals from other States, and in this 
 competition they find themselves seriously handicapped by 
 the relatively heavy taxation imposed upon them. 
 
 Examination of Objections — (1) Should life insurance be 
 Taxed With Special Leniency?— In passing judgment upon the 
 
MUTUAL INSURANCE COMPANIES 153 
 
 claim that the present system imposes an excessive burden of 
 taxation, let us consider each of the above arguments in order. 
 First of all, the Commission is frank to say that it is not im- 
 pressed with the argument that the business of insurance is 
 a charitable undertaking, which should be either entirely ex- 
 empt from taxation or should be taxed at a greatly reduced 
 rate on account of its peculiar character. Insurance is in no 
 sense a charity. All that has ever been urgel as to the bene- 
 ficial character and effects of insurance may be freely granted ; 
 it does not follow that this business should be released from 
 its fair share of the expenses of government. The business of 
 farming is certainly no less important to the public welfare, 
 and might urge the same claim for special favor. The same is 
 true of any business whose products or services contribute to 
 the satisfaction of important human wants, varying only as 
 to the urgency of the want supplied. Beneficial as insurance 
 undoubtedly is, there are many other industries of equal or 
 greater importance to human welfare. 
 
 That taxation of insurance is a burden placed upon pru- 
 dence and thrift can hardly be denied. But so is any tax. The 
 prudent, thrifty man, who accumulates wealth, is taxed, while 
 the shiftless spendthrift escapes. It cannot be otherwise un- 
 less we revolutionize the principles on which all our taxation 
 is based. Taxes must ever be an evil, but yet a necessary evil, 
 which we bear as the price paid for the benefits of government. 
 
 It is urged that the tax on insurance companies must be 
 paid by their policyholders, and of the general truth of this 
 statement there can be little question. This, however, is no 
 argument against taxation of such companies. There is no rea- 
 son why the citizen who invests his funds in life insurance 
 should be exempt from taxation on such investment any more 
 than if it were invested in any other line. The argument that 
 such exemption should be granted for the reason that insur- 
 ance is entered into for the sake of giving protection to one's 
 family or other dependents is not strong. In the first place, it 
 overlooks the fact that very much of modern insurance par- 
 takes of the endowment character and is, therefore, in the 
 nature of a real investment in that the policyholder frequently 
 looks forward to withdrawing his funds for his own use. But 
 this is apart from the real question. Expenditure for life in- 
 surance is not the only expenditure which is in the interest of 
 one's family and dependents; the great bulk of all of the ex- 
 penditures of the head of the family are of that nature. It 
 has never been recognized as a principle of taxation that ex- 
 penditures for the benefit of one's family should be exempt 
 from taxation or subject to a lighter burden. Even the claim 
 that insurance payments differ from all others in that they are 
 
154 REPORT OF SPECIAL, TAX COMMISSION 
 
 for the sake of giving protection to others, after the death 
 of the policyholder, is not valid. We hear a great deal about 
 insurance put by for the future for the protection of the widow 
 and the orphan. As a matter of fact, all capital is put by 
 for the future and may be just as well for the protection of 
 the widow and the orphan as in the case of the insurance in- 
 vestment. In the second place, there is no sound principle of 
 taxation to support the claim that investments or savings made 
 for the future protection of one's family should be taxed dif- 
 ferently from other investments or savings. The situation 
 might, indeed, be entirely changed if the basis of our tax sys- 
 tem were not the general taxation of property. Under our 
 present tax system, however, this claim for special exemption 
 of insurance companies cannot stand. In conclusion, therefore, 
 the Commission is of the opinion that the problem of taxation 
 of insurance companies is to be viewed in the light of an equit- 
 able distribution of the burdens of government upon the citi- 
 zens in accordance with their ability to pay, on the same prin- 
 ciple which should govern the taxation of other kinds of 
 wealth. 
 
 (2) Does the Connecticut System Lead to Unfair Double 
 Taxation? — A second line of argument is that the taxation by 
 Connecticut of the total assets of her insurance companies is 
 unjust, for the reason that a great majority of these assets 
 really belongs to persons residing outside the State, and also 
 for the similar reason that the wealth represented by these 
 assets is very largely located outside Connecticut. This ar- 
 gument appears to be worthy of serious consideration. On no 
 principle of taxation could we justify the taxation by one State 
 of the total assets of its insurance companies held for citizens 
 of other States at the same rate of taxation as imposed upon 
 other kinds of wealth. For the same reason we can hardly 
 deny the right of other States to impose some taxation upon 
 the insurance companies of Connecticut, based either upon their 
 possession of wealth located in these other States, or upon 
 their collection of premiums in the conduct of their business in 
 such States. Taxation of the entire assets, at the average tax 
 rate, by Connecticut, while at the same time making no allow- 
 ance for taxes paid to other States, is obviously double tax- 
 ation. 
 
 It should, of course, be borne in mind in this connection 
 that Connecticut does not, as a matter of fact, tax the assets 
 of her insurance companies at the rate at which other wealth 
 in the State is taxed. It has been estimated that wealth in 
 general bears a burden equal to about 1 per cent, of its true 
 value under the general property tax. Even if Ave assume that 
 most of the assets of the insurance companies would be en- 
 
MUTUAL INSURANCE COMPANIES 155 
 
 titled to taxation at the four mill rate, we would still have a 
 rate much higher than the rate of ^4 of 1 per cent, which is the 
 present rate of the State tax on the assets of insurance com- 
 panies. The mere fact, therefore, that Connecticut taxes her 
 insurance companies on assets held for non-residents, does not 
 necessarily prove that the resulting tax is excessive. This was 
 virtually admitted by the representatives of the companies 
 themselves, when they offered as their main suggestion merely 
 the reduction of the rate while leaving the present basis of 
 the tax unchanged. 
 
 It might be claimed that the present tax on insurance com- 
 panies is excessive when compared with the tax on savings 
 banks. Savings banks also pay a tax of ^4 of 1 per cent, on 
 what amounts to the bulk of their assets, and savings banks 
 normally pay no taxes to other States. The burden of taxation 
 upon the insurance companies is therefore greater to the ex- 
 tent of the taxes paid to other States. But as will be shown 
 in Chapter IX, savings banks have some claim to special leni- 
 ency on the ground that they exist especially to serve the poor. 
 Even this argument must not be pushed to the extreme. Still 
 it does offer some reason for specially moderate taxation of 
 savings banks. The insurance companies do not have this 
 ground for leniency, at least not in the same degree. Savings 
 banks are also limited by the State as to the character of their 
 investments, which offers some reason for a light State tax. 
 
 A reasonable solution of this problem must come there- 
 fore from inquiring what method of taxation and what rates 
 will result in placing upon the insurance companies a tax bur- 
 den not greater than that borne by similar investments held 
 by private individuals. To this end we must take account of 
 the total taxes paid by the companies outside Connecticut as 
 well as within. To show what the total burden of State tax- 
 ation actually amounts to, the following calculation has been 
 made. 
 
 MUTUAL LIFE INSURANCE COMPANIES OP CONNECTICUT 
 (FIGURES AS OF JANUARY 1, 1912.) 
 
 Total Market Value of Assets $ 278,657,065.99 
 
 Statutory Deductions 96,237,706.51 
 
 Balance Subject to Taxation 182,419,359.48 
 
 Deduct all Real Estate Owned 6,136,583.80 
 
 Balance Subject to State Taxation 176,282,775.68 
 
 Tax on Above at 0.4% 705,131.10 
 
 Net Tax Paid to State of Connecticut 422,492.38 
 
 Taxes Paid to Other States 287,239.68 
 
 Total Taxes Paid 709,732.06 
 
 EXPLANATION OF THE ABOVE CALCULATION 
 The figures for the above calculation have been obtained 
 from the published reports of the State Insurance Commissioner 
 and the Tax Commissioner, and from reports made by the com- 
 
156 REPORT OF SPECIAL TAX COMMISSION 
 
 panies directly to this Commission. The calculation relates to 
 mutual insurance only. In the case of companies writing also 
 non-participating insurance, a separation of the mutual business 
 has been made. In a few cases it has been necessary to make 
 estimates for the reason that an exact separation between par- 
 ticipating and non-participating business was not possible. 
 
 We start with the sum of the market value of the assets of 
 all of the life insurance companies of the State as reported to 
 the Tax Commissioner for purposes of taxation. This sum rep- 
 resents all assets, both stock and mutual departments. We next 
 deduct the statutory deductions as published by the Tax Com- 
 missioner. Since these deductions include all assets belonging 
 to the stock departments, in addition to any non-taxable assets, 
 the balance remaining represents the amount of assets subject 
 to taxation according to the Connecticut system as belonging to 
 purely mutual insurance. From this sum we deduct the total 
 value of all real estate owned, on the assumption that real estate 
 is taxed locally. The balance is the amount properly subject to 
 State taxation in Connecticut and other States. The next line 
 represents the amount of the tax upon this sum at the rate of 
 4 mills. We then add to the total tax paid by mutual insurance 
 companies to the State of Connecticut the total amount of taxes 
 paid in other States properly assignable to mutual business. This 
 last amount does not include real estate taxes nor the federal 
 corporation tax. The sum of these two amounts then represents 
 the total amount of State taxation properly assignable to mutual 
 business. 
 
 The above calculation shows that the total amount of taxes 
 paid to Connecticut and other States by mutual life insurance 
 companies of Connecticut is almost exactly equal to a tax upon 
 their taxable assets at the rate of 4 mills. Your Commission 
 has performed a similar calculation for each of the companies 
 individually, with much the same result. Briefly stated, the 
 taxes paid by the Connecticut Mutual Life Insurance Company 
 are about $18,000 less than a tax of 4 mills upon the company's 
 taxable assets. All of the other companies are paying slightly 
 more than the amount of the 4 mill tax, the excess in each case 
 being approximately as follows : 
 
 Phoenix Mutual Life Insurance Co $11,000 
 
 .(Etna Life Insurance Co 6,000 
 
 Connecticut General Life Insurance Co 1,000 
 
 Travelers Insurance Co 400 
 
 Hartford Life Insurance Co 4,000 
 
 We may conclude, therefore, that Connecticut's present 
 tax system, together with all the taxes imposed by other States, 
 imposes a burden upon the mutual life insurance companies 
 barely in excess of what they would pay if subject to a single 
 tax of 4 mills upon their taxable assets. Of course, it does not 
 follow from this that Connecticut's tax is not too high. It may 
 be merely balanced by lenient taxation in other States. It does 
 prove, however, that the burden imposed by Connecticut's pres- 
 ent tax system is not on its face excessive, even when full ac- 
 count is taken of the taxes paid in other States. 
 
MUTUAL INSURANCE COMPANIES 157 
 
 (3) Are the Connecticut Companies Subjected to an Un- 
 fair Burden in Competition with Companies of Other States? — 
 
 The two arguments against the present taxation of mutual life 
 insurance companies thus far considered have been somewhat 
 theoretical, the claim being that, judged by any fair standard, 
 the taxes paid by the companies are absolutely too high. That 
 this claim is not supported by the facts has been shown. The re- 
 maining argument is of a more practical character, seek- 
 ing to show that whatever may be said of the absolute justice of 
 the present system, its actual result is discrimination against 
 the Connecticut companies as compared with their rivals char- 
 tered by other States. This claim deserves a fair consideration. 
 
 We have already shown, on theoretical grounds, the fallacy 
 of the claim that insurance companies should be taxed in a 
 specially lenient way. As a matter of fact, however, this idea 
 is actually held by many persons; moreover it has governed 
 the legislation of many of the States, including even that of 
 Connecticut. If it can be shown that the great insurance com- 
 panies of other States, with which our Connecticut companies 
 have to compete, are actually subject to a relatively light bur- 
 den of taxation in their home States, it is entirely possible 
 that injustice may be done to Connecticut companies by a sys- 
 tem of taxation which might otherwise be entirely justifiable. 
 If such be the case, then the Connecticut companies would ap- 
 pear to have a fair claim to consideration. 
 
 To determine the facts in the case, we may examine the 
 tax laws of three or four of the States in which are located the 
 other large insurance companies of the country. 
 
 (a) Massachusetts taxes her mutual life insurance com- 
 panies by means of an excise tax of *4 of 1 P^ cent, upon the 
 net value of all policies in force held by residents of the com- 
 monwealth. This is clearly a very small tax when compared 
 •with Connecticut's tax of % of 1 V er cent - on practically the 
 total amount of the assets of the' companies. 
 
 Take as an example the Connecticut Mutual Life Insurance 
 Company. This company paid in 1912, to the State of Connecti- 
 cut, $136,454, whereas, if the Massachusetts law had been in force 
 in Connecticut, its tax to the State would have been about $6,000. 
 Looking at the matter in the opposite way, we may take as an 
 example the Massachusetts Mutual, which paid to Massachusetts 
 in 1912 taxes of about $18,000. Had the State of Massachusetts 
 used the Connecticut system, the taxes of this company would 
 have been about $133,000. 
 
 Further evidence is shown in the following figures in which 
 a comparison is made between the Phoenix Mutual Life Insur- 
 ance Company of Connecticut and three Massachusetts mutual 
 companies, namely, the Massachusetts Mutual, the State Mutual 
 and the New England Mutual. This comparison includes all 
 taxes paid except real estate taxes. 
 
158 REPORT OF SPECIAL TAX COMMISSION 
 
 Tax paid by three Massachusetts companies $ 428,623 
 
 Tax paid by Phoenix Mutual 140,243 
 
 Admitted assets of three Massachusetts companies . 161,889,228 
 
 Admitted assets of Phoenix Mutual 32,322,125 
 
 Premiums of three Massachusetts companies 22,811,891 
 
 Premiums of Phoenix Mutual 5,038,328 
 
 Dividends of three Massachusetts companies 3,958,032 
 
 Dividends of Phoenix Mutual 684,499 
 
 Prom these figures will be found the following ratios for 
 comparison: 
 
 Ratio of taxes .to assets Massachusetts companies . . .0027 
 
 Ratio of taxes to assets Phoenix Mutual .0043 
 
 Ratio of taxes to premiums Massachusetts companies .019 
 
 Ratio of taxes to premiums Phoenix Mutual .028 
 
 Ratio of taxes to dividends Massachusetts companies .108 
 
 Ratio of taxes to dividends Phoenix Mutual .205 
 
 (b) New York taxes her domestic insurance companies 
 even more leniently than Massachusetts, imposing upon them 
 merely an annual franchise tax amounting to 1 per cent, of the 
 gross amount of premiums received for business done in the 
 State, less dividends. 
 
 Take as an example again the Connecticut Mutual Life In- 
 surance Company. This company paid in 1912 to the State of 
 Connecticut, $136,454, whereas, if the New York law had been 
 in force in Connecticut, its tax to the State would have been only 
 about $2,000. Or, from the opposite viewpoint, we may take the 
 Mutual Life Insurance Company of New York, which paid to 
 New York in 1912, taxes of about $8,000. Had the State of New 
 York used the Connecticut system the taxes of this company 
 would have been about $1,100,000. 
 
 Further evidence is shown in the following figures, in which 
 a comparison is made between the Phoenix Mutual and three 
 New York companies, namely, the Equitable, the Mutual Life, and 
 the New York Life. This comparison excludes real estate taxes in 
 all cases: 
 
 Taxes paid by three New York companies $ 2,345,430 
 
 Taxes paid by Phoenix Mutual 140,243 
 
 Admitted assets of three New York companies . . 1,764,190,608 
 
 Admitted assets of Phoenix Mutual 32,322,125 
 
 Premiums of three New York companies 191,179,673 
 
 Premiums of Phoenix Mutual 5,038,328 
 
 Dividends of three New York companies 43,054,373 
 
 Dividends of Phoenix Mutual 684,499 
 
 From these figures will be found the following ratios for 
 comparison : 
 Ratio of taxes to assets in New York companies . . .0013 
 
 Ratio of taxes to assets in Phoenix Mutual .0043 
 
 Ratio of taxes to premiums New York companies . . .012 
 
 Ratio of taxes to premiums Phoenix Mutual .028 
 
 Ratio of taxes to dividends New York companies . . .054 
 
 Ratio of taxes to dividends Phoenix Mutual .206 
 
 (c) Pennsylvania imposes a tax upon her domestic com- 
 panies of 8 mills on the amount of gross premiums received 
 from residents of the State. In addition thereto, the invested 
 assets of mutual companies are taxed at the rate of 4 mills, 
 
MUTUAL INSURANCE COMPANIES 159 
 
 with certain considerable deductions. The Pennsylvania law 
 is one of the most severe outside of Connecticut. For example, 
 the Connecticut Mutual Company if subjected to the Pennsyl- 
 vania system, would pay just about the same as under the Con- 
 necticut law. 
 
 (d) Wisconsin taxes her mutual life insurance companies 
 3 per cent, upon gross premiums received from residents of 
 the State, and 3 per cent, on all investment income, less rents 
 and certain other deductions. This means a somewhat lighter 
 tax than imposed by the Connecticut law. 
 
 For instance, the Connecticut Mutual Company, which paid 
 in 1912 to the State of Connecticut, $136,454, would have paid, if 
 taxed according to the Wisconsin law, about $98,000. The North- 
 western Mutual paid to the State of Wisconsin in 1910, taxes 
 amounting to $482,000. If such company had been taxed under 
 the Connecticut law, its tax would have amounted to about 
 $637,000. 
 
 From the above facts it is evident that Connecticut im- 
 poses a considerably heavier burden upon her mutual life in- 
 surance companies than is imposed on their own companies by 
 certain other States in which are located most of the chief 
 competitors of the Connecticut companies. This heavier bur- 
 den must tend to increase the cost of insurance in the Connecti- 
 cut companies. The Connecticut companies have to meet the 
 competition of the other great insurance companies of the 
 country, and if they are subject to a relatively heavier burden 
 of taxation the result tends to unfairly burden them in this 
 competition. On the other hand, we must not overlook the fact 
 that the Connecticut companies have flourished and apparently 
 held their own in competition with other companies. That 
 Connecticut's tax system is not a fatal handicap is proved by 
 the very fact of the rapid growth and flourishing condition of 
 the companies affected ; for whatever this handicap may be, the 
 companies have been living tinder it for a good many years. 
 The present tax system is no new thing. It has been in effect 
 since 1884, and before that time the rate was even higher. 
 However, such reasoning merely goes to prove that the situa- 
 tion is not desperate. It does not prove that there is not a 
 discriminating burden upon the Connecticut companies due to 
 the taxation which they have to bear. 
 
 Conclusions from Criticism of the Present System: — From 
 all the foregoing evidence we conclude that the burden imposed 
 by the Connecticut tax system upon her mutual life insurance 
 companies, while not excessive absolutely, is relatively heavy 
 when compared with the taxation of domestic companies by 
 other States. It would appear that some reduction 
 in the burden of taxation was warranted, if for no other 
 
160 REPORT OF SPECIAL TAX COMMISSION 
 
 reason, in order to place the Connecticut companies on a 
 more equitable footing in their competition with the insur- 
 ance companies of other States. In addition to the desirability 
 of some reduction in the burden of taxation, your Commission 
 is also of the opinion that a change in the basis of taxation 
 is desirable. Connecticut, in taxing insurance companies up- 
 on the value of their assets, is following a system different from 
 that employed by a majority of the other States. The general 
 superiority of earnings as a measure of tax-paying ability has 
 been discussed, and the advantage of the tax on earnings ap- 
 plies to insurance companies as well as to other corporations. 
 No other index so truly measures the real worth of a company, 
 or its ability to pay taxes, as the amount of its earnings; the 
 tax upon earnings is the most common method at present em- 
 ployed by the other States in taxing insurance companies. A 
 change in the Connecticut system to the earnings basis would 
 place the taxation of insurance companies in harmony with the 
 methods recommended for the taxation of the public service 
 corporations and would also place Connecticut more in line 
 with the other States in the taxation of insurance companies. 
 
 B. INSURANCE COMPANIES OTHER THAN LIFE 
 
 The discussion so far has related to life companies only. 
 Although mutual fire and certain other mutual companies are 
 taxed under almost the same system, no complaint has reached 
 your Commission from these companies. "With two exceptions 
 the companies are quite small. Their business is confined al- 
 most wholly to the State of Connecticut. They do not face 
 the question of taxation by other States, which has been shown 
 to be so serious a matter for the life companies. The matter 
 of competition with the companies of other States is also of 
 no great importance. Furthermore, these companies have rela- 
 tively small assets, and their taxes under the present system 
 are correspondingly light. It is evident, therefore, that the 
 criticism of the present system which has been discussed under 
 the head of "life companies" does not apply to the other 
 companies. 
 
 If, however, a change is to be made in the method of tax- 
 ing mutual life insurance companies, the same plan should if 
 possible be applied to other companies for the sake of the ob- 
 vious advantages of uniformity. 
 
 A minor defect in the present statute has been brought 
 to the attention of the Commission by representatives of the 
 mutual fire insurance companies. The mutual companies other 
 than life are required by the present law to deliver their re- 
 ports to the Tax Commissioner on or before January 20, stating 
 
MUTUAL INSURANCE COMPANIES 161 
 
 the required facts as of December 31. They are required to 
 report to the Insurance Commissioner on February 10. They 
 find it necessary to make up the latter report before they can 
 prepare the report for the Tax Commissioner. The time be- 
 tween January 1 and January 20 is so short that the companies 
 are put to great inconvenience in preparing their reports on 
 time. They have asked that the time be extended. 
 
 This request seems reasonable to the Commission, and 
 there also appears to be no good reason why reports from all 
 mutual insurance companies should not be received oh the 
 same date. It is accordingly recommended that the dates for 
 making the reports and paying the tax by insurance companies 
 other than life be extended to February 15 and February 25 
 respectively. These are the dates at present in force for 
 mutual life insurance companies. 
 
 V. THE TAX ON INCOME RECOMMENDED 
 
 The Problem to be Met: — The considerations which have 
 been presented lead to the conclusion that the present system 
 of taxing mutual insurance companies upon the value of their 
 assets should be given up, and in its place should be substi- 
 tuted a tax based- upon earnings. The new system should 
 be so devised as to somewhat relieve the present burden of 
 taxation upon the life companies. While some reduction in 
 the burden of taxation is due the life companies, it by no 
 means follows that Connecticut is entitled only to her share 
 of the earnings of her own companies on the basis of earn- 
 ings received or business conducted in Connecticut as com- 
 pared with the total earnings or business of the companies. 
 Connecticut is a small State; her life insurance companies 
 do business all over the United States, and the business done 
 by them in the State of Connecticut is only a small fraction 
 of their total business. Were Connecticut to claim no greater 
 . right of taxation than is to be fairly admitted to other States, 
 the revenue thus derived would be an insignificant fraction 
 of what is received today. Moreover, the Connecticut com- 
 panies enjoy the advantages of incorporation under the laws 
 of Connecticut, and no one could fairly deny that this fact 
 gives to the State some claim for revenue from her own com- 
 panies beyond what another State could assert. The State can- 
 not at present afford a great sacrifice of revenue. These prac- 
 tical considerations must necessarily enter into any plan pro- 
 posed even though it be at the cost of some departure from 
 theoretical perfection. 
 
 In seeking to determine some method of taxing mutual 
 insurance companies which, while being as nearly correct 
 12 
 
162 REPORT OF SPECIAL TAX COMMISSION 
 
 in theory as possible, would yet take account of the prac- 
 tical need of the State for revenue and the claim of the life 
 companies for a reduction in their tax burden, your Commis- 
 sion has concluded that the following method meets the re- 
 quirements as nearly as can be devised: 
 
 The Plan Proposed: — It is recommended that all mutual 
 insurance companies be taxed upon their gross receipts from 
 investments (i. e., gross interest and rents) plus their 
 premiums from Connecticut business. Under this proposed 
 plan Connecticut would assert to herself the right to tax all 
 of the investment earnings of her own companies, while claim- 
 ing the right to tax only such income from premiums as was 
 received on account of Connecticut business. This would leave 
 to other States the taxation of premiums collected upon busi- 
 ness within their borders without involving double taxation of 
 premium income. The income taken as the basis of taxation, 
 should be strictly gross. This statement is made with perfect 
 understanding of the fact that it is net income and not gross 
 that perfectly measures tax-paying ability. The basis of gross 
 earnings is selected here for the same reasons that have been 
 discussed at some length to explain the choice of gross earnings 
 for the taxation of public service corporations. (See Chapter 
 I.) Net earnings involve many complications, such as varia- 
 tions in bookkeeping practice and judgment as to matters of 
 fact, and are, therefore, undersirable as a tax basis. Gross 
 earnings are a definite fact about which there can never be dis- 
 agreement or necessity for the exercise of personal judgment. 
 
 In order to further simplify the method the Commission 
 recommends that no deduction be made for taxes on real es- 
 tate; that the real estate of the companies in Connecticut be 
 subject to local taxation as heretofore but without deduction 
 from the tax paid to the State. In the case of companies 
 which have both a mutual and a stock department there should 
 be deducted from the- total gross income from investments and 
 Connecticut premiums the part of such income which properly 
 belongs to the stock department. Such deduction is necessary 
 for the reason that stock insurance companies are subject to 
 taxation upon their shares of stock. 
 
 The Rate of the Tax: — In seeking to determine a fair rate 
 for the tax upon earnings as defined above, the Commission 
 has sought to find a rate which during the first year of the 
 operation of the new system would not greatly reduce the rev- 
 enue of the State from the taxation of mutual insurance com- 
 panies. It realizes that this result is to be obtained only by 
 a fairly high rate as compared with the taxation of insurance 
 companies in other States. It also realizes that this result 
 
MUTUAL INSURANCE COMPANIES 16,3 
 
 takes inadequate account of the admitted desirability of some 
 reduction in the burden of taxation upon life companies. The 
 Commission therefore proposes that there shall be a gradual re- 
 duction in the rate of the tax during a period of years follow- 
 ing the enactment of the new system until a rate is reached 
 which may fairly measure the burden of taxation which the in- 
 surance companies should be asked to bear permanently. It is 
 to be expected that the natural growth of the companies will so 
 increase the basis of the tax that this gradual reduction may be 
 allowed without resulting in a serious or sudden decrease in 
 the revenue of the State. 
 
 The following table shows the data on which the tax 
 would be computed according to the system proposed by the 
 Commission. The figures are the totals for all mutual insur- 
 ance companies, as of January 1, 1912. 
 
 BASIS OP THE PROPOSED TAX SYSTEM 
 Life Other 
 
 Companies. Companies. Total. 
 
 Total Gross Interest and 
 
 Rents $8,782,229.89 $135,170.01 $ 8,917,399.90 
 
 Premiums on Connecticut 
 
 Business 1,183,396.34 326,086.54 1,509,481.88 
 
 Total Taxable Income . .$9,§65,625.23 $461,256.55 $10,426,881.78 
 
 In obtaining the figures in the above table it has been nec- 
 essary to make a separation of the income belonging to par- 
 ticipating business of those companies which do both partici- 
 pating and non-participating business. In a few cases estimates 
 have been necessary where the exact separation could not be 
 made. 
 
 The total taxes paid to the State by the mutual insurance 
 companies in 1912 amounted to $429,323.50. In order to obtain 
 approximately the same revenue, the rate under the pro- 
 posed plan would have to be 4 per cent., which would pro- 
 duce a total revenue of $417,075.27. 
 
 Starting with a rate of 4 per cent, in the first year, the 
 rate might properly be reduced by % of 1 per cent, in each 
 following year until a rate of 3 per cent, were reached. The 
 rate of 3 per cent, should then remain in force permanently. 
 It is believed by your Commission that a rate of 3 per cent, 
 upon the basis recommended would impose a reasonable bur- 
 den of taxation upon the companies. 
 
 Probable Result of the Proposed Plan :— The effect of the 
 plan proposed upon the two classes of companies is shown 
 in the following table, the amount of the tax under the pro- 
 posed plan being what would have been paid if that plan had 
 been in force in 1912. 
 
164 REPORT OF SPECIAL TAX COMMISSION 
 
 Life Other 
 
 Companies. Companies. Total. 
 
 State tax paid in 1912. . .$422,492.38 $ 6,831.12 $429,323.50 
 
 Tax under proposed plan 398,625.01 18,450.27 417,075.27 
 
 Increase( + ), Decrease (-) -23,867.37 +11,619.15 -12,248.23 
 
 It will be seen that the plan accomplishes fairly the re- 
 sults that were sought. With only a small initial reduction in 
 the State's revenue some substantial relief has been given the 
 life companies. It is true that the change to a tax on income 
 will mean a considerable increase in the taxes paid by the mu- 
 tual companies other than life. This increase, however, can 
 scarcely be held unjust. Under the present system these com- 
 panies bear a very light burden of taxation. The eighteen 
 companies paid together less than $7,000 in 1912. One com- 
 pany paid 22 cents, another 47 cents, and the largest amount 
 paid by a single company was barely over $3,000. The pro- 
 posed change will bring the total taxes on these companies up 
 to a little over $18,000. This appears to be a large increase 
 relatively, but the absolute amount is still small. There is 
 no reason why these companies should not bear the same kind 
 of tax as the life companies, particularly in view of the fact 
 that they pay practically no taxes in other States. 
 
 As regards the future State revenue it is probable that 
 the normal growth in the business of the companies will be 
 such as largely to offset the annual reduction in the rate, so 
 that the actual revenue received will not be greatly diminished 
 from year to year. After the final rate of 3 per cent, has been 
 reached, further growth in the business of the companies will, 
 of course, lead to a proportional increase in the State's rev-, 
 enue. 
 
 VI. TAXATION OP INSURANCE COMPANIES IN 
 OTHER STATES 
 
 There is little uniformity in the methods employed by the 
 various States in the taxation of insurance companies, and de- 
 tails of the statutes are exceedingly complicated and confus- 
 ing. The following is a brief general summary of the 
 principal methods employed in the taxation of domestic insur- 
 ance companies. 
 
 The most common basis is some form of taxation upon 
 premiums. In twenty-four States the tax on premiums is the 
 most important tax on insurance companies. Ten other States 
 impose taxes on premiums in combination with other kinds of 
 taxes. Next to the tax on premiums the most important 
 method is the tax upon stock, (limited, of course, to stock com- 
 panies). This method is used in ten States. 
 
 The majority of the States still impose ad valorem taxes 
 
MUTUAL INSURANCE COMPANIES 165 
 
 upon the property of insurance companies, in a few Statea upon 
 all of the property, but generally upon • tangible property or 
 real, estate only. In most of these States the ad valorem taxes 
 are merely supplementary, the basis of the system being some 
 other tax. 
 
 Some fifteen States impose various kinds of special taxes 
 upon insurance companies, though in no ease is such special 
 tax the principal tax. 
 
 In the majority of the States there is no difference made 
 in the tax system between stock and mutual companies. Where 
 there is a distinction made, mutual companies as a rule are not 
 subject to quite so heavy a tax burden as 1 stock companies. 
 Apart from that no general rule appears in the distinctions 
 made between the two classes of companies. 
 
 VII. SUMMARY OF RECOMMENDATIONS 
 
 The Commission recommends that the present method of 
 taxing domestic mutual insurance companies be abandoned, 
 and that in its place a corporate franchise tax be imposed . 
 measured by the sum of the total gross interest and rents, and 
 the premiums on Connecticut business. It recommends that the 
 rate be 4 per cent, in the first year after the enactment -of the 
 law, and that the rate be reduced by % of 1 per cent, in each 
 succeeding year until the rate becomes 3 per cent., which shall 
 remain the permanent rate thereafter. Under this system there 
 should be no deductions allowed from the sum of' gross interest 
 and rents and premiums on Connecticut business. It is recom- 
 mended that the companies remain subject to local taxation 
 on their real estate as at present, but without allowing any 
 deduction therefor from the State tax. 
 
 It is recommended that the dates on which mutual insur- 
 ance companies other than life are required to make their re- 
 ports to the Tax Commissioner and to pay the State tax be 
 changed to February 15 and February 25 respectively, thus 
 agreeing with the dates as fixed in the present statutes for 
 mutual life insurance companies. 
 
CHAPTER IX 
 SAVINGS BANKS 
 
 GENERAL SUMMARY OF CHAPTER 
 
 I. The Present Method of Taxation in Connecticut: — 
 
 Savings banks and savings departments of banks and trust 
 companies are at present taxed by the State % of 1 per cent, 
 upon their deposits, after deducting (1) the amount invested in 
 certain tax-exempt securities, and (2) a lump sum of $50,000 
 for each bank. From the tax is deducted the amount of real 
 estate taxes paid in the State. 
 
 II. Historical Development of the Law : — The first law im- 
 posing a special State tax on savings banks was enacted in 1851. 
 The tax was 1-8 of 1 per cent, of their deposits. The rate has 
 been changed several times. It was raised to 3-16 of 1 per 
 cent, in 1857, to ^4 of 1 per cent, in 1859, % of 1 per cent, in 
 1862, and % of 1 per cent in 1864. In 1873, the rate was made 
 % of 1 per cent, on deposits loaned on real estate, and 1 per 
 cent, on other deposits. The rate was reduced to % of 1 per 
 cent., and the distinction in favor of real estate loans, aban- 
 doned, in 1877. In 1878 the^rate was made ^ of 1 per cent., the 
 present rate. The privilege of deducting a lump sum was first 
 granted in 1875, the amount being $10,000, which was raised to 
 $50,000 in 1878. Building associations were made subject to 
 the law in 1857 at a slightly higher rate than savings banks 
 (Yi of 1 per cent.). The rate was made the same as for sav- 
 ings banks in 1859, but in 1875 building associations were 
 omitted from the law. 
 
 III. Operation of the Present Tax System: — There are at 
 present 100 institutions subject to the tax, consisting of 87 
 savings banks and 13 trust companies with savings depart- 
 ments. The total receipts from the tax in 1912 were $660,- 
 194.98. 
 
 IV. Criticism of the Present Tax System: — The present 
 system is in the main satisfactory. It is certain, simple, easy 
 to administer, and moderate as to its amount. It would be 
 an advantage to amend it by allowing the exemption of sums 
 loaned on Connecticut real estate. The law has also certain 
 minor defects which the Commission recommends should be 
 remedied. 
 
 V. Taxation of Savings Banks in Other States: — The 
 methods of taxing all banking institutions in other States are 
 summarized briefly in Chapter VII. 
 
 VI. Recommendations: — The Commission recommends 
 that the present method of taxation be amended by allowing 
 (in addition to present deductions) the deduction from the 
 
SAVINGS BANKS 167 
 
 amount of taxable deposits of the amount invested in loans 
 on Connecticut real estate, and that the rate of the tax be in- 
 creased to 0.4 per cent. It is also recommended that, instead 
 of deducting real estate taxes from the tax on deposits, the 
 assessed value of real estate be deducted from the deposits, 
 and that the date for making the report to the Tax Commis- 
 sioner be changed to October 15, the statements to be as of 
 October 1. The result of these recommendations would be to 
 increase the revenue of the State by about $25,000. 
 
 I. THE PRESENT METHOD OF TAXATION IN 
 CONNECTICUT 
 
 Connecticut taxes savings banks upon their deposits. 
 Every savings bank is required to pay an annual tax upon 
 "its corporate franchise" computed as follows: From the 
 amount of its deposits, exclusive of surplus, is deducted (1) 
 the amount which it has invested in bonds of the State of 
 Connecticut, (2) the amount invested in bonds issued by a 
 town or city of Connecticut in aid of the construction of cer- 
 tain railroads, which bonds are exempt from taxation, (3) the 
 market value of the stock of banks and trust, insurance, in- 
 vestment, and bridge companies, (which corporations pay to 
 the State a tax on their stock) which the savings bank owned 
 on April 1, 1901, and has owned continuously since then, and 
 (4) a lump sum of $50,000. The tax is % of 1 per cent, upon 
 the balance remaining, less the amount of taxes payable on its 
 real estate in Connecticut during the past year. Banks and 
 trust companies having savings departments are subject to 
 the same tax upon their savings deposits. 
 
 Each institution must report the facts as above, annually, 
 to the Tax Commissioner, these reports being examined and 
 corrected, if necessary, by the State Board of Equalization. 
 This tax is in lieu of all other taxes upon the bank, its deposits 
 or its surplus, except upon its real estate, which is subject 
 to taxation where located. Savings bank deposits are exempt 
 from taxation in the hands of the owners. (Gen. Stat., sec. 
 2422, as amended by Acts 1903, eh. 189 ; sec. 2334, as amended 
 by Acts 1905, ch. 157 ; sec. 2441, 2465 ; Acts 1907, ch. 85, 204.) 
 
 The report required must be a sworn statement, must be 
 delivered on or before January 10, of each year, and must show, 
 in addition to the facts as above, a specific list of all real estate 
 assessed against the bank, these facts being as of January 1, 
 last. The reports from banks and trust companies having sav- 
 ings departments are required on or before October 1. Such 
 institutions must report also the securities in which their sav- 
 ings deposits are invested. The tax must be paid, % on or before 
 January 20, and % on or before July 20. For failure to make 
 the required report, the responsible officer is subject to a penalty 
 
168 REPORT OP SPECIAL TAX COMMISSION 
 
 of. $500; for failure to pay the tax, the corporation shall forfeit 
 twice the amount of the tax due. 
 
 The Board of Equalization is required to meet each year 
 on the first secular day after the expiration of the time for mak- 
 ing reports by savings banks to examine and correct such returns 
 and to hear any party making such returns. If any such returns 
 are not made or are erroneously made, the Board is required 
 to make up the return on the best information it can obtain. 
 This return is reported to the bank concerned. It is final, and 
 the taxes are to be paid on it. 
 
 n. HISTORICAL DEVELOPMENT OF THE LAW 
 
 The special taxation of savings banks by the State of 
 Connecticut goes back to 1852. In that year a law was enact- 
 ed imposing upon savings banks a tax of J^ of 1 per cent, upon 
 their deposits, this tax being in lieu of all other taxes upon 
 the institution or its depositors. (Acts 1851, ch. 47.) 
 
 The law applied to all savings banks and savings associa- 
 tions established in the State. The^bank was required to report, 
 by a sworn statement, within the first ten days of July of each 
 year, the amount of its deposits on that day. The tax was pay- 
 able at the same time. 
 
 Several amendments to the law were made in 1857. (1) 
 The law is made to apply also to building associations. (2) 
 Savings and building associations are required to pay a tax of 
 % of 1 per cent, upon their deposits and stock ; savings banks 
 are required to pay 3-16 of 1 per cent, upon their deposits. (3) 
 It is specified that real estate above what may be required 
 by the bank or association for the conduct of its business shall 
 not be exempt from taxation. (4) The tax is in lieu of all 
 other taxes upon the institution or its deposits or stock. (Acts 
 1857, ch. 64.) 
 
 An act of 1859 raised the rate of the tax on savings banks 
 by making the rate of ^ of 1 per cent, apply to all savings 
 banks and savings and building associations. (Acts 1859, ch. 
 
 67.) 
 
 The same act provided that the tax should be paid y 2 on or 
 before July 15, and % on or before January 15. (Acts 1859, 
 ch. 67.) 
 
 In 1862 the rate was doubled, becoming ^ of 1 per cent. 
 (Acts 1862, ch. 55.) 
 
 This act further required the State Board of Equalization to 
 examine and correct the statements required of the institutions 
 and, if necessary, make out the required statements them- 
 selves from the best knowledge they could obtain, this state- 
 ment to be final. 
 
 The same act made certain minor changes: (1) The re- 
 quired report is to state the facts as of July.l last; (2) the 
 dates for paying the tax are changed to July 20 and January 20 
 respectively. (Acts 1862, ch. 68.) 
 
SAVINGS BANKS 169 
 
 In 1864 the rate was again increased, this time to % of 
 1 per cent. (Acts 1864, ch. 74.) 
 
 This law provided a penalty of $500 for failure to make the 
 required report; for failure to pay the tax,, a penalty of twice the 
 amount of the payment due. 
 
 In 1869 a statute was passed which exempted from taxa- 
 tion in the hands of their holders all bonds issued by a town or 
 city of Connecticut in aid of the construction of certain rail- 
 roads, or issued to subscribe for stock in such railroads; the 
 railroads themselves being taxed by the State upon the amount 
 of such bonds and stock as soon as the sums so obtained had 
 been expended for railroad construction. (Acts 1869, ch. 10.) 
 In accordance with this law, the savings bank act was amended 
 by allowing the savings banks and building associations to de- 
 duct from their deposits and stock subject to taxation (1) 
 the amount invested in bonds of the State of Connecticut, and 
 (2) the amount invested in town and city bonds issued in aid 
 of railroad construction as above. (Acts 1869, ch. 43.) 
 
 In 1873 a change was introduced which made a distinc- 
 tion between deposits loaned on real estate security and other 
 investments. The tax was made y% of 1 per cent, on the 
 amount of deposits loaned on real estate security, and 1 per 
 cent, on all other deposits after making the deductions as 
 before. (Acts 1873, ch. 73.) 
 
 Building associations were omitted from the law in the 
 Eevisibn of 1875, so that from this time on the law applies 
 only ; to savings banks, this term being defined, however, to 
 include also "societies for savings and savings societies." 
 (General Statutes, Rev. of 1875, Title 12, eh. 5, see. 4; also 
 Title 22, sec. 8.) 
 
 An amendment of 1875 allowed each bank to deduct from 
 its deposits subject to taxation, in addition to the deductions 
 already permitted, also the amount of its investment in real 
 estate liable to taxation in Connecticut. Furthermore, any 
 savings bank having deposits of less than $50,000 was allowed 
 to make a further deduction of a lump sum not to exceed 
 $10,000. (Acts 1875, ch. 46.) 
 
 This statute for the first time defined the tax as a tax on 
 the "corporate franchise" of the institution. (Acts 1875, ch. 46.) 
 
 The law was amended in 1877 by omitting the distinction 
 in favor of deposits loaned on real estate security, and mak- 
 ing the tax % of one per cent, on the amount of deposits ex- 
 clusive of surplus, with the same deductions as before, except 
 that the authority given in 1875 to small banks to deduct 
 $10,000 is now withdrawn. (Acts 1877, ch. 153.) 
 
 The next year (1878) the rate of the tax was further re- 
 duced to y± of 1 per cent. Moreover each bank was allowed 
 
170 REPORT OP SPECIAL TAX COMMISSION 
 
 to deduct the sum of $50,000 from its deposits subject to tax- 
 ation in addition to the other deductions previously allowed. 
 (Acts 1878, ch. 64.) 
 
 This act also changed the time of making the required re- 
 port to on or before January 10, the payment of the tax to be 
 y a on or before January 20, and % on or before July 20 as be- 
 fore. (Acts 1878, ch. 64.) 
 
 A statute enacted in 1901 required banks and trust, in- 
 surance, investment, and bridge companies to pay a tax to the 
 State upon their shares of stock, and exempted the owners of 
 their stock from taxation. (See Chapter VII.) The same law ac- 
 cordingly provided that deposits of savings banks invested on 
 April 1, 1901, in such stocks should be exempt, so long as thus 
 invested, to the amount of the market value of such shares 
 as determined by the Board of Equalization. (Acts 1901, 
 ch. 106.) 
 
 The Revision of 1902 contains one important change. In- 
 stead of directing the deduction of deposits invested in real 
 estate liable to taxation in Connecticut, the tax is now to be 
 computed without such deduction and then reduced by the 
 amount of taxes payable on such real estate during the past 
 year. (General Statutes, Revision of 1902, Sees. 2422, 2334.) 
 
 In 1907 the law was extended to apply to banks and trust 
 companies having savings departments. (Acts 1907, ch. 85.) 
 
 III. OPERATION OF THE PRESENT TAX SYSTEM 
 
 Institutions Subject to the Tax and the Revenue in 1912: 
 
 — There were in the State of Connecticut, in 1912, 87 sav- 
 ings banks and 13 trust companies operating savings depart- 
 ments, making a total of 100 institutions subject to the sav- 
 ings bank tax. From these institutions the State treasury 
 received in 1912 taxes amounting to $660,194.98. The -figures 
 upon which the tax is computed and the total amount of the 
 tax for each class of institutions separately, and for both 
 classes together, are shown in the following table : 
 
 TAX ON SAVINGS INSTITUTIONS, 1912 
 
 FIGURES AS OP JANUARY 1, 1912. 
 
 Savings Trust Co. Total All 
 
 Banks. Savings Dept. Institutions. 
 
 Total Deposits $290,531,026.27 $6,397,675.15 $296,928,701.42 
 
 Statutory Deductions 13,077,226.00 650,000.00 13,727,226.00 
 Real Estate Taxes 
 
 Deducted 48,722.99 48,722.99 
 
 Net Tax Paid State 
 
 Treasurer 645,701.60 14,493.38 660,194.98 
 
 The State Revenue in Past Years: — A statement showing 
 the revenue of the State from taxes on savings institutions 
 from the introduction of the first law in 1851 down to 1912 
 is given in Appendix I. 
 
SAVINGS BANKS 171 
 
 IV. CRITICISM OF THE PRESENT TAX SYSTEM 
 
 Savings Banks are Moderately Taxed: — The present sys- 
 tem of taxing savings institutions seems on the whole to be 
 fairly satisfactory. The evident purpose of the law is to place 
 a moderate burden of taxation upon the savings of the people 
 entrusted to these institutions. This purpose is attained by 
 imposing a State tax upon the institutions and exempting de- 
 positors from taxation on their deposits. The amount of the 
 State tax is measured by the total deposits, with certain de- 
 ductions. The deductions for amounts invested in tax exempt 
 bonds of the State or of the towns, and for the amount in- 
 vested in the stock of banks, trust companies, and insurance 
 companies (on whjjpsh the institutions themselves pay a tax to 
 the State), are obviously justifiable. A further deduction of 
 a lump sum of $50,000 from the deposits of each bank is al- 
 lowed, evidently with the intent of favoring the smaller in- 
 stitutions ; this has the result of making the actual rate of the 
 tax moderately progressive according to the size of the insti- 
 tution. 
 
 By fixing the rate at one-fourth of one per cent, the legis- 
 lature has evidently sought to make the burden of taxation 
 distinctly less than is presumed to be borne by individuals or 
 other financial institutions. As compared with the rate of 1 
 per cent, imposed upon the stock of other financial corpora- 
 tions, the rate on savings banks is distinctly moderate, and it 
 further appears moderate even when compared with the rate 
 of 4 mills which individuals are allowed to pay upon bonds and 
 similar investments. On the other hand, it is to be remem- 
 bered that a considerable portion of the assets of savings banks 
 is invested in mortgages upon Connecticut real estate and in 
 certain other investments which would be exempt from taxa- 
 tion if he,ld by individuals. With total deposits of 288 million 
 dollars on October 1, 1911, the savings banks had invested in 
 loans on real estate 106 million dollars, or a little over one- 
 third of their deposits. More than half of the savings deposits 
 of the trust companies was so invested. However, even if we 
 should assume that all of the investment of the savings insti- 
 tutions in loans on real estate should be exemnt from taxation, 
 the tax which they pay at the present time would amount to 
 only % of 1 per cent, upon the balance remaining, which is 
 still less than the rate paid by individuals upon bonds and 
 similar investments. 
 
 Should the Tax on Savings Banks be Abolished or Re- 
 duced? — That the State is justified in thus treating somewhat 
 leniently the savings of the people entrusted to savings insti- 
 tutions will hardly be questioned. Most of the criticism of the 
 
172 REPORT OF SPECIAL TAX COMMISSION 
 
 present system which has been presented to the Commission 
 has been in the opposite direction. It has been urged that sav- 
 ings banks are purely charitable institutions ; that they repre- 
 sent the savings of the poor; that they exist to encourage 
 thrift and prudence ; and that for all these reasons they should 
 either be entirely exempt from taxation or should be taxed at 
 an even lower rate than is imposed under the present system. 
 
 While the Commission recognizes clearly the propriety of 
 making some concession in the taxation of the people's sav- 
 ings, deposited in savings institutions, it is not able to come to 
 the conclusion that such savings should be entirely exempt 
 from taxation. The arguments urged in favor of this con- 
 clusion are not wholly convincing. While 1 it is true that the 
 savings banks exist to take care of the savings of the poor, it 
 is also a matter of general knowledge that persons of moderate 
 means, or even of considerable wealth, do not hesitate to avail 
 themselves of the facilities thus offered. To call savings banks 
 charitable institutions is a misuse of terms. Apart from the 
 generosity of the directors and higher officers, who give their 
 time and counsel without remuneration, and which may fairly 
 be called charity, the rest. of the business of savings banks is 
 a purely commercial transaction between them and their de- 
 positors. The fact that the savings bankg are mutual institu- 
 tions in no way alters this statement of fact. That such sav- 
 ings should be entirely exempt from taxation cannot be ser- 
 iously maintained, so long as our system of taxation is based 
 upon the general property tax. Finally, the statement that 
 the tax on savings banks is a burden on thrift can hardly be 
 denied; yet this is true of practically all taxation. The some- 
 what similar arguments urged in the case of the taxation of 
 insurance companies have already been discussed at more 
 length in the chapter upon Mutual Insurance Companies. (See 
 Chapter VIII.) 
 
 Fairness of the Present Tax Burden: — The Commission is 
 of the opinion, therefore, that a certain degree of moderation 
 dn the taxation of savings institutions is justifiable, but is not 
 of the opinion that this should be carried to the extent of 
 complete exemption from taxation. There is no mathemat- 
 ical rule for determining exactly the extent to which savings 
 institutions should be favored in the matter of taxation. Tour 
 Commission is of the opinion, however, that the present Con- 
 necticut system has fairly met the situation. Connecticut's 
 taxation of savings banks can hardly be called burdensome, 
 and it is distinctly lenient as compared with the taxation of 
 such institutions in many of the other States. 
 
SAVINGS BANKS 173 
 
 Exemption of Loans on Connecticut Real Estate : — While 
 finding the present tax system reasonable as to its amount, the 
 Commission is of the opinion that in one important respect the 
 system might be changed to advantage. "We offer for the con- 
 sideration of the Legislature the advisability of exempting 
 from taxation such parts of the deposits of savings banks and 
 savings departments of banks and trust companies as are in- 
 vested in loans on Connecticut real estate, such exemption to 
 be compensated by a higher rate of the tax upon the balance 
 remaining taxable. • It was the original idea of the savings 
 banks that an important function should be the assistance of 
 the local landowners by loans upon real estate mortgages. To 
 a certain extent the savings banks have departed from this 
 idea. It has been urged as a reason in favor of increased in- 
 vestment in bonds and loans upon collateral security, that such 
 investment makes a bank's assets more liquid and puts the 
 institution in a better position to stand a crisis. This argu- 
 ment does not seem to have wholly held good in the panic of 
 1907, when many of the State's savings institutions which had 
 invested largely in bonds found themselves compelled to delay 
 payment of depositors. Your Commission feels that some en- 
 couragement might properly be offered in the tax statute to 
 those savings institutions which seek to place their funds 
 largely in loans on real estate. 
 
 An incidental argument in favor of such exemption is the 
 fact that this would put the taxation of savings banks more 
 nearly on the same basis as that of individuals, who are at 
 present exempt from taxation on loans secured by Connecti- 
 cut real estate. 
 
 Having concluded in the previous section that the bur- 
 den of the present tax on savings banks is reasonable, the 
 Commission feels that, if loans on real estate are to be exempt, 
 the balance remaining taxable should be subject to a higher 
 rate, in order that the total amount of the tax paid to the State 
 should remain about as at present. This would be approxi- 
 mately accomplished by imposing upon savings institutions 
 a rate of 4 mills upon the balance of their deposits remaining 
 subject to the State tax. This is the rate at present paid by 
 individuals upon bonds and other choses in action. So far as 
 the result of such a change can be predicted, it would mean 
 at the outset a slight increase in the taxes paid by savings 
 institutions. The probable result has been calculated in the 
 last section of this chapter (see below). If the result of 
 this change were to encourage a larger relative investment of 
 savings banks in loans on real estate, the result might be to 
 diminish somewhat the amount of the tax. ( 
 
174 REPORT OF SPECIAL TAX COMMISSION 
 
 Minor Defects — Taxation of Real Estate: — There are 
 certain minor defects of the present system which have been 
 brought to our attention and which deserve consideration. At 
 present, savings banks deduct from the tax upon deposits the 
 amount of taxes payable upon their real estate in Connecticut 
 during the past year. This procedure is subject to two ob- 
 jections. In the first place, it means that real estate owned 
 by savings banks is virtually taxed only at the rate of y± of 
 1 per cent, whereas other real estate must bear the full local 
 tax rate. This might possibly be justified on the grounds that 
 it is the intention of the statute to allow specially lenient tax- 
 ation of all property belonging to savings institutions. 
 
 The other objection is a more serious one. Under the 
 present system the savings banks have no interest in the assess- 
 ment of their, real estate or in the amount of local taxes im- 
 posed. No matter how much they may be taxed upon their 
 real estate they entirely recoup themselves by deducting the 
 amount from their State tax. This leaves open the door for 
 excessive valuation of local real estate without resistance on 
 the part of the savings banks, and makes it possible for local 
 bodies to gain unfairly at the cost of the State revenue. 
 
 These difficulties might be avoided by a simple change in 
 the statute. Instead of deducting local real estate taxes from 
 the tax on deposits, the savings banks should be authorized to 
 deduct the assessed value of real estate from the amount of 
 their deposits subject to taxation. This would make the real 
 estate owned by the savings banks actually bear its fair share 
 of taxation. Moreover, since the rate of the State tax on de- 
 posits is considerably less than that of the local general prop- 
 erty tax, savings banks would be inclined to protest against 
 unfair valuations placed upon their real estate. 
 
 Date on which the Tax is Calculated: — Under the present 
 statute, savings banks must make their report to the Tax Com- 
 missioner on or before January 10, showing the facts on which 
 the tax is based as of January 1. Most other corporations, 
 including banks and trust companies, report in October, giving 
 the required facts as of October 1. Moreover, the savings 
 banks themselves in reporting to the State Bank Commissioner, 
 are required to report their condition as of October 1. Repre- 
 sentatives of a number of the savings banks have stated to 
 the Commission that it woidd be a matter of convenience to 
 them if the date for their tax reports could be changed also 
 to Optober .1. Another argument which has been presented 
 against the present date is that an unusually large amount of 
 deposits comes in during the latter part of December, whereas 
 there are unusually heavy withdrawals in January, the result 
 being that the amount of deposits shown by the banks on Jan- 
 
SAVINGS BANKB 175 
 
 uary 1 is relatively high and does not represent a fair average 
 of the deposits held during the year. Your Commission feels 
 that the argument in favor of changing the date for 
 the reports from savings banks to October 15, giving the figures 
 as of October 1, is sound and that the change should be made. 
 
 Inconsistencies and Inequalities between the Several 
 Classes of Institutions: — The Commission also wishes to call 
 the attention of the Legislature to certain inconsistencies in 
 the present statutes regarding savings institutions. Deposits 
 in savings banks and in savings departments of state banks 
 and trust companies are subject to taxation, whereas national 
 banks are permitted to maintain savings departments without 
 paying any taxation thereon to the State. This operates as a 
 discrimination in favor of the savings departments of national 
 banks as against the other institutions. It may be urged in 
 reply that whatever advantage accrues from the savings de- 
 partment of the national bank will ba represented in an in- 
 creased value of its capital stock and will therefore be taken 
 account of in the tax on the shares of stock of the bank. Even 
 so, however, there remains an unquestioned injustice as be- 
 tween national banks and state banks and trust companies. 
 All three classes of institutions are taxed on their stock in 
 exactly the same way, but the state banks and trust companies 
 must pay additional taxes on their savings deposits, which in 
 the case of national banks are free from taxation. Further 
 confusion arises from the fact that deposits in savings banks 
 and the savings departments of state banks and trust com- 
 panies are exempt from taxation in the hands of the holders, 
 whereas deposits in national banks, in excess of $100, are tax- 
 able to the holders. Your Commission has not been able to 
 investigate this subject far enough to determine exactly what 
 is the net result of all of these complications in the present 
 legislation. It feels, however, that such contradictions and 
 confusion are undesirable and recommends the subject to the 
 consideration of the Legislature. 
 
 V. TAXATION OF SAVINGS BANKS IN OTHER 
 STATES 
 
 A brief statement regarding the taxation of savings banks 
 in other States is given in Chapter VII in connection with the 
 summary of the laws taxing banking institutions in general. 
 
 VI. CONCLUSIONS AND RECOMMENDATIONS 
 Recommendations: — Your Commission concludes, there- 
 fore, that the present method of taxing savings institutions is 
 in the main a fair one, and that the burden imposed is equit- 
 
176 REPORT OF 1 SPECIAL TAX COMMISSION 
 
 able. The tax is also certain, simple, and easily administered. 
 It would be an advantage, however, to encourage loans on 
 Connecticut real estate by exempting deposits so invested. We 
 find also certain minor defects which should be removed. 
 
 It is recommended, therefore, that the present method of 
 taxing savings institutions remain unchanged except in the 
 following particulars : (1) that there be deducted from the 
 amount of deposits subject to the tax the amount of loans on 
 Connecticut real estate, and that the rate of the tax be in- 
 creased to 0.4% ; (2) that instead of deducting the amount of 
 taxes paid on real estate from the tax on deposits, the assessed 
 value of real estate be deducted from the total amount of de- 
 posits and the tax imposed on the balance remaining; (3) 
 that the date of the report of savings institutions to the Tax 
 Commissioner be changed from January 10 to October 15, and 
 that the statements in this report be made as of October 1. 
 
 Probable Result of the Proposed Changes : — It is not poss- 
 ible to make an exact calculation of what the results of the 
 changes proposed would have been in 1912. 
 
 This is due in part to the fact that for a few banks the 
 deductions allowed would exceed the entire taxable deposits, 
 as is true of a few institutions at present. Only by means of a 
 separate calculation for each bank could the result be made ab- 
 solutely accurate. However, the margin of error is very small 
 (probably less than half of 1 per cent). In the second place, 
 we are compelled to use data which relate to two different dates. 
 The error due to this cause is also quite small. 
 
 The following figures will serve to indiciate the calculation 
 by which we may reach a fair approximation of what the tax 
 upon savings banks and trust company savings departments 
 would have been in 1912 under the system as recommended. 
 Unless otherwise indicated, figures are as of January 1, 1912. 
 
 Savings Banks. Trust Companies., 
 
 Total Deposits $290,531,026.27 $6,397,675.15 
 
 Loans on Real Estate (*) 106,097,759.85 3,281,430.37 
 
 Present Statutory Deductions . . 13,077,226.00 650,000.00 
 
 Total Deductions il9,174,985.85 3,931,400.37 
 
 Balance Subject to Taxation .... 171,356,040.42 2,466,274,78 
 
 Real Estate (t) 2,576,107.22 
 
 Balance Subject to State Tax . . 168,779,933.20 2,466,274.78 
 
 Tax @ 0.4% 675,119.73 9,865.10 
 
 The net result of the proposed changes upon the State 
 revenue is shown in the following table, as of the year 1912 : 
 
 Present Proposed Increase (+) 
 
 State Tax. System. Decrease (—) 
 
 Savings Banks $645,701.60 $675,119.73 +$29,418.13 
 
 Trust Company Sav. Dept. 14,493.38 9,865.10 - !'4,628.28 
 
 Total $660,194.98 $684,984.83 +$24,789.85 
 
 (*) As of October 1, 1911. 
 
 (t) Book value, as of October 1, 1911. 
 
CHAPTER X 
 BUILDING AND LOAN ASSOCIATIONS 
 
 General Summary of Chapter: — Building and loan associa- 
 tions, theugh formerly taxed like savings banks, are not now 
 taxed by the State. There is no reason why they should not 
 pay the same tax as savings banks. The Commission recom- 
 mends that such associations be required to pay a tax, at the 
 rate of 0.4%, upon the total amount due shareholders, with 
 certain deductions (stated in full below), and that in general 
 the associations be subject to the provisions of the statutes 
 relating to the taxation of savings banks. 
 
 There are 12 Connecticut building and loan associations, 
 and the tax as recommended would yield a revenue of about 
 $8,000. 
 
 The Present Situation: — Building and loan associations, 
 though formerly subject to State taxation, are not now taxed 
 by the State. These associations are so closely related to sav- 
 ings banks that their consideration properly falls within the 
 field of investigation laid down for this Commission. 
 
 In 1857 the law relating to the taxation of savings banks 
 was extended to apply to building associations. The tax was 
 % of 1% upon deposits and stock, and was in lieu of all other 
 taxation upon the institutions or their deposits or sto>ck, 
 except that real estate above the amount required for the busi- 
 ness was taxable. (Acts 1857, ch. 64.) Building associations 
 remained subject to taxation under the same laws as savings 
 banks till 1875, when they were omitted from the law. Since 
 then these associations have not been taxed by the State. For 
 the history of the law, with the amendments made from time 
 to time, see the account of the historical development of the 
 savings bank law in Chapter IX. 
 
 There seems to be no valid distinction ./between savings 
 banks and building and loan associations which would justify 
 different treatment in the matter of taxation. Your Com- 
 mission, therefore, is of the opinion that the law relating to 
 taxation of savings institutions should be extended to include 
 also building and loan associations. 
 
 The Basis of Taxation: — The correct basis for the tax on 
 building and loan associations is the total amount due to share- 
 holders. This is the item that corresponds most closely to 
 the deposits of a savings bank. As in the case of savings 
 banks, building and loan associations should be allowed to 
 deduct any sums invested in tax-exempt State and town bonds, 
 or in loans secured by Connecticut real estate. They should 
 13 
 
178 REPORT OF SPECIAL TAX COMMISSION 
 
 also be allowed to deduct the assessed value of real estate tax- 
 able in Connecticut, and each association should have the 
 privilege of deducting a lump sum of $50,000, as is granted 
 to savings banks. Since building and loan associations own 
 practically no real estate and do not ordinarily invest in bonds, 
 these deductions would not be of great practical importance 
 with the exception of the $50,000 exemption. The balance 
 remaining should be taxed at the rate of 0.4 per cent. 
 
 Statistics of the Associations and Probable Amount of the 
 Tax : — The table on the next page shows the essential facts re- 
 garding the building and loan associations of Connecticut, with 
 a calculation of the probable amount of taxation which they 
 would bear if taxed by the method here recommended. 
 
 Taxation of Building and Loan Associations in Other 
 States: — The following brief discussion is presented in order 
 to show that property represented by investment in building 
 and loan associations is usually subject to taxation in the other 
 States and to give a general idea of the methods employed. 
 
 In practically every State the real estate and other tang- 
 ible property of building and loan associations is taxed to the 
 associations under the general property tax. Thirteen States 
 make no special provisions (except certain small license fees) 
 for the taxation of such associations, taxing them under the 
 general revenue law. 
 
 Three States, Michigan, Rhode Island, and Wisconsin, 
 exempt shares from taxation; five States tax shares of capital 
 directly to the association; in most of the other States shares 
 are taxed to the holders as personal property ; in a few of these 
 the tax is paid by the association for the holders. 
 
 Eight States have some special provisions peculiar to 
 building and loan associations. Maine has a tax of % of 1% 
 on capital dues paid in by shareholders, and % of 1% on the 
 average amount of investments other than loans on real estate 
 and shares of the association. New Hampshire taxes associa- 
 tions % of 1% on shares in force, after deducting the value of 
 real estate owned and loans secured by mortgage on real 
 estate in the State at not more than 5% interest. In the other 
 States the special provisions generally have for their purpose 
 the imposition of taxes on the entire property represented in 
 the associations at rates about equivalent to the general prop- 
 erty tax. 
 
 Recommendations: — The Commission recommends, there- 
 fore, that building and loan associations be made subject to 
 essentially the same plan of taxation as is recommended for 
 savings institutions; i. e., that each association pay a tax of 
 
BUILDING AND LOAN ASSOCIATIONS 
 
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180 REPORT OP SPECIAL TAX COMMISSION 
 
 0.4% upon the total amount due shareholders after deducting 
 
 (1) the amount invested in bonds of the State of Connecticut, 
 
 (2) the amount invested in bonds issued by a town or city of 
 Connecticut in aid of the construction of certain railroads, 
 which bonds are by law exempt from taxation, (3) the amount 
 of loans on Connecticut real estate, (4) the assessed value 
 of real estate owned and taxed in the State, and (5) the sum 
 of $50,000. This tax should be in lieu of all other taxes except ' 
 upon real estate, and shareholders should be exempt from 
 taxation on their shares. The associations should be required 
 to report to the Tax Commissioner, annually on or before 
 October 15, the necessary facts as of October 1. In other 
 respects the associations should be subject to the present 
 statutes relating to the taxation of savings institutions. (See 
 Chapter IX.) 
 
 As shown above, the tax as recommended would produce 
 a revenue of about $8,000, on the basis of the figures of 
 September 30, 1911. 
 
CHAPTER XI 
 RECOMMENDATIONS AND GENERAL SUMMARY 
 I. RECOMMENDATIONS 
 
 A statement of the recommendations of the Commission 
 affecting each class of corporations will be found in the ap- 
 propriate chapters. The following is a general summary of 
 the entire plan of taxation recommended by the Commission. 
 
 1. Public Service Corporations: — The recommendations 
 of the Commission for the taxation of all public service cor- 
 porations may be summarized as follows: (1) it is recommend- 
 ed that all public service corporations, i. e., railroads, street 
 railways, car companies, express companies, telephone compan- 
 ies and telegraph companies, pay a tax upon their total gross 
 operating earnings. (2) For all corporations, any part of whose 
 operating earnings comes from business outside the State, there 
 shall be apportioned to Connecticut for purposes of taxation 
 a part of the total gross earnings according to the following 
 plan of apportionment : There shall be assigned to Connecticut 
 •that part of the total gross operating earnings which is repre- 
 sented (a) in the case of railroads and street railways, by the 
 ratio of all track mileage operated in the State to the total of 
 all track mileage operated, (b) in the case of car companies, by 
 the ratio of car mileage operated in the State to the total car 
 mileage operated, (c) in the case of express companies, by the 
 ratio of the number of miles of routes operated in Connecticut 
 to the total number of miles of routes operated, (d) in the 
 case of telephone exchange companies, by the ratio of the 
 number of transmitters in the State to the total number of 
 transmitters, (e) in the case of long distance telephone com- 
 panies and telegraph companies, by the ratio of the number 
 of miles of wire operated in the State to the total number of 
 miles of wire operated. (3) The rates recommended are as fol- 
 lows : For railroads and street railways, 4% per cent., for car 
 companies and telephone companies, 3% per cent., for tele- 
 graph companies, 3 per cent., and for express companies, 2 per 
 cent. (4) It is recommended that these taxes be in lieu of all 
 other taxes upon the corporations or their property used ex- 
 clusively in the business, except that the real estate belonging 
 to telephone companies shall be subject to local taxation in ad- 
 dition to the State tax on gross earnings. (5) It is recommend- 
 ed that the shares of stock of all corporations subject to the 
 gross earnings tax be exempt from taxation in the hands of the 
 owners, and that the bonds of all such railroad companies and 
 all such other corporations as hold their charters from Connec- 
 ticut be likewise exempt from taxation in the hands of the 
 holders. (6) It is recommended that all corporations subject 
 to the gross earnings tax be required to report annually the 
 
182 REPORT OF SPECIAL TAX COMMISSION 
 
 necessary facts to the Tax Commissioner as under the present 
 system, and that the duties of the Board of Equalization in 
 the matter of the administration of the gross earnings tax be 
 similar to those performed at present. 
 
 2. Financial Corporations: (1) Banks, Trust Companies 
 and Stock Insurance Companies: — The Commission recom- 
 mends that banks, trust companies and stock insurance com- 
 panies be taxed as at present, 1 per cent, upon the value of 
 their shares of stock, but that the value for purposes of taxa- 
 tion shall be the book value as shown by the balance sheet of 
 the corporation or association. The book value shall be defined 
 in the case of banks and trust companies as the sum of the 
 capital, surplus, and undivided profits; in the case of life in- 
 surance companies as the sum of the capital and surplus, and 
 in the case of insurance companies other than life, as the sum 
 of the capital, surplus, and one-third of the unearned premium, 
 in each case divided by the number of shares. In other respects 
 the present system shall remain unchanged. 
 
 (2) Mutual Insurance Companies: — It is recommended 
 that domestic mutual insurance companies be taxed upon 
 the sum of their total income from investment (i. e., total gross 
 interest and rents), plus their premiums on Connecticut 
 business. It is recommended that the rate be 4 per cent, in 
 the first year after the enactment of the law, and that the rate 
 be reduced by % of 1 per cent, in each succeeding year until 
 the rate becomes 3 per cent., which shall remain the permanent 
 rate thereafter. It is recommended that the companies remain 
 subject to local taxation on real estate as at present, but with- 
 out allowing any deduction therefor from the State tax. It is 
 further recommended that the dates on which mutual insur- 
 ance companies other than life are required to make reports 
 to the Tax Commissioner and to pay the tax be changed to 
 February 15 and 25 respectively, thus agreeing with the pres- 
 ent law regarding mutual life companies. 
 
 (3) Savings Banks: — The Commission recommends that 
 the taxation of savings banks remain as at present except that 
 there be deducted from the amount of deposits subject to the 
 tax the amount of loans on Connecticut real estate, and that 
 fthe rate of the tax be increased to 0.4 per cent. ; and further 
 that instead of deducting the amount of taxes paid on real 
 estate from the tax on deposits the assessed value of real estate 
 be deducted from the total amount of deposits subject to the 
 tax ; and further that the date on which the report of savings 
 institutions must be made to the Tax Commissioner be chang- 
 ed from January 10 to October 15, and that the statements in 
 this report be made as of October 1. 
 
RECOMMENDATIONS AND GENERAL SUMMARY 183 
 
 (4) Building and Loan Associations: — It is recommended 
 that building and loan associations be subject to the same tax 
 as savings banks, the tax in the case of building and loan 
 associations to be based upon the total amount due to share- 
 holders with the same deductions as allowed to savings banks. 
 
 (5) Investment Companies : — It is recommended that the 
 present tax on investment companies remain unchanged. 
 
 (6) Reports, Etc.: — For all financial corporations it is 
 recommended that the companies be required to report annu- 
 ally the necessary facts to the Tax Commissioner as at present, 
 and that the Board of Equalization perform functions in ad- 
 ministering the tax similar to its present functions, and that, 
 except as specified above, the laws remain as at present. 
 
 II. ESTIMATED RESULT OF PROPOSED CHANGES 
 
 A more detailed estimate for each class of corporations 
 of the probable results upon the tax revenue of the changes 
 recommended by the Commission will be found in the appro- 
 priate chapters. The following is a general summary under- 
 taken to show the estimated net result upon the revenue of 
 the State and the towns from all the changes recommended. 
 
 1. The State Revenue: — The following table shows the 
 revenue received by the State in 1912 from taxes on the sev- 
 eral classes of corporations, with the estimated amount of the 
 revenue that would have been received if the taxes recom- 
 mended by the Commission had been in force at that time. The 
 net result is an estimated increase in the State's 
 revenue of about $200,000 at the^utset. It is probable that in 
 future there would be a steady" increase of revenue propor- 
 tional to the growth of the business of the companies. 
 
 STATE REVENUE FROM TAXES ON CORPORATIONS 
 
 Tax Paid Tax System Increase (+) 
 
 in .1912. Recommended. Decrease (-) 
 
 Railroads $1,611,560.76 $1,767,725.49 +$156,164.73 
 
 Express Companies 19,769.42 20,044.48 + 275.06 
 
 Telephone Companies .. 122,226.15 149,631.56 + 27,405.41 
 
 Telegraph Companies .. 6,512.19 17,681.87 + 11,169.68 
 
 Mutual Ins. Companies . 429,323.50 417,075.27 - 12,248.23 
 
 Savings Banks 660,194.98 684,984.83 + 24,789.85 
 
 Bldg. & Loan Ass'ns . . . 8,038.89 + 8,038.89 
 Banks, etc. Non- 
 
 Resident Stock 210,819.58 210,819.58 
 
 Total $3,060,406.58 $3,276,001.97 +$215,595.39 
 
 Car Companies 11,059.72 + 11,059.72 
 
 NOTE IN EXPLANATION OP ABOVE TABLE 
 The estimated revenue from the tax on car companies is not 
 included in the totals in the above table. This is d.ue to the 
 
184 REPORT OP SPECIAL TAX COMMISSION 
 
 following facts: In estimating the probable revenue from the 
 taxes recommended by the Commission, the calculation has in 
 every case been based upon the figures for 1912, corresponding 
 to the data on which the tax of 1912 was computed under the 
 present system. At that time the New Haven Road had not yet 
 turned over to the Pullman Company its business of operating 
 parlor and sleeping cars. As a result, the above estimate of the 
 probable revenue from the gross earnings tax on railroads is 
 based upon gross earnings which include the earnings derived 
 from the operation of parlor and sleeping cars. It would 
 therefore have given a wrong result if to the total rev- 
 enue from the gross earnings tax, as thus estimated, we had 
 added the revenue expected from the tax on the Pullman Com- 
 pany. The actual revenue of the New Haven Road will in future 
 be reduced by the earnings from the operation of parlor and 
 sleeping cars. It is not possible to estimate accurately just 
 what the net result of this change will be upon the gross earn- 
 ings of the New Haven Road. For this reason it was thought 
 best not to depart from the rule of basing the estimated revenue 
 of the gross earnings tax upon the figures for 1912. In the 
 chapter on Car Companies, (Chapter III.) this matter has been 
 more fully explained. It is there shown that so far as the mat- 
 ter is capable of prediction, the net result of the transfer of the 
 New Haven Road's parlor and sleeping cars to the Pullman Com- 
 pany will mean a loss in the gross earnings tax upon the New 
 Haven Road somewhat greater than will be obtained from the 
 tax on the Pullman Company. In order to make allowance for 
 this fact the amount of $215,595.39, representing the total esti- 
 mated increase of State revenue from the gross earnings tax, 
 should be reduced by $10,000 or $15,000. 
 
 There is no way of estimating exactly what the effect of 
 the change from market value to book value, as the basis of the 
 taxation of banks, trust companies and stock insurance com- 
 panies, will have upon the State's revenue from the tax on non- 
 resident stock. Since the total result of the change upon the 
 total taxes paid by such companies would be only an increase 
 of about $7,000 out of the total tax in 1912 of over $1,000,000, 
 it is likely that the effect upon the State's share of this tax will 
 be quite insignificant. For these reasons it has been assumed 
 in the table above that the State's revenue from the tax on non- 
 resident stock will remain as in 1912. 
 
 2. The Town Revenue: — The proceeds of the tax on the 
 shares of stock of banks, trust companies, and stock insurance 
 companies, owned by residents of Connecticut, are paid back 
 to the towns where the stockholders reside. Out of a total 
 tax of $1,097,602.71 levied upon these corporations in 1912, 
 there was thus paid $886,722.62, or 80.79 per cent. This in- 
 cludes $1,215.14 paid to the School Fund. As shown in Chap- 
 ter VII, the estimated revenue from these corporations under 
 the tax recommended by the Commission is $1,104,642.60. 
 Assuming that the same percentage would have been paid to 
 the towns, the net result is shown to be as follows: 
 
 Revenue of Towns in 1912, (including School Fund) $886,722.62 
 Revenue of Towns under proposed tax 892,440.76 
 
 Increase , $ 5,718.14 
 
APPENDIX I 
 
 RECEIPTS PROM CORPORATION TAXES : STATE OP 
 CONNECTICUT 
 
 The following is a statement of the total receipts into the 
 State treasury from taxes upon corporations in each year 
 since the imposition of the tax upon each class of corporations, 
 respectively. The figures are all for the fiscal years, which 
 have ended at different times; i. e., November 30, June 30, 
 and since 1902, September 30. 
 
 I. RAILROAD COMPANIES 
 
 
 Total 
 
 
 Year 
 
 Taxes 
 
 Tear 
 
 1851 
 
 $ 25,202.37 
 
 1883 
 
 1852 
 
 26,533.95 
 
 1884 
 
 1853 
 
 29,372.35 
 
 1885 
 
 1854 
 
 29,622.69 
 
 1886 
 
 1855 
 
 25,670.34 
 
 1887 
 
 1856 
 
 21,376.37 
 
 1888 
 
 1857 
 
 18,646.23 
 
 1889 
 
 1858 
 
 17,731.10 
 
 1890 
 
 1859 
 
 17,330.28 
 
 1801 
 
 1860 
 
 18,420.85 
 
 1892 
 
 1861 
 
 19,911.38 
 
 1893 
 
 1862 
 
 18,289.79 
 
 1894 
 
 1863 
 
 49,669.72 
 
 1895 
 
 1864 
 
 77,230.53 
 
 1896 
 
 1865 
 
 199,735.00a 
 
 1897 
 
 1866 
 
 170,820.22 
 
 1898 
 
 1867 
 
 193,537.77 
 
 1899 
 
 1868 
 
 207,938.36 
 
 1900 
 
 1869 
 
 228,308.94 
 
 1901 
 
 1870 
 
 256,421.80 
 
 1902 
 
 1871 
 
 312,254.60 
 
 1903 
 
 1872 
 
 344,101.73 
 
 1904 
 
 1873 
 
 339,620.44 
 
 1905 
 
 1874 
 
 298,421.04 
 
 1906 
 
 1875 
 
 286,570.19 
 
 1907 
 
 1876 
 
 303,258.73 
 
 1908 
 
 1877 
 
 607,121.71 
 
 1909 
 
 1878 
 
 307,981.35 
 
 1910 
 
 1879 
 
 284,109.45 
 
 1911 
 
 1880 
 
 360,948.33 
 
 1912 
 
 1881 
 
 383,045.54 
 
 
 1882 
 
 484,732.42 
 
 
 Street Bail- 
 way Taxes 
 
 $ 6,606.42 
 
 7,550.39 
 
 11,218.74 
 
 13,329.32 
 
 15,823.59 
 
 17,141.58 
 
 14,421.60 
 
 26,829.97 
 
 37,384.33 
 
 72,925.22 
 
 106,373.12 
 
 120,765.25 
 
 133,052.77 
 
 138,502.78 
 
 157,450.93 
 
 180,699.58 
 
 238,922.50 
 
 252,139.52 
 
 250,379.14 
 
 237,908.23 
 
 295,466.08 
 
 352,790.86 
 
 229,987.12 
 
 230,003.25 
 
 239,125.49 
 
 455,041.92 
 
 501,058.23 
 
 $ 
 
 Railroad 
 
 Taxes 
 
 456,128.55 
 
 412,284.18 
 
 5,395.37b 
 
 619,593.07 
 
 560,021.60 
 
 630,506.05 
 
 658,490.68 
 
 756,855.05 
 
 800,375.18 
 
 775,888.02 
 
 746,040.78 
 
 729,036.43 
 
 731,070.15 
 
 756,066.13 
 
 874,436.95 
 
 910,137.50 
 
 965,502.92 
 
 975,143.48 
 
 973,878.34 
 
 984,918.37 
 
 1,032,173.36 
 
 1,083,648.59 
 
 1,204,936.48 
 
 1,171,289.07 
 
 1,233,525.97 
 
 1,302,679.83 
 
 1,424,201.60 
 
 1,542,329.45 
 
 1,337,787.47 
 
 1,157,534.64 
 
 $ 
 
 Total 
 Taxes 
 
 626,199.49 
 
 567,571.99 
 
 641,724.79 
 
 671,820.00 
 
 772,678.64 
 
 817,516.76 
 
 790,309.62 
 
 772,870.75 
 
 766,420.76 
 
 803,995.37 
 
 862,439.25 
 
 995,202.20 
 
 1,043,190.27 
 
 1,104,005.70 
 
 1,132,594.41 
 
 1,154,577.92 
 
 1,223,840.87 
 
 1,284,312.88 
 
 1,334,027.73 
 
 1,442,844.71 
 
 1,466,755.16 
 
 1,586,316.83 
 
 1,532,666.95 
 
 1,654,204.85 
 
 1,781,454.94 
 
 1,792,829.39 
 
 1,658,692.87 
 
 a Tax rate changed from %% to 1% on stock and bonded debt. 
 Values of stock also increased, and new stock was issued by the Hart- 
 ford, Providence & Fishkill Railroad Company. Tax of 1863 on New 
 Haven, New London and Stonington Railroad Company included. 
 
 b Only seven months included in this period. Taxes included in 
 receipts for next year. 
 
186 REPORT OF SPECIAL TAX COMMISSION 
 
 II. EXPRESS COMPANIES 
 
 1866 
 
 $ 2,023.00 
 
 1894 
 
 $ 9,839.39 
 
 1867 
 
 2,000.00 
 
 1895 
 
 7,889.4911 
 
 1868 
 
 4,000.00 
 
 1896 
 
 9,722.50 
 
 1869 
 
 2,000.00 
 
 1897 
 
 10,429.76 
 
 1870 
 
 2,585.74 
 
 1898 
 
 9,711.0211 
 
 1871 
 
 2,883.20 
 
 1899 
 
 9,958.36 
 
 1872 
 
 2,701.67 
 
 1900 
 
 10,157.01 
 
 1873 
 
 2,000.00 
 
 1901 
 
 10,608.94 
 
 1874 
 
 2,000.00 
 
 1902 
 
 11,446.98 
 
 1875 
 
 2,000.00 
 
 1903 
 
 12,513.44 
 
 1876 
 
 4,000.00 
 
 1904 
 
 12,857.20 
 
 1876a 
 
 30.00 
 
 1905 
 
 13,121,47 
 
 1877 
 
 8,191,69 
 
 1906 
 
 14,220.71 
 
 1878 
 
 4,128.34 
 
 1907 
 
 15,737.81 
 
 1879 
 
 4,165.62 
 
 1908 
 
 18,140.52 
 
 1880 
 
 4,173.86 
 
 1909 
 
 16,771.70h 
 
 1881 
 
 4,202.47 
 
 1910 
 
 17,532.06 
 
 1882 
 
 4,212.60 
 
 1911 
 
 18,998.66 
 
 1883 
 
 10,935.01b 
 
 1912 
 
 19,404.82 
 
 1884 
 
 237.62c 
 
 
 
 1885 
 
 7,500.00d 
 
 
 
 1886 
 
 8,674.66 
 
 
 
 1887 
 
 9,094.45 
 
 
 
 1888 
 
 9,745.44 
 
 
 
 1889 
 
 9,898.80e 
 
 
 
 1890 
 
 152.87f 
 
 
 
 1891 
 
 252.35 
 
 
 
 1892 1 
 
 1893 / 
 
 
 
 
 32,462.99g 
 
 
 
 a Fiscal year was changed to end in November instead of March, 
 and this amount had been received by State during that period of time. 
 
 b Adams Express Company failed to file report. Board of Equal- 
 ization made out statement and levied tax of $10,000, Company refused 
 to pay tax and suit was commenced by State. 
 
 c Adams Express Company paid no tax. 
 
 d Tax from Adams Express Company only; no others included. 
 
 e Tax of 2% on receipts of $494,940.12. 
 
 f Tax of 5% on receipts of $3,057.42. Adams Express Company 
 not included. 
 
 g Adams Express Company paid taxes for 4 years. 
 
 h Decrease in gross receipts. 
 
RECEIPTS FROM CORPORATION TAXES 
 
 187 
 
 III. TELEPHONE COMPANIES 
 
 All Other Total All 
 
 Companies Companies 
 
 $ 1,322.87 $ 1,322.87 
 
 2,559.27 2,559.27 
 
 2,600.07 2,600.07 
 
 a a 
 
 3,669.35 3,669.35 
 
 3,606.03 3,606.03 
 
 3,700.40 3,700.40 
 
 3,932.60 3,932.60 
 
 4,041.10b 5,904.65 
 
 4,005.40 6,038.30 
 
 4,032.00 6,111.32 
 
 3,980.90 6,059.54 
 
 3,980.20 6,260.69 
 
 3,833.20 6,020.90 
 
 4,110.95 6,115.40 
 
 5,276.50 7,278.15 
 
 6,103.30 8,104.95 
 
 7,172.90 9,328.80 
 
 8,253.70 10,415.50 
 
 9,945.60 12,797.52 
 
 11,508.70 14,344.95 
 
 13,464.50 16,603.65 
 
 16,678.20 20,275.85 
 
 20,945.40 24,863.70 
 
 25,683.70 30,352.25 
 
 33,138.00c 38,680.50 
 
 64,649.20 68,216.15 
 
 70,452.80 74,033.50 
 
 j li ■ 80,036.45 87,616.40 
 
 89,951,70 97,788.90 
 
 99,391.55 110,562.20 
 
 a Fiscal year changed from November 30th to June 30th, and no 
 tax receipts from telephone companies were recorded during that period 
 of time. 
 
 b Method of taxation changed from 2% on gross receipts to 25c 
 per mile of wire when used for transmission of messages from another 
 State across any portion of this State to another State, and 70c per 
 transmitter. 
 
 c Increase of rates to $1.10 per transmitter. 
 
 d Increase in mileage of wires reported by this company. 
 
 e Increase of rate from 25c per mile of wire to 35c per mile. 
 
 American 
 
 Telephone 
 
 & Telegraph Company 
 
 1882 
 
 
 1883 
 
 
 1884 
 
 
 1885 
 
 
 1886 
 
 
 1887 
 
 
 1888 
 
 
 1889 
 
 
 1890 
 
 $ 1,863.05 
 
 1891 
 
 2,032.90 
 
 1892 
 
 2,079.32 
 
 1893 
 
 2,078.64 
 
 1894 
 
 2,280.49 
 
 1895 
 
 2,187.70 
 
 1896 
 
 2,004.45 
 
 1897 
 
 2,001.65 
 
 1898 
 
 2,001.65 
 
 1899 
 
 2,155.90 
 
 1900 
 
 2,161.80 
 
 1901 
 
 2,851.92 
 
 1902 
 
 2,836.25 
 
 1903 
 
 3,139.15 
 
 1904 
 
 3,597.65 
 
 1905 
 
 3,918.30 
 
 1906 
 
 4,668.55 
 
 1907 
 
 5,542.50 
 
 1908 
 
 3,566.95 
 
 1909 
 
 3,580.70 
 
 1910 
 
 7,579.95 d 
 
 1911 
 
 7,837^20 
 
 1912 
 
 ll,170.65e 
 
188 REPORT OF SPECIAL TAX COMMISSION 
 
 IV. TELEGRAPH COMPANIES 
 
 1863 
 
 $ 363.95 
 
 1880 
 
 $3,156.74 
 
 1897 
 
 $4,596.11 
 
 1864 
 
 432.66 
 
 1881 
 
 3,613.50 
 
 1898 
 
 4,422.45 
 
 1865 
 
 628.09 
 
 1882 
 
 4,694.37 
 
 1899 
 
 4,697.85 
 
 1866 
 
 863.79c 
 
 1883 
 
 3,685.33e 
 
 1900 
 
 4,849.12 
 
 1867 
 
 760.00 
 
 1884 
 
 2,460.12f 
 
 1901 
 
 5,217.50 
 
 1868 
 
 ) 
 
 1885 
 
 b 
 
 1902 
 
 5,261.50 
 
 1869 
 
 C 2,024.19 
 
 1886 
 
 3,257.08 
 
 1903 
 
 5,370.00 
 
 1870 
 
 1887 
 
 3,508.47 
 
 1904 
 
 5,541.29 
 
 1871 
 
 ) 
 
 1888 
 
 3,485.53 
 
 1905 
 
 5,600.79 
 
 1872 
 
 612.27 
 
 1889 
 
 3,457.58 
 
 1906 
 
 5,994.70 
 
 1873 
 
 725.78 
 
 1890 
 
 4,650.85g 
 
 1907 
 
 6,104.98 
 
 1874 
 
 821.80 
 
 1891 
 
 4,615.16 
 
 1908 
 
 6,150.50 
 
 1875 
 
 767.66 
 
 1892 
 
 4,793.19 
 
 1909 
 
 6,533.95 
 
 1876 
 
 1,653.84a 
 
 1893 
 
 4,854.48 1 
 
 1910 
 
 6,475.16 
 
 1877 
 
 4,513.88d 
 
 1894 
 
 4,650.14 
 
 1911 
 
 6,487.73 
 
 1878 
 
 2,560.31 
 
 1895 
 
 4,721.81 
 
 1912 
 
 6,608.25 
 
 1879 
 
 2,502.66 
 
 1896 
 
 4,418.51 
 
 
 
 a -Fiscal year changed from March 31st to November 30th. 
 
 b Fiscal year changed from November 30th to June 30th, and no 
 taxes from telegraph companies were received during this period. 
 
 c Change of method of taxation from lc per message to 2% on 
 gross receipts. 
 
 d Receipts include two taxes from each telegraph company be- 
 cause of change in fiscal year. 
 
 e Decrease in receipts reported. 
 
 f Decrease in number of companies reporting. 
 
 g Law changed from 2% on gross receipts to 25c per mile of wire. 
 
 BANKS, TRUST AND INVESTMENT COMPANIES, 
 AND STOCK INSURANCE COMPANIES 
 
 
 
 Amount 
 
 
 
 
 
 Total levy 
 
 returned 
 
 
 
 Retained 
 
 Year 
 
 on corporations 
 
 to towns 
 
 Rebates 
 
 School Fundf 
 
 by State 
 
 1902 
 
 $ 633,802.96* 
 
 $515,671.35 
 
 $2,290.26 
 
 $ 
 
 $141,131.35 
 
 1903 
 
 634,116.73 
 
 507,601.85 
 
 8,376.66 
 
 
 
 118,138.22 
 
 1904 
 
 711,580.90* 
 
 562,845.36 
 
 8,449.78 
 
 
 
 140,125.88 
 
 1905 
 
 718,086.75 
 
 569,144.26 
 
 8,906.98 
 
 
 
 140,035.51 
 
 1906 
 
 794,684.29* 
 
 628,894.88 
 
 9,226.44 
 
 
 
 156,401.97 
 
 1907 
 
 757,848.83 
 
 604,445.67 
 
 8,367.54 
 
 
 
 145,035.62 
 
 1908 
 
 762,755.32 
 
 620.007.07 
 
 8,355.13 
 
 
 
 134,393.12 
 
 1909 
 
 762,298.92 
 
 621,321.25 
 
 6,028.27 
 
 1,195.66 
 
 133,754.74 
 
 1910 
 
 888,713.01 
 
 721,457.20 
 
 5,623.53 
 
 1,193.26 
 
 160,755.89 
 
 1911 
 
 1,064,324.38 
 
 ' 857,654.67 
 
 
 1,143.32 
 
 205,526.39 
 
 1912 
 
 1,097,542.20 
 
 885,507.48 
 
 
 1,215.14 
 
 210,819.58 
 
 (*) In the years 1902, 1904, and 1906, the figures in the first 
 column do not agree exactly with the totals of the following columns. 
 The discrepancy is due to the fact that the last three columns relate 
 to strictly cash transactions. Certain rebates, back payments, etc., are 
 thus responsible for the discrepancies in these years. 
 
 (t) Up to 1909 the school fund received only a rebate, the same as 
 any benevolent, educational, etc., institution. 
 
RECEIPTS FROM CORPORATION TAXES 189 
 
 VI. MUTUAL LIFE INSURANCE COMPANIES 
 
 1852 a 1883 $244,335.70f 
 
 1853 $ 1,957.75 1884 210,069.95g 
 
 1854 3,243.76c 1885 213,224.90 
 
 1855 2,691.18 1886 217,276.27 
 
 1856 3,311.59 1887 221,153.89 
 
 1857 4,184.35 1888 222,413.66 
 
 1858 # 4,315.29 1889 226,797.30 
 
 1859 b 1890 231,384.37 
 
 1860 6,026.08 1891 236,863.45 
 
 1861 7,254.29 1892 242,317.96 
 
 1862 7,971.26 1893 247,582.31 
 
 1863 14,742.25d 1894 252,045.33 
 
 1864 14,839.68 1895 258,510.07 
 
 1865 45,715.97 1896 263,180.99 
 
 1866 19,763.94 1897 267,670.71 
 
 1867 44,396.99 1898 272,242.40 
 
 1868 62,697.90 1899 283,817.12 
 
 1869 117,625.83 1900 291,066.74 
 
 1870 138,796.34 1901 300,769.37 
 
 1871 169,921.42 1902 310.402.98 
 
 1872 262,309.18 1903 320,198.77 
 
 1873 301,729.94 1904 309,167.24h 
 
 1874 322,891.55 1905 330,357.16 
 
 1875 368,221.82 1906 344,588.65 
 
 1876 393,258.68 1907 361,083.96 
 
 1877 407,652.14 1908 366,838.95 
 
 1878 365,649.64 1909 388,874.24 
 
 1879 370,429.25 1910 406,716.21 
 
 1880 382,239.80 1911 409,864.07 
 
 1881 390,454.96 1912 422,492.38 
 
 1882 298,684.66e 
 
 a No itemization of detail of tax receipts could be found. 
 Recepits from mutual insurance companies, including taxes and for- 
 feiture of $500 by Connecticut Mutual Life Insurance Company were 
 $704.54. 
 
 In 1871, taxes ■which had been withheld by mutual life insurance 
 companies from 1863 to 1870 were collected, and amounted to 
 $264,528.83. 
 
 b No itemization of detail of tax receipts could be found. Re- 
 ceipts from taxes on mutual fire and life insurance companies totaled 
 $4,529.37. 
 
 c Tax due in 1851 of $681.74 from Connecticut Mutual Life 
 Insurance Company included in receipts of 1854. 
 
 d Tax rate doubled. 
 
 e Law amended and provided for tax on corporate franchise of 
 %%; in 1883, 3-10%; and in 1884 and thereafter %% on premium 
 notes and market value of assets, minus ascertained and unpaid 
 losses and other deductions. Previous tax was %% on market value 
 of assets, etc. 
 
 f Decrease from %% to 3-10% In tax rate. 
 
 g Decrease from 3-10% to %% in tax rate. 
 
 h Allowance of local taxes paid during the year. 
 
190 REPORT OF SPECIAL TAX COMMISSION 
 
 Vn. MUTUAL FIRE INSURANCE COMPANIES 
 
 1852 
 
 a 
 
 1883 
 
 $ 6,921.40 
 
 1853 
 
 $ 114.22 
 
 1884 
 
 7,253.43 
 
 1854 
 
 103.57 
 
 1885 
 
 7,577.66 
 
 1855 
 
 126.51 
 
 1886 
 
 8,207.87 
 
 1856 
 
 167.13 
 
 1887 
 
 8,920.98 
 
 1857 
 
 192.84 
 
 1888 
 
 9,361.97 
 
 1858 
 
 258.35 
 
 1889 
 
 9,761.48 
 
 1859 
 
 b 
 
 1890 
 
 10,065.26 
 
 1860 
 
 373.50 
 
 1891 
 
 10,184.73 
 
 1861 
 
 524.26 
 
 1892 
 
 10,345.22 
 
 1862 
 
 463.08 
 
 1893 
 
 10,868.73 
 
 1863 
 
 952.06c 
 
 1894 
 
 10,407.52g 
 
 1864 
 
 1,098.57 
 
 1895 
 
 10,655.65 
 
 1865 
 
 3,344.25d 
 
 1896 
 
 9,868.1011 
 
 1866 
 
 2,430.38 
 
 1897 
 
 10,050.41 
 
 1867 
 
 2,242.24 
 
 1898 
 
 10,671.42 
 
 1868 
 
 l,758.32e 
 
 1899 
 
 11,036.38 
 
 1869 
 
 8,774.98 
 
 19»0 
 
 11,274.89 
 
 1870 
 
 2,466.14f 
 
 1901 
 
 11,080.50 
 
 1871 
 
 2,048.28 
 
 1902 
 
 12,069.01 
 
 1872 
 
 3,681.74 
 
 1903 
 
 13,341.65 
 
 1873 
 
 3,940.94 
 
 1904 
 
 4,515.331 
 
 1874 
 
 4,128.53 
 
 1905 
 
 4,944.65 
 
 1875 
 
 4,653.02 
 
 1906 
 
 5,113.01 
 
 1876 
 
 5,269.95 
 
 1907 
 
 5,354.38 
 
 1877 
 
 6,005.49 
 
 1908 
 
 5,082.70 
 
 1878 
 
 5,883.52 
 
 1909 
 
 5,744.42 
 
 1879 
 
 5,228.66 
 
 1910 
 
 6,396.33 
 
 1880 
 
 5,406.70 
 
 191A 
 
 6,553.73 
 
 1881 
 
 5,877.74 
 
 1912 
 
 6,831.12 
 
 1882 
 
 6,527.09 
 
 
 . 
 
 a No itemization of detail of tax receipts could be found. Re- 
 ceipts from mutual insurance companies — only taxes — were $204.54. 
 
 In 1871, taxes which had been withheld by mutual Are insurance 
 companies from 1863 to 1870 were collected, and amounted to $2,829.25. 
 
 b No record could be found of itemization of receipts so that 
 they could be separated into taxes on mutual life insurance com- 
 panies and taxes on mutual fire insurance companies. Total of all 
 was $4,529.37. 
 
 c Tax rate doubled. 
 
 d Rate increased to 1% on capital invested. 
 
 e Rate decreased to %% on total assets, minus amount of 
 premium notes held by company and ascertained and unpaid losses. 
 
 f Tax of %% on assets minus premium notes and amount in- 
 vested in bonds, upon which a tax of 1% was required to be paid to 
 the State. 
 
 g-h Decrease in assets. 
 
 i Decrease of tax rate from %% to %%. 
 
RECEIPTS FROM CORPORATION TAXES 191 
 
 Vm. SAVINGS BANKS AND SAVINGS DEPARTMENTS 
 OF TRUST COMPANIES 
 
 1853 $ 8,707.19a 1883 $185,139.45 
 
 1854 11,590.43a 1884 193,511.73 
 
 1855 14,916.12a 1885 198,761.45 
 
 1856 17,087.17a 1886 205.003.34 
 
 1857 19,036.83a 1887 217,843.26 
 
 1858 34,054.77a b 1888 229,953.11 
 
 1859 33,269.49a 1889 240,036.79 
 
 1860 44,157.51a c 1890 253,562.83 
 
 1861 49,561.35a 1891 269,944.86 
 
 1862 52,223.35a 1892 285,866.45 
 
 1863 110,576.63a d 1893 308,080.25 
 
 1864 166,948.90a e 1894 309,792.16 
 
 1865 201,396.18a 1895 321,026.20 
 
 1866 178,941.90a 1896 340,404.81 
 
 1867 175,359.81a f 1897 353,382.81 
 
 1868 208,304.68g 1898 373,370.32 
 
 1869 287,704.03 1899 392,782.98 
 
 1870 328,950.32 1900 418,780.28 
 
 1871 372,692.13 1901 441,672.26 
 
 1872 421,129.36 1902 445,721.77 
 
 1873 471,222.90 1903 430,810.46 
 
 1874 507,103.20 1904 448,383.07 
 
 1875 434,326.43h 1905 469,611.55 
 
 1876 462,664.27 1906 498,582.95 
 1876Nov.30 98,294.13* 1907 536,444.72 
 
 1877 469,700.32 1908 555,559.35 
 
 1878 228,003.681 1909 566,981.97 
 
 1879 151,851.37 1910 598,407.08 
 
 1880 156,637.36 1911 630,277.33 
 
 1881 163,697.89 1912 660,194.97 
 
 1882 174,076.31 
 
 * Time for expiration of fiscal year changed from March to 
 November. 
 
 a Includes taxes from bank and building associations. 
 
 b Tax rate doubled to %%. 
 
 c Tax rate doubled to %%. 
 
 d Tax rate changed to %%. 
 
 e Tax decreased as many of the savings banks refused to comply 
 with the law of the State which taxed the whole amount of their 
 deposits. In 1862 the question was raised by several as to their lia- 
 bility to pay a State tax on the "whole amount of their deposits." 
 Suit was brought against the Society for Savings, and in 1865 appeal 
 was taken by the Bank to the United States Supreme Court, and many 
 of the other banks refused to pay the taxes. 
 
 f Question still unsettled, but tax was reduced in consequence of 
 those institutions having largely invested their capital and deposits 
 in government securities, many of them refusing to pay taxes on the 
 same. 
 
 g Case was decided in favor of the State. By this decision, the 
 State received $130,000. 
 
 h Law changed to imposition of tax of %% on all savings deposits 
 and surplus loaned on real estate, and 1% on all deposits remaining, 
 with deduction for investment in certain bonds. 
 
 I Law changed to imposition of tax of %% on all deposits, ex- 
 clusive of surplus, deducting bonds exempted from taxation. 
 
APPENDIX II 
 METHODS OP TAXING PUBLIC SERVICE CORPORA- 
 TIONS IN OTHER STATES 
 
 For the purposes of its investigation, the Commission has 
 made an extensive study of the laws imposing taxes upon 
 corporations in all of the States of the United States. This 
 Appendix contains a brief abstract of the tax laws relating to 
 public service corporations. Lack of space has made it im- 
 possible to include also the financial corporations. The matter 
 is arranged according to classes of corporations. The section 
 devoted to each class of corporations is arranged by States 
 alphabetically. 
 
 The task proved to be a considerable undertaking and, 
 in view of the shortness of the time at its disposal, the Com- 
 mission recognizes that the result of its investigation may con- 
 tain some errors. In nearly every case, however, the abstracts 
 prepared by the Commission have received the examination 
 and revision of some State officer in the particular State in 
 question. The Commission feels, therefore, that the following 
 statements may be relied upon as being essentially correct. 
 
 The question of the taxation of bonds in the hands of 
 the holders has not been discussed in these abstracts. Unless 
 otherwise specially mentioned shares of stock may be con- 
 sidered exempt to the holders. 
 
 I. RAILROAD COMPANIES 
 
 Alabama: — The State Board of Assessment values all the 
 property of railroad companies, and this valuation is appor- 
 tioned among the counties and municipalities on the basis of 
 mileage, the taxes being at the rate of the general property 
 tax. There are also municipal license taxes based upon popu- 
 lation, the fees varying from $10 in municipalities not exceed- 
 ing 250 inhabitants to $25 for the first 1,000 inhabitants and 
 $35 for each additional 1000 inhabitants in places exceeding 
 10,000 inhabitants. Railroad companies are subject to the 
 State corporation license tax based upon stock, bonds and 
 earnings at the rate of the general property tax. 
 
 Street railway companies are assessed upon all their prop- 
 erty by the State Board of Assessment, this valuation being 
 apportioned to the counties and municipalities upon the basis 
 of mileage and the taxes collected at the rate of the general 
 property tax. In addition to this tax, such companies may be 
 assessed by municipalities on their gross receipts as a privilege 
 tax, the rate not to exceed 2% on the gross receipts ; provided, 
 that the amount paid by such companies to the municipalities 
 
TAX LAWS OF OTHER STATES 193 
 
 as a tax on intangible property shall be allowed as a credit 
 on and, against |he / privjlege ) t,ax. Shares of stock are taxed 
 to the holders as personal property. 
 
 Arizona : — Railroad Companies are taxed under ,the general 
 property tax, the assessment being made by, the State Board 
 of Equalization and the valuation apportioned to the counties 
 and taxing units, where the taxes are collected in the same 
 way and at the same rate as those upon property in the hands 
 of individuals. 
 
 Street railway companies are taxed u^on all their property 
 in exactly the same way as property in the hands' 'of individ- 
 uals is taxed. 
 
 Arkansas:- — Railroad , companies, are taxed by the State 
 1-20 of 1% upon the ampuntjof capital stpck and alsp the value 
 of all their property, including franchises, as assessed by the 
 State .Tax, Commission. This valuation is apportioned, to the 
 taxjng units pn Jfiie basis , of . mileage and the taxes collected 
 at the, rate of the general property tax, , ,., , , 
 
 Street railway companies, are taxed 'as railroads except 
 that the assessment of their property is made by county, not 
 State, officers. 
 
 California :— Railrpad companies are taxed by the State 
 upon their gross receipts' from operation at the rate of 4 % in 
 lieu of all other taxes. The gross receipts of companies doing 
 an interstate business are deemed to ^e all receipts on business 
 beginning and ending within the State and. a proportion, based 
 upon mileage, , of the receipts from business passing through, 
 into, or out of the State. _ , 
 
 Colorado :— The total property of railroad companies is 
 assessed by the State Tax Cpmmission and the valuation, ap- 
 portioned to the. counties and taxing districts upon the basis 
 of mileage, the .taxes being collected .lqcally at the same rate 
 and in the same way as those upon property in the hands of 
 mdividuals 5 . Such companies alsp pay. a State, license tax of 
 2 cents'.ori ea,ch $>l,00O;qf authorized, capital stock,. 
 
 Street railway 1 companies operating in, more tiian one 
 county are taxed in, the same way as railrpad companies. If 
 operating in only one county they are assessed by the local 
 assessor. , , r ( .„ iim . 
 
 D'ela^ajre r—vAll railroads operating withip the State are 
 permittee! to pay to the State fixed. lunjp, sums in, lieu, pf all 
 other Sftate taxes. Theoretically, in pla<?e, pf these , commuta- 
 tion taxes, railroads are subject tp S,tate t ta^es at th«? following 
 rates 1 : op passengers^ 1$ centsVeaeh; pn net ineojne, 10% ; on 
 rolling stpck: locomotives, $10^0 r each,,. passenger cars, $25 each. ") 
 freight cars, $10 each'; on capital stock, actual cash value, 
 y 2 of 3%. Any tangible property located outside the right 
 
194 REPORT OF SPECIAL TAX COMMISSION 
 
 of way is subject to local taxation under the general property 
 tax. 
 
 Street railway companies are not subject to taxation by 
 the State, but all their property is assessed and taxed by the 
 counties and municipalities as property in the hands of in- 
 dividuals is taxed. 
 
 District of Columbia: — Railroad companies are taxed by 
 the District on all their property under the general property 
 tax. 
 
 Street railway companies are taxed 4% upon their gross 
 receipts within the District and the general property tax upon 
 their real property. The tracks, however, are not regarded 
 as real property. 
 
 Florida: — Railroad companies are taxed upon all their 
 assets under the general property tax, and in addition are sub- 
 ject to a State license tax of $10 for every mile of track in 
 the State, including branches and side tracks. One-half of this 
 tax is distributed to the counties on the basis of mileage and 
 one-half retained by.the State. The municipalities also impose 
 license taxes based upon population, the fees varying from 
 $10 to $250. Shares of stock are taxable to the holders. 
 
 Georgia: — Railroad companies are assessed by the State 
 Comptroller upon the total amount of their property, includ- 
 ing indebtedness and franchises; this valuation is apportioned 
 to the local taxing units and the tax collected in the same way 
 and at the same rate as that upon property in the hands of 
 individuals. Such companies are also subject to a State license 
 tax upon the authorized amount of capital stock, the fees 
 varying from $5 to $75. 
 
 Idaho: — Railroad companies are assessed by the State 
 Board of Equalization upon all their property, this valuation 
 being apportioned to the counties upon the basis of mileage, 
 and the taxes collected at the same rate and in the same way 
 as those upon property in the hands of individuals. In ad- 
 dition to this, there is a State license tax upon the authorized 
 amount of capital stock, the fees varying from $10 to $150 ac- 
 cording to the amount of stock. 
 
 Illinois: — Railroad companies, with the exception of the 
 Illinois Central Railroad Company, are taxed at the rate of 
 the general property tax upon all property, tangible and in- 
 tangible, as assessed by the State Board of Equalization, the 
 valuation being apportioned to the taxing districts and the 
 taxes collected loeally. 
 
 The Illinois Central Railroad Company, by the charter 
 act, is subject to a State tax of 7% of the gross receipts of the 
 main or charter lines, with main trackage of 705.5 miles within 
 the State, in lieu of all other taxes upon the charter lines. The 
 
TAX LAWS OF OTHER STATES 195 
 
 property of roads acquired by the company since the granting 
 of the charter act is assessed and- taxed the same way as the 
 property of other railroads. ^ 
 
 Street railroads incorporated under the general railroad 
 act are taxed in the same way as steam roads. Street rail- 
 roads incorporated under the general corporation act are 
 assessed by the State Board of Equalization upon the market 
 value of their stocks and bonds, including franchise, deducting 
 from.this valuation the assessed value" of all tangible property. 
 The remainder is taxed at the rate of the general property 
 tax at the principal office of the company. Tangible property 
 is assessed and taxed locally under the general property tax. 
 
 Indiana: — The railroad track, appliances, and rolling 
 stock of railroad companies are assessed by the State Tax Com- 
 missioners, and this valuation is apportioned to the counties 
 and taxing districts, ^where the taxes are collected at the same 
 rate and in the same manner as those upon property in the 
 hands of individuals. 
 
 All real estate other than track and all personalty such as 
 machinery in shops, ties, rails, and other supplies on hand are 
 assessed and taxed locally under the general property tax. 
 
 Iowa: — Railroad companies are assessed by the State 
 Council upon all property, including franchise, and this valu- 
 ation is apportioned to the counties upon the basis of mileage, 
 the taxes being collected at the same rate and in the same way 
 as those upon the property of individuals. 
 
 The entire property of street railway companies is assessed 
 and taxed in exactly the same manner as property in the hands 
 of individuals is assessed and taxed. It is provided that the 
 franchise of such companies shall not be assessed. The value 
 of the shares of stock over and above the value of the assessed 
 property of the company is assessed to the holders at the prin- 
 cipal office of the company, the valuation being made by the 
 assessor of the county in which such office is located. 
 
 Kansas: — The property of all railroad companies is 
 assessed by the State Tax Commission and this valuation ap- 
 portioned to the taxing districts upon the basis of mileage, 
 the taxes being collected locally at the rate of the general 
 property tax. Shares of stock of foreign companies having 
 their principal office outside the State are taxed to the holders. 
 
 Kentucky: — Railroad companies are assessed by a State 
 board upon the value of the franchise, which value is deter- 
 mined by subtracting from the value, of the capital stock the 
 value of all tangible property otherwise assessed. This fran- 
 chise valuation is apportioned to the taxing districts where the 
 franchise is exercised and there taxed at the same rate as 
 the property of individuals. All tangible property is assessed 
 
196 REPORT OF SPECIAL TAX COMMISSION 
 
 also by the State board and taxed locally under the general 
 property tax. Domestic companies doing business entirely 
 ■without the State pay a State tax of 1% upon the authorized 
 amount of capital stock in lieu of all other taxes within the 
 State. Shares of foreign companies not owning property with- 
 in the State are taxed to the holders. 
 
 Street railway companies are taxed in the same way as 
 railroad companies except that the assessment of tangible prop- 
 erty is made by local officers and not by the State board. _ 
 
 Louisiana: — Railroad companies are taxed upon all their 
 property, including franchises, as assessed by the State Board 
 of Appraisers, the valuation being apportioned to the parishes 
 and municipalities where the taxes are collected at the same 
 rate as those upon property in the hands of individuals. 
 
 Street railway companies are subject to the same ad 
 valorem taxes as steam roads, and in addition pay a license 
 tax of % of 1% upon gross earnings within the State. Muni- 
 cipal license taxes based upon gross receipts are also allowed. 
 
 Maine: — Railroad companies are taxed by the State upon 
 their gross receipts within the State at a rate of % °f 1% if 
 the receipts do not exceed $1,500 per mile, the rate increasing 
 X A of 1% for each additional $500. of receipts per mile, pro- 
 vided that in no case shall the rate exceed 5^%. This tax is 
 apportioned to the cities and towns in which owners of stock 
 reside as follows': 1% of the value of stock owned in said 
 cities and towns, with provision that the amount apportioned 
 shall not be a greater part of the whole tax received than the 
 proportion which stock owned in the State bears to the total 
 amount of stock, and provided that the amount so apportioned 
 shall not exceed the total amount received from the tax upon 
 the receipts. The remainder of the tax is retained by the State. 
 Buildings, whether within or without the right of way, and 
 lands and fixtures without the right of way are not considered 
 operative property and are taxed where located as the property 
 of individuals is taxed. 
 
 Street railway companies are taxed upon their gross re- 
 ceipts within the State at a rate of % of 1% if the receipts do 
 not exceed $1,000 per mile, the rate increasing 3-20' of \J6 for 
 each additional $1,000 or fraction thereof of receipts per mile, 
 but in no case to exceed 4%. The tax is apportioned in the 
 same way as the tax upon railroad companies. 
 
 Maryland: — Railroad companies are taxed by the State 
 upon their gross receipts within the State at the following 
 rates: 1^% on the first $1,000 of gross earnings per mile; 
 2%, on earnings of $1,000 to $2,000 per mile ; 2y 2 % on earnings 
 of over $2,000 per mile. Local taxes upon real and personal 
 property are assessed and collected under the general property 
 
TAX LAWS OF OTHER STATES 197 
 
 tax in the same way as those upon the property of natural 
 persons. The Baltimore and. Ohio Railroad Company has a 
 special contract with the State whereby it escapes the regular 
 gross receipts tax, and pays instead a tax of Vfc of 1% upon 
 gross earnings in Maryland. 
 
 Street railway companies are assessed and taxed under 
 the general property tax upon the value of all shares of capital 
 stock and real property, the assessment of stock being made 
 by the State Tax Commissioner and the valuation apportioned 
 to the counties where the holders reside. Shares of stock in 
 foreign companies are taxed to the holders at the rate of 30 
 cents on each $100, except in case no dividends have been 
 paid, when such shares are exempt. 
 
 Massachusetts: — Railroad companies are taxed by the 
 State upon the margin of intangible value found by deducting 
 the assessed value of certain' tangible property, which is 
 taxed to the corporation by local units, from the cash value 
 of so much of the capital stock as is proportional to that part 
 of its line within the State, determined on the basis of miles 
 of line. This tax is at a rate equal to the average of the rates 
 of 1 the general property tax for the three preceding years. 
 Such a proportion of the tax as corresponds to the proportion 
 of its stock owned by residents of the State is distributed to 
 the towns in which' the owners reside, and the remainder is 
 retained' by the State for its own use. The right of way is 
 exempt from local taxation. 
 
 Street railway companies are subject to the corporate ex- 
 cess tax in the same way as railroad companies. In the case 
 of street railways the tax is distributed to the local units upon 
 the basis of lbcation of track. In addition to the above tax, 
 such companies are subject to a "commutation" tax imposed 
 by local authorities on an amount equal to such. proportion of 
 designated percentages of gross receipts (including income 
 from other sources than operation of road) as the length of 
 track in the public places of the city or town bears to the total 
 length of track in all public places. This tax, which is at the 
 rate of the general property tax, is for the use of the towns. 
 The designated percentages of gross receipts vary from 1% if 
 the annual gross receipts per mile are $4,000 or less to 3% if 
 the gross receipts per mile are $28,000 or more. 
 
 Michigan: — Railroad companies are taxed by the State 
 at' the average rate of the general property tax upon all 
 property 'owned' in the State, (except real estate not essential 
 to the business and which is subject to local . taxation, as 
 assessed by the State' Assessors). For the year 1912 and there- 
 after there is' imposed by the State a tax upon the shares of 
 capital stock of 2% of the par value and upon the indebtedness 
 
198 REPORT OP SPECIAL TAX COMMISSION 
 
 of Ifo of the face value, which taxes are to be paid by the cor- 
 poration and not by the holders of the stock and bonds. 
 
 Street railway companies are taxed upon all their prop- 
 erty for State and local purposes under the general property 
 tax, real estate being assessed at its situs and all personal prop- 
 erty at the principal office of the company. 
 
 Minnesota: — Railroad companies are taxed by the State 
 upon their gross earnings from operation at the rate of 5% in 
 lieu of all other taxes. The gross earnings of companies doing 
 an interstate business include a proportionate share, based 
 upon mileage, of the interstate gross receipts from operation. 
 
 The property of street railway companies is assessed and 
 taxed as that of individuals, stocks and bonds being assessed 
 at market value. Shares of stock in foreign companies are 
 taxed to the holders. 
 
 Mississippi: — Railroad companies are subject to taxation 
 upon all their property as assessed by the State Board of 
 Assessors, the valuation being apportioned to the taxing dis- 
 tricts and taxed at the rate of the general property tax. They 
 also pay a State privilege tax varying from $2 to $22.50 per 
 mile, according to the classification of track. Roads claiming 
 exemption from State supervision under charter provisions, 
 pay an additional $10 per mile of track. 
 
 Street railways are subject to the same ad valorem taxes 
 as steam roads, but pay a privilege tax of $20 per mile of track. 
 
 Missouri: — Railroad companies are taxed upon all their 
 property, including franchises, at the rate of the general prop- 
 erty tax, the assessment being made by the State board and 
 the valuation apportioned to the taxing districts where the tax 
 is collected as that upon the property of natural persons. Local 
 property is assessed by local officers. Shares in foreign com- 
 panies are taxed to the holders at market value. 
 
 Montana: — The franchises, roadways, roadbeds, and roll- 
 ing stock of all roads operating in more than one county are 
 assessed by the State Board of Equalization ; all other property 
 by the assessors of the county in which such property is locat- 
 ed. The valuation of the property assessed by the State Board 
 is apportioned to the counties upon the basis of mileage and, 
 together with the property assessed locally, taxed locally in 
 the same manner as the property of individuals is taxed. In 
 addition to these ad valorem taxes railroad companies are sub- 
 ject to State license fees based upon gross receipts, the fees 
 varying from $5 to $225 per quarter according to the amount 
 of receipts. 
 
 The property of street railway companies is assessed and 
 taxed exactly as property in the hands of individuals. The 
 capital stock and franchises are assessed at the principal office 
 
TAX LAWS OF OTHER STATES 199 
 
 of the company and other property where situated. In addi- 
 tion to this ad valorem tax, such companies pay license fees, 
 varying from $25 to $50 per quarter, according to population. 
 
 Nebraska: — Railroad companies are assessed by the State 
 Board of Equalization upon all property, including franchises, 
 except certain buildings and real and personal property out- 
 side the right of way, which property is assessed and taxed 
 as that of individuals. The valuation made by the State Board 
 is apportioned to the counties and taxing districts upon the 
 basis of mileage and the taxes are collected at the same rate 
 and in the same way as those upon.the property of individuals. 
 The railroad companies are also subject to the State tax upon 
 capital stock, the fees of which range from $5 to $200. 
 
 Street railway companies are taxed locally under the gen- 
 eral property tax upon all property and franchises. They are 
 also subject to the State tax based upon the capital stock, the 
 fees varying from $5 to $200. 
 
 Nevada: — Railroad companies are taxed upon all their 
 property under the general property tax, the assessment being 
 made by the State Board and the valuation apportioned to 
 the taxing districts where the taxes are collected. Foreign 
 companies are subject to retaliatory provisions. 
 
 New Hampshire: — Railroad companies are taxed upon all 
 their property, including franchises, as assessed by the State 
 Tax Commission, at the rate of the general property tax. This 
 tax is distribtited by the State Treasurer as follows : y± of the 
 amount paid by the corporation to each town in which rail- 
 road property is located in proportion to the amount of capital 
 expended therein for buildings and right of way ; to each town 
 in which owners of stock reside such proportion of residue as 
 the number of shares owned therein bears to total number of 
 shares ; the remainder is retained by the State for its own 
 use. 
 
 New Jersey :— Railroad companies are taxed upon all 
 property, including franchise, as assessed by the State Board 
 of Equalization, the tax being at the rate of the general prop- 
 erty tax. The taxes collected upon real estate used for rail- 
 road purposes and roadbed other than main stem are appor- 
 tioned to the districts in which such property is located. The 
 taxes upon all other property used in the business are collected 
 by the State for State and school purposes. 
 
 Street railways are taxed by the State for State use upon 
 their gross receipts from business done within the State and 
 a proportionate share of interstate earnings at the rate of 5%. 
 In addition to this, all real and personal property is taxed 
 under the general property tax. 
 
200 REPORT OP SPECIAL TAX COMMISSION 
 
 New Mexico : — Railroad companies are assessed and taxed 
 upon all their property as Valued by the State Board of Equal- 
 ization, the valuation being apportioned to the copiitiqs and 
 municipalities and the taxes collected in the same way and at 
 the same rate as those upon property hi the hands of individ- 
 uals. • ' 
 
 New York : — Railroad companies are subject to a State 
 tax upon gross earnings from business wholly within the State 
 at the rate of Vg of 1%; and to a State franchise tax upon 
 capital stock, the rates varying from % of a mill per $1 for 
 each 1% of dividends declared to 1^ mills on each $1 of capi- 
 tal stock employed in the Statey according to the" Amount' of 
 dividends declared. In addition to these taxes, such companies 
 are assessed and taxed upon all tangible property' in the" same 
 way as the property of individuals' is taxed, this tax 1 being for 
 local use only. Foreign companies also pay an ' additional 
 State license fee of % of 1% upon the capital stpck employed 
 in the State. 
 
 Elevated, railway companies and surface railroads not 
 operated by steam are taxed by the State upon their gross 
 earnings within the State at the rate of 1% and 
 upon dividends declared in excess of 4% on paid-up capital 
 at the rate of 3%, In addition to these taxes such companies 
 are assessed and taxed under the general property t#x, upon 
 all tangible property and incorporeal rights, the valuation, of 
 special franchises being determined by the State, Board of, Tax 
 Commissioners. Foreign companies also pay an additional 
 State license fee of % of 1%' upon the capital stock employed 
 in the State. 
 
 North Carolina: — Railroad companies are assessed, by the 
 State Tax Commission upon all their property, including fran- 
 chises and mortgages upon such property, the valuation' 1)eirig 
 • apportioned "to the counties' and taxing, distpicts where the 
 taxes are levied at the rate of the general property tax. In 
 addition to the ad valorem taxes ; such companies are taxed 
 by the State upon their gross receipts at rates varying from $2 
 to $5 per mile of route, according to f the amount of receipts. 
 
 North Dakota: — Railroad companies are taxed upon all 
 their property under the : general property tax, the assessment 
 of real estate being made by local officer^ and that of franchise, 
 roadway,' roadbed, rails, and rolling stock by the State Board 
 of Equalization. The valuation made by the State Bjoard is 
 apportioned to the counties upon the basis of mileage anfl the 
 taxes collected locally. In unorganized counties thetiaxes are 
 collected by the State Auditor for State' use 'onl$. 
 
 Ohio: — Railroad companies are taxed by the State upon 
 their gross earnings from intrastate business at the rate|6f ¥fo 
 
TAX t^AWS of other STATES 201 
 
 I. 
 
 and in addition to this are taxed upon all their property as 
 assessed by the State Tax. Commission, the valuation being ap- 
 portioned to, the taxing, d^tricts, upon th§ basis oij mileage 
 and property operated and the taxe$ cpllected in, the same way 
 and at! the same ra^e as those upon the property of natural 
 persons. 
 
 Street railway companies are taxed in, tjhe same way as 
 railroad companies^ except that the State tax upon gross earn- 
 ings is at the rate of 1.2% for street railway companies instead 
 of 4% as is the case for steam roads. 
 
 Oklahoma :— Railroad companies are taxed upon all their 
 property under the, general, property tax, the assessments being 
 made, by either State, or local officers. Shares of stock are 
 taxed to the, holders as personal property. 
 
 "Oregon.: — Railroad companies are taxed upon all their 
 property under the general property tax. Shops^ grain eleva- 
 tors and warehouses; and all real and personal property de- 
 voted to navigation are assessed where situated by local officers. 
 All other property is assessed by the State Board and the valu- 
 ation apportioned to the taxing districts upon, the basis of 
 mileage. 
 
 Pennsylvania : — Railroad companies are taxed by the State 
 as follows : 5 milis on each $1 actual value of capital stock ; 
 8 mills on each $1 of gross receipts from traffic wholly within 
 the State ; 4 mills on each $1 o£ bonds owned within the State. 
 The capital'stock tax on, interstate roads is. computed, on the 
 basis of mileage. In addition to these, State taxes, real and 
 personal property necessary to the business is taxed locally 
 under the general property tax, in Pittsburgh ancli Philadelphia, 
 but such property is exempt elsewhere. The Brie Railroad 
 Company pays a special Sta,te bonus of $10,000 per annum, 
 which bonus is distributed to the counties through which the 
 line of the company passes, upon the ba,sis of mileage. 
 
 Rhode, Island: — Railroad companies, are taxed by the State 
 upon their grpss earnings from operation withjn the State at 
 the rate of 1 °? in lieu of all other taxes upon intangible per- 
 sonal , property or corporate excess. Tangible personal pr.op^ 
 erty and real estate are assessed and taxed locally under the 
 general property tax. 
 
 Street railway companies are subject tp the same taxes 
 as other railroads with these additional taxes : If the annual 
 dividend paid, by any such, company during the year preceding 
 assessment is, 8% on its capital stock outstanding, during such 
 year, or less than 8,%., or if no. dividend be paid, the franchise, 
 tax shall be, 1% Qf the gross earnings; but, if. the dividend ex- 
 ceeds 8% the franchise tax shall he, a sum equal to the excess 
 
202 REPORT OF SPECIAL TAX COMMISSION 
 
 of such dividend over 8%, but in no case shall the franchise 
 tax be less than 1% of the gross earnings. 
 
 South Carolina: — Railroad companies are taxed by the 
 State upon their gross receipts from business done within the 
 State at the rate of 3 mills. In addition to this they are taxed 
 upon all property as assessed by the State Board of Assessors, 
 the valuation being apportioned to the counties and taxing 
 districts upon the basis of mileage and the taxes collected in 
 the same way and at the same rate as those upon property in 
 the hands of individuals. 
 
 South Dakota: — Railroad companies are taxed upon all 
 their property at the rate of the general property tax as 
 assessed by the State board, the valuation being apportioned 
 to the counties upon the basis of mileage and the taxes collect- 
 ed locally in the same manner as those upon property in the 
 hands of individuals. Shares of stock are taxed to the holders. 
 
 Street railway companies are taxed under the general 
 revenue law only. 
 
 Tennessee: — Railroad companies are assessed and taxed 
 upon all property under the general property tax; all prop- 
 erty having an actual situs is assessed by local authorities in 
 the district where such property is located; the roadbed, roll- 
 ing stock, franchises and all personal property having no actual 
 situs are assessed by the State Tax Commissioners, this valu- 
 ation' being apportioned to the counties and cities upon the 
 basis of mileage. In the case of railroad companies the State's 
 share of the taxes collected under the general property tax 
 shall be paid directly to the State Comptroller, the remainder 
 being collected by the taxing districts in the same way as the 
 taxes upon the property of individuals are collected. Street 
 railway companies also pay county license fees varying from 
 $3 to $10 per mile according to population. 
 
 Texas: — Railroad companies are assessed by the State 
 board upon all intangible property, the value being determined 
 as that of the market value of capital stock plus all indebted- 
 ness secured by mortgage or lien, less the value of all tangible 
 property. This valuation of intangible property is apportioned 
 to the counties and taxing districts upon the basis of mileage 
 and the taxes upon it collected at the same rate and in the same 
 manner as those upon property in the hands of individuals. 
 All tangible property of railroad companies is assessed and 
 taxed as that of individuals. 
 
 Street railway companies are taxed by the State upon 
 their gross receipts at the following rates : if in or connecting 
 any town of less than 20,000 inhabitants, the rate is y 2 of 1% ; 
 if more than 20,000 inhabitants, % of 1% ; if wholly within a 
 town of less than 10,000 inhabitants such companies are ex- 
 
TAX LAWS OF OTHER STATES 203 
 
 empt from the gross receipts tax. In addition to this tax all 
 such companies are taxed upon all their tangible property in 
 the same manner as individuals. 
 
 Utah: — Railroad companies are taxed upon all their prop- 
 erty, including franchises, under the general property tax, 
 the assessment being made by the State Board and the valu- 
 ation apportioned to the taxing units where the taxes are col- 
 lected in the same way as those upon property in the hands of 
 individuals. In addition to this tax, such companies are sub- 
 ject to a State license tax based upon the authorized amount 
 of capital stock, the fees varying from $5 to $50. The property 
 of railroad companies operating in only one county is assessed 
 and taxed locally as property of individuals is taxed. 
 
 Vermont : — Railroad companies are assessed upon all their 
 property, including franchise, by the State Commission and 
 taxed by the State 1%% upon this valuation, or, in lieu of this 
 tax they may pay a State tax upon gross earnings at the 
 following rates: 2%% on such part of gross earnings as does 
 not exceed $2,000 per mile of roadbed located wholly within 
 the State; 2ty% on such part of gross earnings as exceeds 
 $2,000 and does not exceed $2,500 per mile, the rate increasing 
 y± of 1% for each additional increase of $500 per mile, up to 
 $4,500 per mile, and 4% of such part of earnings as exceeds 
 $4,500 per mile. Railroad companies are also subject to the 
 State license tax upon capital stock, the fees varying from $10 
 to $50. 
 
 Virginia: — Railroad companies are subject to the State 
 property tax upon all property as assessed by the State Corpor- 
 ation Commission, the rate of taxation being 35 cents on $100, 
 and are also taxed by the State upon intra-state gross receipts 
 at the rate of 1%. Local taxation of tangible property is al- 
 lowed. Shares of stock in foreign companies are taxed to the 
 holders. 
 
 Washington : — Railroad companies and street railway com- 
 panies are assessed upon all their property, including franchise, 
 by the State Board of Tax Commissioners, the valuation being 
 apportioned to the counties and taxing districts upon the 
 basis of mileage and the taxes collected at the same rate and 
 in the same manner as those upon property in the hands of 
 individuals. 
 
 West Virginia: — Railroad companies are taxed upon all 
 their property at the rate of the general property tax, the 
 assessment being made by the State board and the taxes col- 
 lected by the State Auditor who apportions the funds to the 
 various taxing districts. These companies are also subject 
 to the State license fee on the authorized amount of capital 
 stock, the amounts varying from $10 if the stock is $5,000 or 
 
204 REPORT OP SPECIAL TAX COMMISSION 
 
 less to $170 if the stock is $1,000,000, with an additional fee 
 of $60 on each million "dollars or fraction thereof in excess of 
 one million. 
 
 Wisconsin: — Railroad companies are taxed upon all their 
 property, including franchises, by the State at the rate of the 
 general property tax as determined by the State Tax Commis- 
 sion. Eighty-five per cent, of this tax is distributed to the 
 local taxing districts in proportion to the business transacted 
 and property located therein. 
 
 Wyoming: — All property of railroad companies is assessed 
 by the State Board and the valuation apportioned to the various 
 taxing districts where the taxes are collected at the same rate 
 and in the same way as thojse upon property in the hands of 
 individuals. Local assessment and taxation by incorporated 
 towns, villages, and cities are allowed. 
 
 II. EXPRESS COMPANIES 
 
 Alabama: — Express companies are taxed upon all their 
 property locally under the general property tax in the same 
 way as individuals are taxed ; in addition to this they are sub- 
 ject to a State privilege tax based upon the number of miles 
 of railroad over which they operate; companies operating on 
 less than 50 miles of railroad pay an annual tax of $250,. those 
 operating on from 50 to 200 miles, $1,000; those operating on 
 from 200 to 500 miles, $2,000 ; over 500 miles, $4,000. Muni- 
 cipaltaxes, varying from $2.50 to $500 according to population, 
 are also allowed. Express companies are also subject to the 
 State corporation license tax upon stock, bonds, and earnings, 
 at the rate of the general property tax. 
 
 Arizona: — Express companies are taxed by the State upon 
 their gross receipts from business done within the State at 
 the rate of 5%, in lieu of all other taxes upon the property of 
 such companies. 
 
 Arkansas r — Express companies are taxed by the State 1-20 
 of 1% upon the amount of capital stock and also upon the 
 market value of: the stocks and bonds as assessed by the State 
 Commission. The valuation of the Commission is apportioned 
 to the. taxing units on the basis of mileage and the taxes col- 
 lected at the rate of the general property tax. 
 
 California: — Express companies are taxed by the State 
 upon their gross receipts from operation at the rate of 2fi in 
 lieu of' all other taxes. The gross receipts of companies doing 
 an interstate business are deemed to be all receipts on business 
 beginning and ending within the State and a proportion, based 
 upon mileage, of' the receipts from business passing through, 
 into, or out of the State. 
 
TAX LAWS OF OTHER STATES 205 
 
 Colorado: — The total property of express companies is 
 assessed by the State Tax Commission and the valuation ap- 
 portioned to the counties and taxing districts upon the basis 
 of mileage, the taxes being collected locally at the same rare 
 and in the same way as those upon property in the hands of 
 individuals. Such companies also pay a State license tax of 2 
 cents on each $1,000' of authorized capital stock. 
 
 Delaware : — Express companies are taxed by the State up- 
 on their gross receipts from business done within the State at 
 the rate of 5%, and pay an annual State license fee of $250. In 
 addition to these State taxes they are subject to taxation by 
 the local units upon all their property under the general prop- 
 erty tax. 
 
 District of Columbia: — Express companies are taxed by 
 the District upon all their property under the general property 
 tax. 
 
 Plorida: — Express companies are taxed upon all their 
 assets under the general property tax. In addition to this, such 
 companies are subject to a State license tax of $7,500 and 
 municipal license taxes based upon population, the fees varying 
 from $6 to $200. Shares Of stock are taxable to the holders. 
 
 Georgia: — Express companies are assessed by the State 
 Comptroller upon the total amount of their property, including 
 indebtedness and franchises; this valuation is apportioned to 
 the local taxing units and the tax collected in the same way 
 and at the same rate as that upon property in the hands of 
 individuals. Such companies are also subject to a State license 
 tax upon the authorized amount of capital stock, the fees vary- 
 ing from $5 to $75. 
 
 Idaho: — In addition to the State license taxes upon the 
 authorized amount of capital stock (fees varying from $10 to 
 $150) express companies are taxed by the State upon their 
 gross receipts at the rate of 3%. 
 
 Illinois: — Domestic express companies are assessed by the 
 State Board of Equaiiza«tion upon the market value of their 
 stocks and bonds, including the value of the franchise, deduct- 
 ing from this Valuation the assessed Value of all tangible prop- 
 erty. The remainder is taxed at the rate of the general prop- 
 erty tax at the principal office of the company. Real and per- 
 sonal property is assessed and taxed locally under the general 
 property tax. 
 
 Foreign companies are assessed and' taxed upon tangible 
 property only, in the same way as domestic companies: Shares 
 of stock of foreign companies are taxed to the holders. 
 
 Indiana :— Express companies are assessed by the State 
 Tax Commissioners upon < the market value" of their stocks and 
 
206 REPORT OP SPECIAL TAX COMMISSION 
 
 bonds as representing the value of the entire property of the 
 companies. This valuation is apportioned to the counties and 
 townships and the taxes collected at the rate of the general, 
 property tax. In addition to this tax all real estate, machinery, 
 structures, and appliances are taxed by the local units in the 
 same way as property of individuals is taxed. 
 
 Iowa: — Express companies are assessed by the State 
 Council upon all property, including franchise and indebted- 
 ness, and this valuation is apportioned to the counties upon 
 the basis of mileage, the taxes being collected at the same rate 
 and in the same manner as those upon the property of in- 
 dividuals. In addition to this, all real estate, machinery, etc. 
 is taxed by the local taxing districts in exactly the same way 
 as the property of individuals. 
 
 Kansas: — Express companies are taxed by the State on 
 their gross receipts from business done within the State at the 
 rate of 4%, the gross receipts being considered as the actual 
 receipts of the companies less amounts paid railroad companies 
 for transportation. In addition to this tax all tangible property 
 is assessed by the State Tax Comimssion and the valuation cer- 
 tified to the taxing districts where the property has its situs 
 and there taxed at the rate of the general property tax. Muni- 
 cipal license taxes are allowed. Shares of stock of foreign 
 corporations whose principal office is without the State are 
 taxed to the holders. 
 
 Kentucky: — Express companies are assessed by a State 
 Board upon the value of the franchise, which value is deter- 
 mined by subtracting from the value of the capital stock the 
 value of all tangible property otherwise assessed. This fran- 
 chise valuation is apnortioned to the taxing districts where the 
 franchise is exercised and there taxed at the same rate as prop- 
 erty in the hands of individuals. All tangible property is 
 assessed and taxed by local officers under the general property 
 tax. Domestic companies doing business entirely without the 
 State pay a State tax of 1% upon the authorized amount of 
 capital stock in lieu of all other taxes within the State. Shares 
 of foreign companies not owning property within the State 
 are taxed to the holders. 
 
 Louisiana: — Express companies are taxed upon all their 
 property, including franchises, as assessed by the State Board 
 of Appraisers, the valuation being annortioned to the parishes 
 and municipalities where the taxes are collected at the same 
 rate as those upon property in the hands of individuals. 
 Foreign companies are also subject to a license tax of $10 on 
 each $1,000 of gross receipts within the State; domestic com- 
 panies pay license fees based upon gross receipts within the 
 
TAX LAWS OF OTHER STATES 207 
 
 State, the amounts varying from $20 to $6,250 according to 
 the amount of receipts. 
 
 Maine: — Express companies are taxed by the State upon 
 their gross receipts from business done wholly within the State 
 and a proportional part (based on mileage) of the receipts 
 from business coming from other States or countries into the 
 State and from business going from this to other States or 
 countries at the rate of 4%. Such companies are also subject 
 to municipal taxes upon real estate. Shares of stock are taxed 
 to the holders. 
 
 Maryland: — Express companies are taxed by the State 
 upon their gross receipts within the State at the rate of ^y%fo ; 
 the capital stock is assessed by the State Tax Commissioner, 
 the valuation being apportioned to the counties where the 
 holders reside and there taxed in the names of the holders, 
 the corporation paying the tax, which is at the rate of the 
 general property tax. All real estate is taxed as that of in- 
 dividuals. 
 
 Massachusetts: — From the market value of stocks, bonds, 
 and such part of the unfunded debt as was incurred for con- 
 struction, permanent equipment or improvement is deducted 
 the value of all real and personal property subject to local tax- 
 ation and securities not liable to taxation, and the remainder 
 is taxed by the State at a rate equal to the average of the 
 rates of the general property tax for the three preceding years. 
 The pronortion to be taxed in the case of interstate companies 
 N is determined upon the basis of gross receipts. Shares of stock 
 in foreign express companies are taxed to the holders at cash 
 value. 
 
 Domestic business corporations organized to carry on ex- 
 press business are taxed upon their corporate excess as domes- 
 tic business corporations, not as express companies. 
 
 Michigan: — Express companies are taxed by the State 
 upon all property as assessed by the State Assessors, the taxes 
 to be at the rate of the general property tax. All companies 
 whose gross receipts are less than $500 per annum are ex- 
 empt. 
 
 Minnesota: — Express companies are taxed by the State 
 upon their gross earnings from intra-state operations at the 
 rate of 6% in lieu of all other taxes. In determining the gross 
 earnings the express privileges are deducted from the gross 
 receipts. 
 
 Mississippi: — Express companies are subject to taxation 
 upon all their property as assessed by the State Board of 
 Assessors, the valuation being apportioned to the taxing dis- 
 tricts and taxed at the rate of the general property tax. They 
 are also subject to State privilege taxes as follows: on each 
 
208 REPORT OP SPECIAL TAX COMMISSION 
 
 company $500.00 and $5 per mile of first class railroad track 
 in the State over wh'ich goods are transported; $3 per mile of 
 second class track ; and $2 per mile of all other track. 
 
 Missouri: — Express companies are taxed by the State upon 
 their gross receipts from business done -within the State at the 
 rate of 1 X A%, in addition to local taxation upon property 
 under the general property tax. 
 
 Montana : — The tangible property of express companies is 
 assessed and taxed exactly as property in the hands of individ- 
 uals. In addition to this ad valorem tax, such companies are 
 subject to State license fees, based upon gross receipts, the 
 amounts varying from $5 to $225 per quarter according id the 
 amount of the receipts. 
 
 Nebraska: — Express companies are taxed locally under 
 the general property tax upon all real estate, tangible property, 
 and franchises. They are also subject to the State tax based 
 upon the authorized amount of capital stock, the fees varying 
 from $5 to $200. 
 
 Nevada: — Express companies are taxed upon their prop- 
 erty at the rate of the general property tax. The total cash 
 value of all property and franchises shall not be assessed as 
 less than the largest amount on Which the net profit of the 
 company for the year previous to assessment will' pay interest 
 or dividends at the rate of 8%. In computing the net profit 
 the annual deterioration is to be allowed as an expense. Foreign 
 corporations' are subject to retaliatory provisions. 
 
 New Hampshire: — Express companies are taxed upon all 
 their property, including franchises, by the State, the assess- 
 ment being made by the State Tax Commission and the rate 
 of taxation being fixed by such Commission at a rate as nearly 
 as possible equal to that of the general property tax. 
 
 New Jersey: — Express companies are taxed by the State 
 upon their gross receipts from business done within the State 
 and a proportionate share of interstate earnings at the rate 
 of 2%. In addition to this tax all tangible property is assessed 
 and taxed as the property of individuals. 
 
 New Mexico : — Express companies are taxed by the' State 
 upon their gross earnings from business done' within the Sta ; te 
 at the rate of 2%. Express privileges are deducted from gttos's 
 receipts in determining gross earnings. One-half of the" tax 
 is distributed to the counties upon the basis of business done, 
 and one-half retained by the State. In a'dditioh to this tax 
 upbn gross' earnings all tangible property is' taxed under the 
 general property tax, the valuation being made by the , State 
 Board of Equalization^ and then 1 apportioned to' the' counties. 
 
TAX LAWS OP OTHER STATES 209 
 
 New York : — Express companies are subject to a State tax 
 upon gross earnings from business wholly within the State at 
 the rate of ^ of 1%, and to a State franchise tax upon capital 
 stock, the rates varying from ^4 of a mill per $1 for each 1% 
 of dividends declared to 1% mills on each $1 of capital stock 
 employed in the State, according to the amount of dividends 
 declared. In addition to these taxes, express companies are 
 assessed and taxed upon all tangible property in the same way 
 as the property of individuals is taxed, this tax being for local 
 use only. Foreign companies also pay an additional State 
 license fee of % of 1% upon the capital stock employed in the 
 State. 
 
 North Carolina: — Express companies are assessed by the 
 State Tax Commission upon all their property, including fran- 
 chises and mortgages upon such property, the valuation being 
 apportioned to the counties and taxing districts where the 
 taxes are levied at the rate of the general property tax. In 
 addition to these ad valorem taxes, such companies are taxed 
 by the State upon their gross receipts from business wholly 
 within the State at the rate of 2^2 % and municipal privilege 
 taxes based upon population, the fees varying from $2.50 to 
 $50, are allowed. 
 
 North Dakota: — Express companies are taxed upon all 
 their property under the general property tax, the assessment 
 of real estate being made by local officers and that of other 
 property by the State Board of Equalization. The valuation 
 made by the State Board is apportioned to the counties upon 
 the basis of mileage and the taxes collected locally. In un- 
 organized counties the taxes are collected by the State Auditor 
 for State use only. 
 
 Ohio: — Express companies are taxed by the State upon 
 their gross receipts from intra-state business at the rate of 2%. 
 In addition to this they are taxed upon the market value of 
 their capital stock (less real estate locally taxed) as deter- 
 mined by the State Tax Commission, and upon all real estate 
 as assessed by local officers. The valuation of the stock is ap- 
 portioned to the counties and the taxes upon it, as well as 
 those upon real estate, are collected in the same way and at 
 the same rate as those upon property in the hands of individ- 
 uals. 
 
 Oklahoma: — Express companies are taxed upon all their 
 property under the general property tax, the assessments being 
 made by either State or local officers. Intra-state companies 
 are taxed in addition to this 3% upon their gross receipts from 
 operation. 
 
 Oregon: — Express companies are taxed under the general 
 property tax upon all their property as assessed by the State 
 15 
 
210 REPORT OF SPECIAL TAX COMMISSION 
 
 Board, the valuations being apportioned to the counties and 
 the taxes .collected in the same way as those upon property in 
 the hands of individuals. 
 
 Pennsylvania : — Express companies are taxed by the State 
 as follows: 5 mills on each $1 actual value of capital stock; 
 8 mills on each $1 of gross receipts from traffic wholly within 
 the State ; 4 mills on each $1 of bonds owned within the State. 
 In addition to these State taxes, real and personal property 
 necessary to the business is taxed locally under the general 
 property tax in Pittsburgh and Philadelphia, but such prop- 
 erty is exempt elsewhere. 
 
 Rhode Island: — Express companies are taxed by the State 
 upon their gross receipts from operation within the State at 
 the rate of 3% in lieu of all other taxes on intangible personal 
 property or corporate excess and in lieu of all other taxation 
 on personal property used in the business. Real estate is 
 taxed as that of individuals. 
 
 South Carolina: — Express companies are taxed by the 
 State upon their gross receipts from business within the State 
 at the rate of 3 mills. In addition to this they are assessed by 
 the State Board of Assessors upon the market value of their 
 capital stock plus mortgages, this valuation being apportioned 
 to the counties and taxing districts, where the taxes are col- 
 lected at the same rate and in the same way as those upon 
 property in the hands of individuals. 
 
 South Dakota: — Express companies are taxed upon all 
 their property at the rate of the general property tax as 
 assessed by the State board in lieu of all other taxes upon the 
 property of such companies, the tax being paid to the State 
 treasurer, and distributed to the counties upon the basis of 
 the property of such companies situated therein. Shares of 
 stock are taxed to the holders. 
 
 Tennessee: — Express companies are taxed under the gen- 
 eral property tax upon all property, which property shall not 
 be assessed at less than the cash value of both shares of stock 
 and bonded debt. In addition such companies are subject to 
 a State license tax of $1,000 if the lines are less than 100 miles 
 in length and $2,500 if the lines are more than 100 miles. 
 
 Texas: — Express companies are taxed by the State upon 
 their gross receipts at the rate of 2y 2 %, and are also subject 
 to a franchise tax upon the amount of capital stock, surplus 
 and undivided profits, the rates of which tax are 50 cents on 
 each $1,000 up to $1,000,000 and 25 cents on each $1,000 in 
 excess of $1,000,000 for domestic companies ; foreign companies 
 pay $1 on each $1,000 up to $100,000 and $2 on each $5,000 in 
 excess of $100,000 and $2 on each $20,000 in excess of $1,000.- 
 000. In addition to these taxes such companies are assessed 
 
TAX LAWS OF OTHER STATES 211 
 
 locally upon all their property under the general property tax. 
 
 Utah: — Express companies are taxed upon all their prop- 
 erty, including franchises, under the general property tax, the 
 assessment being made by the State Board and the valuation 
 apportioned to the taxing units where the taxes are collected 
 in the same way as those upon property in the hands of in- 
 dividuals. In addition to this tax, such companies are subject 
 to a State license tax based upon the authorized amount of 
 capital stock, the fees varying from $5 to $50. The property 
 of express companies operating in only one county is assessed 
 and taxed locally as property of individuals is taxed. 
 
 Vermont: — Express companies are taxed by the State at 
 the rate of $8 per mile of lines over which matter was trans- 
 ported. They are exempt from local taxation upon property 
 used in the business. Shares of stock in such companies are 
 assessed and taxed to the holders. Express companies are also 
 subject to the State license tax upon capital stock, the fees 
 varying from $10 to $50. 
 
 Virginia: — Express companies are subject to the State 
 property tax upon all property as assessed by the State Corpor- 
 ation Commission, the rate being 35 cents on $100. In addition 
 to this such companies are taxed by the State $6 per mile of 
 route within the State. Local property and license taxes are 
 allowed. Shares of stock are taxed to the holders. 
 
 Washington: — All tangible property of express companies 
 is assessed and taxed as property in the hands of individuals. 
 In addition to these ad valorem taxes express, companies are 
 taxed by the State upon their gross' receipts within the State at 
 the rate of 5%. 
 
 West Virginia : — All express companies are taxed upon all 
 their property under the general property tax, the assessment 
 being made by the State Auditor and the valuation apportioned 
 to the taxing districts. In addition to this tax all companies 
 pay a license fee of $1.50 per mile of route within the State, 
 and domestic companies also pay a franchise tax upon the 
 amount of authorized capital stock, the fees varying from $10 
 if the stock is $5,000 or less to $170 if the stock is $1,000,000 
 with an additional fee of $60 on each million dollars or frac- 
 tion thereof in excess of one million. 
 
 Wisconsin: — Express companies are taxed upon all their 
 property, including franchises, by the State at the rate of the 
 general property tax as determined by the State Tax Com- 
 mission. 
 
 Wyoming: — Express companies are taxed by the State 
 5% upon gross receipts in lieu of all other taxes. One-half of 
 this tax is retained by the State for State use and the other 
 half apportioned to the counties upon the basis of mileage. 
 
212 REPORT OF SPECIAL TAX COMMISSION 
 
 III. TELEPHONE COMPANIES 
 
 Alabama: — The State Board of Assessment values all the 
 property of telephone companies, and this valuation is appor- 
 tioned among the counties and municipalities on the basis of 
 mileage. Taxes are then collected on this valuation at the 
 same rate and in the same manner as those imposed on prop- 
 erty in the hands of individuals. 
 
 In addition to the property tax as described above, tele- 
 phone companies doing a long distance business are subject 
 to a State privilege tax at the following rates : Companies 
 whose lines do not exceed 150 miles in length within the State. 
 a tax of $1.00 per mile; companies whose lines are over 150 
 miles in length within the State, $1.00 per mile of wire and 
 also a fee of $500. There is also a tax called franchise tax 
 based upon stock, bonds and earnings, the rate being that of 
 the general property tax. 
 
 Arizona: — Telephone companies are taxed under the gen- 
 eral property tax, the assessment being made by the State 
 Board of Equalization and the valuation apportioned to the 
 counties and taxing units, where the taxes are collected in 
 the same way and at the same rate as those upon property in 
 the hands of individuals. 
 
 Arkansas: — Telephone companies are subject to a State 
 franchise tax of 1-20 of 1% upon the amount of capital stock 
 in addition to an ad valorem tax on the market value of the 
 stocks and bonds as assessed by the State Commission. The 
 portion of the valuation representing pole mileage is appor- 
 tioned to the local taxing units where the taxes are collected 
 at the rate of the general property tax. The valuation repre- 
 senting the value of stations is apportioned to the taxing units 
 in which the stations are located and there taxed at the rate 
 of the general property tax. 
 
 California: — Telephone companies are taxed by the State 
 upon their gross receipts from operation at the rate of 3%% 
 in lieu of all other taxes. The gross receipts of companies 
 doing an interstate business are deemed to be all receipts 
 on business beginning and ending within the State and a pro- 
 portion, based upon mileage, of the receipts from business 
 passing through, into, or out of the State. 
 
 Colorado: — The total property of telephone companies is 
 assessed by the State Tax Commission and the valuation ap- 
 portioned to the counties and taxing districts upon the basis 
 of mileage, the taxes being collected locally at the same rate 
 and in the same way as those upon property in the hands of in- 
 
TAX LAWS OP OTHER STATES 213 
 
 dividuals. Such companies also pay a State license tax of 2 
 cents on each $1,000 of authorized capital stock. 
 
 Delaware: — Telephone companies are subject to a State 
 tax of 60 cents per mile for the longest wire in the State, 30 
 cents per mile for the next longest, and 20 cents per mile for 
 every other wire, and 25 cents on each transmitter. In ad- 
 dition to these State taxes, such companies are subject to the 
 general property tax assessed and collected locally. 
 
 District of Columbia: — Telephone companies are taxed by 
 the District at the rate of 4% upon their gross earnings within 
 the District and in addition to this they are taxed on their 
 realty, including overhead wires and supporting poles, under 
 the general property tax. 
 
 Florida: — Telephone companies are subject to taxation 
 under the general property tax upon all assets. In addition 
 to this, systems having 100 or more instruments operating in 
 the State pay a State license tax of 12% cents on each intru- 
 ment, provided that in no case shall the total tax exceed $200, 
 and provided that in towns of less than 2,000 inhabitants such 
 license tax shall not exceed $15. Shares of stock are taxable 
 to the holder. 
 
 Georgia: — Telephone companies are assessed by the State 
 Comptroller upon the total amount of their property, includ- 
 ing indebtedness and franchises; this valuation is apportioned 
 to the local taxing units and the tax collected in the same 
 way and at the same rate as that upon property in the hands of 
 individuals. Such companies are also subject to a State 
 license tax upon the authorized amount of capital stock, the 
 fees varying from $5 to $75. 
 
 Idaho: — Telephone companies are assessed by the State 
 Board of Equalization upon all their property, this valuation 
 being apportioned to the counties upon the basis of mileage, 
 and the taxes collected at the same rate and in the same way 
 as those upon property in the hands of individuals. In ad- 
 dition to this, there is a State license tax upon the authorized 
 amount of capital stock, the fees varying from $10 to $150 
 according to the amount of stock. 
 
 Illinois: — Domestic telephone companies are assessed by 
 the State Board of Equalization upon the market value of 
 their stocks and bonds, including the value of the franchise, 
 deducting from this valuation the assessed value pf all tangible 
 property. The remainder is taxed at the rate of the general 
 property tax at the principal office of the company. Real and 
 personal property is assessed and taxed locally under the gen- 
 eral property tax. 
 
 Foreign companies are assessed and taxed upon tangible 
 
214 REPORT OF SPECIAL TAX COMMISSION 
 
 property only, in the same way as domestic companies. Shares 
 of stock of foreign companies are taxed to the holders. 
 
 Indiana: — Telephone companies are assessed by the State 
 Tax Commissioners upon the market value of their stocks and 
 bonds as representing the value of the entire property of the 
 companies. This valuation is apportioned to the counties and 
 townships and the taxes collected at the same rate and in the 
 same manner as those imposed upon property in the hands of 
 individuals. In addition to this tax all real estate of such com- 
 panies is taxed by the local taxing units in the same way as 
 property of individuals is taxed. 
 
 Iowa: — Telephone companies are assessed by the State 
 Council upon all property, including franchise, and this valu- 
 ation is apportioned to the counties upon the basis of mileage, 
 the taxes being collected at the same rate and in the same 
 manner as those upon the property of individuals. 
 
 Kansas: — All property of interstate and intercounty tele- 
 phone companies is assessed by the State Tax Commission and 
 this valuation apportioned to the taxing districts upon the 
 basis of mileage, the taxes being collected locally at the rate 
 of the general property tax. Telephone companies doing busi- 
 ness in only one county are assessed and taxed upon their 
 property exactly as the property of individuals is taxed. 
 Municipal license taxes upon all companies are allowed. 
 Shares of stock of foreign companies having their principal 
 office outside the State are taxed to the holders. 
 
 Kentucky: — Telephone companies are assessed by a State 
 board upon the value of the franchise, which value is deter- 
 mined by subtracting from the value of the capital stock the 
 value of all tangible property otherwise assessed. This fran- 
 chise valuation is apportioned to the taxing districts where the 
 franchise is exercised and there taxed at the same rate as 
 the property of individuals. All tangible property is assessed 
 and taxed by local officers under the general property tax. 
 Domestic companies doing business entirely without the State 
 pay a State tax of 1% upon the authorized amount of capital 
 stock in lieu of all other taxes within the State. Shares of 
 foreign companies not owning property within the State are 
 taxed to the holders. 
 
 Louisiana: — The entire property of telephone companies, 
 including franchises, is valued by the State Board of Apprais- 
 ers and this valuation apportioned to the parishes and muni- 
 cipalities where the taxes are collected at the same rate as 
 those upon property in the hands of individuals. Foreign com- 
 panies are also subject to a license tax of $5 on each $1,000 
 of gross earnings within the State. Domestic companies pay 
 
TAX LAWS OP OTHER STATES 215 
 
 license taxes based upon gross receipts within the State, the 
 fees varying from $20 to $6,250, according to the amount of 
 receipts. 
 
 Maine: — Telephone companies are taxed by the State 
 upon their gross receipts from business wholly within the 
 State, the rates varying from 1^% to 6% according to the 
 amount of the receipts. This tax is apportioned to the cities 
 and towns in which owners of stock reside as follows: 1% 
 of the value of stock owned in cities and towns, with provision 
 that the amount apportioned shall not be a greater part of the 
 whole tax received than the proportion which stock owned 
 within the State bears to the total amount of stock, and pro- 
 vided that the amount so apportioned shall not exceed the 
 total amount received from the tax upon the receipts. The 
 remainder of the tax is retained by the State. 
 
 Maryland: — Telephone companies are taxed by the State 
 upon their gross receipts within the State at the rate of 2% ; 
 the capital stock is assessed by the State Tax Commissioner 
 and the valuation apportioned to the counties where the hold- 
 ers reside and there taxed in the jiame of the holders, the cor- 
 poration paying the tax, which is at the rate of the general 
 property tax. All real estate is taxed as that of individuals. 
 
 Massachusetts: — Telephone companies are taxed by the 
 State upon the margin of intangible value found by deduct- 
 ing the assessed value of certain tangible property, which is 
 taxed to the corporation by local units, from the cash value of 
 so much of the capital stock as is proportioned to that part of 
 its line within the State, determined on the basis of the number 
 of instruments within and without the State. This tax upon 
 corporate excess is at a rate equal to the average of the rates 
 of the general property tax for the three preceding years. 
 Works, structures, real estate, machinery, conduits, wires and 
 pipes are assessed and taxed locally as property of individuals 
 is taxed. 
 
 Michigan: — Telephone companies whose receipts are less 
 than $500 are exempt. If the gross receipts within the State 
 exceed $500, the property of telephone companies is assessed 
 by the State board and taxed at the rate of the general prop- 
 erty tax. 
 
 Minnesota: — Telephone companies are taxed by the State 
 upon their gross earnings from operation at the rate of 3% in 
 lieu of all other taxes. The gross earnings of companies doing 
 an interstate business include a proportionate share, based 
 upon mileage, of the interstate gross receipts from operation. 
 
 Mississippi: — Telephone companies are subject to taxation 
 upon all their property as assessed by the State Board of Asses- 
 sors, the valuation being apportioned to the taxing districts 
 
216 REPORT OF SPECIAL TAX COMMISSION 
 
 and taxed at the rate of the general property tax. They are 
 also subject to various privilege taxes, those upon exchanges 
 varying from $2.50 to $100 according to the number of sub- 
 scribers, and those upon long distance companies operating 
 less than 1,000 miles pole line, from 5 cents to 25 cents per 
 mile of pole line, according to the number of miles of such line. 
 Long distance companies operating 1,000 miles or more of line 
 pay a tax of $250. Municipal privilege taxes are allowed upon 
 exchanges only. 
 
 Missouri: — Telephone companies are taxed upon all their 
 property, including the franchises, at the rate of the general 
 property tax, the assessment being made by the State board 
 and the valuation apportioned to the counties and taxing dis- 
 tricts where the tax is collected in the same manner as that 
 upon the property of natural persons. Local property is 
 assessed by local officers. Shares in foreign companies are 
 taxed to the holders at market value. 
 
 Montana: — The property of telephone companies is 
 assessed and taxed exactly like property in the hands of in- 
 dividuals. The capital stock and franchises are assessed at 
 the principal office of the company and other property where 
 it is situated. In addition to this ad valorem tax telephone 
 companies are subject to county license fees, based upon popu- 
 lation and varying from $100 to $400 a year. 
 
 Nebraska: — Telephone companies are taxed locally under 
 the general property tax upon all property and franchises. 
 They are also subject to the State tax upon the authorized 
 amount of capital stock, the fees varying from $5 to $200. 
 
 Nevada: — Telephone companies are taxed upon all their 
 property under the general property tax, the assessment being 
 made by the State Board and the valuation apportioned to 
 the taxing districts where the taxes are collected. Foreign 
 companies are subject to retaliatory provisions. 
 
 New Hampshire: — Telephone companies are taxed upon 
 all their property, including franchises, by the State, the 
 assessment being made by the State Tax Commission and the 
 rate of taxation being fixed by such Commission at a rate as 
 nearly as possible equal to that of the general property tax. 
 
 New Jersey: — Telephone companies are taxed by the State • 
 upon their gross receipts from business done within the State 
 and a proportionate share of interstate earnings at the rate 
 of 2%. In addition to this tax all tangible property is assessed 
 and taxed as the property of individuals. 
 
 New Mexico: — Telephone companies are assessed and 
 taxed upon all their property as valued by the State Board 
 of Equalization, the valuation being apportioned* to the 
 counties and municipalities and the taxes collected in the same 
 
TAX LAWS OP OTHER STATES 217 
 
 way and at the same rate as those upon property in the hands 
 of individuals. 
 
 New York: — Telephone companies are subject to a State 
 tax upon gross earnings from business wholly within the State 
 at the rate of y 2 of 1%, and to a State franchise tax upon 
 capital stock, the rates varying from */4 of a mill per $1 for 
 each 1% of dividends declared to l 1 /^ mills on each $1 of 
 capital stock employed in the State, according to the amount 
 of dividends declared. In addition to these taxes, telephone 
 companies are assessed and taxed upon all tangible property 
 in the same way as the property of individuals is taxed, this 
 tax being for local use only. Foreign companies also pay 
 an additional State license fee of y% of 1% upon the capital 
 stock employed in the State. 
 
 North Carolina : — Telephone companies are assessed by the 
 State Tax Commission upon all their property, including fran- 
 chises and mortgages Upon such property, the valuation being 
 apportioned to the counties and taxing districts where the 
 taxes are levied at the rate of the general property tax. In 
 addition to the ad valorem taxes, such companies are taxed 
 by the State upon their gross receipts from business within 
 the State and a share of interstate earnings at the rate of 2%%. 
 
 North Dakota: — Telephone companies are taxed upon all 
 their property under the general property tax, the assessment 
 of real estate being made by local officers and that of fran- 
 chise, poles, and wire by the State Board of Equalization. The 
 valuation made by the State Board is apportioned to the 
 counties upon the basis of mileage, and the taxes collected 
 locally. In unorganized counties the taxes are collected by 
 the State Auditor for State use only. 
 
 Ohio: — Telephone companies are subject to a State excise 
 tax based upon gross receipts from intra-state business at the 
 rate of 1.2%. In addition to this they are taxed upon the 
 market value of their capital stock (less real estate locally 
 taxed) as determined by the State Tax Commission, and upon 
 all real estate as assessed by local officers. The valuation of 
 the stock is apportioned to the counties and the taxes upon 
 it, as well as those upon real estate, are collected in the same 
 way, at the same rate, and for the same purposes as those upon 
 property in the hands of individuals. 
 
 Oklahoma : — Telephone companies are taxed upon all their 
 property under the general property tax, the assessments being 
 made by either State or local officers. Intra-state companies 
 are taxed in addition to this % of 1% upon their gross receipts 
 from operation. 
 
 Oregon: — Telephone companies are taxed under the gen- 
 eral property tax upon all their property as assessed by the 
 
218 REPORT OF SPECIAL TAX COMMISSION 
 
 State Boardi the valuations being apportioned to the counties 
 and the taxes collected in the same way as those upon property 
 in the hands of individuals. 
 
 Pennsylvania: — Telephone companies are taxed by the 
 State as follows: 5 mills on each $1 actual value of capital 
 stock ; 8 mills on each $1 of gross receipts from traffic wholly 
 within the State; 4 mills on each $1 of bonds owned within the 
 State. In addition to these State taxes, real and personal 
 property necessary to the business is taxed locally under the 
 general property tax in Pittsburgh and Philadelphia, but such 
 property is exempt elsewhere. 
 
 Rhode Island: — Telephone companies are taxed by the 
 State upon their gross receipts from operation within the 
 State at the rate of 2% in lieu of all other taxes on intangible 
 personal property or corporate excess and in lieu of all other 
 taxation on personal property used in the business. Real 
 estate is taxed as that of individuals. 
 
 South Carolina: — Telegraph companies are taxed by the 
 State upon their gross receipts from business within the State 
 at the rate of 3 mills. In addition to this they are assessed by 
 the State Board of Assessors upon the market value of their 
 capital stock plus mortgages, this valuation being apportioned 
 to the counties and taxing districts where the taxes upon it are 
 collected at the same rate and in the same way as those upon 
 property in the hands of individuals. 
 
 South Dakota: — Telephone companies are taxed upon all 
 their property, including franchises, as assessed by the State 
 board, the Valuation being apportioned to the various taxing 
 districts and the taxes collected at the same rate and in the 
 same manner as those upon property in the hands of individ- 
 uals. Shares of stock are taxed to the holders. 
 
 Tennessee: — Telephone companies are assessed and taxed 
 upon all their property under the general property tax ; prop- 
 erty having an actual situs is assessed by local officers, all 
 other property by the State Tax Commissioners. The valu- 
 ation made by the State Commissioners is apportioned to the 
 counties and taxing districts and the taxes upon it, as well as 
 those upon local property, collected in the same way as those 
 upon property of individuals. In addition to these taxes, tele- 
 phone companies are subject to State license taxes varying 
 from. 20 cents to 50 cents upon each instrument, according to 
 population. Mutual companies not run for profit are exempt 
 from this license tax. 
 
 Texas : — Telephone companies are taxed by the State upon 
 their gross receipts from business within the State at the rate 
 of •!%%, and are also subject to a franchise tax upon the 
 
TAX LAWS OP OTHER STATES 219 
 
 amount of capital stock, surplus and undivided profits, the 
 rates of which tax are 50 cents on each $1,000 up. to $1,000,000 
 and 25 cents upon each $1,000 in excess of $1,000,000 for do- 
 mestic corporations; foreign companies pay $1 on each $1,000 
 up to $100,000 and .$2 on each $5,000 above $100,000 up to 
 $1,000,000 and $2 on each $20,000 'in excess thereof. In ad- 
 dition to these taxes such companies are assessed locally upon 
 all their property under the general property tax. 
 
 Utah: — Telephone companies are taxed upon all their 
 property, including franchises, under the general property tax, 
 the assessment being made by the State Board and the valu- 
 ation apportioned to the taxing units, where the taxes are col- 
 lected in the same way as those upon property of individuals. 
 In addition to these taxes such companies pay a State license 
 tax based upon the authorized amount of capital stock, the 
 fees varying from $5 to $50. Property of telephone companies 
 operating in only one county is assessed and taxed locally as 
 property of individuals is taxed. 
 
 Vermont: — Telephone companies are taxed by the State 
 upon their gross receipts collected within the State at the rate 
 of 3% or, in lieu thereof, 40 cents upon each transmitter and 
 30 cents upon each mile of telephone wire in use in the State. 
 Such companies are exempt from all local taxation on prop- 
 erty used in the business. Telephone companies are also sub- 
 ject to the State license tax upon capital stock, the fees vary- 
 ing from $10 to $50. 
 
 Virginia: — Telephone companies are subject to the State 
 property tax upon all property, the assessment being made by 
 the State Corporation Commission and the rate of taxation 
 being 35 cents on $100. Tangible property is taxed locally 
 under the general property tax. In addition to these ad 
 valorem taxes such companies are taxed by the State upon their 
 gross earnings within the State as follows: if the gross earn- 
 ings do not exceed $50,000 in cases where the pole mileage is 
 not greater than 400 miles and where the company is not owned 
 or controlled by a company whose receipts are in excess of 
 $50,000 per annum, the tax upon gross earnings is at the. rate 
 of 1%; if any one of the above conditions is not fulfilled, the 
 tax is $2 per mile of poles and 1% on the gross earnings up to 
 $50,000 and 2% on earnings in excess thereof. Local license 
 taxes are also allowed. Mutual telephone companies are. sub- 
 ject to the property taxes only. Shares of foreign companies 
 are taxed to the holders. 
 
 Washington : — All the property, real and personal, of tele- 
 phone companies is assessed and taxed in the same way as 
 property in the hands of individuals. 
 
220 REPORT OF SPECIAL TAX COMMISSION 
 
 West Virginia: — All telephone companies are taxed upon 
 all their property as assessed by the State board, the rate of 
 taxation being that of the general property tax. In addition to 
 the above ad valorem tax all domestic companies pay a State 
 license tax upon the authouized amount of capital stock, the 
 fees varying from $10 if the capital stock is $5,000 or less to 
 $170 if the stock is $1,000,000 with an additional fee of $60 
 on each million dollars or fraction thereof in excess of one 
 million. Foreign companies pay a State license tax of $1.00 
 per mile of wire between cities and towns (one line of wire 
 counted), but not in local exchanges, the minimum tax being 
 $100.00. 
 
 Wisconsin: — Telephone companies are taxed by the Stato 
 upon their gross receipts from both exchange and toll-line ser- 
 vice wholly within the State and upon a proportionate amount, 
 based upon mileage, of the receipts from interstate toll-line 
 service at the following rates: 5% if such receipts equal or 
 exceed $500,000.00; 4% if from $300,000.00 to $500,000.00; 3% 
 if from $100,000.00 to $300,000.00; and 2y 2 % if below $100,- 
 000.00. All receipts from toll-line business and 15% *of ex- 
 change receipts are retained by the State for State use; 85% 
 of exchange receipts are distributed to the taxing districts in 
 which the exchanges are located. 
 
 Wyoming: — All property of telephone companies is 
 assessed by the State board and the valuation apportioned to 
 the various taxing districts, where the taxes are collected at 
 the same rate and in the same way as those upon property in 
 the hands of individuals. Local assessment and taxation i»y 
 incorporated towns, villages, and cities is allowed. 
 
 IV. TELEGRAPH COMPANIES ' , 
 
 Alabama: — The State Board of Assessment values all the 
 property of telegraph companies and this valuation is appor- 
 tioned among the counties and municipalities on the basis of 
 mileage. The taxes are collected on this valuation at the same 
 rate and in the same manner as those on property in the hands 
 of individuals. In addition to the property tax as described 
 above, telegraph companies doing a long distance business are 
 subject to a State privilege tax at the following rates: com- 
 panies whose lines do not exceed 150 miles in length within the 
 State, a tax of $1.00 per mile ; companies whose lines are over 
 150 miles in length within the State, $1.00 per mile and also a 
 fee of $500. There is also a tax called "franchise tax" based 
 upon stock, bonds and earnings, the rate being that of the gen- 
 eral property tax. 
 
 Arizona: — Telegraph companies are taxed under the gen- 
 eral property tax, the assessment being made by the State 
 
TAX LAWS OF OTHER STATES 221 
 
 Board of Equalization and the valuation apportioned to the 
 counties and taxing units, where the taxes are collected in the 
 same way and at the same rate as those upon property in the 
 hands of individuals. 
 
 Arkansas: — Telegraph companies are taxed by the State 
 1-20 of 1% upon the amount of capital stock and also upon 
 the market value of the stocks and bonds as assessed by the 
 State .Commission. The valuation of the Commission is appor- 
 tioned to the taxing units on the basis of mileage and the taxes 
 collected at the rate of the general property tax. 
 
 California: — Telegraph companies are taxed by the State 
 upon their gross receipts from operation at the rate of 3%% 
 in lieu of all other taxes. The gross receipts of companies 
 doing an interstate business are deemed to be all receipts on 
 business beginning and ending within the State and a pro- 
 portion, based upon mileage, of the receipts from business pass- 
 ing through, into, or out .of the State. 
 
 Colorado: — The total property of telegraph companies is 
 assessed by the State Tax Commission and the valuation appor- 
 tioned to the counties and taxing districts upon the basis of 
 mileage, the taxes being collected locally at the same rate and 
 ' in the same way as those upon property in the hands of individ- 
 uals. Such companies also pay a State license tax of 2 cents 
 on each $1,000 of authorized capital stock. 
 
 Delaware: — Telegraph companies are subject to a State 
 tax of 60 cents per mile for the longest wire in the State, 30 
 cents per mile for the next longest, and 20 cents per mile for 
 every, other wire. In addition to these taxes, such companies 
 are subject to the general property tax assessed and collected 
 locally. 
 
 District of Columbia: — Telegraph companies are taxed by 
 the District upon all their property under the general property 
 tax. 
 
 Florida: — Telegraph companies are subject to taxation 
 under the general property tax upon all assets. In addition 
 to this, such companies pay a State license tax of 50 cents per 
 mile of wire, one-half of which tax is distributed to the counties 
 on the basis of line mileage, and one-half retained by the State. 
 Shares of stock are taxable to the holders. 
 
 Georgia: — Telegraph companies are assessed by the State 
 Comptroller upon the total amount of their property, includ- 
 ing indebtedness and franchises ; this valuation is apportioned 
 to the local taxing units and the tax collected in the same way 
 and .at the same rate as that upon property in the hands of 
 individuals. S uc b companies are also subject to a State license 
 tax upon the authorized amount of capital stock, the fees vary- 
 ing from $5 to $75. 
 
222 REPORT OP SPECIAL TAX COMMISSION 
 
 Idaho: — Telegraph companies are assessed by the State 
 Board of Equalization upon all their property, this valuation 
 being apportioned to the counties upon the basis of mileage, 
 and the taxes collected at the same rate and in the same way 
 as those upon property in the hands of individuals. In ad- 
 dition to this, there is a State license tax upon the authorized 
 amount of capital stock, the fees varying from $10 to $150 
 according to the amount of stock. 
 
 Illinois: — Domestic telegraph companies are assessed by 
 the State Board of Equalization upon the market value of their 
 stocks and bonds, including the value of the franchise, deduct- 
 ing from this valuation the assessed value of all tangible prop- 
 erty. The remainder is taxed at the rate of the general prop- 
 erty tax at the principal office of the company. Real and per- 
 sonal property is assessed and taxed locally under the general 
 property tax . 
 
 Foreign companies are assessed .and taxed upon tangible 
 property only, in the same way as domestic companies. Shares 
 of stock of foreign companies are taxed to the holders. 
 
 Indiana: — Telegraph companies are assessed by the State 
 Tax Commissioners upon the market value of their stocks and 
 bonds as representing the value of the entire property of the 
 companies. This valuation is apportioned to the counties and 
 townships and the taxes collected at the rate of the general 
 property tax. In addition to this tax all real estate of such 
 companies is taxed by the local units in the same way as prop- 
 erty of individuals is taxed. 
 
 Iowa: — Telegraph companies are assessed by the State 
 Council upon all property, including franchises, and this valu- 
 ation is apportioned to the counties upon the basis of mileage, 
 the taxes being collected at the same rate and in the same way 
 as those upon the property of individuals. 
 
 Kansas : — All property of telegraph companies is assessed 
 by the State Tax Commission and this valuation apportioned to 
 the taxing districts upon the basis of mileage, the taxes being 
 collected locally at the rate of the general property tax. Muni- 
 cipal license taxes are allowed. Shares of stock of foreign com- 
 panies having their principal office outside the State are taxed 
 to the holders. 
 
 Kentucky: — Telegraph companies are assessed by a State 
 Board upon the value of the franchise, which value is deter- 
 mined by subtracting from the value of the capital stock the 
 value of all tangible property otherwise assessed. This fran- 
 chise valuation is apportioned to the taxing districts where 
 the franchise is exercised and there taxed at the same rate as 
 property in the hands of individuals. All tangible property is 
 assessed and taxed by local officers under the general property 
 
TAX LAWS OF OTHER STATE3S 223 
 
 tax. Domestic companies doing business entirely without the 
 State pay a State tax of 1% upon the authorized amount of 
 capital stock in lieu of all other taxes within the State. Shares 
 of foreign companies not owning property within the State are 
 taxed to the holders. 
 
 Louisiana : — Telegraph companies are taxed upon all their 
 property, including franchises, as assessed by the State Board 
 of Appraisers, the valuation being apportioned to the parishes 
 and municipalities, where the taxes are collected at the same 
 rate as those upon property in the hands of individuals. 
 Foreign companies are also subject to a license tax of $3 on 
 each $1,000 of gross earnings within the State. Domestic com- 
 panies pay license fees based upon gross receipts within the 
 State, the amounts varying from $20 to $6,250 according to 
 the amount of receipts. 
 
 Maine : — Telegraph companies are taxed upon their gross 
 receipts from business within the State, the rate of the tax 
 varying from 1%% to 6% according to the amount of receipts. 
 This tax is apportioned to the cities and town in which owners 
 of stock reside as follows : 1% of the value of stock owned in 
 cities and towns with provision that the amount apportioned 
 shall not be a greater part of the whole tax received than the 
 proportion which stock owned within the State bears to the 
 total amount of stoCk and provided that the amount so appor- 
 tioned shall not exceed the amount received from the tax upon 
 receipts. The remainder of the tax is retained by the State. 
 
 Maryland: — Telegraph companies are taxed by the State 
 upon their gross receipts within the State at the rate of 2^2% ; 
 the capital stock js assessed by the State Tax Commissioner 
 and the valuation apportioned to the counties where the holders 
 reside and there taxed in the names of the holders, the corpor- 
 ation paying the tax, which is at the rate of the general prop- 
 erty tax. All real estate is taxed as that of individuals. 
 
 Massachusetts :~Telegraph companies are taxed by the 
 State upon the margin of intangible value found by deducting 
 the assessed value of certain tangible property, which is taxed 
 to the corporation by local ' units,, from the cash value of so 
 much of the capital stock as is proportional to that part of its 
 ' line within the State, determined on the basis of miles of wire 
 within and without the State. This tax upon corporate excess 
 is at a rate equal to the average of the rates of the general 
 property tax for the three preceding years. "Works, structures, 
 real estate, machinery, conduits, wire and pipes are assessed 
 and taxed locally as property of individuals is taxed. 
 
 Michigan: — Telegraph companies whose receipts are less 
 than $500 are exempt. If the gross receipts within the State 
 exceed $500, the property of such companies is assessed by the 
 
224 REPORT OP SPECIAL TAX COMMISSION 
 
 State board and taxed at the rate of the general property 
 tax. 
 
 Minnesota: — Telegraph companies are taxed by the State 
 upon the cash value of all their property at a rate to "be deter- 
 mined by the State Board of Equalization, this tax being in 
 lieu of all others. 
 
 Mississippi: — Telegraph companies are subject to taxation 
 upon all their property as assessed by the State Board of 
 Assessors, the valuation being apportioned to the taxing dis- 
 tricts and taxed at the rate of the general property tax. They 
 are also subject to a State privilege tax based upon miles of 
 pole line, the rate being 25 cents per mile, with a maximum tax 
 of $250.00. 
 
 Missouri: — Telegraph companies are taxed upon all their 
 property, including franchises, at the rate of the general prop- 
 erty tax, the assessment being made by the State board and the 
 valuation apportioned to the taxing districts, where" the tax 
 is collected as that upon the property of natural persons. Local 
 property is assessed by local officers. Shares in foreign com- 
 panies are taxed to the holders at market value. 
 
 Montana: — The property of telegraph companies is 
 assessed and taxed exactly as property in the hands of individ- 
 uals. The capital stock and franchises are assessed at the 
 principal office of the company and other property where situ- 
 ated. In addition to this ad valorem tax, such companies are 
 subject to county license fees of $5 per quarter on each instru- 
 ment in use. 
 
 Nebraska: — Telegraph companies are taxed locally under 
 the general property tax upon all property and franchises. 
 They are also subject to the State tax upon the authorized 
 amount of capital stock, the fees varying from $5 to $200. 
 
 Nevada: — Telegraph companies are taxed upon all their 
 property under the general property tax, the assessment being 
 made by the State Board and the valuation apportioned to the 
 taxing districts where the taxes are collected. Foreign com- 
 panies are subject to retaliatory provisions. 
 
 New Hampshire : — Telegraph companies are taxed upon all 
 their property, including franchises, by the State, the assess- 
 ment being made by the State Tax Commission and the rate of' 
 taxation being fixed by such Commission at a rate as nearly as 
 possible equal to that of the general property tax. 
 
 New Jersey: — Telegraph companies are taxed by the State 
 upon their gross receipts from business done within the State 
 and a proportionate share of interstate earnings at the rate of 
 2%. In addition to this tax all tangible property is assessed 
 and taxed as the property of individuals. 
 
 New Mexico: — Telegraph companies are assessed and 
 
TAX LAWS OF OTHER STATES 225 
 
 taxed upon all their property as valued by the State Board 
 of Equalization, the valuation being apportioned to the counties 
 and municipalities and the taxes collected in the same way and 
 at the same rate as those upon property in the hands of individ- 
 uals. 
 
 New York: — Telegraph companies are subject to a State 
 tax upon gross earnings from business wholly within the State 
 at the rate of % of 1%, and to a State franchise tax upon capi- 
 tal stock, the rates varying from ^ of a mill per $1 for each 
 1% of dividends declared to iy 2 mills on each $1 of capital 
 stock employed in the State, according to the amount of divi- 
 dends declared. In addition to these taxes, telegraph com- 
 panies are assessed and taxed upon all tangible property in 
 the same way as the property of individuals is taxed, this tax 
 being for local use only. Foreign companies also pay an ad- 
 ditional State license fee of yi of 1% upon the capital stock 
 employed in the State. 
 
 North Carolina: — Telegraph companies are assessed by the 
 State Tax Commission upon all their property, including fran- 
 chises and mortgages upon such property, the valuation being 
 apportioned to the counties and taxing districts, where the 
 taxes are levied at the rate of the general property tax. In 
 addition to the ad valorem taxes, such companies are taxed 
 by the State upon their gross receipts from business done 
 wholly within the State at the rate of 2%% and municipal 
 license fees based upon population, the amounts varying from 
 $10 to $50, are allowed. 
 
 North Dakota: — Telegraph companies are taxed upon all 
 their property under the general property tax, the assessment 
 of real estate being made by local officers and that of franchise, 
 poles, and wire by the State Board of Equalization. The valu- 
 ation made by the State Board is appprtibned to the counties 
 upon the basis of mileage, and the taxes collected locally. In 
 unorganized counties the taxes are collected by the State Au- 
 ditor for State use only. 
 
 Ohio: — Telegraph companies are taxed by the State upon 
 their gross receipts from intra-state business at the rate of 2%. 
 In addition to this they are taxed upon the market value of 
 their capital stock (less real estate locally taxed) as determined 
 by the State Tax Commission, and upon all real estate as 
 assessed by local officers. The valuation of the stock is ap- 
 portioned to the counties and the taxes upon it, as well as those 
 upon real estate, are collected in the same way and at the same 
 rate as those upon property in the hands of individuals. 
 
 Oklahoma: — Telegraph companies are taxed upon all their 
 property under the general property tax, the assessments being 
 made by either State or local officers. Intra-state companies 
 
226 KEPORT OP SPECIAL TAX COMMISSION 
 
 are taxed in addition to this 2 per cent, upon their gross re- 
 ceipts from operation. 
 
 Oregon: — Telegraph companies are taxed under the gen- 
 eral property tax upon all their property as assessed by the 
 State Board, the valuations being apportioned to the counties 
 and the taxes collected in the same way as those upon property 
 in the hands of individuals.* 
 
 Pennsylvania: — Telegraph companies are taxed by the 
 State as follows: 5 mills on each $1 actual value of capital 
 stock; 8 mills on each $1 of gross receipts from traffic wholly 
 within the State; 4 mills on each $1 of bonds owned within 
 the State. In addition to these State taxes, real and personal 
 property necessary to the business is taxed locally under the 
 general property tax in Pittsburgh and Philadelphia, but such 
 property is exempt elsewhere. 
 
 Rhode Island: — Telegraph companies are taxed by the 
 State upon their gross receipts from operation within the State 
 at the rate of 2% in lieu of all other taxes on intangible per- 
 sonal property or corporate excess and in lieu of all other 
 taxation on personal property used in the business. Eeal es- 
 tate is taxed as that of individuals. 
 
 South Carolina: — Telegraph companies are taxed by the 
 State upon their gross receipts from business within the State 
 at the rate of 3 mills. In addition to this they are assessed by 
 the State Board of Assessors upon the market value of their 
 capital stock plus mortgages, this valuation being apportioned 
 to the counties and taxing districts, where the taxes upon it 
 are collected at the same rate and in the same manner as those 
 upon property in the hands of individuals. 
 
 South Dakota: — Telegraph companies are taxed at the 
 rate of the general property tax upon all their property as 
 assessed by the State board, the taxes being paid to the State 
 Treasurer and then distributed to the counties upon the basis 
 of the property of such companies situated therein. This tax 
 is in lieu of all others upon the property of such companies. 
 Shares of stock are taxed to the holders. 
 
 Tennessee: — Telegraph companies are assessed and taxed 
 upon all their property under the general property tax ; prop- 
 erty having an actual situs is assessed by local officers, all 
 other property by the State Tax Commissioners. The valu- 
 ation made by the State Commissioners is apportioned to the 
 counties and taxing districts and the taxes upon it, as well as 
 those upon local property, collected in the same way as those 
 upon property of individuals. In addition to these taxes, tele- 
 graph companies are subject to State license taxes varying 
 from $20 for companies operating from 25 to 100 miles of 
 wire to $700 for companies operating from 300 to 1,000 miles 
 
TAX LAWS OF OTHER STATES 227 
 
 of wire, with an additional $20 for each 100 miles of wire in 
 excess of 1,000 miles up to 6,000 miles, and $10 for each 100 
 miles in excess of 6,000 miles. 
 
 Texas : — Telegraph companies are taxed by the State upon 
 their gross receipts from business within the State at the rate 
 of 2%%, and are also subject to a franchise tax upon the 
 amount of capital stock, surplus and undivided profits, the 
 rates of which tax are 50 cents on $1,000 up to $1,000,000 and 
 25 cents upon each $1,000 in excess thereof, for domestic com- 
 panies ; foreign companies pay $1 on each $1,000 up to $100,000 
 and $2 on each $5,000 in excess of $100,000 up to $1,000,000 
 and $2 on each $20,000 in excess thereof. In addition to these 
 taxes such companies are assessed locally upon all their prop- 
 erty under the general property tax. 
 
 Utah: — Telegraph companies are taxed upon all their 
 property, including franchises, under the general property 
 tax, the assessment being made by the State Board and the 
 valuation apportioned to the taxing units where the taxes are 
 collected in the same way as those upon property in the hands 
 of individuals. In addition to this tax, such companies are 
 subject to a State license tax based upon the authorized 
 amount of capital stock, the fees varying from $5 to $50. The 
 property of telegraph companies operating in only one county 
 is assessed and taxed locally as property of individuals is 
 taxed. 
 
 Vermont: — Telegraph companies are taxed by the State 
 upon their gross receipts collected within the State at the rate 
 of 3% or, in lieu thereof, 60 cents per mile for poles and one 
 line of wire and 40 cents for each additional wire owned and 
 operated within the State. They are exempt from all local 
 taxation except upon property not used in the business. Shares 
 of stock in such companies are assessed and taxed to the hold- 
 ers as personal property. Telegraph companies are also sub- 
 ject to the State license tax upon capital stock, the fees vary- 
 ing from $10 to $50. 
 
 Virginia: — Telegraph companies are subject to the State 
 property tax upon all property, the assessment being made by 
 the State Corporation Commission and the rate of taxation 
 being 35 cents on $100. Tangible property is taxed locally 
 under the general property tax. In addition to these ad 
 valorem taxes such companies are taxed by the State $2 per 
 mile on poles and conduits and 2% upon intra-state gross earn- 
 ings. Shares of foreign companies are taxed to the holders. 
 Local license taxes are allowed. 
 
 Washington: — The property of telegraph companies is 
 assessed by the State Board of Tax Commissioners, the valu- 
 
228 REPORT OF SPECIAL TAX COMMISSION 
 
 ation being apportioned to the counties upon the basis of mile- 
 age, and the taxes collected at the same rate and in the same 
 manner as those upon the property of individuals. 
 
 West Virginia: — Telegraph companies are taxed upon all 
 their property as assessed by the State board, the rate of tax- 
 ation being that of the general property tax. In addition to 
 this tax all domestic companies pay a State license tax upon 
 the authorized amount of capital stock, the fees varying from 
 $10 if the stock is $5,000 or less to $170 if the stock is $1,000,- 
 000 with an additional fee of $60 on each million dollars or 
 fraction thereof in excess of one million. Foreign companies 
 pay a State license tax of $1.00 per mile of wire between cities 
 and towns (one line of wire counted), but not in local ex- 
 changes, the minimum tax being $100.00. 
 
 Wisconsin : — Telegraph companies are taxed upon all their 
 property, including franchises, by the State at the rate of the 
 general property tax as determined by the State Tax Com- 
 mission. 
 
 Wyoming: — All property of telegraph companies is 
 assessed by the State Board and the valuation apportioned to 
 the various taxing districts, where the taxes are collected at 
 the same rate and in the same way as those upon property in 
 the hands of individuals. Local assessment and taxation by 
 incorporated towns, villages, and cities is allowed. 
 
APPENDIX III 
 
 TAXATION OF RAILROAD CORPORATIONS BY THE 
 
 STATE OF CONNECTICUT 
 
 The following is a statement of the data on which the taxes of the 
 New York, New Haven and Hartford Railroad Company and other 
 steam railroad companies were based in 1912 under the present 
 statutes, together with the detail of the computation by which the 
 amounts of the respective taxes were determined. 
 
 COMPUTATION OF THE TAX OP THE NEW YORK, NEW HAVEN 
 AND HARTFORD RAILROAD COMPANY IN 1912 
 
 Total length 785.60 miles. 
 
 In Connecticut 358.78 
 
 Outside Connecticut . . 426.82 " 
 
 Shares of stock 1,796,286 
 
 Shares of the capital stock issued in ex- 
 change for stock of railroads in an- 
 other state, and not a part of this 
 company's lines 60,571 
 
 Number of shares of capital stock for 
 
 purpose of taxation 1,735,715 
 
 1,735,715 shares of stock, @$135% $235,189,382.50 
 
 Funded debt: 
 
 Amount of said debt at par $ 61,546,100.00 
 
 Amount of said debt below par, 
 
 $142,102,700.00 131,588,650.50 
 
 Floating debt 33,395,000.00 226,529,750.50 
 
 Total value of shares of capital stock, 
 and funded and floating debt for pur- 
 pose of taxation $461,719,133.00 
 
 Less: 
 
 Amount of capital stock, and funded 
 and floating debt account con- 
 struction or permanent improve- 
 ments of railroads outside the 
 state, and not a part of this com- 
 pany's road $ 40,719,102.10 
 
 The actual cost of the acquisition of 
 property held by this company 
 (other than its railroad and its 
 franchises and its real estate in 
 this state not used for railroad 
 purposes) in accordance with the 
 terms of Chapter 283 of the Pub- 
 lic Acts of 1911 216,156,252.54 
 
 Branches less than one-fourth aver- 
 age value of trunk road 17,206,956.56 
 
 Total deductions $274,082,311.20 
 
 Valuation of main line of road for pur- 
 pose of taxation $187,636,821.80 
 
230 REPORT OF SPECIAL TAX COMMISSION 
 
 Valuation of portion in Connecticut for 
 
 purpose of taxation, f f §|jf 85,692,895.78 
 
 Valuation of branches in Connecticut for 
 
 purpose of taxation .17,206,956.56 
 
 Valuation of road in Connecticut, includ- 
 ing branches, for purpose of taxation $102,899,862.34 
 
 Tax, 1% 1,028,998.52 
 
 Less local taxes paid on property, includ- 
 ing leased lines, not used for railroad 
 purposes 54,837.28 
 
 Net tax $974,161,24 
 
 BRANFORD STEAM RAILROAD COMPANY 
 
 312 shares stock, @$100 $31,200.00 
 
 Tax, 1% 312.00 
 
 HARTFORD & CONNECTICUT WESTERN RAILROAD COMPANY 
 Total length 123.96 miles. 
 
 In Connecticut 77,26 " 
 
 Outside Connecticut 46.70 
 
 29,670 shares stock, @$40 $1,186,800.00 
 
 Funded debt 700,000.00 
 
 Floating debt 819,781.71 
 
 Bonds: 
 
 Convertible into-stock 1,000.00 
 
 Valuation for purpose of taxation $2,707,581.71 
 
 Valuation of portion in Connecticut, for purpose of 
 
 taxation, fflfc 1,687,542.45 
 
 Tax, 1% 16,875.42 
 
 Less local taxes paid on property not used for railroad 
 
 purposes 445.24 
 
 Net tax $16,430.18 
 
 NEW LONDON NORTHERN RAILROAD COMPANY 
 
 Total length 121 miles. 
 
 In Connecticut 56 " 
 
 Outside Connecticut 65 " 
 
 15,000 shares of stock, @$202 $3,030,000.00 
 
 Funded debt 1,500,000.00 
 
 Total value of shares of capital stock and funded and 
 
 floating debt, for purpose of taxation $4,530,000.00 
 
 Less expense construction and equipment railroads out- 
 side state 287,493.02 
 
 Valuation for purpose of taxation $4,242,506.98 
 
 Valuation of portion in Connecticut, for purpose of tax- 
 ation, ^ft. .- 1,963,474.30 
 
 Tax, 1% 19,634.74 
 
 Less local taxes paid on property not used for railroad 
 
 purposes 2,601.90 
 
 Net tax $17,032.84 
 
DETAIL OP RAILROAD TAXES 231 
 
 NORWICH & WORCESTER RAILROAD COMPANY 
 Total length 71.07 miles. 
 
 In Connecticut 53.16 " 
 
 Outside Connecticut 17.91 
 
 Shares preferred stock 30,000 
 
 Owned by N. Y., N. H. & H. R. R. Co 971 
 
 Number of shares of capital stock for purpose 
 
 of taxation 29,029 
 
 29,029 shares preferred stock, @$195 $5,660,655.00 
 
 Funded debt, $1,200,000.00— @$92 1,104,000.00 
 
 Total value of shares of capital stock, and funded and 
 
 floating debt, for purpose of taxation $6,764,655.00 
 
 Less: 
 
 Amount of capital stock issued and 
 funded debt account purchase of 
 capital stock and bonds of steam- 
 boat company, 1,289 shares, @$195 $251,355.00 
 Bonds, $280,000— @$92 257,600.00 
 
 Total deductions $508,955.00 
 
 Valuation for purpose of taxation $6,255,700.00 
 
 Valuation of portion in Connecticut, for purpose of tax- 
 ation, 4f^, 4,679,231.91 
 
 Tax, 1% 46,792.32 
 
 SOUTH MANCHESTER RAILROAD COMPANY 
 
 400 shares stock, @$40 $16,000.00 
 
 Floating debt 56,139.24 
 
 Valuation for purpose of taxation $72,139.24 
 
 Tax, 1% 721.39 
 
APPENDIX IV 
 
 REPORT OP THE NEW YORK, NEW HAVEN AND HART- 
 FORD RAILROAD COMPANY TO THE TAX 
 COMMISSIONER FOR 1912 
 
 To the Tax Commissioner of the State of Connecticut: 
 Sir: 
 The following is a true statement of the condition and affairs 
 of The New York, New Haven & Hartford R. R. Co. as they existed 
 on the thirtieth day of September, 1912, given as required by law as 
 the Annual Return of said Company, for the purposes of taxation: — 
 
 1. The number of shares of its capital stock that have been 
 issued and are now outstanding is 1,796,286. 
 
 2. The market value of each share of said full-paid stock as 
 ascertained by obtaining the average of the closing bids or prices 
 offered for said stock, or any shares thereof, during the twelve con- 
 secutive months preceding the time for making this return, as regu- 
 larly published by a board of brokers, to wit. New York Stock Ex- 
 change,. was $136.87. 
 
 It is submitted, however, that the market value of this stock 
 should not be ascertained in such manner because the sales on the 
 New York Stock Exchange were relatively very few and small in 
 amount and no large amount of this stock could have been sold at any 
 time at the prices then quoted. It is submitted that the board of equil- 
 ization should find and fix a valuation of the full-paid stock at $135 per 
 share. 
 
 3. The dividends paid per share on said stock during the year 
 preceding the thirtieth day of September, 1912, and the dates of the 
 said payments were as follows: 
 
 September 30, 1911, $2.00 per share 
 
 December 31, 1911, 2.00 " 
 
 March 31, 1912, 2.00 " 
 
 June 30, 1912, 2.00 " 
 
 4. The company has during the two years ending on the thirtieth 
 day of September, 1912, paid regular dividends at the same annual 
 rate per cent, on all of its shares of stock outstanding. 
 
 5. The amount of the Company's funded debt was as follows: • 
 
 MORTGAGE DEBT 
 N. Y., N. H. & H. R. R. 
 
 H. R. & P. C. due 1954 $15,000,000. 
 
 N. Y., P..& B. R. R. Co. " 1942 799,000. 
 
 Housatonic R. R. Co. " 1937 2,839,000. 
 
 Dan. & Nor. R. R. Co. " 1920 100,000. 
 
 Dan. & Nor. R. R. Co. " 1920 400,000, 
 
 Dan. & Nor. R. R. Co. " 1925 150,000 
 
 Dan. & Nor. R. R. Co. " 1955 350,000 
 
 N. H. & Derby R. R. " 1918 575,000 
 
 Prov. & Spr. R. R. Co. "• 1922 ' 750,000 
 
 Naugatuck R. R. Co. " 1954 2,500,000, 
 
 B. & N. Y. A. L. R. R. " 1955 3,777,000 
 
 Prov. Terminal Co. " 1956 4,000,000 
 
 Wore. & Conn. Ea. Ry. " 1943 1,914,000 
 
 Win. Ave. R. R. Co. " 1912 476,000 
 
 New Haven St. Ry. " 1913 600,000 
 
 New Haven St. Ry. " 1914 260,000 
 
 N. H. & Centre St. Ry. " 1933 283,000 
 
 First Mortgage 
 
 4% 
 
 bonds 
 
 Co., 
 
 bonds 
 
 General Mortgage 
 
 4% 
 
 Consolidated Mort. 
 
 5% 
 
 bonds 
 
 Consolidated Mort. 
 
 6% 
 
 bonds 
 
 Consolidated Mort. 
 
 5% 
 
 bonds 
 
 General Mortgage 
 
 5% 
 
 bonds 
 
 1st Refund. Mort. 
 
 4% 
 
 bonds 
 
 Consolidated Mort. 
 
 5% 
 
 bonds 
 
 First Mortgage 
 
 5% 
 
 bonds 
 
 First Mortgage 
 
 4% 
 
 bonds 
 
 First Mortgage 
 
 4% 
 
 bonds 
 
 First Mortgage 
 
 4% 
 
 bonds 
 
 First Mortgage 
 
 4i% 
 
 bonds 
 
 First Mortgage 
 
 5% 
 
 bonds 
 
 First Mortgage 
 
 5% 
 
 bonds 
 
 Consolidated Mort. 
 
 5% 
 
 bonds 
 
 First Mortgage 
 
 5% 
 
 bonds 
 
REPORT OF N. Y., N. H. & H. R. R. CO. 
 
 233 
 
 Consolidated Mort. 
 First Mortgage 
 First Mortgage 
 First Mortgage 
 First Mortgage 
 First Mortgage 
 First Mortgage 
 First Mortgage 
 First Mortgage 
 First Mortgage 
 1st Cons. Mort. 
 First Mortgage 
 First Mortgage 
 First Mortgage 
 Consolidated Mort. 
 Consolidated Mort. 
 First Mortgage 
 First Mortgage 
 
 Ref. Con. Mort. 
 
 5% bonds Meriden Horse R. R. 
 5% bonds Norwich St. Ry. Co. 
 5% bonds Montville St. Ry. Co. 
 5% bonds New London St. Ry. 
 5% bonds Middletown H. R. R. 
 5% bonds Portland St. Ry. Co. 
 
 5% 
 4% 
 5% 
 
 5% 
 5% 
 5% 
 5% 
 
 5% 
 6% 
 
 4% 
 
 bonds H. M. & R. Tram. Co. 
 
 bonds Hartford St. Ry. Co. 
 
 bonds Greenwich Tram. Co. 
 
 bonds Branford Elec. Co. 
 
 bonds Bran. Lt. & Water Co. 
 
 bonds Tor. & Win. St. Ry. 
 
 bonds Mer. S. & Com. Tr. Co. 
 4% bonds Pawtuxet Val. R. R. 
 4% bonds New England R. R. 
 6% bonds New England R. R. 
 
 bonds Staf. Sp. St. Ry Co. 
 
 Gold Notes Roxbury Central 
 Wharf Co. 
 
 Gold Bonds, New Haven & 
 Northampton Co. 
 
 
 
 
 DEBENTURES 
 
 Convertible Debs. 
 
 6% 
 
 N. Y., N. H. 
 
 & H. R. R 
 
 Convertible Debs. 
 
 34% 
 
 i 
 
 
 " 
 
 Convertible Debs. 
 
 4% 
 
 ' 
 
 
 " 
 
 Non-Conv. Debs. 
 
 4% 
 
 ' 
 
 
 " 
 
 Non-Conv. Debs. 
 
 4% 
 
 ' 
 
 
 " 
 
 Non-Conv. Debs. 
 
 34% 
 
 t 
 
 
 i< 
 
 Non-Conv. Debs. 
 
 34% 
 
 ' 
 
 
 " 
 
 Non-Conv. Debs. 
 
 4% 
 
 * 
 
 
 " 
 
 Non-Conv. Debs. 
 
 4% 
 
 < 
 
 
 " 
 
 Non-Conv. Debs. 
 
 5% 
 
 " 
 
 " 
 
 European Loan of 
 
 
 
 
 1907 
 
 4% 
 
 " 
 
 " 
 
 Non-Conv. Debs. 
 
 34% 
 
 Naugatuck R. R. 
 
 " (Series M) 
 
 4% 
 
 Hartford St. 
 
 Ry. 
 
 " 3%, 34% 
 
 & 4% 
 
 Consolidated Ry. Co. 
 
 Non-Conv. Debs. 
 
 4% 
 
 it 
 
 
 Non-Conv. Debs. 
 
 4% 
 
 " 
 
 
 Non-Conv. Debs. 
 
 4% 
 
 i< 
 
 
 Non-Conv. Debs. 
 
 4% 
 
 
 tt 
 
 
 1924 
 1923 
 1920 
 1923 
 1914 
 1916 
 1924 
 1930 
 1931 
 1937 
 1951 
 1917 
 1928 
 1925 
 1945 
 1945 
 1966 
 
 1912 
 
 1956 
 
 415,000.00 
 
 350,000.00 
 
 250,000.00 
 
 150,000.00 
 
 150,000.00 
 
 30,000.00 
 
 200,000.00 
 
 2,500,000.00 
 
 320,000.00 
 
 63,000.00 
 
 3,000.00 
 
 150,000.00 
 
 175,000.00 
 
 160,000.00 
 
 10,000,000.00 
 
 7,500,000.00 
 
 400,000.00 
 
 7,000.00 
 
 2,400,000.00 
 
 
 $ 59,986,000.00 
 
 due 1948 
 
 $39,029,000.00 
 
 " 1956 
 
 10,348,050.00 
 
 " 1908 
 
 4,100.00 
 
 " 1914 
 
 5,000,000.00 
 
 " 1947 
 
 5,000,000.00 
 
 " 1947 
 
 5,000,000.00 
 
 " 1954 
 
 10,000,000.00 
 
 " 1955 
 
 15,000,000.00 
 
 " 1956 
 
 15,000,000.00 
 
 " 1912 
 
 13,000.00 
 
 " 1922 
 
 27,985,000.00 
 
 " 1930 
 
 234,000.00 
 
 " 1930 
 
 165,000.00 
 
 " 1930 
 
 969,660.00 
 
 " 1954 
 
 4,255,000.00 
 
 " 1955 
 
 2,309,000.00 
 
 " 1955 
 
 1,340,000.00 
 
 " 1956 
 
 2,011,000.00 
 
 Total Funded Debt 
 
 $143,662,800.00 
 $203,648,800.00 
 
 6. The amount of the Company's floating debt was $33,395,000.00. 
 
 7. A part of the indebtedness of this company, to wit, a part of 
 its funded debt, is below par in value, the market value thereof being 
 as follows: 
 
 First Mort. 4% bonds N.Y..N.H.&H.— H.R&P.C. due 1954 
 
 Genl. Mort. 4% bonds N. Y., P. & B. R. K. " 1942 
 
 First Ref. Mort 4% bonds Dan. & Nor. R. R. " 1955 
 
 First Mort. 4% bonds Naugatuck R. R. 1954 
 
 First Mort. 4% bonds B. & N. Y. A. L. R. R. " 1955 
 
 First Mort. 4% bonds Hartford St. Ry. " 1930 
 
 First Mort. 4% bonds Pawtuxet Val. R. R. " 1925 
 
 $14,700,000.00 
 
 783,020.00 
 
 332,500.00 
 
 2,450,000.00 
 
 3,739,230.00 
 
 2,487,500.00 
 
 153,600.00 
 
234 
 
 REPORT OP SPECIAL TAX COMMISSION 
 
 R. 
 
 N. H. & No. Co. 
 
 N. Y., N. H. & H. R. R. 
 
 Cons. Mort. 4% bonds New England R. 
 
 Ref. Cons. Mort 
 
 Gold Bonds 4% 
 
 Non-Conv. Debs 4% 
 
 4% 
 
 3J% 
 
 31% 
 
 4% 
 
 4% 
 
 European Loan 
 
 of 1907 4% 
 
 Non-Conv.Debs.3$% 
 
 " Series M 4% 
 
 3, 3* & 4% 
 
 4% 
 
 4% 
 
 4% 
 
 4% 
 
 Con. Deb. 3£% 
 
 1945 @99 9,900,000.01 
 
 due 
 
 Naugatuck R. R. 
 Hartford St. Ry. 
 Cons. Ry. Co. 
 
 N. Y., N. H. & H. 
 
 " 1956 @98 
 
 " 1914 @98 
 
 " 1947 @90 
 
 " 1947 @78 
 
 " 1954 @78 
 
 " 1955 @90 
 
 " 1956 @90 
 
 1922 @ 93.605 
 
 " 1930 @89 
 
 " 1930 @95 
 
 " 1930 @87 
 
 " 1954 @90 
 
 " 1955 @90 
 
 " 1955 @90 
 
 " 1956 @90 
 
 " 1956 @90 
 
 2,352,000.01 
 4,900,000.01 
 4,500,000.01 
 3,900,000.01 
 7,800,000.01 
 13,500,000.0( 
 13,500,000.0( 
 
 27,145,450.0( 
 
 208,260.0( 
 
 156,750.0( 
 
 843,596.5( 
 
 3,829,500.0C 
 
 2,078,100.0C 
 
 1,206,000.00 
 
 1,809,900.00 
 
 9,313,245.00 
 
 The market value of the rest of the funded debt was 
 not below par and therefore should be listed for tax- 
 ation at 
 
 $131,688,650.50 
 
 61,546,100.0 
 
 Making the total valuation of the funded debt for the 
 
 purposes of taxation $193,134,750.50 
 
 8. There were no unpaid bonds secured by mortgage on the 
 property of this company by any of its predecessors in title and 
 legally convertible into the capital stock of this company. 
 
 9. There were no bonds issued by any town or city of the descrip- 
 tion mentioned in section 2315 of the General Statutes. 
 
 10. The amount of money actually on hand in cash in the treasury 
 or in the possession of the proper officers or agents of this company 
 was $23,059,798.93 
 
 11. The amount paid for taxes in the State of Connecticut during 
 the year ending on the thirtieth day of September, 1912, upon real 
 estate owned by this Company and not used for railroad purposes 
 was $54,837.28 
 
 This amount includes some taxes paid by this company on land 
 held under railroad leases. 
 
 12. The whole length of its road was 785.60 miles. 
 
 In accordance with the terms of section 2425 of the General 
 Statutes in fixing the aforesaid length, the lengths of branches in this 
 state elsewhere herein specified as being of less value per mile than 
 one-fourth of the average value per mile of the trunk road, have not 
 been included. 
 
 13. The length of those portions of its road lying without the 
 State of Connecticut was 426.82 miles. 
 
 THE NEW YORK, NEW HAVEN & HARTFORD RAILROAD CO. 
 Statement of whole length of road, divided to 
 show those portions lying within and without the 
 State of Connecticut as shown in Sections 12 and 
 13 of the Tax Return, September 30th, 1912. 
 
REPORT OF N. Y., N. H. & H. R. R. CO. 235 
 
 Total 
 
 Woodlawn to Providence 173.46 
 
 Cedar Hill Junction to Springfield 60.27 
 
 Naugatuck Junction to Winsted 56.03 
 
 Auburn to Hope 10.36 
 
 Auburn to Henderson St 3.58 
 
 Valley Falls to Franklin 13.59 
 
 Providence to Douglass Junction 27.73 
 
 Woonsocket to Harrisville 9.45 
 
 Boston to Hopewell Junction 213.08 
 
 Wicopee . to Fishkill Landing 1.65 
 
 Woonsocket to Needham Junction 24.77 
 
 Needham Junction to Cook St 3.90 
 
 Boston Freight Branch. 1.04 
 
 Providence, R. I. to Conn. State Line 25.80 
 
 West Roxbury to Needham 4.53 
 
 Southbridge to Conn. State Line ,. . 12.01 
 
 B. & A. R. R. Junction, Springfield to 
 
 Conn. State Line 8.14 
 
 Dedham Junction to Dedham 1.53 
 
 Islington to Dedham 2.00 
 
 . Providence to East Providence 1.88 
 
 Connection at East Providence with B. & 
 
 P., P. & W. and P. W. & B. Railroads .30 
 
 Wickford Jet. to Wickford Landing 3.42 
 
 Mass. State Line to Shelbourne Jet 43.38 
 
 Northampton to Williamsburgh, Mass. . . . 7.70 
 
 South Deerfield to Turners Falls 9.99 
 
 Mass. State Line to PittsfiWd 36.69 
 
 Van Deusenville Jet. to State Line, Mass. 9.54 
 
 Franklin Jet. to Ashland 19.78 
 
 In Con- 
 
 Ont of Con- 
 
 necticut 
 
 necticut 
 
 115.39 
 
 58.07 
 
 54.32 
 
 5.95 
 
 56.03 
 
 
 
 10.36 
 
 
 3.58 
 
 
 13.59 
 
 
 27.73 
 
 
 9.45 
 
 133.04 
 
 80.04 
 
 
 1.65 
 
 
 24.77 
 
 
 3.90 
 
 
 1.04 
 
 
 25.80 
 
 
 4.53 
 
 
 12.01 
 
 
 8.14 
 
 
 1.63 
 
 
 2.00 
 
 
 1.88 
 
 
 .30 
 
 
 3.42 
 
 
 43.38 
 
 
 7.70. 
 
 
 9.99 
 
 
 36.69 
 
 
 9.54 
 
 
 19.78 
 
 785.60 358.78 426.82 
 
 14. The length and value of each branch in the State of Con- 
 necticut of less value per mile than one-fourth of the average value 
 per mile of the trunk road was as follows: 
 Middletown, New Britain and 
 
 Sufueld Branches 16.47 Miles Valuation $ 176,755.03 
 
 New Canaan Branch 7.92 Miles Valuation 118,600.06 
 
 Derby Branch 1.66 Miles Valuation 16,600.00 
 
 Shepaug Branch 32.28 Miles Valuation 1,051,017.99 
 
 Valley Branch 46.20 Miles Valuation 1,533,570.95 
 
 1-Housatonic Branch 81.58 Miles Valuation 4,211,892.60 
 
 Colchester Branch 3.59 Miles Valuation 25,000.00 
 
 2-New Haven & Derby Branch . . 14.65 Miles Valuation 1,514,778.71 
 
 3-Danbury Branch 33.57 Miles Valuation 1,576,606.91 
 
 Middletown, Meriden and Water- 
 bury Branch 24.19 Miles Valuation 1,000.00 
 
 Rockville Branch 4.60 Miles Valuation 50,000.00 
 
 Melrose to Rockville Branch . . . 7.22 Miles Valuation ) 
 
 East Hartford to State Line \ 253,718.77 
 
 Branch 20.17 Miles Valuation j 
 
 Boston & New York Air Line 
 
 Branch 51.27 Miles Valuation 4,367,459.65 
 
 Willimantic to R. I. State Line 
 
 Branch 31.96 Miles Valuation 483,910.88 
 
 East Thompson to State Line 
 
 Branch 5.36 Miles Valuation 37,086.78 
 
236 REPORT OF SPECIAL TAX COMMISSION 
 
 Watertown Branch 4.82 Miles Valuation 56,551.47 
 
 Manufacturers' Branch 2.00 Miles Valuation 22,000.00 
 
 Street Railways 17.77 Miles Valuation 430,039.96 
 
 Northampton Branch 65.62 Miles Valuation 1,282,466.80 
 
 472.69 $17,206,956.56 
 
 NOTE. 
 
 1. This includes $2,839,000 of Housatonic Bonds. 
 
 2. This includes $575,000 of New Haven & Derby Bonds. 
 
 3. This includes $1,000,000 of Danbury & Norwalk Bonds. 
 
 15. The amount of the funded and floating debt of this company 
 occasioned by and of its capital stock issued for amounts expended 
 by it in the construction or permanent improvement of railroads in 
 other States leased or held by it and which are not parts of its own 
 road, or in the purchase of equipment for exclusive use on such rail- 
 roads, to be deducted in accordance with the terms of Section 2427 
 of the General Statutes from the total amount of its funded and 
 floating debt and stock in computing the amount of the tax to be paid 
 by this company to this State was as follows, to wit: 
 
 Providence & Worcester R. R. (In Mass. & R. I.) $1,573,264.76 
 
 Boston & Providence R. R. (In Mass. & R. I.) 7,336,508.26 
 
 Providence, "Warren & Bristol R. R. (In R. I.) 295,874.15 , 
 
 Old Colony R. R. (In Mass. & R. I.) 2,702,012.28 
 
 Norwich & Worcester R. R. (In Mass.) 576,271.00 
 
 Harlem River & Port Chester R. R. (In N. Y.)~ 26,220,313.21 
 
 Holyoke & Westfield R. R. (In Mass.) 16,518.00 
 
 On Boston & Providence R. R. and Old Colony R. R. at 
 
 Readville Car Shops 907,940.44 
 
 On Union Freight R. R. (In Mass.) * 1,090,400.00 
 
 $40,719,102.10 
 
 16. The amount of the Capital Stock of this Company issued 
 under the provisions of the laws of this State in exchange for or 
 purchase of the capital stock of railroad corporations whose lines of 
 railroad are without the limits of this State and are not a part of 
 this Company's own road, to be deducted in accordance with the terms 
 of Chapter 173 of the Public Acts of 1903 from the total amount of 
 the Company's capital stock in computing the amount of taxes to be 
 paid by this Company to this State is as follows, to wit: 
 
 In exchange for the capital stock of the Old Colony 
 
 Railroad Company 60,571 shares 
 
 In exchange for the capital stock of the Harlem River 
 
 & Port Chester Railroad Co 10,000 shares 
 
 17. The actual cost of the acquisition of property held by this 
 Company (other than its railroad and its franchises and its real 
 estate in this State not used for railroad purposes) as to which it is 
 not possible within the meaning of Chapter 283 of the Public Acts of 
 1911 to specify the amount of its capital stock issued for or the amount 
 of its funded and floating debt occasioned by the acquisition of such 
 property (the amount of which cost is in accordance with the terms 
 of Chapter 283 of the Public Acts of 1911 to be deducted from the 
 total amount of its funded and floating debt and capital stock in com- 
 puting the amount of tax to be paid by this Company) is as follows, 
 to wit: 
 
 Capital Stock of Berkshire Street Railway Co $ 5,041,395.59 
 
 Obligations of —do— 2,615,000.00 
 
 Capital Stock of Boston & Providence R. R. Corporation 1,521,501.36 
 
REPORT OF N. Y., N. H. & H. R. R. CO. 237 
 
 Common Stock of Boston R. R. Holding Co 3,106,500.00 
 
 Preferred Stock —do— . 24,493,900.00 
 Through this intermediary this Company holds 219,189 
 
 Common Shares and 6,543 Preferred Shares of the 
 
 Capital Stock of the Boston & Maine R. R. 
 
 Capital Stock of Boston Terminal Company 200,000.00 
 
 Capital Stock of Central New England Railway Co 1,836,188.96 
 
 Obligations of —do — 93,311.00 
 
 Capital Stock of the Connecticut Company 40,000,000.00 
 
 Capital Stock of Hartford & Conn. Western R. R. Co. . . 1,198,261.26 
 
 Obligations of —do— 819,781.71 
 
 Capital Stock of Holyoke & Westfield Railroad Co 20,000,00 
 
 Capital Stock of The New England Navigation Co 56,917,399.48 
 
 Obligations of — do — 6,571,422.30 
 
 Capital Stock of New York Connecting Railroad Co 1,527,204.33 
 
 Obligations of — do — 1,239,520.56 
 
 Capital Stock of New York, Ontario & Western Ry. Co. 13,108,397.62 
 
 Capital Stock of New York & Stamford Railway Co 610,643.40 
 
 Obligations of — do — 619,906.50 
 
 Capital Stock of N. Y., Westchester & Boston Ry. Co. ... 6,241,951.76 
 
 Obligations of —do— 7,837,444.45 
 
 Capital Stock of Old Colony Railroad Co 6,902,381.80 
 
 Capital Stock of Prov. Warren & Bristol R. R. Co 730,432.67 
 
 Obligations of — do— 38,617.77 
 
 Capital Stock of Providence & Worcester R. R. Co 2,318,638.46 
 
 Capital Stock of The Rhode Island Company 24,352,336.41 
 
 Obligations of — do — 1,775,000.00 
 
 Obligations of Rutland Railroad Co 160,000.00 
 
 Capital Stock of The Vermont Company * 571,164.00 
 
 Obligations of — do — 906,000.00 
 
 Obligations of Westchester Street Railroad Co 1,076,445.81 
 
 Capital Stock of Wood River Branch R. R. Co 21,477.50 
 
 Obligations of — do — 4,500.00 
 
 Obligations of Chicago & Eastern Illinois R. R. Co 25,300.00 
 
 Obligations of Chicago, Burlington & Quincy R. R. Co. . 12,810.00 
 
 Obilgations of Chicago, Rock Island & Pacific R. R. Co. 38,000.00 
 
 Obligations of Pawtuxet Valley Electric St. Ry. Co 39,900.00 
 
 Capital Stock of Pennsylvania R. R. Co 66,552.96 
 
 Capital Stock of Connecticut River R. R. Co 276,220.04 
 
 Capital Stock of Manchester & Lawrence R. R. Co 14,081.66 
 
 Capital Stock of Hereford R. R. Co 21,928.77 
 
 Capital Stock of Concord & Montreal R. R. Co 395,765.70 
 
 Capital Stock of Vermont & Massachusetts R. R. Co. ... 30,439.77 
 
 Capital Stock ot Lowell & Andover R. R. Co 41,919.26 
 
 Capital Stock of Boston & Lowell R. R. Co 88,775.13 
 
 Capital Stock of Pemigewasset Valley R. R. Co 99,676.51 
 
 Capital Stock of Conn. & Passumpsig Rivers R. R. Co. . 207,507.44 
 
 Capital Stock of Upper Coos R. R. Co 10,242.75 
 
 Capital Stock of Concord & Portsmouth R. R. Co 3,285.00 
 
 Capital Stock of Northern R. R. Co. of New Hampshire 130,750.27 
 
 Capital Stock of Nashua & Lowell R. R. Co 20,170.51 
 
 Capital Stock of Massawippi Valley R. R. Co 3,380.00 
 
 Capital Stock of Wilton R. R. Co 17,123.51 
 
 Capital Stock of Pittsfleld & North Adams R. R. Co 6,965.26 
 
 Capital Stock of Peterboro R. R. Co 1,503.00 
 
 Obligations of Connecticut Railway & Lighting Co. . . . 137,230.00 
 
 $216,156,252.54 
 (Signed) A. S. MAY, Treasurer, The N. Y., N. H. & H. R. R. Co. 
 
238 REPORT OF SPECIAL TAX COMMISSION 
 
 STATE OF CONNECTICUT, 
 COUNTY OF NEW HAVEN: 
 
 On this 7th day of November, 1912, in the City of New Haven, 
 in said County, came A. S. May, and being duly sworn, deposes and 
 says: 
 
 THAT HE, the said A. S. May, is the Treasurer of the New York, 
 New Haven & Hartford Railroad Co. and resides in the City of Bridge- 
 port, in the State of Connecticut; that the above statement signed 
 by him is a true statement of the condition and affairs of the New 
 York, New Haven & Hartford R. R. Co., as they existed on the thirtieth 
 day of September, 1912, in the particulars as therein stated. 
 
 Signed: A. S. MAY. 
 Subscribed and sworn to before me, 
 
 ARTHUR W. BOWMAN, 
 
 Notary Public. 
 
tmm at .(fcmwritait' 
 
 ^3^ 
 
 REPORT 
 
 OF THE 
 
 - - 
 
 SMCEiI^tWi commission 
 
 ; :ApjP6iiNTP> IN 1915 ; , 
 
 :;''.. ''--C-',, on ^tHj? : suijEC^ of ■..,:' , -< ..;- 
 
 v 3ttB$)KP 1# THfe GgNEKAi: ASSEMBLY IN 1 91 7 
 
 » '" ; i'-NEW &AVEN 
 " /: '^Printed for the $tate by 
 'TjiR^PTTiE, Morehouse & l Ta^£6r Co. ; 
 
&tate of (Hmmtttxtnt 
 
 REPORT 
 
 SPECIAL STATE COMMISSION 
 
 APPOINTED IN 1915 
 
 ON THE SUBJECT OF 
 
 TAXATION 
 
 SUBMITTED TO THE GENERAL ASSEMBLY IN 1917 
 
 NEW HAVEN 
 
 Pkinted for the State by 
 
 The Tuttle, Morehouse & Taylor Co. 
 
 1917 
 
TABLE OF CONTENTS 
 
 I 
 
 Report of the Commission. 
 
 Page 
 
 The Codification of the Tax Laws 5 
 
 The Tax Laws of 1915 5 
 
 Their effect in increasing the State revenues 8 
 
 Main items of State revenues, 1906-1916. Table No. 1, opp. 8 
 Items grouped by the State Treasurer under headings of 
 
 "Miscellaneous Receipts" and "Sundry Taxes and 
 
 Receipts" 9 
 
 Summary of total State Receipts, 1906-1916. Table No. 2 9 
 Main items of the large increase of State receipts in 1916, 
 
 Table No. 3 10 
 
 The State Revenues now unnecessarily large n 
 
 Repo'rt of Joint Standing Committee on Finance in 1895, on 
 
 economy in State expenditures 11 
 
 The expenses of government fall mainly on our towns and 
 
 municipal corporations 11 
 
 The evolution of our present system of taxation 12 
 
 Exemptions from taxation; present pecuniary limits, and 
 
 changes proposed 13 
 
 Cash on hand and bank deposits 14 
 
 Watches and jewelry 15 
 
 Household furniture 15 
 
 Musical instruments 15 
 
 Books and libraries 16 
 
 List of the chief items of property now taxed. Table 
 
 No. 4 16 
 
 Distribution in Connecticut of the cost of government 17 
 
 Expenditures of the smaller towns. Table No. 5 18 
 
 The main question is as to our laws for local taxation 20 
 
 Current expenditures of the State, 1906-1916. Table No. 6 20 
 
 Annual surpluses or deficits, 1906-1916. Table No. 7 20 
 
 Appropriations for highways, 1912-1916. Table No. 8. . . . 21 
 
 Annual charge for interest on State bonds, 1914-1916 21 
 
 General conclusions as to merits of our tax system 22 
 
— 4— 
 
 Page 
 
 Intangible personal property 22 
 
 Registration with State Treasurer 22 
 
 Total personal property reached for taxation 23 
 
 Collection of back taxes under the statute of 191 5 from the 
 
 estates of deceased persons 24 
 
 Payment of $4 per thousand, on real value, instead of face 
 
 value 24 
 
 Exempting public securities 24 
 
 The State Board of Equalization 25 
 
 Compensation of town assessors 25 
 
 Reducing the State revenues 26 
 
 Fees for liquor licenses 26 
 
 State tax on towns 26 
 
 Exemption of charities from succession taxes 26 
 
 Franchise tax on all insurance companies 27 
 
 Motor vehicles 29 
 
 Tax lists of non-residents 30 
 
 Presentation of claims, under Act of 191 5, for back taxes 
 
 against estates 30 
 
 Revaluation by assessors every five years 31 
 
 More care needed on part of assessors to perfect lists 31, 32 
 
 Estimates of pecuniary results of changes recommended ... 32, 33 
 
 II 
 
 Titles of Bills recommended for enactment 34 
 
 Memorandum of dissent by Guy P. Miller from the 
 "General Conclusions," stated on page 22 34-37 
 
 III 
 
 Drafts of Bills recommended for enactment 37 
 
 IV 
 
 Index 43 
 
To the General Assembly at its January Session, 1917: 
 
 The Special Commission on Taxation appointed by his Excel- 
 lency the Governor in 191 5, under the Resolution approved May 
 19th, 1915 (Special Acts of 1915, page 365), respectfully submits 
 the following report. 
 
 The objects for which it was constituted, as stated in that 
 Resolution, were "to consider the subject of taxation, and to 
 codify the law relating to taxation, and to report to the Gen- 
 eral Assembly the result of its investigations, with such recom- 
 mendations for the enforcement of all laws relating to taxation, 
 and for changes and new laws, as shall seem to said Commission 
 advisable." 
 
 At the same session of the Assembly provision was made for 
 the appointment of a salaried commission to revise and codify 
 all the public laws of the State, which is to report to the Assem- 
 bly at its present session. In view of this action, it seemed to 
 the undersigned to be undesirable, as well as unnecessary for 
 the Special Commission on Taxation to undertake any work of 
 codification in a field otherwise so fully covered. 
 
 The Tax Laws of 191 5 
 
 Proceeding, therefore, to the consideration of the tax laws of 
 the State, in their present state, the commission would first call 
 attention to those added by the last General Assembly, in 191 5. 
 
 It is believed that these have made changes in our tax system 
 greater both in number and importance than the General Assem- 
 bly has ever before made at a single session. 
 
 The principal of these may be thus summarized: 
 
 1. The State Board of Equalization in dealing with the values 
 stated in the assessment lists of each town can employ "such 
 assistance, at such compensation, as may seem to said board 
 reasonable and necessary." Public Acts of 1915, chapter 16, 
 page 191 1. 
 
 This would seem to give power to engage competent appraisers 
 to go into every town and assess the values of all or any of the 
 properties included in its list. Virtually, this would authorize 
 
the board to adopt a plan of State-wide local valuations by State 
 assessors. 
 
 2. The principle of minority representation in boards of relief 
 has been abandoned. They are to be composed of three members, 
 and eventually each of these will serve for three years, the terms 
 being so arranged that only one will be annually elected. Chap- 
 ter 108, page 1965. 
 
 3. Any special exemption from taxation of bonds or other 
 evidences of indebtedness of a municipal corporation, the issue 
 of which it had not already authorized, was revoked. Chapter 
 112, page 1968. 
 
 4. Loans secured by a mortgage of real estate in this State 
 shall be exempt from taxation to an amount equal to the assessed 
 valuation of such real estate ; but for any excess of the loan over 
 that value the lender shall be taxed, not, as heretofore, in the 
 town where he may live, but in the town where the land lies. 
 Chapter 125, page 1974. 
 
 5. State and County taxes on towns, instead of being laid, 
 as always heretofore, on the grand list of each town, as finally 
 perfected, are henceforth to be laid on each town in proportion 
 to the average yearly amount it has received from direct taxation 
 during the three years next preceding. Chapter 257, pages 2081, 
 2163. 
 
 6. Through railroad companies, instead of being taxed on 
 the value of their property, as heretofore, are to be taxed here- 
 after $y 2 per cent of their gross earnings in this State. 
 
 Street railways are to pay 4^ per cent of their gross earnings. 
 
 The securities of any Connecticut railroad company so taxed, 
 or of any foreign railroad company, all of whose railroad prop- 
 erty in this State is operated by a Connecticut railroad company 
 so taxed, are to be exempt from taxation. Chapter 292, Part 
 II, page 2134. See State v. United Electric Light & Water Co., 
 90 Conn. Law Reports, 452. 
 
 7. Every stock insurance company incorporated and doing 
 business here is to pay the State y 2 of one per cent on the market 
 value of its shares of stock, as a tax on its corporate franchise. 
 Chapter 292, Part III, page 2134. 
 
 8. Every corporation, joint stock company, or association, 
 (excepting insurance and trust companies, state banks, savings 
 banks organized under the laws of this State, banking institu- 
 
— 7— 
 
 tions organized under the laws of the United States and located 
 in this State, express companies carrying on business on steam 
 or electric railroads or street railways, steam or electric railroad 
 or street railway corporations whose principal business in this 
 State is furnishing, leasing, or operating dining, sleeping, chair, 
 parlor, refrigerator, oil, stock, fruit, or other cars, corporations 
 whose principal business is manufacturing, selling, and distribut- 
 ing illuminating or heating gas, or electricity to be used for heat, 
 light or motive power, or water for domestic or power purposes, 
 telegraph, cable, and telephone companies) which is liable to pay 
 an income tax to the United States under the laws of the United 
 States, shall annually pay a tax to the State of 2 per cent on its 
 net income ; provided that if part of this income is received from 
 earnings out of this State, there shall be a proportionate reduc- 
 tion. This reduction, in case of real estate companies and sellers 
 or users of tangible personal property is in the ratio of the value 
 of their assets in this State, to the value of their entire assets; 
 and in case of holders or vendors of intangible property, in the 
 ratio of their gross receipts in the State to all their gross receipts. 
 Chapter 292, Part IV, page 2134. 
 
 9. The State Board of Equalization may examine under 
 oath the officers and employees of any concern covered by Parts 
 I and II, and also examine any of its books, in order to verify, 
 explain or correct any return. Chapter 292, Part V, page 2139. 
 
 10. Estates of deceased persons are liable to a State tax of 
 10 per cent on any taxable property owned at the time of their 
 decease, on which no local tax has been assessed or paid during 
 the preceding year. But if the Tax Commissioner is satisfied 
 that it was not owned by the deceased during the five years next 
 preceding his death, or that a local tax has been paid during some 
 part of such five years, a proportionate deduction is to be made. 
 Four mills a year of the tax collected by the State is kept by it, 
 and the balance is turned over to the town, city or borough to 
 which the deceased belonged. Chapter 293, page 2140. 
 
 11. In the case of depositors of $100 or more in the savings 
 departments of national banks, who have not returned such 
 deposits for local taxation, it is to be added to their local tax 
 lists. The banks are required to advise the local assessors of any 
 such deposit, but if they elect to pay the regular rate of Savings 
 Banks on their deposits ( l A oi one per cent) and make returns 
 
— 8— 
 
 of all such deposits to the Tax Commissioner, the deposits are 
 exempt from local taxation.* Chapter 301, page 2154. 
 
 12. The tax on stockholders of bridge companies, under Pub- 
 lic Acts of 1905, page 282, was repealed. 
 
 13. Banks, State and national, and trust, insurance and invest- 
 ment companies may assume the payment of the State tax on 
 their shareholders, of one per cent on the market value of each 
 share, and have a lien on their shares for it. Chapter 303, page 
 
 2157- 
 
 14. The whole inheritance tax law was recast, and the provi- 
 sions for the proper assessment and collection of the tax strength- 
 ened. The exemptions of trusts for charitable purposes within 
 the State, other than gifts to municipal corporations of this State 
 for public purposes, were repealed. The rates of tax were gen- 
 erally increased. Chapter 332, page 2200. 
 
 15. Gas, electric and water companies are to pay an annual 
 tax on their gross earnings, to the State, of one and a half per 
 cent ; and their stocks and evidences of indebtedness are exempted 
 from taxation. Chapter 292, page 2132. 
 
 16. License fees for the sale of intoxicating liquors were con- 
 siderably raised ; the amounts reserved for the use of the county 
 doubled; and those going to the towns further reduced by tak- 
 ing twenty-five per cent of the entire receipts for the use of 
 the State. Chapter 201, page 2033. 
 
 The revenues of the State for the year ending September 30, 
 1916, were materially increased by this legislation. 
 
 Items of State Revenue, 1906-1916 Inclusive 
 
 The following list, (Table No. 1), of the principal items of 
 State revenue, exceeding $100,000 in round numbers, in the fiscal 
 years closing September 30, from 1906 to 1916, inclusive, makes 
 this plain, and will also show the natural growth of State receipts, 
 from year to year. Receipts from loans, and balances in the 
 treasury brought forward from the previous fiscal years are not 
 included. 
 
 *A somewhat similar law was sustained by the Supreme Court of the 
 United States in Clement Bank v. Vermont, 231 U. S. Law Reports, 135! 
 Cf. Owensboro Bank v. Owensboro, 173 U. S. Law Reports, 664. 
 
In the annual reports of the State Treasurer occur also these two 
 headings in gross among the sources of State receipts : "Miscel- 
 laneous Receipts" and "Sundry Taxes and Receipts." In the 
 report for 1916, the amount of the former is $145,873.24, and 
 that of the latter is $246,378.49. 
 
 The items making up these two credits are as follows : 
 
 Miscellaneous Receipts 
 
 Unexpended balances returned to the treasury $17,414.55 
 
 Interest 3,286.92 
 
 New London Terminal land sold 22,000.00 
 
 Collected from state paupers 8,338.88 
 
 Saybrook bridge receipts 40,971.82 
 
 East Haddam bridge receipts 10,982.57 
 
 Sale of ballots 4,557-75 
 
 Shell fish taxes 32,025.13 
 
 Attorney General, penalties 593-00 
 
 Licenses, employment agencies 1,104.40 
 
 Sundries 4,598.22 
 
 $145,873.24 
 
 Sundry Taxes and Receipts 
 
 Interest on Agricultural College Fund (new) $ 7,165.82 
 
 Bank commissioners 9,843.30 
 
 Charter fees (new) 7,631.00 
 
 Corporation fees 43,750.00 
 
 Car Company taxes (new) 13,996.88 
 
 Escheats 250.00 
 
 Executive Secretary (new) 700.00 
 
 Secretary of the State, fees 18,926.15 
 
 Game Fund 30,638.00 
 
 Highway sundry payments 95>S 22 -S3 
 
 Itinerant vendors 100.00 
 
 Rolling Stock Co. tax 23.06 
 
 State police H.3I7-42 
 
 Sheriff's fees 1,25392 
 
 Pharmacy Commission 2,260.41 
 
 246,378.49 
 
 Total $392,251.73 
 
 Summary of Total Receipts, 1906-1916, Inclusive 
 
 The next table (Table No. 2) shows in exact figures, (omitting 
 cents) the State revenues raised by taxation, including licenses, 
 
— 10 — 
 
 and excluding receipts from loans or sale of bonds, or from the 
 United States, or from the School Fund, or any other trust funds, 
 for the same period of eleven fiscal years. 
 
 Table No. 2 
 
 1906 $ 3,452,648. 
 
 1907 3,903,278. 
 
 1908 3,773,798. 
 
 1909 4,067,006. 
 
 1910 5,110,605. 
 
 19" 5,879,774- 
 
 1912 5,456,988. 
 
 1913 5,289,752. 
 
 1914 6,748,820. 
 
 1915 6,823,592. 
 
 1916 11,390,943. 
 
 It will be noted that the State revenues for 1916, as stated in 
 Table No. 2, exceeded those for 191 5 by $4,567,350. Part of it 
 was due to the change of railroad taxation from taxing property 
 to taxing income, thus increasing the amount from that 
 source by about $256,000 ($1,347,306 — $1,091,289 = $256,016). 
 The increase in inheritance taxes brought in $503,470 more. A 
 much larger registration of securities with the State Treasurer 
 increased the taxes thus collected to $110,000 more than in 1915. 
 A charge of heavier fees for automobile licenses raised $232,000 
 more than was realized in the year before. Resort to new 
 subjects of taxation accounts for most of the balance, and the 
 general growth of our population and industrial activities, for the 
 rest. These additions are more fully shown in the following 
 table (Table No. 3) : 
 
 Table No. 3 
 
 Items, in round numbers, of the total gain in current State revenues, 
 
 from 1915 to 1916. 
 
 Gain from new sources of supply: 
 
 Liquor licenses $ 440,000. 
 
 Income tax on miscellaneous corporations 1,598,000. 
 
 Franchise tax on Connecticut stock insurance com- 
 panies 617,000. 
 
 Water, gas, and electric corporations, gross earnings 
 
 tax 200,000. 
 
 $2,855,000. 
 
— II — 
 
 Gain from old sources of supply : 
 
 Inheritance taxes $503,470. 
 
 Railroads 256,000. 
 
 Automobiles 232,000. 
 
 Registration of bonds and notes with State Treas- 
 urer 110,000. 
 
 State tax 577,200. 
 
 Sundry small increases over sundry small decreases 33,680. 
 
 $1,712,350. 
 $4,567,350. 
 
 The State Revenue Now Unnecessarily Large 
 
 The result of this large increase of receipts has been that while 
 on September 30, 1915, there was carried forward to the next 
 fiscal year a balance of $1,144,097.46 of cash on hand, on Septem- 
 ber 30, 1916, the corresponding balance carried forward, after 
 applying over half a million in reduction of our bonded debt, to 
 the present fiscal year was more than three million dollars greater, 
 amounting in all to $4,236,959.81. 
 
 In 1895, the Joint Standing Committee on Finance were 
 directed by the General Assembly to recommend "such additional 
 taxation as may be required to meet the current expenses" of the 
 State. They reported that while these were outrunning the 
 receipts, a judicious economy could readily bring them within it, 
 without loss to the public, there being, they added, "hardly a line 
 of State appropriations in which the growth of recent years 
 should not receive some pruning." 
 
 The present Special Commission on Taxation ventures to 
 express the same conviction as to the policy of "judicious econ- 
 omy" in State expenditure. It also believes that this would be 
 promoted by legislation designed to lessen the present revenues 
 of the State. 
 
 The Expenses of Government Fall Mainly on Our Towns 
 and Municipal Corporations 
 
 The great bulk of the expense of government in Connecticut 
 is and ought always to be discharged by our counties, towns, 
 and municipal corporations. They are closer to the people than 
 
12 
 
 the State can be, and their general financial affairs come mon 
 directly under the public eye. 
 
 The Evolution of Our Present System of Taxation 
 
 Originally, in the colonial era, taxes were all laid on the grand 
 lists of the respective towns ; but these grand lists came to be made 
 up on a scheme which aimed at taxing incomes rather than prop- 
 erty. A man was assessed on his minimum earning capacity, and 
 on certain of his property on what it earned or fairly might be 
 expected to earn for him.* Every man between twenty-one and 
 seventy years of age was annually rated at $60; young men from 
 eighteen to twenty-one at $30. Those pursuing certain suppos- 
 edly gainful professions were subjected to a "faculty" tax. 
 An ox was rated at $10 ; a heifer at $3.34. Plow land went into 
 the list at $1.67 an acre; meadow land on the Connecticut river 
 at $2.50; pasture lots at 34 cents. Bank stock was put in the 
 list at $3 on the $100; money at interest at $6 on the $100. A 
 few luxuries were heavily rated ; a coach at $163 ; a gold watch 
 at $34; silver plate at six per cent of its value. Intangible 
 property, save only money at interest, was not taxed. Houses 
 were classified and rated by the number of fire-places. 
 
 It was, in short, a system of classification of property, flat 
 rates on statutory values, and taxation of presumptive earnings. 
 The annual percentage of tax on the lists thus artificially made 
 up was settled by each town for itself. It was always, of 
 course, much higher than would have been proper, had it been 
 laid on property values. It seldom exceeded ten per cent, but 
 even that does not seem unreasonable, when we bear in mind 
 that it was, in substance, a percentage of income, not of capital. 
 A man's ox, set in his list at $10, might be worth $50, but the 
 required percentage would be assessed on the $10, not the $50. 
 
 This system was gradually converted during the nineteenth 
 century into one of taxation of all a man's property, with a few 
 exceptions, at its capital value. State taxes, instead of being 
 laid only on the town grand lists, were from time to time 
 
 * See the Report to the General Assembly in 1887, of the Special Com- 
 mission appointed in 1884, to revise the laws as to Taxation; Skilton v. 
 Colebrook, 76 Conn. Law Reports, 666. 
 
—13— 
 
 extended to new sources of supply, particularly incomes of cor- 
 porations, domestic and foreign. 
 
 Connecticut, in respect to her tax system, was, while a colony, 
 in advance of the age, in fully recognizing the rule that to 
 make the burden of taxation easy, it must be cast on those who 
 are able to discharge it annually from what they annually 
 receive. 
 
 Our first tax laws,* copied from Massachusetts, gave more 
 weight to the possession of property than did the later ones; 
 but from the middle of the eighteenth century, income, actual or 
 potential, became the leading source of supply. It was a natural 
 historical process. "The idea of expressing wealth as income is 
 much newer than the idea of expressing it as property."f 
 
 Our legislation in 191 5 seems to indicate a recurrence to this 
 policy of earlier times. 
 
 It was in 1851 that the general rule was adopted which pro- 
 vided for taxing a man by the town where he belongs on all 
 his property, at a fixed rate (Public Acts of 1851, page 50). The 
 plan had been to tax him only, except for the poll tax, on certain 
 definite items of property particularly specified in the statute. 
 The new plan was to tax him on all his property not specifically 
 exempted by statute. 
 
 Exemptions from Taxation 
 
 The Act of 1851 thus exempted "Wearing apparel of every 
 person and family; which shall not be construed to include 
 watches and jewelry of any kind, exceeding five dollars : House- 
 hold furniture, used and belonging to any one family, to the 
 value of two hundred dollars : . . . . Cash not exceeding 
 fifty dollars: Private libraries and books not exceeding the 
 value of fifty dollars, All musical instru- 
 ments used exclusively in churches or by a band attached to any 
 military company ; and other musical instruments, not exceeding 
 in value five dollars." 
 
 These pecuniary limits on exemptions, in course of time have 
 been raised, until now that respecting watches and jewelry is 
 
 * Col. Records of Conn., I, 547. 
 
 t Jones, First Principles of Taxation, 205. 
 
—14— 
 
 $25 ; that respecting household furniture is $500 ; that respecting 
 cash is $100; that respecting private libraries is $200; and that 
 respecting musical instruments is $25. 
 
 The cheapening of money by the immense production of gold 
 in recent time (the stock of gold money in the world having 
 nearly doubled since 1896),* our growth in business, activities, 
 involving the large use of capital and credit, the general rise in 
 the standard of living, the diffusion of education with its conse- 
 quent increase in the reading habit, and the wider and more 
 scientific cultivation of music among our people, have made, 
 in the opinion of the Commission, a further enlargement in these 
 limits desirable. 
 
 Cash on Hand and Bank Deposits 
 
 The deposits subject to check at sight in our banks and trust 
 companies are of vast amount. Most of them belong to citizens 
 of Connecticut. They are not very largely reduced on the day as 
 of which tax lists are to be made up. Yet, in the grand lists of 
 191 5, the total amount of both "money at interest in this State 
 and elsewhere, and money on hand or on deposit," was less than 
 four and a half million dollars. In twenty-three towns (and 
 among them the large city of Waterbury) the grand lists showed 
 nothing of this nature; in each of forty-eight other towns the 
 amount listed was less than $1,000. 
 
 A certain amount of money was temporarily withdrawn from 
 deposit, shortly before the tax day, by taking a certificate of 
 deposit to be registered by the State Treasurer, and then re-depos- 
 ited shortly afterwards. This, however, can account but for a 
 small part of the cash funds that are not to be found in the 
 grand lists. Indeed, if it were the general practice to take out 
 certificates of deposit with such a view, before tax-day, it would 
 imperil the commercial activities of the State. 
 
 Making due allowance for deposits of corporations which are 
 taxed on a different basis, and for temporary certificates of 
 deposit, of which in 1916 there were registered with the State 
 Treasurer an aggregate amount of about $6,000,000, it is 
 
 * At the beginning of 1896 it was stated as $4,144,000,000, and it was in 
 1916 $8,258,000,000. 
 
—i5— 
 
 probable that the items of cash included in the returns above 
 stated of $4,500,000, would, were the law fully observed, be 
 increased at least ten-fold. 
 
 There is a certain hardship in being taxed on money that is 
 uninvested and produces no income. It was never taxed in Con- 
 necticut until 1 851* We recommend that the exemption of cash 
 on hand or on deposit, not at interest, be extended to $500. 
 
 In determining the amount of cash on hand on deposit on the 
 day as of which the tax list is made up, a question has arisen as 
 to whether in case of a check, drawn and issued in good faith, by 
 a bank depositor before that day, and long enough before it to be 
 presented in ordinary course for collection before that day, he 
 is entitled to have it deducted, in making up his tax list, from the 
 amount of the deposit on the opening of that day, although such 
 check had not in fact been thus presented. 
 
 The Commission recommend that such deductions, unless the 
 transaction was in fact an attempt to evade taxation, be allowed. 
 
 Watches and Jewelry 
 
 A tax on all watches is a tax on what has become, to most men, 
 a necessity of life. A tax on jewelry falls mainly on women, and 
 is really in large measure a tax on wearing apparel. Each is a 
 tax of an inquisitorial nature. Each is on what produces no 
 income out of which to pay the tax. As to each, the law is one 
 which it is impossible to enforce fully, and difficult to enforce 
 at all. We recommend that the exemption of wearing apparel 
 be extended to include watches and jewelry kept solely for the 
 personal use of the owner or his family. 
 
 Household Furniture 
 
 Another tax of an inquisitorial nature, and on property yield- 
 ing no income, is that on furniture used in keeping house. We 
 recommend that the exemption be increased to $750. 
 
 Musical Instruments 
 
 Training in music is becoming a part of general public educa- 
 tion. Its practice is a thing to be encouraged. It stimulates 
 
 * Skilton v. Colebrook, 76 Conn. Law Reports, 666, 668. 
 
— 16— 
 
 patriotism. It cheers and enlivens the family circle. It takes a 
 shape, in the graphophone, which brings a city concert within 
 reach of every farm house. Here again is a tax, particularly 
 as regards pianos, which falls mainly on women, and which 
 involves an assessment not easy to make, in view of the rapid 
 deterioration to which musical instruments are always subject. 
 We recommend that the limit of exemption of musical instru- 
 ments be increased to $200. 
 
 Books and Libraries 
 
 A tax on books and private libraries is another inquisitorial tax 
 on non-productve property, the use of which is valuable to the 
 community and an important factor in education. The more 
 generally the reading habit is diffused among our people, the 
 better will they be enabled to discharge the duties of citizenship. 
 Books bring to the remotest farm house the means of new knowl- 
 edge, and borrowing from a neighbor's private library has often 
 served to impart in a large degree the advantages of travel or of 
 the highest education that colleges can give. It is by what has 
 been learned from books that the State has secured its high repu- 
 tation as a center of invention, and a source of literary power. 
 
 We recommend that the limit of exemption for books and 
 private libraries be increased to $500. 
 
 The Chief Items of Property Now Taxed 
 
 The main burden of county, town, and municipal taxation, at 
 present, is, in round numbers, distributed, according to the fol- 
 lowing table (Table No. 4), on the basis of the grand lists of 
 1915:* 
 
 Table No. 4 
 Real Estate Assessed values 
 
 Houses $464,623,000. 
 
 Barns, etc 23,937,000. 
 
 Stores, etc 119,497,000. 
 
 Factories, etc 122,008,000. 
 
 Total buildings $730,065,000. 
 
 * Information relative to the Assessment and Collection of Taxes, 1916. 
 
—i7— 
 
 House and building lots $151,747,000. 
 
 Other lands 95,260,000. 
 
 Total lands $247,007,000. 
 
 Total real estate $977,072,000. 
 
 Personal Estate 
 
 Live stock $ 9,935,000. 
 
 Vehicles 16,861,000. 
 
 Furniture and books 6,456,000. 
 
 Goods of merchants and traders 41,228,000. 
 
 Goods of manufacturers 85,539,000. 
 
 Public Service fixtures 5,281,000. 
 
 Vessels 2,979,000. 
 
 Choses in action, bonds, etc 6,807,000. 
 
 Loans and deposits 4,596,000. 
 
 Sundry other property not otherwise listed . . . 8,353,000. 
 
 Ten per cent addition for failure to list 7,778,000. 
 
 Total personal estate 195,813,000. 
 
 Total of large items* $1,172,885,000. 
 
 Distribution in Connecticut of the Cost of Government 
 
 In 191 3, the cost of government in Connecticut, in round num- 
 bers, was over $29,400,000. Of this, the support of the State took 
 $6,600,000; that of counties $800,000; and that. of incorporated 
 places having at least 2,500 of population, $20,ooo,ooo.f The 
 table of the census from which these figures are taken does not 
 show the cost of government in our smaller towns. Less than 
 half have that population : only 72 in all. The cost of maintenance 
 in 191 3 of the other ninety-six was over $2,000,000, as shown 
 by the following table (Table No. 5) prepared for this purpose 
 by the State Librarian from the town reports, of which he has 
 now gathered so valuable a collection. The figures are for the- 
 year ending in the autumn of 1913. 
 
 * Sundry small items of personal property, which are separately listed,, 
 bring the total grand list to $i,i74,55i,7i3-00. 
 t U. S. Census, Wealth, Debt and Taxation, 1913, p. 44- 
 
— 18— 
 
 Table No. 5 
 Expenditures in 1013 of towns with a population less than 2,500* 
 
 Town Population 1913 disbursements 
 
 Andover 37i $ 4,718.41 
 
 Ashford 668 9.726.09 
 
 Avon 1,337 15.929-85 
 
 Barkhamsted 865 29,364.04 
 
 Beacon Falls 1,160 i8,593-76 
 
 Bethany 495 7,064.14 
 
 Bethlehem 550 9.164.34 
 
 Bloomfield 1,821 31,662.74 
 
 Bolton 433 6445.11 
 
 Bozrah 861 13,033-57 
 
 Bridgewater 600 10,153.14 
 
 Brookfield 1,101 12,237.68 
 
 Brooklyn 1,858 31,171.00 
 
 Burlington 1,319 19,615.40 
 
 Canaan 702 11,656.57 
 
 Canterbury 868 8,012.78 
 
 Chaplin 435 5,500.83 
 
 Cheshire 1,988 30,496.26 
 
 Chester 1,419 26,173.91 
 
 Clinton 1,274 20,177.45 
 
 Colchester 2,140 28,957.12 
 
 Colebrook 557 11,300.25 
 
 Columbia 646 12,189.67 
 
 Cornwall 1,016 22,294.82 
 
 Coventry 1,606 20,047.47 
 
 Cromwell 2,188 26,286.17 
 
 Durham 997 12,046.40 
 
 East Granby 797 16,584.70 
 
 East Haddam 2,422 34,134-45 
 
 East Hampton 2,390 412.66 
 
 East Haven 1,795 30,277.83 
 
 East Lyme 1,916 23,994.39 
 
 Eastford 513 7,703-34 
 
 Easton 1,052 13,450.12 
 
 Ellington 1,999 31,426.63 
 
 Franklin 527 7,647.71 
 
 Goshen 675 11,953.29 
 
 Granby 1,400 21,487.82 
 
 Groton 1,895 98,703.41 
 
 Haddam 1,958 21,048.90 
 
 * In some instances the figures given are only approximate, owing to 
 the manner of making up the town treasurer's reports, or to gaps in the 
 file. Salem is not included, for the latter reason. 
 
—ig— 
 
 Town Population 1013 disbursements 
 
 Hampton 583 $ 7,874.48 
 
 Hartland 544 14,756.18 
 
 Harwinton 1,440 28,232.53 
 
 Hebron 894 16,427.46 
 
 Kent 1,122 19,173.10 
 
 Killingworth 660 9,925.28 
 
 Lebanon 1,528 19,745.69 
 
 Ledyard 1,079 12,605.22 
 
 Lisbon 824 12,111.57 
 
 Lyme 746 10,613.12 
 
 Madison 1,534 37,636.24 
 
 Mansfield 1,977 26,737.39 
 
 Marlborough 302 3,783.84 
 
 Middlebury 836 14,098.71 
 
 Middlefield 1,036 12,361.48 
 
 Monroe 1,002 22,797.23 
 
 Morris 681 10,398.86 
 
 New Fairfield 551 10,297.00 
 
 New Hartford 2,144 35,219.46 
 
 Newington 1,689 28,137.97 
 
 Norfolk 1,541 47,S63-67 
 
 North Branford 833 9,838.90 
 
 North Canaan 2,171 28,896.39 
 
 North Haven 2,254 45,286.28 
 
 North Stonington 1,100 24,499.73 
 
 Old Lyme 1,181 21,571.60 
 
 Old Saybrook 1,516 19,544.22 
 
 Oxford 1,020 19,044.81 
 
 Pomfret 1,857 26,120.29 
 
 Preston 1,917 15,04905 
 
 Prospect 539 2,437.05 
 
 Redding 1,617 22,139.80 
 
 Rocky Hill ' 1,187 13,056.24 
 
 Roxbury 837 25,278.01 
 
 Saybrook 1,907 62,057.71 
 
 Scotland 476 5,64447 
 
 Sharon 1,880 45,422.39 
 
 Sherman 569 13,35473 
 
 Somers 1,653 25,921.48 
 
 South Windsor 2,251 104,611.33 
 
 Southbury 1,233 23,563.10 
 
 Sterling 1,283 14,425.11 
 
 Tolland 1,145 25,894.06 
 
 Trumbull 1,642 18,793.62 
 
 Union 350 8,719.80 
 
 Voluntown 779 9,708.27 
 
 Warren 412 6,851.03 
 
— 20 — 
 
 Town 
 
 Washington 
 Westbrook . , 
 
 Weston 
 
 Wellington . . 
 
 Wilton 
 
 Wolcott .... 
 Woodbridge 
 Woodbury . . 
 Woodstock . 
 
 Total .. 
 
 Population 
 
 1913 disbursements 
 
 1,747 
 
 $38,968.68 
 
 951 
 
 22,644.58 
 
 831 
 
 7,130.95 
 
 1,112 
 
 13,741.00 
 
 I,706 
 
 28,607.05 
 
 563 
 
 9,469.77 
 
 878 
 
 23,827.64 
 
 1,860 
 
 28,422.42 
 
 1,849 
 
 28,912.56 
 
 
 $2,012,804.82 
 
 As local taxes thus so largely exceed those for the direct benefit 
 of the State, the main problem before the General Assembly 
 is to determine whether the methods now in use of county, town, 
 and municipal taxation are fair and adequate. 
 
 The following table (Table No. 6) shows (omitting cents) the 
 current receipts and, opposite to these, the current expenditures 
 of the State during the eleven years ending September 30, 1916: 
 
 Table No. 6 
 
 Receipts Expenditures 
 
 1906 $ 3,452,648. $3,522,953 
 
 1907 3,903,278. 3493,800 
 
 1908 3,773,798. 4,733,905 
 
 1909 4,067,006. 5,651,434 
 
 1910 5,"0,605. 6,375,147 
 
 191 1 5,879,774- 6,624,403 
 
 1912 5,456,988. 6,467,480, 
 
 1913 , 5,289,752. 8,820,145 
 
 1914 6,748,820. 9,270,706, 
 
 1915 6,823,592. 7,904,085 
 
 1916 11,390,943. 7,872,355 
 
 The next table (Table No. 7) shows in the first column the 
 annual deficit, if any; in the second column the annual surplus, 
 if any ; and in the third column the State bonds issued, if any, to 
 meet deficits ; during the eleven fiscal years ending September 30, 
 
 1916. 
 
 Table No. 7 
 
 Sum of Sum of Bonds to 
 
 deficits. surpluses. meet deficits. 
 
 1906 $ 70,305. 
 
 1907 $ 409,478. 
 
 1908 960,107. 
 
 1909 1,584,428. $1,000,000. 
 
— 21 — 
 
 igio $1,264,532. $1,020,000. 
 
 1911 744,629. 1,044,000. 
 
 1912 1,010,492. 4,000,000. 
 
 1913 3,530,393- 
 
 1914 2,521,886. 4,000,000. 
 
 1915 1,080,463. 2,000,000. 
 
 1916 $3,5i8,588. 
 
 $12,767,235. $3,928,066. $13,064,000. 
 
 Excluding appropriations (which term covers all automobile 
 fees) for highway construction and repairs under the direction 
 of the State Highway Commissioner, the annual current expendi- 
 tures during the last five fiscal years have not greatly differed. 
 
 Appropriations for Highways 
 
 The following table (Table No. 8) shows these appropriations 
 in one column, the total appropriations in the next column, and 
 the appropriations other than for highway purposes in the third 
 column (omitting cents) for the last five years: 
 
 Highway- 
 appropriations 
 
 1912 $1,458,511. 
 
 1913 3,483,575- 
 
 1914 3,431,656. 
 
 1915 2,230,562. 
 
 1916 1,934,962. 
 
 The highway expenditures in 1913 and 1914 were exceptional. 
 They were incident to the inauguration of a new system of 
 State roads, and such sums are not likely to be called for again 
 for many years. In the highway appropriations are included 
 automobile fees. Table No. 1 shows that these fees have nearly 
 trebled during the last twelve years. 
 
 In the current annual expenditures in Table No. 6 are included 
 in round numbers, payments of interest on State bonds, as 
 
 follows : 
 
 1914 $410,000. 
 
 1915 472,000. 
 
 1916 505,000. 
 
 These bonds were issued to meet the deficits stated in Table 
 No. 7. 
 
 Table No. 8 
 
 
 
 Total appropriations 
 
 Total 
 
 deducting the highway- 
 
 s appropriations 
 
 appropriations 
 
 $6,467,480. 
 
 $5,008,969. 
 
 8,820,145. 
 
 5,336,570. 
 
 9,270,706. 
 
 5,839,049- 
 
 7,904,085. 
 
 5,673,523. 
 
 7,872,355- 
 
 5,937,393- 
 
— 22 — 
 
 General Conclusions 
 
 The Commission has given much time to the consideration of 
 possible changes, of a more radical character, in our modes of 
 taxation, such as an extension of the income tax to individuals; 
 the introduction of an Occupiers Habitation Tax ; and the taxa- 
 tion town-wise of manufacturers and merchants by their gains 
 instead of their property. It has, however, come to the conclu- 
 sion, particularly in view of the legislation of 191 5, to confine its 
 recommendations, except in a very few instances, to such as aim 
 at securing the proper administration and enforcement of the 
 laws we now have. With these our people are already, to a 
 considerable extent, familiar, and to them they have adjusted 
 their business interests. As a general proposition, it is safe to 
 say that our system of tax laws is in principle well adapted to the 
 nature of our people and their occupations in life. They need 
 some amendments to make them work more smoothly and more 
 efficiently; but with such amendments we think results suf- 
 ficiently satisfactory should be obtained. 
 
 Intangible Personal Property 
 
 The Special Tax Commission of 1887 recommended the aboli- 
 tion of all taxes on intangible personal property. Their main 
 reason was the difficulty met by the public authorities in laying 
 hold of it for taxation. Instead of taking such action, the Gen- 
 eral Assembly adopted, two years later, a scheme of classification 
 at a flat rate. Exemption from town taxation was to be had on 
 registering evidences of indebtedness with the State Treasurer 
 and paying him $2 on every $1,000 — a rate subsequently doubled. 
 The result has been to bring in for taxation over a hundred 
 and twenty-six million dollars, in face value, of such securities. 
 
 The receipts at the State Treasury from this source have 
 more than doubled during the past two years. The $525,000 thus 
 collected in 1916 were almost wholly for one year's tax on 
 such securities. 
 
 The total capital of intangible property thus reached for taxa- 
 tion at its face value was $126,048,468.39. 
 
—23— 
 
 The direct tax on personal property, is assessed and col- 
 lected by or for the towns and municipal corporations 
 on a capital of $195,813,000. 
 
 Add capital of registered securities, as above 126,048468. 
 
 Total personal property so taxed $321,861468. 
 
 Add real property taxed 977,000,000. 
 
 Total of property, in round numbers, now thus 
 
 reached for taxation $1,298,861,468. 
 
 To this may probably be fairly added the following items in 
 the grand list of 1915, on which the taxes payable in 1916 were 
 paid: 
 
 Money at interest or on deposit $4,586,000. 
 
 "All other property, not specifically men- 
 tioned" 8,353,000. 
 
 Ten per cent addition for not filing a tax list 7,800,000. 
 
 $20,739,000. 
 
 We, however, add of this sum only $ 18,000,000. 
 
 Add the value of the shares of stock of national banks, 
 trust, insurance, and investment companies (excluding 
 stock of non-residents) 150,164,000. 
 
 And assets of mutual fire insurance companies, less statu- 
 tory deductions 2,885,000. 
 
 And Savings deposits, in banks, savings banks and trust 
 companies 331,151,000. 
 
 And valuation of oyster ground franchises 2,055,000. 
 
 Total of property, tangible and intangible, reached 
 for taxation in 1915 (not including capital assets 
 of public service corporations which pay taxes on 
 
 their earnings) $1,803,116,468. 
 
 The items thus excluded are approximately estimated by 
 the Tax Commissioner on the basis of capitalizing them 
 at a sum equivalent to one per cent upon the assets of 
 
 these corporations at $167,253,237* 
 
 Adding this sum 167,253,237. 
 
 The grand total of property now taxed is $1,970,369,705. 
 
 In view of the steady increase in the receipts at the State 
 treasury from registering intangible securities, and the large 
 amount of bonds and notes brought out by this mode of taxa- 
 
 * Report for 1915 and 1916, page 239. 
 
—24— 
 
 tion to increase the taxable resources of the State, the Commis- 
 sion does not recommend any change of policy in this respect. 
 It is also probable that the tax imposed by the Public Acts of 
 191 5, Chapter 293, on estates of deceased persons, found to own 
 taxable property which has escaped taxation, will add consider- 
 ably hereafter to the receipts from taxes on intangible property. 
 
 The present law provides for taxing notes and bonds registered 
 with the State Treasurer, at their face value. Such securities are 
 often worth much less than their face, while yet possessing some 
 value. We recommend such a change in the law as will allow 
 the payment on intangible securities which the owner represents 
 to be worth less than par, to be calculated at $4 on each $1,000 
 of their true value, and that the same should be allowed as to 
 notes or other evidences of indebtedness, the principal of which 
 has been partly discharged: the valuation to be made in the 
 first instance by the oath of the owner, but subject to change, 
 on due notice, by the Tax Commissioner, from whose action an 
 appeal would lie to the Superior Court. 
 
 It is to be noted that the legislation of 191 5 (Chapter 292, 
 Sec. 16) exempts from taxation all evidences of indebtedness 
 of gas, electric, water power and water companies in this State. 
 This will have a tendency to reduce the number of the bonds and 
 debentures registered, but the Commission believes that it will 
 not fall below its present figure. 
 
 Bonds to be issued under the Act of Congress known as the 
 Rural Credits Act are also made exempt from taxation by that 
 Act; but it is not thought that many of them will be held in 
 Connecticut. 
 
 Exempting Public Securities 
 
 At present bonds and notes, both of the State and of its towns 
 and other municipal corporations, are subject to taxation, except- 
 ing certain issues which have been specially exempted. 
 
 In the opinion of the Commission, all should be treated alike 
 and all exempted from that burden. 
 
 It is for the advantage of the State that it should be able to 
 borrow, when loans are necessary, on the most favorable terms. 
 Towns and other municipal corporations are simply agencies of 
 the State for purposes of public government. It goes without 
 
—25— 
 
 saying that securities exempt from taxation are more desirable 
 and, other things being equal, will be more readily disposed of, 
 and command a higher price in Connecticut, than those which are 
 not exempt. The latter are also apt to pass out of the State, 
 because their owners thus avoid the taxes which it imposes. 
 When a town borrows on its notes, or on town orders, it is for its 
 interest to obtain the loan from its own people, and this can 
 rarely be accomplished if the lenders have to put the notes or 
 orders into their tax lists, or register them with the State 
 Treasurer. 
 
 The State Board of Equalization 
 
 The Public Acts of 1915 (Chapter 16, p. 1911) authorize the 
 State Board of Equalization to "equalize and adjust the assess- 
 ment list of each town by adding to or deducting from its list, 
 or any part thereof, such amount as in their judgment may be 
 necessary to raise or lower the list of any town to the actual 
 cash value of the property therein contained, and in so doing 
 may employ such assistance at such compensation as may seem 
 to said board reasonable and necessary." 
 
 The Commission recommends that it be made plainer that the 
 amount and character of such assistance and of the compensa- 
 tion to be allowed for it is wholly left to the judgment of the 
 Board, and that it would be warranted in employing expert 
 appraisers, examiners or accountants, either for special occasions, 
 or on a yearly salary, with large powers of inquiry and investi- 
 gation, both as to the lists of individuals and to those of 
 manufacturing, mercantile, and other business establishments, 
 incorporated or unincorporated. 
 
 Compensation of Town Assessors 
 
 Whether such experts be employed or not to aid the assessors 
 in any particular town, the latter ought to be paid for their 
 services by their towns at a rate reasonably proportioned to the 
 time so employed and to their personal qualifications for the 
 work. The Commission is of opinion that in many towns the 
 remuneration now given is quite inadequate. We think that 
 the remedy is not through further legislation to prescribe rates 
 
—26— 
 
 of compensation (which must differ widely in a State having 
 many towns of great differences in numbers and wealth), but 
 rather in action taken by the State Board of Equalization, under 
 Chapter 16 of the Public Acts of 191 5. 
 
 Reducing the State Revenue 
 
 Money comes much more easily out of the State treasury, than 
 out of that of a town or city. The loss to him by its expenditure 
 is little felt by- the individual citizen. A large balance in the 
 State treasury, generally speaking, is undesirable, because it 
 tends to promote appropriations that are unnecessary as respects 
 both their purposes and their amount. 
 
 As the balance of some seven millions in the State treasury, 
 at the opening of the session of this Assembly, indicates that our 
 present laws produce a larger revenue than is needed in ordinary 
 course, it would seem to the Commission that these laws should 
 receive some modification. 
 
 Fees for Liquor Licenses 
 
 We recommend, with this view, first, that no part of the 
 receipts from liquor licenses be made over to the State. 
 
 The State Tax on Towns 
 
 We recommend, second, that the State tax on towns be reduced 
 to one million dollars a year ; and that a law be enacted to operate 
 automatically for the levy of that sum annually on the several 
 towns. 
 
 Exemption of Charities from Succession Taxes 
 
 We recommend the exemption from succession taxes of all 
 testamentary gifts to corporations created under the laws of 
 Connecticut for charitable purposes. 
 
 At present those only are exempted which are made to corpora- 
 tions receiving State aid. In principle there can be no difference 
 between that class of charities and any others. By our statute of 
 charitable uses (Gen. Stat. 4026) it is provided that "all estates 
 that have been or shall be granted for the maintenance of the 
 ministry of the gospel, or of schools of learning, or for the 
 
—27— 
 
 relief of the poor, or for the preservation, care, and maintenance 
 of any cemetery, cemetery lot, or monuments thereon, or for any 
 other public and charitable use, shall forever remain to the uses 
 to which they have been or shall be granted, according to the 
 true intent and meaning of the grantor, and to no other use 
 whatever." To keep back for the use of the State what is in 
 effect a part of a charitable bequest to a Connecticut corporation, 
 made in reliance on this ancient law, which we have kept on our 
 statute book since 1684, seems to involve almost a contradiction 
 in terms. 
 
 It is further to be considered that the pressure for a grant of 
 State aid to all such charitable corporations will naturally be 
 redoubled, if such grant is also to bring an exemption from this 
 form of taxation. 
 
 A Franchise Tax on All Insurance Companies 
 
 Under the Public Acts of 1915 (page 2134) a tax on the cor- 
 porate franchise of every Connecticut stock insurance company 
 is annually laid, of one half of one per cent on the market 
 value of each share of the stock, subject to a deduction for any 
 holdings of bonds in this State. Under a previous statute (Gen. 
 Stat. Sections 2331, 2335) a tax of one per cent on such market 
 value is also laid on each share in such companies, to be collected 
 by them from their shareholders, and paid over to the State. 
 This is in effect a tax on each shareholder's shares. 
 
 A comparison of the laws of neighboring States indicates that 
 the burden of taxation thus imposed on stock insurance com- 
 panies is much greater than that to which they are subjected by 
 other States. No Connecticut corporation, excepting insurance 
 companies, stock and mutual, pays any franchise tax of this 
 description. 
 
 The Special Commission on the Taxation of Corporations pay- 
 ing taxes to the State, which reported to the General Assembly 
 of 1913, discussed very completely the question of the taxation 
 of mutual insurance companies of this State. They described the 
 present method of taxation, the historical development of the 
 law, and the operation of the present system, and offered criti- 
 cisms of the same as compared with the taxation of similar insur- 
 ance companies in other States. 
 
—28— 
 
 In their conclusions (Report, pages 160, 162) the Commission 
 say: 
 
 "Connecticut, in taxing insurance companies upon the value of 
 their assets, is following a system different from that employed by 
 a majority of the other States. The general superiority of earn- 
 ings as a measure of tax-paying ability has been discussed, and 
 the advantage of the tax on earnings applies to insurance com- 
 panies as well as to other corporations. No other index so truly 
 measures the real worth of a company, or its ability to pay taxes, 
 as the amount of its earnings ; the tax upon earnings is the most 
 common method at present employed by the other States in taxing 
 insurance companies. A change in the Connecticut system to the 
 earnings basis would place the taxation of insurance companies 
 in harmony with the methods recommended for the taxation of 
 the public service corporations, and would also place Connecticut 
 more in line with the other States in the taxation of insurance 
 companies 
 
 It is recommended that all mutual insurance companies be 
 taxed upon their gross receipts from investments, (i. e. gross 
 interest and rents) plus their premiums from Connecticut busi- 
 ness. Under this proposed plan Connecticut would assert to her- 
 self the right to tax all the investment earnings of her own 
 companies, while claiming the right to tax only such income from 
 premiums as was received on account of Connecticut business. 
 This would leave to other States the taxation of premiums col- 
 lected upon business within their borders without involving 
 double taxation of premium income. The income taken as the 
 basis of taxation should be strictly gross. This statement is made 
 with perfect understanding of the fact that it is net income and 
 not gross that perfectly measures taxpaying ability. The basis 
 of gross earnings is selected here for the same reasons that had 
 been discussed at some length to explain the choice of gross earn- 
 ings for the taxation of public service corporations (Report, 
 
 pages 6-9) In order to further simplify the 
 
 method, the Commission recommends that no deduction be made 
 for taxes on real estate ; that the real estate of the companies in 
 Connecticut be subject to local taxation, as heretofore, but with- 
 out deduction for the tax paid to the State." 
 
 The final summary in the Report (page 165) is as follows: 
 
 "The Commission recommends that the present method of tax- 
 ing domestic mutual insurance companies be abandoned, and that 
 in its place a corporate franchise tax be imposed measured by the 
 sum of the total gross interests and rents, and the premiums on 
 Connecticut business. It recommends that the rate be four 
 per cent in the first year after the enactment of the law, and 
 
—29— 
 
 that the rate be reduced by J^ of one per cent in each succeeding 
 year until the rate becomes 3 per cent, which shall remain the 
 permanent rate thereafter. Under this system there should be 
 no deductions allowed from the sum of gross interest and 
 rents and premiums on Connecticut business. It is recom- 
 mended that the companies remain subject to local taxation on 
 their real estate as at present, but without allowing any deduc- 
 tion therefor from the State tax." 
 
 We see no reason why mutual insurance companies for State 
 purposes should be taxed on a basis different from stock insur- 
 ance companies. All of the arguments which the Commission 
 reporting in 191 3 uses to arrive at its conclusions relative to the 
 taxation of mutual companies apply to the taxation of stock insur- 
 ance companies. The nature of the business is identical, and 
 the method of administration the same, with the exception, that 
 in the case of the mutual insurance companies, the profits are 
 supposed to accrue to the benefit of the policy holders, while 
 in the case of the stock companies, they are distributed in the 
 form of dividends to the stockholders. 
 
 We recommend therefore that the present tax of one-half of 
 one per cent on the market value of the shares of stock of stock 
 insurance companies, and the present method of taxing mutual 
 insurance companies on the basis of their gross assets be repealed, 
 and that a law be enacted which will provide for the taxation of 
 such companies on the kind of basis recommended by the Special 
 Commission of 191 3. We recommend, however, a variation in 
 one particular. The adoption temporarily of a sliding scale, 
 suggested in the report of 1913, is not now necessary. By 
 that the gross receipts would be taxable for the first year 4 per 
 cent, and thenceforward an eighth of one per cent less each 
 year, until three per cent was reached, and should then remain 
 permanently at that rate. The recommendation of the Special 
 Commission of 191 1 in this particular was dictated by the inade- 
 quacy of State revenue. As that no longer continues, and is not 
 likely to recur, we recommend that the rate of three per cent be 
 established from the first. 
 
 Motor Vehicles 
 
 The laws relating to the regulation and taxing of motor 
 vehicles demand action by owners in two directions, viz., the 
 
— 3 o— 
 
 annual registration and payment of prescribed fees at the office 
 of the Secretary of the State, and local listing and payment 
 of the property tax in the town where the owner resides. 
 
 This duplication is further emphasized by the opportunity 
 it affords for evasion of the property tax through over- 
 sight or otherwise on the part of many to declare to the 
 assessors their ownership of motor vehicles. Thus, during 
 the past year about 25% of the machines registered with the 
 Secretary were not entered on any of the local assessment lists 
 of the towns of the State. 
 
 For the purpose of remedying the latter of these defects, 
 the Commission recommends that it be made the duty of the 
 Secretary of the State to notify the assessors in each town of 
 the registration by any one living in said town of any motor 
 vehicle in his office, and of its general character, within one 
 month after its registration. 
 
 Tax Lists of Non-Residents 
 
 Chapter 153 (page 1993) of the Public Acts of 1915 requires 
 non-residents owning real estate or tangible personal property, 
 kept here more than seven months in the year, to file tax lists, 
 "under the same provisions as apply to residents." This leaves a 
 doubt as to whether a failure to file a list renders a non-resident, 
 for whom, in such case, a list is made out by the assessors, liable 
 to an addition of ten per cent. The Commission recommends 
 that the statute be amended so as to make it clear that such an 
 addition should be made. 
 
 The Penalty Tax on Estates 
 
 Chapter 293 (page 2140) of the Public Acts of 191 5 creates a 
 new demand for taxes, against estates of deceased persons, who 
 have not paid taxes during the last year of their lives on all 
 their taxable property. 
 
 The Tax Commissioner is to file a statement of the amount 
 of such tax, as assessed by him against any estate, with the 
 State Treasurer, within thirty days from receiving a copy of the 
 inventory; who is then to collect it. No time is set after the 
 reception of the copy of the inventory, within which the Treas- 
 
—3i— 
 
 urer shall present a demand for it to the Executor or adminis- 
 trator. It would seem proper to fix such a period, in order that 
 the net amount of the estate may be seasonably ascertained. 
 The Commission would recommend that the demand be so pre- 
 sented within the time limited for the exhibition of claims 
 against the estate. 
 
 The Commission believes that a large sum will be added by this 
 Act to the revenue of the towns, and a substantial one to those 
 of the State. It is estimated that over $100,000 has been col- 
 lected or is now collectible from this source, as fruits of this law 
 for the first year of its operation. 
 
 Revaluation by Assessors Every Five Years 
 
 We agree in the recommendation made by the Special Tax 
 Commission in its report in 1887, that the assessors should view 
 all real estate as often as once in every five years, unless in any 
 particular town the Tax Commissioner should deem it unneces- 
 sary. In the period named, a number of new buildings will 
 probably be erected in each town, and the values of those pre- 
 viously erected, as well as of the lands on which they stand, may 
 change very greatly. 
 
 The Commission is of the opinion that if the assessors in the 
 larger towns should generally make a substantial effort to get 
 into the tax lists the furniture, musical instruments, and books 
 beyond the proposed exemptions in value, there would be no loss 
 of tax receipts by reason of such exemptions. The following list 
 indicates that at present the assessors in some towns are much 
 more vigilant than in others. It is taken from the Tax Com- 
 missioner's report for 1915-1916, (Table No. 4) and shows the 
 amounts now listed of these items in a few of the towns: 
 
 Waterbury pays on $1,025,305. 
 
 Hartford pays on 673,886. 
 
 New Haven pays on 654,477. 
 
 Greenwich pays on 424,420. 
 
 Stamford pays on 220,165. 
 
 New London pays on 202,015. 
 
 Bridgeport pays on 198,201. 
 
 Manchester pays on 178,400. 
 
 Bristol pays on 161,875. 
 
 Norfolk pays on 141,000. 
 
—32— 
 
 Westport pays on $100,715. 
 
 Ridgefield pays on 90.655. 
 
 Windham pays on 83,025. 
 
 Naugatuck pays on 81,670. 
 
 Meriden pays on 69,910. 
 
 New Britain pays on 65,450. 
 
 Winchester pays on 65,140. 
 
 Norwich pays on 64,082. 
 
 Litchfield pays on 62,960. 
 
 Groton pays on 52,485. 
 
 New Canaan pays on 50,367. 
 
 Putnam pays on 44,900. 
 
 Salisbury pays on 42,305. 
 
 Torrington pays on 42,295. 
 
 Vernon pays on 36,656. 
 
 Sharon pays on 34,600. 
 
 Middletown pays on 3 2 ,750. 
 
 Killingly pays on 32,220. 
 
 Southington pays on 31,273. 
 
 Plainfield pays on 30,780. 
 
 Stafford pays on 28,460. 
 
 Norwalk pays on 25,600. 
 
 Essex pays on 16,225. 
 
 Plymouth pays on 15,950. 
 
 Mansfield pays on 15,030. 
 
 But were there to be no such progress towards equalization in 
 these respects as may be hoped for, on the basis of the present 
 receipts of revenue, State and local, the pecuniary results of the 
 changes proposed by the Commission would be (1) to reduce 
 the State revenues to $9,700,600, which is believed to be fully ade- 
 quate for all necessary expenditures, including interest on the 
 State debt, and setting aside $750,000 annually towards its 
 reduction; and (2) to increase the revenues of towns and munic- 
 ipal corporations by over $365,000. 
 
 Estimates of Pecuniary Results of Changes Recommended 
 
 The Commission submits the following estimate, which is nec- 
 essarily in great part conjectural, of the pecuniary results of the 
 changes which it recommends: 
 
 The State would lose, in round numbers on the basis of the 
 returns for the last fiscal year, 1915-1916, 
 
 Its twenty-five per cent of liquor license fees $440,000. 
 
 The franchise tax on capital assets of Connecticut stock 
 insurance companies 617,000. 
 
—33— 
 
 The franchise tax on assets of other insurance companies . . . $470400. 
 
 Reduction of State tax on towns 750,000. 
 
 Reduction of Succession taxes charged to Connecticut chari- 
 table corporations, probably on the average about 200,000. 
 
 $2,477,400. 
 On the other hand the State would gain 
 
 The new franchise tax on gross receipts of Connecticut stock 
 insurance companies $161,200. 
 
 The new tax on the gross receipts of other insurance com- 
 panies 625,900. 
 
 $787,100. 
 The towns and municipal corporations would lose 
 
 From raising the exemption of cash on hand 
 and deposit to $500 probably not over (on $2,000,000.) $29,200. 
 
 The tax on watches and jewelry (on 587,000.) 8,570. 
 
 From raising the exemption of household furni- 
 ture to $750 ; musical instruments to $200 ; and 
 books and libraries to $500; out of $6,450,000 
 probably there would remain taxable (on 2,000,000.) 29,200. 
 
 From exemption of public securities, probably 
 not over (on 500,000.) 7,300. 
 
 $74,270. 
 ThJ towns and municipal corporations would gain 
 Liquor license fees now taken by the State $440,000. 
 
 Summary of Above Estimates 
 The State 
 
 The revenue of the State for 1915-1916 was $11,390,900. 
 
 The State would lose, in round numbers $2,477,400. 
 
 The State would gain, in round numbers 787,100. 
 
 Net loss 1,690,300. 
 
 Ler nag for State revenues for 1917-1918 $9,700,600. 
 
 •;' The Local Revenues 
 
 The towi.a snd municipal corporations would 
 
 lose ...•'. $ 74,270. 
 
 And would gain from the State, 
 
 Liquor license fees 440,000. 
 
 Net gain of revenue of towns and municipal cor- 
 porations $365,730. 
 
—34— 
 
 II 
 
 The Commission has prepared, and herewith submits to your 
 honorable body for its consideration, bills to carry out the recom- 
 mendations hereinbefore contained, entitled as follows: 
 
 Titles of Bills Recommended for Enactment 
 
 An Act concerning the Powers of the State Board of Equali- 
 zation. 
 
 An Act to Require Town Assessors to revalue all Real Estate 
 every Five years. 
 
 An Act Relinquishing to the Towns the Interest of the State 
 in fees for Liquor Licenses. 
 
 An Act to Establish an Annual State Tax on Towns. 
 
 An Act to Exempt Public Securities from Taxation. 
 
 An Act Exempting Testamentary Gifts to Charitable Corpo- 
 rations of this State from Succession Taxes. 
 
 An Act to increase the Exemptions from Taxation on Certain 
 Articles of Household or Personal Use. 
 
 An Act to Allow Taxation of Securities registered with the 
 State Treasurer based on their Real, if less than their Face- value. 
 
 An Act to Limit the Time for Presenting Claims for back 
 Taxes against Estates of Deceased Persons. 
 
 An Act for Notice to Town Assessors of the Registration of 
 Motor Vehicles. 
 
 An Act to impose a Uniform Franchise Tax on all Insurance 
 Companies of this State. 
 
 An Act concerning Taxation of Bank Deposits. 
 
 All of which is respectfully submitted. 
 
 One of the members of the Commission, Mr. Guy P. Miller, 
 dissents from the general conclusions printed on p. 22. He 
 concurs, however, in the specific recommendations of the Com- 
 mission, as presented in this report, in case the general conclu- 
 sions to which he has come should not be adopted by the General 
 Assembly. 
 
—35— 
 
 His views in these respects are contained in the following- 
 memorandum prepared by him for insertion here: 
 
 "I find myself unable to concur with the general conclusions 
 reached by the majority of the Commission. 
 
 "I am of the opinion that laws incapable of anything like fair 
 administration should either be amended so that they may be 
 fairly administered or should be abolished altogether. I believe in 
 the substitution of an income tax for the present property tax on 
 intangible personal property and such items of tangible personal 
 property as cannot be reached by the present property tax. 
 
 "The main source of local revenue for personal property in 
 1915 was 
 
 Goods of manufacturers $ 85,539,000.00 
 
 and the next 
 Goods of merchants and traders 41,228,000.00 
 
 Making a total of $126,767,000.00 
 
 or 64.74% out of the grand total on personal property of 
 $195,813,000.00. The present system of taxation of these two 
 main items is incapable of being administered with any degree 
 of fairness and is unsound economically. 
 
 "Such personal property consists of merchandise purchased 
 for resale either in the same condition as when purchased or 
 after labor has been added, and is subject to great fluctuations 
 in value, and the comparative values of various kinds of goods 
 and materials, if accurately known, are so extreme that no degree 
 of justice can be obtained by taxing them at the same rates. 
 This is so widely recognized by local Assessors that in practice 
 the full valuation has not been even attempted. If it were 
 attempted it would result in driving much business to other 
 States. The result under the present system is universal eva- 
 sion of the law and individual bargaining with local Assessors. 
 
 "Property consisting of machinery and tools is subject to vary- 
 ing degrees of depreciation and its value is in relation to its 
 earning capacity. In many instances it is practically of no value 
 except to its owner, which value is entirely dependent upon the 
 amount of its use. The administration of the present law on a 
 basis approaching equality would make it necessary for each 
 
-36- 
 
 town where such properties are located to have Assessors quali- 
 fied to make detailed appraisal or to employ experts, and the 
 cost of such appraisals would be prohibitive. If this could be 
 done very startling inequalities in the system would undoubtedly 
 result. I therefore recommend that manufacturers and mercan- 
 tile corporations pay locally on their real estate and buildings 
 (immovable property) and pay the State an income tax suf- 
 ficient in amount for the State to return to the towns enough to 
 offset the loss incurred by the towns on account of the exemption 
 locally on such personal property. 
 
 "Of a total Grand List in the State in 1915 of $1,166,773,263, 
 real property represents 83.7% and personal property 16.3%, 
 and three forms of personal property constitute three-fourths of 
 the personal property which is taxed as follows : 
 
 Goods and materials of manufacturers 
 
 Goods and mdse. of merchants and traders 
 
 Automobiles and motor vehicles 
 
 All others 
 
 "The Grand List for 191 5 shows that the highest percentage 
 of personal property listed is in the counties having the smallest 
 population. Under the head of Money & Deposits there was 
 listed $4,595,579.00 from forty-eight towns, or 28.6% of the 
 towns in the State listed amounts of less than $1,000. The town 
 of Waterbury listed nothing. The average per person by coun- 
 ties ranged from .25 in New Haven County to 14.99 i* 1 Tolland 
 County. Under the head 'Railroad, city and other corporation 
 bonds, credits and other choses in action and excess of credits 
 over debits of merchants' there was listed $6,806,800. Of this 
 sum Waterbury and Willington listed $5,039,404, leaving only 
 $1,767,396 for the rest of the State. The value of choses in 
 action reported, on which a four mill tax was paid to the State, 
 was $101,017,801. 
 
 "The Wisconsin State Income Tax Law is admittedly a suc- 
 cess, and I believe more capable of fair administration than our 
 personal property tax laws, particularly those in reference to 
 the 'Choses in Action/ Bonds, Loans, Deposits, etc., and I would 
 
 Valuation 
 
 $ 85,539,595-00 
 
 41,228,573.00 
 
 15,206,469.00 
 
 47,383,720.00 
 
 Per cent 
 of total 
 
 45-1% 
 21.8 
 8.0 
 25.0 
 
 $l89,358,357-00 
 
 
—37— 
 
 recommend the development of our income tax law to include 
 partnerships and individuals, and that for the development of 
 this law along these lines a special Commission be appointed to 
 make their recommendations in detail to the next Legislature, 
 and the Commission be given a sufficient appropriation to enable 
 it to employ experts and make a thorough investigation." 
 
 Dated January nineteenth, 191 7. 
 
 Simeon E. Baldwin, 
 
 Frank H. Stadtmueller, 
 
 Guy P. Miller (with the }~ Special Commission on Taxation. 
 
 reservation above stated 
 
 in his memorandum). 
 
 Ill 
 
 Drafts of Bills Recommended for Enactment 
 
 An Act concerning the Powers of the State Board of Equali- 
 zation. 
 
 Be it enacted by the Senate and House of Representatives in' 
 
 General Assembly convened. 
 
 Section i. The Board of Equalization may add to or deduct 
 from the list handed in to town assessors by any taxpayer, so as 
 to subject the property listed to taxation at its actual cash value; 
 and to enable said Board the better to exercise its powers, it may 
 employ expert appraisers, examiners, and accountants, whether 
 inhabitants of this State or not, either for special occasions, or 
 on a salary for a year or any part of a year. 
 
 Sec. 2. In exercising such powers as to the lists of indi- 
 viduals, said Board shall have the same rights against such 
 individuals which it now has as to corporations and companies, 
 under Part V of Chapter 292 of the Public Acts of 1913 (page 
 2I 39) ! but before any such list shall be increased by said Board, 
 notice shall be given to the individual concerned and the matter 
 proceeded with in a manner similar to that prescribed with 
 respect to towns in Chapter 16 of the Public Acts of 191 5. 
 
-38- 
 
 An Act to Require Town Assessors to revalue all Real Estate 
 every Five years. 
 
 Be it enacted by the Senate and House of Representatives in 
 
 General Assembly convened. 
 
 The Assessors in each town shall view and revalue all Real 
 Estate therein, as often as once in every five years, unless, in 
 any particular town, the Tax Commissioner shall notify them in 
 writing that he deems it unnecessary. 
 
 An Act Relinquishing to the Towns the Interest of the State 
 in fees for Liquor Licenses. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened. 
 
 The provision in Chapter 201 of the Public Acts of 191 5 (page 
 2023) that there shall be paid over to the State, to use for defray- 
 ing its expenses, twenty-five per cent of the fees received by the 
 County Commissioners for licenses for the sale of intoxicating 
 liquors, is hereby repealed. 
 
 An Act to Establish an Annual State Tax on Towns. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened. 
 
 A tax of one million dollars shall be paid by the several towns 
 to the State for the use of the State in each year when action 
 to the contrary shall not be taken by the General Assembly. 
 
 An Act to Exempt Public Securities from Taxation. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened. 
 
 The holder of any bond, note, and other evidences of indebt- 
 edness, hereafter legally issued by the State, or by any town or 
 municipal corporation of this State, shall be exempt from taxa- 
 tion thereon. 
 
—39— 
 
 An Act Exempting Testamentary Gifts to Charitable Corpora- 
 tions of this State from Succession Taxes. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened. 
 
 Section 3 of Chapter 332 of the Public Acts of 191 5 (page 
 2201) is hereby amended by substituting in said Section, for 
 the words "All property passing to or in trust for the benefit 
 of any corporation or institution located in this State which 
 receives State aid, or for the use of a municipal corporation for 
 public purposes within this State, and all gifts of paintings, pic- 
 tures, books, engravings, bronzes, curios, bric-a-brac, arms and 
 armor, and collections of articles of public interest, passing to 
 any corporation or institution located in this State for preserva- 
 tion and free exhibition, shall be exempt from said tax," the 
 words "All property passing to or in trust for the benefit of 
 any corporation incorporated under the laws of this State solely 
 for charitable purposes, or of any corporation or institution 
 located in this State which receives State aid, or for the use of 
 a municipal corporation for public purposes within this State, 
 and all gifts of paintings, pictures, books, engravings, bronzes, 
 curios, bric-a-brac, arms and armor, and all collections of articles 
 of public interest, passing to any corporation or institution located 
 in this State for preservation and free exhibition, shall be exempt 
 from such tax." 
 
 An Act to increase the Exemption from Taxation on certain 
 Articles of Household or Personal Use. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened. 
 
 Section i. Chapter 340 (page 21 15) of the Public Acts of 
 191 5 is hereby amended by substituting in the list of exemptions 
 from taxation (page 2216) for the words "wearing apparel of 
 every person and family, not including watches and jewelry of 
 any kind, exceeding twenty-five dollars in value," the words 
 "wearing apparel of every person and family, including watches 
 and jewelry, kept solely for his or their personal use." 
 
— 40— 
 
 Sec. 2. Chapter 340 (page 21 15) of the Public Acts of 
 191 5 is hereby amended by substituting in the list of exemptions 
 from taxation (page 2216) for the words "household furniture 
 used by and belonging to any family to the value of five hundred 
 dollars" the words "household furniture used by and belonging 
 to any family to the value of seven hundred and fifty dollars." 
 
 Sec. 3. Chapter 340 (page 2115) of the Public Acts of 
 191 5 is hereby amended by substituting in the list of exemptions 
 from taxation (page 2216) for the words "cash not exceeding 
 one hundred dollars," the words "cash not exceeding five hun- 
 dred dollars." 
 
 Sec. 4. Chapter 340 (page 21 15) of the Public Acts of 
 191 5 is hereby amended by substituting in the list of exemptions 
 from taxation (page 2216) for the words "all musical instru- 
 ments, not exceeding in value twenty-five dollars," the words 
 "all musical instruments, not exceeding in value two hundred 
 dollars." 
 
 Sec. 5. Chapter 340 (page 21 15) of the Public Acts of 
 191 5 is hereby amended by substituting in the list of exemptions 
 from taxation (page 2216) for the words "private libraries and 
 books, not exceeding two hundred dollars in value, and all public 
 libraries," the words "private libraries and books, not exceeding 
 five hundred dollars in value, and all public libraries." 
 
 An Act to Allow Taxation of Securities registered with the 
 State Treasurer based on their Real, if less than their Face 
 value. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened. 
 
 Section i. Section 2325 of the General Statutes, as amended 
 by Chapter 253 of the Public Acts of 1907 (page 863) is hereby 
 amended by adding thereto the following proviso : 
 
 "Provided that if the person presenting any bond, note, or 
 other chose in action, or a description of the same, for registra- 
 tion, files therewith an affidavit that he owns it, and that a certain 
 part of the amount due upon it has been paid or satisfied, or that 
 it is worth, according to his best knowledge and belief, no more 
 than a sum named by him, which is less than its face value, then 
 
—4i— 
 
 the State Treasurer may accept payment at the rate of two per 
 cent for five years and a proportional sum for a greater or less 
 period of exemption, on such alleged value below the face 
 value or, as the case may be, on the part of the face value 
 remaining unsatisfied; or may consult the Tax Commissioner, 
 who may determine the real amount or value of such chose in 
 action, and notify the Treasurer thereof, who may then accept 
 two per cent, in manner above stated, on the amount or value 
 so ascertained by the Tax Commissioner; but the owner of such 
 security may, if he prefers, pay such percentage on the face value 
 of such security, and then appeal to the Superior Court for 
 Hartford County from the valuation so ascertained. Said appeal 
 shall be taken and may be disposed of in the same manner as 
 in case of appeals to the Superior Court from town boards of 
 relief; and if such court shall sustain the appeal, the Treasurer 
 shall refund the excess of the sum paid over the sum payable on 
 the reduced value or amount." 
 
 An Act to Limit the Time for Presenting Claims for Back 
 Taxes against Estates of Deceased Persons. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened. 
 
 In all cases in which the State Treasurer shall have a right, 
 under Chapter 293 of the Public Acts of 191 5 (page 2140) to 
 make a demand for taxes due from the estate of a deceased per- 
 son, who has not paid taxes during the last year of his life on all 
 his taxable property, he shall present said demand to the executor 
 or administrator within the time limited for the exhibition of 
 claims against such estate. 
 
 An Act to impose a Uniform Franchise Tax on all Insurance 
 Companies of this State. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened. 
 
 Section i. Section 17 of Chapter 292 of the Public Acts of 
 1915 (page 2134) is hereby amended so as to read as follows: 
 
—42— 
 
 Every insurance company, incorporated under the laws of this 
 State and doing business in this State, on or before the fifteenth 
 day of July, 1917, and annually thereafter, on or before the 
 fifteenth day of March, shall pay to the treasurer of the State 
 a tax on its corporate franchise of three per cent of the aggre- 
 gate sum of its total gross receipts in the last preceding 
 calendar year from income on investments (including rents) and 
 its premiums received for business done in this State. 
 
 Sec. 2. On or before the first day of March, annually, every 
 such company shall render to the Tax Commissioner a statement, 
 under oath, in such form as he may prescribe, of the facts and 
 items which he may consider necessary to determine the net 
 amount of such tax.. 
 
 Sec. 3. All Acts imposing any other corporate franchise tax 
 on any of such companies are repealed, and this Act shall go 
 into effect upon its passage. 
 
 An Act for Notice to Town Assessors of Registration of 
 Motor Vehicles. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened. 
 
 Within one month after the registration of any motor vehicle 
 with the Secretary of the State, owned by an inhabitant of this 
 State, the Secretary shall notify the assessors of the town in 
 which the owner resides, of such registration and of the general 
 character of such motor vehicle. 
 
 An Act concerning Taxation of Bank Deposits. 
 
 Be it enacted by the Senate and House of Representatives in 
 General Assembly convened. 
 
 In returning bank deposits in tax lists, checks drawn and 
 issued, in good faith, long enough before the day, as of which the 
 list is returned, to be presented in ordinary course for collection 
 before said day, may be deducted from the amount on deposit 
 on the opening of said day, though they have not in fact been so 
 presented. 
 
—43— 
 IV 
 
 INDEX 
 
 Page 
 
 Acts, recommended 37 
 
 Assessors, pay of 25 
 
 revaluation by, every 5 years 31, 38 
 
 expert 37 
 
 some take more pains than others 31 
 
 Automobiles 29 
 
 Banks, deposits in 13-15, 42 
 
 Bills recommended 34 
 
 Boards of Relief, mode of election 6 
 
 Books and Libraries 13, 16 
 
 Bridge companies 8 
 
 Choses in action 22-24 
 
 new exemptions 24 
 
 registration at actual value 40 
 
 Codification of tax statutes 5 
 
 Conclusions, general 22, 33 
 
 Corporation income taxes 6, 7 
 
 Depositors in savings departments of national banks 7 
 
 Electric companies 8 
 
 Estimates of pecuniary results of changes recommended 32 
 
 Estates of deceased persons, back taxes unpaid 7, 31 
 
 Exemptions from taxation: 
 
 books 16, 40 
 
 cash on hand I3~i5> 4» 
 
 charitable bequests 8, 26, 39 
 
 furniture 13, 15, 31, 40 
 
 mortgages 6 
 
 municipal bonds 6, 24, 38 
 
 musical instruments 13, IS. 4© 
 
 state bonds 24 
 
 watches and jewelry I3> IS. 39 
 
 wearing apparel 13 
 
 Expert appraisers, examiners, and accountants 37 
 
 Franchise taxes 27, 41 
 
 Gas companies 8 
 
 Gold, increase of, in the world 14 
 
 Government, expenses of, mainly fall on the towns 11, 17-20 
 
 Highways, appropriations for 21 
 
 Income taxes on corporations 6, 7 
 
 Insurance companies, franchise taxes 6, 27, 41 
 
 Intoxicating liquors 8, 26, 38 
 
 Libraries 13. 16 
 
 Miller, Guy P., dissent from "general conclusions" on page 22 33-37 
 
 Money, cheapening of 14 
 
—44— 
 
 Page 
 
 Motor vehicles 29 
 
 Non-residents, tax lists from 30 
 
 Personal property, intangible 22-24 
 
 Railroads, steam 6 
 
 street 6 
 
 Registration of motor vehicles 29 
 
 Secretary of the State, notice of registration by 29, 42 
 
 State Board of Equalization 5, 7, 25, 37 
 
 State bonds 21, 24 
 
 State expenditures 20 
 
 State revenues 8-11, 20, 26 
 
 State tax on towns 6, 26, 38 
 
 State Treasurer, registration of choses in action with 40 
 
 claims against estate of decedent 41 
 
 State tax on banks, insurance and investment companies 8 
 
 Succession taxes 8, 26 
 
 Tables. — No. 1. Main items of State Revenue, 1906-1916 opposite 8 
 
 No. 2. Summary of total State Receipts, 1906-1916 9 
 
 No. 3. Main items of the large increase of State Receipts 
 
 in 1916 10 
 
 No. 4. List of chief items of property, now taxed 16 
 
 No. 5. Expenditures of towns having less than 2,500 popu- 
 lation 18 
 
 No. 6. Current expenditures of the State, 1906-1916 20 
 
 No. 7. Annual surpluses or deficits, 1906-1916 20 
 
 No. 8. Appropriations for highways, 1912-1916 21 
 
 Tax laws of 1915 5-8 
 
 Tax Commissioner, power as to quinquennial revaluation 38 
 
 Tax system, historical development of 12, 13 
 
 general subjects of taxation 16 
 
 total property now taxed nearly two billions 23 
 
 Towns pay most of the cost of government n, 17-20 
 
 Water companies 8 
 
feoMMlSflOl^; TO S#0Y THE TAX L&WS 
 
 jjM^-IONfi ,- COWmR^INa^.TH-Efe. 'Mvlsiok 
 
 '-,„/: ' ' Submitted ,],$> ' ; -^ •■ ' ;,. '■; ./■?.-] 
 •Tmi 60WERNoR. l fifF;;CQ*r|jJBcTisJUT:. 
 ' l No^raiA 9* 1934 ■ 
 
REPORT of the CONNECTICUT TEMPORARY 
 COMMISSION TO STUDY THE TAX LAWS 
 OF THE STATE and TO MAKE RECOMMEN- 
 DATIONS CONCERNING THEIR REVISION 
 
 Provided by Special Act No. 474 of 1933 and submitted 
 the governor of Connecticut, November 9, 1934 
 
 Hari tev State 
 Published y. 
 /4 
 
Publication 
 
 Appeoved by 
 
 The Boaed of Finance 
 
 and conteol 
 
 Printed by 
 The Case, Lockwood & Brainard Co. 
 Hartford [1934] Connecticut., 
 
CONNECTICUT TEMPOEAEY COMMISSION TO STUDY 
 THE TAX LAWS OF THE STATE AND TO MAKE 
 KECOMMENDATIONS CONCERNING THEIR REVISION 
 
 Ebed R. Faibchild, Chairman 
 New Haven 
 
 Rogee S. Baldwin Geobge B. Claeke 
 
 Greenwich Mansfield 
 
 Austin D. Babney William F. Connelly 
 
 Farmington Bridgeport 
 
 William H. Blodgett Geoege T. Kimball 
 
 Winchester New Britain 
 
 EESEAECH STAEF 
 
 Benjamin P. Whitakeb 
 Research Director 
 
 Ronald B. Welch Thomas J. Mills 
 
 Research Assistant Research Assistant 
 
State of Connecticut 
 
 OCEB S. BALDWIN 
 USTIN D. BARNEY 
 IUIAM H. BLODSETT 
 
 WILLIAM F.I 
 GEORGE T. KIMBALL 
 
 BENJAMIN P. WHITAKER 
 research director. 
 
 Special Tax commission 
 
 (CHEATED UNDER SPECIAL ACTS, ■•») 
 
 STATE CAPITOL 
 
 Hartford, Conn. 
 November 9, 1934. 
 
 His Excellency, Wilbur L. Cross > 
 Governor of the State of Connecticut, 
 State Capitol, 
 Hartford, Connecticut. 
 
 Dear Sir: 
 
 The temporary commission to study the tax laws 
 of the state and to make recommendations concerning their 
 revision, appointed by the Governor pursuant to Special 
 Act No. 474 of 1933, respectfully submits this report of 
 its investigation as required by the statute. 
 
 Trz*. s~$. 
 
 &AJL. 
 
 Chairman 
 
 
 
AN ACT CREATING A TEMPOKAEY COMMISSION TO 
 STUDY THE TAX LAWS OF THE STATE AND TO MAKE 
 KECOMMENDATIONS CONCEENING THEIK EEVI- 
 SION. 
 
 Be it enacted by the Senate and House of Representatives in General 
 
 Assembly convened: 
 
 Section 1. A temporary state commission is created for the purpose herein 
 specified to consist of seven members to be appointed by the governor. The mem- 
 bers of the state tax department shall act in an advisory capacity to the commis- 
 sion. Said commission shall, at its first meeting, elect one of its members as the 
 chairman thereof. The members of the commission shall receive no compensation, 
 but shall be allowed necessary expenses incurred in the performance of their duties. 
 Any vacancy in said commission shall be filled by a majority vote of its remaining 
 members. The commission may appoint, and at pleasure remove, such employees and 
 experts as shall be necessary to complete the work provided for in section two of 
 this act, and may fix their compensation within the amount of its appropriation. 
 The expense thus incurred, and that incurred for printing and the furnishing of 
 supplies necessary in carrying out the provisions of this act, shall be certified by 
 the chairman or clerk of said commission to the comptroller, who shall pay the 
 same in the manner of paying other claims against the state. 
 
 Sec. 2. The commission shall study and inquire into the problems of state 
 and local taxation in this state, the financing of its municipalities, the distribution 
 of the tax burden with particular reference to the possibility of reducing or limit- 
 ing the load of taxation borne by real estate, the problem of assessment and col- 
 lection of taxes, the borrowing of money by municipalities, the apportioning of 
 sources of taxation between the state and local municipalities and any other 1 ques- 
 tions incidental to the foregoing. The commission shall report to the governor on 
 the foregoing questions within ninety days prior to the convening of the general 
 assembly at its January sessiqn, 1935, and shall prepare and recommend legisla- 
 tion, in form for enactment by the general assembly, designed to correct existing 
 statutes relating to both state and local taxation, and, with such additional legis- 
 lation as it may deem necessary, to provide a tax system in this state which shall 
 be fair and equitable and which shall distribute the tax load more widely and 
 equitably among taxpayers and tax-paying groups and which shall in particular 
 reduce the load of taxation on real estate, if possible. > 
 
 Sec. 3. The commission may or may not as it Bhall determine hold public 
 hearings; but, as far as possible, it shall give opportunity to any corporate or indi- 
 vidual taxpayer of the state to present for consideration suggestions, which shall 
 be in writing, bearing upon the purposes of this act, and shall receive and consider 
 any factual data presented which may be relevant and material. The clerk of said 
 commission, on vote of the commission, is authorized to issue subpoenas requiring 
 the appearance of any person before it for examination under oath, and by such 
 process said commission may compel the production of books, papers and documents 
 pertinent or necessary to consummate the business of the commission. No witness 
 so subpoenaed may be excused from testifying or from producing books, papers or 
 documents on the ground that testimony so given will tend to incriminate him, 
 but no evidence so offered shall be used in any criminal proceedings which may be 
 brought against any such person. Disobedience to such process by failure to appear 
 and respond thereto, or, if, having appeared in obedience thereto, any person shall 
 refuse to answer any pertinent questions put to him by any member of said com- 
 mission or by its counsel, he shall, upon presentation of such facts to the superior 
 court, be subjected to such fines and penalties as might be imposed by said court 
 should such disobedience or refusal have occurred in any civil action pending in 
 said court. 
 
 Sec. 4. If practical difficulties or obstacles shall prevent the reporting of a 
 bill or bills which shall cover completely the business of the commission as speci- 
 fied in this act, the commission shall report such part thereof as would reasonably 
 produce a workable, practical and equitable system of taxation for this state, to 
 the end that the financial needs, not only of the state but also of its cities and 
 other political subdivisions, may be adequately provided for in a just manner. 
 
 Sec. 5. The board of finance and control shall have supervision over all 
 expenditures of the commission. The sum of twenty-five thousand dollars is appro- 
 priated to carry out the purpose of this act. 
 
 Approved June 9, 1933. 
 
PREFACE 
 
 The Special Tax Commission was appointed according to the 
 provisions of Special Act No. 474 of 1933 by His Excellency, Governor 
 Wilbur L. Cross. The Commission met and organized on June 23, 
 1933, at the State Capitol in Hartford. Professor Fred R. Fairchild 
 was elected chairman. Dr. Benjamin P. Whitaker was appointed 
 research director and was placed in charge of the office of the Com- 
 mission at the State Capitol. The Commission has carried on its 
 investigation continuously since its organization through the activities 
 of its research staff, regular executive meetings, and public hearings. 
 Forty-five executive meetings and six public hearings have been held. 
 
 This report is divided into parts and chapters in accordance with 
 the natural relations and subdivisions of the problems assigned for 
 investigation. The report, in its entirety, presents the Commission's 
 conclusions and recommendations together with a full record of the 
 facts and the reasoning upon which the conclusions and recommenda- 
 tions are based. For the convenience of those interested in a brief 
 statement of the results of the investigation, there is presented at the 
 end of each chapter a summary of that chapter. Generally, the recom- 
 mendations are stated at the end of each chapter as a part of the sum- 
 mary, but, in Chapters V, VII, XII, XIV, XV, and XVII, which deal 
 with distinctly separate subjects, the recommendations relating to each 
 subject are stated at the end of the section of the chapter dealing with 
 that subject. Chapter XXI, the last chapter of the report, is a brief 
 summary of the entire program of the Commission. 
 
 The Commission is pleased to acknowledge the whole-hearted 
 cooperation which it has received from the many state departments, 
 public officials, private organizations, and individuals which at public 
 hearings, in written documents, and in answer to requests have assisted 
 in its work. It wishes to acknowledge, in particular, the invaluable 
 services which it has received from Tax Commissioner William H. 
 Hackett and from the personnel of his office, especially from Mr. 
 Farwell Knapp, Assistant Tax Commissioner, Mr. Arthur F. Potter, 
 Director of the Municipal Tax Division, Mr. Joseph P. Egan, Director 
 of the Corporation Tax Division, and Mr. Ernest S. Goodrich, Director 
 of the Excise Tax Division. Mr. John E. Donahue, special agent for 
 the tax commissioner, has assisted the Commission in many ways 
 throughout its investigation and, in particular, has had charge of its 
 publicity. 
 
TABLE OF CONTENTS 
 
 PART I. GOVERNMENTAL FINANCE IN CONNECTICUT 
 
 Chapter I. Governmental Budget Balances in Connecticut 
 Introduction ..... 
 
 The broad problem of governmental finance 
 
 Accounting terminology 
 
 Organization of Connecticut government 
 State finance, 1927-28 to 1932-33 
 
 Definitions of technical terms 
 
 State budget balances, 1927-28 to 1932-33 
 
 State indebtedness, 1922-23 to 1933-34 
 
 State finance during 1933-34 
 
 The problem of state finance 
 County finance, 1927-28 to 1932-33 
 
 Introduction .... 
 
 County budget balances, 1927-28 to 1932-33 
 
 County debt, 1922 and 1933 
 
 The problem of county finance 
 Municipal finance, 1920, 1924, 1928, and 1932 
 , Nature of the data 
 
 Municipal budget balances, 1920, 1924, i928, and 1932 
 
 Municipal indebtedness, 1920, 1924, 1928, and 1932 
 
 The problem of municipal finance 
 Summary 
 
 State finance 
 
 County finance 
 
 Municipal finance 
 
 Chapter II. Governmental Expenditures in Connecticut 
 Limitations of the Commission's assignment 
 The state government 
 
 General functional analysis 
 
 Capital outlays 
 
 Operating expenses 
 
 State expenditures during 1933-34 
 County governments 
 Municipal governments 
 
 All reporting municipalities 
 
 Cities and boroughs 
 
 Unconsolidated towns 
 
 Municipal expenditures after 1932 
 Consolidated expenditures of all Connecticut governments 
 
 Accounting for duplications 
 
 Purposes and trends, 1928 and 1932 
 
 Twenty-year trend, 1912 to 1932 
 Need of reduction and control of expenditures 
 Summary ..... 
 
 State expenditures 
 
 County expenditures 
 
 Municipal expenditures 
 
 Consolidated state and local expenditures 
 
 Need for reduction and control of state and local expenditures 
 
Xll 
 
 Table of Contents 
 
 Chapter III. Governmental Revenues in Connecticut 
 Introduction ..... 
 State revenues .... 
 
 Sources of state income, 1927-28 to 1932-33 
 
 Trends of state income, 1927-28 to 1932-33 
 From 1927-28 to 1930-31 
 From 1930-31 to 1932-33 
 
 State income, 1933-34 
 County revenues 
 Municipal revenues 
 
 Sources of municipal revenues, 1920 to 1932 
 ' Trends of municipal revenues, 1920 to 1932 
 
 Consolidated state and local revenues 
 The burden of taxation on real property 
 Summary 
 
 State revenues 
 
 County revenues 
 
 Municipal revenues 
 
 Consolidated state and local revenues 
 
 The burden of taxation on real property 
 
 PART II. THE FINANCING OF MUNICIPALITIES 
 
 Chapter IV. The Relationship or the Municipalities to the State 
 Government 
 Importance of municipal finance 
 Legal status of municipalities 
 The policy of local autonomy 
 Local government on trial 
 Problems of local autonomy 
 
 Complexity of municipal activities 
 Complexity of municipal organization 
 Lack of measures of efficiency 
 Necessity of adequate fiscal procedures 
 Shortcomings of state legislation 
 Lack of consistent policy 
 Defects of extreme "home rule" 
 General principles 
 
 'Aims of Commission's proposals . 
 Statement of general principles 
 Summary 
 
 Chapter V. Municipal Fiscal Years and Tax Due Dates 
 Governmental fiscal years 
 
 Statutory provisions 
 
 Diversity of municipal fiscal years 
 
 Consequences of diversity 
 
 A uniform fiscal year ending June 30 
 
 Election dates 
 
 Recommendations 
 Relation of tax due dates and fiscal years 
 
 The problem 
 
 Statutes governing tax due dates 
 
Table of Contents 
 
 xm 
 
 Present situation as to tax due dates and fiscal years 
 
 Effect of installment tax payments 
 
 Effects of elapsed periods on municipal finance 
 
 Necessity of tax-anticipation borrowing 
 
 Estimated amount of tax-anticipation borrowing 
 
 Effects upon municipal debt . 
 The remedy ..... 
 
 Financing the reform in tax due dates . • 
 
 The cost ..... 
 
 Should each municipality bear its own cost? 
 
 Proposed plan of financing 
 
 Cost of proposed plan to the state government 
 Procedure during the transitional period 
 Eventual time schedule of municipal financing 
 Recommendations .... 
 
 Summary ...... 
 
 Governmental fiscal years 
 
 Relation of tax due dates and fiscal years 
 
 Chapter VI. Municipal Budgeting 
 
 Administrative organization of municipal finance 
 Introduction .... 
 
 Constitutional provisions . 
 State, participation in municipal finance 
 
 Powers and duties of municipalities: The problem of divided 
 
 responsibility .... 
 
 Powers and duties of state agencies 
 Municipal agencies participating in municipal finance 
 In general 
 
 In towns without boards of finance 
 In towns with boards of finance 
 Critipism 
 Conclusions 
 Procedure in municipal budgeting 
 Definition of the subject . 
 Preparation of the budget 
 
 In towns without boards of finance 
 In towns with boards of finance 
 Legislation of the budget 
 
 In towns without boards of finance 
 In "towns with boards of finance 
 Execution of the budget: Control of appropriations 
 The problem in general 
 penalties for exceeding appropriations 
 Allotments of appropriations 
 Transfer of appropriations 
 Lapsing of appropriations 
 Summary and recommendations 
 Administrative organization 
 Procedure in municipal budgeting 
 Mandatory and optional application 
 Recommendations 
 Organization 
 Procedure 
 
 Preparation of the budget 
 
 Legislation of the budget 
 
 Execution of the budget: Control of appropriations 
 
XIV 
 
 Table of Contents 
 
 Page 
 Chapter VII. Municipal Accounting, Auditing, Reporting, and 
 
 Custody of Funds .>.... 168 
 
 Municipal accounting : . ... . . . 168 
 
 Requirements of an accounting system . . . .168 
 
 Weaknesses of municipal accounting in Connecticut . 168 
 
 Decentralization . . . . .168 
 
 Lack of uniformity . . . . . .170 
 
 Defects in the procedure for preauditing claims . 172 
 
 Inadequate control of commitments . . . 174 
 
 Inadequate control of revenues .... 174 
 
 Recommendations ..... 175 
 
 Municipal auditing ... . . 177 
 
 Statutory provisions v . 177 
 
 Criticism . . . . . . .178 
 
 The need of more state supervision and control . 179 
 
 Recommendations • . . . . 180 
 
 Bonding of municipal officers ... 181 
 
 Statutory provisions ... 181 
 
 Criticism . . . 181 
 
 Recommendations . . . 182 
 
 Custody of municipal funds ... .182 
 
 Statutory provisions . . .182 
 
 Criticism ... 183 
 
 Recommendations . .... 186 
 
 Municipal reporting . . . 187 
 
 Importance of reporting . . . . . .187 
 
 Statutory provisions .... 187 
 
 Criticism ...... .187 
 
 Recommendations . .... 188 
 
 State supervision of local finance . . . . .189 
 
 Inevitability of state participation in local finance . . 189 
 
 The nature of state participation in local finance . . 189 
 
 Recommendations .... . 192 
 
 Summary ....... 192 
 
 Accounting ..... 192 
 
 Auditing . . 193 
 
 Bonding of municipal officials . . . . .193 
 
 Custody of municipal funds . ... 194 
 
 Municipal reporting . . ... 194 
 
 State supervision of. local finance . . . 194 
 
 Chapter VIII. Municipal Indebtedness 
 The problem of municipal indebtedness 
 Municipal debt limitation in Connecticut 
 Authorization of indebtedness 
 Purposes for which debt may be incurred 
 Terms of issue 
 Maturities 
 • Rate of interest 
 
 Other terms of issue 
 Limitations upon amount of indebtedness 
 The receivership law . . ■ 
 
 The growth of municipal debt 
 Criticism of existing law 
 In general 
 
 Authorization of debt 
 Purposes of borrowing 
 
 196 
 196 
 196 
 196 
 199 
 201 
 201 
 204 
 204 
 205 
 207 
 208 
 212 
 212 
 212 
 213 
 
Table of Contents 
 
 xv 
 
 Terms of issue 
 The aggregate debt limit . 
 Proposed municipal debt code 
 Authorization of debt 
 Budgetary provisions for borrowing 
 Non-budgetary borrowing , 
 
 Borrowing on account of failure of 
 
 appropriations 
 Tax-anticipation borrowing 
 Maturities and interest rates 
 The debt limit 
 Municipal receivership 
 Other provisions . 
 Summary and recommendations 
 
 and additional 
 
 PART III. THE PRESENT SYSTEM OF STATE AND 
 LOCAL TAXES 
 
 Chapter IX. The General Property Tax: Exemptions 
 Relation of the general property tax to the tax system 
 All property taxable unless specifically exempted 
 Illegal exemptions .... 
 
 Technical exemptions .... 
 True exemptions . 
 
 In general .... 
 
 Property owned and used by governments 
 Privately owned property used for quasi-public purposes 
 Property of soldiers, sailors, and the blind 
 Property constituting a minimum of subsistence 
 Statistics 
 The problem 
 
 Government property 
 Privately owned property 
 Inadequacies of principle 
 Weaknesses of administration 
 Conclusions 
 
 Summary and recommendations 
 Chapter X. The General Profertt Tax: Assessment 
 Taxable property 
 Definitions 
 Rules of situs 
 Rules of valuation 
 Assessment procedure . 
 Original assessments 
 Assessors 
 Listing 
 Valuation 
 Review of assessments 
 
 Local boards of relief 
 Powers and duties of boards of relief 
 Appeals on assessments 
 
 From decisions of boards of relief 
 From arbitrary and excessive assessments 
 State supervision of assessment . 
 State board of equalization . 
 Tax commissioner 
 
XVI 
 
 Table of Contents 
 
 Assessment results .... 
 The grand list .... 
 Appraisal of assessments 
 Available tests 
 
 Real property . ... 
 
 Personal property 
 Criticism and conclusions 
 
 Character of remedy proposed 
 Simplification of the grand list 
 
 Unimportant classes of personal property 
 Household furnishings 
 Motor vehicles and aircraft . 
 Combined effects 
 Changes in rules and procedure 
 Rules of assessment . 
 Rules of situs 
 Rules of valuation 
 Assessment of tangible personal property 
 In general 
 Business inventories 
 Machinery and equipment 
 Public utility distribution systems 
 Administrative procedure 
 Assessment of real property . 
 Assessment calendar 
 Listing .... 
 Valuation 
 Tax maps 
 Reform of administrative organization 
 Assessors .... 
 
 Local boards of relief 
 State board of tax appeals 
 State supervision of assessments 
 Summary 
 Recommendations 
 
 Taxable property . 
 Rules of assessment 
 Assessment procedure 
 Administrative organization 
 
 Chapter XL The General Property Tax: Collection 
 The present law .... 
 
 The tax collector .... 
 Tax due dates .... 
 
 Abatement and transfer to suspense book 
 Collection procedure 
 
 Collection of non-delinquent taxes 
 Collection of delinquent taxes 
 Procedures of enforcement 
 Foreclosure of liens upon real property 
 Collection by ordinary suit 
 Levy and sale or commitment 
 Settlement with the treasurer 
 Records and reports of the collector 
 The growth of tax delinquency 
 Causes of tax delinquency and proposed remedies 
 In general 
 Selection and compensation of collectors 
 
Table of Contents 
 
 xvii 
 
 Billing of taxpayers 
 
 Tax due dates 
 
 Penalties for delinquency 
 
 Abatement of taxes 
 
 The continuance of tax liens 
 
 Summary collection processes 
 The problem of back taxes 
 Summary and recommendations 
 
 Chapter XII. The Personal Tax and Special Property Taxes 
 The personal tax 
 Description 
 History 
 Yield 
 Appraisal 
 
 Enumeration 
 Collection 
 Conclusions 
 Recommendations 
 Special property taxes 
 Introduction 
 Forest taxation 
 
 Exemption of tree plantations 
 Special forest tax law of 1913 
 Classification act of 1929 
 
 Appraisal of forest tax legislation and conclusions 
 Taxes on shellfish grounds 
 
 Description of the state tax . 
 History 
 
 Conclusions .... 
 
 The choses-in-action tax 
 
 History .... 
 
 Scope of the tax 
 Effectiveness of the tax 
 Other criticisms 
 Recommendation 
 The estate penalty tax 
 Description 
 History 
 Yield 
 Criticism 
 Recommendation 
 Gross earnings taxes on transportation and communication com 
 panies 
 History 
 
 Description of present taxes . 
 Local property taxes 
 State taxes on gross earnings 
 Theory 
 Yield 
 Conclusions 
 
 Basic structure 
 Tax rates 
 The tax base 
 
 Local property taxes and tax offsets 
 Motor bus taxes 
 Car company taxes 
 Recommendations 
 
XVI 11 
 
 Table of Contents 
 
 Page 
 
 Summary . . ..... 375 
 
 The personal tax .... . . 375 
 
 Special property taxes ... . 375 
 
 Forest taxation ..... 375 
 
 Taxes on shellfish grounds ... . 376 
 
 The choses-in-action tax ..... 376 
 
 The estate penalty tax . . . . . 377 
 
 Gross earnings taxes on transportation and communication 
 
 ■companies . . . . . . . 378 
 
 Chapter XIII. The Taxation of Insurance Companies 
 Introduction 
 
 Description of present taxes 
 Local taxes 
 State taxes 
 
 Alien companies 
 Foreign companies 
 Domestic mutual companies 
 Domestic stock companies 
 History ..... 
 
 Taxation of domestic insurance company stock 
 The franchise tax on stock companies 
 Taxes on mutual companies 
 Taxes on foreign and alien companies 
 Yield of state taxes . . . . 
 
 Distribution of the stock tax 
 Principles of insurance company taxation 
 Criticism of existing taxes 
 
 Inequality in tax burdens among groups of companies 
 Inequalities among domestic stock companies 
 Instability of revenues 
 Distribution of the stock tax 
 The business tax 
 The tax on account of property 
 The problem of the tax base 
 The taxable property 
 An ad valorem tax on intangible assets 
 Premiums as a measure of property values . 
 Investment income as a tax base 
 
 Advantages .... 
 
 The problem of shifts in tax burden 
 Adjustment by means of a rate differential 
 The rates of the tax on investment income 
 The problem .... 
 Tax burdens on other groups in the state 
 Insurance taxes in other states 
 
 Tax burdens under the existing system: Conclusions 
 Estimated yield of proposed taxes 
 
 Corollary conclusions . . . . 
 
 Summary and recommendations 
 
 381 
 381 
 381 
 381 
 382 
 382 
 383 
 383 
 383 
 384 
 384 
 385 
 386 
 387 
 388 
 388 
 391 
 392 
 392 
 393 
 393 
 394 
 394 
 395 
 395 
 395 
 396 
 397 
 398 
 398 
 398 
 400 
 401 
 401 
 401 
 402 
 404 
 404 
 405 
 406 
 
 Chapter XIV. The Taxation of Banks and Trust Companies and 
 
 Miscellaneous Financial Institutions . . . 410 
 
 Banks and trust companies .... . 410 
 
 In general . ..... 410 
 
 The bank stock tax .... . 410 
 
Table of Contents 
 
 xix 
 
 Description ...... 
 
 History .... 
 
 Yield ......; 
 
 Federal limitations on the taxation of national banks 
 Theory of bank taxes .... 
 
 Available methods of taxing national banks 
 
 The share tax ..... 
 
 The tax on dividends .... 
 
 The tax upon net income 
 The franchise or excise tax 
 Conclusions ...... 
 
 The taxation of bank deposits 
 
 Description of the savings deposits tax 
 Legal status of the savings deposits tax 
 History of Connecticut deposits taxes 
 Yield of the savings deposits tax 
 Criticism of the savings deposits tax 
 Conclusions ..... 
 
 Local taxes ..... 
 
 Summary of proposed changes in bank taxes and their probable 
 fiscal effects ..... 
 
 Recommendations .... 
 
 Miscellaneous financial corporations 
 
 Introduction ..... 
 
 Taxes on building and loan associations 
 
 The taxation of investment and other financial companies 
 
 Recommendations ..... 
 
 Unincorporated financial concerns 
 
 Summary ...... 
 
 Banks and trust companies 
 The bank stock tax . 
 The taxation of bank deposits 
 Miscellaneous financial corporations 
 Unincorporated financial concerns 
 
 Chapter XV. Business Taxes on Mercantile and Manufacturing 
 Concerns and Local Public Utilities 
 Historical and theoretical background 
 Taxation of miscellaneous corporations 
 The corporation net income tax 
 The taxpaying corporations 
 The tax base 
 The tax rate 
 Administration 
 History 
 Yield 
 
 Theory of the corporation net income tax 
 Criticism 
 
 Instability of yield 
 Concentration of the tax burden 
 Allocation of net income 
 A broader concept of net income 
 
 Denying deductions for interest and rental payments 
 Including tax-exempt income in gross income 
 Results ...... 
 
 The taxation of invested capital 
 
 Allocation of the tax base .... 
 
 Recommendations ..... 
 
XX 
 
 Table of Contents 
 
 The unincorporated business tax 
 
 Scope of the tax . 
 
 The tax base 
 
 The tax rate 
 
 Administration 
 
 History and purpose 
 
 Yield 
 
 Appraisal 
 
 Recommendations 
 Local public utilities 
 
 Application 
 
 The tax base 
 
 Administration 
 
 History 
 
 Yield 
 
 Appraisal . 
 
 Recommendations 
 Summary 
 
 Theoretical background 
 
 Taxation of miscellaneous corporations 
 The corporation net income tax 
 The taxation of invested capital 
 Allocation of the tax base . 
 
 The unincorporated business tax 
 
 Local public utilities 
 
 Page 
 460 
 460 
 461 
 461 
 461 
 462 
 462 
 464 
 465 
 465 
 465 
 466 
 466 
 466 
 467 
 467 
 469 
 469 
 469 
 470 
 470 
 471 
 472 
 472 
 473 
 
 Chapter XVI. Special Motor Vehicle Taxes . 
 Nature and theory of motor vehicle taxes 
 
 Principal problems .... 
 
 Aggregate amount to be raised 
 
 Gasoline tax and registration tax 
 
 Apportionment among motor vehicles in general 
 
 The special problem of commercial motor vehicles 
 
 Conclusions 
 The gasoline tax 
 
 Description 
 
 History 
 
 Yield 
 
 Conclusions .... 
 
 Motor vehicle license taxes 
 
 Description 
 
 History 
 
 Yield 
 
 Criticism . . ... 
 
 Bases of the registration taxes 
 Rate of the registration taxes 
 Proration ..... 
 
 Conclusions ..... 
 
 Motor bus taxes .... 
 
 Summary and recommendations 
 
 Nature and theory of motor vehicle taxes 
 
 The gasoline tax . 
 
 Motor vehicle license taxes 
 
 Motor bus taxes ..... 
 
 Recommendations 
 
 474 
 474 
 474 
 474 
 478 
 479 
 482 
 484 
 485 
 485 
 487 
 487 
 488 
 489 
 489 
 490 
 491 
 492 
 492 
 494 
 496 
 496 
 497 
 500 
 500 
 502 
 503 
 504 
 505 
 
Table of Contents 
 
 xxi 
 
 
 Page 
 
 Chapter XVII. Death Taxes, Liquor Taxes, and Amusement Taxes 
 
 507 
 
 Death taxes ....... 
 
 507 
 
 Two types of death taxes 
 
 507 
 
 Description of Connecticut death taxes 
 
 508 
 
 The succession tax 
 
 508 
 
 The estate tax ..... 
 
 509 
 
 History ....... 
 
 510 
 
 The succession tax ..... 
 
 510 
 
 The nonresident transfer tax 
 
 512 
 
 The estate tax ..... 
 
 513 
 
 Yield ....... 
 
 513 
 
 Appraisal ..... 
 
 514 
 
 General structure . . . . 
 
 514 
 
 Exemptions ...... 
 
 514 
 
 Control of safe deposit boxes 
 
 515 
 
 Recommendations ..... 
 
 516 
 
 Liquor taxes ....... 
 
 516 
 
 General theory ...... 
 
 516 
 
 Description of Connecticut liquor taxes 
 
 517 
 
 Relationship to business taxes .... 
 
 518 
 
 Yield ....... 
 
 518 
 
 Criticism . ... 
 
 519 
 
 The proposed excise tax ..... 
 
 521 
 
 Recommendations ... 
 
 523 
 
 Amusement taxes ...... 
 
 524 
 
 Description of the Connecticut taxes 
 
 524 
 
 Seating capacity tax . • . 
 
 524 
 
 Tax on admissions to boxing and wrestling matches 
 
 525 
 
 History ....... 
 
 525 
 
 The admissions tax ..... 
 
 525 
 
 ' Boxing and wrestling admissions tax 
 
 526 
 
 Film tax ...... 
 
 527 
 
 Seating capacity tax 
 
 527 
 
 Yield ....... 
 
 528 
 
 Criticism ...... 
 
 528 
 
 Boxing and wrestling admissions tax 
 
 528 
 
 The seating capacity tax .... 
 
 530 
 
 The proposed excise tax on general admissions- 
 
 530 
 
 Recommendations ..... 
 
 531 
 
 Summary ....... 
 
 532 
 
 • Death taxes ...... 
 
 532 
 
 Liquor taxes ...... 
 
 533 
 
 ft Amusement taxes ..... 
 
 534 
 
 PART IV. THE REDISTRIBUTION OF THE TAX BURDEN 
 
 I'Chapter XVIII. State Assistance in Local Financing 
 State assistance in general . 
 State assistance in Connecticut 
 
 State-administered and locally shared taxes 
 
 State grants for specified local activities 
 
 Transfers of local functions 
 
 Total amount of direct state financial assistance 
 
 537 
 537 
 538 
 538 
 539 
 542 
 544 
 
XXI 1 
 
 Table of Contents 
 
 Criticism and proposed changes 
 The problem of policy 
 
 State-administered and locally shared taxes 
 State grants for specified local activities 
 Education .... 
 
 Highways . ' . 
 
 Charities, hospitals, and corrections 
 Institutional care 
 Non-institutional charitable relief 
 Elimination of state and military . taxes 
 Summary and recommendations 
 State assistance in general 
 State assistance in Connecticut 
 Criticism and proposed changes 
 Recommendations 
 
 Chapter XIX. New Sources op Revenue 
 
 Additional revenues required . 
 
 Taxes on incomes of natural persons . 
 General personal income taxes 
 General classified personal income taxes 
 Taxation of interest and dividends 
 
 Taxes on sales or consumption 
 General sales taxes 
 Selective sales taxes 
 
 Summary and recommendations < 
 Additional revenues required 
 Taxes on incomes of natural persons 
 Taxes on sales or consumption 
 Recommendations . 
 
 Chapter XX. Fiscal Effects of the Commission's Recommendations 
 The basic estimates .... 
 Effects" on state financing 
 
 Classification of state funds 
 
 All civil list funds 
 
 General fund .... 
 
 Highway fund 
 
 Miscellaneous public expendable funds 
 
 Expenditures for permanent improvements 
 Effects on county financing 
 Effects on municipal financing 
 Summary . . . . 
 
 Introduction .... 
 
 Effects on state financing 
 
 Effects on county financing 
 
 Effects on municipal financing 
 
 Chapter XXI. Summary of the Program 
 
 613 
 
LIST OF TABLES 
 
 Page 
 
 Table I. State government: Income, net expenditures, and budget 
 
 balances, all civil list funds, fiscal years 1927-28 to 1932-33 . . a 
 
 Table II. State government: Gross and net debt, ends of fiscal years 
 
 1922-23 to 1,933-34 . . . . . . . 10 
 
 Table III. State government: Excess or deficit of receipts other than 
 borrowings over disbursements for purposes other than debt retire- 
 ment compared with excess or deficit of income over net expenditures, 
 fiscal years .1927-28 to 1933-34 ..... 12 
 
 Table IV. Counties: Aggregate revenue receipts, governmental-cost 
 payments, and budget balances, years ending September 30, 1928 to 
 1933 ..... .' ... 15 
 
 Table V. Counties : Revenue receipts, governmental-cost payments, and 
 
 budget balances of individual counties, year ending September 30, 1933 15 
 
 Table VI. Counties: Consolidated gross and net debt, September 30, 
 
 1922 and 1933 . . . . . '16 
 
 Table VII. Counties: Gross and net debt of individual counties, Septem- 
 ber 30, 1922 and 1933 . . . . ... 16 
 
 Table VIII. Reporting municipalities: Revenue receipts, governmental- 
 cost payments, and budget balances by municipal groups, quadren- 
 nial years 1920 to 1932 . . . . . . / . 19 
 
 Table IX. Major municipalities: Enumeration according to excess or 
 deficit of revenue receipts over governmental-cost payments, 1928 and 
 1932 . . . . . . . 21 
 
 Table X. Reporting municipalities: Gross and net debt by municipal 
 
 groups, quadrennial years 1920 to 1932 .... 22 
 
 Table XI. State government: Net expenditures by functions, fiscal years 
 
 1927-28 to 1932-33 . . ,. . . " . 30 
 
 Table XII. State government: Net expenditures, percentage distribution 
 
 by functions, fiscal years 1927-28 to 1932-33 . . 30 
 
 Table XIII. State government: Cash disbursements from civil list funds, 
 
 fiscal years 1932-33 and 1933-34 ... .35 
 
 Table XIV. Counties: Governmental-cost payments by functions, years 
 
 ending September 30, 1928 to 1933 .... 36 
 
 Table XV. Counties: Governmental-cost payments, percentage distribu- 
 tion by functions, years ending September 30, 1928 to 1933 . . 37 
 
 Table XVI. All counties except Hartford County: Governmental-cost 
 payments for general government and for all purposes, years ending 
 September 30, 1928 to 1933 . . . . .37 
 
 Table XVII. All reporting municipalities: Governmental-cost payments 
 
 by functions, quadrennial years 1920 to 1932 .... 39 
 
 Table XVIII. AH reporting municipalities : Governmental-cost payments, 
 
 percentage distribution by functions, quadrennial years 1920 to 1932 39 
 
 Table XIX. Cities and boroughs: Governmental-cost payments by func- 
 tions, quadrennial years 1920 to 1932 . . .42 
 
 Table XX. Cities and boroughs : Governmental-cost payments, percentage 
 
 distribution by functions, quadrennial years 1920 to 1932 . . 43 
 
 Table XXI. Unconsolidated towns: Governmental-cost payments by 
 
 functions, quadrennial years 1920 to 1932 . . . . 45 
 
 Table XXII. Unconsolidated towns: Governmental-cost payments, per- 
 centage distribution by functions, quadrennial years 1920 to 1932 . 45 
 
 Table XXIII. State, counties, and municipalities: Governmental-cost 
 
 payments by functions, 1928 and 1932 .... 49 
 
 Table XXIV. State, counties, and municipalities: Governmental-cost pay- 
 ments, percentage distribution by functions, 1928 and 1932 . . 50 
 
xxiv List op Tables 
 
 Page 
 
 Table XXV. State, counties, and municipalities: Governmental -cost pay- 
 ments before eliminating duplications, population, wholesale prices, 
 estimated wealth and income, 1912 to 1932 .... 53 
 
 Table XXVI. State, counties, and municipalities: Aggregate govern- 
 mental-cost payments before eliminating duplications compared with 
 population, wholesale prices, estimated wealth and income, 1912 to 
 1932 . . ..... 53 
 
 Table XXVII. State government: Income by general sources, fiscal years 
 
 1927-28 to 1932-33 ....... 63 
 
 Table XXVIII. State government: Income, percentage distribution by 
 
 sources, fiscal years 1927-28 to 1932-33 . . . . 64 
 
 Table XXIX. Counties: Revenue receipts by sources, years ending Sep- 
 tember 30, 1928 to 1933 ..... 69 
 
 Table XXX. • Counties: Revenue receipts, percentage distribution by 
 
 sources, years ending September 30, 1928 to 1933 ... 69 
 
 Table XXXI. All reporting municipalities: Revenue receipts by sources, 
 
 quadrennial years 1920 to 1932 ..... 71 
 
 Table XXXII. All reporting municipalities: Revenue receipts, percentage 
 
 distribution by sources, quadrennial years 1920 to 1932 72 
 
 Table XXXIII. State, counties, and municipalities: Consolidated revenue 
 
 receipts by sources, 1928 and 1932 .... 76 
 
 Table XXXIV. Major municipalities and certain minor municipalities: 
 
 Enumeration according to months in which their fiscal years begin 100 
 
 Table XXXV. Major municipalities: Fiscal years and due dates of all 
 
 or first installment of property taxes, 1933-1934 . . . 105 
 
 Table XXXVI. Fifty-four minor municipalities: Fiscal years and due 
 
 dates of all or first installment of property taxes, 1933-1934 . 106 
 
 Table XXXVII. Major municipalities and fifty-four minor municipali- 
 ties: Periods elapsing between beginnings of fiscal years and due 
 dates of the whole or first installment of property taxes, 1933-1934 . 107 
 
 Table XXXVIII. Major municipalities: Gross indebtedness by purposes, 
 October 1, 1912, and at close of fiscal years ending next prior to 
 October 10, 1932 ...... 202 
 
 Table XXXIX. All reporting municipalities: Gross debt and gross debt 
 less sinking funds by major and minor municipal groups, 1892, 1912, 
 and 1932 . . . . . . . .209 
 
 Table XL. Frequency distribution: Percentage ratios of proposed debt 
 limits to existing debt limits, 94 towns without municipal subdivi- 
 sions, 1932 ........ 223 
 
 Table XLI. Frequency distribution: Percentage ratios of proposed debt 
 
 limits to existing debt limits, 75 municipal groups, 1932 . 224 
 
 Table XLII. Frequency distribution: Percentage ratios of net debts sub- 
 ject to the debt limit to proposed debt limits, 195 major municipali- 
 ties, 1932 ........ 225 
 
 Table XLIII. Aggregate grand list by classes of taxable property, 1920, , 
 
 1930 to 1933 ........ 260 
 
 Table XLIV. Aggregate grand list by classes of taxable property, per- 
 centage distribution, 1920, 1930 to 1933 . . .261 
 
 Table XLV. All municipalities: Property taxes collectible, collections, 
 
 abatements, and delinquencies, years ending March 31, 1926 to 1933 323 
 
 Table XL VI. Frequency distribution: Percentage ratio of delinquent 
 taxes to collectible taxes, major municipalities, year ending March 
 31, 1933 ...... 325 
 
 Table XLVII. Personal tax abatements and collections of the 169 towns, 
 
 years ending March 31, 1925 to 1933 . . .344 
 
 Table XL VIII. Frequency distribution: Percentage ratios of enrollment 
 for personal tax to estimated census enumeration of persons between 
 the ages of 21 and 60, 1930 ...... 346 
 
List of Tables xxv 
 
 Page 
 
 Table XLIX. Frequency distribution: Percentages of current personal 
 
 tax assessments collected and abated by March 31, 1929 and 1933 . 347 
 
 Table L. Yield of the choses-in-action tax, fiscal years 1890-91 to 1933-34 357 
 
 Table LI. Frequency distribution: Per capita assessment of intangible 
 
 property in the 169 towns, year ending October 31, 1933 . 358 
 
 Table LII. Frequency distribution: Number of persons per thousand 
 registering intadgibles for the state tax on choses-in-action in the 
 169 towns, year ending October 31, 1933 ... 358 
 
 Table LIII. Yield of the estate penalty tax, fiscal years 1916-17 to 
 
 1933-34 ........ 362 
 
 Table LIV. State income from gross earnings taxes on transportation 
 > and communication companies, fiscal years 1927-28 to 1933-34 . 368 
 
 Table LV. Frequency distribution: Taxes assessed against private car 
 
 companies, July 1934 .... . . 373 
 
 Table LVI. Taxes imposed by the state upon insurance companies, col- 
 lectible in calendar years 1925 to 1934 . . 389 
 
 Table LVII. Distribution of taxes on stock of banks and insurance com- 
 panies between the state and the towns, fiscal years 1924-25 to 
 1933-34 . . ... . . . .390 
 
 Table LVIII. Frequency distribution: Percentage ratios of receipts from 
 taxes on stock of banks and insurance companies to total revenue 
 receipts, major municipalities, 1928 and 1932 . . 390 
 
 Table LIX. Yield of a two per cent tax on net Connecticut premiums 
 of domestic insurance companies, collectible in selected years, 1927 
 1 to 1934 ........ 395 
 
 Table LX. Domestic insurance companies: Percentage distribution of 
 i actual tax payments, 1925 to 1934, and available tax bases, 1929 
 f and 1932 ....... 398 
 
 Table LXI. Estimated receipts from recommended state taxes on Con- 
 necticut premiums and investment income received by domestic insur- 
 ance companies in the calendar year 1932 . . . 405 
 
 Table LXII. Taxes imposed upon the stock of banks and trust companies, 
 
 collectible in calendar years 1925 to 1934 . . . 413 
 
 Table LXIII. Federal taxable net income, state taxes, and reported non- 
 taxable income of 165 Connecticut banks and trust companies and 
 124 miscellaneous Connecticut corporations having taxable net income, 
 1928 ..... ... 421 
 
 Table LXIV. Taxes assessed upon deposits in savings banks and savings 
 departments of national banks and trust companies, collectible in 
 calendar years 1925 to 1934 .... .429 
 
 Table LXV. Comparison of existing and proposed taxes upon banks, and 
 trust companies and their depositors and stockholders, collectible in 
 calendar years 1930 and 1933 ' . 434 
 
 ' Table LXVI. Number of corporations and associations subject to the 
 
 Connecticut corporation net income tax, calendar years 1916 to 1934 447 
 
 Table LXVII. Frequency distribution: Rates of ungraduated corporation 
 
 net income taxes of the several states, June 30, 1934 449 
 
 Table LXVIII. Yield of the corporation net income tax, fiscal years 
 
 1915-16 to 1934-35 .... . 452 
 
 Table LXIX. Assessments of corporation net income tax, minimum tax 
 
 and penalties, calendar years 1930 to 1934 .... 452 
 
 Table LXX. Assessments of unincorporated business taxes, calendar 
 
 years 1922 to 1934 . . . . 463 
 
 Table LXXI. Distribution of proceeds of the unincorporated business 
 
 tax to the state and counties, fiscal years 1925-26 to 1933-34 463 
 
 Table LXXII. State income from gross earnings' taxes upon local public 
 
 utilities, fiscal years 1927-28 to 1934-35 . . . .468 
 
xxvi List of Tables 
 
 Page 
 
 Table LXXIII. State highway fund: Revenue receipts, fiscal years 1928- 
 
 29 to 1933-34 . . ... .477 
 
 Table LXXIV. Frequency distribution: Rates of gasoline taxes in the 
 
 several states and the District of Columbia, June 30, 1934 . 486 
 
 Table LXXV. Yield of the gasoline tax, fiscal years 1921-22 to 1933-34 488 
 
 Table LXXVI. Cash receipts from motor vehicle registrations by types 
 
 of registrations, fiscal years 1927-28 to 1933-34 . . 493 
 
 Table LXXVII. Comparative registration fees for selected vehicles, Con- 
 necticut, New York, Rhode Island, and Massachusetts . . 495 
 
 Table LXXVIII. Comparison of present and proposed Connecticut regis- 
 tration fees on selected motor vehicles . . 497 
 
 Table LXXIX. Distribution of the proceeds of the motor bus tax, fiscal 
 
 years 1926-27 to 1934-35 . " . .499 
 
 Table LXXX. State income from succession and estate taxes, fiscal years 
 
 1927-28 to 1933-34 ....... 513 
 
 Table LXXXI. Cash receipts from liquor taxes by quarters, April 1933 
 
 to September 1934 . " . . . . .519 
 
 Table LXXXII. Yield of Connecticut amusement taxes, fiscal years 1921- 
 
 22 to 1933-34 . ...... 529 
 
 Table LXXXIII. Receipts and expenditures of the State Athletic Com- 
 mission, fiscal years 1921-22 to 1933-34 . 530 
 
 Table LXXXIV. Revenues from state-administered taxes distributed to 
 
 municipalities and counties, fiscal years 1928-29 to 1933-34 . . 539 
 
 Table LXXXV. Estimated number and incomes of self-supporting per- 
 sons gainfully employed in Connecticut by income classes. 1930 572 
 
 Table LXXXVI. All state civil list funds: Estimated changes in income 
 and expenditures resulting from the Commission's recommendations, 
 fiscal year 1932-33 . . ... 597 
 
 Table LXXXVII. State general fund: Estimated changes in income and 
 expenditures resulting from the Commission's recommendations, fiscal 
 year 1932-33 . . ..... 599 
 
 Table LXXXVIII. State highway fund: Estimated changes in income 
 and expenditures resulting from the Commission's recommendations, 
 fiscal year 1932-33 . ..... 601 
 
 Table LXXXIX. State miscellaneous public expendable funds: Estimated 
 changes in income and expenditures resulting from Commission's 
 recommendations, fiscal year 1932-33 . 602 
 
 Table XC. State expenditures for permanent improvements, fiscal years 
 
 1922-23 to 1932-33 . . . . . . .603 
 
 Table XCI. Counties: Estimated changes in revenue receipts and gov- 
 ernmental-cost payments resulting from the Commission's recommen- 
 dations, fiscal years ending September 30, 1933 . . 605 
 
 Table XCII. All reporting municipalities: Estimated changes in revenue 
 receipts and governmental-cost payments resulting from the Com- 
 mission's recommendations, fiscal years ending next prior to October 
 10, 1932 ...... 607 
 
PART I 
 
 GOVERNMENTAL FINANCE IN CONNECTICUT 
 
CHAPTER I 
 
 GOVERNMENTAL BUDGET BALANCES IN CONNECTICUT 
 
 Introduction. 
 The broad problem of governmental finance. 
 
 The balance of the revenues and expenditures of a government 
 provides the most accurate gauge of its financial condition. Shortcom- 
 ings of a system of finance may he overlooked with impunity when 
 expenditures are being met by current revenues. But a government is 
 conducted with great uncertainty when its receipts and expenditures 
 are out of balance. A persistent excess of revenues over expenditures 
 is dangerous because it relaxes the customary restraints on legislative 
 and administrative agencies and encourages wasteful and at times 
 profligate financing. Persistent deficits, on the other hand, pile up debt, 
 inflate expenditures, and gradually lead to a condition in which the 
 financial integrity of government is jeopardized. 
 
 The record of budget balances extends beyond the boundaries of 
 this Commission's specific assignment. We are directed to study, 
 inquire into, and present, recommendations to the General Assembly 
 of 1935 on (1) the financing of municipalities and the borrowing of 
 money by these jurisdictions, (2) the tax system, with specific reference 
 to the possibility of reducing or limiting the load of taxation borne by 
 real, estate and the assessment and collection of taxes, and (3) the 
 apportioning of sources of taxation between the state and the local 
 municipalities. 1 Not only these but other aspects of public finance are 
 involved in balancing revenues and expenditures. In our judgment 
 it is important to approach the financial problems of Connecticut 
 governments from the broadest possible point of view. To interpret 
 correctly the findings, conclusions, and recommendations of this 
 Commission, they should be evaluated, not as separate, independent, 
 and mutually exclusive entities, but as interrelated parts of the one 
 general problem of financing government in this state. In this chapter 
 >we present an analysis of the balance of revenues and expenditures of 
 the state, the counties, and the municipalities and indicate the implica- 
 tions of the facts in relation to the specific problems of this inquiry. 
 
 • l Spec. Acta, 1933, no. 474. 
 
4 Report of Special Tax Commission 
 
 Accounting terminology. 
 
 The financial condition and operations of a government can be 
 intelligibly presented only if an agreement is first reached upon the 
 meaning of accounting terms and classifications. For many years, the 
 TJnited States Bureau of the Census has been developing terms and 
 classifications for use in the compilation of data on the financing of 
 American governments. The Bureau's terms and classifications have 
 come into common usage and enjoy a larger measure of acceptance 
 than any other list of terms or classifications now available. In this 
 report, therefore, the terms and classifications of the Bureau are used, 
 with a few exceptions, in analyzing governmental financing in the 
 state. The terms requiring explanation at this point are defined as 
 follows : 
 
 1. Assets — cash and investments which will normally be turned 
 into cash before being utilized to provide governmental 
 services. 
 
 2. Liabilities — money or equivalent wealth owed by the govern- 
 ment. 
 
 3. Receipts — all money or equivalent wealth taken in by the 
 government in fiscal transactions. 
 
 4. Revenue receipts — all money or equivalent wealth received 
 for governmental purposes under such circumstances that they 
 increase the assets without increasing the debt liabilities or 
 decrease the debt liabilities without decreasing the assets. 
 
 5. Nonrevenue receipts — all other receipts, such as receipts from 
 loans, transfers between funds, receipts of funds held in trust 
 for other persons or governments, etc. 
 
 6. Bayments — all money or equivalent wealth paid out by the 
 government in fiscal transactions. 
 
 7. Governmental-cost payments — all money or equivalent wealth 
 paid out for governmental purposes under such circumstances 
 that they decrease the assets without decreasing the debt 
 liabilities or increase the debt liabilities without increasing 
 the assets. 
 
 8. Nongovernmental-cost payments — all other payments, such as 
 payments for the retirement of debt, payments to sinking 
 funds, transfers between funds, payments out of trust funds 
 not belonging to the government, etc. 
 
 9. Net debt — the difference between the total debt of the govern- 
 ment (funded, floating, etc.) and the cash and equivalent 
 assets, including sinking funds. 
 
Governmental Budget Balances in Connecticut 5 
 
 It is important to note that, according to these definitions, an 
 expenditure for a public building is classified as a governmental-cost 
 payment. Such a building is not considered an asset to be depreciated 
 over its life expectancy as is the case in commercial accounting, 
 and consequently the expenditure made for its construction is a 
 governmental-cost payment for the year in which it is made without 
 regard to whether such expenditure is financed with revenue receipts 
 or borrowed funds. Most of the misunderstandings as to the meaning 
 of a balanced budget arise from disagreements on this point. 
 
 There are two basic balances in public finance, namely, the cash 
 balance and the budget balance. If payments and receipts are recorded 
 on a strictly cash basis, the cash balance is simply the difference 
 between total receipts and total payments. It shows the increase or 
 decrease in cash on hand between the beginning and the end of the 
 fiscal year without indicating whether the change was due to debt 
 operations or to revenue receipts and cost payments. It has little signifi- 
 cance except as an accounting check against the cash account. 
 
 The budget balance is the difference between revenue receipts and 
 governmental-cost payments. Provided again that receipts and pay- 
 ments are recorded on a cash basis, this budget balance agrees with 
 the change in net debt. It is this balance which shows whether or not 
 the government is keeping its expenditures within its income. 
 
 The nature and derivation of the cash balance and of the budget 
 balance may be illustrated by data drawn from- the census report of 
 the finances of state governments. For this purpose the figures for 
 Connecticut for the fiscal year 1930-31 are used: 
 
 I. Cash on hand at beginning of year $ 9,753,817 
 
 II. Receipts 
 
 1. Revenue receipts $41,919,003 
 
 2. Eonrevenue receipts 6,058,391 
 
 Total receipts 47,977,394 
 
 III. Aggregate cash at beginning of year and receipts 57,731,211 
 IV. Payments 
 
 1. Governmental-cost payments $38,879,037 
 
 2 U. S. Bureau of the Census, Financial Statistics of States, 1981, p. 41. These 
 figures differ substantially from those reported by state officials and used later in 
 this chapter. They are used here simply for illustrative purposes, without any 
 attempt at reconciliation. 
 
6 Report of Special Tax Commission 
 
 2. Nongovernmental-cost 
 
 payments 7,422,015 
 
 Total payments 46,301,052 
 
 V. Cash on hand at end of year (III-IV) 11,430,159 
 
 VI. Change in net debt (IV.l.-II.l.) -3,039,966 
 
 Organization of Connecticut government. 
 
 Broadly classified, government in Connecticut is organized into 
 units of four different grades. There are (1) the state, (2) the counties, 
 (3) the towns, including consolidated towns and cities and one con- 
 solidated town and borough, and (4) the unconsolidated cities and 
 boroughs and the special fire, sewer, school, and other miscellaneous 
 districts. Each of the first three groups of political units covers the 
 entire area of the state. The fourth is organized for restricted purposes 
 and exists only in particular areas within the state's borders. Within 
 these four groups there were in 1932 three hundred and fifty-seven 
 political jurisdictions having powers to raise and spend money. 
 
 For convenience of exposition in this report, the 169 uncon- 
 solidated towns, consolidated towns and cities, and consolidated town 
 and borough will be referred to as "towns" ; the 194 towns, cities, and 
 boroughs will be referred to as "major municipalities" ; and the special 
 school, fire, sewer, water, and other districts will be referred to as 
 "minor municipalities." 
 
 State finance, 1927-28 to 1932-33. 
 Definitions of technical terms. 
 
 Due to conditions imposed upon the receipt or the payment of 
 particular funds in the state treasury, financial transactions of the 
 state government are recorded according to one or another of a number 
 of funds. These funds fall into two classes — trust funds and civil list 
 funds. A trust fund represents things of value which have come into 
 the possession of the government under agreements between the state 
 and private parties or other governments restricting the use of the 
 funds by the state government. They are not strictly the property of 
 the state government. Civil list funds, sometimes called public expend- 
 able funds, represent assets to which the government has unrestricted 
 title and which can therefore be managed according to the dictates 
 of the General Assembly. 
 
 In developing the state's fiscal policies, the General Assembly has 
 by statute dedicated the revenues from certain specified sources to 
 Certain designated activities. Thus the civil list funds consist of the 
 
GoVEBNMENTAL BUDGET BALANCES IN CONNECTICUT 7 
 
 general fund, the highway fund, and some twenty miscellaneous public 
 expendable funds. Several of the miscellaneous public expendable funds 
 represent revolving or working capital funds, so designated because 
 the General Assembly has sought to make self-supporting the activities 
 accounted for by such funds. These working capital funds include funds 
 for the industrial shops at the state prison, the reform school, and the 
 state trade schools, for the dormitories at state normal schools, etc. 
 
 While much could be written on the practice of setting aside, or 
 "earmarking", special funds for special purposes, this is a matter which 
 does not fall directly under the jurisdiction of this Commission. For 
 present purposes it is enough to say that all civil list funds are under 
 the direct control of the General Assembly. If, because of past legisla- 
 tive policies, almost one-half of the state revenues and expenditures are 
 not subject to an automatic biennial review by the legislative body, this 
 is a matter upon the merits of which the General Assembly is free to 
 pass judgment and for which remedies in the form of the revision of 
 existing fiscal policies are available. 
 
 Seeking to present here merely a general picture of the financial 
 condition and operations of the state government, the statistics which 
 are to follow are those for the civil list funds as a whole, including all 
 funds of the state government except the trust funds. 
 
 Beports of the state comptroller present two main categories of 
 payments and two main categories of receipts. In each case one of the 
 categories is on a cash accounting basis and the other on an accrual 
 basis. Both come within the terms of the definitions of receipts and 
 payments given above if one chooses to call receivables and payables 
 wealth which is the equivalent of cash. 
 
 The two categories of payments recognized by the comptroller are 
 "disbursements" and "expenditures." "Disbursements" consist of gross 
 cash payments before refunds and reimbursements. "Expenditures" 
 represent cash payments and accrued payables allocated to the fiscal 
 year in which the liability of the state was established and reduced 
 by the amount of any refunds and reimbursements applicable to such 
 payments and accrued payables. Expenditures include "net expendi- 
 tures", which are essentially governmental-cost payments, and "non- 
 expenditure items", which are nongovernmental-cost payments. 
 
 The term "receipts" is used by the comptroller to mean cash 
 receipts before refunds. In the main, items reported under this head 
 compare closely with the corresponding cash receipts reported by the 
 treasurer, differing only because the comptroller allocates "to a given 
 fiscal year certain receipts which come in within a few weeks after the 
 close of such fiscal year. Keceipts include "revenue receipts" and 
 "nonrevenue receipts." The comptroller also reports a certain type 
 
8 Report of Special Tax Commission 
 
 i 
 of revenue receipts as "income." In the case of certain cash 
 items, such as the state tax on choses-in-action, the "income" and 
 the "revenue receipt" are identical in point of time but differ in amount 
 because refunds of current year payments are deducted in arriving at 
 income. In other cases, notably in the case of taxes which are formally 
 assessed, the income accrues at the time of assessment — not at the time 
 of collection — and is subsequently reduced by any cancellations' or 
 refunds of current year assessments which are made before the end 
 of the fiscal year. Income is the counterpart of net expenditures, just 
 as receipts are the counterpart of disbursements. 
 
 To correspond with the available statistics of receipts and expendi- 
 tures of county and municipal governments, the comptroller's statistics 
 of "revenue receipts" and "disbursements" should be used in deriving 
 the budget balances of the state government. This, however, presents 
 two difficulties. First, the budget balances of the state government, 
 as compiled and reported by the state comptroller, are derived from a 
 comparison of "income" and "net expenditures." If in this report 
 "revenue receipts" were compared with "disbursements", the balance 
 obtained would diverge substantially from the budget balances reported 
 by the state comptroller. Secondly, "disbursements" are not reported 
 in any of the state financial reports classified by items or groups of 
 items in the manner required for the analysis presented in Chapter II 
 of this report. In these circumstances the Commission has chosen to 
 conform to the established practice of the state comptroller and use 
 "income" and "net expenditures" in deriving the budget balances of 
 the state government and in dealing with state revenues and expendi- 
 tures in following chapters, except for the fiscal year 1933-34, for which 
 these statistics were not yet complete at the time of writing this report. 
 
 It should be stated further that the comptroller, in arriving at 
 the budget balance, adds to what he calls "income" certain items 
 which he classifies as "nonrevenue receipts." Some of these items, 
 such as receipts of the general fund out of trust funds, are, 
 according to our - definitions, actually revenue receipts. Others, such 
 as receipts from towns and counties for two-thirds of the cost of widows' 
 aid, must be treated as revenue receipts as long as net expenditures 
 include the full cost of the activity cooperatively financed. Since they 
 amount in the aggregate to only one or two million dollars, they are of 
 small consequence as compared with total income of thirty to forty 
 •millions, and, whatever their classification, they must be included with 
 income if the budget balance is computed as the difference between 
 income and net expenditures. We have chosen to consider them part of 
 income. 
 
Governmental Budget Balances in Connecticut 9 
 
 State budget balances, 1927-28 to 1932-33. 
 
 In Table I the income and net expenditures of all civil list funds 
 pf the state government for the six years 1927-28 to 1932-33 are pre- 
 sented and compared. 8 
 
 Table I 
 
 STATE GOVERNMENT: INCOME, NET EXPENDITURES, AND BUDGET 
 
 BALANCES, ALL CIVIL LIST FUNDS, FISCAL YEARS 1927-28 TO 1932-33 
 
 Excess or deficit (-) 
 Net of income over 
 
 Fiscal year Income expenditures net expenditures 1 
 
 1927-28 $33,653,975 $36,598,746 -$2,944,771 
 
 1928-29 35,519,191 34,222,326 1,296,865 
 
 1929-30 38,359,889 35,313,973 3,045,916 
 
 1930-31 40,496,053 39,778,194 717,859 
 
 1931-32 35,211,494 41,618,202 -6,406,708 
 
 1932-33 32,260,953 36,520,537 , -4,259,584 
 Source: State Comptroller, Annual Reports. 
 
 'Differs from budget balances reported by the comptroller by the excess or deficit 
 of receipts over expenditures of working capital funds. 
 
 In this six-year period, expenditures exceeded income in half the 
 years. However, the significance of the deficit of 1927-28 should be 
 distinguished from those of the last two years. The deficit in 1927-28 
 was due almost entirely to the cost of an enlarged highway construc- 
 tion program financed by a surplus which had previously been accumu- 
 lated in the state highway fund. 
 
 In 1931-32 one of the contributing causes of the substantial deficit 
 was similar to that of 1927-28. In the latter part of the last decade 
 the state committed itself to a program of substantial expenditures for 
 the state office building and charitable institutions. Income in 1930-31, 
 when most of the expenditures for the state office building were made, 
 was adequate to finance the permanent improvement program, to meet 
 the operating expenditures, and to provide a budget surplus of 718 
 thousand dollars. On the charitable institutions, however, large 
 outlays were made in 1931-32 and 1932-33, when income was suc- 
 cessively reduced because of continued business depression. Expendi- 
 tures rose almost two millions from 1930-31 to 1931-32'- while income 
 fell off more than five millions. The result was a budget deficit of 
 almost 6.5 million dollars. In the following year income declined three 
 millions, and, although expenditures were reduced about five millions, 
 largely through the reduction of expenditures on highway construc- 
 tion and on charitable institutions, another substantial deficit of 4.3 
 million dollars was suffered. 
 
 1 All receipts and all expenditures of the working capital funds are included in the 
 respective totals in contrast to the practice of the comptroller. 
 
10 Repobt of Special Tax Commission' 
 
 Although extraordinary outlays on permanent improvements have 
 been a factor in bringing state finance to its present condition, this 
 has not been the principal cause of the recent budget deficits. In com- 
 mon with other governments and with individuals, the state has suffered 
 a drastic decrease in its income. An unprecedented business depression 
 has reduced the wealth and income of the people and has contracted the 
 revenue of the state. 
 
 Few, if any, of the other states have been in as strong a financial 
 condition as Connecticut to withstand the impact of the depression. 
 For the first four successive depression years this state met its obliga- 
 tions without borrowing and without being forced by financial emer- 
 gencies to make hasty and drastic changes in its revenue laws. This 
 has not been the result, of course, of the financial policies of any one 
 year but rather of a conservative financial policy consistently adhered 
 to for the past generation. 
 
 State indebtedness, 1922-23 to 1933-34. 
 
 By the middle of the last decade, the state government had no 
 net debt. Table II presents the state treasurer's record of the state 
 debt as of the close of the fiscal years 1922-23 to 1933-34. 
 
 
 
 Table II 
 
 
 
 STATE 
 
 GOVERNMENT: GROSS AND NET DEBI 
 
 ', ENDS OF 
 
 FISCAL YEARS 
 
 
 
 1922-23 TO 1933-34 
 
 
 
 Fiscal 
 
 Gross 
 
 Sinking 
 
 Civil list funds 
 
 
 year 
 
 debt 
 
 fund 
 
 cash balance 
 
 Net debt 
 
 1922-23 
 
 $16,291,100 
 
 $11,195,442 
 
 $2,209,234 
 
 $2,886,424 
 
 1923-24 
 
 16,291,100 
 
 11,659,526 
 
 3,164,905 
 
 1,466,668 
 
 1924-25 
 
 16,291,100 
 
 12,156,448 
 
 4,863,913 
 
 -729,261 
 
 1925-26 
 
 16,291,100 
 
 12,391,758 
 
 6,500,127 
 
 -2,600,785 
 
 1926-27 
 
 16,291,100 
 
 13,014,973 
 
 8,089,169 
 
 -4,813,042 
 
 1927-28 
 
 16,291,100 
 
 13,618,590 
 
 5,327,564 
 
 -2,655,054 
 
 1928-29 
 
 16,291,100 
 
 14,259,049 
 
 6,099,272 
 
 -4,067,221 
 
 1929-30 
 
 16,291,100 
 
 14,965,411 
 
 8,804,327 
 
 -7,478,638 
 
 1930-31 
 
 16,291,100 
 
 15,683,281 
 
 10,154,180 
 
 -9,546,361 
 
 1931-32 
 
 13,351,100 
 
 13,484,505 
 
 4,910,458 
 
 -5,043,863 
 
 1932-33 
 
 13,351,100 
 
 14,085,737 
 
 1,402,906 
 
 -2,137,543 
 
 1933-34 
 
 15,836,100 
 
 14,302,396 
 
 531,136 
 
 1,002,568 
 
 Source: State Treasurer, Annual Reports. 
 
 As early as 1925, the state government had balances in its sink- 
 ing and civil list funds sufficient to liquidate its entire indebtedness 
 and leave it with a cash balance of $729,261. After 1925 the condition 
 of the state government steadily improved until 1930-31, when the 
 state had an excess of cash and sinking fund assets over its total 
 indebtedness amounting to over 9.5 million dollars. This substantial 
 cash surplus enabled the state to meet its budget deficits of 1931-32 
 
Governmental Budget Balances in Connecticut 11 
 
 and 1932-33 and still have a cash balance in these funds of 1.4 millions 
 at the close of the fiscal year 1932-33. It was not until the third suc- 
 cessive year of a budget deficit, 1933-34, that the state was forced to 
 borrow for its needs. 
 
 By June 30, 1932, sinking fund assets alone exceeded the out- 
 standing gross indebtedness. No change occurred in the gross debt 
 from 1922-23 to 1932-33 except for the retirement prior to maturity 
 in 1931-32 of $2,940,000 of the $2,955,000 outstanding 3l/ 2 per cent 
 state bonds dated April 1, 1909, and due April 1, 1934. This trans- 
 action reduced both the gross debt and the sinking fund assets. Because 
 of the retirement of these bonds at less than par, however, the sink- 
 ing fund after the transaction was greater in amount than the gross 
 debt for which it had been accumulated. At the close of 1932-33 there 
 were assets in the sinking fund which, at the treasurer's valuation, 
 exceeded the gross debt by over $700,000. 
 
 In 1933-34 the time arrived when the state government was 
 forced to increase its gross indebtedness. While the funded debt at the 
 end of the fiscal year had been reduced to $13,336,100, the state was 
 obligated at the close of the fiscal year 1933-34 for $2,500,000 of 
 temporary indebtedness. The cash balance of the civil list funds, more- 
 over, had been reduced during this fiscal year from $1,402,906 to 
 $531,136. In other words, the gross indebtedness of the state increased 
 $2,485,000 during the fiscal year 1933-34, and the cash of the civil list 
 funds was reduced by $871,770. 
 
 After allowing for an increase in sinking fund assets (book value) 
 of $216,659, the net indebtedness increased $3,140,111 in 1933-34. 
 The net surplus of the state government, amounting to $2,137,543 at 
 the close of the fiscal year 1932-33, was converted into a net deficit of 
 $1,002,568 at the close of the fiscal year 1933-34. 
 
 State finance during 1933-34. 
 
 The practice of the state comptroller in closing his books three 
 months after the close of the fiscal year makes it impossible for this 
 Commission to present in its report the comparison of income and net 
 expenditures of the state government for the last completed fiscal year. 
 This report would, however, be incomplete if it neglected to set forth 
 such facts as are available at this writing on the financial transactions 
 of the state government during the fiscal year 1933-34. We have been 
 able to obtain from the state treasurer statistics of the cash receipts 
 (exclusive of receipts from borrowings) and of the cash disbursements 
 (exclusive of disbursements for the retirement of debt) for this fiscal 
 year. These data can be used in comparison with similar data of prior 
 years to, indicate roughly the results of the financial operations of the 
 
12 Report of Special Tax Commission 
 
 state government during 1933-34. In Table III we compare the budget 
 balances presented in Table I for the years 192Y-28 to 1932-33 with 
 the excess or deficit of cash receipts over cash disbursements for the 
 same years. We have also included in this table the figure of the deficit 
 of cash receipts over cash disbursements for the fiscal year 1933-34. 
 
 Table III 
 
 STATE GOVERNMENT: EXCESS OR DEFICIT OF RECEIPTS OTHER THAN 
 BORROWINGS OVER DISBURSEMENTS FOR PUPOSES OTHER THAN 
 DEBT RETIREMENT COMPARED WITH EXCESS OR DEFICIT OF 
 INCOME OVER NET EXPENDITURES, FISCAL YEARS 1927-28 TO 
 1933-34 
 
 
 Excess or deficit (— ) 
 
 Excess or deficit (— ) 
 
 
 of receipts 
 
 of income over 
 
 Fiscal year 
 
 over disbursements 
 
 net expenditures 
 
 1927-28 
 
 -$2,761,605 
 
 -$2,944,771 
 
 1928-29 
 
 771,708 
 
 1,296,865 
 
 1929-30 
 
 2,705,055 
 
 3,045,916 
 
 1930-31 
 
 1,349,853 
 
 717,859 
 
 1931-32 
 
 -5,243,721 
 
 -6,406,708 
 
 1932-33 
 
 -3,507,552 
 
 -4,259,584 
 
 1933-34 
 
 -3,371,772 
 
 
 Sources: State Treasurer, Annual Reports; State Comptroller, Annual Reports. 
 
 These figures indicate that net expenditures from the civil list 
 funds exceeded the income of these funds during 1933-34 by three to 
 four million dollars. For three consecutive years, therefore, the state has 
 incurred a substantial budget deficit. At the close of the fiscal year 
 1932-33 the net surplus of the civil list funds had been exhausted, and 
 temporary borrowings were required to finance the budget deficit 
 incurred in 1933-34. 
 
 The problem of state finance. 
 
 The three successive budget deficits of substantial amounts incurred 
 since 1930-31 have a definite bearing upon the work of this Commission. 
 We are compelled to consider the implications of this condition of the 
 state's finances upon the changes which may be required in state and 
 local taxation. Prior to the depression, and even for the first two years 
 of the depression, the existing state revenue system was productive of 
 sufficient revenues to meet both recurring and extraordinary state 
 expenditures on the existing scale of state government operations. While 
 the continuance of expenditures on a building program, begun under 
 more favorable financial conditions, into a period of declining revenues 
 hastened the time when state deficits had to be faced, the essential cause 
 of the present situation is the drastic reduction of the wealth and income 
 of the state by a severe business depression. 
 
GoVEBNMENTAL BUDGET BALANCES IN CONNECTICUT 13 
 
 A review of state finance running back before the World War 
 shows that Connecticut has quite properly adjusted its financing to 
 variations in business conditions by making use of its credit. During 
 depression times the state debt has increased. During prosperity budget 
 surpluses have been applied to the reduction of the debt and, in the 
 favorable circumstances of the last decade, to the building up of a 
 substantial cash surplus. 
 
 In a world of economic fluctuations it is not a mark of sound gov- 
 ernmental policy to strive for absolutely constant and stable revenues. 
 Nor will it always be possible to adjust expenditures rapidly to chang- 
 ing revenues or to adjust revenues precisely to expenditures! It is 
 natural that an established revenue system should produce surpluses in 
 some years and deficits in others. Under such circumstances a discreet 
 use of the state's credit may adjust the income and outgo flows with 
 the advantage of conserving the necessary stability of a sound revenue 
 system. 
 
 Present conditions surrounding state finance, however, make it 
 inadvisable to extend the borrowing of the state government beyond 
 what will have already been necessary by the time our recommendations, 
 if adopted, will go into effect. On June 30, 1934, state expenditures 
 had been exceeding income for three successive fiscal years. The amount 
 of the excess of expenditures over income during this period aggregated 
 not less than $14,000,000. Yet during the last biennium, expenditures 
 for permanent improvements were reduced below normal requirements, 
 and salaries of state employees were reduced. Before our recommenda- 
 tions could be put into effect, another fiscal year will have passed, and 
 there is little doubt but that another budget deficit will have been 
 experienced, so that for four years the state will have failed to balance 
 its budget. Although some improvement in business has occurred, the 
 outlook at present does not warrant reliance upon a rapid business 
 recovery to solve the state's fiscal problem. In out best judgment, it ■ 
 would be unwise, to assume further that the conditions in state finance 
 which have already continued for three years are temporary. From the 
 fiscal standpoint alone we believe that the state should take whatever 
 steps are required to balance its budget for the next biennium. 
 
 From the standpoint of public psychology, immediate efforts to 
 bring expenditures within revenues' seem to us to be imperative. Pro- 
 longed depression has wrought immeasurable damage to those concep- 
 tions of conservative financial management which developed from many 
 years of experience. Federal, state, and local governments are making 
 expenditures of tremendous sums without the restraint of having to 
 meet the bills immediately. There is a profligate use of public credit 
 and widespread disregard of the consequences. If there is to be any 
 
14 Repobt of Special Tax Commission 
 
 check upon tax burdens now or hereafter, there must be a return to 
 proved habits of thrift, both private and public, and of paying for 
 services when they are received. The .sooner the public is made cogni- 
 zant of its financial responsibility for the present levels of state and 
 local governmental services, the easier it will be to maintain a sound 
 condition of state finance and to look for some reasonable control of tax 
 burdens. 
 
 We cannot urge too strongly the desirability of reducing state 
 expenditures in every possible way as the first step in balancing the 
 state budget. Failing to close the gap between income and outgo by this 
 step, the General Assembly should, in our opinion, enact laws which 
 will increase the state's income. The program proposed by the Com- 
 mission in this report contemplates an increase in the income of the 
 state sufficient to balance the state budget on the present level of 
 expenditures together with any additional, expenditures which we pro- 
 pose to have the state assume. 
 
 County finance, 1927-28 to 1932-33. 
 Inteodttction. 
 
 County government in Connecticut, in contrast to that of the states 
 outside 'New England, holds a place of minor importance. There are 
 eight counties in the state. They originated as judicial districts. Gradu- 
 ally they assumed responsibilities for jails, certain welfare activities, 
 protection from forest fires, inspection of weights and measures, and 
 agricultural promotion. They still serve as judicial districts for the 
 superior courts and the courts of common pleas although" practically 
 all the judicial expenses except the rental of the quarters of the courts 
 are now met by the state. As administrative units, counties are pri- 
 marily welfare districts responsible for the county homes for neglected 
 and uncared-for children of certain ages' and for the county jails. 
 
 The statistics of county finance which follow are derived from the 
 Returns of County Commissioners reported biennially by the secretary 
 of state for years ending on September 30. While there is little uniform- 
 ity in these reports among the counties, and errors in terminology, class- 
 ification, and arithmetic occur, sufficient detail is reported to permit the 
 compilation of a reasonably reliable record of county finance. 
 
 County budget balances, 1927-28 to 1932-33. 
 
 The revenue receipts, governmental-cost payments, and budget 
 balances of all counties for the last six years and for each individual 
 county for the year last reported are shown in Tables IV and V. 
 
Governmental Budget Balances in Connecticut 15 
 
 Table IV 
 COUNTIES: AGGREGATE REVENUE RECEIPTS, GOVERNMENTAL-COST 
 PAYMENTS, AND BUDGET BALANCES, YEARS ENDING SEPTEMBER 
 30, 1928 TO 1933 
 
 
 
 Excess or deficit (-) 
 
 Years 
 
 
 Governmental- of revenue receipts over 
 
 ending Sept. 30 
 
 Revenue receipts 
 
 cost payments governmental-cost payments 
 
 1927-28 
 
 $1,390,605 
 
 $2,173,052 -$782,447 
 
 1928-29 
 
 1,615,852 
 
 2,233,037 -617,185 
 
 1929-30 
 
 1,943,477 
 
 1,870,571 72,906 
 
 1930-31 
 
 2,017,153 
 
 1,822,291 194,862 
 
 1931-32 
 
 1,874,932 
 
 1,806,991 67,941 
 
 1932-33 
 
 1,855,263 
 
 1,849,500 5,763 
 
 ource : Secretary 
 
 of State, Returns 
 
 of County Commissioners. 
 Table V 
 
 COUNTIES: REVENUE RECEIPTS, GOVERNMENTAL-COST PAYMENTS, AND 
 BUDGET BALANCES OP INDIVIDUAL COUNTIES, YEAR ENDING 
 SEPTEMBER 30, 1933 
 
 
 
 
 Excess or deficit (— ) 
 
 
 
 Governmental- 
 
 of revenue receipts over 
 
 County 
 
 Revenue receipts 
 
 cost payments 
 
 governmental-cost payments 
 
 Hartford 
 
 $595,406 
 
 $535,843 
 
 $59,563 
 
 New Haven 
 
 466,759 
 
 518,664 
 
 -51,905 
 
 Fairfield 
 
 347,680 
 
 357,406 
 
 -9,726 
 
 New London 
 
 128,581 
 
 122,638 
 
 5,943 
 
 Litchfield 
 
 125,583 
 
 128,121 
 
 -2,538 
 
 Windham 
 
 87,941 
 
 84,121 
 
 3,820 
 
 Middlesex 
 
 61,015 
 
 61,437 
 
 -422 
 
 Tolland 
 
 42,297 
 
 41,271 
 
 1,026 
 
 All counties 1,855,263 1,849,500 5,763 
 
 Source: Secretary of State, Returns of County Commissioners. 
 
 From an examination of these tables it is seen that the counties, 
 collectively and individually, have succeeded in substantially balancing 
 their budgets. There is, in fact, little reason why they should fail to do 
 so. They rely upon property taxes for only 50 to 60 per cent of their 
 revenues and receive most of the remainder from state-administered 
 taxes, licenses, and state aid. 
 
 County debt, 1922 and 1933. 
 
 County debt operations during the last decade reflect, not only 
 the relatively restricted scope of county expenditures, but also the 
 conservatism with which county finance has been conducted during 
 this period. Reports of county commissioners are not always sufficiently 
 complete to assure precise accuracy for the record of debt operations. 
 By a careful study of the annual reports year by year, however, it has 
 been possible to compile a county debt record which is substantially 
 accurate and entirely adequate for our purposes. Table VI presents the 
 
16 Repokt of Special Tax Commission 
 
 condition of the aggregate indebtedness of the eight counties on 
 September 30, 1922, and on September 30, 1933. 
 
 Table VI 
 COUNTIES: CONSOLIDATED GROSS AND NET DEBT, SEPTEMBER 30, 1922 
 
 AND 1933 
 
 Bonds 
 Notes 
 Accounts payable 
 
 September 30, 1922 
 $615,000 
 870,500 
 12,691 
 
 September 30, 1933 
 $2,176,000 
 808,000 
 129,355 
 
 Gross debt 
 
 1,498,191 
 
 3,113,355 
 
 Cash balance 
 Sinking fund 
 Accounts and notes receivable 
 
 296,670 
 
 58,169 
 
 234,296 
 
 380,628 
 379,449 
 
 142,745 
 
 Total 
 
 589,135 
 
 902,822 
 
 Net debt 
 
 909,056 
 
 2,210,532 
 
 Increase in net debt 1922 to 1933 $1,301,476 
 
 Source: Secretary of Stated Returns of County Commissioners. 
 
 Although gross county debt increased $1,615,000 from 1922 to 
 1933, net county debt rose only $1,301,000 during the period. County 
 bonds increased $1,561,000 from September 30, 1922, to September 
 30, 1933. During the same' period notes and accounts payable increased 
 only $53,000, and cash and receivables decreased $7,000. Sinking funds 
 accumulated against outstanding funded debt, reported only in 
 Fairfield County, increased $321,000 from 1922 to 1933. 
 
 In Table VII there is summarized the debt of the individual 
 counties on September 30, 1922 and 1933. 
 
 
 
 Table VII 
 
 
 
 
 COUNTIES: 
 
 GROSS AND NET DEBT 
 
 OP INDIVIDUAL COUNTIES, 
 
 SEPTEM- 
 
 
 . 
 
 BER 30, 1922 AND 1933 
 
 
 
 
 
 
 Cash, receivables, 
 
 
 
 
 Gross debt 
 
 and sinking fund assets 
 
 Net debt 
 
 County 
 
 1922 
 
 1933 
 
 1922 
 
 1933 
 
 1922 
 
 1933 
 
 Hartford 
 
 $860,000 
 
 $2,394,934 
 
 $14,503 
 
 $188,445 
 
 $845,497 
 
 $2,206,489 
 
 New Haven 
 
 
 
 66,796 
 
 174,949 
 
 130,249 
 
 -174,949 
 
 -63,453 
 
 Fairfield 
 
 615,000 
 
 618,822 
 
 307,187 
 
 490,591 
 
 307,813 
 
 128,231 
 
 New London 
 
 
 
 
 
 37,983 
 
 58,879 
 
 -37,983 
 
 -58,879 
 
 Litchfield 
 
 12,691 
 
 17,802 
 
 6,103 
 
 12,604 
 
 6,587 
 
 5,198 
 
 Windham 
 
 10,500 
 
 
 
 475 
 
 13,442 
 
 10,025 
 
 -13,442 
 
 Middlesex 
 
 
 
 
 
 8,268 
 
 2,480 
 
 -8,268 
 
 -2,480 
 
 Tolland 
 
 
 
 15,000 
 
 39,666 
 
 6,132 
 
 -39,666 
 
 8,868 
 
 All counties 1,498,191 3,113,355 589,135 902,822 909,056 2,210,532 
 
 Source: Secretary of State, Returns of County Commissioners. 
 
 If Hartford County is excluded, the total net debt of the counties 
 is negligible (barely over $4,000). Four counties in 1922 had surpluses 
 
Governmental Budget Balances in Connecticut 17 
 
 rather than debts. By 1933 Fairfield County's net deht had been 
 reduced to $128,000, principally through the increase of $321,000 in 
 its sinking fund. Four counties were still out of debt, and the net debts 
 of the remaining two counties were respectively $8,868 and $5,1-98. 
 
 Hartford County alone of the eight counties has a substantial 
 debt and one which has increased considerably during the past decade. 
 For several years this county has financed itself in part by borrowing 
 on temporary notes. Superimposed upon this temporary debt is the 
 bonded debt, amounting to $1,566,000 in 1933, which was incurred 
 originally as temporary debt for the building of the new county court 
 house in 1927, 1928, and 1929 and was funded in 1930. 
 
 The problem of county finance. 
 
 In our county organization there is a striking failure to differ- 
 entiate clearly the responsibilities of the state and of its political 
 subdivisions and to require each governmental unit to raise funds 
 sufficient to finance the activities in which it exercises authority. Except 
 for general administration (and even in this the General Assembly 
 participates through the selection of the county commissioners) there 
 is not a single function or activity over which the county itself exercises 
 exclusive jurisdiction. The county serves merely as a taxing district for 
 forest fire protection and widows' aid. It shares authority and finan- 
 cial responsibility with the state in the administration of county homes 
 and county jails. It is little more than a landlord for the judiciary. 
 
 Two recent special commissions, the Legislative Commission on 
 Jails and the Connecticut Commission on Child Welfare, submitted 
 recommendations to the last General Assembly which, if finally 
 adopted, would transfer to the state most of the administrative and 
 financial responsibility for the two principal county activities — county 
 jails and county homes. Should this transfer be made, counties would, 
 for all practical purposes, revert to their original status of judicial 
 districts as far as administration goes. Their administrative functions 
 would be those of real estate agents for the courts and of taxing districts 
 for a few minor state activities. Even though these activities and the 
 tradition which clings to Connecticut counties might justify the con- 
 tinuance of the counties as independent governmental jurisdictions, 
 they surely would not warrant the maintenance of the existing level 
 of cost of general government in the counties. 
 
 The confusion existing in the organization and responsibilities 
 of county governments, which has been temporarily heightened in some 
 degree by uncertainty as to the action to be taken on proposals to 
 transfer the administration of county homes and county jails from the 
 counties to the state, complicates and impedes the formulation of any 
 
18 Report of Special Tax Commission 
 
 plan to integrate county finance with an orderly arrangement of finan- 
 cial administration for all the political subdivisions of the state. The 
 financial problems of the counties are not fully disclosed by statistics 
 of income, expenditures, and debt. They involve the whole question of 
 whether the expenditures now made by county governments represent 
 the most economical use of public moneys. They require a thorough 
 scrutiny of the need for counties and of the present organization of 
 county government. 
 
 These inquiries are outside the limits of our assignment. We have 
 assumed the continued existence of county government and formulated 
 our program with a view to eliminating some of the difficulties existing 
 in the relationship between county finance and the financing of other 
 governmental units in the state. We do not believe that it is possible 
 to go further than this until the time arrives when the state is ready 
 to formulate and apply a sound policy which will properly relate the 
 activities of the counties to those of the state and the municipalities. 
 
 Municipal finance, 1920, 1924, 1928, and 1932. 
 Nature of the data. 
 
 Under the general statutes, the treasurer of each county, city, 
 borough, town, and fire district is required to report to the tax commis- 
 sioner each fourth year detailed statistics of the indebtedness, receipts, 
 and . expenditures of his municipality. 4 This duty is not imposed upon 
 the treasurers of school, sewer, lighting, and improvement" districts. 
 There were 92 districts in 1928 and 89 in 1932 which did not file 
 financial reports. The reports which are filed are painstakingly checked 
 and their items reclassified according to a uniform classification in the 
 office of the tax commissioner. They are the basis for the data presented 
 in the following pages. 
 
 It is impossible to compile an accurate financial record of our 
 municipalities for any single twelve-month period. One or more of the 
 municipalities closes its fiscal year in every month of the year. Our data 
 for municipal receipts and expenditures are the combined statistics for 
 the 245 to 259 reporting municipalities for their respective fiscal years 
 ending next prior to the second Monday in October of the year for 
 which the data are presented. 
 
 Municipal budget balances, 1920, 1924, 1928, and 1932. 
 
 Table VIII shows the revenue receipts, governmental-cost pay- 
 ments, and budget balances of all reporting municipalities. 
 
 4 Gen. Stat., 1930, sec. 1093. 
 
Governmental Budget Balances in Connecticut 19 
 
 Table VIII 
 REPORTING MUNICIPALITIES: REVENUE RECEIPTS, GOVERNMENTAL- 
 COST PAYMENTS, AND BUDGET BALANCES BY MUNICIPAL GROUPS, 
 QUADRENNIAL YEARS 1920 TO 1932 
 
 (In thousands of dollars) 
 
 Municipal group . 1920 1924 1928 1932 
 
 Unconsolidated towns 
 
 Revenue receipts 
 
 Governmental-cost payments 
 
 Excess or deficit (-) of revenue 
 receipts over governmental-cost 
 payments 
 
 Cities and boroughs 
 Revenue receipts 
 Governmental-cost payments 
 
 Excess or deficit (-) of revenue 
 receipts over governmental-cost 
 payments 
 
 Fire Districts 1 
 
 Revenue receipts 
 Governmental-cost payments 
 
 Excess or deficit (-) of revenue 
 receipts over governmental-cost 
 payments 
 
 All reporting municipalities 1 
 Revenue receipts 
 Governmental-cost payments 
 
 Excess or deficit (-) of revenue 
 receipts over governmental-cost 
 payments 
 
 Source: Tax Commissioner, Quadrennial Reports of Indebtedness, Receipts and 
 Expenditures of Municipalities. 
 
 'Includes the Metropolitan District of Hartford County. 
 
 In no one of these four years did reporting municipalities as a 
 group live within their income. They came nearest to doing so in 1924, 
 "when the consolidated budget deficit amounted to only $765,000, or 
 1.2 per cent of their expenditures. In 1920 the budget deficit was 6.8 
 million dollars, or 14 per cent of expenditures; in 1928 it was 7.6 
 millions, or 9 per cent of expenditures; and in 1932 it was 6.9 millions, 
 or 7 per cent of expenditures. 
 
 Unconsolidated towns had a budget surplus in 1924 of $1,193,000, 
 or 6 per cent of expenditures. Their 1920 deficit was $567,000, or 4 
 per cent of expenditures. Deficits of about 2.3 million dollars, or 8.4 
 and 7.4 per cent of expenditures, respectively, were incurred in both 
 
 14,245 
 14,812 
 
 21,190 
 19,997 
 
 25,215 
 27,532 
 
 30,009 
 32,392 
 
 -567 
 
 1,193 
 
 -2,317 
 
 -2,383 
 
 26,794 
 33,051 
 
 41,799 
 43,639 
 
 52,842 
 58,031 ' 
 
 56,138 
 60,488 
 
 -6,257 
 
 -1,840 
 
 -5,189 
 
 -4,350 
 
 226 
 192 
 
 394 
 511 
 
 677 
 786 
 
 2,081 
 2,216 
 
 34 
 
 -117 
 
 -109 
 
 -135 
 
 41,265 
 48,055 
 
 63,383 
 64,148 
 
 78,734 
 86,350 
 
 88,228 
 95,095 
 
 -6,790 
 
 -765 
 
 -7,616 
 
 -6,867 
 
20 Eepoet op Special Tax Commission 
 
 1928 and 1932. From 1920 to 1932 the governmental-cost payments 
 of these towns increased 118.6 per cent while their revenue receipts 
 increased only 110.6 per cent. 
 
 Cities and boroughs, including those consolidated with towns, 
 normally account for two-thirds of the governmental-cost payments of 
 all reporting municipalities. The financing of these units is therefore 
 a dominating factor in municipal finance in the state. It has been in 
 the cities and boroughs that the largest budget deficits, both absolutely 
 and relatively, have occurred. Even in the prosperous, year 1928 they 
 failed to pay their way by over 5 million dollars. Their budget deficit 
 in 1920 was 19 per cent of expenditures; in 1924, 4 per cent; in 1928, 
 9 per cent; and in 1932, 7 per cent. Their governmental-cost payments 
 in 1932, however, were only 83 per cent higher than in 1920 while 
 their revenue receipts were 109.5 per cent higher. 
 
 Unbalanced municipal budgets in Connecticut are not a depression 
 phenomenon. Unemployment relief, it is true, has been an increasing 
 burden to the municipalities since 1929 and has increased the diffi- 
 culty of bringing municipal expenditures within revenues. Yet the 
 statistics presented in the following chapter show that the aggregate 
 expenditures of the reporting municipalities increased 8.7 million dol- 1 
 lars from 1928 to 1932, whereas expenditures on charities increased 
 only 6.2 millions, and that municipal expenditures increased from 
 1928 to 1932 for all major functions except public service enterprises, 
 highways, and general government. In spite of the fiscal demands aris- 
 ing from conditions of depression and in spite of an unmistakable 
 public demand for property tax relief, there was no substantial reduc- 
 tion in municipal expenditures on any major function except highways 
 from 1928 to 1932. 
 
 The financial record of the years 1928 and 1932, supplemented 
 by the municipal debt experience of the last twelve years, shows quite 
 conclusively that living beyond their means has become habitual with 
 the municipalities. Either they have spent more than they could afford, 
 or they preferred not to raise the revenue receipts to meet the expendi- 
 tures which they incurred. 
 
 Municipal units are too numerous to permit the attempt to include 
 in this report the revenue receipts, governmental- cost payments, and 
 budget balances for each municipality. For the proper interpretation 
 of the aggregate data, however, it is desirable to obtain a general view 
 of the budget status of individual communities in the state. To make 
 this task manageable, only the major municipalities will be considered. 
 In Table IX these individual units are enumerated according to the 
 approximate magnitude of the excess or deficit of their revenue receipts 
 over their- governmental-cost payments in 1928 and 1932. 
 
GoVEKNMENTAL BUDGET BALANCES IN CONNECTICUT 21 
 
 Table IX 
 MAJOR MUNICIPALITIES: ENUMERATION ACCORDING TO EXCESS OR 
 DEFICIT OF REVENUE RECEIPTS OVER GOVERNMENTAL-COST PAY- 
 MENTS, 1928 AND 1932 
 
 
 
 
 Number of municipalities 
 
 
 
 
 
 
 
 
 Unconsolidated 
 
 
 
 Budget balance 
 
 Cities 
 
 Boroughs 
 
 towns 
 
 Total 
 
 
 1928 
 
 1932 
 
 1928 
 
 1932 
 
 1928 
 
 1932 
 
 1928 
 
 1932 
 
 Revenues in excess 
 
 
 
 
 
 
 
 
 
 of cost payments 
 
 11 
 
 9 
 
 12 
 
 14 
 
 87 
 
 76 
 
 110 
 
 99 
 
 Cost payments in 
 
 
 
 
 
 
 
 
 
 excess of revenues: 
 
 
 
 
 
 
 
 
 
 Less than $4,000 
 
 — 
 
 — 
 
 5 
 
 2 
 
 16 
 
 10 
 
 21 
 
 12 
 
 4,000— 10,000 
 
 — 
 
 — 
 
 2 
 
 1 
 
 21 
 
 23 
 
 23 
 
 24 
 
 10,000— 20,000 
 
 — 
 
 1 
 
 — 
 
 — 
 
 12 
 
 15 
 
 12 
 
 16 
 
 20,000— 40,000 
 
 1 
 
 1 
 
 2 
 
 1 
 
 5 
 
 11 
 
 8 
 
 13 
 
 40,000— 60,000 
 
 — 
 
 1 
 
 1 
 
 1 
 
 2 
 
 7 
 
 3 
 
 9 
 
 60,000— 80,000 
 
 1 
 
 — 
 
 — 
 
 — 
 
 1 
 
 1 
 
 2 
 
 1 
 
 80,000—100,000 
 
 — i 
 
 — 
 
 — 
 
 1 
 
 1 
 
 2 
 
 1 
 
 3 
 
 100,000—150,000 
 
 — 
 
 3 
 
 — 
 
 1 
 
 5 
 
 4 
 
 5 
 
 8 
 
 150,000—200,000 
 
 — 
 
 1 
 
 — 
 
 — 
 
 — 
 
 1 
 
 
 
 2 
 
 200,000—500,000 
 
 2 
 
 1 
 
 — 
 
 — 
 
 3 
 
 4 
 
 5 
 
 5 
 
 Over 500,000 
 
 5 
 
 3 
 
 — 
 
 — 
 
 1 
 
 — 
 
 6 
 
 3 
 
 Total 20 20 22 21 154 154 196 195 
 
 Source : Tax Commissioner, Quadrennial Reports of Indebtedness, Receipts and Ex- 
 penditures of Municipalities. 
 
 The aggregate deficits in 1928 and 1932 were contributed by only 
 about half the governments in each group. One hundred and ten major 
 municipalities, consisting of 11 cities, 12 boroughs, and 87 unconsoli- 
 dated towns, had budget surpluses in 1928. Ninety-nine major munici- 
 palities, consisting of 9 cities, 14 boroughs, and 76 unconsolidated 
 towns, had budget surpluses in 1932. In fact the cities and boroughs 
 with balanced budgets reduced their net debt by $410,000 in 1928 and 
 $419,000 in 1932. Unconsolidated towns with balanced budgets rediiced 
 their net debt by $991,000 in 1928 and $810,000 in 1932. On the 
 other hand, almost half of the major municipalities incurred deficits 
 both in 1928 and 1932, varying in amounts with the population and 
 magnitude of expenditures of the municipality. It is these municipali- 
 ties which are responsible for the deficits shown in Table VIII. 
 
 In the consolidated data presented in Table VIII the surpluses in 
 half the municipalities are offset against the deficits of the other half. 
 The resulting consolidated deficits therefore fail to show the real magni- 
 tude of the deficits incurred by those units which failed to balance their 
 budgets. If in 1928, for example, the surpluses of municipalities with 
 balanced budgets had not been offset against the deficits of other munici- 
 palities, the actual deficit of cities and boroughs would have been 
 $5,598,000 rather than $5,189,000, and that of unconsolidated towns, 
 $3,308,000 rather than $2,317,000. In 1932 the aggregate deficit of 
 cities and boroughs with deficits was $4,768,000 compared with the 
 
22 Report of Special Tax Commission 
 
 consolidated deficit of $4,350,000, while that of unconsolidated towns 
 was $3,193,000 as compared with $2,383,000. Consequently, an amount 
 nearer $9,000,000 than $7,500,000 in 1928 and one nearer $8,000,000 
 than $6,700,000 in 1932 should have been added to the revenues of 
 the cities, boroughs, and towns to have avoided budget deficits. 
 
 Municipal indebtedness, 1920, 1924, 1928, and 1932. 
 
 Statistics of the amount and growth of municipal indebtedness 
 give assurance that the conditions in municipal financing which have 
 been described were not peculiar to 1928 and J.932 but have been typical 
 of each year for a considerable period. As with receipts and expendi- 
 tures, the data of municipal debt are compiled only for each fourth 
 year. Since these data show the amount of indebtedness outstanding at 
 the ends of fiscal years, the comparison of the figures of one year with 
 another shows the net result of the financing of municipalities during 
 the periods intervening between the dates for which debt figures are 
 compiled. Table X presents statistics of indebtedness of all reporting 
 municipalities, the unconsolidated towns, the cities and boroughs, and 
 all the reporting special districts for the years 1920, 1924, 1928, and 
 1932. The debt of the special school districts is included in the indebted- 
 ness of the reporting special districts and of all reporting municipalities. 
 
 Table X 
 
 REPORTING MUNICIPALITIES: GROSS AND NET DEBT BY MUNICIPAL 
 
 GROUPS, QUADRENNIAL YEARS 1920 TO 1932 
 
 (In thousands of dollars) 
 
 Municipal group 1920 1924 1928 1932 
 
 Unconsolidated towns 
 
 Gross debt 
 
 Sinking fund 
 
 Cash balance 
 
 Net debt 
 Cities and boroughs 
 
 Gross debt 
 
 Sinking fund 
 
 Cash balance 
 
 Net debt 
 Fire and school districts' 
 
 Gross debt 
 
 Sinking fund 
 
 Cash balance 
 
 Net debt 
 All reporting municipalities 1 
 
 Gross debt 
 
 Sinking fund 
 
 Cash balance 
 
 Net debt 
 
 Source: Tax Commissioner, Quadrennial Reports of Indebtedness, Receipts and 
 Expenditures. 
 
 'Includes the Metropolitan District of Hartford County. 
 
 20,784 
 1,162 
 1,633 
 
 17,989 
 
 24,912 
 1,616 
 2,629 
 
 20,667 
 
 35,490 
 2,145 
 3,264 
 
 30,081 
 
 45,389 
 2,535 
 3,332 
 
 39,522 
 
 57,222 
 4,792 
 3,396 
 
 49,034 
 
 73,471 
 5,532 
 4,521 
 
 63,418 
 
 93,786 
 6,160 
 4,373 
 
 83,253 
 
 111,241 
 
 10,769 
 
 7,342 
 
 93,130 
 
 5,053 
 
 1 
 
 71 
 
 4,981 
 
 7,374 
 
 3 
 
 112 
 
 7,259 
 
 9,580 
 
 38 
 
 191 
 
 9,351 
 
 18,263 
 
 1,697 
 
 560 
 
 16,006 
 
 83,059 
 5,955 
 5,100 
 
 72,004 
 
 105,757 
 
 7,151 
 
 7,263 
 
 91,343 
 
 138,856 
 8,343 
 7,828 
 
 122,685 
 
 174,892 
 15,000 
 11,234 
 
 148,658 
 
GoVEEH MENTAL BUDGET BALANCES IN CONNECTICUT 23 
 
 This debt record is one of astonishing growth. In the twelve years 
 from 1920 to 1932 the gross debt and the net debt of all reporting 
 municipalities, of unconsolidated towns, and of cities and boroughs 
 approximately doubled. The upward surge of these debt figures has been 
 continuous, not sporadic. The net debt of all reporting municipalities 
 increased 27 per cent from 1920 to 1924, 34 per cent from 1924 to 
 1928, and 21 per cent from 1928 to 1932. Towns increased their net 
 debt 15 per cent from 1920 to 1924, 45 per cent from 1924 to 1928^, 
 and 32 per cent from 1928 to 1932. Cities and boroughs increased their ' 
 net debt 29 per cent from 1920 to 1924, 31 per cent from 1924 to 1928, 
 and 12 per cent from 1928 to 1932. Taken as a whole, our municipali- 
 ties have not been making ends meet. This is a condition, not of an 
 isolated year, but of the entire period since 1920. 
 
 From 1928 to 1932, for example, the average annual accretion in 
 the net debt of all reporting municipalities figures out at about 6.5 
 million dollars. Their budget deficits were t.6 millions in 1928 and 
 6.9 millions in 1932. The net debt of towns increased on the average 
 about 2.4 millions annually from 1928 to 1932. Their budget deficits 
 were 2.3 millions in 1928 and 2.4 millions in 1932. Cities and boroughs 
 reported an average annual increase in net debt of about 2.5 millions 
 and in gross debt of about 4.4 millions from 1928 to 1932. Their budget 
 deficits were 5.2 millions in 1928 and 4.4 millions in 1932. These com- 
 parisons are sufficient to indicate that the years 1928 and 1932, for 
 which the data of receipts and expenditures are compiled, were not 
 abnormal for recent municipal finance in the state. 
 
 This record and the record of municipal receipts and expenditures 
 show that our municipalities, in spite of rapidly increasing tax levies, 
 have been leaning more and more heavily upon the use of their credit. 
 In postponing the day of payment they are preventing permanent tax 
 reduction. 
 
 Attention should again be called to the fact that this situation is 
 chargeable to only about half of the municipalities. The other half of 
 the Connecticut municipalities have been living within their means and 
 not piling up debt. 
 
 The 
 
 PBOBLEM OF MUNICIPAL FINANCE. 
 
 The import of this summary review of municipal finance has been 
 generally recognized, and it was stressed by the General Assembly 
 when it expressly directed this investigation to "the financing of munici- 
 palities" and the "borrowing of money by municipalities." Although 
 municipal income increased from 1920 to 1932, municipal expenditures 
 increased by an even greater amount. Consequently, municipal indebted- 
 ness piled up at an unprecedented rate. 
 
24 Report of Special Tax Commission 
 
 Each year from 1928 to 1932 property taxes were some $7,000,000 
 less than they would have been if municipal budgets had been currently 
 balanced. This means that, even if the revenue requirements of the 
 state, and the counties were totally ignored, an additional $7,000,000 of 
 revenues would have been required to meet municipal expenditures 
 annually before there could have been any prospect of permanently 
 reducing the local tax burden during this period. 
 
 Under these conditions much more than a revision of the tax 
 system is required to place municipal finance on a sound basis. There 
 is a practical limit to the revenues which can be extracted from the 
 income of the people of the state for governmental purposes. This limit 
 is being approached constantly, aided thereto by the increasing taxes 
 of the federal government. Redistribution of the taxes levied among the 
 different groups of taxpayers can reduce the burden on some while 
 increasing it on others, but it cannot dissipate the fact that, for the state 
 as a unit, Connecticut governments cannot spend at a rate increasing 
 more rapidly than the income of their citizens and leave an aggregate 
 private income adequate to maintain standards of living and to 
 encourage a full quota of business activity. 
 
 A considerable measure of self-help is indispensable to the working 
 out of the financial problems of the municipalities. There must be a 
 painstaking scrutiny of expenditures, not only to eliminate waste, 
 extravagance, and graft wherever they exist, but also to evaluate 
 the benefits of every single item of municipal expenditure against the 
 sacrifices involved in paying for it. Our municipalities must be equipped 
 with the necessary procedures and machinery to plan, execute, and 
 control their finances wisely and soundly. These are basic necessities. 
 They are prerequisites to the success of any other action. Without them 
 changes in tax measures made now will merely ease the pressure, not 
 eradicate the cause of the trouble. With them tax revision can be effected 
 with reasonable promise of an enduring solution of our state and local 
 tax problems. 
 
 Summary. 
 
 State finance. 
 
 The state government had budget surpluses every fiscal year from 
 1922-23 to 1930-31, except in fiscal years such as 1927-28 when 
 unusually large expenditures from funds previously accumulated were 
 made for permanent improvements. During this period its income was 
 more than sufficient to meet its expenditures for both operations and 
 permanent improvements, and by the close of its fiscal year 1930-31 
 it had accumulated a cash surplus in its civil list funds of over ten 
 million dollars. 
 
Gc-VEKNMENTAL BuDGFET BALANCES IN CONNECTICUT 25 
 
 Although the gross indebtedness of the state remained constant 
 from 1922-23 to 1930-31, the accumulation of the sinking fund and 
 of cash surpluses in civil list funds steadily reduced its net indebtedness. 
 By 1924-25 the net debt had been eliminated, and by the end of the 
 fiscal year 1930-31 there were sinking fund assets and a cash surplus 
 in the state treasury amounting to 9.5 million dollars more than the 
 outstanding gross indebtedness. 
 
 In the three fiscal years following 1930-31, substantial budget 
 deficits were incurred by the state. Expenditures for permanent 
 improvements authorized in previous years continued to be made in 
 1931-32 and 1932-33, while state income rapidly declined because of 
 decreasing business activity. State expenditures were almost two mil- 
 lion dollars more in 1931-32 than in 1930-31; income was more than 
 five millions less. When expenditures were reduced in 1932-33 and 
 again in 1933-34, the reductions were not sufficient to make up for the 
 shrinkage in income. The budget deficits amounted to 6.4 million dol- 
 lars in 1931-32 and 4.3 millions in 1932-33. It is estimated that the 
 budget deficit of 1933-34 will amount to from three to four million 
 dollars. 
 
 The Commission believes that this record justifies its conclusion 
 that, with normal business conditions, the present revenue system of the 
 state will produce income adequate to meet the state's fiscal needs. 
 The deficits of the last three fiscal years are attributable primarily to 
 the business depression even though they were increased by continued 
 expenditures on the permanent improvement program. 
 
 Ordinarily the Commission would not hesitate to recommend 
 whatever borrowing is necessary to finance the state for short periods 
 during which unusual conditions have thrown income and expenditures 
 out of balance. Borrowing under such circumstances is not a repudia- 
 tion of the "pay-as-you-go" policy but a reasonable and intelligent 
 application of that policy. In fact for the more than twenty years 
 during which it has followed the "pay-as-you-go" policy, Connecticut 
 has borrowed to finance temporary, deficits in the state budget and 
 then has reduced its debt when there were budget surpluses. 
 
 The Commission does not believe, however, that it would be wise 
 for the state to postpone the balancing of its budget under present 
 conditions. During the three fiscal years ending June 30, 1934, the 
 state's expenditures exceeded its income by not less than $14,000,000. 
 There is certain to be a substantial budget deficit in 1934-35. Thus 
 in 1935, when the recommendations of this report, if immediately 
 adopted, go into effect, there will have been completed four fiscal years 
 during which expenditures exceeded income, and the amount of the 
 budget deficits for the period will have aggregated from 15 to 20 million 
 
26 Report of Special Tax Commission 
 
 dollars. Budget deficits for four successive years can hardly be con- 
 sidered temporary, nor can the indebtedness which they have occasioned 
 be disregarded. 
 
 Taking immediate steps to balance the state budget would also 
 have a salutary effect upon public opinion. Prolonged depression has 
 weakened public and private thrift and has led to extravagant public 
 expenditures financed by borrowing. The sooner the public is made 
 to realize its financial responsibility for the expenditures being made 
 by its governments, the sooner will governmental finance be put in order 
 and tax burdens be brought under control. 
 
 County finance. 
 
 Counties in this state are relatively unimportant governmental 
 units. Their activities are limited, and their expenditures, compared 
 with those of the state and municipalities, are small. They receive a 
 large proportion of their revenues from state grants, and together they 
 have the entire grand list of the state upon which to levy their taxes. 
 
 Under these favorable conditions counties should be expected to 
 operate on substantially balanced budgets. In general they have done 
 so. During the last decade Hartford County alone has incurred sub- 
 stantial budget deficits and has increased its debt in financing the 
 erection of a new county building. Except for this expenditure for a 
 permanent improvement, expenditures of the counties, individually 
 and collectively, were kept within their income from 1923 to 1933, 
 and their indebtedness was actually reduced. 
 
 Municipal finance. 
 
 For convenience of exposition in this report, we shall refer to 
 the counties as "counties", to the 169 unconsolidated towns, consoli- 
 dated towns and cities, and consolidated town and borough as "towns", 
 to the 194 cities, boroughs, and towns as "major municipalities", and to 
 the special districts and all other municipalities as "minor munici- 
 palities." » 
 
 Statistics of the receipts, expenditures, and indebtedness of towns, 
 cities, boroughs, and fire districts are compiled and published by the 
 tax commissioner every fourth year. An analysis of these statistics shows 
 that, after deducting the aggregate surplus of municipalities having 
 surpluses from the aggregate deficit of all other municipalities, the 245 
 to 259 reporting municipalities had a consolidated budget deficit rang- 
 ing from one to 14 per cent of their total expenditures in each of 
 the last four quadrennial years. Unconsolidated towns had a consoli- 
 dated budget surplus in 1924 and consolidated budget deficits ranging 
 from 4 to 8 per cent of their expenditures in the other three 
 
Governmental Budget Balances in Connecticut 27 
 
 quadrennial years. Cities and boroughs reported consolidated deficits 
 ranging from 4 to 19 per cent of their expenditures in the 
 four quadrennial years. All reporting municipalities spent 6.8 million 
 dollars more than their .income in 1920, $765,000 more in 1924, 7.6 
 millions more in 1928, and 6.9 millions more in 1932. 
 
 One hundred and ten of the 196 major municipalities in 1928 
 and 99 of the 195 in 1932 reported budget surpluses rather than 
 deficits. Thus the amount of the consolidated budget deficit of major 
 municipalities was actually less than the aggregate deficit of those 
 major municipalities reporting budget deficits. Cities and boroughs 
 having deficits in 1932 reported an aggregate budget deficit of $4,768,- 
 000, and unconsolidated towns, an aggregate budget deficit of $3,193,- 
 000. In both 1928 and 1932 the consolidated budget deficit of major 
 municipalities arose from the financial operations of less than one- 
 half of the municipalities in the group. 
 
 Recurring budget deficits have caused large increases in municipal 
 indebtedness. The net debt of the unconsolidated towns,, which con- 
 sists of their gross debt less sinking funds and cash on hand at the 
 ends of their fiscal years, increased from 18.0 million dollars in 1920 
 to 39.5 millions in 1932. The net debt of cities and boroughs rose from 
 49.0 millions in 1920 to 93.1 millions in 1932. And the net debt of all 
 reporting municipalities, including in these figures the indebtedness of 
 special school districts, increased from 72.0 millions to 148.7 millions 
 from 1920 to 1932. 
 
 While unemployment relief has been a financial burden to the 
 municipalities and has increased the difficulty of balancing municipal 
 budgets since 1929, the record of municipal finance even before the 
 depression is one of steadily increasing income but of more rapidly 
 increasing expenditures. Taking the figures of indebtedness and of 
 budget balances together, it is reasonably well established that unbal- 
 anced budgets have been habitual with the municipalities as a group 
 since 1920. Municipal debt has consequently grown at an unprecedented 
 rate. 
 
 If municipal finance is to be placed on a sound basis and the 
 local tax burden is to be reduced even moderately, much more than 
 a mere revision of the tax system will be required. These figures show 
 that municipal taxes should have been at least seven million dollars 
 more than they were each year to have financed currently the expendi- 
 tures of municipalities since 1928. Taxpayers have not escaped this 
 additional burden but are paying highly in debt service charges 
 for postponing the evil day. The longer present financial practices 
 of municipalities are permitted to continue, the more certain it will 
 be that the local tax burden will increase rather than diminish. 
 
28 Report of Special Tax Commission 
 
 Municipalities themselves must put their houses in order before tax 
 revision can have any substantial effect on the local tax burden. They 
 must scrutinize and cut expenditures beyond what has already been 
 done. They must be equipped with adequate procedures to control 
 their financing. Without such action, changes in tax measures can do 
 no more than to ease the immediate pressure on municipal finance. 
 With such action, tax revision offers a reasonable promise of an 
 enduring solution of state and local tax problems. 
 
CHAPTER II 
 
 GOVERNMENTAL EXPENDITURES IN CONNECTICUT 
 
 Limitations of the Commission's assignment. 
 
 The people of Connecticut cannot continue to spend as they have 
 through their state and local governments and, at the same time, 
 secure any substantial and permanent relief from the existing burden 
 of taxation. Expenditures fix the total tax bill and determine the aggre- 
 gate burden of taxation. Redistribution , of the tax burden may make 
 the load easier to carry by. shifting it from weaker to stronger shoulders. 
 But substantial and permanent relief can come only by reducing the 
 percentage of the people's income required for governmental support. 
 
 Certain phases of the problem of expenditures are beyond the 
 limits of the instructions and facilities of the Commission. We have 
 not attempted to scrutinize and evaluate particular expenditures to 
 determine the efficiency and economy with which they are made. We 
 have not examined into the complexities of administrative procedures, 
 despite their important effects upon governmental efficiency. Nor have 
 we made any intensive study of the adequacy of the structural organiza- 
 tion of our state and local governments for modern public administra- 
 tion. These matters, though important, were not contemplated by the 
 General Assembly in establishing this Commission, and for their con- 
 sideration neither time nor funds have been available. 
 
 The state government. 
 General functional analysis. 
 
 Tables XI and XII present the expenditures of the state govern- 
 ment classified according to functions for the period 1927-28 to 1932-33. 
 These data are details of the net expenditures which were presented by 
 totals and explained in the preceding chapter. They include what the 
 state comptroller reports as capital outlays as well as recurring ordinary ' 
 expenses and fixed charges. 
 
 From 70 to 80 per cent of all state expenditures since 1927-28, 
 including capital outlays as well as recurring expenses and fixed charges, 
 have been made for highways, charities, and education. 
 
 State expenditures for highways are incurred largely for the con- 
 struction and maintenance of the trunk line system of state highways 
 although increasing sums have been spent upon the state aid highways 
 and town roads. Total highway expenditures have varied from 12 
 
30 Repobt of Special Tax Commission 
 
 Table XI 
 
 STATE GOVERNMENT: NET EXPENDITURES BY FUNCTIONS, FISCAL 
 
 YEARS 1927-28 to 1932-33 
 
 (In thousands of dollars) 
 
 Function 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 
 
 General government 
 
 2,587 
 
 2,848 
 
 2,455 
 
 5.138 1 
 
 3,002 
 
 2,820 
 
 Protection of persons and property 
 
 2,229 
 
 2,420 
 
 2,910 
 
 2,727 
 
 2,659 
 
 2,649 
 
 Development and conservation of 
 
 
 
 
 
 
 
 natural resources 
 
 885 
 
 855 
 
 1,071 
 
 1,140 
 
 1,039 
 
 857 
 
 Conservation of health and sani- 
 
 
 
 
 
 
 
 tation 
 
 795 
 
 547 
 
 643 
 
 771 
 
 799 
 
 717 
 
 Highways, roads, and bridges 
 
 17,138 
 
 14,607 
 
 13,807 
 
 13,801 
 
 13,990 
 
 11,965 
 
 Charities, hospitals, and corrections 
 
 7,232 
 
 6,913 
 
 8,559 
 
 9,868 2 
 
 13,548 
 
 11,352 
 
 Education 
 
 4,508 
 
 4,683 
 
 4,346 
 
 4,822 
 
 5,058 
 
 5,154 
 
 Public service enterprises 
 
 39 
 
 147 
 
 26 
 
 22 
 
 113 
 
 64 
 
 Public parks and monuments 
 
 289 
 
 233 
 
 333 
 
 420 
 
 299 
 
 201 
 
 Interest 
 
 657 
 
 657 
 
 657 
 
 657 
 
 605 
 
 277 
 
 Miscellaneous" 
 
 239 
 
 311 
 
 506 
 
 412 
 
 506 
 
 464 
 
 Total 36,599 34,222 35,314 39,778 41,618 36,521 
 
 Source: State Comptroller, Annual Reports. 
 
 1 Includes the cost of the state office building. 
 
 1 A considerable part of the larger expenditures on this function in this and follow- 
 ing years represents outlays for permanent improvements on the charitable and 
 correctional institutions of the state. 
 
 8 Includes expenditures from working capital funds and costs of legal action in 
 Connecticut River diversion case. 
 
 Table XII 
 STATE GOVERNMENT: NET EXPENDITURES, PERCENTAGE DISTRIBU- 
 TION BY FUNCTIONS, FISCAL YEARS 1927-28 TO 1932-33 
 
 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 
 
 Function 
 
 % 
 
 % 
 
 % 
 
 % 
 
 % 
 
 % 
 
 General government 
 
 7.1 
 
 8.3 
 
 7.0 
 
 12.9 1 
 
 7.2 
 
 7.7 
 
 Protection of persons and property 
 
 6.1 
 
 7.1 
 
 8.2 
 
 6.9 
 
 6.4 
 
 7.3 
 
 Development and conservation of 
 
 
 
 
 
 
 
 natural resources 
 
 2.4 
 
 2.5 
 
 3.0 
 
 2.9 
 
 2.5 
 
 2.3 
 
 Conservation of health and sani- 
 
 
 
 
 
 
 
 tation 
 
 2.2 
 
 1.6 
 
 1.8 
 
 1.9 
 
 1.9 
 
 1.9 
 
 Highways, roads, and bridges 
 
 46.8 
 
 42.7 
 
 39.1 
 
 34.7 
 
 33.6 
 
 32.8 
 
 Charities, hospitals, and corrections 
 
 19.8 
 
 20.2 
 
 24.2 
 
 24.8 2 
 
 32.6 
 
 31.1 
 
 Education 
 
 12.3 
 
 13.7 
 
 12.3 
 
 12.1 
 
 12.1 
 
 14.1 
 
 Public service enterprises 
 
 .1 
 
 .4 
 
 .1 
 
 .1 
 
 .3 
 
 .2 
 
 Public parks and monuments 
 
 .8 
 
 .7 
 
 .9 
 
 1.0 
 
 .7 
 
 .5 
 
 Interest 
 
 1.7 
 
 1.9 
 
 1.9 
 
 1.7 
 
 1.5 
 
 .8 
 
 Miscellaneous 8 
 
 .7 
 
 .9 
 
 1.5 
 
 1.0 
 
 1.2 
 
 1.3 
 
 Total 100.0 100.0 100.0 100.0 100.0 100.0 
 
 Source: Preceding table. 
 
 1 Includes the cost of the state office building. 
 
 2 A considerable part of the larger expenditures on this function in this and follow- 
 ing years represents outlays for permanent improvements on the charitable and 
 correctional institutions of the state. 
 
 3 Includes expenditures from working capital funds and costs of legal action in 
 Connecticut River diversion case. 
 
Governmental Expenditures in Connecticut 31 
 
 million to 17 million dollars from 1927-28 to 1932-33 and have required 
 from 33 to 47 per cent of the expenditures of civil list funds. 
 
 Support of the state charitable and correctional institutions 
 accounts for a substantial part of the total expenditure on the function 
 of charities, hospitals, and corrections. Charitable expenditures also 
 include payments to municipalities for outdoor relief given to state 
 paupers, payments for board of children committed to county care 
 and board of prisoners in county jails, and payments made by the state 
 for widows' arid, which is financed jointly by the state, the counties, and 
 the municipalities. The charitable expenses of the state ranged from 
 6.9 million dollars in 1927-28, or 20 per cent of all state expenditures, 
 to 13.5 millions, or 32 per cent, in 1931-32. 
 
 Most of the state expenditures on education are for the support 
 of the state colleges and normal schools and for the maintenance of the 
 state board of education. About 1.8 million dollars of state educational 
 expenditures represent amounts paid by the state in aid of various local 
 educational activities. State expenditures for education ranged from 4.3 
 million dollars in 1929-30 to 5.1 millions in 1932-33 and represented 
 from 12 to 14 per cent of the total expenditures of the state from 
 1927-28 to 1932-33. 
 
 All other activities of the state account for 30 per cent or less of 
 state expenditures. General government from 1927-28 to 1932-33 
 absorbed from 7 to 8 per cent of the state expenditures; protection of 
 persons and property, from 6 to 8 per cent; and development and con- 
 servation of natural resources, from 2 to 3 per cent. Health and sanita- 
 tion has required 2 per cent of all expenditures ; public parks, historical 
 sites, and monuments, 1 per cent ; interest, 1 to 2 per cent ; and miscel- 
 laneous undistributed expenditures, 1 per cent. 
 
 Capital outlays. 
 
 Capital outlays include expenditures for land, buildings, other 
 construction, and certain items of equipment. In general, any expendi- 
 ture for a desirable object which costs more than, say, five dollars and 
 which is expected to remain in service for more than three years is 
 classified as a capital outlay. Obviously, many items are so classified 
 which are not permanent improvements, but it is these so-called perma- 
 nent improvements which account for the bulk of the reported capital 
 outlays. 
 
 To some extent the variations in particular functional expenditures 
 from one year to another have been due to unusual and extraordinary 
 capital outlays. It is an error, however, to suppose that these expendi- 
 tures should be excluded in seeking a true picture of the recurring aggre- 
 gate cost of the state government. While substantial amounts have been 
 
32 Report of Special Tax Commission 
 
 spent on permanent improvements for certain activities since 1927-28, 
 these outlays have been so staggered among the functions that, in the 
 aggregate, they are characterized by a considerable degree of regularity 
 from year to year. The comptroller records the following amounts spent 
 for capital outlays since 1927-28 : 
 
 1927-28 
 
 $16,888,000 
 
 1928-29 
 
 13,923,000 
 
 1929-30 
 
 13,892,000 
 
 1930-31 
 
 15,989,000 
 
 1931-32 
 
 14,667,000 
 
 1932-33 
 
 8,299,000 
 
 Only in 1932-33, when expenditures for permanent improvements 
 Were drastically reduced in an attempt to balance the budget, were 
 expenditures for capital outlays to any considerable extent abnormal 
 during this six-year period. Except for the extremely low percentage 
 in this exceptional year, expenditures for capital outlays varied from 
 35.2 per cent to 46.1 per cent of total governmental-cost payments 
 during this period. 
 
 Extraordinary outlays for permanent improvements from 1927-28 
 to 1932-33 shifted from year to year from one function to another but 
 were confined largely to highways, charities, and general government. 
 Highways will always require considerable expenditure for permanent 
 improvements if the investment of the state in its highway system is to 
 be conserved. During the last decade, however, there was a rapid 
 increase in the number of motor vehicles operated, a feverish expansion 
 of highway facilities in response to public demands, and the formula- 
 tion and utilization of revenue measures which have produced increas- 
 ing yields adequate for the demands made upon them. The high mark 
 of capital outlays of the state on highways was reached in 1927-28, when 
 almost 14 million dollars, part of which came out of an accumulated 
 surplus, were spent for this purpose. After 1927-28 highway outlays 
 steadily declined until they amounted to only 5.5 millions in 1932-33, 
 or about 40 per cent of the total for 1927-28. This is a reduction of 
 more than 8.2 millions in highway outlays from 1927-28 to 1932-33 
 and exceeds the reduction in total highway costs by over 3 millions. 
 Part of the savings in highway outlays was absorbed by the appropria- 
 tion of three million dollars in 1931 for state aid for town roads. 
 
 While highway outlays have been declining, substantial expendi- 
 tures have been made for permanent improvements on state charitable 
 and correctional institutions. From a low point of $720,000 in 1928-29, 
 capital outlays for charities, hospitals, and corrections increased each 
 year to a maximum of 5.5 million dollars in 1931-32. The upward 
 trend was reversed in 1932-33, when charitable outlays declined to 2.2 
 millions. 
 
Governmental Expenditures in Connecticut 33 
 
 There was but one other substantial capital outlay during this 
 period — -that of the state office building, payment for which was made 
 in 1930-31. The total capital outlays on general government were 2.3 
 million dollars in 1930-31, as compared with an amount never in excess 
 of $600,000 in the other years. 
 
 Under pressure of declining revenues, substantial reductions in 
 capital outlays on all functions were made in 1932-33. The total 
 declined 6.4 million dollars from 1931-32 to 1932-33. But total state 
 expenditures declined by only five millions. Thus while capital out- 
 lays have been reduced to meet the demands of the budget, recurring 
 ordinary expenses and fixed charges were 1.6 millions larger in- 1932-33 
 than in 1931-32. One would be sanguine, indeed, if he looked upon the 
 : retrenchment in capital outlays effected after 1931-32 as a permanent 
 development in state finance. The true situation is unquestionably that 
 expenditures for permanent improvements have been only temporarily 
 arrested and that their postponement for any considerable period is 
 unlikely. 
 
 The finance commissioner has submitted to this Commission an 
 enumeration of projects which will be urged upon the General Assembly 
 at its next session. Proposals for permanent improvements alone, accord- 
 ing to his estimates, will call for expenditures from the general fund 
 aggregating over thirteen million dollars during the next few years. 
 This figure makes no allowance for expenditures from the highway 
 fund, for the increased recurring expenses for upkeep and operation 
 which will follow the making of these expenditures, for some four 
 million dollars of other recurring expenses which are urged for activities 
 not now included in the state budget, nor for the expansion in new 
 directions of 'activities already budgeted. 
 
 We mention this matter here to emphasize the inevitable recur- 
 rence of expenditures for permanent improvements and the error of 
 presuming that recent expenditures have been abnormally and tempo- 
 rarily high. The misleading nature of this contention is demonstrated 
 by the summary record here presented. 
 
 Capital outlays in a going enterprise as large as the state govern- 
 ment are not non-recurring eosts causing extreme irregularities in the 
 flow of governmental expenditures. While the state government has not 
 formally adopted a long-range plan of permanent improvements, it has 
 since 1927-28 secured, in some degree, a regularizing of expenditures 
 for its permanent improvements. 
 
 There is a real need to dispel the prevalent idea that reported 
 capital outlays are extraordinary and irregular, that the high level of 
 state costs may be dismissed as a temporary phenomenon soon to pass, 
 and that whatever temporary inconvenience has arisen from this cause 
 
34 Repoet of Special Tax Commission 
 
 may easily be remedied by the use of state credit. We are upon much 
 safer ground when we accept the record of capital outlays for what 
 it is and proceed on the premise that a considerable part of the state 
 budget will normally and inevitably go for permanent improvements 
 and that the same scrutiny and effort will be required to reduce or limit 
 these expenditures as are required in the control of recurring ordinary 
 expenses and fixed charges. A corollary conclusion is that, for meeting 
 such regularly recurring capital outlays, borrowing is no more justified 
 than borrowing for meeting an ordinary current expenditure. 
 
 Opeea^ting expenses. 
 
 Subtracting capital outlays from total expenditures, we arrive at 
 
 the following record of operating expenses : 
 
 1927-28 $19,711,000 
 
 1928-29 20,299,000 
 
 1929-30 21,422,000 
 
 1930-31 23,789,000 
 
 1931-32 26,951,000 
 
 1932-33 28,222,000 
 
 These operating expenses, which are called recurring ordinary 
 expenses and fixed charges by the state comptroller, show a decided 
 upward trend throughout the period 1927-28 to 1932-33. At the end 
 of the period they were 43 per cent higher than in the first year and 
 39 per cent higher than in 1928-29, the peak year of prosperity. 
 
 To some extent this is ascribable to the depression. Operating 
 expenses for charities, hospitals, and corrections, for example, increased 
 from 6.2 million dollars in 1928-29 to 9.1 millions in 1932-33. High- 
 way operating expenses rose another 3.3 millions, but this was less the 
 result of the depression than of the appropriation of three million dollars 
 for town roads. These two increases alone account for 6.2 of the 7.9 mil- 
 lion dollars of increased operating expenses during these five years. 
 
 Arranged in order of magnitude of increase between 1928-29 and 
 1932-33, highways stand first in the list, with an increase of 101 per 
 cent. Then follow charities, with an increase of 47 per cent ; health, 34 
 per cent; protection, 26 per cent; education, 25 per cent; general gov- 
 ernment, 8 per cent; and development and conservation of natural 
 resources, 5 per cent. Only two functions, public parks and interest, 
 which together amounted to less than 5 per cent of the state budget, 
 required less for operating expenses in the fourth year of the depression 
 than they did just prior to the depression. 
 
 State expenditures dubing 1933-34. 
 
 Pending the closing of the comptroller's books on October 1, only 
 the figures of cash disbursements are available to show the trend of 
 

 
 Increase or 
 
 1932-33 
 
 1933-34' 
 
 decrease (-) 
 
 $2,864,323 
 
 $2,069,491 
 
 -$794,832 
 
 2,673,072 
 
 2,435,992 
 
 -237,080 
 
 856,951 
 
 682,350 
 
 -174,601 
 
 n 724,246 
 
 645,389 
 
 -78,857 
 
 11,427,972 
 
 14,652,502 
 
 3,224,530= 
 
 11,610,696 
 
 9,997,640 
 
 -1,613,056 
 
 4,876,166 
 
 4,652„894 
 
 -223,272 
 
 67,006 
 
 15,007 
 
 -51,999 
 
 186,047 
 
 156,223 
 
 -29,824 
 
 
 5,412,298 
 
 5,412,298 
 
 882,672 
 
 363,899 
 
 -518,773 
 
 GOVERNMENTAL EXPENDITURES IN CONNECTICUT 35 
 
 state expenditures during 1933-34. Table XIII compares the prelimi- 
 nary figures of cash disbursements from the civil list funds in 1933-34 
 with the disbursements from these funds in 1932-33. 
 
 Table XIII 
 
 STATE GOVERNMENT: CASH DISBURSEMENTS FROM CIVIL LIST FUNDS, 
 
 FISCAL YEARS 1932-33 AND 1933-34 
 
 Function 
 General government 
 Protection of persons and property 
 Development and conservation of nat 
 
 ural resources 
 Conservation of health and sanitation 
 Highways, roads, and bridges 
 Charities, hospitals, and corrections 
 Education 
 
 Public service enterprises 
 Public parks and monuments 
 Federal emergency relief 
 Undistributed accounts 
 
 Total 3 36,169,151 41,083,685 4,914,534 
 
 Source: Data furnished by the Division of Analytical Accounting and Financial 
 Reporting of the Department of the Comptroller. 
 
 'Preliminary figures. Final figures will not be available until after October 1, 1934. 
 2 This increase is attributable in part to an increase of $1,289,000 in federal highway 
 aid. 
 8 Does not include expenditures from working capital funds. 
 
 State disbursements in 1933-34 were substantially increased by the 
 passing of federal funds through the state treasury. Federal grants for 
 highways, which were increased by nearly $1,300,000 as a means of 
 relieving unemployment, are reflected in the increased disbursements 
 for highways in 1933-34. Federal funds for the direct relief of unem- 
 ployment first became available in 1933-34 and were disbursed through 
 the Emergency Relief Commission. Disbursements of $5,412,298 from 
 these funds are included in a separate category in the preceding table. 
 
 Disbursements of state moneys were somewhat smaller in 1933-34 
 than in 1932-33. Expenditures from the general fund for permanent 
 improvements practically ceased in 1933-34. Moreover, salaries of state 
 employees were reduced by varying percentages beginning July 1, 1933, 
 by direction of a law enacted by the last session of the General Assem- 
 bly. 1 Retrenchments along these two lines reduced disbursements from 
 1932-33 to 1933-34 for every major function except highways. 
 
 Probably the state government has now secured about all the reduc- 
 tion of expenditures which can be made by means of eliminating expen- 
 ditures on permanent improvements and making wholesale cuts in state 
 
 'Cum. Sup., 1933, sec. 597b. 
 
36 Report of Special Tax Commission 
 
 salaries. If further reductions in the cost of the state government are 
 to be made, as they should be, the more difficult but more scientific 
 procedures for lowering governmental expenditures must be employed; 
 services costing more than the people can afford must be eliminated; 
 efficiency must be increased. Unnecessary personnel must be discharged ; 
 overlapping functions must be eliminated ; the administrative organiza- 
 tion of the state government must be revamped into a properly integrated 
 operating unit. Practically nothing had been done to reduce state 
 expenditures in these ways up to the close of the fiscal year 1933-34. 
 
 County governments. 
 
 The combined expenditures of the eight counties for each of the 
 major governmental functions in the six years ending September 30, 
 1933, are shown in Tables XIV and XV. 
 
 Except for total expenditures and expenditures for general gov- 
 ernment, the data in Tables XIV and XV present a record of normal 
 county finance. No county funds are spent for health, recreation, or 
 public service enterprises, and county expenditures for highways are 
 exceedingly small and irregular. Small sums are spent for inspecting 
 weights and measures, for fighting forest fires, in making grants to 
 agricultural associations, and for maintaining county bar libraries. 
 For all functions except general government, charities and corrections, 
 and interest, counties spent less than $100,000 each year from 1927-28 
 to 1932-33, or less than six per cent of their normal total expenditures. 
 
 About three-fourths of all county expenditures are made for 
 charities, hospitals, and corrections. These expenditures consist of 
 
 Table XIV 
 
 COUNTIES: GOVERNMENTAL-COST PAYMENTS BY FUNCTIONS, 
 YEARS ENDING SEPTEMBER 30, 1928 TO 1933 
 (In thousands of dollars) 
 Function 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 
 General government 98Q 1 851 1 277 263 235 217 
 Protection of persons and property 19 18 26 35 37 29 
 Development and conservation of nat- 
 ural resources 40 40 42 44 42 39 
 Conservation of health and sanitation — — — — — — 
 
 Highways, roads, and bridges — 26 1 1 l 1 
 
 Charities, hospitals, and corrections 995 1,115 1,349 1,297 1,321 1,401 
 
 Education 22 33 22 31 .26 25 
 
 Public service enterprises — — — — — '. — 
 
 Public parks and monuments — — — . — — — 
 
 Interest 106 146 147 145 141 136 
 
 Miscellaneous 11 6 6 7 4 2 
 
 Total 2,173 2,233 1,871 1,822 1,807 1,850 
 
 Source: Secretary of State, Returns of County Commissioners. 
 1 Includes Hartford County's outlays for its new county building. 
 
GoVEKNMENTAl ExPENDITUBES I1T CONNECTICUT 37 
 
 Table XV 
 COUNTIES: GOVERNMENTAL-COST PAYMENTS, PERCENTAGE DISTRIBU- 
 TION BY FUNCTIONS, YEARS ENDING SEPTEMBER 30, 1928 TO 1933 
 
 Function 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 
 
 % % % % % % 
 
 General government 45.1 1 38.1 1 14.8 14.4 13.0 11.7 
 
 Protection of persons and property .9 .8 1.4 1.9 2.0 1.6 
 Development and conservation of 
 
 natural resources 1.8 1.8 2.2 2.4 2.4 2.1 
 
 Conservation of health and sanitation • — — — — — — 
 
 Highways, roads, and bridges — 1.2 .1 — 2 — ' .1 
 
 Charities, hospitals, and corrections 45.8 49.9 72.1 71.2 73.1 75.7 
 
 Education 1.0 1.5 1.2 1.7 1.4 1.4 
 
 Public service enterprises — — — — — — 
 
 Public parks and monuments — — — — — — 
 
 Interest 4.9 6.5 7.9 8.0 7.8 7.4 
 
 Miscellaneous .5 .2 .3 .4 .2 .1 
 
 ' Total 100.0 100.0 100.0 100.0 100.0 100.0 
 
 Source: Preceding table. 
 
 1 Includes Hartford County's outlays for its new county building. 
 
 2 Less than .05 per cent. 
 
 payments for the support of children committed to county care and of 
 county jails and workhouses, for the fees of probation officers, and for 
 one-third of the aid granted by the state to widows. County charitable 
 and correctional expenditures increased from one to 1.4 million dollars 
 from 1927-28 to 1932-33. Of these totals, county homes required from 
 $435,000 to $795,000; county jails, about $400,000; and widows' 
 aid, from $148,000 to $230,000. 
 
 Interest on county indebtedness amounted to from $106,000 to 
 $147,000 and from 7 to 8 per cent of all county expenditures from 
 1927-28 to 1932-33. The total cost of interest to all counties except 
 Hartford County did not exceed $40,000 in any one of these years. 
 Hartford County alone has a substantial debt and accounts for most 
 of the interest paid by all counties. 
 
 To obtain a more normal record of the amount of county expendi- 
 tures for general government and for all purposes, it is necessary to 
 
 Table XVI 
 ALL COUNTIES EXCEPT HARTFORD COUNTY: GOVERNMENTAL-COST 
 PAYMENTS FOR GENERAL GOVERNMENT AND FOR ALL PURPOSES, 
 YEARS ENDING SEPTEMBER 30, 1928 TO 1933 
 
 Total governmental- 
 Year ending Sept. 30 General government cost payments 
 1927-28 $173,935 $1,057,898 
 1928-29 192,200 1,125,763 
 1929-30 206,696 1,361,614 
 1930-31 190,469 1,315,649 
 1931-32 167,769 1,275,574 
 1932-33 157,846 1,313,657 
 Source: Secretary of State, Returns of County Commissioners. 
 
38 Report of Special Tax Commission 
 
 exclude the expenditures of Hartford County from the totals in Table 
 XIV. There are shown in Tabte XVI the expenditures of all counties 
 except Hartford for general government and for all purposes from 
 1927-28 to 1932-33. 
 
 Excluding the expenditures of Hartford County, county expendi- 
 tures for general government increased annually from 1927-28 to 
 1929-30 and decreased annually from 1929-30 to 1932-33. They 
 amounted to $206,696 at their maximum in 1929-30 and had been 
 reduced to $157,846 by 1932-33. 
 
 County expenditures for general government consist of salaries 
 and expenses of county offices, expenses for the maintenance of county 
 buildings, and insignificant sums for the expenses of the judiciary. 
 Salaries and expenses of county officers in these seven counties were 
 higher in 1932-33 than in 1927-28. Practically all of the reduction 
 in the expenditures of these counties on general government has been 
 made in the costs of maintenance and operation of county buildings. 
 
 Counties have been for many years the districts for the superior 
 courts and the courts of common pleas. The only expenditures made by 
 the counties for these courts are those incurred in providing court 
 rooms and some of the office equipment, except that Fairfield County 
 is required to pay the expenses of the clerks of its court of common 
 pleas. All the other expenses of these courts are paid by the state 
 government. 
 
 Total governmental-cost payments of these seven counties increased 
 about $300,000 from 1927-28 to 1929-30 and then declined about 
 $50,000 during the ensuing three fiscal years. From 1929-30 to 1932-33 
 charitable expenditures decreased about $30,000,. and the cost of 
 general government, about $13,000. Compared with the increase of 
 expenditures in the three former years, the decrease of expenditures 
 since 1929-30 has been relatively small. The retrenchment which has 
 taken place, like that of the state and the municipalities, has been in 
 expenditures on buildings and other permanent improvements. 
 
 Municipal governments. 
 
 All reporting municipalities. 
 
 The data of municipal expenditures presented in this section are 
 taken from the tax commissioner's quadrennial reports of indebtedness, 
 receipts, and expenditures of municipalities. We have not excluded 
 from municipal expenditures inter-municipal payments for schools, 
 charities, and roads which are reported as expenditures of two or more 
 units, payments of municipalities financed by means of state aid, nor 
 the taxes collected by municipalities for the state and the counties. 
 
Governmental Expenditures in Connecticut , 39 
 
 Tables XVII and XVI1T present the statistics of expenditures of 
 all reporting municipalities, classified by major functions, for the quad- 
 rennial years, 1920, 1924, 1928, and 1932. 
 
 Table XVII 
 
 ALL REPORTING MUNICIPALITIES : GOVERNMENTAL-COST PAYMENTS BY 
 
 FUNCTIONS, QUADRENNIAL YEARS 1920 TO 1932 
 
 (In thousands of dollars) 
 
 Function 
 
 1920 
 
 1924 
 
 1928 
 
 1932 
 
 General government 
 
 4,765 
 
 7,015 
 
 9,152 
 
 8,436 
 
 Protection of persons and property 
 
 4,918 
 
 7,077 
 
 9,444 
 
 10,734 
 
 Development and conservation of natural 
 
 
 
 
 
 resources 
 
 ■ — 
 
 — 
 
 ■ — 
 
 — 
 
 Conservation of health and sanitation 
 
 2,127 
 
 2,314 
 
 3,970 
 
 4,676 
 
 Highways, roads, and bridges 
 
 9,949 
 
 10,098 
 
 16,957 
 
 13,804 
 
 Charities, hospitals, and corrections 
 
 1,844 
 
 2,222 
 
 2,777 
 
 8,984 
 
 Education 
 
 13,564 
 
 22,305 
 
 27,709 
 
 31,337 
 
 Public service enterprises 
 
 3,022 
 
 3,394 
 
 5,173 
 
 4,465 
 
 Public parks and monuments 
 
 1,171 
 
 1,314 
 
 2,102 
 
 2,129 
 
 Interest 
 
 3,164 
 
 4,292 
 
 5,375 
 
 6,872 
 
 Miscellaneous 1 
 
 3,530 
 
 4,117 
 
 3,691 
 
 3,660 
 
 Total 
 
 48,055 
 
 64,148 
 
 86,349 
 
 95,095 
 
 Source: Tax Commissioner, Quadrennial 
 
 Reports of 
 
 Indebtedness, Receipts and 
 
 Expenditures of Municipalities. 
 
 
 
 
 
 1 Includes taxes collected for other governments. 
 
 
 
 
 Table 
 
 XVIII 
 
 
 
 
 ALL REPORTING MUNICIPALITIES: GOVERNMENTAL-COST PAYMENTS, 
 PERCENTAGE DISTRIBUTION BY FUNCTIONS, QUADRENNIAL YEARS 
 1920 TO 1932 
 
 Function 1920 1924 > 1928 1932 
 
 % % % % 
 
 General government 
 Protection of persons and property 
 Development and conservation of natural 
 
 resources 
 Conservation of health and sanitation 
 Highways, roads, and bridges 
 Charities, hospitals, and corrections 
 Education 
 
 Public service enterprises 
 Public parks and monuments 
 Interest 
 Miscellaneous 1 
 
 Total 100.0 100.0 100.0 100.0 
 
 Source: Preceding table. 
 1 Includes taxes collected for other governments. 
 
 Municipal expenditures represented more than two-thirds of all 
 state and local governmental-cost payments in Connecticut in both 
 1927-28 and 1931-32. While municipalities are technically adminis- 
 
 9.9 
 
 10.9 
 
 10.6 
 
 8.9 
 
 10.2 
 al 
 
 11.0 
 
 10.9 
 
 11.3 
 
 4.4 
 
 3.6 
 
 4.6 
 
 4.9 
 
 20.7 
 
 15.7 
 
 19.6 
 
 14.5 
 
 3.8 
 
 3.5 
 
 3.2 
 
 9.4 
 
 28.2 
 
 34.8 
 
 32.1 
 
 33.0 
 
 6.3 
 
 5.3 
 
 6.0 
 
 4.7 
 
 2.4 
 
 2.0 
 
 2.4 
 
 2.2 
 
 6.6 
 
 6.7 
 
 6.2 
 
 7.2 
 
 7.5 
 
 6.5 
 
 4.4 
 
 3.9 
 
40 Report of Special Tax Commission 
 
 trative subdivisions of the state government, deriving their powers 
 solely from enactments of the General Assembly, they have actually 
 been charged with the responsibility of financing the greater part of all 
 governmental activities in the state. 
 
 Education stands out as the most expensive municipal function. 
 In the four quadrennial years it has accounted for 28 to 35 per cent of 
 all municipal cost payments. Then follow in order highways, repre- 
 senting 15 to 20 per cent of municipal expenditures; protection of 
 persons and property, 10 to 11 per cent; general government, 9 to 11 
 per cent; charities, 3 to 9 per cent; interest, 6 to 7 per cent; public 
 service enterprises, 5 to 6 per cent; and each of the other functions, 
 less than 5 per cent. Education, highways, protection, and general 
 government combined account for over two-thirds' of the financial 
 responsibility of the municipalities. 
 
 The twelve years from 1920 to 1932 witnessed a rapid expansion 
 in municipal expenditures. ' Total governmental-cost payments almost 
 doubled during the period, rising from 48 million dollars in 1920 to 
 95 millions in 1932, or 98 per cent. The most rapid increases occurred 
 in the first eight years of the period, the increases being 32 per cent 
 from 1920 to '1924, 35 per cent from 1924 to 1928, and only 10 per 
 cent from 1928 to 1932. 
 
 Several explanations may be given for this growth of municipal 
 costs. Neither increases in the total population of the state nor rising 
 prices, however, have been of more than minor importance. The 
 retardation of normal municipal expenditures in the preceding decade 
 because of the World War probably operated to stimulate expenditures 
 during the period after 1920. Technological developments centering 
 upon the expansion of motor vehicle ownership and use necessitated 
 increased expenditures in many directions. Educational standards were 
 continually raised, and school attendance, particularly in the more 
 expensive high school courses, rapidly increased. 
 
 When depression followed prosperity, municipalities were con- 
 fronted with a new set of conditions. Added demands were made upon 
 them for charitable relief. Property values declined. Collection of 
 taxes became, more difficult, and delinquency increased. The accumu- 
 lated tax burden was severely aggravated by shrinkage of private 
 incomes. Taxpayers' demands for tax relief became much more articu- 
 late and insistent. 
 
 What have been the net results of the conflicting forces operating 
 in municipal finance in this recent period? Briefly stated, municipal 
 expenditures increased from 1928 to 1932,' but the rate of increase 
 was lower than in preceding years. Total municipal expenditures were 
 8.7 million dollars larger in 1932 than in 1928. as compared with 
 
Governmental Expenditukes in Connecticut 41 
 
 increases of 22.2 millions and 16.1 millions respectively in the next 
 preceding quadrennia. 
 
 From 1928 to 1932 expenditures on six of the ten major functions 
 of municipal governments increased, the aggregate increase amount- 
 ing to thirteen million dollars. Expenditures for charities increased 
 5.8 millions, or 223 per cent; for education, 3.6 millions, or 13 per 
 cent; for interest, 1.5 millions, or 28 per cent; for protection, 1.3 
 millions, or 13 per cent; for health, $706,000, or 18 per cent; and for 
 recreation, $27,000, or 1 per cent. 
 
 Disregarding the slight reductions in. miscellaneous items, expendi- 
 tures for only three functions declined from 1928 to 1932. The prin- 
 cipal reduction came in highways, the cost of which was less by 3.4 
 millions, or 19 per cent, in 1932 than in 1928. The reduction of expendi- 
 tures on public service enterprises by $708,000, or 14 per cent, was 
 not the conscious choice of municipal authorities but rather the natural 
 result of shrinkage in the sales of utility services. 
 
 The only other substantial reduction in expenditures for any 
 function from 1928 to 1932 was the cut of $716,000 in the costs of 
 general government. Expenditures on public buildings, which are 
 included in the costs of general government, amounted to $2,319,967 
 in 1920, $3,248,844 in 1924, $4,842,883 in 1928, and $2,639,348 in 
 1932. This single item of general governmental expense was $2,203,534 
 less in 1932 than 1928, but the reduction in all expenses for general 
 government during this period was only $716,000. 
 
 All of the itemized expenses of general government other than 
 those on public buildings have continued to rise during the depression. 
 Comparing 1932 with 1928, salaries were $220,000, or 18 per cent, 
 higher; judicial expenses were $200,000, or 25 per cent, higher; and 
 other administrative expenses were 1.1 million dollars, or 44 per cent, 
 higher. In short, the net reduction in the cost of general government 
 has come entirely from lowered costs on public buildings. Almost two- 
 thirds of a total decrease of 2.2 million dollars in expenses on public 
 buildings were absorbed by increases in salaries, judicial expenses, 
 and other administrative items. 
 
 It is hard to conceive of circumstances which would exert greater 
 pressure for reduction of municipal expenditures than those of the last 
 two or three years. Yet there is little in this record which indicates 
 any strong and effective movement to secure an actual reduction in 
 municipal expenditures. About all that the reporting municipalities 
 have succeeded in doing since 1928 is to reduce the rate of growth 
 at which their expenditures were mounting during the '20's. It is only 
 fair, however, to make allowance for the increased demands upon the 
 municipalities for unemployment relief. The increase of 5.8 million 
 
42 Report of Special Tax Commission 
 
 dollars in expenditures on charities from 1928 to 1932 was in large 
 measure unavoidable. For this very reason, one would have expected 
 redoubled efforts to bring down other costs. If there have been such, 
 they have met with little success. Practically all municipal services 
 cost more rather than less in the third and worst year of the depression 
 than they did in 1928, a year of great prosperity. 
 
 Cities and boroughs. 
 
 The expenditures of the consolidated and unconsolidated cities and 
 boroughs as a group, 2 classified by major functions, are presented in 
 Tables XIX and XX for the quadrennial years since 1920. 
 
 In each of 'the four quadrennial years cities and. boroughs 
 accounted for about two-thirds of all municipal expenditures. They 
 spent proportionately more on the protection of persons and property 
 and proportionately less on education and highways than did the 
 unconsolidated towns. Since 1920 the expenditures of cities and 
 boroughs on education have varied from 21 to 30 per cent of their 
 total governmental-cost payments; on highways, from 14 to 21 per 
 cent; on protection, from 14 to 15 per cent; on general government, 
 from 8 to 10 w per cent; on health, 5 to 6 per cent; and on charities, 
 3 to 10 per cent. Interest has absorbed 7 per cent of city and borough 
 expenditures in all four years. 
 
 Total expenditures of cities and boroughs have increased in almost 
 exact proportion to those of all reporting municipalities except for the 
 
 Table XIX 
 CITIES AND BOROUGHS: GOVERNMENTAL-COST PAYMENTS BY FUNC- 
 TIONS, QUADRENNIAL YEARS 1920 TO 1932 
 (In thousands of dollars) 
 
 Function 
 General government 
 Erotection of persons and property 
 Development and conservation of natural 
 
 resources 
 Conservation of health and sanitation 
 Highways, roads, and bridges 
 Charities, hospitals, and corrections 
 Education 
 
 Public service enterprises 
 Public parks and monuments 
 Interest * 
 
 Miscellaneous 1 
 
 Total 33,051 43,638 58,030 60,489 
 
 Source: Tax Commissioner, Quadrennial Reports of Indebtedness, Receipts and 
 
 Expenditures of Municipalities. 
 1 Includes taxes paid to other governments. 
 
 1920 
 
 1924 
 
 1928 
 
 1932 
 
 3,120 
 
 4,290 
 
 4,676 
 
 4,702 
 
 4,560 
 
 6,514 
 
 8,469 
 
 9 : 055 
 
 1,959 
 
 2.086 
 
 3,496 
 
 3,651 
 
 7,051 
 
 6,665 
 
 11,145 
 
 8,295 
 
 1,038 
 
 1,373 
 
 1,692 
 
 6,014 
 
 6,987 
 
 13,095 
 
 15,702 
 
 17,232 
 
 2,935 
 
 3,126 
 
 4,828 
 
 2.950 
 
 1,053 
 
 1,220 
 
 1,958 
 
 1,757 
 
 2,170 
 
 3,118 
 
 3,795 
 
 4,517 
 
 2,176 
 
 2,148 
 
 2,266 
 
 2,314 
 
Governmental Expenditures in Connecticut 43 
 
 Table XX 
 CITIES AND BOROUGHS: GOVERNMENTAL-COST PAYMENTS, PERCENT- 
 AGE DISTRIBUTION BY FUNCTIONS, QUADRENNIAL YEARS 1920 
 TO 1932 
 
 Function 1920 ' 1924 1928 1932 
 
 General government 
 
 9.4 
 
 9.8 
 
 8.1 
 
 7.8 
 
 Protection of persons and property 
 
 13.8 
 
 14.9 
 
 14.6 
 
 15.0 
 
 Development and conservation of natural 
 
 
 
 
 
 resources 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Conservation of health and sanitation 
 
 5.9 
 
 4.8 
 
 6.0 
 
 6.0 
 
 Highways, roads, and bridges 
 
 21.3 
 
 15.3 
 
 19.2 
 
 13.7 
 
 Charities, hospitals, and corrections 
 
 3.1 
 
 3.1 
 
 2.9 
 
 9.9 
 
 Education 
 
 21.1 
 
 30.0 
 
 27.1 
 
 28.5 
 
 Public service enterprises 
 
 8.9 
 
 7.2 
 
 8.3 
 
 4.9 
 
 Public parks and monuments 
 
 3.2 
 
 2.8 
 
 3.4 
 
 2.9 
 
 Interest 
 
 6.6 
 
 7.1 
 
 6.5 
 
 7.5 
 
 Miscellaneous 1 
 
 6.7 
 
 5.0 
 
 3.9 
 
 3.8 
 
 Total 100.0 100.0 100.0 100.0 
 
 Source: Preceding table. 
 1 Includes taxes paid to other governments. 
 
 period from 1928 to 1932. They increased 32 per cent from 192.0 to 
 1924, 33 per cent from 1924 to 1928, and 75 per cent for the eight- 
 year period 1920 to 1928. They increased only 83 per cent from 1920 
 to 1932, however, as compared with a 97 per cent increase for all 
 reporting municipalities. This difference came about because of a 
 4 per cent increase in city and borough expenditures from 1928 to 
 1932, whereas all reporting municipalities experienced a 10 per cent 
 increase. 
 
 Cities and boroughs have gone further with retrenchment than 
 have the towns. Total municipal expenditures increased almost 9 
 million dollars from 1928 to 1932, while those of cities and boroughs 
 increased only 2.5 millions even though they account for two-thirds of 
 all municipal expenditures. 
 
 While cities and boroughs have checked the rapid increase of 
 expenditures during the depression, they have not reversed the upward 
 trend. Their total expenditures increased 4 per cent from 1928 to 
 1932. Actual reductions in functional expenditures are recorded only 
 for highways, public service enterprises, and recreation. The first, 
 amounting to 2.9 millions, or 25 per cent of 1928 expenditures, prob- 
 ably represents a temporary postponement of highway construction and 
 reconstruction; the second, amounting to 1.9 millions, or 39 per cent, 
 has resulted largely from a decline in sales of public service enter- 
 prises. Expenditures for recreation were reduced only $200,000. 
 
 ' There were 41 cities and boroughs in 1920 and 1932 and 42 in 1924 and 1928. 
 
44 Repokt of Special Tax Commission 
 
 On all the other principal services of municipalities, cities and 
 boroughs increased their spendings from 1928 to 1932. Charitable 
 costs increased 255 per cent from 1.7 million dollars in 1928 to 6 
 millions in 1932; expenditures on education increased 1.5 millions, 
 or 10 per cent; on protection, $586,000, or 7 per cent; on health, 
 $155,000, or 5 per cent; and on general government, $26,000, or 
 1 per cent. 
 
 In addition to these increases of expenditures for operating 
 services, interest increased $722,000, or 19 per cent. Whether the prob- 
 lems arising from 1928 to 1932 furnished more reason for incurring 
 debt than those of previous periods, we cannot say. The record shows, 
 however, that even during prosperity cities and boroughs made liberal 
 use of their credit, and that the increase in the cost of interest from 
 1928 to 1932 was not a new development. Interest costs increased 44 
 per cent from 1920 to 1924, 22 per cent from 1924 to 1928, and 19 
 per cent from 1928 to 1932. 
 
 UNCONSOLIDATED TOWNS. 
 
 There remain for review the functional expenditures of the uncon- 
 solidated towns. 8 These are shown in Tables XXI and XXII classified 
 by major functions for the years 1920, 1924, 1928, and 1932. 
 
 The expenditures of unconsolidated towns amount to one-third of 
 those of all reporting local municipalities. These towns spend propor- 
 
 Table xxi 
 UNCONSOLIDATED TOWNS: GOVERNMENTAL-COST PAYMENTS BY FUNC- 
 TIONS, QUADRENNIAL YEARS 1920 TO 1932 
 (In thousands of dollars) 
 
 Function 1920 1924 1928 1932 
 
 General government 
 Protection of persons and property 
 Development and conservation of natural 
 
 resources 
 Conservation of health and sanitation 
 Highways, roads, and bridges 
 Charities, hospitals, and corrections 
 Education 
 
 Public service enterprises 
 Public parks and monuments 
 Interest 
 Miscellaneous 1 
 
 Total 14,812 19,997 27,532 32,392 
 
 Source: Tax Commissioner, Quadrennial Reports of Indebtedness, Receipts and 
 
 Expenditures of Municipalities. 
 1 Includes taxes paid to other governments. 
 
 1,635 
 
 2,686 
 
 4,381 
 
 3,643 
 
 282 
 
 438 
 
 794 
 
 1,454 
 
 153 
 
 195 
 
 345 
 
 809 
 
 2,856 
 
 3,350 
 
 5,702 
 
 5,446 
 
 806 
 
 849 
 
 1,084 
 
 2,970 
 
 6,577 
 
 9,209 
 
 12,006 
 
 14,105 
 
 58 
 
 69 
 
 130 
 
 139 
 
 117 
 
 93 
 
 142 
 
 370 
 
 976 
 
 1,149 
 
 1,527 
 
 2,107 
 
 1,351 
 
 1,959 
 
 1,419 
 
 1,347 
 
 8 There were 156 unconsolidated towns in 1920, 155 in 1924, and 154 in 1928 and 1932. 
 
1920 
 
 1924 
 
 1928 
 
 1932 
 
 % 
 
 % 
 
 % 
 
 % 
 
 11.0 
 
 13.4 
 
 15.9 
 
 11.2 
 
 1.9 
 
 ,1 
 
 2.2 
 
 2.9 
 
 4.5 
 
 1.0 
 
 1.0 
 
 1.3 
 
 2.5 
 
 19.3 
 
 16.8 
 
 20.7 
 
 16.8 
 
 5.4 
 
 4.2 
 
 ' 3.9 
 
 9.2 
 
 44.4 
 
 46.1 
 
 43.6 
 
 43.5 
 
 .4 
 
 .3 
 
 .5 
 
 .4 
 
 .8 
 
 .5 
 
 .5 
 
 1.1 
 
 G.6 
 
 5.7 
 
 5.5 
 
 6.5 
 
 9.2 
 
 9.8 
 
 5.2 
 
 4.3 
 
 Governmental Expenditures in Connecticut 45 
 
 Table XXII 
 UNCONSOLIDATED TOWNS: GOVERNMENTAL-COST PAYMENTS,, PERCENT- 
 AGE DISTRIBUTION BY FUNCTIONS, QUADRENNIAL YEARS 1920 
 TO 1932 
 
 Function 
 
 General government 
 
 Protection of persons and property 
 
 Development and conservation of natural 
 
 resources 
 Conservation of health and sanitation 
 Highways, roads, and bridges 
 Charities, hospitals, and corrections 
 Education 
 
 Public service enterprises 
 Public parks and monuments 
 Interest 
 Miscellaneous 1 
 
 Total 100.0 100.0 100.0 100.0 
 
 Source: Preceding table. ' 
 
 1 Includes taxes paid to other governments. 
 
 tionately more on education than do the cities and boroughs. Before 
 1932, towns allocated a slightly larger percentage of their expenditures 
 to charities than did cities and boroughs, but unemployment relief has 
 now thrown the balance to the side of the larger communities. Rela- 
 tively, towns spend slightly more on general government and slightly 
 less for interest than the larger units. 
 
 In the quadrennial years shown in the table, towns applied to 
 education from 44 to 46 per cent of their expenditures; to highways, 
 17 to 21 per cent; to general government, 11 to 16 per cent; to chari- 
 ties, 4 to 9 per cent; to interest, 6 to 7 per cent; to protection, 2 to 5 
 per cent; to health, 1 to 3 per cent; and to public parks, historical 
 sites, monuments, etc., 1 per cent. Miscellaneous expenditures, con- 
 sisting almost wholly of taxes paid to other governments, ranged from 
 4 to 10 per cent of town expenditures. No expenditures on the develop- 
 ment and conservation of natural resources were reported 'by towns. 
 
 ' Expenditures of the unconsolidated towns have increased more 
 rapidly than those of cities and boroughs since 1920. At 32.4 million 
 dollars in 1932, their governmental-cost payments were 119 per cent 
 more than they were in 1920. They rose 35 per cent from 1920 to 1924, 
 37 per cent from 1924 to 1928, and 18 per cent from 1928 to" 1932. 
 They were 85 per cent higher in 1928 than in 1920. 
 
 With only two exceptions, highways and general government, 
 larger expenditures were made on every major town function in each 
 successive quadrennial year since 1920. Town expenditures for both 
 health and protection were over five times as high in 1932 as in 1920; 
 
46 Report of Special Tax Commission 
 
 expenditures for both charities and public parks were between three 
 and four times as high ; for public service enterprises, general govern- 
 ment, interest, and education, between two and three times as high; 
 and for highways, almost twice as high. Expansion has taken place in 
 all town activities, but the more rapid rates of increase have occurred 
 in activities which are of secondary importance when measured by 
 absolute expense, such as health, protection, and charities. 
 
 Little has been accomplished in the way of retrenchment by the 
 unconsolidated towns since 1928. Only expenditures for general govern- 
 ment, highways, and miscellaneous items were less in 1932 than in 
 1928. Highway expenditures by these towns were $363,000, or 4 per 
 cent, less in 1932 than in 1928, but the total expenditures on the roads 
 of these towns were actually larger in 1932 than in 1928 because of 
 the application of most of the state dirt road appropriation to these 
 highways. The reduction of $62,000 in miscellaneous expenditures 
 appears to be an actual decline in town expense for purposes other than 
 taxes paid to other governments, but its small amount makes it of 
 minor consequence as a matter of retrenchment. The principal reduc- 
 tion in town expenditures from 1928 to 1932 was the $738,000 drop 
 in the costs of general government. 
 
 We have pointed out that the decline in general government 
 expense of all reporting municipalities is accounted for by reduced 
 expenses on public buildings. Retrenchment on this activity has been 
 greater in the unconsolidated towns than in the cities and boroughs. 
 Expenditures of cities and boroughs on public buildings declined from 
 two million dollars in 1928 to 1.2 millions in 1932. Towns, however, 
 reduced their public building expense from 2.8 million dollars in 1928 
 to 1.5 millions in 1932. In spite of the decline in public building 
 expense, the cost of general government in cities and boroughs was 
 approximately the same in both years. But the towns were able to 
 reduce their cost of general government $738,000 by reducing their 
 public building expense by 1.3 million dollars. Salaries, judicial 
 expens'es, and other administrative expenses have continued their 
 upward course during the depression, and the aggregate cost of general 
 government has been reduced from 1928 to 1932 only by liberal cuts 
 in appropriations for public buildings. 
 
 Municipal expenditures after 1932. 
 
 There have been changes in municipal expenditures since the 
 fiscal years ending next prior to October 10, 1932, to which the most 
 recent statistics of municipal finance of a comprehensive character 
 relate. The Commission is aware that many communities were not 
 awakened to the necessity for lower governmental costs until late in 
 
Governmental Expenditures in Connecticut 47 
 
 the depression and that action by those communities was taken after 
 1932. 
 
 To indicate the trend of municipal expenditures after 1932, only 
 f ragmentary.data are available. Preliminary figures from the state board 
 of education indicate, however, that educational expenditures of towns 
 and cities, which normally amount to at least one-third of total expendi- 
 tures, had been reduced by the 1933-34 school year to 26.6 million 
 dollars from 28.9 millions in 1932-33, 33.6 millions in 1931-32, 35.0 
 millions in 1930-31, and 35.3 millions in 1929-30. Here again a substan- 
 tial portion of the reduction was realized by curtailing capital outlays. 
 Current expenses of schools (including interest on loans) reached their 
 peak in 1931-32 at 31.8 millions and declined in the following year to 
 28.0 millions and in 1933-34 to 26.3 millions. 
 
 Other evidence of recent trends in municipal expenditures is 
 found in the tax levies reported annually by the tax commissioner. The 
 highest level was set in 1931, when aggregate municipal levies amounted 
 to 76.2 million dollars. In 1932 they were reduced to 75.6 millions, 
 to 74.2 millions in 1933, and to 72.9 millions in 1934.* 
 
 Reduction in municipal expenditures has lagged considerably 
 behind the decline in business activity. The maximum property tax 
 levy came in 1931, and the levy of 1932 was only slightly less. While 
 it is only fair to make allowance for the downward trend of municipal 
 expenditures since 1932, the statistics of more recent years are not 
 altogether reassuring. Since 1931, educational expenditures have been 
 reduced 6.1 million dollars, the state has relieved at least rural muni- 
 cipalities from increasing their appropriation for highways by its 
 appropriation of three million dollars for dirt roads, and the federal 
 government has provided liberal assistance to the municipalities in 
 financing unemployment relief. Still the levies imposed by municipali- 
 ties on their grand lists remain 3.2 million dollars above 1929 and are 
 only 3.3 millions below their peak in 1931. 
 
 Consolidated expenditures of all Connecticut governments. 
 Accounting for duplications. 
 
 Thus far we have considered the amounts, purposes, and trends 
 of the expenditures of the state, the counties, and the municipalities 
 separately. To indicate the amount spent by all governments in the 
 state on each of the principal functions of government, it is necessary 
 to consolidate the expenditure data of the three grades of government 
 already considered. 
 
 * Tax Commissioner, Information Relative to the Assessment and Collection of 
 Taxes, 1933, p. 8; Newspaper Release, June 13, 1934. 
 
48 Repokt op Special Tax Commission 
 
 Because two or more governments share in the financing of cer- 
 tain activities, some expenditures are duplicated in the combined state 
 and local expenditures taken from published reports. Some of the 
 expenditures reported by the state, for example, are also reported as 
 expenditures by the counties and municipalities. If the expenditures 
 of the state, the counties, and the municipalities were simply added 
 together, the resulting total would include a duplication of all expendi- 
 tures involving fiscal interrelationships of two or more governments. 
 This can be corrected only by charging a particular expenditure to one 
 government and eliminating it from the expenditures of others. 
 
 This can be done in several ways. Any particular expenditure 
 arising from transactions between governments may be charged to the 
 government raising the funds and making the first expenditure. This 
 would distribute expenditures according to the financial responsibility 
 of the several governments. Or expenditures may be distributed among 
 the governments according to their administrative responsibility for 
 the spending of the funds. In this way the expenditures are charged 
 to that government which administers the governmental service. The 
 second procedure has been employed in deriving the data presented in 
 this section. 
 
 If an expenditure is to be charged only once and to that govern- 
 ment which makes the functional expenditure, then the state expendi- 
 tures previously presented were inflated by 2.1 million dollars in 1928 
 and by 3.4 millions in 1932 ; the county expenditures, by $153,000 in 
 1928 and $224,000 in 1932 ; and the local municipal expenditures, by 
 3.7 millions in 1928 and 5.1 millions in 1932. The total duplication 
 of expenditures in the records of the three grades of government was 
 six million dollars in 1928 and 8.8 millions in 1932. 
 
 PtJBPOSES AND TRENDS, 1928 AND 1932. 
 
 The consolidated expenditures of state and local governments, 
 with these duplications eliminated,, classified by major functions, are 
 presented for fiscal years ending' next prior to the second Monday in 
 October, 1928 and 1932 in Tables XXIII and XXIV. 
 
 When the duplicated items in the expenditures of the state, the 
 counties, and the municipalities are eliminated, we 'find that the total 
 cost of state and local government in Connecticut amounted to 119.1 
 million dollars in 1928 and 129.4 millions in 1-932. Expenditures for 
 highways and education together were 64 .million dollars in each year 
 and accounted for 53 per cent of total expenditures in 1928 and 47 
 per cent in 1932. Charities cost 10 million dollars in 1928 and 21.6 
 millions in 1932 and absorbed 8.4 per cent of all expenditures in 1928 
 and 16.7 per cent in 1932. General government and protection of per- 
 
Governmental Expenditures in Connecticut 
 
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Governmental Expenditures in Connecticut 51 
 
 sons and property each cost about 12 million dollars in each of the 
 years 1928 and 1932 and constituted about 10 per cent of total expendi- 
 tures in these years. Each of the other six functions cost less than 10 
 million dollars and represented less than 6 per cent of the total expendi- 
 tures in each of these vears. 
 
 The two principal causes of the increased expenditures on chari- 
 ties and corrections are to some extent temporary in character. We 
 have previously noted the large state expenditures for permanent 
 improvements to state institutions which were made in the fiscal year 
 1931-32. These capital outlays account for a substantial part of the 
 increase of 5.6 million dollars in the state, expenditures on this func- 
 tion. However, the principal cause of the increase i-n charitable expense 
 has been the increased demands upon governments of all grades for 
 funds to relieve the distress of unemployment resulting from business 
 depression. This has been reflected not alone in larger ^expenditures 
 for outdoor relief but also in the higher costs of institutions which have 
 had to handle a larger number of inmates. 
 
 Assuming that extraordinary capital outlays of the state account 
 for four or five millions of the 12 million dollar increase in charitable 
 expenditures, there remain from seven to eight million dollars repre- 
 senting the added cost incurred by state and local governments, par- 
 ticularly by municipal governments, in providing emergency relief 
 for the unemployed. Reasoning from these facts alone, it is only fair 
 to say that, were it not for the much higher total of the charitable 
 expense, the costs of government in this state for 1932 might have been 
 only slightly higher, if not less, than those of 1928. 
 
 The disturbing aspect of the expenditure situation is that sub- 
 stantial reductions have been made only in expenditures for permanent 
 improvements. The major savings have been made, first, in highways, 
 secondly, in general government, and finally, in public service enter- 
 prises. Retrenchment in highway costs represents largely the lowering 
 of state outlays on construction and the reducing of expenditures on 
 streets in the cities and boroughs. The urban retrenchment in highway 
 costs may prove to have been uneconomical if reconstruction and main- 
 tenance have been neglected to the point where the investment in city 
 streets has been partially sacrificed. The reduced costs of general gov- 
 ernment have resulted, not from declines in salaries, judicial expenses, 
 or other administrative expenses, but again from large reductions in 
 expenditures on public buildings. Lowered expenditures for public 
 service enterprises have resulted largely from the decline in the sales of 
 these enterprises. 
 
 Expenditures on a majority of the major governmental functions 
 increased from 1928 to 1932. The large increase in charitable expendi- 
 
52 Report of Special Tax Commission 
 
 tures has already been noted. But expenditures for education increased 
 during the period almost 3.7 million dollars, or 13 per cent; those for 
 protection, 1.7 millions, or 15 per cent; those for interest, 1.5 millions, 
 or 24 per cent; those for conservation of health, $709,000, or 15 per 
 cent ; and those for development and conservation of natural resources, 
 $158,000, or 17 per cent. 
 
 On those functions for which expenditures increased, there was 
 spent in 1932 almost 20 million dollars more than in 1928. This gross 
 increase was offset by reductions of about 9 millions in four functions, 
 including miscellaneous expenditures. Thus the net increase in govern- 
 mental-cost payments during the four years amounted to 10.2 million • 
 dollars. 
 
 Twenty-year trend, 1912 to 1932. 
 
 The expenditures which have now been reviewed relate to a rela- 
 tively short, recent period. To understand them more completely we 
 need to view them as part of a longer record extending backward at 
 least twenty years and taking in the situation existing prior to the 
 World War. For such a general comparison it is not necessary to deal 
 with the details of functional expenditures nor to refine the reported 
 data to eliminate duplicated items arising from intergovernmental 
 transactions. In Tables XXV and XXVI there are presented the 
 expenditures of the state government as reported by the state comp- 
 troller, the expenditures of counties and municipalities as reported in 
 the quadrennial reports of indebtedness, receipts, and expenditures of 
 municipalities, exclusive of expenditures for sinking fund or debt retire- 
 ment, the total state and local expenditures derived from the above 
 data, the population of the state, the index numbers of wholesale com- 
 modity prices, and the estimated wealth and income of the state during 
 the period from 1912 to 1932. 
 
 In terms of actual dollars and cents, expenditures have increased 
 continuously and rapidly from 1912 to 1932. State expenditures rose 
 six-fold, from less than seven million dollars to over 41 millions. 
 County and municipal expenditures increased considerably more than 
 four-fold, from 22.5 million dollars to 96.8 millions. Total state and 
 local expenditures rose more than four and one-half times, from 29.2 
 millions to 138.0 millions. 
 
 In actual dollars, total state and local expenditures increased 136 
 per cent from 1912 to 1920. But prices, as measured by the wholesale 
 price index of the United States Bureau of Labor Statistics, rose from 
 69.1 per cent of the 1926 base in 1912 to 154.4 per cent in 1920— 
 an increase of 123 per cent for the period. During this period, there- 
 fore, total expenditures increased almost proportionally to the rise in 
 
GoVEKNMENTAL ExPENDITUBES IN CONNECTICUT 53 
 
 Table XXV 
 STATE, COUNTIES, AND MUNICIPALITIES: GOVERNMENTAL-COST PAY- 
 MENTS BEFORE ELIMINATING DUPLICATIONS, POPULATION, 
 WHOLESALE PRICES, ESTIMATED WEALTH AND INCOME, 1912 TO 
 1932 
 
 Governmental-cost payments Wholesale 
 
 Counties and price Estimated Estimated 
 
 Year State municipalities Total Population 1 index 2 wealth 3 income* 
 
 (1926 = 
 (In thousands of dollars) (In thousands) 100) (In millions of dollars) 
 
 1910 — — — 1,115 — — — 
 
 1912 6,656 22,534 29,190 — 69.1 2,370 — 
 
 1916 7,876 30,740 38,616 — 85.5 — — 
 
 1920 19,375 49,336 68,711 1,381 154.4 7,741 1,387 
 
 1922 - • 5 286 
 
 1924 24,128 65,302 89,430 1,480 98.1 ' — 1,168 
 
 1926 _____ 6,067 — 
 
 1928 36,506 88,471 124,977 1,568 96.7 6,152 1,478 
 
 1930 — — — 1,612 . — 5,465 1,391 
 
 1932 41,223 96,792 138,015 1,634 64.8 — 874 
 
 Sources: State Comptroller, Annual Reports; Tax Commissioner, Quadrennial Re- 
 ports of Indebtedness, Receipts and Expenditures of Municipalities ; Sta- 
 tistical Abstract of the United States, 1933, pp. 9, 259, 280; National 
 Industrial Conference Board, Conference Board Bulletins, Feb. 25, 1930 
 and Feb. 20, 1932; Brookmire Economic Service, Letter to State Planning 
 Board dated Oct. 8, 1934. 
 "Population reported by the U. S. Bureau of the Census for 1910 and 1920; mid- 
 year estimates of the U. S. Department of Commerce for other years. 
 ! U. S. Bureau of Labor Statistics index. 
 
 8 Estimates of the U. S. Bureau of the Census for 1912 and 1922 and of the 
 National Industrial Conference Board for other years. 
 * Estimates of the Brookmire Economic Service. 
 
 Table XXVI 
 STAT%,' COUNTIES, AND MUNICIPALITIES: AGGREGATE GOVERNMENTAL- 
 COST PAYMENTS BEFORE ELIMINATING DUPLICATIONS COMPARED 
 WITH POPULATION, WHOLESALE PRICES, ESTIMATED WEALTH AND 
 INCOME, 1912 TO 1932 
 
 t In 
 
 Percentage of Percentage of 
 estimated wealth estimated income 
 
 1.23 — 
 
 .89 4.95 
 
 1.58 7.66 
 
 2.03 8.46 
 
 15.79 
 
 
 In 
 
 In 
 
 In current 
 
 dollars of 1926 
 
 1926 dollars 
 
 Year dollars 
 
 purchasing power 
 
 per capita 
 
 (In thousands of dollars) 
 
 
 1912 29,190 
 
 42,238 
 
 $36.15 1 
 
 1916 38,616 
 
 45,181 
 
 35.44 1 
 
 1920 68,711 
 
 44,525 
 
 32.24 
 
 1922 — 
 
 — 
 
 — 
 
 1924 89,430 
 
 91,162 
 
 61.60 
 
 1926 — 
 
 ■ — • 
 
 — 
 
 1928 124,977 
 
 127,352 
 
 81.22 
 
 1930 — 
 
 ■ — ■ 
 
 — 
 
 1932 138,015 
 
 212,957 
 
 130.33 
 
 Source: Preceding table. 
 
 
 1 Population estimated 
 
 by interpolation. 
 
 
54 Report of Special Tax Commission 
 
 commodity prices. The comparison is even closer when the extraor- 
 dinary state expenditure for Soldiers' Relief Fund bonds is excluded 
 from the 1920 total. In terms of dollars of constant purchasing power, 
 total state and local expenditures were practically the same in 1920 
 and 1912 although population increased from 1,115,000 in 1910 to 
 1,381,000 in 1920, or 24 per cent. 
 
 After 1920, however, total expenditures in current dollars con- 
 tinued to increase while wholesale prices fell. In terms of dollars of 
 1926 purchasing power in wholesale markets, total expenditures rose 
 from 44.5 million dollars in 1920 to 91.2 millions in 1924, 127.4 mil- 
 lions in 1928, and 213.0 millions in 1932. To the extent that retail 
 prices, salaries, wages, etc. kept pace with wholesale prices, the cost 
 of state and local government represented the equivalent of almost 
 five times as many goods and services in 1932 as in 1920. 
 
 This contrast in the growth of state and local expenditures in 
 1926 dollars prior to and after 1920 is even more distinct in the figures 
 of per capita expenditures corrected by the wholesale price index based 
 upon 1926. We find that per capita expenditures in dollars of 1926 
 purchasing power were about $36.15 in 1912 and only $32.24 in 1920 
 but that they rose rapidly to $61.60 in 1924, $81.22 in 1928, and 
 $130.33 in 1932. 
 
 Available data of the wealth and income of the state are far less 
 reliable than those for population and prices. At best they are very 
 rough estimates. But since they are quite generally used in current 
 discussions, we make use of them here for whatever further light they 
 may shed upon our state and local expenditure record. Total state and 
 local expenditures were 1.23 per cent of estimated wealth in 1912, 
 0.89 per cent in 1920, 1.58 per cent in 1924, and 2.03 per cent in 1928. 
 They were 4.95 per cent of estimated state income in 1920, 7.66 per 
 cent in 1924, 8.46 per cent in 1928, and 15.79 per cent in 1932. 
 
 When it is remembered that the cost of the federal government to 
 the individuals and businesses of this state adds a burden of probably 
 not less than one-half that of the state and localities, that this burden 
 has also rapidly increased during the depression, and that, with federal 
 expenditures expanding as they are, the absolute amount of federal 
 taxes is bound to increase, we have a reasonably clear picture of the 
 burden of expenditures which has resulted from a liberal spending 
 policy followed by an unprecedented shrinkage in wealth and income. 
 
 Need of reduction and control of expenditures. 
 
 We are aware of the difficulties besetting any concerted effort to 
 reduce substantially governmental expenditures. The history of modern 
 governments is a record of continuous increase of expenditures. Prob- 
 
Governmental Expenditures in Connecticut 55 
 
 ably no slogans have figured more frequently in political campaigns 
 than economy in government and reduction in governmental costs. But 
 with each new administration expenditures are pushed to a higher 
 level. Few, if any, special studies of governmental finance have failed 
 to stress the absolute necessity of lowered expenditures if increasing 
 tax burdens are to be checked and reversed. Yet there have been prac- 
 tically no actual reductions except in the few governments which during 
 the depression had no other choice than to curtail their services. 
 
 It is one thing to urge retrenchment as an abstract proposition ; 
 it is another matter actually to lower costs of governmental activities. 
 None will openly defend waste or extravagance in the disposition of 
 governmental funds. But the greatest diversity of opinion exists on 
 what are waste and extravagance in particular expenditures. 
 
 Legislative action is the final authority for weighing the advan- 
 tages and disadvantages of governmental services, for balancing them 
 against the tax burdens which they impose, and for reaching decisions 
 which in the aggregate determine how much our government will cost. 
 We know of no method of determining statistically or deductively what 
 a government should spend on this or that activity or on all activities. 
 Statistics of the sort presented in this chapter should aid in reaching 
 sound decisions. But basically, expenditures are matters of public 
 policy, which the people alone, through their representatives, can 
 decide. 
 
 While we are keenly aware of these practical difficulties in control- 
 ling expenditures in democratic governments, we are convinced that 
 only by overcoming these difficulties and actually reducing and limiting 
 our state and local expenditures can there be any permanent and sub- 
 stantial relief from existing tax burdens. We have not been charged 
 with the responsibility of evaluating the services for which govern- 
 mental funds are now being spent. We are not prepared to advise the 
 General Assembly what reductions in expenditures to make. We do 
 have the responsibility, however, of finding ways and means of placing 
 municipal finance on a sound basis and of studying the possibility of 
 reducing or limiting the load of taxation borne by real estate. We are 
 forced to the conclusion that neither of these ideals can be attained if 
 the state, the counties, and the municipalities continue to spend each 
 year beyond their income and to increase their expenditures faster than 
 the growth of private wealth and income. Continuance in these prac- 
 tices will make impossible any real reduction in the burden of taxation 
 and eventually can only mean the undermining of our social and eco- 
 nomic system and the inevitable decline in standards of living. 
 
 Out of the exigencies of the depression have developed several pro- 
 cedures for securing lowered costs of government. Practically all state 
 
56 Repoet of Special Tax Commission 
 
 and local governments have made substantial reductions in extra- 
 ordinary expenditures for permanent improvements. This is the most 
 obvious type of retrenchment, but it is often intended and is likely to 
 be temporary in character. This is practically the only action thus far 
 taken by our state and local governments to reduce costs. 
 
 In other states there has been a revival of arbitrary and stringent 
 limitations on taxes and debts, imposed to force reductions in expendi- 
 tures whatever the effects may be on governmental services. Not infre- 
 quently these devices create problems more "difficult than those they 
 are intended to solve, and whatever reductions they cause are likely 
 to be temporary and to be bought at too high a price. 
 
 In all states the adequacy and economy of our traditional organiza- 
 tion of state and local government into jurisdictions of small areas are 
 being scrutinized as never before. There is widespread recognition of 
 the handicaps of defective budgeting, loose accounting, and unintelli- 
 gible reporting in effecting an intelligent public control of expenditures. 
 More attention is being given to broadening the distribution of the tax 
 burden, principally in order to redistribute the load but also to effect in 
 some degree a correlation between the power to vote expenditures and 
 the responsibility to pay for them. 
 
 In all these directions progress is being made to the end that the 
 public shall not be deprived of services which it wants and is willing 
 to pay for, and that there may be a better informed, more direct, and 
 more effective control by the public of the cost of its collective activities. 
 In subsequent chapters of this report recommendations will be made by 
 this Commission to accomplish, in some degree, these purposes. 
 
 StTMMAEY. 
 
 State expendituees. 
 
 From 75 to 8.0 per cent of all state expenditures from 1927-28 
 to 1932-33 were made for highways, charities and corrections, and 
 education. Highways required from 33 to 47 per cent of all state 
 expenditures; charities and corrections, from 20 to 32 per cent; and' 
 education, from 12 to 14 per cent. All other state functions, consisting 
 of general government, protection of persons and property, develop- 
 ment and conservation of natural resources, conservation of health and 
 sanitation, public parks, interest, and miscellaneous, accounted for 
 less than 25 per cent of all state expenditures. 
 
 Although the expenditures for particular functions varied sub- 
 stantially from year to year because of expenditures for permanent 
 improvements, the total capital outlays of the state government were 
 reasonably constant in most years from 1927-28 to 1932-33. For an 
 enterprise as large as the state government a considerable percentage 
 
Governmental Expenditures in Connecticut 57 
 
 of all state expenditures will regularly and inevitably be required for 
 permanent improvements. Borrowing to finance such regularly recur- 
 ring -capital outlays is no more justified than borrowing to finance 
 operating expenses. 
 
 Operating expenses increased each year from 1927-28 to 1932-33. 
 Expenditures caused directly or indirectly by the depression account 
 for the increase of operating expenses for charities, and similar expen- 
 ditures together with the transfer of three million dollars of the high- 
 way fund from use on the state highways to town roads, explain the 
 increased operating expenses for highways. But the operating expenses 
 of every one of the major state functions were larger in 1932-33 than in 
 1927-28, and the aggregate operating expenses increased 43 per cent 
 during the period. 
 
 State expenditures, including capital outlays, were reduced from 
 1931-32 to 1932-33 by about five million dollars. This reduction was 
 more than accounted for by a decline of 6.4 million dollars in capital 
 outlays. 
 
 Statistics of state expenditures for 1933-34 were not available at 
 the time of writing this report. Hence preliminary figures of disburse- 
 ments for 1933-34 were compared with the disbursements of 1932-33 to 
 indicate the amount and trend of expenditures during 1933-34. This 
 comparison shows that the . aggregate expenditures of the state itself 
 were some six million dollars more in 1933-34 than they would have 
 been if the federal funds for unemployment relief had been expended 
 directly by the federal government instead of passing through the state 
 treasury." Expenditures of strictly state moneys were somewhat less in 
 1933-34 than they were in 1932-33, largely because of the reduction of 
 salaries of state employees and of the virtual cessation of expenditures 
 for permanent improvements from the general fund. 
 
 About all the possible reduction in state expenditures obtainable 
 from the postponement of expenditures on permanent improvements 
 and wholesale reduction of salaries appears to have been made. Further 
 reduction in the costs of the state government will require the elimina- 
 tion of unnecessary or uneconomical services, reorganization of depart- 
 ments, the discharge of unnecessary personnel, and generally increased 
 efficiency. 
 
 County expenditures. 
 
 About 95 per cent of total county expenditures are made for chari- 
 ties and corrections, general government, and interest. In 1932-33 about 
 three-fourths of county expenditures were required for the maintenance 
 and operation of county homes and jails and for other charitable activi- 
 
 5 To improve the clarity of this sentence, its wording has been slightly changed from 
 that appearing in the first printing of the summary. 
 
58 Report of Special Tax Commission 
 
 ties. Interest is a substantial cost only to Hartford County and amounts 
 to from 7 to 8 per cent of all county expenditures. 
 
 County expenditures for general government from 1927-28 to 
 1932-33 were abnormal because of the extraordinary expenditures 
 made in 1927-28 and 1928-29 for the new Hartford County Building. 
 Expenditures for general government of all counties except Hartford 
 County increased each year from 1927-28 to 1929-30, when they 
 amounted to $206,696. They declined each year after 1929-30 until 
 they reached $157,846 in 1932-33. This reduction of the cost of gen- 
 eral government was made in expenditures on county buildings and 
 not in the salaries and expenses of county officials. Total expenditures 
 of these seven counties increased about $300,000 from 1927-28 to 
 1929-30 and decreased about $70,000 from 1929-30 to 1932-33. Com- 
 pared with the increase of total expenditures in prior years, the reduc- 
 tion made up to the end of 1932-33 was relatively small. 
 
 Municipal expenditures. 
 
 Expenditures of the municipalities constitute more than two- 
 thirds of the governmental-cost payments of all state and local govern- 
 ments. Municipal expenditures for every major governmental function 
 except the development and conservation of natural resources are sub- 
 stantial. Education is the most costly municipal function and required 
 28 to 35 per cent of total municipal expenditures in the quadrennial 
 years from 1920 to 1932. Highways required from 15 to 21 per cent; 
 protection of persons and property, 10 to 11 per cent; general govern- 
 ment, 9 to 11 per cent ; and interest, 6 to 7 per cent. 
 
 Total municipal expenditures increased from 48 million dollars 
 to 95 millions, or 98 per cent, from 1920 to 1932. They increased in 
 every one of the three quadrennia, but the rate of increase from 1928 to 
 1932 was considerably less than that of the two preceding quadrennia. 
 
 In the quadrennium from 1928 to 1932 expenditures of munici- 
 palities on charities were substantially increased by the demands of 
 unemployment relief. Although this accounts for a considerable part of 
 the increase of municipal expenditures during the period, expendi- 
 tures for all but three major functions were higher in 1932 than in 
 1928. Aside from the reduction in expenditures of municipal public 
 service enterprises, resulting in no small part from shrinkage in sales, 
 the only substantial reductions in municipal expenditures were made 
 in the construction and maintenance of highways and in the construc- 
 tion and operation of public buildings. In fact, increases in expendi- 
 tures for salaries, courts, and other administrative- expenses offset a 
 substantial part of the reduction in expenditures on public buildings 
 and resulted in a smaller reduction in the total cost of general govern- 
 
Governmental Expenditures in Connecticut 59 
 
 ment than was made in expenditures on public buildings alone. Despite 
 the strong pressure for governmental economy which the depression 
 brought into existence, practically all municipal services cost more 
 rather than less in the third and worst year of the depression than they 
 did in the last full year of prosperity. 
 
 Only the statistics of municipal school expenditures for the school 
 years 1932-33 and 1933-34 and of the property tax levies for 1933 
 and 1934 are available to indicate the trend of municipal expenditures 
 after 1932. School expenditures in 1933-34 were 2.3 million dollars 
 less than in 1932-33, 7.0 millions less than in 1931-32, and 8.7 millions 
 less than in the peak year, 1929-30. The grand levy of property taxes, 
 however, in 1934 was only 1.3 million dollars less than in 1933, 2.7 
 millions less than in 1932, and 3.3 millions less than in the peak year, 
 1931. The levy of 1934, moreover, was 3.2 million dollars larger than 
 the levy of 1929. Although school expenditures alone were reduced 
 8.4 million dollars from 1930-31 to 1933-34, although the state 
 has expended three millions annually since 1931 on town roads, and 
 although the federal government has assisted in the financing of unem- 
 ployment relief, property tax levies have decreased since 1931 at a 
 rate not in excess of two per cent per year. 
 
 Consolidated state and local expenditures. 
 
 Because two or more governments participate in the financing of 
 certain activities, there is some duplication in the expenditures reported 
 for the state, the counties, and the municipalities. The Commission's 
 analysis indicates that the consolidated state, county, and municipal 
 expenditures in 1932 were 8.8 million dollars less than the sum of the 
 expenditures reported individually for the state, the counties, and the 
 municipalities in that year. When duplicated expenditures are 
 eliminated, the total state and local expenditures amounted to 119.1 
 million dollars in 1928 and 129.4 millions in 1932. 
 
 State and local expenditures are four to five times higher at 
 present than they were in 1912. Allowing for increases of population 
 and changes in prices, they are at least three times higher now than 
 they were in 1912. They increased 1.7 times as rapidly from 1912 to 
 1928 as the estimated state wealth, and they were twice as high in 
 1932 as in 1920 even though the estimated income of the state was 32 
 per cent less in the later than in the earlier year. 
 
 Need for reduction and control op state and local 
 expenditure s. 
 Although the Commission appreciates the difficulties of reducing 
 and controlling expenditures in democratic governments, it is con- 
 
60 Report of Special Tax Commission 
 
 vinced that these difficulties must be overcome if there is to be substan- 
 tial and permanent relief from the burden of state and local 
 taxation. It is self-evident that governmental spending in excess of 
 income and at a rate of increase more rapid than that of the growth 
 of the wealth and income of the citizens of the state means a continued 
 increase in tax burdens and, eventually, the decline in standards of 
 living. 
 
 Determining the amount and scope of governmental expenditures 
 is a matter of public policy. The Commission has not been charged 
 with the responsibility of making recommendations for the reduction 
 of particular expenditures. It cannot too strongly urge the necessity 
 for further reduction and a more effective control of expenditures if 
 the load of taxation now borne by real estate is to be substantially 
 reduced. Recommendations made in following chapters of the report' 
 provide for improved budgeting by municipalities and for a broader 
 distribution of the tax burden. These should assist in securing in some 
 degree a better control of expenditures in the future. 
 
CHAPTER III 
 
 GOVERNMENTAL REVENUES IN CONNECTICUT 
 
 Introduction. 
 
 Under the terms of the General Assembly's act the Commission 
 is directed to "study and inquire into the problems of state and local 
 taxation in this state, . . . the distribution of the tax burden with 
 particular reference to the possibility of reducing or limiting the load 
 of taxation borne by real estate, the problem of the assessment and col- 
 lection of taxes", and to recommend legislation which will "provide a 
 tax system in this state which shall be fair and equitable and which 
 shall distribute the tax load more widely and equitably among tax- 
 payers and taxpaying groups and which shall in particular reduce the 
 load of taxation on real estate, if possible." These instructions alone 
 involve a thorough evaluation and reformulation of the Connecticut 
 system of state and local taxation. The purpose of this chapter is to 
 lay the groundwork for this broad inquiry. The more detailed phases 
 of the inquiry constitute the subject matter of later chapters. 
 
 State revenues. 
 
 Soukces OF STATE INCOME, 1927-28 TO 1932-33. 
 
 In considering state revenues in this section, the "income" figures 
 of the state comptroller rather than his figures of "revenue receipts" 
 will be used. Income, as previously explained, consists of the net 
 revenues which have accrued to the state government from its opera- 
 tions during each fiscal year whether such revenues are received in 
 the year in which they accrue or in another year. Since the comp- 
 troller's reports present only a general classification of income and no 
 sub-classification of income from taxes, it was necessary to compile the 
 income from particular taxes from the office records of the comptroller. 
 We have followed the comptroller's figures of original entry strictly, 
 even including a few entries which appear to be wrongly classified. 
 Such entries, if they affect any of the individual tax items when 
 rounded off to thousands of dollars, are noted in the following tables. 
 
 In the period 1927-28 to 1932-33 all of the receipts of the state 
 were revenue receipts. Borrowing was not resorted to until the fiscal 
 year 1933-34. Expenditures did exceed income in the fiscal years 
 1931-32 and 1932-33, but, as shown in the preceding chapter, the sur- 
 
62 Report or Special Tax Commission 
 
 plus funds which had been accumulated in prior years proved sufficient 
 to cover these two budget deficits. 
 
 In Tables XXVII and XXVIII there are presented for the six 
 years 1927-28 to 1932-33 statistics of the income of the state classified, 
 not by individual taxes, but by groups of taxes of similar kinds. 
 
 More than one-fifth of the total income of the state from 1927-28 
 to 1932-33 was derived from sources other than taxes. 
 
 Grants for state activities received from the federal government 
 and the municipalities ranged from 1.2 million dollars to 3.1 millions 
 and constituted from 3.6 to 8.9 per cent of the total income. Federal 
 grants are made for highways, education, agriculture, and forestry. It 
 was not until the fiscal year 1933-34 that any appreciable amount of 
 federal aid was received for unemployment relief purposes. Municipal 
 grants include funds , advanced to cover a portion of the cost of state 
 aid highways and also substantial sums for widows' aid and for the 
 support of trade and normal schools. 
 
 Licenses, permits, and fees, between 1927-28 and 1932-33, yielded 
 from 2.7 million dollars to 3.4 millions, or 6.6 to 10.1 per cent of total 
 state income. The presumption is that the income from these items will 
 be just sufficient to meet the cost which the state incurs in rendering 
 the services or will be commensurate with the value of the privilege 
 granted. 
 
 Other sources of non-tax income are sales of commodities and 
 services ; rents, . interest, and dividends ; and fines, penalties, and for- 
 feitures. Sales of commodities and services by state institutions and 
 departments yielded from 1.2 millions to 1.6 million dollars from 
 1927-28 to 1932-33 and constituted from 3.4 to 4.6 per cent of the 
 state's income. Interest amounted to from $278,000 to $872,000, or 
 from 0.8 to 2.6 per cent of the total income; and fines, penalties, and 
 forfeitures produced an income ranging from $198,000 to $492,000 
 during the period. ISTon-tax income includes, finally, the receipts of 
 working capital funds and small amounts of income from escheats and 
 miscellaneous items. 
 
 From 75 to 80 per cent of the total income of the state from 
 1927-28 to 1932-33 came from taxes. The state imposes no direct per- 
 sonal taxes but derives its tax revenues from a large number of indi- 
 vidual taxes classified in Table XXVII as property, business, and mis- 
 cellaneous taxes. For the whole period about one-half of the state's tax 
 income came from miscellaneous taxes, about one-third from business 
 taxes, and about one-sixth from property taxes. The precise distribu- 
 tion in each case is shown in Table XXVIII. 
 
 State property taxes fall into three general categories — those on 
 general property, consisting of the state and military taxes; those on 
 
Governmental Revenue in Connecticut 
 
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Governmental Revenue in Connecticut 65 
 
 intangible personal property, consisting of the choses-in-action and 
 estate penalty taxes ; and those" imposed on the gross earnings of trans- 
 portation and communication companies in lieu of general property 
 taxes, together with a small sum realized from the state tax on shellfish 
 grounds. The state and military taxes varied from 1.7 million to 1.8 
 million dollars and amounted to less than six per cent of the annual 
 state income from 1927-28 to 1932-33. The state taxes on intangible 
 personal property produced from $413,000 to $537,000 annually and 
 varied from one to two per cent of total income. 
 
 Normally the taxes imposed on transportation and communica- 
 tion companies in lieu of property taxes yield the largest income of any 
 of the classes of property taxes. The income from this source shown for 
 1932-33, however, is artificially large, since it represents merely the 
 shifting of income from the fiscal year 1933-34 to the fiscal year 1932- 
 33 which resulted from the action of the last General Assembly advanc- 
 ing .the assessment period of taxes on the gross earnings of steam rail- 
 roads and street railways from the first ten days in July to the first 
 ten days in June. This is explained in detail in the footnotes to Table 
 XXVII. Excluding frorn the 1932-33 total the amount normally 
 attributable to the fiscal year 1933-34, the income from these taxes 
 varied from 2.4 million dollars to 3.2 millions, or from 7.6 to 9.4 per 
 cent of total state income, from 1927-28 to 1932-33. 
 
 The state's system of business taxes includes a considerable num- 
 ber of different taxes on financial institutions, local public utilities, 
 miscellaneous corporations, and unincorporated business. Taxes on 
 financial institutions consist of the franchise tax on the stock of 
 domestic stock insurance companies, the investment income tax on 
 domestic mutual insurance companies, the premium taxes on nonresi- 
 dent and alien insurance companies, the taxes on savings deposits, and 
 the tax on nonresident shares of domestic stock insurance companies and 
 state banks. From these taxes on financial institutions the state received 
 from 1927-28 to 1932-33 as much as 6.0 million dollars and as little 
 as 3.7 millions annually, or from 11.4 to 15.8 per cent of its total 
 income. From the franchise tax of one and one-half per cent of the 
 gross earnings of local public utilities it received from $626,000 to 
 $790,000, or from 1.9 to 2.4 per cent of its total income. From the 
 tax of two per cent on the net income of miscellaneous corporations it 
 received from $786,000 to 3.5 million dollars, or from 2.4 to, 8.6 per 
 cent of its income. And from the tax at differentiated rates on the gross 
 earnings of unincorporated manufacturers, wholesalers, and retailers 
 the state itself received from $187,000 to $414,000, or from 0.6 to 1.2 
 per cent of its income. "Other business taxes" include only the unpro- 
 
66 Eepoet op Special Tax Commission 
 
 ductive tax on investment brokers and the small tax assessed against 
 the International Banking Corporation. 
 
 Inheritance and special motor vehicle taxes are the principal 
 items included in miscellaneous taxes. The taxes on successions and on 
 estates are levied in consideration of the privilege extended to indi- 
 viduals to transmit property from one generation to another. These 
 taxes yielded from 2.4 millions to 5.0 million dollars from 1927-28 
 to 1932-33 and accounted for from 7.4 to 12.3 per cent of all state 
 income. Special motor vehicle taxes, including the gasoline tax, the 
 registration tax, and the motor bus tax, are imposed upon motor vehicle 
 users in consideration of the benefits derived from the use of the 
 state highways. These taxes account for about one-third of the total 
 state income. Their yield, which ranged from 8.9 million to 11.0 
 million dollars from 1927-28 to 1932-33, was in every year at least twice 
 that of all the taxes on financial institutions, three and one-half times 
 that of the tax on all miscellaneous corporations, four times that of the 
 taxes on transportation and communication companies, and six times 
 that of the state and military taxes. 
 
 While, in form, the taxes on the seating capacity of places of amuse- 
 ment and on the sale of alcoholic beverages have the appearance of busi- 
 ness taxes, they have been classified as miscellaneous taxes on the pre- 
 sumption that they were intended to be consumption taxes. Whether this 
 classication is or is not warranted is of little importance in the period 
 from 1927-28 to 1932-33 since the two taxes combined produced less 
 than $250,000 in every year. 
 
 Trends of state income, 1927-28 to 1932-33. 
 
 From 1927-28 to 1930-31. 
 
 State income showed an upward trend during the '20's which con- 
 tinued until the fiscal year 1930-31, when a maximum yield of 40.5 
 million dollars was reached. It was only because certain objects of taxa- 
 tion are not highly sensitive to business conditions and because certain 
 taxes are assessed in one fiscal year upon conditions existing in previous 
 fiscal years that the state income continued to increase until the depres- 
 sion was well under way. Sales of public utility services, savings 
 deposits, gasoline consumption, and motor vehicle registrations were not 
 reduced during the first two years of the depression, and the taxes on 
 these objects maintained or increased their yields until 1931-32. The 
 increase from 1929-30 to 1930-31 in the income from the inheritance 
 taxes, from the tax on miscellaneous corporations, and from the taxes in 
 lieu of property taxes on transportation and communication companies 
 is explained by the assessment of these taxes in 1930-31 on the valua- 
 
Governmental Revenue in Connecticut 67 
 
 tion of property or the volume of business profits existing partially or 
 wholly prior, to the beginning of the depression. 
 
 Certain of the state revenues were immediately affected by the 
 business depression. Revenues from the sales of commodities and serv- 
 ices, from the unincorporated business tax, and from the tax on places 
 of amusement were at their maximum in the last fiscal year of business 
 prosperity, 1928-29. 
 
 Feom 1930-31 to 1932-33. 
 
 From the peak of 40.5 million dollars in 1930-31 state income 
 declined to 35.2 millions in 1931-32 and to 32.3 millions in 1932-33. 
 Disregarding, for reasons already given, the fictitious increase in the 
 income from taxes levied in lieu of property taxes, the income from 
 every major source shown in Table XXVII declined from 1930-31 to 
 1932-33. Non-tax income decreased 1.2 million dollars, or 15 per cent, 
 in spite of an increase of almost $600,000, or 44 per cent, in federal 
 grants. Business tax income declined about 4.5 millions, or 45 per cent; 
 miscellaneous taxes, 3.0 millions, or 19 per cent; and property taxes, 
 $783,000, or 15 per cent. If income which would have been credited to 
 1933-34 under previous practice had been excluded from the income of 
 1932-33, the total income of the year 1932-33 would have fallen short 
 of that of 1930-31 by 9.4 million dollars. 
 
 Of the total decline of 8.2 million dollars in state revenues from 
 1930-31 to 1932-33, the corporation net income tax accounted for 2.7 
 millions; the franchise and nonresident stock taxes on domestic stock 
 insurance companies, for 1.4 millions; and the inheritance taxes, for 
 2.6 millions. Other tax and non-tax income has held up remarkably well 
 in the face of an unprecedented decline in business activity and property 
 values. 
 
 Business depression thrust upon the state new duties and enlarged 
 responsibilities and at the same time contracted the means by which 
 these responsibilties could be discharged. Cutting one-fifth from the state 
 revenues at such a time could not fail to result in financial embarrass- 
 ment. While the decline in revenues has been substantial, the state has 
 had the good fortune of having a broad revenue system composed of an 
 unusually large number of stable revenue producers. 
 
 ,State income, 1933-34. 
 
 The statistics of state income for 1933-34 shown in Table XXVII 
 were compiled from preliminary figures of the income from "assessed 
 taxes" and from the preliminary figures of the revenue receipts from 
 so-called "cash taxes" and other sources. These statistics will diverge 
 
68 Report of Special Tax Commission 
 
 somewhat from the final figures of state income for 1933-1934 which 
 will be ascertained and published by the state • comptroller when his 
 books are closed, but they may be accepted as close approximations to the 
 final figures. 
 
 The data for 1933-34 provide some evidence that the downward 
 trend of state income has now been reversed. Those sources which are 
 first affected by change's in business conditions, such as sales of commo- 
 dities and services and the unincorporated business tax, produced in 
 1933-34 incomes in excess of those of the previous year for the first time 
 since 1928-29. Those receipts which lag behind business conditions, 
 such as the corporation net income tax and the taxes on financial insti- 
 tutions, were smaller in 1933-34 than in 1932-33, but the amount of 
 decrease was substantially less than in previous years. The yields of the 
 inheritance taxes and of the special motor vehicle taxes increased from 
 1932-33 to 1933-34. 
 
 Federal grants for unemployment relief account for the increase of 
 six million dollars in state income from 1932-33 to 1933-34. Income 
 from other sources showed little change. Taxes declined less than $800,- 
 000 in 1933-34 as compared with decreases, of $2,670,000 in 1932-33 
 and $4,466,000 in 1931-32. In including two years' taxes on railroads 
 and street railways in the income of 1932-33, the income of that year 
 was increased by $1,182,000 above what it would have been under pre- 
 vious practice. On a strictly comparable basis, therefore, the tax income 
 of 1933-34 was about $400,000 more than that of 1932-33. 
 
 County revenues. 
 
 The counties, like the state, have secured most of their receipts in 
 the form of revenues and very little in the form of borrowings. Hart- 
 ford is, in fact, the only county which has borrowed heavily. Other 
 counties have met each year's recurring expenses either from the 
 revenue receipts of that year or from surplus funds accumulated from 
 prior years' operations. 
 
 Statistics of the revenue receipts of the counties, classified by 
 sources, are presented in Tables XXIX and XXX. 
 
 Counties have two principal sources of revenue — (1) taxes and 
 (2) grants by the state for the board of children committed to county 
 care and of inmates in county jails. Taxes provided from 60 to 71 per 
 cent, and state grants, from 22 to 32 per cent, of all county revenues 
 from 1927-28 to 1932-33. All other revenues, including income of 
 county homes and jails other than that derived from the state, amounted 
 to only $113,000 in 1932-33 and to only $164,000 at the maximum 
 in 1927-28. 
 
Governmental Revenue in Connecticut 69 
 
 Table XXIX 
 
 COUNTIES: REVENUE RECEIPTS BY SOURCES, YEARS ENDING 
 
 SEPTEMBER 30, 1928 TO 1933 
 
 (In thousands of dollars) 
 
 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 
 Taxes 
 
 County tax on towns 
 Unincorporated business tax 1 
 
 Total 
 
 x 1 . 
 
 650 
 251 
 
 834 
 245 
 
 1,053 
 332 
 
 1,140 
 285 
 
 1,044 
 220 
 
 959 
 148 
 
 
 900 
 
 1,080 
 
 1,385 
 
 1,425 
 
 1,264 
 
 1,107 
 
 lers 
 
 
 
 
 
 
 41 
 
 Permits 
 Manufacturers and wholesalers 
 of liquor 
 State grants 
 Board of children _ 234 252 273 307 370 460 
 
 Board of prisoners in county 
 
 jails 92 ' 146 156 153 142 134 
 
 Total 
 
 Rents and interest 
 
 Earnings of general departments 
 
 Miscellaneous 
 
 Total revenue receipts 1,391 1,616 1,943 2,017 1,875 1,855 
 
 Source: Secretary of State, Returns of County Commissioners. 
 
 1 Consists of one-half of the revenues of the state tax on unincorporated business 
 after deducting administrative costs. 
 
 2 Less than $500. 
 
 Table XXX 
 
 COUNTIES: REVENUE RECEIPTS, PERCENTAGE DISTRIBUTION BY 
 
 SOURCES, YEARS ENDING SEPTEMBER 30, 1928 TO 1933 
 
 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 
 
 % % % % % 
 
 326 
 
 398 
 
 429 
 
 459 
 
 512 
 
 594 
 
 21 
 
 20 
 
 21 
 
 31 
 
 34 
 
 27 
 
 its 106 
 
 113 
 
 99 t 
 
 101 
 
 64 
 
 86 
 
 37 
 
 6 
 
 9 
 
 1 
 
 2 
 
 2 
 
 Taxes 
 
 
 
 
 
 
 
 County tax on towns 
 
 46.7 
 
 51.6 
 
 54.2 
 
 56.5 
 
 55.7 
 
 51.7 
 
 Unincorporated business tax 1 
 
 18.0 
 
 15.2 
 
 17.1 
 
 14.1 
 
 11.7 
 
 8.0 
 
 Total 
 
 64.7 
 
 66.8 
 
 71.3 
 
 70.6 
 
 67.4 
 
 59.7 
 
 Permits 
 
 
 
 
 
 
 
 Manufacturers and wholesalers 
 
 
 
 
 
 
 
 of liquor 
 
 
 
 
 
 
 2.2 
 
 State grants 
 
 
 
 
 
 
 
 Board of children 
 
 16.8 
 
 15.6 
 
 14.1 
 
 15.2 
 
 19.7 
 
 24.8 
 
 Board of prisoners in county 
 
 
 
 
 
 
 
 jails 
 
 6.6 
 
 9.0 
 
 8.0 
 
 7.6 
 
 7.6 
 
 7.2 
 
 Total 
 
 23.4 
 
 24.6 
 
 22.1 
 
 22.8 
 
 27.3 
 
 32.0 
 
 Rents and interest 
 
 1.5 
 
 1.2 
 
 1.1 
 
 1.5 
 
 1.8 
 
 1.5 
 
 Earnings of general departments 
 
 7.6 
 
 7.0 
 
 5.1 
 
 5.0 
 
 3.4 
 
 4.6 
 
 Miscellaneous 
 
 2.7 
 
 .4 
 
 .5 
 
 .1 
 
 — 
 
 — 
 
 Total revenue receipts 100.0 100.0 100.0 100.0 100.0 100.0 
 
 Source: Preceding table. 
 
 1 Consists of one-half of the revenues of the state tax on unincorporated business 
 after deducting administrative costs. 
 
70 Report of Special Tax Commission 
 
 The county tax is imposed upon the towns within the respective 
 counties in proportion to their average annual receipts from taxation 
 in the three years preceding the levy of the county tax. This tax con- 
 stitutes the balancing item in coUnty budgets. In its legal characteris- 
 tics it is similar to the state and military taxes, being a tax upon the 
 municipalities rather than upon any specific tax base. All three taxes 
 are essentially property taxes. The county tax is the largest single 
 source of county revenue and amounted to from 47 to 56 per cent of 
 all county revenues from 1927-28 to 1932-33. 
 
 Counties have shared liberally in the proceeds of state-adminis- 
 tered revenue measures. From 1921 to 1925, counties received half 
 the revenues of the state tax on admissions to places of amusement. 
 Since 1925 one-half of the revenues of the state tax on unincorporated 
 business after deducting administrative costs has been paid to the 
 counties. County revenues from the unincorporated business tax varied 
 from $148,000 to $332,000, or from 8 to 18 per cent of all county 
 revenues from 1927*28 to 1932-33. The Liquor Control Act of 1933 
 further provides that the revenues derived from the fee of $1,000 for 
 a manufacturer's permit and of $500 for a wholesaler's permit shall 
 be paid to the counties. 1 From May 10, 1933, until the close of the 
 year ending September 30, 1933, counties received $41,000 from 
 liquor permits, or 2.2 per cent of their total revenues for the entire year. 
 
 State payments to the counties for the board of children and 
 prisoners are made in recognition of a state responsibility for the sup- 
 port of neglected and uncared-for children and of those committed to 
 county jails, although the state has preferred to place the administra- 
 tion of these activities with the county governments. Counties received 
 payments from the state for these purposes ranging in the years 
 1927-28 to 1932-33 from $577,000 to $761,000, or from 37 to 41 per 
 cent of total county revenues. 
 
 municipal revenues. 
 
 Sources of municipal revenues, 1920 to 1932. 
 
 All the funds which the municipalities have spent in recent years 
 are not shown in the record of revenue receipts of these units. In con- 
 trast to the pay-as-you-go procedure of the state and the counties, 
 municipalities have borrowed heavily to pay for their rapidly increas- 
 ing expenditures. Although their annual revenue receipts increased 
 from 41.3 million dollars in 1920 to 88.2 millions in 1932, or 114 
 per cent, their gross debt less sinking funds increased from 72.4 million 
 
 'Cum. Sup., 1933, sec. 676b. 
 
Governmental Revenue in Connecticut 71 
 
 dollars at the end of the fiscal years in' 1920 to 148.7 millions at the 
 end of the fiscal years in 1932, or 106 per cent. 
 
 In considering the revenue receipts of the municipalities presented 
 in Tables XXXI and XXXII, therefore, it should be borne in mind 
 that, however large, these receipts have been and however much they 
 have increased during the period 1920 to 1932, they represent only 
 part of the funds which the municipalities have required for their 
 financing, inasmuch as the table excludes all borrowings. 
 
 Revenue receipts of the municipalities are of four general types 
 — locally administered taxes, state-administered taxes, revenues from 
 other governments, and other non-tax receipts. Of these four classes, 
 
 Table XXXI 
 
 ALL REPORTING MUNICIPALITIES: REVENUE RECEIPTS BY SOURCES, 
 
 QUADRENNIAL YEARS 1920 TO 1932 
 
 (In thousands of dollars) 
 
 1920 1924 1928 1932^ 
 
 Locally administered taxes 
 Personal taxes 1 422 905 ' 1,270 1,088 
 
 Property taxes 1 
 
 State and county 2 2,803 2,577 2,375 3,011 
 
 Municipal 29,258 46,792 59,830 68,414 
 
 Total property taxes 
 
 32,061 
 
 49,369 
 
 62,206 
 
 71,425 
 
 Total local taxes 
 
 32,483 
 
 50,274 
 
 63,475 
 
 72,513 
 
 State-administered taxes 
 State grant in lieu of taxes 
 Capital stock taxes 
 Estate penalty tax 
 Motor bus tax 
 
 1,435 
 113 
 
 1,750 
 208 
 
 12 
 
 2,525 
 
 241 
 
 10 
 
 21 
 
 2,182 
 
 163 
 
 115 
 
 Total state-administered 
 taxes 
 
 1,548 
 
 1,958 
 
 2,788 
 
 2,481 
 
 Total taxes 
 
 34,031 
 
 52.232 
 
 66,263 
 
 74,994 
 
 Revenues from other governments 
 Schools 1,746 
 Charities 291 
 Railroad bond retirement — 
 Roads and bridges 8 45 
 
 2,224 ' 
 303 
 
 93 
 
 2,168 
 355 
 
 235 
 
 2,509 
 
 1,262 
 
 5 
 
 358 
 
 Total revenues from other 
 governments 
 
 2,082 
 
 2,620 
 
 2,758 
 
 4,134 
 
 Other non-tax revenues , 
 
 5,152 
 
 8,530 
 
 9,712 
 
 9,101 
 
 Total non-tax revenues 
 
 7,235 
 
 11,151 
 
 12,471 
 
 13,234 
 
 Total revenue receipts 41,265 63,383 78,734 88,228 
 
 Source: Tax Commissioner, Quadrennial Reports of Indebtedness, Receipts and 
 
 Expenditures of Municipalities. 
 Footnotes at end of Table XXXII. 
 
72 
 
 Report of Special Tax Commission 
 
 Table XXXII 
 
 ALL REPORTING MUNICIPALITIES: REVENUE RECEIPTS, PERCENTAGE 
 
 DISTRIBUTION BY SOURCES, QUADRENNIAL YEARS 1920 TO 1932 
 
 1924 , 1928 1932 
 
 Locally administered taxes 
 Personal taxes 1 
 Property taxes 1 
 
 State and county 2 
 Municipal 
 
 1920 
 % 
 
 1.0 
 
 6.8 
 70.9 
 
 1.4 
 
 4.1 
 73.8 
 
 Total revenue receipts 
 Source: Preceding table. 
 
 100.0 
 
 100.0 
 
 1928 
 % 
 
 1.6 
 
 3.0 
 76.0 
 
 100.0 
 
 1.2 
 
 3.4 
 77.5 
 
 Total property taxes 
 
 77.7 
 
 77.9 
 
 79.0 
 
 81.0 
 
 Total local taxes 
 
 78.7 
 
 79.3 
 
 80.6 
 
 82.2 
 
 State-administered taxes 
 
 State grant in lieu of taxes 
 Capital stock taxes 
 Estate penalty tax 
 Motor bus tax 
 
 3.5 
 .3 
 
 2.8 
 .3 
 
 3.2 
 .3 
 
 2.5 
 .2 
 
 .1 
 
 Total state-administered taxes 
 
 3.8 
 
 3.1 
 
 3.5 
 
 2.8 
 
 Total taxes 
 
 82.5 
 
 82.4 
 
 84.2 
 
 85.0 
 
 Revenues from other governments 
 Schools 
 Charities 
 
 Railroad bond retirement 
 Roads and bridges 3 
 
 4.2 
 
 .7 
 
 .1 
 
 3.5 
 .5 
 
 .1 
 
 2.8 
 .5 
 
 .3 
 
 2.8 
 1.4 
 
 .4 
 
 Total revenues from other 
 governments 
 
 5.0 
 
 4.1 
 
 3.5 
 
 4.7 
 
 Other non-tax revenues 
 
 12.5 
 
 13.5 
 
 12.3 
 
 10.3 
 
 Total non-tax revenues 
 
 17.5 
 
 17.6 
 
 15.8 
 
 15.0 
 
 100.0 
 
 1 Estimated by dividing reported revenues from local sources in proportion to the 
 personal and property taxes collected on all rate bills as reported in Information 
 Relative to the Assessment and Collection of Taxes in the respective years most 
 nearly comparable to those shown here. 
 
 2 This item represents the taxes paid to other governments reported as and included 
 in expenditures presented in the preceding chapter. 
 
 8 The revenues received from roads and bridges have been divided into two parts. 
 That part included as revenues from other governments represents reimburse- 
 ments to the municipalities by the state of advances previously made in antici- 
 pation of state highway aid. The remainder, which is included in other non-tax 
 revenues, represents estimated local receipts from roads and bridges derived from 
 a variety of sources including special assessments. 
 
 locally administered taxes are by far the most important. In the four 
 quadrennial years since 1920 these taxes provided about four-fifths of 
 all municipal revenues. State-administered taxes yielded only from 2.7 
 to 3.8 per cent of municipal revenues. Local taxes and state-adminis- 
 
Governmental Revenue in Connecticut 73 
 
 tered taxes together produced 85 per cent of the total municipal revenue 
 receipts in 1932. 
 
 Cooperative activities between the state and the municipalities 
 and among the municipalities themselves give rise to the receipts on 
 account of schools, charities, roads, and railroad bond retirement. The 
 school revenues consist of state aid grants and of tuition payments from 
 certain municipalities to other municipalities. Revenues from chari- 
 table activities represent reimbursements for aid extended to paupers 
 with settlements either in other municipalities or in the state at large. 
 Highway receipts from other governments consist entirely of reim- 
 bursements by the state of municipal advances previously made in 
 anticipation of state aid. Together, these revenues from other govern- 
 ments have amounted to from 3.5 to 5.1 per cent of total municipal 
 revenue rceipts. 
 
 Although the nvunicipalities have drawn their revenues from a 
 rather wide range of sources, property taxes have been their principal 
 source of funds. About 75 per cent of all the revenues which have 
 passed through municipal treasuries since 1920 have been property 
 taxes levied for municipal purposes. These taxes alone amounted to 
 from 29.3 million to 68.4 million dollars during the period. The prop- 
 erty taxes collected by the municipalities for the state and counties 
 .amounted to 2.8 millions in 1920, to 2.4 millions in 1928, and to 3.0 
 millions in 1932. 
 
 Next to the property tax the state-administered tax on the capital 
 stock of banks and domestic stock insurance companies has been the 
 largest single source of municipal tax revenues. In 1928 these revenues 
 amounted to 2.5 million dollars, or 3.2 per cent of total municipal 
 levenues. 
 
 Revenues from the personal tax of two dollars per person were at 
 least twice as large in the last three quadrennial years as they were in 
 1920 because of the extension of this tax to women after their enfran- 
 chisement in 1919. The yield of the personal tax was 1.3 million dol- 
 lars in 1928 and 1.1 millions in- 1932 and varied from 1.0 to 1.6 per 
 ■cent of total municipal revenues during the period. 
 
 Teends of municipal revenues, 1920 to' 1932. 
 
 Municipal revenues increased greatly in response to the demands 
 made upon them by rising municipal expenditures from 1920 to 1932 
 and were 46.9 million dollars larger in 1932 than in 1920. Each 
 -quadrennium has required larger revenues, but as the total has been 
 raised, the quadrennial increases have become smaller. The increases 
 in revenue receipts were 22.1 millions from 1920 to 1924, 15.3 millions 
 irom 1924 to 1928, and 9.5 millions from 1928 to 3 932. 
 
74 Repobt of Special Tax Commission 
 
 All of the principal sources yielded considerably larger amounts 
 of municipal revenues in 1932 than in 1920. Compared with an 
 increase of 115 per cent in total revenues during the period, non-tax 
 revenues increased 83 per cent, and tax revenues increased 120 per 
 cent; revenues from state-administered taxes increased 60 per cent; 
 personal taxes increased 158 per cent; and property taxes, 123 per 
 cent. Property taxes collected for the state and counties increased only 
 7 per cent, while property taxes collected for municipal purposes rose 
 134 per cent. 
 
 Even under the stress of depression conditions municipal revenues 
 have been well maintained. From 1928 to 1932 only the revenues from 
 personal, capital stock, and estate penalty taxes declined. Revenues 
 from charities were more than two and one-half times larger in 1932 
 than in 1928, but this increase represents the transfer of larger amounts 
 betwen the state and the municipalities and among the municipalities 
 themselves. Property taxes collected for and paid to the state and the 
 counties were 27 per cent larger in 1932 than in 1928, and property 
 taxes collected for municipal purposes were 16 per cent larger. 
 
 It is evident from these figures that the increases in municipal 
 expenditures are and must be financed largely by increased property 
 taxes. This is so, both because property taxes yield such a large pro- 
 portion of the revenues of municipalities, and because property taxes 
 are the sole source of municipal revenues which can be locally con- 
 trolled. Of the 46.9 million dollars by which municipal revenues of 
 1932 exceeded those of 1920, 39.2 millions were derived from property 
 taxes collected for municipal purposes. All municipal revenues except 
 property taxes are determined, not by the need for revenues, but by 
 conditions affecting the contractual or statutory provisions under which 
 these revenues are raised. Property taxes, however, are subject to 
 municipal control and can be varied within wide limits by local deter- 
 mination of assessments and rates. 
 
 It follows, therefore, that the most direct procedure for reducing 
 local property taxes is to reduce municipal expenditures. This pro- 
 cedure is always available to the municipalities themselves. They have • 
 it in their own hands to give their taxpayers direct and immediate 
 relief from the burden of local taxation. If there are municipal expendi- 
 tures which must be made and which can be met only by excessive 
 burdens upon local taxpayers, the presumption is either that the muni- 
 cipalities cannot afford the services for which these expenditures are 
 made, however necessary the services are deemed to be, or that the 
 services are improperly required of the municipalities and should be 
 transferred to the state. 
 
Governmental Revenue in Connecticut 75 
 
 Consolidated state and local revenues. 
 
 To secure as accurate a record as available statistics will permit 
 of the total revenues required to finance the state, county, and municipal 
 governments, any duplication of revenues included in the separately 
 reported revenues of these governments must be eliminated. The pro- 
 cedure for making these eliminations is conditioned by . the character 
 of the revenue statistics. Precise accuracy is unattainable because the 
 revenues of the various governments are reported for different fiscal 
 years. The amounts reported as paid by one government to another 
 for any given purpose are rarely the sa%ie amounts reported as received 
 for that purpose by the receiving government. Since the revenue statis- 
 tics disclose only the amounts received by one government from other 
 governments, duplications must be eliminated by excluding from the 
 revenues of each government those revenues which it receives from 
 other governments. 
 
 In Table XXXIII there are presented statistics compiled in this 
 way of the consolidated revenues of all state and local governments for 
 the fiscal years ending next prior to October 8, 1928, and October 10, 
 1932. 
 
 When all duplications of revenues are eliminated, the revenue 
 receipts of state and local governments were 107.6 million dollars in 
 1928 and 116.6 millions in 1932. About 85 per cent of these revenue 
 receipts were raised from taxes and about 15 per cent from such non- 
 tax sources as fees, licenses, grants, sales of commodities, interest, etc. 
 
 Although property taxes, as a whole, provided 64 per cent of the 
 total revenue receipts in 1932, the general property tax alone accounted 
 for only 61 per cent, and that portion of the general property tax levied 
 upon real estate and machinery for only 54 per cent. All property taxes 
 combined produced 75 per cent of the total tax revenues of 1932 ; gen- 
 eral property taxes, 71 per cent; and real property taxes, 63 per cent. 
 
 While the proportions of state and local consolidated revenues 
 derived from real property taxes increased in 1932, they were still con- 
 siderably smaller than the commonly quoted percentages for the real 
 property tax burden. More often than not it is claimed that real prop- 
 erty pays 80 to 90 per cent of the total tax burden. It is true that from 
 80 to 90 per cent of all general property taxes are levied upon real prop- 
 erty. But state and local governments obtain revenues from sources 
 other than general property taxes. When these other revenues are taken 
 into consideration, real property taxes are found to be not much over 
 one-half of all revenue receipts and not as much as two-thirds of all 
 tax revenues. 
 
76 
 
 Kepobt of Special Tax Commission 
 
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Governmental Kevenue in Connecticut 71 
 
 The absolute and relative amounts of real property taxes were 
 increased from 1928 to 1932, first, because of the increase in both 
 total and tax revenues and, secondly, because of the decrease in revenues 
 from most other taxes. While total revenues were 8 per cent and tax 
 revenues 11 per cent larger in 1932 than in 1928, revenues from the 
 miscellaneous corporations tax declined 43 per cent, from the unincor- 
 porated business tax, 14 per cent, and from the taxes on financial insti- 
 tutions, 12 per cent. The loss of revenues from these sources was par- 
 tially compensated for by the increased yields of inheritance and special 
 motor vehicles taxes. Of the property taxes themselves, however, those 
 on personal property and on the grcfss earnings of transportation and 
 communication companies yielded considerably less in 1932 than 1928, 
 The net result of these several trends, in particular revenues was that 
 real property taxes were ten million dollars higher in 1932 than in 
 1928, and their revenues increased from 50 to 54 per cent of total 
 consolidated revenues and from 59 to 63 per cent of consolidated tax 
 revenues during the period. 
 
 The burden of taxation on real property. 
 
 The General Assembly has directed this Commission to investigate 
 "the possibility of reducing or limiting the load of taxation borne by 
 real estate." The question thus raised may, for purposes of study, be 
 divided into two parts, concerned respectively with reduction and 
 limitation. 
 
 As to the first question, there are just two possible means by which 
 the tax burden of any class may be reduced: (1) by decreasing the 
 cost of government, thus making possible the reduction of the total 
 tax burden, (2) by altering the distribution qf taxation in such way 
 as to shift some of the burden from the class in question onto other 
 
 As has been shown in a previous chapter, the expenditures of state 
 and local government in Connecticut have been increasing steadily and 
 rapidly for many years. This increase, especially in the cost of local 
 government, is the chief cause of the recent increase and the present 
 heavy burden of taxation upon real estate. The Commission has given 
 careful consideration to the problems thus raised, and throughout this 
 report there will be found numerous recommendations looking toward 
 better organization and control of local finance in the interest of effi- 
 ciency and economy. It may indeed be questioned whether even the 
 full application of all these recommendations would alone suffice to 
 stem the tide of increasing expenditures and bring an actual reduction 
 in governmental costs, but in any event whatever the General Assembly 
 may see fit to do along these lines will be in the interest of real estate 
 
78 Report of Special Tax Commission 
 
 owners through making possible a lower burden of taxation than they 
 would otherwise have to bear. Whether this possibility is taken advan- 
 tage of will depend upon the will of the voters of the several towns. If 
 the people wish real estate to have relief, they possess the power to 
 accomplish it by insisting upon reduction in the costs of their respective 
 municipal governments. It is essential, we believe, that those who seek 
 relief from .taxes on real property should devote their attention first of 
 all to those measures which, without impairing the effectiveness of 
 local government, offer promise of reducing its cost. 
 
 As regards the second possible means of relieving real estats, there 
 are those who believe that real property is carrying more than its fair 
 share of the tax load and that some shift to other shoulders should be 
 brought about. It is evidently felt by such that real property taxes 
 amounting to 54 per cent of total state and local revenues and to 63 
 per cent of state and local tax revenues are excessive and inequitable. 
 
 The problem of determining whether real property is bearing 
 more than its fair share of the tax load is not so simple as might at 
 first appear. In fact search for a positive answer to this question 
 presents extraordinary difficulties. 
 
 The New York Commission for the Revision of the Tax Laws 
 presented in its 1932 report one of the most complete analyses of the 
 problem that has been made. 2 This ISTew York Commission was directed 
 by law to reduce real property taxes, and its investigation was 
 thereby directed to determining how much reduction of real property 
 taxes was justified. The Commission sought to determine this on the 
 basis of elaborate statistical analyses of the proportion of the wealth 
 of the state consisting of real estate, the proportion of the income of 
 the state derived from real estate, the proportion of the total state and 
 local revenues and of the total state and local tax revenues raised from 
 real property taxes, the proportion of the costs of state and local 
 government which could be considered of direct benefit to real estate, 
 and the degree to which recent increases in real property taxes had 
 been capitalized or absorbed by a reduction in the prices which present 
 owners had been required to pay for their real properties. 
 
 The report of the majority recommended a substantial reduction 
 of real -property taxes on the grounds that real property taxes were 
 higher than could be borne, were discouraging home ownership, were 
 depressing agriculture, and were destroying real estate values, and that 
 the statistics showed that real property was disproportionately taxed. 
 
 The minority of the Commission, in recommending a considerably 
 smaller reduction, conceded "the importance of encouraging home 
 ownership, of assisting the farmer in his present plight, and of preserv- 
 
 2 New York State, Legislative Document Wo. 77, 1932. 
 
Governmental Revenue in Connecticut 79 
 
 ing the integrity of real estate values in view of their importance as 
 underlying security for bonds and mortgages, but they believe that the 
 measures they recommend are adequate to the ends in view and are 
 in some respects, as for instance in the case of the farmer, better cal- 
 culated to achieve the desired results than the majority plan." The 
 minority claimed that, if more reduction of real estate taxes than they 
 recommended was desirable, the situation clearly called for retrench- 
 ment in expenditures and not for the shifting of the additional amount 
 of real estate taxes to other taxes. The minority rejected the majority's 
 deductions from the statistics on the grounds that the assumptions upon 
 which the statistics were based were "arbitrary in the extreme", that 
 the "assumptions regarding equity in the distribution of tax burdens" 
 were "superficial and obsolete", and that the statistics ignored or 
 minimized "well-established economic facts, such as the process of tax 
 capitalization." 
 
 The minority sustained its contention for the smaller amount of 
 reduction of real property taxes by the claim that this reduction was 
 all that could be justified when proper consideration was given to the 
 principles of benefit received and ability-to-pay underlying real prop- 
 erty taxes, to the extent to which existing real property taxes had been 
 capitalized, to the character and probable effects of the additional taxes 
 which would be required to make the larger reduction in real property 
 taxes, and to "the effects upon various economic interests, including 
 real estate itself, of the proposed shift of an additional sum .... 
 from real estate to some other economic interest or interests." 
 
 The issue between the two groups of the ISTew York Commission 
 rests .largely upon the validity of the statistical analysis upon which 
 the majority based its conclusions. Upon this point, as well as upon 
 the general reasoning and conclusions, we believe that the minority 
 was in the right. 
 
 So many statistical comparisons purporting to show that real 
 property is taxed disproportionately as compared with other sources of 
 governmental revenues have been presented to this Commission that it 
 seems worthwhile to indicate the weaknesses of statistical evidence on 
 this question. 
 
 The United States Bureau of the Census estimated that the total 
 taxable and exempt real property and improvements in Connecticut 
 amounted to 57 per cent of the estimated tangible wealth of the state 
 in 1922. The taxable real property and improvements in Connecticut 
 amounted to 49 per cent of the estimated tangible wealth of the state 
 in that year. In 1928 real property taxes, including also taxes on 
 machinery, amounted to 50 per cent of total state and local revenues 
 and to 54 per cent of state and local tax revenues. 
 
80 Report of Special Tax Commission 
 
 These figures may be taken as indicating, on their face, that the 
 taxes upon real estate are in about the same proportion to total taxes 
 as is the value of real property to the value of all tangible wealth, the 
 inference being that real property is bearing about its fair share of the 
 tax load. This is obviously a very rough comparison, and there are 
 objections which must be considered and corrections which it would 
 be desirable to make. 
 
 It may be objected that intangible personal property should have 
 been included in figuring the proportion which real property bears to 
 the estimated wealth of the state. This, however, overlooks the fact 
 that most intangible property is, in the last analysis, made up of rights 
 to tangible property. For example, the mortgage on a parcel of real 
 estate represents the right of the mortgagee in that piece of tangible 
 wealth. To include in the total of the wealth of a community all its 
 real property and all the mortgages upon real property is obviously 
 double counting. The same holds true, in more or less degree, of bonds, 
 corporation stocks, and intangible property generally. Moreover, 
 intangible property is artificially increased by what may be called 
 pyramiding of property rights. The mortgage on a parcel of real prop- 
 erty may constitute the asset of a bank, securing, let us say, a deposit 
 of a corporation. The corporation's deposit may be offset by outstanding 
 bonds. In this manner the value of the real property securing the 
 mortgage represents the only wealth supporting a much larger gross 
 value of intangible personal property. It is certainly indefensible to 
 include all duplications of intangible personal property as part of the ' 
 state's wealth. 
 
 In partial rebuttal it may be urged that it is quite proper to add 
 to the tangible wealth in a state the intangibles which represent rights^ 
 to wealth outside the state. But if double taxation is to be avoided, this 
 would require that the claims of nonresidents against tangible wealth in 
 the state be recognized as deductions from the assessed value of such 
 wealth. Otherwise this procedure is correct only on the premise that 
 double taxation is justified whenever the wealth and the property right 1 
 are in different states. This premise is untenable and contrary to the ' 
 slowly growing spirit of interstate comity, which leads each state to 
 adopt such taxes as, if adopted also by other states, would tend to give 
 each state its proper share of an equitable tax burden upon property 
 in general. 
 
 Thus intangible personal property does not by any means always ' 
 represent wealth in addition to the wealth to which it attaches. It is 
 rather the means by which the ownership of the tangible wealth to which 
 it relates is distributed among different persons. To include both 
 intangible property rights and also tangible property in the estimate 
 
GOVERNMENTAL REVENUE IN CONNECTICUT 81 
 
 of wealth is to fall into the error of including the same values at least 
 twice. Statistics in which intangible and tangible property are thus 
 mingled are worthless to show anything as to the equity of real estate 
 taxes. 
 
 A more valid objection to this statistical comparison may be based 
 upon its failure to include in the total tax base anything to represent 
 personal incomes that do not arise from property. If the capitalized 
 value of such incomes could be added to the estimated tangible wealth 
 in Connecticut as reported by the Census, real property and improve- 
 ments would represent, not 57 or 49 per cent of the total, but some 
 smaller percentages. There is no way of determining how much these 
 ratios would thus be reduced, but, to the extent , that they were 
 reduced, support would be given to the contention that real estate taxes 
 (showing higher ratios to total revenues or total taxes) were dispropor- 
 tionately high. 
 
 Another valid weakness in this statistical comparison arises from 
 the fact that taxes on machinery are included with the real estate taxes 
 in obtaining the ratios of such taxes to total revenues and total taxes 
 in Connecticut in 1928. This is necessitated by failure of the official 
 statistics to distinguish taxes on machinery from real estate taxes. 
 Were it possible to exclude the taxes on machinery, the ratios derived 
 would be somewhat less than 50 and 54 per cent. The Commission has 
 made an estimate, which indicates that, with machinery excluded, the 
 ratio of real estate taxes to total state and local revenues in 1928 was 
 47 per cent, while the corresponding ratio to total tax revenues was 
 52 per cent. This indicates a smaller present burden of real estate taxes 
 than the original comparison showed. 
 
 The two chief defects of our comparison which are valid thus 
 tend to offset each other. No precise conclusion may be drawn from 
 so rough a statistical comparison. Certainly it provides no evidence 
 of disproportionate taxation of real property. So far as it points to 
 any conclusion at all, it suggests a prima facie case that real estate 
 is not overtaxed. 
 
 The ordinary statistical analysis of this problem is generally 
 vitiated through failure to take account of tax capitalization. It is a 
 well-established economic principle, borne out by everyday transactions, 
 that taxes imposed upon real property tend to be capitalized. The price 
 at which a parcel of real property is sold represents under normal 
 conditions the market estimate of the discounted value of the antici- 
 pated net income of that property. Taxes are treated as an expense and 
 deducted in computing net income. If taxes increase while other factors 
 remain constant, the anticipated net income is reduced, and the 
 capitalized or discounted value of the reduced net income is also 
 
82 Eepoet of Special Tax Commission 
 
 reduced. The purchaser thus buys the property at a price which has 
 been adjusted to allow for the taxes imposed upon that property at 
 the time of purchase. 
 
 Tax capitalization has an important bearing upon the question 
 of equity in the apportionment of taxes. Even if statistics could be 
 compiled to establish without question that real property constituted, 
 for example, only 25 per cent of the wealth of the state, while it 
 accounted for 75 per cent of the state and local taxes, this of itself 
 would not prove that the owners of real property were inequitably 
 taxed. As a matter of fact, all those owners of real estate who had pur- 
 chased their property after the existing tax system and tax rates went 
 into effect would presumably be suffering no injustice as compared 
 with other taxpaying classes. They bought real estate in full knowl- 
 edge of the taxes it was bearing, and they paid prices which were 
 adjusted to such tax burden. Injustice to present owners of real estate 
 would exist only to the extent that the taxes on real property had 
 increased more than the taxes on other property since the dates when 
 they purchased their present holdings. As to the rest, the injustice 
 done by disproportionate real estate taxes was all borne, once for all, 
 by the former owners when they sold to the present owners at prices 
 reduced by capitalization of taxes. 
 
 It follows that present reduction in the proportionate share of 
 real estate in the total tax burden is futile to correct whatever injustice 
 may have been done by disproportionate taxation. Nothing is thereby 
 done to make good the losses of those who sold their real estate to 
 present owners." Those present owners who purchased under existing 
 tax conditions receive an outright gift to which they have no just 
 claim. Those present owners whose properties have declined in value 
 owing to tax increases since they came into possession receive some 
 compensation, but the amount received by anyone bears no definite 
 relation to his loss. 
 
 Recognition of the essential principle of tax capitalization thus 
 serves both to destroy the validity of the ordinary statistical case in 
 support of the charge of disproportionate taxation of real property 
 and to weaken the case for reduction in present taxes on real estate 
 though shifting the burden to other classes. 
 
 Statistical comparisons based upon the income of real property 
 compared with the total income of the state in conjunction with the 
 ratio of real property taxes to total taxes are less, reliable even than . 
 those based upon statistics of wealth. It is quite impossible to estimate, 
 even roughly, the aggregate income from real estate. For example, there 
 are no records whatever of the income from real estate that is occupied 
 by its owners — whether as homes or as places of business. No one knows 
 
GoVEKNMEN'TAL REVENUE IET CONNECTICUT 83 
 
 the money value of the use by the owners of all the homes in the state. 
 And who would undertake to tell what part of the income of a factory 
 or of a farm was derived from the real estate ? ISTor are there reliable 
 statistics of total incomes in general, including, as they should for 
 this purpose, income from property used by the owners. Any attempt 
 to build up such a statistical comparison must necessarily rest on 
 assumptions which invalidate the results. Statistical comparisons of 
 these kinds, therefore, prove nothing as to whether real estate is or is 
 not overtaxed, since the statistics themselves are unreliable. 
 
 The Commission, it should be emphasized, is not contending that 
 the above considerations do or do not demonstrate that real property 
 taxes should be reduced. This discussion is directed to showing the 
 inconclusiveness of statistical comparisons as proofs that real property 
 is either overtaxed or undertaxed. The problem of proportioning the 
 tax burden between real estate and other sources is much too compli- 
 cated and elusive to be answered by any available statistical compila- 
 tion. 
 
 The Commission feels impelled also to call attention to the fact 
 that much of the current discussion of this problem is couched in such 
 broad terms as to give an erroneous impression. Talk of excessive taxa- 
 tion of real estate in general, without recognition of the wide varia- 
 tion of tax burdens among the several towns, tends to create the 
 impression that real property is everywhere subject to burdensome or 
 excessive taxation. Whatever may be the average situation or the con- 
 dition in those municipalities where taxes are most heavy, there can 
 scarcely be excessive taxation in towns with tax rates of 5 or 7 or even 
 12 or 13 mills, accompanied, as is usual, by distinctly moderate assess- 
 ment. While the average tax rate in 1933 was 24.4 mills, there were 
 26 towns with rates of 15 mills or less. This problem requires dis- 
 criminating analysis; it cannot be treated offhand in broad general 
 terms. 
 
 Much of what has been here presented upon the possibility of 
 reduction in the burden of real estate taxation applies also to the 
 question of limitation of such burden in the future. Obviously, meas- 
 ures now adopted to make possible a reduction of the cost of govern- 
 ment would, so long as they continued in force, offer a limiting influ- 
 ence upon future taxes in general, and the same is true, as regards the 
 burden of real estate taxation, of such measures as may be taken to 
 cause a redistribution of taxation in the interest of real property. 
 
 On the other hand, the Commission is unable to regard favorably 
 the more direct limitations which are sometimes advocated, and which 
 have been tried by some of the states. We have in mind such devices 
 as legal limits to tax rates, to assessed valuations, to municipal expendi- 
 
84 Eepoet of Special Tax Commission 
 
 tures, etc. The application of such limitations by the state involves 
 an encroachment upon local self-government which the Commission is 
 not disposed to countenance. Furthermore, the theoretical foundation 
 of such limitations is unstable, and the experience of such states as 
 have tried them is anything but reassuring. The Commission sees no 
 hope for relief to real estate in this direction. 
 
 While the Commission has been convinced that there is no proof 
 that real property is overtaxed (on the basis of the present scale of 
 governmental expenditures) and that it is impossible to determine 
 just what proportion of the tax load real property should bear, it has 
 not been unmindful of the heavy burden of taxation at present borne 
 by real property in certain municipalities, the actual distress of real 
 estate owners, and the widespread belief that real property taxes should 
 be reduced. Reduction of present taxes on real property is a problem 
 of public policy which cannot be solved independently of other prob- 
 lems of revenue. The possibility of reducing the load of taxation now 
 borne by real estate depends, first, upon the possibility of reducing 
 expenditures and, secondly, 'upon the possibility of shifting part 
 of the taxes now imposed upon real property to other sources of govern- 
 mental revenue. The Commission has kept this problem in mind 
 throughout its entire study, and its conclusions and recommendations 
 express its judgment as to how real estate may be enabled to enjoy 
 some relief from the weight of existing tax burdens. 
 
 Summary. 
 
 State bevenues. 
 
 All the funds used for financing the state from 1927-28 to 1932-33 
 were obtained from current income. ISTot until 1933-34 were funds 
 borrowed to meet state expenditures. 
 
 More than one-fifth of the state's income is normally derived from 
 sources other than taxation, including grants from the federal govern- 
 ment ; licenses, permits, and fees ; sales of commodities and services ; 
 rents and interest; and fines, penalties, and forfeitures. Income 
 from taxes make up the remaining 75 to 80 per cent of the total state 
 income. 
 
 About one-sixth of the state's income from taxes is derived from 
 what may be considered property taxes, about one-third from business 
 taxes, and about one-half from what we have classified as miscellaneous 
 taxes. The most important of the property taxes are the state and 
 military taxes, the choses-in-action and estate penalty taxes, and the 
 gross earnings taxes in lieu of property taxes on transportation and 
 communication companies. Business taxes include the savings deposits 
 tax, the stock and franchise taxes on banks and insurance companies, 
 
Governmental Revenue in Connecticut 85 
 
 the gross earnings tax on local public utilities, the net income tax on 
 miscellaneous corporations, and the gross earnings tax on unincorpo- 
 rated business. Miscellaneous taxes include the succession and estate 
 taxes, the gasoline and motor vehicle registration taxes, the motor bus 
 tax, the tax on places of amusement, and the liquor taxes. 
 
 State income increased annually for a full decade until it reached 
 40.5 million dollars in 1930-31. It then decreased to 35.2 millions in 
 1931-32 and to 32.3 millions in 1932-33. If the 1932-33 income from 
 taxes on transportation and communication companies is reduced by 
 the amount which would have been credited to 1933-34 under laws 
 existing prior to the 1933 session of the General Assembly, the income 
 of the state declined 9.4 millions, or 23 per cent, from 1930-31 to 
 1932-33. The corporation net income tax revenues fell 2.7 million 
 dollars, or 77 per cent; those of the inheritance taxes, 2.6 millions, or 
 52 per cent; those of taxes on financial institutions, 2.6 millions, or 
 31 per cent; and those of the unincorporated business tax, $135,000, 
 or 42 per cent. Only the state and military taxes and the tax on local 
 public utilities yielded larger incomes in 1932-33 than in 1930-31. 
 
 Preliminary figures of the state's income for 1933-34 indicate that 
 the downward trend has now been reversed. Those measures first 
 affected by changes in business conditions yielded larger incomes in 
 1933-34 than in the preceding year for the first time since 1928-29. 
 When the income data of 1932-33 and of 1933-34 are adjusted to 
 a comparable basis, an adjustment made necessary by the change in 
 assessment date of the tax on' steam railroads and street railways, the 
 tax income of 1933-34 was about $400,000 more than that of 1932-33. 
 
 County revenues. 
 
 Except for the financing of the Hartford County Building, 
 counties borrowed relatively little from 1927-28 to 1932-33. County 
 revenues are derived largely from taxes and from grants by the state 
 for the board of children in county homes and of inmates in county 
 jails. Taxes, consisting of the county tax on towns and one-half of 
 the net revenues from the unincorporated business tax, yielded from 
 60 to 71 per cent of county revenue receipts from 1927-28 to 1932-33 ; 
 state grants produced from 22 to 32 per cent. The county tax on towns, 
 which is the balancing item in county budgets and the largest single 
 county revenue, amounted to from 47 to 56 per cent of all county 
 revenues during this period. 
 
 County revenue receipts increased from $1,391,000 in 1927-28 
 to $2,017,000 in 1930-31 and then decreased to $1,855,000 in 1932-33. 
 State grants increased each year during this period and were enough 
 larger in 1932-33 to offset all but $58,000 of the increase in the costs 
 
86 Repobt of Special Tax Commission 
 
 of county homes and jails from 1927-28 to 1932-33. County revenues 
 from the unincorporated business tax decreased each year after 1929- 
 30. The county tax reached a peak of $1,140,000 in 1930-31 and 
 declined to $959,000 in 1932-33, but at this amount it was more than 
 $300,000 in excess of the county tax in 1927-28. 
 
 Municipal bevenues. 
 
 Although municipal revenues increased from 41.3 million dollars 
 in 1920 to 88.2 millions in 1932, the municipalities were forced to 
 increase their net debt from 72.0 million to 148.7 million dollars during 
 the period to finance their rapidly increasing expenditures. 
 
 Municipal revenues are raised from local taxes, state-administered 
 taxes, payments by other governments for certain services, and non-tax 
 revenues. Local taxes produce about 80 per cent, and both local and 
 state-administered taxes, about 85 per cent, of total municipal revenues. 
 Revenues received from other governments in payment for certain 
 services have amounted to from 3.5 to 5.0 per cent of total revenues 
 in the quadrennial years since 1920. 
 
 Property taxes are the largest single source of municipal revenues 
 and yielded 78 to 81 per cent of all municipal revenues in the quad- 
 rennial years since 1920. Property taxes collected to meet the state, 
 military, and county taxes ranged from 3 to 7 per cent, and those col- 
 lected for municipal purposes, from 71 to 78 per cent, of all municipal 
 revenues since 1920. 
 
 Municipal revenues have increased continuously since 1920. Total 
 revenues were larger in 1932 than in 1920 by 47.0 million dollars, 
 or 115 per cent! Property taxes collected for municipal purposes were 
 larger by 39.2 millions, or 134 per cent. 
 
 From 1928 to 1932 municipal revenues were well maintained in 
 spite of depression conditions. Although there were losses of revenues 
 from personal and state-administered taxes during the period, property 
 taxes for municipal purposes absorbed these losses and also increased 
 total revenues. 
 
 Since property taxes yield so large a portion of municipal revenues 
 and are the only source of funds which can be directly controlled by 
 the municipalities themselves, increases in municipal expenditures 
 must be financed largely by increasing property taxes. Conversely, 
 local property taxes may be reduced by the municipalities themselves 
 by reducing expenditures or by the state by transferring to itself the 
 financing of services now made the responsibility of municipal govern- 
 ments. 
 
Governmental Kevenue in Connecticut 87 
 
 Consolidated state and local revenues. 
 
 Eliminating from the separately reported revenues of the state, 
 the counties, and the municipalities any duplicated revenues resulting 
 from intergovernmental transactions, the consolidated revenue receipts 
 of all state and local governments were 107.6 million dollars in 1928 
 and 116.6 millions in 1932. About 85 per cent of these total revenues 
 were raised from taxation. 
 
 Collections of real property taxes were ten million dollars larger 
 in 1932 than in 1928. They increased from 50 to 54 per cent of the 
 total state and local revenues from 1928 to 1932 and from 59 to 63 per 
 cent of total state and local tax revenues. They were, of course, much 
 larger percentages of strictly municipal revenues in both years and 
 amounted to 72 per cent of all municipal revenues and 85 per cent of 
 all municipal tax revenues in 1932. The latter are the figures which 
 are usually cited as an indication of excessive taxation of real estate. 
 
 The burden op taxation on real property. 
 
 The reduction of the burden of real estate taxes to which the Gen- 
 eral Assembly has directed our particular attention, might be accom- 
 plished by either of two means: (1) by decreasing the cost of govern- 
 ment or (2) by raising more money by other revenue measures. The 
 first of these measures rests in the hands of the electorate, and, with 
 such assistance as the state may render along lines recommended in later 
 chapters, it must necessarily remain there. But there are those who 
 contend that much more than this is required if an equitable distribu- 
 tion of the tax burden is to be effected. 
 
 The problem raised by this contention is not so simple as it is 
 generally assumed to be. No statistical analysis is capable of determin- 
 ing certainly that owners of real estate are actually overtaxed. Whether 
 or not such persons are overtaxed depends for one thing upon the 
 extent to which they are the special beneficiaries of governmental activ- 
 ities. It further depends upon the extent to which purchasers of real 
 estate have allowed for the present level of taxes in the price which 
 they have paid for their property. Finally, it depends upon the manner 
 in which owners of real property would fare under substitute tax 
 measures which might be enacted to effect a redistribution of the tax 
 burden. 
 
 But despite the impossibility of actual measurement, the Commis- 
 sion is aware of the fact that the real estate tax burden in many munici- 
 palities is heavy, that many real estate owners are in distress, 
 and that there is sincere and widespread belief that relief should be 
 afforded them. To this end recommendations are made in subsequent 
 
88 Repobt ob' Special Tax Commission 
 
 sections both for the limitation and reduction of municipal expendi- 
 tures in general and for the transfer to the state of certain duties which 
 are now discharged at considerable expense by local governments 
 financing themselves largely by means of property taxes. 
 
PART II 
 
 THE FINANCING OF MUNICIPALITIES 
 
CHAPTER IV 
 
 THE RELATIONSHIP OF THE MUNICIPALITIES 
 TO THE STATE GOVERNMENT 
 
 Importance of municipal finance. 
 
 Municipal finance is of predominant importance in the financial 
 and taxation problems of state and local governments. The preceding 
 chapters have shown that municipalities raise and spend more than 
 two-thirds of the funds required by Connecticut state and local govern- 
 ments. They impose for their own purposes more than 95 per cent 
 of all the general property taxes. They accounted in 1932 for 99 per 
 cent of the net indebtedness of the state and its political subdivisions. 
 
 The financial record of the municipalities is one of expanding 
 expenditures, increasing revenues and taxes, and, withal, unbalanced 
 budgets and mounting debts. Because their financial operations bulk so 
 large in state and local finance, and because they are so deeply involved 
 in the administration of those governmental services which have been 
 in greatest demand, municipalities, more than the state and the 
 counties, have felt the effects of those powerful influences which have 
 operated to increase greatly governmental expenditures during the last 
 two decades. 
 
 We present in this part of the report our findings, conclusions, 
 and recommendations on the "financing of the municipalities" and 
 "the borrowing of money by the local municipalities." It should not 
 be inferred, however, that these problems are unrelated to other phases 
 of this investigation. There are few aspects of our inquiry which are 
 not associated, directly or indirectly, with the problem of municipal 
 finance. Whether property taxes should or can be limited or reduced, 
 whether the revenue burden should or can be differently distributed, 
 whether sources of revenue should or can be differently apportioned 
 among the several grades of government — these and other similar 
 problems depend on what is done to solve the problems of municipal 
 finance. 
 
 Legal status of municipalities. 
 
 That municipalities are administrative instrumentalities of the 
 state government has been firmly established by a long line of decisions 
 of the Supreme Court. They are neither perpetual corporations exer- 
 
92 Report of Special Tax Commission 
 
 cising immutable powers nor sovereign governments. They have no 
 inherent powers. They exist and function at the will of the state. They 
 have and exercise only such powers as are lodged with them by state 
 law. These powers are under the control of the General Assembly and 
 may be expanded and contracted at its discretion. 
 
 This doctrine serves not only to define the relationship of the 
 municipalities to the state but also to fix upon the state itself a primary 
 responsibility for the conditions under which and the manner in which 
 the municipalities discharge their responsibilities. It both subordinates 
 the municipalities to the state and places upon the state a direct respon- 
 sibility for municipal affairs. 
 
 Recognition that municipalities are merely state administrative 
 units does not settle the question of their right of existence or of the 
 soundness of the policy under which they are given broad powers. It 
 does not touch the more fundamental questions whether local self- 
 government offers the most N effective means of discharging governmental 
 responsibilities, whether powers and duties at present placed with 
 municipalities are warranted, and whether present conditions require 
 a greater or less degree of state supervision and control of municipal 
 affairs. 
 
 The policy of local autonomy. 
 Local government on trial. 
 
 The continuance of responsible local government in this and in 
 other states depends upon how adequately local government meets the 
 demands made upon it. A crisis has occurred in municipal government 
 throughout the nation. Misgivings have arisen concerning the ability 
 of municipalities to provide their accustomed services at a cost within 
 their ability to pay. Municipal credit generally throughout the nation 
 has been at a low ebb during this depression. Municipalities are, with- 
 out doubt, on trial. They must prove themselves capable of discharging 
 their responsibilities if they are to continue to exercise all the govern- 
 mental powers which have been lodged with them. 
 
 If local determination of local governmental affairs is on trial, 
 the issue seems to require a choice between two alternatives. Either 
 the state may formulate its policies to move as rapidly as possible from 
 local to state administration and state financing of governmental 
 functions, or the state may apply a policy of revitalizing local govern- 
 ment itself by eliminating its defects, by redefining its duties and 
 responsibilities, and by seeing that its procedures, its facilities, and 
 its means are sufficient to discharge adequately its responsibilities. 
 The first entails the gradual disappearance of local responsibility and 
 its replacement by centralized state administration and finance. The 
 
Relationship of Municipalities to State Government 93 
 
 second looks to the maintenance of local responsibility and its more 
 effective functioning. 
 
 That municipalities have been given great powers and responsi- 
 bilities, concurrently with the acceptance of the doctrine of their 
 responsibility to the state, is proof enough that the state itself has 
 considered local self-government the most effective institution for the 
 discharge of certain governmental functions. There is not the slightest 
 doubt that the people of the state as a whole prefer the freedom and 
 flexibility of local self-government to centralized government, whatever 
 may be its economy and efficiency. The fact may as well be faced, 
 however, that local self-government is neither divinely ordained nor 
 obtainable without cost. Like every other social, political, and economic 
 institution, local self-government will live only as long as it commands 
 the confidence of those whom it serves. The people of the state will not 
 long maintain an institution, whatever its sentimental values may be, 
 if it fails to meet effectively their needs, or if its cost is substantially 
 greater than would be imposed by another arrangement. 
 
 Whatever efficacy there is in local government depends upon its 
 success in placing in the hands of the people such control of the gov- 
 ernment under which they live as they are competent to exercise. 
 Decentralization of government should permit the adaptation of govern- 
 ment to varying needs, ideals, and aspirations of a heterogeneous popu- 
 lation. Decentralization serves these purposes only if government is 
 sufficiently simplified to be understood by the people and moulded by 
 them to meet their needs. 
 
 Problems oe local autonomy. 
 
 Complexity oe municipal activities. 
 
 In the inevitable adjustments to changing conditions, government 
 has necessarily become increasingly more complicated. Rising standards 
 of living have been reflected in demands for new and expanding gov- 
 ernmental services. Improvements in transportation and communica- 
 tion, particularly, have on the one hand expanded governmental services 
 and on the other hand reduced the adequacy of local units operating 
 in limited areas to meet demands for governmental services. 
 
 In 1932 municipal activities involved the expenditure of 31.3 
 million dollars for education, 13.8 millions for highways, 10.7 millions 
 for protection of persons and property, 9.0 millions for charities, 8.4 
 millions for general government, 4.6 millions for health and sanita- 
 tion, 4.5 millions for public service enterprises, and 2.1 millions for 
 recreational activities, and all this not through one coordinated agency 
 but through a large number of independent, unrelated agencies with 
 only a minimum of control and guidance. 
 
94 Repobt of Special Tax Commission 
 
 No private industry supplies such a varied list of essential 
 services; few have pecuniary transactions running into sums as large. 
 These governmental services cannot be well performed by an unskilled, 
 untrained, and uncontrolled personnel. Over a wide range of govern- 
 mental functions highly -specialized and technical activities pre- 
 dominate. The problem of local government is how to make the public 
 know what local government is doing, what its activities cost, what they 
 should cost, and whether the activities provide services which justify 
 the burdens they impose. This problem has become increasingly acute 
 as governmental activities have been extended into more numerous 
 and more technical fields. 
 
 Complexity of municipal oeganization. 
 
 The very existence of a large number and a wide variety of local 
 governmental units clouds popular knowledge and in consequence 
 obstructs proper control of local affairs. Municipal activities were 
 organized in 1932 under some 350 governmental units. They are 
 decentralized administratively beyond any point conceivable in private 
 business. Nearly 350 groups of governmental officials are responsible 
 for their administration. Nearly 350 groupings of our population 
 are responsible for their financing. Some of these governments are the 
 traditional or ordinary towns; others, towns with boards of finance; 
 others, towns consolidated with cities or boroughs; others, cities and 
 boroughs not consolidated with their towns; and still others, inde- 
 pendent school districts, fire districts, fire and sewer districts, lighting 
 districts, improvement districts, and the Metropolitan District of 
 Hartford County. 
 
 Each class of government — and not infrequently particular gov- 
 ernments within each class — has its own peculiar structure, powers, 
 and duties. There are general statutes for the government of ordinary 
 towns, others for towns with boards of finance, others for boroughs, 
 others for cities, and still others for special districts. Cities, boroughs, 
 and many special districts operate under charters, which in some cases 
 consist of a conglomeration of special acts available only in the volumes 
 of special acts of the General Assembly and extending back almost to 
 the Eevolutionary War. In many communities these laws are not com- 
 piled and codified and not readily available to the average citizen. A 
 voter is more likely to be confused than informed by the overlapping 
 and interweaving of the jurisdictions of so many local units. In this 
 maze of governmental organization, not only is the electorate in danger 
 of being lost, but also the task of reorganization is rendered exceed- 
 ingly difficult. 
 
Relationship of Municipalities to State Government 95 
 
 Even for purposes of investigation and exposition we have found 
 it necessary, as has been previously pointed out, to simplify the prob- 
 lems by dealing with local governments in three distinct groups. While 
 we recognize that counties are in this state commonly included among 
 municipalities, and while this broad meaning of the word municipality 
 was undoubtedly intended in the terms of our law, the counties have 
 peculiarities of organization and procedure sufficient to warrant their 
 consideration as a group of governments separate from other munici- 
 palities. Municipalities themselves fall into two groups. We have desig- 
 nated one group, consisting of cities, boroughs, and towns — 194 govern- 
 mental units in all — as "major municipalities." All other municipali- 
 ties — consisting in 1932 of 63 fire districts, 42 school districts, 32 
 improvement districts, 11 sewer districts, and 4 lighting districts — 
 are grouped together as "minor municipalities." Because of peculiari- 
 ties of its organization and operations, we have not included for the 
 purposes of this part of the report the Metropolitan District of Hart- 
 ford County among either the major or minor municipalities. 
 
 Lack of measures of efficiency. 
 
 ,It should not be forgotten that in municipal affairs the enforce- 
 ment of responsibility is even more difficult than in private business. 
 There is lacking in governmental activities those automatic controls 
 which, by rewarding efficiency and penalizing inefficiency, to a large 
 extent direct and restrain the administration of private competitive 
 enterprise. In government only an informed and active electorate can 
 have even the slightest chance of enforcing the efficient, economical 
 discharge of public business. There is also generally lacking in govern- 
 ment a profit and loss statement which measures the efficiency with 
 which operations are being conducted. There is only a resulting service, 
 which may be satisfactory or unsatisfactory, but which carries with 
 it no measure to determine whether or not its cost is excessive. 
 
 Necessity of adequate fiscal pboceduees. 
 
 We have not summarized the activities of municipalities, pointed 
 out their decentralized administration, and described the complicated 
 organization of municipal government for the purpose of recommending 
 changes in these conditions. It is not the function of this Commission 
 to recommend changes in the prevailing organization of local govern- 
 ment even though it might consider such changes advisable. Our pur- 
 pose has rather been to bring out emphatically the absolute necessity 
 
96 Report of Special Tax Commission 
 
 of adequate and orderly financial procedures if municipal government 
 is to function at all effectively in the midst of this welter of limitations. 
 
 Shortcomings or state legislation. 
 Lack of consistent policy. 
 
 For many years legislation governing the financial administration 
 of municipalities has been incorporated in the state statutes by a 
 process of patchwork and piecemeal accumulation. This legislation 
 has not been based on any continuing state policy toward the financing 
 of municipalities. It has the characteristics of expediency and oppor- 
 tunism. It consists of an accumulated mass of particular enactments 
 made at different times to meet special problems or requests. While the 
 general statutes bearing on local financial administration are unusually 
 general and liberal, this has not prevented the passage of a large number 
 of special acts granting to this or that community the authority to 
 diverge in its financial organization and procedures from the standards 
 established by the general statutes. 
 
 Defects of extreme "home rule." 
 
 In its solicitude for home rule the state has been content to allow 
 each municipality whatever it wished within very broad limits. This 
 "let-alone" policy may have had much to commend it in the past, when 
 less social complexity existed, and when local governments could be 
 and were dependent largely upon themselves. But such a policy can 
 lead only to confusion and to the weakening of home rule itself if 
 applied under present conditions, when municipalities are becoming 
 less and less dependent upon themselves and more and more dependent 
 upon the state. 
 
 The natural result of the state's policy of permitting each com- 
 munity to handle its affairs about as it pleased is clearly evident in 
 municipal finance. Each community has determined its fiscal year, 
 fixed its tax due dates, and provided for budgeting, accounting, audit- 
 ing, and reporting (if at all) according to its own pleasure and with 
 little or no regard to the action of other municipalities, the counties, 
 or the state. Consequently, municipal finance, as it now operates over 
 the state, is devoid of any uniformity in ' time periods, in reports, in 
 accounting, or in financial procedure. We cannot see how expenditures 
 are to be effectively controlled or tax burdens reduced as long as these 
 conditions prevail. Providing municipalities with additional funds to 
 be administered by present organizations and procedures offers little 
 hope of a permanent or even a temporary solution of municipal finan- 
 cial problems. 
 
Relationship of Municipalities to State Government 97 
 
 General principles. 
 
 Aims of commission's proposals. 
 
 In omt opinion, what is needed and what it is the responsibility 
 of the state to provide and enforce is a procedure under which munici- 
 pal finance will be systematically planned, executed, controlled, and 
 reported and under which any interested citizen may learn what his 
 community is doing, what it is costing, how and where it derives its 
 revenues, and how much of his total tax burden it imposes. Such a 
 procedure is an essential condition to retaining our present general 
 system of local government and preventing its breakdown. 
 
 This Commission believes in the superiority of local self- 
 government over extreme centralization as a means for conducting gov- 
 ernment in this state. We hold, however, that the state has no less 
 responsibility for the conduct of municipal affairs than have the munici- 
 palities themselves. Upon these premises we have formulated our recom- 
 mendations relating to municipal" finance. 
 
 Statement of general principles. 
 
 The general principles which we have followed, if such they may 
 be called, may be expressed as follows : 
 
 The essence of home rule or local self-government is the deter- 
 mination by each municipality of the policies which shall control in 
 the administration of those governmental activities which are of local 
 importance and concern. 
 
 But local self-government involves a responsibility as well as a 
 privilege. Responsible local self-determination is impossible unless 
 each municipality is required to raise and provide from its own 
 resources the funds which it spends. 
 
 Municipalities should not be given or allowed to assume duties 
 or responsibilities which are not primarily local in character or which 
 cannot be financed from local revenue sources without unjustified 
 sacrifice. 
 
 The state is directly responsible for the introduction and enforce- 
 ment of the best business practices and procedures in municipal affairs, 
 in order that the facts relating to municipal activities and finance may 
 be determined and made known (a) to the communities themselves 
 and (b) to the state, which, in the last analysis, must accept the 
 responsibility for the operation of all of the political subdivisions. 
 
 Summary 
 
 Municipalities are essentially administrative instrumentalities of 
 the state government; they are not sovereign governments and hence 
 
98 Report of Special Tax Commission 
 
 exercise no inherent powers. The responsibility of the state extends 
 both to the substance of the powers which are granted municipalities 
 and to the manner in which these powers are exercised. 
 
 Expediency alone can properly dictate the manner in which the 
 responsibility for particular governmental activities is distributed 
 between the state and its political subdivisions. In Connecticut there 
 has developed a large measure of sentiment in favor of local autonomy. 
 The Commission believes that in general this sentiment is 'justified by 
 the manner in which municipal affairs have been conducted. It would 
 seek, however, to strengthen local autonomy by providing measures 
 designed to supply the electorate with the information necessary for 
 enlightened local control and to supply local officials with business-like 
 procedures under which public affairs may be conducted with a maxi- 
 mum of efficiency. 
 
CHAPTER V 
 
 MUNICIPAL FISCAL YEAES AND TAX DUE DATES 
 
 Governmental fiscal yeaes. 
 Statutory provisions. 
 
 The fiscal years of the state and the school districts, whether con- 
 solidated with towns or independently organized, are prescribed by 
 statute. Section 178 of the General Statutes of 1930 provides that "the 
 fiscal year for all departments of the state government shall end on the 
 thirtieth day of June." Until 1933 the statutes provided that "the 
 school year shall commence on the fifteenth day of July and end on the 
 fourteenth day of July following." 1 This section, however, was modi- 
 fied in 1933 to provide that "the fiscal and school year shall commence 
 on the first day of July and end on the thirtieth day of June." 2 This 
 same fiscal year has been established by the federal government. 
 
 County commissioners are required to present in their annual 
 reports financial data for "the year ending on the thirtieth day of 
 September." 3 While this provision does not necessarily prescribe a 
 fiscal year ending September 30 for the counties, it brings to bear a 
 form of moral suasion by the state which has resulted in a uniform 
 fiscal year, October 1 to September 30, in all eight counties. 
 
 Municipalities are authorized to fix their fiscal years at their own 
 discretion. Any major municipality, that is, any town, city, or borough, 
 is given the power "to change the fiscal year of such municipality or 
 any department thereof."* There are no statutory provisions govern- 
 ing the fiscal years of minor municipalities. 5 
 
 Diversity of municipal fiscal years. 
 
 Generally all departments and agencies of the municipalities 
 operate according to the fiscal years officially reported for their munici- 
 palities. But every school district, whether independently organized or 
 consolidated with its town .government, operates on a fiscal year begin- 
 
 'Gen. Stat., 1930, sec. 1019. 
 
 2 Cum. Sup., 1933, sec. 303b. 
 
 8 Gen. Stat., 1930, sec. 208. 
 
 *Gen. Stat., 1930, sec. 390. 
 
 5 See Gen. Stat., 1930, ch. 34. Section 547 of the General Statutes, dealing with fire, 
 sewer, and other districts, provides that "except as otherwise provided, the laws 
 relating to school districts, mutatis mutandis, shall apply to such districts." What- 
 ever the intent of this statute with respect to fiscal years may be, these districts 
 do not conform with the July 1 to June 30 fiscal year prescribed for school districts. 
 
100 Report of Special Tax Commission' 
 
 ning July 1 and ending June 30, and there may be other departments 
 and agencies in a few exceptional municipalities which operate on 
 fiscal years different from those of their municipalities. 
 
 It is the officially reported fiscal years of the municipalities 
 themselves, rather than those of any of their operating departments, 
 with which we shall deal in this chapter. Although most municipalities 
 begin their fiscal years on the first day of a calendar month, there is a 
 considerable number of municipalities whose fiscal years begin on 
 other days of the month. In the tables which follow, it is assumed that 
 all municipal fiscal years begin on the first day of a calendar month, 
 and any municipal fiscal year beginning between the 16th day 
 of one month and the 15th day of the following month is assumed 
 to begin on the first day of the second month. 
 
 Information concerning the fiscal years of minor municipalities 
 is readily available only for the fire districts. The relatively small 
 financial importance of the minor municipalities did not warrant the 
 collection by questionnaire of information relating to their fiscal opera- 
 tions. Minor municipalities account for less than three per cent of 
 locally collected taxes. The fire districts are responsible for nearly 
 one-fifth of the collections of the whole group. The remaining minor 
 municipalities are engaged in a restricted group of activities, and their 
 financial operations are small. 
 
 In Table XXXIV the major municipalities and fifty-four minor 
 municipalities for which comprehensive financial information is avail- 
 able are enumerated according to the months in which their fiscal years 
 begin. 
 
 Table XXXIV 
 
 MAJOR MUNICIPALITIES AND CERTAIN MINOR MUNICIPALITES : 
 
 ENUMERATION ACCORDING TO MONTHS IN WHICH THEIE 
 
 FISCAL YEARS BEGIN 
 
 Major Minor 
 
 Month municipalities municipalities 
 
 January 9 3 
 
 February 1 2 
 
 March 2 3 
 
 April 10 2 
 
 May 7 5 
 
 June 1 14 
 
 July 4 7 
 
 August 13 2 
 
 September 100 3 
 
 October 43 8 
 
 November 2 3 
 
 December 2 2 
 
 Total 194 54 
 
 Source: Tax Commissioner, Information Relative to the Assessment and Collection 
 of Taxes, 1983, pp. 9-17. 
 
Municipal Fiscal Yeaes and Tax Due Dates 1U% 
 
 The traditional practice of holding annual town meetings and 
 electing town officers in the autumn has kept the fiscal years of major 
 municipalities from being scattered even more widely throughout the 
 calendar year. One hundred and sixty-four of the one hundred and 
 ninety-four major municipalities begin their fiscal years in the last 
 six months of the calendar year. Each of one hundred major munici- 
 palities — the typical major municipality — begins its fiscal year between 
 August 16 and September 15 inclusive, or, as we shall assume for 
 convenience of exposition, on September 1. 
 
 It is not unlikely that the minor municipalities included in this 
 tabulation provide a representative sample of the fiscal years of all 
 minor municipalities other than school districts. If this be true, then 
 the time periods of these minor municipalities are even less uniform 
 than those of major municipalities. There is hardly a predominant 
 grouping in a single month unless it be the month of June. 
 
 Consequences of diveesity. 
 
 We cannot overemphasize the necessity of intelligible financial 
 reporting as a means to reasonably effective popular control over gov- 
 ernmental finance and administration. Much effort and considerable 
 money are spent by governments of this state in preparing and publish- 
 ing reports. Considering the limitations under which they are com- 
 piled, some of these reports, particularly the quadrennial reports of 
 municipal finance of the tax commissioner, are highly commendable. 
 But the usefulness of all reports is seriously diminished by the lack of 
 uniformity in fiscal years of the various governments. Nowhere in 
 these reports, individually or together, can the citizen of this state 
 ascertain how much the state and local governments combined spent 
 in any one year for education, charities, highways, or any other func- 
 tion. Nor can he discover how much and what revenues were raised 
 by state and local governments in any twelve-month period. 
 
 The fiscal years of the state, the counties, the school districts, and 
 the municipalities are entangled in hopeless confusion as far as the 
 logical presentation of the consolidated revenues, expenditures, and 
 indebtedness of all state and local governments for any single year is 
 concerned. School districts have the same fiscal year as the state 
 although their financing is involved almost entirely with that of the 
 municipalities. State and county fiscal years are not synchronized. They 
 run along together for only nine months in any one year. The figures 
 for the counties cannot be compiled until three or more months after 
 the state figures are available. When they are consolidated to show 
 what state and county expenditures or state and county revenues have 
 been, a substantial portion of the amounts so determined relates to 
 
102 Report of Special Tax Commission 
 
 operations terminated at least three months before. There is even 
 greater confusion when municipalities have to be included in any con- 
 solidated statement of governmental financial operations. The fiscal 
 years of the municipalities themselves are scattered throughout the 
 calendar, and about one-third of their expenditures — those relating to 
 schools — are administered on a uniform fiscal year entirely different 
 from the fiscal years of the municipalities themselves. 
 
 In our judgment the most effective control of local finance is that 
 which rests solidly upon an informed public opinion. Good administra- 
 tion in a democracy is best assured by an alert popular control. Public 
 opinion cannot be made effective in controlling expenditures without 
 intelligible financial reporting, which in turn depends for its highest 
 effectiveness upon uniform fiscal years in all state and local 
 governments. 
 
 A UNIFORM FISCAL YEAR ENDING JUNE 30. 
 
 Uniformity of fiscal years throughout all state and local govern- 
 ments is, in the judgment of this Commission, indispensable to the 
 establishment of sound and systematic procedures in local financial 
 administration. After a thorough consideration of the advantages of 
 all twelve-month periods, the period from July 1 to June 30 is deemed 
 to be most advantageous for such a uniform fiscal year. Schools, the 
 most expensive single local activity, are operated on the July 1 to June 
 30 fiscal year, which under the established school terms seems best 
 adapted for school purposes. Both the federal and state governments 
 have this same fiscal year, and it appears to meet as satisfactorily as 
 any other the different needs of their various operating departments. 
 
 Election dates. 
 
 Most communities now elect their officials in the fall of each year. 
 These officials usually take office immediately upon or shortly after 
 election. If the fiscal year of all municipalities were fixed to begin July 
 1, officials elected in the fall for one-year terms would never have an 
 opportunity to participate in formulation of the budget for the execu- 
 tion of which they were responsible during the major part of their 
 terms and would always take part in the formulation of the budget to 
 be executed largely by officials next to be elected. While we recognize 
 that such an arrangement is open to objections, we have not thought 
 that our authority extended to a revision of municipal election laws 
 and of the many arrangements to which they relate. 
 
 Many municipalities operate their budgetary procedure by means 
 of boards of finance. These boards consist of six members elected for 
 
Municipal Fiscal Years and Tax Due Dates 103 
 
 overlapping terms of three or six years depending upon whether annual 
 or biennial elections are held. Under these boards, therefore, a con- 
 tinuity of financial policy for the municipalities is obtained, and changes 
 in administrators whose duties are restricted to carrying legislative 
 policies into effect assume less importance than if no board of finance 
 existed. 
 
 Yet it may be desirable to have municipal officials elected early 
 in the spring, say about April 1, assuming their offices and duties at 
 the beginning of the next ensuing fiscal year. This would provide the 
 legislative bodies an opportunity to select the officials to be responsible 
 for the administration of municipal activities at the same time that 
 the financial plan for these activities was received and adopted. The 
 newly elected oflicials themselves would be benefited by having an 
 opportunity to participate as members of the electorate in formulating 
 the cpnditions under which they were to operate. We suggest that 
 municipalities be empowered to change their election dates at their 
 discretion and that this power be exercised by shifting election dates 
 to the early part of April. 
 
 Recommendations. 
 
 The Commission therefore recommends: 
 
 That a fiscal year beginning July 1 and ending June 30 be pre- 
 scribed by law for the counties, the Metropolitan District of Hartford 
 County,' and all major municipalities; 
 
 That at any time not later than three months before the beginning 
 of the fiscal year, a municipality be permitted, by the passage of an 
 ordinance or by-law as prescribed in sections 390 and 391 of the Gen- 
 eral Statutes, to fix the date or dates upon which the annual or biennial 
 election of its officers shall be held ; 
 
 That all municipal officers holding office at the time such ordi- 
 nance or by-law is enacted be continued in office until the date or dates 
 fixed for the next ensuing annual or biennial election. 
 
 Relation of tax due dates and fiscal years. 
 
 The problem. 
 
 Lack of uniformity in fiscal years presents only one — and not the 
 most important one — of the problems of time periods in municipal 
 finance. A more serious problem arises from the general lack of synchro- 
 nization of tax due dates and fiscal years. In most of the munici- 
 palities tax revenues are not received until considerable periods after 
 the beginnings of fiscal years. Since the unencumbered cash balances 
 with which municipalities begin their fiscal years are rarely -large 
 
104 Report or Special Tax Commission 
 
 enough to pay their expenditures for any considerable period of time, 
 the expenditures made during the period between the beginning of the 
 fiscal year and the time when tax revenues are received must be 
 financed largely by borrowing in anticipation of taxes. 
 
 Statutes governing tax due dates. 
 
 Each municipality has discretion to fix the date or dates when its 
 taxes are payable. Section 330b of the 1933 Cumulative Supplement 
 provides that "the town. meeting or other authority of a municipality 
 authorized by law to lay any tax may fix, at the time of laying the 
 same, the date when the whole or dates when the two instalments 
 thereof shall be due and payable,, provided, if any municipality shall 
 lay a special tax, the same shall be due and payable in a single instal- 
 ment." The only general limitation on this power is that "the second 
 instalment of each two instalment tax shall be due and payable at' least 
 forty-five days before the end of the fiscal year of the municipality in 
 which the first instalment thereof shall be due and payable, and not 
 less than one-half of each such tax shall be due and payable in the 
 first instalment and the remainder thereof in the second instalment." 
 If the town meeting or other authority fails to set the date or dates 
 when taxes are due and payable, the tax collector is required to do so. 
 
 Municipalities, therefore, under the general statutes, may at their 
 discretion not only fix their fiscal years but also set the dates upon 
 which their taxes become payable. When it is recalled that 'munici- 
 palities in 1932 derived from property taxes 81 per cent of all the 
 revenues required for their financing, the importance of the manner 
 in which these powers are exercised becomes apparent. 
 
 Present situation as to tax due dates and fiscal tears. 
 
 The almost unrestricted powers of municipalities to fix their fiscal 
 and tax years has resulted in a great diversity of these time periods 
 among municipalities. 
 
 In presenting a statistical picture of the situation in the year 
 1933-34, it will be sufficient to give attention, in those municipalities 
 which permit payment of taxes in installments, only to the first tax 
 due date. Under the general statutes not less than one-half of the taxes 
 must come due on that date. In exceptional cases more than half of the 
 taxes are due on the first tax due date, and frequently there is a con- 
 siderable amount of prepayment of taxes as a matter of convenience 
 or to take advantage of discounts allowed by special acts. Furthermore, 
 the due date of the second installment of taxes is seldom as far out of 
 line with the fiscal year as the due date of the first installment. Instead 
 
Municipal Fiscal Years and Tax Due Dates 105 
 
 of being six months after the. first, the second tax due date is visually 
 separated from the first by only three or four months. The problem of 
 synchronizing tax due dates with fiscal years is therefore concerned 
 principally with synchronizing the first tax due date with the beginning 
 of the fiscal year. In the following discussion, therefore, only the due 
 date of the first installment of taxes paid in more than one installment 
 need be considered in relation to the beginning of the fiscal year. 
 
 In Table XXXV the major municipalities are distributed among 
 the months shown in the columns according to the beginnings of their 
 1934 fiscal years and among the months shown in the rows according to 
 the due dates of the whole or the first installment of their 1934 prop- 
 erty taxes. For simplicity in presentation, both the beginning of the 
 fiscal year and the tax due date are carried to the closest month in the 
 manner explained in the description of Table XXXIV above. 
 
 Table XXXV 
 
 MAJOR MUNICIPALITIES: FISCAL YEARS AND DUE DATES OF ALL 
 
 OR FIRST INSTALLMENT OF PROPERTY TAXES, 1933-1934 
 
 Beginning of Fiscal Year 
 Tax Due Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Jan. 
 
 Date x 1933 1933 1933 1933 1933 1933 1933 1933 1933 1933 1933 1934 Total 
 
 1933 
 
 May 
 
 2.. 
 
 1 1.. 
 
 ..1 
 
 
 
 
 
 
 
 2 
 3 
 
 
 1. . 
 
 
 
 
 
 
 
 
 1 
 
 
 2. . 
 
 . .1 
 
 ..1. . 
 
 • 
 
 
 
 
 
 4 
 
 
 2. . 
 
 ..1 
 
 
 1 
 
 
 
 
 
 4 
 
 Sept 
 
 2. . 
 
 . .2 
 
 
 
 . .2.. 
 
 
 
 
 fi 
 
 Oct 
 
 1 
 
 ..2 1.. 
 
 . .1.. 
 
 1 
 
 ..3. . 
 
 ..1 
 
 
 
 in 
 
 
 '. 1 
 
 
 
 
 ..!.. 
 
 ..3 
 
 
 
 5 
 
 Dec 
 
 
 
 
 
 
 
 
 
 
 
 1934 
 
 
 
 
 
 
 
 
 <>, 
 
 9 
 
 Feb. 
 
 
 
 
 
 
 
 
 
 n 
 
 
 
 
 
 
 ..4.. 
 
 . .1 1. . 
 
 
 
 fi 
 
 
 
 
 . .2.. 
 
 8 
 
 60.. 
 
 18.. 
 
 . .4.. 
 
 .19 
 
 .10 
 
 ..3 
 
 1 
 
 3. 
 
 C,9 
 
 May 
 
 
 
 
 ?, 
 
 33 
 
 
 
 
 
 . .1. . 
 
 8 
 
 
 
 
 
 
 8 
 
 ..2 
 
 
 1 
 
 11 
 
 
 , 
 
 
 
 
 
 ..2 1.. 
 
 
 
 3 
 
 Sept 
 
 
 
 
 
 
 . .2 
 
 1 
 
 1 
 
 4 
 
 
 Total 1 2 10 7 1 4 13 100 43 2 2 9 194 
 
 Source: Tax Commissioner, Information Relative to the Assessment and Collection 
 of Taxes, 19S3, pp. 9-14. 
 
 In Table XXXVI there is presented the relation between the 
 months when the 1933-34 fiscal years of fifty-four minor municipalities 
 — all fire districts — began, and the months when the whole or first 
 installments of their 1934 property taxes became due. ISTine fire dis- 
 tricts will probably levy no property taxes for their 1933-34 fiscal years, 
 
106 Report of Special Tax Commission 
 
 and, because they will therefore have no tax due dates for this year, they 
 have been excluded from the tabulation. 
 
 Due dates of the whole or the first installment of property taxes 
 of the major municipalities fall largely during the spring months 
 because of the necessities of the established assessment calendar. When 
 the assessment date is fixed on October 1, the assessment process is not 
 completed and the valuations finally determined until early spring. 
 Only then can the tax rate and the taxes due from each taxpayer be 
 calculated. One hundred and sixty-seven of the 194 major municipali- 
 ties had in 1934 due dates for the whole or the first installment of 
 their property taxes between February 16 and August 15. Each of 
 ninety-four major municipalities — the typical major municipality — 
 fixed the due date for the whole or the first installment of its property 
 taxes within fifteen days before or after April 1, or, as assumed for 
 our discussion, on April 1. 
 
 In Table XXXVII there are presented the time periods, rounded 
 out to months, elapsing between the beginnings of the fiscal years and 
 
 Table XXXVI 
 
 54 MINOR MUNICIPALITIES: FISCAL YEARS AND DUE DATES OF ALL 
 
 OR FIRST INSTALLMENT OF PROPERTY TAXES, 1933-1934 
 
 Beginning of Fiscal Year 
 Tax Due Feb. Mar. Apr. May June ' July Aug. Sep. Oct. Nov. Dec. Jan. 
 
 Date 1933 1933 1933 1933 1933 1933 1933 1933 1933 1933 1933 1934 Total 
 
 1933 
 
 Feb 1 1 
 
 Mar 
 
 Apr 1 1 
 
 May 2 2 
 
 June 
 
 July 1 1 2 
 
 Aug 2....1 2 2 7 
 
 Sept 1....1 3 3 1 9 
 
 Oct 1 1 3 5 
 
 Nov 1 1 2 
 
 Dec 1 3 1 5 
 
 1934 
 
 Jan 
 
 Feb 1 1 
 
 Mar 1 1 1 3 
 
 Apr 1 1 2 1....5 
 
 May 4 1 1 6 
 
 June 1 1 
 
 July 1 1 2 
 
 Aug 1....1 
 
 Sept 
 
 Oct 1 1 
 
 Total 2325 14 7238323 54 
 
 Source: Tax Commissioner, Information Relative to the Assessment and Collection 
 of Tames, 19SS, pp. 14-16. 
 
Municipal Fiscal Years and Tax Due Dates 107 
 
 the due dates of the whole or the first installment of property taxes 
 of the one hundred and ninety-four major municipalities and of fifty- 
 four minor municipalities. This table is derived from Tables XXXIV 
 and XXXV and has its chief value in subordinating the lack of uni- 
 formity of municipal fiscal and tax years to the more fundamental aspect 
 of the problem — the time periods elapsing between the beginnings of 
 fiscal years and the tax due dates. 
 
 • Ten major municipalities operated in 1934 strictly or substan- 
 tially on a prepayment plan. Their property taxes came due during 
 the same months inwhich their fiscal years began. At the other extreme, 
 127 major municipalities furnished services in this fiscal year for 
 which payment in the form of property taxes did not come due for 
 seven months or more. As a general rule shorter periods elapse between 
 the beginnings of the fiscal years and the tax due dates of the minor 
 municipalities than of major municipalities. One-half the minor 
 municipalities included in the table fixed their due dates within four 
 months or less of the beginnings of their fiscal years. 
 
 Postponement of the tax due date for a considerable period after 
 the beginning of its fiscal year is no more advantageous to a minor 
 than to a major municipality. But because of the greater political and 
 finaDcial importance of the major municipalities we have accorded 
 principal attention in the following discussion to the synchronizing of 
 tax due dates with fiscal years of the major municipalities. 
 
 Table XXXVII 
 
 MAJOR MUNICIPALITIES AND FIFTY-FOUR MINOR MUNICIPALITIES: 
 PERIODS ELAPSING BETWEEN BEGINNINGS OF FISCAL YEARS AND 
 DUE DATES OF THE WHOLE OR FIRST INSTALLMENT OF PROP- 
 ERTY TAXES, 1933-1934 
 
 (Periods rounded off to nearest number of months) 
 
 
 
 Major municipalities 
 
 Minor 
 
 municipalities 
 
 Period 
 
 Number 
 
 Cumulative total 
 
 Number 
 
 Cumulative total 
 
 None 
 
 10 
 
 10 
 
 8 
 
 8 
 
 1 month 
 
 7 
 
 17 
 
 1 
 
 9 
 
 2 months 
 
 5 
 
 22 
 
 10 
 
 19 
 
 3 
 
 
 7 
 
 29 
 
 6 
 
 25 
 
 4 
 
 
 8 
 
 37 
 
 7 
 
 32 
 
 5 
 
 
 6 
 
 43 
 
 5 
 
 37 
 
 6 
 
 
 24 
 
 67 
 
 2 
 
 39 
 
 7 ' 
 
 
 71 
 
 138 
 
 4 
 
 43 
 
 8 
 
 
 30 
 
 168 
 
 2 
 
 45 
 
 9 
 
 
 13 
 
 181 
 
 2 
 
 47 
 
 10 
 
 
 11 
 
 192 
 
 3 
 
 50 
 
 11 
 
 
 2 
 
 194 
 
 4 
 
 54 
 
 12 
 
 
 — 
 
 194 
 
 — 
 
 54 
 
 Total 194 194 54 54 
 
 Source: Preceding tables. 
 
108 Eepoet of Special Tax Commission 
 
 Effect of installment tax payments. 
 
 According to the latest information available, 137 of the 194 
 major municipalities collected their 1934 taxes in one installment, 54 
 in two installments, and 3, by authority of special acts, in four install- 
 ments. All but one of the 54 reporting minor municipalities set a 
 single due date for their 1934 taxes. 8 
 
 Only in infrequent cases have arrangements for installment pay- 
 ments of property taxes shortened the periods elapsing between the 
 beginnings of fiscal years and tax due dates. Usually they have tended 
 to lengthen the periods over which borrowing must he resorted to. The 
 due date of the first installment has generally been fixed on the date 
 when the whole tax was previously due and payable. Installment pay- 
 ments, therefore, have been employed to relax the standards of 
 collection practices, to postpone the day of settlement, and to compli- 
 cate further the financing of municipalities. Introduced into a system 
 of municipal, financing already defective because of a misguided 
 leniency toward taxpayers, installment payments have only aggravated 
 the financing problem of municipalities and have raised taxes by 
 increasing interest costs. There are advantages, both for municipalities 
 and taxpayers, in having property taxes due and payable in two or 
 more installments, but these advantages may be quickly dissipated if 
 the first installment is not due at the beginning of the fiscal year, when 
 the money is needed. 
 
 Effects of elapsed periods on municipal finance. 
 Necessity of tax-anticipation boebowing. 
 
 Prevailing fiscal years and tax due dates of municipalities appear 
 to have no reason for being except the preferences of those who 
 happened to be in charge of municipal affairs when existing dates were 
 originally fixed. Since that time inertia, fortified by the inconvenience 
 and perhaps the temporary cost of making a change, has evidently 
 maintained the status quo despite the complications which it has 
 injected into the processes of municipal finance. 
 
 If the beginning of a fiscal year and the first tax due date do not 
 coincide, there is a period in the fiscal year of any particular munici- 
 pality during which expenditures have to be financed by funds derived 
 from sources other than current property taxes. Municipal revenues 
 other than local taxes may become available to bridge this gap in part, 
 
 • Tax Commissioner, Information Relative , to the Assessment and Collection of 
 Taxes, 1933, pp. 9-17. Major municipalities with two installments include Nauga- 
 tuck and Torrington, in which most property lies in two tax districts each having 
 its own tax due date. 
 
Municipal Fiscal Years and Tax Due Dates 109 
 
 but the total of these revenues is a relatively small percentage of the 
 income of a municipality, and the character of these revenues is such 
 that they cannot be obtained at the times of greatest financial need. In 
 very exceptional municipalities the financing of this period is partially 
 arranged by accumulating cash balances from prior years' operations 
 sufficient to pay for expenditures until property taxes are received. In 
 most communities the only recourse is to borrow the required funds in 
 anticipation of the receipt of property taxes. 
 
 Take, for example, the financing of the typical community which 
 begins its fiscal year September 1 and collects all or the first installment 
 of its property taxes during the month of April. This community may 
 derive as much as fifteen per cent of its income from non-tax revenues, 
 but these revenues will be grossly insufficient to finance its total 
 expenditures until property taxes are due. The school department of 
 this community begins to make its commitments and expenditures for 
 the fiscal year on July 1. The other departments begin their spending 
 September 1. The expenditures of the community continue day by day, 
 month by month, throughout the year. They probably run at a higher 
 rate in some months than in other months, but, in any event, expendi- 
 tures are made in every month, bills become due, and funds must be 
 at hand to pay them. Not until April 1 are any revenues received from 
 property taxes levied for this year's operations. By that date the school 
 departments have made nine months' expenditures. Other departments 
 and agencies have been spending for seven months. 
 
 If the community were fortunate enough to have accumulated at 
 the end of the preceding fiscal year an unencumbered cash surplus 
 equal to that portion of its expenditures for seven months which has 
 to be met from property taxes, this cash surplus would bridge the gap. 
 There are very few communities in the state that have a surplus of 
 this size or anywhere near such size, and it is incidentally doubtful 
 if the accumulation of so large a cash surplus by such a foresigbted 
 community could be considered a sound fiscal policy. Municipal credit 
 must be used. Funds must be borrowed ,in anticipation of taxes. The 
 longer the period between the beginning of the fiscal year and the due 
 date of the whole or the first installment of the property taxes, herein- 
 after referred to as the "elapsed period", the larger must be the amounts 
 borrowed in anticipation of taxes, and the longer must be the period 
 for which the municipality borrows the funds. 
 
 Estimated amount of tax-anticipation borrowing. 
 
 Financial statistics of municipalities compiled by the tax commis- 
 sioner for the three fiscal years ending next prior to October 1, 1934, 
 can be used to estimate the amount of tax-anticipation borrowing 
 
110 Kepoet of Special Tax Commission 
 
 required to finance their elapsed periods. The amounts levied for prop- 
 erty taxes measure better than any other statistics the proportion of 
 governmental-cost payments which the community plans to finance by 
 local taxes. Lacking any accounting record of the expenditures of 
 municipalities by months, expenditures are assumed to be distributed 
 evenly over the months of the year, in which case property tax revenues 
 should be received in a regular flow throughout the year if unnecessary 
 cash surpluses or temporary debts are to be avoided. On this assump- 
 tion the question arises, what would have been the volume of loans in 
 anticipation of taxes required by major municipalities to finance their 
 operations in 1932 if expenditures made from the beginnings of their 
 fiscal years to their first tax due dates had been financed entirely by 
 tax-anticipation loans ? 
 
 The major municipalities reported an average annual property tax 
 levy of $73,270,000 in these three fiscal years. Of this total the 20 
 cities levied $46,004,000, the 21 boroughs, $864,000, and the 154 
 unconsolidated towns, $26,402,000. Assuming that each municipality 
 began its fiscal year with no unencumbered cash surplus and expended 
 one-twelfth of its levy each month, the cities were forced to borrow 
 $10,163,000 annually to finance themselves over their elapsed periods, 
 the boroughs, $324,000, the unconsolidated towns, $13,425,000, and 
 all major municipalities combined, $23,912,000. 
 
 Data on tax-anticipation borrowing are available only for quadren- 
 nial years. Cities actually borrowed $20,791,000 in anticipation of 
 taxes in 1932, boroughs, $541,000, unconsolidated towns, $19,084,000, 
 and all major municipalities, $40,416,000. For each group of munici- 
 palities, it will be noted, the amounts actually borrowed were larger 
 than the amounts which theoretically would have been required to 
 finance the postponement of tax collections if expenditures were evenly 
 distributed throughout the year. 
 
 The differences between the estimated amount and the actual 
 amount of funds borrowed in anticipation of taxes probably arise from 
 several circumstances. Actually, expenditures of municipalities are 
 not evenly distributed throughout the year. For municipalities with 
 fiscal years beginning in August, September, and October, it is prob- 
 ably true that their expenditures are proportionately larger in the first 
 than in the second halves of their fiscal years. These municipalities are 
 in the unfortunate position of having to borrow amounts greater than 
 would be determined by the ratio of the elapsed period to a full twelve- 
 month period. So many municipalities begin their fiscal years in the 
 fall that the actual amount of tax-anticipation borrowing must be 
 substantially increased by this cause. 
 
Municipal Fiscal Years and Tax Due Dates 111 
 
 Moreover, tax-anticipation loans may be made for shorter or 
 longer periods than those for which we have assumed that borrowed 
 funds would be needed. If they are made for short periods and then 
 renewed at maturity for additional periods, the face value of loans 
 made is increased without necessarily changing the net amount of 
 tax-anticipation debt required or incurred solely on account of the post- 
 ponement of tax collection. 
 
 Tinally, it is not unlikely that municipalities carry on their books 
 as tax-anticipation loans a substantial amount of borrowed funds which 
 have come to be temporary or even permanent current expense debt. 
 Originally the loans were perhaps made to anticipate taxes. Then a 
 budget deficit was incurred for one reason or another. The tax-antici- 
 pation loans could not be retired but had to be refunded. How much 
 of the borrowing reported to be in anticipation of taxes really repre- 
 sents renewal of prior-year loans made for this purpose but not 
 retired from taxes of those fiscal years it is not possible to estimate. 
 
 On the other hand, the estimate of the net tax-anticipation bor- 
 rowing necessitated by the time periods elapsing between the begin- 
 nings of municipal fiscal years and tax due dates is exaggerated to 
 some extent because it makes no allowances for cash balances which 
 municipalities had on hand at the beginnings of their fiscal years. 
 
 Although it is impossible to make accurate allowance for each of 
 these factors causing the. divergence between the estimated required 
 amount and the actual amount of tax-anticipation borrowing, the esti- 
 mate of 24 million dollars of required annual borrowing in anticipation 
 of taxes is undoubtedly moderate. 
 
 When major municipalities, by delaying their tax due dates, 
 have to borrow some 24 million dollars in anticipation of taxes, an 
 unnecessary interest cost is incurred. At 6 per cent the interest on 24 
 million dollars for four months — the weighted average elapsed period, 
 using property tax levies as the weights — amounts to $480,000 ; at 5 
 per cent, $400,000; and at 4 per cent, $320,000. These may appear 
 to be relatively small amounts when compared with total property 
 tax levies of almost 75 million dollars. Yet they are just so much added 
 to the property tax burden that could be avoided by a reasonable 
 timing of municipal finance. To present taxpayers payment of these 
 sums represents what may be called a tribute to the laxity with which 
 municipal finance has been administered in the past. 
 
 Effects upon municipal debt. 
 
 One-half million dollars each year is no small expense to incur 
 merely to allow taxpayers to postpone the payment of their taxes. But 
 
112 Report of Special Tax Commission 
 
 in the long run this is probably the least expense to which tax-anticipa- 
 tion borrowing gives rise. Borrowing of large amounts becomes habitual. 
 Financial conditions and operations of the municipalities become con- 
 fused in the complicated debt operations which are being continuously 
 carried on. Habitual temporary borrowing makes it easier to borrow 
 the funds with which to pay any budget deficits which result from 
 the failure to levy sufficient taxes or to collect what taxes are levied. 
 It is no uncommon experience to find what was presumed to be tax- 
 anticipation loans not only outstanding at the end of the fiscal year 
 but being accumulated year after year. While it cannot be fairly 
 claimed that interest on the large amount of outstanding current expense 
 debt of municipalities represents a cost of tax-anticipation, borrowing, 
 it is certainly improbable that this debt would have been as large had 
 the municipalities not formed the habit of borrowing continuously to 
 anticipate their taxes. 
 
 If loans were made strictly in anticipation of taxes, the typical 
 municipality would always and without fail retire these loans from 
 the anticipated taxes when they were collected on April 1 or shortly 
 thereafter. Even if its taxes were due in two installments, the second 
 installment would fall due at least forty-five days before the close of 
 the fiscal year for which it was levied. By the close of the fiscal year 
 at the latest the loans made by this municipality in anticipation of 
 taxes should be completely retired. 
 
 Study of the indebtedness of the Connecticut municipalities shows 
 that tax-anticipation loans are not retired at the ends of fiscal years. 
 Budget deficits are carried along from year to year in the form of 
 loans in anticipation of taxes. Even when sufficient property taxes to 
 meet expenditures have been levied, the whole levy is not collected 
 on the date upon which it is due and payable. Thirty days of grace 
 for paying taxes are allowed without the imposition of penalties. This 
 tends to postpone collections for another month. Then a certain percent- 
 age — recently an increasing percentage — becomes delinquent. 
 
 For these and other reasons the revenues required to retire the 
 indebtedness incurred in anticipation of taxes are not forthcoming. 
 Then the municipality falls into the practice of making part payments, 
 renewing the remainder of the loans, and incurring new indebtedness 
 to anticipate taxes — thus establishing a continuous cycle in municipal 
 finance of borrowing, retiring, renewing, and borrowing again through- 
 out the year. In the actual financing of the municipality, borrowed , 
 funds supersede tax revenues. The municipality becomes subject to the 
 vagaries of the money market. Its interest costs are raised. Its current 
 expense debt tends to accumulate. Eventually its temporary indebted- 
 ness, incurred because of the spread between the beginning of its fiscal 
 
Municipal Fiscal Years and Tax Due Dates 113 
 
 year and its tax due date, grows beyond the limit of retirement from 
 current taxes without a severely burdensome levy. Then a funding 
 operation is undertaken. Temporary debt is converted into funded 
 debt, and the community is burdened with an annual interest charge 
 and with the retirement of the principal of the debt over a period of 
 years. 
 
 Major municipalities borrowed $40,416,000 on tax-anticipation 
 notes in 1932, but they retired only $34,711,000 of tax-anticipation 
 loans in that year. Thus they carried $5,705,000 of what was incurred 
 in 1932 as tax-anticipation debt over into the fiscal year 1933. In 1928 
 the major municipalities borrowed $26,273,000 in anticipation of 
 taxes, retired $23,368,000 of these loans, and carried over $2,905,000 
 to the following year. 
 
 Major municipalities have thus run further and further into debt 
 to meet their operating expenses. Of the $156,629,000 of gross 
 indebtedness which major municipalities had outstanding at the close 
 of their fiscal years ending next prior to October 10, 1932, $25,216,- 
 000, or 16.1 per cent, was debt incurred to pay current expenses. If 
 16.1 per cent of the total interest paid by major municipalities in these 
 fiscal years was attributable to current expense debt, there was an inter- 
 est cost of over one million dollars traceable partly at least to the 
 habitual borrowing made necessary by the periods elapsing between 
 the beginnings of fiscal years and first tax due dates. 
 
 The remedy. 
 
 Delay in collecting' taxes, when it becomes habitual, benefits 
 neither the taxpayer nor- the municipality. It is doubtful if leniency 
 in extending the time when taxes were due and payable was ever 
 originally advantageous to the taxpayers. In any event once the late 
 due date for taxes became established, taxpayers were not better but 
 worse off than they would have been had collection not been delayed. 
 The tax bills became due and payable every twelve months just as they 
 did previously, but the total tax bill was larger at least by the amount 
 of interest on the necessary borrowing. Every postponement of the 
 due date of taxes adds to the future burden which the taxpayers have 
 to pay. This additional annual burden due to postponing tax pay- 
 ments can be avoided only by assuming at some time the temporarily 
 larger burden of advancing the tax due date to the beginning of the 
 fiscal year. 
 
 Municipalities now have the power to fix the due dates on their 
 property taxes. Some communities have already incurred a consider- 
 able additional tax burden for the immediate future in order to close 
 the gap between their tax due dates and the beginnings of their fiscal 
 
114 Eepoet of Special Tax Commission 
 
 years. Others have wanted to take the same action and have been 
 deterred from doing so only because they did not wish to add another 
 burden, however light, to those already being borne by their taxpayers 
 during hard times. 
 
 According to the information submitted to this Commission, there 
 is practically universal agreement among all informed interests in the 
 state that the postponement of tax collections to dates far along in the 
 fiscal years for which the taxes are levied is the source of many of the 
 problems of municipal financing. Statements and briefs submitted to 
 us, in many cases, strongly urge the synchronization of the first tax 
 due date and the beginnings of municipal fiscal years. 
 
 The advantages to the municipalities of fixing the first due date 
 at the beginning of the fiscal year have already been advanced and, 
 to our knowledge, have not been seriously 'controverted. We propose 
 therefore that the first tax due date of major municipalities be fixed 
 by law at the beginning of the municipal fiscal year. 
 
 Financing the kefoem in tax due dates. 
 The cost. 
 
 The synchronization of tax due dates and fiscal years involves no 
 additional expenditure on the part of municipalities. The cost of syn- 
 chronization, if it may be called such, consists of the concentration of 
 two relatively large tax payments in the course of a few months. This 
 may be illustrated by means of an example. 
 
 The typical Connecticut municipality began a new fiscal year on 
 September 1, 1934, and to cover twelve months' expenditures it will 
 lay a tax which will come due on April 1, 1935. If this municipality 
 should decide to shift its tax due date to the beginning of its fiscal year, 
 the next following tax due date would be September 1, 1935. By 
 financing this shift entirely out of the proceeds of taxes, the munici- 
 pality creates the following situation: 
 
 Tax due date Amount of taxes laid 
 
 April 1, 1934 12 months' expenditures 
 
 April 1, 1935 12 " " 
 
 September 1, 1935 12 " " 
 
 September 1, 1936 12 « « 
 
 An examination of this schedule discloses that during a period of 17 
 months, April 1, 1935, to August 31, 1936, the taxpayers of this 
 hypothetical municipality are called upon to pay taxes equal to 24 
 months' expenditures, and that they must pay a full year's taxes in 
 April and again in September 1935. 
 
Municipal Fiscal Yeabs and Tax Due. Dates 115 
 
 The most obvious means of avoiding this concentration of 24 
 months' taxes in a period of 17 months is to resort to a bond issue equal 
 to 7 months' expenditures. By so doing, either the April 1, 1935, 
 tax payment or the September 1, 1935, payment could be reduced by 
 an amount equal to the bond issue. If the loan were made on September 
 1, 1934, to cover the expenses of the period from this date to April 1, 
 1935, then only enough taxes to cover the expenditures for the remain- 
 ing 5 months of the fiscal year have to be collected on April 1, 1935. 
 The taxpayers would then be called upon to pay over the same 17 
 months' period taxes equal to 17 months' expenditures according to 
 the following schedule: 
 
 Tax due date Amount of taxes laid 
 
 April 1, 1934 12 months' expenditures 
 April 1, 1935 5 " " 
 
 September 1, 1935 12 " " 
 
 September 1, 1936 12 " 
 
 Once the synchronization of the tax due date and the beginning of 
 the fiscal year has been effected, the fiscal year can be shifted at will 
 without additional hardship to the taxpayers. For example, if our 
 typical municipality, having shifted its tax due date to September 1, 
 decides to shift both the beginning of the fiscal year and the tax due 
 date to July 1, this may be accomplished by simply collecting ten 
 months' taxes on September 1, 1936, and twelve months' taxes on the 
 following July 1, as follows : 
 
 Tax due date Amount of taxes laid 
 
 September 1, 1935 12 months' expenditures 
 
 September 1, 1936 10 " " 
 
 July 1, 1937 12 
 
 July 1, 1938 12 
 
 Over a period of 22 months, September 1, 1936, to June 30, 1938, the 
 taxpayers are called upon to pay taxes equal to exactly 22 months' 
 expenditures. 
 
 From these examples it may be seen that the amount of bonds 
 which must be issued to finance the synchronization of the tax due 
 date and fiscal year in a given municipality is equal to the amount of 
 its expenditures between the beginning of its present fiscal year and its 
 present first tax due date. Taken as an average for the three fiscal 
 years ending next prior to October 1, 1934, these expenditures 
 amounted, for all major municipalities, to approximately $23,912,000, 
 
116 Keport of Special Tax Commission 
 
 or in round figures, $24,000,000. For all major and minor municipali- 
 ties it probably amounted to nearly $25,000,000. The problem of syn- 
 chronizing tax due dates and fiscal years thus resolves itself into the 
 problem of raising $25,000,000 to replace the tax-anticipation loans 
 now required to finance municipalities over what we have called their 
 elapsed periods. 
 
 Should each municipality bear its own cost ? 
 
 If the municipalities themselves could be held solely responsible 
 for the existing chaos in municipal fiscal years and tax due dates, a 
 funding operation by each municipality separately to provide the means 
 with which to finance the period now financed with tax-anticipation 
 loans would be the fairest and most convenient device to correct this 
 situation. By substituting long-term serial bonds for annually recur- 
 ring tax-anticipation notes, the entire burden of paying two years' taxes 
 would not be imposed on taxpayers within a period of a few months 
 but would be spread over a period of years. While the serial bonds were 
 being paid off, municipalities would have to pay interest and retire 
 the serial maturities of the bonds, but even so the burden would be 
 less than the burden of shifting without long-term borrowing since 
 the cost would be spread over the entire period for which the bonds 
 were sold. There is an appeal of strict home rule accounting in this 
 arrangement. Each municipality would be made responsible for paying 
 the price of placing its own affairs on a proper and sound basis. 
 
 But we question whether municipalities can fairly be held solely 
 responsible for the illogical time periods underlying their financing. 
 While the municipalities, under the doctrine of local self-determination, 
 have employed their freedom to their disadvantage and must assume 
 primary responsibility, the state itself is not without some responsibility. 
 Even under a policy of local autonomy the state should see that the 
 powers granted to municipalities are such that municipal financing can 
 be properly discharged ; otherwise, the state may be required with jus- 
 tice to assume a secondary responsibility and part of the financial 
 burden for correcting the undesirable results. 
 
 Proposed plan of financing. 
 
 In formulating a plan for financing the synchronization of the 
 first tax due dates and the beginnings of municipal fiscal years, the 
 Commission has endeavored to give expression to the responsibility 
 both of the municipalities themselves and of the state for the fiscal 
 difficulties arising from the present time periods of the municipalities. 
 The aim has been to provide for such participation by the municipali- 
 
Municipal Fiscal Yeabs and Tax Due Dates 117 
 
 ties and the state in the required financing as will, all things considered, 
 represent substantial justice to all parties concerned. 
 
 The Commission proposes that each municipality be permitted to 
 borrow outside the debt limit by means of ten-year serial bonds to 
 finance its expenditures from the beginning of its fiscal year until its 
 present first tax due date and that the state pay the interest on such 
 bonds and guarantee the principal. 
 
 To avoid as much as possible inequities among municipalities 
 arising from temporary conditions in local finance, the determination 
 of the amount of bonds issuable under the plan should be based upon 
 the average property tax levies and upon the average periods elapsing 
 between the beginnings of fiscal years and the tax due dates for a period 
 of years. For this purpose an average of these two factors for a three- 
 year period is, in our judgment, preferable to a single year or to an 
 average for a longer period. 
 
 It is also desirable to determine the benefits to be extended to 
 each municipality according to factors already established and deter- 
 mined at the time the financing plan is adopted.. Otherwise certain 
 municipalities might manipulate their property tax levies and time 
 periods so as to share in the benefits of the plan in excess of what is 
 intended or necessary. 
 
 The Commission suggests, therefore, that the amount of ten-year 
 serial bonds which a municipality should be permitted to issue under 
 this financial plan be determined by multiplying its average annual 
 property tax levies for the three fiscal years ending next prior to October 
 1, 1934, by the fraction of a full year represented by the average 
 annual period elapsing between the beginnings of its fiscal years and 
 its first tax due dates during that period. 
 
 A considerable minority of the municipalities, including many of 
 the largest municipalities, have already synchronized or shortened the 
 periods between the beginnings of their fiscal years and their tax due 
 dates. In doing so, these municipalities have assumed the financial 
 burdens necessary -to change their time periods or at least have fore- 
 gone in times past the temporary relief to their taxpayers which has 
 come from postponing tax payments. Some of these municipalities are 
 still paying interest and principal on indebtedness incurred to make 
 the change in their time periods. 
 
 It is virtually impossible to analyze the financial condition of 194 
 or more municipalities and to segregate the burdens which they have 
 assumed in fixing their time periods. Yet it is hardly equitable to 
 reward laxness in municipal .finance and penalize efficiency. In justice, 
 municipalities which have already synchronized their first tax due 
 dates with the beginnings of their fiscal years and which, with few 
 
118 Report of Special Tax Commission 
 
 exceptions, have assumed a financial burden in so doing should not be 
 deprived of benefits granted to the more negligent municipalities. 
 Recognizing that it would be impracticable to strive for absolute 
 justice to each municipality, effort should be made to arrive at a 
 reasonable general rule which, applied universally, will promise to 
 effect substantial justice. 
 
 The Commission suggests that provision be made whereby there 
 shall be allotted to every municipality which is subject to the terms 
 of the plan here proposed an amount each year not less than the inter- 
 est at three per cent on the amount of ten-year serial bonds which it 
 would have been allowed to issue if its average annual elapsed period 
 had been four months, i. e.*, the weighted average annual elapsed period 
 for all major municipalities. 
 
 Any municipality which had already synchronized its first tax 
 due date with the beginning of its fiscal year would receive this mini- 
 mum amount wholly in the form of a special state grant. Any munici- 
 pality which had an elapsed period of less than four. months would 
 receive part of its benefits in the form of interest paid by the state 
 upon its bonds, and, if the interest on such bonds were not too high, it 
 would receive an additional benefit in the form of a special state grant. 
 Any municipality which had an elapsed period of four months or more 
 would receive all of its benefits in the form of interest paid by the 
 state upon its bonds, unless it chose to issue less than the authorized 
 amount of bonds or floated them at such a low rate as to qualify for 
 the state grant. 
 
 To administer this financing plan, the Commission proposes that 
 the tax commissioner, the state treasurer, and the attorney general be 
 constituted a state board to assume the duties of determining finally 
 the amount of bonds which each municipality would be authorized to 
 issue and/or the amount of the special state grant to which each 
 municipality would be entitled. It is proposed that this board also 
 supervise the sale of all bonds under the plan and the payment to the 
 municipalities of the proceeds from bond sales and the special state 
 grants. 
 
 The steps in the procedure by which the financing plan would be 
 carried out are as follows: 
 
 1. The legislative body of an eligible municipality would author- 
 ize by ordinance the sale of bonds under the plan. 
 
 2. The budget-making authority of such municipality would then 
 determine the maximum amount of bonds which the municipality 
 might issue under the plan. When this determination had been com- 
 pleted, a certificate of the amount of bonds authorized and the data 
 by which the amount was determined would be filed by the budget-mak- 
 
Municipal Fiscal Ybaes and Tax Due Dates 119 
 
 ing authority with the tax commissioner on a form prescribed by the 
 tax commissioner together with a true copy of the ordinance authoriz- 
 ing the issue. 
 
 3. The state board would review the amount certified as author- 
 ized by each such municipality and would have power to affirm, alter, 
 and revise the amount to* make it accord with the provisions of the 
 plan. This board would also have the responsibility for determining 
 the amount of the special state grant to which each municipality was 
 entitled and for fixing the amount of bonds or of the special state grant 
 authorized for each municipality with two or more tax districts hav- 
 ing different fiscal years or tax due dates and for each municipality 
 which had been consolidated during the three-year period ending Octo- 
 ber 1, 1934. Decisions of the state board on the amount of bonds and 
 of the special state grant authorized for each municipality under the 
 provisions of the plan would be final and would be certified to the clerk 
 or similar officer of such municipality. 
 
 4. Upon receipt of the certificate from the state board each munici- 
 pality would prepare the authorized bonds according to terms specified 
 in the statutes and deliver the same to the state board. This board 
 would determine the coupon rate of interest of the bonds and direct 
 the state treasurer to sell the bonds at public or private sale at not less 
 than par value. 
 
 5. An amount equal to the par value of the bonds would be 
 remitted by the state treasurer to the treasurer of the municipality issu- 
 ing the bonds. Any proceeds from the sale of the bonds in excess of par 
 would be retained by the state to defray the cost of issuing the bonds 
 or to pay interest on the bonds. 
 
 6. During the period when these bonds were outstanding or for 
 which the special state grant was authorized, the state treasurer would 
 pay interest to the bondholders and/or the amount of the special state 
 grant to the municipality. 
 
 7. The municipality itself would be responsible for paying the 
 principal of the bonds at maturity. All bonds retired would be can- 
 celled by the proper municipal officers and deposited with the state 
 treasurer, who would destroy the bonds in the presence of one or more 
 members of the state board and' file in his office and in the office of 
 the treasurer of the municipality a certificate of their destruction signed 
 by himself and by the board members witnessing the destruction. 
 
 While this subject has been considered chiefly from the standpoint 
 of the major municipalities, the discussion is equally pertinent to the 
 minor municipalities. Were it not that the task of adjusting municipal 
 time periods requires a large amount of detailed administrative work 
 during a relatively short period, we would suggest that minor munici- 
 
120 Report of Special Tax Commission 
 
 palities be subject to the same recommendations made for major munici- 
 palities. Rather than further complicate the synchronization of the time 
 periods of major municipalities, which account for over 95 per cent 
 of all municipal financing in the state, we propose to leave each minor 
 municipality free to determine whether it will synchronize its tax due 
 date with its fiscal year and participate on the same terms as the major 
 municipalities in the plan proposed to finance this synchronization. 
 
 Counties and the Metropolitan District of Hartford County do 
 not require financial aid to synchronize tax due dates with fiscal years. 
 Both the counties and the Metropolitan District have substantial reve- 
 nues from sources other than the property tax. Counties, which can fix 
 the due date of the county tax on towns, have not found it necessary to 
 borrow any considerable amounts to anticipate taxes. The Metropoli- 
 tan District, which derives much of its revenues from water charges, 
 is also in a position to control the receipt of its revenues to avoid tax- 
 anticipation borrowing. 
 
 Cost of proposed plan to the state government. 
 
 The state participates in the financing plan (1) by permitting 
 municipalities to incur the necessary indebtedness outside their debt 
 limits, (2) by guaranteeing the payment of principal of the ten-year 
 serial bonds, (3)- by paying all the interest on bonds sold, and (4) by 
 paying to certain municipalities special state grants. The cost in money 
 to the state consists of the interest payments on any bonds which may 
 be issued plus the amount of the special state grants. This cost may be 
 calculated by ascertaining (1) the maximum amount of bond issues 
 permitted to the major municipalities, (2) the maximum amount of 
 bond issues allowed to minor municipalities if all of these municipali- 
 ties should elect to comply with the plan, (3) the interest which would 
 be payable on the diminishing principal of these ten-year serial bonds, 
 and (4) the additional cost of the special state grants. 
 
 Under the terms of the plan the maximum bond issues permitted 
 to the major municipalities would be approximately 24 million dollars. 
 If all minor municipalities in the state were to comply with the act, 
 this maximum would be increased by only about three per cent, or to 
 24.7 millions. 
 
 If this total amount of bonds were issued, tb draw interest from 
 January 1, 1936, and if the average interest rate were 3 per cent, the 
 interest cost to the state would decrease from about $741,600 in the 
 fiscal year 1936-37 to $74,160 in the fiscal year 1945-46. The total 
 interest cost during the ten-year period would be about $4,078,800. 
 
 If all eligible municipalities should elect to issue the maximum 
 amount of bonds authorized under the plan, the amount of the special 
 
Municipal Fiscal Years and Tax Dub Dates 121 
 
 state grant would be the amount by which the interest at 3 per cent on 
 the amount of bonds which municipalities with elapsed periods of less 
 than four months would have been allowed to issue if these periods had 
 been just four months exceeds the interest on the amount of bonds 
 actually issued by such municipalities. If less than the authorized 
 amount of bonds were issued by the eligible municipalities, then the 
 special state grant would be, increased, but the interest cost on bonds 
 issued would be decreased probably by a greater amount. Thus the 
 maximum cost of the plan to the state would be incurred when eligible 
 municipalities issued all the bonds authorized. 
 
 There are 29 major municipalities in which the average elapsed 
 periods for their three fiscal years next prior to October 1, 1934, were 
 less than four months. Their aggregate expenditures during these 
 elapsed periods averaged $4,893,000, whereas their aggregate expendi- 
 tures for four months averaged $12,928,000. The amount of the state 
 grant in the first year, assuming that bonds were issued to the full 
 amount authorized, would be the difference between three per cent on 
 $12,928,000 and the interest on a $4,893,000 bond issue. Assuming 
 that the bonds were issued at three per cent, and making allowance for 
 minor municipalities, we estimate that the payments of special state 
 grants in the first year would be $247,200. In each succeeding year it 
 would be reduced by one-tenth, and over the ten-year period it would 
 amount in all to $1,359,600. 
 
 This state aid to the municipalities to enable them to systematize 
 their time periods is warranted, in our judgment, by the equities in 
 the problem and is a reasonable price for the state to pay for the advan- 
 tages of placing municipal finance on a sound and orderly basis. 
 
 Procedure during the transitional period. 
 
 The recommendations made in this chapter contemplate the simul- 
 taneous establishment of a uniform municipal fiscal year ending June 
 30 and the fixing of the first tax due date in municipalities on July 1, 
 the beginning of the uniform fiscal year. These changes involve a con- 
 siderable rearrangement of the processes of municipal financing now 
 operative and require a reasonable period of time for their accomplish- 
 ment. The Commission has made its recommendations on the assump- 
 tion that the year from July 1, 1935, to June 30, 1936, will be the 
 transitional period during which the changes required by its recom- 
 mendations will be made. It is desirable to discuss at this point, there- 
 fore, the procedure which would be followed by the municipalities in 
 making the necessary adjustments in their time periods to be in a posi- 
 tion to begin a new fiscal year on July 1, 1936, and to have the first 
 installment of their taxes for the new fiscal year become due and pay- 
 able on July 1, 1936. 
 
122 Eepoet of Special Tax Commission 
 
 Although the changes would be made during the same period, the 
 establishment of a uniform fiscal year and the synchronization of tax 
 due dates with fiscal years are separate and independent adjustments 
 in municipal time periods. The character of the changes to be made 
 during the transitional period, therefore, may be more clearly described 
 if each of these two adjustments is first considered separately. 
 
 The establishment of a uniform fiscal year requires, during the 
 transitional period, the financing of a fiscal period of more or less than 
 twelve months. For most municipalities the transitional fiscal period 
 would be less than a year, but for a few exceptional municipalities a 
 fiscal period longer than a year would be preferable. In most cases, the 
 transitional fiscal period of each municipality would extend from the 
 beginning of its fiscal year next following July 1, 1935, to June 30, 
 1936. At the annual meeting of the legislative body held to enact the 
 budget, make appropriations, and levy the taxes for the fiscal period 
 beginning next following July 1, 1935, the action of the legislative body 
 would apply to the fiscal period ending June 30, 1936, however long 
 or short that period might be. The tax levy would be determined to 
 finance the budget for that period, and taxes would become due and 
 payable as usual on the date or dates fixed by the legislative body. 
 In the Spring of 1936 the annual financial meeting of the legislative 
 body would be held to take action on the budget, appropriations, and 
 tax levy for the fiscal year beginning July 1, 1936. Elsewhere in this 
 report it is proposed to permit payment of property taxes in two or 
 four installments. If a municipality exercised this power, at least 
 one-fourth of its tax levy would become due and payable by law on 
 July 1, 1936, the beginning of its new fiscal year. Otherwise, the whole 
 or one-half of the tax levy would fall due on that date. 
 
 To accomplish the transition from the present to a new municipal 
 fiscal year with a minimum of inconvenience, it will be necessary to 
 make provision by which changes may be made during the transitional 
 period in the dates on which or the periods within which specified 
 financial or taxation operations must be done or completed under exist- 
 ing statutes. Existing laws and time periods are so diverse that no 
 procedure written into the statutes could be elastic and flexible enough 
 to adapt itself to the peculiarities of each of 194 or more municipalities. 
 For a very few municipalities the transitional fiscal period will be of 
 such short duration as to raise a question of the practicability of financ- 
 ing that period according to the established procedure. There will be. 
 many municipalities for which special arrangements of time periods 
 during the transitional period will be desirable. Each municipality 
 will need to be dealt with in the light of existing conditions and to be 
 provided with a financial calendar for the transitional period best 
 
Municipal Fiscal Yeaes and Tax Due Dates 123 
 
 suited to its circumstances. Making such arrangements is an adminis- 
 trative, not a legislative, function. The Commission proposes, therefore, 
 that the tax commissioner be required to prepare a schedule or schedules 
 of the dates and time periods on which or within which each munici-.- 
 pality subject to the provisions of our recommendations shall carry out 
 its financial and taxation functions during the transitional period 
 prior to June 30, 1936. 
 
 Except for the mandatory change to July 1, 1936, of the due date 
 of the first installment of property taxes, synchronizing tax due dates 
 with fiscal years is solely a matter of financing. Under our proposals 
 the bonds authorized for this purpose may be issued not earlier than 
 the end of any fiscal year ending between July 1, 1935, and June 30, 
 1936, and not later than July 1, 1936. Bonds of the majority of munici- 
 palities will be issued between September 1, 1935, and July 1, 1936. 
 
 Eventual time schedule of municipal financing. 
 
 If the changes proposed were made during the transitional period 
 from July 1, 1935, to June 30, 1936, municipal financing would there- 
 after be carried on according to a time schedule providing for a logical 
 succession of the steps in the financing process. In the spring of each 
 calendar year each municipal budget-making authority, whether it be 
 the board of selectmen, the board of finance, or some other agency, 
 would prepare the budget for its municipality for the next ensuing 
 fiscal year beginning July 1. By the time the budget-making authority 
 was ready to submit the budget to the municipality for legislative 
 action, the grand list would have been completed. Each municipal budget 
 would then present the complete plan of financing for- the municipality, 
 including the proposed expenditures, the estimated revenues from all 
 sources other than property taxes, the property taxes required, and the 
 property tax rate that would be necessary. 
 
 The meeting of the legislative body of each municipality held to 
 review and approve the budget, make appropriations, and levy taxes 
 would be held during the early part of May, and the financial town 
 meeting now held usually in the autumn would be eliminated. At the 
 May meeting there would be before the legislative body a compre- 
 hensive plan of financing for a period beginning in the future, not as 
 now for a period already partly elapsed. There would be not only 
 the opportunity but also the necessity of weighing expenditures, taxes, 
 and tax rates at the same time. 
 
 When the legislative body had taken final action upon the budget, 
 including any necessary appropriation and revenue ordinances to carry 
 it into effect, the rate bill and tax bills would be prepared by the 
 officers charged with these duties. Before July 1 the rate bill with the 
 
124 Report op Special Tax Commission 
 
 warrant authorizing collection would be delivered to the tax collector. 
 Taxpayers would be notified on or before July 1 that the whole or first 
 installment of their property taxes would be due and payable on July 
 1 and that such taxes, if not paid by August 1, would be subject to 
 a penalty and to interest running from July 1. 
 
 Recommendations. 
 
 To synchronize the first tax due dates with the beginnings of the 
 fiscal years of the municipalities, the Commission recommends : 
 
 That all major municipalities, and all minor municipalities other 
 than the Metropolitan District of Hartford County electing to adopt 
 the uniform fiscal year, be required by law to make the whole or the 
 first installment of their property taxes due and payable at the begin- 
 ning of each fiscal year for which they are levied, i. e., July 1 ; 
 
 That authority be given to every major municipality, and to any 
 minor municipality electing to comply with the plan, to issue, outside 
 any limitation on indebtedness which may be otherwise in, effect, ten- 
 year serial bonds to a face amount not in excess of that proportion of its 
 property tax levy estimated to be required to enable the municipality 
 to finance without tax-anticipation borrowing the average period 
 between the beginnings of its last three completed fiscal years prior 
 to October 1, 1934, and the due dates of the whole or the first install- 
 ment of its property taxes for such years ; 
 
 That the principal of the bonds be a direct obligation of the issuing 
 municipality but that the payment of the principal as it comes due be 
 guaranteed by the state; 
 
 That failure of any municipality to pay the principal of any 
 serial installment of the bonds as it falls due automatically subject 
 the municipality to the provisions of the municipal receivership law; 
 
 That the total interest on all bonds issued under the terms of these 
 recommendations be paid by the state; 
 
 That any major and minor municipality complying with the recom- 
 mendations here made receive from the state government as a special 
 state grant an amount equal to the difference between the amount of 
 interest at three per cent on the face value of the ten-year serial bonds 
 which would have been issued under the plan if the average elapsed 
 period of the municipality had been four months and the amount of 
 interest, if any, actually paid by the state on its bonds issued under 
 the plan. 
 
 To provide for the transition from the present to the proposed 
 municipal fiscal years and tax due dates, the Commission recommends: 
 
 That each municipality subject to the foregoing recommendations 
 be required not later than three months after the first day of its fiscal 
 
Municipal Fiscal Yeaes and Tax Dub Dates 125 
 
 year beginning between June 30, 1935, and July 1, 1936, to prepare 
 its budget, make its appropriations, levy its taxes on the last completed 
 grand list, and collect its taxes for the period between the beginning 
 of such fiscal year and June 30, 1936, according to a schedule or 
 schedules to be prepared by the tax commissioner, designating the dates 
 upon which or the periods within which municipal officers and agencies 
 concerned with assessment, budgeting, appropriating, ratemaking, levy- 
 ing, and collecting taxes shall perform the duties and give the. notices 
 required of them by law or under such schedules ; 
 
 That in the preparation of these schedules the tax commissioner 
 be empowered to make such temporary alterations in the general or 
 special acts, including special charters, concerned with municipal finan- 
 cial administration as may, in his judgment, be necessary for the 
 orderly functioning of each municipality between its fiscal year ending 
 next after June 30, 1935, and July 1, 1936; 
 
 That the tax commissioner be given the power to prepare a 
 schedule prescribing a plan of financing other than that recommended 
 above for any municipality for which the period elapsing between the 
 close of its fiscal year ending between June 30, 1935, and July 1, 1936, 
 and the beginning of the new fiscal year on July 1, 1936, is so short 
 that it would be impracticable for the municipality to budget, appro- 
 priate, levy, and collect taxes for such period. 
 
 Summary. 
 
 govebnmental eiscal yeaes. 
 
 ■ The fiscal years of governments exercising jurisdiction within the 
 state display the utmost diversity. The federal and state governments 
 and all school districts, whether consolidated with their town and city 
 governments or not, operate on a fiscal year running from July 1 io 
 June 30; the counties operate on fiscal years running from October 1 
 to September 30; and the municipalities other than school districts 
 operate on fiscal years which differ from one municipality to another 
 and some one of which begins in every month in the year. 
 
 This diversity makes it impossible to secure an accurate answer 
 to any question involving the receipts or expenditures for a given 
 period of time of two or more levels of government or of any substantial 
 number of municipalities. In the absence of such information it is 
 impossible to secure the degree of enlightened public opinion required 
 for the most effective and economical administration of a democracy. 
 
 Of the several fiscal years now in use in this state, that one which 
 seems best to meet the needs of all governments concerned is July 1 
 to June 30. It would seem advisable, though not imperative, to have 
 
126 Report or Special Tax Commission 
 
 officials elected shortly before the end of a fiscal year to take office at 
 the beginning of a new fiscal year. 
 
 Relation of tax due dates and fiscal teaes. 
 
 The due dates of municipal taxes may be set by the municipality 
 within only the most general statutory limitations! This has resulted 
 in diversities in tax due dates almost as great as in the beginnings 
 of fiscal years. This in itself lends a confusion to municipal finance 
 which is serious enough, but the principal problem which it raises 
 results from the practice of having the tax due date many months later 
 than the opening of the fiscal year. 
 
 Municipalities seldom carry over from one fiscal year to another 
 any substantial unencumbered cash balances. They are therefore forced 
 to borrow to meet their expenditures during the "elapsed period" 
 between the beginnings of their fiscal years and their first tax due 
 dates. Heavy interest costs accrue on tax-anticipation loans, and con- 
 servative financial policies are displaced by expensive borrowing habits. 
 It is estimated that about 25 million dollars is borrowed annually in 
 anticipation of taxes coming due after the beginnings of municipal 
 fiscal years, not to mention the increased borrowing resulting from the 
 weakening of policies of sound finance. 
 
 The evils arising from the lack of synchronization of tax due dates 
 and fiscal years are generally recognized. Some municipalities have 
 met the problem squarely and have already made the adjustment 
 required, but most have been deterred from doing so by the additional 
 burden thereby temporarily imposed upon their taxpayers. The only 
 way to finance an elapsed period without borrowing or accumulating 
 cash surpluses is to advance the date on which property taxes are due. 
 By the concentration of two years' tax payments within the course of a 
 few months, taxpayers are subjected to a heavy burden. This burden 
 may be greatly reduced by spreading it over a period of years. 
 
 The Commission proposes that the financing of elapsed periods 
 be taken care of by means of a ten-year serial bond issue, the proceeds 
 of which may be used to reduce the property tax levy in the year 
 of the change so that the concentration of" two tax payments within 
 a few months will not fall too heavily upon the taxpayer. We propose 
 that the state's responsibility for having permitted municipalities in the 
 past to fix their tax due dates at will be recognized by the assumption 
 by the state of the interest charges on the bonds issued to correct this 
 situation. In order to reduce this interest to a minimum, we propose 
 that the state guarantee the principal of such bonds. 
 
 There are some municipalities, however, which have already 
 shouldered the burden of synchronizing their tax due dates with their 
 

 Municipal Fiscal Years and Tax Due Dates 127 
 
 fiscal years or which have persistently adhered to the strict applica- 
 tion of the sound policy of requiring taxes to be paid at or prior to 
 the time governmental services are rendered. To deprive these munici- 
 palities of all tangible benefits from the plan while their residents were 
 required to contribute to the state taxes levied to finance the change 
 would be unwarranted and unjust. We therefore propose that munici- 
 palities having an elapsed period between the beginnings of their fiscal 
 years and their first tax due dates of short duration or none at all 
 receive from the state a grant computed by subtracting the amount of 
 interest, if any, actually paid by the state upon bonds issued for the 
 synchronization of their respective tax due dates and fiscal years from 
 the amount which would have been paid had bonds been issued at 
 three per cent interest in an amount sufficient to cover an elapsed period 
 of four months. 
 
 It is estimated that the maximum cost of such a program to the 
 state, assuming that the bonds were marketed at three per cent, would be 
 $988,000 in the first fiscal year in which it was in effect and would be 
 decreased by one-tenth in each successive year for ten years. This 
 estimate is based upon the assumption that the change in tax due 
 dates is made mandatory for all towns, cities, and boroughs and optional 
 for all other municipalities. Municipal governmental-cost payments 
 would actually be decreased by the amount of interest saved on tax- 
 anticipation loans, and this would assist them in meeting serial pay- 
 ments on bonds issued under the proposed plan. 
 
 The Commission's recommendations for the establishment of uni- 
 form fiscal years and for shifting the due date of the first installment 
 of property taxes to the beginning of the fiscal year appear at the ends 
 of the respective sections of this chapter. 
 
CHAPTER VI 
 
 MUNICIPAL BUDGETING 
 
 Administrative organization of municipal finance. 
 Introduction. 
 
 Good management of the financing of municipal government is 
 not assured merely by providing a sound and logical organization for 
 financial administration. A competent, public-spirited personnel fre- 
 quently achieves highly satisfactory results in local finance in spite of 
 an illogical and defective administrative organization. An uninterested 
 and incompetent personnel will produce unsatisfactory results even 
 under the best organization. Granting all this, a sound and logical 
 organization of the agencies engaged in municipal financial adminis- 
 tration provides an invaluable machinery for general use. In the rare 
 cases of unusually competent personnel without good organization the 
 results obtained would be greatly enhanced if proper organization were 
 provided. In the case where there is untrained personnel, deficiencies 
 would be minimized. 
 
 The organization of financial administration among the munici- 
 palities of the state is characterized by extreme diversity in matters of 
 detail. Even the general statutes make provision for two very different 
 general forms of fiscal organization, and within each of these. wide 
 latitude for differences exists. Each of the cities, in its special charter, 
 has made provision for the organization of its financial administration. 
 These charter provisions differ in certain respects among themselves 
 and from the corresponding provisions of the general statutes. Further 
 diversity has resulted from the enactment of special acts applicable 
 only to specified municipalities. 
 
 We shall not attempt to treat in detail the innumerable varia- 
 tions of organization which have evolved and now exist. Principal 
 emphasis will be placed in this chapter upon conditions in those major 
 municipalities which operate under the general statutes. We have, 
 however, covered all major municipalities in our recommendations 
 and made provision whereby minor municipalities may comply there- 
 with at their discretion. 
 
 Constitutional provisions. 
 
 Only two sections of the Constitution bear upon the structural 
 organization of municipal financial administration. Section 2 of Article 
 X provides that : 
 
Municipal Budgeting 129 
 
 Each town shall annually elect selectmen, and "such officers 
 of local police, as the laws may prescribe. 
 
 Article XXXII is an amendment of the above section and pro- 
 vides for annual or biennial election of these officials as the electors of 
 each town may determine. 
 
 State participation in municipal finance. 
 
 POWERS AND DUTIES OF MUNICIPALITIES I The PROBLEM OF 
 DIVIDED RESPONSIBILITY. 
 
 The authority exercised by municipal governments is derived 
 from the Constitution and the statutes. Thus, through the instrumen- 
 tality of every statute affecting powers, duties, and financing, the state 
 , government assumes a leading role in the operations of municipal 
 finance. 
 
 While it is not always possible to label accurately the authority 
 conferred upon municipalities by particular statutes, it is relatively 
 simple to distinguish in principle between authorizations consisting of 
 powers and those consisting of duties. 
 
 When a state law authorizes municipalities to do certain things 
 or to act in certain ways and lodges with them full discretion to 
 exercise this authority as they see fit without the imposition of penalties 
 of any kind for the action, if any, taken by the municipalities under 
 such authority, that law has conferred what we choose to call a power, 
 as contrasted with a duty, upon the municipal governments. Its per- 
 missive character is the mark of identification of a statutory power. 
 
 Municipalities have been clothed with many and varied powers by 
 the provisions of the general statutes. Most of these powers relate to 
 services to be rendered by municipalities in all the major functions 
 of government except that of the conservation and development of 
 natural resources. There are also powers which municipalities may 
 exercise to enforce their rights or to provide the means to perform 
 their functions. 
 
 Duties, in contrast to powers, are mandatory. Statutes which 
 impose duties not only authorize but compel the exercise of the powers 
 specified in them. Compulsion may be evidenced by the language of the 
 statutes, by the infliction of penalties, or by the withholding of benefits 
 the enjoyment of which is predicated upon the discharge of the duties. 
 Under existing law the duties imposed on municipalities relate almost 
 exclusively to education, highways, poor relief, and health. 
 
 Powers and duties have • very different effects upon municipal 
 financing. Being permissive, powers simply determine the scope of the 
 activities in which a municipality may engage. Discretion is left with 
 
130 Report of Special Tax Commission 
 
 the municipality to decide how much, if anything, it will appropriate 
 to finance the exercise of the power. Duties, however, place a mandate 
 upon municipal governments. No discretion is left with the munici- 
 pality to decide whether it will or will not discharge the duty. The 
 law compels the performance of the duty and thereby imposes upon 
 the municipalities expenditures over which they have no final control. 
 
 Divided responsibility, at least with respect to financing, is 
 inherent and unavoidable whenever a duty is placed upon a local 
 government by the state government. The very existence of such duties 
 implies the acceptance by the state of a responsibility for the mainte- 
 nance of certain standards of particular governmental activities. Pre- 
 sumably the imposition of a duty on all municipalities represents an 
 effort on the part of the state to enforce certain standards against any 
 possible non-compliance by any one or more municipalities. Yet in 
 only a few cases has the state assumed any responsibility for provid- 
 ing the necessary funds for administering these activities according 
 to the standards established. 
 
 Although we disapprove of the policy of imposing upon the 
 municipalities extensive duties and strongly urge that this policy be 
 discouraged in the future, we have not discovered any practical way of 
 eliminating existing municipal duties. To transform mandatory duties 
 into permissive powers runs the risk, always present in decentraliza- 
 tion, of weakening or destroying the standards of governmental serv- 
 ices which have been laboriously attained. For the state to assume the 
 financing of all mandatory duties now imposed upon municipalities 
 is objectionable, not only because of its fiscal difficulties, but also 
 because of its effects upon existing local autonomy. Thus neither of 
 the alternatives provides a practicable solution to the problem created 
 by the mandatory duties now imposed upon municipalities. 
 
 The Commission has endeavored to dispose of these difficulties, 
 in part at least, in two ways. In this section of the report we suggest 
 an organization and procedure in municipal financial administration 
 which will, we hope, do much to eliminate the recurring conflicts which 
 now arise between fiscal and administrative officials in the discharge 
 of their duties. In a later section of the report we suggest the extension 
 of financial aid to municipalities accompanied by an increase of state 
 supervision and control over certain activities now mandatory upon the 
 municipalities. 
 
 Much of the conflict of authority in matters of municipal finance 
 is directly traceable to the diffusion of responsibility for the discharge 
 of mandatory functions among state agencies, municipal administra- 
 tive departments, and municipal fiscal officers. It is desirable, therefore, 
 to indicate briefly the scope and character of the duties of municipali- 
 
Municipal Budgeting 131 
 
 ties which relate, under existing statutes, to education, highways, char- 
 ities, and health. 
 
 The statutes require municipalities to maintain their public schools 
 for a specified number of days (normally 180) of actual school sessions 
 for all children over six years of age and to provide instruction in a 
 prescribed list of subjects. 1 There are certain mandatory features of 
 the statutes providing for the establishment of evening schools and 
 schools for non-English speaking adults and educationally exceptional 
 children. 2 Municipalities must maintain their own high schools or pro- 
 vide transportation to send their children to high schools of other munici- 
 palities approved by the state board of education and pay the tuition 
 charges. 3 The municipalities must pay the reasonable and necessary cost 
 of transportation of any person between the ages of fourteen and twenty- 
 one years to a state trade school or to a school giving instruction in voca- 
 tional agricultural training if such a school is not maintained by the 
 municipality in which the person resides with his parents. 4 The boards 
 of education of municipalities must purchase and supply, free of charge, 
 such books and supplies as are necessary to meet the needs of instruction 
 in the schools." 
 
 Municipalities must build, repair, and keep free from obstructions 
 all necessary highways and bridges within their respective limits 
 except when such duty shall belong to some particular person." This 
 duty is enforced by two provisions. The first makes the municipalities 
 liable for damages in legal action brought by any person injured in 
 person or property because of a defective road or bridge. 7 Secondly, 
 whenever a municipality fails to keep any public road in good 
 and sufficient repair, free from encroachments, and in a condition 
 required by common convenience and necessity, the county com- 
 missioners of the county in which the municipality is situated may 
 under certain conditions order the municipality to do the necessary 
 work on the road. If the order is not obeyed by the municipality, the 
 county commissioners may have the work done and assess and collect 
 the costs from the municipality. 8 
 
 Section 1693 of the general statutes provides that: 
 
 All persons who have not estates sufficient for their support, 
 and have no relations of sufficient ability who are obliged by 
 
 'Gen. Stat, 1930, sees. 834-836, 838; Cum. Sup., 1933, sec. 157b. 
 2 Cum. Sup., 1933, sees. 175b, 181b, 184b. 
 8 Cum. Sup., 1933, sees. 169b, 173b. 
 
 4 Cum. Sup., 1933, sees. 188b, 189b. 
 
 5 Cum. Sup., 1933, sec. 239b. 
 "Gen. Stat., 1930, sec. 1411. 
 
 7 Gen. Stat., 1930, sec. 1420. 
 
 8 Gen. Stat., 1930, sees. 1421-1424. 
 
132 Report of Special Tax Commission 
 
 law to support them, shall be provided for and supported at 
 the expense of the town where they belong. Each town shall 
 maintain and support all the poor inhabitants belonging to it, 
 whether residing in it or in any other town in the state. 
 
 This section, together with others involving incidental mandatory 
 duties, makes it necessary for each municipality to care for all the per- 
 sons having a legal settlement in that municipality who are in need of 
 charitable relief. 
 
 Duties imposed upon municipalities in connection with health and 
 sanitation are seldom of major financial importance. Health officers of 
 major municipalities are required, among other things, to cause all 
 nuisances to be abated and all filth to be removed which, in their judg- 
 ment, endangers the health of the inhabitants. Only in case the expense' 
 of such activities cannot be collected from those responsible for the nui- 
 sance or filth does the town, city, or borough have to assume this finan- 
 cial burden. 8 
 
 POWERS AID DUTIES OP STATE AGENCIES. 
 
 To enforce the performance of duties imposed upon municipalities, 
 powers have been given to several state agencies which directly or 
 indirectly affect municipal finance. We shall have occasion in the 
 following pages to consider in greater detail the participation of state 
 agencies in municipal finance. Here we are interested only in calling 
 attention to the fact that the tax commissioner, the state auditors, 
 the state comptroller, the state board of education, and other state 
 agencies are directly involved in one way or another in the financing 
 of municipalities. 
 
 Municipal agencies participating in municipal finance. 
 
 Tn general. 
 
 The division of responsibility and authority which inheres in the 
 practice of imposing duties upon municipalities finds its principal 
 expression in the lack of a clear demarcation of the jurisdiction in local 
 finance of the municipal agencies participating in financial administra- 
 tion. All local officials and agencies take part in one way or another 
 in the financial administration of their municipalities. Their activities 
 relate to the planning of municipal financing, the raising of revenues, 
 or the spending of municipal funds. Our interest is not in the activities 
 of local agencies in which the financial aspects are merely incidental. 
 
 "Gen. Stat., 1930, sec. 2407. 
 
Municipal Budgeting 133 
 
 We are concerned only with those local agencies and activities which 
 have a direct relationship to the planning and controlling of municipal 
 financial operations. 
 
 In towns without boabds of finance. 
 
 On June 30, 1934, the tax commissioner reported 105 major 
 municipalities which had not established boards of finance either under 
 the general statutes or by special act. 10 In the 84 towns without boards of 
 finance there are only two agencies which have important powers in 
 financial administration. Except in the one consolidated town and 
 borough, these are the board of selectmen and the local board of educa- 
 tion. 
 
 The agency which is primarily responsible for municipal financial 
 administration in towns without boards of finance is the board of 
 selectmen. Each town at its annual town meeting, unless otherwise 
 provided by law, is required to elect not more than three selectmen if 
 its population is less than 10,000 and not less than three or more than 
 seven selectmen if its population is 10,000 or more. 11 Any town, how- 
 ever, may elect its selectmen biennially rather than annually. 12 According 
 to the latest available information in the office of the tax commissioner, 
 137 of the 194 major municipalities hold annual elections, and only 
 57 hold biennial elections. While in office no selectman can hold office 
 as town clerk, town treasurer, town tax collector, or registrar of voters." 
 
 No qualifications are specified for the office of selectmen, and 
 there are no requirements relating to the time that they shall devote 
 to their duties. There seems to be no specific provision in the statutes 
 fixing the compensation of selectmen except that they are allowed com- 
 pensation for services rendered in connection with the personal tax, as 
 fence-viewers, and in removing, under certain conditions, obstructions 
 to drainage." 
 
 To the extent that a town without a board of finance can be said 
 to have an executive or administrative head, the board of selectmen 
 serves in that capacity. Its powers are extensive and important, includ- 
 ing among others scattered throughout the statutes, the following relat- 
 ing to financial administration : 
 
 Selectmen are authorized (1) to cause other town officers to be 
 sworn in, (2) to adjust and settle all claims against the town and draw 
 orders on the treasurer for their payment, (3) to require sufficient bond 
 
 10 Information Relative to the Assessment and Collection of Tasoes, 1933, pp. 9-14. 
 
 "Gen. Stat., 1930, sec. 274. 
 
 "Gen. Stat., 1930, sec. 265. 
 
 18 Gen. Stat., 1930, see. 277. 
 
 "Gen. Stat., 1930, sees. 1250, 2287, 4316. 
 
134 Repokt of Special Tax Commission' 
 
 from the treasurer, (4) to report monthly to the treasurer all warrants 
 drawn upon him, (5) to keep an accurate account of all expenditures 
 and exhibit it, duly verified by oath, at the annual town meeting, and 
 (6) to superintend the affairs of the town generally." 
 
 With respect to the discharge of mandatory duties placed upon 
 municipalities by the state, it is important to note that the selectmen 
 constitute the overseers of the poor and are required to provide, at the 
 expense of the town, "all articles necessary for the subsistence of all 
 paupers belonging to it." 1 ' 
 
 Except in towns with a board, officer, or commission charged with 
 the care and maintenance of the highways, and except in the case of 
 special acts, the board of selectmen is also the municipal agency 
 responsible for the discharge of the mandatory duty of building and 
 repairing all highways and bridges. If any town fails to provide the 
 necessary funds to discharge this duty, the selectmen are given the 
 power to provide necessary repairs for a period not exceeding one year." 
 
 In the board of selectmen, therefore, we have not only an agency 
 which is responsible for the general superintendence and control of 
 municipal finance in towns without boards of finance but also an 
 agency charged with important operating functions, especially the ad- 
 ministration of the mandatory duties to provide for the poor and to 
 repair and build all necessary local roads. Vesting in the selectmen the 
 responsibility of managing municipal finance and the responsibility of 
 administering these two important mandatory duties serves to elimi- 
 nate the disputes which might arise if these responsibilities were 
 divided among independent local agencies: 
 
 Only in case of education is the responsibility for planning munici- 
 pal financing and of complying with the duties imposed by the state 
 divided between independent agencies in towns without boards of 
 finance. In this function the local board of education constitutes the 
 agency which is responsible for the administration of the mandatory 
 duties. 
 
 In seven municipalities of the state — Bristol, Farmington, G-roton, 
 Middletown, Prospect, Waterbury, and West Haven- — the administra- 
 tion of the elementary schools rests partially with one or more special 
 school districts organized independently of the town. 18 
 
 With some exceptions these special districts do little more than 
 provide buildings and janitor service for elementary schools. In all other 
 municipalities the school districts have been consolidated with the 
 
 15 Gen. Stat., 1930, sec. 303. 
 10 Gen. Stat., 1930, sec. 1697. 
 "Gen. Stat., 1930, sees. 1410, 1411. 
 
 18 Hartford abolished its school district system with the beginning of the school 
 year 1934-35. 
 
Municipal Budgeting 135 
 
 municipal governments. Whether independent school districts exist or 
 not, the town or city assumes full responsibility for secondary schools, 
 continuation schools, and schools for educationally exceptional children. 
 The town or city school administrative agency is the board of 
 education. This board may. consist of three, six, nine, or twelve residents 
 of the municipality, but, in any case, one-third of its members is elected 
 each year for three-year terms. 10 It is charged with the responsibility of 
 discharging the mandatory duties of the municipality with respect to 
 education. 20 The powers of this board which relate directly to municipal 
 financial administration are contained in section 245b of the Cumula- 
 tive Supplement of 1933, which reads as follows : 
 
 The board of education in each city or town, and the school 
 committee of each school district, as the case may be, shall pre- 
 pare an itemized estimate of the cost of maintenance of public 
 schools for the ensuing year and shall submit such estimate to 
 the board of finance in each town having a board of finance 
 and to the board of selectmen in each town having no board of 
 finance, and, in any city having no board of finance, to the 
 authority making appropriations therein, not later than two 
 months preceding the annual meeting at which appropriations 
 are to be made. The money appropriated by any city, town or 
 school district for the maintenance of public schools shall be 
 expended by and in the discretion of the board of education. 
 Any such board may transfer any unexpended or uncontracted- 
 for portion of any appropriation for school purposes to any 
 other item in such itemized estimate. Expenditures by the 
 board of education in each city, town or school district, as the 
 case may be, shall not exceed the appropriation made by the 
 city, town or school district, with such money as may be re- 
 ceived from other sources for school purposes. 
 
 This section presents a relatively simple procedure for the man- 
 agement of school finance and one which, at first sight, appears to be 
 reasonably specific and clear. Yet in the whole field of municipal finan- 
 cial administration there is probably no more troublesome problem 
 than that of the demarcation of the powers of the local boards of edu- 
 cation and of the fiscal agencies of the municipalities. 
 
 In towns with boards of finance. 
 
 On June 30, 1934, the tax commissioner reported 89 major munici- 
 palities which had boards of finance. Forty-three of these municipalities 
 
 18 Cum. Sup., 1933, sec. 262b. 
 "Cum. Sup., 1933, sec. 263b. 
 
136 Report of Special Tax Commission 
 
 had established their boards of finance under the provisions of the gen- 
 eral statutes. Forty-six, including all but two of the chartered cities, had 
 boards of finance organized under special acts. While the organization,- 
 powers, and duties of boards of finance created under special acts differ 
 in some particulars from those of boards created under the general 
 statutes, these differences are of minor importance, relating largely to 
 the number and selection of members. 
 
 Municipal boards of finance existed before 1917 but only under 
 provisions of special acts. The General Assembly first enacted in 1917 
 a general statute permitting any town by its own vote to establish a 
 board of finance. Municipalities have taken advantage .of this option 
 sporadically. During the years of prosperity when problems of munici- 
 pal finance received little consideration, the development of boards of 
 finance among municipalities was relatively slow. But in recent years 
 the accentuation of the financial problems of municipalities has lent 
 an impetus to the establishment of these boards. 
 
 Municipalities having boards of finance differ in the organization 
 of their financial administration from those not having boards of finance 
 primarily in that they have an additional administrative- agency with 
 important powers in financial administration. The local board of 
 finance, broadly speaking, takes over and exercises powers similar to 
 those of the board of selectmen in the preparation of municipal budgets. 
 
 The establishment of a board of finance under the general statutes 
 requires the affirmative action of a regular or special meeting of a 
 municipality duly warned for the purpose. Within ten days of such 
 action the selectmen of the municipality are required to appoint six 
 electors and taxpayers to serve as members of the board until the next 
 regularly scheduled election. When such a board of finance has been 
 established by the municipality it may not be abolished for a period of 
 two years. 21 
 
 Members of the board of finance established under the general 
 statutes are elected by twos for overlapping terms of three or six years, 
 depending upon whether the town holds annual or biennial elections. 
 They are not compensated for their services on the board but are reim- 
 bursed for all necessary expenses incurred in the work. 22 
 
 There are provisions in the statutes setting forth in detail the 
 powers and duties of a municipal board of finance. It will be necessary 
 at a later point to describe these powers and duties. Here it will suffice 
 to say that a board of finance has full responsibility for the prepara- 
 tion of the budget to be considered and acted upon by the legislative 
 body of the municipality. Within this general responsibility are 
 
 21 Cum. Sup., 1933, sec. 59b. 
 
 22 Gen. Stat., 1930, sec. 414; Cum. Sup., 1933, sec. 60b. 
 
Municipal Budgeting 137 
 
 included the power to recommend appropriations to be made for the 
 activities of the municipality during the year for which the budget 
 is being prepared, the power to fix the tax rate required to provide 
 the revenues to finance the budget adopted by the legislative body, and 
 the power to transfer appropriations from one item to another within 
 the approved budget during the course of the year to which the budget 
 relates. 
 
 When a municipality creates a board of finance and operates 
 under the general statutes, the board of selectmen becomes primarily 
 an administrative rather than a fiscal agency and takes its position 
 with the local board of education as an agency vested with the responsi- 
 bility of discharging mandatory duties but without direct and 'final 
 control over the appropriations, to be recommended for such activities 
 to the legislative body. In towns without boards of finance the division 
 of responsibility for mandatory duties between the state and the 
 municipalities finds expression in dispute over the jurisdiction of only 
 two agencies, namely, the board of education, and the board of select- 
 men. But the creation of a board of finance adds still another party 
 to the dispute. 
 
 Criticism. 
 
 It is generally well known that the failure of the statutes to specify 
 the limits of authority and responsibility of the municipal agencies 
 charged with the administration of mandatory duties and of those 
 agencies responsible for the general planning and execution of munici- 
 pal finance is the principal cause of irritation and dispute in municipal 
 financial administration. There has been a continual dispute as to 
 whether the selectmen, the local board of finance, the legislative body, 
 or the local board of education has the power of final determination as 
 among local agencies over the amount to be appropriated from munici- 
 pal funds to carry out the duties placed upon municipalities by state 
 law. 
 
 The courts have ruled on only a few of the points at issue. Each 
 party to these disputes has given its own particular interpretation to 
 the statutes and court decisions. Although this Commission has studied 
 these decisions and other literature on the subject, its purpose has not 
 been to pass judgment upon the points at issue but rather to discover 
 the source of the difficulty and to provide, as far as possible, for its 
 elimination, so that proper municipal financial administration shall 
 not be unnecessarily hampered by insufficient or defective statutes. 
 
 Expenditures which are optional with municipalities and Which 
 relate to the exercise of powers rather than duties involve no uncer- 
 tainty as to which governmental body has the authority to determine 
 
138 Kepoet of Special Tax Commission 
 
 their amounts. These expenditures are definitely subject to the ordinary 
 budgeting procedure followed by the municipality and are determined 
 by the town meeting or corresponding legislative body in municipalities 
 without boards of finance and by the board of finance and the legis- 
 lative body in cooperation in other municipalities. There is no dispute 
 on this point. 
 
 Dispute relates only to the expenditures to be made to carry out 
 duties made mandatory by state law (or powers in the exercise of 
 which discretion is given to some specified municipal department). In 
 towns without boards of finance this problem arises only in connection 
 with educational appropriations. But in municipalities with boards of 
 finance appropriations for highways and charities, as well as for edu- 
 cation, are open to dispute. Because of the more numerous duties of 
 municipalities in education, the absolute and relative importance of 
 local expenditures made on this function by municipalities, and the 
 traditional tendency to make educational activities politically and 
 financially independent of other governmental activities, educational 
 appropriations and expenditures have provided the focal point of this 
 problem. 
 
 Differences of interpretation of the statutes in question resolve 
 themselves into questions of objective and policy. We appreciate the 
 position of municipal agencies administering mandatory activities. 
 They have been made responsible for the accomplishment of certain 
 specified activities. If they have pride in their work, they will naturally 
 want to see these responsibilities discharged at least according to 
 standards acceptable to the state department supervising the activities 
 and to others engaged in similar activities elsewhere. Such administra- 
 tors become enthusiastic over the amount and quality of the services 
 they are asked to render. The need for more and better service is upper- 
 most in their minds. Yet the cost, as represented by ,the funds made 
 available for these services, fixes the limits within which such admin- 
 istrative agencies must operate. Placing the emphasis where they do, 
 these agencies contend that they, who have the responsibility of com- 
 plying with the state mandate, and who are devoting their full time 
 and effort to the performance of services required, know what the 
 requirements of the mandate are better than any fiscal agency of the 
 municipality. If they are required to determine what must be done to 
 comply with the statutory mandate, how it is done, who and how many 
 are' required to do it, and other similar matters, they contend that they 
 must have the authority to determine how much money should be avail: 
 able to do the work. 
 
 Viewed solely from the service standpoint, this position is neither 
 unnatural nor indefensible. But as a system for administering the 
 
Municipal Budgeting 139 
 
 financial affairs of the community as a whole, it is obviously untenable. 
 What family could maintain its solvency if any one of its members 
 were free to spend as much as he thought necessary for his own pur- 
 poses and without consideration for the expenditures of other members ? 
 Is there a private business which could possibly maintain its solvency 
 if one of its departments had freedom to spend as it liked without 
 regard to its total resources or the expenditures of other departments ? 
 Both personal and business budgeting means controlling and planning 
 expenditures in order to bring them into that relationship which will 
 produce the maximum benefits from the total amount available to be 
 spent. 
 
 Budgeting governmental finance involves no essentially different 
 considerations, except that the necessity of a careful balancing of 
 , expenditures against revenues and of particular expenditures among 
 themselves is even more imperative. There is no assurance that munici- 
 pal revenues will be applied to services in the proportion necessary to 
 provide the maximum benefits unless all expenditures and all revenues 
 are brought within a unified financial plan and are submitted at the 
 same time for the scrutiny and action of a properly constituted agency 
 responsible for the financing of all municipal activities. 
 
 This was the intent and purpose of the General Assembly in pro- 
 viding for the establishment in municipal financial administration of 
 a new agency — the local board of finance. It undoubtedly realized that 
 each administrator tends to become enthusiastic about his own activity, 
 to envisage its potentialities for the ultimate welfare of the town, to 
 plan its growth, and to push its claims for ever-increasing appropria- 
 tions. It could not have failed to see that, when all town agencies com- 
 bine in this endeavor uncontrolled, there is no effective check on ever- 
 mounting expenditures, with their inevitable effects upon property 
 tax levies and municipal solvency. 
 
 Boards of finance are designed to bring the requirements of the 
 several municipal departments and agencies into proper balance, to 
 eliminate wasteful and extravagant expenditures, and to bring the 
 total expenditures of a municipality within reasonable limits of its 
 taxable capacity. Unless it be that these boards were intended to bring 
 into the financial planning of municipalities the benefits of an objective 
 and impersonal appraisal of the requests of operating departments for 
 appropriations, based upon a comprehensive knowledge of the financing 
 of all municipal activities, there is no evident reason for their existence. 
 All other functions of the boards of finance could have been lodged 
 with the boards of selectmen. 
 
 There are other indications that comprehensive planning of 
 municipal finance is the distinctive purpose of local boards of finance. 
 
140 Eepoet of Special Tax Commission 
 
 Only the uncertainty with respect to the force and effect of the man- 
 datory duties lodged with local boards of education by state law gives 
 rise to any uncertainty about the interpretation of section 245b of the 
 Cumulative Supplement of 1933. This section specifically limits the 
 expenditures of local boards of education to the appropriations made 
 by the municipality, while giving to these boards the power to trans- 
 fer appropriations from one item to another within their total appro- 
 priation. This would seem certainly to mean that the, total amount of 
 the appropriation is to be 1 determined, not by the board of education, 
 but by the municipality . through its legislative body and through its 
 board of finance if it has one. Certain boards of education and the state 
 department of education, however, seem to contend that thi3 is the 
 proper interpretation of section 245b only as it relates to expenditures 
 which are optional or permissive with the municipalities, that is, 
 expenditures incurred in the exercise of their powers as contrasted with 
 expenditures made in complying with mandatory duties. Expenditures 
 for mandatory duties in education, according to these educational 
 authorities, are under the control of the boards of education as agents, 
 not of the municipalities, but of the law. 23 While we do not accept the 
 reasoning of these authorities, the matter requires no elaboration for 
 our immediate purpose, which is to indicate the different viewpoints 
 held concerning the respective jurisdictions of local boards of education 
 and fiscal agencies. 
 
 Although the case of Oroton and Stonington Traction Company v. 
 Town of Groton 1 involved a question of the powers of a town meeting 
 over apropriations rather than the respective powers of local boards of 
 education and local boards of finance in budgeting, the Supreme Court 
 was forced to consider the latter point in rendering its decision. The 
 opinion in this case reads in part : 
 
 We hold, therefore, that the board of finance has not the power, 
 by refusing to include in its budget, or if an occasion arises 
 after the laying of the tax whereby more money is needed, to 
 recommend to a special town meeting, a proper and reasonable 
 estimate of the expenditures necessary, to disable the town 
 or its officers from performing those duties which are imposed 
 upon them by statute or to render it impossible for them to 
 carry out their decisions in matters wherein by statute discre- 
 tion is expressly vested in them. Where the expenditure that 
 will be required for a particular purpose in the ensuing fiscal 
 
 28 See State Department of Education, Notes and Briefs on the Powers and Duties 
 ' of Town School Boards, August, 1933. 
 24 115 Conn. 151 (1932). 
 
Municipal Budgeting 141 
 
 year is uncertain, the board of finance has a discretion to 
 determine the amount of apropriation which it will recommend 
 in the first instance; where the specified amount which is 
 sought for a particular purpose is, in its judgment, extrava- 
 gant and unreasonable, it may reduce it to a sum which is 
 reasonable in view of the financial condition of the town and 
 the other expenditures it must make, and it then becomes the 
 duty of the other officers concerned to endeavor to keep within 
 the appropriation made and not to seek further appropriation 
 unless imperative need arises; and where the statute neither 
 imposes a duty upon the town or any of its officers nor vests 
 in it or them a discretion to be independently exercised, the 
 board pi finance may, if in its judgment the financial condi- 
 tion of the town does not justify expenditures for a particular 
 purpose, decline to include any appropriation for it in its 
 estimate submitted to the annual town meeting, or to recom- 
 mend it to a later meeting. But it cannot refuse to include in 
 that estimate or, if subsequent need arises, to recommend to a 
 later meeting a sum reasonably adequate for the performance 
 of such duties as are imposed by law upon the town or its 
 officers,, or to make effective the reasonable exercise of such a 
 discretion as is expressly conferred by statute. If the board 
 fails to do this, by express provisions of the statute, no appro- 
 priation can be made by the town ; but it does not follow that, 
 in consequence, statutory duties cannot be performed or that 
 decisions, within the proper exercise of a discretion given by 
 statute, may not be carried out. In such a contingency the 
 proper officers of the town can create binding obligations upon 
 it, which, reduced to judgment, will be collectible from it. 
 
 This opinion establishes a general rule which strikes us as being 
 specific and applicable, and which, in our judgment, conforms to the 
 intent of the General Assembly in enacting the statutes governing 
 municipal finance. Obviously a municipality is not empowered to frus- 
 trate the will of the state as expressed in mandatory duties by the 
 failure of its board of finance or legislative body to appropriate proper 
 and reasonable amounts for the discharge of the duties placed upon 
 it. But, within the limits of this general restriction, the municipality 
 itself has the responsibility of determining what is a proper and rea- 
 sonable amount to be appropriated for the discharge of mandatory 
 duties. 
 
 This interpretation is further supported by the more recent acts 
 of the General Assembly establishing local boards of finance. In 1933 
 
142 Eepoet of Special Tax Commission 
 
 the General Assembly enacted special laws establishing boards of 
 finance in Stonington and Plymouth. Both these special acts set out 
 in greater detail than is done in the general statutes the jurisdiction 
 of these boards of finance over appropriations. The sections on this 
 point in the two acts are practically identical and read as follows : 
 
 Any agency, whether authorized to carry out state or local 
 functions of government, which is required by statute to 
 render or cause to be rendered any public service requiring an 
 expenditure of town money or which is required to enter into 
 any contract involving any expenditure of money from the 
 treasury of said town, shall first submit an estimate of the 
 expense thereof to said board of finance. Said board shall 
 determine whether any such proposed expenditure is necessary, 
 and, if necessary, the amount thereof, taking into considera- 
 tion the condition of the finances of said town and the need of 
 spending money for other purposes, as it shall find to be rea- 
 sonable in all the circumstances, and shall recommend to a 
 town meeting to be subsequently held, an appropriation 
 therefor. 2 
 
 We do not understand how anyone can read objectively and 
 impartially the powers over expenditures granted to local boards of 
 education and the powers over budgeting granted to local boards of 
 finance and legislative bodies without reaching the conclusion that, 
 subject only to the prohibition against failing to perform a mandatory 
 duty through the lack of a proper and reasonable appropriation, the 
 local boards of finance and legislative bodies have full power to deter- 
 mine what they shall appropriate. 
 
 If the statutes can be interpreted to mean that any agency of a 
 municipality other than the fiscal agencies can, in its own discretion 
 and without any regard to other expenditures or to the total expendi- 
 tures of the municipality, determine what shall be appropriated or 
 spent on any one of the mandatory duties of municipalities, the 
 statutes should be amended to preclude such an interpretation. Such a 
 system of loose financing could mean nothing else than a continual 
 increase in local taxes and a further threat to municipal solvency. Pres- 
 ent laws, we are convinced, do not specify and do not imply any such 
 procedure of financing. We have no doubt that the interests of all con- 
 cerned — the state, the municipal operating departments, the municipal 
 fiscal agencies, and the municipalities themselves — will best be served 
 by a definite and logical organization of municipal financial adminis- 
 
 25 Spec. Acta, 1933, pp. 795, 960. 
 
Municipal Budgeting 143 
 
 tration within which the respective powers and duties of the several 
 municipal agencies are made as specific as possible. 
 
 Conclusions. 
 
 If the objective just stated is to be attained, certain conditions 
 must be met by the plan under which municipal financial administra- 
 tion is to be organized. There must be one agency in municipal govern- 
 ment whose duty it is to review and pass upon the appropriation requests 
 of operating departments in the light of all the demands made upon a 
 municipal government and of the tax burden which must necessarily be 
 imposed to raise the funds to finance these demands. 
 
 So long as mandatory duties are vested in municipalities, how- 
 ever, there must be specific recognition that municipalities have a man- 
 date to appropriate proper and reasonable amounts for the discharge 
 of these mandatory duties. Otherwise, municipalities could at their dis- 
 cretion defeat and frustrate the purpose of state legislation under which 
 mandatory duties are vested with the municipalities. 
 
 Within the broad limits of such a mandate it should be definitely 
 recognized by statute that municipal fiscal agencies, particularly legis- 
 lative bodies, have the authority to determine finally what services their 
 governments are to render and what appropriations are to be made to 
 finance these services. 
 
 Administrative or operating departments of the municipalities are 
 entitled to the recognition of their rights and privileges in the organi- 
 zation of municipal financial administration. These departments, 
 among themselves, should be given equal standing in their dealings with 
 the budget-making authority and the local legislative body. They can 
 properly claim the right to have their requests for appropriations given 
 careful consideration and acted upon in consideration of the demands 
 made by them and other departments of the municipality. To protect 
 these departments against domination and dictation by the budgeting 
 authority and to give them the necessary latitude to manage their depart- 
 ments efficiently and economically, reasonable discretion should also 
 be vested in these departments to use the appropriations made available 
 to them in the manner which they deem most expedient. 
 
 Procedure in municipal budgeting. 
 Definition op the subject. 
 
 By procedure in municipal finance we mean the steps by which 
 the financial plan of a municipality for any given fiscal year is formu- 
 lated,, enacted into law, and carried into effect. More specifically, pro- 
 cedure includes activities of budgeting, accounting, safe-keeping of 
 
144 Keport of Special Tax Commission , 
 
 funds, auditing, and reporting. In the remainder of this chapter con- 
 sideration will be given only to municipal budgeting procedure. Budget- 
 ing may be considered as involving three distinct operations, namely, 
 the preparation of the budget, the legislation of the budget, and the 
 execution of the budget. In the following section the preparation of 
 municipal budgets will be considered. 
 
 preparation of the budget. 
 
 In towns without boards of finance. 
 
 In towns without boards of finance the board of selectmen is 
 responsible for the preparation of the budget. This board has general 
 supervision over the activities of the town and manages the town's 
 finances. It is required to keep a true account of the town's expenditures 
 and in its annual report to the town meeting to "include an itemized 
 estimate of the current expenses of the departments of the town for 
 the ensuing year." 2 " This section contains the only provisions relating 
 to the planning of the expenditures of the town for the ensuing year. 
 Another section of the statutes requires the selectmen to exhibit to the 
 annual town meeting a certified statement of the expenditures made 
 by the town during the fiscal year preceding the date on which the 
 exhibit is submitted. 2 ' 
 
 These statutes in combination imply at least that the estimates of 
 the selectmen of the expenses of the town for the ensuing year are 
 to be based upon the expenditures of the town for the preceding year, 
 which the selectmen have supervised. But under the law the estimates 
 of expenses for the ensuing year need not be brought into comparison 
 with the expenditures of the preceding year in the reports submitted 
 by the selectmen to the annual town meeting. 
 
 The administrative agencies of these towns, other than boards of 
 education, are not required by law to submit reports of their activities 
 and expenditures or requests for appropriations to the selectmen. No 
 authority exists in the statutes under which the selectmen may require 
 these reports. 
 
 The fiscal years of a majority of these towns close in July, August, 
 or September. Their annual town meetings are held in the early part 
 of October. The selectmen, therefore, have but three months at the 
 most during which the town books must be closed, their statement of 
 the expenditures of the preceding year compiled, their consideration 
 of the needs and probable expenses of the ensuing year completed, and 
 their annual report for the town meeting prepared. All these activities 
 
 'Gen. Stat., 1930, sec. 1204. 
 f Gen. Stat., 1930, sec. 303. 
 
Municipal Budgeting 145 
 
 the statutes require of three to seven officials elected for short terms, 
 devoting spare time to their duties, and receiving meager compensation. 
 
 It is a gross misuse of terms to apply the name "budgeting" to 
 the procedure prescribed for planning the financing of municipalities 
 without boards of finance. Under proper budgeting the financial plan 
 for a governmental unit should be completed and acted upon before the 
 beginning of the period for which the plan is made. Such a plan should 
 be formulated only after the most careful scrutiny of all requests for 
 appropriations and of the financial resources of the government. It 
 should be embodied and presented to the legislative body in an intel- 
 ligible and comprehensive budget document which should show in 
 detail all appropriations proposed, all revenues anticipated to meet such 
 appropriations, and the tax rate required to raise the estimated revenues 
 from general property taxes. 
 
 Selectmen have no responsibility whatever under the statutes for 
 reporting to the town meeting either the revenues of the preceding 
 year or the anticipated revenues of the year for which appropriations 
 are to be made. There is in these towns no true budget document in 
 which appropriations proposed for the ensuing year are compared with 
 expenditures for the same purposes in past years or with the revenues 
 and taxes which must be raised to finance those appropriations. No 
 .financial statements worthy of the name of budget statements are 
 required under the statutes or made available to the community or to 
 its legislative body. Yet it is by means of such statements alone that 
 the public and the legislative body can be given a comprehensive 'and 
 intelligible record of the financial condition and operations of the 
 community during the current and preceding fiscal years and of its 
 financial plan for the next ensuing fiscal year. According to the 
 informative character of the financial budget statement the electorate 
 is or is not provided with the necessary facts for taking intelligent, 
 action. Upon the accuracy of the estimates and the interpretation 
 placed upon the items presented in the budget statements largely 
 depends the success which will attend the financing of the community 
 and also its compliance with the spirit as well as the letter of the 
 statutes. 
 
 In towns with boards of finance. 
 
 Financial administration in municipalities having boards of 
 finance is far in advance of that in most towns without boards of finance. 
 There is an agency responsible solely for the planning of the activities 
 of the municipality and for the preparation of the budget. There is a 
 logical procedure to be followed in both the preparation and the legis- 
 lation of the budget. Provision is made by law for the form of the 
 
146 Report of Special Tax Commission 
 
 budget, including the classification of items of receipts and expenses 
 which is to be used. Adequate provision is made for the scrutiny of 
 requests for appropriations by the board of fiance and by the public. 
 There is a more definite procedure to be followed by the legislative 
 body in making appropriations and enacting the budget. Preparation 
 of the budget in municipalities having boards of finance created under 
 the general statutes is covered by the following provisions : 
 
 1. Not less than two weeks before the annual town meeting, the 
 board [of finance] shall hold a public meeting, at which 
 itemized estimates of the expenditures of the town for the 
 ensuing fiscal year shall be presented, and shall hear all per- 
 sons who may wish to be heard in regard to any appropriations 
 which they are desirous that the board should recommend. 
 
 2. The board shall, after such public hearing, hold an executive 
 session at which it shall consider the estimates so presented 
 and any other matters brought to its attention, and shall there- 
 upon prepare and cause to be published in a newspaper in 
 such town, if any there be, otherwise in a newspaper having 
 a substantial circulation in such town, a report in a form 
 prescribed by the tax commissioner containing: 
 
 (a) An itemized statement of all actual receipts from all 
 sources of such town during its last fiscal year ; 
 
 (b) An itemized statement, by classification, of all actual 
 expenditures during the same year; 
 
 (c) An itemized estimate of anticipated revenues during 
 the ensuing fiscal year from each source other than local 
 property taxes and an estimate of the amount which 
 should be raised by local property taxation for such 
 ensuing fiscal year; 
 
 (d) An itemized estimate of expenditures of such town for 
 such ensuing fiscal year; 
 
 (e) The amount of revenue surplus or deficit of the town 
 at the beginning of the fiscal year for which estimates 
 are being prepared. 
 
 '6. It shall submit such estimate with its recommendations to the 
 annual town meeting next ensuing. . . . M 
 
 In addition to the provisions contained in the foregoing para- 
 graphs, the board of finance created under the general statutes is 
 authorized to distribute abnormal- expenditures over a period of not 
 
 23 Except for paragraph arrangement and numbering these are the provisions of 
 Cum. Sup., 1933, sec. 61b, relating to the preparation of the budget in these towns. 
 
Municipal Budgeting 147 
 
 more than five years. Whenever bonds are -authorized by a meeting of 
 the legislative body, there must thereafter be included as a fixed charge 
 in succeeding annual budgets appropriations for the interest and for 
 payments to sinking funds on such bonds." 
 
 As an agency responsible for the preparation of the budget a 
 board of finance is more defensible than a board of selectmen. Mem- 
 bers of a board of finance must be both electors and taxpayers. Their 
 terms of office are sufficiently long to allow them to become familiar 
 with the details of town affairs without being responsible for the actual 
 administration of town activities. A board of finance is a strictly fiscal 
 agency having no responsibilities for administrative functions. It can 
 view requests for appropriations in the light of the financial condition 
 of the municipality rather than in the light of the hopes and aspirations 
 of any one or more operating departments. 
 
 The procedure for preparing the budget in municipalities with 
 boards of finance created under the general statutes is more specific 
 and adequate than that prescribed for municipalities without boards 
 of finance. Study and criticism of the proposed budget of the munici- 
 pality by the public are invited and encouraged through public hearings 
 and through the publication of the proposed budget in the newspapers. 
 The statutes require the preparation of a real budget statement. The 
 form of the budget for these municipalities, prescribed by the tax com- 
 missioner under the statutes, is generally excellent. It presents com- 
 parisons of the statistics of past financing, the finances of the current 
 fiscal year, and the proposed finances for the ensuing fiscal year. By 
 means of this budget statement the legislative body has before it for 
 action an intelligently formulated program for town activities, supple- 
 mented with adequate and necessary data, on the basis of which it 
 can act. Our principal criticism of the budget documents in these 
 towns relates to the indefiniteness of meaning of certain items, such 
 as "revenue surplus", "revenue deficit", and "uncollectible taxes", 
 which the statutes require be set forth in the budget statements. 
 
 Many authorities would consider budgeting under boards of 
 finance faulty because it represents a commission rather than an execu- 
 tive form of budgeting organization. It is generally contended that 
 the executive budget is preferable, because it focuses public attention 
 upon and makes a political issue of efficiency and economy, it forces 
 the chief executive to assume responsibility for the work program 
 of the government both in its formulation and in its execution, and 
 it places with the chief executive the power to delegate activities 
 authorized by the budget to the administrative departments. Budget- 
 
 M Gen. Stat., 1930, sec. 419. 
 
148 Eepoet of Special Tax Commission 
 
 ing under boards of finance is criticized in that the budgeting agency 
 does not bring to the formulation and execution of the budget the 
 experience which conies from full-time day by day participation in 
 municipal administration, that it does, in certain respects, divide 
 authority between the board of finance and the executive heads of 
 municipalities, and that it fails to place the desired importance and 
 emphasis upon the execution of the budget. 
 
 Against these disadvantages, however, should be offset the advan- 
 tages of having a budgeting agency, consisting of financially responsible 
 citizens not actively engaged in the administration of the government, 
 which can scrutinize and review the requests for appropriations imper- 
 sonally, objectively, and solely in consideration of the need of the 
 services and the burden of taxes which they necessitate. It may also 
 be said that in governments as small in area and population as the 
 Connecticut municipalities, who,se organization is, in high degree, 
 decentralized and rests largely upon the board or commission rather 
 than the single-headed departmental form of organization, the estab- 
 lishment and operation of the pure type of executive budget involve 
 serious difficulties. 
 
 Although the state has reason to be proud of the progress made 
 in municipal financial administration by the establishment of boards 
 of finance in over eighty of the major municipalities and by the 
 improved system of budgeting developed under these boards, there are 
 certain weaknesses in budget preparation in municipalities with boards 
 of finance as well as in those without such boards. 
 
 Boards of finance under the general statutes, like selectmen, are 
 without statutory authority to require all operating departments to 
 submit to them requests for appropriations. Only municipal boards of 
 education are required to submit such requests in all municipalities.™ 
 Town managers, who under the general statutes are authorized only 
 in towns with boards of finance, and superintendents of highways must 
 file with the board of finance records of past expenditures and 
 estimates of future expenditures." 1 Information and data relating to 
 past operations and plans for future operations from all operating 
 departments are certainly indispensable to proper preparation of the 
 budget and should be made available to the budget-making authority 
 in whatever form and detail it deems desirable. 
 
 Despite the more specific procedure provided by existing statutes 
 for budgeting under boards of finance, there remain considerable 
 vagueness and uncertainty concerning the powers of these boards. One 
 
 80 Cum. Sup., 1933, sec. 245b. 
 
 81 Gen. Stat., 1930, sees. 410, 433. 
 
Municipal Budgeting 149 
 
 aspect of this matter was considered in the preceding pages of this 
 chapter. The tax commissioner referred to the difficulty in more com- 
 prehensive terms in 1932. 
 
 In many municipalities the board of finance has been much 
 handicapped in the exercise of its functions because of uncer- 
 tainty as to its control, if any, over certain boards and com- 
 missions. The charters of certain municipalities do not defi- 
 nitely fix the authority of the board of finance over the num- 
 ber of municipal employees, amount of compensation, trans- 
 fers of unexpended appropriations, new appropriations, bor- 
 rowing in anticipation of taxes, long term debt, sinking funds 
 and various other matters which may have an important bear- 
 ing on the financial status of the municipality. 82 
 
 There are many other defects in the organization and procedure 
 of budget preparation and legislation even under boards of finance, but 
 enough has already been said to indicate the character of these defects 
 and to establish the need of amendments to the statutes to eliminate 
 them. 
 
 Legislation of the budget. 
 
 In towns without boards of finance. 
 
 Section 1204 of the General Statutes of 1930, after requiring 
 the board of selectmen in towns without boards of finance to include 
 in its annual report to the town meeting "an itemized estimate of 
 the current expenses of the departments of the town for the ensuing 
 year", provides that the "estimate shall be changed or. approved as the 
 electors shall determine at such town meeting." This constitutes the 
 process by which the budget is legislated in these towns. A similar pro- 
 cedure is found in most minor municipalities. 
 
 Although appropriations are usually made in October, the fixing 
 and laying of the property tax rate must be postponed to the adjourned 
 town meeting, usually held in the spring. At that meeting the duties 
 of the legislative body and the board of selectmen are as follows : 
 
 1. Upon completion of the work of the board of relief and of the 
 final assessment list, the town shall levy a tax on such list, pay- 
 able within one year from the date of levying the same. 
 
 *" Tax Commissioner, Information Relative to the Assessment and Collection of Taxes, 
 1932, p. 12. 
 
150 Report of Special Tax Commission 
 
 2. No town shall levy a tax which, in addition to the other esti- 
 mated yearly income of the town, shall be insufficient to pay 
 the estimated expenses of the town for the current year. 
 
 3. In case the estimated income, including taxes, shall prove 
 insufficient to pay the current expenses of the town, the select- 
 men, in their next annual estimate of current expenses, shall 
 include a sum sufficient to pay the deficit in such expenses of 
 the previous year. 
 
 4. When any town shall have failed to lay necessary taxes or to 
 lay a tax which, in addition to the other estimated yearly 
 income of the town, shall be sufficient to pay the current 
 expenses of such town, its selectmen shall make a rate bill 
 upon its list last completed for the amount necessary, or for 
 an amount sufficient to pay the deficit in such current expenses, 
 and cause the same to be collected as other taxes. 
 
 Each of these provisions has its own peculiar significance. The 
 first places upon the town the duty of voting the tax rate when assess- 
 ments are completed and limits the period within which taxes shall 
 become due to one year. The second requires the town to vote a rate 
 sufficient to balance its current expense budget. The third requires 
 that the deficit incurred in any one year be covered by an appropriation 
 in the current expense budget of the following year. The fourth and 
 last makes it mandatory upon the selectmen to lay a tax supplemental 
 to that voted by the .town when the latter is insufficient to balance the 
 current expense budget. 
 
 These provisions for legislating the budget give expression to the 
 policy long accepted in this state that a governmental unit should meet 
 its current expenses from current revenues. In the absence of a defini- 
 tion in the statutes of current expenses, the tax which is sufficient to 
 pay the current expenses of a town will vary in amount according to 
 the innumerable interpretations which a board of selectmen or a town 
 meeting may place upon particular items of expenditure. 
 
 Consideration by the town meeting of the selectmen's estimates of 
 the expenses for the ensuing year takes place in most towns three months 
 after the beginning of the fiscal year of the school department and five 
 or six weeks after the beginning of the fiscal year of the town itself. 
 If the financial meeting of the town is postponed, as is frequently the 
 case, these periods are correspondingly lengthened. This is a singular 
 and very inadequate budgeting procedure. 
 
 3 Except for paragraph numbering these are the provisions of sections 1204 and 1205 
 of the General Statutes. 
 
Municipal Budgeting 151 
 
 For its consideration of the estimates of expenses submitted by 
 the' selectmen, the annual town meeting has before it only a certified 
 record of the expenditures of the preceding year. Proposed and past 
 expenditures need not be classified under similar heads nor brought 
 into direct comparison in the reports which the statutes require the 
 selectmen to submit to the annual town meeting. While it would be 
 possible for the selectmen to present to the annual town meeting rea- 
 sonable estimates of the miscellaneous revenues of the town, they are 
 precluded from submitting the tax rate which would be required to 
 finance their estimates of expenses for the ensuing year because the 
 assessments of property have not been completed. Neither the proposed 
 nor the past expenditures, therefore, can be considered by the annual 
 town meeting in October with reference to the tax rate which must be 
 imposed to finance any appropriations approved. The making of appro- 
 priations is completely divorced from the levy of taxes to finance them. 
 The annual town meeting is asked to approve expenditures without 
 having to consider their costs. 
 
 It would be little short of a miracle if these provisions for the 
 preparation and legislation of the budget accomplished their purpose 
 of requiring municipalities to pay recurring expenses with current 
 revenues. That they have fallen far short of this goal is clearly shown 
 by the habitual deficits and accumulating debts of the municipalities 
 of the state as set forth in a previous chapter of this report. It is not 
 necessary to present further evidence of the failure of these statutes in 
 actual practice at this point, since the structure and inadequacies of 
 the system speak for themselves. 
 
 In towns with boards of finance. 
 
 Legislation of the budget in towns with boards of finance is gov- 
 erned by more specific and detailed provisions than in towns without 
 such boards. The statutes provide that in these towns the board of 
 finance shall submit its budget report, including its recommendations, 
 to the annual meeting of the town, and 
 
 1 such meeting shall take action upon such estimate and 
 
 recommendations, and make* such specific appropriations as 
 may appear advisable, but 
 
 (a) No appropriation shall be made exceeding in amount 
 that for the same purpose recommended by the board, 
 and 
 
 (b) No appropriation shall be made for any purpose not 
 recommended by the board. 
 
 2. Immediately after the board of relief has finished its duties 
 and the grand list has been completed, the board of finance 
 
152 Report of Special Tax Commission 
 
 shall meet and, with due provision for estimated uncollectible 
 taxes, abatements and corrections, shall lay such tax on such 
 list as shall be sufficient, in addition to other estimated yearly 
 income of such town and in addition to such revenue surplus, 
 if any, as may be appropriated, not only (a) to pay the expenses 
 of the town for such current year, but also (b) to absorb the 
 revenue deficit of such, town, if any, at the beginning of such 
 current year. 
 3. The provisions of this section shall not be construed as pre- 
 venting a town from making further appropriations upon the 
 recommendation of its board of finance at a special town meet- 
 ing held after the annual town meeting and prior to the laying 
 of the tax for the current year, and any appropriations made 
 at such special town meeting shall be included in the amount 
 to be raised by the tax laid by the board of finance under the 
 provisions of this section. 84 
 
 The restrictions imposed upon the town meeting in passing upon 
 the recommendations of the board of finance are the unique feature of 
 this procedure for legislating the budget. The town meeting has only 
 the power to reduce or eliminate the recommended appropriations. It 
 cannot increase any recommended appropriation or vote an appropria- 
 tion which has not been recommended by the board of finance. 
 
 Although many claim that these provisions embody the principal 
 advantages of financial administration under boards of finance, there 
 are weighty arguments for their relaxation. This is especially true 
 when consideration is given to other proposals which this Commission 
 
 It is proposed, for example, that most major municipalities be 
 required to establish fiscal agencies having powers substantially the 
 same as those now exercised by boards of finance. Some of these munici- 
 palities have not established boards of finance, although authorized 
 under the general statutes for seventeen years to do so, and although 
 it is widely recognized that better financial administration is attainable 
 under these boards. This indicates a reluctance on the part of the elec- 
 torate of certain towns to relinquish its power to determine maximum 
 expenditures for municipal activities. Relaxation of the restrictions on 
 voting appropriations would meet to some extent the opposition in these 
 communities to establishing budgeting authorities exercising the powers 
 of boards of finance. 
 
 31 Except for the paragraph arrangement and numbering the foregoing sectiona are 
 the provisions of Cum. Sup., 1933, sec. 61b relating to the legislation of the budget. 
 
Municipal Budgeting 153 
 
 It is also proposed that some major and all minor municipalities 
 be given the option of complying with the budgeting provisions appli- 
 cable to the larger major municipalities. Obviously, the legislative 
 bodies of these smaller municipalities would be more likely to vote to 
 comply if they were not stripped of their present power to make appro- 
 priations which are not recommended by their budgeting bodies. 
 
 A further argument for increasing the appropriation powers of 
 town meetings in municipalities with boards of finance is found in the 
 occasional disputes arising between spending agencies and boards of 
 finance. In matters as vital as appropriations it is inevitable that there 
 will be frequent differences of opinion on matters of policy. The 
 probability is that the budgeting body will be more likely to reflect the 
 prevailing sentiment of the community than any particular spending 
 agency, but there will be occasional budget-making authorities which 
 will act contrary to the predominant wishes of the electorate. Irrecon- 
 cilable differences between spending agencies and budgeting authorities 
 can be satisfactorily settled only when public opinion is permitted to 
 render the final verdict. 
 
 Recognizing the validity of the foregoing arguments, it would, 
 in our opinion, be a distinct loss in those municipalities now operating 
 under boards of finance to leave with the budget-making authority only 
 such powers over appropriations as it could wield through moral 
 suasion. There is probably no more fundamental weakness in the Amer- 
 ican system of democracy than the giving of the power to vote appro- 
 priations to those who have little or no obligation to provide revenue 
 with which to finance those appropriations. Those who are familiar 
 with the manner in which town meetings have been "packed" by those 
 seeking appropriations readily appreciate the reasons for the present 
 powers of boards of finance. The continuance of these powers without 
 complaint for so many years and the continual increase in the number 
 of towns in which such boards exist bear testimony to the sound finan- 
 cial policies to which the people of this state subscribe. 
 
 It would be a serious mistake to relax existing restrictions on the 
 legislation of the budget in towns with boards of finance if such action 
 , ran the risk of subjecting municipal finance to the irresponsible and 
 capricious action of minority groups. We therefore propose that the 
 powers of the legislative body to vote appropriations in excess of those 
 recommended in the budget be granted only under restrictions which 
 promise adequate protection against such risk. Instead of a simple 
 majority vote, we propose that a three-fourths vote be required to over- 
 rule the recommendations of the budget-making authority. Further- 
 more, we' propose that the exercise of this power be permitted only at 
 the regular annual meeting. Every reasonable provision has been made 
 
154 Report of Special Tax Commission 
 
 to require the budget-making authority to inform the electorate of the 
 action contemplated at this meeting, and a good attendance by responsi- 
 ble citizens can be reasonably expected. If at such a meeting a suffi- 
 cient number of votes were mustered to indicate a decisive public 
 opinion contrary to that expressed by the budget-making authority, 
 there would be no doubt concerning the sentiment of the community, 
 and that sentiment would be satisfied whatever restraints were placed 
 on legislative action. To seek to frustrate a real public demand for 
 governmental services is to jeopardize rather than to strengthen munici- 
 pal budgeting practices. , 
 
 Under the statutes governing budgeting of municipalities having 
 boards of finance, the determination of the tax rate has become 'the 
 function of the board of finance rather than of the legislative body. 
 Laying of the tax rate is essentially an administrative rather than a 
 legislative function. Except for the judgment involved in estimating 
 the percentage of the levy which will fail to be collected during the 
 fiscal year, the taxes for prior years which will be collected during 
 the fiscal year, and the miscellaneous income which will be received 
 during the fiscal year, there is no question of governmental policy 
 involved in the laying of the tax rate. By making the appropriations, 
 the legislative body determines what is to be spent. By deducting from 
 the amount of these appropriations the revenues anticipated from 
 miscellaneous receipts, there is derived the amount of revenues which 
 must be raised from property taxation to balance the budget. Dividing 
 this amount, plus an allowance for taxes which it is estimated will not 
 be collected, by the amount of the grand list gives the tax rate which 
 the municipality should levy. 
 
 No discretion should be left with the legislative body as to whether 
 it will lay a tax rate sufficient to raise the revenues to finance the appro- 
 priations which it has made. Control of the tax rate by the legislative 
 body should be exercised in making appropriations and in enacting the 
 budget rather than in fixing the tax rate after these decisions have been 
 made. 
 
 Execution of the budget : Control of appeopeiations. 
 The peoblem in geneeal. 
 
 Of the three principal phases of a complete budgeting procedure, 
 namely, preparation, legislation, and execution, the last is in practice 
 least satisfactorily handled. This is particularly true of municipalities 
 operating under the provisions of the general statutes. One of the 
 obstacles to the effective execution of a municipal budget in these 
 municipalities is the decentralized organization of their administra- 
 tion. Most of the officials are elected and are subject to control only by 
 
Municipal Budgeting 155 
 
 the electorate. There is a widespread tendency to use boards rather 
 than individual executives for administrative purposes. Thus responsi- 
 bility is dispersed among the departments. In a real sense, these munici- 
 palities have no executive head who can be held responsible for the 
 execution of the entire program embodied in the budget. 
 
 Budgeting does not stop when the budget is enacted. A proper 
 budgeting system follows through until the budget program is com- 
 pleted. Provision should be made to assure the community that the 
 appropriations will be used according to instructions, that the financial 
 transactions will be properly recorded, and that at the end of the year 
 the town meeting will receive a readable and informative report on 
 how the program has been fulfilled by its administrative departments. 
 Execution of the budget, therefore, involves accounting, reporting, and 
 certain other subjects which have been relegated to the following 
 chapter. At this point we shall deal only with the control of appro- 
 priations. 
 
 Penalties eoe exceeding appeopbiations. 
 
 How inadequate the provisions of the statutes are with respect to 
 the execution of the budget is well illustrated by the sections governing 
 the control of commitments against appropriations in municipalities 
 operating under the general statutes. Almost sole reliance is placed 
 upon the force of a penal statute to keep expenditures within the bounds 
 of appropriations. Section 182 of the General Statutes imposes a 
 penalty of not exceeding one thousand dollars or imprisonment for 
 not exceeding one year or both upon any agent, commissioner, or execu- 
 tive officer of any municipality who wilfully authorizes an expenditure 
 or contracts a debt in excess of the amount specifically appropriated 
 for such purpose by the legislative body other than expenditures and 
 debts incurred for the necessary repair of roads or bridges or the 
 necessary support of schools and paupers. 
 
 In addition to the preceding section, the general statutes provide 
 that officials of towns with boards of finance can exceed their appro- 
 priations on their own initiative only to the amount of one hundred 
 dollars for the necessary repair of highways and bridges and for the 
 care of the town poor. If excess expenditures beyond this limit are 
 called for, the department concerned may apply for an additional 
 appropriation to the board of finance, which board, in turn, is author- 
 ized to appropriate amounts not exceeding five hundred dollars for any 
 single purpose without securing the approval of the legislative body. 85 
 Violations of this law by any officer gives the town the right of civil 
 
 M Gen. Stat., 1930, sec. 421. 
 
156 Repoet of Special Tax Commission 
 
 action against the officer for the recovery of the amount illegally 
 expended. 88 The latter provisions, having been added to the statutes 
 after the enactment of section 182 referred to above, have presumably 
 superseded the earlier act even in the absence of specific repeal. 
 
 All of these provisions are negative rather than positive in char- 
 acter. Their penalties apply only after the law has been violated. They 
 represent poor substitutes for the active and* continuous supervision 
 of the use of appropriations which should be- an essential part of a 
 sound budgeting system. 
 
 Allotments of appbopeiations. 
 
 Appropriations should be recommended to the legislative body and 
 approved by that body only after the most careful study of the various 
 needs of the administrative departments for the full fiscal year being 
 budgeted. The budget-making authority recommends these appropria- 
 tions, and the legislative body makes them, on the premise that they 
 will finance the activities of the respective departments without the 
 need of additional appropriations except for needs unforeseeable at the 
 time the budget is enacted. 
 
 Administrative officials and the budget-making authority, however, 
 are constantly under pressure to spend money. There is no limitation 
 under present laws on an official who proceeds to spend his appropria- 
 tion in the first few months of the fiscal year and then confronts the 
 municipality with the choice of providing additional funds or doing 
 without the service for the remainder of the year. It may be that few 
 municipal officials would be so short-sighted as to follow such a pro- 
 cedure, but the formulation of an adequate system of financial adminis- 
 tration should take into account the exceptional cases. Moreover, 
 municipal funds are more likely to be effectively used if expenditures 
 are synchronized with the variations in the need for services through- 
 out the fiscal year. Such an arrangement would also improve the work 
 of the administrative departments by encouraging the formulation of 
 a program of activities on an orderly basis throughout the fiscal year. 
 
 Teansfee of appeopbiations. ' 
 
 Proper control of appropriations after they have been made 
 requires that some agency or agencies in the municipality shall have 
 the power to transfer part or all of the appropriations made for one 
 purpose to another purpose. To facilitate the preparation of the budget 
 before the beginning of the fiscal year being budgeted, it is necessary 
 to require the spending agencies to submit their requests for appropria- 
 
 a ° Gen. Stat., 1930, sec. 422. 
 
Municipal Budgeting 157 
 
 tions not later than three months before the beginning of that fiscal 
 year. These spending agencies are, therefore, required to forecast their 
 needs from three to six months before the beginning of the fiscal year 
 to which they relate. It is desirable that the requests for appropriations 
 and the appropriations recommended by the budget-making authority 
 based upon them be in sufficient detail to permit the legislative 
 body to act with full knowledge of the activities being authorized when 
 it makes its appropriations. But future conditions and needs are never 
 certain, and the more detailed the need which is being forecast, the 
 more difficult it is to evaluate that need with precision. 
 
 To recommend appropriations to the legislative body in lump 
 sums, rather than in detailed items, is objectionable. To require 
 administrative departments to comply rigidly with the appropriations 
 made for detailed items is equally objectionable, since it deprives these 
 departments of the flexibility in operation and in financing which is 
 essential to the most effective administration. Provision should be made, 
 therefore, to have appropriations recommended and acted upon by 
 detailed items while not requiring operating departments to finance 
 themselves without any deviation from the detailed appropriations 
 made. 
 
 Under the general statutes, appropriations made for the main- 
 tenance of public schools are to be expended by and in the discretion 
 of the municipal board of education, and this board is given the power 
 to "transfer any unexpended or uncontracted-for portion of any appro- 
 priation for school purposes to any other item of such itemized esti- 
 mate." 87 The only other provision made for the transfer of appropria- 
 tions is that relating to the powers of the board of finance in 
 municipalities having such boards. These boards, when created under 
 the general statutes, "have power to transfer unexpended balances from 
 one appropriation to another, but no amount appropriated for any 
 purpose, whether general or special, shall be used or appropriated for 
 any other purpose unless the same shall be recommended by the 
 board." 35 
 
 In more than one-half of the major municipalities which do not 
 have boards of finance, no municipal agency other than the board of 
 education is vested with power by the general statutes to transfer 
 appropriations from one item to another. In municipalities with boards 
 of finance there would appear to be a conflict of jurisdiction between 
 the municipal boards of education and the municipal boards of finance 
 with respect to the transfer of educational appropriations. 
 
 *' Cum. Sup., 1933, sec. 245b. 
 88 Gen. Stat., 1930, sec. 420. 
 
158 Report oe Special Tax Commission 
 
 There is obviously a need for formulating and applying a sound 
 policy for the transfer of appropriations made by the budgeting munici- 
 palities. The statutes should apply universally to all such municipalities 
 and should specify the respective powers of operating and fiscal 
 agencies. All spending agencies should be given equal powers with 
 respect to the transfer of appropriations within their respective total 
 appropriations, and the budget-making authority should exercise some 
 power of transfer between spending agencies. 
 
 Lapsing of appropriations. 
 
 Appropriations are made on the basis of estimates. They represent 
 what the municipality anticipates spending to secure the services which 
 it desires. Actual experience during the course of the fiscal year will 
 confirm or deny these anticipations. There may be certain appropria- 
 tions whose amounts are in excess of what proves to be actually required. 
 Proper control of appropriations will make provision for these con- 
 tingencies by preventing the use of the balances in these appropriations 
 for unnecessary purposes. 
 
 There are no provisions in the present statutes specifically with- 
 drawing the authorization to spend money given by an appropriation 
 at the end of the period for which an appropriation is made. Appro- 
 priations should be made for a specific period of time and should 
 lapse at the end of that period to the extent that they are unexpended 
 and unencumbered. 
 
 Summary and Recommendations. 
 Administrative organization. 
 
 The general statutes provide for two quite different forms of 
 financial organization for towns and make little or no provision for 
 the financial organization of other municipalities. In 85 towns and 
 4 unconsolidated cities financial responsibility is concentrated heavily 
 in a board of finance established under the general statutes or a similar 
 body created by special act. In the remaining 84 towns the board of 
 selectmen is vested with most of this responsibility. These boards are 
 referred to herein as budget-making authorities, although their duties, 
 especially those of selectmen, extend into many other fields. 
 
 Legislative bodies, consisting of the town meeting, the common 
 council or board of aldermen of cities, the warden and burgesses of 
 boroughs, and the district meetings of minor municipalities, share 
 financial responsibility with the budget-making authorities of their 
 respective municipalities. 
 
Municipal Budgeting 159 
 
 In addition to these bodies, of which there are two in every munici- 
 pality, certain other officers and boards exercise a considerable measure 
 of financial control as the local authority appointed or elected to dis- 
 charge certain mandatory duties imposed by the state upon the towns. 
 These duties concern several functions, of which education and chari- 
 ties are the most important. Considerable controversy has arisen over 
 the extent to which such authorities are subject to control by the 
 budget-making authority and the legislative body. There are those who 
 contend that the maximum amount which is spent in the discharge of 
 mandatory duties cannot be controlled in any manner by the budget- 
 making authority or the legislative body. This extreme contention 
 has met with little support from the Supreme Court, but there still 
 remains a large measure of uncertainty, and there is an obvious need 
 for a more accurate delimitation of the powers of boards of finance, 
 boards of selectmen, boards of education, and any other agencies 
 similarly involved. At the same time, the municipalities must not be 
 free to emasculate the regulatory laws of the state by refusing to pro- 
 vide necessary funds. This is a dilemma which has been faced by the 
 Commission and which has affected several of its recommendations 
 concerning municipal budgeting and general financial control. We do 
 not contend, however, that the adoption of our recommendations will 
 eliminate the problem. Short of the' financing of all mandatory duties 
 by the state, we see no complete solution. 
 
 Procedure in municipal budgeting. 
 
 The process of budgeting involves three distinct operations, 
 namely, the preparation of the budget, the legislation of the budget, 
 and the execution of the budget. 
 
 Budgeting procedures in towns and other municipalities without 
 boards of finance or similar bodies are extremely rudimentary when 
 conducted according to the minimum standards prescribed "by law. 
 Only the crudest sort of budget is required ; upon its presentation the 
 legislative body is free to vote any appropriations in any amounts 
 which the majority may approve; and once the appropriations are 
 voted no one is empowered to see that expenditures are held within 
 appropriations, to make transfers from one appropriation to another, 
 or to see that the whole of the appropriation is not dissipated within 
 the first few months of the fiscal year. The practice of determining the 
 tax rate by separate vote of the legislative body months after the 
 voting of appropriations deprives the municipality of a reasonable 
 opportunity to weigh appropriations against the sacrifices which they 
 entail, and, by making a legislative act out of a purely administrative 
 act, commonly results in unbalanced budgets. 
 
160 Report of Special Tax Commission ' 
 
 Among towns with boards of finance a much more complete and 
 scientific budgetary procedure is prescribed by law, and in some munici- 
 palities of the state a highly satisfactory system is now in operation. 
 The budget is prepared according to forms prescribed by the tax 
 commissioner ; the town meeting may vote no appropriations which are 
 not recommended by the board of finance nor vote an appropriation in 
 excess of the amount recommended by the board; once appropriations 
 are made, the board determines the tax rate and exercises powers of 
 transfer among all appropriations except those made available to the 
 board of education. 
 
 The opportunity for vast improvement in the budgeting pro- 
 cedures of towns without boards of finance is apparent. This improve- 
 ment should not be contingent upon the establishment of such boards 
 but should be available to all municipalities, and it should be manda- 
 tory upon all but the smallest municipalities. The Commission proposes 
 that many of the features of budgeting procedure now prescribed for 
 towns with boards of finance be extended to all major municipalities 
 having tax receipts of over $50,000. 
 
 For municipalities which now have or which are required under 
 our proposals to have boards of finance or other agencies with similar 
 powers, the Commission proposes one highly important change from 
 the present practice of preparing the budget in towns having boards 
 of finance created under the general statutes. This change concerns the 
 time periods within which the budgeting process is carried out. Whereas 
 at present the budget for a given fiscal year is often prepared some 
 time after the beginning of the year, we propose that the budget be 
 prepared and legislated upon and that the tax rate be determined 
 before the beginning of the fiscal year. Only with such a procedure is 
 it possible to carry out our recommendations for the synchronization 
 of tax due dates and fiscal years. The other changes proposed in the 
 preparation of budgets are mostly intended to clarify the present law 
 and to supplement it at certain points where experience has disclosed 
 minor weaknesses. 
 
 At present, legislative bodies of towns with boards of finance 
 created under the general statutes are prohibited from voting unrecom- 
 mended appropriations. We propose that at the annual meetings, but 
 not at special meetings, the legislative bodies of this same group of 
 municipalities be permitted by three-fourths vote to make appropria- 
 tions in excess of the amounts recommended by budget-making 
 authorities. This, we'believe, will not weaken the movement for sound 
 budgeting. To seek to frustrate a real public demand for governmental 
 services is to jeopardize rather than to strengthen municipal budgeting 
 practices. It is proposed that the legislative body be permitted by 
 
Municipal Budgeting 161 
 
 majority vote to reduce below the amounts recommended any appro- 
 priation for purposes other than debt service and the retirement of 
 outstanding commitments and that the legislative body be permitted to 
 decrease; but not to increase, any item of estimated or recommended 
 receipts, including receipts from borrowing, except receipts from 
 property taxes to be levied for the fiscal year. 
 
 Probably the principal innovations in Connecticut budgeting 
 procedure which we propose concern the control of appropriations after 
 they have been legislated. By means of advanced accounting procedures 
 recommended in a subsequent section, it is proposed that no spending 
 agency of a municipality be permitted to expend or agree to expend 
 funds in excess of its appropriation. Furthermore, it is proposed that 
 appropriations be allotted over the fiscal year to prevent any spending 
 agency from expending its appropriation too rapidly, that administra- 
 tive departments be given greater control over their appropriation by 
 being permitted to transfer from one item to another, and that the power 
 of transfer of the board of finance be somewhat restricted. 
 
 Mandatory and optional application. 
 
 In formulating recommendations dealing with municipal budget- 
 ing, it has seemed wise to deal with the municipalities of the state in 
 two groups. Upon one of these groups it is proposed that the applica- 
 tion of our recommendations be mandatory, upon the other, optional. 
 
 That group of municipalities upon which our recommendations ' 
 are mandatory includes all major municipalities whose average collec- 
 tions of general property taxes in the three fiscal years next preceding 
 the date of enactment of the recommendations exceed fifty thousand 
 dollars and all other major municipalities which have boards of finance. 
 According to recent statistics filed with the tax commissioner, 89 this 
 group of municipalities consists of 118 of the 194 towns, cities, and 
 boroughs of the state. Of this group, 24 towns, 1 consolidated town 
 and borough, 2 unconsolidated boroughs, and 2 unconsolidated cities, 
 or 29 municipalities in all, have average annual receipts of property 
 taxes of more than fifty thousand dollars but do not have boards of 
 finance. It is in these 29 municipalities that the enactment of our 
 recommendations into law will result in the most substantial changes 
 in financial administration. To all other than the 118 municipalities 
 above mentioned it is suggested that compliance with our recommenda- 
 tions be made optional. 
 
 In the following discussion those municipalities which, by man- 
 date or election, comply with any statute which may be enacted 
 
 " Covering tax collections for the three years ending March 31, 1933. 
 
162 Report of Special Tax Commission 
 
 incorporating our recommendations will be referred to as "budgeting 
 municipalities", and those municipalities whicb do not elect to conform 
 to the provisions of such a statute as "non-budgeting municipalities." 
 In stating our recommendations we have used the term "budget- 
 making authority" to indicate the several agencies existing in our 
 municipalities which have and exercise the powers given to munici- 
 palities relating to the planning and supervision of municipal finance. 
 The term "budget-making authority" is intended to include boards of 
 finance, whether created under the general statutes or by special acts, 
 boards of selectmen in towns without boards of finance, school and other 
 district committees, and any other agencies which are responsible for 
 the preparation of municipal budgets. 
 
 Recommendations. 
 
 Organization. 
 
 To provide the budgeting municipalities with an organization for 
 their financial administration which will permit the management of 
 their financial affairs in a sound, orderly and effective manner and 
 with a minimum of divided responsibility, we recommend : 
 
 That all major municipalities whose average annual collections 
 of general property taxes in the three full fiscal years next preceding 
 the enactment of new, legislation exceed fifty thousand dollars, together 
 with all other major municipalities during such time as they have 
 boards of finance, be designated as budgeting municipalities and be 
 required to conform with adequate budgeting and accounting practices 
 prescribed by law; 
 
 That all other major municipalities and all minor municipalities 
 be permitted by vote of their legislative bodies to become budgeting 
 municipalities and to comply with all matters of law pertaining thereto ; 
 
 That there be in each budgeting municipality an agency (herein- 
 after referred to as the budget-making authority) whose function it 
 shall be to prepare the budget of the municipality and supervise its 
 execution ; 
 
 That the budget-making authority be placed under mandate of 
 state law to provide proper and reasonable appropriations for the dis- 
 charge of mandatory duties vested in the municipality under state law. 
 
 Procedure. 
 
 Preparation op the budget. 
 
 To provide an adequate procedure for the preparation of municipal 
 budgets, we recommend : 
 
 That the budget-making authority of each budgeting municipal- 
 ity be given the power to require from operating departments esti- 
 
Municipal Budgeting 163 
 
 mates of or requests for appropriations in any detail which the 
 budget-making authority may require; , 
 
 That, at least ninety days prior to the beginning of the fiscal 
 year for which the budget is being prepared, all spending agencies 
 of a budgeting municipality prepare and submit to the budget-making 
 authority estimates of their expenditures and receipts for that year 
 compared with their expenditures and receipts of the preceding and 
 current fiscal years in whatever detail the budget-making authority 
 may prescribe; 
 
 That the budget-making authority hold conferences with all spend- 
 ing agencies to consider and revise, if necessary, the estimates of their 
 respective expenditures and receipts for the year being budgeted; 
 
 That, at least sixty days prior to the beginning of the fiscal year 
 being budgeted, the budget-making authority have published in a news- 
 paper of wide circulation in the community a statement or summary, 
 in whatever detail the budget-making authority deems desirable, of 
 the estimates of the spending agencies, as they may be revised by the 
 agencies at the conferences with the budget-making authority, to- 
 gether with a statement showing the estimated revenues and the tax 
 rate which would be required to finance the estimated expenses as 
 published ; 
 
 That, with the publication of such statement or summary of esti- 
 mated expenses and revenues, the budget-making authority give notice 
 of hearings to be held by it on these estimates, which hearings shall 
 be held not earlier than five days after the publication of the esti- 
 mates nor later than ten days prior to the transmission of the budget 
 to the legislative body and shall be open to all persons who shall desire 
 to be heard upon the published estimates; 
 
 That, upon the completion of its public hearings, the budget- 
 making authority meet in executive session to review and revise the 
 published estimates of expenses and revenues and to prepare the final 
 budget to be recommended to the legislative body and the supporting 
 statement showing the tax rate required to finance it; 
 
 That, at least five days prior to the submission of the budget to 
 the legislative body, the budget-making authority publish in a news- 
 paper having wide circulation in the community a statement or sum- 
 mary of the budget and, if a complete statement is not published, make 
 available at a convenient place the details of the estimates contained 
 in the published summary of the budget; 
 
 That the budget as approved and recommended by the budget- 
 making authority be printed in whatever detail it deems advisable and 
 distributed at the meeting of the legislative body held to enact the 
 budget and make appropriations; 
 
164 Eepoet of Special Tax Commission 
 
 That the budget statement be prepared according to standard 
 forms provided by the tax commissioner with such deviations there- 
 from as the tax commissioner may from, time to time approve upon 
 request of the budget-making authority; 
 
 That the statutes require the budget statement to set forth (1) 
 all appropriations by funds and by purposes, distinguishing govern- 
 mental-cost payments and nongovernmental-cost payments and sepa- 
 rating the former on the basis of a functional classification, (2) actual 
 or estimated expenditures for similar purposes during the preceding 
 and current fiscal years, (3) the cash of each fund which it is esti- 
 mated will be available for financing appropriations at the beginning 
 of the year being budgeted, together with the estimated cash to be 
 received by each fund during that year from all sources, and (4) the 
 actual and estimated cash resources and receipts of each fund for 
 the preceding and current fiscal years; 
 
 That the budget as prepared and submitted by the budget-making 
 authority to the legislative body be supplemented by (1) a balance 
 sheet showing the financial condition of the several funds of the 
 municipality as of the latest date for which a balance sheet can be 
 prepared, (2) an itemized statement of the bonded indebtedness of 
 the municipality showing redemption requirements during the year 
 being budgeted, the authorized and unissued debt, and the borrowing 
 capacity of the municipality, and (3) a tax rate statement showing 
 the estimated tax rate which will be required to yield in cash the 
 required amount of property taxes as shown in the budget; 
 
 Legislation of the budget. 
 
 To provide a systematic procedure for the legislation of the budget 
 which will also correct as far as possible the defects of existing statutes 
 governing this phase of budgeting, we recommend : 
 
 That the meeting of the legislative body held to pass upon the 
 budget recommended by the budget-making authority be held not 
 later than forty days prior to the beginning of the fiscal year to 
 which the budget relates, and that any adjournment of this meeting 
 be held not later than twenty-five days prior to the beginning of that 
 fiscal year; 
 
 That at this meeting the legislative body be given the power 
 to increase any appropriation recommended by the budget-making 
 authority or to make an appropriation for any purpose not recom- 
 mended by the budget-making authority upon the affirmative vote of 
 three-fourths of the legislative body and to decrease or eliminate any 
 recommended appropriation except for debt service by majority vote; 
 
Municipal Budgeting * 165 
 
 That, in acting upon the budget recommended by the budget- 
 making authority, the legislative body be prohibited from increas- 
 ing the estimates of receipts from sources other than general prop- 
 erty taxes, and that any vote of the legislative body to reduce appro- 
 priations recommended for debt service be effective only upon the 
 written approval of the tax commissioner; 
 
 That the legislative body be authorized to vote a contingency 
 fund of from two to five per cent of the total appropriations exclu- 
 sive of such contingency fund and exclusive of appropriations for 
 interest and debt retirement, such fund to be at the disposal of the 
 budget-making authority, and that, if the legislative body fails to 
 vote such a contingency fund, it be presumed that a contingency fund 
 of two per cent of such appropriations has been appropriated and is 
 available to the budget-making authority; 
 
 That, in the event of the failure of the budget-making authority 
 to prepare and recommend a budget to the legislative body as required 
 by law, the appropriations for current expenses made for the fiscal 
 year in progress, together with the necessary appropriations for debt 
 service during the year being budgeted be deemed to be appropriated ; 
 
 That, in the event of the failure of the legislative body to act 
 upon the budget recommended by the budget-making authority within 
 the time prescribed by law, the appropriations recommended by the 
 budget-making authority be deemed to have been lawfully made ; 
 
 That the power of the legislative body to determine and fix the 
 tax rate be repealed, and that the budget-making authority in budget- 
 ing municipalities and the selectmen or similar bodies in non-budget- 
 ing municipalities be required, within five days after appropriations 
 have been made, to determine and lay a property tax rate sufficient 
 to produce the revenues required to finance the appropriations, includ- 
 ing appropriations for the retirement of all indebtedness (including 
 commitments) which it is estimated will come due during the year 
 being budgeted; 
 
 That the legislative body of any budgeting municipality be author- 
 ized to hold special meetings to make appropriations for additional 
 purposes ; 
 
 That the legislative body be prohibited from voting at these 
 special meetings appropriations in excess of the amounts recommended 
 by the budget-making authority or for purposes not recommended ; 
 
 That the action on the appropriations and budget of any munici- 
 pality taken by the legislative body be final, except for appeals upon 
 questions of law to the superior court by any taxpayer, by any spend- 
 ing agency of a municipality, by any state agency having general 
 
166 • Report of Special Tax Commission 
 
 supervision over a spending agency of the municipality, or by the 
 tax commissioner. 
 
 Execution of the budget : Control of appropriations. 
 
 To assure the proper apportionment of appropriations to the 
 periods of the fiscal year for which appropriations are made, we recom- 
 mend : 
 
 That each appropriation made by the legislative body, except the 
 appropriation for the contingency fund, be allotted in installments to 
 the appropriate spending agency by the budget-making authority by 
 agreement of the budget-making authority and the spending agency, 
 but, if no such agreement be reached, that the appropriation be allotted 
 in not less than four or more than twelve equal installments : 
 
 That any balance of an allotment remaining unencumbered at the 
 end of any allotment period except the last allotment period in each 
 fiscal year remain at the disposal of the spending agency and be added 
 to the allotment for the succeeding period on condition that any unex- 
 pended balance of an allotment shall not be used by the spending agency 
 for a purpose for which an appropriation has not been made ; 
 
 That the budget-making authority be given power to make allot- 
 ments from its contingency fund to any spending agency whose appro- 
 priations have, in the opinion of the budget-making authority, proved 
 inadequate for the conduct of its duties, but that any unencumbered 
 balance of allotments so made be tranferrable or withdrawable at any 
 time by the budget-making authority. 
 
 To secure the advantages of making appropriations by detailed 
 items and at the same time allowing administrative agencies reasonable 
 latitude in the use of their total appropriations, we recommend : 
 
 That appropriations be recommended to the legislative body and 
 be made by the legislative body in whatever detail the budget-making 
 authority deems advisable; 
 
 That each spending agency be given the power to transfer, upon 
 written notice to the budget-making authority and the chief accounting 
 officer, appropriations from one item to another item within its total 
 appropriation at any time within the first eleven months of the fiscal 
 year for which such appropriations are made, provided, however, that 
 no appropriation may be transferred and used for an item for which 
 no appropriation has been made by the legislative body ; 
 
 That during the last month of any fiscal year the budget-making 
 authority be given sole and unrestricted power to transfer the unen- 
 cumbered balance of an appropriation to any other appropriation from 
 the same fund or to the contingency fund ; 
 
Municipal Budgeting 167 
 
 To fix definitely a time at which appropriations shall lapse and to 
 prevent spending agencies from exceeding their appropriations, we 
 recommend : 
 
 That all appropriations from the general fund of a budgeting 
 municipality lapse and become null and void at the end of the fiscal 
 year for which such appropriations are made; 
 
 That, unless otherwise recommended by the budget-making 
 authority and approved by the legislative body, all appropriations from 
 any special fund lapse and become null and void at the end of the 
 second fiscal year succeeding that for which the appropriations are 
 made; 
 
 That no spending agency of a budgeting municipality be permitted 
 to pay or agree to pay any money or incur any liability involving the 
 expenditure of money for any purpose for which an appropriation has 
 not been made or in excess of any appropriation or allotment made to 
 it except for the .purpose of paying judgments rendered against a 
 municipality ; 
 
 That any commitment of the spending agency made in violation 
 of the foregoing recommendation be null and void as to the munici- 
 pality, and that any person or persons making such commitment or 
 expenditure be subject to a penalty not in excess of the amount of the 
 illegal commitment or expenditure. 
 
CHAPTER VII 
 
 MUNICIPAL ACCOUNTING, AUDITING, KEPOKTING, AND 
 CUSTODY OF FUNDS 
 
 Municipal accounting. 
 
 Requirements oe an accounting system. 
 
 Accounting is one of the means by which those responsible for 
 the financial program of a community may control the execution of 
 that program. Accounting fulfills its ultimate purposes, therefore, only 
 to the extent that (1) it assures the execution of the budget according 
 to the instructions of the legislative body, (2) it protects the munici- 
 pality against losses due to the illegal acts or dishonesty of its officials, 
 and (3) it furnishes the information by which the legislative body, the 
 budget-making authority, and the administrative officials are advised 
 of the financial condition and operations of the municipality and are 
 enabled to conduct their respective activities with full knowledge of the 
 status of the finances of the government. 
 
 Except in a relatively few municipalities municipal accounting 
 in Connecticut is at present inadequate to achieve these purposes. Its 
 deficiencies are manifold. We do not intend to propose specifications 
 covering all the details of an adequate municipal accounting system. 
 This is the function of municipal officials and accountants rather than 
 of this Commission and of the General Assembly. There are, however, 
 certain fundamental principles and requirements of an adequate 
 municipal accounting system which are ignored by the present statutes. 
 
 Weaknesses oe municipal accounting in Connecticut. 
 Decentralization. 
 
 As in other phases of municipal administration in Connecticut, the 
 accounting activities of municipalities operating under the general 
 statutes are highly decentralized. 
 
 The selectmen prepare the rate bill, which, when accompanied by 
 a warrant of the justice of the peace, provides the tax collector with his 
 authority to collect the taxes. 1 The selectmen keep a record of all 
 expenditures of the municipality. 2 
 
 1 Gen. Stat., 1930, sec. 1208. 
 a Gen. Stat., 1930, sec. 303. 
 
Municipal Accounting, Auditing, and Kepoeting 169 
 
 The treasurer keeps a record of all orders presented to him for 
 payment, 8 a record of all moneys received and all moneys which he pays 
 out/ the lists of tax collections filed with him monthly by the tax col- 
 lector/ and separate accounts of the town deposit fund." 
 
 The tax collector has charge of the rate hooks in which all 
 taxes due to the municipality are recorded,' of the sxispense tax hook 
 containing the record of all taxes which have been deemed to be 
 uncollectible, 8 of the record of undischarged liens for taxes which have 
 been filed against property by certificate," and of the book of receipt 
 forms containing receipts in duplicate which are filled out and given 
 to taxpayers when taxes are paid. 10 He is required to file monthly with 
 the treasurer a list of all taxes collected u and to file annually with the 
 town clerk a schedule of real estate taxes which remain unpaid twelve 
 months after the tax due date. 
 
 The superintendent or supervisor of schools of each municipality 
 is required to keep a record and report to the state board of education 
 annually the receipts, expenditures, and statistics of the schools under 
 his supervision on blank forms prescribed by the secretary of the state 
 hoard of education. 12 
 
 Town managers and superintendents of highways, which exist in 
 only a few municipalities, must keep itemized accounts of the receipts 
 and disbursements of activities under their respective supervision. 1 
 
 By these provisions the general statutes have distributed the 
 function of keeping accounts among no less than six different munici- 
 pal agencies. Each agency does all the accounting which the statutes 
 require to be done for its particular operations. No provision is made 
 for a general set' of books by which the accounting for all municipal 
 activities may be controlled. Each of the several agencies involved in 
 accounting is independent with respect to its accounting activities and 
 records. A comprehensive record of the financial operations of the 
 municipality can be obtained only by piecing together the accounting 
 records of these several agencies, not from any one report or any one 
 office of the municipal government. 
 
 This, scattering of the responsibility for keeping municipal 
 accounts is, in the judgment of this Commission, the first of the funda- 
 
 8 Gen. Stat., 1930, sec. 359. 
 
 4 Gen. Stat., 1930, sec. 356. 
 
 "Gen. Stat., 1930, sees. 1221, 1222. 
 
 • Gen. Stat., 1930, sec. 440. 
 
 'Gen. Stat., 1930, sees. 1212, 1221. 
 
 8 Cum. Sup., 1933, sec. 346b. 
 
 8 Gen. Stat., 1930, sec. 1241. 
 
 10 Gen. Stat., 1930, sec. 1218. 
 
 11 Cum. Sup., 1933, sees. 333b, 334b. 
 
 12 Cum. Sup., 1933, sec. 251b. 
 
 18 Gen. Stat., 1930, sees. 410, 433. 
 
170 Eepoet of Special Tax Commission 
 
 mental weaknesses in municipal accounting systems. It obstructs rather 
 than assists the necessary supervision of municipal financing. It makes 
 difficult the discovery of dishonesty or illegal acts by municipal officials. 
 It fails to make available a unified and comprehensive statement of 
 the financial condition and operations of the government. If these 
 defects are to be eliminated, the statutes should provide the munici- 
 palities with an official charged solely with the responsibility of keep- 
 ing their accounts. This official we shall call the chief accounting officer. 
 The financial operations of most of the budgeting municipalities 
 are sufficiently extensive to make the establishment of the new office 
 of chief accounting officer economical. There may be a few budgeting 
 municipalities in which the accounting work is not sufficient to warrant 
 the full-time services of a chief accounting officer. In such munici- 
 palities it will generally be found possible to join with a neighboring 
 town in the appointment of a joint officer. 
 
 Lack of tjnifoemity.- 
 
 Under the decentralized administration of accounting which has 
 been described, adequate accounting records are hardly to be expected. 
 The practical result of the provisions of the general statutes relating to 
 municipal accounting has been the development of a wide variety of 
 accounting forms and records, many of which are useful only for the 
 restricted purpose of verifying the fidelity of municipal officials. 
 
 Decentralized administration of municipal accounting neces- 
 sarily results in records which are without unity or coordination. Each 
 agency is given almost unlimited freedom in recording its financial 
 statistics. Consequently, the financial statistics of the several agencies 
 are usually compiled according to the different classifications which 
 happen to suit the fancy of the executive heads of the several agencies. 
 Under these conditions it becomes practically impossible to make an 
 intelligible comparison of the financial operations of either the organi- 
 zation units or particular functions of the municipal government. 
 Municipal officials and the electorate are thus deprived of the detailed 
 analysis of receipts and expenditures which should provide the infor- 
 mation by which municipal finance can be rationally planned and 
 adequately controlled. 
 
 Paralleling the confusion of organization and records in the local 
 administration of accounting is the illogical arrangement provided by 
 the statutes for state supervision of municipal accounting. Three differ- 
 ent and independent state agencies have powers and duties relating to 
 municipal accounting records. These powers and duties are not clearly 
 defined, and, if they were concurrently exercised, they would overlap 
 and conflict at many points. The application of these powers is 
 
Municipal Accounting, Auditing, and Keporting 171 
 
 restricted in one way or another and does not extend to all munici- 
 palities or to all accounting activities of the same municipality. 
 
 The state board of education, through its secretary, prescribes the 
 blank forms to be used by superintendents or supervisors of schools in 
 reporting receipts,- expenditures, and statistics to the state board of 
 education annually." While this does not enforce uniform accounting 
 by school boards, it undoubtedly exercises some influence in this 
 direction. 
 
 The state auditors are directed by statute to prescribe the cash 
 book, selectmen's orders, and school orders to be used by the treasurers, 
 the boards of selectmen, and the boards of education of each munici- 
 pality, unless they find that the accounting system in use is sufficiently 
 complete and includes the necessary detail. The auditors are authorized 
 to furnish samples of these accounting forms without charge to the 
 municipalities. 1 
 
 The budget statements of municipalities having boards of finance 
 created under the general statutes are to be prepared according to a 
 form prescribed by the tax commissioner. The power of the tax com- 
 missioner to prescribe the budget form does not extend to munici- 
 palities having boards of finance created under special acts or to 
 municipalities not having boards of finance. No power is given to the 
 tax commissioner to prescribe an accounting system to accompany the 
 budget form, without which that form cannot have its greatest useful- 
 ness. In preparing the budget form required under these statutes, the 
 tax commissioner has developed, on his own initiative, the general 
 features of an accounting system by which the budget form may be 
 supplemented, but he has no power to. compel any municipality to 
 install and operate the system. 
 
 It so happens that no appropriation was made to the state auditors 
 to carry out their instructions to prepare and prescribe the cash book, 
 school orders, and selectmen's orders of municipalities. For this reason, 
 this particular statute has not been enforced since its enactment in 
 1919. 1S If this were not so, the exercise of these powers by the state 
 auditors would bring them into conflict with local boards of finance, 
 which are authorized under the general statutes to "prescribe the 
 method by which and the place where all records and books of account 
 of the town, or any department or subdivision thereof, shall be kept"," 
 and perhaps with the state board of education and the tax commissioner. 
 
 Moreover, in municipalities with boards of finance created under 
 the general statutes, the duties of the state board of education in 
 
 "Cum. Sup., 1933, sec. 251b. 
 "Cum. Sup., 1933, sec. 68b. 
 "Pub. Acts, 1919, ch. 292. 
 "Cum. Sup., 1933, sec. 61b. 
 
172 Report of Special Tax Commission 
 
 prescribing the form upon which the receipts and expenditures of 
 schools are reported overlap the power of the tax commissioner to 
 prescribe the. budget form, including appropriations of the board of 
 education. Under present practice the classification of expenditures 
 required by the state board of education does not correspond with the 
 classification of educational appropriations included in the tax com- 
 missioner's budget form. While this is not a serious inconsistency, 
 because of the freedom given to the local board of education to trans- 
 fer at will from one item of its appropriation to another, it does pro- 
 vide an illustration of the lack of system which ensues when two state 
 agencies have concurrent powers to prescribe forms covering the same 
 municipal activities and no provision, either statutory or administra- 
 tive, is made to bring these agencies into agreement on the form to be 
 prescribed. 
 
 The purpose of having accounting forms prescribed by state 
 agencies is to secure a uniformity of accounting classification and of 
 accounting statistics among all of the municipalities of the state. This 
 is highly desirable, since intelligent action on municipal finance is 
 difficult unless a municipality is able to compare its experience with 
 the experience of other municipalities. Even more important, however, 
 is the need of a uniform classification of accounting items to be fol- 
 lowed by all of the departments and agencies of a single municipality. 
 Without such a classification the municipality is never able to secure a 
 comprehensive and accurate record of its financial condition and 
 operations. 
 
 Defects in the procedure for preauditing claims. 
 
 The procedures prescribed by the general statutes for the settle- 
 ment of claims against a municipality are most unsatisfaqtory. Sev- 
 eral officials, including a state officer . in at least one case, are 
 authorized to draw orders against the treasurer. Presumably these 
 orders are payable by the treasurer without even the formality of an 
 independent check to see that they are within the appropriation voted 
 for the purpose and that the municipality has received something in 
 return for its expenditure. 18 
 
 It is true that section 513 of the General Statutes makes the follow- 
 ing provision for preauditing: 
 
 The auditor of any town, city,, borough or public corporation 
 or institution, or any person authorized to approve demands 
 for the price of articles furnished or services rendered for 
 
 " Sullivan v. Willis, 116 Conn. 9 (1932). 
 
Municipal Accounting, Auditing, and Kbpoeting 173 
 
 the same, may, before approving any such demand, require 
 the claimant to take oath that the whole of such articles have 
 been furnished or that the service has been performed and 
 that no commission, discount, bonus, reward or present of any 
 kind has been received or is promised or expected on account 
 of the same. 
 
 Apparently anyone who is permitted to draw orders upon the 
 treasurer is "authorized to approve demands. . . .", and, since the 
 expenditure is made under the direct supervision of such persons, this 
 portion of the above section fails to provide any independent check. 
 The auditors, whatever may be their powers under this section, do not 
 exercise them in more than a few communities and could not be 
 expected to, in view of the remuneration which they receive for such 
 services as they do render. 
 
 There are two other procedures prescribed for the preauditing of 
 claims in certain municipalities which are more defensible from the 
 standpoint of accounting principles, but which, under present condi- 
 tions, further complicate the work of municipal officials in determining 
 the legality of the claims. In municipalities having a superintendent of 
 highways, the expenses for maintaining and repairing the highways 
 are first to be certified by the superintendent, then approved by the 
 selectmen, and finally submitted ,to the treasurer upon the requisition 
 of the superintendent. 19 In municipalities which have a town manager, 
 claims are first to be certified by the town manager, then approved by 
 the board of finance, and finally submitted to the treasurer for pay- 
 ment upon the requisition of the manager. 20 There is, under these pro- 
 cedures, an independent check on operating departments of the validity 
 of claims submitted to the treasurer for payment. 
 
 The diversity and confusion of the procedures prescribed by law 
 for the preauditing of claims against the municipalities deprive the 
 municipalities of much of the value of this accounting device. It is 
 quite apparent that these provisions were written in the statutes at 
 different times and without any thought of securing a procedure based 
 upon a well-defined conception of the purposes of this function or of 
 the requirements of uniformity by which it can be made most effective. 
 
 Preauditing of claims of a government has two general purposes. 
 It is, in the first place, an accounting device for the' continuous control 
 of expenditures. Claims should be preaudited to determine their 
 legality and to protect the municipality against any violation by its 
 
 "Gen. Stat., 1930, sec. 410. 
 10 Gen. Stat., 1930, sec. 433. 
 
174 Report of Special Tax Commission 
 
 administrative departments of the provisions of the budget with 
 respect to claims. This means that accounts should be set up on 
 the books for each appropriation made to an administrative depart- 
 ment at the time the appropriation is made by the legislative body. No 
 claim should then be presented to the treasurer of the municipality for 
 payment until it has been examined by the chief accounting officer to 
 see that the expenditure for which the claim is presented has been 
 authorized by law. 
 
 Secondly, preauditing of claims is designed to protect the com- 
 munity against the payment of claims for goods or services which the 
 community, has not actually received. To prevent collusion between the 
 heads of administrative departments and the sellers of goods and ser- 
 vices to the municipality and to protect the heads of administrative 
 departments against any charges of dishonesty, it is desirable that all 
 claims against the municipality be audited by an independent agency 
 of the municipality to see that the goods and services covered by the 
 claim have been received at the contractual price. 
 
 Inadequate control of commitments. 
 
 The accounting system of a municipality should not only provide 
 a control for claims actually incurred but also a control for commit- 
 ments made. Existing statutes provide for the control of commitments 
 only in the section which prohibits any official of a municipality from 
 contracting debts in excess of his appropriation and prescribes a pen- 
 alty for overcommitment. This penalty operates, if at all, only after 
 the law has been violated. Proper control of commitments should be a 
 continuous operation. If a municipality is to be advised of its actual 
 financial condition at all times, there must be shown in its general con- 
 trol ledger at all times commitments made by the municipality which 
 are still undischarged. 
 
 Inadequate control of revenues. 
 
 It is just as important for the orderly administration of municipal 
 finance that there be an accounting control over revenues as it is that 
 there be an adequate accounting control over claims and commitments. 
 Yet the general statutes make practically no provision for the control 
 of receipts. Moneys other than general property taxes can be turned 
 into the municipal treasury by any official receiving funds belonging to 
 the municipality upon no other record than that of the treasurer him- 
 self. The only records of the taxes due to the municipality are the rate 
 books and the other records of the tax collectors. The tax collector must 
 turn over to the treasurer a list of all taxes collected by him each month 
 
Municipal Accounting, Auditing, and Reporting 175 
 
 and file with the town clerk annually a list of taxes on real estate remain- 
 ing unpaid twelve months after the tax due date. 21 He is also required 
 to report to the budget-making authority at the end of each fiscal year 
 the taxes collected or otherwise lawfully discharged and the taxes out- 
 standing on each rate book. The rate books themselves, however, remain 
 with the tax collector indefinitely and never become part of any cen- 
 tralized accounting records of the municipality. 22 
 
 While defalcation on the part of the collectors has fortunately been 
 infrequent, there has been a sufficient number of cases of carelessness in 
 accounting for municipal revenues and of actual dishonesty in the dis- 
 position of these funds to emphasize the need of a more adequate pro- 
 cedure for the continuous control through the accounting system of the 
 revenues belonging to the municipalities. We shall recommend in a 
 later chapter of this report that the total of the taxes shown on the 
 rate bill turned over each year to the collector be charged against the 
 collector on the books of the chief accounting officer, and that the tax 
 collector be required, at the expiration of eighteen months after the 
 due date of the taxes shown in each rate book, to make a final account- 
 ing and settlement with the budget-making authority for the taxes 
 shown on that rate book. It should further be required that the treasurer 
 issue receipts from prenumbered receipt books, and that a copy of each 
 receipt be filed with the chief accounting officer. 
 
 Recommendations. 
 
 To provide for centralized municipal accounting systems,, we 
 recommend : 
 
 That the budget-making authority of each budgeting municipality 
 be required to appoint a chief accounting officer for the municipality; 
 
 That the chief accounting officer hold office during the pleasure of 
 the budget-making authority or until his successor has been appointed 
 and be paid a salary to be determined by the budget-making authority ; 
 
 That no person be allowed to serve concurrently as chief account- 
 ing officer and treasurer of a budgeting municipality ; 
 
 That any two or more budgeting municipalities each of which has 
 a population of less than 25,000 or average annual collections of gen- 
 eral property taxes of less than $500,000 be authorized by statute to 
 provide, through the joint action of their budget-making authorities, 
 for the appointment of a joint chief accounting officer ; 
 
 21 Cum. Sup., 1933, sec. 344b. 
 
 22 Cum. Sup., 1933, sec. 349b. 
 
176 Report of Special Tax Commission 
 
 That the chief accounting officer be required to prescribe all 
 accounting forms and procedures of all fiscal officers except those 
 prescribed by the tax commissioner under the provisions of the follow- 
 ing recommendations. 
 
 To provide for centralized state control of municipal accounting 
 procedure, we recommend: 
 
 That section 68b of the Cumulative Supplement of 1933, vesting 
 in the state auditors the power to prescribe the cash book, selectmen's 
 orders, and school orders to be used by municipalities, be repealed; 
 
 That the state board of education and the tax commissioner confer 
 and reach an agreement on the proper classification of appropriations, 
 receipts, and expenditures of local boards of education ; 
 
 That the tax commissioner prescribe the accounting system to be 
 used by the chief accounting officer and the treasurer of each budgeting 
 municipality and provide assistance in establishing and keeping such 
 system. 
 
 To provide a systematic procedure for the preauditing of claims, 
 we recommend : 
 
 That provision be made in the accounting system of each budget- 
 ing municipality for the opening of an account for each appropriation 
 made by the legislative body immediately after the appropriation has 
 been voted; 
 
 That the treasurer or other disbursing officer of a budgeting 
 municipality be prohibited from paying out any moneys of the munici- 
 pality in satisfaction of any claim presented to him except upon the 
 written requisition of the spending agency responsible for the expendi- 
 ture, duly countersigned by the chief accounting officer," which counter- 
 signature shall certify that the claim has been audited for its legality 
 and that the goods and services covered by the claim have been received 
 at the price agreed upon between the municipality and the party pre- 
 senting the claim, except that the treasurer or disbursing officer of a 
 budgeting municipality be authorized, with the approval of the budget- 
 making authority, to advance to any spending agency having an unen- 
 cumbered balance in its appropriation moneys to be known as an 
 "imprest petty cash fund" upon the request of the spending agency. 
 
 To provide for a proper control of commitments, we recommend: 
 
 That no commitment of a budgeting municipality be deemed to 
 be binding upon the municipality unless a document evidencing the 
 commitment shall have been signed by the spending agency and counter- 
 signed by the chief accounting officer, certifying that the commitment 
 is within the unencumbered balance of the appropriation against which 
 the commitment is chargeable, except that in the case of an emergency 
 a spending agency be permitted to make a commitment for not more 
 
Municipal Accounting, Auditing, and Reporting 177 
 
 than fifty dollars without the countersignature of the chief accounting 
 officer, and except that spending agencies be permitted to enter into 
 contracts for the employment of personnel or for utility services which 
 are usually contracted for in advance for an amount not in excess of 
 the appropriations made for these purposes without the countersigna- 
 ture of the chief accounting officer. 
 
 To provide for the proper control of receipts, we recommend : 
 That blank forms of receipts to be used by the treasurer be pre- 
 numbered, bound in books, and delivered to the treasurer by the chief 
 accounting officer and that a duplicate of each receipt issued be forth- 
 with filed by the treasurer with the chief accounting officer. 
 
 Municipal auditing. 
 Statutoey provisions. 
 
 The general statutes provide two procedures for the auditing of 
 accounts by the municipalities themselves. A town may elect, at its 
 annual or biennial town meeting, two of its citizens to serve as auditors 
 for a term of one or two years at a compensation fixed by the town meet- 
 ing, or it may provide for the auditing of its accounts by public account- 
 ants appointed by the board of finance, if it has one, and in other 
 cases by the selectmen or corresponding official. 28 Public accountants 
 so appointed serve as auditors of the town for two years, and their 
 compensation is fixed by the body which appoints them. 
 
 We are informed by the office of the tax commissioner that, in 
 1933, 158 towns had their accounts audited by regularly elected town 
 auditors and 11 by public accountants. In eleven of the 158 towns which 
 elected town auditors in this year, public accountants were also 
 employed to make special audits of all or parts of their accounts. 
 
 Whether a town provides for its auditing by town auditors or 
 public accountants, those serving as auditors are required, at least annu- 
 ally, to "examine and verify the town accounts, financial records and 
 all matters appertaining thereto and certify under oath as to the cor- 
 rectness of the report of the- board of selectmen . . . ., of the 
 town treasurer, of the report of the board of education, of the 
 report of each tax collector and of the report of each other town officer, 
 commission, board and agency, having the handling of funds belonging 
 to or, in the custody of such town, or of its officers and agencies acting 
 as custodian, treasurer or trustee of any public or special fund." 24 They 
 are also required to publish and distribute a report containing their 
 statement of certification, the reports they have audited, a statement 
 
 " Gen. Stat., 1930, sees. 274, 362. 
 * Cum. Sup., 1933, sec. 52b. 
 
178 Report of Special Tax Commission 
 
 of the resources and liabilities of each fund, and any recommendations 
 which they may deem advisable. 25 Certified copies of any audit of the 
 accounts of a municipality made by a public accountant must be filed 
 with the tax commissioner, 20 but no such report is required of elected 
 auditors. 
 
 Upon the request of the town meeting or of the selectmen of any 
 town whose average annual receipts from taxation are less than $50,000, 
 the tax commissioner himself may have an audit made of the books of 
 the treasurer and tax collectors, the cost of which is divided equally 
 between the municipality and the state. 27 
 
 Criticism. 
 
 Under these statutory provisions, no municipality has lacked the 
 power to have its financial records adequately audited. It is surprising, 
 therefore, that there are municipalities — some of considerable size— 
 which operate from year to year without any audits of their accounts 
 except the perfunctory audits of elected town auditors or their chief 
 accounting officer. The opinion is still held among citizens and particu- 
 larly among governmental officials that auditing reflects upon the hones- 
 ty of the officials. Dishonest officials, of course, have ample reason to 
 resist an audit of their accounts. This is all the more reason for regular 
 and thorough auditing. For honest officials auditing holds no terror. In 
 fact it provides them and their sureties protection against unfounded 
 charges of dishonesty and incompetence. 
 
 Every business concern of any size makes auditing of its books 
 a regular practice and has to do it to maintain its credit rating. This 
 does not mean that the president and officers are constantly under sus- 
 picion of being dishonest. Auditing is merely a device to enforce the 
 responsibility of agents to their principals. Government officials have 
 no less responsibility to the legislative bodies and electorates than do 
 business executives to their directors and stockholders. Recurring and 
 thorough audits are indispensable to the proper conduct of municipal 
 finance. 
 
 The weakness of the statutes relating to municipal audits, is 
 not that they fail to grant adequate powers, but that they provide 
 inadequate machinery for proper auditing and fail to enforce the 
 proper use of the auditing powers granted. Each municipality handles 
 its auditing about as it pleases. Consequently there are great differences 
 in the auditing done among municipalities. 
 
 25 Cum. Sup., 1933, sec. 53b. 
 2, Gen. Stat., 1930, sec. 1105. 
 27 Gen. Stat., 1930, sec. 1104. 
 
Municipal Accounting, Auditing, and Kepoeting 179 
 
 A few municipalities find it advantageous to have audits made by 
 independent and reputable accounting concerns annually or even more 
 frequently. Many more municipalities depend upon more or less per- 
 functory audits made by elected town auditors. It should be said that 
 there are a few elected town auditors who, through a fortunate combi- 
 nation of special competence and unusual public-spiritedness, make 
 satisfactory audits. Generally,. however, elected town auditors are with- 
 out auditing experience or qualifications, and their small remuneration 
 — as low as $4 in a few cases — calls forth a minimum of effort. 
 
 Similarly, public accountants sometimes make audits which are of 
 real value in disclosing unsatisfactory conditions and in recommend- 
 ing desirable changes in the fiscal administration of the municipalities. 
 Many audits of public accountants, however, are so restricted as to be 
 of little value. Probably because of meager compensation these account- 
 ants do not attempt to verify commitments or do the other detailed 
 work without which a thorough audit cannot be made. 
 
 In general, municipal auditing as it has been carried out through- 
 out the state has been unsatisfactory. The best that can be said for it 
 is that it has been inexpensive and that it has provided some deterrent 
 to official dishonesty. The fact that defalcations of substantial amounts 
 in municipal funds have taken place for a number of years in some 
 municipalities is sufficient indication of the laxness with which audit- 
 ing has been done in these communities. Many other municipalities 
 have only the honesty of their officials to thank for their avoidance of 
 similar losses. 
 
 The need of mobe state supeevision and conteol. 
 
 Although the municipalities themselves have most to gain from 
 adequate auditing of their accounts, the state government is not with- 
 out responsibility for the way in which municipal auditing is done. 
 Ultimately, every municipality is responsible to the state government 
 and answerable for the manner in which it has exercised the powers 
 and discharged the duties vested in it by statute. The least the state 
 should do is to require on its own initiative the verification of the 
 financial records of the municipalities which exist to carry out its 
 functions. 
 
 This responsibility of the state for proper municipal auditing 
 is a fundamental phase of the relationship between the municipalities 
 and the state. There is only the question of how, under all existing 
 .circumstances, it can best be discharged. The surest and best procedure 
 is to provide for an audit of the accounts of all municipalities at least 
 once annually by the state itself through the municipal tax division 
 
180 Report of Special Tax Commission 
 
 of the tax commissioner's office. Although it believes that this should 
 be aimed at as the eventual arrangement, it has not seemed to this 
 Commission that this step can be taken immediately, owing to the 
 misunderstanding and resistance which such a proposal would be 
 sure to arouse among local officials. We would prefer to move gradually, 
 in order that such a step may be taken with the full support of an 
 informed public opinion. 
 
 We also realize that the establishment of a comprehensive system 
 of state audits of municipal accounts would place upon the office of the 
 tax commissioner a considerable volume of additional work and would 
 impose a rather substantial additional expense on the state government. 
 Neither of these effects seems to us to be desirable at this time, since 
 other recommendations which we have made will increase consider- 
 ably the responsibilities of the tax commissioner, and since any avail- 
 able state funds can better be used to assist the municipalities in other 
 ways. 
 
 Despite these arguments against the immediate provision for state 
 audits of municipal accounts, we should be derelict in our duty if we 
 failed to provide for the strengthening of this phase of municipal finan- 
 cial administration. We are convinced, moreover, that the state must 
 take a more active part in the auditing of municipal accounts and must 
 assume a part of the cost of this activity if there is to be the desired 
 improvement in this function. 
 
 Recommendations. 
 
 We therefore recommend : 
 
 That each major municipality be required to have a comprehensive 
 audit, made in accordance with rules and regulations prescribed by the 
 tax commissioner, of all of its financial records at least once annually 
 by accountants to be selected by the budget-making authority of that 
 municipality and approved by the tax commissioner ; 
 
 That one-half of the cost of such audits be paid by the state and 
 one-half by the municipality; 
 
 That, if the audit required by the foregoing recommendations is 
 not made by any major municipality, the tax commissioner be author- 
 ized to have such audit made by auditors selected by him and to charge 
 the full expense of such audit to the municipality; 
 
 That the tax commissioner be authorized to have an audit made 
 of the accounts and records of any municipality at any time at the 
 expense of the state. 
 
Municipal Accounting, Auditing, and Reporting 181 
 
 Bonding of municipal officers. 
 Statutory provisions. 
 
 Under existing statutes, selectmen, treasurers, tax collectors, town 
 clerks, and town managers are required to give bond to the municipality 
 for the faithful performance of their duties. Within occasional statutory 
 limits, the amounts of the bonds to be given by these officials are to be 
 fixed by certain specified municipal agencies. Generally, good and 
 sufficient bond with surety is all that is required, but the form of the 
 bonds to be given by town treasurers and town tax collectors is to be 
 approved by the tax commissioner. 28 
 
 Criticism. 
 
 On strictly technical grounds these provisions, combined with the 
 supervision of bonding companies authorized to write surety bonds in 
 the state by the state insurance department, provide the municipalities 
 with reasonably satisfactory guarantees of the reliability of the bonds 
 written on their officials. 
 
 There are certain features of these provisions, however, which 
 might be amended to the advantage of the municipalities and of the 
 state. The power of the tax commissioner to prescribe the form of bonds 
 , of treasurers and collectors, for example, might well be extended to the 
 bonds of other municipal officials. More definite specifications of the 
 bonds to be pledged by the respective municipal officials might advan- 
 tageously be prescribed by statutes or by state administrative agencies. 
 More definite specifications might be fixed by statute with respect to 
 the type and other characteristics of the surety. It would certainly be 
 an improvement if the responsibility for fixing the amount of bonds 
 to be pledged by municipal officials was centralized in one of the 
 fiscal agencies. 
 
 After all, however, these are matters of technical detail, which 
 do not extend to the more fundamental weaknesses of existing pro- 
 visions for bonding officials. These fundamental weaknesses arise from 
 the inadequacies of municipal accounting and auditing. 
 
 There is, to our knowledge, little criticism to be made of the 
 performance on official bonds after a bond has once been written and 
 the liability of the surety on such bond clearly established. The recent 
 difficulties with official bonds have resulted from the fact that account- 
 ing records, audits, and other phases of municipal financing are so 
 inadequate that many responsible surety companies are reluctant to 
 
 "Gen. Stat., 1930, sees. 301, 303, 316, 318, 355, 357, 433, 441, 998, 1213, 1250, 
 4831; Cum. Sup., 1933, sees. 45b, 284b. 
 
182 Report of Special Tax Commission 
 
 write bonds on officials of certain municipalities and the municipali- 
 ties have difficulty in establishing clearly the liability of the surety in 
 certain types of defalcation. 
 
 These difficulties will be constantly multiplied if additional 
 responsibilities are vested with the financial officers of the municipali- 
 ties without applying correctives to the procedures of municipal financ- 
 ing. When the General Assembly of 1931 enacted legislation to com- 
 pel a complete collection of taxes levied within two years of the due 
 date of the first installment, many of the surety companies authorized 
 to do business in the state were forced to cancel bonds which they had 
 written on collectors and to refuse to write further bonds, because of 
 the uncertainty of the liability of the sureties under this legislation. 
 In this emergency the tax commissioner secured bonds for tax col- 
 lectors only by limiting, through administrative action, the liability 
 of surety companies on bonds written on collectors to claims which 
 were file'd against the collector within fifteen months of the expiration 
 of the bond. With this arrangement in effect, an additional reason exists 
 for prompt and thorough audit of municipal accounts, particularly 
 those of tax collectors, at relatively frequent intervals. 
 
 Recommendations. 
 
 In other recommendations submitted in this report and in bills 
 to be submitted to the General Assembly incorporating provisions to 
 carry into effect our recommendations, we have taken occasion to 
 revise some of the details relating to the bonding of municipal officials. 
 There is only one recommendation affecting bonding in general which 
 need be stated here, namely : 
 
 That within any limits prescribed by law, the amount or amounts 
 of bonds to be given by officials of budgeting municipalities who 
 are required to be bonded under the law be determined by the budget- 
 making authority. 
 
 In the recommendations which we have made to improve munici- 
 pal accounting and to strengthen municipal auditing, we believe that 
 we have made provision for the elimination of the principal difficulties 
 which now exist under the statutes relating to the bonding of municipal 
 officials. Other remaining difficulties can better be dealt with by 
 administrative action. 
 
 Custody of municipal funds. 
 Statutory provisions. 
 
 It is the common practice among state and local governments of 
 this country to require security of some kind or to protect in some way 
 
Municipal Accounting, Auditing, and Reporting 183 
 
 the funds which they deposit in banking institutions. Many other 
 states have gone much further in this direction than has Connecticut. 
 
 Until 1933 each Connecticut municipal officer was permitted to 
 select the depository in which to deposit municipal money coming into 
 his possession, subject only to the conditions that the depository be a 
 national or state bank or trust company in this state, that his deposits 
 in any one depository should not exceed thirty per cent of its capital 
 and surplus, and that his deposits be made in the name of the govern- 
 mental unit to which it belonged, or in the name and under the title of 
 the depositing official or trustee. 29 
 
 Legislation enacted in 1933 made two important changes in these 
 provisions. First, it placed upon the selectmen or 'governing body of 
 the municipality the duty of selecting the depository whenever appli- 
 cation was made by any municipal official. Secondly, it relieved both 
 the municipal official and his surety from any liability for loss of pub- 
 lic funds placed with depositories in accordance with the law. 30 
 
 There are three other sections of the general statutes which have 
 a bearing of minor importance upon the management of funds belong- 
 ing to or held in trust for municipal governments. Section 442 specifies 
 the agency which is to administer the town deposit fund and the 
 investments which may be purchased for this fund. Sections 4830 and 
 4836 provide that any trust fund other than the town deposit fund 
 shall be invested only in securities which are legal for trust funds, 
 unless other investments are authorized by a vote of the town meeting. 
 These provisions are only incidental to the major problem involved 
 in the custody of public moneys and need not be given further con- 
 sideration in this report. 
 
 Criticism. 
 
 Upon first examination of these provisions for the custody of 
 municipal funds it would appear that depositories should be required 
 to provide more adequate security for these funds. There is ample 
 theoretical justification for placing the' deposits of governments in a 
 preferred position. There are, moreover, several procedures widely 
 used among the several states to provide specific protection for public 
 deposits. Depositories, for example, are in many states required to 
 pledge bonds written by corporate sureties for amounts sufficient to 
 secure the maximum deposits made with them. Other states require 
 depositories to pledge securities with the state to protect public deposits. 
 
 29 Gen. Stat., 1930, sec. 512. 
 J0 Cum. Sup., 1933, sec. 75b. 
 
184 Report of Special Tax Commission 
 
 Still other states have by law made public deposits a preferred claim 
 against the total assets of depositories. 
 
 This Commission has made a careful study of these three methods 
 of protecting public deposits. We have discovered that no one is with- 
 out objections or has been universally successful during the period of 
 widespread bank failures. 
 
 The premium charges required by surety companies on bonds 
 written on depositories have risen to almost prohibitive levels. These 
 companies insist upon protecting their liability under such bonds by 
 deposit' of securities or by technical provisions which deprive the 
 governments of much of the protection which the bonds are intended 
 to give. It is frequently specified in these bonds, for example, that the 
 surety assumes liability only in case the liquidated assets of a failed 
 bank are insufficient to meet the liabilities of the bank for public 
 deposits. Under such a provision a municipality might have to wait 
 several years before being indemnified for the loss suffered because of 
 the failure of a bank. 
 
 To require the pledge of securities by depositories is not only 
 expensive and inconvenient to the depositories but also imposes upon 
 the state a rather heavy financial liability for the safe-keeping of these 
 securities. The cost of a provision of this kind to the banks may be 
 sufficiently heavy to warrant their refusal to accept public deposits. 
 Thus there is the danger in provisions as severe as this of eliminating 
 the strongest banking institutions from the available depositories for 
 public funds. 
 
 According to leading authorities on the custody of public funds, 
 the federal statutes governing insolvency of national banks would not 
 recognize any prior lien which might be given to public deposits by 
 state law. 31 Thus the third method of securing deposits could be made 
 applicable only to state-chartered institutions. Under such a law 
 national banks would either be precluded from accepting public 
 deposits or would be given an advantage over state banks in being 
 allowed to accept deposits without according them a prior lien upon 
 their assets. If national banks were precluded from accepting public 
 deposits under such a provision, there would probably be too few banks 
 and an insufficient amount of capital and surplus in eligible banking 
 institutions in the state to take care of all the public deposits of state 
 and local governments. 
 
 The objections to each of these three plans for securing public 
 deposits appear convincing to us. Connecticut has been fortunate in 
 having a banking system strong enough to withstand the ravages of 
 
 al M. L. Faust, Providing Security for Public Deposits, Municipal Finance, Aug. 
 1934, p. 21. 
 
Municipal Accounting, Auditing, and Kepoeting 185 
 
 the business depression with relatively few bank failures. While there 
 have been isolated cases of substantial loss to municipalities by reason 
 of the failure of banks, it is doubtful whether these losses could have 
 been entirely avoided even under one of the more formal procedures 
 for securing bank deposits. In many cases these losses are directly 
 traceable to faulty business judgment on the part of municipal officials. 
 There will always be the necessity of selecting depositories on their 
 merits and because of their inherent strength, if losses of public 
 moneys due to bank failures are to be avoided. All statutory require- 
 ments for securing public deposits have to be applied uniformly 
 throughout the state and must, therefore, be more or less arbitrary, in 
 the sense that they cannot be adjusted to the varying strength and 
 weakness of individual banking institutions. 
 
 If. we were convinced that there was a method which could be 
 applied and which would result in the long run in a substantial 
 increase in the protection provided for public deposits, we would not 
 hesitate to recommend its adoption. We know of no such method, and 
 we are forced to the conclusion that the enactment into law at the 
 present time of any of the methods elsewhere employed might, by 
 reducing the responsibility of local officials for the safety of public 
 moneys in their custody, weaken rather than strengthen the protection 
 provided for public deposits under existing statutes. 
 
 It is to be remembered, also, that the. law recently enacted by the 
 federal government to insure all deposits in banking institutions will, 
 within certain limits, provide a protection for public deposits which 
 has not existed previously. To what extent bank deposits will event- 
 ually be insured under federal law, and whether the system of govern- 
 mental insurance of bank deposits will be continued for any consider- 
 able period, it is not possible to say. We mention this point merely to 
 call attention to one additional reason for not recommending at this 
 time the enactment of a law for securing public deposits. 
 
 One of the most obvious defects in existing law is the provision 
 limiting the deposit of public funds by any single person in any bank 
 to thirty per cent of capital and surplus. Since several municipal 
 officers ordinarily make deposits of public funds, any municipality 
 may, under the law, carry deposits in a given bank which amount in 
 the aggregate to much more than thirty per cent of its capital and 
 surplus. If the limitation is justified at all, it should surely apply to 
 the total deposits of a municipality. 
 
 The total amount of public funds which a Connecticut bank may 
 accept depends, not only upon the number of depositing officers of a 
 given municipality, but also upon the number of municipalities which 
 find it convenient to patronize the bank. Strict logic would seem to 
 
186 Report of Special Tax Commission 
 
 require that a limitation be placed upon the total amount of public 
 funds which a given bank can receive from any one or more munici- 
 palities. Such a law, however, would necessitate an increase in the 
 thirty per cent limit if all municipalities were to be accommodated at 
 reasonably convenient banking institutions. We are of the opinion that 
 the raising of this limit would be undesirable and that the existence 
 of independent decisions on the part of the designating authorities of 
 the several municipalities affords sufficient protection on this score. 
 
 We endorse in principle those features of the 1933 legislation 
 which make a supervisory fiscal agency responsible for the selection 
 of depositories for municipal funds and which relieve the depositing 
 official and his surety of all responsibility for loss of lawfully deposited 
 funds resulting from failure of the depository. Since the state can 
 exercise no supervision over banking institutions of other states, we 
 believe it desirable to restrict depositories, under the general law at 
 least, to banks or trust companies' having their principal places of 
 business in this state and organized under the laws of this state or of 
 the United States. When special conditions arise in the financing of 
 any particular municipality which would warrant the making of 
 deposits of the funds of that municipality in banks outside the state, 
 a special act seems to be the preferable means of handling the situation. 
 
 Recommendations. 
 
 We recommend: 
 
 That depositories for the whole or any part of the moneys 
 received by any person serving in an official capacity in any major or 
 minor municipality be designated by the budget-making authority of 
 that municipality; 
 
 That the budget-making authority in no case knowingly permit 
 the deposit or keeping on deposit in any depository of any funds of 
 the municipality at any one time in excess of thirty per cent of the capi- 
 tal and surplus of the depository, except that a designated depository be 
 permitted to accept deposits of funds of a given municipality in excess 
 of thirty per cent of its capital and surplus only on condition that such 
 funds be segregated from the other funds of the depository and be placed 
 in a special or trust deposit to the credit of the municipality and the 
 depositing officials ; 
 
 That any deposits made by an official of a municipality in a desig- 
 nated depository be held in the name of the municipality and that the 
 deposit account specify the name and title of the depositing officer; 
 
 That any designated depository which accepts deposits from any 
 one municipality in excess of thirty per cent of its capital and surplus, 
 except as special or trust deposits under the provisions of the foregoing 
 
Municipal Accounting, Auditing, and Reporting 187 
 
 recommendation, be subject to a penalty of ten dollars per day for 
 each day during which such excess deposits are held, plus interest at 
 the rate of ten per cent per annum on the amount of excess deposits 
 for the time during which they are held by the depository; 
 
 That the state bank commissioner be held responsible for the 
 enforcement of the penalty imposed upon designated depositories for 
 accepting deposits of public moneys in excess of the limits prescribed 
 by law and that, when any penalty shall be enforced and collected by 
 the state bank commissioner under the law, the proceeds of such penalty 
 be returned by him to the municipality holding the deposits which 
 give rise to the penalty. 
 
 Municipal reporting. 
 Importance of reporting. 
 
 There is probably no one single activity which is more vital to good 
 government in municipalities than that of reporting the operations 
 and financing of the government. Reports should provide the instru- 
 ments by which those responsible for governmental administration and 
 for the formulation of governmental policies may know what the 
 experience has been in the past so that such experience may be used to 
 the advantage of the community in planning its future. 
 
 Reliable, reasonable, and informative reports are indispensable to 
 effective financial administration. Reports of this character can be pre- 
 pared only when the processes of budgeting, accounting, and auditing 
 are adequate to provide the information which should be included in 
 these reports. Even when other phases of financial administration pro- 
 vide the necessary information, however, the type of reports which 
 should be made available may not be forthcoming because of defective 
 statutes or faulty administration. 
 
 Statutory provisions. 
 
 Existing statutes cannot be criticised on the ground that they fail 
 to require reports from municipal officials. Selectmen have to make no 
 less than three reports ; treasurers, four ; boards of education, seven ; 
 and auditors, boards of finance, superintendents of highways, town 
 managers, assessors, and town clerks, no less than one each. Reports are 
 required to be made by certain town officials to other town officials, to 
 the legislative body, and to state agencies. 
 
 Criticism. 
 
 The criticism to be made of the present reporting system is that 
 there are too many reports or, at least, too many specialized reports. 
 
188 Report of Special Tax Commission 
 
 These reports are not particularly informative, nor do they provide 
 much useful reading material. It is true that the several reports now 
 made by town officials provide the answers to specific questions which 
 may be raised about town affairs ; it is probably salutary to municipal 
 officials to have to put into writing a report of their respective activities. 
 Acknowledging these limited benefits of the reports now required, the 
 conclusion cannot be escaped that municipal reporting is at present 
 inadequate as a procedure for presenting to the electorate a simple, 
 intelligible, and comprehensive picture of the activities and finances of 
 its local government. 
 
 It is not surprising that municipal reporting has these deficiencies. 
 The weakness of municipal reports is but another symptom of the illogi- 
 cal administrative organization of most municipal governments in the 
 state. Responsibility is scattered and diffused among the several munici- 
 pal departments and agencies. When the time for making a report 
 comes, each municipal officer brings together within two covers the 
 information available on his limited activity, and that constitutes his 
 report. In many cases even the information presented is not logically 
 arranged or intelligibly set forth. There is no agency assigned to the 
 task of combining the reports of several municipal agencies, coordinating 
 their materials, and making a comprehensive report showing the activi- 
 ties and finances of the municipality as a whole. 
 
 The essential need in reporting seems to be an agency which will 
 collect and digest the financial reports of all municipal departments and 
 then prepare a comprehensive annual report for the municipality which 
 will present in coordinated and unified form an intelligible record of 
 the year's activities and financing. 
 
 Recommendations. 
 
 It is beyond our statutory powers to suggest any substantial 
 changes in the administrative organization of municipal government 
 except those relating directly to financial administration. Recommenda- 
 tions previously recorded in this chapter provide the groundwork for 
 a more adequate procedure of reporting. We here recommend : , 
 
 That those municipal officials having duties connected with general 
 financial control, including the chief accounting officer, the treasurer, 
 the selectmen, the assessors, and the tax collectors, who are or may be 
 required to submit reports of their activities to the municipality, make 
 their reports to the budget-making authority of the municipality and 
 that such reports contain the information and be prepared in a form 
 prescribed by the budget-making authority; 
 
 That the budget-making authority have prepared annually a report 
 of the operations of the municipality during the last completed fiscal 
 
Municipal Accounting, Auditing, and Kepoeting 189 
 
 year and that the tax commissioner be empowered to prescribe the forma 
 of the financial sections of the report. 
 
 State supebvision of local finance. 
 Inevitability of state participation in local finance. 
 
 We have had occasion to point out in a preceding chapter our views 
 upon participation by the state in local finance. The state must enact 
 the laws from which municipalities derive their powers and according to 
 which they conduct their business. It cannot escape the responsibility 
 to create an environment within which municipal affairs may be con- 
 ducted in an orderly and business-like manner and to provide the neces- 
 sary supervision to assure compliance with the law. 
 
 Connecticut has not failed to recognize and act upon these premises. 
 Over the years a considerable degree of state supervision has been 
 evolved. With respect to the strictly fiscal functions of municipalities 
 the powers of the tax commissioner in municipal budgeting, auditing, 
 bonding, and reporting have been indicated. The duties of the state 
 auditors and the state board of education have been mentioned, and 
 the reports of municipal fiscal officials to state agencies have been noted. 
 There are other statutes providing for state participation in the assess- 
 ment of property, in the collection of local taxes, and in the financing 
 of municipal activities, which will be noted in other parts of this report. 
 Proposing a more systematic and rational participation of the state in 
 municipal financial administration does not involve the adoption of a 
 new governmental policy. It merely applies more logically a policy well 
 established in the statutes of the state. 
 
 The natube of state paeticipation in local finance. 
 
 Where we have found that conditions in municipal finance would 
 be bettered thereby, we have not hesitated to make recommendations 
 to modify, broaden, supplement, alter, and revise the statutes governing 
 state participation in local finance. It will be observed that most of the 
 recommendations already proposed in this chapter look to some increase 
 in the supervision and control of local finance by the state. A review of 
 these recommendations, however, will show that they contemplate no 
 diminution of the powers of the municipalities to determine finally 
 what services they shall have, how much they shall spend, or other 
 similar questions of purely local concern. They relate rather to the 
 manner in which these fiscal powers of municipalities are exercised. We 
 do not believe that the adoption of these recommendations would tend 
 to weaken local self-government. On the contrary, it is our conviction 
 that action such as we recommend would help local self-government to 
 
190 Report or Special Tax Commission 
 
 operate more effectively, to prove itself adequate for the great responsi- 
 bilities placed upon it, and so to strengthen its position as a govern- 
 mental agency in this state. 
 
 Impelled by the rising burden of local taxation and by the acute 
 financial situation in many of their municipalities, the several states 
 are giving increasing attention to the supervision of local finance. New 
 Mexico, for example, places with a state agency the authority to review 
 and finally determine local budgets, tax rates, and borrowings. North 
 Carolina has its Department of Local Government, which exercises 
 not only supervisory powers over local budgeting but directory powers 
 over local indebtedness. There are few, if any, states which have not 
 extended the supervision of the state government over local finance to 
 (1) the prescribing of financial forms, records, and classifications, (2) 
 the auditing of accounts, and- (3) the requiring of uniform financial 
 reports. 
 
 Drastic measures of state supervision of local finance neither 
 accord with the traditional governmental policies and institutions of 
 Connecticut nor promise, in our judgment, the most effective results in 
 sound public finance in this state. They relegate municipal government 
 to a position of absolute dependence upon state edicts for the essentials 
 of their existence. They transfer, in effect, full responsibility for some 
 or all aspects of local finance to the state governments. This, it seems 
 to us, is too great a price to pay for any savings in local taxation or 
 any insurance against local insolvency which these measures may prom- 
 ise. We are confident that our municipal governments themselves, 
 given adequate laws and made responsible for compliance with those 
 laws, are more able than any state agency to determine wisely their 
 needs, to provide for financing those needs, to conserve their credit, 
 and to treat justly their taxpayers. 
 
 To make effective, however, an institution of local self-government 
 operating along these lines, it is necessary that every possible step be 
 taken to build up and make articulate an informed public opinion. 
 In reaching all of our foregoing recommendations, this necessity has 
 been uppermost in our minds. But the state should go further than 
 this by assuming the obligation to keep watch over municipal finance 
 and, when the need arises, to make special investigation of any munici- 
 pality and to report the facts to its citizens. We are confident that a 
 great service would be done for our municipalities if the citizens were 
 promptly informed of conditions and advised of the purposes of the laws 
 and of the procedures which should be employed to attain them. 
 
 This suggestion, it may be stated, proposes only that a practice 
 which has been used informally by the tax commissioner for several 
 years be made a requirement of the statute. The procedure impresses us 
 
Municipal Accounting, Auditing, and Reporting 191 
 
 as one which is thoroughly in harmony with Connecticut institutions 
 and which would, in our judgment, be more effective in eliminating 
 unsound financial practices in this state than a more drastic procedure 
 of state supervision. This it would accomplish through strengthening 
 rather than weakening local self-government. 
 
 If the state is to take steps to assure full compliance with its 
 statutes by municipalities, provision should also be made for participa- 
 tion by the state in any litigation bearing on or effecting the statutes 
 relating to municipal finance and the assessment and collection of taxes. 
 Under existing statutes litigation may be brought by or against a 
 municipality on points involving the interpretation of vital sections of 
 the statutes relating to local financial administration and taxation with- 
 out arrangements being made to present to the court the views of the 
 state government as a party at interest. In fact the laws give to the tax 
 commissioner, who is directly responsible for the state administration 
 of these laws, no standing in the courts on cases involving the interpre- 
 tation of these laws. 
 
 Having provided adequate machinery for the proper administra- 
 tion of the financing of a municipality and having taken all reasonable 
 steps to assure the proper exercise of the powers and duties embodied 
 in those statutes, the state is, in our judgment, amply justified in bring- 
 ing into operation a more drastic procedure whenever any municipality, 
 in spite of all the protection provided by law, so conducts its affairs that 
 it is unable to meet its legal obligations. The state cannot stand by 
 while any one of its subdivisions bankrupts itself and becomes unable 
 to provide essential services. It is short-sighted to tolerate conditions 
 which permit any such eventuality. 
 
 This is not an unfounded alarm. During this depression there 
 has been an unprecedented number of defaults on obligations of munici- 
 palities in this country. Finances of the municipalities throughout the 
 nation have reached such a desperate condition that the federal govern- 
 ment has deemed it advisable to permit municipalities to compromise 
 their debts. Although only two Connecticut municipalities are included 
 in the list of defaulting local governments, this state has already made 
 provision by statute for handling the affairs of any municipality which 
 may be unable to operate and meet its obligations. Only last session 
 the General Assembly established the Emergency Relief Commission, 
 giving it, among other powers, authority to have any municipality 
 which defaults on its obligations placed in receivership and adminis- 
 - tered by a receiver answerable to the state. 8 ' 
 
 "Cum. Sup., 1933, sees. 91b-98b. 
 
192 Report of Special Tax Commission 
 
 The Emergency Belief Commission is temporary in character 
 whereas the problem of default is apt to prove chronic. We therefore 
 recommend in the following chapter, dealing with municipal indebted- 
 ness., that this power be transferred to the tax commissioner's office 
 where it can be exercised with the least possible effort because of 
 the close contacts which are established between this office and municipal 
 fiscal officials. 
 
 Recommendations. 
 
 In accordance with the conclusions reached in this section, we 
 recommend : 
 
 That, whenever the tax commissioner has reason to believe that the 
 financing of any municipality of the state is being improperly con- 
 ducted and that the prevalent financial practices of that municipality 
 will prove disadvantageous to its taxpayers and to its credit standing, 
 he shall cause an investigation to be made of the finances of that 
 community and shall have a report of that investigation printed and 
 distributed among the taxpayers and citizens of that municipality; 
 
 That the local counsel of a municipality be required to notify the 
 tax commissioner of the commencement of any litigation by or against 
 the municipality involving the interpretation of any statute relating to 
 municipal financial administration or taxation within thirty days of 
 the commencement of such litigation and that the local counsel be 
 required to submit to the tax commissioner all opinions rendered by 
 him on the questions to be. litigated. 
 
 SUMMAET. 
 
 Accounting. 
 
 Without careful accounting control no budgeting system can fully 
 succeed in bringing before the electorate an intelligible statement of 
 municipal finance, nor can the desires of the legislative body as 
 expressed in its voted appropriations be made truly effective. Except in 
 a relatively few municipalities, the accounting systems now in opera- 
 tion are inadequate for these purposes. 
 
 The general statutes do not provide for any officer whose duty it 
 is to keep the books of the town. Each of several municipal officers is 
 required to keep certain accounting records, but nowhere is there any 
 requirement for centralized control or for a set of accounting records 
 from which the exact financial status of the municipality may be 
 taken on short notice. Because of the freedom given to the munici- 
 palities in most aspects of accounting procedure, but also because of 
 the existence of state laws directing various state officers to prescribe 
 
Municipal Accounting, Auditing, and Reporting 193 
 
 isolated parts of their records, there is neither uniformity among 
 municipalities nor complete consistency within the records of a single 
 municipality. 
 
 Probably the principal defect in the accounting procedures of 
 municipalities which have not gone considerably beyond the require- 
 ments of the general statutes is the utter lack of control over expendi- 
 tures, commitments, and receipts. Various officials t are authorized to 
 draw orders upon the treasurer, and these orders are apparently pay- 
 able without even the formality of an independent check to see that 
 they are within the appropriation voted for the purpose and that the 
 municipality has received something for its expenditure. In the absence 
 of expenditure control it would be too much to ask that any control be 
 exercised over the manner in which spending agencies commit the 
 municipality to future expenditures. Such control is, however, essential 
 to the proper execution of any budget. Finally, some independent check 
 must be exercised over officials receiving public funds if complete and 
 accurate accounting records are to be obtained and if defalcations are 
 to be prevented. 
 
 Auditing. 
 
 The statutes provide two alternative procedures by which towns 
 are expected to have their accounts audited at least once a year. The 
 town may at its annual or biennial meeting elect two of its citizens 
 to serve as auditors at a compensation fixed by the town meeting, or 
 it may provide for auditing by public accountants appointed for two- 
 year terms by the budget-making authority. In addition the tax com- 
 missioner may conduct an audit of the accounts of town treasurers 
 and collectors for towns with average annual receipts from taxation of 
 less than $50,000 and charge one-half of the costs to the towns. 
 
 Unfortunately a large majority of the towns of the state have 
 chosen to have their accounts audited by elected officials. These officials 
 frequently have no training in accountancy and are awarded meager 
 compensation for their work. Under these conditions it is not surpris- 
 ing that cases of defalcation and inaccurate accounting commonly 
 occur and often persist for several years before they are discovered 
 and rectification is attempted. It is proposed that each municipality be 
 required to have an annual audit made by approved accountants and 
 that the state pay half of the cost. 
 
 Bonding of municipal officials. 
 
 With changes which we have suggested in other aspects of munici- 
 pal finance, we believe that most of the problems which now exist 
 in the bonding of municipal officers will be adequately taken care of. 
 
194 Report of Special Tax Commission 
 
 The only proposal advanced is that the face amount of bonds required 
 of officials of budgeting municipalities be determined, within the limits 
 prescribed by law, by the budget-making authorities. 
 
 Custody of municipal funds. 
 
 Unlike most other states, Connecticut does not require that any 
 special security bg offered by depositories holding public funds. Reli- 
 ance has instead been placed largely upon the good judgment of the 
 governing body of a municipality in its choice of banking institutions 
 and in a provision limiting the amount of public moneys which any 
 single municipal official may deposit in a given bank or trust company 
 to thirty per cent of the capital and surplus of the depository. 
 
 In the main we find this situation to be satisfactory. Weighty 
 objections can be raised against any of the schemes for giving special 
 security to public deposits, and the recent innovation of federal deposit 
 guarantee is tending to make such schemes at least partially obsolete. 
 Our principal objection to the present statutes governing this matter 
 is that the limitation of thirty per cent of the capital and surplus 
 of the depository applies to deposits of a single official and not to all 
 deposits of a given municipality. Furthermore, there is no penalty on 
 banks which permit the law to be violated. Recommendations for legis- 
 lation to meet these objections are made in an earlier section of this 
 chapter. 
 
 Municipal reporting. 
 
 Reliable, readable, and informative reports are indispensable to 
 effective financial administration and to intelligent control by the 
 electorate. Many different reports are now required of municipal 
 ' officials, but for the most part these are specialized reports which are 
 coordinated and interpreted by no single authority. Annual municipal 
 reports are often poorly organized, uninteresting, and uninformative. 
 They are utterly lacking in the uniformity which is necessary if com- 
 parisons are to be made between municipalities. It is therefore proposed 
 that annual municipal reports containing standardized financial sec- 
 tions be prepared under the direction of the budget-making authority. 
 
 State supervision of local finance. 
 
 The state cannot escape the responsibility to create an environment 
 within which municipal affairs may be conducted in an orderly and 
 business-like manner and to provide the necessary supervision to assure 
 compliance with the law. A fuller recognition of this responsibility 
 than now exists will tend, not to weaken, but rather to strengthen local 
 self-government. 
 
Municipal Accounting, Auditing, and Repobting 195 
 
 To make effective the institution of local self-government, it is 
 essential that every possible step be taken to build up and make articu- 
 late an informed public opinion. Most of the foregoing recommenda- 
 tions, if adopted, will contribute to this end. But this movement may 
 be furthered by directing the tax commissioner to investigate and 
 report upon the financial affairs of any municipality in the state in 
 which he has reason to think that financial practices are illegal or 
 improper. 
 
 The tax commissioner should also be kept in touch with all 
 municipal litigation upon matters pertaining to taxation and finance 
 to the end that the state's interests may be preserved and its laws 
 properly enforced. 
 
 Finally, when all measures designed to protect the credit of a 
 municipality have failed and it has defaulted upon its obligations, the 
 state, through the superior court and a receiver answering to a state 
 official, should take charge of its finances until such time as its credit 
 is restored. Recommendations for changes in the present municipal 
 receivership law are made in the following section, in which municipal 
 indebtedness is discussed. 
 
 The Commission's formal recommendations on the several sub- 
 jects covered in this chapter appear at the end of each of the major 
 divisions of the chapter. 
 
CHAPTER VIII 
 
 MUNICIPAL INDEBTEDNESS 
 
 The problem oe municipal indebtedness. 
 
 The power to incur debt is a legitimate, and perhaps indispen- 
 sable, power for the proper conduct of municipal finance. But it is 
 a privilege easily abused, to the detriment of the borrowing com- 
 munity and of neighboring municipalities and the state as well. Thus 
 the problem of municipal indebtedness does not involve the question 
 whether the power to borrow shall be granted or withheld, but rather 
 under what limitations this power shall be exercised. It was undoubt- 
 edly the latter point to which the General Assembly directed the atten- 
 tion of this Commission in instructing us to "study and inquire into 
 . the borrowing of money by municipalities." 
 
 The legislatures of this and other states have found many devices 
 by which municipalities may be restricted in the exercise of the bor- 
 rowing power. These differ in degree from mild restrictions, intended 
 principally to enforce caution, to rigid constitutional limitations which 
 can be circumscribed only with considerable difficulty if at all. The 
 most common of these limitations restricts the aggregate amount of debt 
 which can be incurred, and it is this which is usually referred to as 
 the "debt limit." 
 
 Municipal debt limitation in Connecticut. 
 Authorization oe indebtedness. 
 
 Among the restrictions which are usually mild in character are 
 those concerned with the authorization of debt. First the general power 
 to incur debt must be granted to the municipality by the state; then 
 this power must be exercised at the discretion of certain persons or 
 bodies within the municipality. 
 
 Under the terms of the general statutes the power to borrow 
 money within the debt limit is specifically granted to towns, cities, 
 boroughs, and independent school districts. 1 A fire, sewer, or other 
 special district created under the terms of the general statutes is 
 granted "the powers in relation to the objects for which it was estab- 
 lished that are necessary for the accomplishment of such objects." 2 
 
 'Gen. Stat., 1930, sees. 390, 466, 977. 
 
 2 Gen. Stat., 1930, sec. 545. See also sec. 390, which grants the power to borrow 
 
 temporarily to a fire district in a town having within its limits an incorporated 
 
 city or borough. 
 
Municipal Indebtedness 197 
 
 This is generally understood to include the power to borrow money. 
 In addition, borrowing powers, which it would be impossible to digest 
 in this report, are granted in most municipal charters and by a host 
 of special acts. 
 
 The general statutes authorize only temporary borrowing on the 
 part of unconsolidated cities and boroughs, their power to borrow on 
 long terms ■ being derived from charter provisions and special acts. 
 Consolidated and unconsolidated towns, on the other hand, may provide 
 for temporary borrowing under the provisions of section 390 ; they 
 may, through the action of a board of finance, spread unusual expendi- 
 tures over a five-year period ; s and, when they have made appropriations 
 or incurred debts exceeding ten thousand dollars, they may issue bonds 
 in serial form, the last series of which must mature within forty years 
 of the date of issue. 4 Furthermore, towns may issue refunding bonds 
 to redeem any* bonds issued under the general statutes or by authority 
 of a special act. 
 
 The procedure under which municipalities exercise such borrow- 
 ing powers as are conferred upon them is ill-defined in law. It is safe 
 to assume that in general the power to authorize the borrowing of 
 money rests ultimately with the municipal legislative body. This is, 
 in fact, the whole import of the so-called "home rule law", under 
 which most temporary borrowing is supposed to be authorized. This 
 law, which is embodied in sections 390 and 391 of the General Statutes, 
 provides for the enactment of ordinances or by-laws in a town, city, 
 or borough, covering, among other things, "the manner in which its 
 contracts involving unusual expenditures shall be made; 
 [and] the temporary borrowing of money." 6 Such ordinances or 
 by-laws are to be enacted in towns operating under the general statutes 
 at a town meeting, duly warned and held for such purpose ; in a town 
 operating under special acts, by the selectmen; 7 and in boroughs, by 
 the warden and burgesses. 
 
 When the ordinance or by-law is enacted in the first instance by 
 the town meeting, it becomes effective fifteen days after publication 
 in a newspaper having local circulation. If the enactment of the 
 ordinance or by-law is a function of the selectmen or the warden and 
 burgesses, that is, in towns operating under authority of special 
 
 'Gen. Stat., 1930, sec. 419. 
 
 * Gen. Stat., 1930, sees. 466, 467. 
 
 5 Gen. Stat., 1930, see. 471. 
 
 "It seems unlikely to us that the first of these provisions is intended to extend 
 
 to the manner in which funds for the financing of unusual expenditures are to be 
 
 raised. 
 7 This legislative power of selectmen in towns conducting their governments under 
 
 authority of special acts is often delegated by charter to the common council. 
 
198 Eepoet of Special Tax Commission 
 
 acts, it is not effective until thirty days after publication, and then 
 only in case no petition requesting submission of the ordinance to the 
 electorate and signed by not less than fifteen per cent of the registered 
 voters of the municipality has been filed with the municipal clerk. 
 If such a petition is filed within the requisite time period, the ordinance 
 or by-law is effective or not according to the dictates of the majority 
 of the electorate present at the next regular or special town meeting 
 (ordinarily the election in such towns). 
 
 What appears to be an alternative procedure for the incurrence 
 of temporary debt is provided in section 419 for towns with boards of 
 finance created under the general statutes. 
 
 Should any expenditure authorized in the budget or by the 
 town meeting be of so large an amount that the tax laid to 
 pay it would make the total tax so high as in thf judgment of 
 the board to be inconsistent with the public welfare, the board 
 may apportion the tax for such expenditure over a period of 
 not to exceed five years, and the amount apportioned each year 
 shall be thereafter included in the budget as a fixed charge 
 until such time as the total amount of such expenditure shall 
 have been paid . . . The provisions of this section shall 
 not apply to any expenditure which is to be met by the proceeds 
 of a bond issue and which shall have been authorized by vote 
 of any town at any meeting thereof. 
 
 Under this section boards of finance may borrow for periods of 
 two to five years without any authorization upon the part of the 
 electorate except such as is involved in the approval by the town 
 meeting of an expenditure which is subsequently deemed by the board 
 of finance to be of so great an amount as to require an unduly high tax 
 rate. Devoid as the statutes are of any clear definition of an unduly 
 high tax rate and of any indication of whether a "large expenditure" 
 means one or more items in the budget, the borrowing power of the 
 board of finance under this section is practically unrestrained. Only 
 the good judgment of the members of such boards is responsible for 
 the fact that this statute has been used without serious abuse. 
 
 There is one further provision under which a bond issue might be 
 authorized in certain municipalities without the approval of the legis- 
 lative body. Any municipality may vote to construct sewerage systems 
 under the terms of chapter 33a of the Cumulative Supplement. Having 
 so voted, the choice between two methods of financing — special assess- 
 ments or a bond issue — apparently rests with what is called the "legisla- 
 tive body." However, this so-called legislative body is in some cases, 
 
Municipal Indebtedness 199 
 
 not a true legislative body, but rather an executive body. The designa- 
 tion of the town council in certain towns, the common council in cities, 
 and the warden and burgesses in boroughs agrees with our concept of 
 a legislative body. But in other towns the board of selectmen is so 
 designated, and in minor municipalities, the district committee. These 
 are not truly legislative bodies in the usual sense of the word. 
 
 The foregoing have all been cases in which the authorization of 
 indebtedness, within certain broad powers granted by the state, has been 
 strictly local. But in two cases a municipality must receive the approval 
 of an outside body. 
 
 By a law passed in 1929, beach associations or other subdivisions 
 of a town, city, or borough wherein more than half of the property 
 owners are nonresidents, other than school, sewer, and fire districts, 
 must secure the approval of the major municipality within which they 
 are situated before issuing bonds "pledging the security of such associa- 
 tion." 8 
 
 The 1933 session of the General Assembly passed a law, which, if 
 broadly interpreted, constitutes a radical change in state policy with 
 respect to the authorization of municipal indebtedness. This act permits 
 the Emergency Relief Commission to approve the application of a town 
 or city to issue serial bonds. 9 This power is not expressly limited as to 
 the purpose of the bond issue, but we are advised that the attorney 
 general has ruled that it extends only to the approval of unemployment 
 relief bonds. To date there have been only three bond issues so author- 
 ized. 
 
 In addition, the Emergency Relief Commission may authorize any 
 town or city which is without resources adequate to meet the demands 
 for work relief or home relief to issue bonds, notes, or other evidences of 
 indebtedness carrying a state guarantee of both interest and principal. 1 " 
 Such indebtedness must be for unemployment relief purposes and must 
 be incurred prior to February 1, 1935. ISTone having been incurred thus 
 far, it is doubtful whether this power will be exercised under the present 
 law. 
 
 Purposes foe which debt may be incurred. 
 
 The Connecticut statutes permit the incurrence of debt for the 
 financing of any of the legitimate activities of a municipality. At 
 present, debt incurred by towns and cities for emergency work relief 
 and home relief requires the approval of the Emergency Relief Com- 
 
 8 Gen. Stat., 1930, sec. 468. 
 ' Cum. Sup., 1933, sec. 89b. 
 10 Cum. Sup., 1933, sec. 90b. 
 
200 Eepoet er Special Tax Commission 
 
 mission, but aside from this the only specific restriction is found in an 
 amendment written into the Constitution in 1877. 
 
 No county, city, town, borough, or other municipality, shall 
 ever subscribe to the capital stock of any railroad corporation, 
 or become a purchaser of the bonds, or make donation to, or 
 loan its credit, directly or indirectly in aid of any such corpora- 
 tion ; but nothing herein contained shall affect the validity of 
 any bonds or debts incurred under the existing laws, nor be 
 construed to prohibit the general assembly from authorizing 
 any town or city to protect by additional appropriations of 
 money or credit, any railroad debt contracted prior to the 
 adoption of this amendment." 
 
 This constitutional provision was obviously enacted to prevent 
 municipalities from plunging further into debt to encourage the con- 
 struction of railroads. The state not only felt constrained to go to these 
 lengths, but it further undertook to aid and encourage the retirement of 
 outstanding railroad debt. In 1903 a law was enacted authorizing the 
 selectmen of any town having a grand list of less than two million dol- 
 lars on May 1, 1903, to petition the state board of finance and control 
 for an amount of state aid for the liquidation of such debts not to exceed 
 one per cent of the railroad debt of such town outstanding on May 1, 
 1903, to be matched dollar for dollar with funds raised for the same 
 purpose by local taxation. This law has been renewed for successive 
 periods, and its present expiration date is October 1, 1943. Aside 
 from the amounts paid out by the state and matched by the towns, which 
 vary roughly from five to eight thousand dollars a year, the constitu- 
 tional amendment of 1877 is of present importance largely because it 
 prohibits the investment of any of the funds of a municipality in the 
 bonds of any railroad within or without the state. 
 
 Practically all municipalities borrow money to defray current 
 expenses as well as for so-called permanent improvements. The statutes 
 clearly indicate an intent to restrict borrowing for current expenses to 
 short-term debt, at least so far as towns are concerned. When a town 
 without a board of finance fails to lay a tax sufficient to meet its cur- 
 rent expenses, the selectmen are directed to make an additional rate 
 bill for the necessary amount. If this is still insufficient to pay current 
 expenses, the deficit is to be included in the next annual estimate of 
 current expenses. 12 
 
 In towns with boards of finance created under the general statutes, 
 the "revenue deficit" of the preceding fiscal year is to be covered in the 
 
 11 Constitution of Connecticut, Art. XXV. 
 "Gen. Stat., 1930, sees. 1204, 1205. 
 
Municipal Indebtedness 201 
 
 tax rate fixed by the board. 13 No definition of revenue deficit is 
 attempted, however, and it seems that this is generally interpreted to 
 exclude all deficits which have been financed by duly authorized bond 
 issues as well as those arising from the power of the board of finance 
 to spread "large" expenditures over a period of two to five years. Bond 
 issues may be voted when any town has made appropriations or incurred 
 debts exceeding $10,000. 
 
 From this recitation of the relevant sections of the statutes it is 
 plainly evident that borrowing is not effectively limited to capital 
 expenditures. Selectmen in towns without boards of finance may define 
 current expenses as they choose, just as boards of finance may place 
 their own interpretation upon the term "revenue deficit." Furthermore, 
 boards of finance, may decide what constitutes a "large" expenditure 
 and may spread the cost over a period up to five years. Finally, the 
 power to issue bonds is unrestricted as to purpose, with the single excep-, 
 tion of the constitutional prohibition against incurring debt to aid rail- 
 road corporations. 
 
 Since 1877, statistics on municipal indebtedness, showing the 
 amount of outstanding indebtedness at or around October 1 of each 
 quadrennial year and the purpose for which it was incurred, have been 
 collected and published by the comptroller or the tax commissioner. 
 From these statistics Table XXXVIII has been compiled to show the 
 amount of debt of towns, cities, and boroughs outstanding on October 
 1, 1912, and at the close of their fiscal years ending next prior to 
 October 10, 1932, classified according to the purpose for which it was 
 incurred. 
 
 From this table it can readily be seen that major municipalities 
 have borrowed for all of the major functions of government — for general 
 government, protection to persons and property, health and sanitation, 
 charities, education, highways and bridges, public parks, and public 
 service enterprises. Whatever may have been the amount of current 
 expense debt placed in other classifications in 1912, it is apparent that 
 such debt constituted an important part (16%) of the gross debt of 
 major municipalities in 1932. 
 
 Teems of issue. 
 
 Matueities. 
 
 Most states have seen fit to limit the terms of evidences of indebted- 
 ness in at least two respects — (1) the maximum period of years over 
 which the debt may run and (2) the maximum interest rate which may 
 
 13 Cum. Sup., 1933, sec. 61b. 
 
202 
 
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Municipal Indebtedness 203 
 
 be paid. Connecticut has experimented with both limitations. 
 
 Until a decade ago Connecticut municipalities were free to issue 
 evidences of indebtedness maturing at such time as the municipality 
 chose, subject only to special acts and to such flexible restrictions as 
 might be imposed by the bond market. But in 1923 a fundamental 
 change in policy was embodied in an act which provided that all future 
 issues of bonds authorized on or after January 3, 1923, should mature 
 in substantially equal installments beginning not later than five years 
 after issue and ending not later than forty years after issue." This law 
 has since been amended to require that the first installment shall 
 mature not later than two years from the date of issue. 10 , 
 
 As a result of this act practically all recent issues of municipal 
 bonds have been restricted to serial maturities. By acts passed in 
 1933, however, bonds coming due in a single installment may be 
 issued for the construction or maintenance of a self-supporting sewer- 
 age or waterworks system. Such bonds must be secured, not by the 
 general credit of the municipality, but by the revenues derived from 
 the system. They may mature at any time within thirty years. Sinking 
 funds sufficient to meet the interest, principal, and any other charges 
 on such bonds and to provide a safety margin of ten per cent must be 
 
 ,10 
 
 set up. 
 
 There are three other exceptions to the general rule of a forty-year 
 maximum maturity. First, there are bonds issued for terms up to 
 thirty years for the purchase or establishment of gas and electric 
 systems. Secondly, there are unemployment relief bonds, which, when 
 issued without state guarantee, must be in serial form, the first maturity 
 to come due not later than four years after issue and the last, not later 
 than fifteen years after issue and, when issued with state guarantee, 
 may apparently be issued under any terms approved by the Emergency 
 Belief Commission. Finally, the receiver of any municipality which 
 has defaulted on its outstanding obligations may borrow money by 
 means of a serial bond issue, the first installment of which must mature 
 within four years, and the last, within ten years." 
 
 These several laws, which appear to limit the maximum maturi- 
 ties of municipal bonds to forty, thirty, fifteen, and ten years respec- 
 tively, must all be interpreted in the light of section 471 of the General 
 Statutes,, which gives to towns unrestricted power to refund any out- 
 standing obligations by issuing new bonds or other obligations. This 
 section is made specifically applicable to unemployment relief bonds, 
 while the refunding of revenue" bonds for sewerage and waterworks sys- 
 
 "Fub. Acts, 1923, eh. 213. 
 
 "Pub Acta 1927 ch. 5. 
 
 "Cum. Sup!, 1933, sees.' 111b, 112b, 116b, 125b, 126b, 130b. 
 
 "Gen. Stat., 1930, sec. 525; Cum. Sup., 1933, sec. 89b, 90b, 94b. 
 
204 Keport of Special Tax Commission 
 
 terns is permitted by other sections of the statutes. No municipalities 
 operating under the general statutes are denied the right to refund their 
 general obligations. 
 
 Bate of interest. 
 
 The state has exercised a superficial control over the interest rate 
 of municipal bonds for over sixty years. Throughout this period the 
 nominal interest rate on bonds issued by towns has been limited to six 
 per cent, except for bonds issued for gas and electric systems under 
 section 525 of the General Statutes, for which the maximum rate is 
 five per cent. Only in the case of bonds issued for gas, electric, sewer- 
 age, and waterworks systems is anything said in the general statutes 
 about the sale of bonds at a discount. Other bonds may be sold to yield 
 any Tate of interest by adjustments in the selling price. 
 
 Unemployment relief bonds are in most respects subject to the 
 same limitation as to interest rates as municipal bonds issued for other 
 purposes. Here, however, there is the additional requirement that the 
 rate of interest must be approved by the Emergency Belief Commis- 
 sion. Receivers of defaulting municipalities may issue bonds without 
 restrictions as to nominal or actual interest rates. 
 
 The foregoing restrictions apply only to bonds, and in only a few 
 cases do they extend to municipalities other than towns. Short-term 
 debt may be incurred by any municipality at any rate of interest which 
 it chooses to pay. In the absence of any statutory or well-defined judi- 
 cial distinction between bonds and other negotiable evidences of indebt- 
 edness, this affords an additional escape from the interest limitation. 
 However, the courts have not hesitated to give a liberal construction 
 to the term "bonds" in instances in which it was clear that an evidence 
 of indebtedness of essentially similar character was issued to avoid 
 limitations which applied only to bonded debt." 
 
 Other terms of issue. 
 
 The issuing municipality is free to determine practically all other 
 matters concerning the terms upon which debt is incurred. Practically 
 the only restrictions set forth in the general statutes are (1) that the 
 interest on bonds issued by a town shall be payable annually or semi- 
 annually" and (2) that each municipality having a population of less 
 than 90,000 shall, upon issuing bonds, designate an incorporated bank 
 or trust company to certify the bonds and the same or another bank 
 to act as disbursing agent in the payment of interest and principal." 
 
 "City of Stamford v. Town of Stamford, 107 Conn. 596 (1928). 
 '"Gen. Stat., 1930, sec. 466. 
 20 Cum. Sup., 1933, sec. 71b. 
 
Municipal Indebtedness 205 
 
 Limitations upon amount of indebtedness. 
 
 For all practical purposes, the history of municipal debt limita- 
 tion in the state may be said to date from 1913. Prior to this time the 
 only general limitation upon the amount of indebtedness was the pro- 
 vision setting a minimum of ten thousand dollars for any bond issue of 
 a town. What the particular circumstances were which led to the enact- 
 ment of a series of maximum debt limit statutes beginning in 1913, it is 
 not particularly important to ascertain. We do not know that with the 
 outbreak of the World War there developed conditions which have pro- 
 foundly affected the financing of municipalities. Rapidly increasing 
 expenditures and growing resistance to increased taxes have combined 
 to encourage municipal borrowing. Some municipalities have had no 
 unusual problems of credit financing. Others have found it necessary 
 to make substantial public improvements, to expand greatly their expen- 
 ditures, and to borrow heavily to finance their budgets. In the aggregate, 
 municipal indebtedness has increased so steadily and rapidly that the 
 General Assembly has attempted to devise means by which such indebt- 
 edness may be controlled without unreasonably curtailing borrowing 
 for legitimate purposes. 
 
 The first general limitation on the maximum amount of munici- 
 pal indebtedness appears to have been embodied in the original "home 
 rule" law of 1913, from which sections 390 and 391 of the General 
 Statutes of 1930 developed. This statute related at first to powers of 
 cities and boroughs only. Under it, a city or borough was given certain 
 powers to be exercised upon the passage of an ordinance by the legisla- 
 tive body and its later adoption within ninety days thereafter by vote 
 of the electors of the community. Among other powers thus granted 
 was that of issuing municipal bonds "to an amount stated for a speci- 
 fied purpose or purposes, stating their general terms, description, and 
 time or times of maturity, provided the total amount of bonds and 
 other indebtedness of such city or borough shall not exceed five per 
 centum of the amount of the grand list of such city or borough." 21 A 
 similar law applicable to towns was enacted in 1915. 22 
 
 A secbnd debt limitation act was superimposed upon the foregoing 
 in 1915. This act read as follows : 
 
 No municipality or subdivision thereof shall incur any 
 indebtedness, through the issue of bonds, in excess of five per 
 centum of its grand list unless otherwise provided by special 
 act. 
 
 "Pub. Acts,- 1913, ch. 154. 
 22 Pub. Acts, 1915, ch. 319. 
 33 Pub. Acts, 1915, ch. 318. 
 
206 Repobt of Special Tax Commission 
 
 This act differed from the "home rule" law in two major respects. 
 It applied to all of what we have chosen to call minor municipalities as 
 well as to towns, cities, and boroughs, and it did not limit total indebted- 
 ness but simply forbade the issuance of bonds in excess of the debt limit. 
 Both acts were retained upon the statute books until 1923, when the 
 home rule law was amended to remove the debt limit clause. 
 
 The 1915 act has undergone numerous amendments, the last of 
 which occurred in 1931. For the most part the debt limit has been 
 relaxed, either by expanding the base upon which the limit is computed 
 or by excluding certain types of debt from its scope. 
 
 In 1919 shares of stock of insurance companies, banks, and trust 
 companies, which are assessed by the state board of equalization, were 
 made part of the local grand lists for purposes of computing the debt 
 limit. 24 This amendment was repealed in 1923, and it was further pro- 
 vided that locally assessed intangibles should be excluded from the debt 
 base. But at the same time the base of the debt limit was extended to 
 include the fair market value of tax-exempt real estate other than that 
 owned by the United States, by the state, by the county within which 
 the municipality is located, and by certain institutions of higher learn- 
 ing. 25 The character of the base upon which the debt limit is computed 
 has remained practically unchanged during the past ten years. 
 
 The gradual elimination of a considerable amount of debt from 
 the statutory limit began in 1919 and has continued without interrup- 
 tion. At present the following types of debt are completely disregarded 
 in computing the debt subject to statutory limitation: 
 
 1. Bonds issued for the supply of water; 28 
 
 2. Indebtedness incurred for the supply of gas and electricity ;" 
 
 3. Indebtedness incurred for the construction of subways and 
 underground conduits for cables, wires, and pipes; 28 
 
 4. Bonds payable solely from the proceeds of special assess- 
 ments f 
 
 5. Indebtedness incurred to anticipate that part of the state aid for 
 highways for which the municipality is to be reimbursed by 
 the state ;" 
 
 6. Bonds which are not a direct obligation of the municipality 
 issued for the establishment, construction, extension, enlarge- 
 
 24 Pub. Acts, 1919, ch. 108. 
 
 25 Pub. Acts, 1923, ch. 111. 
 
 26 Pub. Acts, 1919, ch. 108. 
 "Pub. Acts, 1921, ch. 132. 
 28 Pub. Acts, 1925, ch. 162. 
 20 Pub. Acts, 1929, ch. 270. 
 30 Cum. Sup., 1931, sec. 50a. 
 
Municipal Indebtedness 207 
 
 ment, or maintenance of self-supporting waterworks, sewer- 
 age systems, and sewerage treatment plants." 
 
 In addition to all of the foregoing acts, which tended to relax the 
 debt limit, mention should be made of an act passed in 1931 32 which 
 clarified the law by stating in terms that sinking fund assets might 
 be deducted in arriving at the indebtedness subject to statutory limita- 
 tion. This interpretation had already been placed upon the law in 1931 
 by the supreme court in the case of City of Stamford v. Town of Stam- 
 ford." It should further be noted that when the debt limit has been 
 reached, the statutes simply forbid the further incurrence of debt by 
 means of a bond issue. Even here, exception was made in 1929 for 
 bonds issued for the sole purpose of refunding outstanding bond 
 issues" and in 1933 for bonds issued with the approval of the Emer- 
 gency Relief Commission and bonds issued by a municipal receiver. 85 
 
 Aside from the removal of shares of capital stock and locally 
 assessed intangibles from the base of the debt limit in 1923, there has 
 been but a single act by which the debt limit has been tightened. This act 
 arose from the case of Russel v. Middletown City School District, 3 " in 
 which it was held that the debt limit as it existed from 1915 to 1925 
 applied to each municipality separately and independently and not to 
 the total indebtedness of all the municipalities exercising jurisdiction 
 within a given town. According to this interpretation, an independent 
 school district within a town was empowered to incur debt up to five 
 per cent of the assessed value of the tangible property within its limits 
 even though the town had issued debt up to five per cent of the assessed 
 value of the same property. Maximum indebtedness was thus deter- 
 mined, not by the amount of property securing it, but by the number of 
 overlapping districts which could be formed to incur debt. 
 
 Recognizing the unsatisfactory aspects of this situation, the Gen- 
 eral Assembly wrote into the statutes what has since been referred to as 
 the "unit rule." 37 Under this law the five per cent limit applies to the 
 aggregate debt of the town and of all municipalities within it. 
 
 The eeceiveeship daw. 
 
 The most drastic state limitation upon municipal debt operations 
 is imposed only after all others have failed and the municipality has 
 
 81 Cum. Sup., 1933, sees. 110b, 116b, 117b, 124b, 130b, 131b. 
 
 M Pub. Acts, 1931, ch. 222. 
 
 " 107 Conn. 596. 
 
 11 Pub. Acts, 1929, ch. 270. 
 
 85 Cum. Sup., 1933, sees. 89b. 94b. 
 
 M 101 Conn. 249 (1924). 
 
 "Pub. Acts, 1925, ch. 162. 
 
208 Report of Special Tax Commission 
 
 defaulted in the payment of the principal or interest due on any bond, 
 note, or other evidence of indebtedness. In such a contingency (or in 
 case a municipality fails to comply with the rules and regulations of 
 the Emergency Eelief Commission) the Emergency Relief Commis- 
 sion may apply to the superior court of the county in which the munici- 
 pality is situated, or to a judge of the superior court if the court is not 
 in session, for the appointment of a receiver. 88 
 
 A receiver operates under the direct supervision of the Emer- 
 gency Relief Commission. He exercises full supervision and control 
 over the financial affairs of the municipality, authorizes all expendi- 
 tures and commitments, incurs debt on behalf of the municipality, 
 exercises all the powers of a municipal tax collector, sues in behalf of 
 the municipality, and compromises and settles claims of or against the 
 municipality. 
 
 The section dealing with the termination of the receivership is 
 not clear to us, but careful study leads us to the conclusion that termina- 
 tion may be ordered by. the courts in any one of three circumstances : 
 (1) upon application of the Emergency Relief Commission, (2) when 
 the municipality has retired all of its indebtedness or has set aside 
 trust funds for such purpose, and (3) when, in the opinion of the court, 
 the credit of the municipality has been restored and danger of default 
 on its obligations no longer exists."" 
 
 There has as yet been no occasion for the appointment of a 
 receiver since the passage of the receivership act in 1933. 
 
 The geowth op municipal debt. 
 
 Before proceeding to a detailed criticism of existing debt limi- 
 tations, it is desirable to have in mind certain general statistics por- 
 traying the growth of municipal indebtedness. Excellent data for this 
 purpose are available in the quadrennial reports of indebtedness which 
 have been compiled since 1877. 
 
 Unfortunately, until 1912 these reports included the debt statis- 
 tics of none of the minor municipalities, and since then the only minor 
 municipalities covered have been the fire districts. The tax commis- 
 sioner has, however, voluntarily collected some limited data on the 
 indebtedness of special school districts during the last five quadrennia, 
 which are useful for general purposes. Since 1887 there has been a 
 decided tendency toward consolidation, particularly the consolidation of 
 special school districts with the town governments which occurred in 
 response to an act passed in 1909." When two governments which have 
 
 ss Cum. Sup., 1933, sec. 91b. 
 80 Cum. Sup., 1933, sec. 98b. 
 "Pub. Acts. 1909, ch. 146. 
 
Municipal Indebtedness 209 
 
 been operating independently consolidate, the resulting consolidated 
 government usually assumes the indebtedness of the two formerly 
 independent governments. If the indebtedness of both the independent 
 governments had been included in the debt statistics prior to the con- 
 solidation, the consolidation would have had no effect upon the aggre- 
 gate statistics of municipal indebtedness, but where the indebtedness of 
 one of the independent governments is included in the debt statistics 
 and that of the other is not, the consolidation necessarily increases the 
 amount of reported indebtedness. This is a factor which must be con- 
 sidered in the interpretation of the statistics presented in this chapter. 
 
 Since 1913 marks a decided change in the policy of the state with 
 respect to municipal borrowing power, it seems most informative to 
 measure the growth of municipal debt in terms of two twenty-year 
 periods, 1892 to 1912 and 1912 to 1932. In Table XXXIX the gross 
 debt and the gross debt less sinking funds are shown for all major 
 municipalities and for reporting minor municipalities. Because of 
 important consolidations of towns and cities in the first of these 
 periods, a breakdown of these figures to show the indebtedness of the 
 three constituent municipal groups — -towns, cities, and boroughs — 
 would be misleading or meaningless. 
 
 An examination of this table discloses that the indebtedness of 
 towns, cities, and boroughs, which was first reported in 1877 as 
 
 Table XXXIX 
 
 ALL REPORTING MUNICIPALITIES: GROSS DEBT AND GROSS DEBT LESS 
 SINKING FUNDS BY MAJOR AND MINOR MUNICIPAL GROUPS, 1892, 
 1912, AND 1932 
 
 (Amounts in thousands of dollars) 
 
 
 
 
 % Increase 
 
 
 % Increase 
 
 Municipal Group 
 
 1892 
 
 1912 
 
 1892-1912 
 
 1932 
 
 1912-1932 
 
 Major municipalities 
 
 
 
 
 
 
 Gross debt 
 
 20,497 
 
 42,197 
 
 105.9 
 
 156,629 
 
 271.2 
 
 Gross debt less sinking funds 
 
 i 
 
 38,699 
 
 — 
 
 143,325 
 
 270.4 
 
 Minor municipalities 
 
 
 
 
 
 
 Fire districts 
 
 
 
 
 
 
 Gross debt 
 
 i 
 
 530 
 
 — 
 
 992 
 
 87.2 
 
 Gross debt less sinking funds 
 
 i 
 
 500 
 
 — 
 
 956 
 
 91.2 
 
 School districts 
 
 
 *■ 
 
 
 
 
 Gross debt 
 
 i 
 
 2,235 2 
 
 ■ — ■ 
 
 12,147 
 
 443.5 
 
 Gross debt less sinking funds 
 
 i 
 
 1 
 
 — ■ 
 
 11,158 
 
 — 
 
 All reporting municipalities 
 
 
 
 
 
 
 Gross debt 
 
 20,497 
 
 44,962 
 
 119.4 
 
 169,768 
 
 277.6 
 
 Gross debt less sinking funds 
 
 i 
 
 41,434 
 
 — 
 
 155,439 
 
 — 
 
 Source: Tax Commissioner, Quadrennial Reports of Indebtedness, Receipts and 
 Expenditures. 
 
 1 Unreported. 
 
 "This figure was reported as the "total" indebtedness of these districts. It is 
 thought that some, but not all, sinking funds were deducted by reporting officials. 
 
210 Report of Special Tax Commission 
 
 $16,996,000, was doubled in the twenty-year period, 1892 to 1912, and 
 was nearly quadrupled in the next twenty years. The gross indebtedness 
 of fire districts increased' by only 87 per cent between 1912 and 1932. 
 This is in sharp contrast to the increase of 443 per cent in the gross 
 indebtedness of school districts, in the face of a reduction in the number 
 of districts from well over a hundred in 1912 to 42 in 1932 and of an 
 increase in the gross school debt of towns, cities, and boroughs from 
 $4,759,000 to $39,507,000. 
 
 Changes in per capita debt have been almost as marked. The major 
 municipalities alone accounted for a per capita gross debt of $26.32 in 
 1892, $37.39 in 1912, and $93.37 in 1932. But although the debt of 
 municipalities has increased rapidly in absolute figures and as compared 
 with the growth of population, the grand list has increased as rapidly, 
 if not more so. The ratios of gross debt of major municipalities to the 
 unequalized grand list of the state for the quadrennial years from 1880 
 to 1932 have been as follows: 
 
 1880 
 
 5.59% 
 
 1908 
 
 5.18% 
 
 1884 
 
 5.01 
 
 1912 
 
 4.45 
 
 1888 
 
 5.48 
 
 1916 
 
 5.07 
 
 1892 
 
 5.50 
 
 1920 
 
 4.69 
 
 1896 
 
 5.54 
 
 1924 
 
 4.59 
 
 1900 
 
 5.43 
 
 1928 
 
 4.87 
 
 1904 
 
 5.26 
 
 1932 
 
 4.84 
 
 It is interesting to compare the trends of indebtedness, population, 
 and amount of the grand list in the twenty-year period ending in 1912 
 with those of the twenty-year period ending in 1932. The first of these 
 periods was characterized by few limitations on the borrowing power; 
 the second was a period of relatively extensive limitations upon this 
 power. Dtiring the first period the indebtedness of major municipalities 
 increased less than the increase in the amount of the grand list, with 
 the result that the percentage of gross indebtedness to the grand list 
 fell from 5.5 to 4.4. During this period, moreover, indebtedness 
 increased only a little more rapidly than population, so that the per 
 capita gross indebtedness of major municipalities increased onlv about 
 $10, or from $26.32 to $37.39. 
 
 The period from 1912 to 1932 was one of unusual conditions in 
 municipal finance. War, inflation, inventions, prosperity, and depres- 
 sion combined to influence in extraordinary ways the financing of 
 municipalities. In the light of these conditions it is rather remarkable 
 that the debt burden was controlled as well as it was. However, during 
 
Municipal Indebtedness 211 
 
 this period, the gross debt of major municipalities increased 271 per 
 cent, their gross debt less sinking funds, 270 per cent, and the amount 
 of their grand lists, only 232 per cent. Consequently, the percentage of 
 gross debt to the grand list increased from 4.4 to 4.8, and the per- 
 centages of gross debt less sinking funds to the amount of the grand 
 list rose from 4.1 to 4.5. Indebtedness increased much more rapidly 
 than population during this period, the per capita gross debt less sink- 
 ing funds increasing from $34.29 to $87.80. 
 
 The fact that the grand list of the state has grown in approximate 
 proportion to municipal debt does not minimize the seriousness of the 
 problem. The grand list does not measure the true value of the wealth 
 of the state and gives no indication whatever of the willingness of tax- 
 payers to provide the required funds to service indebtedness. In recent 
 years particularly the grand list has failed as a reliable measure of the 
 growth of the debt burden, since, in an effort to bring assessments nearer 
 to the statutory standard of present true and actual value, assessed 
 valuations have been raised more rapidly than wealth has increased. 
 Many millions of dollars have been added to the grand list by recent 
 scientific revaluations. In Connecticut the grand list in 1932, the worst 
 depression year, was still higher by half a billion dollars, or 19 per cent, 
 than the grand list of 1928, the last full year of business prosperity. 
 
 How unreliable the grand list is as a measure of ability and will- 
 ingness to meet debt obligations has been forcefully brought out by the 
 experience in other states during the depression. Many municipalities 
 throughout the country have been forced into defaults even though their 
 indebtedness amounted to relatively small percentages of assessed valu- 
 ations of taxable property. Buyers of municipal bonds are turning more 
 and more from assessments to tax collections as a measure of the credit 
 risks which they assume. 
 
 JSTor do comparisons of municipal debt conditions in Connecticut 
 with those of other states warrant the assumption that there is no real 
 debt problem in this state. It is true that, when compared with the 
 ruinous use of credit by municipalities of other states, the situation in 
 Connecticut appears satisfactory. But the fact that the Connecticut 
 municipalities have not yet reached the limit of their resources, have 
 not been forced into permanent defaults, and have not yet gone to the 
 point where the market is completely closed to them does not lessen 
 the necessity of facing the conditions which are impelling them in these 
 directions. In fact, the credit disasters of municipalities elsewhere, in 
 the face of conditions which a few years ago were considered sound, 
 should indicate the necessity for immediate measures to prevent similar 
 results in our own municipalities. 
 
212 Report of Special Tax Commission 
 
 Criticism of existing law. 
 In general. 
 
 There are probably few states in the Union which have less law 
 governing municipal indebtedness than Connecticut. Connecticut law 
 on this subject has been developed largely over the last twenty years. 
 It represents the usual patchwork of legislation enacted to cope with 
 specific problems as they have arisen. There has been no attempt to 
 bring this legislation into a complete code covering all aspects of this 
 important phase of municipal finance. Some sections apply only to 
 towns, others to towns, cities, and boroughs, and still others to an 
 undefined group of "municipalities." No body of general principles has 
 been available to guide the General Assembly or to bring coherence into 
 the statutes. 
 
 In the face of this situation it is not surprising to find that a large 
 part of the law of municipal indebtedness consists of special acts, which 
 have lent validity to debt operations at the expense of further confusion 
 and obscurity. Much of the valuable time of the finance committees of 
 the General Assembly has been absorbed by these special acts, and the 
 General Assembly has been called upon to consider matters which, 
 within a general framework of state control, should be of purely local 
 concern. This situation should be rectified by means of a thoroughgoing 
 revision of existing law. 
 
 Authorization of debt. 
 
 The present general statutes are open to criticism, not only because 
 they make little or no provision for borrowing by municipalities other 
 than towns, but also because they fail to provide clearly and logically 
 the procedure by which the borrowing power shall be exercised. 
 
 The budget-making authority in towns without boards of finance 
 is not instructed to recommend how much, if any, of the budgeted 
 expenditures should be financed by means of borrowing. Whether there 
 is a board of finance or not, the budget-making authority exercises no 
 restraints under the general statutes over the legislative body in the 
 voting of bond issues or temporary indebtedness. On the other hand, 
 the legislative body in a town having a board of finance operating under 
 the general statutes is without power to determine what portion of its 
 "large" appropriations shall be spread over a. period of two to five years. 
 
 The statutory procedure by which short-term indebtedness is to be 
 incurred by unconsolidated towns is thoroughly impracticable and is, in 
 fact, generally circumvented. To call a special town meeting to pass an 
 ordinance authorizing each separate short-term debt operation is obvi- 
 ously impossible. On the other hand, a standing ordinance affords little 
 
Municipal Indebtedness 213 
 
 or no check upon such borrowings. The control which the town meeting 
 should exercise in this matter should come through the approval of the 
 budgeted expenditures and receipts. If actual receipts fall short of 
 expectations and prove inadequate to meet appropriations, the decision 
 to finance the deficit by temporary borrowing should be left to the 
 budget-making authority, which alone is sufficiently in touch with the 
 situation to determine on rational grounds the need for such borrowing. 
 
 Purposes op borrowing. 
 
 No clear policy as to the proper scope of borrowing is embodied 
 in existing law. The implication exists that debt should not be incurred 
 by towns for current expense purposes, but several avenues of escape 
 from such a limitation are offered and have been widely availed of. 
 Current expense debt has been piled up to the amount of over 25 
 million dollars and now makes up over sixteen per cent of the gross debt 
 of reporting municipalities. 
 
 In legislation affecting towns with boards of finance created under 
 the general statutes, a different policy appears in the provision for 
 spreading large expenditures over a period up to five years. Here the 
 distinction is made, not between current expenses and capital outlays, 
 but between expenditures which do or do not unduly raise the tax rate. 
 This policy is in accord with the best principles of public finance and 
 should be given further recognition in municipal debt laws. Borrowing 
 for capital expenditures is justified only when such expenditures are 
 non-recurring and hence unusual. On the other hand, , borrowing for 
 purposes other than "permanent" improvements is sometimes justified 
 if there is a reasonable presumption that expenditures for such purposes 
 will prove, non-recurrent. 
 
 Terms oe issue. 
 
 The broad refunding powers which have been granted to towns 
 and which are generally exercised in other municipalities make it 
 possible to spread an expenditure over any number of years that the 
 bond market will sanction. Granting the improbability that these 
 powers will be used for the refunding of serial issues in any but 
 the most unusual circumstances, it may still be contended that munici- 
 palities are permitted to incur debt running over too long a period. 
 
 It is sometimes argued that the maturity of a bond issue should 
 be determined by the useful life of the improvement which is pur- 
 chased with the proceeds. This may represent a term of years which 
 should not be wilfully exceeded, but fundamentally there is little 
 virtue in the doctrine. It opens a municipality to all the uncertainties 
 
214 Keport of Special Tax Commission 
 
 which pervade an attempt to predict the future. It denies to the 
 municipality any reasonable opportunity to acquire an equity in 
 improvements so financed. It overlooks the strong probability that 
 extensive additional capital outlays will be required before the use- 
 fulness of the original improvement has disappeared. It greatly 
 increases the ultimate cost of a project by adding to its original cost 
 an interest charge which at six per cent will in the end exceed the 
 principal of a forty-year serial bond issue. Finally, the terms upon 
 which a municipality borrows should be dictated by the rules of sound 
 finance and conditions in the investment market, which have only the 
 slightest relation to the purpose for which the borrowed money may be 
 needed. 
 
 It is hardly necessary to point out again that the establishment 
 of a maximum interest rate on bond issues of towns without some 
 limitation upon the discount at which the bonds can be sold is of 
 little value. It is true, of course, that the bond market is not receptive 
 to securities which are originally offered at a heavy discount, but, on 
 the other hand, a moderate discount is usually preferred either to an 
 offering at par or at a premium. No limitation at all is placed upon 
 the interest rate at which municipalities other than towns may borrow 
 nor upon the rate which the temporary indebtedness of a town may 
 carry. 
 
 The aggregate debt limit. 
 
 It is safe to say that practically the only important restriction 
 upon municipal debt is to be found in the section limiting the debt of 
 a town and all political subdivisions within it to five per cent of the 
 grand list. Unfortunately, this section is open to criticism on many 
 scores. 
 
 In the first place, the whole theory of a debt limit of this sort is 
 of questionable validity. Such a limit bears little relationship to the 
 needs of a municipality and is only roughly proportioned to its true 
 borrowing capacity. Yet it must necessarily apply uniformly if a 
 multitude of special acts is to be avoided. The result is that the limit 
 must be so arbitrary as to break down in certain circumstances or so 
 flexible as to lose a large part of its intended effect. 
 
 Debt limits may be used for either of two purposes. They may be 
 used to protect the credit of the municipality — and indirectly of other 
 municipalities of the state — by protecting the interest of its bond- 
 holders, or they may be used to protect the taxpayers of the munici- 
 pality from the burdens which they must eventually shoulder if 
 expenditures are financed out of the proceeds of loans calling not only 
 for repayment of principal but for interest as well. The ordinary ratio- 
 
Municipal Indebtedness 215 
 
 of-debt-to-assessment limit, such as we have in Connecticut, is supposed 
 to serve the first of these purposes by apportioning the power to incur 
 debt according to the value of taxable wealth. It makes no allowance 
 for the willingness of the owners of such property to pay taxes sufficient 
 to meet debt service requirements — a criterion which is given con- 
 siderable weight in establishing the credit rating of private persons. 
 Nor does the customary debt limit make any allowance for the well 
 established facts ,that assessments are made at widely varying percent- 
 ages of true value from one municipality to another and that assess- 
 ments can be and are raised and lowered within relatively wide limits 
 at the pleasure of municipal officials, sometimes for the express pur- 
 pose of altering the borrowing power. When tax-exempt property and 
 property on which taxes are delinquent are added to taxable property 
 to determine the debt limit, there is no longer even the semblance of 
 apportionment according to the ability of a municipality to meet its 
 obligations. 
 
 Furthermore, such a limit does little to protect the taxpayers of 
 a municipality from sizeable increases in the tax rate. A municipality 
 which is so fortunate as to have a low tax rate is permitted to borrow as 
 heavily as another municipality with a higher rate but with the same 
 grand list. Thus the community which could well afford to finance itself 
 out of revenues instead of loans is encouraged to saddle itself with a 
 heavy debt, which, while permitting a temporary maintenance of the 
 low tax rate, must inevitably result eventually in a much higher rate. 
 
 The ordinary debt limit places little restraint upon borrowing by 
 a municipality until debt has been incurred to an amount approaching, 
 if not equal to, the statutory maximum. There is a tendency to con- 
 sider indebtedness an evil only after the debt limit is approached or 
 exceeded, rather than to pass judgment on the merits of each issue. 
 Such incentive as there may' be to husband the margin between indebt- 
 edness and the debt limit is seldom strong, and it is probably further 
 weakened in this state by the "unit rule", under which one munici- 
 pality may find its reserve borrowing power absorbed by the debt 
 operations of less frugal municipalities within the same town. There 
 can be no doubt of the superiority of the "unit rule" over the rule 
 which obtained in this state prior to 1925, but there is still room for 
 much improvement. Any rule which allocates the borrowing power 
 of a group of independent municipalities according to the rapidity 
 with which they incur debt is inequitable and unsound on its face. 
 
 The Connecticut law has all the flexibility required for adapta- 
 tion to some 350 different municipalities and suffers the weaknesses 
 which usually accompany such flexibility. Aside from the manipulation 
 of assessments previously mentioned, the principal flexible element 
 
216 Kepobt of Special Tax Commission 
 
 in the existing law lies in the fact that additional debt may be incurred 
 after the debt limit has been reached, provided only that it is not 
 incurred through the issue of bonds. Even bonds may be issued if they 
 are used solely for the purpose of refunding outstanding bonded 
 indebtedness legally incurred or if they are approved by the Emergency 
 Eelief Commission. 
 
 Just what are and what are not bonds within the meaning of 
 the statute is a question which has been only partially settled. The 
 Supreme Court has held that the mere name which is given to an 
 evidence of indebtedness is not controlling and that an issue of seven- 
 year serial notes is essentially a bond issue." On the other hand, tax- 
 anticipation notes are not bonds. Such notes are often carried over 
 from year to year, and, in the absence of statutory regulation of 
 their issue and retirement, it is difficult to say where the line is to 
 be drawn between temporary and funded debt. But whatever may be 
 the meaning of the present law, it is a peculiar debt limit which pro- 
 hibits the further incurrence of one particular type of debt when the 
 outstanding debt of that type and of certain others has reached a given 
 figure. The electorate of a municipality is lulled into the comfortable 
 illusion that, even after the debt limit is reached, they will be carried 
 along by temporary bank loans until better times permit a less painful 
 reappraisal of debt policy. 
 
 Proposed municipal debt code. 
 Authorization oe debt. 
 
 The Commission proposes that all borrowing of municipalities, 
 except such as may be necessary under legislation designed to synchro- 
 nize tax due dates and fiscal years, and such as is allowed under 
 the terms of chapters 33a and 33b of the Cumulative Supplement 
 authorizing the issuance of revenue bonds for sewerage and water- 
 works systems, be subject to a new act supplanting practically all of 
 the present sections of the statutes which are concerned with municipal 
 debt operations. 
 
 It is suggested that all debt covered by the new act be classified as 
 either short-term or long-term debt, short-term debt to include all obli- 
 gations coming due within the fiscal year in which the debt is incurred 
 or within the next following year, and long-term debt to include all 
 other borrowings. All long-term borrowings should be authorized only 
 upon formal vote of the legislative body of the municipality, subject to 
 any further requirements of municipalities operating under special 
 acts as to submission of bond issue ordinances to the electorate. Within 
 
 City of Stamford v. Town of Stamford, 107 Conn. 596 (1928) 
 
Municipal Indebtedness 217 
 
 the general restrictions suggested hereinafter, the budget-making author- 
 ity should be free to borrow for short terms upon its own initiative. 
 
 It is already common practice for the legislative body to authorize 
 the incurrence of long-term debt by formal vote, and in this respect 
 our recommendations contemplate no substantial departure from estab- 
 lished procedure. However, we would go further than this. We are so 
 thoroughly convinced of the necessity for a more careful adherence 
 by the municipalities to a policy of substantially balanced budgets that 
 we believe the restraints imposed upon the borrowing of money should 
 be even more rigorous than those imposed upon the voting of appropria- 
 tions. Once a community has saddled itself with a heavy debt calling 
 for substantial fixed charges for debt service, the restraints upon the 
 voting of appropriations are of little avail in limiting or reducing tax 
 burdens. It therefore appears reasonable to us that no municipality 
 should be permitted to vote to incur long-term debt unless such action 
 is recommended by the board of finance. By majority vote, the legisla- 
 tive body should be permitted to authorize a smaller amount of debt 
 or none at all, but in no case should it be permitted to vote an amount 
 in excess of that recommended. 
 
 The various types of borrowing which, in our opinion, should be 
 differently restricted by new legislation are as follows :' 
 
 1. Budgetary borrowing. 
 
 2. Kon-budgetary borrowing. 
 
 a. Borrowing on account of deficiency in anticipated 
 receipts or on account of additional appropriations. 
 
 b. Borrowing in anticipation of taxes. 
 
 3. Borrowing by a municipal receiver. 
 
 Budgetary provisions eor borrowing. 
 
 When the budget is presented to the legislative body, the budget- 
 making authority should embody in it anticipated receipts from all 
 sources, including any recommendations for borrowings to be made 
 during the budget year and to be retired in any subsequent year. In act- 
 ing upon this budget, ordinances for the authorization of any long-term 
 debt would be voted upon, and an opportunity would be granted to 
 approve or reject any proposals of the budget-making authority to raise 
 funds by short-term borrowings. 
 
 It is unlikely that a municipality would exercise its borrowing 
 powers unless the failure to do so necessitated some immediate increase 
 in the tax burden over the level to which the taxpayers had become 
 accustomed. In fact, to borrow under any other circumstances would 
 be to ignore firmly established principles of public finance. But lest 
 some municipalities fail to follow the course of prudence, we propose 
 
218 Report of Special Tax Commission 
 
 that no municipality be permitted to approve a budget containing pro- 
 visions for borrowing to be made during the budget year and retired in 
 a subsequent year unless their proposed aggregate tax levy for property 
 taxes due and payable in the budget year is at least ten per cent higher 
 than their average annual levy for the three full fiscal years prior to 
 the budget year. 
 
 This proposal, while novel in some respects, is not a new and 
 untried scheme. A plan of somewhat similar character has been in suc- 
 cessful operation in Massachusetts for a decade, and it is not unlike 
 the commonly advocated provision that the first series of a serial bond 
 issue mature within one year of the date of issue. It has the great vir- 
 tue of bringing home to the electorate in summary fashion the costs 
 of borrowing, and it should therefore afford a continually effective debt 
 limit to supplement the present limit, which is an effective check upon 
 indebtedness only when borrowing capacity nears exhaustion. 
 
 non-budgetary borrowing. 
 
 Borrowing on account of failure of revenues and addi- 
 tional APPROPRIATIONS. 
 
 Borrowing which was not authorized by legislation of the budget 
 would be necessary under several circumstances. Revenues might fall 
 short of the amounts anticipated; additional appropriations might be 
 made after the fixing of the tax rate ; and the concentration of expendi- 
 tures in particular periods might necessitate tax-anticipation loans. 
 
 The first two circumstances are similar in character. What was 
 thought to be a balanced budget becomes unbalanced. Cash is not avail- 
 able for the conduct of activities which have been approved by the appro- 
 priating body. Operating departments are unable or unwilling to cur- 
 tail their expenditures proportionately. Under such circumstances the 
 municipality must either borrow or authorize a special tax, and in 
 many cases only the former alternative will afford a practicable solu- 
 tion to the problem. 
 
 When a situation arises which calls for borrowing of this sort, the 
 budget-making authority should be permitted one of two courses. It 
 should be allowed to borrow upon its own initiative on the conditions 
 (1) that the loans come due before the end of the following fiscal year 
 and (2) that an appropriation sufficient to pay off the loans at maturity 
 be included as a fixed charge in the next budget. Or the budget-making 
 authority might take the matter before the legislative body and request 
 the passage of an ordinance authorizing the incurrence of debt. This 
 would be the normal procedure when the unbalanced budget arose from 
 additional appropriations voted by the legislative body. 
 
Municipal Indebtedness 219 
 
 The same principles which govern borrowing authorized in the 
 budget should govern the legislative body in the authorization of bor- 
 rowing subsequent to the legislation of the budget. Long-term borrowing 
 should be permitted only on the condition that the tax levy be raised 
 ten per cent above the average for prior years. But when the borrowing 
 is authorized in the course of a fiscal year, the tax levy would already 
 have been made. The requirement should then be that a part of the 
 total borrowing equal to the amount, if any, by which the current year 
 levy falls short of 110 per cent of the average of the last three levies 
 (including the current year levy) ' shall be short-term borrowing. Fall- 
 ing due as it would before the end of the next fiscal year, an appropria- 
 tion for the retirement of this short-term debt would have to be 
 included as a fixed charge in the budget of the next year and would 
 ordinarily be covered in the next tax rate. This prospect should assure 
 judicious appraisal of borrowing almost as effectively as in the case 
 of borrowing authorized in the original budget. 
 
 Tax-anticipation bobeowing. 
 
 Should the recommendations of this Commission on synchroniza- 
 tion of fiscal years and tax due dates and on the allotment of appropria- 
 tions by time periods be adopted by the General Assembly, there would 
 remain little occasion for the tax-anticipation borrowing which is now 
 so prevalent among Connecticut municipalities. Nevertheless, occasion 
 might arise in which the flow of receipts and disbursements was so 
 uneven as to call for the anticipation of taxes which had been levied but 
 which were still undue and uncollected. Within limits, borrowing for 
 such purpose should be permitted at the discretion of the budget-making 
 authority. 
 
 Tax-anticipation loans should be negotiated with the express pro- 
 vision that they constitute a prior claim upon collections of a particular 
 installment of a particular tax levy. This should be a tax levy which 
 has already been made — not one to be made at some future date — and 
 a municipality should not be allowed to anticipate the collection of 
 taxes which are already due but uncollected. Moreover, a municipality 
 should not be allowed to anticipate the full amount of its taxes levied. 
 We suggest that the maximum loan be fixed at fifty per cent of the 
 uncollected portion of any given installment of taxes levied but not 
 yet due and payable. A municipality borrowing more than this amount 
 would almost certainly be embarrassed for lack of funds during the 
 period intervening between the due date of the anticipated installment 
 and the next tax due date. In fact, experience might prove that an even 
 lower percentage, say thirty, would be ample once the synchronization 
 
220 Eepobt of Special Tax Commission 
 
 of tax due dates and fiscal years and the recommended controls over 
 appropriations are established. 
 
 If, even with all of these precautions, collections should fall to 
 such low levels that tax-anticipation loans could not be completely 
 retired out of the proceeds of the tax installment against which they 
 were issued, they should constitute a prior claim against the next suc- 
 ceeding installment whether it comes in the same or the succeeding 
 fiscal year. If it were necessary to carry such loans over into such suc- 
 ceeding fiscal year — and such should almost never be the case — the 
 amount necessary for their retirement should, of course, be included 
 as a fixed charge in the budget for such year. 
 
 Mattjkities and interest bates. 
 
 . A municipality should be permitted to sell its evidences of 
 indebtedness at less than par if it so desires. However, in general, what- 
 ever may be the nominal interest rate, borrowing should not be indulged 
 in if the market will not lend money at an effective interest rate of 
 six per cent or less as determined by standard bond yield tables. In a 
 normal money market a municipality which is unable to borrow at 
 this rate is either overloaded with debt, poorly managed, or expanding 
 unwisely. There will, of course, be occasional cases where borrowing 
 is urgent and where no loan can be obtained at this rate. In such case, 
 if the laws have been conformed with in all respects, the tax commis- 
 sioner should be permitted to waive the requirement. 
 
 Bonds issued for purposes other than the acquisition, construction, 
 and reconstruction of waterworks systems should mature within thirty 
 years after issue. Because of the greater durability and slower obso- 
 lescence of waterworks systems, we do not feel obliged to recommend 
 a reduction in the forty-year maximum term now established for water 
 bonds issued as a general obligation of the municipality. 
 
 The provisions which now limit the general obligations of a 
 municipality to serial bonds unquestionably should be continued. We 
 propose however that, in place of the present requirement that the 
 series mature in substantially equal installments, there be substituted 
 a provision permitting retirement either in equal annual installments 
 or in decreasing annual installments, no one of which would be less than 
 that of any subsequent year. 
 
 The debt limit. 
 
 Were the foregoing recommendations to be put into operation, the 
 need for a maximum debt limit of the type now in force would be 
 greatly reduced. However, there would doubtless be some municipali- 
 
Municipal Indebtedness 221 
 
 ties which would still bond themselves beyond proper limits if no 
 further check were provided. We therefore propose that a maximum 
 debt limit be established, beyond which indebtedness subject to the 
 limit could not ordinarily be incurred. We propose, however, that the 
 present debt limit be abandoned in favor of a very different one. 
 
 In formulating a new debt limit we have proceeded upon the fol- 
 lowing premises: (1) each municipality exercising the power to incur 
 debt should have its own debt limit distinct from that of any other 
 municipality; (2) assessed valuation constitutes an inadequate mea- 
 sure of the need for incurring debt and of the ability and willingness 
 of a municipality to, meet the requirements of d e ht service; (3) 
 indebtedness which it can be assumed unquestionably will be serviced 
 entirely out of non-tax revenues should be excluded from the scope of 
 the debt limit; (4) indebtedness which has already been issued outside 
 the debt limit should continue to be excluded from the scope of the 
 limit, with the expectation that it will eventually disappear through 
 retirement. 
 
 To meet these requirements, we conclude that average annual 
 receipts from property taxation constitute the best base upon which to 
 compute the borrowing capacity of a municipality. Here is a base 
 which is separate and distinct for each municipality laying taxes and 
 which thus avoids all problems of overlapping districts. It constitutes 
 a measure of the ability and willingness of a municipality to meet its 
 debt obligations which is objective and reasonably accurate and not 
 subject to alteration at the whim of local officials. It is a natural corol- 
 lary to the method developed in this state for apportioning among the 
 towns the state and military taxes and state aid. 
 
 We recommend that no municipality be permitted to borrow 
 money (except under the emergency provisions to be described pres- 
 ently) which will cause that part of its net indebtedness which is 
 subject to the debt limit to exceed its total collectons of general prop- 
 erty taxes, exclusive of interest and fees, in the three last completed 
 fiscal years. Net indebtedness for the purpose of this section should 
 consist of all outstanding borrowings of money or money's worth 
 (including commitments) less sinking funds held against such indebt- 
 edness. 
 
 There should be excluded from this net indebtedness gross debt 
 and sinking funds of the following types : 
 
 1. Indebtedness incurred for the construction and maintenance of 
 sewerage and waterworks systems under the terms of chap- 
 ters 33a and 33b of the Cumulative Supplement, which is not 
 a general obligation of the municipality ; 
 
222 Report of Special Tax Commission 
 
 2. Indebtedness incurred for the purpose of supplying gas, elec- 
 tricity, and water and for the construction of subways, pro- 
 vided such indebtedness is outstanding upon the effective date 
 of the proposed amendment; 
 
 3. Indebtedness incurred subsequent to such date for the purpose 
 of supplying gas, electricity, water, and/or similar utility serv- 
 ices, provided such indebtedness is secured only by the 
 revenues from such services and by the property used in pro- 
 viding such services; 
 
 4. Indebtedness outstanding upon the effective date of the pro- 
 posed amendment, provided it has been issued under the 
 authority of a special act permitting its issue outside the debt 
 limit ; 
 
 5. Indebtedness payable solely out of the proceeds of special 
 assessments upon property specifically benefited by the expen- 
 ditures for which such indebtedness is incurred, provided that 
 all such indebtedness incurred subsequent to the effective date 
 of the proposed amendment be made payable in not more than 
 fifteen equal or decreasing annual installments ; 
 
 6. Indebtedness incurred in anticipation of the receipt of state 
 funds allotted to state aid road projects; 
 
 7. Indebtedness incurred for refunding purposes until such time 
 as the refunded bonds are retired; 
 
 8. Tax-anticipation loans ; 
 
 9. Indebtedness incurred by the receiver of a municipality which 
 has defaulted on its obligations ; 
 
 10. Bonds the issue of which we have recommended as part of the 
 program for synchronizing fiscal years and tax due dates. 
 
 There will inevitably arise emergency cases in which any debt 
 limit worthy of the name will prove too rigid for strict application. In 
 the past these situations have been handled by means of amendments 
 to the general statutes or, more frequently, by means of special acts. 
 These, we believe, can best be taken care of by means of a provision of 
 the general statutes authorizing a municipality, with the approval of 
 its budget-making authority and of two-thirds of its legislative body, 
 to apply to the tax commissioner for the appointment of an impartial 
 investigating board of three or more members. If such board in its 
 report should so recommend, the tax commissioner might then approve 
 the incurrence of debt outside the debt limit. 
 
 Newly created municipalities which had not yet collected taxes 
 for three years should be permitted to borrow up to three times their 
 average annual collections for such years as they have been in existence. 
 
Municipal Indebtedness 223 
 
 We recognize that this will still restrict them severely during the first 
 year, but this we consider one of the advantages of the proposed limit. 
 Where the proposed debt limit was clearly too rigorous, either a special 
 act or the proposed emergency board could be availed of. 
 
 In case municipalities cease to exist through consolidation, the 
 collections of all of the separate municipalities during the last three 
 fiscal years should be combined in determining the debt limit of the 
 single consolidated municipality. 
 
 In 1933 there were 94 towns having individual debt limits and 
 75 towns which shared their debt limits with other municipalities 
 within their boundaries. We have computed the approximate debt 
 limits of these 94 towns and 75 municipal groups, as they existed 
 under the present law in 1933, by taking five per cent of the tangible 
 property in their respective 1932 grand lists plus their real estate 
 exempt from taxation as reported in the 1930 Quadrennial Report of 
 Tax Exempt Real Estate. We have then compared these debt limits 
 with the approximate debt limits which would have 'existed had our 
 proposal been in effect at that time. The proposed debt limits have 
 i been computed by totaling the property tax collections for each of the 
 94 towns and for each of the other 75 municipal groups during the three 
 years ending March 31, 1933. The results of this comparison are 
 embodied in frequency distributions in Tables XL and XLI. 
 
 From these tables it may be seen that 32 of the towns with inde- 
 pendent debt limits would have had lower debt limits under our pro- 
 posal than they actually had under existing law. On the other hand, 62 
 of them would have had higher debt limits. Of the 75 municipal groups 
 
 Table XL 
 
 FREQUENCY DISTRIBUTION: PERCENTAGE RATIOS OP PROPOSED DEBT 
 LIMITS TO EXISTING DEBT LIMITS, 94 TOWNS WITHOUT MUNICIPAL 
 SUBDIVISIONS, 1932 1 
 
 Percentage ratio Number of towns Cumulative total 
 
 30 to 39.9 1 1 
 
 40 to 49.9 1 2 
 
 50 to 59.9 3 5 
 
 60 to 69.9 2 7 
 
 70 to 79.9 4 11 
 
 80 to 89.9 12 23 
 
 90 to 99.9 9 32 
 
 100. to 109.9 15 47 
 
 110 to 119.9 14 61 
 
 120 to 129.9 8 69 
 
 130 to 139.9 9 78 
 
 140 to 149.9 4. 82 
 
 150 to 159.9 8 90 
 
 160 to 169.9 2 92 
 
 170 and over 2 94 
 
 1 Includes Canton and Westbrook containing minor municipalities lying largely 
 
 in other towns. 
 
224 Eepoet of Special Tax Commission 
 
 within which a single debt limit is shared by two or more municipali- 
 ties, each of 15 groups would have had a lower aggregate debt limit 
 under our proposal than they actually had under existing law, and 
 each of the remaining 60 groups would have had a higher debt limit. 
 
 Table XLI 
 
 FREQUENCY DISTRIBUTION: PERCENTAGE RATIOS OF PROPOSED DEBT 
 
 LIMITS TO EXISTING DEBT LIMITS, 75 MUNICIPAL GROUPS, 1932 
 
 Percentage ratio Number of municipal groups Cumulative total 
 
 50 to 59.9 1 1 
 
 60 to 69.9 1 
 
 70 to 79.9 6 7 
 
 80 to 89.9 5 12 
 
 90 to 99.9 3 15 
 
 100 to 109.9 8 23 
 
 110 to 119.9 13 36 
 
 120 to 129.9 14 50 
 
 130 to 139.9 10 60 
 
 140 to 149.9 8 68 
 
 150 to 159.9 3 71 
 
 160 to 169.9 2 73 
 
 170 and over 2 75 
 
 It is probably more important to compare the actual debt situa- 
 tion of the several municipalities of the state with the proposed debt 
 limit. This comparison is made in Table XLII for all major municipali- 
 ties. The actual debt figures used in compiling this table are for total 
 indebtedness other than water, gas, and electric debt, less sinking funds 
 other than those held against water, gas, and electric debt, as they 
 were reported to the tax commissioner for the close of fiscal years 
 ending next prior to October 10, 1932. 'No allowance has been made 
 for debt which we suggest be excluded from the debt limit except the 
 public utility debt specified above. The amount of debt thus disregarded 
 is almost negligible, and it is ascertainable only at great effort. 
 
 From this table it may be seen that nine major municipalities, 
 consisting of five unconsolidated towns, one city, and three boroughs, 
 would have been over the proposed debt limit in 1932. Of these nine, 
 seven were over the existing debt limit at that time. The other two were 
 unconsolidated boroughs which had absorbed most of the statutory bor- 
 rowing power of their respective municipal groups. This indicates that 
 no serious hardship would be worked by our proposal upon any sub- 
 stantial number of major municipalities. 
 
 It is impossible on the basis of information now available to 
 make a similar comparison for all minor municipalities. The debt of 
 fire districts alone is reported to state officials. Fire, sewer, and improve- 
 ment association debt is usually small and is often issued outside the 
 present and proposed debt limits because it is payable solely out of the 
 
Municipal Indebtedness 225 
 
 Table XLII 
 
 FREQUENCY DISTRIBUTION: PERCENTAGE RATIOS OF NET DEBTS SUB- 
 JECT TO THE DEBT LIMIT TO PROPOSED DEBT LIMITS, 195 MAJQR 
 MUNICIPALITIES, 1932 
 
 Unconsolidated All major Cumulative 
 
 Percentage ratio towns Cities Boroughs municipalities total 
 
 7 6 13 13 
 
 0.1 to 9.9. ]3 1 14 27 
 
 10 to 19.9 14 14 41 
 
 20 to 29.9 15 3 18 59 
 
 30 to 39.9 23 2 1 26 85 
 
 40 to 49.9 20 4 3 27 112 
 
 50 to 59.9 20 2 1 23 135 
 
 60 to 69.9 11 4 2 17 152 
 
 70 to 79.9 16 3 2 21 173 
 
 80 to 89.9 7 1 2 10 183 
 
 90 to 99.9 3 3 186 
 
 100 to 109.9 2 1 3-189 
 
 110 and over 3 3 6 195 
 
 Total 154 20 21 ' 195 
 
 proceeds of special assessments or because it is water debt. From 
 such figures as we have, it appears that only the school districts — and 
 by no means all of them — would be seriously affected by the debt limit 
 which we propose. These districts, of which only 32 now remain, can 
 be cared for by means of separate legislation. 
 
 The objection will doubtless be offered that the proposed debt 
 limit will encourage heavier taxation and consequent extravagance as a 
 means of increasing borrowing capacity. We anticipate no such unfor- 
 tunate result. Indebtedness is apt to be incurred by extravagant munici- 
 palities, but only because extravagant habits are fostered by the prospect 
 of spending money without raising taxes. Indebtedness is run up 
 because of the failure to lay sufficient taxes ; there is no real- danger 
 that taxes will be increased as a means of increasing borrowing power 
 when a dollar must be raised in taxes for every increase of three 
 dollars in the debt limit. Only when a pressing need for borrowing 
 exists will such an expensive process be endured. And when such a 
 real need exists, it is unlikely that any debt limit Would succeed in 
 holding a municipality in check, least of all the frail limit which now 
 exists. 
 
 Municipal eeceiveeship. 
 
 Fortunately, Connecticut has not yet had occasion to put the 
 municipal receivership act to the test of practical application. We are 
 convinced, however, that it should be retained as a means of coping 
 with a case of default should it arise. In the main, the present act 
 impresses us as a reasonably complete and well-conceived plan for 
 
226 Repoet of Special Tax Commission 
 
 handling such a situation. We would change it only in two respects. 
 
 In the first place, we would transfer from the Emergency Relief 
 Commission to the tax commissioner the supervisory powers and duties 
 which it now exercises over municipal receivers. The Emergency Relief 
 Commission is intended to be a temporary body, whereas municipal 
 defaults may occur at any time. Moreover, the Emergency Relief Com- 
 mission is set up for a specialized purpose, which is only indirectly 
 related to many aspects of municipal finance. On the other hand, the 
 municipal tax division of the tax commissioner's office is constantly in 
 touch with local finance and admirably equipped for supervisory duties. 
 
 Secondly, we would enlarge the powers of the receiver to permit 
 him, with the approval of the superior court and under the usual 
 state supervision, to make appropriations and lay taxes. At present 
 a receiver can secure funds for the financial rehabilitation of a munici- 
 pality only by the good graces of the legislative body of the municipality 
 or by issuing bonds. Obviously, the refunding of debt can afford only 
 partial relief, and in some cases it might well prove impossible to do 
 even this. The only remaining recourse is a tax levy, and the receiver- 
 ship should not be handicapped by the unwillingness of the municipal- 
 ity to extricate itself in this unpleasant but effective manner. 
 
 Othee peovisions. 
 
 In addition to the foregoing, the law governing municipal 
 indebtedness should cover a number of matters which need only brief 
 comment or none at all. There should be provisions covering the publi- 
 cation of ordinances authorizing the issue of long-term debt, the adver- 
 tisement and sale of bonds, the segregation of proceeds of bond issues 
 to insure their use for the intended purposes, the replacement of lost or 
 destroyed bonds, the contesting of bond or note issues, and the enforce- 
 ment of the law by appropriate legal proceedings. These matters will 
 be dealt with in the bill relating to municipal indebtedness which the 
 Commission will submit to the General Assembly. 
 
 Summary and recommendations. 
 
 It is generally accepted governmental policy to grant to munici- 
 palities the right to borrow money only within more or less rigid limita- 
 tions imposed by the state. In Connecticut these limitations have taken 
 several forms, but the only ones of much present importance are (1) 
 the restriction of municipal bonds largely to serial issues with a 
 maximum maturity date of 40 years and (2) the prohibition of any 
 further bond issues when the aggregate indebtedness of a town and all 
 
Municipal Indebtedness 227 
 
 other political subdivisions within the town has reached an amount 
 equal to or in excess of five per cent of the grand list. 
 
 The existence of these measures of state control has not prevented 
 a rapid growth of municipal indebtedness. The gross indebtedness of 
 towns, cities, and boroughs increased by 106 per cent from 1892 to 
 1912, a period during which the municipalities were free to borrow 
 almost at will, and by 271 per cent from 1912 to 1932. The gross debt 
 less sinking funds of all reporting municipalities now amounts to 155 
 million dollars and, exclusive of any debt retirement, imposes annual 
 charges upon the municipalities in excess of 7 million dollars. In spite 
 of the fact that there have been almost no cases of actual default among 
 Connecticut municipalities, it is obvious that they are struggling under 
 a heavy burden of indebtedness, which must be brought under better 
 control if substantial relief from the burden of property taxes is to 
 be effected. 
 
 The ,present law governing municipal indebtedness is inadequate 
 to deal with the problem. It is vague, incomplete, and lacking in con- 
 sistent principles. The statutory provisions under which indebtedness 
 is supposed to be authorized are not generally understood and seem to 
 be commonly abrogated or circumvented by special acts. Borrowing is 
 permitted for terms which are generally far too long, and no real 
 control is exercised over interest rates. 
 
 But the principal criticism of the present law is that it does not 
 embody an effective debt limit. The present debt limit is highly 
 arbitrary; it bears no relationship to need and only a slight relation- 
 ship to ability and willingness to service indebtedness. Assessed valua- 
 tions may be and are varied within wide limits without any change in 
 the value of taxable property. Property upon which taxes are delinquent 
 and even tax-exempt property may be included in the grand list for 
 the computation of the debt limit. 
 
 In 75 towns the debt limit is shared by two or more municipalities 
 with the anomalous result that borrowing power is allocated according 
 to the rapidity with which debt is incurred. Especially among members 
 of these municipal groups but also in other towns, the debt limit does 
 not exercise continuous control over indebtedness but is truly effective 
 only when borrowing power nears exhaustion. Even then the 
 power to issue evidences of indebtedness other than bonds continues 
 indefinitely. 
 
 The Commission proposes that most of the present law governing 
 municipal indebtedness be superseded by new legislation. We suggest 
 that the borrowing of money require in every case the approval of the 
 budget-making authority and that, in all cases involving the borrowing 
 of money to be repaid in part or in full after the end of the next 
 
228 Eepoet of Special Tax Commission 
 
 succeeding fiscal year, the further consent of a majority of the legis- 
 lative body be required. 
 
 Any anticipated borrowing to be made in one year and retired 
 in some succeeding year should be included among the estimated 
 receipts as listed in the budget. At the annual meeting at which the 
 budget is legislated upon, these budgeted borrowings as recommended 
 by the budget-making authority should be authorized, reduced, or re- 
 jected, but not increased by the legislative body. We further urge that 
 borrowing of this sort be permitted only in case the levy of property 
 taxes as proposed in the budget and approved by the legislative body 
 is at least ten per cent higher than the average annual levy for the 
 past three years. This proposal embodies one of the most firmly estab- 
 lished principles of public finance — -that borrowing should be resorted 
 to only to finance unusual, non-recurring expenditures. Its adoption 
 would assure the municipalities of continuous and effective control 
 of indebtedness. 
 
 Borrowing not authorized in the budget would take two forms. 
 First there would be borrowings to come due in a following fiscal year 
 necessitated by the failure of revenues to amount to the estimates 
 embodied in the budget or by the making of additional appropriations 
 after the fixing of the tax levy; secondly there would be borrowing 
 in anticipation of taxes levied but not yet due. 
 
 Borrowings of the first type are essentially similar to those 
 authorized in the budget and should be subject, insofar as possible, 
 to similar controls. We therefore propose that a certain portion of 
 such borrowings take the form of short-term debt which must be 
 retired in the following fiscal year and covered in the tax rate for 
 such year. The amount of this portion should be determined by sub- 
 tracting the amount of the current year tax levy from 110 per cent 
 of the average of the last three levies preceding the date upon which 
 the borrowing is authorized. 
 
 Tax-anticipation borrowing should be limited to not more than 
 fifty per cent of the amount of taxes levied but as yet not due and 
 not collected. Tax-anticipation notes should be issued against a speci- 
 fied installment of a tax levy and should constitute a prior claim to 
 collections on such installment. 
 
 The Commission further proposes that there be retained a maxi- 
 mum debt limit but in quite different form from the present. In place 
 of the grand list we would substitute property tax collections as a 
 measure of borrowing power. Such a debt limit would be separate and 
 distinct for each separate municipality; it would afford a measure 
 of both ability and willingness to pay taxes which is objective as 
 contrasted with the present subjective measure resting on assessments 
 
Municipal Indebtedness . 229 
 
 bearing widely varying ratios to true values; it is a logical corollary 
 to the present method of distributing the state, military, and county 
 taxes and state aid. There is no danger, in our opinion, that such 
 a debt limit would encourage extravagance as a means of increasing 
 borrowing power. 
 
 In recommending a debt limit, the Commission has carefully con- 
 sidered the existing indebtedness of each municipality of the state. On 
 the "basis of this study it has concluded that a debt limit equal to the 
 total collections of general property taxes during the three last com- 
 pleted full fiscal years would prove satisfactory to all except a few 
 minor municipalities. These few minor municipalities can be cared 
 for by means of separate legislation. 
 
 With respect to the authorization of borrowings we recommend,: 
 
 That no borrowings of money by a municipality be permitted 
 except upon the recommendation of the budget-making authority; 
 
 That all long-term borrowings (borrowings coming due beyond 
 the end of the fiscal year next succeeding the fiscal year in which 
 they are made) further require the passage by majority vote of the 
 legislative body (subject to any requirements of a municipality oper- 
 ating under special acts as to approval by electors by ballot or other- 
 wise) of an ordinance stating the purpose for which the debt is 
 incurred, the maximum amount of the debt so authorized, the maxi- 
 mum interest rate which the debt shall bear, the maximum period 
 within which it will mature, and the status of the debt with respect 
 to the debt limit; 
 
 That all short-term borrowings the proceeds of which are included 
 among the anticipated receipts listed in the budget as recommended 
 by the budget-making authority require the authorization by majority 
 vote of the legislative body ; 
 
 That all other short-term borrowings be authorized by action of 
 the budget-making authority. 
 
 With respect to budgetary provisions for borrowing we recom- 
 mend: 
 
 That only such borrowings as are to be made in the budget year 
 and retired in a subsequent fiscal year be included among the antici- 
 pated receipts listed in the budget; 
 
 That the legislative body, by majority vote, be permitted to 
 authorize an amount of borrowing equal to or less than that recom- 
 mended by the budget-making authority in the budget; 
 
 That the budget-making authority be permitted to recommend, 
 and the legislative body to approve, borrowings covered in the budget 
 only if the amount of the property tax levy necessitated by the appro- 
 priations approved in the budget exceeds by at least ten per cent the 
 
230 Eepoet of Special Tax Commission 
 
 average annual levy of property taxes for the last three full fiscal 
 years prior to the budget year. 
 
 With respect to borrowing not covered in the budget, we recom- 
 mend: 
 
 That, when borrowing unauthorized in the budget is made because 
 of the failure of anticipated revenues or because of additional appro- 
 priations, so much of such borrowing shall come due before the end 
 of the next fiscal year as shall represent the amount, if any, by which 
 the current year property tax levy falls short of 110 per cent of 
 .the average of the last three levies (including the current year levy) ; 
 
 That the issue of tax-anticipation notes be permitted only against 
 uncollected taxes levied but not yet due nor collected and to an amount 
 not in excess of fifty per cent of such taxes; 
 
 That all tax-anticipation borrowings be evidenced by notes speci- 
 fying the particular installment of taxes against which they are issued 
 and that the proceeds of such installment be devoted in the first instance 
 to retirement of such borrowings; 
 
 That, in case an installment of taxes proves insufficient to retire 
 the tax-anticipation notes issued against it, such notes be made a prior 
 lien upon the next installment of taxes payable to the municipality. 
 
 With respect to borrowings of all types we recommend : 
 
 That a maximum maturity of thirty years be established for all 
 evidences of indebtedness of a municipality except water bonds and 
 bonds issued by a municipal receiver; 
 
 That a maximum maturity of forty years be permitted for bonds 
 issued for the . construction of waterworks systems when such bonds 
 constitute a general obligation of the municipality; 
 
 That there be retained the present provisions limiting the 
 maturity of bonds issued by a receiver to ten years and requiring that 
 all municipal bonds except such as are issued under the provisions of 
 chapters 33a and 33b of the Cumulative Supplement be, serial in form; 
 
 That a municipality be required to retire its serial issues in equal 
 or decreasing annual installments beginning not later than two years 
 after the date of issue; 
 
 That no municipality be permitted to borrow at an effective rate 
 of interest (as determined by standard bond yield tables) in excess 
 of six per cent except with the written consent of the tax commissioner ; 
 
 That the debt limit be fixed at the amount of all collections of 
 general property taxes for the last three full completed fiscal years; 
 
 That no municipality be permitted to borrow money which will 
 cause that part of its net indebtedness which is subject to the debt 
 limit to exceed the debt limit and that net indebtedness be defined as 
 
Municipal Indebtedness 231 
 
 all outstanding borrowings of money or money's worth (including 
 commitments) less sinking funds held against such borrowings ; 
 
 That the following types of indebtedness be excluded from the 
 terms of the debt limit : 
 
 1. Indebtedness incurred for construction and maintenance of 
 sewerage and waterworks systems under the terms of chapters 
 33a and 33b of the Cumulative Supplement, which is not a 
 general obligation of the municipality ; 
 
 2. Indebtedness incurred for the purpose of supplying gas, elec- 
 tricity, and water and for the construction of subways, pro- 
 vided such indebtedness is outstanding upon the effective date 
 of the proposed legislation ; 
 
 3. Indebtedness incurred subsequent to such date for the purpose 
 of supplying gas, electricity, water, and/or similar utility serv- 
 ices, provided such indebtedness is secured only by the revenues 
 from such services and/or by the property used in providing 
 such services; 
 
 4. Indebtedness outstanding upon the effective date of the pro- 
 posed legislation, provided it has been issued under the 
 authority of a special act permitting its issue outside the debt 
 limit ; 
 
 5. Indebtedness payable solely out of the proceeds of special 
 assessments upon property specifically benefited by the 
 expenditures for which such indebtedness is incurred, pro- 
 vided that all such indebtedness incurred subsequent to the 
 effective date of the proposed legislation be made payable in 
 not more than fifteen equal or decreasing annual installments ; 
 
 6. Indebtedness incurred in anticipation of the receipt of state 
 funds allotted to state aid road projects; 
 
 7. Indebtedness incurred for refunding purposes until such time 
 as, the refunded bonds are retired; 
 
 8. Tax-anticipation loans; 
 
 9. Indebtedness incurred by the receiver of a municipality which 
 has defaulted on its obligations ; , 
 
 10. The bonds recommended to be issued as part of the program 
 for synchronizing fiscal years and tax due dates. 
 
 That in case of an emergency the budget-making authority with 
 the approval of two-thirds of the legislative body be permitted to apply 
 to the tax commissioner for the appointment of an investigating board 
 of three members and that, upon the recommendation of such board. 
 
232 ' Eepoet of Special Tax Commission 
 
 the tax commissioner be permitted to approve the borrowing of money 
 in excess of the established debt limit ; 
 
 That the present supervisory powers of the Emergency Relief 
 Commission over municipal receivers be transferred to the tax commis- 
 sioner ; 
 
 That a municipal receiver, with the approval of the superior court 
 and of the tax commissioner, be empowered to make appropriations and 
 lay taxes ; 
 
 That the proceeds of any long-term borrowing be segregated in a 
 separate deposit account to be used only for the purposes designated 
 in the authorizing ordinance unless otherwise provided by subsequent 
 ordinance ; 
 
 That the bonds of all municipalities be certified by an incorpo- 
 rated bank or trust company and that an incorporated bank or trust 
 company be appointed to act as disbursing agent in the payment of 
 interest and principal of such bonds; 
 
 That all bonds of a municipality be advertised and sold according 
 to provisions specified by law. 
 
PART III 
 
 THE PRESENT SYSTEM OF STATE AND LOCAL TAXES 
 
CHAPTER IX 
 
 THE GENEEAL PEOPEETY TAX: EXEMPTIONS 
 
 KELATION OF THE GENERAL PEOPEETY TAX TO THE TAX SYSTEM. 
 
 The general property tax, in contrast to special property taxes, 
 is imposed by law at a uniform rate within each taxing jurisdiction in 
 the state upon all property except that which is specifically exempt by 
 statute. Prior to 1915 the state tax, the military tax, and the county 
 tax were definitely general property taxes levied by the state and the 
 counties. The total amount of each of these three taxes was appor- 
 tioned among the towns according to the assessed valuation of prop- 
 erty as equalized by the state board of equalization. When in 1915 the 
 General Assembly changed the basis of apportioning these taxes from 
 assessed valuation to the three-year average annual receipts from taxa- 
 tion, these taxes became technically and legally taxes upon the towns 
 rather than taxes imposed directly upon property. This change in the 
 method of apportionment, however, did not affect the essential char- 
 acter of these taxes, and it is not inaccurate to consider them general 
 property taxes now, especially when from 80 to 90 per cent of the 
 income of the towns with which these taxes are paid is derived from 
 general property taxes. 
 
 In Connecticut, as in all other states, the general property tax 
 provides a larger amount and a larger proportion of the total state 
 and local revenues than any other single tax. Sixty-three million 
 dollars were raised in Connecticut from the general property tax in 
 1928, and seventy-one millions, in 1932. This tax in 1932 yielded 71 
 per cent of all state and local tax revenues and 61 per cent of all state 
 and local revenue receipts. It provided the municipalities with 81 per 
 cent of their revenue receipts, the counties with 56 per cent, and the 
 state with 5 per cent. 
 
 American governments, moreover, depend almost entirely upon 
 the general property tax for the elasticity of their revenue systems. 
 It is habitual to maintain without change during relatively long periods 
 the rates of practically all taxes except the general property tax, even 
 though expenditures continuously vary in amount during these periods. 
 The general property tax rates, on the contrary, are adjusted each year 
 according to the budgetary revenue requirements of the governments 
 concerned. Balancing of municipal budgets, in particular, would be 
 immensely more difficult were the general property tax not available 
 
234 Repobt of Special Tax Commission 
 
 to bridge the gap between revenues from other sources and the total 
 revenues required. 
 
 What is now the general property tax was originally practically 
 the entire state and local tax system. In meeting taxation problems as 
 they developed during the years, the General Assembly has made 
 changes in the tax laws almost continuously. The property tax itself 
 has passed through many revisions, some of which were drastic in 
 character. Taxes supplementary to the general property tax have been 
 developed. Even the new taxes have been related to the general prop- 
 erty tax, which has been the predominant element of the state and local 
 tax system continuously during the history of the state. Now as always, 
 therefore, the general property tax is important, not only because of 
 the revenues it produces and because of the elasticity of its revenues, 
 but also because it is the foundation upon which the state and local 
 tax system rests. 
 
 There is no immediate likelihood that the general property tax 
 will assume a position of lesser importance in state and local taxation. 
 If, therefore, the people are to understand fully the taxation problems 
 of the state, and if revision of the tax system is to proceed along sound 
 lines, attention must be directed at the outset to the problems of the 
 general property tax. 
 
 All peopebty taxable unless specifically exempted. 
 
 Connecticut has had a general property tax only since 1851. 
 Prior to that year only such property as was declared taxable by the 
 statute was taxed. All other property was exempt. In 1851 provisions 
 were written into the statutes which made all property taxable except 
 such property as was declared by statute to be exempt. Although the 
 statutes do not so state in terms, comprehensive statutory definitions 
 resiilt in making all real and personal property taxable unless specifi- 
 cally exempt. 1 
 
 Exemptions under the general property tax are brought into 
 prominence as a major problem, first, because they represent excep- 
 tions to the general purpose and theory of the tax, and, secondly, 
 because liberal exemptions threaten the integrity of the general prop- 
 erty tax itself. Connecticut, like all other states, has exempted many 
 different kinds of property from the general property tax. For purposes 
 of analysis all exemptions from the Connecticut property tax may be 
 classified as (1) illegal exemptions, (2) technical exemptions, and (3) 
 true exemptions. 
 
 ^en. Stat., 1930, sec. 1147; Cum. Sup., 1933, sec. 319b. 
 
The General Property Tax: Exemptions 235 
 
 Illegal exemptions. 
 
 Illegal exemptions are occasionally openly granted by the munici- 
 palities to encourage the location of industrial concerns in the towns 
 granting the exemptions. These exemptions are without authority of 
 law. Although the general statutes recognize the existence of such 
 exemptions in several sections, 2 they do not authorize them, and the 
 attorney general rendered an opinion as far back as 1907 holding them 
 illegal. Statistics of tax-exempt property compiled by the tax commis- 
 sioner indicate that the exemptions of this type are gradually being 
 eliminated. The last quadrennial report of the tax commissioner, cov- 
 ering the grand list of 1929, showed that only six towns were then 
 allowing these exemptions and that the value of the property so 
 exempted amounted to only $l,23Y,0T8. a Preliminary reports indicate 
 that in 1933 three towns granted industrial exemptions totaling 
 $361,551. 
 
 Technical exemptions. 
 
 Certain types of property have been exempted from the general 
 propertytax only because the General Assembly has enacted laws taxing 
 these properties in other, and what were considered to be more effective, 
 ways. Exemption of these properties from the general property tax 
 is only a technical exemption. The properties are in effect taxed even 
 though they are specifically exempt from the general property tax. 
 
 Property technically exempt by statute includes dogs of the value 
 of $100 or less, choses-in-action registered with the state treasurer, 
 shellfish grounds lying exclusively within the jurisdiction of the state, 
 the operative property of transportation and communication companies, 
 the personal property of corporations paying taxes on their stock, the 
 moneys, credits, and franchises of miscellaneous corporations, stocks 
 and bonds of certain public service corporations, stocks of corporations 
 all of whose property is taxed in the state, money on hand and on 
 deposit, mortgages secured by Connecticut real estate up to the amount 
 of the assessed value of real estate, tree-growth on classified timberland, 
 money or property actually invested in merchandise or manufacturing 
 carried on out of the state, bank deposits and other property situated 
 in another state and taxed therein, not including loans at interest made 
 by residents of this state to residents of other states, and, in practice 
 if not expressly by statute, stocks of all corporations except domestic 
 banks, trust companies, and insurance companies. 4 
 
 T For example, Gen. Stat., 1930, sees. 1192, 1260. 
 
 8 Tax Commissioner, Quadrennial Statement of Real Estate Exempted from Taxa- 
 tion, 1930, pp. 5, 90. 
 
 4 Gen. Stat., 1930, sees. 1148, 1153, 1163, 1174, 1175, 1189, 1277, 1307, 1337, 3257, 
 3345. 
 
236 Keport of Special Tax Commission 
 
 Technical exemptions involve problems of methods of taxation 
 rather than of exemption policy. They are not concerned with the 
 encouragement of what are considered meritorious activities but with 
 the ways and means by which particular types of property may be 
 most effectively taxed. 
 
 True exemptions. 
 
 In general. 
 
 By true exemptions we mean those exemptions granted by law to 
 particular properties because of their character, ownership, or use. It is 
 these exemptions which involve problems of the policy of exempting 
 property from taxation. Within this classification of exemptions are, 
 first, those properties exempted on the ground that they are used for 
 public purposes, ranging from property owned and used by governments 
 themselves to privately owned property used for purposes considered to 
 be public in character ; secondly, the property of persons exempted in 
 consideration of services rendered to government or physical limitations 
 making the payment of taxes a hardship, including exemptions granted 
 to war veterans and blind persons; and, finally, property exempted on 
 the theory that taxation should not deprive persons of the means of a 
 livelihood, including the tools of mechanics and the wearing apparel 
 and food of families. 
 
 Property owned and used by governments. 
 
 All property belonging to or held in trust for the United States or 
 the state government or, with a few minor exceptions provided for in 
 the general statutes, the counties and the municipalities is exempt from 
 property taxation. Exemptions of this character extend to property of 
 the Connecticut National Guard, property of volunteer fire companies 
 receiving annual appropriations from their respective towns, and any 
 property furnished by the owner to a municipality for public purposes 
 at a nominal charge for its use." 
 
 Exemption of property used for governmental purposes also 
 includes certain securities issued by governments of all grades. While 
 for constitutional reasons all securities issued tax-free by the state or 
 its political subdivisions are in fact exempt, the general statutes limit 
 the exemption to (1) those issued after April 1, 1917, (2) any bonds 
 issued tax-free by the state prior to this date, and (3) bonds of munici- 
 palities issued to aid the construction of five railroads in the state.' 
 Federal securities are also exempt for constitutional reasons. 
 
 5 Gen. Stat., 1930, sec. 1163, subdivisions (1) to (6); Cum. Sup., 1933, sec. 322b. 
 "Gen Stat., 1930, sec. 1163, subdivisions (38), (39), sec. 1176. 
 
The General Peopeety Tax: Exemptions 237 
 
 , Although the property of a county or a municipality is exempt as 
 a general rule wherever it may be located, the statutes provide for the 
 taxation of 'certain properties of these governments under certain condi- 
 tions. Land owned by any municipal corporation, including a county, 
 for the purpose of creating or furnishing a supply of water and located 
 in another municipality is taxable by the municipality in which it is 
 situated at the average assessed valuation per acre of improved farm 
 land unless the inhabitants of the municipality in which it is situated 
 have the right to use and do use the water supply on the same terms as 
 the inhabitants of the municipality owning the land. 7 Land owned and 
 occupied by one municipality for sewage disposal purposes and located 
 in another municipality is taxable by the second municipality on its 
 fair valuation for agricultural purposes. 8 The property of a town or 
 city used without direct profit to the owning municipality for the pur- 
 poses of an airport and located in another town is taxable by the town 
 in which it is situated unless such town has the same privilege as to 
 the use of the airport as the municipality owning it. 9 
 
 While all property belonging to or held in trust for the state is 
 exempt from taxation, the state has recognized the claim of towns within 
 which certain types of state property are located for reimbursement 
 for the loss of taxes on such properties. The state pays annually to 
 these towns grants in lieu of taxes on correctional institutions, on hospi- 
 tals for the tubercular, insane, and feeble-minded, on fish hatcheries, on 
 game and forest reserves, on state parks, on military camps, on Fitch's 
 Home for Soldiers, on lands under the jurisdiction of the Veterans' 
 Home Commission, and on lands owned by the state and leased by it for 
 private use. The grant to each town amounts to the taxes which would 
 have been laid upon the land alone if it were assessed at the average 
 assessed value of similar land but not in excess of the average assessed 
 value of improved farm land in the town. 10 
 
 Peivately owned peopeety used' foe quasi-public pueposes. 
 
 Privately owned property must conform to a number of statutory 
 conditions to be eligible for exemption. In most cases it must be used 
 by organizations formed for the public benefit. In general it must be 
 used exclusively for the purposes on account of which the exemptions 
 are granted. Certain exemptions are conditioned upon no officer, mem- 
 ber, or employee of the organization applying for exemption receiving 
 
 'Gen. Stat., 1930, sec. 1157. 
 'Gen. Stat., 1930, sec. 1154. 
 "Gen. Stat., 1930, sec. 1155. 
 10 Gen. Stat., 1930, sec. 1103; Cum. Sup., 1933, sec. 316b. 
 
238 Kepoet of Special Tax Commission 
 
 now or in the future any pecuniary profit other than reasonable compen- 
 sation for services from the operations of the property exempted. 
 
 Subject to one or more of these conditions there is exempted from 
 taxation in whole or in part the property of the following organizations : 
 (1) Connecticut corporations organized exclusively for scientific, edu- 
 cational, literary, historical, and charitable purposes; (2) Connecticut 
 agricultural and horticultural societies receiving reimbursements from 
 the state for cash premiums given at exhibitions; (3) property used for 
 cemetery purposes; (4) churches, schools, parish houses, orphan asy- 
 lums, children's homes, reformatories, infirmaries, and clergymen's 
 dwellings of religious organizations; (5) property of hospitals and 
 sanatoria receiving state appropriations; (6) property, except real 
 estate affording an annual income of more than six thousand dollars, of 
 the privately endowed institutions of higher education in the state; 
 (7) property of the American Legion and its posts, of the Grand Army 
 posts, and of any bona fide organization of honorably discharged war 
 veterans." 
 
 Property op soldiers, sailors, and the blind. 
 
 Limited exemptions are granted to active or honorably discharged 
 soldiers, sailors, and marines in consideration of their services to govern- 
 ment and to blind people in needy circumstances on account of their 
 physical handicaps. Disabled soldiers, sailors, and marines are exempt 
 from taxation upon property of a value ranging from $1,500 to $3,000, 
 the amount of the exemption varying as the disability rating of the 
 federal government increases from 10 to 75 per cent." Under certain 
 conditions too detailed to warrant full description a $1,000 exemption 
 is granted to active or honorably discharged soldiers, sailors, and 
 marines, or their immediate relatives. 18 Blind people in needy circum- 
 stances are exempt on $3,000 of property." 
 
 Property constituting a minimum op subsistence. 
 
 Certain exemptions are allowed by statute apparently on the theory 
 that the general property tax should not apply to the property of a per- 
 son required to maintain a minimum level of subsistence. These exemp- 
 tions apply to fuel and provisions for family use, wearing apparel, $500 
 of household furniture, $200 invested in private libraries, $25 of radios 
 
 "Gen. Stat., 1930, sees. 1163, 1173, 1968, 1969. 
 
 13 Gen. Stat., 1930, sec. 1163, subdivision (18) ; Cum. Sup., 1933, sec. 323b. 
 
 "Gen. Stat., 1930, sec. 1163, subdivisions (18) to (23); Cum. Sup., 1933, sees. 
 
 324b, 325b. F 
 
 "Gen. Stat., 1930, sec. 1163, subdivision (17). 
 
The General Property Tax: Exemptions 239 
 
 and musical instruments, and $25 of watches and jewelry. Exemptions 
 are also granted on tools owned by a mechanic or a farmer up to $200 
 and on fishing apparatus used in the business up to the same amount. 
 A limited amount of the inventories of farmers is exempt, including 
 $100 of sheep' and angora goats, $50 of swine, $25 of poultry, and 
 "produce of a farm, actually grown, growing or produced during the 
 season next preceding assessment day, including colts, calves and lambs, 
 while owned and held by the producer or by a co-operative marketing 
 corporation . . . when delivered to it by such producer." 16 
 
 Statistics. 
 
 Since 1910 the tax commissioner has compiled and published 
 quadrennially statistics of property exempt from taxation. Until 1930 
 there were included in these statistics, such figures as could be obtained 
 of the character and amount of exempted personal property. Because 
 of the unreliability of these statistics of personal property, the tax 
 commissioner eliminated these exemptions from his report of 1930, 
 except for those granted to war veterans and the blind, which are 
 matters of record. 1 
 
 The property which the tax commissioner reported as exempt 
 from taxation in 1929 is classified according to particular uses and 
 ranked in the order of amounts as follows : 
 
 Public schools $99,738,000 
 
 Church property 83,884,000 
 
 Private schools, colleges, etc. 72,824,000 
 
 Charitable organizations 62,057,000 
 
 Public buildings 46,915,000 
 
 Parks and playgrounds 40,780,000 
 
 Soldiers, sailors, and blind 22,665,000 
 
 Public libraries 11,062,000 
 
 All other 39,221,000 
 
 Total 479,146,000 
 
 Such a listing shows that most of the more valuable classes of 
 exempted property are used for functions which are also performed 
 at considerable expense by the government. Presumably the govern- 
 mental expenditures on these functions would be substantially larger 
 were it not for the existence of the private agencies whose property 
 
 1B 6en. Stat., 1930, sec. 1163, subdivisions (24) to (36). 
 
 "Tax Commissioner, Quadrennial Statement of Real Estate Exempted from Taxa- 
 tion, 1930, p. 1. 
 
240 Eepoet of Special Tax Commission 
 
 is exempt. The one exception to the rule is found in church prop- 
 erty) which comes second on the list. Education, public welfare, and 
 recreation are represented by substantial sums. If we consider public 
 libraries as an educational exemption, this one class alone represents 
 almost 40 per cent of the total. 
 
 As a general rule, the exemptions which form the largest percent- 
 age of the total also increased most rapidly from 1925 to 1929. Thus 
 public schools, the largest single item in 1929, increased 27 per cent 
 from 1925 to 1929 and represented the second highest rate of increase. 
 Private school property increased 27 per cent, church property, 25 
 per cent, and property of charitable organizations, 25 per cent. These 
 percentages were exceeded only by that of exemptions to the soldiers, 
 sailors, and the blind, which rose 42 per cent during the period. 
 
 The amount of exempt property, according to the statistics of 
 the tax commissioner, has increased greatly since 1910. From 1909 
 to 1929, it rose from 144 million to 479 million dollars, an increase 
 of 230 per cent for the period. This large increase in the value of 
 exempted property was partially due to the rise of prices during this 
 twenty-year period, ' even though the largest quadrennial increase 
 occurred from 1921 to 1925, when prices were practically stable. From 
 1925 to 1929 exempted property increased from 403 million to 479 
 million dollars, or about 19 per cent. 
 
 Although the value of exempted property increased by large 
 amounts from 1909 to 1929, it maintained an almost constant relation- 
 ship to the .grand list. Exempted property varied from 14.3 per cent to 
 17.2 per cent of the grand list in the six quadrennial years and 
 amounted to 15.9 per cent of the grand list in 1929. 
 
 From 1909 to 1929 publicly owned property exempt from taxa- 
 tion increased from 66 to 242 millions, or 267 per cent; exempted 
 property of non-profit-making private associations rose from 70 to 213 
 millions, or 204 per cent; and other exempted property, from 8 to 24 
 millions, or about 200 per cent. However, in the most recent period for 
 which reports are complete, 1925 to 1929, the relationship of these 
 rates of growth changed. Privately owned property increased 25 per 
 cent as compared with a 13 per cent increase in public property. 
 
 The peoblem. 
 
 govebnment peopeety. 
 
 Government-owned property is ordinarily used for purposes which 
 would seem to entitle it to tax exemption. The problem here is to 
 distribute the loss of taxes due to exemption among the several grades 
 of government levying property taxes. If there were only one govern- 
 
The General Property Tax: Exemptions 241 
 
 mental unit whose revenues were in any way affected by the exemption 
 of property, there would be no such problem. In the case of government- 
 owned property the revenue available to the one unit of government 
 would be the same, and the taxes which would be levied upon privately 
 owned property would be the same whether the government-owned 
 property was taxed or not. If it were taxed, there would be spent 
 unnecessary effort and expense for assessing the property and for lay- 
 ing and collecting the taxes for the sole purpose of making bookkeeping 
 entries. But when the state, eight counties, and some three hundred 
 and fifty municipalities levy property taxes simultaneously, and when 
 governmental functions are differentiated for the three grades of gov- 
 ernmental units, the exemption of the property of one grade of govern- 
 ment may affect adversely the revenues of another grade of govern- 
 ment which has no responsibility whatever for providing the service 
 rendered by exempt property lying within its jurisdiction. 
 
 To a degree the general statutes make provision for this conflict 
 of interest among jurisdictions in exemptions granted. They permit 
 municipalities to tax certain properties of other municipalities within 
 limits, and they provide for state grants to municipalities in lieu of 
 taxes on certain state properties. While these laws go further to meet 
 the claims of municipalities for reimbursement for taxes lost through 
 exemptions granted by state law than do the laws of most other 
 states, they are decidedly limited in application, and, if they constitute 
 a sound approach to this problem, they can be considered only the first 
 of several steps which will have to be taken to reach an adequate 
 solution. 
 
 Privately owned property. 
 Inadequacies of principle. 
 
 ISTo state has failed to recognize the fiscal problem of tax exemp- 
 tions granted to private individuals and associations. For twenty-five 
 years exemptions have increased so persistently and rapidly that real 
 concern has arisen over the ability of our democracies to conserve the 
 integrity of their general property tax bases. 
 
 Probably one reason for the persistent growth of exemptions 
 of private property is that they have been granted more because 
 of emotional appeals than for strictly logical and rational reasons. 
 Each statutory exemption constitutes an exception to the logic of the 
 general property tax and, as the courts have repeatedly said, must 
 be strictly construed. Yet in the whole literature of taxation there 
 is little that bears directly upon a logical theory for the exemption 
 of property from the general property tax. Our property exemptions 
 
242 Eepoet of Special Tax Commission 
 
 have been largely hit-and-miss. They have been granted chiefly in 
 response to the strength of appeals made to the legislature for special 
 favors to particular groups. 
 
 Exemption from taxation is a bounty or subsidy. There would be 
 less difficulty if all exemptions were abolished and public assistance 
 to worthy activities were made by the General Assembly in the form 
 of outright grants, bounties, or subsidies. But because of tradition, the 
 vested interests attaching to existing exemptions, and prevailing public 
 sentiment, such a solution of the problem is at present only of academic 
 interest. The problem of exemptions must be attacked on the assump- 
 tion that, for some time to come, a substantial amount of property will 
 be exempted from property taxation. At the same time, property exemp- 
 tions cannot be safely based upon the' political pressure which groups 
 seeking exemption can bring to bear. There must be some grounds, some 
 theory, or some principle accepted generally by prevailing public 
 opinion which can be applied in separating legitimate from illegitimate 
 exemptions. 
 
 The only principle which would appear to support exemption of 
 privately owned property from taxation is that the property exempted 
 is used to provide a service which, if not provided privately, would 
 have to be supplied by the government at its own expense. Such a 
 principle, logically applied, would invalidate some existing exemptions 
 entirely and would require that the taxes foregone on account of any 
 particular exemption should not exceed the expenditures which the 
 government would be required to make to provide the service on account 
 of which the exemption is granted. 
 
 While students of taxation and many special tax commissions 
 have subscribed to this principle and have urged the elimination or 
 restriction of exemptions, property exemptions have continued to 
 increase. This failure to arrest the increase of property exemptions 
 is due at least in part to the difficulty of defining a public use and 
 developing tests to determine the extent to which services rendered by 
 property are of a public character. The determination of whether an 
 activity is or is not public in character has always been difficult, but 
 it has become increasingly so in recent years, during which the 
 scope of governmental activity has expanded continuously. In the light 
 of these recent developments, it seems reasonably accurate to .define 
 a public activity as an activity which the majority of the voters deem 
 desirable for the government to undertake. A public function is a 
 matter of public policy. And public policy in a democracy necessarily 
 rests upon the beliefs, prejudices, and emotions of the articulate ele- 
 ments of the electorate. 
 
The Geneeal Peopeety Tax: Exemptions 243 
 
 To accept the test of public use iu determining property exemp- 
 tions when the public demands an ever-widening range of services from 
 government must inevitably narrow the base upon which propery taxes 
 can be levied. This, in turn, aggravates rather than relieves the burden 
 of taxation on real property and would, if carried to extremes, under- 
 mine local government itself by depriving it of an adequate source of 
 revenues. 
 
 This threat of increasing exemptions to the property tax has been 
 recognized and has been met in recent years by various proposals of 
 special tax commissions designed to substitute more definite tests for 
 exemption than that of public use. Some of these tests are already 
 found in the Connecticut exemption statutes, as, for example, the non- 
 existence of profits and the exclusive use of the property for the purpose 
 for which the exemption is granted. Other tests or restrictions which 
 have been proposed are the non-existence of ownership of interests in 
 the property by private persons, the requirement of a three-fourths 
 vote of the legislative body to enact an exemption statute, submission 
 to referendum of proposals 'for additional exemptions, and prohibitions 
 against future exemptions regardless of the purpose to which the 
 property may be put. In one way or another each of these proposals 
 is designed to provide a more definite and practical test of the con- 
 cept of a public purpose. 
 
 Weaknesses of administeation. 
 
 Considering that exemptions amount to a substantial government 
 subsidy to private activities, and that the taxes which are foregone 
 because of the exemption of privately owned property probably amount 
 to six and one-half million dollars annually, it is difficult to understand 
 how the state could have been satisfied so long with the loose manner 
 in which the exemption statutes are administered. Only in recent years 
 have applications been required of the property owner for the exemp- 
 tion granted by statute to valuable properties. Even now, religious 
 organizations and organizations of war veterans are entitled to exemp- 
 tion for their properties without making application to the government. 
 Similarly, most of the exemptions of tangible personal' property are 
 made without application or record of any sort. When once blind per- 
 sons in needy circumstances and soldiers, sailors, and marines or their 
 relatives have established their right to exemption, exemptions continue 
 annually thereafter without a periodic review being required by the 
 statutes. Only since 1929 have charitable, educational, cemetery, and 
 agricultural organizations been required to make application for the 
 exemption of their property, and then the application required covers 
 
244 Report of Special, Tax Commission 
 
 only property newly acquired and not exempt at the time the 1929 
 law was enacted. 
 
 Exemptions granted to charitable, cemetery, agricultural, and edu- 
 cational organizations, except privately endowed institutions, are also 
 conditioned upon filing with assessors quadrennial statements of 
 the property claimed to be exempt and annual statements of property 
 newly acquired. Assessors are required to make an inventory and valua- 
 tion quadrennially of all real estate exempted and to file an abstract 
 of such property with the town clerk. The town clerk in turn must file 
 a correct copy of the abstract of exempt property with the tax commis- 
 sioner. These returns are published by the tax commissioner, and a 
 copy of the publication is sent to each board of assessors, each town 
 clerk, and each member of the General Assembly. 
 
 The filing of these returns by exempted organizations and the 
 listing and valuation of exempt real estate by the assessors would 
 seem to require a reviewing of exemptions each fourth year. It is under- 
 stood, however, that no effective review of exemptions is made by asses- 
 sors at these times and that this procedure does little more than to 
 provide the information required to compile the tax commissioner's 
 quadrennial statement of real estate exempted from taxation. 
 
 The valuable concessions made to private interests through exemp- 
 tions of their property from taxation are thus dispensed with surprising 
 laxness. The only administration provided applies to but a small part 
 of the total of exempt property and is exercised by local assessors who 
 are usually untrained in the intricacies of the exemption statutes, who 
 frequently are part time officials, who are elected for short terms, and 
 who generally receive meager compensation. No governmental subsidy 
 of anywhere near the amount involved in property exemption is handled 
 with equal complacency or with such apparent indifference. 
 
 Conclusions. 
 
 The Commission has reviewed in this section the defects of the 
 exemption statutes, the growth of exempted property, the lack of an 
 adequate principle applying to exemptions, the unsettled questions of 
 the interests of different governmental jurisdictions in property exemp- 
 tion, and the weaknesses of the administration of property exemptions. 
 The Commission is convinced that property exemptions are one of the 
 major problems of state and local taxation and that there is need for 
 a more intensive investigation of this problem than, with its other 
 assignments and under present conditions, it has thought advisable to 
 undertake. 
 
 Under present conditions any sweeping adjustment of prop- 
 erty exemptions which could be proposed without a careful study of all 
 
The General Property Tax: Exemptions 245 
 
 the circumstances surrounding each particular exemption of privately 
 owned property would probably result in injustices and hardships which 
 the General Assembly would not wish to impose. The shrinkage of pri- 
 vate incomes, combined with the taxes which have been required to 
 finance unemployment relief, has drastically reduced the income from 
 which privately operated religious, educational, and charitable organi- 
 zations draw their support. It is well known that many of these organi- 
 zations are finding it extremely difficult to finance their activities even 
 with the benefit of tax exemption. It is probable that the levy of taxes 
 upon their properties would make the continuance of some of these 
 organizations financially impossible and that the services which they 
 now provide and which are generally considered to be in the public 
 interest would be eliminated. It seems to this Commission that it would 
 be unwise to make radical changes in existing exemptions under present 
 conditions without a thorough investigation of the services and the finan- 
 cial status of each group of the exempted organizations. 
 
 Of all the financial and taxation problems assigned to this Com- 
 mission, property exemptions have been most recently investigated and 
 reported upon by a special commission. Under chapter 340 of the 
 Special Acts of 1923 a special commission was created "to consider the 
 subject of tax exemption of real estate in the state." 1 ' This com- 
 mission made its report to the 1925 session of the General Assem- 
 bly. It reviewed the development of the exemption statutes and 
 called attention to abuses that had arisen. The commission disapproved 
 the abolition of all exemptions and the limitation of exemptions by 
 constitutional provisions. It condemned the granting of unwarranted 
 exemptions by special acts, proposed a number of limitations upon 
 exemption of privately owned property, suggested changes in the admin- 
 istration of property exemptions, and recommended that municipalities 
 be reimbursed for taxes foregone because of the exemption of certain 
 types of state-owned property. 18 
 
 Many of the proposals of the commission were enacted into law, 
 but no action was taken which would eliminate exemptions already 
 made or withhold exemptions in the future from property meeting the 
 tests of the statutes as they existed before the commission reported. 
 During the four years following 1925 the amount of exempted prop- 
 erty increased 75 million dollars. 
 
 The Commission on Tax Exemptions covered the problem of 
 property exemptions as fully as this Commission could have hoped 
 to do within the limitations of its investigation. The fundamental 
 
 17 Spec. Acts, 1923, ch. 340. 
 
 "Commission on Tax Exemptions, Report, 1925. 
 
246 Report of Special Tax Commission 
 
 aspects of the exemption problem have not changed since 1925, and 
 no good purpose would seem to be served in going over the same ground 
 surveyed by the 1925 commission. Nevertheless, this Commission has 
 been impressed with the limited study which has been given to the 
 principles of property exemptions and with the almost complete lack 
 of sound theory capable of furnishing a policy which the General 
 Assembly might apply in enacting legislation dealing with property 
 exemptions. 
 
 While this Commission has concluded for the foregoing reasons 
 that it could not undertake, without neglecting other equally important 
 problems assigned to it, the kind of investigation which will eventually 
 have to be made if property exemptions are to be placed on a sound 
 basis, it believes that the problem is one which warrants consideration 
 by the General Assembly in the near future. Exemptions from taxa- 
 tion present a sufficiently difficult problem to require the full time 
 of a special commission working for the period elapsing between 
 sessions of the General Assembly. The Commission has therefore 
 refrained from recommending changes of existing statutes except in 
 minor particulars and suggests that the General Assembly assign the 
 whole problem of tax exemptions to another special commission estab- 
 lished for this particular purpose. 
 
 This Commission proposes only a few minor changes in the 
 statutes relating to property exemptions. There has been called to our 
 attention the difficulty of applying the test that no employee of a 
 private organization applying for exemption shall receive in the future 
 a pecuniary profit other than reasonable compensation for services 
 rendered from the operations of the property for which exemption is 
 requested. A similar clause caused administrative difficulties in con- 
 nection with the inheritance tax and was replaced in the succession 
 tax law by the following provision : 
 
 . no such transfer shall be exempt, if, at the time such 
 transfer occurred, any officer, member, shareholder or employee 
 of such corporation, institution, society, association or trust 
 shall he receiving or shall previously have received any pecu- 
 niary profit from the operation thereof, except reasonable com- 
 pensation for services in effecting one or more of such purposes 
 or as proper beneficiaries of a strictly charitable purpose, or if 
 the organization of any such corporation, institution, society, 
 association or trust, for any of the foregoing avowed purposes 
 be a guise or pretense for directly or indirectly making for it, 
 or for any of its officers, members, shareholders or employees, 
 
The General Pbopeety Tax: Exemptions 247 
 
 any other pecuniary profit, or if it be not in good faith organ- 
 ized or conducted for one or more of such purposes . 
 
 The determination of whether property is or is not entitled to exemp- 
 tion under this provision depends upon present and past conditions, 
 not upon an indefinite and uncertain test requiring a prognostication 
 of the future operations of an organization. The Commission suggests 
 that this same condition be applied to exemptions from the property 
 tax. 
 
 The Commission ' has also been advised of the difficulty experi- 
 enced by assessors in interpreting the phrase "in time of war" upon 
 which exemptions granted to war veterans depend. We propose that 
 the statutes be amended to make more definite and specific the period 
 within which a veteran must have served in the combatant forces of 
 the United States to be entitled to any exemption granted where this 
 period is .of determining importance. 
 
 The Commission suggests also that certain changes be made in 
 the administration of the exemption statutes. Exemption is a valuable 
 privilege granted to private organizations under state law. The least 
 that the state should be expected to do is to see that this privilege is 
 not abused. It is not unreasonable to require that application be made 
 for the original exemption of any privately owned property and that 
 any organization receiving an exemption file a report of its exempt 
 property periodically with the government. To some extent these 
 requirements are now incorporated in the statutes, but their purposes 
 are not completely accomplished because their administration is placed 
 with the local assessors. These requirements should be applied to all 
 privately operated organizations which are granted exemptions, and 
 the tax commissioner should be made responsible for determining 
 whether any particular property is entitled to exemption under the 
 general statutes at the time the original application is filed. 
 
 SUMMAEY AND RECOMMENDATIONS. 
 
 In Connecticut, as in all other states, the general property tax 
 provides the greater part of all tax revenues raised by state and local 
 governments. Some seventy million dollars, constituting over 80 per 
 cent of all local revenues and over 60 per cent of all state and local 
 revenues, are currently raised by this one tax. There is no probability 
 that it will soon assume a position of secondary importance. Logically, 
 therefore, tax reform should begin with the general property tax. 
 
 19 Cum. Sup., 1933, sec. 363b. Italics are oura. 
 
248 Report of Special Tax Commission 
 
 All property is taxable unless specifically exempt. The numerous 
 exemptions granted in Connecticut may be classified as (1) illegal 
 exemptions, consisting principally of exemptions granted by towns to 
 attract industrial concerns, (2) technical exemptions, consisting of 
 exemptions from the general property tax accorded in recognition of 
 the fact that the property so exempted is taxed by other means, and 
 (3) true exemptions granted to government-owned property, privately 
 owned property used for quasi-public purposes, property up to certain 
 amounts owned by the blind and by soldiers, sailors, and their relatives, 
 and property constituting a minimum of subsistence. 
 
 Illegal exemptions have been gradually reduced in recent years 
 and have now all but disappeared; technical exemptions do not raise 
 the question whether property should or should not be taxed, but rather 
 the manner in which a tax should be imposed. The real problem of 
 exemptions is thus narrowed to what we have termed true exemptions. 
 Exemptions of this one class have become increasingly important over 
 the twenty-year period for which official data are now available. In 
 1929, the last quadrennial year for which complete figures have now 
 been compiled, total exemptions of 479 million dollars were reported. 
 In the aggregate they amounted to 15.9 per cent of the grand list in 
 that year and represented a loss in taxes, computed at the average rate 
 for the state as a whole, of nearly 12 million dollars. 
 
 Government-owned property, which constituted about fifty per 
 cent of all exempted property in 1929, raises fewer problems of exemp- 
 tion than does privately owned property. It is only when the property 
 owned by one government lies within the jurisdiction of a second govern- 
 ment that any reason exists for taxing such property. To some extent state 
 laws now recognize this exception to the general rule by permitting the 
 taxation by one municipality of certain properties of other municipali- 
 ties and by providing for state grants to municipalities in lieu of prop- 
 erty taxes on certain state properties. These laws represent the first 
 step toward the development of a policy which should eventually 
 remove any remaining problems of the exemption of public property. 
 
 The exemption of privately owned property is essentially a sub- 
 sidy to the owners and should be clearly recognized as such. Presum- 
 ably the property qualifying for exemption is devoted to a public 
 service which would have to be performed at public expense in the 
 absence of private institutions. Yet the amount of the subsidy is deter- 
 mined by the value of the property so exempted and not by the value 
 which the public attaches to the services which are rendered. In the 
 light of these principles many of the exemptions now granted to 
 privately owned property are difficult to defend. Once exemptions are 
 
The Geneeal Peopeety Tax: Exemptions 249 
 
 granted, it is essential that they be strictly construed and carefully 
 administered if the integrity of the property tax base is to be preserved. 
 
 The Commission is convinced that exemptions present one of the 
 most important problems of the general property tax. It is, however, 
 a problem which was made the exclusive subject of a report of a special 
 commission appointed in 1923 and reporting to the General Assembly 
 in 1925. Clearly, with the many other fields of study laid out for the 
 present Commission, it would have been impossible to have added much 
 to the report of this earlier commission. We have therefore refrained 
 from recommending wholesale changes in the present law governing 
 exemptions from property taxation and propose instead that this 
 subject be assigned for investigation to another special commission. 
 The recommendations which we make are concerned principally with 
 the administration of exemption laws. 
 
 We recommend: 
 
 That there be repealed the provision denying exemption to the 
 property of any scientific, educational, literary, historical, charitable, 
 agricultural, horticultural, and non-religious cemetery organization 
 when any officer, member, or employee of such organization receives 
 now or shall receive in the future any pecuniary profit other than rea- 
 sonable compensation for services rendered; 
 
 That, subject to the application requirements specified below, 
 property of such organization, corporation, association, or trust be 
 exempted from taxation except when any officer, member, shareholder, 
 or employee of such organization shall be receiving or shall previously 
 have received any pecuniary profit from the operations of such organi- 
 zation other than reasonable compensation for services rendered in 
 effecting one or more of the purposes of the organization, or as proper 
 beneficiaries of a strictly charitable purpose, or when such an organiza- 
 zation is a guise or pretense for the making of pecuniary profits for 
 itself or for any one interested in it, or when such an organization is 
 not in good faith created and conducted for one or more of the purposes 
 on account of which exemption is granted ; 
 
 That the original exemption of any property of a privately oper- 
 ated organization, association, corporation, or trust be granted only 
 after an application for such exemption has been filed with the tax 
 commissioner and approved by him and after such exemption has been 
 certified by the tax commissioner to the appropriate local assessors ; 
 
 That the property of any privately operated organization, associa- 
 tion, corporation, or trust continue to be exempt only if such organiza- 
 tion files with the assessors quadrennially, as required by law, a state- 
 ment of its property for which exemption is claimed ; 
 
250 Kbpoet of Special Tax Commission 
 
 That the statutes be amended to make more definite the period 
 within which a war veteran must have served in the combatant forces 
 of the United States before he or his relatives are entitled to the exemp- 
 tions from property taxes granted by the general statutes. 
 
CHAPTER X 
 
 THE GENERAL PKOPEETY TAX: ASSESSMENT 
 
 Taxable propebty. 
 definitions. 
 
 The real estate declared to be taxable by law unless specifically 
 exempted consists of the following : 
 
 Dwelling houses, garages, barns, sheds, stores, shops, mills, 
 buildings used for business, commercial, financial, manufactur- 
 ing, mercantile and trading purposes, ice houses, warehouses, 
 silos, all other buildings; 
 
 House lots, all other building lots, shell fish lands, all other 
 lands, quarries, mines, ore beds, fisheries, property in fish ponds 
 and machinery. 1 
 
 -. 
 
 Personal property liable to taxation is defined to include : 
 
 All notes, bonds and stocks, not issued by the United States, 
 moneys, credits, choses in action, vessels, except registered and 
 enrolled sailing vessels, except barges engaged between this and 
 other states and except registered vessels which are actually 
 engaged in foreign commerce, goods, chattels or effects, or any 
 interest therein, belonging to any resident of this state. 2 
 
 Rules OF SITUS. 
 
 Real estate is taxed where situated, and personal property, at the 
 residence of the owner unless otherwise provided by law. There are, 
 however, a number of different rules prescribing the situs of particular 
 types of personal property. Any tangible personal property located in 
 a given town more than seven months of the year, the permanently 
 located personal property of any corporation, and the tangible per- 
 sonal property of any public utility company are taxable in the town 
 where they are located.* All other taxable personal property of a 
 
 'Cum. Sup., 1933, see. 319b. 
 
 a Gen. Stat., 1930, sec. 1147. 
 
 "Cum. Sup., 1933, sec. 319b; Gen. Stat., 1930, sec. 1147. 
 
 'Gen. Stat., 1930, sees. 1127, 1153; Cum. Sup., 1933, sec. 321b. 
 
252 Report of Special Tax Commission 
 
 corporation is assessed at its principal place of business or in the 
 town in which it exercises its corporate powers. 5 Under another statute, 
 the property of any concern engaged in a trading, mercantile, manu- 
 facturing, or mechanical business is required to be assessed at the situs 
 of the business, except that the property of itinerant merchants is to be 
 assessed at the residence of the owner. Personal property held in trust 
 is taxable at the residence of the trustee, but, if held by a guardian 
 or conservator, it is taxable at the residence of the ward.' 
 
 Thus the general rules of situs are as follows: (1) real estate is 
 taxed where situated, (2) tangible personal property having a perma- 
 nent location or located in any town for more than seven months in a 
 year is taxed where located, (3) other business personal property is 
 taxed at the situs of the business, and (4) all other personal property is 
 taxed at the residence of the owner. 
 
 Rules of valuation. 
 
 Although there are certain exceptions, and the same language is 
 not employed in all sections of the general statutes, the general rule of 
 valuation is that property, both real and personal, shall be assessed at 
 its present true and actual valuation on the assessment day. 8 "Present 
 true and actual value" is denned as "the fair market value thereof, and 
 not its value at a forced or auction sale." 9 
 
 For certain types of property, rules of valuation diverging from 
 this general rule are prescribed. There is the vague rule applying to the 
 property of any trading, mercantile, manufacturing, or mechanical 
 business which reads as follows: 
 
 The average amount of goods kept on hand for sale during the 
 year, or during any portion of it when the business has not 
 been carried on for a year, previous to the first day of October, 
 except as otherwise specially provided by law, shall be the rule 
 of assessment and taxation . . . I0 
 
 Any registered and enrolled sailing vessel, any vessel engaged in 
 foreign trade, and any barge engaged in interstate trade is assessed "at 
 a valuation equal to its net earnings during the year ending on the first 
 day of the preceding July." 11 Certain land used for sewage disposal 
 
 "Gen. Stat., 1930, sec. 1153. 
 
 "Gen. Stat., 1930, sec. 1152. 
 
 'Gen. Stat, 1930, sec. 1129. 
 
 8 Cum. Sup., 1933, sec. 319b; Gen. Stat., 1930, sees. 1125, 1147. 
 
 "Gen. Stat., 1930, sec. 1149. 
 
 10 Gen. Stat., 1930, sec. 1152. 
 
 11 Gen. Stat., 1930, sec. 1150. 
 
The General Property Tax: Assessment 253 
 
 or water supply by one municipality but located in another munici- 
 pality is to be assessed not at its present true and actual valuation but 
 at "its fair valuation for agricultural purposes" and "the average 
 assessed valuation per acre of improved farming land" respectively. 
 
 Assessment procedure. 
 Original assessments. 
 Assessors. 
 
 Although the local boards of relief, the tax commissioner, and the 
 state board of equalization have administrative responsibilities in the 
 assessment of property for taxation, their administrative work is of 
 relatively minor importance as compared with that of the assessors. It 
 is the assessors who are primarily responsible for placing property on 
 the grand list and for fixing the value of property for taxation purposes. 
 The state board of equalization and the tax commissioner have only 
 supervisory powers, while the local boards of relief are responsible for 
 reviewing assessments previously determined by the assessors. 
 
 There is usually a board of three assessors in a town. The members 
 of this board are elected for overlapping terms of three or four years by 
 the town meetings." The compensation of assessors, unless prescribed 
 by a municipal charter, is fixed by the annual town meetings, but the 
 minimum compensation is fixed at two dollars and fifty cents per day by 
 the general statutes." 
 
 Listing. 
 
 Assessment of property begins with the filing of tax lists by the 
 taxpayers. In most towns the assessment day is October 1. On or before 
 October 15 assessors of such towns are required to publish or post notice 
 directing resident and nonresident taxpayers to file their tax lists with 
 the assessors on or before November 1, and not later than fifteen days 
 before November 1 blank listing forms are to be mailed to taxable non- 
 residents or their attorneys or agents having custody of taxable 
 property. 16 
 
 Every resident of the state, every nonresident, every trustee, 
 guardian, or conservator, and every person having possession of property 
 for a term of years or for life by virtue of a gift, bequest, or devise who 
 holds taxable property is required to file a list of his taxable property 
 with the assessor of each town in which such property is taxable. The 
 
 "Gen. Stat., 1930, sees. 1154, 1157. 
 u Cum. Sup., 1933, sec. 42b. 
 "Gen. Stat., 1930, sec. 2285. 
 "Gen. Stat., 1930, sees. 1125-1127. 
 
254 Repoet of Special Tax Commission 
 
 list of any person may be filed by his agent or attorney, and the owner 
 of an encumbrance on taxab.le real estate for which a list has not been 
 filed by the owner may file such list without penalty on or before 
 November 10." 
 
 Each tax list filed must describe separately each parcel of real 
 estate and must be made out and sworn to as prescribed by law." The 
 form of the tax list as prescribed by the state board of equalization must 
 "specify the different kinds of property, except that household furni- 
 ture, libraries and tools may be set in the list in gross; and shall also 
 contain one general head embracing all taxable property not specifically 
 mentioned." Assessors are required to have the enumeration of taxable 
 property on each list sworn to and are fined for failure to do so. Any 
 person swearing to a false list is guilty of perjury." 
 
 Broad powers are vested in the assessors to assure the accurate 
 listing of taxable property. They are prohibited from accepting a tax 
 list not made, sworn to, and perfected according to the law. They can 
 add to the tax lists any taxable property which they have reason to 
 believe was not listed and impose a penalty of ten per cent of its valua- 
 tion for failure to list such property. Any owner, custodian, or person 
 having knowledge of omitted property or its valuation may be summoned 
 and compelled to appear, give testimony, and present his records of such 
 property to the assessors. 21 If any person fails to file a tax list, the 
 assessors must fill out a list for him and add ten per cent to the valua- 
 tion of the property listed. 2 * Assessors may compel any person liable for 
 taxation who has failed to file a list to appear before' them to be 
 examined under oath as to his property liable for taxation. 23 
 
 Supplementing the procedure for listing are other provisions 
 designed to secure a complete enumeration of property subject to taxa- 
 tion. Resident owners of motor boats are required to register their 
 boats with the town clerks of the towns in which their boats have been 
 located for more than seven months during any year prior to October 
 1, and assessors are given access to the town clerks' records of registered 
 boats to perfect their lists and to make their abstracts. 24 Secondly, the 
 motor vehicle commissioner is required to report to the assessors on 
 or before December 1 all registrations of motor vehicles by residents 
 
 "Gen. Stat., 1930, sees. 1126, 1127, 1129, 1131, 1132, 1134, 1135. 
 
 "Gen. Stat., 1930, see. 1126. 
 
 18 Gen. Stat., 1930, sec. 1111. 
 
 "Gen. Stat., 1930, sec. 1133. 
 
 10 Gen. Stat., 1930, sec. 1136. 
 
 "Cum. Sup., 1933, sec. 318b. 
 
 M Gen. Stat., 1930, sec. 1126. 
 
 23 Gen. Stat., 1930, sec. 1138. 
 
 "Gen. Stat., 1930, sees. 1139, 1140. 
 
The General Peopeety Tax: Assessment 255 
 
 of their respective towns for the current year up to October 1, the 
 assessment date. 25 In the third place, town collectors are required to 
 report to the town clerk all discoveries of property liable to assess- 
 ment in the town but unassessed or assessed to the wrong parties, and 
 the town clerk is to keep memoranda of such reports for the use of 
 the assessors. 2 " Finally, the assessors are required to view and revalue 
 all of the real estate in their respective municipalities at least once 
 in ten years. 
 
 Valuation. 
 
 The assessors are responsible for determining the assessed valua- 
 tion of property listed for taxation. While the tax list form provides 
 spaces in which the taxpayer may insert his valuation of the property 
 listed, the oath sworn to by the taxpayer relates only to the enumera- 
 tion of taxable property and not to any valuations which may be 
 included in the list. 27 After tax lists have been received, the assessors are 
 required to equalize the lists and are given power to "increase or 
 decrease the valuation of property as named in any of such lists or in 
 the last preceding grand list." When the assessment is increased over 
 that of the prior year, written notice of such increase must be given the 
 taxpayer. 28 
 
 By January 31, assessors must have completed their work on the 
 tax lists, must have arranged them in alphabetical order, and must 
 have filed them for public inspection in their own or in the town clerk's 
 office. By the same date they must have made and have sworn to an 
 abstract of such lists and have filed such abstract in the office of the 
 town clerk for public inspection. 2 ' 
 
 Review of assessments. 
 
 Local boabds of belief. 
 
 Under the general statutes, a local board of relief may have from 
 two to five members in towns where such board is elected for two years, 
 but the number of members of the board in other towns is not specified. 
 Actually, most local boards of relief consist of three members elected 
 by the town meeting for overlapping terms of three years. In towns 
 holding biennial elections, the members of the board of relief serve 
 two-year terms, and the whole board is usually elected every second 
 
 M Gen. Stat., 1930, sec. 1636. 
 M Gen. Stat., 1930, sec. 1214. 
 "Gen. Stat., 1930, sec. 1133. 
 "Gen. Stat., 1930, sec. 1141. 
 29 Gen. Stat., 1930, sec. 1141. 
 
256 Kepoet of Special Tax Commission 
 
 year.™ Like the assessors, the members of the board of relief have their 
 compensation fixed by the town meeting, but such compensation can- 
 not be less than two dollars and fifty cents per day for each day 
 devoted to their duties. 81 
 
 PoWEES AND DUTIES OF BOAEDS OF BELIEF. 
 
 Boards of relief are required by the general statutes to meet on the 
 first business day of February and continue in session from day to day 
 until they have completed their duties but not later than the last busi- 
 ness day of February. 82 
 
 Any person claiming to be aggrieved by the doings of the assessors 
 may appeal to the board of relief during the twenty days following 
 and including the first day upon which such board meets. To review 
 all such appeals is the principal work of the board. 
 
 The general statutes, however, do not limit the decisions of the 
 board of relief to assessments on which appeals have been preferred to 
 it. 
 
 . such board of relief . . . may equalize and 
 adjust the valuations and assessment lists of such town; and 
 may increase the items of taxable property in the list of any 
 person, or the number, quantity or amount of any such item, 
 or add to any such list any taxable property or interest therein 
 omitted by the assessors and which should be added thereto; 
 and may add to the assessment list the name of any person 
 omitted by the assessors and owning taxable property in such 
 town, and make a list for him, putting therein all property 
 which it has reason to believe is owned by him liable to taxa- 
 tion, at the actual valuation thereof, from the best informa- 
 tion that it can obtain, and add thereto ten per centum of 
 such valuation . . . 
 
 In addition to the changes which a board of relief may make 
 during its sessions in February, the general statutes authorize the 
 board to make, at any time before June 1, supplemental lists of any 
 taxable property which has been omitted from the tax lists. 8 ' 
 
 Before any action of a board of relief which results in an increase 
 of assessments can be made effective, the persons whose assessments 
 
 "Gen. Stat, 1930, sec. 274. 
 " Gen. Stat., 1930, sec. 2285. 
 ° Gen. Stat., 1930, sec. 1193. 
 "Gen. Stat., 1930, sec. 1194. 
 "Gen. Stat., 1930, sec. 1199. 
 
The General Property Tax: Assessment 257 
 
 are increased must be notified by the board to appear before it to show 
 cause why the increases should not be made. 85 
 
 The powers of the board to reduce assessments are more limited. 
 A board of relief may not reduce an assessment either by eliminating 
 property or reducing assessors' valuations (1) if the taxpayer is a non- 
 resident of the state and does not appear in person or by an authorized 
 agent before the board to answer questions, (2) if the taxpayer refuses 
 to answer under oath any relevant question which the board may ask, 
 and (3) if the taxpayer has refused or neglected to file a sworn tax 
 list as prescribed by law. 83 
 
 Debts other than mortgages on domestic real estate owed by a 
 resident to another resident may be deducted by the board of relief 
 from the tax list of the debtor and added to the tax list of the creditor 
 if the claim represented by the debt is taxable to the creditor under the 
 general property tax law." 
 
 Appeals on assessments. . 
 
 From decisions op boards op relief. 
 
 Within two months from the time a decision is made, any 
 person may appeal from the board of relief to the superior court 
 of the county in which the board exercises jurisdiction. Taking 
 an appeal under this section does not suspend the right of the munici- 
 pality to collect up to seventy-five per cent of the tax appealed, but a 
 decision of the court adverse to the municipality obligates the munici- 
 pality to reimburse the taxpayer for any overpayment of taxes with 
 interest and costs. On appeals from decisions of the board of relief 
 the court may grant such relief as is warranted, or, if the appeal has 
 been made without probable cause, the court may tax double or triple 
 
 , as 
 
 costs. 
 
 From arbitrary and excessive assessments. 
 
 If a municipality lays a tax upon property not taxable by it, or 
 if the tax is based on an assessment "which under all the circumstances 
 was manifestly excessive, and could not have been arrived at except by 
 disregarding the provisions of the statutes for determining the valua- 
 tion of such property", the owner of the property so taxed may appeal 
 for relief to the superior court within one year of the time when the 
 tax became due. An appeal under this provision may be taken either 
 
 M Gen. Stat., 1930, sec. 1194. 
 "Gen. Stat., 1930, sees. 1196, 1198. 
 "Gen. Stat., 1930, sec. 1197. 
 *" Cum. Sup., 1933, sec. 327b. 
 
258 Report of Special Tax Commission 
 
 from the decision of a board of relief or from the assessment fixed by 
 the assessors without the intermediate appeal to the board of relief. 
 Such appeal does not prevent the municipality from collecting the tax 
 assessed, but, if the assessment is reduced by the court, the munici- 
 pality must reimburse the taxpayer for the overpayment of taxes with 
 interest and costs." 
 
 State supervision op assessment. 
 State board op equalization. 
 
 Since 1915, when the state, military, and county taxes began to 
 be distributed among the towns according to the annual average receipts 
 from taxation rather than according to the assessed valuation of prop- 
 erty, the participation of the state board of equalization in the assess- 
 ment of property has been continuously reduced in importance. A few 
 years later the state aid grants, which formerly were distributed to 
 local governments in proportion to their grand lists, were also shifted 
 to a tax receipts basis, and the need of equalizing grand lists among 
 towns disappeared. Although the general statutes still require the state 
 board of equalization, which consists of the state treasurer, the state 
 comptroller, ,and the tax commissioner, to meet annually on the second 
 Tuesday of April to "equalize and adjust the assessment of each town", 
 this provision has now become obsolete and has apparently been con- 
 tinued in the statutes solely to provide the figures for distributing any 
 state aid grants which may in the future be distributed in proportion 
 to municipal grand lists." 
 
 With the disappearance of state equalization of municipal grand 
 lists, the board of equalization is vested with a single duty in the 
 assessment of property. It is still required under the general statutes 
 to prescribe the form of the tax list and of the printed abstract book 
 to be used by the assessing officials of all towns and cities." 
 
 Tax commissioner. 
 
 As the official responsible for the state's administration of the 
 tax laws, the tax commissioner has only supervisory powers over the 
 local assessment of property. He is a member of the state board of 
 equalization, which prescribes the forms of the tax lists and abstract 
 books. In addition, he must prescribe a series of forms to be filled out 
 and filed by local taxing officials and must publish the returns. These 
 returns cover (1) annual statements relating to local taxation, (2) 
 
 ' Cum. Sup., 1933, sec. 328b. 
 
 'Gen. Stat., 1930, sees. 1108, 1109, 1110. 
 
 'Gen. Stat., 1930, sec. 1111. 
 
The Geneeal Peopeety Tax: Assessment 259 
 
 quadrennial returns of exempted property, and (3) quadrennial 
 returns of municipal debt, receipts, and expenditures/ 2 
 
 The commissioner exercises more direct supervision over the work 
 of local officials than is involved in requiring and publishing reports. 
 He personally or by duly appointed agents must 
 
 . . . visit the towns in this state and inquire into the 
 manner in which the laws relating to listing and assessing 
 taxable property therein are executed by the assessors and 
 boards of relief, and whether all persons and property taxable 
 in sUch towns are in fact justly assessed and taxed; whether 
 all taxes which are due and collectible are in fact collected 
 and paid to the treasurer in the manner prescribed by law; 
 whether accounts and records of collectors and treasurers are 
 adequate and properly kept and whether tax exemptions on 
 property are granted in the manner and only to the extent 
 required by law . . ." 
 
 To carry out these duties, the tax commissioner is given broad powers 
 to subpoena witnesses and records and to examine witnesses under 
 oath. But if the commissioner ascertains that any local official has 
 failed to discharge his administrative duty, he is not empowered to 
 remove him from office. He can only notify the official in writing of 
 his delinquency, and, if the official fails to discharge his duty after 
 having been given notice, the tax commissioner may submit the matter 
 to the superior court for disposition. The court may issue a mandamus 
 requiring the official to comply with the statutes and render judgment 
 with costs against the official. 
 
 Finally, the tax commissioner is responsible for the assessment of 
 certain properties owned by the state for which state grants in lieu 
 of taxes are paid to the municipalities.'"' 
 
 Assessment besults. 
 The gband list. 
 
 In Table XLIII there are presented the statistics of the aggregate 
 grand list of the state for the years 1920, 1930, 1931, 1932, and 1933. 
 The "gross" grand list includes the assessments of property of war 
 veterans, the blind, manufacturing concerns, and certain parsonages 
 which are exempt from taxation; the assessed value of such property 
 is deducted as a total sum from the gross grand list in compiling the 
 
 "Gen. Stat., 1930, sees. 1091-1096. 
 48 Gen. Stat., 1930, see. 1088. 
 " Gen. Stat., 1930, sec. 1089. 
 "Gen. Stat., 1930, sec. 1103. 
 
260 Report of Special Tax Commission 
 
 "net" grand list. Table XLIV shows the composition of the grand list 
 in percentage terms of each of the five years. 
 
 Table XLIII 
 
 AGGREGATE GRAND LIST BY CLASSES OF TAXABLE PROPERTY, 
 1920, 1930 TO 1933 
 (In millions of dollars) 
 Class ol property 1920 1930 1931 1932 1933 
 
 Real property 
 Building lots 
 Acres of land 
 Quarries, shellfish, lands, etc. 
 
 322 
 
 660 
 
 664 
 
 649 
 
 645 
 
 126 
 
 206 
 
 205 
 
 201 
 
 193 
 
 Total land 448 867 869 851 838 
 
 1152 
 
 1921 
 
 1950 
 
 1900 
 
 1858 
 
 1600 
 
 2788 
 
 2819 
 
 2750 
 
 2696 
 
 7 
 4 
 
 1 
 
 6 
 2 
 1 
 
 6 
 
 2 
 
 1 
 
 5 
 2 
 1 
 
 5 
 1 
 1 
 
 12 
 
 9 
 
 9 
 
 8 
 
 7 
 
 Dwelling houses 667 1183 1206 1175 1152 
 Manufacturing buildings and 
 
 machinery 247 307 315 299 298 
 
 Other business buildings 192 333 329 327 311 
 
 Barns, garages, etc. 45 98 101 98 97 
 
 Total buildings 
 
 Total real property 
 
 Tangible personal property 
 Neat cattle 
 Horses and mules 
 Dogs, sheep, poultry, etc. 2 
 
 Total farm animals 
 
 Household furnishings 10 24 30 25 25 
 
 Watches and jewelry 11111 
 
 Motor vehicles, aircraft 56 97 85 69 58 
 
 Wagons, bicycles, etc. 1 — * — * ■ — 1 — 2 
 
 Boats and vessels 2 2 2 2 2 
 
 Farm produce — l — * — % — * — 1 
 
 Farming and mechanics' tools 11111 
 Goods of merchants and manu- 
 facturers 
 Cables, conduits, pipes, etc. 
 Fisheries and apparatus 
 
 Total tangible personal 
 > property 
 
 Intangible personal property 5 
 All other property 4 
 Ten per cent penalty 
 
 Gross grand list 1935 3174 3178 3068 2985 
 
 Source : Tax Commissioner, Information Relative to the Assessment and Collection 
 
 of Taxes. 
 'Less than $500,000. 
 
 * An assessment for dogs was last reported in 1924. 
 
 'Includes choses-in-action not registered with the state treasurer for the four mill 
 tax, excess of credits over debits of merchants, and, in 1920, money on hand or 
 on deposit. 
 
 * Includes property of the types listed above which was unclassified by the assessors. 
 
 218 
 
 185 
 
 167 
 
 145 
 
 131 
 
 9 
 
 39 
 
 44 
 
 49 
 
 47 
 
 1 
 
 i 
 
 1 
 
 1 
 
 1 
 
 311 
 
 359 
 
 341 
 
 300 
 
 275 
 
 7 
 
 2 
 
 2 
 
 1 
 
 1 
 
 4 
 
 11. 
 
 4 
 
 5 
 
 4 
 
 13 
 
 14 
 
 16 
 
 12 
 
 9 
 
The General Pbopeety Tax: Assessment 
 
 261 
 
 Table XLIV 
 
 AGGREGATE GRAND LIST BY CLASSES OF TAXABLE PROPERTY, 
 PERCENTAGE DISTRIBUTION, 1920, 1930 TO 1933 
 
 1931 1932 1933 
 
 Class of property 
 Real property 
 
 Building lots 
 
 Acres of land 
 
 Quarries, shellfish lands, etc. 
 
 1920 
 
 % 
 
 16.7 
 6.5 
 
 1930 
 % 
 
 20.8 
 6.5 
 
 20.9 
 6.S 
 
 21.2 
 6.6 
 
 Gross grand list 
 Source: Preceding table. 
 1 Less than 0.05 per cent. 
 
 21.6 
 6.5 
 
 Total land 
 
 23.2 
 
 27.3 
 
 27.4 
 
 27.7 
 
 28.1 
 
 Dwelling houses 
 
 34.5 
 
 37.3 
 
 27.4 
 
 27.7 
 
 28.1 
 
 Manufacturing buildings and machinery 
 
 12.8 
 
 9.7 
 
 9.9 
 
 9.8 
 
 10.0 
 
 Other business buildings 
 
 9.9 
 
 10.5 
 
 10.4 
 
 10.7 
 
 10.4 
 
 Barns, garages, etc. 
 
 2.3 
 
 3.1 
 
 3.2 
 
 3.2 
 
 3.3 
 
 Total buildings 
 
 59.5 
 
 60.5 
 
 61.4 
 
 61.9 
 
 62.2 
 
 Total real property 
 
 82.7 
 
 87.8 
 
 88.7 
 
 89.6 
 
 90.3 
 
 Tangible personal property 
 
 
 
 
 
 
 Neat cattle 
 
 0.4 
 
 0.2 
 
 0.2 
 
 0.2 
 
 0.2 
 
 Horses and mules 
 
 0.2 
 
 0.1 
 
 0.1 
 
 0.1 
 
 0.1 
 
 Dogs, sheep, poultry, etc. 
 
 1 
 
 — ' 
 
 1 
 
 i 
 
 i 
 
 Total farm animals 
 
 0.6 
 
 0.3 
 
 0.3 
 
 0.3 
 
 0.3 
 
 Household furnishings 
 
 0.5 
 
 0.8 
 
 1.0 
 
 0.8 
 
 0.9 
 
 Watches and jewelry 
 
 0.1 
 
 , 1 
 
 — x 
 
 1 
 
 0.1 
 
 Motor vehicles, aircraft 
 
 2.9 
 
 3.0 
 
 2.7 
 
 2.2 
 
 2.0 
 
 Wagons, bicycles, etc. 
 
 i 
 
 i 
 
 I 
 
 1 
 
 i 
 
 Boats and vessels 
 
 0.1 
 
 0.1 
 
 0.1 
 
 0.1 
 
 0.1 
 
 Farm produce 
 
 1 
 
 i 
 
 1 
 
 1 
 
 1 
 
 Farming and mechanics' tools 
 
 0.1 
 
 i 
 
 1 
 
 1 
 
 1 
 
 Goods of merchants and manufacturers 11.3 
 
 5.8 
 
 5.3 
 
 4.7 
 
 4.4 
 
 Cables, conduits, pipes, etc. 
 
 0.5 
 
 1.2 
 
 1.4 
 
 1.6 
 
 1.6 
 
 Fisheries and apparatus 
 
 1 
 
 1 
 
 1 
 
 , 1 
 
 — J 
 
 Total tangible personal 
 
 
 
 
 
 
 property 
 
 16.1 
 
 11.3 
 
 10.7 
 
 9.8 
 
 9.2 
 
 Intangible personal property 
 
 0.4 
 
 0.1 
 
 0.1 
 
 0.1 
 
 i 
 
 All other property 
 
 0.2 
 
 0.3 
 
 0.1 
 
 0.2 
 
 0.1 
 
 Ten per cent penalty 
 
 0.7 
 
 0.4 
 
 0.5 
 
 0.4 
 
 0.3 
 
 100.0 100.0 100.0 100.0 100.0 
 
 Eeal estate is the largest class of property in the grand list. It 
 represented 1.6 billion dollars of the 1.9 billions of assessed property 
 in 1920 and 2.7 billions of the 3.0 billions of assessed property in 
 1933. Keal estate was over 80 per cent of the grand list in every one 
 of the five years shown in the tables. 
 
 All classes of tangible personal property combined never exceeded 
 359 million dollars, or 16 per cent of the grand list, in the five years 
 
262 Eepoet of Special Tax Commission 
 
 shown. In 1933 the assessed value of all tangible personal property- 
 fell below 300 millions and below 10 per cent of the grand list. 
 
 Intangible personal property has been almost eliminated from the 
 grand list. Its assessed valuation fell from 6.9 million dollars in 1920' 
 to 1.1 millions in 1933, largely as the result of the exemption in 1927 
 of money on hand and on deposit. In no one of the five years did it 
 amount to one-half of one per cent of the grand list, and in 1933 it had 
 declined to as little as four one-hundredths of one per cent of the total 
 assessed valuation of property in the state. 
 
 Although six of the classes of property currently reported by the 
 tax commissioner have been combined into three in the tables, there 
 are still several classes with very small valuations. Four classes — (1) 
 quarries, mines, ore beds, and shellfish lands, (2 s ) carriages, wagons, 
 and bicycles, (3) farm produce, and (4) fisheries and fishing 
 apparatus — were assessed in 1933 for less than $500,000, or less than 
 two one-hundredths of one per cent of the grand list. Watches and 
 jewelry; all vessels and boats; horses and mules; sheep, goats, swine, 
 and poultry; all farming implements and mechanics' tools; and all 
 intangible personal property were each assessed for less than 2 million 
 dollars in 1933, or for less than one-tenth of one per cent of the total 
 grand list. 
 
 In fact there were only three classes of tangible personal property 
 which were assessed for more than one per cent of the grand list in 
 1933. In order of size, these were goods of merchants and manufac- 
 turers, amounting to 4.4 per cent; motor vehicles, amounting to 2.0 
 per cent; and cables, conduits, wires, pipes, etc., amounting to 1.6 per 
 cent. These three classes of property accounted for 8 per cent of the 
 total grand list and for 87 per cent of the total assessed valuation of all 
 classes of tangible personal property. 
 
 Certain inferences as to the relation of assessed valuations to 
 the present true and actual valuation of property may be drawn from 
 the trend of the grand list during the period covered by the tables. In 
 the ten years from 1920 to 1930 the grand list increased from 1.9 
 billion dollars to 3.2 billions. This was an increase of 68 per cent for 
 the period. At the same time, the tangible wealth of the state, as esti- 
 mated by the National Industrial Conference Board, decreased 2.3 bil- 
 lion dollars, or 30 per cent. It is reasonable to infer that assessments 
 increased more rapidly than did the present true and actual valuation 
 of taxable property during the years of prosperity preceding 1930. 
 
 During the years of depression, on the other hand, assessed valua- 
 tions have undoubtedly lagged behind the downward trend of the 
 true and actual valuation of taxable property. The grand list of 1931 
 was larger than that of 1930, that of 1932 was 106 million dollars 
 
The Genebal Peopeety Tax: Assessment 263 
 
 less, and that of 1933 was 189 millions less than the grand list of 
 1930. The grand list rose about 0.1 per cent from 1930 to 1931, fell 
 3.5 per cent from 1931 to 1932, and fell 2.7 per cent again from 1932 
 to 1933. The grand list of 1933 was only 6 per cent below the grand 
 list of 1930. 
 
 From the shifts in the valuations of the several classes of taxable 
 property, real property has assumed a continuously increasing propor- 
 tion of the taxes laid on the grand list. The valuation of real property 
 increased from 1.6 billion dollars in 1920 to 2.8 billions in 1931 and 
 declined only to 2.7 billions in 1933. Tangible personal property, on 
 the other hand, rose from 311 millions in 1920 to only 359 millions in 
 1930 and then declined to 275 millions in 1933, a lower valuation than 
 that established in 1920. As a result, real property increased in relative 
 •importance from 82.7 per cent in 1920 to 87.8 per cent in 1930, 88.7 
 per cent in 1931, 89.6 per cent in 1932, and 90.3 per cent in 1933. 
 
 For a number of years personal property has been steadily declin- 
 ing in importance. Only household furnishings, motor vehicles, and 
 cables, wires, conduits, etc. were assessed for larger amounts in 1933 
 than in 1920, and the valuation of motor vehicles was only two million 
 dollars more in 1933 than in 1920. Goods of merchants and manu- 
 facturers, all classes of farm animals, and intangible personal property 
 were each assessed for continuously decreasing amounts during the 
 five years shown in the tables. The tendency for personal property to 
 pass from the tax base, which has persisted in American taxation for 
 many years in spite of vigorous efforts to arrest it, has been operating 
 upon the Connecticut grand list during the past thirteen years. 
 
 Appraisal of assessments. 
 Available tests. 
 
 Statistics of assessments by themselves provide little evidence of 
 the effectiveness with which property has been assessed. They show 
 what valuations were actually fixed on the property that was assessed 
 but not what valuations should have been fixed to meet the statutory 
 requirements. To test the efficacy of assessments, therefore, it is 
 necessary to ascertain the facts concerning the amount and present 
 true and actual valuation of taxable property in the state. 
 
 To have compiled this information in the detail and with the 
 accuracy necessary to establish with reasonable certainty the quality of 
 the assessments would have required an elaborate and expensive field 
 investigation, which this Commission was not equipped to 'make. In 
 fact, so refined an investigation is not essential to the conclusions of 
 the Commission. There are several limited investigations of this type 
 which ' have provided some evidence of the character of assessments. 
 
264 Report of Special Tax Commission 
 
 Those familiar with local taxation are in substantial agreement con- 
 cerning assessment conditions which prevail. It has seemed to the 
 Commission, therefore, that the evidence which can be drawn from 
 statistics which are available adequately establishes the conditions 
 which its proposals are designed to correct. 
 
 Real peopeety. 
 
 Careful engineering and aerial surveys in a number of towns 
 have demonstrated that there exist a few cases of incomplete listing 
 of real property in most, if not all, towns in the state. But the enumera- 
 tion of such property is the simplest part of the assessment process; 
 the real problem arises in its valuation. Such statistics as are available 
 indicate wide variation both among and within the towns of the state 
 in the relation of assessed valuations to the present true and actual 
 value of real property. 
 
 Each year the assessors report to the tax commissioner their 
 opinions of the ratios of assessed valuations to actual value of land 
 and of buildings. The figures submitted are really guesses, for there 
 are few towns with assessment records adequate to determine these 
 ratios accurately. In fact, one of the outstanding deficiencies of general 
 assessment procedure in the state is the total absence of properly 
 recorded and analyzed evidence of "the present true and actual value" 
 required by the statutes. In spite of their unreliability as accurate 
 measures, the assessors' figures do perhaps reflect opinions of officials 
 directly involved in making assessments which have a bearing upon 
 the quality of assessments of real property. 
 
 Even according to the opinions of assessors, both land and buildings 
 were assessed on the grand lists of 1932 at very different ratios of their 
 present true and actual values. The assessors of sixty towns claimed 
 to assess land at 100 per cent of its value, assessors of twelve towns, at 
 less than 70 per cent of its value, and assessors of three towns, at only 
 50 per cent of its value. The assessors of fifty-four towns reported that 
 buildings were assessed at 100 per cent of their value, assessors of twelve 
 towns, at less than 70 per cent of their value, and assessors of three 
 towns, at 50 per cent of their value. 
 
 These figures, admittedly inaccurate as they are, are supported by 
 a careful study conducted by the tax commissioner in the Summer of 
 1922. In this investigation the assessed valuations of property in every 
 town in the state were compared with recent actual selling values as 
 determined from information "from private sources, from grantors, 
 grantees, or others having information respecting the transfers, but, 
 more frequently, the federal stamps placed on the deeds . . . and 
 the consideration for the transfer determined therefrom." One town 
 
The General Peopeety Tax: Assessment 265 
 
 was found to assess real property at less than 30 per cent of true value, 
 thirty-eight at less than 50 per cent, and only forty-two at seventy per 
 cent or more. 4 " 
 
 These comparisons are of direct value only to indicate that real 
 estate is being assessed at widely different ratios of its present true and 
 actual valuation among the 169 towns. This diversity robs the property 
 tax rates of any value which they might have for measuring accurately 
 the burden of taxes on real property and emphasizes the weakness of 
 assessed valuation for limiting local indebtedness, for distributing state 
 aid, or for apportioning state and county taxes. 
 
 Since state, military, and county taxes and state aid are no longer 
 apportioned among towns according to assessed valuations, these differ- 
 ences in the average percentages of value at which all the property in 
 the respective towns is assessed have little direct bearing upon the 
 question of whether individual parcels of real property are being taxed 
 inequitably. Yet, indirectly, they set up the hypothesis at least that 
 individual assessments of real property are correspondingly unequal, 
 and they provide direct evidence of the extent to which the mandate 
 of the statutes is being disregarded. It is safe to say that wherever under- 
 assessment exists, disproportionate assessments exist likewise. This is 
 true for three reasons. In the first place, the value of some property is 
 so well established that it is difficult for the assessor to avoid placing it 
 in the list at a disproportionate valuation. Small and familiar proper- 
 ties, for example, are almost invariably assessed at more nearly full 
 value than other properties. Secondly, the taxpayer is unlikely to pro- 
 test an assessment which is below the statutory valuation. He seldom 
 takes the trouble to compare the assessment of his property with that of 
 others in the town as long as he is aware of the fact that he is assessed 
 at less than true value. Finally, if he discovers the disproportionate 
 manner in which his property is assessed, there is no assurance that his 
 protests will be effective. The board of relief may even raise his valua- 
 tion if he airs his troubles too freely, and the courts have given little 
 solace to plaintiffs in situations of this sort. 
 
 These assumptions are borne out by such direct evidence as bears 
 upon the question. The tax commissioner's study in 1922 showed in 
 one small town variations in assessment ratios ranging from 9.2 per 
 cent to 39.0 per, cent. In another somewhat larger town the range was 
 from 41.3 per cent to 105.9 per cent." 
 
 Professor M. S. Kendrick made a study of farm taxation under the 
 the auspices of the Storrs Agricultural Experiment Station in the 
 
 1 Tax Commissioner, Biennial Report, 1922, p. 14. 
 'The same, pp. 11, 15. 
 
266 Report of Special Tax Commission 
 
 Spring of 1930. From 1,200 questionnaires sent to farms in 29 towns, 
 Professor Kendrick received 283 returns which he considered suffi- 
 ciently reliable to estimate assessment ratios of individual farm proper- 
 ties. The questionnaire showed the owner's estimate of the value of his 
 farm and the assessed valuation fixed by the assessors on his farm. The 
 assessment ratios were computed by dividing the assessed valuations by 
 the owners' estimates of the values of these farms. Of these 283 farms 
 located in 25 towns, 21 were assessed at 100 per cent or more of their 
 estimated value, and 2 were assessed at 20 per cent or less of their 
 estimated value. Eighty-eight farms, or 31 per cent of all those in the 
 group, were assessed for less than 50 per cent of their estimated value, 
 and 68 farms, or 24 per cent of the total, were assessed at 80 per cent 
 or more of their estimated value. 18 
 
 This dispersion in the assessment ratios of individual farms was 
 not due to differences of assessment ratios among the 25 towns, since 
 wide variations in the assessment ratios of farms within each munici- 
 pality were reported. Twenty-nine farms in one town were assessed from 
 20 to over 100 per cent of their estimated values. Twenty-one farms 
 in another town had assessment ratios varying over the same range. The 
 assessment ratios of the farms in each of the 25 towns were similarly 
 dispersed, the minimum range for any one of these towns being from 30 
 to 70 per cent in one town from which only six returns had been 
 received. 
 
 While the available data for testing assessments of real property 
 relate largely to farm property, there are census figures with which 
 assessments of manufacturing buildings, including machinery, water- 
 power, etc., may be compared. The Bureau of the Census estimated that 
 the machinery, tools, and implements of Connecticut manufacturers in 
 1922 were worth $437,195,000. All manufacturing buildings, including 
 machinery, were assessed for only $241,940,654, or for only 55 per cent 
 of the census valuation of machinery and equipment of manufacturers 
 exclusive of buildings. 
 
 Scattered and fragmentary as they are, these data point to the 
 same conclusion, namely, that real property is not generally or uni- 
 formly assessed at the present and true valuation prescribed by statute. 
 Particular parcels of real property within each municipality are assessed 
 at substantially different percentages of their true values. Thus munici- 
 pal taxes imposed upon real property are distributed, not proportion- 
 ately as the law requires, but disproportionately to the true value of 
 property owned. 
 
 * M. S. Kendrick, Taxation in Connecticut, Bulletin 166, Storrs Agricultural Experi- 
 ment Station, p. 157. 
 
The General Peopeety Tax: Assessment 267 
 
 Peesobtal peopeety. 
 
 Outright exemption, registration of choses-in-action with the state 
 treasurer, and evasion have combined to eliminate most of the intangible 
 personal property from the grand list. The amount of this property 
 assessed reached the low figure of $1,396,000 on the grand list of 1932. 
 Of this amount $1,307,000 represented choses-in-action, one-third of 
 which was listed in the town of Willington, where the tax rate is so low 
 as to discourage registration for the state tax of four mills, and $89,000 
 represented the excess of credits over debits of all merchants in the 
 state. For all practical purposes intangible personal property is no 
 longer taxed under the general property tax* 
 
 As with real estate, farm draft animals and cattle appear to be 
 listed with reasonable completeness but to be generally assessed at 
 values below their present true and actual valuation. A slightly larger 
 number of horses and mules was assessed in 1919 than the number of 
 horses, mules, asses, and burros over one year old in the state on Janu- 
 ary 1, 1919, according to the census. There were 21,116 horses, mules, 
 asses, and burros on the farms of Connecticut on April 1, 1930, accord- 
 ing to the census, while 31,760 horses and mules were listed for taxa- 
 tion on October 1, 1929. On January 1, 1920, there were 157,165 
 cattle one year or more of age in the state. The assessment rolls of 
 1919 included 154,469 cattle, or 98 per cent of the number reported 
 in the census. On April 1, 1930, there were 147,444 cattle over one 
 year old on farms alone, according to the census, and there were 128,331 
 neat cattle, or 87 per cent of the census number, listed for taxation on 
 October 1, 1929. 
 
 The divergence between the average assessed value and the aver- 
 age census value per head of the larger farm animals, however, is con- 
 siderable. Horses were assessed at an average value of $78 in 1920, 
 although the census reported an average value of horses on farms in 
 that year of $140. Horses and mules were assessed at an average value 
 of $65 on the grand list of October 1, 1929, while the census reported 
 an average value of horses and colts on farms on April 1, 1930, of 
 $116.34. Farm cattle other than calves less than one year old were val- 
 ued at $91.83 per head as of January 1, 1920, by the census, but the 
 average assessed value of neat cattle on October 1, 1919, was only 
 $49.30. The average census value per head of cattle on farms on April 
 1, 1930, was $110.80, but neat cattle were assessed at an average value 
 per head on October 1, 1929, of only $49.00. The average assessed value 
 of both horses and cattle in 1930 was between 40 and 60 per cent of 
 their value as reported by the census. 
 
 Goods of merchants, traders, and manufacturers are likewise 
 underassessed. The United States Census of Distribution reported that 
 
268 Kepokt of Special Tax Commission 
 
 Connecticut wholesalers and retailers had stocks on hand at the end 
 of 1929 valued at cost at $153,338,491. Goods and merchandise of 
 manufacturers and merchants were assessed for $207,512,388 on Octo- 
 ber 1, 1929. If goods of wholesalers and retailers were assessed at the 
 census valuation, there would be left only $54,173,897 of assessed valua- 
 tion to represent the goods and merchandise of both incorporated and 
 unincorporated manufacturers. But judging by the 1929 inventories 
 of incorporated manufacturers as reported for the country as a whole 
 in federal income tax returns and by the ratio of gross sales of Con- 
 necticut manufacturers to gross sales of all manufacturers in the United 
 States, the inventories of incorporated Connecticut manufacturers 
 should have amounted to around $214,600,000. This is almost four 
 times the figure of $54,173,897 as shown above and, in fact, in excess 
 of the total assessment of goods and merchandise in that year. 
 
 Most motor vehicles are listed for taxation. This doubtless results 
 from the fact that assessors are furnished by the commissioner of motor 
 vehicles with lists of the motor vehicles which have been registered 
 from their respective towns for the current year up to October 1, the 
 assessment day. Ninety per cent of all motor vehicles registered were 
 assessed in 1929, 93 per cent in" 1930 and 1931, and 94 per cent in 
 1932. Only about 20,000 motor vehicles which are registered are not 
 assessed. About 3,000 of this number are government-owned cars, which 
 are not taxable. Another 10,000 are registered after October 1. And 
 some of the remaining 7,000 avoid taxation because of statutory exemp- 
 tions and removal from the state. There are undoubtedly a few thousand 
 cars which are not listed for taxation even though taxable, but the 
 listing of taxable motor vehicles seems to be as complete as any other 
 class of property, with the possible exception of real estate. 
 
 The average assessed valuation of motor vehicles declined from 
 $373 in 1927 to $223 in 1932. Part of this decrease can be accounted 
 for by the fall in prices of new cars during the period. According to 
 an index number of the United States Bureau of Labor Statistics, the 
 average f. o. b. price of six passenger cars in 1932 was 94.3 per cent of 
 that of 1927, and the average f. o. b. price of trucks in 1932 was 81.2 
 per cent of that of 1927. In comparison, motor vehicles were assessed 
 in 1932 at an average value only 59.8 per cent of that of 1927. How 
 much of the difference between these percentages is due to the greater 
 age of the motor vehicles in operation in 1932 has not been determined. 
 The indication is that, while the ratio of assessed to true value has 
 declined somewhat during recent years, motor vehicles have been 
 assessed more nearly at their present true and actual valuation than 
 most, if not all, other classes of taxable property. 
 
The General Property Tax: Assessment 269 
 
 There is little information available for testing the assessment of 
 other classes of personal property. It is interesting to observe in con- 
 clusion that the Census of Distribution for 1929 reported sales of retail 
 jewelry stores, not including jewelry counters of department stores, 
 which were over seven times the valuation of all the jewelry in the 
 state assessed for taxation purposes. Considering the durability of 
 jewelry, this would seem to indicate a ridiculously low assessment ratio 
 even when allowance is made for a personal exemption of $25 on such 
 property. 
 
 The Commission is aware that the data upon which the foregoing 
 appraisal of assessed valuations has been based are not sufficient to 
 establish conclusively the exact dispersion in the ratios of assessed to 
 true values of property on the grand list. It believes, however, that the 
 record substantiates the common impression that extreme diversity 
 exists in the valuation of different types of property and of particular 
 items of property in any one class. This belief is further confirmed by 
 the judgment of those familiar with local assessment conditions and 
 by the results of the scientific appraisals of real property which have 
 been made during recent years in several Connecticut towns. 
 
 Extensive evasion of owners of taxable property and extreme 
 variations in the relation of assessed valuations to true values not only 
 evidence wholesale disregard for the law but also remove any sem- 
 blance of equity in the distribution of the property tax burden. Under 
 such conditions the distribution of the property tax burden is made, 
 not on the basis of any equitable principle, but solely on the fortuitous 
 and arbitrary results of defective assessments established with little 
 regard for requirements of the statutes. 
 
 Criticism and conclusions. 
 
 Character of remedy proposed. 
 
 The defects of the general property tax are not to be eliminated by 
 verbal criticisms of its administration or by incidental amendments of 
 a few sections of the statutes. The experience of many years with prop- 
 erty taxation, both in this country and abroad, has demonstrated the 
 futility of including in the property tax base property which cannot be 
 discovered and valued with reasonable effectiveness. European coun- 
 tries, which extended their strictly land taxes to include personal prop- 
 erty of various types as they came into prominence, have frankly recog- 
 nized the weaknesses of this development and with few exceptions have 
 now returned to the strictly real property tax. American governments 
 have persisted in their efforts to make the general property tax effec- 
 tive and have gone to considerable lengths in elaborating the machinery 
 
270 Repobt of Special Tax Commission 
 
 of assessment and in increasing the powers of assessing authorities. 
 But in spite of these efforts the assessment of many different kinds of 
 property for taxation has progressively deteriorated, and, by sheer 
 inability to reach and value certain types of property, the states have 
 been forced either to condone the flagrant inequity resulting from whole- 
 sale evasion or to acknowledge the facts by exempting particular kinds 
 of property. The Commission believes that this experience points the 
 way to the only lasting solution of the problems of general property 
 taxation. It proposes (1) to eliminate those kinds of property from 
 the tax base which cannot be effectively discovered and valued or which 
 are not of sufficient importance to justify the administrative effort and 
 expense required for their assessment, (2) to provide more definite 
 and practicable rules and procedures for the assessment of property 
 remaining taxable, and (3) to strengthen the administrative organiza- 
 tion responsible for assessing taxable property. 
 
 Simplification of the geand list. 
 
 Unimportant classes of peesonal peopeety. 
 
 During many years the state has, by exemptions and alternative 
 methods of taxation, gradually removed most intangible property from 
 the tax base. There remain taxable only such choses-in-action as are 
 not registered for state taxation with the state treasurer and the excess 
 of credits over debits of merchants. The total assessment of intangibles 
 as shown in Table XLIII declined from 6.9 million dollars on the grand 
 list of 1920 to 1.1 millions on the grand list of 1933. During this period 
 money on hand and on deposit was exempted from taxation, leaving in 
 the grand list only the two types of intangibles mentioned above. On 
 the grand list of 1932 the excess of credits over debits .of all merchants 
 was assessed for only $89,000, and choses-in-action, for only $1,307,000. 
 These two classes were combined in the statistics of the grand list of 
 1933 and together amounted to only $1,136,000. Assessments of 
 intangibles have now reached the point where they represent only four 
 one-hundredths of one per cent of the grand list, and they retain even 
 this low relative importance only because a few persons holding large 
 amounts of intangibles prefer to list them locally rather than to regis- 
 ter them with the state treasurer. The elimination of intangibles from 
 the general property tax has, for all practical purposes, already been 
 made, and there is no need to present other arguments to support the 
 proposal that this process be carried to a conclusion by exempting entire- 
 ly intangible personal property from general property taxation. 
 
 The Commission is not proposing to relieve the taxable capacity 
 represented by intangibles from taxation. It is proposing to abolish 
 the "property" taxation of this property, which experience has shown 
 
The General Phopeety Tax: Assessment 271 
 
 to be impracticable, and which sound principles fail to justify. In 
 following chapters it is proposed that a tax be imposed upon the inter- 
 est and dividends received from intangibles in place of the present 
 taxes, consisting of the choses-in-action tax, the estate penalty tax, and 
 the general property tax, based on some measure of the capital value 
 of intangibles. 
 
 There are several other classes of property in the grand list which 
 are assessed for amounts which hardly warrant the cost of administra- 
 tion. For several years no assessment has been reported for dogs. Three 
 classes of property — (1) net earnings of enrolled vessels, (2) fisheries 
 and their apparatus, and (3) carriages, wagons, and bicycles — were 
 each assessed for less than $100,000 in 1933. Three other clasess — 
 (1) farm produce, (2) farm implements and mechanics' tools, and (3) 
 sheepj goats, swine, and poultry — were each assessed for from $100,000 
 to $1,000,000. Another three — (1) watches and jewelry, (2) sailing, 
 steam, and other boats, and (3) horses and mules — were each assessed 
 for from $1,000,000 to $2,000,000. Finally, neat cattle were assessed 
 for only $5,345,000. Thus each of ten of the fourteen classes of tangible 
 personal property was assessed on the grand list of 1933 for less than 
 $5,500,000. 
 
 No one of these classes of tangible personal property amounts to 
 as much as two-tenths of one per cent of the grand list or yields any 
 considerable amount of property taxes. The total assessment of all the 
 property in these ten classes amounted in 1933 to only $12,245,000. 
 This sum represented only four-tenths of one per cent of the gross grand 
 list of 1933 and only 4.5 per cent of the assessed valuation of all 
 tangible personal property in that year. At the average state rate of 
 taxes imposed on the 1933 grand list, 24.6 mills, the property taxes 
 assessed against these ten classes of property would have amounted 
 to only $301,227 as compared with a levy of 72.9 million dollars on the 
 total grand list. 
 
 Elimination of these classes of tangible personal property would 
 not adversely affect to any important degree the grand list of any 
 municipality or change substantially the distribution among taxpayers 
 of the taxes of any municipality. At the writing of this report, the 
 statistics of assessments on October 1, 1933, had not been published 
 by towns, so that reference will be made to the grand list of October 
 1, 1932, in discussing the effects of these eliminations upon the grand 
 lists of individual towns. 
 
 Farm animals, consisting of neat cattle, horses and mules, and 
 sheep, goats, swine, and poultry, accounted for 7.5 millions of the 12.2 
 million dollars of tangible personal property in the ten classes in 1933. 
 Farm animals were assessed for $7,729,000 in 1932, which represented 
 
272 Eepoet op Special Tax Commission 
 
 one-fourth of one per cent of the gross grand list in that year. If assess- 
 ments of farm animals had been eliminated from the list of 1932, 
 the grand lists of 88 of the 169 towns would have been reduced less 
 than one per cent, of 26 towns between one and two per cent, of 18 
 towns between two and three per cent, of 21 towns between three and 
 four per cent, of 10 towns between four and five per cent, of 5 towns 
 between five and six per cent, of 5 towns between six and seven per 
 cent, of 1 town between seven and eight per cent, of 3 towns between 
 eight and nine per cent, and of 2 towns between ten and eleven per cent. 
 In short, the elimination of this type of rural property would have 
 reduced the grand lists of 104 towns less than 2 per cent in 1932, 
 and the grand lists of only 16 towns from five to eleven per cent. 
 
 The effect of the elimination of farm animals on the distribution 
 among taxpayers of the property taxes of even those towns whose 
 grand lists would be reduced by the larger percentages would not be 
 as important as these figures indicate. If the property tax levies were 
 unchanged, the tax rates in the towns would have been increased by 
 approximately the percentage reductions in the grand lists due to the 
 elimination of this property. But if assessments of farm animals were 
 distributed among taxpayers in the same proportion as other taxable 
 property, the actual taxes required of taxpayers would be the same 
 whether farm animals were or were not included in the grand list. It is 
 not unreasonable to assume that, among farmers at least, there exists a 
 fairly close relationship between the value of draft animals and cattle 
 and the value of farm land and buildings and other taxable property. At 
 any rate, the shifting of the property tax burden resulting from elimina- 
 tion of assessments of farm animals would be very slight, since it would 
 arise only to the extent that the distribution of the assessments of farm 
 animals among taxpayers diverges from the distribution of assessments 
 of other taxable property, and particularly of real property. 
 
 Whatever minor changes might result from the elimination of 
 farm animals from the grand list are more than counterbalanced by 
 the advantages of this step. Although there is no special difficulty 
 in listing and valuing farm animals, the evidence indicates that they 
 are placed on the grand list at widely differing ratios of their present 
 true and actual valuation. Thus the distribution of property taxes 
 according to the ownership of these animals is unequal now when they 
 are taxable. If this property were eliminated, the distribution of the 
 tax burden would probably be more rather than less equitable than 
 it is now, even in those towns where it constitutes a relatively large 
 percentage of the grand list. There have already been exempted from 
 property taxation colts, calves, and lambs less than one year old, $100 
 of sheep and angora goats, $50 of swine, and $25 of poultry. Through 
 
The General Peopeety Tax: Assessment 273 
 
 these exemptions, a substantial proportion of the animals on farms is 
 not now taxed, and less inequality in the distribution of the tax bur- 
 den would exist if all were exempted than when some are taxed and 
 some are exempted. 
 
 Added to these considerations of equity are the administrative 
 advantages of exempting farm animals. If assessors were to assess farm 
 animals by annual field inspections, which should be done to administer 
 the law properly, much effort and expense would be required to place 
 on the grand list probably not more than ten million dollars worth of 
 property. The taxes from this property at the average state rate would 
 amount to not more than $250,000. The same administrative work 
 applied to the assessment of real property would help to increase the 
 accuracy of the listing and valuation of property yielding now more 
 than ninety per cent of the property taxes levied. 
 
 The elimination of none of the other unimportant classes of tan- 
 gible personal property would affect the grand list anywhere near as 
 much as does the elimination of all farm animals. As a result of the 
 present exemption of farm produce, in the hands of farmers and 
 farmers' cooperative marketing corporations, growing, grown, or pro- 
 duced in the preceding season, practically no farm produce except 
 tobacco is now taxed, and the combined assessment of farm produce 
 and of farm implements and mechanics' tools amounted to only 
 $1,397,000 in 1933 and $1,380,000 in 1932. If this property had not 
 been assessed in 1932, the grand lists of 167 of the 169 towns would 
 have been reduced less than one per cent, and those of the remaining 
 two towns, by from one to two per cent. 
 
 Sailing, steam, and other boats and vessels are not only of 
 slight importance in the grand lists of the several towns, but they 
 present formidable problems of assessment and collection. Only half 
 the towns in the state report an assessment of such property, and in 
 only two towns did it make up more than one per cent of the 1932 grand 
 list. Seacraft are readily removed from the state, and watercraft of 
 any type can be and often are moved from town to town, thus raising 
 difficult questions of taxable situs and increasing assessment and 
 collection costs. Some boats are taxed in two or more states ; others are 
 not taxed at all. Although the assessor secures some assistance from 
 the town clerk in listing this property, registration is required only 
 of motor boats, and it is not complete even for this class of watercraft. 
 For these reasons we believe that the attempt to tax this type of prop- 
 erty has generally failed. In spite of its similarity in character to 
 motor vehicles and aircraft, the exemption of which we do not recom- 
 mend, we believe that greater equity would result from the exemption 
 of watercraft when not used for business purposes. 
 
274 Kepobt of Special Tax Commission 
 
 The 1932 assessment of watches and jewelry was less than two- 
 tenths of one per cent of the grand list in almost all towns. No assess- 
 ment of watches, diamonds, and other jewelry was reported for 59 
 towns. The largest assessment was that of Greenwich, which amounted 
 to $141,190, or eight one-hundredths of one per cent of the gross grand 
 list of that town. In Pomfret and Norfolk, watches, diamonds, and 
 other jewelry were slightly more than one per cent of the grand list 
 in 1932. 
 
 The small loss of valuation resulting from the exemption of these 
 classes of tangible personal property makes it unnecessary to dwell 
 at any length upon other reasons which might be advanced for their 
 elimination. A casual examination of the assessments of watches and 
 jewelry in the grand list of any year is all that is necessary to show 
 the ridiculousness of these assessments. In preceding pages the 
 inequality of the assessments of other of these classes' of property 
 has been discussed. The General Assembly has already exempted a 
 considerable amount of property of each of these classes of tangible 
 personal property. Complete listing and accurate valuation of such 
 property as watches and 1 jewelry, boats, farm implements and 
 mechanics' tools, and the net earnings of enrolled vessels is well-nigh 
 impossible and, in fact, is not even attempted by the assessors of the 
 state generally. What property of these types is listed is almost wholly 
 voluntary offerings of the ignorant and over-conscientious.- Continu- 
 ance of these classes of property in the grand list can only mean the 
 continuance of farcical assessments, which promote injustice, call forth 
 disregard for the law, divert assessors from more important work, and 
 complicate assessment records, all for the sake of an almost insig- 
 nificant amount of taxes. 
 
 On these grounds the Commission urges that in addition to all 
 existing exemptions of tangible personal property a further exemption 
 be accorded to (1) the net earnings of enrolled vessels, (2) farm 
 produce held by the producer or by farmers' cooperative marketing 
 corporations, and (3) all of the following classes of property when 
 owned by farmers and used in the farming business or when owned 
 by any person and used for other than business or professional 
 purposes : (a) all animals, (b) all farming implements and mechanical 
 tools, (c) all fisheries and fishing apparatus, (d) all sailing, steam, and 
 other boats, (e) all carriages, wagons, and bicycles, (f ) all watches, dia- 
 monds, and other jewelry. 
 
 Household etjenishings. 
 
 There remain for further consideration only four classes of tax- 
 able personal property. These are (1) household furnishings, consisting 
 
The Gebtebal Pkopebty Tax: Assessment 275 
 
 of furniture, libraries, radios, and musical instruments, (2) motor 
 vehicles and aircraft, (3) goods of manufacturers, merchants, and 
 traders, and (4) cables, conduits, pipes, poles, towers, underground 
 mains, wires, etc., chiefly the property of privately owned water, gas, 
 and electric companies. 
 
 The exemption of household furnishings raises a larger problem 
 than those discussed in the preceding section because of the greater 
 importance of this property in the grand list. This class of property 
 was assessed at 10.2 million dollars on the grand list of 1920, at 30.5 
 millions in 1931, and at 25.4 millions in 1933. At the average state 
 rate of 24.6 mills, this property would have yielded $624,348 in 1934. 
 
 Household furnishings owned and used by business concerns, such 
 as hotels, for profit-making purposes stand in no different relationship 
 to the property tax than the equipment of manufacturers, merchants, 
 and other professional or business taxpayers and should be subjected 
 to the same method of property taxation. The problem we are concerned 
 with at this point relates to privately owned furniture, radios, and 
 musical instruments located and used in homes. It is this property 
 which makes up the bulk of the taxable household furnishings in the 
 state. 
 
 As long as household furnishings of private persons used in homes 
 remain taxable, this property will continue to be self-assessed and will 
 be listed on the grand list, not according to the law, but according to 
 the extent to which owners of such property consider it desirable to 
 comply with the law. It is possible to formulate in the abstract an 
 administrative procedure by which assessors Would be enabled, by a 
 house-to-house search, to list taxable household furnishings completely. 
 American people, however, have shown themselves jealous of the 
 privacy of their homes and have not hesitated to withdraw their support 
 from any governmental action requiring intrusion and searching of 
 homes. Assessors will not thus contend against an overwhelming public 
 opinion even if the resulting failure to discover taxable property vio- 
 lates the mandate of the statutes. Connecticut, like all other states, has 
 found from years of experience that household furnishings, while they 
 remain taxable, will be listed with extreme inequality. 
 
 Furnishings of homes present also difficulties of valuation. This 
 property, although durable in character, is gradually being worn out 
 in ministering to the needs of the owners. As soon as it is purchased, 
 its present true and actual valuation in the sense of market value falls. 
 Yet it has a subjective desirability to the owner which is quite different 
 from the price which it might bring in the second-hand market. There 
 is.no standardization in the furnishings of homes. There is no uni- 
 formity in the age or serviceability of individual pieces of furniture 
 
276 Kepokt of Special Tax Commission 
 
 or of individual musical instruments. To look to the assessors to make 
 an annual inventory of all the household furnishings in their com- 
 munities and to discover their market value is to impose an impossible 
 task, which could produce only the most absurd and inequitable results. 
 
 Statutes now in force indicate that the people of the state and the 
 General Assembly consider the taxable capacity represented by house- 
 hold furnishings to be different in some degree from that represented 
 by real property. Household furniture to a value of $500, private 
 libraries and books to a value of $200, and musical instruments, 
 including radios, to a value of $25 are exempt from property taxation. 
 A certain amount of household furnishings is indispensable to civilized 
 living, and the ownership of such property within limits has been 
 acknowledged by the present exemptions to be no valid measure either 
 of ability to pay taxes or of benefits received from governmental 
 services. 
 
 Although the assessment placed on household furnishings is a 
 considerable sum, its elimination would result in no significant change 
 in property taxation except a slight increase in property tax rates. The 
 average state rate which would have been required to raise the total 
 property tax levy from the grand list of 1933 if household furnishings 
 had been eliminated would have been but two-tenths of a mill higher 
 than the actual rate of 24.6 mills. 
 
 Assessments of household furnishings, moreover, are distributed 
 with reasonable uniformity among the grand lists of the towns. Exemp- 
 tions of household furnishings would have reduced the grand lists of 
 1932 less than one per cent in 143 towns, from one to two per cent 
 in 20 towns, from two to three per cent in 3 towns, and from three to 
 and including four per cent in 3 towns. The 1933 tax rates of all the 
 towns whose grand lists would have been reduced by more than two 
 per cent were below the average state rate. Pomfret, Norfolk, and 
 Washington, the grand lists of which would have been reduced from 
 three to four per cent had, together with any municipal subdivisions 
 within them, tax rates of 23 mills, 14.9 mills, and 13 mills respectively. 
 Sharon, Cornwall, and Salisbury, the grand lists of which would have 
 been reduced from two to three per cent, had municipal tax rates of 
 21.3 mills, 16 mills, and 13.6 mills respectively. Since it is not intended 
 to eliminate from the grand list household furnishings employed in 
 business pursuits, the effects on town grand lists and tax rates indicated 
 by these figures are the maximum effects which would result from the 
 exemptions under consideration. 
 
 It is the judgment of the Commission that all household furniture, 
 radios, and musical instruments which are not used for business or 
 professional purposes should be exempted from taxation. 
 
The General Peopeety Tax: Assessment 277 
 
 Motoe vehicles and aieceaft. 
 
 Although motor vehicles are listed and valued for property taxa- 
 tion with success equal to or greater than that attending the listing of 
 most other classes of taxable property, this result is obtained only with 
 great difficulty under present methods of administration. The reports 
 made by the commissioner of motor vehicles' to the assessors of all 
 vehicles registered in the respective towns do facilitate listing. But the 
 large number of motor vehicles, the differences in makes, types, age, 
 and physical condition, the frequency with which ownership is trans- 
 ferred, the different exemptions which may be applied against these 
 vehicles, the difficulty of definitely establishing the residence of motor 
 vehicle owners, and other similar conditions combine to make the assess- 
 ment of motor vehicles one of the most time-consuming tasks of assessors. 
 
 Though these assessment difficulties are formidable, collection of 
 property taxes levied on motor vehicles is even more difficult. Collec- 
 tion difficulties arise from several causes. The task of collectors in locat- 
 ing motor vehicle owners and in collecting the taxes is complicated by 
 the mobility and destructibility of the property, the frequency with 
 which motor vehicles are transferred, and the long interval between the 
 date as of which the lists of the commissioner of motor vehicles are 
 compiled and the due dates of property taxes. Perhaps the most impor- 
 tant cause of collection trouble, however, is the practice of owners in 
 registering motor vehicles as residents of towns other than those of 
 residence at the time the taxes are due. The extent to which this prac- 
 tice exists is not definitely known, but it is thought that a great many 
 vehicles are so registered. This may be done with intent to evade the 
 tax or by inadvertence, as when a resident of one town has a business 
 or post office address in another town. The tax commissioner's office 
 discovered recently that about fifty per cent of the owners of motor 
 vehicles claiming residence in a certain small town having a low tax 
 rate were actually unknown to bona fide residents of that town. 
 
 Under such conditions considerable time of the collectors must be 
 expended in locating owners. A substantial amount of the motor vehicle 
 property taxes is never collected,, and that part of these taxes 
 which is collected is obtained only at great trouble and expense. 
 It was estimated by the tax commissioner's office a few years ago 
 that upwards of one-fourth of the time of assessors and collectors 
 is taken to assess and collect taxes on motor vehicles, which constituted 
 at that time not more than three per cent and which now amount to 
 less than two per cent of the gross grand list of the state. 
 
 There is no established practice of exchanging information among 
 town taxing officials for whatever assistance such information might 
 be to assessors or collectors. When owners are found but fail to pay the 
 
278 t Eepoet of Special Tax Commission 
 
 taxes levied, collectors are reluctant to make use of the available enforce- 
 ment measures to collect taxes of such small amounts. These difficulties 
 generally result in each town collecting what property taxes on motor 
 vehicles it can without regard to the residences of owners and leaving 
 the uncollected taxes to encumber its collection and other accounting 
 records. 
 
 The loss of taxes on motor vehicles due to evasion or delinquency 
 cannot be accurately determined. It has been estimated by some col- 
 lectors that it amounts to 25 per cent of the amount legally collectible, 
 but this estimate seems somewhat high on its face. The tax commis- 
 sioner's office estimates that the total loss of motor vehicle property 
 taxes, from failure to assess and collect, amounts to 15 per cent of 
 the taxes levied on such property. 
 
 In his biennial report of 1929-30, the tax commissioner called 
 attention to the problems of local taxation of motor vehicles as follows :" 
 
 Several unsuccessful attempts have been made in recent years 
 to correct the chaotic condition prevailing in all municipalities 
 of the state with respect to the taxation of motor vehicles. It is 
 reliably estimated that through failure of assessors to list all 
 such vehicles and failure of tax collectors to collect from all 
 that are listed, municipalities are annually losing $300,000. 
 The usual difficulties are experienced in striving to obtain 
 results in subjecting this class of property to a local tax as 
 are experienced in attempting to tax locally other classes of 
 movable property. These are too numerous to describe in detail 
 and it is, therefore only necessary t/> state that with few excep- 
 tions the assessors and tax collectors of one hundred and sixty- 
 nine towns are agreed that the present law is impossible of 
 administration to the extent contemplated and desired. 
 
 The solution of most of the difficulties of taxing motor vehicles 
 as property is to transfer the administration of this tax to the state. 
 There is in the state department of motor vehicles a record and full 
 description of practically every motor vehicle owned by a resident of 
 the state. This information is readily available for listing and for 
 establishing valuations. Every resident owner of a motor vehicle must 
 apply annually in person or by mail for a registration license, thus 
 establishing a connection between the motor vehicle department and 
 motor vehicle owners which can be used in collecting the taxes assessed. 
 State administration of property taxes on motor vehicles would elimi- 
 nate unnecessary duplication of records and effort, would expedite the 
 
 '"Tax Commissioner, Biennial Report, 1930, p. 14. 
 
The General Property Tax: Assessment 279 
 
 processes of assessment and collection of these taxes, and would over- 
 come most if not all of the present difficulties under local administration. 
 
 The Commission proposes that motor vehicles be subject to a spe- 
 cial property tax to be administered by the state commissioner of motor 
 vehicles in lieu of local property taxes on this property. It was not 
 considered wise to combine the special property tax and the motor vehi- 
 cle registration fee into a single tax. The property tax is levied upon 
 the basis of value and for the purpose of defraying costs of general 
 government in the municipalities of the state. The registration fee ha~s 
 quite a different historical and theoretical background. It is based upon 
 size instead of value, and the proceeds are earmarked for the financing 
 of the state highway system. The special property tax is proposed, not 
 to change the fundamental character of the present local property tax, 
 but as a means of avoiding the administrative breakdown of the pres- 
 ent tax. 
 
 The special property tax should be based on some measure approxi- 
 mating, as nearly as possible within the limits of effective administra- 
 tion, the value upon which property in general is taxed locally, and it 
 should be levied at a uniform rate upon all motor vehicles in the state. 
 These provisions are necessary to make the task of assessing and col- 
 lecting the tax by the commissioner of motor vehicles manageable and 
 to discourage the declaration of false residences. But they can also be 
 defended on more purely theoretical grounds. The very mobility of 
 motor Vehicles, which at present frustrates effective administration of 
 the local property tax on these vehicles, gives to this property a state- 
 wide character and significance not attaching to other types of taxable 
 property. 
 
 The Commission suggests that the special property tax in lieu of 
 local property taxes be imposed at a uniform rate of 20 mills through- 
 out the state upon a valuation derived from the manufacturers' list- 
 prices of the years of manufacture depreciated according to a schedule 
 to be prescribed by statute. 
 
 This proposal has been previously considered by state and local 
 officials and by the General Assembly but has not met with favor, prin- 
 cipally because of the objection to making the special property tax 
 payable at the same time that the registration fee is paid. The Com- 
 mission proposes to remove this objection in two ways. It is proposed 
 that the special property tax be due on August 1 and be payable during 
 the month of August without penalty. This will fix the due date of 
 the tax at a time considerably removed from that when most registra- 
 tion fees are paid. To effect this collection arrangement, the Commis- 
 sion suggests that bills for the special property tax be sent before 
 July 1 to all persons who have registered motor vehicles before May 1. 
 
280 Report of Special Tax Commission 
 
 Owners registering vehicles after May 1 which they owned on the 
 assessment day (January 1) would be required to pay the special 
 property tax at the time of registration. Revocation of the registration 
 license would be used to enforce payment of all taxes levied before 
 September 1 of each year when such taxes are not paid by that date. 
 Secondly, the Commission proposes to remove some of the objection 
 to requiring those who register vehicles after May 1 to pay the special 
 property tax and registration fee at the same time by its recommenda- 
 tion in a following chapter that registration fees be substantially 
 reduced from present levels. 
 
 Although the Commission advocates the special property tax as 
 a substitute for the general property tax largely for administrative 
 reasons, it deems it desirable to make the special tax conform as closely 
 as possible to most of the features of the local property tax. It would, 
 in particular, allow persons entitled to the property exemptions of 
 $1,000 and $3,000 granted to service and ex-service men and their 
 relatives and to the blind to receive the full benefit of their statutory 
 exemptions even though their local property was assessed at less than 
 these amounts. The procedure which we propose for this purpose is 
 simple. Instead of leaving the administration of these exemptions in 
 the hands of local assessors, where it now lies, we would transfer it 
 to the collector. An ex-service man's property would then pass through 
 the regular assessment channels, but upon the establishment of a claim 
 for exemption, the collector would credit his tax bill with an amount 
 equal to the product of the local tax rate times his $1,000 exemption. 
 If the credit exceeded the amount of the local tax bill, the balance, 
 when reported to the commissioner of motor vehicles, would be appli- 
 cable to the special property tax. In this way no matter what the local 
 tax rate might be, whether more or less than the proposed rate of 
 20 mills for the special property tax on motor vehicles, each person 
 entitled to an exemption of a certain amount of property would receive 
 equity. 
 
 With respect to the disposition of the revenues the Commission 
 also views the special property tax, not as a state tax, but as a device 
 to secure more effective administration for an essentially local source 
 of revenue. The Commission suggests, therefore, that the revenues 
 remaining after payment of reasonable administrative costs be remitted 
 by the state treasurer to the towns on the basis of the taxes collected 
 from the resident owners of motor vehicles in each town. 
 
 Aircraft present problems of assessment and collection similar 
 in most respects to those described above for motor vehicles, and it is 
 our judgment that they should be subject to the same sort of special 
 property tax. Aircraft are now subject to registration just as are motor 
 
The General Peopeety Tax: Assessment 281 
 
 vehicles, the principal difference being that the administration has 
 been placed with the commissioner of aeronautics instead of the com- 
 missioner of motor vehicles. This affords the opportunity for state 
 administration in a manner which will be covered in detail in a bill 
 to be presented for the consideration of the General Assembly. 
 
 Combined effects. 
 
 Only those changes in taxable property which affect local tax 
 rates or the distribution of levies among local property owners are 
 of importance to town financing. The Commission proposes to retain 
 in local grand lists those classes of property which are left after 
 making the eliminations proposed above and to provide improved rules 
 and procedures for their assessment. While motor vehicle assessments 
 would disappear from local grand lists, the revenues from the special 
 property tax on these vehicles would be received by the respective 
 municipalities, so that no important change in the tax rates or in the 
 distribution of the tax burden would result from this change. 
 
 All of the tangible and intangible personal property which it is 
 proposed be eliminated from the grand list without substitution of an 
 alternative tax to be distributed to the municipalities was assessed 
 at not to exceed an aggregate amount of 40.5 million dollars in 1930, 
 '39.2 millions in 1933,. and 38.8 millions in 1934. Figured at a rate 
 of 25 mills, the taxes on this amount of property would have amounted 
 to $1,011,950 in 1930, $979,975 in 1932, and $969,625 in 1933. 
 The combined assessment of these classes of property amounted to 
 1.3 per cent of the gross grand list in each of these three years. 
 
 The grand lists of most towns would be reduced comparatively 
 little by these eliminations. If these types of property had not been 
 assessed on the town grand lists of 1932, the grand lists of 28 towns 
 would have been reduced less than one per cent; of 47 towns, from 
 one to two per cent ; of 24 towns, from two to three per cent ; 
 of 24 towns, from three to four per cent; of 12 towns, from 
 four to five per cent; of 16 towns, from five to six per cent; 
 of 7 towns, from six to seven per cent; of 2 towns, from seven 
 to eight per cent; of 5 towns, from eight to nine per cent; and of 4 
 towns, nine per cent or more. One hundred and fifty-one of the 169 
 towns would have had their grand lists reduced by less than 6 per cent. 
 Only 18 towns would have had their grand lists reduced by 6 per cent 
 or more. 
 
 These changes would, of course, result in slightly higher tax rates 
 than would suffice were they not made. But the difference — less than 
 three-fourths of a mill in a majority of towns — is so small that matters 
 of expediency alone would rule in favor of the proposed exemptions. 
 
282 Repoet of Special Tax Commission 
 
 Moreover, as we have already pointed out, the people who pay taxes 
 on property which we propose to exempt are much the same people 
 who pay taxes on property which would remain taxable. It is indeed 
 probable that an even more equitable distribution would be obtained 
 by means of the proposed exemptions, because of the highly dispro- 
 portionate manner in which the property involved is now assessed and 
 because of the greater efficiency with which the assessors would be 
 able to attend to the assessment of property remaining taxable. 
 
 Changes in eules and peoceduee. 
 rules of assessment. 
 Rules op situs. 
 
 By reducing the classes of taxable property to those classes which 
 exist in sufficient amounts to justify the trouble and expense of assess- 
 ment and which are capable of being listed with reasonable complete- 
 ness and valued with reasonable accuracy, it becomes practicable to 
 develop and apply more specific and workable rules of situs and of 
 valuation for tax purposes. 
 
 In recent years there has been developed a considerable body of 
 judicial opinion establishing the situs of real property and of tangible 
 personal property for taxation purposes at the place where the property 
 is located at the time when liability for taxation takes effect. This 
 principle underlies the existing rules of situs for property taxation in 
 this state, but several exceptions which complicate the rules are made 
 to accommodate them to the several types of movable personal property 
 which are taxable. Personal property may be taxable under existing 
 rules where it is located seven months or more in a given year, at the 
 principal place of business of a corporation, where a corporation exer- 
 cises its corporate powers, at the place of business of a trading, mercan- 
 tile, manufacturing, or mechanical business, at the residence of owners, 
 at the residence of trustees, or at the residence of wards. It is difficult 
 not only to determine for particular items of personal prpperty which 
 of these rules govern but also to apply properly any one of the several 
 rules prescribed. In particular, the basic "seven months rule" presents 
 problems with respect to consigned goods, farm animals, and certain 
 types of movable property, and it provides at times a convenient means 
 by which property may escape taxation. With the proposed simplifica- 
 tion of the grand list, the general rule that all taxable property shall 
 be assessed and taxed in the town in which it is located on the assess- 
 ment day could be applied, with but one minor - exception to avoid 
 difficulty in determining the situs of goods, wares, and merchandise 
 of itinerant traders who have no permanent place of business and 
 
The General Peopeety Tax: Assessment 283 
 
 who may be in several towns on the same day. Such property can best 
 be taxed in the town where these traders reside. 
 
 In the main, the general property tax should apply to taxable 
 property "existing on the assessment day. This is an equitable rule with 
 respect to all real property and to that portion of taxable personal 
 property the volume and value of which remain substantially constant 
 throughout the year. Machinery, equipment, office furniture and fix- 
 tures, and even the inventories of many non-seasonal mercantile and 
 manufacturing concerns are relatively constant in amount throughout 
 the year. 
 
 Limiting taxable property to that located in a town on a given 
 day would facilitate the work of the assessors. It would eliminate the 
 difficulties of determining the taxability of* consigned goods. There 
 would be no questions of business situs, residence of owners, periods 
 during which property was located in different towns, or of averaging 
 — all of which are troublesome under present practice. If the assess- 
 ment day were fixed on January 1, as the Commission suggests, 
 assessors would have available records of physical inventories for the 
 large majority of business concerns, since most concerns take their 
 inventories at the close of the calendar year and are encouraged to do 
 so for federal income tax purposes. Many concerns take their inven- 
 tories only once a year and at this time. Without such records neither 
 assessors nor taxpayers are in a position to determine accurately the 
 amount and value of their taxable inventories. The Commission believes 
 that these advantages amply justify the general rule of making only 
 such tangible property taxable as is located in a town on January 1. , 
 
 Provision should be made, however, to avoid the gross and glaring 
 inequalities in the tax burdens of merchants and manufacturers which 
 would result from applying this rule to seasonal businesses. The Com- 
 mission understands that seasonal businesses constitute a small part 
 of the business of the state and hold only a small proportion of total 
 taxable inventories. The Commission suggests, therefore, that when, 
 because of its seasonal character, the stock in trade of any business on 
 the assessment day does not represent the amount reasonably required 
 to carry on such business, the business be assessed for the average 
 monthly value of its stock in trade. 
 
 .Rules of valuation. 
 
 Under the property tax in Connecticut, as in every other state, 
 the basis of assessment is the value of the taxable property. The 
 language of the statutes makes perfectly clear that this was the inten- 
 tion of the General Assembly. It is, also evident from the language of 
 the statutes that the General Assembly had a clear and precise notion 
 
284 Report of Special Tax Commission 
 
 of the meaning of value, which is moreover in complete agreement 
 with the concept of value as defined in the science of economics. This 
 Commission believes that this situation is wholly sound and that every 
 effort should be made to preserve the fortunate absence of ambiguity 
 as to the meaning of value. To this end, it recommends that the follow- 
 ing definition of value be incorporated in the law: value shall mean 
 the amount of money for which the property could be sold within a 
 reasonable time under circumstances in which neither the buyer nor 
 the seller is forced. The introduction of this definition in the statute 
 would in no way modify the present meaning of the law. It would 
 simply clarify the meaning and possibly serve to prevent ambiguity 
 at some future time. 
 
 The practical problem of assessment under the property tax con- 
 sists in discovering the taxable property and determining its value. 
 Once the property is discovered, what makes assessment a hard task 
 is, not any uncertainty as to the meaning of value, but the difficulty 
 of determining what actually is the value of a specific piece of property. 
 Assessment requires an act of judgment, involving a weighing of all 
 the available evidence and a final conclusion as to what Hhe property 
 in question would probably sell for. This task is seldom easy; often 
 it presents serious — in some cases insuperable — difficulties. These diffi- 
 culties have ' occasionally led to the belief that something else than 
 value might well be substituted as the basis of assessment. 
 
 This Commission is of the belief that value, in spite of the recog- 
 nized difficulties of its determination in certain cases, is nevertheless 
 the best basis for assessment of property in general. For real property 
 in particular, we would adhere to the value basis. Our only suggestion 
 here is that the statutes give some definite recognition to the validity 
 of certain standard methods and formulas of appraisal which by experi- 
 ence have demonstrated their effectiveness as aids to assessment. 
 
 The Commission's recommendations contemplate the abolition of 
 the local property tax upon all intangible property and upon practically 
 all tangible personal property except business inventories, machinery, 
 and equipment, the distribution systems of gas, water, and electric 
 companies, and the equipment of professional enterprises. We recog- 
 nize that for these classes of personal property for which exemption 
 is not recommended, the task of determining value is almost or quite 
 hopeless. Moreover, it is our belief that in many cases actual value 
 is not intrinsically the most equitable base. The Commission therefore 
 proposes that the law declare that assessment of tangible personal prop- 
 erty shall be determined by means of certain rules and formulas on 
 the basis of definite facts usually readily ascertainable from the 
 accounts of the owners or in other ways. 
 
The General Property Tax: Assessment 285 
 
 Assessment of tangible personal property. 
 In general. 
 
 It has been recognized for many years that the tangible personal 
 property of business concerns, including manufacturers, merchants, 
 and local public utilities, is not assessed with even reasonable equality. 
 The thorough field study of these assessments made in 1917 by the 
 Joint Committee on Taxation and State Finance of the Connecticut 
 Chamber of Commerce disclosed wholesale and serious inaccuracies 
 even in the recording of these assessments on the town grand lists. 
 The chairman of this Commission conducted this earlier investigation 
 and came to the following conclusion : M 
 
 There can be no doubt that one result of this investigation has 
 been to show conclusively the gross inefficiency of the present 
 method of assessment, particularly with reference to the prop- 
 erty of manufacturing and mercantile corporations. As a 
 matter of fact, in most cases the owner is himself the assessor. 
 The assessor generally does not have the technical knowledge 
 necessary to make a true valuation ; sometimes he is careless 
 or does not take the necessary time. Frequently the owner 
 agrees with the assessor as to a certain valuation which both 
 parties know is less than true value. Very often the assessor 
 is content to accept the owner's statement without scrutiny. This 
 virtually means a system of self-assessment. That there must 
 result under such a system much undervaluation and evasion 
 and, therefore, inequality and injustice, goes without saying. 
 
 This condition of affairs has evidently not improved since 1917. 
 The tax commissioner wrote in 1924 as follows: 51 
 
 The practice with respect to taxation of machinery and 
 merchandise in Connecticut is offensive to all who understand 
 it. Unfortunate as may be the practice of assessing land and 
 buildings, the practice which obtains as a rule, with respect 
 to the taxation of merchandise of manufacturers and of mer- 
 chants sinks extremely low in comparison. The towns of the 
 state should be lifted out of this sort of evil. 
 
 Again in 1928 the tax commissioner wrote: 02 
 
 B ° Joint Committee on Taxation and State Finance, Connecticut Chamber of Com- 
 merce, Report, 1917, p. 60. 
 51 Tax Commissioner, Biennial Report, 1924, p. 12. 
 H Tax Commissioner, Biennial Report, 1928, p. 11. 
 
286 Report of Special Tax Commission 
 
 Machinery and other tangible personal property of industrial 
 concerns, by the provisions of the statutes, is to be listed by 
 the taxpayer and appraised by the assessors according to its 
 value on the assessment date. The necessities of the case are 
 such that this class of property, and it is valuable and ought to 
 be properly taxed, is being set in the list by the assessors and 
 appraised by the rule-of-thumb. Local assessing authorities 
 generally take the view that it is better to accept the estimated 
 values which are supplied by the taxpayers than to involve 
 their communities in litigation over the value of machinery 
 and equipment and other property of such concerns. This is 
 the easy way and the line of least resistance. This law is in such 
 condition that it lendsi itself to every possible tax evil. 
 
 In the tax commissioner's report on the assessment and collection 
 of taxes for 1928, the following comment is made concerning assess- 
 ments of goods of manufacturers and merchants : 63 
 
 Another local tax problem which presents a wide field for seri- 
 ous consideration is that relating to the taxation of personal 
 property or "goods" of manufacturers and merchants. The 
 present situation is very unsatisfactory and unfair to all, due 
 to the inadequacy of the law. While in most of the towns which 
 have undergone revaluations the assessed value of the tangible 
 personal property of manufacturers and merchants was 
 increased to some extent, the values were arrived at in no two 
 towns by any two experts, or by any uniform method, or by 
 common understanding. 
 
 Relatively recent revaluations of the property of several towns 
 by expert appaisers have disclosed, along with some few cases of over- 
 valuation, assessments of tangible personal property of business con- 
 cerns so far below true value and so unequal among concerns as to leave 
 no doubt that self-assessment still rules for this property and that such 
 sums as are paid on it are not strictly compulsory taxes but voluntary 
 contributions by its owners. 
 
 The task of assessing this property may best be developed by treat- 
 ing separately the problems presented by (1) business inventories, (2) 
 machinery and equipment, and (3) public utility distribution systems. 
 
 18 Tax Commissioner, Information Relative to the Assessment and Collection of Taxes, 
 p. 7. 
 
The General Property Tax: Assessment 287 
 
 Business inventories. 
 
 One of the obvious causes of defective assessment of inventories 
 of merchants and manufacturers is the vagueness and impracticability 
 of the rule of valuation prescribed. For this property "the average 
 amount of goods kept on hand for sale during the year" is declared to 
 be the rule of assessment and taxation." The tax commissioner has 
 called attention repeatedly to his inability to advise assessors how this 
 rule is to be lawfully applied. It is unreasonable to assume that the 
 General Assembly intended to require assessors to determine the aver- 
 age number of each of the items in a merchant's or manufacturer's 
 inventory during a year and base his assessment on the average physical 
 inventory. Yet the statutes prescribe, not the average value, but the 
 average amount and give no indication of the manner by which the 
 average amount is to be computed. 
 
 The rule, moreover, involves difficulties of interpretation with 
 respect to the phrase "goods kept on hand for sale", especially in its 
 application to manufacturers. Strictly construed, this phrase might 
 exclude raw materials and goods in process from the tax base. Pro- 
 vided with so inadequate a rule of valuation, assessors are hardly to 
 be blamed for accepting without scrutiny taxpayers' returns of this 
 property. The vague and uncertain points in this rule can readily be 
 corrected by an amendment to the statute, but this action would not 
 reach to the real problems in the assessment of this property. 
 
 The real problem of property taxation as it relates to inventories 
 is that of assessment. The inventory of even a moderately large mer- 
 chant or manufacturer may consist of thousands of different items. 
 It will include various kinds of raw materials, partly manufactured 
 goods, and finished goods. In each individual business concern the task 
 of taking the physical inventory is intrusted to several specially trained 
 and qualified persons and usually requires considerable time to com- 
 plete. It is beyond the powers of an assessor or of a board of assessors to 
 view or list the innumerable items in the inventories of the merchants, 
 manufacturers, and local public utilities of any sizeable town within 
 the short period available for assessment. Determining the market' value 
 of all the items in the inventories of a town is out of the question. 
 Business managers, who are in daily touch with market conditions, and 
 who are more familiar with the inventories than any assessor could 
 hope to be, are unable to apply the market value rule strictly or to fore- 
 cast on the date the inventory is taken the probable market value of 
 the goods in process or even the finished goods. Practical considerations 
 
 "Gen. Stat., 1930, sec. 1152. 
 
288 Report op Special Tax Commission 
 
 have led business it-self to develop more or less arbitrary accounting 
 rules or formulas for the valuation of its inventories. 
 
 These assessment difficulties have led to suggestions that the prop- 
 erty taxation of inventories be given up and that the taxable capacity 
 represented by such property be reached through some form of business 
 taxation. New York State has for years imposed a slightly higher rate 
 under its corporation income tax in lieu of local taxation of all the 
 tangible personal property of incorporated business concerns. Proposals 
 have been made to substitute a special gross earnings or value-increment 
 tax for the property tax on inventories, and such proposals have received 
 the attention of interested groups and of the General Assembly here in 
 Connecticut during the last decade. The Commission has given careful 
 consideration to these suggestions, and, while it recognizes the weight 
 of the arguments advanced in their favor, it has not been able to formu- 
 late any substitute for the property taxation of inventories- which 
 would not involve risks of deranging municipal taxation and finance 
 and of disturbing competitive relationships existing among business 
 concerns. Such risks it does not believe should be incurred at this time. 
 
 If inventories are to continue to be subject to the property tax, the 
 first necessity is to develop and enact a rule of valuation which will 
 permit the effective assessment of this property. It is futile to require 
 the assessment of this property at its market value, which cannot be 
 ascertained, while ignoring the valuations which form part of the 
 accounting records of every business concern, which are adequate for 
 the proper conduct of large businesses, and which, while not strictly 
 market values, are a reasonable and equitable measure for distributing 
 the property tax burden. The practical and common-sense line of action 
 under these circumstances is to conform -to established accounting prac- 
 tices, from which alone a proper assessment of inventories may be made. 
 
 The Commission proposes that that part of the inventory of any 
 business concern to which no labor has been applied, consisting of raw 
 materials, stock in trade, supplies, and finished parts which have been 
 purchased and are to be used in any assembling process, be valued, at 
 the option of the taxpayer, either (1) on the basis of actual cost to the 
 taxpayer, including transportation charges, or (2) on the basis of 
 market price to the taxpayer on the assessment day, including trans- 
 portation charges. To allow for obsolete goods and for the lower value 
 of goods in the hands of concerns other than those engaged in selling 
 them as a regular business, the Commission recommends that these 
 goods be assessed and taxed, not at the full valuation derived from the 
 application of the above formulas, but at seventy per cent of that valua- 
 tion. It further suggests that goods in process, finished goods, and all 
 other goods to which labor has been applied be assessed at seventy per 
 
The General Peopeety Tax: Assessment 289 
 
 cent of the valuation arrived at by adding the cost of all direct labor 
 upon them to the valuation of raw materials and purchased parts enter- 
 ing into them. 
 
 The second necessity for the proper assessment of inventories is 
 an administration competent to analyze the accounting records of busi- 
 ness concerns of all sorts and to compile the figures necessary for the 
 accurate application of the formulas proposed. An administration with- 
 out this ability inevitably means self-assessment, with the continuance 
 of gross inequity. It is not enough to secure uniform assessment of the 
 inventories of merchants, manufacturers, and local public utilities 
 within any one town, although present practice is far from reaching 
 even this limited objective. With towns small in area and with trans- 
 portation easy and rapid, competition between merchants operates in 
 an area much larger than a single town. Competition of manufacturers 
 is practically never confined to a single town and frequently extends to 
 the entire nation. Taxation should not be administered with a lack of 
 uniformity which disturbs the competitive relationships between busi- 
 ness concerns. The Commission concurs in the judgment of those who 
 have given most study to this problem that it is too much to expect that 
 local assessors who are competent to make the accounting analyses 
 which we believe are necessary to proper assessment procedure will be 
 selected or are available. If such assessors . could in some way be 
 obtained, there would still be the lack of uniformity and equality which 
 develops when assessments are made by 169 different assessing boards 
 acting independently. The Commission is convinced that the proper 
 assessment of inventories, even with the assistance of a more definite 
 rule of valuation than market value, can be obtained only by transfer- 
 ring- this task from local to state assessors. 
 
 ■ i & 
 
 Machinery and equipment. 
 
 Until 1933 no separate classifications were provided on the tax list 
 for machinery and equipment. The practice has been to assess 
 machinery and equipment along with the buildings in which they 
 are situated, except when by error some of this property was included 
 with some other class of personal property. There are certain types 
 of machinery and equipment, such as boilers, built-in sprinkler systems, 
 etc., which are essentially parts of the buildings in which they are 
 located and which cannot be separated from such buildings without 
 substantial damage to the buildings and substantial loss of value to 
 the machinery and equipment. Items of this character should be 
 included within the statutory definition of real property and should 
 be taxed as part of the building. Much machinery and equipment, how- 
 ever, is not of this type. There are office desks and chairs, accounting 
 
290 Report op Special Tax Commission 
 
 machines, files, shop machinery, tools, dies, and even piping which 
 are either unattached to buildings or attached in such a way as to be 
 removable without damage and which can be bought and, sold as 
 separate units in established markets. Such property meets all require- 
 ments of tangible personal property and should be assessed as such. 
 It has peculiarities distinguishing it from real estate and raising special 
 problems of assessment which require special treatment. 
 
 Although they differ in some respects, machinery and equipment 
 involve . most of the assessment difficulties encountered in connection 
 with inventories. Within this classification are included innumerable 
 specialized and non-standardized machines, office furniture of different 
 sorts, accounting machines of different specifications and brands, store 
 fixtures and equipment of many types, and a conglomeration of small 
 tools, dies, patterns, etc. scattered through manufacturing and public 
 utility plants. The items in this mass are in various stages of obso- 
 lescence and depreciation. They are chiefly characterized by hetero- 
 geneity of type, use, condition, serviceability, and marketability, where- 
 as some degree of homogeneity in these characteristics is indispensable 
 to the tisual piecemeal assessment. . 
 
 For the bulk of this property scrap value is the nearest approach 
 to market value which can be ascertained even though the property be 
 worth much more than scrap value to the owner or to any other party 
 having the other facilities required for using it. The owners of' such 
 property do not attempt to determine its market value but carry a valu- 
 ation for it on their books derived from recognized and generally 
 accepted rules of accounting. No reasonable assessment of this property 
 can be made on any other basis. The Commission would legalize the 
 only practical rule of valuation for this property and relieve the 
 assessors from their futile efforts to ascertain market values. 
 
 The Commission proposes that machinery and equipment of 
 manufacturers, merchants, and local public utility companies be 
 assessed at seventy per cent of either (1) its invoice cost, including 
 transportation charges, less reasonable allowances for depreciation 
 and obsolescence as established for purposes of the federal income tax 
 or (2) if invoice cost cannot be ascertained, the valuation established 
 for purposes of the federal income tax less reasonable allowances for 
 depreciation and obsolescence. For the same reasons advanced in con- 
 nection with inventories, the Commission urges that the assessment 
 of this property be made a responsibility of state assessors. 
 
 Public utility distribution systems. 
 
 The distribution systems of local public utilities, the remaining 
 class of taxable tangible personal property, differ, from machinery 
 
The General Property Tax: Assessment 291 
 
 and equipment in difficulty of assessment only in one respect. These, 
 systems consist of the cables, conduits, pipes, poles, towers, under- 
 ground mains, meters, transformers, etc. of water, gas, and electric com- 
 panies. These items of property are brought together into distribu- 
 tion systems on real property belonging, not to the companies, but 
 to other parties. For the most part these distribution systems are 
 erected upon public property under authority of the franchises granted 
 by governmental bodies. Under the usual state-administered ad valorem 
 property tax the entire property of each of these companies, includ- 
 ing the distribution system, would be assessed as a unit at its "going 
 concern" value. Connecticut has not adopted such an ad valorem tax 
 for public utility companies. Instead, it has left the tangible prop- 
 erty of water, gas, and electric companies to be assessed piecemeal 
 by local assessors and has reached the intangible values through the 
 state tax on the gross earnings of these companies. The Commis- 
 sion finds no reason for changing this established method of taxation. 
 It has been necessary, therefore, to develop a procedure of assess- 
 ment by which the distribution systems of these companies will be 
 placed on the grand list as tangible personal property, excluding the 
 value of any intangible rights enjoyed by these companies by reason 
 of their franchises or easements. 
 
 For reasons similar to those presented in connection with other 
 classes of tangible personal property, the Commission finds that 
 effective assessment of the distribution systems of local public utilities 
 requires both a rule of valuation more specific than market value and 
 also the uniform application of this rule by state rather than local 
 assessors. It therefore proposes that the tangible personal property 
 included in these distribution systems be assessed by state officials for 
 purposes of local taxation at seventy per cent of the valuation arrived 
 at by adding to the original or invoice cost of the property transporta- 
 tion charges and any costs of construction, erection, assembling, or fab- 
 rication (except the cost of excavation, paving, backfill, or any cost of 
 labor applied to property not belonging to the utility companies) and 
 subtracting reasonable allowances for obsolescence and depreciation as 
 established for purposes of federal income taxation. 
 
 Administrative procedure. 
 If properly organized, state assessment of all classes of tangible 
 personal property can be synchronized with local assessment of real 
 property and can be done effectively without the appointment of a 
 large number of state assessors. The Commission's plan contemplates 
 the assessment of tangible personal property as of January 1, the 
 assessment date proposed in a later section of this chapter for real 
 
292 Repokt of Special Tax Commission 
 
 property. This date is particularly advantageous for the assessment of 
 tangible personal property of business concerns since the large majority 
 of business concerns in the state take their inventories! and close their 
 books at the end of the calendar year and pay their federal income 
 taxes on a calendar year basis. The lists for returning this property 
 would be sent to the concerns by the tax commissioner in time to be 
 filled out and filed with him before February 1, the last date proposed 
 for the filing of any lists required locally. The tax commissioner would 
 have about three months to make office audits of these lists and to fix, 
 on the basis of such audits, the assessments to be certified by him to 
 the local assessors for inclusion in local grand lists before the determi- 
 nation of the tax rate. After May 1 the tax commissioner would have 
 such field audits of the returns made as seemed desirable and would 
 have the power to certify to the local assessors additions to or reduc- 
 tions from the assessments made from the office audits. Once the assess- 
 ment was certified by the tax commissioner, the process of appeal, the 
 laying of the tax, and its collection would be the same for this property 
 as for real property. 
 
 This procedure, it should be noted, would not embarrass in any 
 way the budgeting of municipalities. With more definite rules of valua- 
 tion the assessment of tangible personal property certified by the tax 
 commissioner and included in local grand lists before tax rates were 
 determined would seldom be changed substantially by the later field 
 audits. The majority of adjustments in assessments resulting from 
 field audits would almost certainly be upward since taxpayers would 
 underestimate rather than overestimate their tax liabilities. Conse- 
 quently, the probable result of the procedure would be to provide to 
 certain towns some additional revenues during the year that they did 
 not take into account in preparing their budgets and fixing their tax 
 rates. As the procedure became established and taxpayers became 
 familiar with the rules of valuation, the original assessments would 
 approach more closely the final assessments arrived at after field audits. 
 
 It is not to be hoped that the rules of valuation which the Com- 
 mission proposes to substitute for market value can be applied mechani- 
 cally and still give equitable assessment, without exception, for the 
 thousands of business concerns in the state. Business operations are too 
 diverse and complex, accounting systems are too heterogeneous to 
 expect perfect results from any rule of valuation established for assess- 
 ment purposes. Certainly market value now falls far short of securing 
 equitable assessments. The Commission is confident that the rules pro- 
 posed are far superior to those now used and would effect as close an 
 approximation to equitable assessments for the bulk of the tangible 
 personal property in the state as conditions will permit. It recognizes, 
 
The General Peopeety Tax: Assessment 293 
 
 however, that the application of these rules might result in unjust 
 assessments of the tangible personal property of a few concerns. To 
 meet this problem, it is necessary to provide for administrative discre- 
 tion in the application of the rules. The Commission suggests that 
 when, in the judgment of the tax commissioner, the application of the 
 rules of valuation proposed for tangible personal property results in 
 disproportionate and inequitable assessments, the tax commissioner be 
 given the power to set aside such rules and apply in their place such 
 other rules as in his judgment will produce equity. 
 
 Assessment of beal peopeety. 
 Assessment calendar. 
 
 The duties of local assessors would be greatly simplified and 
 reduced to manageable proportions if the proposals made in the pre- 
 ceding sections were adopted. Classes of personal property the assess- 
 ment of which causes more annoyance and effort than their importance 
 justifies would be eliminated. Motor vehicles would be removed from the 
 general property tax and made subject to a special property tax. There 
 would remain only the inventories, machinery, and equipment of mer- 
 cantile, manufacturing, mechanical, and professional enterprises and of 
 local public utilities, and these would be assessed by the tax commis- 
 sioner. Local assessors would then be responsible only for the assessment 
 of real property. This is the most important phase of assessment work, 
 and its proper execution requires all the time which assessors can give 
 to it. 
 
 To coordinate in a logical manner the assessment of property with 
 the processes of municipal budgeting and tax collection, certain changes 
 in the assessment calendar should be made. It is proposed to establish 
 a uniform fiscal year for municipalities beginning July 1 and to have 
 the first collections of property taxes made at the beginning of the fiscal 
 year. It is desirable to have collection of taxes proceed as soon after the 
 assessment of property as administrative requirements will permit, in 
 order to avoid the confusion of tax liability arising from transfer of 
 taxable property and removal of taxable property and taxpayers from 
 the taxing district. In most towns six months now intervene between the 
 assessment day and the date when the whole or the first installment of 
 property taxes become due. With the simplification of their duties and 
 with more adequate assessment information and procedures, assessors 
 should have no difficulty in completing the work necessary to establish 
 and record uniform assessments for real property in the same period of 
 time which they are now allowed. The Commission suggests that the 
 assessment day be changed from October 1 to January 1. As previously 
 pointed out, the assessment of property as of January 1 also has the 
 
294 Kepoet of Special Tax Commission 
 
 advantage of making available for the assessment of tangible personal 
 property of business concerns the accounting information compiled 
 when books are closed. 
 
 This shift in assessment dates requires corresponding changes in 
 the time periods for other steps in the assessment process. Wherever 
 listing of property by taxpayers either with local assessors or with the 
 tax commissioner is required, the last date for filing lists should be, as 
 it now is, one month after the assessment day. In other words, lists 
 would be filed without penalty up to February 1. Local assessors should 
 be allowed the usual two-month period to establish their tentative 
 assessments and should be required, after having given public notice, 
 to file their tentative assessments for public inspection not later than 
 April 1. Complaints against the tentative local assessments should be 
 filed not later than April 21, and not later than May 1 final assessments 
 should be established and the abstract books prepared in proper form 
 and filed with the town clerk. This schedule would make the final erand 
 list available at the time the budget-making authorities of the munici- 
 palities were preparing their final budgets for submission to their legis- 
 lative bodies. It would also allow ample time for the preparation of the 
 rate book and the tax bills before the first installment of property taxes 
 would fall due on July 1. 
 
 Listing. 
 
 If all towns had established proper procedures and records for the 
 assessment of real property, the continuance of listing requirements for 
 real property would no longer be necessary or desirable. Many towns, 
 however, have not developed the procedures and records required to 
 assess real property without the information derived from tax lists. 
 While they should be able to dispense with tax lists in time, the general 
 practice of filing lists of taxable real property with local assessors must 
 be continued for the immediate future at least. 
 
 There are, however, many towns even now with assessment records 
 adequate to assess real property without listing. Many of these towns 
 have already dispensed with the listing of real property and of certain 
 classes of tangible personal property by authority of special acts. For 
 these towns listing of taxable real property would be an idle gesture, 
 requiring considerable expense without producing any information not 
 already in the possession of the assessors. The Commission suggests 
 that the tax commissioner be given the authority to approve, the peti- 
 tion of any budget-making authority of a town to be allowed to dispense 
 with the filing of tax lists with local assessors, when upon investigation 
 he shall find that the records of the assessors of that town are adequate 
 
The General Peopeety Tax: Assessment 295 
 
 for the determination of the ownership and valuation of all taxable real 
 property in the town without the aid of tax lists. 
 
 Valuation. 
 
 The Commission proposes that real property be assessed at its 
 value and that the evident meaning of value as now used in the statutes 
 be enforced by a statutory definition. 
 
 From the experience of many years in appraising real property, 
 there have been developed scientific formulas, procedures, and rules 
 for establishing uniform assessments of real property based upon value. 
 These systems of assessment provide for the systematic collection and 
 analysis of the prices established when real property is transferred. 
 From this process there are established unit values for land and 
 buildings which, when properly applied, result in as nearly uniform 
 assessments according to value as can be obtained. 
 
 Although a few towns are assessing their real property by such 
 scientific procedures, most towns are still relying on rules-of-thumb 
 and the offhand judgment of the assessors. One of the obvious defi- 
 ciencies in the assessment of real estate generally throughout the state 
 is the total lack of properly recorded and analyzed sales values. The 
 statutes provide that town clerks shall furnish to assessors lists of 
 all transfers of taxable property recorded during the assessment year ;" 
 they also require the assessors to view and revalue for assessment all 
 real estate in their respective towns at least once every ten years." 
 These provisions offer some help in valuation, but they hardly scratch 
 the surface of the problem. Recorded deeds rarely set forth the true 
 consideration in the transfer. Before the valuation data thus derived 
 can be of any service, careful investigation must be made of the con- 
 ditions surrounding the transfer. When it has been determined that 
 the sale was in good faith and that the true consideration was stated, 
 an elaborate statistical procedure is required to separate the values 
 of land and buildings and to develop useful standards or measures 
 of value. Few of the assessors are qualified or equipped to carry out 
 these operations. In fact, about all that the lists of transfers are used 
 for is to keep the record of property ownership correct. 
 
 The provision that assessors shall make a field inspection and 
 revaluation of real property at least every ten years is the least that 
 should be required. To be effective, the assessment of real property 
 should be continuous. Assessors should be in constant touch with physi- 
 cal changes in taxable property and with variations in values. Their rec- 
 
 s Gen. Stat., 1930, sec. 330. 
 •Gen. Stat., 1930, sec. 1142. 
 
296 Kepokt of Special Tax Commission 
 
 ords should reflect continuously these changes. A ten-year period 
 between revaluations is entirely too long to produce equitable assess- 
 ments year in and year out. 
 
 Easements upon privately owned real property represent a form 
 of intangible personal property which has never been subject to taxa- 
 tion in this state. This we believe to be proper so long as the granting 
 of an easement does not reduce the assesssment of real property. 
 There are times, however, when the existence of an easement, 
 especially when it attaches to residential property, results in a 
 substantial reduction in the value of the remaining rights to 
 such property. Obviously the easement is, in normal circumstances, 
 worth at least as much as any 'such loss in value, or the owner of 
 the property would not have granted it. It is therefore only reasonable 
 that the government should protect the integrity of its tax base by 
 specifying that the taxable value of land upon which an easement is 
 granted shall not be reduced by reason of the existence of such ease- 
 ment. 
 
 Assessors have the final responsibility for fixing values. Since 
 valuation is a process of human judgment, the efficiency with which, 
 the valuation of real property is made can be improved only by securing 
 assessors competent to do the task and equipping them with as many 
 facilities as possible. The Commission seeks to meet this problem by 
 proposing changes in the selection, tenure, and compensation of asses- 
 sors and by an arrangement by which towns may be assisted in provid- 
 ing for themselves tax maps adequate for assessment purposes. 
 
 Tax maps. 
 
 Tax maps have been found essential for the listing and valuation 
 of real property for assessment purposes. Such maps may be photo- 
 graphic maps made from aerial surveys or engineering survey maps. 
 In either case they show the total land area, the locations and areas 
 of all buildings within a town as of the date on which the map is pre- 
 pared, and the boundaries of each separately designated parcel of real 
 property. Tax maps make available a complete record of the land area 
 of a town, of its ownership, and, if an aerial map, of its topographical 
 characteristics. 
 
 Many towns have been interested in obtaining tax maps in recent 
 years, and a considerable number have secured them on their own intia- 
 tive, particularly those towns which have had scientific reappraisals of 
 their property. Practically all the larger cities have engineering maps 
 which are used in assessing real property. Other towns have been 
 deterred by the expense from furnishing tax maps to their assessors. 
 
The General Peopeety Tax: Assessment 297 
 
 To meet the needs of various state departments for accurate maps, 
 the state government through the state planning board has had aerial 
 photographs made of the total area of the state. This work was done 
 according to specifications designed to provide maps suitable for assess- 
 ment purposes. 'The contact prints produced by this survey have been 
 filed in the State Library and are available for use by the towns. To 
 secure tax maps from these prints, however, considerable expense must 
 be incurred. Enlargements must be made, and the even more expensive 
 work of delineating or recording property lines on the maps must be 
 done. 
 
 To be of greatest usefulness in improving real property assess- 
 ments, the preparation of tax maps from the contact prints should be 
 done as expeditiously as -possible. Under present conditions, however, 
 most towns will refrain from assuming the expense required for this 
 work. Moreover, the delineation requires both expert title-searching and 
 careful engineering if property lines are to be accurately established. 
 There is probably an insufficient number of qualified persons available 
 to do this work properly within a short period of time. It appears to 
 the Commission, therefore, that some arrangement should be made by 
 which the state will provide a limited amount of financial assistance 
 to the towns in procuring and putting to use the tax maps made possible 
 by the aerial survey as rapidly as financial and other conditions will 
 permit. 
 
 To this end the Commission suggests that any town be permitted 
 to enter into a contract with the tax commissioner under which, within 
 a specified period of time and within a maximum cost agreed to by 
 both parties, the tax commissioner would agree to furnish aerial maps 
 to the town, enlarged from the contact prints on file in the State Library 
 and delineated for the parcels of real estate subject to separate owner- 
 ship and recorded in the land records of the town. The tax commis- 
 sioner should be provided with the necessary authority to fulfill these 
 contracts and with, a limited annual appropriation for this purpose, 
 such appropriation to be allotted to contracts made in the order in 
 which towns apply. The Commission suggests that seventy-five per cent 
 of the total cost of any such contract be charged against the munici- 
 pality and that twenty-five per cent be defrayed by the state. 
 
 Refoem of administeative obganization. 
 assessoes. 
 
 Present arrangements for the selection, term, compensation, and 
 other conditions of employment of local assessors are inadequate to 
 attract competent and qualified persons to this important office and to 
 call forth the best efforts of those serving in this capacity. 
 
298 Kepobt of Special Tax Commission 
 
 Except when otherwise provided by special acts or charters, assess- 
 ■ ors are elected by the town meeting, usually 'for one-year and never 
 for more than two-year terms. Their compensation is fixed by the town 
 meeting, the only limitation being that the compensation shall not be 
 less than $2.50 a day. This minimum has been set for many years,,but 
 it has required the persistent efforts of the tax commissioner to raise 
 assessors' compensation in all towns to the minimum, and even in 1933 
 four towns reported an average daily compensation less than this small 
 amount. The assessors of 73 towns received less than five dollars per 
 day in 1933. 
 
 Assessors of 77 towns spent less than 30 days on assessment work 
 in 1933. The assessors of one town averaged three days' work, of 22 
 towns, from five to ten days' work, and of 17 -towns, from ten to fifteen 
 days' work. In twenty-three towns from 206 to 706 taxpayers' lists were 
 received, equalized, and arranged, and the abstract of taxable property 
 was made out, signed, and filed by the assessors in less than ten days' 
 working time for each assessor. In a large number of towns assessors 
 have neither permanent offices nor permanent records other than the 
 lists and abstracts of prior years. It needs no extended discussion to 
 demonstrate that the real property even of a small town cannot be accu- 
 rately listed and intelligently valued under these conditions. It is little 
 wonder that the practices of accepting lists without scrutiny and of 
 copying last year's lists have become well established in Connecticut 
 assessment procedure. 
 
 There is no more important cog -in the assessment machinery than 
 the assessor, and, if real property is to be uniformly and equitably 
 assessed, qualified assessors must be selected, adequate compensation 
 must be paid, sufficient time must be allowed, and adequate office facili- 
 ties must be provided. The Commission proposes that assessors be 
 appointed by the budget-making authority of each town for six-year 
 terms, that they be removable from office by the budget-making author- 
 ity for cause after hearing, that their compensation be fixed by the 
 budget-making authority, and that they be allowed sufficient time and 
 provided with the necessary equipment and assistance to discharge 
 their duties effectively. 
 
 Local boards op relief. 
 
 The purpose for which the local board of relief was developed is 
 clear. In assessments, where decisions involve a considerable degree 
 of human judgment, locally elected assessors could not be expected 
 always to arrive at the .correct answer or to refrain from using their 
 powers in some cases to reward their friends and punish their enemies. 
 To insure taxpayers against discrimination from either faulty judg- 
 
The General Pbopeety Tax: Assessment 299 
 
 ment or arbitrary action by the assessors, provision was made for a local 
 agency to which taxpayers could, with a minimum of inconvenience and 
 expense, refer their complaints, to be passed upon and disposed of in 
 the objective and impartial manner expected of judicial bodies. 
 
 The board of relief at present is not, however, properly organized 
 and operated to fulfill this purpose most effectually. Although these 
 boards are primarily quasi-judicial bodies, they are vested with broad 
 administrative or ministerial powers with respect to assessments. Dur- 
 ing their sessions in February they may equalize and adjust the valua- 
 tions and assessment lists of the town; they are given power to increase 
 the number, quantity, or amount of the items of taxable property in 
 any list, to add omitted property, or to make out and include lists of 
 taxable property, with the ten per cent penalty added, for any persons 
 whose lists have been omitted by the assessors. By these provisions 
 boards of relief are vested with many of the powers exercised by boards 
 of assessors and are limited in their use only by the provision that they 
 must be exercised for the most part during the sessions in February. 
 These provisions go far beyond the requirements of a reviewing board 
 designed to eliminate tax discrimination and, in effect, establish an 
 assessing agency to share authority and to divide responsibility with 
 the board of assessors. 
 
 Provisions for the selection, tenure, compensation, period of work, 
 and facilities of boards of relief are as unlikely to secure qualified per- 
 sonnel and effective administration as those for assessors. In fact the 
 provisions are in most respects identical. Members of the boards of 
 relief are elected by the town meeting. Their compensation is fixed by 
 town meetings with the same minimum of $2.50 per day fixed by 
 statute as is fixed for assessors. The majority of the members of boards 
 of relief have three-year terms, whereas assessors usually serve only 
 one-year terms. But there is a minority of both the members of the 
 boards of relief and of the assessors who have two-year terms. Boards 
 of relief have by law only one month to discharge all their duties except 
 the making of supplemental lists of omitted property. In practice few 
 of these boards devote to these duties the time allowed by law. On the 
 assessments for the grand list of 1932, members of boards of relief 
 devoted, on the average, nine days' work and were paid a daily com- 
 pensation of $4.99. Boards of relief of 68 towns were occupied less 
 than five days, and boards of 52 towns, from five to ten days, in review- 
 ing the 1932 grand lists of their towns. 
 
 The inference from these figures is that boards of relief generally 
 restrict their activities to hearing appeals, which in many rural towns 
 are relatively few in number. Most of these boards do not attempt to 
 pass upon all assessments and to equalize them, and it is well that they 
 
300 Eepoet of Special Tax Commission 
 
 do not, as many years of experience with equalization boards show 
 that less rather than more uniform assessments usually result from 
 their activities. Boards of relief are subject to the same local political 
 influences as assessors. They have the same incentive to indulge in 
 discrimination. They have less time and fewer facilities for arriving 
 at true and actual valuations than do the assessors. They are not 
 required by law to keep records of any kind, either to assist them in 
 reaching decisions on appeals or to inform assessors and the public 
 of the reasons for their decisions. In short, except for the gesture of 
 providing an impartial agency to hear complaints against assessments, 
 the objective of uniform and full value assessments would often be 
 more fully attained if the work of boards of relief were not done. 
 
 The Commission has had an investigation made of the activities 
 of the boards of relief in certain towns, where assessment controversies 
 have recently developed. 'In some of these towns the action of the board 
 of relief destroyed the uniformity of assessments established by. an 
 expensive, scientific reappraisal and placed the legality of the grand list 
 and of the tax levy itself in jeopardy. Presumably the statutes do not 
 contemplate continual antagonism and lack of cooperation between 
 assessors and boards of relief. Yet there are many towns where there 
 is hostility between these local agencies. The law obviously intended 
 that assessors as well as taxpayers should have an opportunity to pre- 
 sent their arguments on assessments appealed to the boards of relief. Yet 
 boards of relief frequently ignore the assessors and make unwarranted 
 changes in assessments solely upon the claims of the taxpayers. 
 
 There is no need for two assessing boards in a town. Boards of 
 relief were not designed to supersede the assessors or to overrule their 
 decisions unless the complete evidence on particular complaints estab- 
 lishes this assessment as excessive or discriminatory. Boards of relief 
 are vested with administrative powers, not to do assessing, but to 
 eliminate discriminatory and unjust assessments. Their function is 
 primarily judicial, and their powers should be exercised objectively, 
 impartially, and with full knowledge of all the facts. No amount of 
 reviewing by an untrained and unqualified board, lacking almost all 
 facilities for discovering and valuing property, devoting only a few 
 days to its duties, and subject to local political influences, can be 
 expected to improve upon the assessments established by the assessors. 
 In fact, the probability is that such reviewing will hinder rather than 
 help. 
 
 There is, however, a real function for which boards of relief are 
 now responsible and which should be provided for in the administration 
 of property assessment. An opportunity should be given to every 
 taxpayer to present complaint or grievance on his assessment to a quasi- 
 
The Genebal Peopeety Tax: Assessment 301 
 
 judicial body, with the confidence that such complaint will receive 
 impartial consideration and be disposed of according to the require- 
 ments of the law. The Commission does not believe that the proper 
 discharge of this function can be secured by local boards of relief. The 
 agency charged" with this duty must necessarily be freed from local 
 political influence, must have a knowledge and equipment for assess- 
 ment work equal or superior to those of local assessors, and must 
 be so constituted that its operations can and will be carried on with 
 judicial objectivity, impartiality, and dignity. Such an agency can- 
 not be- constituted in each town. It must necessarily be a state body 
 created for the purpose. The Commission therefore proposes that 
 the local boards of relief be abolished, that their administrative powers 
 be transferred to the local assessors, and that their quasi- judicial 
 powers relating to hearing and rendering decisions on appeals taken 
 by taxpayers from assessments established by the assessors be vested 
 in a state board of tax appeals. 
 
 The following procedure for reviewing assessments in making 
 appeals is suggested. Assessors would establish and file for public inspec- 
 tion in their own or in the town clerk's office their tentative assessments 
 not later than April 1 of each year. During the month of April the 
 assessors would receive and dispose of complaints against tentative 
 assessments with the same powers and under the same restrictions as 
 now apply to the boards of relief. Final assessments would be estab- 
 lished and filed for public inspection not later than May 1 of each 
 year. Any taxpayer aggrieved by the action of the assessors would then 
 be permitted to appeal within two months after the determination of 
 the final assessments, that is, before July 1 on real property assessments, 
 to the state board of tax appeals for relief. 
 
 State boaed of tax appeals. 
 
 A state board to which appeals from original assessments can be 
 taken before carrying complaints to the courts is in no sense a new 
 and untried scheme. The state tax commissions or state boards of 
 equalization of a number of states exercise powers of review over origi- 
 nal assessments, and Massachusetts in particular has had for a number 
 of years a board similar in most respects to that which we propose. 
 
 To fulfill the purposes for which it is proposed, the state board of 
 tax appeals should be an administrative board similar to the public 
 utilities commission. The board should have members experienced in 
 matters of property assessment as well as members trained in the law. 
 The board should not be restricted by the formal rules of practice, 
 procedure, and evidence followed by formal courts. It should be so con- 
 
302 Report of Special Tax Commission 
 
 stituted and conducted that every taxpayer, no matter what the amount 
 of his taxes may be, would be able to have his grievance heard and 
 acted upon promptly without any considerable inconvenience and 
 expense. It should be provided with the necessary personnel and facili- 
 ties to discharge its duties effectively. 
 
 With these considerations in mind the Commission proposes that 
 a state board of tax appeals be established, one of the functions of 
 which would be to hear and dispose of appeals by taxpayers on assess- 
 ments finally established by the assessors. The Commission suggests 
 that the board consist of three members appointed for overlapping 
 terms of six years by the Governor with the advice and consent of the 
 General Assembly. 
 
 There should be prescribed by statute two types of procedure, one 
 formal and the other informal. The formal procedure is required to 
 dispose of appeals on large assessments requiring for their orderly 
 disposition the application of formal rules of practice and evidence 
 and also of appeals on taxes other than property taxes which may be 
 included within the jurisdiction of the board. The informal procedure 
 is proposed in order to provide a means by which small taxpayers may 
 secure a hearing on their complaints without undue inconvenience and 
 expense. The board should be given broad discretion to prescribe rules 
 of procedure and evidence and to fix and assess costs in order that 
 appeals made under the informal procedure may be economically and 
 expeditiously decided. In this connection the Commission proposes that 
 the board of tax appeals be empowered to appoint as many deputies, 
 referees, or committees as it deems necessary to hold hearings among 
 the towns of the state on property tax appeals and to report their find- 
 ings, conclusions, and recommendations to the board of tax appeals for 
 final decision. ! 
 
 Appeals from the decisions of the board of tax appeals should be 
 allowed. Such appeals should be made to the superior court of Hart- 
 ford County under the rules now governing appeals from decisions of 
 the boards of relief to the superior court. 
 
 Although the Commission proposes the creation of a board of tax 
 appeals primarily for the purpose of securing a more judicious and 
 effective disposition of complaints against property assessments, the 
 establishment of such a board would provide an agency which could 
 advantageously be given jurisdiction over original appeals on otber 
 taxes. The Commission recommends that the board of tax appeals be 
 given jurisdiction over appeals on all state taxes as well as over appeals 
 on local property taxes. 
 
The General Property Tax: Assessment 303 
 
 State supervision oe assessments. 
 
 With the establishment of a state board of tax appeals having 
 jurisdiction over appeals on all state taxes and on local property taxes, 
 there will no longer be any need for the continuance of the state board 
 of equalization. Even now this board has only a few duties, such as 
 prescribing tax lists and abstract books, determining the taxable gross 
 earnings of transportation and communication companies and of local 
 public utilities, and . determining the taxable value of the shares of 
 banks and insurance companies, the taxable deposits of savings banks, 
 and the taxable investment income of mutual insurance companies. 
 All of its functions are administrative rather than judicial in character. 
 The Commission recommends that the duties of the state board of 
 equalization be transferred to the tax commissioner and that the state 
 board of equalization be abolished; 
 
 The Commission does not propose to make any change in the 
 administrative relationship now existing between the tax commissioner 
 and the local assessors. The proposals already made will extend the 
 duties of the tax commissioner in assessing property by making him 
 responsible for assessing tangible personal property and for preparing 
 tax maps under contractual agreements with the towns. But the powers 
 of the tax commissioner affecting the work of local assessors should 
 continue to be supervisory under the provisions now in effect relating to 
 reporting by local financial and tax officials and to investigation of the 
 work of local tax officials. 
 
 Summary. 
 
 The assessment of taxable property is usually conducted by a 
 board of three members in each town, elected for overlapping terms 
 of three or foUr years. Their compensation is fixed by the town at or 
 above a statutory minimum of $2.50 per day. 
 
 In most towns the assessment day is October 1. Within the month 
 of October the taxpayer is required to list all taxable property held 
 on that date, and the assessors are required to assess all such property, 
 whether voluntarily listed or not, at its market value on the assess- 
 ment date. By January 31, the assessors' work is completed, and their 
 lists and an abstract thereof are filed with the town clerk. 
 
 In February the assessment work is continued by the board of 
 relief. This is usually an elective body of two to five members serving 
 overlapping terms of three years at a compensation of $2.50 per day 
 or more as determined by the town. This board has the power to add 
 unassessed taxable property to the grand list and, within certain limi- 
 tations, to' increase or decrease the assessment of any property in the 
 
304 Report of Special Tax Commission 
 
 list. Any taxpayer may appeal for relief to this board without expense 
 and with a minimum of inconvenience. If still aggrieved, he ' may 
 carry his appeal to the superior court, or he may appeal to the court 
 from a manifestly excessive, assessment without the intermediate appeal 
 to the board of relief. 
 
 The gross grand list of the state increased from 1,935 million 
 dollars in 1920 to a maximum of 3,178 millions in 1931 'and has now 
 declined to 2,985 millions. Real estate, including manufacturing 
 machinery, made up 82.7 per cent of the grand list in 1920 and has 
 increased in relative importance almost constantly until in 1933 it 
 made up 90.3 per cent of the total. Practically all of the remainder 
 of the grand list consisted of tangible personal property, which in turn 
 consisted largely of (1) goods of merchants and manufacturers, (2) 
 motor vehicles and aircraft, and (3) the distribution systems of water, 
 gas, and electric companies. 
 
 Such statistics as are available support the contention of those 
 familiar with assessment results in the state that wide variations 
 exist in the relation of assessed to true values among and within the 
 towns of the state. From reports of the assessors themselves it is appar- 
 ent that underassessment is — or at least was prior to the depression — 
 the rule rather than the exception, and it is a well-established fact 
 that, where underassessment prevails, inequalities in assessment are 
 likewise prevalent. Studies conducted at the Storrs Agricultural Experi- 
 ment Station, in the office of the tax commissioner, and by this Com- 
 mission, as well as v the scientific reappraisals recently conducted in 
 several towns of the state, all point to the same conclusion. Much 
 tangible personal property is unassessed, and such real and personal 
 property as is assessed is listed at widely varying proportions of true 
 value. Such conditions evidence wholesale disregard for the law and 
 wide departure from equity in the distribution of the property tax 
 burden. 
 
 The experience of many years with property taxation, both in this 
 country and abroad, has demonstrated the futility of including in the 
 property tax base property which cannot be discovered and valued 
 with reasonable effectiveness. The Commission believes that this experi- 
 ence points the way to the only lasting solution of the problems of 
 the general property tax. It proposes (1) to eliminate from the tax 
 base those kinds of property which cannot be effectively discovered and 
 valued or which are not of sufficient importance to justify the admini- 
 strative effort and expense required for their assessment, (2) to pro- 
 vide more definite and practicable rules and procedures for the assess- 
 ment of property remaining taxable, and (3) to strengthen the admini- 
 strative organization responsible for assessing taxable property. 
 
The General Property Tax: Assessment 305 
 
 The Commission finds that the two remaining classes of intangible 
 property and ten out of fourteen classes of tangible personal property 
 on the grand list may be eliminated without reducing the grand list of 
 the state by more than half of one per cent. In only a few towns of the 
 state would the removal of these items necessitate any change in the 
 millage rate. All towns would benefit by the reduction in the admini- 
 strative work involved in the assessment of unimportant classes of 
 property, by the improvement which this would make possible in the 
 assessment of important classes, and by the greater equity resulting 
 from the abandonment of the farcical effort to tax property which is 
 disclosed only by the scrupulously honest, the timid, or the ignorant. 
 
 Besides the three important classes of personal property listed 
 above, namely, goods of merchants and manufacturers, motor vehicles 
 and aircraft, and the distribution systems of water, gas, and electric 
 companies, the only other class of personal property which makes up 
 more than two-tenths of one per cent of the grand list is household 
 furnishings, which are now assessed for 25 million dollars and which 
 yield some $600,000 in property taxes. Although assessments and tax 
 receipts of these amounts are not to be ignored, it is well known that 
 few other classes of property are listed and valued as incompletely and 
 as unequally as household furnishings. Furthermore, the exemption of 
 tli is property, even though it might necessitate a fractional increase in 
 the tax rate, would shift but slightly the burden of taxation, for the 
 reason that much the same persons pay real property taxes as now 
 pay taxes upon household property. We therefore propose that this 
 class of property, when not used for business or professional purposes, 
 as well as all other personal property except the inventories, equipment, 
 and machinery of mercantile, manufacturing, mechanical, and profes- 
 sional enterprises and the distribution systems of public utilities, be 
 removed from the grand list. 
 
 A different solution must be found for the problem of local taxes 
 on motor vehicles. They present formidable problems of assessment 
 and even greater problems of tax collection, but they are too important 
 a source of revenue to be summarily freed from property taxation. 
 We propose that this property be assessed by the state commissioner of 
 motor vehicles and that collection be forced by the simple process of 
 revoking licenses. In order to discourage the declaration of false resi- 
 dences by those in towns with high tax rates, we propose a uniform 
 rate of 20 mills to be applied to valuations arrived at by reducing 
 manufacturers' list prices of the years of manufacture by an allow- 
 ance for depreciation prescribed by statute. The proceeds of the tax 
 should be distributed to the respective municipalities in which the 
 owners of motor vehicles reside. 
 
306 Report op Special Tax Commission 
 
 Should these changes be made in the general property tax, there 
 would remain in- the grand list only two main classes of property — 
 real estate and tangible personal property used in professions or busi- 
 ness (other than farming). By so limiting the work of the assessors, 
 problems of discovering and valuing property would be fewer in num- 
 ber, but they would by no means be entirely eliminated. In fact much 
 the most difficult assessment problems would still remain. 
 
 Although there is general agreement that value means the amount 
 of money for which property can be sold within a reasonable time under 
 circumstances in which neither the buyer nor the seller is forced, the 
 difficulty of determining the value of certain types of property is almost 
 insuperable. Market value is the best general basis for the assessment 
 of property, but, where it is elusive or quite unascertainable and where 
 other standards of assessment are available, the statutes should frankly 
 recognize that taxation upon some other basis may prove, not only more 
 practical, but also much more equitable. The Commission proposes that 
 tangible personal property be assessed at valuations established from 
 the inventory and accounting records of the taxpayers. 
 
 The Commission is confident that adherence to the statutory rules 
 of assessment which are set forth below would result in much greater 
 tax equity than is attainable under the strict application of the rule of 
 market value. But it is aware that such a program calls for an admini- 
 stration competent to analyze the accounting records of business con- 
 cerns of all sorts and to compile the figures necessary for the accurate 
 application of the proposed formulas. It is unlikely that such an admini- 
 stration could or would be established in each of 169 towns. We there- 
 fore propose that the task of assessing tangible personal property be 
 transferred from local assessors to the office of the state tax commis- 
 sioner. 
 
 In order to take the fullest advantage of the accounting records of 
 business concerns, it is desirable to shift the assessment date from 
 October 1 to January 1. This would also assist in the establishment of 
 the proposed fiscal years and tax due dates. By May 1, all local assess- 
 ment procedures could be completed, and the tax commissioner could 
 have made a preliminary audit of all returns of taxable personal prop- 
 erty, upon the basis of which assessments of this property would be 
 reported to local assessors for inclusion in local grand lists. Upon the 
 grand list as so made up, the local tax could be levied, and tax bills 
 made out. Subsequent field audits by the tax commissioner could pro- 
 vide the basis for any necessary additional assessments or refunds. 
 
 By far the largest part of the taxable property would still remain 
 with the local assessors. Real property can be best assessed by local 
 officials, and no adequate substitute for market value exists for such 
 
The General Property Tax: Assessment 307 
 
 property. It is possible, however, greatly to' improve the listing and 
 valuation of such property by the use of tax maps and by the develop- 
 ment of scientific formulas, procedures, and rules. Many years of 
 experience in this and other states have proved the usefulness of such 
 procedures, and every effort should be made to extend them through- 
 out the state. This will necessitate changes in the selection, tenure, 
 and compensation of assessors, financial and technical assistance by the 
 state in the preparation of adequate tax maps, and statutory recognition 
 of valuations established by such procedures. The Commission proposes 
 that assessors be appointed by the budget-making authority for six-year 
 terms and that the state tax commissioner supervise the preparation of 
 tax maps from the aerial surveys recently made lander the supervision 
 of the state planning board, one-fourth of the cost of such maps 
 being defrayed by the state. 
 
 Although some machinery is necessary by which taxpayers may 
 secure redress from illegal and inequitable assessments without the 
 expense and delay which are inevitable in court proceedings, experi- 
 ence has demonstrated that local boards of relief are unsatisfactory for 
 this purpose. Very often such boards, although lacking in facilities and 
 experience and forced to dispose of many appeals within a period of a 
 few days, assume responsibilities which are essentially those of the 
 assessor and exercise their powers to render less equitable the assess- 
 ments carefully arrived at by the original assessing authority. It is 
 therefore proposed that the purely administrative duties of local boards 
 of relief be returned to the boards of assessors and that a state board of 
 tax appeals be established to assume the task of passing on appeals 
 from final assessments of local and state taxes, subject, of course, to 
 further appeal to the courts. This board should function under two 
 distinct procedures, a formal procedure for the disposal of appeals on 
 large assessments and an informal procedure to provide a means for 
 hearing the complaints of small taxpayers. It should be permitted to 
 appoint deputies, referees, or committees to hold hearings among the 
 towns and to report their findings and recommendations to the board. 
 
 Recommendations. 
 
 • Taxable property. 
 
 With respect to property subject to taxation we recommend: > 
 That, in addition to present statutory exemptions, net earnings of 
 enrolled vessels and all tangible personal property which is not used for 
 business or professional purposes be exempted from all property taxa- 
 tion, provided that any such property owned by farmers and. used on 
 farms be construed as not being used for business or professional pur- 
 
308 Report of Special Tax Commission 
 
 poses and that property used for business purposes be construed to 
 include raw materials, goods in process, finished goods, stock in trade, 
 machinery, office and other equipment, the distribution systems of 
 local public utilities, and all other business inventories, equipment, and 
 supplies ; 
 
 That motor vehicles be exempted from local property taxation 
 and be subjected to a special property tax administered by the state 
 commissioner of motor vehicles; 
 
 That the special property tax on motor vehicles be 20 mills applied 
 to the manufacturers' list prices as of the years of manufacture, less 
 depreciation at rates prescribed in a schedule written into the statutes ; 
 
 That the special property tax on all taxable motor vehicles 
 registered from January 1 to May 1 become due on August 1 and pay- 
 able without penalty until August 31 and that such tax on taxable 
 motor vehicles registered after May 1 be due and payable at the time 
 of registration; 
 
 That, in place of the present provisions under which the assessor 
 reduces the total taxable property of the needy blind and of service 
 and ex-service men or their relatives by certain exemptions varying 
 from $1,000 to $3,000, such exemptions be administered by the town 
 tax collector and the collector of any other municipalities within which 
 any such person owns taxable property by means of a credit, against the 
 tax bills of such person equal in amount to the tax rate multiplied by 
 the amount of the property exemption to which such person is legally 
 entitled ; 
 
 That any person be permitted to apply against the special prop- 
 erty tax on motor vehicles the excess of the amount of property tax 
 exemption to which he is entitled under the preceding recommenda- 
 tion over the amount of such exemption allowed against local property 
 taxes ; 
 
 That the revenues from the special property tax on motor vehicles, 
 after deducting reasonable administrative costs, be remitted by the 
 state treasurer to the municipalities in proportion to the taxes collected 
 from resident owners of motor vehicles in each municipality ; 
 
 That a similar special property tax be devised for aircraft. 
 
 Rules of assessment. 
 
 With respect to rules of situs and rules of valuation prescribed 
 for assessment purposes, the Commission recommends: 
 
 That taxable real and personal property be assessed and taxed in 
 the town in which it is located on the assessment day, except that the 
 goods, wares, and merchandise of itinerant traders having no perma- 
 
The General Peopeety Tax: Assessment 309 
 
 nent place of business be assessed in the towns in which the owners 
 reside ; 
 
 That only such real and personal property be assessed and taxed 
 as exists in any town on the assessment day, except that when, because 
 of its seasonal character, the stock in trade of any business on the 
 assessment day does not represent the amount of stock in trade reason- 
 ably required to carry on such business, the average monthly value of 
 the stock in trade of such business be assessed and taxed ; 
 
 That all property in general, unless otherwise provided by law, 
 and that real property in particular be assessed at its value ; 
 
 That value be denned in the statutes as the amount of money for 
 which the property could be sold within a reasonable time under cir- 
 cumstances in which neither the buyer nor seller was forced ; 
 
 That statutory recognition be given to the assessment of real prop- 
 erty according to standard methods and formulas which by experience 
 have demonstrated their effectiveness as aids in assessing real property 
 at its value; 
 
 That real property to which easement rights have been granted 
 be assessed at the value which would obtain in the absence of such 
 easement rights; 
 
 That the assessment of inventories, machinery, and equipment of 
 mercantile, manufacturing, mechanical, and professional enterprises 
 be determined according to statutory formulas and rules which can be 
 applied by means of information ascertainable from the accounts of 
 the owners or in other ways; 
 
 That stock in trade, raw materials, supplies, and any finished 
 parts which have been purchased and are to be used in any assembling 
 process of any merchant, manufacturer, or local public utility be 
 assessed for taxation purposes at the option of the taxpayer either 
 (1) at seventy per cent of their actual cost to the taxpayer, including 
 transportation charges, or (2) at seventy per cent of their market price 
 to the taxpayer on the assessment day, including transportation charges ; 
 
 That the goods in process and finished goods of any manufacturing 
 or mechanical business be assessed at seventy per cent of the sum of 
 (1) the valuation of the raw materials or purchased parts entering into 
 such goods, determined according to the formula recommended for the 
 valuation of such materials and parts, and (2) the cost of all direct 
 labor applied to such goods ; 
 
 That machinery and equipment of mercantile, manufacturing, 
 mechanical, and professional enterprises and of local public utilities, 
 except the distribution systems of such utilities, be assessed at seventy 
 per cent of either (1) their invoice cost, including transportation 
 charges, less reasonable allowances for depreciation and obsolescence as 
 
310 Keport of Special' Tax Commission 
 
 established for purposes of the federal income tax or (2) if invoice cost 
 cannot be ascertained, the valuation established for computing depre- 
 ciation under the federal income tax, less reasonable allowances for 
 depreciation and obsolescence as established for purposes of the federal 
 income tax; provided, however, that the accumulated depreciation and 
 obsolescence allowed for property in use under either of the two pre- 
 ceding formulas shall in no case exceed ninety per cent of the valua- 
 tions established by such formula ; > 
 
 That the tangible personal property included in the distribution 
 systems of water, gas, and electric companies be assessed at severity 
 per cent of the valuation arrived at by adding to the original or invoice 
 cost of the property transportation charges and any costs of construc- 
 tion, erection, assembling, or fabrication (except the cost of excavation, 
 paving, backfill, and other labor cost applied to property not belonging 
 to such companies) and subtracting reasonable allowances for deprecia- 
 tion and obsolescence as established for purposes of the federal income 
 tax; provided, however, that the accumulated depreciation and obso- 
 lescence allowed for property in use under this formula shall in no 
 case exceed ninety per cent of the valuation established by suoh formula; 
 
 That, when the application of the rules of valuation recommended 
 to be applied to tangible personal property results in disproportionate 
 and inequitable assessments, the assessing authority be given power to 
 set aside such rules and apply in their stead such other rules as will 
 produce more reasonable, proportionate, and equitable assessments. 
 
 Assessment procedure. 
 
 With respect to the procedure for assessing property, the Com- 
 mission recommends: 
 
 That the assessment date be January 1 ; that the last day for filing 
 tax lists without penalty be February 1 ; that the local assessors be 
 required to complete their tentative assessments by April 1 ; that com- 
 plaints against the tentative assessments be heard and disposed of by 
 assessors during April; and that final assessments be established and 
 tax lists and abstracts be filed for public inspection not later than 
 May 1; 
 
 That all taxable tangible personal property be listed with the tax 
 commissioner and assessed by him ; that the assessments established by 
 means of an office audit of the tax lists of this property be certified by 
 the tax commissioner to the local assessors a sufficient time before May 1 
 to be included in the local abstracts of taxable property; and that such 
 assessments be subject to revision after May 1 by the tax commissioner 
 when such action is found necessary from field audits of the tax 
 returns ; 
 
The Gee-eeal Peopeety Tax: Assessment 311 
 
 That the tax commissioner be given power to authorize the 
 budget-making authority of any town, upon written petition, to dis- 
 pense with the requirement that taxpayers file lists of taxable real 
 estate with the local assessors when, upon investigation, the tax com- 
 missioner shall find that the records of assessors of such town are ade- 
 quate to determine the ownership and valuation of all taxable property 
 in such town without the aid of tax lists ; 
 
 That any town be permitted to enter into a contract with the tax 
 commissioner under which, within a specified time and within a max- 
 imum cost agreed to by both parties, the tax commissioner would agree 
 to furnish to the towns aerial maps enlarged from the contact prints on 
 file in the State Library and delineated for all parcels of real estate 
 subject to separate ownership and recorded in the land records of such 
 town; 
 
 That the tax commissioner be given the necessary authority to ful- 
 fill contracts to furnish tax maps and be given a limited annual appro- 
 priation for the purpose to be allotted to such contracts in the order in 
 which applications of the towns are filed with the tax commissioner; 
 
 That seventy-five per cent of the total cost of any contract made to 
 furnish tax maps be charged against the municipality and twenty-five 
 per cent of such cost be paid by the state. 
 
 Administeative oeganization. 
 
 With respect to the administrative organization for the assessment 
 of property, the Commission recommends: 
 
 That the assessors of each town be appointed by the budget-making 
 authority for six-year terms; that they be removable by the budget- 
 making authority for cause after hearing; that their compensation be 
 fixed by the budget-making authority ; and that they be supplied with 
 the necessary equipment and assistance to discharge their duties 
 effectively ; 
 
 That local boards of relief be abolished ; that their administrative 
 powers be transferred to the local assessors ; and that their quasi-judicial 
 powers of hearing and rendering decisions on appeals on local assess- 
 ments be transferred to the proposed state board of tax appeals ; 
 
 That a state board of tax appeals of three members, appointed for 
 overlapping terms of six years by the Governor with the advice and 
 consent of the General Assembly, be established; 
 
 That the state board of tax appeals be given jurisdiction over 
 appeals on local property taxes and on all state taxes ; 
 
 That the statutes governing the organization of the state board of 
 tax appeals provide for a formal procedure, under which appeals made 
 to the board would be heard and decided in accordance with rules of 
 
312 Keport of Special Tax Commission 
 
 practice, procedure, and evidence similar to those followed, by the 
 courts ; that the statutes also provide for an informal procedure, under 
 which appeals made to the board would be heard and decided in accord- 
 ance with simple regulations promulgated by the board and designed 
 to reduce the inconvenience and cost to small taxpayers in having their 
 grievances heard and disposed of; 
 
 That the state board of tax appeals be given broad discretion to 
 prescribe rules and regulations governing its activities; 
 
 That the state board of tax appeals be given power to appoint 
 deputies, referees, or committees to hold hearings in the towns on 
 appeals on assessments and to report their findings, conclusions, and 
 recommendations to the board for its decision; 
 
 That provision be made by which appeals on decisions of the state 
 board of tax appeals may be made to the superior court of Hartford 
 County under the rules now governing appeals from decisions of the 
 boards of relief to the superior court; 
 
 That the state board of equalization be abolished and its duties 
 transferred to the tax commissioner. 
 
CHAPTER XI 
 
 THE GENERAL PROPERTY TAX: COLLECTION 
 
 The present law. 
 The tax collector. 
 
 Under the general statutes each town is directed to elect either 
 at its annual or at biennial meetings a collector of town taxes. 1 This 
 office may not be held by a selectman nor by the town treasurer, 2 and, 
 while not forbidden by law, it is uncommon for the assessor to perform 
 the duties of a collector. School districts and other minor districts 
 organized under the general statutes elect their collectors ■ annually. 3 
 Not infrequently the town collector is selected to serve such minor 
 districts. In unconsolidated cities and boroughs and in some of the 
 consolidated cities the collector is elected or appointed under provisions 
 of special acts. A bank or trust company chartered by the state is 
 empowered to act as the agent of a collector of any municipality when 
 so authorized by the collector." 
 
 The tax collector of a town may be removed from office for 
 dereliction of duty by any judge of the superior court upon written 
 application of the selectmen; a city collector may be removed upon 
 application of the mayor and aldermen; a borough collector, upon 
 the application of the warden and burgesses; and a district collector, 
 upon application of the district committee." 
 
 Under the general statutes the legislative body of a municipality 
 may fix the salary of its collector without statutory limitations. This 
 compensation may be made up in part of certain fees paid by tax- 
 payers and the municipality, or it may be in lieu of such fees. These 
 fees are as follows: 6 
 
 1. For issuing an alias tax warrant, $2 ; 
 
 2. For levy on real and personal property, $0.20 ; 
 
 3. For required notices of levy and sale posted, filed, published, 
 or sent by mail, $0.25; 
 
 'Gen. Stat., 1930, sees. 265, 274. 
 
 2 Gen. Stat., 1930, sec. 277. 
 
 8 Cum. Sup., 1933, sec. 281b; Gen. Stat., 1930, sec. 547. 
 
 * Cum. Sup., 1933, sec. 978b. 
 
 ■ Gen. Stat., -1930, sec. 1224. 
 
 6 Gen. Stat., 1930, sec. 2282; Cum. Sup., 1933, sec. 343b. 
 
314 Repobt of Special Tax Commission 
 
 4. For miles traveled from his residence to the farthest point at 
 which he is required to post a notice or to go to levy upon per- 
 sonal property and return, $0.20 per mile; 
 
 5. For each sale of real or personal property, $4; 
 
 6. For each deed or bill of sale, $2 ; 
 
 7. For each certificate continuing a lien for any tax; upon peti- 
 tion of the taxpayer, $1 ; 
 
 8. For -each certificate continuing a lien upon the initiative of 
 the collector, $2 ; 
 
 9. For preparing and filing a certificate discharging the lien for 
 any tax based upon any assessment of 1927 or thereafter, 
 $0.50. 
 
 The practice of the municipalities of the state with respect to 
 compensation of collectors displays considerable variation. According 
 to the most recently published figures, 64 towns were paying their 
 collectors on a salary basis, and 105, on a commission basis. Salaries 
 ranged from $50 in four towns (plus an additional compensation for 
 personal tax collections amounting to $25 in three towns and to 10 
 per cent in the fourth") to $7,500. Commissions for tax collection 
 ranged from three-tenths of one per cent to two and one-half per cent 
 of collections, with the largest group of towns paying one per cent. 
 
 In one town the commission was one-half of one per cent on 
 collections of current taxes and one per cent on collections of back 
 taxes, thus offering a premium for failure to collect taxes promptly. 
 Another town has recently shifted the emphasis in the other direction 
 by graduating the commission on collections of current year taxes from 
 one and one-fourth per cent on the first $40,000 collected, to one and 
 one-half per cent on the next $20,000, and two per cent on the balance.' 
 In still another town the tax collector receives a compensation equal 
 to 0.9 per cent of the total levy less abatements and corrections and 
 makes up all uncollected taxes either out of his compensation or out 
 of his personal estate, receiving in return a personal claim against 
 delinquent taxpayers. 
 
 The compensation paid by the municipalities other than towns 
 varies from nothing in those municipalities which are served without 
 charge by town collectors to as much as twelve and one-half per cent 
 of collections. 
 
 'Tax Commissioner, Information Relative to the Assessment and Collection, of 
 Taxes, 19S8, pp. 78-89. 
 
The General Property Tax: Collection 315 
 
 Tax due DATES. 
 
 The tax due date is fixed by the municipality at the time the tax 
 rate is laid or, upon the failure of the municipality to do so, by the 
 collector "in the same manner as the authority laying such tax might 
 have done had it acted thereon." This freedom of action is conditioned- 
 only upon the requirements that the due date of a single installment 
 tax be not later than one year after the levy of the tax and that the 
 due date of the second installment of a two-installment tax be not later 
 than forty-five days before the end of the fiscal year in which the first 
 installment is due. A special tax must be due and payable in a single 
 installment. Other property taxes may be made due and payable by 
 vote of the municipality in two installments, and some charters and 
 special acts provide for quarterly installments. The first installment of 
 a two-installment tax must constitute at least one-half of the total tax 
 levy and seldom amounts to more. 8 
 
 Under the general statutes a tax does not become delinquent until 
 one month after its due date, except that, in case of failure to pay. the 
 first of a two-installment tax within the one-month period of grace, 
 the second installment is construed as having become due and payable 
 and delinquent at the same time as the first installment. The penalty 
 for failure to pay a tax before delinquency consists of an interest 
 charge computed from the due date (not the date of delinquency) at 
 the rate of three-fourths of one per cent per month or fraction thereof. 
 The interest is computed upon the' whole of the tax without regard for 
 any partial payments which may have been made." Delinquency also 
 subjects the taxpayer to any of the procedures for forcing collection 
 which are described below, although legally such procedures may be 
 begun at any time after the tax due date. 
 
 Abatement and transfer to suspense book. 
 
 Taxes owed by persons who are poor and unable to pay may be 
 abated, before or after they are due and payable, by the selectmen of 
 towns, the mayor and aldermen of cities, the warden and burgesses of 
 boroughs, and the committees of minor municipalities. A list of per- 
 sons whose tax obligations are discharged in this manner must be 
 presented at the annual meeting of the municipality. 10 
 
 At least once a year the collector of a municipality is directed 
 to deliver to the board of finance or similar body, if the municipality 
 
 8 Gen. Stat., 1930, sec. 1216; Cum. Sup., 1933, see. 330b. 
 •Cum. Sup., 1933, sec. 332b. 
 10 Gen. Stat., 1930, sec. 1206. 
 
316 Repobt of Special Tax Commission 
 
 has such a body, or in other cases, to the board of selectmen, common 
 council,- warden and burgesses, or district committee a statement con- 
 taining (1) the amount of each uncollectible personal (poll) tax, (2) 
 the amount of each uncollectible personal property tax, and (3) the 
 amount of the uncollectible balance of each real estate tax after credit- 
 ing such tax with the proceeds of a tax sale. This statement also con- 
 tains the names of all persons against which these uncollectible taxes 
 were assessed and the reason why each tax is uncollectible. The board 
 of finance or the governing body, as the case may be, then approves 
 or rejects the transfer of these taxes to the suspense book." If so trans- 
 ferred, they may no longer be considered assets of the municipality, 
 they cease to encumber the collectors' rate books, and the collector is 
 assisted in making final settlement of his rate bills with the municipal 
 treasurer. 
 
 Collection peoceduee. 
 
 Collection of non-delinquent taxes. 
 
 The tax collection process may be said to begin when the select- 
 men of towns and the appropriate officials of other municipalities make 
 out and sign rate bills and turn them over to the collector. The rate bills 
 are accompanied by a warrant, which is issued by a justice of the peace, 
 directing the collector to collect the taxes listed and if necessary to levy 
 upon and sell property of the delinquent or to commit the delinquent to 
 the county jail. 12 
 
 At least five days before the due date of a tax, again within one 
 week after the due date, and finally at least five days before the date 
 of delinquency, the collector must give notice to all taxpayers upon a 
 public signpost and in a local newspaper or, if there is no local news- 
 paper, a state newspaper having a general circulation in the munici- 
 pality. 18 
 
 On and, after the due date of a tax the collector stands ready to 
 receive taxes. Any taxpayer is permitted to pay all of a two-installment 
 tax upon the due date of the first installment. Except in special cases, 
 such as the transfer of part of a taxpayer's property after the assess- 
 ment date, no specific permission is given the collector to receive a 
 partial payment of taxes, but in the absence of statutory prohibition 
 this is commonly done. 
 
 "Cum. Sup., 1933, sec. 346b. 
 
 "Gen. Stat., 1930, sec. 1209; Gen. Stat., 1918, sec. 1317. 
 
 "Cum. Sup., 1933, sec. 331B. 
 
The General Peopeety Tax: Collection 317 
 
 Collection of delinquent taxes. 
 Peoceduees of enfoecement. 
 
 The law provides three distinct methods of enforcing the payment 
 of delinquent taxes. These are as follows : 
 
 1. Foreclosure of tax liens upon- real estate; 
 
 2. Ordinary suit against the delinquent taxpayer; 
 
 3. Levy and sale of property or commitment to jail 
 
 a. Under authority of the collector's warrant or 
 
 b. Under authority of an alias tax warrant. 
 
 Some one of these procedures must be started within eighteen months 
 of the due date of the first installment of a tax which is delinquent and 
 which has not been secured by means of an extended tax lien as 
 described below." 
 
 POEECLOSUEE OF LIENS UPON EEAL PEOPEETY. 
 
 A lien automatically attaches to "the interest of each person in 
 each parcel of real estate which shall have been legally set in his 
 assessment list" for the amount of taxes laid upon the valuation of 
 such interest together with any interest, fees, and other charges pro- 
 vided by law. These liens now exist for a period beginning with the 
 assessment date and ending one year after the due date of the first 
 installment of the tax. They take precedence over all transfers and 
 encumbrances except mortgages held by the state school fund and the 
 agricultural college fund. Such a lien may be foreclosed at any time 
 during its existence without divesting the property of liens for any 
 other tax. 15 
 
 Foreclosure suit may be instituted by the collector of any town, 
 city, borough, or school district and by the chairman of any other 
 municipality. If more than one municipality joins in the suit, the 
 jurisdiction of the court is determined by the largest tax. The court 
 may "limit a time for redemption, order the sale of the property and 
 pass such other decree as it shall judge advisable." 18 
 
 Tax liens are not ordinarily foreclosed during the first year of 
 delinquency. Instead, recourse is had to provisions of the statutes per- 
 mitting an extension of the lien for a period of fifteen years from the 
 date of its continuance. This continuance of the lien may be effected 
 either (1) upon the petition of an owner or fiduciary holding title 
 
 M Cum. Sup., 1933, sec. 347b. 
 
 15 Cum. Sup., 1933, sees. 337b, 345b; Gen. Stat., 1930, see. 1234. 
 
 M Gen. Stat., 1930, sec. 1242. 
 
318 Report of Special Tax Commission 
 
 to the real estate so encumbered or (2) upon tb.6 initiative of the tax 
 collector. 
 
 In the first case, the lien is continued upon request of "any owner 
 in whole or in part of, or any fiduciary having control of, or interest 
 in, any real estate." This request must be made of the tax collector 
 within 90 days of the due date of the first installment of a tax or, if 
 the first installment has been paid, within 30 days of the due date of 
 a second installment. It must be accompanied by an affidavit "showing 
 in detail the existence of unusual financial or other circumstances 
 which justify deferring collection of the tax laid upon such real estate." 
 This petition is referred by the collector, with recommendations, to 
 the executive body vested with the power to abate taxes. If such body 
 grants the request within sixty days of its receipt, the collector is to 
 make out and file with the town clerk, prior to the expiration of the 
 automatic lien, a certificate, which serves to continue the tax lien for 
 a period of fifteen years from the date of continuance. A tax the collec- 
 tion of which is so deferred is subject to no interest or other penalty for 
 delinquency, a provision which is intended not only as a concession to 
 the needy taxpayer bul; also as a precaution against the abuse of the 
 privilege by a municipality. 
 
 The second method of continuing a tax lien differs from the first 
 in several respects. It requires no petition on the part of the taxpayer, 
 nor does the final decision ordinarily rest with the governing body. 
 Upon the failure to collect real estate taxes within the period during 
 which the automatic one-year lien is in effect, the collector of a major 
 municipality or a school district or the chairman of the committee 
 of any other municipality may cause the lien to be extended for an 
 additional period of fifteen years by simply filing the required certifi- 
 cate with the town clerk." Interest on taxes secured by such a lien 
 accrues at the regular rate of three-fourths of one per cent per month 
 until the date on which the lien is continued and at the rate of seven 
 per cent per annum thereafter. 18 
 
 In common with the automatic lien described above, the fifteen- 
 year lien may be discharged (1) upon receipt by the tax collector of 
 the taxes, interest, and fees due, (2) by foreclosure, or (3) by abate- 
 ment of the tax. If not discharged, the lien finally lapses, and the 
 municipality has no recourse except to the person in whose name the 
 tax was assessed. 
 
 The foreclosure of a tax lien, it will be noted, is a collection 
 procedure for real property taxes only. Such taxes, being secured by 
 a lien upon property, follow the property, but they also remain a 
 
 "Cum. Sup., 1933, see. 340b. 
 "Cum. Sup., 1933, sec. 332b. 
 
The General Property Tax: Collection 319 
 
 liability of the person in whose name the property was originally 
 assessed and can be collected from him by any of the remaining pro- 
 cedures of tax collection. 
 
 Collection by ordinary suit. 
 A tax properly assessed is declared by law to be a debt owed to 
 the municipality by the person against whom assessed. In addition to 
 all other remedies provided by law, such a tax may be recovered by 
 any proper action brought by the municipality against the delinquent 
 debtor. 18 Since tax debts in this state are not subject to the statute 
 of limitations, this recourse is available at any time after a tax becomes 
 delinquent. 
 
 Levy and sale or commitment. 
 
 The two procedures for collection of delinquent taxes described 
 above, namely, foreclosure of liens and ordinary suit, depend upon 
 court action for their consummation. The third procedure is without 
 recourse to the courts. It is the process of levy and sale or commitment 
 by the collector under authority of his tax warrant or by a sheriff, 
 constable, or other officer with power to serve a civil process deputized 
 for such purpose by means of. an alias tax warrant issued by the 
 collector. 
 
 When a tax becomes delinquent, the collector or his duly appointed 
 agent is directed to make oral or written demand of the taxpayer. If 
 the tax remains delinquent, he may seize and sell any personal property 
 belonging to the delinquent except such as is legally exempt from 
 execution. 20 If no personal property can be found after reasonable 
 search, the collector may (1) enforce the lien for real estate taxes 
 by selling free of any other encumbrances the real estate upon which 
 the tax may be due, (2) levy upon and sell subject to all encumbrances 
 any interest of the delinquent in real estate, or (3) levy upon the body 
 of the delinquent and commit him to jail until such time as the tax 
 is paid or the prisoner is discharged upon taking the poor debtor's 
 oath. 21 
 
 The sale of property levied upon under the foregoing circum- 
 stances is governed in considerable detail by law. Notice of a pend- 
 ing sale of personal property must be properly posted and published, 
 and the sale must be held at designated times and places. The delin- 
 quent taxpayer may redeem the property up to the hour of the sale." 
 
 "Gen. Stat., 1930, sec. 1231. 
 "See Gen. Stat., 1930, sec. 5791. 
 " Gen. Stat., 1930, sees. 1225, 1230. 
 "Gen. Stat., 1930, sec. 5786. 
 
320 Report oe Special Tax Commission 
 
 Notice of a pending sale of real estate must not only be" posted and 
 published but also be filed with the town clerk and given or sent to the 
 delinquent taxpayer and to each mortgagee or other encumbrancer. At 
 the sale enough of the estate is sold to pay the taxes, interest, and fees 
 due from the delinquent. 28 
 
 Real property may not be purchased at a tax sale by anyone 
 whose duty it is to pay the tax, that is, the delinquent taxpayer or any 
 transferee or mortgagee, 31 but any such person may redeem the property 
 within a period of one year from the date of sale by paying or tender- 
 ing to the purchaser the full purchase price with twelve per cent inter- 
 est. Presumably the interest is computed from the date of sale to the 
 date of redemption, but the statutes are obscure on this point. 
 
 Within one week after the sale of real estate for delinquent taxes, 
 the collector is required to execute a deed to the property in favor of 
 the purchaser and file it with the town clerk. The deed remains unre- 
 corded for one year after the date of sale but is then recorded and given 
 full effect unless the property has been redeemed in the meantime or 
 unless one of the following irregularities can be shown to exist :" 
 
 1. An irregularity in any of the proceedings subsequent to the 
 laying of the tax by the municipality which caused the tax 
 to be greater than it would have been had all such action been 
 legally taken; 
 
 2. An irregularity in the tax sale which would have put the 
 delinquent to greater expense in redeeming the property than 
 would have been the case if the sale had been conducted accord- 
 ing to law; 
 
 3. The failure of the collector to give notice of the sale to the 
 delinquent or to "those with whom he is in privity of title, and 
 who have a right to notice of such sale, . . . [provided] 
 he or they in fact did not know of such sale within one year 
 after it was made ..." 
 
 The law does not specify whether the purchaser of property at a 
 tax sale takes immediate possession of it or whether he must wait until 
 the deed is recorded and delivered to him. We are informed, however, 
 that in practice possession usually passes on the date of the sale. 
 
 ■Gen. Stat., 1930, sec. 1227. 
 
 1 Goodrich u. Kimberly, 48 Conn. 395 (1880). 
 
 ! Gen. Stat, 1930, sec. 1229. 
 
The Geneeal Peopeety Tax: Collection 321 
 
 Settlement with the teeasueee. 
 
 On or before the fifth day of each month the collector is required, 
 upon penalty of loss of compensation, to turn over to the municipal 
 treasurer his collections of current/ and back taxes and interest during 
 the preceding month and a list of all persons from whom such moneys 
 were received. To enforce this provision, the treasurers of most towns 
 are required to examine the collector's books monthly. 26 
 
 A final settlement on all rate bills must be made within two years 
 after the due date of the first installment of the tax. In this settle- 
 ment the collector is credited with his monthly payments on such rate 
 bills to the treasurer, with each lawful abatement, each lawful cor- 
 rection, each transfer to the suspense book, and each tax secured by 
 a tax lien continued for fifteen years. The collector and his surety 
 are liable for all taxes which are not settled by one of these 
 methods. Upon completing his term of office, the collector must turn 
 over all uncollected rate bills to his successor. 27 
 
 Recoeds and eepoets oe the collectoe. 
 
 In addition to his rate bills the records of the tax collector include 
 his receipt books, the form of which is prescribed in detail by statute 
 for 125 towns,-. and an up-to-date record, in such form as the tax com- 
 missioner prescribes, of all real estate tax liens which are continued 
 and discharged. 28 
 
 Immediately upon the expiration of twelve months from the due 
 date of the first installment of any unpaid real estate tax, the col- 
 lector must report to the town clerk, upon forms prescribed by the tax 
 commissioner, the amount of such unpaid taxes and the name and 
 address of the delinquent. If any of these taxes are subsequently paid, 
 the collector reports such payments to the town clerk. At least once a 
 year the collector must also render his report upon uncollectible taxes 
 which he wishes to transfer to the suspense book. Finally, he must 
 deliver to the board of finance, or to the governing body if there be 
 no board of finance, an annual report at the end of each fiscal year. This 
 report contains detailed statistics of collections, abatements, and correc- 
 tions on each rate bill, transfers to the suspense book, etc., and is in- 
 cluded in the published municipal report. 20 
 
 36 Cum. Sup., 1933, sec. 333b. . 
 
 "Cum. Sup., 1933, sec. 347b; Gen. Stat., 1930, sec. 1212. 
 
 18 Gen. Stat., 1930, sees. 1218, 1241. 
 
 " Cum. Sup., 1933, sees. 344b, 346b, 349b. 
 
322 Kepobt of Special Tax Commission 
 
 The growth of tax delinquency. 
 
 For the past nine years the tax commissioner has published excel- 
 lent reports on local property tax collections for twelve-month periods 
 ending on March 31."" Since taxes in most towns are due on April 1 or 
 soon after, taxes due but unpaid on March 31 have in most cases been 
 delinquent for almost a year. The amount of such delinquency has 
 shown an almost constant increase since complete data were first pub- 
 lished. The record of delinquent taxes, excluding abated taxes and, in 
 the last two years, taxes transferred to the suspense book, is given in 
 the last columns of Table XLV. 
 
 These statistics are disturbing. How much, if any, of the increase 
 in delinquent taxes from $12,066,000 in 1926 to $22,594,000 in 
 1933 is attributable to more accurate reporting of uncollected taxes 
 cannot be ascertained, but, assuming that this factor is negligible, 
 delinquencies increased in every year save one. In the prosperous 
 year ending March 31, 1929, tax delinquencies were reduced by 
 the insignificant amount of $61,522. Throughout the other years 
 of prosperity, as well as in depression years, uncollected taxes have 
 been allowed to accumulate until they have now reached the startling 
 figure of 22.6 million dollars, or 30 per cent of a single year's tax levies. 
 
 The uncollected portion of back rate bills is increasing less rapidly 
 than that of the current rate bill. Delinquencies on back rate bills 
 increased from $7,209,000 on March 31, 1926, to $10,653,000 on 
 March 31, 1933, or 48 per cent, while delinquencies on the current 
 rate bill increased from $4,857,000 to $10,653,000, or 119 per cent. 
 For several years prior to the depression the municipalities as a 
 whole collected back taxes in amounts not far short of the delinquencies 
 on the current rate bill. But the difference between collections of back 
 taxes and current delinquencies in recent years has become increas- 
 ingly larger. 
 
 Although a portion of these delinquent taxes will prove uncol- 
 lectible in the end, a municipality writes off from its books each year 
 only the amount of taxes abated, transferred to the suspense book, or 
 changed by correction of errors. These write-offs amounted to $966,000 
 in 1932 and $711,000 in 1933. Since abatement is sometimes illegally 
 resorted to as a means of writing off a tax which is uncollectible for 
 reasons other than the indigence of the taxpayer, abatements as well 
 as transfers to the suspense book are often attributable to faulty collec- 
 tion procedure. 
 
 M For six major municipalities — Beacon Falls, Brooklyn, Ellington, Enfield, and 
 and the town and borough of Wallingford — wherein taxes first come due in March, 
 the reports cover the twelve months prior to the tax due date. 
 
The General Peopeett Tax: Collection 
 
 323 
 
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 B-5 g OJ cm 
 
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324 Eepoet of Special Tax Commission 
 
 The municipalities have probably suffered an average annual loss 
 of at least a million dollars over a period containing more prosperous 
 years than depression years. Unless something is done to clean up back 
 taxes or the real estate market experiences a remarkable upturn, the 
 real loss may prove to be much higher, averaging perhaps as much as 
 1.9 million dollars a year over the period 1926 to 1933. For recent 
 years realized and prospective losses have been mounting rapidly. In 
 1933, taxes to the amount of $711,000 were written off the books, and 
 delinquencies increased another 5.5 million dollars. In the absence of 
 new legislation, actual losses for this single year will probably amount 
 to between five and seven per cent of the total levy of current taxes. 
 
 These aggregate figures conceal the variety of actual collection 
 experiences in some 350 tax districts of the state and, by offsetting good 
 records against bad, fail to disclose the true extent of the tax delin- 
 quency problem. Some municipalities have had excellent collection 
 records throughout the depression. As may be seen from the last column 
 of Table XLVI, three major municipalities reported no delinquent taxes 
 on March 31, 1933. 31 Eight other major municipalities reported delin- 
 quencies amounting to less than five per cent of their total collectible 
 taxes. But there were seven major municipalities in which delinquencies 
 amounted to forty per cent or more of collectible taxes, and sixty-two 
 in which they amounted to twenty-five per cent or more. 
 
 By including delinquencies on past as well as current rate bills, 
 these figures tend to discredit a few municipalities with good current 
 records but poor collections in earlier years. We have therefore included 
 in the middle column of Table XLVI a frequency distribution of 
 the percentage of delinquencies on the current rate bill to the total cur- 
 rent rate bill. This comparison is weakened somewhat, as is the one 
 described above to a lesser degree, by the fact that some municipalities 
 have had by March 31 a longer tax collection period than others, but 
 on the whole it represents true differences in efficiency in collection. 
 The same three municipalities show perfect collection records, and a 
 somewhat larger number of municipalities is found in the low delin- 
 quency groups than in the frequency distribution previously described. 
 No municipality showed a delinquency as high as forty per cent, but 
 thirteen showed delinquencies amounting to twenty-five per cent or 
 more. 
 
 These frequency distributions disclose a serious tax delinquency 
 problem kj^ome municipalities of the state. They show that a much 
 heavier tax buroen is being borne by those who pay their taxes than 
 
 sl In two of these — Clinton and Torrington — this was attributable in part to long- 
 standing arrangements under which the tax collector was personally liable for 
 uncollected taxes. 
 
The Genebal Pbopeety Tax: Collection 325 
 
 Table XL VI 
 FREQUENCY DISTRIBUTION: PERCENTAGE RATIO OF DELINQUENT 
 TAXES TO COLLECTIBLE TAXES, MAJOR MUNICIPALITIES, YEAR 
 ENDING MARCH 31, 1933 
 
 
 
 Number of 
 
 municipalities 
 
 Percentage 
 
 
 
 
 
 ratio 
 
 Current rate bill 
 
 All 
 
 rate bills 
 
 0.0 
 
 3 
 
 
 
 3 
 
 0.1 to 4.9 
 
 14 
 
 
 
 8 
 
 5.0 to 9.9 
 
 36 
 
 
 
 18 
 
 10.0- to 14.9 
 
 65 
 
 
 
 25 
 
 15.0 to 19.9 
 
 42 
 
 
 
 42 
 
 20.0 to 24.9 
 
 21 
 
 
 
 36 
 
 25.0 to 29.9 
 
 9 
 
 
 
 27 
 
 30.0 to 34.9 
 
 2 
 
 
 
 18 
 
 35.0 to 39.9 
 
 2 
 
 
 
 10 
 
 40.0 to 44.9 
 
 
 
 
 
 4 
 
 45.0 to 49.9 
 
 
 
 
 
 2 
 
 50.0 to 54.9 
 
 
 
 
 
 1 
 
 Source : Tax Commissioner, Information Relative to the Assessment and Collection 
 of Taxes, 1933. 
 
 would be necessary if others who were legally liable to the same degree 
 were as faithful in discharging their liabilities. This would not be so 
 serious if the municipalities having poor records in 1933 had good 
 records in other recent years, but we find that half of the municipalities 
 which were listed among the fifty municipalities with the highest delin- 
 quencies in 1933 were also among the first fifty in 1929. 
 
 Causes of tax delinquency and peoposed eemedies. 
 In geneeal. 
 
 The causes of tax delinquency ramify into many phases of this 
 Commission's inquiries. One of the most potent causes is the sheer 
 burden of taxation as compared with taxable resources. This may be 
 due to governmental extravagance, to the attempt to provide too many 
 governmental services, to the attempt to attain standards of service 
 which the municipality cannot afford, or to the organization of govern- 
 mental units too small in area and too poor in resources to support the 
 elementary governmental functions. Another important factor con- 
 tributing to tax delinquency is faulty assessment practice. Tax collec- 
 tion is obviously impaired by the assessment of property for more than 
 it is worth, and it is also impaired when taxpayers are resentful because 
 of actual or imagined inequities in assessment. These are problems 
 which can be worked out in the /end only by the municipalities them- 
 selves. We have shown in preceding chapters the ways in which the 
 state can assist them in many respects, but we have also emphasized the 
 necessity of local self-help if enduring results are to be obtained. 
 
326 Eeport of Special Tax Commission 
 
 Whatever the importance of these causes of tax delinquency, there 
 can be no doubt concerning the primary cause of delinquencies which 
 stretch over a period of such prosperity as this state witnessed prior 
 to the current depression. That cause is to be sought in the collection 
 administration and procedure of the municipalities of the state. Here 
 there is room for improvement which can be effected directly by action 
 of the state along the lines indicated in the following sections of this 
 chapter. 
 
 Anything short of a vigorous effort on the part of the collector to 
 collect taxes when due is unfair to all concerned. Those who pay their 
 taxes — some of them at great sacrifice — are forced to pay heavier taxes 
 because of delinquency on the part of others. These heavier taxes in 
 turn force further delinquencies. Moreover, those who are still able to 
 pay recognize that they are discriminated against, and eventually their 
 morale is lowered to the point at which they too fail to pay their taxes 
 until forced to do so. Nor is it a kindness to the taxpayer to permit him 
 to accumulate delinquent taxes from one year to another as is done in 
 Connecticut. Easy credit policies not only bring losses to the creditor but 
 are likely to undermine the economic independence of the debtor and, 
 by destroying habits of thrift, contribute to his eventual insolvency. 
 
 For these reasons we believe that a reappraisal of Connecticut tax 
 collection policy is essential. It appears that the time is opportune for 
 such action. Much property in which the owners had little or no equity 
 has now passed into stronger hands. There is a growing consciousness 
 of taxation on the part of those who are bearing the burden. The 
 importance of placing local finance on a sound basis was never greater. 
 Under such circumstances it would be unwise to permit tax delinquen- 
 cies to increase or even to remain at the extravagant figure which they 
 have now reached. 
 
 Selection and compensation oe collectors. 
 
 Tax collection is a technical field. The tax collector is — or 
 should be — much more than a mere receiver of taxes. He must be 
 able and prepared to force collection of delinquent taxes by difficult 
 legal procedures strictly adhered to. To do so he must not only be intelli- 
 gent and experienced, but he must be unhampered by political obliga- 
 tions and free from the necessity of catering to the electorate by means 
 of loosely enforced collection procedures. 
 
 With a system of annual and biennial elections it would be too 
 much to expect uniformly high-grade collectors. There are many col- 
 lectors in the state who are of superior caliber, but this fact, we are 
 convinced, exists in spite of the circumstances surrounding their selec- 
 
The General Property Tax: Collection 327 
 
 tion, tenure, and compensation. Two measures are indispensable if 
 every municipality is to be reasonably assured of a competent collector. 
 In the first place, he must be an appointed officer answerable to some one 
 other than the electorate and reasonably assured of a term of office 
 sufficient to attract a capable man and to afford him an opportunity to 
 acquaint himself with his powers and duties. Secondly, the collector 
 must be paid a respectable salary and reasonable expenses. Many 
 municipalities in this state are not of sufficient size to warrant a full- 
 time collector. Every effort should be made in these municipalities to 
 cooperate with neighboring municipalities or to combine the offices of 
 treasurer and collector in the manner recommended later in this chap- 
 ter. The commission system of remuneration so commonly employed 
 in the state should, in our opinion, be abandoned or considerably modi- 
 fied. Although it has by no means proved itself universally ineffective in 
 this state, other states have found that it encourages the collection of 
 those taxes which are freely tendered or can be forced with a minimum 
 of effort and the abandonment of the more difficult cases of delinquency. 
 Very frequently the tax "collector" becomes a receiver rather than a 
 collector of taxes. Another practice which should be abolished is that 
 of remunerating a collector more highly for failing to collect taxes 
 than for collecting them. This often occurs in municipalities in which 
 the collector is entitled to fees for the continuance of tax liens. 
 
 We therefore recommend that the collector hold office upon the 
 same terms recommended in the preceding chapter for the assessor, that 
 is, by appointment of the budget-making authority for a term of six 
 years, subject to removal by such authority for cause after hearing. 
 In any municipality in which a chief accounting officer has been 
 appointed, the budget-making authority should be permitted to appoint 
 the treasurer to the office of tax collector. In other municipalities the 
 offices of collector and treasurer should remain incompatible in order 
 to maintain an adequate check upon the collector. The budget-making 
 authority should be allowed to appoint a local bank or trust company to 
 act as the agent of the collector for the receipt of taxes, but this action 
 must not relieve the collector of his statutory liabilities. 
 
 The compensation of collectors should be on a salary basis rather 
 than on a straight commission or fee basis. The salary should be fixed 
 by the budget-making authority and should be supplemented by adequate 
 appropriations for the necessary expenses of the office. Permission 
 should be granted any municipality to provide further for a commission 
 equal to a .certain percentage on all collections on the current rate bill 
 in excess of ninety per cent of the current levy represented by such 
 rate bill. The collector should not be permitted to retain any fees which 
 he may collect in the course of his duties. 
 
328 Report of Special Tax Commission 
 
 Billing of taxpayers. 
 
 Tax collection procedure in this state is not business-like when con- 
 ducted under the minimum requirements laid down in the general 
 statutes. In those municipalities which send out no tax bills, almost 
 the whole responsibility is placed upon the taxpayer. Even nonresidents 
 of the state or residents of other towns, wherein the tax due date will 
 by no means always be the same, are presumed to know the tax due date 
 or to learn of it through a timely visit to the town signpost or perusal 
 of a local newspaper. No business concern would expect to collect its 
 bills by such a procedure. The government cannot expect its taxpayers to 
 meet their tax obligations in a business-like fashion when conducting 
 its own affairs so loosely. An adequate collection procedure demands the 
 billing of taxes at a date which will give the taxpayer adequate notice of 
 the impending tax collection and delinquency periods. Only after the 
 government has availed itself of such simple and obvious means of invit- 
 ing the payment of taxes can the public be expected to condone the 
 imposition of moderate penalties and the resort to more summary 
 processes of collection. 
 
 To conform with the systems of budgeting, accounting, and tax rate 
 determination set forth in Chapters VI and VII, the rate bill should be 
 made out during the latter part of May or the first part of June. This, 
 it would seem, could best be done under supervision of the budget- 
 making authority, which determines the tax rate. The amount of the 
 rate bill would then be charged to the tax collector on the books of the 
 municipality. Immediately upon receiving the rate bill, the collector 
 would proceed to bill each individual taxpayer. 
 
 The tax bill should list separately the tax liability on real estate 
 and personal property in order to facilitate the recording and foreclosure 
 of tax liens. These bills should be mailed or delivered to the taxpayer 
 on or before July 1, but the failure of the taxpayer to receive such a bill 
 or its receipt after July 1 should not affect his tax liability nor the 
 legality of the tax lien. 
 
 Tax due dates. 
 
 Our criticism of the present status of municipal tax due dates has 
 been presented in detail in Chapter V, and it was there recommended 
 that the first due date be July 1 in all municipalities of the state. 
 
 The use of a single tax payment or equal semi-annual or quarterly 
 installments should be optional with the municipality. To reduce as far 
 as possible the additional costs which result from installment collection, 
 a tax of ten dollars or less should be payable in a single installment, 
 and in no case should a taxpaper owing more than ten dollars be per- 
 
The General Property Tax: Collection 329 
 
 mitted to pay less than ten dollars on the due date of any installment 
 except the last. 82 The tax collector should be permitted to receive advance 
 payments at any time, but the municipality should not incur the expense 
 of allowing discounts on advance payments, which usually result in the 
 accumulation of surplus funds on which the municipality can earn 
 little or nothing. 
 
 Penalties for delinquency. 
 
 The penalties for tax delinquency have been progressively lowered 
 in recent years. The interest penalty for the first year of delinquency 
 was changed in 1931 from nine per cent per annum to three-fourths of' 
 one per cent per month or fraction thereof, but this was done more as a 
 means of simplifying the computation of interest than as an added 
 inducement to prompt discharge of tax obligations, and it increased the 
 penalty only on taxes finally paid before the last day of any month. The 
 claim of the municipalities for interest on taxes secured by fifteen-year 
 liens at the request of needy taxpayers was completely renounced in 
 1931, and the interest on taxes secured by fifteen-year liens upon the 
 initiative of the collector was reduced from twelve per cent in 1930 to 
 seven per cent in 1933. 
 
 It is important that penalties upon delinquent taxes should be high 
 enough to discourage the use of the public treasury as a credit agency. 
 Ordinarily taxpayers can secure credit elsewhere, or their present 
 creditors can be induced to pay the taxes to protect their own invest- 
 ments. Where these recourses are not available to the taxpayer, there is 
 usually little that government can do to save his equity in taxable 
 property, and it is often best for all concerned that the tax collector 
 proceed without further delay to collect by summary processes. 
 
 While in many respects it would appear that the present penalties 
 for delinquent taxes are too light, there is one respect in which they 
 are so heavy as to be self-defeating. If tax collectors accept partial 
 payment of taxes, the remainder going delinquent, the law clearly 
 specifies that the interest penalty shall attach to the whole of the tax 
 without regard for such payment. This affords little inducement to the 
 taxpayers to make partial payments, and injustice is done one who does. 
 
 Taxes unpaid before the first day of the month following that in 
 which they first come due should be deemed delinquent and be subject 
 to penalty and to the summary processes of collection described below. 
 The delinquency of any installment of taxes should automatically bring 
 about the delinquency of all remaining installments of the same levy. 
 
 82 To illustrate, if a taxpayer were billed for $25 by a town which has elected 
 to collect its taxes in quarterly installments, his tax installments would be $10 
 $10, and $5. 
 
330 Report of Special Tax Commission 
 
 We propose that a delinquent tax be immediately increased by a 
 flat penalty of three per cent or one dollar whichever is larger, this 
 penalty to be in addition to interest computed upon the face amount 
 of the tax from the due date of the tax to the date of payment at the 
 present rate of three-fourths of one per cent per month or fraction 
 thereof. Interest and penalties should, of course, be collectible by the 
 same processes available for collection of the principal. By this means 
 the taxpayer would be given a strong incentive to pay taxes when due, 
 and much unnecessary delinquency would be avoided. 
 
 Abatement of taxes. 
 
 The power of abatement has been abused in some municipalities, 
 and as long as this power exists such abuse will probably continue. This 
 is a threatening condition. Anything approaching wholesale remittal of 
 taxes, penalties, or interest seriously obstructs the collection of taxes 
 whom those who are able and ordinarily willing to pay taxes. Such per- 
 sons are encouraged to allow their taxes to go delinquent, expecting that 
 by waiting they will be relieved of part or all of their liability by 
 further dispensations. 
 
 As long as the power to continue liens on real estate exists, there is 
 little occasion to abate real estate taxes, and, in fact, the tax commis- 
 sioner has strongly urged that such abatements be discontinued. Should 
 our recommendations upon the exemption of tangible personal property 
 used for non-business purposes be adopted, there will be little occasion 
 for further abatement of personal property taxes. We therefore suggest 
 that the provision for abatement of taxes of needy persons be repealed. 
 
 The continuance of tax liens. 
 
 Of all the defects in Connecticut tax collection procedure the 
 deferment of collection upon continuance of the tax lien upon real 
 estate is the most serious. This device, which is found in few, if any, 
 other states, has an interesting history which has been recorded by the 
 tax commissioner. 83 
 
 In the Colonial days, all taxes were collected from the indi- 
 vidual against whom the tax was originally assessed. The tax 
 lien commences with 1784. The personal obligation is removed 
 by the lien plan, as the tax, when property is liened, may be 
 collected from the property which remains charged with the 
 tax obligation, though sold by the person originally obligated 
 to pay the tax. In 1887, the collector, in figuring up his state- 
 
 's Biennial Report, 1926, pp. 42-43. 
 
The General Pbopebty Tax: Collection 331 
 
 ment with the town, was first allowed to deduct abatements, 
 and taxes, the liens for which had been continued by certifi- 
 cate in the office of the town clerk. In 1874, the selectmen of 
 towns were authorized when, in their opinion, the claim 
 against real estate should not be enforced within one year after 
 it became due, to cause the lien to be continued for a period 
 not exceeding ten years. It should be noticed that the power 
 was given to the selectmen and not to the collector. In 1875, 
 the same power was placed in the hands of the mayors of cities, 
 wardens of boroughs, or with the committees of other com- 
 munities. The period for the continuance of the tax lien was 
 reduced to five years in 1875. In 1903, the five year limitation 
 for the continuance of the tax lien by certificates was removed 
 from our statutes. From 1905 until 1915 liens ran without 
 limitation of time. In 1915, the statute, was again changed 
 and the lien was declared to be invalid after fifteen years. 
 
 Since 1926 there have been several important changes in the tax 
 lien law. The 1927 General Assembly made the first differentiation 
 between liens continued upon request of needy taxpayers and liens 
 continued at the initiative of the tax collector. The continuance of 
 liens of the first type was conditioned upon the filing of an affidavit 
 by the tax collector and the approval of the governing body of tbe 
 municipality. It was further provided that liens of the second type 
 should lapse five years after continuance instead ef fifteen years as 
 formerly. * 
 
 Even more drastic changes were made in 1931. At that time the 
 interest penalty on taxes secured by a fifteen-year lien at the request 
 of the taxpayer was abolished, and the collector was denied the power 
 to continue_ liens upon his own initiative. 85 The second of these changes 
 was heralded at the time as a decided advance in tax collection legis- 
 lation. However, the reform, if such it was, was short-lived. In 1933 
 the continuance of liens without regard for the financial circumstances 
 of the taxpayer and without review by the governing body was rein- 
 troduced, and the period over which such liens could run was increased 
 from five to fifteen. years. All five-year liens filed under the 1927 Act 
 were automatically extended for an additional ten years. 86 
 
 Collectors are inclined to view the tax lien provision as a legiti- 
 mate substitute for fax collection. Most taxes so secured bear interest 
 at the rate of seven per cent, whereas the municipality can usually 
 
 M Pub. Acts, 1927, ch. 300. 
 
 "Pub. Acts, 1931, ch. 63. 
 
 " Cum. Sup., 1933, sees. 340b, 342b. 
 
332 Kepokt of Special Tax Commission 
 
 borrow for less than this amount. Furthermore, the tax lien takes 
 priority over any transfer and over practically all encumbrances. It 
 is not surprising then that recourse is widely taken to this means of 
 shifting to a successor the difficult and unpleasant task of actually 
 collecting taxes on real estate. The exact amount of taxes deferred 
 in this manner is unknown, but anyone familiar with conditions in 
 the state is aware that it represents most of the outstanding delinquent 
 taxes. The number of recorded tax liens outstanding on April 1, 1927, 
 was conservatively estimated by the tax commissioner at 100,000." 
 
 Experience shows that the assumption that a tax secured by lien 
 is as good as a collected tax is entirely unwarranted. Deferred taxes 
 are destructive to the balancing of budgets and force municipalities 
 into debt which proves embarrassing when their credit resources become 
 strained. Moreover, the tax is by no means always as well secured as is 
 commonly thought. A prior lien upon real estate for a single year's 
 taxes will seldom prove worthless even though the value of the property 
 is seriously deflated. But when unpaid taxes have accumulated for 
 a number of years, there is real danger that the security will prove 
 inadeqtiate to meet accumulated taxes together with costs of fore- 
 closure. In the meantime the original tax debtor may have departed 
 from the state, and the opportunity to collect by procedures other than 
 foreclosure of a lien is permanently lost. There is the further proba- 
 bility that, through transfers of property or financial reverses which 
 owners have suffered, the governing body of the municipality will be 
 impelled to abate certain taxes which should and could have been 
 collected when first due. In the year ending March 31, 1933, over 
 1.600 tax liens were discharged by abatement as compared with 98 
 discharged because of foreclosure and 28,458 discharged by payment 
 of taxes. 83 Some liens are certain to lapse at the end of the fifteen-year 
 period through the inaction of the several collectors holding office dur- 
 ing such period. In 1927 there were almost as many liens which 
 lapsed as were foreclosed. 
 
 The continuance of tax liens is a poor policy of tax collection. 
 But in view of the situation which has been allowed to develop and 
 the critical condition in which many taxpayers find themselves today, 
 we believe that, with certain changes, it is justified as an emergency 
 measure. A provision by which the continuance of tax liens is limited 
 to cases in which the taxpayer is financially unable to pay and by 
 which someone other than the collector passes upon the matter is of 
 fundamental importance if wholesale delinquencies are to be prevented. 
 
 37 Tax Commissioner, Information Relative to the Assessment and Collection of Taxes, 
 
 1927, p. 13. 
 88 The same, p. 14. 
 
The General Peopeety Tax: Collection 333 
 
 Furthermore, the privilege of deferring tax payments should be avail- 
 able only to natural persons, most of whom are homeowners ; such 
 taxes should not be allowed to run for more than ten years at the 
 most; and they should bear interest at current market rates. Sometime 
 before the expiration of a ten-year period the tax collector should be 
 required to proceed to collect by foreclosure or levy and sale all taxes, 
 interest, and penalties not voluntarily discharged. 
 
 SUMMAEY COLLECTION PEOCESSES. 
 
 Tax collection in Connecticut is seldom enforced by any action 
 more drastic than the threat of summary processes on the part of col- 
 lectors. In 1927 the tax commissioner reported that less than one-fourth 
 of the municipalities actually made use of summary processes. Only 98 
 tax liens were foreclosed in that year. Only ten municipalities reported 
 collections by suit, and this action was resorted to in any considerable 
 number of cases in only one town. The collection of taxes by levy and 
 sale was the most common procedure but was used by relatively few 
 collectors. 80 The situation has not changed substantially since 1927. 
 Only a year ago the tax commissioner reported that in 107 of the 169 
 towns no attempt was made by the tax collectors to force collection of 
 delinquent taxes. In spite of a variety of procedures for forcing collec- 
 tion, the law has provided a means to the tax collector by which he may 
 ignore them all and accept only such taxes as are freely tendered by 
 the taxpayer. 10 
 
 We propose that this situation be changed (1) by prohibiting the 
 recording of transfers of any real property upon which taxes are 
 delinquent, (2) by altering somewhat the period within which the tax 
 collector is to begin to force collections and during which the automatic 
 tax lien attaches to property, and (3) by prescribing a definite pro- 
 cedure by which all taxes uncollected at the end of that period shall 
 be collected. In developing these proposals we have been guided by 
 well-established procedures in other states and by the recommendations 
 of the Committee of the National Tax Association on Tax Delinquency, 
 on which the chairman of this Commission served as chairman. 41 
 
 The tax collector should be permitted to act under any of the 
 existing summary collection procedures at any time after the due date 
 of the tax, but within the eleventh month of delinquency he should 
 
 89 Tax Commissioner, Information Relative to the Assessment and Collection of Taxes 
 1927, pp. 12-13. 
 
 40 Tax Commissioner, Information Relative to the Assessment and Collection of Taxes 
 1932, p. 33. 
 
 41 See Proceedings of the National Tax Association, 1932, pp. 292-349. 
 
334 Eepoet of Special Tax Commission 
 
 be required to proceed at once to collect all taxes not otherwise dis- 
 posed of. This action might take one of two forms: (1) the institut- 
 ing of court proceedings for the foreclosure of the tax lien on real 
 property or (2) the process of levy and sale of real or personal 
 'property of the delinquent taxpayer. If the latter procedure were 
 followed, the tax collector, on or before the first day of the twelfth 
 month of delinquency, would mail the required notice to owners and 
 encumbrancers of the property to be sold. Advertisements of the 
 sale would be published at specified dates prior to the sale, and 
 on or before the first business day of the fifteenth month of delin- 
 quency the tax sale would be held by the collector and continued 
 from day to day until completed. If the tax were small relative to the 
 assessed value of the property, the owner should be permitted to select 
 a portion of the property whichj in the opinion of the collector, would be 
 sufficient to cover the entire charge against the property, provided 
 that if no bid were received for such portion sufficient to cover the 
 charge, the whole of the property should be offered for sale. If the 
 whole of the real property of the delinquent taxpayer within the 
 jurisdiction of the municipality were offered without obtaining a bid 
 of such amount, the property should revert to the town and should 
 thereafter be subject to disposition by the municipality in such manner 
 as it chooses. Any other municipality having an interest in the property 
 on account of delinquent taxes owed it should be permitted to buy 
 it in at the tax sale. 
 
 The purchaser of real property at a tax sale should receive a deed 
 to the property and should be allowed to take possession at once, sub- 
 ject to redemption within one year thereafter by anyone having an 
 interest in the property at the time' of the sale upon payment by such 
 person to the purchaser of the full amount of the sale price plus interest 
 from the date of sale to the date of redemption at the rate of three- 
 fourths of one per cent per month or fraction thereof. 
 
 After the definite establishment of the foregoing rules of pro- 
 cedure, practically all taxes should be collected within sixteen months 
 of their due dates. If the collector properly performed his duties, the 
 only taxes that would remain upon the rate book would be (1) real 
 property taxes of needy persons which had been secured by an extended 
 tax lien and (2) taxes which had been only partially discharged by 
 the proceeds of the tax sale or for the satisfaction of which no property 
 could be seized for sale. Any taxes not collected or legally deferred 
 would be largely uncollectible, or they would be uncollected only 
 because the local collector had acted unwisely or illegally in failing 
 to collect them. 
 
The G-eneeal Peopeety Tax: Collection 335 
 
 The Commission proposes that, eighteen months after their 
 respective due dates, all such taxes be turned over to a county collector 
 appointed by the superior court, that such collector exercise all the 
 powers of a municipal collector, and that all collections made by him, 
 over and above collection costs, be divided equally between the county 
 and the municipality to which the tax is owed. A copy of the list of 
 delinquent taxpayers and their property as turned over to the county 
 collector should be filed with the town clerk. This list should be open 
 to public inspection in the office of the town clerk and should be 
 published in the next annual report of the municipality. 
 
 In order to protect the municipalities and the counties during 
 the collection period, the Commission proposes that the automatic tax 
 lien upon real estate expire three years after the due date of the 
 last installment of taxes instead of one' year after the due date of 
 the first installment as at present. 
 
 The peoblem op back taxes. 
 
 We believe that the foregoing proposals, if adopted, would ade- 
 quately care for taxes falling due thereafter. But there would still 
 remain many million dollars of back taxes on the books of the munici- 
 palities, and these, We believe, should be collected with some considera- 
 tion for the procedures and practices in force at the time they were laid. 
 
 There is now adequate law for the collection of a large part of 
 these taxes. Most of them are secured by extended liens which can 
 be foreclosed or enforced by levy and sale proceedings. The present 
 liability of the taxpayer to pay such taxes and the present powers of 
 the collector to enforce payment should not be altered, whatever the 
 changes effected in the collection of taxes laid after the passage of new 
 legislation. 
 
 The collector would be greatly assisted in the collection of these 
 taxes if a local board were established, of which the collector might 
 or might not be a member, to decide what action should be taken to 
 collect taxes as fully and expeditiously as possible, to enter into agree- 
 ments with taxpayers for the gradual discharge of their delinquent tax 
 obligations over a period not to exceed ten years, to order the fore- 
 closure of tax liens, the sale of property, or the starting of suits at law, 
 but not to remit or abate any tax. obligation. 
 
 We recommend that such a board be appointed by the tax com- 
 missioner for each major municipality wherein delinquencies on back 
 rate bills have risen to fifty per cent or more of the current levy and 
 for any other municipality which, through its legislative body, requests 
 such action. 
 
336 Kepokt of Special Tax Commission 
 
 Summary and recommendations. 
 
 Each municipality, unless governed by special act, is free to elect 
 its own tax collector either annually or biennially and to fix his com- 
 pensation. Over two-thirds of the towns use the annual election plan, 
 and nearly two-thirds of them pay their collectors a percentage com- 
 mission on collections. 
 
 Taxes come due on the date set by the municipality within such 
 general limitations as are prescribed by law. If unpaid within a month 
 after the due date, interest accrues at the rate of three-fourths of one 
 per cent per month or fraction thereof. At any time after the due date, 
 a collector may proceed to enforce collection by one or more of three 
 methods: (1) foreclosure of a tax lien upon real estate, (2) ordinary 
 suit against the delinquent taxpayer, or (3) levy- and sale of property 
 or commitment of the delinquent to jail (a) under authority of the col- 
 lector's warrant or (b) under authority of an alias tax warrant. Except 
 for real estate taxes secured by an extended tax lien as described below, 
 one of these procedures is required to be begun within eighteen months 
 of the due date of the first installment of a delinquent tax. 
 
 Immediately upon the assessment date an automatic tax lien 
 attaches to real estate for the taxes to be laid upon it on the basis of 
 this assessment. This lien exists for one year beyond the due date of 
 the hrst installment of the tax. It is discharged upon abatement of the 
 taxes, interest, and other charges by the governing body of the munici- 
 pality, upon payment of the taxes, interest, and other charges by the 
 taxpayer or other interested parties, or upon the consummation 
 of foreclosure suit. But if the automatic lien is not discharged in 
 one of these three manners, it may be continued for a period of fifteen 
 years either (1) upon the petition of a needy taxpayer and the approval 
 of the governing body of the municipality or (2) upon the initiative of 
 the tax collector. A continued lien may be discharged at any time dur- 
 ing its existence in the same manner as the automatic lien. 
 
 Any tax properly assessed may be collected by ordinary suit or by 
 process of levy and sale or commitment of the delinquent taxpayer to 
 jail. When real estate is sold at a tax sale, it may be redeemed from the 
 purchaser within one year thereafter upon payment to him by any per- 
 son whose duty it was to pay the tax of the full purchase price of the 
 property plus interest at twelve per cent. 
 
 Delinquent taxes have shown an astonishing growth over the past 
 decade. On March 31, 1926, delinquencies amounting to $12,066,000 
 were reported ; eight years later they had increased to $22,594,000. 
 Most of the increase in delinquencies has come in the last three years, 
 but some increase was registered each year from 1926 to 1933 with 
 the single exception of 1929, when an insignificant reduction of $62,- 
 
The General Peopehty Tax: Collection 337 
 
 000 was reported. Seven major municipalities reported total delinquen- 
 cies on March 31, 1933, amounting to 40 per cent or more of their 
 total collectible taxes, and sixty-two reported delinquencies of 25 per 
 cent or more. On current rate bills alone thirteen major municipalities 
 reported delinquencies amounting to 25 per cent or more of the cur- 
 rent levy. 
 
 Although the depression has intensified the delinquency problem 
 by reducing ability to pay taxes far more than tax levies have been 
 reduced, the record of prosperous years indicates that there are other 
 and perhaps even more fundamental causes of tax delinquency. Among 
 such causes are (1) lack of efficiency on the part of collectors and (2) 
 weaknesses in the collection procedures prescribed by law. These causes 
 can and should be largely eliminated by legislative action. The failure 
 to collect taxes promptly is unfair to all concerned. Those who pay 
 taxes are forced to bear a heavier burden because others, some of whom 
 are fully as able to pay, fail to do so ; those who are allowed to become 
 delinquent are encouraged in habits of extravagance and prodigality 
 which can ultimately lead only to financial ruin. For these reasons we 
 believe that a reappraisal of Connecticut tax collection policy is essen- 
 tial. 
 
 Tax collection is a highly technical process, and it should be admin- 
 istered by a collector qualified by temperament, training, and experi- 
 ence. Two measures are indispensable if every municipality is to be 
 reasonably assured of such a collector: (1) it must be an appointive 
 office, and the incumbent must be reasonably assured of a term of office 
 of more than one or two years; (2) a respectable salary and necessary 
 expenses of the office must be paid by the municipality. Wherever the 
 collection work of a municipality does not afford full-time occupation, 
 two or more municipalities should employ a single collector, or the col- 
 lector's duties should be delegated to another official engaged in munici- 
 pal financial administration. 
 
 Tax bills should be sent to all taxpayers on or before July 1. 
 Taxes should be payable in one, two, or four instalments as the munici- 
 pality elects, the due date of the first of which should be on July 1 for 
 all municipalities adopting the proposed uniform fiscal year. To provide 
 a strong incentive and to discourage the use of the municipal treasury 
 as a credit agency, a penalty of three per cent should attach to all taxes 
 which are unpaid within one month after they are due. This penalty 
 should be in. addition to the existing interest penalty of three-fourths 
 of one per cent a month. 
 
 Should the recommendations elsewhere made for the elimination 
 from the grand list of personal property not used in business or profes- 
 sional pursuits be adopted and the laws permitting the deferment for 
 
338 Eepoet of Special Tax Commission 
 
 long periods of taxes on real estate be continued, the power of the gov- 
 erning body to abate taxes would become largely superfluous. We there- 
 fore propose its abolition. 
 
 Although we recognize that the right to defer the collection 
 of real estate taxes by simply extending the tax lien for fifteen years 
 has been the principal cause of tax delinquency in the state, we are 
 not prepared to recommend the summary abolition of this practice at a 
 time when many taxpayers are still in a critical financial position. We 
 are firmly convinced, however, that this power must be more carefully 
 restricted than it now is if any headway is to be made toward a solu- 
 tion of the problem of tax delinquency. To this end we propose (1) 
 that real estate taxes be deferred only for natural persons whose finan- 
 cial need is evidenced by an affidavit and whose application is approved 
 by the governing body of the municipality, (2) that the term of a con- 
 tinued tax lien be reduced from fifteen to ten years and that,' if undis- 
 charged by the tenth year, the collector be required to proceed with col- 
 lection of taxes, interest, penalties, and other charges by appropriate 
 legal proceedings, and (3) that all taxes so deferred bear interest at the 
 rate of six per cent per annum from the date of the continuance of 
 the lien until discharged. 
 
 The adoption of these proposals should result in much more com- 
 plete tax collection than now exists in most towns of the state. Further 
 legislation is required, however, to direct the tax collector more specifi- 
 cally in the use of summary procedures in the collection of taxes which 
 are neither freely tendered nor legally deferred. If, through ignorance 
 or negligence of the tax collector or for reasons entirely beyond his 
 control, there remain at the end of eighteen months after the due date 
 tax bills which are still unpaid and unsecured by a continued lien, the 
 task of collection should be assumed by another agency and the munici- 
 pality deprived of a considerable portion of its claims on such bills. 
 For this purpose we propose that a collector be appointed by the superior 
 court for each county and that the proceeds of all collections on such 
 tax bills, over and above expenses of collection, be divided equally 
 between the county and the municipality to which the tax is owed. 
 
 Any new tax collection legislation which may be enacted will 
 probably be made applicable only to taxes subsequently laid. This will 
 leave on the books of the municipalities many millions of dollars of 
 delinquent taxes which should be collected with consideration for the 
 procedures and practices in force at the time they were levied. There 
 now exists adequate law for the collection of a large part of these taxes. 
 It is proposed, however, that the collector be assisted in the collection 
 process by a local board set up, for the purpose of deciding what action 
 should be taken to collect these back taxes as expeditiously and as fully 
 
The Geneeal Peopeety Tax: Collection 339 
 
 as possible but not for the purpose of abating or reducing any tax obli- 
 gations. 
 
 With respect to selection, tenure, and compensation of property 
 tax collectors, we recommend : 
 
 That the budget-making authority of each municipality be directed 
 to appoint a tax collector for a term of six years, subject to removal 
 for cause after hearing; 
 
 That one person be permitted to hold both the offices of tax col- 
 lector and treasurer of a given municipality, provided such municipality 
 has a chief accounting officer; 
 
 That the collector receive -an annual salary fixed by the budget- 
 making authority in addition to adequate appropriations for the neces- 
 sary expenses of his office and that all fees of the office be paid into 
 the treasury of the municipality; 
 
 That, in its discretion, a municipality be permitted to provide by 
 vote of the legislative body for additional compensation to the collector 
 in the form of a fixed percentage of all collections on the current rate 
 bill in excess of ninety per cent of the total amount of such rate bill. 
 
 With respect to billing of taxes and tax due dates we recommend : 
 
 That the tax collector be required to bill each taxpayer on or 
 before July 1, showing separately the taxes payable upon real and 
 personal property, but that the liability of the taxpayer for taxes and 
 penalties and the validity of tax liens be independent of such action 
 or of the receipt of the tax bill by the taxpayer ; 
 
 That each municipality be permitted to determine by vote of' its 
 •legislative body whether its taxes will come due on a single date, in 
 semi-annual installments, or in quarterly installments; 
 
 That, when a municipality elects to receive its taxes in more than 
 one installment, the several installments be equal, subject only to the 
 provisions that any tax of ten dollars or less be due in its entirety on 
 the first tax due date, that no installment of a tax in excess of ten dol- 
 lars except the last be less than ten dollars, and that any taxpayer be 
 .permitted to pay two or more installments at the time the first of such 
 installments is due. 
 
 With respect to penalties for delinquency and abatement of prop- 
 erty taxes we recommend: 
 
 That, in addition to the interest penalty, now prescribed by law, a 
 flat penalty of three per cent of the amount of taxes due or one dollar, 
 whichever is larger, be added to the tax liability of any one failing to 
 pay his taxes within the month in which they fall due ; 
 
 That the provision permitting the abatement of taxes of needy 
 persons be repealed. 
 
340 Eepoet of Special Tax Commission 
 
 With respect to tax liens and deferred collections we recommend: 
 
 That the life of the .automatic tax lien on real estate be extended 
 from one year after the due date of the first installment of the tax to 
 three years after the due date of the last installment ; 
 
 That the period for which tax liens are continued upon request 
 of needy taxpayers be reduced from fifteen to ten years ; 
 
 That no tax liens be extended for ten years except upon the affi- 
 davit of taxpayers who are natural persons and who, in the judgment 
 of the governing body, are financially unable to meet their tax 
 obligations ; 
 
 That all deferred taxes which are secured by ten-year liens bear 
 interest at the rate of six per cent per annum from the date as of which 
 the lien is continued ; 
 
 That, prior to the expiration of any tax lien continued for a ten- 
 year period, the collector be required to force collection of the delin- 
 quent taxes, interest, and penalties so secured. 
 
 With respect to summary processes of collection we recommend: 
 
 That the town clerk be prohibited from recording the transfer of 
 any property upon which taxes are delinquent ; 
 
 That the period within which summary collection processes must 
 be begun be changed from eighteen months after the due date of the 
 first installment to twelve months after the due date of the delinquent 
 installment ; 
 
 That the dates upon which tax sales are to be held be not later 
 than September 1 of the following year if the delinquent tax was due 
 on July 1, not later than December 1 if the delinquent tax was due 
 on October 1, not later than March 1 if the delinquent tax was due on 
 January 1, and not later than June 1 if the delinquent tax was due 
 on April 1 ; 
 
 That real property which cannot be sold for a sum sufficient to 
 pay the full amount of taxes, interest, penalties, and costs for which 
 it is offered for sale revert to the municipality conducting the sale for 
 disposition an such manner as it chooses ; 
 
 That the law governing sales of real estate for taxes be clarified, 
 by specifically granting the right of immediate possession to the pur- 
 chaser, subject only to redemption privileges ; 
 
 That the interest to be paid to the purchaser of real property at 
 a tax sale by one entitled to redeem the property within one year after 
 the sale be three-fourths of one per cent per month or fraction thereof ; 
 
 That any delinquent taxes, other than deferred real property taxes 
 secured by extended liens, remaining on the current rate bill eighteen 
 months after the due date of the delinquent installment be turned 
 over to a county collector appointed by the superior court; 
 
The General Peopeety Tax: Collection 341 
 
 That a list of all taxes turned over to the county collector be 
 filed with the town clerk for public inspection and published in the next 
 annual report ; 
 
 That the county collector exercise all of the powers of a municipal 
 collector and that he turn all collections over to the county treasurer; 
 
 That the county treasurer, after deducting expenses of collection, 
 including remuneration for the county collector, remit one-half of the 
 remaining collections to the municipality to which the tax was owed. 
 
 With respect to delinquent taxes levied prior to the date of enact- 
 ment of new legislation, we recommend: 
 
 That the tax commissioner appoint a board of three or five mem- 
 bers to operate without compensation in each major municipality of 
 the state wherein property tax delinquencies at the end of the current 
 fiscal year amount to fifty per cent or more of the tax levy for such 
 fiscal year and in each other municipality of the state which, through 
 vote of its legislative body, requests the appointment of such board ; 
 
 That this board exercise the power to adjust the time, up to a 
 maximum of ten years, within which taxes delinquent on back rate 
 bills may be paid and to order the commencement of summary collec- 
 tion procedures by the collector but not to abate or remit any taxes, 
 interest, or penalties due to the municipality. 
 
CHAPTER XII 
 
 THE PERSONAL TAX AND SPECIAL PROPERTY TAXES 
 
 There are several taxes which are related in one way or another 
 to the general property tax. The personal tax, commonly known in 
 other states as the poll tax, is similar in that it is locally administered 
 for local purposes. Then there are a number of taxes which we have 
 classed as special property taxes. These include (1) local taxes on 
 timber and timberlands, (2) the state tax on shellfish grounds, (3) the 
 choses-in-action tax, (4) the estate penalty tax, and (5) the gross earn- 
 ings taxes upon transportation and communication companies in lieu 
 , of property taxes. These several taxes are discussed in this chapter. 
 
 The peksonal tax. 
 Description. 
 
 The Connecticut personal tax of $2 is an obligation of every 
 person between the ages of 21 and 60 unless specifically exempt. It is 
 administered by the towns, the consolidated towns and cities, and the 
 consolidated town and borough, which together cover the whole area of 
 the state. 
 
 The exemptions specified bylaw are too numerous and detailed 
 to merit complete listing, but their general character may be indicated 
 by the following examples : 
 
 1. Students in colleges and incorporated academies. 
 
 2. Active members of fire companies and retired members of fire 
 departments. 
 
 3. Members of the militia or national guard who have performed 
 military duty in the past year or former members having served 
 three years. 
 
 4. Any citizen honorably discharged from the naval or military 
 forces of the United States or of a government allied with the 
 United States in the World War. 
 
 5. The unmarried widow of a soldier, sailor, marine, or member 
 of the coast guard. 
 
 In most cases of exemption on account of military service documentary 
 evidence of such service is required. 1 
 
 'Gen. Stat., 1930, sec. 1245; Cum. Sup., 1933, see. 325b. 
 
The Personal Tax and Special Property Taxes 343 
 
 The assessment date in all towns is October 1. Unless otherwise 
 provided by law, the. enrolling officer in a consolidated town and city is 
 the registrar of voters ; in a consolidated town and borough, the warden ; 
 and in an unconsolidated town, the selectmen. To assist in the prepara- 
 tion of the enrollment list, the mayor of a city, the warden of a borough, 
 and the selectmen of an unconsolidated town may appoint one or more 
 special canvassers." These canvassers, as well as the enrolling officers 
 themselves, receive "such reasonable compensation from the town . . . 
 as shall be approved by the mayor . . . , the warden . . . , or 
 the selectmen . . ." 
 
 The enrollment list when completed is filed with the town clerk 
 for public inspection. In towns of less than 10,000 population by the 
 last United States census, the list is to be filed by November 1, and in 
 other towns, by December 31. 
 
 One or more personal tax collectors are appointed and their com- 
 pensation determined by the mayor, warden, or selectmen, as the case 
 may be. The term of office is not to exceed four years. In most cases the 
 property tax collector is appointed to collect the personal tax, but in 
 42 out of the 169 towns these two offices were separately held in the 
 year 1932-33. In only two towns — Worth Branford and Coventry — 
 were there two personal tax collectors in that year. 8 
 
 The personal tax is due on November 15 in Shelton and in all 
 towns with populations of less than 10,000. It is due on February 1 in 
 all other towns except three. The due date is March 1 in Greenwich and 
 April 1 in Danbury and Manchester. 4 
 
 If the tax remains unpaid one month after the due date, a penalty 
 of $1 attaches. A delinquent person may be committed to the county 
 jail, or the tax may be collected by the exercise of any other appropriate 
 powers of a property tax collector. Although an interest penalty has 
 been charged by some towns, it is specifically authorized by statute only 
 in case of commitment to jail. 
 
 The mayor and aldermen, warden and burgesses, or selectmen, 
 as the case may be, are empowered to abate the personal tax of the 
 indigent, sick, or infirm. 
 
 History. 
 
 The personal tax is one of the oldest, if not the oldest, tax imposed 
 by local governments in this state. In the early part of the nineteenth 
 century the "polls" of all males were assessed like property at an 
 arbitrary valuation prescribed by law and were subject to variable 
 
 'Gen. Stat., 1930, sees. 1246, 1247. 
 
 8 Tax Commissioner, Information Relative to the Assessment and Collection of Tames, 
 
 1933, pp. 110-117. 
 4 Cum. Sup., 1933, sec. 351b; Spec. Acts, 1933, p. 1172. 
 
344 Kepoet of Special Tax Commission 
 
 local tax rates. It was not until 1868 that a flat per capita tax of $1 
 was adopted for town and state purposes." Soon afterward the assessment 
 of polls for county purposes disappeared, but school districts continued 
 to place the polls of males between the ages of 21 and 70 in the grand 
 list at $100 down to 1913. 
 
 In addition to the poll tax there was what was known as a military 
 commutation tax upon all persons subject to military duty but not in 
 active service. For nearly a generation prior to 1909 this tax amounted 
 to $2. Those subject to it were exempt from the poll tax. It was col- 
 lected locally and paid over to the state to defray in part the expense 
 of maintaining the militia. 
 
 In 1909 the General Assembly provided that a so-called personal 
 tax of $2 should supersede the military commutation and poll taxes and 
 that the state should secure assistance in support of the militia by assess- 
 ing 85 per cent of its cost against the towns in the same way in which 
 the state tax was assessed. 8 
 
 The enfranchisement of women by the Nineteenth Amendment 
 led to the addition of women to the personal tax rolls in 1921.' The 
 $1 penalty for delinquency was added in 1927/ In other respects the tax 
 has undergone little change since its enactment in 1909. 
 
 Yield. 
 
 The personal tax yields an annual income of approximately one 
 million dollars, and this accounts for between one and one-half and 
 two and one-half per cent of total local tax collections. In Table XLVII 
 there are presented data on the aggregate yield of the personal tax in 
 recent years. 
 
 
 
 Table XLVII 
 
 
 PERSONAL 
 
 TAX ABATEMENTS AND COLLECTIONS OF THE 
 YEARS ENDING MARCH 31, 1925 TO 1933 
 
 169 TOWNS, 
 
 Year ending 
 
 
 Personal Interest and 
 
 Total taxes 
 
 March 31 
 
 Abatements 
 
 taxes penalties 
 
 and penalties 
 
 1925 
 
 $81,126 
 
 $899,999 $1,201 
 
 $901,200 
 
 1926 
 
 160,267 
 
 1,089,021 2,068 
 
 1,091,089 
 
 1927 
 
 178,416 
 
 1,124,092 1,760 
 
 1,125,852 
 
 1928 
 
 148,156 
 
 1,272,541 7,346 
 
 1,279,887 
 
 1929 
 
 143,379 
 
 1,281,776 41,548 
 
 1,323,324 
 
 1930 
 
 214,329 
 
 1,221,614 45,386 
 
 1,267,000 
 
 1931 
 
 101,651 
 
 1,107,980 26,073 
 
 1,134,053 
 
 1932 
 
 138,675 
 
 1,077,192 20,214 
 
 1,097,406 
 
 1933 
 
 133,668 
 
 993,727 21,479 
 
 1,015,206 
 
 Source: Tax Commissioner, 
 
 Information, Relative to the Assessment and Collection 
 
 of 
 
 Tames. 
 
 
 
 "Pub. Acts, 1868, ch. 103. 
 "Pub. Acts, 1909, ch. 260. 
 'Pub. Acts, 1921, ch. 246. 
 8 Pub. Acts, 1927, ch. 305. 
 
The Personal Tax and Special Peopeety Taxes 345 
 
 Appeaisal. 
 Enumeeation. 
 
 The success of the personal tax is dependent first upon enumera- 
 tion and secondly upon collection. In most states one or both of these 
 procedures have been so undermined by poor administration and lack 
 of public support that the tax has fallen into disrepute and has in 
 some cases been repealed. The experience of the New England States 
 has been much more satisfactory on the whole than that of other states. 
 
 Because of the numerous exemptions granted, it is difficult to 
 secure an accurate estimate of the proportion of taxable persons 
 enrolled in Connecticut. In the United States Census of 1930, 833,285 
 persons between the ages of 21 and 60 were enumerated for Connecti- 
 cut. 8 There were enrolled for the personal tax on October 1 of that 
 year 775,435 persons, 10 or 92.9 per cent of the census enumeration. 
 
 When consideration is given to the fact that there are probably 
 at least 20,000 persons exempt from the tax who are not enrolled, this 
 appears to be a very creditable record. There are probably included in 
 the actual enumeration, however, many persons who are not legally tax- 
 able. In each of two towns, for example, several thousand more persons 
 were enrolled than were recorded by the census. 
 
 The records of individual towns in the enrollment of taxable per-' 
 sons show great variation. In two towns less than 35 per cent of. the 
 estimated 1930 census enumeration were enrolled. At the other extreme 
 were three towns with an enrollment of over 120 per cent. In the typical 
 town, as may be seen from the frequency distribution given in Table 
 XL VIII, the enrollment in 1930 amounted to between 85 and 95 per 
 cent of the census enumeration." 
 
 Although this record is reassuring on the whole, there is obviously 
 room for improvement in enumeration in a number of towns. 'Not only 
 should some towns strive for more complete enumeration, but the exces- 
 sive enumerations characteristic of certain other towns should be 
 corrected. Faulty enumeration is subversive to full ■ collection both 
 because it is necessary to cancel taxes assessed against those not liable 
 for the tax and because it breeds disrespect for the law. One of the 
 obvious remedies for this situation is to abandon the not uncommon 
 
 9 Excluding 937 persons whose ages were reported unknown. 
 
 "This figure includes 47,858 enrolled persons who were exempt from the tax. 
 
 u The census enumeration is given by towns for all persons 21 years of age and 
 over and for certain specified age groups. These age groups are such that the 
 exact number between 21 and 60 is not obtainable for any but the very large 
 towns in the state. In all other towns it was necessary to estimate the number of 
 persons between 60 and 64 years of age by assuming a uniform distribution of age 
 groups throughout the state. 
 
346 Eepoet of Special Tax Commission 
 
 Table XLVIII 
 FREQUENCY DISTRIBUTION: PERCENTAGE RATIOS OF ENROLLMENT 
 
 FOR PERSONAL TAX TO ESTIMATED CENSUS ENUMERATION OF 
 PERSONS BETWEEN THE AGES OF 21 AND 60, 1930 
 
 Percentage ratios Number of towns 
 
 25— 34.9 2 
 
 35— 44.9 1 
 
 45— 54.9 
 
 55— 64.9 2 
 
 65— 74.9 12 
 
 75— 84.9 38 
 
 85— 94.9 71 
 
 95—104.9 34 
 
 105—114.9 6 
 
 115—124.9 . 3 
 
 Total 169 
 
 Sources: Tax Commissioner, Information Relative to the Assessment and Collection 
 of Taxes, 1931; U. S. Bureau of the Census, Fifteenth Census of the 
 United States, 1930. 
 
 practice of remunerating canvassers according to the number of names 
 enrolled. 
 
 Collection. 
 
 It appears that the collection of the personal tax represents a 
 more difficult problem than its assessment. Whereas some ninety per 
 cent of the taxable persons in the state are enrolled annually, only 
 about seventy-five per cent of the aggregate taxes assessed are collected. 
 For recent years the percentages of personal taxes assessed in the fall 
 of the year which had been collected or abated by April 1 were as 
 follows : 12 
 
 1924-25 
 
 53.9% 
 
 1925-26 
 
 57.5 
 
 1926-27 
 
 47.8 
 
 1927-28 
 
 73.2 
 
 1928-29 
 
 73.6 
 
 1929-30 
 
 78.0 
 
 1930-31 
 
 74.1 
 
 1931-32 
 
 72.2 
 
 1932-33 
 
 66.7 
 
 The taxes uncollected by March 31 are largely uncollectible. On the 
 average, 'only about $45,000 of delinquent taxes outstanding on March 
 31 are collected during the next twelve months, whereas some $400,000 
 
 " In the case of Manchester, where the tax has been due on April 1 throughout this 
 period, the assessment is for one year prior to that in other towns. 
 
The Personal Tax and Special Peopeety Taxes Zk't 
 
 or more are outstanding on that date on the current enrollment alone. 
 The salutary effect of the $1 penalty for delinquency is readily 
 apparent in the improvement registered in the year 1927-28. 
 
 The records of individual towns are not as bad as the aggregate 
 figures suggest. The poor records of certain large towns and cities 
 weigh heavily in the aggregate. Smaller towns often show a much 
 better record because of more accurate enumeration and the greater 
 ease experienced in locating taxpayers. In fact, the typical town, as may 
 be seen from the frequency distribution in Table XLIX, collects over 90 
 per cent of its assessments even in depression years. In the year 1932- 
 33 six towns — Avon, Durham, Middletown, Roxbury, Sprague, and 
 Washington — collected all of their taxes, except such as were abated, 
 and 29 had similar records in the year 1928-29. It is interesting to 
 note that the same towns which had perfect records in 1933 had perfect 
 or approximately perfect records in 1929 and that more than half 
 of the towns and cities which fell below 60 per cent in 1933 were also 
 below this point in 1929. 
 
 Table XLIX 
 
 FREQUENCY DISTRIBUTION: PERCENTAGES OF CURRENT PERSONAL 
 
 TAX ASSESSMENTS COLLECTED AND ABATED BY MARCH 31, 1929 AND 1933 
 
 Number of towns 
 Percentages 1929 1933 
 
 0— 9.9 1 
 
 10—19.9 1 
 
 20—29.9 1 
 
 30—39.9 2 
 
 40 — 49.9 2 1 
 
 50—59.9 , 4 7 
 
 60 — 69.9 4 14 
 
 70—79.9 16 32 
 
 80—89.9 25 49 
 
 90—99.9 87 57 
 
 100 29 6 
 
 Total 169 169 
 
 Source: Tax Commissioner, Information Relative to the Assessment and Collection 
 of Taxes. 
 
 It is quite apparent that the collection record of the majority 
 of towns is relatively good. These creditable records are not found only 
 in small towns, although there, is, as might be expected, a fairly strong 
 correlation between the size of a community, and the number of delin- 
 quencies. This is partly due to faulty enumeration in the large cities. 
 
 Conclusions. 
 
 As wealth and income have become distributed more unequally 
 among persons, the personal tax, which requires the same payment 
 
348 Report of Special Tax Commission 
 
 from every person irrespective of his means, has fallen into some 
 disrepute. Such a tax, standing alone, has obvious theoretical weak- 
 nesses, which students of taxation have not failed to emphasize. On 
 the other hand, the establishment of the federal income tax with gradu- 
 ated rates and liberal personal exemptions has created a situation in 
 which the personal tax can be more strongly defended. Probably a large 
 majority of the electors of this state make no other direct payment 
 than the personal tax for the 'governmental services which they enjoy. 
 
 In Connecticut the personal tax has been better supported by 
 public opinion and has been better administered on the whole than in 
 many other states. While the enumeration of taxable persons and the 
 collection of personal taxes assessed have been unsatisfactory in some 
 towns, these administrative functions have been handled with reason- 
 able effectiveness in most of the towns of the state. The personal tax 
 has provided a considerable number of the smaller towns with sub- 
 stantial revenues, which, if eliminated, would probably have to be 
 replaced by property taxes. 
 
 The Commission has heard no demands for the elimination or 
 reduction of the personal tax. Criticisms of the personal tax presented 
 to the Commission have stressed the weaknesses of its administration 
 rather than any structural or theoretical defects. The Commission con- 
 cludes, therefore, that there is no immediate need for changing the struc- 
 ture of the personal tax or for suggesting its abolition, and it proposes 
 only minor changes in the administration of the tax. 
 
 Recommendations. 
 
 We recommend : 
 
 That the enrollment of persons subject to the personal tax be trans- 
 ferred to the office of the tax assessor and that remuneration for such 
 services be included within the salary of the assessor ; 
 
 That the collection of personal taxes be made one of the regular 
 duties of the town property tax collector. 
 
 Special pbopeety taxes. 
 Inteoduction. 
 
 The several taxes which have been classified as special property 
 taxes have been enumerated above. We have not placed in this category 
 certain taxes which have ' some of the legal and economic aspects of 
 property taxes, namely, (1) the bank and insurance company stock 
 taxes, which are legally property taxes upon the shareholders, and (2) 
 the deposits taxes upon savings banks and savings departments, which 
 represent a combination of property and franchise taxes. These excluded 
 taxes are discussed in following chapters. 
 
The Personal Tax and Special Peopeety Taxes 349 
 
 Special property taxes have in most, if not all, instances evolved 
 out oi the imperfections of the general property tax. At various 
 times, these imperfections have become so apparent and their continued 
 sufferance so onerous that certain types of property have been removed 
 from the local grand list, and new means have been devised for enforc- 
 ing a contribution by the owners to the conduct of government within 
 the state. In all cases but one, namely, forest taxation, the evolutionary 
 process has involved the transfer to the state of what were formerly 
 purely local taxes. 
 
 FoEEST TAXATION. 
 
 Exemption of teee plantations. 
 
 For tax purposes, the timberl'ands of the state may be classified as 
 (1) plantations and (2) natural forests. Prior to 1877 timber and 
 timberlands of whatever sort were assessed and taxed locally in the 
 same manner as other taxable property. The rapid destruction of the 
 timber resources of the state led in that year to the enactment "of a 
 law intended to encourage reforestation projects but affording no par- 
 ticular inducement to conserve natural timber stands. Under this act, 
 an owner was permitted to apply to the local board of relief for the 
 complete exemption for a ten-year period of tree plantations, provided 
 (1) that they were stocked with certain types of trees which had 
 attained an average height of six feet and (2) that the land was worth 
 not more than fifteen dollars per acre prior to planting. 13 
 
 In 1886 this law was amended to extend the exemption period 
 from ten to twenty years and the exemption privilege to land worth as 
 much as twenty-five dollars an acre prior to planting." This statute in 
 turn was altered in 1913 upon the recommendation of a special com- 
 mission reporting the preceding year. 15 The exemption was at that time 
 limited to timberland planted prior to January 1, 1913. 18 If the require- 
 ment of not less than 1,200 trees per acre be interpreted to refer to the 
 condition at the time exemption is claimed, as would appear obvious, 
 no future claims under the act are now likely, since it is highly improb- 
 able that a Connecticut plantation over 20 years old would be so densely 
 stocked. It may be assumed that exemption privileges under this act 
 have practically disappeared. 
 
 Another plantation exemption act was passed in 1911." This 
 exemption applied to land planted after the passage of the act and 
 
 "Pub. Acts, 1877, ch. 49. 
 
 " Pub. Acts, 1886, ch. 90. 
 
 "Report of the Special Commission on Taxation of Woodland, 1912, p. 16. 
 
 M Pub. Acts, 1913, ch. 108. 
 
 "Pub. Acts, 1911, ch. 205. 
 
350 Eepoet of Special Tax Commission 
 
 approved by the state forester without regard for the value of the land 
 at the time of planting. The exemption was for a period of twenty years 
 following planting. Upon the recommendation of the Special Commis- 
 sion on Taxation of Woodland, this exemption was limited in 1913 
 to forest tracts planted between October 1, 1911, and January 2, 1913. 
 Exemption under this act was last available on October 2, 1933. 
 
 The value of tree plantations exempted under this act and under 
 the acts previously described, as recorded in the Quadrennial Statement 
 of Real Estate Exempted from Taxation, was $1,900 in 1909, $3,835 
 in 1921, and $3,988 in 1929. 
 
 Special foeest tax law of 1913. 
 
 The foregoing acts have been concerned with plantations rather 
 than natural forests and with complete exemption rather than with 
 special forest taxes. The first special forest tax in Connecticut was 
 enacted by the General Assembly in 1913 upon the recommendations of 
 the special commission. The act provided for (1) the fixed assessment of 
 land and timber more than ten years old at the time of classification 
 for fifty-year periods beginning upon the date of classification, (2) 
 exemption of timber of not more than ten years growth with fixed 
 assessment of the land alone as described under (1) above, (3) a limited 
 tax rate of ten mills to be applied for 100 years to such assessment 
 except where the local rate is less than ten mills, and (4) a yield tax 
 of different rates varying with the maturity of the timber and the 
 length of time during which it has been classified. 
 
 Classification under this act is effected at the initiative of the owner 
 and with the approval of the state forester. A number of statutory 
 requirements for , classification are made, of which we will note only 
 that the land must have a value of not more than $25 an acre at the 
 time of classification and that it may not be used for pasturage pur- 
 poses during the period of classification. Upon declassification of the 
 land by the state forester for failure to comply with these requirements, 
 any increment in value during the classification period is subject to a 
 tax of five mills for each year of classification. 
 
 The unfamiliarity of the yield tax and the declassification tax, 
 the uncertain advantage of an assessment fixed for a period of fifty 
 years, the preclusion of use of classified timberland for pasturage pur- 
 poses, and the danger of incurring the ill-feeling of local tax officials 
 have all combined to discourage any extensive resort to classification 
 under this act. By 1929 only fifteen persons, owning 4,565 acres of 
 land located in twelve towns and valued at approximately $75,000, had 
 availed themselves of the law. The passage of a new forest tax law 
 
The Personal Tax and Special Property Taxes 351 
 
 in 1929 seems to have put an end to classification under the earlier act, 
 all classifications of recent years having been made under the new act. 
 
 Classification act of 1929. 
 
 After several years of agitation by the state forester, the ineffec- 
 tive act of 1913 was supplemented by a new act. 18 This provides that 
 upon application by an owner of a wooded tract the state forester may 
 certify "that it would be advantageous to the community and to the 
 owner ... to permit its tree-growth ... to remain standing until it shall 
 be suitable to be cut for lumber." Upon such certification, the land and 
 trees are thereafter assessed at the amount shown upon the assessment 
 list next preceding the date of application until the next general revalua- 
 tion of the taxable real estate in the town. In the revaluation and from 
 then on during the continuance of classification, the timber is exempt, 
 and only the land is taxable under the general property tax. 
 
 In five years this law has resulted in the classification of as many 
 acres of forest land as its predecessor did in sixteen years. The full 
 effect of the 1929 act will not appear until all of the towns have passed 
 through one general revaluation of real property. To date, thirty 
 owners have classified 4,788.5 acres located in twenty-six towns. 
 
 Appraisal of forest tax legislation and conclusions. 
 
 Forest tax laws have as their primary aim the conservation of 
 natural resources and the encouragement of reforestation. In this 
 respect the Connecticut laws have as yet proved disappointing. Less 
 than one per cent of the estimated area of privately owned forest land 
 in the state is now classified for tax purposes. Whether this is due 
 principally to unattractive features in the existing law or to ignorance 
 and inertia on the part of taxpayers, we are not prepared to say. If it 
 be the desire of the General Assembly to stimulate classification, we 
 would suggest that one of the most obvious means would be by clarify- 
 ing the existing law, repealing those sections of the statutes which have 
 lapsed or which have become inoperative, and making the interpreta- 
 tion of the remaining options less difficult. 
 
 Actually these taxes have no present importance ; nor do we believe 
 that they will attain importance in the near future. A generous esti- 
 mate of the loss in local revenues resulting from the forest taxes now 
 in effect would be $10,000. The problem thus resolves itself into one of 
 conservation and development of natural resources. This, we believe, 
 can safely be left to the state forester and others who are immediately 
 concerned with a matter which is foreign to the investigations of this 
 
 "Pub. Acts, 1929, ch. 179. 
 
352 Report of Special Tax Commission 
 
 Commission. We therefore refrain from making specific recommenda- 
 tions upon this phase oi local taxation. 
 
 Taxes on shellfish grounds. 
 Description of the state tax. 
 
 Shellfish grounds within the jurisdiction of the state are segre- 
 gated into those grounds which are subject to the jurisdiction and 
 control of the towns and those which are under the exclusive jurisdic- 
 tion of the state. The former are placed in the local grand list in the 
 names of their owners in the same manner as other real estate." The 
 latter consist, for the most part, of grounds extending southward from 
 the boundaries of those areas which are under control of towns to the 
 boundary line dividing the States of Connecticut and ]STew York." 
 These grounds are subject to a special property tax, which is under 
 consideration in this section. 
 
 The owners of shellfish grounds and franchises lying within the 
 exclusive jurisdiction of the state are required to declare their property 
 as of June 1 in a return filed with the state shellfish commissioners on 
 or before July l. u The commissioners then exercise all of the powers 
 of town assessors in valuing such grounds and franchises and in assess- 
 ing penalties for failure to file tax lists. This valuation is then^ subject 
 to review by a board of relief of three members appointed by the Gov- 
 ernor for six-year terms and to the usual appeal to the superior court. 
 Upon the final valuation a tax of two per cent is assessed. The tax 
 is payable on or before the first Monday in March, and the shellfish 
 commissioners exercise most of the powers of local tax collectors in 
 enforcing payment. 
 
 History. 
 
 The board of shellfish commissioners was created^in 1881, and in 
 the following year the state tax in substantially its present form was 
 enacted. 3 The tax rate, however, was one per cent. This rate was 
 increased to one and one-half per cent in 1895 and, in 1915, to one 
 and two-thirds per cent for the 1915 assessment and two per cent 
 thereafter." 
 
 The whole subject of Connecticut oyster properties was investi- 
 gated and reported upon in 1910 by the board of equalization acting 
 
 '"Pub. Acts, 1882, ch. 125; Cum. Sup., 1933, sec. 319b. 
 10 Gen. Stat., 1918, sec. 3294; Gen. Stat., 1930, sec. 3290. 
 2 'Gen. Stat., 1930, sec. 3256. 
 32 Pub. Acts, 1882, ch. 125. 
 2a Pub. Acts, 1915, ch. 256. 
 
The Personal Tax and Special Property Taxes 353 
 
 as a special commission appointed by the General Assembly of 1909, 
 In this report, which was based upon an extensive technical investiga- 
 tion of the whole subject, a complete revision of the state tax was 
 recommended. It was pointed out that the valuation of grounds lying 
 twenty or more feet below the surface of the Sound was extremely diffi- 
 cult and that the commissioners were forced to rely largely upon the 
 valuations placed upon such property by the owners. This, in the 
 opinion of the board of equalization, led to gross inequalities in assess- 
 ment and to general underassessment of such grounds. Upon the basis 
 of an expert valuation, the board increased the assessment for the year 
 1909 from $889,412.92 to $1,804,362.59. It then recommended that 
 the tax law be amended "to provide for a minimum valuation of ten 
 dollars per acre on all ground [and a property tax] at the present tax 
 rate of fifteen mills, and in addition a productivity tax of two or three 
 cents per bushel upon all seed or other oysters taken from such grounds 
 in this State for sale, or for the purpose of removal out of the state." 2 * 
 No legislative action was taken. 
 
 Since the date of this report, the area of shellfish grounds under 
 state jurisdiction has decreased from 70,855 acres to 50,051 acres in 
 1932. The assessment has declined to approximately $500,000, and the 
 yield of the state tax has been stabilized at approximately $10,000, or 
 less than one-third of the peak yield of $37,401.11 in 1918. These data 
 reflect the less prosperous condition of the Connecticut oyster industry 
 in the past decade. 
 
 Conclusions. 
 
 As in the case of forest taxes, the tax on state shellfish grounds is 
 obviously of minor fiscal importance. It is possible that a larger income 
 could be realized by raising the rate of the tax, by attempting to secure 
 a higher valuation of the grounds, or by changing the character of the 
 tax. But despite all effort, it is unlikely that this property will ever 
 yield sufficient revenue to warrant the expenditure of effort and of 
 funds which would be necessary for the technical investigation upon 
 which to recommend specific amendments to the existing tax. No com- 
 plaints have reached the Commission either from the taxpayers or from 
 officials. Furthermore, the Commission believes that as long as oyster 
 grounds under the jurisdiction of the towns are retained in the local 
 grand lists, grounds under state jurisdiction should be taxed, as they 
 now are, in substantially similar fashion. We therefore refrain from 
 recommending any amendments to the existing law. 
 
 "Report of the Investigation of Oyster Properties, 1910, p. 83. 
 
354 Keport of Special Tax Commission 
 
 The choses-in-action tax. 
 History. 
 
 For nearly forty years prior to 1889, those intangibles which were 
 subject to taxation in Connecticut were assessed and taxed in the same 
 manner as tangible personal property and real estate. As in all other 
 states, local assessors encountered insuperable difficulties in enforcing 
 the listing of this property. 25 The complete exemption of intangible prop- 
 erty was recommended by a special commission in 1887/° but the Gen- 
 eral Assembly two years later enacted what has come to be known as 
 the choses-in-action tax. 
 
 Under this act of 1889, owners of bonds, notes, and other choses- 
 in-action were permitted to register them with the state treasurer and 
 to pay a tax equal to two mills upon face values for each year for which 
 such securities-were so registered. These intangibles were then exempt 
 from local taxation during the period of registration. 27 In 1897 the 
 rate was increased to four mills, 28 and the tax has remained substan- 
 tially unchanged since that date. 
 
 Scope or the tax. 
 
 By the terms of the original act, the choses-in-action tax was made 
 applicable to "bonds, notes, and other choses in action." The term 
 "choses-in-action" is not a well defined concept. -In 1915 it was used 
 in an act dealing with the succession tax and was there defined to 
 include "deposits in banks, bonds, notes, credits, and evidences of debt, 
 but . . . not . . . shares of stock of any corporation." 29 The term 
 has been widely understood to cover "every evidence of right or claim 
 which may be sued on in our courts and thereby reduced to possession." 30 
 An even broader interpretation of the term has been given by the 
 Supreme Court of Errors in Silberman v. Blodgett,* 1 an inheritance tax 
 case, in which it was held that the interest of a Connecticut decedent in 
 a partnership operating under the New York law was a right to a 
 share in the partnership assets after deduction of liabilities and, hence, 
 a chose-in-action. In general, it may be said, however, that it was the 
 intent of the law to tax evidences of indebtedness as distinguished from 
 evidences of ownership. 
 
 20 Report of the Special Commission on the Subject of Taxation, 1887, pp. 21-26. 
 20 The same, p. 42. 
 
 27 Pub. Acts, 1889, eh. 248, sec. 9. 
 
 28 Pub. Acts, 1897, ch. 216. 
 
 29 Pub. Acts,. 1915, ch. 332, see. 1. 
 
 80 W. T. Hincks and H. Speer, Taxation of Securities in Connecticut, Taxation Docu- 
 ment No. 205, 1923, p. 7. 
 8 ' 105 Conn. 192, 214 (1926). 
 
The Personal Tax and Special Peopeety Taxes 355 
 
 Although no substantial changes in the choses-in-action tax act, 
 aside from the change in rate previously mentioned, have ever been 
 made, the property subject to the tax, which has always been restricted 
 to property otherwise taxable locally, has been narrowed by constantly 
 increasing exemptions of intangible property from local taxation. 
 
 Mortgages on .domestic real estate, to the amount of the assessed 
 value of the real estate covered by the lien, have long been exempt from 
 local taxation. For a few years shortly after the passage of the choses- 
 in-action tax, mortgages were excluded entirely from the terms of the 
 act. Then in the revision of 1902 they were again made registerable but 
 only at face value. It was not until 1925 that exemption from the local 
 "excess-mortgage" tax was granted upon registration for the excess of 
 the face value of the mortgage over the assessed value of the pledged 
 property. 82 
 
 In addition to mortgages, the other evidences of indebtedness 
 which were exempt at the time the choses-in-action tax was passed 
 include : 
 
 1. Intangible assets of national banks and of all banks, trust 
 companies, turnpike companies, bridge companies, and plank 
 road companies chartered by the state ; 
 
 2. Intangible assets used in the respective businesses of railroad, 
 express, telephone, and telegraph companies; 
 
 3. Deposits in mutual savings banks; 
 
 4. Evidences of indebtedness of the United States; 
 
 5. Certain bonds of the state and its political subdivisions issued 
 tax-free under the terms of the general statutes or special acts ; 
 
 6. Bonds or refunding issues thereof issued by Connecticut towns 
 and cities in aid of certain railroads; 
 
 7. Evidences of indebtedness issued by railroad companies sub- 
 ject to taxation by the state; and 
 
 8. Receivables of merchants up to the amount of their liabilities. 
 
 Evidences of indebtedness which were exempted subsequent to the 
 passage of the choses-in-action tax include: 
 
 1. Deposits in the savings departments of trust companies; 83 
 
 2. Deposits in the savings departments of national banks on 
 which such banks agree to pay the state tax on savings 
 deposits ; 84 
 
 82 Pub. Acts, 1925, ch. 146. 
 
 33 Pub. Acts, 1907, ch. 85. 
 
 34 Pub. Acts, 1915, ch. 301. 
 
356 Report or Special Tax Commission 
 
 3. All deposits outside savings banks and savings departments;" 
 
 4. Intangible assets used in the business of car companies ; M 
 
 5. Moneys and credits, including accounts and bills receivable, 
 held by water, gas, electric, and water power companies, by 
 corporations subject to the state tax on net income, 8 ' and by 
 domestic common carrier motor bus companies; 88 
 
 6. Evidences of indebtedness issued by any water, gas, electric, 
 or water power company doing business in the state; 89 
 
 7. Evidences of indebtedness issued by any domestic transporta- 
 tion or communication company which is subject to the state 
 tax on gross earnings or whose property in the state is operated 
 by another company so taxed; 
 
 8. Mortgage bonds issued by a corporation and secured wholly 
 by a lien upon property within the state to the amount of the 
 assessed value of such property ; a 
 
 9. Evidences of indebtedness issued by the state and its political 
 subdivisions after April 1, 1917." 
 
 Effectiveness of the tax. 
 
 The choses-in-action tax has yielded varying amounts of revenue, 
 reaching a peak of $652,024 in the fiscal year 1916-17 and declining 
 to $387,420 in the fiscal year 1933-34 as recorded in Table L. It is 
 difficult to ascertain how much of this decline in recent years is attrib- 
 utable to the extension of exemptions noted in the preceding section, 
 but it is significant that the decline has continued uninterrupted, with 
 a single exception, over the past seven years, during which no change 
 in exemptions has been made. It is also significant that it has long been 
 the opinion of those who have studied tax problems in this state that 
 a large proportion of taxable intangibles has always escaped from 
 taxation. 48 
 
 A study of the records of the treasurer and the tax commissioner 
 shows that in the twelve-month period ending October 31, 1933, no 
 intangibles were listed for the residents of seventeen towns in the 
 
 " B Pub. Acts, 1927, ch. 319. 
 38 Pub. Acts, 1913, ch. 188. 
 
 37 Pub. Acts, 1917, ch. 298. The meaning of the term "moneys and credits" as used 
 in this connection has never been established. See Attorney General, Biennial 
 Report, 1911-18, pp. 181-182. 
 
 38 Pub. Acts, 1925, ch. 254; 1927, ch. 268. 
 
 39 Pub. Acts, 1915, ch. 292, sec. 16. 
 
 "Pub. Acts, 1913, ch. 188; 1915, ch. 292, sec. 6; 1925, ch. 254. 
 "Pub. Acts, 1917, ch. 230. 
 
 42 Pub. Acts, 1917, ch. 152. 
 
 43 F. R. Fairchild, Report of a Special Study of the Connecticut Tax System, in 
 Joint Committee on Taxation and State Finance, Connecticut Chamber of Com- 
 merce, Report, 1917, p. 36; Biennial Report of the Tax Commissioner, 1924, p. 14. 
 
The Personal Tax and Special Property Taxes 
 
 357 
 
 
 Table L 
 
 YIELD OP THE 
 
 CHOSES-IN-ACTION TAX, FISCAL YEARS 1890-91 TO 
 
 
 1933-34 1 
 
 Fiscal year 
 
 Yield Fiscal year Yield 
 
 1890-91 
 
 $80,524 1912-13 $183,662 
 
 1891-92 
 
 108,434 1913-14 251,833 
 
 1892-93 
 
 33,991 1914-15 415,772 
 
 1893-94 
 
 56,004 1915-16 525,912 
 
 1894-95 
 
 56,862 1916-17 652,024 
 
 1895-96 
 
 48,577 1917-18 548,661 
 
 1896-97 
 
 76,738 1918-19 2 317.444 2 
 
 1897-98 
 
 87,177 1919-20 513,968 
 
 1898-99 
 
 92,425 1920-21 498,626 
 
 1899-00 
 
 93,399 1921-22 500,809 
 
 1900-01 
 
 146,710 1922-23 486,112 
 
 1901-02 
 
 147,642 1923-24 510,593 
 
 1902-03 
 
 141,742 1924-25 496,411 
 
 1903-04 
 
 142,005 1925-26 501,375 
 
 1904-05 
 
 139,375 1926-27 504,678 
 
 1905-06 
 
 141,342 1927-28 476,371 
 
 1906-07 
 
 143,643 1928-29 454,835 
 
 1907-08 
 
 160,626 1929-30 442,420 
 
 1908-09 
 
 161,780 1930-31 434,748 
 
 1909-10 
 
 167,796 1931-32 386,319 
 
 1910-11 
 
 159,720 1932-33 380,886 
 
 1911-12 
 
 161,385 1933-34 387,420 3 
 
 Sources: State Treasurer, Annual Report, 1933, p. 22; State Comptroller, Annual 
 
 Reports, Office Records. 
 
 1 For the years prior 
 
 to 1928 the yield of the tax represents the actual cash receipts; 
 
 for subsequent years it represents income as described in a preceding chapter. 
 
 2 Nine months fiscal 
 
 year. 
 
 8 Preliminary figure. 
 
 
 state. It is true that most of these towns are small agricultural com- 
 munities, but in one case, namely, Preston, the population is estimated 
 at approximately 4,000. In forty-nine towns the assessment per capita 
 ranged from zero up to ten dollars. (See Table LI.) This group includes 
 Plymouth with an estimated population of 6,200 in 1932 and West 
 Haven with an estimated population of 26,700. The average (median") 
 per capita assessment was approximately $30. In only ten towns did 
 the per capita assessment exceed $300. In Bridgeport it amounted to 
 only $38.64; in New Haven, $102.60; and in Hartford, $64.91. While 
 these figures are not conclusive, they do offer presumptive evidence of 
 considerable evasion of the tax and of considerable variation in the 
 effectiveness of the tax from one town to another. 
 
 The number of persons per thousand who list intangibles 
 with the state treasurer is also significant. Since practically no 
 one now lists intangibles locally, these figures give some indication of 
 the extent to which taxes are evaded by owners of this type of prop- 
 erty. In seventeen towns no one listed intangibles. The population of 
 these towns ranged from 403 in Salem to 3,928 in Preston. In one 
 
358 Ebpoet of Special Tax Commission 
 
 Table LI 
 
 FREQUENCY DISTRIBUTION: PER CAPITA ASSESSMENT OF INTANGIBLE 
 
 PROPERTY IN THE 169 TOWNS, YEAR ENDING OCTOBER 31, 1933 1 
 
 Per capita Number of Cumulative 
 
 assessment towns total 
 
 $0.00 17 17 
 
 0.01— 9.99 32 49 
 
 10.00— 24.99 28 77 
 
 25.00— 49.99 28 105 
 
 50.00— 99.99 27 132 
 
 100.00—199.99 ' 23 155 
 
 200.00—299.99 4 159 
 
 300.00—399.99 5 164 
 
 400.00 and over 5 169 
 
 Sources: State Treasurer, Office Records; Tax Commissioner, Office Records. 
 1 Intangibles include those registered with the state treasurer and also those listed 
 locally in the grand lists of 1933. Population figures are for 1930 in all cases. 
 
 other town $100 worth of intangibles was assessed locally and nothing 
 was registered with the state treasurer. In the typical town, as may 
 be seen from Table LII, only two people in every thousand list intan- 
 gibles. In only one consolidated city and forty unconsolidated towns do 
 more than six persons per thousand register. The highest number of 
 registrants — 23 per thousand — is found in Washington. Canaan, 
 Norfolk, and Salisbury follow with 18 per thousand, and Brookfield 
 and Litchfield, with 16 per thousand. Throughout the state as a whole, 
 only three to four persons in every thousand disclose taxable intangible 
 property. 
 
 
 
 
 Table LII 
 
 
 
 
 
 FREQUENCY 
 
 DISTRIBUTION: 
 
 NUMBER 
 
 OF 
 
 PERSONS PER THOUSAND 
 
 REGISTERING INTANGIBLES FOR THE 
 
 STATE 
 
 TAX ON CHOSES-IN- 
 
 ACTION 
 
 IN THE 169 
 
 TOWNS, YEAR 
 
 ENDING 
 
 OCTOBER 31, 1933 1 
 
 Persons per 
 
 
 Number of 
 
 
 
 
 Cumulative 
 
 thousand 
 
 
 towns 
 
 
 
 
 total 
 
 
 
 
 
 18 
 
 
 
 
 18 
 
 
 1 
 
 
 25 
 
 
 
 
 43 
 
 
 2 
 
 
 30 
 
 
 
 
 79 
 
 
 3 
 
 
 19 
 
 
 
 
 98 
 
 
 4 
 
 
 21 
 
 
 
 
 119 
 
 
 5 
 
 
 10 
 
 
 
 
 129 
 
 
 6 
 
 
 10 
 
 
 
 
 139 
 
 
 7 
 
 
 10 
 
 
 
 
 149 
 
 
 8 
 
 
 3 
 
 
 
 
 152 
 
 
 9 
 
 
 . 3 
 
 
 
 
 155 
 
 
 10 
 
 
 2 
 
 
 
 
 157 
 
 
 11 
 
 
 2 
 
 
 
 
 159 
 
 
 12 
 
 
 1 
 
 
 
 
 160 
 
 i . 
 
 13 and over 
 
 
 9 
 
 
 
 
 169 
 
 Source : State 
 
 Treasurer, Office 
 
 Records. 
 
 
 
 
 
 1 Population figures are for 1930 in all cases. 
 
The Personal Tax and Special Property Taxes 359 
 
 Further evidence of evasion of the taxes upon intangible property 
 is found in the assessment of the estate penalty tax, which is described 
 in the next section of this chapter. At least $2,000,000 worth of taxable 
 intangible property which has neither been taxed locally nor listed 
 with the state treasurer in the preceding year is discovered annually 
 in the estates probated in the courts of the state. This amount is small 
 as compared with the total amount of intangible property assessed, but 
 it raises the presumption that the total amount unassessed, much of 
 which, of course, does not pass through the probate courts in a given 
 year, must be very large. 
 
 Other criticisms. 
 
 In addition to the failure of- the choses-in-action tax to reach 
 all, or perhaps even the bulk, of the taxable intangible property in 
 the state, the choses-in-action tax is subject to criticism on several 
 other scores. 
 
 Based as it is upon the face value of intangible property, it imposes 
 an unreasonable burden upon those intangibles whose market value 
 is substantially less than face value. The only lawful recourse of per- 
 sons holding such property is to list it locally at its market value, if any, 
 but this course of action becomes attractive only when the market value 
 has shrunk to such small proportions that the local rates, which are from 
 three to eight times the rate of the choses-in-action tax in all but six 
 towss, are coupled with market values of not more than one-third to 
 one-eighth of face values. It has long been urged that the choses-in- 
 action tax be amended to provide for listing at market values, but this 
 seemingly obvious solution to the problem would involve the state 
 treasurer in a very difficult process of evaluating a variety of intan- 
 gibles, many of which have no established market values. 
 
 In the second place, the interests of the town lie in the lax enforce- 
 ment of the choses-in-action tax in order that unlisted taxable prop- 
 erty may be subjected to the estate penalty tax, which is redistributed 
 in large part to the towns. The state administration, too, is entirely 
 passive, the treasurer being empowered only to receive such taxes as 
 are tendered to him by the public. It has been urged that the choses- 
 in-action tax be divided between the state and the towns in order to 
 encourage greater vigilance on the part of local assessors. 
 
 Finally, it is contended that the rate of the choses-in-action tax, 
 which amounts to ten per cent of the income from a four per cent 
 bond and six and two-thirds per cent of the income from a six per 
 cent bond, is sufficiently higher than the tax upon similar property 
 in the neighboring states of New York and Massachusetts to discourage 
 residence in this state. While this argument must be interpreted in 
 
360 Kepoet of Special Tax Commission 
 
 the light of the numerous exemptions granted in this state, it probably 
 has some validity when considered in conjunction with the estate 
 penalty tax. 
 
 Recommendation. 
 
 We recommend: 
 
 That the choses-in-action tax be repealed. 
 
 This recommendation follows directly from the proposal in a 
 preceding chapter that intangible property be completely removed from 
 the local grand lists. Recommendations will be made in a later chapter 
 for the enactment of new taxes which, in our opinion, will prove more 
 equitable and will more than compensate the state for the losses attrib- 
 utable to the repeal of the choses-in-action tax and related taxes on 
 intangible property. 
 
 The estate penalty tax. 
 Descbiption. 
 
 At the time of filing succession tax inventories with the tax com- 
 missioner, executors, administrators, and judges of probate are required 
 to file reports showing what part of the property of the estate was taxed 
 locally during the last taxing period preceding the death of the dece- 
 dent, and what part was registered with the state treasurer for the choses- 
 in-action tax. Any taxable property within the state which was not so 
 taxed, with the exception of (1) book accounts arising out of the con- 
 duct of any business, trade, or profession and (2) property comprising 
 any part of an estate appraised at less than $2,000 and passing to the 
 widow or to minor children, is subject to the penalty tax. 
 
 The rate of the penalty tax is 2 per cent for each of the five years 
 prior to the decedent's death during which such property was owned 
 by the decedent and was not taxed. This tax of from 2 to 10 per cent 
 is applied to the appraised inventory value of the property. An appeal 
 from the assessment is given precedence in the superior court. 
 
 The tax is payable within twelve months of the death of the dece- 
 dent unless such time be extended by the tax commissioner. JSTo final 
 settlement of the estate may be allowed by a probate court until the 
 tax has been paid. The proceeds of the tax are divided by the state 
 treasurer between the state and the town in which the decedent last 
 resided. An amount equal to 4 mills per annum — the rate of the choses- 
 in-action tax — goes to the state, and the remaining 80 per cent of the 
 tax goes to the town. 
 
The Personal Tax and Special Property Taxes 361 
 
 History. 
 
 General recognition of the fact that large amounts of taxable prop- 
 erty were escaping assessment despite the low rate of the choses-in-action 
 tax led the General Assembly to enact the estate penalty tax in 191 5." To 
 encourage the declaration of property hitherto unlisted, the act pro- 
 vided that at any time prior to September 30, 1915, property of any 
 kind might be listed with the state treasurer and freed from the effects 
 of the penalty tax by the payment of the state tax of four mills. 
 
 The tax has undergone little change since its enactment. A 
 complete revision was made in 1917, but, aside from administra- 
 tive details, the only important change involved was the introduction 
 of the exemption for small estates passing to widows or minor children. 45 
 
 By 1925 it had become apparent that it was impracticable to assess 
 the tax against deposits and book accounts, and the law was amended 
 to provide for their exemption. 46 The reason for this was that it was 
 quite impossible to identify any listed deposits or accounts with the 
 exact deposits or accounts which were inventoried in an estate and thus 
 to determine their taxable status under the penalty tax act. 
 
 The exemption of book accounts of merchants and traders was 
 later extended to the book accounts of any business, trade, or profession. 47 
 In the meantime, bank' deposits had been completely exempted from 
 local property taxation so that these book accounts now constitute the 
 only class of property locally taxable but not subject to the penalty tax 
 if unlisted. 
 
 Yield. 
 
 The estate penalty tax has yielded between $150,000 and $450,000 
 annually during the past seventeen years. Figures on the yield are pre- 
 sented in Table LIII. As stated above, the yield is divided between the 
 state and the towns. The twenty per cent share of the state does little 
 more than cover administrative expenses. For the towns as a whole, it 
 contributes about one-third of one per cent of all revenue receipts. In 
 their fiscal years ending next prior to October 10, 1932, forty-three towns 
 reported no income from the tax, and forty-nine others reported tri- 
 fling sums ranging up to> $100. Greenwich was the only town receiving 
 more than $10,000 from the penalty tax in that year, and the $50,750 so 
 received amounted to only 1.8 per cent of total revenue receipts. 
 
 "Pub. Acts, 1915, ch. 393. 
 "Pub. Acts, 1917, ch. 243, sec. 1. 
 "Pub. Acts, 1925, ch. 43, sec. 1. 
 17 Pub. Acts, 1933, ch. 51. 
 

 Table LIU 
 
 
 
 ESTATE 
 
 PENALTY TAX, 
 
 FISCAL YEARS 1916-17 
 
 TO 1933-34 1 
 
 State's 
 
 Total 
 
 Fiscal 
 
 State's 
 
 Total 
 
 share 
 
 tax 2 
 
 year 
 
 share 
 
 tax 2 
 
 $10,172 
 
 $50,860 
 
 1925-26 . 
 
 $44,994 
 
 $224,971 
 
 31,347 
 
 156,737 
 
 1926-27 
 
 31,513 
 
 157,567 
 
 53,962" 
 
 269,808 s 
 
 1927-28 
 
 60,150 
 
 300,748 
 
 28,201 
 
 141,007 
 
 1928-29 
 
 35,957 
 
 179,785 
 
 90,112 
 
 450,562 
 
 1929-30 
 
 34,351 
 
 171,753 
 
 49,648 
 
 248,242 
 
 1930-31 
 
 41,077 
 
 205,387 
 
 39,635 
 
 198,173 
 
 1931-32 
 
 40,489 
 
 202,447 
 
 52,157 
 
 260,786 
 
 1932-33 
 
 32,371 
 
 161,856 
 
 48,047 
 
 240,235 
 
 1933-34 4 
 
 35,997 
 
 179,984 
 
 362 Eepoet of Special Tax Commission 
 
 Fiscal 
 year 
 
 1916-17 
 
 1917-18 
 
 1918-19 3 
 
 1919-20 
 
 1920-21 
 
 1921-22 
 
 1922-23 
 
 1923-24 
 
 1924-25 
 
 Source : State Comptroller, Annual Reports, Office Records. 
 
 1 For the years prior to 1928 the yield of the tax represents the actual cash receipts; 
 
 for subsequent years it represents income as described in a preceding chapter. 
 ' Computed by multiplying state's share by five. 
 * Nine months fiscal year. 
 4 Preliminary figures. 
 
 Criticism. 
 
 When the estate penalty tax was originally enacted, it was con- 
 sidered an equitable and productive .tax. It was expected not only to 
 produce a substantial revenue in its own right but also to increase the 
 local assessment of property and the registration of choses-in-aetion 
 with the state treasurer. Since local property tax rates in nearly half 
 the towns exceeded the rate of the penalty tax (20 mills) within a few 
 years of the enactment of the latter tax, the incentive to list property 
 either locally or with the state treasurer was strongest with respect to 
 choses-in-action, which upon registration for the 4 mill tax might be 
 freed from a 20 mill tax in the event of death of the owner. Probably 
 the passage of the estate penalty tax accounts for the doubling of the 
 yield of the choses-in-action tax between the fiscal years 1914 and 1916 
 in the face of enlarged exemptions of intangibles effected by the General 
 Assembly in the 1915 session. If this be true, then the penalty tax is 
 to be credited not only with the $150,000 to $300,000 which it yields 
 but also with perhaps as much as $100,000 to $200,000 of the yield of 
 the choses-in-action tax, though the smaller of these latter figures is 
 probably more appropriate now that means of evading the penalty tax 
 have become so well known. 
 
 Despite the inherent merits of the penalty tax it has come to be 
 recognized during its short life as one of the least satisfactory elements 
 in the tax system of the state. There are two objections to the tax which 
 this Commission recognizes as important. 
 
 In the first place, the tax is readily avoided by thoroughly legal 
 means which are well -known to practicing lawyers in the state, if not 
 to the ordinary citizen. There are many such methods. Some of them 
 
The Personal Tax and Special Property Taxes 363 
 
 might be removed by amendments to the penalty tax or to the choses- 
 in-action and local property taxes. The wide range of tax-free invest- 
 ments might, for example, be considerably narrowed, and resident bene- 
 ficiaries of trusts held by nonresident trustees might be made subject 
 to taxes upon their beneficial interests. But other means of avoiding 
 the tax arise because of fundamental weaknesses which, in our opinion, 
 are irremediable. For example, the tax can never be extended to the 
 property of corporations or to untaxed property of the decedent which 
 happened to be transferred prior to death and hence did not enter into 
 the estate. The inevitable result is that the tax falls largely upon the 
 estates of those who are indifferent, ignorant, or unable to afford the 
 expense of legal counsel. While we have no means of knowing the 
 exact extent to which the tax is wilfully avoided by legal means, it is 
 the opinion of those who are close to the problem that it is by no means 
 insignificant. 
 
 Along with the several gaping holes in the tax, it has a second 
 weakness, which arises from the fact' that these holes are not particu- 
 larly well known to nonresident laymen and that the avoidance of the 
 tax usually involves some inconvenience to the taxpayer. It is an estab- 
 lished fact that the estate penalty tax discourages residence in the state. 
 This deprives the state of succession tax revenues, which, it is plausibly 
 contended, far exceed the revenues directly or indirectly attributable 
 to the penalty tax. 
 
 Finally, it should be noted that the acceptance of the recommenda- 
 tions of this Commission with respect to the choses-in-action tax and 
 the general property tax carries with it the repeal of the estate penalty 
 tax, which is imposed almost exclusively upon intangibles. If such 
 intangibles be exempted from ad valorem taxes, the whole purpose of 
 the penalty tax disappears. 
 
 Recommendation. 
 
 For these reasons we recommend: 
 
 That the estate penalty tax be repealed. 
 
 Gross earnings taxes on transportation and communication 
 companies. 
 History. 
 
 Both in this state and in other states of the Union, transportation 
 and communication companies were among the first taxpayers to be 
 withdrawn from the jurisdiction of local tax officials. It was found 
 that piecemeal assessment of properties extending through a number 
 
364 Report of Special Tax Commission 
 
 of tax districts was productive of injustices which could be remedied 
 only by some form of unit valuation allowing for all of the elements 
 which go to make up the value of a state-wide enterprise. Several 
 methods of unit valuation have been tried, of which we may mention 
 (1) state assessment on the basis of such information as is available 
 concerning the property assessed, (2) valuation at an amount equal 
 to the market value of all outstanding stocks and bonds, and (3) the 
 use of gross earnings as presumptive evidence of property values. 
 
 In the latter half of the nineteenth century, Connecticut developed 
 a hodge-podge of taxes upon these companies. Eailroads were taxed 
 upon an intricate system of stock and bond valuations ; express com- 
 panies were taxed upon gross receipts; telegraph companies, upon 
 miles of wire; and telephone companies, upon transmitters and miles 
 of wire.' 8 None of these taxes was without its defects, and some had 
 proved thoroughly unsatisfactory. 
 
 To bring order out of this chaos, a special commission was 
 appointed by the Governor under authority granted by the General 
 Assembly in 1911. This commission, after a careful survey of the 
 various available methods of taxing public service corporations, recom- 
 mended the gross earnings tax as a simple, equitable, and effective 
 substitute for an ad valorem tax upon property. 
 
 The General Assembly, acting largely upon the recommendations 
 of this commission, enacted in 1913 and 1915 the system of taxes 
 now imposed upon transportation and communication companies 
 operating in the state. The taxes on express, private car, telegraph, 
 and telephone companies were enacted in 1913, 4 and those upon steam 
 and electric railroads and street railways, in 1915. m It was not until 
 1925 that motor bus companies were subjected to special taxation, and 
 only after the revision of this act in 1927 did the tax on such companies 
 conform to the general structure of the gross earnings taxes under 
 discussion at this point." 
 
 • Aside from a change in the tax period from a fiscal year to a 
 calendar year in 1917, a reduction in the rate of the tax upon street 
 railways from 4% to 3 per cent in 1921, and a substantial revision 
 in the motor bus tax in 1927, which is described fully in a later chapter, 
 there have been no important changes in these laws since their passage. 
 
 ** Report of the Special Commission on Taxation of Corporations Paying Taxes to 
 
 the State, 1913, p. 20. 
 " Pub. Acts, 1913, ch. 188. 
 •" Pub. Acts, 1915, ch. 292. 
 01 See Pub. Acts, 1925, ch. 254; 1927, ch. 268. 
 
The Personal Tax and Special Peopeety Taxes 365 
 
 Desceiption op present taxes. 
 Local peopeety taxes. 
 
 Railroad and street railway companies are taxable locally only 
 upon real estate not used exclusively in the railroad or railway busi- 
 ness. The taxes paid on such real estate within the state during the 
 calendar year may then be offset against the state tax payable upon 
 gross earnings of that year. 52 If the real estate taxes are assessed in 
 the name of a non-operating company, they may be offset against the 
 state tax payable by any company operating the property. The total 
 tax burden of a railroad or railway company is thus determined by 
 applying the rate of the state tax to its gross earnings, except in the 
 most unusual circumstance in which a company owns so much prop- 
 erty subject to local taxation as to involve it in local tax liabilities in 
 excess of the state tax before offsets. The real estate tax offset simply 
 serves as a means of allocating to the local governments a small portion 
 of the total tax payments. 
 
 Again in the case of motor bus companies, any real estate not 
 used exclusively in the business of carrying passengers for hire in 
 common carrier motor vehicles may be assessed and taxed locally. But 
 instead of permitting the offset of all such taxes against the gross 
 earnings tax, only an equitable proportion of the taxes upon real estate 
 used partially in the motor bus business may be offset. These companies 
 are subject also to local taxes on any personal property having a tax 
 situs within the state when such property is used in a business other 
 than the common carrier motor bus business/ 3 
 
 All other companies in this group are subject to local taxation 
 on all of their real estate, regardless of its use, and are then permitted 
 to offset an equitable proportion of the taxes paid locally on property 
 used partially in the transportation or communication business, as the 
 case may be. There is some question as to the taxable status of the 
 personal property of these companies. Section 1321 of the General 
 Statutes specifies that the gross earnings tax "shall be in lieu of 
 all other taxation in this state upon each such company whose principal 
 business in this state is one or more of those specified in sections 
 1316 and 1318 . . . and upon the tangible and intangible per- 
 sonal property used by each such company in a business specified in 
 sections 1316 and 1318; but the real estate in this state owned by each 
 such company .... shall be : assessed and taxed where it is 
 located." 04 
 
 H Gen. Stat., 1930, sec. 1304. 
 B Gen. Stat., 1930, sec. 1314. 
 " Italics are ours. 
 
366 Repobt of Special Tax Commission 
 
 State taxes on geoss earnings. 
 
 The transportation and communication companies subject to a 
 tax on gross earnings are not otherwise taxed by the state, except that 
 motor bus companies must pay the miscellaneous corporations tax of 
 two per cent upon any net income which they may earn from activities 
 other than the common carrier motor bus business. 
 
 In the case of railroads and street railways, gross earnings are 
 denned as "all receipts classified as railway operating revenues by the 
 interstate commerce commission in the classification of accounts pre- 
 scribed by said commission."" 5 These earnings do not include receipts 
 from stocks and bonds held by such companies, nor do they include 
 rentals received from property used by other companies or used for 
 purposes other than the transportation business. 58 The gross earnings 
 of a street railway company include earnings from the operation of 
 motor buses. 57 . 
 
 The taxable gross earnings of a motor bus company are denned 
 as "gross receipts from all sources upon its operations." 58 This appears 
 to be a more inclusive definition than that given for gross earnings 
 of other transportation and communication companies, which are 
 denned as the "gross earnings from the lines, routes, cars or telephone 
 exchanges operated . . .in this state." 59 
 
 In all cases, gross earnings include earnings from property which 
 is operated but not owned by the operating company, and, for all except 
 motor bus companies, they are arrived at before deductions for "any 
 commission, rebate or other payment, except a refund resulting from 
 an overcharge."™ The gross earnings of companies operating within 
 and without the state are allocated between this and other states. For 
 railroads and railways the allocation is made on the basis of miles of 
 track within and without the state; for telegraph companies and tele- 
 phone companies not operating an exchange, on the basis of miles of 
 wires ; for telephone companies operating an exchange, on the basis of 
 number of telephonic instruments; for express -companies, on the 
 basis of miles of routes; and for car and bus companies, on the basis 
 of miles traveled. 
 
 The rates of the taxes imposed upon gross earnings as above defined 
 and allocated vary among the several classes of transportation and 
 communication companies as follows: 
 
 M Gen. Stat., 1930, sec. 1302. 
 
 58 1. C. C, Classification of Operating Revenues and Operating Expenses, 1914. 
 
 157 Gen. Stat., 1930, sec. 1305. 
 
 M Gen. Stat., 1930, sec. 1311. 
 
 09 Gen. Stat., 1930, sec. 1316. 
 
 60 Gen. Stat., 1930, sees. 1302, 1316. 
 
The Personal Tax and Special Pbopebty Taxes 367 
 
 Steam and electric railroads 3%% 
 
 Street railways 3 
 
 Motor bus companies 3 
 
 Private car companies 3 
 
 Telegraph and cable companies 3 
 
 Telephone companies 4 
 
 Express companies 2 
 
 Theory. 
 
 The gross earnings taxes upon transportation and communica- 
 tion companies are intended to serve in lieu of local taxes upon operat- 
 ing property. For this reason, when any operating property is locally 
 taxed, the amount of such taxes is credited against the state tax so 
 that the total burden upon tangible property used in the transportation 
 and communication business is measured by application of the state 
 tax rate to gross earnings from such business. 
 
 The rates of the gross earnings taxes were set with reference to 
 recommendations of the 1913 Commission on the Taxation of Corpora- 
 tions. These recommendations in turn were made upon the basis of an 
 extensive investigation of the relationship between gross earnings and 
 property values for different classes of transportation and communica- 
 tion companies. This relationship was determined (1) by establishing' 
 a ratio between gross earnings and net earnings based upon the 
 experience Of the several companies in each class and (2) by estab- 
 lishing a relationship between net earnings and property values based 
 upon current capitalization rates. When the relationship between gross 
 earnings and property values had been established, a gross earnings 
 tax rate was chosen which would be roughly equivalent to the rate of 
 property taxes then imposed upon other types of property. 
 
 The gross earnings tax has the great virtues of certainty and 
 simplicity, which can never be attained under an ad valorem tax, 
 together with a much higher degree of stability than could be expected 
 of a net earnings tax or a gross-net tax. 
 
 Yield. 
 
 The state income from the gross earnings taxes on transporta- 
 tion and communication companies in recent years is given in Table 
 LIV. The totals as given in this table differ, from those given in Table 
 XXVII of Chapter III because motor bus taxes are included in the 
 present chapter as a tax in lieu of property taxes whereas in the 
 preceding chapter they were included among motor vehicle taxes. We 
 have, however, included in the following table only the state's share 
 
368 
 
 Report of Special Tax Commission 
 
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The Personal Tax and Special Property Taxes 369 
 
 of the motor bus .tax, excluding $70,000 to $100,000 distributed to the 
 towns in each year from ,1928-29 to date. 
 
 Preference should be made again to the advance in the assessment 
 date of railroad and street railway taxes, resulting in the inclusion of 
 two years' taxes in the single fiscal year 1932-33. The taxes assessed 
 against these companies in the fiscal year 1933-34 were based upon 
 gross earnings of the calendar year 1933, but in the case of all other 
 classes of transportation and communication companies the taxes 
 recorded for the fiscal year 1933-34 were based upon gross earnings 
 of the calendar year 1932. The same two-year lag occurs in all other 
 parts of the table. 
 
 Conclusions. 
 
 Basic structure. 
 
 We have been urged by certain groups to recommend more or 
 less far-reaching changes in the general structure of the gross earnings 
 taxes upon these companies. We believe, however, that these taxes have, 
 on the whole, proved satisfactory both to the state and to the taxpayers." 
 We do not believe that a change to a gross-net tax, as urged by rail- 
 road officials, to an ad valorem tax locally administered, as occasionally 
 urged by local interests, nor to an ad valorem tax administered by the 
 state, similar to that imposed in many other states, is advisable. We 
 therefore recommend no fundamental changes in the structure of the 
 tax. 
 
 Tax rates. 
 
 Some' considerable time has been spent by the Commission in 
 an effort to determine whether or not the gross earnings tax rates, which 
 have, with the exception of that imposed upon street railways, remained 
 unaltered for a period of some twenty years, impose a burden approxi- 
 mately equal to the burden of local property taxes upon other types of 
 property. This study indicated that, on the whole, no very serious 
 discrepancies can be shown to result from the present rates. 
 
 In this study our first effort was to determine the burden of the 
 general property tax upon true property values. The average tax rate 
 in the state is just short of 25 mills, but this figure must be adjusted 
 to allow -for undervaluation or overvaluation of property by local 
 assessors. Substantial underassessment can be shown to have existed 
 in the relatively recent past, but it is difficult or impossible in the 
 present demoralized condition of the real estate market to determine 
 what is true value to-day. Thus, while we find the average burden 
 upon true values to have been about 15 mills a few years ago, we are 
 aware that it is higher than this to-day, and we are unprepared to say 
 
370 Report of Special Tax Commission 
 
 that 15 mills is or is not a rate which will obtain again in the near 
 future. 
 
 The second phase of the investigation was to determine the typical 
 ratios of net earnings to gross earnings for individual operating com- 
 panies. Here again we found that the ratios differed substantially 
 from years of prosperity to years of depression. If it be decided that 
 recent depression years predict the future more accurately than prior 
 years, a lower tax rate is indicated than if we use a ten-year average 
 or some other arbitrary figure. 
 
 The last step in the process was to determine upon a capitalization 
 rate which, when applied to net earnings, would give a valuation 
 of the operating property upon which to measure the burden of a given 
 gross earnings tax rate. It is well known that high capitalization rates 
 make for low property values and vice versa. The yield of bonds of 
 most of the companies under consideration is extraordinarily high in 
 the present uncertain markets. On the other hand, many stocks of 
 Connecticut transportation and communication companies now yield 
 ' nothing. Thus bond prices generally indicate a high capitalization rate, 
 while stock prices furnish no reliable indication of any rate at all. 
 Averages for the past several years are even less helpful than current 
 quotations. The gyrations of the security markets in the past few years 
 give little clue as to the future, and it is the future for which tax legisla- 
 tion must be enacted. 
 
 We are thus faced with one factor — a relatively high local tax rate 
 upon the true value of general property — which argues for higher gross 
 earnings tax rates upon transportation and communication companies, 
 and two factors — low ratios of net to gross earnings and high capital- 
 ization rates — which argue for lower gross earnings tax rates. These 
 factors tend to offset each other. 
 
 We are impressed, however, with the impossibility of arriving 
 at defensible conclusions with respect to the propriety of existing tax 
 rates at the present moment. Events are moving so rapidly and in such 
 unprecedented directions that few, if any, are qualified to predict what 
 the future may hold in store for these taxpayers. We therefore recom- 
 mend no immediate changes in the rates of these taxes. If and when a 
 more normal business situation develops, the General Assembly may 
 in its wisdom see fit to direct a further investigation into these taxes 
 and to adjust rates where adjustment seems to be called for by the 
 facts established by such a study. 
 
 The tax base. 
 
 The present statutory definitions of taxable gross earnings, while 
 satisfactory in the main, are somewhat obscure and are in some cases, 
 
The Personal Tax and Special Peopeety Taxes 371 
 
 too narrow. For example, gross earnings derived by express companies 
 from advertisements upon wagonj3 are not now taxable although such 
 earnings undoubtedly enhance the value of the companies' property. If 
 the property from which non-taxable earnings are derived were sub- 
 ject to local taxation, there would be no particular objection to this 
 situation. But since local assessors are restricted in their power to tax 
 the property of these companies, there are numerous cases in which 
 non-taxable earnings are derived from non-taxable tangible property. 
 This is contrary to the theory of the gross earnings taxes. 
 
 Local property taxes and tax offsets. 
 
 It was pointed out above that there exists considerable variation 
 in the extent to which property of transportation and communication 
 companies is subject to local taxation and in the extent to which taxes 
 so paid may be offset against the state tax upon gross earnings. These 
 variations are, in our opinion, partially warranted and partially 
 unwarranted, 
 
 The right of ways of railroad and street railway companies and, 
 to a lesser extent, their stations and other real estate used exclusively 
 in the transportation business are of a peculiar nature, both because 
 of their adaptation to a specialized purpose and because the former 
 extend across a number of taxing districts. For these reasons we believe 
 that such real estate should continue to be exempt from local taxation. 
 
 The same situation does not exist with bus companies. The present 
 exemption of most of their real estate was granted simply because of 
 other analogies between these companies and railway and railroad 
 companies. The real estate of motor bus companies can and should be 
 taxed locally just as is that of telephone, telegraph, express, and car 
 companies. In a later chapter of this report we recommend the return 
 to the local grand lists of all real estate of motor bus companies. 
 
 Another feature of the taxes upon transportation companies which 
 is unsatisfactory is the permission granted to railroad and street rail- 
 way companies, but to no other public service corporations, to offset 
 against their state taxes the amount of all Connecticut local real estate 
 taxes whether or not they arise from the ownership of property used in 
 the railroad or railway business. Some, if not most, of the earnings 
 from property not used in such business are excluded from taxable 
 gross earnings. There is thus no logical reason for permitting the com- 
 plete offset of taxes paid locally. 
 
 Finally, we believe that the tangible personal property of rail- 
 road and street railway companies which is not used in the transpor- 
 tation business should be taxable upon the same basis as other tangible 
 personal property of similar character. The criterion by which the 
 
372 Report of Special Tax Commission 
 
 taxable status of such property should be determined is whether or not 
 the earnings of that phase of the business in which it is principally 
 used are subject to the gross earnings tax. In the calendar year 1933 
 there were paid taxes amounting to $115,888 to the municipalities on 
 account of real property owned or used by railroads and street railways, 
 and this amount was offset against their state taxes. Although some of 
 these taxes were paid on real property used partially in the transporta- 
 tion business and would continue to be offset in part against the state 
 taxes under our recommendations, most of these taxes (probably as 
 much as $100,000) would be disallowed as offsets if our reommenda- 
 tions were adopted. 
 
 Motor bus taxes. 
 
 The subject of motor bus taxes is so inextricably tied up with 
 motor vehicle taxation that our recommendations upon this subject are 
 deferred to the chapter in which registration fees and other such 
 revenues are discussed. 
 
 Car company taxes. 
 
 Another distinct problem is raised by the gross earnings taxes 
 upon car companies. The companies subject to this tax are dining, 
 sleeping, chair, parlor car, refrigerator, oil, stock, fruit, and other car 
 companies operating upon the railroads of the state and carrying on 
 business for profit. Railroads of other states whose cars pass through 
 this state are not included among the so-called private car companies. 
 There are something like 1,000 of these car companies operating in 
 the country, each of which owns from one to several thousand cars, 
 and each of which might conceivably send cars into this state. 
 
 The problems presented by the car company tax are three in 
 number. In the first place, the taxes imposed upon individual compa- 
 nies are small and in many cases scarcely worth the effort involved 
 in assessment and collection. In the second place, the tax is pretty much 
 a self-assessed tax, to which the tax commissioner can apply very little 
 in the way of a check. Finally, the tax is theoretically indefensible 
 insofar as it applies to freight car companies. 
 
 To illustrate the first of these difficulties, we present the accom- 
 panying Table LV, showing a frequency distribution of the amount of 
 taxes assessed in 1934 against each of the 91 companies. The median 
 tax assessed against these companies in this year was $17.66. The 
 average tax would be very much smaller than this were it not for 
 statutory permission granted in 1915 to omit the assessment of any 
 company whose tax would be $2 or less." 
 
 "Gen. Stat., 1930, see. 1118. 
 
The Peesonal Tax and Special Peopeety Taxes 373 
 
 
 Table 
 
 LV 
 
 
 DISTRIBUTION: 
 
 TAXES 
 
 ASSESSED 
 
 AGAINST PE 
 
 COMPANIES, 
 
 JULY 1934 
 
 
 Taxes 
 
 
 Number of 
 
 Cumulative 
 
 assessed 
 
 
 companies 
 
 total 
 
 $2— $4.99 
 
 
 25 
 
 25 
 
 5— 9.99 
 
 
 15 
 
 40 
 
 10— 24.99 
 
 
 13 
 
 53 
 
 25— 49.99 
 
 
 12 
 
 65 
 
 50— 99.99 
 
 
 10 
 
 75 
 
 100—199.99 
 
 
 7 
 
 82 
 
 200—499.99 
 
 
 4 
 
 86 
 
 500—999.99 
 
 
 1 
 
 87 
 
 1,000 and over 
 
 
 4 
 
 91 
 
 Source: Tax Commissioner, Office Records. 
 
 Only five car companies were assessed a tax in excess of $500. 
 These were the Pullman Company, with an assessment of $12,917.84, 
 the Hunter Packing Company, with an assessment of $2,963.37, the 
 Pacific Fruit Express, with an assessment of $1,240.30, the Fruit 
 Growers' Express Company, with an assessment of $1,033.89, and 
 Armour and Company, with an assessment of $684.63. These five 
 companies together accounted for 95.7 per cent of the total assessments, 
 and the Pullman Company alone accounted for 65.6 per cent. 
 
 Of these private car companies, only the Pullman Company is 
 now subject to regulation by the Interstate Commerce Commission, 
 and none is subject to regulation by the state public utilities com- 
 mission. Consequently the tax commissioner is deprived of the check 
 which he enjoys over the reports of other transportation and com- 
 munication companies. By courtesy of the railroads operating in the 
 state, he does receive an annual statement of amounts of mileage pay- 
 ments made by them to car companies for the use of cars operated on 
 their tracks. Any other earnings which the car companies may receive 
 from taxable sources must be reported by the car companies if they 
 are to be brought into the tax base. The mileage operated in and out 
 of the state is another matter which is not subject to check by the tax 
 commissioner and which is probably not too accurately recorded or 
 reported by the taxpayers. 
 
 Finally, we are convinced that a tax upon any car company other 
 than the Pullman Company is theoretically indefensible. The reason 
 for this conclusion is that the receipts of car companies, other than the 
 Pullman Company, are now almost exckisively mileage receipts from 
 railroad companies.™ A shipper sending freight in a private car or the 
 recipient of such freight pays the freight charges to the railroad com- 
 pany in the first instance. The railroad company then reimburses the 
 
 '50 I. C. C. 716-719. 
 
374 Repokt of Special Tax Commission 
 
 private car company on the basis of the number of miles which its cars 
 were hauled. Thus the gross earnings of car companies are, in the first 
 instance, largely gross earnings of the railroads which have been trans- 
 ferred through the railroad company to the private car company. Since 
 these earnings are taxed to 1 the railroad, to tax them again to the car 
 company constitutes double taxation. 
 
 It may be contended that this double taxation arises in many cases 
 in which the tax base consists of gross earnings. Thus we tax a rail- 
 road upon its gross earnings, and it is also proposed to tax a water 
 company on that portion of its gross earnings which is received from 
 the railroad for services rendered. The difference between this situation 
 and that of the car companies described above is that the payment by 
 the railroad, to the water company is an operating expense and operat- 
 ing expenses were deducted from gross earnings to arrive at net earn- 
 ings in the original calculation used in computing the tax rate to be 
 imposed upon the railroad. Mileage payments to car companies are not 
 classified as operating expenses, and hence were not deducted in arriv- 
 ing at the ratio of net to gross earnings. 
 
 The earnings of private car companies from the operation of their 
 cars on railroads in this state are almost exactly comparable with those 
 of railroads whose lines do not enter the state but whose cars are 
 operated within the state under the exchange agreements by the rail- 
 roads concerned. It has never been contended that outside railroads 
 should be taxed in this state, the understanding being that the tax 
 imposed upon railroads in the state is sufficient in amount to cover 
 equipment operated but not owned by companies in the state. Con- 
 versely, the railroads operating in this state are not taxed on their 
 receipts, if any, from other railroads for equipment which is "away 
 from home." 
 
 The relationship between the Pullman Company and the railroads 
 is different. The receipts of this car company do not normally enter 
 into the receipts of the railroad, payments for Pullman services being 
 divided in the first instance between the Pullman Company and the 
 railroad. Thus there are ample grounds for distinguishing between 
 passenger car companies and freight car companies, exempting the 
 latter, but retaining the present tax upon the former. 
 
 Recommendations. 
 
 We recommend: 
 
 That the base of the state tax upon gross earnings be more clearly 
 defined to include earnings from all tangible property of transportation 
 and communication companies which is exempt from local taxation and 
 
The Personal Tax and Special Property Taxes 375 
 
 from all tangible property of such companies the local taxes upon which 
 may be offset against the gross earnings tax; 
 
 That all real and . tangible personal property of transportation 
 and communication companies which is not used exclusively in the 
 transportation and communication business be subject to local taxation 
 on the same basis as other tangible property similarly situated ; 
 
 That offsets against the state tax on gross earnings be allowed 
 only for an equitable proportion of the taxes paid locally on tangible 
 property used partially, but not wholly, in such business and that no 
 offset be allowed for taxes on property used wholly outside such 
 business ; 
 
 That the tax upon car companies be repealed insofar as it applies 
 to companies other than dining, sleeping, chair, and parlor car 
 companies. 
 
 Summary. 
 
 The personal tax. 
 
 The personal tax, or poll tax as it is called in other states, is a $2 
 tax imposed upon all residents between the ages of 21 and 60 unless 
 specifically exempt. Most of the exemptions are accorded in recognition 
 of military service and grow out of the military commutation tax, which 
 together with the old poll tax was superseded by the present tax in 1909. 
 
 This tax yields an annual income to the 169 towns of slightly over 
 one million dollars. The enumeration of taxable persons and the col- 
 lection of taxes assessed appear to be fairly complete in most towns of 
 the state. In 1930 the typical town listed 85 to 95 per cent of the num- 
 ber reported by the United States Census to be of taxable age, even 
 though some persons between these ages were not listed because legally 
 exempt. The typical town collects between 9'0 and 100 per cent of the 
 personal taxes assessed. 
 
 The indications are that this tax has been better supported by 
 public opinion and has been better administered on the whole than in 
 many other states. The Commission is therefore of the opinion that 
 there is no immediate need for changing the structure of the personal 
 tax or for suggesting its abolition and proposes only minor changes in 
 the administration of the tax. 
 
 Special property taxes. 
 
 Forest taxation. 
 
 There are two Connecticut special forest tax laws of present 
 importance. In both cases the special tax laws apply only when the 
 
376 Repobt of Special Tax Commission 
 
 owner of timberlands requests and the state forester approves the 
 exemption of such lands from the general property tax. The first of 
 these acts, passed in 1913, resulted in the classification of a negligible 
 acreage. It was therefore supplemented by another act in 1929 pro- 
 viding for quite a different sort of taxation. This second act, although 
 it has proved more effective than the first, has also failed to encourage 
 the classification of any substantial amount of timberlands. 
 
 Forest tax laws have as their primary aim the conservation of 
 natural resources and the encouragement of reforestation. As far as 
 revenues are concerned, they are of no present importance, nor are they 
 apt to be in the near future. For this reason the Commission is con- 
 tent to leave to the state forester and to others of similar interests the 
 task of submitting to the General Assembly recommendations for 
 changes in these taxes. 
 
 Taxes on shelleish grounds. 
 
 Shellfish grounds under the exclusive jurisdiction of the state are 
 subject to a special state tax which is similar in most respects to the 
 local general property tax except that the rate is fixed at twenty mills. 
 This tax now yields about $10,000 per annum. No complaints or sug- 
 gestions having reached the Commission, we have concluded that this 
 tax is of insufficient importance to warrant the technical investigation 
 which would be required as a basis for recommending any substantial 
 alterations. 
 
 The choses-in-action tax. 
 
 In recognition of the insuperable difficulties encountered by local 
 assessors in their attempts to list intangible property for the general 
 property tax, it was provided in 1889 that the owners of bonds, notes, 
 and other choses-in-action might register them with the state treasurer 
 for a state tax of two. mills per annum upon their face values and there- 
 by be relieved from the obligation to list such intangibles for local taxa- 
 tion. Eight years later the rate of the state tax was increased to four 
 mills per annum, and the tax has remained substantially unchanged 
 since that date. 
 
 The exact scope of the choses-in-action tax has never been clearly 
 defined, but it has been gradually narrowed by the continued exemption 
 of intangibles from the general property tax. The maximum yield of 
 the state tax was realized in the fiscal year 1916-17. Partly as a 
 result of exemptions and partly as a result of increasing evasion, the 
 yield has declined from $652,000 in 1916-17 to a low of $381,000 
 in 1932-33 and $387,000 in 1933-34. 
 
The Personal Tax and Special Pkopekty Taxes 377 
 
 It is impossible to determine the amount of taxable choses-in-action 
 which are neither registered for the state tax nor listed for local prop- 
 erty taxes, but it has long been the opinion of those who have studied 
 tax problems in the state that the amount is large. The great variation 
 which exists from one town to another* in the per capita assessment of 
 intangibles and in the number of persons per thousand listing intangi- 
 bles affords circumstantial evidence of widespread evasion. It is also 
 significant that some two million dollars' worth of unlisted taxable 
 intangibles are found each year in the estates probated in Connecticut 
 courts. 
 
 The choses-in-action tax is criticized not only because of its failure 
 to reach a large amount of taxable property but also because of the 
 large amount of intangible property which is legally exempt, because 
 the tax is laid upon face value rather than actual value, because it 
 affords no incentive to local assessors to cooperate in enforcing the tax, 
 and because the act makes the state treasurer a receiver of taxes and 
 not a collector. 
 
 For these reasons it is recommended that the choses-in-action tax be 
 repealed. In a later chapter recommendations are made for a tax on 
 interest and dividends by which the taxpaying capacity of owners of 
 intangible property may be reached more fully and more equitably. 
 
 The estate penalty tax. 
 
 In an attempt to enforce more effectively the local and state taxes 
 on tangible and intangible property, the estate penalty tax was enacted 
 in 1915. This tax is imposed, with minor exceptions, upon all property 
 in a probated estate which was legally taxable but was neither listed for 
 local taxation nor registered with the state treasurer for the choses-in- 
 action tax during the last taxing period preceding the death of the 
 decedent. The rate of the tax is two per cent for each of the five years 
 prior to the decedent's death during which such property was owned by 
 the decedent and was not taxed. One-fifth of the tax is retained by the 
 state, and the remainder distributed to the towns according to the last 
 residences of the decedents. 
 
 The estate penalty tax currently yields between $150,000 and 
 $200,000. The state's share does little more than cover administrative 
 expenses, while the towns secure but one-third of one per cent of their 
 revenue receipts from this source. Over half the towns of the state 
 received less than $100 each from this tax in 1932. 
 
 The estate penalty lax has contributed somewhat to the enforce- 
 ment of the local property tax and the choses-in-action tax, but it is 
 severely criticized on two scores. First, it is readily avoided by those 
 who avail themselves of expert legal counsel with the result that it falls 
 
378 Kepoet of Special Tax Commission 
 
 largely upon the estates of those who are ignorant, indifferent, or unable 
 to afford legal advice. Secondly, it is an established fact that the estate 
 penalty tax discourages residence in the state. This is true because the 
 means of evading the tax are not generally understood and because they 
 entail some inconvenience and expense. Consequently the state loses suc- 
 cession tax revenues, which, it is plausibly contended, far exceed the 
 revenues directly and indirectly attributable to the penalty tax. It 
 should further be noted that the repeal of local taxes upon intangibles 
 and the choses-in-action tax as above recommended would remove all 
 reason for the continuance of the estate penalty tax. 
 
 Gboss earnings taxes on teanspoetation and communication 
 companies. 
 
 Acting largely upon the recommendations of a special commission 
 reporting to the General Assembly in 1913, a system of gross earnings 
 taxes was enacted in 1913, 1915, and 1925 to replace the hodge-podge 
 of state taxes upon transportation and communication companies which 
 had in turn been developed in the latter half of the nineteenth century 
 as a substitute for the even more ineffective local taxation of these com- 
 panies. These companies are now taxed locally only upon part or all of 
 their real estate, and part or all of the taxes so paid may be used to 
 reduce their state taxes computed as a certain percentage of their 
 gross receipts from the transportation and communication business as 
 allocated between this and other states in which the business is con- 
 ducted. The rates of the taxes on gross receipts are as follows : 
 
 Steam and electric railroads 3V2% 
 
 Street railways 3 
 
 Motor bus companies 3 
 
 Private car companies . 3 
 
 Telegraph and cable companies 3 
 
 Telephone companies 4 
 
 Express companies 2 
 
 These taxes imposed upon gross earnings are intended as a sub- 
 stitute for property taxes on all operating property. This is the reason 
 for permitting the offset of taxes on that part of such property which 
 has been left in the local grand lists. It also explains the differential 
 rates, which were established with reference to the typical relationship 
 between gross earnings and the capitalized value of net earnings for 
 each separate group of utilities. 
 
The Personal Tax and Special Property Taxes 379 
 
 The state taxes on those seven classes of companies yielded slightly 
 over three million dollars prior to the depression but declined to 
 $1,742,000 in 1933-34. 
 
 It is the conclusion of the Commission that these gross earnings 
 taxes have, on the whole, proved reasonably satisfactory both to the 
 state and to the taxpayers. We therefore find no reason to recommend 
 fundamental changes in tax structure. Considerable time has been 
 spent by the Commission in an effort to test the adequacy of existing 
 tax rates. It was found, however, that present conditions are so 
 abnormal and the future so uncertain that it is impossible to arrive at 
 reliable conclusions upon which to recommend a change from the pres- 
 ent rates. We therefore suggest that this investigation be undertaken at 
 a later date when more normal conditions have been reestablished. 
 
 Some defects now exist in the definition of taxable gross earnings 
 of these companies. The intent is that the state tax should apply to all 
 earnings from tangible property which is exempt from local taxation 
 or the local taxes upon which are an allowable offset against the state 
 tax. This intent is not fully carried out in the present statutes, but 
 it may be done in either of two ways: (1) by broadening the base of 
 the state tax or (2) by narrowing the allowable offsets of local taxes. 
 Our recommendations contemplate a combination of these two 
 procedures. 
 
 Another problem is raised by the gross earnings tax upon private 
 car companies. Even though the tax commissioner is directed to 
 exempt any company whose tax obligation is computed at $2 or less, 
 more than half of the remaining taxable companies are subject to taxes 
 of less than $25. Such small taxes are hardly worth the effort involved 
 in assessment and collection. Furthermore, it is difficult to secure any- 
 thing approaching an accurate check upon the sworn returns of tax- 
 payers, and consequently the tax is largely self-assessed. 
 
 Finally, the tax is hardly defensible on theoretical grounds insofar 
 as it applies to freight car companies. We are informed that practically 
 all of the gross earnings of private freight car companies are first 
 recorded as gross earnings of the railroads hauling the cars and are 
 then passed on in the form of mileage payments to the car companies. 
 These mileage payments are not recorded as operating expenses of the 
 disbursing railroads, and consequently the rate of the railroad tax, hav- 
 ing been fixed with reference to capitalized net earnings, was intended 
 to be high enough to cover the value of property of private car com- 
 panies — as well as of foreign railroads — operated over Connecticut 
 roads. 
 
380 Report of Special Tax Commission 
 
 The relationship between railroads and the Pullman Company 
 is quite different, and the retention of a gross earnings tax upon this 
 company gives rise to no double taxation. Since this company alone 
 accounts for well over half of the twenty thousand dollars currently 
 realized from the tax on car companies, the loss from the recommended 
 exemption of other car companies is inconsequential. 
 
 The formal recommendations of the Commission on the personal 
 tax and special property taxes appear at the end of the discussion of 
 each of these taxes. 
 
CHAPTER XIII 
 
 THE TAXATION OF INSURANCE COMPANIES 
 
 Introduction. 
 
 Because of the early and extensive development of the insurance 
 business in Hartford, taxes upon these companies have played an 
 important role in the Connecticut tax system. This group has contrib- 
 uted heavily to state revenues, although its combined contributions to 
 state and local governments have fallen short of those of manufacturing 
 and mercantile concerns because of the local property taxes upon the 
 latter businesses, from which insurance companies have been compara- 
 tively free. 
 
 In discussing insurance company taxes, it is necessary to adopt 
 a terminology by which to distinguish companies which are chartered 
 by or organized under the laws of this state from those chartered in 
 other states and countries. To facilitate interpretation by the general 
 reader, we will adopt the terminology most commonly employed in 
 financial circles, in preference to that set forth in section 4094 of the 
 General Statutes and to that used by the insurance commissioner in 
 his annual reports. Companies chartered by the State of Connecticut 
 are herein designated as "domestic companies" ; those chartered in 
 other states of the Union, as "foreign companies" ; and those chartered 
 by governments outside of the United States, as "alien companies." 
 
 Connecticut has a highly complex system of insurance company 
 taxes. Differentiations for tax purposes are made, not only among 
 domestic, foreign, and alien companies, but also among mutual com- 
 panies, stock companies, and fraternal benefit associations. On the other 
 hand, a differentiation very commonly found in the tax laws of other 
 states — that is, between life, fire, and casualty insurance companies — 
 does not appear in Connecticut. 
 
 Description of present taxes. 
 Local taxes. 
 
 At present all insurance companies operating in the state are 
 
 subject to local taxes on all of their real estate situated in the state. 
 
 Domestic companies are subject to no other local taxes. 1 Alien 
 
 'Gen. Stat., 1930, sees. 1153, 1279; Middletown and Portland Bridge Company v. 
 Town of Middletown, 77 Conn. 314 (1904). 
 
382 Report of Special Tax Commission 
 
 companies, in the absence of statutory exemptions, are taxable on any 
 property having a tax situs within the state. Fraternal benefit societies, 
 some of which conduct an insurance business, are taxable only upon 
 their real estate, and office equipment. 2 
 
 There is some question as to the taxable status of the property of 
 foreign companies other than fraternal benefit societies. Section 1153 
 of the General Statutes subjects. all property of such companies having 
 a tax situs within the state to local taxation unless expressly exempt, 
 but it appears that some of their property is exempt by the terms of 
 section 1281 and that section 1282, literally interpreted, ■ deprives 
 local officials of all authority over any remaining property by delegat- 
 ing the power to tax such companies to the insurance commissioner. 
 The insurance commissioner, whatever be his powers, does not assess 
 any tax on account of the ownership of taxable property within the 
 state. 
 
 State taxes. 
 
 Alien companies. 
 
 Alien companies admitted to do business in the state are taxed at 
 the rate of 2 per cent upon a modified Connecticut net premium basis. 
 These net premiums consist of gross premiums from business done in 
 the state less return premiums and cancellations. However, if the alien 
 company cedes insurance to another company admitted to do business 
 in the state and such reinsuring company pays a premium tax to the 
 state, the alien company may deduct from its tax liability the amount 
 of the premium tax paid by the reinsuring company on the ceded insur- 
 ance up to 2 per cent of the premium. A return must be made by each 
 alien company to the insurance commissioner on or before March 1, 
 and the tax is payable on or before April 1." 
 
 This provision for deducting premium taxes paid upon reinsur- 
 ance operates to the disadvantage of domestic insurance companies. 
 Such companies are not now subject to a tax upon premiums, and an 
 alien company reinsuring in a domestic company receives no reduction 
 in its tax burden by reason of such reinsurance. This tends to prevent 
 reinsurance in domestic companies by alien companies. In a later 
 section we will recommend that part of the present tax burden upon 
 domestic companies be borne in the form of a premium tax. The adop- 
 tion of such a recommendation would remove the discriminatory aspect 
 of the present tax upon alien companies. 
 
 1 Gen. Stat., 1930, sec. 4294. 
 
 "Gen. Stat., 1930, sees. 1283, 1284. 
 
Taxation of Insubance Companies 383 
 
 Foreign companies. 
 
 Connecticut taxes foreign insurance companies admitted to do 
 business in the state on a purely reciprocal basis. That is, a foreign 
 company pays to Connecticut the same fees and taxes that are imposed 
 upon a Connecticut company or its agents by the state in which the 
 foreign company is domiciled. 4 
 
 As a result of this reciprocal law, a variety of tax bases are 
 applicable to these foreign companies. In all cases, however, the base 
 consists of gross premium receipts less deductions which depend upon 
 the laws of the state of domicile. The tax rates vary from zero to 3 
 and 4 per cent. Returns by these companies are due on March 1, and 
 taxes are payable on April 1. The administration of the tax is lodged 
 entirely with the insurance commissioner. 5 
 
 Domestic mutual companies. 
 
 Domestic mutual companies and the participating departments 
 of domestic stock companies are subject to a franchise tax at the rate 
 of 3 per cent upon their investment income for the calendar year. The 
 base of the tax consists of receipts of interest, dividends, and rents 
 from real estate situated outside of the state. Interest from securities 
 issued by the United States and from tax-exempt securities issued by 
 the State of Connecticut and its political subdivisions is not included 
 in the base. The return by the company and the tax are due on the 
 dates applicable to alien and foreign companies. The administration 
 of the tax is in the hands of the tax commissioner and the board of 
 equalization. 6 
 
 Domestic stock companies. 
 
 Domestic stock companies are subject to two state taxes in addi- 
 tion to the tax upon participating departments described in the preced- 
 ing paragraph. Both taxes are imposed upon the market value of the 
 capital' stock as of October 1. 
 
 The first of these taxes is the so-called stock tax imposed at the 
 rate of 4 mills. All Connecticut real estate taxes paid during the year 
 ending September 30 may be offset against the tax so computed. ,A 
 return is filed by the taxpayer with the tax commissioner on or before 
 October 15, the tax is assessed by the board of equalization not later 
 than December 31, and the tax is due on or before the last day of 
 February. 7 
 
 «Gen. Stat., 1930, see. 1281. 
 
 "Gen. Stat., 1930, sec. 1282. 
 
 6 Gen. Stat., 1930, sees. 1113, 1278-1280. 
 
 'Gen. Stat., 1930, sec. 1273. 
 
384 Report of Special Tax Commission 
 
 The proceeds of this tax are divided on or before April 15 between 
 the state and the municipalities. All taxes on stock held by nonresi- 
 dents and in the state school fund are retained by the state; the remain- 
 ing taxes are distributed to the municipalities in which the stockholders 
 reside. If there are minor tax districts within a town, the town treas- 
 urer, on or before May 1, distributes receipts from the stock tax among 
 the various districts within which the shareholder resides "in the 
 proportion that the tax rate fixed by each such district within the 
 twelve months next preceding such first day of May bears to the com- 
 bined or total tax rate of all such taxing districts." 8 
 
 An exception to this general rule of distribution is made when more 
 than fifty per cent of the stock of an insurance company is owned by a 
 corporation or held in the name of an agent, trustee, or nominee of a 
 corporation or association. In this case the tax on the shares so owned 
 goes to the districts within which the principal place of business of the 
 insurance company is situated. 
 
 The second of the domestic stock company taxes is known as the 
 franchise tax. It is imposed upon the same base as the stock tax but at 
 the rate of two instead of four mills. No offset for local taxes is allowed. 
 The tax is payable to the state treasurer on or before July 15 and is 
 retained in the general fund. 8 
 
 Histoey. 
 
 Taxation of domestic insdbance company stock. 
 
 At the time when insurance companies were first chartered in this 
 state, they were subject to taxation upon certain of their assets, includ- 
 ing real estate and most of their "monies loaned on good security." By 
 reason of a technicality in the assessment law their investments in 
 bank stock were held to be non-taxable. 1 " 
 
 The stock of insurance companies was first made taxable to share- 
 holders in 1819." The tax extended to the stock of insurance companies 
 chartered in other states of the Union held by residents of Connecticut 
 unless such stock was also taxable in the state in which the corporation 
 was organized. All the stock of domestic companies was taxable whether 
 held by residents or by nonresidents. The stock of nonresidents was to 
 be taxed "as other similar estate", and the proceeds were to be turned 
 over by local collectors to the treasurer of the state. In order to assure 
 complete assessments, the secretaries of insurance companies were 
 required upon request of local assessors to return the names of all stock- 
 
 " Cum. Sup., 1933, sec. 354b. 
 
 9 Gen. Stat., 1930, sec. 1274. 
 
 10 Hartford Fire Insurance Company v. Hartford, 3 Conn. 15 (1819). 
 
 11 Stat. L., 1819, ch. 2 
 
Taxation op Insurance Companies 385 
 
 holders together with the amount of their holdings. All insurance 
 stock, as well as bank stock and other taxable intangibles, was to be 
 listed at six per cent of its value. At this time real estate was listed at 
 two and three per cent of its value and other property at varying rates 
 specified by law. 
 
 This double taxation of, assets and shares was continued until 
 1826. At that time an act was passed exempting the personal property 
 of any corporation whose stock was then taxable." This exemption was 
 later extended to the real estate which was required and used in the 
 business of such corporations. 18 
 
 No change in the stock tax was made until 1830. At this time the 
 tax upon nonresident stock of domestic companies was fixed in amount 
 at 1/3 of 1 per cent of the value of such stock and was made payable 
 directly by the corporation to the state." This rate was altered from 
 time to time, reaching a maximum of one and one-half per cent in 
 1897. In 1901 it! was reduced to one per cent, a rate which was then' 
 established for both resident and nonresident shares. 
 
 The percentage at which resident shares of insurance companies 
 were to be listed was reduced from 6 per cent to 3 percent in 1851, 15 
 but a few years later the present plan of assessing all property at "its 
 full market value was adopted." To put an end to unequal local assess- 
 ment of resident shares, the General Assembly in 1901 substituted a 
 state tax for the local tax and provided for redistribution of collections 
 from resident shares to the municipalities in which the shareholders 
 resided." At the same time all domestic real estate of these companies 
 was made taxable locally, and an offset of taxes so paid was permitted 
 against the state tax. 
 
 !N"o material change was made in this law until 1925. A gradual 
 reduction in the tax rate was then provided for. The ten mill rate was 
 reduced to eight mills for the tax payable in 1926, to six mills for 
 1927, and to four mills thereafter." 
 
 The peanchise tax on stock companies. 
 
 In 1915 an additional tax was imposed upon domestic insurance 
 companies for the privilege of exercising their corporate franchises. 
 
 u Stat. L., 1826, ch. 7; The Savings Bank of New London v. New London, 20 Conn 
 
 111 (1849). 
 "Pub. Acts, 1847, ch. 50; Pub. Acts, 1851, ch. 47, sees. 10, 31. 
 "Stat. L., 1830, ch. 28. 
 "Pub. Acts, 1851, ch. 47, sec. 8. 
 u Pub. Acts, 1860, ch. 15. 
 "Pub. Acts, 1901, chs. 106, 165. 
 "Pub. Acts, 1925, ch. 186. 
 
386 Report op Special Tax Commission 
 
 The base of the tax was the market value of the capital stock on 
 October 1 less all investments in bonds of the State of Connecticut, 
 and the rate was five mills.* 8 Two years later the allowable deductions 
 in arriving at the tax base were expanded to include also evidences of 
 indebtedness of the United States and of any political subdivisions of 
 this state issued after April 1, 1917. 20 
 
 With the heavy investments of insurance companies in United States 
 bonds the tax base was rapidly narrowed. Consequently, an act was 
 passed in 1923 limiting the aggregate deductions of any insurance com- 
 pany to 50 per cent of the tax base as computed without the benefit of 
 deductions. 21 This act was somewhat moderated at the next session of 
 the General Assembly by a reduction in the rate of the tax from five to 
 two mills, but at the same time all deductions were abolished. The new 
 rate was first applicable for taxes payable in 1926. 22 
 
 Taxes on mutual companies. 
 
 Domestic mutual insurance companies were first taxable locally 
 on real estate and certain of their personal property. In 1851 they 
 were subjected to a state tax of 1/3 of 1 per cent upon their "total 
 cash capital", whether invested or simply held on deposit. 23 It was not 
 imtil the following year that exemption from local taxes upon assets 
 was accorded. At the same time the rate of the state tax was reduced 
 to 1/4 of 1 per cent. 2 * This law was amended from time to time until 
 1867, when it was completely rewritten to place the tax specifically 
 upon assets. From total assets, premium notes and ascertained but 
 unpaid losses might be deducted. This act, in turn, was amended at 
 frequent intervals down to 1919, when the assets tax was abolished 
 upon the recommendation of the Special Commission of 1913, and the 
 base was changed to investment income as defined in the present law. 26 
 
 The rate of this tax upon investment income was set at 4 per cent 
 for the tax payable in 1920 and 1921 and 3% per cent for each year 
 thereafter. In 1925 the rate was reduced to 3 per cent to become effec- 
 tive first for taxes payable in 1928. 2T 
 
 16 Pub. Acts, 1915, ch. 292, pt. III. 
 
 20 Pub. Acts, 1917, ch. 152. 
 
 21 Pub. Acts, 1923, ch. 193. 
 
 22 Pub. Acts, 1925, ch. 186, sec. 2. 
 
 23 Pub. Acts, 1851, ch. 47, sec. 21. 
 
 24 Pub. Acts, 1852, ch. 46, sec. 4. 
 
 25 Report of the Special Commission on Taxation of Corporations, 1913, p. 147. 
 
 26 Pub. Acts, 1919, ch. 337. 
 "Pub. Acts, 1925, ch. 184. 
 
Taxation of Insurance Companies 387 
 
 Taxes on foreign and alien companies. 
 
 As previously pointed out, the stock of foreign insurance com- 
 panies held by residents of this state and not taxed in the state of domi- 
 cile was made taxable on the same basis as domestic company stock in 
 1819. Local taxation of alien company stock was provided for some 
 year later. 23 These stocks have never since been specifically exempted. 
 However, the application of this tax to stock of foreign companies was 
 made somewhat questionable by the reciprocal tax law originally enacted 
 in 1852. Its application to either foreign or alien companies was 
 brought into question by the decision of the Supreme Court of Errors 
 in the case of Lockwood v. Town of Weston. 2 " This is the situation as it 
 exists today. It is no doubt true that some stocks of these corporations 
 are legally subject to local taxation, but, to our best knowledge, no cor- 
 porate stocks of any kind are now placed in the local grand lists. 
 
 The first tax upon foreign and alien insurance companies, as dis- 
 tinguished from their stockholders, was passed in 1851. They were then 
 subjected to a state tax of two per cent upon their gross Connecticut 
 premiums and assessments. Connecticut agents were required to make 
 the returns and pay the tax out of their collections for the companies. 
 An exemption was granted to any company whose state of domicile also 
 exempted Connecticut companies from taxation on business done in 
 such state."" In the following year this act was amended to the extent of 
 introducing the purely reciprocal taxes upon foreign companies in 
 much their present form. 81 
 
 These laws have undergone few subsequent changes. In 1893 it 
 was provided that agents' returns should be supplemented by returns 
 from the principal officers of foreign companies and the resident agents 
 of alien companies. 32 Ten years later agents' returns were completely 
 abolished. 88 The provision for reducing the taxes of alien companies by 
 the amount of taxes paid upon premiums on ceded insurance was intro- 
 duced in 1913." 
 
 88 Pub. Acts, 1851, eh. 47, sec. 9. 
 
 28 61 Conn. 211 (1891). In this case it was held that a section of the statutes ex- 
 empting any property assessed and taxed in other states extended to the stock of 
 corporations held by Connecticut residents unless it could be shown that these 
 corporations were exempt from direct or indirect taxation upon their shares in 
 other states. 
 
 80 Pub. Acts, 1851, ch. 47, sec. 22. 
 
 81 Pub. Acts, 1852, ch. 69. 
 
 82 Pub. Acts, 1893, ch. 202. 
 88 Pub. Acts, 1903, ch. 34. 
 84 Pub. Acts, 1913, ch. 26. 
 
388 Report of Special Tax Commission 
 
 Yield of state taxes. 
 
 The taxes imposed by the state upon insurance companies to be 
 paid in the calendar years 1925 to 1934 are given in Table LVI. The 
 totals in this table do not include approximately a million dollars of 
 local taxes paid upon domestic real estate, but they do include all of 
 the stock tax whether retained by the state or distributed to the munici- 
 palities. 
 
 Distribution of the stock tax. 
 
 Table LVI does not give us a complete picture of the yield of insur- 
 ance taxes to any single level of government because of the fact that 
 the stock tax, as distinguished from the -franchise tax, is divided between 
 the state and the municipalities. It is impossible to compile the exact 
 data upon the distribution of this tax from published reports since the 
 state treasurer does not segregate the tax on insurance stock from the tax 
 on the stock of banks and trust companies. 
 
 Most of the receipts of the state from the nonresident share tax 
 (on banks and insurance companies) represents taxes on insurance 
 stock. Shares of state banks and trust companies do contribute small 
 amounts, ranging from perhaps ten to seventy-five thousand dollars 
 in the past ten years, but these amounts represent less than ten per cent 
 of- the total. In Table LVII there appear the total receipts of the state 
 from the nonresident share tax and the amounts distributed to the 
 towns on account of taxes on resident shares of domestic insurance 
 companies, state banks, and trust companies, and on all shares of nation- 
 al banks located in the state. 
 
 In 1930 the state distributed to the towns $3,559,086 in taxes col- 
 lected on the shares of insurance companies and banks and trust com- 
 panies. About a million dollars of this amount consisted of taxes on 
 the shares of national banks and trust companies, and the remainder 
 was attributable to insurance companies. By 1933 the total amount 
 distributed to the towns had declined to $651,601. While these amounts 
 appear large in the aggregate, the sums received by individual towns 
 are, with a few notable exceptions, insignificant. Fifteen major munici- 
 palities reported no receipts from taxes on the shares of banks and 
 insurance companies in their fiscal years ending next prior to October 
 10, 1932. Another thirty-nine reported receipts from this source of 
 less than $100, and in most of these cases the shares of banks rather 
 than of insurance companies accounted for such receipts. Only eighteen 
 major municipalities received amounts in excess of $10,000. 
 
 It will be seen from Table LVIII that share taxes in fiscal years 
 ending next prior to October 10, 1932, made up one per cent or more of 
 
Taxation of Insubance Companies 
 
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 Table LVII 
 DISTRIBUTION OF TAXES ON STOCK OF BANKS AND INSURANCE COM- 
 PANIES BETWEEN THE STATE AND THE TOWNS, FISCAL YEARS 
 1924-25 TO 1933-34 
 
 Fiscal year 
 
 State 1 
 
 Towns 
 
 Total 
 
 1924-25 
 
 $616,696 
 
 $3,086,049 
 
 $3,702,745 
 
 1925-26 
 
 706,615 
 
 3,611,194 
 
 4,317,809 
 
 1926-27 
 
 556,168 
 
 2,568,769 
 
 3,124,936 
 
 1927-28 
 
 518,218 
 
 2,388,194 
 
 2,906,412 
 
 1928-29 
 
 701,460 
 
 2,966,524 
 
 3,667,983 
 
 1929-30 
 
 872,427 
 
 3,559,086 
 
 4,431,513 
 
 1930-31 
 
 607,475 
 
 2,590,460 
 
 3,197,934 
 
 1931-32 
 
 172,716 
 
 1,003,630 
 
 1,176.346 
 
 1932-33 
 
 123,504 
 
 651,601 
 
 775,104 
 
 1933-34 
 
 153,239 
 
 695,703 
 
 848,942 
 
 Source: State Treasurer, Annual Reports. 
 
 1 Includes amounts paid into the state school fund. 
 
 total revenue receipts in only 50 out of a total of 195 major municipali- 
 ties, three per cent or more in only 12 major municipalities, and five per 
 cent or more in 7 major municipalities. In Rockville these taxes 
 accounted for 19.66 per cent of total revenue receipts; in West Hart- 
 ford, 15.52 per cent; in the borough of Farmington, 14.04 per cent; in 
 Hartford, 10.89 per cent; in Suffield, 5.81 per cent; in Vernon, 5.42 
 per cent; and in Simsbury, 5.39 per cent. 
 
 The foregoing figures are smaller than in preceding and more 
 prosperous years. In 1928, when the aggregate distribution of share 
 taxes to the towns was $2,388,194, there were 85 major municipalities 
 receiving more than one per cent of their revenue receipts from this 
 
 Table LVIII 
 FREQUENCY DISTRIBUTION: PERCENTAGE RATIOS OF RECEIPTS FROM 
 TAXES ON STOCK OF BANKS AND INSURANCE COMPANIES TO 
 TOTAL REVENUE RECEIPTS, MAJOR MUNICIPALITIES, 1928 AND 
 
 1932 
 
 Number of 
 municipalities 
 Percentage ratios 1928 1932 
 
 —0.99% 111 145 
 
 1% — 1.99% 33 28 
 
 2%— 2.99% 18 10 
 
 3%— 3.99% 9 2 
 
 4%— 4.99% 5 3 
 
 5%— 5.99% 2 3 
 
 6%— 6.99% 6 
 
 7% and over 12 4 
 
 196 195 
 
 Source : Tax Commissioner, Quadrennial Reports of Indebtedness, Receipts and Ex- 
 penditures of Municipalities. 
 
Taxation of Insurance Companies 391 
 
 source, 34 receiving three per cent or more, and 20 receiving five per 
 cent or more. In the fiscal year ending next prior to October 8, 1928, 
 Suffield reported share taxes amounting to 28.99 per cent of revenue 
 receipts; Eockville, 22.27 per cent; the borough of Farmington, 20.17 
 per cent; West Hartford, 19.97 per cent; Vernon, 19.94 per cent; the 
 town of Farmington, 14.65 per cent; Simsbury, 13.86 per cent; and 
 Hartford, 13.11 per cent. 
 
 Principles of insurance company taxation. 
 
 A study of the history of insurance company taxation in the state 
 reveals that early taxes upon these companies were built upon the prin- 
 ciples of the property tax. It so happens, however, that except for a 
 period of seven years the property tax in the case of stock companies 
 was never extended beyond the equity of stockholders in the assets of 
 the companies. This represents a peculiar aspect of early corporation 
 taxes in this state. Most corporations were subject to taxation on all 
 of their property without regard for the proportion of such property 
 represented by the stockholders' equity. Mutual companies, too, were 
 taxed in the first instance upon all of the taxable property which they 
 held, and even after the state tax was introduced, it was imposed upon 
 a modified gross assets base. 
 
 Attempts have sometimes been made to distinguish insurance com- 
 panies from other corporations on the basis of their heavy liabilities 
 to policyholders. But insurance companies are by no means the only 
 ones who have entered into contracts to pay out sums of money. The 
 contractual relationships established by insurance policies and those 
 established by ordinary corporate bonds are similar, if not. identical, 
 for tax purposes. So long as the policyholder is exempt from taxation 
 on the -cash value of his policy, we see no reason why the assets behind 
 the policy should be tax-exempt unless they would also be exempt 
 in the hands of another corporation or an individual. 
 
 In the foregoing discussion we have not lost sight of the fact that 
 the assets of an insurance company consist principally of intangible 
 property. We recognize the arguments against the taxation of such 
 property, but we also recognize that it has always been the policy of 
 this state to subject it to moderate taxation. Although in preceding 
 chapters we recommend that the present ad valorem taxes upon intan- 
 gibles be repealed, we do not recommend that the owners of such prop- 
 erty be freed of responsibility for bearing a portion of the tax burden. 
 In a subsequent chapter we recommend other means of reaching the 
 taxpaying ability arising from such property. 
 
 To sum up, the first principle of insurance company taxation 
 which we recognize is that, as custodians of great aggregates of prop- 
 
392 Report of Special Tax Commission 
 
 erty located in this state, these companies should be subjected to some 
 form of taxation upon their assets, in spite of the fact that they have 
 undertaken contracts providing for contingent or ultimate distribution 
 of such assets to policyholders, who are not taxable upon their policies. 
 
 While we believe that the foregoing principle is fundamentally 
 sound, we are prepared to modify it, in a manner to be described 
 presently, in recognition of the fact that insurance companies writing 
 life policies have entered into long-term contracts involving substantial 
 sums of money and that the terms of these contracts have been drawn 
 with a certain amount of expectation that what has obtained in the 
 past will obtain in the future. We do not mean to imply that the state 
 has any obligation to its taxpayers to maintain existing taxes with- 
 out increase, but we do recognize the virtues of continuity in tax 
 burdens. We do not propose to increase radically the burden upon 
 any group of taxpayers who have mortgaged their futures on the expec- 
 tation of no more than a normal increase. 
 
 A second principle in the taxation of insurance companies is the 
 principle of a business tax. These companies, whether they be mutual 
 or stock companies, are engaged in business in the state for the pecu- 
 niary benefit of their stockholders or their policyholders. They engage 
 in extensive purchases and sales of contracts. They have free access 
 to our courts and to other government institutions. Deprived of the 
 protectional and developmental services of the state, they would be 
 severely handicapped, if not completely frustrated, in their efforts to 
 conduct business within the boundaries of this state. For these reasons 
 we believe that insurance companies, in common with all other business 
 concerns in the state, should be subject to a business tax in addition 
 to all property taxes. 
 
 Criticism of existing taxes. 
 
 Inequality in tax burdens among groups of companies. 
 
 There are few aspects- of our tax system so completely lacking in 
 logic or consistency as the system of taxes which has been devised over 
 a course of more than a century for the various types of insurance 
 companies operating in the state. This system consists of a conglomerate 
 group of taxes based upon no recognized principle of taxation. Insur- 
 ance companies are differentiated for tax purposes upon such super- 
 ficial grounds as the state of residence of the corporation or the 
 ' particular manner in which it is organized and controlled. These com- 
 panies, all or many of which are competing for, the same kinds of 
 business, enter the business arena with a variety of handicaps imposed 
 upon them by the state. This situation can be remedied by applying, 
 insofar as possible, sound tax principles uniformly to all companies. 
 
Taxation of Insurance Companies 393 
 
 The burden of state taxes upon these companies differs widely 
 from one type, of company to another and from one year to another. 
 Domestic companies always pay heavier taxes than foreign and alien 
 companies. Domestic mutual companies have paid heavier taxes than 
 domestic stock companies in recent years, but the reverse was, true five 
 years ago. 
 
 Inequalities among domestic stock companies. 
 
 The present tax system gives rise to great inequalities not only as 
 between different groups of companies but also as among the various 
 domestic stock companies. These inequalities arise from two sources: 
 (1) from the valuation of shares and (2) from the pyramiding of 
 taxes among members of corporate groups. 
 
 The present law requires that domestic stock companies be taxed 
 upon the market value of their shares as of October 1. Speculative 
 activities, the liquidation of large estates, and other fortuitous events 
 which create temporary— and perhaps artificial — price differentials 
 thus play an active role in the determination of the tax liability 
 of a given company. Furthermore, more than half of the companies 
 now assessed must be taxed upon the book value of their stock, for 
 the reason that their stocks are so closely held that no market value 
 is ascertainable. In periods of prosperity such companies escape with 
 a tax burden which is thought to be substantially lower than would 
 obtain were its stock listed and actively traded. 
 
 Another injustice arises from the fact that a subsidiary corpora- 
 tion is taxed on the same basis as a parent or independent corporation 
 even though the value of the parent company stock reflects the value 
 of its . subsidiary. Intercorporate relationships are common among 
 Connecticut insurance companies. There are the Aetna Life group, 
 the Aetna Fire group, the "Two Hartfords", the Phoenix Fire group, 
 the Rossia group, the Security group, and the Travelers group. Under 
 existing law the tax liability of such groups is determined, not by the 
 amount of business done by the group or by consolidated assets or 
 income, but rather by the particular manner in which the directors 
 have chosen to' build their corporate structures. 
 
 Instability of revenues. 
 
 A further objection to the existing system of insurance company 
 taxes is the pronounced instability of the revenues derived from these 
 companies. This instability is attributable almost entirely to the taxes 
 upon domestic stock companies. Upon the value of their stock on 
 October 1, 1929, these companies paid taxes of well over five million 
 
394 Repokt of Special Tax Commission 
 
 dollars. Three years later they paid less than two million dollars. Such 
 extreme variations encourage extravagance in prosperous times and 
 severely embarrass the government in depression years. 
 
 Distribution of the stock tax. 
 
 The distribution of most of the stock tax to the municipalities, by 
 its very nature, appears to us to be objectionable. As is pointed out 
 elsewhere in this report, we are of the opinion that the unit of govern- 
 ment which raises a tax should be charged with the responsibility of 
 expending it wisely. Divided responsibility in this field can only lead 
 t© extravagance and to a government which is unresponsive to the 
 needs and interests of its taxpayers. Furthermore, the grossly unequal 
 distribution among the municipalities on the accidental basis of the 
 residence of stockholders, whereby the bulk of the benefit goes to a 
 few favored towns while the majority derive only the most trifling 
 benefit, appears indefensible. 
 
 The business tax. 
 
 Having concluded that this complicated system of insurance com- 
 pany taxes is unsound in principle and unsatisfactory in operation, 
 we have, with the active cooperation of company officials, carefully 
 canvassed the other available tax bases. The principles of insurance 
 company taxation developed above call for both a business tax and a 
 property tax. Due perhaps to its relative importance, the business tax 
 has proved much less controversial than the property tax. Two bases 
 have been suggested for the business tax, namely, net income and 
 Connecticut net premiums. 
 
 The net income base meets with the approval of the insurance 
 companies and has the virtue of tying in with the tax system upon 
 miscellaneous corporations. We are convinced, however, that it is not 
 a satisfactory tax when applied to insurance companies. Wot only is 
 is difficult — perhaps even impossible — to determine the net income of 
 a life insurance company, which must be allowed a deduction for 
 reserves set up for the payment of an uncertain amount of losses in 
 the indeterminate future, but it is also difficult to formulate a logical 
 definition for the net income of any mutual company. It is significant 
 that the federal government has developed a separate net income tax 
 law for insurance companies and that, despite several important amend- 
 ments, its experience under this law has not been completely 
 satisfactory. 
 
 The Connecticut net premium tax base also has received the sup- 
 port of the insurance companies. It represents a simple, familiar, and 
 
Taxation of Insurance Companies 395 
 
 stable tax base, which, we believe, reflects as fairly as any other meas- 
 ure the business activities of insurance companies. It is, in our opinion, 
 far superior to net income for the purpose at hand. 
 
 Should the net premium base be adopted, we would suggest a rate 
 of two per cent, thus conforming as nearly as possible to the rate of 
 the tax now applied to alien companies and to the rate most commonly 
 applied to foreign companies. 
 
 Table LIX 
 
 YIELD OF A TWO PER CENT TAX ON NET CONNECTICUT PREMIUMS OF 
 
 DOMESTIC INSURANCE COMPANIES, COLLECTIBLE IN SELECTED 
 
 YEARS, 1927 TO 1934 1 " 
 
 Companies 1927 1930 1933 1934 
 
 Stock life 2 $229,438 $281,795 $252,889 $252,669 
 
 Mutual life 27,014 35,281 44,363 57,816 
 
 Total life 
 
 256,452 
 
 317,076 
 
 297,252 
 
 310,485 
 
 Stock fire 
 Mutual fire 
 
 73,706 
 12,056 
 
 73,126 
 16,338 
 
 62,213 
 13,744 
 
 58,612 
 12,480 
 
 Total fire 
 
 85,762 
 
 89,464 
 
 75,957 
 
 71,092 
 
 Stock casualty 
 
 59,439 
 
 73,693 
 
 56,972 
 
 59,695 
 
 Grand total 
 
 401,653 
 
 480,233 
 
 430,181 
 
 441,272 
 
 Total stock 362,583 428,614 372,074 370,976 
 
 Total mutual 39,070 51,619 58,107 70,296 
 
 Sources: Insurance Commissioner, Insurance Reports.; data supplied by insurance 
 companies. 
 
 1 Premiums of the Connecticut Plate Glass Insurance Company and Hartford Life 
 Insurance Company, now in process of liquidation, are excluded from this table. 
 
 2 Includes casualty departments of these companies. 
 
 The yield of such a tax in recent years would have varied between 
 the relatively narrow limits of $400,000 and $500,000. The distribu- 
 tion of this burden by groups of companies is shown in Table LIX. 
 
 The tax on account of pbopeety. 
 
 The problem of the tax base. > 
 
 The taxable peopeety. 
 
 In. recent years total assets of domestic insurance companies at 
 their admitted values have amounted to approximately two billion 
 dollars. Of this amount approximately $100,000,000 represent real 
 estate values which are already taxed in this state or in other states, 
 and $150,000,000 represent federal and Connecticut state and local 
 securities which are beyond the taxing power of the state. Further- 
 more, these assets include $70,000,000 worth of stock of other domestic 
 insurance companies, to tax which would represent double taxation of 
 
396 Keport of Special Tax Commission 
 
 the most obvious sort. But there remain over $1,700,000,000 worth of 
 assets which are taxable but which are not now directly taxed. 
 
 An ad valorem tax on intangible assets. 
 
 It would be quite unthinkable that such assets should be subjected 
 to taxation at rates equal or approximately equal to general property- 
 tax rates. At 25 mills — approximately the average rate on tangible 
 property in the state — the tax on these intangible assets would amount 
 to about 43 million dollars. This is ten times as much as these com- 
 panies have paid in the past in business taxes and in lieu of taxes on 
 personal property. Even at the rate of the tax upon choses-in-aetion — 
 that is, four mills — this intangible property would be called upon to 
 bear a burden of approximately 7 million dollars. 
 
 These comparisons are not exact, to the extent that they do not 
 allow the insurance companies the advantage of exemptions which 
 would be accorded under present law to individuals on holdings of 
 corporation stock, domestic mortgages, bonds of domestic utility com- 
 panies, etc. But even if such exempt assets were deducted from the base, 
 it is readily apparent that a tax upon the intangible assets of insurance 
 companies at the rates applied to these assets when held by individuals 
 would exact a much larger contribution than these companies now make. 
 We feel that the burden of such, a tax would be intolerable. Connecticut 
 companies could no longer remain in the competitive field, and the 
 abandonment of domestic charters would necessarily follow. Further- 
 more, we have already recommended that the present ad valorem taxes 
 upon intangible property be repealed, and we recommend in a later 
 chapter a tax upon income yielding investments which will amount to 
 considerably less than four mills on their face values. We therefore 
 reject the proposal to subject the assets of insurance companies to the 
 tax that is now imposed upon intangible property. 
 
 It would, of course, be possible to formulate a new rate to be 
 applied to taxable intangible property of insurance companies. For 
 example, a tax of this sort at the rate of two mills, when combined 
 with the business tax proposed above, would produce revenues from 
 domestic companies amounting to something over $3,500,000. There 
 are, however, several difficulties with such a tax, which were clearly 
 discerned by the Special Commission of 1913, 35 and which led the Gen- 
 eral Assembly to repeal the tax upon assets of mutual companies in 1919. 
 There are, first, all of the problems of valuation which are raised by 
 an ad valorem tax. The work of the insurance commissioner would 
 afford considerable assistance in the valuation process, but the experi- 
 
 1 Report of the Special Commission on Taxation of Corporations, 1913, p. 160. 
 
Taxation oe Insurance Companies 397 
 
 ence of the tax commissioner in administering the tax upon assets of 
 mutual companies indicates that difficult problems would arise in spite 
 of this assistance. 36 A second objection to this tax is that it would shift 
 the tax burden rather sharply from fire and casualty companies to life 
 companies. Life companies accounted for 77.8 per cent of the average 
 taxable intangible admitted assets of domestic companies at the close 
 of the years 1929 and 1932, although they contributed but 57.2 per 
 cent of the state taxes paid by domestic companies under the existing tax 
 system on business of these two years. To distribute the present tax 
 burden upon insurance companies according to taxable intangible 
 assets would mean a decided decrease in the burden of fire and 
 casualty companies and a corresponding increase in the burden of life 
 companies. Such a substantial shift in tax burdens we believe to be 
 undesirable in consideration of the large proportion of the assets of 
 life companies which is pledged by contracts which cannot be rewritten 
 or revised. 
 
 In view of these objections, the Commission rejects the value of 
 intangible property as the base for a tax on account of property. 
 
 Premiums as a measure of property values. 
 
 A second proposal to which we have given consideration is to use 
 premium collections as the base of the property tax. These collections 
 would be used as a presumptive measure of the value of assets which 
 are acquired through their investment, just as gross earnings are used 
 as the measure of the value of the operating property of transportation 
 and communication companies. 
 
 The use of Connecticut premiums for this purpose is not feasible. 
 A small tax, such as has been proposed for a business tax, may be 
 imposed upon this base without danger, but a rate of 12 to 20 per cent, 
 which would be required to raise the accustomed revenue, would be 
 so much higher than the rates which would be paid to other states on 
 non-Connecticut premiums or to Connecticut by foreign companies 
 doing business in this state that the domestic field could no longer be 
 profitably cultivated by our own companies. 
 
 A tax base consisting of total premium collections from all sources 
 is free from the objections pointed out in the preceding paragraph. 
 The principal difficulties with this base are that it takes no account of 
 differences in the proportion of premium receipts available for invest- 
 ment and that it fails to reach the intangible property of stock com- 
 panies arising from investment of capital and surplus. It is obvious 
 that this base does not adequately fulfill the purposes of a property tax. 
 
 M Tax Commissioner, Biennial Report, 1920, p. 15. 
 
398 Eepoet of Special Tax Commission 
 
 Investment income as a tax base. 
 Advantages. 
 
 An investment income tax base similar to that now used to distri- 
 bute taxes upon domestic mutual insurance companies is, on the whole, 
 one of the most attractive bases which we have examined. Investment 
 income affords a simple and equitable means of approximating prop- 
 erty values. It avoids all problems of valuation. It is easily computed by 
 tax officials and by taxpayers. The amount of the tax does not vary 
 greatly from year to year, thus assuring the state of a relatively stable 
 income and the taxpayers of a readily predictable tax liability. Tax 
 pyramiding is easily avoided by simple adjustments in the base. For 
 these reasons, the investment income tax base has, to our best knowl- 
 edge, proved eminently satisfactory over a period of fifteen years to 
 the state and to the domestic mutual companies. 
 
 The problem of shifts in tax burden. 
 
 The chief difficulty with the investment income base is that, when 
 
 applied to various domestic insurance companies in the state, it would 
 
 apparently produce as great a shift in tax burdens as was found to 
 
 result from the assets tax. This may be clearly visualized by a study of 
 
 Table LX. 
 
 Table LX 
 
 DOMESTIC INSURANCE COMPANIES: PERCENTAGE DISTRIBUTION OF 
 ACTUAL TAX PAYMENTS, 1925 TO 1934, AND AVAILABLE TAX BASES, 
 1929 AND 1932 1 
 
 Companies 
 
 Stock life 2 
 Mutual life 
 
 Actual 
 
 tax 
 
 payments 
 
 1925-1934 
 
 % 
 
 48.2 
 
 10.1 
 
 Taxable 
 intangible 
 assets 
 1929 1932 
 
 % % 
 57.7 60.3 
 17.9 19.6 
 
 Connecticut 
 
 net 
 
 premiums 
 
 1929 1932 
 
 % % 
 
 58.7 58.8 
 
 7;3 10.3 
 
 Total 
 
 net 
 
 premiums 
 
 1929 1932 
 
 % % 
 
 52.8 56.4 
 
 7.5 9.0 
 
 Taxable 
 
 investment 
 
 income 
 
 1932 
 
 % 
 61.4 
 19.9 
 
 Total life 
 
 58.3 
 
 75.6 
 
 79.9 
 
 66.0 
 
 69.1 
 
 60.3 
 
 65.4 
 
 81.3 
 
 Stock fire 
 Mutual fire 
 
 31.9 
 0.2 
 
 17.5 
 0.4 
 
 14.0 
 0.3 
 
 15.2 
 3.4 
 
 14.5 
 3.2 
 
 26.5 
 0.1 
 
 22.0 
 0.1 
 
 13.3 
 0.3 
 
 Total fire 
 
 32.1 
 
 17.9 
 
 14.3 
 
 18.6 
 
 17.7 
 
 26.6 
 
 22.1 
 
 13.6 
 
 Stock casualty 
 
 9.7 
 
 6.5 
 
 5.7 
 
 15.3 
 
 13.2 
 
 13.1 
 
 12.5 
 
 5.1 
 
 Grand total 
 
 100.0 
 
 100.0 
 
 100.0 
 
 100.0 
 
 100.0 
 
 100.0 
 
 100.0 
 
 100.0 
 
 Total stock 
 Total mutual 
 
 89.7 
 10.3 
 
 81.7 
 18.3 
 
 80.1 
 19.9 
 
 89.3 
 10.7 
 
 86.5 
 13.5 
 
 92.4 
 7.6 
 
 90.9 
 9.1 
 
 79.8 
 20.2 
 
 Sources : Tax Commissioner, Biennial Reports, Office Records ; Insurance Commis- 
 sioner, Office Records; data supplied by insurance companies. 
 1 Connecticut Plate Glass Insurance Company and Hartford Life Insurance Com- 
 pany, now in process of liquidation, are excluded from this table. 
 a Includes casualty departments of these companies. 
 
Taxation of Insurance Companies 399 
 
 In the first column of this table there appears the percentage dis- 
 tribution of the taxes actually paid to the, state by domestic insurance 
 companies over the ten-year period, 1925 to 1934. This distribution is 
 almost identical with that obtained by averaging the payments in 1930 
 and 1933, respectively, upon the business of the peak year of prosperity 
 and the worst year of the depression. It may therefore be assumed to 
 represent the normal distribution among groups of companies of the 
 present state taxes. 
 
 The remaining columns contain percentage distributions of the 
 several tax bases discussed above. Taxable intangible assets represent 
 total admitted assets at the end of the year less real estate, federal and 
 Connecticut state and local securities, and stocks of other domestic 
 insurance companies and domestic insurance holding companies. The 
 premiums in the next column are net premiums, that is, gross premiums 
 less returns and cancellations, dividends to policyholders, and pre- 
 miums on ceded insurance. The taxable investment income, which is 
 distributed in the last column, consists of all dividend and interest 
 receipts except interest on federal and Connecticut state and local securi- 
 ties and dividends from subsidiary domestic insurance companies and 
 domestic insurance holding companies. Our data on investment income, 
 for which we are indebted to the domestic stock insurance companies, 
 are complete for only a single year and are not sufficiently detailed to 
 permit the deduction from gross income of dividends from non-subsidi- 
 ary domestic insurance companies. But, due to the stability of invest- 
 ment income and the relatively insignificant contribution of dividends 
 from non-subsidiary companies, the comparability of the last column 
 with others in the table is not impaired by these facts. 
 
 Upon careful examination of this table the dilemma which we 
 have faced will be apparent. On the one hand, we are confronted with 
 a thoroughly illogical and hopelessly confused tax system, which few, 
 if any, would contend results in an equitable distribution of the tax 
 burden. On the other hand, we are faced with the fact than any tax base 
 which can be defended on grounds of principle results in a very sub- 
 stantial shift in the tax burden from fire and casualty companies to 
 life companies. 
 
 Unless the finances of a state were in such an unusually fortunate 
 condition that revisions in the tax system could involve a general 
 reduction in tax burdens, almost any change which might be made would 
 increase the obligations of some taxpayers while reducing those of others 
 or would at least result in unequal increases. This reallocation would 
 meet with the protests of those who found that they were threatened 
 with a burden which was formerly another's. And even if the realloca- 
 tion could be accomplished by reduction in tax burdens, there would 
 
400 Report of Special Tax Commission 
 
 be those who would complain because it necessarily meant greater reduc- 
 tions to some than to others. 
 
 As we have intimated above, we do not consider this attitude on 
 the part of taxpayers entirely devoid of logic. It is true that profit mar- 
 gins become adjusted in time to a given tax level and that contracts 
 are entered into with the expectation of more or less constant tax 
 burdens. This argument cannot be pressed too far ; to do so would be to 
 deny the existence of any maladjustments or inequities in the tax sys- 
 tem. Nevertheless we feel called upon to recognize such merit as this 
 argument possesses and to modify somewhat the rigors of strict appli- 
 cation of the principles upon which our recommendations are founded. 
 
 Adjustment by means of a bate differential. 
 
 We are convinced that investment income is the most logical and 
 the most practicable base for the tax which is intended to reach the 
 intangible property of insurance companies. We are proposing, by 
 means of an adjustment in the tax rate, to correct the chief weakness 
 of this base, that is, its tendency, if applied at a uniform rate, to cause 
 substantial shifting of the tax burden from fire and casualty companies 
 to life companies. This tendency may be neutralized by resort to the 
 use of a lower tax rate upon the income of life insurance departments 
 than upon the income of fire and casualty departments. 
 
 This differentiation, moreover, is justified on its merits on the 
 ground that life insurance companies are required to place a large pro- 
 portion of their investment income into reserves against their policies. 
 Normally these reserves accrue to policyholders and not to stockholders. 
 
 In 1932 domestic insurance companies, on the average, earned 
 4.2 per cent on the admitted values of their intangible assets. Life 
 companies were forced' to increase their reserves at the rate of 
 3 to 3.5 per cent, depending upon the nature of their insurance con- 
 tracts. Let us assume that the average accumulation of the reserves was 
 at the rate of 3.25 per cent. This gave a margin of 0.95 per cent on the 
 assets behind these reserves out of which to pay investment expenses 
 and dividends. But the reserves of these life companies, taken as an 
 average as of the beginning and the end of the year 1932, amounted to 
 only 89.6 per cent of the total admitted assets of the companies. There 
 is thus an excess of assets over reserves of about ten per cent, the income 
 from which is not devoted to reserves. This income, we will assume, 
 is available in full for payment of expenses and dividends. We find then 
 that life companies have available for purposes other than reserves 0.95 
 per cent on almost nine-tenths of their assets and 4.2 per cent on one- 
 tenth, the weighted average of which is 1.275 per cent. Other companies 
 have had the full 4.2 per cent available. The latter percentage is 3.36 
 
Taxation of Insurance Companies 401 
 
 times the former. If a gross investment return of 4.5 per cent is used, as 
 representative of a more normal year, the differential computed by this 
 process becomes 2.85 times. This analysis suggests the use of differential 
 rates, one of which is three times the other. 
 
 Because this differential is arrived at by computing the amount 
 of investment income available for expenses and profits after allow- 
 ance for reserves, it results in a distribution of the tax burden substan- 
 tially the same as is now effected among stock companies by the present 
 taxes. It thus preserves the advantages which may attach to the main- 
 tenance of continuity in tax burdens. We conclude that the investment 
 income base should be used, with the rate on casualty and fire depart- 
 ments three times as high as on life departments. 
 
 One danger inheres in the use of differentiated tax rates. Those 
 companies having two departments, one of which would be taxable at 
 a low rate and the other at a high rate, would be under temptation to 
 shift their tax-exempt securities into the departments subject to the 
 high rate. Since segregation of assets is not required by the laws of 
 this state, there would be no reason why this could not be done to the 
 detriment of the state. This may be prevented by a provision requir- 
 ing that the taxable investment income be allocated between depart- 
 ments in proportion to the allocation of its total investment income 
 (taxable and non-taxable). 
 
 The bates of the tax on investment income. 
 The problem. 
 
 Having determined in favor of a business tax of two per cent 
 upon premiums and a tax on investment income with a rate differential, 
 the exact rates of the latter tax are determined by fixing the total 
 amount which it is proposed shall be raised from domestic insurance 
 companies. The determination of this amount is a difficult problem. 
 
 There are three criteria of the amount of taxes to be imposed 
 upon any group of taxpayers, each of which is invariably considered 
 by the legislative body in its deliberations on tax matters. These are 
 
 (1) the amount of the tax burden of other taxpaying groups in the state, 
 
 (2) the amount of the tax burden of the same group in other states, 
 and (3) the amount of the tax burden upon the same group in this 
 state under the taxes existing at the time a new tax is contemplated. 
 
 Tax burdens on other groups in the state. 
 
 One of the complaints sometimes registered against the stock tax 
 upon insurance companies is that this represents a discrimination in 
 favor of miscellaneous corporations, all of whose stocks are exempt 
 
402 Kepoet of Special Tax Commission 
 
 from Connecticut state and local taxes. This argument appears super- 
 ficial to us. It entirely overlooks the fact that taxes on the assets of 
 miscellaneous corporations are in lieu of taxes upon their stock but 
 that taxes on the stock of banks and insurance companies are in lieu 
 of taxes upon their assets. Clearly, the advantage, if there be any, 
 lies with the insurance companies, which, by paying upon a partial 
 equity in their assets, escape taxes upon the balance of them. But we 
 do not believe that this argument can be used either for or against a 
 revision of the existing tax burden, for the assets of an insurance 
 company, being intangible, are not comparable for tax purposes with 
 the tangible assets of a manufacturing company. 
 
 We have not attempted to compare the percentages of net 
 income paid by various groups of corporations for state and local taxes. 
 No one has yet compiled the necessary data for such a comparison, nor 
 would we consider such data useful for the purpose at hand. The various 
 elements that make up net income can not be considered homogeneous 
 for purposes of measuring tax burdens, nor does net income constitute 
 the only measure of one's obligation to support the state. 
 
 In fact we do not know of any satisfactory means of comparing 
 tax burdens among various groups of taxpayers. Each such group has 
 features differentiating it from other groups, and there exists no known 
 means of distributing the burden with precise justice among the several 
 groups. We are therefore reluctantly forced to abandon any effort to 
 determine the proper tax burden of domestic insurance companies by 
 reference to burdens of other taxpaying groups. 
 
 Insurance taxes in other states. 
 
 Most states in the Union, if not all, tax their own insurance com- 
 panies more lightly than Connecticut does hers. In many states the 
 only tax other than on real estate is a tax at the moderate rate of one 
 to three per cent upon premiums collected within the state, whereas 
 Connecticut imposes taxes upon domestic companies which amount 
 to fifteen to twenty per cent of their Connecticut premiums. 
 
 Figures were submitted to the Commission to show that in 1933 
 Connecticut insurance companies actually paid to the state over three 
 and one-half times as much as they would have paid had the Con- 
 necticut tax laws been the same as those of Rhode Island, six and 
 one-half times as much as they would have paid had the Connecticut 
 tax laws been the same as those of Massachusetts, and over seven times 
 as much as they would have paid had our laws been those of New 
 York. 
 
Taxation of Insubance Companies 403 
 
 Since it omits the New York and Massachusetts taxes upon the 
 dividend receipts of resident individuals holding stocks of these com- 
 panies and the Rhode Island four mill ad valorem tax locally assessed 
 on such stocks, we do not consider this picture complete. These taxes 
 on stockholders are as much a part of an insurance company's taxes 
 as the Connecticut stock tax, which is legally a tax upon the stock- 
 holder collected for convenience at the source. If allowance for these 
 taxes upon stockholders were made, the taxes legally collectible under 
 the laws of other states would be approximately doubled (the exact 
 amount of the change can only be estimated roughly) , and the margin 
 between such payments and those actually made under Connecticut 
 law correspondingly reduced. But even then Connecticut taxes appear 
 comparatively large. Furthermore, the year chosen for this comparison 
 was a year in which actual tax payments by insurance companies under 
 the Connecticut law were far below normal, whereas if Connecticut 
 had used one of the tax systems of these other states, their payments 
 would have been much the same as in a normal year. If a prosperous 
 year had been chosen, the burden of the Connecticut taxes would have 
 appeared much more excessive. 
 
 An even greater difference in taxes upon mutual companies exists 
 among the several states. A study conducted in the office of the tax 
 commissioner a few years ago showed that one of the Connecticut 
 mutual life companies paid thirty times as much to the state as it 
 would have paid under the New York law and twenty-five times as 
 much as under the Massachusetts law. 
 
 It is easy to appreciate the feeling of domestic insurance com- 
 panies that Connecticut should impose taxes upon them comparable 
 to those imposed by other states upon their domestic companies. We 
 do not believe, however, that we would be justified in permitting other 
 states to set the standard by which we are to measure the burdens 
 imposed upon Connecticut companies. To do so would be to assume 
 that other states are more capable of determining the proper level of 
 taxation than is the State of Connecticut. We suspect that other states 
 have often been guided by policies to which we cannot subscribe. 87 
 
 There is, of course, a limit to which taxes on Connecticut com- 
 panies can be raised above those in other states, because of the danger 
 of migration of the industry or a change in the state of domicile. Thus, 
 while we are not prepared to accept the burden of insurance company 
 taxes in other states as necessarily the proper burden, we recognize 
 that if burdens are decidedly higher in this state, the attractions of a 
 
 " For a criticism of these policies, see Report of the Special Commission on Taxation 
 of Corporations, 1913, pp. 152-154. 
 
404 Report or Special Tax Commission 
 
 Connecticut charter, which are now substantial in spite of high taxes, 
 will be impaired and the further location of insurance companies in 
 this state discouraged, even though actual migration does not occur. 
 
 Tax burdens under the existing system : conclusions. 
 
 We conclude that the principal guide in determining the amount 
 of taxes to be raised from insurance companies must be found in the 
 burdens imposed by the existing system. It will be seen from Table LVI 
 that the total burden upon domestic companies in the past ten years 
 has ranged from a high of $6,004,000 in 1930 to a low of $1,839,000 
 in 1933. The average over the ten-year period was almost exactly 
 4 millions. The latter figure, we believe, constitutes the most which 
 should be anticipated in the near future from taxes on insurance com- 
 panies and their stockholders. In fact, we believe that the amount 
 should be reduced below this figure to approximately three and one- 
 half million dollars. This yield can be anticipated with rates of 2^4 
 per cent on the taxable investment income of life departments and 6% 
 per cent on the taxable investment income of fire and casualty depart- 
 ments, in combination with the recommended business tax of 2 per 
 cent on net Connecticut premiums and with the 5 per cent tax upon 
 dividend receipts of resident individual stockholders to be recom- 
 mended in a later chapter. 
 
 We estimate that this combination of taxes would have produced 
 $3,350,000 on the 1932 business of domestic companies. This amounts 
 to one and one-half million dollars more than was actually paid in 
 taxes levied on the business of that year. Although the tax payments 
 of domestic companies under existing laws are already on the increase, 
 it is doubtful whether they will soon reach the three and one-half 
 million dollar mark if the present taxes be retained. There is good 
 reason to believe that the earlier prosperity of the insurance business 
 will be slow, to return. It is therefore unlikely that our suggested rates 
 represent a concession to insurance companies as a whole, although 
 they do favor the mutual life companies, which have paid heavy taxes 
 during the depression years. At any rate, we believe that the state can 
 better afford to accept the stable yield which taxes on premiums and 
 investment income will produce, even though it may average somewhat 
 below four million dollars in the next ten years, than to continue with 
 the fluctuating taxes now collected from stock companies. 
 
 Estimated yield of proposed taxes. 
 
 The amounts which we estimate would have been received in 
 1933 under our recommendations for direct taxes upon domestic insur- 
 
Taxation of Insurance Companies 405 
 
 ance companies are given in Table LXI. To this must be added some 
 $375,000 for the proposed tax upon the dividend receipts of resident 
 stockholders. This three million dollar yield from direct taxes on insur- 
 ance companies, it must be remembered, is for a year of severe depres- 
 sion and thus, in our opinion, represents the minimum which can be 
 anticipated from this combination. It will be noted that the percentage 
 distribution of the total tax burden as given in the final column of 
 this table is quite similar to that given in the first column of Table LX. 
 
 Table LXI 
 ESTIMATED RECEIPTS FROM RECOMMENDED STATE TAXES ON CON- 
 NECTICUT PREMIUMS AND INVESTMENT INCOME RECEIVED BY 
 DOMESTIC INSURANCE COMPANIES IN THE CALENDAR YEAR 1932 1 
 
 Premium Investment Percentage distribution 
 
 Companies tax income tax Total taxes of total taxes 
 
 Stock life 2 $252,889 $1,260,967 $1,513,856 50.8% 
 
 Mutual life 44,363 336,845 381,208 12.8 
 
 Total life 
 
 297,252 
 
 1,597,812 
 
 1,895,064 
 
 63.6 
 
 Stock fire 
 Mutual fire 
 
 62,213 
 
 13,744 
 
 675,060 
 16,486 
 
 737,273 
 30,230 
 
 24.7 
 1.0 
 
 Total fire 
 
 75,957 
 
 691,546 
 
 767,503 
 
 25.7 
 
 Stock casualty 
 
 56,972 
 
 261,989 
 
 318,961 
 
 10.7 
 
 Grand total 
 
 430,181 
 
 2,551,347 
 
 2,981,528 
 
 100.0 
 
 Total stock 372,074 2,198,016 2,570,090 86.2 
 
 Total mutual 58,107 353,331 411,438 13.8 
 
 Sources: Preceding table; Tax Commissioner, Office Records; Insurance Commis- 
 sioner, Insurance Reports, 1933 ; data supplied by insurance companies. 
 1 Connecticut Plate Glass Insurance Company and Hartford Life Insurance Com- 
 pany, now in process of liquidation, are excluded from this table. 
 "Includes casualty departments of these companies. 
 
 COROLLARY CONCLUSIONS. 
 
 The foregoing conclusions have been concerned with a business 
 tax and a tax in lieu of one upon intangible assets. This, of course, 
 carries with it the assumption that real estate will remain taxable 
 locally and that no offsets will be permitted against either of the state 
 taxes. It is further suggested that the tangible personal property of 
 these companies be subjected to taxation upon the same basis as other 
 tangible property used by business concerns. 
 
 Mention has also been made of a tax upon individuals on account 
 of their receipt of dividends from insurance companies. So long as 
 the present stock tax upon domestic companies, which is legally a tax 
 upon the stockholder, is retained, such a tax upon dividends is hardly 
 feasible. If our recommendations for the repeal of the stock tax are 
 
406 Report oe Special Tax Commission 
 
 accepted by the General Assembly, the dividend receipts of resident 
 individual stockholders may be subjected to taxation without discrimi- 
 nation. This proposal will be dealt with at greater length in a later 
 chapter. At this point we content ourselves with the conclusion that 
 dividend receipts from insurance company stock should be taxed the 
 same as other dividends. 
 
 SUMMAET AND RECOMMENDATIONS. 
 
 Insurance companies are classified for tax purposes into (1) com- 
 panies chartered by foreign countries — referred to herein as "alien 
 companies", (2) companies chartered by other states of the Union — 
 referred to as "foreign companies", and (3) companies chartered by 
 the State of Connecticut — referred to as "domestic companies." 
 Domestic companies are further classified into (a) stock companies 
 and (b) mutual companies. 
 
 In general it may be said that all of these companies are taxable 
 locally only upon their real estate. In addition they are subject to 
 state taxes which differ from one group to another. Alien companies 
 are taxable at the rate of two per cent upon their Connecticut premium 
 collections with certain adjustments for reinsurance ceded to other 
 companies. A foreign company pays the same taxes to this state as are 
 charged Connecticut insurance companies operating in the state in 
 which the foreign company is domiciled. Domestic mutual companies 
 are taxable at the rate of 3 per cent upon their gross receipts of taxable 
 interest, dividends, and non-Connecticut rents. Domestic stock com- 
 panies, in addition to being taxable as mutual companies upon the 
 investment income of their participating departments if they have 
 such, are subject to two taxes based upon the market value of their 
 stock on October 1. The first of these two taxes — the stock tax — 
 carries a rate of four mills, but it may be reduced by the amount of 
 property taxes paid by the company to Connecticut municipalities in 
 the preceding year. The proceeds of the stock tax are largely distributed 
 to the towns according to the residences of stockholders, the state retain- 
 ing taxes laid on stock held outside the state. The second tax on stock 
 companies — the franchise tax — is a two mill tax without offsets, which 
 is retained entirely by the state. 
 
 State taxes on insurance companies have yielded between two and 
 one-half and seven million dollars, in addition to about a million 
 dollars of real estate taxes paid by such companies to Connecticut 
 municipalities. The highest assessments of state taxes were made in 
 1930 and amounted to $6,860,000, and the lowest, in 1933, amounted 
 to $2,604,000. The assessments in 1934 were $2,705,000. Of these 
 amounts the towns received as their share of the stock tax, including 
 
Taxation oe Insurance Companies 407 
 
 also the stock tax on banks, $3,559,000 in 1930, $652,000 in 1933, 
 and $696,000 in 1934. In the aggregate, two and one-half per cent of 
 the 1932 revenue receipts of Connecticut municipalities were derived 
 from the share tax, but, because of the concentration of these receipts 
 among a relatively few municipalities, only 22 major municipalities 
 received two per cent or more of their revenue receipts from this 
 source. 
 
 There are two principles upon which state taxes on insurance 
 companies should be based. In the first place, as custodians of great 
 aggregates of property located in this state, they should be subjected to 
 some form of taxation upon their intangible property. Secondly, as 
 business enterprises conducted for the pecuniary benefit of their stock- 
 holders or their policyholders, they should be subject to a business tax. 
 
 There are few aspects of the Connecticut tax system so lacking in 
 logic or consistency as the system of taxes which has evolved over a 
 course of more than a century for the various types of insurance com- 
 panies operating in the state. Tax discrimination is prevalent among 
 groups of companies. It also exists within one group — the domestic 
 stock companies — because of the impossibility of securing a market 
 valuation of the shares of more than half the companies, which are 
 closely held, because of artificial and temporary alterations in market 
 values upon the assessment date, and because of the pyramiding of 
 taxes among members of corporate groups. Moreover, the taxes on 
 stock companies are highly unstable, and the distribution of the 
 share tax among the municipalities is inequitable and theoretically 
 unsound. For these reasons we recommend the complete overhauling of 
 the state taxes on domestic insurance companies. 
 
 The experience of this and of other states has demonstrated the 
 virtues of net premium collections as the base of a business tax. This 
 base is stable ; it is easily allocated among the states in which a com- 
 pany does business ; and it represents a fair measure of business activi- 
 ties. Upon this base we propose that a tax of two per cent be imposed, 
 thereby raising an annual revenue of approximately $450,000. 
 
 In addition to the business tax, the principles of taxation stated 
 above call for a tax upon intangible property. After a careful survey 
 of the various taxes which might be used for this purpose, the Com- 
 mission has concluded that interest and dividend income affords the 
 most practicable tax base. Investment income is a simple and equitable 
 means of approximating property values; it is easily ' computed ; it is 
 relatively stable in amount; and pyramiding among corporate groups 
 is easily avoided by simple adjustments in the base. 
 
 If drastic- shifts in tax burdens are to be avoided, as we believe 
 that they should be in view of the long-term contracts which life insur- 
 
408 Keport of Special Tax Commission 
 
 ance companies have entered into, it is necessary to differentiate 
 between the tax rates applied to the investment income of life insurance 
 companies and to such income of other insurance companies. The 
 proper rate differential appears to he one to three. 
 
 Having reached the above conclusions . as to the business tax, the 
 base of the investment tax, and the amount of the rate differential in 
 the latter tax, the rates of the investment tax depend upon the amount 
 of money to be raised. It is our conclusion that a sum of three million 
 dollars would be an adequate direct contribution from these companies. 
 This is somewhat more than the two million dollars currently raised 
 from state taxes on domestic companies, but it is less than the ten-year 
 annual average of four million dollars. With rates of 2^4 per cent on 
 the investment income of life insurance departments and 6% per cent 
 on the income of fire and casualty insurance departments, approxi- 
 mately the required three millions would be raised. To this amount, 
 however, should be added about $350,000, which resident individual 
 owners of domestic insurance company stocks would be required to pay 
 under the general interest and dividends tax. 
 
 We recommend : 
 
 That all of the present state taxes upon domestic insurance com- 
 panies be repealed; 
 
 That a business tax of two per cent upon Connecticut net 
 premiums be imposed upon these companies; 
 
 That net premiums be defined as gross premiums less cancella- 
 tions, returned premiums, and premiums on insurance ceded to other 
 companies admitted to do business in the state; 
 
 That a tax be imposed upon all domestic insurance companies in 
 lieu of any taxes upon their intangible property, the base of the tax to 
 consist of taxable investment income, and the rate of the tax to he 
 2^4 per cent for life departments and 6% per cent for fire and casualty 
 departments ; 
 
 That taxable investment income be denned as gross interest and 
 dividend receipts, exclusive of interest on federal and Connecticut 
 state and local securities and exclusive of dividends from other domes- 
 tic insurance companies and from domestic insurance holding com- 
 panies ; 
 
 That the taxable investment income of a domestic insurance com- 
 pany which has two or more departments, the incomes of which depart- 
 ments are subject to different rates, be allocated between departments in 
 that proportion in which its gross taxable and non-iaxable investment 
 income is apportioned; 
 
 That tangible personal property within the state belonging to any 
 insurance company be subject to local taxation on the same basis as 
 
Taxation of Insubance Companies 409 
 
 I other similar tangible -personal property used in the conduct of busi- 
 ness ; 
 
 That the tax on interest and dividend receipts of individuals to 
 be recommended in a later chapter be applied to dividend receipts 
 from the stock of any insurance company. 
 
CHAPTER XIV 
 
 THE TAXATION OF BANKS AND TKUST COMPANIES 
 AND MISCELLANEOUS FINANCIAL INSTITUTIONS 
 
 The preceding chapter was devoted to a discussion of the taxation 
 of the most important but by no means the only Connecticut financial 
 institutions. This chapter will complete the survey of taxes upon such 
 institutions by covering the taxation of (1) banks and trust companies, 
 (2) miscellaneous financial corporations, and (3) unincorporated 
 financial concerns. 
 
 Banks and trust companies. 
 In General. 
 
 Banking institutions are classified for tax purposes into three 
 groups. First there are national banks, which, being chartered by the 
 federal government, can be taxed only in the ways permitted by the 
 federal statutes. Secondly there are trust companies, state banks, 
 industrial or Morris-plan banks, and incorporated private banks. 
 Unless otherwise indicated by the context, this group will be referred 
 to as "trust companies" since such companies now comprise almost 
 four-fifths of its membership. Finally there are the mutual savings 
 banks, which differ from the other two groups principally in having no 
 capital stock. 
 
 All of these corporations are now subject to local taxes upon their 
 real estate, but their personal property is exempt from taxation just 
 as is that of domestic insurance companies. 1 They are also subject to 
 two state taxes. The first of these is the stock tax imposed upon national 
 banks and trust companies; the second is the savings deposits tax 
 imposed upon mutual savings banks and upon all national banks and 
 trust companies having savings departments. 
 
 The bank stock tax. 
 Description. 
 
 The bank stock tax is in most respects identical with the insurance 
 stock tax described in the preceding chapter. In fact it has only been 
 in the past ten years that any distinction has been made between the 
 two. The tax is imposed at the rate of one per cent upon the October 
 1 market value of stock as determined by the board of equalization. 
 
 'Gen. Stat., 1930, sees. 1153, 1285. 
 
Taxation of Banks and Trust Companies 411 
 
 This rate is two and one-half times the rate of the stock tax upon insur- 
 ance companies. Heal estate taxes assessed in the name of the bank and 
 paid in the year ending September 30 may be offset against the stock 
 tax, and only the difference is payable fo the state. 2 
 
 This tax, which is legally assessed against the shareholders, is 
 paid by the banks to the state treasurer on or before the last day of 
 February. The treasurer then redistributes the proceeds in much the 
 same manner as previously described in the section on the insurance 
 company stock tax. The proceeds of taxes on all resident shares except 
 shares held by a corporation owning more than fifty per cent of the 
 stock of a given bank are turned over to the municipalities in which 
 the shareholders reside. The proceeds of taxes on nonresident shares 
 of trust companies are retained by the state, but those upon nonresident 
 shares of national banks are distributed to the municipalities in which 
 the banks are located. 3 This distinctive feature of the tax on national 
 bank shares was apparently introduced to meet requirements laid down 
 in 1868 by the federal government. 
 
 History. 
 
 Connecticut was one of the first states to enact a special bank tax 
 supplementing such property taxes as may have been applicable to 
 bank assets. This special tax was enacted in 1804 and applied to the 
 stock of Connecticut banks held by taxable inhabitants of this state as 
 well as to the stock of banks organized in other states and held by 
 Connecticut residents if such stock was not taxable in the state of 
 domicile.* To insure listing of the stock of resident banks, their cashiers 
 were required by a law passed in 1807 to furnish a list of resident 
 shareholders and their holdings to local assessors upon request. 5 This 
 stock was to be listed locally at three per cent of its value and subjected 
 to local tax rates. Other taxable intangibles were at that time listed at 
 six per cent of their value. 
 
 This tax was extended in 1812 to nonresident shares of Connecti- 
 cut banks. The banks were required to pay the taxes assessed on such 
 shares and were given the power to recover from the shareholders. 
 These nonresident share taxes were collected locally and then turned 
 over to the state. 6 
 
 In 1819 this tax was changed in two respects. The payment of 
 the nonresident share tax directly by the banks was no longer required, 
 
 ' Gen. Stat, 1930, sec. 1272. 
 
 ' Cum. Sup., 1933, sec. 354b. 
 
 * Stat. L., Compilation of 1808, title 102, ch. 1, sec. 14. 
 
 ■ The same, ch. 2. 
 
 " Stat. L., May Session, 1812, ch. 13. 
 
412 Kepobt of Special Tax Commission 
 
 and, it was directed that these shares be taxed "as other similar estate" 
 and that the proceeds be paid over by local collectors to the state. The 
 other change was to double th& rate at which the stock was to be listed 
 for taxation. At this time insurance company stock was made taxable 
 upon exactly the same basis as bank stock.' 
 
 The subsequent history of the bank stock tax down to 1925 is the 
 same as that of the insurance company stock tax and need not be 
 repeated in detail at this point. Briefly it may be noted that the per- 
 sonal property of banks which were subject to the stock tax was 
 removed from the local grand lists in 1826 and that most of their real 
 estate was removed twenty years later. The banks were again required 
 to pay taxes on nonresident stock to the state in behalf of their share- 
 holders in 1830 at rates which increased from one-third of one per 
 cent to one and one-half per cent in 1897. 
 
 Then in 1901 there came the substantial revision of the tax result- 
 ing in state assessment and collection of all share taxes, the return 
 of all real estate to the local grand lists, and the offset of real estate 
 taxes against share taxes. In the past thirty-three years there has been 
 no material change in this situation. 
 
 Yield. 
 
 The taxes imposed upon the stock of national banks and trust 
 companies in the past ten years are recorded in Table LXII. These are 
 net state taxes after deduction of local real estate taxes. The real estate 
 taxes eligible for offset against the bank stock tax payable in 1930 
 amounted to $614,621, and those eligible for offset in 1934 amounted 
 to $705,571. 
 
 Currently, this tax contributes around $200,000, or less than two- 
 tenths of one per cent of the combined tax revenues of the state and its 
 political subdivisions. At its peak in 1930 it contributed $1,200,000, or 
 about one per cent of total state and local taxes. Taxes on nonresident 
 shares of trust companies yield an insignificant amount of revenue to 
 the state. Taxes on all other shares of banks and trust companies are 
 turned back to the municipalities, and we have already shown in the 
 preceding chapter that, even when combined with the much larger pro- 
 ceeds of the insurance stock tax, they are an unimportant source of 
 revenue to all but a few towns in the state. In the aggregate in 1932 
 the bank stock tax alone accounted for about one-half of one per cent 
 of all municipal tax revenues as compared with the two per cent con- 
 tributed by the insurance stock tax. 
 
 'Stat. L., 1819, ch. 2, see. 1]. 
 
Taxation of Banks and Teust Companies 413 
 
 Table LXII 
 
 TAXES IMPOSED UPON THE STOCK OP BANKS AND TRUST COMPANIES, 
 
 COLLECTIBLE IN CALENDAR YEARS 1925 TO 1934 
 
 Calendar 
 
 National 
 
 State banks and 
 
 
 year 
 
 banks 
 
 trust companies 
 
 Total 
 
 1925 
 
 $183,640 
 
 $241,215 
 
 $424,854 
 
 1926 
 
 178,884 
 
 363,931 
 
 542,815 
 
 1927 
 
 181,784 
 
 401,813 
 
 583,596 
 
 1928 
 
 282,901 • 
 
 496,498 
 
 779,399 
 
 1929 
 
 382,255 
 
 620,942 
 
 1,003,197 
 
 1930 
 
 385,668 
 
 812,251 
 
 1,197,920 
 
 1931 
 
 248,408 
 
 479,979 
 
 728,388 
 
 1932 
 
 148,721 
 
 250,738 
 
 399,458 
 
 1933 
 
 77,361 
 
 145,974 
 
 223,334 
 
 1934 
 
 62,411 
 
 125,360 
 
 187,771 
 
 Source: Tax Commissioner, Biennial Reports, Office Records. 
 
 Federal limitations on the taxation op national banks. 
 
 The courts Have long held that national banks are instrumentali- 
 ties of the federal government and, as such, taxable by the states only 
 under such limitations as Congress may choose to prescribe. The limi- 
 tations now in force were last revised by Congress in 1926 and are 
 embodied in section 548, chapter 4, title 12 of the United States Code 
 of Laws. This section, commonly referred to under its old citation as 
 section 5219, is as follows : 
 
 The legislature of each State may determine and direct, sub- 
 ject to the provisions of this section, the manner and place of 
 taxing all the shares of national banking associations located 
 within its limits. The several States may (1) tax said shares, 
 or (2) include dividends derived therefrom in the taxable 
 income of an owner or holder thereof, or (3) tax such associa- 
 tions on their net income, or (4) according to or measured 
 by their net income, provided the following conditions are 
 complied with: 
 
 1. (a) The imposition by any State of any one of the 
 above four forms of taxation shall be in lieu of the others, 
 except as hereinafter provided in subdivision (c) of this 
 clause. 
 
 (b) In the case of a tax on said shares the tax 
 imposed shall not be at a greater rate than is assessed upon 
 other moneyed capital in the hands of individual citizens of 
 such State coming into competition with the business of 
 national banks: Provided, That bonds, notes, or other evi- 
 dences of indebtedness in the hands of individual citizens not 
 employed or engaged in the banking or investment business 
 
414 Eepoet of Special Tax Commission 
 
 and representing merely personal investments not made in 
 competition with such business, shall not be deemed moneyed 
 capital within the meaning of this section. 
 
 (c) In case of a tax on or according to or measured 
 by the net income of an association, the taxing State may, 
 except in case of a tax on net income, include the entire net 
 income received from all sources, but the rate shall not be 
 higher than the rate assessed upon other financial corporations 
 nor higher than the highest of the rates assessed by the tax- 
 ing State upon mercantile, manufacturing, and business cor- 
 porations doing business within its limits : Provided, however, 
 That a State which imposes a tax on or according to or 
 measured by the net income of, or a franchise or excise tax 
 on, financial, mercantile, manufacturing, and business cor- 
 porations organized under its own laws or laws of other States 
 and also imposes a tax upon the income of individuals, may 
 include in such individual income dividends from national 
 banking associations located within the State on condition that 
 it also includes dividends from domestic corporations and may 
 likewise include dividends from national banking associations 
 located without the State on condition that it also includes 
 dividends from foreign corporations, but at no higher rate 
 than is imposed on dividends from such other corporations. 
 
 (d) In case the dividends derived from the said 
 shares are taxed, the tax shall not be at a greater rate than is 
 assessed upon the net income from other moneyed capital. 
 
 2. The share* of any national banking association owned 
 by nonresidents of any State, shall be taxed by the taxing dis- 
 trict or by the State where the association is located and not 
 elsewhere; and such association shall make return of such 
 shares and pay the tax thereon as agent of such nonresident 
 shareholders. 
 
 3. Nothing herein shall be construed to exempt the real 
 property of associations from taxation in any State or in any 
 subdivision thereof, to the same extent, according to its value, 
 as other real property is taxed. 
 
 4. The provisions of section 5219 of the Revised Statutes 
 of the United States as heretofore in force shall not prevent 
 the legalizing, ratifying, or confirming by the States of any 
 tax heretofore paid, levied, or assessed upon the shares of 
 national banks, or the collecting thereof, to the extent that 
 such tax would be valid under said section. 
 
Taxation of Banks and Trust Companies 415 
 
 There are now 10 states which have enacted taxes on or accord- 
 ing to the net income of national banks and state banks and trust com- 
 panies. In Washington the tax is inoperative because of a decision of 
 the State Supreme Court. All of the other states of the Union except 
 Vermont, which taxes banks only by the indirect means -of the divi- 
 dends tax upon shareholders, have retained the share tax. 
 
 Theory of bank taxes. 
 
 The general principles developed in the preceding chapter for the 
 taxation of insurance companies are substantially applicable to the 
 taxation of banks. Both types of institutions are custodians of large 
 aggregates of intangible property invested for the benefit of creditors 
 and stockholders; both exploit the business opportunities afforded by 
 the state. We are thus led to the conclusion that they should be sub- 
 jected to two direct taxes — a business tax and a property tax. 
 
 Perhaps the most important theoretical distinction between the 
 two types of institutions is that the liability of the bank is definitely 
 established at the time of receipt of a deposit and that each such receipt 
 represents a closed transaction. There is absent among banks the pre- 
 dominately long-term contractual relationships which exist between a 
 life insurance company and its policyholders. Consequently the argu- 
 ment for maintaining a relatively constant tax burden is not as clearly 
 applicable to banks, nor is there the same difficulty in determining the 
 net income of these two classes of institutions. 
 
 There is another distinction which must be drawn between banks 
 and insurance companies, and which is of fundamental importance in 
 the application of tax theory. In the taxation, of national banks we 
 are faced with the fairly rigid limitations imposed by Congress. By 
 analogy these limitations carry over to the more imminent competitors 
 of national banks unless the General Assembly sees fit to place a handi- 
 cap upon banking institutions chartered by this state. Section 5219 of 
 the federal statutes limits the property taxes which can be imposed 
 upon a national bank to real estate taxes and admits of only one other 
 tax upon the bank. It is thus impossible to impose both a business tax, 
 corresponding to the net premiums tax recommended for insurance 
 companies, and a tax upon the intangible assets of the bank, corre- 
 sponding to the investment income tax recommended for insurance com- 
 panies. Either we must find a single tax which will fulfill both pur- 
 poses or we must content ourselves with the fulfillment of one purpose 
 to the exclusion of the other. 
 
416 Beport of Special Tax Commission 
 
 Available methods of taxing national banks. 
 
 Section 5219 affords the state four options in its taxes upon 
 national banks. We will analyze these options in turn. 
 
 The share tax. 
 
 The share tax is both the oldest and by far the most prevalent tax 
 upon national banks. The requirements of the federal statutes govern- 
 ing this tax are (1) that the tax be assessed against the shareholders 
 and not the bank, though it may be collected directly from the bank, 
 (2) that the rate (burden) of the tax be no greater than that upon com- 
 petitive moneyed capital in the hands of individual citizens, and (3) 
 that taxes upon nonresident shares, if any, be paid to the state or to the 
 district in which the bank is located and to no other state or munici- 
 pality. 
 
 Connecticut's bank stock tax fails to conform with these restric- 
 tions in a single respect. No substantial amount of competing moneyed 
 capital except shares of trust companies, state banks, and industrial 
 banks is taxed at as high a rate as shares of national banks. To establish 
 the validity of the present tax on national banks beyond doubt, the rates 
 and bases of the choses-in-action tax and the bank stock tax must be 
 the same, domestic mortgages and evidences of indebtedness of domestic 
 public utilities must be made taxable, and the administration of the 
 choses-in-action tax must be sufficiently successful to preclude banks 
 from producing evidence of a substantial amount of competing moneyed 
 capital which escapes taxation. 
 
 We doubt whether the state is prepared to' make these changes in 
 the choses-in-action tax merely for the purpose of establishing an invul- 
 nerable tax on national banks. Furthermore, after due consideration 
 on their merits we have recommended in preceding chapters the repeal 
 of the ehoses-in-actibn tax and local ad valorem taxes on intangibles. 
 If the bank stock tax is now invalid, it is unlikely that the acceptance 
 of the foregoing recommendations will make it any more vulnerable. 
 But it is possible that such action might put the bankers into court even 
 though it did not improve their chances for recovery of taxes. 
 
 The questionable validity of the present share tax is by no means 
 the only criticism to be made of it. For one thing, it is now quite unre- 
 lated to any other part of the tax system except the share tax upon 
 insurance companies, and, with the divergence in the rates of these two 
 taxes in 1925, even this relationship has been considerably strained. We 
 have already recommended the repeal of the insurance stock tax. The 
 adoption of this recommendation without alteration of the bank stock 
 tax would completely isolate the latter and destroy the slight degree of 
 
Taxation of Banks and Trust Companies 417 
 
 consistency which now exists between it and other aspects of the tax 
 system. 
 
 The share tax is not based upon any of the principles of taxation 
 which are currently in good favor. So long as the tax is laid upon the 
 equity of the stockholders, it can neither reflect the value of all of the 
 corporate assets, nor can it effectively measure the volume of business 
 done by the taxpayer. The tax is really upon the stockholder, but, since 
 the policy of the state is to exempt corporate stock and to tax most 
 other intangibles at much less than ten mills, it is an anomalous feature 
 of our tax system. 
 
 Most of the criticisms leveled against the insurance stock tax 
 are applicable as well to the bank stock tax. Much the same problems 
 arise in the valuation of shares. Many bank stocks have no market, and 
 adherence to statutory requirements in assessment is thus rendered 
 impossible. It is, in fact, well known that the board of equalization has 
 been using an empirical formula in the valuation process for the past 
 several years. Cases of pyramided taxes have arisen among banking 
 groups as well as insurance groups. The same capricious and unfair 
 distribution of tax proceeds is found in both taxes. 
 
 In the discussion of the stock tax on insurance companies scant 
 mention was made of real estate tax offsets. The operations of domestic 
 insurance companies are so far-flung that their domestic real estate 
 tax payments usually represent but a small portion of their total tax 
 liabilities. But among banks the problem is more acute. As they have 
 foreclosed upon more and more of their liens upon domestic real 
 estate, their local tax payments have increased until they have in 
 many cases been enabled to escape any tax upon their shares. Real 
 estate taxes eligible for offset against bank stock taxes collectible in 
 1930 amounted to $614,621. Only ten banks were able) in that year to 
 offset completely their share taxes. By 1933 real estate taxes eligible 
 for offset had increased to $729,829, and thirty-five banks and trust 
 companies were, by reason of such taxes, completely free of any share 
 taxes. In other words, many banks now pay nothing whatsoever which 
 can be considered either a business tax or an indirect tax upon their 
 intangible assets. The resulting shrinkage in the tax base is evidenced 
 in the share taxes recorded in Table LXII, although, of course, the 
 principal cause of declining assessments is to be found in the reduced 
 market value of shares. 
 
 There is little if any logic in the real estate tax offset. It was intro- 
 duced at a time when local property tax rates were somewhere near 
 the 10-mill rate imposed upon bank shares and before any system of 
 business taxes had been developed in this state. The share tax was 
 then considered to be in lieu of taxes upon the corporate assets. So 
 
418 Report of Special Tax Commission 
 
 long as local tax rates were approximately 10 mills, it made no differ- 
 ence whether the value of shares was reduced by the amount of invest- 
 ments in real estate or whether the tax on shares was offset by the 
 amount of taxes paid on real estate. But since 1901 local property 
 taxes have increased until they have reached an average level of 
 approximately 25 mills, and any logic which may have supported 
 the offset provision in its early years has vanished. The development 
 of an extensive system of business taxes in the past twenty years has 
 also made illogical a provision which permits a taxpayer to escape all 
 other taxes by merely holding a moderate amount of real estate. 
 
 The real estate tax offset carries with it two other evils. Tax 
 revenues can easily be diverted from one town to another by the arbi- 
 trary action of local assessors. Within limits, bank officials are uncon- 
 cerned as their real estate assessments are increased, for so long as 
 their total real estate taxes do not exceed one per cent of the value 
 of the shares of the bank, their total tax liability is constant. At the 
 same time, those municipalities in which stockholders of the bank 
 reside receive less than is lawfully due them from the share tax. This 
 same lack of personal interest in local tax problems on the part of 
 bank officials and stockholders deprives the municipality of the benefits 
 which it might otherwise enjoy from an active participation of such 
 persons in local financial affairs. 
 
 A final criticism of the share tax has arisen only recently. 
 Many banks in the state have sold preferred stock to the Reconstruc- 
 tion Finance Corporation. By congressional enactment the R. F. 0. 
 is exempt from state and local taxation except on real • estate, and 
 the question arises as to whether its holdings of stock in banks can 
 be taxed. While we believe that such stock is taxable, 8 it is a question- 
 able legal point, the settlement of which cannot be predicted with 
 assurance. 
 
 The tax on dividends. 
 
 The tax on dividends of national banks may be used either as 
 the sole tax, other than the real estate tax, or as a supplement to the 
 tax on or measured by net income. In the first case it is very closely 
 related to the tax upon bank' shares. Both are legally taxes upon the 
 shareholder even though they may be stopped at the source; both are 
 tied to the tax burden upon other competing moneyed capital in the 
 hands of individuals; both may apparently be applied to all resident 
 and nonresident shares of national banks located within the state but 
 not to the shares of a national bank outside the state. 
 
 1 See Bank of Redemption v. Boston, 125 U. S. 60 (1888). 
 
Taxation of Banks and Tbust Companies 419 
 
 The dividend payments of Connecticut national banks have ranged 
 in recent calendar years for which full reports are available from 
 $1,723,000 in 1932 to $3,339,000 in 1930; the average payments for 
 the ten years ending on June 30, 1933, were $2,156,'000. Connecticut 
 state banks and trust companies paid out $5,301,000 in dividends in 
 1929 and $3,591,000 in 1932. On the basis of these figures we estimate 
 that a tax of five per cent on bank dividends (making no allowance for 
 personal exemptions) would have yielded in the neighborhood of 
 $325,000 per annum. The bank stock tax prodticed an average annual 
 yield of $607,073 on assessments made in the years 1924 to 1933. 
 This decided difference in yield, together with our reluctance to permit 
 a business tax to be determined by dividend policies of taxpayers, 
 leads us to reject the dividends tax as the sole bank tax. 
 
 As a supplementary tax, however, the dividends tax is much more 
 attractive. It may, under the provisions of section 5219, be used in this 
 capacity in conjunction with either the net income tax or the tax 
 measured by net income. The limitations upon the state in this case 
 are somewhat different from those previously recited for the non-supple- 
 mentary dividends tax. According to our interpretation of section 5219, 
 the limitation of the rate to that imposed upon other competing 
 moneyed capital is the same. But there is a second rate limitation when 
 the dividends tax is supplementary to a tax upon or measured by net 
 income. The rate may not exceed that imposed upon dividends from 
 domestic corporations. If all dividends of domestic corporations are 
 taxed regardless of the residence of shareholders, dividends paid by 
 resident national banks may be taxed to all recipients. If dividends of 
 foreign corporations are taxed to resident shareholders, residents may 
 also be taxed on their dividend receipts from national banks located 
 without the state. - 
 
 A slightly higher yield can be anticipated from a supplementary 
 dividends tax than the $325,000 estimated in a preceding paragraph for 
 the dividends tax used alone, even though the rates of the two taxes 
 be the same. The probability is that the base of the supplementary 
 dividends tax would include receipts of resident individuals from banks 
 located outside the state but would exclude dividends paid by Connecti- 
 cut banks to nonresidents. In a state such as Connecticut, holdings 
 by residents of stocks of outstate banks exceed the holdings of non- 
 residents of Connecticut bank stocks. Hence the base of the dividends 
 tax under consideration is larger than that of the dividends tax used 
 in lieu of other bank taxes. 
 
 The supplementary dividends tax has other virtues, which will 
 appear more clearly when a general interest and dividends tax is dis- 
 cussed in a later chapter. It will suffice to say at this point that such 
 
420 Eepobt of Special Tax Commission 
 
 a tax must be extended to bank dividends if our recommendations 
 are to be applied uniformly and without prejudice to all taxpayers 
 in the state. 
 
 The tax upon net income. 
 
 Under section 5219 any state may tax national banks located 
 within its jurisdiction upon net income subject to the following restric- 
 tions: (1) the rate can be no higher than that upon other financial 
 corporations; (2) it can be no higher than the highest of the rates 
 upon other mercantile, manufacturing, or business corporations; and 
 (3) the base of the tax cannot include income from federal securities 
 nor income from securities previously issued tax-free by or under the 
 authority of the state. 
 
 This tax carries with it some of the theoretical weaknesses of the 
 share tax. Net income, as ordinarily defined, depends more upon the 
 particular manner in which a concern is financed than upon the amount 
 of its assets or the amount of business which it does. Furthermore, 
 we do not believe that a business tax should depend upon the invest- 
 ment policy of the taxpayer as this tax does by reason of constitutional 
 restrictions on the taxation of particular types of net income. 
 
 But probably the most commonly accepted criticism of the tax 
 upon net income is that it is fiscally unproductive. Tax-exempt securi- 
 ties are important among the assets of financial institutions, but they 
 are of slight importance among the assets of other corporations. There- 
 fore the rate of tax which it is thought can be borne by miscellaneous 
 corporations applies to a large base in the case of non-financial corpora- 
 tions and to a narrow base in the case of banks and trust companies. 
 
 A study of the 1928 federal income tax returns of Connecticut 
 corporations made by the tax commissioner, from which Table LXIII 
 has been derived, may be used to illustrate the importance of tax- 
 exempt income to banking concerns. Net losses of prior years and taxes 
 paid to the state have been added to the federal income tax base to arrive 
 at a hypothetical state income tax base including income now exempt 
 from the federal tax. Interest on tax-exempt securities and dividends 
 from domestic corporations have then been added to arrive at total 
 net income before state and federal taxes. It will be seen from this 
 table that the tax-exempt income of banks and trust companies was at 
 that time proportionately much larger than that of the sample of 
 non-financial miscellaneous corporations. 
 
 The situation has, of course, changed considerably since 1928. 
 Connecticut national banks and trust companies no longer hold as 
 many corporation stocks, nor do they receive as large a return upon 
 what they do hold. Their investments in tax-exempt public securities 
 
Taxation of Banks and Teust Companies 421 
 
 Table LXIII 
 FEDERAL TAXABLE NET INCOME, STATE TAXES, AND REPORTED NON- 
 TAXABLE INCOME OF 165 CONNECTICUT BANKS AND TRUST COM- 
 PANIES AND 124 MISCELLANEOUS CONNECTICUT CORPORATIONS 1 
 HAVING TAXABLE NET INCOME, 1928 
 
 Federal taxable net income 
 Net loss of prior years 
 Taxes paid to the state 
 
 165 banks and 
 
 trust companies 
 
 % 
 
 $8,847,720 88.3 
 
 20,392 0.2 
 
 1,147,380 11.5 
 
 124 miscellaneous 
 corporations 1 
 
 % 
 
 $7,595,965 97.2 
 
 87,296 1.1 
 
 130,120 1.7 
 
 Total 
 
 10,015,492 
 
 100.0 
 
 7,813,381 
 
 100.0 
 
 Interest on federal securities 
 Interest on state and local securities 
 Dividends from U. S. corporations 
 
 1,274,102 
 551,557 
 998,371 
 
 12.7 
 
 5.5 
 
 10.1 
 
 277,901 
 40,431 
 
 147,745 
 
 3.6 
 
 0.5 
 1.9 
 
 Total 
 
 2,824,030 
 
 28.2 
 
 466,077 
 
 6.0 
 
 Grand total 12,839,522 128.2 8,279,458 106.0 
 
 Source: Unpublished study of the Tax Commissioner, August 15, 1930. 
 1 Includes 58 manufacturing companies, 49 trading companies, and 17 other non- 
 financial companies now subject to the Connecticut corporation income tax. 
 
 have increased from $42,816,000 in June 1928 to $69,793,000 in 
 1933." And most important of all, their federal taxable net income has 
 shrunk to the vanishing point. Principally for the latter reason, income 
 exempt from the federal tax now bears a much higher ratio to federal 
 taxable net income than it did in 1928. 
 
 The franchise oe excise tax. 
 
 Most states, in abandoning the share tax, have chosen the fran- 
 chise or excise tax measured by net income in preference to the net 
 income tax. The important difference between the two is that the base 
 of the latter may include any or all net income without regard for its 
 taxable status under a net income tax, or, in other words, it may 
 be made larger than that of the net income tax by (1) the amount of 
 income from any federal securities and (2) the amount of income 
 from any securities issued tax-free by the State of Connecticut or its 
 political subdivisions. As we have seen, this difference in tax bases is 
 fairly substantial in a prosperous year and even more so in a depres- 
 sion year, the excise tax base- being not only larger but also much the 
 more stable. 
 
 The excise taxes on national banks in other states have taken 
 two forms. The simpler of these forms involves a tax base consisting 
 of net income from all sources and a tax rate which is applied at a 
 uniform rate to most corporations doing business within the state. In 
 
 "Comptroller of the Currency, Annual Report, 1928, pp. 684, 712; 193S, pp. 606, 634. 
 
422 Eeport of Special Tax Commission 
 
 the second form the tax base is uniformly applied to most corpora- 
 tions within the state, but the tax rate upon financial institutions is 
 higher than that upon other corporations. Financial institutions are 
 taxed at a rate which varies between fixed limits from one year to the 
 next, the exact position within these limits being determined annually 
 by computing the ratio of certain tax payments of other corporations 
 to the aggregate net income of such corporations. 
 
 The latter form of excise tax has been adopted in Massachusetts 
 and California and is sometimes called the Massachusetts plan. 1 " In 
 Massachusetts the rate of the tax cannot exceed 6 per cent, nor can it 
 fall as low as 2% per cent. The tax payments of non-financial corpora- 
 tions which are used in computing the exact rate include the state fran- 
 chise tax upon the corporate excess as well as a second state fran- 
 chise tax of 214 per cent on net income from all sources. The same 
 maximum rate has been fixed in California, and the theoretical mini- 
 mum is 2 per cent. The taxes used in computing the California ratio 
 include local taxes on personal property and the state franchise tax 
 of 2 per cent on net income from all sources. ' 
 
 Section 5219 limits the rate of the excise tax to (1) the rate 
 upon other financial corporations and (2) the highest of the rates upon 
 mercantile, manufacturing, and business corporations. Following an 
 early decision of the Supreme Court of the United States, 11 the Massa- 
 chusetts attorney general has interpreted the term "tax rate" to mean 
 "tax burden." If this interpretation is warranted, there can be no 
 question as to the validity of the Massachusetts plan. We believe, 
 however, that the fact that it has never been litigated militates against 
 its adoption in this state. Furthermore, it involves considerable admini- 
 strative work in the annual computation of the bank tax rate and 
 imposes upon taxpayers the burden of an uncertain tax. Finally, we 
 believe that the plan is based upon, no sound tax theory but rather 
 that it confuses business taxes with taxes paid on account of the 
 ownership of property. The difference in the amount of revenue which 
 the Massachusetts plan and the ordinary plan will produce is not 
 great, and we do not believe that fiscal expediency should overrule the 
 objections which we have stated. 
 
 We believe that the excise tax, whatever its form, has some 
 advantages over the net income tax, but, as ordinarily applied, it 
 also has some of the weaknesses of the net income tax, the share tax, 
 and the dividends tax. In particular, it applies only to income from 
 
 10 Alabama has still a third form of excise tax which represents a cross between the 
 two discussed in the text. Both the base and the rate of the tax upon financial 
 institutions differ from those of the income tax upon other corporations. 
 
 ''People v. Weaver, 100 U. S. 539 (1879). 
 
Taxation of Banks and Teust Companies 423 
 
 the stockholders' equity in the assets, and it can be adapted to mutual 
 savings banks and other mutual associations only by means of a 
 strained definition of net income. The tax upon banks and trust com- 
 panies is intended (1) as a business tax and (2) in lieu of direct taxes 
 upon their intangible property. An ordinary net income tax is unsatis- 
 factory for either purpose, as may be seen from an examination of 
 the principles underlying the business tax and the property tax. 
 
 While the ordinary net income tax is much the most popular 
 business tax now in use in the United States, it has not met with uni- 
 versal approbation. It is unstable. in its yield; it reaches but a small 
 proportion of the concerns engaged in business; and it depends in 
 amount more upon the manner in which a concern is financed than upon 
 its success or failure as a business entity. The amount of business 
 done by a concern depends upon the total capital which it employs, not 
 upon the amount of capital provided by stockholders alone. Further- 
 more, the ability of a business entity to pay taxes depends upon the 
 total return which it yields to capital contributors, not upon the amount 
 available for stockholders alone. Financial reorganization may result 
 from improvident financing, but a corporation will be liquidated only 
 when its yield to capital contributors as a whole has fallen to such low 
 levels that the prospective gains from alternative investments exceed the 
 losses incident to dissolution. It is hardly necessary to add that net 
 income available for dividends affords no logical measure of the bene- 
 fits which a business concern derives from government nor of the costs 
 which a business concern imposes upon the state. The concern which 
 fails to show a net profit, whether by reason of poor management, 
 excessive salaries, or a top-heavy financial structure, may be exploiting 
 the business opportunities afforded by the state as much, if not as 
 effectively, as its competitor. There is, in our judgment, no good reason 
 why it should be excused from liability for a business tax. 
 
 The failure of net income, as ordinarily defined, to reflect the 
 value of all assets is instantly apparent. Obviously these assets are valu- 
 able or not according to the net. amount which they return to all con- 
 tributors of capital. The fact that one concern is unable to pay divi- 
 dends tells us nothing at all about the value of its assets until we have 
 examined its financial structure. 
 
 The sort of a tax to which this reasoning inevitably leads is what 
 may be called a net earnings tax to distinguish it from the ordinary- 
 net income tax. The two taxes are the same in all respects except that 
 payments of interest and rent are not allowable deductions from gross 
 income in arriving at the base of the net earnings tax. In other words, 
 the tax base is defined as the algebraic sum of net profits and all pay- 
 ments of interest and rent to depositors, lessors, and other creditors. 
 
424 Kepoet of Special Tax Commission 
 
 It is well known that banks and trust companies pay compara- 
 tively large sums in interest on deposits and other borrowed money. 
 The total interest payments of national banks in the state ranged from 
 $4,239,000 to $6,043,000 in the six calendar years ending on December 
 31, 1932. These payments were considerably in excess of reported net 
 profits before state and federal taxes, which even in the most pros- 
 perous year (1929) amounted only to about $4,723,000. Interest pay- 
 ments on time deposits alone have amounted to 70 to 80 per cent of 
 the net profits of national banks between 1927 and 1930 and have 
 greatly exceeded net profits since 1931. Trust companies reported pay- 
 ments of interest on savings deposits of $4,014,000 in the year ending 
 September 30, 1932, and of $6,248,000 in 1929. These payments com- 
 pare- with aggregate reported net income before state and federal taxes 
 of all trust companies (excluding those which showed no net earnings) 
 amounting to $9,730,000 in 1929 and $816,192 in 1932. The use of 
 the proposed definition of net income would result in a much wider 
 tax base than could be expected from a net income tax of the ordinary 
 type. 
 
 It is pertinent to inquire whether a tax of this type can be 
 brought within the terms of section 5219. This involves but two ques- 
 tions: (1) Is it a tax on or measured by net income? (2) Can it be 
 applied also to other corporations? Our reasons for answering the 
 second question in the affirmative will be deferred to the next chapter. 
 The first question we will attempt to answer at this point. 
 
 There is no well-established meaning of the term net income among 
 accountants, economists, or jurists. The courts have always given the 
 states considerable freedom in defining net income. Many variations 
 now exist in state income tax laws, and there is no reason to think that 
 the courts will attempt to standardize definitions of the tax base." 
 
 One of the few cases in which the definition of net income has 
 been at issue is that of Atlantic Coast Line Railroad Company v. 
 Daughton. In 1921 the constitution of North Carolina had been 
 amended to permit the taxation of incomes at a rate not to exceed six 
 per cent. The amendment specifically provided that there should be 
 allowed deductions from gross income so that only net incomes would 
 be taxed. On the authoritv of this amendment a net income tax law 
 
 12 All of this has been well stated by the United States Supreme Court in Atlantic 
 Coast Line Railroad v. Daughton, 262 U. S. 413, 422 (1923). "The term 'net in- 
 come', in law or in economics, has not a rigid meaning. Every income tax ,act nec- 
 essarily defines what is included in gross income; what deductions are to be made 
 from the gross to ascertain the net income; and what part, if any, of the net 
 income is exempt from taxation. These details are largely a matter of govern- 
 mental policy. As to them States differ; and there is apt to be difference of view 
 in the same States at different times; and at the same time a different definition 
 of taxable net income for different classes of taxpayers." 
 
Taxation of Banks and Teust Companies 425 
 
 was passed in the same year. The net income of public service corpo- 
 rations was defined as "net operating income" as determined by the 
 Interstate Commerce Commission with deductions for uncollectible 
 revenues, certain taxes, and payments for car hire. This net operating 
 income is arrived at by deducting from gross revenues what are known 
 as operating expenses, but operating expenses do not include interest 
 or rental payments. The court held that this definition of net income 
 was reasonable inasmuch as it truly reflected the net income of the 
 utility property even though it did not represent the net income avail- 
 able for stockholders. It will be recognized that this definition of net 
 income, which was adjudicated and sustained in the relatively recent 
 past by the highest court in the country, is substantially that which 
 we have under consideration. 
 
 Conclusions. 
 
 We believe that the state should tax national banks and their 
 immediate competitors in a manner which will stand before the courts. 
 We recognize the impossibility of predicting the success with which 
 the share tax can be defended if it is litigated. But regardless of 
 legality we believe that the share tax as now constituted has proved 
 unsatisfactory in practice and unsound in theory. We conclude that 
 it should be repealed and that a franchise tax measured by net income 
 from all sources should be enacted in its stead. The base of such a tax 
 should, in our opinion, be arrived at before deduction of interest and 
 rental payments made by the taxpayer. 
 
 The burden of a tax depends, of course, upon the rate as well as 
 the base. The base is the means by which this burden is distributed 
 among taxable persons. Having determined upon the base which we 
 believe will most equitably distribute the tax burden, the next prob- 
 lem is that of the rate. At first thought it might appear that this is a 
 simple matter of determining the rate necessary to yield the accustomed 
 revenues from the tax or taxes which will be repealed should the Gen- 
 eral Assembly accept our proposals with respect to a net income tax. 
 But when it is remembered that the tax imposed upon national banks, 
 which come under the provisions of section 5219, must be extended to 
 some or all of the miscellaneous corporations doing business in the 
 state, it will be seen that the problem is not so simple. To retain 
 revenues from bank taxes at somewhere near their past levels would, 
 under our proposals, necessitate some increase in the taxes upon mis- 
 cellaneous corporations. In the following chapter recommendations are 
 made for what we deem to be an adequate increase in the burden upon 
 non-financial corporations, but our recommendations do not involve 
 any increase in the two per cent rate now imposed upon their net 
 
426 Report of Special Tax Commission 
 
 income. For this reason we suggest that the rate of the franchise tax 
 upon banks and trust companies be fixed at two per cent. 
 
 This tax may then be supplemented in the manner recommended 
 for insurance companies by a dividends tax upon resident individual 
 stockholders of all banks and trust companies. Under the present limita- 
 tions of section 5219, such a tax cannot apply to the dividend payments 
 of national banks so long as the share tax is retained. 
 
 It is difficult to predict with accuracy the effect which the adop- 
 tion of these proposals would have upon bank tax receipts. Wot only 
 are net profits uncertain and highly variable, but the effects of the 
 interest regulations now applicable to banks and trust companies are not 
 readily predictable. If the recommended taxes had been in operation 
 in 1929, the tax imposed upon the income of national banks and trust 
 companies would have yielded, according to our estimates, about 
 $520,000. The tax upon persons receiving dividends from banks and 
 trust companies would problbly have yielded another $165,000. 
 Together these sums amount to substantially less than the tax of 
 $1,198,000 upon bank stock in that year. Somewhat different results 
 would have obtained in a depression year. Unfortunately our figures 
 are incomplete, but they indicate a yield of approximately $115,000 
 from national banks and trust companies on account of income of the 
 year 1932 and about $130,000 from resident shareholders. The com- 
 bined yield is somewhat more than the $223,000 realized from the 
 stock tax. It thus appears that the proposed taxes on dividends and net 
 earnings are somewhat more stable in yield than the present stock tax. 
 
 The taxation of bank deposits. 
 
 Description of the savings deposits tax. 
 
 The second of the taxes imposed upon banks by the state is the 
 tax which applies to deposits in mutual savings banks and to deposits 
 in the savings departments of national banks, state banks, and trust 
 companies. 
 
 The tax base is arrived at by deducting from total savings 
 deposits the following: (1) $50,000; (2) investments in any bonds 
 issued by the state;" (3) investments in tax-exempt railroad-aid bonds 
 of Connecticut towns and cities; (4) investments in any securities 
 issued after April 1, 1917, by the United States, by this state, or by 
 any political subdivision of this state; and (5) the amount invested in 
 the stock of domestic banks, trust companies, and insurance com- 
 panies subject to the share tax if such stock has been held since April 
 
 18 See Attorney General, Biennial Report, 1911-12, pp. 115-116. 
 
Taxation of Banks and Teust Companies 427 
 
 1, 1901, or has been received as the result of a merger in exchange for 
 stocks go held." 
 
 The rate of the tax imposed upon deposits after making the fore- 
 going deductions is one-fourth of one per cent. This tax may then be 
 reduced by offsetting real estate taxes paid on property assessed against 
 the bank, provided, in the case of a national bank, such taxes have 
 not been claimed in whole or in part as an offset to the share tax." 
 Taxes upon the real estate of state banks and trust companies held 
 among the assets of the savings department must be offset against 
 the deposits tax and not against the share tax. 
 
 The deposits of national banks are assessed as of October 1, and 
 those of other banks and trust companies are assessed as of January 
 1. The amount of tax due is determined by the board of equalization 
 in February, 16 and the tax is payable in two installments on February 
 20' and July 20." 
 
 Legal status of- the savings deposits tax. 
 
 The savings deposits tax upon state-chartered institutions is a fran- 
 chise tax. But the state is without power to impose a franchise tax 
 upon national banks except within the restrictions of section 5219. It 
 was therefore found necessary to make the payment of this tax volun- 
 tary with national banks but to induce the acceptance of this burden 
 by other means. 
 
 When the franchise taxes upon other savings banks and depart- 
 ments were enacted, their deposits were exempted from local taxation. 
 But savings deposits in a national bank were not exempt until 1915, 
 and then only if the bank agreed to pay the state tax on the same basis 
 as institutions chartered by the state. Furthermore, the enforcement 
 of local listing was assured by requiring non-complying national banks 
 to report to town assessors the names of their depositors and the 
 amounts credited to their accounts. 18 The high rates of local taxes, the 
 inconvenience otherwise caused the depositors, and the deductions which 
 are allowed when the bank pays the tax at the source have combined 
 to induce unanimous acceptance of the elective tax by - the national 
 banks of the state. 
 
 "Gen. Stat., 1930, sees. .1285, 1286, 1290. Since national banks are not required by 
 law to segregate assets between departments, deductions for items (2) to (5) are 
 allowed in the proportion that deposits in the savings department bear to total 
 deposits on the assessment date. Other banks can make deductions only for invest- 
 ments held by their savings departments. 
 
 "Attorney General, Biennial R&port, 1921-22, pp. 108-109. 
 
 M Gen. Stat., 1930, sec. 1114. 
 
 "Gen. Stat., 1930, sec. 1285. 
 
 "Gen. Stat:, 1930, sec. 1288. 
 
428 Keport of Special Tax Commission 
 
 History of Connecticut deposits taxes. 
 
 ]STo taxes upon bank deposits were imposed in this state until 
 1846. At that time deposits in savings banks in excess of $250 were 
 made taxable locally to all residents of the state. To enforce listing, 
 the banks were required to submit all necessary information concerning 
 their depositors." The taxable property of mutual savings banks was 
 not exempted by this act/" but their real estate required and used in 
 the business seems to have been exempted in the following year. 21 Their 
 personal property continued to be taxable until 1851, at which time a 
 state tax of one-eighth of one per cent upon the deposits of these banks 
 was imposed in lieu of all other taxes upon the banks or upon their 
 depositors. 22 
 
 The frequent changes since 1851 in the base and rate of this 
 tax have been recorded elsewhere." It will suffice at this point to note 
 that the local taxation of all real estate owned by savings banks and 
 the present method of offsetting real estate taxes were introduced in 
 the' revision of the general statutes in 1902. Other relatively recent 
 changes in the tax base are apparent from the nature of the deduc- 
 tions from gross deposits listed above. 
 
 Deposits outside of mutual savings banks had been taxable locally 
 under the general property tax for many years before the special 
 deposits tax was extended to the savings departments of trust companies 
 in 1907 and of national banks in 1915. " The delay in extending 
 the tax to these institutions was due in part to the fact that they 
 were already subject to the share tax,/ in part to the relatively tardy 
 development of savings departments in these institutions, and in part 
 to the restrictions imposed by section 5219 on the taxation of national 
 banks. It was not until Vermont had pioneered in the enactment of 
 a voluntary tax upon national banks in commutation of a direct tax 
 upon the depositors and until this law had been sustained by the 
 United States Supreme Court 25 that Connecticut finally extended the 
 tax to national banks. 
 
 Commercial deposits were subject to the general property tax 
 from 1851 to 1927. Minimum exemptions, increasing from $50 to 
 $500 during the life of the tax, were allowed each depositor, and this 
 
 "Pub. Acts;, 1846, ch. 51. 
 
 20 The Savings Bank of New London v. New London, 20 Conn. Ill (1849). 
 
 21 Pub. Acts, 1847, ch. 50. 
 
 22 Pub. Acts, 1851, ch. 47, sec. 18. 
 
 22 See Report of the Special Commission on Taxation of Corporations, 1913, pp. 
 
 168-170. 
 24 Pub. Acts, 1907, ch. 85; 1915, ch. 301. 
 ™ Clement National Bank v. Vermont, 231 U. S. 120 (1913). 
 
Taxation of Banks and Tkust Companies 429 
 
 together with flagrant evasion cut the revenue from the tax to practi- 
 cally nothing. It was repealed in 1927. 2 ° 
 
 Yield of the savings deposits tax. 
 
 The deposits tax has been much more productive, as a rule, 
 than the tax upon bank stock. This is due in large part to the impor- 
 tance of the mutual savings banks in this state. It will be seen from 
 Table LXIV that savings banks have contributed from 73 to 80 per 
 cent of the savings deposits tax receipts. The total yield has been sub- • 
 stantial and stable, amounting to from $1,200,000 to $1,740,000 in the 
 past ten years. This has amounted to nearly five per cent of the tax 
 revenues of the state throughout this period. 
 
 Table LXIV 
 TAXES ASSESSED UPON DEPOSITS IN SAVINGS BANKS AND SAVINGS 
 DEPARTMENTS OF NATIONAL BANKS AND TRUST COMPANIES, 
 COLLECTIBLE IN CALENDAR YEARS 1925 TO 1934 
 
 National 
 banks 
 
 $115,023 
 
 131,496 
 
 145,156 
 
 156,065 
 
 171,222 
 
 146,321 
 
 149,604 
 
 153,061 
 
 132,979 
 
 122,969 
 Source: Tax Commissioner, Biennial Reports, Office Records. 
 
 Again we omit from the table all real estate taxes offset and 
 show only the net state tax. The eligible offsets against deposits taxes 
 payable in 1930 amounted to $267,628. Four years later they were 
 approximately double this amount. These offsets were largely confined 
 to savings banks. National banks, which are free to take their offsets 
 against either the share tax or the deposits tax, almost invariably take 
 them against the former, and trust companies hold little real estate 
 in their savings departments. 
 
 Ceiticism of the savings deposits tax. 
 
 The savings deposits tax, like the bank stock tax, represents an 
 anomalous feature of the Connecticut tax system. Legally it is a fran- 
 chise tax upon state-chartered banks, but, in addition to being a busi- 
 ness tax upon savings institutions, it has the economic aspects of a 
 property tax upon depositors. In fact, this is the whole legal theory 
 of the tax upon the savings departments of national banks. 
 
 "Pub. Acts, 1927, ch. 319. 
 
 Calendar 
 
 Savings 
 
 year 
 
 banks 
 
 1925 
 
 $917,330 
 
 1926 
 
 976,357 
 
 1927 
 
 1,054,490 
 
 1928 
 
 1,157,495 
 
 1929 
 
 1,210,978 
 
 1930 
 
 1,222,074 
 
 1931 
 
 1,299,666 
 
 1932 
 
 1,304,781 
 
 1933 
 
 1,214,445 
 
 1934 
 
 975,016 
 
 State banks and 
 
 
 trust companies 
 
 Total 
 
 $177,459 
 
 $1,209,812 
 
 201,835 
 
 1,309,688 
 
 218,875 
 
 1,418,521 
 
 256,313 
 
 1,569,873 
 
 281,354 
 
 1,663,554 
 
 > 296,317 
 
 1,664,712 
 
 291,228 
 
 1,740,498 
 
 268,481 
 
 1,726,323 
 
 166,381 
 
 1,513,805 
 
 153,981 
 
 1,251,965 
 
4:30 Report of Special Tax Commission 
 
 It is not exactly clear why savings deposits are treated in a 
 different manner from commercial, deposits and other intangibles. 
 After allowing for the deductions and offsets made by banks, the 
 effective rate of the tax upon savings banks is approximately 2 mills. 
 Commercial deposits, on the other hand, are entirely exempt, and 
 taxable choses-in-action are subject to a rate of 4 mills. It is true, of 
 course, that collection of the savings deposits tax at the source results 
 in a much more complete assessment than can be attained under the 
 choses-in-action tax, and it may be that the difference in the tax rates 
 applicable to these two classes of intangibles dispenses a sort of mass 
 justice because of the evasion of the latter tax, but this affords little 
 consolation to one who does not evade his obligations. 
 
 It is also difficult to appreciate the reason for allowing the par- 
 ticular deductions which savings departments make from their gross 
 deposits. 'No deductions need be made for constitutional reasons. It was 
 held a good many years ago that the tax was not a tax upon the assets 
 of the bank and that, as a franchise tax, it might be measured by gross 
 deposits without deduction for tax-exempt securities. 21 The tax upon 
 savings departments of national banks is a voluntary payment in com- 
 mutation of a tax upon the depositors, and it is clear that this may be 
 laid upon gross deposits if the law so provides. 
 
 If the savings deposits tax is a true business tax, we see no reason 
 why the tax liability should depend upon the particular manner in 
 which savings deposits are invested. If it is supposed to be a tax upon 
 depositors collected at the source, there is even less reason for allowing 
 deductions. It may be that the real purpose of these deductions is to 
 reduce the tax rate below %y 2 mills, but, if this be the case, it would 
 seem more logical to make the adjustment in the tax rate rather than 
 in the tax base. 
 
 The criticism, of real estate tax offsets given in a preceding section 
 is also applicable to the savings deposits tax. But due to the preponder- 
 ance of real estate mortgages among the assets of savings departments 
 and to the low rate of the deposits tax, the problem is even more acute 
 in this connection than in the case of the share tax. The original pur- 
 pose of the tax offset was to avoid the double taxation which results 
 from taxation both of deposits and of the assets arising from the 
 investment of deposits, but this purpose is attained by deducting 
 from gross deposits the book value of real estate investments and 
 not by offsetting one tax against another. The tax offset results, in 
 effect, in taxing the real estate holdings of savings banks at the rate 
 
 27 Society for Savings v. Coite, 6 Wall. 594 (1868). 
 
Taxation of Banks and Trust Companies 431 
 
 of 2^ mills, that is, at one-tenth of the rate borne by this real estate 
 prior to its acquisition by the bank. 28 
 
 The real estate tax offset, which now amounts to nearly one-third 
 of the tax before offsets, can be defended only as an indirect means of 
 reducing the tax rate upon deposits. But here again, if this be its 
 purpose, the rate of the tax should be reduced to the benefit of all 
 savings departments, not just to the benefit of those holding real estate. 
 
 Another criticism of this tax is that it does not extend to the 
 surplus of savings banks. This surplus is analogous to shares of stock 
 and should be subject to some sort of tax. Other minor criticisms of 
 the tax are concerned with the difference in the assessment date of 
 national banks and state-chartered institutions, the obscurity of the 
 law governing real estate tax offsets of national banks and trust com- 
 panies, and the particular manner in which the deductible assets of 
 national banks are allocated between the savings and other departments. 
 All of these criticisms are met in the recommendations; made below. 
 
 Conclusions. 
 
 In dealing with the savings deposits tax, it seems imperative that 
 a decision be reached as to whether this is to be a business tax, a tax 
 upon the depositor, or a tax in lieu of property taxes upon personal 
 property held by the bank. A study of the history of the tax leads us 
 to the conclusion that it is intended to serve as a tax upon the depositor. 
 It was developed before the concept of a business tax had taken shape 
 in Connecticut tax statutes, and it was never extended to cover the 
 commercial activities of banks and trust companies. But whatever its 
 present purpose, it can hardly be used as a business tax in conjunction 
 with the proposed net income tax upon national banks and trust com- 
 panies because the latter tax, by denying deductions for interest pay- 
 ments, will effectively reach savings departments. 
 
 If it is to be continued as a tax upon the depositor, it should 
 supplement a business tax upon the depository, whether the depository 
 be a stock company or a mutual association. It would also seem desir- 
 able to tie it in more closely with other taxes upon the intangible prop- 
 erty of individuals. To do so requires the repeal of the present tax 
 on savings deposits and the extension to savings deposits of such taxes 
 as may be imposed upon other intangibles. We recommend in a later 
 chapter that other intangibles held by resident individuals be taxed 
 by means of a five per cent tax upon interest and dividend receipts, 
 and it is our belief that this tax should be extended to include interest 
 received from savings deposits. 
 
 23 Compare Report of the Special Commission on Taxation of Corporations, 1913. 
 p. 174. 
 
432 Report of Special Tax Commission 
 
 We realize that the adoption of these proposals would result in 
 some financial loss to the state. The exact amount of this loss is difficult 
 to compute because it depends greatly upon the extent to which a per- 
 sonal exemption from the interest tax is taken against interest from 
 savings deposits. The present net tax on savings deposits amounts to 
 approximately five per cent upon the interest paid depositors when 
 savings deposits yield four per cent. But less revenue can be anticipated 
 from the tax upon interest from savings deposits than from the present 
 ad valorem tax because of the following facts: (1) savings deposits 
 now bear less than four per cent interest; (2) a personal exemption 
 is recommended for the interest tax, which, if adopted, will free the 
 interest receipts of small depositors from any tax; (3) there will be 
 some evasion of the interest tax, which does not now exist with col- 
 lection at the source; and (4) some savings deposits are carried in 
 the names of corporations, which, according to our recommendations, 
 will not be subject to the interest tax. After making such allowance as 
 we can for these factors, we estimate that the tax on the 1929 interest 
 receipts of savings depositors (payable in 1930) would have amounted 
 to $580,000, and the tax on 1932 interest receipts (payable in 1933) 
 would have amounted to $645,000. To these amounts must be added 
 the yield of the proposed franchise tax upon the net earnings of mutual 
 savings banks, which we estimate at $800,000 in 1930 and $455,000 
 in 1933. Together, these taxes would have yielded $1,380,000 in 1930 
 and $1,100,000 in 1933, or a little less than the actual deposits tax, 
 which amounted to $1,665,000 in 1930 and $1,514,000 in 1933. 
 
 It has been suggested that this loss be partially recouped by means 
 of a tax upon commercial bank deposits to be collected at the source. 
 These demand deposits do not yield a money income. Member banks 
 of the federal reserve system are prohibited by law from paying 
 interest on such deposits, and the codes which now apply to other banks 
 contain similar prohibitions. This does not mean, however, that the 
 depositor receives no compensation from such deposits. It is generally 
 recognized that these deposits yield a service worth as much as it costs 
 in interest foregone and in service charges paid on checking deposits. 
 These services represent an income which may be subjected to taxation 
 in much the same manner as money income. It is, of course, necessary 
 to lay the tax on an ad valorem basis. 
 
 Estimating that the commercial depositor receives an income 
 equivalent in value to the income which he might receive from a savings 
 account, an ad valorem tax of one mill represents the approximate 
 equivalent of two and one-half to three per cent on such income. This 
 is substantially below the recommended rate of the tax on interest 
 receipts, but it must be remembered that collection at the source makes 
 
Taxation op Banks and Teust Companies 433 
 
 it impossible to grant a personal exemption to the depositor and also 
 makes for more complete assessment. 
 
 The yield of snch a tax may be estimated from reported bank 
 deposits. The Comptroller of the Currency reports the following 
 amount of "individual" deposits in Connecticut banks subject to chock 
 at the end of June :** 
 
 1927 $264,982,000 
 
 1928 274,489,000 
 
 1929 277,978,000 
 
 1930 267,003,000 
 
 1931 249,461,000 
 
 1932 185,036,000 
 
 1933 180,991,000 
 
 These figures indicate a probable yield of at least $175,000 from a 
 tax rate of one mill. 
 
 Local taxes. 
 
 Banks and trust companies are now taxable locally upon their real 
 estate but not otherwise. These real estate taxes are then largely offset 
 against the state taxes upon shares and deposits. We have indicated above 
 our conviction that these offsets should be discontinued. We further 
 suggest that the tangible personal property of state banks and trust 
 companies be taxed locally on the same basis as other tangible property 
 used by business concerns. 
 
 We are well aware of the fact that the tax upon tangible personal 
 property cannot be extended to national banks because of the protec- 
 tion afforded them by section 5219. We believe nevertheless that this 
 tax is sound in principle and that it should be extended as far as the 
 powers of the state permit. 
 
 Summary op peoposed changes in bank taxes and theie 
 peobable piscal effects. 
 
 To sum up, we have proposed (1) that all tangible real and per- 
 sonal property of banks, insofar as section 5219 permits, be taxable 
 locally on the same basis as other such property similarly used; (2) 
 that all Connecticut banks and trust companies be subjected to a fran- 
 chise tax of two per cent measured by their net earnings from all 
 sources; (3) that all resident individuals receiving interest and divi- 
 dends from banks and trust companies be subject to a general interest 
 and dividends. tax at the rate of five per cent; and (4) that all taxable 
 
 "These amounts exclude deposits of state, county, and municipal governments. 
 
434 
 
 Report of Special Tax Commission 
 
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Taxation of Banks and Trust Companies 435 
 
 persons be subject to a tax of one mill upon any non-interest bearing 
 deposits in Connecticut banks, the tax to be collected at the source. 
 
 This combination of taxes, not counting local property taxes, 
 would, we estimate, have yielded $2,335,000 in 1930 as compared with 
 an actual yield from the share and deposits taxes of $2,863,000. In 
 1933 we estimate a yield from the proposed taxes of $1,525,000 as 
 compared with an actual yield from existing taxes of $1,737,000. This 
 comparison is set forth in detail in Table LXV. 
 
 According to the 1930 estimate, the burden upon trust companies 
 would have been reduced in that year by $489,000, and that of national 
 banks, by $67,000. The great reduction for trust companies may be 
 due to the extraordinary high stock prices of October 1, 1929, or it 
 may be due to the fact that, in the absence of any reported figures on 
 interest payments of trust companies outside the savings departments, 
 our estimate of the yield of a net earnings tax, which disregards 
 interest payments other than those on savings deposits, is low. In the 
 1933 figures we believe that we have a conservative estimate of the 
 effects of our recommendations which is more nearly in accord with 
 expectations for the near future. In that year the reduction in burden 
 would have been confined almost entirely to mutual savings banks, 
 while national banks, together with their depositors and stockholders, 
 would have paid slightly heavier taxes. 
 
 Recommendations. 
 
 We recommend : 
 
 That present taxes on shares and savings deposits of banks and 
 trust companies be repealed; 
 
 That all banks and trust companies, including mutual savings 
 banks, be subjected to a two per cent franchise tax measured by net 
 income ; 
 
 That net income be defined to include income received from tax- 
 exempt securities and from shares of stock in all corporations and be 
 arrived at before deductions for interest and rental payments made by 
 the taxpayer ; 
 
 That interest and dividend receipts of resident individuals from 
 stock and deposits in any bank or trust company be included within 
 the general interest and dividends tax to be recommended in a later 
 section ; 
 
 That a tax of one mill per dollar be imposed upon the face value 
 of demand deposits of taxable persons in Connecticut banks and trust 
 companies, including national banks, and that the tax be collected from 
 the banks acting as agents of their depositors ; 
 
436 Kepoet of Special Tax Commission 
 
 That the real estate of all banks and trust companies continue to be 
 taxable locally and that all tangible personal property of state-chartered 
 banks and trust companies be similarly taxed without offsets for taxes 
 so paid against any state taxes. 
 
 Miscellaneous financial coepoeations. 
 Inteoduction. 
 
 In the preceding sections of this chapter we have been dealing 
 with national banks, trust companies, state banks, Morris-plan banks, ' 
 incorporated private banks, and savings banks. This section of the 
 chapter concerns itself with financial corporations other than banks and 
 insurance companies. These miscellaneous financial corporations include 
 building and loan associations, small loan companies, title guaranty 
 companies, mortgage loan companies, incorporated brokers, and others. 
 All of these except mutual building and loan associations are now sub- 
 ject to local taxes upon their intangible property and upon any taxable 
 intangible property which is not included within the meaning of the 
 phrase "moneys and credits" as used in section 1337 of the General 
 Statutes. They are also subject to the corporation net income tax. Their 
 stock is exempt from all taxation in this state. 
 
 Taxes on building and loan associations. 
 
 Mutual building and loan associations do not come within the 
 scope of the corporation net income tax. Hence their moneys and 
 credits are not exempt from taxation, except insofar as they consist of 
 mortgages on domestic real estate not in excess of the assessed value 
 of the mortgaged property and tax-exempt federal and Connecticut 
 state and local securities. They are legally subject to taxes on tangible 
 property, to the "excess-mortgage" tax if the mortgagor does not assume 
 the tax, and to taxes upon loans to their shareholders secured by 
 shares of stock. It is significant, however, that few, if any, building 
 and loan associations register choses-in-action with the state treasurer, 
 and it is unlikely that they list any intangibles for local taxation. 
 Subject to the reservation which must always be made in discuss- 
 ing the taxable status of corporation stock in this state, it seems probable 
 that shares in building and loan associations are exempted by section 
 1153 of the General Statutes; at any rate they are exempt in prac- 
 
 30 It should, perhaps, be mentioned that Morris-plan banks issue certificates of in- 
 debtedness which take the place of savings deposits in other banks. These certifi- 
 cates, however, are subject to the choses-in-action tax instead of the savings 
 deposits tax. In a few cases Morris-plan banks in the state have paid this tax at 
 the source to relieve their" creditors of the obligation of listing the certificates with 
 the state treasurer. 
 
Taxation of Banks and Trust Companies 437 
 
 tice. It thus appears that these associations are directly or indirectly 
 taxed only upon their tangible real and personal property. 
 
 The Special Commission on Taxation of Corporations pointed out 
 in 1913 that building and loan associations are essentially similar to 
 mutual savings banks and that no reason exists for the taxation of the 
 latter and the exemption of the former. 31 This principle was at one time 
 embodied in the laws of the state. Erom 1857 to 1875, building and 
 loan associations were taxable upon their deposits and outstanding stock 
 at the rate then applicable to savings banks. We are in full accord with 
 the viewpoint expressed by the 1913 Commission and embodied in this 
 early law. 
 
 If the General Assembly sees fit to tax building and loan associa- 
 tions in the manner recommended above for mutual savings banks, these 
 associations would be subject (1) to local taxes upon all their tangible 
 property and (2) to a business tax of 2 per cent upon their net income. 
 In addition, their resident shareholders would be taxable under the 
 interest and dividends tax upon all dividends received. The yield which 
 can be anticipated from the business tax of 2 per cent on these associa- 
 tions is estimated at around $50,000. 
 
 The taxation of investment and othee financial companies. 
 
 One other group of financial corporations is subject to a special 
 tax in addition to the corporation net income tax. This tax applies to 
 what are known as investment companies, which are defined to include 
 "all corporations which have power to, or do, sell or negotiate the 
 choses in action of other persons or corporations, as investments or as 
 a business." The tax imposed upon these companies amounts to 1 per 
 cent of the aggregate amount of all choses-in-action sold or negotiated 
 in this state during the year which were secured by mortgages on real 
 estate situated in any other state or territory or pledges of such 
 mortgages after deducting therefrom the amount of such choses- 
 in-action which before their sale had been made exempt from local 
 taxation by registration with the state treasurer for the choses-in-action 
 tax. 32 The payment of this tax relieves the investment company of any 
 other taxes on its personal property used exclusively in its business in 
 this state. 
 
 This tax on investment companies was first enacted in 1889 as 
 part of a blue sky law. It represented a means of coping with a situation 
 which was temporary in nature. It was ill-conceived in certain respects 
 and has never been of sufficient importance to warrant its amendment. 
 
 "Report, 1913; p. 177. 
 
 12 Gen. Stat., 1930, sec. 1295. 
 
438 Kbpoet of Special Tax Commission 
 
 It is a source of annoyance to taxpayers, who are often in doubt as to 
 the meaning and application of the law. It yields almost no revenue. 
 In the past ten years, together with a similar tax imposed by the same 
 chapter upon unincorporated investment brokers, it has yielded an 
 average of $873 per year, and the yield has been decreasing rather than 
 increasing with the passage of time. Granting that it may have some 
 effect upon the yield of the choses-in-action tax, we feel that it is essen- 
 tially a nuisance tax which should be repealed even if the choses-in- 
 action tax were retained. 
 
 These investment companies and all other miscellaneous financial 
 corporations can, we believe, be best taxed in the future (as most of 
 them have been in the past) by means of the taxes applicable to mis- 
 cellaneous corporations. 
 
 Recommendations. 
 
 We recommend: 
 
 That mutual building and loan associations be subject to state and 
 local taxation on the same basis as mutual savings banks ; 
 
 That the tax upon investment companies imposed by chapter 69 of 
 the General Statutes be repealed and that the taxable tangible per- 
 sonal property of such corporations be returned to the local grand lists 
 on the same basis as other taxable property of corporations ; 
 
 That all financial corporations other than insurance companies, 
 banks and trust companies, and mutual building and loan associations 
 be taxed in the manner recommended in a following section for manu- 
 facturing and mercantile corporations. 
 
 Unincorporated financial concerns. 
 
 Unincorporated financial concerns in this state are taxed on the 
 same basis as private individuals. That is, they are subject to local 
 taxes upon their tangible property and to either local or state taxes on 
 taxable choses-in-action. 33 
 
 In principle, there is no good reason why unincorporated financial 
 concerns should not be subject to some sort of business tax. Few states 
 have, however, succeeded in developing what we consider a logical tax 
 
 8 The single exception to this rule is that certain investment brokers, defined, as 
 persons "engaged in the business of selling or negotiating choses in action, made, 
 issued or guaranteed by any person or investment company chartered by or organ- 
 ized under the laws of this or any other state or territory, and payment of which 
 is secured by mortgages on real estate situated in any other state or territory, 
 or by pledges of such mortgages" (Gen. Stat., 1930, sec. 1296), are subject to the 
 same tax upon sales of unregistered choses-in-action as applies to investment com- 
 panies. They are not, however, exempt from taxes on their other personal property. 
 
Taxation of Banks and Trust Companies 439 
 
 of this sort. We do not feel that the license taxes, imposed chiefly by 
 the southern states, are to be commended for this purpose, nor do we 
 think it possible to develop a gross sales or income tax which will ade- 
 quately allow for differences in turnover among concerns of such diverse 
 character. 
 
 In a later chapter recommendations are made for an interest 
 and dividends tax to be applied to all individuals. This, we believe, 
 will serve in place of any business tax upon unincorporated financial 
 concerns. We therefore recommend : 
 
 That unincorporated financial concerns continue to be subject to 
 all taxes imposed upon natural persons. 
 
 Summary. 
 
 Banks and trust companies. 
 The bank stock tax. 
 
 Mutual savings banks, national banks, state banks and trust com- 
 panies, industrial or Morris-plan banks, and incorporated private banks 
 operating in the state are subject tp local taxation upon their real estate 
 and to either one or two state taxes. The first of these state taxes is 
 the share tax and applies to all of the foregoing institutions except 
 mutual savings banks. The second is the savings deposits tax. 
 
 Bank shares are assessed at their market values on October 1 and 
 are taxed at ten mills. An offset is allowed for all real estate taxes 
 assessed against a bank by Connecticut municipalities. Legally the 
 stock tax is assessed against the shareholders, but it is paid by the bank. 
 All but a few thousand dollars of the taxes so collected are distributed 
 by the state treasurer to the municipalities, generally upon the basis of 
 the residences of shareholders. 
 
 As in the case of insurance company taxes,, the largest yield of the 
 bank tax was in 1930, when collectible taxes amounted to $1,198,000. 
 In 1934 only $188,000 of bank share taxes were collectible. 
 
 National banks may be taxed by the states only within the limita- 
 tions which have been prescribed by Congress. Four optional taxes are 
 available for this purpose : 
 
 1. A tax upon national bank shares, provided the rate of the tax is 
 not higher- than that imposed upon moneyed capital coming into 
 competition with national banks; 
 
 2. A tax upon the net income of national banks, provided the rate of 
 the tax is not higher than that assessed upon other financial cor- 
 porations nor higher than the highest of the rates assessed upon 
 mercantile, manufacturing, and business corporations doing busi- 
 ness in the state; 
 
440 Eepoet of Special Tax Commission 
 
 3. A tax measured by the net income of national banks, including net 
 income from tax-exempt sources, subject to the same limitations 
 as to rate as the tax upon net income ; 
 
 4. A tax upon dividends received by shareholders of national banks, 
 provided the rate of the tax is not higher than that assessed upon 
 the net income from other moneyed capital. 
 
 In addition to these optional taxes, the fourth may be combined with 
 either the second or third, provided dividends from the stocks of other 
 companies are similarly taxed, and the real estate tax may be com- 
 bined with any of the four. 
 
 Connecticut has always taxed national banks under the first of 
 these options. In recent years, however, some doubt has been cast upon 
 the validity of the tax because choses-in-action, some of which may pos- 
 sibly be held to come into competition with national banks, are taxed 
 at considerably less than ten mills if they do not escape taxation alto- 
 gether. 
 
 In addition to its questionable validity, the share tax is highly 
 unsatisfactory for other reasons. Except for the insurance stock tax, 
 which is similar except for rate, the bank stock tax is unrelated to any 
 other part of the Connecticut tax system. It is based upon no principles 
 of taxation which are currently in good favor. Difficult problems of 
 valuation are encountered in assessment, and banks have often com- 
 plained of the necessity of using book values for some when market 
 value is required by law and is available for others. The tax has proved 
 a most unstable source of revenue in recent years, partly because of 
 great changes in market values of shares and partly because of the 
 increasing amount of real estate taxes available for offset. The real 
 estate tax offset is theoretically unsound and inequitable. 
 
 It would, in our opinion, be unwise to attempt to rehabilitate the 
 share tax. Of the other taxes available for national banks, the most 
 attractive is the tax "measured by or according to" net income, com- 
 bined with a tax upon dividend receipts of resident individual stock- 
 holders. This tax may be laid upon net income from all sources, whether 
 otherwise tax-exempt or not, and it also appears that net income may 
 be so defined as to deny to the taxpayer th© privilege of deducting inter- 
 est and rental payments from gross income. Such a tax base is far 
 superior to an ordinary net income tax whether it be intended as a busi- 
 ness tax or as a tax upon intangible assets. Neither the amount of busi- 
 ness done nor the value of the assets is dependent solely upon the equity 
 of the stockholders or upon the manner in which investments are dis- 
 tributed between tax-exempt and taxable securities. Furthermore, this 
 is a definition of net income which is as readily applicable to mutual 
 
Taxation of Banks and Tbust Companies • 441 
 
 associations as to stock corporations, whereas the ordinary net income 
 tax can hardly be applied equitably to both groups. 
 
 We propose that this base be combined with a tax rate of two per 
 cent and that the tax be imposed upon all institutions now subject to 
 the bank stock tax. Together with the proposed tax on dividend receipts 
 of resident individual stockholders, which cannot be imposed upon divi- 
 dends from national banks so long as the share tax is retained, this net 
 income tax would have yielded only 60 per cent of the amount received 
 from the share tax in 1930, but it would have yielded, according to our 
 estimates, 110 per cent of the proceeds of the share tax in 1933. 
 
 The taxation of bank deposits. 
 
 The second of the state bank taxes is the savings deposits tax 
 imposed upon all mutual savings banks and upon all national banks, 
 state banks, and trust companies having savings departments. The tax 
 is computed at 2.5 mills upon total savings deposits less- $50,000 and 
 less the amount of investments in certain securities. This tax may be 
 offset by the amount of certain real estate taxes assessed and paid in 
 the name of the bank. 
 
 The savings deposits tax has yielded a relatively stable revenue, 
 which reached a peak of $1,740,000 in 1931 and has since declined 
 only to $1,252,000. In contrast to the bank share tax, all of these 
 receipts are retained by the state. 
 
 It is not clear whether the savings deposits tax is intended as a 
 business tax, a tax in lieu of taxes on the intangible property of the 
 bank, or a tax upon the depositor. Legally it is a franchise tax upon 
 state banks and trust companies and a tax upon the depositors in sav- 
 ings departments of national banks. This confusion of principles 
 appears in the differentiation which is made between commercial 
 deposits, which are now wholly exempt from taxation, and savings 
 deposits, in the differentiation between deposits- in savings banks and 
 taxable choses-in-action, in the deductions which savings banks are 
 allowed to make from their total savings deposits, and in the real estate 
 tax offset provision. 
 
 It is the conclusion of the Commission that the savings deposits 
 tax should not be used as a business tax or in lieu of taxes on the intan- 
 gible property of the depositories. Under the proposed net income tax 
 national banks and trust companies would already be subject to a tax 
 intended for these purposes, which would, moreover, effectively reach 
 savings departments because net income would be arrived at before 
 deduction of interest payments. If equality is to be established between 
 mutual savings banks and other banks, both should be subject to the 
 same net income tax. The savings deposits tax would then become avail- 
 
442 Kepoet of Special Tax Commission 
 
 able only as a tax upon the depositor. But savings deposits should be 
 taxable to the depositor exactly as any other intangibles. We therefore 
 propose that the five per cent interest and dividends' tax, recommended 
 below, extend to interest from bank deposits and that the savings 
 deposits tax be repealed. 
 
 The proposals thus far made include no tax upon commercial 
 deposits. Such deposits now yield no money income, yet they do yield a 
 service which is worth at least as much as the interest foregone on the 
 funds so deposited. There is therefore as much justification for taxing 
 commercial deposits as for taxing savings deposits. It is, of course, 
 necessary to use an ad valorem tax, and, to minimize evasion, we pro- 
 pose that it be collected at the source. For this purpose we suggest that 
 a tax be imposed on the face value of such deposits at a rate of one mill. 
 Such a tax should yield at least $175,000 a year, or nearly as much as 
 the present yield of the bank share tax. 
 
 The net .effect of these proposed changes in taxes upon banks and 
 their shareholders and depositors has been estimated roughly on the 
 basis of somewhat fragmentary data. We conclude that the existence 
 of recommended taxes in 1929 would have resulted in tax collections in 
 the following year amounting to $2,335,000, or $528,000 less than 
 was realized from existing bank taxes in that year. Collections for 1933 
 under the proposed recommendations are estimated at $1,525,000, or 
 $212,000 less than collections from existing taxes. In part these losses 
 represent the price which the state must pay if it is to secure a national 
 bank tax of unquestioned validity; in part they represent a concession 
 to depositors in mutual savings banks. On the whole it appears that the 
 prospective yield of the proposed taxes for the near future is nearly as 
 much as that of the existing taxes. 
 
 Miscellaneous financial corporations. 
 
 Mutual building and loan associations are subject to no state tax 
 unless it be the choses-in-action tax upon the excess of the face value 
 of their mortgages over the assessed value of mortgaged property and 
 upon certain other of their intangibles. We see no reason why they 
 should not be taxed upon exactly the same basis as mutual savings 
 banks. 
 
 Certain investment companies selling or negotiating choses-in- 
 action secured by mortgages on real estate located outside the state are 
 subject to two state taxes. The first is the net income tax on miscella- 
 neous corporations ; the second is a tax of one per cent on the aggregate 
 amount of all such choses-in-action which were sold or negotiated in 
 this state without having been previously registered for the four mill 
 choses-in-action tax. 
 
Taxation of Banks and Trust Companies 443 
 
 The second of these taxes was originally enacted, not as a revenue 
 measure, but as an aspect of a blue sky law designed to protect Connecti- 
 cut investors from losses on investments in real estate mortgages against 
 property in other states. The payment of this tax relieves these com- 
 panies of all other taxes on their personal property, tangible and 
 intangible, located in the state. The investment company tax yields little 
 or no revenue. In the last four fiscal years it has brought in $66.50, all 
 of which was received in the fiscal year 1931-32. It is essentially a 
 nuisance tax, and the Commission urges its abolition whether or not the 
 choses-in-action tax be repealed. 
 
 All other financial corporations are subject to a single state tax, 
 the miscellaneous corporations net income tax. Their intangible assets 
 are apparently exempt from local taxation and from the state choses-in- 
 action tax, although the law should be clarified on this point. It is 
 proposed that these corporations, as well as investment companies, 
 continue to be taxed as miscellaneous corporations. 
 
 Unincorporated financial concerns. 
 
 Unincorporated financial concerns in the state are now taxed on 
 the same basis as private individuals. In principle' there is no good rea- 
 son why they should not be subject to an additional business tax, but 
 we have been unable to devise one which we consider satisfactory for 
 the purpose. 
 
 The Commission's formal recommendations for the taxation of 
 banks, miscellaneous financial corporations, and unincorporated finan- 
 cial concerns appear at the ends of the respective sections of this 
 chapter. 
 
CHAPTER XV 
 
 BUSINESS TAXES ON MEKCANTILE AND MANUFACTUR- 
 ING CONCEKNS AND LOCAL PUBLIC UTILITIES 
 
 Historical and theoretical background. 
 
 Taxes based upon the privilege of doing business have been gradu- 
 ally developed and given a place in the tax structures of the various 
 states. While it is true that these taxes frequently are not so formulated 
 as to apply their underlying principle clearly and logically, no careful 
 survey of state and local taxes can fail to show that, even though grop- 
 ingly, governments have been moving toward the development of ade- 
 quate business taxation. 
 
 The experience of Connecticut in this evolutionary process has 
 been similar to that of other states. Beginning with a tax system 
 resting solely on property and personal taxes, business concerns, as 
 they developed, were first included only within the scope of the exist- 
 ing tax system. Gradually, however, special taxes, more or less distinct 
 from the general property and personal taxes, were developed for 
 peculiar kinds of business and for a particular type of business organ- 
 ization — the corporation. 
 
 The process of trial and error which characterizes the develop- 
 ment of tax policies inevitably creates a tax system which, at any par- 
 ticular moment, may appear vague and inconsistent in the light of 
 theoretical principles. In the preceding chapters it was necessary, for 
 example, to deal with existing taxes on financial institutions as both 
 property and business taxes since, at the present development of our 
 tax laws, these taxes have not yet been differentiated according to 
 their underlying principles. In this chapter, however, our problem 
 is much simpler. The taxes with which we shall deal are strictly 
 business taxes. They have, it is true, usually superseded taxes on cer- 
 tain types of intangible personal property which have always been diffi- 
 cult to reach for tax purposes, but this was purely incidental to their 
 major purpose of imposing taxes on business concerns for the privi- 
 lege of doing business, in addition to, rather than in lieu of, taxes on 
 the property of these concerns and taxes on the persons owning or 
 conducting them. 
 
 No state has found it easy to develop specific taxes by which the 
 principle of business taxation may be consistently and logically 
 applied. The difficulty arises from the irreconcilable difference between 
 
Business Taxes on Mercantile and Manufacturing Concerns 445 
 
 the financial interests of business concerns and those of the govern- 
 ment. 
 
 Business is carried on for profit. Its success is measured, not by 
 the volume or value of the goods and services produced and sold, 
 but by the income which the operations make available to the owners. 
 Since profits provide the incentive to business activity and since the 
 continued existence of business concerns depends upon the prospects 
 of profits, there is undeniable weight to the argument that profits or net 
 income should be employed to determine the payments of business 
 concerns for the benefits derived from governmental activities. 
 
 Government, however, stands in a different relation to business 
 taxation. Through all those activities by which a stable society is main- 
 tained and, more specifically, through the activities of the courts and 
 the police, government establishes and maintains an environment 
 which is indispensable to the conduct of business. Yet under net income 
 taxes the claims of government are given a standing secondary to all 
 other expenses of business; government is made only a residual sharer 
 of the earnings of business enterprises, and its revenues from this 
 source are subject to the violent changes caused by business fluctua- 
 tions. 
 
 Government extends to all concerns on the same terms the privilege 
 of exploiting the market. Unprofitable and profitable concerns derive 
 similar benefits and inflict similar costs. Whether business activities 
 result in a profit or a loss is not a responsibility of government but of 
 the managers of the business. Such considerations point to the use of 
 some measure of the volume of business done as the proper base of 
 a business tax. 
 
 Gross sales or gross earnings are frequently used as bases of 
 business taxes formulated on this theory. Usually, however, such taxes 
 are imposed only on businesses whose operations are almost wholly 
 intrastate in scope and are characterized by some degree of uniformity 
 from one concern to another. Connecticut, for example, has developed 
 successful gross earnings taxes, levied largely on the theory of business 
 taxation, for local public utilities and for unincorporated retailers, 
 wholesalers, and manufacturers. 1 But if a gross earnings tax were 
 developed for all of the miscellaneous corporations in the state, the 
 tax base would have to be allocated in many cases between Connecticut 
 and other states in which the taxpayer did business. For some con- 
 cerns this allocation would have to be made according to destination of 
 sales if the interstate commerce clause of the federal Constitution were 
 
 1 The gross earnings taxes on transportation and communication companies are 
 not business taxes, but are rather in lieu of property taxes and are necessarily so 
 for constitutional reasons. 
 
446 , Kepokt of Special Tax Commission 
 
 not to be contravened. This we fear would not produce substantial 
 equity. 
 
 Moreover, we do not consider gross earnings an independent meas- 
 ure of business activity which can serve equitably as a uniform tax base 
 upon which to apply a uniform tax rate. The General Assembly 
 has recognized this fact by establishing rate differentials in the various 
 gross earnings taxes now in force. To carry this theory on into the 
 fields of the miscellaneous corporations tax, embracing as it does a 
 wide variety of financial, personal service, manufacturing, mercantile, 
 agricultural, and other corporations, would necessitate a complicated 
 system of rate differentials, which would provoke endless dispute and 
 require continual readjustment. 
 
 These difficulties may be obviated by adopting for miscellaneous 
 corporations a more homogeneous tax base which can be applied with- 
 out danger of constitutional complications. Gross assets located in the 
 state constitute a base of this sort. Many states, particularly New 
 York and Massachusetts, in which business activity is of a character 
 similar to that of Connecticut, have developed business taxes based 
 on capital or assets. Such taxes give adequate expression to the gov- 
 ernment's claims against incorporated business concerns and distrib- 
 ute the burden of business taxation among these concerns with reason- 
 able approximation to the character and volume of the business which 
 they carry on in the state. By relieving the government of financial 
 participation in the variations of business prosperity, they provide a 
 more constant and reliable source of governmental revenue than do net 
 income taxes. They require some contribution from unprofitable as 
 w^ell as from profitable concerns for the market privileges which they 
 emoy. The government's fiscal interest under conditions existing in 
 this state seems clearly to require some measure of property value as 
 the Wse of a business tax on miscellaneous corporations. 
 
 aese differences between the interests of government and of 
 busineskin the form and stability of business taxes cannot be completely 
 reconciled. The net income tax throws the balance to the side of busi- 
 ness to me disadvantage of governmental finance. Gross assets and 
 earnings mxes throw the balance to the side of government at the 
 expense of wusiness. Confronted with this dilemma, Connecticut has 
 thus far applied one form of business tax to one group of concerns 
 and another toNother groups. This is one method of meeting existing 
 business conditiohs^qji^f-jcpmpromising the conflicting claims of net 
 income and of gross assets or gross earnings taxes. Another method 
 would be to impose two or more taxes on the same business concern 
 concurrently and require the larger of the taxes to be paid. Whether 
 the present method sjaould be retained or superseded, and what relative 
 
Business Taxes on Mercantile and Manufacturing Concerns 447 
 
 importance to place on one or the other tax of any combination — such 
 questions are problems of policy in applying the principle of business 
 taxation. 
 
 Taxation of miscellaneous corporations. 
 The corporation net income tax. 
 The taxpaying corporations. 
 
 All corporations and associations carrying on business in the state 
 which are required to report for federal income tax purposes are sub- 
 ject to the Connecticut corporation income tax unless specifically 
 exempt." About two-thirds of these taxpayers are manufacturing and 
 mercantile corporations, and an even larger proportion of the tax is 
 usually paid by corporations of these two types. 
 
 Table LXVI 
 NUMBER OF CORPORATIONS AND ASSOCIATIONS SUBJECT TO THE CON- 
 NECTICUT CORPORATION NET INCOME TAX, CALENDAR YEARS 
 1916 TO 1934 
 
 Year of as- 
 
 Corporations 
 
 Corporations 
 
 Total number 
 
 sessment and 
 
 with taxable 
 
 subject to 
 
 of 
 
 collection 
 
 net Income 
 
 minimum tax 1 
 
 taxpayers 2 
 
 1916 
 
 2,627 
 
 — 
 
 2,627 
 
 1917 
 
 2,995 
 
 — 
 
 2,995 
 
 1918 
 
 3,055 
 
 — 
 
 3,055 
 
 1919 
 
 1,879 
 
 — 
 
 1,879 
 
 1920 
 
 2,163 
 
 — 
 
 2,163 
 
 1921 
 
 2,414 
 
 — 
 
 2,414 
 
 1922 
 
 2,343 
 
 2,768 
 
 5,111 
 
 1923 
 
 2,959 
 
 1,973 
 
 4,932 
 
 1924 
 
 1,918 
 
 3,205 
 
 5,123 
 
 , 1925 
 
 1,894 
 
 3,585 
 
 5,479 
 
 1926 
 
 2,102 
 
 3,677 
 
 5,779 
 
 1927 
 
 2,057 
 
 4,078 
 
 6,135 
 
 1928 
 
 2,022 
 
 4,519 
 
 6,541 
 
 1929 
 
 2,008 
 
 5,011 
 
 7,019 
 
 1930 
 
 2,139 
 
 5,463 
 
 7,602 
 
 1931 
 
 1,352 
 
 6,580 
 
 7,932 
 
 1932 
 
 936 
 
 7,173 
 
 8,109 
 
 1933 
 
 906 
 
 7,345 
 
 8,251 
 
 1934 
 
 1,272 
 
 7,012 
 
 8,284 
 
 Source: Tax Commissioner, Biennial Reports, Office Records. 
 
 'The minimum tax was first assessed in 1922 and amounted to $20. In all subse- 
 quent years the minimum tax has been $10. 
 
 J The figures in this column exclude a few concerns which were classified as dormant 
 or delinquent corporations at the time these figures were compiled but which sub- 
 sequently paid 'the taxes assessed against them. 
 
 Among those corporations which are exempt from the federal tax, 
 and hence also from the state tax, are mutual savings banks, mutual 
 
 1 Gen. Stat., 1930, sec. 1326. 
 
448 Eepoet of Special Tax Commission 
 
 building and loan associations, certain mutual insurance companies, 
 farmers' cooperative associations, fraternal benefit societies, chambers 
 of commerce, etc. The exemptions specified in the state law include 
 (1) insurance companies, (2) banks and trust companies subject to 
 the share tax, (3) transportation and communication companies 
 (except that motor bus companies carrying on other businesses are 
 subject to the net income tax on such businesses), (4) local public 
 utilities subject to the gross earnings taxes to be described later in this 
 chapter, and (5) corporations engaged in the liquor business in the 
 state to the extent that their net income is derived from such business." 
 The number of concerns subject to the tax has increased in the 
 past decade from about 5,000 to over 8,000. These figures exclude 
 several hundred corporations which either have carried on no business 
 in the state during the year or have failed to make a tax return. In 
 most cases these latter concerns are simply waiting to be legislated out 
 of existence as the result of their failure to file a return for two 
 successive years. 4 The statistics of the number of corporations subject 
 to the tax from 1916 to 1934 appear in detail in Table LXVI. 
 
 The tax base. 
 
 Connecticut now levies the corporation income tax upon the 
 income reported to and taxed by the federal government. This results 
 in the exemption of interest from securities issued by the federal 
 government and by all state and local governments and dividends 
 received from corporations chartered in the' United States. 
 
 Net income as defined in the federal revenue act must then be 
 allocated between this state and any other state in which the taxpayer 
 may do business. According to figures for a recent year, something like 
 10 or 12 per cent of the corporations which are assessed under the 
 Connecticut tax do business within and without the state. 
 
 There are three different ways in which net income is allocated 
 under the statutes. When the company keeps accounts from which the 
 annual net income arising or accruing from sources within the state 
 may be accurately determined, the allocation is to be determined on 
 the basis of such accounts. The only restriction imposed upon the tax- 
 payer is that salary overhead shall be allocated between this state and 
 other states in the proportion in which gross receipts arise within and 
 without the state." 
 
 •Gen. Stat., 1930, sec. 1326; Cum. Sup., 1933, sec. 755b. 
 ♦Gen. Stat., 1930, sec. 1336. 
 • Cum. Sup., 1933, sec. 358b. 
 
Business Taxes on Mercantile and Manufacturing Concerns 449 
 
 When the taxpayer does not qualify for this so-called "separate 
 accounting method" of allocation, an arbitrary allocation fraction is 
 used. Two such fractions are prescribed by statute. The first consists 
 of the ratio of the monthly average fair cash value of tangible property 
 in the state to the average value of all such property within and without 
 the state. This fraction is used for all corporations which secure their 
 income principally from the ownership, sale, or rental of tangible real 
 or personal property. 6 
 
 All corporations whose net income is not allocated by one of the 
 foregoing methods are subject to an allocation fraction consisting of 
 the ratio of gross receipts arising within this state to total gross 
 receipts. Very few corporations are subject to this apportionment frac- 
 tion, its application being limited largely to miscellaneous financial and 
 service corporations. 
 
 The tax rate. 
 
 The tax rate applied to this base has been 2 per cent since the tax 
 was originally enacted in 1915. There is, however, a minimum tax of 
 $10 ($20 in 1922), which has applied since 1923 to all miscellaneous 
 corporations, whether filing separate or consolidated returns, having 
 taxable net incomes of $500 or less. 
 
 Table LXVII 
 FREQUENCY DISTRIBUTION: RATES OF UNGRADUATED CORPORATION 
 NET INCOME TAXES OF THE SEVERAL STATES, JUNE 30, 1934 1 
 Tax rates Number of states 
 
 2 9 
 2Va 1 
 
 3 5 
 3% 
 
 4 1 
 4y 2 2 
 6 1 
 8 1 
 
 Sources: Tax Research Foundation, Tax Systems of the World; Commerce Clearing 
 
 House, Tax Legislation Bulletin; State statutes. 
 1 Excludes six states having corporation net income taxes with graduated rates, and 
 several states having selective or general gross income taxes. 
 
 This rate of two per cent is moderate in comparison with rates 
 of similar taxes in other states, there being nine other states which now 
 have ungraduated net income taxes with as low a rate and eleven states 
 with higher rates. It should be added, however, that in New York, 
 which has a corporation net income tax of 4% per cent, no personal 
 property is taxable and in Massachusetts, which has a corporation tax 
 of 2^ per cent, only real estate, machinery, motor vehicles, and certain 
 
 'The same. 
 
450 Eepoet of Special Tax Commission 
 
 conduits, wires, poles, etc. are taxable to corporations. In Utah and 
 Oregon the partial offset of property taxes also has the effect of temper- 
 ing the tax rate. The rates of these taxes in other states are given in the 
 form of a frequency distribution in Table LXVTI. 
 
 The number of concerns subject to the tax of two per cent on net 
 income and the number subject to the minimum tax appear in Table 
 LXVI. It will be noted that even in prosperous years more than two- 
 thirds of the taxpayers were assessed a minimum tax and that this 
 proportion rose to eighty-nine per cent in 1933. 
 
 Administration. 
 
 Most corporations subject to this tax are required to make a 
 return under oath on or before April 1 for the calendar or fiscal year 
 on which they pay taxes to the federal government. In case the tax- 
 payer's fiscal year closes between January 31 and April 1, the return 
 may be filed at any time within 60 days of the close of such year. 
 An extension of time for filing returns may be granted by the tax com- 
 missioner, but, in the absence of such extension, a penalty of $5 is 
 assessed for delinquency. 7 This return is to be accompanied by a true 
 copy of the last income tax return made to the federal government. 
 
 The tax is assessed by the commissioner on or before August 1 
 unless an extension of time is granted, and the tax is payable to the 
 state treasurer on or before September 1. A penalty of 5 per cent and 
 interest, at the rate of three-fourths of one per cent a month attaches 
 to delinquent taxes. 
 
 Any corporation whose return to the federal government is changed 
 in any way affecting its tax liability must immediately inform the tax 
 commissioner of such change. It is then reimbursed or assessed an 
 additional tax as the case may demand. The tax commissioner is 
 empowered to examine the accounts of any taxpayer whose return is 
 suspected to be false or fraudulent and to assess a tax and a fifty per 
 cent penalty upon the basis of the best information available in case 
 the taxpayer fails to make a return within three months of the due 
 date. 8 
 
 History. 
 
 Upon the recommendation of the tax commissioner, the corpora- 
 tion net income tax was enacted in 1915 as one of the means of wiping 
 out a rising state deficit." This act placed the state among the pioneers 
 
 • Gen. Stat., 1930, sees. 1099, 1332. 
 8 Gen. Stat., 1930, sees. 1333, 1334. 
 "Tax Commissioner, Biennial Report, 1916, p. 58; Pub. Acts, 1915, ch. 292. 
 
Business Taxes on Mebcantile and Manufacturing Oonceens 451 
 
 in the field of modern income taxes, only Wisconsin having preceded 
 Connecticut in this respect. Since a federal corporation income tax 
 had been in successful operation for six years, it was natural that the 
 Connecticut tax should have been modeled closely after the federal tax. 
 
 Few important changes have been made in the law. Changes in 
 the federal tax base, such as the removal of dividend receipts from 
 taxable income in the Revenue Act of 1918 and changes in specific 
 exemptions to small corporations, have been of some significance. In 
 only one -case — the deduction for prior-year losses allowed until very 
 recently in arrivng at the federal but not the Connecticut tax base — 
 did the Connecticut law fail to follow that of the federal government. 
 
 The income tax was made in lieu of any tax on the moneys and 
 credits of miscellaneous corporations by act of 1917." 
 
 In 1921 the allocation of income of corporations doing business 
 within and without the state when the corporation was engaged prin- 
 cipally in the ownership, sale, or rental of tangible property was 
 changed from a ratio based on the value of assets at the end of the 
 tax year to the present ratio based on average monthly values, 11 It was 
 not until 1933 that the law was again amended to permit allocation 
 by the separate accounting method. 
 
 The enactment of a minimum tax of $20 in 1921 and its reduc- 
 tion to $10 at the following session of the General Assembly have 
 already been mentioned above. 
 
 Yield. 
 
 With' the exception of a few years in the depressions of 1921 and 
 1930, the net income tax has never failed to yield the $1,500,000 
 anticipated from it at the time of its passage. The peak yield came 
 in the fiscal year ending June 30, 1931, and amounted to a little over 
 3.5 million dollars. This yield resulted from the large incomes of 
 1929, the tax being assessed and collected in the summer of 1930. The 
 average yield in the past ten years has been $1,905,000. 
 
 This tax, at its peak, contributed 10.6 per cent of all state tax 
 income. By 1934, however, its importance to the state had declined 
 substantially, and it yielded but 2.0 per cent of all tax income. 
 
 The yield of the tax by fiscal years since its enactment is recorded 
 in Table LXVIII. Prior to the fiscal year 1927-28 these figures repre- 
 sent cash receipts before refunds, but for subsequent years they represent 
 income, that is, total assessments less cancellations and. refunds made in 
 the current fiscal year of taxes assessed in such year. 
 
 10 Pub. Acts, cb. 298. 
 "Pub. Acts, 1921, ch. 382. 
 
452 Report of Special Tax Commission 
 
 
 Table LXVTII 
 
 
 ELD OF THE 
 
 CORPORATION NET INCOME TAX, FISCAL 
 TO 1934-35 1 
 
 YEARS 191 
 
 Fiscal year 
 
 Yield Fiscal year 
 
 Yield 
 
 1915-16 
 
 $1,598,081 1925-26 
 
 $1,995,924 
 
 1916-17 
 
 3,255,899 1926-27 
 
 2,586,851 
 
 1917-18 
 
 2,602,473 1927-28 
 
 2,446,475 
 
 1918-19* 
 
 32.961 2 1928-29 
 
 2,357,508 
 
 1919-20 
 
 1,801,662 1929-30 
 
 2,899,368 
 
 1920-21 
 
 2,944,737 1930-31 
 
 3,464,795 
 
 1921-22 
 
 1,930,309 1931-32 
 
 1,385,144 
 
 1922-23 
 
 858,499 1932-33 
 
 786,222 
 
 1923-24 
 
 2,158,947 1933-34 
 
 424,967 
 
 1924-25 
 
 2,626,843 1934-35 
 
 700,733' 
 
 Source: State Comptroller, Annual Reports, Office Records. 
 
 1 For the years prior to 1928 the yield of the tax represents actual cash receipts; 
 for subsequent years it represents income as described in a preceding chapter. 
 
 2 Nine months fiscal year. 
 
 8 Assessments less cancellations and refunds up to August 31, 1934. 
 
 Table LXIX presents these figures in a slightly different form. 
 Here we have recorded the assessments made by the tax commissioner 
 according to the calendar years in which the assessments are made. 
 These assessments distinguish between taxes on net income and mini- 
 mum taxes and penalties. 
 
 Table LXIX 
 
 ASSESSMENTS OF CORPORATION NET INCOME TAX, MINIMUM TAX AND 
 
 PENALTIES, CALENDAR YEARS 1930 TO 1934 
 
 Year of Assessed on Minimum taxes Total 
 
 assessment net income and penalties 1 assessments 2 
 
 1930 $3,441,355 $55,975 $3,497,330 
 
 1931 1,214,015 66,830 1,380,845 
 
 1932 705,829 72,840 778,669 
 
 1933 328.921 74,570 403,491 
 
 1934 ' 606,454 72,400 678,854 
 Source: Tax Commissioner, Office Records. 
 
 1 About 98 per cent of these assessments are for minimum taxes, and the remainder 
 consists largely of $5 penalties for delinquency in filing returns. 
 
 2 These amounts represent the total assessments as determined during the assess- 
 ment period in July. They are revised subsequently by either additional assess- 
 ments or cancellations when returns are corrected. 
 
 Theory of the corporation net income tax. 
 
 Corporate income taxes are variously used among the states of the 
 Union. In most states they serve as a tax upon the stockholders' share 
 in the corporate earnings stopped at the source. In a few cases the tax 
 is used in lieu of a property tax upon part of the corporate assets. 
 And in most cases the tax takes the legal, if not the economic, form of 
 a business tax upon the corporate franchise. 
 
Business Taxes on Mercantile and Manufacturing Concerns 453 
 
 In Connecticut the tax is to some extent in lieu of property taxes 
 since "moneys and credits" owned by corporations subject to the net 
 income tax have been exempt from property taxes since 1917. But, as 
 the Supreme Court of Errors observed in the Underwood case," it is 
 primarily a business, franchise, or excise tax. It is to be praised or 
 condemned on the basis of its success in fulfilling this role in our tax 
 system. 
 
 Criticism. 
 
 Instability of yield. 
 
 The corporation net income tax has met with little criticism on 
 the part of those subject to it. Both the base and the rate of the tax 
 have been moderate as compared with similar taxes in other states and 
 with other business taxes imposed upon Connecticut corporations. 
 From the standpoint of the state it may be said that the tax has yielded 
 substantial revenues. In prosperous years it has more than met the 
 expectations of those who were instrumental in its passage. Only in 
 recent years has the failure of the tax to withstand the effects of the 
 depression given rise to demands for an increase and stabilization in 
 revenue from this source. 
 
 In the fiscal year 1930-31, when the accumulated surplus in the 
 treasury was higher than at any other time in the history of the state, 
 the net income tax yielded its peak revenue of nearly 3.5 million 
 dollars. Three years later this surplus had vanished, and a net indebted- 
 ness of a million dollars had been incurred — the result in no small 
 degree of the shrinkage of revenues from the net income tax to one- 
 eighth of their former level. 
 
 Unstable revenues result in inaccurate budgeting. They encourage 
 unwise expansion in years of prosperity and, because of the difficulties 
 always experienced in contraction, force the state to borrow when pros- 
 perity has been turned into depression. This instability is inherent in 
 the ordinary net income tax. It can be overcome only by continual 
 changes in the rate of the tax to compensate for shrinkage and .expan- 
 sion in the base or by departure from the net income base. 
 
 Concentration of the tax burden. 
 
 The heavy concentration of the burden of the net income tax 
 upon a few profitable corporations is one of the few criticisms of the tax 
 which emanates from taxable concerns. From Tables LXVI and LXIX 
 it may be seen that 11 per cent of the taxable corporations paid 82 per 
 
 "94 Conn. 55 (1919). 
 
454 Report op Special Tax Commission 
 
 cent of the taxes assessed in 1933. Even at the peak of prosperity, 28 
 per cent of the taxpayers paid 98 per cent of the total assessment. If this 
 situation arose purely as the result of the predominance of small cor- 
 porations, it would not be open to serious criticism. But within the 
 group of corporations paying minimum taxes of $10 per annum, there 
 appear the names of many of the largest corporations in the state. 
 These concerns may do a huge business; they may exploit the business 
 opportunities afforded by government to the utmost; they may con- 
 tribute heavily to the expenses imposed upon government; but so long 
 as they show no net income available for stockholders they need pay 
 no appreciable tax to the state. This situation is hardly consonant with 
 the theory of a business tax. 
 
 There are several ways in which taxpayers legally escape liability 
 for the net income tax. They may finance themselves by means of bond 
 issues instead of stock. They may pay large salaries to managing stock- 
 holders. Or they may simply fail to earn a net income because of unwise 
 management or because of forces which are beyond their control. 
 
 Allocation of net income. 
 
 The apportionment of net income is one of the principal problems 
 which has been faced by the tax commissioner in the administration 
 of the law. The courts have held that apportionment of net income 
 between the several states in which a taxpayer does business must be 
 reasonable and equitable. 13 An arbitrary allocation fraction will be 
 sustained in the absence of convincing evidence as to its unreasonable 
 effect." With the 1933 amendment to the Connecticut statutes, requir- 
 ing the use of separate accounting in certain cases in the allocation 
 process, the law has been rendered much less vulnerable than it for- 
 merly was. But the danger now is that this allocation method will be 
 demanded by taxpayers whose cost accounting systems are not suffi- 
 ciently accurate to warrant, its use. The tax commissioner is left with 
 only the vaguest sort of authority to pass upon the accuracy of such 
 systems. 
 
 When the taxpayer is unable to qualify for allocation by the 
 separate accounting method, its income is allocated by formulas which 
 differ from those in use in any other state. This means that the corpo- 
 ration doing business within and without this state is taxed upon more 
 or less than 100 per cent of its net income in all but the most unusual 
 cases. 
 
 1 Hans Bees' Sons v. State of North Carolina, 283 U. S. 123 (1931) 
 'The same, p. 133. ' 
 
Business Taxes on Meecantile and Manufacturing Conceens 455 
 
 a beoadee concept of net income. 
 
 Denting deductions foe inteeest and rental payments. 
 
 A business tax should not depend upon the financial organization 
 of a corporation but rather upon the amount of business done. This 
 is not related to the amount of capital invested by stockholders or the 
 equity of stockholders in the assets of the corporation, but rather to 
 the amount of capital used in the business whether borrowed or con- 
 tributed by stockholders. To satisfy this requirement, it is necessary to 
 redefine net income so as to include payments and accruals to the 
 credit of all contributors of capital — that is, rental and interest pay- 
 ments and accruals as well as net profits. 
 
 It has been shown that only by such a definition of net income 
 can the tax contributions of banks be maintained at somewhere near 
 their former level by means of a valid tax and without substantially 
 increasing the burden of taxes irpon other corporations to which the 
 net income or franchise tax upon national banks is tied by the pro- 
 visions of section 5219 of the federal statutes. But whatever the dis- 
 position by the General Assembly of our recommendations for the 
 taxation of banks, we are convinced that the changes which we are 
 proposing at this point in the base of the tax upon miscellaneous cor : 
 porations will make for a more equitable distribution of the tax burden 
 among these corporations and will at the same time introduce a stabiliz- 
 ing factor into the tax base which will be of great value in itself. 
 
 Such modification, however, raises two questions : Will such a tax 
 be interpreted as a burden upon interstate commerce ? Will the appor- 
 tionment of net earnings between states by means of arbitrary alloca- 
 tion fractions be held unreasonable ? 
 
 These questions may be clarified by considering the fact that the 
 returns realized by stockholders upon their investments in a corporation 
 are somewhat analogous to the returns realized by bondholders and 
 lessors. It has long been recognized that stockholders' net income con- 
 sists not only of fortuitous gains but also of implicit (i.e., non-con- 
 tractual) interest and rent upon the investment of stockholders. 
 
 It is generally conceded that a tax cannot be imposed upon gross 
 receipts from interstate commerce, 15 On the other hand, it is equally 
 well established that a net income tax can extend to profits from inter- 
 state commerce. 16 The base rather than the rate of the tax is thus estab- 
 lished as a determining factor in questions of interpretation of the 
 interstate commerce clause. The dicta of the court in the decisions 
 
 ls Orew Levick Co. v. Commonwealth of Pennsylvania, 245 U. S. 292 (1917) 
 "U. S. Glue Co. v. Oak Creek, 247 U. S. 321 (1918). 
 
456 Eepoet of Special Tax Commission 
 
 which it has rendered on this score cannot be interpreted too literally. 
 It is obvious that a net income tax so heavy as to encroach severely 
 upon the normal profits of a concern may discourage interstate com- 
 merce more effectively than a moderate gross income tax. The prob- 
 ability is that the court would give some consideration to the burden 
 if faced with cases involving extreme rates. But there is no probability 
 that such rates will be imposed by this state. The only question then 
 is the interpretation which the courts will place upon a tax base of the 
 type under consideration. 
 
 There is, so far as we are aware, only one decision in which the 
 Supreme Court has ruled upon a net earnings tax. In the case of 
 Atlantic Coast Line Railroad Co. v. DaugMon, previously cited, one of 
 the jpoints at issue was the burden imposed upon interstate commerce 
 by a net income tax which, in the case of railroads and other public 
 utility companies, was imposed upon a base consisting of interest and 
 rental payments as well as net profits. The tax was upheld by the court. 
 
 We conclude that a net earnings tax could be extended to earn- 
 ings from interstate commerce because, as far as the burden imposed by 
 it is concerned, there is no fundamental difference between such a 
 tax and a net income tax of the ordinary type, and because such a 
 tax has been specifically upheld by the United States Supreme Court. 
 
 The allocation of net earnings would, we believe, constitute no 
 obstacle to the enforcement of a net income tax framed along these 
 lines. Gross receipts can be allocated with less difficulty than net 
 income among the states in which business is conducted. So too can such 
 expenses as raw materials, wages, insurance, etc. But such overhead costs 
 as interest on indebtedness and salaries can be apportioned among the 
 several states only upon some arbitrary basis. Hence, the fewer such 
 deductions, the simpler becomes the allocation by a separate accounting 
 process. 
 
 The allocation by means of an arbitrary apportionment fraction 
 would, of course, continue to be the common practice, but since there 
 is no fundamental difference, as far as the geographic source of income 
 is concerned, between income which is earned for stockholders and 
 income which is earned for creditors and lessors, there is no reason 
 why an apportionment fraction which will be sustained for an ordinary 
 net income tax will not also be sustained for a net earnings tax. It may 
 be noted that the Atlantic Coast Line case arose over a tax which was 
 apportioned according to the ratio of mileage within and without the 
 state of North Carolina and that the tax was not attacked upon this 
 point. 
 
Business Taxes on Mercantile and Manufacturing Concerns 457 
 
 Including tax-exempt income in gross income. 
 
 Another recommendation which was foreshadowed in the preced- 
 ing chapter concerns itself with the receipt of what is now non-tax- 
 able income, that is, dividends from United States corporations and- 
 interest on federal, state, and local securities. It has been pointed out 
 that the inclusion of such income in the tax base would result in a small 
 aggregate increase in the burden of the corporation net income tax 
 upon miscellaneous corporations at the same time that it would substan- 
 tially increase revenues from the bank tax over what could be antici- 
 pated from the narrower income tax base. Furthermore, we see little 
 reason for differentiating, in a business tax, between income derived 
 from investments in stocks and government securities and income 
 derived from other investments. We believe therefore that the net 
 income tax on miscellaneous corporations should be clearly designated 
 as a franchise tax and that it should be measured by net income from 
 all sources. 
 
 Results. 
 
 The fiscal effects of these proposals cannot be accurately predicted 
 on the basis, of available information. It is assumed, however, that 
 they will not' so greatly increase the yield of the tax upon miscellaneous 
 corporations as to impose an inordinate burden upon taxpayers or to 
 lead to extravagance on the part of the state. We therefore recommend 
 no change in the existing tax rate of 2 per cent. 
 
 The net result of these suggestions may be summarized as follows: 
 
 1. They would permit the exaction of taxes from banks and 
 trust companies which would be comparable with those now paid under 
 the unsatisfactory share tax; 
 
 2. They would tend to stabilize the tax base ; 
 
 3. They would effect a more equitable distribution of the tax 
 burden among miscellaneous corporations ; 
 
 4. They would produce greater revenues than are now enjoyed 
 by the state without any increase in the tax rate. 
 
 The taxation of invested capital. 
 
 We do not feel that the foregoing proposals afford a complete 
 solution to the problems raised by the present corporation net income 
 tax. Although they will do much, if adopted, to stabilize the tax yield 
 and distribute the burden more equitably among business corporations, 
 we believe that changes should be effected in the minimum tax in order 
 that these results may be even more fully attained. The flat tax now 
 
458 Repobt of Special Tax Commission 
 
 imposed is all but useless in stabilizing revenues and partakes more of 
 the nature of a filing fee than of a tax intended to distribute the cost 
 of general government. 
 
 We therefore suggest that a minimum tax be imposed upon mis- 
 cellaneous corporations based upon the book value of the sum of all 
 interest-bearing indebtedness, all outstanding capital stock, surplus 
 and undivided profits, and all reserves which can reasonably be 
 expected to accrue to the stockholders) this sum to be apportioned 
 between this and any other state in which the corporation does business. 
 
 In determining the rate of such a tax, consideration must be 
 given to two factors. One must consider, first of all, the amount which 
 should be raised from the tax. We propose that the corporation tax 
 should raise at least a million and a half dollars. We have estimated that 
 in recent years the book value of the total capital- of miscellaneous cor- 
 porations invested in the state has been between one and 1.5 billion 
 dollars. A tax of one mill imposed upon such a base would yield one to 
 1.5 million dollars, and, in combination with the net earnings tax 
 previously proposed, should meet the suggested minimum contribution. 
 
 The second method of determining the rate of the proposed mini- 
 mum tax is to adjust it to the net income tax in such manner as to 
 bring a given group of corporations within the scope of one of the two 
 taxes. For example, it may be contended that any corporation earning 
 less than five per cent upon the book value of its invested capital should 
 be subject to the minimum tax, while any corporation earning five per 
 cent or more should be subject to the income tax. A minimum tax rate 
 of one mill on invested capital would produce these results. 
 
 Allocation of the tax base. 
 
 The principal considerations in an allocation scheme are three in 
 number. The scheme should produce substantially equitable results; 
 it should be sufficiently flexible to take care of exceptional cases within 
 the law; and it should conform as closely as possible to the allocation 
 methods employed in other states. After working upon this problem 
 for a decade, a committee of the National Tax Association has con- 
 cluded that these ends may best be attained by means of the so-called 
 Massachusetts plan, a plan now in use in five states and similar to the 
 plans in use in six other states." 
 
 This scheme involves the separate allocation of certain items of 
 net income which can be clearly apportioned to a given state. The net 
 income so allocated usually includes interest, rentals, royalties, and 
 gains from the sale of capital assets. The remaining net income is then 
 
 "National Tax Association, Proceedings, 1933, pp. 261-263. 
 
Business Taxes on Mercantile and Manufacturing Concerns 459 
 
 allocated according to a fraction which is arrived at by taking the 
 simple arithmetic average of three other fractions. These three frac- 
 tions consist of (1) the ratio of tangible property within the state to 
 all tangible property, (2) the ratio of gross receipts assignable to the 
 state to total gross receipts, and (3) the ratio of the payrolls of all 
 places of business within the state to total payrolls. 
 
 It is commonly provided that upon application of the taxpayer 
 approved by the tax commissioner this arbitrary allocation fraction 
 need not be used (1) when it produces inequitable results and (2) 
 when the accounts of the taxpayer permit the use of the separate 
 accounting method of apportionment. When neither the separate 
 accounting method nor the statutory allocation fraction is applicable, 
 the tax commissioner is usually given the power to make the allocation 
 according to his best judgment. The experience of other states is that 
 few such cases arise. 
 
 The adoption of the Massachusetts plan of allocation would, in 
 our opinion, not only reduce the inequities arising from lack of uni- 
 formity among the states but would also strengthen and simplify the 
 administration of the Connecticut tax without imposing additional 
 hardship upon the taxpayers. 
 
 Recommendations. 
 
 We recommend: 
 
 That the state taxes on miscellaneous corporations be clearly desig- 
 nated as franchise taxes; 
 
 That these taxes consist of (1) a tax of two per cent measured 
 by net income, (2) a tax of one mill on invested capital, and (3) a 
 minimum tax of $10, and that each taxpayer be required to pay the 
 largest of the three ; 
 
 That net income be defined as gross income, including income 
 from all sources, less all deductions from gross income allowed by the 
 federal government except interest and rental payments; 
 
 That invested capital be denned as the book value at the end of 
 the taxpayer's fiscal year of the sum of all interest-bearing indebted- 
 ness, all outstanding capital stock, surplus, undivided profits, and 
 reserves which can reasonably be expected to accrue to the stockholders; 
 
 That the normal procedure of allocating the tax base between 
 this and any other states in which the taxpayer does business be as 
 follows : 
 
 All net income which can be specifically allocated by simple 
 general rules shall be so allocated ; all other net income shall be allocated 
 by means of an allocation fraction computed as the simple arithmetic 
 mean of three separate fractions based upon (1) the value of tangible 
 
460 Report of Special Tax Commission 
 
 property within and without the state, (2) the amount of gross receipts 
 arising within and without the state, and (3) the amount of the annual 
 payrolls within and without the state; 
 
 That, upon request of the taxpayer, the tax commissioner be per- 
 mitted in his discretion to employ the separate accounting method of 
 allocation for the total net income or such other method as seems likely 
 to produce equitable results; 
 
 That the full amount of the tax as computed by the taxpayer be 
 payable at the time the tax return is filed, subject to an additional 
 assessment or refund if the return is found to be in error. 
 
 The triniTCOKPOEATED business tax. 
 Scope of the tax. 
 
 By means of the unincorporated business tax a burden somewhat 
 comparable to that of the corporation net income tax is imposed upon 
 most of the competitors of incorporated concerns. This tax is, how- 
 ever, of more limited scope than the corporation tax. Instead of apply- 
 ing to all unincorporated business not specifically exempted, it applies 
 only to individuals, fiduciaries, partnerships, or unincorporated asso- 
 ciations conducting a manufacturing or retail or wholesale mercantile 
 business other than the manufacture and sale of liquor. 18 
 
 The retail mercantile business is defined as "the buying of tangi- 
 ble personal property and selling the same for profit or gain." Whole- 
 saling is defined as "the buying of tangible personal property and sell- 
 ing the same to be resold at retail for profit or gain . . . , provided the 
 words 'resold at retail' may be construed as inoperative in cases where 
 tangible personal property has been bought and thereafter sold direct 
 to the consumer in wholesale quantities at wholesale prices." Manu- 
 facturing is defined as the "changing of articles or material into suit- 
 able forms for use or consumption ... or repairing or renovating prop- 
 erty 'for profit or gain." It is construed by law to include the conducting 
 of restaurants, bakeries, laundries, print shops, photography shops, 
 carpentry, building, plumbing, electrical shops, auto-repair shops, com- 
 mercial painting and decorating, lumber and fuel production, masonry, 
 ice supply, road construction, mining and quarrying. Any one employ- 
 ing no assistants and supplying no materials is not construed as 
 engaged in manufacturing." 
 
 From thirty to thirty-five thousand concerns have been subject 
 to this tax in recent years. Thus, although the tax does not extend to 
 unincorporated financial, agricultural, amusement, or professional con- 
 
 18 Gen. Stat., 1930, sec. 1341 ; Cum. Sup., 1933, sec. 755b. 
 10 Gen. Stat., 1930, sec. 1340. 
 
Business Taxes on Mercantile and Manufacturing Concerns 461 
 
 cerns, it reaches approximately four times as many taxpayers as does 
 the corporation tax. 
 
 The tax base. 
 
 The base of this tax consists of gross income derived from the con- 
 duct of a mercantile or manufacturing business as previously defined. 
 It includes "receipts, of whatever kind and in whatever form paid, 
 received during the income year in connection with any business sub- 
 ject to taxation." It is generally computed without deductions for cash 
 discounts or returned merchandise sold for cash. The gross income of 
 any taxpayer derived from the manufacture and sale of liquor or from 
 sources other than a mercantile or manufacturing business is not tax- 
 able. 
 
 Any taxpayer conducting business within and without the state is 
 permitted to allocate his taxable gross income upon the basis of the geo- 
 graphical source of such income, unless the tax commissioner decides 
 that an allocation on that basis is impractical. In the latter case the 
 apportionment is based upon the proportion of the total tangible prop- 
 erty employed in the business that is located within the state. There 
 are only about 25 concerns in the state which also do business outside 
 of the state, and the apportionment problem is thus seldom encountered 
 in the administration of this tax. 
 
 The tax bate. 
 
 The rate of the unincorporated business tax is differentiated as 
 between wholesale business and other taxable business. The tax upon 
 wholesale business is 25 cents per thousand dollars or fraction thereof, 
 or approximately one-fortieth of one per cent, and the tax upon retail 
 and manufacturing business is $1.00 per thousand dollars or fraction 
 thereof, or approximately one-tenth of one per cent. 
 
 A minimum tax of $5.00 is imposed upon all concerns subject to 
 the tax. In the case of a wholesaler the minimum tax is applicable 
 when its gross income is less than $20,000, and in the case of other 
 unincorporated taxpayers it is applicable when the gross income is 
 less than $5,000. Something like one-quarter of all taxpayers are sub- 
 ject to the minimum tax. 
 
 Administration. 
 
 In most cases the tax is assessed by the tax commissioner upon 
 income arising during the calendar year. A return is due from the 
 taxpayer within 75 days of the expiration of the income year, and the 
 tax is payable to the state treasurer within 30 days after notice of 
 
462 Report of Special Tax Commission 
 
 assessment is mailed by the tax commissioner. The tax is received in 
 varying amounts during the year but is concentrated largely in the 
 months of May to August. 
 
 The proceeds of this tax are now divided between the state and 
 the counties. After deducting the cost of administration, which amounts 
 approximately to $35,000 or $40,000 a year, one-half of the remainder 
 is divided among the counties on a per capita basis. Four-fifths of 
 the tax go in approximately equal amounts to New Haven, Hartford, 
 and Fairfield Counties, and the remainder is divided among the other 
 five counties. 
 
 History and purpose. 
 
 There seem to have been two purposes behind the enactment of 
 this tax in 1921. In the first place, it was intended as a revenue sub- 
 stitute for liquor licenses. Secondly, it was intended to supplement the 
 corporation net income tax as part of a general business tax system. 
 While the former may provide an explanation for the passage of a 
 new tax law, the form which the tax took was clearly determined by 
 the Tatter consideration. 
 
 Connecticut thus adopted a business tax upon a type of business 
 organization which has seldom been taxed except by the license taxes 
 of the southern states. Although a tax embracing the whole field of 
 business enterprise has been recommended in a number of states, 
 notably in New York, and is embodied in the Model Tax Plan of the 
 National Tax Association, few states have as yet acted upon such a 
 recommendation. 
 
 There have been but two important changes in the original tax 
 law. The first of these was the abandonment in 1923 of a provision 
 which exempted a concern from any tax in excess of the $5 minimum 
 in case it suffered a financial loss without deduction of any salaries 
 or compensation paid to any person financially interested as an owner 
 in the conduct of the business. 2 " The provision for distribution of half 
 of the net proceeds of the tax to the counties was introduced in 1925. 21 
 
 Yield. 
 
 The assessments of the unincorporated business tax are given in 
 Table LXX by calendar years. For the most part these taxes are based 
 on income received in the preceding calendar year. These taxes are 
 collected in the calendar year in which assessed, but the proceeds are 
 realized in unequal and varying proportions in the fiscal years of the 
 
 20 Pub. Acts, 1923, ch. 80. 
 
 21 Pub. Acts, 1925, ch. 114. 
 
Table 
 
 LXX 
 
 
 INCORPOR 
 
 AT 
 
 ED BUSINESS 
 
 TAXES, CALEN 
 
 YEARS 
 
 1922 TO 1934 
 
 
 
 
 Year of 
 
 
 Assessments 
 
 
 assessment 
 
 Assessments 
 
 $442,192 
 
 
 1928 
 
 $574,083 
 
 492,132 
 
 
 1929 
 
 584,163 
 
 556,511 
 
 
 1930 
 
 585,716 
 
 547,449 
 
 
 1931 
 
 507,261 
 
 569,111 
 
 
 1932 
 
 415,626 
 
 582,108 
 
 
 1933 
 
 326,398 
 
 
 
 1934 
 
 312,209' 
 
 Business Taxes on Mercantile and Manufacturing Concerns 463 
 
 state. The taxes collected by the treasurer in the six months ending 
 June 30 are divided between the general fund and the counties on the 
 fifteenth of July, and those collected^ in the last six months of the 
 calendar year are distributed on the fifteenth of January. Thus taxes 
 levied on income received by taxpayers in the calendar year 1932 are 
 assessed and collected in the calendar year 1933 and distributed during 
 the fiscal year ending June 30, 1934. 
 
 Year of 
 assessment 
 
 1922 
 1923 
 1924 
 1925 
 1926 
 1927 
 
 Source: Tax Commissioner, Taxation Document No. m, Office Records. 
 'Assessments up to October 1. 
 
 In Table LXXI cash collections as recorded by the treasurer for 
 calendar years and distributions by fiscal years are given. This table 
 covers the years 1926 to 1934, during which the tax was distributed 
 as described above. A comparison of this table with the preceding dis- 
 closes an excellent collection record in spite of the great number of 
 taxpayers and the small amount at stake in individual cases. The 
 collection is, however, no easy, inexpensive process, over thirty-five 
 hundred warrants having been issued for this purpose in 1933. 
 
 Table LXXI 
 
 DISTRIBUTION OF PROCEEDS OF THE UNINCORPORATED BUSINESS TAX 
 
 TO THE STATE AND COUNTIES, FISCAL YEARS 1925-26 TO 1933-34 1 
 
 Fiscal year Total Administrative State's snare of Counties' share 
 
 ending June 30 proceeds expenses net proceeds of net proceeds 
 
 1925-26 $333,469 $17,854 $157,807 $157,807 
 
 1926-27 564,979 30,2.62 267,359 267,359 
 
 1927-28 578,966 34,778 272,094 272,094 
 
 1928-29 555,014 34,833 260,091 260,091 
 
 1929-30 582,517 35,262 273,627 273,627 ' 
 
 1930-31 584,218 37,701 273,258 273,258 
 
 1931-32 506,790 37,477 234,656 234,656 
 
 1932-33 415,893 37,821 189,036 189,036 
 
 1933-34 330,656 ■ 43,023 143,816 143,816 
 
 Source: State Treasurer, Annual Reports, Office Records. 
 
 'The distribution of a given fiscal year represents taxes collected in the calendar 
 year ending within such fiscal year. The comptroller records this tax according 
 to the period in which it is collected. 
 
464 Repobt of Special Tax Commission 
 
 At the peak of prosperity this tax produced for the state 
 approximately $311,000, and at its low point it yielded $187,000. It 
 has accounted for 0.6 to 1.2 per cent of state tax income. The counties 
 are, of course, much more dependent upon this tax than the state. In 
 the past six years for which figures are now available, between 8 and 
 18 per cent of the revenue receipts of the eight counties came from the 
 unincorporated business tax. 
 
 Appeaisal. 
 
 In our opinion, the unincorporated business tax has proved 
 reasonably successful in operation. It has produced a substantial 
 revenue, which has suffered far less from the effects of the depression 
 than has the corporation net income tax. It has imposed a burden upon 
 unincorporated concerns which is at least somewhat comparable to the 
 burden upon corporations. The administration of the tax is simple, even 
 though it be fairly expensive in percentage terms because of the large 
 number of small taxpayers. It does not appear that it is an unreason- 
 able burden upon the taxpayer. 
 
 There are three principal criticisms of the tax which have been 
 considered by this Commission. The first of these is concerned with 
 the limited scope of the tax. As pointed out above, it does not extend 
 to service industries, the professions, amusements, or extractive indus- 
 tries other than ice supply, lumbering, mining and quarrying. Theo- 
 retically there is little reason for excluding from this tax any persons 
 engaged in business in the state unless they are subject to some other 
 business tax. For administrative reasons, however, it seems advisable 
 to eliminate from the scope of the tax persons whose business status 
 is similar to that of wage and salary earners. Consequently we do 
 not recommend at this time a universal business tax of this sort, 
 although we do, in later chapters, recommend that it be extended to 
 the amusement industry, the liquor industry, and unincorporated 
 motor transportation concerns other than motor bus companies. 
 
 A second criticism of the tax is that it imposes a burden upon 
 unincorporated concerns which is not exactly comparable to that 
 imposed upon competing corporations by the corporation net income 
 tax. The validity of this contention depends upon the size of the con- 
 cern under consideration and upon the state of business. Most small 
 corporations, even in prosperous years, have escaped with the payment 
 of a minimum tax of $10. As a rule their tax burdens would be heavier 
 if they were unincorporated. This is" also true of large corporations 
 which are unprofitable. But profitable corporations, when their net 
 incomes are not distorted by high salaries, invariably pay a higher 
 tax than profitable unincorporated concerns. It thus appears that exact 
 
Business Taxes on Mercantile and Manufacturing Concerns 465 
 
 equality between incorporated and unincorporated businesses can never 
 be attained so long as the tax bases differ. 
 
 The reasons for the adoption of a gross tax upon unincorporated 
 concerns were (1) the lack of adequate accounting records among a 
 large proportion of these concerns and (2) the prevalence of manager- 
 ownership and the consequent danger of excessive salary deductions. 
 We believe that these reasons are still controlling, and we find no evi- 
 dence of substantial injustice as a result of the present taxes. 
 
 A final criticism of the tax is that it is expensive to administer. 
 In the past year 13 per cent of the tax was absorbed by administrative 
 costs. This is an exceedingly high figure, ascribable principally to the 
 large number of small taxpayers and to a relatively expensive collec- 
 tion process. Collection costs would undoubtedly be ' considerably 
 reduced if the taxpayers were required to pay the tax at the time the 
 tax return is filed, subject to additional assessment or refund if the 
 return were found to be in error. This procedure has been followed 
 to good effect in the liquor tax and might well be extended to the 
 unincorporated business tax. It should further be provided that the 
 tax shall constitute a lien against the business property of the tax- 
 payer so that the purchaser of a business becomes liable for unpaid 
 taxes assessed against it. 
 
 In Chapter XVIII it is proposed for reasons set forth therein 
 that the distribution of one-half of the net proceeds of this tax to the 
 counties be repealed and that the counties be reimbursed by means of 
 an increase in payments by the state for the support of children com- 
 mitted to county care. 
 
 Recommendations. 
 
 We recommend : 
 
 That the full amount of the unincorporated business tax as com- 
 puted by the taxpayer be payable at the time the tax return is filed, 
 subject to an additional assessment or refund if the return is found 
 to be in error; 
 
 That the tax be made a lien upon the business property of the 
 taxpayer and that the purchaser of any business upon which taxes are 
 delinquent be liable for such taxes. 
 
 Local public utilities. 
 Application. 
 
 All concerns, whether incorporated or unincorporated, whose prin- 
 cipal business is the "manufacturing, selling and distributing of gas 
 or electricity to be used for light, heat or motive power, or operating 
 
466 Keport of Special Tax Commission 
 
 a system of water works for selling and distributing water for domestic 
 or power purposes" are subject to a tax of one and one-half per cent 
 upon their gross earnings from operations in this state. 22 These con- 
 cerns, commonly known as local public utilities to distinguish them 
 from transportation and communication companies, are subject to no 
 other business tax. They are, however, subject to local taxes upon all 
 taxable property except "money and credits, including accounts and 
 bills receivable." Neither this business tax nor the general property 
 tax applies to public utilities owned and operated by a municipality. 
 
 The tax base. 
 
 Taxable gross earnings are defined as gross earnings from opera- 
 tions for- the calendar year, exclusive of (1) earnings from the sale 
 or rental of appliances using water, gas, or electricity and (2) earn- 
 ings from the sale of water, gas, or electricity to other public service 
 corporations. It has been held by the Supreme Court of Errors that 
 this definition includes earnings from incidental operations such as 
 sales of hay and ice cut from the property of a water company. 28 
 
 These gross earnings are allocated between this and any other 
 state in which a local public utility does business. The apportionment 
 is based upon the number of miles of water pipes, gas mains, or electric 
 wires operated by the company at the end of the calendar year. There 
 are no cases at present in which allocation is necessary. 
 
 Administration. 
 
 The amount of the tax base for each company is determined by 
 the state board of equalization on or before June 15 from returns 
 made by the taxpayers on or before March 31. The tax is assessed 
 during the first ten days in July and is payable on the 15th of July." 
 The tax constitutes a prior lien on property of the company until paid." 
 
 History. 
 
 This tax was first enacted in 1915 as part of the general system 
 of business taxes which date from this session of the General Assembly. 
 Two years later the act was modified slightly by changing the income 
 year from the twelve months ending on June 30 to the calendar year 
 and by exempting the moneys and credits owned by the taxpayers. 
 
 22 Gen. Stat., 1930, sec. 1322. 
 
 "State v. United Electric Light & Water Co., 90 Conn. 452 (1916). 
 
 21 Gen. Stat., 1930, sees. 1119, 1320. 
 
 26 Gen. Stat., 1930, sec. 1324. 
 " Pub. Acts, 1915, ch. 292. 
 
 27 Pub. Acts, 1917, chs. 70, 298. 
 
Business Taxes on Mercantile and Manufacturing Concerns 467 
 
 The exemption of receipts from the rental and sale of appliances and 
 from sales to other public service corporations was introduced in 1919. 28 
 The second of these exemptions extended at that time only to sales for 
 purposes of resale within the state and represented a laudable attempt 
 to avoid the double taxation of services produced and distributed by 
 different companies. But an amendment introduced in 1927 enlarged 
 this exemption to include all sales to other public service corporations 
 whether made for resale within the state or for any other purposes. 29 
 
 Yield. 
 
 The rapid development of public utilities since 1915 has resulted 
 in almost constantly increasing revenues to the state from this tax. A 
 maximum was reached, however, in the fiscal year 1931-32, when assess- 
 ments amounted to $790,309. Since that date there has been a decline 
 of a little less than ten per cent. These amounts, which are recorded 
 in Table LXXII, have represented in recent years between 1.9 and 3.5 
 per cent of the tax income of the state. The higher of these percentages 
 applies to the fiscal year 1933-34, when other taxes had fallen off 
 severely. 
 
 In interpreting the accompanying table, it should be recalled that 
 the tax income of a given fiscal year is assessed in the first month of 
 that fiscal year upon earnings of the preceding calendar year. Thus the 
 income recorded for the fiscal year 1933-34 was based upon earnings 
 of the calendar year 1932. 
 
 Appraisal. 
 
 Local public utilities are paying substantial and stable revenues 
 to the state. Although the burden of a tax of one and one-half per 
 cent upon gross earnings is somewhat greater than that of the cor- 
 poration net income tax of two per cent and considerably heavier 
 than the maximum unincorporated business tax of approximately one- 
 tenth of one per cent upon gross earnings, we believe that there is 
 adequate justification for a higher business tax upon public utilities 
 than upon ordinary businesses which are of a competitive nature. 
 
 The tax has been properly criticised for the exemption of earnings 
 from certain sources. There is no reason, in our opinion, for exempt- 
 ing earnings from sales to other public utilities unless the pur- 
 chase is made for resale purposes. It is particularly objectionable to 
 permit exemptions for sales to transportation and communication com- 
 panies, which come within the definition of the term "public service 
 
 28 Pub. Acts, 1919, ch. 249. 
 "Pub. Acts, 1927, ch. 210. 
 
468 
 
 Kepobt of Special Tax Commission 
 
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Business Taxes on Mercantile and Manufacturing Concerns 469 
 
 corporations" but which are not subject to the business tax under 
 consideration at this point. We find that the annual sales of public 
 services which are exempt by reason of the 1927 amendment previously 
 alluded to amount to approximately one million dollars. These sales 
 should be brought back within the tax base. 
 
 Recommendations. 
 
 We recommend: 
 
 That the exemption accorded sales by local public utilities to other 
 public utilities be limited to sales for resale in the state. 
 
 Summary. 
 Theoretical background. 
 
 Taxes based upon the privilege of doing business have been gradu- 
 ally developed and given a place in the tax structures of the various 
 states. Such taxes have usually been imposed in addition to, rather than 
 in lieu of, taxes on the property of these concerns and taxes on the 
 persons owning or conducting them. 
 
 From the standpoint of business it may appear that the measure 
 of a business tax should be the profit derived by its owners from 
 business activities, since this, in a sense, affords a measure of the 
 benefits derived from governmental activities. From the standpoint 
 of the state quite a different measure is required. Government provides 
 an environment which is indispensable to the conduct of business, and 
 this environment is furnished alike to profitable and unprofitable con- 
 cerns. The failure to win a profit is not the responsibility of govern- 
 ment, and there is no logical reason why the claims of government 
 should be secondary to all other expenses of business and subject to 
 the violent fluctuations which characterize the net profits of industry. 
 
 Gross earnings or sales taxes are frequently used as the basis of 
 business taxes formulated as a means of providing the government with 
 a relatively stable income derived from both profitable and unprofitable 
 concerns. Connecticut has established taxes of this sort for unincor- 
 porated mercantile and manufacturing concerns and for the so-called 
 local public utilities — gas, water, and electric companies. But such 
 taxes are seldom equitable when imposed upon concerns engaged in 
 interstate business, because of constitutional restrictiqns on the taxa- 
 tion of such business. Moreover, such taxes could be equitably applied 
 to a wide variety of unrelated industries only by means of a complicated 
 system of rate differentials, which would provoke endless dispute and 
 require frequent readjustment. These considerations suggest the need 
 of a different sort of tax base to reach what are now classified as miscel- 
 
470 Kepoet of Special Tax Commission 
 
 laneous corporations. Gross assets located in the state provide one such 
 base, which has been widely used in other industrial states. 
 
 The conflicting interests of business and government in the selec- 
 tion of a business tax base cannot be completely reconciled. Connecticut 
 has thus far met this problem by applying a net income tax to miscel- 
 laneous corporations and a gross earnings tax to unincorporated 
 business and local public utilities. An alternative procedure is to 
 impose concurrently two or more taxes on the same business concern 
 and require the larger of the taxes to be paid. 
 
 Taxation of miscellaneous corporations. 
 The corporation net income tax. 
 
 All corporations which are now required to pay the federal income 
 tax, except (1) insurance companies, (2) banks and trust companies 
 subject to the share tax, (3) transportation and communication com- 
 panies, (4) local public utilities, and (5) concerns engaged solely in 
 the liquor business, are required to pay the state tax of two per cent 
 upon net income as defined in the federal statutes. There are over 8,000 
 corporations subject to this tax, of which over 7,000 are now paying 
 the flat minimum tax of ten dollars. 
 
 The base of the tax is the same as that of the federal corporation 
 net income tax and excludes net income from all federal, state, and 
 local government securities and dividends from all corporations char- 
 tered in the United States. A corporation doing business within and 
 without the state may allocate its net income between this and other 
 states on one of three bases, depending upon the nature of its business 
 and its accounting records: (1) according to the ratio of the value of 
 its tangible property in the state to the value of its total tangible prop- 
 erty, (2) according to the ratio of its gross receipts arising within the 
 state to its total gross receipts, or (3) according to the actual source of 
 its net income as determined from its accounting records. 
 
 The net income tax has yielded revenues varying from $3,465,000 
 in 1930-31 to $425,000 in 1933-34. The assessments for the fiscal year 
 1934-35 are slightly in excess of $700,000. At its peak this tax contrib- 
 uted 10.6 per cent of the tax income of the state, but in 1933-34, 
 despite the decline in total tax revenues, the corporation tax made up 
 but 2.0 per cent of the total. 
 
 Although the net income tax is favorably considered by those 
 subject to it, it has been less satisfactory from the standpoint of the 
 state. It has proved itself an unreliable source of revenue. In the three 
 years from 1930-31 to 1933-34 its yield declined to less than one-eighth 
 of the level established in the peak year. It will be nearly doubled again 
 
Business Taxes on Mercantile and Manufacturing Concerns 471 
 
 between 1933-34 and 1934-35. This instability results in inaccurate 
 budgeting, encourages unwise expenditures in prosperous years, and 
 makes doubly difficult the financing of subsequent depression years, 
 when its yield drops away to an insignificant figure. 
 
 This instability arises chiefly from the narrowness of the tax 
 base. In each year since 1924 more corporations have been subject to 
 the minimum tax of $10 than have been taxed upon net income. At 
 the peak of prosperity 28 per cent of the taxpayers paid 98 per cent 
 of the total assessment, and in 1933-34 eleven per cent of the taxpayers 
 paid 82 per cent of the taxes. Some of the largest corporations in the 
 state are included among those paying an insignificant tax of $10. 
 
 Two remedies are proposed for this situation: (1) a broadening 
 of the concept of net income and (2) the establishment of an alternative 
 tax based upon capital invested in the state. 
 
 A business tax should not depend upon the financial organization of 
 a corporation but rather upon the 1 amount of business done. This is 
 related, not to the amount of capital invested by stockholders alone or 
 the equity of the stockholders in the corporate assets, but rather to the 
 total amount of capital used in the business whether borrowed or con- 
 tributed by stockholders. To satisfy this requirement, net income should 
 be defined to include payments and accruals to the credit of all contribu- 
 tors of capital — that is, rental and interest payments and accruals as 
 well as net profits available for stockholders. This change, whether or 
 not it is adopted for banks as recommended in the preceding chapter, 
 would make for a more equitable distribution of the tax burden among 
 miscellaneous corporations and would introduce a stabilizing factor into 
 the tax base, which would be of great value in itself. There should 
 further be included in the tax base receipts of tax-exempt interest and 
 dividends, since a business tax should not depend upon particular 
 investment policies and since only by means of such a tax base can the 
 proposed changes in the bank tax be made to yield the revenues 
 necessary to maintain the tax contributions of these institutions at 
 approximately their present level. 
 
 The taxation oe invested capital. 
 
 In addition to a broader net income tax base we suggest that a 
 new and considerably higher minimum tax be established. A tax upon 
 capital invested in the state, as measured by the sum of the book value 
 of all interest-bearing indebtedness, all outstanding capital stock, sur- 
 plus, and xindivided profits, and all reserves which can reasonably be 
 expected to accrue to the stockholders appears to provide the most 
 equitable base for such a tax. Upon this base, properly allocated between 
 this and other states, we recommend that a tax rate of one mill be 
 
472 Repoet of Special Tax Commission 
 
 imposed. Such a tax should yield between one and 1.5 million dollars 
 a year, should enforce a reasonable tax contribution from unprofitable 
 as well as profitable concerns, and should provide a stable tax revenue 
 for the state. 
 
 Allocation of the tax base. 
 
 After working for a full decade upon the problem of allocating 
 the base of corporation net income taxes between the several states in 
 which a corporation does business, a committee of the National Tax 
 Association has concluded that the method which is most equitable and 
 which promises eventually to be established by most of the states with 
 corporation net income taxes is the so-called Massachusetts plan. This 
 plan involves the separate allocation of certain items of net income 
 which can be clearly apportioned to a given state and the apportion- 
 ment of all remaining net income by an allocation fraction. This allo- 
 cation fraction is the average of three ratios: (1) the ratio of tangible 
 property in the state to all tangible property, (2) the ratio of gross 
 receipts assignable to the state to all gross receipts, and (3) the ratio 
 of payrolls of all places of business within the state to all payrolls. 
 A different allocation fraction or allocation according to a separate 
 accounting of net income may be used in cases in which the ordinary 
 allocation process produces inequitable results. We recommend the 
 adoption of this allocation fraction for the Connecticut corporation tax. 
 
 The unincoepoeated business tax. 
 
 The Connecticut unincorporated business tax is laid upon the 
 gross earnings of a broadly defined group of manufacturing and mer- 
 cantile concerns. The rate of the tax is $1 per $1,000 or fractional 
 part thereof, or approximately one-tenth of one per cent, for manu- 
 facturers and retailers and 25 cents per $1,000 or fractional part there- 
 of for wholesalers. A minimum tax of $5 is imposed. 
 
 This tax yields between $300,000 and $600,000 annually. Taxes 
 assessed have decreased continually from the peak of $586,000 estab- 
 lished in 1930 to slightly more than $300,000 in 1934, but this decline 
 has been far less precipitous than that registered by the miscellaneous 
 corporations tax. After deducting administrative expenses of 30 to 40 
 thousand dollars, the remainder of the tax is divided equally between 
 the state and the eight counties. The division among the counties is on 
 a per capita basis. 
 
 This tax has been criticised because it is limited in scope to certain 
 specified industries, because it imposes a burden which is not exactly 
 comparable to that of the corporation net income tax, and because it 
 is an expensive tax to administer. 
 
Business Taxes on Mercantile and Manufacturing Concerns 473 
 
 Theoretically a business tax should be as broad as business itself, 
 but difficulties are always encountered in any effort to define what 
 constitutes doing business, and, although recommendations are made 
 in later sections of this report for extension of the tax to unincorpo- 
 rated liquor, certain motor carriers, and amusement concerns, we are 
 not prepared at this time to recommend a further extension of the tax. 
 
 As long as the bases of the business taxes upon corporations and 
 unincorporated concerns differ, there will inevitably arise claims of 
 inequality and discrimination. However, there seem to be adequate 
 reasons for differences in these tax bases. Although we believe that the 
 recommendations of this Commission concerning the corporation tax, if 
 adopted, will reduce -existing inequalities, there is no expectation of 
 completely eliminating them. 
 
 The expense of administering the unincorporated business tax 
 amounted to 13 per cent of tax receipts in the past year. This heavy 
 cost is attributable to the large number of taxpayers and to a relatively 
 expensive collection process. It should be reduced by requiring the pay- 
 ment of the tax upon filing the tax return and making the tax a 
 lien upon business property and an obligation of the purchaser of an 
 unincorporated business. 
 
 Local public utilities. 
 
 Water, gas, and electric companies are subject to a business tax 
 of one and one-half per cent upon their gross receipts from all sources 
 except (1) earnings from the sale or rental of appliances using water, 
 gas, or electricity and (2) earnings from the sale of water, gas, or 
 electricity to other public service corporations. This tax yields a revenue 
 for the state amounting to seven to eight hundred thousand dollars. It 
 is one of the most stable of the state taxes. 
 
 Practically the only criticism of this tax concerns the exemption 
 now accorded to sales to other public service corporations. This pro- 
 vision was originally inserted to avoid the pyramiding of the tax upon 
 utility services which were sold by one company for resale by another; 
 the present exemption of all sales, whether for resale or not, has existed 
 only since 1927. The amendment of that year was unwarranted and 
 should be repealed. 
 
 The formal recommendations of the Commission for alteration of 
 business taxes on miscellaneous corporations, unincorporated concerns, 
 and local public utilities appear at the ends of the several sections of 
 this chapter. 
 
CHAPTER XVI 
 
 SPECIAL MOTOK VEHICLE TAXES 
 
 Nature and theory of motor vehicle taxes. 
 Principal problems. 
 
 In the search for revenues to finance highway developments, to 
 service highway bonds, and to control and regulate motor vehicle 
 operation, three important taxes have been developed which were 
 unknown a generation ago. Motor vehicle license- fees, which began as 
 exactions for regulatory purposes, developed into taxes producing rev- 
 enues far in excess of regulatory costs. Gasoline taxes were virtually 
 unknown in this country until 1919, but they have since spread so 
 rapidly that they now produce for the states alone over half a billion 
 dollars a year. Finally, within the last few years most states have 
 enacted some sort of a special tax upon common carrier motor vehicles. 
 Each of these three types of special motor vehicle taxation is found 
 in the Connecticut system. 
 
 There are four principal questions of policy in the field of special 
 motor vehicle taxes. To what extent should highway costs be financed 
 out of special motor vehicle taxes ? How should this amount be divided 
 among the gasoline tax, the registration tax, and other special motor 
 vehicle taxes ? How should the burden of each of these taxes be dis- 
 tributed among the motor vehicles using the highways ? Finally, should 
 an additional tax contribution over and above their proportionate share 
 of highway costs be required of commercial motor vehicles? These 
 questions will be discussed in turn in the development of this chapter. 
 
 Aggregate amount to be raised. 
 
 The extent to which highway costs should be financed out of 
 special motor vehicle taxes is a problem upon which there have been 
 widely diverse opinions. It is now generally conceded that the day 
 has passed when highway expenditures should be financed entirely out 
 of general revenues. There are indeed those who go to the other extreme 
 and contend that all such expenditures should be financed out of 
 special motor vehicle taxes. No state to our knowledge now follows 
 either of these extreme policies. A portion of the cost of highways is 
 defrayed out of the proceeds of special taxes, which are usually paid 
 into state highway funds and expended upon those roads which consti- 
 tute the state highway system. The remainder of the highway cost is 
 financed out of general revenues, which consist largely of property taxes. 
 
Special Motoe Vehicle Taxes 475 
 
 The principle upon which rests the allocation between special taxes 
 and general revenues starts from a division of all the public highways 
 into two classes. The first has been called the general use highway 
 system. Highways of this sort have been laid out or are now primarily 
 used for the benefit of the motorist as such. All state highways, for 
 example, may be readily placed in this category. The second class con- 
 sists of what are called land utilization highways and includes most of 
 what are known as town roads and city streets. These roads are of 
 primary benefit to property owners. It is, we think, a reasonable propo- 
 sition that the financing of the general use highways should be borne 
 by special taxes upon the motor vehicles which use the roads, whereas 
 the land utilization highways may logically be financed out of property 
 taxes and special assessments upon real estate. 
 
 The experts of the Federal Bureau of Public Koads have given 
 thoughtful consideration to the financing of public highways and, from 
 careful traffic surveys, have developed the principles upon which a 
 logical division .between general use highways and land utilization 
 highways may be made. Practically, no sharp line of demarcation can 
 ordinarily be drawn. Even a rough division is impossible without a 
 careful and extensive traffic survey showing the density and character 
 of the traffic carried by all roads in the state. 
 
 A traffic survey was conducted in Connecticut in 1926, but it was 
 limited to the state highway system, and of course rapid changes in 
 the character of traffic since that date have invalidated the results for 
 present purposes. ]STo comprehensive survey has been completed since 
 1926. For these reasons we are forced to assume that the present state 
 highway system, consisting of trunk line and state aid highways, 
 together with that share of the town road system which is financed out 
 of the annual state appropriation of $3,000,000 known as the dirt road 
 appropriation (to the extent that this appropriation exceeds the small 
 amount paid by towns for state aid highways), constitutes the general 
 use highway system of the state, which should be financed out of motor 
 vehicle taxes. The other highways of the state have been constructed 
 and are maintained primarily as a means of access to the land. They 
 are of little or no use to the general motorist, and they are properly 
 financed out of revenues derived from property owners. It is true, of 
 course, that general use highways are of some benefit to property 
 owners and that land utilization highways are of some use to the gen- 
 eral motorist, but for practical purposes these factors may be considered 
 compensatory. 
 
 The amount necessary for annual maintenance, construction, 
 and reconstruction of the 2,400 miles of highways in the state system 
 can best be determined by examining the past expenditures of the high- 
 
4*76 Report of Special Tax Commission 
 
 way department. These expenditures reached a peak of $17,138,000 
 in the fiscal year of 1927-28, when a heavy construction program 
 was financed out of surplus revenues of prior years. They then grad- 
 ually declined to $11,965,000 in the fiscal year 1932-33. Though 
 the figures for net expenditures have not yet been compiled for the 
 fiscal year 1933-34, it appears that, under pressure of the federal 
 government and with the assistance of federal funds, they have again 
 increased to about $14,800,000. It should be noted that the expendi- 
 tures of the last three completed fiscal years have included a three 
 million dollar appropriation for town roads. 
 
 To these expenditures of the highway department there should be 
 added the cost of highway regulation and policing. Expenditures of 
 the motor vehicle department are $800,000 to $900,000 annually, while 
 those of the state police department, which is occupied to a consider- 
 able extent with highway policing, run from $400,000 to $500,000. 
 Most, if not all, of the costs of the motor vehicle department and a 
 substantial part of the costs of the state police department should 
 properly be added to the expenditures of the highway department in 
 order to arrive at the total expenditures attributable to the state high- 
 way system. We thus arrive at a total which may be said roughly to 
 have ranged from a high of about 18 million dollars in 1927-28 to a 
 low of 13 millions in 1932-33. 
 
 All of these expenditures need not be and are not now financed 
 by special motor vehicle taxes. As may be seen from Table LXXIII, 
 highway expenditures are defrayed in part out of federal funds and in 
 part from operators' licenses, gasoline station licenses, fines for violation 
 of motor vehicle laws, and miscellaneous revenues. All told, non-tax 
 revenues have brought into the highway fund an annual sum ranging 
 from $2,254,000 to $3,377,000. All that can reasonably be demanded is 
 that motor vehicle taxes yield the remaining revenue necessary to main- 
 tain the state highway fund and to pay a fair share of the expenses 
 of the state police department, which are now paid entirely out of the 
 general fund. 
 
 The average annual yield of special motor vehicle taxes in the 
 last few years has amounted, in round figures, to eleven million dollars. 
 This has carried the state through a period which involved extraor- 
 dinarily heavy construction through the fiscal year 1930-31 and 
 a three million dollar appropriation for town roads in subsequent 
 years. 
 
 It is, of course, entirely beyond the power of this Commission 
 to lay out the future highway construction program of the state. The 
 amount to be spent upon such a program is, however, a phase of our 
 inquiry which cannot be neglected. It is the opinion of this Com- 
 
Special Motoe Vehicle Taxes 
 
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 mission, that a present sum of eleven million dollars a year, increasing 
 in the future with the normal expansion in highway use, should prove 
 adequate for the maintenance of the present general use system and 
 for its normal extension through new construction and the transfer 
 of town roads to the state system. 
 
 There has been so much agitation in recent months for the diver- 
 sion of highway funds for use on other governmental functions that 
 some further explanation may well be made of the policy outlined in 
 general terms in this section. Much of the highway fund is needed as 
 a matter of economy to maintain the investment of the state in its pres- 
 ent highway system. Another large sum — the dirt road appropriation- 
 is already being used to relieve the local tax burden.- Other expendi- 
 tures are a prerequisite to the receipt of federal aid. In the end, the 
 funds which could reasonably be diverted are far less than they are 
 popularly supposed to be. Furthermore, as a matter of principle, we 
 believe that special motor vehicle taxes can in the long run be justified 
 only as a special charge for the privilege of using the highways. It is 
 only because the equity of such a charge is so well established and well 
 recognized that the motoring public has cheerfully submitted to these 
 taxes, heavy though they be. Once the relationship between taxes and 
 highway expenditures is lost, the confidence of the public is under- 
 mined. The state then stands to lose substantial sums through evasion 
 which cannot be checked without public support. 
 
 There is a further, and perhaps more practical, aspect of the 
 problem of diversion of highway funds. At the last session of Con- 
 gress a law was passed depriving states of a certain portion of their 
 federal highway aid grants as a penalty for diverting funds which were 
 at the time of passage of the act earmarked for highway purposes. 1 This 
 apparently means that the only manner in which Connecticut motor 
 vehicle taxes can be diverted without loss of federal aid is to increase 
 such taxes in the aggregate and to divert only the net increase. 
 
 Gasoline tax and registration tax. 
 
 After deciding upon the total amount to be raised by special 
 motor vehicle taxes, the next step is to divide this sum among the 
 several taxes involved. How much of this amount should be distributed 
 according to the consumption of gasoline, how much according to the 
 ownership of motor vehicles, and how much according to other measures 
 of tax liability? 
 
 Prior to 1919 practically all special motor vehicle taxes in the 
 United States took the form of registration fees. Gradually, however, 
 
 l U. S. Stat. L., eh. 586, sees. 12-14. 
 
Special Motor Vehicle Taxes 479 
 
 gasoline taxes have taken a more and more prominent part in highway 
 finance, until now it is estimated that some 513 million dollars are raised 
 by the forty*eight states through this means as compared with 293 mil- 
 lions from registration taxes. 2 Other sources of special motor vehicle 
 tax revenues are of minor importance. 
 
 Although the trend is thus definitely in the direction of gasoline 
 taxes in preference to registration taxes, there is no reason to think 
 that this development will relegate the registration tax to the level 
 of a regulatory fee. 
 
 The gasoline tax alone, whatever be its rate, does not enforce a 
 contribution from each motor vehicle owner reasonably proportionate 
 to the highway costs which he imposes upon the government. Gasoline 
 consumption increases with mileage, with the weight of the vehicle, and, 
 to some extent, with the speed at which it travels, but it does not 
 make adequate allowance for various types of tire equipment, the amount 
 of weight distributed upon a single axle, the nuisance aspect of large 
 vehicles, and safety factors ; these and certain other considerations may 
 be taken into account more adequately in a supplementary registration 
 fee. Furthermore, a gasoline tax exacts a contribution only when one 
 uses the highways, yet every motor vehicle owner is a potential motor- 
 ist whether his vehicle is in actual use or not. The government is more 
 or less obliged to provide highways adequate to carry with safety and 
 convenience any citizen who chooses to use them. The motorist who 
 uses the roads only on Sundays forces the government to place roads 
 at his disposal which are there throughout the week. It is apparent, 
 therefore, that to distribute all highway costs by the gasoline tax alone 
 would be inequitable. 
 
 The shortcomings of the gasoline tax alone may be counteracted 
 by means of a properly devised registration tax. The ideal system is 
 thus a combination of gasoline tax and registration tax so devised as 
 to distribute the burden as nearly as may be in proportion to the cost 
 which each motor vehicle imposes upon the government. In this com- 
 bination we believe that the gasoline tax should bear a relatively larger 
 share than at present. 
 
 Apportionment among motor vehicles in general. 
 
 Once the rate of the gasoline tax has been established, a large pro- 
 portion of the special motor vehicle tax burden is apportioned auto- 
 matically according to purchases of motor fuel. 
 
 The apportionment of the registration tax is not so simple. The 
 day is past when a flat registration fee, resulting in the apportion- 
 
 s Tax Research Foundation, World Taoe Systems, 1934, p. 93. Figures are for 1932. 
 
480 Beport of Special Tax Commission 
 
 merit of the burden according to the number of vehicles which are 
 registered, meets the test of tax principles. It is generally conceded that 
 the registration fee should vary from one motor vehicle to another, and 
 many formulas have been proposed in an attempt to make this variation 
 equitable. 
 
 Several purposes may be served in the distribution of the burden 
 of registration fees. Chief among these is the purpose of exacting from 
 a given group of vehicle owners the highway costs which can be 
 attributed to a particular type of vehicle. Other factors, such as 
 nuisance and safety factors, are pertinent, although they have not yet 
 taken very definite shape in tax legislation. 
 
 With such regulation as now exists concerning the size of motor 
 vehicles, the principal factors subject to the control of motorists which 
 determine the cost of highways are (1) the density of traffic and (2) 
 the wheel impact of individual vehicles. The first factor can be fairly 
 allowed for by means of a flat registration fee, but the second calls 
 for differentiation based upon (1) the type of tire equipment, (2) the 
 gross weight, (3) the tire surface over which the gross weight is 
 distributed, and (4) the speed at which the vehicle is operated. 
 
 Tests by the Bureau of Public Roads have demonstrated that a 
 surfaced highway which is adequate to withstand normal climatic 
 changes and the wheel impact of the vehicles which it is designed to 
 carry can be maintained at approximately the same cost regardless of 
 the density of the traffic if such density arises from vehicles with weights 
 equal to or less than the maximum weight for which the road is 
 designed. If this be true, the additional costs attributable to heavy 
 vehicles are limited almost entirely to construction costs. As far as 
 construction costs are concerned, the additional costs attributable 
 to heavy vehicles consist almost exclusively of surfacing costs, the 
 right of way and substructure costs for a well constructed highway 
 being more or less independent of the wheel impact of the vehicles 
 for which the road is built. It thus appears that the principal cost 
 increments attributable to heavier vehicles arise from the additional 
 thickness of the surface necessary to withstand their heavier wheel 
 impact. 
 
 Most of the concrete highways of this state are now constructed 
 with an eight-inch pavement designed to carry four-wheeled, pneumatic- 
 tired vehicles having a gross weight up to 32,000 pounds. The Bureau 
 of Public Eoads, upon the basis of experiments conducted by it, has 
 arrived at the following schedule of the required average thickness of 
 concrete pavement in relation to the weight of the vehicles using the 
 road: 
 
Special Motor Vehicle Taxes 
 
 481 
 
 Gross Weight 
 Up to 7,000 pounds 
 11,000 
 13,000 
 18,000 
 22,000 
 25,000 
 26,000 
 
 Average thickness 
 5 1/9 inches 
 6% 
 6% 
 7 
 
 m 
 
 A thickness of 7% inches is required to carry a vehicle having a gross 
 weight of 25,000 pounds, as compared with 8 inches now used in Con- 
 necticut road construction. Ignoring, for purposes of illustration, 
 vehicles with non-pneumatic tires and with more than four wheels, it 
 follows that the full cost of this additional quarter inch of pavement 
 generally present on the Connecticut roads should be borne by vehicles 
 having a gross weight in excess of 25,000 pounds. In addition, they 
 should bear their proportionate share of the cost of the first 7% 
 inches. Vehicles of 22,000 to 25,000 pounds gross weight, requiring 
 a 7% i nc h pavement, Should share with heavier vehicles the cost of 
 a Y± inch increment and should share with all vehicles, heavier as well 
 as lighter, the cost of the 7% inches required by vehicles weighing up 
 to 22,000 pounds. In this manner the full cost of highway construction 
 and maintenance may be spread over various weight classes of motor 
 vehicles. 
 
 But the contribution of each class of vehicles to the highway fund 
 is a combination of gasoline taxes and registration fees. It is therefore 
 necessary to deduct the gasoline tax payments from the total cost 
 attributable to each group of vehicles and to raise only the remainder 
 from registration fees. 
 
 The foregoing is a sketch of a principle; — logical on its face and 
 supported by the authority of the United States Bureau of Public 
 Eoads — whereby it might be possible to apportion the costs of the 
 general use highways among the motor vehicles using such roads. 
 Unfortunately this principle has not as yet gained general acceptance, 
 among those who are interested in motor vehicle taxation. There is a 
 sharp difference of opinion, for example, between those who are inter- 
 ested in motor vehicle manufacture and transportation on the one hand 
 and the railway interests on the other hand. 
 
 Moreover, even were this or any other principle accepted as sound r 
 its practical application to the conditions of any state would require 
 an elaborate investigation, involving such matters as past and pro- 
 spective highway costs, annual gasoline consumption of typical 
 vehicles in the several weight classes, the wheel and tire equipment 
 
482 Report of Special Tax Commission 
 
 of registered vehicles, and many other matters. It is obvious that this 
 Commission was not set up to undertake any such investigation. Its 
 appropriation would not provide for the engineering and other tech- 
 nical staffs required. Its time and resources have been fully absorbed 
 with the more strictly taxation problems assigned to it by the General 
 Assembly. 
 
 Finally, the solution of this problem is inextricably involved with 
 the difficult and complicated question of what tax contribution should 
 be required of commercial motor vehicle owners. The nature of this 
 question is briefly indicated in the following section. 
 
 The special problem of commercial motor vehicles. 
 
 The operators of commercial motor vehicles are in competition 
 with railroad and street railway companies, which not only pay for 
 the construction and maintenance of their own right of way — as motor' 
 vehicles may be presumed to do through special motor vehicle taxes — 
 but also pay taxes upon the value of their roadway. To excuse com- 
 mercial motor vehicle operators from taxes upon the value of public 
 property used in their business pursuits is to' subsidize them and to 
 obstruct the competitive forces which should be allowed to decide in 
 favor of the more economic method of transportation. 
 
 Believing thoroughly in the truth of the foregoing principle, this 
 Commission is convinced that there should be tax equality between the 
 various transportation agencies operating in this state. The railroads 
 and street railways are required to furnish their right of way and 
 road construction at their own cost and to pay taxes on the value thus 
 invested. In addition, the taxes imposed upon them are designed to 
 tax all of their other property devoted to the transportation business. 
 The operators of commercial motor vehicles have a right of way and 
 road furnished to them at public expense. Equality requires that they 
 be subject to a tax system which will (1) collect from them all of the 
 costs of construction and maintenance of that portion of the public 
 highways which is properly apportioned to them, (2) collect the equiv- 
 alent of a fair tax upon the value represented in such portion of the 
 highways, and (3) provide a fair contribution in the form of or in 
 lieu of a tax upon all property employed in their business operations. 
 In addition, the motor vehicle operators should be subject to whatever 
 business taxes may be applied to the railroads and street railways. 
 
 We have already proposed that the gasoline tax and the registra- 
 tion tax, in suitable combination, be employed for the purpose of com- 
 pelling all motor vehicle owners to pay their share of highway costs, with 
 the corollary that all the proceeds from these taxes should normally be 
 devoted to the highway fund. The recommendations of this Commission 
 
Special Motor Vehicle Taxes 483 
 
 also contemplate the taxation of all motor vehicles, except motor buses, 
 as personal property and the extension of the general system of busi- 
 ness taxes to those who engage in business upon the public highways. 
 Becommendations for the substitution of a special property tax for 
 the local property tax on motor vehicles and for the continuance, with 
 amendments, of the corporation income tax upon motor transportation 
 companies other than motor bus companies are made in preceding 
 chapters. To complete this part of the picture, the Commission now 
 proposes a tax of one dollar per thousand dollars upon the gross earn- 
 ings of unincorporated motor transportation concerns other than motor 
 bus companies, which are separately treated. 
 
 The serious problem remaining relates to the imposition upon 
 commercial motor vehicles of a contribution equivalent to a tax on the 
 value of the investment in the public highways which they use. The 
 Commission has found it impossible to calculate with any degree of 
 precision either the total amount of the investment in the public road- 
 way or the fair share to be allocated to commercial vehicles. 
 
 The Commission has further considered various proposals for 
 exacting an additional contribution which logically and equitably 
 should be imposed upon commercial motor vehicles. In this phase of 
 the subject we have also encountered practical difficulties. It may be 
 contended that this contribution should be secured by means of higher 
 registration fees for commercial vehicles. But this would require sub- 
 stantially higher fees than those which we recommend. This would 
 destroy the relationship (discussed in a later section of this chapter) 
 which we believe should be established between registration fees in 
 this and neighboring states, and it would thus tend to be self-defeating 
 by encouraging out-state registrations. 
 
 Another suggestion is that this additional sum be raised by means 
 of a ton-mile tax or a combination ton-mile and passenger-mile tax. Such 
 a tax would apply to both domestic and foreign registrants using the 
 highways of the state. There is much to be said for such a tax. Con- 
 necticut is what is sometimes termed a "bridge state." Its highways 
 carry a daily stream of commercial traffic between the metropolitan 
 areas of Boston and New York. This traffic might well be called upon 
 to contribute to the cost of Connecticut highways beyond the taxes paid 
 on purchases of .gasoline within the state. 
 
 On the other hand, there are serious objections to this proposal. 
 For one thing, if applied to non-common carrier vehicles, it would 
 disturb the reciprocal relationships which now exist between Connecti- 
 cut and neighboring states. ~No data are available to show the extent 
 to which Connecticut vehicle owners would be injured by the retaliatory 
 laws of other states. Presumably Connecticut vehicles travel fewer 
 
484 Eepoet of Special Tax Commission 
 
 miles upon highways outside the state than are traveled within the 
 state by foreign vehicles. But until a comprehensive traffic survey is 
 conducted to prove or disprove this presumption and to afford a 
 scientific basis upon which to proceed, a tax of this sort can be advo- 
 cated only as an experimental measure. 
 
 Finally, we see no immediate possibility of enforcing such a tax. 
 There exists a great variety of commercial vehicles. Some are common 
 carriers which are subject to regulation and operate on fixed schedules 
 between fixed termini. Others are contract carriers and anywhere-for- 
 hire carriers. Still others are owned and operated as an incidental 
 aspect of the business of a farmer, manufacturer, or merchant. To tax 
 one of these classes without taxing the other is obviously discrimina- 
 tory. But in the absence of regulation by some such body as the pub- 
 lic utilities commission, it appears highly improbable that a universal 
 ton-mile tax could be effectively enforced at any reasonable expense to 
 the state. The only hope which we see for administering such a tax lies 
 in a reduction of the number of taxpayers to those operating vehicles 
 in excess of, say, five tons capacity. This again would result in dis- 
 crimination against those using a particular type of vehicle. 
 
 Conclusions. 
 
 The foregoing discussion has opened up serious problems of motor 
 vehicle taxation which this Commission is unable fully to solve. These 
 questions have been the subject of study by the railroad companies, the 
 automobile manufacturers, the motor transportation companies, the 
 cement manufacturers, and the highway construction companies, as well 
 as by the United States Bureau of Public Roads. An imposing company 
 of technical experts, economists, engineers, and others has been employed 
 in these investigations, and many thousands of dollars have been 
 expended over years of time. The results of these studies, especially 
 those of the railway interests on the one side and those interested in 
 automobile manufacture and road building on the other side, are at 
 many points in wide disagreement. This disagreement goes to matters 
 both of fact and of principle. 
 
 This Commission has heard representatives of parties at interest 
 in this controversy and has given serious consideration to the published 
 literature of the subject without being able to arrive at a decision as 
 to many fundamental matters at issue. To do so by its own independent 
 research would of course require a technical staff and a sum of money 
 commensurate with that which has been employed by others who have 
 studied the subject. The Commission has had neither the tech- 
 nical qualifications nor the money nor the time to make any such exhaus- 
 tive study. Before the General Assembly finds itself in a position to 
 
Special Motoe Vehicle -Taxes , 485 
 
 * 
 
 solve all the fundamental problems of motor vehicle taxation, it will, 
 in our opinion, require the advice of a special commission set up to 
 investigate this problem alone and to cooperate with neighboring states 
 in its solution. We recommend that such a commission be appointed to 
 report its findings to the 1937 session of the General Assembly. 
 
 In the meantime, the present Commission offers the results of its 
 study of the problem and its conclusions, based upon such principles 
 as we consider well established and controlled largely by the practical 
 aspects of the present situation. The recommendations which we offer 
 will, we believe, serve to correct conspicuous defects in the present taxes 
 and give to the state a system of motor vehicle taxation which will 
 serve satisfactorily until such time as a more fundamental overhauling 
 may be practicable. 
 
 The gasoline tax. 
 Desceiption. 
 
 As in practically all other states, the Connecticut gasoline tax is 
 collected from importers of motor fuels rather than from retail distrib- 
 utors. The tax liability extends also to any producers, refiners, manu- 
 facturers or compounders within the state/ There are now (September 
 10, 1934) 122 distributors liable for the tax. 
 
 The statutory definition of taxable motor fuels covers (1) gaso- 
 line used for any purpose and (2) any other fuel to be used for pro- 
 pelling motor vehicles with combustible type engines over the high- 
 ways of this state. Exemptions are accorded to otherwise taxable motor 
 fuels which are (1) sold to the United States Government, (2) sold by 
 one licensed distributor to another, and (3) transferred from storage 
 within this state to some point outside of the state." The taxable status 
 of benzol, kerosene, and other substances occasionally used as motor 
 fuels depends upon the use contemplated at the time of the sale. In 
 general they are tax-exempt on account of the infrequency of sale for 
 taxable purposes. 
 
 The rate of the Connecticut gasoline tax is two cents per gallon. 
 This represents the lowest of the rates in any of the states of the Union. 
 Only Connecticut, the District of Columbia, Missouri, and Ehode 
 Island have two cent gasoline taxes; in other states the rate ranges 
 from three to seven cents, or even higher if county and city taxes are 
 included. In Table LX.XIV is presented a frequency distribution of the 
 gasoline tax rates of the several states on June 30, 1934. 
 
 "Cum. Sup., 1933, sec. 459b. 
 4 Cum. Sup., 1933, sec. 407b. 
 
486 Report of Special Tax Commission 
 
 Table LXXIV 
 FREQUENCY DISTRIBUTION: RATES OF GASOLINE TAXES IN THE SEV- 
 ERAL STATES AND THE DISTRICT OF COLUMBIA, JUNE 30, 1934 
 Tax rate 1 Number of states 
 
 2 4 
 
 3 12 
 
 4 15 
 
 5 10 
 
 6 6 2 
 
 7 2 
 
 Sources: Tax Research Foundation, World Tax Systems; Commerce Clearing 
 House, Tax Legislation Bulletin. 
 
 1 Excludes local gasoline taxes, if any. 
 
 2 Includes Arkansas with a tax rate of 6.5 cents. 
 
 All distributors of gasoline who are subject to the Connecticut 
 tax are licensed annually by the commissioner of motor vehicles and 
 are required to file corporate surety bonds in amounts not less than 
 $2,000 nor more than $25,000 conditioned upon the payment of the 
 tax. 5 They are required by law to keep records of all motor fuels com- 
 ing into their possession and of all sales or deliveries to purchasers in 
 the state. These records are subject to such audit as the commissioner of 
 motor vehicles may prescribe. 
 
 On or before the fifteenth day of each month every distributor 
 is required to report to the motor vehicle commissioner his sales for 
 the preceding month. The distributor is permitted to retain one per 
 cent of the tax computed on his gross sales by way of compensation 
 for collecting the tax and to allow for shrinkage. Payment of the tax 
 is made to the state treasurer on or before the first day of the following 
 month." 
 
 Refunds are made to persons purchasing fuel for purposes other, 
 than "propelling of motor vehicles using combustible type engines over 
 the highways of this state." This provision is broader than appears on 
 the surface because motor vehicles are defined to exclude, among other 
 things, (1) any vehicle without rubber tires, (2) road rollers, (3) 
 street sprinklers, (4) fire engines, (5) fire department apparatus, (6) 
 police department apparatus, and (7) ambulances owned by the munici- 
 palities or hospitals. Eefunds are granted only upon approval by the 
 motor vehicle commissioner of sworn applications accompanied by 
 original invoices of sales receipts and any further information which 
 the commissioner may require. Applications for refunds must be made 
 within 90 days of purchase and are transmitted to the state treasurer 
 within 30 days thereafter.' 
 
 5 Cum. Sup., 1933, sec. 464b. 
 •Cum. Sup., 1933, sec. 4(5flh. 
 7 Cum. Sup., 1933, sec. 467b. 
 
Special Motor Vehicle Taxes 487 
 
 The proceeds of the tax, over and above refunds, are turned into 
 the highway fund and are used by the highway commissioner without 
 specific appropriation by the General Assembly. 8 
 
 History. 
 
 Connecticut was among the first of the states to enact gasoline 
 taxes, being preceded in this respect by Colorado, Kentucky, New 
 Mexico, North Dakota, and Oregon. The tax as enacted in 1921° has 
 been changed in only a few important respects. At first it applied to 
 fuels used in motor boats, but exclusion of such fuels from the scope 
 of the tax was embodied in an act passed in 1923. M At the same time it 
 was provided that the proceeds of the tax were to be turned into the 
 highway fund. Two years later the rate of the tax was raised from one 
 cent to the present rate of two cents a gallon. 11 
 
 The next important change appears in the act of 1933. At this 
 time the provision for refunds was substituted for a fairly extensive 
 series of exemptions which had previously been granted. These exemp- 
 tions had applied to fuels used for any of the purposes for which 
 refunds may now be claimed. ISTo proof of the validity of the exemp- 
 tion was required except for fuel sold for use in motor boats and for 
 commercial or manufacturing purposes, and it was felt that consider- 
 able evasion of the tax could be eliminated by the substitution of 
 refunds for exemptions. At the same time, the exemptions now 
 accorded to sales to the federal government and to other licensed dis- 
 tributors were introduced. 
 
 Specific recognition was taken in the legislation of 1933 of the 
 fact that the tax was intended to be passed on to the consumer. The 
 law bpecified that the tax was to be paid "for the account of the pur- 
 chaser or consumer", and the distributor was then allowed to retain 
 one per cent of the amount of the tax to cover the expense of collection 
 and loss by reason of shrinkage. . 
 
 Yield. 
 
 With the exception of the year 1932-33 the gasoline tax has yielded 
 larger revenues in each successive year since its passage. In the first 
 full fiscal year for which the tax was effective, the yield was $766,000. 
 This gradually increased to a little over one million dollars in 1925, 
 the last fiscal year in which the one cent rate was effective. After the 
 rate was doubled, the tax increased to reach a temporary peak of 
 
 "Gen. Stat., 1930, sec. 1681. 
 "Pub. Acts, 1921, ch. 300. 
 
 10 Pub. Acts, 1923, ch. 203. 
 
 11 Pub. Acts. 1925. ch. 145. 
 
4:88 Report of Special, Tax Commission 
 
 Table LXXV 
 YIELD OF THE GASOLINE TAX, FISCAL YEARS 1921-22 TO 1933-34" 
 
 Fiscal year 
 
 Yield 
 
 Fiscal year 
 
 Yield 
 
 1921-22 
 
 $443,103 
 
 1928-29 
 
 $3,629,105 
 
 1922-23 
 
 765,940 
 
 1929-30 
 
 4,301,779 
 
 1923-24 
 
 962,479 
 
 1930-31 
 
 4,506,945 
 
 1924-25 
 
 1,118,421 
 
 1931-32 
 
 4,792,402 
 
 1925-26 
 
 2,344,426 
 
 1932-33 
 
 4,633,158 
 
 1926-27 
 
 2,840,518 
 
 1933-34 
 
 4,968,485 
 
 1927-28 
 
 3,227,820 
 
 
 
 Source: State Comptroller, Annual Reports, Office Records. 
 
 1 For the years prior to 1928 the yield of the tax represents the actual cash receipts; 
 for subsequent years it represents income as described in a preceding chapter. 
 
 $4,823,000 in the fiscal year 1931-32. In the fiscal year 1933-34 it 
 reached a new peak of $4,968,485 and contributed approximately 21.3 
 per cent of the tax revenues of the state. Statistics of yield are pre- 
 sented in Table LXXV. 
 
 Conclusions. 
 
 We are of the opinion that the Connecticut gasoline tax is gener- 
 ally well conceived and well administered. We have discovered no 
 evidence of serious evasion of the tax by abuse of the privilege of 
 refunds or by bootlegging. It would be surprising if some such evasion 
 did not exist, and, in fact, the commissioner of motor vehicles has 
 expressed his belief that it does. The substitution of refunds for 
 exemptions has doubtless helped to eliminate these losses. Recognizing 
 that tax evasion may at some future date necessitate the elimination 
 or the curtailment of refunds and a complete reappraisal of policy, we 
 believe that the policy of substituting refunds for exemptions should 
 be pressed even further. It would probably be legally impossible to 
 remove the exemption now accorded sales to the federal government, 
 but motor fuels transferred from storage within the state to a point 
 outside the state may easily be made, taxable subject to refund. 
 
 It is further believed that some simplification can be effected and 
 some evasion prevented by taxing the first sale in case of transfer 
 between two Connecticut distributors. At present such sales are exempt 
 to the vendor, and the tax is collected on sales made by the vendee. 
 It would seem preferable to reverse this situation and to allow the 
 exemption only on the showing of satisfactory evidence that the gaso- 
 line has been previously subjected to taxation by the state. 
 
 The Commission believes that there are substantial advantages 
 to be gained from an increase of one cent in the gasoline tax, offset 
 by a reduction of motor vehicle license fees such as is recommended 
 in a later section of this chapter. Such a program would align our 
 special motor vehicle taxes more closely with those in neighboring 
 
Special Motor Vehicle Taxes 489 
 
 states. It would discourage evasion of the motor vehicle license fees 
 by licensing in other states. It would on all reasonable assumptions 
 increase the contributions made to the highway fund of this state by 
 motorists of other states using Connecticut highways. Finally, it would 
 somewhat shift the burden of maintaining the highways from those 
 persons who use them at infrequent intervals to those using them more 
 or less constantly. In short, we believe that the adoption of this recom- 
 mendation would make for greater equity in the distribution of the 
 cost of providing highways. 
 
 As we have pointed out above, our present gasoline tax rate is lower 
 than that in any other state in this section of the country except Rhode 
 Island. So long as the rate is not increased beyond that in Massachusetts 
 and New York, we do not anticipate any significant increase in boot- 
 legging of fuels or any substantial decline in the purchase of fuels-from 
 Connecticut dealers. The experience of other states has shown that an 
 increase in the rate is usually accompanied by an even greater per- 
 centage increase in revenue. In other words, the reduction in sales 
 which may result from an increase in the tax rate has been more than 
 offset by an increase in consumption due to normal expansion of high- 
 way use. A tax rate of three cents per gallon, which is recommended 
 below, may therefore be expected to raise between $7,000,000 and 
 $7,500,000 within the next few years. 
 
 motoe vehicle license taxes. 
 Description. 
 
 The Connecticut statutes prescribe that all motor vehicles operated 
 upon the highways of the state by residents of the state shall be regis- 
 tered with the commissioner of motor vehicles. Nonresidents com- 
 plying with the laws of their own states may or may not be required 
 to secure a Connecticut registration depending upon the privileges 
 granted by their respective states of residence to Connecticut citizens. 12 
 
 -A variety of registration fees (taxes) have been provided by law, 
 including fees for private passenger vehicles, commercial vehicles, 
 vehicles owned by dealers, passenger vehicles operated in the piiblic 
 service, and others. The great majority of registrations, as may be seen 
 from Table LXXVI below, are for private passenger cars, and most of 
 the remainder are for commercial vehicles. We, will therefore confine 
 our description of fees chiefly to these two classes. 
 
 The fees upon private passenger vehicles are determined by piston 
 displacement, at a rate of eight cents per cubic inch or fractional part 
 
 "Cum. Sup., 1933, sec. 409b; Gen. Stat., 1930, sec. 1571. 
 
490 Keport of Special Tax Commission 
 
 thereof. The fee as so computed is then rounded off to the nearest 
 quarter of a dollar. 13 Commercial vehicles and tractors equipped with 
 rubber tires are divided between those having pneumatic tires and all 
 others. The fee is then determined according to their carrying capacity 
 (or weight in the case of tractors) by application of the following 
 schedule of rates: 14 
 
 
 
 Pneumatic tires 
 
 All others 
 
 y 2 ton or 
 
 less 
 
 $ 15.00 
 
 
 1 ton 
 
 
 22.50 
 
 $ 30.00 
 
 \y 2 tons 
 
 
 30.00 
 
 40.00 
 
 2 tons 
 
 
 37.50 
 
 50.00 
 
 21/ 2 tons 
 
 
 45.00 
 
 60.00 
 
 3 tons 
 
 , 
 
 52.50 
 
 70.00 
 
 3 1/2 tons 
 
 
 60.00 
 
 90.00 
 
 4 tons 
 
 
 67.50 
 
 137.50 
 
 4 1 /2 tons 
 
 
 92.50 
 
 162.50 
 
 5 tons 
 
 
 117.50 
 
 187.50 
 
 5^/2 tons 
 
 
 148.50 
 
 218.75 
 
 6 tons 
 
 
 180.00 
 
 250.00 
 
 6^2 tons 
 
 
 217.50 
 
 
 Each additional ton 
 
 75.00 
 
 100.00 
 
 A vehicle with a capacity between any of the foregoing classes is 
 taxed in the next highest class. In registering, the applicant is per- 
 mitted some discretion as to the registered capacity, within maxima 
 and minima ratings furnished by truck manufacturers. If at any time 
 a truck is found which weighs with load more than the sum of its 
 recorded light weight and its registered capacity, the owner is subject 
 to penalty for overloading." 
 
 Other vehicles are generally taxed on a combination of bases, 
 including capacity in pounds, seating capacity, and piston displace- 
 ment. Electric and steam . vehicles are subject to fees measured by 
 horsepower. 
 
 History. 
 
 The first Connecticut motor vehicle registration law was passed 
 in 1903. It provided for a $1 fee for a certificate issued by the secre- 
 tary of state and required that the number of this certificate be 
 
 18 Gen. Stat., 1930, sec. 1578. 
 "Gen. Stat, 1930, sec. 1577. 
 1S Gen. Stat., 1930, see. 1593. 
 
Special Motoe Vehicle Taxes 491 
 
 displayed upon the car." Official state markers were not supplied until 
 two years later and were then sold at cost to the registrant." 
 
 Differentiated registration fees were provided for by the next 
 session of the General Assembly, the rates being roughly graduated from 
 $3 to $10 depending upon the horsepower of the vehicle." This law was 
 then amended to set a uniform fee of $5 for commercial vehicles and 
 to increase the fees on pleasure vehicles to fifty cents per horsepower 
 for vehicles of less than 25 horsepower and sixty cents per horsepower 
 for others. 18 The rate of the latter fee was soon standardized a't, fifty 
 cents per horsepower, where it remained until 1921. In the latter year 
 the present fee of eight cents per cubic inch of piston displacement was 
 adopted. 20 
 
 Commercial vehicles were put upon a capacity basis in 1911. The 
 original rates were $5" for the first half ton and $2 for each additional 
 half ton. 21 These rates were increased successively up to 1921, by which 
 time they had reached approximately their present level. 22 The only, 
 change since that date which need be mentioned is a slight reduction 
 in the fees of pneumatic-tired commercial vehicles in 1929. "'" 
 
 Yield. 
 
 It is particularly difficult to compile exact figures of the income 
 of the state from motor vehicle registration taxes. In the earlier years 
 for which income figures have been compiled for other taxes from 
 the comptroller's books, the income of the highway fund is not broken 
 down sufficiently for complete accuracy. The figures which we have 
 compiled and which were used in Chapter III are as follows: 
 
 1927-28 
 
 $5,603,434 
 
 1928-29 
 
 6,029,482 
 
 1929-30 
 
 6,375,092 
 
 1930-31 
 
 6,316,158 
 
 1931-32 
 
 6,132,007 
 
 1932-33 
 
 5,712,187 
 
 1933-34 6,383,995" 
 
 More accurate figures are available for actual cash receipts from 
 registrations before refunds. These figures, as reported by the commis- 
 
 "Pub. Acts, 1903, ch. 107. 
 "Pub. Acts, 1905, ch. 230. 
 "Pub. Acts, 1907, ch. 221. 
 "Pub. Acts,- 1909, ch. 264. 
 M Pub. Acts, 1921, ch. 400. 
 a Pub. Acts, 1911, ch. 85. 
 s Pub. Acts, 1921, ch. 400. 
 a Pub. Acts. 1929, ch. 297. 
 "Preliminary figure. 
 
492 Report of Special Tax Commission 
 
 sioner of motor vehicles, are given in Table LXXVI by major types of 
 registrations. It will be observed from this table that about seventy 
 per cent of the receipts now come from registrations of private pas- 
 senger cars and that about twenty per cent come from ordinary com- 
 mercial registrations. The remaining ten per cent come from dealers' 
 registrations and a variety of special commercial and miscellaneous 
 registrations. 
 
 Criticism. 
 
 Bases of the registration taxes. 
 
 ISTo other state in the Union uses piston displacement as a measure 
 of a motor vehicle fee. Connecticut's use of piston displacement arises 
 from the earlier laws, in which horsepower was specified as the meas- 
 ure. The Society of Automotive Engineers' horsepower rating bears 
 a definite relationship to cylinder bore but not to piston stroke. It is 
 still used in several states as a measure of registration fees, but the 
 number of such states has become increasingly smaller. Horsepower 
 and piston displacement bear only an indirect relationship to weight, 
 speed, wheel impact, or any other characteristic of a vehicle which 
 determines highway costs. 
 
 Carrying capacity, which is used as the measure for commercial 
 vehicle fees in Connecticut, is a more common measure, but it too is 
 declining in favor. We are reliably informed that capacity is often 
 understated by means of padding the light weight of the vehicle. In 
 this manner a pay load in excess of registered capacity may be carried 
 without penalty for overloading. Furthermore, carrying capacity is 
 only roughly related to gross weight, wheel impact, and other more 
 logical measures for motor vehicle fees. 
 
 We therefore find that Connecticut has a complicated system of 
 registration taxes involving several distinct bases — piston displace- 
 ment, carrying capacity, and horsepower — as well as several combina- 
 tions of bases. In no case do we find the base to be in accord 'with 
 accepted theories of registration taxes which have been recently 
 developed upon the basis of engineering tests. The experience of other 
 states and the conclusions of students of motor vehicle taxation bear 
 testimony to the superiority of gross weight as a measure of motor 
 vehicle fees over either of the major measures now in use in this state 
 This base can be applied uniformly to practically all vehicles operating 
 on the public roads. The rates, however, should allow for differences in 
 tire equipment and character of motive power. 
 
 At normal speeds wheel impact is about twice as great with hard 
 rubber as with pneumatic tires. Since the contribution which the solid- 
 
Special Motoe Vehicle Taxes 493 
 
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494 Report of Special Tax Commission 
 
 i 
 tired vehicle makes in the form of gasoline tax payments is only slightly 
 
 higher than it would be if equipped with pneumatic tires, the regis- 
 tration fee for such a vehicle should be increased substantially. Another 
 differential should be established for vehicles which do not consume 
 taxable motor fuels, since their contribution to the highway fund is 
 limited to the registration fee. We do not favor any reduction on 
 account of multiple axles because it might further encourage the use 
 of large vehicles which increase highway hazards. 
 
 Kate of the registration taxes. 
 
 The rates of Connecticut motor vehicle license fees have been 
 widely criticized as being out of line with those in neighboring states. 
 This criticism is specially applicable to the fees of heavy vehicles 
 owned by concerns engaged in commercial pursuits. Often such con- 
 cerns are incorporated and operate in several adjoining states. The 
 residence of such a concern is uncertain at best. It may be in the state 
 from which the corporate charter is secured ; it may be at the principal 
 place of business of the corporation ; or it may be in any of the several 
 states in which business is conducted. The lawful obligation of such 
 a concern to register in a given state is thus befogged, and it is not 
 surprising that advantage is taken of the opportunity to register in 
 the state offering the most attractive terms. In addition to this lawful 
 avoidance of Connecticut fees, it is well known that there exists a con- 
 siderable amount of actual evasion of the fee through registration in 
 other states by those who fictitiously claim a residence in such states. 
 The loss to this state arising from these sources is unknown, but surveys 
 by the motor vehicle department indicate that they run to well over a 
 hundred thousand dollars a year. 
 
 Exact comparison of registration fees in Connecticut and neigh- 
 boring states cannot be made because the measures of the fees differ 
 in each of these states. New York uses net weight both for private 
 passenger and commercial vehicles, the rates being 50 and- 75 cents 
 per hundredweight for passenger vehicles and 50 cents for trucks. 
 Rhode Island uses gross weight, and the fees are imposed at rates 
 ranging roughly from 40 cents per hundredweight for light trucks down 
 to 28 cents for heavy vehicles. Massachusetts taxes private passenger 
 vehicles at $3 to $7.50, depending upon horsepower, and commercial 
 vehicles at 15 cents per hundredweight of maximum gross weight. 
 These fees must be compared with an average of $16 for Connecticut 
 pleasure vehicles and 80 cents to $1.69 per hundredweight of carrying 
 capacity for Connecticut trucks. 
 
 There is no established, uniform relationship between capacity, 
 net weight, and gross weight, except that gross weight is the sum of net 
 
Special Motoe Vehicle Taxes 495 
 
 weight and capacity. The exact manner in which gross weight is 
 divided into net weight and capacity depends upon the design of the 
 vehicle. It is therefore necessary in comparing commercial motor 
 vehicle fees in the several states to assume certain typical relation- 
 ships, which will hold for many, though by no means all, trucks within 
 a specified weight class. This has been done in the compilation of Table 
 LXXVII, in which the fees of Connecticut, New York, Rhode Island, 
 and Massachusetts are compared. 
 
 Table LXXVII 
 COMPARATIVE REGISTRATION FEES FOR SELECTED VEHICLES, CON- 
 NECTICUT, NEW YORK, RHODE ISLAND, AND MASSACHUSETTS 
 Vehicle Connecticut New York 1 Rhode Island 2 Massachusetts 8 
 
 Passenger cars 
 Plymouth Standard Coach $16.00 $13.00 ' $10.00 $3.00 
 
 Ford V8 Sedan 17.75 13.50 10.00 3.00 
 
 Chevrolet Master 6 Sedan 16.50 16.00 12.00 4.50 
 
 Buick 4-Door Sedan Model 57 19.00 20.50 16.00 4.50 
 
 Packard 8 Sedan 25.50 24.50 20.00 4.50 
 
 Trucks 4 
 V 2 ton capacity 15.00 18.00 15.50 6.75 
 
 22.50 28.00 18.00 11.25 
 
 37.50 43.20 30.00 18.00 
 
 52.50 56.00 39.00 27.75 
 
 67.50 73.60 48.50 38.25 
 
 117.50 100.00 60.00 49.50 
 
 180.00 112.00 71.00 60.00 
 
 292.50 120.00 100.00 60.00 
 
 367.50 128.00 100.00 60.00 
 
 1 Relationship between net weight and gross weight as established by the New York 
 State Commission for the Revision of the Tax Laws. See Report, February 15, 
 1932, p. 164, Table 44. 
 
 2 Relationship between truck capacity and typical gross weight as reported to us by 
 the Rhode Island State Board of Public Roads. 
 
 8 Relationship between truck capacity and typical gross weight as reported to us by 
 
 the Massachusetts Registry of Motor Vehicles. 
 •Assuming pneumatic tires. 
 
 The data in this table indicate that Connecticut fees are higher 
 for passenger cars and for trucks of more than four ton capacity than 
 in any neighboring state. Small trucks are a little more heavily taxed 
 in New York than in this state, but this difference is more than offset 
 by the fact that motor vehicles are not subject to local property taxes 
 in New York. Great disparity exists between Connecticut and Massa- 
 chusetts fees throughout the rate schedule, but the most striking differ- 
 ence exists in the upper weight classes. Rhode Island has a maximum 
 fee of $100 applicable to all trucks with a gross weight of 28,000 
 pounds and over; New York and Massachusetts have fees which con- 
 tinue to rise with the weight of the vehicle but at a proportional rate. 
 In Connecticut, however, the rate is roughly graduated as the weight 
 
496 Kepokt of Special Tax Commission 
 
 increases, and it rises rapidly as the capacity exceeds six and one- 
 half tons. This disparity gives rise to the large measure of evasion 
 noted above. 
 
 Pkoration. 
 
 Another criticism of Connecticut registration fees which is com- 
 monly made is concerned with the present scheme by which fees are 
 prorated over the calendar year in case of registration to take effect 
 after the last day of January. 25 Roughly speaking, for every month of 
 delay the registrant receives a reduction of one-twelfth in the annual 
 fee until the minimum of $3 is reached. 26 This provision results in 
 many late registrations with a consequent reduction in license fees 
 and gasoline taxes. 
 
 Roads must be provided during the winter months whether they 
 are used or not, and those who have stored their cars with the anticipa- 
 tion of using them later are contributing heavily to the costs of the high- 
 way system by creating a peak-load problem. On the other hand, to refuse 
 any reduction to late registrants is obviously unfair. This suggests the 
 possibility of compromising conflicting interests by continuing the 
 reduction in fees but establishing less frequent intervals at which reduc- 
 tions will be granted. 
 
 Conclusions. 
 
 We conclude that the registration taxes should be based on gross 
 weight, that the basic fee should begin at 30 cents per hundredweight 
 for a gross weight up to 5,000 pounds and should be graduated by incre- 
 ments of one cent per hundredweight for each 3,000 pounds of 
 gross weight up to 40 cents for 32,000 pounds and over, and that this 
 scale of fees should be doubled for vehicles with non-pneumatic tires 
 and for vehicles which do not consume taxable motor fuels. 
 
 We further suggest that fees for partial-year registrations be 
 reduced by one-quarter at the end of each three-month period of the 
 calendar year. 
 
 The estimated effect of these changes on selected vehicles is shown 
 in Table LXXVIII. It will be seen that a reduction of roughly one-third 
 is made in passenger vehicle fees and a reduction of varying 
 amounts in truck fees. These reductions are, we believe, reasonable 
 in conjunction with the proposed increase in the gasoline tax. The 
 greater reduction in truck fees seems to be warranted, not only as a 
 means of discouraging out-state licensing, but also in consideration of 
 
 M Gen. Stat., 1930, sec. 1559. 
 * Gen. Stat., 1930, sec. 1578. 
 
Special Motob Vehicle Taxes 497 
 
 the fact that the recommended increase in the gasoline tax will bear 
 more heavily upon trucks than upon pleasure cars because of the 
 greater mileage which trucks ordinarily run during a given period and 
 their greater gasoline consumption per mile. 
 
 Comparison with the preceding table will show that the proposed 
 rates are not far from those of Rhode Island and, though they are still 
 at least one and one-half times as high as those of Massachusetts, they 
 are generally somewhat lower than those of JSTew York. It should fur- 
 ther be stated that these rates come reasonably close, judged by the 
 fragmentary data which we have collected, to imposing upon each class 
 of motor vehicles its fair share of state highway costs. 
 
 Table LXXVIII 
 
 COMPARISON OF PRESENT AND PROPOSED CONNECTICUT REGISTRATION 
 
 FEES ON SELECTED MOTOR VEHICLES 
 
 
 
 Specifications 
 
 
 
 
 
 Piston 
 
 Gross 
 
 
 
 Vehicle 
 
 
 displacement 
 
 weight 1 
 
 Present tax 
 
 Proposed tax 
 
 Passenger cars 
 
 
 
 
 
 
 Plymouth Standard 
 
 Coach 
 
 201.3 
 
 3,233 
 
 $16.00 
 
 $9.70 
 
 Ford V8 Sedan 
 
 
 221 
 
 3,340 
 
 17.75 
 
 10.00 
 
 Chevrolet Master 6 
 
 Sedan 
 
 206.8 
 
 3,815 
 
 16.50 
 
 11.45 
 
 Buick 4-Door Sedan Model 57 
 
 236 
 
 4,727 
 
 19.00 
 
 14.20 
 
 Packard 8 Sedan 
 
 
 320 
 
 5,515 
 
 25.50 
 
 17.10 
 
 Trucks 2 
 
 
 
 
 
 
 % ton capacity 
 
 
 — 
 
 3,250 
 
 15.00 
 
 9.75 
 
 i tt te 
 
 
 . — . 
 
 5,500 
 
 22.50 
 
 17.05 
 
 -. 2 " " 
 
 
 — 
 
 9,400 
 
 37.50 
 
 30.10 
 
 3 " 
 
 
 — 
 
 13,000 
 
 52.50 
 
 42.90 
 
 4 « 
 
 
 — 
 
 17,200 
 
 67.50 
 
 60.20 
 
 5 " 
 
 
 . — 
 
 22,500 
 
 117.50 
 
 81.00 
 
 6 " " 
 
 
 — 
 
 26,000- 
 
 180.00 
 
 98.80 
 
 7 " 
 
 
 — 
 
 29.000 
 
 292.50 
 
 113.10 
 
 8 " 
 
 
 — 
 
 32,000 
 
 367.50 
 
 128.00 
 
 x Average relationship between capacity and gross weight for trucks as established 
 by actual weighings by the Connecticut motor vehicle department. Gross weight 
 includes the weight of passengers. 
 
 'Assuming pneumatic tires. 
 
 Based upon 1933 registrations, we estimate that this schedule of 
 rates should produce an annual revenue of $4,000,000, or from $2,000,- 
 000 to $2,500,000 less than is currently realized from registration 
 fees. On the other hand, the increase of the gasoline tax to three cents 
 a gallon is estimated to yield an additional $2,400,000. Together these 
 two taxes should yield at least $11,000,000 and so provide the highway 
 fund with ample revenues for the conduct of its duties. 
 
 Motor bus taxes. 
 
 Most states have gone so far as to segregate common carrier motor 
 vehicles for special taxes in addition to gasoline and license taxes. Such 
 
498 Ebpoet of Special Tax Commission 
 
 carriers, unless engaged solely in interstate commerce, are subject to 
 some regulation and receive some special benefits from the state, which 
 together furnish the grounds for such a tax and the administrative 
 machinery for assessing it. 
 
 In this state there are but two types of regulated motor carriers — 
 taxicabs and motor buses. Taxicab companies are subject to the same 
 general property and business taxes and the same special motor vehicle 
 taxes as trucking companies, except that their registration fee is deter- 
 mined on a somewhat higher scale. 27 Motor bus companies, on the 
 other hand, are taxed in the manner of other transportation and com- 
 munication companies. 25 In place of general property taxes and general 
 business taxes, motor bus companies are subject to the 3 per cent tax 
 on gross earnings described in its general aspects in a preceding chap- 
 ter. They are also subject to registration taxes and, of course, to the 
 gasoline tax. 
 
 The first Connecticut motor bus tax was enacted in 1925. Under 
 this law, intrastate carriers were taxed 3 per cent on gross earnings, 
 and interstate buses were subject to a tax of one cent for each mile 
 operated in the state. 29 
 
 At first the full proceeds of the tax were retained by the state and 
 turned into the highway fund, but in the revision of the tax at the fol- 
 lowing session of the General Assembly, it was provided that a town 
 should share in the tax to the amount of one cent for every bus-mile 
 operated within its limits upon highways outside the state aid and trunk 
 line systems. In no case was the amount distributed to all towns on 
 account of the operations of a given company to exceed the amount 
 of tax paid by such company. 3 " In 1931 the unconsolidated cities were 
 allowed to share in the tax on the same basis as towns. 31 
 
 The mileage tax on interstate buses was abandoned in 1929 in favor 
 of the 3 per cent gross earnings tax previously imposed only upon intra- 
 state operations. Any company operating within and without the state 
 is now permitted to allocate its gross earnings in the proportion which 
 the number of miles of routes within the state operated during the 
 calendar year bears to the total mileage of its routes. 82 
 
 When first enacted, the motor bus tax was in lieu of property taxes 
 upon the intangible assets and the evidences of indebtedness of com- 
 panies engaged in intrastate business. Taxes paid locally on real and 
 personal property were offset against the state tax. In 1927 the excise 
 
 27 The average fee is about $38. 
 
 28 See above, Ch. XII. 
 
 2 ' Pub. Acts, 1925, ch. 254. 
 
 80 Pub. Acts, 1927, ch. 268. 
 
 81 Cum. Sup., 1933, sec. 357b. 
 
 82 Pub. Acts, 1929, ch. 229. 
 
Special Motor Vehicle Taxes 
 
 499 
 
 tax was made in lieu of taxes upon any property, tangible or intangible, 
 used exclusively in the motor bus business, and the towns were com- 
 pensated for the loss of such property from their grand lists by means 
 of the distribution of the proceeds of the state tax described above. 
 
 In the 1929 revision of the law one-half of the motor bus tax 
 was made payable on August 15 and the remainder on February 15. 
 The distribution to the towns was to be made on or before March 15. 
 The tax has for some years constituted a lien upon all property used 
 in the motor bus business, and the commissioner • of motor vehicles 
 may suspend any registration licenses during a period of delinquency. 
 
 This tax has yielded amounts varying from $76,000 to $181,000. 
 About two-thirds of the tax is now returned to the municipalities, so 
 that the state's share is reduced to a little more than $50,000. The 
 amounts collected and distributed by the treasurer in fiscal years are 
 shown in Table LXXIX. 
 
 
 Table LXXIX 
 
 
 
 'RIBUTION 
 
 OF THE PROCEEDS OF THE MOTOR BUS 
 
 TAX, FI( 
 
 
 YEARS 1926-27 TO 
 
 1934-35 
 
 
 
 
 State 
 
 Towns 
 
 Fiscal year 
 
 Total proceeds 
 
 highway fund 
 
 and cities 
 
 1926-27 
 
 $76,363 
 
 $76,363 
 
 — 
 
 1927-28 
 
 108,247 
 
 108,247 
 
 — 
 
 1928-29 
 
 122,410 
 
 53,892 
 
 $68,518 
 
 1929-30 
 
 151,827 
 
 72,214 
 
 79,612 
 
 1930-31 
 
 176,652 
 
 90,550 
 
 86,102 
 
 1931-32 
 
 178,919 
 
 87,188 
 
 91,731 
 
 1932-33 
 
 180,867 
 
 81,486 
 
 99,381 
 
 1933-34 
 
 159,960 
 
 55,770 
 
 104,190 
 
 1934-35 1 
 
 159,364 
 
 52,972 
 
 106,392 
 
 Source : State Treasurer, Annual Reports, Office Records. 
 
 1 Preliminary figures compiled from records of the tax commissioner. 
 
 The present motor bus tax is open to criticism on several scores. 
 For one thing, it removes from the local grand list real estate which is 
 similar to all other real estate except only that it is used exclusively 
 in the motor bus business. If it is used but partly or not at all in the 
 motor bus business, it is taxable locally. This provision was carried over 
 from the tax on street railways, where the problem of assessing the 
 right of way led to the abolition of local property taxes. There is, in 
 our opinion, no good reason for the continuance of this aspect of the 
 tax on motor bus companies. 
 
 Perhaps the most obvious criticism of the present motor bus tax 
 is concerned with the distribution of the proceeds of the tax. The com- 
 putation of the tax due to the towns is an exceedingly complicated and 
 onerous task. A change in the route of a motor bus in the course of a 
 year, whether it be temporary (as in the case of detours) or permanent, 
 
500 Report op Special Tax Commission 
 
 or the use of an extra bus for overflow, as well as any changes in the 
 operating schedules of the motor bus company, affects the distribution of 
 the tax. No complete and accurate records of these matters are kept by 
 the bus companies, and it is impossible from the reports which they 
 render to the tax commissioner to compile mileage figures which com- 
 pare exactly with those arrived at by means of figures reported to the 
 public utilities commission. We can only conclude that the present 
 statutory provision for the distribution of the tax is unwise and that it 
 should' be replaced by a simpler formula such as route mileage as dis- 
 tinguished from bus-miles. 
 
 The foregoing criticisms have been concerned with minor aspects 
 of the motor bus tax. They do not extend to fundamental questions of 
 policy. Many such questions might be raised. It may be asked, for 
 example, whether the system of taxes applied to motor bus companies 
 should not be the same as that applied to other motor carriers or, at 
 least, to such passenger motor carriers as taxicabs. Fundamentally we 
 see no distinction among the several types of motor transportation 
 which warrants the use of different tax policies. 
 
 Our recommendations are made, however, on the assumption that 
 the gross earnings tax on motor bus companies will be continued for 
 the time being. "We believe that there is need for a thorough study of 
 the taxation of motor bus companies as part of the whole problem of 
 taxation and regulation of commercial motor vehicles. In a preceding 
 section of this chapter we suggest that a special commission be provided 
 for this purpose. In the meantime, the changes which we have sug- 
 gested will bolster up the present tax until such time as it may be com- 
 pletely overhauled. 
 
 Summary and recommendations. 
 
 Nature and theory of motor vehicle taxes. 
 
 There are four principal questions of policy in the field of special 
 motor vehicle taxes. To what extent should highway costs be financed 
 out of special motor vehicle taxes ? How should this amount be divided 
 among the gasoline tax, the registration tax, and other special motor 
 vehicle taxes? How should the burden of each of these taxes be dis- 
 tributed among the motor vehicles using the highways ? Finally, should 
 an additional tax contribution, over and above their proportionate 
 share of highway costs, be required of commercial motor vehicles ? 
 
 In every state, part, but not all, of total state and local highway 
 costs is defrayed out of special motor vehicle taxes. Recognition has 
 thus been given to a division of all highways into two classes, desig- 
 nated by the United States Bureau of Public Roads as (1) general 
 use highways and (2) land utilization highways. General use highways 
 
Special Motor Vehicle Taxes 501 
 
 have been laid out or are now primarily used for the benefit of the 
 motorist as such, and such highways may properly be financed wholly 
 out of special motor vehicle taxes. Land utilization highways, includ- 
 ing most of what are known as town roads and city streets, are used 
 primarily as a means of access to the land, are of primary benefit to 
 property owners, and may logically be financed out of property taxes 
 and special assessments upon real estate. 
 
 It is impossible to draw a sharp line of demarcation between 
 general use and land utilization highways, and even an approximate 
 classification is difficult without an extensive traffic survey. It has 
 therefore been necessary to assume that the present state highway sys- 
 tem, consisting of 2,400 miles of trunk line and state aid highways, 
 together with that share of the town road system which is financed 
 out of the annual state appropriation of $3,000,000 known as the dirt 
 road appropriation, constitutes the general use highway system of the 
 state, which should be financed out of special motor vehicle taxes. 
 
 The highway expenditures of the state, together with regulation 
 costs of the motor vehicle department and a substantial part of the 
 costs of the; state police department, which is engaged largely in high- 
 way policing, have ranged in recent years from a high of 18 million 
 dollars in 1927-28 to a low of 13 millions in 1932-33. ISTon-tax revenues 
 ranging from 2.3 to 3.4 millions have been available to meet a portion 
 of these expenditures. To yield the remaining revenue necessary to 
 maintain the state highway fund and to pay a fair share of the expenses 
 of the police department, which are now paid entirely out of the gen- 
 eral fund, a present sum of 11 million dollars a year, increasing in the 
 future with the normal expansion in highway use, appears adequate. 
 Approximately this amount appears to be necessary if the state's invest- 
 ment in state highways is to' be protected, if the state is to continue to 
 qualify for federal aid, and if local road aid is to be continued at its 
 present level. To raise more than this amount and divert some of the 
 proceeds to the general fund would be unfair to the motorist. 
 
 The division of this sum of eleven million dollars among the sev- 
 eral special motor vehicle taxes raises questions of the relative merits 
 of the gasoline and registration taxes. Neither tax is complete in itself, 
 although we believe that the gasoline tax, which is the best single mea- 
 sure of highway use, should produce a larger share of the total of these 
 taxes than at present. 
 
 Once the amount to be raised by the gasoline tax is determined, 
 the rate of the tax and its apportionment among motor vehicle owners 
 are thereby determined. But the apportionment of the sum to be raised 
 by registration taxes is not so simple. Presumably this tax should be 
 so devised as to exact, together with the gasoline tax, a contribution 
 
502 Report of Special Tax Commission 
 
 from each motor vehicle equal to the highway costs for which such 
 vehicle may fairly be held responsible. The statement of this principle 
 is much simpler than its application. The time and resources of this 
 Commission have been wholly inadequate for this purpose, and con- 
 clusions have necessarily been arrived at upon the basis of limited cost 
 
 Once the total cost of general use highways has been allocated to 
 motor vehicle users, there remains only the question whether an addi- 
 tional contribution, over and above highway costs, should be required 
 of commercial motor vehicles. These vehicles are operated in competi- 
 tion with railroad and street railway companies, which not only pay 
 for the construction and maintenance of their own right of ways but also 
 pay taxes upon the value of their roadways. The Commission recog- 
 nizes that the failure to tax commercial motor vehicles upon their fair 
 share of the value of the publicly owned roadway tends to obstruct the 
 competitive forces which should be allowed to decide in favor of the 
 more economic method of transportation. We have, however, found it 
 impossible to calculate with any degree of precision either the total 
 amount of the investment in the public roadway or the fair share to 
 be allocated to commercial vehicles, nor have we discovered any practi- 
 cable means of imposing the required tax. 
 
 The Commission's study has disclosed problems of motor vehicle 
 taxation far too broad for solution within the time and the appropria- 
 tion at its disposal. An imposing body of experts has labored upon these 
 problems for years and has arrived at little general agreement on 
 matters of fact and principle. It appears that the full solution of Con- 
 necticut's problems of motor vehicle taxation must await a fuller study 
 on the part of another commission and legislative action in cooperation 
 with neighboring states. In the meantime we offer recommendations 
 which should serve to correct conspicuous defects and give to the state 
 a system of motor vehicle taxes which will serve satisfactorily until 
 such time as a more fundamental overhauling may be practicable. 
 
 The gasoline tax. 
 
 The Connecticut gasoline tax of two cents a gallon is imposed 
 upon all motor fuels manufactured in or imported into the state except 
 (1) motor fuels sold to the United States Government, (2) motor fuels 
 sold by one licensed distributor to another, and (3) motor fuels trans- 
 ferred from storage within this state to some point outside the state. 
 Eefunds may be obtained by purchasers who use gasoline for purposes 
 other than the propelling of vehicles over the public highways or for 
 fire and police department apparatus, etc. 
 
Special Motor Vehicle Taxes 503 
 
 The rate of the gasoline tax in Connecticut is the lowest in the 
 country and is exceeded by the rates in all other states except Rhode 
 Island and Missouri. The typical state rate is four cents, and the rate 
 in most neighboring states is three cents. 
 
 The gasoline tax has yielded increasing revenues in each year 
 since its adoption except 1932-33. The increase from $4,633,000 in 
 1932-33 to $4,968,000 in 1933-34 is ascribable partially to an actual 
 increase in highway use, but it is probably also attributable in no small 
 degree to an act of. the 1933 General Assembly substituting refund pro- 
 visions for a wide range of tax exemptions. The tax now contributes 
 approximately twenty per cent of state tax revenues. 
 
 Although these figures are large, it appears that an even greater 
 share of the state highway fund receipts should come from gasoline 
 taxes. Our principal recommendation for the accomplishment of this 
 end is to raise the rate of the gasoline tax from two to three cents. Other 
 recommendations of minor importance contemplate the further sub- 
 stitution of refunds for exemptions. Should the proposed changes in 
 the gasoline tax be adopted, annual revenues of 7 to 7.5 million dollars 
 can be anticipated from this source in the next few years. 
 
 MOTOE VEHICLE LICENSE TAXES. 
 
 All motor vehicles operated upon the highways of the state by 
 residents of the state or by nonresidents, unless such nonresidents have 
 complied with the laws of their own states and such states grant recip- 
 rocal privileges to Connecticut residents, must be registered with the 
 commissioner of motor vehicles. Upon registration a fee is charged, 
 varying with the type and specifications of the vehicle. Private pass- 
 enger vehicles are taxed at the rate of eight cents per cubic inch of pis- 
 ton displacement. Commercial vehicles are taxed upon a capacity basis 
 at rates roughly graduated with the size of the vehicle. These fees have 
 yielded an income to the state which has in recent years exceeded six 
 million dollars, except in 1932-33 when it declined to 5.7 millions. 
 Four to five millions out of this total come from private passenger 
 vehicle registrations. 
 
 Neither of the two Connecticut registration tax bases — piston dis- 
 placement and carrying capacity — bear more than an approximate rela- 
 tionship to vehicle size, weight, speed, wheel impact, or any other char- 
 acteristic which determines highway costs. No other state uses piston 
 displacement as a tax base, and horsepower, the measure most nearly 
 comparable to piston displacement, is declining in favor. Carrying capac- 
 ity, too, is used in fewer states today than formerly. Gross weight, on 
 the other hand, has been widely endorsed and adopted as a registration 
 
504 Report of Special Tax Commission 
 
 tax base. The Commission proposes the adoption of this measure for 
 the registration fee for both private passenger and commercial vehicles. 
 
 The rates of Connecticut motor vehicle license fees have been 
 criticized as being out of line with those in neighboring states, thus 
 encouraging false declaration of residences in order to register in other 
 states. Evasion of this sort, it is estimated by the department of motor 
 vehicles, results in a loss of registration fees of well over a hundred 
 thousand dollars a year. This is further reason for raising a larger 
 share of special motor vehicle taxes by means of the gasoline tax. 
 
 It is proposed that the registration tax be shifted to a gross weight 
 basis and that the rate be graduated from a basic rate of thirty cents 
 per hundredweight for vehicles weighing less than 5,000 pounds up 
 to forty cents for vehicles of 32,000 and over. This would reduce the 
 registration fees for private passenger cars by about one-third and 
 would result in reductions of varying amounts in commercial registra- 
 tion fees. The largest trucks, the present fees on which are most out of 
 line with those in neighboring states, would receive the greatest reduc- 
 tion, but this seems justified both as a means of encouraging Connecti- 
 cut registration and in recognition of the fact that the recommended 
 increase in the gasoline tax would bear more heavily upon trucks than 
 upon pleasure cars. The proposed tax would raise not much over 4 mil- 
 lion dollars, or 2 to 2.5 millions less than the present taxes. Combined 
 with the gasoline tax it should not fail to produce the 11 million dollars 
 required for the highway fund. 
 
 Motor bus taxes. 
 
 The general character of the Connecticut motor bus tax has been 
 described in Chapter XII as a special property tax. It is a three 
 per cent tax on gross earnings in lieu of property taxes and busi- 
 ness taxes. Unlike the other taxes on transportation and communication 
 companies, the proceeds of this tax are divided between the state and 
 the towns and unconsolidated cities. A town or unconsolidated city 
 receives one cent for each bus-mile traveled within its boundaries on 
 roads which are not in the trunk line or state aid systems. Of the 
 $160,000 to $180,000 which the tax yields, about $100,000 now go 
 to the towns and cities ; the remainder is paid into the highway fund. 
 
 The motor bus tax raises questions of fundamental policy which can 
 be answered only after a more detailed study of the regulation and 
 taxation of the motor transportation business than this Commission 
 has been able to make. We therefore content ourselves with recom- 
 mending minor changes, which will bolster up the present tax without 
 changing it fundamentally. These recommendations contemplate (1) the 
 return of the real estate of motor bus companies to the local grand lists 
 
Special Motor Vehicle Taxes 505 
 
 and the offset of real estate taxes against the gross earnings tax and (2) 
 the distribution of the proceeds of the gross earnings tax between the 
 state and the towns on the basis of established route mileage in place 
 of the present distribution, which involves a difficult computation. 
 
 Kecommendations. 
 
 With respect to the gasoline tax we recommend: 
 
 That the rate of the gasoline tax be increased from two cents to 
 three cents per gallon; 
 
 That the exemption of salesT)y Connecticut distributors of taxable 
 motor fuel transferred from storage within the state to some point 
 outside the state be repealed and that the purchaser of such fuel be 
 reimbursed for the amount of tax paid thereon upon the filing of a 
 sworn application for refund; 
 
 That taxable motor fuel sold by one Connecticut distributor to 
 another be taxable to the vendor and that it be either exempt or 
 taxable subject to refund when resold upon the showing of satisfactory 
 evidence that the fuel has been previously taxed by the state. 
 
 With respect to the registration tax we recommend : 
 
 That all motor vehicles registered in the state, including motor 
 buses, be subject to a registration tax based upon gross weight; 
 
 That the basic registration tax be fixed at thirty cents per hundred- 
 weight for a gross weight up to 5,000 pounds and that it be graduated 
 by increments of one cent per hundredweight for each 3,000 pounds of 
 gross weight up to , a maximum of forty cents per hundredweight for 
 all vehicles with a gross weight of 32,000 pounds and over; 
 
 That this scale of fees be doubled for motor vehicles with non- 
 pneumatic tires and for motor vehicles which do not consume taxable 
 motor fuels; 
 
 That the registration tax for partial-year registrations be reduced 
 by one-quarter at the end of each three-month period of the calendar 
 year. 
 
 With respect to the taxation of motor buses we recommend : 
 
 That all real estate owned or .operated by a motor bus company 
 and used in the motor bus business be taxed locally and that the 
 amount of taxes paid on such real estate be offset against the state tax 
 of three per cent on gross earnings; 
 
 That the proceeds of the gross earnings tax on any motor bus com- 
 pany be divided between the state and the towns and unconsolidated 
 cities in the proportion that the number of miles of established routes 
 operated upon trunk line and state aid highways bears to the number 
 of miles operated upon other highways within the respective towns and 
 cities, without regard for the number of buses traveling such routes. 
 
506 Report of Special Tax Commission 
 
 In addition, we recommend: 
 
 That three-fourths of the expenditures of the state police depart- 
 ment be defrayed out of the highway fund and the remainder out of 
 the general fund; 
 
 That unincorporated motor transportation companies other than 
 motor bus companies be subject, in addition to all other taxes, to the 
 unincorporated business tax upon gross earnings at the rate applicable 
 to retailers and manufacturers, that is, $1 per $1,000 or fraction 
 thereof ; 
 
 That a commission be appointed'to study the whole subject of the 
 regulation and taxation of motor vehicles and to report its findings 
 to the General Assembly. 
 
CHAPTER XVII 
 
 DEATH TAXES, LIQUOE TAXES, AND AMUSEMENT 
 
 TAXES 
 
 There have been discussed in preceding chapters all meas- 
 ures which can accurately be classified as taxes except the state death 
 taxes, liquor taxes, and amusement taxes. These remaining aspects of 
 the tax system furnish the subject matter of the present chapter. 
 
 Death taxes. 
 
 two types of death taxes. 
 
 There are two types of death taxes commonly found in the United 
 States. The simpler of these is the estate tax. It is levied by the federal 
 government, by New York, and by a few other states. Erom the whole 
 of the estate within the jurisdiction of the taxing state exemptions are 
 sometimes deducted for each of the beneficiaries in amounts which 
 vary with the relationship o ; f the beneficiaries to the decedent. The tax 
 is then imposed at rates which are graduated according to the amount 
 of the estate remaining after exemptions. This is conceived of as a tax 
 levied upon the privilege of transferring property upon death. 
 
 The second type of death tax is commonly known as an inheritance 
 or succession tax and is found in most of the states of the Union. In 
 its pure form it is laid upon the distributive shares of an estate. To 
 each share is applied an exemption and a tax rate which depend upon 
 the relationship of the heir to the decedent. As the relationship becomes 
 more distant, the exemptions are lowered and the tax rates raised. The 
 rate of the tax upon a given distributive share is commonly graduated 
 with the value of the share. This tax is levied with particular con- 
 sideration for the ability of the beneficiary to pay. 
 
 Since 1889 Connecticut has had what has been known as a suc- 
 cession tax. It has differed from the usual succession or inheritance 
 tax, however, in important respects which will appear in the descrip- 
 tion which follows. The Connecticut estate tax, which was enacted in 
 1931, is a recent development in this state. The estate penalty tax, 
 considered a death tax by some, we have classified as a special property 
 tax. 
 
508 Repobt of Special Tax Commission 
 
 Description of the Connecticut death taxes. 
 The succession tax. 
 
 This tax is applied to any transfers, made upon death or in con- 
 templation of death, of tangible real and personal property having a 
 situs within the state, whether the transferor be a resident or a nonresi- 
 dent. It further extends to the intangible personal property transferred 
 by residents of the state. The residence of the beneficiary of the trans- 
 fer has no effect upon the tax except in determining the taxable status 
 of bequests to foreign charitable, educational, and religious societies. 
 
 Joint bank accounts and the proceeds of life and accident insur- 
 ance policies payable to a named beneficiary are exempt from the tax 
 regardless of the beneficiary or the joint tenant. In general, transfers 
 to or for the use of the government of the United States, to this state or 
 any of its political subdivisions, to public institutions, and to charitable, 
 educational, and religious societies organized in Connecticut and in 
 states reciprocating in such exemption are also exempt. 
 
 The remaining taxable property is valued as of the date of dece- 
 dence by appraisers appointed by the probate courts, and the valuation 
 is checked by the tax commissioner. Certain additions and deductions 
 are then made. The additions include realized net gains on the sale of 
 certain intangible property between the date of decedence and the date 
 on which the tax return is filed, and the deductions include, among 
 other things, debts of the estate, funeral and cemetery expenses, reason- 
 able compensation of executors and administrators, reasonable pay- 
 ments for the support of a widow between the date of decedence and 
 the date on which the tax return is filed, death taxes payable to other 
 states on intangible personal property, the federal estate tax, and the 
 estate penalty tax. 
 
 The net estate as so computed is then divided into three parts 
 according to the relationship of the heirs to the decedent. The first 
 part comprises the shares bequeathed to direct lineal heirs and certain 
 other close relatives ; the second, the shares bequeathed to brothers and 
 sisters, certain more distant relatives, and relatives by marriage; and 
 the third, the shares bequeathed to any other persons. Each part is 
 then subject to its own particular exemptions and tax rates. The aggre- 
 gate exemption for Class A bequests as a class is $10,000, for Class B 
 bequests, .$3,000, and for Class C bequests, $500. The amount of each 
 part of the net estate in excess of these exemptions up to and includ- 
 ing $25,000 is taxable in the first bracket; the next $75,000, in the 
 second bracket; the next $100,000, in the third bracket; and the 
 remainder, in the fourth bracket as follows : 
 
Death Taxes, Liqttob Taxes, and Amusement Taxes 509 
 
 Class A Class B Class C 
 Up to $25,000' 1% 2% 5% 
 
 25,001 to 100,000 2% 3% 6% 
 
 100,001 to 200,000 3% 4% 7% 
 
 200,001 and over 4% 5% 8% 
 
 This rate schedule represents a peculiar combination of an estate 
 tax and an inheritance tax. The amount of the tax is in no wise depend- 
 ent upon the number of the heirs in any class (so long as that class 
 is represented by at least one heir). Thus, in case all bequests fall 
 within the same class, the tax is, in fact, identical with an estate tax. 
 On the other hand, the classification of heirs and the double graduation 
 of the tax rates are characteristic of the inheritance tax. 
 
 Executors and administrators are required to file with the tax 
 commissioner and with the court of probate, within one year after the 
 death of the transferor, sworn returns containing all necessary infor- 
 mation for the assessment of the tax. This time may be extended by the 
 court of probate for good cause. Within four weeks after the filing of 
 this return, the tax commissioner is required to compute the tax, 
 which is thereafter assessed by the court of probate. 
 
 The tax is due at the death of the transferor but may be paid 
 without interest within fourteen months. From then on until paid it 
 bears interest at the rate of 9 per cent per annum, unless the time for 
 payment of the tax has been extended by the probate court, whereupon 
 it bears interest at 4 per cent per annum during the period of such 
 extension. 
 
 The estate tax. 
 
 The Connecticut estate tax grew out of a provision in the Federal 
 Revenue Act of 1924 allowing a credit up to 25 per cent of the federal 
 estate tax for any death taxes payable out of the proceeds of the estate 
 to states and territories of the United States. In 1926 the credit 
 was increased to 80 per cent of the federal tax. This made it possible 
 for any state to levy death taxes up to 80 per cent of the federal estate 
 tax without imposing any additional burden upon its taxpayers. The 
 result of such a state tax was simply to shift revenues to the state which 
 would otherwise have gone to the federal government. Because of the 
 fact that Connecticut then employed only a succession tax with mod- 
 erate rates whereas the federal government levied a rather steeply 
 
 'The classification is determined before exemptions are deducted. Thus, if a $50,000 
 estate were bequeathed entirely to Class A heirs, $10,000 would be exempt, $15,000 
 would be taxable at 1%, and $25,000, at 2%. 
 
510 Report of Special Tax Commission 
 
 graduated estate tax with liberal exemptions, there were some estates 
 upon which the taxes levied by this state amounted to less than 80 
 per cent of the federal tax. Connecticut was thus losing revenues which 
 might have been enjoyed without any increase in the combined federal 
 and state death taxes upon its residents. 
 
 These revenues were obtained for the state in 1931 by the enact- 
 ment of the Connecticut estate tax. The tax is imposed upon estates 
 transferred by persons who, at the time of death, were residents of 
 this state. The statutes specify that it is to be computed by subtracting 
 from 80 per cent of the federal estate tax in force at the time of death 
 the amount of all death taxes paid to the several states and territories 
 of the United States, including Connecticut, upon property transferred 
 in the estate. 2 
 
 In the Federal Revenue Act of 1932 a second federal estate tax 
 without credit for state taxes was enacted. This second federal tax is 
 ignored in computing the Connecticut tax, the tax commissioner hav- 
 ing been given the power to make such rulings as are necessary to 
 bring the act into conformity with the expressed purpose of the General 
 Assembly. 8 
 
 The Connecticut estate tax is assessed by the tax commissioner 
 upon the basis of information filed together with the succession tax 
 return for all estates valued at $100,000 or more. Appeal may be taken 
 to the superior court of Hartford County. The tax is due at the date 
 of decedence and is payable without interest within 18 months there- 
 after, which time may be extended by the tax commissioner. Most 
 of the administrative provisions of the succession tax are also applicable 
 to the estate tax. 
 
 Histoey. 
 
 The succession tax. 
 
 The first Connecticut death tax was enacted in 1889 and followed 
 closely upon the recommendations of the Special Commission on the 
 Subject of Taxation which reported to the General Assembly in 1887.' 
 A tax of 5 per cent was imposed upon the excess over a $1,000 aggre- 
 gate exemption of all tangible and intangible property "within the 
 jurisdiction of this state" passing to non-lineal resident and nonresi- 
 dent heirs. According to contemporary legal opinion, the jurisdiction 
 of the state extended to all real estate within its boundaries and to all 
 
 ■Cum. Sup., 1933, sec. 377b. 
 ! Cum. Sup., 1933, sec. 382b. 
 'Report, 1887, pp. 33, 60-64. 
 
Death Taxes, Liqtjoe Taxes, and Amusement Taxes 511 
 
 personal property of its residents.' Public and charitable bequests were 
 not subject to the tax." 
 
 Transfers to lineal heirs were first made taxable in 1897 at the 
 rate of one-half of one per cent. Brothers and sisters of the deceased, 
 who had been removed from the scope of the earlier tax in 1893, were 
 again classified with collateral heirs. 
 
 In 1903 and again in 1907 the tax upon transfers made by non- 
 residents was substantially expanded. In this latter year all tangible 
 and intangible property actually located within the state was made 
 taxable as well as all stocks and registered bonds of Connecticut cor- 
 porations transferred by a resident of a state which did not reciprocate 
 in the exemption of securities of its domestic corporations when trans- 
 ferred by Connecticut decedents. 7 
 
 The rates of the succession tax were increased in 1909 from one- 
 half of one per cent to one per cent on bequests to lineal heirs and from 
 three per cent to five per cent on bequests to collateral heirs. The aggre- 
 gate exemption of $10,000 was reduced to $500 in case the bequest 
 was made to collateral heirs or proportionately reduced if made in 
 part to such heirs. 8 
 
 Two important changes were made in the law by chapter 231 of 
 the Public Acts of 1913. In the first place, the tax upon intangible 
 property transferred by nonresidents was repealed. Secondly, rates 
 graduated according to the size of the shares of the estate going to 
 specified classes of heirs were introduced. 
 
 Intangible property of nonresident decedents was again made tax- 
 able in 1919 by reintroducing the clause of the 1907 act described 
 above. 9 The cooperation of the administrators and executors of non- 
 resident estates in the assessment of the tax was assured in 1921 by a 
 provision subjecting taxable property of such an estate to a flat rate 
 of eight per cent as a penalty for failure to make the required reports. 10 
 
 Changes in the tax rate schedules were made in 1915 and 1921. 
 The rate schedules established in the latter year have since remained 
 unchanged. The whole succession tax law was revised and codified 
 in 1923 and again in 1929, but the principal changes involved were 
 administrative. The provision for taxation of jointly owned property, 
 other than bank accounts, upon the death of one of the owners was an 
 important addition to the law which was made before the second of these 
 revisions. 11 Such property does not enter into an estate and, as in the 
 
 "' Gallup's Appeal, 76 Conn. 617 (1904). 
 
 •Pub. Acts, 1889, ch. 180. 
 
 'Pub. Acts, 1907, ch. 179. 
 
 'Pub. Acts, 1909; ch. 218. 
 
 "Pub. Acts, 1919, ch. 283. 
 "Pub. Acts, 1921, ch. 297. 
 " Pub. Acts, 1925, ch. 149. 
 
512 Report or Special Tax Commission 
 
 case of gifts in contemplation of death, is not probated by the courts. 
 For administrative simplicity it is assumed that the decedent shared 
 equally with the other joint tenants in the joint estate. 
 
 The nonresident transfer tax. 
 
 Early in the last decade a movement was begun among the various 
 states which in the course of a few years eliminated much of the 
 multiple taxation which previously existed under state inheritance tax 
 laws. 
 
 In the beginning this movement took the form of what were known 
 as nonresident transfer taxes, which supplemented the regular inheri- 
 tance taxes. These new taxes accorded special treatment to the transfers 
 of personal property of nonresident decedents. Connecticut took part 
 in this movement by enacting such a tax in 1923 as part of its succes- 
 sion tax. 12 Under this tax, transfers by nonresident decedents of tan- 
 gible personal property located in the state, stocks and bonds of Con- 
 necticut corporations, and obligations of Connecticut residents were 
 taxed at two per cent of their value without exemptions, in lieu of taxa- 
 tion under the regular succession tax. 
 
 After 1923, however, developments took place which minimized 
 the fiscal importance of this tax and eventually eliminated the problem 
 it had been designed to meet. Within a relatively short period recip- 
 rocal laws exempting transfers of intangible personal property by 
 nonresident decedents from inheritance taxation, when such decedents 
 were residents of states complying with the conditions of the reciprocal 
 agreements, were enacted by a substantial majority of the states. 
 
 The United States Supreme Court held in 1925 that the situs of 
 tangible personal property for inheritance tax purposes was the state 
 where it was located at the death of the decedent and not the state 
 of the decedent's residence. 18 Other court decisions followed establish- 
 ing the situs for inheritance tax purposes of various types of intangible 
 personal property." 
 
 The Connecticut nonresident transfer tax was amended and 
 finally repealed in response to these developments. The spread of 
 reciprocity restricted its yield from the date of its enactment. After 
 the Frick decision, transfers of tangible personal property located in 
 Connecticut were eliminated from the nonresident stock tax and made 
 subject to the regular succession tax." Finally, the nonresident transfer 
 tax was repealed in 1929. 16 
 
 " Pub. Acta, 1923, eh. 310. 
 
 "Frick v. Commonwealth of Pennsylvania, 268 U. S. 473 (1925). 
 
 "See First National Bank of Boston v. State of Maine, 284 U. S. 312 (1932). 
 
 15 Pub. Acts, 1927, ch. 57. 
 
 »• Pub. Acts, 1929, ch. 299. 
 
Death Taxes, Liquok Taxes, and Amusement Taxes 513 
 
 The estate tax. 
 
 The circumstances surrounding the enactment of the estate tax 
 in 1931 have already been described. It was made applicable to estates 
 of all residents dying on or after May 1, 1930. Wo change was made in 
 this tax at the 1933 session of the General Assembly. 
 
 Yield. 
 
 The succession tax, by reason of changes in its scope and rates 
 as well as by reason of large increases in the dollar value of taxable 
 wealth, has yielded increasingly larger revenues over the past genera- 
 tion. By the opening of the century the yield had been established at 
 a point just over $100,000. 'By the fiscal year 1910-11 cash receipts 
 were $1,125,000, by 1920-21, $1,988,000, and by 1930-31, $4,827,000. 
 Since that date there has- been a decline to $1,700,000. During the 
 past seven years this tax contributed, on the average, approximately 
 10 per cent of the income of the state. 
 
 The estate tax yields considerably less than the succession tax. 
 Since only a small number of estates — some fifteen to twenty each 
 year — are sufficiently large to come within the scope of this tax, an 
 unstable yield may be anticipated from it. There has been a sub- 
 stantial lag between the date of decedence and the final recording of 
 the assessment by the comptroller because of the difficulty encountered 
 in putting the tax into operation. This accounts for the increase in 
 the recorded income from this tax right through the depression to a 
 peak of $658,518 in the fiscal year 1933-34. In the absence of an unu- 
 sually rapid recovery it is doubtful whether this amount will be 
 realized from the tax again in the immediate future. 
 
 The income from these two death taxes — as distinguished from 
 cash receipts — is shown in the accompanying table. 
 
 Table LXXX 
 STATE INCOME FROM SUCCESSION AND ESTATE TAXES, FISCAL YEARS 
 
 1927-28 TO 1933-34 
 
 Fiscal year 
 
 Succession tax 1 
 
 Estate tax 
 
 Total 
 
 1927-28 
 
 $2,920,906 
 
 — 
 
 $2,920,906 
 
 1928-29 
 
 3,343,884 
 
 ■ — ■ 
 
 3,343,884 
 
 1929-30 
 
 3,717,332 
 
 — 
 
 3,717,332 
 
 1930-31 
 
 4,970,382 
 
 $5,312 
 
 4,975,694 
 
 1931-32 
 
 3,875,324 
 
 232,866 
 
 4,108,190 
 
 1932-33 
 
 2,099,381 
 
 303,806 
 
 2,403,187 
 
 1933-34 
 
 1,720,611 
 
 700,248 
 
 2,420,859 
 
 Source: State Comptroller, Office Records. 
 * Includes the nonresident transfer tax. 
 
514 Report of Special Tax Commission 
 
 Appraisal. 
 
 General structure. 
 
 Whatever its logic, the peculiar structure of the Connecticut suc- 
 cession tax, which is neither an inheritance nor an estate tax, embodies 
 some of the virtues of both of the more common forms of death taxes. 
 It allows more fully than the estate tax for the varying financial 
 dependence of direct and collateral heirs. At the same time, it is simpler 
 in administration than the inheritance tax. Consequently we find no 
 need for a general revision of the structure of the tax. 
 
 There is another important reason for retaining the present tax 
 in the absence of substantial evidence of inequity. An inheritance tax 
 touches the lives of the citizens of the state at most infrequent inter- 
 vals. To alter it frequently thus discriminates against those individuals 
 who come within its sphere in the particular years in which the higher 
 tax burden obtains. It is therefore, advisable, in our opinion, to main- 
 tain a substantially stable tax base as well as stable tax rates unless 
 convincing arguments can be presented for their alteration. 
 
 The unique character of the Connecticut succession tax renders 
 it impossible to make any exact comparison of the burden which it 
 imposes with the burdens imposed by death taxes in neighboring states. 
 In general, however, we believe that the burden of the Connecticut tax 
 is sufficiently similar to those in other states to afford no incentive to 
 establish residence without the state. At the same time, the rates are 
 adequate to produce, in normal times, a substantial part of the revenue 
 necessary for the conduct of the state government. These considerations, 
 in conjunction with the argument for stability in inheritance tax laws, 
 lead us to believe that there is no immediate occasion for altering the 
 rates of the Connecticut succession tax. 
 
 With the abolition of the nonresident transfer tax in 1929, the 
 base of the Connecticut succession tax was brought into conformity 
 with the best opinion of tax experts and of the judiciary. Such cases 
 of double taxation as still arise are, in our opinion, to be ascribed to 
 laws other than those of this state and to troublesome legal problems 
 of the situs of intangibles which can only be worked out in the courts. 
 
 Exemptions. 
 
 Some consideration has been given by this Commission to the 
 desirability of denying exemptions to bequests to charitable, educa- 
 tional, and religious organizations. At present this exemption extends 
 to bequests made to qualifying Connecticut organzations of these types 
 and to similar organizations formed under the laws of any state recip- 
 
Death Taxes, Liqtjoh Taxes, and Amusement Taxes 515 
 
 rocating in the exemption of transfers to Connecticut organizations. 
 Many of the problems which were pointed out in the discussion of 
 exemptions from property taxes, as well as the underlying principles 
 involved, apply also to exemptions from death taxes. We therefore 
 think it advisable to postpone decision upon this phase of the death 
 taxes until these two problems have had the further study which we 
 recommend. 
 
 There is but one exemption from the succession tax upon which 
 we believe that immediate action should be taken by the General Assem- 
 bly. As pointed out above, when jointly owned property was brought 
 within the scope of the succession tax in 1925, jointly owned checking 
 and savings bank accounts were excluded. 
 
 We feel that the existence of this exemption affords an avenue of 
 escape from the succession tax which is no more justified on grounds 
 of general principle than the exemption of any other type of jointly 
 owned property. Occasionally large estates can be liquidated shortly 
 before the death of the owner and placed in a joint bank account for 
 the < specific purpose of escaping the tax. The generous exemptions 
 accorded to bequests to direct heirs destroy such validity as there may 
 appear to be in the argument that a joint account is the poor man's will. 
 
 CoNTKOL OE SAFE DEPOSIT BOXES. 
 
 The administration of the Connecticut death taxes has, we believe, 
 proved eminently satisfactory to the state and to the taxpayers. We 
 believe, however, that it would be strengthened without imposing an 
 unreasonable burden upon taxpayers if the state exercised control at the 
 death of the lessee over safe deposit boxes rented from banks and safe 
 deposit companies within the state. New York has successfully exer- 
 cised such control for a number of years. This can be accomplished by 
 denying access to a safe deposit box to any person, when the lessee of 
 such box has died, until such time as an agent of the tax commissioner 
 has had an opportunity to check the contents of the box. In a state as 
 small as Connecticut an examination of the contents can be made within 
 a few hours after notice of death has reached the office of the tax com- 
 missioner. 
 
 It is true that this control occasionally fails when there are two 
 or more lessees and that it does not extend to persons who choose to 
 keep taxable property in private safes and other such places. We feel, 
 however, that the control of safe deposit boxes would have a salutary 
 effect upon taxpayers and that considerable evasion would.be checked 
 by this means. 
 
516 Report of Special Tax Commission 
 
 Recommendations. 
 
 We recommend: 
 
 That jointly owned bank accounts.be made subject to the succes- 
 sion tax on the same basis as any other jointly owned property ; 
 
 That all lessors of safe deposit boxes and vaults within the state, 
 upon learning of the death of any person having access thereto at the 
 time of death, be prohibited from allowing access to such boxes and 
 vaults until the tax commissioner has been given reasonable opportunity 
 to check the contents; 
 
 That the problem of exemption of bequests to charitable, educa- 
 tional, and religious organizations be given further study by the Gen- 
 eral Assembly as part of the entire problem of tax exemption. 
 
 Liquor taxes. 
 General theory. 
 
 Liquor taxes in the United States take a relatively limited num- 
 ber of forms. For the most part they are new taxes, which were 
 enacted hastily at a time when revenue needs were a dominant, if not 
 a controlling, influence. Yet despite the fact that most of these taxes 
 were conceived under such conditions, there can be seen in the laws of 
 the several states certain underlying principles which serve to justify 
 a relatively heavy tax upon the liquor industry. 
 
 It is clear that fiscal expediency alone cannot justify a liquor tax. 
 If the only purpose is to secure revenue without regard for equity, it 
 can as well be served by a tax upon bread. The political expediency of 
 a liquor tax instead of a bread tax arises from a more or less wide-spread 
 belief (1) that liquor is a luxury rather than a necessity and (2) that 
 its consumption should be discouraged for moral and other reasons. 
 All of the excise taxes on liquor, whether ad valorem as in Connecti- 
 cut or specific as in most other states, are sumptuary in nature and 
 are not only explained but openly defended on this basis. 
 
 A second motive appearing in a few liquor taxes is that of taking 
 the profit out of the liquor industry. It finds expression in excess pro- 
 fits taxes on liquor wholesalers and retailers in New Mexico, on whole- 
 salers in Rhode Island, and on manufacturers and other permittees in 
 Ohio. 
 
 State liquor monopolies serve at one and the same time the pur- 
 poses of a sumptuary tax and an excess profits tax. By controlling 
 prices, the state may exact such contributions from consumers as it 
 desires. All profits over and above operating costs and capital charges 
 are, of course, retained by the state. 
 
Death Taxes, Liqtjob Taxes, abd Amusement Taxes 517 
 
 Description of Connecticut liquor taxes. 
 
 We are not directly concerned in this investigation with non-tax 
 revenues, and we shall, therefore, confine ourselves in this section to 
 liquor taxes as distinguished from the permit fees which must be paid 
 upon the issuance of liquor licenses. 
 
 The Connecticut liquor taxes are gross sales taxes imposed at the 
 rates of one and four per cent.. The higher rate applies to retail sales, 
 and the lower, to wholesale transactions, whether consummated by 
 manufacturers or by wholesalers. Municipal golf clubs and railroads are 
 the only permittees that are exempt from the tax. . 
 
 Sales of all liquors, including alcohol, spirits, wine, beer, and any 
 other consumable liquid or solid containing such liquors and having 
 an alcoholic content of one-half of one per cent or more, are taxable. 
 Any sales which are made for resale, whether by a manufacturer or a 
 wholesaler, are classed as wholesale transactions. All sales for con- 
 sumption by the purchaser are considered retail sales. A manufacturer 
 selling his products without the state or shipping his goods without the 
 state before making a sale is taxable upon the value of such products 
 before entering into interstate commerce. 
 
 Gross receipts from sales include all cash, credits, or property of 
 any kind received in exchange for any beverage. From gross receipts, 
 so defined, there may be deducted the following: 17 
 
 1. Transportation charges included in the delivered prices ; 
 
 2. Cash discounts allowed and taken on sales; 
 
 3. The value of goods returned if the selling price is refunded in 
 cash or credit; 
 
 4. The net difference between charges to a bad debts account and 
 recoveries on bad debts previously charged off." 
 
 Taxpayers are required to report quarterly in the months of 
 October, January, April, and July. If, in the opinion of the tax com- 
 missioner, the taxpayer is engaged in the beverage business in a tempo- 
 rary capacity, he may be required by the commissioner to furnish bond 
 in a sum not to exceed $5,000 conditioned upon the filing of returns 
 and payment of taxes. 
 
 Taxes are due within thirty days of the end of each quarter and 
 are to be paid at the time of filing the tax returns. The tax constitutes 
 a lien against all the property of the taxpayer and may be collected by 
 foreclosure or by ordinary suit. Failure to file a return or pay a tax 
 when due results in a temporary suspension of the taxpayer's permit." 
 
 " Cum. Sup., 1933, sec. 754b. 
 " Cum. Sup., 1933, sec. 766b. 
 
518 Repobt of Special Tax Commission 
 
 Relationship to business taxes. 
 
 Unincorporated concerns engaged solely in the liquor business are 
 exempt from the unincorporated business tax. Unincorporated concerns 
 engaged in the liquor business and also in another line of business which 
 is taxable under the unincorporated business tax are permitted to divide 
 their gross sales into two parts, that part representing sales of taxable 
 beverages being taxable under the Liquor Control Act, and the 
 remainder being taxable under the unincorporated business tax at the 
 low rates of one-tenth of one per cent or one-fortieth of one per cent 
 depending upon whether they are (1) retailers or (2) manufacturers or 
 wholesalers. 
 
 Corporations engaged solely in the liquor business are exempt from 
 the state net income tax. A corporation engaged in the liquor business 
 and also in some other line of business which is taxable under 
 the corporation income tax is permitted to divide its net income 
 into two parts. That portion of the net income which is derived from 
 the liquor business is exempted, and the remainder is taxed at two 
 per cent under the miscellaneous corporations tax. The tax commissioner 
 is empowered to prescribe regulations for the equitable allocation of 
 the general and overhead costs as between the liquor business and any 
 other business conducted by the taxpayer. 
 
 The exemption of railroads from the liquor tax is ascribed to the 
 fact that receipts from their liquor sales are taxable under the gross 
 earnings tax of three and one-half per cent imposed by the state upon 
 these companies in lieu of property taxes. 
 
 Yield. 
 
 The liquor tax has been effective only since April 25, 1933. 
 Between that date and the end of the fiscal year 1932-33 its yield was 
 $102.35, representing casual receipts which were not due until July. 
 Collections forthe first quarter of the fiscal year 1933-34 were $83,000. 
 This amount was small because collections were based upon legitimate 
 liquor business of less than two months, the sale of light wines and beers 
 having been illegal prior to May 5, 1933. Second quarter collections 
 were $188,000, being more than twice those of the first quarter. 
 
 Another change which has had considerable effect upon collections 
 from this tax occurred in December 1933, when the sale of distilled 
 liquors was legalized by the ratification of the Twentieth Amendment. 
 This had some slight effect upon collections for the third quarter, which 
 were based largely upon sales made in the three months ending on 
 December 31, but its full effect did not appear until the last quarter of 
 the fiscal year 1933-34, when collections exceeded $228,000. Judging 
 by collections in the first quarter of the current fiscal year, this, level 
 
Death Taxes, Liqtjob Taxes, and Amusement Taxes 519 
 
 will be maintained or exceeded in the near future. Receipts of nearly a 
 million dollars are indicated for the fiscal year 1934-35. Statistics of 
 yield are presented in Table LXXXI. 
 
 Table LXXXI 
 
 CASH RECEIPTS FROM LIQUOR TAXES BY QUARTERS, APRIL 1933 TO 
 
 SEPTEMBER 1934 
 Period 1932-33 1933-34 1934-35 
 
 First quarter — $83,011.91 $339,592.75 
 
 Second quarter — 188,335.91 383,882.89' 
 
 Third quarter — 158,800.04 
 
 Fourth quarter $102.35 228,027.37 
 
 Total 102.35 658,175.23 
 
 Source: Tax Commissioner, Office Records. 
 
 1 Collections to and including November 30, 1934. This amount will probably rep- 
 resent all but about $5,000 of the total collections for the quarter. 
 
 Criticism. 
 
 When the Connecticut liquor legislation was framed, the 1 experi- 
 ence which could be drawn upon was extremely limited. This was 
 especially true in the field of taxation because the states had resorted 
 entirely to licenses for their liquor revenues before the prohibition era. 
 The tax policies of other states were only beginning to take form, 
 and in many states the laws which were enacted were frankly admitted 
 to be experimental. Connecticut adopted a tax which differs in important 
 respects from the liquor taxes in any other state. 
 
 Those who were responsible for the enactment of this liquor tax 
 were faced with an unusual situation. A new industry was springing 
 up almost overnight. Demands were made for business taxes in order 
 that the state might share in the profits, which were expected to be 
 large during the early months of repeal. There were also strong demands 
 from temperance forces for taxes which would discourage the consump- 
 tion of liquor. The result of these several demands was a system of 
 taxes which were neither true business taxes nor true consumption 
 taxes. 
 
 The present combination of business tax and consumption tax 
 opens the door to. tax evasion. An incorporated concern, such as a hotel, 
 is often engaged incidentally in the liquor trade. Under the present 
 law the officers of the corporation must allocate the general and over- 
 head costs between the liquor business and all other businesses accord- 
 ing to regulations prescribed by the tax commissioner. Where liquor is 
 sold in conjunction with a restaurant, an accurate allocation is a very 
 difficult and a decidedly impractical procedure. The tendency is, of 
 course, to ascribe as little as possible of the costs of the business to the 
 liquor trade, because the liquor tax liability is determined by gross sales 
 
520 Repokt of Special Tax Commission 
 
 and not by net profits, while the tax liability for other aspects of the 
 business is determined by net income. 
 
 In the case of unincorporated concerns conducting a liquor busi- 
 ness and another mercantile or manufacturing business, both the liquor 
 tax and the unincorporated business tax are levied upon the gross sales. 
 The danger here is that sales will be diverted from one account to 
 another to take advantage of the low rate applicable to general sales as 
 distinguished from liquor sales. Ordinarily taxpayers are interested in 
 keeping accurate records of their gross sales, but they are not so much 
 concerned with segregating them. This means of evasion would not be 
 completely removed by the adoption of the recommendations which are 
 made below, but it would be narrowed by limiting the liquor tax liability 
 chiefly to wholesalers and manufacturers. 
 
 The attempt to use the liquor tax as a business tax has another 
 unfortunate effect. It results in discrimination against Connecticut 
 liquor manufacturers and wholesalers. Most other states, includ- 
 ing our immediate neighbors, levy no tax upon liquor sold by 
 their residents outside the state. Connecticut does tax such sales when 
 made by manufacturers, thereby placing them under a competitive han- 
 dicap. Sales made by a Connecticut manufacturer in New York must 
 bear the Connecticut tax of one per cent and also the specific excise 
 tax levied by New York, whereas liquor sold in New York by manu- 
 facturers of other states bears only the latter tax. 
 
 It may very well have been the intent of the General Assembly to 
 tax also the out-state sales of Connecticut wholesalers, but, whatever the 
 intent, they are not made specifically taxable by law as are out-state 
 sales of manufacturers. It seems clear to this Commission and to the 
 tax commissioner that such a tax would be unconstitutional as a bur- 
 den upon interstate commerce. In fact, Connecticut wholesalers have, 
 by administrative ruling, been relieved of what would otherwise prove 
 a handicap similar to that under which manufacturers now labor. 
 
 As far as the Connecticut market is concerned, both Connecticut 
 wholesalers and manufacturers are subject to a competitive handicap. 
 Liquor which is manufactured and wholesaled in New York or Massa- 
 chusetts but retailed in Connecticut bears only a single state liquor 
 tax — the Connecticut retailers' tax of four per cent. But if the liquor 
 had passed through the hands of a Connecticut wholesaler, it would 
 have borne both the wholesale and the retail tax, and, if it had been 
 manufactured in Connecticut, it would upon its final sale have borne 
 from one to three taxes depending upon whether or not it had passed 
 directly from manufacturer to consumer, from manufacturer to retailer 
 to consumer, or from manufacturer to Connecticut wholesaler to retailer 
 to consumer. 
 
Death Taxes, Liquoe Taxes, and Amusement Taxes 521 
 
 Finally, the present taxes confuse the basic issue between business 
 and consumption taxes. The Commission feels that', so far as business 
 taxation is concerned, there is no further justification for treating the 
 liquor • industry differently from other industries. The consumption 
 tax should then stand upon its own merits. 
 
 The peoposed excise tax. 
 
 To correct the defects of the Connecticut liquor taxes, it is only 
 necessary (1) to subject the liquor industry to the regular business 
 taxes on corporations and unincorporated businesses, and (2) to estab- 
 lish a true consumption tax based upon the well established principles 
 of the gasoline tax. The latter has been clearly recognized as a con- 
 sumption tax, and, as such, it is collected but once in the process of 
 distribution. Only the state in which the final sale is consummated has 
 a claim to the proceeds of such a tax. 
 
 A gallonage tax, such as is imposed upon gasoline and by most 
 states other than Connecticut upon liquor, can be collected at any 
 stage in the process of distribution without difficulty. We do not feel, 
 however, that liquor is sufficiently well standardized in price and qual- 
 ity to recommend the use of a specific tax if an ad valorem tax is at 
 all feasible. When an ad valorem tax is used, it makes considerable 
 difference whether it be imposed in the early or the later stages of 
 distribution. A barrel of beer which wholesales at $15 may be retailed 
 by the glass at from $30 to $50. Mixed drinks, if permitted by law, 
 would show an even greater spread because of the inclusion of non- 
 alcoholic ingredients and the greater skill and labor involved in dis- 
 pensing them. Packaged goods, on the other hand, show a relatively 
 small margin between wholesale and retail prices in the present highly 
 competitive market. It is therefore necessary to determine upon a par- 
 ticular stage in the marketing process at which to lay the tax. 
 
 Administrative simplicity seems to dictate that the tax be collected 
 from the manufacturer or wholesaler wherever possible. This will not 
 only reduce the number of ' taxpayers, but it will concentrate the tax 
 liability more heavily upon responsible parties having more complete 
 and more accurate accounting records. Furthermore, should the sale 
 of mixed drinks again be permitted, such a tax would be borne only 
 by the alcoholic contents and not by the non-intoxicating ingredients, 
 whereas a retail sales tax would necessarily apply to the gross sales 
 price. 
 
 When the retailer buys directly from a wholesaler or manufac- 
 turer who is beyond the jurisdiction of the state, it will be necessary 
 in many cases to collect the tax directly from the retailer. This may 
 be minimized, however, by permitting non-Connecticut liquor dealers 
 
522 Report of Special Tax Commission 
 
 to enter into an agreement whereby they will pay the tax on Con- 
 necticut sales and open their records to audit hy the tax commissioner 
 in order to relieve their Connecticut customers of the trouble of paying 
 the tax. 
 
 In order to establish relative uniformity in the tax base, the tax 
 should be laid upon the sales price when collected from wholesalers 
 and manufacturers and upon the purchase price when collected from 
 .retailers. 
 
 It has been pointed out that the burden of the present liquor tax 
 amounts to no less than four per cent of the retail price (in cases in 
 which the retail tax is the only tax) and, assuming that no retail sales 
 are made at less than the wholesale price, no more than six per cent 
 of the retail price (in cases in which the tax is imposed upon the 
 manufacturer, the wholesaler, and the retailer) . The average retail sale 
 probably carries a burden of between four and five per cent of the 
 retail price. In some cases this represents a heavier and in some cases 
 a lighter burden than that imposed by. neighboring states. 
 
 Most states tax beer at the rate of one dollar a barrel (31 gallons). 
 A barrel of beer wholesales at around $15 and retails for around $35, 
 assuming that it is retailed by the glass for a cent an ounce and 
 allowing ten per cent for shrinkage. The Connecticut tax of one per 
 cent on the wholesale price plus four per cent on the retail price thus 
 amounts to $1.55, which is considerably more than the taxes in other 
 states. If a tax were imposed upon the wholesale price alone sufficient 
 to yield the amount realized from a barrel of beer in other states, 
 a rate of seven per cent would be adequate. Owing to the spread 
 between wholesale and retail prices, this rate would impose a tax burden 
 less than that now imposed with the present rates of four to six per 
 cent of the retail price. 
 
 Distilled liquors sell over a wide range of prices. At $8 a gallon 
 the present retail tax of four per cent yields 32 cents. Even after 
 allowance for a wholesaler's tax, this is lower than the specific taxes 
 of 40 cents to $1 a gallon usually imposed in other states. On more 
 expensive brands of distilled liquors Connecticut's tax is proportion- 
 ately higher while those of other states are unchanged. Wines, which 
 may or may not be more expensive than distilled liquors, are usually 
 taxed more lightly than distilled liquors in other states. 
 
 It is apparent that our present taxes on beer and on the more 
 expensive wines are high in comparison with those of other states and 
 that our taxes on distilled liquors are low except for the more expensive 
 brands. The use of wholesale prices as the tax base would greatly 
 reduce this disparity. 
 
Death Taxes, Liquok Taxes, and Amusement Taxes 
 
 523 
 
 To yield the revenues now enjoyed by the state and to approxi- 
 mate the burden of taxes in other states, a tax on wholesale values 
 will, of course, require a rate different from either of the rates now 
 embodied in the liquor tax. The exact rates necessary for these two 
 purposes cannot be computed at the moment, but figures are being com- 
 piled in the office of the tax commissioner which will shortly afford 
 us the basis upon which to make a close estimate. 
 
 Recommendations. 
 
 We recommend: 
 
 That all enterprises engaged in the liquor business, whether incor- 
 porated or unincorporated, be made subject to_ the regular business 
 taxes on the same basis as other business concerns ; . 
 
 That the liquor tax be imposed as a selective sales tax collected at 
 a single stage in the process of distribution and that it apply at a uni- 
 form rate to all liquor manufactured in or imported into the state for 
 sale within the state ; 
 
 That the tax be collected from Connecticut liquor manufacturers 
 or processors on all sales for delivery within the state ; 
 
 That the tax be collected from all Connecticut liquor wholesalers 
 or jobbers on all sales for delivery within the state but that a refund 
 be granted on sales of liquor, whether for delivery within or without 
 the state, upon which a tax has been paid by a previous vendor ; 
 
 That a tax be collected from all Connecticut liquor retailers on the 
 purchase price of liquor imported into the state, except such as has 
 been taxed under the provisions of the following recommendations; 
 
 That any non-Connecticut manufacturer or wholesaler be per- 
 mitted to enter into an agreement by which, in order to relieve his 
 customers of the tax liability, he binds himself to pay the tax on all 
 shipments into the state for sale within the state and submit to exami- 
 nation of his accounts; 
 
 That the rate of the tax upon the wholesale value of liquor retailed 
 in the state be fixed with the purpose of maintaining the yield of the 
 liquor tax at approximately the level which would obtain under the 
 existing tax laws. 1 " 
 
 '"Figures are now being compiled from recent liquor tax returns, which will permit 
 the Commission to recommend, a definite tax rate at a later date. The rate so 
 determined will be included in the bill to be presented to the General Assembly. 
 
524 Report of Special Tax Commission 
 
 Amusement taxes. 
 
 Description of the Connecticut taxes. 
 
 Connecticut now has two taxes which may be called amusement 
 taxes. These are the seating capacity tax and the tax on admissions 
 to boxing and wrestling matches. Historically speaking, they are clearly 
 consumption taxes based upon the same principles as the liquor tax. 
 The boxing and wrestling tax, however, has some of the aspects* of a 
 fee as distinguished from a tax for general revenue purposes, and the 
 seating capacity tax does not conform closely to the pattern of a con- 
 sumption tax. 
 
 Seating capacity tax. 
 
 The seating capacity tax is the more important of the two taxes. 
 It applies to any person, partnership, association, or corporation con- 
 ducting and charging admission to a theatre, opera, motion picture," 
 vaudeville, or playhouse. Except when conducting motion pictures, 
 inns, cabarets, dining and dancing halls, and amusement parks are 
 not included within the scope of the tax. 20 
 
 In addition to the foregoing exemptions based upon the nature 
 of the amusement, there are certain exemptions which are deter- 
 mined by the persons benefiting from the performance. These include 
 performances for the exclusive benefit of religious, educational, and 
 charitable organizations; veterans' societies and auxiliaries; societies 
 for the prevention of cruelty to animals ; symphony orchestra organiza- 
 tions receiving substantial support from voluntary contributions; soci- 
 eties for the improvement of a municipality (e. g., community clubs) ; 
 volunteer fire companies ; granges, lodges, and fraternal organizations. 
 When the performance is for the exclusive benefit of individuals as 
 distinguished from what are presumably non-profit organizations, 
 exemptions are limited to those for the benefit of persons now in the 
 military or naval forces of the United States or Connecticut and per- 
 sons who, having served in such forces, are now in need. 21 
 
 The amount of the tax depends upon the seating capacity of the 
 hall in which the performance is given. 22 The following schedule indi- 
 cates the tax liability for each day on which a performance is given : 
 
 "Gen. Stat., 1930, sec. 1352. 
 21 Gen. Stat., 1930, sec. 1358. 
 M Cum. Sup., 1933, sec. 359b. 
 
Death Taxes, Liquor Taxes, and Amusement Taxes 525 
 
 Class Seating capacity Tax 
 
 H Less than 500 $0.25 
 
 G 500 to 749 1.00 
 
 F 750 to 999 1.50 
 
 E 1,000 to 1,499 2.00 
 
 D 1,500 to 1,799 3.00 
 
 C 1,800 to 1,999 3.50 
 
 B 2,000 to 2,499 6.00 
 
 A 2,500 and over 8.00 
 
 Approximate tax per seat 
 $.0005 and over 
 .0013 to .0020 
 .0015 to .0020 
 .0013 to .0020 
 .0017 to .0020 
 .0017 to .0019 
 .0024 to .0030 
 Not over .0032 
 
 About one-sixth of the motion picture theaters of the state have a 
 seating capacity in excess of 1,800. The remaining five-sixths are 
 spread fairly evenly over the five lower classes. 
 
 The taxpayer makes a return to the tax commissioner on or before 
 the tenth day of each month. The assessment is then certified to the 
 treasurer, and the taxpayer is billed for the amount due. The tax is 
 payable without penalty within 15 days of receipt of a bill from the 
 treasurer and with a 25 per cent penalty thereafter. 
 
 Tax on admissions to boxing and wrestling matches. 
 
 This tax is laid at the rate of five per cent upon the gross receipts 
 from admissions to boxing exhibitions and wrestling bouts. It is pay- 
 able to the athletic commissioner within 24 hours after the match. If 
 not paid within twenty days after being notified of delinquency, the 
 delinquent taxpayer is subject to a fine of $200, and his permit to 
 conduct such exhibitions is permanently revoked. The proceeds of the 
 tax are turned into the general fund. 
 
 History. 
 
 The admissions tax. 
 
 Selective sales taxes are a relatively recent development in state 
 taxation. Prior to the World War it was generally assumed that the 
 field of excise taxes was reserved for the federal government. Few, if 
 any, selective sales or consumption taxes were then imposed by state 
 and local governments. Connefeticut was one of the first states to break 
 with this tradition by enacting a general admissions tax in 1921. 23 
 
 This tax was imposed upon tickets of admission and passes to 
 public performances and upon ten per cent (later twenty per cent) 
 of the total bill at cabarets, roof gardens, etc. Several different rates 
 were fixed for various classes of admission, but for most tickets the 
 
 'Pub. Acts, 1921, oh. 324. 
 
526 Bjepobt of Special Tax Commission 
 
 rate was one-half cent per ten cents or fraction thereof. Roughly, this 
 amounted to 5 per cent. Certain exemptions were allowed, differing 
 only in slight degree from those in the present seating capacity tax. 
 
 Though the Connecticut law was complete in itself, it was thought 
 that administration would be simplified by tying in closely with the 
 federal tax. To this end the Connecticut rates were set at exactly one- 
 half the federal rates, and it was provided that any person conducting 
 a place of amusement and required by federal law to pay an admissions 
 tax might discharge his obligations to the state by paying to the state 
 an amount equal to fifty per cent of his payments to the federal govern- 
 ment. In case of a change in the rates of the federal tax the Con- 
 necticut rates were to become effective in their own right. 
 
 To replace revenues from liquor licenses which the counties had 
 recently lost, one-half of this tax was returned to the counties on a 
 per capita basis. In turn the county commissioners were delegated to 
 be the non-salaried agents of the tax commissioner to assist in such 
 manner as the tax commissioner might direct in the administration 
 of the act. 
 
 After the crisis of war finance had passed, the federal govern- 
 ment began to withdraw from the so-called nuisance tax field. In part 
 this withdrawal took the form of gradually increasing exemptions of 
 low-priced tickets. The first exemption, effective on January 1, 1922, 
 applied to tickets selling for ten cents or less. In 1924 it was raised to 
 include all tickets selling for fifty cents or less; in 1926, to tickets 
 selling for seventy-five cents or less; and in 1928, to tickets selling for 
 -three dollars or less. 
 
 After 1923 the rates and exemptions specified in the Connecticut 
 statutes were not changed, but, since changes only in the rates of the 
 federal tax destroyed the fifty per cent relationship between the Con- 
 necticut tax and the federal tax, all ' of the exemptions granted by 
 Congress automatically applied to the taxes imposed by this state. The 
 effect upon the yield of the admissions tax was so great that it was 
 supplemented by a film tax in 1925, which was in turn superseded by 
 the seating capacity tax in 1927. The admissions tax was repealed in 
 1929. The counties had already lost their share of the tax in return 
 for a share in the net proceeds of the unincorporated business tax. 24 
 
 Boxing and wrestling admissions tax. 
 
 •^R>; tax on admissions to boxing and wrestling matches was 
 enacted at the 1921 session of the General Assembly. 25 Such admissions 
 
 24 Pub. Acts, 1925, chs. 20, 114. 
 
 25 Pub. Acts, 1921, ch. 299. 
 
Death Taxes, Liquoe Taxes, and Amusement Taxes 527 
 
 were subject also to the general admissions tax during its existence. 
 Since 1921 there has been some change in the administrative organiza- 
 tion of the- athletic commission, but the tax has remained unaltered 
 in substance. 
 
 Film tax. 
 
 A third tax in the nature of an amusement tax was the film tax 
 enacted in 1925. 28 This was enacted as part of a motion picture censor- 
 ship act and was undoubtedly intended as a business tax or a regulatory- 
 fee rather than a consumption- tax. It was supplementary to both the 
 general admissions tax and the corporation net income tax. 
 
 The tax was laid upon reels of film or copies thereof distributed 
 for exhibition in the state, at the rate of $10 for the first 1,000 feet or 
 fraction thereof and 50 cents for each additional 100 feet or fraction 
 thereof. It was administered by the tax commissioner and enforced by 
 means of seals affixed to the reels. A film carrying such a seal could be 
 shown any number of tirnes within the state. 
 
 The result of the film tax was to drive distributors outside the 
 state, where they could not be reached without interference with inter- 
 state commerce. The tax was therefore laid upon the first exhibitor to 
 show the picture. In order to pass the burden on in an equitable fashion 
 to all exhibitors, a state-wide organization of exhibitors was formed, 
 and the tax was paid out of a fund built up by its members. 27 
 
 The tax succeeded in stirring up a good deal of criticism without 
 producing much revenue. 28 It is possible that the rough points in its 
 administration could have been ironed out in time, but the tax was 
 repealed in 1927, and the seating capacity tax was enacted in its stead. 2 " 
 
 Seating capacity tax. 
 
 In its original form the seating capacity tax was payable accord- 
 ing to the number of weeks in which performances were given. Only in 
 the case of theaters with a capacity of less than 500 was any concession 
 made to those which were open only part of the week. The tax ranged 
 from $5 to $40 a week. A new classification was adopted in 1929, and 
 the tax was shifted from a weekly to a daily basis. The rates were fixed 
 at 50 cents to $12."° Regardless of the number of days on which per- 
 
 19 Pub. Acts, 1925, ch. 177. 
 
 "Tax Commissioner, Biennial Report, 1926, pp. 38-39. 
 
 * See Table LXXXII. 
 
 "Pub. Acts, 1927, ch. 318. 
 
 " Pub. Acts, 1929, ch. 235. 
 
528 Repokt of Special Tax Commission 
 
 formances were given, the taxes of theaters with less than 2,000 seat- 
 ing capacity were reduced by the 1929 act. It thus represented a con- 
 siderable concession to small theaters as well as a concession to the 
 legitimate stage and other large theaters which were open only part 
 of the week. The yield of the tax decreased by some ten or twelve 
 per cent as a result of this amendment. 
 
 The rate schedule was again altered in 1933 to accord with that 
 given above in the description of the present tax. This amendment rep- 
 resented a reduction of roughly one-third of the tax burden of theaters 
 in all classes. 
 
 Yield. 
 
 The yield of these several taxes is given in Table LXXXII. In 
 spite of increases in population, wealth, and income and the increasing 
 popularity of motion pictures, these revenues have declined since the 
 fiscal year 1923-24, when they amounted to $589,000. Their lowest 
 yield was in 1933-34, when it amounted to $97,000. In recent years they 
 have accounted for less than half of one per cent of the revenue receipts 
 of the state. 
 
 Criticism. 
 
 Boxing and wrestling admissions tax. 
 
 It is intended that the proceeds of the tax on admissions to boxing 
 and wrestling matches, together with minor receipts from licenses and 
 other sources, should at least cover the expenses of the office of the state 
 athletic commission, which office is concerned solely with the regulation 
 of boxing and wrestling matches. To the extent that the proceeds of the 
 tax are absorbed by regulatory expenses, it is not really a tax but rather 
 a fee similar to the examination fees charged against banks and insur- 
 ance companies. 
 
 The average annual yield of this tax for the twelve years ending 
 on June 30, 1934, was $12,552. Other receipts of the athletic commis- 
 sion averaged $6,241. Over the same period the expenses of the office 
 of the state athletic commission have averaged $14,681, or $4,000 per 
 year less than receipts. However, in the past two years the combination 
 of falling receipts and a high level of administrative expenses, which 
 has persisted in spite of the depression, has resulted in deficits of 
 about $5,000. (See Table LXXXIII.) Whether this situation will con- 
 tinue to exist in the absence of legislative action we are not prepared to 
 predict, but we do believe that the tax should be adjusted if necessary 
 to remove these deficits. 
 
Death Taxes, Liquor Taxes, and Amusement Taxes 529 
 
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530 Report of Special Tax Commission 
 
 Table LXXXIII 
 
 
 ITURES OF 
 
 THE STATE ATHLETIC COMMI 
 
 !AL YEARS 
 
 1921-22 TO 1933-34 
 
 
 
 Cash 
 
 Excess or 
 
 Cash receipts 
 
 disbursements 
 
 deficit (-) 
 
 $7,146 
 
 $4,293 
 
 $2,853 
 
 10,034 
 
 6,860 
 
 3,174 
 
 13,820 
 
 8,203 
 
 5,617 
 
 10,288 
 
 8,222 
 
 2,066 
 
 14,464 
 
 9,262 
 
 5,202 
 
 13,707 
 
 10,986 
 
 2,721 
 
 14,426 
 
 14,970' 
 
 -544 
 
 20,515 
 
 14,957' 
 
 5,558 
 
 38,883 
 
 19,973' 
 
 18,910 
 
 32,251 
 
 19,712' 
 
 12,539 
 
 26,583 
 
 22,449' 
 
 4,134 
 
 16,127 
 
 21,069' 
 
 -4.942 
 
 14,424 
 
 19,569 
 
 -5,145 
 
 Fiscal year 
 
 1921-22 
 
 1922-23 
 
 1923-24 
 
 1924-25 
 
 1925-26 
 
 1926-27 
 
 1927-28 
 
 1928-29 
 
 1929-30 
 
 1930-31 
 
 1931-32 
 
 1932-33 
 
 1933-34 
 Sources: State Treasurer, Annual Reports; State Comptroller, Annual Reports, 
 
 Office Records. 
 1 Net expenditures have been used for these years rather than cash disbursements. 
 
 The seating capacity tax. 
 
 The present seating capacity tax applies to few amusements 
 other than motion picture exhibitions and stage productions. This 
 limited scope of the tax can be justified only on grounds of administra- 
 tive simplicity or in terms of higher and lower forms of amusement. We 
 see little logic in exempting the receipts of carnivals, circuses, athletic 
 exhibitions, golf links, pleasure resorts, dances, and other forms of 
 amusement which compete with motion pictures and the legitimate stage 
 for the purchasing power of the public. 
 
 This tax was probably enacted as a consumption tax intended to 
 be passed on to theater-goers. Obviously it represents only a rough meas- 
 ure of consumption since it takes no account of the number of seats filled 
 at a given entertainment or of the number of entertainments per day. 
 Its defense must lie in its simplicity rather than its logic. We believe 
 that it should be replaced by a tax based upon gross receipts. 
 
 The proposed excise tax on general admissions. 
 
 A low rate upon gross admissions would yield as much as is now 
 realized from the seating capacity tax. The rate of approximately five 
 per cent on general admissions in 1923 yielded almost six times as much 
 as the seating capacity tax did in the past year. Probably about one 
 per cent would be required to raise the revenues currently received from 
 theaters. We do not believe, however, that we would be justified in 
 recommending so low a rate. If the tax is defensible at all, it should be 
 made to yield a respectable revenue. 
 
Death Taxes, Liquor Taxes, and Amusement Taxes 531 
 
 On January 1, 1934, there were six states collecting general 
 admissions taxes as well as a considerable number of states with taxes on 
 horse racing and boxing and wrestling. The general admissions tax of 
 one per cent in West Virginia is part of a general system of business 
 taxes measured by gross receipts. It is not, strictly speaking, a consump- 
 tion tax. This is the only state in which the rate is as low as one percent. 
 The rates in other states are as follows : 
 
 Utah 
 
 2% 
 
 North Carolina 
 
 3 
 
 South Carolina 
 
 10 
 
 Mississippi 
 
 10 
 
 Ohio 
 
 10 
 
 In the last three states the rate is only roughly ten per cent. To be 
 exact, it is levied at the rate of one cent for each ten cents or fraction 
 thereof. 
 
 Another matter must be considered in fixing the rate. A heavy 
 tax is sometimes~passed on more easily than a light one. This has been 
 the experience of merchants operating under a retail sales tax, and, 
 though we are dealing at this point with an industry whose costs are 
 largely overhead, it would probably be borne out to some extent in the 
 field of amusement taxes. It is difficult to add a fraction of a cent to the 
 price of a ticket, whereas one or two cents might be added quite easily. 
 
 From a tax of five per cent we estimate a yield of around $450,000, 
 or a net increase over the seating capacity tax of over $350,000. This 
 estimate is based partly on the experience of Mississippi, South Caro- 
 lina, and West Virginia, adjusted for differences in population, per 
 capita income, and tax rates. It is based also upon the gross income of 
 amusement corporations as reported for federal income tax purposes. 
 For the types of amusements contemplated in our recommendations, this 
 income amounted to $682,993,000 for the country as a whole in 1931. 
 In 1924 Connecticut accounted for 1.49 per cent of all taxable admis- 
 sions reported to the federal government. Applying this percentage to 
 the gross income of amusement corporations for 1931, we arrive at a 
 Connecticut estimate of $10,176,596. This represents a conservative 
 estimate, which omits entirely unincorporated concerns. We have further 
 reduced the base by ten per cent to allow for evasion and reduced con- 
 sumption. Upon the final estimate of gross receipts of $9,000,000, a tax 
 of five per cent would yield $450,000. 
 
 Recommendations. 
 
 We recommend : 
 
 That the tax on admissions to boxing and wrestling matches be 
 adjusted from time to time, if necessary, so that, together with income 
 
532 Report of Special Tax Commission 
 
 of the athletic commission from other sources of similar nature, an 
 approximate balance will be struck between the receipts and expendi- 
 tures of the athletic commission; 
 
 That the seating capacity tax be repealed; 
 
 That an admissions tax of five per cent be imposed upon the gross 
 receipts of all amusement enterprises conducted for profit; 
 
 That the unincorporated business tax be extended to unincorpo- 
 rated concerns engaged in the amusement business at the rate appli- 
 cable to manufacturers and retailers, that is, $1 per $1,000 of gross 
 earnings or fraction thereof. 
 
 Summary. 
 
 Death taxes. 
 
 Connecticut has two taxes which are ordinarily classified as death 
 taxes. The succession tax has been in existence since 1889 and provides 
 most of the Connecticut death tax revenues. It is laid upon transfers, 
 at death or in contemplation of death, of tangible real and personal 
 property located in Connecticut and of intangible personal property 
 owned by residents of the state. The rates of the tax are graduated both 
 according to the amount of transfers to a given class of beneficiaries and 
 according to the relationship of the beneficiaries to the decedent and 
 range from one to eight per cent. 
 
 The second death tax is the Connecticut estate tax. This tax grew 
 out of a provision in the Federal Revenue Act of 1924 allowing a 
 credit up to 25 per cent — later 80 per cent — of the federal estate tax 
 for any death taxes payable out of the proceeds of the estate to 
 states and territories of the United States. This made it possible for 
 any state to levy death taxes up to a given percentage of the federal 
 estate tax without imposing any additional burden upon its taxpayers. 
 Connecticut availed itself of this opportunity in 1931. The Connect- 
 icut estate tax now applies to only a few estates, being those upon which 
 the succession tax does not absorb the whole of the 80 per cent credit 
 allowed against the 1926 federal estate tax. 
 
 Together these two taxes yielded $4,976,000 in the peak year 
 1930-31. In 1933-34 their combined yield was $2,421,000, of which 
 $1,721,000 came from the succession tax and $700,000 from the 
 estate tax. 
 
 In consideration of the generally satisfactory administration of the 
 existing death taxes, the level of similar taxes in neighboring states, 
 the conformity of the tax base with the best judicial and economic 
 opinion, and the desirability of maintaining a certain degree of stability 
 in a tax which is borne by particular persons at infrequent and irregular 
 
Death Taxes, Liquoe Taxes, and Amusement Taxes 533 
 
 intervals, the Commission has concluded that no structural changes in 
 tax bases or rates are called for at this time. 
 
 The changes which we do propose are of minor significance. In the 
 first place, we suggest that joint bank accounts, now exempt from the 
 succession tax, be taxed on the same basis as any other jointly owned 
 property upon the death of a joint tenant. The present exemption affords 
 an avenue of escape from the succession tax, which is unjustified in 
 principle however seldom it may be resorted to in practice. 
 
 We further suggest that control be exercised over safe deposit 
 boxes upon the death of any person having access thereto at the time of 
 death until such time as a representative of the state has had reasonable 
 opportunity to check the contents of the box. This control has been 
 found useful in other states as a means of preventing tax evasion and 
 should be burdenless in a state as small as Connecticut. 
 
 Liquor taxes. 
 
 Liquor excise • taxes, whether ad valorem as in Connecticut or 
 specific as in most other states, are essentially sumptuary in nature. 
 They are defended principally upon the grounds that liquor is a non- 
 essential article of consumption, if not actually a luxury, and that the 
 consumption of liquor should be discouraged for moral, physiological, 
 or other reasons. The Connecticut liquor taxes are gross sales taxes 
 imposed at the rate of one per cent upon sales of wholesalers and manu- 
 facturers and at the rate of four per cent upon retail sales. Receipts 
 from the sale of liquor are not taxable under the unincorporated 
 business tax, nor is net income from the liquor business taxable under 
 the corporation net income tax. 
 
 In the first year of their existence the liquor taxes yielded a 
 revenue to the state of $658,000. Judging by collections for the last 
 quarter of 1933-34 and the first quarter of 1934-35, the legalization 
 of distilled liquors has had a marked effect upon the tax yield. It is 
 anticipated that at least one million dollars will be realized in the fiscal 
 year 1934-35. 
 
 The present combination of business tax and consumption tax 
 which is found in the Connecticut liquor taxes is unsatisfactory for 
 several reasons. In the first place, it opens the door to tax evasion. It 
 is quite impossible to secure an accurate allocation of the net income 
 of a corporation engaged in the liquor business and also in some other 
 business. The natural tendency of the taxpayer is to minimize the net 
 income of the non-liquor business by ascribing as few of his business 
 costs as possible to the liquor business. Similarly an unincorporated 
 concern, without serious disruption of its own bookkeeping records, 
 may record liquor sales as sales of food or other articles and thus 
 
534 Repobt of Special Tax Commission 
 
 reduce its tax burden from the relatively high rates of the liquor tax 
 to the low rates of the unincorporated business tax. 
 
 In the second place, the application of the tax to each of the 
 Connecticut distributing agents engaged in the marketing of liquor 
 results in tax pyramiding and in discrimination against Connecticut 
 liquor manufacturers and wholesalers. Manufacturers and wholesalers 
 of most other states are taxed upon their sales to Connecticut dealers 
 neither by Connecticut nor by their states of domicile. 
 
 Finally, the Connecticut liquor taxes confuse the basic issue 
 between business and consumption taxes. The Commission concludes 
 that those engaged in the liquor business should be subject to the same 
 business taxes as other business concerns similarly organized. Beyond 
 this there should be a true consumption tax collected at a single stage 
 in the marketing process and intended to be passed on to the final 
 consumer. Insofar as possible, this tax should be collected from manu- 
 facturers and wholesalers as a means of reducing the number of tax- 
 payers and limiting them as much as possible to responsible parties 
 with adequate records. The rate of the tax should be set at a point 
 which, when applied to wholesale prices, will yield approximately the 
 revenues now raised from the liquor tax. Figures are now being com- 
 piled from recent liquor tax returns, which will permit the Commission 
 to recommend a definite tax rate at a later date. The rate so determined 
 will be included in the bill to be presented to the General Assembly. 
 
 Amusement taxes. 
 
 Connecticut now has two so-called amusement taxes. One of these 
 — the five per cent tax on admissions to boxing and wrestling matches 
 — is essentially a fee imposed to defray the costs of the athletic com- 
 mission. The second — -the seating capacity tax — is a true tax levied to 
 defray the cost of general government.' 
 
 The seating capacity tax is imposed only upon theaters conducted 
 for profit, including motion-picture, opera, and vaudeville houses. The 
 tax is graduated roughly with seating capacity from 25 cents for the- 
 aters which seat fewer than 500 up to $8 for theaters seating 2,500 or 
 more. It amounts to approximately 1.5 to 2 mills per seat. The tax is 
 payable for each day on which a performance is given. 
 
 The depression and two successive decreases in rates, the last of 
 which was made in 1933, have combined to reduce drastically the 
 revenues from the seating capacity tax. In its second year, 1928-29, 
 it yielded $163,000 ; it has declined constantly since then to $89,000 
 in 1933-34. At no time has it even approached the original productiv- 
 ity of the general admissions tax which it superseded. 
 
Death Taxes, Liquor Taxes, and Amusement Taxes 535 
 
 The present amusement tax is limited in scope to motion picture 
 theaters and a few other amusement houses although it would seem 
 only logical that other amusements competing for the purchasing power 
 of the public should be subject to some corresponding tax burden. It 
 was probably intended that the seating capacity tax should be a con- 
 sumption tax passed on. to theater-goers. Since it takes no account of 
 the number of seats filled at a given performance nor of the number 
 of performances a day, it is only roughly related to consumption. 
 
 To meet these objections, it is proposed that the seating capacity 
 tax be replaced by a gross admissions tax similar to those now in force 
 in several other states. Such a tax should be in addition to the regular 
 business taxes. It should be high enough to yield a respectable revenue 
 comparable to that which may be raised by other selective sales taxes ; 
 it should be high enough to warrant slightly larger administrative 
 costs and to make it feasible for theater owners to pass the tax on to 
 their customers. These considerations suggest a rate of 5 per cent. 
 Such a tax is estimated to yield $450,000, or $360,000 more than is 
 currently received from the seating capacity tax. 
 
 The formal recommendations of the Commission for the revision 
 of death taxes, liquor taxes, and amusement taxes appear at the end 
 of the three main divisions of thfs chapter. 
 
PART IV 
 REDISTRIBUTION OF THE TAX BURDEN 
 
CHAPTER XVIII 
 
 STATE ASSISTANCE IN LOCAL FINANCING 
 
 State assistance in genebal. 
 
 The fiscal relationship between the state and its political subdivi- 
 sions has undergone a decided change during the last century. In Colo- 
 nial times and for several decades after the Revolutionary War, state 
 expenditures and activities were relatively unimportant, and the reve- 
 nues of the state were largely derived from locally administered prop- 
 erty taxes. With the spread of industrialism, the growth of corporations, 
 the creation of large masses of intangible personal property, and the 
 increase in the inequalities of wealth and income, conditions developed 
 during the nineteenth and twentieth centuries which strengthened the 
 financial position of the state and weakened that of the local govern- 
 ments. Activities and expenditures expanded continuously in all levels 
 of government. The growth of state expenditures, however, was accom- 
 panied by the development of taxation measures suitable only for state 
 administration and producing revenues available in the first instance 
 to the state government. 
 
 Counteracting these developments, the local governments have 
 been aided in many states — and especially in Connecticut — by the 
 gradual withdrawal of the state from reliance upon the property tax. 
 The towns thus have today almost complete possession of that source 
 of revenue which originally supplied most of the needs of both state 
 and local governments. In spite of this, however, local expenditures 
 have increased so greatly that the property tax has been constantly 
 harder pushed to provide the necessary revenues. Local tax levies, rates, 
 and debts have therefore persistently increased, and the local govern- 
 ments have turned more and more to the state for financial assistance. 
 Originally the scope of state activities was very limited, and most gov- 
 ernmental services were administered and financed by local govern- 
 ments. The expansion of governmental services generally during the 
 last thirty years has to a large extent been unavoidable. If the state 
 had not assumed during this period a large share of the administration 
 and financing of the continuously increasing activities of institutions 
 caring for the insane, feeble-minded, tubercular, delinquent, and crimi- 
 nal classes, of the courts, of higher education, highways, and health, 
 these responsibilities would necessarily have been assumed, at least in 
 part, by the local units of government. 
 
538 Keport of Special Tax Commission 
 
 The state has also assisted local financing by reducing its demands 
 upon local sources of revenue. While the towns provide the state with 
 funds to finance in part state expenditures for widows' aid, state aid 
 highway construction, etc., the only substantial local revenues furnished 
 to the state without local participation in the administration of the 
 activities for which local funds are provided are the state and military 
 taxes. These taxes combined reached a peak for the period since 1900 of 
 2.2 million dollars annually for the biennium ending June 30, 1923, and 
 had been reduced to 1.8 million dollars by the fiscal year ending June 
 30, 1933. 
 
 The only other form of state financial assistance which is amen- 
 able to measurement and specific appraisal is the direct assistance by 
 which state revenues are used to pay for activities which, under exist- 
 ing law, are responsibilities of local governments. Assistance of this 
 character has been extended by the state in the form of revenues from 
 state-administered and locally shared taxes, state grants to specified 
 activities, and the assumption by the state of the administration and 
 financing of primarily local functions. 
 
 State assistance in Connecticut. 
 
 State administered and locally, shared taxes. 
 
 In addition to the revenues from dog licenses and liquor permits, 
 which, under existing law, are distributed by the state to the munici- 
 palities and counties, there are four state-administered and locally 
 shared taxes — the share taxes on banks and insurance companies, the 
 unincorporated business tax, the estate penalty tax, and the motor bus 
 tax. 
 
 Most of the revenues obtained from the one per cent tax on the 
 fair market value of the shares of banks and trust companies and from 
 the four-mill tax on the shares of domestic stock insurance companies 
 are returned to the towns according to the residences of the owners of 
 the shares on which the taxes are paid ; the proceeds are then distributed 
 among the municipalities within any town according to the rule of 
 residence in the proportion which the tax rate of each district bears to 
 the total tax rate of the municipal group. 1 Of the revenues derived 
 from the tax on the gross earnings of unincorporated manufacturers, 
 wholesalers, and retailers, the state retains an amount sufficient to 
 defray the administrative costs of assessing and collecting this tax and 
 distributes one-half of the remaining revenues among the eight counties 
 in the proportion which the population of each county bears to the total 
 population of the state. 2 The state retains a portion of the revenues 
 
 1 Cum. Sup., 1933, sec. 354b. 
 a Gen. Stat., 1930, sec. 1351. 
 
State Assistance in Local Financing 539 
 
 from the estate penalty tax equivalent to a tax at the rate of four mills 
 per annum on the value of property so taxed and distributes the 
 remainder of the revenues among the towns according to the last resi- 
 dences of the decedents. 8 There is remitted by the state to each town 
 and unconsolidated city from the revenues of the motor bus tax an 
 amount equal to one cent for each bus-mile operated on highways within 
 their boundaries other than state aid and trunk line highways but not 
 in excess of the amount of tax paid by each individual company." Table 
 LXXXIV shows the respective amounts of the revenues from the share 
 taxes on banks and insurance companies, the unincorporated business 
 tax, the estate penalty tax, and the motor bus tax which were distributed 
 to towns, cities, and counties by the state treasurer during the state's 
 fiscal years 1928-29 to 1933-34. 
 
 Table LXXXIV 
 REVENUES FROM STATE-ADMINISTERED TAXES DISTRIBUTED TO MUNIC- 
 IPALITIES AND COUNTIES, FISCAL YEARS 1928-29 TO 1933-34 
 
 Fiscal Unincorporated Estate pen- Motor bus 
 
 year Share taxes business tax alty tax tax Total 
 
 1928-29 $2,966,524 $260,091 $144,769 $68,518 $3,439,902 
 
 1929-30 3,559,086 273,627 137,403 79,612 4,049,728 
 
 1930-31 2,590,460 273,258 164,310 86,102 3,114,130 
 
 1931-32 1,003,630 234,656 161,957 91,731 1,491,974 
 
 1932-33 651,601 189,036 129,485 99,381 1,069,503 
 
 1933-34 695,703 143,816 101,640 104,190 1,045,349 
 
 Source: State treasurer, Annual Reports, Office Records. 
 
 The local revenues from state-administered taxes have been con- 
 siderable in certain years but have embarrassed local finance by their 
 variability. Except for the distributed revenues of the share taxes, the 
 local revenues from each of the three other taxes have been relatively 
 small in amount but reasonably stable during the years shown in the 
 table. The revenues from the share taxes constitute most of the total, 
 and their drastic decline since 1929-30 has aggravated the problems of 
 municipal financing and added one more factor to those increasing the 
 local tax burden during the depression. 
 
 State grants foe specified local activities. 
 
 State assistance in the financing of specified local activities takes 
 two forms. There are, first, grants of funds which the state remits to 
 the treasuries of local governments to assist in the financing of speci- 
 fied local activities. Although the state may set certain minimum stand- 
 ards of service which must be complied with in the particular activities 
 
 3 Gen. Stat., 1930, sec. 1409. 
 
 4 Cum. Sup., 1933, sec. 357b. 
 
540 Repobt of Special Tax Commission 
 
 for which financial assistance is extended, the grants themselves are not 
 predicated generally upon the manner in which the services are locally 
 administered. Furthermore, the administration of the services and a 
 considerable part of their financing are still local responsibilities. The 
 second form of state assistance involves the transfer of the administra- 
 tion and of part or all of the financing of certain segments of local 
 functions to the state. The first of these two forms of state assistance 
 will, for convenience, be referred to as state grants ; the second, as trans- 
 fers of local functions. 
 
 The biennial budget reports of the state board of finance and 
 control are the only published reports presenting state expenditures 
 in sufficient detail to permit the accurate segregation of all the pay- 
 ments by the state to the local governments. The most recent year for 
 which these data are now available is 1931-32. Since these payments 
 are reasonably constant from year to year and since they are to be 
 cited only to indicate the relative importance of particular types of 
 state assistance, the Commission presents in the following pages the 
 amounts of the various payments for the fiscal year 1931-32. 
 
 State grants are made to the municipalities for eighteen different 
 educational activities. In contrast to the practice of most other states, 
 Connecticut has extended state aid to local schools in the form of 
 particular grants for specified activities rather than in the form of 
 a single grant to each municipality designed to equalize the local 
 tax rate required to finance a minimum state-wide standard of local 
 school activities. The educational grants made directly to local govern- 
 ments now in effect are (1) enumeration, (2) teachers' salaries, (3) 
 high school tuition, (4) elementary school transportation, (5) high 
 school transportation, (6) special classes for subnormals, (7) school 
 libraries and apparatus, (8) evening schools, (9) trade school trans- 
 portation, (10) non-English speaking adults, (11) adult education, 
 (12) public libraries, (13) support of trade schools, (14) supervision 
 of rural schools, (15) physical examination, (16) public school 
 expenses of children on state property, (17) model school teachers, 
 and (18) special aid grant. There were, in addition to these direct 
 grants to local governments, four other grants for educational purposes 
 which were temporary or which did not pass through county or munici- 
 pal treasuries. These were grants for (1) scholarships to supply trained 
 teachers for small towns, (2) educational opportunities for orphans 
 of soldiers, sailors, and marines, (3) vocational rehabilitation, and (4) 
 one-half the cost of the elementary school of the town of Mansfield. 
 
 The educational grants made directly to municipalities are listed 
 in order of decreasing importance as measured by their amounts in 
 the fiscal year 1931-32. Kb grants for model school teachers or special 
 
State Assistance in Local Financing 541 
 
 school aid were then made, and the other grants ranged from $842,299 
 for the enumeration grant to $3,080 for that for the public school 
 expenses of children on state property. The total amount of state aid 
 given under these grants was $1,836,344. 
 
 Grants similar in character to those made by the state for local 
 educational activities are also made for certain charitable and health 
 activities. The state has a direct financial responsibility for the care of 
 certain dependent, defective, delinquent, neglected, or uncared-for 
 children who are placed by public welfare authorities in foster homes 
 .or in any licensed boarding home, agency, or child-caring institution. 
 Furthermore, the state pays to the counties grants for .the board of all 
 children committed to county care amounting to the sum of (1) the 
 actual board not exceeding three dollars and fifty cents per week for 
 each child placed outside the county home and (2) three dollars and 
 fifty cents per week for the board of each child committed to and resid- 
 ing in a county home, and it also pays grants amounting to not to exceed 
 three dollars per week for the board of each prisoner in a county jail.° 
 The state grant for the board of children committed to county care 
 amounted to $359,356 in 1931-32, and that for the board of prisoners 
 in county jails amounted to $136,237. 
 
 Eelief to state paupers is administered largely by the towns in 
 the same manner as relief to town paupers, but the state reimburses the 
 towns for all expenditures made for the necessary relief of state paupers 
 as approved by the state agent. 6 Payments by the state to the towns 
 for expenditures made in supporting state paupers amounted to $682,- 
 133 in 1931-32.' 
 
 In public health, any town with average annual receipts from 
 taxation of not more than fifty thousand dollars is entitled to reim- 
 bursement for a part of the cost of establishing and maintaining a 
 public health nursing service which is approved by the state board of 
 health. 8 In 1931-32 this grant amounted to only $2,538. 
 
 There are a few other grants by which the state assists in financing 
 locally administered activities. The state paid to municipalities $38,- 
 720 in 1931-32 for grants not to exceed $100 each toward the funeral 
 expenses of war veterans who died without estates sufficient to pay the 
 necessary expenses of their last sickness and burial." There were also 
 granted by the state in this year $4,400 to towns with grand lists of 
 less than two million dollars on May 1, 1903, for the retirement of 
 
 "Gen. Stat, 1930, sees. 1876, 2007, 6527; Cum. Sup., 1933, sec. 495b. 
 
 •Gen. Stat., 1930, sees. 1710, 1713. 
 
 'This expenditure has increased greatly since 1931-32. It amounted to $1,261,721 in 
 
 1932-33 
 • Gen. Stat., 1930, sees. 2396, 2398, 2399. 
 •Gen. Stat., 1930, sec. 1961. 
 
542 Report of Special Tax Commission 
 
 indebtedness outstanding on May 1, 1903, and incurred to assist the 
 building of railroads. 10 Mention might also be made of the state grants 
 of $21,230 to reimburse the towns for the loss of property taxes on 
 certain types of state-owned property, although these grants differ from 
 those enumerated above in that the funds so received by the munici- 
 palities are not earmarked by law for any particular local activity. 11 
 
 Transfers of local functions. 
 
 There are certain other local activities for which state financial 
 assistance is provided but under conditions which transfer to the state 
 the administration of the activity as well as part or all of the financial 
 responsibility. This form of state aid is extended in the functions of 
 highways and charities. 
 
 Although all state aid highways are maintained by the highway 
 commissioner at the expense of the state, the state and the towns share 
 in the financing of their construction. Each municipality having annual 
 average receipts from taxation of thirty thousand dollars or less is 
 required to pay one-eighth of the cost incurred in constructing state 
 aid highways, and each municipality having annual average receipts 
 from taxation in excess of thirty thousand dollars, one-quarter of such 
 cost. There is appropriated by the state annually from the highway 
 fund for the construction of state aid highways one million dollars 
 plus the amount necessary to match the amounts paid by the munici- 
 palities during the preceding fiscal year. Except for amounts required 
 to construct unfinished sections of the state aid highway system, the 
 state appropriation is allotted among the towns by the highway com- 
 missioner so that an approximately equal amount of both the state and 
 municipal funds is made available to each municipality. The munici- 
 palities are notified annually of their allotments of state aid highway 
 funds and are permitted to accept such aid by vote of the town meet- 
 ing. Allotments are continuous and, if accepted but not used by a munici- 
 pality in one year, remain available to the municipality for future years. 
 The selection of the highways to be constructed, the awarding of the 
 bids, and other administrative duties connected with the use of such 
 funds are, however, duties of the highway commissioner and not of 
 the municipalities. The municipalities are required to reimburse the 
 state for their proportion of the cost incurred in constructing state 
 aid highways and are permitted to enter into agreements with the high- 
 way commissioner under which they provide the funds for construct- 
 ing state aid highways in anticipation of future allotments. As such 
 
 10 Gen. Stat., 1030, sec. 473. 
 "Gen. Stat., 1930, sec. 1103. 
 
State Assistance in Local Financing 543 
 
 allotments are made available in the future, they are paid into munici- 
 pal treasuries rather than spent on the highways." 
 
 The provisions for the use of the three million dollar "dirt road 
 appropriation" are in most respects similar to those governing the state 
 grants for the construction of state aid highways except that the towns 
 are not required to appropriate funds to match any part of this appro- 
 priation. The total appropriation is allotted in equal shares among 
 the towns. The highway commissioner administers the expenditures 
 of the funds, and, except for agreements with local authorities cov- 
 ering the location, construction, improvement or maintenance of the 
 roads upon which the funds are to be spent, the highway commissioner 
 exercises full control over administration of that part of the local high- 
 way function which the state finances. 
 
 In '1931-32 there were spent on state aid highway construction, 
 including administration, $1,364,463. There were spent on town aid 
 road work, including engineering and supervision, $2,854,054. The 
 towns paid to the state for state aid highway construction $89,802 
 on regular contracts and $22,376 for construction of unfinished sec- 
 tions. The state further received from the towns $293,624 advanced 
 in anticipation of future state aid highway allotments and $18,851 
 advanced in anticipation of town aid allotments, but these sums were 
 more than offset by repayments by the state of $357,859 for advances 
 previously made. Thus for state aid construction and town aid work 
 combined, the net contribution of the state amounted to $4,151,723 
 as compared with a net contribution of $66,794 by the towns. 
 
 Since 1919 both the state and the counties have assisted the munici- 
 palities in financing widows' aid. The statute governing widows' aid 
 makes a division of the administrative control over this activity among 
 the state, counties, and municipalities. To the municipalities is given 
 the power to pass upon and submit to the counties applications for aid 
 submitted by widows under their jurisdiction; to the counties, the 
 power to review, approve, and record such applications as are submitted 
 to them by the municipalities ; and to the state, through its state agent, 
 the power to determine finally whether the aid shall be given. The 
 state agent is responsible for determining the manner and time of 
 extending aid and the character and amount of aid to be given within 
 maximum limits set by the statutes, but the state agent is required 
 to seek an agreement with the municipal and county authorities on 
 the amount of any allowance for medical expense, hospital care, and 
 funeral expenses. The state pays directly to the widows the amount 
 of aid granted under the provisions of this statute and is reimbursed 
 for one-third of the total amount so expended by the counties and for 
 
 12 Gen. Stat., 1930, sees. 1483-1510. 
 
544 Repobt of Special Tax Commission 
 
 one-third by the municipalities. 18 The state spent $625,131 for widows' 
 aid in 1931-32 and received $405,203 from reimbursements for widows' 
 aid from the counties and municipalities. 
 
 Total amount of direct state financial assistance. 
 
 With so many different arrangements for the division of adminis- 
 trative control and financial responsibility for particular governmental 
 activities, it is possible only to indicate in a very general way the extent 
 to which the state extends direct assistance in the financing of local 
 activities. Of the total state expenditures of $41,618,202 in 1931-32, 
 $3,438,818 were direct payments of funds into the treasuries of the 
 counties and municipalities. Of this amount, $357,859 represented reim- 
 bursements to the municipalities for funds previously advanced in 
 anticipation of state aid, and $3,080,959, grants for education, "charities 
 and corrections, public health nursing, railroad bond retirement, and 
 grants in lieu of taxes on state-owned property. 
 
 In addition to these direct grants of funds to local governments, 
 the state spent in 1931-32 considerable sums on local highways and 
 widows' aid. Under the law $208,377, or one-third of the total expendi- 
 ture of $625,131 for widows' aid in this year, were an obligation of the 
 state. The net expenditures from revenues of the state on state aid high- 
 ways and town roads (excluding repayments of state aid advances 
 included above as a direct grant) were $3,793,863. State assistance to 
 local financing under what we have called transfers of local functions 
 therefore amounted to $4,002,240 in 1931-32. 
 
 By means of both the direct state grants and the state expenditures 
 on primarily local activities, the state government thus extended direct 
 assistance to the financing of local governments to the amount of $7,083,- 
 199 in 1931-32, when the total governmental-cost payments of the state 
 aggregated $41,618,202. These payments in aid of local financing 
 represented 17 per cent of the aggregate state expenditures in that year. 
 
 To the aid extended as direct grants or as state expenditures on 
 local activities should be added the revenues from state-administered 
 taxes which were remitted to the local governments. In 1931-32 these 
 revenues amounted to $1,491,974. Adding this amount to the financial 
 assistance set forth in the preceding paragraph gives a total of $8,575,- 
 173, which measures roughly the amount of direct state assistance to 
 local financing in 1931-32. But offsetting the payments of state funds 
 to the local governments were the state and military taxes paid to the 
 state by the towns, amounting in 1931-32 to $1,765,353. The net amount 
 
 18 Gen. Stat., 1930, sees. 1925-1931. 
 
State Assistance in Local Financing 545 
 
 of direct financial assistance by the state to local financing in 1931-32 
 may therefore be placed at $8,'575,173 less $1,765,353, or $6,809,820. 
 The figure for 1931-32 is probably smaller than that of previous 
 years, since the revenues from state-administered taxes remitted to 
 local governments in 1931-32 were substantially less than those of pre- 
 vious years. In 1929-30, for example, these revenues alone aggregated 
 $4,108,000 as compared with $1,477,720 in 1931-32. 
 
 Ceiticism and pboposed changes. 
 The pboblem of policy. 
 
 Apportioning sources of taxation between the state and local 
 municipalities is a problem which extends beyond matters of finance 
 and taxation to the policies underlying the relationship of the state to 
 its political subdivisions. If there is need for reapportioning sources of 
 taxation, it can be only because of the belief that the necessary and 
 essential expenditures of the municipalities are too large to be satisfac- 
 torily financed from the sources of revenue now available to these gov- 
 ernments. This condition may exist, either because local governments 
 are required or permitted to provide and finance required services which 
 could better be provided by the counties or the state, or because munici- 
 pal sources of revenue are inadequate to meet legitimate demands made 
 upon them. Both of these factors must be considered if the correct solu- 
 tion of the problem is to be reached. 
 
 Although, in a governmental problem which is still in the process 
 of development, it is seldom possible to apply strictly an abstract princi- 
 ple or policy, it is dangerous to rest legislative action on such an impor- 
 tant matter as apportioning sources of taxation solely on considerations 
 of expediency. That government which controls the purse will inevitably 
 exercise some control over the activities financed by funds derived from 
 that purse. This is as it should be. Reapportioning sources of taxation 
 can only mean the more extensive use of state revenues to finance local 
 governmental activities or the reduction or elimination of the revenues 
 of the state derived from the municipalities. In Connecticut the second 
 of these lines of action offers a very limited amount of possible state 
 assistance to local financing because of the present small amount paid 
 in by municipalities, while the first brings into prominence the age-old 
 problems of local autonomy and state centralization of governmental 
 activity. 
 
 The Commission has already stated its position on the question of 
 local autonomy. While it recognizes the right and duty of the state to 
 supervise the activities of the municipalities, the Commission would 
 foster and encourage local interest, independence, and initiative in local 
 governmental affairs. This does not mean that any or all new functions 
 
546 Report of Special Tax Commission 
 
 of government should be made duties of local governments or that func- 
 tions once placed with local governments should always remain with 
 those governments regardless of their competence to administer them 
 properly or to finance them. It means rather that the state should see to 
 it that functions are continuously redistributed among the state, the 
 counties, and the municipalities to meet best the changing requirements 
 of administration and finance. It further means that care should be taken 
 to establish and safeguard that responsibility for the conduct of func- 
 tions lodged with any grade of government by which alone efficiency 
 and economy can be best secured. 
 
 Compliance with the recurring requests of local governments for 
 "more money and less meddling" cannot fail to result in uneconomical 
 expenditures, irresponsible local administration, and the gradual weak- 
 ening of local self-government itself. Efficient and economical adminis- 
 tration of governmental affairs is not to be expected unless there is 
 joined with the authority to determine activities and expenditures the 
 clear responsibility for providing the funds to finance these activities. 
 In governmental no less than in private affairs it is impossible to secure 
 responsibility for efficient administration if one agency is permitted to 
 spend money without having to provide it and another agency is required 
 to provide the money without having the power to determine the amount 
 or its use. The Commission is unable to find any way to avoid paternal- 
 ism toward local government, irresponsibility in the administration of 
 local affairs, carelessness in the making of local expenditures, and 
 extravagance in furnishing governmental services, except by vesting in 
 each governmental unit a financial responsibility commensurate with 
 the degree of legislative and administrative control which it exercises 
 over governmental activities. 
 
 The Commission believes this to be the only sound principle for 
 governing the fiscal interrelationships of the several grades of govern- 
 ment. It realizes, however, that such a principle cannot be strictly or 
 immediately applied and must be modified and adapted to meet ade- 
 quately the practical, traditional, political, and sentimental circum- 
 stances which frequently inhere in particular problems as they arise. 
 The Commission, for example, has not felt justified in causing wholesale 
 dislocation in existing fiscal interrelationships between the state and its 
 political subdivisions in an effort to apply a principle which it believes 
 to be sound. It has taken the principle as a guide and its application as 
 an ultimate objective and has appraised existing and proposed arrange- 
 ments for state assistance to local financing from this point of view. 
 But it has also considered each arrangement in the light of circum- 
 stances surrounding it and has attempted to attain, as far as immediate 
 conditions permit, an apportionment of state and local revenues which 
 
State Assistance in Local Financing 547 
 
 will improve governmental financing without weakening the traditional 
 policies and institutions upon which state and local government in this 
 state rests. 
 
 It is necessary for the Commission to emphasize, in connection 
 with its consideration of the problem of this chapter, that it was 
 created to make recommendations designed to effect a more equitable 
 distribution of the tax burden, to improve the financing of munici- 
 palities, and to reduce or limit, if possible, the burden of taxation borne 
 by real estate. There are no provisions in the act creating the Com- 
 mission directing it to suggest how any or all of the expenditures of 
 state and local governments , might be increased. It is certain that the 
 instruction to investigate the problems of apportioning sources of taxa- 
 tion between the state and the local municipalities was not given in 
 order to obtain from this Commission suggestions as to how local 
 expenditures might be increased by the use of state revenues. 
 
 State-administered and locaixy shared taxes. 
 
 State-administered taxes shared with local governments have gen- 
 erally developed either as devices to reimburse local governments for 
 the loss of revenues suffered by substituting more effective state taxes 
 for local taxes or on account of increased local expense or loss of 
 revenue caused by some condition which has led to the development 
 of such state taxes. This is the explanation of the four taxes which 
 are levied by the state and shared with the local governments. The 
 stock tax on banks and insurance companies and the estate penalty 
 tax were developed to reduce or eliminate evasion from locally admin- 
 istered property taxes. Thus the revenues from these taxes are dis- 
 tributed among the municipalities roughly according to the revenues 
 which local governments might have received had such property 
 remained locally taxable. When prohibition deprived the counties of 
 the revenues from liquor permits, the General Assembly avoided an 
 increase in the county tax on towns by distributing among the counties 
 one-half the revenues of a newly enacted tax on admissions to places 
 of amusement based on a similar federal tax. As changes were made by 
 the federal government in the provisions of its admissions tax, the yield 
 of the state-administered tax and consequently the county revenues 
 from this source gradually decreased. This loss of county revenues 
 was offset by giving the counties a share in the recently enacted unin- 
 corporated business tax. Finally, the sharing of the motor bus tax was 
 provided in order to reimburse municipalities, first, for any expense 
 caused by the travel of motor buses on town roads and, secondly, for 
 the loss of taxes on the property owned and used by motor bus com- 
 panies in their business. 
 
548 Kepokt of Special Tax Commission 
 
 Although just treatment to local governments seems to require 
 sharing of revenues whenever a state tax is imposed in lieu of a local 
 tax on what is considered a local subject of taxation, the results of 
 distributing such revenues are rarely satisfactory. The revenues 
 received by the local governments from the state may be more or less 
 than the revenues which might have been received from local taxes. 
 The local governments do not receive revenues from these taxes in pro- 
 portion to their financial needs. Some local administrations receive 
 from this source substantial sums for the raising of which they are 
 not responsible to the electorate which places them in office. Responsi- 
 bility for these funds is divided between the state which imposes the 
 taxes and the municipalities which spend all or part of the money 
 raised. Those paying these taxes are precluded from judging their 
 validity in the light either of all state revenues and expenditures or 
 of all local revenues and expenditures. Local taxpayers are not conscious 
 that the provision of these funds has burdened them in any way, and 
 the receipt of such "costless" funds therefore invites wasteful expendi- 
 ture by local officials who may feel no great responsibility to anyone. 
 
 These are serious weaknesses of arrangements for distributing all 
 or part of the revenues from particular state taxes among local govern- 
 ments. Generally they are sufficient in themselves to condemn these 
 arrangements. There are conditions, however, where the advantages 
 of substituting a different form of tax or a different administration 
 for existing taxes cannot be obtained without protecting municipalities 
 against substantial loss and where such advantages more than offset 
 the disadvantages of the distribution of the revenues. Even under these 
 conditions every precaution must be taken to guard against the poten- 
 tial evils of making state revenues available to local governments with- 
 out restrictions on their disposition. 
 
 The Commission has discussed in previous chapters the weaknesses 
 of the stock taxes on banks and insurance companies and the estate 
 penalty tax and has proposed the abolition of these taxes. The substitute 
 taxes proposed for banks and insurance companies have little relation 
 to the tangible property owned or used by these businesses. Neither the 
 banks nor the insurance companies are to be permitted to offset against 
 these substitute taxes the taxes locally assessed and collected on their 
 property. Thus these substitute taxes have no direct relation to the 
 tangible property which may exist in any town nor to any expenditure 
 which a town may make. The Commission therefore proposes that the 
 revenues from these taxes be retained wholly by the state. 
 
 There is little defense for continuing the distribution of half the 
 net revenues of the unincorporated business tax among the counties 
 in proportion to their population. This is a tax imposed for the privi- 
 
State Assistance in Local Financing 549 
 
 lege of doing business, which privilege neither is granted by the county 
 nor has any direct relation to county expenditures. Population is an 
 arbitrary standard of apportionment bearing only a rough relation, if 
 any, to the activities which the counties are required to finance. The 
 Commission believes that the revenues from the unincorporated busi- 
 ness tax should be retained by the state and that whatever temporary 
 assistance is granted to county financing during the period when the 
 policy to be followed with respect to county homes and county jails is 
 being formulated should be in the form of increased grants for particu- 
 lar county functions. 
 
 The Commission has refrained from making proposals to change 
 in any important respect the tax imposed upon motor bus companies, 
 in order that this tax may be later studied as part of a comprehensive 
 investigation of the regulation and taxation of commercial motor 
 vehicles. The Commission has sought to lessen in some degree the exist- 
 ing problems of distributing the revenues from this tax among munici- 
 palities by suggesting (1) that the real property of motor bus com- 
 panies be taxed locally and that the taxes on such property be offset 
 against the state tax on motor buses and (2) that the revenues from 
 the state tax be distributed according to the mileage of established 
 routes over state and town roads rather than according to the bus-miles 
 traveled over town roads. Eventually, the CommiAon would consider 
 it desirable to tax the real and personal property of these companies 
 in the same manner as other real and personal property is taxed and 
 to eliminate the distribution of the revenues from any business taxes 
 on these companies. 
 
 In order to overcome the difficulties in the assessment and col- 
 lection of local property taxes on motor vehicles, the Commission pro- 
 poses to substitute a state-administered special property tax for the 
 local property tax on this property and to distribute the revenues from 
 this special property tax to the towns according to the residences of 
 motor vehicle owners. The Commission views this proposal for the 
 special property tax on motpr vehicles, not as the substitution of a 
 state tax for a local tax, but as the substitution of state assessment and 
 collection for local administration of a local tax. For other types of 
 tangible personal property it was found practicable to provide state 
 assessment while having such taxes still collected locally. For motor 
 vehicles the greatest advantage was obtained by providing for both 
 state assessment and state collection. No single class of property 
 presents greater difficulties for local assessors and local collectors. Yet 
 the municipalities cannot be deprived of the revenues from taxes on 
 such property without unwarranted financial loss. The Commission, 
 therefore, recommends the distribution of the revenues from this tax 
 
550 Repoet of Special Tax Commission 
 
 among the municipalities although in some respects this action may 
 violate the principle enunciated above. 
 
 State grants foe specified local activities. 
 Education. 
 
 Since 1920 the problem of state support of local educational 
 activities has been constantly before the state. As a result of general 
 discussion of this and other school problems, there was created in 1923 
 and continued in 1925 the Commission on the Revision and Recodifi- 
 cation of the School Laws." This commission published in 1927 a 
 report dealing with the defects of existing educational grants and 
 recommending a plan to equalize among the municipalities the burden 
 of taxation' required to finance a program to provide a minimum 
 educational opportunity for every child in the state. 15 The General 
 Assembly has considered at every session since 1927 a bill to carry the 
 school equalization plan" into effect. The secretary of the board of 
 education, moreover, presented in his 1931-32 report a description and 
 criticism of the existing state educational grants. 16 
 
 In view of the consideration already given to this problem by the 
 General Assembly and the literature available dealing with its details 
 so comprehensively, this Commission need only comment briefly upon 
 it. The existing stf^e educational grants have developed by piecemeal 
 enactment to meet particular problems over a period of many years. 
 Consequently, these grants do not rest on any consistent or unified 
 policy of state assistance to local educational activities. Several of the 
 grants were made to encourage some particular educational activity, 
 and the largest grant is apportioned on the basis of $2.25 for each child 
 between the ages of 4 and 16. While these grants have probably accom- 
 plished in some degree the purposes for which they were originally 
 made, they were not designed for and have not resulted in any con- 
 siderable equalization of local tax burdens for the support of schools. 
 
 Contending that it is a state rather than a local responsibility to 
 assure each child an educational opportunity at least equal to a mini- 
 mum standard, educational authorities have advocated grants formu- 
 lated to equalize the tax burden which each local government is 
 required to bear in financing a minimum educational program. With 
 local governments as small in area as Connecticut towns and with a 
 disproportionate distribution of school children and taxable resources, 
 there inevitably results a wide variation among the towns in the amount 
 
 'Spec. Acts, 1923, no. 373; Spec. Acta, 1925, no. 409. 
 ' Financing Education in Connecticut, 1927. 
 'Report, 1981-32, pp. 17-19. 
 
State Assistance in Local Financing 551 
 
 of taxable resources available to finance a minimum educational pro- 
 gram. If, for example, one town has an average assessed valuation of 
 $2,000 per school child and another town, $20,000, and if the cost 
 of a minimum educational program per school child is the same in the 
 two towns, the first town would have to impose a tax rate ten times as 
 large as that of the second to finance the minimum program. It is this 
 disparity in tax rates from town to town which the equalization plan 
 is designed to reduce or eliminate. 
 
 The equalization plan of state support" for local school activities 
 advanced by educational authorities provides for a state grant to each 
 municipality equal to the difference between the amount obtained by 
 multiplying $70 by the number of children in adjusted average daily 
 attendance and the amount represented by the sum of (1) a given 
 percentage of its average annual receipts from taxation and from local 
 permanent school funds and (2) the income from the town deposit 
 fund of such municipality. The number of children in adjusted aver- 
 age daily attendance is determined by making allowance for the higher 
 costs of smaller schools and of secondary education in the figures of 
 the actual number of children in average daily attendance. The figure 
 of $70 represents the current expense per pupil for a minimum educa- 
 tional program and is derived from "the expenditure per pupil in 
 adjusted average daily attendance of that group of towns having 
 approximately the same ability to pay taxes as the state as a whole." 
 The percentage of average annual receipts from taxation is to be fixed 
 with reference to the degree to which it is proposed that local tax 
 burdens for schools be equalized, which depends in turn upon the 
 amount of state revenues to be employed for this plan. The lower this 
 percentage is, the smaller becomes the local contribution to the financ- 
 ing of the plan and the larger the state contribution. The Commission 
 on the Revision and Recodification of the School Laws recommended 
 34 per cent and estimated that the total amount of the equalization 
 grant in 1924-25 would have been $3,600,000. More recent computa- 
 tions indicate that for 1932-33 the use of 30 per cent would have 
 required an equalization grant of $3,929,640 and the use of 15 per cent, 
 an equalization grant of about $10,600,000. 
 
 Although the equalization plan would increase the amount of state 
 revenues received by municipalities as a group for school purposes 
 and so presumably make it possible for those municipalities which 
 receive more under the plan than they now receive to reduce their 
 expenditures for school purposes for the time being, the primary pur- 
 pose of the plan is the improvement of school services and the increase 
 of total state and local expenditures for elementary and secondary edu- 
 cation. Its purpose is to establish a minimum educational program 
 
552 Report of Special Tax Commission 
 
 approximately equivalent to the average program maintained by all 
 towns in the state. 
 
 The standard of $70 per equated pupil is not advanced as an ideal 
 or even an adequate standard of educational opportunity for every 
 child in the state. It represents the existing average educational pro- 
 gram accepted as a practical minimum objective under existing condi- 
 tions. This was pointed out by the Commission on Revision and Recodifi- 
 cation of the School Laws, which first proposed the equalization plan 
 using the $70 per equated pupil as the standard of educational oppor- 
 tunity. This Commission wrote : 
 
 The plan is not ideal but it is progress in the right direction. 
 It provides greatly increased possibility of the equalization of 
 educational opportunity up to a tentatively satisfactory mini- 
 mum and the use of state funds to that end." 
 
 There are no provisions of the plan which would require munici- 
 palities to reduce their local taxes to the point where $70 per equated 
 pupil would be the maximum educational expenditure in all towns in 
 the state. The $70 standard is established as a minimum, and those 
 interested in educational progress would consider it retrogression to 
 reduce the expenditures of municipalities which can afford and do 
 maintain an educational program costing more than $70 per equated 
 pupil. Thus the pressure of the plan, if adopted, would be in the direc- 
 tion of increasing the present total expenditures for local schools from 
 state and local revenues, and local taxation would be reduced by an 
 amount considerably less than the additional funds provided by the state 
 under the plan. 
 
 This Commission believes that it is important that the school 
 equalization plan be considered as a proposal to increase total school 
 expenditures for the purpose of improving educational services. It is 
 not the function of this Commission to pass upon the educational fea- 
 tures of the plan or the need for increased state assistance in raising edu- 
 cational standards. The granting of such substantial amounts of state 
 revenues to be expended by local agencies with limited supervision by 
 the state violates the principle of combining financial and administra- 
 tive control. The Commission would consider it preferable, to transfer 
 to the state both the administrative and the financial control of such 
 part of the educational program as the state determines to be its 
 responsibility, but we realize that such action is objectionable to edu- 
 cational authorities and probably politically impossible at the present 
 time. The Commission therefore feels that it would be impractical 
 
 17 Financing Education in Connecticut, pp. 125-126. 
 
State Assistance in Local Financing 553 
 
 to recommend any transfer of functions with respect to schools for 
 the purpose of reducing real property taxes and has no proposals 
 to make in this respect. 
 
 Highways. 
 
 The rapid growth of highway expenditures, together with the 
 successful development of productive special motor vehicle taxes, has 
 led to various forms of state assistance in the financing of local roads. 
 It has been only in relatively recent years that there have been estab- 
 lished state highway systems made up of mileage formerly included 
 in the local road systems. The roads in the state highway systems accom- 
 modate a high percentage of the travel on all state and local roads and 
 in most states are entirely financed by state taxes and fees specifically 
 designed to meet these costs. During the last fifteen years many states 
 have further relieved local governments in financing local highway 
 costs by extending various forms of grants to aid in the construction 
 and maintenance of roads still included in the local road system. 
 
 In Connecticut, state assistance in the financing of local roads 
 is extended to municipalities under the grants for state aid road con- 
 struction and for the construction and maintenance of town roads. Atten- 
 tion has already been called to the difference between the provisions 
 governing highway grants in this state and the usual state grants-in- 
 aid. Bather than remitting funds to the municipalities, these grants 
 take the form of funds spent by the state highway commissioner acting 
 as the representative of the state. The municipalities, it is true, are 
 permitted to accept the financial assistance offered and to participate 
 in deciding upon the work to be financed, but the final decision on all 
 matters relating to these expenditures, within the limitation of the 
 statutes, rests with the highway commissioner. The state has in its 
 financial assistance for local roads assumed administrative control 
 over the activities for which funds are granted. 
 
 Although the state aid and town aid highway appropriations were 
 probably made for reasons of expediency, there is considerable justifica- 
 tion in principle for their continuance. The theory of the taxes and fees 
 which provide the revenues for the highway fund, from which these 
 appropriations are made, contemplates the entire financing of the gen- 
 eral use system of roads from taxes and fees imposed upon the users 
 of motor vehicles. Without a detailed survey of traffic, it is impossible 
 to determine accurately the mileage which should be included in the 
 general use' system of roads, and it is likely that there is a certain 
 mileage of town roads which should be included in the general use 
 system. While the distribution of the state revenues would be consider- 
 ably changed if it were made according to the general use mileage 
 
 5 
 
554 Eeport of Special Tax Commission 
 
 in the town roads, the town highway aid appropriations do acknowledge 
 the state's and the general motorists' responsibilities for financing those 
 portions of local road systems which have developed a general use 
 character. 
 
 Although there are theoretical weaknesses in the apportionment 
 of these highway appropriations, the provisions for state administra- 
 tion of the revenues appear to be securing generally satisfactory 
 results. For all practical purposes the state aid highways are part of 
 the state highway system, and the contributions required of the munici- 
 palities toward the construction costs provide reasonable and desirable 
 evidence of municipal interest in the improvement of certain local 
 roads to state aid highway standards. When once constructed, state aid 
 highways are thereafter maintained by the state at state expense, and 
 the municipalities are thereby relieved of the maintenance costs for 
 these highways. Thus the state aid highway provisions result in the 
 gradual extension of the system of state maintained highways in 
 accordance with the views of municipal authorities as evidenced by their 
 acceptance of state aid highway allotments and by their willingness 
 to appropriate their share of construction costs. 
 
 The town road appropriation of three million dollars was enacted 
 in 1931 for the purpose of improving dirt roads. The entire appropri- 
 ation has been allotted only for three fiscal years, which is too short 
 a period to judge accurately its results. Through the administration 
 of the expenditure of this appropriation by the highway commissioner, 
 these funds have been applied to secure a gradual improvement in the 
 condition of dirt roads and, to some extent, a reduction in local high- 
 way appropriations, especially in the more recent fiscal years. It seems 
 to the Commission that the continuance of the dirt road appropriation 
 without change is warranted by the results thus far attained. The 
 appropriation provides a conservative procedure for gradually improv- 
 ing local roads, and, so long as the equal share received by each munici- 
 pality is considerably less than the amount required properly to main- 
 tain its local roads, as is now the situation for the large majority of 
 towns, there would appear to be no danger of wasteful or extravagant 
 use of these funds under the prescribed administration. The Commis- 
 sion therefore proposes no change at present in the state appropriations 
 for state aid highways and town roads. 
 
 The Commission has given consideration to the claims of the cities 
 for a larger amount of state assistance in the construction and main- 
 tenance of city streets than they now receive from the state highway 
 and town road appropriations. Except for those portions of the city 
 streets providing connecting links in the general use system of state 
 highways, it does not seem to the Commission that the traffic on city 
 
State Assistance in Local Financing 555 
 
 streets is essentially different, as far as its claim on special motor- 
 vehicle tax revenues is concerned, from that on the rural town roads. 
 On the other hand, when city streets form links in the state highway 
 system, there is a strong case for the assumption of financial support 
 and administrative control by the state on the same principle as applies 
 to general use roads in the towns. But so many property interests- — 
 those of the abutting property owners, of street railways, other public 
 utilities, etc. — are affected by the financing of city streets connecting 
 state highways that no state has yet devised a logical, practical, and 
 equitable procedure by which the expense for the general use traffic 
 on these streets may be assumed by the state highway fund. The Com- 
 mission believes that the interests of the general motorist will be better 
 served and the legitimate claims of cities against the highway fund 
 better met by the construction of by-passes around cities to form a 
 continuous system of state highways than by any arbitrary apportion- 
 ment of state revenues to defray part of the cost of city streets. The 
 state highway department is at present in the process of constructing 
 such by-passes according to" a plan designed eventually to relieve the 
 cities of the expense imposed upon them by the general traffic on their 
 streets. This Commission commends this program and accordingly rec- 
 ommends against an outright apportionment of revenues from the 
 highway fund for city streets which might delay its consummation. 
 
 Charities, hospitals, and coeeections. 
 Institutional caee. 
 
 Governmental expenditures for charities, hospitals, and corrections 
 may be divided into two classes : (1) expenditures for the institutional 
 care of the insane, feeble-minded, tubercular, criminal, delinquent, 
 indigent, and pauper classes and (2) expenditures for outdoor or non- 
 institutional relief of those in need. 
 
 The cost of institutional care is now met largely by the state, 
 through the administration 'and financing of the state institutions and 
 the grants to counties for the board of children in county homes and 
 persons in county jails. The only costs of institutional care not defrayed 
 by the state are the county costs for the maintenance of county tem- 
 porary homes and county jails and the town costs for town almshouses 
 and other institutional care of town poor. The combined county and 
 town costs for institutional care are but a small fraction of the state 
 expenditures for this purpose. 
 
 The Commission believes that the policy under which the state 
 has gradually assumed a greater degree of administrative control and 
 a large share of the financing of institutional care should be continued 
 and that within a reasonable period of time all responsibility for and 
 
556 Report of Special Tax Commission 
 
 all authority over the care of persons in institutions, with the possible 
 exception of the care of. those in town almshouses, should be vested in 
 the state government. Institutional care is a technical function requiring 
 highly trained personnel, extensive buildings, and technical equipment. 
 No unit of government is equipped to provide this service as efficiently 
 and economically as the state, especially in a state with as small an 
 area as that of Connecticut. 
 
 The two most important forms of institutional care not already 
 assumed by the state are the county homes and the county jails. The 
 General Assembly has received a report from the Connecticut Com- 
 mission on Jails recommending the transfer of most of the administra- 
 tion and financing of the county jails to the state. The Commission on 
 Child Welfare in its recent report recommended the eventual transfer 
 of the administration and financing of county temporary homes to the 
 state. 
 
 It is not the function of this Commission to pass judgment upon 
 the professional and administrative features of the recommendations 
 of these two special commissions. From the standpoint of fiscal policy, 
 however, it regards the immediate or eventual transfer to the state of 
 the functions of county jails and county homes as a sound and practi- 
 cable measure for reapportioning functions and financial responsibility 
 so as to relieve the burden of local taxation. 
 
 The state government has provided for* the care of neglected 
 children by two agencies — county homes and the state bureau of child 
 welfare. It has definitely assumed, either through direct administra- 
 tion or through taxes and grants distributed to the counties, the respon- 
 sibility for the care of such children eighteen years of age or less. 
 The professional and administrative problems of this function have 
 been thoroughly analyzed in the report of the Commission on Child 
 Welfare. In view of the responsibility for this function already assumed 
 by the state and of the fiscal policies involved, it is desirable that 
 the financial and administrative control of this activity be centralized 
 so as to permit the development of a unified policy and program in this 
 function. 
 
 Figures compiled by the department of public welfare show that 
 the per capita cost of all children on support of county homes, whether 
 inside or outside, ranged in 1932 from $6.01 to $8.69 per week and 
 averaged $6.89 for the state as a whole. 18 The state pays to the counties 
 at present $3.50 per week per child for the board of children in county 
 homes and not to exceed $3.50 for the board of children placed outside 
 the county homes. In the aggregate the state expended for this purpose 
 $441,156 in the fiscal year 1932-33. The Commission proposes that 
 
 18 Department of Public Welfare, Report, 1931 and 1932, p. 169. 
 
State Assistance in Local Financing 557 
 
 the payments by the state for the board of children committed to county 
 care be increased to the average actual current cost but not to exceed 
 $6.00 per week per child. This increase in the weekly board paid by the 
 state, if it had been effective in the county fiscal year 1932-33, would 
 have increased the state payments to the counties in that year by more 
 than enough to offset the loss of $147,811 in county revenues which 
 would have resulted from the elimination of the distribution of the 
 unincorporated business tax. 
 
 This increase in the state's payments for the support of children 
 committed to county care should be accompanied by an increased super- 
 vision by the state over expenditures for the care of such children. The 
 tax commissioner should be empowered to require the county commis- 
 sioners to install an adequate accounting system and to keep satisfactory 
 cost records of their child welfare activities. The duty of receiving, 
 compiling, and publishing the annual financial returns of the county 
 commissioners should be transferred from the secretary of statd to the 
 tax commissioner, so that the entire supervision of the state over local 
 financing would be lodged in the same office and the state's supervision 
 of the financing of the counties would be unified. The county commis- 
 sioners, moreover, should be permitted to make expenditures for perma- 
 nent improvements to county homes only with the approval of the state 
 board of finance and control. 
 
 Non-institutional chaeitable relief. 
 
 Non-institutional or outdoor charitable relief involves at present 
 both ordinary and extraordinary expenditures. Because of conditions 
 arising from the depression, there have been added to the normal 
 expenditures for pauper relief and widows' aid large expenditures for 
 the relief of the unemployed. Although the state's expenditures for its 
 charitable institutions and for state paupers have been greatly increased 
 by the spread of unemployment, the major part of the emergency 
 unemployment relief burden has been carried by the local governments. 
 Until the last year, local governments in Connecticut provided relief 
 to their unemployed without financial assistance from other govern- 
 ments. Then the federal government assumed a financial responsibility 
 for this function and in various ways extended substantial financial 
 assistance to the local governments for this purpose. 
 
 The Commission finds that the established administrative arrange- 
 ments for outdoor charitable relief are adequate and satisfactory under 
 normal conditions. The administration of this activity calls for intimate 
 knowledge and continuous supervision of cases ; these are best obtained 
 through local administration. At the same time, the responsibility of 
 local governments for persons in distress within their jurisdiction is 
 
558 Repokt of Special Tax Commission 
 
 restricted at least to those persons who have lived in the communities 
 as self-supporting citizens for considerable periods before becoming 
 dependent upon charitable relief. Connecticut, in our opinion, has 
 developed a satisfactory procedure for giving recognition to these two 
 considerations in providing for its normal costs of outdoor charitable 
 relief. 
 
 Whatever state funds are now advanced for meeting the normal 
 costs of outdoor charitable relief are subject to state administration. 
 Although the state makes use of the local machinery for extending out- 
 door relief to state paupers, the state itself approves not only appli- 
 cations but also the expenditures made for their relief before reimburs- 
 ing the municipalities for these expenditures. In effect, therefore, the 
 arrangement provides for local administration and financing of the 
 relief extended to those having established legal settlements in the 
 municipalities and for state administration and financing of the relief 
 extended by the state to all others in need. Widows' aid, on the other 
 hand, is administered and financed cooperatively by the state, the 
 counties, and the municipalities, although the state exercises final con- 
 trol over this activity. The Commission finds that this plan has operated 
 with general satisfaction for fifteen years. The participation of the 
 municipalities and the counties in the administration of this aid has 
 afforded the advantage of responsible local supervision, while the vest- 
 ing of final control over the administration and financing of the aid in 
 the state has secured efficient and economical administration of the func- 
 tion. The Commission suggests, therefore, that the existing statutory 
 provisions governing charitable relief for paupers and for widows be 
 retained without change as the permanent machinery for the administra- 
 tion and financing of this function under normal conditions. 
 
 Unemployment relief, however, is quite a different problem. Only 
 because municipalities have always been largely responsible for outdoor 
 charitable relief did the crushing burden of unemployment relief fall 
 upon them. In the last year or two it has become clear that the burden of 
 unemployment relief is too heavy for the municipalities to bear. The 
 federal government and many of the states have extended financial 
 assistance in one form or another to enable local governments to meet 
 this new responsibility. 
 
 Notwithstanding the traditional responsibility of the towns for the 
 care of the poor and the advantages of meticulous local supervision in 
 normal outdoor charitable relief, municipalities cannot fairly be held 
 totally responsible for unemployment relief. They have, it is true, 
 derived advantages in former years from businesses which are now 
 closed down or are operating on reduced schedules. Still these businesses 
 have contributed to the prosperity of other municipalities and of the 
 
State Assistance in Local Financing 559 
 
 state at large. To require those restricted areas where industry is concen- 
 trated to provide the funds to relieve those thrown out of employment by 
 the decline of industrial activity is difficult to defend and is, in fact, 
 impracticable for any length of time. The tax resources and the credit 
 of many municipalities have already proved inadequate to carry the 
 additional burden of unemployment relief at a time when municipal 
 revenues are decreasing. Fortunately Connecticut municipalities have 
 been able thus far to finance their burden of unemployment relief with 
 such help as has been extended by the federal government. This has 
 been accomplished, however, only at the cost of heavy additional 
 burdens on local taxpayers. 
 
 . Local expenditures for unemployment relief have been one of the 
 causes of the aggravation of the burden of local taxation during the 
 depression. From its investigation the Commission has concluded that 
 there is no convincing evidence that the burden of property taxation 
 prior to the depression was excessive or unwarranted. Local taxation has 
 become increasingly burdensome during the depression largely because 
 of the shrinkage of the incomes of the people of the state and the large 
 and unavoidable expenditures for unemployment relief which the 
 municipalities have been forced to make. Only economic recovery can 
 relieve that part of the burden of local taxation arising from reduced 
 incomes, but that part of the increase in this" burden which has resulted 
 from unemployment relief expenditures may be alleviated by transfer- 
 ring a substantial part of these expenditures to the state. 
 
 It is in this way that the Commission believes the state can provide 
 the most direct, effective, and substantial relief to the burden of local 
 taxation at this time. Unemployment relief is more of a state than a 
 local responsibility. More than any other influence amenable to state 
 control, it accounts for the recent aggravation of the local tax burden. 
 Although predictions under present conditions are hazardous, it is not 
 to be expected that depression is a permanent condition or that wide- 
 spread unemployment is more than a temporary problem, even though 
 it may continue to exist for several more years. The state, therefore, 
 may participate in the administration and financing of this activity, 
 without dislocating those established fiscal and administrative arrange- 
 ments between it and its political subdivisions which have proved ade- 
 quate under normal conditions and without assuming an additional 
 financial burden of a permanent character. 
 
 Kevenues may be provided for this purpose by the enactment of 
 temporary taxes, which will automatically lapse when the emergency is 
 passed, thus avoiding the establishment of a permanently higher level 
 of taxation in the state. 
 
560 Report of Special Tax Commission 
 
 The state is equipped and prepared to assume this responsibility. 
 The Emergency Relief Commission, established as a temporary agency 
 by the last General Assembly, has been operating now for more than a 
 year and has administered with general satisfaction the amounts of 
 federal funds distributed to the municipalities for unemployment relief. 
 Thus there is already available a state agency experienced in the control 
 of funds advanced to municipalities for emergency unemployment 
 relief. 
 
 Five years of continuously increasing unemployment relief expen- 
 ditures, on the other hand, have led to the strengthening of local govern- 
 mental agencies administering outdoor charitable relief and have 
 developed standards and technique which are indispensable for the 
 proper discharge of this function. Although we realize that there have 
 been occasional abuses in the administration of relief funds, it is 
 undoubtedly true that the function of outdoor relief has never been 
 administered locally as efficiently as it now is. It would be shortsighted 
 and impracticable to propose that the existing local administrative 
 agencies be supplanted by a newly created state administration for a 
 temporary period of four years. Nor is such a step required to assure the 
 proper control of any state money made available for financing this 
 function. For many years the state has expended through local admini- 
 strative agencies but under direct state control considerable sums for 
 the relief of paupers who have not had legal settlements in any munici- 
 pality. This procedure has proved satisfactory in the past and can be 
 taken advantage of now to extend state assistance to the municipalities 
 for the financing of the temporarily heavy costs of outdoor charitable 
 relief resulting from unemployment. 
 
 Local costs for the support of the poor consist of (1) the cost 
 of almshouse support, (2) the cost of poor in asylums, hospitals, homes, 
 etc., and (3) the cost of outside poor not in institutions. The first 
 two of these three classes of expenditures represent local costs of insti- 
 tutional care and should continue for the present to be administered and 
 financed exclusively by the municipalities. Under the third classification 
 are included what may be called normal expenditures for outdoor relief 
 to town paupers and widows and the much larger expenditures 
 recently made for emergency unemployment relief. 
 
 The Commission considers the present administration and financ- 
 ing of relief to state paupers and widows satisfactory and proposes 
 no change in these existing arrangements. With respect to the exclu- 
 sively local expenditures for outdoor charitable relief, the Commission 
 proposes that state financial assistance be extended under provisions 
 similar to those governing relief to state paupers. To maintain local 
 
State Assistance in Local Financing 561 
 
 responsibility for the relief of strictly town purposes and to recognize 
 a local responsibility for a part of emergency unemployment relief 
 costs, it would require the municipalities to pay toward outdoor chari- 
 table relief the amount of their expenditures for this purpose in 1928 
 and at least one-third of the expenditures made in any year in excess of 
 those made in 1928. It proposes that the state reimburse the munici- 
 palities for two-thirds of the excess of their total expenditures for out- 
 door charitable relief which are approved by the Emergency Relief 
 Commission over the amounts of such expenditures actuallv made in 
 1928. 
 
 Eeports of local overseers of the poor to the state department of 
 public welfare show the following municipal expenditures for out- 
 door charitable relief during the fiscal years ending next prior to 
 September of each year from 1926 to 1933 : M 
 
 1926 
 1927 
 
 $645,391 
 701,773 
 
 1928 
 
 805,394 
 
 1929 
 1930 
 
 878,439 
 1,272,244 
 
 1931 
 
 3,045,586 
 
 1932 
 1933 
 
 5,714,398 
 9,388,027 
 
 From the unaudited returns of 92 municipalities for the year 
 1934, it is estimated that the local expenditures, exclusive of the costs 
 of direct and work relief financed by the federal government, were 8.6 
 million dollars. 
 
 From these figures an estimate can be made of the cost which 
 our proposals would have imposed upon the municipalities and upon 
 the state during 1932-33. The state's receipts from local governments 
 for widows' aid come half from the counties and half from the 
 municipalities. If, therefore, one-half of such state receipts in 1932-33 
 is subtracted from the total municipal expenditures for outdoor chari- 
 table relief of 1933 shown above, the remainder, $9,163,598, may be 
 assumed to represent the municipal expenditures for outdoor charitable- 
 relief exclusive of widows' aid. The corresponding figure for 1928 
 is $658,990. The excess of these expenditures of 1933 over those of 
 1928 amounted to $8,504,607. Of this amount, the state would have 
 been required to have paid two-thirds, or $5,669,738, and the munici- 
 palities, one-third, or $2,834,869. The total cost of outdoor charitable 
 relief to the municipalities in 1932-33 would have been $3,493,859, the 
 
 " Department of Public Welfare, Report, X9S1 and 1982, p. 148; Office Records. 
 
562 Report of Special Tax Commission 
 
 sum of (1) their expenditures for this purpose in 1928, amounting 
 to $658,990, and (2) one-third of the excess of the 1933 expenditures 
 over those of 1928, or $2,834,867. Under the, proposals, therefore, 
 municipal expenditures for outdoor charitable relief in 1932-33 would 
 have been reduced from $9,163,598 to $3,493,859, or by $5,669,738, 
 and the state's expenditures would have been increased by this amount. 
 
 Elimination of state and military taxes. 
 
 The only revenues still derived by the state from locally assessed 
 property are those from the state and military taxes. In 1932-33 the 
 state tax amounted to $1,250,000 and the military tax to $515,353. The 
 total amount of these two taxes is apportioned among the towns accord- 
 ing to their annual average receipts from taxation and becomes a part 
 of the total levies imposed by the towns upon locally assessed property. 
 
 While the Commission realizes that there may be certain desirable 
 psychological effects from requiring the towns to make direct pay- 
 ments for the support of the state government, it believes that these 
 effects are far outweighed by the advantages of relieving local taxation 
 in the present emergency by the repeal of these taxes. The amounts 
 paid '>y the towns in military and state taxes do not vary directly with 
 the financial assistance which the towns now or in the future may 
 receive from the state. The payment of these taxes, therefore, would 
 not seem to provide any strong deterrent to the towns from seeking 
 additional state aid. The existence of these taxes gives to the state no 
 greater interest or responsibility in the administration of the local 
 property tax than it would have if they were repealed. The acute tax 
 burden is local, while the state alone has potential sources of additional 
 revenues. Repeal of these taxes would provide direct and immediate 
 relief from the burden of local taxation without raising any difficulties 
 of administration. The Commission suggests, therefore, that the state 
 and military taxes be repealed. 
 
 Summary and recommendations: 
 State assistance in general. 
 
 The growth of expenditures without a corresponding expansion 
 in local sources of revenue has given rise to different kinds of state 
 assistance in local financing. The rapid increase during the past gener- .. 
 ation of state expenditures for highways, higher education, charitable 
 institutions, the courts, health, and other activities has relieved local 
 governments at least in part of expenditures which they would have 
 been required to have made under the distribution of governmental 
 functions of the last century. In addition to this indirect assistance, 
 
State Assistance in Local Financing 563 
 
 however, the states have extended financial aid to their political sub- 
 divisions by sharing the revenues of state-administered taxes, by making 
 grants in aid of specified local activities, and by assuming the admin- 
 istrative and financial responsibility for certain local activities. 
 
 State assistance in Connecticut. 
 
 In Connecticut the state shares with the counties or municipali- 
 ties the revenues derived from the share taxes on banks and insurance 
 companies, the unincorporated business tax, the estate penalty tax, 
 and the motor bus tax. The amount of these tax revenues distributed 
 to local governments was $3,439,902 in 1928-29, $1,491,974 in 1931- 
 32, and $1,045,349 in 1933-34. 
 
 Grants are made by the state to "the municipalities for certain 
 educational and charitable activities and for a few other local func- 
 tions. There are eighteen different grants made directly to the munici- 
 palities for particular educational activities. The state makes grants 
 to the counties in payment of part of the board of children committed to 
 county care and of prisoners in county jails.. The state reimburses the 
 municipalities for the necessary relief given to state paupers and pro- 
 vides a grant not to exceed $100 each for the funeral expenses of certain 
 war veterans. There are also state grants to reimburse the municipalities 
 for their loss of taxes on state property and for the retirement of 
 their railroad indebtedness. 
 
 In extending financial assistance for local highway activities and 
 for Widows' aid, the state has assumed responsibility for their admin- 
 istration. The state appropriates annually one million dollars plus the 
 amount furnished by the towns in the preceding year for state aid 
 highway construction. The towns are required to pay either one-eighth 
 or one-quarter of the costs of state aid highway construction accord- 
 ing to the amount of their average annual receipts from taxation. The 
 combined state and town appropriations, exclusive of the amounts 
 applied to the completion of unfinished intervals, are divided equally 
 among the towns. The towns accept or reject their allotments and 
 suggest the roads to be constructed, but the final determination of the 
 work to be done and the administration of the activities remain with 
 the highway commissioner. Except that no contributions by the munici- 
 palities are required and that certain other requirements governing 
 construction of state aid highways need not be met, the "dirt-road" 
 appropriation of three million dollars is similarly administered. As 
 with the two types of highway aid, provision is made for the coopera- 
 tion of the towns and the counties in extending widows' aid, but the 
 final responsibility for the administration of these activities rests 
 
564 Repobt of Special Tax Commission 
 
 with the state agent. The state is reimbursed by the counties for 
 one-third and by the municipalities for one-third of the total expendi- 
 tures made for widows' aid. 
 
 Direct state assistance to local financing amounted to $8,575,173 
 in 1931-32. Of this total, $1,491,974 represented revenues of state- 
 administered taxes; $3,080,959, grants for specified local activities; 
 and $4,002,240, expenditures on local functions administered by the 
 state.. If the state and military taxes of $1,765,353 paid by the towns 
 to the state be deducted from this total, the net amount of direct state 
 assistance in local financing was $6,809,820 in 1931-32. 
 
 Criticism and peoposed changes. 
 
 Efficient and economical administration of governmental activities 
 depends upon holding each unit of government responsible for the 
 financing of the activities which it administers. Although this prin- 
 ciple cannot be applied without making allowance for the practical, 
 traditional, political, and sentimental circumstances surrounding par- 
 ticular problems, its strict application should be taken as the ultimate 
 aim of state and local fiscal interrelationships. 
 
 Distributing the revenues from state-administered taxes among 
 local governments is generally an unsound procedure. Neither those 
 who pay these taxes nor those who spend the distributed revenues 
 exercise over these funds the responsibility which proper financing 
 requires. Rarely are the revenues distributed according to a sound 
 theoretical principle. The Commission's proposals eliminate the dis- 
 tribution of revenues from the share taxes on banks and insurance 
 companies, the unincorporated business tax, and the estate penalty tax 
 among the local governments. Until the whole subject of regulation 
 and taxation of commercial motor vehicles is investigated, it is pro- 
 posed that the revenues from the motor bus tax continue to be distrib- 
 uted but according to more practicable rules than those now in effect. 
 The Commission views its proposal for the special property tax on 
 motor vehicles, not, as a substitution of a state tax for a local fax, 
 but as the substitution of state assessment and collection for local admin- 
 istration of a local tax. The revenues from this tax, like those from 
 property taxes on other tangible personal property, are to remain local 
 revenues. 
 
 The purpose of the proposed school equalization plan is primarily 
 to increase school expenditures and provide at least a minimum edu- 
 cational program in all towns in the state. Since this Commission has 
 no authority to advance proposals intended primarily to increase 
 expenditures and since it is not the function of this Commission to 
 pass judgment upon educational questions, the Commission presents 
 
State Assistance in Local Financing 565 
 
 no ^ proposals for changes in existing state grants for local educational 
 activities. It does, however, call attention to certain fiscal defects 
 of the equalization plan. ' 
 
 State financial assistance for both state aid highways and town 
 roads is extended according to the principle of vesting administrative 
 authority and financial responsibility in the same unit of govern- 
 ment. The Commission considers that this aid is justified by the prin- 
 ciples of special motor vehicle taxes and that its administration is 
 satisfactory and its amount adequate. 
 
 The state has already assumed the administrative and financial 
 responsibility for most of the institutional care of the insane, feeble- 
 minded, criminal, delinquent, and pauper classes. The Commission 
 believes that the policy of gradually transferring to the state the total 
 responsibility for institutional charitable 'activities should be con- 
 tinued. Without passing judgment on its professional features, the 
 proposal to establish a state jail farm is endorsed as a sound measure 
 to relieve the burden of local taxation. The state, through the activities 
 of the state department of public welfare and its administrative 
 and fiscal relationship to the county homes, has assumed a definite 
 responsibility for the care of children eighteen years of age or less. 
 The implications of this policy are fully developed in the report of the 
 Commission on Child Welfare. The Commission believes that increased 
 state grants for the support of children committed to county care, com- 
 bined with a greater degree of state administrative supervision 
 of the operations of county homes, provides a sound procedure for 
 giving some relief from the burden of local taxation and for improv- 
 ing the state's policy for the care of children. 
 
 The Commission finds that the established administrative arrange- 
 ments for outdoor charitable relief are adequate and satisfactory under 
 normal conditions. 20 Unemployment resulting from business depression, 
 however, has created an emergency financial problem for the municipali- 
 ties and accounts for the acute burden of local taxation. Emergency 
 unemployment relief is more a state than a local responsibility, and its 
 financing provides an opportunity for the state to extend the most direct, 
 effective, and substantial relief from the burden of local taxation at this 
 time. The Commission proposes that no change be made in existing 
 arrangements for the administration and financing of town almshouses, 
 other local institutional care of the poor, state paupers, and widows' aid. 
 
 In connection with local expenditures for outdoor charitable 
 relief, exclusive of relief to state paupers and widows' aid, it rec- 
 
 To clarify the meaning of this sentence, its wording has been slightly changed 
 from that appearing in the first printing of the summary. 
 
566 Repobt of Special Tax Commission 
 
 ommends the continuance of local administration and the extension 
 for a temporary period of four years of a considerable amount of state 
 assistance under provisions similar to those governing the financing 
 of relief to state paupers. It is proposed that the municipalities be 
 required to finance a part of the total cost of such expenditures for 
 outdoor charitable relief equal to the sum of (1) their expenditures 
 for this purpose in 1928 and (2) at least one-third of the excess of 
 such expenditures in any given year over those of 1928. The state 
 would reimburse the municipalities for two-thirds of the excess of such 
 expenditures in any given year which are approved by the Emergency 
 Relief Commission over the actual amount of such expenditures in 
 1928. 
 
 The Commission proposes, finally, that the state and military 
 taxes be repealed as a step to provide direct and immediate relief from 
 the burden of local taxation without raising any difficulties of admin- 
 istration. 
 
 Recommendations. 
 
 With respect to state assistance in local financing, the Commis- 
 sion recommends: 
 
 That the state and military taxes on towns be repealed; 
 
 That the provision for distribution to the counties of half the net 
 revenues from the unincorporated business tax be repealed; 
 
 That the payment by the state to the counties for the support 
 of children committed to county care be increased from $3.50 to the 
 average actual current cost in each county, not exceeding $6.00 per 
 week per child; 
 
 That the tax commissioner be empowered to require county com- 
 missioners to keep adequate accounting records of the operations of 
 county homes; 
 
 That the duty of receiving, compiling, and publishing the annual 
 financial returns of county commissioners be transferred from the 
 secretary of state to the tax commissioner; 
 
 That the county commissioners be permitted to make expendi- 
 tures for permanent improvements to county temporary homes only 
 with the approval of the state board of finance and control; 
 
 That no change be made in the present administration and financ- 
 ing of (1) relief to state paupers, (2) widows' aid, (3) town alms- 
 houses, and (4) local relief to the poor in asylums, hospitals, homes, 
 etc.; 
 
 That the Emergency Relief Commission be continued for four 
 years ; 
 
State Assistance in Local Financing 567 
 
 That, as an emergency measure adopted for a temporary period 
 of four years, the state reimburse the municipalities for an amount 
 of their outdoor charitable relief expenditures, exclusive of those for 
 state paupers and widows' aid, equal to two-thirds of the excess of 
 such expenditures approved by the Emergency Relief Commission over 
 the amount of such expenditures made during the municipal fiscal 
 years ending next prior to October 1, 1928; 
 
 That an appropriation be made by the state from its general 
 fund for expenditures for local outdoor charitable relief and that 
 the revenues of the general fund be increased to meet this appropria- 
 tion by the enactment of temporary emergency taxes recommended in 
 the following chapter. 
 
 In addition to these formal recommendations, the Commission 
 considers the proposal of the Commission on Jails to transfer from the 
 counties to the state the administrative control and financial responsi- 
 bility for the custody of all persons committed to prison (other than 
 those awaiting trial) a sound fiscal measure, which will result in a cer- 
 tain amount of reduction of local taxation. 
 
CHAPTER XIX 
 
 NEW SOURCES OF REVENUE 
 
 Additional revenues required. 
 
 Certain of the recommendations of the Commission which deal 
 with administrative and similar' matters cannot be translated into dol- 
 lars and cents of income or costs to the state government. The other 
 proposals of the Commission, however, involve revenues or expendi- 
 tures the amounts of which are estimated in foregoing chapters. It is 
 important to have an idea of the net effect of these recommendations 
 upon the state's budget. In order to arrive at such an estimate, we 
 may take the fiscal year 1932-33 (the latest year for which we have 
 complete figures) as an example. According to our estimates, if the 
 Commission's proposed changes in the tax ■ laws, including the repeal 
 of certain taxes and the revision of others, had been in effect in the 
 year 1932-33 (assuming also the elimination of the additional revenues 
 that were derived in that year from taxes on steam railroads and 
 street railways because of the change in the assessment date), the state 
 income for that year would have been increased by $361,000. The 
 expenditures required to finance outdoor charitable relief, increased 
 payments for the board of children committed to county care, and the 
 assistance to municipalities in changing their fiscal years and tax due 
 dates, as recommended by the Commission, would have required in 
 1932-33 additional expenditures of $7,115,000. Without these pro- 
 posed changes the state incurred in that year a deficit of $4,260,000. To 
 have balanced the state budget in 1932-33, if there had been only these 
 increases in expenditures and revenues, therefore, would have required 
 $11,014,000. This figure may be taken as indicative of the amount of 
 new revenue which would be required for a balanced state budget in 
 connection with the complete fiscal program which this Commission 
 recommends. 
 
 There are only a few available sources from which such substan- 
 tial additional revenues may be derived. General property taxes are 
 precluded since the reduction of these taxes is one of the purposes of 
 the proposals made. Whatever additional revenues can, in the opinion ■ 
 of the Commission, be advantageously derived from the existing taxes 
 on business, motor vehicles, inheritances, and liquor have been pro- 
 posed in preceding chapters and have been allowed for in reaching the 
 estimated additional revenues required. The only other promising 
 sources consist of taxes on the incomes of individuals and on sales. 
 
New Sources of Kevenue 569 
 
 The purposes for which these revenues are to be raised suggest 
 some of the general characteristics of the tax measures which should 
 be employed. The transfer to the state of a substantial part of the local 
 costs of unemployment relief is proposed, not as a permanent form of 
 state assistance to local financing, but as a temporary arrangement for 
 a four-year period to relieve the municipalities of the more or less tem- 
 porary costs of emergency relief. Similarly the state's expenditures in 
 extending financial assistance to municipalities to enable them to change 
 their fiscal years and tax due dates will be more or less temporary and 
 will decline in amount from year to year. Together these two proposals 
 account for $6,800,000 of the estimated additional revenues which 
 would have been required in 1932-33. At least this amount should be 
 raised by taxes enacted for a temporary ' period. These needs should 
 not be financed by taxes which might be used to establish a permanently 
 higher level of state and local taxation. 
 
 The abolition of taxes on the capital value of intangibles, includ- 
 ing choses-in-action, the untaxed property of deceased persons, savings 
 deposits, and the shares of banks and insurance companies, deprives 
 the state of the revenues now received from these taxes. A part of this 
 loss is offset by taxes proposed as substitutes, particularly the taxes on 
 banks and insurance companies. The Commission does not intend, how- 
 ever, to relieve intangibles in the hands of individuals from taxation, 
 and it considers this taxable capacity an available source from which 
 part of the additional revenues should be raised. 
 
 Taxes on incomes of natural persons. 
 
 Effective taxes on the incomes of natural persons, at their present 
 stage of development, are of three general types. There are, first, gen- 
 eral personal income taxes, such as that of the federal government, by 
 which the total net income of an individual, except such income as is 
 specifically exempted, is taxed at rates graduated according to its 
 amount. There are, secondly, what might be called general classified 
 personal income taxes, under which the income derived by an individual 
 is classified according to its sources and the income from each source is 
 taxed at a uniform rate different from that imposed on income from 
 other sources. Finally, there are the recently developed special classi- 
 fied income taxes extending only to income received in the form of 
 interest and dividends and levied independently of any other tax on 
 the whole or any part of the income of individuals. 
 
 General personal income taxes.- 
 
 The taxation of the total net income of individuals at rates gradu- 
 ated according to the amount of income has been developed as a source 
 
570 Eepoet of Special Tax Commission 
 
 of substantial federal and state revenues only during this century. 
 Prior to 1900 certain colonies and later certain states had their faculty 
 and income taxes, but they were crude in structure, defective in 
 administration, and unproductive in yield. The federal government 
 made use of a personal income tax as a temporary revenue measure 
 during the Civil War. An income tax was enacted in 1894 but declared 
 unconstitutional before it became effective. It was not until Wisconsin 
 adopted in 1911 a general income tax with provisions for state adminis- 
 tration that this form of taxation was demonstrated to be practicable 
 for state use. The adoption of the Sixteenth Amendment to the federal 
 Constitution enabled the federal government to enact in 1913 a com- 
 prehensive net income tax law, including a general personal income 
 tax, which now constitutes 'the principal source of federal revenues. 
 From the enactment of the Wisconsin tax in 1911 until January 1, 
 1934, twenty-one states had adopted and retained a general personal 
 net income tax. 1 
 
 The general personal income tax has appealed to the states and 
 is usually advanced largely for reasons of equity in the distribution 
 of the tax burdens. The incomes of individuals are generally accepted 
 as the best single measure of ability to pay, and, during a period when 
 the ability to pay principle of taxation was being emphasized, it was 
 natural that the general personal income tax should have received 
 attention. Upon net income depends the social status of individuals, 
 their ability to command goods and services, and the market value of 
 their wealth and personal faculties. General personal income taxes, 
 moreover, have been formulated in a manner to conform even more 
 closely to prevailing conceptions of ability to pay than would be the 
 result if a uniform rate were levied on individual incomes. Through 
 personal exemptions, graduated rates, and preferential rates for 
 "earned" income, some allowance has been made for the differences 
 in taxpaying ability arising from different amounts and kinds of 
 income. This appeal of equity, combined with the demonstration that 
 personal income taxes can be effectively administered by the states, 
 has secured for the general personal income tax a widespread popularity 
 and a place in the tax systems of almost half the states. 
 
 When considered for state purposes under present conditions, the 
 argument based on the equity of the general personal income tax is 
 not as strong as it appears on its face. Under the federal form of gov- 
 ernment existing in .the United States, the general personal income tax 
 must be appraised and judged, not independently of all other taxes, but 
 
 1 Tax Research Foundation, Taw Systems of the World, Fifth edition, 1934, pp. 
 133-140. 
 
New Sources of Revenue 571 
 
 in relation to the total effect of the taxes already imposed by the 
 federal, state, and local governments. 
 
 Of course all existing taxes are ultimately paid from the incomes 
 of the people of the state. How the total burden of all these taxes dis- 
 tributes itself among these incomes is difficult to determine. It is prob- 
 able that state and local taxes impose a burden upon persons which is 
 on the whole roughly proportional to their incomes ; it may be that the 
 burden is even somewhat regressive, that is, so distributed that the 
 ratio of tax to income decreases as the income increases. But this pro- 
 portional or possibly regressive character of state and local taxes is 
 counterbalanced by the highly graduated (progressive) personal income 
 tax of the federal government. Thus the proposal that the state enact a 
 general personal income tax is a proposal to superimpose the tax upon 
 that now paid by persons in this state to the federal government, and, if 
 such a state tax is not to result in inequitable burdens on personal 
 incomes, it must be coordinated with the federal tax. 
 
 Under the Eevenue Act of 1934 the federal government imposes a 
 normal tax of 4 per cent on the net incomes of individuals in excess of 
 the personal exemptions of $1,000 for a single person, $2,500 for a mar- 
 ried person, and $400 for each dependent and surtaxes ranging from 4 
 to 59 per cent on the total net income of individuals in excess of $4,000. 
 This is a heavy and comprehensive tax, and the probability is that it 
 will be increased and broadened as the federal government is forced 
 to secure additional revenues. A state income tax must be recognized 
 as inevitably adding its burden to the already extreme rates of the 
 federal tax. 
 
 The Commission has made a rough estimate of the incomes of 
 the self-supporting gainfully employed persons in Connecticut in 1930. 
 It was assumed that all gainfully employed males over 20 years of 
 age and single gainfully employed females over 20 years of age were 
 self-supporting. Although available statistics give a complete and accu- 
 rate distribution of reported net incomes of $5,000 and over by income 
 brackets, they do not indicate the number of single and married returns 
 within each bracket. It was therefore assumed that all persons with 
 net incomes in excess of $3,000 were married. The distribution into 
 income brackets of all gainfully employed single persons and of all 
 gainfully employed married persons not distributed to income brackets 
 of $5,000 and over was made in the proportion that obtained in 1920, 
 the last year for which- exemptions of only $1,000 for single persons 
 and $2,000 for married persons were allowed. When this distribution 
 of the estimated number of self-supporting persons among the income 
 classes had been made, the number in each class was multiplied by the 
 average income per return for each class as reported in Statistics of 
 
572 Report of Special Tax Commission 
 
 Income for 1930 to compute the total income in each class. The results 
 of this computation (necessarily artificial in some respects) are pre- 
 sented in Table LXXXV. 
 
 Table LXXXV 
 
 ESTIMATED NUMBER AND INCOMES OF SELF-SUPPORTING PERSONS 
 
 GAINFULLY EMPLOYED IN CONNECTICUT, BY INCOME CLASSES, 1930 
 
 Income Self-supporting Estimated 
 
 classes persons total income 
 
 Less than $1,000 367,764 $210,728,772 
 
 1,000— 2,000 107,416 175,410,328 
 
 2,000 — 3,000 45,682 110,733,168 
 
 3,000— 4,000 18,142 64,131,970 
 
 4,000— 5,000 7,815 34,753,305 
 
 5,000— 10,000 11,470 78,592,440 
 
 10,000— 20,000 4,159 56,724,601 
 
 20,000— 30,000 1,083 , 26,093,023 
 
 30,000— 50,000 719 27,291,314 
 
 50,000—100,000 410 27,656,750 
 
 100,000—200,000 129 17,446,385 
 
 200,000—300,000 20 4,875,584 
 
 300,000 and over 26 14,597,479 
 
 Total 564,835 849,035,119 
 
 Sources: U. S. Bureau of the Census, Census Of Occupations, 1930; U. S. Bureau 
 of Internal Revenue, Statistics of Income, 1920, 1930. 
 
 The total income shown in Table LXXXV is $421,000,000 less 
 than the income of $1,270,000,000 estimated for Connecticut in 1930 
 by the Brookmire Economic Service. To the extent that this difference 
 represents income which should have been included in the table, it is 
 income which would fall under the lower income classes and thereby 
 increase rather than lessen the force of the conclusions to be drawn 
 from these data. 
 
 Unless the general personal income tax proposed for the state is 
 made universal in its application to the incomes of self-supporting per- 
 sons, it is not easily defended on grounds either of equity or practica- 
 bility. That part of the income shown in Table LXXXV. received by 
 married persons having incomes of $2,500 or more and by single per^ 
 sons having incomes of $1,000 or more is now taxed at rates varying 
 from 4 to 63 per cent for purposes of the federal government. To add 
 to these heavily graduated rates even the moderate rates which might be 
 imposed by the state would undoubtedly affect adversely the productivity 
 of both federal and state taxes, would carry the progressive feature of 
 general personal income taxes beyond the point justified by any economic 
 principles, and would accentuate the variability of state revenues. 
 
 On the basis of conservative assumptions, we estimate that per- 
 sonal exemptions of $1,000 for a single person and $2,000 for a mar- 
 ried person would remove from the scope of a general personal income 
 
New Sources of Revenue 573 
 
 tax some 400,000 persons, or about 70 per cent of the 564,835 estimated 
 self-supporting persons in the state. There is little force to the con- 
 tention that a general personal income tax would impress upon the 
 electorate its responsibility for governmental expenditures if it affect 
 thirty per cent of the self-supporting persons in the state. Again on 
 the basis of extremely conservative assumptions, the Commission esti- 
 mates that exemptions of $1,000 and $2,000 would eliminate from 
 the base of the tax some $290,000,000, or more than a third of the 
 total income, and, if a more accurate estimate of income could be 
 obtained, the aggregate income removed from the income tax base 
 would undoubtedly be shown to be substantially larger. It is this large 
 aggregate of income in the lower income brackets which should be 
 reached if the principle of equity underlying general personal income 
 taxation is to be completely applied, if the base of such a tax is to be 
 broad enough to have any effect on tax consciousness, and if the yield 
 of such tax is to be made reasonably stable. 
 
 It is possible to formulate in the abstract a general personal income 
 tax under which every self-supporting individual would be required 
 to file a return and pay a direct tax to the state. Such a tax has been 
 frequently advocated for state purposes, but, with three possible excep- 
 tions, no state legislature has found it practicable to enact such a tax. 
 In Delaware every person over 21 years of age was required to file 
 an income tax return and to pay at least the minimum filing fee of 
 $3.00 during the six years from 1921 to 1927. This feature of the 
 Delaware personal income tax was repealed, however, in 1927, in spite 
 of the favorable reports on its operation by the administrator having 
 it in charge. Utah and Montana have had during the last few years 
 similar filing fees of $1.00 in their personal income taxes, but the expe- 
 rience of these states has been too short as yet to determine the perma- 
 nency of this provision. All the other states have refrained from mak- 
 ing their general personal income taxes even approximately universal, 
 and, in all such other states, the agitation for increasing personal exemp- 
 tions has been practically continuous. The Commission does not believe 
 that the Connecticut General Assembly will look more favorably than 
 have the legislatures of other states upon proposals designed to secure 
 a universal personal income tax. 
 
 General personal income taxes, such as the federal government 
 and the states have, enacted, have serious weaknesses as sources of state 
 and local revenues. Even in the years of prosperity the yield of these 
 taxes fluctuated considerably from year to year. Prolonged and severe 
 depression has resulted in large decreases in the revenues from these 
 taxes, which has caused acute financial embarrassment to those states 
 relying upon this source for a substantial part of their revenues. 
 
574 Report op Special Tax Commission 
 
 Revenues from the federal income tax on individuals amounted to 
 912 million dollars in the fiscal year 1926-27, 883 millions in 1927-28, 
 1,096 millions in 192,8-29, 1,147 millions in 1929-30, 834 millions 
 in 1930-31, 427 millions in 1931-32, 353 millions in 1932-33, and 
 420 millions in 1933-34. These violent changes in yield occurred in 
 spite of a reduction in rates applicable to incomes of the calendar year 
 1929, tending to decrease the yield of the peak year 1929-30, and of 
 increases in rates and reductions in exemptions applicable to incomes 
 of the calendar year 1932 and following years, which tended to increase 
 the low yield of the tax in the last two fiscal years. From 1929-30 to 
 1932-33 the yield of the tax declined 794 million dollars, or 69 per 
 cent. 
 
 The collections from the New York personal income tax amounted 
 to 54.5 million dollars in the calendar year 1927, 64.0 millions in 
 1928, 84.5 millions in 1929, 81.5 millions in 1930, 39.3 millions in 
 1931, and 41.7 millions in 1932. 2 An increase of personal exemptions 
 tended to reduce the collections of 1929 and following years and a 
 doubling of the rates tended to increase the collections of 1932. In spite 
 of this increase of rates, however, the collections of 1932 were only 
 2.5 millions, or about 6 per cent, more than those of 1931, and they 
 were 42.8 millions, or almost 51 per cent, less than those of the peak 
 year 1929. 
 
 This extreme variability of the revenues from a general personal 
 income tax is a crucial weakness in a tax imposed for the purposes 
 of any large government and particularly of a state government. The 
 people have witnessed the difficulties of the federal government in 
 financing itself during the depression, when its main sources of revenue, 
 the income taxes, have failed. New York State has suffered no less 
 financial embarrassment from the drastic shrinkage in its income tax 
 revenues when conditions were forcing upon it heavy additional expen- 
 ditures for unemployment relief. The financing problems of Connecti- 
 cut have been relatively minor as compared with those of other states, 
 because, among other reasons, the state has enjoyed relative stability 
 in the major portion of its tax revenues during the depression. 
 
 With state and local expenditures so inflexible, the enactment 
 of a general personal income tax would more likely aggravate than 
 relieve the burden of taxation on real property. Experience shows that 
 governmental expenditures tend to increase as tax income increases 
 and that they continue at about the same or at an even higher level 
 in depression periods, when the necessity arises for affording relief to the 
 unemployed. Funds, to meet these expenditures must be found, and, 
 if other sources of revenue fail, real property must be relied upon to 
 
 2 New York State Tax Commission, Report, 198%, p. 158. 
 
New Sources of Revenue 575 
 
 carry the burden. But even without this additional load, it is in times 
 of depression that real property taxes become most burdensome. At- 
 tempts to offset the loss of revenues from less stable taxes lead to hasty 
 and ill-advised legislation, which seldom proves capable of saving real 
 property from assuming a part at least of the additional burden. 
 
 Finally it must be remembered that taxes on real property are 
 burdens upon the owners of real property and that these owners are 
 not a class distinct , and apart from those citizens who would pay a 
 state income tax. Even if the income tax did not eventually lead to 
 heavier tax demands upon real property, the total tax burden of prop- 
 erty owners would in all probability be increased. 
 
 The Commission concludes, therefore, that the general personal in- 
 come tax cannot be relied upon as a source of revenue to provide perma- 
 nent relief from the burden of taxation on real property, that it would 
 not effect a more equitable distribution of the combined federal, state, 
 and local tax brfrden, and that it would prove to be an unsatisfactory 
 source of state revenue. 
 
 General classified personal income taxes. 
 
 Of the twenty-three states having personal net income taxes on 
 January 1, 1934, only Massachusetts and Vermont have adopted a 
 general classified personal income tax. The Vermont tax was enacted 
 in 1931 and was first imposed on personal incomes received during 
 the calendar year 1931. In Massachusetts the tax has been imposed 
 continuously since 1916. 
 
 Classified personal income- taxes differ from general personal 
 income taxes in having rates differentiated according to the type 
 of income rather than rates graduated according to the amount of total 
 income. Under the Massachusetts tax there are four classifications of 
 income, each class being taxed at its own rate. The net incomes of 
 individuals received from professions, employments, trades, or busi- 
 nesses, in excess of exemptions of $2,000 for a single person, $2,500 
 for a married person, and $250 for each dependent, are taxed at 1% 
 per cent. Interest and dividends of individuals having total incomes 
 in excess of $1,000 if single and $1,500 if married are taxed at 6 per 
 cent. The excess of gains over losses from sales of intangible personal 
 property is taxed at 3 per cent. Finally, income from annuities, reduced 
 by any unused portion of the exemption allowed for interest and divi- 
 dends, is taxed at 1% per cent. Vermont classifies income as (1) 
 interest and dividends and (2) all other income, upon which tax rates 
 of 4 and 2 per cent respectively are imposed. 
 
576 Eepoet of Special Tax Commission 
 
 Although personal income taxes have been urged for equitable 
 reasons, the immediate causes for their enactment in most states have 
 been to obtain needed revenues and to provide an effective means of tax- 
 ing personal property and particularly intangible personal property. 
 Both New York and Massachusetts removed intangible personal prop- 
 erty from the scope of their property taxes when they enacted personal 
 income taxes. New York now imposes its personal and corporation 
 income taxes in lieu of property taxes on both tangible and intangible 
 personal property. 
 
 While the classified personal income tax adapts itself more readily 
 than the general income tax to the taxation of different classes of prop- 
 erty on its income rather than on its capital value, its structure becomes 
 complicated, its administration difficult, and its purposes confused 
 when it is formulated to extend to incomes received from sources other 
 than property. The Massachusetts tax is a combination of a tax imposed 
 in lieu of property taxes on intangible personal property, a tax on 
 capital net gains, a tax on earned income, and a tax on annuity income. 
 In the coordination of these four taxes there has developed a compli- 
 cated structure of exemptions and rates which can hardly be considered 
 a satisfactory substitute for the general personal income tax or for a 
 logical tax imposed in lieu of the property tax on intangibles. 
 
 A classified personal income tax of the type used by Massachusetts 
 lacks the equitable appeal of the general personal income tax. By the 
 differentiation of rates for income of different types, this tax resembles 
 the classified property taxes enacted by several states. Presumably 
 the rate differentials are intended to adjust the tax burden according 
 to the taxpaying ability of different kinds of income. There is no 
 reliable information on this point, and both the classification of 
 incomes and the differentiation of rates under the classified tax must 
 necessarily rest on expediency. The fact is that the true measure of 
 ability to pay is the entire income of individuals, and this ability 
 is reached inadequately and crudely by proportional rates imposed on 
 income of different kinds. 
 
 The Massachusetts personal income tax has not been much more 
 stable in its yield than the- general personal income taxes of other 
 states. Its revenues increased from 17.0 million dollars in 1925 to 
 31.7 millions in 1930 and then declined to 17.7 millions in 1932. 
 In the two years from 1930 to 1932, therefore, the decrease in revenues 
 from this tax amounted to 14.0 million dollars, or 44 per cent. The 
 principal element in this variation in yield, however, was the tax on 
 net gains from sales of intangibles. Taxes assessed on business income 
 and on interest and dividends were relatively stable from 1928 to 
 
New Soueces of Revenue 577 
 
 1932 inclusive, but the taxes assessed on net gains from sales of 
 intangibles rose from 4.6 million dollars in 1928 to 10.5 millions in 
 1930 and decreased to $576,000 in 1932. Taxes assessed on the income 
 from annuities were small, but they increased each year from $35,000 
 in 1928 to $47,000 in 1932. 
 
 There is less to commend the general classified personal income 
 tax to Connecticut than the general personal income tax. The criticisms 
 advanced against the latter are even more applicable to the former. 
 The classified tax lacks the appeal of equity of the general tax. It 
 cannot be integrated logically with the federal personal income tax. 
 It is too broad to provide a tax imposed strictly in lieu of property 
 taxation on intangibles, since earned income and capital net gains 
 are derived from sources which the general property tax is not designed 
 to reach. By allowing liberal exemptions of earned income, the tax 
 is imposed upon a restricted number of self-supporting individuals 
 and upon a narrow income base, and thus it fails to effect that broad 
 distribution of the tax burden which is necessary to stimulate any 
 widespread public interest in the problem of governmental expenditures. 
 The burden under a classified tax is not distributed in a manner to 
 correct materially any inequity in the distribution of even state and 
 local taxes. The Commission does not believe that the general form 
 of the classified personal income tax is suitable for the revenue system 
 of this state. 
 
 Taxation of inteeest and dividends. 
 
 The taxation of interest and dividends is a restricted form of a 
 classified personal income tax developed for the single purpose of 
 securing a more effective method of taxing intangibles than the gen- 
 eral property tax, thereby reaching the principal classes of "unearned" 
 income without taxing "earned" income. Of all classes of property 
 none has been more difficult to discover than intangibles. Over the 
 course of years all manner of administrative devices have been employed 
 without success to bring this property onto the assessment lists. In 
 no state has more than an insignificant fraction of the existing intangi- 
 bles been listed. Before state income taxes were shown to be admini- 
 stratively practicable, a solution of this problem was sought in the 
 enactment of low rate ' taxes on intangibles, such as the choses-in- 
 action tax in this state. These taxes failed to live up to expectations, 
 and in recent years a beginning has been made in substituting taxes on 
 the income from intangibles for the property taxes imposed on their 
 capital value. 
 
 New Hampshire pioneered in the development of taxes on interest 
 and dividends when it enacted such a tax in 1923. For constitutional 
 
578 Eepoet of Special Tax Commission 
 
 reasons the rate imposed under this interest and dividends tax is the 
 average state rate of the property tax, which has ranged from 25 to 29 
 mills. The base of the tax consists of all interest and dividends from 
 investments, except the following items: (1) stock dividends, (2) 
 income from tax-exempt securities, and (3) income from bank deposits 
 and from the shares of banks and insurance companies which are other- 
 wise taxed. Stock dividends are not true dividends, and their exclusion 
 is therefore correct." 
 
 The amount of interest and dividends taxed on the average during 
 the six-year period from 1925 to 1931 was more than twice the aver- 
 age assessed valuation of the taxable intangibles included on the assess- 
 ment rolls during the period 1916 to 1922. The yield of the tax has 
 been stable and large in comparison with the property tax revenues 
 previously raised from this source. The revenues from the New Hamp- 
 shire interest and dividends tax increased from $562,909 in 1928 to 
 $641,663 in 1931 and then declined to $349,164 in 1934. Since the tax 
 of any given year- is assessed -on the income of the preceding calendar 
 year, this record of revenues stops with the interest and dividends 
 received by New Hampshire residents during 1933. The 1935 taxes 
 assessed on interest and dividends will probably be larger than those of 
 1934, since interest and dividend payments according to available 
 indexes were larger in 1934 than in 1933. 
 
 The taxation of interest and dividends under the Massachusetts 
 general classified personal income tax has been equally satisfactory. 
 The Massachusetts tax of six per cent on interest and dividends pro- 
 duced more than half of the total revenues of the classified personal 
 income tax of that state in each of the years 1928 to 1932 inclusive and 
 74 per cent of the total revenues in 1932. The revenues from the taxa- ■ 
 tion of interest and dividends were 14.0 million dollars in 1928, 14.6 
 millions in 1929, 16.0 millions in 1930, 15.9 millions -in 1931, 13.7 mil- 
 lions in 1932, and 10.1 millions in 1933. As under the New Hampshire 
 tax, the taxes of 1933 were assessed on the income received in the calen- 
 dar year 1932 before interest and dividend payments were substantially 
 reduced. While the future trend of interest and dividend payments is 
 not known, the fact that statistics of these payments for the first 
 half of 1934 show an increase for the first time since 1930 provides 
 some indication that the downward trend of this income may now be 
 
 ' It has been held by the United States Supreme Court that stock dividends are not 
 income, Eisner v. Macomber, 252 U. S. 189 (1920). The tax-exempt securities the 
 income from which is exempt in New Hampshire include New Hampshire state 
 and local securities issued before May 4, 1923, and all federal securities. Interest 
 on savings deposits in New Hampshire banks and in certain reciprocating New 
 England States and dividends from New Hampshire banks and domestic insurance 
 companies are exempt. 
 
New Sources of Keventje 579 
 
 reversed. If so, the interest and dividends taxes of both Massachusetts 
 and New Hampshire will have demonstrated a higher degree of 
 stability of yield than other forms of income taxation. 
 
 The experience of Massachusetts and New Hampshire with taxes 
 on interest and dividends has been sufficiently long to demonstrate the 
 effectiveness of this method of reaching the taxable capacity repre- 
 sented by the intangibles held by individuals in a state. Because of 
 greater appeal to the popular sense of justice, the availability of 
 federal tax returns as a check against state returns, the absence of the 
 disrepute which has surrounded property taxes, and the absence of 
 any necessity to pay taxes "out of capital", these taxes have reached 
 a much larger aggregate of intangible personal property than has been 
 possible under the general property tax and, despite their relatively 
 low rates, have produced larger revenues than were previously obtained 
 from the taxation of intangibles as property. They have thus distributed 
 their burdens more widely and equitably over the taxable capacity rep- 
 resented by personal holdings of intangible personal property. 
 
 In preceding chapters the defects of the existing taxes on intangi- 
 bles have been presented, and proposals for their repeal have been 
 advanced. The Commission is not in favor of exempting from taxation 
 the taxpaying ability represented by intangibles and has sought a means 
 of reaching the taxable capacity of this property effectively. The 
 Commission believes that an interest and dividends ta'x similar to that 
 imposed by New Hampshire will accomplish this purpose. 
 
 The interest and dividends tax should be broad in its application. 
 It should include all interest and dividends (of course not including 
 stock dividends) except the income from securities which must be 
 exempted by reason of constitutional restrictions on the taxation of 
 federal instrumentalities and impairment of contracts. The repeal of 
 the existing taxes on savings deposits and on the shares of banks and 
 insurance companies, as proposed by the Commission, contemplates the 
 taxation of these intangibles in other ways. Consequently the income 
 received from bank deposits and from bank and insurance stocks should 
 be subject to the interest and dividends tax. Dividends received from 
 stocks of foreign as well as domestic corporations should also be tax- 
 able. Principally for administrative reasons, an exemption should be 
 allowed to each individual, but it should be small. The Commission 
 believes that the exemption should not exceed $200 of the interest and 
 dividends of each individual. This is the exemption allowed under 
 the New Hampshire law. The tax should be levied upon the gross re- 
 ceipts of interest and dividends of each individual without deductions 
 for any interest or dividends paid by him, since the tax is to take 
 the place of the existing taxes on intangibles, under which deduction 
 for the debts of the taxpayer is rarely allowed. 
 
580 Kepokt of Special Tax Commission 
 
 Care should be taken in determining the rate of the interest and 
 dividends tax. Too high a rate would increase the difficulties of adminis- 
 tration and force many residents to move out of the state. Too low a 
 rate would deprive the state of revenues which it needs and can legiti- 
 mately raise from this source. The rate imposed on interest and divi- 
 dends is six per cent in Massachusetts, four per cent in Vermont, and 
 the average state rate for property taxation, which varies from 2% to 
 3 per cent, in New Hampshire. There is, of course, no equality between 
 a tax imposed at the same rate upon the income and upon the capital 
 value of intangibles, and the use of the average property tax rate in 
 New Hampshire rests on constitutional rather than equitable grounds. 
 An investment selling at par and yielding six per cent interest would 
 be taxed at 6 2/3, per cent on its income under the present four-mill 
 choses-in-action tax. This rate is higher than that imposed by neighbor- 
 ing states having an interest and dividend tax and is substantially 
 above the effective average rate imposed under existing laws of this 
 state on the total intangibles held by individuals. The Commission 
 finds from its investigation that a rate of five per cent would con- 
 form as closely as any to the rates "of other New England States, 
 without either imposing an excessive burden upon this income or 
 depriving the state of a reasonable revenue from this source. 
 
 The probable income from such an interest and dividends tax may 
 be estimated on the basis of the statistics of the New Hampshire tax and 
 of the statistics of returns for federal income taxation made by Connecti- 
 cut residents. For the years 1926 to 1931 inclusive, New Hampshire 
 assessed interest and dividends amounting to 91 per cent or more of 
 the interest and dividends included in the federal income tax returns 
 of New Hampshire residents for these years. If the Connecticut tax 
 reached an amount equal to ninety per cent of the interest and divi- 
 dends of Connecticut residents reported for federal taxation, with an 
 exemption of $200 allowed to each person, the probable yield of the 
 proposed tax at a five per cent rate would have been $7,300,000 in 
 1932. This estimate for 1932 is $3,819,000 larger than the state and 
 local revenues raised in that year from the general property tax on 
 intangibles, the choses-in-action tax,. the estate penalty tax, the savings 
 deposits tax, and the share taxes (excluding the franchise tax on insur- 
 ance companies) on banks and insurance companies. 
 
 Due to lack of more recent statistics derived from federal income 
 tax returns, a detailed estimate of the probable yield of an interest and 
 dividends tax cannot yet be made for 1933 and 1934. The probability 
 is that the reduction of taxable interest payments since 1932 has been 
 relatively moderate. Dividend payments, however, declined steadily 
 each year after i930 until the first half of the year 1934. Statistics of 
 
New Sources of Revenue 581 
 
 dividend payments compiled by the New York Times, the New York 
 Journal of Commerce, and Moody's Investment Service indicate that 
 dividend payments in 1933 were, conservatively, about one-half those in 
 1931. Dividends amounted to 72 per cent of the total interest, fiduciary, 
 and dividend income reported by Connecticut residents for federal 
 income taxation on their 1931 returns. If interest and fiduciary income 
 decreased 25 per cent from 1931 to 1933 and dividend payments 
 decreased 50 per cent, the total interest and dividends received by 
 Connecticut residents in 1933 were 43 per cent less than those received 
 in 1931. Under these assumptions the estimate of the revenues of the 
 proposed interest and dividends tax for 1934 is $4,161,000. Although 
 dividend payments reported by statistical agencies for the first six 
 months of 1934 Were larger than for the first six months of 1933, the 
 Commission believes that $4,000,000 is the maximum revenue which 
 should be anticipated from such an interest and dividends tax at the 
 present time. 
 
 Had there been an interest and dividends tax yielding this amount 
 in 1932-33, its revenues would have been sufficient to have offset the net 
 loss of revenues resulting from changes proposed in state taxes and, in 
 the absence of increased expenditures, to have balanced the budget. 
 Additional revenues for a temporary period are required to finance the 
 proposals of the Commission which call for an increase in state expendi- 
 tures. 
 
 Taxes our sales oh consumption. 
 General sales taxes. 
 
 Sales taxes have spread among tax systems with grea.t rapidity 
 since the World War. During the war most European countries adopted 
 general sales taxes because of fiscal emergencies, and these taxes, have 
 been continued until the present time. During the '20's West Virginia 
 and Georgia put into effect general taxes on the sales of extractive 
 industries, manufacturers, wholesalers, retailers, public utilities, and 
 contractors. The governmental fiscal problems arising out of the depres- 
 sion accelerated the sales tax movement. By January 1, 1934, thirteen 
 states had in effect some form of general sales tax, five states had gradu- 
 ated taxes on retail sales intended principally to tax chain stores, 
 and five states,, including Connecticut, had low rate taxes on one or 
 another group of mercantile concerns. In addition, two states, Georgia 
 and Pennsylvania, had from 1929 to 1933 levied general sales taxes for 
 limited periods as emergency measures. The sales tax in New York in 
 force on January 1, 1934, lapsed on June 30, 1934. 
 
 General sales taxes present an intricate body of law which is 
 difficult to fit into any clear-cut classification based on general principle. 
 
582 Eepoet of Special Tax Commission 
 
 Within this category of taxes are included taxes which were developed 
 and are now imposed as strictly business taxes, such as the unincorpo- 
 rated business tax of this state. At the other extreme are the general 
 retail sales taxes formulated with the intention of taxing consumptionf 
 Between these extremes are general sales taxes combining business and 
 consumption taxes in different degrees, such as the gross receipts tax 
 of Mississippi and the gross income taxes of Indiana and South Dakota. 
 
 Connecticut has already established a comprehensive system of 
 business taxes, which, with the changes proposed in this report, the 
 Commission believes to be adequate and satisfactory. Consequently, it 
 is only those sales taxes formulated to spread the tax burden broadly 
 over the people of the state according to their consumption which pro- 
 vide a possible source of the additional revenues required to finance the 
 Commission's proposals. 
 
 The federal constitution forbids the states to tax imports or sales 
 made in interstate commerce. Since most business activity other than 
 retailing is carried on in markets extending beyond the borders of a 
 single state, the states are thus precluded from developing effective 
 general sales taxes imposed on producers or wholesalers to be ultimately 
 shifted through higher prices to consumers. 
 
 Of the fifteen states which had general sales taxes in effect from 
 1929 to the close of 1933, seven were classed as having general retail 
 sales taxes, and eight as having more comprehensive sales and gross 
 income taxes. 4 Within the group imposing retail sales taxes were most of 
 the highly industrialized states, including New York, Pennsylvania, 
 Illinois, Michigan, and California. The other forms of general sales 
 taxes are broader in scope than the retail sales tax and to some extent 
 are more strictly classified as taxes on business than as taxes on con- 
 sumption. 
 
 There is no purpose to be served in elaborating the differences in 
 structure and detail of general sales taxes of other states. The fore- 
 going comment is sufficient to show the progress of the sales tax move- 
 ment among the states, to indicate in general the various types ol these 
 taxes, and to set forth the experience already available for appraising 
 this form of taxation. 
 
 The Commission has given careful consideration to the objections 
 which have been raised to the general retail sales tax. It recognizes that 
 during the early period of the levy of such a tax the adjustments neces- 
 sary to shift the tax through higher prices to the consumers will not be 
 made by all retailers. The evidence examined by the Commission shows 
 that sales taxes have been largely shifted by retailers, and, in the local- 
 
 * Haig and Shoup, The Sales Tax in the American States, New York, 1934, pp. 2, 
 40-44. > > vv > 
 
New Sotjkces oe Revenue- 583 
 
 ized markets which characterize retailing in this state, a tax broadly- 
 applied to practically all retail sales within the state will ultimately 
 be shifted to consumers. ]STo new tax can be put into effect without 
 causing some readjustments in economic conditions, and the effects 
 of a general tax on retail sales imposed on a broad base at a low rate 
 would under present conditions be less disturbing to existing business 
 arrangements than any other tax from which the same revenues could 
 be derived. 
 
 The Commission recognizes that in its final incidence a general 
 retail sales tax will take a larger percentage of small than of large 
 incomes. This regressive distribution of the burden of the tax would not 
 be material solong as the rate of the tax was low and would be counter- 
 balanced by the highly progressive distribution of the federal personal 
 income and estate taxes. 
 
 The retail sales taxes enacted by the states during the depression 
 have produced substantial revenues during a short period. While the 
 tax presents difficult administrative problems, arising principally from 
 the difficulty of defining retail sales, the complications of the interstate 
 commerce clause, and the amount and character of the auditing required, 
 these problems have not prevented the other states from adopting pro- 
 cedures which have enabled them to levy this tax successfully in meeting 
 their emergency problems. Connecticut is more favorably situated to 
 meet these problems than many of these other states, since there have 
 been developed in connection with the Connecticut unincorporated 
 business tax and corporation net income tax an organization and tech- 
 nique which could be advantageously employed in administering a 
 general r.etail sales tax. The actual or estimated cost of collection of the 
 general sales taxes of the other states is reported as amounting to from 
 
 1 to 4 per cent of the revenues, the most common ratio being between 
 
 2 and 3 per cent. 
 
 The Commission has considered the general retail sales tax solely 
 as a source of temporary revenue io finance the emergency expenditures 
 for unemployment relief which it proposes to tranfer to the state gov- 
 ernment. Under present conditions the amount of revenue needed for 
 this purpose could not be secured from a personal income tax of 
 the character which legislatures have been willing to enact. This burden, 
 moreover, should be shouldered by as many self-supporting citizens 
 as there are, so that the exaction from any one individual group will 
 not be so large as to impede further the recovery of business. Despite 
 prevalent pessimism, the Commission does not believe that the high 
 levels of expenditures for unemployment relief established during 
 the depression will be a permanent charge upon state and local gov- 
 ernments. Rather it views this phase of present financing as an emer- 
 
584 Keport of Special Tax Commission 
 
 gency which will gradually eliminate itself as the nation emerges 
 from the depression. For these reasons the Commission is convinced 
 that the revenues required to relieve local governments of this emergency 
 burden should be raised by means of a tax which, imposed during hard 
 times for a temporary period upon a broad base at a low rate, can 
 be relied upon to produce substantial revenues without causing any 
 greater disturbance to business activity than is absolutely necessary. 
 The Commission finds that the general retail sales taxes enacted by 
 other states have met these requirements in greater degree than any 
 other measure which might be employed. It proposes, therefore, that an 
 emergency general retail sales tax be enacted for a temporary period 
 of four years to provide the state's general fund with the additional 
 revenues required to finance in whole or in part the expenditures for 
 unemployment relief under the plan proposed in the preceding chapter. 
 
 It is not necessary to set forth in this report all the details which 
 will necessarily be included in a general retail sales tax law. It is 
 desirable, however, to indicate at this point the general character of 
 the tax which the Commission proposes. 
 
 Such a tax should be of the broadest application consonant with 
 effective administration. It should be imposed upon all sales of tangible 
 personal property at retail, including sales of water, gas, electricity, 
 beer and liquor, cigarettes, and gasoline, even though these commodi- 
 ties are or may be subject also to selective sales taxes or sold by 
 governmentally owned and operated plants. For administrative reasons 
 it is desirable to allow an exemption to the smallest business concerns, 
 but the Commission believes that this exemption should be fixed at the 
 lowest possible level, in order to facilitate the shifting of the. tax and 
 to avoid narrowing the tax base. 
 
 It is the intention and expectation of the Commission that the 
 general retail sales tax will be shifted by increasing slightly the retail 
 prices of the commodities taxed. Consideration has been given to the 
 suggestion that the shifting process be. aided by requiring the use of tax 
 stamps or similar devices. The Commission considers these devices 
 impracticable for a general retail sales tax' and finds that those foreign 
 governments which have experimented with the use of stamps for this 
 tax have soon abandoned the practice. Steps should be taken, however, 
 in drafting this law to make it as easy as possible for the tax to be 
 shifted and to make it clear that it is the intent of the law to have this 
 tax passed on to consumers. 
 
 The general retail sales tax should be administered by the state, 
 and its revenues should be used for the purposes of the general fund. 
 Insofar as it may be practicable, the tax should be assessed and col- 
 lected quarterly. 
 
New Soubces of Keventte 585 
 
 * 
 
 Finally, the tax should be enacted as a temporary emergency 
 measure. The law imposing it should be so designated and should pro- 
 vide in terms that the tax will lapse automatically at the end of four 
 years from the time it becomes effective. 
 
 To serve as the basis for an estimate of the yield of a general retail 
 sales tax in Connecticut, a study has been made of the yield of such 
 taxes in certain other states and of the census reports of retail sales of 
 such states for 1933. It was found that the temporary one per cent 
 tax in Pennsylvania, from which only the sales by farmers of 
 their own produce, sales of public utility services, and sales to 
 the United States were exempt, was imposed in the six months 
 ending March 1, 1933, on a volume of sales which on an annual basis 
 was equivalent to about 100 per cent of the 1933 retail trade of the 
 state as reported by the Bureau of the Census. Excluding public utility 
 sales, Michigan's tax of three per cent, from which casual sales, sales 
 to governments, and $600 of sales per taxpayer were exempt, reached 
 in the fiscal year ending June 30, 1934, 101 per cent of the 1933 retail 
 trade reported for that state by the Bureau of the Census. Although all 
 the necessary figures for a similar comparison for Illinois have not 
 been available, it appears that the two per cent tax in Illinois, under 
 which the only exemption allowed is for isolated or occasional sales, 
 reached over 90 per cent of the retail trade reported for the state. The 
 New York retail sales tax of one per cent allowed much broader exemp- 
 tions, including a total exemption of $5,000 of sales annually, partial 
 exemption for annual sales ranging from $5,000 to $10,000, and 
 exemptions of sales of specified food products for human consumption, 
 of gasoline, of steam, water, gas, and electricity, and of sales to govern- 
 ments ; it reached an amount equal to only 62 per cent of the reported 
 1933 retail sales in that state. The contrast between the experience of 
 New York and that of the other three states shows how seriously the 
 granting of liberal exemptions affects the yield and distribution of the 
 tax. 
 
 The tax proposed by the Commission is intended to be similar in 
 scope to those of Illinois and Michigan. The Commission would allow 
 a low exemption of a specified amount of sales in order to simplify 
 as much as possible the administration of the tax without seriously 
 affecting its distribution or yield or obstructing its shifting. An exemp- 
 tion as large as $5,000 annually, as is allowed by New York, is too 
 high to achieve these purposes. The 1929 Census of Distribution 
 showed that 24 per cent of the retail stores in Connecticut — 5,229 of 
 the 22,202 stores reporting — had sales of less than $5,000 annually 
 and accounted for 1.8 per cent of the $768,510,000 of net retail sales 
 made in the state in that year. The census presented no statistics of 
 
586 Repobt of Special Tax Commission 
 
 the distribution of this group of stores among the classes below $5,000, 
 but an exemption equivalent to $10 of tax per annum would, under a 
 low rate tax, eliminate a considerable number of very small retailers 
 from the scope of the tax while exempting from taxation only an insig- 
 nificant fraction of the retail business done in the state. With this 
 exemption the tax proposed would conform closely to the structure of 
 the retail sales tax in effect in Michigan. 
 
 If, in 1933, Connecticut were to have imposed a general retail 
 sales tax on an amount of sales equal to the sum of (1) all sales of 
 water, gas, and electricity for use in homes and (2) 90 per cent of 
 the $430,526,000 of retail sales reported for the state by the Bureau 
 of the Census, the base of the tax would have amounted to $414,973,400. 
 A two per cent tax imposed on this base would have yielded $8,299,468. 
 
 The Commission suggests, therefore, that a two per cent retail 
 sales tax be imposed as a temporary measure for a four-year period to 
 finance in whole or in part the unemployment relief program proposed 
 in the preceding chapter. There should be allowed under this tax no 
 exemptions for sales of particular kinds of tangible personal property 
 or local public utility services, but, for administrative purposes, there 
 should be allowed an exemption of $10 of tax annually, which would 
 eliminate from the scope of the tax only those retail concerns with 
 annual sales of $500 or less. This exemption would have reduced 
 the estimated yield of the tax for 1933 to approximately $8,000,000." 
 
 Selective sales taxes. 
 
 Prior to the World War, excise or consumption taxes were gen- 
 erally considered as being reserved for the use of the federal govern- 
 ment. Although most states had in their revenue systems miscellaneous 
 taxes or licenses on the sales of certain goods, these charges were made 
 largely for regulatory reasons and not for raising general revenues. 
 After the development of state gasoline taxes, beginning in 1919, selec- 
 tive sales taxes continued to share to some extent the popularity of the 
 
 1 During the period while this report was in the process of printing, the Commission 
 came into possession of more reliable statistics of the revenues of general retail 
 sales taxes of other states and of the volume of retail sales in those states than 
 were available when this report was filed with the Governor, and the first printing 
 of the Summary completed. The original estimate of about $6,000,000 for a Con- 
 necticut general retail sales tax, which was based on preliminary figures of the 
 revenues of this tax in other states and on their respective retail sales reported by 
 the U. S. Bureau of the Census for. 1929 and brought down to date by the indexes 
 of sales of department stores for the respective federal reserve districts, was found 
 to be too low by about two million dollars. The Commission has taken the liberty 
 of revising this and the two preceding paragraphs of its report as filed 1 with the 
 Governor in order to present its estimate based on the latest available official data. 
 
New Sources op Revenue 587 
 
 general sales taxes as sources of state and local revenues. One state 
 after another enacted the gasoline tax during the '20's, until all states 
 had adopted it before the close of the decade. By January 1, 1934, 
 fourteen states had followed the lead of Iowa, which first enacted a tax 
 on tobacco products in 1921. On January 1, 1934, two states were tax- 
 ing sales of soft drinks, four states, sales of carbonic acid gas, twelve 
 states, sales of malt, six states, admissions to amusements other than 
 athletic exhibitions, and four states, sales of electricity. In addition, 
 every state which has legalized the sale of beer and wines or distilled 
 liquors has enacted some form of consumption tax on the sale of these 
 products. 
 
 In contrast to the large number of commodities which most 
 national governments are accustomed to subject to excise taxes, only 
 a few commodities have been found practicable for state selective sales 
 taxes. South Carolina taxes all forms of tobacco products, soft drinks, 
 admissions to amusements, ammunition, cosmetics, candy, and playing 
 cards. That state experimented with taxes on cut glass, ice cream, and 
 sporting goods but repealed them after short periods of trial. Tobacco 
 products, soft drinks, and admissions, moreover, produce a high per- 
 centage of the total revenues from the South Carolina selective sales 
 taxes. 
 
 No other state has enacted as many selective sales taxes as South 
 Carolina. Except for gasoline and alcoholic beverages, tobacco is the 
 only commodity which any considerable number of states have found 
 it practicable to tax. The amusement and soft drinks taxes of the few 
 states which impose them have, however, yielded considerable revenue. 
 The other commodities which have been subject to state selective sales 
 taxes have seldom produced revenues large enough to warrant admini- 
 strative costs. 
 
 Commodities suitable for selective sales taxes are characterized 
 by widespread consumption, relative stability of the volume of sales 
 with changes in price, and low unit prices. These characteristics insure 
 a widespread distribution of the tax burden and a stable revenue yield. 
 They permit the imposition of relatively high tax rates without sub- 
 stantially decreasing the base of the tax. Although the percentage rate 
 of tax may be high, the absolute amount of tax on any one sale is 
 small, so that it is paid with less hardship by taxpayers. National 
 governments have not refrained from taxing commodities which are 
 essential to subsistence, such as salt and matches, but the state govern- 
 ments have restricted their taxes to commodities which, if not luxuries, 
 are at least not essential to physical existence. Tobacco products, 
 amusements, and soft drinks have, in fact, that element of non-essential 
 or surplus consumption which is generally accepted to represent a high 
 degree of taxable capacity. 
 
588 Keport of Special Tax Commission 
 
 Since 1919 Connecticut has enacted a number of selective sales 
 taxes. The admissions tax was in effect from 1921 to 1929. The gasoline 
 tax has been imposed since 1923. The beer and liquor taxes have been 
 in operation now for over a year. In the administration of these taxes 
 there have been developed the organization and technique for adminis- 
 tering selective sales taxes. 
 
 The Commission suggests that the additional revenues required to 
 finance its proposals be raised in part from a temporary tax on 
 cigarettes. According to our estimate the enactment of the interest and 
 dividends tax and the general retail sales tax would produce 10 millions 
 of the 11.4 million dollars which were shown to be needed to finance 
 our recommendations. They would provide the necessary funds to 
 finance unemployment relief and balance the budget except for the 
 expenditure for interest and special state grants made to assist the 
 municipalities in changing their fiscal years and tax due dates. The 
 cigarette tax is proposed to secure the revenues, amounting to from 
 one to one and a half million dollars, required to balance the budget 
 including this expenditure. 
 
 Owing to the limits of available statistics, an accurate estimate of 
 the yield of a state cigarette tax is difficult to make. The consumption 
 of cigarettes in the United States in 1933 is reported at 109,400,- 
 456,000. If this consumption were distributed among the states accord- 
 ing to population, Connecticut's share would be 1,422,206,000. A 
 tax of one mill per cigarette on this estimated consumption would have 
 yielded $1,422,206 in 1933. Iowa, which had in 1930 a population of 
 2,470,939 as compared with 1,606,903 for Connecticut, reported rev- 
 enues from a cigarette tax of 1 and 2 mills per cigarette (practically 
 all the revenues are derived from the 1-mill tax) of only 56.7 cents 
 per capita in 1930, when cigarette consumption in the United States 
 was slightly larger than in 1933. Based on this per capita yield, a 
 similar tax in Connecticut would have produced only $910,743 in 
 1930. Because of the large proportion of the population of Iowa 
 engaged in agriculture, it is probable that the per capita consumption 
 of cigarettes in that state is considerably below that of an industrialized 
 state like Connecticut. The Commission believes, therefore, that a tax 
 of one mill per cigarette would provide revenues, if imposed under 
 present conditions, ranging from $900,000 to $1,500,000 and considers 
 $1,200,000 a reasonably conservative estimate to be drawn from these 
 figures. 
 
 The cigarette tax should be imposed upon wholesalers in order to 
 simplify its administration. Wholesalers, however, should be defined 
 broadly to include all parties who first receive cigarettes in this state 
 for resale. This procedure of administration has been found effective | 
 
New Sources oe Revenue 589 
 
 in connection with gasoline taxes and with the cigarette taxes of South 
 Carolina and Mississippi, and it has been proposed for the liquor taxes 
 in this report. The detailed provisions covering the administration of 
 the cigarette tax will be incorporated in a bill to be submitted to the 
 General Assembly. 
 
 The Commission therefore proposes the enactment of a tax of one 
 mill on every cigarette sold in the state. While the tax should be 
 imposed in the first instance on wholesalers, provision should be made 
 to permit the tax to be passed on through the retailer to the consumer. 
 Like the general retail sales tax, the cigarette tax should be imposed 
 only for a temporary period to raise emergency revenues and should 
 lapse under the terms of the law four years after the date it first becomes 
 effective. In order to prevent the serious tax evasion which inevitably 
 arises from the exemption of sales of particular commodities, this tax 
 should be superimposed upon the proposed general sales tax. 
 
 Summary and recommendations. 
 Additional revenues required. 
 
 In considering new sources of revenues, it is important to have 
 an idea of the net effect of the preceding recommendations upon the 
 state budget. In order to arrive at such an estimate, the fiscal year 
 1932-33 (the latest year for which complete figures are available) 
 is taken as an example. According to our estimates, if the Commis- 
 sion's proposed changes in the tax laws and its proposals affecting 
 state expenditures had been in effect in 1932-33, additional revenues 
 of 11.1 million dollars would have been required to have balanced the 
 state budget in that year. About 7 millions of these revenues would 
 have been required only temporarily to finance emergency expendi- 
 tures. The remainder would have been required largely because of the 
 repeal of taxes on intangibles. These figures provide an approximate 
 measure of the new revenues which the Commission should aim to 
 provide. Taxes on personal incomes and sales constitute the only prom- 
 ising sources from which such substantial revenues may be derived. 
 
 Taxes on incomes op natural persons. 
 
 Personal income taxes take three principal forms, namely, gen- 
 eral personal income taxes, under which the total net income of individ- 
 uals is taxed at rates graduated according to its amount, general classi- 
 fied income taxes, under which income is classified according to its 
 source and the income from each source is taxed at a uniform rate differ- 
 ent from those imposed on income from other sources, and interest and 
 dividends taxes. 
 
590 Report of Special Tax Commission 
 
 t 
 Satisfactory general personal income taxes have been developed in 
 this country only since 1911. This type of personal income tax has 
 a popular appeal of equity in the distribution of tax burdens. Under 
 existing conditions, however, this tax can be fairly judged only in its 
 relation to the 6ther taxes which are, and must continue to be, imposed. 
 Residents of Connecticut are required to pay the federal personal 
 income tax, which is imposed at highly graduated rates on the entire 
 net income of individuals. The probability is that this tax will be 
 increased and broadened in the immediate future. A state personal 
 income tax, unless it were formulated to reach the small incomes 
 exempted from the federal tax, would' fall only on incomes already 
 heavily taxed by the federal government, would extend the progressive 
 feature of general personal income taxes beyond the point justified by 
 any economic principle, and would suffer from extreme variability 
 of yield. Although a universal personal income tax has been widely 
 advocated, only three of the twenty-one states which had general 
 personal income taxes on January 1, 1934, had imposed their taxes 
 on every self-supporting individual in the state, and one of these three 
 states repealed the universal feature of its tax after six years in 
 spite of its administrative success. The Commission does not believe 
 that the General Assembly of Connecticut will be more favorable to 
 the universal general personal income tax than the legislatures of 
 most other states have been. On the other hand, the narrow base of 
 the ordinary type of income tax not only weakens its equitable appeal 
 but makes for a highly variable yield. To allow personal exemptions as 
 high as $1,000 to single persons and $2,000 to married persons would 
 remove from the scope of a general personal income tax in Connecticut 
 about TO per cent of all self-supporting persons and more than a third 
 of the income of individuals in the state. During the depression the 
 revenues from the general personal income taxes of the federal govern- 
 ment and of New York State have declined more than one-half in spite 
 of substantial changes in rates and exemptions. Such variability of 
 yield causes acute financial problems in times of depression and aggra- 
 vates the burden of local taxation. For these reasons the Commission 
 concludes that the general personal income tax is not a satisfactory 
 measure for solving the state's taxation problem. 
 
 Until the Vermont tax was enacted in 1931, Massachusetts was 
 the only state to adopt a general classified personal income tax. The 
 Massachusetts tax imposes differentiated rates on (1) earned incomes, 
 (2) interest and dividends, (3) capital net gains, and (4) incomes 
 from annuities. Such a tax bears a resemblance to the classified prop- 
 erty taxes of other states and was enacted, among other reasons, for 
 the similar purpose of developing an effective means for taxing intangi- 
 
New Sources of Revenue 591 
 
 bles. A tax such as that of Massachusetts lacks the equitable appeal of 
 the general personal income tax, does not represent a logical substitute 
 either for an intangibles tax or a personal income tax, cannot be easily 
 integrated with the federal personal income tax, and is complicated in 
 structure and difficult of administration. Because of the inclusion of 
 capital net gains in the base of the tax, its yield has been only slightly 
 less variable than that of the general personal income tax. The Com- 
 mission concludes that the general classified personal income tax is 
 not suitable for the Connecticut revenue system. 
 
 A tax on interest and dividends is a restricted classified personal 
 income tax and has been found to be an effective measure for taxing 
 intangibles. The New Hampshire interest and dividends tax has reached 
 a much larger aggregate of intangibles than was previously taxed under 
 the general property tax, and its yield has been more stable than other 
 forms of income taxation. Similarly the tax on interest and dividends 
 included in the Massachusetts general classified personal income tax 
 has produced most of the revenues of the general tax and has shown a 
 relatively high stability of yield during the depression. The Commis- 
 sion finds that the interest and dividends tax is a practicable measure 
 for taxing intangibles and recommends the adoption of such a tax with 
 the broadest possible application. The Commission estimates that the 
 interest and dividends tax with a $200 personal exemption would yield 
 $4,000,000 if imposed at the present time. 
 
 Taxes on sales oe consumption. 
 
 Sales taxes of various kinds have been enacted by many govern- 
 ments since the World War. Some of these taxes are business rather 
 than consumption taxes or are unsuited to state use because of the 
 constitutional prohibitions against taxes on imports and on interstate 
 commerce. Seven states, including the industrialized states of New 
 York, Pennsylvania, Illinois, and Michigan, have resorted during the 
 depression to general retail sales taxes as an emergency source of 
 substantial revenues to meet pressing fiscal needs. 
 
 The Commission finds that such taxes have been largely 
 shifted to consumers immediately upon their enactment and believes 
 that in the long run practically the whole tax will be so shifted. 
 In spite of the objections which have been raised, and to which 
 the Commission has given serious attention, it does not believe 
 that the disturbance to business resulting from the enactment of these 
 taxes under present conditions would be as great as that which would 
 result from the enactment of any other new tax of similar productivity. 
 The regressive distribution of the burden under the general retail sales 
 tax would not be material if the rate were low and would be counter- 
 
592 Report of Special Tax Commission 
 
 balanced by the progressive distribution of federal personal income and 
 estate taxes. Other states have satisfactorily met the administrative 
 problems of the general retail sales tax and have found it a suitable 
 measure for raising substantial revenues during depression times. The 
 Commission believes, therefore, that the enactment of a broad retail 
 sales tax as an emergency measure for a four-year period provides a 
 practicable means under present business conditions of raising a sub- 
 stantial part of the additional revenues required by the state with' the 
 least possible hindrance to business recovery. The Commission estimates 
 that the general retail sales tax which it recommends would have 
 yielded $8,000,000 had it been imposed during the year 1933. 
 
 Selective as well as general sales taxes have been developed by the 
 states during the last fifteen years. Only a few commodities, however, 
 have been found satisfactory for state selective sales taxes. These are 
 gasoline, beer and liquor, tobacco products, admissions to amusements, 
 and different kinds of soft drinks. Connecticut has already enacted 
 taxes on gasoline, beer, wines, liquor, and amusements and has developed 
 the organization and technique for administering this form of taxation. 
 Tobacco products are the only commodity which any large number of 
 states have taxed and which is not now taxed by Connecticut. State 
 tobacco taxes have yielded substantial and stable revenues. The Com- 
 mission proposes, therefore, that there be enacted as an emergency 
 measure for a four-year period a tax on cigarettes sold in the state. 
 The Commission estimates that the cigarette tax which it recommends 
 would have yielded approximately $1,200,000 had it been in effect 
 during 1933. 
 
 Recommendations. 
 
 To provide the revenues required to finance its proposals, the 
 Commission recommends: 
 
 That a tax be imposed at the rate of five per cent on the interest 
 and dividends received by individuals resident in the state; 
 
 That there be exempted from the interest and dividends tax only 
 (1) income from tax-exempt securities and (2) $200 of interest and 
 dividends for each person; 
 
 That an emergency tax be imposed for a temporary period of four 
 years at the rate of two per cent on all sales of tangible personal prop- 
 erty at retail, including sales of gasoline, beer, wines, liquors, tobacco, 
 water, gas, and electricity, whether sold by privately or governmentally 
 operated enterprises and whether or not otherwise taxed ; 
 
 That an exemption amounting to $10 of tax annually be allowed 
 to every business subject to the general retail sales tax; 
 
New Soueces of Revenue 593 
 
 That an emergency tax for a temporary period of four years be 
 imposed, in addition to all other taxes, at the rate of one mill per 
 cigarette on the sale of cigarettes in this state by wholesalers, defined to 
 include any person or business first receiving cigarettes for sale in this 
 state. 
 
CHAPTER XX 
 
 FISCAL EFFECTS OF THE COMMISSION'S 
 EECOMMENDATIONS 
 
 The basic estimates. 
 
 There are presented in this chapter estimates of the effects 
 of the Commission's recommendations on the financial operations of 
 the state, the counties, and, the municipalities. There have been pre- 
 sented in preceding chapters estimates of the effects on governmental 
 revenues and expenditures of all recommendations which involve im- 
 portant fiscal considerations. Similar estimates for certain other pro- 
 posals, including administrative changes proposed in local finance and 
 taxation, the additional duties suggested for the tax commissioner's 
 office, the transfer of part of the activities of county jails to the state, 
 and a few other minor recommendations such as those relating to the 
 distribution of the revenues from the motor bus tax, have not been 
 attempted because of the lack of necessary information. All of the 
 estimates previously recorded are brought together here and related 
 to the record of financial operations of the state, the counties, and the 
 municipalities. 
 
 The most recent fiscal years of the state, the counties, and the 
 municipalities for which the necessary financial data were available at 
 the writing of this report have been used as the time periods for this 
 study. The diversity of these fiscal years made it necessary to treat the 
 financing of each grade of government independently of that of the 
 others, which procedure prevented the recording of exactly offsetting 
 amounts in certain transactions involving the transfer of revenues or 
 expenditures from one to another grade of government. For the state 
 the financial statistics for the fiscal year ending June 30, 1933, have 
 been used; for the counties, those of the fiscal years ending September 
 30, 1933 ; and for the reporting municipalities, those of the fiscal years 
 ending next prior to October 10, 1932. 
 
 It should be made clear at this point that the comparisons of 
 actual and estimated revenues made in this chapter are to a certain 
 extent hypothetical. The Commission was compelled to use such statis- 
 tics as were available in estimating the yields of its revenue measures 
 and thought it advisable to base its estimates on the data which were 
 most recent. Furthermore, until the bills carrying its proposals into 
 effect have been drawn and enacted, the dates upon which any of the 
 proposed taxes will be assessed will not be known, and, therefore, the 
 
Fiscal Effects ok Recommendations 595 
 
 estimated income cannot be correctly allocated to the governmental 
 fiscal years. Thus, for example, the procedure followed for the state 
 has been to compare the actual income in 1932-33 with the income 
 estimated for substitute taxes for periods differing in a few cases from 
 the period covered by the state's fiscal year 1932-33. While this pro- 
 cedure employs figures which are not strictly comparable for the fiscal 
 year used, no other procedure avoids similar or even more serious 
 difficulties. The facts presented in this chapter, moreover, seem to be 
 valuable in translating the Commission's proposals into definite money 
 terms and relating them to the results of existing measures for the 
 most recent fiscal years for which published statistics are available. 
 
 In showing the net effect of the proposed changes on the budget 
 balances of the counties and the municipalities, a different procedure is 
 followed from that employed in the tables on state financing. The esti- 
 mated net change in the balance of revenue receipts and governmental- 
 cost payments for the counties and the municipalities is shown as a 
 reduction in property taxation, while the actual budget balances of the 
 fiscal years involved are maintained unchanged. For the state, how- 
 ever, the estimated net fiscal effect of the proposals is shown as a change 
 in the budget balance. 
 
 Warning should be given against interpreting the change in the 
 amount of any tax presented in any one table as the increase or decrease 
 in the amount of taxes which any particular group of taxpayers is 
 to be required to pay. Increases in particular state taxes, for example, 
 may result from the elimination of the existing procedure of distrib- 
 uting the revenues to the counties or municipalities rather than from 
 an increase in the amount of taxes levied. Decreases in particular taxes 
 are offset by revenues to be derived from the new taxes proposed. The 
 purpose of the present exhibit is to show the presumable effects of the 
 Commission's proposals on governmental financing and not the effects 
 upon the obligations of any taxpaying group. 
 
 Effects on state financing. 
 Classification of state funds. 
 
 State accounts are kept according to three classes of funds, namely, 
 (1) the general fund, (2) the miscellaneous public expendable funds, 
 and (3) trust funds. The general fund and the miscellaneous public 
 expendable funds are civil list funds, since the moneys accounted for 
 by them are owned outright by the state. The miscellaneous public 
 expendable funds consist of the highway fund, a number of revolving 
 or working capital funds, and a number of other special funds. In 
 this section consideration will be given only to the civil list funds, 
 
596 Report of Special Tax Commission 
 
 and, for convenience of presentation, these will be classified as (1) the 
 general fund, (2) the highway fund, and (3) other miscellaneous public 
 expendable funds. State income and net expenditures, which, in con- 
 formity with the practice of the state comptroller in deriving the 
 annual budget balance, have been used throughout this report to repre- 
 sent respectively the revenue receipts and governmental-cost payments 
 of the state, are not classified by funds in published financial reports. 
 The data here presented for the fiscal year 1932-33 were derived from 
 the comptroller's report and from his office records. 
 
 All civil list funds. 
 
 In Table LXXXVI there are shown the income by sources and 
 the total net expenditures of all civil list funds of the state for the 
 fiscal year ending June 30, 1933. There are also shown the estimated 
 changes in the items which would have been made had the Commission's 
 recommendations been in effect during this fiscal year. 
 
 Only one of the estimated changes in the table has not been fully 
 explained in preceding chapters or in the footnotes. The $752,000 
 decrease in taxes on banks and a small part of the $123,000 decrease 
 in the nonresident share tax represent the estimated net effect of the 
 Commission's proposals on the taxes received by the state directly from 
 the banks. A considerable part of these decreases in revenue, represent- 
 ing that portion of the estimated revenues from the interest and 
 dividends tax which would be laid upon the income of resident indi- 
 viduals from bank deposits and bank shares, would have been offset by 
 revenues from the proposed interest and dividends tax. 
 
 The fiscal year 1932-33 was taken as the basis for this compari- 
 son, not because it was considered a normal or typical year, but because 
 it was the most recent year for which the financial data could be 
 obtained when this chapter was written. It may be observed that 1932- 
 33 was a year in state finance not substantially different from the 
 years which preceded it. Net expenditures in 1932-33 were 36.5 million 
 dollars as compared with average annual net expenditures of 37.3 mil- 
 lions during the six-year period from 1927-28 to 1932-33, a period dur- 
 ing which large expenditures were being made for permanent improve- 
 ments on highways and charitable institutions. Income of 32.3 millions 
 in 1932-33 compares with an average annual income of 35.9 millions 
 from 1927-28 to 1932-33, but in four of these six years the state's 
 income exceeded its net expenditures. Since 1932-33, net expenditures 
 have decreased, not only because of the elimination of a large part of 
 the expenditures for permanent improvements, but also because of a 
 
Fiscal Effects of Recommendations 
 
 597 
 
 Table LXXXVI 
 ALL STATE CIVIL LIST FUNDS: ESTIMATED CHANGES IN INCOME AND 
 EXPENDITURES RESULTING FROM THE COMMISSION'S RECOM- 
 MENDATIONS, FISCAL YEAR 1932-33° 
 
 (In thousands of dollars) 
 
 Sources ol income Actual Estimated Revised 
 
 and total expenditures amounts changes amounts 
 
 Property taxes 
 
 State and military 1,765 — 1,765 — 
 
 Choses-in-action, estate penalty 413 — 413 
 
 Taxes in lieu of property taxes 1 3,551 
 
 Total property taxes 5,730 
 Business taxes 
 
 Banks (including savings banks) 1,502 
 
 1,288 
 123 
 765 
 
 782 
 786 
 187 
 
 5,433 
 
 2,403 
 
 4,633 
 
 5,712 
 81 
 
 -1,089" 
 
 -3,267 
 
 —752 
 
 + 1,694 
 
 —123 
 
 + 15 
 +714 
 + 173 
 
 + 1,721 
 
 +2,317 
 
 —1,714 
 
 —16 
 
 2,462 
 
 2,462 
 
 750 
 2,982 
 
 765 
 
 797 
 
 1,500 
 
 360 
 
 7,154 
 
 2,403 
 
 6,950 
 
 3,998 
 
 65 
 
 Domestic insurance companies 
 
 Nonresident stock 
 
 Foreign insurance companies 
 
 Local public utilities 
 
 Miscellaneous corporations 
 
 Unincorporated business 
 
 Others 
 
 Total business taxes 
 Miscellaneous taxes 
 Inheritance 
 Special motor vehicle 
 
 Gasoline 
 
 Registration 
 
 Motor bus 
 
 Total 
 Amusement 
 
 Seating capacity 
 Boxing and wrestling 
 
 Total 
 Beer and liquor taxes 
 
 Total miscellaneous taxes 
 New taxes 
 
 Interest and dividends 
 Retail sales 
 Cigarettes 
 
 Total new taxes 
 Total taxes 
 Non-tax income 
 Total income 
 Total expenditures 
 
 Excess or deficit ( — ) of income 
 over expenditures ' —4,260 +6,446 2,186 
 
 Sources: State Comptroller, Annual Report, 1938, Office Records; data presented 
 in preceding chapters. 
 
 10,427 
 
 +587 
 
 11,014 
 
 130 
 
 8 
 
 +320 
 
 450 
 8 
 
 138 
 
 +320 
 
 458 
 
 3 
 
 + 1,000 
 
 1,000 
 
 12,968 
 
 + 1,907 
 
 14,875 
 
 — 
 
 +4,000 
 +8,000 
 + 1,200 
 
 4,000 
 8,000 
 1,200 
 
 — 
 
 + 13,200, 
 
 13,200 
 
 24,131 
 
 + 13,561 
 
 37,692 
 
 8,130 
 
 — 
 
 8,130 
 
 32,261 
 
 + 13,561 
 
 45,822 
 
 36,521 
 
 +7,115* 
 
 43,636 
 
 Footnotes ori following page. 
 
598 Keport of Special Tax Commission 
 
 reduction in the salaries of state employees. Although income, exclusive 
 of emergency funds received from the federal government, was slightly 
 lower in 1933-34 than in 1932-33, it has recovered to some extent thus 
 far during the year 1934-35. 
 
 Had the Commission's recommendations heen in effect during the 
 fiscal year 1932-33, the income of the state, according to these esti- 
 mates, would have been increased 13.6 million dollars, net expenditures 
 would have been increased 7.1 millions, and the budget deficit would 
 have been converted into a budget surplus of $2,186,000. 
 
 General fund. 
 
 Table LXXXVII shows the estimated effects of the Commission's 
 recommendations on the operations of the general fund during the 
 fiscal year 1932-33. 
 
 According to these estimates, our proposals would have increased 
 the income of the general fund in 1932-33 by 13.0 million dollars, 
 would have increased the net expenditures by 6.8 millions, and would 
 have reduced the general fund deficit by 6.2 millions. These changes 
 would have balanced the general fund in this year and would have 
 provided a budget surplus of $712,000. 
 
 There was in 1932-33 only a moderate reduction in state expendi- 
 tures from the high levels of expenditures reached in the immediately 
 
 Footnotes to Table LXXXVI. 
 
 1 Consists of gross earnings taxes on transportation and communication companies 
 and the state tax on shellfish grounds. 
 
 2 Represents an increase of $100,000 due to the denial of offsets against state taxes 
 of local taxes on non-operating real estate of railroads and street railways and the 
 following reductions in income: (a) $1,182,000 of taxes on steam railroads and 
 street railways, which would normally have been assessed in 1933-34 but which 
 were actually assessed in 1932-33, thereby artificially increasing 1932-33 income, 
 and (b) $7,000 estimated loss in the tax on car companies. 
 
 3 Less than $500. 
 
 'Represents the following estimated expenditures: (a) $5,700,000 for unemploy- 
 ment relief, (b) $1,100,000 for interest at 3% per cent on bonds sold to finance 
 the change of municipal fiscal years and tax due dates and for special state 
 grants, and (c) $315,000 for increase in payments for support of children com- 
 mitted to county care. 
 
 5 Statistics which became available after this report was filed with the Governor 
 have enabled the Commission to recalculate its estimates of the yields of the 
 general retail sales tax and of the taxes in lieu of property taxes. The results 
 of the recalculation show that the revenues of the sales tax would have been 
 approximately $8,000,000 instead of $6,000,000 in 1932-33 and that the state 
 taxes on steam railroads and street railways would have been increased about 
 $100,000 over the original estimates. These changes have been made in this table 
 and in Table LXXXVII. 
 
Fiscal Effects of Recommendations 
 
 599 
 
 Table LXXXVII 
 STATE GENERAL FUND: ESTIMATED CHANGES IN INCOME AND EXPEN- 
 DITURES RESULTING EROM THE COMMISSION'S RECOMMENDA- 
 TIONS, FISCAL YEAR 1932-33 5 
 
 (In thousands of dollars) 
 
 Sources of Income Actual Estimated 
 
 and total expenditures amounts changes 
 
 Property taxes 
 
 State and military 1,765 — 1,765 
 
 Choses-in-action, estate' penalty 413 —413 
 
 Taxes in lieu of property taxes 1 3,551 — 1,089 3 
 
 Total property taxes 
 
 5,730 
 
 Business taxes 
 
 Banks (including savings banks) 1,502 
 
 Domestic insurance companies 1,288 
 
 Nonresident stock 123 
 
 Foreign insurance companies 765 
 
 Local public utilities 782 
 
 Miscellaneous corporations 786 
 
 Unincorporated business 187 
 
 Others — 8 
 
 5,433 
 
 2,403 
 130 
 
 -3,207 
 
 —752 
 
 1,694 
 
 —123 
 
 + 15 
 +714 
 +173 
 
 + 1,721 
 
 +320 
 
 Revised 
 amounts 
 
 2,462 
 
 2,462 
 
 750 
 
 765 
 
 797 
 
 1,500 
 
 360 
 
 7,154 
 
 2,403 
 
 450 
 8 
 
 Total business taxes 
 
 Miscellaneous taxes 
 
 Inheritance 
 
 Amusement 
 
 Seating capacity 
 
 Boxing and. wrestling 
 
 Total 
 
 Beer and liquor taxes 
 
 Total miscellaneous taxes 
 
 New taxes 
 
 Interest and dividends 
 Retail sales 
 Cigarette 
 
 , Total new taxes 
 
 Total taxes 
 Non-tax income 
 
 Total income 
 
 Total expenditures 
 
 Excess or deficit ( — ) of income 
 
 over expenditures — 5,473 +6,185 +712 
 
 Sources: State Comptroller, Annual Report, 1933, Office Records; data presented 
 in preceding chapters. 
 
 138 
 
 +320 
 
 458 
 
 3 
 
 + 1,000 
 
 1,000 
 
 2,541 
 
 + 1,320 
 
 3,861 
 
 — 
 
 +4,000 
 +8,000 
 + 1,200 
 
 4,000 
 8,000 
 1,200 
 
 — 
 
 + 13,200 
 
 13,200 
 
 13,704 
 
 + 12,974 
 
 26,677 
 
 3,782 
 
 — . 
 
 3,782 
 
 17,487 
 
 + 12,974 
 
 30,461 
 
 22,960 
 
 +6,789 4 
 
 29,749 
 
 Footnotes on following page. 
 
600 Eepoet of Special Tax Commission 
 
 preceding years. 1 As is shown later in this chapter, there was included 
 in the expenditures of this year an amount of expenditures for per- 
 manent improvements which is liberal when measured by the standard 
 of the years prior to 1927-28, when the state was not engaged in a 
 large and presumably temporary permanent improvement program. 
 General fund expenditures for permanent improvements were prac- 
 tically eliminated in 1933-34, so that, if these expenditures were 
 increased from those of 1933-34 to an amount as large as those of 
 1932-33, total state expenditures would not on this account exceed the 
 state income estimated by giving effect to the Commission's proposals. 
 Since 1932-33, moreover, state expenditures have been reduced almost 
 two million dollars by the reduction of salaries of state employees. 
 For these reasons the Commission believes that it has made ample 
 provision for balancing the general fund on any reasonable level of 
 expenditures. 
 
 1 During 1932-33, however, the state provided only enough funds to pay teachers' 
 pensions as they came due instead of continuing the teachers' retirement fund on 
 a reserve basis. Expenditures for this purpose amounted to $380,358 according to 
 the report of the state comptroller, whereas $624,430 would have been required 
 to have provided the necessary reserves for this fund. Consequently both state 
 expenditures and the state's budget deficit were $244,072 less than they would 
 have been had not this temporary change in policy been made. 
 
 Footnotes to Table LXXXVII. 
 
 1 Consists of gross earnings taxes on transportation and communication companies 
 and the state tax on shellfish grounds. 
 
 ' Represents an increase of $100,000 due to the denial of offsets against state taxes 
 of local taxes on non-operating real estate of railroads and street railways and 
 the following reductions in income: (a) $1,182,000 of taxes on steam railroads 
 and street railways, which would normally have been assessed in 1933-34 but 
 which were actually assessed in 1932-33, thereby artificially increasing 1932-33 
 income, and (b) $7,000 estimated loss in the tax on car companies. 
 
 " Less than $500. 
 
 4 Represents the following estimated changes in state expenditures from the general 
 fund: (a) increase of $5,700,000 for unemployment relief, (b) increase of $1,100,- 
 000 for interest at 3% per cent on bonds sold to finance the change in municipal 
 fiscal years and tax due dates and for special state grants, (c) increase of $315,- 
 000 in payment for support of children committed to county care, and (d) 
 decrease of- $326,000 in expenditures of the state police department now charge- 
 able against the general fund. 
 
 Statistics which became available after this report was filed with the Governor 
 have enabled the Commission to recalculate its estimates of the yields of the 
 general retail sales tax and of the taxes in lieu of property taxes. The results 
 of the recalculation show that the revenues of the sales tax would have been 
 approximately $8,000,000 instead of $6,000,000 in 1932-33 and that the Btate 
 taxes on steam railroads and street railways would have been increased about 
 $100,000 over the original estimates. These changes have been made in this 
 table and in Table LXXXVI. 
 
10,427 
 
 +587 
 
 11,014 
 
 2,694 
 
 — 
 
 2,694 
 
 13,121 
 
 +587 
 
 13,708 
 
 12,847 
 
 +326 1 
 
 13,173 
 
 Fiscal Effects of Kecommendations 601 
 
 Highway fund. 
 
 The estimated effects of the Commission's proposals on the opera- 
 tions of the highway fund during the year 1932-33 are set forth in 
 Table LXXXVIII. 
 
 Table LXXXVIII 
 STATE HIGHWAY FUND: ESTIMATED CHANGES IN INCOME AND EXPEN- 
 DITURES RESULTING FROM THE COMMISSION'S RECOMMENDA- 
 TIONS, FISCAL YEAR 1932-33 
 
 (In thousands of dollars) 
 
 Sources of Income Actual Estimated Revised 
 
 and total expenditures amounts changes amounts 
 
 Gasoline 4,633 +2,317 6,950 
 
 Registration 5,712 — 1,714 3,998 
 
 Motor bus 81 —16 65 
 
 Total taxes 
 
 Non-tax income 
 
 Total income 
 
 Total expenditures 
 
 Excess or deficit ( — ) of 
 
 income over expenditures 274 +261 535 
 
 Sources: State Comptroller, Annual Report, 193S, Office Records; data presented 
 
 in preceding chapters. 
 "Represents three-fourths of the expenditures of the state police department trans- 
 ferred from the general fund. 
 
 Although there are substantial changes in the amounts derived by 
 the highway fund from its several sources, the net effect of the pro- 
 posals on the balance of this fund in 1932-33 is relatively small. It is 
 estimated that its income would have been increased $587,000, its 
 expenditures $326,000, and its balance $261,000. Since this fund had 
 a surplus of $274,000 in this year, these changes would have increased 
 this surplus to $535,000. 
 
 Miscellaneous public expendable funds. 
 
 Table LXXXIX summarizes the operations of the miscellaneous 
 public expendable funds other than the highway fund. Neither the 
 income nor the expenditures of these funds are affected by our 
 proposals. 
 
 Only a small part of the substantial operating surplus reported in 
 1932-33 for the miscellaneous public expendable funds as a group 
 became available for purposes of the general fund. There were trans- 
 ferred to the current surplus of, the general fund $91,557 from work- 
 
602 Report of Special Tax Commission 
 
 Table LXXXIX 
 STATE MISCELLANEOUS PUBLIC EXPENDABLE FUNDS: 1 ESTIMATED 
 CHANGES IN INCOME AND EXPENDITURES RESULTING FROM COM- 
 MISSION'S RECOMMENDATIONS, FISCAL YEAR 1932-33 
 (In thousands of dollars) 
 
 Sources of income 
 
 Actual 
 
 Estimated 
 
 Revised 
 
 and total expenditures 
 
 amounts 
 
 changes 
 
 amounts 
 
 Non-tax income 
 
 1,653 
 
 — 
 
 1,653 
 
 Total income 
 
 1,653 
 
 — 
 
 1,653 
 
 Total expenditures 
 
 714 
 
 — 
 
 714 
 
 Excess or deficit ( — ) of 
 
 
 
 
 income over expenditures 
 
 939 
 
 — 
 
 939 
 
 Source: State Comptroller, Annual Report, 19S3, Office Records. 
 1 Of the 23 funds in this group, sixteen were special funds the incomes of which Were 
 pledged to specified purposes by the statutes, and seven were revolving or working 
 capital funds of activities expected to be self-supporting. The excess of -the assets 
 of each of the working capital funds at the end of each fiscal period over 
 amounts specified in the statutes reverts to the general fund. All other income of 
 these funds was pledged to specified purposes and was not available for general 
 purposes under existing law. 
 
 ing capital funds during this year. Of the remainder of the balance, 
 $838,528 represented funds received during 1932-33 from the federal 
 government for unemployment relief and spent for this purpose dur- 
 ing the ensuing fiscal year, and $8,753 represented the aggregate bal- 
 ance of the other special funds the incomes of which were pledged to 
 specified purposes and were not available under existing law for financ- 
 ing expenditures of the general fund. 
 
 EXPENDITURES FOR PERMANENT IMPROVEMENTS. 
 
 One important question eoncerning the foregoing statistics of state 
 financing is whether there were included in the expenditures of 1932- 
 33 what may be considered the normal annual expenditures which the 
 state will probably be required to make for permanent improvements. 
 The decrease in these expenditures has been one of the principal causes 
 of the reduction in total state expenditures since 1931-32. 
 
 The line of demarcation between current expenses and capital 
 outlays is not easily drawn. The state comptroller has found it neces- 
 sary to allow considerable latitude in classifying expenditures under 
 one or the other of these heads. Generally an expenditure for a com- 
 modity which has an estimated serviceability of three years or more 
 and which is not likely to be lost or mislaid as a result of its 
 use is considered a capital outlay by the comptroller. Among the 
 expenditures so classified are included those for small types of 
 equipment, such as desks, chairs, typewriters, books, etc. Expendi- 
 tures for such items recur with reasonable regularity year by year and 
 constitute a considerable fraction of the total capital outlays. The ques- 
 
Fiscal Effects of Kecommendations 603 
 
 tion being considered in this section, however, relates not to these 
 items of relatively low unit value and limited durability, but to expendi- 
 tures for commodities of substantial unit value and long durability. 
 The Commission has assumed that these expenditures are indicated 
 with sufficient accuracy by (1) the total capital outlays of the highway 
 fund, including expenditures for equipment, reconstruction, and other 
 highway improvements as well as new construction, and (2) expendi- 
 tures from the general fund and from the miscellaneous public expend- 
 able funds other than the highway fund for land and improvements and 
 expenditures of $5,000 or more for equipment. 
 
 Table XO presents the total amount of these expenditures for each 
 fiscal year from 1922-23 to 1932-33 classified between the highway 
 fund and the combined general and miscellaneous public expendable 
 funds. Such expenditures from the miscellaneous public expendable 
 funds other than the highway fund are of small amounts and cannot 
 be readily segregated from those of the general fund. For all practical 
 purposes, however, it is sufficiently accurate to assume that the expendi- 
 tures for permanent improvements from the general and miscellaneous 
 public expendable funds combined represent those from the general 
 fund. 
 
 The 1932-33 permanent improvement expenditures of 7.5 million 
 dollars from all proprietary funds were low only in comparison with 
 the high level of these expenditures which prevailed in the period 1927- 
 28 to 1931-32, when the state was engaged in an extensive permanent 
 
 
 
 Table 
 
 XC 
 
 
 TE EXPENDITURES FOR 
 
 PERMANENT IMPROVEMENTS, FISCA: 
 
 
 YEARS 1922-23 TO 1932-33 
 
 
 Fiscal 
 
 General and 
 
 
 
 All 
 
 year 
 
 misc. funds 1 
 
 
 Highway fund 2 
 
 proprietary funds 
 
 1922-23 
 
 $1,080,146 
 
 
 $2,297,102 
 
 $3,377,248 
 
 1923-24 
 
 986,220 
 
 
 1,880,483 
 
 2,866,703 
 
 1924-25 
 
 1,493,906 
 
 
 3,633,556 
 
 5,127,462 
 
 1925-26 
 
 1,067,127 
 
 
 3,339,061 
 
 4,406,188 
 
 1926-27 
 
 951,097 
 
 
 3,413,530 
 
 4,364,627 
 
 1927-28 
 
 2,023,145 
 
 
 13,957,664 
 
 15,980,809 
 
 1928-29 
 
 1,502,025 
 
 
 11,385,483 
 
 12,887,508 
 
 1929-30 
 
 2,279,104 
 
 
 10,387,996 
 
 12,667,100 
 
 1930-31 
 
 4,534,354 
 
 
 10,396,163 
 
 14,930,517 
 
 1931-32 
 
 5,386,919 
 
 
 7,631,500 
 
 13,018,419 
 
 1932-33 
 
 1,978,600 
 
 
 5,500,379 
 
 7,478,979 
 
 Source: State Comptroller, Annual Reports. 
 
 'Miscellaneous funds include all miscellaneous public expendable funds except the 
 
 ■ highway fund. Although expenditures for permanent improvements have occa- 
 sionally been made from these funds in the years shown, they have been small 
 in amount. 
 
 * Figures for highway fund represent total capital outlays, including trunk line and 
 state aid highway construction, reconstruction, tree planting, equipment, etc. 
 
604 Eepoet of Special Tax Commission 
 
 improvement program for highways and charitable institutions and 
 for the state office building. These expenditures from all funds averaged 
 only four million dollars annually from 1922-23 to 1926-27. Their 
 average annual amount from 1927-28 to 1931-32 was 13.9 million 
 dollars. Permanent improvement expenditures for 1932-33 were sub- 
 stantially above those made on the average or in any one year during 
 the period from 1922-23 to 1926-27. They were only about one-half of 
 those made on the average or in any one year from 1927-28 to 1931-32. 
 
 Expenditures from the highway fund for all capital outlays, 
 including substantial expenditures for equipment and highway improve- 
 ments other than new construction, reached a high level from 1927-28 
 to 1930-31 and have been substantially reduced since the latter year. 
 These expenditures averaged 2.9 million dollars annually from 1922-23 
 to 1926-27 and 11.2 millions from 1927-28 to 1930-31. They were 
 reduced to 7.6 millions in 1931-32 and to 5.5 millions in 1932-33. 
 Capital outlays of the highway fund cannot be reduced much below 
 their 1932-33 level if the state's investment in its highway system is 
 to be conserved, if present expenditures on state aid highway construc- 
 tion are to be continued, and if the required funds are to be provided 
 to entitle the state to federal highway aid. The proposals of the Com- 
 mission are designed, therefore, to maintain the revenues of the high- 
 way fund at an amount which will permit the continuance of 
 approximately the 1932-33 expenditures for capital outlays. 
 
 In only two fiscal years, 1930-31 and 1931-32, were general fund 
 expenditures for permanent improvements substantially hjgher than 
 those of 1932-33. In these two years a large part of the extraordinary 
 expenditures for the state office building and charitable institutions 
 were made. If, for example, the 2.8 million dollars spent for the state 
 office building and the Fairfield State Hospital in 1930-31 and the 
 3.5 million dollars spent for the Fairfield State Hospital, the Laurel 
 Heights Sanatorium, the Uncas-on-Thames Sanatorium, and the School 
 for Boys in 1931-32 are deducted from the total general fund expendi- 
 tures for permanent improvements in these respective years, the remain- 
 ing expenditures amount to a little less than the 1932-33 expenditures 
 of 2.0 million dollars. 
 
 Considering conditions existing in business and governmental 
 finance, it does not seem to the Commission that this is an opportune 
 time to commit the state for any but the most urgent expenditures for 
 permanent improvements. While the Commission realizes that the 
 General Assembly will be pressed to appropriate a substantial sum 
 for permanent improvements of various kinds, it is not to be expected 
 that the General Assembly will at this time launch the state upon 
 as extensive a building program as was started in 1929 and virtually 
 
Fiscal Effects of Kecommendations 605 
 
 completed in 1933. The Commission believes, therefore, that the two 
 million dollars provided for general fund permanent improvements in 
 the expenditures of 1932-33 make provision for such permanent 
 improvements as might for urgent reasons be required at this time. 
 
 Effects on county financing. 
 
 The estimated effects of the Commission's proposals on the 
 revenues and expenditures of the counties during their fiscal years 
 ending September 30, 1933, are set forth in Table XCI. 
 
 Table XCI 
 COUNTIES: ESTIMATED CHANGES IN REVENUE RECEIPTS AND GOV- 
 ERNMENTAL-COST PAYMENTS RESULTING FROM THE COMMIS- 
 SION'S RECOMMENDATIONS, FISCAL YEARS ENDING SEPTEMBER 
 30, 1933 
 
 (In thousands of dollars) 
 
 Sources 
 
 of revenues and total Actual Estimated Revised 
 
 governmental-cost payments amounts change amounts 
 Taxes 
 
 County tax 959 — 180 1 779 
 
 Unincorporated business 148 — 148 — 
 
 Total taxes 
 
 Non-tax revenues 
 
 State payments for support 
 
 of children 
 Other 
 
 Total non-tax revenues 
 
 Total revenues 
 
 Total governmental-cost payments 1,850 
 
 Excess or deficit ( — ) of 
 revenues over governmental- 
 cost payments 6 — 6' 
 Sources: Secretary of State, Returns of County Commissioners ; data presented in 
 
 preceding chapters. 
 1 The net effect of the Commission's proposals on county finance is shown as a reduc- 
 tion in the county tax rather than as an increase in the budget surplus. 
 'There has been no deduction from county expenditures and no addition to state 
 expenditures made on account of the proposal to establish a state jail farm. 
 
 In this table the net fiscal effect of the proposed changes upon 
 county finance is shown by the change in the county tax on towns 
 rather than as a change in the aggregate budget balance. This has been 
 done in order to show the maximum effect of the Commission's recom- 
 mendations upon the local tax burden. 
 
 1,107 
 
 —328 
 
 779 
 
 460 
 288 
 
 +328 
 
 788 
 288 
 
 748 
 
 +328 
 
 1,076 
 
 1,855 
 
 — 
 
 1,855 
 
 1,850 
 
 , 2 
 
 1,850 
 
606 Eepoet of Special Tax Commission 
 
 Since the Commission has endorsed only the fiscal aspects of the. 
 proposal to transfer most of the activities of the county jails to a state 
 jail farm, it has not made adjustments in county or state expenditures 
 to allow for this change. Except for this one possible change, county 
 expenditures would not have been altered by our recommendations 
 during 1932-33. 
 
 Our proposals, if they had been in effect during the fiscal year 
 1932-33, would have increased the payments by the state for children 
 committed to county care by about $328,000 and would have reduced 
 the tax revenues of the counties by the amount of the unincorporated 
 business tax, or $148,000. The difference of $180,000 between these 
 two items represents the estimated possible reduction in the county tax 
 and therefore in the levies of local taxes. 
 
 Effects on municipal financing. 
 
 Table XCII sets forth the estimated changes which would have 
 been made in the financing of all municipalities making quadrennial 
 financial reports to the tax commissioner during their fiscal years 
 ending next prior to October 10, 1932, if the Commission's recom- 
 mendations had been effective during such fiscal years. 
 
 The availability of comprehensive statistics of municipal finance 
 for only each fourth year and the lack of uniformity of municipal 
 fiscal years create insurmountable difficulties to the accurate presenta- 
 tion of the effects of the Commission's proposals upon local taxation. 
 Complete figures of municipal expenditures and receipts since the 
 fiscal years ending next prior to October 1932 are not now available. 
 Municipal expenditures for non-institutional charitable relief, how- 
 ever, have increased greatly since 1932. If the state assistance for 
 unemployment relief is estimated from the 1932 expenditures, the 
 result is substantially less than the state would, under present condi- 
 tions, be called upon to pay on this function for the benefit of the 
 municipalities under our proposals. If the estimate is based on expendi- 
 tures for this purpose after 1932, the result is substantially more than 
 the municipalities would have received under conditions existing in 
 1932. It has seemed to the Commission, however, that this second pro- 
 cedure, in spite of its deficiencies, gives the truer picture. Consequently, 
 the estimated reduction in municipal expenditures for non-institutional 
 relief has been figured from the expenditures during the fiscal years 
 ending next prior to October 1933. Then the amount so derived has 
 been related to the actual expenditures for fiscal years ending next 
 prior to October 1932 to indicate the effects on municipal finance if 
 municipal expenditures in those years had been reduced by that 
 amount. 
 
Fiscal Effects of Recommendations 607 
 
 Table XCII 
 ALL REPORTING MUNICIPALITIES: ESTIMATED CHANGES IN REVENUE 
 RECEIPTS AND GOVERNMENTAL.COST PAYMENTS RESULTING FROM 
 THE COMMISSION'S RECOMMENDATONS, FISCAL YEARS ENDING 
 NEXT PRIOR TO OCTOBER 10, 1932 
 
 (In thousands of dollars) 
 Sources 
 
 of revenues and total 
 
 Actual 
 
 Estimated 
 
 Revised 
 
 governmental- cost payments 
 
 amounts 
 
 change 
 
 amounts 
 
 Taxes 
 
 
 
 
 Property and personal taxes 
 
 72,513 
 
 —5,963' 
 
 66,550 
 
 Estate penalty tax 
 
 163 
 
 —163 
 
 — 
 
 State grant in lieu of taxes 
 
 21 
 
 — 
 
 21 
 
 Share taxes on banks and 
 
 
 
 
 insurance companies 
 
 2,182 
 
 —2,182 
 
 — 
 
 Motor bus tax 
 
 115 
 
 , 2 
 
 115 
 
 Total taxes 
 
 74,994 
 
 —8,308 
 
 66,686 
 
 Non-tax revenues 
 
 13,234 
 
 247 s 
 
 13,481 
 
 Total revenues 
 
 88,228 
 
 —8,061 
 
 80,167 
 
 Total governmental-cost payments 
 
 . 95,095 
 
 — 8,061 4 
 
 87,034 
 
 Excess or deficit ( — ) of rev- 
 nues over governmental-cost 
 
 payments —6,867 — —6,867" 
 
 Sources: Tax Commissioner, Quadrennial Report of Indebtedness, Receipts and 
 Expenditures of Municipalities, 1932; data presented in preceding 
 chapters. 
 'The net effect of the Commission's proposals on municipal finance is shown as » 
 reduction in the property tax rather than in the budget deficit. 
 2 Data not available to estimate change. Combined real property taxes on motor 
 bus companies and share of motor bus tax received by municipalities will prob- 
 ably be at least equal to amount now received as their share of motor bus taxes. 
 "Estimated amount in first year of special state grants for the synchronization of 
 fiscal years and tax due dates. 
 'Represents the following decreases in municipal expenditures: (a) $1,765,000 for 
 state and military taxes, (b) $180,000 for county taxes, (c) $5,700,000 for unem- 
 ployment relief, and (d) $416,000 for interest at 5 per cent for four months on 
 ■ tax-anticipation borrowing. 
 
 In these figures of municipal finance, as in the figures of county 
 finance, the estimated net effect of the recommendations is shown as a 
 reduction in property taxation. By the elimination of the state and 
 military taxes, the reduction of $180,000 in the county tax, the reduc- 
 tion of $5,700,000 in local expenditures for unemployment relief, and 
 the elimination of $416,000 for interest on tax-anticipation borrowings, 
 municipal expenditures in 1931-32 would have been reduced by 8.1 
 million dollars. Municipal revenues other than property taxes, however, 
 would have been reduced 2.1 millions, representing the difference 
 between (1) the municipal revenues from the estate penalty tax and the 
 share taxes on banks and insurance companies and (2) the revenues 
 
608 Eepoet of Special Tax Commission 
 
 received from the special state grants for the synchronization of fiscal 
 years and tax due dates. The excess of the reduction in expenditures 
 over the reduction in revenues, amounting to 6.0 million dollars, is 
 shown as a reduction in local property taxes in 1931-32. 
 
 This is only a convenient procedure for showing as far as possible 
 the net amount of additional financial aid provided to municipalities by 
 the program of the Commission. Local taxes could not and should not 
 be reduced by the amount shown. By the practice of postponing their 
 tax due dates, municipalities have imposed on their taxpayers debts 
 which have to be liquidated before municipal financing can be placed 
 on a sound basis. The Commission knows of no way to accomplish this 
 except to require taxpayers to retire this debt over a reasonable period 
 of time. Although the state is asked to give financial assistance in the 
 operation, local taxpayers would be required to provide the taxes neces- 
 sary to retire this debt over a period of ten years. For all municipalities 
 as a group, $2,500,000 of the reduction in local taxes would therefore 
 be offset by the required expenditure for the retirement of this debt. 
 Those municipalities which did not succeed in balancing their budgets 
 incurred in this year an aggregate deficit of 8.0 million dollars, which 
 should be eliminated before any reduction in local taxes is made. 
 The wiping out of this deficit would absorb a substantial portion of the 
 financial aid offered by the Commission's program. These considerations 
 indicate the impossibility of devising a practical plan to reduce local 
 taxes until the evil results of faulty financial practices during the 
 past are removed, that is, until municipalities are able to operate on 
 balanced budgets and to conduct their financing in a business-like way. 
 To those municipalities which are spending beyond their income and 
 which are saddled with the elusive but nevertheless real debt result- 
 ing from postponement of tax payments, any practicable plan can offer 
 no reduction or only limited reduction in local taxes immediately 
 and can at best provide a substantial reduction only after these unsound 
 practices are eliminated. Taxpayers of those municipalities which have 
 balanced budgets and which collect their taxes at or soon after the begin- 
 ning of their fiscal years should receive immediately a considerable 
 reduction in their local taxes from the proposals of the Commission. 
 
 In addition to the above proposals, the fiscal effects of which are 
 susceptible to reasonable estimate, other recommendations offer to 
 the municipalities an opportunity to control their fiscal affairs in a 
 way which should provide substantial and permanent reduction of local 
 taxes. We propose an orderly and effective organization and procedure 
 for the whole process of municipal budgeting, extending from the origi- 
 nal planning of the budget to the final reporting of the financial opera- 
 tions of the municipalities during each given year. We propose that the 
 
Fiscal Effects of Recommendations 609 
 
 state assist the municipalities in financing adequate annual audits of 
 all their accounts. By these means, the affairs of the community can be 
 conducted under the continuous scrutiny of the public and with consid- 
 erable savings resulting from greater efficiency. We have aimed to 
 simplify the local property tax and its administration. It is proposed 
 that the state extend to those municipalities which request it administra- 
 tive and financial aid in securing adequate tax maps and also undertake 
 the duties of assessing and collecting for the municipalities property 
 taxes on motor vehicles and of assessing all other taxable tangible per- 
 sonal property. Not only should local administrative costs be reduced in 
 the long run from these measures, but the distribution of the local tax 
 burden should be made more equitable. Without extending this enumer- 
 ation unnecessarily, it may safely be said that few proposals have been 
 made which, if adopted, would not redound, directly or indirectly, 
 immediately or eventually, to the benefit of local taxpayers. 
 
 Summary." 
 
 Introduction. 
 
 As a means of showing the fiscal effects of the various recom- 
 mendations of the Commission, we have estimated the changes which 
 would have resulted from them in the receipts and expenditures of 
 each of the three levels of government — the state, the counties, and 
 the municipalities. In some cases, where the fiscal effects of proposed 
 changes have been highly problematical and of minor fiscal importance, 
 no estimate has been attempted. Such cases include the administrative 
 changes proposed in local finance and taxation, the administrative costs 
 of new taxes and other proposed activities of the tax commissioner's 
 office, the establishment of a state jail farm, etc. 
 
 Effects on state financing. 
 
 Had the Commission's recommendations been in effect in ' the 
 fiscal year 1932-33, it is estimated that the state would have received 
 an income' of $45,822,000, or $13,561,000 more than was actually 
 received under existing tax laws. This net change is attributable to 
 many individual changes, some of which would have increased state 
 income, others of which would have decreased it. 
 
 * Statistics which have become available since the first printing of the summary 
 have permitted more accurate estimates of the yields of the general retail sales 
 tax and the taxes on railroads and street railways. In this report, the necessary 
 changes have been made in this section to give effect to these revised estimates. 
 
610 Repobt of Special Tax Commission 
 
 The figures presented below should not be interpreted as being 
 increases or decreases in the amounts of taxes which the several tax- 
 paying groups would be required to pay. Part of the increases shown, 
 for example in insurance company taxes, represent only the retention 
 by the state of revenues which, under existing law, are paid to munici- 
 palities. Another part — that from liquor taxes — represents revenues 
 from taxes first collected after 1932-33. Similarly, a part of the 
 decreases in revenues is offset by the revenues from new taxes. The 
 recommended changes responsible for the principal increases, together 
 with the estimated amount of such increases are as follows : 
 
 1. Revision of the insurance taxes — $1,694,000; 
 
 2. Revision of the miscellaneous corporations tax — $714,000 ; 
 
 3. Increase in the rate of the gasoline tax — $2,317,000; 
 
 4. Liquor taxes (not in force in 1932-33) — $1,000,000; 
 
 5. New taxes on interest and dividends and sales — $13,200,000. 
 
 The recommended changes responsible for the principal decreases, 
 together with the estimated amount of such decreases, are as follows : . 
 
 1. Repeal of state and military taxes — $1,765,000; 
 
 2. Repeal of state taxes on intangibles — $413,000; 
 
 3. Revision of bank taxes (including savings deposits tax) — 
 $752,000; 
 
 4. Revision of motor vehicle registration taxes — $1,714,000. 
 
 As a partial offset to this estimated net increase in revenue of 
 $13,561,000, it is estimated that an increase of $7,115,000 would have 
 been required to finance unemployment relief, state grants and interest 
 on bonds arising from the program for' establishing a uniform fiscal 
 year properly synchronized with tax due dates, and the proposed 
 increase in payments for support of children committed to county care. 
 
 The net result of estimated increases in receipts and expenditures 
 would have been a surplus for all state civil list funds of $2,186,000, 
 as compared with an actual deficit in 1932-33 of $4,260,000. 
 
 Most of the changes noted above are changes in receipts and 
 expenditures of the general fund, although a few concern the highway 
 fund. "With respect to the general fund, the estimated increase in the 
 income is $12,974,000, the estimated increase in expenditures, 
 $6,789,000, and the estimated decrease in the deficit, $6,185,000. 
 Since there was an actual deficit of $5,473,000 in the general fund 
 in 1932-33, these estimated changes would have left a surplus of 
 $712,000. Although the state's income in 1932-33 had reached a low 
 
Fiscal Effects of Kecommendations 611 
 
 point reflecting the full severity of the depression, expenditures had 
 not yet responded fully to demands for governmental economy. For 
 this reason the Commission believes that it has made ample provision 
 for balancing the general fund on any reasonable level of expenditures. 
 
 With respect to the highway fund, proposed changes in special 
 motor vehicle taxes, it is estimated, would have increased receipts by 
 $587,000, and the proposed transfer of three-fourths of the cost of the 
 state police department would have increased expenditures by $326,000. 
 Together these changes would have increased the highwav fund surplus 
 by $261,000. 
 
 It is pertinent to inquire more carefully into state expenditures 
 of the year 1932-33 and particularly as to whether a normal amount 
 was expended for permanent improvements in that year. We find that 
 the general fund expenditures for permanent improvements were 
 nearly two million dollars in 1932-33 and that this amount was as 
 large or nearly as large as the amounts similarly expended in every 
 year since 1922-23 except 1930-31, when the State Office Building was 
 under construction, and 1931-32, when the principal expenditures on 
 the Fairfield State Hospital were made. The Commission believes that 
 1932-33 expenditures may therefore be considered reasonably normal. 
 
 Effects on county financing. 
 
 The Commission's recommendations affect the counties by increas- 
 ing payments by the state for the support of children committed to 
 county care and by transferring the counties' share of the unincor- 
 porated business tax to the state. The net result of these two changes 
 for fiscal years ending September 30, 1932, is an estimated increase of 
 revenues of $180,000. This represents the amount by which the counties 
 could have reduced the county tax without changing their consolidated 
 budget surplus of $6,000. 
 
 Effects on municipal financing. 
 
 In their fiscal years ending next prior to October 10, 1932, the 
 municipalities reported receipts of $2,345,000 from the estate penalty 
 tax and the share taxes on banks and insurance companies. The Com- 
 mission recommends the repeal of these taxes. Offsetting this reduction 
 in revenues, the Commission has proposed the transfer of a substan- 
 tial part of the cost of unemployment relief from the municipalities 
 to the state. It is estimated that, under present conditions, this would 
 reduce local expenditures on this function by at least $5,700,000. A 
 further reduction of about two million dollars would have resulted 
 from the repeal of the state and military taxes and reduction of the 
 
612 Report of Special Tax Commission 
 
 county tax. Finally, there would have been a small saving in interest 
 costs and small receipts of state grants as a result of the proposed 
 changes in fiscal years and tax due dates. All told, the municipalities 
 would have found their fiscal condition bettered by $5,963,000. 
 
 Some municipalities would have been in a position to use their 
 share in this amount for an immediate reduction of property taxes; 
 others could have used it to wipe out an operating deficit, which for 
 all municipalities with deficits amounted to eight million dollars ; still 
 others would have been able to reduce their accumulated deficits from 
 prior years. But whatever its use, it is clear that the full amount is 
 available for the eventual reduction of the real estate tax burden. If it 
 is used in the first instance for reducing debt, it is thereby reducing 
 an obligation which in the absence of such assistance would eventually 
 have to be met largely out of property taxes. 
 
CHAPTER XXI ' 
 
 SUMMAEY OF THE PEOQEAM 
 
 As a result of its investigations, the Commission is proposing to 
 the General Assembly a unified program for the solution of the finan- 
 cial and taxation problems of the state, the counties, and the munici- 
 palities. Although each part of this program has necessarily been 
 developed in a particular chapter, it is not intended that each part be 
 separately judged. These separate parts cannot stand independently. 
 It is essential that the Commission's entire program be appraised as a 
 whole, rather than as a series of independent recommendations. As an 
 aid to such appraisal, there is here presented a brief summary of the 
 entire plan of state and local finance as proposed by the Commission. 
 
 In order to make it easier for the municipalities to conduct their 
 finances in a sound manner, to keep their expenditures within their 
 revenues, and to reduce their demands upon the property taxpayers, 
 the Commission offers the following recommendations : 
 
 (1) It is recommended that there be established a uniform fiscal 
 year for all local governments and that the due date of the first install- 
 ment of local property taxes be fixed at the beginning of the uniform 
 fiscal year. It is proposed that the state assist in financing the necessary 
 transition (a) by guaranteeing the municipal ten-year serial bonds 
 which in most towns will have to be sold, (b) by paying the entire 
 interest on such bonds, and (c) by paying to each municipality a 
 minimum amount either as interest on such bonds or as a special state 
 grant. The municipalities would be required to reduce the debt so 
 incurred by retiring each year for a ten-year period one-tenth of the 
 bonds sold. For the municipalities as a whole, this proposal would 
 require the reduction of indebtedness beginning immediately by about 
 $2,500,000 annually for ten years and would relieve the municipalities 
 of expenditures for interest on tax-anticipation borrowing, which at 
 five per cent for the average four months' period is estimated to amount 
 to $416,000 annually. In addition, it is estimated that certain munici- 
 palities would receive $247,000 as special state grants. The estimated 
 total cost of the proposal to the state would decrease from $1,100,000 
 during the first year by one-tenth each year until it was entirely 
 eliminated at the end of ten years. Although this proposal would 
 compel an immediate addition to the taxes levied by those municipali- 
 ties which issued the bonds, the result would be a still greater reduction 
 in their indebtedness. They could thus strengthen their financial posi- 
 
614 Eepoet of Special Tax Commission 
 
 tion by escaping from indebtedness arising from faulty fiscal practices 
 in the past. There is no way of avoiding this burden if municipalities 
 are to place their financing on a sound basis and avoid in the future the 
 heavy interest cost of tax anticipation. When the transition had been 
 made, local taxation would be reduced, not only by the saving of 
 interest on tax-anticipation loans, but' also by the economies which 
 should result from operating with a logical arrangement of time 
 periods. 
 
 (2) The Commission proposes that municipalities be equipped 
 with the necessary organization and technique to plan and execute 
 effectively their financing. Provision is made for the establishment of 
 a budget-making authority, for the development of a logical budget- 
 ing procedure, for the installation and operation of an adequate system 
 of accounting and auditing, and for the making of unified and under- 
 standable financial reports. Putting these recommendations into effect 
 may increase somewhat the immediate cash expenditures of the munici- 
 palities, but these increased expenditures should be much more than 
 counterbalanced by the savings arising from the more economical, 
 efficient, and responsible conduct of municipal finance which these 
 provisions should produce. 
 
 (3) The Commission's plan includes more practicable and effective 
 limitations upon the incurrence of municipal indebtedness. Instead of 
 the existing limit, based primarily on the grand list, it is suggested 
 that the maximum amount of long-term indebtedness of any munici- 
 pality be limited to the amount of its property tax collections for the 
 three preceding years. It is further recommended that a municipality 
 be required during any given fiscal year to levy property taxes at least 
 equal to 110 per cent of its average annual property tax levy of the 
 three preceding years before being permitted to incur any indebtedness 
 in that year other than tax-anticipation loans. These provisions, together 
 with the clarification of other sections of the statutes relating to the 
 powers of the municipalities to incur debt, should tend to check the 
 rapid growth of municipal indebtedness and gradually to reduce the 
 burden of local taxation required for debt service. 
 
 The Commission's plan includes many changes in existing state 
 and local taxes recommended for the purpose of effecting a more equi- 
 tablejdistribution of the tax burden and improving tax administration. 
 The following are the most important of these changes : 
 
 (1) All personal property (tangible and intangible), except tan- 
 gible personal property used for or in connection with business or 
 professions (not including farming), is to be removed from the grand 
 list. Motor vehicles are to be subject to a special property tax assessed 
 and collected by the commissioner of motor vehicles and remitted to 
 
Summary of the Program 615 
 
 the municipalities according to the residences of motor vehicle owners. 
 Professional and business tangible personal property is to be assessed by 
 the state, but the taxes thereon are to be levied and collected locally. 
 All other personal property is to be exempted from property taxation. 
 
 (2) More practicable rules of valuation, including a more specific 
 definition of value and the recognition of scientific procedures of 
 appraisal for real property and specific valuation formulas for taxable 
 tangible personal property are proposed. Property tax administration is 
 to be improved by providing appointed assessors, by abolishing local 
 boards of relief, by introducing a state board of tax appeals, and by pro- 
 viding for a more direct and definite procedure for property tax col- 
 lection. 
 
 (3) Except for the proposed repeal of the choses-in-action and 
 estate penalty taxes, no changes or only minor changes are proposed 
 in the personal tax, the taxes on forest property and shellfish grounds, 
 and the gross earnings tax on transportation and communication com- 
 panies. 
 
 (4) With respect to taxes on insurance companies, it is proposed 
 (a) that the franchise and share taxes on domestic companies be 
 repealed, including the offset of real estate taxes, (b) that domestic 
 companies be taxed two per cent of their Connecticut net premiums 
 plus 214 per cent of the investment income of life insurance depart- 
 ments and 6% per cent of the investment income of fire and casualty 
 departments, and (c) that no change be made in the existing taxes on 
 insurance companies chartered in other states and countries. 
 
 (5) In place of the existing bank stock and savings deposits 
 taxes, the Commission's plan includes a franchise tax levied at the rate 
 of 2 per cent and measured by or according to net income, which is 
 defined to include income from tax-exempt securities and corporation 
 stocks and the income represented by interest and rental payments 
 made by the taxpayer. Commercial banks are required to pay, for their 
 depositors, a tax of one mill per dollar on the face value of their 
 demand deposits. Income received by individuals from bank stock 
 and bank deposits is to be taxed under the general interest and dividend 
 tax. These proposals slightly reduce the combined revenues from existing 
 taxes on banks, their shareholders, and their depositors, but it is neces- 
 sary to assume this loss in order to develop a system of bank taxes of 
 unquestioned constitutionality. . 
 
 (6) With reference to miscellaneous corporations, it is proposed 
 (a) to substitute for the present net income tax a franchise tax of two 
 per cent measured by or according to net income, which is defined to 
 include income from tax-exempt securities and corporation stocks and 
 the income represented by interest and rental payments made by the 
 
616 Eepokt of Special Tax Commission 
 
 taxpayer, (b) to impose an alternative tax of one mill for each dollar 
 of capital invested in the state, and (c) to require each corporation to 
 pay the larger of the two taxes or the ten dollar minimum tax if that 
 is larger than either. These changes are proposed in order to stabilize 
 the revenues and integrate the taxes with those on banking institutions. 
 
 (7) Except for its extension to unincorporated motor transporta- 
 tion companies other than motor bus companies, unincorporated places 
 of amusement, and unincorporated liquor concerns, no important change 
 in the structure of the unincorporated business tax is proposed. It is 
 recommended, however, that all of the revenues from this tax be 
 retained by the state instead of being shared with the counties as at 
 present: 
 
 (8) The only change proposed in the franchise tax on the gross 
 earnings of local public utilities is to include in the tax base the gross 
 earnings from sales of services to other public service corporations 
 except when such services are resold in the state. 
 
 (9) For the sake of correcting conspicuous defects in present 
 gasoline and registration taxes and to effect a more satisfactory dis- 
 tribution of their burden, the Commission proposes that the gasoline 
 tax be increased from 2 to 3 cents a gallon and that registration taxes 
 be reduced approximately one-third. The registration tax is to be 
 levied at rates graduated from 30 to 40 cents per hundredweight 
 according to gross weight, instead of being based, as at present, on 
 piston displacement and carrying capacity. These proposals will main- 
 tain at approximately their present amounts the revenues of these taxes. 
 With the time and appropriation at its command, the Commission 
 has been unable to reach a satisfactory solution of the difficult problems 
 of the regulation and taxation of commercial motor vehicles, and it 
 proposes that another special commission be appointed to investigate 
 this problem. The Commission calls special attention to the importance 
 of cooperation with neighboring states in dealing with this problem. 
 
 (10) It is proposed that liquor concerns and places of amusement 
 be subject to the same taxes as are imposed upon other businesses and, 
 in addition, that selective sales taxes be imposed on sales of beer, wines, 
 and liquors, and on admissions to amusements. Only minor administra- 
 tive changes in the succession and estate taxes are proposed. 
 
 (11) The appointment of another special commission to investi- 
 gate the whole problem of exemptions granted under the local property 
 tax, the inheritance taxes, and other state taxes is urged. 
 
 The elimination of nonbusiness personal property from the grand 
 lists will tend slightly to increase the rates of real property taxes. This 
 tendency, however, will be counteracted by whatever increase in the 
 assessment of tangible personal property of business concerns and pro- 
 
Summary or the Pbogeam 617 
 
 fessions and whatever additional local taxes on motor vehicles may 
 result from the proposed changes. Municipalities and counties will 
 lose the revenues they now receive from the share taxes on banks and 
 insurance companies, the estate penalty tax, and the unincorporated 
 business tax, but this loss of revenues is more than offset by proposed 
 additional state assistance to local financing. 
 
 The Commission proposes that the state extend direct and sub- 
 stantial assistance to local financing (1) by assuming the administrative 
 control and the financial responsibility for most of the activities of 
 county jails, (2) by increasing the payment for the support of homeless 
 children committed to county care from a maximum of $3.50 to an 
 amount equal to the average actual cost not exceeding $6.00 per week 
 per child, accompanied by an extension of state supervision over the 
 operations of county homes, (3) by the assumption by the state, for a 
 four-year period, of the cost of all outdoor charitable relief to the extent 
 of two-thirds of the excess of the expenditure made by any municipality 
 during this period over the corresponding expenditure in 1928, and 
 (4) by the repeal of the state tax and the military tax. It is estimated 
 that these proposals will reduce municipal expenditures by over eight 
 million dollars. 
 
 To meet the cost to the state of this assistance to local finance, the 
 Commission proposes (1) the enactment of a 5 per cent tax on all inter- 
 est and dividends received by resident individuals and (2) the enact- 
 ment, as emergency revenue measures for a temporary four-year period, 
 of (a) a general retail sales tax of two per cent on all retail sales, includ- 
 ing sales of gasoline, beer, wines, liquor, tobacco, water, gas, and elec- 
 tricity, and (b) a tax of one mill per cigarette on all cigarettes sold in 
 the state. It is estimated that during the fiscal year 1932-33 these three 
 new taxes would have yielded $13,200,000' and would have approxi- 
 mately balanced the budget of the state in that year, including the esti- 
 mated additional expenditures that would have been required to have 
 financed the Commission's program. 
 
 As to the net effect of this entire program on the burden of local 
 taxation, only an approximate indication can now be presented. Assum- 
 ing that the various changes proposed in the grand list would have so 
 offset each other that no change in the rate of real property taxes would 
 have occurred from these changes, disregarding for the moment the local 
 expenditures required to retire debt, and disregarding also any reduc- 
 tion in local expenditures resulting from improved financial organiza- 
 tion and procedure and from better debt control, the facts in possession 
 of the Commission indicate that the net amount of additional funds 
 
 1 See footnote 5 on page 598. 
 
618 Report of Special Tax Commission 
 
 extended to the municipalities, either in the form of decreases in 
 expenditures or increases in revenues, would have been approximately 
 six million dollars in 1932-33. 
 
 It is not to be inferred, however, that the total amount of this addi- 
 tional financial aid could be applied to the reduction of local taxes. 
 The part given to municipalities which had balanced budgets and which 
 were not required to sell bonds to change their tax due dates could be 
 so applied. On the other hand, the part granted to municipalities which 
 had unbalanced budgets or which had to sell substantial amounts of 
 bonds to change their tax due dates would have to be applied in whole or 
 in part to eliminating the results of their past faulty fiscal practices. 
 The taxpayers in these municipalities cannot expect substantial reduc- 
 tions in their taxes until the necessary steps have been taken to elimi- 
 nate budget deficits and to place financing on a sound basis. A consider- 
 able part of the additional assistance which the Commission's program 
 provides to municipalities would be absorbed in eliminating municipal 
 budget deficits, which aggregated over eight millions in 1931-32, and in 
 retiring $2,500,000 of the bonds sold to synchronize tax due dates with 
 the beginnings of fiscal years. 
 
 It must be remembered, however, that these claims upon state 
 assistance arise out of obligations which the municipalities have already 
 incurred, which now rest upon them, and which will continue to rest 
 upon them whether the Commission's program is adopted or not. If the 
 assistance to the municipalities which the Commission proposes should 
 not be granted, the municipalities would have to find other funds for 
 liquidating their obligations. These funds would largely come from the 
 property tax. The assistance which the Commission proposes to give the 
 municipalities is therefore, in its entirety, a boon to the property tax- 
 payers, relieving them to that extent of the burdens which would other- 
 wise rest upon them. The effect of the Commission's recommendations 
 upon the real estate tax burden is to be measured, not by the actual 
 reduction in taxes which may be expected, but by the difference 
 between what that burden would remain under present conditions and 
 what it would be under the proposed plan. 
 
 The Commission suggests a plan for the reform of state and local 
 finance in Connecticut carrying the possibility of substantial relief to 
 the owners of real property. What measure of relief may be actually 
 obtained, assuming the General Assembly sees fit to enact this plan, will 
 depend primarily upon the municipalities. So long as local home rule 
 prevails, the General Assembly is powerless to legislate tax relief. That 
 will be granted or withheld by the people of the several municipalities, 
 acting directly or through their duly chosen officers. 
 
INDEX 
 
 A 
 Abatements 
 general property tax 
 
 criticism 330 
 
 elimination proposed 330 
 
 procedure 315 
 
 recommendation 339 
 
 personal tax 
 
 data, 1925-1933 344 
 
 "Accounting, municipal ..168-177,192-193 
 
 centralized state control 176 
 
 chief accounting officer- 175-177 
 
 claims 
 
 defects in pre-auditing pro- 
 cedure 172-174 
 
 recommendations 176 
 
 commitments 
 
 inadequacy of control 174 
 
 recommendations 176-177 
 
 decentralized administration 168-170 
 
 forms and records 171-172 
 
 recommendations 175-177 
 
 requirements / 168 
 
 revenues, accounting control 
 
 inadequacy 174-175 
 
 recommendation 177 
 
 summary 192-193 
 
 Accounting terminology 
 
 assets 4 
 
 budget balances 4-6 
 
 governmental-cost payments 4 
 
 liabilities 4 
 
 net debt 4 
 
 nongovernmental-cost pay- 
 ments 4 
 
 nonrevenue receipts 4 
 
 payments 4 
 
 receipts 4 
 
 revenue receipts 4 
 
 Aircraft (See Assessment, gen- 
 eral property tax) 
 Alien companies, insurance 
 
 definition 381 
 
 Amusement business, unincorpo- 
 rated 
 
 proposed taxation 464, 473 
 
 recommendation 532, 616 
 
 Amusement taxes 
 
 admissions tax 525-526 
 
 boxing and wrestling matches 528 
 
 criticism 528 
 
 existing law 
 
 jurisdiction of athletic 
 
 commissioner 525 
 
 penalty for delinquency 525 
 
 rate 525 
 
 history 526-527 
 
 recommendation 531-532 
 
 relation to county finance .... 547 
 
 revenue 528 
 
 data, 1922 to 1934 530 
 
 summary 534-535 
 
 description 524 
 
 excise tax proposed 530-532 
 
 base, gross receipts 532 
 
 rates existing in other states 531 
 
 rate proposed 531 
 
 recommendations 532 
 
 film tax 527 
 
 recommendations 
 
 amusement business, subject 
 to unincorporated business 
 
 tax 532 
 
 boxing and wrestling matches 531-532 
 
 excise tax 531-532 
 
 seating capacity tax 532 
 
 seating capacity tax 
 
 criticism 530 
 
 existing law 
 
 assessment and collection 525 
 
 exemptions 524 
 
 returns required 525 
 
 schedule of taxes 525 
 
 history 527-528 
 
 repeal recommended 532 
 
 revenue" 528 
 
 data, 1922 to 1934 529 
 
 summary : 534-535 
 
 Appropriations 
 
 - allotments 156 
 
 lapsing 158 
 
 penalties for exceeding 155-156 
 
 recommendations 166-167 
 
 transfers 156-158 
 
 Assessment, general property tax 
 administrative organization 
 assessors 
 
 criticism 297-298 
 
 recommendation 311 
 
 boards of relief 
 
 criticism 298-301 
 
 recommendation 311 
 
 recommendations 311-312 
 
 state board of tax appeals 
 
 duties 301-302 
 
 recommendation 311-312 
 
 summary 307 
 
620 
 
 Index 
 
 Assessment (Cont'd) 
 
 administrative organization (Cont'd) 
 state supervision 
 
 board of equalization 303 
 
 recommendation 312 
 
 transfer of duties to tax 
 
 commissioner 303 
 
 arbitrary and excessive, ap- 
 peals on 257 
 
 summary 303 
 
 assessors (See Assessors) 
 boards of relief (See Boards of 
 relief) 
 
 calendar 293-294 
 
 recommendation 310 
 
 date 
 
 proposed change 293-294 
 
 recommendation 310 
 
 distribution systems, local pub- 
 lic utilities ( See Public utili- 
 ties, local) 
 
 easements, taxation 296 
 
 recommendation 309 
 
 grand lists 
 
 data, 1920, 1930 to 1933 260 
 
 comparisons 261-263 
 
 summary 304 
 
 inequalities of assessments 
 
 criticism and remedies 269-307 
 
 inventories 
 
 criticism 287-289 
 
 proposed rules of , valuation 288 
 
 recommendations 309-310 
 
 state assessment 289 
 
 administrative procedure .. 291-293 
 
 recommendations 310 
 
 listing 
 
 dates 253 
 
 proposed change 294 
 
 recommendation 310 
 
 errors, correction of 255 
 
 motor boats, record of 254 
 
 motor vehicles, registrations 254 
 statutory duties of assessors 253-254 
 
 tax lists, filing 294-295 
 
 recommendation 311 
 
 machinery and equipment 
 
 criticism 289-290 
 
 proposed rules of valuation 290 
 
 recommendations 309-310 
 
 state assessment 290 
 
 administrative procedure 291-293 
 
 recommendations 310, 
 
 manufacturers, merchants and 
 public utilities (See Manu- 
 facturers, Merchants and 
 Public Utilities, local) 
 
 personal property 
 
 denned 251 
 
 personal property, intangible 
 
 exemption proposed ....270-271,284 
 
 effects 281 
 
 summary 305 
 
 personal property, tangible 
 aircraft 
 
 recommendation 308 
 
 special property tax, pro- 
 posed 280, 281, 308 
 
 assessment ratios 
 
 statistics and comparisons 267-269 
 criticism of present pro- 
 cedure 286 
 
 criticisms by various com- 
 missions 285-286 
 
 exemptions proposed .. 270, 274, 284 
 304, 305, 308 
 farm property, personal 
 
 data and comparisons 267 
 
 proposed exemption 274 
 
 effects 281 
 
 recommendation 307 
 
 household furnishings 
 
 data and comparisons 275-276 
 
 proposed exemption 276 
 
 effects 281 
 
 recommendation 307 
 
 motor vehicles (See also 
 
 Motor vehicle taxes) 277-280 
 
 situs, rule of 251 
 
 exceptions 252 
 
 proposed change 282-283 
 
 recommendations 308-309 
 
 state assessment 289 
 
 administrative procedure .. 291-293 
 
 recommendations 309-310 
 
 unimportant classes 307 
 
 data and comparisons 271-274 
 
 proposed exemptions 274 
 
 effects 281-282 
 
 recommendations 307 
 
 summary 305 
 
 procedure 
 
 recommendations 310-311 ■ 
 
 public utility distribution 
 systems (See also Public 
 utilities, local) 291-293,309-310 
 
 ratios 261-263 
 
 available tests 263 
 
 personal property 267-269 
 
 real property 264-266 
 
 real estate (See also Real 
 property ) 
 
 defined 251 
 
 situs 251 
 
Index 
 
 621 
 
 Assessment ( Cont'd ) ' 
 
 real property 
 
 assessment calendar 293-294 
 
 recommendations 310 
 
 assessment ratios 
 
 assessors' reports 264 
 
 available tests 263 
 
 manufacturers, 1922 266 
 
 Storrs Agricultural Ex- 
 periment Station, 1930 265-266 
 
 tax commissioner, 1922 .... 265 
 review of 
 
 assessors 301 
 
 recommendation 311 
 
 boards of relief (See Boards 
 
 of relief) t 
 
 state board of tax appeals .. 301-303 
 
 recommendations 311 
 
 state board of equalization 
 
 abolition proposed 303 
 
 duties 258 
 
 forms prescribed by 258 
 
 transfer of duties 303 
 
 state supervision 
 
 state board of tax appeals 301-302 
 tax commissioner 
 
 assessment of tangible per- 
 sonal property 310 
 
 duties and powers 259 
 
 listing 311 
 
 tax maps 311 
 
 transfer of duties of board 
 
 of equalization 312 
 
 tax due date 
 
 proposed change 294 
 
 tax maps 
 
 present use 296 
 
 procedure for towns to secure 297 
 
 recommendation 311 
 
 summary 307 
 
 valuation 255 
 
 changes in procedure 295 
 
 recommendations 309 
 
 definition of value 283-284 
 
 recommendation 309 
 
 easements .'. 296 
 
 recommendation 309 
 
 problem 284 
 
 proposed use of formulas .... 284 
 
 recommendation 309 
 
 rules of 252 
 
 exceptions 252 
 
 Assessors (See also Assessment, 
 general property tax) 
 
 compensation 253 
 
 proposed change 298 
 
 recommendation 311 
 
 summary 303 
 
 duties and powers 
 
 abstracts 255 
 
 blank forms, nonresidents .... 253 
 notices, increase in assess- 
 ments 255 
 
 published notices 253 
 
 tax lists 254 
 
 transfer, duties of boards of 
 
 relief 301 
 
 errors in assessments 255 
 
 motor vehicle registrations .... 254 
 
 number 253 
 
 records of motor boats 254 
 
 returns of assessment ratios .. 264 
 
 revaluations, periodic ..• 255 
 
 terms of office 253 
 
 proposed change 298 
 
 recommendation 311 
 
 summary 303 
 
 valuation 255 
 
 proposed procedure 295 
 
 recommendation 309-310 
 
 Assets, defined 4 
 
 Assets, insurance companies 395-396 
 
 Athletic commissioner 
 
 expenses of office 528 
 
 jurisdiction 525 
 
 receipts of office 530 
 
 recommendation 531-532 
 
 Atlantic etc. R. Co. v. Daughton, 
 
 application to bank taxation .. 424-425 
 
 Auditing, municipal 177-180, 193 
 
 criticism 178-179 
 
 major municipalities 
 
 recommendations 180 
 
 municipalities, general 180 
 
 state supervision 179-180 
 
 recommendations 180 
 
 statutory provisions 177-178 
 
 summary 193 
 
 Automobile taxes (See Motor 
 vehicle taxes) 
 
 B 
 
 Back taxes (See Collection, gen- 
 eral property tax) 
 Bank commissioner 
 
 depositories, municipal funds, 
 
 enforcement of penalty 187 
 
 Banks and trust companies, taxa- 
 tion 410-436, 439-443 
 
 classification 410 
 
 conclusions 425-426 
 
 deposits, commercial 
 
 ad valorem tax 432 
 
 fiscal effects 434-435,442 
 
 revenue, estimated 433 
 
622 
 
 Index 
 
 Banks and trust companies (Cont'd) 
 deposits, commercial (Cont'd) 
 
 recommendations 435 
 
 summary 433-434 
 
 deposits, savings 
 existing law 
 
 criticism 429-431 
 
 description 426-427 
 
 history 428-429 
 
 legal status 427 
 
 proposed changes 
 
 . interest, tax on 431 
 
 fiscal effects 434-435,442 
 
 revenue, estimated 432 
 
 summary 442 
 
 real estate tax offset 433 
 
 recommendation 436 
 
 recommendations 435 
 
 summary 433, 441-442 
 
 yield 
 
 data, 1925 to 1934 429 
 
 estimated, 1930, 1933 435 
 
 dividends, tax on 418-420 
 
 advantages 419-420 
 
 data as to dividends 419 
 
 proposed tax 426 
 
 recommendation 435 
 
 summary 433, 441 
 
 yield, estimated 426 
 
 existing law 
 
 personal property exempt .... 410 
 real estate, local taxation .... 410 
 state taxes 
 
 savings deposits tax 426-427 
 
 stock tax 410-411 
 
 fiscal effects of recommenda- 
 tions 434-435 
 
 franchise or excise tax 421-426 
 
 fiscal effects 434-435,442 
 
 net income and net earnings 423 
 
 net income, defined 425 
 
 rate 425-426 
 
 recommendation 435-436, 615 
 
 revenue, estimated 426 
 
 summary - 440. 
 
 national banks 
 
 federal limitations 413-415 
 
 conclusions 425-426 
 
 relation to proposed tax .. 420-426 
 
 summary 439-440 
 
 taxes permitted by federal 
 
 law 416 
 
 dividends, tax on 418-420 
 
 franchise or excise tax ....421-426 
 
 net income tax 420-421 
 
 share tax 416-418 
 
 summary 439-440 
 
 net income tax 
 
 criticism 420-421 
 
 data 421 
 
 personal property 410 
 
 recommendation 436 
 
 real estate 
 
 criticism of offset 417, 430 
 
 local taxation 410 
 
 recommendation 433, 436 
 
 stock tax 
 
 criticism 416-418 
 
 description 410-411 
 
 distribution to towns 411,516 
 
 history 411-412 
 
 rate 411 
 
 real estate tax offset 411 
 
 distribution 388-391, 538-539 
 
 repeal proposed 425 
 
 recommendation 434 
 
 summary 440 
 
 yield 412-413 
 
 summary, proposed changes .... 433-435 
 
 fiscal effects 434-435 
 
 theory 415 
 
 Blind persons, exemption 
 
 classification 236 
 
 statutory provision 238 
 
 Board of equalization (See State 
 
 board of equalization) 
 Board of finance and control, 
 
 state 557, 566 
 
 Board of tax appeals (See State 
 
 board of tax appeals) 
 Boards of education, municipal 
 
 mandatory duties 134-135 
 
 criticism 137-143 
 
 Groton etc. Tr. Co. v. Ston- 
 
 ington, interpretation 140-141 
 
 special acts, Plymouth and 
 
 Stonington, interpretation 142 
 
 statutory provisions 135 
 
 terms of office 135 
 
 Boards of finance, municipal 
 (See also Budgeting, munici- 
 pal) 
 
 criticism 137-143 
 
 duties and powers 136-137 
 
 history of development 135-136 
 
 intent and purpose 139 
 
 legislation of budget 
 
 proposed changes 152-154 
 
 restrictions on town meeting 152 
 
 statutory provisions 151-152 
 
 mandatory duties 140-143 
 
 Groton etc. Tr. Co. v. Ston- 
 ington, interpretation 140-141 
 
 special acts, Plymouth and 
 
 Stonington, interpretation H2 
 preparation of budget 
 
 statutory provisions 146-147 
 
 criticism 147-148 
 
Index 
 
 623 
 
 Boards of finance (Cont'd) 
 
 preparation of budget (Cont'd) 
 
 uncertainty of duties 148-149 
 
 relation to operating agencies 143 
 
 terms of office 136 
 
 Boards of relief (See also Assess- 
 ment, general property tax) 
 
 abolition 301 
 
 recommendation,, 311 
 
 appeals, arbitrary' assessments 257 
 
 appeals from decisions 257 
 
 compensation 256 
 
 criticism 298-301 
 
 duties and powers 256-257 
 
 debts deductible 257 
 
 equalization of valuations 256 
 
 increased assessments, notice 256 
 
 meetings 256 
 
 reductions of assessments .... 257 
 
 review of assessments 256 
 
 supplemental lists 256 
 
 summary 303 
 
 terms of members 255 
 
 Bonding of officials, municipal 
 
 amounts, recommendation 182 
 
 criticism 181-182 
 
 statutory provisions 181 
 
 summary 193-194 
 
 Boroughs ( See Municipalities 
 
 and Municipal finance) 
 Brokers, incorporated ( See Finan- 
 cial institutions, miscellane- 
 ous) 
 Budget balances (See also Ac- 
 counting terminology) 3-28 
 
 budget and cash balances 5-6 
 
 counties (See County finance) 
 
 defined 5 
 
 municipal (See Municipal 
 
 finance ) 
 state (See State finance) 
 
 ' Budgeting, municipal 129-167 
 
 administrative organization 
 boards of education 
 
 mandatory duties 134-135 
 
 conclusions 143 
 
 Groton etc. Tr. Co. v. 
 
 Stonington 140-141 
 
 special acts,' Plymouth 
 
 and Stonington 142 
 
 statutory provisions .... 135 
 
 terms of office 135 
 
 boards of finance 
 
 criticism 137-143 
 
 duties and powers 136-137 
 
 history of development .... 135-136 
 
 intent and purpose 139 
 
 mandatory duties 140-143 
 
 charitable relief 131-132 
 
 education 131 
 
 Groton etc. Tr. Co. v. 
 
 Stonington .' 140-141 
 
 health and sanitation .. 132 
 
 highways 131 
 
 special acts, Plymouth 
 
 and Stonington 142-143 
 
 organization 136 
 
 relation to operating agen- 
 cies 143 
 
 terms of office 136 
 
 constitutional provisions .... 128-129 
 
 decentralization ..; 132-133 
 
 divided responsibility 134-135 
 
 conclusions 143 
 
 criticism 137-143 
 
 mandatory duties 131-132 
 
 powers and duties 
 
 conflict in authority 130-131 
 
 distinction 129-130 
 
 recommendations 162 
 
 budget-making authority .. 162 
 discharge of mandatory 
 
 duties 162 
 
 execution of budget 162 
 
 preparation of budget .. 162 
 mandatory and optional 
 
 application 162 
 
 relation of fiscal to operat- 
 ing agencies 143 
 
 special school districts 134 
 
 state agencies 132 
 
 summary 158-159 
 
 towns without boards of 
 finance 
 selectmen 
 
 compensation .' 133 
 
 election 133 
 
 fiscal duties 133 
 
 mandatory duties 
 
 charitable relief 134 
 
 highways 134 
 
 qualifications 133 
 
 terms of office 133 
 
 budget-making authority (See 
 also Boards of finance 
 and Selectmen) 
 
 definition 162 
 
 establishment, duties and 
 
 powers 162-167 
 
 relation to operating agen- 
 cies 143 
 
 procedure 
 
 definition 143-144 
 
 execution of budget 
 
 control of appropriations 
 allotments by install- 
 ments 156 
 
624 
 
 Index 
 
 Budgeting, municipal (Cont'd) 
 procedure ( Cont'd ) 
 
 execution of the budget (Cont'd) 
 control of appropriations (Cont'd) 
 
 lapsing 158 
 
 penalties for exceeding 155-156 
 
 transfers 156-158 
 
 problem 154-155 
 
 recommendations 166-167 
 
 summary 161 
 
 legislation of budget 
 
 recommendations 164-166 
 
 summary 160 
 
 towns with boards of 
 finance 
 
 proposed changes 152-154 
 
 restrictions on town 
 
 meeting 152 
 
 statutory provisions .... 151-152 
 towns without boards of 
 finance 
 
 criticism 150-151 
 
 selectmen 149-150 
 
 preparation of budget 
 
 recommendations . 162-164 
 
 summary 159-160 
 
 towns with boards of 
 finance 
 duties of boards, criti- 
 cism 148-149 
 
 statutory provisions .... 146-147 
 
 criticism 147-148 
 
 towns without boards of 
 finance 
 
 selectmen, criticism 144-145 
 
 Budgeting municipalities 
 
 definition 162 
 
 Budget-making authority ( See 
 
 Budgeting, municipal) 
 Building and loan associations 
 
 present tax 436-437 
 
 proposed tax 
 
 measured by net income .... 437 
 tangible personal property 437 
 
 recommendation 438 
 
 summary 442 
 
 Bus companies (See Motor bus 
 
 taxes ) 
 Business taxes 
 banks and trust companies ....410-443 
 
 history and theory 444-447 
 
 summary 469-470 
 
 insurance companies 381-409 
 
 liquor business 516-523 
 
 local public utilities 465-469 
 
 miscellaneous corporations .... 447-460 
 
 theory : 444-447 
 
 unincorporated business 460-465 
 
 Capital outlays, state 31-34, 602-605 
 
 Car companies, taxation 
 
 .conclusions 373-374 
 
 criticism 372 
 
 data 373 
 
 Pullman company 
 
 relationship to railroads 374 
 
 recommendation '. 375 
 
 Carriers, motor (See Motor bus 
 
 taxes ) 
 Charitable relief 
 institutional and non-institu- 
 tional (See Expenditures, , 
 State assistance in local fi- 
 nancing and Unemployment 
 relief ) 
 
 mandatory duties 131-132 
 
 Child welfare, institutional care 
 counties 
 
 county homes 
 
 per capita cost 556 
 
 proposed grant 557 
 
 recommendation 566 
 
 recommendation 566 
 
 state administration 
 
 child welfare commission 565 
 
 summary 565 
 
 tax commissioner 
 
 publication of returns 557 
 
 recommendation 566 
 
 supervision of accounts .... 555 
 
 recommendation 566 
 
 Choses-in-actjon tax 354-360 
 
 criticism 359-360 
 
 data 357-358 
 
 effectiveness 356-359 
 
 exemptions 354-356 
 
 history 354 
 
 recommendation 360,615 
 
 revenues, 1891 to 1934 357 
 
 scope 354-356 
 
 summary 376-377 
 
 Cigarette tax (See also Sales 
 tax, selective) 
 
 proposed tax 588-589 
 
 purpose 589 
 
 recommendation 593,617 
 
 revenue, estimated, 1933 588 
 
 summary 592 
 
 Cities (See Municipalities and 
 Municipal finance ) 
 
 Civil list funds, definition 6 
 
 Collection, general property tax 
 abatement 
 
 criticism 330 
 
 elimination proposed 330 
 
 recommendation 339 
 
Index 
 
 625 
 
 Collection (Cont'd) 
 abatement (Cont'd) 
 
 procedure 315 
 
 billing 
 
 criticism '. 328 
 
 notices 328 
 
 recommendations 339 
 
 summary 337 
 
 delinquency 
 
 causes 325-326 
 
 criticism 326 
 
 growth 322-325 
 
 local administrative boards 335 
 enforcement procedures, pro- 
 posed 
 
 county collectors 335 
 
 local collectors 334 
 
 real estate transfers pro- 
 hibited 333 
 
 recommendations 340-341 
 
 sale of property 334 
 
 summary 338-339 
 
 interest penalty 315 
 
 recommendation 339 
 
 summary 337 
 
 penalties 
 
 criticism 329 
 
 proposed increase 330 
 
 recommendation 339 
 
 procedure, existing 
 
 description .". 316-321 
 
 summary 336 
 
 foreclosure of tax liens 317-318 
 
 irregularities invalidating 
 
 sale 320 
 
 levy and sale or commitment 319-320 
 
 ordinary suit 319 
 
 settlement with treasurer .... 321 
 tax liens, continuance 
 
 criticism 332 
 
 history 330-331 
 
 summary 338 
 
 rate bill, preparation 328 
 
 suspense book, transfers to ....315-316 
 tax collectors 
 
 appointment 327 
 
 compensation 314, 327 
 
 election, term, removal 313 
 
 eligible for office of treasurer 339 
 
 fees 313-314 
 
 recommendations 339 
 
 records and reports 321 
 
 summary 336-337 
 
 tax due dates (See also Re- 
 lationship of tax due dates 
 
 and fiscal years) 315 
 
 installment collections 328-329 
 
 recommendations 339 
 
 Commercial motor vehicles (See 
 
 Motor vehicle taxes) 
 Commission's program, summary 
 
 benefits to local taxpayers .... 617-618 
 
 character 613 
 
 choses-in-action tax 615 
 
 estate penalty tax 615 
 
 exemptions 
 
 special commission proposed 616 
 local taxation 
 assessment 
 
 assessors 615 
 
 boards of relief 615 
 
 definition of value 615 
 
 personal property 615 
 
 real property 615 
 
 state board of tax appeals 615 
 
 collection procedure 615 
 
 forests 615 
 
 personal property 614-615 
 
 personal tax 615 
 
 motor vehicles, special prop- 
 erty tax 614-615 
 
 municipal finance 
 
 accounting and auditing 614 
 
 budget-making authority .... 614 
 
 financial reports 614 
 
 indebtedness, limitation 614 
 
 tax due dates and fiscal years 613 
 
 uniform fiscal year 613 
 
 revenue, effects on local 617 
 
 state assistance, local financing 
 counties 
 
 financing of jails 617 
 
 grants for children 617 
 
 municipalities 
 
 charitable relief, outdoor 617 
 
 military tax, repeal 617 
 
 state tax, repeal 617 
 
 state taxation 
 
 amusement business 
 
 general business taxes 616 
 
 selective sales tax 616 
 
 banks 
 
 proposed tax ' 615 
 
 savings deposits tax, re- 
 peal 615 
 
 share tax, repeal 615 
 
 demand deposits 615 
 
 domestic insurance compa- 
 nies 
 
 franchise tax, repeal 615 
 
 investment income tax .... 615 
 
 net premium tax 615 
 
 real estate tax offset 615 
 
 share tax, repeal 615 
 
 foreign insurance companies 615 
 
 estate tax 616 
 
 gasoline tax 616 
 
626 
 
 Index 
 
 Commission's program (Cont'd) 
 state taxation (Cont'd) 
 liquor business 
 
 general business taxes .... 616 
 
 selective sales tax 616 
 
 local public utilities 616 
 
 miscellaneous corporations 
 
 franchise tax 615 
 
 invested capital tax 616 
 
 minimum tax 616 
 
 motor vehicles 
 
 registration tax 616 
 
 special commission 616 
 
 new sources of revenue 
 
 interest and dividends tax 617 
 
 sales tax, cigarettes 617 
 
 sales tax, general retail 617 
 yield, estimated, 1932-33 617 
 
 shellfish grounds 615 
 
 succession tax 616 
 
 transportation and communi- 
 cation companies 615 
 
 unincorporated business tax 
 
 amusement places 616 
 
 revenues, distribution 616 
 
 unincorporated liquor con- 
 cerns 616 
 
 unincorporated motor car- 
 riers 616 
 
 Communication companies ( See 
 Transportation and communi- 
 cation companies ) 
 Connecticut government, subdi- 
 visions 6 
 
 Constitutional provisions 
 
 organization, municipal finance 128-129 
 Counties 
 
 governmental status 14 
 
 state grants (See State assist- 
 ance in local financing) 
 County finance 
 budget balances 
 
 data, 1928 to 1933 15 
 
 indebtedness 15-17 
 
 problem 17-18 
 
 statistics, nature of 14 
 
 summary 26 
 
 expenditures 
 
 consolidated with other gov- 
 ernments 
 accounting for duplica- 
 tions .'. 47-48 
 
 purposes and trends, 1928 
 
 and 1932 48-52 
 
 summary 59 
 
 trend, 1912 to 1932 52-54 
 
 functional analysis 36-37 
 
 governmental-cost payments 37-38 
 
 reduction and control 54-56 
 
 summary 59-60 
 
 summary 57-58 
 
 fiscal effects of recommenda- 
 tions 
 
 data, 1933 605 
 
 discussion 606 
 
 summary 611 
 
 revenues 
 
 consolidated with other gov- 
 ernments .'. 75-77 
 
 summary 87 
 
 sources, 1928 to 1933 68-70 
 
 summary ....:....: 85-86 
 
 County revenues (See County 
 
 finance, revenues) 
 Custody of funds, municipal 
 bank commissioner 
 
 enforcement of penalty 187 
 
 deposits, limitations on 186-187 
 
 statutory provisions 182-183 
 
 . criticism 183-186 
 
 summary 194 
 
 D 
 
 Death taxes 
 classification 
 
 estate tax '. 507 
 
 inheritance or succession tax 507 
 estate tax 
 
 assessment and collection 510 
 
 description 509-510 
 
 effective date 513 
 
 purpose 509-510 
 
 ; summary 532 
 
 nonresident transfer tax 512 
 
 revenue : .513, 532 
 
 succession tax 
 control of safe deposit boxes 515 
 
 recommendation 516 
 
 summary 533 
 
 exemptions 514-515 
 
 jointly owned deposits .... 515 
 
 recommendation 516,616. 
 
 summary 533 
 
 existing laws 
 
 classes of beneficiaries 508 
 
 exemptions 508 
 
 interest charges 509 
 
 summary 532 
 
 general structure 514 
 
 summary 532-533 
 
 history :. 510-512 
 
 recommendations 
 
 control of safe deposit 
 boxes 515 
 
Index 
 
 627 
 
 Death taxes (Cont'd) 
 succession tax (Cont'd) 
 recommendations ( Cont'd ) 
 exemptions of certain be- 
 quests 516 
 
 jointly owned deposits .... 516 
 
 Debt code, municipal :... 216-235 
 
 Debt limit (See also Indebted- 
 ness, municipal) 220-235 
 
 existing law, criticism 214-216 
 
 ratios of proposed to existing 223-225 
 
 recommendations 229-231 
 
 summary 226-229 
 
 Definitions 
 
 assets 4 
 
 budget balance 5 
 
 budgeting municipalities 162 
 
 budget-making authority 162 
 
 civil list funds, state 6 
 
 debt limit 196 
 
 disbursements, state 8 
 
 governmental-cost payments .... 4 
 
 income, state 8 
 
 insurance companies 
 
 alien companies 381 
 
 domestic companies 381 
 
 foreign companies .*. 381 
 
 invested capital 471-472 
 
 liabilities 4 
 
 major municipalities 6 
 
 minor municipalities 6 
 
 net debt 4 
 
 net expenditures, state 8 
 
 non-budgeting municipalities .. 162 
 
 non-expenditures, state 7 
 
 nongovernmental-cost payments 4 
 
 nonrevenue receipts 4 
 
 state 8 
 
 personal property, taxable 251 
 
 procedure, municipal budgeting 143-144 
 
 real estate, taxable 251 
 
 receipts 4 
 
 state 8 
 
 revenue receipts, state 8 
 
 towns v .... 6 
 
 trust funds, state 6 
 
 Delinquent taxes (See Collection, 
 
 general property tax) 
 Depositories for municipal funds 
 (See Custody of funds, munici- 
 pal) 
 Deposits, commercial 
 
 ad valorem tax 432 
 
 fiscal effects 433-435,442 
 
 revenue, estimated 433 
 
 recommendation 433-435 
 
 summary 433-435 
 
 Deposits, jointly owned 
 exemption from succession tax 515 
 
 criticism 515 
 
 recommendation 516 
 
 summary 533 
 
 Deposits, savings 
 existing tax 
 
 criticism 429 
 
 description 426-427 
 
 history 428-429 
 
 legal status 427 
 
 proposed changes 
 
 interest receipts tax (See 
 also Interest and divi- 
 dends tax) 431 
 
 fiscal effects 434-435, 442 
 
 revenue 432 
 
 summary ., 442 
 
 real estate tax offset 433 
 
 recommendation 436 
 
 recommendations 435-436, 615 
 
 summary 433, 441-442 
 
 yield 429 
 
 Disbursements, state, defined 8 
 
 Distribution systems of public 
 utilities (See Public utilities, 
 local ) 
 Dividends and interest tax (See 
 
 Interest and dividends tax) 
 Domestic companies, insurance 
 
 definition 381 
 
 E 
 
 Easements 
 
 taxation 296 
 
 recommendation 309 
 
 Education (See also Expendi- 
 tures) 
 
 mandatory duties 131-135 
 
 state grants 539-542 
 
 data, 1931-32 540-541 
 
 equalization plan 551-552 
 
 summary 563-565 
 
 Election dates 
 
 effect upon execution of budget 102-103 
 
 recommendation 103 
 
 Electric companies (See Public 
 
 utilities, local) 
 Emergency unemployment relief 
 continuance of Emergency Re- 
 lief Commission 566 
 
 proposal for financing 567, 617 
 
 Equipment (See Assessment, gen- 
 eral property tax) 
 
 Estate penalty tax 360-363 
 
 criticism 362-363 
 
 description 360 • 
 
 distribution 546 
 
 data, 1929 to 1934 539 
 
 history 361 
 
628 
 
 Index 
 
 Estate penalty tax (Cont'd) 
 
 purpose 547 
 
 : recommendation, repeal 363, 615 
 
 revenues, 1917 to 1934 362 
 
 summary 377-378 
 
 Estate tax (See Death taxes) 
 Estimates of fiscal effects 
 
 character 594-595 
 
 summary 609 
 
 Execution of budget ( See Budget- 
 ing, municipal) 
 Exemptions, general 
 
 corporation income tax 447-448 
 
 general retail sales tax 586 
 
 recommendation 592 
 
 interest and dividends tax 579-580 
 
 recommendation .'. 592 
 
 liquor business 518 
 
 personal tax 342 
 
 soldiers, sailors and blind 
 special property tax, motor 
 
 vehicles 308 
 
 succession tax 
 
 existing law 514-515 
 
 recommendation 516 
 
 Exemptions, general property 
 tax 
 administration 
 
 criticism 243-244 
 
 proposed changes 247 
 
 recommendations 249 
 
 assessors, quadrennial valua- 
 tion 244 
 
 changes proposed 246-247 
 
 commission proposed 246, 615 
 
 data, 1929 239-240 
 
 farm property, personal 271-273 
 
 forest taxation 349-350 
 
 household furnishings 274-276 
 
 illegal 235 
 
 data, 1929 235 
 
 summary 248 
 
 problem in general 240-244 
 
 conclusions 244-247 
 
 government property 240-241 
 
 privately owned property .... 241-244 
 
 special commission, 1923 245 
 
 technical 235-236 
 
 summary 248 
 
 true 236-250 
 
 government property 236-237 
 
 summary 248 
 
 privately owned property .... 237-238 
 
 recommendation 249 
 
 summary 248-249 
 
 property, minimum of sub- 
 sistence 238-239 
 
 soldiers, sailors and blind .... 238 
 recommendation 250 
 
 state grants to towns 237, 542 
 
 statistics, 1929 239-240 
 
 summary 248 
 
 Expenditures 
 
 consolidated state and local 
 
 accounting for duplications 47-48 
 need for reduction and con- 
 trol 54-56 
 
 summary 59-60 
 
 purposes and trends, 1928 
 
 and 1932 48-52 
 
 summary 59 
 
 trend, 1912 to 1932 52-54 
 
 county governments 
 
 consolidated with other gov- 
 ernments 47-54 
 
 functional analysis 36-37 
 
 governmental-cost payments 37-38 
 
 summary 57-58 
 
 highways (See Highways) 
 
 municipal governments 
 
 causes of increased costs .... 40 
 consolidated with other gov- 
 ernments 47-54 
 
 data, all reporting 38-42 
 
 data, cities and boroughs .... 42-44 
 
 data, unconsolidated towns 44-46 
 
 purposes and trends 48-50 
 
 reduction after 1932 46-47 
 
 summary 58-60 
 
 reduction and control 54 
 
 summary 59-60 
 
 state government 
 
 capital outlays 31-34,602-605 
 
 charities - 29-31 
 
 consolidated with other gov- 
 ernments 47-54 
 
 data, 1933-34 .., 35-36 
 
 education 29-31 
 
 fiscal effects, recommenda- 
 tions 601-605 
 
 functional analysis 29-31 
 
 highways 29-31,476-477,501 
 
 motor vehicle department .... 476 
 
 operating expenses 34 
 
 police department 476 
 
 purposes and trends 48-52 
 
 summary 56-57 
 
 Express companies (See Trans- 
 portation and communication 
 
 companies ) 
 
 F 
 
 Farm property, personal (See 
 Assessment, general property 
 tax) 
 
Index 
 
 629 
 
 Fees, motor vehicles (See Motor 
 
 vehicle taxes) 
 Finance, municipal (See also 
 Municipal finance and State 
 assistance in local financing) 
 Financial administration, munici- 
 pal ( See Accounting, Auditing, 
 Bonding of officials, Budget- 
 ing, Reporting, and Custody of 
 funds ) 
 Financial institutions (See 
 Banks and trust companies 
 and Insurance companies) 
 Financial institutions, miscel- 
 laneous (See also Building 
 and loan associations, In- 
 vestment companies and 
 Financial institutions, un- 
 incorporated ) 
 
 classification 436 
 
 existing law, description 436 
 
 recommendation 438 
 
 summary 442-443 
 
 Financial institutions, unincor- 
 porated 
 
 taxation as individuals 438-439 
 
 summary 443 
 
 Fiscal effects of recommenda- 
 tions 594-612 
 
 county finance 
 
 data, 1933 605-606 
 
 summary 611 
 
 estimates 
 
 character 594-595 
 
 summary 609 
 
 municipal finance 
 
 benefits to local taxpayers .. 608-609 
 
 data, 1932 607 
 
 discussion 607-608 
 
 summary 611-612 
 
 state finance 
 
 civil list funds 596-598 
 
 summary 609-610 
 
 classification of funds 595-596 
 
 expenditures for permanent 
 
 improvements 602-605 
 
 general fund 598-600 
 
 summary 610-611 
 
 highway fund 601 
 
 summary 610-611 
 
 miscellaneous expendable 
 
 funds 601-602 
 
 Fiscal relations of governments 
 
 problems of policy 537-538 
 
 criticism and proposed 
 
 changes 545-547 
 
 summary 562-563 
 
 Fiscal years, municipal (See also 
 Relationship of tax due 
 
 dates and fiscal years) 
 consolidated data 
 
 major and minor munici- 
 palities 105-107 
 
 diversity 99-101 
 
 consequences 101-102 
 
 election dates 
 
 effect upon execution of 
 
 budget 102-103 
 
 recommendation 103 
 
 installment tax payments, 
 
 effect , 108 
 
 statutory provisions 99 
 
 summary 125-126 
 
 synchronization with due dates 
 (See Relationship of tax due 
 dates and fiscal years) 
 tax due dates, relationship 
 
 103-107. 126-127 
 
 uniform fiscal years 102 
 
 recommendation 103 
 
 Foreclosure of tax liens ( See Col- 
 lection, general property tax) 
 Foreign insurance company (See 
 also Insurance companies, 
 taxation ) 
 
 defined 381 
 
 Forest taxation 349-352 
 
 criticism 351 
 
 exemptions 349-350 
 
 history 349-351 
 
 summary 375-376 
 
 Funds, municipal (See Custody 
 of funds, municipal) 
 
 G 
 
 Gas companies (See Public 
 
 utilities, local) 
 Gasoline tax (See Motor vehicle 
 
 taxes ) 
 General property tax 233-341 
 
 assessment (See also Assess- 
 ment) 251-312 
 
 burden, effect of program 618 
 
 collection (See also Collec- 
 tion) 313-341 
 
 exemptions (See also Exemp- 
 tions) 233-250 
 
 relationship to the tax system 233-234 
 
 revenues 73-76, 247 
 
 General sales tax (See Sales tax, 
 
 general ) 
 Governmental budget balances 
 
 (See Budget balances) 
 Governmental-cost payments (See 
 
 Expenditures ) 
 
630 
 
 Index 
 
 Government-owned property, ex- 
 emption 
 
 classification 236 
 
 ownership and use 236-237 
 
 problem 240-241 
 
 summary . 248 
 
 Grand lists ( See also Assessment, 
 
 general property tax ) 260-263 
 
 Gross earnings tax (See Public 
 utilities, local, Transportation 
 and communication companies 
 and Unincorporated business 
 tax) 
 
 Groton etc. Tr. Co. v. Stonington 140-141 
 
 H 
 
 motor bus tax : 498-499 
 
 motor vehicle registration tax 490-491 
 personal income tax, general 570 
 
 personal tax 343-344 
 
 public utility taxes 363-364,466-467 
 sales tax 
 
 general 581 
 
 selective 586-587 
 
 savings deposits tax 428-429 
 
 shellfish grounds tax 352-353 
 
 special property taxes 348-349 
 
 transportation companies taxes 363-364 
 unincorporated business tax .... 462 
 
 "Home rule" , 91-98 
 
 Household furnishings ( See 
 Assessment, general property 
 tax) 
 
 Health 
 
 mandatory duties 132 
 
 state grants (See State assist- 
 ance in local financing) 
 Highway fund 
 
 expenditures, 1927 to 1934 .... 476 
 fiscal effects of recommenda- 
 tions 601, 611 
 
 revenue receipts, 1929 to 1934 477 
 
 state police expenditures 476, 506 
 
 Highways (See also Motor vehi- 
 cle taxes and Expenditures) 
 
 city streets 554-555 
 
 construction of by-passes 554-555 
 
 costs, apportionment 478-485 
 
 dirt road appropriation 554 
 
 mandatory duties 131 
 
 state aid highways 475, 542, 554 
 
 state grants 
 
 city streets 554-555 
 
 dirt road appropriation 
 
 46, 475, 543, 554 
 
 effects 554 
 
 purpose and principles 553 
 
 state administrative ' control 553 
 
 ' summary 563 
 
 trunk line 474 
 
 History 
 
 amusement taxes 525-528 
 
 bank stock tax 411-412 
 
 boards of finance, local 135-136 
 
 business taxes 444-447 
 
 choses-in-action tax 354 
 
 communication companies tax 363-364 
 
 death taxes 510-512 
 
 debt limitation 205-207 
 
 estate penalty tax 361 
 
 forest taxation 349-351 
 
 gasoline tax 487 
 
 insurance companies taxes 384-387 
 
 Incomes, personal, estimated 572-573 
 
 Income, state (See State finance) 
 Income tax, corporations (See 
 
 Miscellaneous corporations) 
 Income tax, personal 
 
 classified 575-577, 590-591 
 
 criticism 577 
 
 conclusions 577 
 
 description — 575 
 
 Massachusetts law 575-577 
 
 Vermont law 575 
 
 summary 590-591 
 
 variability of revenues 576-577 
 
 general 569-575, 590 
 
 conclusions 575 
 
 criticism 570-575 
 
 history 570 
 
 incomes, estimated 572-573 
 
 summary 590 
 
 types and description 569 
 
 variability of revenues 573-574 
 
 interest and dividends (See 
 Interest and dividends tax) 
 restricted classified (See Inter- 
 est and dividends tax) 
 Indebtedness 
 
 county, 1922 and 1933 16 
 
 municipal, 1920 to 1932 22 
 
 state, 1923 to 1934 10-12 
 
 Indebtedness, municipal 196-232 
 
 authorization 196-199 
 
 existing law 197-199 
 
 criticism 212-213 
 
 recommendations 229-231 
 
 summary 226-228 
 
 bonds, issue and sale 
 
 recommendations 232 
 
Index 
 
 631 
 
 E Indebtedness, municipal (Cont'd) 
 
 data, 1920 to 1932 22-23 
 
 debt code proposed 
 
 authorization of debt 216-217 
 
 budgetary borrowing 217-218 
 
 debt limit 220-223 
 
 effects, data 223-225 
 
 maturities and interest rates 220 
 miscellaneous provisions .... 226 
 non-budgetary borrowing 
 additional appropriations 
 
 and failure of revenues 218-219 
 
 tax anticipation 219-220 
 
 receivership 225-226 
 
 recommendations 229-232 
 
 summary 226-229 
 
 debt limit 
 
 borrowings, budgetary 229-230 
 
 borrowings, non-budgetary 230 
 
 criticism of existing law .... 214-216 
 
 excess borrowings 231-232 
 
 history 205-207 
 
 indebtedness excluded 206, 231 
 
 ratios of proposed to exist- 
 ing 223-225 
 
 recommendations 229-232 
 
 summary 226-229 
 
 disbursing agents, banks 232 
 
 Emergency Relief Commission 199,232 
 
 existing laws, criticism 212-216 
 
 growth 208-211 
 
 summary _ 227 
 
 major municipalities ' 21 
 
 problem 196 
 
 purposes 199-202,213 
 
 receivership 207-208 
 
 existing law, criticism 225-226 
 
 recommendations 232 
 
 recommendations 229-232 
 
 terms of issue 
 existing law 
 
 criticism 213-214 
 
 general provisions 204 
 
 maturities 201-204 
 
 rates of interest 204 
 
 recommendations 229-231 
 
 Industrial banks (See Banks and 
 
 trust companies) 
 Inheritance tax (See Death 
 
 taxes ) 
 Insurance companies, taxation .. 381-409 
 
 assets 395-396 
 
 business tax, proposed 394-395 
 
 net premiums 394 
 
 recommendation 408 
 
 summary 407 
 
 yield, 1927-1934 395 
 
 definitions and terminology .. 381 
 
 dividends of resident stock- 
 holders . 
 
 proposed tax 405-406 
 
 recommendation 409 
 
 existing law 
 
 criticism 392-393 
 
 distribution of stock tax „ 394 
 inequalities among com- 
 panies 393 
 
 instability of revenues .... 393-394 
 
 tax burden 404 
 
 local taxes 382-383 
 
 state taxes 
 
 alien companies 382 
 
 domestic mutual companies 383 
 domestic stock companies 383-384 
 
 franchise tax 384 
 
 stock tax 383-384 
 
 foreign companies 383 
 
 recommendations 408,615 
 
 summary 406 
 
 history 
 
 alien companies 387 
 
 domestic stock companies .— 384-386 
 
 foreign companies 387 
 
 mutual companies 386 
 
 intangible property 396-397 
 
 recommendation 408 
 
 investment income tax 
 
 advantages 398 
 
 differential rates 400-401 
 
 recommendations 408 
 
 problem of shift of burden .. 398-400 
 
 rates 401-404 
 
 recommendations 408 
 
 principles 391-392 
 
 summary 407 
 
 real estate offset 405 
 
 revenues, existing taxes 388-389 
 
 summary 406-407 
 
 revenues, proposed taxes 405 
 
 summary ' 407-408 
 
 stock tax 
 distribution .. 384, 388, 391, 538-539 
 ratios to local revenues .... 390 
 
 recommendation 408 
 
 tangible personal property ....405, 408 
 tax burdens in other states .... 402-404 
 Intangible personal property 
 ( See Choses-in-action tax, 
 Estate penalty tax, Interest 
 and dividends tax, and Per- 
 sonal property, intangible) 
 
 Interest and dividends tax 577-581 
 
 deposits, savings 431 
 
 recommendations 435, 615 
 
 revenue, estimated .... 432, 434, 442 
 summary 433, 442 
 
 i 
 
632 
 
 Index 
 
 Interest and dividends tax 
 (Cont'd) 
 
 effectiveness 579, 591-592 
 
 Massachusetts tax 578-579 
 
 New Hampshire tax 577-578 
 
 proposed tax 
 
 description 579 
 
 exemption 579-580 
 
 rate 580 
 
 recommendations 592, 615 
 
 revenues, estimated 580-581 
 
 stockholders, banks 
 
 recommendation 435, 615 
 
 revenue, estimated 426 
 
 stockholders, insurance com- 
 panies 405-406 
 
 recommendation 409 
 
 summary : 591 
 
 Inventories ( See Assessment, 
 
 general property tax) 
 Invested capital tax, corpora- 
 tions 457-458, 471-472 
 
 Investment companies 
 
 present law, description 437 
 
 recommendations 438 
 
 summary 442-443 
 
 Investment income tax, insurance 
 companies (See Insurance com- 
 panies, taxation) 
 
 Jails 
 
 administration and financing 556 
 
 recommendation 556, 567 
 
 summary 565 
 
 Legal status of municipalities 91 
 
 Liabilities, defined 4 
 
 Liens (See Collection, general 
 
 property tax) 
 Liquor business 
 
 business taxes proposed „. 521-523 
 
 recommendation 464,523, 616 
 
 summary 533-534 
 
 relationship to business taxes 518 
 Liquor taxes 
 
 excise tax proposed 521-523 
 
 distributors, application to 523 
 
 rate 523 
 
 recommendations 523 
 
 summary 534 
 
 existing law 
 
 classification of sales 517 
 
 collections 517 
 
 i 
 
 criticism 519-521 
 
 exemptions 517 
 
 gross receipts 
 
 deductions 517 
 
 defined 517 
 
 returns 517 
 
 summary 533-534 
 
 revenues 518-519 
 
 summary 533 
 
 theory and principles 516 
 
 summary 533 
 
 Local financing, state assistance 
 (See State assistance in local 
 financing ) 
 Local property taxation (See 
 Assessment, Collection, and Ex- 
 emptions, general property 
 tax) 
 Local public utilities (See Pub- 
 lic utilities, local) 
 Local taxation, program con- 
 cerning 614-615 
 
 Local tax burden, effect of pro- 
 gram 617-618 
 
 M 
 
 Machinery (See Assessment, gen- 
 eral property tax) 
 Major municipalities (See Munic- 
 ipalities and Municipal finance) 
 Manufacturers (See also Miscel- 
 laneous corporations and Un- 
 incorporated business tax) 
 
 assessment ratios 266 
 
 assessment, tangible personal 
 property 
 business inventories 
 
 criticism 287-289 
 
 rules of valuation 288 
 
 recommendations 309-310 
 
 criticism 
 
 present procedure 286 
 
 various commissions 285-286 
 
 machinery and equipment 
 
 criticism 289-290 
 
 rules of valuation 290 
 
 recommendations 309-310 
 
 rules of situs 282-283 
 
 recommendation 309 
 
 state assessment 289 
 
 administrative procedure 291-293 
 
 recommendations 310 
 
 Massachusetts 
 
 income tax, description 575-577 
 
 interest and dividends tax 578-579 
 
Index 
 
 633 
 
 Merchants (See also Miscel- 
 laneous corporations and Un- 
 incorporated business tax) 
 assessment, tangible personal 
 property 
 business inventories 
 
 criticism 287-289 
 
 rules of valuation 288 
 
 recommendations 309-310 
 
 criticism 
 
 present procedure 286 
 
 various commissions 285-286 
 
 machinery and equipment 
 
 criticism 289-290 
 
 rules of valuation 290 
 
 recommendations 309-310 
 
 rules of situs ,....282-283 
 
 recommendation 309 
 
 state assessment 289 
 
 administrative procedure 291-293 
 
 recommendations 310 
 
 Military tax 
 
 criticism 562 
 
 repeal recommended 566,617 
 
 revenues 538 
 
 summary 566 
 
 Minor municipalities (See Mu- 
 nicipalities and Municipal 
 finance ) 
 
 Miscellaneous corporations 447-460 
 
 existing law 
 
 administration 450 
 
 criticism 
 
 allocation, net income 454 
 
 concentration, tax burdeii 453-454 
 
 instability of revenues 453 
 
 description 447 
 
 exemptions 447 
 
 history 450-451 
 
 revenues 451-452, 470 
 
 statistics of corporations .... 447 
 
 summary 470-471 
 
 tax base 448-449 
 
 tax rate 449-450 
 
 theory , 452-453 
 
 proposed changes 
 
 allocation of tax bases 458-459 
 
 invested capital tax 457-459 
 
 summary 471-472 
 
 minimum tax 457-458, 615 
 
 net income, definition .... 455-457,615 
 recommendations .... 459-460, 615-616 
 
 effects 457 
 
 summary 471 
 
 Miscellaneous financial corpora- 
 tions (See Financial institu- 
 tions, miscellaneous ) 
 Morris-plan banks (See Banks 
 and trust companies) 
 
 Mortgage loan companies (See 
 Financial institutions, miscel- 
 laneous ) 
 
 Motor boats, registration 254 
 
 Motor bus taxes 
 
 distribution 498-499, 539 
 
 existing law 
 
 criticism 499-500 
 
 description 497-499 
 
 local property taxes 365 
 
 history 498-499 
 
 proposed changes 504-505 
 
 real estate taxation 371,504 
 
 recommendations 
 gross earnings tax 
 
 real estate tax offset 505 
 
 revenue, disposition of 505,549 
 
 real estate taxed locally 505 
 
 revenue * 504 
 
 special commission proposed.— 485,506 
 
 summary , 504 
 
 Motor transportation business 
 (See Motor vehicle taxes 
 and Motor bus taxes) 
 unincorporated business tax ....464, 483 
 
 recommendations 473, 506 
 
 Motor vehicle taxes (See also 
 Assessment, general property 
 tax and Personal property, 
 
 tangible) _ 474-506 
 
 bus companies (See Motor bus 
 
 taxes ) 
 commercial motor vehicles 
 commission proposed 
 
 485,500-502,506,616 
 
 conclusions 484-485 
 
 problem 482-484 
 
 recommendations 506 
 
 tax on unincorporated car- 
 riers 483 
 
 expenditures of 474-478 
 
 highways 476 
 
 motor vehicle department .. 476 
 
 police department 476 
 
 gasoline tax 485-489,502-503.505 
 
 conclusions 488-489 
 
 existing law 
 
 description 485-487 
 
 exemptions 485 
 
 licensing, distributors 486 
 
 refunds, procedure 486 
 
 revenues, use of 487 
 
 tax rate 485-486 
 
 history .'. 487 
 
 recommendations 
 
 exemptions 488,505 
 
 tax rate 488-489 
 
 relation to highway costs .... 478-485 
 
634 
 
 Index 
 
 Motor vehicle taxes (Cont'd) 
 gasoline tax (Cont'd) 
 
 revenues, 1922 to 1928 487-488 
 
 proposed tax, estimated 497 
 
 summary 502-503 
 
 highway system, financing of .. 474-478 
 
 apportionment of costs 479-482 
 
 expenditures, 1929 to 1934 476 
 
 problems 474 
 
 1 registrations, reports to asses- 
 sors 254 
 
 registration tax 489-497, 503-505 
 
 bases 
 
 conclusions 496-497 
 
 criticism 492,494 
 
 proposed changes 492,494,496 
 
 recommendations 505, 616 
 
 summary 503-504 
 
 existing law 
 
 description 489-490 
 
 fees 489-490 
 
 overloading, penalty 490 
 
 fees, other states 495-497 
 
 history 490-491 
 
 proposed tax, recommenda- 
 tions 505, 616 
 
 proration 
 
 criticism 496 
 
 proposed changes 496 
 
 recommendation 496,505 
 
 rate 
 
 conclusions 496-497 
 
 criticism 494-496 
 
 proposed changes 496-497 
 
 recdmmendations 505, 616 
 
 summary 504 
 
 recommendations 
 
 base 492,494,505 
 
 proration 496,505 
 
 rate 496,505 
 
 relation to highway costs .._ 478-485 
 
 revenues, 1928 to 1934 491-493 
 
 estimated, proposed tax 497 
 
 special property tax 
 
 basis 279 
 
 collection 279-280 
 
 exemptions 280 
 
 recommendations 308 
 
 revenue, distribution 280 
 
 effects 281-282 
 
 state police expenditures 476 
 
 recommendation 506 
 
 summary 500-502 
 
 theory 474 
 
 yield, 1929 to 1934' 477 
 
 Municipal accounting (See Ac- 
 counting, municipal) 
 Municipal auditing (See Audit- 
 ing, municipal) 
 
 Municipal budgeting (See Bud- 
 geting, municipal) 
 Municipal custody of funds 
 (See Custody of funds, munic- 
 ipal) 
 Municipal depositories (See Cus- 
 tody of funds, municipal) 
 
 Municipal finance 99-232 
 
 aims of Commission's proposals 97 
 
 budget balances, 1920 to 1932 18-22 
 
 major municipalities 21 
 
 problem 23-24 
 
 summary 26-28 
 
 budgeting ( See Budgeting, 
 municipal ) 
 
 Commission's program 614-615 
 
 expenditures 
 
 causes of increase 40 
 
 data, all reporting munici- 
 palities 38-42 
 
 data, cities and boroughs .... 42-44 
 data, unconsolidated towns 44-46 
 
 purposes and trends 48-50 
 
 reduction after 1932 46-47 
 
 reduction and control 54-56 
 
 summary 58-60 
 
 fiscal effects of recommenda- 
 tions 
 benefits to local taxpayers .... 608-609 
 
 data, 1932 607 
 
 discussion 607-608 
 
 summary 611-612 
 
 fiscal years (See Fiscal years, 
 municipal and Relationship 
 of tax due dates and fiscal 
 years ) 
 indebtedness ( See Indebted- 
 ness, municipal) 
 
 mandatory duties 131-132 
 
 problem 23-24 
 
 relation of state to (See Rela- 
 tionship of municipalities 
 to state) 
 revenues 
 
 consolidated with other gov- 
 ernments 75-77 
 
 sources, 1920 to 1932 70-74 
 
 summary 86-87 
 
 state assistance (See State 
 assistance in local financing) 
 state supervision 
 
 character 189-192 
 
 recommendations 192 
 
 summary 194-195 
 
 Municipal fiscal years (See Fis- 
 cal years, municipal) 
 Municipal indebtedness (See In- 
 debtedness, municipal) 
 
Index 
 
 635 
 
 Municipalities 
 
 accounting (See Accounting, 
 
 municipal) 
 auditing ( See Auditing, munic- 
 ipal) 
 bonds of officers (See Bonding 
 
 of officials, municipal) 
 budget balances (See Budget 
 
 balances ) 
 budgeting ( See Budgeting, 
 municipal) 
 
 classification 6 
 
 funds (See Custody of funds, 
 
 municipal) 
 indebtedness ( See Indebted- 
 ness, municipal) 
 local autonomy 
 
 policy 92-93 
 
 problems 93-96 
 
 shortcomings of legislation ._ 96-98 
 
 mandatory duties ....< 131-132 
 
 major, defined 6 
 
 minor, defined 6 
 
 relationship of finances to 
 
 state 91-98 
 
 reporting (See Reporting, 
 
 municipal ) 
 revenues (See Revenues, mu- 
 nicipal and State assistance 
 in local financing) 
 state I supervision of finances 
 
 (See Municipal finance) 
 tax due dates (See Tax due 
 dates, municipal and Rela- 
 tionship of tax due dates 
 and fiscal years) 
 
 towns, defined 6 
 
 Municipal reporting (See Report- 
 ing, municipal) 
 Municipal revenues (See Rev- 
 enues, municipal) 
 Municipal . tax due dates ( See 
 Tax due dates, municipal, and 
 Relationship of tax due dates 
 and fiscal years) 
 
 N 
 
 National banks (See Banks and 
 trust companies) 
 
 Net debt, defined 4 
 
 Net expenditures, state, defined 7 
 
 Net income tax (See Income tax, 
 personal ) 
 banks and trust companies 
 (See Banks and trust com- 
 panies) 
 
 miscellaneous corporations ( See 
 Miscellaneous corporations) 
 New Hampshire 
 
 interest and dividends tax .... 577-578 
 New sources of revenue 
 
 additional revenues required .. 568-569 
 
 summary 589 
 
 interest and dividends tax .... 577-581 
 
 recommendations 592 
 
 revenues estimated, 1932-1933 568 
 
 sales tax, general retail 581-586 
 
 recommendations 592 
 
 sales tax, selective 586-589 
 
 recommendation 592 
 
 New York Commission's report 
 
 property tax burden 78-79 
 
 Non-budgeting municipalities, de- 
 fined 162 
 
 Non-expenditures, state, defined 7 
 
 Nongovernmental-cost payments, 
 
 defined 4 
 
 Nonresident transfer tax (See 
 
 Death taxes) 
 Nonrevenue receipts, defined 4, 8 
 
 
 
 Officials, municipal (See Bond- 
 ing of officials, municipal) 
 
 Operating expenses, state 34 
 
 Organization, municipal 
 
 administrative 94-95 
 
 Oyster grounds (See Shellfish 
 grounds, taxation) 
 
 Payments, defined 4 
 
 Penalty tax on estates (See 
 
 Estate penalty tax) 
 Personal property (See also 
 Assessment, general prop- 
 erty tax, Exemptions, gen- 
 eral property tax, Motor ve- 
 hicle taxes) 
 
 Commission's program -614-615 
 
 definition 251 
 
 situs for tax purposes 251 
 
 exceptions 252 
 
 Personal property, intangible 
 (See also Choses-in-action 
 tax, Estate penalty tax, and 
 Interest and dividends tax) 
 
 assessment data 267, 270 
 
 present exemptions 235-236, 355 
 
 proposed exemption 270-271, 284 
 
 effects 281 
 
636 
 
 Index 
 
 Personal property, tangible 
 
 administrative procedure 291-293 
 
 recommendations 310 
 
 aircraft, special property tax 308 
 
 assessment procedure 310-311 
 
 banks and trust companies ....410, 436 
 
 business inventories 287-289 
 
 calendar 310 
 
 data and comparisons 267-269 
 
 discussion 285-286 
 
 distribution systems, utilities 290-291 
 
 existing law, criticism 269-270 
 
 farm property 
 
 data and comparisons 267 
 
 proposed exemption 272-274 
 
 effects 281 
 
 recommendation 307 
 
 household furnishings 
 
 data and comparisons 275-276 
 
 proposed exemption 276 
 
 effects 281 
 
 recommendation 307 
 
 insurance companies 408-409 
 
 jewelry 274 
 
 machinery and equipment 289-290 
 
 motor vehicles 
 
 criticism 277-279 
 
 exemption, local 308 
 
 special property tax 
 
 base 279 
 
 collection 279-280 
 
 exemptions 280 
 
 recommendations 308 
 
 revenes, distribution 280 
 
 effects 281-282 
 
 procedure, assessment 310-311 
 
 public utilities, distribution 
 
 systems 290-291 
 
 situs 251-252 
 
 proposed change 282-283 
 
 recommendations 308-309 
 
 state assessment 289 
 
 administrative procedure .. 291-293 
 
 recommendations 310,615 
 
 transportation and communica- 
 tion companies 365, 371, 375 
 
 unimportant classes, data 271-274 
 
 proposed exemption 274 
 
 effects 281-282 
 
 recommendations 307 
 
 valuation, rules of 309-310 
 
 definition of value 283-284 
 
 vessels, sailing 252,273 
 
 Personal tax 
 
 abatements, 1925 to 1933 344 
 
 collection 346-347 
 
 criticisms and conclusions .... 347-348 
 
 description 342-343 
 
 enrollment 
 
 criticisms 345 
 
 ratios to census enumeration 346 
 
 exemptions 342 
 
 history 343-344 
 
 recommendations 348 
 
 revenues, 1925 to 1933 344 
 
 summary 375 
 
 Poll tax (See Personal tax) 
 Premiums, insurance companies 
 (See also Insurance com- 
 panies, taxation) 
 
 measure for property tax 397 
 
 net, measure for business tax 
 
 rate and base 394-395 
 
 recommendation 408 
 
 summary 407 
 
 yield, estimated 395 
 
 Preparation of municipal budgets 
 
 (See Budgeting, municipal) 
 Private banks (See Banks and 
 trust companies and Miscel- 
 laneous financial institutions) 
 Private car companies (See 
 Transportation and communi- 
 cation companies) 
 Privately owned property, exemp- 
 tion 
 
 classes 236 
 
 principles 237-238 
 
 discussion 246-247 
 
 recommendations 249 
 
 summary 248-249 
 
 Procedure, budgeting, defined .... 143-144 
 Program of Commission, sum- 
 mary 613-618 
 
 Proration, motor vehicle taxes 
 
 (See Motor vehicle taxes) 
 Public utilities (See Public utili- 
 ties, local, Transportation and 
 communication companies, and 
 Motor bus taxes) 
 Public utilities, local 
 
 assessment, tangible personal 
 property 
 business inventories 
 
 criticism 287-289 
 
 proposed rules of valua- 
 tion 288 
 
 recommendations 309-310 
 
 criticism 
 
 present procedure 286 
 
 various commissions 285-286 
 
 distribution systems 
 
 criticism 290-291 
 
 rules of valuation 291 
 
 recommendations 309-310 
 
 machinery and equipment 
 
 criticism 289-290 
 
 rules of valuation 290 
 
 recommendations 309-310 
 
Index 
 
 637 
 
 Public utilities, local (Cont'd) 
 assessment, tangible personal 
 property (Cont'd) 
 
 rules of situs 282-283 
 
 recommendation 309 
 
 state assessment 289,291 
 
 administrative procedure 291-293 
 
 recommendation 310 
 
 state tax on gross earnings 
 
 existing law 466 
 
 administration 466 
 
 criticism 467-469 
 
 exemptions 466 
 
 history 466-467 
 
 summary 473 
 
 tax base 466 
 
 yield 467-468 
 
 sales to other utilities 469,616 
 
 Pullman Company 
 
 recommendation 375 
 
 relation to railroads 374 
 
 R 
 
 Railroads, steam and electric 
 (See Transportation and com- 
 munication companies ) 
 
 Railways, street (See Trans- 
 portation and communication 
 companies ) 
 
 Rate bill (See also Collection, 
 general property tax) 
 existing law, requirements .... 316 
 proposed preparation 328 
 
 Real estate 
 
 definition for tax purposes .... 251 
 situs for tax purposes 251 
 
 Real estate tax (See Assessment, 
 general property tax, Collec- 
 tion, general property tax, and 
 Exemption, general property 
 tax) 
 
 Real estate tax burden 
 
 conclusions 83-84 
 
 New York Commission, findings 78-79 
 
 reduction and limitation 77 
 
 statistics 79-83 
 
 summary 87 
 
 Real estate tax offset 
 
 banks and trust companies ....417,433 
 
 recommendation 436 
 
 insurance companies 405 
 
 savings deposit tax 430-431,433 
 
 recommendation 435 
 
 transportation and communica- 
 tion companies 
 
 criticism 371-372 
 
 recommendation 375 
 
 statutory provisions 365 
 
 Receipts, revenue, defined 4, 8 
 
 Receipts, state (See State 
 
 finance) 
 Receivership, municipal (See In- 
 debtedness, municipal) 
 Recommendations 
 
 accounting, municipal 175-177 
 
 amusement taxes 531-532 
 
 auditing, municipal 180 
 
 banks and trust companies .... 435-436 
 bonding of municipal officers 182 
 
 budgeting, municipal 162-167 
 
 building and loa,n associations 438 
 
 choses-in-action tax 360 
 
 commission, motor vehicles .... 506,616 
 commission, property exemp- 
 tions 246 
 
 custody of municipal funds .... 186-187 
 
 death taxes 516,616 
 
 deposits, savings and commer- 
 cial 435 
 
 Emergency Relief Commission 566 
 
 estate penalty tax 363 
 
 finance, municipal, supervision 192 
 
 fiscal effects 589, 594-612 
 
 fiscal years, municipal 103 
 
 gasoline tax 505 
 
 general property tax, assess- 
 ment 307-312 
 
 general property tax, collec- 
 tion 339-341 
 
 general property tax, exemp- 
 tions 249-250 
 
 indebtedness, municipal 22*9-232 
 
 insurance companies 408-409 
 
 interest and dividends tax .... 592 
 
 investment companies 438 
 
 liquor taxes 523 
 
 miscellaneous corporations .... 459-460 
 miscellaneous financial institu- 
 tions 438 
 
 motor bus tax 505-506 
 
 motor vehicles, registration.... 505 
 motor vehicles, special prop- 
 erty tax 308 
 
 personal tax 348 
 
 public utilities, local 469 
 
 reporting, municipal 188-189 
 
 sales taxes 
 
 cigarette , 593 
 
 general 592 
 
 state assistance in local finance 
 
 charitable relief 566-567,593 
 
 county homes 566 
 
 military tax, repeal , 566 
 
 state tax, repeal 566 
 
 synchronization of dates .... 592-593 
 
 unemployment relief 567, 593 
 
 state police expenditures 506 
 
 tax due dates and fiscal years 124-125 
 
638 
 
 Index 
 
 Recommendations ( Cont'd ) 
 transportation and communi- 
 cation companies 375 
 
 unincorporated business tax ..465, 566 
 
 Reconstruction Finance Corp 418 
 
 Reduction of expenditures 54-56 
 
 summary 59-60 
 
 Registration fees, motor vehicles 
 
 (See Motor vehicle taxes) 
 Relation of municipalities to 
 
 state 91-98 
 
 general principles 97 
 
 local autonomy 
 
 policy 92-93 
 
 problems 93-96 
 
 state legislation 96 
 
 summary 97-98 
 
 municipalities, legal status .... > 91 
 Relationship of tax due dates and 
 
 fiscal years 103-125 
 
 debt, effect upon 111-113 
 
 elapsed periods, effects 108-111 
 
 existing situation 104-108 
 
 installment tax payments 104-108 
 
 summary 126-127 
 
 synchronization of dates 
 
 counties excepted 120 
 
 effect on financing schedule 123-124 
 Metropolitan District ex- 
 cepted 120 
 
 proposed financing 114-123 
 
 cost to state government 120-123 
 
 discussion of 569, 592-593 
 
 recommendations 124-125 
 
 responsibility of state and 
 
 municipalities 116-117 
 
 state grants 118 
 
 proposed procedure 118-119 
 
 recommendation 124-125 
 
 tax-anticipation borrowing.... 113 
 
 transition period 121-123 
 
 recommendation 124-125 
 
 Relief, charitable (See also State 
 assistance in local financ- 
 ing) 
 
 mandatory duties 131-132 
 
 unemployment 
 
 Commission's proposals 567,617 
 
 financing, discussion of 569, 592-593 
 
 Reporting, municipal 187-188, 194 
 
 budget-making authority 188-189 
 
 importance 187 
 
 recommendations 188 
 
 state supervision 189 
 
 statutory provisions 187 
 
 criticism 187-188 
 
 summary 194 
 
 Results of Commission's recom- 
 mendations (See Fiscal effects 
 of recommendations) 
 
 Retail sales tax (See Sales tax, 
 general ) 
 
 Revenue receipts, defined 4, 8 
 
 Revenues (See also New sources 
 of revenue) 
 consolidated state and local .... 75-77 
 
 summary 87 
 
 counties 68-70 
 
 fiscal effects, recommenda- 
 tions 605-606, 611 
 
 summary .'. 85-86 
 
 municipal 
 
 consolidated with other gov- 
 ernments 75-77 
 
 summary 87 
 
 fiscal effects, recommenda- 
 tions 606-609, 611-612 
 
 personal tax, data 344 
 
 real property tax burden .... 77-84 
 
 summary 87-88 
 
 received from state 544-545 
 
 sources 70-74 
 
 summary 86 
 
 state 61-68, 84-85 
 
 additional, required 568-569 
 
 summary 589 
 
 amusement taxes 528-530 
 
 bank taxes 412, 426, 429, 434 
 
 choses-in-aetion tax 355-357 
 
 cigarette tax, estimated 588, 592 
 
 Commission's program, ef- 
 fects 617 
 
 consolidated with other gov- 
 ernments 75-77 
 
 summary 87 
 
 corporation net income tax 451-452 
 
 death taxes 513, 532 
 
 distribution to municipali- 
 ties (See State assistance 
 in local financing) 
 dividends tax, estimated 426, 580-581 
 
 estate penalty tax 362 
 
 fiscal effects of recommenda- 
 tions :.... 568, 595-601 , 609-61 1 
 
 gasoline tax 477,487-488 
 
 insurance company taxes 389, 405-408 
 interest and dividends tax, 
 
 estimated 580-581 
 
 liquor taxes 518-519, 533 
 
 motor bus tax 477, 499 
 
 motor vehicle taxes 477 
 
 public utilities tax, local .... 467-468 
 registration tax ....477,491-493,497 
 sales tax, general, estimated 586, 592 
 
 savings deposits tax 429, 434 
 
 transportation and com- 
 munication company taxes 367-369 
 unincorporated business tax 462-464 
 
Index 
 
 639 
 
 S 
 
 Safe deposit boxes, control of 515 
 
 recommendation 516 
 
 summary 533 
 
 Sales tax, general 581-586, 591-592 
 
 conclusion 584-585 
 
 criticism 582-583 
 
 effectiveness 584 
 
 exemptions 586 
 
 recommendation 592 
 
 experience of other states 585-586 
 
 history 581 
 
 proposed temporary tax 
 
 .purpose 586 
 
 recommendation 592, 617 
 
 revenues, estimated 586, 592 
 
 summary .. 591-592 
 
 Sales tax, liquor (See Liquor 
 taxes ) 
 
 Sales taxes, selective (See also 
 Cigarette tax, Liquor tax, 
 Amusement tax) .... 586-589, 592-593 
 development in Connecticut .... 588 
 
 essential features 587 
 
 experience, South Carolina .... 587 
 
 history 586-587 
 
 summary 592 
 
 Savings banks (See Banks and 
 trust companies) 
 
 Savings departments, banks and 
 trust companies (See Banks 
 and trust companies) 
 
 Savings deposits (See Banks and 
 trust companies) 
 
 School districts (See also Mu- 
 nicipalities) 134-135 
 
 Seating capacity tax, amuse- 
 ments (See Amusement taxes) 
 
 Selectmen (See also Budgeting, 
 , municipal ) 
 
 compensation 133 
 
 duties, towns without boards 
 of finance 
 
 fiscal 133-135 
 
 legislation of budget 149-151 
 
 preparation of budget 144-145 
 
 election 133 
 
 qualifications 133 
 
 terms of office 133 
 
 Shareholders' tax ( See Banks and 
 trust companies and Insur- 
 ance companies) 
 
 Shellfish commission 352 
 
 Shellfish grounds, taxation 352-353 
 
 criticisms and conclusions .... 353 
 data, assessment and revenue .. 353 
 
 description 352 
 
 history 352-353 
 
 summary 376 
 
 Situs 
 
 real estate 1 251 
 
 tangible personal property .... 251-252 
 
 proposed change 282-283 
 
 recommendations 308-309 
 
 Small loan companies (See Mis- 
 cellaneous financial institu- 
 tions) 
 Soldiers' and sailors' exemptions 
 
 classes 236 
 
 existing law 238 
 
 recommendation 250 
 
 special property tax, motor 
 
 vehicles 308 
 
 South Carolina, selective sales 
 
 taxes 587 
 
 Special acts, boards of finance .. 142-143 
 Special commission, motor vehi- 
 cles 506,616 
 
 Special commissions, tax exemp- 
 tions 245-246,249,616 
 
 Special districts ( See Municipali- 
 ties) 
 fiscal years ( See Fiscal years, . 
 municipal ) 
 
 Special property taxes 348-380 
 
 (See Banks and trust com- 
 panies, Car companies, Choses- 
 in-action tax, Estate penalty 
 tax, Forest taxation, Insur- 
 ance companies, Motor bus 
 taxes, Motor vehicles, Shell- 
 fish grounds, and Transporta- 
 tion and communication com- 
 panies) 
 State-administered and locally 
 shared taxes (See State assist- 
 ance in local financing) 
 State agencies, municipal finance 132 
 State aid (See State assistance 
 
 in local financing) 
 State assistance in local financ- 
 ing 537-567 
 
 Commission's program 617 
 
 effects 548 
 
 counties 
 
 publication of returns 557 
 
 recommendation 566 
 
 supervision of accounts 557 
 
 recommendation 566 
 
 county homes 
 
 expenditures for improve- 
 ments 557 
 
 recommendation 566 
 
 state administration 
 
 child welfare commission 556 
 
 recommendation 556,566 
 
 summary 565 
 
 state grant for children 556-557 
 
 recommendation 566 
 
640 
 
 Index 
 
 State assistance (Cont'd) 
 fiscal relationships 
 
 criticism 545-547, 564 
 
 general 537-538 
 
 summary 562-563 
 
 military tax, repeal (See Mili- 
 tary tax) 566,617 
 
 non-institutional charitable re- 
 lief 
 
 administration '. 557-558 
 
 costs, data, 1926-1933 561-562 
 
 state participation 559-563 
 
 summary ; 565-566 
 
 unemployment relief ( See 
 Unemployment relief) 
 state-administered and locally 
 shared taxes 
 
 admissions tax 547 
 
 effects 548 
 
 estate penalty tax 538.547 
 
 motor bus tax 539,547,549 
 
 motor vehicles, special prop- 
 erty tax 549 
 
 revenues 538-539,563 
 
 stock tax, banks and insur- 
 ance companies 538,547,548 
 
 unincorporated business tax 
 
 537,547-549 
 state-administered local activi- 
 ties 542-544 
 
 highways 542-543 
 
 summary 563 
 
 widows' aid 543-544 
 
 state grants 
 education 
 
 equalization plan 551-552 
 
 history 550 
 
 summary 564-565 
 
 highways 
 
 city streets 554-555 
 
 dirt road appropriation 554 
 
 effects 554 
 
 purpose and principles .... 553 
 
 state control 553 
 
 summary 563 
 
 institutional care 555-557 
 
 summary 565 
 
 miscellaneous 539-542 
 
 summary 563 
 
 non-institutional charitable 
 
 relief 557-562 
 
 state tax, repeal (See State 
 
 tax) 566,617 
 
 summary 562-566 
 
 total amount, direct assistance 544-545 
 
 State board of equalization 258,312 
 
 State board of finance and con- 
 trol 557, 566 
 
 State board of tax appeals 301-302 
 
 recommendations 311,615 
 
 State budget balances (See State 
 
 finance) 
 State expenditures (See State 
 
 finance) 
 State finance 
 budget balances 
 
 data, 1928 to 1933 9-10 
 
 data, 1928 to 1934 12 
 
 deficits and causes 9-10 
 
 indebtedness, 1923 to 1934 10-11 
 
 problem 12-14 
 
 summary 24-26 
 
 technical terms, definitions .. 6-8 
 expenditures ' 
 
 capital outlays 31-31,602-605 
 
 consolidated, all governments 47-54 
 accounting for duplications 47-48 
 
 purposes and trends 48-52 
 
 summary 59 
 
 trend, 1912 and 1932 .... 52-54 
 
 data, 1933 and 1934 35-36 
 
 functional analysis 29-31 
 
 highways 476-477, 501 
 
 operating expenses 34 
 
 police department 476,506 
 
 reduction of, urged 35-36, 54-56 
 
 summary 56-57 
 
 fiscal effects, recommendations 
 
 civil list funds 596-598 
 
 summary 609-610 
 
 classification of funds 595-596 
 
 expenditures for improve- 
 ments 602-605 
 
 summary 611 
 
 general fund 598-600 
 
 summary 610-611 
 
 highway fund 601 
 
 summary 610-611 
 
 misc. expendable funds 601-602 
 
 fiscal year 99 
 
 indebtedness 10-12 
 
 problem 12-14 
 
 revenues* 
 
 additional, required ....568-569,589 
 consolidated with other gov- 
 ernments 75-77 
 
 summary 87 
 
 highway fund 477 
 
 income 61-68 
 
 summary 84-85 
 
 technical terms, definitions .... 6-8 
 State grants (See State assist- 
 ance in local financing) 
 
 State income 61-68 
 
 State police, expenditures 476, 506 
 
 State property, exemption 
 
 classes 236 
 
 grants to towns 237, 259, 542 
 
 State revenues (See State fi- 
 nance ) 
 
Index 
 
 641 
 
 State supervision 
 
 assessments 258 
 
 county accounting 557, 566 
 
 municipal finance (See also 
 Finance, municipal) 
 
 189-192, 194-195 
 
 accounting 176 
 
 auditing 178-180 
 
 reporting 189 
 
 summary 192-195 
 
 tax commissioner, duties pro- 
 posed 192 
 
 State tax 
 
 discussion 562 
 
 repeal 566, 617 
 
 revenue 538 
 
 summary 566 
 
 Steam and electric railroads 
 (See Transportation and com- 
 munication companies) 
 Stockholders, insurance compa- 
 nies 405-406,' 409 
 
 Stock tax, banks and insurance 
 companies (See Banks and 
 trust companies and Insurance 
 companies ) 
 
 Storrs Agricultural Exp. Sta 265-266 
 
 Street railways (See Transporta- 
 tion and communication com- 
 panies ) 
 
 Subdivisions of state 6 
 
 Succession tax (See Death taxes) 
 Summary, Commission's pro- 
 gram . 613-618 
 
 Suspense book, municipal 315-316 
 
 Synchronization of tax due dates 
 and fiscal years (See Relation- 
 ship of tax due dates and fiscal 
 years ) 
 
 Tangible personal property (See 
 
 Personal property, tangible) 
 Tax-anticipation borrow- 
 ing 109-111, 219-220 
 
 recommendation ..: 230 
 
 Tax collection (See Collection, 
 general property tax and par- 
 ticular taxes) 
 Tax commissioner 
 board of equalization, member 258 
 
 transfer of duties 312 
 
 control of safe deposit boxes 515 / 
 
 recommendation 516 
 
 summary 533 
 
 grants in lieu of taxes on state 
 
 property, determination 259 
 
 inquiry into local affairs 259 
 
 investigation of assessment ra- 
 tios, 1922 265 
 
 listing, elimination 311 
 
 municipal fiscal years .— 118,123,125 
 municipal indebtedness, author- 
 ization for excess borrow- 
 ings 231-232 
 
 prescription of forms ....188-189,258 
 publication of county returns 557, 566 
 
 publication of reports 190 
 
 supervision, county accounts 557, 566 
 supervision, municipal ac- 
 counts 176 
 
 supervision, municipal audit- 
 ing 178-180 
 
 supervision, municipal finance 192 
 supervision, municipal receiv- 
 ers 232 
 
 tangible personal property 
 
 state assessment 289 
 
 procedure 291-293 
 
 recommendation 310 
 
 tax maps, supplied to towns 311 
 Tax due dates, municipal (See 
 also Relationship of tax 
 due dates and fiscal years 
 and Fiscal years, munici- 
 pal) 
 data, 1933-34 
 
 major municipalities 105 
 
 minor municipalities 106 
 
 proposed change 294 
 
 statutory provisions 104, 315 
 
 Tax liens (See Collection, gen- 
 eral property tax) 
 Tax lists 
 
 elimination proposed 294-295 
 
 recommendation 311 
 
 form 254 
 
 Tax maps 
 
 present use 296 
 
 proposed procedure to secure 297 
 
 recommendations 311 
 
 Taxpayers, local 
 
 benefits of proposed program 617-618 
 Telegraph and cable companies 
 (See Transportation and com- 
 munication companies) 
 Telephone companies (See Trans- 
 portation and communication 
 companies ) 
 Title guaranty companies (See 
 Miscellaneous financial institu- 
 tions) 
 Towns (See Municipalities and 
 Municipal finance) 
 fiscal years (See Fiscal years 
 and Relationship of tax due 
 dates and fiscal years) 
 
642 
 
 Index 
 
 Towns (Cont'd) 
 
 tax due dates ( See Tax • due 
 dates and Relationship of 
 tax due dates and fiscal 
 years ) 
 Transfer tax (See Death taxes) 
 Transportation and communica- 
 tion companies, taxation 
 (See also Motor bus taxes) 363-375 
 car companies 
 
 conclusions 373-374 
 
 criticism 372 
 
 data 373 
 
 Pullman Company 374 
 
 recommendations 375 
 
 conclusions 369-372 
 
 description 
 
 local property taxes 365 
 
 state gross earnings taxes .. 366-367 
 
 history 363-364 
 
 local property tax deduction 
 
 criticism 371-372 
 
 recommendation 374-375 
 
 recommendations 374-375, 615 
 
 revenues 367-369 
 
 tax base 370-371 
 
 tax rates 366-367, 369-370 
 
 theory 367 
 
 summary 378-380 
 
 Trust funds, state, definition .... 6 
 
 Unincorporated business tax 460-465 
 
 amusement concerns 532 
 
 appraisal 464-465 
 
 collection 465 
 
 distribution 538, 547 
 
 data L... 464, 539 
 
 repeal recommended 566, 616 
 
 existing law 
 
 administration 461-462 
 
 criticism 464-465 
 
 description 461 
 
 history 462 
 
 liquor concerns 464, 518, 523, 616 
 
 motor transportation con- 
 cerns 464, 473, 483, 506, 616 
 
 proposed changes 
 
 distribution of revenues 549 
 
 due date :. 465 
 
 extension of scope 464,473, 616 
 
 liability for tax 465 
 
 relation to county finance 547 
 
 revenue 463 
 
 scope 460 
 
 summary 472-473 . t 
 
 Unincorporated financial institu- 
 tions (See Financial institu- 
 tions, miscellaneous) 
 
 U 
 
 Unemployment relief 
 
 additional revenues required .... 569 
 
 recommended taxes 592-593 
 
 bonds to finance 199 
 
 effects upon local taxation 559 
 
 proposal for financing 567, 617 
 
 proposed administration 560 
 
 recommendations 
 
 Emergency Relief Commis- 
 sion, continuance 566 
 
 proposed method of financing 567 
 
 responsibility 558-559 
 
 summary 565-566 
 
 Uniform fiscal years (See Fiscal 
 years and Relationship of tax 
 due dates and fiscal years) 
 Unincorporated amusement con- 
 cerns 464, 473, 532, 616 
 
 Valuation rules (See also Manu- 
 facturers, Merchants, and 
 Public utilities, local) 
 
 definition proposed 283-284 
 
 recommendation 309 
 
 problem 284 
 
 proposed use of formulas 284, 615 
 
 recommendation 309 
 
 statutory provisions 252 
 
 exceptions 252-253 
 
 Vermont income tax 575 
 
 Vessels, sailing 252, 273 
 
 W 
 
 Water companies (See Public 
 
 utilities, local ) 
 Widows' aid ( See State assistance 
 
 in local financing) 
 
SUMMARY OF THE REPORT 
 
 Connecticut Temporary Conirnission 
 to Study the jTapc %aws of the 
 State and to Make Recommenda- 
 irons Concerning Their T&ei)isioh 
 
SUMMARY OF THE REPORT 
 
 of the 
 
 Connecticut Temporary Commis- 
 sion to Study the Tax Laws of the 
 State and to Make Recommenda- 
 tions Concerning Their Revision 
 
 Hartford, Connecticut : Published by the State : November, 1934 
 
Publication 
 
 Approved by 
 
 The Board of Finance 
 
 and Control 
 
 (Second printing) 
 
 Printed by 
 
 THE CASE, LOCKWOOD Sc DHA1NARD COMPANY 
 HARTFORD [ 1934] CONNECTICUT 
 
££ 
 
 CONNECTICUT TEMPOKAKY COMMISSION TO STUD^ 
 THE TAX LAWS OF THE STATE AND TO MAKE 
 EECOMMENDATIONS CONCERNING THEIR REVISION 
 
 Feed R. Faieci-iild, Chairman 
 New Haven 
 
 Rogee S. Baldwin Geoege B. Claeke 
 
 Greenwich Mansfield 
 
 Austin D. Baeney William F, Connelly 
 
 Farmington Bridgeport 
 
 William H. Blodgett Geoege T. Kimball 
 
 Winchester New Britain 
 
 RESEARCH STAFF 
 
 Benjamin P. Whitakee 
 
 Research Director 
 
 Ronald B. Welch Thomas J. Mills 
 
 Research Assistant Research Assistant 
 
AN ACT CHEATING A TEMPORARY COMMISSION TO 
 STUDY THE TAX LAWS OF THE STATE AND TO MAKE 
 RECOMMENDATIONS CONCERNING THEIR REVI- 
 SION. , 
 
 Be it enacted by the Senate and House of Representatives in General 
 Assembly convened: 
 
 Section 1. A temporary state commission is created for the purpose herein 
 specified, to consist of seven members to be appointed by the governor. The mem- 
 bers of the state tax department shall act in an advisory capacity to the commis- 
 sion. Said commission shall, at its first meeting, elect one of its members as the 
 chairman thereof. The members of the commission shall receive no compensation, 
 but shall be allowed necessary expenses incurred in the performance of their duties. 
 Any vacancy in said commission shall be filled by a majority vote of its remaining 
 members. The commission may appoint, and at pleasure remove, such employees and 
 experts as shall be necessary to complete the work provided for in section two of 
 this act, and may fix their compensation within the amount of its appropriation. 
 The expense thus incurred, and that incurred for printing and the furnishing of 
 supplies necessary in carrying' out the provisions of this act, shall be certified by 
 the chairman or clerk of said commission to the comptroller, who shall pay the 
 same in the manner of paying other claims against the state. 
 
 Sec. 2. The commission shall study and inquire into the problems of state 
 and local taxation in this state, the financing of its municipalities, the distribution 
 of the tax burden with particular reference to the possibility of reducing or limit- 
 ing the load of taxation borne by real estate, the problem of assessment and col- 
 lection of taxes, the borrowing of money by municipalities;, the apportioning of 
 sources of taxation between the state and local municipalities and any other ques- 
 tions incidental to the foregoing. The commission shall report to the governor on 
 the foregoing questions within ninety days prior to the convening of the general 
 assembly at its January session, 1935, and shall prepare and recommend legisla- 
 tion, in form for enactment by the general assembly, designed to correct existing 
 statutes relating to both state and local taxation, and, with such additional legis- 
 lation as it may deem necessary, to provide a tax system in this state which shall 
 be fair and equitable and which shall distribute the tax load more widely and 
 equitably among taxpayers and tax-paying groups and which shall in particular 
 reduce the load of taxation on real estate, if possible. 
 
 Sec. 3. The commission may or may not as it shall determine hold public 
 hearings; but, as far as possible, it shall give opportunity to any corporate or indi- 
 vidual taxpayer of the state to present for consideration suggestions, which shall 
 be in writing, bearing upon the purposes of this act, and shall receive and consider 
 any factual data presented which may be relevant and material. The clerk of said 
 commission, on vote of the commission, is authorized to issue subpoenas requiring 
 the appearance of any person before it for examination under oath, and by such pro- 
 cess said commission may compel the production of books, papers and documents 
 pertinent or necessary to consummate the business of the commission. No witness 
 so subpoenaed may be excused from testifying or from producing books, papers or 
 documents on the ground that testimony so given will tend to incriminate him, 
 but no evidence so offered shall be used in any criminal proceedings which may be 
 brought against any such person. Disobedience to such process by failure to appear 
 and respond thereto, or, if, having appeared in obedience thereto, any person shall 
 refuse to answer any pertinent questions put to him by any member of said com- 
 mission or by its counsel, he shall, upon presentation of such facts to the superior 
 court, be subjected to such fines and penalties as might be imposed by said court 
 should such disobedience or refusal have occurred in any civil action pending in 
 said court. 
 
 Sec. 4. If practical difficulties or obstacles shall prevent the reporting of a 
 bill or bills which shall cover completely the business of the commission as speci- 
 fied in this act, the commission shall report such part thereof as would reasonably 
 produce a workable, practical and equitable system of taxation for this state, to 
 the end that the financial needs, not only of the state but also of its cities and 
 other political subdivisions, may be adequately provided for in a just manner. 
 
 Sec. 5. The board of finance and control shall have supervision over all 
 expenditures of the commission. The sum of twenty-five thousand dollars is appro- 
 priated to carry out the purpose of this act. 
 
 Approved June 9, 1933. 
 
INTKODUCTION 
 
 The Special Tax Commission was appointed accord- 
 ing to- the provisions of Special Act No. 474 of 1933 by 
 His Excellency, Governor Wilbur L. Cross. The Commis- 
 sion met and organized on June 23, 1933, at the State Capi- 
 tol in Hartford. Professor Fred K. Fairchild was elected 
 chairman. Dr. Benjamin P. Whitaker was appointed 
 research director and was placed in charge of the office of 
 the Commission at the State Capitol. The Commission has 
 carried on its investigation continuously since its organiza- 
 tion, through the activities of its research staff, regular execu- 
 tive meetings and public hearings. Forty-five executive 
 meetings and six public hearings have been held. 
 
 The manuscript of the complete report of the Commis- 
 sion was filed with His Excellency, Governor Wilbur L. 
 Cross, on November 9, 1934. In order that the conclusions 
 and recommendations of this investigation may be placed 
 before the public as soon as possible and prior to the time 
 when the printing and distribution of the full report can 
 be completed, this document has been prepared. It contains 
 a summary of each chapter of the report, the complete text 
 of the Commission's recommendations, and a brief outline 
 of the entire program proposed by the Commission. 
 
 The Commission is pleased to acknowledge the whole- 
 hearted cooperation which it has received from the many 
 state departments, public officials, private organizations, and 
 individuals who, at public hearings, in written documents, 
 and in answer to requests, have assisted in its work. It wishes 
 to acknowledge, in particular, the invaluable services which 
 ' it has received from Tax Commissioner William H. Hackett 
 and from the personnel of his office, especially from Mr. 
 Farwell Knapp, Assistant Tax Commissioner, Mr. Arthur F. 
 Potter, Director of the Municipal Tax Division, Mr. Joseph 
 P. Egan, Director of the Corporation Tax Division, and Mr. 
 Ernest S. Goodrich, Director of the Excise Tax Division. 
 Mr. John K. Donahue, special agent for the tax commis- 
 sioner, has assisted the Commission in many ways through- 
 out its investigation and, in particular, has had charge of its 
 publicity. 
 
TABLE OF CONTENTS 
 
 Part I. Governmental Finance in Connecticut 
 Governmental budget balances 
 
 State finance 
 
 County finance 
 
 Municipal finance . 
 Governmental expenditures 
 
 State expenditures 
 
 County expenditures 
 
 Municipal expenditures 
 
 Consolidated state and local expenditures 
 
 Need for reduction and control of state and local expendit 
 Governmental revenues 
 
 State revenues 
 
 County revenues 
 
 Municipal revenues 
 
 Consolidated state and local revenues 
 
 The burden of taxation on real property 
 
 Page 
 1 
 1 
 1 
 2 
 3 
 4 
 4 
 5 
 6 
 7 
 7 
 
 10 
 10 
 11 
 
 Part II. The Financing op Municipalities . . 12 
 
 The relationship of the municipalities to the state government . 12 
 
 Municipal fiscal years and tax due dates . . 12 
 
 Governmental fiscal years . ... 12 
 
 Relation of tax due dates and fiscal years . .13 
 
 Municipal budgeting . * . . . . . . 16 
 
 Administrative organization . . .16 
 
 Procedure in municipal budgeting . . . . . 17 
 
 Recommendations . . . . . 19 
 
 Municipal accounting, auditing, reporting, and custody of funds 23 
 
 Accounting ... .23 
 
 Auditing ........ 25 
 
 Bonding of municipal officials . . 26 
 
 Custody of municipal funds . . 26 
 
 Municipal reporting . 28 
 
 State supervision of local finance ... 28 
 
 Municipal indebtedness .... .29 
 
 Part III. The Present System of State and Local Taxes . 36 
 
 The general property tax .... .36 
 
 Importance . .... 36 
 
 Exemptions . . . .36 
 
 Assessment ... . 38 
 
 Collection ... ... 46 
 
 The personal tax and special property taxes . . 52 
 
 The personal tax . 52 
 
 Special property taxes . 53 
 
 Forest taxation . . . . 53 
 
 Taxes on shellfish grounds . . .53 
 
 The choses-in-action tax ... 53 
 
 The estate penalty tax 54 
 
 Gross earnings taxes on transportation and communication 
 
 companies . . . .55 
 
 The taxation of insurance companies . . . . 57 
 
Page 
 The taxation of banks and trust companies and miscellaneous financial 
 
 institutions ...... 60 
 
 Banks and trust companies . . .60 
 
 The bank stock tax .... 60 
 
 The taxation of bank deposits .... 62 
 
 Recommendations ... . 64 
 
 Miscellaneous financial corporations . 64 
 
 Unincorporated financial concerns . 65 
 Business taxes on mercantile and manufacturing concerns and local 
 
 public utilities . . . .65 
 
 Theoretical background ..... 65 
 
 Taxation of miscellaneous corporations . 66 
 
 The corporation net income tax . . 66 
 
 The taxation of invested capital . . 68 
 
 Allocation of the tax base . . 68 
 
 Recommendations ... . 69 
 
 The unincorporated business tax . . . 69 
 
 Local public utilities . . . 71 
 
 Special motor vehicle taxes ... . 71 
 
 Nature and theory of motor vehicle taxes ... 71 
 
 The gasoline tax . ... 73 
 
 Motor vehicle license taxes . . 74 
 
 Motor bus taxes . . .75 
 
 Recommendations .... 76 
 
 Death taxes, liquor taxes, and amusement taxes . . 77 
 
 Death taxes ... 77 
 
 Liquor taxes ... .78 
 
 Amusement taxes ... 80 
 
 Pabt IV. Redistribution of the Tax Burden ... 82 
 
 State assistance in local financing . . 82 
 
 State assistance in general - . .82 
 
 State assistance in Connecticut . . .82 
 
 Criticism and proposed changes . 83 
 
 New sources of revenue . 86 
 
 Additional revenues required . . 86 
 
 Taxes on incomes of natural persons . 87 
 
 Taxes on sales or consumption . 89 
 
 Recommendations . 90 
 
 Fiscal effects of Commission's recommendations 90 
 
 Introduction .... 90 
 
 Effects on state financing . 90 
 
 Effects on county financing . 92 
 
 Effects on municipal financing . 92 
 
 Summary of the program . . 93 
 
PART I 
 
 GOVERNMENTAL FINANCE IN CONNECTICUT 
 
 Governmental budget balances. 
 State finance. 
 
 The state government had budget surpluses every fiscal year from 
 1922-23 to 1930-31 except in fiscal years such as 1927-28, when 
 unusually large expenditures from funds previously accumulated were 
 made for permanent improvements. During this period its income was 
 more than sufficient to meet its expenditures for hoth operations and 
 permanent improvements, and by the close of its fiscal year 1930-31 
 it had accumulated a cash surplus in its civil list funds of over ten 
 million dollars. 
 
 Although the gross indebtedness of the state remained constant 
 from' 1922-23 to 1930-31, the accumulation of the sinking fund and 
 of cash surpluses in civil list funds steadily reduced its net indebtedness. 
 By 1924-25 the net debt had been eliminated, and by the end of the 
 fiscal year 1930-31 there were sinking fund assets and a cash surplus 
 in the state treasury amounting to 9.5 million dollars more than the 
 outstanding gross indebtedness. 
 
 In the three fiscal years following' 1930-31 substantial budget 
 deficits were incurred by the state. Expenditures for permanent 
 improvements authorized in previous years continued to be made in 
 1931-32 and 1932-33, while state income rapidly declined because of 
 decreasing business activity. State expenditures were almost two mil- 
 lion dollars more in 1931-32 than in 1930-31; income was more than 
 five millions less. When expenditures were reduced in 1932-33 and 
 again in 1933-34, the reductions were not sufficient to make up for the 
 shrinkage in income. The budget deficits amounted to 6.4 million dol- 
 lars in 1931-32 and 4.3 millions in 1932-33. It is estimated that the 
 budget deficit of 1933-34 will amount to from three to four million 
 dollars. 
 
 The Commission believes that this record justifies its conclusion 
 that, with normal business conditions, the present revenue system of the 
 state will produce income adequate to meet the state's fiscal needs. 
 The deficits of the last three fiscal years are attributable primarily to 
 the business depression even though they were increased by continued 
 expenditures on the permanent improvement program. 
 
Ordinarily the Commission would not hesitate to recommend 
 whatever borrowing is necessary to finance the state for short periods 
 during which unusual conditions have thrown income and expenditures 
 out of balance. Borrowing under such circumstances is not a repudia- 
 tion of the "pay-as-you-go" policy but a reasonable and intelligent 
 application of that policy. In fact for the more than twenty years 
 during which it has followed the "pay-as-you-go" policy, Connecticut 
 has borrowed to finance temporary deficits in the state budget and 
 then has reduced its debt when there were budget surpluses. 
 
 The Commission does not believe, however, that it would be wise 
 for the state to postpone the balancing of its budget under present 
 conditions. During the three fiscal years ending June 30, 1934, the 
 state's expenditures exceeded its income by not less than $14,000,000. 
 There is certain to be a substantial budget deficit in 1934-35. Thus 
 in 1935, when the recommendations of this report, if immediately 
 adopted, go into effect, there will have been completed four fiscal years 
 during which expenditures exceeded income, and the amount of the 
 budget deficits for the period will have aggregated from 15 to 20 million 
 dollars. Budget deficits for four successive years can hardly be con- 
 sidered temporary, nor can the indebtedness which they have occasioned 
 be disregarded. 
 
 Taking immediate steps to balance the state budget would also 
 have a salutary effect upon public opinion. Prolonged depression has 
 weakened public and private thrift and has led to extravagant public 
 expenditures financed by borrowing. The sooner the public is made 
 to realize its financial responsibility for the expenditures being made 
 by its governments, the sooner will governmental finance be put in order 
 and tax burdens be brought under control. 
 
 County finance. 
 
 Counties in this state are relatively unimportant governmental 
 units. Their activities are limited, and their expenditures, compared 
 with those of the state and municipalities, are small. They receive a 
 large proportion of their revenues from state grants, and together they 
 have the entire grand list of the state upon which to levy their taxes. 
 
 Under these favorable conditions counties should be expected to 
 operate on substantially balanced budgets. In general they have done 
 so. During the last decade Hartford County alone has incurred sub- 
 stantial budget deficits and has increased its debt in financing the 
 erection of a new county building. Except for this expenditure for a 
 permanent improvement, expenditures of the counties, individually 
 and collectively, were kept within their income from 1923 to 1933, 
 and their indebtedness was actually reduced. 
 
Municipal finance. 
 
 For convenience of exposition in this report, we shall refer to 
 the counties as "counties", to the 169 unconsolidated towns, consoli- 
 dated towns and cities, and consolidated town and borough as "towns", 
 to the 194 cities, boroughs, and towns as "major municipalities", and to 
 the special districts and all other municipalities as "minor munici- 
 palities." 
 
 Statistics of the receipts, expenditures, and indebtedness of towns, 
 cities, boroughs, and fire districts are compiled and published by the 
 tax cbmmissioner every fourth year. An analysis of these statistics shows 
 that, after deducting the ' aggregate surplus of municipalities having 
 surpluses from the aggregate deficit of all other municipalities, the 245 
 to 267 reporting municipalities had a consolidated budget deficit rang- 
 ing from one to 14 per cent of their total expenditures in each of 
 the last four quadrennial years. Unconsolidated towns had a consoli- 
 dated budget surplus in 1924 and consolidated budget deficits ranging 
 from 4 to 8 per cent of their expenditures in the other three 
 quadrennial years. Cities and boroughs reported consolidated deficits 
 ranging from 4 to 19 per cent of their expenditures in the 
 four quadrennial years. All reporting municipalities spent 6.8 million 
 dollars more than their income in 1920, $765,000 more in 1924, 7.6 
 millions more in 1928, and 6.9 millions more in 1932. 
 
 One hundred and ten of the 196 major municipalities in 1928 
 and 99 of the 195 in 1932 reported budget surpluses rather than 
 deficits. Thus the amount of the consolidated budget deficit of major 
 municipalities was actually less than the aggregate deficit of those 
 major municipalities reporting budget deficits. Cities and boroughs 
 having deficits in 1932 reported an aggregate budget deficit of $4,768,- 
 .000, and unconsolidated towns, an aggregate budget deficit of $3,193,- 
 000. In both 1928 and 1932 the consolidated budget deficit of major 
 municipalities arose from the financial operations of less than one- 
 half of the municipalities in the group. 
 
 Recurring budget deficits have caused large increases in municipal 
 indebtedness. The net debt of the unconsolidated towns, which con- 
 sists of their gross debt less sinking funds and cash on hand at the 
 ends of their fiscal years, increased from. 18.0 million dollars in 1920 
 to 39.5 millions in 1932. The net debt of cities and boroughs rose from 
 49.0 millions in 1920 to 93.1 millions in 1932. And the net debt of all 
 reporting municipalities, including in these figures the indebtedness of 
 special school districts, increased from 72.0 millions to 148.7 millions 
 from 1920 to 1932. 
 
 While unemployment relief has been a financial burden to the 
 municipalities and has increased the difficulty of balancing municipal 
 
budgets since 1929, the record of municipal finance even before the 
 depression is one of steadily increasing income but of more rapidly 
 increasing expenditures. Taking the figures of indebtedness and of 
 budget balances together, it is reasonably well established that unbal- 
 anced budgets have been habitual with the municipalities as a group 
 since 1920. Municipal debt has consequently grown at an unprecedented 
 rate. 
 
 If municipal finance is to be placed on a sound basis and the 
 local tax burden is to be reduced even moderately, much more than 
 a mere revision of the tax system will be required. These figures show 
 that municipal taxes should have been at least seven million dollars 
 more than they were each year to have financed currently the expendi- 
 tures of municipalities since 1928. Taxpayers have not escaped this 
 additional burden but are paying highly in debt service charges 
 for postponing the evil day. The longer present financial practices 
 of municipalities are permitted to continue, the more certain it will 
 be that the local tax burden will increase rather than diminish. 
 Municipalities themselves must put their houses in order before tax 
 revision can have any substantial effect on the local tax burden. They 
 must scrutinize and cut expenditures beyond what has already been 
 done. They must be equipped with adequate procedures to control 
 their financing. Without such action, changes in tax measures can do 
 no more than to ease the immediate pressure on municipal finance. 
 With such action, tax revision offers a reasonable promise of an 
 enduring solution of our state and local tax problems. 
 
 Governmental expenditures. 
 State expenditures. 
 
 From 75 to 80 per cent of all state expenditures from 1927-28 
 to 1932-33 were made for highways, charities and corrections, and 
 education. Highways required from 33 to 47 per cent of all state 
 expenditures; charities and corrections, from 20 to 32 per cent; and 
 education, from 12 to 14 per cent. All other state functions, consisting 
 of general government, protection of persons and property, develop- 
 ment and conservation of natural resources, conservation of health and 
 sanitation, public parks, interest, and miscellaneous, accounted for 
 less than 25 per cent of all state expenditures. 
 
 Although -the expenditures for particular functions varied sub- 
 stantially from year to year because of expenditures for permanent 
 improvements, the total capital outlays of the state government were 
 reasonably constant in most years from 1927-28 to 1932-33. For an 
 enterprise as large as the state government a considerable percentage 
 of all state expenditures will regularly and inevitably be required for 
 
permanent improvements. Borrowing to finance such regularly recur- 
 ring capital outlays is no more justified than borrowing to finance 
 operating expenses. 
 
 Operating expenses increased each year from 1927-28 to 1932-33. 
 Expenditures caused directly or indirectly by the depression account 
 for the increase of operating expenses for charities, and similar expen- 
 ditures together with the transfer of three million dollars of the high- 
 way fund from use on the state highways to town roads, explain the 
 increased operating expenses for highways. But the operating expenses 
 of every one of the major state functions were larger in 1932-33 than in 
 1927-28, and the aggregate operating expenses increased 43 per cent 
 during the period. 
 
 State expenditures, including capital outlays, were reduced from 
 1931-32 to 1932-33 by about five million dollars. This reduction was 
 more than accounted for by a decline of 6.4 million dollars in capital 
 outlays. 
 
 Statistics of state expenditures for 1933-34 were not available at 
 the time of writing this report. Hence preliminary figures of disburse- 
 ments for 1933-34 were compared with the disbursements of 1932-33 to 
 indicate the amount and trend of expenditures during 1933-34. This 
 comparison shows that the aggregate expenditures of the state itself 
 were some six million dollars more in 1933-34 than they would have 
 been if the federal funds for unemployment relief had been expended 
 directly by the federal government instead of passing through the state 
 treasury. Expenditures of strictly state moneys were somewhat less in 
 1933-34 than they were in 1932-33, largely because of the reduction 
 of salaries of state employees and of the virtual cessation of expendi- 
 tures for permanent improvements from the general fund. 
 
 About all the possible reduction in state expenditures obtainable 
 from the postponement of expenditures on permanent improvements 
 and wholesale reduction of salaries appears to have been made. Further 
 reduction in the costs of the state government will require the elimina- 
 tion of unnecessary or uneconomical services, reorganization of depart- 
 ments, the discharge of unnecessary personnel, and generally increased 
 efficiency. 
 
 County expbndituhes. 
 
 About 95 per cent of total county expenditures are made for chari- 
 ties and corrections, general government, and interest. In 1932-33 about 
 three-fourths of county expenditures were required for the maintenance 
 and operation of county homes and jails and for other charitable activi- 
 ties. Interest is a substantial cost only to Hartford County and amounts 
 to from 7 to 8 per cent of all county expenditures. 
 
County expenditures for general government from 1927-28 to 
 1932-33 were abnormal because of the extraordinary expenditures 
 made in 1927-28 and 1928-29 for the new Hartford County Building. 
 Expenditures for general government of all counties except Hartford 
 County increased each year from 1927-28 to 1929-30, when they 
 amounted to $206,696. They declined each year after 1929-30 until 
 they reached $157,846 in 1932-33. This reduction of the cost of gen- 
 eral government was made in expenditures on county buildings and 
 not in the salaries and expenses of county officials. Total expenditures 
 of these seven counties increased about $300,000 from 1927-28 to 
 1929-30 and decreased about $70,000 from 1929-30 to 1932-33. Com- 
 pared with the increase of total expenditures in prior years, the reduc- 
 tion made up to the end of 1932-33 was relatively small. 
 
 Municipal expenditures. 
 
 Expenditures of the municipalities constitute more than two- 
 thirds of the governmental-cost payments of all state and local govern- 
 ments. Municipal expenditures for every major governmental function 
 except the development and conservation of natural resources are sub- 
 stantial. Education is the most costly municipal function and required 
 28 to 35 per cent of total municipal expenditures in the quadrennial 
 years from 1920 to 1932. Highways required from 15 to 21 per cent; 
 protection of persons and property, 10 to 11 per cent; general govern- 
 ment, 9 to 11 per cent; and interest, 6 to 7 per cent. 
 
 Total municipal expenditures increased from 48 million dollars 
 to 95 millions, or 98 per cent, from 1920 to 1932. They increased in 
 every one of the three quadrennia, but the rate of increase from 1928 to 
 1932 was considerably less than that of the two preceding quadrennia. 
 
 In the quadrennium from 1928 to 1932 expenditures of munici- 
 palities on charities were substantially increased by the demands of 
 unemployment relief. Although this accounts for a considerable part of 
 the increase of municipal expenditures during the period, expendi- 
 tures for all but three major functions were higher in 1932 than in 
 1928. Aside from the reduction in expenditures of municipal public 
 service enterprises, resulting in no small part from shrinkage in sales, 
 the only substantial reductions in municipal expenditures were made 
 in the construction and maintenance of highways and in the construc- 
 tion and operation of public buildings. In fact, increases in expendi- 
 tures for salaries, courts, and other administrative expenses offset a 
 substantial part of the reduction in expenditures on public buildings 
 and resulted in a smaller reduction in the total cost of general govern- 
 ment than was made in expenditures on public buildings alone. Despite 
 the strong pressure for governmental economy which the depression 
 
brought into existence, practically all municipal services cost more 
 rather than less in the third and worst year of the depression than they 
 did in the last full year of prosperity. 
 
 Only the statistics of municipal school expenditures for the school 
 years 1932-33 and 1933-34 and of the property tax levies for 1933 
 and 1934 are available to indicate the trend of municipal expenditures 
 after 1932. School expenditures in 1933-34 were 2.3 million dollars 
 less than in 1932-33, 7.0 millions less than in 1931-32, and 8.7 millions 
 less than in the peak year, 1929-30. The grand levy of property taxes, 
 however, in 1934 was only 1.3 million dollars less than in 1933, 2.7 
 millions less than in 1932, and 3.3 millions less than in the peak year, 
 1931. The levy of 1934, moreover, was 3.2 million dollars larger than 
 the levy of 1929. Although school expenditures alone were reduced 
 8.4 million dollars from 1930-31 to 1933-34, although the state 
 has expended three millions annually since 1931 on town roads, and 
 although the federal government has assisted in the financing of unem- 
 ployment relief, property tax levies have decreased since 1931 at a 
 rate not. in excess of two per cent per year. i 
 
 Consolidated state and local expenditures. 
 
 Because two or more governments participate in the financing of 
 certain activities, there is some duplication in the expenditures reported 
 for the state, the counties, and the municipalities. The Commission's 
 analysis indicates that the consolidated state, county, and municipal 
 expenditures in 1932 were 8.8 million dollars less than the sum of the 
 expenditures reported individually for the state, the counties, and the 
 municipalities in that year. When duplicated expenditures "are 
 eliminated, the total state and local expenditures amounted to 119.1 
 million dollars in 1928 and 129.4 millions in 1932. 
 
 State and local expenditures are four to five times higher at 
 present than they were in 1912. Allowing for increases of population 
 and changes in prices, they are at least three times higher now than 
 they were in 1912. They increased 1.7 times as rapidly from 1912 to 
 1928 as the estimated state wealth, and they were twice as high in 
 1932 as in 1920 even though the estimated income of the state was 32 
 per cent less in the later than in the earlier year. 
 
 Need foe reduction and control of state and local 
 expenditures. 
 
 Although the Commission appreciates the difficulties of reducing 
 and controlling expenditures in democratic governments, it is con- 
 vinced that these difficulties must be overcome if there is to be substan- 
 
8 
 
 tial and permanent relief from the burden of state and local 
 taxation. It is self-evident that governmental spending in excess of 
 income and at a rate of increase more rapid than that of the growth 
 of the wealth and income of the citizens of the state means a continued 
 increase in tax burdens and, eventually, the decline in standards of 
 living. 
 
 Determining the amount and scope of governmental expenditures 
 is a matter of public policy. The Commission has not been charged 
 with the responsibility of making recommendations for the reduction 
 of particular expenditures. It cannot too strongly urge the necessity 
 for further reduction and a more effective control of expenditures if 
 the load of taxation now borne by real estate is to be substantially 
 reduced. Recommendations made in following chapters of the report 
 provide for improved budgeting by municipalities and for a broader 
 distribution of the tax burden. These should assist in securing in some 
 degree a better control of expenditures in the future. 
 
 Governmental revenues. 
 State revenues. 
 
 All the funds used for financing the state from 1927-28 to 1932-33 
 were obtained from current income. Not until 1933-34 were funds 
 borrowed to meet state expenditures. 
 
 More than one-fifth of the state's income is normally derived from 
 sources other than taxation, including grants from the federal govern- 
 ment; licenses, permits, and fees; sales of commodities and services; 
 rents and interest; and fines, penalties, and forfeitures. Income 
 from taxes make up the remaining 75 to 80 per cent of the total state 
 income. 
 
 About one-sixth of the state's income from taxes is derived from 
 what may be considered property taxes, about one-third from business 
 taxes, and about one-half from what we have classified as miscellaneous 
 taxes. The most important of the property taxes are the state and 
 military taxes, the choses-in-action and estate penalty taxes, and the 
 gross earnings taxes in lieu of property taxes on transportation and 
 communication companies. Ihisiness taxes include the savings deposits 
 tax, the stock and franchise taxes on banks and insurance companies, 
 the gross earnings tax on local public utilities, the net income tax on 
 miscellaneous corporations, and the gross earnings tax on unincorpo- 
 rated business. Miscellaneous taxes include the succession and estate 
 taxes, the gasoline and motor vehicle registration taxes, the motor bus 
 tax, the tax on places of amusement, and the liquor taxes. 
 
 State income increased annually for a full decade until it reached 
 
40.5 million dollars in 1930-31. It then decreased to 35.2 millions in 
 1931-32 and to 32.3 millions in 1932-33. If the 1932-33 income from 
 taxes on transportation and communication companies is reduced by 
 the amount which would have been credited to 1933-34 under laws 
 existing prior to the 1933 session of the General Assembly, the income 
 of the state declined 9.4 millions, or 23 per cent, from 1930-31 to 
 1932-33. The corporation net income tax revenues fell 2.7 million 
 dollars, or 77 per cent; those of the inheritance taxes, 2.6 millions, or 
 52 per cent; those of taxes on financial institutions, 2.6 millions, or 
 31 per cent; and those of the unincorporated business tax, $135,000, 
 or 42 per cent. Only the state and military taxes and the tax on local 
 public utilities yielded larger incomes in 1932-33 than in 1930-31. 
 
 Preliminary figures of the state's income for 1933-34 indicate that 
 the downward trend has now been reversed. Those measures first 
 affected by changes in business conditions yielded larger incomes in 
 1933-34 than in the preceding year for the firs,t time since 1928-29. 
 When the income data of 1932-33 and of 1933-34 are adjusted to 
 a comparable basis, an adjustment made necessary by the change in 
 assessment date of the tax on steam railroads and street railways, the 
 tax income of 1933-34 was about $400,000 more than that of 1932-33. 
 
 County revenues. 
 
 Except for the financing of the Hartford County Building, 
 counties borrowed relatively little from 1927-28 to 1932-33. County 
 revenues are derived largely from taxes and from grants by the state 
 for the board of children in county homes and of inmates in county 
 jails. Taxes, consisting of the county tax on towns and one-half of 
 the net revenues from the unincorporated business tax, yielded from 
 , 60 to 71 per cent of county revenue receipts from 1927-28 to 1932-33 ; 
 state grants produced from 22 to 32 per cent. The county tax on towns, 
 which is the balancing item in county budgets and the largest single 
 county revenue, amounted to from 47 to 56 per cent of all county 
 revenues during this period. 
 
 ■ County revenue receipts increased from $1,391,000 in 1927-28 
 to $2,017,000 in 1930-31 and then decreased to $1,855,000 in 1932-33. 
 State grants increased each year during this period and were enough 
 larger in 1932-33 to offset all but $58,000 of the increase in the costs 
 of county homes and jails from 1927-28 to 1932-33. County revenues 
 from the unincorporated business tax decreased each year after 1929- 
 30. The county tax reached a peak of $1,140,000 in 1930-31 and 
 declined to $959,000 in 1932-33, but at this amount it was more than 
 $300,000 in excess of the county tax in 1927-28. 
 
10 
 
 Municipal revenues. 
 
 Although municipal revenues increased from 41.3 million dollars 
 in 1920 to 88.2 millions in 1932, the municipalities were forced to 
 increase their net debt from 72.0 million to 148.7 million dollars during 
 the period to finance their rapidly increasing expenditures. 
 
 Municipal revenues are raised from local taxes, state-administered 
 taxes, payments by other governments for certain services, and non-tax 
 revenues. Local taxes produce about 80 per cent, and both local and 
 state-administered taxes, about 85 per cent, of total municipal revenues. 
 Revenues received from other governments in payment for certain 
 services have amounted to from 3.5 to 5.0 per cent of total revenues 
 in the quadrennial years since 1920. 
 
 Property taxes are the largest single source of municipal revenues 
 and yielded 78 to 81 per cent of all municipal revenues in the quad- 
 rennial years since 1920. Property taxes collected to meet the state, 
 military, and county taxes ranged from 3 to 7 per cent, and those col- 
 lected for municipal purposes, from 71 to 78 per cent, of all municipal 
 revenues since 1920. 
 
 Municipal revenues have increased continuously since 1920. Total 
 revenues were larger in 1932 than in 1920 by 47.0 million dollars, 
 or 115 per cent. Property taxes collected for municipal purposes were 
 larger by 39.2 millions, or 134 per cent. 
 
 From 1928 to 1932 municipal revenues were well maintained in 
 spite of depression conditions. Although there were losses of revenues 
 from personal and state-administered taxes during the period, property 
 taxes for municipal purposes absorbed these losses and also increased 
 total revenues. 
 
 Since property taxes yield so large a portion of municipal revenues 
 and are the only source of funds which can be directly controlled by 
 the municipalities themselves, increases in municipal expenditures 
 must be financed largely by increasing property taxes. Conversely, 
 local property taxes may be reduced by the municipalities themselves 
 by reducing expenditures or by the state by transferring to itself the 
 financing of services now made the responsibility of municipal govern- 
 ments. 
 
 Consolidated state and local revenues. 
 
 Eliminating from the separately reported revenues of the state, 
 the counties, and the municipalities any duplicated revenues resulting 
 from intergovernmental transactions, the consolidated revenue receipts 
 of all state and local governments were 107.6 million dollars in 1928 
 and 116.6 millions in 1932. About 85 per cent of these total revenues 
 were raised from taxation. 
 
11 
 
 Collections of real property taxes were ten million dollars larger 
 in 1932 than in 1928. They increased from 50 to 54 per cent of the 
 total state and local revenues from 1928 to 1932 and from 59 to 63 per 
 cent of total state and local tax revenues. They were, of course, much 
 larger percentages of strictly municipal revenues in both years and 
 amounted to 72 per cent of all municipal revenues and 85 per cent of 
 all municipal tax revenues in 1932. The latter are the figures which 
 are usually cited as an indication of excessive taxation of real estate. 
 
 The burden of taxation on real property. 
 
 The reduction of the burden of real estate taxes, to which the 
 Assembly has directed our particular attention, might be accomplished 
 by either of two means: (1) by decreasing the cost of government or 
 (2) by raising more money by other revenue measures. The first of 
 these measures rests in the hands of the electorate, and, with such 
 assistance as the state may render along lines recommended in later 
 chapters, it must necessarily remain there. But there are those who 
 contend that much more than this is required if an equitable distribu- 
 tion of the tax burden is to be effected. 
 
 The problem raised by this contention is not. so simple as it, is 
 generally assumed to be. ISTo statistical analysis is capable of determin- 
 ing certainly that owners of real estate are actually overtaxed. Whether 
 \)r not such persons are overtaxed depends for one thing upon the 
 extent to which they are the special beneficiaries of governmental activ- 
 ities. It further depends upon the extent to which purchasers of real 
 estate have allowed for the present level of taxes in the price which 
 they have paid for their property. Finally, it depends upon the manner 
 in which owners of real property would fare under substitute tax 
 measures which might be enacted to effect a redistribution of the tax 
 burden. 
 
 But despite the impossibility of actual measurement, the Commis- 
 sion is aware of the fact that the real estate tax burden in many munici- 
 palities is heavy, that many real estate owners are in distress, 
 and that there is sincere and widespread belief that relief should be 
 afforded them. To this end recommendations are made in subsequent 
 chapters both for the limitation and reduction of municipal expendi- 
 tures in general and for the transfer to the state of certain duties which 
 are now discharged at considerable expense by local governments 
 financing themselves largely by means of property taxes. 
 
12 
 
 PART II 
 
 THE FINANCING OF MUNICIPALITIES 
 
 The relationship of the municipalities to the state 
 government. 
 
 Municipalities are essentially administrative instrumentalities of 
 the state government ; they are not sovereign governments and hence 
 exercise no inherent powers. The 'responsibility of the state extends 
 both to the substance of the powers which are granted municipalities 
 and to the manner in which these powers are exercised. 
 
 Expediency alone can properly dictate the manner in which the 
 responsibility for particular governmental activities is distributed 
 between the state and its political subdivisions. In Connecticut there 
 has developed a large measure of sentiment in favor of local autonomy. 
 The Commission believes that in general this sentiment is justified by 
 the manner in which municipal affairs have been conducted. It would 
 seek, however, to strengthen local autonomy by providing measures 
 designed to supply the electorate with the information necessary for 
 enlightened local control and to supply local officials with business-like 
 procedures under which public affairs may be conducted with a maxi- 
 mum of efficiency. 
 
 Municipal fiscal tears and tax due dates. 
 Governmental fiscal years. 
 
 The fiscal years of governments exercising jurisdiction within the 
 state display the utmost diversity. The federal and state governments 
 and all school districts, whether consolidated with their town and city 
 governments or not, operate on a fiscal year running from July 1 to 
 June 30; the counties operate on fiscal years running from October 1 
 to September 30; and the municipalities other than school districts 
 operate on fiscal years which differ from one municipality to another 
 and some one of which begins in every month in the year. 
 
 This diversity makes it impossible to secure an accurate answer to 
 any question involving the receipts or expenditures for a given period 
 of time of two or more levels of government or of any substantial 
 number of municipalities. In the absence of such information it is 
 impossible to secure the degree of enlightened public opinion required 
 for the most effective and economical administration of a democracy. 
 
13 
 
 Of the several fiscal years now in use in this state, that one which 
 seems best to meet the needs of all governments concerned is July 1 
 to June 30. It would seem advisable, though not imperative, to have 
 officials elected shortly before the end of a fiscal year to take office at 
 the beginning of a new fiscal year. In addition to urging the establish- 
 ment of the July 1 to June 30 fiscal year by all minor municipalities, 
 we recommend : 
 
 That a fiscal year beginning July 1 and ending June 30 be pre- 
 scribed by law for the counties, the Metropolitan District of Hartford 
 County, and all major municipalities; 
 
 That at any time not later than three months before the beginning 
 of the fiscal year, a municipality be permitted, by the passage of an 
 ordinance or by-law as prescribed in sections 390 and 391 of the Gen- 
 eral Statutes, to fix the date or dates upon which the annual or biennial 
 election of its officers shall be held ; 
 
 That all municipal officers holding office at the time such ordi- 
 nance or by-law is enacted be continued in office until the date or dates 
 fixed for the next ensuing annual or biennial election. 
 
 Relation of tax due dates and fiscal yeaes. 
 
 The due dates of municipal taxes may be set by the municipality 
 within only the most general statutory limitations. This has resulted 
 in diversities in tax due dates almost as great as in the beginnings 
 of fiscal years. This in itself lends a confusion to municipal finance 
 which is serious enough; but the principal problem which it raises 
 results from the practice of having the tax due date many months later 
 than the opening of the fiscal year. 
 
 Municipalities seldom carry over from one fiscal year to another 
 any substantial unencumbered cash balances. They are therefore forced 
 to borrow to meet their expenditures during' the "elapsed period" 
 between the beginnings of their fiscal years and their first tax due 
 dates. Heavy interest costs accrue on tax-anticipation loans, and con- 
 servative financial policies are displaced by expensive borrowing habits. 
 It is estimated that about 25 million dollars is borrowed annually in 
 anticipation of taxes coming due after the beginnings of municipal 
 fiscal years, not to mention the increased borrowing resulting from the 
 weakening of policies of sound finance. 
 
 The evils arising from the lack of synchronization of tax due dates 
 and fiscal years are generally recognized. Some municipalities have 
 met the problem squarely and have already made the adjustment 
 required, but most have been deterred from doing so by the additional 
 burden thereby temporarily imposed upon their taxpayers. The only- 
 way to finance an elapsed period without borrowing or accumulating 
 
14 
 
 cash surpluses is to advance the date on which property taxes are due. 
 By the concentration of two years' tax payments within the course of 
 a few months, taxpayers are subjected to a heavy burden. This burden 
 may be greatly reduced by spreading it over a period of years. 
 
 The Commission proposes that the financing of elapsed periods 
 be taken care of by means of a ten-year serial bond issue, the proceeds 
 of which may be used to reduce the property tax levy in the year 
 of the change so that the concentration of two tax payments within 
 a few months will not fall too heavily upon the taxpayer. We propose 
 that the state's responsibility for having permitted municipalities in the 
 past to fix their tax due date's at will be recognized by the assumption 
 by the state of the interest charges on the bonds issued to correct this 
 situation. In order to reduce this interest to a minimum, we propose 
 that the state guarantee the principal of such bonds. 
 
 There are some municipalities, however, which have already 
 shouldered the burden of synchronizing their tax due dates with their 
 fiscal years or which have persistently adhered to the strict applica- 
 tion of the sound policy of requiring taxes to be paid at or prior to 
 the time governmental services are rendered. To deprive these munici- 
 palities of all tangible benefits from the plan while their residents were 
 required to contribute the state taxes levied to finance the change 
 would be unwarranted and unjust. We therefore propose that munici- 
 palities having an elapsed period between the beginnings of their fiscal 
 years and their first tax due dates of short duration or none at all 
 receive from the state a grant computed by subtracting the amount of 
 interest, if any, actually paid by the state upon bonds issued for the 
 synchronization of their respective tax due dates and fiscal years from 
 the amount which would have been paid ' had bonds been issued at 
 three per cent interest in an amount sufficient to cover an elapsed period 
 of four months. 
 
 It is estimated that the maximum cost of such a program to the 
 state, assuming that the bonds were marketed at three per cent, would be 
 $988,000 in the first fiscal year in which it was in effect and would be 
 decreased by one-tenth in each successive year for ten years. This 
 estimate is based upon the assumption that the change in tax due 
 dates is made mandatory for all towns, cities, and boroughs and optional 
 for all other municipalities. Municipal governmental-cost payments 
 would actually be decreased by the amount of interest saved on tax- 
 anticipation loans, and this would assist them in meeting serial pay- 
 ments on bonds issued under the proposed plan. 
 
 The Commission recommends : 
 
 That all major municipalities, and all minor municipalities other 
 than the Metropolitan District of Hartford County electing to adopt 
 
15 
 
 the uniform fiscal year, be required by law to make the whole or the 
 first installment of their property taxes due and payable at the begin- 
 ning of each fiscal year for which they are levied, i. e., July 1 ; 
 
 That authority be given to every major municipality, and to any 
 minor municipality electing to comply with the plan, to issue, outside 
 any limitation on indebtedness which may be otherwise in effect, ten- 
 year serial bonds to a face amount not in excess of that proportion of its 
 property tax levy estimated to be required to enable the municipality 
 to finance without tax-anticipation borrowing the average period 
 between the beginnings of its last three completed fiscal years prior 
 to October 1, 1934, and the due dates of the whole or the first install- 
 ment of its property taxes for such years; 
 
 That the principal of the bonds be a direct obligation of the issuing 
 municipality, but that the payment of the principal as it comes due be 
 guaranteed by the state ; 
 
 That failure of any municipality to pay the principal of any 
 serial installment of the bonds as it falls due automatically subject 
 the municipality to the provisions of the municipal receivership law; 
 
 That the total interest on all bonds issued under the terms of these 
 recommendations be paid by the state ; 
 
 That any major and minor municipality complying with the recom- 
 mendations here made receive from the state government as a special 
 state grant an amount equal to the difference between the amount of 
 interest at three per cent on the face value of the ten-year serial bonds 
 which would have been issued under the plan if the average elapsed 
 period of the municipality had been four months and the amount of 
 interest, if any, actually paid by the state on its bonds issued under 
 the plan. 
 
 To provide for the transition from the present to the proposed 
 municipal fiscal years and tax due dates, the Commission recommends : 
 
 That each municipality subject to the foregoing recommendations 
 be required not later than three months after the first day of its fiscal 
 year beginning between June 30, 1935, and July 1, 1936, to prepare 
 its budget, make its appropriations, levy its taxes on the last completed 
 grand list, and collect its taxes for the period between the beginning 
 of such fiscal year and June 30, 1936, according to a schedule or 
 schedules to be prepared by the tax commissioner, designating the dates 
 upon which or the periods within which municipal officers and agencies 
 concerned with assessment, budgeting, appropriating, ratemaking, levy- 
 ing, and collecting taxes shall perform the duties and give the notices 
 required of them by law or under such schedules ; 
 
 That in the preparation of these schedules the tax commissioner 
 be empowered to make such temporary alterations in the general or 
 
16 
 
 special acts, including special charters, concerned with municipal finan- 
 cial administration as may, in his judgment, be necessary for the 
 orderly functioning of each municipality between its fiscal year ending 
 next after June 30, 1935, and July 1, 1936; 
 
 That the tax commissioner be given the power to prepare a 
 schedule prescribing a plan of financing other than that recommended 
 above for any municipality for which the period elapsing between the 
 close of its fiscal year ending between June 30, 1935, and July 1, 1936, 
 and the beginning of the new fiscal' year on July 1, 1936, is so short 
 that it would be impracticable for the municipality to budget, appro- 
 priate, levy, and collect taxes for such period. 
 
 Municipal budgeting. 
 
 Administrative organization. 
 
 The general statutes provide for two quite different forms of 
 financial organization for towns and make little or no provision for 
 the financial organization of other municipalities. In 85 towns and 
 4 unconsolidated cities financial responsibility is concentrated heavily 
 in a board of finance established under the general statutes or a similar 
 body created by special act. In the remaining 84 towns the board of 
 selectmen is vested with most of this responsibility. These boards are 
 referred to herein as budget-making authorities, although their duties, 
 especially those of selectmen, extend into many other fields. 
 
 Legislative bodies, consisting of the town meeting, the common 
 council or board of aldermen of cities, the warden and burgesses of 
 boroughs, and the district meetings of minor municipalities, share 
 financial responsibility with the budget-making authorities of their 
 respective municipalities. 
 
 In addition to these bodies, of which there are two in every munici- 
 pality, certain other officers and boards exercise a considerable measure 
 of financial control as the local authority appointed or elected to dis- 
 charge certain mandatory duties imposed by the state upon the towns. 
 These duties concern several functions, of which education and chari- 
 ties are the most important. Considerable controversy has arisen over 
 the extent to which such authorities are subject to control by the 
 budget-making authority and the legislative body. There are those who 
 contend that the maximum amount which is spent in the discharge of 
 mandatory duties cannot be controlled in any manner by the budget- 
 making authority or the legislative body. This extreme contention 
 has met with little support from the Supreme Court, but there still 
 remains a large measure of uncertainty, and there is an obvious need 
 for a more accurate delimitation of the powers of boards of finance, 
 boards of selectmen, boards of education, and any other agencies 
 
17 
 
 similarly involved. At the same time, the municipalities must not be 
 free to emasculate the regulatory laws of the state by refusing to pro- 
 vide necessary funds. This is a dilemma which has been faced by the 
 Commission and which has affected several of its recommendations 
 concerning municipal budgeting and general financial control. We do 
 not contend, however, that the adoption of our recommendations will 
 eliminate the problem. Short of the financing of all mandatory duties 
 by the state, we see no complete solution. 
 
 Procedure in municipal budgeting. 
 
 The process of budgeting involves three distinct operations, 
 namely, the preparation of the budget, the legislation of the budget, 
 and the execution of the budget. 
 
 Budgeting procedures in towns and other municipalities without 
 boards of finance or similar bodies are extremely rudimentary when 
 conducted according . to the minimum standards prescribed by law. 
 Only the crudest sort of budget is required; upon its presentation the 
 legislative body is free to vote any appropriations in any amounts 
 which the majority may approve; and once the appropriations are 
 voted no one is empowered to see that expenditures are held within 
 appropriations, to make transfers from one appropriation to another, 
 or to see that the whole of the appropriation is not dissipated within 
 the first few months of the fiscal year. The practice of determining the 
 tax rate by separate vote of the legislative body months after the 
 voting of appropriations deprives the municipality of a reasonable 
 opportunity to weigh appropriations against the sacrifices which they 
 entail, and, by making a legislative act out of a purely administrative 
 act, commonly results in unbalanced budgets. 
 
 Among towns with boards of finance a much more complete and 
 scientific budgetary procedure is prescribed by law, and in some munici- ' 
 palities of the state a highly satisfactory system is now in operation. 
 The budget is prepared according to forms prescribed by the tax 
 commissioner; the town meeting may vote no appropriations which are 
 not recommended by the board of finance nor vote an appropriation in 
 excess of the amount recommended by the board; once appropriations 
 are made, the board determines the tax rate and exercises powers of 
 transfer among all appropriations except those made available to the 
 board 'of education. 
 
 The opportunity for vast improvement in the budgeting pro- 
 cedures of towns without boards of finance is apparent. This improve- 
 ment should not be contingent upon the establishment of such boards 
 but should be available to all municipalities, and it should be manda- 
 tory upon all but the smallest municipalities. 
 
18 
 
 The Commission proposes that many of the features of budgeting 
 procedure now prescribed for towns with boards of finance be extended 
 to all major municipalities having tax receipts of over $50,000. 
 
 For municipalities which now have or which are required under 
 our proposals to have boards of finance or other agencies with similar 
 powers, the Commission proposes one highly important change from • 
 the present practice of preparing the budget in towns having boards 
 of finance created under the general statutes. This change concerns the 
 time periods within which the budgeting process is carried out. Whereas 
 at present the budget for a given fiscal year is often > prepared some 
 time after the beginning of the year, we propose that the budget be 
 prepared and legislated upon and that the tax rate be determined 
 before the beginning of the fiscal year. Only with such a procedure is 
 it possible to carry out our recommendations for the synchronization 
 of tax due dates and fiscal years. The other changes proposed in the 
 preparation of budgets are mostly intended to clarify the present law 
 and to supplement it at certain points where experience has disclosed 
 minor weaknesses. 
 
 At present, legislative bodies of towns with boards of finance 
 created under the general statutes are prohibited from voting unrecom- 
 mended appropriations. We propose that at the annual meetings, but 
 not at special meetings, the legislative bodies of this same group of 
 municipalities be permitted by three-fourths vote to make appropria- 
 tions in excess of the amounts recommended by budget-making 
 authorities. This, we believe, will not) weaken the movement for sound 
 budgeting. To seek to frustrate a real public demand for governmental 
 services is to jeopardize rather than to strengthen municipal budgeting 
 practices. It is proposed that the legislative body be permitted by 
 majority vote to reduce below the amounts recommended any appro- 
 , priation for purposes other than debt service and the retirement of 
 outstanding commitments and that the legislative body be permitted to 
 decrease, but not to increase, any item of estimated or recommended 
 receipts, including receipts from borrowing, except receipts from 
 property taxes to be levied for the fiscal year. 
 
 Probably the principal innovations in Connecticut budgeting 
 procedure which we propose concern the control of appropriations after 
 they have been legislated. By means of advanced accounting procedures 
 recommended in a subsequent section, it is proposed that no spending 
 agency of a municipality be permitted to expend or agree to expend 
 funds in excess of its appropriation. Furthermore, it is proposed that 
 appropriations be allotted over the fiscal year to prevent any spending 
 agency from expending its appropriation too rapidly, that administra- 
 tive departments be given greater control over their appropriations by 
 
19 
 
 being permitted to transfer from one item to another, and that the power 
 of transfer of the board of finance be somewhat restricted. 
 
 Recommendation's. 
 
 We recommend: 
 
 That all major municipalities whose average annual collections 
 of general property taxes in the three full fiscal years next preceding 
 the enactment of new legislation exceed fifty thousand dollars, together 
 with all other major municipalities during such time as they have 
 boards of finance, be designated as budgeting municipalities and be 
 required to conform with adequate budgeting and accounting practices 
 prescribed by law; 
 
 That all other major municipalities and all minor municipalities 
 be permitted by vote of their legislative bodies to become budgeting 
 municipalities and to comply with all matters of law pertaining thereto ; 
 
 That the budget-making authority of each budgeting municipal- 
 ity be given the power to require from operating departments esti- 
 mates of or requests for appropriations in any detail which the 
 budget-making authority may require; 
 
 That, at least ninety days prior to the beginning of the fiscal 
 year for which the budget is being prepared, all spending agencies 
 of a budgeting municipality prepare and submit to the budget-making 
 authority estimates of their expenditures and receipts for that year 
 compared with their expenditures and receipts of the preceding and 
 current fiscal years in whatever detail the budget-making authority 
 may prescribe; 
 
 That the budget-making authority hold conferences with all spend- 
 ing agencies to consider and revise, if necessary, the estimates of their 
 respective expenditures and receipts for the year being budgeted; 
 
 That, at least sixty days prior to the beginning of the fiscal year 
 being budgeted, the budget-making authority have published in a news- 
 paper of wide circulation in the community a statement or summary, 
 in whatever detail the budget-making authority deems desirable, of 
 the estimates of the spending agencies, as they may be revised by the 
 agencies at the conferences with the budget-making authority, to- 
 gether with a statement showing the estimated revenues and the tax 
 rate which would be required to finance the estimated expenses as 
 published ; 
 
 That, with the publication of such statement or summary of esti- 
 mated expenses and revenues, the budget-making authority give notice 
 of hearings to be held by it on these estimates, which hearings shall 
 be held not earlier than five days after the publication of the esti- 
 
20 
 
 mates nor later than ten days prior to the transmission, of the budget 
 to the legislative body and shall be open to all persons who shall desire 
 to be heard upon the published estimates; 
 
 That, upon the completion of its public hearings, the budget- 
 making authority meet in executive session to review and revise the 
 published estimates of expenses and revenues and to prepare the final 
 budget to be recommended to the legislative body and the supporting 
 statement showing the tax rate required to finance it; 
 
 That, at least five days prior to the submission of the budget to 
 the legislative body, the budget-making authority publish in a news- 
 paper having wide circulation in the community a statement or sum- 
 mary of the budget and, if a complete statement is not published, make 
 available at a convenient place the details of the estimates contained 
 in the published summary of the budget; 
 
 That the budget as approved and recommended by the budget- 
 making authority be printed in whatever detail it deems advisable and 
 distributed at the meeting of the legislative body held to enact the 
 budget and make appropriations; 
 
 That the budget statement be prepared according to standard 
 forms provided by the tax commissioner with such deviations there- 
 from as the tax commissioner may from time to time approve upon 
 request of the budget-making authority; 
 
 That the statutes require the budget statement to set forth (1) 
 all appropriations by funds and by purposes, distinguishing govern- 
 mental-cost payments and nongovernmental-cost payments and sepa- 
 rating the former on the basis of a functional classification, (2) actual 
 or estimated expenditures for similar purposes during the preceding 
 and current fiscal years, (3) the cash of each fund which it is esti- 
 mated will be available for financing appropriations at the beginning 
 of the year being budgeted, together with the estimated cash to be 
 received by each fund during that year from all sources, and (4) the 
 actual and estimated cash resources and receipts of each fund for 
 the preceding and current fiscal years; 
 
 That the budget as prepared and submitted by the budget-making 
 authority to the legislative body be supplemented by (1) a balance 
 sheet showing the financial condition of the several funds of the 
 municipality as of the latest date for which a balance sheet can be 
 prepared, (2) an itemized statement of the bonded indebtedness of 
 the municipality showing redemption requirements during the year 
 being budgeted, the authorized and unissued debt, and the borrowing 
 capacity of the municipality, and (3) a tax rate statement showing 
 the estimated tax rate which will be required to yield in cash the 
 required amount of property taxes as shown in the budget ; 
 
21 
 
 That the meeting of the legislative body held to pass upon the 
 budget recommended by the budget-making authority be held not 
 later than forty days prior to the beginning of the fiscal year to 
 which the budget relates, and that any adjournment of this meeting 
 be held not later than twenty-five days prior to the beginning of that 
 fiscal year; 
 
 That at this meeting the legislative body be given the power 
 to increase any appropriation recommended by the budget-making 
 authority or to make an appropriation for any purpose not recom- 
 mended by the budget-making authority upon the affirmative vote of 
 three^fourths of the legislative body and to decrease or eliminate any 
 recommended appropriation except for debt service by majority vote; 
 
 That, in acting upon the budget recommended by the budget- 
 making authority, the legislative body be prohibited from increas- 
 ing the estimates of receipts from sources other than general prop- 
 erty taxes, and that any vote of the legislative body to reduce appro- 
 priations recommended for debt service be effective only_ upon the 
 written approval of the tax commissioner; 
 
 That the legislative body be authorized to vote a contingency 
 fund of from two to five per cent of the total appropriations exclu- 
 sive of such contingency fund and exclusive of appropriations for 
 interest and debt retirement, such fund to be at the disposal of the 
 budget-making authority, and that, if the legislative body fails to 
 vote such a contingency fund, it be presumed that a contingency fund 
 of two per cent of such appropriations has been appropriated and is 
 available to the budget-making authority; 
 
 That, in the event of the failure of the budget-making authority 
 to prepare and recommend a budget to the legislative body as required 
 by law, the appropriations for current expenses made for the fiscal 
 year in progress, together with the necessary appropriations for debt 
 service during the year being budgeted be deemed to be appropriated; 
 
 That, in the event of the failure of the legislative body to act 
 upon the budget recommended by the budget-making authority within 
 the time prescribed by law, the appropriations recommended by the 
 budget-making authority be deemed to have been lawfully made; 
 
 That the power of the legislative body to determine and fix the 
 tax rate be repealed, and that the budget-making authority in budget- 
 ing municipalities and the selectmen or similar bodies in non-budget- 
 ing municipalities be required, within five days after appropriations 
 have been made, to determine and lay a property tax rate sufficient 
 to produce the revenues required to finance the appropriations, includ- 
 ing appropriations for the retirement of all indebtedness (including 
 
22 
 
 commitments) which it is estimated will come due during the year 
 being budgeted; 
 
 That the legislative body of any budgeting municipality be author- 
 ized to hold special meetings to make appropriations for additional 
 purposes ; 
 
 That the legislative body be prohibited from voting at these 
 special meetings appropriations in excess of the amounts recommended 
 by the budget-making authority or for purposes not recommended; 
 
 That the action on the appropriations and budget of any munici- 
 pality taken by the legislative body be final, except for appeals upon 
 questions of law to the superior court by any taxpayer, by any spend- 
 ing agency of a municipality, by any state agency having general 
 supervision over a spending agency of the municipality, or by the 
 tax commissioner; 
 
 That each appropriation made by the legislative body, except the 
 appropriation for the contingency fund, be allotted in installments to 
 the appropriate spending agency by the budget-making authority by 
 agreement of the budget-making authority and the spending agency, 
 but, if no such agreement be reached, that the appropriation be allotted 
 in not less than four or more than twelve equal installments ; 
 
 That any balance of an allotment remaining unencumbered at the 
 end of any allotment period except the last allotment period in each 
 fiscal year remain at the disposal of the spending agency and be added 
 td the allotment for the succeeding period on condition that any unex- 
 pended balance of an allotment shall not be used by the spending agency 
 for a purpose for which an appropriation has not been made ; 
 
 That the budget-making authority be given power to make allot- 
 ments from its contingency fund to any spending agency whose appro- 
 priations have, in the opinion of the budget-making authority, proved 
 inadequate for the conduct of its duties, but that any unencumbered 
 balance of allotments so made be transferable or withdrawable at any 
 time by the budget-making authority; 
 
 That appropriations be recommended to the legislative body and 
 be made by the legislative body in whatever detail the budget-making 
 authority deems advisable; 
 
 That each spending agency be given the power to transfer, upon 
 written notice to the budget-making authority and the chief accounting 
 officer, appropriations from one item to another item within its total 
 appropriation at any time within the first eleven months of the fiscal 
 year for which such appropriations are made, provided, however, that 
 no appropriation may be transferred and used for an item for which 
 no appropriation has been made by the legislative body; 
 
23 
 
 That during the last month of any fiscal year the budget-making 
 authority be v given sole and unrestricted power to transfer the unen- 
 cumbered balance of an appropriation to any other appropriation from 
 the same fund or to the contingency fund ; 
 
 That all appropriations from the general fund of a budgeting 
 municipality lapse and become null and void at the end of the fiscal 
 year for which such appropriations are made ; 
 
 That, unless otherwise recommended by the budget-making 
 authority and approved by the legislative body, all appropriations from 
 any special fund lapse and become null and void at the end of the 
 second fiscal year succeeding that for which i the appropriations are 
 made ; I 
 
 That no spending agency of a budgeting municipality be permitted 
 to pay or agree to pay any money or incur any liability involving the 
 expenditure of money for any purpose for which an appropriation has 
 not been made or in excess of any appropriation or allotment made to 
 it except for the purpose of paying judgments rendered against a 
 municipality ; 
 
 That any commitment of the spending agency made in violation 
 of the foregoing recommendation be null and void as to the munici- 
 pality, and that any person or persons making such commitment or 
 expenditure be subject to a penalty not in excess of the amount of the 
 illegal commitment or expenditure. 
 
 Municipal accounting, auditing, eepoeting, and custody of 
 
 FUNDS. 
 
 Accounting. 
 
 Without careful accounting control no budgeting system can fully 
 succeed in bringing before the electorate an intelligible statement of 
 municipal finance, nor can the desires of the legislative body as 
 expressed in its voted appropriations be made truly effective. Except in 
 a relatively few municipalities, the accounting systems now in opera- 
 tion are inadequate for these purposes. 
 
 The general statutes do not provide for any officer whose duty it 
 is to> keep the books of the town. Each of several municipal officers is 
 required to keep certain accounting records, but nowhere is there any 
 requirement for centralized control or for a set of accounting records 
 from which the exact financial status < of the municipality may be 
 taken on short notice. Because of the freedom given to the munici- 
 palities in most aspects of accounting procedure, but also because of 
 the existence of state laws directing various state officers to prescribe 
 isolated parts of their records, there is neither uniformity among 
 
24 
 
 municipalities nor complete consistency within the records of a single 
 municipality. 
 
 Probably the principal defect in the accounting procedures of 
 municipalities which have not gone considerably beyond the require- 
 ments of the general statutes is the utter lack of control over expendi- 
 tures, commitments, and receipts. Various officials are authorized to 
 draw orders upon the treasurer, and these orders are apparently pay- 
 able without even the formality of an independent check to see that 
 they are within the appropriation voted for the purpose and that the 
 municipality has received something for its expenditure. In the absence 
 of expenditure control it would be too much to ask that any control be 
 exercised over the manner in which spending agencies commit the 
 municipality to future expenditures. Such control is, however, essential 
 to the proper execution of any budget. Finally, some independent check 
 must be exercised over officials receiving public funds if complete and 
 accurate accounting records are to be obtained and if defalcations are 
 to be prevented. 
 
 We recommend : 
 
 That the budget-making authority of each budgeting municipality 
 be required to appoint a chief accounting officer for the municipality; 
 That the chief accounting officer hold office during the pleasure of 
 the budget-making authority or until his successor has been appointed 
 and be paid a salary to be determined by the budget-making authority ; 
 That no person be allowed to serve concurrently as chief account- 
 ing officer and treasurer of a budgeting municipality; 
 
 That any two or more budgeting municipalities each of which has 
 a population of less than 25,000 or average annual collections of gen- 
 eral property taxes of less than $500,000 be authorized by statute to 
 provide, through the joint action of their budget-making authorities, 
 for the appointment of a joint chief accounting officer ; 
 
 That the chief accounting officer be required to prescribe all 
 accounting forms and procedures of all fiscal officers except those 
 prescribed by the tax commissioner under the provisions of the follow- 
 ing recommendations ; 
 
 That section 68b of the Cumulative Supplement of 1933, vesting 
 in the state auditors the power to prescribe the cash book, selectmen's 
 orders, and school orders to be used by municipalities, be repealed; 
 
 That the state board of education and the tax commissioner confer 
 and reach an agreement on the proper classification of appropriations, 
 receipts, and expenditures of local boards of education; 
 
 That the tax commissioner prescribe the accounting system to be 
 used by the chief accounting officer and the treasurer of each budgeting 
 
25 
 
 municipality and provide assistance in establishing and keeping such 
 system ; 
 
 That provision be made in the accounting system of each budget- 
 ing municipality for the opening of an account for each appropriation 
 made by the legislative body immediately after the appropriation has 
 been voted ; 
 
 That the treasurer or other disbursing officer of a budgeting 
 municipality be prohibited from paying out any moneys of the munici- 
 pality in satisfaction of any claim presented to him except upon the 
 written requisition of the spending agency responsible for the expendi- 
 ture, duly countersigned by the chief accounting officer, which counter- 
 signature shall certify that the claim has been audited for its legality 
 and that the goods and services covered by the claim have been received 
 at the price agreed upon between the municipality and the party pre- 
 senting the claim, except that the treasurer or disbursing officer of a 
 budgeting municipality be authorized, with the approval of the budget- 
 making authority, to advance to any spending agency having an unen- 
 cumbered balance in its appropriation moneys to be known as an 
 "imprest petty cash fund" upon the request of the spending agency ; 
 
 That no commitment of a budgeting municipality be deemed to 
 be binding upon the municipality unless a document evidencing the 
 commitment shall have been signed by the spending agency and counter- 
 signed by the chief accounting officer, certifying that the commitment 
 is within the unencumbered balance of the appropriation against which 
 the commitment is chargeable, except that in the case of an emergency 
 a spending agency be permitted to make a commitment for not more 
 than fifty dollars without the countersignature of the chief accounting 
 officer, and except that spending agencies be permitted to enter into 
 contracts for the employment of personnel or for utility services which 
 are usually contracted for in advance for an amount not in excess of 
 the appropriations made for these purposes without the countersigna- 
 ture of the chief accounting officer ; 
 
 That blank forms of receipts to be used by the treasurer be pre- 
 numbered, bound in books, and delivered to the treasurer by the chief 
 accounting officer, and that a duplicate of each receipt issued be forth- 
 with filed by the treasurer with the chief accounting officer. 
 
 Auditing. 
 
 The statutes provide two alternative procedures by which towns 
 are expected to have their accounts audited, at least once a year. The 
 town may at its annual or biennial meeting elect two of its citizens 
 to serve as auditors at a compensation fixed by the town meeting, or 
 
26 
 
 it may provide for auditing by public accountants appointed for two- 
 year terms by the budget-making authority. In addition the tax com- 
 missioner may conduct an audit of the accounts of town treasurers 
 and collectors for towns with average annual receipts from taxation of 
 less than $50,000 and charge one-half of the costs to the towns. 
 
 Unfortunately a large majority of the towns of the state have 
 chosen to have their accounts audited by elected officials. These officials 
 frequently have no training in accountancy and are awarded meagre 
 compensation for their work. Under these conditions it is not surpris- 
 ing that cases of defalcation and inaccurate accounting commonly 
 occur and often persist for several years before they are discovered 
 and rectification is attempted. 
 
 We recommend : 
 
 That each major municipality be required to have a comprehensive 
 audit, made in accordance with rules and regulations prescribed by the 
 tax commissioner, of all of its financial records at least once annually 
 by accountants to be selected by the budget-making authority of that 
 municipality and approved by the tax commissioner; 
 
 That one-half of the cost of such audits be paid by the state and 
 one-half by the municipality ; 
 
 That, if the audit required by the foregoing recommendations is 
 not made by any major municipality, the tax commissioner be author- 
 ized to have such audit made by auditors selected by him and to charge 
 the full expense of such audit to the municipality ; 
 
 That the tax commissioner be authorized to have an audit made 
 of the accounts and records of any municipality at any time at the 
 expense of the state. 
 
 Bonding of municipal officials. 
 
 With changes which we have suggested in other aspects of munici- 
 pal finance, we believe that most of the problems which now exist 
 in the bonding of municipal officers will be adequately taken care of. 
 We do, however, recommend: 
 
 That, within any limits prescribed by law, the amount or amounts 
 of bonds to be given by officials of budgeting municipalities who are 
 required to be bonded under the law be determined by the budget-mak- 
 ing authority. 
 
 Custody of municipal funds. 
 
 Unlike most other states, Connecticut does not require that any 
 special security be offered by depositories holding public funds. Keli- 
 ance has instead been placed largely upon the good judgment of the 
 governing body of a municipality in its choice of banking institutions 
 
.27 
 
 and in a provision limiting the amount of public moneys which any 
 single municipal official may deposit in a given bank or trust company 
 to thirty per cent of the capital and surplus of the depository. 
 
 In the main we find this situation to be satisfactory. Weighty 
 objections can be raised against any of the schemes for giving special 
 security to public deposits, and the recent innovation of federal deposit 
 guarantee is tending to make such schemes at least partially obsolete. 
 Our principal objection to the present statutes governing this matter 
 is that the limitation of thirty per cent of the capital and surplus 
 of the depository applies to deposits of a single official and not to all 
 deposits of a given municipality. Furthermore, there is no penalty on 
 banks which permit the law to be violated. 
 
 We recommend : 
 
 That depositories for the whole or any part of the moneys 
 received by any person serving in an official capacity in any major or 
 minor municipality be designated by the budget-making authority of 
 that municipality ; 
 
 That the budget-making authority in no case knowingly permit 
 the deposit or keeping on deposit in any depository of any funds of 
 the municipality at any one time in excess of thirty per cent of the capi- 
 tal and surplus of the depository, except that a designated depository be 
 permitted to accept deposits of funds of a given municipality in excess 
 of thirty per cent of its capital and surplus only on condition that such 
 funds be segregated from the other funds of the depository and be placed 
 in a special or trust deposit to the credit of the municipality and the 
 depositing officials; 
 
 That any deposits made by an official of a municipality in a desig- 
 nated depository be held in the name of the municipality and that the 
 deposit account specify the name and title of the depositing officer; 
 
 That any designated depository which accepts deposits from any 
 one municipality in excess of thirty per cent of its capital and surplus, 
 except as special or trust deposits under the provisions of the foregoing 
 recommendation, be subject to a penalty of ten dollars per day for 
 each day during which such excess deposits are held, plus interest at 
 the rate of ten per cent per annum on the amount of excess deposits 
 for the time during which they are held by the depository ; 
 
 That the state bank commissioner be held responsible for the 
 enforcement of the penalty imposed upon designated depositories for 
 accepting deposits of public moneys in excess of the limits prescribed 
 by law and that, when any penalty shall be enforced and collected by 
 the state bank commissioner under the law, the proceeds of such penalty 
 be returned by him to the municipality holding the deposits which 
 give rise to the penalty. 
 
28 
 
 Municipal reporting. 
 
 Eeliable, readable, and informative reports are indispensable to 
 effective financial administration and to intelligent control by the 
 electorate. Many different reports are now required of municipal 
 officials, but for tbe most part these are specialized reports which are 
 coordinated and interpreted by no single authority. Annual municipal 
 reports are often poorly organized, uninteresting, and uninformative. 
 They are utterly lacking in the uniformity which is necessary if com- 
 parisons are to be made between municipalities. 
 
 We recommend: 
 
 That those municipal officials having duties connected with 
 general financial control who are or may be required to submit reports 
 of their activities to the municipality, including the chief accounting 
 officer, the treasurer, the selectmen, the assessors, and the tax collectors, 
 make their reports to the budget-making authority of the municipality 
 and that such reports contain such information and be prepared in 
 such form as may be prescribed by the budget-making authority; 
 
 That the budget-making authority have prepared annually a 
 report of the operations of the municipality during the last completed 
 fiscal year and that the tax commissioner be empowered to prescribe 
 the forms of the financial sections of the report. 
 
 State supervision of local finance. 
 
 The state cannot escape the responsibility to create an environment 
 within which municipal affairs may be conducted in an orderly and 
 business-like manner and to provide the necessary supervision to assure 
 compliance with the law. A fuller recognition of this responsibility 
 than now exists will tend, not to weaken, but rather to strengthen local 
 self-government. 
 
 To make effective the institution of local self-government, it is 
 essential that every possible step be taken to build up and make articu- 
 late an informed public opinion. Most of the foregoing recommenda- 
 tions, if adopted, will contribute to this end. But this movement may 
 be furthered by directing the tax commissioner to investigate and 
 report upon the financial affairs of any municipality in the state in 
 which he has reason to think that financial practices are illegal or 
 improper. 
 
 The tax commissioner should also be kept in touch with all 
 municipal litigation upon matters pertaining to taxation and finance 
 to the end that the state's interests may be preserved and its laws 
 properly enforced. 
 
29 
 
 Finally, when all measures designed to protect the credit of a 
 municipality have failed and it has defaulted upon its obligations, the 
 state, through the superior court and a receiver answering to a state 
 official, should take charge of its finances until such time as its credit 
 is restored. Eecommendations for changes in the present municipal 
 receivership law are made in the following section, in which municipal 
 indebtedness is discussed. 
 
 We recommend: 
 
 That, whenever the tax commissioner has reason to believe that the 
 financing of any municipality of the state is being improperly con- 
 ducted and that the prevalent financial practices of that municipality 
 will prove disadvantageous to its taxpayers and to its credit standing, 
 he shall cause an investigation to be made of the finances of that 
 community and shall have a report of that investigation printed and 
 distributed among the taxpayers and citizens of that municipality; 
 
 That the local counsel of a municipality be required to notify the 
 tax commissioner of the commencement of any litigation by or against 
 the municipality involving the interpretation of any statute relating to 
 municipal financial administration or taxation within thirty days of 
 the commencement of such litigation and that the local counsel be 
 required to submit to the tax commissioner all opinions rendered by 
 him on the questions to be litigated. 
 
 Municipal indebtedness. 
 
 It is generally accepted governmental policy to grant to munici- 
 palities the right to borrow money only within more or less rigid limita- 
 tions imposed by the state. In Connecticut these limitations have taken 
 several forms, but the only ones of much present importance are (1) 
 the restriction of municipal bonds largely to serial issues with a 
 maximum maturity date of 40 years and (2) the prohibition of any 
 further bond issues when the aggregate indebtedness of a town and all 
 other political subdivisions within the town has reached an amount 
 equal to or in excess of five per cent of the grand list. 
 
 The existence of these measures of state control has not prevented 
 a rapid growth of municipal indebtedness. The gross indebtedness of 
 towns, cities, and boroughs increased by 106 per cent from 1892 to 
 1912, a period during which the municipalities were free to borrow 
 almost at will, and by 271 per cent from 1912 to 1932. The gross debt 
 less sinking funds of all reporting municipalities now amounts to 155 
 million dollars and, exclusive of any debt retirement, imposes annual 
 charges upon the municipalities in excess of 7 million dollars. In spite 
 of the fact that there have been almost no cases of actual default among 
 Connecticut municipalities, it is obvious that they are struggling under 
 
30 
 
 a heavy burden of indebtedness, which must be brought under better 
 control if substantial relief from the burden of property taxes is to 
 be effected. 
 
 The present law governing municipal indebtedness is inadequate 
 to deal with the problem. It is vague, incomplete, and lacking in con- 
 sistent principles. The statutory provisions under which indebtedness 
 is supposed to be authorized are not generally understood and seem to 
 be commonly abrogated or circumvented by special acta. Borrowing is 
 permitted for terms which are generally far too long, and no real 
 control is exercised over interest rates. 
 
 But the principal criticism of the present law is that it does not 
 embody an effective debt limit. The present debt limit is highly 
 arbitrary; it bears no relationship to need and only a slight relation- 
 ship to ability and willingness to service indebtedness. Assessed valua- 
 tions may be and are varied within wide limits without any change* in 
 the value of taxable property. Property upon which taxes are delinquent 
 and even tax-exempt property may be included in the grand list for 
 the computation of the debt limit. 
 
 In 75 towns the debt limit is shared by two or more municipalities 
 with the anomalous result that borrowing power is allocated according 
 to the rapidity with which debt is incurred. Especially in members 
 of these municipal groups but also in other towns, the debt limit does 
 not exercise continuous control over indebtedness but is truly effective 
 only when borrowing power nears exhaustion. Even then the 
 power to issue evidences of indebtedness other than bonds continues 
 indefinitely. 
 
 The Commission proposes that most of the present law governing 
 municipal indebtedness be superseded by new legislation. We suggest 
 that the borrowing of money require in every case the approval of the 
 budget-making authority and that, in all cases involving the borrowing 
 of money to be repaid in part or in full after the end of the next 
 succeeding fiscal year, the further consent of a majority of the legis- 
 lative body be required. 
 
 Any anticipated borrowing to be made in one year and retired 
 in some succeeding year should be included among the estimated 
 receipts as listed in the budget. At the annual meeting at which the 
 budget is legislated upon, these budgeted borrowings as recommended 
 by the budget-making authority should be authorized, reduced, or re- 
 jected, but not increased by the legislative body. We further urge that 
 borrowing of this sort be permitted only in case the levy of property 
 taxes as proposed in the budget and approved by the legislative body 
 is at least ten per cent higher than the average annual levy for the 
 past three years. This proposal embodies one of the most firmly estab- 
 
31 
 
 lished principles of public finance; — that borrowing should.be resorted 
 to only to finance unusual, non-recurring expenditures. Its adoption 
 would assure the municipalities of continuous and effective control 
 of indebtedness. 
 
 Borrowing not authorized in the budget would take two forms. 
 First there would be borrowings to come due in a following fiscal year 
 necessitated by the failure of revenues to amount to the estimates 
 embodied in the budget or 1 by the making of additional appropriations 
 after the fixing of the tax levy; secondly there would be borrowing 
 in anticipation of taxes levied but not yet due. 
 
 Borrowings of the first type are essentially similar to those 
 authorized in the budget and should be subject, insofar as possible, 
 to similar controls. We therefore propose that a certain portion of 
 such borrowings take the form of short-term debt which must be 
 retired in the following fiscal year and covered in the tax rate for 
 such year. The amount of this portion should be determined by sub- 
 tracting the amount of the current year tax levy from 110 per cent 
 of the average of the last three levies preceding the date upon which 
 the borrowing is authorized. 
 
 Tax-anticipation borrowing should be limited to not more than , 
 fifty per cent of the amount of taxes levied but as yet not due and 
 not collected. Tax-anticipation notes should be issued against a speci- 
 fied installment of a tax levy and should constitute a prior claim to 
 collections on such installment. 
 
 The Commission further proposes that there be retained a maxi- 
 mum debt limit but in quite different form from the present. In place 
 of the grand list we would substitute property tax collections as a 
 measure of borrowing power. Such a debt limit would be separate and 
 distinct for each separate municipality; it would afford a measure 
 of both ability and willingness to pay taxes which is objective as 
 . contrasted with, the present subjective measure resting on assessments 
 bearing widely varying ratios to true values; it is a logical corollary 
 to the present method of distributing the state, military, and county 
 taxes and state aid. There is no danger, in our opinion, that such 
 a debt limit would encourage extravagance as a means of increasing 
 borrowing power. 
 
 In recommending a debt limit, the Commission has carefully con- 
 sidered the existing indebtedness of each municipality of the state. On 
 the basis of this study it has concluded that a debt limit equal to the 
 total collections of general property taxes during the three last com- 
 pleted full fiscal years would prove satisfactory to all except a few 
 minor municipalities. These few minor municipalities can be cared 
 for by means of separate legislation. 
 
32 
 
 With respect to the authorization of borrowings we recommend: 
 
 That no borrowings of money by a municipality be permitted 
 except upon the recommendation of the budget-making authority : 
 
 That all long-term borrowings (borrowings coming due beyond 
 the end of the fiscal year next succeeding the fiscal year in which 
 they are made) further require the passage by majority vote of the 
 legislative body (subject to any requirements of a municipality oper- 
 ating under special acts as to approval by electors by ballot or other- 
 wise) of an ordinance stating the purpose for which the debt is 
 incurred, the maximum amount of the debt so authorized, the maxi- 
 mum interest rate which the debt shall bear, the' maximum period 
 within which it will mature, and the status of the debt with respect 
 to the debt limit; 
 
 That all short-term borrowings the proceeds of which are included 
 among the anticipated receipts listed in the budget as recommended 
 by the budget-making authority require the authorization by majority 
 vote of the legislative body ; 
 
 That all other short-term borrowings be authorized by action of 
 the budget-making authority. 
 
 With respect to budgetary provisions for borrowing we recom- 
 mend: 
 
 That only such borrowings as are to be made in the budget year 
 and retired in a subsequent fiscal year be included among the antici- 
 pated receipts listed in the budget; 
 
 That the legislative body, by majority vote, be permitted to 
 authorize an amount of borrowing equal to or less than that recom- 
 mended by the budget-making authority in the budget; 
 
 That the budget-making authority be permitted to recommend, 
 and the legislative body to approve, borrowings covered in the budget 
 only if the amount of the property tax levy necessitated by the appro- 
 priations approved in the budget exceeds by at least ten per cent the 
 ■ average annual levy of property taxes for the last three full fiscal 
 years prior to the budget year. 
 
 With respect to borrowing not covered in the budget, we recom- 
 mend: 
 
 That, when borrowing unauthorized in the budget is made because 
 of the failure of anticipated revenues or because of additional appro- 
 priations, so much of such borrowing shall come due before the end 
 of the next fiscal year as shall represent the amount, if any, by which 
 the current year property tax levy falls short of 110 per cent of 
 the average of the last three levies (including the current year levy) ; 
 
33 
 
 That the issue of tax-anticipation notes be permitted only against 
 uncollected taxes levied but not yet due nor collected and to an amount 
 not in excess of fifty per cent of such taxes; 
 
 That all tax-anticipation borrowings be evidenced by notes speci- 
 fying the particular installment of taxes against which they are issued 
 and that the proceeds of such installment be devoted in the first instance 
 to retirement of such borrowings ; 
 
 That, in case an installment of taxes proves insufficient to retire 
 the tax-anticipation notes issued against it, such notes be made a prior 
 lien upon the next installment of taxes payable to the municipality. 
 
 With respect to borrowings of all types we recommend: 
 
 That a maximum maturity of thirty years be established for all 
 evidences of indebtedness of a municipality except water bonds and 
 bonds issued by a municipal receiver; 
 
 That a maximum maturity of forty years be permitted for bonds 
 issued for the construction of waterworks systems when such bonds 
 constitute a general obligation of the municipality; 
 
 That there be retained the present provisions limiting the 
 maturity of bonds issued by a receiver to ten years and requiring that 
 all municipal bonds except such as are issued under the provisions of 
 chapters 33a and 33b of the Cumulative Supplement be serial in form ; 
 
 That a municipality be required to retire its serial issues in equal 
 or decreasing annual installments beginning not later than two years 
 after the date of issue; 
 
 That no municipality be permitted to borrow at an effective rate 
 of interest (as determined by standard bond yield tables) in excess 
 of six per cent except with the written consent of the tax commissioner ; 
 
 That the debt limit be fixed at the amount of all collections of 
 general property taxes for the last three full completed fiscal years; 
 
 That no municipality be .permitted to borrow money which will 
 cause that part of its net indebtedness which is subject to the debt 
 limit to exceed the debt limit and that net indebtedness be defined as 
 all outstanding borrowings of money or money's worth (including 
 commitments) less sinking funds held against such borrowings; 
 
 That the following types of indebtedness be excluded from the 
 terms of the debt limit: 
 
 1. Indebtedness incurred for construction and maintenance of 
 sewerage and waterworks systems under the terms of chapters 
 33a and 33b of the Cumulative Supplement, which is not a 
 general obligation of the municipality; 
 
34 
 
 2. Indebtedness incurred for the purpose of supplying gas, elec- 
 tricity, and water and for the construction of suhways, pro- 
 vided such indebtedness is outstanding upon the effective date 
 of the proposed legislation; 
 
 3. Indebtedness incurred subsequent to such date for the purpose 
 of supplying gas, electricity, water, and/or similar utility serv- 
 ices, provided such indebtedness is secured only by the revenues 
 from such services and/or by the property used in providing 
 such services; 
 
 4. Indebtedness outstanding upon the effective date of the pro- 
 posed legislation, provided it has been issued under the 
 authority of a special act permitting its issue outside the debt 
 limit ; 
 
 5. Indebtedness payable solely out of the proceeds of special 
 assessments upon property specifically benefited by the 
 expenditures for which such indebtedness is incurred, pro- 
 vided that all such indebtedness incurred subsequent to the 
 effective date of the proposed legislation be made payable in 
 not more than fifteen equal or decreasing annual installments ; 
 
 6. Indebtedness incurred in anticipation of the receipt of state 
 funds allotted to state aid road projects; 
 
 7. Indebtedness incurred for refunding purposes until such time 
 as the refunded bonds are retired; 
 
 8. Tax-anticipation loans; 
 
 9. The bonds recommended to be issued as part of the program 
 for synchronizing fiscal years and tax due dates; 
 
 That in case of an emergency the budget-making authority with 
 the approval of two-thirds of the legislative body be permitted to apply 
 to the tax commissioner for the appointment of an investigating board 
 of three members and that, upon the recommendation of such board, 
 the tax commissioner be permitted to approve the borrowing of money 
 in excess of the established debt limit; 
 
 That the present supervisory powers of the Emergency Relief 
 Commission over municipal receivers be transferred to the tax commis- 
 sioner ; 
 
 That a municipal receiver, with the approval of the superior court 
 and of the tax commissioner, be empowered to make appropriations and 
 lay taxes; 
 
 That the proceeds of any long-term borrowing be segregated in a 
 separate deposit account to be used only for the purposes designated 
 
35 
 
 in the authorizing ordinance unless otherwise provided by subsequent 
 ordinance ; 
 
 That the bonds of all municipalities be certified by an incorpo- 
 rated bank or trust company appointed to act as disbursing agent in 
 the payment of interest and principal of such bonds ; 
 
 That all bonds of a municipality be advertised and sold according 
 to provisions specified by law. 
 
PART III 
 
 THE PKESENT SYSTEM OF STATE AND LOCAL TAXES 
 
 The 1 general peopebty tax. 
 Importance. 
 
 In Connecticut, as in all other states, the general property tax 
 provides the greater part of all tax revenues raised by state and local 
 governments. Some seventy million dollars, constituting over 80 per 
 cent of all local revenues and over 60 per cent of all state and local 
 revenues, are currently raised by this one tax. There is no probability 
 that it will soon assume a position of secondary importance. Logically, 
 therefore, tax reform should begin with the general property tax. 
 
 Exemptions. 
 
 All property is taxable unless specifically exempt. The numerous 
 exemptions granted in Connecticut may be classified as (1) illegal 
 exemptions, consisting principally of exemptions granted by towns to 
 attract industrial concerns, (2) technical exemptions, consisting of 
 exemptions from the general property tax accorded in recognition of 
 the fact that the property so exempted is taxed by other means, and 
 (3) true exemptions granted to government-owned property, privately 
 owned property used for quasi-public purposes, property up to certain 
 amounts owned by the blind and by soldiers, sailors, and their relatives, 
 and property constituting a minimum of subsistence. 
 
 Illegal exemptions have been gradually reduced in recent years 
 and have now all but disappeared; technical exemptions do not raise 
 the question whether property should or should not be taxed, but rather 
 the manner in which a tax should be imposed. The real problem of 
 exemptions is thus narrowed to what we have termed true exemptions. 
 Exemptions of this one class have become increasingly important, over 
 the twenty-year period for which official data are now available. In 
 1929, the last quadrennial year for which complete figures have now 
 been compiled, total exemptions of 479 million dollars were reported. 
 In the aggregate they amounted to 15.9 per cent of the grand list in 
 that year and represented a loss in taxes, computed at the average rate 
 for the state as a whole, of nearly 12 million dollars. 
 
 Government-owned property, which constituted about ten per cent 
 of all exempted property in 1929, raises fewer problems of exemption 
 
37 
 
 than does privately owned property. It is only when the property owned 
 by one government lies within the jurisdiction of a second government 
 that any reason exists for taxing such property. To some extent state 
 laws now recognize this exception to the general rule by permitting the" 
 taxation by one municipality of certain properties of other municipali- 
 ties and by providing for state grants to municipalities in lieu of prop- 
 erty taxes on certain state properties. These laws represent the first 
 step toward the development of a policy which should eventually 
 remove any remaining problems of the exemption of public property. 
 
 The exemption of privately owned property is essentially a sub- 
 sidy to the owners and should be clearly recognized as such. Presum- 
 ably the property qualifying for exemption is devoted to a public 
 service which would have to be performed at public expense in the 
 absence of private institutions. Yet the amount of the subsidy is deter- 
 mined by the value of the property so exempted and not by the value 
 which the public attaches to the services which are rendered. In the 
 light of these principles many of the exemptions now granted to 
 privately owned property are difficult to defend. Once exemptions are 
 granted, it is essential that they be strictly construed and carefully 
 administered if the integrity of the property tax base is to "be preserved. 
 
 The Commission is convinced that exemptions present one of the 
 most important problems of the general property tax. It is, however, 
 a problem which was made the exclusive subject of a report of a special 
 commission appointed in 1923 and reporting to the General Assembly 
 in 1925. Clearly, with the many other fields of study laid out for the 
 present Commission, it would have been impossible to have added much 
 to the report of this earlier commission. We have therefore refrained 
 from recommending wholesale changes in the present law governing 
 exemptions from property taxation and propose instead that this 
 subject be assigned for investigation to another special commission. 
 The recommendations which we make are concerned principally with 
 the administration of exemption laws. 
 
 We recommend: 
 
 That there be repealed the provision denying exemption to the 
 property of any scientific, educational, literary, historical, charitable, 
 agricultural, horticultural, and non-religious cemetery organization 
 when any officer, member, or employee of such organization receives 
 now or shall receive in the future any pecuniary profit other than rea- 
 sonable compensation for services rendered; 
 
 That, subject to the application requirements specified below, 
 property of such organization, corporation, association, or trust be 
 exempted from taxation except when any officer, member, shareholder, 
 or employee of such organization shall be receiving or shall previously 
 
3S 
 
 have received any pecuniary profit from the operations of such organi- • 
 zation other than reasonable compensation for services rendered in 
 effecting one or more of the purposes of the organization, or as proper 
 beneficiaries of a strictly charitable purpose, or when such an organiza- 
 tion is a guise or pretense for the making of pecuniary profits for 
 itself or for any one interested in it, or when such an organization is 
 not in good faith created and conducted for one or more of the purposes 
 on account of which exemption is granted ; 
 
 That the original exemption of any property of a privately oper- 
 ated organization, association, corporation, or trust be granted only 
 after an application for such exemption has been filed with the tax 
 commissioner and approved by him and after such exemption has been 
 certified by the tax commissioner to the appropriate local assessors ; 
 
 That the property of any privately operated organization, associa- 
 tion, corporation, or trust continue to be exempt only if such organiza- 
 tion files with the assessors quadrennially, as required by law, a state- 
 ment of its property for which exemption is claimed ; 
 
 That the statutes be amended to make more definite the period 
 within which a war veteran must have served in the combatant forces 
 of the United" States before he or his relatives are entitled to the exemp- 
 tions from property taxes granted by the general statutes. 
 
 Assessment'. 
 
 The assessment of taxable property is usually conducted by a 
 board of three members in each town, elected for overlapping terms 
 of three or four years. Their compensation is fixed by the town at or 
 above a statutory minimum of $2.50 per day. 
 
 In most towns the assessment day is October 1. Within the month 
 of October the taxpayer is required to list all taxable property held 
 on that date, and the assessors are required to assess all such property, 
 whether voluntarily listed or not, at its market value on the assess- 
 ment date. By January 31, the assessors' work is completed, and their 
 lists and an abstract thereof are filed with the town clerk. 
 
 In February the assessment work is continued by the board of 
 relief. This is usually an elective body of two to five members serving 
 overlapping terms of three years at a compensation of $2.50 per day 
 or more as determined by the town. This board has the power to add 
 unassessed taxable property to the grand list and, within certain limi- 
 tations, to increase or decrease the assessment of any property in the 
 list. Any taxpayer may appeal for relief to this board without expense 
 and with a minimum of inconvenience. If still aggrieved, he may 
 carry his appeal to the superior court, or he may appeal to the court 
 
39 
 
 from a manifestly excessive assessment without the intermediate appeal 
 to the board of relief. 
 
 The gross grand list of the state increased from 1,935 million 
 dollars in 1920 to a maximum of 3,178 millions in 1931 and has now 
 declined to 2,985 millions. Eeal estate, including manufacturing 
 machinery, made up 82.7 per cent of the grand list in 1920 and has 
 increased in relative importance almost constantly until in 1933 it 
 made up 90.3 per cent of the total. Practically all of the remainder 
 of the grand list consisted of tangible personal property, which in turn 
 consisted largely of (1) goods of merchants and manufacturers, (2) 
 motor vehicles and aircraft, and. (8) the distribution systems of water, 
 gas, and electric companies. 
 
 Such statistics as are available support the contention of those 
 familiar with assessment results in the state that wide variations 
 exist in the relation of assessed to true values among and within the 
 towns of the state. From reports of the assessors themselves it is appar- 
 ent that underassessment is — or at least was prior to the depression — 
 the ride rather than the exception, and it is a well-established fact 
 that, where underassessment prevails, inequalities in assessment are 
 likewise prevalent. Studies conducted at the Storrs Agricultural Experi- 
 ment Station, in the office of the tax commissioner, and by this Com- 
 mission, as well as the scientific reappraisals recently conducted in 
 several towns of the state, all point to the same conclusion. Much 
 tangible personal property is unassessed, and such real and personal 
 property as is assessed is listed at widely varying proportions of true 
 value. Such conditions evidence wholesale disregard for the law and 
 wide departure from equity in the distribution of the property tax 
 burden. 
 
 The experience of many years with property taxation, both in this 
 country and abroad, has demonstrated the futility of including in the 
 property tax base property which cannot be discovered and valued 
 with reasonable effectiveness. The Commission believes that this experi- 
 ence points the way to the only lasting solution of the problems of 
 the general property tax. It proposes (1) to eliminate from the tax 
 base those kinds of property which cannot be effectively discovered and 
 valued or which are not of sufficient importance to justify the admini- 
 strative effort and expense required for their assessment, (2) to pro- 
 vide more definite and practicable rules and procedures- for the assess- 
 ment of property remaining taxable, and (3) to strengthen the admini- 
 strative organization responsible for assessing taxable property. 
 
 The Commission finds that the two remaining classes of intangible 
 property and ten out of fourteen classes of tangible personal property 
 
40 
 
 on the grand list may be eliminated without reducing the grand list of 
 the state by more than half of one per cent. In only a few towns of the 
 state would the removal of these items necessitate any change in the 
 millage rate. All towns would benefit by the reduction in the admini- 
 strative work involved in the assessment of unimportant classes of 
 property, by the improvement which this would make possible in the 
 assessment of important classes, and by the greater equity resulting 
 from the abandonment of the farcical effort to tax property which is 
 disclosed only by the scrupulously honest, the timid, or the ignorant. 
 
 Besides the three important classes of personal property listed 
 above, namely, goods of merchants and manufacturers, motor vehicles 
 and aircraft, and the distribution systems of water, gas, and electric 
 companies, the only other class of personal property which makes up 
 more than two-tenths of one per cent of the grand list is household 
 furnishings, which are now assessed for 25 million dollars and which 
 yield some $600,000 in property taxes. Although assessments and tax 
 receipts of these amounts are not to be ignored, it is well known that 
 few other classes of property are listed and valued as incompletely and 
 as unequally as household furnishings. Furthermore, the exemption of 
 this property, even though it might necessitate a fractional increase in 
 the tax rate, would shift but slightly the burden of taxation, for the 
 reason that much the same persons pay real property taxes as now 
 pay taxes upon household property. We therefore propose that this 
 class of property, when not used for business or professional purposes, 
 as well as all other personal property except the inventories, equipment, 
 and machinery of mercantile, manufacturing, mechanical, and profes- 
 sional enterprises and the distribution systems of public utilities, be 
 removed from the grand list. 
 
 A different solution must be found for the problem of local taxes 
 on motor vehicles. They present formidable problems of assessment 
 and even greater problems of tax collection, but they are too important 
 a source of revenue to be summarily freed from property taxation. 
 We propose that this property be assessed by the state commissioner of 
 motor vehicles and that collection be forced by the simple process of" 
 revoking licenses. In order to discourage the declaration of false resi- 
 dences by those in towns with high tax rates, we propose a uniform 
 rate of 20 mills to be applied to valuations arrived at by reducing 
 manufacturers' list prices of the years of manufacture by an allow- 
 ance for depreciation prescribed by statute. The proceeds of the tax 
 should be distributed to the respective municipalities in which the 
 owners of motor vehicles reside. 
 
 Should these changes be made in the general property tax, there 
 would remain in the grand list only two main classes of property — 
 
41 
 
 real estate and tangible personal property used in professions or busi- 
 ness (other than farming). By so limiting the work of the assessors, 
 problems of discovering and valuing, property would be fewer in num- 
 ber, but they would by no means be entirely eliminated. In fact much 
 the most difficult assessment problems would still remain. 
 
 Although there is general agreement that value means the amount 
 of money for which property can be sold within a reasonable time under 
 circumstances in which neither the buyer nor the seller is forced, the 
 difficulty of determining the value of certain types of property is almost 
 insuperable. Market value is the best general basis for the assessment 
 of property, but, where it is elusive or quite unascertainable and where 
 other standards of assessment are available, the statutes should frankly 
 recognize that taxation upon some other basis may prove, not only more 
 practical, but also much more equitable. The Commission proposes that 
 tangible- personal property be assessed at valuations established from 
 the inventory and accounting records of the taxpayers. 
 
 The Commission is confident that adherence to the statutory rules 
 of assessment which are set forth below would result in much greater 
 tax equity than is attainable under the strict application of the rule of 
 market value. But it is aware that such a program calls for an admini- 
 stration competent to analyze the accounting records of business con- 
 cerns of all sorts and to compile the figures necessary for the accurate 
 application of the proposed formulas. It is unlikely that such an admini- 
 stration could or would be established in each of 169 towns. We there- 
 fore propose that the. task of assessing tangible personal property be 
 transferred from local assessors to the office of the state tax commis- 
 sioner. 
 
 In order to take the fullest advantage of the accounting records of 
 business concerns, it is desirable to shift the assessment date from 
 October 1 to January 1. This would also assist in the establishment of 
 the proposed fiscal years and tax due dates. By May 1, all local assess- 
 ment procedures could be completed, and the tax commissioner could 
 have made a preliminary audit of all returns of taxable personal prop- 
 erty, upon the basis of which assessments of this property would be 
 reported to local assessors for inclusion in local grand lists. Upon the 
 grand list as so made up, the local tax could be levied, and tax bills 
 made out. Subsequent field audits by the tax commissioner could pro- 
 vide the basis for any necessary additional assessments or refunds. 
 
 By far the largest part of the taxable property would still remain 
 with the local assessors. Real property can be best assessed by local 
 officials, and no adequate substitute for market value exists for such 
 property. It is possible, however, greatly to improve the listing and 
 valuation of such property by the use of tax maps and by the develop- 
 
42 
 
 ment of scientific formulas, procedures, and rules. Many years of 
 experience in this and other states have proved the usefulness of such 
 procedures, and every effort should be made to extend them through- 
 out the state. This will necessitate changes in the selection, tenure, 
 and compensation of assessors, financial and technical assistance by the 
 state in the preparation of adequate tax maps, and statutory recognition 
 of valuations established by such procedures. The Commission proposes 
 that assessors be appointed by the budget-making authority for six-year 
 terms and that the state tax commissioner supervise the preparation of 
 tax maps from the aerial surveys rceently made under the supervision 
 of the state planning board, one-fourth of the cost of such maps 
 being defrayed by the state. 
 
 Although some machinery is necessary by which taxpayers may 
 secure redress from illegal and inequitable assessments without the 
 expense and delay which are inevitable in court proceedings, experi- 
 ence has demonstrated that local boards of relief are unsatisfactory for 
 this purpose. Very often such boards, although lacking in facilities and 
 experience and forced to dispose of many appeals within a period of 
 a few days, assume responsibilities which are essentially those of the 
 assessor and exercise their powers to render less equitable the assess- 
 ments carefully arrived at by the original assessing authority. It is 
 therefore proposed that the purely administrative duties of local boards 
 of relief be returned to the boards of assessors and that a state board of 
 tax appeals be established to assume the task of passing on appeals 
 from final assessments of local and state taxes, subject, of course, to 
 further appeal to the courts. This board should function under two 
 distinct procedures, a formal procedure for the disposal of appeals on 
 large assessments and an informal procedure to provide a means for 
 hearing the complaints of small taxpayers. It should be permitted to 
 appoint deputies, referees, or committees to hold hearings among the 
 towns and to report their findings and recommendations to the board. 
 
 We recommend: 
 
 That, in addition to present statutory exemptions, net earnings of 
 enrolled vessels and all tangible personal property which is not used for 
 business or professional purposes be exempted from all property taxa- 
 tion, provided that any such property owned by farmers and used on 
 farms be construed as not being used for business or professional pur- 
 poses and that property used for business purposes be construed to 
 include raw materials, goods-in-process, finished goods, stock-in-trade, 
 machinery, office and other equipment, the distribution systems of 
 local public utilities, and all other business inventories, equipment, and 
 supplies ; 
 
43 
 
 That motor vehicles be exempted from local property taxation 
 and be subjected to a special property tax administered by the state 
 commissioner of motor vehicles; 
 
 That the special property tax on motor vehicles be 20 mills applied 
 to the manufacturers' list prices as of the years of manufacture, less 
 depreciation at rates prescribed in a schedule written into the statutes ; 
 
 That the special property tax on all taxable motor vehicles 
 registered from January 1 to May 1 become due on August 1 and pay- 
 able without penalty until August 31 and that such tax on taxable 
 motor vehicles registered after May 1 be due and payable at the time 
 of registration; 
 
 That, in place of the present provisions under which the assessor 
 reduces the total taxable property of the needy blind and of service 
 and ex-service men or their relatives by certain exemptions varying 
 from $1,000 to $3,000, such exemptions be administered by the town 
 tax collector and the collector of any other municipalities within which 
 any such person owns taxable property by means of a credit against the 
 tax bills of such person equal in amount to the tax rate multiplied by 
 the amount of the property exemption to which such person is legally 
 entitled ; 
 
 That any person be permitted to apply against the special prop- 
 erty tax on motor vehicles the excess of the amount of property tax 
 exemption to which he is entitled under the preceding recommenda- 
 tion over the amount of such exemption allowed against, local property 
 taxes ; 
 
 That the revenues from the special property tax on motor vehicles, 
 after deducting reasonable administrative costs, be remitted by the 
 state treasurer to the municipalities in proportion to the taxes collected 
 from resident owners of motor vehicles in each municipality; 
 
 That a similar special property tax be devised for aircraft; 
 
 That taxable real and personal property be assessed and taxed in 
 the town in which it is located on the assessment day,. except that the 
 goods, wares, and merchandise of itinerant traders having no perma- 
 nent place of business be assessed in the towns in which the owners 
 reside ; 
 
 That only such real and personal property be assessed and taxed 
 as exists in any town on the assessment day, except that when, because 
 of its seasonal character, the stock-in-trade of any business on the 
 assessment day does not represent the amount of stock-in-trade reason- 
 ably required to carry on such business, the average monthly value of 
 the stock-in-trade of such business be assessed and taxed; 
 
44 
 
 That all property in general, unless otherwise provided by law, 
 and that real property in particular be assessed at its value; 
 
 That value be defined in the statutes as the amount of money for 
 which the property could be sold within a reasonable time under cir- 
 cumstances in which neither the buyer nor seller was forced; 
 
 That statutory recognition be given to the assessment of real prop- 
 erty according to standard methods and formulas which by experience 
 have demonstrated their effectiveness as aids in assessing real property 
 at its value; 
 
 That real property to which easement rights have been granted 
 be assessed at the value which would obtain in the absence of such 
 easement rights; 
 
 That the assessment of inventories', machinery, and equipment of 
 mercantile, manufacturing, mechanical, and professional enterprises 
 be determined according to statutory formulas and rules which can be 
 applied by means of information ascertainable from the accounts of 
 the owners or in other ways; 
 
 That stock-in-trade, raw materials, supplies, and any finished 
 parts which have been purchased and are to be used in any assembling 
 process of any merchant, manufacturer, or local public utility be 
 assessed for taxation purposes at the option of the taxpayer either 
 (1) at seventy per cent of their actual cost to the taxpayer, including 
 transportation charges, or (2) at seventy per cent of their market price 
 to the taxpayer on the assessment day, including transportation charges ; 
 
 That the goods-in-process and finished goods of any manufacturing 
 or mechanical business be assessed at seventy per cent of the sum of 
 (1) the valuation of the raw materials or purchased parts entering into 
 such goods, determined according to the formula recommended for the 
 valuation of such materials and parts, and (2) the cost of all direct 
 labor applied to such goods; 
 
 That machinery and equipment of mercantile, manufacturing, 
 mechanical, and professional enterprises and of local public utilities, 
 except the distribution systems of such utilities, be assessed at seventy 
 per .cent of either (1) their invoice cost, including transportation 
 charges, less reasonable allowances for depreciation and obsolescence as 
 established for purposes of the federal income tax or (2) if invoice cost 
 cannot be' ascertained, the valuation established for computing depre- 
 ciation under the federal income tax, less reasonable allowances for 
 depreciation and obsolescence as established for purposes of the federal 
 income tax; 
 
 That the tangible personal property included in the distribution 
 systems of water, gas, and electric companies be assessed at seventy 
 per cent of the valuation arrived at by adding to the original or invoice 
 
45 
 
 cost of the property any transportation charges and any costs of con- 
 struction, erection, assembling, or fabrication (except the cost of exca- 
 vation, paving, backfill, and other labor cost applied to property not 
 belonging to such companies) and subtracting reasonable allowances 
 for depreciation and obsolescence as established for purposes of the 
 federal income tax; 
 
 That, when the application of the rules of valuation recommended 
 to be applied to tangible personal property results in disproportionate 
 and inequitable assessments, the assessing authority be given power to 
 set aside such rules and apply in their stead such other rules as will 
 produce more reasonable, proportionate, and equitable assessments ; 
 
 That the assessment date be January 1 ; that the last day for filing 
 tax lists without penalty be February 1; that the local assessors be 
 required to complete their tentative assessments by April 1 ; thalj com- 
 plaints against the tentative assessments be heard and disposed of by 
 assessors during April; and that final assessments be established and 
 tax lists and abstracts be filed for public inspection not later than 
 May 1; 
 
 That all taxable tangible personal property be listed with the tax 
 commissioner and assessed by him; that the assessments established by 
 means of an office audit of the tax lists of this property be certified by 
 the tax commissioner to the local assessors a sufficient time before May 1 
 to be included in the local abstracts of taxable property ; and that such 
 assessments -be subject to revision, after May 1 by the tax commissioner 
 when such action is found necessary from field audits of the tax 
 returns ; 
 
 That the tax commissioner be given power to authorize the 
 budget-making authority of any town, upon written petition, to dis- 
 pense with the requirement that taxpayers file lists of taxable real 
 estate with the local assessors when, upon investigation, the tax com- 
 missioner shall find that the records of assessors of such town are ade- 
 quate to determine the ownership and valuation of all taxable property 
 in such town without the aid of tax lists ; 
 
 That any town be permitted to enter into a contract with the tax 
 commissioner under which, within a specified time and within a max- 
 imum cost agreed to by both parties, the tax commissioner would agree 
 to furnish to the towns aerial maps enlarged from the contact prints on 
 file in the State Library and delineated for all parcels of real estate 
 subject to separate ownership and recorded in the land records of such 
 town; 
 
 That the tax commissioner be given the necessary authority to ful- 
 fill contracts to furnish tax maps and be given a limited annual appro- 
 priation for the purpose to be allotted to such contracts in the order in 
 which applications of the towns are filed with the tax commissioner; 
 
46 
 
 That seventy-five per cent of the total cost of any contract made to 
 furnish tax maps be charged against the municipality and twenty-five 
 per cent of such cost be paid by the state ; 
 
 That the assessors of each town be appointed by the budget-making 
 authority for six-year terms; that they be removable by the budget- 
 making authority for cause after hearing; that their compensation be 
 fixed by the budget-making authority; and that they be supplied with 
 the necessary equipment and assistance to discharge . their duties 
 effectively ; 
 
 That local boards of relief be abolished ; that their administrative 
 powers be transferred to the local assessors ; and that their quasi-judicial 
 powers of hearing and rendering decisions on appeals on local assess- 
 ments be transferred to the proposed state board of tax appeals; 
 
 That a state board of tax appeals of three members, appointed for 
 overlapping terms of six years by the Governor with the advice and 
 consent of the General Assembly, be established; 
 
 That the state board of tax appeals be given jurisdiction over 
 appeals on local property taxes and on all state taxes; 
 
 That the statutes governing the organization of the state board of 
 tax appeals provide for a formal procedure, under which appeals made 
 to the board would be heard and decided in accordance with rules of 
 practice, procedure, and evidence similar to those followed by the 
 courts ; that the statutes also provide for an informal procedure, under 
 which appeals made to the board would be heard and decided in accord- 
 ance with simple regulations promulgated by the board and designed 
 to reduce the inconvenience and cost to small taxpayers in having their 
 grievances heard and disposed of; 
 
 That the state board of tax appeals be given broad discretion to 
 prescribe rules and regulations governing its activities; 
 
 That the state board of tax appeals be given power to appoint 
 deputies, referees, or committees to hold hearings in the towns on 
 appeals on assessments and to report their findings, conclusions, and 
 recommendations to the board for its decision; 
 
 That provision be made by which appeals on decisions of the state 
 board of tax appeals may be made to the superior court of Hartford 
 County under the rules now governing appeals from decisions of the 
 boards of relief to the superior court; 
 
 That the state board of equalization be abolished and its duties 
 transferred to the tax commissioner. 
 
 Collection. 
 
 Each municipality, unless governed by special act, is free to elect 
 its own tax collector either annually or biennally and to fix his com- 
 
47 
 
 pensation. Over two-thirds of the towns use the annual election plan, 
 and nearly two-thirds of them pay their collectors a percentage com- 
 mission on collections. 
 
 Taxes come due on the date set by the municipality within such 
 general limitations as are prescribed by law. If unpaid within a month 
 after the due date, interest accrues at the rate of three-fourths of one 
 per cent per month or fraction thereof. At any time after the due date, 
 a collector may proceed to enforce collection by one or more of three 
 methods: (1) foreclosure of a tax lien upon real estate, (2) ordinary 
 suit against the delinquent taxpayer, or (3) levy and sale of property 
 or commitment of the delinquent to jail (a) under authority of the col- 
 lector's warrant or (b) under authority of an alias tax warrant. Except 
 for real estate taxes secured by an extended tax lien as described below, 
 one of these procedures is required to be begun within eighteen months 
 of the due date of the first installment of a delinquent tax. 
 
 Immediately upon the assessment date an automatic tax lien 
 attaches to real estate for the taxes to be laid upon it on the basis of 
 this assessment. This lien exists for one year beyond the due date of 
 the first installment of the tax. It is discharged upon abatement of the 
 taxes, interest, and other charges by the governing body of the munici- 
 pality, upon payment of the taxes, interest, and other charges by the 
 taxpayer or other interested parties, or upon the consummation 
 of foreclosure suit. But if the automatic lien is not discharged in 
 one of these three manners, it may be continued for a period of fifteen 
 years either (1) upon the petition of a needy taxpayer and the approval 
 of the governing body of the municipality or (2) upon the initiative of 
 the tax collector. A continued lien may be discharged at any time dur- 
 ing its existence in the same manner as the automatic lien. 
 
 Any tax properly assessed may be icollected by ordinary suit or by 
 process of levy and sale or commitment of the delinquent taxpayer to 
 jail. When real estate is sold at a tax sale, it may be redeemed from the 
 purchaser within one year thereafter upon payment to him by any per- 
 son whose duty it was to pay the tax of the full purchase price of the 
 property plus interest at twelve per cent. 
 
 Delinquent taxes have shown an astonishing growth over the past 
 decade. On March 31, 1926, delinquencies amounting to $12,066,000 
 were reported; eight years later they had increased to $22,594,000. 
 Most of the increase in delinquencies has come in the last three years, 
 but some increase was' registered each year from 1926 to 1933 with 
 the single exception of 1929, when an insignificant reduction of $62,- 
 000 was reported. Seven major municipalities reported total delinquen- 
 cies on March 31, 1933, amounting to 40 per cent or more of their 
 total collectible taxes, and sixty-two reported delinquencies of 25 per 
 
48 
 
 cent or more. On current rate bills alone thirteen major municipalities 
 reported delinquencies amounting to 25 per cent or more of the cur- 
 rent levy. 
 
 Although the depression has intensified the delinquency problem 
 by reducing ability to pay taxes far more than tax levies have been 
 reduced, the record of prosperous years indicates that there are other 
 and perhaps even more fundamental causes of tax delinquency. Among" 
 such causes are (1) lack of efficiency on the part of collectors and (2) 
 weaknesses in the collection procedures prescribed by law. These causes 
 can and should be largely eliminated by legislative action. The failure 
 to collect taxes promptly is unfair to all concerned. Those who pay 
 taxes are forced to bear a heavier burden because others, some of whom 
 are fully as able to pay, fail to do so ; those who are allowed to become 
 delinquent are encouraged in habits of extravagance and prodigality 
 which can ultimately lead only to financial ruin. For these reasons we 
 believe that a reappraisal of Connecticut tax collection policy is essen- 
 tial. 
 
 Tax collection is a highly technical process, and should be admin- 
 istered by a collector qualified by temperament, training, and experi- 
 ence. Two measures are indispensable if every municipality is to be 
 reasonably assured of such a collector: (1) it must be an appointive 
 office, and the incumbent must be reasonably assured of a term of office 
 of more than one or two years; (2) a respectable salary and necessary 
 expenses of the office must be paid by the municipality. Wherever the 
 collection work of a municipality does not afford full-time occupation, 
 two or more municipalities should employ a single collector, or the col- 
 lector's duties should be delegated to another official engaged in munici- 
 pal financial administration. 
 
 Tax bills should be sent to all taxpayers on or before July 1. 
 Taxes should be payable in one, two, or four installments as the munici- 
 pality elects, the due date of the first of which should be on July 1 for 
 all municipalities adopting the proposed uniform fiscal year. To provide 
 a strong incentive and to discourage the use of the municipal treasury 
 as a credit agency, a penalty of three per cent should attach to all taxes 
 which are unpaid within one month after they are due. This penalty 
 should be in addition to the existing interest penalty of three-fourths 
 of one per cent a month. 
 
 Should the recommendations elsewhere made for the elimination 
 of personal property not used in business or professional pursuits be 
 adopted and the laws permitting the deferment for long periods of 
 taxes on real estate be continued, the power of the governing body to 
 abate taxes would become largely superfluous. We therefore propose its 
 abolition. 
 
49 
 
 Although we recognize that the right to defer the collection 
 of real estate taxes by simply extending the tax lien for fifteen years 
 has been the principal cause of tax delinquency in the state, we are 
 not prepared to recommend the summary abolition of this practice at a 
 time when many taxpayers are still in a critical financial position. We 
 are firmly convinced, however, that this power must be more carefully 
 restricted than it now is if any headway is to be made toward a solu- 
 tion of the problem of tax delinquency. To this end we propose (1) 
 that real estate taxes be deferred only for natural persons whose finan- 
 cial need is evidenced by an affidavit and whose application is approved 
 by the governing body of the municipality, (2) that the term of a con- 
 tinued tax lien be reduced from fifteen to ten years and that, if undis- 
 charged by the tenth year, the collector be required to proceed with col- 
 lection of taxes, interest, penalties, and other charges by appropriate 
 legal proceedings, and (3) that all taxes so deferred bear interest at the 
 rate of six per cent per annum from the date of the continuance of 
 the lien until discharged. 
 
 The adoption of these proposals should result in much more com- 
 plete tax collection than now exists in most towns of the state. Further 
 legislation is required, however, to direct the tax collector more specifi- 
 cally in the use of summary procedures in the collection of taxes which 
 are neither freely tendered nor legally deferred. If, through ignorance 
 or negligence of the tax collector or for reasons entirely beyond his 
 control, there remain at the end of eighteen months after the due date 
 tax bills which are still unpaid and unsecured by a continued lien, the 
 task of collection should be assumed by another agency and the munici- 
 pality deprived of a considerable portion of its claims on such bills. 
 For this purpose we propose that a collector be appointed by the superior 
 court for each county and that the proceeds of all collections on such 
 tax bills, over and above expenses of collection, be divided equally 
 between the county and the municipality to which the tax is owed. 
 
 Any new tax collection legislation which may be enacted will 
 probably be made applicable only to taxes subsequently laid. This will 
 leave on the books of the municipalities many millions of dollars of 
 delinquent taxes which should be collected with, consideration for the 
 procedures and practices in force at the time they were levied. There 
 now exists adequate law for the collection of a large part of these taxes. 
 It is proposed, however, that the collector be assisted in the collection 
 process by a local board set up for the purpose of deciding what action 
 should be taken to collect these back taxes as expeditiously and as fully 
 as possible but not for the purpose of abating or reducing any tax obli- 
 gations. 
 
 We recommend : 
 
50 
 
 That the budget-making authority of each municipality be directed 
 to appoint a tax collector for a term of six years, subject to removal 
 for cause after hearing ; 
 
 That one person be permitted to hold both the offices of tax col- 
 lector and treasurer of a given municipality, provided such municipality 
 has a chief accounting officer ; 
 
 That the collector receive an annual salary fixed by the budget- 
 making authority in addition to adequate appropriations for the neces- 
 sary expenses of his office and that all fees of the office be paid into 
 the treasury of the municipality ; 
 
 That, in its discretion, a municipality be permitted to provide by 
 vote of the legislative body for additional compensation to the collector 
 in the form of a fixed percentage of all collections on the current rate 
 bill in excess of ninety per cent of the total amount of such rate bill ; 
 
 That the tax collector be required to bill each taxpayer on or 
 before July 1, showing separately the taxes payable upon real and 
 personal property, but that the liability of the taxpayer for taxes and 
 penalties and the validity of tax liens be independent of such action 
 or of the receipt of the tax bill by the taxpayer ; 
 
 That each municipality be permitted to determine by vote of its 
 legislative body whether its taxes will come due on a single date, in 
 semi-annual installments, or in quarterly installments; 
 
 That, when a municipality elects to receive its taxes in more than 
 one installment, the several installments be equal, subject only to the 
 provisions that any tax of ten dollars or less be due in its entirety on 
 the first tax- due date, that no installment of a tax in excess of ten dol- 
 lars except the last be less than ten dollars, and that any taxpayer be 
 permitted to pay two or more installments at the time the first of such 
 installments is due ; 
 
 That, in addition to the interest penalty now prescribed by law, a 
 flat penalty of three per cent of the amount of taxes due or one dollar, 
 whichever is larger, be added to the tax liability of any one failing to 
 pay his taxes within the month in which they fall due ; 
 
 That the provision permitting the abatement of taxes of needy 
 persons be repealed ; 
 
 That the life of the automatic tax lien on real estate be extended 
 from one year after the due date of the first installment of the tax to 
 three years after the due date of the last installment; 
 
 That the period for which tax liens are continued upon request 
 of needy taxpayers be reduced from fifteen to ten years ; 
 
51 
 
 That no tax liens be extended for ten years except upon the affi- 
 davit of taxpayers who are natural persons and who, in the judgment 
 of the governing body, are financially unable to meet their tax 
 obligations ; 
 
 That all deferred taxes which are secured by ten-year liens bear 
 interest at the rate of six per cent per annum from the date as of which 
 the lien is continued ; 
 
 That, prior to the expiration of any tax lien continued for a ten- 
 year period, the collector be required to force collection of the delin- 
 quent taxes, interest, and penalties so secured; 
 
 That the town clerk be prohibited from recording the transfer of 
 any property upon which taxes are delinquent; 
 
 That the period within which summary collection processes must 
 be begun be changed from eighteen months after the due date of the 
 first installment to twelve months after the due date of the delinquent 
 installment ; 
 
 That the dates upon which tax sales are to be held be not later 
 than September 1 of the following year if the delinquent tax was due 
 on July 1, not later than December 1 if the delinquent tax was due 
 on October 1, not later than March 1 if the delinquent tax was due on 
 January 1, and not later than June 1 if the delinquent tax was due 
 on April 1 ; 
 
 That real property which cannot be sold for a sum sufficient to 
 pay the full amount of taxes, interest, penalties, and costs for which 
 it is offered for sale revert to the municipality conducting the sale for 
 disposition in such manner as it chooses ; 
 
 That the law governing sales of real estate for taxes be clarified 
 by specifically granting the right of immediate possession to the pur- 
 chaser, subject only to redemption privileges ; 
 
 That the interest to be paid to the purchaser of real property at 
 a tax sale by one entitled to redeem the property within one year after 
 the sale be three-fourths of one per cent per month or fraction thereof ; 
 
 That any delinquent taxes, other than deferred real property taxes 
 secured by extended liens, remaining on the current rate bill eighteen 
 months after the due date of the delinquent installment be turned 
 over to a county collector appointed by the superior court; 
 
 That a list of all taxes turned over to the county collector be 
 filed with the town clerk for public inspection and published in the next 
 annual report ; 
 
 That the county collector exercise all of the powers of a municipal 
 collector and that he turn all collections over to the county treasurer; 
 
52 
 
 That the county treasurer, after deducting expenses of collection, 
 including remuneration for the county collector, remit one-half of the 
 remaining collections to the municipality to which the tax was owed; 
 
 That the tax commissioner appoint a board of three or five mem- 
 bers to operate without compensation in each major municipality of 
 the state wherein property tax delinquencies at the end of the current 
 fiscal year amount to fifty per cent or more of the tax levy for such 
 fiscal year and in each other municipality of the state which, through 
 vote of its legislative body, requests the appointment of such board ; 
 
 That this board exercise the power to adjust the time, up to a 
 maximum of ten years, within which taxes delinquent on back rate 
 bills may be paid and to order the commencement of summary collec- 
 tion procedures by the collector but not to abate or remit any taxes, 
 interest, or penalties due to the municipality. 
 
 The pebsonal tax and special pbopeety taxes. 
 The peesonal tax. 
 
 The personal tax, or poll tax as it is called in other states, is a $2 
 tax imposed upon all residents between the ages of 21 and 60 unless 
 specifically exempt. Most of the exemptions are accorded in recognition 
 of military service and grow out of the military commutation tax, which 
 together with the old poll tax was superseded by the present tax in 1909. 
 
 This tax yields an annual income to the 169 towns of slightly over 
 one million dollars. The enumeration of taxable persons and the col- 
 lection of taxes assessed appear to be fairly complete in most towns of 
 the state. In 1930 -the typical town listed 85 to 95 per cent of the num- 
 ber reported by the United States census to be of taxable age, even 
 though some persons between these ages were not listed because legally 
 exempt. The typical town collects between 90 and 100 per cent of the 
 personal taxes assessed. 
 
 The indications are that this tax has been better supported by 
 public opinion and has been better administered on the whole than in 
 many other states. The Commission is therefore of the opinion that 
 there is no immediate need for changing the structure of the personal 
 tax or for suggesting its abolition and proposes only minor changes in 
 the administration of the tax. 
 
 We recommend : 
 
 That the enrollment of persons subject to the personal tax be trans- 
 ferred to the office of the tax assessor and that remuneration for such 
 services be included within the salary of the assessor ; 
 
 That the collection of personal taxes be made one of the regular 
 duties of the town property tax collector. 
 
53 
 
 Special peopeety taxes. 
 
 FoEEST TAXATION. 
 
 There are two Connecticut special forest tax laws of present 
 importance. In both cases the special tax laws apply only when the 
 owner of timberlands requests and the state forester approves the 
 exemption of such lands from the general property tax. The first of 
 these acts, passed in 1913, resulted in the classification of a negligible 
 acreage. It was therefore supplemented by another act in 1929 pro- 
 viding for quite a different sort of taxation. This second act, although 
 it has proved more effective than the first, has also failed to encourage 
 the classification of any substantial amount of timberlands. 
 
 Forest tax laws have as their primary aim the conservation of 
 natural resources and the encouragement of reforestation. As far as 
 revenues are concerned, they are of no present importance, nor are they 
 apt to be in the near future. For this reason the Commission is con- 
 tent to leave to the state forester and to others of similar interests the 
 task of submitting to the General Assembly recommendations for 
 changes in these taxes. 
 
 Taxes on shellfish geounds. 
 
 Shellfish grounds under the exclusive jurisdiction of the state are 
 subject to a special state tax which is similar in most respects to the 
 local general property tax except that the rate is fixed at twenty mills. 
 This tax now yields about $10,000 per annum. No complaints or sug- 
 gestions having reached the Commission, we have concluded that this 
 tax is of insufficient importance to warrant the technical investigation 
 which would be required as a basis for recommending any substantial 
 alterations. 
 
 The choses-in-action tax. 
 
 In recognition of the insuperable difficulties encountered by local 
 assessors in their attempts to list intangible property for the general 
 property tax, it was provided in 1889 that the owners of bonds, notes, 
 and other choses-in-action might register them with the state treasurer 
 for a state tax of two mills per annum upon their face values and there- 
 by be relieved from the obligation to list such intangibles for local taxa- 
 tion. Eight years later the rate of the state tax was increased to four 
 mills per annum, and the tax has remained substantially unchanged 
 since that date. 
 
 The exact scope of the choses-in-action tax has never been clearly 
 defined, but it has been gradually narrowed by the continued exemption 
 of intangibles from the general property tax. The maximum yield of 
 
54 
 
 the state tax was realized in the fiscal year 1916-1917. Partly as a 
 result of exemptions and partly as a result of increasing evasion, the 
 yield has declined from $652,000 in 1916-1917 to a low of $381,000 
 in 1932-33 and $387,000 in 1933-34. 
 
 It is impossible to determine the amount of taxable choses-in-action 
 which are neither registered for the state tax nor listed for local prop- 
 erty taxes, but it has long been the opinion of those who have studied 
 tax problems in the state that the amount is large. The great variation 
 which exists from one town to another in the per capita assessment of 
 intangibles and in the number of persons per thousand listing intangi- 
 bles affords circumstantial evidence of widespread evasion. It is also 
 significant that some two million dollars' worth of unlisted taxable 
 intangibles are found each year in the estates probated in Connecticut 
 courts. 
 
 The choses-in-action tax is criticized not only because of its failure 
 to reach a large amount of taxable property but also because of the 
 large amount of intangible property which is legally exempt, because 
 the tax is laid upon face value rather than actual value, because it 
 affords no incentive to local assessors to cooperate in enforcing the tax, 
 and because the act makes the state treasurer a receiver of taxes and 
 not a collector. 
 
 For these reasons we recommend: 
 
 That the choses-in-action tax be repealed. 
 
 In a later section recommendations are made for a tax on interest 
 and dividends by which the taxpaying capacity of owners of intangible 
 property may be reached more fully and more equitably. 
 
 The estate penalty tax. 
 
 In an attempt more effectively to enforce the local and state taxes 
 on tangible and intangible property, the estate penalty tax was enacted 
 in 1915. This tax is imposed, with minor exceptions, upon all property 
 in a probated estate which was legally taxable but was neither listed for 
 local taxation nor registered with the state treasurer for the choses-in- 
 action tax during the last taxing period preceding the death of the 
 decedent. The rate of the tax is two per cent for each of the five years 
 prior to the decedent's death during which such property was owned by 
 the decedent and was not taxed. One-fifth of the tax is retained by the 
 state, and the remainder distributed to the town's according to the last 
 residence of the decedents. 
 
 The estate penalty tax currently yields between $150,000 and 
 $200,000. The state's share does little more than cover administrative 
 expenses, while the towns secure but one-third of one per cent of their 
 
55 
 
 revenue receipts from this source. Over half the towns of the state 
 received less than $100 each from this tax in 1932. 
 
 The estate penalty tax has contributed somewhat to the enforce- 
 ment of the local property tax and the choses-in-action tax, hut it is 
 severely criticized on two scores. First, it is readily avoided by those 
 who avail themselves of expert legal counsel with the result that it falls 
 largely upon the estates of those who are ignorant, indifferent, or unable 
 to afford legal advice. Secondly, it is an established fact that the estate 
 penalty tax discourages residence. in the state. This is true because the 
 means of evading the tax are not generally understood and because they 
 entail some inconvenience and expense. Consequently the state loses suc- 
 cession tax revenues, which, it is plausibly contended, far exceed the 
 revenues directly and indirectly attributable to the penalty tax. It 
 should further be noted that the repeal of local taxes upon intangibles 
 and the choses-in-action tax as above recommended would remove all 
 reason for the continuance of the estate penalty tax. 
 
 We therefore recommend: 
 
 That the estate penalty tax be repealed. 
 
 Gross earnings taxes on transportation and communication 
 companies. 
 
 Acting largely upon the recommendations of a special commission 
 reporting to the General Assembly in 1913, a system of gross earnings 
 taxes was enacted in 1913, 1915, and 1925 to replace the hodge-podge 
 of state taxes upon transportation and communication companies which 
 had in turn been developed in the latter half of the nineteenth century 
 as a substitute for the even more ineffective local taxation of these com- 
 panies. These companies are now taxed locally only upon part or all of 
 their real estate, and part or all of the taxes so paid may be used to 
 reduce their state taxes computed as a certain percentage of their 
 gross receipts from the transportation and communication business as 
 allocated between this and other states in which the business is con- 
 ducted. The rates of the taxes on gross receipts are as follows : 
 
 Steam and electric railroads 3%% 
 
 Street railways 3 
 
 Motor bus companies 3 
 
 Private car companies 3 
 
 Telegraph and cable companies 3 
 
 Telephone companies 4 
 
 Express companies 2 
 
 These taxes imposed upon gross earnings are intended as a sub- 
 stitute for property taxes on all operating property. This is the reason 
 
56 
 
 for permitting the offset of taxes on that part of such property which 
 has been left in the local grand lists. It also explains the differential 
 rates, which were established with reference to the typical relationship 
 between gross earnings and the capitalized value of net earnings for 
 each separate group of utilities. 
 
 The state taxes on those seven classes of companies yielded slightly 
 over three million dollars prior to the depression but declined to 
 $1,742,000 in 1933-34. 
 
 It is the conclusion of the Commission that these gross earnings 
 taxes have, on the whole, proved reasonably satisfactory both to the 
 state and to the taxpayers. We therefore find no reason to recommend 
 fundamental changes in tax structure. Considerable time has been 
 spent by the Commission in an effort to test the adequacy of existing 
 tax rates. It was found, however, that present conditions are so 
 abnormal and the future so uncertain that it is impossible to arrive at 
 reliable conclusions upon which to recommend a change from the pres- 
 ent rates. We therefore suggest that this investigation be undertaken at 
 a later date when more normal conditions have been reestablished. 
 
 Some defects now exist in the definition of taxable gross earnings 
 of these companies. The intent is that the state tax should apply to all 
 earnings from tangible property which is exempt from local taxation 
 or the local taxes upon which are an allowable offset against the state 
 tax. This intent is not fully carried out in the present statutes, but 
 it may be done in either of two ways: (1) by broadening the base of 
 the state tax or (2) by narrowing the allowable offsets of local taxes. 
 Our recommendations contemplate a combination of these two 
 procedures. 
 
 Another problem is raised by the gross earnings tax upon private 
 car companies. Even though the tax commissioner is directed to 
 exempt any company whose tax obligation is computed at $2 or less, 
 more than half of the remaining taxable companies are subject to taxes 
 of less than $25. Such small taxes are hardly worth the effort involved 
 in assessment and collection. Furthermore, it is difficult to secure any- 
 thing approaching an accurate check upon the sworn returns of tax- 
 payers, and consequently the tax is largely self-assessed. 
 
 Finally, the tax is hardly defensible on theoretical grounds insofar 
 as it applies to freight car companies. We are informed that practically 
 all of the gross earnings of private freight car companies are first 
 recorded as gross earnings of the railroads hauling the cars and are 
 then passed on in the form of mileage payments to the car companies. 
 These mileage payments are not recorded as operating expenses of the 
 disbursing railroads, and consequently the rate of the railroad tax, hav- 
 ing been fixed with reference to capitalized net earnings, was intended 
 
57 
 
 to be high enough to cover the value of property of private car com- 
 panies — as well as of foreign railroads — operated over Connecticut 
 roads. 
 
 The relationship between railroads and the Pullman Company 
 is quite different, and the retention of a gross earnings tax upon this 
 company gives rise to no double taxation. Since this company alone 
 accounts for well over half of the twenty thousand dollars currently 
 realized from the tax on car companies, the loss from the exemption 
 of other car companies is inconsequential. 
 
 We recommend: 
 
 That the base of the state tax upon gross earnings be more clearly 
 defined to include earnings from ail tangible property of transportation 
 and communication companies which is exempt from local taxation and 
 from all tangible property of such companies the local taxes upon which 
 may be offset against the gross earnings tax; 
 
 That all real and tangible personal property of transportation 
 and communication companies which is not used exclusively ' in the 
 transportation and communication business be subject to local taxation 
 on the same basis as other tangible property similarly situated; 
 
 That offsets against the state tax on gross earnings be allowed 
 only for an equitable proportion of the taxes paid locally on tangible 
 property used partially, but not wholly, in such business and that no 
 offset be allowed for taxes on property used wholly outside such 
 business ; 
 
 That the tax upon car companies be repealed insofar as it applies 
 to companies other than dining, sleeping, chair, and parlor car 
 companies. 
 
 The taxation of insttbance companies. 
 
 Insurance companies are classified for tax purposes into (1) com- 
 panies chartered by foreign countries — referred to herein as "alien" 
 companies, (2) companies chartered by other states of the Union — 
 referred to as "foreign" companies, and (3) companies chartered by 
 the State of Connecticut — referred to as "domestic" companies. 
 Domestic companies are further classified in (a) stock companies 
 and (b) mutual companies. 
 
 In general it may be said that all of these companies are taxable 
 locally only upon their real estate. In addition they are subject to 
 state taxes which differ from one group to another. Alien companies 
 are taxable at the rate of two per cent upon their Connecticut premium 
 collections with certain adjustments for reinsurance ceded to other 
 companies. A foreign company pays the same taxes to this state as are 
 charged Connecticut insurance companies operating in the state in 
 
58 
 
 which the foreign company is domiciled. Domestic mutual companies 
 are taxable at the rate of 3 per cent upon their gross receipts of taxable 
 interest, dividends, and non-Connecticut rents. Domestic stock com- 
 panies, in addition to being taxable as mutual companies upon the 
 investment income, of their participating departments if they have 
 such, are subject to two taxes based upon the market value of their 
 stock on October 1. The first of these two taxes — the stock tax — 
 carries a rate of four mills, but it may be reduced by the amount of 
 property taxes paid by the company to Connecticut municipalities in 
 the preceding year. The proceeds of the stock tax are largely distributed 
 to the towns according to the residences of stockholders, the state retain- 
 ing taxes laid on stock held outside the state. The second tax on stock 
 companies — the franchise tax — is a two mill tax without offsets, which 
 is retained entirely by the state. 
 
 State taxes on insurance companies have yielded between two and 
 one-half and seven million dollars, in addition to about a million 
 dollars of real estate taxes paid by such companies to Connecticut 
 municipalities. The highest assessments of state taxes were made in 
 1930 and amounted to $6,860,000, and the lowest, in 1933, amounted 
 to $2,604,000. The assessments in 1934 were $2,705,000. Of these 
 amounts the towns received as their share of the stock tax, including 
 also the stock tax on banks, $3,559,000 in 1930, $652,000 in 1933, 
 and $696,000 in 1934. In the aggregate, two and one-half per cent of 
 the 1932 revenue receipts of Connecticut municipalities were derived 
 from the share tax, but, because of the concentration of these receipts 
 among a relatively few municipalities, only 22 major municipalities 
 received two per cent or more of their revenue receipts from this 
 source. 
 
 There are two principles upon which state taxes on insurance 
 companies should be based. In the first place, as custodians of great 
 aggregates of property located in this state, they should be subjected to 
 some form of taxation upon their intangible property. Secondly, as 
 business enterprises conducted for the pecuniary benefit of their stock- 
 holders or their policyholders, they should be subject to a business tax. 
 
 There are few aspects of the Connecticut tax system so lacking in 
 logic or consistency as the system of taxes which has evolved over a 
 course of more than a century for the various types of insurance com- 
 panies operating in the state. Tax discrimination is prevalent among 
 groups of companies. It also exists within one group — the domestic 
 stock companies — because of the impossibility of securing a market 
 valuation of the shares of more than half the companies, which are 
 closely held, because of artificial and temporary alterations in market 
 values upon the assessment date, and because of the pyramiding of 
 
59 
 
 taxes among members of corporate groups. Moreover, the taxes on 
 stock companies are highly unstable, and the distribution of the 
 share tax among the municipalities is inequitable and theoretically 
 unsound. For these reasons we recommend the complete overhauling of 
 the state taxes on domestic insurance companies. 
 
 The experience of this and of other states has demonstrated the 
 virtues of net premium collections as the base of a business tax. This 
 base is stable; it is easily allocated among the, states in which a com- 
 pany does business ; and it represents a fair measure of business activi- 
 ties. Upon this base we propose that a tax of two per cent be imposed, 
 thereby raising an annual revenue of approximately $450,000. 
 
 In addition to the business tax, the principles of taxation stated 
 above call for a tax upon intangible property. After a careful survey 
 of the various taxes which might be used for this purpose, the Com- 
 mission has concluded that , interest and dividend income affords the 
 most practicable tax base. Investment income is a simple and equitable 
 means of approximating property values; it is easily computed; it is 
 relatively stable in amount; and pyramiding among corporate groups 
 is easily avoided by simple adjustments in the base. 
 
 If drastic shifts in tax burdens are to be avoided, as we believe 
 that they should be in view of the long-term contracts which life insur- 
 ance companies have entered into, it is necessary to differentiate 
 between the tax rates applied to the investment income of life insurance 
 companies and to such income of other insurance companies. The 
 proper rate differential appears to be one to three. 
 
 Having reached the above conclusions as to the business tax, the 
 base of the investment tax, and the amount of the rate differential in 
 the latter tax, the rates of the investment tax depend upon the amount 
 of money to be raised. It is our conclusion that a sum of three million 
 dollars would be an adequate direct contribution from these companies. 
 This is somewhat more than the two million dollars currently raised 
 from state taxes on domestic companies, but it is less than the ten-vear 
 annual average of four million dollars. With rates of 214 per cent on 
 the investment income of life insurance departments and 6% per cent 
 on the income of fire and casualty insurance departments, approxi- 
 mately the required three millions would be raised. To this amount, 
 however, should be added about $350,000, which resident individual 
 owners of domestic insurance company stocks would be required to pay 
 under the general interest and dividend tax. 
 
 We recommend: 
 
 com- 
 panies 
 
 We recommend: 
 
 That all of the present state taxes upon domestic insurance 
 ies be repealed; 
 
60 
 
 That a business tax of two per cent upon Connecticut net 
 premiums be imposed upon these companies ; 
 
 That net premiums be defined as gross premiums less cancella- 
 tions, returned premiums, and premiums on insurance ceded to other 
 companies admitted to do business in the state ; 
 
 That a tax be imposed upon all domestic insurance companies in 
 lieu of any taxes upon their intangible property, the base of the tax to 
 consist of taxable investment income, and the rate of the tax to be 
 2% P er cen t f° r life departments and 6% per cent for fire and casualty 
 departments ; 
 
 That taxable investment income be defined as gross interest and 
 dividend receipts, exclusive of interest on federal and Connecticut 
 state and local securities and exclusive of dividends from other domes- 
 tic insurance companies and from domestic insurance holding com- 
 panies ; 
 
 That the taxable investment income of a domestic insurance com- 
 pany which has two or more departments, the incomes of which depart- 
 ments are subject to different rates, be allocated between departments in 
 that proportion in which its gross taxable and non-taxable investment 
 income is apportioned ; 
 
 That tangible personal property within the state vbelonging to any 
 insurance company be subject to local taxation on the same basis as 
 other similar tangible personal property used in the conduct of busi- 
 ness; 
 
 That the tax on interest and dividend receipts of individuals to 
 be recommended in a later section be applied to dividend receipts 
 from the stock of any insurance company. 
 
 The taxation of banks and teust companies and 
 miscellaneous financial institutions. 
 Banks and teust comfanies. 
 The bank stock tax. 
 
 Mutual savings banks, national banks, state banks and trust com- 
 panies, industrial or Morris-plan banks, and incorporated private banks 
 operating in the state axe subject to local taxation upon their real estate 
 and to either one or two state taxes. The first of these state taxes is 
 the share tax and applies to all of the foregoing institutions except 
 mutual savings banks. The second is the savings deposits tax. 
 
 Bank shares are assessed at their market values on October 1 and 
 are taxed at ten mills. An offset is allowed for all real estate taxes 
 assessed against a bank by Connecticut municipalities. Legally the 
 stock tax is assessed against the shareholders, but it is paid by the bank. 
 
61 
 
 All but a few thousand dollars of the taxes so collected are distributed 
 by the state treasurer to the municipalities, generally upon the basis of 
 the residences of shareholders. 
 
 As in the case of insurance company taxes, the largest yield of the 
 bank tax was in 1930, when collectible taxes amounted to $1,198,000. 
 In 1934 only $188,000 of bank share taxes were collectible. 
 
 National banks may be taxed by the states only within the limita- 
 tions which have been prescribed by Congress. Four optional taxes are 
 available for this purpose : 
 
 1. A tax upon national bank shares, provided the rate of the tax is 
 not higher than that imposed upon moneyed capital coming into 
 competition with national banks ; 
 
 2. A tax upon the net income of national banks, provided the rate of 
 the tax is not higher than that assessed upon other financial cor- 
 porations nor higher than the highest of the rates assessed upon 
 mercantile, manufacturing, and business corporations doing busi- 
 ness in the state; 
 
 3. A tax measured by the net income of national banks, including net 
 income from tax-exempt sources, subject to the same limitations 
 as to rate as the tax upon net income; 
 
 4. A tax upon dividends received by shareholders of national banks, 
 provided the rate of the tax is not higher than that assessed upon 
 the net income from other moneyed capital. 
 
 In addition to these optional taxes, the fourth may be combined with 
 either the second or third, provided dividends from the stocks of other 
 companies are similarly taxed. 
 
 Connecticut has always taxed national banks under the first of 
 these options. In recent years, however, some doubt has been cast upon 
 the validity of the tax because choses-in-action, some of which may pos- 
 sibly be held to come into competition with national banks, are taxed 
 at considerably less than ten mills if they do not escape taxation alto- 
 gether. 
 
 In addition to its questionable validity, the share tax is highly 
 unsatisfactory for other reasons. Except for the insurance stock tax, 
 which is similar except for rate, the bank stock tax is unrelated to any 
 other part of the Connecticut tax system. It is based upon no principles 
 of taxation which are currently in good favor. Difficult problems of 
 valuation are encountered in assessment, and banks have often com- 
 plained of the necessity of using book values for some when market 
 value is required by law and is available for others. The tax has proved 
 a most unstable source of revenue in recent years, partly because of 
 great changes in market values of shares and partly because of the 
 
62 
 
 increasing amount of real estate taxes available for offset.. The real 
 estate tax offset is theoretically unsound and inequitable. 
 
 It would, in our opinion, be unwise to attempt to rehabilitate the 
 share tax. Of the other taxes available for national banks, the most 
 attractive is the tax "measured by or according to" net income, com- 
 bined with a tax upon dividend receipts of resident individual stock- 
 holders. This tax may be laid upon net income from all sources, whether 
 otherwise tax-exempt or not, and it also appears that net income may 
 be so defined as to deny to the taxpayer the privilege of deducting inter- 
 est and rental payments from gross income. Such a tax base is far 
 superior to an ordinary net income tax whether it be intended as a busi- 
 ness tax or as a tax upon intangible assets. Neither the amount of busi- 
 ness done nor the value of the assets is dependent solely upon the equity 
 of the stockholders or upon the manner in which investments are dis- 
 tributed between tax-exempt and taxable securities. Furthermore, this 
 is a definition of net income which is as readily applicable to mutual 
 associations as to stock corporations, whereas the ordinary net income 
 tax can hardly be applied equitably to both groups. 
 
 We propose that this base be combined with a tax rate of two per 
 cent and that the tax be imposed upon all institutions now subject to 
 the bank stock tax. Together with the proposed tax on dividend receipts 
 of resident individual stockholders, which cannot be imposed upon divi- 
 dends from national banks so long as the share tax is retained, this net 
 income tax would have yielded only 60 per cent of the amount received 
 from the share tax in 1930, but it would have yielded, according to our 
 estimates, 110 per cent of the proceeds of the share tax in 1933. 
 
 The taxation of bank deposits. 
 
 The second of the state bank taxes is the savings deposits tax 
 imposed upon all mutual savings banks and upon all national banks, 
 state banks, and trust, companies having savings departments. The tax 
 is computed at 2.5 mills upon total savings deposits less $50,000 and 
 less the amount of investments in certain securities. This tax may be 
 offset by the amount of certain real estate taxes assessed and paid in 
 the name of the bank. 
 
 The savings deposits tax has yielded a relatively stable revenue, 
 which reached a peak of $1,740,000 in 1931 and has since declined 
 only to $1,252,000. In contrast to the bank share tax, all of these 
 receipts are retained by the state. 
 
 It is not clear whether the savings deposits tax is intended as a 
 business tax, a tax in lieu of taxes on the intangible property of the 
 bank, or a tax upon the depositor. Legally it is a franchise tax upon 
 
63 
 
 state banks and trust companies and a tax upon the depositors in sav- 
 ings departments of national banks. This confusion of principles 
 appears in the differentiation which is made between commercial 
 deposits, which are now wholly exempt from taxation, and savings 
 deposits, in the differentiation between deposits in savings banks and 
 taxable choses-in-action, in the deductions which savings banks are 
 allowed to make from their total savings deposits, and in the real estate 
 tax offset provision. 
 
 It is the conclusion of the Commission that the savings deposits 
 tax should not be used as a business tax or in lieu of taxes on the intan- 
 gible property of the depositories. Under the proposed net income tax 
 national banks and trust companies would already be subject to a tax 
 intended for these purposes, which would, moreover, effectively reach 
 savings departments because net income would be arrived at before 
 deduction of interest payments. If equality is to be established between 
 mutual savings banks and other banks, both should be subject to the 
 same net income tax. The savings deposits tax would then become avail- 
 able only as a tax upon the depositor. But savings deposits should be 
 taxable to the depositor exactly as any other intangibles. We therefore 
 propose that the five per cent interest and dividends tax, recommended 
 below, extend to interest from bank deposits and that the savings 
 deposits tax be repealed. 
 
 The proposals thus far made include no tax upon commercial 
 deposits. Such deposits now yield no money income, yet they do yield a 
 service which is worth at least as much as the interest foregone on the 
 funds so deposited. There is therefore as much justification for taxing 
 commercial deposits as for taxing savings deposits. It is, of course, 
 necessary to use an ad valorem tax, and, to minimize evasion, we pro- 
 pose that it be collected at the source. For this purpose we suggest that 
 a tax be imposed on the face value of such deposits at a rate of one mill. 
 Such a tax should yield at least $175,000 a year, or nearly as much as 
 the present yield of the bank share tax. 
 
 The net effect of these proposed changes in taxes upon banks and 
 their shareholders and depositors has been estimated roughly on the 
 basis of somewhat fragmentary data. We conclude that the existence 
 of recommended taxes in 1929 would have resulted in tax collections in 
 the following year amounting to $2,335,000, or $528,000 less than 
 was realized from existing bank taxes in that year. Collections for 1933 
 under the proposed recommendations are estimated at $1,525,000 or 
 $212,000 less than collections from existing taxes. In part these losses 
 represent the price which the state must pay if it is to secure a national 
 bank tax of unquestioned validity; in part they represent a concession 
 
64 
 
 to depositors in mutual savings banks. On the whole it appears that the 
 prospective yield of the proposed taxes for the near future is nearly as 
 much as that of the existing taxes. 
 
 Recommendations. 
 
 We recommend: 
 
 That present taxes on shares and savings deposits of banks and 
 trust companies be repealed ; 
 
 That* all banks and trust companies, including mutual savings 
 banks, be subjected to a two per cent franchise tax measured by net 
 income ; 
 
 That net income be defined to include income received from tax- 
 exempt securities and from shares of stock in all corporations and be 
 arrived at before deductions for interest and rental payments made by 
 the taxpayer ; 
 
 That interest and dividend receipts of resident individuals from 
 stock and deposits in any bank or trust company be included within 
 the general interest and dividends tax to be recommended in a later 
 section ; 
 
 That a tax of one mill per dollar be imposed upon the face value 
 of demand deposits of taxable persons in Connecticut banks and trust 
 companies, including national banks, and that the tax be collected from 
 the banks acting as agents of their depositors ; 
 
 That the real estate of all banks and trust companies continue to be 
 taxable locally and that all tangible personal property of state-chartered 
 banks and trust companies be similarly taxed without offsets for taxes 
 so paid against any state taxes. 
 
 Miscellaneous financial corporations. 
 
 Mutual building and loan associations are subject to no state tax 
 unless it be the choses-in-action tax upon the excess of the face value 
 of their mortgages over the assessed value of mortgaged property and 
 upon certain other of their intangibles. We see no reason why they 
 should not be taxed upon exactly the same basis as mutual savings 
 banks 
 
 Certain investment companies selling or negotiating choses-in- 
 action secured by mortgages on real estate located outside the state are 
 subject to two state taxes. The first is the net income tax on miscella- 
 neous corporations ; the second is a tax of one per cent on the aggregate 
 amount of all such choses-in-action which were sold or negotiated in 
 this state without having been previously registered for the four mill 
 choses-in-action tax. 
 
65 
 
 The second of these taxes was originally enacted not as a revenue 
 measure but as an aspect of a blue sky law designed to protect Connecti- 
 cut investors from losses on investments in real estate mortgages against 
 property in other states. The payment of this tax relieves these com- 
 panies of all other taxes on their personal property, tangible and 
 intangible, located in the state. The investment company tax yields little 
 or no revenue. In the last four fiscal years it has brought in $66.50, all 
 of which was received in the fiscal year 1931-32. It is essentially a 
 nuisance tax, and the Commission" urges its abolition whether or not the 
 choses-in-action tax be repealed. 
 
 All other financial corporations are subject to a single state tax, 
 the miscellaneous corporations net income tax. Their intangible assets 
 are apparently exempt from local taxation and from the state choses-in- 
 action tax although the law should be clarified on this point. 
 
 We recommend: 
 
 That mutual building and loan associations be subject to state and 
 local taxation on the same basis as mutual savings banks; 
 
 That the tax upon investment companies imposed by chapter 69 of 
 the General Statutes be repealed and that the taxable tangible per- 
 sonal property of such corporations be returned to the local grand lists 
 on the same basis as other taxable property of corporations; 
 
 That all financial corporations other than insurance companies, 
 banks and trust companies, and mutual building and loan associations 
 be taxed in the manner recommended in a following section for manu- 
 facturing and mercantile corporations. 
 
 UNINCORPORATED FINANCIAL CONCERNS. 
 
 Unincorporated financial concerns in the state are now taxed on 
 the same basis as private individuals. In principle there is no good rea- 
 son why they should not be subject to an additional business tax, but 
 we have been unable to devise one which we consider satisfactory for 
 the purpose. 
 
 We recommend: 
 
 That unincorporated financial concerns continue to be subject to 
 all taxes imposed upon natural persons. 
 
 Business taxes on mercantile and manufacturing concerns ' 
 and local public utilities. 
 Theoretical background. 
 
 Taxes based upon the privilege of doing business have been gradu- 
 ally developed and given a place in the tax structures of the various 
 states. Such taxes have usually been imposed in addition to, rather than 
 
66 
 
 in lieu of, taxes on the property of these concerns and taxes on the 
 persons owning or conducting them. 
 
 From the standpoint of business it may appear that the measure 
 of a business tax should be the profit derived by its owners from 
 business activities, since this, in a sense, affords a measure of the 
 benefits derived from governmental activities. From the standpoint 
 of the state quite a different measure is required. Government provides 
 an environment which is indispensable to the conduct of business, and 
 this environment is furnished alike to profitable and unprofitable con- 
 cerns. The failure to win a profit is not the responsibility of govern- 
 ment, and there is no logical reason why the claims of government 
 should be secondary to all other expenses of business and subject to 
 the violent fluctuations which characterize the net profits of industry. 
 
 Gross earnings or sales taxes are frequently used as the basis of 
 business taxes formulated as a means of providing the government with 
 a relatively stable income derived from both profitable and unprofitable 
 concerns. Connecticut has established taxes of this sort for unincor- 
 porated mercantile and manufacturing concerns and for the so-called 
 local public utilities — gas, water, and electric companies. But such 
 taxes are seldom equitable when imposed upon concerns engaged in 
 interstate business, because of constitutional restrictions on the taxa- 
 tion of such business. Moreover, such taxes could be equitably applied 
 to a wide variety of unrelated industries only by means of a complicated 
 system of rate differentials, which would provoke endless dispute and 
 require frequent readjustment. These considerations suggest the need 
 of a different sort of tax base to reach what are now classified as miscel- 
 laneous corporations. Gross assets located in the state provide one such 
 base, which has been widely used in other industrial states. 
 
 The conflicting interests of business and government in the selec- 
 tion of a business tax base cannot be completely reconciled. Connecticut 
 has thus far met this problem by applying a net income tax to miscel- 
 laneous corporations and a gross earnings tax to unincorporated 
 business and local public utilities. An alternative procedure is to 
 impose concurrently two or more taxes on the same business concern 
 and require the larger of the taxes to be paid. 
 
 Taxation of miscellaneous coepoeations. 
 The coepobation net income tax. 
 
 All corporations which are now required to pay the federal income 
 tax, except (1) insurance companies, (2) banks and trust companies 
 subject to the share tax, (3) transportation and communication com- 
 panies, (4) local public utilities, and (5) - concerns engaged solely in 
 
67 
 
 the liquor business, are required to pay the state tax of two per cent 
 upon net income as denned in the federal statutes. There are over 8,000 
 corporations subject to this tax, of which over 7,000 are now paying 
 the flat minimum tax of ten dollars. 
 
 The base of the tax is the same as that of the federal corporation 
 net income tax and excludes net income from all federal, state, and 
 local government securities and dividends from all corporations char- 
 tered in the United States. A corporation doing business within and 
 without the state may allocate its net income between this and other 
 states on one of three bases, depending upon the nature of its business 
 and its accounting records: (1) according to the ratio of the value of 
 its tangible property in the state to the value of its total tangible prop- 
 erty, (2) according to the ratio of its gross receipts arising within the 
 state to its total gross receipts, or (3) according to the actual source of 
 its net income as determined from its accounting records. 
 
 The net income tax has yielded revenues varying from $3,465,000 
 in 1930-31 to $425,000 in 1933-34. The assessments for the fiscal year 
 1934-35 are slightly in excess of $700,000. At its peak this tax contrib- 
 uted 10.6 per cent of the tax income of the state, but in 1933-34, 
 despite the decline in total tax revenues, the corporation tax made up 
 but 2.0 per cent of the total. 
 
 Although the net income tax is favorably considered by those 
 subject to it, it has been less satisfactory from the standpoint of the 
 state. It has proved itself an unreliable source of revenue. In the three 
 years from 1930-31 to 1933-34 its yield declined to less than one-eighth 
 of the level established in the peak year. It will be nearly doubled again 
 between 1933-34 and 1934-35. This instability results in inaccurate 
 budgeting, encourages unwise expenditures in prosperous years, and 
 makes doubly difficult the financing of subsequent depression years, 
 when its yield drops away to an insignificant figure. 
 
 This instability arises chiefly from the narrowness of the tax. 
 base. In each year since 1924 more corporations have been subject to 
 the minimum tax of $10 than have been taxed upon net income. At 
 the peak of prosperity 28 per cent of the taxpayers paid 98 per cent 
 of the total assessment, and in 1933-34 eleven per cent of the taxpayers 
 paid 82 per cent of the taxes. Some of the largest corporations in the 
 state are included among those paying an insignificant tax of $10. 
 
 Two remedies are proposed for this situation: (1) a broadening 
 of the concept of net income and (2) the establishment of an alternative 
 tax based upon capital invested in the state. 
 
 A business tax should not depend upon the financial organization of 
 a corporation but rather upon the amount of business done. This is 
 related, not to the amount of capital invested by stockholders alone or 
 
68 
 
 the equity of the stockholders in the corporate assets, but rather to the 
 total amount of capital used in the business whether borrowed or con- 
 tributed by stockholders. To satisfy this requirement, net income should 
 be defined to include payments and accruals to the credit of all contribu- 
 tors of capital — that is, rental and interest payments and accruals as 
 well as net profits available for stockholders. This change, whether or 
 not it is adopted for banks as recommended in a preceding section, 
 would make for a more equitable distribution of the tax burden among 
 miscellaneous corporations and would introduce a stabilizing factor into 
 the tax base, which would be of great value in itself. There should 
 further be included in the tax base receipts of tax-exempt interest and 
 dividends, since a business tax should not depend upon particular 
 investment policies and since only by means of such a tax base can the 
 proposed changes in the bank tax be made to yield the revenues 
 necessary to maintain the tax contributions of these institutions at 
 approximately their present level. 
 
 The taxation op invested capital. 
 
 In addition to a broader net income tax base we suggest that a 
 new and considerably higher minimum tax be established. A tax upon 
 capital invested in the state, as measured by the sum of the book value 
 of all interest-bearing indebtedness, all outstanding capital stock, sur- 
 plus, and undivided profits, and all reserves, which can reasonably be 
 expected to accrue to the stockholders appears to provide the most 
 equitable base for such a tax. Upon this base, properly allocated between 
 this and other states, we recommend that a tax rate of one mill be 
 imposed. Such a tax should yield between one and one and one-half 
 million dollars a year, should enforce a reasonable tax contribution 
 from unprofitable as well as profitable concerns, and should provide 
 a stable tax revenue for the state. 
 
 Allocation of the tax base. 
 
 After working for a full decade upon the problem of allocating 
 the base of corporation net income taxes between the several states in 
 which a corporation does business, a committee of the National Tax 
 Association has concluded that the method which is most equitable and 
 which promises eventually to be established by most of the states with 
 corporation net income taxes is the so-called Massachusetts plan. This 
 plan involves the separate allocation of certain items of net income 
 which can be clearly apportioned to a given state and the apportion- 
 ment of all remaining net income by an allocation fraction. This allo- 
 cation fraction is the average of three ratios: (1) the ratio of tangible 
 
69 
 
 property in the state to all tangible property, (2) the ratio of gross 
 receipts assignable to the state to all gross receipts, and (3) the ratio 
 of payrolls of all places of business within the state to all payrolls. 
 A different allocation fraction or allocation according to a separate 
 accounting of net income may be used in cases in which the ordinary 
 allocation process produces inequitable results. 
 
 Recommendations. 
 
 We recommend: 
 
 That the state taxes on miscellaneous corporations be clearly desig- 
 nated as franchise taxes; 
 
 That these taxes consist of (1) a tax of two per cent measured 
 by net income, (2) a tax of one mill on invested capital, and (3) a 
 minimum tax of $10, and that each taxpayer be required to pay the 
 largest of the three; 
 
 That net income be defined as gross income, including income 
 from all sources, less all deductions from gross income allowed by the 
 federal government except interest and rental payments; 
 
 That invested capital be defined as the book value at the end of 
 the taxpayer's fiscal year of the sum of all interest-bearing indebted- 
 ness, all outstanding capital stock, surplus, undivided profits, and 
 reserves which can reasonably be expected to accrue to the stockholders ; 
 
 That the normal procedure of allocating the tax base between 
 this and any other states in which the taxpayer does business be as 
 follows : 
 
 All net income which can be specifically allocated by simple 
 general rules shall be so allocated ; all other net income shall be allocated 
 by means of an allocation fraction computed as the simple arithmetic 
 mean of three separate fractions based upon (1) the value of tangible 
 property within and without the state, (2) the amount of gross receipts 
 arising within and without the state, and (3) the amount of the annual 
 payrolls within and without the state ; 
 
 That, upon request of the taxpayer, the tax commissioner be per- 
 mitted in his discretion to employ the separate accounting method of 
 allocation for the total net income or such other method as seems likely 
 to produce equitable results; 
 
 That the full amount of the tax as computed by the taxpayer be 
 payable at the time the tax return is filed, subject to an additional 
 assessment or refund if the return is found to be in error. 
 
 The unincorporated business tax. 
 
 The Connecticut unincorporated business tax is laid upon the 
 gross earnings of a broadly defined group of manufacturing and mer- 
 
70 
 
 caxitile concerns. The rate of the tax is $1 per $1,000 or fractional 
 part thereof, or approximately one-tenth of one per cent, for manu- 
 facturers and retailers and 25 cents per $1,000 or fractional part there- 
 of for wholesalers. A minimum tax of $5 is imposed. 
 
 This tax yields between $300,000 and $600,000 annually. Taxes 
 assessed have decreased continually from the peak of $586,000 estab- 
 lished in 1930 to slightly more than $300,000 in 1934, but this decline 
 has been far less precipitous than that registered by the miscellaneous 
 corporations tax. After deducting administrative expenses of 30 to 40 
 thousand dollars, the remainder of the tax is divided equally between 
 the state and the eight counties. The division among the counties is on 
 a per capita basis. 
 
 This tax has been criticised because it is limited in scope to certain 
 specified industries, because it imposes a burden which is not exactly 
 comparable to that of the corporation net income tax, and because it 
 is an expensive tax to administer. 
 
 Theoretically a business tax should be as broad as business itself, 
 but difficulties are always encountered in any effort to define what 
 constitutes doing business, and, although recommendations are made 
 in later sections of this report for extension of the tax to unincorpo- 
 rated liquor, motor bus, and amusement concerns, we are not prepared 
 at this time to recommend a further extension of the tax. 
 
 As long as the bases of the business taxes upon corporations and 
 unincorporated concerns differ, there will inevitably arise claims of 
 inequality and discrimination. However, there seem to be adequate 
 reasons for differences in these tax bases. Although we believe that the 
 recommendations of this Commission concerning the corporation tax, if 
 adopted, will reduce existing inequalities, there is no expectation of 
 completely eliminating them. 
 
 The expense of administering the unincorporated business tax 
 amounted to 13 per cent of tax receipts in the past year. This heavy 
 cost is attributable to the large number of taxpayers and to a relatively 
 expensive collection process. It should be reduced by the changes 
 recommended below. 
 
 We recommend: 
 
 That the full amount of the unincorporated business tax as com- 
 puted by the taxpayer be payable at the time the tax return is filed, 
 subject to an additional assessment or refund if the return is found to 
 be in error; 
 
 That the tax be made a lien upon the business property of the 
 taxpayer and that the purchaser of any business upon which taxes are 
 delinquent be liable for such taxes. 
 
71 
 
 Local public utilities. 
 
 Water,' gas, and electric companies are subject to a business tax 
 of one and one-half per cent upon their gross receipts from all sources 
 except (1) earnings from the sale or rental of appliances using water, 
 gas, or electricity and (2) earnings from the sale of water, gas, or 
 electricity to other public service corporations. This tax yields a revenue 
 for the state amounting to seven to eight hundred thoiisand dollars. It 
 is one of the most stable of the state taxes. 
 
 Practically the only criticism of this tax concerns the exemption 
 now accorded to sales to other public service corporations. This pro- 
 vision was originally inserted to avoid the pyramiding of the tax upon 
 utility services which were sold by one company for resale by another ; 
 the present exemption of all sales, whether for resale or not, has existed 
 only since 1927. The amendment of that year was unwarranted and 
 should be repealed. 
 
 We recommend: 
 
 That the exemption accorded sales by local public utilities to other 
 public utilities be limited to sales for resale in the state. 
 
 Special motoe vehicle taxes. 
 
 Nature and theoey op motor vehicle taxes. 
 
 There are four principal questions of policy in the field of special 
 motor vehicle taxes. To what extent should highway costs be financed 
 out of special motor vehicle taxes ? How should this amount be divided 
 among the gasoline tax, the registration tax, and other special . motor 
 vehicle taxes? How should the burden of each of these taxes be dis- 
 tributed among the motor vehicles using the highways ? Finally, should 
 an additional tax contribution, over and above their proportionate 
 share of highway costs, be required of commercial motor vehicles ? 
 
 In every state, part, but not all, of total state and local highway 
 costs is defrayed out of special motor vehicle taxes. Recognition has 
 thus been given to a division of all highways into two classes, desig- 
 nated by the United States Bureau of Public Roads as (1) general 
 use highways and (2) land utilization highways. General use highways 
 have been laid out or are now primarily used for the benefit^of the 
 motorist as such : and such highways may properly be financed wholly 
 out of special motor vehicle taxes. Land utilization highways, includ- 
 ing most of what are known as town roads and city streets, are used 
 primarily as a means of access to the land, are of primary benefit to 
 property owners, and may logically be financed out of property taxes 
 and special assessments upon real estate. 
 
72 
 
 It is impossible to draw a sharp line of demarcation between 
 general use and land utilization highways, and even an approximate 
 classification is difficult without an extensive traffic survey.' It has 
 therefore been necessary to assume that the present state highway sys- 
 tem, consisting of 2,400 miles of trunk line and state aid highways, 
 together with that share of the town road system which is financed 
 out of the annual state appropriation of $3,000,000 known as the dirt- 
 road appropriation, constitutes the general use highway system of the 
 state, which should be financed out of special motor vehicle taxes. 
 
 The highway expenditures of the state, together with regulation 
 costs of the motor vehicle department and a substantial part of the 
 costs of the state police department, which is engaged largely in high- 
 way policing, have ranged in recent years from a high of 18 million 
 dollars in 1927-28 to a low of 13 millions in 1932-33. ISTon-tax revenues 
 ranging from 2.3 to 3.4 millions have been available to meet a portion 
 of these expenditures. To yield the remaining revenue necessary to 
 maintain the state highway fund and to pay a fair share of the expenses 
 of the police department, which are now paid entirely out of the gen- 
 eral fund, a present sum of 11 million dollars a year, increasing in the 
 future with the normal expansion in highway use, appears adequate. 
 Approximately this amount appears to be necessary if the state's invest- 
 ment in state highways is to be protected, if the state is to continue to 
 qualify for federal aid, and if local road aid is to be continued at its 
 present level. To raise more than this amount and divert some of the 
 proceeds to the general fund would be unfair to the motorist. 
 
 The division of this- sum of eleven million dollars among the sev- 
 eral special motor vehicle taxes raises questions of the relative merits 
 of the gasoline and registration taxes. Neither tax is complete in itself, 
 although we believe that the gasoline tax, which is the best single meas- 
 ure of highway use, should produce a larger share of the total of these 
 taxes than at present. 
 
 Once the amount to be raised by the gasoline tax is determined, 
 the rate of the tax and its apportionment among motor vehicle owners 
 are thereby determined. But the apportionment of the sum to be raised 
 by registration taxes is not so simple. Presumably this tax should be 
 so devised as to exact, together with the gasoline tax, a contribution 
 from each motor vehicle equal to the highway costs for which such 
 vehicle may fairly be held responsible. The statement of this principle 
 is much simpler than its application. The time and resources of this 
 Commission have been wholly inadequate for this purpose, and con- 
 clusions have necessarily been arrived at upon the basis of limited cost 
 data. 
 
73 
 
 Once the total cost of general use highways has been allocated to 
 motor vehicle users, there remains only the question whether an addi- 
 tional contribution, over and above highway costs, should be required 
 of commercial motor vehicles. These vehicles are operated in competi- 
 tion with railroad and street railway companies, which not only pay 
 for the construction and maintenance of their own right of ways but also 
 pay taxes upon the value of their roadways. The Commission recog- 
 nizes that the failure to tax commercial motor vehicles upon their fair 
 share of the value of the publicly owned roadway tends to obstruct the 
 competitive forces which should be allowed to decide in favor of the 
 more economic method of transportation. We have, however, found it 
 impossible to calculate with any degree of precision either the total 
 amount of the investment in the public roadway or the fair share to 
 be allocated to commercial vehicles, nor have we discovered any practi- 
 cable means of imposing the required tax. 
 
 The Commission's study has disclosed problems of motor vehicle 
 taxation far too broad for solution within the time and the appropria- 
 tion at its disposal. An imposing body of experts has labored upon these 
 problems for years and has arrived at little general agreement on 
 matters of fact and principle. It appears that the full solution of Con- 
 necticut's problems of motor vehicle taxation must await a fuller study 
 on the part of another commission and legislative action in cooperation 
 with neighboring states. In the meantime we offer recommendations 
 which should serve to correct conspicuous defects and give to the state 
 a system of motor vehicle taxes which will serve satisfactorily until 
 such time as a more fundamental overhauling may be practicable. 
 
 The gasoline tax. 
 
 The Connecticut gasoline tax of two cents a gallon is imposed 
 upon all motor fuels manufactured in or imported into the state except 
 (1) motor fuels sold to the United States Government, (2) motor fuels 
 sold by one licensed distributor to another, and (3) motor fuels trans- 
 ferred from storage within this state to some point outside the state. 
 Refunds may be obtained by purchasers who use gasoline for purposes 
 other than the propelling of vehicles over the piiblic highways or for 
 fire and police department apparatus, etc. 
 
 The rate of the gasoline tax in Connecticut is the lowest in the 
 country and is exceeded by the rates in all other states except Rhode 
 Island and Missouri. The typical state rate is four cents, and the rate 
 in most neighboring states is three cents. 
 
 The gasoline tax has yielded increasing revenues in each year 
 since its adoption except 1932-33. The increase from $4,633,000 in 
 1932-33 to $4,968,000 in 1933-34 is ascribable partially to an actual 
 
74 
 
 increase in highway use, hut is is probably also attributable in no small 
 degree to an act of the 1933 General Assembly substituting refund pro- 
 visions for a wide range of tax exemptions. The tax now contributes 
 approximately twenty per cent of state tax revenues. 
 
 Although these figures are large, it appears that an even greater 
 share of the state highway fund receipts should come from gasoline 
 taxes. Our principal recommendation for the accomplishment of this 
 end is to raise the rate of the gasoline tax from two to three cents. Other 
 recommendations of minor importance contemplate the further sub- 
 stitution of refunds for exemptions. Should the proposed changes in 
 the gasoline tax be adopted, annual revenues of 7 to 7.5 million dollars 
 can be anticipated from this source in the next few years. 
 
 Motor vehicle license taxes. 
 
 All motor vehicles operated upon the highways of the state by 
 residents of the state or by nonresidents, unless such nonresidents have 
 complied with the laws of their own states, and such states grant recip- 
 rocal privileges to Connecticut residents, must be registered with the 
 commissioner of motor vehicles. Upon registration a fee is charged, 
 varying with the type and specifications of the vehicle. Private pass- 
 enger vehicles are taxed at the rate of eight cents per cubic inch of pis- 
 ton displacement. Commercial vehicles are taxed upon a capacity basis ' 
 at rates roughly graduated with the size of the vehicle. These fees have 
 yielded an income to the state which has in recent years exceeded six 
 million dollars, except in 1932-33 when it declined to 5.7 millions. 
 Four to five millions out of this total come from private passenger 
 vehicle registrations. 
 
 Neither of the two Connecticut registration tax bases — piston dis- 
 placement and carrying capacity — bear more than an approximate rela- 
 tionship to vehicle size, weight, speed, wheel impact, or any other char- 
 acteristic which determines highway costs. No other state uses piston 
 displacement as a tax base, and horse power, the measure most nearly 
 comparable to piston displacement, is declining in favor. Carrying capac- 
 ity, too, is used in fewer states today than formerly. Gross weight, on 
 the other hand, has been widely endorsed and adopted as a registration 
 tax base. The Commission proposes the adoption of this measure for 
 the registration fee for both private passenger and commercial vehicles. 
 
 The rates of Connecticut motor vehicle license fees have been 
 criticized as being out of line with those in neighboring states, thus 
 encouraging false declaration of residences in order to register in other 
 states. Evasion of this sort, it is estimated by the department of motor 
 
75 
 
 vehicles, results in a loss of registration fees of well over a hundred 
 thousand dollars a year. This is further reason for raising a larger 
 share of special motor vehicle taxes by means of the gasoline tax. 
 
 It is proposed that the registration tax be shifted to a gross weight 
 basis and that the rate be graduated from a basic rate of thirty cents 
 per hundredweight for vehicles weighing less than 5,000 pounds up 
 to forty cents for vehicles of 32,000 and over. This would reduce the 
 registration fees for private passenger cars by about one-third and 
 would result in reductions of varying amounts in commercial registra- 
 tion fees. The largest trucks, the present fees on which are most oixt of 
 line with those in neighboring states, would .receive the greatest reduc- 
 tion, but this seems justified both as a means of encouraging Connecti- 
 cut registration and in recognition of the fact that the recommended 
 increase in the gasoline tax would bear- more heavily upon trucks than 
 upon pleasure cars. The proposed tax would raise not much over 4 mil- 
 lion dollars, or 2 to 2.5 millions less than the present taxes. Combined 
 with the gasoline tax it should not fail to produce the 11 million dollars 
 required for the highway fund. 
 
 Motor bus taxes. 
 
 The general character of the Connecticut motor bus tax has been 
 described above under the heading "special property taxes." It is a 
 three per cent tax on gross earnings in lieu of property taxes and busi- 
 ness taxes. Unlike the other taxes on transportation and communication 
 companies, the proceeds of this tax are divided between the state and 
 the towns and unconsolidated cities. A town or unconsolidated city 
 receives one cent for each bus-mile traveled within its boundaries on 
 roads which are not in the trunk line or state aid systems. Of the 
 $160,000 to $180,000 which the tax yields, about $100,000 now go 
 to the towns and cities ; the remainder is paid into the highway fund. 
 
 The motor bus tax raises questions of fundamental policy which can 
 be answered only after a more detailed study of the regulation and 
 taxation of thg motor transportation business than this Commission 
 has been able to make. We therefore content ourselves with recom- 
 mending minor changes, which will bolster up the present tax without 
 changing it fundamentally. These recommendations contemplate (1) the 
 return of the real estate of motor bus companies to the local grand lists 
 and the offset of real estate taxes against the gross earnings tax and (2) 
 the distribution of the proceeds of the gross earnings tax between the 
 state and the towns on the basis of established route mileage in place 
 of the present distribution, which involves a difficult computation. 
 
76 
 
 Kecommendations. 
 
 We recommend: 
 
 That the rate of the gasoline tax be increased from two cents to 
 three cents per gallon ; 
 
 That the exemption of sales by Connecticut distributors of taxable 
 motor fuel transferred from storage within the state to some point 
 outside the state be repealed and that the purchaser of such fuel be 
 reimbursed for the amount of tax paid thereon upon the filing of a 
 sworn application for refund ; . 
 
 That taxable motor fuel sold by one Connecticut distributor to 
 another be taxable to the vendor and that it be either exempt or 
 taxable subject to refund when resold upon the showing of satisfactory 
 evidence that the fuel has been previously taxed by the state ; 
 
 ~ That all motor vehicles registered in the state, including motor 
 buses, be subject to a registration tax based upon gross weight ; 
 
 That the basic registration tax be fixed at thirty cents per hundred- 
 weight for a gross weight up to 5,000 pounds and that it be graduated 
 by increments of one cent per hundredweight for each 3,000 pounds of 
 gross weight up to a maximum of forty cents per hundredweight for 
 all vehicles with a gross weight of 32,000 pounds and over; 
 
 That this scale of fees be doubled for motor vehicles with non- 
 pneumatic tires and for motor vehicles which do not consume taxable 
 motor fuels ; 
 
 That the registration tax for partial-year registrations be reduced 
 by one-quarter at the end of each three-month period of the calendar 
 year ; 
 
 That all real estate owned or operated by a motor bus company 
 and used in the motor bus business be taxed locally and that the 
 amount of taxes paid on such real estate be offset against the state tax 
 of three per cent on gross earnings; 
 
 That the proceeds of the gross earnings tax on any motor bus com- 
 pany be divided between the state and the towns and unconsolidated 
 cities in the proportion that the number of miles of established routes 
 operated upon trunk line and state aid highways bears to the number 
 of miles operated upon other highways within the respective towns and 
 cities, without regard for the number of buses traveling such routes; 
 
 That three-fourths of the expenditures of the state police depart- 
 ment be defrayed out of the highway fund and the remainder out of 
 the general fund; 
 
 That unincorporated motor transportation companies other than 
 motor bus companies be subject, in addition to all other taxes, to the 
 unincorporated business tax upon gross earnings at the rate applicable 
 
77 
 
 to retailers and manufacturers, that is, $1 per $1,000 or fraction 
 thereof ; 
 
 That a commission be appointed to study the whole subject of the 
 regulation and taxation of motor vehicles and to report its findings 
 to the General Assembly. 
 
 Death taxes, liquok taxes, and amusement taxes. 
 .Death taxes. 
 
 Connecticut has two taxes which are ordinarily classified as death 
 taxes. The succession tax has been in existence since 1889 and provides 
 most of the Connecticut death tax revenues. It is laid upon transfers, 
 at death or in contemplation of death, of tangible real and' personal 
 property located in Connecticut and of intangible personal property 
 owned by residents of the state. The rates of the tax are graduated both 
 according to the amount of transfers to a given class of beneficiaries and 
 according to the relationship of the beneficiaries to the decedent and 
 range from, one to eight per cent. 
 
 The second death tax is the Connecticut estate tax. This tax grew 
 out of a provision in the Federal Revenue Act of 1924 allowing a 
 credit up to 25 per cent — -later 80 per cent — of the federal estate tax 
 for any desath taxes payable out of the' proceeds of the estate to 
 states and territories of the United States. This made it possible for 
 any state to levy death taxes up to a given percentage of the federal 
 estate tax without imposing any additional burden upon its taxpayers. 
 Connecticut availed itself of this opportunity in 1931. The Connecti- 
 cut estate tax now applies to only a few estates, being those upon which 
 the succession tax does not absorb the whole of the 80 per cent credit 
 allowed against the 1926 federal estate tax. 
 
 Together these two taxes yielded $4,976,000 in the peak year 
 1930-31. In 1933-34 their combined yield was $2,421,000, of which 
 $1,721,000 came from the succession tax and $700,000 from the 
 estate tax. 
 
 In consideration of the generally satisfactory administration of the 
 existing death taxes, the level of similar taxes in neighboring states, 
 the conformity of the tax base with the best judicial and economic 
 opinion, and the desirability of maintaining a certain degree of stability 
 in a tax which is borne by particular persons at infrequent and irregular 
 intervals, the Commission has concluded that no structural changes in 
 tax bases or rates are called for at this time. 
 
 The changes which we do propose are of minor significance. In the 
 first place, we suggest that joint bank accounts, now exempt from the 
 succession tax, be taxed on the same basis as any other jointly owned 
 property upon the death of a joint tenant. The present exemption affords 
 
78 
 
 an avenue of escape from the succession tax, which is unjustified in 
 principle however seldom it may be resorted to in practice. 
 
 We further suggest that control be exercised over safe deposit 
 boxes upon the death of any person having access thereto at the time of 
 death until such time as a representative of the state has had reasonable 
 opportunity to check the contents of the box. This control has been 
 found useful in other states as a means of preventing tax evasion and 
 should be burdenless in a state as small as Connecticut. 
 
 We recommend: 
 
 That jointly owned bank accounts be made subject to the succes- 
 sion tax on the same basis as any other jointly owned property; 
 
 That all lessors of safe deposit boxes and vaults within the state, 
 upon learning of the death of any person having access thereto at the 
 time of death, be prohibited from allowing access to such boxes and 
 vaults until the tax commissioner has been given reasonable opportunity 
 to check the contents; 
 
 That the problem of exemption of bequests to charitable, educa- 
 tional, and religious organizations be given further study by the Gen- 
 eral Assembly as part of the entire problem of tax exemption. 
 
 Liquor taxes. 
 
 Liquor excise taxes, whether ad valorem as in Connecticut or 
 specific as in most other states, are essentially sumptuary in nature. 
 They are defended principally upon the grounds that liquor is a non- 
 essential article of consumption, if not actually a luxury, and that the 
 consumption of liquor should be discouraged for moral, physiological, 
 or other reasons. The Connecticut liquor taxes are gross sales taxes 
 imposed at the rate of one per cent upon sales of wholesalers and manu- 
 facturers and at the rate of four per cent upon retail sales. Receipts 
 from the sale of liquor are not taxable under the unincorporated 
 business tax, nor is net income from the liqxior business taxable under 
 the corporation net income tax. 
 
 In the first year of their existence the liquor taxes yielded a 
 revenue to the state of $658,000. Judging by collections for the last 
 quarter of 1933-34 and the first quarter of 1934-35, the legalization 
 of distilled liquors has had a marked effect upon the tax yield. It is 
 anticipated that at least one million dollars will be realized in the fiscal 
 year 1934-35. 
 
 The present combination of business tax and consumption tax 
 which is found in the Connecticut liquor taxes is unsatisfactory for 
 several reasons. In the first place, it opens the door to tax evasion. It 
 is quite impossible to secure an accurate allocation of the net income 
 of a corporation engaged in the liquor business and also in some other 
 
79 
 
 business. The nautral tendency of the taxpayer is to| minimize the net 
 income of the non-liquor business by ascribing as few of his business 
 costs as possible to the liquor business. Similarly an unincorporated 
 concern, without serious disruption of its own bookkeeping records, 
 may record liquor sales as sales of food or other articles and thus 
 reduce its tax burden from the relatively high rates of the liquor tax 
 to the low rates of the unincorporated business tax. 
 
 In the second place, the application of the tax to each of the 
 Connecticut distributing agents engaged in the marketing of liquor 
 results in tax ' pyramiding and in discriminaton against Connecticut 
 liquor manufacturers and wholesalers. Manufacturers and wholesalers 
 of most other states are taxed upon their sales to Connecticut dealers 
 neither by Connecticut nor by their states of domicile. 
 
 Finally, the Connecticut liquor taxes confuse the basic issue 
 between business and consumption taxes. The Commission concludes 
 that those engaged in the liquor business should be subject to the same 
 business taxes as other business concerns similarly organized. Beyond 
 this there should be a true consumption tax collected at a single stage 
 in the marketing process and intended to be passed on to the final 
 consumer. Insofar' as possible, this tax should be collected from manu- 
 facturers and wholesalers as a means of reducing the number of tax- 
 payers and limiting them as much as possible to responsible parties 
 with adequate records. The rate of the tax should be set at a point 
 which, when applied to wholesale prices, will yield approximately the 
 revenues now raised from the liquor tax. 
 
 We recommend: 
 
 That all, enterprises engaged in the liquor business, whether incor- 
 porated or unincorporated, be made subject to the regular business 
 taxes on the same basis as other business concerns ; 
 
 That the liquor tax be imposed as a selective sales tax collected at 
 a single stage in the process of distribution and that it apply at a uni- 
 form rate to all liquor manufactured in or imported into the state for 
 sale within the state; 
 
 That the tax be collected from Connecticut liquor manufacturers 
 or processors on all sales for delivery within the state ; 
 
 That the tax be collected from all Connecticut liquor wholesalers 
 or jobbers on all sales for delivery within the state but that a refund 
 be granted on sales of liquor, whether for delivery within or without 
 the state, upon which a tax has been paid by a previous vendor ; 
 
 That a tax be collected from all Connecticut liquor retailers on the 
 purchase price of liquor imported into the state, except such as has 
 been taxed under the provisions of the following recommendations; 
 
 That any non-Connecticut manufacturer or wholesaler be per- 
 
80 , 
 
 mitted to enter into an agreement by which, in order to relieve his 
 customers of the tax liability, he binds himself to pay the tax on all 
 shipments into the state for sale within the state and submit to exami- 
 nation of his accounts; 
 
 That the rate of the tax upon the wholesale value of liquor retailed 
 in the state be fixed with the purpose of maintaining the yield of the 
 liquor tax at approximately the level which would obtain under the 
 existing tax laws. 1 
 
 Amusement taxes. 
 
 Connecticut now has two so-called amusement taxes. One of these 
 - — the five per cent tax on admissions to boxing and wrestling matches 
 — is essentially a fee imposed to defray the costs of the athletic com- 
 mission. The second — the seating capacity tax — is a true tax levied to 
 defray the cost of general government. 
 
 The seating capacity tax is imposed only upon theaters conducted 
 for profit, including motion-picture, opera, and vaudeville houses. The 
 tax is graduated roughly with seating capacity from 25 cents for the- 
 aters which seat fewer than 500 up to $8 for theaters seating 2,500 or 
 more. It amounts to approximately 1.5 to 2 mills per seat. The tax is 
 payable for each day on which a performance is given. 
 
 The depression and two successive decreases in rates, the last of 
 which was made in 1933, have combined to reduce drastically the 
 revenues from the seating capacity tax. In its second year, 1928-29, 
 it yielded $163,000 ; it has declined constantly since then to $89,000 
 in 1933-34. At no time has it even approached the original productiv- 
 ity of the general admissions tax which it superseded. 
 
 The present amusement tax is limited in scope to motion-picture 
 theaters and a few other amusement houses although it would seem 
 only logical that other amusements competing for the purchasing power 
 of the public should be subject to some corresponding tax burden. It 
 was probably intended that the seating capacity tax should be a con- 
 sumption tax passed on to theater-goers. Since it takes no account of 
 the number of seats filled at a given performance nor of the number 
 of performances a day, it is only roughly related to consumption. 
 
 To meet these objections, it is proposed that the seating capacity 
 tax be replaced by a gross admissions tax similar to those now in force 
 in several other states. Such a tax should be in addition to the regular 
 business taxes. It should be high enough to yield a respectable revenue 
 comparable to that which may be raised by other selective sales taxes; 
 
 1 Figures are now being compiled from recent liquor tax returns, which will permit 
 the Commission to recommend a definite tax rate at a later date. The rate so 
 determined will be included in the bill to be presented to the General Assembly. 
 
81 
 
 it should be high enough to warrant slightly larger administrative 
 costs and to make it feasible for theater owners to pass the tax on to 
 their customers. These considerations suggest a rate of 5 per cent. 
 Such a tax is estimated to yield $450,000, or $360,000 more than is 
 currently received from the seating capacity tax. 
 
 We recommend: 
 
 That the tax on admissions to boxing and wrestling matches be 
 adjusted from time to time, if necessary, so that, together with income 
 of the athletic commission from other sources of similar nature, an 
 approximate balance will be struck -between the receipts and expendi- 
 tures of the athletic commission; 
 
 That the seating capacity tax be repealed; 
 
 That an admissions tax of five per cent be imposed upon the gross 
 receipts of all amusement enterprises conducted for profit ; 
 
 That the unincorporated business tax be extended to unincorpo- 
 rated concerns engaged in the amusement business at the rate appli- 
 cable to manufacturers and retailers, that is, $1 per $1,000 of gross 
 earnings or fraction thereof. 
 
PART IV 
 
 REDISTRIBUTION OF THE TAX BURDEN 
 
 State assistance in local financing. 
 State assistance in general. 
 
 The growth of expenditures without a corresponding expansion 
 in local sources of revenue has given rise to different kinds of state 
 assistance in local financing. The rapid increase during the past gener- 
 ation of state expenditures for highways, higher education, charitable 
 institutions, the courts, health, and other activities has relieved local 
 governments at least in part of expenditures which they would have 
 been required to have made under the distribution of governmental 
 functions of the last century. In addition to this indirect assistance, 
 however, the states have extended financial aid to their political sub- 
 divisions by sharing the revenues of state-administered taxes, by making 
 grants in aid of specified local activities, and by assuming the admin- 
 istrative and financial responsibility for certain local activities. 
 
 State assistance in Connecticut. 
 
 In Connecticut the state shares with the counties or municipali- 
 ties the revenues derived from the share taxes on banks and insurance 
 companies, the unincorporated business tax, the estate penalty tax, 
 and the motor bus tax. The amount of these tax revenues distributed 
 to local governments was $3,439,902 in 1928-29, $1,491,974 in 1931- 
 32, and $1,045,349 in 1933-34. 
 
 Grants are made by the state to the municipalities for certain 
 educational and' charitable activities and for a few other local func- 
 tions. There are eighteen different grants made directly to the munici- 
 palities for particular educational activities. The state makes grants 
 to the counties in payment of part of the board of children committed to 
 county care and of prisoners in county jails. The state reimburses the 
 municipalities for the necessary relief given to state paupers and pro- 
 vides a grant of $100 each for the funeral expenses of certain war 
 veterans. There are also state grants to reimburse the municipalities 
 for their loss of taxes on state property and for the retirement of 
 their railroad indebtedness. 
 
 In extending financial assistance for local highway activities and 
 for widows' aid, the state has assumed responsibility for their admin- 
 
83 
 
 istration. The state appropriates annually one million dollars plus the 
 amount furnished by the towns in the preceding year for state aid 
 highway construction. The towns are required to pay either one-eighth 
 or one-quarter of the costs of state aid highway construction accord- 
 ing to the amount of their average annual receipts from taxation. The 
 combined state and town appropriations, exclusive of the amounts 
 applied to the completion of unfinished intervals, are divided equally 
 among the towns. The towns accept or reject their allotments and 
 suggest the roads to be constructed, but the final determination of the 
 work to be done and the administration of the activities remain with 
 the highway commissioner. Except that no contributions by the munici- 
 palities are required and that certain other requirements governing 
 construction of state aid highways need not be met, the "dirt-road" 
 appropriation of three million dollars is similarly administered. As 
 with the two types of highway aid, provision is made for the coopera- 
 tion of the towns and the counties in extending widows' aid, but the 
 final responsibility for the administration of these activities rests 
 with the state agent. The state is reimbursed by the counties for 
 one-third and by the municipalities for one-third of the total expendi- 
 tures made for widows' aid. 
 
 Direct state assistance to local financing amounted to $8,575,173 
 in 1931-32. Of this total, $1,491,974 represented revenues of state- 
 administered taxes; $3,080,959, grants for specified local activities; 
 and $4,002,240, expenditures on local functions administered by the 
 state. If the state and military taxes of $1,765,353 paid by the towns 
 to the state be deducted from this total, the net amount of direct state 
 assistance in local financing was $6,809,820 in 1931-32. 
 
 Oeiticism and proposed changes. 
 
 Efficient and economical administration of governmental activities 
 depends upon holding each unit of government responsible for the 
 financing of the activities which it administers. Although this prin- 
 ciple cannot be applied without making allowance for the practical, 
 traditional, political, and sentimental circumstances surrounding par- 
 ticular problems, its strict application should be taken as the ultimate 
 aim of state and local fiscal interrelationships. 
 
 Distributing the revenues from state-administered taxes among 
 local governments is generally an unsound procedtire. Neither those 
 who pay these taxes nor those who spend the distributed revenues 
 exercise over these funds the responsibility which proper financing 
 requires. Karely are the revenues distributed according to a sound 
 theoretical principle. The Commission's proposals eliminate the dis- 
 tribution of revenues from the share taxes on banks and insurance 
 
84 
 
 companies, the unincorporated business tax, and the estate penalty tax 
 among the local governments. Until the whole subject of regulation 
 and taxation of commercial motor vehicles is investigated, it is pro- 
 posed that the revenues from the motor bus tax continue to be distrib- 
 uted but according to more practicable rules than those now in effect. 
 The Commission views its proposal for the special property tax on 
 motor vehicles, not as a substitution of a state tax for a local tax, 
 but as the substitution of state assessment and collection for local admin- 
 istration of a local tax. The revenues from this tax, like those from 
 property taxes on other tangible personal property, are to remain local 
 revenues. 
 
 The purpose of the proposed school, equalization plan is primarily 
 to increase school expenditures and provide at least a minimum edu- 
 cational program in all towns in the state. Since this Commission has 
 no authority to advance proposals intended primarily to increase 
 expenditures and since it is not the function of this Commission to 
 pass judgment upon educational questions, the Commission presents 
 no proposals for changes in existing state grants for local educational 
 activities. It does, however, call attention to certain fiscal defects 
 of the equalization plan. 
 
 State financial assistance for both state aid highways and town 
 roads is extended according to the principle of vesting administrative 
 authority and financial responsibility in the same unit of govern- 
 ment. The Commission considers that this aid is justified by the prin- 
 ciples of special motor vehicle taxes and that its administration is 
 satisfactory and its amount adequate. 
 
 The state has already assumed the administrative and financial 
 responsibility for most of the institutional care of the insane, feeble- 
 minded, criminal, delinquent, and pauper classes. The Commission 
 believes that the policy of gradually transferring to the state the total 
 responsibility for institutional charitable activities should be con- 
 tinued. Without passing judgment on its professional features, the 
 proposal to establish a state jail farm is endorsed as a sound measure 
 to relieve the burden of local taxation. The state, through the activities 
 of the state department of public welfare and its administrative 
 and fiscal relationship to the county homes, has assumed a definite 
 responsibility for the care of children eighteen years of age or less. 
 The implications of this policy are fully developed in the report of the 
 Commission on Child Welfare. The Commission believes that increased 
 state grants for the support of children committed to county care, com- 
 bined with a greater degree of state administrative supervision 
 of the operations of county homes, provides a sound procedure for 
 
85 
 
 giving some relief from the burden of local taxation and for improv- 
 ing the state's policy for the care of children. 
 
 The Commission finds that the established administrative arrange- 
 ments for outdoor charitable relief are adequate and satisfactory under 
 normal conditions. Unemployment resulting from business depression, 
 however, has created an emergency financial problem for the munici- 
 palities and accounts for the acute burden of local taxation. Emergency 
 unemployment relief is more a state than a local responsibility, and its 
 financing provides an opportunity for the state to extend the most 
 direct, effective, and substantial relief from the burden of local taxa- 
 tion at this time. The Commission proposes that no change be made 
 in existing arrangements for the administration and financing of town 
 almshouses, other local institutional care of the poor, state paupers, 
 and widows' aid. 
 
 In connection with local expenditures for outdoor charitable 
 relief, exclusive of relief to state paupers and widows' aid, it rec- 
 ommends the continuance of local administration and the extension 
 for a temporary period of four years of a considerable amount of state 
 assistance under provisions similar to those governing the financing 
 of relief to state paupers. It is proposed that the municipalities be 
 required to finance a part of the total cost of such expenditures for 
 outdoor charitable relief equal to the sum of (1) their expenditures 
 for this purpose in 1928 and (2) at least one-third of the excess of 
 such expenditures in any given year over those of 1928. The state 
 would reimburse the municipalities for two-thirds of the excess of such 
 expenditures in any given year which are approved by the Emergency 
 Relief Commission over the actual amount of such expenditures in 
 1928. 
 
 The Commission proposes, finally, that the state and military 
 taxes be repealed as a step to provide direct and immediate relief from 
 the burden of local taxation without raising any difficulties of admin- 
 istration. 
 
 With respect to state assistance in local financing, the Commis- 
 sion recommends : 
 
 That the state and military taxes on towns be repealed ; 
 That the provision for distribution to the counties of half the net 
 revenues from the unincorporated business tax be repealed; 
 
 That the payment by the state to the counties for the support 
 of children committed to county care be increased from $3.50 to the 
 average actual current cost in each county, not exceeding $6.00 per 
 week per child ; 
 
That the tax commissioner be empowered to require county com- 
 missioners to keep adequate accounting records of the operations of 
 county homes; 
 
 That the duty of receiving, compiling, and publishing the annual 
 financial returns of county commissioners be transferred from the 
 secretary of state to the tax commissioner; 
 
 That the county commissioners be permitted to make expendi- 
 tures for permanent improvements to county temporary homes only 
 with the approval of the state board of finance and control; 
 
 That no change be made in the present administration and financ- 
 ing of (1) relief to state paupers, (2) widows' aid, (3) town alms- 
 houses, and (4) local relief to the poor in asylums, hospitals, homes, 
 etc. ; 
 
 That the Emergency Relief Commission be continued for four 
 years ; 
 
 That, as an emergency measure adopted for a temporary period 
 of four years, the state reimburse the municipalities for an amount 
 of their outdoor charitable relief expenditures, exclusive of those for 
 state paupers and widows' aid, equal to two-thirds of the excess of 
 such expenditures approved by the Emergency Relief Commission over 
 the amount of such expenditures made during the municipal fiscal 
 years ending next prior to October 1, 1928 ; 
 
 That an appropriation be made by the state from its general 
 fund for expenditures for local outdoor charitable relief and that 
 the revenues of the general fund be increased to meet this appropria- 
 tion by the enactment of temporary emergency taxes recommended in 
 the following section. 
 
 In addition to these formal recommendations, the Commission 
 considers the proposal of the Commission on Jails to transfer from the 
 counties to the state the administrative control and financial responsi- 
 bility for the custody of all persons committed to prison (other than 
 those awaiting trial) a sound fiscal measure, which will result in a cer- 
 tain amount of reduction of local taxation. 
 
 New sources of revenue. 
 
 Additional revenues required. 
 
 _ In considering new sources of revenues, it is important to have 
 an idea of the net effect of the preceding recommendations upon the 
 state budget. In order to arrive at such an estimate, the fiscal year 
 1932-33 (the latest year for which complete figures are available) 
 is taken as an example. According to our estimates, if the Commis- 
 
87 
 
 sion's proposed changes in the tax laws and its proposals affecting 
 state expenditures had been in effect in 1932-33, additional revenues 
 of 11.1 million dollars would have been required to have balanced the 
 state budget in that year. About 7 millions of these revenues would 
 have been required only temporarily to finance emergency expendi- 
 tures. The remainder would have been required largely because of the 
 repeal of taxes on intangibles. These figures provide an approximate 
 measure of the new revenues which the Commission should aim to 
 provide. Taxes on personal incomes and sales constitute the only prom- 
 ising sources from which such substantial revenues may be derived. 
 
 Taxes on incomes or natural peesons. 
 
 Personal income taxes take three principal forms, namely, gen- 
 eral personal income taxes, under which the total.net income of individ- 
 uals is taxed at rates graduated according to its amount, general classi- 
 fied income taxes, under which income is classified according to its 
 source and the income from each source is taxed at a uniform rate differ- 
 ent from those imposed on income from other sources, and interest and 
 dividends taxes. 
 
 Satisfactory general personal income taxes have been developed in 
 this country only since 1911. This type of personal income tax has 
 a popular appeal of equity in the distribution of tax burdens. Under 
 existing conditions, however, this tax can be fairly judged only in its 
 relation to the other taxes which are, and must continue to be, imposed. 
 Residents of Connecticut are required to pay the federal personal 
 income tax, which is imposed at highly graduated rates on the entire 
 net income of individuals. The probability is that this tax will be 
 increased and broadened in the immediate future. A state personal 
 income tax, unless it were formulated to reach the small incomes 
 exempted from the federal tax, would fall only on incomes already 
 heavily taxed by the federal government, would extend the progressive 
 feature of general personal income taxes beyond the point justified by 
 any economic principle, and would suffer from extreme variability' 
 of yield. Although a universal personal income tax has been widely 
 advocated, only three of the twenty-one states which had general 
 personal income taxes on January 1, 1934, had imposed their taxes 
 on every self-supporting individual in the state, and one of these three 
 states repealed the universal feature of its tax after six years in 
 spite of its administrative success. The Commission does not believe 
 that tbe General Assembly of Connecticut will be- more favorable to 
 the universal general personal income tax than the legislatures of 
 most other states have been* Moreover, the narrow base of such a tax 
 not only weakens its equitable appeal but makes for a highly variable 
 
yield. To allow personal exemptions as high as $1000 to single per- 
 sons and $2,000 to married persons would remove from the scope of 
 a general personal income tax in Connecticut about TO per cent of all 
 self-supporting persons and more than a third of the income of individ- 
 uals in the state. During the depression the revenues from the general 
 personal income taxes of the federal government and of New York 
 State have declined more than one half in spite of substantial changes 
 in rates and exemptions. Such variability of yield causes acute finan- 
 cial problems in times of depression and aggravates the burden of 
 local taxation. For these reasons the Commission concludes that 
 the general personal income tax is not a satisfactory measure for solv- 
 ing the state's taxation problem. 
 
 Until the Vermont tax was enacted in 1931, Massachusetts was 
 the only state to adopt a general classified personal income tax. The 
 Massachusetts tax imposes differentiated rates on (1) earned incomes, 
 (2) interest and dividends, (3) capital net gains, and (4) incomes 
 from annuities. Such a tax bears a resemblance to the classified prop- 
 erty taxes of other states and was enacted, among other reasons, for 
 the similar purpose of developing an effective means for taxing intangi- 
 bles. A tax such as that of Massachusetts lacks the equitable appeal of 
 the general personal income tax, does not represent a logical substitute 
 either for an intangibles tax or a personal income tax, cannot be easily 
 integrated with the federal personal income tax, and is complicated in 
 structure and difficult of administration. Because of the inclusion of 
 capital net gains in the base of the tax, its yield has been only slightly 
 less variable than that of the general personal income tax. The Com- 
 mission concludes that the general classified personal income tax is 
 not suitable for the Connecticut revenue system. 
 
 A tax on interest and dividends is a restricted classified personal 
 income tax and has been found to be an effective measure for taxing 
 intangibles. The New Hampshire interest and dividends tax has reached 
 a much larger aggregate of intangibles than was previously taxed under 
 the general property tax, and its yield has been more stable than other 
 forms of income taxation. Similarly the tax on interest and dividends 
 included in the Massachusetts general classified personal income tax 
 has produced most of the revenues of the general tax and has shown a 
 relatively high stability of yield during the depression. The Commis- 
 sion finds that the interest and dividends tax is a practicable measure 
 for taxing intangibles and recommends the adoption of such a tax with 
 the broadest possible application. The Commission estimates that the 
 interest and dividend tax with a $200 personal exemption would yield 
 $4,000,000 if imposed at the present time. 
 
89 
 
 Taxes on sales oe consumption. 
 
 Sales taxes of various kinds have been enacted by many govern- 
 ments since the World War. Some of these taxes are business rather 
 than consumption taxes or are unsuited to state use because of the 
 constitutional prohibitions against taxes on imports and on interstate 
 commerce. Seven states, including the industrialized states of ISTew 
 York, Pennsylvania, Illinois, and Michigan, have resorted during the 
 depression to general retail sales taxes as an emergency source of 
 substantial revenues to meet pressing fiscal needs. 
 
 The Commission finds that such taxes have been largely 
 shifted to consumers immediately upon their enactment and believes 
 that in the long run practically the whole tax will be so shifted. 
 In spite of the objections which have been raised, and to which 
 the Commission has given serious attention, it does not believe 
 that the disturbance to business resulting from the enactment of these 
 taxes under present conditions would be as great as that which would 
 , result from the enactment of any other new tax of similar productivity. 
 The regressive distribution of the burden under the general retail sales 
 tax would not be material if the rate were low and would be counter- 
 balanced by the progressive distribution of federal personal income and 
 estate taxes. Other states have satisfactorily met the administrative 
 problems of the general retail sales tax and have found it a suitable 
 measure for raising substantial revenues during depression times. The 
 Commission believes, therefore, that the enactment of a broad retail 
 sales tax as an emergency measure for a four-year period provides a 
 practicable means under present business conditions of raising a sub- 
 stantial part of the additional revenues required by the state with the 
 least possible hindrance to business recovery. The Commission estimates 
 that the general retail sales tax which it recommends would have 
 yielded $8,000,000 had it been imposed during the year 1933." 
 
 Selective as well as general sales taxes have been developed by the 
 states during the last fifteen years. Only a few commodities, however, 
 have been found satisfactory for state selective sales taxes. These are 
 gasoline, beer and liquor, tobacco products, admissions to amusements, 
 and different kinds of soft drinks. Connecticut has already enacted 
 taxes on gasoline, beer, wines, liquor, and amusements and has developed 
 the organization and technique for administering this form of taxation. 
 Tobacco products are the only commodity which any large number of 
 states have taxed and which is not now taxed bv Connecticut. State 
 
 2 Statistics which have become available since the first printing of this summary 
 have made possible a more accurate estimate of this yield than appeared in the 
 first printing of this summary. The estimate is accordingly raised from $6 000 000 
 to $8,000,000. 
 
90 
 
 tobacco taxes have yielded substantial and stable revenues. The Com- 
 mission proposes, therefore, that there be enacted as an emergency 
 measure for a four-year period a tax on cigarettes sold in the state. 
 The Commission estimates that the cigarette tax which it recommends 
 would have yielded approximately $1,200,000 had it been in effect 
 during 1933. 
 
 Recommendations. 
 
 To provide the revenues required to finance its proposals, the 
 Commission recommends : 
 
 That a tax be imposed at the rate of five per cent on the interest 
 and dividends received by individuals resident in the state; 
 
 That there be exempted from the interest and dividends tax only 
 (1) income from tax-exempt securities and" (2) $200 of interest and 
 dividends for each person; 
 
 That an emergency tax be imposed for a temporary period of four 
 years at the rate of two per cent on all sales of tangible personal prop-, 
 erty at retail, including sales of gasoline, beer, wines, liquors, tobacco, 
 water, gas, and electricity, whether sold by privately or governmentally 
 operated enterprises and whether or not otherwise taxed; 
 
 That an exemption amounting to $10 of tax. annually be allowed 
 to every business subject to the general retail sales tax; 
 
 That an emergency tax for a temporary period of four years be 
 imposed, in addition to all other taxes, at the rate of one mill per cigar- 
 ette on the sale of cigarettes in this state by wholesalers, defined to 
 include any person or business first receiving cigarettes for sale in this 
 state. 
 
 Fiscal effects of commission's recommendations." 
 Introduction. 
 
 As a means of showing the fiscal effects of the various recom- 
 mendations of the Commission, we have estimated the changes which 
 would have resulted from them in the receipts and expenditures of 
 each of the three levels of government- — the state, the counties, and 
 the municipalities. In some cases, where the fiscal effects of proposed 
 changes have been highly problematical and of minor fiscal importance, 
 no estimate has been attempted. Such cases include the administrative 
 changes proposed in local finance and taxation, the administrative costs 
 
 3 Statistics which have become available since the first printing of this summary 
 have permitted more accurate estimates of the yields of the general retail sale's 
 tax and the taxes on railroads and street railways. In the second printing, the 
 necessary changes have been made in this section to give effect to these revised 
 estimates. 
 
91 
 
 of new taxes and other proposed activities of the tax commissioner's 
 office, the establishment of a state jail farm, etc. 
 
 Effects on state financing. 
 
 Had the Commission's recommendations been in effect in the 
 fiscal year 1932-33, it is estimated that the state would have received 
 an income of $45,822,000/ or $13,561, 000 s more than was actually 
 received under existing tax laws. This net change is attributable to 
 many individual changes, some of which would have increased state 
 income, others of which would have decreased it. 
 
 The figures presented below should not be interpreted as being 
 increases or decreases in the amounts of taxes which the several tax- 
 paying groups would be required to pay. Part of the increases shown, 
 for example in insurance company taxes, represent only the retention 
 by the state of revenues which, under existing law, are paid to munici- 
 palities. Another part — that from liquor taxes — represents revenues 
 from taxes first collected after 1932-33. Similarly, a part of the 
 decreases in revenues is offset by the revenues from new taxes. The 
 recommended changes responsible for the principal increases, together 
 with the estimated amount of such increases are as follows: 
 
 1. Revision of the insurance taxes — $1,694,000 ; 
 
 2. Revision of the miscellaneous corporations tax — $714,000 ; 
 
 3. Increase in the rate of the gasoline tax — $2,317,000; 
 
 4. Liquor taxes (not in force in 1932-33) — $1,000,000; 
 
 5. New taxes on interest and dividends and sales- — -$13, 200,000. ' 
 
 The recommended changes responsible for the principal decreases, 
 together with the estimated amount of such decreases, are as follows: 
 
 1. Repeal of state and military taxes — : $1,765,000; 
 
 2. Repeal of state taxes on intangibles — $413,000; 
 
 3. Revision of bank taxes (including savings deposits tax) — 
 $752,000; 
 
 4. Revision of motor vehicle registration taxes — $1,714,000. 
 
 As a partial offset to this estimated net increase in revenue of 
 $13,561,000/ it is estimated that an increase of $7,115,000 would have 
 been required to finance unemployment relief, state grants and interest 
 on bonds arising from the program for establishing a uniform fiscal 
 year properly synchronized with tax due dates, and the proposed 
 increase in payments for support of children committed to county care. 
 
 3 See footnote 3 on page 90. 
 
92 
 
 The net result of estimated increases in receipts and expenditures 
 would have been a surplus for all state proprietary funds of $2,186,- 
 000/ as compared with an actual deficit in 1932-33 of $4,260,000. 
 
 Most of the changes noted above are changes in receipts and 
 expenditures of the general fund, although a few concern the highway 
 fund. With respect to the general fund, the estimated increase in the 
 income is $12,974,000/ the estimated increase in expenditures, 
 $6,789,000, and the estimated decrease in the deficit, $6,185,000." 
 Since there was an actual deficit of $5,473,000 in the general fund 
 in 1932-33, these estimated changes would have left a surplus of 
 $712,000." The Commission is not disturbed by this result. Although 
 the state's income in 1932-33 had reached a low point reflecting the 
 full severity of the depression, expenditures had not yet responded 
 fully to demands for governmental economy. For this reason the Com- 
 mission believes that it has made ample provision for balancing the 
 general fund on any reasonable level of expenditures. 
 
 With respect to the highway fund, proposed changes in special 
 motor vehicle taxes, it is estimated, would have increased receipts by 
 $587,000, and the proposed transfer of three-fourths of the cost of the 
 state police department would have increased expenditures by $326,000. 
 Together these changes would have increased the highway fund surplus 
 by $261,000. 
 
 It is pertinent to inquire more carefully into state expenditures 
 of the year 1932-33 and particularly as to whether a normal amount 
 was expended for permanent improvements in that year. We find that 
 the general fund expenditures for permanent improvements were 
 nearly two million dollars in 1932-33 and that this amount was as 
 large or nearly as large as the amounts similarly expended in every 
 year since 1922-23 except 1930-31, when the State Office Building was 
 under construction, and 1931-32, when the principal expenditures on 
 the Fairfield State Hospital were made. The Commission believes that 
 1932-33 expenditures may therefore be considered reasonably normal. 
 
 Effects on county financing. 
 
 The Commission's recommendations affect the counties by increas- 
 ing payments by the state for the support of children committed to 
 county care and by transferring the counties' share of the unincor- 
 porated business tax to the state. The net result of these two changes 
 for fiscal years ending September 30, 1932, is an estimated increase of 
 revenues of $180,000. This represents the amount by which the counties 
 could have reduced the county tax without changing their consolidated 
 budget surplus of $6,000. 
 
 a See footnote 3 on page 90. 
 
m 
 
 Effects on municipal financing. 
 
 In their fiscal years ending next prior to October 10, 1932, the 
 municipalities reported receipts of $2,345,000 from the estate penalty 
 tax and the share taxes on banks and insurance companies. The Com- 
 mission recommends the repeal of these taxes. Offsetting this reduction 
 in revenues, the Commission has proposed the transfer of a substan- 
 tial part of the cost of unemployment relief from the municipalities 
 to the state. It is estimated that, under present conditions, this would 
 reduce local expenditures on this function by at least $5,700,000. A 
 further reduction of about two million dollars would have resulted 
 from the repeal of the state and military taxes and reduction of the 
 county tax. Finally, there would have been a small saving in interest 
 costs and small receipts of state grants as a result of the proposed 
 changes in fiscal years and tax due dates. All told, the municipalities 
 would have found their fiscal condition bettered by $5,963,000. 
 
 Some municipalities would have been in a position to use their 
 share in this amount for an immediate reduction of property taxes; 
 others could have used it to wipe out an operating deficit, which for 
 all municipalities with deficits amounted to eight million dollars ; still 
 others would have been able to reduce their accumulated deficits from 
 prior years. But whatever its use, it is clear that the full amount is 
 available for the eventual reduction of the real estate tax burden. If it 
 is used in the first instance for reducing debt, it is thereby reducing 
 an obligation which in the absence of such assistance would eventually 
 have to be met largely out of property taxes. 
 
 Summary of the peogeam. 
 
 As a result of its investigations, the Commission is proposing to 
 the General Assembly a unified program for the solution of the finan- 
 cial and taxation problems of the state, the counties, and the munici- 
 palities. Although each part of this program has necessarily been 
 developed in a particular chapter, it is not intended that each part be 
 separately judged. These separate parts cannot stand independently. 
 It is essential that the Commission's entire program be appraised as a 
 whole, rather than as a series of independent recommendations. As an 
 aid to such appraisal, there is here presented a brief summary of the 
 entire plan of state and local finance as proposed by the Commission. 
 
 In order to make it easier for the municipalities to conduct their 
 finances in a sound manner, to keep their expenditures within their 
 revenues, and to reduce their demands upon the property taxpayers, 
 the Commission offers the following recommendations : 
 
 (1) It is recommended that there be established a uniform fiscal 
 year for all local governments and that the due date of the first install- 
 
94 
 
 ment of local property taxes be fixed at the beginning of the uniform 
 fiscal year. It is proposed that the state assist in financing the necessary 
 transition (a) by guaranteeing the municipal ten-year serial bonds 
 which in most towns will have to be sold, (b) by paying the entire 
 interest on such bonds, and (c) by paying to each municipality a 
 minimum amount either as interest on such bonds or as a special state 
 grant. The municipalities would be required to reduce the debt so 
 incurred by retiring each year for a ten-year period one-tenth of the 
 bonds sold. For the municipalities as a whole, this proposal would 
 require the reduction of indebtedness beginning immediately by about 
 $2,500,000 annually for ten years and would relieve the municipalities 
 of expenditures for interest on tax-anticipation borrowing, which at 
 five per cent for the average four months' period is estimated to amount 
 to $416,000 annually. In addition, it is estimated that certain munici- 
 palities would receive $247,000. as special state grants. The estimated 
 total cost of the proposal to the state would decrease from $1,100,000 
 during the first year by one-tenth each year until it was entirely 
 eliminated at the end of ten years. Although this proposal would 
 compel an immediate addition to the taxes levied by those municipali- 
 ties which issued the bonds, the result would be a still greater reduction 
 in their indebtedness. They could thus strengthen their financial posi- 
 tion by escaping from indebtedness arising from faulty fiscal practices 
 in the past. There is no way of avoiding this burden if municipalities 
 are to place their financing on a sound basis and avoid in the future the 
 heavy interest cost of tax anticipation. When the transition had been 
 made, local taxation would be reduced, not only by the saving of 
 interest on tax-anticipation loans, but also by the economies which 
 should result from operating with a logical arrangement of time 
 periods. 
 
 (2) The Commission proposes that municipalities be equipped 
 with the necessary organization and technique to plan and execute 
 effectively their financing. Provision is made for the establishment of 
 a budget-making authority, for the development of a logical budget- 
 ing procedure, for the installation and operation of an adequate system 
 of accounting and auditing, and for the making of unified and under- 
 standable financial reports. Putting these recommendations into effect 
 may increase somewhat the immediate cash expenditures of the munici- 
 palities, but these increased expenditures should be much more than 
 counterbalanced by the savings arising from the more economical, 
 efficient, and responsible conduct of municipal finance which these 
 provisions should produce.- 
 
 (3) The Commission's plan includes more practicable and effective 
 limitations upon the incurrence of municipal indebtedness. Instead of 
 
95 
 
 the existing limit, based primarily on the grand list, it is suggested 
 that the maximum amount of long-term indebtedness of any munici- 
 pality be limited to the amount of its property tax collections for the 
 three preceding years. It is further recommended that a municipality 
 be required during any given fiscal year to levy property taxes at least 
 equal to 110 per cent of its average annual property tax levy of the 
 three preceding years before being permitted to incur any indebtedness 
 in that year other than tax-anticipation loans. These provisions, together 
 with the clarification of other sections of the statutes relating to the 
 powers of the municipalities to incur debt, should tend to check the' 
 rapid growth of municipal indebtedness and gradually to reduce the 
 burden of local taxation required for debt service. 
 
 The Commission's plan includes many changes in existing state 
 and local taxes recommended for. the purpose of effecting a more equi- 
 table distribution of the tax burden and improving tax administration. 
 The following are the most important of these changes: 
 
 (1) All personal property (tangible and intangible), except tan- 
 gible personal property used for or in connection with business or 
 professions (not including farming), is to be removed from the grand 
 list. Motor vehicles are to be subject to a special property tax assessed 
 and collected by the commissioner of motor vehicles and remitted to 
 the municipalities according to the residences of motor vehicle owners. 
 Professional and business tangible personal property is to be assessed by 
 the state, but the taxes thereon are to be levied and collected locally. 
 All other personal property is to be exempted from property taxation. 
 
 (2) More practicable rules of valuation, including a more specific 
 definition of value and the recognition of scientific procedures of 
 appraisal for real property and specific valuation formulas for taxable 
 tangible personal property are proposed. Property tax administration is 
 to be improved by providing appointed assessors, by abolishing local 
 boards of relief, by introducing a state board of tax appeals, and by pro- 
 viding for a more direct and definite procedure for property tax col- 
 lection. 
 
 (3) Except for the proposed repeal of the choses-in-action and 
 estate penalty taxes, no changes or only minor changes are proposed 
 in the personal tax, the taxes on forest property and shell-fish grounds, 
 and the gross earnings tax on transportation and communication com- 
 panies. 
 
 (4) With respect to taxes on insurance companies, it is proposed 
 (a) that the franchise and share taxes on domestic companies be 
 repealed, including the offset of real estate taxes, (b) that domestic 
 companies be taxed two per cent of their Connecticut net premiums 
 plus 2 1 /4 per cent of the investment income of life insurance depart- 
 
06 
 
 ments and 6% per cent of the investment income of fire and casualty 
 departments, and (c) that no change be made in the existing taxes on 
 insurance companies chartered in other states and countries. 
 
 (5) In place of the existing bank stock and savings deposits 
 taxes, the Commission's plan includes a franchise tax levied at the rate 
 of 2 per cent and measured by or according to net income, which is 
 defined to include income from tax-exempt securities and corporation 
 stocks and the income represented by interest and rental payments 
 made by the taxpayer. Commercial banks are required to pay, for their 
 depositors, a tax of one mill per dollar, on the face value of their 
 demand deposits. Income received by individuals from bank stock 
 and bank deposits is to be taxed under the general interest and dividend 
 tax. These proposals slightly reduce the combined revenues from existing 
 taxes on banks, their shareholders, and their depositors, but it is neces- 
 sary to assume this loss in order to develop a system of bank taxes of 
 unquestioned constitutionality. 
 
 (6) With reference to miscellaneous corporations, it is proposed 
 (a) to substitute for the present net income tax a franchise tax of two 
 per cent measured by or according to net income, which is defined to 
 include income from tax-exempt securities and corporation stocks and 
 the income represented by interest and rental payments made by the 
 taxpayer, (b) to impose an alternative tax of one mill for each dollar 
 of capital invested in the state, and (c) to require each corporation to 
 pay the larger of the two taxes or the ten dollar minimum tax if that 
 is larger than either. These changes are proposed in order to stabilize 
 the revenues and integrate the taxes with those on banking institutions. 
 
 (7) Except for its extension to unincorporated motor bus com- 
 panies, unincorporated places of amusement, and unincorporated liquor 
 concerns, no important change in the structure of the unincorporated 
 business tax is proposed. It is recommended, however, that all of the 
 revenues from this tax be retained by the state instead of being shared 
 with the counties as at present. 
 
 (8) The only change proposed in the franchise tax on the gross 
 earnings of local public utilities is to include in the tax base the gross 
 earnings from sales of services to other public service corporations 
 except when such services are resold in the state. 
 
 (9) For the sake of correcting conspicuous defects in present 
 gasoline and registration taxes and to effect a more satisfactory dis- 
 tribution of their burden, the Commission proposes that the gasoline 
 tax be increased from 2 to 3 cents a gallon and that registration taxes 
 be reduced approximately one-third. The registration tax is to be 
 levied at rates graduated from 30 to 40 cents per hundredweight 
 according to gross weight, instead of being based, as at present, on 
 
97 
 
 piston displacement and carrying capacity. These proposals will main- 
 tain at approximately their present amounts the revenues of these taxes. 
 With the time and appropriation at its command, the Commission 
 has been unable to reach a satisfactory solution of the difficult problems 
 of the regulation and taxation of commercial motor vehicles, and it 
 proposes that another special commission be appointed to investigate 
 this problem. The' Commission calls special attention to the importance 
 of cooperation with neighboring states in dealing with this problem. 
 
 (10) It is proposed that liquor concerns and places of amusement 
 be subject to the same taxes as are imposed upon other businesses and, 
 in addition, that selective sales taxes be imposed on sales of beer, wines, 
 and liquors, and on admissions to amusements. Only minor administra- 
 tive changes in the succession and estate taxes are proposed. 
 
 (11) The appointment of another special commission to investi- 
 gate the whole problem of exemptions granted under the local property 
 tax, the inheritance taxes, and other state taxes is urged. 
 
 The elimination of nonbusiness personal property from the grand 
 lists will tend slightly to increase the rates of real property taxes. This 
 tendency, however, will be counteracted by whatever increase in the 
 assessment of tangible personal property of business concerns and pro- 
 fessions and whatever additional local taxes on motor vehicles may 
 result from the proposed changes. Municipalities and counties will 
 lose the revenues they now receive from the share taxes on banks and 
 insurance companies, the estate penalty tax, and the unincorporated 
 business tax, but this loss of revenues is more than offset by proposed , 
 additional state assistance to local financing. 
 
 The Commission proposes that the state extend direct and sub- 
 stantial assistance to local financing (1) by assuming the administrative 
 control and the financial responsibility for most of the activities of 
 county jails, (2) by increasing the payment for the support of homeless 
 children committed to county care from a maximum of $3.50 to an 
 amount equal to the average actual cost not exceeding $6.00 per week 
 per child, accompanied by an extension of state supervision over the 
 operations of county homes, (3) by the assumption bv the state, for a 
 four-year period, of the cost of all outdoor charitable relief to the extent 
 of two-thirds of the excess of the expenditure made by any municipality 
 during this period over the corresponding expenditure in 1928, and 
 (4) by the repeal of the state tax and the military tax. It is estimated 
 that these proposals will reduce municipal expenditures by over ei^ht 
 million dollars. 
 
 To meet the cost to the state of this assistance to local finance, the 
 Commission proposes (1) the enactment of a 5 per cent tax on all inter- 
 est and dividends received by resident individuals and (2) the enact- 
 
98 
 
 ment, as emergency revenue measures for a temporary four-year period, 
 of (a) a general retail sales tax of two per cent on all retail sales, includ- 
 ing sales of gasoline, beer, wines, liquor, tobacco, water, gas, and elec- 
 tricity, and (b) a tax of one mill per cigarette on all cigarettes sold in 
 the state. It is estimated that during the fiscal year 1932-33 these three 
 new taxes would have yielded $13,200,000* and would have approxi- 
 mately balanced the budget of the state in that year, including the esti- 
 mated additional expenditures that would have been required to have 
 financed the Commission's program. 
 
 As to the net effect of this entire program on the burden of local 
 taxation, only an approximate indication can now be presented. Assum- 
 ing that the various changes proposed in the grand list would have so 
 offset each other that no change in the rate of real property taxes would 
 have occurred from these changes, disregarding for the moment the local 
 expenditures required to retire debt, and disregarding also any reduc- 
 tion in local expenditures resulting from improved financial organiza- 
 tion and procedure and from better debt control, the facts in possession 
 of the Commission indicate that the net amount of additional funds 
 extended to the municipalities, either in the form of decreases in 
 expenditures or increases in revenues, would have been approximately 
 six million dollars in 1932-33. 
 
 It is not to be inferred, however, that the total amount of this addi- 
 tional financial aid could be applied to the reduction of local taxes. 
 The part given to municipalities which had balanced budgets and which 
 were not required to sell bonds to change their tax due dates could be 
 so applied. On the other hand, the part granted to municipalities which 
 had unbalanced budgets or which had to sell substantial amounts of 
 bonds to change their tax due dates would have to be applied in whole or 
 in part to eliminating the results of their past faulty fiscal practices. 
 The taxpayers in these municipalities cannot expect substantial reduc- 
 tions in their taxes until the necessary steps have been taken to elimi- 
 nate budget deficits and to place financing on a sound basis. A consider- 
 able part of the additional assistance which the Commission's program 
 provides to municipalities would be absorbed in eliminating municipal 
 budget deficits, which aggregated over eight millions in 1931-32, and in 
 retiring $2,500,000 of the bonds sold to synchronize tax due dates with 
 the beginnings of fiscal years. 
 
 It must be remembered, however, that these claims upon state 
 assistance arise out of obligations which the municipalities have already 
 incurred, which now rest upon them, and which will continue to rest 
 upon them whether the Commission's program is adopted or not. If the 
 assistance to the municipalities which the Commission proposes should 
 
 8 See footnote 3 on page 90. 
 
not be granted, the municipalities would have to find other funds ra|4j 
 liquidating their obligations. These funds would largely come from the 
 property tax. The assistance which the Commission proposes to give the 
 municipalities is therefore, in its entirety, a boon to the property tax- 
 payers, relieving them to that extent of the burdens which would other- 
 wise rest upon them. The effect of the Commission's recommendations 
 upon the real estate tax burden is to be measured, not by the actual 
 reduction in taxes which may be expected, but by the difference 
 between what that burden would remain under present conditions and 
 what it would be under the proposed plan. 
 
 The Commission suggests a plan for the reform of state and local 
 finance in Connecticut carrying the possibility of substantial relief to 
 the owners of real property. What measure of relief may be actually 
 obtained, assuming the General Assembly sees fit to enact this plan, will 
 depend primarily upon the municipalities. So long as local home rule 
 prevails, the General Assembly is powerless to legislate tax relief. That 
 will be granted or withheld by the people of the several municipalities, 
 acting directly or through their duly chosen officers. 
 
STATE OF CONNECTICUT 
 
 REPORT 
 
 OF THE 
 
 Connecticut State Tax 
 Survey Committee 
 
 CONNECTICUT TAX SURVEY 
 1948 
 
 Habtfobd, Connecticut 
 194,0 
 
The Connecticut-State Tax Survey Committee wishes to acknowl- 
 edge the generous assistance and co-operation that has made 
 possible the preparation of this report: 
 
 To his Excellency, Governor James C. Shannon, for his advice and thoughtful 
 guidance on many aspects of this study. 
 
 To Walter F. Walsh, former State Tax Commissioner for providing extensive 
 statistical analyses for the Committee, and for his many constructive suggestions 
 on difficult questions of administration. 
 
 To William F. Connelly, State Tax Commissioner, who has given generously 
 of his time and thought while pressed with the many problems surrounding his 
 recent induction as Commissioner, 
 
 To Otto P. Steege, Deputy Tax Commissioner and to Howard Hamilton, 
 Director, Corporate Tax Division, for extensive and detailed tabulations of 
 . corporate tax data which provided background for the analysis of business taxes 
 in Connecticut. 
 
 To Charming E. Harwood, Director, Sales and Use Tax Division of the State 
 Tax Department; and Harry A. Beckwith, Assistant Director, for large scale 
 tabulations pertaining to the consumers sales and use tax, which were of the 
 greatest assistance to the Commission. 
 
 To John. F. Tarrant, Tax Research Director, for excellent cooperation in 
 the control and extension of research data in general, and to Harold T. Murray, 
 Municipal Director for valuable assistance in relating reported figures and pro- 
 cedures to the analyses of property tax data. 
 
 To Howard E. Hausman, Executive Director, and to David Pinsky, Director 
 of Research and Statistics, Employment Security Division, for Valuable cor- 
 respondence and data relating to consideration of the State'pay roll tax. 
 
 To Fred R. Zeller, State Comptroller, and John E. Bryson, Jr., Supervising 
 Accountant, for detailed reports and information regarding the entire program 
 of State financing, receipts and expenditures. 
 
 To Carter W. Atkins, Executive Director, Connecticut Public Expenditure 
 Council and Fred A. Schuckman, Research Director, for extensive analyses 
 and projections of State expenditures and valuable materials on the general 
 property tax. 
 
iff' . 
 
 STATE OF CONNECTICUT 
 
 REPORT 
 
 OF THE 
 
 Connecticut State Tax 
 Survey Committee 
 
 CONNECTICUT TAX SURVEY 
 1948 
 
 Submitted to the Govebnor 
 January 3, 1949 
 
 Hartford, Connecticut 
 
 : > 
 
 j 1949 
 
CONNECTICUT STATE TAX SURVEY 
 COMMITTEE 
 
 (Appointed by the Governor) 
 
 Roswell Magill, Chairman 
 Weston 
 
 George C. Waldo, Vice-Chairman 
 Bridgeport 
 
 Beatrice Fox Auerbach Henry F. Joy 
 
 Hartford Woodstock 
 
 Fuller F. Barnes W. Ross McCain 
 
 Bristol Hartford 
 
 Mary P. Holleran Joseph M. Rourke 
 
 West Hartford Bridgeport 
 
 Winthrop W. Spencer 
 Waterbury 
 
 John F. Sly, Professor of Politics, 
 Princeton University, Consultant 
 
 11 
 
CONTENTS 
 
 Page 
 
 Letter of Transmittal vi 
 
 Summary of the Conclusions and Recommendations of 
 the Committee 1 
 
 Chapter 1 : The Financial Position of the State 28 
 
 Chapter 2: The Tax Impact on the Taxpayers 47 
 
 The Connecticut Tax Structure, 48; Connecticut State and Local Taxes Com- 
 pared with "Competing States", 52; Connecticut State Taxes Compared with 
 "Competing States", 55; Connecticut Taxes on Individuals Compared with 
 "Competing States", 58; Connecticut Taxes on Industry Compared with 
 "Competing" Industry in Other States, 62. 
 
 Chapter 3: The Consumers Sales and Use Tax 71 
 
 Adoption of Retail Sales Taxes, 73; Characteristics of the Connecticut Sales 
 Tax, 77; Exemptions, 77; The Impact of the Tax, 85; Services, 89; The Use 
 Tax, 92; The Distribution of the Tax Yield, 94; Future Revenues from the 
 Sales Tax, 98; What the Sales Tax Pays for, 98. 
 
 Chapter 4: A Personal Income Tax 100 
 
 Capacity to Pay in the Federal System, 102; Taxes Related to the Benefits of 
 Government, 111; Stability of Revenue, 112; Federal-State Tax Co-ordina- 
 tion, 115. 
 
 Chapter 5: The Taxation of Business 120 
 
 Characteristics of the Corporation Business Tax Act of 1935, 121; Income vs. 
 Invested Capital, 124; Conformity to Federal Corporate Income Tax, 126; 
 Comparison of Federal and Connecticut Income Bases, 130; Comparative 
 Tax Burden Upon Corporations and Unincorporated Business, 132; The 
 Invested Capital Alternative Minimum, 135; Special Business Taxes, 136; 
 Burden Compared with Other States, 138; Conclusions, 144. 
 
 Chapter 6: The Pay Roll Tax 145 
 
 • Determination of the Contribution Rate, 148; Experience Rating, 149; Com- 
 petitive Aspects of Employment Security Taxes, 152. 
 
 Chapter 7: The General Property Tax 156 
 
 Structure and Administration, 156; The Yield and Distribution of the General 
 Property Tax, 158; Distribution by Taxing Districts, 160; Distribution by 
 Size of Town, 162; Distribution by Type of Property, 165; The Tax on Per- 
 sonal Property, 166; The Tax on Intangibles, 167; The Tax on Tangible Per- 
 sonal Property, 172. 
 
TABLES 
 
 CHAPTER 1 
 
 Table Page 
 
 1: Connecticut State Financing — Comparative Fiscal Years 1947-1948 30 
 
 Connecticut State Financing by Principal Funds Showing Major Sources of 
 
 Tax Revenue— Fiscal Year Ended June 30, 1948 36-37 
 
 Connecticut General Fund Revenues and Expenditures for the Fiscal Years 
 
 Ended in 1947 and 1948 by Major Functions and Character 39 
 
 Increase in Connecticut General Fund Expenditures between 1947 and 1948 
 
 by Functions and Character 42 
 
 Connecticut State Borrowing and Capital Reduction — Fiscal Year 1948 .... 45 
 
 CHAPTER 2 
 
 Connecticut State and Local Tax Structure — Fiscal Years Ending 1947 and 
 1948 50-51 
 
 Comparative State and Local Taxes in Five States 53 
 
 State Tax Collections Per Capita and As Per Cent of Income Payments to 
 Individuals— 1947 and 1948 56 
 
 Comparative Distribution of State and Local Taxes in Five States by Major 
 Tax Source 57 
 
 Comparative Changes in Selected State Taxes for Five States (1941-1948) . . 59 
 
 Comparative State Taxes Payable by Three Individuals in Connecticut, New 
 York, Massachusetts and New Jersey — 1948 61 
 
 Comparative State and Local Taxes Payable by Four Sample Corporations 
 in Four Cities and States — 1948 65 
 
 Comparative Indices of Total State and Local Taxes, Except Unemployment 
 Compensation Taxes, for Four Corporations in Four Cities 66 
 
 Comparative Change in State and Local Taxes, Except Unemployment Com- 
 pensation Taxes, for Four Corporations in Four Cities 67 
 
 CHAPTER 3 
 
 Sales and Use Taxes, by States — Fiscal Years Ending in 1948 76 
 
 Average Expenditures of Families of Two or More Persons in Cities, by 
 
 Income Class — 1944 86 
 
 Relationship Between Sales and Use Taxes and Selected Economic Factors 
 
 for 26 Sales Tax States (1940 and 1948) 88 
 
 Connecticut Gross Receipts Taxes Upon Utilities and Places of Amusement 
 
 and Tax Receipts in 1948 90 
 
 Connecticut Sales and Use Tax Collections During First Quarter of 1948 
 
 (January 1-March 31) 93 
 
 Connecticut Sales and Use Tax Returns and Tax Collections for Four Quarters 
 Under "Sales and Use Tax Act" (July 1, 1947- June 30, 1948) 95 
 
 Connecticut Sales and Use Tax Base by Industrial Group and by Business 
 Type First Quarter of 1948 (January 1-March 31) 96 
 
 Connecticut Sales Tax Returns for First Quarter of 1948 (January 1-March 
 31) Showing Distribution as Between Corporations and Unincorporated 
 Business by Amount of Gross Receipts 97 
 
 CHAPTER 4 
 
 23: Federal, State and Local Tax Collections in Connecticut, 1946-1947 102 
 
 24: Source of Federal Internal Revenue in Connecticut — Selected Years: 1935- 
 
 1947 103 
 
 25: Federal Internal Revenue Collections and Expenditures in Connecticut 104 
 
 26: Individual Income Taxes and Their Relationship to Selected Economic 
 
 Factors by State (1940-1946) 107 
 
Table Page 
 
 27: Distribution of Spending Units, Disposable Income, Net Saving, Selected 
 Durable Goods Expenditures, and Other Consumer Expenditures, by 
 Disposable Income Groups, 1947 108 
 
 28: Taxpaying Groups in the United States Under the Federal Individual Income 
 Tax: 1945 Distribution of Net Income, Taxable Income, and the Federal 
 Individual Income Tax by Adjusted Gross Income Classes 110 
 
 29: Relative Stability of Net Income and Retail Sales in the United States, 
 
 1929-1940 113 
 
 30: Federal-State Tax Overlapping Federal Internal Revenue Collections and 
 
 State Tax and License Collections, Fiscal Year 1947 117 
 
 CHAPTER 5 
 
 31 : Connecticut Corporate Business Tax by Type of Business, Number of Firms, 
 
 and Tax Paid— 1948 121 
 
 32: 5,606 Connecticut Corporate Business Tax Payrnents in Excess of $100 Per 
 
 Corporation by Type of Business, Basis of Payment, and Rate for 1948 . . 123 
 33: 6,069 Corporations Paying Connecticut Corporate Business Tax in Amounts 
 
 Under $100 Per Corporation by Basis of Payment for 1948 125 
 
 34 : Connecticut Corporate Business Tax Ratio of Taxable Net Income to Taxable 
 
 Invested Capital, 1948 126 
 
 35 : Connecticut Corporate Business Tax, Allocation of " Interest Paid " Amounts 
 
 for Corporations Paying on the Net Income Basis, 1948 129 
 
 36: Connecticut Corporate Business Tax for Corporations Paying on Net Income 
 
 Basis Showing Gross Income, Federal Tax Net Income, Adjusted Net 
 
 Income and Taxable Net Income for 1948 131 
 
 37: Corporate Profits as Per Cent of Corporate Sales by Industry 133 
 
 38 : Corporate Profits as Per Cent of Corporate Sales Shown Separately for Retail 
 
 and Wholesale Trade 134 
 
 39: Connecticut Special Tax Receipts from Insurance Companies and Utilities 
 
 Selected Years, 1939-1948. 137 
 
 40: Comparative "General" Business Taxes in Five States — 1947 140 
 
 41: Taxes Paid by "General" Business in Five States — 1947 141 
 
 42: Tax Payments of Selected Manufacturing Corporations, Total State and 
 
 Local Taxes Reported as Per Cent of Gross Receipts, Net Income, Net 
 
 Worth and Pay Roll Allocated to Selected States 143 
 
 CHAPTER 6 
 
 43 : Salaries and Wages as a Factor in Manufacturing Costs Selected Industries, 
 
 1949 146 
 
 44: Relationship of Labor Employed to Capital Invested Selected Manufactur- 
 ing Industries, 1940 and 1943 147 
 
 45: Connecticut Unemployment Compensation Fund Ratios of Balance in the 
 
 Fund, Contributions, and Benefit Payments to Taxable 1 Pay Roll 148 
 
 46: Unemployment Compensation Average Employer Contribution Rate for 
 
 Rated Employers by Industry in 19 States Rate Years Beginning in 1947 154 
 
 CHAPTER 7 
 47: Connecticut Property Tax Assessments 1946 and 1947 by Local Tax Districts 159 
 48: Connecticut Property Tax Collections on all Rate Bills by Type of Taxing 
 
 District— Twelve Months Ended March 31, 1947 160 
 
 49: Local Property Tax in Connecticut — 1947, by Size of Town 163 
 
 50: Connecticut Property Valuations Taxable by Class of Property, Selected 
 
 Years 1934-1946 169 
 
 51: Per Cent Increase in Property Valuations Taxable as Between 1946 and 
 
 1947 [Grand Lists] in Four Largest Connecticut Cities 174 
 
 52 : Connecticut Assessors' Estimated Percentage of Assessed Valuations to Fair 
 
 Market Value 178 
 
STATE OF CONNECTICUT 
 TAX SURVEY COMMITTEE 
 
 January 3, 1949. 
 
 To His Excellency, Governor James C. Shannon: 
 
 There is submitted herewith the final report of the Connecticut 
 State Tax Survey Committee, prepared pursuant to the request 
 of former Governor James L. McConaughy and yourself. 
 
 The Committee's assignment was to survey the fairness, the 
 adequacy and the ease or difficulty of administration of Con- 
 necticut's State taxes. It has worked steadily for the past ten 
 months and has devoted its energies particularly to the study 
 and analysis of those features of the tax structure of Connecti- 
 cut that it thought to be of most current significance to the State. 
 It has accordingly placed its emphasis as follows: 
 
 First, to present a detailed analysis of the fiscal position of the State and to 
 evaluate as far as possible the impact of the tax structure on individual and 
 corporate taxpayers. This analysis is presented in Chapters 1 and 2 of the report; 
 
 Second, to examine thoroughly the recently established consumers sales and 
 use tax and to evaluate this tax in comparison with a personal income tax. This 
 analysis is presented in Chapters 3 and 4 of the report; 
 
 Third, to study the operations and impact of the corporate business (income) 
 tax and the unincorporated business (gross receipts) tax; and to present a sum- 
 mary statement of special business taxes — including taxes on insurance com- 
 panies, railroads and other public utilities. This analysis, which also includes 
 a survey of the unemployment compensation pay roll tax, is found in Chapters 
 5 and 6 of the report. 
 
 Fourth, to present a summary review of the general property tax with sugges- 
 tions for further study and improvement. This is presented in Chapter 7 of the 
 report. 
 
 VI 
 
Certain aspects of taxation and related fiscal problems were 
 deemed by the Committee to be outside the scope of its assign- 
 ment. This would include a number of existing taxes which 
 raise no question of State tax policy but may well require amend- 
 ment or revision for administrative reasons — for example, the 
 succession and estate tax. The Committee on Taxation of the 
 State Bar Association submitted an able report to the Com- 
 mittee on this tax which we would commend to the consideration 
 of the appropriate legislative committee. State aid to munici- 
 palities, admittedly a related fiscal problem, was another matter 
 which the Committee deemed inappropriate for its considera- 
 tion. We have received a very competent statement on this 
 subject from the Municipal Finance Officers Association of 
 Connecticut, which we would likewise commend to the consider- 
 ation of the General Assembly. 
 
 The Committee's study has indicated that the State of Con- 
 necticut is in a sound fiscal position ; and that its tax structure 
 as a whole — barring certain recommended adjustments — meets, 
 in the judgment of the Committee, the requirements of balance, 
 equity and adequacy to a satisfying degree. It is rather in the 
 field of local taxation that essential improvements are most 
 needed, and the Committee regrets that the time at its disposal 
 did not permit a thorough examination of this problem. It is 
 largely for this reason — as well as for the further examination 
 of special business taxes — that the Committee urges the Legisla- 
 ture to provide for a continuing study of taxation in Connecti- 
 cut. 
 
 The most controversial conclusions of this report center 
 around the merits of a personal income tax as compared to the 
 existing consumers sales and use tax. The Committee has given 
 extensive attention to this question, and concludes by a vote of 
 eight to one that within the present over-all tax environment 
 the consumers sales and use tax has advantages that make it 
 definitely superior to the personal income tax. It is aware, how- 
 ever, that there is strong dissent from this position — especially 
 as developed in the public hearings of December 14 — and one of 
 its members, Mr. Joseph M. Rourke, has been unable to concur 
 with the majority opinion. The Committee is informed that a 
 statement of Mr. Rourke's position will be filed with you upon 
 completion. 
 
The Committee wishes to express its deep appreciation for 
 the thoughtful co-operation and wise counsel so generously pro- 
 vided by your Excellency. It is grateful for the many state- 
 ments and proposals provided by interested groups and indi- 
 viduals, and for the frank and open expressions made to the 
 Committee at its recent public hearings. It wishes also to ex- 
 tend its appreciation to Mr. Richard Belden for his careful 
 attention to the secretarial duties of the Committee. The Com- 
 mittee owes a special debt of major proportions to Dr. John F. 
 Sly, Professor of Politics, Princeton University, for his inval- 
 uable work as consultant to the Committee; and to staff mem- 
 bers and State department officers who gave so willingly of their 
 time and effort to the preparation of this report. Whatever value 
 our study possesses is largely due to the conscientious, skillful 
 and untiring work of Dr. Sly and the staff. 
 
 Respectfully submitted, 
 
 ROSWELL MAGILL, 
 Chairman, 
 
 Connecticut Slate Tax Survey Committee. 
 
 vm 
 
CONNECTICUT TAX SURVEY, 1948 
 
 A Summary of the Conclusions and Recommendations 
 of the Committee 
 
 Taxes in a modern State are only a means to an end, but they 
 are a most effective means and the end is our civilization itself. 
 As John Marshall told us, "The power to tax involves the power 
 to destroy," but it also involves the power to build schools and 
 highways, to provide police protection, fire protection, social 
 security and all the other essential services that our people to- 
 day want their State to furnish them. Badly designed, the tax 
 system can stifle individual initiative and cripple enterprise. Well 
 designed, it permits initiative and enterprise to flourish, at the 
 same time that it supplies the money to enable the State to func- 
 tion at its best. 
 
 The taxes which supply the State of Connecticut with neces- 
 sary funds are only a part — indeed a small part — of the total 
 tax burden which falls upon a citizen of the State. Federal 
 taxes and town taxes are both, in total, much heavier burdens 
 upon the citizens than State taxes. In 1947, Federal taxes took 
 $646 million out of Connecticut. The county and town tax levies 
 totaled $98 million. State taxes aggregated $88 million. In 
 other words 78 per cent of the total taxes collected in the State 
 went to the Federal Government, 12 per cent went to the counties 
 and towns, and 10 per cent went to the State. Because State 
 grants and aids to local governmental units are important ele- 
 ments of State costs, the State's 10 per cent is further divided 
 with counties, towns and local school districts. 
 
 Two conclusions follow from the over-all view. In determin- 
 ing the merits and demerits of the Connecticut State tax system, 
 attention must also be paid to the various other levies which fall 
 upon the citizen. If Connecticut were now a newly settled 
 province, if there were no taxes of any kind yet in existence, 
 and if the Legislature were establishing a tax system for the 
 first time, it would surely proceed very differently from what 
 it will in 1949. In considering the desirability of an income tax 
 or a sales tax or a tax on cigarettes or a tax on liquor, the Legis- 
 
lature (and the Committee) must take into account the various 
 Federal taxes of like kind already in force. The Legislature 
 must also consider the total tax burden already borne by various 
 taxable transactions, individuals, and business organizations, 
 and whether or not the existing or proposed Connecticut State 
 tax duplicates or overlaps any other tax imposed by another 
 part of our Federal system. Hence, although the authority of 
 the Committee extends only to recommendations with respect to 
 Connecticut State taxes, it has necessarily appraised the State 
 taxing system in its actual setting of Federal and local taxes. 
 Its recommendations are based, so far as possible on the total 
 tax situation as it exists today. 
 
 A State, unlike the Federal Government cannot rely on deficit 
 financing as a regular or accepted method of meeting its obliga- 
 tions. Within our constitutional framework, the United States 
 can "coin money and regulate the value thereof," but Connecti- 
 cut cannot. Hence the specific problem in constructing a tax sys- 
 tem for the State is how to produce most fairly enough steady 
 tax revenues to meet the necessary expenditures of the State. 
 The mere statement of that problem brings out several sub- 
 sidiary questions, and perhaps the two basic ones are these: What 
 are the necessary expenditures of the State? How shall the fair- 
 ness of a tax system to support these expenditures be determined? 
 
 The Financial Position of Connecticut 
 
 The Committee was not appointed to examine State expendi- 
 tures, nor to recommend whether the State should spend more 
 money or less. Its study and recommendations were solely con- 
 cerned with the tax system. But since taxes are only the means 
 government employs to obtain the money to pay for a program 
 of expenditures, it follows that before a tax system can be devised, 
 the Legislature (or its advisers) must know how much money is 
 required. Therefore the Committee has taken the expenditures 
 of the past, appropriations for the biennium 1947-1949, and esti- 
 mates for the biennium 1949-1951 as its starting point. On this 
 basis it appears (Chapter 1) — 
 
 That about $249 million must be raised in the 1949-1951 
 biennium, or $125 million per year, from State taxes and 
 other revenue sources. 
 
 That the present revenue sources will provide $245 mil- 
 lion during the biennium 1949-1951 and supplemented by a 
 
surplus of about $14 million from the 1947-1949 biennium, 
 will be adequate to meet foreseeable expenditure require- 
 ments. 
 
 . As has been said, it is not the function of the Committee to 
 pass upon the wisdom of proposed expenditures, to advocate 
 that more or less money be spent or to seek economies through 
 administrative analyses. It must emphasize again, however, 
 that any tax system is devised to pay for activities which the 
 citizens through the Legislature have determined that the gov- 
 ernment should undertake. Whether the particular activity 
 should be performed by the State, whether it might be better 
 cared for by private agencies or whether it is being performed 
 inadequately is for the Legislature, not the Committee, to deter- 
 mine. The Legislature is often confronted with the unhappy 
 choice either of refusing to approve an attractive expenditure 
 or of imposing a burdensome tax to pay for it. The possible sources 
 of tax revenue are pretty thoroughly exploited these days by one 
 government or another, and no easy-to-bear taxes are left. If 
 our citizens are to prosper and our enterprise system is to func- 
 tion, the Legislature cannot approve all the State expenditures 
 that various groups desire; and even some desirable expenditures 
 must be deferred or refused. 
 
 The Committee would indicate the principal points developed 
 in its analysis of Connecticut's fiscal position (Chapter 1): 
 
 Between fiscal 1947 and fiscal 1948, the State of Connecticut: 
 
 Increased its regular expenditures by 14 per cent; 
 
 Increased its revenue receipts by 52 per cent; and 
 
 Changed the major "tax spending" fund, the Connecticut 
 State General Fund, from a deficit fund in 1947 to a surplus 
 fund in 1948. 
 
 Also between fiscal 1947 and fiscal 1948, outside its regular 
 expenditures the State of Connecticut: 
 
 Reduced its U.C.C. pay roll taxes by 76 per cent; 
 Maintained its U.C.C. benefit payments almost unchanged; 
 Paid a bonus of $50 million to veterans of World War II. 
 
 Connecticut has been both careful and forthright in financing 
 its public services. During the war years (1941-1945) State ex- 
 penditures changed very little — indeed, the total in 1945 exceeded 
 
the total for 1941 by less than 3 per cent. The urgent needs of 
 the post-war period, however, caused an increase for the 1945-1947 
 biennium of 27 per cent ($38 million)— still a comparatively modest 
 increase, and less than most households or businesses were forced 
 to meet. For the current biennium ended June 30, 1949, State 
 appropriations are 19 per cent ($35 million) above the expenditures 
 of the previous biennium ending June 30, 1947. 
 
 Forthright provision for a consumers sales tax, an increase in 
 the corporation income tax, and an increase of one cent on the 
 gasoline tax, enabled the State to meet all of its obligations; and 
 conservative estimates indicate that its present revenue structure 
 is adequate to meet foreseeable requirements, barring new and 
 substantial expenditure programs. The Committee would therefore 
 emphasize as its first over-all conclusion that: 
 
 If the State of Connecticut is to operate within its present 
 tax structure, no new and substantial expenditures above 
 present commitments can be undertaken during the coming 
 biennium. 
 
 To undertake large new expenditure programs at this time 
 is to accept heavy fiscal commitments for many years to come; 
 to build up large fixed charges which will require both recurring 
 and increasing support; and to face the certainty of meeting future 
 payments in dollars that will be far harder to acquire than the 
 comparatively easy money of an inflationary period. The remedies 
 for inflationary spirals are in reality simple, homely, and well- 
 known — stop excessive spending, stop excessive borrowing and re- 
 quire full-value services rendered for the tax dollar spent. 
 
 The Tax Impact on the Taxpayer 
 
 How shall the fairness of the whole tax system applicable to 
 the Connecticut citizen be determined? This is the hardest ques- 
 tion of all to answer. The Committee has sought to apply various 
 tests in appraising the existing State tax system (Chapter 2), for 
 no one test is, in itself, adequate. Adam Smith regarded all citi- 
 zens as if they were tenants of a great estate, among whom its 
 expenses should be divided in proportion to their respective proper- 
 ty holdings. Town property taxes are levied essentially on this 
 maxim; that is, each citizen pays a tax in the proportion that the 
 value of property he owns bears to the total value of property in 
 
the town. Consumption or sales taxes have a similar foundation — 
 the more one consumes the more taxes he pays. The non-drinker 
 and the non-smoker have no concern with liquor or cigarette taxes; 
 and anyone of us, if he chooses, may bring himself into that happy 
 situation. 
 
 Another maxim is that taxes should be levied in accordance 
 with ability to pay. Ability to pay is difficult and at times im- 
 possible to measure. It is largely a subjective test and the yard- 
 stick tends to vary in length with the economic circumstances 
 and point of view of the particular observer and the responsibili- 
 ties of the particular taxpayer. It may mean a tax proportionate 
 to income. It may mean a graduated or "progressive" rate ap- 
 plied to income. It may mean a levy that goes beyond capacity 
 in the usual sense and reaches into the field of the redistribution 
 of wealth. The measure of capacity doubtless has an important 
 place in determining tax equity. But there are those who think 
 that the value of the service to the individual taxpayer should carry 
 substantial weight in a balanced tax structure — that benefits, 
 indeed, may have equal significance with capacity, and that capacity 
 as measured in terms of dollars of income must be modified by a 
 concept of universal responsibility. 
 
 While the Committee gave serious consideration to these various 
 theories of taxation, it selected none of them as the sole test of 
 equality in a tax structure. The truth seems to be that each has 
 its place, that this place varies with the type of expenditure as 
 well as with the weight of the tax; and that study should follow not 
 so much the application of a theory, as the determination, as far 
 as possible, of the impact of a tax. 
 
 The starting point in such an analysis is the tax structure of 
 Connecticut, and the over-all conclusions drawn from a study of 
 the tax figures are as follows (Chapter 2) : 
 
 Although property taxes are the backbone of the Con- 
 necticut State and local tax system, the relative dependence 
 upon property tax revenues is declining. 
 
 The trend away from property taxes is finding expression 
 in increased taxation upon business activity measured by 
 commodity sales. and corporation income. 
 
 Adoption of the general retail sales tax represented a broad- 
 ening of the tax base and a healthy departure from the prac- 
 tice of taxing only "special commodities" for revenue pur- 
 poses. 
 
 5 
 
From this point, the Committee undertook an examination of 
 the impact of the various taxes paid by the taxpayers of Con- 
 necticut, 
 
 First, to determine the burden of selected individual Con- 
 necticut taxpayers as compared to the burdens of similar 
 individual taxpayers in comparable States; 
 
 Second, to determine the burden of selected Connecticut 
 corporate taxpayers, as compared to the burden of similar 
 corporate taxpayers in comparable States. 
 
 While such studies are difficult and doubtless will not receive 
 the complete support of everyone, the Committee has tried to 
 analyze and present the facts as completely as possible, so the 
 reader may set his judgment beside that of the Committee mem- 
 bers. Broadly speaking the Committee concluded: 
 
 First: All State and local taxes (1947) l in Connecticut amounted 
 to 4.7 per cent of all income payments to individuals — as compared 
 to 6.3 per cent in New York, 6.5 per cent in New Jersey, 6.9 per cent 
 in Massachusetts and 7 per cent in New Hampshire. 
 
 Second: The per capita tax of $79.93 in Connecticut was lower 
 than the $84.21 per capita reported for New Hampshire and con- 
 siderably lower than the per capita taxes in excess of $100 repor- 
 ted in New Jersey, Massachusetts and New York. 
 
 Third: In over-all comparison in terms of retail sales, Con- 
 necticut taxes at 8.5 per cent also compared favorably with per- 
 centages in neighboring States ranging from 10.7 per cent in New 
 Hampshire to 13.6 per cent in New York. 
 
 Fourth: A comparison of three hypothetical individual tax- 
 payers and four selected manufacturing corporations, indicates 
 their relative standing (1948) in four States as follows: 
 
 ^Unemployment Compensation contributions (pay roll taxes) are excluded from all totals. The tax 
 adjustments made in 1948 did not cause the over-all tax impact to compare unfavorable with neiKhboring 
 States. See Chapter 2. 
 
INDIVIDUAL TAXPAYERS 
 Connecticut ranks: 2nd for A; 3rd for B; and 3rd for C 
 
 Taxpayer's annual income 
 
 State' 
 
 Connecticut 
 
 State and Local Taxes 
 
 Federal Income Taxes 
 
 Total 
 
 New Jersey 
 
 State and Local Taxes 
 
 Federal Income Taxes 
 
 Total 
 
 Massachusetts 
 
 State and Local Taxes 
 
 Federal Income Taxes 
 
 Total 
 
 New York 
 
 State and Local Taxes 
 
 Federal Income Taxes 
 
 Total 
 
 'All estimates ezluaive of property taxes. 
 
 A 
 
 B 
 
 C 
 
 $2,600 
 
 $10,200 
 Taxes Paid 
 
 $60,000 
 
 
 v 
 
 $61 
 
 $134 
 1,180 
 
 $1,314 
 
 $267 
 16,442 
 
 $61 
 
 $16,709 
 
 $70 
 
 $107 
 1,184 
 
 $157 
 16,496 
 
 $70 
 
 $1,291 
 
 $16,653 
 
 $38 
 
 $230 
 1,162 
 
 $1,175 
 15,968 
 
 $38 
 
 $1,392 
 
 $17,143 
 
 $51 
 
 $208 
 1,166 
 
 $2,272 
 15,398 
 
 $51 
 
 $1,374 
 
 $17,670 
 
 CORPORATE TAXPAYERS 
 Connecticut ranks: 3rd for A; 2nd for B; 3rd for C and 4th for D 
 
 City and State 1 
 
 Bridgeport, Conn 
 
 Boston, Mass 
 
 Newark, N. J 
 
 Philadelphia, Pa 
 
 'All estimates inclusive of property taxes. 
 
 Manufacturing Corporations 
 ABC 
 
 $20,744 
 35,582 
 10,407 
 21,544 
 
 -Taxes Paid- 
 
 $28,704 
 24,049 
 34,819 
 18,092 
 
 $834 
 
 1,280 
 
 1,689 
 
 689 
 
 D 
 
 $3,895 
 8,586 
 7,801 
 4,273 
 
 Following an analysis of all the data (Chapters 2 through 7), 
 the Committee concludes: 
 
 That the Connecticut taxpayer (both corporate and indi- 
 vidual) is on the whole in a satisfactory position relative to tax- 
 payers in comparable States. 
 
The Committee gave considerable thought to the growth and 
 permanency of the Connecticut tax base itself; and while this 
 subject is not developed, we would emphasize a long-term point 
 of view that is frequently neglected. Connecticut is a small State, 
 but a fortunate one. It has many natural advantages including 
 a beautiful countryside, ideal for homes and a constant source of 
 attraction to out-of-State people. It has a highly productive 
 agricultural economy assuring a fresh food supply to its citizens. 
 It has great human resources, including a skilled and industrious 
 population. We regard our label of "Connecticut Yankees" 
 as high praise with an accent on an American tradition of shrewd- 
 ness and leadership. We lead the world in many industries, old and 
 new. Throughout the industrial era we have kept pace with new 
 demands and new technologies so that we have successively manu- 
 factured the cotton gin, the sewing machine, the typewriter, and 
 the airplane; and in still another realm, we boast of the insurance 
 capital of the world. 
 
 Despite these evidences of leadership, Connecticut, as has been 
 said, is a small State — small enough, fortunately, that its citizens 
 can all be intimately familiar with its affairs. It is no impossible 
 task, therefore, to apply to public fiscal affairs the same ingenuity 
 that has been supplied in our craftsmanship and business man- 
 agement; to spend what we need to spend to keep Connecticut in 
 the front rank, and to pay the costs with taxes so intelligently im- 
 posed that men and businesses will still prefer to make Connecticut 
 their home. This is especially important. If Connecticut is to 
 retain its competitive position among the States, it must adjust 
 its fiscal policies — both on the spending and on the taxing side- 
 to the end that individuals and businesses will find Connecticut a 
 desirable environment for their activities. 
 
 First, Connecticut . must be a good State for business. It is 
 essential to the well-being of its citizens that business stay in Con- 
 necticut; and it is equally essential that new business seeks a lo- 
 cation in Connecticut. This raises several questions that every 
 long-range view must consider. Living as we do in a Federal 
 system, the competitive position of Connecticut must be main- 
 tained in favorable relations with other States. Each business 
 enterprise looks sharply at taxes peculiar to its own operations. 
 The retail merchant is keenly alive to the implications of a consumers 
 sales tax; a manufacturer to any tax on business tangibles — par- 
 ticularly inventory, machinery and equipment; the investment 
 
 8 
 
banker to the implications of a tax on intangibles; and each makes 
 close comparisons with his position in other States. 
 
 It can be said, with truth, that Connecticut is a good tax State 
 for modern economic enterprise. To keep it this way, business 
 taxes must be stable. Business is as much afraid of uncertainty 
 in taxation as it is of excessiveness in taxation. Business taxes 
 must be equitable as between competing businesses as well as 
 among other taxpaying groups. The broad base of business should 
 bear its share of the responsibility of public revenue; and excessive 
 special taxation — either of selected commodities or of special 
 business activities — should be avoided. 
 
 Second, with a sound tax base the State can well assume fur- 
 ther responsibility to increase and develop its economy. The 
 advantages in transportation, employment, markets, and raw 
 materials, should be made widely available to interested con- 
 cerns. Every assistance in selecting sites, in developing opportuni- 
 ties, in securing capital, in obtaining machines and equipment 
 should be provided in a systematic and effective way. The new 
 industry that looks towards Connecticut as an opportunity should 
 not only be made to feel welcome, it should be inspired with con- 
 fidence that the full co-operation of the State is back of its efforts 
 to make a success of its undertaking. The Committee is aware of the 
 fine work of the State Development Commission, and would encour- 
 age and support further activities in its field. 
 
 Third, and of equal importance, is the employment side of the 
 picture. Every worker in Connecticut must feel assurance that 
 the State is back of his efforts to fulfill his purposes to the high- 
 est point of which he is capable. New industries should be able 
 to find their officers and employees in Connecticut, prepared through 
 the most complete types of education. The children of Connecticut 
 workers must have the best possible school opportunities, the most 
 progressive recreational facilities and the utmost of security and 
 protection during their early years of development. It is to the next 
 generation that the long gaze of statesmanship must look for the 
 continuity and growth that can alone promise permanence to the 
 values which it cherishes today. 
 
 These viewpoints may seem to some to be wide of the immed- 
 iate objectives of the Committee; but it remains true, neverthe- 
 less, that our permanent tax resources depend fundamentally upon 
 
 9 
 
Connecticut being a good State for business to come to, and a good 
 State for workers to live in. Our real resources are, after all, 
 people; and the extent to which they can find fulfillment of them- 
 selves and of their families within our borders, to that extent will 
 the tax bases of the State be secure and the purposes of the State 
 reach full expression. The Committee realizes that these develop- 
 ments require public support, and that such recommendations 
 may seem to run counter to its admonition against "new and 
 heavy increased expenditures." But it would suggest that there 
 are activities which would greatly strengthen its long-term ob- 
 jectives, many of them, moreover, the least costly in the public 
 service, but far-reaching in their influences. And there is another 
 point the Committee would emphasize: much can be done within 
 the present service structure to increase the productivity of the tax dollar. 
 
 The Consumers Sales and Use Tax 
 
 The Committee was appointed at a time when a major tran- 
 sition in State revenue policy had just been completed. A revision 
 of the unemployment compensation law and a sharp reduction 
 in the employer pay roll tax had been adopted. To meet expanding 
 revenue requirements, the corporate business tax had been in- 
 creased from 2 to 3 per cent, an additional one cent had been added 
 to the gasoline tax, and a new and far-reaching tax — the consumers 
 sales and use tax — had been established. It was first necessary 
 to evaluate these changes, particularly from the viewpoint of their 
 effect on a balanced tax structure; of their soundness and adequacy 
 in reference to their over-all purposes; and of the part they should 
 play in the further development of the State's tax situation. 
 
 The study began with an examination of the consumers sales 
 and use tax (Chapter 3) and the Committee has examined it in 
 great detail. This tax was the first major revenue act passed 
 in Connecticut in many years. For so important a measure it 
 was hastily conceived, hastily drafted and hastily passed. The 
 wonder is not that it had defects, but that it has worked so well. 
 It is a credit to the ingenuity and knowledge of those who had 
 to act with such urgency; and the Committee approached its ex- 
 amination with full respect for the difficulties that preceded the 
 passing of the act. 
 
 The first question asked was this: Does the consumers sales 
 and use tax have a permanent place in the tax structure of the 
 
 10 
 
State? Following a careful analysis of the impact of the tax in 
 reference to the entire tax burden in Connecticut, the Committee 
 concluded (Chapter 3) that: 
 
 The consumers sales and use tax meets the tests of tax equity 
 and balance and should be retained as a part of the State's tax 
 structure. 
 
 The second question involved the adequacy of the yield. The 
 unfortunate confusion that accompanied the establishment of 
 an initial 3 per cent rate, quickly reduced to 1 per cent and then 
 stabilized at 2 per cent as of July 1, 1949, was not an auspicious 
 start for so important an undertaking. The Committee never- 
 theless feels that the rate is now stabilized at about the right 
 point; and that the 2 per cent rate — effective as of July 1, 1949, 
 and permanent thereafter — will meet the requirements of both 
 equity and adequacy. At the stabilized rate (and assuming 1948 
 conditions) the tax will yield about $30 million — sufficient to 
 balance revenue and expenditures so far as present commitments 
 and foreseeable requirements can be determined. The Committee, 
 therefore, concluded: 
 
 That the 2 per cent rate for the consumers sales and use tax, 
 effective July 1, 1949, be accepted, for the time being, as an 
 established rate. 
 
 The most difficult problem of the consumers sales and use tax 
 centers about the exemption provisions. The complaints focus 
 on difficulty in administration and, when these are traced to their 
 real causes, "exemptions" are at the bottom of the trouble. The 
 Committee would respectfully suggest that it is not possible to have 
 both simplicity of operation and complexity of treatment at the same 
 time; and that so long as the policy of many exemptions is per- 
 mitted, so long will there be complications in the administration 
 of the tax. There are those on the Committee who would like to see 
 all exemptions removed in the interest of increased efficiency and 
 economy of operations. There are others who would like to see all 
 of the present exemptions maintained and even increased, in the 
 interest of relieving tax pressures on commodities of a peculiar 
 social and economic significance, particularly to the lower income 
 groups. For reasons set forth in this report, however, the Com- 
 mittee concludes: 
 
 That in view of the fact that there has been so short an ex- 
 perience under the consumer sales and use tax act; and in view 
 
 1 1 
 
of the fact that adjustments in the present exemptions would 
 tend to disturb the stability of the whole act, it is recom- 
 mended that no major changes should be attempted at this 
 time. 
 
 To simplify the tax administration, however, the following 
 amendments can properly be made to the act: 
 
 1) To provide that purchases of items deductible as manu- 
 facturing expense under the Federal income tax law be exempt; 
 that purchases by manufacturers of items which are properly 
 capitalized be taxable; that purchases of items for use in ad- 
 ministration or distribution regardless of whether capitalized 
 or not (as denned in Regulation No. 5 of the State Tax Com- 
 missioner) continue to be taxable. 
 
 This amendment would greatly simplify the administration 
 of the act in regard to the phrase "consumed and used" and of 
 the phrase "directly in the process of manufacture," and bring 
 added certainty of tax liabilities to the taxpayer. 
 
 2) To permit any licensed business to issue a blanket as- 
 sumption certificate on its purchases and to be thereupon 
 responsible for the payment of the use tax on all such pur- 
 chases which are taxable. 
 
 This will eliminate a multitude of minor business transactions 
 from individual tax payments and thus reduce the cost of both 
 compliance and State tax administration. 
 
 That the Legislature reconsider the following exemptions: 
 
 On fuel used for domestic purposes ; on the sale of children's 
 clothing; and on meals costing less than $1.00. 
 
 The Committee understands and appreciates the worthy motives 
 supporting these exemptions; but would call attention to their 
 difficulties of administration and to the ease with which they may 
 encourage tax evasion. It is nevertheless unwilling to recommend 
 their repeal on these grounds alone, but would suggest that, as far 
 as possible, they be redefined and simplified. 
 
 A Personal Income Tax 
 
 With a consideration of the consumers sales and use tax, the 
 Committee examined the implications of another tax not now in 
 effect in Connecticut but often thought of as an alternative to 
 a sales tax. This is the personal income tax. This tax has been 
 
 12 
 
widely discussed in Connecticut; and would doubtless be con- 
 sidered as a possible revenue measure, should the State undertake 
 a larger expenditure program than is at present anticipated. The 
 implications of such a step are of the greatest importance to every 
 taxpayer — large and small — and the Committee has accordingly 
 examined the matter with great care. 
 
 The Committee commenced its study (Chapter 4) with an ex- 
 amination of certain fundamental premises that are associated with 
 income tax discussions: 
 
 First, everyone should contribute something directly to 
 the support of government in order to assume civil responsi- 
 bility and to equalize tax responsibility for general services. 
 
 The Committee agreed with this premise, and found that the 
 consumers sales and use tax very well met this requirement for 
 State support in Connecticut; and on an even broader base than a 
 personal income tax would provide. Advocates of a State income 
 tax usually propose such large exemptions that the great majority 
 of citizens would not be subject to the tax at all. 
 
 Second, while capacity to pay is an important theory of 
 tax equity, it may be outweighed by the benefit theory in 
 certain types of expenditures in State and local government. 
 
 Modern tax theory considers the purpose of the expenditure 
 in determining the type of the tax. A special purpose tax — one 
 that can be identified with special benefits such as highway use — 
 requires a special tax. A general purpose tax — one that is a gen- 
 eral obligation of the State unidentified with special benefits such 
 as a veterans' bonus — requires a general tax. Whether an in- 
 come tax would be appropriate to new expenditures would depend 
 upon the generality of the service requirement — it would not be 
 suitable for highway support; it would be suitable to pay for a 
 veterans' bonus. Moreover, if the income tax is to be used for 
 expenditures of general benefit, exemptions must be moderately 
 low, so that citizens who benefit by the expenditures will help pay 
 for them through the tax. 
 
 Third, capacity to pay is already fully exploited by the 
 Federal tax system which is a large part of the total tax burden 
 of Connecticut taxpayers. 
 
As the Committee has emphasized, it is no longer possible to 
 consider State taxes in isolation. The high progressive rates of 
 the Federal income tax are a new factor in State tax policy, under 
 which Connecticut taxpayers return the Federal Government 
 $386 million a year (1947). This may well be all that the capacity 
 theory should be asked to bear in Connecticut. 
 
 Fourth, economic fluctuations in the tax base of an in- 
 come tax are likely to be too severe to assure substantial 
 support for State Government functions. 
 
 States, unlike the Federal Government, cannot continually 
 engage in deficit financing. Their tax yields must, therefore, 
 be both adequate and stable. Study indicates, however, that 
 fluctuations in income have been more severe than fluctuations 
 in retail sales. On this basis, there are considerable advantages 
 to the State in a retail sales tax over a personal income tax, for 
 the purpose of assuring stable and substantial revenues. 
 
 Fifth, from the viewpoint of Federal-State tax co-ordina- 
 tion (a much needed program), no additional States should 
 adopt the individual income tax. 
 
 The Committee is inclined to this view. Although thirty years 
 of effort have brought little relative change in Federal-State tax 
 relations, action seems closer than at any time. Whether the in- 
 come tax should be allocated solely to the Federal Government 
 or whether it should be integrated with Federal income tax laws, 
 is yet to be determined. But if Connecticut can avoid entering 
 this field of taxation, it may well save its citizens from serious tax 
 adjustments in the future. 
 
 With these considerations in mind, the Committee concluded 
 as follows: 
 
 That the broadest possible tax base for the support of gen- 
 eral government services is a sound investment in democracy; 
 and, it may be added, a salutary restraint on excessive spend- 
 ing. 
 
 That the element of capacity to pay is utilized in full meas- 
 ure by the present graduated Federal individual income tax. 
 
 That substantial tax revenues can only be provided by a tax 
 of general application to all income groups regardless of 
 whether personal income or consumers sales is the base. 
 
 That under present conditions the consumer sales tax has 
 advantages over the individual income tax, including greater 
 
 14 
 
stability, freedom from duplication and overlapping of Federal 
 taxes, and a broader basis of direct public support for State 
 Government. 
 
 The Taxation of Business 
 
 While Connecticut has no personal income tax it has had a 
 corporate income tax, the Corporation Business Tax, since 1915. 
 This tax (Chapter 5) is a franchise tax (applicable to all corpor- 
 ations except insurance companies, public utilities, and charitable, 
 religious and educational institutions). Its current yield is at 
 the rate of about $15.1 million a year (7 per cent of all State and 
 local taxes). The tax is measured by the greater of three alterna- 
 tives: 1 
 
 1) First alternative: Net allocated corporate income — 
 the base is similar to the Federal corporate income tax base, 
 except that no deduction is allowed for a) losses of other 
 years, b) interest paid, and c) interest from government 
 securities. The rate is 3 per cent and the yield (1948) $12.8 
 million. 
 
 2) Second alternative: Allocated invested capital — the face 
 value of capital stock, surplus, undivided profits, certain 
 reserves and all interest-bearing indebtedness, less deficits 
 and holdings of shares of stock in private corporations. This 
 is a minimum tax at the rate of 1.5 mills per dollar of "invested 
 capital and yields $527,000 a year (1948). 
 
 3) Third alternative: A minimum tax of $15.00, yield 
 (1948) $90,000. 
 
 The Committee has made a careful statistical analysis of 11,675 
 corporation business tax returns for 1948 — 93 per cent of all re- 
 turns filed for that period — with the following results: 
 
 The 72 largest corporations in the State paid $2.8 million or 
 20.9 per cent of the total reported. 
 
 Some 6,069 corporations or 52 per cent of those reporting paid 
 less than $100 tax per corporation, and in the aggregate paid 
 an estimated $289,575, or only 2.2 per cent of the total tax. 
 
 Of the 6,069 small returns, 2,445 paid the $15 alternative 
 minimum while 290 paid a $10 alternative minimum based on 
 the old rate prior to revision. In all, 23.4 per cent of all the 
 
 '1948 tax collections stated for the three alternatives do not add to $13.1 million due to the exclusion of 
 $712,000 collected from back taxes and $965,000 collected on preliminary returns. 
 
corporations filing returns paid taxes on the fiat alternative 
 minimum basis. Some 3,334 corporations, on the other hand 
 paid an estimated $250,000 in individual payments, each less 
 than $100 but greater than the flat alternative minimum. 
 
 The remaining corporations (other than the 72 largest cor- 
 porations and those paying less than $100) numbering some 
 5,534 firms, or 47.4 per cent of those analyzed, paid $10.3 million 
 or 76.9 per cent of the total tax. 
 
 The Corporation Business Tax is similar to corporate income 
 taxes in other States. It seems to meet with the general approval 
 of Connecticut business men, and testimony before the Com- 
 mittee would indicate that both the principle and general character 
 of the tax should be retained. Relatively simple to administer, 
 because tied so closely to the requirements of the Federal corporate 
 income tax, well established in the State, the tax yields about seven 
 per cent of State and local tax revenues. The Committee recommends 
 only certain adjustments that look toward ease of administration 
 and added equity. These proposed adjustments are as follows: 
 
 First, that the computation of net income in measuring 
 the corporate business tax should follow as closely as pos- 
 sible the methods prescribed by the Federal corporate in- 
 come tax. 
 
 This principle characterizes the present tax with a few notable 
 exceptions. The first is that the Connecticut law does not per- 
 mit interest paid on indebtedness to be deducted in the computa- 
 tion of taxable income. In this particular, Connecticut is the 
 only State levying a corporate income tax that denies this deduction. 
 If the exemption were granted, the loss to the State in tax revenue 
 would be about $92,000. The Committee concluded: 
 
 That in the interest of tax equity, the deduction of interest 
 paid on indebtedness should be allowed. 
 
 A second exception to the Federal practice is that the Con- 
 necticut law does not provide for carry-over of net losses of other 
 years. It is doubtful if the carry-back feature is a desirable pro- 
 vision even under the Federal act; but the Committee did give 
 consideration to the carry-forward of net operating losses. Even 
 this provision, however, seemed unsuited to the Connecticut cor- 
 porate income tax because this tax is coupled with a minimum 
 alternative tax of 1 \i mills on invested capital. The theory of the 
 
 16 
 
Connecticut tax is not to recognize loss years in corporate franchise 
 taxation, and even to disregard the falling off of income below a 
 5 per cent return on invested capital. This basic minimum tax, 
 measured by invested capital, makes it inappropriate to allow losses 
 to be carried forward as under the Federal provision where there 
 is no minimum. The Committee concluded, therefore: 
 
 That a carry forward of operating losses is unsuited to the 
 present form and theory of the Connecticut corporate income 
 tax. 
 
 The unincorporated business tax (Chapter 5) is measured by 
 gross receipts. There are two rates: 1) 1 mill per dollar on retail 
 mercantile business, motor transportation, amusements, and 
 manufacturing businesses, and 2) 34 mill per dollar on whole- 
 sale business. While the Committee is aware of the inequities 
 as among various types of businesses that accompany a gross 
 receipts measure; and of the tax burden that may fall on tax- 
 payers that show no income, it believes that a gross receipts tax 
 has a place in a balanced tax structure. It is an effective way 
 to reach a multitude of small businesses whose transactions do 
 not warrant the record keeping required by the more elaborate 
 income tax; it is a stabilizing influence on the tax revenue system 
 when income and sales are falling; and it is, on the whole, a simple 
 tax to administer. 
 
 The Committee was most interested, however, in the relative 
 tax burden of corporate and unincorporated business and studied 
 with care the tax impact on both types of taxpayers. It deter- 
 mined that only when net income fell below 3.33 per cent of gross 
 receipts while sales ratio to invested capital remains 1.5 or greater, 
 the unincorporated business tax on partnerships would exceed 
 the corporate tax in retailing and manufacturing. In wholesaling, 
 net income must fall below .83 per cent of gross while sales remain 
 at or above six times the invested capital, for the partnership tax 
 to exceed the corporation tax. 
 
 In 1946, when net profits were on the up-trend (but lower than 
 1947 and 1948), practically all manufacturing and retailing in- 
 dustry showed a net profit substantially above the 3.33 per cent 
 of gross receipts. In manufacturing the profit ratio was 8.61 per 
 cent. In retailing, the profit ratio was 7.09 per cent; and in whole- 
 saling, 4.37 per cent. In effect, therefore, the Connecticut tax 
 on manufacturing corporations was almost three times the tax 
 
burden of the same businesses had they been unincorporated; over 
 twice the same burden in the case of retailing; and five times as heavy 
 on wholesalers. While the corporation tax implies a charge for the 
 corporation franchise and some difference might be accepted on 
 that basis, it is clear that unincorporated business as compared 
 to corporate business is not at present carrying its share of the tax 
 load. In profitable years the income part of the corporation tax is 
 almost always likely to produce a substantially heavier burden 
 on corporations than on partnerships, whereas in times of declining 
 net earnings the 1.5 mills on invested capital will cause the tax 
 burden on corporations to remain substantially heavier than that 
 imposed on partnerships. The Committee would suggest: 
 
 That, should the State of Connecticut need additional rev- 
 enue, it could appropriately be provided in part by some 
 equalization of the burden of unincorporated business with 
 that borne by incorporated business. 
 
 Considering the remaining taxes on business, the Committee 
 reviewed the operation of the pay roll tax for unemployment com- 
 pensation and the special taxes on regulated enterprise — insurance 
 companies, railroads and other public utilities. An examination 
 of these taxes shows that: 
 
 Special taxes on regulated enterprise account for 17 per cent 
 of total taxes collected in Connecticut during the past ten 
 years, and 7.5 per cent of all fund receipts for the same period. 
 
 Insurance companies furnish a major portion — 53.1 per cent 
 ■ — of these special tax revenues. These companies have made a 
 strong plea for tax reduction, based upon comparative tax bur- 
 dens on domestic insurance companies in other States — but 
 this matter was raised too late for the Committee to give it 
 consideration. It is therefore recommended: 
 
 That the Legislature make the question of insurance taxes 
 a further subject of special legislative study. 
 
 Two factors of major importance in considering the relative 
 burden of business taxes, among different industries, stand out 
 in the Committee's work. These are: 
 
 1) Pay roll as a varying factor in cost of production. 
 
 2) Inventory, machinery and equipment as factors in doing 
 business. 
 
 18 
 
The relative importance of these two items in making up a 
 "typical" business tax bill is striking. "General business taxes" 
 are found to be only 44 per cent of the taxes particularly applica- 
 ble to business. As of June 30, 1948, the proportions were these: 
 
 General Business Taxes (millions) % of Total 
 
 Corporation $15.1 40.5 
 
 Unincorporated 1.3 3.5 
 
 $16.4 44.0 
 
 Pay roll taxes 6.9 1 18.5 
 
 Tangible Personal Property 14.0 (estimated) 37.5 
 
 $37.3 100.0 
 
 Pay roll taxes for unemployment compensation (Chapter 6) 
 will vary in importance among employers depending upon the 
 extent of the labor factor in their operations. These taxes will 
 also vary from year to year depending upon the individual em- 
 ployer's employment experience, and may also vary as a result 
 of changes in the balance of the Unemployment Trust Fund — 
 out of which unemployment benefits are paid. Changes in the 
 contribution rate effectuated in 1947 had these effects: 
 
 Reduced basic employer contribution requirements during 
 calendar year 1948 from $32 million to $11 million. 
 
 Provided credit offsets against the $11 million resulting 
 in net cash payments of only $3.8 million. 
 
 In the long run, the amount of the tax will depend upon the 
 liberality of benefit payments, upon wage levels and general eco- 
 nomic conditions. Extensive revision of the contribution rate 
 schedule placed Connecticut among the most favorable States 
 from the viewpoint of the burden of the pay roll tax for rate years 
 beginning in 1947, but this is a temporary condition which may 
 well change during the coming year. The competitive effect of 
 the pay roll tax, as compared with other States, is further modi- 
 fied by the operation of six different types of employer experience 
 rating formulas in use among the States. For the time being, the 
 Committee concludes: 
 
 The whole system of contributions and benefits has only 
 recently been completely revised by the Legislature and it 
 would be neither desirable nor practical to attempt further 
 revision until the full effect of the new contribution rate struct- 
 ure can be observed in operation for a reasonable period of 
 time. 
 
 1 This item has been reduced by 5% to exclude pay roll taxes of insurance companies and public utilities, 
 since these industries are also excluded from " General Business Taxes, " above. 
 
The over-all effect of the Connecticut tax structure on busi- 
 ness is difficult to appraise from the standpoint of comparative 
 tax burdens. It has already been shown what the comparative 
 results may be for specific business units in selected localities. 
 Another way of looking at State taxes on business is to compare 
 total business taxes with all State and local taxes and with a com- 
 mon economic indicator such as income payments to individuals. 
 This the Committee has done with the following results: 
 
 Item Conn. N. J. Mass. N. Y. N. H. 
 
 Total all taxes on business ex- 
 cept pay roll and real prop- 
 ty as a % of all State and 
 local taxes 13.8% 8.8% 13.8% 11.2% 10.2% 
 
 Total all taxes on business ex- 
 cept pay roll and real prop- 
 erty as a % of income pay- 
 ments to individuals 0.65% 0.57% 0.96% 0.71% 0.72% 
 
 The conclusion from this comparison is clear: 
 
 Among the selected States compared, Connecticut shows a 
 high standing in the proportion of all taxes borne by business 
 in 1947 — a ratio which was reduced by adoption of new taxes 
 for 1948 — but it shows next to the lowest in the relative burden 
 of business taxes among the States. 
 
 The General Property Tax 
 
 From the beginning of its work, the Committee has considered 
 its primary assignment to be a study of State taxes as opposed 
 to local taxes. It was well aware that the line between the two 
 is not clearly marked; and also that perhaps the most serious 
 problems of tax adjustment are at the local level. The study 
 of local taxation is, however, a very large problem. Public re- 
 porting has touched the field very lightly in Connecticut, and 
 any important adjustment that is to be done intelligently and 
 effectively must await the gathering and analysis of an immense 
 amount of data. The Committee has nevertheless conducted 
 exploratory work in the field (Chapter 7), and suggests certain 
 lines of approach and certain possible solutions for further con- 
 sideration. 
 
 Property taxes represent about one-half of all Connecticut 
 State and local taxes in 1948. Although the total amount in- 
 creased about 15 per cent (from $91.8 million in 1947 to $105.4 
 million in 1948), it declined in relative importance from 59 per 
 
 20 
 
cent of all non-pay roll taxes in 1947 to 50 per cent in 1948. So 
 while property taxes maintained their position as the largest 
 source of State and local tax revenues, major tax changes adopted 
 in 1947 caused them to be less prominent in the over-all total than 
 they were before 1948. 
 
 All property taxes in Connecticut, with two minor exceptions, 
 are locally assessed. In fiscal 1948, local property taxes (1947 
 grand list) totaled $105 million and represented 99.7 per cent 
 of all State and local property taxes. The remaining 3/10 of 
 1 per cent were State assessed taxes upon investments at 4 mills 
 of their reported face value and upon shellfish grounds at 2 per 
 cent of their value. While, as has been said, local property taxes 
 increased substantially between 1947 and 1948, State taxes upon 
 intangibles decreased 3 per cent from $346,200 in 1947 to $336,300 
 in 1948, and State assessed taxes upon shellfish grounds amounted 
 to only $12,400 in 1947 and $12,300 in 1948. 
 
 Although the towns collected 94 per cent of all property taxes 
 in 1947, they did not realize this portion of the tax for their own 
 purposes. As collection agents for State, county, and metro- 
 politan district property taxes, the towns collected a total of 
 $4,165,000 which they did not retain. Property tax collections 
 by the towns for their own use totaled $84,043,000 in 1947 to 
 account for about 90 per cent of all local property tax collections. 
 
 Both the State tax upon towns and the personal old age assist- 
 ance tax were repealed in 1947 effective in the tax year 1948 (col- 
 lection year March 31, 1948). In terms of 1947 experience, this 
 change implies a reduction in town revenues of $2,716,000 col- 
 lected from old age assistance taxes offset in part by elimination 
 of $2,225,000, in State taxes assessed to the towns. 
 
 As shown in Table 49, average tax rates in 1947 increased pro- 
 gressively from smaller towns to larger towns. Because of the 
 large weighting given to larger taxing districts, the average State 
 tax rates are determined primarily by the results obtained in a 
 few large towns. For example, the average rate of 30 mills for 
 1947 in the 23 largest towns is not materially different from the 
 average of 29 mills for all taxing districts even though the average 
 in the remaining 146 towns is substantially lower. The important 
 fact is this: 
 
 The Connecticut average tax rate of 30 mills represents a 
 moderate tax burden on real estate as compared with general 
 property tax rates elsewhere throughout the Nation. 
 
Against this background, the Committee suggests that any 
 excessive tax burden which the local property tax may represent 
 is primarily associated with the assessment of property taxes 
 in the larger towns. As a traditionally rural tax measure, the 
 general property tax tends to grow more complex as the taxing 
 district loses its rural characteristics. There is no evidence that 
 Connecticut has yet reached the stage in its development when 
 the property tax is inadequate to provide the major support for 
 local services in its largest districts. But the Committee feels that 
 the State has reached the point at which it should give serious 
 consideration to the adequacy of general property assessments 
 as a measure of tax equity between urban districts and rural dis- 
 tricts. 
 
 Rough estimates by the Committee indicate that the over-all 
 amount of local property tax is distributed about as follows: 
 
 Business property — 40 per cent 
 Agricultural property — 6 per cent 
 Motor vehicles and aircraft — 5 per cent 
 All other property — 49 per cent. 
 
 The taxable value of all intangible personal property assessed 
 locally in 1946 totaled only $605,000 to represent less than 2/100 
 of 1 per cent of the 1946 gross Grand List (Table 50). At the 
 average State tax rate of 29.15 mills in 1947, this implies a local 
 property tax upon intangibles totaling less than $18,000, largely 
 collectible during the fiscal year ended in 1948. This amount of 
 property tax from intangibles assessed in 1947 is 8 per cent above 
 the $16,000 assessed in 1946 but 29 per cent below the $25,000 
 reported for 1937 and 71 per cent below the $61,000 reported for 
 1929. 
 
 A State tax upon investments applies to Connecticut taxpayers 
 who elect to pay the State tax at 4 mills upon their securities and 
 other intangibles instead of local general property tax at local 
 rates. In general the tax is not enforced at either the State or 
 the local level, and application of the State tax serves only as a 
 safeguard to taxpayers against erratic and confiscatory taxation. 
 The tax is thus paid by a few taxpayers who have been singled 
 out for selective treatment or those who declare their investments 
 and those who become subject to the estate penalty tax. Recog- 
 nizing the difficulties inherent in taxing intangible personalty as 
 property, the hazards that such a tax bears for certain types of 
 businesses, the wide-spread lack of enforcement of the existing tax 
 
 22 
 
and the small amount of revenue at present involved, the Com- 
 mittee suggests: 
 
 That whenever a suitable replacement tax can be developed, 
 intangible personal property be exempted from local taxation 
 as property and that the State investments tax at 4 mills on the 
 face value of securities and its complement, the estate penalty 
 tax, be repealed. 
 
 It is common knowledge in Connecticut that local assessment 
 of real and personal property is not uniform as among towns and 
 as among individual properties within single towns. In the case 
 of real property, a study of more than 2,000 sales over a three- 
 year period indicated average assessment ratios for land and 
 buildings in 30 towns ranging from 31 per cent to 107 per cent of 
 sales price. While these results represented averages based upon 
 aggregate assessed values and aggregate sales prices and were 
 therefore heavily influenced by large properties, averages of in- 
 dividual assessment ratios indicated equally wide variations in 
 average assessment ratios among the 30 towns. Large differences 
 were found in assessment results as between vacant land and land 
 occupied by buildings; and in a few towns where breakdowns were 
 made, the analyses indicated equally wide variations as among 
 properties by type of occupancy. 
 
 Since the local property tax amounts to about one-half of all 
 State and local taxes paid by Connecticut taxpayers, inequalities 
 in local property valuations are important elements in any over- 
 all appraisal of tax policy. It is not enough to determine assess- 
 ment ratios as among towns and among individual properties. 
 While such studies are important first steps toward improvement, 
 they are useful only as a basis for developing assessment methods 
 and practices to accomplish greater equity of tax assessment. The 
 Committee regrets that time and resources at its disposal did not per- 
 mit it to gather sufficient data to develop complete recommendations 
 in this important area of taxation, but it respectfully recommends 
 the following: 
 
 That provision be made for a comprehensive study of local 
 property tax assessment methods and results, and 
 
 That facilities be provided in the State Tax Commissioner's 
 Office for greater assistance to the towns in the work of as- 
 sessing property taxes, particularly personal property taxes 
 so long as personal property remains subject to local taxation 
 and assessment. 
 
Difficulties associated with the assessment of the general prop- 
 erty tax are particularly apparent in the case of personal property. 
 Connecticut abstracts of taxable property include 16 items of per- 
 sonal property which represents 20.6 per cent of all taxable property 
 in 1946. Of these 16 items of personal property, three items of 
 business tangible personalty represent 14.4 per cent of all taxable 
 property as follows: 
 
 Machinery, water power and dams 5.13% 
 
 Goods of manufacturers, merchants and traders 7.47 
 
 Cables, conduits and pipes 1.81 
 
 Total 14.41% 
 
 Motor vehicles and aircraft account for an additional 4.5 per 
 cent. This means that the remaining 12 items of personal property 
 represent only 1.7 per cent of all taxable property. Two of these 
 12 items — net earnings from enrolled vessels and excesses of "credits 
 over debits" of merchants, 1 bonds, notes and other choses in ac- 
 tion — are intangibles, and represent only 1/100 of 1 per cent of all 
 taxable property and are thus of no consequence. The remaining 
 10 items of tangible personal property account for 1.74 per cent 
 of the gross tax base. In commenting upon the assessment of these 
 items in 1944, Mr. Roger S. Baldwin, a member of the Board of 
 Estimates and Taxation of Greenwich, observed : 
 
 Municipalities could have raised the same amounts on 
 other items of property, with a slightly higher tax rate, which 
 would have been fairly distributed over all taxpayers, and at 
 much less cost. The taxes collected on these 11 items of Tangi- 
 ble Personal Property do not justify the expense and bother 
 of Listing, Abstracting, Recording, Billing, Collecting, Audit- 
 ing, and Reporting; to say nothing of the uncertainty, un- 
 fairness and inevitable taxpayers' criticism involved.*** The 
 saving in paper alone by such elimination, and the saving in 
 office administration and trouble to the taxpayers, would offset 
 a substantial portion of the amount of taxes formerly collected 
 on the eliminated items. The Levy would not be changed and 
 the distribution of the tax burden would not be substantially 
 altered. The present exemptions for certain types of these 
 items of Tangible Personal Property constitutes even now a 
 partial elimination of the items and the balance, after de- 
 ducting such exemptions, would be distributed, through a 
 
 l This item, stated as given in the Connecticut Abstract, is more commonly referred to as the excess of 
 accounts receivable over accounts payable. 
 
 24 
 
slightly increased Tax Rate, in about the same proportion 
 over the other items of the Abstract. 
 
 The Committee agrees with these observations and feels that they 
 apply with equal validity to the two items of intangible personal 
 property (net earnings from enrolled vessels, excess of accounts 
 receivable over accounts payable and bonds, notes and other choses 
 in action) as well as to the erratic omnibus classification called "all 
 taxable property not previously mentioned." The Committee 
 therefore suggests: 
 
 That the following items as they appear in the abstract of tax 
 ratables be exempted from taxation as local property in Con- 
 necticut. 
 
 Horses and mules 
 
 Neat cattle 
 
 Sheep, goats, swine and poultry 
 
 Carriages, wagons and bicycles 
 
 Watches, diamonds and other jewelry 
 
 Furniture, libraries, radios and musical instruments 
 
 Farming implements and mechanics tools 
 
 Farm produce 
 
 Fisheries and fishing apparatus 
 
 Sailing, steam and other vessels and boats 
 
 Net earnings from enrolled vessels 
 
 Excess of accounts receivable over accounts payable of 
 
 merchants, 1 and bonds, notes and choses in action 
 All taxable property not previously mentioned. 
 
 Experience of local assessors in Connecticut as well as in other 
 States indicates the difficulties inherent in the assessment of busi- 
 ness tangible personal property. In most instances, assessors 
 are not equipped to value this class of property which includes a 
 wide variety of items of trade and commerce involving special value 
 consideration. Particularly in the case of business inventories 
 and specialized business machinery and equipment there is serious 
 doubt that business tangibles can be effectively and equitably taxed 
 as general property. In this connection the New Jersey Commission 
 on State Tax Policy recently reported as follows: 
 
 It has long been recognized, either as a matter of law in 
 States which have met the problem through a variety of 
 statutory devices, or as a matter of practice in such States 
 
 ^hown as "Excess of creditB over debits'* in Connecticut Abstracts. 
 
as New Jersey, that personal poperty, particularly inventories 
 of stock in trade, semi-finished goods, work in process and 
 raw materials, is totally unsuited to taxation ad valorem under 
 the general property tax. In this sense, personal property is 
 not new and never has been truly a part of the general property 
 tax base. But the letter of the law which places it within that 
 base has caused negotiation to be substituted for taxation, 
 and an unhealthy atmosphere of caprice to take the place of 
 clear-cut official responsibility. The result, to be expected 
 under such conditions, has been discriminatory, unequal and 
 sometimes arbitrary assessments. 
 
 Recognizing the difficulties inherent in taxation of business tangi- 
 ble personal property as general property and the insuperable 
 difficulty of bringing order out of the chaos wrought by many 
 years of selective tax compromises, the Committee believes equity 
 in such taxes can be accomplished only by adopting a new method 
 for taxing business tangibles. Therefore the Committee recommends 
 that consideration be given to the following suggestion: 
 
 That tangible business personalty be exempted from taxa- 
 tion as property, provided that an "in lieu" tax (to be de- 
 termined after careful study) can be devised as replacement 
 revenue for local governments. 
 
 The adoption of such a provision would leave motor vehicles and 
 aircraft as the only class of personal property taxable as local 
 property in Connecticut. Experience with the assessment of this 
 class of property has been satisfactory and its application has been 
 both general and reasonably uniform. There are numerous admin- 
 istrative aids available to the assessor in finding and valuing motor 
 vehicles and there is no compelling reason for eliminating them 
 from local taxation. Representing, moreover 4.5 per cent of the 
 1946 gross grand list of property taxable, automobiles and aircraft 
 are important factors in tax revenue. 
 
 There is one more recommendation that the Committee would 
 emphasize. The over-all adequacy of a modern tax structure 
 depends upon the care with which it is guided — both by a well 
 informed Legislature and a strong tax administration. The Com- 
 mittee is aware of the many problems which, due to limitations of 
 both time and resources, it has been unable to consider. The 
 
 26 
 
constantly shifting requirements of public finance demand, more- 
 over, steady and comprehensive attention. Timely adjustment 
 is the key to sound tax policy, and continuing familiarity with its 
 problems is essential to the development of a modern tax structure. 
 It is, therefore, suggested : 
 
 That the Legislature make permanent provision for the con- 
 tinuous study of Connecticut tax policy. 
 
 Respectfully submitted, 
 
 Connecticut State Tax Survey Committee.* 
 
 Roswell Magill, Chairman; 
 George C. Waldo, Vice-Chairman; 
 Beatrice Fox Auerbach, 
 Fuller F. Barnes, 
 Mary P. Holleran, 
 Henry F. Joy, 
 W. Ross McCain, 
 Winthrop W. Spencer. 
 
 *Mr. Joseph M . Rourke, a member of the Committee, dissents from certain conclusions and recommenda- 
 tions of this report; and, has informed the Committee that he expects later to file with the Governor a state- 
 ment of his views. 
 
CHAPTER 1 
 
 The Financial Position of the State 
 
 First, let us face the hard fact that the "perfect" tax system 
 has not yet been devised, much less attained. There have been 
 in public finance, as in other fields, strong supporters of doctrinaire 
 systems that promise relief from the tax inequalities that plague 
 all large-scale revenue programs; and at the same time, assure 
 yields ample enough to do everything that a public-minded people 
 might desire. The "single taxers" with their levy on the "un- 
 earned increment"; the "ability to pay" advocates; the followers 
 of the "benefit" principle; and the more recent "share- the- wealth" 
 thinkers — all point to the royal road that will somehow resolve 
 our tax problems and remove all doubt of unequal treatment and 
 insufficient revenues. 
 
 There is a strain of validity in each of these doctrines, but over- 
 emphasis has frequently lead to cliches that rise to plague those 
 who must seek practical solutions to the problem. The result is 
 too often a mass of emotional responses, freely and carelessly used, 
 to support or denounce a particular tax proposal. Thus the sales 
 tax becomes "class legislation" and "regressive"; and the personal 
 income tax "class legislation" but "progressive." Yet a sales tax 
 with certain exemptions may be little more regressive than an 
 income tax broadly based and with small exemptions; and the 
 general property tax — that palladium of local finance— may be the 
 most regressive of all. 
 
 The truth is our tax systems are not the results of doctrinaire 
 proposals, but the products of experience, experiment and ad- 
 justment. Equity may depend not upon one measure, but upon 
 several; and there are other elements besides equity that every 
 finance officer must consider if his tax structure is to meet the 
 tests for which it is designed. There is, for example, fiscal ade- 
 quacy — does the tax yield sufficient revenue to meet expenditure 
 requirements? Another is stability — is there sufficient diversity 
 of tax bases to promise a steady yield? Another is administrative 
 convenience — are the taxes easily and economically administered? 
 And still another is the economic impact — does the tax unduly 
 impair the productivity of the community? "Taxation," said a 
 recent writer, "is like dairy farming, not meat production; good 
 husbandry builds up the herd. Taxation does milk the cows of 
 
 28 
 
private enterprise but it should draw the line at killing off the 
 animals." 1 
 
 HOW MUCH STATE MONEY DOES CONNECTICUT USE? 
 The figures are these {Table 1, columns 7 and 8): 
 
 1948 1947 
 
 (in millions of dollars) 
 
 Total expenditures — 
 These are all the "service requirements" of State Gov- 
 ernment, including all fixed charges, grants, donations 
 and veterans' loans payments, 1948 $177.1 $112.6 
 
 Total direct payments to local governments— 
 These are all the taxes, fees, and licenses collected by 
 the State and paid directly to its local subdivisions. .. . 3.9 3.7 
 
 Total non-expenditure allocations — 
 These are additions made by the State to certain trust 
 funds, working capital accounts, cash balances, and 
 refunds of expenditure and income 27.5 29.4 
 
 $208.5 $145.7 
 
 This expenditure and allocation statement is useful, however, 
 only when seen in comparison with its financing provisions, and 
 leads to the next question: 
 
 HOW IS THIS MONEY RAISED? 
 
 The figures are these {Table 1, columns 7 and 8): 
 
 1948 1947 
 
 (in millions of dollars) 
 
 Tax receipts — 
 These include all taxes, licenses, permits and fees $115.7 $95.8 
 
 Federal grants-in-aid— 
 All money received from the Federal Government ear- 
 marked for special purposes 13.2 12.2 
 
 Other revenue receipts — 
 These include all receipts from rents, interest, dividends, 
 sales of commodities, fines, penalties, forfeitures, es- 
 cheats, etc 8.7 7.6 
 
 Non-revenue financing — 
 All money received from the sale of bonds, withdrawals 
 from trust funds, reduction in cash balances, etc 70.9 30.1 
 
 Total— All Receipts $208.5 $145.7 
 
 There is still another question which it is necessary to answer 
 before understanding the over-all financial position of the State. 
 
 'Harold M. Groves, Trouble Spots in Taxation (Princeton University Press, 1948). 
 
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It will be noticed that in the two statements above, the money 
 used and the money raised balance each other exactly. This, 
 however, is because they were made to do so by the use of "balanc- 
 ing items," which, while enabling us to see the whole financial 
 picture, carry no assurance that our State is fairly paying its own 
 way. The final question, therefore, is: 
 
 IS THE STATE OPERATING ON A BALANCED BUDGET? 
 
 It is — the following table shows an operating surplus of about 
 $11 million in 1948.* 
 
 The figures are these: 
 
 „ , . 1948 1947 
 
 Regular Operations — (in millions of dollars) 
 
 Total revenue receipts $130.4 $86.1 
 
 Total expenditures and payments to local governments. . 119.5 i04.7 
 
 Regular surplus (+) or deficit ( — ) of revenue receipts $+10.9* $ — 18.6 
 
 Other operations 1 — 
 
 Total revenue receipts (U.C.C. tax) $7.2 $29.6 
 
 Total expenditures: 
 
 Unemployment compensation benefits 11.5 11.6 
 
 Veterans' bonus payments 49.9 
 
 Other surplus (+) or deficit ( — ) of revenue receipts $ — 54.2 $+18.0 
 
 Over-all surplus (+) or deficit ( — ) of revenue receipts. . . $ — 43.4 $—0.6 
 
 The principal points to notice in the brief analysis of Table 1 
 are these: 
 
 Between 1947 and 1948, the State of Connecticut (Table 1, 
 columns 5 and 6) : 
 
 Increased its regular expenditures by 14 per cent; 
 Increased its revenue receipts by 52 per cent; 
 
 Also between 1947 and 1948, the State of Connecticut: 
 
 Reduced its unemployment pay roll taxes by 76 per cent; 
 
 Maintained its unemployment benefit payments almost un- 
 changed ; 
 
 Paid a bonus of $50 million to veterans of World War II; 
 
 ■Including unemployment compensation and veterans' bonus payments financed from a bond issue to 
 be retired out of revenue receipts over ten years. These items are also shown in Table 1. 
 
And incurred an over-all deficit of $43 million, including 
 bonus payments and unemployment compensation pay- 
 ments, but had an operating surplus of $11 million. 
 
 It is important to understand how this was done. 
 
 Connecticut has been both careful and forthright in financing 
 its public services. During the war years (1941-1945), State 
 expenditures changed very little. The total in 1945 exceeded the 
 1941 total by less than 3 per cent. 1 After 1945, however, gen- 
 erally rising costs, pressing deferred service demands, and the urgent 
 need for increased State aid to local governments and schools caused 
 Connecticut State expenditures to increase. For the biennium 
 1945-1947, expenditures exceeded those for the preceding biennium 
 by 27 per cent. It is doubtful if many households or businesses 
 managed to hold their total expenditures to so low an increase dur- 
 ing the same period. In dollar amounts the change meant an in- 
 crease of $38 million for the two-year period. 
 
 There can be no question but that this additional expenditure 
 was necessary to the sound development of State and local services. 
 For example, the increase ($38 million) included added expenditures 
 for highways, roads, and bridges of about $19 million to undo the 
 damage from neglect during the war years. It included increased 
 outlays of $15 million for charities, hospitals and corrections and 
 $5 million for education. At the same time the State's non-func- 
 tional expenditures, composed largely of bond retirement, post- 
 war purpose funds, and pension and retirement salaries, were re- 
 duced about $9 million, thereby providing available resources to 
 meet urgent needs in other fields without new tax revenues. 
 
 Because of its excellent financial condition, Connecticut with- 
 stood the pressures of the post-war period without resorting to 
 increased taxation until 1947. Connecticut had, in fact, the second 
 lowest increase in State tax revenues between 1941 and 1947 reported 
 by any State and its percentage increase was little more than one- 
 third the average for all States. But when it became apparent that 
 its revenue structure was inadequate to meet the new requirements 
 placed upon it, the State faced the situation in 1947, adopted a 
 consumers sales tax, increased its corporation income tax, raised 
 its gasoline tax rate and reduced its unemployment compensation 
 
 ■AH revenue and expenditure figures are exclusive of unemployment compensation tax receipts or benefit 
 payments, unless otherwise indicated. 
 
 32 
 
tax collections which had proven to be more than were required 
 for this particular purpose. It did not, moreover, hesitate to re- 
 duce its new retail sales tax in 1948, when it became clear that the 
 tax would produce more revenue than was needed. 
 
 Connecticut appropriations for the current biennium ended 
 June 30, 1949, are 19 per cent above expenditures for the last 
 biennium ended June 30, 1947. Within an over-all increase of 
 $35 million for the two-year period, appropriations for educa- 
 tion have been more than doubled — from $23 million spent in 
 1945-1947 to $47 million appropriated in 1947-1949. Appropria- 
 tions for charities, hospitals and corrections are $20 million more 
 than was spent in the preceding biennium. These large increases 
 were possible within a smaller over-all increase in State expendi- 
 tures because non-functional appropriations — in this case, largely 
 in post-war purpose funds — are $19 million below expenditures 
 for the 1945-1947 biennium. Even in the face of wartime ac- 
 cumulated need for highway repair and construction, appropria- 
 tions for this purpose were held in the current biennium to only 
 $6 million more than was spent in the preceding biennium. 
 
 Although Connecticut State expenditures during the fiscal 
 year ended June 30, 1948 were 57 per cent above those of the 
 preceding year, they included $50 million of bonus payments to 
 veterans of World War II financed from a bond issue. Total 
 State expenditures exclusive of veterans' bonus payments in 
 1948 were 14 per cent above the total for 1947 and they were 
 more than covered by an increase of 52 per cent in State tax rev- 
 enue. The State was able to meet all of its obligations, increase 
 its contributions to local governments and, at the same time, add 
 $8 million to its available cash balance and increase its net in- 
 vestment position by about $3 million. The unexpected high tax 
 yield from the consumers sales tax made it possible to reduce the 
 tax rate from 3 per cent to 1 per cent for the period between April 
 1, 1948 and June 30, 1949, after which time, under existing law, 
 it may return to 2 per cent instead of the original 3 per cent. 
 
 Conservative estimates indicate that the Connecticut State 
 revenue structure is adequate to meet foreseeable requirements, 
 barring large new expenditure programs. At a time when the 
 general tax situation in many States is marked by tax uncertainty, 
 arising from urgent needs for additional revenues, the Connecticut 
 tax environment is comparatively stable and assured. Connecti- 
 cut has already recognized and met its post-war problems. Pro- 
 
jections of foreseeable expenditure needs against foreseeable sources 
 of tax revenue indicate that Connecticut will be able to show 
 modest surpluses for the current biennium as well as for the next 
 biennium extending to the middle of 1951 — again assuming the 
 restriction of new expenditures to a minimum. It appears: 
 
 That about $249 million must be raised in the 1949-1951 
 biennium or $125 millions per year, from State taxes and 
 other revenue sources; 1 
 
 That the present revenue sources will provide $245 mil- 
 lion during the biennium 1949-1951 and will be supplemented 
 by a surplus of about $14 million from the 1947-1949 bien- 
 nium. This would be adequate to meet foreseeable expenditure 
 requirements. 2 
 
 The Committee would therefore emphasize as its first over-all 
 recommendation that: 
 
 If the State of Connecticut is to operate within its present 
 tax structure, no new and substantial expenditures above 
 present commitments can be undertaken during the coming 
 biennium. 
 
 The Committee feels not only that this is necessary to preserve 
 the present tax structure, but that it is sound public finance as 
 well. To undertake new expenditure programs at this time is 
 to accept heavy fiscal commitments for many years to come; to 
 build up large fixed charges which will require both recurring 
 and increasing support; and to face the certainty of meeting future 
 payments in dollars that will be far harder to acquire than the 
 comparatively easy money of an inflationary period. The remedies 
 for inflationary spirals are in reality simple, homely, and well- 
 known — stop excessive spending, stop excessive borrowing and 
 require full-value services rendered for the tax dollar spent. 
 
 Table 1 provides an over-all view of Connecticut's State fi- 
 nancial operation in 1948. Table 2 shows the major sources of 
 State tax revenues, and the distribution of this revenue among 
 
 'Source: Extensive expenditure estimates provided by the Connecticut Public Expenditure Council. 
 "Expenditures by the State of Connecticut, 1938 to 1947, and Estimates for the Next Two Bienna." 
 (May, 1948.) 
 
 'Estimate prepared for the Committee by its staff agency. 
 
 34 
 
the principal State funds. It indicates, therefore, two aspects of 
 State finance — the tax bases from which taxes are raised — motor 
 fuel, corporations, cigarettes, sales, etc.; and the major purposes 
 for which the money is used — general purposes, highways, un- 
 employment compensation, and State aid. 
 
 Fund accounting is necessary but complicated. It is used to 
 segregate certain revenues to be used for particular purposes. 
 There are 161 such funds in Connecticut, and they vary all the 
 way from the large and important funds shown in Table 2 to 
 scores of minor funds such as funds for health and sanitation, 
 for docks, wharves and landings, for charities, hospitals and cor- 
 rections, for development of natural resources, for working capi- 
 tal, etc. But when the money is once allocated to these funds, 
 it cannot be used for any other purpose without the authorization 
 of those who were responsible for creating the fund. 
 
 There is also another complicating factor: some State reve- 
 nues may actually pass through several funds. This requires 
 interfund transfers to eliminate double counting for single items 
 which appear in the balances for single funds. For example, in 
 Connecticut, all cigarette tax receipts are paid into the general 
 fund, transferred, in part, to funds held for distribution and again 
 transferred to sinking funds. Such adjustments can become very 
 extensive. The net transfer of $.3 million (Table 2) out of the 
 general fund to other funds in 1948 involved total transfers of $8 
 million into the general fund, offset by transfers of $8.3 million out 
 of the general fund. In the same way the net transfer of $.7 million 
 into highway funds from other funds, resulted from gross transfers 
 to highway funds of $3.1 million offset by $2.4 million of transfers 
 from highway funds to other funds. For these reasons, it is possible 
 for an individual fund to be at variance with the surplus and deficit 
 condition of the over-all State picture; and while fund accounting 
 is a useful device for relating source and purpose of State revenue, 
 the results must be qualified by the "bookkeeping items" required 
 to keep these funds in balance. 
 
 With these qualifications in mind, Table 2 is important as show- 
 ing the following conditions: 
 
 It will be noted that while the general fund is the largest of 
 the State funds, general fund receipts represented only 40 per 
 cent ($84.5 million) of all State receipts and withdrawals ($208.5 
 million, Table 1) in 1948. 'After adjustment for interfund trans- 
 fers and for the deficit in this fund from 1947 operations, cash 
 
 35 
 
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 37 
 
available in the general fund ($80.8 million) was 36 per cent of 
 all cash available for State purposes ($221.1 million). Disburse- 
 ments from the general fund ($75.4 million) represented 38 per 
 cent of total disbursements ($195.8 million) from all funds. This 
 is the major State service fund. It is the place that we look first 
 for "economies." It receives about three-fourths of all State 
 tax moneys ($74.5 million), but accounts for a little over one-third 
 (38 per cent) of total State disbursements ($195.8 million, in- 
 cluding the bonus) and 52 per cent if the bonus is eliminated. 
 
 The highway fund shows total receipts of $34.0 million — $16.1 
 from motor fuel taxes, $9.3 from automobile and truck licenses, 
 and $8.6 from Federal aid and inspectional fees. This fund is 
 dedicated to highways — "diversions" from it for other purposes 
 cannot be made without a loss of Federal aid under the provisions 
 of the Federal Highway Act. The allocation of tax license and fee 
 funds designated for this fund in 1948, plus $700,000 in interfund 
 transfers covered all highway expenditures and increased the 
 cash balance in this fund by about $100,000. The unemploy- 
 ment compensation fund is a trust fund (held as a deposit in the 
 Federal Treasury in Washington) and is available for no other 
 purpose except the payment of unemployment benefits. Tax pay- 
 ments into the fund during 1948 amounted to $7.2 million while 
 total expenditures amounted to $11.5 million. The net difference 
 was offset by withdrawing $4.5 million of funds deposited in prior 
 years in the Federal trust fund (see footnote of Table 2). Other 
 receipts in the amount of $2.3 million represent Federal grants 
 for U.C.C. administrative purposes. The over-all picture for this 
 fund represents a substantial reduction in tax collections for this 
 purpose in 1948 and application of the accumulated backlog of funds 
 on trust deposit. 
 
 "Receipts held for distribution" represent State collection of 
 funds to be redistributed to local government units for admin- 
 istration and application. These funds correspond closely in 
 amounts collected in 1947 and 1948 and after fund transfers showed 
 increased cash balances available of $200,000. "Other funds," 
 as described in Table 2, include the receipt and expenditure of 
 proceeds from bond issues for the veterans' bonus as well as other 
 bond issues and their application to school and highway projects. 
 Elimination of these major items, which actually represent long- 
 term commitments in terms of redeeming bond issues, leaves a much 
 smaller amount of funds subject to this analysis. Actually "other 
 funds" in 1948 represented receipts of $11.5 million or 5.5 per cent 
 
 38 
 
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 39 
 
of total receipts. After distribution to other funds by transfers of 
 $1.1 million, receipts of this fund represent 5.1 per cent of total 
 receipts. Transfers to other funds and expenditures reduced avail- 
 able cash balances in these miscellaneous funds from a total of $7.2 
 million in 1947 to $6.2 million in 1948. 
 
 The important point to observe in this analysis is: 
 
 Taxes accounted for about 45 per cent of all cash available for 
 State purposes, including available balances from prior years 
 and receipts from the sale of veterans' bonus bonds. About 
 three-fourths of this 45 per cent is allocated to the general 
 fund. 
 
 The general fund is, therefore, the big tax "spending" fund 
 for State purposes, and it is important to see this fund in some 
 detail : 
 
 HOW MUCH MONEY IS SPENT FROM THE GENERAL FUND? 
 The figures are these: 
 
 _ ,. , ... 1948 1947 % of Change 
 
 Ordinary expenditures — (in millions of dollars) 1947-1948 
 
 These are the "operating" costs $37.4 $31.5 +18.7% 
 
 Fixed charges, grants and donations — • 
 
 These include payments to local govern- 
 ments, pension funds, welfare organi- « 
 zations, etc 22.0 12.0 +83.3 
 
 Capital outlays — 
 
 These are expenditures for construction, 
 inprovements, etc 6.2 5.8 +6.9 
 
 Total Expenditures $65.6 $49.3 +33.1% 
 
 Table 3 shows these expenditures by major functions of gov- 
 ernment. 
 
 These are net expenditures from the general fund and it is neces- 
 sary to compare them with general fund revenues. Thus the next 
 question is: 
 
 40 
 
WHAT ARE THE GENERAL FUND REVENUES? 
 The figures are these: 
 
 „ 1948 1947 % of Change 
 
 Taxes — (in millions of dollars) 1947-1948 
 
 General fund taxes represent % of all 
 State tax receipts in 1948 $74.6 $35.8 108.1 
 
 Other revenues — 
 
 Receipts of licenses, fees, rents, Federal 
 aid, etc 7.1 5.0 +42.0 
 
 Non-revenue receipts — 
 
 Including receipts from towns, surplus 
 receipts, etc 1.9 1 1.7* +11.8 
 
 Total Receipts $83.6 $42.5 +96.5% 
 
 Thus the over-all results of general fund financing appear as 
 follows: 
 
 1948 1947 % of Change 
 
 (in millions of dollars) 1947-1948 
 
 General fund revenues $83.6 $42.5 96.5% 
 
 General fund expenditures 65.6 49.3 33.1 
 
 General Fund Surplus (+) or Deficit (— ) . . +$18.0 —$6.8 
 
 Table 3, columns 1 and 5, shows this statement in broad 
 detail. 
 
 The important point to note in this comparison is: 
 
 The major "tax spending" fund, the Connecticut State Gen- 
 eral Fund, changed from a deficit fund in 1947 to a surplus fund 
 in 1948. 
 
 A major part of all expenditures from the Connecticut State 
 General Fund represent outlays for charities, hospitals, institu- 
 tions and education. Within a total expenditure of $65,550,000 
 during the fiscal year ended June 30, 1948, these service costs 
 totaled $49,256,000 to account for three-fourths of all general 
 fund expenditures. Expenditures for general government totaled 
 $6,749,000 to represent about one-tenth of all expenditures. Pro- 
 tection to persons and property accounted for less than 7 per cent 
 of the total and all other general fund service requirements includ- 
 ing development and conservation of resources, conservation of 
 health and sanitation and non- functional expenditures represented 
 about 9 per cent of the total. 
 
 'Total receipts adjusted to exclude refunds and reimbursements of expenditures; $927,000 in 1948, 
 $687,000 in 1947. 
 
 41 
 
This means that in terms of possible general fund economies, 
 any serious effort to curtail expenditures must be directed at 
 limiting expenditures for charitable and penal institutions and 
 education. However, these are the basic welfare expenditures 
 of the State on behalf of its citizens. Although the State has 
 every reason to expect funds spent for these services to be used 
 with economy and discretion, it is doubtful that they could be 
 materially reduced within the frame work of social responsibility 
 placed upon a progressive State. 
 
 General fund expenditures increased $16,220,000 between 1947 
 and 1948. This meant an increase of one-third over the amount 
 spent in 1947. However, about $10 million or 62 per cent of the 
 increase represented increased payments in the category of fixed 
 charges, grants and donations and was, in large measure, addi- 
 tional payments of State aid to local jurisdictions. More than 
 $9 million, or 56 per cent of the total increase was for educational 
 grants and donations for local schools and teachers' pension funds, 
 with the result that the amount of these payments for educational 
 aid changed from $4.1 million in 1947 to $13.2 million in 1948. 
 State aid to local schools was increased more than five times over 
 from about $2 million in 1947 to about $11 million in 1948. 
 
 As shown in Table 4, increases in all classes of general fund 
 expenditures for education totaled $11,507,000 to account for 
 71 per cent of the over-all increase for all purposes between 1947 
 
 TABLE 4 
 
 Increase in Connecticut General Fund Expenditures Between 1947 
 and 1948 by Functions and Character 
 
 (Amounts in thousands of dollars) 
 
 BY CHARACTER Education 
 
 Amount of Increase: 
 
 Ordinary expenditures $2,005 
 
 Fixed charges, grants, etc 9,099 
 
 Capital outlays 404 
 
 Total Increase $11,508 
 
 Per Cent of Total Increase: 
 
 Ordinary expenditures 12.4% 
 
 Fixed charges, grants, etc 56.1 
 
 Capital outlays 2.5 
 
 Total Increase 70.9% 22.9% 6.2% 100.0% 
 
 Charities, 
 Hospitals & 
 Corrections 
 
 All Other 
 Functions 
 
 Total— All 
 Functions 
 
 $3,012 
 701 
 
 $864 
 
 186 
 
 —51 
 
 $5,881 
 
 9,986 
 
 353 
 
 $3,713 
 
 $999 
 
 $16,220 
 
 18.6% 
 4.3 
 
 5.3% 
 1.1 
 -0.3 
 
 36.3% 
 61.5 
 2.2 
 
 Source: State of Connecticut. Report of Comptroller, 1947; 1948 (preliminary). 
 
 42 
 
and 1948. Another 23 per cent of the over-all increase was for 
 charities, hospitals and corrections so that educational and in- 
 stitutional functions together accounted for about 94 per cent 
 of all general fund expenditure increases and all other functions 
 accounted for only 6 per cent of the total increase. Total gen- 
 eral fund expenditures for education purposes amounted to $22.9 
 million in 1948 as compared with $11.4 million in 1947. 
 
 General fund expenditures for "general government" remained 
 almost unchanged at $6.7 million between 1947 and 1948. Non- 
 functional expenditures which include debt service, State pen- 
 sion and retirement salaries, insurance on State property and 
 related items increased about 2 per cent from $1.1 million in 1947 
 to $1.5 million in 1948. However, amortization of $50 million 
 during a ten-year period beginning with the fiscal year 1949 will 
 require approximately $5.5 million of additional appropriations 
 for this purpose. The, first of these payments was made on July 
 15, 1948. This means that if all other general fund expenditures 
 remain unchanged from their 1948 fiscal year level, the total will 
 increase by $5.5 million in the fiscal year 1949 and by the same 
 amount each year for nine subsequent years. 
 
 On the revenue side the increase of $41.1 million in general 
 fund revenues between 1947 and 1948 included collection of $32.3 
 million revenues from the new sales tax effective July 1, 1947. 
 These were tax collections from a 3 per cent tax rate upon busi- 
 ness done during the first three quarters of the fiscal year. Re- 
 duction in the sales tax rate from 3 per cent to 1 per cent is ex- 
 pected to yield about $15.0 million for the four quarters collectible 
 in fiscal 1949. * Return to a 2 per cent tax rate effective July 1, 1949 
 will increase sales tax revenues to around $30.0 million per four- 
 quarter period. The composition of sales tax revenues for 1950, 
 however, will be three quarters at the 2 per cent rate and one quarter 
 (the quarter just preceding July 1, 1949) at a 1 per cent rate for a 
 total of $26.2 million during the fiscal reporting period. 
 
 The foregoing analysis of anticipated revenues spells out a 
 definite story in terms of expenditure. ' During fiscal 1949 sales 
 tax revenues will decrease from $32.3 million to $15.0 million. 
 This decrease of $17.3 million and the amount of $5.5 million 
 needed each year to retire veterans' bonus bonds creates a total 
 deficit of $22.8 million which will wipe out the $18 million surplus 
 carried over from 1948 and leave a net deficit of $4.8 million, 
 
 Estimates relative to the yield from the sales tax are based upon the 1947 level of sales, and the 
 Committee believes that they are probably conservatives. 
 
 43 
 
if all other expenditures remain at their 1948 level. If this con- 
 cluding provision is met and continued into the fiscal year 1950, 
 however, the deficit of 1949 will be eliminated by increased rev- 
 enues from the 2 per cent sales tax rate. Three quarters of fiscal 
 1950 (July 1, 1949 through March, 1950) will provide $22.5 million 
 in sales tax at the new rate. One quarter of carry over at the 
 old 1 per cent rate (April to July, 1949) will provide $3.7 million. 
 
 Total sales tax revenue, then, for fiscal 1950 ($26.2 million) 
 will provide for $18 million of funds needed to meet expenditures 
 at the 1948 level and eliminate the general fund deficit from fis- 
 cal 1949 in the amount of $4.8 million. The balance of $3.5 mill- 
 ion if applied to the $5.5 million needed for veterans' bonus bonds 
 in 1950 would leave a net general fund deficit of $2.0 million. Four 
 quarters of tax at a 2 per cent rate would provide $30 million in 
 revenue in 1951 which would wipe out the residue of 1950 deficit 
 and return the general fund to a surplus finance basis for each 
 year thereafter. The success or failure of such long-range planning 
 for the removal of deficits rests entirely on the premise that no new 
 major expenditures above the 1948 level be incurred during the next 
 three years. 
 
 A summary statement such as that shown in Table 1 must of 
 necessity involve considerable integration of financial transactions 
 as they appear in the various State funds. But as an appraisal 
 of all State financial activities, Table 1 indicates that Connecticut 
 met its total requirements in 1948 only by "borrowing on capi- 
 tal" to the extent of about $38.4 million as summarized in Table 5. 
 This requires some examination. 
 
 Expenditures above and beyond current revenues of any gov- 
 ernment are generally financed either by bond issues or the sale 
 of capital assets. The fact that government accounting does 
 not reflect value of capital assets acquired in prior years, either 
 by purchase from previous revenues or bond issues, places both 
 new borrowing and the sales of old assets in a different light than 
 private accounting methods show for such transactions. The 
 sale of government assets becomes a type of "windfall" income, in 
 that such a sale represents a negotiated sale on the part of officials, 
 rather than an attempt to realize the book value of depreciated 
 assets or any other formal measure of asset value. As long as the 
 government disposal of assets yields an adequate amount in terms 
 of outstanding debts incurred for their purchase and causes no 
 reduction in current government services, it will be regarded as 
 
 44 
 
proper by governmental accounting standards. In a broader 
 sense, however, so long as the disposal of assets yields an adequate 
 amount in terms of original cost, it is hardly to be classified as a 
 "reduction in capital." 
 
 Borrowing to meet contingencies that are not of a capital nature 
 presents a different problem. Bonds issued by Connecticut to 
 finance the Old Lyme-Old Saybrook Bridge in 1947 to the extent 
 of $6 million, are in a different category from bonds issued in 1948 
 to pay the veterans' bonus and amounting to $50 million. Both 
 bond issues reflect demands against future revenues and present 
 reserves. Bridge construction, however, represents a direct service 
 function of government, whether or not a bridge appears in future 
 capital assets; while the bonus bonds represent a recognition of 
 patriotic service and as such are classifiable only as a "legislated 
 contingency," with no reference to tangible ." assets " of any kind. 
 "Borrowing on capital" for a government involves, therefore, 
 commitments against future revenues rather than a pledge against 
 present assets. And the differences in the use of such borrowed 
 funds, generally involve close distinctions as to public need, nature 
 of service, and amounts required in relation to current and antici- 
 pated revenue-raising experience. In the last analysis, such bor- 
 rowing represents no impairment of the "going" capital values 
 of a State Government that is financially sound. The record in 
 1948 is as follows: 
 
 TABLE 5 
 
 Connecticut State Borrowing and Capital Reduction 
 Fiscal Year 1948 
 Borrowing: 
 
 Sale of Bonds $58.5 million 
 
 Less: Reduced Accounts Payable — .1 million ($60,000) 
 
 Net Borrowing $58.4 million 
 
 Capital Allocations: 
 
 Increased Cash Balances $8.2 million 
 
 Increase in Surplus, Investment and Trust 
 Funds 11.8 million 
 
 Net Borrowing and Capital Reduction. . . $38.4 million 
 
 Translated into tax revenue requirements, Tables 1 and 2 sug- 
 gest that the 1948 over-all tax yields in Connecticut were inade- 
 quate by $38.4 million. It could be argued that additional tax rev- 
 enues of that amount would have enabled the State to meet all of 
 its commitments without borrowing and without any reduction in 
 its capital (Table 5). Such a position, however, is subject to broad 
 qualifications as follows: 
 
 45 
 
1) Of the $58.5 million of bonds sold in 1948, $50.2 mil- 
 lion were for the veterans' bonus payment and $8.3 million 
 represented additions to capital assets (bridge construc- 
 tion) and retirement funds for previous bond issues. The 
 use of bonded indebtedness for such capital expenditures 
 does not necessarily mean a capital impairment. Actually 
 these expenditures represent improvement of government 
 services and facilities in the form of highway and building 
 additions available for use in future years and provision for 
 bond retirement. The $50.2 million of bonus bonds, how- 
 ever, represents a non-recurring cash receipt for current 
 purposes not available for use in future years and subject 
 to servicing and retirement charges against future revenues. 
 
 2) The decrease in accounts payable of $60,000 for 1948 
 is in opposition to 1947 experience when the close of the 
 year showed an $800,000 increase in payables. The increase 
 in 1947 indicated that creditors of the State provided $800,000 
 of additional working capital for State use on the basis of 
 increased State business associated with general inflationary 
 trends in prices and business volume. The 1948 figure shows 
 a healthy tendency to offset 1947 deficiencies and maintain 
 a better current position in terms of capital provided by credi- 
 tors by decreasing this creditor equity in State funds. 
 
 3) The 1948 data (Table 1) shows an increase in cash 
 balances of $8.2 million compared with a reduction of $3.9 
 million in 1947. Not only did the State show an increase 
 in cash balances, but the total of $25.3 million carried for- 
 ward for use in future years represents an increase of 47 per cent 
 over the 1947 cash balance of $17.2 million. 
 
 4) No assets were sold during 1948 in comparison with 
 a sale of $12.6 million in 1947. Of the $12.6 million sold in 
 1947, $7.5 million came from assets in the post-war pur- 
 poses fund. These assets were accumulated during the war 
 presumably for the express purpose of being sold to provide 
 money to finance State projects in the post-war period. Such 
 transactions merely represent a change in form of capital 
 accounts — from investments to capital improvements or de- 
 ferred maintenance. 
 
 The conclusion that the Committee would therefore emphasize 
 is this. 
 
 Except for the sale of $50 million of veterans' bonus bonds, 
 the State's capital position was improved by about $12 million. 
 
 46 
 
CHAPTER 2 
 
 The Tax Impact on the Taxpayers 
 
 How shall the fairness of the whole tax system applicable to 
 the Connecticut citizen be determined? This is the hardest question 
 of all to answer. The Committee has sought to apply various tests 
 in appraising the existing State tax system, for no one test is, in it- 
 self, adequate. Adam Smith regarded all citizens as if they were 
 tenants of a great estate, among whom its expenses should be divided 
 in proportion to their respective property holdings. Town proper- 
 ty taxes are levied essentially on this maxim; that is, each citizen 
 pays a tax in the proportion that the value of property he owns 
 bears to the total value of property in the town. Consumption or 
 sales taxes have a similar foundation — the more one consumes 
 the more taxes he pays. The non-drinker and the non-smoker have 
 no concern with liquor or cigarette taxes; and any one of us, if he 
 chooses, may bring himself into that happy situation. 
 
 Another maxim is that taxes should be levied in accordance 
 with ability to pay. Ability to pay is difficult and at times im- 
 possible to measure. It is largely a subjective test and the yard- 
 stick tends to vary in length with the economic circumstances 
 and point of view of the particular observer and the responsi- 
 bilities of the particular taxpayer. It may mean a tax propor- 
 tionate to income. It may mean a graduated or "progressive" 
 rate applied to income. It may mean a levy that goes beyond 
 capacity in the usual sense and reaches into the field of the re- 
 distribution of wealth. The measure of capacity doubtless has 
 an important place in determining the tax equity. But there 
 are those who feel strongly that the value of the service to the 
 individual taxpayer should carry substantial weight in a bal- 
 anced tax structure — that benefits, indeed, may have equal sig- 
 nificance with capacity, and that capacity as measured in terms 
 of dollars of income must be modified by a concept of universal 
 responsibility. 
 
 While the Committee gave serious consideration to these various 
 theories of taxation, it selected none of them as the sole test of 
 equality in a tax structure. The truth seems to be that each has 
 
 47 
 
its place, that this place varies with the type of expenditure as 
 well as with the weight of the tax; and that study should follow 
 not so much the application of a theory, as the determination, as 
 far as possible, of the impact of a tax. With this thought in mind, 
 the Committee undertook an analysis of the various taxes paid 
 by the taxpayers of Connecticut, 
 
 First, to determine the burden of selected individual Con- 
 necticut taxpayers as compared to the burdens of similar 
 individual taxpayers in comparable States ; 
 
 Second, to determine the burden of selected Connecticut 
 corporate taxpayers, as compared to the burden of similar 
 corporate taxpayers in comparable States. 
 
 The Connecticut Tax Structure 
 
 The starting point in such an analysis is the tax structure of 
 Connecticut (Table 6). As in most other States, property taxes 
 are the backbone of the Connecticut State and local revenue 
 system and are derived almost entirely (99.7 per cent) from the 
 local property tax levy. In spite of significant statutory changes 
 in 1947 (applicable to the fiscal year 1948) which included the 
 adoption of a consumers' sales tax, increases in corporation in- 
 come taxes and in gasoline taxes, and a reduction in the unem- 
 ployment compensation tax, property taxes maintained their 
 position as the greatest single source of revenue. It is true that they 
 declined in relative importance — from 58.6 per cent of all State 
 and local taxes 1 in 1947 to 49.9 per cent in 1948 — but at the same 
 time increased in dollar volume by $13.6 million (Table 6). 
 
 Next in importance to property taxes in State and local rev- 
 enue are the State assessed taxes on commodities and sales. These 
 represented 28.8 per cent of all taxes in 1948; general sales tax 
 receipts accounted for a little more than one-half of all tax re- 
 ceipts from this source and the remaining one-half was derived 
 from taxes upon gasoline, cigarettes and liquor. Although general 
 sales taxes amounted to about 15 per cent of all 1948 State and 
 local taxes, this source bf revenue was exaggerated by the appli- 
 cation of a 3 per cent rate under the consumers sales tax during 
 the first three-quarters of the year, after which the rate was re- 
 duced to 1 per cent for the remainder of the biennium ending 
 
 'Unemployment compensation taxes (pay roll taxes) are excluded from all totals, unless otherwise 
 specified, because of their special status as insurance premium payments segregated from other tax revenue 
 and available only for the payment of unemployment benefits. 
 
 48 
 
June 30, 1949. Reported at $32 million, sales tax collections shown 
 in Table 6 for fiscal year 1948 do not include $4 million of tax re- 
 ceipts resulting from sales made during the last quarter (April 1- 
 June 30) and paid to the State after the close of the year. Sales 
 tax revenues applicable to 1948 total $36 million after adjustment 
 for this accrual. As the major legislative tax change between 
 1947 and 1948, adoption of the general sales tax, effective in 1948, 
 represented the largest source of increased tax revenues. Although 
 the gasoline tax rates increased from 2 cents per gallon in 1947 
 to 3 cents per gallon in 1948, tax collections from this source in- 
 creased in about the same proportion as did total tax receipts with 
 the result that it continued to be the source of almost 8 per cent of 
 all State and local taxes. 
 
 The third major source of tax revenue is the business franchise 
 and activity taxes which represented 12.6 per cent of 1948 State 
 and local taxes. Within this category, the corporation income 
 tax represented more than one-half of the total and comprised 7.2 
 per cent of total taxes. Largely as a result of legislative changes 
 in corporation income tax rates from 2 per cent to 3 per cent, this 
 tax increased in relative importance from 5.7 per cent of all taxes 
 in 1947 to 7.2 per cent in 1948. Taxes upon gross receipts of unin- 
 corporated business represent about one-fourth as much as taxes 
 upon corporate income and 6/10 of 1 per cent of all State and 
 local taxes in 1948 as compared with 8/10 of 1 per cent in 1947. 
 Three State taxes upon insurance companies accounted for about 
 2.5 per cent of all State and local taxes in 1948 as compared with 
 3.2 per cent in 1947 and six special taxes measured by various rates 
 upon gross receipts of utilities represented 2.3 per cent of 1948 
 State and local taxes. Two taxes upon amusements accounted for 
 6/100 of 1 per cent of the total. In 1947 utility and amusement 
 taxes represented 3 per cent of all State and local taxes. 
 
 Inheritance and estate taxes accounted for 14 per cent of the 
 remaining 17 per cent of State and local taxes. These revenues 
 totaled $4.9 million in 1948 and changed little in amount between 
 1947 and 1948 although they are generally unpredictable and 
 fortuitous tax sources. License fees paid by owners and drivers 
 of motor vehicles and boats increased from $8.6 million in 1947 
 to $9.3 million in 1948. However, within the over-all State and 
 local tax structure, these receipts declined in relative importance 
 from 5.0 per cent of all taxes in 1947 to 4.4 per cent in 1948. 
 
 49 
 
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Together with gasoline and motor fuel taxes and local property 
 taxes upon automobiles (estimated at $4.7 million), these pay- 
 ments indicate that approximately 14.2 per cent of all 1948 State 
 and local taxes are associated directly with the ownership and 
 operation of motor vehicles. 
 
 The conclusions that can be drawn from these figures are as 
 follows: 
 
 Although property taxes are the backbone of the Con- 
 necticut State and local tax system, the relative dependence 
 upon property tax revenues is declining. 
 
 The trend away from property taxes is finding expression 
 in increased taxation upon business activity measured by 
 commodity sales and corporation income. 
 
 Adoption of the general retail sales tax represents a broaden- 
 ing of tax base and a healthy departure from the practice of 
 taxing only "special commodities" for revenue purposes. 
 
 Connecticut State and Local Taxes Compared with 
 "Competing States" 
 
 All State and local taxes in Connecticut exclusive of unem- 
 ployment compensation taxes, totaled $156.5 million for the fiscal 
 year ended in 1947. This amount represented an over-all tax of 
 $79.93 per capita, or the equivalent of 4.7 per cent of all income 
 payments to individuals and 8.5 per cent of all estimated retail 
 sales in Connecticut for 1947. 
 
 As shown in Table 7, comparisons based on three broad economic 
 standards demonstrated that the Connecticut State and local 
 taxes represented a smaller over-all burden in 1947 than did State 
 and local taxes in four neighboring States : 
 
 First: The per capita tax of $79.93 in Connecticut was lower 
 than the $84.21 per capita reported for New Hampshire and con- 
 siderably lower than the per capita taxes in excess of $100 reported 
 in New Jersey, Massachusetts and New York. 
 
 Second: In terms of income payments to individuals, Con- 
 necticut taxes at 4.7 per cent compared favorably with ratios ranging 
 from 6.3 per cent in New York to 7 per cent in New Hampshire. 
 
 52 
 
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Third: In over-all comparison in terms of retail sales, Con- 
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 centages in neighboring States ranging from 10.7 per cent in New 
 Hampshire to 13.6 per cent in New York. 
 
 The four States selected for comparison include the small and 
 largely rural State of New Hampshire, with a population about 
 one-fourth as large as that of Connecticut; the larger industrial 
 States of New Jersey and Massachusetts, with populations more 
 than double that of Connecticut; and the nation's most populous 
 State, New York, with a population about seven times as large as 
 that of Connecticut. The fact that Connecticut State and local 
 taxes appeared as a smaller relative burden than did State and 
 local taxes in any of the four States indicated that the State's 
 favorable position was not due to its size alone. 
 
 Although between 1947 and 1948, State and local taxes in Con- 
 necticut increased 35 per cent 1 (from $156.5 million in 1947 to 
 $211.1 million in 1948) this increase did not cause the over-all 
 tax impact in Connecticut to compare unfavorably with neigh- 
 boring States — 
 
 First: Taxes in Connecticut in 1948 amount to 6.4 per cent of 
 1947 income payments to individuals or about the same ratios as 
 were obtained for 1947 taxes in New Jersey and Massachusetts 
 and lower than those obtained for 1947 taxes in New York and 
 New Hampshire. 
 
 Second: Per capita taxes in Connecticut for 1948 were about 
 $107.81 or less than the per capita taxes in New York for 1947. 
 
 Third: State and local taxes in Connecticut in 1948 amounted 
 to 11.5 per cent of retail sales reported for 1947 as compared with 
 a ratio for 1947 taxes of 12 per cent in Massachusetts and 13.6 
 per cent in New York (Table 7). 
 
 Such comparisons between taxes for 1948 in Connecticut and 
 taxes for 1947 in neighboring States are in part unrealistic in 
 that they assume no tax changes in the neighboring States. Al- 
 though complete data relating to 1948 State and local taxes are 
 not available for all neighboring States, there is every indication 
 that substantial tax increases occurred in each of them between 
 1947 and 1948; in New Jersey, for example, total State and local 
 
 ■The size of this increase was due in part to the large collections of $32.3 million from the consumers sales 
 tax (luring the first three-quarters of the fiscal year under a 3 per cent tax rate effective July 1, 1947. Ex- 
 pected to yield about JS26 million annually, the sales tax rate was reduced to 1 per cent effective April 1, 
 1948, until June 30, 1949, when it will become 2 per cent. This means that the year 1948 included larger 
 total State and local tax collections than may be expected for fiscal 1949. 
 
 54 
 
taxes exclusive of unemployment compensation taxes increased 
 from $103.94 per capita in 1947 to $111.95 per capita in 1948. New 
 Jersey's 1948 taxes were 7 per cent of 1947 income payments to 
 individuals and 11.7 per cent of all 1947 retail sales. But by all 
 three of these general over-all measures, Connecticut State and local 
 taxes in 1948 were below those in New Jersey. 
 
 Connecticut State Taxes Compared with "Competing States" 
 
 In terms of state taxes alone, Connecticut compares favorably 
 with the national average and with experience in neighboring 
 States. As shown in Table 8, all 1947 Connecticut State taxes 
 amounted to $46.56 per capita as compared with a national State 
 average of $48.66 per capita. Following the extensive legislative 
 tax changes in 1948, Connecticut State taxes averaged $58 per 
 capita as compared with an all-State average of $55 per capita. 
 Connecticut State taxes, moreover, represented a lower than 
 average percentage of income payments to individuals in both 
 1947 and 1948. In 1948 State taxes in Connecticut represented 
 3.5 per cent of income to individuals as compared with an all- 
 State average of 4.2 per cent; and in 1948 were lower relative 
 to income payments than were State taxes in six neighboring 
 States ranging from 3.6 per cent in New York to 4.5 per cent in 
 Vermont. 
 
 To some extent, the favorable over-all State tax position in 
 terms of relative tax burden was maintained in 1948 as the re- 
 sult of a substantial reduction in unemployment compensation 
 pay roll taxes; but even when pay roll taxes are excluded, Con- 
 necticut State taxes totaled 3.3 per cent of income payments to 
 individuals as compared with an all-State average of 3.6 per cent. 
 Upon this basis the burden of Connecticut State taxes in 1948 
 appeared at about the same level as that in Massachusetts and 
 lower than those in Rhode Island and Vermont. New York, New 
 Jersey and Pennsylvania reported 1948 State taxes exclusive of 
 pay roll taxes as a lower percentage of income payments than did 
 Connecticut (Table 8). 
 
 Viewing the State tax system as a distribution of the cost of 
 government in the State's economy, Table 9 shows how five States 
 apportion the total tax burden among different tax bases. Con- 
 necticut has been relying heavily upon the property tax — the 
 highest among the five States in 1947 except New Jersey. 
 
TABLE 8 
 
 State Tax Collections Per Capita and As Per Cent of 
 
 Income Payments to Individuals 
 
 1947 and 1948 
 
 
 
 
 
 
 State Taxes 
 
 
 
 
 
 
 Exclusive of 
 
 
 
 
 
 
 U.C. Pay Roll 
 
 
 
 All State Taxes 
 
 
 Taxes 
 
 i 
 
 
 
 
 Per Cent of 
 
 Per Cent of 
 
 
 Per Capita 
 
 Income 
 
 Income 
 
 STATE 
 
 1947 
 
 1948 
 
 1947 
 
 1948' 
 
 1947 
 
 1948 
 
 Connecticut 
 
 . $46.56 
 
 $57.97 
 
 3.2% 
 
 3.5% 
 
 2.2% 
 
 3.3% 
 
 Rhode Island 
 
 56.79 
 
 66.63 
 
 4.2 
 
 4.4 
 
 2.8 
 
 3.5 
 
 Massachusetts. . . 
 
 48.23 
 
 55.19 
 
 3.5 
 
 3.8 
 
 3.1 
 
 3.3 
 
 Vermont 
 
 47.90 
 
 53.71 
 
 4.4 
 
 4.5 
 
 3.9 
 
 4.0 
 
 New York 
 
 59.58 
 
 65.55 
 
 3.6 
 
 3.6 
 
 2.8 
 
 2.7 
 
 New Jersey 
 
 56.09 
 
 54.11 
 
 3.9 
 
 3.7 
 
 2.6 
 
 2.4 
 
 Pennsylvania 
 
 37.80 
 
 41.10 
 
 3.0 
 
 ~To% 
 
 3.0 
 4.2% 
 
 2.5 
 3.5% 
 
 2.6 
 
 U. S. Average. . . 
 
 . $48.66 
 
 $55.18 
 
 3.6% 
 
 Interstate comparisons of State taxes alone are misleading 
 as measures of relative tax impact because they do not take into 
 account large differences which exist in the distribution of finan- 
 cial responsibility as between the States and their local govern- 
 mental units. For example, New Jersey and Pennsylvania rely 
 heavily upon local taxes. Although New Jersey State taxes ex- 
 clusive of pay roll taxes in 1948 average 2.4 per cent of income 
 payments to individuals as compared with 3.3 per cent in Con- 
 necticut, State and local taxes combined averaged 7 per cent of 
 income payments as compared with 6.4 per cent in Connecticut. 
 Pennsylvania reports a low relative impact of State taxes, but 
 in 1947, the Pennsylvania Legislature adopted permissive legis- 
 lation enabling local governments to tax virtually anything not 
 already taxed by the State. While New York State taxes appear 
 low relative to income, this result is conditioned by extreme con- 
 centration of State and local services in the world's largest city 
 which assesses and collects substantial sales taxes and other taxes 
 for its own support. State and local non-pay roll taxes for 1948 
 in New York amount to more than 7 per cent of income payments 
 as compared with 6.4 per cent in Connecticut. 
 
 'Tax collections for current year related to income payments to individuals for preceding year. 
 Source: XI. S. Department of Commerce, Bureau of the Census, Government Division. 
 
 56 
 
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Connecticut Taxes on Individuals Compared with 
 "Competing States" 
 
 Realistic comparison of tax burdens as among States must 
 take into account differences in tax structures and in the per- 
 centage of total State and local taxes levied by the State as well 
 as differences in economic environment. At best, comparison 
 of over-all tax yields represents a composite tax burden which 
 may not actually exist for any taxpayer or group of taxpayers. 
 The actual tax position of any taxpayer within a State is con- 
 ditioned by the form of taxes imposed and it will vary from time 
 to time, depending upon the way the tax structure is related to 
 changes in the business cycle. 
 
 For example, Table 10 shows that total State tax collections 
 in Connecticut increased by 58 per cent between 1941 and 1948 
 as compared with 50 per cent in Massachusetts, and New York, 
 65 per cent in New Jersey and 22 per cent in Pennsylvania. Rela- 
 tive changes in collections from specific taxes were not, however, 
 uniform. Pay roll taxes decreased 68 per cent in Connecticut 
 and increased 73 per cent in New York and New Jersey. Gasoline 
 and motor vehicle taxes increased 34 per cent in Connecticut 
 as compared with an increase of 5 per cent in New York. Alcoholic 
 beverage tax collections increased 4 per cent in Connecticut as 
 compared with 97 per cent in Massachusetts and 120 per cent 
 in Pennsylvania. Although inheritance and estate taxes decreased 
 12 per cent in Connecticut, they increased 63 per cent in New 
 Jersey. Tobacco taxes increased more than 100 per cent in Con- 
 necticut, Massachusetts and Pennsylvania but they increased 59 
 per cent in New York. 
 
 In the final analysis, the relative position of any particular 
 taxpayer or group of taxpayers can be determined only by re- 
 lating the various factors of each tax structure to their individual 
 circumstances. Such a procedure amounts to defining the tax- 
 payers for which the comparisons are to be made and actually 
 computing their taxes in the various taxing jurisdictions. Such 
 an approach indicates both the relative and the absolute impact 
 
 58 
 
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of taxes assessed by the various States upon specific taxpayers as 
 defined. For example, let us assume — 
 
 1. Three married individuals — each having two dependent children. 
 
 2. Taxes assessed by State — does not include local taxes (except in New York, local 
 taxes are not significant if individuals own no real property). 
 
 3. Tax data: 
 
 Individuals - 
 
 ABC 
 
 A. Annual Income: 
 
 Salary or wages $2,600 $10,000 $50,000 
 
 Interest and dividends 200 10,000 
 
 Total Income $2,600 $10,200 $60,000 
 
 B. Retail Purchases Taxable.... $700 $3,000 $7,000 
 
 C. Automobile Chevrolet— 1940 Buick— 1946 (Chevrolet— 1946 
 
 Cadillac— 1946) 
 
 D. Drivers Registered 2 2 2 
 
 E. Gasoline Bought (gal.) 600 1,000 2,000 
 
 F. Cigarettes Bought (packs) ... 300 500 500 
 
 G. Alcoholic Beverages Bought. . 10 gal. wine 5 gal. liquor 10 gal. liquor 
 
 H. Investments: 
 
 Corporate securities $6,000 $200,000 
 
 Mortgages in state 50,000 
 
 Total Investments $6,000 $250,000 
 
 I. Savings Deposits $600 $5,000 
 
 J. Deductible Nontax Expenses 
 (Federal Income Tax 
 Purposes) $1,000 $10,000 
 
 K. Meals Bought (Over $1) $500 $1,000 
 
 60 
 
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An analysis of the data presented in Table 11 shows that the 
 individual taxpayer in Connecticut is, on the whole, in a favor- 
 able position relative to taxpayers in comparable States. Com- 
 parison for the three hypothetical individuals indicates their rela- 
 tive standing in Connecticut, New York, Massachusetts, and New 
 Jersey as follows: 
 
 Taxpayer's annual income 
 A B C 
 
 State 1 $2,600 $10,200 $60,000 
 
 Connecticut 
 
 State and Local Taxes. 
 Federal Income Taxes . 
 
 Total 
 
 New Jersey 
 
 State and Local Taxes. 
 Federal Income Taxes. 
 
 Total 
 
 Massachusetts 
 
 State and Local Taxes. 
 Federal Income Taxes. 
 
 Total 
 
 New York 
 
 State and Local Taxes . 
 Federal Income Taxes. 
 
 Total 
 
 Connecticut Taxes on Industry Compared with "Competing" 
 Industry in Other States 
 
 General interstate business tax comparisons are dependent 
 for their validity upon adequate common denominators which 
 reflect differences in business activity and resources as among 
 the States under comparison. The fact that Connecticut stands 
 first among the States in the percentage of total individual in- 
 come derived from manufacturing pay rolls and last in the per- 
 centage derived from government payments indicates that the 
 Connecticut economy has economic characteristics of its own 
 which differ from those existing in other States. Percentage 
 
 
 - Taxes Paid 
 
 N 
 
 $61 
 
 $134 
 1,180 
 
 $267 
 16,442 
 
 $61 
 
 $1,314 
 
 $16,709 
 
 $70 
 
 $107 
 1,184 
 
 $157 
 16,496 
 
 $70 
 
 $1,291 
 
 $16,653 
 
 $38 
 
 $230 
 1,162 
 
 $1,392 
 
 $1,175 
 15,968 
 
 $38 
 
 $17,143 
 
 $51 
 
 $208 
 1,166 
 
 $2,272 
 15,398 
 
 $51 
 
 $1,374 
 
 $17,670 
 
 1 A\\ estimates exclusive of property taxes. 
 
 62 
 
36.3% 
 
 21.3% 
 
 22.1 
 
 26.6 
 
 10.6 
 
 17.0 
 
 2.4 
 
 9.8 
 
 28.6 
 
 25.3 
 
 distribution of income payments for 1946 in Connecticut and in 
 the United States appear as follows: 
 
 Connecticut U. S. Average 
 
 Manufacturing Pay Rolls 
 
 Trade and Service Income 
 
 Government Income Payments 
 
 Agricultural Income 
 
 All Other Sources 
 
 Total Income 100.0% 100.0% 
 
 Examples of general interstate comparisons of business taxes 
 are shown in Chapter 5 of this report. For purposes of specific 
 comparisons of tax impact as between Connecticut industry and 
 competing industry, four manufacturing corporations engaged 
 in metalworking and making a product requiring medium pre- 
 cision machine tools have been assumed to operate in: 
 
 Bridgeport, Connecticut Newark, New Jersey 
 Boston, Massachusetts Philadelphia, Pennsylvania 
 
 Characteristic of the four metalworking corporations appear 
 as follows: 
 
 (amounts in thousands of dollars) 
 Item Corp. A Corp. B Corp. C Corp. D 
 
 Sales $2,066 $2,635 $184 $612 
 
 Taxable Pay Rolls 328 1,172 28 171 
 
 Total Assets 927 1,512 61 159 
 
 Net Worth 408 964 45 120 
 
 Tangible Personalty in State.. . 363 998 22 46 
 
 Real Property 92 8 38 
 
 Net Income Before Taxes 533 395 8 50 
 
 Conn. Apportionment Factor... 100% 70.8455% 100% 100% 
 
 Assessed Value of Real Estate (amounts in dollars) 
 
 Boston, Massachusetts $121,700 $15,000 $110,000 
 
 Bridgeport, Connecticut 107,950 10,500 55,900 
 
 Newark, New Jersey 101,620 14,300 88,600 
 
 Philadelphia, Pennsylvania 124,980 8,700 71,600 
 
 Assessed valuations of real property shown for the four cor- 
 porations represent appraisals made in 1944 by local assessors 
 from detailed property descriptions. Personal property assessed 
 valuations in Bridgeport and Newark were constructed upon 
 the basis of general practice in those two cities. State tax com- 
 putations have been based upon rates applicable in 1948. Local 
 property taxes were computed at 1947 tax rates because 1948 
 rates were not available for all the cities. In order to show changes 
 in tax rates and structures, computations were also based upon the 
 
same tax measures, but at tax rates applicable in 1944. 
 
 Comparative tax rates applicable to corporations in Connecti- 
 cut, Massachusetts, New Jersey, and Pennsylvania appear as 
 follows: 
 
 Connecticut 
 
 1. Real Property local 
 
 2. Income: 
 
 1944 2.0% 
 
 1948 3.0% 
 
 3. Tangible Personal 
 
 Property local 
 
 4. Corporation (Net Worth, 
 
 Invested Capital or Cor- 
 porate Excess) : 
 
 1944 1 %' 
 
 1948 15% l 
 
 Massa- 
 chusetts 
 
 local 
 
 2.825% 
 6.215% s 
 
 .565%* 
 
 .565% 
 .565%2 
 
 New Jersey 
 
 local 
 
 none 
 none 
 
 local 
 
 Pennsyl- 
 vania 
 
 local 
 
 4.0% 
 
 4.0% 
 
 .08%' 
 
 •5% 
 •5% 
 
 The result of these tax computations is shown in Table 12. 
 Although adjustments were not made for differences in tax State 
 deductions for purposes of computing 1948 net income taxes pay- 
 able by the four corporations in Connecticut, Massachusetts, 
 and Pennsylvania, these adjustments would not materially change 
 the over-all results. 
 
 Changes in tax liability as among tax years result from changes 
 in the tax base as well as changes in tax rates. However, com- 
 parisons of taxes payable by the four sample corporations in 1944 
 and 1948 have been calculated upon identical assessed valuations 
 of taxable property and unchanged earnings, allocation factors 
 or balance sheets. This means that the comparisons related only 
 to changes in the impact of tax rate structures upon fixed tax bases. 
 
 The comparative tax computations indicate that the impact 
 of State and local taxes upon specific taxpayers depends as much 
 upon their own business structure as it does upon the tax struc- 
 
 'Minimum tax payable only if greater than income tax. 
 
 'Corporations in Massachusetts pay 5.5% on net income (2.5% in 1944) plus 13% of tax as surtax and 
 greater of yi% on tangible personal property or H% on "corporate excess' r plu8 13% of tax as surtax. 
 
 •New Jersey tax rate upon net worth 8/10 mill on first $100 million, 4/10 mill on second $100 million, 
 3/10 mill on third $100 million, and 2 /10 mill on all over $300 million. Minimum tax 2/10 mill on allocated 
 assets or $25 for domestic corporations and $50 for foreign corporations. 
 
 64 
 
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ture under which they operate. Information in Tables 12 and 
 13 shows the following: 
 
 TAX BURDENS ON HYPOTHETICAL MANUFACTURING 
 CORPORATIONS 
 
 Manufacturing Corporations 
 City and State 1 A B C D 
 
 Bridgeport, Conn $20,744 $28,704 $834 $3,895 
 
 Boston, Mass 35,582 24,049 1,280 8,586 
 
 Newark, N. J. 10,407 34,819 1,689 7,801 
 
 Philadelphia, Pa 21,544 18,092 689 4,273 
 
 Only one of the four corporations would pay less taxes in Bridge- 
 port than it would in the other three cities. Corporation A would 
 pay less taxes in Newark, Corporation B would pay less taxes in 
 Boston or Philadelphia, and Corporation C would pay less in 
 Philadelphia. While the 1948 tax for Corporation A in Newark 
 would be only one-half what it would be in Bridgeport, the taxes 
 for Corporation C and D in Newark would be double what they 
 would be in Bridgeport. No generalization could describe with 
 any degree of accuracy the relative tax position of the four cor- 
 porations as among the four cities and States. 
 
 TABLE 13 
 
 Comparative Indices of Total State and Local Taxes, Except 
 
 Unemployment Compensation Taxes, for Four 
 
 Corporations in Four Cities 
 
 (Bridgeport, Connecticut =100) 
 
 Corporation Bridgeport, Boston, Newark, Philadelphia, 
 
 and Year Connecticut Massachusetts New Jersey Pennsylvania 
 1944: 
 
 Corporation A 100.0 113.3 59.5 143.8 
 
 Corporation B 100.0 69.0 128.5 76.7 
 
 Corporation C 100.0 141.8 211.1 99.4 
 
 Corporation D 100.0 193.0 215.3 134.9 
 
 1948: 
 
 Corporation A 100.0 161.9 50.2 103.9 
 
 Corporation B 100.0 83.8 121.3 63.0 
 
 Corporation C 100.0 153.5 202.5 82.6 
 
 Corporation D 100.0 220.4 200.3 109.7 
 
 'All estimates inclusive of property taxes. 
 
 66 
 
Philadelphia is unique among the four cities in that no change 
 in tax rates occurred between 1944 and 1948. Pennsylvania State 
 tax rates applicable to the four sample corporations in 1948 were 
 the same as those applicable in 1944, and the Philadelphia local 
 property tax rate for 1947 was the same as that for 1944. As shown 
 in Table 14, the greatest tax increase for the four corporations 
 occurred in Boston where the increases ranged from 30 per cent for 
 Corporation C to 97 per cent for Corporation A. Bridgeport ranked 
 second to Boston with increases ranging from 20 per cent for Cor- 
 poration C to 32 per cent for Corporation A, and Newark ranked 
 third with increases ranging from 14 per cent for Corporation D 
 to 17 per cent for Corporation A. 
 
 TABLE 14 
 
 Comparative Change in State and Local Taxes, Except Unemployment 
 
 Compensation Taxes, for Four Corporations in Four Cities 
 
 Corporation Bridgeport, Boston, Newark, Philadelphia, 
 
 and Year Connecticut Massachusetts New Jersey Pennsylvania 
 
 Corporation A: 
 
 1944 $14,982 $16,972 $8,920 $21,544 
 
 1948 20,744 33,582 10,407 21,544 
 
 Per Cent Change.... +32% +97% +17% 
 
 Corporation B: 
 
 1944 $23,590 $16,287 $30,318 $18,092 
 
 1948 28,704 24,049 34,819 18,092 
 
 Per Cent Change.... +22% +48% +15% 
 
 Corporation C: 
 
 1944 $693 $983 $1,463 $689 
 
 1948 834 1,280 1,689 689 
 
 Per Cent Change.... +20% +30% +15% 
 
 Corporation D: 
 
 1944 $3,167 $6,111 $6,819 $4,273 
 
 1948 3,895 8,586 7,801 4,273 
 
 Per Cent Change.... +23% +41% +14% 
 
 Rank in Terms of 
 
 Tax Increase 2 1 3 4 
 
Following this analysis this Committee concludes: 
 
 That the Connecticut taxpayer (both corporate and indi- 
 vidual) is on the whole in a satisfactory position relative to tax- 
 payers in comparable States. 
 
 Although undeveloped in this report, the Committee gave thought 
 to the development and permanency of the Connecticut tax base 
 itself. Connecticut is a small State, but a fortunate one. It has 
 many natural advantages including a beautiful countryside, ideal 
 for homes and a constant source of attraction to out-of-State 
 people. It has great human resources, including a skilled and 
 industrious population. We regard our label of "Connecticut 
 Yankees" as high praise with an accent on an American tradition 
 of shrewdness and leadership. We lead the world in many in- 
 dustries, old and new. Throughout the industrial era we have kept 
 pace with new demands and new technologies so that we have 
 successively manufactured the cotton gin, the sewing machine, 
 the typewriter and the airplane; and in still another realm, we 
 boast of the insurance capital of the world. 
 
 Despite these evidences of leadership, Connecticut, as has been 
 said, is a small State — small enough, fortunately, that its citizens 
 can all be intimately familiar with its affairs. It is no impossible 
 task, therefore, to apply to public fiscal affairs the same ingenuity 
 that has been supplied in our craftsmanship and business man- 
 agement: to spend what we need to spend to keep Connecticut 
 in the front rank, and to pay the costs with taxes so intelligently 
 imposed that men and businesses will still prefer to make Con- 
 necticut their home. This is expecially important. If Connecticut 
 is to retain its competitive position among the states, it must 
 adjust its fiscal policies — both on the spending and on the taxing 
 side — to the end that individuals and businesses will find Con- 
 necticut a desirable environment for their activities. 
 
 Although, as has been indicated, it is not the Committee's func- 
 tion to recommend expansion or contraction of particular ex- 
 penditure programs, it respectfully suggests that consideration 
 be given to a principle of fiscal policy that may affect both the 
 tax base and the competitive position of Connecticut. This prin- 
 ciple might be referred to as one of "prudent investment in tax 
 bases." This principle would apply to those cases where a rela- 
 tively small expenditure of public funds may greatly enlarge the 
 
 68 
 
tax base and increase the potential revenues of the State. After 
 all, taxes can come from only two bases — capital or income. Any 
 "prudent investment" by a State that increases these bases will 
 tend to build up new assets suitable for its own support and de- 
 velopment. Too often tax gatherers concentrate on "new" forms 
 of levies that in practice over-burden old bases and fail to see 
 the need for expenditures that will both revive and expand the 
 economy. A long-range program of taxation may well start, there- 
 fore, with economic and social thinking designed to build strong 
 and continuing bases for the support of the State. 
 
 First, Connecticut must be a good State for business. It is 
 essential to strong corporate capital and strong corporate income 
 that business stay in Connecticut; and equally important that 
 new business seeks a location in Connecticut. This raises several 
 questions that every long-range view must consider. Living as we 
 do in a federal system, the competitive position of Connecticut 
 must be maintained in favorable relation with other States. Each 
 business enterprise looks sharply at taxes peculiar to its own opera- 
 tions. The investment banker is keenly alive to the implication 
 of a tax on intangibles; the retail merchant, to a consumers sales 
 tax; a manufacturer to business tangibles — particularly inventory, 
 machinery and equipment; and each makes close comparisons with 
 his position in other States. 
 
 It can be said, with truth, that Connecticut is a good tax State 
 for modern economic enterprise. To keep it this way, business 
 taxes must be stable. Business is more afraid of uncertainty in 
 taxation than it is of excessiveness in taxation. It means that 
 business taxes must be equitable as between competing businesses 
 as well as among other taxpaying groups. It means that the broad 
 base of business should bear its share of the responsibility of public 
 revenue; and that excessive special taxation — either of selected 
 commodities or of special business activities — should be avoided. 
 
 Second, with a sound tax base the State can well assume further 
 responsibility to increase and develop its economy. The advantages 
 in transportation, employment, markets and raw materials, should 
 be made widely available to interested concerns. Every assistance 
 in selecting sites, in developing opportunities, in securing capital, 
 in obtaining machines and equipment should be provided in a 
 systematic and effective way. The new industry that looks towards 
 Connecticut as an opportunity should not only be made to feel 
 welcome, it should be inspired with confidence that the full co- 
 
 69 
 
operation of the State is back of its efforts to make a success of its 
 undertaking. 
 
 Third, and of equal importance, is the employment side of the 
 picture. Every worker in Connecticut must feel assurance that 
 the State is back of his efforts to fulfill his purposes to the highest 
 point of which he is capable. New industries should be able to 
 find their employees in Connecticut, prepared through the most 
 complete type of vocational education. The children of Con- 
 necticut workers must have the best possible school opportunities, 
 the most progressive recreational facilities and the utmost of 
 security and protection during their early years of development. 
 It is to the next generation that the long gaze of statesmanship 
 must look for the continuity and growth that can alone promise 
 permanence to the values which it cherishes today. 
 
 These viewpoints may seem to some to be wide of the immedi- 
 ate objectives of the Committee; but it remains true, neverthe- 
 less, that our permanent tax resources depend fundamentally 
 upon Connecticut being a good State for business to come to, and 
 a good State for workers to live in. Our real resources are, after 
 all, people; and the extent to which they can find fulfillment of 
 themselves and of their families within our borders, to that ex- 
 tent will the tax bases of the State be secure and the purposes 
 of the State reach full expression. The Committee realizes that 
 these developments require public support, and that such recom- 
 mendations may seem to run counter to its admonition against 
 "new and heavy increased expenditures." But it would suggest 
 that there are activities which would greatly strengthen its long- 
 term objectives, many of them, moreover, the least costly in the 
 public service, but far-reaching in their influences. And there is 
 another point the Committee would emphasize: much can be 
 done within the present service structure to increase the productivity 
 of the tax dollar. 
 
 70 
 
CHAPTER 3 
 
 The Consumers Sales and Use Tax 
 
 Although the sales tax itself has a history in foreign countries 
 which dates from World War I, American State experience is 
 largely of Depression origin. While this historical development 
 has been recounted elsewhere, 1 an appraisal of the current status 
 of the sales tax in Connecticut may be aided by reference to a 
 few of the significant factors of sales tax history. Among the 
 States, this type of taxation has taken three major forms: 
 
 1) selective sales taxes applicable to specific commodities; 
 
 2) general sales or turnover taxes, applicable to all levels 
 of business, manufacturing, distribution, retailing, etc. — 
 usually with classified rates; 
 
 3) the retail sales tax which, in general, is intended to 
 apply to all purchases not made for resale. 
 
 Selective sales taxes, which apply to specific commodities have 
 long been used in America by both the National and State Gov- 
 ernments. Federal tobacco taxes were imposed immediately after 
 the formation of the Union, were suspended following the War 
 of 1812 and reimposed during the Civil War period. The first State 
 tobacco tax was enacted by Iowa in 1921 and the tax has since 
 spread rapidly among the States until today it is used by some 39 
 States. 
 
 The Federal Government was also first in the alcoholic beverage 
 tax field, but following the repeal of the Eighteenth Amendment 
 the States rapidly adopted taxes on alcoholic beverages principally 
 with the idea of promoting temperance and at the same time dis- 
 couraging illicit traffic in such beverages. The liquor tax rates have 
 increased substantially over the years and the States have added 
 license taxes upon retail and wholesale distributors with the re- 
 sult that both State and Federal Governments now derive sub- 
 stantial revenues from one form or other of liquor taxation. 
 
 1 See National Industrial Conference Board, General Sales or Turnover Taxation (N. Y., 1929), App. 
 I, pp. 163-188. The early experience with sales taxes levied by the Federal Government and by the State 
 of West Virginia prior to 1930 is recounted, ibid., App. II. 
 
 71 
 
The major selective sales tax is the tax upon gasoline and other 
 motor fuels. Oregon was the first State to enact a tax on gasoline 
 in 1919 and all the States soon followed with rates which today 
 vary between $.03 and $.075 per gallon. The gasoline tax together 
 with motor vehicle and operators' license fees has become a prin- 
 cipal source of State revenue, and since 1933 the gasoline tax has 
 also provided substantial revenue to the Federal Government. In 
 brief, the three large consumption excise taxes in America, on 
 cigarettes, alcoholic beverages and gasoline, provide a major share 
 of all sales tax revenue collected by the Federal Government and 
 the States. 1 
 
 In Connecticut these three taxes as levied by the State provide 
 a major share of total State revenues. In 1948, for example, total 
 State tax collections, excluding unemployment compensation, were 
 $92,800,000 and of this sum $7.1 million or 7.7 per cent came from 
 the cigarette tax, $16.1 million or 17.3 per cent from motor fuel 
 taxes and $5.3 million or 5.7 per cent from alcoholic beverage 
 taxes. In all, a total of 30.7 per cent of Connecticut State taxes 
 (exclusive of unemployment compensation taxes) was derived 
 from these three major selective sales taxes upon commodity con- 
 sumption. The impact of these taxes is assumed to be somewhat 
 within the control of the consumer, to the extent that he is free to 
 vary his consumption, and they are not usually considered from the 
 same economic and social viewpoint as the general retail sales tax. 2 
 
 The retail sales tax was preceded in America by general busi- 
 ness or turnover taxes. These taxes were in use prior to the De- 
 pression in a few States, including the West Virginia business 
 occupation tax, the Philadelphia mercantile license tax (1 mill 
 on the gross receipts of retailers and }/% mill on wholesalers- 
 only recently repealed), a similar tax in Delaware, and the Con- 
 necticut merchants and manufacturers tax (Laws of 1921, ch. 393), 
 which remains today as the unincorporated business tax measured 
 by gross receipts. A number of other States, including Arizona, 
 Mississippi, New Mexico, and North Carolina have since adopted 
 general business taxes with classified rates upon retail sales which 
 are indistinguishable in their application to retail sales from the 
 retail sales tax alone. For purposes of economic comparison, these 
 taxes are generally considered among the group of retail sales taxes. 
 
 ■See Roy G. and Gladys C.Blakey, Sales Taxes and Other Excises (Public Administration Service 
 Chicago, 1945), Chapters III, IV, V. 
 
 'Connecticut also uses two other types of taxes which may be shifted to the consumer according to con- 
 sumption or use — the gross receipts tax upon amusements, and the gross receipts taxes upon public utilities. 
 The latter are largely in lieu of the taxation of certain property. 
 
 72 
 
From the standpoint of their direct impact upon retail trade 
 there is little difference between the two forms of general sales 
 or turnover taxes. Except for the complicated question of exemp- 
 tions which the Committee has considered separately, retail sales 
 taxes differ mainly in whether or not they include services within 
 the subject of taxation. The general business taxes are commonly 
 applied to service trades, while among the retail sales taxes the in- 
 clusion of services has generally been on a selective basis. 
 
 While general business or turnover taxes are levied in the form 
 of an occupational excise tax, the form of the retail sales tax has 
 differed among the States. In some, the incidence has been placed 
 upon the consumers; in others, it has been identified with a business 
 privilege or occupation license. For technical reasons, the retail 
 sales tax is easier to handle where, as in Connecticut, it is in the 
 form of an occupational license tax. At first, it was not uncommon 
 for merchants in other States to absorb the tax, but the statutes 
 now generally require that the tax be separately stated and collected 
 from the purchaser by the seller. Any shifting of the burden is 
 accordingly a matter of price competition, where merchants on the 
 border line of the State having a sales tax have competitors across 
 the border who are not under the sales tax jurisdiction. 
 
 Adoption of Retail Sales Taxes 
 
 The two previous periods in the adoption of the general sales 
 taxes, World War I for European countries, and the Depression 
 period for American State's, were marked by urgent needs for 
 governmental revenue; but the European experience is more like 
 the current period of American State sales tax adoptions in that 
 the tax was adapted in both periods to inflationary conditions and 
 rapidly rising costs of government. 
 
 The specific reasons for adoption of the sales tax in the various 
 American States have varied considerably. While some factors 
 reappear in a number of States, a comprehensive field study of all 
 the States having adopted sales taxes by 1933 indicated that con- 
 ditions then were as diverse as the fiscal structure and political 
 forces in the various States. It was then concluded. 3 
 
 'Robert M. Haig and Carl Shoup. The Sales Tax in the American Stales (N. Y., 1934), p. 16. 
 
 73 
 
It is not possible to explain the spread of the sales tax 
 to the close of 1933 by reference to dependence upon any one 
 source of revenue, or to increases (or lack of decreases) in 
 any one type of expenditure. In many States, however, the 
 yield from the State property tax decreased enough to de- 
 velop considerable pressure for new sources of revenue. Like- 
 wise, the refusal of taxpayers to continue paying local proper- 
 ty taxes except on a much lower level has caused a demand for 
 new State revenue, largely to care for the schools. In only 
 a few States has the need for unemployment relief been an 
 important factor in the development of the sales tax issue, 
 but in those few it has been of great influence. Further ex- 
 planation of the sales tax movement must be sought in the in- 
 terplay of personal interests within each State. 
 
 By the close of 1933, sales taxes had been adopted in 12 States 
 and 10 of them had been adopted in the single year 1933. Ten 
 more States adopted sales taxes between the end of 1933 and the 
 end of 1937, but there were no additional adoptions until 1947 
 when Connecticut and three other States enacted sales taxes. 
 The same authors point out a considerable element of emergency 
 in some sales tax adoptions: 
 
 As has been indicated, almost every possible combination 
 of fiscal and personal forces can be found among the States 
 covered by this survey. At one extreme stands a State such 
 as Michigan, where influential support by the school group, 
 manufacturers, urban real estate interests, and the execu- 
 tive was not strongly opposed by retailers, once the tax limit 
 measure had passed, and where a collapse of the property 
 tax, coupled with a decided lack of interest in an income tax 
 or an increase in existing taxes, led fairly easily to the en- 
 actment of a retail sales tax with a rate of 3 per cent. At the 
 other extreme is a State such as Wisconsin, where the sales 
 tax has been virtually no issue at all. Perhaps the sales tax 
 movement is still too young to permit of valid generalization; 
 but the impression to be gained thus far is that inasmuch as 
 the chief appeal of the tax has been as a source of ready rev- 
 enue for emergency purposes, its progress has naturally differed 
 greatly from State to State with the degree of the emergency 
 and even more with the desire and the ability of various groups 
 in the community to save something for themselves out of the 
 economic wreckage. Demand for the lowering of local proper- 
 ty taxes, and support by executives anxious to obtain immediate 
 
 74 
 
revenue seem to have been the most effective forces back of 
 the sales, tax movement, although they fail as explanations in 
 certain States. 4 
 
 Many of the States which adopted the consumer sales tax dur- 
 ing the Depression years already had individual or corporate 
 income taxes or both. It is evident that the individual income 
 tax was unable to provide a continuing source of stable revenue 
 when economic conditions took a turn for the worse. The com- 
 parative effect of such conditions on income taxes and sales taxes 
 is discussed in Chapter 4 of this report. It is enough to note here 
 that all but seven of the 26 States which adopted a consumer sales 
 tax had previously adopted an individual income tax. 
 
 There have been marked differences in the periods of adoption 
 of State income and sales taxes and the time lag between the 
 adoptions of both types of taxes in those States that now use 
 both levies. It is significant that although Connecticut was one 
 of the first States (1915) to impose a corporate income tax it is 
 one of the few States that has not adopted a personal income tax. 
 It may also be significant that the time lag between the adoption 
 of Connecticut's corporate income tax and sales tax was 32 years, 
 the greatest time lag shown in a recent study. 6 This may well 
 reflect a greater stability in the State's economy and a more pru- 
 dent management of her fiscal affairs as contrasted with many 
 other States, which have been forced to adopt both income and 
 sales taxes sometimes in the same year. 
 
 Experience since 1933 with the retail sales tax has proved its 
 effectiveness as a broad source of substantial State tax revenue. 
 The tax has proved easy for the taxpayer to pay — a few cents 
 at a time — and not unduly difficult to administer. Table 15 shows 
 the year of adoption and the extent of dependence upon the sales 
 and use taxes enacted through the legislative year 1948. It is 
 noteworthy that four States have adopted the retail sales tax 
 since the sharp increases in Federal surtax rates on personal in- 
 come were first instituted in 1941, while no State has adopted 
 an individual income tax since the District of Columbia enact- 
 ment in 1939. 
 
 Inflation-borne pressures for additional sources of revenues 
 in the post-war period led the non-sales tax States to look with 
 
 'Ibid., 23-24. 
 
 •For the years of adoption of the major taxes of the Federal and State Governments, see U. S. Senate, 
 78th Cong., 1st Sess., Doc. 69, Federal, State, and Local Government Fiscal Relations (Washington, 1943), 
 p. 58. 
 
 75 
 
favor upon the experience of sales tax States, where tax revenues 
 followed the inflationary spiral upward. While a similar result 
 was evident in the yield of State personal income taxes, that tax 
 seemed to be less timely than the sales tax. Particularly in the light 
 of large wartime increases in Federal income tax rates, the retail 
 sales tax offered a broad and flexible tax source not already pre- 
 empted or heavily tapped by the Federal Government. 
 
 TABLE 15 
 Sales and Use Taxes, by States 
 Fiscal Years Ending in 1948 
 
 STATE 
 
 West Virginia . . 
 Mississippi 
 
 Arizona 
 
 California 
 
 Illinois 
 
 Michigan 
 
 New Mexico 
 
 North Carolina . 
 
 Oklahoma 
 
 South Dakota . . 
 
 Utah 
 
 Washington .... 
 
 Iowa 
 
 Missouri 
 
 Ohio 
 
 Arkansas 
 
 Colorado 
 
 North Dakota. . 
 Wyoming 
 
 Louisiana 
 
 Alabama 
 
 Kansas 
 
 Connecticut .... 
 
 Maryland 
 
 Rhode Island . . . 
 Tennessee 
 
 
 
 Tax 
 
 Collections — 
 
 1948 
 
 Year 
 
 Adopted 
 
 1947 Tax 
 Rate 
 
 Sales and 
 Use Tax 
 
 Total State 
 Tax Collec- 
 tions 
 
 Sales and 
 Use as % 
 of Total 
 
 1921* 
 1930 
 
 2% 
 2 
 
 $53,817 
 22,646 
 
 $91,275 
 
 79,178 
 
 59.0% 
 
 28.6 
 
 1933* 
 
 1933 
 
 1933* 
 
 1933 
 
 1933 
 
 2 
 
 2^ 
 2 
 3 
 
 2 
 
 16,774 
 275,449 
 158,941 
 188,633 
 
 14,607 
 
 50,468 
 698,836 
 355,805 
 354,940 
 
 38,652 
 
 33.2 
 39.4 
 44.7 
 53.1 
 37.8 
 
 1933 
 1933 
 1933 
 1933 
 1933 
 
 3 
 2 
 2 
 2 
 3 
 
 39,335 
 34,103 
 10,070 
 12,640 
 105,349 
 
 195,355 
 
 132,089 
 
 29,352 
 
 38,667 
 
 191,162 
 
 20.1 
 25.8 
 34.3 
 32.7 
 55.1 
 
 1934 
 
 1934* 
 
 1934 
 
 2 
 2 
 3 
 
 51,036 
 
 58,326 
 
 126,968 
 
 127,840 
 145,273 
 347,923 
 
 39.9 
 40.1 
 36.5 
 
 1935* 
 1935 
 1935 
 1935 
 
 2 
 2 
 2 
 2 
 
 19,538 
 
 24,784 
 
 10,308 
 
 5,196 
 
 74,898 
 76,357 
 31,141 
 13,667 
 
 26.1 
 32.5 
 33.1 
 38.0 
 
 1936 1 
 
 1937 
 
 1937 
 
 1 
 2 
 2 
 
 18,772 
 26,546 
 35,640 
 
 141,144 
 95,949 
 92,983 
 
 13.3 
 27.7 
 38.3 
 
 1947 
 1947 
 1947 
 1947 
 
 3 
 2 
 1 
 2 
 
 32,3912 
 
 23,632 
 
 6,477 
 
 41,046 
 
 106,946 
 
 103,110 
 
 40,192 
 
 131,850 
 
 30.3 2 
 22.9 
 16.1 
 31.1 
 
 ♦Indicates States which did not adopt a use tax — all the other States support the sales tax with a use tax. 
 *Tax repealed in 1940, readopted in 1944. 
 
 2 SaIes tax was enacted at 3%, amended to provide temporary rate of 1% beginning second quarter of 
 1948, and to become 2% rate as of July 1, 1949. 
 
 Source: U. S. Department of Commerce, Bureau of the Census, State Tax Collections in 19A8, August, 
 1948. 
 
 76 
 
Characteristics of the Connecticut Sales Tax 
 
 The Connecticut sales tax was enacted in the form of an oc- 
 cupational license tax, with provision for mandatory reimburse- 
 ment of the tax by the purchaser at the time of sale. In this re- 
 spect, it is like the taxes in Alabama, California, Illinois, Mary- 
 land, Michigan, Rhode Island, South Dakota and Tennessee, 
 whereas the retail sales taxes in New York City and in Arkansas, 
 Colorado, Kansas, Louisiana, Missouri, Iowa, North Dakota, Ohio, 
 Oklahoma, Utah, West Virginia, Washington and Wyoming are 
 levied upon the consumer with the seller being considered an agent 
 of the State for collection. The distinction is primarily of legal 
 consequence, but sometimes it accounts for mechanical differences 
 in the administration of the tax. In rate, the original Connecticut 
 tax at 3 per cent exceeded the most frequent rate among sales taxes 
 and at 1 per cent for the period between April 1, 1948, and June 
 30, 1949, it is below the most frequent rate. The great majority 
 of the States have a 2 per cent rate. 
 
 Exemptions 
 
 It is in the field of exemption, as much as in the tax rate itself, 
 that the yield and the impact of the retail sales tax are deter- 
 mined. Exemptions are of primary importance in defining the 
 tax base, and are the means whereby the application of the tax 
 can be reduced or even eliminated for selected commodities or 
 selected taxpayers. It is inherent in a State retail sales tax that 
 sales for resale and sales out-of-State should be exempt from the 
 tax. Beyond these, however, there are generally four purposes of 
 sales tax exemptions: 
 
 1) To relieve consumers in the lower income groups of part 
 of the burden; 
 
 2) To relieve the tax administration of costly enforce- 
 ment, and taxpayers of the expense of administration not 
 commensurate with the revenue yield — for example, the 
 elimination of sales of 24 cents or less from the general sales 
 tax category and placing them, at half rate, in a gross receipts 
 category; 
 
 3) To carry out established State policy, such as encour- 
 agement to religious, charitable, and educational institutions; 
 and 
 
 4) To comply with Federal constitutional limitations on 
 State taxing power. 
 
The Committee has made a detailed comparative analysis of ex- 
 emptions which have been adopted in the various sales tax States — 
 that is, in those States where the retail sales tax is an independent 
 measure rather than part of a general business tax. The com- 
 parison shows that as among the States, there are numerous exemp- 
 tions which do not lend themselves to rationalization in terms 
 of the four purposes set forth above; and that other reasons or 
 expedients doubtless prevailed in legislative decisions. But be 
 that as it may, the diversity and administrative complexity of 
 exemption provisions are hall-marks of this type of legislation. 
 
 In an apparent effort to eliminate so-called regressive features 
 from the sales tax, Connecticut has made greater use of exemp- 
 tions than any other State. The Connecticut exemption of children's 
 clothing and fuel for domestic consumption are not found in any 
 other sales tax act. The exemption of meals for which the charge 
 is less than $1 is not only unmatched in any other State sales tax, 
 but a number of the States specifically tax all meals. It is probable 
 that the Connecticut exemption was adapted from the New York 
 City sales tax, but it may be noted that Massachusetts, which has 
 no general sales tax, applies a 5 per cent excise tax to the sale of 
 meals costing more than $1. 
 
 All exemptions or deductions reported by Connecticut business 
 taxpayers during the first quarter of 1948 totaled $1,143,000,000 
 and amounted to 80 per cent of all gross receipts reported. De- 
 ductions reported by corporations during the first quarter averaged 
 85 per cent of their gross receipts and those reported by unincor- 
 porated businesses averaged 56 per cent of their gross receipts. 
 Reported data show that there was considerable variations as among 
 individual businesses and as among indistrial groups, with the 
 result that deductions reported by manufacturers averaged 98 per 
 cent of their gross receipts as compared with 92 per cent for dis- 
 tributors, jobbers and wholesalers, 60 per cent for retailers, 17 
 per cent for hotels and restaurants and 79 per cent for all other busi- 
 ness taxpayers. About $819 million, or 72 per cent of all deductions 
 reported during the first quarter of 1948 were for sales out-of-State 
 and for resale. Particularly in the case of sales out-of-State these 
 deductions were heavily concentrated in manufacturing businesses 
 which accounted for 84.9 per cent of all such sales. Deductions 
 for sales of food for home consumption totaled $108 million and 
 represented less than 10 per cent of all deductions reported. 
 
 78 
 
Manufacturers and wholesalers accounted for 15.7 per cent of 
 all exemptions. The unusual deductions for children's clothing 
 which is peculiar to Connecticut among the sales tax States, totaled 
 less than $10 million — less than 1 per cent of all deductions re- 
 ported. Fuel for domestic use totaled $31 million or 2.7 per cent 
 of all exemptions. Exemptions for meals selling for less than $1 
 are not shown in this analysis because the exemption did not be- 
 come effective until April 1, 1948, and thus was not applicable during 
 the first quarter for which the data were compiled. 
 
 These three exemptions — children's clothing, fuel for domestic 
 use and meals under $1 — involve large administrative problems 
 at the State level and enmesh the retail business in difficult prob- 
 lems of compliance. The invitation to tax evasion under the 
 children's clothing exemption is obvious. The complexity of the 
 meals exemption can be illustrated by considering the thoughts 
 of a young waitress in a luncheonette as she distinguishes between 
 the niceties of a plate of ice cream and a glass of milk served separ- 
 ately which are tax exempt, and a milkshake, a milkfloat or an ice 
 cream soda which are taxable. The State tax department, making 
 a sincere effort to apply the law, explains this situation, as further 
 complicated by the exemption of sales for less than $.25, as fol- 
 lows: 1 
 
 By amendment to the Act, effective April 1, 1948, the 
 purchaser of a meal costing less than one dollar is not re- 
 quired to pay tax to the seller. The seller must include the 
 sales price of such meals in the gross receipts of his quarterly 
 return but may deduct the same on the return providing he 
 maintains adequate records to substantiate the deductions. (See 
 Reg. No. 24.) For tax purposes a meal consists of one or 
 more items defined as food products in Reg. No. 4, as amended; 
 as for example, meat, potatoes, bread, coffee, etc. The exemp- 
 tion does not apply to, and a meal for tax purposes does not 
 include, items which are not defined as food products, such as 
 ginger ale, candy, beer, etc., even though the same be purchased 
 and consumed with the food products as a part of the meal. 
 It will be noted that by office ruling ice cream sundaes and sher- 
 bets are food products, as are milk, tea, coffee or cocoa. All 
 alcoholic beverages, soft drinks, sodas, whether ice cream or 
 otherwise, milkshakes, milkfloats, ginger ale, root beer, orange- 
 ade and like beverages are not food products. Where the 
 
 ■Connecticut State Tax Department, Sales and Use Tax Division, Bulletin No. 11, "Sales and Use Tax 
 Information". 
 
customer purchases both food products and non-food prod- 
 ucts to be consumed at his meal, the seller must separately 
 compute the items which are food products to determine 
 whether the total is less than one dollar for purposes of ex- 
 emption. For example, a customer purchases a meal cost- 
 ing $1.15 and consisting of food products except for a 20 cents 
 milkshake. In determining the tax the seller must deduct 
 the 20 cents from the total, thus showing the cost of the food 
 products is 95 cents and exempt from tax. The sale price of the 
 milkshake being less than 25 cents the customer is not required 
 to reimburse the seller for tax on this item. The seller must, 
 however, include the 20 cents in his gross receipts on his 
 quarterly return and is not allowed to take a deduction there- 
 on even through his records show the sale to be less than 
 25 cents. In those cases where a single individual pays for 
 several meals, as for example where a father takes his family 
 to a restaurant for dinner, each meal is considered as a sepa- 
 rate sale and must be separately computed by the seller. In 
 a typical case the total charge for the meals of a husband, 
 wife and three children might be $4.30. The meals of hus- 
 band and wife, consisting wholly of food products, cost $1.25 
 each. The cost of each meal for the children is 60 cents which 
 includes a 15 cents milkshake in each instance. The meals 
 of husband and wife being more than 99 cents, each is sub- 
 ject to tax. The meal of each child computing only the food 
 products amounts to 45 cents and is exempt. The total tax- 
 able sale to the husband includes the meals served to him 
 and his wife plus the three milkshakes served the children, 
 amounting in all to $2.95. The total tax to the husband who 
 pays the entire bill is 3 cents and the total amount paid by him 
 to the seller is $4.33. 
 
 Similar difficulties arise from the distinction between fuel used 
 by a single purchaser to provide power for an industrial plant, 
 to provide heat for apartments in an apartment house, or to pro- 
 vide heat for a leased store on the ground floor of the building. 
 Where a single steam boiler provides steam for both domestic 
 and commercial use, it then becomes a problem of determining the 
 character of the commercial use and of apportioning the cost of 
 the fuel between the two uses— a problem for an engineer, but a 
 hopeless puzzle to the taxpayer. 
 
 These three exemptions which are peculiar to Connecticut to 
 the sales tax, represent no substantial tax loss to the State nor 
 
 80 
 
do they represent any substantial saving to the taxpayer. The 
 cost of compliance, of record keeping, and of policing the exemp- 
 tions must be far out of proportion to their dollar value. The 
 Committee therefore suggests that in view of their difficulties of 
 administration and ease of evasion, 
 
 That the Legislature reconsider the exemption on fuel 
 used for domestic purposes, on the sale of children's cloth- 
 ing and on meals costing less than $1.00, with a view toward 
 redefinition and simplification. 
 
 The idea inherent in the retail sales tax of excluding sales of 
 goods for resale has led to a number of other exemptions which 
 complicate the administration of the tax law. It is quite clear 
 that where raw materials, semi-finished goods or finished parts 
 are purchased for the purpose of incorporating them in another 
 product which will in turn be resold, such purchases are not with- 
 in the intended scope of a retail sales tax. The rule is generally 
 stated that where property is sold to become a physical ingredient 
 or component part of other tangible personal property which 
 ultimately is to be sold at retail, the sale of such physical ingredi- 
 ents or component parts should be exempt from the sales tax. 
 This exemption is both useful and necessary and appears in the law 
 of Connecticut as well as in practically all other retail sales tax 
 laws. 
 
 'It is only a step to add the exemption of materials, tools and 
 fuel used in agricultural or industrial production. Some States 
 limit this type of exemption to property consumed in manufac- 
 turing, such as oil, machinery maintenance materials, catalysts, 
 etc., while others, such as Michigan and Ohio, exempt sales for 
 either consumption or use directly in manufacturing processes. 
 The Connecticut law has become confused by use of the phrase 
 "consumed and used" directly in the process of manufacture. 
 Even were this error to be corrected, it does not appear to be 
 the purpose of the retail sales tax to exclude any more than those 
 items which enter directly into the cost of producing tangible 
 personal property which will later be resold. From this point 
 of view it would be neither desirable nor necessary to exempt 
 purchases by manufacturers of machinery or other items which 
 are capitalized, nor to depart from the present rule which precludes 
 exemptions of items for use in administration or distribution ac- 
 tivities of an industrial firm. 
 
 One of the irritating difficulties with this exemption is that 
 many of the. purchases made by industrial companies may ulti- 
 
mately be used either in connection with the process of manu- 
 facturing or in administration or distribution, depending upon 
 the daily operating needs of the company. If the decision has 
 to be made in advance of every purchase requisition, it is bound 
 to cause costly delay and confusion among foremen, stores clerks 
 and other employees within any company. The tax commissioner 
 has done as much as he can under the present language of the 
 statute to eliminate such difficulties, but the statute is inherently 
 the cause of the trouble. The Committee accordingly recommends, 
 following the general policy of the tax commissioner as set forth 
 in Regulation No. 5, that the present exemption of purchases for 
 use in manufacturing be redefined by law. This could be done 
 by 
 
 providing that purchases of items deductible as manufac- 
 turing expense under the Federal income tax law be exempt; 
 that purchases by manufacturers of items which are prop- 
 erly capitalized be taxable; that purchases of items for use 
 in administration or distribution regardless of whether capi- 
 talized or not (as defined in Regulation No. 5 of the State 
 Tax Commissioner) continue to be taxable. This amendment 
 would greatly simplify the administration of the act in regard 
 to the phrase "consumed and used" and of the phrase "directly 
 in the process of manufacture." 
 
 Another simplifying amendment which would be in keeping 
 with sales tax theory would be to permit any licensed business 
 to issue a blanket assumption certificate on his purchases and 
 to be thereupon responsible for the payment of the use tax on all 
 items which are taxable. This would eliminate a multitude of 
 minor business transactions from individual tax payments and 
 thus reduce the cost of both compliance and State tax admin- 
 istration. 
 
 With these adjustments in mind, the Committee has also con- 
 sidered the practical and revenue implications of repealing all 
 exemptions. Tabulations indicate that a large part of all deduc- 
 tions reported by business under the Connecticut sales tax during 
 the first quarter of calendar 1948 could not be eliminated under a 
 retail sales tax as contrasted to a gross receipts tax base. For ex- 
 ample, deductions for out-of-State sales, sales for resale, sales 
 returns, and adjustments and other exemptions, composed largely 
 of administrative necessities, represent almost 80 per cent of all 
 deductions reported. Although there may be some justification 
 
 82 
 
for re-examining some of these, such as the relatively large amount 
 of deductions reported by retailers under the classification of sales 
 for resale, they must, as a class, be considered as inherent in a retail 
 sales tax. 
 
 Assuming that 80 per cent of all deductions probably could 
 not be eliminated, there remains only about 20 per cent which 
 might be considered for elimination in a broadened tax program. 
 However, sales to charitable, religious and government organiza- 
 tions account for another 5 per cent. There remains, therefore, 
 about 15 per cent which might be open for reconsideration. Ap- 
 plication of a 1 per cent tax rate against these deductions reported 
 during the first quarter of 1948 would result in an increased tax 
 revenue of about $1.7 million derived as follows: 
 
 Amount Per Cent 
 
 Food for home consumption $1,081,000 62.9% 
 
 Fuel for domestic consumption 308,000 17.9 
 
 Livestock, poultry, feed, seeds, etc 114,000 6.7 
 
 Children's clothing 98,000 5.7 
 
 Newspapers, magazines 61,000 3.5 
 
 Medicines on prescription and non-returnable containers. . . 57,000 3.3 
 
 Total $1,719,000 100.0% 
 
 In brief, the Committee concludes that elimination of all exemp- 
 tions which remain open for consideration would mean, on an 
 annual basis, a possible increase in Connecticut sales tax revenues 
 of about $7 million at a 1 per cent tax rate. As compared with $15.0 
 million expected in the fiscal year ending June 30, 1949, from a 
 1 per cent tax rate against the present tax base, this would mean an 
 increase of almost 47 per cent in sales tax revenue. If food for 
 home consumption remained exempt, the increase in the tax yield 
 would be only $3 million annually, but such a broadening of the tax 
 base would result in a sales tax measure simpler to administer than 
 the present act, and would aid in establishing the lowest possible 
 rate. 
 
 Exemptions are the most difficult problem of the consumers 
 sales and use tax. The complaints focus on difficulty in adminis- 
 tration and, when these are traced to their real causes, "exemp- 
 tions" are at the bottom of the trouble. The Committee would 
 respectfully suggest that it is not possible to have both simplicity 
 of operation and complexity of treatment at the same time; and 
 that so long as the policy of many exemptions is permitted, so 
 long will there be complications in the administration of the tax. 
 
There are those on the Committee who would like to see all ex- 
 emptions removed in the interest of increased efficiency and econ- 
 omy of operations. There are others who would like to see all 
 of the present exemptions maintained and even increased, in the 
 interest of relieving tax pressures on commodities of a peculiar 
 social and economic significance, particularly to the lower income 
 groups. For reasons set forth in this report, however, the Com- 
 mittee concludes : 
 
 That in view of the fact that there has been so short an ex- 
 perience under the consumer sales and use tax act; and in view 
 of the fact that adjustments in the present exemptions would 
 tend to disturb the stability of the whole act, it is recom- 
 mended that no major changes should be attempted at this 
 time. 
 
 To simplify the tax administration, however, the following 
 amendments can properly be made to the act: 
 
 1) To provide that purchases of items deductible as manu- 
 facturing expense under the Federal income tax law be exempt; 
 that purchases by manufacturers of items which are properly 
 capitalized be taxable; that purchases of items for use in ad- 
 ministration or distribution regardless of whether capitalized 
 or not (as denned in Regulation No. 5 of the State Tax Commis- 
 sioner) continue to be taxable. 
 
 This amendment would greatly simplify the administration of 
 the act in regard to the phrase "consumed and used" and of the 
 phrase "directly in the process of manufacture," and bring added 
 certainty of tax liabilities to the taxpayer. 
 
 2) To permit any licensed business to issue a blanket as- 
 sumption certificate on his purchases and to be thereupon 
 responsible for the payment of the use tax on all items which 
 are taxable. 
 
 This will eliminate a multitude of minor business transactions 
 from individual tax payments and thus reduce the post of both 
 compliance and State tax administration. 
 
 That the Legislature reconsider the following exemptions: 
 
 On fuel used for domestic purposes; on the sale of children's 
 clothing; and on meals costing less than $1.00. 
 
 The Committee understands and appreciates the worthy motives 
 supporting these exemptions; but would call attention to their 
 
 84 
 
difficulties of administration and to the ease with which they may 
 be evaded. It is nevertheless unwilling to recommend their repeal 
 on these grounds alone, but would suggest that, as far as possible, 
 they be redefined and simplified. 
 
 The Impact of the Tax 
 
 The 'common objection to a sales tax is that it is regressive — 
 that is, its impact is heavier on the poor than it is on the rich. 
 This is true when the amount of the tax paid annually is related 
 to the amount of the taxpayers annual income; but any other 
 tax, except an income tax, is likely to appear regressive when 
 related to income. The consumer sales tax, moreover, can be 
 shown to have a substantial element of progressivity in view of 
 the greater benefit of exemptions to taxpayers of lesser consump- 
 tion as compared with those of greater consumption. Table 16 
 shows, for example, that 78 per cent of the expenditures of a family 
 in the lowest disposable income group is excluded from taxation 
 by the exemption of food, housing and medical care. The same 
 exemptions exclude only 53 per cent of the taxable expenditures 
 of a family in the $5,000 and up disposable income group. In other 
 words, major sales tax exemptions reduce the potential tax liability 
 between 61 per cent and 78 per cent for those families having annual 
 income (after Federal income tax) of less than $3,000, while the re- 
 duction in tax liability for families with $3,000 and more disposable 
 income would range downward from 60 per cent. 
 
 The potential distribution of the tax base as shown in Table 16 
 also illustrates how the exemptions of such items as food operate 
 to provide a substantial element of progressivity in the tax. For 
 example, while 23 per cent of the families had annual money in- 
 come, after personal taxes, of $2,000 or less, these families would 
 provide only 10 per cent of the potential tax revenue. Similarly, 
 14 per cent of the families are shown as having annual money in- 
 come of $5,000 or over but they provide 27 per cent of the estimated 
 potential tax base. These figures are only approximate. Some of 
 the expenditures in the column headed "Other" would include 
 medical care and other items which would not be taxable, but all 
 family groups would have a certain amount of these expenditures 
 and over-all it is not believed that the general relationships among 
 the groups would differ materially from the estimated distribution. 
 The Committee concludes: That because of the benefit of ex- 
 emptions, a consumers sales tax may have strong elements of a 
 progressivity. 
 
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From the viewpoint of its total impact on the State's economy, 
 the Connecticut retail sales tax may be compared with the over- 
 all experience of the other sales tax States. While the yield of 
 the sales tax during the fiscal year ended June 30, 1948, represents 
 three quarters at the 3 per cent rate and one quarter at a 1 per cent 
 rate, the total yield of the tax, $36 million, does not vary substanti- 
 ally from the probable yield of the tax when the intended 2 per cent 
 rate takes effect for the fiscal year beginning July 1, 1949. For 
 purposes of comparison, moreover, the 1947-48 yield in Connecticut 
 may be related to 1947 retail sales and 1947 individual income pay- 
 ments, as a measure of the relative economic effect in Connecticut 
 as compared with other States which had been using the sales tax 
 prior to 1947. Table 17 shows strikingly the effect of increased 
 commodity prices and sales volume between 1940 and 1948. Sales 
 and use taxes per capita in the latter year (1948) range from $7.29 
 in Louisiana to $42.36 in the State of Washington as compared with 
 $16.11 for Connecticut. 
 
 The relationships of the sales and use tax yield to retail sales 
 and to income payments received by individuals are even better 
 guides to the comparative tax burden than the per capita figure. 
 During the fiscal year ended in 1948, the yield of the sales tax 
 among the 26 States ranged from 9/10 of 1 per cent of retail sales 
 reported for the calendar year 1947, the most recent year for which 
 total retail sales figures are available at this time, to 5.09 per cent 
 in West Virginia. This compares with 1.76 per cent in Connecticut, 
 which stood fifth lowest among the 26 States, and here also impact 
 of the Connecticut tax is shown to be comparatively moderate. 
 
 Viewing the sales tax as a competitor for the current income dollar 
 of the taxpayers of Connecticut, as compared with the taxpayers 
 of other States, it is clear that the Connecticut tax takes less out 
 of channels of private consumption than many other State sales 
 taxes. Table 17 shows that the percentage of the 1948 Connecti- 
 cut sales tax collections to individual income payments in 1947 
 was 0.97 per cent. This may be compared with the ratio in other 
 States such as Illinois with 1.17 per cent, Iowa with 1.72 per cent, 
 California with 1.71 per cent, Michigan with 2.19 per cent and Ohio 
 with 1.15 per cent. 
 
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The Committee concludes from this analysis that: 
 
 1) From the point of view of a per capita tax burden, the 
 Connecticut sales tax is most moderate in comparison with 
 other individual States; 
 
 2) From the point of view of retail sales, the impact of the 
 tax is also most moderate; and 
 
 3) From the point of view of individual income payments 
 the impact of the tax is light in comparison with other indi- 
 vidual States. 
 
 Services 
 
 A principal difference between the Connecticut retail sales tax 
 and that levied in some of the other States is the omission of a 
 tax on services. This tends to concentrate the burden of tax- 
 ation on those consumers who are purchasers of merchandise. 
 It has sometimes been claimed that purchased services are pro- 
 portionately greater among taxpayers with higher income than 
 among those with lower income, and thus the sales tax base which 
 excludes services is less progressive than one which includes them. 
 Although the accuracy of such a broad generalization may be 
 modified by the application of specific exemptions or deductions, 
 it might be offered as a criticism of the Connecticut tax, assuming 
 that there are no other factors of explanation. For example, the 
 application of selective taxes upon gross receipts of public utilities 
 and places of amusement may justify the omission of service trades. 
 Although specific provisions vary as among types of utilities, 
 the selective gross receipts taxes are generally "in lieu" of some or 
 all of the taxes payable by non-utility businesses. In the case of 
 gas, electric, water and power companies, the gross receipts tax 
 at 1.5 per cent is less than the rate of the 2 per cent consumers 
 sales tax, effective July 1, 1949. In addition to the lower tax rate, 
 utility taxes are "in lieu" of taxes upon intangible personal property 
 owned by utilities, upon securities issued by them and upon all 
 State license, corporate franchise and income taxes. 
 
 As presently constituted, selective gross receipts taxes paid 
 by Connecticut utilities would not be a satisfactory substitute 
 for sales taxes upon public utility services in the event the present 
 consumers sales tax base should be extended to include services. 
 The only Connecticut gross receipts tax shown in Table 18 which 
 might meet the requirements of a sales tax substitute, is the tax 
 levied at 5 per cent upon receipts from amusements. Even in the 
 
case of the amusements tax, however, complete substitution would 
 imply elimination of at least the maximum provisions ($8 per day) 
 under the tax. 
 
 TABLE 18 
 
 Connecticut Gross Receipts Taxes Upon Utilities and Places of 
 Amusement and Tax Receipts in 1948 
 
 (Amounts in thousands of dollars) 
 
 Tax Special and *' In Lieu" 
 
 SUBJECT OF TAX Tax Rate Receipts Provisions of Tax 
 
 Amusements 1 5% $19 Min. 25 cents day; Max. $8 day. 
 
 Telegraph companies 4 56 "In lieu" of personal property 
 
 taxes. Local real estate taxes 
 deductible. 
 
 Railroad companies 2 3J^ 1,210 "In lieu" of all other State and 
 
 local taxes except on real 
 property not used for railroad 
 purposes which are deductible. 
 
 Street railways 3 53 Same as for railroads. 
 
 Car companies 3 40 None. 
 
 Motor buses 3 651 "In lieu" of property tax on 
 
 buses and rights, franchise, 
 intangibles, etc. 
 
 Telephone companies 3 1,442 " In lieu " personal property taxes. 
 
 Local taxes on real property 
 used in business deductible. 
 
 Express companies 2 27 "In lieu" of personal property 
 
 Gas, electric, water and 
 power companies VA 1,333 "In lieu" of tax on intangibles 
 
 taxes. 
 
 In lieu 
 and income. 
 
 Total $4,831 
 
 Assuming a broad definition of taxable services to include pro- 
 fessional fees as well as the traditional service industries such 
 as laundries, cleaning and repair shops, and public utilities for 
 both domestic and industrial purposes, estimates based upon 
 the 1947 distribution of consumer expenditures indicate that 
 expansion of the sales tax base to services could increase the tax 
 yield by about 60 per cent. At the present 1 per cent tax rate, 
 this would mean an increase in the Connecticut sales tax revenue 
 from about $15 million annually expected during the fiscal year 
 1949 to about $24 million. At a 2 per cent rate effective July 1, 
 1949, the probable increase in annual sales tax revenues would be 
 about $18 million, from $30 million to $48 million. Approximately 
 22 per cent of this possible 60 per cent increase in tax revenues 
 
 Exclusive of taxes measured by seating capacity — $104,423 in 1948. 
 Source: Connecticut State Comptroller and State Tax Commissioner. 
 
 on 
 
would result from application of the sales tax to public utility gross 
 receipts. 
 
 These estimates imply that application of a tax rate of 1 per 
 cent to a broadened sales tax base would yield almost the $25 
 million annually which was expected from a 3 per cent rate as 
 originally adopted in 1947. Such a broadened tax base, together 
 with the elimination of some of the exemptions under the present 
 sales tax act, would probably make it possible to maintain the 
 tax yield at about the level expected after June 30, 1949 under 
 a 2 per cent rate, without any increase in the present 1 per cent 
 tax rate effective until June 30, 1949. For example, elimination 
 of present exemptions for fuel for home consumption, children's 
 clothing, meals at less than $1.00 and medicines sold on prescrip- 
 tion, together with the inclusion of services, would cause the an- 
 nual tax revenue to total about $26.6 million at the present 1 
 per cent tax rate. Further elimination of the exemption of food 
 for home consumption would add more than $4 million to the possi- 
 ble tax yield at a 1 per cent tax rate so that the total revenue from 
 the broadened base at a 1 per cent rate would amount to about $30.6 
 million as compared with $30 million anticipated from the present 
 tax base with a 2 per cent tax rate. 
 
 The choice in State tax policy between a broad tax base at a 
 low rate, on the one hand, and a narrow tax base at a higher rate 
 on the other, is likely to be determined by the effect upon indi- 
 vidual taxpayers or groups of taxpayers. Estimates by the Com- 
 mittee indicate that the annual sales tax payable by a "typical" 
 four-member family with a budget of $3,374 would be about $22.35 
 under a 1 per cent rate upon a broad base (eliminating all exemp- 
 tions) as compared with about $15.40 under a 2 per cent rate on the 
 tax base as presently defined in Connecticut. 1 
 
 This "typical family" tax bill would be reduced from $22.35 
 to $12.95 if the tax base were broadened without eliminating the 
 present food exemption — as compared with $15.40 to be expected 
 when the 2 per cent rate becomes effective on the present base. 
 The food exemption accounts for $4,000,000 in potential revenue, 
 but even with its retention a broadened tax base at 1 per cent 
 would still provide $26.6 million annually or $1.6 million more 
 than the $25 million expected from the 3 per cent rate originally 
 adopted in 1947. The distribution of the source of the potential 
 additional revenue would be about evenly divided between busi- 
 
 ■These results were predicated upon a typical family budget prepared by the United States Department 
 of Labor. 
 
ness and individual residents. Analysis based on national in- 
 come and expenditure data prepared by the U. S. Department 
 of Commerce shows that, of the services which would add about 
 60 per cent of the present tax receipts in revenues, nearly 52 per 
 cent are consumed by business and industry, while about 48 per 
 cent are consumed by householders and other individuals. 
 
 The Use Tax 
 
 All but five of the 26 "sales tax States" supplemented their 
 sales tax with use taxes. Only West Virginia, Arkansas, Arizona, 
 Illinois, and Missouri have sales taxes without use tax supplements. 
 Although these supplements are usually contained in separate 
 statutes, they are in some States part of the sales tax act. The 
 latter type of tax is intended primarily to prevent evasion through 
 a device of making certain out-of-State purchases subject to the tax. 
 The use tax serves three major purposes: 
 
 1) protection to the taxing jurisdiction against sales tax 
 evasion resulting from outside shopping; 
 
 2) protection to local merchants against artificial price 
 competititon from outside the State for local trade; 
 
 3) preservation of tax equity as among citizens who shop 
 within the taxing jurisdiction and those who shop outside. 
 
 In the administration of the Connecticut sales tax, "purchases 
 subject to use tax" represent an item to be returned by each 
 licensee in filing the quarterly return of sales taxes collected. The 
 result is that the difficulties of enforcing the use tax against in- 
 dividuals may well mean that an individual purchaser of a piano 
 for his home might never pay the use tax, whereas the same in- 
 dividual purchasing the piano for his restaurant would be faced 
 with a duty to report it with his next quarterly return. Table 19 
 shows that use tax collections in Connecticut were 12.5 per cent of 
 the total sales and use tax collections during the first quarter of 1948. 
 By comparison, use tax collections in 1946 did not rise above 6.9 
 per cent of the total in any other State for which separate collections 
 were reported. Payment of business use taxes, together with sales, 
 result, however, in the inclusion of these use tax collections with 
 the sales tax and thus cause the amount of use taxes reported in most 
 States to include only amounts paid by individuals. Upon this basis, 
 Connecticut use tax collections from individuals represented 1.2 
 per cent of all sales and use tax collections during the first quarter 
 
 92 
 
of 1948 as compared with the lowest percentage reported for any 
 other State of 2.5 per cent. 
 
 As shown in Table 19, business purchases subject to the use 
 tax represented 11.3 per cent of the net sales and use tax base 
 reported by Connecticut business and individuals during the first 
 quarter of 1948. ' This means that only about 89 per cent of sales 
 and use taxes paid by business were actually sales taxes which 
 they passed on to their customers. In dollar amounts, this means 
 that use taxes paid by business totaled about $1 million during 
 the quarter as compared with $122,000 paid by individuals on auto- 
 motive and non-automotive purchases. About 9/10 of all use 
 taxes were paid by business taxpayers and about 95 per cent of all 
 business use taxes were paid by corporations. Although these ratios 
 vary widely as among business groups, Table 21 shows that pur- 
 chases subject to the use tax are consistently a larger proportion 
 of the net tax base for corporations than they are for unincorpor- 
 ated business with the result that the over-all average for corpora- 
 tions was 15.6 per cent as compared with 1.5 per cent for unin- 
 corporated business. Purchases subject to the use tax averaged 
 2.4 per cent of gross receipts for all business, but the average of 
 corporations was 2.8 per cent as compared with 7/10 of 1 per cent 
 for unincorporated business. 
 
 TABLE 19 
 
 Connecticut Sales and Use Tax Collections During 
 First Quarter of 1948 (January 1-March 31) 
 
 Tax Per Cent 
 
 Collections Distribution 
 
 Sales Tax 2 $8,792,893 87.5% 
 
 Use Tax* 
 
 Business 2 1,131,299 11.3 
 
 Individuals 122,539 1.2 
 
 Total Use Taxes 1,253,838 12.5% 
 
 Total Sales and Use Taxes $10,046,732 100.0% 
 
 While the administrative problem is great, it may eventually 
 be necessary to increase enforcement efforts on the use tax as 
 applied to individuals, if business is not to remain with an unequal 
 and unfair portion of this part of the sales tax. 
 
 'Data shown in Table 21 and succeeding table differ from over-all results shown in Table 19 in that they 
 include only returns applicable to the first quarter of 1948. Also they include slight tabulating corrections 
 and adjustments. 
 
 includes receipts applicable to 3rd and 4th quarters of 1947, deficiencies and adjustments: Sales tax, 
 $293,021; Use Tax, $115,729. 
 
 Source: Connecticut State Tax Department, Sales and Use Tax Division. 
 
The Distribution of the Tax Yield 
 
 The Committee has undertaken a careful analysis of the dis- 
 tribution of the sources of the Connecticut sales tax — as a guide 
 to present administration and future legislative consideration. 
 The yield of the sales tax is, of course, affected by changes in the 
 price level and the business cycle. As of the present, however, 
 the number of tax returns and the amount of tax are shown in Table 
 20. The growing number of tax returns over the first four quarters 
 of the tax is a healthy evidence of improved compliance — 54,101 
 in the first quarter that the tax was in force and 62,119 for the 
 second quarter of 1948. Table 20 shows the effect of reducing the 
 tax rate to 1 per cent, but the increased number of returns offset 
 in part some of the expected revenue loss, so that the first quarter 
 under the 1 per cent rate (1948 2nd quarter) yielded $4,132,000. 
 The total tax for the four quarters which represented the first twelve 
 months of operation of the tax, was $36,272,809, although it is an- 
 ticipated the yield will be stabilized at about $30 million barring 
 adverse changes in economic conditions. 
 
 A detailed analysis of all returns filed for the first quarter of 
 1948 presents a panorama of Connecticut trades as well as an 
 insight into the operation of the sales tax. Table 21 analyzes 
 the sales tax according to eight classifications of industrial groups 
 which have been established by the Sales and Use Tax Division 
 of the State Tax Department. The table shows that out of $1.4 
 billion in gross receipts reported, only $242.7 million represented 
 sales by unincorporated business. The sales themselves showed 
 deductions exceeding 70 per cent in food, apparel, buildings, chain 
 and all "others." In all, the deductions for all groups as a per- 
 centage of gross receipts are shown as 80.1 per cent. In operation, 
 therefore, the retail sales tax narrows down to only 21.9 per cent 
 of the gross tax base, plus purchases for use by the various business 
 firms. 
 
 Of the entire tax base some 10.8 per cent is provided by the 
 purchases of business firms upon which those firms are required 
 to pay the use tax. An unknown additional amount of retail sales 
 tax is paid by business on its purchases in the form of sales tax 
 paid to the respective vendors of each business firm. While the 
 retail sales tax is ordinarily thought of as a tax upon the individual 
 consumer, these figures indicate that the tax [also has a substantial 
 impact upon business firms as consumers of taxable commodities. 
 
 A marked characteristic of the sales tax is that it requires the 
 processing of four returns each year from a very large number 
 
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of small business firms. As shown in Table 22, 76 per cent of all 
 sales tax returns filed in Connecticut during the first quarter of 
 1948 were from businesses reporting gross receipts of less than 
 $10,000. This included almost 39,000 business units, which paid 
 not quite 20 per cent of the sales and use tax collected. A sub- 
 stantial ,share of the total tax collected came from 855 firms, each 
 of which reported $250,000 or more of gross receipts during the 
 quarter. These firms accounted for $2,318,000 or roundly 
 25 per cent of the total tax collections. This difference in tax yield — 
 20 per cent from 39,000 returns as compared with 25 per cent from 
 855 returns — points up a characteristic of a problem of administering 
 the sales tax which adds to its cost out of proportion to the revenue 
 produced. In contrast to a business income tax, or a direct busi- 
 ness license tax measured by gross receipts, there is no simple method 
 whereby small business units can be eliminated from the require- 
 ment of filing returns under a retail sales tax. In terms of tax 
 administration this means that procedures must be developed for 
 processing and auditing a large number of small returns where 
 the actual tax involved may, in many cases, be less than the cost of 
 administration. 
 
 Future Revenues from the Sales Tax 
 
 The yield of the retail sales tax has been adjusted toward pro- 
 viding certain fixed expenditure commitments which require at least 
 $26 million annually, or $52 million for the biennium ending June 
 30, 1949. As summarized by the State Tax Department, anticipated 
 revenues of $26 million from the sales and use tax during the fiscal 
 year beginning July 1, 1948, were budgeted in the following way: 
 
 What the Sales Tax Pays For 
 
 Estimated Revenue— $26,000,000 
 July 1, 1947- June 30, 1948 
 
 1. Education (net increase to towns) $8,605,750 
 
 2. Old Age Assistance ($3 tax repealed— $2,225,000 
 which heretofore paid only a part of funds needed 
 
 for old age benefits disbursed) 4,834,292 
 
 3. State Humanitarian and Welfare Institutions care 
 
 of aged, chronically ill 4,305,000 
 
 4. State Employees. To maintain cost of living in- 
 creases and to adjust pay of lower bracket workers, 
 particularly at institutions 3,314,250 
 
 5. To replace Revenue from Town Tax abolished to 
 
 relieve towns 1,250,000 
 
 6. Veterans (Bond Redemption, Interest, Julv 15 
 
 1947-July 15, 1948) *....' 5,562,500 
 
 98 
 
If the sales tax yields $30 million a year, as indicated by re- 
 vised estimates, the future yield at 2 per cent should not require 
 adjustment to meet the purposes for which the sales tax was 
 enacted. The revenue implications of the revision of the sales 
 and use tax act in 1948 are thus reduced to balancing over the 
 biennium the requirements for the fiscal year ending June 30, 
 1949, by carrying forward about $10 million of sales tax revenue 
 from the 1948 yield. 
 
 It is possible that continuation of sales volume at the level 
 indicated from the collection of $4 million in tax in the second 
 quarter of 1948 might produce as much as $16.8 million during the 
 fiscal year ending June 30, 1949, allowing for upward fiscal trends 
 of sales during the last six months of each calendar year. Such 
 a trend would produce over $33 million annually at the 2 per cent 
 rate which goes into effect July 1, 1949, and this would result in a 
 surplus over expectations for the two bienniums ending July 1, 
 1951, of almost $16 million. In the event this trend were to take 
 effect, it would cause the following provision of the sales and use 
 tax to become operative: 
 
 Sec. 352 i (7) Allocation of Excess Funds to Payment 
 of World War II Bonus Bonds. If the total amount of re- 
 ceipts collected from taxes imposed by this chapter for the 
 biennium ending June 30, 1949, shall exceed the sum of fif- 
 ty-two million dollars, the State Treasurer is directed to 
 allocate from the general fund an amount equivalent to such 
 excess and place the same in a special fund to be thereafter 
 limited in its use to the payment of World War II Bonus 
 Bonds of the State of Connecticut, or any interest due there- 
 
 f\T"J * * * 
 
 In brief, the retail sales tax has not only provided more than enough 
 to meet the purposes for which it was enacted, but if current eco- 
 nomic conditions continue, it may well provide substantial ad- 
 ditional revenue to meet other needs of State Government or to 
 accumulate as surplus. 
 
CHAPTER 4 
 
 A Personal Income Tax 
 
 With its consideration of the consumer's sales and use tax, 
 the Committee examined the implications of another tax not now 
 in effect in Connecticut but sometimes thought of as comple- 
 mentary to a sales tax — the personal income tax. This tax has 
 been widely discussed in Connecticut; and it would be of pri- 
 mary importance as a possible revenue measure should the State 
 undertake a larger expenditure program than is at present fore- 
 seeable. The implications of such a step are of the greatest im- 
 portance to every taxpayer — large and small — and the Committee 
 has accordingly studied the matter with care. 
 
 The arguments in favor of a State personal income tax have 
 been widely and variously stated by almost every writer in the 
 tax field; but the fundamental premise upon which all of these 
 arguments rest is contained in the assumption that "ability to 
 pay should be the principal criterion of any modern tax program. "* 
 This idea has many different applications in modern tax systems. 
 In its simplest form, it may involve only the selection of a measure 
 of taxation which varies with the economic status of the taxpayer. 
 For example, a corporation franchise tax measured by the value 
 of a corporation's assets is thought to be better related to capacity 
 to pay than a tax measured solely by the number of shares of a 
 corporation's capital stock. Similarly, a tax measured by the net 
 income of a corporation is thought to be better related to its capacity 
 to pay than a tax measured by gross receipts. In either of these 
 cases it is not the rate of taxation but rather the measure or base 
 which differentiates among taxpayers. Since taxes should be paid 
 out of current income, a net income tax is assumed to be better 
 related to capacity to pay than any tax measured by accumulated 
 wealth. 
 
 The common meaning of capacity to pay, however, is asso- 
 ciated more with a graduated rate than with the idea of selection 
 among alternative measures of taxation. For this reason, the 
 
 'Connecticut Federation of Labor (A. F. of L.), Testimony on sales lax and income lax. Hearings before 
 the Finance Committee, Connecticut General Assembly (Special Session), February 4, 5, and 20, 1948. 
 
 100 
 
income tax is commonly expected to take not only more dollars 
 but also more per dollar of income from the individual who earns 
 $10,000 a year than it does from the individual who earns $4,000 
 a year. For example, the basic Federal surtax has been 23 per 
 cent of net income in excess of $4,000 up to $6,000 while the rate 
 has been 35 per cent of net income in excess of $10,000 and up 
 to $12,000. The idea underlying these graduated or so-called 
 "progressive" rates, is that the sacrifice required of one taxpayer 
 should be relatively the same as that required of the other. 
 
 These theories of capacity to pay which depend upon the tax 
 base and upon graduated or "progressive" rates of taxation tend 
 to operate crudely at best. Everyone is aware that deductions and 
 expenses allowed for tax purposes vary greatly from the real expenses 
 an individual is obliged to incur in order to produce the earnings 
 which are the measure of the tax. The cost of living differentials 
 of individuals, arising Out of the nature of their occupation, family 
 responsibilities, personal health requirements, the effects of the 
 housing shortage and many other less noticeable items, which can- 
 not be treated as allowable items of expense for income tax purposes, 
 make the idea of equality of sacrifice in taxation less and less 
 realistic. 
 
 Despite these shortcomings the idea that taxes ought to be 
 levied in accordance with an assumed capacity to pay has the 
 support of many students of taxation, and of important groups 
 in every community. It is the mainstay of Federal taxation; it 
 has spread widely throughout the American States; and it is filtering 
 into local governments themselves. The capacity theory is likely 
 to receive, therefore, particular consideration and support where, 
 as in Connecticut, there is no tax levied for State or local govern- 
 ment that is directly related to capacity to pay. 
 
 There are, as has been pointed out in Chapter 1, numerous 
 criteria of a sound tax system other than the assumption that 
 it should be primarily keyed to each citizen's ability to pay. For 
 example, a well-designed system should be simple and economical 
 to administer. It should provide an adequate and a reasonably 
 dependable yield. Most important, a well-designed tax system 
 should be equitable; and while tax equity may be measured in 
 part by the varying economic capacities of each citizen, there 
 are other tests such as benefits received, broad bases of support, 
 intergovernmental relations, administrative efficiency, and com- 
 petitive business conditions, which likewise enter into a fair dis- 
 tribution of the tax burden and which should condition the ac- 
 
ceptance or rejection — in whole or in part — of any tax proposal. 
 The Committee has undertaken to test the income tax as a potential 
 source of State revenue in light of what it deems to be the current 
 factors in American public finance. 
 
 Capacity to Pay in the Federal System 
 
 The individual income tax is by all odds the principal source 
 of total tax revenue in Connecticut today — but it is levied by 
 the Federal Government — not by the State. Table 23 shows total 
 Federal, State and local tax collections in Connecticut for the years 
 1946 and 1947. The income tax of $481 million in 1947 (which 
 includes both individual and corporation taxes) was the predomin- 
 ant tax among Federal taxes, and was the greatest single factor — 
 57.9 per cent — in the total of Federal, State and local taxes. Its 
 impact was 53^ times as great as all taxes levied by the State 
 Government, 5 times as great as taxes collected by local govern- 
 ments, and more than 2% times as great as State and local taxes 
 combined. 
 
 TABLE 23 
 
 Federal, State and Local Tax Collections in Connecticut 
 1946-1947 
 
 (Amounts in thousands of dollars) 
 
 GOVERNMENT 1946 
 
 Federal Government (Total) $699,150 
 
 Corporate Income Tax 94,221 
 
 Individual Income Tax 350,798 
 
 Pay Roll Taxes 32,449 
 
 Other Internal Revenue 221,682 
 
 State of Connecticut (Total) $77,082 
 
 Regular Taxes 43,379 
 
 Motor Vehicle Registration and Operators' 
 
 Fees 7,840 
 
 Pay Roll Taxes 25,863 
 
 Counties $1,929 
 
 Towns, Districts and Other Municipal Taxes. $89,725 
 
 Grand Total of Federal, Slate, County, Dis- 
 trict, Town and Other Municipal Tax 
 
 Collections $867,886 $831,634 100.0% 
 
 Source: State of Connecticut. Information Relative to the Assessment and Collection of Taxes (Public 
 Document No. 48), 1946 and 1947. 
 
 102 
 
 1947 
 
 Per Cent 
 Total 
 1947 
 
 $646,345 
 
 95,370 
 
 385,864 
 
 38,271 
 
 126,840 
 
 77.7% 
 11.5 
 46.4 
 4.6 
 15.2 
 
 $87,628 
 49,170 
 
 10.5% 
 5.9 
 
 8,894 
 29,564 
 
 1.1 
 3.5 
 
 $2,107 
 
 .3% 
 
 $95,554 
 
 11.5% 
 
Whether the total tax is viewed as a citizen looks at it, or as 
 a tax administrator sees it, the Federal income tax nevertheless 
 represents the heaviest single tax burden in Connecticut. The 
 estate tax, the gift tax and the Federal excess profits tax (in World 
 War II), as well as the income tax, fall into the class of graduated 
 rate taxes which the Legislature or Congress imposes on the theory 
 of the ability to pay of the particular taxpayer. It is evident, 
 therefore, that if "ability to pay be the principal criterion of any 
 modern tax program," it is met in a most substantial measure 
 by the present composite of Federal and State taxes levied on 
 Connecticut citizens. 
 
 Table 24 reflects the expansive features of the Federal cor- 
 porate and individual income taxes which, in Connecticut, have 
 •grown from $20 million in 1935 to almost a half billion dollars 
 in 1947, an increase of more than twenty-four times. The corpo- 
 rate income tax alone was $9 million in 1935, reached a peak of 
 $235 million in 1944 and was $95 million in 1947. The increase 
 was even greater in the individual income tax which was $11.7 
 million in 1935, and rose to a peak of $385.8 million in 1947 — an 
 increase of almost thirty-three times. While all other sources of 
 Federal revenue rose sharply over the twelve-year period under 
 review, none of them show the striking percentage increases which 
 mark the income taxes. 
 
 TABLE 24 
 
 Source of Federal Internal Revenue in Connecticut 
 
 Selected Years: 1935-1947 
 
 (Amounts in thousands of dollars) 
 
 Fiscal Years Ending June 30 
 Source of Revenue 1935 1940 1942 1944 1946 1947 
 
 Individual Income Tax $11,717 $26,579 $88,859 $277,050 $350,798 $385,864 
 Corporate Income Tax 8,920 19,170 69,312 235,256 94,222 95,370 
 
 TnfOTnp ' I "jivpQ 
 
 Total $20,637 $45,749 $158,171 $512,306 $445,020 $481,234 
 
 Excess Profits Taxes... $54 $241 $77,854 $289,413 $147,753 $39,226 
 
 Capital Stock 1,436 1,888 6,629 8,118 6,106 4 
 
 Estate Tax 5,640 8,181 15,330 15,836 16,952 23,047 
 
 Manufacturers' Excise 2,700 5,935 12,282 4,581 12,362 26,573 
 
 Retail Excise 1,360 3,330 5,766 6,650 
 
 Employment 16,517 27,076 39,583 32,449 38,271 
 
 Other Sources 4,899 5,415 14,749 31,433 32,742 31,341 
 
 Total $35,367 $83,927 $313,452 $904,600 $699,150 $646,345 
 
 Source: U. S. Treasury Dept., Com. of Intl. Rev., Annual Reports. 
 
 103 
 
The sharply progressive rates of Federal tax in the income 
 tax fields together with increasing rates in other fields, have raised 
 total internal revenue collections in Connecticut from $84 million 
 in 1940 to $646 million for the fiscal year ending in 1947 — an in- 
 crease of almost 700 per cent. Table 25 shows that only $13 million 
 was returned to the State in the form of Federal aid or direct Federal 
 expenditures within the State. This means that Connecticut 
 business and individuals provided a net amount of $633 million 
 to the Federal Government in the fiscal year ended in 1947. In- 
 dividuals alone paid close to $400 million in that year in income 
 tax, or enough to operate all State and local governments in Con- 
 necticut for two years at present costs. 
 
 It might well be argued that this represents an excessive ele- 
 ment of progressivity in the tax burden of Connecticut residents." 
 An interesting feature of Table 25 is the decline in Federal pay- 
 ments within Connecticut. In the depression year of 1935, pay- 
 ments to the State and to local units amounted to $18 million. 
 Such payments naturally declined during the defense and war 
 period, but increased slightly in 1946 and 1947. Total Federal 
 expenditures in Connecticut in general have declined from $33 
 
 TABLE 25 
 
 Federal Internal Revenue Collections and Expenditures 
 in Connecticut 
 
 (Amounts in thousands of dollars) 
 
 Fiscal Years Ending June 30 
 Item 1935 1940 1942 1944 1946 1947 
 
 (1) Total Internal 
 
 Revenue Collec- 
 tions $35,367 $83,927 $313,452 $904,600 $699,150 $646,345 
 
 Federal Expendi- 
 tures: 
 Payments to 
 State and 
 Local Units... $18,020 $7,015 $6,584 $5,746 $8,357 $11,001 
 
 Payments 
 Within State 25,941 30,404 6,158 1,524 1,979 
 
 (2) Total Payments $32,956 $36,988 $11,904 $9,882 $12,980 
 
 Net Federal 
 Taxes Paid 
 (1-2) $50,971 $276,464 $892,696 $689,268 $633,365 
 
 Source: U. S. Sec'y of the Treasury, Annual Report for the year ended June 30, 1947. 
 
 104 
 
million in 1940 to $13 million in 1947. The net figure of Federal 
 taxes paid is also significant, moving from $51 million in 1940 
 to a peak of $893 million in 1944 and still at a very high level of 
 $633 million in 1947. In other words, regardless of the tax policies 
 formulated by State and local governments in Connecticut, a 
 strong degree (to many it would seem an excessive degree) of "pro- 
 gressive" taxation will remain in the Connecticut tax system so 
 long as Federal tax policies remain as at present. 
 
 The principal argument in opposition to the viewpoint that the 
 Federal Government has pre-empted the individual income tax 
 field, is that a modest State income tax could be added to the 
 present Federal income tax without raising the total tax pay- 
 ment of an individual to any substantial extent, so long as the 
 State tax is a deduction from gross income for Federal tax pur- 
 poses. For example, assume a State personal income tax with 
 rates of 1, 2, 3, 4 and 5 per cent on the first, second, third, fourth 
 and fifth thousand dollars, respectively, of taxable income, plus 
 6 per cent of the remainder, and with exemptions of $1,000 for a 
 single person, $2,500 for a married person and $500 for each de- 
 pendent. 
 
 A married person — with two dependents, having $5,000 income 
 and ordinarily paying a Federal income tax (before the 1948 re- 
 vision) of $589 — would pay a State income tax of $20; but the 
 State tax deduction from his income for Federal tax purposes 
 would reduce his Federal income tax by $4.00 to $585, making his 
 net increase due to the State tax $16.00. At $10,000 of income, 
 the same individual would pay $1,862 Federal income tax, but his 
 State income tax of $240 would reduce his combined Federal and 
 State taxes to $2,034, or a net increase of $172. In the $50,000 
 class, the same individual would pay the State of Connecticut 
 $2,640 but would only increase his total tax payment for Federal 
 and State taxes over his $24,111 Federal tax alone by $834.* 
 
 A factor similar to this Federal-State tax relationship is in- 
 troduced by an interstate tax problem. A substantial number 
 of Connecticut residents now pay the New York State income 
 tax as well as the Federal income tax. Under the reciprocity 
 provision of the present New York law they would be released 
 from the New York income tax to the extent that they are re- 
 quired to pay a Connecticut income tax. It is doubtful, how- 
 ever, as to how long New York would permit a Connecticut citizen 
 
 ! See Connecticut Federation of Labor (A. F. of L.)» Testimony on sales tax and income lax. Hearing, 
 before the Finance Committee, Connecticut General Assembly (Special Session), February 4, 5 and 20 
 1948. Table 1. 
 
to escape entirely the New York tax on income earned in New 
 York. If Connecticut were to impose an income tax and if New 
 York were then to remove or modify the reciprocity feature of its 
 law, Connecticut might be faced with the unhappy choice of sub- 
 jecting a substantial number of Connecticut citizens to a very 
 burdensome kind of double taxation or of depleting its revenue 
 by agreeing to allocate tax liability between the state of residence 
 and the state of earning. 
 
 The demonstration of Federal tax offsets to a State tax, more- 
 over, still leaves an open possibility of excessive burdens. The 
 history of the Federal income tax with its sharply increasing rates 
 tends to create fear of a repetition of the same history among the 
 States. At best, the point that the Federal deduction for the State 
 tax eliminates the relative burden of the State tax, depends upon 
 continued high Federal rates. A reduction in the Federal rates 
 reduces the "saving" to the State taxpayer; and the need for more 
 Federal revenues forces a higher Federal rate because of deduction 
 losses at the State level. The same argument would, moreover, 
 apply to any other State tax that is deductible for Federal tax 
 purposes — indeed, it is equally applicable to the property tax, and 
 justification for an increase in this tax could be made with equal 
 merit because of its deductibility from the Federal income tax. 
 While the deductible feature of a State tax has a plausible and 
 persuasive sound, its benefit to the State taxpayer may be far more 
 apparent than real. In order to avoid an excessive burden, it would 
 always be necessary to design any State tax with relatively low 
 personal exemptions and low over-all rates, as compared with the 
 sharply "progressive" Federal rates. 
 
 Among the States that have employed the individual income 
 tax, there has been a conspicuous restraint in the establishment 
 of rates. Table 26 shows, for example, that individual income 
 tax collections among the States were well below 1 per cent of 
 retail sales in 1946, except in New York, North Carolina, Oregon, 
 South Carolina and Wisconsin. The percentage of income pay- 
 ments taken by individual income taxes, as shown by the same 
 table, is most frequently 0.3 per cent. While these figures show 
 that the individual income tax, as used by the States, has had a 
 very moderate impact upon the economy, the table also shows 
 that the States derive substantial percentages of their total taxes 
 from this source. All but seven of the States derive 5 per cent 
 or more of their total taxes from the individual income tax and 
 eight States derived 10 per cent or more from this source. It is 
 
 106 
 

 
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significant, however, that no State has adopted an individual 
 income tax since the imposition of the sharply increased Federal 
 normal and surtax rates. 
 
 One factor that would modify any conclusions drawn from 
 Table 26, however, is the question whether the States shown do 
 or do not also have sales taxes. It is significant to note that of 
 the five States whose income tax collections exceed 1 per cent of 
 retail sales, only North Carolina also has a sales tax; and North 
 Carolina barely made the 1 per cent bracket. Obviously, in a 
 State that has both an income tax and a sales tax, the income 
 tax collections should represent a low percentage of retail sales. 
 
 This leads to a further question: From the viewpoint of the 
 distribution of the present tax burden in Connecticut, do those 
 persons paying the Federal income tax represent a different in- 
 come group from those paying the Connecticut consumer sales 
 tax? While complete data are not available, experience with the 
 Federal income tax and studies of consumer spending patterns 
 are a good guide to the impact of these two taxes. Since the sales 
 tax is measured by consumption expenditures, the income groups 
 paying that tax can best be considered according to their disposable 
 income, that is, income after the payment of Federal personal 
 income taxes. Table 27 shows an estimated distribution of individ- 
 uals according to disposable income groups in 1947. 
 
 TABLE 27 
 
 Distribution of Spending Units, Disposable Income, Net Saving, 
 
 Selected Durable Goods Expenditures, and Other Consumer 
 
 Expenditures, by Disposable Income Groups, 1947 
 
 (per cent) 
 
 Total 
 
 Selected Total 
 
 Durable Other 
 
 All Total Total Goods Consumer 
 
 DISPOSABLE Spending Disposable Net Expendi- Expendi- 
 
 INCOME GROUP Units Income' Saving tures 2 tures' 
 
 Under $2,000 40 16 —12 12 19 
 
 $2,000-$2,999 25 20 8 23 21 
 
 $3,000-$4,999 25 32 25 35 33 
 
 $5,000 and over. . . 10 32 79 30 27 
 
 All income groups 100 100 100 100 100 
 
 'Disposable income is denned as money income less estimated Federal personal income tax liability. 
 
 'Includes automobiles, furniture, radios, and household appliances such as refrigerators, ranges, washing 
 machines, vacuum cleaners, home freezers, and miscellaneous other appliances. Expenditures for auto- 
 mobiles are net of trade-in allowances. 
 
 'Covers expenditures for all goods and services not included in Beleoted durable goods (see footnote 2) 
 includes food, housing, clothing, medical care, other living costs, State and local taxes, recreation, trans- 
 portation, and education, as well as expenditures for durable goods such as floor coverings, jewelry, fur 
 coats, and other miscellaneous durable items. 
 
 Source: Board of Governors of the Federal Reserve System, "1948 Survey of Consumer Finances." 
 Pt. IV. Federal Reserve Bulletin (Aug. 1948), p. 928. 
 
 108 
 
This table shows that 65 per cent of selected durable goods ex- 
 penditures and 60 per cent of other consumer expenditures came 
 from persons with disposable incomes of $3,000 and upward. This 
 means that any consumer sales tax which exempts such items as 
 food and rent will be dependent for its major share of revenue upon 
 the group of consumers with disposable incomes exceeding $3,000. 
 This is undoubtedly the case in Connecticut. 
 
 The experience of the Federal Government with the individual 
 income tax, as shown in Table 28 is that the groups with gross 
 income of less than $3,000 account for 72 per cent of all taxable 
 income recipients, but provide only 27 per cent of total tax col- 
 lections on a national basis despite the present low Federal per- 
 sonal exemptions. What might be called the middle income group, 
 those having gross income between $3,000 and $10,000, account 
 for 26 per cent of all taxable income recipients and provide 36 
 per cent of the total tax. While these income groups are not en- 
 tirely comparable with "disposable income groups," as used in 
 the discussions of the consumers sales tax, the difference is small 
 enough in the lower income groups to permit this observation: 
 Taxpayers with income of less than $3,000 annually account for 
 25 per cent of all Federal income tax, whereas a comparable group 
 would account for an estimated 33 per cent of potential sales tax 
 payments after allowance for basic exemptions. It is thus evident 
 that while an individual income tax is more likely to impose a heavier 
 proportionate burden on the upper income group, and the con- 
 sumer sales tax can more readily require a tax contribution from the 
 lowest income groups, under either tax as presently constituted 
 the bulk of the tax revenue must come from the middle and upper 
 income groups. 
 
 The Committee concludes, therefore, that: 
 
 It is inaccurate to view the individual income tax as the rich 
 man's tax and the consumer sales tax as the poor man's tax. 
 Either may be made to operate equitably within the State's 
 economy. The emotional labels that have been attached to 
 both the sales and income taxes should give way to the hard 
 facts of exemptions, deductions and rates. 
 
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 110 
 
Taxes Related to the Benefits of Government 
 
 In State and local government the capacity to pay theory of 
 taxation is even more limited than the conditions of our Federal 
 system of government would imply. The services provided by 
 State and local governments, such as education, health, welfare, 
 protection, and highways are of the broadest and most direct 
 benefit to all citizens regardless of economic status. The recog- 
 nition of these benefits in tax policy introduces an element of 
 equity, and requires a basis of public support for the cost of gov- 
 ernment which is not solely related to capacity to pay. It would 
 be impossible to allocate the costs of Federal programs such as 
 the Marshall Plan or military preparedness on a benefit basis. 
 But State and local services such as highways and education lend 
 themselves far more readily to the benefit principle. If the benefit 
 theory is accepted, it requires at most that a modern tax system 
 have some elements of capacity to pay rather than be based en- 
 tirely or primarily upon that theory. 
 
 For example: The gasoline tax pays for the highways; the 
 more highways there are, the more gasoline is likely to be con- 
 sumed. The more a taxpayer uses the highways, the more he 
 pays in taxes. The property tax is justified on a similar basis. 
 The rate of the tax is uniform whether the taxpayer owns much 
 or little property. He shares the expenses of the town or city ' 
 in the proportion that the value of the property he owns bears 
 to the total assessed value of all the property in the community. 
 A consumer sales tax implies the benefit that all people receive 
 from government, and is justified as a "broad base of support" 
 — a base more easily reached by a "spending" than an "earn- 
 ing" measure. There are also numerous special taxes adapted 
 to the peculiar character of the subject — such as mutual insur- 
 ance companies, public utilities and the severance of natural 
 resources which have little reference to capacity in the sense of 
 an "earnings" measure. 
 
 The desire to exploit both elements, that is the benefit theory 
 and the capacity-to-pay theory, and the practical difficulty of 
 reaching the lowest income groups through the income tax, has 
 persuaded many States to adopt both a consumer sales tax and 
 an individual income tax. While there are 31 States and the 
 District of Columbia with individual income taxes, and 26 States 
 with consumer sales taxes, 19 States have both types of taxes. 
 In other words, there are only seven sales tax States which do 
 not also have an individual income tax, while there are 12 States 
 
 111 
 
and the District of Columbia which have an individual income 
 tax which do not have a consumer sales tax. This represents the 
 early virility of the capacity-to-pay theory as well as the late 
 recognition among American States of the consumer sales tax. 
 
 The benefit theory of taxation is further supported by the his- 
 torical axiom that a universal tax contribution is essential in 
 a democracy. In the early days of our country the suffrage was 
 limited to those who could qualify by property ownership. While 
 we have fortunately outgrown this undemocratic element, the 
 idea that some responsibility for the costs of government should 
 go with the right to vote and to receive the benefits of govern- 
 ment, has its strongest support in modern political experience. 
 It might be argued that hidden taxes already take a substantial 
 percentage of earnings of low income groups, and that these 
 hidden taxes should first be repealed before a direct contribution 
 is required. The answer would be that wages are already adjusted 
 to the higher costs of commodities which are attributable to hidden 
 taxes. The broadest possible base of direct contribution for the 
 support of government, moreover, would help to prevent the im- 
 position of taxes solely for political advantage. It may also be 
 stated that lower income groups may more readily make a direct 
 contribution under a consumer sales tax since the income tax 
 for practical reasons of administration tends toward a more limited 
 group. 
 
 The Committee concludes therefore — 
 
 That the personal income tax has no substantial advantage 
 over the consumer sales and use tax either to meet the require- 
 ments of civic responsibility or to support the public services of 
 Connecticut. 
 
 Stability of Revenue 
 
 A further factor which conditions State tax policy is the in- 
 ability of State and local governments, unlike the Federal Gov- 
 ernment, to engage in prolonged deficit financing. The Federal 
 Government, under its control of the currency and of the banking 
 system of the nation, as well as under its legally unrestricted 
 borrowing power, has the capacity to operate even though its cash 
 income falls substantially below its cash outgo. The States and local 
 governments, however, have no such financial resources and are 
 required to find, either annually or biennially, sufficient tax re- 
 ceipts and other governmental revenues to balance budgeted 
 
 112 
 
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expenditures. It is considered thoroughly unsound fiscal practice, 
 moreover, for any State or local government to borrow for current 
 operations as distinguished from capital expenditures. The ac- 
 cumulation of cash surpluses, for use against declining revenues, 
 has also been found to be an erratic and uncertain support for 
 State financial needs. These conditions make stability of revenue 
 a major consideration in any State or local tax system. 
 
 From the viewpoint of fiscal policy, therefore, it is important 
 to consider the fluctuations in the revenue yield of an individual 
 income tax as compared with the consumer sales tax. The mean- 
 ing of these fluctuations, in terms of financial embarrassment to 
 the State, will depend, of course, upon the percentage of total 
 State revenues that is sought from either tax. A considerable 
 number of sales taxes were adopted during the depression years 
 of 1933-1937 by States which had already become dependent 
 upon an income tax for their needs. This failure of the income 
 tax to hold up during the low years in an economic cycle developed 
 in Oklahoma, Missouri, North Dakota, North Carolina, Arkansas, 
 Utah, Alabama, Kansas and Louisiana. 
 
 The relative stability of net income and retail sales as a tax 
 base is shown in Table 29. This table compares, on a national 
 basis, the trend of Federal taxable net income and retail sales 
 over a period of time which excludes the war years and provides 
 a good illustration of an economic cycle. In 1933 the index of net 
 income fell to 21.0 as compared with 100 for 1929. In the same year 
 of 1933 the retail sales index fell to 50.9. These were the low points 
 in both indices and indicate how much more severely the yield from 
 an income tax would be affected by adverse economic conditions 
 than would be the yield of a retail sales tax. 
 
 Looking at the period 1929-1940 as a whole, the average index 
 for the income tax is shown as 46.1 per cent as compared with 
 an average index for the sales tax of 73.5 per cent. These aver- 
 ages in themselves illustrate the greater resistance to economic 
 fluctuations of a tax based upon retail sales. When the fluctua- 
 tions from year to year are compared, the average rise and fall 
 of income is shown as plus or minus 15 per cent from 46 per cent, 
 whereas the average rise and fall of retail sales is shown as plus 
 or minus 11 per cent from 73 per cent. It is, of course, much 
 more important when the index falls 15 points from an average 
 of 46 than it is when it falls 11 points from an average of 73. The 
 relative importance of these two measures of the fluctuation in 
 the potential tax bases is expressed in the table as the "coefficient 
 
of dispersion," or 33.8 for the income index and 15.5 for the sales 
 index. In other words, starting with 1929 as 100, the average 
 index over the eleven year period following fell to 46.1 and the aver- 
 age fluctuation from year to year would have meant an average 
 loss of 33.8 per cent in revenue from a base measured by a Federal 
 tax on net income. In the case of the retail sales index, again 
 beginning with 1929 as 100, the average index for the following 10 
 years fell to only 73.5 per cent, and the average fluctuation from 
 year to year would have meant an average revenue loss of 15.5 
 per cent. It is, of course, inherent in an income tax that the base 
 may practically disappear whereas it is inherent in a retail con- 
 sumption tax that the base will not fall below a minimum level of 
 cosumption. As a long-term support for State and local govern- 
 ment, therefore, the general consumer sales tax has decided ad- 
 vantages over the personal income tax. 
 
 From the viewpoint of revenue requirements, the trend of State 
 and local government expenditures for capital outlays has tended 
 to follow economic cycles, 1 but this tendency may be partially 
 discounted in view of an accepted policy of counter-cyclical public 
 works expenditures. 2 Expenditures for emergency relief would, 
 of course, rise at all levels of government and create an added de- 
 mand for new revenues in depression periods. Table 15 shows that, 
 with the exception of the four recent adoptions, practically all 
 consumer sales taxes were added to State income taxes in the de- 
 pression period. A limiting factor again, moreover, is the inability 
 of State and local governments to follow a deficit financing policy 
 for any length of time. 
 
 Federal-State Tax Co-ordination 
 
 Over the past generation, repeated efforts have been made at 
 various levels of government to co-ordinate Federal and State 
 taxing systems. Three rather extensive reports on the subject 
 of tax co-ordination have been issued within the past five years. 3 
 More recently, the movement for tax co-ordination has taken the 
 form of a movement for tax segregation — an idea developed most 
 energetically in the annual Governors' Conferences. Neither segre- 
 gation nor co-ordination, however, has made much progress, largely 
 
 1 V. S. Dept. of Commerce, Fluctuations in Capital Outlays of Municipalities (1941), passim. 
 
 2 See Bd. of Gov. of Fed. Reserve System, Public Finance and Full Employment (Post war Eco. Studies 
 No. 3, 1945), pp. 101-131. 
 
 S U. S. Senate Document No. 69, Federal, State and local government fiscal relations (July, 1943) . [This 
 was the report of the Treasury Department's Committee on Intergovernmental Fiscal Relations, composed 
 of Harold Graves, Luther Gulick and Mabel Newcomber]; Report of the Joint Committee of the American 
 Bar Association, the National Tax Association, and the National Association of Tax Administrators, Th e 
 Co-ordination of Federal, State, and Local Taxation (1946) ; U. S. Treasury, Division of Tax Research, Fed- 
 eral-State Tax Co-ordination (Washington, July, 1947). [This report supplements the 1943 special com- 
 mittee report.] 
 
because increasing demands upon both Federal and State Govern- 
 ments have pressed both levels to seek to diversify their revenue 
 structures. This economic pressure, combined with political inertia 
 and the diverse needs of 48 States, has made futile even the most 
 energetic efforts for change. The result is the retention of a chaotic 
 mass of overlapping taxes. 
 
 The major areas of overlapping taxes as between the Federal 
 and State Governments are the corporation and individual net 
 income taxes, death taxes, alcoholic beverage taxes, and motor 
 fuel taxes. The net income tax on corporations was first adopted 
 by the Federal Government in 1909 and later taken over by many 
 States, Connecticut being the second State to adopt such a tax. 
 The net income tax on individuals was adopted by the Federal 
 Government in 1913. One State — Wisconsin — had already adopted 
 this tax in 1911. Since the World War I period, however, the 
 personal income tax has spread to more than half the States. The 
 States have a prior claim to death taxes and to motor fuel taxes. 
 The Federal Government entered the death tax field in 1916 and the 
 motor fuel area in the depression year, 1932. Both levels of govern- 
 ment adopted their present alcoholic beverage taxes at about the 
 same time — the repeal of Prohibition. The tobacco tax is an old 
 Federal levy, originating in the Civil War period. States, with the 
 exception of Maryland, did not invade this field until the twentieth 
 century. 
 
 The only major area of taxation open to the States which would 
 not overlap an existing Federal tax is the consumer sales tax (Table 
 30). Even in this area the selective sales taxes of the Federal 
 Government, in the form of the war-born retailers excise taxes 
 on so-called luxuries, create some overlap. Thus Federal retail 
 excise tax collections in Connecticut in 1947 were $6.7 million, 
 which in itself is a sizable overlap on the present Connecticut 
 sales tax. Table 30 also reflects the overwhelming importance of 
 the Federal income tax in our Federal system of Government. 
 Total State individual income taxes (in 31 States) represented only 
 2.2 per cent of the Federal total, and the Federal individual income 
 taxes collected in Connecticut almost equaled the State individual 
 income taxes collected in 31 States. The fact remains that a State 
 like Connecticut seeking a new major source of tax revenue had only 
 one choice — the sales tax — if it wanted to avoid additional duplica- 
 tion and overlapping in the chaotic Federal-State tax structure. 
 
 It is pertinent to consider the possibilities of substantial Fed- 
 eral withdrawals from existing taxes as a factor that might make 
 the personal income tax more acceptable to a State like Con- 
 
 116 
 
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necticut. Here, however, we are faced with continuing and proba- 
 bly increasing demands upon the Federal budget to meet national 
 defense and international commitments, as well as domestic 
 requirements. We are facing the possibility of fifty billion a year 
 spending by the National Government. Four-fifths of the current 
 Federal budget cover the costs of past wars or protection against 
 the threat of another conflict. There is, therefore, little likelihood 
 that the Federal Government will make any substantial withdrawal 
 from the income or other tax fields. This means that States inter- 
 ested in doing what they can to support the tax co-ordination move- 
 ment are left to the selection of revenue sources which so far as 
 possible do not overlap existing Federal taxes. From this point 
 of view the individual income tax loses some of its acceptability. 
 
 The arguments for complete separation of tax sources have 
 not, however, been accepted by all careful observers of the post- 
 war tax picture. For example, the Committee on Post- War Tax 
 Policy declared: 
 
 The real difficulty is not so much with overlapping, as 
 such, but with the burden of the two taxes on the same tax 
 base at the rates presently imposed. If both Federal and 
 State Governments were to tax incomes, alcoholic bever- 
 ages, or tobacco, or anything else at low or moderate rates, 
 there would be a certain annoyance and additional cost of 
 compliance with the two taxes, but as long as the total burden 
 was moderate there would not be serious complaint about 
 overlapping. It is the present heavy burden of the overlapping 
 taxation that produces the principal complaint. The really 
 effective remedy is to reduce over-all governmental costs. 
 Were this to be accomplished most, if not all, of the objection 
 would disappear .... 
 
 There is a disposition by some to regard any use of the 
 same tax by both the Federal Government and the States as 
 ipso facto unsound, raising merely the problem of how to 
 correct the situation. This notion is not, we think tenable 
 as a general proposition. If the Government of the United 
 States chooses to make use of the income tax, for example, 
 and the State of New York, after consideration of all the 
 circumstances, including the use of this tax by the Federal 
 Government, decides that the income tax is the best means 
 of raising certain revenues, there is nothing inherently un- 
 sound in the enactment of an income tax by the State of 
 New York. 
 
 118 
 
Nor is there necessarily injustice to the taxpayers. True 
 the burden on incomes of New York residents is greater than 
 if New York had not used the income tax. But it does not 
 follow that New York residents would be any better off if the 
 equivalent revenue were raised by means of some alternative 
 tax. That was presumably one of the points considered 
 by the Legislature before it chose to enact the income tax. 
 
 It is true that the use of the same tax by both the United 
 States and the several States presents certain complications 
 and difficulties and annoyances. These need to be carefully 
 weighed. It is our belief, however, that dealing with the 
 problem of overlapping taxes in terms of broad generalization 
 is not the most fruitful approach. 1 
 
 This analysis is basically valid in that overlapping would not 
 be so undesirable if the tax burden were relatively slight. The 
 approach, however, is rendered academic in the light of post-war 
 developments which could not be anticipated by the Committee 
 on Post-War Tax Policy and which necessitate high-level ex- 
 penditures for defense and international reconstruction programs. 
 The practical fact is that the Federal tax burden will continue to 
 be heavy for an indefinite period. Hence, a State must seek taxes 
 that will preserve as much equity as is possible in the over-all tax 
 structure. 
 
 With respect to a State individual income tax in Connecticut, 
 the conclusions of the Committee are as follows: 
 
 The broadest possible tax base for the support of general 
 governmental services is a sound investment in democracy 
 and, it may be added, a salutary restraint on excessive spend- 
 ing. 
 
 Sharp increases since 1940 in the Federal taxation of personal 
 income, have introduced a new factor in State tax policy. So 
 long as present Federal levies continue, the element of capacity 
 to pay is supplied in full measure by the present graduated Fed- 
 eral personal income tax. 
 
 Substantial tax revenues can only be provided by a tax of 
 general application to all income groups regardless of whether 
 personal income or consumers sale is the base. 
 
 Under present conditions the consumer sales tax has advan- 
 tages over the personal income tax, including greater stability, 
 freedom from duplication and overlapping of Federal taxes, 
 and a broad basis of direct public support for State Govern- 
 ment. 
 
 'A Tax Program for a Solvent America (New York, 1945), pp. 230, 231-232. 
 
CHAPTER 5 
 
 The Taxation of Business 
 
 The taxation of business in Connecticut conforms to the gen- 
 eral pattern of business taxation in most American States. Along 
 with other taxpayers, business pays the various consumption 
 excise taxes, such as tax levies on gasoline, alcoholic beverages 
 and cigarettes, the consumer sales tax, and the general property 
 tax. It is peculiarly subject to the general property tax as it applies 
 to business inventories, machinery and equipment. Business, in 
 general, is subject to the unemployment compensation pay roll 
 tax, the corporation franchise tax, and the unincorporated business 
 tax. Certain enterprises, including insurance companies, railroads 
 and other public utilities, are specially taxed because of their 
 special nature. 
 
 There are, however, two taxes in Connecticut that are popu- 
 larly known as business taxes. First — the corporation franchise 
 (income) tax, payable annually at the rate of 3 per cent upon 
 corporate net income (with an alternative minimum of 13^ mills 
 per dollar of "invested capital"). Second — the unincorporated 
 business tax, measured by gross receipts (a) at the rate of 1 mill 
 per dollar on retail mercantile business, motor transportation, 
 amusement and manufacturing business, and (b) at the rate of 
 yi of one mill per dollar upon wholesale businesses. 
 
 The first of these — the corporation income tax — is comparable 
 to similar taxes imposed by 32 other States, and the second — 
 gross receipts tax on unincorporated business — is comparable 
 to a similar levy imposed in Rhode Island on unincorporated 
 business and by New York City, Arizona, Delaware, Indiana, 
 Mississippi, New Mexico, North Carolina, Virginia, Washing- 
 ton and West Virginia, on both corporate and unincorporated 
 business. For many years, the city of Philadelphia levied a similar 
 tax, known as the mercantile license tax, but abandoned it in 1946. 
 A number of cities in Pennsylvania are again turning to this type 
 of levy under recent enabling legislation. 
 
 Individual proprietors and partnerships (unincorporated busi- 
 ness) are subject to a somewhat different tax plan in Connecticut 
 
 120 
 
than in the great majority of the 33 States levying a corporate 
 income tax. In all of these States except Connecticut, Pennsylvania, 
 Tennessee and Rhode Island, the same States which impose cor- 
 porate income taxes also impose personal income taxes which 
 reach unincorporated business. New York levies a special unin- 
 corporated business tax. Delaware, on the other hand, is the only 
 State imposing a personal income tax which does not make a similar 
 levy on corporate income. 
 
 Characteristics of the Corporation Business Tax Act of 1935 
 
 A statistical analysis of the Connecticut corporation franchise 
 tax returns for 1948, summarized in Table 31, covers 11,675 in- 
 dividual corporations. These returns represented $13.4 mil- 
 lion in taxes paid out of the $15.1 million shown as corporate busi- 
 ness taxes in the preliminary report of the comptroller to the 
 Governor. The difference of $1.7 million represents $712,000 col- 
 lected from the previous period, but included in the comptroller's 
 figure, and some $965,000 of returns filed as preliminary estimated 
 payments not finally adjusted. The analysis then is based on 93.1 
 per cent of the total returns for the 1948 period. 
 
 TABLE 31 
 
 Connecticut Corporate Business Tax by Type of Business, 
 Number of Firms, and Tax Paid 
 
 1948 
 
 {Amounts in thousands of dollars) 
 
 TYPE OF BUSINESS Number of Firms Total Tax % of Total Tax 
 
 Manufacturing 2,708 $7,426 55.4% 
 
 Wholesale Trade 1,381 2,914 15.0 
 
 Finance and Real Estate 2,566 1,921 14.3 
 
 Retail Trade 2,760 1,318 9.8 
 
 Service Industries 1,073 290 2.2 
 
 Contract Construction 770 249 1.9 
 
 Agriculture, Forestry, Fishing 108 105 .8 
 
 Transportation, Communication 267 86 .6 
 
 Mining 42 20 .1 
 
 Total 11,675 $13,429 100.0% 
 
 Source: 11,675 Connecticut Business Tax Returns, Form 66B, 1948. 
 
These are some of the highlights of an analysis of the corporate 
 tax returns: 
 
 The 72 largest corporations in the State paid $2.8 million or 
 20.9 per cent of the total reported. 
 
 Some 6,069 corporations or 52 per cent of those reporting 
 paid less than $100 tax per corporation, and in the aggregate 
 paid an estimated $289,575, or only 2.2 per cent of the total 
 tax. 
 
 Of the 6,069 small returns, 2,445 paid the $15 alternative 
 minimum while 290 paid the $10 alternative minimum based 
 on the old rate prior to revision. In all, 23.4 per cent of all the 
 corporations filing returns paid taxes on the flat alternative 
 minimum basis. Some 3,334 corporations, on the other hand 
 paid an estimated $250,000 in individual payments, each less 
 than $100 but greater than the flat alternative minimum. 
 
 The remaining corporations (other than the 72 largest cor- 
 porations and those paying less than $100) numbering some 
 5,534 firms, or 47.4 per cent of those analyzed, paid $10.3 mil- 
 lion or 76.9 per cent of the total tax. 
 
 The relative importance of the various industry groups in the 
 total tax yield is shown by a breakdown of the total into nine 
 major groups, in accordance with the first two digits of the un- 
 employment compensation classification code. Table 32 shows these 
 groups, and selected data taken from Connecticut form 66B for the 
 5,606 corporations paying individually in excess of $100 tax. 1 The 
 significance of manufacturing in the Connecticut economy is ob- 
 vious in the payment of 56.2 per cent of the corporate business 
 tax by manufacturing concerns. 
 
 Wholesale trade stands next in relative significance, paying 
 15.1 per cent of the tax. Here again the importance of Connecticut 
 as a primary producer and shipper of goods is evident. Whole- 
 salers pay 15.1 per cent of the total tax compared with 9.5 per cent 
 paid by retail trade, although there are twice as many retailing 
 corporations as there are wholesalers. The comparative importance 
 of manufacturing above all other types of economic endeavor, 
 stands out, however, in an income tax bill 3.7 times that of whole- 
 saling. 
 
 "This represents the portion of the study subjected to punched card and machine tabulation analysis. 
 
 122 
 
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The present operation of the \y 2 mills minimum levy on invested 
 capital, as compared with the primary measure of net income 
 is shown in that 96.7 per cent of the tax paid was paid on an in- 
 come basis rather than on invested capital. While this high per- 
 centage may prevail during periods of great economic activity, 
 a recession or depression would tend to increase the percentage paid 
 on an invested capital basis. 
 
 In the case of the smaller returns, the invested capital measure 
 appears of greater importance. Table 33 breaks down the 6,060 
 corporations paying under $100 each in tax. The predominance 
 of retail trade appears in this group with 1,514 firms paying about 
 25 per cent of the tax paid by the groups. It is evident that as net 
 incomes become smaller, more instances occur in which the alterna- 
 tive tax on invested capital tends to exceed the income tax and 
 hence becomes the applicable measure. This is shown in Table 
 33 by payment on an invested capital basis of an estimated 29.0 
 per cent of the total payments under $100 by 1,762 firms. Some 
 1,572 firms, or 26 per cent of the group paid on a net income basis. 
 The remaining 2,735 corporations paid $39,575 on the flat minimum 
 tax basis. Those paying the flat sum minimum represented 45 per 
 cent of the small tax group and 23.4 per cent of the 11,675 re- 
 turns included in the over-all study. 
 
 It should be re-emphasized at this point that the small tax pay- 
 ment group represents 52 per cent of the total number of returns 
 and only 2.2 per cent of the tax payments. 
 
 In view of these facts, the Committee recommends that the 
 Tax Department consider the development of a simplified re- 
 turn form and short-rate table which could be used by corpora- 
 tions which pay $100 or Jess in tax. 
 
 Income vs. Invested Capital 
 
 The income base, after allocation to Connecticut of that part 
 of total income represented by business activity in this State, 
 is subject to a flat rate of 3 per cent. The amount of tax developed 
 by the income measure is subject to two alternative minimum 
 provisions, either 1% mill per dollar of invested capital or $15 
 whichever is greater. In effect, whenever any company earns a 
 taxable net income {before deducting Federal taxes) of less than 5 
 per cent of its taxable invested capital the \y 2 mill minimum tax will 
 become payable. 
 
 124 
 
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Table 34 shows the ratio of taxable net income to taxable in- 
 vested capital in Connecticut for 1948 for firms reporting on a 
 net income basis. In all lines of activity the ratios greatly ex- 
 ceed 5 per cent. That retail trade (25.1 per cent) should be less 
 than wholesale (36.2 per cent) reflects the relatively lower net 
 profit margins in retail businesses. The bulk of the tax revenue, 
 under current business conditions, will be developed by the in- 
 come measure rather than invested capital measure of the corpora- 
 tion tax. This effect is indicated in Table 32 which shows that 
 96.7 per cent of the 1948 tax was paid on the income basis, and 
 only 3.3 per cent on the invested capital basis. If net profits should 
 decline to prewar levels, however, the alternative minimum tax 
 measured by invested capital would become the larger measure 
 of the tax and serve as a stabilizing factor so far as the State revenue 
 is concerned. 
 
 TABLE 34 
 
 Connecticut Corporate Business Tax 
 Ratio of Taxable Net Income to Taxable Invested Capital, 1948 1 
 
 (Amounts in thousands of dollars) 
 type 
 
 Net Income 3 
 
 Manufacturing $175,240 
 
 Wholesale Trade 57,865 
 
 Retail Trade 36,836 
 
 Finance, Real Estate 7,737 
 
 Service Industries 7,365 
 
 Contract Construction 5,546 
 
 Agriculture, Forestry, Fishing 3,231 
 
 Transportation, Communication 2,277 
 
 Mining 378 
 
 Total $296,475 $1,152,102 25.7% 
 
 Conformity tojFederal Corporate Income Tax 
 
 The scope and coverage of the Connecticut Corporation Busi- 
 ness Tax Act of 1935 is generally broader and more inclusive 
 than the corporation taxes of many other States. It is particu- 
 larly well designed in that it provides uniform treatment with 
 other commercial firms for the taxation of banks, savings and 
 loan and building and loan associations and every other corpora- 
 
 
 Net Income as 
 
 Invested 
 
 % of Invested 
 
 Capital 8 
 
 Capital 
 
 $701,011 
 
 25.0% 
 
 160,006 
 
 36.2 
 
 146,529 
 
 25.1 
 
 70,738 
 
 10.9 
 
 32,360 
 
 22.8 
 
 18,957 
 
 29.3 
 
 10,773 
 
 30.0 
 
 10,525 
 
 21.6 
 
 1,203 
 
 31.4 
 
 "Includes 3,636 returns paying over $100 on net income basis and indicating both invested capital and 
 net income. 
 'Connecticut inoome subject to 3 per oent tax. 
 'Invested capital subjeot to 1}4 mill tax. 
 Source: Connecticut Forma 66B, 1948. 
 
 126 
 
tion carrying on business in the State except the limited classes 
 of corporations which are specially taxed, namely, railroads, insur- 
 ance companies and public utilities. The definition of the principal 
 base of the tax, net income, is essentially the same as the Federal 
 Corporate Income Tax with certain exceptions. The Committee 
 has reviewed these exceptions in the hope of suggesting a closer 
 conformity between the State and Federal taxes, and also to con- 
 sider proposals it has received which would have the same effect. 
 
 The principal differences between the Federal tax and State 
 tax are these: 
 
 Interest from Federal, State and local government securities — 
 whereas the Federal Government does not tax this income, the 
 State includes it in the income measure of the franchise tax; 
 
 Dividends — the Federal Government includes dividends re- 
 ceived in surtax net income (at 14%) and excludes 85 per cent 
 of dividends received from normal tax net income (at 24%) and 
 Connecticut, having no surtax, treats dividends received in the 
 same manner as under the Federal normal tax net income pro- 
 vision; 1 
 
 Interest paid — the Federal Government permits interest to be 
 deducted as an expense of doing business, whereas Connecticut, 
 alone among the States in this respect, does not; 
 
 Net operating loss carry-over — the Federal Government allows 
 losses of other years to be carried over so as to reduce the taxable 
 income of the current year, whereas Connecticut does not allow 
 this deduction. 
 
 Federal taxes on income or profits—State taxes are deductible 
 in computing Federal taxable income, whereas the Connecticut 
 tax is before Federal income tax. 
 
 In considering further conformity to the Federal tax, the Com- 
 mittee assumed that it was too well settled to require consideration 
 at this time that the Connecticut tax law should not allow deduction 
 of interest on governmental securities, nor Federal income taxes 
 
 ■The State Tax Commissioner has issued Regulation No. 11, which states: "Dividends received from 
 ownership of shares of stock of domestic corporations shall be deductible under item 26a, schedule A, in 
 d etermining net income to the extent of 85 per cent of the amount received as shown in item 12a of schedule 
 A, but not in excess of 85 per cent of item 33, page 1, of the Federal return." The use of the term "do- 
 mestic corporation " in this context is misleading since it apparently must refer to Federal usage — meaning 
 any corporation incorporated under the laws of any State of the United States. This interpretation seems 
 t o be required by the tax law which incorporates the federal definition of gross and net income, subject to 
 c ertain exceptions among which dividends do not appear. 
 
paid. It has accordingly considered — in response to specific request 
 — the matters of dividends received, interest paid, and net loss 
 carry-overs. 
 
 Dividends — the deduction allowed for dividends received is 
 exceptionally generous among State tax laws where the divi- 
 dends are not received from a subsidiary. Connecticut, on the 
 other hand, does not give effect to consolidated returns, whereas 
 the Federal Government permits this type of return. The ques- 
 tion might well be raised, however, whether the deduction of all 
 but 15 per cent of dividends received in computing net income, 
 as well as the elimination of all shares of stock in all private cor- 
 porations in computing invested capital, does not give an unfair 
 preference in business taxation to investment and holding com- 
 panies. This question is especially pertinent since the corporate 
 franchise tax is specifically provided to be "in lieu of all other 
 taxes upon the intangible assets of any company" (such as the 
 four-mill tax on intangibles). 
 
 Net loss carry-over — this question involves both the carry-back 
 and carry-forward of net operating losses, but the Committee has 
 considered only the latter. The carry-back privilege has proved 
 so complicated in Federal administration that it is likely to be 
 abandoned there also. The State tax, being at the nominal rate 
 of 3 per cent, the privilege of net loss carry-forward is of much less 
 value to the individual taxpayer for State purposes than for Federal. 
 A major point of difference between the two systems, moreover, 
 makes the carry-over inapplicable to the Connecticut franchise 
 tax. This tax, unlike the Federal tax on income, is in terms of a 
 corporate franchise tax, income being only the measure of the 
 charge for the corporate franchise in each year. This characteristic 
 of the State tax is further illustrated by the alternative minimum 
 tax of 1^2 mills on invested capital which operates not only when 
 a corporation realizes net loss but whenever net income amounts 
 to less than 5 per cent of invested capital. The carry-forward of 
 losses would be particularly difficult to reconcile with this alterna- 
 tive minimum tax on invested capital. The Federal corporate 
 income tax, on the other hand, uses the calendar or fiscal year only 
 as a convenient accounting period, and contemplates a zero pay- 
 ment in some years. The State franchise (income) tax assumes at 
 least a minimum payment in every year. The Committee con- 
 cludes — 
 
 128 
 
That the two taxes are in fact so different in theory that the 
 loss carry-over privilege of the Federal act is inappropriate to 
 the State act. 
 
 Interest paid — this item is deductible under the Federal act 
 and may well be looked upon as an expense item just as much 
 as depreciation or salaries. It is sometimes argued that a deduc- 
 tion of interest paid for tax purposes would encourage debt fi- 
 nancing. The argument, pedantic at best, overlooks the simple 
 fact that no temporary tax advantage can outweigh the disad- 
 vantages of acquiring fixed charges which will have to be met 
 — even in loss years. 
 
 As shown in Table 35, the total net income reported by Con- 
 necticut concerns to the Federal Government was adjusted up- 
 ward to arrive at the Connecticut base in the amount of $3 million 
 (after allocation) by disallowing the deduction of interest paid. 
 Of the total corporate tax of $13.4 million, about 7/10 of 1 per 
 cent represents the effect of adding back interest payments deducted 
 in computing the net income reported for Federal purposes, to 
 arrive at the Connecticut base. The effect of the bar against 
 deduction of interest paid amounted to an estimated net tax pay- 
 ment of $92,000 by corporations paying on the net income basis. 
 
 TABLE 35 
 
 Connecticut Corporate Business Tax, Allocation of "Interest Paid' 
 Amounts for Corporations Paying On the Net Income Basis 
 
 1948 
 {Amounts in thousands of dollars) 
 
 TYPE OF BUSINESS Total Interest 
 
 Paid 
 
 Wholesale Trade $58,846 
 
 Manufacturing 11,434 
 
 Finance and Real Estate 9,462 
 
 Retail Trade 6,141 
 
 Service Industries 2,337 
 
 Contract Construction 645 
 
 Transportation, Communication 512 
 
 Agriculture, Forestry, Fishing 88 
 
 Mining 10 
 
 Total $89,475 $3,077 100.0% 
 
 Estimated 
 
 
 Interest Paid 
 
 %of 
 
 Subject to 
 
 Connecticut 
 
 Connecticut 
 
 " Interest 
 
 Tax 
 
 Paid" 
 
 $825 
 
 26.9% 
 
 1,668 
 
 54.3 
 
 135 
 
 4.3 
 
 194 
 
 6.3 
 
 157 
 
 5.1 
 
 52 
 
 1.7 
 
 30 
 
 .9 
 
 13 
 
 .4 
 
 3 
 
 .1 
 
 •Amounts after applying allocation factory computed by taking interest paid as a per cent of gross 
 receipts before allocation times gross receipts in Connecticut. 
 Source: Connecticut Forms 66B, 1948. 
 
This analysis reveals that manufacturers absorbed the brunt 
 of the Connecticut practice of taxing interest paid with a percentage 
 of 54.3 and an estimated tax of $50,000. The wholesalers' group 
 of corporations accounted for 26.9 per cent of the interest paid 
 during the 1948 reporting period — an estimated $25,000 of tax at 
 the 3 per cent rate. The Committee accordingly recommends: 
 
 That interest paid be allowed by law as a deduction from 
 gross income in determining net income subject to the Con- 
 necticut corporate franchise tax. 
 
 Comparison of Federal and Connecticut Income Bases 
 
 Adoption of Federal definitions of income in their entirety 
 would produce both gains and losses in tax payment. While the 
 tax on interest paid, if eliminated, would reduce the tax bill, the 
 elimination of deductions allowed in Connecticut would increase 
 the tax base. This is clearly demonstrated in Table 36 which 
 shows a total Federal tax income for corporations paying on the 
 net income base of $3,329 million related to an income adjusted 
 by the Connecticut law of $3,296 million — a net decrease of $33 
 million in taxable income. Examination of individual types of 
 business shows that while some would gain from such a change, 
 manufacturers for example, others would lose as is evident in 
 the case of wholesalers whose net income base was appreciably 
 reduced by the Connecticut formula. 
 
 While retailers and wholesalers tend to perform large volume 
 operations on small profit margins it is interesting to note that 
 where Table 36 shows a gross income of $6,614 million for manu- 
 facturing as against a combined gross income for wholesalers 
 and retailers of $31,094 million the taxable net income of manu- 
 facturers after apportionment is $246 million or 2.3 times the com- 
 bined taxable net income of retail and wholesale trade. On the 
 other hand, such analysis must be tempered to the extent that of 
 the $31,094 million for combined wholesalers and retailers in gross 
 income $26,854 million or 86 per cent is attributable to 55 large 
 corporations whose average allocation of net income attributable 
 to Connecticut is around 2 per cent. Also for the manufacturers, 
 $6,614 million in gross income includes $3,085 million from 14 large 
 corporations whose average allocation percentage for net income 
 attributable to Connecticut is 33.5 per cent. The weight of these 
 large corporations who act chiefly in interstate commerce is re- 
 sponsible for the bulk of the reduction from income before ap- 
 portionment to taxable net income. 
 
 130 
 

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Comparative Tax Burden Upon Corporations and Unincorporated 
 
 Business 
 
 The relative burden of business taxes upon the two types of 
 business, corporations and unincorporated business, depends 
 upon economic conditions at the time the comparison is made. 
 The 1 mill tax on gross receipts of unincorporated retail and manu- 
 facturing establishments, and the quarter of a mill tax on unin- 
 corporated wholesalers, will be greater or less than the 3 per cent 
 income tax on corporations depending principally upon the ratio 
 of net income to gross receipts in each case. 
 
 That is, 
 
 The Greater of .03 Income and .0015 
 If the Tax on Corporations - Invested Capital 
 
 and 
 
 The Tax on Individual Pro- f .001 Gross Receipts (Retail and 
 prietors and Partnerships = { Manufacturing) 
 
 \ .00025 Gross Receipts (Wholesale) 
 
 then the tax on corporations will equal the tax on partnerships and 
 other unincorporated businesses — 
 
 when 
 
 when 
 
 In Retail and Manufacturing Business 
 
 Income = 3.33% of Gross Receipts 
 
 and 
 Invested Capital = 66 2 / 3 % of Gross Receipts 
 
 In Wholesale Business 
 
 Income = .83% of Gross Receipts 
 
 and 
 Invested Capital = 16 2 /s% of Gross Receipts 
 
 In brief, net income must fall below 3.33 per cent of gross while 
 sales hold up to or at least 1.5 times invested capital for the partner- 
 ship tax to exceed the corporation tax in retailing and manufac- 
 turing. 
 
 In wholesaling, net income must fall below .83 per cent of gross 
 while sales remain at least six times invested capital, for the partner- 
 ship tax to exceed the corporation tax. The significance of these 
 relationships between the two forms of taxation can be shown in 
 terms of current business conditions. Table 37 shows that in 1946, 
 when net profits were on the up-trend but nevertheless lower than 
 
 132 
 
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in 1947 and 1948, practically all manufacturing and retailing 
 industry showed a net profit which substantially exceeded the 3.33 
 per cent ratio to gross receipts indicated above. In manufacturing 
 industry the ratio was 8.62 per cent. In retailing the profit ratio 
 was 7.09 per cent. In effect, therefore — 
 
 The Connecticut tax on manufacturing corporations, as 
 measured by the general experience of all corporations, was 
 almost three times the tax burden of the same lines had they 
 been unincorporated, and over twice the tax burden in the case 
 of retailing. 
 
 Relatively few manufacturing firms are unincorporated, but in 
 wholesaling and particularly in retailing a substantial number 
 of the smaller units are unincorporated. For example 34 per 
 cent of the consumer sales tax returns were made by unincorporated 
 business. 
 
 In the wholesaling classification, net profits again are shown 
 to be substantially greater than the 0.83 per cent point of equality 
 between corporate and unincorporated business taxes in Con- 
 necticut. The ratio shown in Table 38 is 4.37 per cent for whole- 
 saling. The ratios here again compel a conclusion of discrimina- 
 tion — namely, 
 
 The manner of taxing corporations imposes a levy over five 
 times as heavy on wholesalers as the same business units would 
 have paid were they unincorporated in 1946. 
 
 TABLE 38 
 
 Corporate Profits as Per Cent of Corporate Sales Shown Separately 
 for Retail and Wholesale Trade 
 
 Retail 
 Trade 
 Wholesale and Auto 
 YEAR Trade Services 
 
 1929 1.54 2.04 
 
 1930 02 0.09 
 
 1931 02 02 
 
 1932 2 02 
 
 1933 0.84 02 
 
 1934 1.22 1.27 
 
 1935 1.25 1.69 
 
 1936 1.80 2.50 
 
 1937 1.48 2.17 
 
 Retail 
 Trade 
 
 Wholesale and Auto 
 
 YEAR Trade Services 
 
 1938 0.73 1.36 
 
 1939 1.68 2.29 
 
 1940 2.09 2.70 
 
 1941 3.46 4.20 
 
 1942 3.83 5.78 
 
 1943 4.15 6.86 
 
 1944 4.08 7.10 
 
 1945 4.08 7.10 
 
 1946 4.37 7.09 
 
 Source: See Table 37. 
 
 134 
 
The corporation tax implies a charge for the corporate fran- 
 chise, and some differentiation might be expected on that basis. 
 But the modern corporation is so much a part of our economy that 
 little can be exacted on that score. These conclusions, more- 
 over, are based upon relatively high rates of business activity. 
 In the event of a decline, the alternative minimum tax of \y 2 
 mills on invested capital would become important. Its relative 
 impact as compared with the gross receipts tax is also greater 
 than the partnership tax. 
 
 The Invested Capital Alternative Minimum 
 
 The relationship between a 1%, mill tax on invested capital and 
 a \i mill tax on gross receipts (of wholesaling) of a 1 mill tax on 
 gross receipts (of retailing and manufacturing business) is dependent 
 upon the rate of turnover of invested capital. 
 
 In the case of wholesaling, the \y 2 mill corporate tax on in- 
 vested capital will be less than the H null tax on gross receipts only 
 when the turnover ratio is more than six times the invested capital. 
 This condition is not uncommon in wholesale industries, and it 
 might accordingly be argued with respect to businesses situated 
 entirely within Connecticut that the \y 2 mill tax on invested capital 
 of wholesaling corporations will sometimes be less than the 34 
 mill tax on gross receipts from unincorporated wholesale business. 
 However, returns filed with the Corporation Tax Bureau by whole- 
 saling corporations indicate that gross receipts attributed to Con- 
 necticut average 1.8 times invested capital allocated to the State. 
 This suggests that application of Connecticut allocation factors to 
 interstate wholesale businesses results in favorable tax treatment 
 for corporations as compared with unincorporated business. 
 
 In the case of manufacturing and retail trades, the 1J^ mill tax 
 on invested capital will be less than the 1 mill tax on gross receipts 
 where the turnover ratio is greater than 1.5. For all manufacturing 
 concerns in Connecticut paying over $100 in tax in 1948, gross 
 receipts attributable to Connecticut average 1.2 times invested 
 capital and for retail trades Connecticut receipts average 1.5 times 
 invested capital. These ratios again include corporations doing 
 considerable interstate business. There is thus a fairly consistent 
 relationship between the general tax on corporations as compared 
 with the general tax on partnerships, individual proprietorships, 
 etc. In profitable years the income part of the corporation tax is 
 almost always likely to produce a substantially heavier burden on 
 
corporations than on partnerships, whereas in times of declining 
 net earnings the 1.5 mills on invested capital will cause the tax bur- 
 den on corporations to remain substantially heavier than that 
 imposed on partnerships. 
 
 Another source of discriminatory treatment, this time in favor 
 of corporations, is created by the provision in the corporation 
 tax that it shall be in lieu of all other taxes imposed upon the 
 intangible assets of any company. The unincorporated business 
 tax contains no such in lieu provision and leaves partnerships, 
 individual proprietorships, etc., nominally subject to the ad valorem 
 tax on stocks, bonds, and other securities and investments which 
 generally applies to individuals in Connecticut. From the view- 
 point of equality of treatment, there does not seem to be any econom- 
 ic or legal factor which justifies the extent of these discriminations 
 as between corporations and unincorporated business in Connecti- 
 cut. Your Committee accordingly suggests: 
 
 That, should the State of Connecticut need additional 
 revenue, it could appropriately be provided in part by some 
 equalization of the burden of unincorporated business as 
 compared with incorporated business. 
 
 Special Business Taxes 
 
 As in all other States, certain businesses are specially taxed 1 
 and for that reason excluded from the corporate franchise tax. 
 The principal businesses of this kind are insurance companies, 
 railroads and other public utilities. 
 
 Table 39 shows that special taxes on the premiums, interest, 
 and investments of insurance companies and on the gross receipts 
 of utilities amount to 17 per cent of the total taxes collected in 
 Connecticut during the past ten years, and 7.5 per cent of all funds 
 received for the same period. Fluctuations in the ratio of special 
 taxes to either total taxes or to total revenues are not marked and, 
 except for variations due to war conditions, tend to remain fairly 
 constant up to 1948. The sharp decrease in significance of the special 
 taxes between 1947 and 1948 is due chiefly to the large proportion 
 of taxes and revenue attributable to the addition of the sales tax 
 and not to any rate change in special taxes or marked change in 
 revenue from these specific taxes. Actual revenue receipts from 
 
 'For pertinent considerations regarding special taxes in general see John F. Sly, " Special Taxation at the 
 State Level, The Tax Renew, October, 1948. 
 
 136 
 
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special taxes reflect the cyclical fluctuations of the ten-year period, 
 corresponding closely to increases in gross receipts up to the close 
 of the war, decreases during the adjustment period 1946-1947, and 
 then increasing with the general inflationary trend. 
 
 The fact that insurance companies furnish a major portion of 
 special tax revenues (53.1 per cent of the ten-year total) reflects 
 the nature of a tax designed to measure "benefits received" by 
 this type of business activity that is not related to operating plants 
 or properties within the confines of the State. The public utility 
 taxes, by contrast, are sometimes deemed to be an indirect charge 
 on Connecticut consumers, since tax costs may be offered in support 
 of utility rate applications. Undue emphasis should not be placed 
 on the fact that steam railroads furnished the next largest amount 
 of special tax revenue, amounting to 15.9 per cent of the ten-year 
 total. The tax on these utilities is in lieu of local property taxes, 
 which are not applied to rolling stock, trackage, and right-of-way 
 of steam railroads in Connecticut. 
 
 These special taxes have not been considered as matters of 
 tax adjustment by the Committee. They do not raise questions 
 of State tax policy, with one exception, and any revision would 
 be a matter of special study for the Legislature. As the Com- 
 mittee was about to conclude its work, the Connecticut insurance 
 companies submitted an extensive brief, contending that these 
 companies are taxed excessively in Connecticut. The brief proposes 
 that the interest and dividends tax be gradually eliminated. 
 
 The main argument of the brief, and of the presentation on 
 behalf of companies at the public hearings held by the Committee 
 on December 14, 1948, is directed to showing that Connecticut 
 taxes its domestic insurance companies three times as heavily 
 as other States tax their companies. The brief presents the argu- 
 ment on the basis of comparative State taxes. It may be that 
 Connecticut insurance companies are relatively overtaxed by 
 whatever test might be applied. The Committee, however, received 
 the brief too late to consider its argument and conclusions, and 
 would therefore suggest that this matter be made the subject of 
 special legislative inquiry. 
 
 Burden Compared With Other States 
 
 One way of roughly measuring the relative tax burden upon 
 corporations in Connecticut as compared with those elsewhere 
 is to relate total corporation taxes to various common economic 
 
 138 
 
indices. Any such comparison is useful only as a rough guide 
 to general State policy; it is not intended to show the compara- 
 tive tax burden of individual companies, which may vary greatly 
 from the results shown for corporations in total. A State may 
 well be asking its corporations to provide a percentage of State 
 revenues which compares favorably with the percentage required 
 in other States, but inequities within a State tax structure may 
 mean that some types of businesses or classes of industries are 
 required to pay more or less than their fair share of the State total. 
 With this limitation in mind, Connecticut may be compared with 
 other States. 
 
 Table 40 illustrates the method of comparing general business 
 taxes with reference to several common economic indicators. It 
 shows that, considering taxes which are levied in the form of busi- 
 ness taxes, and without regard to taxes paid by business in com- 
 mon with other taxpayers such as the local property tax, Con- 
 necticut compares favorably with both New York and Massachu- 
 setts. The comparison with New Jersey and New Hampshire is 
 less favorable largely because those States impose taxes upon 
 business principally in the form of local property taxes which do 
 not appear as general business taxes. Similarly, the tax burden 
 on business in Connecticut is not fairly represented by measuring 
 the general business taxes alone; it is especially necessary to in- 
 clude the local property tax on business inventories, machinery and 
 equipment. In brief, the measures of business taxes shown in 
 Table 40 are useful not as an index of tax burden but solely as a guide 
 to the extent to which business is taxed through the use of taxation 
 especially designed to apply to business. It is significant, even in 
 view of the limitations of the data, that Connecticut general busi- 
 ness taxes per non-agricultural employee are about half what they 
 are in Massachusetts and New York and that the same relationship 
 exists when taxes are measured as a per cent of salary and wages 
 or as an amount per business unit in the State. 
 
 Table 41 compares the business tax system of five States. This 
 table shows that Connecticut relies upon business taxes to supply 
 a greater percentage of its total State and local taxes than either 
 New Jersey, New York or New Hampshire. The proportion of 
 business taxes in Connecticut is comparable with that shown for 
 Massachusetts. This observation does not mean, however, that 
 business taxes in Connecticut are heavier than in the other States 
 compared. This apparently anomalous condition results from 
 the fact that total taxes in Connecticut, as shown in Chapter 2, 
 
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represent a relatively lighter burden by any standard of measure, 
 that is as a percentage of individual income payments or as a per- 
 centage of retail expenditures, than in the other States compared. 
 In brief, Connecticut business pays a larger percentage of a smaller 
 total than in the other States and for that reason can be shown to 
 have a lighter tax burden. As Table 41 shows, total business taxes 
 exclusive of real estate taxes were 0.65 per cent of income pay- 
 ments in Connecticut whereas in the only lower State of the five 
 States they were 0.57 per cent. 
 
 In an effort to secure data as to current comparison of the Con- 
 necticut tax system with other States, on an individual company 
 basis, the Committee sought the co-operation of the Connecticut 
 Manufacturers' Association. A questionnaire was prepared in 
 co-operation with the Committee's staff and some sixty forms were 
 mailed to a selected list of companies. Returns from 29 manu- 
 facturing corporations indicate that total State and local taxes 
 paid by them in all States where they operate bear a reasonably 
 uniform relationship to such general economic factors as gross 
 receipts, net worth and pay rolls. Even in the case of net income 
 there appeared a tendency toward a pattern with a few notable 
 exceptions. The averages and the ranges within which they fell 
 are shown in Table 42. 
 
 Variations in the relationship between taxes and the selected 
 economic factors reported by the 29 corporations for individual 
 States appear much greater than they do within the all-State 
 totals. For example, taxes as a per cent of gross receipts in Con- 
 necticut range from two-thirds of 1 per cent to 27 per cent as com- 
 pared with an all-State range from three-fourths of 1 per cent to 
 2.1 per cent. Table 42 shows that such variations are present in 
 all the factors and for the several States. Some of these differences 
 may, of course, be due to variations in operating experience as 
 among the States. Some of them result from the use of different 
 corporations in deriving State averages. But perhaps the most 
 important source of difference is in the matter of allocating the 
 various economic factors as among the several States in which 
 interstate corporations operate. The fact that single corporations 
 appear "high" in a State by one measure and "low" by another 
 measure implies that the comparisons are as much in terms of 
 allocation for operating factors as they are of State and local 
 taxes. 
 
 Subject to this limitation, experience reported by the small 
 sample of 29 manufacturing corporations indicates that taxes 
 paid in Connecticut average slightly higher than do taxes paid 
 
 142 
 
6? 
 
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in all States combined. However, these differences in over-all 
 results are not large and they are subject to wide variations as 
 among individual corporations. As shown in Table 42, compari- 
 sons between taxes paid in Connecticut and taxes paid in each 
 of five other States indicate that taxes paid in Connecticut are 
 generally lower than those paid in New York and Massachusetts 
 and higher than those paid in Ohio and Illinois. The results ob- 
 tained, however, are not conclusive evidence that all manufac- 
 turing corporations in any State are taxed more heavily than are 
 all manufacturing corporations in another State. On the con- 
 trary, they indicate that tax liability is largely conditioned by 
 local circumstances and operating practices of individual corpora- 
 tions. Within wide limits, manufacturers can and do find both 
 "favorable" and "unfavorable" tax environments within all 
 States and any attempt to generalize is in the main futile. 
 
 Conclusions 
 
 The general pattern of business taxation in Connecticut which 
 taxes business activity, assets and pay roll in varying degrees is 
 comparable to the general pattern of business taxes in many other 
 States. 
 
 The taxation of corporations is so designed that it is always likely 
 to be greater than the taxation of partnerships, since in good times 
 the income factor in the corporation tax will impose a greater 
 burden than the gross receipts of unincorporated business, and in 
 bad times the alternative minimum invested capital tax on corpor- 
 ations will by and large be heavier than the gross receipts tax on 
 partnerships and individual proprietorships. 
 
 The corporation tax discriminates unfairly against companies 
 using borrowed capital since it does not permit the deduction of 
 interest paid in determining net income whereas it includes bor- 
 rowed capital in determining the alternative minimum tax on 
 invested capital. This deduction should be allowed. 
 
 The corporation franchise tax should not be amended to permit 
 net loss carry over as in the Federal corporate income tax. 
 
 The comparative tax burden on industries as a whole in Con- 
 necticut is favorable when compared with Massachusetts, New 
 York and New Hampshire, and is slightly greater than the burden 
 in New Jersey. Individual manufacturing companies may vary 
 from this pattern in other States. The relative tax burden of in- 
 dividual companies, however, depends more upon the pay roll 
 factor and the tangible personal property factor of the company 
 than upon the general business tax in Connecticut. 
 
 144 
 
CHAPTER 6 
 
 The Pay Roll Tax 
 
 The unemployment compensation pay roll tax — which is paid 
 into the unemployment trust fund — may be the most important 
 tax paid by business. While sharp reductions in contribution 
 rates and the allotment of tax credits has cut down the income 
 of the fund to $7.2 million during the fiscal year ended in 1948, 
 employers had regularly contributed about $30 million a year in 
 past years. This has been cut to an estimated $11 million per 
 year under the new contribution rate schedule adopted in 1947, 
 but a decline in economic conditions could automatically restore 
 contribution rates which would again produce $30 million dollars 
 a year or more. 
 
 Any pay roll tax will vary in importance among different in- 
 dustries depending upon the industry labor factor. Table 43 
 shows that in some industries, such as the petroleum refining, 
 the labor factor in value of product is only 8 per cent as com- 
 pared with the common ratio of 30 per cent in other industries. 
 This would mean that the petroleum refining industry, as com- 
 pared with other employers, could more readily carry pay roll 
 tax charges than other industries. 
 
 Table 44 gives other illustrations of this relative view of pay 
 roll taxes, by relating capital investment to pay roll. Here it 
 becomes quite clear that industries with a high ratio of capital 
 to labor such as "chemicals and allied industries" are relatively 
 more intensively affected by capital levies than pay roll taxes. 
 In that industry, the capital investment per dollar of wages paid 
 in 1940 was $17.96 and the net capital per wage earner employed 
 in the same year was $25,124. In "textiles and their products," 
 on the other hand, labor was relatively much more important in 
 that a capital investment per dollar of wages paid in 1940 was 
 $2.67 and the net capital per wage earner employed was $2,212. 
 The difference between 1940 and 1948, moreover, indicates the 
 effect of three-shift production, under which a given capital in- 
 vestment appears proportionately less as the number of persons 
 employed and pay roll increased sharply under wartime conditions 
 of production. The point for emphasis is that the large differences 
 

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in the pay roll factor among industries, at any point in the business 
 cycle, created equally large differences in the importance of pay roll 
 taxes among the various industries. 
 
 TABLE 44 
 
 Relationship of Labor Employed to Capital Invested 
 Selected Manufacturing Industries, 1940 and 1943 
 
 Capital Invested Net Capital per 
 
 Per Dollar of Wage Earner 
 
 Wages Paid Employed 
 
 INDUSTRY — — 
 
 1940 1943 1940 1943 
 
 Chemicals and allied products. . $17.96 $8.11 $25,124 $17,227 
 
 Food and kindred products 7.82 5.48 8,282 8,397 
 
 Leather and its products 2.51 1.77 2,121 2,361 
 
 Lumber and wood products 3.67 1.98 2,987 2,577 
 
 Metal products and processes... 4.15 1.89 6,276 4,955 
 
 Paper, pulp and products 5.63 3.69 6,753 6,523 
 
 Printing and publishing 4.12 3.68 6,334 6,835 
 
 Rubber products 5.20 2.99 6,967 6,561 
 
 Stone, clay and glass products.. 5.11 2.85 5,923 4,926 
 
 Textiles and their products 2.67 1.85 2,212 2,387 
 
 Miscellaneous manufacturing .. . 4.41 2.94 4,764 5,509 
 
 Total Manufacturing.... $5.11 $2.60 $6,048 $5,471 
 
 Source: The Conference Board, The Economic Almanac (1948), p. 85. 
 
 The current pay roll tax for unemployment compensation, 
 unlike other taxes, is influenced by past payments. It is the nature 
 of the system to build up a fund out of which current and future 
 benefit payments can be made. A high current rate of contribu- 
 tion, therefore, may mean a stronger fund for future use and less 
 demand upon employers in times of economic decline. An ex- 
 cessively low current rate of contribution, similarly, may fail to 
 provide an adequate fund for future needs and may mean unduly 
 heavy calls upon employers when benefit payments rise. 
 
 The amount of tax contribution required will vary among the 
 States, depending upon the liberality of the benefit formula in 
 relation to earnings, the proportion of high paid to lower paid 
 workers in the State labor force, and the general economic stability 
 of the State. Connecticut has been conservative and has built up 
 a strong fund over the years by maintaining until recently a rate 
 of contribution which was comparatively high. See Table 45. 
 
TABLE 45 
 
 Connecticut Unemployment Compensation Fund 
 
 Ratios of Balance in the Fund, Contributions, and Benefit Payments 
 to Taxable Pay Roll 
 
 
 
 
 
 Benefit 
 
 
 
 
 Balance in 
 
 Contributions 
 
 Payments 
 
 Benefit 
 
 
 
 Fund as % 
 
 as % of 
 
 as % of 
 
 Payments 
 
 
 
 of 3- Year 
 
 Taxable 
 
 Taxable 
 
 as % of 
 
 Calendar Year 
 
 Taxable Pay Roll 
 
 Pay Roll 
 
 Pay Roll 
 
 Pay Roll 
 
 Contributions 
 
 Total 1938-'47 
 
 $11,320,722,000 
 
 
 2.08% 
 
 0.67% 
 
 30.1% 
 
 1947 
 
 l,499,000,000 l 
 
 4/71% 
 
 1.38 
 
 0.71 
 
 51.6 
 
 1946 
 
 1,324,571,000 
 
 4.46 
 
 2.06 
 
 1.46 
 
 75.7 
 
 1945 
 
 1,286,231,000 
 
 4.08 
 
 2.12 
 
 1.15 
 
 52.3 
 
 1944 
 
 1,422,986,000 
 
 3.65 
 
 2.12 
 
 .10 
 
 4.4 
 
 1943 
 
 1,488,218,000 
 
 3.21 
 
 2.09 
 
 .04 
 
 1.8 
 
 1942 
 
 1,325,274,000 
 
 2.92 
 
 2.09 
 
 .24 
 
 11.8 
 
 1941 
 
 998,905,000 
 
 2.68 
 
 2.29 
 
 .26 
 
 11.1 
 
 1940 
 
 749,230,000 
 
 2.15 
 
 2.70 
 
 .69 
 
 27.3 
 
 1939 
 
 636,250,000 
 
 
 2.70 
 
 .81 
 
 31.8 
 
 1938 
 
 572,057,000 
 
 
 2.70 
 
 2.14 
 
 94.5 
 
 •Taxable Wages during last quarter of 1947 estimated. 
 
 Source: State of Connecticut, Dept. of Labor, Monthly Bulletin, Vol. XIII, No. 1, January, 1948, p. 3. 
 
 Determination of the Contribution Rate 
 
 The Connecticut Unemployment Insurance Law as adopted in 
 1936 and since amended from time to time is required to conform 
 with the Federal Social Security Act. The Federal law sets up 
 a few standards but leaves most of the details of the State unem- 
 ployment compensation system to the respective States. The 
 Connecticut law covers employers of four or more, with certain 
 exceptions, and provides for the payment of benefits out of a 
 pooled fund. From the tax standpoint, the financial require- 
 ments of the State fund, out of which benefits are paid depend 
 upon the benefit formula, the wage pattern, and economic condi- 
 tions. Connecticut has recently liberalized its benefit formula 
 in some respects, and the post-war benefit drain was heavy. But 
 at the close of 1947 the fund was in a super-solvent condition — 
 with a reserve equal to 4.71 per cent of a three-year taxable pay 
 roll. 
 
 Under the Federal Unemployment Compensation Tax Act, 
 Connecticut employers of 8 or more are required to pay 3/10 
 of 1 per cent of their taxable pay roll (pay roll including the first 
 $3,000 of compensation to each employee) to the Federal Govern- 
 ment. The costs of administration of the State employment 
 security agency are in turn paid in the form of grants from the 
 Federal Government according to a formula established by the 
 Social Security Administration, and within the limits of appro- 
 
 148 
 
priations made by the Congress. Over the years, the Federal 
 treasury has realized a substantial "profit" out of the 3/10 of 1 
 per cent levy since the Congress has consistently appropriated less 
 for the administration of State employment security agencies and 
 the social security administration than has been the yield of this 
 tax. 
 
 The basic unemployment compensation pay roll tax imposed 
 by Connecticut is 2.7 per cent of taxable pay roll. This rate is 
 more or less dictated by the Federal act which levies a 3 per cent 
 tax but allows a 90 per cent credit for taxes paid under an ap- 
 proved State unemployment compensation law. The Federal 
 credit is allowed as if the 2.7 per cent rate were paid even though 
 the actual tax paid to the State may be at a much lower rate, 
 provided the lower rate of tax is established pursuant to an ap- 
 proved plan of experience rating. 
 
 Experience Rating 
 
 The Connecticut law provides for a "pooled fund" for all con- 
 tributions. It prescribes a method of experience rating each 
 employer's contribution, known as the "compensable separa- 
 tions method." This method requires that an account be main- 
 tained for each employer, and that this account be charged with 
 the rated amount of each compensable separation. For the pur- 
 pose of this charge a compensable separation is defined, in effect, 
 as the separation from employment of an individual employee 
 who shall have worked for the employer during at least four diff- 
 erent calendar weeks in the 56-day period preceding the beginning 
 of the individual's entitlement to unemployment compensation. 
 The actual amount charged to each employer's account for each 
 compensable separation is the individual's total unemployment 
 benefit rate which now ranges from $8.00 to $24.00 per week. In 
 order to encourage re-employment, the law provides for crediting 
 an employer's experience rating account with a percentage of the 
 compensable separation previously charged, the percentage of the 
 credit depending on how soon the individual is re-employed by the 
 employer. 
 
 To determine the respective employer experience rates, a merit 
 rating index is computed for each employer, as the quotient of 
 his next preceding three years taxable pay roll divided by the 
 net rated amount of compensable separations charged to his ac- 
 count. All employers are then arrayed in descending order of their 
 
 1/1Q 
 
merit rating indices, so that the employer with the lowest merit 
 rating index is at the top of the array and the one with the greatest 
 index is at the bottom. In other words, employers who have had 
 a relatively large number of people separated from employment in 
 proportion to total pay roll, will show a lower index than those with 
 relatively fewer compensable separations. Those with the least 
 favorable experience will appear at the top of the array and those 
 with the most favorable employment experience will appear at the 
 bottom of the array. The array is then divided into 13 parts so 
 that the aggregate experience pay rolls reported by employers 
 in each part will be approximately equal. The statute prescribes 
 a scale of rates of contribution to be paid by the employers fall- 
 ing in each of the 13 parts, with the highest tax rate assigned to 
 part 1 and the lowest rate assigned to part 13. As a result of 
 amendments adopted in 1947 the old scale of rates, which ranged 
 from a minimum of 1.5 per cent to a maximum of 2.7 per cent 
 with intervals of 1/10 of 1 per cent between each part, has now 
 been replaced by a minimum of 0.25 per cent to a maximum of 2.7 
 per cent with intervals of .05 per cent between each of the parts 
 from the second to the 13th part but with 1.9 per cent separating 
 the first and second parts. 
 
 These rates of contribution apply under the most favorable 
 condition of the unemployment compensation fund. If the fund 
 balance declines other rate schedules automatically take effect. 
 Each employer's contribution rate will depend not only upon his 
 own employment experience as compared with industry generally 
 but also upon the amount of the balance of the unemployment 
 compensation fund. The purpose of this latter provision, known 
 as a "fund solvency provision" is to increase employer contribution 
 rates gradually as the unemployment compensation fund becomes 
 depleted by the payment of benefits exceeding the income of the 
 fund from employer contributions and interest earnings. This 
 is an eventuality which looks to the future, however, since the fund 
 itself has become so swollen that the Legislature was justified in 
 adopting, by Chapter 235, Laws of 1947, a system of credits. against 
 accrued contributions. 
 
 The purpose of the credit provision was to prevent the un- 
 employment compensation fund from growing any larger, by 
 distributing each year among all employers the excess of the amounts 
 that had been paid in over the total amount of benefit payments 
 out of the fund — so long as the fund remains in a super-solvent con- 
 dition, that is, with a fund balance in excess of 12% per cent of 
 
 150 
 
the average taxable pay roll of the past three years. These credits 
 are apportioned among the various employers exclusive of those 
 classified in the first part, in proportion to the contributions in 
 cash or credits of each merit rated employer during the 12 months 
 ending on June 30, and these credits are acceptable in lieu of pay- 
 ment of employer contributions during the following calendar 
 year. The operation of the credit provision together with the re- 
 duction in employer contribution rates effective January 1, 1948, 
 has meant that during the calendar year 1948 many employers 
 were in possession of credit memoranda which exceeded the amount 
 of their required contributions during that year, but the statute 
 provides that credits may not be carried forward beyond the calendar 
 year to which they are first applicable. Over-all, the reduced em- 
 ployer contribution rates would have produced some $11,000,000 
 in total employer contributions for the calendar year 1948, as 
 compared with some $32 million which might have been expected 
 under the old rate structure. The application of the June 30, 
 1947 credits allocated to employers, however, has reduced the 
 estimated cash income of the fund during the calendar year 1948 
 to $3.8 million. 
 
 The conclusion to be drawn from this recent history of the 
 unemployment compensation tax is this — 
 
 The whole system of contributions and benefits has only re- 
 cently been completely revised by the Legislature and it would 
 be neither desirable nor practical to attempt further revision 
 until the full effect of the new contribution rate structure can 
 be observed in operation for a reasonable period of time. 
 
 This view is supported by already foreseeable changes in the 
 contribution rate structure. For example, since benefits paid 
 during the year ending June 30, 1948 were $11 million and con- 
 tributions and interest received were $10.5 million there will be 
 no credits issued for calendar 1949. Another factor that will affect 
 the rate structure is the constant rise in the three-year taxable 
 pay roll due to wage increases. The most favorable set of rates 
 being applicable only when the fund balance equals at least \}/i 
 per cent of the three-year pay roll, the rise in pay roll may well 
 reduce the relationship between the fund balance and taxable pay 
 roll below 434 P er cent and thus cause an automatic increase in 
 contribution rates. 
 
Competitive Aspects of Employment Security Taxes 
 
 Variations in the pay roll tax among the States arise from the 
 fact that some six different types of experience rating formulas 
 are in use. Interindustry differences, which have already been 
 noted, are thus further complicated by interstate differences in 
 the impact of the pay roll taxes which the States impose for em- 
 ployment security purposes. The characteristics of the several 
 formulas used among the States are these: 
 
 1. "Compensable separations" plan. This plan is used 
 only in Connecticut — as already discussed. 
 
 2. The "reserve-ratio" plan (For example, New Jersey 
 and Ohio). Under this plan the experience rate assigned 
 to each employer is determined by the ratio of his contribu- 
 tions (less benefits chargeable to his account) to his average 
 annual pay roll. This plan is the least sensitive to temporary 
 economic fluctuations, but a rapid rise in pay roll tends to 
 increase the contribution rate regardless of the employer's 
 previous good employment record. 
 
 3. The "benefit-wage ratio" plan (or " Cliff e plan")— 
 used, for example, in Massachusetts and Pennsylvania. Under 
 this plan an account is also maintained for each employer 
 and a computation is made of the ratio of the base period 
 wages of employees who draw benefits to the employer's total 
 taxable wages, each computed for the last three years. A 
 "State experience factor" is computed for the State as a whole, 
 as the ratio of the aggregate unemployment compensation 
 benefits paid to the aggregate base period wages of all em- 
 ployees who drew benefits, each for the preceding three years. 
 An employer's experience rate for unemployment compensation 
 tax is determined by the relationship of his benefit wage ratio 
 to the State experience factor. This plan is most sensitive to 
 temporary economic fluctuations and has produced the lowest 
 experience rates in the States during the war years. 
 
 4. The "benefit -ratio" plan— used in Maryland and five 
 other States. Under this plan, the contribution rate as- 
 signed to each employer is determined by the ratio of the total 
 benefit payments chargeable to the employer (during the three 
 preceding years) to his total annual pay rolls for the same 
 period. 
 
 152 
 
5. Two other plans, the pay roll-variations plan, and the 
 combination plans of New York and a few other States, are 
 not illustrated in the examples above. 
 
 It is thus obvious that it is impossible to generalize as to the 
 relative tax liability under several laws. A great deal depends 
 upon management, upon local labor market conditions, upon the 
 liberality of the benefit formula as compared with the tax con- 
 tribution required, and upon the point in the business cycle at 
 which the comparison was made. 
 
 The net result of the several formulas and the various factors 
 which determine each employer's experience rate may be com- 
 pared, among the States, by comparing the average rate assigned 
 to employers in each industry group. While this average rate may 
 not reflect the experience of any individual employer, it does pro- 
 vide a good basis for comparing the operation of experience rating 
 among the States. 
 
 Table 46 presents the results of experience rating operations 
 for rate years beginning in 1947 in nineteen States. Among these 
 States all of the major plans of experience rating are represented, 
 except the pay roll variations plan, and certain combination plans, 
 each used in only a few States. The table shows that the new 
 Connecticut rate structure, taking into account the credit provision 
 which became applicable January 1, 1948, caused Connecticut 
 to become one of the most favorable States from the viewpoint of 
 the employer contribution rates. 
 
 In the "all industries total," for example, Connecticut shows 
 an average rate of 0.43 per cent which is lower than any other 
 State except Florida and the District of Columbia. The same 
 favorable position is found in the industry groups for public utilities, 
 wholesale and retail trade, finance and service industries. In 
 manufacturing the average Connecticut rate is 0.54 per cent which, 
 again, is the most favorable of all the nineteen States, with the ex- 
 ception of Ohio, Florida and the District of Columbia. 
 
 This extremely favorable position of Connecticut takes into 
 account the operation of the credit allotments resulting from 
 the super-solvent condition of the fund as of June 30, 1947. The 
 relative standing of the States, moreover, does not reflect changes 
 in the contribution requirements enacted in other States during 1948, 
 such as in New Jersey, where an average rate reduction of 50 per 
 
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cent was adopted. With these qualifications, however, it may be 
 concluded — 
 
 That the Connecticut employer experience rating plan, as 
 recently amended, afforded a more favorable basis of employer 
 contributions than any other comparable industrial State dur- 
 ing 1947. 
 
 During the calendar year 1948, the collection of only $3.8 mil- 
 lion, after credits, in employer contributions will place Connecti- 
 cut in the most favorable position among all the States. Neither 
 this purely temporary competitive situation, nor a much less favor- 
 able standing in the event of the next higher rate schedule coming 
 into effect, should be considered unduly from the comparative 
 tax standpoint. In the long run, employers in Connecticut will 
 have to finance only such benefits as may be payable, and their 
 cost will depend upon the general condition of the State's economy. 
 
CHAPTER 7 
 
 The General Property Tax 
 
 Connecticut is one of a declining number of States which still 
 cling to the general property tax, that is, a single standard of 
 assessment and a uniform tax rate applied to the valuation and 
 assessment of land, buildings, merchants' stock-in-trade, manu- 
 facturers' inventories of raw materials, work in process, semi- 
 finished goods and finished goods, machinery, tools and equipment, 
 farm stock and farm machinery, and the various forms of intangible 
 personal property such as stocks, bonds, notes and accounts re- 
 ceivable. Some States, like Connecticut, have retained the general 
 property tax on their statute books and have accepted one form 
 or another of administrative expedient to treat various classes of 
 property differently, while others have adopted systems of classi- 
 fied property taxation. The effort of Connecticut to keep the 
 general property tax in theory, and to tolerate local customs and 
 practices which in one way or another succeed in defeating the letter 
 of the law, underlies many of the problems of the local property 
 tax which are beginning to press for solution. 
 
 Structure and Administration 
 
 The most notable characteristic of the Connecticut general 
 property tax administration is the confusion in its administra- 
 tive regulation. Although the area of the State is divided into 
 169 towns, the State Tax Commissioner reports 350 taxing dis- 
 tricts. But 43 of the 350 taxing districts operate jointly with 
 one or more other districts so that they actually represent only 
 18 independent districts. This means that there are 325 independent 
 taxing districts within the State and each of them is a separate 
 corporate entity. 
 
 These taxing districts include towns, consolidated towns and 
 cities, consolidated towns and boroughs, cities, boroughs, school 
 districts, fire districts, fire and sewer districts, lighting districts 
 and improvement associations. Their fiscal years are not uni- 
 form and there is considerable variation as among the dates on 
 
 1Rfi 
 
which their taxes are assessed and payable. Even as between 
 real property and personal property, separate assessment and 
 collection dates are prescribed in some taxing districts. 
 
 Confusion arising out of the existence of a large number of 
 overlapping taxing districts is reduced somewhat by the practice 
 of concentrating the assessment function at the town level. With 
 the exception of a few cities and fire districts required by charter 
 to prepare independent assessment rolls, cities, boroughs, and other 
 districts usually adopt or copy the town assessment roll and ex- 
 tend their tax rates against it. However, each taxing district has 
 its own collector who collects taxes for his own jurisdiction according 
 to the general law. 
 
 Within an already confused property tax structure local taxa- 
 tion in Connecticut is further complicated by the absence of con- 
 stitutional limitations against local or special legislation. The 
 Legislature has enacted special acts from time to time which re- 
 late to taxation in particular towns. Forty-four municipalities 
 of the State have secured special legislation exempting their tax- 
 payers from the necessity to list certain of their property in sworn 
 statements filed with assessors. The class of property at which 
 the special legislation is directed varies as among municipalities. 
 The most usual reference, however, is to real estate and motor 
 vehicles. Eleven of the acts eliminate such business tangibles as 
 machinery and inventories from the category of compulsory listing 
 by the taxpayer. In addition, special legislation applicable to three 
 municipalities relieves the taxpayer of responsibility to submit a 
 complete description of real property subject to taxation. These 
 towns require that the lists be submitted by the taxpayer, but 
 that property description shall be in terms of references to maps or 
 other data on file in the office of the assessor, or the office of the 
 town clerk. 
 
 Supervision by the State in the assessment process is negli- 
 gible. The State Board of Equalization does not hear appeals 
 from individual assessments and it does not equalize or revise 
 the assessment rolls of the various towns. However, it does in- 
 directly affect assessments by controlling the apportionment of 
 State taxes upon the various towns. The board hears appeals 
 from the tax commissioner on the apportionment of the State 
 tax. The tax commissioner has the responsibility to supervise 
 local assessment practices and to compel compliance with the 
 law. In practice the tax commissioner's activities in this field 
 have been confined largely to the establishment of procedures, 
 
the interpretation of laws, and the collection of assessment dalja. 
 They appear to have had little direct effect upon the assessment 
 procedures as such. 
 
 The Yield and Distribution of the General Property Tax 
 
 General property taxes assessed in Connecticut have increased 
 almost steadily since 1925 when they totaled $55.6 million as 
 compared with $105.0 million for 1947. 1 This over-all increase 
 of 89 per cent in the grand levy during the past 22 years was ac- 
 companied by an increase in the tax base of 60 per cent from $2,258 
 million for 1925 to $3,603 million for 1947, and an increase in the 
 State-wide average tax rate from 24.64 mills in 1925 to 29.15 mills 
 in 1947. The major portion of this increase in tax rates occurred 
 between 1944 when the average was 24.87 mills and 1947 when 
 it reached 29.15 mills. 
 
 Between 1946 and 1947 all local property taxes assessed in- 
 creased 15 per cent from $91.5 million to $105 million. As shown 
 in Table 47, this increase was general among all classes of tax 
 districts except sewer districts. Percentagewise, the largest in- 
 crease occurred among four lighting districts which raised their 
 tax by 20 per cent. However, these districts are small within the 
 over-all picture. Towns and cities whieh account for about 98 
 per cent of all property taxes established the pattern of over-all 
 change with an increase of 15 per cent. 
 
 'These data are for 1947 rate bills — taxes largely payable during the fiscal year ending March 31, 1948. 
 
 158 
 
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Distribution by Taxing Districts 
 
 As shown in Table 48, collection of $93,651,000 of general prop- 
 erty tax revenues during the fiscal year ended March 31, 1947 
 was accomplished through 319 local taxing districts. 1 However, 
 taxes collected by the 169 towns accounted for 94 per cent of all 
 tax receipts and collections by six cities accounted for another 
 4 per cent of the total. The remaining 2 per cent represented 
 aggregate property tax collections by 144 "other" local taxing 
 districts, including 17 boroughs, 5 school districts, 2 villages, 
 and 120 other special districts and improvement associations. 
 Within this group of 144 "other" districts, 15 make only special 
 assessments which are not included in the property tax collec- 
 
 TABLE 48 
 
 Connecticut Property Tax Collections on All Rate Bills 
 by Type of Taxing District 8 
 
 Twelve Months Ended March 31, 1947 
 
 (Amounts in thousands of dollars) 
 
 Property Tax Collections 
 
 % Dietribu- 
 
 Interest tion of 
 
 TAXING DISTRICTS Tax and Liens Total Total 
 
 169 Towns 2 : 
 
 Town Taxes $83,558 $485 $84,043 89.7% 
 
 State Tax on Towns (old age 
 
 assistance) 2,225 2,225 2.4 
 
 County Tax on Towns 1,457 1,457 1.6 
 
 Metropolitan District Tax on 
 
 Towns (Hartford County).. 483 483 .5 
 
 Total— 169 Towns $87,723 $485 $88,208 94.2% 
 
 6 Cities $3,727 $56 $3,783 4.0% 
 
 17 Boroughs 555 2 557 .6 
 
 5 School Districts 327 1 328 .3 
 
 59 Fire Districts 437 3 440 .5 
 
 1 Fire and Sewer District 23 .05 23 .02 
 
 2 Independent "Village" Dis- 
 
 tricts 12 .2 12 .01 
 
 9 Sewer Districts 131 1 132 .1 
 
 4 Lighting Districts 6 .2 6 .06 
 
 47 Improvement Associations. . . 160 2 162 .2 
 
 Total— 150 "Other" Lo- 
 cal Municipalities $5,378 $66 $5,443 5.8% 
 
 Total— 319 Taxing Dis- 
 tricts $93,100 $551 $93,651 100.0% 
 
 'Although reports indicate 325 independent local taxing districts in 1947, there were only 319 reported in 
 1946. 
 includes 14 cities 1 borough consolidated with their respective towns. 
 a Not including special assessments. 
 
 Source: Connecticut Public Document No. 48, Information Relative to the Assessment and Collection 
 of Taxes, 1947 (Hartford, June, 1948), p. 134. 
 
 160 
 
tions as reported. 1 Nine others assessed no property tax, 2 with 
 the result that the 2 per cent of "residual" property tax collections 
 were actually made by 120 "other" local taxing districts. 
 
 Although the towns collected 94 per cent of all property taxes 
 in 1947, they did not realize this portion of the tax for their own 
 purposes. As collection agents for State, county, and metro- 
 politan district property taxes, the towns collected a total of $4,- 
 165,000 which they did not retain. Property tax collections by 
 the towns for their own use totaled $84,043,000 in 1947 to account 
 for about 90 per cent of all local property tax collections. 
 
 But this result was due in part to the way old age assistance 
 taxes are reported. While Table 48 shows the collection of $2,- 
 225,000 of property taxes collected by towns and paid to the State 
 for old age asistance, this amount was more than offset by town 
 collections of $2,716,000 from current and delinquent old age 
 assistance taxes assessed at $3 per capita and not reflected in the 
 general property tax. There is thus some doubt that the State 
 tax upon towns was truly a charge upon local property taxes at all. 
 If it is assumed that the State tax was paid from town collections 
 of old age assistance taxes, property taxes for towns in 1947 would 
 become $86,268,000 to account for 92 per cent of all general property 
 taxes. 
 
 Both the State tax upon towns and the personal old age as- 
 sistance tax were repealed in 1947 effective in the tax year 1948 
 (collection year ended March 31, 1949). In terms of 1947 ex- 
 perience, this change implies a reduction in town revenues of 
 $2,716,000 collected from old age assistance taxes offset in part 
 by elimination of $2,225,000, in State taxes assessed to the towns. 
 The fact that $245,000 of 1947 collections of old age assistance 
 taxes represented collections of delinquencies and interest suggests 
 that even in 1949 there will be some collections from this source 
 available to the towns even though there will be no current per capita 
 taxes assessed. In the main, however, the change is primarily one 
 of final withdrawal by the State from general property tax sources 
 in favor of the towns and abandonment of the per capita tax as a 
 source of local revenue. 
 
 Comparison between property taxes assessed on 1947 rate 
 bills largely for payment during the year ended March 31, 1948, 
 with those assessed on 1946 rate bills indicates an increase in 
 town taxes of 15 per cent (see Table 47). The 1947 tax assessed 
 
 ■One sewer district and 14 improvement associations . 
 
 'Six fire districts, 1 sewer district and 2 improvement associations. 
 
by towns exceeded the 1946 town tax assessment by $13 million. 
 Upon this basis it seems clear that the effect of statutory changes 
 effecting the old age assistance taxes assessed to the towns by 
 the State and the $3 per capita tax assessed by the towns will 
 probably be of little real consequence within the strong upward 
 trend in local tax requirements. Town taxes assessed on 1947 
 rate bills represented 95 per cent of the total 1947 grand levy 
 as compared with town collections amounting to 94 per cent of 
 all collections during the year ended March 31, 1947. 
 
 In contrast to a State like New Jersey where county taxes repre- 
 sent about 20 per cent of all general property taxes, county taxes 
 on towns in Connecticut accounted for less than 2 per cent of all 
 local property taxes collected in 1947. Counties in Connecticut 
 occupy a small place in the pattern of State and local government 
 and taxes for their support are not an important element in the 
 over-all tax picture. There are only 5 school districts in Con- 
 necticut which assess property taxes directly for their own support. 
 All property taxes collected in 1947 by these 5 school districts 
 totaled $327,000 and represented 3/10 of 1 per cent of all property 
 tax receipts. Property tax support for other local schools in the 
 State is derived from taxes assessed by the towns or cities in which 
 they are located. 
 
 Distribution by Size of Town 
 
 Grouping of all local taxing districts by towns in which they 
 are located indicates that the over-all impact of property taxes 
 varies widely as among towns. As State-wide averages, aver- 
 age tax rates represent composite results for all districts and may 
 not be truly representative of any district. 
 
 ft 
 
 For example, in 1947, taxing districts situated within the four 
 largest towns contain 32 per cent of the State's population, ac- 
 counted for- 34 per cent of all property taxable and assessed 39 
 per cent of all property taxes. The average tax rate in these four 
 towns was 33.4 mills as compared with the State- wide average 
 of 29.2 mills. At the other extreme, taxing districts situated within 
 26 towns with populations of fewer than 1,000 persons contained 
 9/10 of 1 per cent of all taxable property and assessed % of 1 per 
 cent of all 1947 property taxes at an average tax rate of 17.6 mills. 
 
 As shown in Table 49, average tax rates in 1947 increased pro- 
 gressively from smaller towns to larger towns. Because of the 
 large weighting given to larger taxing districts, the average State 
 
 162 
 
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tax rates are determined primarily by the results obtained in a 
 few large towns. For example, the average rate of 30 mills for 
 1947 in the 23 largest towns is not materially different from the 
 average of 29 mills for all taxing districts even though the average 
 in the remaining 146 towns is substantially lower. The important 
 fact is this— 
 
 The Connecticut average tax rate of 30 mills represents a 
 moderate tax burden on real estate as compared with general 
 property tax rates elsewhere throughout the nation. 1 
 
 Property taxes assessed in 1947 averaged $55.57 per capita 
 throughout Connecticut. However, as in the case of average 
 tax rates, this average is heavily weighted by experience within 
 a few towns with large populations. Within the over-all aver- 
 age, per capita taxes increase progressively from $32.47 in towns 
 with populations of fewer than 1,000 persons to $68.53 in the four 
 largest towns with populations of more than 100,000 persons. 
 
 Between 1946 and 1947 when all local property taxes assessed 
 on the grand levy increased 14.8 per cent, taxes assessed by local 
 districts within the four largest towns increased 15.6 per cent 
 and taxes assessed in all other districts increased only 14.3 per cent. 
 Valuations taxable (the Grand Lists) in the four largest towns 
 increased 1.9 per cent as compared with an over-all increase of 
 3.4 per cent in all tax districts. The result was that within an 
 over-all increase in average tax rate from 26.3 mills in 1946 to 29.2 
 mills in 1947, the increase in average tax rate for four largest towns 
 was from 29.5 mills to 33.4 mills while the average for 165 other 
 towns was from 24.6 mills to 27.0 mills. 
 
 These comparisons indicate that as towns grow larger their 
 service requirements definitely grow faster than do their popula- 
 tion or their property tax ratables. Against this background, 
 the Committee suggests that any excessive tax burden which the 
 local property tax may represent is primarily associated with 
 the assessment of property taxes in the larger towns. As a tra- 
 ditionally rural tax measure, the general property tax tends to grow 
 more complex as the taxing district loses its rural characteristics. 
 There is no evidence that Connecticut has yet reached the stage in 
 its development when the property tax is inadequate to provide 
 the major support for local services in its largest districts. But 
 
 'The average unadjusted tax rate of 249 American cities in 1946 was $41.23 per $1,000 of assessed value. 
 See Detroit Bureau of Gov't Research and National Training School for Public Service, Tax Rates of Ameri- 
 can Cities, 35 National Mun. Rev. 570-589 (Dec, 1946). 
 
 164 
 
the Committee feels that the State has reached the point at which 
 it should give serious consideration to the adequacy of general 
 property assessments as a measure of tax equity between urban 
 districts and rural districts. 
 
 Distribution by Type of Property 
 
 As the tax base for $105.0 million of local property taxes as- 
 sessed in 1947 (the grand levy) the 1946 Grand List was com- 
 posed 79 per cent of real property and 21 per cent of personal 
 property. Thus about 4/5 of the general property tax base rests 
 upon lands and buildings and about 1/5 rests upon all classes of 
 personal property. 
 
 Although the distribution of taxable property varies some- 
 what as among the counties, real estate is predominant within 
 the tax base through the State. In the category of tangible personal 
 property, business property and motor vehicles represent the major 
 portion of all property assessed. Intangible personal property is 
 of little significance in the total tax base reported by tax districts 
 in any county. 
 
 In terms of property tax distribution, 1 taxable business prop- 
 erty exclusive of land and motor vehicles represents about 31 
 per cent of the aggregate tax base. This includes the taxable 
 value of business structures and of business tangible personal 
 property. Estimates by the Committee indicate that property 
 taxes assessed to this class of property totaled about $36 million 
 to represent 34 per cent of all local property taxes for that year. 
 Comparison with an estimate by the Connecticut Public Expendi- 
 ture Council showing $44.4 million of local property taxes pay- 
 able by business on all property except land and motor vehicles 
 in 1948 (on 1947 Grand List) suggests a not improbable increase 
 of about 23 per cent in personal property taxes assessed to business 
 as between 1947 and 1948. 
 
 Although the taxable value of land used for business purposes 
 is not reported separately from other lands, estimates based upon 
 the apportionment of building valuations indicate that it repre- 
 sents about 5 per cent of all property valuations taxable. General 
 concentration of business property in the more urban tax districts 
 suggests that property taxes assessed to business probably amounts 
 to something like 40 per cent of all local property taxes. On the 
 
 'The percentage Idistributions stated in this and the two following paragraphs are based upon data 
 reported in "Information Relative to the Assessment and Collection of Taxes" (Conn. Public Doc. No. 
 48, 1948), pp. 98-101. 
 
basis of $105 million of local property taxes assessed in 1947 (on 
 1946 Grand List) the Committee has thus estimated an aggregate 
 tax upon all business property exclusive of motor vehicles of about 
 $42 million. Preliminary estimates for taxes assessed in 1948 bring 
 this total to more than $50 million. 
 
 Similar estimates showing the apportionment of local prop- 
 erty taxes to other classes of property are more difficult to con- 
 struct. However, in the case of agricultural property, rough 
 approximations may be determined. Valuations of barns, sheds, 
 poultry, storehouses, private garages, etc., represent 2.8 per cent 
 of all property taxable. All land acreage represents 4.6 per cent 
 of taxable property and farm personalty adds another 3/10 of 1 
 per cent. While all of these properties are not used for agricultural 
 purposes and they do not include automobiles or farm residences, 
 they suggest that agricultural property represents about 1/13 of 
 all taxable property. Rough adjustments exclusive of non-agri- 
 cultural acreage of land and for generally lower tax rates in rural 
 districts suggest that taxes assessed to agricultural property proba- 
 bly amount to something like 6 per cent of all local property taxes. 
 On this basis, the Committee estimates that in 1947 local property 
 taxes payable upon agricultural property exclusive of automobiles 
 and dwellings totaled about $6 million. 
 
 In terms of valuations taxable as reflected in the 1946 Grand 
 List, all motor vehicles and aircraft represent 4.5 per cent of the 
 gross tax base. Applied against $105 million of local taxes as- 
 sessed in 1947, this suggests that property taxes upon all motor 
 vehicles amounted to about $4.5 million or $5 million in that 
 year. 
 
 Rough esimates by the Committee indicate that the over-all 
 amount of local property tax is distributed about as follows: 
 
 Business property — 40 per cent 
 Agricultural property — 6 per cent 
 Motor vehicles and aircraft — 5 per cent 
 All other property — 49 per cent. 
 
 The Tax on Personal Property 
 
 It is primarily with regard to the taxation of personal prop- 
 erty that difficulties of property tax assessment and administra- 
 tion become most obvious. A loosely defined tax base at best, 
 personal property is both mobile and difficult to value. It is 
 a common complaint throughout all States in which personal 
 
 166 
 
property is taxable as general property that large amounts of 
 taxable property escape assessment and taxation. 
 
 It is also primarily with regard to the taxation of personal property 
 that efforts to expand tax ratables often find expression. For 
 example, between 1934 and 1937 the taxable value of all personal 
 property in Connecticut increased 92 per cent as compared with 
 an increase of 13 per cent in real property valuations and 22 per 
 cent in the net Grand List. In his annual message to the council 
 in 1948, the Hartford City manager called attention to this trend 
 in Connecticut's largest city as follows: 
 
 Note that the total assessed valuation of real estate is 
 less in 1947 than it was in 1931 and that there has been little 
 change in the total Grand List for real estate since 1933. 
 On the other hand, the Grand List valuation of personal 
 property has been increasing and has been the only reason 
 why our tax rate has not increased far beyond its present 
 level of $37 per $1,000 of valuation. 2 
 
 The Tax on Intangibles 
 
 Connecticut has three basic measures of taxation applicable to 
 intangible personal property. 
 
 First — The Local General Property Tax. Intangible personal 
 property "not exempted from taxation" is subject to local as- 
 sessment and taxation as general property at the situs deter- 
 mined by the domicile of its owner or at the place at which it has 
 acquired a business situs. 
 
 Second — The 4 Mills State Tax. The owner of bonds, notes 
 and other choses in action may pay a tax upon such property 
 to the State tax commissioner at the rate of 2 per cent on its face 
 value for a period of 5 years or at 4 mills per year for a greater or 
 lesser number of years and thus render all such intangibles on which 
 the tax was paid exempt from all other taxation during the period 
 for which the 4 mills tax is paid. 
 
 Third — The Estate Penalty Tax. All taxable property on in- 
 ventory of a decedent's estate upon which a tax has not been 
 assessed or paid during the last taxing period prior to death is 
 taxable at 2 per cent per annum for the 5 years preceding death. 
 This aggregate 10 per cent tax may be reduced by showing that 
 
 'City of Hartford, City Manager's Message to Council No. 1, Basic Financial Problems, p. 6. 
 
 1fi7 
 
the property was not owned by the decedent for the full 5-year 
 period or that taxes were paid upon it during some of the 5 years. 
 Although this tax is applicable to all classes of taxable property, 
 its major impact is upon intangibles. 
 
 For all practical purposes these provisions for taxing intan- 
 gibles in Connecticut apply only to intangible personal property 
 owned by resident individuals. Taxes paid by corporations under 
 the corporation business tax act adopted in 1935 are in lieu of all 
 other taxes upon intangible assets owned by the corporation. 
 
 Provisions of Section 1174 of the General Statutes exempt 
 mortgages on Connecticut real estate up to the amount of assessed 
 valuation of the mortgaged real estate. But this section also pro- 
 vides that the taxable portion of real estate mortgages are taxable 
 in the district where the mortgaged real estate is situated and not 
 where the holder of the mortgage resides. This departure from 
 the practice of taxing intangibles at the domicile of the owner 
 results in few real estate mortgages being reported for local taxa- 
 tion. 
 
 1) Local Property Tax. As shown in Table 50, the taxable 
 value of all intangible personal property assessed locally in 1946 
 totaled only $605,000 to represent less than 2/100 of 1 per cent of 
 the 1946 gross Grand List. At the average State tax rate of 29.15 
 mills in 1947, this implies a local property tax upon intangibles 
 totaling less than $18,000, largely collectible during the fiscal year 
 ended in 1948. This amount of property tax from intangibles 
 assessed in 1947 is 8 per cent above the $16,600 assessed in 1946 
 but 29 per cent below the $25,000 reported for 1937 and 71 per cent 
 below the $61,000 reported for 1929. 1 
 
 Between 1934, when corporations were subject to the tax, and 
 1938, when corporations were excluded, the taxable valuation of 
 intangibles declined from $1,162,000 to $977,000. But the trend 
 away from local assessment of intangibles continued until 1944 
 when their taxable value dropped to $548,000 or 44 per cent be- 
 low the 1938 total. However, between 1944 and 1946 the total 
 increased 10 per cent while the total Grand List of all property 
 increased 4.7 per cent, thus indicating a renewed effort to reach 
 this class of property for local taxation. 
 
 However, within a local property tax structure based upon levying 
 $105 million (1947) in taxes upon a Grand List of $3.6 billion, 
 an intangibles tax of $17,000 upon a taxable valuation of $605,000 
 
 'Dauch, Frederic U., "Where Property Is Assessable," paper presented at School for Connecticut 
 Assessing Officers at University of Connecticut (Aug. 22, 1944), p. 13. 
 
 168 
 
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cannot be considered in any way an important source of local tax 
 revenue. Composed of net earnings from enrolled vessels ($685) 
 and excess of accounts receivable over accounts payable of mer- 
 chants, and bonds, notes and other choses in action ($604,520), x 
 this class of property is more a source of local property tax con- 
 fusion than a source of local property tax revenue. 
 
 2) The State 4 Mills Tax. Full assessment and taxation of 
 intangible personal property at local tax is precluded by the op- 
 tional State tax at 4 mills. This tax makes it possible for owners 
 of taxable intangibles to elect to pay a tax to the State at 4 mills 
 upon their face value in lieu of the local property tax at local rates 
 upon their assessed value. In terms of an average local tax rate 
 of 29.15 mills in 1947, this provision means that intangibles may 
 be effectively taxed as local property only so long as the taxpayer 
 is assessed and they will be assessed less than 1/7 of their face 
 value. 
 
 Operating primarily as a "tax ceiling" to protect owners of 
 intangibles from "tax lightning" associated with full local as- 
 sessment of such property, the 4 mills tax is thus a definite part 
 of the property tax environment in Connecticut. It has a long 
 history dating back to 1889 and described by Frederic W. Dauch 
 (Deputy Tax Commissioner) as follows: 2 
 
 . . . For nearly forty years prior to 1889, those intan- 
 gibles which were subject to taxation in Connecticut were 
 assessed and taxed in the same manner as tangible personal 
 property and real estate. As in all other States, assessors 
 encountered insuperable difficulties in enforcing the listing 
 of this property. The complete exemption of tangible per- 
 sonal property was recommended by a special commission 
 in 1887, but the General Assembly two years later enacted 
 an act substantially the same as section 322e except the rate 
 was 2 mills instead of 4 mills per year on the face value of the 
 bonds, notes or other choses in action. 
 
 Total State collections from the 4 mills tax amounted to $336,000 
 during the fiscal year ended June 30, 1948. This amount was 3 
 per cent below the $346,000 collected in 1947 and 36 per cent 
 below the $529,000 collected in 1940. Thus while local property 
 
 'Earnings from enrolled vessels are sometimes classified as tangible personal property, but their amount 
 is small enough to make their inclusion of little consequence in any classification. 
 
 'Dauch, Frederic W., "Where Property Is Assessable," paper presented at School for Connecticut 
 Assessing Officers at University of Connecticut (Aug. 22, 1944), pp. 11-12. 
 
 170 
 
taxes increased steadily from $78 million in 1940 to $105 million 
 in 1947, the yield from the tax on intangibles was declining. 
 
 Because the 4 mills tax is permissive for taxpayers who elect 
 to come under it, there is no reason for the State to seek out in- 
 tangibles for purposes of taxation. Responsibility for reporting 
 such property rests with the taxpayers. Responsibility for finding 
 and assessing property not reported by taxpayers rests with local 
 assessors who, in turn, have little incentive to do so because the 
 taxpayer can escape local taxation by reporting to the State and 
 paying the 4 mills tax. The result is that taxes are paid to the State 
 and to local districts together on a little more than $100 million 
 of, intangibles as compared with $3.6 billion of real and tangible 
 personal property. 
 
 3) The Estate Penalty Tax. Application of the estate penalty 
 tax provides an incentive for owners of intangibles to file lists 
 of their taxable property and pay taxes upon it in anticipation of 
 death. This tax reaches all property of estates which was not 
 assessed or taxed during the year prior to the decedent's death. 
 But once applied, the tax is retroactive for 5 years at 2 per cent 
 annually (a total tax of 10 per cent) except where it can be shown 
 that the property was owned by the decedent for a lesser period or 
 that it was actually assessed and taxed during some portion of 
 the 5-year period. In such instances the 2 per cent per annum tax 
 rate is applied for the lesser period. 
 
 Although the estate penalty tax is applicable to all taxable 
 property, its principal impact is upon personal property and es- 
 pecially upon intangible personal property. As a basis for reim- 
 bursing local tax districts for tax losses incurred during the lifetime 
 of decedents, proceeds of the tax are distributed 80 per cent to the 
 towns and 20 per cent to the State. Collections from the tax 
 totaled $206,000 during the fiscal year ended June 30, 1948, as com- 
 pared with $191,000 in 1947, and $300,000 in 1944. Fortuitous by 
 nature, the estate penalty tax is an erratic source of only a small 
 amount of tax revenue. It has been referred to as a tax which 
 affects widows, orphans, incompetents and other wards of the court 
 and one which is easily avoided by experienced investors. 1 
 
 'Baldwin, Roger S., member Board of Estimates and Taxation, Greenwich, paper presented to Assessors' 
 Institute conducted by the Connecticut State Tax Commissioner University of Connecticut, Storrs, Aug. 
 23, 1944. 
 
The aggregate tax yield from all State and local taxes upon 
 intangible personal property during the fiscal year ended in 1947 
 totaled about $554,000 as follows: 
 
 Local property tax $17,000 
 
 4 Mills investments tax 346,000 
 
 Estate penalty tax 191,000 
 
 Total $554,000 
 
 This means that all taxes on intangibles represented 3/10 of 
 1 per cent of all State and local taxes collected during the fiscal 
 year 1947 and less than 4/10 of 1 per cent of all State and local 
 taxes exclusive of unemployment compensation. Over a period 
 of years they have been declining in both amounts and in relative 
 importance within the tax structure. There is serious doubt 
 that they are worth what they cost in money, directly and in- 
 directly, and in the relationship of the State to its local jurisdictions 
 and to its citizens. 
 
 Taxes upon intangibles are paid by a few taxpayers who have 
 been singled out for selective treatment or those who declare their 
 investments and those who become subject to the estate penalty 
 tax. Recognizing the difficulties inherent in taxing intangible 
 personalty as property, the hazards that such a tax bears for certain 
 types of businesses, the widespread lack of enforcement of the 
 existing tax and the small amount of revenue at present involved, 
 the Committee suggests: 
 
 That whenever a suitable replacement tax can be developed, 
 intangible personal property be exempted from local taxation 
 as property and that the State investments tax at 4 mills on 
 the face value of securities and the estate penalty tax be re- 
 pealed. 
 
 The Tax on Tangible Personal Property 
 
 Difficulties associated with assessment and taxation of general 
 property are particularly apparent in the case of personal property. 
 These difficulties apply with almost equal force to tangible personal 
 property as they do to intangibles. Connecticut abstracts of 
 taxable property (the Grand List) include 16 items of personal 
 property of which 14 are tangible property. 1 The abstracts also 
 contain one additional item for "all taxable property not previously 
 mentioned" which relates almost entirely to tangible personalty. 
 
 ^ne additional item — net earnings from enrolled vessels — is commonly classified as tangible property 
 but the Committee has included it as intangible together with excesses of credits over debits of merchants, 
 bonds, notes and other choses in action. The taxable value for the item is only $685 on the 1946 Grand List. 
 
 172 
 
Thus 15 items of tangible personal property represent 21 per cent 
 of all taxable property in 1946 (the base for 1947 taxes). 
 
 As shown in Table 50, the 15 items of tangible personal prop- 
 erty may be classified as follows: 
 
 % of 1946 
 Grand List 
 
 Business tangibles 14.4% 
 
 Motor vehicles and aircraft 4.5 
 
 Agricultural tangibles .3 
 
 Other tangible property 1.7 
 
 All Tangible Personal Property 21.0% 
 
 1) Business Tangible Personal Properly. As the largest classi- 
 fication of tangible personal property assessed for local taxation, 
 business tangibles are composed largely of machinery and inventories 
 as follows: 
 
 % of 1946 
 Grand List 
 
 Machinery, water power and dams 5.13% 
 
 Goods of manufacturers, merchants and traders .... 7.47 
 
 Cables, conduits and pipes 1.81 
 
 Fisheries and fishing apparatus 001 
 
 All Business Tangibles 14.41% 
 
 Experience of local assessors in Connecticut as well as in other 
 States indicates generally unsatisfactory results in the assess- 
 ment of this class of property. In most instances assessors are 
 not equipped to value the large and diverse variety of items of 
 trade and commerce involving special value consideration. The 
 result is essentially one of assessment "by negotiation" from 
 one year to the next, within the framework of large and irrecon- 
 cilable vested interest which precludes any major change. 
 
 The taxable value of business tangible personal property in- 
 creased 78 per cent between 1934 and 1946 while the net Grand 
 List increased only 22 per cent. (See Table 50.) Although this 
 suggests a trend toward more complete assessment of business 
 tangibles, it is indicative of a gradual process of accretion by ne- 
 gotiation. Particularly in the larger cities, pressures for added 
 local property tax ratables is finding expression in increased valua- 
 tions of business machinery and inventories. 
 
 For example, Table 51 shows that taxable valuations of busi- 
 ness tangibles in each of the 4 largest Connecticut cities increased 
 substantially more between 1946 and 1947 than did any other class 
 of property except motor vehicles. In Bridgeport, which reported 
 the largest over-all increase in tax ratables as among the 4 cities, 
 
the Grand List increased 10 per cent while the taxable value of 
 business inventories increased 36 per cent and that for business 
 machinery increased 22 per cent. In Hartford, the taxable value 
 of business inventories increased 41 per cent as compared with an 
 over-all increase in all taxable property of only 7 per cent. 
 
 TABLE 51 
 
 Per Cent Increase in Property Valuations Taxable as Between 
 
 1946 and 1947 [Grand Lists] in Four Largest 
 
 Connecticut Cities 
 
 CLASS OF PROPERTY Hartford New Haven 
 
 Tangible Personal Property: 
 Business tangibles: 
 Machinery, water power and dams. . 12.5% 3.9% 
 
 Goods of manufacturers and traders. 41.0 12.1 
 
 Cables, conduits, pipes 10.4 2.6 
 
 Total— Business tangibles 28.4% 8.3% 
 
 Motor vehicles and aircraft 55.2% 32.7% 
 
 Other tangible personalty 1 9.4 12.2 
 
 Total— All tangibles 30.0% 12.4% 
 
 Intangible Personal Property 0% 106.0% 
 
 Real Property 1.3 1.0 
 
 10% on Lists Not Submitted 22.5 
 
 Gross Grand List 7.0% 3.6% 
 
 Exemptions 51.2 36.4 
 
 Net Grand List 6.6 3.2 
 
 'Includes item "all taxable property" not previously mentioned. 
 Source: Computed from Grand Lists. 
 
 Expansion such as these in the taxable value of business tangible 
 personal property have many characteristics of what may be termed 
 "tax lightning." Within the environment of general underassess- 
 ment of property, they represent suddenly expanded tax liabilities 
 for business against which there is no recourse. So long as business 
 tangibles are legally taxable, but not taxed as general property at 
 their full value, business will be vulnerable to this form of tax 
 lightning, and it will have every incentive to "bargain" its way 
 with local assessors. The result is a continuing process of hit-or- 
 miss assessment "by negotiation," characterized by irregularities 
 as among business properties and as among business taxpayers. 
 
 Particularly in the case of business inventories and specialized 
 business machinery and equipment there is serious doubt that 
 business tangibles can be effectively and equitably taxed as gen- 
 
 174 
 
 Bridgeport 
 
 Waterbury 
 
 21.9% 
 
 14.2% 
 
 35.9 
 
 14.1 
 
 2.3 
 
 3.2 
 
 27.9% 
 
 13.5% 
 
 51.7% 
 
 41.6% 
 
 20.1 
 
 16.8 
 
 29.6% 
 
 16.7% 
 
 0% 
 
 0% 
 
 2.0 
 
 1.5 
 
 —17.1 
 
 —51.2 
 
 10.1% 
 
 5.4% 
 
 50.6 
 
 42.4 
 
 9.7 
 
 5.0 
 
eral property. In this connection the New Jersey Commission on 
 State Tax Policy recently reported as follows: 1 
 
 It has long been recognized, either as a matter of law in 
 States which have met the problem through a variety of 
 statutory devices, or as a matter of practice in such States 
 as New Jersey, that personal property, particularly inven- 
 tories of stock in trade, semi-finished goods, work in process 
 and raw materials, is totally unsuited to taxation ad valorem 
 under the general property tax. In this sense, personal properly 
 is not now and never has been truly a part of the general property 
 tax base. But the letter of the law which places it within that 
 base has caused negotiation to be substituted for taxation, 
 and an unhealthy atmosphere of caprice to take the place of 
 clear-cut official responsibility. The result, to be expected 
 under such conditions, has been discriminatory, unequal 
 and sometimes arbitrary assessments. 
 
 Recognizing the difficulties inherent in taxation of business 
 tangible personal property as general property and the insuper- 
 able difficulty of bringing order out of the chaos wrought by many 
 years of selective tax compromises, the Committee believes equity 
 in such taxes can be accomplished only by adopting a new method 
 for taxing business tangibles. Therefore the Committee recom- 
 mends that consideration be given to the following suggestion: 
 
 That tangible business personalty be exempted from taxation 
 as property, provided that an "in lieu" tax (to be determined 
 after further study) can be devised as a replacement revenue 
 for local government. 
 
 In suggesting the possibility of a gross receipts" tax as a com- 
 mon basis for taxing business in lieu of local property taxes upon 
 its tangible personal property, the Committee had in mind the 
 selection of a general tax base for all business which would bear 
 some relationship to the use of business inventories and other 
 business tangibles. 
 
 2) Motor Vehicles and Aircraft. Motor vehicles and aircraft 
 are the one class of tangible personal property for which taxa- 
 tion as general property has been found generally satisfactory 
 in Connecticut. Representing 4.5 per cent of all property as- 
 sessed on the 1946 Grand List, and a rapidly growing tax base, 
 
 'Second Report (submitted to the Governor and to the Legislature, March 24, 1947) , p. 4. 
 
this property is an important factor in the local tax revenue struc- 
 ture. There are numerous administrative aids available to the 
 assessor in finding and valuing motor vehicles and application of 
 the property tax upon them has been both general and reasonably 
 uniform. 
 
 Upon this basis the Committee finds no compelling reason for 
 eliminating motor vehicles and aircraft from the local property 
 tax base. 
 
 3) Other Tangible Personal Property. Tangible personal property 
 other than business tangibles and motor vehicles and aircraft 
 represent 2 per cent of all property taxable as reflected on the 
 1946 Grand List. Composed of 16 items of taxable property 1 it 
 may be divided roughly as between farm personalty and other 
 personal property as follows: 
 
 % of 1946 
 Grand List 
 Agricultural personal property: 
 
 Horses and mules 02% 
 
 Neat cattle 18 
 
 Sheep, goats, swine, poultry 05 
 
 Carriages, wagons and bicyles 001 
 
 Farm implements and mechanics' tools 06 
 
 Farm produce 02 
 
 Total agricultural personalty 33% 
 
 Other personal property: 
 
 Watches, diamonds and jewelry 05% 
 
 Furniture, libraries, radios, etc 1.34 
 
 Sailing, steam, and other vessels 001 
 
 Taxable property not previously mentioned 33 
 
 Total other personal property 1.72% 
 
 All Personal Property Other Than Business and 
 Motor Vehicles 2.05% 
 
 Although the 10 items of "other" tangible personal property 
 represent 2 per cent of all taxable property shown on the 1946 
 Grand List, the major portion of this property is household and 
 personal effects. Complete assessment of this class of property 
 would require entry and inspection of homes by the assessor. 
 This is an unpopular form of "inquisition" and one which the 
 citizens of Connecticut would not be inclined to endure even if 
 the assessors were willing to undertake the task. The result is 
 general "rule-of-thumb" assessments applied according to the po- 
 litical and social environment within each local tax district. 
 
 ■Including item for' 'all taxable property not previously mentioned" which related almoBt entirely to 
 tangible personal property. 
 
 176 
 
In commenting upon the assessment of these items in 1944, 
 Mr. Roger S. Baldwin, a member of the Board of Estimate and 
 Taxation of Greenwich, observed: 1 
 
 Municipalities could have raised the same amounts on 
 other items of property, with a slightly higher tax rate, which 
 would have been fairly distributed over all taxpayers, and 
 at much less cost. The taxes collected on these items of 
 Tangible Personal Property do not justify the expense and 
 bother of Listing, Abstracting, Recording, Billing, Collecting, 
 Auditing, and Reporting; to say nothing of the uncertainty, 
 unfairness and inevitable taxpayers' criticism involved . 
 The saving in paper alone by such elimination, and the saving 
 in office administration and trouble to the taxpayers, would 
 offset a substantial portion of the amount of taxes formerly 
 collected on the eliminated items. The Levy would not be 
 changed and the distribution of the tax burden would not be 
 substantially altered. The present exemptions for certain 
 types of these items of Tangible Personal Property constituted 
 even now a partial elimination of the items and the balance, 
 after deducting such exemptions, would be distributed, through 
 a slightly increased Tax Rate, in about the same proportion 
 over the other items of the Abstract. 
 
 The Committee agrees with these observations and feels that they 
 apply with equal validity to the two items of intangible personal 
 property for which the Committee has already recommended exemp- 
 tion (net earnings from enrolled vessels and excess of credits over 
 debits of bonds, notes, and other choses in action) as well as to 
 the erratic omnibus classification called "all taxable property not 
 previously mentioned. " The Committee therefore suggests : 
 
 That the following items as they appear in the abstract of tax 
 ratables be exempted from taxation as local property in Con- 
 necticut. 
 
 Horses and mules 
 
 Neat cattle 
 
 Sheep, goats, swine and poultry 
 
 Carriages, wagons and bicycles 
 
 Watches, diamonds and other jewelry 
 
 Furniture, libraries, radios and musical instruments 
 
 Farm implements and mechanics' tools 
 
 '" Assessment of Tangible Personal Property," paper presented at the Assessors Institute, Anniv. 7 
 Conn., Storrs, Aug. 23, 1944, p. 5. 
 
Farm produce 
 
 Fisheries and fishing apparatus 
 
 Sailing, steam and other vessels and boats 
 
 Net earnings from enrolled vessels 
 
 Excess credits over debits of merchants, bonds, notes and 
 
 choses in action 
 
 All taxable property not previously mentioned 
 
 4) Real Estate and Improvements. The basic foundation of 
 the local property tax rests upon the assessment and taxation of 
 real property. The taxable value of all lands and structures repre- 
 sented 79 per cent of all taxable property on the 1946 Grand List 
 
 as follows: 
 
 % of 1946 
 Grand List 
 
 Structures 56.7% 
 
 Land 22.1 
 
 All Real Property 78.8% 
 
 It is common knowledge in Connecticut that local assessment 
 of real property as well as personal property is not uniform as 
 among towns and as among individual properties within single 
 towns. As shown in Table 52, e timates reported in 1947 by local 
 assessors indicate assessment ratios ranging from 10 per cent to 
 100 per cent of market value. But the dates of the last reported 
 revaluations range from 1919 in the case of two towns to 1946 
 in the case of 17 towns. While the accuracy of such estimates 
 may be questioned, they are significant in that they evidence a 
 
 TABLE 52 
 
 Connecticut Assessors' Estimated Percentage of 
 Assessed Valuations to Fair Market Value 
 
 Land Buildings 
 
 County Highest Lowest County Highest Loweflt 
 COUNTY Average Town Town Average Town Town 
 
 Hartford 87% 100% 60% 84% 100% 50% 
 
 New Haven 85 100 60 84 100 60 
 
 New London 79 100 35 80 100 50 
 
 Fairfield 74 100 33 76 100 33 
 
 Windham 66 100 40 66 100 33 
 
 Litchfield 85 100 50 85 100 65 
 
 Middlesex 75 100 10 72 100 10 
 
 Tolland 72 100 40 72 100 45 
 
 STATE 79% 87% 66% 79% 85% 66% 
 
 public awareness that property assessments are not all on the 
 same basis. 
 
 Source: Connecticut Public Document No. 48, Information Relative to Assessment and Collection of 
 Taxes, pp. 56-65. 
 
 1Z8 
 
In 1930 a study by the Connecticut Agricultural Experiment 
 Station 1 found that the ratio of assessed value to estimated value 
 for a sample of farms decreased consistently from 79 per cent 
 for farms valued under $500 to 37 per cent in the case of farms 
 valued in excess of $50,000. It is of course true that these find- 
 ings relate to assessment practices as they existed almost 20 years 
 ago. However, they show that inequities of property assessment 
 are not new in Connecticut and that the need for improvement 
 has long been recognized. 
 
 A recent study 2 of more than 2,000 sales over a three-year period 
 indicated average assessment ratios for land and buildings in 
 30 towns ranging from 31 per cent to 107 per cent of sales price. 
 While these results represented averages based upon aggregate 
 assessed values and aggregate sales prices and were therefore heavily 
 influenced by large properties, averages of individual assessment 
 ratios indicated equally wide variations in average assessment ratios 
 among the 30 towns. Large differences were found in assessment 
 results as between vacant land and land occupied by buildings; 
 and in a few towns where breakdowns were made, the analysis 
 indicated equally wide variations as among properties by type of 
 occupancy. 
 
 Since the local property tax amounts to about one-half of all 
 State and local taxes paid by Connecticut taxpayers, inequalities 
 in local property valuations are important elements in any over- 
 all appraisal of tax policy. It is not enough to determine assessment 
 ratios as among towns and among individual properties. While 
 such studies are important first steps toward improvement, they 
 are useful only as a basis for developing assessment methods and 
 practices to accomplish greater equity of tax assessment. The 
 Committee regrets that time and resources at its disposal did not 
 permit it to gather sufficient data to develop complete recommenda- 
 tions in this important area of taxation, but it respectfully recom- 
 mends as follows: 
 
 That provision be made for a comprehensive study of local 
 property tax assessment methods and results, and that facili- 
 ties be provided in the office of the State Tax Commissioner to 
 provide advice and assistance to local assessors, particularly 
 in the assessment of personal property so long as such property 
 remains subject to local assessment. 
 
 'Kendrick, M. Slade, Taxation in Connecticut, Connecticut Agricultural College, Storrs (Bulletin 166, 
 Sept., 1930), p. 157. 
 
 'By the George B. Haran Company, 1946, unpublished. 
 
STATE OF CONNECTICUT 
 
 MINORITY REPORT 
 
 OF THE 
 
 CONNECTICUT STATE 
 TAX SURVEY COMMITTEE 
 
 By 
 JOSEPH M. ROURKE 
 
 Hartford, 'Connecticut 
 1949 ; 
 
STATE OF CONNECTICUT 
 
 MINORITY REPORT 
 
 OF THE 
 
 CONNECTICUT STATE 
 TAX SURVEY COMMITTEE 
 
 By 
 JOSEPH M. ROURKE 
 
 Hartford, Connecticut 
 1949 
 
STATE OF CONNECTICUT 
 TAX SURVEY COMMITTEE 
 
 January 26, 1949 
 To His Excellency, Governor Chester Bowles: 
 
 Pursuant to the -directions of the Chairman of the Connecticut 
 Tax Study Committee, Roswell Magill, I am herewith submitting 
 my dissenting report as a member of the Committee. 
 
 The range of our disagreements is much wider and more fun- 
 damental than is indicated by the comment contained in the 
 majority report (p.vii) and for this reason, I have felt it neces- 
 sary to state my position in the extended report transmitted here- 
 with. 
 
 . In my opinion, the Committee has done little to merit its ex- 
 istence. During its existence, the Committee held approximately 
 seven meetings, which consumed about twenty hours. Half of 
 the time, however, was devoted to matters not pertinent to the 
 questions of the Connecticut tax system. One reason so little time 
 was actually spent on the germane subject was that research 
 material was not made available until shortly before the Com- 
 mittee's sessions, in spite of the fact that I had specifically re- 
 quested that the director present such data at least ten days before 
 the scheduled meeting. 
 
 Should you accept the unanimous recommendation of the Com- 
 mittee and establish a permanent tax study committee, I urge 
 you to appoint an impartial group of tax experts familiar with 
 the details of Connecticut fiscal history and its fiscal needs. A 
 committee predominately representative of business interests should 
 be avoided at all costs. Moreover, such a committee should retain 
 as its consultant an economist and tax expert of high repute and 
 not "Professors of Politics." 
 
 I wish to thank Mr. Norman Zolot, a resident of New Haven 
 and practicing law in Bridgeport, and Professor William Vickrey 
 of the Department of Economics of Columbia University for 
 their assistance and cooperation in the preparation of this report. 
 
 Respectfully submitted, 
 
 JOSEPH M. ROURKE 
 
 Member Connecticut Tax Survey Committee 
 
STATE OF CONNECTICUT 
 TAX SURVEY COMMITTEE 
 
 January 26, 1949 
 To His Excellency, Governor Chester Bowles: 
 
 Pursuant to the -directions of the Chairman of the Connecticut 
 Tax Study Committee, Roswell Magill, I am herewith submitting 
 my dissenting report as a member of the Committee. 
 
 The range of our disagreements is much wider and more fun- 
 damental than is indicated by the comment contained in the 
 majority report (p.vii) and for this reason, I have felt it neces- 
 sary to state my position in the extended report transmitted here- 
 with. 
 
 . In my opinion, the Committee has done little to merit its ex- 
 istence. During its existence, the Committee held approximately 
 seven meetings, which consumed about twenty hours. Half of 
 the time, however, was devoted to matters not pertinent to the 
 questions of the Connecticut tax system. One reason so little time 
 was actually spent on the germane subject was that research 
 material was not made available until shortly before the Com- 
 mittee's sessions, in spite of the fact that I had specifically re- 
 quested that the director present such data at least ten days before 
 the scheduled meeting. 
 
 Should you accept the unanimous recommendation of the Com- 
 mittee and establish a permanent tax study committee, I urge 
 you to appoint an impartial group of tax experts familiar with 
 the details of Connecticut fiscal history and its fiscal needs. A 
 committee predominately representative of business interests should 
 be avoided at all costs. Moreover, such a committee should retain 
 as its consultant an economist and tax expert of high repute and 
 not "Professors of Politics." 
 
 I wish to thank Mr. Norman Zolot, a resident of New Haven 
 and practicing law in Bridgeport, and Professor William Vickrey 
 of the Department of Economics of Columbia University for 
 their assistance and cooperation in the preparation of this report. 
 
 Respectfully submitted, 
 
 JOSEPH M. ROURKE 
 
 Member Connecticut Tax Survey Committee 
 
MINORITY REPORT OF THE CONNECTICUT 
 STATE TAX SURVEY COMMITTEE 
 
 By JOSEPH M. ROURKE 
 
 I 
 
 Being unable to subscribe to the general tenor of the report 
 submitted by the majority of the Committee, and in particular 
 to many of the specific statements and recommendations con- 
 tained therein, I submit herewith my dissenting views and com- 
 ments. I do so with the greatest regret. Were our differences on 
 a minor level, there would be no need for my dissent but because 
 our views differ on so many fundamental points, I feel that I 
 can only discharge my obligations to the people of Connecticut by 
 stating fully what I consider the shortcomings of the majority 
 report of the Committee. 
 
 Briefly stated, it is my opinion that the composition and oper- 
 ation of the Committee had foreclosed any impartial and un- 
 biased study of our financial problem and that the majority re- 
 port has failed to do little more than approve the existing tax 
 structure without adequate consideration of all the factors in- 
 volved. I do not believe that the merits of the income tax or the 
 demerits of a sales tax have been either properly approached or 
 that the conclusions thereon are acceptable. Nor can I accept 
 the recommendations that a 2 per cent sales tax should be made 
 a permanent part of our tax system or that our corporation tax 
 should permit deduction of bond interest in computing taxable 
 income. I must deplore the inadequacy of the majority report 
 meeting problems the Committee has found existing within 
 our present tax structure, the lack of any long-range program 
 of financing which will prepare the State of Connecticut for the 
 future, and the failure of the Committee to point out the errors 
 in our fiscal program for the past few years. 
 
 When the late Governor McConaughy asked me to join the 
 Committee, he assured me that all phases of the Connecticut tax 
 
system would be given a thorough and impartial study by the 
 Committee. Unfortunately, the composition of the Committee 
 was weighted with persons who predominately reflect a business 
 viewpoint. Of the nine persons appointed, six were unquestionably 
 representative of large-scale business — one was a corporation 
 lawyer, another a newspaper publisher and bank official, a third a 
 president of one of our larger insurance companies, a fourth a de- 
 partment store executive, another was a bank president and one 
 was a corporation executive. (At least four of these six, in one 
 manner or another, had prior to their selection to membership on 
 the Committee committed themselves against an income tax.) 
 The remainder of the Committee represented labor, agriculture and 
 the public. The domination of the Committee by business and 
 the inadequate representation of labor, consumer groups, veterans 
 groups and the general public accounts to a large extent for the 
 nature of the report and its conclusions. From the outset any 
 hope for a systematic, scientific survey of Connecticut's tax structure 
 appeared foreclosed. At the third meeting of the Committee, one 
 member, without even considering or asking for any data on the 
 " income tax, proposed that the Committee recommend a sales tax. 
 The staff regarded the income tax as a closed matter and apparently 
 had not planned to examine its feasibility until I had made such 
 a motion. 
 
 Moreover, the manner of selection of the committee's con- 
 sultant is noteworthy. Dr. Sly was appointed to his post without 
 consultation of the Committee and upon the recommendation of 
 the Tax Foundation and the Connecticut Public Expenditure 
 Council. Whatever the consultant's professional qualifications 
 may be, it is my opinion that the consultant of the Committee 
 should have been an economist and tax expert of high repute since 
 a large portion of the Committee's work is to be performed under 
 his direction. The failure to secure such a man is in part responsible 
 for many of the weaknesses of the majority's report. 
 
 I have dwelled on the formation and activities of this Com- 
 mittee in such detail, because it appears to me essential that the 
 background of the majority report be placed in its proper pros- 
 pective, so that the people of Connecticut can evaluate for them- 
 selves the merits of that report and determine whether or not 
 it is an impartial study or one that was rendered by a carefully 
 selected business group which would whitewash what has been 
 done. 
 
II 
 
 The majority's recommendation that no new and substantial 
 expenditures over present commitments should be undertaken 
 during the coming biennium, if the State of Connecticut is to 
 operate within the present tax structure, evades one of the major 
 questions which the Committee should have investigated. Cer- 
 tainly the system has raised sufficient funds but the question 
 is: Has it done so in a manner that has been equitable to all 
 persons or are revisions to adjust tax burdens in order? 
 
 To limit the Committee's study to the present expenditures 
 is to ignore the realities of present-day governmental financial 
 trends. The cost of government is rising and will continue to do 
 so for many years to come as our citizens demand more services 
 from government. There are indications that the present ad- 
 ministration will require additional revenue as a result of such 
 increased costs and of long delayed capital improvements. This 
 Committee should have considered the pattern of the future and 
 informed the legislature of the roads of finance it can travel to 
 meet the- costs of expanding governmental services. If, for ex- 
 ample, the legislature in the coming session is called upon to pro- 
 vide additional revenue, it is not helped at all by the report of 
 majority as to potential sources of new revenue or adjustments 
 of old sources. 
 
 Furthermore, the Committee has failed to report the inade- 
 quate fiscal planning of the State of Connecticut during the past 
 several years. While other states of the union were building up 
 substantial reserves to meet post-war developments and to fi- 
 nance deferred maintenance, the State of Connecticut did little. 
 A post-war fund of some 20 million was created, but this fund 
 was actually used to meet current expenditures and capital im- 
 provements were neglected. Further, a deficit of 1947 was made 
 up by the surplus of 1948. If the State of Connecticut has been 
 so badly advised in its fiscal policy as to ignore what are normal 
 business practices of preparing for bad times during periods of good 
 times, the need for such planning seems basic. 
 
 The lack of long range planning for the fiscal requirements of 
 the state is a very serious weakness of our tax system. I believe 
 that it is essential that we plan our fiscal approach, as well as 
 our engineering approach, for what we have regarded as the in- 
 evitable recession in the business tide. Now is the time to do 
 so, rather than when we are hit by it. We must know, in advance, 
 
what alternative methods of financing state expenditures can be 
 used and at what points the present fiscal system must be eased 
 if we are to mitigate the effects of the recession and provide a 
 stimulus to our economy. The recommendation of a continuous 
 study of our tax system made by the Committee is only a partial 
 answer. The scope of the study should go beyond the tax field 
 into the field of debt financing. 
 
 Ill 
 
 The report is far from an even handed discussion of the pros 
 and cons of the various alternatives open to the State of Con- 
 necticut and is essentially a one-sided brief or apologia for the 
 sales tax (which comprises substantially one-third of the entire 
 majority report), supplemented by a certain amount of general- 
 ized discussion and a few recommendations on minor and non- 
 controversial points. It is to the rejection of the income tax, 
 supported as it is by partial and misleading arguments that I 
 chiefly address my dissent. 
 
 One rather insubstantial argument may be dismissed at once 
 that more weight should be placed in the benefit principle as com- 
 pared with the capacity to pay principle. Such a premise is of 
 necessity vague and gratuitous in nature. 
 
 It is possible to completely reconcile the benefit and ability to pay concepts, if the 
 majority were willing to concede that in a democracy, the wealthier person has been 
 given more benefits insofar as he has been able to earn more money and therefore should 
 be subject to a higher rate of contribution to the costs of government. 
 
 Its application to the question of the desirability of an income 
 tax or sales tax involves a further assumption that the sales tax is 
 a better measure of benefits than is an appropriately graduated 
 income tax. An appraisal of the relative benefits which two differ- 
 ent groups of taxpayers receive from the government is at best sub- 
 ject to a very wide difference of opinion. It would seem on the 
 whole that since there is a much wider range of variation in the 
 distribution of the burden of the income tax, through adjustment 
 of the rates and exemptions, than is possible with the sales tax 
 through the exemption of various items such as food, it would be 
 much easier to adapt an income tax to whatever is considered to be 
 the relative scale of benefits enjoyed by various taxpayers than would 
 be the case with the sales tax. Indeed, the majority of the Com- 
 mittee itself (p. 109) appears to incline to the view that the dif- 
 ference in the allocation of the burden between a sales tax with food 
 
exempt and an income tax with low exemptions and slight gradua- 
 tion would be immaterial. While I cannot entirely agree with this 
 conclusion, the argument based on benefit appears weak. The 
 action of the majority appears to indicate that although they might 
 concede that at some rates and exemptions, an income tax might 
 conform fairly closely to their benefit theory, they nevertheless 
 fear to recommend such a tax to the legislature lest the legislature's 
 idea of the relative benefits received by different individuals differ 
 from that of the Committee. Of the two opinions on this intangible 
 matter, it would seem appropriate to give more weight to that of 
 the legislature as being closer to the judgment of the people. 
 
 Another argument brought out against the income tax is the 
 notion that since the Federal government already levies heavy 
 taxes on this base, this amounts to a pre-emption of the field and that 
 it would be improper for the state to levy a similar tax. The mere 
 fact that there may be duplication or overlapping should not bar 
 the use of such tax unless the imposition of such tax by the State 
 of Connecticut would make the entire burden an inequitable one. 
 The state has duplicated other federal taxes in many instances, 
 e.g. gasoline, tobacco and alcoholic beverages. Our state tax 
 structure is highly regressive; many of the so-called business taxes 
 are passed on to the unsuspecting consumer. A state income 
 tax will do much to eliminate the regressivity of our tax structure. 
 As the Committee on Intergovernmental Fiscal Relations has stated 
 in its report to Congress, "Most important, perhaps, is the fact that 
 the income tax provides one of the most important means by which 
 the people of any state can eliminate or reduce the regressivity of 
 their state and local tax systems. " 
 
 Moreover, the fact that the Federal government is already in 
 the field would seem to be a point in favor of the tax, not against, 
 for several reasons. If the federal government has found that 
 income is a good base upon which to calculate the appropriate 
 contributions of the various citizens to its outlays, there is enough 
 similarity between many of the functions of the federal government 
 and of the state government to assume that income is also a good 
 criterion by which to determine the appropriate contributions of 
 individuals to the cost of the state government. If a citizen has 
 already filled out a federal income tax blank, it will be less trouble 
 for him to fill out a similar one for the state in addition. And 
 the auditing done by the Federal government for its purpose is avail- 
 able to the state at very little cost, so that the cost of administration 
 as well as of compliance is very much less than it would be if there 
 
were no federal tax in this field. The fact that 31 other states 
 have state income taxes would of itself indicate that a combination 
 of federal and state income taxes is not altogether as unsatisfactory 
 as the tenor of the majority report would lead one to believe. 
 
 The absorption of the state income tax burden by deducti- 
 bility from the federal income tax basis is dismissed much too 
 lightly in the majority report; in the aggregate this would amount 
 to a substantial relief to state taxpayers (see the discussion below 
 on the burden study), and while it is true in some cases a similar 
 relief is obtained through the deductibility of the sales tax or other 
 taxes, the effect is so much smaller in these cases as to be almost 
 of negligible importance. At this point the majority appear to want 
 to play both ends against the middle: after citing the high federal 
 rates as an excuse for not entering the income tax field, they then 
 suggest that the effects of deductibility would become smaller if 
 federal rates were reduced. But, of course, if Federal rates are 
 reduced, there also would be more income left out of which to pay 
 the state tax. 
 
 Again, the absorption of part of the burden on Connecticut 
 residents working in New York by the crediting provision in the 
 New York law is dismissed with the suggestion that New York 
 would immediately change this provision if Connecticut imposed 
 an income tax. The fact that most states having income taxes 
 also have crediting provisions of this sort, and have kept the credit- 
 ing provision in spite of the adoption of income taxes by neighboring 
 states is ignored by the Committee. Nor does the fact that if New 
 York were to abandon its crediting arrangement, it would subject 
 its own residents to double taxation on their investments in other 
 states whose credits are on a reciprocal basis occur to the majority. 
 The Committee thus propounds this unlikely development of 
 double taxation in the case of an income tax, but, on the other hand, 
 makes no mention of the double taxation now actually borne by 
 those commuters who must pay income tax in New York, and in 
 addition, the sales or use tax on their purchases in Connecticut. 
 
 Another major argument of the majority has been that the 
 yield of the income tax fluctuates more widely than that of the 
 sales tax, and that therefore, it is unsuitable as a major source 
 of state revenue. This tacitly assumes, however, that the rates 
 of tax will remain unchanged, and that the state requires stable 
 revenue. Neither of these assumptions is entirely valid. The 
 report asserts repeatedly that a state should not engage in defi- 
 
cit financing, although at one point it is implied vaguely that it 
 may be proper to finance capital improvements by bond issues. 
 (However, it approves a program of deficit spending for the. next 
 biennium whereby an anticipated deficit is met by an antici- 
 pated surplus.) The ability of a state to engage in deficit financ- 
 ing is more limited than that of the Federal government; where 
 the debt incurring power of the State is not shackled by con- 
 stitutional restrictions, it is limited by its credit, which, in turn, 
 is governed by the potential strength of the tax system of the 
 state. A state with a revenue system that produces confidence in 
 lenders that revenues are forthcoming when needed to pay off 
 indebtedness, will have no trouble borrowing substantial amounts. 
 As an income tax is potentially one of the most productive of 
 revenue instruments, the enactment of a sound income tax will 
 in itself create much of the credit needed by the state to finance 
 itself over periods of temporarily low yield from a given rate struct- 
 ure. 
 
 Nor would such borrowing be an undesirable practice to be 
 resorted to only under pressure of necessity. A state may, and 
 often should, finance durable public works by incurring indebt- 
 edness to be amortized over the life of the public works. The 
 only caution is that the rate of amortization should preferably 
 be set sufficiently high so that there will be no doubt that the 
 unamortized debt will always be smaller than the conservatively 
 appraised value of this publicly owned capital from the point 
 of view of future generations. Only in this way can the burden 
 be assessed upon those who will most benefit from the improve- 
 ments. It is nonsense to advocate taxation according to the bene- 
 fit principle, and yet to deny the propriety of such borrowing as 
 the most direct method of spreading the cost over those who are 
 to benefit. However, this is not to say that the benefit principle 
 should be applied in all cases to financing public works, a mat- 
 ter that the discussion in the majority report fails to make clear. 
 
 If public works are thus financed, there will be at best a wide 
 margin within which the rate of amortization may properly be 
 varied, and fluctuations in the yield of the individual income 
 tax may well be applied to vary this rate of amortization, even 
 in the absence of any deficit financing of current expenditures. 
 Even without the margin in public works amortization, a state 
 may, and often should, finance current outlays in times of tem- 
 porary depression, by borrowing to be repaid in more prosper- 
 ous times. The state and its citizens will benefit from this pro- 
 
cedure, first, by borrowing when prices are low and repaying 
 when prices are relatively high, thus enabling the taxpayers to 
 pay for the expense with cheaper and more easily spared dollars; 
 second, to the extent that the fiscal and monetary policies pur- 
 sued by the Federal government may be inadequate to provide 
 full employment within the state, or where such policies are geared 
 to the needs of the country at large but fail locally, deficit financing 
 by the state under carefully controlled conditions can improve 
 the local employment situation. Too much should not be expected 
 of this type of program, however, for as long as interstate com- 
 merce and migration are relatively free, some of the effect, even 
 possibly a large part of the effect will spread itself beyond the 
 borders of the state. The benefits remaining locally will still make 
 the action worthwhile as long as full value is obtained, by the state 
 and as long as the terms of the loans do not become excessively 
 burdensome. The variability of the yield of the income tax may 
 thus be viewed as a positive advantage rather than a disadvantage. 
 Its adoption over a sales tax might well reduce the severity of possi- 
 ble recession or depression in Connecticut. 
 
 Even if one insists on the more conservative "pay as you go" 
 policy for state financing, the varying yield of the income tax 
 at constant rates is not a serious objection. It is perfectly pos- 
 sible to raise and lower the rates of the tax as needed to secure 
 stable revenue. Something approaching this is actually being 
 done in New York where the tax for each year is announced, often 
 at the last minute, as such and such a percentage of the standard 
 scale or rates. If stable revenue is regarded as essential, the in- 
 come tax can be made to produce it and it will do so in a more 
 equitable manner than a sales tax. 
 
 One cannot leave the question of stability of yield without 
 mentioning in passing that the yield of a sales tax is also subject 
 to instability and that it is more difficult to adjust such a tax to 
 changes in financial needs than is an income tax. 
 
 The Committee has chosen largely to ignore in its report the 
 relation between the aggregate burden on the taxpayers of Con- 
 necticut and the net sum produced for the use of the state by 
 various taxes. The fact that a larger part of the burden of an 
 income tax would be absorbed by the deductibility of the tax 
 under the Federal income tax than is absorbed in the case of the 
 sales tax is glossed over by the majority report with a brief, de- 
 precating mention. The Committee has, however, also ignored 
 
 8 
 
entirely the inconvenient fact that the costs of compliance and 
 administration involved in any reasonably well designed income 
 tax would be much smaller than those of the sales tax, even al- 
 lowing for various simplifications recommended by the majori- 
 ty. As the Committee apparently considers the difference be- 
 tween the distribution of the burden of the sales tax and that 
 of an income tax with low exemptions and slight progression to 
 be immaterial (p. 109), it would appear that the Committee is 
 willing to impose on the taxpayers of Connecticut a larger ag- 
 gregate burden through the sales tax than would be necessary 
 to realize the same sum through the income tax, even though the 
 difference in the way the burden is distributed among taxpayers 
 is too small to be given weight. That the majority has taken this 
 course can only be explained either by assuming that the ma- 
 jority has formed that kind of emotional attachment for a sales 
 tax or aversion to the income tax that, they condemn in others, 
 or that they fear, consciously or subconsciously, that if an in- 
 come tax were recommended, the views of the legislature as to 
 the proper distribution of the burden would not coincide with 
 their own and the ultimate result might be a tax more progres- 
 sive than they could approve. 
 
 In short, the majority has failed to meet squarely the issues 
 presented by the proposal of an income tax. It has condemned 
 all income taxes out of hand on grounds that, if valid at all, would 
 apply principally and even solely to a sharply progressive tax. Had 
 the majority considered the various possible varieties of income 
 tax with greater frankness, there might have been room for re- 
 spectful differences of opinion regarding the proper rate of pro- 
 gression, or even for compromise. As the final report was sub- 
 mitted, there is no room for anything but a complete rejection of 
 the recommendations of the majority regarding the income and 
 sales tax. 
 
 IV 
 
 The Committee's recommendation with regard to the sales tax 
 must be rejected. It is my opinion that any revenue the sales 
 tax can provide can be provided in a more equitable manner by 
 the imposition of an income tax. As one of the greatest authori- 
 ties on the sales tax in the United States, Professor Carl Shoup 
 of Columbia University, had long ago stated: 
 
"As an emergency measure the (sales) tax has an 
 undeniable advantage of yielding a certain amount of 
 money, quickly; but it is not the only tax possessing 
 this virtue. — The sales tax as an emergency form of 
 revenue and certainly as a permanent part of any state's 
 tax system, marks an unnecessary and backward step 
 in taxation." 
 
 The majority report concludes that the sales tax provides the 
 necessary revenue in the most equitable manner but nowhere 
 does it show Who is paying what. No study has been undertaken 
 to show the actual tax burden imposed by a sales tax. No study 
 has been undertaken to show the loss of revenue suffered and 
 being suffered by merchants in the border communities of the 
 state. No investigation has been made of the effect of such a 
 tax on interstate commerce and the position of Connecticut manu- 
 facturers engaged in interstate commerce. Nor has attention been 
 directed at the comparative administrative costs and costs of 
 compliance with the sales tax as compared to other alternatives. 
 
 I shall discuss the majority's so-called tax burden table in de- 
 tail below. I should like to present the result of a preliminary 
 study into the Connecticut retail sales tax being made by an im- 
 partial student of the question. Under the 3% tax with food and 
 clothing exempt in effect until April 1, 1948, the following results 
 were obtained: 
 
 Income Percentage of Income Taken by 3% Sales Tax 
 
 •970% 
 .831% 
 .948%, 
 .823% 
 1.011% 
 1.009% 
 ■987% 
 • 748% 
 
 This preliminary report shows that persons in the upper third 
 of our income classes are paying less than the remainder of the 
 income groups. The person earning between one and five thou- 
 sand has been paying per dollar of income more than a person 
 earning in excess of five thousand. Had this study been carried 
 further into the income group of say $100,000, the amount per 
 dollar paid would be substantially less than is shown in the pre- 
 liminary results. Incidentally, the majority study of hypothetical 
 taxpayers indicates the validity of this statement. A person 
 
 10 
 
 - 
 
 500 
 
 500 - 
 
 1,000 
 
 1,000 - 
 
 1,500 
 
 1,500 - 
 
 2,000 
 
 2,000 - 
 
 2,500 
 
 2,500 - 
 
 3,000 
 
 3,000 - 
 
 5,000 
 
 5,000 - 
 
 10,000 
 
earning $2,600 is estimated to pay $14 in retail sales tax, or .538 
 per cent of his income, a person earning $10,200 is estimated to pay 
 $60 or .588 per cent of his income while a person earning $60,000 
 ($10,000 of which is derived from securities which escape state taxes) 
 pays .233 per cent or one-half as much per dollar of income as the 
 others. 
 
 Until the Committee can demonstrate the logic of their argu- 
 ments of the equitability of a sales tax and answer the questions 
 I have pos.ed, there can be no consideration of the retention of a 
 sales tax as a permanent part of our tax structure. 
 
 While each person may have a different concept of what con- 
 stitutes tax equity, we cannot intelligently discuss the question 
 without knowing who pays what. Chapter two of the majority 
 report purports to 'examine the tax impact of the Connecticut 
 system on taxpayers. I have searched in vain for a statistical 
 analysis of who pays the taxes. A per capita answer is inade- 
 quate for its average clearly fails to indicate the range of the tax 
 burdens and conceals the extremes. Why the majority has failed 
 to supply this information, which I consider essential in our ex- 
 amination, I do not know. The report makes a feeble attempt 
 to provide some light on this matter by three hypothetical tax- 
 payers with incomes of $2,600, $10,200 and $60,000, respectively. 
 Whether these taxpayers are intended to be typical of the individuals 
 of that income group cannot be determined from the report. If 
 we assume that they are typical taxpayers for the income groups, 
 the information presented by Table II (p. 61) can lead to only one 
 conclusion: that the Connecticut tax structure is highly regressive. 
 If the information of that table for Connecticut is stated in terms 
 of percentage of income, we find that the following tax burdens 
 exist : 
 
 Income Tax Paid Tax as % of Income 
 
 $ 2,600 $ 61 2.35% 
 
 10,200 134 1.31% 
 
 60,000 267 .445% 
 
 This means that the person in the lower income bracket pays 
 as state taxes 4}i times more out of each dollar he receives than 
 does a person receiving 24 times as much. This would clearly 
 show that our tax structure is desperately in need of revision and 
 would clearly establish the regressive nature of our tax burden. 
 
 11 
 
Carrying out this comparison for the other states, we find that 
 in New York where an income tax prevails, that a moderately pro- 
 gressive state tax burden exists. The $2,600 taxpayer pays less 
 per dollar of income in New York than does either the taxpayer 
 with $10,200 or $60,000. In Massachusetts where a variation of 
 the income tax also exists, the tax system is also progressive but 
 not to the same degree as New York. The percentage of income 
 taken by New York, Massachusetts and New Jersey are as follows 
 under this table: 
 
 Income New York Massachusetts New Jersey 
 
 2,600 1.96% 1.46% 2.70% 
 
 10,200 2.06% 2.25% 1.05% 
 
 60,000 3.79% 1.96% .262% 
 
 Only New Jersey's tax structure is more regressive than ours. 
 
 If the information given in Table II is not intended to repre- 
 sent the tax burden on typical income groups, then we might 
 re-examine the comparative burden borne by these taxpayers in 
 Connecticut, New Jersey, Massachusetts and New York. If Table 
 II is recast in terms of a percentage of income, we have the following 
 results : 
 
 State Tax in Dollars Tax as Percentage of Income 
 
 $2,600 $10,200 $60,000 $2,600 $10,200 $60,000 
 
 Conn. $61 $134 267 2.35% 1.31% .445% 
 
 N.J. 70 107 157 2.70% 1.05% .262% 
 
 Mass. 38 230 1,175 1.46% 2.25% 1.96% 
 
 N. Y. 51 208 2,272 1.96% 2.06% 3.79% 
 
 From this we can easily see why Connecticut is regarded, along 
 with New Jersey, as a heaven for tax refugees from New York. 
 A Connecticut resident with an income of $60,000 would pay 8}4 
 times more state taxes in New York and 4 times more in Mass- 
 achusetts than he does in Connecticut, a person earning $10,200 
 approximately twice as much in these two states as he would in 
 Connecticut. Only in New Jersey would either taxpayer have a 
 smaller burden than he has in Connecticut. The reason is obvious: 
 New York and Massachusetts both have income taxes but New 
 Jersey does not. 
 
 The information furnished by Table II is also of interest for 
 the hint it furnishes of the operation of the deductibility pro- 
 visions of the federal tax law and its relation to the state tax bur- 
 den. Under the hypothetical taxpayer assumed for the $2,600 
 
 12 
 
class, no federal tax is payable and he is therefore subject only to 
 the state tax structure. The following table shows that the taxpayer 
 in the $10,200 bracket in New York and Massachusetts under an 
 income tax is able to recapture approximately 19 per cent of the 
 state tax by the deductibility feature while the taxpayer in the 
 $60,000 bracket is able to recapture approximately 50 per cent in 
 New York and 52.2 per cent in Massachusetts. 
 
 
 State 
 
 Diff. 
 
 
 
 Combined 
 
 Net Diff. 
 
 % of St. 
 
 
 and 
 
 Bet. 
 
 Federal 
 
 Diff. 
 
 State, 
 
 in Total 
 
 Tax Paid 
 
 $10,200 
 
 Local 
 
 Conn. & 
 
 Income 
 
 in Fed. 
 
 Local & 
 
 Tax 
 
 By Fed. 
 
 
 Taxes 
 
 State Tax 
 
 Taxes 
 
 Tax 
 
 Federal 
 
 Burden 
 
 Govt. 
 
 Conn. 
 
 $134 
 
 
 $1,180 
 
 
 $1,314 
 
 
 
 N.J. 
 
 107 
 
 —27 
 
 1,184 
 
 +4' 
 
 1,291 
 
 —23 
 
 0. 
 
 Mass. 
 
 230' 
 
 +96 
 
 1,162 
 
 —18 
 
 1,392 
 
 +78 
 
 18.5% 
 
 N. Y. 
 
 208 
 
 +74 
 
 1,166 
 
 —14 
 
 1,374 
 
 +60 
 
 18.9% 
 
 $60,000 
 
 
 
 
 
 
 
 
 Conn. 
 
 267 
 
 
 16,442 
 
 
 16,709 
 
 
 
 N.J. 
 
 157 
 
 —110 
 
 16,496 
 
 +54 
 
 16,653 
 
 —56 
 
 —0 
 
 Mass. 
 
 1,157 
 
 +908 
 
 15,968 
 
 —474 
 
 17,143 
 
 +434 
 
 52.2% 
 
 N. Y. 
 
 2,272 
 
 +2,005 
 
 15,398 
 
 —1,004 
 
 17,670 
 
 +961 
 
 50.0% 
 
 As I have stated before, if the critics of the present federal 
 tax rate structure are serious in their protests against the drain 
 of funds from the state, I again would remind them that at least 
 25 per cent of the federal income tax now taken out of the state 
 by the federal tax can be recaptured and retained by the imposi- 
 tion of a state income tax. This would also have the further ad- 
 vantage for Connecticut insofar as the tax burden is apportioned 
 more nearly approximate to taxpayers' financial resources. 
 
 It should also be noted that although the New York and Massa- 
 chusetts taxpayers in the $10,200 and $60,000 examples pay five 
 and ten times more in state taxes than would the Connecticut 
 resident, the total tax bill, if federal taxes are added, is only 2^ 
 per cent higher in Massachusetts and 6 per cent higher in New 
 York than in Connecticut. 
 
 I shall not discuss in any detail the statistical data presented 
 with regard to Connecticut corporations as compared to com- 
 peting corporations in other states. I believe that, as the major- 
 ity has recognized, such information as is presented is useless 
 and inconclusive. No generalizations should be undertaken on 
 the relative tax burden unless further and more definitive in- 
 formation is made available. 
 
VI 
 
 I cannot agree with the majority's report that the failure to 
 permit the deduction of interest in determining the net income 
 of corporations is discriminatory and that such a deduction would 
 improve the equitableness of the present corporation tax. It is 
 more important to treat two competing corporations having the 
 same assets and the same operating income but financed in different 
 ways than it is to treat alike two companies in which the equity 
 income is the same but the total assets used and the total operating 
 income is different. The recommendation will impair one of the 
 few Connecticut taxes that may be said to have a moderately pro- 
 gressive impact. Indeed, consideration has been given in the Treas- 
 ury of the United States to various methods whereby the interest 
 deduction in the federal law might be eliminated. In effect, allowing 
 interest to be deducted means that of two corporations having the 
 same capital invested, doing the same business and making the same 
 gross profit, the one that financed itself entirely on equities will 
 have a heavier tax, while that one which finances itself by debt will 
 be given an advantage. This produces an incentive for debt fi- 
 nancing to the detriment of sound capital structures. Arbitrary 
 lines must also be drawn between interest on bonds, interest on 
 debentures, interest on income bonds, interest on preferred stock and 
 interest on rental payments in a way that makes tax manage- 
 ment uncertain. Concededly, from the figures furnished by the 
 majority report, the amount is minor and is not high enough to 
 have anywhere near the serious effect which the federal law is con- 
 sidered to have in this direction. There seems to be no reason 
 why the Connecticut corporation tax should take this backward 
 step. 
 
 VII 
 
 In a different field, a rather important matter has come up 
 in the last few months which the Committee has chosen to pass 
 over with a bare mention. The' change in merit rating formulas 
 for computing the payroll tax which has cut the yield of this tax 
 by over 21 million dollars for calendar 1948, as compared to 1947 
 (in spite of increased payrolls), a reduction of some 76%. This 
 tax is assessed exclusively on the employer, and in the short run at 
 least, the cut in this tax produced an unexpected windfall gain to 
 employers for which there is little or no equitable justification. 
 While keeping this tax at its original level would not have affected 
 
 14 
 
the general fund balance, since the proceeds must go into a special 
 trust fund, nevertheless it would have been a far wiser policy to 
 have kept these taxes at their former level and to have further 
 extended the reserve funds, in order either to finance a more liberal 
 schedule of benefits, or to avoid the necessity for increases in pay- 
 roll rates in the future if unemployment should again increase. 
 Provided that reserve funds permit, it is in times of unemployment 
 that the rates should be lowered, when such action may have some 
 effect in minimizing the drop of employment. A time of full employ- 
 ment and still-threatening inflation is no time to lower these taxes. 
 
 Even if the size of the reserves made the reduction imperative 
 (which is at best questionable), it would surely have been in order 
 to consider whether or not a special payroll tax, for the state general 
 fund should not have been substituted, rather than the sales tax. 
 Such a tax would, with a suitable exemption level, have been more 
 equitable and more easily collected than a sales tax. However, 
 since the adjustments to the new rates of payroll tax have to a large 
 extent already taken place, this missed opportunity is perhaps now 
 to be considered water over the dam. Even so, more attention 
 to these aspects of payroll taxation, with suitable exemptions, 
 would have been in order. 
 
 VIII 
 
 The recommendations of the majority of the Committee, re- 
 garding the property tax are generally acceptable. However, if 
 all personal property, except business tangibles and motor ve- 
 hicles, are to be eliminated from the property rolls, it would seem 
 desirable, in order to reduce both the costs of administration and 
 costs of compliance by the taxpayer for the state to collect the 
 property tax at a uniform rate on automobiles at the same time as 
 the license fees and turn the proceeds over to the local subdivisions. 
 If the majority of the Committee is really serious in its concern 
 over the overlapping of taxes, here at least is one place where some- 
 thing sensible can be done. 
 
 There are several comments on the majority's views that must 
 also be made at this point. While I am in agreement that the 
 intangible property tax has been ineffective and should be re- 
 pealed together with the complementary estate penalty tax, I 
 do not consider this in order until the holders of such intangibles 
 are subject to a tax on the income of such intangibles. The resi- 
 
dents of Connecticut, according to a recent survey, hold more se- 
 curities than the residents of any other state except New York and 
 California. This is a large field and a fertile source of revenue if 
 properly approached. I believe that the intangibles tax can be more 
 than offset by an unearned increment tax as used in Massachusetts 
 today, or by the adoption of an income tax. 
 
 A major point which the majority has passed by much too 
 quickly (the information is partly in a footnote) is that the rate 
 of property tax in Connecticut is substantially below that of the 
 average of the nation. While rates considered alone arid without 
 the related assessment base are meaningless, it seems essential 
 that more attention be given to this. The Committee may recall 
 that the -state provided a 10 million dollar subsidy for education 
 during the past biennium. Recent reports indicate that such a 
 subsidy has not resulted in the improvement of the level of educa- 
 tion expenditures but has been absorbed by the towns with an 
 attendant reduction or maintenance of the present rate. This 
 would seem to indicate that the towns are not assuming their share 
 of their local costs and that the state is assuming additional burdens 
 that could well be borne by such communities. If the property 
 tax is not being utilized as fully or as effectively as it might be or is 
 actually being utilized in other cities of the nation, the state may 
 reconsider the entire problem and redetermine how the costs of an 
 effective educational system shall be met. It may be that the 
 subsidy of 10 million dollars should be eliminated and that each 
 town be required to provide from local revenue the amount lost 
 thereby. This observation should not be taken to mean that 
 higher property tax rates are necessarily in order but is intended 
 to focus attention to the lower property tax rate existing in Con- 
 necticut. 
 
 Incidentally, this is another reason why Connecticut is so pop- 
 ular with the tax refugees from New York and Massachusetts. 
 The amount of income tax savings and property tax savings made 
 possible by residence in Connecticut will provide the capital costs 
 of a fairly lavish estate in less than ten years. Local real estate 
 brokers have often made this statement to people from- West- 
 chester county (where the property tax rate is 55 mills). 
 
 16 
 
IX 
 
 As a thorough study of the Connecticut tax system, the re- 
 port is grossly inadequate, even if considered with the self-im- 
 posed limitations on the Committee's scope. In its haste to meet 
 a deadline, the Committee sacrificed careful study and constructive 
 recommendations on several points. Rather than submit an 
 interim report, the majority submitted a final report which recom- 
 mended further study of specific problems and avoided considera- 
 tion of alternatives to meet other problems found to exist within 
 our tax structure. In at least two instances — the question of 
 local property taxes and the taxation of insurance companies — 
 the Committee has recommended further special studies. In another 
 instance — the unemployment compensation taxes — it avoided evalu- 
 ation of present taxes because of the recent innovation in merit 
 rating formulae. In three other instances, the majority report 
 points up the difficulties inherent in our existing taxes but fails to 
 offer a solution to the problems present. It alleged that there was 
 an unequal tax burden borne by competing corporate and unin- 
 corporated businesses and then states this can be done by "some 
 equalization of the burden." How to evaluate the value of the 
 corporate form of doing business or how to properly tax the unin- 
 corporate business to achieve its desired goal of equalization is not 
 shown. Again, the majority report criticizes the present four mill 
 tax on intangibles and the complementary estates penalty tax and 
 recommends that "whenever a suitable replacement tax can be 
 developed, intangible personal property be exempted from local 
 taxation and the estate penalty tax be repealed." Apparently, 
 the nature or form of such "suitable replacement tax," is beyond 
 the capacities of the majority group. In fact, no mention is 
 even made of possible alternatives. Lastly, the majority con- 
 cludes that "tangible business property be exempted from taxa- 
 tion as property provided that an 'in lieu' tax (to be determined 
 after further study) can be devised as a replacement for local gov- 
 ernment. " It suggests a "gross receipts" tax as a substitute in 
 one sentence but nothing further is mentioned. It was, and is, 
 my opinion, that an imposition of an income tax would correct the 
 first two of the three difficulties listed above but the majority — in 
 its desire to reject all or partial recognition of an income tax — 
 deleted any suggestion of this nature. 
 
 The Committee has not examined our succession and estate tax 
 because it raised, in the majority's view, "no question of State 
 tax policy but may well require amendment or revision for ad- 
 
 17 
 
ministrative reasons." No further information is given as to the 
 nature of such amendments or revisions, although the Committee 
 has taken infinite pains to elaborate such administrative changes 
 it deemed desirable for the sales tax, such as a review of the ex- 
 emption of children's clothing and domestic fuel. I think that our 
 succession and estate tax should have been given much more careful 
 consideration. Moreover, the Committee should have investigated 
 the need and desirability of a gift tax to supplement our inheritance 
 tax laws. At least seven states now impose such a tax and it may 
 be appropriate for Connecticut. 
 
 There are a number of nuisance taxes which have not been 
 considered, probably because they do involve policy questions. 
 I have reference specifically to the present tax on the sale of 
 oleomargarine which is' designed to limit the sale of this food item. 
 It seems to me that every such tax might well have been given more 
 attention. 
 
 18