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In its judgement, fulfillment of the order would Involve violation of the copyright law. Author: New York (State). Legislature. Title: Report of the Special Joint Committee on... Place: Albany Date: 1922 MASTER NEGATIVE * COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DIVISION BIBLIOGRAPHIC MICROFORM TARGET ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD m N482 New York (State) Legislature. Special joint commit- tee on taxation ancTretrenchmenT, ... Report of the Special joint committee on taxation and retrenchment submitted March 1, 1922. Albany, J. B. Lyon company, printers, 1922. 383 p. incl. tables, diagrs. 23"". At head of title: Legislative document (1922) no. 72. State of New York Frederick M. Davenport, chairman. "Digest of laws of the various states relating to the methods of taxing public utilities. Prepared ... by C. Eveleen Hathaway and Ruth Montgom- f ^^' fff,',, *'^^/-F^^r^"^^ section, New York State library. Revised to Octo- ber, 1921 : p. 313-359. \oh X^-^»t'0"--New York (State) i. Davenport, Frederick Morgan, 1606- II. Hathaway, C. Eveleen. in. Montgomery, Ruth. iv. Title. Library of Congress V^i^j/ HJ9287.AS 1922 i.li 22-27085 RESTRICTIONS ON USE: TECHNICAL MICROFORM DATA FILM SIZE: 7:5^^ REDUCTION RATIO: \u IMAGE PLACEMENT: lA HA ) IB IIB DATE FILMED: ^^-'^'^-RS INITIALS: TRACKING # : Sh M^ 0yi3J> FILMED BY PRESERVATION RESOURCES. BETHLEHEM. PA. .^/ ^^ ^^y^ ^^^7^ o? > DO O a m -n O O O CO X M e' nPO ^^. 3 3 > o m CD O hO«=: ^ o O CO X < N o: A^ A:/ ^-^A ^ ^> ^.. ^A CP jO? OJ e^ ,^>1 **^ o o 3 3 > o 3 3 J^/ > Ul a? "^^74^ o o 3 3 CO bo c> 00 b to ro 1.0 mm 1.5 mm 2.0 mm ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghi|klmnopqrstuvwxyzl234 567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyzl234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 2.5 mm ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 fp ^^ ■^ # c^ 4^ #^ ■•5. ,^>^' -?= fo 'f# fp ^fcr m H O O ■o m Tj > c c*> I TJ ^ 0(/) ; m o m /"#. c^ t* V t- 3 to o 3 3 if a-r> sbSlrv. i: M.; !.!■■ ' ! . |i?"> ■■■■•" Id):;;:,: 2 J,,., .-3 Ei^; .. jj^ • . j5*-ii'^i~" HP^,,, a ■mi mip K^ Hn^ ■V M l;..',:;!:; Pl iS';' K ^^2* '-' 1" jffi : ■ ' ffy: IMS. ■ ' ,, j'C, li''' ^ !■ ;■!' '' t- :' M-l r ' 1 Ki|i ' M kHIiI m Is;; ■ 1? !' ^ |Sfl m HH F**i Hiiti^ -lis 'Cr: J '0'i{Jt. A / /• ^ Legrislative Document (1922) No. 72 STATE OF NEW YORK t 1 B B A R ^ SCHOOL OF BUSINESS REPORT OF THE Special Joint Committee on Taxation and Retrenchment Submitted March 1, 1922 ALBANY J. B. LYON COMPANY, PRINTERS 1922 ^>:^H.A.'^.M^*'f^, 3 v\^^ 4^ \ Cdmnbta ®ni»et»tt^ LIBRARY School of Business '.iAJH- Legrislative Document (1922) STATE OF NEW YORK ♦ * REPORT OF THE No. 72 Special Joint Committee on Taxation and Retrenchment Submitted March 1, 1922 ALBANY J. B- LYON COMPANY, PRINTERS 1922 DUS\TaesS ' ; / ^ ENABLING ACTS Joint Resolution of Legislature, January 23, 1919 Resolved ( if the Assembly concur ) , That a joint committee of the Senate and Assembly be hereby created, to consist of three members of the Senate Committee on Taxation and Retrenchment, who shall be designated by the Temporary President of the Senate, and three members of the Assembly Com- mittee on Taxation and Retrencliment, who shall be designated by the Speaker of the Assembly, to inquire into and investigate the subject of taxation and to prepare and submit bills for remedial legislation in relation thereto. Resolved, That such committee is hereby authorized and directed to choose from its members a chairman, and is authorized to employ such assistants as it may deem necessary for the prosecution of its work; and that such committee may sit anywhere within the State, and may take and hear proofs and testimony, subpoena witnesses and compel the production of books, records, papers and documents, and otherwise have all the powers of a legislative committee provided by the Legislative Law. Resolved, That such committee shall report the result of its investiga- tions to the Legislature on or before March 15, 19 1», and shall accompany such report with such bills as it may deem proper for remedial legislation in relation to taxation. Resolved, That the sum of ten thousand dollars ($10,000), or so much thereof as may be necessary, shall be paid for expenses of such committee from the contingent fund available by appropriation for joint legislative investigating committee expenditures, upon vouchers audited and approved as prescribed by law. Albany, N. Y., Jcmwiry 23, 1919. Joint Resolution of Legislature, January 18, 1921 Resolved (if the Assembly concur). That the joint legislative committ^ appointed pursuant to the resolution of this body adopted January 23, 1919, to inquire into and investigate the subject of taxation and to prepare and submit bills for remedial legislation in relation thereto, and continued by joint resolution adopted April 16, 1920, be further continued with all the powers and duties heretofore conferred and imposed upon such committee, and that the time for it to make its final report to the Legislature be extended to March 1, 1922, and be it further Resolved, That vacancies in the membership of such committee from the Senate be filled by the Temporary President of the Senate and from the Assembly by the Speaker of the Assembly, and be it further Resolved, That the sum of ten thousand dollars, or so much thereof as may be necessary, be and hereby is appropriated from the contingent fund of the Legislature for the necessary expenses incurred and to be incurred by said committee upon vouchers approved and audited according to law. Albany, N. Y., January 18, 1921. [3] m SPECIAL JOINT COMMITTEE ON TAXATION AND RETRENCHMENT Of the Senate Frederick M. Davenport, of Oneida, Chairman John J. Boylan, of New York Frederick W. Kavanaugh, of Saratoga Of the Assembly Franklin W. Judson, of Monroe, Vice-Chairman Simon B. Van Wagenen, of Ulster Michael E. Reiburn, of New York [5] LETTER OF TRANSMISSION 1 1 1 N STAFF 8ecreta/ry to the Committee and Chief of Research Staff Robert Murray TTatg Research Staff Frederick C. Mills Luther Gulick Fred Rogeks Faikchild Mabel !N^ewcomer Donald H. Davenport Counsel < Robert C. Gumming, Albany, N. Y. John C. Davies, Camden, !N. Y. Thomas Reed Powell, New York City Charles J. Tobin, Albany, iN". Y. Joseph F. Chamberlain, New York City. Special Advisers Edwin R. A. Seligman Charles J. Bullock Delos F. Wilcox Cleric Gerald G. Casey, Utica, N. Y. Official Stenographer John K. Marshall, New York City [6] March 1, 1922. To the Senate and Assembly of the State of New York: The results disclosed by the accompanying report upon the tax system of the State of New York are somewhat disconcerting. Although perceptible progress has been achieved during the past few years, it is evident that many far-reaching changes must yet be made before the State can be said to have a consistent, well- balanoed, adequate and equitable system of taxation. It seems not only that we have a tax system which, in many of its features, is a mass of intricacy and difficult and expensive administration, but it appears also that we have developed great inequalities of burden as between different classes of persons and property. When the taxes are reduced to a common measure, we find that there are some classes of business which are bur- dened far more than others ; we find great inequalities and injus- tices of assessment of taxes all over the State ; we find corporations both within and without the same class which are being taxed very unequally; we find that real property in the State is being much overtaxed proportionately, while other classes of persons and property are getting away practically scot-free. The Committee has sought to outline a program which will equalize and simplify taxation within the State. Reduction is recommended in certain cases where the facts indicate that the present burden is grossly unequal and oppressive. We recog- nize, of course, that a decrease in the aggregate of taxes levied must depend upon the success of the efforts to achieve economies in administration and decreases in appropriations, not only on the part of the state government but particularly upon the part of local governments throughout the commonwealth. The Committee has sought to make this piece of work a real application of scientific and statistical method. We believe that the method herein disclosed should be employed in the solution of tax adjustments and difficulties throughout the country. There is no field in which the method needs more to be employed. There is no public issue more important to the American people, or to the world for that matter just now, than the issue of a more equal and less oppressive burden of taxation. The only way to confront the issue is in terms of things as they are, in fact and figure. Even if the simple, practical methods suggested by this report, growing out of the long experience of the State, as well as out of thorough statistical inquiry, are adjusted by the Legislature to m 8 the satisfaction of the people, much remains to be done. Forest and mineral lands taxation, the taxation of private-car companies, the just rate and method of taxing stock transfers, the further betterment of the administration of the inheritance tax ; these and other problems yet remain to be solved. But we think it may justly be said that if this State takes the plain steps marked out by tbis report, no section of the American people will have less cause for complaint with respect to inequality and injustice of tax burden than the people of the State of New York, and no state of the United States will have advanced further along the path of sound taxation and finance than the State of 'New York. This Committee has been constantly supported in its work by a loyal and able staff. The brunt of the burden of scientific investigation has been borne by Robert M. Haig, chief of the research staff, and by Frederick C. Mills, chief statistician. These men hold positions in finance and statistics in the School of Business of Columbia University. Professors Edwin R A. Selig- man of Columbia, Charles J. Bullock of Harvard, Fred R. Fair- child of Yale, and Mabel Newcomer of Yassar, and Messrs. Delos W. Wilcox and Donald H. Davenport, have been skilled and wel- come advisers and investigators. The committee has had the expert legal counsel of Robert C. Cumming, Thomas Reed Powell, John C. Davies, Joseph P. Chamberlain and Charles J. Tobin, and the administrative advice of Luther H. Gulick, the head of the National Institute of Public Administration. To the Merchants' Association of New York, whic'h furnished the committee with comfortable quarters for many conferences, and to the authorities of Columbia University who furnished offices for the conduct of the survey, to the Secretary of the Treasury of the United States and the Federal Bureau of Internal Revenue which disclosed to us the Federal sources of information, to the various departments of our State government which generously and effectively co-operated, to the great number of corporate and individual taxpayers throughout the State who have responded freely and fully to rather intricate and vol- uminous questionnaires, we desire to express the appreciation of the State as well as our own sense of indebtedness and gratitude. (Signed) FREDERICK M. DAVENPORT, Chairman, FRANKLIN W. JUDSON, JOHN J. BOYLAN, FREDERICK W. KAVANAUGH, SIMON B. VAN WAGENEN, MICHAEL E. REIBURN. 1922 REPORT OF THE SPECIAL JOINT COMMITTEE ON TAXATION AND RE- TRENCHMENT TRANSMITTED TO THE LEGISLATURE MARCH 1, 1922 [9] TABLE OF CONTENTS PAGE Summary of Recommendations 15 PART ONE A Critical Survey of the Revenue System of the State of New York Introductory 19 The Cost of Government 24 The ten-year increase 24 The total tax burden and the State's share 25 The direct tax burden 27 Comparisons with increases in wealth and assessed values 27 The increase of public debts 29 The increase in the true tax rate 29 Per-capita state expenditure and commodity prices 35 Surpluses and deficiencies 37 Receipts from " direct " and " indirect " sources 39 Local Finance 40 Miscellaneous suggestions regarding local finance 40 Organization and efiiciency 40 Central purchasing 41 The tax calendar 41 Municipal bonding 41 The Personal-Property Tax 42 The facts regarding personal-property assessments 42 Complete exemption of personal property recommended 45 The Real-Estate Tax 47 The burden on real estate 47 The growth of the tax rate on real estate 47 The tax rate as an indication of real burden 49 The real-estate tax as a business tax 52 The relation of real-estate taxes to net income in real-estate ventures ... 53 The relation of real-estate taxes to the net income of farmers 54 The relation of real-estate taxes to the net income of other businesses . . 56 The burden on home-owners and rent-payers 57 Conclusions and recommendations with respect to the real-estate burden. 57 The administration of the real-estate tax 58 Exemptions 62 Exemptions from the property tax 62 The facts regarding property-tax exemptions 62 Conclusions and recommendations regarding property-tax exemptions . . 66 Income tax exemptions 67 The personal exemptions 67 Tax-exempt interest on government securities 67 The Personal Income Tax 72 The relation of the state income tax to the federal act 72 The personal exemptions 73 The minimum income tax 74 Change in scope and application 75 Test of residence 75 Net losses 76 Appreciations in the value of gifts 76 The closed transaction 77 Miscellaneous minor amendments 77 [11] 12 Table of Contents Table of Contents 13 PAGE The Taxes on Financial Institutions 78 The development of the present method of taxing banks 79 Results of the statistical investigation 82 National banks 83 State banks 84 Trust companies 84 Investment companies 84 Savings banks 85 The crisis caused by the Richmond decision 86 Conclusions 89 The taxes on Insurance Companies 90 The Taxes on Public Utilities 92 History of pubUc-utiUty taxes in the State 92 The present system 95 Defects of the present system 96 Lack of certainty 96 Arbitrariness 98 Lack of simplicity 99 The cost of complexity 100 Results of the statistical inquiry 102 What parts of the present system may be discarded? 106 The special-franchise tax 106 The state franchise taxes ' 107 The tax on tangible personalty 108 The tax on real estate 108 Conclusion 109 A plan for the taxation of public utilities 109 General considerations 110 Practice in other states Ill Comparison of possible bases 113 A gross-net tax recommended 116 Relationship of proposed gross-net tax to special-franchise tax 117 Definition of gross and net income 117 Illustrative rates of the proposed gross-net tax 118 Interstate apportionment 119 Fluctuation of revenue 120 The Taxes on Private-Car Companies 120 The franchise Tax on Income of Mercantile and Manufacturing Corporations . . . 121 The rate of the tax 121 The form of the tax 122 Deduction of net losses of other taxable years 122 The apportionment of interstate income 122 The Taxes on Unincorporated Business 126 The present situation 126 Effect of the federal taxes on business profits 126 Tax on the income of unincorporated business recommended 127 Form of the proposed tax on unincorporated business 128 Rate of the proposed tax on unincorporated business 128 Estimate of yield 129 Division of yield 129 The Taxes on Motor Transportation 129 What taxes should be paid by users of the road? 130 Motor traffic and road costs 134 The taxes in New York 139 Motor- vehicle taxes of other states 140 Revenue from New York motor- vehicle tax 141 Adequacy of the New York taxes 141 Changes in character and rates of motor- vehicle taxes recommended 150 Gasoline tax recommended 151 Distribution of the yield of motor-vehicle taxes 152 Effect of the proposals 153 The Tax on Transfers of Stock 153 PAGE The Taxes on Natural Resources 156 Mine taxation 156 Mineral resources of New York State 156 Method of taxing mines in New York State 157 Results of local assessment 158 Taxation of mines in other states 158 Conclusion 159 Forest taxation 159 Forests and lumber industry in New York State 159 Forest taxation in other states 160 Local assessment of forest land in New York State 161 Laws for special taxation of forests in New York 161 Forest-products taxes in other states 162 Forest-tax law of New York ineflFective in operation 163 Conclusion 163 The Administration of the Inheritance Tax 165 Present practice 165 Criticisms and suggestions 166 Miscellaneous 168 The apportionment of state taxes to the localities 168 SimpUfication and codification of the tax law 168 The need for adequate statistics 169 PART TWO A Statistical Analysis of the Tax Burden on Corporations in the State of New York Object and Scope 173 Object of the investigation 173 Scope of study and sources of information 174 Simimary of Annual Taxes paid by Corporations 176 General Considerations 179 The Burden of Taxes on Business Corporations 182 The Burden of Taxes on Financial Institutions 183 Comparison of financial institutions and business corporations 190 The Burden of Taxes on Public Utilities 196 Method of study 201 Relation of income to net worth 202 Relative tax biu-den within the public-utility groups 214 Relation of taxes to gross earnings 217 Relation of taxes to operating expenses 223 Relation of total taxes to net income 232 Relation of state taxes to net income 239 Relation of local taxes to net income 249 Comparison of pubUc utiHties and business corporations 256 Relation between taxes, net income and gross income of public utilities 261 The Burden of Taxes on Insurance Companies 264 Expenses Involved in Pajdng Taxes and Contesting Assessments 269 Statistical Appendices to Part II 271 GENERAL APPENDICES A. Digest of Laws of the Various States Relating to Methods of Taxing PubUc Utmties 313 B. Data for Estimating the Yield of Proposed Taxes on Public Utilities 360 C. Text of Proposed Bills 363 Proposed Unincorporated-Business Tax Law 363 Proposed Public-Utility Tax Law 371 Proposed Constitutional Amendment Regarding Debt Limitation 382 Proposed Constitutional Amendment Regarding the Taxation of Public Utilities 383 SUMMARY OF RECOMMENDATIONS The Committee submits herewith sixteen definite recommenda- tions which, it believes, deserve immediate consideration by the Legislature. In our opinion the program here presented is a thoroughly practical one which flows naturally and inevitably from the facts developed in the course of the investigations we have conducted. The Committee recommends: (1) That the remnants of the personal property tax be com- pletely abolished {cf. infra, p. 46) ; (2) That the revenues of the State be so adjusted as to elimi- nate at the earliest possible moment the direct_ state tax on real estate (c/. infra, p. 57) ; (3) That a thorough study be made of local revenues and ex- penditures through some state agency with a view to promoting retrenchment and efficiency and that, if such a survey reveals the necessity and wisdom of such action, the revenues of the localities be so readjusted as to lessen still further the burden on real estate now borne by the farmer, the business man, the home-owner and the rent-payer; (4) That a constitutional amendment be submitted making possible a thorough-going reform of real-estate assessments through the establishment of larger tax districts, officered by skilled assessors, functioning under a larger degree of central supervision and control (c/. infra, p. 59) ; (5) That statutes be passed modifying the assessment and collection machinery, so far as this can be done even before the enactment of the constitutional amendment recommended in the preceding paragraph; particularly, with respect to the central valuation of the property of public utilities {cf. infra, p. 108), and the centralization of the collection of school taxes {cf. infra, p. 60) ; (6) That the real estate of certain cemetery companies, and certain other property now exempt, be subjected to taxation {cf. infra, p. 67) ; (7) That, in case section 5219 of the United States Revised Statutes is amended in the manner proposed, a statute be passed substituting for the present taxes on banks (except those on sav- ings banks, which would remain as at present) a tax on the basis of net income at a rate of probably 6 per cent {cf. infra, p. 89), or That, in case the Congress fails to pass promptly the proposed [15] ! . ■! 16 amendment to section 5210, a statute be passed, levying a rate of 1 per cent on the value of ^^ other moneyed capital in the hands of individuals,'' which action will serve to validate the present taxes on national banks by a method undesirable from certain points of view but, nevertheless, apparently necessary unless national banks are to evade their fair share of the tax burden (c/. infra, p. 90) ; (8) That a statute be passed abolishing- the class of "Invest- ment Companies," submitting " Morris Plan " banks to taxation on the same basis as other banks and taxing the remaining so- called "Investment Companies" under section 9-a, the corpora- tion income tax {cf. infra, p. 89) ; (9) That there be substituted for the present taxes on insurance companies (except those on mutual companies which should re- main as at present) a tax on the basis of net income at a rate of probably 6 per cent {cf. infra, p. 91) ; (10) That a constitutional amendment be submitted modify- ing ihe debt limitation in such a manner as to make it practicable to abandon the taxation of the "special franchises" of public utilities as "real estate" {cf. infra, p. 107); (11) That a "gi^oss-net" tax be substituted for the present complicated series of state taxes on public utilities {cf. infra, p. 116); (12) That the rate of the income tax on manufacturing and mercantile corporations be increased from 4l^ to probably 6 per cent {cf. infra, p. 121) ; (13) That a statute be passed establishing an income tax on the profits of unincorporated business at a rate of probably 5 per cent {cf. infra, p. 128) ; (14) That certain minor changes be made in the personal income tax law {cf. infra, p. 72) ; (15) That statutes be passed increasing to a reasonable extent motor-truck license fees, simplifying license fees on all motor vehicles, and eventually establishing a gasoline tax at a reason- able rate per gallon {cf. infra, p. 151) ; and (16) That the tax on stock transfers be extended to include transfers of bonds {cf. infra, p. 155). In the course of the discussion of the body of the report, the Committee makes numerous other suggestions. The recommenda- tions listed above, however, are proposals the consideration of which, in the opinion of your Committee, can be long postponed only at the cost of grave risk to the true interests of the State. They are the obvious next steps toward rational tax reform. i PART ONE A CRITICAL SURVEY OF THE REVENUE SYSTEM OF THE STATE OF NEW YORK [17] g^ iBMBm Introductory f' Your Committee has attempted to make both a general survey on the tax situation in the State as it now stands after the important legislation of recent years, and an intensive study of certain portions of the system which seemed to be in greatest need of change. A progi-am is pi^esented which will equalize and simplify taxation in the State. Reduction of taxes is recom- mended in certain cases where the facts show that the present burden is imequal and oppressive. A decrease in the aggi*egate of taxes levied, obviously must depend upon the succt^ss of efforts to achieve economical administration and reductiousf in appro- priations. The system as it now exists is the result of important changes made in the past few yeai-s — changes which include such funda- mental action as the establishment of the persional income tax and the tax on the business incomes of mercantile and manu- facturing corporations. Indeed, the general-property tax has been almost completely abandoned except for the real-estate tax which, of course, remains the main source of local revenue. It was, we believe, the object of the Legislature, in continuing the life of this Committee, to siecure accurate information regarding the shortcomings of the system of taxation as it now stands after the recent changes. In 1920 the state and local governments in ^ew York spent more than twice what they spent in 1910.* Most of this increase is chargeable to the localities which collect almo^ all of their revenue from taxes on real property. So it comes about that the burden of this swollen expenditure has fallen largely upon real estate, the true rate of tax on the full value of such property having increased in ten years from 1% per cent to more than 2^^ per cent. Since this tax is paid by businesses owning real estate and by busi- nesses owning franchise values classed as real estate, this is a burden upon business as well as upon individuals. Personal *Cf. infra, p. 24. 119] 20 21 i Lv i * property, wtich comprised one-fourth of the tax base in 1866, had shrunk to one-twentieth of the base in 1910 and is now in 1920 approaching the vanishing point, making up only one- tiftieth of the taxable property. Eeal estate itself has been made subject to liberal exemptions which have whittled away a sub- stantial portion of the base. Certainly when the rate stands at an average level of 2% per cent, an increase of 40 per cent in ten years, the time has! come to take thought as to whether our tax system is not pressing with undue severity upon the owners of real estate. The personal income tax is being successfully administered and appears to demand only minor alterations. One of the major problems of the committee related to the group of special taxes on business corporations. After many years of virtual exemption, mercantile and manufacturing corpo- rations are now paying, in addition to real-estate taxes, a tax of four and one-half per cent of their net income. Other businesses are taxed on varying bases at varying rates. In^irance companies pay a tax on gi*oss premiums.* Banks, in addition to the tax on their real estate, pay a tax on either their shares of stock or on a bookkeeping figure representing approximately their investment in the busine6S.f Public utilities pay "^ general '^ franchise taxes, " special " franchise taxes and " additional " franchise taxes, etc., after paying taxes on certain real and personal property.:!: The committee set out to determine what these various special taxes amounted to and precisely how the burden was distributed among the various business interests of the State. The general evolution in this State has been in the direction of the development of a system which consists in the main of the following elements: 1. A tax on personal incomes, part of which is at present shared with the localities; 2. A tax on real estate, in rem, without regard to the owner- ship, whether it be by individuals or by bus/iness organ- izations, which serves to supply the bulk of local revenues, and 3. A series of taxes on businesses, consisting of a tax on corpo- rate incomes of business corporations generally, shared with the localities, a tax on certain types of business income of non-resident individuals, shared with the localities, a series of special taxes on public utilities, banks, insurance companies), etc., some of which (such as the special franchise portion of the public utility tax and the tax on shares of state and national banks) are now an important part of the local assessment base. There are other important taxes such as the inheritance tax, the stock-transfer tax, and the tax on motor vehicles, but the main structure is that outlined above. In the report of the com- mittee, submitted last year,* a table was presented summarizing the main provisions of the tax laws of the State and it is not necessary to reprint this table here. However, in order to make clear the complicated manner in which the revenues are collected and distributed a chart (Graph 1) has' been prepared and is presented on page 22. An examination of this chart will reveal the relative importance of the various elements in the present system as well as the manner in which the administration is delegated and the yield distributed. Basing its action upon an elaborate statistical aiialysis,t the Committee has drawn up a comprehensive plan for reorganizing the present chaotic hodge-podge of business taxes (group 3 above). This plan forms the core of the Committee's program. It simpli- fies the entire procedure. It provides! a method of removing the gross inequalities in the taxes borne by different types of business and by businesses within each class. It makes the total exemption of remaining vestiges of personal property a rational step. Finally, it offers the possibility of relieving real estate of its unenviable position as the sole elastic element in the tax system. In addition the Committee has studied the operation of the several miscellaneous sources of state revenue and submits specific recommendations relating to the motor-vehicle taxes, the stock- transfer tax and several other items. * Cf. infra, p. 90. t Cf. infra, p. 79 et »eq. t Cf. infra, p. 95. ♦ Taxation section, p. 17 ( insert ). T Cf. infra, Part II. p. 173 a seq. 22 23 1 i. X o O CO u o M a 111 formulating its program the Committee has attempted to keep in mind the remote as well as the immediate interests of the State. The definite program submitted* should be adopted not merely bt^cause of the value of the results which will at once be achieved through its establishment but also because of what it makes possiWe in years to come. Many changes which the Com- mittee considers eminently sound and desirable are definitely blocked so far as immediate action is concerned by insuperable legal and financial obstacles. It has been our aim to recommend only such changes as promise substantial improvement from both the long-time and the short-time points of view. The adoption of the program will, we believe, both provide a measure of immediate relief and prepare the ground for further reform in the direction of further simplification and equalization. * Cf. tvtia, r. 15. 25 iii The Cost of Government The ten-year increase.— The total per-capita cost of federal, state and local government for a resident of the State of New York increased 170 per cent from 1910 to 1920. In 1910 the per- capita cost of all government for a JS^ew York resident was $35.19; in 1920 it was $94.89, an increase of $59.70. By far the largest factor in this increajse is the tremendous growth of federal expenditures for the army, the navy, the public debt and for other activities assumed at the time of the war and con- tinued through 1920. As a result of these war expenditures, the cost per capita of the federal government in 1920 shows an increase of 527 per cent over 1910, while the per-capita cost of the state government increased 115 per cent and the increase in the per-capita cost of city, county, town and village government, including schools, increased 76 per cent. The basis of these computations is indicated in Table 1. TABLE 1* Governmental Expenses, 1910 and 1920 1910 1920 Per-capita increase Amount Per capita Amount Per capita Amount Per cent United States $639,502,470 38,332,010 219,000,000 $6 Of) 4 21 24 03 $4,608,531,125 94,100,072 438.500,000 $43 60 n 06 42 23 $36 65 4 85 18 20 New York State Local government in New York State .... 527 115 76 Total $35 19 $94 89 $59 70 170 Due to the presence of deficits and surpluses, the per-capita figures for taxes and other revenues differ somewhat from the expense figures shown in Table 2. Qf !♦ V^^ ^*"'"®* H^ ^^ **^i^" ^ *°** ? ^'■® ^^"^^ "P^^^ *^e following chief sources: The United States Treasury Departments annual Combined Statement of Receipts, Disbursements, Balances, StVot * u ^f^ **iv^® ^^^^^ t^l ^¥ federal government, except for the population figures »?^w^7/^^r" ^'Ti?"^ ''^^^''^^ The figures for the New York State government are from the Report of the ComptroUar The figures for local government are partially estimated as complete data were not collected for 1910 and are not yet available for 1920. The estimates are ba^ y^*?fJ IfJ/^^R "^ ^* ^t^t ^?? Commisnon, the Financial Statistics of Cities, published by the ??^J^/. *m!. Vf®*" A***\^'^"'''/''^ ^^^ ^^^ Comptroller's Special Rephrt on Municipal Accounts No attempt has been made m these computations to reconcile the differing fiscal years or to adjust population figures to the middle of the fiscal periods, as it was felt that such the reTuH ^^^^^ ^°^^^ ^erve to compUcate the computation without materially changing «.^I^f*TJi°'"!^'„V*'*'"® °^*^® ^®'^®''*^ ^.'^'''^®'^ is computed on the simple per-capita basis, which is ?n^irh!S L * ^K ^""^^ approxunation. If it were possible to calculate exactly N^w York's contribution to the federal treasury, the figures would probably be perceptibly larger. [24] TABLE 2 Governmental Revenues, 1|910 and 1920 1910 1920 Per capita increase Amount Per capita Amount Per capita Amount Per cent United States $615,996,969 37,905,877 218,000,000 $6 70 4 16 23 92 $5,687,712,848 115,678,480 436,500,000 $53 80 11 14 42 03 $47 10 7 17 18 11 New York State Local government in New York State 703 181 76 local ■ __ $34 78 $106 97 $72 19 208 The total tax burden and the State's share.— The great con- fusion in the public mind regarding cost of government and the relation of federal, state and loeal finances necessitates the presentation of certain general facts. Tables 1 and 2 show that the per^apita burden of government for residents of the State of ¥ew York in 1920 was about $100.* This means that the average family is paying, directly or indirectly, to the federal, state and local governments in the neighborhood of $500 a year, in return for the services of government. A second fact brought out clearly in tb? above figures is that about one-half of the present burden cf government for residents of the State of New York consisfts of pavments to the federal government. The cost of all the functions of the state govern- ment, of the city governments, town governments, county govern- ments, village governments, and public-school systems in\he State of mw York altogether amounted in 1920 to a sum rou pq S3 H o 00 C4 0> 00 CO PO to OS N t>. Tj< 1^ Ni i-t lO OS coFHeio®'^ CO C4 o OS 94 >0C4O00I^CO 1-1 ^oociooor^ •H ooeooOMNOs l>» 00 05 C0 1— t Oi o r* 'HWioNOico 1-t wcoeot^osoo 00 ■»«<«oo»oos OS rHCOCO009tx> OS 00 CO «o i-i t« O) O •«*< eo CI »-i «o 1-H t* «^«ooo®o o e^ioc^e^coco t- 05 T*l 05 00 >0 1* O XJOOO-^COt* ^ Ot^oo^oeo 1-H ^rei'ooos>ot>r ^H ■<*( CO >0 P CO CO 1-I oo^ot-oo CO ^«O^OSQ« O) eoeoNt^O'* >OQOosr«'-< ®O^NCS|t^ o» CO ci r^ o> «o 11 CO »o«o^ W 1H i-l i-lO^i-H00 O OSWO'*^ 00 t»N.«0'*0> 00 eo«ooot>.Tt< 05 CO>Oi-t05C>» 00 COOS^i-"t>. 00 r«cotoo>ao 00 •^lOiOcOiO 0» N'^i-H I o> O) 00 11 W3 1-1 o> s t*ONMON OOOOOiO^^ C0Q«O»«O00 ■^J«O«M(NC0 >0 «OQOOtOi-ico ■o eoQt»a09<-i t- ■«iOO)CO •^ ioooeoN.ooN. CO »« M C0 1-1 0> 05 o r^ CO •Ti« i-i cs CO CO nioeO'^^Q 00 OS CI OS Tjt t>. CO CI t«XC|i-i i-< CO -^ CO »H N CO r-t CO ll eo N 1-1 OS ■^ CSJ CO c>i»oco^oo>o 05 0504(00^ Tf i-t CO CD CO O eo eo Tj< OS 00 N COCOTf 0»TJ0«5>0Ot^C0 OS aoo>Oi-4co^ 00 »Ob,C|i-i t* cio^oooseo CO '^CO^OSOOto CO N00^Tf>O»H eo eotooooood t^ T»< r}» Tj< O CI O 00 t^eo»ococo>o CO 1-1 CI eo t^ (^ t^ CI t^t^OSOOOSOS «5 CO 'I* eo 1-1 «o CO eo ^cocii-i 1-1 CI 1-t W5 i-( i>. eo l-l CO X5 eo cooseoosooco o Qcoasooos>o 1-1 «eoi^Tjo»oop ^ ci««co-^o CO PCI>O00OS>O OS tCeoii*^p«oco ■»f eocONiH CI ^ •s a-2 • g fl fl sp « z c o o fl t 9> -o«a .S. I .•So O 0) "*- >. >*' © e8 M go eg S *» M o O fl © c3 fl a— PI'S 03 3 ^S O-S « « « & fl s fl o ®^ S-3 2 O.MCfl 00 © S s** t^ g o •9 fl fl 14-1 « O S-fl 2 « « fl^O M © b © S ® . SB'S «M es -t^ ei V A ^ O «, 03 mO ■2 fl -^ qS 08 a OB di o OB >• P o ^ b OS O o 03 fl 00 H u o a. GO > OS V s eS o O J3 © CO ;fl0d 00 2$ > §«• S>>p S3 CI © o39 bf^ OD i &■•- o I— « o I M ^ >■!> OD i M fl « I E OS OS OS t*t* 10 CO O 10 s a • S DO rS oa © fc- S'fl fl © T3 fl K fl E 03 eooooo»o»o O: OS OS OS OS > ^9t^OSiO ^COP^^ pt^'^'^P 5e«ceo^i5 ■JSo'fl-fl fl is M ■*» I * the State of N'ew York lie primarily in the direction of federal and local economies rather than in state economies. Your com- mittee realizes that substantial progress is being made in the direction of more economical state administration, but we wish to make clear the limited possibilities! of reducing in any marked degree the general tax burden unless the improvement reaches beyond merely state administration. If all the functions of the state government were completely abolished, the reduction in the total per capita taxes would be in the neighborhood of but 11 per cent. The direct tax burden.— An examination of the taxes levied on property in this state, the so-called " direct taxes," makes it clear that no one unit of local government within the State of ]^ew York is more resiponsible than any other for the gradual increase in the cost of government in this state. The aggregate taxes levied upon property from 1910 to 1920 are shown in detail in Table 3. This aggregate levy is made up of the taxes levied and collected through the local tax machinery for the support of city government, schools, county government, town government, village government, and state government. In order that the comparative increases in the tax burden imposed upon each one of thesfe governmental units may be made clear, the data are presented in Graph 2. In the graph as here presented an increase of 10 per cent in village taxes shows the same upward turn of the line as does a 10 per cent increase for taxes levied for city purposes. Taxes levied for state purposes' have been omitted from this chart inasmuch as they are discussed in greater detail later in this chapter and inasmuch as direct state tax levies are resorted to only for the purpose of balancing the budget form- ing so small a portion of the state revenues as to give a false impression when placed in comparison with the local taxes levied. Comparisons with increases in population and assessed values.— From 1910 to 1920 the growth in population in the state was roughly 1,270,000, an increase of 14 per cent. During the same period the full value of taxable real property plus the assessed value of .personal property of the state increased about 45 per cent. The total direct taxes levied on property increased 88 per cent. In other words costs of government have been advanc- 28 29 Graph 2 Aggregate Direct Property Taxes Levied in State of New York, 1910- 1920, for Cities, Schools, Counties, Towns and Villages 200 /*7 /sms /»9 /920 ing much faster than population or the tax base. This fact Is emphasized by the chart on page 30. The figures for each curve are presented on a percentage basis, 1910 equalling 100 per cent. In this chart the full value of taxable real estate plus the value of taxable personal property is labelled " tax base " and " taxes " represent aggregate direct property taxes levied for all purposes within the State. The increase of public debts.— During the period 1911 to 1920 the net debts of cities, counties, towns, villages and school districts in the State of New York increased in round numbers from $897,000,000 to $1,560,000,000, an increase of 74 per cent. The figures for each year are shown in Table 4. Here again the increase has been much faster than the increase of assessed values or population. The increase has also exceeded the increase of the direct tax burden which, during the same nine- year period, incmased but 56 per cent. In computing the debt^ of the various units of local government in the State of New York both the bonded and the temporary debts' have been inchideil, while sinking funds have been deducted so that the " net debt '' represents the net funded plus the temporary debts of all units of local government. It proved impossible to procure satisfactory figures for 1910. TABLE 4 Net Debt of Local Governmental Units, 1911-1920 ^^11 $S96, 715, 654 ^^12 972^ 445^ 570 ^^1^ 1, 043, 890, 870 ^^1-^ 1, 126, 710, 87:5 ^^IS 1, 211, 399, 507 ^^1^ 1, 250, 590, 851 l^l'^ 1, 256, 137, 753 ^^^^ 1, 332, 492, 554 ^^1^ 1, 321, 592, 279 ^^^^ 1, 559, 795, 157 The increase in the true tax rate.— The tax rates levied throughout the State are, of course, influenced not only by the tax 30 Graph 3 Relative Increase of Dibect Taxes, Tax Base and Population in New YoBK State, 1910^1920. 1910=100% 31 levies but by the accuracy of assessment. In communities in which property is assessed on a 50 per cent basis, the tax rate is twice as high for the same tax burden as it would have been if the property had been assessed at its full value. To secure accurate figures as to the increase of the true tax rate in the State of N^ew York during the past ten years, it is necessary to find what the average tax rate would have been, provided real estate had been assessed at full value throughout the State each year for the ten-year period. On the basis of the equalization rates adopted by the State Board of Equalization annually, it was found possible to secure a fairly dependable figure for the full value of real property including special franchises. To this was added the assessed value of taxable personal property, and on this total base a tax rate was computed sufficient to produce the aggre- gate taxes levied. An allowance has been made in this computa- tion for the fact that certain personal property, though taxable for local purposes, is not taxable for State purposes.* The resulting figure is the true average tax rate for the entire State : that is, it is what the average rate would have been had real property been assessed on a 100 per cent basis. This computa- tion produces the following table: TABLE 5 True Average Property Tax Rate, 1910-1920 Rate per Index $1,000 1910 = 100 1910 $17.32 100 1911 18. 72 108 1912 16.64 96 1913 19.93 115 1914 17.18 99 1915 18.24 105 1916 18.72 108 1917 19.99 115 1918 21.17 122 1919 21.83 126 1920 22.45 130 /»9 /Sa\ * Tax Law, art. 9, sec. 205 32 Si I .a> s « £• si ♦J OD H hi 4> O 00 >Q0 PSS — ^©P'^CMi-iC^N.QO t-o»ooeo T ' o o ^ e* i-i c^ N. ( 1-H ^ O 'H <-i 'rt< ^ I i-ti-ieo 2g§ ® OS CO ^ N t>. o ^^■^'*»'3«o«o>oeci>.i>.o» s g H «o«o>-io>o«co^ooeoo« sss >Ot»eoeo^ co>cr»o>oi C4 fh Is. lO es| — _ , ts w OS 00 "^ 00 c« »o -H esT -H c.ooecos^ 8 0)00 QOiJtQ «t>.NOeooo^ O »0 «2 ® t» t>. 0> -« s £ s (^ 1-8 Is S5 5-5 1-3 I i »2«NOt^c<«o»oooN>oco »o^o>^ooe<5eoNi-i»ooOf-i •-ICO ss «000>0'^Q«0« t* •* » CO O ift 00 ^ S! »OflD«ceot>.>oa^»-ipHeo •-iOOCOQO t»^oo»~-H«0«D^ li »o 00 5« -< tCi-^tJeo "^f 00 00 «pocoo>NQ'^coo5ro»ors. i-H r>. 5o © lo Q w .-4 ^ to o >o cococo>o>o>o-^ocot«oo<-i §§ Q!2!2JSo>o»'*«>0'«»4oo eooxow'O'^i-ioot^FHt^ ©t>.'^C<000'*<»-HO-^'^l< t>.coco»o»o •^ N CO O C« C< ^ OS O Q © •^ CO ooob-cbSao <-! C^l "3 O OS 00 t»r»coud'« i-<©00'^eo Sc«c.© Si :2§sa •-4 • to • ■ coioeo lO . •CO 00^ »^©0 >-l . t- • •NC*© OS • :&§^ 1-H . ■ *>*>» •k g^co S : 18 »0©t>.»-i " NOS Noeoco " c^ »o 8S XC4C0«> •or^csjo OCI«5© CO CO CO >o 1-Hi-ll.HCO 1-4 e^ 00 >o >Oi-i«OC< ts» CO CO i-H ^ CO 00©'^ 1-4^ CO «D«3'*©©i-i0000«O«©t>. 00 O t>. lO 00 tC© 00 t>r0S 1-4 CO •-icir^oo©coc>«Nco^c>ico »-i©e<©'^»-(^©^oo©Tj< to »-4 .-4 e^oo w5 o © i-H o 00 OS to C4 C4 e^ M 00 1^ 8 8 CSHCW toooi-«©i-ieo©t>.©»ot*o» OS © © ^ i-H i-H C« 1-4 CsT^I N cJ M "H 1-4 1-H 1-4 1-4 1-1 1-1 ^H i-( ,.H co^©eoc««'^'^- tOi-4'^tpai-i'44C4l CO to^ ss ^ ^ cs abco6i OS »>• © eo o 00 00 ■^cooocoopc*t>.t>«to>C'^'»* ©i-(C*Tt<»Ot*00C0'^c«eo^»o©t*oo©© )»H»M^m^l-4i-Hi— (i-H-Hi-^CSJ >©©©©©©OSCSOS©© Oi to V o % V -3 w 00 V 13 S O) a; .2© CO 0^ c o" V a> 0) OQ 34 Graph 4 Relative Increase of Per Capita Cost of State Government and of ttie Level of Wholesale Prices, 1910-1920. 1910=100% 2S0 ^ OF/ as m m W m W m m — ^ . ' ■ 36 ' . ' , ' The marked variations evident in 1911 and 1913 are due almost entirely to the large increases in the taxes levied by :Nrew York City for those two years. With these exceptions, there has been a gradual and consistent increase in the rate, amounting to 30 per cent in the ten-year period. Per-capita state expenditures and commodity prices. — As has been pointed out,* the per-capita costs of state government have risen from $4.21 in 1910 to $9.00 in 1920. The per-capita figures for each of the intervening years and also for the thirty years preceding will be found in Table G. The per-capita receipts from all sources for purposes of state government show an even larger increase due to the deficit appearing in 1910, and to the very large surplus which was accumulated in 1920. It must not be forgotten that a government, like a private cor- poration, has to go into the open market and buy its supplies and materials and that during recent years there has been an abnormal increase in the price level. It is of interest, consequently, to com- pare the course of state expenditure with the variations in the price level. This is worked out on a percentage basis in Table 7 and is illustrated in Graph 4. TABLE 7 Per-Capita Expenditures of State Government Compared WITH THE Level of Wjioeesale Prices. 1910 == 100%. Year 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 Per capita expenditures 100 98 114 126 133 141 127 145 172 183 215 Wholesale r-onimoditv prices (U. S. Bureau of Labor Index) 100 95 101 100 100 101 124 176 196 212 243 •C/. twpra,^. 24. 36 Graph 5 Deficiencies and Surpluses of State Revenues by Years, 1881-1930 • • • 37 • ' From these figures it is clear that in spite of the pheiiomeual increase in the per-capita cost of state government, 115 per cent in ten years — this increase is very considerably less than the general increase in wholesale costs during the same period. The correlation could not be expected to be an exact one, of course, for the things whic^ the State buys with its money do not cor- respond at all exactly with the Bureau of Labor's list of com- modities. Moreover the scope of .the State's task has changed during the period. The fact that since 1910 the state govern- ment has assumed many new functions as well as a larger share of many of the local functions would give gi-ounds for expecting a very sharp rise in the line representing state expenditure in relation to the rise in the price index. The sudden drop of the per-capita cost of state government in 1916 was due to the fact that the fiscal year was shortened by three months in that year, thereby substantially reducing the expenditures without producing a corresponding effect upon the r'eceipts. Except for this single year it will be seen that the increase in the costs of government have in the main risen gradually from year to year. Surpluses and deficiencies. — A study of the receipts and expenditures of the state government during the past forty years reveals a wide variation between the receipts of the State and its financial needs. The result has been a series of deficiencies and surpluses, the size of which has been very large indeed in several recent years. This situation is emphasized by Graph 5, which is based vipon the figures contained in Table 6. This record of surpluses and deficiencies indicates clearly the failure of the state budget to balance from year to year with a reasonable degree of nicety. Your Committee believes that the adoption of the tax program presented in this report together with the improvement under way in connection with the preparation of the budget will tend to stabilize the receipts and expenditures of the government in such a way as to cut surpluses and deficiencies to negligible amounts. Such a result is very desirable for it is unfair to the taxpayer^ either to make them pay more than is necessary for the government in any one year, or to relieve the taxpayers of any given year at the expense of taxpayers of other years. i Portion /20 38 Geaph 6 OF New York State Receipts Supplied by Direct Tax, 1881-ig20 39 Receipts from " direct " and " indirect '* sources. — Table 8 and Graph 6 compare the total receipts for general pui"poses of state government since 1881 with the receipts from the " direct" state taxes levied on general property during these same period*. TABLE 8 Share of New York State Receipts Supplied by Direct Tax, Five- Year Periods, 1881-1920 Years Receipts for general purposes of State government Direct State taxes levied on general property Amount Per cent of total receipts 1881 1885 $55,427,550 08 66,906.879 59 71.385,785 42 111,147,446 17 123,390.127 02 172.561,404 55 235,201.972 46 395.202,261 20 $39,110,666 10 48.854.263 76 44.461,795 75 57,318.981 92 10.493.182 49 76 1886—1890 73 1S91_1895 62 1896 — 1900 52 1901 — 1905 8 1906_1910 1911—1916 44.075.561 02 74,860.848 83 19 1916—1920 19 .—^^^——.^^-^——^————^^— The graph makes very clear the change in the function of the direct tax during this period. Prior to 1900 it was the main source of state revenue. Since that time it has been merely the elastic element in the system, depended upon to balance the budget. The Committee's recommendlation regarding the con- tinuance of this direct tax appears on page 57. During the five years, 1906-1910, during 1914 and during 1916, no direct state tax was levied on general property.* * The special sense in which the term " direct " tax isTused in New York should be noted • It applies merely to the state tax on property. It does not include the personal *income tax or the business income tax. -Ol 41 Local Finance Miscellaneous suggestions regarding local finance.— It has been shown that the increase in the costs of local government and the increase in the net debt of the local governmental units during the past ten years have far exceeded both the growth cf population and the growth of the tax base.* While these facts are of imix)rt- ance as an indication of the growth of the burden being borne by taxpayers, it by no means follows that local government generally is costing more than is legitimate. It does indicate the need of caution. During the same ten-year interval the standards of governmental service, especially in the cities, in the larger towns, in the villages and in the schools have risen very materially. We are no longer satisfied with the same quality of governmental service which was acceptable a few years ago. The extension of municipal functions also has been very marked dur- ing the past ten years, especially in the field of public recreation and general welfare. Our local governmental units today, there- fore, are rendering far more sei-vice and, as a whole, far better ^rvice than was furnished at the beginning of the decade. These facts, together with the very unusual decrease in the purchasing power of the dollar, undoubtedly go some distance in explaining the great increase in the cost of local government to which atten- tion has been called. However, certain points have been brought to our attention which indicate that they by no means supply a complete explanation. The situation is one which in our opinion deserves a more elaborate study than has as yet been made. Organization and Efficiency.— The preliminary examina- tion of local financial methods made by this Committee during the course of its earlier efforts, showed conclusively that there were many points at which improvements could be made in govern- mental organization and methods in the interests of more economi- cal and more efficient administration. A great manv of our cities and all of our urban counties are at present operating under forms of governmental organization that are in many respects unsatis- factorv and wasteful. Central Purchasing.^ The cities of the State are wasting large sums of money amiually through unbusinesslike methods of purchasing. Very few have established central purchasing offices. In past years many city officials have testified before this Com- mittee that the lack of systematic purchasing has increased gov- ernmental costs and' have advocated central purchasing as a means of economy. The cities which have adopted this essential busi- ness' reform are for the most part strongly in its support. At such times as these the careful handling of the cities' purchasing power is of especial importance. The Tax Calendar. — Many of the cities of the State still con- tinue the practice of paying interest on temporary loans which might be avoided if the taxes were collected early enough in the fiscal year to make temporary borrowing unnecessary. The Comptroller of New York City has stated that the delay in the collection of the first installment of city taxes until the fifth month of the fiscal year costs approximately three million dollars annually. When Troy abolished late tax collections by changing the municipal tax calendar, $42,000 was saved the first year alone. In Middletown an annual saving of $7,000 has been made by a similar change of the tax calendar. While it hasf been impossible for the Committee to make a complete estimate of the interest charges that can be avoided by advancing the dates of tax col- lection in the score or more cities which now begin collections any- where from three to nine months after the first of the fiscal year, an estimate based on payments of 1919 indicates that the sum may run as high as three or four million dollars per year. Municipal Bonding. — In years gone by there has been much extravagant and unsound bonding by the cities of this State. In recent years there has been a marked improvement but the Com- mittee believes that further legislation will be required before the problem will be solved. It is appreciated that the above are scattered suggestions rather than a comprehensive program. The entire field is one which in our opinion would really repay further study. * C/. supra, pp. 37, 29, 30, I40J I The Personal-Property Tax As has been explained above,* it was felt that the time was ripe to review the various elements in the tax system in order to determine the present distribution of tax burdeng and to ascertain whether the progress of the theory and technique of taxation did not offer the possibility of substantial improvement. The results of this survey are taken up in detail in the separate sections which follow. The facts regarding personal-property assessments. — In the course of a long evolution the property tax in the State of New York has resolved itself into what is practically a tax on real estate. Whereas personalty made up more than 25 per cent of the assessed value on the rolls in 1868 and more than 10 per cent as late as 1905, it comprised less than 5 per cent of the tax base in 1910, less than 4 per cent in 1915 and less than 2 per cent in 1920. The total assessed value of personalty in New York State in 1920 amounted to only $255,263,116. The property tax on personalty, as it now stands, is a collection of miscellaneous odds and ends. From the detailed "figures presented in Tables 9 and 10 it ap- pears that in the forty years, 1840 to 1880, the assessed value of real estate in New York increased 352 per cent, while the assessed value of personal property increased 170 per cent. During this period the property tax was in fact a ^enero-^property tax, and all realty and personalty with some unimportant exceptions, was sub- ject to it. With the rapid growth of the corporate form of organization there is every reason to believe that the value of personalty was increasing as rapidly as the value of real property, and the difference in the rate of increase shown by the fi^gures of assessed values is a measure of the failure of the general-prop- erty tax as a tax on personalty. In the forty years 1880 to 1920 the assessed value of real estate increased 534 per cent, while the assessed value of personalty decreased to 75 per cent of the value in 1880. During this period the failure of the general-property tax to reach personalty waa ( * Supra, p. 19. [42] 43 recognized, and large classes of property were withdrawn, to be taxed in other ways. Before 1880 only the personal property of religious, charitable and similar organizations and a certain minimum of household furniture and personal effects were exempted from the property tax. In 1880 the capital-stock franchise tax was first imposed on certain corporations and these were exempted from further state taxation on personalty. This personalty was still subject, however, to local property taxes, and it was twenty years before any class of personalty was exempted entirely from the property tax to be reached in other ways. In 1901, when the one per cent tax was imposed on bank stock and on trust companies, these were exempted from all property taxes, state and local, on personalty. In 1905 mortgages were withdrawn from the property tax to be subjected to a recording tax instead, and in 1911 the secured-debts tax gave the holders of certain intangibles the option of securing their exemption from the general-property tax. Also in 1911 the license tax on motor vehicles replaced the personal property tax on this class of prop- erty. In 1917 the franchise tax on net income of business cor- porations exempted all personalty of such corporations from the property tax. Finally, under the terms of the personal income tax law of 1919, as amended, such intangibles as were still taxed as personal property were withdrawn from that tax. In consequence, only a remnant of personalty is still subject to the property tax. This includes for local purposes the tangible personalty of those corporations subject to the capital- stock tax (sec. 205), and for state and local purposes such personalty as farm animals and machinery, the stock-in-trade of unincorporated businesses, and household furniture and personal effects in excess of $1,000. That even these classes are not reached effectively is indicated by the fact that the total personal- property assessment for 1920, including such corporate personalty as is still taxed locally, was $255,000,000, while the true value of live stock alone was estimated to be greater than this eight years earlier.* * U. S. Census, Wealth, Debt and Taxation, 1912 u Graph 7 Amount of Personalty Assessed under the General-Property Tax, 18»6-1920 'SSks^ 700 K i r\ ^ \ r w \ £00 1 ^ v\ ^v.^ \ ^00 \ JOO > too * /yi/6 "^0 /^M- <9/a /9A3 yM^ Graph 8 Ratio of Assessed Value of Personalty to Total Property Subject to THE General-Property Tax, 1840-1920 ...••• 45 • ■ • ' * • Graphs 7 and 8 show dearly the decline in the importance of personal property absolutely and in relation to the other elements in the tax base. TABLE 9 Personal Property Assessed under the General-Property Tax at Five- Year Intervals, 1840-1920 Year 1840.. 1845.. ISdO.. 1855.. I860.. 1865*. 1870. 1875. 1880. 1885. 1890. 1895. 1900. 1905. 1910. 1915. 1920. Total real and personal (assessed value) $639,171,000 604,479,016 724,874,293 1,401,285,279 1,440,550,836 1,196,403,416 2,052,537,898 2,466,267,273 2,681,257,606 3,224,682,343 3,779,393,746 4,450,474,499 5,765,741,474 8,129,021,386 10,121,501,061 11,790,628,803 14,850,989.607 Personalty $121,447,800 117,988,895 153.183,486 294.012,564 320,617,352 334,826.220 452.607.732 357.941,401 340.921.916 324,783,281 382,159,067 541,621.122 672,715.703 816.399,934 482,499,193 454,988,997 255,263,116 Ratio of personalty to total 18.93 19 48 21 05 20.95 22.24 21.89 22.05 14.86 12.70 10.98 10.12 12.16 11.66 10.04 4.77 3.86 1.72 >♦'-. n , t» \ /S ^ V r \ A S , 9 A U» ^* 9S0 ^A so M ^ d W A M9 A ^ ♦The largest proportion of personalty was reached in 1866 when the ratio of personalty to otal was 25. 50. TABLE 10 Personal Property Subject to the General-Property Tax, 1896-1920 Year 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 Amount $544,311,557 649,364,694 758,581,839 742,959,229 672,715,703 701.565.905 672.249,054 819,203,165 758,893,604 816,399,934 697,006,582 674,411,315 550.081,115 Year 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 Amount $555,623,070 482.499.193 462.300.841 447,488.729 424,876.235 438,161.973 454,989.997 485.742.745 513.853,047 435.871,630 364,243.720 255.263.116 4, I • Complete exemption of personal property recommended.— In the opinion of the Committee the continuance of the taxation of these last vestiges of personal property sei-^^es no useful pur- pose from the point of view of improving the equity of the %\ ) ffi, I: I' ji 46 • • . ' flystem. Its abolition would involve no great loss in public revenue and would materially simplify and clarify the tax situation. The Committee recommends that a statute he parsed exempting en- tirely personal property from taxation, restricting the prox>erty tax to real estate. A large proportion of the personal property reported for taxation consists of live stock, stock-in-trade of unincorporated merchants and other income-producing goods. The income arising from such goods is already subject to the income tax and, in sb far as they form a part of the assets of unincorporatied business, such income would be subject to the proposed new tax on unincor- porated business.* The adoption of an unincorporated business tax completely overcomes most of the obstacles which have pre- viously blocked the proposal to exempt personal property entirely. It may be that sometime in the distant future, the State may revert to a general property test in some form as a part of the set of criteria by which tax burdens shall be distributed but the emas- culated remains of the discredited personal-property tax will form no important starting-point for such a new development, if it ever comes. The total estimated yield of the tax on personal property for the certain specified years is as follows. 1901 $10,745,000 1911 6,439,000 1918 10,706,000 1919 9,238,000 1920 6,428,000 The state's share of the 1920 collections amounted to about $259,000. The proposed unincorporated business tax, which could not properly be established so long as the present personal property taxes remain, may ibe expected to produce more than twice the total amount now collected from personal property. The yield of the proposed new tax should be so divided as to protect the local communities from any diminution in revenue what- soever. F * C/. infra, p. 126'cZ seq. 9 The Real-Estate Tax As a consequence of the break-down of the personal-property tax described above,* real estate has come to be practically the sole element in the property4ax base and, in the almost complete absence of other elastic elements in the tax system, has been called upon to bear the brunt of the recent increase in the cost of govern- ment, f The burden on real estate. — ^Any attempt to measure quantita- tively and with exactness the increase in the real burden of the real-estate tax is surrounded by serious difficulties of both a theo- retical and a practical nature. The statistics of assessed value are often of doubtful dependability. The rates in the different taxing districts vary so widely as to make difficult the presentation of an accurate picture of the situation. There are questions always present as to the extent to which the taxes have been anticipated and allowed for in setting the purchase price of the property. There are relationships between real-estate values and general rates of interest. J All in all, the task of gauging the real estate tax burden is one to be approached with diffidence and caution. Conclusions may not be hastily drawn or dogmatically stated. However, the tendencies revealed by a study of the facts stand out so plainly that certain definite deductions may safely be made. The Growth of the Tax Rate on Real Estate. — The bare facts regarding the increase in tax rates on real estate are in them- selves of considerable significance. Viewed from the long-time point of view the increase has been very large indeed. Moreover, the rate of increase has been greatly accelerated in the last decade. Material illustrating the growth of tax rates on real estate over a long period has been made available to the Committee through the kindness of Dr. G. B. L. Amer, who has under way an extensive investigation of the relation of assessed values to true * Supra, p. 42 et seq. t Cf. supra, p. 19 et seq. % ELeal estate values rest fundamentally upon income (actual or expected). They really repre- sent the present value of such income. Tne determination of such present value involves, of course, the use of a rate of interest. But interest rates vary from time to time and, consequently, the values which depend upon them vary also. A decline in the interest rate tends to send up the values and an increase in the interest rate tends to depress them. [47] . . ' . \ M- ->i. 48 values for Manhattan real estate for a period running back to 1850. Accepting, subject to subsequent qualification,* true tax rates on the full value of the real estate as an indication of burden. Dr. Arner estimates that the burden on real estate in Manhattan in 1921 is at least five and one^half times as great as it was seventy years ago.f Table 11 presents fairly complete and satisfactory data cover- ing the period 1900-1920. These figures relate to the State as a whole, all taxes which have been actually levied against real estate being compared with the full value of real estate for each year in the period. It will be noted that the true rate on real estate has moved upward in the course of twenty years from 1.49 to 2.56. Moreover, by far the greater part of the increase has come since 1910. Whereas the rate moved from 1.49 to only 1.72 in the first decade after 1900, it rose from 1.72 to 2.56 in the second. If one accepts Dr. Arner's figures as indicative of the general situation in the early fifties one may say that real estate tax rates in 'New York City, at least, have increased nearly as much in the last ten years as they did in the preceding sixty. It should be noted, however, that the 1910-1920 comparison is somewhat unfair because the rate in 1910 was relatively low and in 1920 relatively high as compared with the years immediately preceding. The five-year moving average presented in the last column of Table 11 minimizes these variations. * Cf. infra, p. 49 et seq. t The tax rates during this period ran as follows: 1850 — 1.14 1851 — .92 1852 — .97 1853 — 1.23 1854 — 1.06 Dr. Arner estimates that property was assessed at about 50 per cent of full value at this time. His estimate is based upon an examination of 255 sales, practically all those noted by the assessors on the assessment rolls plus a few others obtained by an examination of the original deeds. Of the 255 sales, the median case shows an assessment of 61.2 per cent of full value. Vacant land, however, appears to have been much less heavily assessed tnan improved property and most of the sales were sales of improved property. The 220 cases of improved property snow a median of 62.3 per cent, whereas the 35 cases of vacant land show a median of 43.5 per cent. For the city as a whole it seems probable that the 50 per cent estimate is approximately correct The tax rate in Manhattan in 1921 was 2.77 on prwtically full vj^lue, A. 1 • t ' • • 49 TABLE 11 Growth of the Tax Rates on Real Estate, 1900-1920* Year Full value of real estate Tax per $1,000 full value Percentage increase in rate Five-year moving average of tax rate 1900 $7,206,173,229 7,313,990,162 7,501,977,838 7,948,824,263 8,284,033,584 8,527,427,903 9.129,449.463 9,889,349,273 10.539,073,900 10,753,891,707 10.993,386,267 12,037,270,769 12,261,062,873 12,774.196,843 12,915,098,342 13,216,951,658 13,685.530,025 13.942,530.422 14,351.054,044 14,691,369,491 16.395,697.190 $14 89 15 70 16 92 16 24 17 21 17 57 18 21 19 03 20 64 100 105 114 109 116 118 122 128 138 t 116 128 116 141 115 122 125 134 142 146 172 1901 1902 $16 22 16 75 1903 1904 17 27 1905 17 72 1906 18 64 1907 18 95 1908 18 77 1909 18 97 1910 17 23 19 06 17 33 20 96 17 08 18 13 18 60 19 88 21 07 21 74 25 60 18 52 1911 18 70 1912 18 3ft 1913 18 51 1914 1ft 4.1 1915 18 92 1916 19 00 1917 19 Q.'t 1918 20 90 1919 1920 It is necessary, morever, to bear in mind the fact that the figures presented in Table 11 are aggregates in which many extreme cases are submerged. In some districts the rates on full value of real estate are insignificant. Thus, in 1919, there were rates which fell below one per cent. On the other hand, in the same year, one taxing authority, Saratoga Springs, imposed a rate of nearly 5 per cent (4.989) on estimated true value. Table 12 shows the tax rates actually applied to the assessed values (not full values) of property in all of the cities of the State during the period 1905-1921. It will be noted that two cities show increases in rates in 1921 as compared with 1920 for every one city which shows a decrease. The Tax Rate as an Indication of Real Burden. — This phenomenal recent increase in the tax rate, while significant, is not * Computed by finding the proportion of assesed value of property taxable for state purpose and for local purposes consisting of real estate, and estimating separately the amount of state and local taxes on real estate, and dividing the sum of the estimate state and local taxes on real estate by the full value of taxable real estate. The difference in this rate and the rate given on page 31 is due to the fact that the rate there presented is for both personalty and real estate. fThe state Tax Commission has no record of school and village taxes for 1909 so that the rate can not be estimated for this year. The rate for the moving average for thooe periods ^lcl^di^s( 1909 \xafi been oomputed oq the basis of four yeftro. 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The effect of this, in the absence of other changes, would be to decrease real-estate values so that the same amount of taxes would form a larger percentage of the entire value. Such a decline in real-estate values has not actually taken place owing to the fact that increase in income (actual and expected) from real estate has apparently more than offset the change in interest rates. This increase in income is partly the result of improvements, but partly also the result of unexpected, and hence uncapitalized, in- come. The so-called " unearned increment " arising from the fairly steady, and not entirely foreseen, increase in income from land may have been sufficient in some cases to cancel a substantial portion of the burden arising from increasing taxes. Finally, the tendency for tax rates to increase is so general that these increases, as well as the increases in income, must to some extent have been foreseen and capitalized. However, an inspection of the statistics of rates leads one to doubt seriously whether even astute investors could have antici- pated with any high degree of exactness the couree which rate^ have actually taken. In general the factors mentioned in the preceding paragraph, while of importance, probably do not invalidate the rising rate as an approximate indication of the increasing burden of the tax. In this connection it must bo borne in mind that in real estate is included not merely land but improvements as well and several of the qualifications stated above do not apply with equal force to that element. All in all, the committee believes that the figures reveal a very serious increase in the burden on real estate. The Real-Estate Tax as a Business Tax. — One of the difficult problems which faced the Committee was the treatment of real-estate taxes paid by business concerns. Were such taxes to be counted as tax burdens on the business in the same sense as other taxes paid by the business ? In calculating the total tax which a given business should pay, should the real-estate tax be taken into account at its full amount, at omly a portion of that amount, or not at all ? ' * ' / » 63 Under the generally accepted economic analysis, an old and expected land tax imposes no burden upon a new purchaser. If the tax on the land is not in excess of the accustomed and ex- pected rate, a business using more land than another business is at no disadvantage because of the larger land tax it pays as compared with the business using less land and paying less land taxes. All would agree that new and unexpected increases in land taxes would certainly constitute a burden to the owner and much of the present real-estate tax rate is certainly new and probably unexpected. Moreover, taxes on improvements are bur- densome, except in so far as they may be shifted. This reasoning leads to the conclusion that real-estate taxes paid by business men are a burden but are burdens distinctly less per dollar of tax paid than imposts such as income taxes. How much less burdensome they are it is impossible to determine. For other reasons as well it seems wise, in making comparisons of business taxes, to decline to recognize real-estate taxes as true business taxes. Not only are they partly, perhaps largely, bur- denless, but they are deductible as expenses in arriving at net income when that base is used in imposing a business tax. More- over, it would be quite out of the question to vary the rate of a business income tax to take into account the tax burden on the real estate used in the business. The real solution would seem to be (1) to consider the real-estate tax a general impersonal tax applying to all real estate however used, whether in business or otherwise, with rates stabilized so far as practicable, and (2) to make the business tax apply to the net income of all business, recognizing land taxes as deductions in arriving at such net in- come. The Relation of Real-Estate Taxes to Net Income in Real-Estate Ventures. — The soundness of the general position assumed in the preceding paragraphs becomes more apparent when one comes to consider the question of the burden of taxes in the case 6f various types of real-estate enterprises. The Committee felt that the importance of this subject did not warrant a com- prehensive original investigation in this field and the following statements are based on the testimony of real-estate men who were invited to supply data bearing on the questiooL i N. In the case of many typical investments in vacant land, for example, undertaken as business propositions, the taxes accumu- late almost as rapidly as the increase in land values. It is a very common experience to find that the sum-total of the real- estate taxes paid during the progress of such a speculation greatly exceeds the sum finally received as the net profit. The taxes are considered as mere carrying charges and are estimated and allowed for when entry upon the project is under consideration. When apartment buildings are purchased by investors in the hope of profit through operation the real-estate taxes commonly amount to approximately 50 per cent, of net income before deduc- tion for taxes. In the case of office buildings the figures usually run higher — from 60 to 70 per cent. The speculative builder of apartments finds taxes a somewhat smaller item than the land speculator or the operator because of the short time he holds the property. Keal-estate taxes in typical ventures of this type run from approximately 20 to 25 per cent of net income before taxes are deducted. It is generally admitted by real-estate men that the recognition of real-estate taxes as true business taxes in such cases as these would give an entirely distorted conception from the point of view of burden. The Relation of Real-Estate Taxes to the !N"et Income OF Farmers. — The committee thinks this an important subject which would well repay thorough investigation. Our own staff has found it impossible, owing to lack of time, to enter upon this field. We have come upon intimations of excessive burden in some parts of the State, but the material at present is very sparse. However, the results of a series of studies made by the New York State College of Agriculture has been analyzed. These studies were undertaken for the purpose of ascertaining the actual income of farmers in various parts of the State. Satisfactory data are available for only a limited region, a prosperous fruit-growing section, !N"ewfane Township, Niagara County, New York. Records of farm income extending over eight years are available for this district. Scattered returns for shorter periods have been available for certain other districts. Farm income, for the present purpose, has been accepted as 55 the sum of three items shown on the reports of the New York State College of Agriculture. These are: (1) Average income from owned capital and farmer's labor (money available for farmer's living and saving) ; (2) Value of farm products furnished by farm to family living; and (3) Estimated value of house rent furnished by farm to farmer's living. The ratio of real-estate taxes to the sum of these items has been determined for the group of farms in Newfane Township, and for other farm groups. The amount paid in taxes has been added to the net income in securing a base for the ratio. The following are the results secured for the Newfane Township farms : Ratio of real-estate Year WJ^- No. farms taxes to net income 1913 87 . 2.6 per cent. 1914 98 8.9 per cent. 1915 81 7.1 per cent. 1916 88 5.1 per cent. 1917 113 6.3 jier cent. 1918 159 5.1 per cent. 1919 156 5.6 per cent. 1920 178 7.0 per cent. Average ratio for whole period — 5.5 per cent. A similar ratio was worked out for a group of farms in a pros- perous region in the Chemung Valley in Chemung County. The ratio is an average, being based upon returns from 60 to 107 farms, for the period 1912-1918, inclusive. For this group the ratio of real-estate taxes to farm income was 4.6 per cent, for the period covered. For 578 farms in a prosperous region in northern Livingston County, New York, the ratio of real-estate taxes to farm income in 1908 was 3.6 on the average. For 697 farms in the same region the ratio was 7.0 per cent in 1918. The ratio almost doubled in the course of the ten-year interval. For a region of average prosperity in Dryden Township the 66 average ratio of real-estate taxes to farm income for 250 farms, in 1917, was 6.3 per cent. It is believed that the percentages here given are abnormally low both becanse the samples are taken for the most part from very prosperous districts and becanse the period under review has been an abnormally prosperous one in the agricultural sections. It is not believed, if a complete study were made of the farmers situation in the State at large, for other periods, and particu- larly in certain districts of the State, that any such relatively favorable percentage for the farmer would emerge. The Relation of Real-Estate Taxes to Net Income of Other Businesses. — The facts presented in this section and the preceding one are of interest when compared with similar data for other businesses. Figures which are roughly comparable are found in Part II of this report for mercantile and manufacturing cor- porations, financial institutions and public utilities. The per- centage of net income paid in property taxes for such companies are as follows: Mercantile and manufacturing corporation. ... 4.5 per cent. Financial institutions : National banks 1.5 per cent. State banks 3.5 per cent. Trust companies 4.1 per cent. Savings banks 3.6 per cent. Public utilities : Steam railroads 24.6 per cent. Electric railways 38.05 per cent. Telephone and telegraph companies 12.1 per cent. Gas and electric companies 20.5 per cent. In the case of the public utilities, special franchises, including intangible elements, are taxed as real estate. The committee pro- poses a change * in the direction of a more strict definition of the real estate of public utilities, the recognition of real-estate taxes as expenses in arriving at net business income and a business tax applying to all net business income so defined. It favors a reduc- tion in the tax on real estate. f It does not favor the recognition ♦ C/. infra, p. 109. t Cf. infra, p. 67. 1/ 57 of the real-estate tax as a business tax and the modification of the rates of the business income tax because of varvini? amounts of real estate used in the various businesses. This position is based in part upon the conviction that all charges connected with real estate used in a business, including the taxes on such real estate, are (except in so far as they are capitalized) ordinarily passed on to consumers in the form of higher prices and, if they are kept within reasonable limits, form a proper element in the charge for commodities. The competitive significance of such taxes is believed to be slight in most cases. The Burden on Home-Owners and Rent-Payers. — The Committee is convinced that the advance in the rates of the real- estate tax has worked a real hardship upon the small home-owner and the rent-payer. The man who owns his home, particularly if he purchased it some years ago, has been forced to absorb an in- creased expense which is so great as to justify real concern on the part of all who believe that home-ownership is to be encour- aged as wholesome and desirable from the general social and political point of view. The rent-payer, also, has not escaped unscathed. There is every reason to believe that, under the conditions of restricted supply which have existed, the full increase in at least that ]K)rtion of the tax which rests on improvements has been j)asseil on by the owner of rented property to his tenant. The burden is not eliminated merely because it is concealed in a rental payment. Conclusions and Recommendations with Respect to the Real-Estate Burden. — The committee is convinced that steps should be taken at once to arrest the rapid growth of the tax rates on real estate. As an immediate and direct contribution toward this end we recommend that the State so readjust its revenues as to elimirmte at the earliest possible moment the State direct tax on real estate. We are not prepared at this time to suggest the permanent renouncement by the State of this source of revenue. It may be that in the final readjustment the State should share the yield of the real estate tax. We, further, recommend that a thorough study he made of local revenues and expenditures with a view to promoting retrenchment and efficiency and that, if su^h 68 . . • a survey reveals the necessity and desirability for such action, the revenues of the looalities he so adjusted as to lessen still further the burden on real estate now borne by the farmer, the business^ man, the home-owner and rent-payer. The Committee has little confidence in measures imposing arbitrary limitations upon the tax rate. Such limitations usually have not worked well in practice and offer no real solution of the problem of control of expenditure. The consideration which the Committee has given to the prob- lem has impressed it with the desirability of bringing about a higher degree of stabilization in the real-estate tax. While the recent abrupt increase in rates may not prove to be permanent, it has tended to disturb confidence in real estate as an investment. People tend to become distrustful of the advantages of home- ownership under the conditions which exist. Keal estate has been in a very exposed position. It has acted the part of a battalion of " shock-troops." Great advantages would flow from a more conventionalized rate on real estate. It is not desirable in the opinion of the Committee to fix an absolutely uniform rate on real estate either in the fonii of a required or of a maximum rate. The remedy should rather take the form of making the entire tax system more flexible so that the rates of business taxes and per- sonal income taxes would be elastic as well as the real-estate taxes. All taxpayers, not merely realty owners, should be called upon for special effort in time of need. The administration of the real-estate tax. — There is need for improvement in the machinery of local assessment. It is true that perceptible progress has been made in the last few years, due largely to the influence of the arrangement for the distribution of the yield of personal income tax and mortgage taxes. The fact that the community receives a larger share of these taxes, when it assesses its real estate at high value, has been a stimulating influence toward a more accurate and full assess- ment of such property. However, evidence submitted to the Committee shows that assessments are in many places still far l)elow full value and are veiy unequal both as between the differ- ent political subdivisions and as between the different taxpayers. Certain of the public utilities complain bitterly regarding what 69 they allege to be discrimination in local assessment of their prop- erty. Certain other utilities arouse apprehension in our minds by their insistence that their " present highly satisfactory under- standings with local assessors" be not rudely disturbed. The Committee believes that the real solution for this problem will not be found until the larger administration units are established for tax purposes, and until the assessment function is placed in the hands of skilled, full-time assessors who will operate under a considerable degree of central supervision and control. How far it is possible to go at this time in the direction of improving this situation is not clear. It is highly important that something be done in this direction in case the Committee's recommendation is adopted with respect to the central valuation of real estate belonging to public-utility corporations.* There is a difference of opinion as to how far the home-rule provision in the Constitution will prevent the establishment of central super- vision and control of real-estate assessments. It should be pointed out, however, that in Wisconsin, where the constitutional provision regarding home rule is exactly the same as ours, it has been found possible to reach a very high standard of assessment with locally-elected assessors operating under the direction and, to some extent, under the control of their tax commission. More- over, the home-rule provision has not prevented the centralization of the assessment of the real estate of public utilities in Wiscon- sin. In order that a firm foundation may be laid for the reform of the real estate assessments in this State, the Committee recommends that a constitutional amendment be mbmitted which will make possible a thoroughgoing reform of real estate assess- ments through the establishment of larger tax districts, officered by skilled assessors, functioning under a higher degree of central supervision and control. The Committee believes that an amend- ment like the following would meet the situation. Section 1. The power of taxation shall never be surrendered, suspended or contracted away. Taxes shall be imposed by general laws and for public purposes only. Hereafter no exemption from taxation shall be granted exceot by general laws. *^ § 2. The legislature may provide for taxation based on property, incomes licenses or franchises and that such taxation shall be in lieu of other taxation except that real property shall be subject to taxation for local purposes and ♦ Cf. in/rCt p. 109. 60 . be taxed by local officers [to the same extent as heretofore], provided however that nothing herein or elsewhere in this constitution shall be held to prevent the legislature from providing by general law how public service corporations operating continuous lines or routes in more than two counties not wholly included in a city, and the property of such corporations, shall be taxed and how such taxes shall be collected and for what purposes they shall be used. § 3. For the assessment of real property heretofore locallv assessed, the legislature may establish the county as a tax district; but no county shall become a tax district until a proposition therefor shall have been adopted by a vote of a majority of the electors voting thereon in such county at an election for which provision shall be made by law. The tax officers in such county shall be elected by the electors of such county or appointed by such authorities thereof as shall be designated by law. Nothing in this section shall prevent the establishment in any city of a tax district without such vote. § 4. The legislature may provide that the assessment-roll of a tax district shall serve for all the civil divisions wholly within its boundaries. § 5. The legislature may provide that assessment by local officers within a county may be reviewed by county officers in such county to be elected by the electors thereof or appointed by such authorities thereof as shall be deaie- nated bv law.* ® It should be noted that the adoption by the Legislature of 1921 of the Committee's recommendation that cities be authorized to reorganize their assessment departments has already prepared the way for a substantial reform of city assessment methods. The machinery for appeals from real-estate assessments and for the collection of property taxes should also be overhauled. The present county boards of equalization, Avith a few outstanding exceptions, appear to function in a manner which is not entirely satisfactory. Complaint is made with regard to the fact that political pressure is brought to bear so as to affect the ratings given assessments of the various toAvns. This situation would, of course, be met by the establishment of county assessment units. A very ridiculous situation has been revealed by the testimony of certain of the public utilities in respect to the collection of the taxes, particularly of the school taxes. One company testified that it was necessary for it to keep in touch with tax collectors in more than forty-nine hundred districts of the State. These collectors change from year to year and are often anything but businesslike in the conduct of their offices. This brings about a situation where it often costs the utility more to pay the tax than the tax itself amounts to. If nothing more fundamental can be done immediately the Committee recommends that at least the statutes he so changed as to centralize the collection of school * This is the form of amendment submitted by the chairman of the Committee on ConatitutinnA I Amendments to the Seventh State Conference op Taxation, vommiiipe pn ^onnmiiQWi I ' 61 taxes levied on the property of public utilities. This would re- quire the amendment of sections 427 and 428 of the Education Law so as to require collectors of school taxes to notify the county treasurers of the amount of the school taxes, the amount of assessments and the rate. It would require the county treas- urers to aggregate these taxes and to collect them from the utili- ties. The utilities state that, even though this would require an increase in collection fees so as to provide remuneration for the county treasurers for the effort involved in collecting these taxes, they would much prefer to have the centralized county collection and pay the additional fee. In a later section the Committee recommends that provision be made which will enable the Tax Commission to render aid to the local assessors in the valuation of the property of public utilities.* • Cf. infra, p. 109. Exemptions The problem of tax exemptions in New York is increasing in serionsness. A large and growing proportion of property and income is exempted from direct State taxation - of ten, in the Committee s opinion, without adequate justification — and conse- quently the burden of taxation tends constantly to fall on a rela- tively narrowing base. The income tax is comparatively new but there have already been strong efforts to secure generous exemp- tions. Property-tax exemptions are growing steadily.* Many forms of property, notably intangibles, have been withdrawn from this tax m order to reach them more effectively in other ways- but many additions to the list of exemptions (among the most recent, new buildings to be used for dwellings) are exemptions pure and simple. No other form of taxation of this property has been substituted. Exemptions from the property tax.— The Facts RECARniNG Pbopertt-Tax Exemptions.— The classes of property now exempt from all taxation are as follows: ^ 1. Property of the United States, State (other than forest and wild lands), and municipal corporations (except property outside of municipal limits) (Tax Law,t sec. 4, subdivs. 1, 2, 3) ; 2. Indian reservation (Sec. 4, subdiv. 4) ; 3. All property exempt by law from execution other than an exempt homestead (including real property purchased with pen- sion money to the amount of $5,000) (Sec. 4, snbdiv. .5) ; 4. Forest lands planted and registered (Sees. 16, 17; Conserva- tion Law, Sec. 57) ; 5. Real and personal property of organizations for moral and mental improvement, religious, charitable, hospital, educational, «/ C^ISffet^'^rJ^ciXaK^*' °" """^"^ "-.pt^llfrom taxation, 18fl0..9I2. Bureau United New 1880. . . States York 1900...::: :::::: ^» «•« 1004 7.0 7.9 1912 6.4 9.0 6.6 12.4 t Citations in this list are to the Tax Law unless otherwise stated. [62] 63 fraternal benefit and cemetery purposes when necessary for the purpose and not operated for a profit (Sec. 4, subdiv. 7) ; 6. Kcal estate of religious corporations used by ofliciatiiig clergymen up to $2,000 (JSec. 4, subdiv. 9) ; 7. Property of priest or minister (and widow) up to $1,500 (if application for such exemption is made) (Sec. 4, subdiv. 11) ; 8. Property of agricultural societies used for exhibition pur- poses (Sec. 4, subdiv. 10) ; 9. Eeal property of incorporated volunteer firemen up to $15,000 (Sec. 4, subdiv. 8) ; 10. Personal property in excess of $100,000 of mutual life insurance corporations incorporated in this State before 1849 (Sec. 4) ; 11. Real estate from which no income is derived and personalty of medical societies, not to exceed $150,000 in counties of Kin^ and :N'ew York and $50,000 elsewhere; and pharmaceutical societies, not to exceed $100,000 in Kings and :Niew York and $50,000 elsewhere (Sec. 4, subdivs. 18, 19) ; 12. Household furniture and personal effects to value of $1,000 (Sec. 4, subdiv. 17) ; 13. Vessels registered in J^ew York and owned by New York corporations or American citizens until 1923 (Sec. 4, subdiv. 12) ; 14. Property of plank road or turnpike corporations outside of city and villages until surplus annual receipts shall exceed 7 per cent of first cost (Transportation Corp., sec. 141) ; 15. Villages may exempt property of volunteer firemen up to $500 and all real and personal property of such companies (Vil- lage Law, sec. 132) ; 16. Local financial officials may exempt property of academy of music from local taxes (Sec. 4, subdiv. 20) and 17. JS^'ew buildings for dwellings completed since April 1, 1920, or started before April 1, 1922, may be exempted locally until January 1, 1932 (Sec. 4-b). Those classes of property exempted from the property tax, to be taxed in other ways, are : 1. All intangibles (Sec. 4-a) ; 2. Motor vehicles not in the hands of dealers (Highway Law, sees. 282-287); ' ■ ■ ' " M . .. . ' t J'on'^'ir"^'^'' To °''''*^ "^ corporations paying a franchise tax on net income (Sec. 219-j); 4. All personalty of trust and investment companies exempt from local taxation (Sec. 205) ; ^ 5. Personal property of banks (Sec. 24-c) and 6. Tangible personally of corporations ta.xed under capital stock ta^ exempt from State (not local) t^x (Sec. 205). in Aw\*" w ' '-""'"P*'^' ^ '""•«' P"-* °f «" °f tJ'« real estate n Aew lork is not taxable. The property tax reaches no in- tangible personalty, and but little tangible personalty; for every private individual is exempt up to $1,000, and some priviWd classes to a larger amount; and the only corporations stfll subjct to local ta.xation on personalty are public utilities, real-estate com- panies, and holding companies. th,f r ''^f}""^'^^ "^* "f exemptions it is not surprising to find ^e ter e" ".1 '"'"'* '" *^"^''^ ^^^^^^^ ^ ^^'« ^tlte was oT ; r? S, ' '""' '* '^' ^^"* exemptions, than in any St otn nnn i, """"' "^ P""""^'*'^ '^"^'^'^ ^'^ ^^^O was only $255,000 OOO^Between one-fourth and one-fifth of all real estat. IS exempt.t Comparable figures are not available for other states since the few states that record the value of exempt property clarify It differently; but such figures as have already been quoted seem to indicate that a larger proportion of real estate also IS exempt in New York than in other states. f£pr^^pM:^cir^^^^ ?-^iS^^4"r& fn-l'i *?« »^^«^-t ra^io was Jersey. 7,1. (Census of Wealth, Debt ar^T^ilf^) Th^^^^ ^«>"«'' §-8: Maryland, si: New taxation ,n New York in 1919 was 22.82 as comZ-id v^fh §«[««"*»«« of real estate exempt from eStSl^v'^V^^t^-^ respectively or anXS^trin ?92r' Tif *' ^"^ ^P- ^' ^/«* ^^^ New exempted in New York is increasing, being onlv 18 5? nir i^^- Tm«P'"°.?P'"*'o»» of real estate State Tax Commission, Rhode Island Board of Ti«r^J«* '" ^^19' ^Repo^s of New York ^AT^l'^ Assessment.) ** "°*'** "^ ^^ Commissioners. New Jersey State Board of (t) The following figures show the relationship of exempt real estate to all real estate: Total assessed value of taxable Ig^K real estate 1885.' .'.■.■ 92. 108,325,872 1900.. 2,899,899,062 1905. 5,093,025,771 1910. . . . ; ; 7,312,621,452 1915... 9,639,001,868 1920... 11.335.638,806 14,595.726.49 1 The actual value * value of taxable real ( less carefully valued i low. Assessed value of exempt real estate $200,000,000 500.000.000 1,000,000,000 1,389,353.000 1,788,095,746 2,521,705,003 2,996.566,422 Ratio of exempt to taxable real estate 9.5 17.2 19.6 19.0 18.5 22.2 20.5 I 65 Three-fourths of all of the real estate which is not taxed under the property tax is the property of the various governmental juris- dictions. The remaining fourth is privately owned, mostly the property of religious, charitaWe and educational associations. The cities own nearly two-thirds of all exempted real estate.* The proportion of real estate exempted from ta:xation in the different counties varies from 2.6 per cent to 55.6 per cent. ♦Exempted real estate in New York, 1919, classified according to ownership. (Tax Com* mission Report, 1919.) Value (000.000 Owner Total United States State Counties [ ,] Towns ,[[[ Villages !..!!!!!!!! School districts Cities '..'... Private !'.!'.!*.."..! Exempted real estate in New York, 1919. classified according to use. Commission Report, 1919.) Use Total Educational. Universities, colleges and normal schools. Public schools Other schools Libraries History and art Parks and playgrounds Agricultural Religious Places of religious worship Property occupied by clergy . . . . Property owned by clergy Moral and mental improvement. Fraternal and benevolent Charitable County and city homes Children's homes Soldiers' and sailors' homes Curative Protective Defensive Public utilities Water systems Lighting Sewerage Public baths Public markets Bridges and docks Subways Administration buildings Miscellaneous Cemeteries Fish hatcheries Indian reservations Reforested lands Pension money property omitted) Percent $2,881 100.00 127 4.41 lU 4.30 V .95 14 .49 11 .38 28 .97 1.837 63.75 713 24.75 (From data in Tax Value (000,000 omitted) Per cent $2,881 100.00 1.085 37.66 86 2.98 195 6.77 49 1.70 37 1.28 6 .20 712 24.72 1 .04 338 11.73 294 10.19 7 .23 2 .06 36 1.24 55 1.92 29 1.00 5 .17 22 .78 1 .05 106 3.69 73 2.54 127 4.40 8S» 29.14 143 4.95 3 .10 88 3.06 3 .12 5 .17 334 11.60 263 9.14 141 4.90 86 2.98 73 2.54 t t 1 .05 t t 11 .39 t Fish hatcheries, 129,000; reforested lands, 18,033; both less than one one-hundredth of one per cent. I "4. . I'V 66 The three counties with the largest proportion of untaxed real estate in 1919 were Albany, 55.6 per cent; Clinton, 43.1 per cent, and Wayne, 30.74 per cent. All of these have a large proportion of State property. The three counties with the smallest propor- tion of untaxed property in the same year were Hamilton, 2.64 per cent; Putnam, 4.91 per cent, and Nassau, 5.47 per cent. There is little or no State or national property in these three counties.* Conclusions and Recommendations Regarding Property- Tax Exemptions. — The Committee realizes that the exempt status of much of the real estate now free of tax would be very difficult to alter and it is not clear as to how far it is wise and desirable to go at the present time in the direction of reducing property-tax exemptions. In general it is inclined to believe that there is a working tendency, which is likely finally to prevail, in the direction of the taxation of all private real estate and much public real estate. Certainly the situation has reached a point where proposals for further exemptions must be considered in the most critical spirit. There is some evidence that the public is becoming aroused concerning the state of affairs and that there may soon develop a general demand for fundamental changes in the entire exemption policy of the State. f The Committee believes that the time is fast approaching when the State must seriously consider the possibility of developing still further the precedent established in permitting its forest lands to be subjected to certain types of local taxation. There is much sound sense in the view that all publicly-owned real estate should be subject to the real-estate taxes of all governmental bodies within whose borders it lies, except the taxes imposed by that govern- mental body which owns the property. The effect of adopting such a rule would lie not so much in a decrease in the total tax burden as in a more fair distribution of that burden. Certainly it is unfair, for example, to ask the residents of a very restricted section to pay the entire local-government costs occasioned by the * Tax Commission Report, 1919. t For example, the Committee is in receipt of a letter from Mr. L. L. Benham, Chairman of the Taxation Committee of the Rochester Chamber of Commerce, stating that the individual members of the committee who met on November 7th, 1921, unanimously ain'eed: (1) That the general principle of exemptions was inequitable; (2) That further exemptions should not be passed; (3) That present exemptions should be repealed so far as practicable, and (4) That there should be no extension of the exemption allowance in the New York State income tax. • 67 presence of an institution which serves the interests of the entire State. A complete solution could be completely arrived at, of course, only through the co-operation of the Federal government. The Committee believes further that the rules governing the exemption of real estate of charitable, religious, educational and cemetery associations should be more strictly drawn. It should be impossible for exemptions to cloak real estate which is being utilized for a business purpose for private gain. The Committee is informed that in some cases this occurs under our present statutes — for example, that cemeteries operated as private profit- making enterprises and schools which are really profitable busi- nesses frequently gain exemption under the law as it now stands. The Committee definitely recommends that the real estate of such enterprises he svhjected to taxation. Income-tax exemptions.— Most of the exemptions under the personal income tax are reasonable and conform to accepted standards. There are two, however, which are open to criticism and deserve special discussion in this report. These are the per- sonal exemptions and the exemption of interest on certain govern- ment securities. The Personal Exemptions.— The question of increasing the personal exemption is discussed more fully in a later section of this report,* but the Committee wishes at this point to record its con- viction that it would be unwise for the State to follow the prece- dent of the Federal Revenue Act of 1921, which raises the exemp- tion of the head of a family in certain cases to $2,500 and in- creases the allowance for dependents. Exempt Interest on Government Securities. — Under the existing arrangement the United States refrains from placing any tax on the interest on the securities of the states and the political subdivisions. It taxes the interest on certain of its own bonds within specified limitations. This State exempts the interest on the securities of the federal government. It also exempts the in- terest on its own bonds and those of its own political subdivisions. It taxes the interest on the securities of other states and their subdivisions. The exemption of interest on government securities has had "^^^y ^^^ effects and, in the opinion of the Committee, should be ♦ Cf. infra, p, 73 et seq. l! |( 68 entirely abolished under both federal and state income tax laws. To make this possible an amendment to the federal Constitution appears to be necessary. Representative L. T. McFadden, of Pennsylvania, has introduced a resolution in the Congress to amend the Constitution and it is possible that the Legislature of this State will soon be called upon to ratify this proposed amend- ment or one similar to it. The Committee strongly recommends that the Legislature give its approval to the plan which contem- plates reciprocal action, whereby interest on the securities of the Federal government are rtmde subject to the State income tax, and on the other hand, the interest on the securities of the states are to be rendered subject to the federal income tax. The grounds upon which this recommendation is based are fundamentally very simple and can be stated in a few words: (1) these tax-exempt securities permit widespread evasion by ; individual taxpayers of just tax burdens; (2) they permit one governmental body to profit at the expense of another and at the expense of the interests of the conununity as a whole, and (3) they put private borrowers, upon whose prosperity the welfare of the State in large measure depends, at an unfair disadvantage. The complete demonstration of these three propositions would require more space than is available for the purpose in this report and it is unnecessary here to develop the argument elaborately because such analyses by qualified tax authorities have been pre- sented elsewhere and are generally accepted by all careful students who have examined the problem. A mere summary must suffice here. First, then, how do tax-exempt securities permit individual taxpayers to evade their just burdens ? The answer lies in the fact that the tax-exempt securities, issued in the quantities which are floated in this country, nullify progressive income tax rates. If the principle of progression in income tax rates is just, the issuance of tax-exempt securities is unjust. The supposed reason underlying the practice of exempting government securities is that to tax them means merely to take money out of one pocket and put it into another. The exemption from taxation is supposed to be compensated for by decreased interest rates and improved market standing for the government \ ij 69 issues. But to make this work out there must always be enough persons who are subject to the tax, and who are also investors, to absorb all the honds. A progressive tax creates what is equiva- lent to groups of taxpayers subject to differing taxes. Exemption from income tax is a privilege of different worth to each surtax group of income-tax-payers. It is much more valuable to a man who is subject to a 50 per cent rate than to a man who is subject to a 10 per cent rate. Just so soon as the quantity of tax-exempt bonds becomes too great to be absorbed by investors who are members of the highest surtax group, the members of the next highest surtax group, to whom the tax-exempt privilege is less important, become the value-determining factors. When this happens those in the highest surtax group can buy the bonds at lower prices than they would otherwise have to pay. The market price of the bonds sinks. At the same time it becomes unprofit- able (instead of a matter of indifference) for them to invest in securities whose income is subject to tax. The person in the highest surtax group receives an income on which he does not pay, either in tax, in reduced interest, or higher price for the bond, the equivalent of what he should pay under the scale of the progressive income tax. Thus he in real truth evades the tax — legally, of course, but nevertheless actually. This is precisely what has happened in this country on a large scale. The market has been flooded with tax-exempt government bonds until the saturation point has been reached not merely among those in the highest surtax groups, but among those who are subject to only moderate rates. It now is a paying proposition for men of relatively small incomes to invest in government tax- exempt bonds. It is the worth of these bonds to these small men which determines the market price. The men of large incomes reap for their own profit the difference between the price they now have to pay and full value of the tax exemption to them, burdened as they are with their high surtax rates. Thus tax-exempt security flattens out the progressive scale of income tax rates and provides an open door to tax evasion or avoidance. From what has already been said the second point follows — that these interest exemptions on government securities permit one government body to profit at the expense of another and at the expense of the interests of the community as a 70 whole. For example, even if the United States government were the only authority which issued bonds and imposed progressive income taxes, the widespread evasion would de- velop as described. Heavy taxpayers would buy themselves free of part of the tax without paying an equivalent amount in the form of an advanced price of the security. But not only can the United States itself issue bonds which are exempt from its own tax, but, due to the constitutional situation, every state and every little subdivision of a state may issue its securities exempt from federal income taxes. In other words, a city like New York may capitalize the height of the federal income tax rates and utilize them as a fiscal resource to secure better terms for its bonds than it could otherwise obtain, entirelv without the consent of the federal government and in spite of the fact that the issuance of securities carrying this exemption from the fed- eral burden increases the supply and tends, therefore, to reduce the market price of all tax-exempt bonds. In plain words, the present arrangement offers the states and localities an oppor- tunity to steal a portion of the federal income taxes. Moreover, in so doing they flatten out the progressive curve of the income tax rates, destroying in a measure the equity of the tax system, and thus profit at the expense of the community as a whole. The temptation to extravagance with money borrowed on these terms is all too apparent. This, however, is not even yet the complete story. There is, in reality, no sharp separation of interest here. Citizens of New York are citizens of the United States. It has been shown that all they gain as citizens of New York is lost as citizens of the United States and more beside. Or, looking at it in a different way, nothing has been said of the disadvantage to the State of New York because of her inability to tax federal bonds. Moreover, who shall sav whether federal income tax rates will always remain high and state income tax rates low? Finally, private borrowers suffer a disadvantage when thev must compete with tax-exempt securities. Assume the case of a taxpayer in the 50 per cent surtax class who purchases a tax- exempt bond at a price determined by the worth of that bond to 71 a taxpayer in the 20 per cent surtax group. We have seen that the difference between the real worth of the bond to him and the price which he pays represents what we have thus far called an income tax "evasion." That difference, or surplus, acts, how- ever, as a penalty to prevent him from investing in any but tax- exempt bonds. As a consequence, men of large means have found it to be economic insanity for them to distribute their investments in a normal manner. Public borrowers are favored and private borrowers discriminated against, resulting in much hardship to interests like the electric railway industry especially, which must, as a private boi-rower, seek funds to compete with a municipaUy- owned plant financed by tax-exempt securities. It appears to the Committee that the only salvation from this situation is (1) to insist that each governmental authority pay the current competitive rate of interest on its borrowings and tax interest under its income tax irrespective of its source, whether from a federal, state, local or private security, and (2) to permit each governmental authority to apportion its taxes as precisely as possible according to tax-paying ability without being exposed to the danger of having its progressive income tax rates nullified by the issuance of tax-exempt bonds by some other governmental authority. Certainly progress does not lie in the direction of further exemptions but rather in the direction of the elimination of present exemptions. Tf 72 The Personal Income Tax With respect to the personal income tax the Committee recom- mends that no change he made at this time in the rates or in the persorml exemptions, hut that certain minor amendments he adopted which are needed to remove technical imperfections in the statute or are rendered desirable by the passage of the Rev- enue Act of 1921 by the federal government* On the whole, the personal income tax appears to be operating smoothly and satis- factorily. The relation of the state income tax to the federal act.^ When originally drafted, the state income tax law followed as closely as practicable the provisions and even the language of the federal income tax. There were manifest advantages in this course. It greatly facilitated the administration for it made the state law much more readily intelligible to the taxpayer who was already familiar with the federal law. With respect to a number of important points, however, it was found impossible to follow the federal law and procedure, so that from the very beginning certain differences and exceptions had to be borne in mind by the taxpayer when attempting to comply with the state law. The federal government has recently passed the Revenue Act of 1921 which makes radical changes in the income tax and the question now arises as to how far this state should modify its statute to conform to the federal changes. While deeply impressed by the desirability of uniformity with the federal statute, the Committee is convinced that a slavish copying of all the federal changes will involve very serious con- sequences to the state income tax. In the first place, the federal statute has been subjected to constant change. Passed in 1913, there were revisions of the law in 1916, 1917, 1918t and 1921. There is said to be a possibility of further revision in 1922. Moreover, many of the recent federal changes are of doubtful character, e. g., that establishing a new class of capital gains which complicates the procedure in order to establish what seems to the Committee to be an unfair discrimination against earned income. It seems clear that the adoption of all the federal * These recommendations originated for the most part with the Income Tax Bureau of the Tax Ueoartment and were definitely formulated by that Bureau. t The Reyenue Act of 1918 did not become a law until 1019 73 changes will delay the establishment of a stable and fully-adjudi- cated state income tax law and will involve the incorporation of elements of transitory and uncertain character. Since some important differences from the federal statute must necessarily exist anyway (because of the different date from which gains are measured and because of the constitutional limitations) the Committee believes that the wise course for the state to follow is to scrutinize very carefully the federal amendments and to adopt only those which appear to be unquestionably sound and which promise substantial improvements in the state law. The personal exemptions.— The present personal exemptions under the state personal income tax are $1,000 for a single per- son, with an additional $1,000 if married or the head of a family, plus $200 for each dependent. The new federal Kevenue Act of 1921 increases the $200 dependent exemption to $400 and the $2,000 head-of-family exemption to $2,500 for those whose income is less than $5,000. There appears to be some sentiment in favor of increasing the state exemptions to the new level of the federal law but, in our opinion, this sentiment is an ill-founded and mistaken one. In the first place, the federal change was dictated by considera- tions not present in the state situation. It was made in the course of a revision of the entire range of rates which involved a radical reduction in the heavy surtaxes on large incomes. When it was decided that it was impracticable to reduce the federal normal rate of 4 per cent, the only rate applying to the small incomes, the increases in the personal exemptions were resorted to in an effort to give some relief to these small incomes. The state income tax rates are already very low and stand in no need of revision. It is not unreasonable, in the opinion of the Com- mittee, to ask a married man with two children to begin to pay a small tax toward the support of state and local government when his net income exceeds $2,400, especially in view of the fact that he is subject to practically no other state or loc^l taxes except real-estate taxes. To adopt the new federal exemptions such a man would pay nothing until his net income exceeded $3,300. Moreover, the present state personal exemptions, instead of I ! u being niggardly, are as a matter of fact very liberal indeed when compared with those given in other states and in foreign coun- tries generally. It is of interest to note, further, that the Model Income Tax prepared by the Committee of the National Tax Association calls for maximum exemptions of only $600 (instead of $1,000) for a single person, $1,200 (instead of $2,000) for a husband and wife, with the further exemption of $200 for each dependent.* The National Tax Association Committee, in mak- ing its recommendation, observed that ^' under a democratic form of government it is desirable to exempt as few people as possible from the necessity of making a direct personal contribution toward the support of the state." It must be borne in mind, also, that the period of war-time inflation is now rapidly passing and that, with the return of the price-level to lower altitudes, the need for higher exemptions is becoming less rather than more urgent. Finally, the fiscal aspect of the proposal is a serious one. The Income Tax Bureau estimates that the adoption of the new federal exemptions would reduce the yield of the state income tax by approximately $4,000,000. The minimum income tax. — Instead of urging further exemp- tions from the income tax in the form of larger personal allow- ances, the Committee feels impelled to call attention to the desir- ability of taking action in exactly the opposite direction. If the income tax is to form one of the main elements in the per- manent system of state and local revenues, it is highly important that its administration be strengthened and perfected. The ac- tivities of the Investigation Division of the S'tate Income Tax Bureau have revealed the fact that there are many evasions of the tax particularly among persons whose income is close to the exemption limit. As a means of assisting the Bureau in pre- venting evasion as well as a means of securing some slight con- tribution from every person who benefits from the activities of government, the Conmaittee recommends that a return of income he required of every resident of the state above the age of 21 and that in cases lahere the income is too small to he subject to tax that a small filing fee or minimum income tax he imposed. ♦ Prdiminary Report of th« committee appointed by the National Tax Association to Prepare a Plan for a Model Systm of State and Local Taxation, p. IS. 75 Whether the minimum income tax should be flat or roughly progressive is open to question. The Committee is inclined to believe that a simple flat fee of one dollar from everyone whose income tax does not exceed that amount would best meet the present situation in this State. The Conamittee is not unaware of the serious administrative obstacles in the way of such a tax. Its administration should be primarily in the hands of the Income Tax Bureau. Some type of readily recognizable receipt would have to be devised. In enforcing the act it might be possible to utilize various agencies, as for example, the election oflicials, the police and the employers of labor. Collection should be made by state officials directly but the possession of a receipt for the current period might be made a condition to voting or employment. Change in scope and application.— In the event of the passage of the proposed law taxing the income of unincorporated busi- nesses, it is recommended that the income accruing to non-resi- dents from unincorporated business carried on in New York State be relieved of the personal income tax rates. When the personal income tax law was passed a double rule of situs was adopted which brought within the scope of the tax not only all income accruing to residents of the State but also certain types of income arising within the State accruing to non-iesidents. In so far as the income of a non-resident arises from unincorpo- rated business in the State it is clear that it should not be sub- jected to both the unincorporated business tax rates and also to the progressive personal income tax rates. The proposed new tax on unincorporated business income can be justified only as a substitute for the present non-resident personal income tax on such profits. Test of residence.- Considerable difficulty and injustice has been caused by the rule of residence under the personal income tax law which results in imposing a tax on the full year's income of every person who at any time during the last six months of the calendar year is a resident of the State. There have been a number of cases in which persons who have already paid an income tax for the year to another state or country have moved to New York in the last days of the year and have been called upon to pay a tax for the full year to this state in addition. ■W ' . 76 There have also been evasions of the law by persons who were in fact residents but who, because of indefinite definition, have been able to establish a technical residence elsewhere. It is pro- posed to define a resident cvs '' any person domiciled in the State of New York, and any other person who maintains a permanent place of abode within the State, and spends in the aggregate more than seven months of the taxable year within the State." It is proposed further that, in case of changed residence dur- ing the taxable year, the person be taxed as a resident for the time during which he actually loas a resident and as a non-resi- dent for the remainder of the time, only one exemption, however, being granted for the entire year. Net losses. — The new federal Revenue Act of 1921 permits a taxpayer, who suffers a net loss from " the operation of any trade or business regularly carried on by the taxpayer"* in one tax- able year to offset such loss against the net income of the next two succeeding taxable years. The Committee recommends that this net-loss provision be recognized in arriving at the net income from bu^siness under the state personal income tax. Appreciations in the value of gifts. — ^A prolific source of evasion under both federal and state income tax laws has been found in the procedure relating to gains in the value of property disposed of by gift. The rule has been that gifts are not taxable to the recipient and are not deductible by the donor. In cases where property has grown in value in the hands of the donor antecedent to disposal as a gift, this gain has not been subject to tax. Some taxpayers have taken advantage of this situation to avoid the tax. For example, a man who buys a block of securi- ties for $500,000 and holds them until they were worth $1,000,- 000, sometimes does not sell them himself, because he would then have to account for the profit of $500,000. Instead he gives the securities to his wife who then immediately sells them but she need account for no profit because, in measuring her gain, she measures merely from the value of the securities when she received them. The federal Revenue Act of 1921 attempts to meet this situation by compelling the wife to measure her gain from the date when her husband, not she, herself, acquired the securities. This involves such serious administrative difficulties. ♦ Sec. 204 (a), Cf. infra, p. 122. \ • 77 however, that the Committee is disposed to favor another course. It recommends that the donor be compelled to account for the appreciation in the value of the property given away at the time the gift is made. To prevent this provision from operating to discourage gifts to charitable institutions, gifts to such institu-^ tions should be exempted from the recommended procedure. The closed transaction. — One of the problems which has been most troublesome has been that of determining the precise point of time at which a taxpayer shall be called upon to account for a gain or loss in cases where exchanges take place but where prop- erty other than cash is received in exchange. The language of the old federal law, which is followed in the state law, was in- definite in character. The federal Revenue Act of 1921 (Sec. 202) goes to an extreme limit in postponing such accountings. The state Income Tax Bureau favors making the law more spe- cific than it has been in the past but opposes following the fed- eral changes in full on the grounds (1) that such generosity is less necessary where rates are as low as those in this State and (2) that the provisions would seriously complicate the audit. The Committee believes that this position is well taken and recommends that section 35J/- of the personal income tax law be made more definite by the insertion of the phrase " when the property received in exchange has no readily realizable market value." It is necessary also to make a small change in section 355 to make it conform to the new rule for measuring gains and losses adopted by the Legislature last year. Miscellaneous minor amendments. — In addition to the changes set forth above the committee suggests the adoption of certain minor changes most of which are interpretative in character or designed to correct errors in drafting. The more important of these are enumerated below: (1) To prevent evasion through the subtraction of items which are really gifts, deductions for bad debts should be limited to debts arising in the regular course of business or out of trans- actions entered into for profit; (2) To prevent evasion through a too liberal interpretation of the term " expenses for entertainment," such expenses paid by an individual should be disallowed as a deduction; ll 78 (3) To prevent an injustice to the beneficiaries, income accru- ing to a trust but destined for distribution to charitable institu- tions and other similar organizations should be relieved of taxa- tion; (4) To prevent resort to trusts for the purpose of reducing the rate of tax properly applicable to an income, section 365 (4) should be amended by prohibiting the deduction of payments to beneficiaries when the distribution of the income is within the discretion of the fiduciary; (5) To facilitate the establishment of pension funds, a section, similar to that included in the new federal law, should be added exempting trust-fund accumulations of this type ; (6) To avoid the necessity for elaborate calculations where only negligible sums are at stake and to correct a rule which has been found to be impracticable in operation, distributions of the income-tax proceeds received by town supervisors should be credited to general town purposes, and (7) To bring the law more completely into accord with accounting practice, reserves for bad debts should be recognized as is done in the new federal law. The Taxes on Financial Institutions For many years the financial institutions of the State have been placed in a special class for purposes of taxation. Xot only has their tax base been different from that used in the case of other business but the rate has been conventionalized and uni- form. The Committee attempted to detennine what have been the results of the use of this special base and special rate; to ascertain whether the banks have been favored or discriminated against by the tax which the State lays upon them. More spe- cifically, the Committee undertook to compare the burden imposed en business corporations generally by the 4i/o per cent tax on net income with the burden imposed on financial institutions by the special taxes on banks, based largely on capital, surplus^ and undivided profits. It was felt that the first step toward any change in tlie rate or the methods of taxing these institutions could not be intelligently taken until information was available showing precisely what burden the present taxes involved. In ^ V- I f 79 addition to presenting the results of this investigation, this sec- tion considers the situation which has developed as the result of the recent decision of the Supreme Court in the Richmond case,* which throws doubt upon the legality of the present methods of taxing banks in this State. The development of the present method of taxing banks. — For many years the method of taxing banks in New York, as in other states, has been determined by the narrow limitations placed by Congress in 1864 on the State taxation of national banks. The limitation is stated in section 5219 of the Revised Statutes of the United States, originally passed in 1864 and amended in 1868, which now reads as follows: ** 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 taxation 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 bank- ing 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 associations from either State, county or munici- pal taxes, to the same extent, according to its value as other real property is taxed. In this State no important changes in bank taxation have been made since 1901, and the basis of the system now in force was really established in 1865. Special consideration was given to the taxation of bank stock as early as 1823, when a law was passed requiring the assessment of bank stock, notes, bonds and mortgages — which had not hitherto been subject to the general-property tax — at cash value as taxable property. f The tax was paid by the banks and deducted by them from the dividends of stockholders. The present method of assessment and taxation was inaugurated in 1865, when, in conformity with the restrictions laid down by Congress for State taxation of national banks, the provisions were * Merchants National Bank r. City of Richmond, decided June 6, 1921. fllam of 1893, ch. 262. 80 incorporated into the New York tax law* that the stockholders of state and national banks should be taxed on the value of their shares, at the place where the bank is located, and not at a gi eater rate than is assessed on other moneyed capital in the hands of individual citizens of the State. Bank real estate under this law was taxed locally to the bank. The tax on shares was placed on the holders, as prescribed by the federal law, but the burden of supplying the assessors with the necessary information, and of insuring the collection of the tax, was placed on the banks. The rate of the tax on shares was the same as that on all property under the general-property tax which prevailed at that time. This system of assessment and taxation remained, with minor amendments, until 1901. The aim of the tax was to impose an equal burden on bank and other capital, and at the same time to remain safely within the provisions of section 5219 which permitted, and intended, such equality. The only purpose of Congress in making such pro- visions was to prevent undue discrimination against national banks. The result of this method of taxation, however, was to impose a heavier burden on bank stock than on other personalty, since the special provisions for assessment made it possible to reach bank stock effectively when other intangibles were escaping. Thus in 1879, before there had been any important modification of the general-property tax in New York, bank stock comprised nearly thirty per cent of the assessed value of all personalty, tangible and intangible, in the thirty-seven counties reporting"! To cite an extreme instance, in 1878 the banks of Albany paid about fifty-eight per cent of all taxes on personal property, f For many years no changes were made in the system, however, and the fact that no discrimination against banks was intended made the law acceptable in the eyes of the courts. § In 1901 the law was amended to make the tax payable directly by the state and national banks, although still assessed on the shares.** The rate was set, arbitrarily, at one per cent. At the same time a one per cent tax was placed on the capital, surplus and undivid ed profits of trust companies, and on the surplus and *Law8 of 1865, ch. 97, t Annwa Report of State A saesaors, 1879. tibtd., 1878, p. 16. •♦ rSL^i"^! 24.*'''°*^ ^^"^ °' ^^"^ ^"^^ "■ ^*y«^' «*«•• 121 U. S. 13. • • f • 81 undivided profits of savings banks.* Thus the tax on state and national banks remains, technica]ly, a tax on the shareholders, but it is collected from the banks, and it is now generally regarded even by the 'bankers themselves as a tax on the bank. The Legis- lature of this State gave tangible evidence that it considered the tax to be in fact a business tax on the bank when it made dividends on the shares taxaWe under the ix^rsonal income tax, i)assed in 1919. Congress took the same attitude when, in the Kevonue Act of 1921, it permitted the deduction of the tax as a business expense in arriving at the taxable net income of banks. The taxes on other financial corporations, which are placed on the corporations as such, are similar to the tax on bank stock, and the provisions which have been made from time to time for tlio taxation of mortgages, secured debts and other intangibles, bear no direct relation to the bank-stock tax. No other important changes have been made in bank taxation, and, in the absence of amendments to section 5219 of the federal Revised Statutes, change is all but impossible. While the method of taxing banks has remained almost static, the general property tax, which prevailed when this system of bank taxation was introduced and to which tlie bank taxes were adjusted, has disappeared. Only real estate and some tangible personalty remain under the property tax, and all intangibles and most of the tangible personalty of corporations are reached by other taxes. A system of business taxes has grown up. PubUc- utility corporations and real-estate and holding companies have been taxed since 1880 on capital stock or gross earnings, or both at varying rates.f The minimum rate on capital stock is one and one-half per cent, unless the company is not a profitable one, when, under certain conditions, the tax is only three-fourths of one per cent. In addition to this, those transportation and trans- mission companies subject to this tax pay an annual fax of one- half of one per cent on gross earnings. Those transportation companies not subject to the capital stock tax pay higher rates on gross earnings, varying with the amount of the dividends and the nature of the company. Manufacturing and mercantile com- pam^r "business" corporations, have been taxed since 1917 * Tax Law, a 188,189. ^Ibid., ii 182-186. 82 on net income, the present rate being four and one-half per cent * The taxes on miscellaneous financial corporations are on capital stock and those on insurance companies on premiums. These taxes are comparable to those on banks.f In addition to these franchise taxes, corporations, with the exception of banks, are subject to an organization tax of one-half of one per cent on capital stock4 Private individuals have been taxed since 1919 on net income instead of on intangible personal property. § The net result of these readjustments has been to change entirely the basis of taxation on corporations and on the owners of intangibles, while the taxes on banks have remained the same. Results of the statistical investigation.- The Committee at the beginning of its inquiry early in the spring of 1921, decided to attempt to ascertain whether the special taxes on banks (and bank stock) imposed a just and equitable burden upon the banks both as compared with the burdens carried by other classes of business and as it affected particular institutions within the various classes of banks. Apparently no one had previously attempted to determine accurately whether the one per cent rate on the rather artificial basis of value specified in the law was adequate or inadequate or whether the system was operating in a discriminatory manner as between individual banks. The cooperation of the Bureau of Internal Eevenue of the Lnited States Treasury was enlisted and valuable data were secured bearing upon the income of various classes of business concerns The reports of the State Banking Department and the Comptroller of the Currency were utilized and, finally, appeals were made by questionnaires directly to the banks when informa- tion was available in no other way. The response from the corporations was very complete. The data have been fullv analyzed and the results are presented in full in Part II of this report.** It is believed that these detailed statistical studies pro- vide a basis for drawing conclusions regarding the true burden dr^ndable'"'*'*"*'*'''' '^""^'^ ''^'''^ '" "'"^"^ ^^^"""^^ ^"^"^ * Tax Law, art. 9a. flbid., §§ 187-189. tlhid., § 180. ilbid., art. 16. ** C/. infra, p. J83 e< seq. "> , ^ • t 83 Since the basis of the computations is set forth fully in Part II, it will be unnecessai-y to make any elaborate statement of the details here. The general results only will be summarized. The aggregate amount collected from the financial institutions in business taxes (taxes on bank stock or « franchise " taxes) in 1920 was $11,667,958, distributed as follows: National banks $5,792,208 State banks 1,239,268 Trust companies 3,196,586 Savings banks 1,439,896 ^*'**^ $11,667,958 These figures do not take into account real-estate taxes which as explained above,* must be placed in a separate category for com- parative purposes, and not be c'assed as true business taxes or considered to be of the same degree of burdensomeness as such taxes. In making comparisons of burden, the taxes were reduced to a percentage of net income. Natiokal Banks.— In the case of national banks the 'business tax (1 per cent on the shares, valued on the basis of capital sur- plus and undivided profits) is heavier than the business tax on the income of manufacturing and mercantile companies. In the aggregate the national bank tax is equivalent to 6 4/5 per cent of their net income, on a thre^year basis, while the tax on mer- cantile and manufacturing companies is only 41/0 per cent. The tigures by years are as follows : 1918 ^ 1919 : !-„p^'*^^'' 1920 6.3 percent 0.7 per cent Only 17 of the 398 national banks reporting paid taxes as low as those paid by the general business corporations. The taxes of five banks exceeded 40 per cent of their net income, while ihe tax of one bank was less than 2 per cent. An examination of Table 3 on page 185 will show that as a rule the large banks pay lower taxes, measured by net income, than the banks of medium a^d^nmn_size. Thus banks of the largest size (10 million-doUar • Supra, p. 62 cl «,. For the figure, reganiia, property ta«.. cf. infra, p. 194. I !'»»^ 84 banks or more) pay 6 3/5 per cent while moderate-sized banks (204 with capital, surplus and undivided profits between $100,000 and $1,000,000) pay 11 1/5 per cent. State Banks. — Judged by their relation to net income, the taxes on state banks ('basis the same as national banks) are slightly lower than those on national banks but still much higher than the taxes on business corporations generally. State banks on the three-year basis pay (3 58/100 per cent of their net income as compared with the 4l/> per cent of the business corporations. The figures by years are as follows: 1918 .- 8.2 per cent 1919 5.9 per cent 1920 6.2 per cent Only 7 out of 156 State banks reporting paid taxes as low as those paid by business coi^porations generally (4:l/> per cent). Two state banks paid less than 2 per cent while one paid more than 40 per cent. The largest banks averaged 7 per cent and the smallest banks 8 56/100 per cent, so that, in this case also, the tax strikes hardest on the smaller institutions. Trust Companies. — The trust companies (taxed directly at 1 per cent of capital, surplus and undivided profits) pay heavier taxes than either state or national banks and, of course, much heavier taxes than the mercantile and manufacturing companies. Their taxes, on the three-year basis, amounted to 7 1/3 per cent of their net income. The following are the figures by years: 1918 8.4 per cent 1919 7.6 per cent 1920 6. 5 per cent Only 11 out of the 81 trust companies reporting paid taxes as low as those of business corporations generally. Three trust com- panies paid less than 2 per cent and one more than 40 per cent. The same discrimination against the small institutions, noted in the cases of the state and national banks, is present also in the case of trust companies. The very large institutions paid 7% per cent on the average while the smallest institutions paid 9 3/5 per cent. Investment Companies. — The class of investment companies 85 contains a heterogeneous group of business concerns. It includes the " Morris Plan " banks as well as several types of commercial- paper houses. Its content is not at all what would be inferred from the title of " investment companies." The taxes applying to these companies consist of II/2 mills for each dollar, face value, of capital plus 1 per cent of surplus and undivided profits. The 1% mills on capital, specially val- ued, in place of 1 per cent as in the case of state and national banks and trust companies, is a considerable concession as is shown by the fact that the " investment companies " paid in taxes only 3 13/100 per cent of their net income on the basis of the three-year period and the following percentages on the annual basis : 19 18 5 per cent 1919 3 per cent 1920 2.7 per cent Eleven of the 15 companies reporting paid smaller taxes than meicantile and manufacturing companies. Two paid less than 2 per cent and 1 paid more than 8 per cent. Savings Banks. — In the case of savings banks the item of net income, used as a basis of comparison, is not a highly satisfac^ tory one and the results are consequently presented vrith diffi- dence and reservations. The difficulty arises in connection with the treatment of the so-called " dividends " which are the dis- tributions to depositors in these mutual institutions. The ques- tion is as to whether they should be deducted as expenses or included as profits. As a matter of fact, the character of this item is undoubtedly mixed, containing elements of profit as well as interest. E-ven when deducted as interest, the figures show that savings banks pay lighter taxes than national and state banks and trust companies, but still somewhat heavier taxes than busi« ness corporations. The three-year figure for the savings-bank tax (1 per cent of the par value of surplus and undivided earn- ings) is 5 4/5 per cent of the net income as above defined and the annual figures run as follows: 1918 8 . 1 per cent 1919 7.0 per cent 1920 3 . 3 per cent !' I 86 The low figure for 1920 is the result of the shrinkage in the value of securities in that period. In case dividends (in whole or in part) are not deducted in computing net income, the percent- ages given ahove would drop, of course, to a still lower level. The liberal treatment of savings banks, reflected by these fler cent, are en- tirely exempt. True, the income from them is taxed under tlu-^ personal income tax but so, also, are the dividends on the bank stock. The explanation is, as indicated above,f that, while its form has remained unchanged, the national bank tax has devel- oped, in the course of the evolution of taxation in this State, into a true business tax. It is no longer in fact a personal tax. The valid comparison, from the economic point of view, is no longer a comparison between the tax on national bank shares and the tax on intangible property but rather a comparison between the tax on national banks (through their shares) and the taxes on other similar business. The national banks of the State have been quick in their attempt to take advantage of the situation. A large number of the banks at once instituted proceedings in the courts to test the legality of the taxes levied on their shares in this State. A test case, that of the Hanover National Bank vs. Goldfogle, has already been passed upon by the Supreme Court of the State:j: and the present tax upheld. But the case is to be carried to the Supreme Court of the United States where the issue, in the opinion of the advisers of the Committee, is highly uncei-tain. It is the belief of the Committee that the real solution of the difficulty lies not so much in the establishment of a satisfac- tory interpretation of the phrase " other moneyed capital '' as in the change of the limiting section in the Revised Statutes so as to permit the tax to stand forth in its true character as a business tax. Accordingly, it has taken active steps to secure ♦ Cf. supra, p. 63. t Cf. aupra, p. 81. j Special Term, February 10, 1922. 88 an amendment to section 5219 which will permit the State to continue to levy a fair business tax on national banks. The situation is indeed a serious one, for if the State may not tax the business of a national bank, it cannot in fairness tax the business of a state bank or a trust company which must enter into active daily competition with the national bank. Thus, not only does the issue involve approximately ten millions of revenue annually but it threatens the whole plan of tax reform in this State which has been gradually worked out as the result of much painful experience. If the only way to reach national banks is to return to the old discredited tax on intangible personal property, either national banks must go free or the State must abandon the fruits gained in fifty years of arduous effort toward tax reform. The interests of many other states are, of course, affected by the decision in the Richmond case and an organization of state representatives has been effected to urge upon Congress the de- sirability of granting powers to the states which will enable them to tax national banks in a manner which is in harmony with the character of the modem state tax systems. The following pro- posed amendment to section 5219 has been advanced by the states interested and, in the belief that it grants adequate powers to this State while giving every reasonable safeguard to the national banksj it is being actively supported by the Committee: Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That sec- tion 5219 of the Revised Statutes of the United States be, and the same is hereby, amended so as to read as follows: *' Sec. 5219. That the legislature of each State may provide for the taxation of the real property therein of any national bank- ing association located therein in the same manner and at the same rate as other real property in the same taxing district is taxed for public purposes; and may also provide for the taxa- tion of either the income of such association, or the shares of such association, subject to the restrictions that whichever of the above classes shall be chosen the rate or rates of tax imposed should be not greater than the lowest uniform rate or graduated rates imposed in respect of such class on banks, banking associations, or trust companies doing a banking business, incorporated by or under the laws of such State, other than savings banks or similar nonstock corporations organized for the mutual benefit of deposi- tors; and if the shares of such association are taxed, the shares owned by nonresidents of such State shall be taxed in the taxing 89 district where such association is located and not elsewhere; and may also, if the State provides for the taxation of individual incomes, include as a part of taxable income the income from the shares of national banking associations: Provided, That the income from the shares of banks, banking associations, and trust companies doing a banking business, incorporated by or under the laws of such State, is also so included. **Any tax upon shares of national banks heretofore paid, levied, or assessed, which is in accord with the provisions hereof, is hereby legalized, ratified, and confirmed as of the date when imposed. Nothing herein shall be construed to exempt the real property of associations from either State, county, or municipal taxes, to the same extent, according to its value, as other real prop- erty is taxed." Conclusions. — The Committee has found that the old method of taxing banks and financial institutions, which has been in force for many years, produces very unequal results. It recom- mends: (1) That, in case the necessary amendment to section 5219 of the Revised Statutes is granted hy Congress, natiomd hanks, state hanks, trust companies, and Morris Plan hanks he subjected to a hwsiness tax on their net income levied at the game rate as that applied to the net income of mercantile and manu- facturing companies: (2) Tliat, because of the difficulty of defining the net income of savings hanks, it is recommended that the ta^ on such institu- tions he continued in the form of a franchise tax based on gome such measure as that provided in the present law: (3) That the class of investment companies be abandoned as a separate category for tax purposes, Morris Plan Bankg being taxed as suggested in {!) above and all other organizations now included in this class being subjeoted to the regidar franchise tax on the income of business corporation^ {Section 90), The adoption of these recommendations will result in more exact fairness in the treatment of financial institutions as com- pared with other businesses and will correct the discrimination against the smaller banks of certain classes which the statistical study has revealed. The adoption of the Committee's recommendation for an income tax upon banks and financial institutions pre-supposes that a por- tion of the yield from the taxes will be returned to the localities at 90 least equal to the amount which they now derive from the tax upon shares of stock in state and national banks.* To avoid excessive fluctuations in revenues it is suggested that the principle of averages may well be utilized ; that is, instead of basing the assessment upon the net income of a single year, the average of the net incomes of three or five years preceding be used. This method could be adopted gradually by starting with this year's income and incorporating the income of succeeding years as a part of the base as time proceeds. The adoption of this plan in this period of depression and of small profits would work no hardship and should arouse little antagonism. However, the adoption of the recommendations outlined above must await Congressional action upon the proposed amendment to section 5219 of the Kevised Statutes.f // ct reasorwhle amend- ment is blocked through the short-sighted opposition of a small section of the financial community, the CommiUee proposes a plan to prevent the evasion by the national banks of their fair share of the governmental burden, through a return to ihe taxation of gwch moneyed capital as competes with natioTud hanks, at the same rate as that imposed upon national hank shares. The Committee regards this as a very undesirable alternative but a necessary one in the contingency described. The Taxes on Insurance Companies The Committee has encountered serious difficulties in its attempt to measure the burden of the taxes at present imposed on insur- ance companies. Such companies pay a business tax of one per cent on gross premiums, in excess of certain specified deductions, on the business done within the SH;ate during the previous year. In addition to the difficulties involved by reason of the fact that many of the companies are organized on the mutual basis,:}: there are serious differences of opinion in many lines of insurance regarding the size of reserves which may Ibe reasonably built up. However, it was possible to secure fairly satisfactory data for fire and marine companies organized as stock companies and the * Cf. supra, p. 83. t Cf. supra, p. 88. X Cf. supra, p. 85. 91 results of the analysis are set forth in detail in Part II.* It appears that over a ten-year period, 1911-1920, 91 such com- panies paid in business taxes 5% per cent of their net income. If insurance companies operating at a loss are excluded, the 5% per cent rate drops to 4 84/100 per cent. This is the figure most properly comparable with the 4^/2 per cent paid by mercan- tile and manufacturing companies. It is clear that so far as aggregate business taxes paid are concerned the insurance com- panies of these types are on a fairly equal basis as compared with business corporations generally. A very unsatisfactory situation is revealed, however, when a study is made of the taxes paid by the different companies within the class, f Three companies pay less than one per cent of their net income in business taxes while four companies pay more than 25 per cent. The Committee believes that no good reason exists why it should not be possible to apply a uniform business income tax to all insurance companies of the non-mutual type and suggests that a plan for accomplishing this be worked out in detail in conference with the interests affected. This is a task which, because of the pressure of other commitments, the Committee has thus far found it impossible to undertake. The question of proper reserves can be controlled, arbitrarily if necessary, in cases where actual loss- experience under the various new types of insurance forms an insufficient basis for accurate estimates. The taxation of mutual companies on the basis of net income is a very difficult task indeed. When the customers and the owners are identical groups, conditions are absent which, under ordinary competitive conditions, cause the true differential profit of the organization to emerge. The profit is usually veiled by a difference in the level of rates. Consequently, unless mutual business is to be relieved entirely of business taxation, some arbi- trary basis is necessary for the tax. The Committee recommends no change in the method of taxing mutual companies at this time, but considers this a field which deserves further studv and investi- gation. * Infra, p. 264 et seq. ^Cf. infra, p. 266. 92 The Taxes on Public Utilities The Committee has concentrated much of its effort upon the problem of the taxation of public utilities in this State. The present taxes on public utilities are a complicated hodge-podge which are the despair of the taxpayer and an occasion for amaze- ment and scorn of students of taxation generally. For a long time it has been generally appreciated that the taxes on public utilities were arbitrary, uncertain and compHcated, but it has been assumed that, nevertheless, the law did achieve a reasonable degree of equity in the distribution of the tax burden. Our statistical in- vestigation shows conclusively that the net result of all the effort which we now put forth in assessing these intricate taxes is scandalous inequality and disgraceful discrimination. History of public-utility taxes in the State.— In order to throw light upon the present methods of taxation and to assist in their improvement, the following brief account of the historical development of New York's taxes upon public-utility corporations is presented. Beginning with the year 1823, the taxation of the public- utility corporations has been the subject of frequent legislation. For more than a half-century such legislation was principally concerned with the increasingly difficult problem of taxing the corporations under the general-property tax. The first important departure was made in 1880, with the enactment of the corporate franchise tax law.* This was a tax on the value of capital stock at a rate varying with the dividends of the corporation. If the corporation paid less than six per cent on capital stock the rate was one and one-half mills per dollar of capital stock; if more than six per cent the rate was one-quarter of a mill for every one per cent of dividends on each dollar of capital stock. This tax applied to all public-utility corporations, domestic and foreign, without exception, and was in lieu of the state tax on personalty. It was placed under the administration of the state comptroller whose powers were enlarged accordingly. In addition to this in the same year a tax of one-half of one * Statutes 1880 chap. 542. This was not called a tax on the corporate /ranchi^ until 1881 {SM^TlSSl!^hap&l):y^hen the name was introduced to avoid constitutional difficult.os. 93 per cent on gross earnings was imposed on all transportation com- panies and telephone and telegraph companies.* In 1881 the law was declared to be a franchise tax to meet constitutional objections. In 1885 the franchise tax was for the first time limited to that capital employed within the State to meet an obvious injustice.f During the same decade came the Supreme Court decision that the State could not tax interstate commerce, and the law was amended in 1894:^ to exclude inter- state earnings. The tax was henceforth confined to intra state business in spite of a later decision (1891) that the State might tax that proportion of interstate business carried on within the state. Taxes collected on interstate business previous to this were refunded. In 1886, in recognition of the fact that the State was granting a special and valuable privilege, an organization tax of one-eighth of one per cent was imposed on the capital stock of corporations at the time of incorporation. This was extended to foreign cor- porations in 1895 as a license tax of one-eighth of one per cent on the amount of capital employed within the State in the year when the foreign corporation first transacts business in the State. The organization tax on domestic corporations was reduced in 1901 to one-twentieth of one per cent owing to the competition of New Jersey where the tax amounted only to one-fiftieth of one per cent. The revenue from the corporation taxes decreased as a result of the narrowing interpretation of the courts. Further, evasion increased under the capital-stock tax as time went on. The sur- plus of foreign corporations was not taxable according to the court interpretation, and foreign corporations frequently claimed that they were employing their surplus and not their capital in New York business. Domestic corporations as well as foreign evaded the tax by issuing bonds rather than stock, for bonded indebted- ness was deductible from the value of capital stock. The tax was also reduced to some extent by turning profits into surplus rather than dividends. ♦ Statutes, chap. 542, as amended 1881, chan. 361. Under the law of 1880 street railways were exempted from the operation of the gross earnings tax, and express, palace car or sleeping car com- panies or freight lines were permitted to deduct payment to any common carrier for transporta- tion upon Buch lines. These exemptions were dropped by the amendment of 1881 following the recommendation of the comptroller who found them to be without justification {Comptroller'* Reports, 1881, 1882). t StafufM, 1885, chap. ROl. , . ,„ ,,. .^ ,«, tlbid., 1894, chap. 562, in response to the decisions in the case of Fargo r. Michigan, 121 U, S. 230, 1887 and others. 94 To meet these difficulties in part changes were made in the method of taxing public utilities in 1896. Elevated and surface railways, other than steam, were withdrawn from the capital- stock tax and su'bjected instead to a tax of one per cent on gross earnings, plus a tax of three per cent on all dividends in excess of four per cent.* Light, water, gas, heating and power com- panies were also withdrawn and taxed in the same manner as street railways, excepting that the rate on gross earnings was made one-half of one per cent.f These last-named companies had not been sulbject to the gross-earnings tax placed on trans- portation companies, and had largely escaped the capital-stock tax by means of large bond issues. There is no apparent reason for the rate on gross earnings being less than that on the gross earnings of street railways. In 10 OG railroads leased to other companies were subjected to the tax of three per cent on divi- dends in excess of four per cent.:}: A further step to prevent evasion was taken in 1899§ when the " value of all franchises, rights, authority or permission to con- struct, maintain or operate, in, under, above, upon, or through, any streets, highways or public places, any mains, pipes, tanks, conduits or wires, with their appurtenances, for conducting water, steam, heat, light, power, gas, oil or other substance, or electricity for telegraphic, telephonic or other purposes "** was declared to be real estate, and assessable by the State Tax Commission for State and local purposes. These special franchises had often escaped taxation prior to this, since, as personalty, any indebted- ness could be deducted from their value. This was an important step in advance. There has been, however, much difficulty in defining the special franchise, and the operation of the law has been greatly hindered in consequence. Further, equalization of special franchises and other real estate was not permitted until 1911,f f and the more efficient central assessment led to discrimi- nation against the possessors of franchises. Much litigation ensued, and half of the taxes imposed between 1899 and 1911 remained unpaid at the end of that period. There has been less trouble since this amendment. * Statutes. 1896, chap. 908. fibid., 1896, chap. 908. tJ6«f., 1906, chap. 477. |iWd.. 1899. chap. 712. ♦* Tax Law, §2. tt Statutes, 1911, chap. 804. 95 Largely to clear up ambiguities in interpretation of an earlier law corporations were re-classified in 1906 for purposes of the capital stock tax as follows:* (1) Those corporations earning six per cent or more on par to be taxed at the rate of one-fourth of one mill on each dollar of par value of stock for each one per cent of divi- dends. (2) Those earning no dividends, or in case assets do not exceed liabilities or market price does not exceed par those earning less than six per cent, to be taxed at the rate of three-fourths of a mill per dollar on the appraised value of capital stock. (3) Those earning less than six per cent but with assets in excess of liabilities or market price in excess of par to be taxed at the rate of one and one-half mills on the appraised value of capital stock. (4) All corporations not taxable under classes (l)-(3) to be taxed at not less than one and one-half mills on the actual value of the capital stock. The present system. — Elsewhere in this report the present methods of taxing the public-service corporations operating in the State of New York are fully described.! The following brief summaiy will be sufficient for the purpose of this chapter: (1) All public utility corporations are subject to state franchise taxes: (a) In the case of steam railroads, other transportation companies (except elevated or surface rail- roads not operated by steam) and telegraph and telephone companies, the general-franchise tax is based upon the capital stock (par value) of the corporation, at variable rates, depending upon the dividend rate, the relation of assets to liabilities, and the average market price of the stock, (b) Elevated and surface railroads not operated by steam pay 1 per cent of their gross earnings from all sources witiin the State and 3 per cent upon the amount of divi- dends in excess of 4 per cent upon the actual amount of paid-up capital, (c) Water, gas, and electric companies are similarly taxed at one-half of 1 per cent on gross earnings ♦ Ibid., 1906, chap. 474. t Cf. infra, p. 176 et seq. <«h -rSfmm J i I 96 from all sources within the State and 3 per cent upon divi- dends in excess of 4 per cent. (2) Steam railroads, other transportation corporations (except elevated or surface railroads not operated by steam) and telegraph and telephone corporations are subject also to the additional-franchise tax. This is a tax of one-half of 1 per cent of gross intra-state earnings (beginning and termi- nating within the State). (3) The special-franchise tax is imposed upon all public- utility corporations. It is a property tax upon the value of the right to occupation and use of the streets, highways, public places, or public waters of the State. The value of tangible property situated upon such streets, highways, etc., is included. The State Tax Commission determines annu- ally the value of special franchises subject to assessment in each city, town or village. Upon these values, as finally equalized, the local authorities levy the local property-tax rate. (4) Finally all public-utility corporations are subject to a state tax on real estate, which, with the exception of the franchise, is locally assessed, and to the local general-prop- erty tax on real estate and tangible personal property (except that assessed with special franchises). Defects of the present system.— ]^^ew York's taxation of pub- lic-utility corporations is not a unified system based upon any recognized principle. It has grown up historically by piecemeal legislation applied at different times to diiferent classes of corpora- tions. The result violates nearly all the canons of sound taxation. Lack of Certainty. — Certainty is one of the most essential features of a good tax system. Certainty requires that a tax be based upon and measured by certain definite indices, which should be matters of fact readily ascertainable by both the taxing officials and the taxpayer. Determination of the amount of tax due from any taxpayer should not be a matter of personal judgment. No matter how upright and efficient the taxing officials, no matter how willing the taxpayer to contribute his fair share, taxes based on judgment and opinion are sure to lead to inequality and suspicion. At the worst, the result will !be gross injustice and corruption. I 97 New York's taxation of public-utility corporations is marred by gi'eat uncertainty. This is noticeably true of the special-franchise tax. There is no entirely satisfactory way of determining the precise value of the special franchises to use the public highways. Such determination necessarily involves a large measure of personal judgment. Given exactly the same data, two experts of equal ability and honesty would never, except by accident, arrive at the same result. This situation is recognized by the Tax Commission in the methods for determining intangible fran- chise values which it has adopted in accordance with thu so-called " net earnings rule " as prescribed by the courts, i. e., by capital- izing the profits of the corporation in excess of a certain rate upon the value of the investment. This is prc^bably the best way out of the difficulty, but the arbitrariness of the method and the uncertainty of the factors involved (in particular the value of the investment and the rate of interest) are strong testimony to the impossibility of finding any certain measure of intangi'ble fran- chise values. The tangible part of the special-franchise tax presents scarcely less difficulty. How are the tracks, wires, poles, conduits, etc., of a public utility corporation to be valued? There is difference of opinion as to the proper basis of valuation (cost, replacement value, etc., with or without depreciation) and when a method is decided upon, the result itself is always a matter of opinion, more or less trustworthy. Such property is of value only as part of the whole equipment of the corporation as a going concern. Its separate valuation as a basis of taxation will always involve serious uncertainty. As evidence of the difficulties which confront the State Tax CoBimission in administering the special franchise tax, the fol- lowing extract from the Commission's annual report for 1919* is pertinent : ^* Because of unusual and what appeared to be abnormal conditions during the past three years, increased cost of labor and material, and because of the fact that most of these pub- He utilities are operating at a rate fixed before these changes ♦ p. 24. 98 in operating costs occurred, the computation of tliese values in many instances has become exceedingly difficult and com- plex, and the Commission, believing that the value of the special franchise privilege ought not to be subject to violent fluctuations, either up or down, has deemed it fair as between the corporations and the public, to base its computations upon a condition shown by an average period of five years where this would produce fair valuations. This has been done with- out committing the Commission to a hard and fast rule, but has been applied in the exercise of its best judgment to do as far as possible equal and exact justice in all cases." What has been said of the special-franchise tax applies also to the general-property tax, especially to the tax upon personal property. Assessments are always a matter of judgment, often presenting the widest latitude for difference of opinion. The fatal uncertainty of the tax on personal property is too well known to require fui*ther explanation or emphasis in this report. Arbiteakixess. — A sound tax system will not be arbitrary, except as required by the necessities of effective administration. Arbitrariness means inequality and so defeats the requirement of justice. Arbitrariness is the natural result of uncertainty, as has been shown by the example of the special franchise tax. Arbitrariness may also occur in the statute itself. The general- franchise tax on steam railroads and certain other transporta- tion corporations and on telegraph and telephone companies is a case in point. The tax is based on the par value of the capital stock. Xow par value may agree with the real value of the capi- tal or it may not. Generally par value is meaningless as an index of either the book value or the market value of the invest- ment. This fact is recognized in the statute, where the tax rate is made to depend also upon the dividend rate, the relation be- tween assets and liabilities, and the market value of the stock. This is at best a clumsy attempt to put meaning into the tax on capital stock, to correct an arbitrary method by means of arbitrary refinements. The result can scarcely be called a suc- cess from the standpoint of equitable taxation. The present taxes on dividends are based on no logical prin- ciple. Corporation taxes are to be regarded either as an impost 99 upon the corporation as an entity or as a means of indirectly taxing the stockholders. Most of the existing taxes embody the former idea. On the other hand, the taxes on dividends, which form part of the franchise taxes on electric, elevated and sur- face railroads and water, gas, and electric companies, involve the principle of a tax upon the stockholders. There is no excuse for a tax on dividends, if the purpose is to tax the corporation as such. In that case such a tax should be imposed on all cor- porate profits, whether distributed in dividends or not. On the other hand, if the purpose is to tax the stockholders upon their income from investment in public-utility corporations, the present taxes on dividends are a very crude device. The correct means to this end is the individual income tax. !N"ew York now has the individual income tax and there is no longer any excuse for the collection of taxes on coi-porations based on dividends declared or paid. Lack of Simplicity. — An important feature of a good tax system is simplicity. The extraordinary complexity of the New York tax on public utility corporations is obvious from the most cursory survey. It is indicated by the mere abstract of the laws given above.^ It is emphasized by the criticisms which have * The following extract from the law speaks for itself: Franchise Tax on Corporations. — For the privilege of exercising its corporate franchises in thia state every domestic corporation, joint-stock company or association, and for the purpose of doing business in this state, every foreign corporation, joint-stock company or association, shall pay to the state treasurer annually, in advance, an annual tax to be computed upon the basia of the amount of its capital stock, employed during the preceding year within this state, and upon each doUar of such amount. The measure of the amount of capital stock employed in this state shall be such a portion of the issued capital stock as the gross assets employed in any business \vithin this state bear to the gross assets wherever employed in business. For purposes of taxa- tion, the capital of a corporation invested in the stock of another corporation shall be deemed to be assets located where the physical property represented by such stock is located. If the divi- dends upon the capital stock amount to six, or more than six per centum upon the par value of the capital stock, during any year ending with the thirty-first day of October, the tax shall be at the rate of one-quarter of a mill for each one per centum of dividends made or declared upon the par value of the capital stock during said year. If such dividend or dividends amount to less than s« per centum on the par value of the capital stock, and (1) The assets do not exceed the liabilities, exclusive of capital stock, or (2) The average price at which such stock sold during said year did not equal or exceed its oar value, or . (3) If no dividend was declared, f^'^iX- - 1 Then each dollar of the amount of capital stock employed in this state, determined as hereinbefore provided, shall be taxed at the rate of three-fourths of one mill. If such dividend or dividend* ^"l^V^r^u^ * ^*^ ^^ centum on the par value of the capital stock, and .u'^^L ® assets exceed the UabiUties, exclusive of capital stock, by an amount equal to or greater than the par value of the capital stock, or (2) The average price at which such stock sold during said year is equal to or greater than th» par value. Then the amount of capital stock, determined as hereinbefore provided to be employed in thia state, shall be taxed at the rate of one and one-half mills on each dollar of the valuation of the capital stock employed m this state, but such valuation shall not be less than (1) The par value of such stock, (2) The difference between the assets and liabilities, exclusive of capital stock, (3) The average price at which such stock sold during said year. If such corporation, joint-stock company or association shall have more than one kind of capital Btock, and upon one of such kinds of stock a dividend or dividends amounting to six or more than BIX per J'entum upon the par value thereon, has been made or declared, and upon the other no dividend has been made or declared, or the dividend or dividends made or declared thereon amount to less than six per centum upon the par value thereof, then the tax shall be at the rate of one- 100 already been made. The general-franchise tax upon steam rail- roads, etc., with its complicated system of rates on capital stock varying according to dividend rates, relation of assets and liabil- ities, and average price of stock sold, furnishes a fine example of failure to secure simplicity. The complexities of the special-franchise tax have been exposed in the criticism already made upon that tax. The lack of simplicity in the general-property tax is well known. It arises in part from the difiiculties inherent in the assessment of the complicated properties of the pulblic-utility corporations. In part it is the result of local administration. A great railroad sys- tem or telegraph company is taxed on odd bits of its tracks or lines in hundreds of tax districts. Its officers must keep track of thousands of different assessments and thousands of different levies at as many different rates. It receives thousands of dif- ferent tax bills for amounts varying from thousands of dollars down to a few cents. An enormous burden, quite in addition to the actual amount of its taxes, is thus placed upon the larger pub- lic-utility corporations. The 'New York system is the result of historical growth. There is no logical necessity for such lack of simplicity. No tax ought to be so complicated as the general-franchise tax on steam rail- roads, etc. There is no need of so many different taxes or so much difference between the several classes of corporations. The lack of simplicity is a heavy burden upon the taxing officials. It is a burden and a source of annoyance to the taxpayers. It defeats equality and justice. The Cost of Complexity. — There is an important aspect of complexity which is often overlooked. The unnecessary cost of administering a tax is a dead loss. In return for taxes paid the citizens presumably receive governmental services. But it is only Quarter of a mill for each one per centum of dividends made or declared upon the capital stock upon the par value of which the dividend or dividends made or declared amount to six or more than six per centum, and in addition thereto a tax shall be charged upon the capital stock (1) Upon which no dividend was made or declared, or (2) Upon which the dividend or dividends made or declared did not amount to six per centum upon the par value, , . . . , , v v j- -j j At the rate as hereinbefore provided for the taxation of capital stock upon which no dividend was made or declared, or upon which the dividend or dividends made or declared did not amount to six per centum on the par value. u n l x j • All corporations not taxable under the preceding paragraphs of this section f naU be taxed m an amount not less than would be produced by an assessment of one and one^half miite on each one dollar of the actual value of its capital stock, determined to be employed in this state as herem- before provided, or one and one-half mills upon each dollar of such capital stock at the average price at which said stock sold during the said year. {Tax Law, art. 9, § 192.) 101 the net proceeds of a tax which enable the government to perform its services. The burden of a tax is measured by the amount taken from the taxpayers. The benefit is measured, at best, by the net yield of the tax to the government. The difference between these amounts is the cost of administration. A certain cost is of course unavoidable. But any excess above the necessary minimum is a dead loss. A century and a half ago Adam Smith, in his now famous maxims of taxation, made this statement : " Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state."* The more compli- cated the tax, the greater is the cost of administration. There can be no doubt that the simplification of the taxes on public-utility corporations would materially reduce the dead loss of taxation in New York and make possible either increased service from the government or a reduced burden on the taxpayers. The dead loss from taxation appears not only in the excessive cost to the State. It is just as truly represented by the burden of time and expense imposed upon the taxpayer in complying with com- plicated tax laws. The labor of keeping special accounts, of filling out complicated forms, of deciding doubtful points in the interpre- tation of the facts or of the law, of contesting assessments, etc., etc., necessitates an expenditure for clerical force, accountants, tax experts, and attorneys, which is a very serious burden to many corporations. In order to secure some indication of what this means to the public utilities of the State, the committee sent a questionnaire to the companies asking for an estimate of the expenses involved in paying their taxes and contesting their assessments. The detailed results of this inquiry are given in Part II of this report. f It is obvious that, due to difficulties of accurate segregation, the expenses as reported contain a considerable margin of error. In general it appears that, for 330 out of a total of 1,628 corporations circularized, the total annual expenses involved in paying their taxes aggregated no less than $256,868. In addition to this, 9S companies reported an annual cost of contesting assessments of * Wealth of Nations, Book V, chap. 2. t Cf. infra, p. 173 et seq. i r • 102 $109,917. Of the total, $366,785, 48 per cent represents costs con- nected with the special-franchise tax. Whatever can ibe done to introduce simplicity into the tax sys- tem will relieve the taxpayers of what has become a very material business expense and will by just so much reduce the dead loss burden of taxation. In conclusion it can be said that the only parts of the present system which do not possess in full the faults of uncertainty, arbi- trariness, and lack of simplicity are the gross-earnings taxes which appear (a) in the additional-franchise tax on steam railroads, cer- tain other transportation corporations, and telegraph and telephone corporations, and (b) in the franchise taxes on elevated and sur- face railroads, not operated by steam, and water, gas and electric companies. These taxes are certain and simple. They are not altogether free from arbitrariness, in that they are not closely related to the tax-paying ability of the corporations, which is best measured by net earnings. They are also defective in being limited to earnings from business or sources within the state and taking no account of interstate business. This is not a very serious defect in the case of the greater part of the electric elevated and surface railroads and the water, gas and electric companies, most of whose business is in the S'tate. In the case of steam railroads and telephone and telegraph companies, however, it means that New York is by no means reaching her fair share of the total gross earnings. The present gross-earnings taxes are good so far as they go. They serve a purpose now as supplementary taxes. They are based upon a principle which, when properly extended, and with certain modifications, might furnish the basis for an improved method of taxing all public-utility corporations.* Results of the statistical inquiry.— In addition to the defects of uncertainty, arbitrariness and er Number Number Less cent to cent to cent to cent to r^at to in showing than 50 99 per 149 per 249 per 299 per 64 » per class deficit per cent cent cent cent cent cant Class* ^ 112 3 * 2 1 g 27 8 10 4 1 3 1 C 19 11 4 1 2 1 Total 56 22 18 7 4 1 3 T * Class A corporations are those with operating revenue $1,000,000 or over. Class B those T ci^*i)2f revenue from $100,000 to SI, 000,000. Class C those with operating rever.,:-^ less Inequalities similar to those prevailing within this gTi>up, though less pronounced, are found in every other group of public- service corporation. For the purpose of comparing the burden of present taxes upon different classes of public-service corporations, average rela- tions for each of the chief classes have been established. The following table presents the results of a comparison in which the total taxes paid by a representative list of corporations of eacli type have been expressed as percentages of the total net income of the same corporations. This comparison relates only to cor- porations operating at a profit. TABLE 15 Ratio of Aggregate State and Local Taxes to Aggkegate INet Income, Public Sekvice Corporations Operating AT A Profit. Rati,> of tax^^fl to net income (expr^Awd Number of as a -., ,_ corporations percentage Class of Utiutt included relati ju) Steam railroads g7 27 .*? Electric railways !!.*!!!!!!!!! 84 44 ^^ Telephone and telegraph !.!!!!!..!!!!!!!! 62 H S Gas and electric .'.*.'.',*.*.'.'.*.' 97 23 That public utilities as a group pay a larger percentage of their net income in taxes than any other class of corporations djing \ J .4 • 105 business in the State is clear from this comparison. In part, this burden is heavier because of the fact that, from the very nature of the services rendered, more real property is employed by this class of corporations than by business corporations gen- erally. The figures given indicate, also, how pronoumced are the inequalities between the different public utility groups. At one extreme stand telephone and telegraph companies, paying 16.fi per cent of their net income in taxes, while at the other extreme stand the electric railways. Those included in the sample studied paid an average of 44.4 per cent of their net income in taxes. Many of these companies, bound by a fixed low rate of fare, have been literally taxed into bankruptcy. TABLE 16 TiATio OF Aggregate Local Taxes (Special Franchise and General Property, to Aggregate IN'et Income Tuhlic Service Corporations Operating at a Profit, 1911-1920 (Excluding corporations showing a deficit) Ratio of aggregate local taxes (special franchise and gen- eral property) to net income (ex- Number of corpora- tions includea pressed as a per- centage relation) 87 34 62 34.60 38.05 12.10 4.5 19 15 18 21.0 24.6 22.9 10.3 97 20.50 Class of Utility SteaiJi railroads Eleotric railways Telephone and telegraph Gas and Electric: £Jectric light and power Gas and electric (combined) . . . . , Gas (manufactured) , Gas (natural) Total gas and electric Similar inequalities are found in the matter of State taxes, though the absolute amount of these taxes is much smaller. The ratio for steam railroads is materially smaller than tliat for electric roads, with the other two groups standing between these limits. Figures which have been presented in the earlier pages of this report have indicated the burden of state and local taxes oif manufacturing corporations and banking institutions. It is obvious that, if net income be an appropriate standard by wbich * For the purpose of this comparison, taxes on intangible elements in special franchise values are • lassed with non-property taxes. The burden of these non-property taxes is shown by the tal:t on page 260 of Part IL n^ I i 106 to measure tax burden, the weight of taxes on public service cor- porations is very much heavier than on the other corporate gi'oups. This difference is, in part, accounted for by the relatively greater importance of real property in the operations of public utilities, but inequalities persist after property taxes have been eliminated and the comparison is made solely on the basis of non-property taxes. On this latter basis, only steam railfoads pay less than the 4.5 per cent of net income paid by business corporations. Every other utility group pays more in these strictly non-property taxes* than business corporations. The present system of taxing public service corporations must be evaluated in the light of these facts. What parts of the present system may be discarded? — The most significant feature of the present situation in American state and local taxation is the breakdown of the time-honored general-property tax, by which is meant the ad valorem tax at a uniform rate on all property, real and personal. The State of Xew York has already recognized this situation and has gone further than perhaps any other state to meet it.* Some of the worst features of the existing taxes upon public-utility coi-pora- tions are relics of the old general-property tax. The Special Fkanchise Tax. — This is true of the special- franchise tax. This tax at one time played a useful role. As is well known, it was devised two decades agof in order to correct a defect in the then existing statutes relating to the taxation of public-utility corporations. In !N"ew York debts were deductible from personal property, but not from realty. Certain corpora- tions with large bonded debts thus paid very little tax upon their personal property. The special-franchise tax provided for the valuation of corporate rights in the public streets, highways, etc., and declared such property to be real estate. It was thereafter not possible to deduct debts from this class of property. A method which was legitimate under the old system of the general-property tax is no longer defensible under the changed conditions both fiscal and economic. There is perhaps no single element in the whole system of taxation which has given rise to more vexation * Cf. infra, p. 20. t Cf. historical section above, supra, p. 94, et seq. 1\ ;t .. -^^ 107 than the special-franchise tax, and yet it has yielded such large revenues that it has been impossible thus far to abolish it. The time has now come when this entire tax should be reconsidered. The classification of special-franchise values as real estate means that these values have been in large measure pledged for bond issues by the localities. The subtraction of these values from the local tax basis would embarrass many of the localities because of the constitutional restriction on local debts which is expressed in terms of a percentage of taxable real-estate values. If the yield of a reorganized tax on public-utilities is divided equitably with the localities, the tax law would involve no real diminution in the resources lying back of the bonds. The rigid form of this constitutional debt limitation is the chief technical bar to an immediate and complete reform of public-utility taxa- tion, and the Committee recommends that a constitutional amend- ment he submitted, not increasing the debt limit by a set i^t- centage, but providing that the taxation of public utilities under an improved state system, in the yield of which the localities iviU share, shall not operate to diminish the borrowing power of the localities. When this difficulty is removed the committee believes that the special-franchise tax should be entirely abandoned. The State Fraxchise Taxes. — The State franchise taxes do not deser\'e a place in a reorganized system of public-utility taxes. The defects of the general-franchise tax on steam railroads, other transportation corporations (except elevated or surface railroads not operated by steam), and telegraph and telephone corporations have been pointed out. The tax is uncertain, arbitrary and com- plicated. A better method of taxing these corporations can cer- tainly be devised. The tax on dividends, which is included in the franchise tax on electric elevated and surface railroads and water, gas, and electric companies, has likewise been shown to be faulty. It can no longer be defended as a means of taxing the stockholders upon their dividend income. As a means of taxing the corpora- tions it is clumsy and inequitable and should give place to a better method. The gross-earnings taxes, in their present form, could scarcely stand alone after the abolition of the other parts of the franchise tax. If the principle of the gross-earnings tax is to be 108 continued it shonld be as the basis of a broad tax applying to the State's share of interstate business as well as to purely state business and applying to all public utility corporations. The Tax on Tangible Personalty. — New York has recently done away with the vexations and inequitable tax on intangible personalty, thereby removing the worst feature of the general property tax. There remain, however, certain kinds of tangible personal property whose taxation is only less futile than that of intangibles. This is generally true of the tangible personal property of the public-utility corporations. The value of such property has little relation to the ability of the corporation to pay taxes. The assessment of such property involves all the evils of uncertainty, arbitrariness, and lack of simplicity which have been pointed out. With the adoption of a sound general basis for the taxation of public-utility corporations, the necessity of any tax upon their personal property will disappear. Such taxation may then be abandoned, to the immeasurable advantage of all parties concerned. The Tax on Real Estate. — There ought to be left to the localities the income from the tax on the real estate of public utili- ties. What should be included under the term real estate should be carefully considered. Certainly non-operative real estate ought to be taxed as other real estate and probably the operative real estate (strictly defined) as well. To define real estate is by no means easy. However it is proper here to call attention to the way in which the definition of real estate has been broadened by past legislation so as to include certain classes of property of pub- lic utility corporations which would appear to be more correctly classified as personal property. A revision of the definition of real estate, bringing it nearer to its former content, would be conduc- ive to better taxation of that which undoubtedly is real estate. There are very good reasons in the cases of many types of utility real' estate why the real estate should be assessed by some central authority which would distribute to the localities the valu- ation of the property, arrived at as a unit. Some modification of the "unit system" is logically necessary, a modification which would stress the alternative use test and not attempt to value the « • 1 i 109 real estate on the basis of the profits of the company. A method* is suggested by the success of the plan now in operation whereby the State Tax Commission provides professional engineering assistance to local assessors in arriving at the values of certain types of manufacturing plants. It is possible that the desired end might be obtained if the Tax Commission were to be empowered and directed to value such properties as the real estate in the right of way of railways and to recommend to the localities the adoption of the values so determined, as the local assessed values. It is almost certain that these " recommended " values would commend themselves to the local assessors. The Committee recomme^ids that the Tax Commission he supplied with a smxill force of skilled engineers which wUl enable it to recommend the values at which the property of public utilities shall be assessed. Conclusion. — In conclusion it appears advisable (1) to aban- ^ don the state franchise tax, including the additional-franchise tax on steam railroad, certain other transportation companies, and telegraph and telephone companies, retaining, under one alter- native, only the gross receipts tax in an altered form; (2) to find a substitute for the special franchise tax; and (3) to simplify the general property tax by (a) refining the definition of real estate, (b) giving up the taxation of tangible personal property, and (c) providing for technical assistance in arriving at the values of specialized types of real estate. A plan for the taxation of public utilities. — It appears from the results of the statistical inquiry that the public-service cor- porations as a whole are certainly contributing no less than their full share of the cost of government as compared with other classes of corporations. Indeed, when measured on the basis of net earn- ings, each group of public-utility corporations except the steam railroads appears to be paying much more than its share. The needs of the state and the local bodies, however, are such that it is questionable how much immediate relief can be extended by way of reduction in the amount of revenue collected from the public- utility corporations. Much depends, of course, upon what dis- position the Legislature makes of the other recommendations of s- perity. There is a strong tendency in this direction. The gen- eral-property tax has become practically a tax on real estate 0!iU\ The center of gravity of the revenue system is rapidly moving: to the side of net income and net earnings taxes. There is danger that the State may iind itself dependent upon an irregular in- come, too great in some years and insufficient in others, and that the property tax may not be elastic enough to stand the strain of the lean years. The situation can be met in part by the device of averaging the net income as recommended above in the case od: banks.* It is this consideration that dictates caution in going over completely to the net earnings basis. It is clear that in spite of the attractions of the proposal to bring all corporation taxes into harmony with the present tax on business corporatir^ns a certain amount of caution is desirable. Gkoss-net Tax Eecommended. — Taking into consideration all the circumstances, the committee believes that it is wise to recom- mend, as an immediate step, the adoption of a tax on 'public utili- ties hosed on the elements of both gross and net income, which will replace the present series of state taxes and be articulated with the special franchise tax so long as it remains in existence, replacing it entirely after the passage of the proposed constihi- tional amendment. \ Such a tax would possess the advantages of certainty, simplicity and equity. It offers a method of insuring a permanent, stable revenue as well as a means of weighting the burden against the more prosperous companies. The precise form of:J: gross-net tax which the committee con- siders best suited to the situation is one which imposes a varying rate on gross earnings, the variation in rate depending upon the relationship of net to gross, the companies paying higher taxes as their profits increase and lower taxes as they decline. * Supra, p. 90. t Cf. supra, p. 107, i For details, consult the text of the proposed law, infra, p. 371. I 117 Eelationship of Proposed Gkoss-xet Tax to Special-fkax- CKTSE Tax. — For reasons explained above it is impossible to abolish the special-franchise tax at once.* The practical effect of this is that immediate relief to any company under any plan wiiich the Committee may devise is limited to the amount of the taxes which it pays at present in excess of the amount of its special franchise tax. In order that the process of equalization as between companies be carried as far as possible at once the Committee suggests that the rates of the gross-net tax be made sufiieiently high to produce the total amount desired from the utility and that any payments made to the localities on account of special-fran- chise taxes paid be offset against the gi'oss-net tax due the State. Thus a company whose special-franchise tax exceeded the amount of its gross-net tax would be called upon to pay nothing to the State, and a comj^any who^e special-franchise tax amounted to less than the gross-net tax would pay to the State the amount of the excess only. An additional advantage of this plan is that it solves, during the period of the continuance of the special-franchise tax, the troublesome problem of the division of the yield of the tax between state and the localities. The localities would continue to receive precisely the taxes they are now receiving, f Definition of gross and net income.— The Committee su^- gett that gross earnings be defined as all receipts from the of>cration of a public-utility and that net earnings be defined as net earnings from the operation of a public-utility after deduction of operating expenses and taxes assignable to operation except sp^^ial-franchise taxes in this state or the gross-net tax itself. The Committee has no definite suggestion to make at this time concerning the treatment of non-operating income or concerning the special taxation of holding companies. While it is true that the subsidiaries of a l^ew Yoik: holding company are taxed where ' located, it seems clear that the holding company itself is transact- ing business in Xew York when it maintains a central staff for purchasing, accounting and legal purposes. Any attempt to isolate the holding company profit from the profits of the subsidiaries and to allocate such holding company profits among the various states * Fupra, p. 107. t For a consideration of the general problem of the apportionment of State revenues to the lOf&mies, Cf. tnfra, p. 168. lis is confronted with very serious difficulties. There are no pre- cedents in other states to guide action here. It is preeminently a Xew York problem. Careful consideration must be devoted to it in the immediate future for the holding company device is susceptible of use as a method of avoiding taxes in which net income is a factor. Illustrative rates of the proposed gross-net tax.— The precise rates to be applied would be determined by a immber of con- siderations including the financial necessities of government after the adoption or rejection of the committee's various recommenda- tions and the disposition of the Legislature to relieve those com- panies which are under especially heavy burdens, or to refrain from continuing to use the utilities as " tax collectors." The Com- mittee suggests that the following schedule of rates will yield approximately the amounts now collected from the public-utility group with a consideraby improved result from the point of view of equity: Every company shall pay an annual tax which shall be based on gross earnmgs and which shall be the percentage of gross earn- ings fixed herein : (a) When it has no net earnings or its net earnings do not exceed 5 per cent of its gross earnings — 1 per cent ; ^ (b) When its net earnings exceed 5 per cent of its gross earn- ings but do not exceed 10 per cent — li/4 per cent ; (c) When its net eaniings exceed 10 per cent of 'its gross earn- ings but do not exceed 15 per cent — 1% per cent ; (d) When its net earnings exceed 15 per cent of its gross earn- mgs but do not exceed 20 per cent — 13^ per cent; (e) When its net earnings exceed 20 per cent of 'its gross earn- ings but do not exceed 25 per cent — 2 per cent; (f) When its net earnings exceed 25 per cent of its gross earn- ings but do not exceed 30 per cent — 2i/4 per cent ; (g) When its net earnings exceed 30 per cent of Us gross earn-' mgs but do not exceed 35 per cent — 21/^ per cent; (h) When its net earnings exceed 35 per cent of its eross earn- ings but do not exceed 40 per cent — 234 per cent ; (i) When its net earnings exceed 40 per cent of its jrross earn- mgs— 3 per cent. Calculations by the staff of the Committee indicate that these rates will produce about $350,000 less than the taxes collected from public utilities at present. Railroads as a group, which were found to be taxed at a relatively low rate as compared with 119 other groups, would pay substantially moi-e and all the other classes of public utilities would pay slightly less. Interstate apportionment.— The taxation of corporations upon their earnings involves the apportionment to the State of it* proper share of the earnings of those coi-porations which are engaged in interstate business. This is required by common justice as w^ell as by constitutional restrictions. There are various possible methods of apportionment, some highly exact and cor- respondingly complicated, others extremely simple though at the expense of a certain degree of arbitrariness. Thorough study of this subject by other commissions and authorities* appears to have demonstrated that the very gi-eat advantages of simplicity may be obtained without any serious sacrifice of equity by the adoption of some simple, ar'bitrary basis for each class of cor- porations. For steam and electric railroads the most satisfactorv basis is all-track mileage. A part of the total earnings of each corpora- tion is apportioned to the State, the ratio of such part to the total earnings being the same as the ratio of all-track mileage within the State to total all-track mileage within and without the State. This is a fair measure both of the property and of the business properly to be assigned to the State. For telegraph companies and long-distance telephone companies the best basis of apportionment appears to be wire mileage. For telephone companies doing an exchange business, the number of trans- mitters (stations) is the obvious measure. For any other class of corporations it will not be difficult to discover some simple basis appropriate to the business of the corporations in question. These methods have been used for years in a number of States. They have proved simple and effective in administration, equi- table in their results, and their constitutionality has not been shaken, ^ote the experience of Connecticut in the taxation of telephone and telegraph companies, express companies and car companies since 1913 and railroads and street railways since 1915. c^.^^.^V^^. ofConn^icutSpecia '.Commisston on Taxation of Corporations Paving Taxes fo ihe State, 1913; also F. R Fairchild. " The Principle of Equity in the Taxation of Foreign Corpora- tions, froceedmga Second Pan-American Scientific Congress, Dec. 1915-Jan., 1916. 120 By allocating thus to the State its proper share of earnings, it becomes possible to take account of all earnings, interstate as well aa intra-state, and thus to arrive at the true measure of the tax-paying capacity of the corporation. The foregoing discussion of apportionment relates, of course, only to operating earnings.* Fluctuation of revenue. — Earnings taxes have a tendency to tluctuate according to the prosperity or adversity of the tax- paying corporations. This is one of their merits from the stand- jx>int of the taxpayer. Too great a dependence, however, on such taxes might jeopardize the stability of the revenue system, upon which both State and localities depend to such an extent. The use of the gross-net tax in the foi-m suggested above will go far to reduce fluctuations in revenue but they can be still further restricted by resorting to the method of averaging the earnings discussed above. f The Taxes on Private-Car Companies A subject which, while not of great importance quantitatively, has been the occasion of considerable practical difficulty in this State is the prop^* taxation of private-car companies. Such com- panies exist in several different forms, ownership and operation l>eing distributed between organizations in a variety of ways, making it difficult to draw the line between those companies which may be properly classified as public utilities and those which may not. The Committee i-efrains from making specific recommenda- tions regarding the taxation of private-car companies because it believes that the problem demands more elaborate study and in- vestigation than it has been possible to devote to it thus far. In general, however, the Committee l^elieves that such companies as are operating cars between fixed points for the accommodation of the public are certainly to be classified as public utilities and suljjected to the public-utility taxes. At present operating private- car companies are subject to tax under section 182 (capital stock tax) and section 184 (gross earnings tax). On the other hand the type of company which o\\tis private cars but does not operate *;C/. supra, p. 117. t Supra, p. 90. 121 them, merely leasing them to others for use, seems to the Com- mittee to fall properly within the class of corporations subject to taxation under section 9a, the income tax on business corporations, whenever they can be construed to be '' doing business'' in this state. This accords in general with present practice, but there appears to be need for making the application of section 9a more specific in this respect. The real difficulty arises in connection with companies which neither operate nor have an office in this State but which own cars, leased to others, which are operated by lessees within the State. SHich companies apparently cannot be reached under sec- tion 9a because they are not considered to be "doing business" ^\^thin the State. It should be possible to devise a more satis- factory plan than that at present in force for taxing such com- panies on a iwrtion of the value of their equipment allocated to this State on some equitable basis but there appears to be serious question as to whether this could be done if the Committee's rec- ommendation regarding the total exemption of personal prop- erty is adopted.* The yield from such a tax would be insignificant in any case. The Franchise Tax on Income of Mercantile and Manu- facturing Corporations ^ The rate of the tax.— The results of the statistical investi ja- tionf plainly show that manufacturing and mercantile corpora- tions are in a relatively favorable position as compared with fin- ancial institutions and public utilities. The equalization of the tax burden involves some relief to real estate and to some classes of public utilities. The Committee believes that the burdens now resting on these interests should be equalized and therefore recom- mends an increase in the rate of the franchise tax applied to the 7iet income of business corporations (Section 9a of the tax lavj) from four and one-half to six per cent. As has already been explained, it is quite possible that the Stat© will be unable to tax the income of banks at a higher rate than that applied to the income of these mercantile and mannfac- * Cf. supra, p. 46. t Cf. supra, pp. 82 et seq., 102 et seq; infra, pp. 183 et seq., 196 et seq. 122 123 turing companies. This will certainly be tru^ if the bankers have their way regarding the form of the amendment to section 5219 of the United States Revised Statutes * In this case the failure to increase the rate of the Emerson Act would also result in re- lieving the banks of a substantial portion of the taxes which they at present pay — taxes which are fair in amount and which occasion no complaint. It should be borne in mind also that a reduction in the rate of the real estate tax which would be made possible by the increased rate of the corporation income tax would be in itself a relief to businesses owning real estate. The form of the tax.— K'o fundamental change seems desir- able at this time in the form of the tax on the income of mer- cantile and manufacturing corporations. If the implications of one of the recent decisions of the SHipreme Court of the United Statesf are carried out in later decisions the State may find the " franchise " character of the tax an insufficient justification for the present practice of taxing such items as interest on federal securities, but this situation has not yet become urgent. Several relatively slight modifications appear desiraWe at this time. Deduction of net losses of other taxable years.— At present the law (.Section 208-3) specifically forbids the deduction of " any losses sustained by the corporation in other fiscal years whether deducted by the government of the United States or not.'' In the new Revenue Act of 1921 the federal government takes a long step in the direction of wiping out the hard and fast line which has in the past been drawn between accounting periods. ^ Within certain limitations, the new provision permits net losses incurred in one year to be offset against profits realized in succeeding years. This seems to the Committee to be an eminently fair provision and one which should be carried over into the State procedure. It recommends that the net lo^s ^provision of the Federal Revenue Act of 1921 he recognized in arriving at the net income of cor- porations taxed under Section da of the State Tax Law.X The apportionment of interstate income.— The present rule of apportionment for dividing the net income of corporations t Giikspi^v.' Oklahoma, U. S, Supreme Court. Jan. 3D. 1922. i Cf. supra, p. 76. / doing business in other states as well as in this State has been the object of sharp criticism, much of which, in the opinion of the Committee, is justified. The rule, now in use, divides the income on the basis of the relationship of the value of the corporation's property in ISTew York to the value of its property everywhere, the precise character of the property entering into the formula being carefully defined. The proper allocation of income from interstate income is one of the most difficult and complicated problems in the whole field of State income taxation. It is, moreover, highly important to the corporations that the allocation mles of the various states imposing income taxes be consistent and uniform in order that, in the aggi-egate, not more than 100 per cent of their income be subjected to taxation. It is important that the rules be just and equitable in order that not more of their income be taxed by a state which has high income tax rates than is properly attributable to that state. As the situation now stands there is a great lack of uniformity among the rules of the various states and an obvious lack of equity. Thus, under the present rules, a corporation manufacturing an article in Connecticut and selling it in I^orth Dakota would be taxed upon its entire net income in both states, Connecticut taxing it all on the ground that the tnie source of the income is the factory and Xorth Dakota taxing it all on the theory that the place of sale determines the true source. As a practical matter, it is, of course, quite out of the question to attempt in individual cases to trace resix)nsibility for profits to particular elements of a business organization or to the activities of particular agents of the business — to the superior quality of the equipment in the factory, for example, or to the cleverness of a particular purchasing agent or sales manager. Business profits cannot ordinarily be accurately traced back to their precise sources in the organization. On the whole the sound view to take is that the net income is the result of the functioning of the entire organization. The selection of merely one element such as property or sales as a basis for apportioning net income is inadequate because it involves the assumption that this element alone is responsible for the production of net income. What is 1 \ 1 '! 124 really needed is a comprehensive formula which includes all of the elements which contribute to the production of the income. Although it is obvious that this is a problem which is not susceptible of a precise solution, the National Tax Association has considered it of sufficient importance to justify the appointment of a special committee. This committee has not yet completed its deliberations but its conclusions on the main issues involved con- stitute a most important contribution toward the solution of the difficulty. It offers a plan of apportionment and a formula which in the course of time may be expected to become standard among the states which impose income taxes on business profits. This proposal has 'been stated by the chairman of the committee* in the following language: First. Specifically allocate any and all income received from intangiWe properties owned by the taxpayer. (It is thought that in most cases income of this character lends itself easily to specilic allocation). Second. When desired by the taxpayer and approved by the tax commission of the interested state, to allocate specifically the profits arising from business transacted in the state concerned. It is not uncommon to find, under present-day conditions, that taxpayers engaged in business in more than one state so coiid:»ct their books and records as to reflect accurately profits actua;lly derived from business operations conducted at their various branches, and, if the taxpayer desires and the commission approves specific allocation under such circumstances, it is thought iu all probability more accurate results will be obtained than through any fixed formula which may be adopted. Third. In the event that the second option is not practical, then to apportion the income as follows: First, divide the remaining income in two equal parts and appor- tion the one-half thereof in accordance with physical properties. You will note that this excludes intangibles, including bills and accounts receivable. Xext, apportion the second half of the remaining income ba^ed on business activities. The cycle in any business measuring * Mr. C. S. Lamb, of Pittsburgh, in a letter dated Oct. 13. 1921. "V I I V 125 its business activity consists first of purchase j second, wages, galaxies, etc. paid in work upon or development of goods so pur- chased; third, sales. We, therefore, suggest that the business activities be measured by the sum of purchase, pay roll and sales, using, of course, in both cases as the numerator that which applies to the interested state, and as the denominator the total of the taxpayer wherever it may occur. There was objection in the committee to the add- ing together of the property and of the sales or any other factors representing business activities, as by so doing it was thought that too much weight would be thrown either to the one or to the other, depending upon whether the business transacted had a quick or a slow turnover. It was further felt that this formula has the advantage of presenting a fair division between manufacture and sales when both are conducted by the same company and that the fairness of such an arrangement would appeal to state l^islatures and those interested in the tax problem, — in other words, that there is a fairly good, strong point for the adoption of this formula by states that may hereafter consider the adoption of a state income tax. Fourth. Should a taxpayer feel that the application of the formula as set forth under " third " unfairly burdens him with taxation, upon application to the tax commission and a proper showing of such facts, the tax commission may make apportion- ment on any other basis that may seem to him fair and reasonable, with the proviso, however, that in no event shall the amount so determined be in excess of the amount developed by the formula. Fifth. That the right of appeal, to review de novo, by the courts shall not be denied the taxpayer. It has been necessary for the committee to consider this problem of apportionment in connection with the proposed tax on the income of unincorporated businesses as well as in connection with the franchise tax on corporate income. It seems desirable that the apportionment formula be the same for both taxes. The committee later urges* that the plan as outlined above be adopted for the unincorporated business tax and it here recommends thai • CJ. infra, p. 129 . 126 127 i the present apportionment formula in section 9a of the tax law he broadened so as to take into account the elements included in the plan suggested hy the committee of the National Tax Association, The Taxes on Unincorporated Business The present situation. — When the Emei-son Act was passed in 1917, imposing an income tax on business profits, its scope was restricted to corporations doing business in the State. Business conducted by single proprietors or by partnerships continued to be taxed under the old general property tax. In other words, all businesses paid taxes on their real estate, but, whereas corporations paid a tax on their net income, unincorporated businesses paid a tax on their stock-in-trade. The personal income tax, passed in 1919, included within its scope the dividends of corporations, even though such corporations were taxed on their income by the State. This clearly established the Emerson Act as a purely business tax. Profits of individuals in business by themselves or as partners were taxed merely at the personal income tax rates. Granting that real estate taxes should be placed in a separate category,* the comparison then lies between the 4^2 per cent tax on the net income of corporations subject to tbe revised Emerson Act on the one hand and the tax on stock-in-trade of unincorporated businesses on the other. The lack of correlation between stock owned and profits earned is fully appreciated by everyone familiar with the conditions of modem business so that the theoretical inadequacy of a tax on stock-in-trade as a measure of the tax-paying ability of business would be granted without argument. But in addition, according to the information received by the Committee, the tax on stock- in-trade is wretchedly administered with tbe result that it is almost a dead letter on the staitute book. Consequently unincorporated business as a whole escapes with practically no business tax whatever. Effect of the federal taxes on business profits. — The Com- mittee is fully aware that the present federal income tax operates in a capricious and inequitable manner as between the various types of business organization and that this complicates the * Cf. supra, pp. 56-57. IState's problem. After Januaiy 1, 11)22, the federal excess profits tax no longer appxics to the income of corporations. Alter that date the federal income tax on corporations becomes 121/2 per cent on their total annual profits while corporate dividends, if and when distributed, are exempt from the normal tax, of 4: and 8 per cent, which individuals are called upon to pay as a part of their contribution. This dilterence in rates between the 121/2 per cent corporation tax and the 4 and 8 per cent individual normal rate is supposed to be roughJy equivalent to the advantage the corporation enjoys of postponing indefinitely the distribution of its profits in the form of dividends, thus postponing the taxa- tion of these profits at the high individual surtax rates. The equivalence, however, is exceedingly rough and the point has been urged before the Committee that in spite of this difi:erence in rate, the federal law really puts the unincorporated business at a disadvantage as compared with the business operating as a corpora- tion, thus making it unwise for the state to place further burdens on unincorporated business. With respect to this the Committee feels, first, that the case has not been completely proved — that in manv cases the federal law discriminates against the corpora- tion rather than in favor of it. But more important than this, the Committee does not see the force of the contention that the failure of the federal government to work out a satisfactory solu- tion of its problem precludes this State from setting its own house in order. We are convinced that we shouM make our State system consistent and equitable as an independent system and not make it a mere appendage to an imperfect federal system, designed to supplement it and to relieve its inequalities. We believe that an unincorporated business tax is needed in this State as a fundamental part of the tax system. Tax on the income of unincorporated business recommended. — The Committee recommends that a reasonable tax he imposed upon the net income of unincorporated businesses. We find that there is a wide-spread sentiment in favor of making the business income tax as broad as business itself, instead of restricting it to corporations. Among the incorporated banks, for example, there is complaint because of the comparatively inadequate taxation of the great private bankers and financial institutions. Incorporated f: ',» Ma 128 department stores protest that they are unequally taxed as com- pai-ed with merchants ditferently organized. It would seem to be self-evident that the tax burden on a business should not be aiaterially larger or smaller merely because of a difference in its form of organization. The adoption of the Committee's recommendation regarding the exemption of personal property,"^" which now includes the stock-in- ti'ade of unincorporated companies, would add force to the pro- posal here made but if the Legislature should decide not to relieve all personal property from taxation, the adoption of the proposed income tax on unincorporated business should carry with it, of course, exemption of the stock-in-trade of the businesses affected. Form of the proposed tax on unincorporated business. — This proposed tax on the profits of unincorporated business should apply to all profits arising from such business transacted within the State. It should be a business profits tax rather than a pro- fessional earnings tax. The general problem of interstate appor- tionment has been discussed' above.f The apportionment plan suggested by the committee of the :N^ational Tax Association should be followed. There should be an initial exemption of i$5,000. The definition of income subject to tax should follow in general, that in the present personal income tax law. Dividends should be exempt on the theory that, in so far as they arise from business transacted in jSTew York they have already been reached \mdev the corporation income tax. The tax can best be adminis- tered in connection with the personal income tax. In view of the imposition of this new tax, the scope of the personal income tax should be modified so as to exclude the profits of unincorporated business carried on in this State accruing to the credit of non- residents.:]: Rate of the proposed tax on unincorporated business.-r- The rate of the tax is determined in large measure by the decision regarding the rate to be imposed on business corporations. We recommend that the rate on unincorporated business be slightly lower than the rate imposed by section 9a on the income of mer- cantile and manufacturing corporations. We feel that it should * Cf. stipra, p. 45 «rf seq. t Supra, p, 122 et seq. t Cf. supra, p. 75. V 129 be lower because of the fact that the profits of an unincorporated business become immediately taxable to their full amount under the personal income tax whereas the profits of a corporation become subject to these personal income tax rates only " if and when " distributed as dividends.* The resulting tax advantage to the corporation form is substantial and furnishes a sound basis for a discrimination in the rate. It is impossible to determine statis- tically the precise value of these advantages. Consequently, the differential in the rates must at best be approximate. We sug- gest that for the present the rate on unincorporated business profits be made one per cent lower than the corporation income tax rate. If the present corporation rate of 41/2 per cent is increased to 6 per cent, the rate on the profits of the proposed tax on unincor- porated business would then be fixed at 5 per cent. In case future refinements of accounting procedure and administrative skill make it practicable to reflect in personal income the value of accumulations in corporate surplus, this differential in the rate can be abandoned or, if experience indicates that one per cent unduly favors one form of organization, the rate can be easily modified. Estimate of yield.— Data supplied by the Income Tax Bureau of the State Tax Commission indicate that a Tax on all profits from unincorporated business, allowing the deduction of dividends and proprietors' salaries and with an initial exemption of five thousand dollars to each business, the exemption recommended abovef would yield about $1,750,000 for each 1 per cent of tax. Division of yield.— Pending the development of a plan for a general Subvention Fund,^ the Committee recommends that the yield be divided between the State and the localities in the same munner as the proceeds of the personal income tax are divided. The Taxes on Motor Transportation The problem of motor-vehicle taxation is a new one in the field of public finance and the principles which should govern it and the form which the taxes should take are still questions of * Cf. supra, p. 126 et seq.. t Cf. supra, p. 128. t Cf. infra, p. 168. 130 131 \ debate. There is little uniformity in the legislation of the various states. Everywhere the problem is in a state of flux and the laws admittedly tentative and experimental. However, the phenomenal increase in the use of motor-vehicles and the demand for improved highways which has accompanied this development has made the problem a very important one both from the point of view of the public treasury and from the point of view of the users of the roads. What taxes should be paid by users of the road? — Thus far not enough attention has been devoted to the fundamental aspects of the problem to make it possible for minds to come to agreement as to what is equitable in motor-vehicle taxation. Indeed, there is not even a clear understanding as to the precise grounds of disagreement. The process of motorization has proceeded more rapidly than the theory of taxation in this field and the practice of motor-vehicle taxation has run beyond the technical knowledge necessary to the formulation of a form of tax which would be scientific and generally acceptable. As it arises in this State, the fundamental question in its simplest form is this : What part of the cost of providing streets and roads shall be paid by users of the road? It is conceivable that motor-vehicles might be utilized as an evidence of ability to contribute to the miscellaneous general costs of government and, in fact, they are often so used in those states where the general-property tax is still in force. In this State, however, where personal property has been virtually abandoned as a measure of taxpaying ability, this basis is not available as a justification of the charges on motor vehicles. Here the fees are la special charge on users of the road and the question of the maximum amount of such fees is really a question as to what particular governmental costs may properly be chargeable to these users of the roads. To the extent, therefore, that there are other users of the road ibeside motor vehicles, the fees are illogical in being confined to motor vehicles, except in so far as the motor vehicles involve special governmental costs not occasioned by the use of the roads by other vehicles. An example of such a special governmental cost would be the provision for traffic regulation and speed control i. ■ made necessary by the motor vehicle. However, the gi*eat cost which has accompanied the development has been the construction and maintenance of a better type of road than was previously demanded and the problem thus resolves itself largely into the question as to the relationship between revenues from the taxation of motor transportation and such additional road costs. The practice of charging road costs to the users of the roads is nothing new or novel. The toll-road is an institution whose dis- appearance is within the memory of the present generation. Such roads were constructed whenever funds from other sources were unavailable and the demands from the users of the roads seemed to justify the expenditure. They were taken over by the govern- ment and made a general public charge whenever a community grew to appreciate sufficiently the value of the service rendered by them. The toll device was, in fact, an awkward method of administering what was virtually a tax on the user of the road. It had a repressive effect, often preventing the road facilities from being put to their greatest use, but it was, doubtless, neces- sitated by the physical conditions — the scattered and fragmen- tary character of the road system. In any case the underlying principle was sound — that, in cases where the user of the road demanded facilities which the government cculd not afford or of whose utility and advantages the government was not convinced, the cost of providing those facilities was placed directly upon the users themselves. Under the conditions it was an entirelv justifiable application of the benefit theory of taxation. It is quite possible that financial necessity will force a wider applica- tion of this theory of apportioning charges in the years which lie immediately ahead. Taxation of the user of the roads is a field in which a wide development of this character is very likely to take place. The motor vehicle has had a tremendous effect upon the demand for road facilities. With an automobile or a motor truck, the pos- sibilities of the use of the roads for pleasure and business are verv ft/ different from what they were with a horse and a buggy or a wagon. But those possibilities are greatly affected by the char- acter of the road, as to whether it is level, smooth and straight rather than hilly, rough and crooked. It is true, of course, that a 132 good road increases the possibilities in the use of the horse but the point is that it does not increase those possibilities in anything like the measure by which it increases the possibilities in the use of the motor vehicle. An automobile on a good road may easily travel 250 miles between sunrise and sunset, and perhaps only 50 miles on a really bad road. The improved road holds no such possibility of increase in the day's journey of the horse-drawn vehicle. This is, in our opinion, the real explanation of the con- nection between the development of the motor vehicle and the growth of the movement for good roads. There was no effective demand for good roads so long as they offered only the increase in advantages available with a horse-drawn vehicle. Good roads had to wait until a 'body of automobile users arose who realized the very greatly increased possibilities of the hard, smooth roads with their new machines. The fact that the disposition to charge at least a portion of the cost of the improved roads to the motor- vehicle is country-wide in its scope, is evidence of the soundness of the above analysis. The motor vehicle is adopted as the tax base primarily as a means of reaching the user of the road and with one accord the states turn to these users with the demand that if they really want the good roads, they, who use them, must pay for them in whole or in part. The question then immediately arises as to whether the whole cost or only a part, and, if only a part, precisely what part, of the costs should be borne by the users. Some of the enthusiasts for heavy motor fees se^m to forget that roads and streets were considered necessary before the advent of the automo'bile and the truck and that the public interest in these roads and streets was often considered sufficient to justify their construction and maintenance as a general public charge. In the case of city streets, of course, it has been a general practice to charge a portion of these costs to the land immediately served, in the form of special assessments. Certainly there is a certain ele- ment of general public interest in almost every road, whether it be a back alley in a remote suburb or a motor speedway stretching across the State, which might form a sound basis for charging a part of the cost to general tax funds. On the other hand, some of the representatives of the motor- kL 133 vehicle interests go to the other extreme, asserting that the public builds roads for itself, free for all to use as they choose, and that it is unfair to charge any part of the cost to any particular group of users. It seems to the Committee that the true view is one which lies between these extremes. That there is a general public interest in the streets and highways is true. But it is equally tnie that, when these streets and highways cost more than they otherwise would because of the necessity of supplying accommodations to a particular group of users, such additional cost may be properly chargeable to those particular groups. The problem is to draw the line. Once drawn it determines the maximum amount which may be equitably assessed against the user, under the revenue system as it now stands in this State. Such a division line would, how- ever, serve to remove the discussion of motor-transportation tax- ation to a new plane where the criteria of fairness would be some- thing more dependable than mere assertion. It might bring home to the people the true costs involved in the present elaborate plans for road construction and make possible a more intelligent deci- sion as to the desirability of such expenditures. In such intelli- gent comparisons of costs and advantages lies the only possible solution of the financial problem which the State is facing. With- out them, road-building may possibly play the role in State bank- ruptcy which was taken by internal improvements in so many states a century ago. In cases Avhere the roads are used for business, as, for example, in the case of a motor truck hauling eggs from up-State to New York City, the term "user of the road " must be understood to lie the person for whom the sennce is rendered. The purchasei^s of the pgirs in a New York City grocery in a very real sense employ the truck to bring them the eggs. A charge on the user of the road would under the present system be imposed, of course, upon the truck but it will appear as a business expense of the truck owner who must pass it on in higher prices to the consumer of the eggs. These facts have been seized upon by some of the repre- sentatives of the trucking interests as an argument for opposing special charges on trucks on the ground that " the public builds the roads and the public eats the eggs ; " that the public derives a 134 135 h ti direct benefit from the transportation over the roads it owns, the truck being the mere agent or servant of the public. This posi- tion, however, overlooks this important consideration, that not all eggs are brought to New York City by truck. Many are brought by the railroads. If the true costs of the truck-borne egg, including the cost of supplying any additional road facilities in- volved in the use of the truck, is not charged to the buyer of that egg, the egg carried by the railroad is discriminated against, for it must certainly be sold at a price which covers the entire cost of its transportation. 'Not does the reply that the railway is a mon- opoly, whereas the trucking business is not, meet the point, for a railroad under regulated rates is not permitted to exercise the monopolistic privilege of price control. Its rates are regulated on the principle of a " fair return." The conclusion is that only by charging to the user of the road the community costs involved in supplying him the additional road facilities required by him in his use of the roads can the motor-truck competition with the railroad be placed on a basis which will insure an economically sound decision in the struggle between the motor-truck and the railroad. This is the only way to keep the accounts straight,* so that an industry whose proper development means so much to the solution of the transportation problem may be neither repressed or unconsciouslv subsidized. The important results which might follow the statistical analy- sis of road costs suggested above would justify considerable effort to carry it through but it is a task which involves resources l>c- yond those available to this Committee. Indeed with the present differences of opinion and lack of knowledge regarding the engi- neering aspects of the problem it might prove impossible to carry through the analysis in a manner which would yield trustworthy results. It will be of interest, however, to bear this general analy- sis in mind when considering such general facts regarding road costs and motor vehicle revenues as are readilv available. Motor traffic and road costs. — The essential connection between the gi'owth of the good-roads movement and the develop- ment of the use of motor vehicles has already been pointed out.f * The pub.io utilities contend, and with considerable force in the opinion of the Committee, that in all justice to them, truck companies maintaining a freight service should be classed as public utilities and subjected to the various special taxes which utilities must pay. t Supra, p, 132. '. I r The output of motdr vehicles in the United Spates for the year 1899 was 3,700. It first exceeded one million in 1916, and ini 1920 the output was two and one-quarter millions. The number of motor trucks is still relatively small, being less than 15 per cent of the total output in 1920, but from the point of view of wear on the highways motor trucks are of more importance than passenger cars. More than that, the rate of increase of motor trucks is greater than the rate of increase of passenger cars.* There appears to have been an overproduction of passenger cars in the last few years, and while the number of such cars operated will continue to increase, the future rate of increase will probably diminish. There is not the same degree of overproduction in the truck industry, and while the rate of increase may be less hence- forth the absolute increase promises to be large, f The development of improved highway systems is reflected in both public debts and expenditures. The total of all State debts for highway purposes in 1899 was about three and one-half million dollars, or between one and two per cent of all State debts.J In 1919 the State highway debt had groAvn to more than one hun- dred and forty-three millions, or more than twenty-one per cent of State debts for all purposes. This is only one indication of the incresaing expenditure for highways. In addition the states have appropriated large amounts of current revenues for highway improvement, and the local divisions have in many cases exceeded the states in the amount spent for this purpose. Moreover, the large number of projects under contemplation by the highway departments at present indicate that such expenditures have only begun. The number of motor vehicles registered in New York in 1920 was 670,290 or 7.3 per cent of total! registrations in the United States. This represents an increase of 18 per cent over 1919, and 263 per cent over 1915. The number of motor trucks registered in 1920 was 148,873. This is a larger number than is registered ♦ The increase in annual production of passenger cars between 1915 and 1920 was 230 per cent as compared with an increase of 435 per cent for motor trucks. This and the data quoted above are taken from the National Automobile Chamber of Commerce: Facts and Figures of the Automobile Industry, 1921. t See discussion of motor industry by F. R. Pleasonton's article, entitled " The Automotive Industry, Avnals of the American Academy of Political and Social Science, Sept., 1921, p. 107 et seq, % Most of the debt in 1899 for highways was in Massachusetts. Bureau of the Census,WeaUh Debt and Taxation, 1913; Financial Statistics of the States, 1919. K 136 in any other State,* and also represents a larger portion, 22.2 per cent, of the total number of motor vehicles registered, although in Massachusetts and Connecticut motor trucks represent about one-fifth of all motor vehicles registered. A traffic census taken by the New York Highway Department on eight of the State's highways in four different years show the following results :f TABLE 17. Chakacter of Egad Traffic, 1909, 1914, 1916, and 1919. Total traffic Motor vehicles Horse Vehicles Year Number Increase over 1909 (Per- centage) Increase over 1916 (Per- centage) Number Increase over 1909 (Per- centage) Increase over 1916 (Per- centage) Number Decrease over 1909 (Per- centage) Decrease over 1916 (Per- centage) 1909 1914 1916 1919 1,944 3,646 5,609 12,052 ""'88 188 520 "ii5 584 2,418 4,673 11,879 'sii 700 1,879 ■ ■ ■ i48 1.360 1,228 936 493 "io 31 64 47 The number of trucks and busses counted in the same census in 1916 were 299 and in 1919 986, an increase of 230 per cent as compared with 148 per cent for alT motor traffic. The density of motor traffic as represented by the number of automobiles per mile of public rural road is 8.3 in l^ew York. This is exceeded in Rhode Island, New Jersey, Massachusetts, California and Con- necticut, with densities varying from 23.3 automobiles per mile to 8.5 automobiles per mile. J It has already been suggested§ that construction of highways has been one of the principal causes of State debt in the United States. This is even more true in ^ew York than in other states. In 1897 New York had no improved highways outside of the cities. In this year the State made its first appropriation — $250,000 for this purpose. This was followed by further appro- priations, and in 1907 bonds were first issued by the State for highway improvements. A fifty-million dollar issue was author- .»of ^^o number of motor vehicles registered in New York in the first six months of 1921 was 721,488, an increase of 8 per cent over 1920. Ohio stands second in the number of motor trucks registered, with 83,300. t Report, New York Stale Hiohway Dept., 1919. t Automobile Facts, pp. 34-37. § Supra, p. 135. 137 izcd in this year and another fifty-million issue in 1912. The outstanding State-highway debt has remained at $80,000,000 since 1917. TABLE 18. Funded State Debt Outstanding for Highways and Other Purposes in Xew York. Year Total Highways Percentage of total debt for highway purposes 1905 $11,155,660 57,230,660 186,400,000 236,024,000 1910 $16,000,000 65,000,000 80,000.000 27.9 1915 34 9 1920 33 9 A- This represents more than one-third of the total State debt, and more than one-half of the total of all State debts for highway pur- poses in the United States.* The expenditures of the State High- way Department in New York for the ten years ending in 1920 were between sixty-three and sixty-four million dollars. f These include State aid to towns and counties, but are exclusive of other local expenditure for roads, and do not include the State outlays for highways construction, which exceeded in amount the expend- itures of the State Highway Department during the same decade. The towns followed the State in appropriating funds for tht- improvetnent of highways, and the amounts spent locally soon exceeded State expenditures for this purpose. In 1920 town highway expenditure in New York was about fourteen million dollars, as compared with twelve million spent by the State High- way Department. Some of the money spent locally is derived from the motor-vehicle revenue and from State aid, but about three-fourths of it is from town and county appropriations. * U. S. Bureau of the Census, Financial Statistics of States, 1919. t Comptroller's Reports. 138 TABLE 19. Receipts and Expenditures for Town Highways. New York, 1909-1920.* Year Amount available for town highway expenditxire Amount of town highway expenditure Amotmt of motor vehicle revenue distributed to localities Amount of State aid 1909 $6,109,136 8,882,456 7,571,367 7.251,805 7,845,875 7,984,427 8,895,282 9,295,279 10,465,376 11,901,894 14,617,526 14,000,000 $5,059,873 8,345,514 7,114,016 6,647,495 7,515,002 7,154,578 8,009,341 8,010,510 8,574,726 9,310,809 12,314,572 $1,441,751 1.691.912 1910 1911 1.631.985 1912 1 665.501 1913 1,719,872 1,815,919 1,877.673 1,950,575 1,956,206 2,046,916 2,146,625 2 210 748 1914 1915 1916 $359,673 2,061,984 2,381,761 2,852,031 2,142,076 1917 1918 1919 1920 The State has improved about three^fourths of the proposed State highway system of about thirteen thousand miles. Tht towns in 1918 had improved about thirteen thousand miles of their seventy-one thousand miles of public highways. With so much highway still unimproved there will doubtless be large expenditures for highway construction for some years to come, and as the mileage improved increases, the cost of maintenance, repair and reconstruction grows. * Figures from Anmud Reports of Department of State Highways, supplemented by the Annual Reports of the State Comptroller. 1912-1916 inclusive estimates based on preceding year's revenues from motor vehicles. 1917- 1920 from Reports of Department of State Highways. 139 The taxes in New York. — Motor vehicles were taxed as per- se nalty under the general-property tax in ^ew York until 1911, when a special state license tax, graded according to hoi*se-power, was substituted. This law has been subject to frequent revision. The most important changes were made in 1917 and 1919. In 1917 tiTicks and trailers were withdrawn from the tax based on horse-power, and subjected to a tax based on gi'oss weight instead ; and omnibuses were rated according to seating capacity. In 1919 the basis of the tax on passenger cars w^as changed so as to in- clude cost as well as horse-power. Under the present law the measure of the tax for pleasure ears is both horse-power and cost — the rate being twenty-five cents per horse-power plus forty cents per $100 list price for cars three years old or less, twenty cents per $100 list price for cars from four to five years old, and ten cents for cars over five years. The minimum fee for four-cylinder cars is five dollars; for six-cyl- inders or more, ten dollars.* Omnibuses are subject to an initial charge of ten dollars for number plates plus a tax based on seating capacity ranging from $15.00 for a seating capacity of five to $67.50 for a seating capacity of thirty, with an additional charge of two dollars per person over thirty, f The measure of the tax for motor trucks is gross weight — the rate being five dollars per ton gross weight up to fourteen tons, with a minimum fee of ten dollars, and ten dollars per ton gross weight over fourteen tons.:]: The minimum fee for trailers is five dollars, increasing up to thirty dollars for fourteen tons, with a charge of five dollars a ton for every ton in excess of fourteen. Motor cycles are taxed at a flat rate of $2.50. Dealers pay a license of fifteen dollars, plus five dollars for each duplicate set of licenses. § These taxes are in lieu of all other taxes on motor vehicles, except that motor vehicles in the hands of dealers and manufac- turers are taxed as personal property. The initial license fee for chauffeurs is five dollars, with a renewal fee of two dollars. Owners are charged two dollars for initial license and one dollar * Highway Law, Sec. 282. t Highway Law, Sec. 282, Subdiv. 6a. t The maximum gross weight of motor trucks has been limited to twelve and one-half tons since 1918. There are no apparent exceptions to this rule {Highway Law, Sec. 282a). S Highway Law, Sec. 282, 284, 302. II 140 141 i:V for renewal. Tlio law is now administered by the State Tax Commission, and the proceeds, which are shared with the local- ities" are used entirely for highway purposes. Motor-vehicle taxes of other states.-— The growth in the num- ber of motor vehicles and in the cost of roads has been accom- panied by an interesting evolution in the character of motor- vehicle taxes. From small flat fees, in which the revenue mC'tive played a subsidiary part, these taxes have developed in most states into elaborate and heavy chai^ges designed to yield a large revenue and to bear a relationship to road costs occasioned by the vehicles taxed. Thus, at the present time, in only three states is there a flat rate on passenger cars, and in only two is there a flat rate on trucks. TABLE 20. Bases of Motor- vehicle Fees in the United States.! Number of States Using This Method for Passenger Basis Cars Motor Trucks Horse-power 27 2 Carrying capacity 25 Weight (vehicle only) 5 2 Gross weight (vehicle and load) 3 7 Cost of vehicle 2 1 Piston displacement 1 Total width of tire 1 Weight of chassis 1 Flat rate per vehicle 3 2 Horse-power plus gross weight 3 2 Horse-power plus weight unloaded 1 2 Horse-power plus cost 1 Horse-power plus capacity 1 Weight plus cost 1 Weight plus capacity 1 Weight plus horse-power plus cost 1 Weight plus horse-power, cost and capacity. . . 1 * Since 1919 three-fourths of the proceeds of the tax have been kept by the State. From 1916 to 1919 one-half went to the local districts. Cities, other than New York City, are not included amonjg ^cal districts to which motor vehicle revenues are distributed. Cf. infra, p. 152 et aeq t R. K. Tomlin, Trend of Motor Vehicle Legislation," Engineering Newa Record. 4 • '^ Table 20 shows that the usual measure for possenger cars is horse-power, and for tinicks carrying capacity. Other measures are gross weight, weight of the vehicle alone, weight of the chassis, cost of vehicle, tire width, and piston displacement, and various combinations of these. 'No other state employs the same basis as Xew York for the taxation of passenger cars. Not only are there wide variations in the basis of the license tax, but the rate varies so greatly in the different states using the same base that there is an utter lack of uniformity in the taxation of motor vehicles. In the attempts to tax such vehicles in proportion to their use of the roads, thei*e would seem to be no agreement as to what constitutes a measure of such use. Revenue from New York motor-vehicle tax. — The State is now collecting slightly more than nine million dollars annually from the tax on motor vehicles. The annual figures for a period are given in Table 21. TABLE 21. Total Gross Revenue from Motor-vehicle Taxes. New York, 1911-1920. 1911 $905,179 1912 1,056,621 1913 1,275,727 1914 1,533,368 1915 1,913,175 1916 2,658,042 1917 4,284,114 1918 4,945,298 1919 5,984,660 1920 8,863,251 1921 *9,272,864 Adequacy of the New York taxes. — The question of the ade- quacy of the taxes on motor vehicles can, we believe, be precisely answered only by an extended statistical analysis along the linc^ suggested on page 134. This analysis, although an elaborate and difficult undertaking, must sometime be made. Until the result.*, * The figures for 1911-1920larc for the automobile years. The VJ'21 figure is for the fiscal ear ending July Ist. Il 11; 142 of such an analysis are available, estimates of the adequacy of the taxes can only be rough and approximate. From such data as are now obtainable, it appears for the Com- mittee that the present revenues from the users of the roads are grossly inadequate. In the first place, there is the testimony of those interested in the motor industry itself. The more moderate leaders, in confer- ences with the Committee, have repeatedly expressed the opinion, based on their own independent study of the situation, that the taxes may be increased with fairness and equity. As has been explained above,* to ascertain precisely the portion of the cost of the roads which are furnished because of the de- mand of motor vehicles for additional facilities is a problem, the data for the solution of which are not at present available. The following facts, however, may prove suggestive. A rough estimate of road costs for the State, towns and New York city (those jurisdictions sharing in the motor vehicle reve- nues) for the decade 1911-1920 is $408,000,000. This does not cover interest on highway debts excepting for the State. The gross amount of motor vehicle revenues during this same period was about $40,000,000, or less than 10 per cent of these expendi- tures. The amount of expenditures of those jurisdictions not shar- ing in the motor vehicle tax, viz., cities other than New York, villages, and counties, is not available, bnt must amount to -i considerable sum in addition. As has been explained, the lack of technical knowledge regard- ing the precise effects of motor traffic upon the roads makes it impossible to subdivide the cost figures accurately bnt it would be surprising if future researches should reveal that the great bulk of the road costs of this decade were not properly cbargeable to motor traffic under this analysis. Plainly there is a wide mar- gin for future development of the taxation of motor transporta- tion before it reaches the theoretical maximum indicated by the analysis. It is clear that the modest increase in motor taxes rec- onnnendcd in this rejiort prolmbly falls far within the limits of tiieoretical equity. ♦ Supra, p. 134. V ^ 143 Certain leaders in the automobile industry have advanced the contention that automobile taxes should be sufficient to cover costs of upkeep and maintenance, with no contribution toward capital costs. Precise figures regarding expenditures for main- tenance are not available but it appears that $22,000,000 is a very modest estimate of the amount being spent annually for this purpose by the State and the localities. This compares with total gross revenues from motor vehicle license of only $9,000,000. Some indication of what it may be fair to charge in this State is given by the facts as to the fees charged in other states. Table 22 compares the fees paid by motor vehicles of several types in this State with those paid in neighboring states. TABLE 22 Comparison of New York and Neighboring State License Fees on Five Types of Motor Vehicles 1921 State Connecticut. . . . Delaware Maine Maryland Massachxisetts. . New Hampehire New Jersey .... New York Pennsylvania. . . Rhode Island... Vermont Virginia West Virginia . . 25 hp. passenger car $18 00 13 30 10 00 15 00 10 00 20 70 10 00 13 00 10 00 14 90 25 00 15 00 17 50 1-ton truck (pneumatic tires) $22 50 24 00 10 00 15 00 10 00 36 00 27 00 15 00 32 00 20 50 20 00 15 00 24 60 U-ton truck (solid tires) $40 00 30 80 20 00 40 00 20 00 65 45 33 00 £0 00 40 00 32 70 30 00 20 00 50 00 3j-ton truck (solid tires) $90 00 63 20 40 00 100 00 40 00 134 30 57 00 40 00 100 00 63 05 100 00 40 00 100 00 5-ton truck (solid tires) $187 50 82 80 50 00 150 00 50 00 175 95 72 00 55 00 200 00 80 95 125 00 55 00 150 00 * t k 1 114 Graph 11 illustrates this situation. Included in this compari- son are the fees which would be payable under the schedule sug- gested by the Motor Vehicle Conference Committee.* That the fees in New York are relatively low is clearly apparent. Another interesting comparison is made in Table 23 and Graph 12. It appears that the State's share of the motor-vehicle reve- ♦ Cf. infra, p. 150. GRAPH 11 COMPAKISON OF 'Nbw YoRK AND NEIGHBORING StATE LiCENSE Fees on Five Types of Motor Vehicles ] ] ] ] zo so MM 1 I2^ \ I ] ] ■^^™ ' t iS/f.^/'i^saan^a/' Cor- vf.Z /fj\ I • • « • I 20 145 GRAPH 11 (Continued) Comparison of New York and Neighboring State License Fees on Five Types of Motor Vehicles 1921 ^iron r/XMrA- - So//e^ T/r^s M. III =1 ZJ ] i &^////////// zzm Afe. M) Vol ] —I — eo =1 so I so I //o S 7i>r? T/'c/cAr - So//o^ T//-as I AOO /hi v/1 9el =3 a,A. ] J(^//////////////////x Va.l Afe.l AbsJL ~^ n 1 so I I I I '5. 146 GRAPH 12 State's Share of Revenue from Motor- Vehicles Tax and Expenditure of State Highways Department Compared 1901-1920 * ! * ! 147 nues constitutes scarcely one-third of the expenditures of the State Highway Department which include no outlays for capital construction paid from the Highway Improvement Fund and none of the interest on highway debt. TABLE 23. State's Share of Revenue from Motor- Vehicle Tax and ExpExNDiTURE OF Sta IE HicniwAYs Depakt:mext Compared 1901-1920* Year State's share niotor- vehicle tax F]xpcnditures of the State Highway Department Ratio of State'8 share of motor vehicle tax to expenditures of State Highway Departnieut 1901 Taxed as personal proi)erty until 1911 $878,799 1,053,762 1,267,833 1,528,221 1,857,289 2,125,057 2,026,189 2,677,532 2,509,610 4,214,235 $238,428 567,173 977,847 1,041,297 1,342,005 1,175,595 1.020,828 1,493,780 3,086,537 3.478.775 3.045,208 4.279,319 5,343,622 4,186,981 5,804,081 6.315,307 6,614,806 6,912,859 9,135,938 12,030,078 1902 1903 1904 1905 1906 1907. 1908 1909 ... 1910 1911 29 re 1912 25 1913 23 1914 37 1915 32 1916 1917 34 31 1918 39 1919 28 1920 35 When the figures of revenue are reduced to an average per motor car a comparison with other states shows I^ew York at the hottom of the list. Moreover, the revenue forms in this State a smaller percentage of the expenditures of the State Highway De- partment than in any other neighboring State. This is in spite of the fact that Xew York has the highest per capita State road debt of any of the states in the group. These facts are set forth in Table 24 and Graphs 13, 14 and 15. * The data arc from the reports of the Comptroller. The motor vehicle revenues exclusive i»f the miscellaneous fees charged, and of the amount distributed to the local districts. Total gross receipts from motor vehicles exceeded nine million in 1920; but the total gross receipts for the de- cade 1911-1920 are less than two-fifths of total State highway expenditures. There are in addition heavy local expenditures for highways and no local motor vehicle fees. 148 TABLE 24 COMPAEISONS OF ToTAL MoTOR-VeHICLE ReVENUES AND PeE- Capita State Road Debt* State Maryland New Hampshire . Delaware West Virginia . . Virginia Connecticut. . . . , New Jersey . . . . . Vermont Massachusetts. . . Pennsylvania. . . . Maine Rhode Island New York Average gross revenue return per motor car registration $20 53 18 69 18 03 15 87 15 70 15 55 15 .39 14 40 14 07 14 01 13 02 10 51 10 16 Ratio of motor car license revenue to expenditure for State roads Per cent 46 94 527 195 85 52 52 63 77 55 48 63 26 Per capita debt for State roads SIX 34 84 2 77 2 79 2 56 2 73 17 45 * The data are from the Financial Statistics of Cities, 1919, and Automobile Facts, 1920. In addition to these revenues motor vehicles pay a tax as personal property in Maryland, West Virginia, Virginia, Connecticut, New Jersey, Massachusetts, Maine, and Rhode Island, and a gasoline tax is imposed in Connecticut and Pennsylvania. GRAPH 13 Average Gross Revenue Return Per IIotor-Car Registra- tion IN New York and Neighboring States 1920 149 GRAPH 14 Per-Capita Debt for State Roads in New York and Neigh BORING States '.r ^^- *• ^- ^ :S a ^ GRAPH 15 Xew York State Highway Debt Compared with Totai- Net State Debt Outstanding A^S ~^ /9/0 /9/S /9ao {■1 n ^^^^^■^H 1 ■■^■PIH 1 ^Ji>o^oaoo i^/0oco0CH>a ^/sooooooo ^eoooooaoff ^^SOOOOOOO \///i^/?¥Va^ I; h \ 160 Changes in character and rates of motor-vehicle taxes recom- mended. — In the opinion of the Committee the data presented in the preceding section justify a material increase in the taxes on motor transportation. Part of this increase should be secured through a revision of motor vehicle license fees. The form and rates of the licenses must now be considered. The factors detennining wear on the roads are weight, mileage, speed, and tires, their kind, condition, and width. The factor of speed can be reached only very indirectly as it is related to horse-power and weight, and through speed regulation. Gross weight is now the basis for taxe^ on trucks in seven states, includ- ing New York, and for taxes on passenger cars in three. This is obviously the best measure of weight, although carrying capacity bears a fairly close relation to gross weight, and horse-power bears some relation and in the case of passenger cars is more easily determined. The importance of the kind of tire has not been recognized in most State laws. The condition of tires, which is important, cannot be measured, but kinds of tires can readily be classified. The impact from solid rubber and steel tires is much greater than that from pneumatic tires. Another important element is the distribution of weight, which depends on the width of the tire and the division of total weight between front and rear wheels. This is somewhat difiicult to reach by varying rates of taxation but definite limitations can l>e established. The most eifective way of measuring mileage would seem to be a gasoline tax.* All of these factors, excepting mileage, are considered in the uniform vehicle law endorsed by the Motor Vehicle Conference Committee.f The law proposes an annual fee for passenger cars and motor trucks of 25 cents per horse-power for all cars, plus 25 cents per hundred pounds gross weight for cars with pneumatic tires, 35 cents per hundred pounds gross weight for cars with solid rubber tires, and 50 cents per hundred pounds gross weight for cars with steel or other hard tires, this rate to be doubled ♦ Cf. infra, p. 151. t A committee representing the American Automobile Association, the Motor and Accessory Manufacturers Association, the National Automobile Chamber of Commerce, the National Automobile Dealers Association, the Rubber Association of America, and the Trailer Manufacturers Association. ■osed uniform law were adopted in New York the revenue from motor vehicles would be materiallv increased. The increase on five types of vehicles cited by Mr. R. K. Tomlin f varies from fifteen to sixty-three and one-half per cent. This should produce, on a conservative estimate, an increase of twenty- five per cent in revenue, or, on the basis of the 1921 figures, two million dollars. The doubling of the motor cycle tax would add about $75,000. The Committee recommends that this scale of rates on passenger cars, trucks, and motor cycles be adopted by the Legislature. The result would be a slight increase in pas- senger fees and a substantial increase in truck fees, especially on the larger trucks.^ It suggests no change in the dealers license or operators and chauffeurs fees at this time. The grand total of all mocor vehicle receipts for the fiscal year ending June 30, 1921, was $9,272,864. Under the recommended scale the yield would probably have been about eleven and one-quarter million dollars. Gasoline tax recommended.— The Committee recommends that a tax on gasoline be made a part of the system of taxes on, motor transportation. A tax of one cent per gallon is now in operation in thirteen states. § Oregon has a tax of two cents per gallon. Two of the states adjoining INTew York have such taxes, Connecticut and Pennsylvania. * Gross weight to be regarded as the actual weight of the vehicle plus the sum of the adult seating capacity multiplied by 150 pounds. t Trend of Motor Vehicle legislation. Engineering News' September, 1921. t Cf. supra, p. 143. § Colorado. Kentucky, and New Mexico (adopted before 1921); Arizona. Arkansas. Connecticut Florida, Georgia. Montana, North Carolina. Pennsylvania, South Dakota, and Washington (beginning in 1921). National AutomobUe Chamber of Commerce, statement dated September 19 , v 152 The gasoline tax makes possible a fairer distribution of the motor traffic taxes than would be possible with vehicle fees alone. It appears to be the best practicable measure of the use of the roads. It makes it possible to take mileage into account in ap- portioning the cost of roads and it reaches the cars of other states operating in ^N'ew York. An additional reason in favor of the adoption of this tax by the State is the fact that unless it is generally adopted by the states it is likely to be seized by the Federal government as a source of national revenue. A gasoline tax of one cent a gallon would yield in the neighbor- hood of four million dollars annually.* Distribution of the yield of motor-vehicle taxes. — The Con- ference of Mayors has called attention, in very impressive fashion, to the fact that the present method of distributing the revenue from motor vehicle fees is open to criticism from the point of view of the cities of the State. As it now stands the law provides that three-fourths of the revenue shall be spent by the State Commis- sioner of Highways for the maintenance and repair of the im- proved roads of the State. The remaining one-fourth is distributed to the county treasurers, each county receiving one-fourth of the fees collected from residents of the county, to be used for the per- manent construction or improvement of town highways. Excep- tions to this general statement include the City of New York, whose general funds axe augumented to the extent of one-fourth of the fees collected within its boundaries, and Westchester County, which may devote motor-vehicle revenue to the improvement of roads bordering on the City of New York even though they lie within the limits of Westchester cities. * The basis of the estimate for the jrield of the gasoline tax is this: Total United States consumption of gasoline. 1920 4,256,428,065 gallons Total used for motor vehicles (assuming that the annual average gasoline consumption of passenger cars is 330 gallons; for motor trucks, 800 gallons: for motor cycles, 50 gallons) 3,447,228,950 gallons Used for other purposes 809 , 199 ,055 gallons Gasoline used for motor vehicles in New York 292,638,660 gallons Gasohne consumed for other purposes (assuming that New York propor- tion of gasoline for other purposes is same as the proportion of New York to total United States population) 79,463,347 gallons Total gasoline consumed in New York in 1920 372 , 102 ,007 gallons Tax at one cent per gallon $3 , 700 ,000 Tax (assuming 10 per cent increase in consumption in 1921) 4,000,000 Basing New York consumption entirely on proportion of motor vehicles in New York to total motor vehicles in the United States, gasoline con- sumed in New York State 361 ,420,579 gallons Tax of one cent $3,600,000 Consequently a tax of one cent would probably j^eld between three and one-half and four and one-half miUion dollars in 1022. { '4i Vv r 153 The Committee believes that the arguments in favor of permit- ting the city to share in the distribution are stronger than those against the practice and it recommends that in distributing the yield of the augumented taxes in motor transportation recom- mended above, the cities be given a sliare to assist in defraying the increase in costs occasioned by the development of motor vehicle transportation. Effect of the proposals.— The net result of the adoption of the Committee's recommendations regarding the taxation of motor vehicles would be to increase the revenues from this source from about nine million dollars to about fifteen million dollars. The taxes would still be reasonable as compared with those in neigh- boring states. The yield would still be much less than either the current expenditure for the maintenance of the roads and streets or the cost of the additional road facilities furnished to supply the demands of automobile users. The increased rates on motor trucks are moderate, but the Com- mittee believes that they should not be radically increased until the road costs occasioned by their use are more definitely ascer- tained. Statements have been made to the Committee bv reliable road engineers that no less than one-half of the present costs of constructing roads in this State are directly traceable to the use of trucks. This claim is hotly disputed, however, and some of the results of the recent investigations of the Bureau of Public Roads of the United States Department of Agriculture * seem to ascribe a larger responsibility to frost and a smaller responsi- bility to wear and tear of trucks than has been considered correct in the past. If frost is primarily responsible for road-breakdown, the charge should not be placed against the motor truck alone but upon all types of road users who require the type of road destroyed by the frost. The Tax on Transfers of Stock The stock-transfer tax is a tax of two cents per hundred dollars face value or fraction thereof on all transfer of stock.f Trans- fers of stock having no par value are taxed at two cents per share. * The California Highway Study particularly, t Tax Lair, ait. 12. — > V 164 • The tax was first imposed in 1905, and in the sixteen years in which it has been in operation several amendments have been made, as need has arisen, so that what constitutes a taxable trans- fer has been clearly defined, and the administration has been changed to prevent evasion. With the improvements of administration and with the growing volume of stock transfers, most of them on the stock exchange, the revenue from this source has grown rapidly.* The number of such transfers varies so greatly with business conditions that the amount of revenue derived from this source necessarily fluctuates widely from year to year, but the number of exchanges is always sufficiently large to produce an important sum, even in years of business depression. A stock-transfer tax of the same amount is imposed in Massa- chusetts (established 1914) and Pennsylvania (established 1915), and since 1917 a similar tax has been collected by the federal government, most of the proceeds of which come from !N'ew York transfers. The federal government also taxes sales of produce for future delivery in the same manner, but the revenue from this source is comparatively small. The justification of the stock-transfer tax appears to some students to rest upon the assumption that it operates as a special tax upon profits in which chance and " conjuncture " play a large part. On this ground the economist, Wagner, defends it as "a postulate of distributive justice." In discussing the same point Pierson writes : " Under the system of free competition ' conjunc- ture' assumes great importance, and that is what constitutes the characteristic feature of modem commerce and industry. It is through the operation of * conjuncture ' that some people acquire fortunes which they have not earned, or only partly earned, just as others lose fortunes through no fault of their o^vn. Taxes should be used as a means of mitigating this evil." f * The revenue from tax on stock transfers has been as follows: W05 $1,226,758 1911 . . . .$3,499,811 1^06 6,631 ,903 1912 3,653.037 1»07 5,575,987 1913 2.927.811 1«0S 3.907.373 1914 2.075.778 1009 5.355,546 1915 3,540.334 1010 4,635,443 1916 4,865.765 t Pierson, Principles of Economics, Vol. II. 1917 $7,786,512 1918 5,312,033 W19 6,989,317 1920 10,648,993 1921 10.800.000 ^estimate) Comptroller's Reports. 155 « On the other hand, other economists * emphasize the great advantage of perfectly free and unrestricted security markets and consider any special taxation resting on the exchange of securities as detrimental to the true interests of the community. The rate of the stock-transfer tax is purely arbitrary and it has been suggested that it could be increased without undesirable results. However, the attention of the Committee has been called to the fact that the combined federal and the State tax now imposes a considerable restriction upon the operations of the pro- fessional speculator known as the "floor trader" reducing the opportunity for him to enter the market when variations in prices are small and thus tending to reduce the usefulness of the market in confining price variations to a small range. While there appears to be little question as to the tendency, the data sub- mitted are not wholly convincing regarding ill-effects actually suffered. Moreover, there appears to be no conclusive demonstra- tion of the claim that an increase in the rate would result in no increase in revenue although the Committee realizes that there is a possibility of such a result. On the whole, the Committee is disposed to recommend that the consideration of further increases in the rate of the stock- transfer taa: he deferred until the disappearance of the federal tax, ]>ai'ticularly in view of the fact that the proposed tax on unincor- porated business f will offset the profits of many of the brokers on the exchange. However, the reasons advanced for restricting the scope of the transfer tax to shares of stock alone, exempting transfers of bonds, do not seem adequate to the Committee. Although it is, of course, true that lx>nds partake more of an investment character and less of a speculative character than stock, nevertheless there is active speculative trading in such securities. It is not likely that a tal^ of two cents per $100, or twenty cents for the typical bond, would be considered a factor of importance in connection with a sale for investment or prove to be seriously repressive to trading. J^ich a tax in 1921 would have yielded something over a quarter of a million dollars, assuming transfers of United States bonSs to have been exempt. The Committee recommends that the scope * E.g.. Seligman. Shifting and Incidence of Taxation, pp. 383-384. t Cf. supra, p.f 127. 156 of the transfer tax he extended so as to include transfers of bonds as well a^ shares of stock. The Taxes on Natural Resources The Committee has made a brief sui-vey of the methods and results of the taxation of mines and forests in the State. This survey reveals the fact that there are marked shortcomings in the operation of the tax laws in both of these special fields. In this section of the report certain facts regarding the situation are presented and the problems involved are defined. The Committee refrains from making definite recommendations pending further study and investigation. Mine taxation. — Mines are classed as real estate in !N'ew York State but practically no consideration has been given to the difficult technical problems involved in their proper valuation for purposes of taxation. 'New York's mineral resources are of such importance that this problem is certain to become an acute one in the course of the general improvement of assessment methods which is already under way. Mineral Resources of New York State. — The mineral re- sources of New York State are varied, but non-metallic minerals, especially those of comparatively small value which can only be produced profitably close to the market, predominate. The total value of mineral products of the State for the year 1018 is placed at over fifty-four million dollars.* This includes pottery and other clay products, Portland cement, building brick, limestone, and sand and gravel, which derive the larger part of their value from manufacture or from the labor of quarrying and transporta- * Value of mineral production in New York for the years 1916 and 1918. (Newland, D. H., Mineral Resources of the State of New York; New York' State Museum, Bulletin nos.223-4.1919). Mineral jgjg 1916 Pottery and other clay products $7,829,399 $5,257,742 g*|*V • •, / 7.336.867 3.698.798 Portland cement 6,568.746 5,752,809 Iro? o*"f 5.802,870 5.571 ,429 Natural gas 5,673, 131 2.524, 115 Limestone 4,832,348 3,672,454 Petroleum .. 3.307,814 2,190.195 Building bnck 3,063,555 6,497,270 Gypsum 2,670,099 1,459,587 Sand and gravel 2,176,472 2,644,829 Other materials 4,907,986 6.678,719 Total $54. 169,287 $45,947,947 \k 157 tion. Other products with a value in excess of a million dollars for the year are salt, iron ore, natural gas, petroleum and gypsum. Salt is mined in large quantities in Livingston and Genesee counties, and the total product in 1918 was valued at over seven million dollars. -Natural gas is found in most of the western counties. The output is increasing rapidly in value, and there is some increase in quantity. The output of petroleum is fairly steady, although decreasing somewhat in amount. The value of the output is increasing at present. It is found in Cattaraugus, Allegany and Steuben counties. Gypsum occurs in the western counties, particularly in Erie, Genesee and Monroe, and the output in 1918 was more than one-fourth of the total product of the United States. ^N^ew York S'tate produced 1.8 per cent of the total output of iron ore in the United States in 1917, with a value equivalent to four i)er cent of the total.* The actual value of the New York output was $7,381,333. Both the quantity and the value of the product reached their maximum in this year. New York is the largest producer of magnetite in the United States, the output coming from a few large mines in the Adirondacks, and in smaller quantities from southeastern New York. The largest iron-ore reserve in the State is the Clinton hematite deposit in Oneida and Oswego counties, which is being mined to a limited extent at present. This ore contains a high percentage of phosphorus and is chiefly of use as foundry iron. The future of the mining industry of the State, according to D. H. Newland, Assistant State Geologist, will depend on the utilization of iron ores of as low a grade as twenty or twenty-five per cent. Method of Taxing Mines in New York State. — Where any differentiation is made by the various states in the taxation of mines it is usually in the method of assessment. No differentia- tion is made in New York at present. Mines are taxed under the property tax as real estate, which is defined to include "all mines, minerals, quarries and fossils." f They are assessed locally without State supervision, although assessors are advised to con- sult engineers familiar with the property in valuing mineral * United Stales Geological Survey: Mineral Rewurcea of the United States. 1916, 1917. 191 S 1919. 1920. t Tax Law, 1909, ch. 62, sec. 6, 158 deposits.* Oil and gas in the ground are also regarded as real estate and assessed locally as such. All incorporated mining com- panies are subject to the four and one-half per cent franchise tax based on income, the same as other corporations. Results of Local Assessment. — According to the informa- tion submitted to this Committee the mining interests as a whole have not suffered from the property tax to which their properties have been subjected. The local assessors are not competent to as- sess projyerty which the mining engineers find difficulty in valuing, and they rarely consult either experts or those familiar with the properties. In other words, while there is a pretense of taxing mines at the full present value, in actual fact there is no real effort to secure an accurate assessment. The testimony is to the 9.-' effect that mineral lands are underassessed as compared with real estate generally. Taxation of Mines in Other States. — In most of the west- em states, notably Colorado, Idaho, Montana, Utah, Washington and N'evada, mine taxes are based on output in some form — an- nual net or gross proceeds or smelter returns. A tax of this char- acter is exceedingly difficult to equate with a real estate tax as- sessed on a selling-value basis and usually operates to discriminate in favor of concerns holding large reserves. Recently it has been demonstrated that, in states where the mineral lands have certain characteristics, it is possible by the aid of skilled engineers to secure appraisals which are satisfactory for tax purposes. Michigan, Wisconsin and Minnesota are the states which have used this method most successfully. Recently New Mexico has completed an engineering appraisal of its mines and mineral lands. Arizona, by a system of capitalization of earnings has approximated the same result. A dependable appraisal of such property involves the utilization of engineering assistance of a high order but there appears to be no other method of securing data which will give a satisfactory assessment as compared with real estate generally. A committee of the l^ational Tax Association, appointed to con- sider this problem submitted a strong report in 1920 in favor * Manual for Jnaruction of Aasesaora, New York State Tax BvUetin, vol. 1, no. 3. 159 of the taxation of mining property in the same manner as other real estate, the values to be determined on the basis of pro- fessional engineering appraisals.* Conclusion. — It is clear that the Legislature must soon give serious consideration to the problem of the taxation of mines and mineral lands. The present system is not working as intended, due to the shortcomings of the local assessors. The practical result is that mineral lands are favorably treated as compared with other real estate. If the Legislature desires to eliminate this difference of treatment a reform of assessment methods is necessary. The adoption of the Committee's recommendation f with regard to the centralization of assessment would aid in cor- recting this situation. On the other hand even if the home-rule provision of the Constitution remains unchanged, it would be possible for the Tax Commission, if furnished with the proper staff, to render expert aid to the local assessors in valuing such property. In case the Legislature believes that the mines should be more liberally treated than other businesses using real estate, it would be well to do so frankly rather than to perpetuate a situation in which the law and the practice are at variance with each other. A policy of subsidizing the mines could, in our opinion, be best carried out through a system of moderate output taxes. The problem is a complicated and difficult one and should be more fully analyzed and considered before definite action is taken. Forest taxation. — In the case of wooded and reforested land the State has definitely adopted a policy of taxation which aims to encourage conservation and the increase of timber resources. The laws designed to accomplish these objects are found in operation to be almost completely ineffective and the S'tate faces the necessity of making a new study of the problem and formulat- ing some new plan which will meet the situation in a more satis- factory manner. Forests and the Lumber Industry in !N'ew York State. — • !N"early one-half of the area of ^NTew York State, or about 14,800,- 000 acres, is regarded by the State Conservation Commission as * Proceedings of the National Tax Association, 1920, p. 405. t Cf. supra, p. 58 et seq. 160 forested or potential forest land.* In spite of this New York which m 1850 produced more lumber than any other State, ranked' only twentj-ifth among lumber producing states in 1920,+ with 400 000,000 board feet a year,* with about an equal quantity of cord wood. More than one-third of the cut consists of white pine and hemlock. There is very little virgin forest left in the State and sixty-two per cent of the forest area is suitable for fuel and acid wood only.§ The State itself, with a forest preserve of about 1,900,000 acres, is the largest owner of merchantable timber. The largest private holding, belonging to a pulp and paper com- pany, IS something over 200,000 acres. The largest part of the standing timber is in the Adirondacks and CatskiUs, but « potential " forest land is scattered through- out the State. The need for conservation and reforestation in New York, as in the neighboring New England states, is very great, and the problem of forest taxation is inextricably bound up with the conservation problem. Forest Taxation m the Other States.— Most of the states tax forests ,n the same way as other real estate under the propertv tax Some grant total exemptions of land and trees, or assess the J and at a nominal sum for periods of ten to thirty years if the owner of the wooded or reforested area complies with certain stated conditions. Other states exempt only the timber for a defin- ite period, and still others, under certain conditions, offer boun- ties or tax rebates. In all of these cases the purpose is to en- courage conservation of timber resources and reforestation For the most part these exemptions have had little effect, for the value of the exemption offered has not been sufficient to make It worth while for the owners of forest land to comply with the provisions of the law. In a few cases there has been some small encouragement to reforestation. In more, such exemptions have discriminat ed unfairly in favor of the owner of timber land. T'ann woodlots. 2,100,000 acres Unimproved land in faming sectioM. V.'. i'lS^'SS^ ^^""^ ^ t ouu , 000 acres Total , The total is 47 per cent of the total area of the state .TuL^';1?20^''^ ''''^^^^' -f Ai^riculturerFl^^t Service, t New Yoric State Lumber Cut (in 1000 feet): ,„ 1918 328,841 1919 ^w rr^ § Report on Timber Depletion, p. 1«. ^^^'^^^ 14,800,000 acres .f < i V Report on Timber Depiction 1920 410.909 4 h 161 A few eastern states, notably Connecticut, Massachusetts and New York, wliere the problem of reforestation is pressing, have endeavored to encourage reforestation by means of deferred taxes, and at the same time to impose an equal burden on the owners of timber land and the owners of other real estate. Local Assessment of Fokest Land in New Yokk State. — Most of the forest area of New York, including the State forest pre- serve, is taxed as other property under the general-property tax. Standing timber is real estate and is to be assessed as such by the local assessors. This method of taxation has not encouraged premature cutting to any extent in this State, for, because of under-assessment, the tax burden has not been heavy. Timber land is usually assessed at a low rate, often merely nominal, and the larger part of the tax burden has been shifted to the owners of other property. If, as is frequently claimed, this practice is essential to the consei'vation of our forests, this fact should be recognized frankly, and provided for by law. The Legislator, and not the local assessor, should determine the degree to which forests should be subsidized and the amount of taxes to be imposed on forest land. Laws for Special Taxation OiF Forests in New York. — Special laws were passed in 1912 to provide for exemptions and deferred taxation of wooded and reforested land under certain conditions. The provisions of these laws are as follows: First, total exemption from the property tax is granted to reforested land, under certain conditions. The area reforested may be from one to one hundred acres, and it must lie more than twenty miles from any city of the first class, more than five miles from any city of the second class, and more than one mile from any city of the third class. It must be planted accord- ing to conditions specified in the law, and must be duly registered. The exemption is for thirty-five years from the date of planting. After that time the land is taxed on bare land value at the gen- eral property tax rate. No tax is placed on the timber until cut, "when a tax of five per cent on stumpage value must be paid. Land which has been underplanted is entitled to a fifty per cent exemption under the same conditions.* ♦ Tax Law, sec. lf>. p 162 Second, woodlots of from one to fifty acres, and outside of urban areas as defined above, are entitled to total exemption on the timber value as long as no timber is sold. The land is assessed at the same rate as similar unforested land, but the assessed value shall not exceed ten dollars per acre. Whenever the cut is in excess of domestic need it shall be subject to a tax of five per cent on stumpage value.* Third, areas in excess of five acres and suitable for reforestation, and also outside of the limits prescribed above, are, under certain conditions of planting, exempt so far as timber values are con- cerned for thirty-five years. The land is assessed and taxed on the bare land value at the same rate as similar lands in the district. After thirty-five years both land and timber are sub- ject to the usual general property tax.f Forest-Products Taxes in Other States. — Laws similar to that described in the preceding paragraph exist in Massachusetts. Connecticut, Michigan, Pennsylvania, and Vermont, but in none of these is total exemption granted to the land, and there is con- sequently no limited period of exemption.:]: * Tax Law, sec 17. New York Conaenalion Law, sec. 57. Forest Taxation in States Employing Products Tax: I State Forest land to which it applies Amount of exemp- tion Period of exemption Rate of products tax New York Tracts of 1 to 100 acres outside urban areas and planted accord- ing to specifications. Total land and timber value exempt. Land 35 years. Timber until cut. Five per cent Connecticut . . . Tracts of 5 acres and over suitable for for- est planting and not valued at over $25 per acre. No exemption of land, but tax rate limited to 10 mills and no re- assessment for 50 years. Complete exemption of timber growth after classi- fication. Until cut. Graduated up to ten per cent on timber classified and exempt from date of plant- ing. Massachusetts . Tracts of 3 acres and over registered and planted according to specifications. No exemption of land. Complete exemption of timber growth after classification. Until cut. Graduated up to 6 per cent on timber classi- fied and exempt from date of planting. Michigan Tracts up to one-eighth of 160 acre tract one- half of which is im- proved, under cer- tain conditions of planting. Land value in excess of $1 per acre exempt. Complete exemption of timber growth after classification. Until cut. Five per cent. Pennaylvania . . Tracts under certain conditions of plant- ing accepted as " auxiliary forest re- serve." Land value in excess of f 1 per acre exempt. Complete exemption of timber. Until cut. Ten per cent. Vermont Tracts registered and planted according to specifications. Tiand value in excess of $3 per acre. Com- plete exemption of timber growth after classification. Until cut. Graduated up to 10 per cent on timber classified and exempt from date of plant- ing. ( ^ A 163 Elaborate provisions are made for the transition period in Con- necticut, Massachusetts and Vermont, in order to avoid any immediate reduction in local assessments, and to avoid penalizing the timber owner who has not enjoyed such exemption from the time of planting the timber. In Pennsylvania the exemption applies to mature timber from the date of classification, and the State reimburses local districts for any reduced assessments. Forest Tax Law of New York Ineffective in Operation. — Few owners of timber land have taken advantage of the New York law because of the detailed requirements for classification and because the expense of reforestation is so great that tax exemption is not in itself adequate compensation. Less than 1,300 acres had been classified under these acts in 1919,* and the value of land so exempted was placed at only $18,440.f The results coincide with those in other states. None of the exemptions in any of the states seems to have accomplished its purpose in encouraging reforestation. Thus far the compensation of exemp- tion has been insignificant compared with the cost of reforestation and the detailed requirements for classification to obtain exemp- tion have made the laws impotent. In Vermont one company has recently classified 39,000 acres. Aside from this only about 1,000 acres have been classified, and the entire 40,000 acres repre- sent less than eight-tenths of one per cent of Vermont's forest land. In Pennsylvania 12,600 acres have been classified, or less than one-tenth of one per cent of forest land. In Connecticut 2,462 acres or less than two-tenths of one per cent, and in Massachusetts 1,931 acres or about one-tenth of one per cent have been classified. New York has the smallest amount of any of these states, — 1,300 acres or one-one-hundredth of one per cent. Conclusion. — Until timber values increase beyond their pres- ent worth it would appear that direct encouragement to reforesta- tion must come in other ways than through tax exemption. In general it would seem desirable to maintain the burden of forest taxation equal with that on other real estate unless it becomes apparent that such taxation would interfere with our policy of conservation and reforestation. * Report of New York Conservation CommiKKwn, 1919. t Report of Nev.' York Tax Commission, 1919. .! 164 Very little uncut forest remains in the state, and the problem of forest taxation is mainly one of taxing deforested land or land with growing timber which has no immediate market value. The time has passed in New York when the owners of deforested land let it go for taxes. Such land has a very real market value. This should be taken into account in formulating the tax policy. The problem of taxing growing timber is not so simple. Tim- ber has usually been regarded as real estate and taxable as such. As long as most of the standing timber was virgin timber, and the owners had incurred none of the expenses of growing it, there were strong reasons for taxing it in this way. In cases where timber has been planted, however, there is some argument for exempting it as farm crops are exempted, and taxing only the bare laud value, but this position is not unassailable. Difficulties arise in valuing the bare land apart from the increasing value of the timber crop. ]^o undue exemption should be allowed, but conservation and reforestation are of very great importance, and while the effect of the general property tax on deforestation has probably been overemphasized, no policy of forest taxation should be adopted which will either discourage reforestation or encourage prema- ture cutting. Among the suggestions which the Committee has under con- sideration are the following: 1. That classification of timber land for the purpose of exemption be abolished; 2. That timber land be taxed as other property on its bare land value; 3. That timber be assessed at its full market value and taxed under the general-property tax, the State Tax Com- mission in cooperation with the state forester, laying down more definite rules of assessment than prevail at present for the aid and guidance of local assessors ; or 4. That mature timber be assessed at its full market value and taxed under the general property tax, but the value of growing timber should be exempted; or 5. That all existing timber be taxed at its present value but that anv future increases in the value of timber be 165 exempted from assessment and a graduated yield tax should be introduced for the transition period, the final-yield tax being imposed at the present rate of five per cent ; or 6. That timber be classified as a growing crop and ex- empted from all taxation. It should be noted that while the immediate fiscal aspects of the problem are inconsiderable, the economic and social effects of the taxation of forest lands are of such great importance that the policy of the State must be foimulated with the greatest care. The Administration of the Inheritance Tax The inheritance tax is now one of the largest sources of state revenue^ and the problem of its administration is of correspond- ing importance. There is considerable sentiment in the State in favor of a higher degree of centralization in the administra- tion of this tax and the Committee believes that future progress probably lies in this direction. The experience of other states with this problem, however, does not seem to lead to a clear and definite conclusion on this point. This Committee has coop- erated with the Tax Commission and the State Administration in the development of a tentative plan for reforming the pro- cedure in this state. Present practice. — Under the present practice the transfer tax proceeding is from its institution a judicial proceeding. The surrogate has jurisdiction of the determination of all questions involved and ultimately fixes the amount of the tax. Proceed- ings are commenced voluntarily by the executor or any one inter- ested in the estate, by the surrogate of the county of his own motion, or by the Tax Commission through its attorney. The fact that the property cannot be transferred until the tax is paid usually makes it unnecessary for the state officials to take the initiative. If the tax is paid within six months a discount uf five per cent on the amount of the taxes is allowed and if not paid within eighteen months a penalty of ten per cent per annum from the date of death accrues. Upon receiving the petition the surrogate enters an order desig- nating an appraiser. Under the existing system salaried apprais- ► ♦ Cf. supra, p. 22. \>:i 166 ers are appointed by the Commissioii in the larger counties and in the other counties the county treasurers act in the capacity. The appraiser conducts a hearing, takes testimony if necessary, reports the value to the surrogate and to the attorney of the Commission. The report is confirmed by the surrogate, usually pro forma, and an appeal may then be taken from the surrogate as an assessing officer to the surrogate as a judicial offixjer, and can then be carried up through all of the courts to the Court of Appeals and in some cases to the Supreme Court of the United States. Criticisms and suggestions. — The procedure of thus formally designating an appraiser, whose report has to be considered by the Tax Commission and by the attorney of the estate, and sub- mitted back and foith a number of times before transmission to the surrogate, accompanied by much formality in the Surrogate's Court, results in delay in administration. In the great major- ity of estates, probably ninety per cent, there is no controversy as to the value of the transfer or the amount of the tax. In such cases there seems to be no necessity for going through this elabo- rate procedure wherein the appraiser acts as an intermediary between the representative of the estate and the attorney of the Tax Commission. If the report of the representative of the estate were made directly to the Tax Commission, after a con- ference with the attorney for the estate, and the taking of testi- mony if necessary, it is believed that much greater expedition woidd be accomplished in the settlement of the tax in the vast majority of estates. It would be necessary, of course, to provide for full notice to interested parties, and for a judicial review in eases where an agreement cannot be reached. To facilitate the administration of the transfer tax the follow- ing tentative suggestions are submitted: The representatives of the decedent shall file with the attorney of the Tax Commission in the county of the surrogate having jurisdiction, or if no surrogate has jurisdiction with the Tax Commission, two copies of inventory and report giving a list of the assets of the estate, the value, the distribution, the names addresses and relationship of transferees, a copy of the will or deed of trust, and such other information as the Commission may require. This information shall be filed on a form supplied by . • » 167 the Tax Commission within six months after the appointment jf such representative unless the time is extended by consent or an order of the surrogate. The Commission may require a supplemental report, and the Commission or its attorney may subpoena witnesses and compel testimony. Conferences may be had, if desired, by the repre- sentative with the Commission or its attorney. The Commission shall determine from the inventory and other data before it the value of the estate, of the several interests transferred, and the amount of tax on each, and file the report with the surrogate having jurisdiction. In the case of non-resi- dents, if no surrogate has jurisdiction, the report shall be filed with the surrogate selected by the Commission. The surrogate shall cause notice of the filing of the report and the assessment of the tax to be served on all persons interested including guardians and committees. On a date to be specified in the notice, the surrogate shall hear all parties interested and may take proofs in reference to the value and the amount of the tax. All questions of law and fact are to be considered at the hearing. The surrogate may confirm the report, modify and confirm the report or order a new report by the Commission in accordance with the findings of fact or principle laid down by him. The same proceedings shall apply in case of a new report from the Commission. If necessary, the surrogate may designate an appraiser from standing appraisers appointed by the Commission who shall receive compensation for actual services only, one-half of which shall be paid by the State and the other half by the estate. The order of the suiTogate confirming the report shall be final on all questions of fact. Appeals shall be to the appellate divi- sion on questions of law only. The adoption of the plan outlined would involve the elimina- tion of the salaried appraisers in several counties and the elimina- tion of the county treasurers as appraisers in the other counties. It should avoid a multiplicity of orders in the surrogate's court. The appraiser now stands between the attorney of the State and the attorney of the estate. The report is transmitted first to one and then to the other involving great delay before it goes to the surrogate. The Commission under the suggested plan would 't M i ! 168 come immediately in contact with the attorney for the estate, and in ninety-nine cases out of one hundred the tax would probably be assessed as mere routine. Miscellaneous The apportionment of state taxes to the localities. — The Com- mittee believes that the time is near when it will be necessary lo face squarely the questions of the principles involved in the dis- tribution to the localities of the taxes collected by the State. At present the localities share in the yield of the personal income tax, the income tax on mercantile and manufacturing companies, and the motor-vehicle fees. The basis of apportion- ment in each case is different. The recommendations made by this Committee raise questions regarding the share of the locali- ties in the proposed net income taxes on banks and financial insti- tutions, the proposed gross-net tax on public utilities, the proposed new taxes on motor vehicles and gasoline, and the proposed new unincorporated business tax. heedless to say, the interests oi the localities must be carefully safeguarded, and any plan must assume that the localities will continue to receive as much revenue as they now obtain. But the Committee is considering whether it would be best (1) to assign the entire yield of certain of the taxes to the localities, thus separating the sources of revenue; or (2) to share the proceeds of the various taxes on varying specific bases, or (3) to pool the proceeds of these taxes in a general Sub- vention Fund, from which fund the localities shall be allowed to draw in accordance with a more consistent set of principles than those which now govern the allocation of the taxes which are at present distributed back to the localities. This problem is one which will assume greater and greater importance as the tax sys- tem of the State develops. It does not assume an acute form at present but the Committee believes that a study should be made at once of the entire question and that an attempt l)e made to formulate the principles which should govern the administration of a Subvention Fund, since that is the form which the solution appears most likely to assume. Simplification and codification of the tax law. — The manv amendments which have been made since the last general revision •> 169 of the tax law have left the code in a confused and unclear con- dition. Portions of the law are obsolete and some of the pro- visions are conflicting. If the Committee's recommendations are adopted, it is reasonable to hope that the tax law will soon reach a condition of relative stability which would justify a careful and thoroughgoing revision of the code. The need for adequate statistics. — The statistical investiga- tions which have been conducted by the Committee have empha- sized the need for adequate tax statistics. It is axiomatic that a tax system should be based upon exact knowledge of the wealth and tax-paying ability of the different elements in the economic life of the State, and that serious inequalities of burden should not be allowed to develop. For the guidance of the Legislature in framing a just tax system, and in determining the burden of taxes upon different elements in the community, complete sta- tistical information should be readily available.* Decision as to the statistics which should be compiled and cur- rently published by the Tax Commission should be made after a special study of the problem, and after consultation between all interested departments of the State government and associations of tax experts. The value of the statistics at present gathered should be carefully weighed, and the publication of facts not of use should be discontinued. That certain additional facts not now compiled should be currently published has been revealed by the work of the present Committee. These chansces mav call for minor alterations in organization, and the creation of a small statistical staff within the Tax Com- mission. No material change would be necessary and no con- siderable expense involved in such a program. Since material bearing closely on related subjects is gathered by other depart- ments of the State government, an organization plan should pro- vide for collaboration ])etween departments in the compilation and publication of these statistics. * As an example of the utility of such fii^res reference may be made to the need for localized income statistics at the present time. Such localized data would be of ven' material assistance in determining the relation between local expenditures and the wealth and income of given localities. r I* tM^ t^ -liT ' i ip PART TWO A STATISTICAL ANALYSIS OF THE TAX BURDEN ON CORPORATIONS IN THE STATE OF NEW YORK By FREDERICK C. MILLS Assisted By DONALD H. DAVENPORT II I ' I ,■ Object and Scope'^ Object of the investigation. — This report summarizes the re- sults of an investigation undertaken for the purpose of deter- mining the relative burden of present taxes on corporations in New Dfork State. Under the existing laws different types of corpora- tions are taxed on different bases. Some pay in proportion to their net income. Others are taxed on their gross earnings or excess dividends. Taxes on certain corporations are levied on capital stock, or on capital, surplus and undivided profits. Combined with these varying classifications, which cut across each other in diverse ways, are general property taxes and special franchise taxes. The complicated character of the corporation tax system has rendered difiicult a ready comparison of the burden of taxes on different classes of corporations. An attempt is made in the following pages to reduce the prob- lem to quantitative terms, on a common basis, in order that effective comparison may be possible. Specifically, the following have been the ends in view: 1. The compilation of available data on the capital and income of different types of corporations in New York State. Where complete aggregate figures could not be obtained, representative samples were studied. 2. The assembling of all available information concerning the amounts paid in taxes to the State of New York under existing laws by different classes of corporations. 3. The determination of the burden of general tax charges upon different classes of corporations. To facilitate comparison, tax payments have been reduced to a common basis, in so far as this was possible. 4. The determination of the burden of specific taxes upon the different classes of corporations paying them. * The Committee desire to acknowledge the aid which has been given in the preparation of this report by the office of the Commissioner of Intornal Revenue. Washington, D. C, the Tax Commission and the Public Service Commission of the State of New York, the office of the Superintendent of Banks and the office of the Comptroller of the State of New York. The heads of these departments and the members of their staflfs have rendered valuable assistance in this work. [173] i I 174 6. The assembling of such additional material as, in conjunc- tion with the above, might be of use to the Committee in framing proposals for changes in the tax system and in determining the practical effects of such changes. Scope of study and sources of information. — For the purpose of this study, the corporations in the State have been grouped into three general classes, with minor subdivisions. These classes are : (1) Mercantile and Manufacturing Corporations taxed under article 9-a of the tax law; (2) Public Service Corporations; (3) Financial Institutions.* The problem of dealing with the first group has been relatively simple; in that these corporations pay a straight tax of 4% per cent on their net income. The essential problem has been that of reducing the complex taxes paid by the other two groups to such terms that comparison with the first group might be possible. Published statistics dealing with the capital and income of these three classes of corporations in New York State have been summarized and studied. It has been necessary, in addition, to conduct an intensive survey of all banks, trust companies and investment companies in the State, and of a representative list of public service corporations. The sources of information are listed in detail below: I. General sources, all classes of corporations. 1. United States Government Departments. Treasury Department; Division of Internal Revenue. Statistics of Income— 1916, 1917, 1918. In addition to the published statistics of the Division of Internal Revenue, the Secretary of the Treasury, upon the request of this Committee, prepared the following detailed tables, based upon the tax returns of corporations in New York State: Table 1. Showing sources of corporate income and nature of deductions, by industrial groups, for corporations in New York State, for the year 1918, with detailed information for the following sub-classes: Transportation and other public utilities: Steam railroads. Electric railways. Express companies. Electric light and power companies. Gas companies. Telephone and telegraph companies. Water works. All other public utilities Total, transportation and other public utilities. • Insurance companies are not included In the above classification of financial instltntions. The results of a later investigation of the burden of taxes on insur- ance companies are given in a separate section below. Cf. infrn, pp. 265-269. 175 Banking and related business: National banks. State banks. Trust companies. All other corporations engaged in banking and related business. Total, banking and related business. Table 2. Corporation returns — Distribution by industries for New York State, for the year 1918. Table 3. Aggregate figures for banks and public utilities in New York State, classified, giving, for the following classes of corporations: a. Amounts received in the form of dividends from other corporations subject to federal income tax, in the year 1918. 6. Amounts received as non-taxable interest on federal bonds in the year 1918. Transportation and other public utilities: Steam railroads. Electric railways. Express companies. Electric light and power companies. Gas companies. Telephone and telegraph companies. . Water works. All other public utilities. Total, transportation and other public utilities. Banking and related business: National banks. State banks. Trust companies. All other corporations engaged in banking and related business. Total, banking and related business. Department of Commerce, Bureau of the Census. Census of Manufactures, 1909, 19'14. Advance sheets of 1919 Census. Census of Electrical Industries, 1907, 1912, 1917. Financial Statistics of State, 1915, 1917. Taxation and Revenue Systems of State and Local Govern- ments, 1914. 2. New York State Government Departments: Reports and records of the State Tax Commission. Reports and records of the State Comptroller. Figures in all published reports have been analyzed and addi- tional information has been secured from the original records in the files of the Tax Commission and the Comptroller. II. Additional Sources of Information, Public Service Corporations. 1. Reports and records of the United States Interstate Commerce Com- mission. In addition to its published reports, this Commission permitted the Committee to utilize its valuation figures for railroads in New York State, in so far as the work of valuation had been completed. 2. Reports and records of the Public Service Commission of the State of New York. A detailed analysis of the returns to this Commission by public service corporations has been made. All public utilities in the State, the returns of which were complete for the ten-year period, 1911-1920, have been included in this study. The follow- ing is a classification of the corporations studied : Steam railroads. Electric railways. ^1 i 176 177 i Telephone and telegraph corporations. Gas and electric corporations: a. Electric light and power. b. Gas and electric ( combined ) . c. Manufactured gas. d. Natural gas. A list of public utilities* consisting of all those whose reports with the Public Service Commission were complete for the ten-year period, 1911-1920, was circularized in order that certain addi- tional information might be obtained. The results secured are summarized in the table on this page. III. Additional Sources of Information, Financial Institutions. 1. Reports and records of the CSomptroller of the Currency. 2. Keports and records of the Superintendent of Banks, State of New York. For the purpose of obtaining certain materia! in addition to that obtained from the above sources, all National Banks, State Banks, Savings Banks, Trust Companies, and Investment Companies in the State were circularized. A statement showing the response to the question- naires sent to the public utilities and financial institutions follows: Replies to Questionnaires Type of Corporation National banks . . State banks ..... Trust companies . Savings banks . . . Invest. compcuiieB Total Financial Institutions Steam railroads. . Electric railroads. . . Telephone, tde- graph and cable companies Gas and electric companies Total ] Public } Utilities Totals . Num- ber of corpor- ations to which ques- tion- naires were sent Cor- rected list ex- cluding corpor- ations no longer in oper- ation Replies to Srst letter July, 1921 Per cent reoly- ing after first letter Total replies after seeomd letter August, 1921 Per cent reply- ing after second letter Total replies after third letter Septem- ber, 1921 495 232 100 144 35 1 006 50 113 89 163 415 490 232 100 143 30 995 48 112 82 143 385 235 160 60 123 12 590 13 21 26 40 100 47.9 69.0 60.0 86.0 40.0 59.3 27.1 18.75 31.7 28.0 26.0 363 182 79 138 15 777 29 45 54 93 221 74.1 78.4 79.0 96.5 50.0 78.1 60.4 40.2 65.9 65.0 67.4 458 207 97 143 27 932 39 91 68 117 315 1.421 1,380 690 50.0 998 72.3 1,247 Per cent reply- ing after third letter 93.4 89.2 97.0 100.0 90.0 93.7 81.2 81.2 82.0 81.8 81.8 90.3 With very few exceptions, the financial institutions and public service corporations called upon were prompt to co-operate with the Committee in its work. Summary of Amiual Taxes Paid by Corporations The following brief outline of the taxes paid by the different classes of corporations operating in New York State will serve as a background for the later discussion. No attempt is made to explain the various provisions of the tax law in detail. (. ♦ A — Taxes Paid by Business Corporations. (The term "business corporations" covers mercantile and manu- facturing corporations, excluding: a. Real estate corporations. b. Holding corporations. c. Transportation and transmission corporations. d. Elevated or surface railroads not operated by steam. e. Waterworks companies, gas companies electric or steam heat- ing, lighting and power companies. f. Insurance corporations. g. Banks, State and national, h. Savings banks. i. Trust companies. j. Investment companies. See article 9-a, section 210, Tax Law). 1. Franchise Tax (article 9-a, Tax Law), 414 per cent on net income. (Minimum tax to be not less than $10 and not less than one mill upon each dollar of issued capital stock). (D^nition of net income: "total net income before any deduc- tions have been made for taxes paid or to be paid to the Gov- ernment of the United States on either profits or net income or for any losses sustained by the corporation in other fiscal or calendar years whether deducted by the (Government of the United States or not." Section 208, article 9-a, Tax Law). 2. General Property Tax (articles 1-5 inclusive, Tax Law). (Business corporations are taxable on real property and certain fixed equipment; they are exempt from the payment of taxes on personal property. See article 9-a, sections 219-i, 219-j. Tax Law ) . B — Taxes Paid by Financial Institutions. 1. State and National Banks. a. Bank Stock Tax (article 1, section 13, article 2, sections 23-24, Tax Law ) . 1 per cent on value of shares (total value of shares equal to capital, surplus and undivided profits). b. General Property Tax (articles 1-5 inclusive. Tax Law). (Institutions paying the bank stock tax are taxable only on real property; they are exempt from the payment of taxes on personal property. See article 2, section 24-c). 2. Trust Companies. a. Franchise Tax (article 9, section 188, Tax Law). 1 per cent on capital, surplus and undivided profits (based on average during preceding year ) . b. General Property Tax. (On real property; trust companies are exempt from pay- ment of taxes on personal propertv. See article 9, sec- tion 205, Tax Law). 3. Invefitment Companies. a. Franchise Tax (article 9, section 188-a, Tax Law). 1% mills for each dollar, face value, of capital. 1 per cent on surplus and undivided profits. b. General Property Tax. (On real property; investment companies are exempt from payment of taxes on personal property. See article 9, sec- tion 205, Tax Law). 4. Savings Banks. a. Franchise Tax (see article 9, section 189, Tax Law). 1 per cent on par value of surplus and undivided earnings. b. General Property Tax. (On real and personal property; deposits in savings banks exempt from taxation). II i I 178 5. Insurance Corporations and Surety Companies. a. Franchise Tax (article 9, section 187, Tax Law). 1 per cent on excess of gross amount of premiums charged, over deductions allowed by law, on business done within this State during previous calendar year. b. General Property Tax (on real and personal property). C — Taxes Paid by Public Service Corporations. 1. Steam Railroads. . , „^ „, t v a. General Franchise Tax (article 9, section 182, Tax Law). (Franchise tax is based upon the capital stock of the corpo- ration. Tax rate variable, depending upon dividend rate, relation of assets to liabilities, and average price of stock sold). b. Additional Franchise Tax (article 9, section 184, Tax Law). One-half of 1 per cent on gross intra-State earnings (not including earnings derived from business of an interstate character ) c. Special Franchise Tax (article 2, sections 44-49, Tax Law). (Tax Commission annually determines valuation of special franchises subject to assessment in each city, town or village. Final equalized valuation is the assessed valuation on which all taxes based upon special franchise are levied by local authorities. Tangible property situated upon streets, highways, public places or public waters in connec- tion with the special franchise is taxed with such franchise). d. General Property Tax. (Real and personal property, excluding that which is assessed with special franchises, is taxed under this head). 2. Telephone and Telegraph Companies. (Taxed upon same basis as steam railroads). 3. Elevated or Surface Railroads not operated by steam. a. Franchise Tax (article 9, section 185). 1 per cent on gross earnings from all sources within the State. 3 per cent upon amount of dividends declared or paid in excess of 4 per cent upon actual amount of paid-up capital. b. Special Franchise Tax (article 2, sections 44-49, Tax Law). (Same as steam railroads). c. General Property Tax (same as steam railroads). 4. Other Transportation Companies (taxed upon same basis as steam railroads). . ti 4.- 5. Waterworks Companies, Gas Companies, Electric or Steam Heating, Lighting and Power Companies. a. Franchise Tax (article 9, section 186). One-half of 1 per cent on gross earnings from all sources within the State. 3 per cent, upon amount of dividends declared or paid in excess of 4 per cent upon actual amount of paid-up capiial. b. Special Franchise Tax (article 2, sections 44^9, Tax Law). (Same as for steam railroads). c. General Property Tax (Same as steam railroads). D Taxes paid by corporations not included in the above classes. 1. Realty Companies. „, -r x a. General Franchise Tax (article 9, section 182, Tax Law). (Franchise tax based upon the capital stock of the corpo- ration ) . b. General Property Tax (on real and personal property). 2. Holding Companies. a. General Franchise Tax (article 9, section 182, Tax Law). b. General Property Tax (on real and personal property). « • ( « General Considerations The summary of the existing corporation tax laws of Xew York State, presented above,* indicates the diverse bases ou which corporations are taxed. The chief object of the present investigation- has been to reduce the taxes actually paid by cor- porations to a common basis in order that a comparison of the relative burden might be facilitated. In attempting to measure the relative burden of taxes a double problem is involved. In the first place, it is important to know how a system of taxation affects the different corporations within a given group, as, for instance, to determine whether a given tax falls most heavily upon small or large institutions. It is also important to determine the relative weight of the tax burden on different classes of corporations, such as business corporations, public utilities and financial institutions. The pages immediately following are devoted to a consideration of this double problem. Net income has been adopted as the standard best adapted to the measurement of tax burden.f For each class of corporation an attempt is made to express the amount paid in taxes as a per- centage of net income, though the original levy may have been upon an entirely different base. Inasmuch as business corpora- tions in New York State are now taxed upon net income, the problem has been that of reducing to the same base the taxes paid by other classes of corporations. At the outset it is necessary clearly to define the term ^'net income," and to indicate certain divergent uses of the term. Net income, as defined in Article 9-a of the New York State tax law, dealing with the taxation of business corporations, " means the total net income (as reported to the Commissioner of Internal Revenue of the United States) before any deductions have been made for taxes paid or to be paid to the government of the United Stiates on either profits or net income or for any losses sustained by the corporation in other fiscal or calendar years, whether deducted by the government of the United States or not " (Art. 9-a, § 208. • Supra, p. 177 et aeq. t Cf The (lisrnssion of the relation between taxes, nt't income and pross income. Tnfra, pp. 263-265. Il<9] 1^' 180 Tax Law). The basis for the determination of net income for state purposes is thus, fundamentally, net income as defined in the federal revenue act. Certain items exempt from taxation under the federal law are taxable under the New York law. These are : (1) Dividends from other corporations subject to the federal income tax and (2) Non-taxable interest on federal bonds. With the exception of the net loss provision noted above and the inclusion of these two items, taxable net income in New York State corresponds almost exactly to income taxable under the federal law.* This definition of net income has been adopted in the tables relating to financial institutions. All the financial institutions in the state (excluding insurance corporations) were requested to furnish the Committee with information as to the amount re- turned as net income to the Commissioner of Internal Kevenue, the amount received as dividends from other corporations subject to the federal income tax, the amount received in non-taxable in- terest on federal bonds, and the amount deducted for losses sus- tained in other years. By adding these four items a figure almost exactly equivalent to the net income on which business corporations are taxed in New York State could be obtained. The returns received from the financial institutions were satisfactory except in regard to the last item — deductions for losses sustained in other years. As some institutions returned answers to this question which were obviously incorrect, none of these returns was used. Fortunately this item was so small as to be negligible in the case of financial institutions. The results, therefore, are not sensibly affected by the failure to take account of it. A direct and accurate comparison af the tax burden upon the financial institutions and business corporations is thus possible. * For the details of the federal definUlon. see Re?nlations 45. relatinjr to th-e Income and War Profits and Excess Profits Tto nader the Revenue Act of 1M8. Strictly speakirig, the statement as given above is subject to this additional dualiflcation : That claims in abatement nnder Section 234 (a-14) of the Federal Revenue Act of 1918 may not be deducted in arriving at net income for purposes of the state tax until a final dieteviniBai^ioii of the amount is made. Thp section cited permits a deduction in the federal assessment based upon a loss due to a material r«Hluct1on in the value of an inventory at the end of 1918. The State does not forbid the deduction of such losses, when finally determined, but does prohibit their deduction on the tentative basis permitted b.v the federal government. ^ tkt 181 The difiiculties are greater with regard to public utilities. In determining the burden of taxes upon this class it was essential to secure a base period covering eight or ten years in time, since the condition of the public service corporations during the last several years has been somewhat abnormal. The reports submitted an- nually to the Public Service Commission of the State of New York have provided excellent material for a study of the relation of taxes to income. The sole difficulty has arisen from the fact that net income, a^ defined in the regulations of the Public Service Commission, does not correspond to net income as reported to the tax authorities. A full discussion of the detailed differences is impossible in the present report. In brief, net corporate income, as given in the reports of the Public Service Commission, is equal to total revenues, operating and non-operating, less expenses, taxes, uncol- lectible bills, sinking fund accruals and certain other contractual deductions, such as rent and interest.* While net income as here defined does not depart widely from the federal definition, there does not seem to be a direct and consistent relationship between the two items. The cause, no doubt, lies in the lack of thoroughly standardized accounting practices. One change is made in this item in using it in the present report. In working out the tax ratios for public utilities, the total sum paid in taxes has been added to net income to correct for the previous deduction of this item. Thus the basis of all the public utility tax ratios is net income before taxes have been deducted. In comparing these ratios with the ratios for business corpora- tions and financial institutions, this difference in the meaning of net income must be borne in mind. While general comparisons are not invalidated by this difference, attempts to make refined comparisons would be out of order. As between public utilities, of course, this objection does not hold, for the base is the same for all classes of public utilities. Certain other terms used in the ratios for public utilities should be explained. Net worth as here used is the sum of the follow- * For a more complete definition, see Uniform System of Accovnta for Electrical Corporations, New York State Public Service Commission, 1908, p. 81, sec. 10. 182 ing items: "capital stock'' and "surplus" (or "deficit"); *' re- serves" and "undivided profits." This is, of course, merely a bookkeeping figure for net worth, and in some cases includes items which could be questioned as representing elements of present value. The item "gross earnings," as given in this re- port, is the sum of operating revenue and non-operating revenue, as reported to the 'State Public Service Commission. The Burden of Taxes on Business Corporations Inasmuch as the tax on business corporations is now on an income basis, this class has been used as the standard to which the other groups have been compared. The exact status of the cor- porations falling within this class should be made clear, however, before the taxes paid by other corporations are discussed. The basic tax now paid by business corporations * is a 4% per cent tax on net income as defined above. This is in lieu of all other fran- chise and personal property taxes. These corporations are taxed in addition, of course, upon all real property held, certain forms of fixed equipment being included in the definition of real property. The amounts paid by corporations taxed under Article 9-a of the tax law are sho^vn below for the last four years (fiscal years ending June 30th). The figures for 1918 and 1919, it should be noted, represent taxes collected when the franchise tax was 3 per cent of net earnings, while the 1920 and 1921 figures rep- resent 41/^ per cent of net earnings. TABLE 1 Receipts From Tax on Business Corporations Year Receipts f 1918 $13,676,676 1919 19,785,618 1920 29,789,350 1921 42,889,822 In addition to the basic tax of 41^ per cent on net income, business corporations are subject to taxes on real property as • The exact meaning of this term is made clear above in the summary of existing oorporation tax laws. Cf. supra, p. 177. t The 1919 figures include some taxes levied in 1918. but not collected till 1919 > U 183 noted above. For reasons which are discussed in more detail below,* these property taxes are not, in general, as burdensome as are other direct taxes. The amount of such taxes paid by business corporations may be noted in passing, however. While specific figures are not obtainable, this amount may be approxi- mated by multiplying the total assessed values of property held by business corporations by the average tax rate. In 1920 the amount paid in property taxes by mercantile and manufacturing corporations was approximately 30 millions of dollars or 4% per cent of their total net income. Thus total taxes paid in New York State by business corporations under existing laws would be about 9 per cent of their net income. This percentage would be slightly lower (about 8.65) if the base taken were net income before any taxes were deducted. f Later reference will be made to these figures in comparing the burden upon these companies with the burden of taxes on other corporate groups, t The Burden of Taxes on Financial Institutions The classes of financial institutions studied in the present seo- tion are national and state banks, trust companies, investment companies and savings banks. The taxes paid by these institu- tions have been summarized above. § In brief, national and state banks pay annually, on behalf of their stockholders, a tax of one per cent on the value of their shares of stock. As the value of the shares is based upon the capital, surplus, and undivided profits of the individual banks, the tax amounts to one per cent of capital, surplus, and undivided profits. Trust companies pay a franchise tax of exactly the same percentage of their capital, surplus, and undivided profits. Investment companies pay a franchise tax calculated upon a double basis ; it is equal to one per cent of surplus and undivided profits, plus one and one-half mills on each dollar of capital stock. Savings banks pay a franchise tax equal to one per cent of the par value of surplus and undivided earnings. In addition, all thbse institutions are subject to a tax on their real property. ♦ Cf. infra, pp. 193. 194. . . . ^ , , .. t Attention should be called to the fact that the base used in these calculations Is that part of the total net income of business corporations which has been allocated to New York. t Infra, pp. 196, 258-261. * S Supra, p. 177 184 The amounts collected from financial institutions in the form of bank stock or franchise taxes are given in the following table, covering the period 1917-1920. The figures for national and state banks have been estimated by dividing the total receipts from the bank-stock tax between these two classes, the basis being the aggregate capital, surplus, and undivided profits of the two groups. The fact has been noted elsewhere that these figures, which are actual receipts by fiscal years ending June 30th, show a lag of one year when compared with the direct returns from the banks, which have been used in compiling the other tables in this section. TABLE 2 Receipts From Bank Stock or Franchise Taxes on Financial Institutions* class of corporation Notional banks. State banks . . . . , Triist companies Savings banks. . Total , Amounts Paid ix Bank Stock or Franchise Taxbs 19i: S4, 390, 105 932,032 2.536,718 1,394,647 $9,253,502 1918 $4,602,352 981,762 2,778,674 1.455,434 $9,818,122 1919 $5,010,510 1.068,152 2.911,474 1,337.961 $10,328,097 1920 $5,792,208 1.239,268 3,196.586 1.439.896 11.637 .958 1921 $3,377,292 881.950 What do these taxes amount to in terms of net income? This question must be answered, first, for the different corporations falling within a given class, and, secondly, for the class as a whole, in order that comparison with business corporations may be made. The first question relating to the burden of taxes upon the members of a given class is answered specifically in the five tables immediately following. Table 3 shows the percentage of net income paid in the bank stock tax by 398 national banks in New York State, classified according to size. IN^et income, as here used, has been defined above. Both the income and tax figures are averages for the three years 1918, 1919, and 1920. The remaining tables present similar figures for the other classes of financial institutions. • Investment companies have not been included in this table. The receipts from this class are not large. « • 185 TABLE 3 Percentage of Net Income Paid in Bank Stock Tax by National Banks in New York State Frequency Table Showing the Felative Burden of the Bank Stock Tax on National Banks, by Classes (Based upon the average tax and the average State net taxable income for the three years 1918, 1919 and 1920) Number Fating Num- ber in CLASS* ! 1 1 1 Orer 40 each 2% 4% 6% ' 8% 10% 12%il4% 16% 18% 20% 22% 24% 26%;30% clasB to to to to to to to 1 to to to to to to to ! to 1.9% 3.9 5.9 7.9 9.9 11.9 13.9 1 4 15.9 17 9 19.9 • • 21.9 "i 23.9 25.9 27.931.9 per enit A 11 28 1 2 3 5 1 • • 4 i B 8 i 7 • • C 204 1 2 8 33 35 4,1 31 20 7 3 5 3 3 3 a D 155 1 6 20 31 37 J 33 26 75 11 47 11 32 6 13 3 6 2 8 1 4 2 2 Total 398 1 83 76 4 5 2^ 5 * Class A is composed of companies with capital, surplus, and undivided profits of $10,000,000 and over ; Class B, of $1,000,000 to $10,000,000 ; Class C, $100,000 to $1,000,000 ; and Class D, less than $100,000. (Three national banks reported an average deficit for this period) TABLE 4 Percentage of "Net Income Paid in Bank Stock Tax by State Banks in New York State Frequency Table Showing the Relative Burden of the Bank Stock Tax on State BankSy by Classes (Based upon the average tax and the average State net taxable income for the three years 1918, 1919 and 1920) Num- ber in eaoh class l^UKBER Pa TING CLASS ♦ to 1.9% 2% to 3.9 • * *i 1 4% to 5.9 6% to 7.9 8% to 9.9 3 17 16 36 10% to 11.9 3 7 8 18 12% to 13.9 2 9 4 14% to 15.9 i 8 3 18% to 19.9 20% to 21.9 22% 34% to to 23.9|35.9 I i 1 1 Over 40 per cent A 1 21 77 57 • ■ • • • • • • 2 3 14 6 1 9 13 17 i 1 2 1 B C ■ i D A Total 156 2 2 23 40 15 12 2 3 1 1 1 ♦Class A IS composed of companies with capital, surplus, and undivided profits of $10,000,000 and over; Class B. of $1,000,000 to $10,000,000; Class C. $100,000 to $1,000,000; and Class D. less than $100,000. (Two State banks reported* an average deficit for this period) U *f5- i 186 TABLE 5 Percentage of Net Income Paid in Franchise Tax by Trust Companies in !N^ew York State Frequency Table Showing the Relative Burden of the Franchise Tax on Trust Companies, by Classes (Based upon the average tax and the average State net taxable income for the three years 1918, 1919 and 1920) NUMBKR PaTINQ Num- ber in CLASS • OTer each 3% 4% 6% 8% 10% 12% 14% 16% 18% 20% 26% 30% 36% 40 filM to to to to to to to to to to to to to to per cent 1.9% 3.9 5.9 7.9 9.9 11.9 13.9 3 5 15.9 2 17.9 19.9 21.9 27.9 31.9 "i 1 37.9 i 1 A 8 25 48 • • • • 2 1 1 1 3 5 • • 1 6 7 4 4 10 18 2 4 5 1 8 7 i 1 • • 3 3 • • 2 2 i 1 B i C Total 81 3 11 10 8 2 2 1 ♦ Class A is composed of companies with capital, surplus and undivided profits of 110,000,000 and over; Class B, of $1,000,000 to $10,000,000; Class C, $100,000 to $1,000,000. (One trust company reported an average deficit for this period) TABLE 6 Percentage of Net Income Paid in Franchise Tax by Investment Companies in New York State Frequency Table Showing the Relative Burden of the Franchise Tax on Investment Companies, by Classes (Based upon the average tax and the average State net taxable income for the three years 1918, 1919 and 1920) Number in class NincBBR Patino CLASS* to 1.9% 2% to 3.9 4% to 5.9 6% to 7.9 8% to 9.9 B 3 12 1 1 1 7 1 2 i C i Total 15 2 8 3 1 1 ♦ Class B is composed of companies with capital, surplus, and undivided profits of $1,000,000 to $10,000,000 ; Class C, $100,000 to $1,000,000. h* ( \ 187 TABLE 7 Percentage of Net Earnings Paid in Franchise Tax by Savings Banks in New York State Frequency Table Showing the Relative Burden of the Franchise Tax on Savings Banks, by Classes (Based upon the average tax and the average net earnings over expenses and dividends for the three years 1918, 1919 and 1920) CL.VSS * NumbPF in class Number Patinq 1 2% ' 4% to i to i to 1.9% '3.9 5.9 1 6% to 7.9 8 21 7 36 8% to 9.9 6 10 3 19 10% to 11.9 3 5 2 10 12% to 13.9 1 5 6 14% to 15.9 18% to 19.9 20% to 21.9 26% to 27.9 B 30 73 32 1 3 3 6 7 8 21 10 1 i i 1 1 c D Total * 135 7 14 39 1 1 1 * Class B is composed of companies with surplus and undivided profits of $1,000,000 to $10,000,000; Class C, $100,000 to $1,000,000; and Class D, less than $100,000. The outstanding fact is that the tax, as at present levied, falls upon members of the same gi*oup with very unequal weight, when expressed in terms of tax-paying ability, as represented by net income. In the national bank group one institution paid less than two per cent of its income in the bank stock tax, while five paid over forty per cent. Between these two limits there is a wide dispersion. Twenty-eight banks pay more than twenty per cent of their net income in meeting this tax. Two hundred and one of the total of 398 banks pay ten per cent or more. The extent to which this inequality is connected with inequali- ties of size is also indicated by the table. There is no uniformity of burden, even within a given class, but in general the large banks pay a smaller percentage of their net income in taxes than do the banks of medium or small size. Thus ten of the eleven banks in Class A (having capital, surplus, and undivided profits of $10,000,000 or over) pay less than ten per cent of their net income in meeting the bank stock tax. Of the 204 banks in Class C (having capital, surplus, and undivided profits of H00,000 to $1,000,000) only 79 pay less than ten per cent. The average burden in each class is indicated in the following able, a summarv of the five detailed tables: I r 188 TABLE 8 Average Ratio of Bank-Stock Tax or Franchise Tax to 'N:et Income, Financial Institutions in New York State by Classes. (The average employed in each case is the total number of corporations included in each than the given percentage of their net income half paid less.) median; thus one-half of the of the given groups paid more in meeting the tax, while one- Class of Cohpoeation ♦ National Banks — Class A (Over $10,000,000) B ($1,000,000 to $10,000,000) C ($100,000 to $1,000,000)... D (Less than $100,000) Total State Banks — Class A B C D Total Trust Companies — Class A B C Total Investment Companies — Class B C Total Savings Banks — Class B C D Total Number reporting 11 28 204 155 Average ratio of bank stock or franchise tax to net income {median) 6.60 9.14 11.02 9.18 398 10.03 1 21 77 57 7 7.67 9.00 8.56 15d 8.61 S 25 48 7.5 10.12 9.6 81 9.36 a 12 3 3.43 15 3.37 30 7S 32 7.25 6.62 5.20 135 6.42 The average given above as most representative of the typical condition in each class is the median, the value of the middle item in an array. Thus for national hanks in Class A the median is 6.6 per cent. That is, the number of banks paying more than Q.Q per cent of their net income in meeting the bank stock tax * Class A is composed of corporations with capital, surplus, and undivided profits (in the case of savings banks with surplus and undivided profits) of $10,000,000 and over ; Class B, of $1,000,000 to $10.000,000 ; Class C, of $100,000 to $1,000,000 ; and Class D, less than $100,000. »« V • » 189 is exactly equal to the number paying less than that amount. In Class B the median is 9.14 per cent, while in Class C it is 11.02 per cent. Thus of the 204 national banks in Class C, 102 pay more than 11.02 per cent of their net income in meeting this tax, while 102 pay less than that amount. The difference between the situation in this class and that in Class A is obvious. The median value in Class D is 9.18 per cent, a smaller value than that in Class C. The median of the entire group of national banks, 398 in all, is 10.03 per cent. One hundred and ninety-nine banks pay less than this amount, and 199 banks pay more. This inequality as between corporations in a given class is found in the case of each of the other types of financial institu- tions. State banks show a distribution much the same as that found for national banks, though the difference between classes is not so pronounced. The same is true of trust companies. In the case of investment companies, a group in which the general tax burden is less than it is for other financial institutions, the inequalities within the group are less pronounced. Of the fifteen institutions for which complete records were obtained, none paid more than 10 per cent of their net income in meeting these franchise taxes. The median for the group as a whole was 3.37 per cent. In studying the burden of taxes on savings banks, the basis has been net earnings over expenses and dividends. This figure corresponds to net income as used by other financial institutions. That the franchise tax on savings banks, when expressed as a percentage of net earnings, falls with unequal weight upon these institutions, as in the cases of other classes of institutions, is demonstrated by the table and graph covering this group.* These wide discrepancies in tax burden which occur among corporations of the same class are due to the fact that there is no consistent relationship between capital and surplus on the one hand and earning power on the other. In general, of course, an * When account is taken of three national banks, two State banks and one tmst company which reported deficits for the period covered, and two savings banks paying no tax because of credit granted for bonds held, the medians become : Per cent National banks 10 .11 State banks 8. 67 Trast companies 9 . 45 Investment companies 3 .37 Savings banks 6 . 36 itJ I 190 increase in capital and surplus means increased earnings, but that the relationship is not direct is demonstrated by the figures presented above. A tax which must be paid out of net earnings is levied upon another base, with the result that wide variations occur in the burden of taxes, expressed in terms of net income. One other aspect of the present system is worthy of note. As between two institutions, one paying out earnings as soon as realized, another building up a surplus by putting earnings back into the enterprise, the present method of levying taxes on financial institutions places the heaviest burden upon the latter. In a sense, thus, these taxes are taxes which discriminate against the conservative concern which builds up a surplus. They can be partly evaded by distributing dividends closely. Comparison of financial institutions and business corpora- tions. — How do taxes on financial institutions, when expressed in terms of net income, compare with the existing 4% per cent tax on the net income of business corporations? It has been demonstrated that there is inequality as between financial institu- tions. There remains to be discussed the question as to the rela- tion of the average burden on financial institutions to the average burden on business corporations. The matter is complicated by the wide variation in burden within the financial groups. In classes characterized by such extreme variation, what figure is to be taken as representative of the average burden of present taxes ? One average, the median, has been used above, and the comparison on this basis may be extended for the present purpose. Another average, however, representing more accurately the fiscal aspects of the problem, should be used to supplement the median. The latter gives the same weight to both large and small banks, but in computing the yield of a given tax more weight must be given to the larger insti- tutions. Since we are desirous of knowing what tax on net in- come would yield as much as the present bank stock and franchise taxes, a ratio giving this information is required. For this purpose the percentage of net income paid in taxes by each of the classes of financial institutions has been determined by computing the ratio of total taxes paid over a given period to 191 the total net income of all the corporations in each class for the same period. Thus, in the case of national banks in New York State, the total amount paid in bank-stock taxes by 397 banks, during the years 1918, 1919 and 1920, and the total net income of these banks during this period have been determined. The ratio of the former figure to the latter is .068. The amount paid in taxes is thus 6.8 per cent of net income during this period. The percentages as determined for the different classes of financial institutions are shown in the following table. The comparison made, it should be understood, does not include real or personal property taxes paid by any of the groups involved. TABLE 9 Percentage of Net Income Paid in Bank Stock or Franchise Tax by Financial Institutions (Ratios based on aggregates of three-year figures, 1918-1920) Ratio of bank-stock tax (or franchise tax) to net income after property taxes deducted Percentage Is^ational banks 6 . 80 State banks 6.58 Trust companies 7.33 Investment companies 3 . 13 Savings banks 5 . 80 It is evident that with one exception financial institutions pay a somewhat larger percentage of their net income in meeting their bank stock or franchise taxes than do business corporations in paying the tax on net earnings. In comparison with the 4i 2 per cent paid by business corporations the three-year average for national banks shows that 6.8 per cent of their net income has been paid in taxes, as has been stated above. The corresponding figure for state banks is 6.58 per cent, for trust companies 7.33 per cent, and for savings banks 5.8 per cent.* Investment com- panies constitute the one class paying less than business corpora- • These ratios for trust companies and savings banks are based upon taxes actually paid, not Including the amount of the levy for which credit was granted for State bonds held. If the tax levied be used, instead of the tax paid, the ratios become 7.5 per cent for trust companies and 6.74 per cent for savings banks. t I I 192 tions, on the average. The fifteen companies included showed an average of 3.13 per cent of net income paid in taxes * A comparison may also be made of the number of corporations o± each type paying a percentage of net income in taxes equal to or less than that paid by business corporations. This information IS given in the following summary: TABLE 10 FlNA^-CIAL iNSTITtTTIONS, BY CLASSES, PaYI.N^G 4I/2 Peb CeNT OF Net Income oe Less m Bank-Stock Tax oe Feanchise lAX CLASS National banks State banks ' . Trust companies. . . . . . Investment companies Savings banks Total number reporting Number paying 4J per cent or less in bank-stock tax or franchise tax It IS apparent that a large majority in all classes except the mvestment companies group pay more than ^y^ per cent of their net income in meeting the taxes named. These figures sub- stantiate the evidence of the other tables and throw some addi- tional light upon the situation within the general class of financial institutions. In studying the percentage of net income paid in taxes, it ia of some interest to determine the year-to-year changes. The fol- lowing table shows, for all the classes here considered, the ratio of taxes to net income for the years 1918, 1919 and 1920 The percentages given were calculated on the basis of yearly ag-re- gates, the general method being that indicated above. Net income means m each case net income before bank stock or franchise taxes have been deducted. «(^™ atferVelng" negiigfble.'''' '"' "*^" «™'"<''' '<>' State bonds heW. the amount * • 4> 193 TABLE 11 Percentage of Xet Income Paid in Bank-Stock T.vx or Franchise Tax by Financial Institutions in New York State, Classified, by Years, 1918-1919 CLASS OF INSTITUriON Pehcrjjtage of Net Income Paid ix Baxk-Stocx Tax oa Franchise Tax 1918 1919 1920 National banks 7.0 8.2 8.4 5.0 8.1 6.3 5.9 7.6 3.0 7.0 6.7 State banks 6.2 Trust comoanies 6.5 Invpstinoiit cotnDanies 2.7 Savings ba,nks 3.3 It is apparent that a tax on capital and surplus means a tax which varies from year to year, when expressed in terms of net income. When income is increasing faster than the surplus is being built up, this means a decreasing annual tax. This con- dition prevailed during the three years here considered. This is particularly true in the case of savings banks and investment companies. The tax on the former, which amounted to 8.1 per cent of net earnings in 1918, fell to 3.3 per cent of net earnings in 1920. The fact that the present tax is based ujx)n a variable surplus, having no immediate relation to earnings, is clear in this case. For the savings banks here included (135 in number) surplus and undivided profits decreased from $144,780,305 in 1918 to $98,080,640 in 1920, while net earn- ings increased from $14,274,279 in 1918 to $23,275,379 in 1920.* In tlie above treatment the comparison of tax burden, as between financial institutions and business corporations, has been confined to the discussion of taxes other than property taxes. This has been done on the assumption that the burden of non-property taxes is much more direct and immediate than that of taxes on real property. A long-standing tax on real property has in gen- eral l>een capitalized in determining the value of the property, so that the present payer does not feel the burden directly. It is * These figures are for net earnings after taxes had been deducted, are based upon net earnings before taxes were deducted. The ratios T 1 1 194 considered, therefore, that a comparison of the burden of non- property taxes has more significance for our present purposes than a comparison of the burden of all taxes. Having stressed the main relations involved in the first com- parison, however, it is of some interest to compare the burden of property taxes, as borne by the different corporate groups. In computing the ratios given in the table following, the returns from individual financial institutions have been utilized. The ratios are based upon the amount paid in property taxes and the net income for the year 1920. The net income used as a base is the net income before any taxes, franchise or property have been deducted. In determining the ratio for business corpora- tions, total net income has been calculated by capitalizing the amount paid in income taxes. The amount of property taxes paid by business corporations is a fairly close approximation obtained by multiplying the total assessed value of such property by the average tax rate for the State. TABLE 12 Pebcentage of !N^et iNCo^fE Paid ix General Property Taxes by Business and Financial Corpobations, 1920 Percentage of net income paid in general property Class of corporations tax (real and personal) Business Corporations (Mercantile and Manufacturing) 4.5 National Banks 1.5 State Banks 3.5 Trust Companies 4.1 Investment Companies 0.7 Savings Banks 3.6 It is apparent that there is a considerable variation in the percentage of net income paid in property taxes. As compared with the 4% per cent paid by business corporations, trust com- panies pay 4.1 per cent and State banks 3.5 per cent. The amount paid by national banks was only 1.5 per cent of their net income, in 1920, while investment companies paid but seven- tcntbs of one per cent. These figures are in all cases somewhat 195 smaller than the percentage paid in earlier years, the decrease being due to the increase in the incomes of financial institutioi3 in 1919 and 1920. The figures for the earlier years are given below for financial institutions, with the exception of Savings Banks. TABLE 13 Percentage of Net Income Paid in Property Taxes by Financial Institutions in New York State, by Years 1918-1920 ' ' class of corporation National banks State banks Trust companies Investment companies Savings banks Percentage of Net Ivcome Paid in Propertv Taxes 1918 1.7 5.4 5.0 1.6 1919 1.5 3.6 4.8 1.9 1920 1.5 3.5 4.1 .7 3.6 A summary of the total amounts paid in taxes by business corporations and financial institutions may now be given. The; following table shows the percentage of net income paid in all taxes (bank-stock (or franchise) and property) by business cor- porations and financial institutions. For financial institutions, with the exception of savings banks, figures for three vears are given. In the case of business corporations 1920 figures alone are used, the property taxes paid in that year being added to 4l/> per cent of their total net income in securing the total tax figures^ JSTet income in each case is a figure from which no taxes have been deducted.* for* ^t^r%lln'Ji''\anof^^^^ 'bVTeT^.'r ""^ *^V°^ "^-^ 196 TABLE 15 Percets^tages of Net Income Paid in Franchise (or Bank* Stock) and Property Taxes by Business CoRPORATioNa AND Financial Institutions in I^ew York State. 1918-1920. CLASS OF CDRPORATION Business corporations. . National binks State binks Trust com JJinies. . . . . . Investment companies. Savings binks Percsntaoe of Net Ixcome Paid in Taxes 1918 8.7 13.3 12.9 6.4 1919 7.7 9.4 12.0 4.8 1920 8.65 8.1 9.6 10.3 3.3 6.8 The table shows somewhat the same distribution of burden as was found in the case of non-property taxes, trust companies and investment companies standing at the two extremes. The difference between the burden on business corporations and financial institutions is less pronounced, however, the property taxes being relatively larger for the former class. The warning which was given above that taxes on real property, apart from improvements, are not necessarily borne by the present tax-payer, must be remembered in studying these tables. Keal burden is better indicated by the first tables, dealing with non-property taxes, than by those in which account is taken of all taxes paid. The detailed figures on which the above ratios are based are included in the appendices. The Burden of Taxes on Public Utilities The taxes paid by public service corporations in Xew York State have been described in an earlier section of the present report.* The following is a brief summary of that section : All public service corporations are taxed on their real and per- sonal property and on the value of their special franchises. Tiiis latter tax is based in part on the value of tangible property in • C/. supra, p. 178 197 the streets, and in part upon the value of certain intangible ele- ments. The value of these intangible elements is determined with reference to corporate earning power. The taxes described above are paid to the localities in the form of a general property tax. In addition to these local charges all public utilities are taxed by the State on their gross earnings (or on gross earnings and excess dividends), and certain classes are taxed on their capital stock. The rate of the gross earnings tax varies, being one-half of one per cent for steam railroads, telephone and telegraph companies, and gas, electric and water companies, and one per cent for ele- vated or surface electric railroads. Underground electric rail- roads are taxed upon the same basis as steam railroads. The general franchise tax on capital stock is paid by steam railroads, underground electric railroads and telephone and telegi'aph companies. The amounts paid in taxes by tke different classes of public service corporations during the period 1917-1920 are shown in the following table. The totals for all public utilities show the yields of the various taxes. In certain cases the exact amount paid by a given class of public service corporation in meeting a given tax could not be ascertained from the Tax Commission records, and in these cases the figures presented are estimates. These have been checked and tested, and are believed to approxi- mate closely the actual tax paid. I *. 1 I o CO w ^ pq PL, o CC 198 CO ?0 OJ »oaoco OOO s eo 05 00 OOO s 00 00 y» 00 r>. oov eoTfao eojoio ■QOr* eo eo r>ieo CO 01 OS 00« COO COi-< OJ'^ c« •O « ■>! O t,oo-^^ «Ot>.«'* eoc^ 00 § ^fO OO X) coco -N Z —4 00 COO CO CO CO o oeo ^H (M or*co«o ^ 1-4 (MOS 00-* t>.eo t^oo oo»'* 00 CO coio co. CO Ol t^OS r-iao 1(5 00 CO 0> eo CO •HCO — - ^S t»t» OS 0>C0O) •(5aot^t>. cO'Ci r>. CO-H o>t>- h-00 e< JO OOO IN 1(5 O00t>»(N cOt».cio>^ 0'(5 r^co ■«j»oi 0»(5 00-^ 0» s »-tCOc^ OS'^fN >oco ® •(5aiO «e eo CO »o eo NO «5cO C0(N OS-H 00 W5 •(So ■,ot^ OS 00 COt>- »o OJ (N 199 —4 1(5 eo>J5oo OSOSt* (N CO CO coo OOl CO CM C4Q0 «» t>-CO«5 OS OS CO loooco GOQ'O e*aoc« " (N s CO too woo est- COC^ COC5 8 »(5 to C0( CO! ooco-^ I 95 2g -H-«J.t>.cO g co^ eoo (MOS Neo "00 OS 00 o «o »(5eo CO* oso 1-1 c» •a s 00 00 t^iC 1(5 JS cOcO*^ 00'^ cs o-* eo O«0 too 00 i<5 QO.-I coco' -H 1(5 »-< -Ot)*cO CO OS OS 00 CO CO WCOh- i-*CO(N »<5 (N «5 CO OOO 00-4 00 1-1 •OO o>o OOO CO K5 0l"5 OOOO .-l'*K5 •*C0'«*' 00 CI CM OO COI» eo^ -HO CM^ OCM s % -<■<»• xo cooxo •-teoxfi Oh-Tfi-* CMi-iXO coo CM X CO-H CMO Oh. XCM CO -4 eocs COO CO CM '■■5 CO CM O t>. O O X r- CO CM XtI^CM^ CM O '* o' oc^i ■■ oeo ^i:; X — ^ o eo" CO o CO'-* CM'* h-X Tt<0 CM-^ CO CM t^CMt^CO I 90 t>.or>.« I * ^ -H rt< 1(5 X .t- eot-CM «o CM CM t,CO o— « XX OS -4 CO-H coo CMeo coo o o^ OO CM coo •^oo t^t^X xco ~ CM CO CM 5 Oolf -HCO t>.t>^ oco .-^CM '■05 t>.X X^_^ oseo cOt>. C^ICM 00 CM-O CM Oh- t>-CO Ot>. OSt» eo CO eo o CM OOO So oso XCM XCM CM 00 CO s O -i CM* -4" or* eo-< i 2§ '^CM eoo ^eo «r* r*co coco coo -. eo«o 0 '^ •— 4 o-SHhh •■S ^ «i 53 5. ■2S P rs S 5P 1 > a o — a •- E-g S-n « "3 SS o-Sr*i— I Ti 8S «•— o 00 H s. CLhXI 00a M >-. d fljQ :i:2^« ill ^ «« 31 t, 0) 5 V >« O u Ci b, M C owe O' ot* s I 0) dj3 2— S^ §.2H^5 « u « s ^ sajfii/^ S as O V SI . « r3 * c cja -3*- C5 2-^ d ^ g.2H- 08 "O ^ si 0) s. S«a,x o u u H ow 8 H ^2 |_5^ ■43 :>Srd 2-§^ ^^ M c^ a i « « =^ o — a OS dja 3'§ MS §■3 1 a)*!} o " ^ 2— et C 03 5 H !3^§.Sh5 ^-.2 00 9 d « s> « S. 0102 IT- 200 0)00 rH 05 CO CO CO ^ 00 OS CO CO t 1 c COCO^ oocoe»j OS OS < CO CO OS CO ^ s J CO COXiS •-•ost^ t>.fflO co«oco o CO CO § 73 OSCO «o es Nco o S QOOO CO s 03 .0 I s " CS(N o '-<•* •« CO.-I «e o a 09 a 1 M c^ CO V ! ,925 ,457 ,505 « COO CO (N NOOS 00 CO CO CO » 00 00 .5 Nos *-< (N t* IN rt CO «» ,-< OS ,— 1 i 00 •S '■♦3 >» 3 I OS O a o » n a ca o o a & o to a o ■♦a o I JO o •♦3 0) o O o H I 2 0) 9i 1 i o o o cS oo 0) o S « o o a .o *0Q 03 s a o O X OS H 08 cc o J4 o I hi a_ 03 »4 oo 201 Method of study. — The general method employed in deter- mining the burden of taxes on the different classes of public serv ice corporations has ])een the sclecticn of a sample group from each class, and the intensive study of this group with respect to earn- ings, expenses, and taxes. It has been j>ossible to secure adequate samples of telephone and telegraph corporations, street railways, and gas and electric corporations. For these groups the ratios and tables are based upon an intensive study of the individual cor- porations included in the samples during the period 1911—1920. A study of steam railroads upon the same basis has been impos- sible. Because of the wartime control of railroads by the govern- ment, the reports for the years 1918, 1919 and 1920 are not directly comparable with those of earlier years. Secondly, most steam railroads engaged in interstate operations make no segre- gation of their tax payments by States, in reporting to the Public Service Commission or to the Tax Commission of Xew York State. A detailed study of representative railroad companies has thus been impossible, for the small number of companies for which detailed figures were available was not considered suffi- ciently representative to justify the drawing of conclusions. The ratios for steam railroads have therefore been derived in another w^ay. The total amount paid in taxes to Xew York State and localities by all the steam railroads operating withic the State has been determined from the records of the Tax Com mission. From the records of the Public Service Commissior have been secured figures on gross earnings, operating expenses and net income for the period 1911—1919, inclusive, for all steam railroads operating in Xew York State. In using the records ol the last two years of this period the actual net earnings, aparl- from the federal rental, have been taken.* An allocation has been made in each case on the basis of main track mileage. In determining thv'^ ratios of taxes to earnings and expenses it has been necessary to exclude figures for the year 1916, as the fiscal year of the State was changed in that year, and the tax receipt figures are correspondingly distorted. ♦ For e.ich road niuler federal control the sum of the net income of the corpo- ration and the report*^«l not income of the Railroad Administration, less the amount ftf the f€deral rental, ^*r been taken as the actual net Incocie of the road. -- *iLr. 202 Ratios for the steam railroad group have been worked ovit for all the railroads in the State, therefore, on the basis of figures covering eight years (1911-1919, inclusive, excluding 1916). Total tax receipts have been compared with total gross earnings, expenses, and net income for this period. The ratios of taxes to gross earnings and ojierating exi)enses have been based upon returns from the operating companies only. In securing the total net income of all the railroad companies in the State, an allocated portion of the net income of lessor companies has been added to the net income of the operating companies.* Certain of the tables presented below are based upou returns from individual public service corporations. Steam railroads are not included in these tables, appearing only in the tables based upon aggregate figures. Relation of income to net worth. — Before atteni[)ting to determine the relative weight of the various taxes upon different classes of utilities, something should be known as to the i>ercentage of corporations in each class operating at a loss, and as to the general relation of income to invested capital. The foUow^ing table shows, for the sample group studied, the number of corporations in each class operating at a profit and operating at a loss during the ten-year period 1911-1920: * The anocation basis f©? ]<^esoi- roads was main traclc mileagp, tlie basig employcii for operating roads. i 203 TABLE 17 Summary of Public Service Coepokations in New York State The records of which were examined hy the Joint Legislative Committee on Taxation and Retrenchment Number Number operating at operating at a profit (i. e., a loss (i. e.. Total reporting reporting an Number an average Percentage average Percentage of cor- net income, operating deficit, operating Class of utility porations 1911-1920) at a profit 1911-1920) at a loss Steam Railroads* 60 43 71.5 17 28.5 Electric Railways 56 34 60.7 22 30.3 Telephone and Telegraph 66 62 94.0 4 6.0 Gas and Electric: ]']lectric Light and Power 50 45 90.0 6 10.0 (Jas and Electric (com- bined) 22 19 86.5 3 13.5 Coal Gas and Water Gas 18 15 83.5 3 16.5 Xatural Gas 18 t 18 100.0 Total Gas and Electric. 108 1 97 89.8 11 10.2 Grand Total, Public Ser- vice Corporations 290 236 81.5 54 18.5 Eiforts have been made to make the above samples as repre- sentative of the different classes of utilities as possible. In making the first selection, all corporations, the records of which seemed complete for ten years, as reported by the Public Service Com- mission, were included. The inadequate character of some of the records made it necessary to exclude certain of these corpo- rations. In some cases corjwrations having partially complete records were included, the average being worked out for a slightly shorter period. It is apparent from the figures given that certain classes of utilities are much better off than others and that the utility group as a whole is not in as strong a position as the financial institutions studied in the preceding section.:}: Thirty-nine per cent of the electric railways operated at a loss during the decade 1911-1920, * Based upon reports from 60 operating steam railroads for the period covered. Cf. supra, pp. 201. 202. t This figure includes one company the net worth of which was a negative figure : it is included since it showed a positive net income. X CJ. supra, pp. 185, 186. Of the total number of financial institutions reportin g only six showed an average deficit for the period 1918-1920. This is a shorter period, of course, than that covered by the utility figures. NoTR. — This statement does not include a number of public service corporation! the records of which were examined by the committee for the ten-year period- 1011-1920, but which were inadequate for the purposes of the committee. 204 while 6 per cent of the telephone and telegraph corporations showed a net loss during this period. Of the utility group as a whole, 18.5 per cent showed an average loss for this period. The number in each class operating at a deficit is shown in the detailed tables which follow. The majority of the corporations failing to show a profit are small companies. These facts should be borne in mind in considering the tax figures presented.* For apart from the absolute size of the taxes, the losses suitered by some companies serve to increase materially the average percentage of net income paid in taxes. In the tables dealing only with the profitable companies this difficulty is not present. For the corporations reporting an average profit for the period here studied, the relation of net income to net worth is showm by elates in the detailed tables following. f TABLE 18 Relation of ^N'et Income to ^et Wokth, Electric Kailways IN I^Ew York State Frequency Table Based upon the Average Anntml Net Income and the Average Net Worth During the Period 1911-1920 Percentage relation, net income to net worth Electric Railways reporting from New York State Num- ber in class Number showing deficit Number EARxixa CLASS Less than 2% 2% to 3.9 1 2 2 5 4% to 5.9 1 4 2 6% to 7.9 8% to 9.9 10% to 11.9 12% to 13.9 A Operating revenue $1,003,000 or over 10 27 19 3 8 11 1 7 4 2 2 • • 1 1 2 • • 1 1 B Operating revenue $103,000 to J999,993 C Operating revenue less than $100,000 • ■ Total 58 22 12 7 4 1 3 2 ♦ As was explained above, the net income on which these results are based is net income before any taxes have been deducted. t As explained above, steam railroads are not included in the frequency tables based upon returns from individual corporations. M 205 TABLE 19 Kelatiois^ of Net Income to Net Wobth, Telephone and^ Telegraph Corporation's in New^ York State Frequency Table Based upon the Average Annu^il Net Income and the Average Net Worth During the Period 1911-1920 Percentage relation, net income to net worth Telephone and Telegraph Corporations reporting from New York State Num- ber in class Number showing deficit Number Earning CLASS Less than 2% 2% to 3.9 * /c to 5.9 6% to 7.9 8% to 9.9 10% to 11.9 12% to 13.9 14% to 15.9 16% to 17.9 18% to 19.9 24% t«. 25.9 Class A Operating revenue $1,000,000 or over. 2 > • ■ . . , , , , , 1 1 • • • • • Class B Operating revenue $100,000 to $999 ,999 7 .... 2 1 2 1 1 • . • Class C Operating revenue $25,000 to $99,999 10 .... . . , , , , 3 1 2 1 1 1 1 Class D Operating revenue $10,000 to $24,999 29 2 .... 1 4 8 4 4 2 2 1 1 • • • Class E Operating revenue less than $10,000. . 18 2 1 4 7 5 9 4 13 1 9 8 5 1 4 3 2 • • • Total 66 4 1 1 206 TABLE 20 Eelation of IN'et Income to ^et Worth, Electric Light AND Power Corporations in New York State Frequency Tables Based upon the Average Annual Net Income and the Average Net Worth During the Period 1911-1920 Percentage relation', net income to net worth Electric Light and Power Corporations reporting from New York State Num- ber in class 8 22 15 5 Number showing deficit 1 2 2 Number Earning CLASS Less than 2% 1 1 1 3 2% to 3.9 1 1 2 4% to 5.9 ■ • 1 2 3 6% to 7.9 3 2 5 8% to 9.9 ■ • 3 3 1 7 10% to 11.9 2 5 2 1 10 12% to 13.9 3 4 1 8 14% to 15.9 1 1 2 4 16% to 17.9 18% to 19.9 22% to 23.9 A Operating revenue $1,- 000.000 or over B Operating revenue $100- 000 to $999.999 C Operating revenue $25,- 000 to $99,999 D Operating revenue less than $25,000 ■ • 1 • • 1 • • • • 1 « • 1 • • > 1 • > • Total 50 5 1 TABLE 21 Eelation of Net Income to Net Worth, Gas and Electric Corporations in New York State (Combiiiing gas and electric service.) Frequence/ Table Based upon the Average Annual Net Income and the Average Net Worth During the Period 1911-1920 Percentage relation, net income to net worth Gas and Electric Corporations reporting from New York State Num- ber in class Number showing deficit Number Earnino class Less than 2% 4% to 5.9 6% to 7.9 8% to 9.9 2 2 4 10% to 11.9 2 2 12% to 13.9 2 2 14% to 15.9 2 2 22% to 23.9 • • 1 1 a Operating revenue $1,000,000 or over 8 14 1 2 1 1 1 2 1 2 3 • • ■ B Operating revenue $100,000 to $999.999 • « • Total 22 3 2 3 X 207 TABLE 22 Relation of Net Income to Net Worth, Manufactured Gas Companies in New York State Frequency Table Based upon the Average Annual Net Income and the Average Net Worth Durinrf the Period 1911-1920 Percentage relation, net income to net worth Manufactured Gas Companies reporting from New York State CLASS Operating revenue $1,000,000 or over B Operating revenue $100,000 to $999,999 Operating revenue $25,000 to $99,999 Num- ber in class D Operating revenue less than $25,000 Total. Number showing deficit Number Earning 1% to 1.9 18 2% to 2.9 3% to 3.9 5% to 5.9 6% to 6.9 7% to 7.9 8% to 8.9 10% to 10.9 12% 14% to to 12.9 14.9 ' 208 TABLE 23 Relation of ^et Income to [N^et Worth, Natural Gas Com- panies IN New York State Frequency Tiible Based upon the Average Annual 'Net Income and the Average Net Worth During the Period 1911-1920 Percentage relation, net income to net worth Natural Gas Companies reporting from New York State Number Earning Num- ber in class 2 CLASS Less than 2% • • • • 2% to 3.9 • • 4% to 5.9 • • 6% to 7.9 8% to 9.9 1 10% to 11.9 12% to 13.9 1 14% to 15.9 • • 16% to 17.9 A Operating revenue $1,000,000 or over. . . • • • B Operating revenue $100,000 to $999,999. 6 • • • • , , 2 • • 1 1 • • 1 1 C Operating revenue $25,000 to $99,999 . . . 6 • • • ■ 1 ^ ^ 2 1 1 .. .. 1 D Operating revenue less than $25.000 .... 3 1 1 2 1 3 2 3 2 , , , , • ■ • Total 17 1 1 1 2 •. ♦ t « « • 209 T'AELE 24 Relation of IN^et Income to Net Worth, All Gas and Electric Companies in New York State Frequency Table Based upon the Average Annu4il Net Income and the Average Net Worth During the Period 1911-1920 Percentage relation, net income to net worth All Gas and Electric Companies reporting from New York State Num- brr in class Number showing deficit N^UMBSR Earning CLASS Less tbSD 2% 2% to 3.9 4% to 5.9 6% to 7.9 8% to 9.9 10% io 11.9 4 7 3 1 12% to 13.9 5 6 1 14% to 15.9 1 5 2 16% to 17.9 2 1 3 18% to 19.9 22% to 23.9 A Operating revenue $1,000,000 or over 20 51 26 10 1 4 2 4 2 3 1 2 2 3 1 1 1 5 4 1 1 6 6 13 3 8 4 1 16 1 • • 1 B Operating revenue $100,000 to $999,999 2 c Operating revenue $25,000 to $99,999 D Operating revenue less than $25,000 * * Total 107 11 8 7 11 15 12 8 2 The marked variation in each group in the return upon capital .:rivested is apparent. Electric railroads, excluding those oper- ati'^jg at a loss, show a marked concentration in the group earixirig less than 2 jx?r cent, though one company earned as much as 13 p^r cent on its net worth. The rates of return earned bv telephone and telegraph companies extend from less than 2 per cent to 25 per cent, the largest single group being made up of companies earning from 6 per cent to 8 per cent. The range for gas and electric companies extends to 23 per cent, the largest single class being those earning from 8 per cent to 10 per cent over the ten-year period covered. The meaning of net income and net worth should be kept in mind in using these figures. Net income is income before taxes have been deducted and net worth is a book-keeping figure, the sum of capital, surplus and undivided profits. 210 In the following- tables the median value of the ratio of net income to net worth is presented for each class of utility. In the first table this average has been computed when all companies in a given class have been included, while in the second table only those operating at a profit have been included. TABLE 25 Average Ratio of Net Income to Net Worth Public Service Corporations in New York State, 1911-1920 The average employed in each case is the median; thus one-lialf of the total number of corporations included in each of the given groups earned more than the given percentage on their net worth, while one-half earned less. Average Ratio, Net In- come to Net Worth (expressed as a per- centage relation) Class of Utility IHectric Railways lelephone and Telegraph .... Gas and Electric: Electric Light and Power Gas and Electric (com- bined ) Gas (manufactured ) Gas (natural) Total Gas and Electric Number of Corpora- tions Included 56 66 1.0 7.85 50 22 18 *17 10.0 8.0 5.5 8.33 107 8.44 • One company has been excluded because its net worth was a negative figure. 211 TABLE 26 Average Ratio of Net Income to Net Worth Public Service Corporations Operating at a Profit, 1911-1920 (Excluding corporations showing a deficit) Class of Utility Number tions of Corpora- Includetl Electric Railways 34 Telephone and Telegraph. . . . 62 Gas and Electric: Electric Light and Power. 45 Gas and Electric (com- bined ) 10 Gas (manufactured) .... 15 Gas ( natural ) 17 Total Gas and Electric 96 Average Ratio, Net In- come to Net Worth (expressed as a per- centage relation) 4.00 6.00 10.5 8.75 6.5 8.33 9.12 These tables show the median return to the electric railways to be lowest, but 1.0 per cent upon net worth, while gas and electric companies show the highest median return, 8.44 per cent of net worth. These rates are of course higher when companies operating at a loss are excluded, as in the second table, though the relative standing of the different classes is unchanged. The characteristics of the median have been explained above." In the present case the large number of small companies earning small returns, serve to make the median value low. The condition of the larger companies is brought out more clearly by a ratio based upon aggregate net income and aggi'egate net worth. In computing this ratio the actual income and net worth figures of all the corporations have been added, and the relation of net income to net worth computed from these aggregate figures. The following table gives the ratios so computed. • Supra, pp. 188, 189. ( I 212 TABLE 27 Katio of Aggregate JSTet Iistcome to Aggregate Net Wortu Public Service Corporations in New York State, 1911-1920 The ratio for each class is the percentage relation of aggregate net income to aggregate net worth. The aggregate figures used are the sums of ten-year averages for each of the corporations included. Class of Utility Electric Railways Telephone and Telegraph Gas and Electric: Electric Light and Power . . Gas and Electric (com- bined ) Gas (manufactured) .... Gas (natural) Total Gas and Electric Number of Corpora- tions Included 56 50 Ratio of Aggregate Net Income to Ag- gregate Net Worth (expressed as a per- centage relation) 3.47 9.27 9.84 22 8.« 18 9.91 18 9 . 18 108 9.68 The above ratios are based upon reports from all the corpora- tions in each class including those operating at a loss The pre- ponderant influence of the large companies which are, on the whole, more profitable, serves materially to increase the rates as compared with the median values. It is clear from these as well as from the earlier figiires that there is a wide variation in the return earned upon net worth. Electric railways show an average return of 3.47 per cent, while gas and electric companies earn, on the average, 9.68 per cent on net worth.* The relative standing of the different classes of public utilities is the same in the table shown below, in which the ratios are based upon returns from profitable companies only. ♦It should be remembered tkat net income, as here used, is a figure from which taxea have not been deducted. The importance of this item is made clear in the later tables. 213 TABLE 28 Ratio of Aggregate !N^et Income to Aggregate Xet Worth Public Service Corporations Operating at a Profit, 1911-1920 (Excluding corporations showing a deficit) The ratio in each class is the percentage relation of aggregate net income to aggregate net worth. The aggregate figures used are the sums of ten-year averages for each of tlie corporations inchided. Class of Utility Electric Railways Telephone and Telegraph. . . . Gas and Electric: Electric Light and Power . . Gas and Electric (com- bined) Gas (manufactured) .... Gas (natural) Total Gas and Electric Number of Corpora- tions Included 34 62 45 Ratio of Aggregate Net Income to Ag- gregate Net Worth (expressed as a per- centage relation) 4.66 9.27 9.87 19 9.17 15 10.1 18 9.18 97 9.76 The electric railway figure is materially higher in this table, but the other ratios are approximately the same. The slight change resulting from the elimination rf the companies operating at a loss is due to the fact that these companies are, in the main, small and affect the aggregate figures but slightly. For many purposes it is desirable that the small companies should not be given too much weight, and for this reason the tables based upon aggregates are of value. The variation in earning power revealed above in the compari- son of different types of utilities is found to prevail within each class when a division on the basis of size is made. The fol- lowing table gives ratios of aggregate net income to aggregate net worth, by classes, for different types of public service corporations. 214 TABLE 29 Ratio of Aggregate Xet Income to Aggregate Xet Worth Public Service Corporations in New York State, hy Classes (Ratio expressed as a percentage relation) Class A Class B Class C Class D Class E Electric railway's 3.9 1.6 Negative Telephone and telegraph 9.3 8.8 12.6 6.4 3.7 Electric light and power 9.9 9.7 8.8 Negative Gas and electric (com- bined) 9.2 6.7 Manufac- tured gas 11.8 4.8 4.6 Negative Natural gas Total gas and electric 9.6 8.5 8.2 2.4 10.0 7.9 7.9 Negative Note. — For the bases of classification, see the detailed tables above. In securing the above ratios all corporations, whether operating at a profit or at a loss, have been included. The return upon the investment is obviously greater for the large companies than for the small ones. The one exception to this is found among the telephone companies, where the Class C companies shoAv a greater proportionate return than do the larger corj)orations. Relative tax burden within the public-utility groups. — The materials presented above have indicated the extent of the variation in earnings among public service corporations. A large percentage in some of the classes show an absolute deficit during the period 1911-1920. Others, and particularly the larger corpo- rations, have earned adequate retunis upon their investment. This variation in earning power means, of necessity, that the burden of taxes has been unequal. Our present problem is to determine the degree of inequality. The variety of taxes paid by each class of utility renders the problem more complex and more difficult than that encountered in studying the tax burden upon financial institutions. Inasmuch as many of the ratios given are based upon the total taxes paid by utilities, it is essential to determine the relative importance of the different types of taxes paid by each class. The absolute figures have been presented in Table 1 above. The following table presents the same facts upon a ]:)ercentage basis. All the taxes paid by each class of utility constituting 100, this table shows the percentage of the total paid in meeting: each of the specific taxes levied. ■.. H ♦ ; ¥ ¥ » I o I 00 tH GO t-i H I— I H O Ph o ^ CO o CO pq ^ H ^ P. o ?^ o M H pq « H GO P^ 215 "3 g o be <^^ c 1^ c a> r3«t "3-2 H P O GO CO ONoo Total State rH ,-4 f-l Capital stock .-ir» -OS ^ci -csi CI ooo Excess divi- dends • O -CMO Gross earn- ings 1—1 eo t^ 00 00 00 1—1 a K«ooo Total special fran- chise 50 « L-S t* M CO c: CO •^' tn ^ •4 Real prop- erty 78.6 36.4 28.4 45.2 53.5 3 09 60 S S n raff es Si 8 •5 c fi a mSS •4; «2 •* 4, a o c^. 216 Steam railroads, it appears, pay 78.6 per cent of their total taxes ill Xew York State on real property. If the tangible properties in the streets, taxed with the special franchises, are included, 88 per cent of the total is paid in property taxes. The last column in the table presents what is perhaps the most significant figiire. Total taxes paid to the State (on gross earnings and capital stock) when combined with the taxes paid on intangible elements in the special franchise valuations constitute 11.3 per cent of all the taxes paid by steam railroads. It is this part of the tax payment which is directly comparable with the bank stock or franchise tax paid by financial institutions and the 4% per cent tax on net income paid by business corporations. This particular percentage is lowest in the case of steam rail- roads. For electric railways the sum of State taxes and taxes on intangible elements in the special franchise constitutes 35.0 per cent of the total taxes paid, for telephone and telegraph corpora- tions 37.6 per cent, for gas and electric companies 28.2 per cent, and for the entire public utility group 24.8 per cent of total tax payments. These percentages should be borne in mind when the tax ratios are being studied. For the purpose of studying the relative burden of taxes within the public utility group as a whole, three standards have been utilized, gross earnings from ]^ew York business, operating expenses in Xew l^ork State, and net income from Xew York business. Taxes paid in Xew York have been compared with each of these standards. In the case of corporations doing an interstate business, it has been necessary to allocate part of the total gross earnings, oper- ating expenses and net income to Xew York. The basis of allo- cation has been main track mileage in the case of steam railroads and electric railways. In the case of telephone companies doing an interstate business, the general allocation basis has been that set forth in Art. 9, § 182 of the Tax Law, based upon the location of gi'oss assets, though for certain purposes wire mileage and num- ber of stations have been used. The interstate element is not important enough in the business of gas and electric companies to give rise to an allocation problem. « * ■. I .' I * ♦* V 1% • 217 Relation of Taxes to Gross Earnings. — In the following tables the relations of total State and local taxes to gross earnings from Xew York business ai'e shown, in the form of frequency tables, for the diiferent classes of public service corporations. The tables are based upon the samples studied. TABLE 31 Relation of Total State and Local Taxes to Gross Earn- ings, Electric Railways in Xew York State Frequency Table Based upmi the Average Annual Tax Payments and the Average Annual Gross Earnings During the Period 1911-1920 Percentaj^e of gross earnings paid in total State and local taxes Electric Railtvays reporting from New York State \ i Num- ber in claas Number Paying CLASS Less than 2% 2% to 3.9 4% to 5.9 6% to 7.9 8% to 9.9 10% to 11.9 12% to 13.9 14% to 15.9 A Operating revenue $1,000,000 or over 10 27 19 .... 6 7 4 12 10 3 5 1 2 3 • • ■ ■ 1 1 B Operating revenue $100,000 to $999,999 C Operating revenue less than $100,000 1 Total , 56 .... 13 26 9 2 3 1 2 • •> 218 TABLE 32 Relation of Total State and Local Taxes to Gross Earn- ings, Telephone and Telegraph Corporations in New York State Frequency TaUe Based upon the Average Annual Tax P^f^^'\^^'^ *^'^ Average Annual Gross Ewmings During the Period 1911-15^20 Percentage of gross earnings paid in total State and local taxes Telephone and Telegraph Corporations reporting from New York State ^ ^■.^^.. ^ M. Num- ber in class Nu.MBER P.VYIVO CLASS than 1% 1% to 1.9 2% to 2.9 3% to 3.9 4% to 4.9 5% to 5.9 6% to 6.9 7% to 7.9 8% to 8.9 A Operating revenue $1,000,000 or over. . 2 .... . . 1 1 • • » B Operating revenue $100,000 to $999,999. 7 .... 3 2 2 • > • C Operating revenue $25,000 to $99.999. . . 10 .... 1 3 4 2 • • • D Operating revenue $10,000 to $24.999. . . 29 .... 4 9 11 3 1 1 e Operating revenue less than $10,000 18 1 1 2 7 4 19 4 22 2 10 3 4 2 2 Tnfjil 66 .... 1 1 1 1 ' _ ... _ TABLE 33 Relation of Total State and Local Taxes to Gross Earn- ings, Electric Light and Power Corporations in New York State Frequency Table Based upon the Averaue AnnuM Tax P^V^^f.^J'J'^ *^^ Average Annual Gross Earnings During the Period 1911-1920 Percentage of gross earnings paid in total State and local taxes Electric Light and Power Corporations reporting from New York State class Num- ber in class Number Pwino 1% to 1.9 2% to 2.9 Operating revenue $1,009,009 or over B Operating revenue $100,003 to $999,999 Operating revenue $23,000 to $99,939 D Operating reven e less than $25.00 8 22 15 Total . 3% to 3.9 4% to 4.9 50 5% to 5.9 6% to 6.9 1 4 7% to 7.9 8% to 8.9 9% to 9.9 12% to 12.9 44% to 44 9 10 14 6 219 TABLE 34 Relation of Total State and Local Taxes to Gross Earn- ings, Gas and Electric Corporations in New York State (Combining gas and electric service.) Frequency Table Based upon the Average Annual Tax Payments and the Average Annual Gross Earnings During the Period 1911-1920 Percentage of gross earnings paid in total State and local taxes Gas and Electric Corporations reporting from New York State class Operating revenue $1,000,000 or over. B Operating revenue $100,000 to $999,999 Total Num- ber in class 8 14 22 Number P.vyino 2% to 2.9 3% to 3.9 3 3 4% to 4.9 6 8 6% to 6.9 1 2 7% to 7.9 9% to 9.9 2 1 1 • ■ • • • 3 3 1 TABLE 35 Relation of Total State and Local Taxes to Gross Earn- ings, Manufactured Gas Companies in Xew York State Frequency Table Based upon the Average Annual Tax Payments and the Average Annual Gross Earnings During the Period 1911-1920 Percentage of gross earnings paid in total State and local taxes Manufactured Gas Corporations reporting from New York State Number in class 2% to 2.9 Number Patxnq class 3% to 3.9 4% to 4.9 5% to 5.9 6% to 6.9 1 1 7% to 7.9 A Operating revenue $1,000,000 or over 2 9 5 2 1 3 1 2 3 5 10 B Operating revenue $100,000 to $99 >.999 1 C Operating revenue $25,000 to $99,999 D Operating revenue leas than $25,00J Total 18 1 3 1 2 1 '1 u 220 I TABLE 36 Kelation of Total State and Local Taxes to Gross Earn- ings, ]Ji[ATURAL Gas Companies in New York State Frequency Table Based upon the Average Annual Tax Payments and the Average Annual Gross Earnings During the Period 1911-1920 Percentage of gross earnings paid in total State and local taxes Natural Gas Corporations reporting from New York State Num- ber in class Number Paying CLASS Less than 1% 1% to 1.9 2% to 2.9 •i /O to 3.9 4% to 4.9 5% to 5.9 7% to 7.9 8% to 8.9 9% to 9.9 A Operating revenue $1,000,000 or over. . . B Operating revenue $100,000 to $999,999. C Operating revenue $25,000 to $99,999. . . D Operating revenue less than 25,000 2 6 7 3 1 1 1 • • • • 2 • • 1 3 1 3 1 5 1 1 2 2 • • 1 1 1 1 • ■ • • • • 1 1 Total 18 2 1 2 221 TABLE 'dl Relation of Total State and Local Taxes to Gross Earn- ings, All Gas and Electric Companies in IsTew York State Frequency Tahle Based upon the Average Avmml Tax Payments and the Average Annual Gross Earnings During the Period 1911-1920 Percentage of gross earnings paid in total State and local taxes All Gas and Electric Companies reporting from New York State CLASS Num- ber in class A Operating revenue $1,- 000,000 or over B Operating revenue $100,- 000 to $999,999 C Operating revenue $25,000 to $99,999 D Operating revenue less than $25,000 Total 20 51 27 ( 10 Number Fatwo 108 Less 1% 2% 3% than to to to 1% 1.9 2.9 3.9 1 1 1 • • 1 3 4 12 .... 2 5 • • ■ ■ 1 5 2 9 4 21 2 4% to 4.9 5% to 5.9 6% to 6.9 7% to 7.9 8% to 8.9 3 5 3 2 14 9 4 4 7 7 2 1 1 .. 24 21 10 7 9% to 9.9 12% to 44% to 12.9 44.9 1 2 1 1 It is apparent that when the standard of gross earnings is used a wide variation in relative tax burden is found. Electric rail- ways show a range of 14 per cent, from 2 per cent to 16 per cent, with a marked concentration in the group paying from 4 per cent to 6 per cent of gross earnings in taxes. Telephone and telegi*aph corporations pay from 1 per cent to 9 per cent of their gross earn- ings in taxesy the largest single group paying from 4 per cent to 5 per cent. The range of gas and electric companies is from less than 1 per cent to 45 per cent, the largest class being that paying from 4 per cent to 5 per cent. i 222 These tables are summarized below, an average value being picked out for each class of utility. The average selected is the median, the use of which has been explained above. TABLE 38 Average Eatio of Total State and Local Taxes to Gross Earnings Public Service Corporations in New York State, 1911-1920 The average employed in each case is the median ; thus one-half of the total number of corporations included in each of the given groups paid more than the given percentage of their gross earnings in meeting the taxes named, while one-half paid less. Class of Utility Electric Railways Telephone and Telegraph . . . Gas and Electric: Electric Light and Power. Gas and Electric (com- bined ) Gas (manufactured) Gas ( natural ) Total Gas and Electric Number of Corpora- tions Included 56 67 oO 22 18 18 Average Ratio, Total State and Local Taxes to Gross Earnings (expressed as a percentage re- lation) 5.15 4.27 4.5 4.87 5.40 3.60 108 4.71 Accepting the median value as representative, it is seen that the typical electric railway paid 5.15 i^ei- cent, the typical tt-lephone and telegraph company 4.27 per cent, and the typical gas and electric company 4.71 per cent. The electric railway group shows the highest average found in the four main classes. The above figures describe the situation of typical companies in each class. It is desirable to supplement these by ratios based upon total tax payments and total gross earnings in ^N'ew York for each class of utility. The following table presents ratios based upon these aggregate figures. 223 TABLE 39 Ratio of Aggiiegate State and Local Taxes to A(iGREGATE Gross Earnings Public Service Corporations in Xeio York Slate, 1911-1920 The ratio for each class is the percentage relation of aggregate State and local taxes to aggregate gross earnings. The aggregate figures used are the sums of ten-year averages for each of the corporations included.* Ratio of Aggregate State and Local Taxes to Aggregate Gross Earuiugs (ex- Class of Utility Steam Railroads Electric Railways Telephone and Telegraph .... Gas and Electric: Electric Light and Power . , Gas and Electric (com bined) Gas (manufactured) Gas ( natural ) Total Gas and Electric In the above table the ratio for steam railrcads is lower than for the other utility groups, with telephone and telegraph corpora- tions next. Electric railroads, with a ratio of 7.24, stand at the upper limit. Relation of Taxes to Operating Expenses. — Another basis of comparison which, like the one preceding, avoids some of the difficulties involved in using the net income ])asis, is that of operating expenses. By determining the relation of taxes to operating expenses for different classes of utilities, it is possible to study the degree of variation in tax burden. The tables immeili- ately following show^ the relation between these two figures for the diiferent utility groups. Operating exi:>en?es are expenses allo- cated to JSTew York business on the bases explained above. ♦ For the basis of the steam railroad figures, c/. supra, p. 2>l. Number of Corpora- tions Included pressed centage as a per- relatioD) 60 56 66 3.9 7.24 5.0 50 6.9 22 18 18 6.3 5.5 4.4 108 6.5 224 TABLE 40 Kelation of Total State and Locai. Taxes to Operating Expenses, Electric Railways in !N'ew York State Frequency Table Based upon the Average Annual Tax Payments and Average Annual Operating Expenses During the Period 1911-1920 Percentage of operating expenses paid in total State and local taxes Electric Railways reporting from New York State CLASS A Operating revenue $1,000,003 or over. B Operating revenue S100,000 to $999,999 C Operating revenue leas than $100,090. Total Num- ber in class 10 27 19 56 NuilBER PaTINO Less than 6% 13 6% to 11.9 18 12% to 17.9 18% to 23.9 23 29 Supplementary Table: Detailed Classification of Com- panies Paying Less than 12 Per Cent class Number in class 3% to 3.9 ■ • 1 1 2 4% to 4.9 1 3 5 5% to 5.9 2 3 7 «% to 6.9 7% to 7.9 8% to 8.9 1 3 1 5 9% to 9.9 2 1 1 |io% to 10.9 1 3 • • 11% to 11.9 a 8 25 19 5 3 8 5 1 6 1 B 1 c Total 52 9 12 4 4 2 4\ ij 5m TABLE 41 Relation of Total State and Local Taxes to Operating Expenses, Telephone and Telegraph Corporations in New York State Frequency Table Based upon the Average Annual Tax Payments and Average Annual Opei-ating Expenses During the Period 1911-1920 Percentage of operating expenses paid in total State and local taxes Telephone and Telegraph Corporations reporting from New York State class a Operating revenue $1 ,000.000 or over B Operating revenue $100,00C to $999,999 c Operating revenue $2.'),00f to $99.999 D Operating revenue $10,00C to»24,999 E Operating revenue less thai: 10,000 Total Num- ber in class 10 29 18 66 Number Paying 2% to 2.9 3% to 3.9 2 5 4% to 4.9 11 6 22 5% to 5.9 6% to 6.9 14 7% to 7.9 8% to 8.9 9% to 9.9 10% to 10.9 12% to 12.9 32% to 32 9 38% to 38.0 8 226 227 TABLE 42 Relation of Total State and Local Taxes to Operating Expenses, Electric Light and Power Corporations in New York State Frequency Table Based upon the Average Annual Tax Payments and Average Annual Operating Expenses During the Period 1911-1920 Percentage of operating expenses paid in total State and local taxes Electric Light and Power Corporations in New York State CLASS Num- ber in class Number Patino than 4% 4% to 7.9 A Operating revenue $1,000,000 or over. . , B Operating revenue $100,000 to $999,999 C Operating revenue $25,000 to $99,999. . . D Operating revenue less than $25,000 Total 8 22 15 5 50 1 6 8% to 11.9 11 8 25 8 12% to 15.9 20% to 23.9 32% to 35.9 84% to 87.9 1 ' O A « TABLE 43 Relation of Total State and Local Taxes to Operating Expenses, Gas and Electric Corporations in New York State (Combining gas and electric service.) Frequency Table Based upon the Average Anmml Tax Payments and Averaqe Anmml Operating Expenses During the Period 1911-1920 Percentage of operating expenses paid in total State and local taxes Gas and Electric Corporations reporting from New York State Num- ber in class Number Patino class 3% to 3.9 2 2 4% to 4.9 5% to 5.9 6% to 6.9 7% to 7.9 8% to 8.9 10% to 10.9 11% to 11.9 13% to 13.9 18% to 18.9 A Operating revenue $1,000,000 or over. ^ B Operating revenue $100,000 to $999,999 8 14 2 2 1 1 1 2 2 2 • • 1 1 2 1 2 1 1 1 Total 22 2 4 1 3 3 o 1 228 TABLE 44 Relation of Total State and Local Ta:xes to Operating Expenses, Manufactured Gas Corporations in Xew York State Frequency Table Based upon the Average Annual Tax Payments and Average Annual Operating Expenses During the Period 1911-1920 Percentage of operating expenses paid in total State and local taxes Manufactured Gas Corporations reporting from New York State CLASS A Operating revenue $1,000,000 or over B Operating revenue $100,000 to $999,999 C Operating revenue $25,000 to $99,999 D Operating revenue less than $25,000 Total Number Paying Num- ber in class 3% to 3.9 4% to 4.9 5% to 5.9 6% to 6.9 7% to 7.9 8% to 8.9 9% to 9.9 12% to 12.9 2 • • - • • • ■ a 1 .... .... 1 • • < • 9 1 2 1 1 2 • • • • 1 1 5 .... .... .... 3 2 .... .... 2 1 • • • • • • • ■ 1 • • • • ■ • • • • • • • 18 2 2 2 5 4 1 1 1 229 TABLE 45 Relation of Total State and Local Taxes to Operating Expenses, ^N'atural Gas Corporations in New York State Frequency Table Based upon the Average Annual Tax Payments and Average Annual Operating Expenses During the Period 1911-1920 Percentage of operating expenses paid in total State and local taxes Natural Gas Corporations reporting from New York State class a Operating revenue $1,000,000 or over B Operating revenue $100,000 to $999,999 C Operating revenue $25,000 to $99,999 D Operating revenue less than $25,000 Total Num- ber in class 18 Number Patino Less than 2% 2% to 3.9 1 4 4% to 5.9 6% to 7.9 10% to 11.9 12% to 13.9 14% to 15.9 16% to 17.« I 230 TABLE 46 Eelation of Total State and Local Taxes to Operating Expenses, All Gas and Electric Companies in ISTew York State Frequency Table Based upon the Average Annual Tax Payments and Average An/nual Operating Expenses During the Period 1911-1920 Percentage of operating expenses paid in total State and local taxes All Gas and Electric Companies reporting from New York State CLASS A Operating revenue $1,000,000 or over. . B Operating revenue $100,000 to $999,999 C Operating revenue $25,000 to $99,999. . D Operating revenue less than $25,000. . . Total Num- ber in class 20 51 27 10 108 Number Paying Less than 4% 15 4% to 7.9 25 16 6 54 8% to 11.9 6 11 22 12% to 15.9 11 16% to 19.9 20% to 23.9 32% to 35.9 84% to 87.9 A range of from 2 per cent to 85 per cent is found in these ratios, the latter being a quite exceptional case in the electrical companies group. The ratio does not exceed 12 per cent for the large mass of utilities, though the points of concentration vary somewhat for the different classes of public service corporations. The outstanding fact is that when the tax burden is measured by this standard a wide variation is again found. The following table presents a summary of the situation in the different classes, the median case in each group being picked out as typical. 231 TABLE 47 Average Ratio of Total State and Local Taxes to Operating Expenses Public Service Corporations in New York State, 1911-1920 The average employed in each ca^e is the median; thus one-half of the total number of corporations included in each of the given groups paid more than the given percentage of their operating expenses in meeting the taxes named, while one-half paid less. Average Ratio, Total State and Local Taxes to Operating Expenses (expressed Number of Corpora- as a percentage re- Class of Utility tions Included lation) Electric Railways 56 6 . 87 Telephone and Telegraph (17 5.32 Gas and Electric: Electric Light and Power. 50 7.04 Gas and Electric (com- bined) 22 7.5 Gas (manufactured) 18 6.60 Gas (natural) 18 6 Total Gas and Electric 108 6.1»0 The variation here is not ais pronounced as in certain of the other ratios, the typical case being 5.32 per cent in the telephone group, and 6.9 per cent in the gas and electric group. Much more pronounced is the variation found when ratios based on aggregate taxes and aggregate operating expenses in ^ew York are computed. These ratios are presented below: TABLE 48 Ratio of Aggregate State and Local Taxes to Operating Expenses Public Service Corporations in New York State, 1911-1920 The ratio for each class is the percentage relation of aggregate State and local taxes to operating expenses. The aggregate figures used are the sums of ten-year averages for each of the corporations included.* Ratio of Aggregate State and Local Taxes to Operating Expenses (expressed Number of Corpora- as a percentage rela- Class of Utility tions Included tion) Steam Railroads 60 5.45 Electric Railways 5© 11.58 Telephone and Telegraph 66 8.50 Gas and Electric: Electric Light and Power. 50 13.2 Gas and Electric (com- bined) 22 10.4 Gas (manufactured) 18 8.2 Gas ( natural ) 18 8.5 Total Gas and Electric 108 11 .60 * For tbft b4ii« 0^ tl»e vteam niiUvM flgurM^ ef, tupra, p. 9 1 232 For steam railroads taxes constitute 5.45 per cent of total operating expenses, while for electric railways the figure is 11.58 per cent, and for gas and electric companies 11.60 per cent. This wide variation is, of course, partially due to different operat- ing conditions. Relation of Total Taxes to Net Income. — The two stand ards used above, gross earnings and operating expenses, are useful for certain purposes, but obviously do not constitute a measure of tax-paying ability. They are not, therefore, adequate as standards by which tax burden may be measured. :N'et income is the best single standard of tax-paying ability, and the per- centage of net income paid in taxes is, therefore, the figure which best measures tax burden. This ratio has been determined for the different classes of utilities, and the results are presented in the tables which follow. In using these tables, the exact meaning of net income should be understood. The sense in which that term is here used has been explained above.* The first set of tables show the relation of total State and loca- taxes to net income for the corporations included in the study, the distribution by classes being given. TABLE 49 Relation of Total State and Local Taxes to Net Income, Electric Railways in New Yoek State Frequency Table Based upon the Average Annual Tax Payments and the Average Annual Net Income Previous to any Deduction iw Taxes Durina the Period 1911-1920 '^ 1 — Percentage of net income paid in total State and local taxes Electric Railways reporting from Neio York State Num- ber in class NCMBBR PaTINQ CLASS Less than 50% 50% to 99.9 2 4 1 100% to 149.9 150% to 199.9 200% to 249.9 250% to 299.9 600% to 649.9 A Operating revenue $1,030,000 or over. B Opflratins revenue $100,000 to $999,999 C OiMM^ting revenue less than $100,000. 7 19 8 4 10 4 1 1 2 • • • • • • • • • • • • • • • • • • • • 3 • • • • 3 • • • a 1 ToUJ 34 18 7 4 .... 1 3 1 * Cf. supra, p. 9 . » « 233 : SUPPLEMENTABT TaBLS; DETAILED CLASSIFICATION O^ COM- PANIES Paying Lfi:^ than 50 Peb Cent CLASS Number in class 15% to 19% 20% to 24% 25% to 29% 30% to 34% 35% to 39% 40% o 44% 45% to 49% A 4 10 4 • • • • 1 1 • • • * • • • • 1 1 1 • • • • 1 2 1 1 4 • • ■ • • • • • 1 B o c ::;::::::::::: 1 Total 18 2 1 2 4 5 • • • • 4 TABLE 50 Relation of Total State and Local Taxes to CNTet Income, Telephone and Telegeaph Coepobations, New Yobk State Frequency Table Based upon the Average Annual Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes Durina the Period 1911-1^20 Percentage of net income paid in total State and local taxes Telephone and Telegraph Corporations reporting from New York State Num- ber in class Number Paying CLASS Less than 10% 10% to 19.9 20% to 29.9 30% to 39.9 40% to 49.9 50% to 59.9 60% to 69.9 70% to 79.9 130% to 139.9 A Operating revenue $1,- 000,000 or over B Operating revenue $100,000 to $999,999. c Operating revenue $25,- 000 to $99,999 D Operating revenue $10,- 000 to $24,999 E Operating revenue less than $10.000 2 7 10 27 16 1 • • • • • • • • 2 1 • • • • 2 4 9 6 1 3 4 9 2 • • • • 1 1 • • • • 1 3 3 • • • • • • > • • • ■ • 1 1 • • ■ • 2 3 • • • • 1 1 Total 62 4 21 19 2 7 2 5 1 1 2a4 TABLE 51 Eelation of Total State and Local Taxes to Net Income, Electbic Light and Power Cokporations in New York State Frequency Table Based upon the Average Annual Tax Payments a/nd the Average Annual Net Income Previous to any Deduction for Taxes Durina the Period 1911-1920 Percentage of net income paid in total State and local taxes Electric Light and Power Corporations reporting from New York State Num- Nttmbkr Patino 1 1 1 1 i , CLASS ber in class Less than 10% 10% to 19.9 20% to 29.9 30% to 39.9 40% to 49.9 50% to 59.9 60% to 69.9 70% to 79.9 300% to 309.9 A Operatin£ revenue $1,000,000 or over. . . 8 .. 2 4 1 1 B Operating revenue $100,000 to $999,999. . 21 1 9 8 • • ■ • 1 1 1 C Operating revenue $25,000 to $99.999. . . . 13 • • 6 3 2 1 • • 1 D Operating revenue less than $25.000 3 1 2 19 • ■ 15 1 , , 3 2 1 Total 45 3 • • 1 TABLE 52 Relation of State and Local Taxes to Net Income, Gas and Electric Corporations in New York State (Combming gas and electric service.) Frequency Table Based upon the Average Annual Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-19^ Percentage of net income paid in total State and local taxes Gas and Electric Corporations reporting from New York State Num- ber in class NuMBKR Patino CLASS 5% to 9.9 10% to 14.9 15% to 19.9 20% to 24.9 25% to 29.9 30% to 34.9 35% to 39.9 1 45% to 49.9 1 60% to 64.9 2 2 85% to 89.9 A Operating revenue $1,000,000 or over. B Operating revenue $100,000 to $999,999 7 12 • • 1 1 1 1 2 3 5 2 2 4 2 2 • • • 1 Total 19 1 1 1 1 •^^^-» i 235 TABLE 53 Relation of State and Local Taxes to Net Income, Manu- factured Gas Companies in New York State Frequency Table Based upon the Average Annual Ta>x Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-1920 Percentage of net income paid in total State and local taxes Manufactured Gas Companies reporting from New York State Num- ber in class Number Paying class 20% to 29.9 1 3 1 5 30% to 39.9 2 1 3 50% to 59.9 70% to 79.9 80% to 89.9 90% to 99.9 100% to 109.9 120% to 129.9 140% to 149.9 a Operating revenue $1,000,000 or over B Operating revenue $100,000 to $999,- 999 2 8 5 1 1 « ■ 1 1 1 1 1 1 1 • • • • 1 1 C Operating revenue $25,000 to $99,999 Total 15 1 1 1 TABLE 54 Relation of Total State and Local Taxes to Net Income, Natural Gas Companies in New York State Frequency Table Based upon the Average Annual Ta^ Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-1920 Percentage of net income paid in total State and local taxes Natural Gas Companies reporting from New York State class Num- ber in class Nu-mber Patino Less than 5% 10% to 14.0 3 2 5 15% to 19.9 1 1 1 3 20% to 24.9 1 25% to 20.9 • • 1 1 30% to 34.0 1 1 45% to 49.9 1 • • 1 65% to 69.9 70% to 74.9 140% to 144. Operating over .... A revenue $1,000,000 or 2 6 7 3 1 1 1 1 • • 1 Operating $999,999 B revenue $100,000 to ... Operating $99,999. C revenue $25,000 to ^ D Operating revenue less than $25.- • ■ • • ToUl. 18 2 1 2 1 2a6 TABLE 55 Relation of Total State and Local Tax to Net Income, All Gas and Electric Companies in ITew Yobk State Frequency Table Based upon the Average Annual Ta^ Payments and the Average Annual Net Income Previous to any Deduction for Taxes Du/ring the Period 1911-1920 Percentage of net income paid in total State and local taxes All Oa>a and Electric Companies reporting from New York State NxmBm Patwo Num- ber • CLASS 1 1 1 in elaos Less 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 120% 140% 300% than to to to to to to to to to to to to to 10% 19.9 29.9 39.9 49.9 59.9 89.9 79.9 89.9 99.9 109.9 129.9 149.9 309.9 A Operating revenue 11.000,000 or over 19 1 4 9 1 1 1 1 • • • • • • • • • • • • • • 1 B Opentmg revenue $100,000 to $999.- 47 3 14 17 4 , , 1 3 2 1 , . 1 1 • • • • 999 Operatins revenue $25,000 to 199.999. 25 • • • • 9 5 3 1 2 1 • • 1 1 • • ■ • • • • • 1 1 D Operating revenue less than $25.000.. 6 • • " • 2 1 2 •• • • •• 1 • • • • • • • • • • • • • • • • Total 97 4 29 32 10 2 4 5 3 2 1 1 1 2 1 c The variation within each group is pronounced. From less than 2 per cent the ratio extends to more than 600 per cent. When the ratio is in excess of 100 per cent it means that a com- pany which showed a profit before taxes were paid had a deficit after paying taxes. The frequency tables above present the details of the situation within each group. In the following table the median case has been picked out as representative of each class. The ratios there given are to be considered typical in that the burden of taxes on an average company is shown for each group. In determining these ratios all companies, whether operating at a profit or a loss, have been included. i X - 237 TABLE 56 AvEBAGE Ratio of Total State and Local Taxes to Xbt Income Public Service Corporations in New York State, 1911-1920 The average employed in each case is the median ; thus one-half of the total number of corporations included in each of the given groups paid more than the given percentage of their net income in meeting the taxes named, while one-half paid less. Average Ratio, State and Local Taxes to Net Income (ex- Number of Corpora- pressed as a per- Class of Utility tions Included centage relation) Electric Railways 56 137.6 Telephone and Telegraph 67 23.61 Gas and Electric: Electric Light and Power. 50 23.33 Gaa and Electric (com- bined) 22 28.75 Gas (manufactured) 18 65.00 Gas (natural) 18 18.33 Total Gas and Electric 108 26.56 The typical case in the electric railway group is in a position distinctly less favorable than the typical companies in the other groups. The fact that a relatively large percentage of the electric railways operate at a loss accounts for the high ratio here shown. The following table presents the situation when only companies operating at a profit are included. TABLE 57 Average Ratio of Total State and Local Taxes to Net Income Public Service Corporations Operating at a Profit, 1911-1920 (Excluding corporations showing a deficit) t 1 Average Ratio, ToUl State and Local Class of Utility Number of Corpora- Taxes to Net Income tions Included (expressed as a percentage relation > Electric Railways 34 48.75 Telephone and Telegraph. . . . 63 22.8 Gas and Electric: Electric Light and Power. 45 22.67 Gas and Electric (com- bined) 19 26.87 Gas (manufactured) 15 38.33 Gas (natural) 18 18.33 Total Gas and Electric 97 24.85 238 The typical electric railway in this group pays 48.75 per cent of its net income from Xew York business in meeting all its State and local taxes. The two other classes of utilities here shown are represented by companies paying 24.85 per cent in the case of gas and electric companies, and 22.8 per cent in the case of telephone and telegraph companies. While the above figures show the condition of typical companies they do not show the relation between the total taxes paid by dif- ferent classes of utilities and the total net income, from New York business, of each of the utility groups. It is desirable to establish such relations, for the fiscal aspects of the problem are most clearly brought out by the aggregate figures. These rates are shown in the following tables: TABLE 58 Ratio of Aggregate State and Local Taxes to Aggregate !N^ET Income Public SerHce Corporations in New York State, 1911-1920 The ratio for each class is the percentage relation of aggregate State and local taxes to aggregate net income. The aggregate figures used are the sums of ten-year averages for each of the corporations included.* Number of Corpora Class of Utility tions Included Steam Railroads t 10^ Electric Railways 56 Telephone and Telegraph ... 66 Gas and Electric: Electric Light and power . . 60 Gas and Electric (com- bined) 22 Gas (manufactured) 18 Gas (natural) 18 Total Gas and Electric 108 Ratio of Aggregate State and Local Taxes to Aggregate Net Income (ex- pressed as a per- centage relation) 28.2 66.5 > 16.2 23.9 32.9 27.7 11.8 24.1 The ratios here given are in general lower than in the median tables, because of the preponderant influence of the large com- panies, which are on the whole more profitable. Electric rail- * For the basis of the steam railroad figures, cf. supra, p. 210 t Returns from 49 lessor railroads are included. When operating roads only art included the ratio is 31.7. i X 239 ' ways are still seen in a position of less advantage, while telephone and telegraph companies show the lowest percentage. The changes resulting from the omission of companies report- ing losses are not pronounced. The following table gives the ratios based upon the returns of the profitable corporations only. TABLE 59 Ratio of Aggregate State and Local Taxes to Aggregate Net Income Public Service Corporations Operating at a Profit (Excluding corporations showing a deficit) .--^:v^^ i-.. g^j^^g and Local ^*^^ , ' Taxes to Aggregate tfe'^'V - •■■■^ jjg^. Income (ex- • Number of Corpora- pressed as a per- Class of Utility tions Included centage relation) Steam Railroads* 87 27.3 Electric Railways 34 **•*" Telephone and Telegraph t.. ^ ^^ " Gas and Electric: Electric Light and Power . . 45 23.7 Gas and Electric (com- bined) W III Gas (manufactured) 15 ^»" Gas (natural) 18 ^^^ Total Gas and Electric ^^ ^^'^ Kelation of State Taxes to :N^et Income.— The preceding section dealt with the relation of total taxes to net income. It is desirable to present an additional comparison in which all local taxes are excluded and only the taxes paid directly to the State are included. The following frequency tables show the percent- age of net income paid in State taxes by the corporations included in each of the public utility groups. • This ratio is 31.2 when operating roads only are included. t Se re?irns f rom one large telephone and telegmph co^Pjny, wWch o hniHint pomoanv affect the telephone ratio materially. When taxes of this comSX are omltt^, the ratio of aggregate taxes to aggregate ?or all other companies, becomes 21.8 per cent. Income, as used in tWs ratio, IncludeS non-operating as weU as operating Income. is primarily and income net Income, establishing 240 TABLE 60 RELATIo^ OF Total State Taxes to Net Income, Elbcteio Railways in New York State Frequency Tables Based upon the Average Annual State Tax Payments and the Average Annual Net Income Previous to am,y Deduction for Taxes During the Period 1911-1920 Percentage of net income paid in total State taxes Electric Railways reporting from New York State Num- ber in class Number Patwo CLASS Less than 9% 9% to 17.9 18% to 26.9 27% to 35.9 54% to 62.9 81% to 89.9 315% to 322 A Operating revenue $1,000,000 or over. B Operating revenue $100,000 to $999,999 c Operating revenue less than $100,000 . 7 19 8 6 10 4 1 5 • • • • • • • • 1 • • • • • • • • 2 • • ■ • 2 1 • • • • 1 • • • • 1 Total 34 20 6 1 2 3 1 1 Supplementaey Table: Detailed Classification of Com- panies Paying Less than 18 Per Cent ■ " clAs na Number in class Less than 2% 2% to 3.9 4% to 5.9 6% to 7.9 8% to 8.9 10% to 11.9 12% to 13.9 a 7 15 4 1 • • • • • • • • 1 1 2 3 1 2 "k 1 "4 1 2 2 ■ • • • B C 2 Total 26 1 6 6 5 4 2 i 241 TABLE 61 Relation of Total State Taxes to Net Income, Telephone AND Telegraph Coeporations in New York State Frequency Table Based upon the Average Annual State Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1011-1920 Percentage of net income paid in total State taxes Telephone a/nd Telegraph Corporations reporting from New York State Num- ber in class Number Patino CLASS Less than 1% 1% to 1.9 • ■ 2% to 2.9 • • 3% to 3.9 1 4% to 4.9 5% to 5.9 6% to 6.9 • • 7% to 7.9 • • 8% to 8.9 9% to 9.9 11% to 11.9 • • 15% to 15.9 16% to 16.9 A Operating revenue $1,000,000 or over. B Operating revenue $100,000 to $999,- 999 2 • • • • 1 • • • • • • • • • • • 7 1 1 2 2 1 C Operating revenue $25,000 to $99,999 D Operating revenue $10,000 to $24,999 e Operating revenue less than $10,000. . 10 1 • • 3 3 2 • • • • • • 1 • • • • • • • • • • • • • • 27 1 1 3 8 7 2 1 1 2 • • • • 1 16 1 • • 2 4 11 2 16 2 2 1 2 2 3 3 1 1 • . . Total 62 3 12 6 1 1 1 « 1 t > .t-Ma II 242 TABLE 62 Relation of Total State Taxes to Net Income, Electric Light and Power Corpobations in New York State Frequency Table Based upon the Average Annual State Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-1920 Percentage of net income paid in total State taxes Electric Light and Power Corporations reporting from New York State Num- ber in class 8 21 13 3 NCTMBEB PaTINO CLASS Less than 1% 1 • • * • • • • • • • • • 1% to 1.9 2 5 1 2 2% to 2.9 3% to 3.9 4% to 4.9 5% to 5.9 6% to 6.9 7% to 7.9 2 • • ■ • 2 38% to 38.9 A Operating revenue »1, 000.000 or over. . . . B Oparating revenue $100,000 to 1999.999. C Operating revenue $25,000 to $99,999. . . . D Operating revenue less than $25,000 3 6 2 1 12 • • 3 3 • • 6 2 4 3 • • ~9 • • • • 3 • • ~3" • « 1 • • ■ • 1 • • • • • • 1 • • • Totftl 45 1 10 1 243 TABLE G3 Relation of Total State Taxes to Xet Income, Gas and Electric Corporations in New York State (Combining gas and electric service.) Frequency Table Based upon the Average Annual State Tax Payments and the Average Annual Net Income Previous to any Deduction for Tawes During the Period 1911-1920 Percentage of net income paid in total State and local taxes Gas and Electric Corporations reporting from, New York State class A Operating revenue $1,000,000 or over B Operating revenue $100,000 to $999.999 Total Number Patino « uiiiLmr in class 2% to 2.9 3% to 3.9 4% to 4.9 5% to 5.9 7% to 7.9 9% to 9.9 7 12 3 1 2 7 2 1 2 1 19 4 9 3 2 1 TABLE 64 Relation of Total State Taxes to Net Income, Manufac- tured Gas Companies in J^ew York State Frequency Table Based upon the Average Annual State Ta^x Payments and the Average Annual Net Income Previous to any Deduction for Taxea During the Period 1911-1920 Percentage of net income paid in total State taxes Manufactured Gas Corporations reporting from New York State Num- ber in class NuMBBR Patino CLASS 1% to 1.9 1 1 2% to 2.9 1 1 3% to 3.9 4% to 4.9 5% to 5.9 6% to 6.9 8% to 8.9 9% to 9.9 13% to 13.0 14% to U.O A Operating revenue $1,000,000 or over. B Operating revenue $100,000 to $999.- 999 2 8 5 15 1 1 2 • • 2 2 4 1 1 2 • • 1 1 1 1 1 1 ■ 1 • • • 1 C Operating revenue $25,000 to $99,999. Total 1 ! 244 TABLE 65 Relation of Total State Taxes to 'Net Income, Natural Gas Companies in New York State Frequency Table Based upon the Average An>nual State Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period I9I1-1920 Percentage of net income paid in total State taxes Natural Oas Companies reporting from New York State Num- ber in class NUMBSB PaTIMO CLASS Less than 0.5% .5% to .9 1 • • 1% to 1.4 1.5% to 1.9 2% to 2.4 2.5% to 2.9 3% to 3.4 4% to 4.4 5.5% to 6.9 7% to 7.4 • • • • 1 • • 8% to 8.4 1 • • 8.5% to 8.9 A Operating revenue $1 ,- 000,000 or over. . . . B Operating revenue $100,000 to $999,999 C Operating revenue $25,000 to $99,999 D Operating revenue less than $25,000. . 2 6 7 3 1 • • ■ • • • ■ • .... • • 2 • ■ I ■ • • 2 1 • • 1 1 • • 1 • • « • • • • • • • 1 • • 1 1 • • • • • • ■ • • • ■ 2 ■ • • • • • • • 1 » • • • Total 18 1 1 3 3 2 1 1 2 1 1 \ ^6 TABLE 66 Relation of Total State Taxes to Net Income. All Gas AND Electric Companies in New York State Frequency Table Based upon the Average Annual State Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-1920 Percentage of net income paid in total State taxes All Gas and Electric Companies reporting from New York State Num- ber in CUUM Nman Patino CLASS LCH than 1% 1% to 1.9 2% to 2.9 3% to 3.9 4% to 4.9 5% to 5.9 6% to 6.9 7% to 7.9 8% to 8.9 9% to 9.9 13% to 13.9 14% to 14.9 38% to 38.9 A Operating revenue $1,000,000 or AVflT •••••«• 19 47 25 6 2 1 • • • • • • • • 2 9 3 8 7 9 3 1 3 11 4 • • 4 7 e • » • • 1 2 • • 2 • • • • 4 1 • • • • 1 2 • • 1 1 • ■ 1 • • • • ■ • 1 • • • • B Operating revenue $100,000 to S999.999 C Operating nrenue $25,000 to 999.- 999 D Operating revenue less than $25,000 1 • • • Total 97 3 17 20 18 17 7 2 6 3 2 1 I ] The varying burden of these State taxes is revealed by the frequency tables. It is clear that these taxes, levied upon gross earnings, capital stock, or excess dividends, fall with very unequal weight upon different corporations when expressed in terms of net income. The comparison of the tax burden on the different groups .i§ facilitated by the selection of typical cases for each class. The results are given below, the ratio of State taxes to net income for the median case being shown for each group. a 246 « • 347 ¥. « TABLE 67 Average Ratio of Total State Taxes to Xet Income Public Service Corporations in New York State^ 1911-1920 The average employed in each case is the median; thus one-half of the total number of corporations included in each of the given groups paid more than the given percentage of their net income in meeting the taxes named, while one-half paid less. Class of utility Electric Railways Telephone and Telegraph .... Gas and Electric: Electric Light and Power . . Gas and Electric (com- bined ) Gas (manufactured) .., Gas (natural) Total Gas and Electric For two of the main groups the ratios are not far apart. The typical telephone company (i. e. the median company) pays 3.94 per cent of its net income in meeting State taxes, and the typical gas and electric company 3.78 per cent. Electric railways show an average very much greater, the typical ratio being 33 per cent. When profitable companies alone are included, and the median ratios selected, the following values are secured. s ►^ Number tions of Corpora- Included Average Ratio, Total State Taxes to Net Income (expressed HH a perceucuge re- latioiu 56 31.50 M 3.94 50 3.33 22 3.78 IS 5.50 18 2.25 108 3.78 4 I TABLE 68 Average Ratio of Total State Taxes to Net Income Public Service Corporations Operating at a Profit, 1911-1920 (Excluding corporations showing a deficit) Class of Utility Electric Railways Telephone and Telegraph . . . . Gas and Electric: Electric Light and Power . . Gras and Electric (com bined ) , Gas (manufactured) ... Gas (natural ) , Total Gas and Electric Number tions of Corpora- Included Average Ratio, Total State Taxes to Net Income (expressed as a percentage re- lation) 62 8.40 3.87 45 2.96 19 16 18 3.56 4.75 2.25 97 3.47 The electric railway ratio is materially smaller, being only 8.4 per cent, while the figures for the other groups are somewhat lower. In the two preceding tables the different groups have been represented by typical cases, equal weight being given to large and small companies in the selection of the median cases. The following table shows the relations between aggregate State taxes and aggregate net income from New York business for each of the utility groups. Note : The term " State taxes " as here used includes capital stock taxes, taxes on gross earnings, and taxes on excess dividends. 348 TABLE 69 Ratio of Aggeegate State Taxes to Aggregate Net Income Public Service Corporations in Neto York State, 1911-1920 The ratio for each class is the percentage relation of aggregate State taxes to aggregate net income. The aggregate figures used are the sums of ten-year averages for each of the corporations included. Ratio of Aggregate State Taxes to Ag- gregate Net Income Number of Corpora- (expressed as a per- Class of Utility tions Included centage relation) Steam Railroads* 109 2.74 Electric Railways 56 8.28 Telephone and Telegraph.. 66 4.10 Gas and Electric: Electric Light and Power . . 50 2.8 Gas and Electric (com- bined) 22 3.9 Gas (manufactured) 18 4.2 Gas (natural) 18 1.5 Total Gas and Electric 108 2.90 Steam railroads, it is seen, pay 2.74 per cent of their net income from New York business in meeting State taxes, while electric railways pay 8.28 per cent. The ratios for the other classes lie between these limits. When ratios are determined for the companies operating at a profit the following results are secured. TABLE 70 Ratio of Aggregate State Taxes to Aggregate !N'et Income Public Service Corporations Operating at a Profit, 1911-1920 (Excluding corporations showing a deficit) The ratio for each class is the percentage relation of aggregate State taxes to aggregate net income. The aggregate figures used are the sums of ten-year Average for each of the corporations included f Ratio of Aggregate State Taxes to Ag- gregate Net Income Number of Corpora- (expressed as a per- Class of Utility tions Included centage relation) i^team Railroads^ 87 2. 65 Electric Eailways 34 6 . 35 Telephone and Telegraph§ .. . 62 4.10 Gas and Electric: Electric Light and Power . . 45 2.7 Gas and Electric (com- bined) 1» 3.5 Gas (manufactured) 15 4.1 Gas (natural ) 18 1.5 total Gas and Electric 97 2.80 * For operating roads only the ratio is 3.08. fFor the basis of the steam railroad figures, cf. supra, p. 201. t For operating roads only the ratio is 3.04. I This ratio becomes 3.2 per cent when returns from one large company, primarily A holding company, are excluded. >^ ^49 Relation of Local Taxes to Net Income. — Taxes paid to localities on real and personal property and on special franchises constitute the chief tax payments made by public service cor- porations, in so far as ^ew York taxes are concerned. Though property taxes are not in general so burdensome as income or capital stock taxes, it is desirable to determine the relative im- portance of these local taxes. The following frequency tables show the percentage of net income paid in local taxes by the various types of public service corporations, and indicate the ex- tent to which the burden of these taxes varies within each of the groups. TABLE 71 Relation of Total Local Taxes to Net Income, Electkic Railways in New York State Frequency Table Based upon the Average Annual Local Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-1920 Percentage of net income paid in total local taxes Electric Railways reporting from, New York State I— Num ber in class Number Paying CLASS Less than 26% 25% to 49.9 3 11 2 16 50% to 74.9 2 1 3 75% to 99.9 ■ • 1 1 100% to 124.9 150% to 174.9 175% to 199.9 200% to 224.9 325% to 349. S A Operating revenue $1,000,000 or over 7 19 8 2 2 3 1 1 1 1 2 B Operating revenue $100,000 to $999,999 1 C Operating revenue less than $100. • 000 Total 34 7 2 1 1 2 r Supplementary Table: Detailed Classification of Com- panies Paying feom 25 to 50 Per Cent CLASS Number in class 25% to 29.9 30% to 34.9 35% to 39.9 40% to 44.9 45% to 49.9 A 3 11 2 1 4 2 4 • ••■•• 2 B 2 1 C Total .... 16 6 1 2 2 260 251 TABLE 72 Relation of Total Local Taxes to Net Income, Telephone AND Telegraph Corporations in New York State Freqieencjf Table Based upon the Average Annual Local Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-1020 Percentage of net income paid in total local taxes Telephone and Telegraph Corporations reporting from New York State Num- ber in Number Patino CLASS Less 5% 10% 15% 20% 25% 30% 35% 40% 45% 55% 65% 115% clftSS than to to to to to to to to to to to to 5% 9.9 14.9 19.9 24.9 29.9 34.9 39.9 44.9 49.9 59.9 69.9 119.9 A Operating revenue 91.000,000 or over 2 1 • • 1 ■ • B Operating revenue $100,000 to $999,999 C 7 • • ■ ■ 1 1 3 , , 1 1 Operating revenue $25,000 to $99.- 999 10 • • • • • ■ 4 2 1 1 ■ • • • 1 1 D Operating revenue $10,000 to $24.- 999 27 • • • • 3 6 9 2 1 • • 2 2 1 1 • • e Operating revenue less than $10.00G 16 2 4 3 3 1 3 1 3 1 3 2 • • Total 62 3 13 16 6 3 1 5 3 1 1 S IvT TABLE 73 Relation of Total Local Taxes to Net Income, Electric Light and Power Corporations in New York State Frequency Table Based upon the Average Annu/il Local Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-1920 Percentage of net income paid in total local taxes Electric Light and Power Corporations reporting from New York State Num- ber in class NuiTBKB Patino class Less than 10% 10% to 19.9 20% to 29.9 30% to 39.9 1 1 40% to 49.9 50% 60% to J to 59.9 69.9 260% to, 269.9 A Operating revenue $1,000,000 or over B Operating revenue $100,000 to $999.999 C Operating revenue $25,000 to $99,999 D Operating revenue less than $25,000 8 21 13 3 1 1 2 13 7 1 23 4 4 4 12 1 1 2 2 • • 1 1 • • 1 Total 45 2 2 2 1 TABLE 74 Relation of Total Local Taxes to Net Income, Gas and Electric Corporations in New York State (Cambining gas and electric service.) Frequency Tabh Based upon the Average Annual Local Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-1920 Percentage of net income paid in total local taxes Gas and Electric Corporations reporting from New York State Number Paying class Num- ber in class 10% to 14.9 15% to 19.9 2 20% to 24.9 1 25% to 29.9 2 30% to 34.9 1 40% to 44.9 50% to 54.9 55% to 59.9 74% to 79.9 Operating A revenue $1,000,000 or over 7 1 • • • Operating B revenue $100,000 to $999.999. . . 12 2 2 3 1 1 3 2 3 1 1 1 1 Total. 19 5 2 1 1 1 ■tt;,::.-, - ■■ 262 258 TABLE 76 liELATlON OF TOTAL LoCAX TaXES TO Net InCOME, MaNUFAC- TUEED Gas Companies in New York State Frequency Table Based upon the Average Annual Local Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-1920 Percentage of net income paid in total local taxes Manufactured Gas Companies reporting from New York State Num- ber in class NUMBBR PaTINO CLASS 10% to 19.9 20% to 29.9 • • 3 • • 3 30% to 39.9 40% to 49.9 60% to 69.9 80% to 89.9 90% to 99.9 100% to 109.9 130% to 139.9 A Operating revenue Sl.000.000 or over. B Operating revenue $100,000 to S099,999 C Operating revenue $25,000 to $99.999 . 2 8 5 1 2 1 • ■ 1 1 • « 1 1 a • 1 • • 1 • • • • 2 2 • • 1 • • • • • • 1 • • • • 1 Total 15 4 1 1 1 TABLE 76 Relation of Total Local Taxes to Net Income, Natural Gas Companies in New York State Frequency Table Based upon the Average Annual Local Tax Payments and the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-1920 Percentage of net income paid in total local taxes Natural Ga^ Companies reporting from New York State Num- ber in class NUMBBR PaTINO CLASS Less than 5% 5% to 0.0 10% to 14.0 15% to 10.0 20% to 24.0 25% to 20.0 45% to 40.0 55% to 50.0 • • 1 65% to 60.0 105% to 100.9 A Operating revenue $1,000,000 over or 2 6 7 3 1 1 • • • • • ■ • • 1 2 2 1 • • 3 1 1 • • 2 1 1 • • 2 • • ■ • 2 2 • • • • 1 • • 1 • • • • • ■ 1 B Operating revenue $100,000 $999.999 to C Operating revenue $25,000 $99,990 to 1 D Operating revenue less than $25,- 000 Total 18 2 3 1 1 1 1 * ■• TABLE 77 Relation of Total Local Taxes to Net Tncome, All Gas AND Electric Companies in New Yokk State Frequency Table Based upon the Average Annual Local Tax Payments vnd the Average Annual Net Income Previous to any Deduction for Taxes During the Period 1911-1920 Percentage of net income paid in total local taxes All Gas and Electric Companies reporting from New York State CLASS Num- ber in class Opwating reveirae $1,000,- 000 or over B Operating revenue $100,000 to $099.909 Operating revenue $25,000 to $99,999 D Operating revenue leas than $25,000 Total 19 47 25 NuMBEB Fating Less than 10% 10% to 19.9 20% to 29.9 30% to 39.9 97 23 39 10 24 40% to 49.9 80% to 69.9 f 60% to 69.9 70% to 79.9 80% to 89.9 90% to 39 9 100% to 109.9 130% to 139.9 to •• 360 9 The wide variations shown in these tables make difficult a comparison of the average burden in each of the different groups. This comparison is permitted by the following table, in which the median case has been selected as representative of each group. 254 255 N TABLE 78 Average Ratio of Total Local Taxes to Net Income Public Service Corporations in Hew York State, 1911-1920 The average emiployed in each case is the median; thus one-half of the total number of corporations included in each of the given groups paid more than a given percentage of their net income in meeting the taxes named, while one-half paid less. Class of Utility Electric Railways Telephone and Telegraph . . . Gas and Electric: Electric Light and Power. Gas and Electric (com bined ) Gas ( manufactured ) .... Gas ( natural ) Total Gas and Electric When a company representative of the profitable concerns in each group is selected, the following ratios are secured: Number tions of Corpora- Included Average Ratio, Total Local Taxes to Net Income (expressed as a percentage re- lation) 56 112.50 66 18.44 50 20. 22 28.33 18 55. 18 17.5 108 23.30 TABLE 79 Average Ratio of Total Local Taxes to Net Income Public Service Corporations Operating at a Profit, 1911-1920 (Excluding corporations showing a deficit) Class of Utility Electric Railways Telephone and Telegraph . . . . Gas and Electric: Electric Light and Power . . Gas and Electric (com- bined ) Gas (manufactured) Gas ( natural ) Total Gas and Electric Number tions of Corpora- Included Average Ratio, Total Local Taxes to Net Income < expressed as a percentage re- 34 34.16 62 18.33 45 18.91 19 25.8 15 35.0 18 17.5 97 21.00 * ■&' r m * ■ ^ Marked variations are found in each table, the diiferences being greater in the first case, where the ratios are based upon all companies. In determining the weight of local taxes it is desirable to sup- plement the above figures bj ratios based on aggregate taxes and aggregate net income. These ratios are shown in the following table : TABLE 80 Ratio of Aggregate Local Taxes (Special Franchise and General Property) to Aggregate Net Income Public Service Corporations in New York State, 1911-1920 The ratio for each class is the percentage relation of aggregate local taxes (special franchise and general property) to aggregate net income. The aggre- gate figures used are the sums of ten-year averages for each of the corporations included.* Number of Corpora- Class of Utility tions Included Steam Railroadsf 109 Electric Railways 56 Telephone and Telegraph 66 Gas and Electric: Electric Light and Power . . 50 Gas and Electric (com- bined) 22 Gas (manufactured) 18 Gas (natural) 18 Total Gas and Electric 108 Ratio of Aggregate Local Taxes (special franchise and gen- eral property) to Net Income (ex- pressed as a per- centage relation) 25.5 48.22 12.10 21.1 28.9 23.5 10.3 21.30 Excluding corporations operating at a loss during the period 1911-1920 the following ratios are secured: • For the basis of the steam railroad figures, cf. supra, p. 201. t This ratio is 28.6 when operating roads only are included. S5e 257 V. fe TABLE 81 Ratio of Aggregate Local Taxes (Special Franchise and General Property) to Aggregate Net Income Public Service Corporations Operating at a Profit, 1911-1920 (Excluding corporations showing a deficit) Ratio of Aggregate Local Taxes (special franchise and gen- eral property) to Net Income (ex- pressed as a per- centage relation) 24.6 Class of Utility Steam Railroads* Electric Railways Telephone and Telegraphf . . . Gas and Electric: Electric Light and Power. . Gras and Electric (com- bined) Gas (manufactured) Gas (natural) Total Gas and Electric Number of Corpora- tions Included 87 94 02 38.05 12.10 45 19 15 18 21.0 24.6 22.9 10.3 97 20.50 All the figures whicli have been presented in this section indi- cate that present State and local taxes are levied upon bases which cause them to fall with very unequal weight upon the different utility groups and upon the individual corporations within any given class. This is true not only of the property taxes, discussed in the last section, but of the gross earnings, excess dividends, and capital stock taxes which are paid to the State. As between the different utility groups, and within any given utility group, the burden of present taxes is markedly unequal. Comparison between public utilities and business cor- porations. — In studying the burden of taxes on different classes of corporations, business corporations have been used as a standard, because of the fact that the chief tax on these institutions is now levied on a straight net income basis. In undertaking to compare the public utilities with business corpora- tions it is necessary to determine what taxes paid by the • Thin Tfttlo is 28 2 when operating roads only are included, t SS »tio b«JwSe8 18.6 oe?cent when retnrnii from one large company, primarily ft holding company, are txaoAtA, ,%,^ former group are comparable with the net income tax paid by the latter class. In the pages immediately following the comparison is made on three different bases.* In the first table taxes paid by public utilities directly to the State (on gross earnings, excess dividends and capital stock) are compared with the 4% per cent tax on the net income of business corporations. In the second comparison the tax paid on in- tangible elements in special franchise values is added to the State taxes of public service corporations. This seems to be a more legitimate comparison than the former, since the tax on intangible elements in special franchise values is not, in the economic sense, a direct tax on property. In the final comparison personal prop- erty taxes paid by public service corporations are combined with the two types mentioned above, and the burden of all these taxes is compared with the burden of the net income tax on busines:. corporations. Since the latter tax replaces all taxes but those on real property, it seems just to set against it all taxes paid by public utilities which are not based on real property (speaking again from the economic and not the legal point of view), on or off the streets. The material necessary for comparing the burden of the State taxes paid by public utilities with the burden of the net income tax paid by business corporations has already been presented. It is summarized in the following table. Only those corpora- tions operating at a profit have been included. • An accurate comparison of tlie burden of total taxes on business corporations with the burden of total taxes on public utilities is not possible, because of differ- ences in the definition of real and personal property for these two classes of corporations. \ 9 258 TABLE 82* Percentage of Net Income Paid in State Taxes Business Corporations and PuhUc Service Corporations in New York State ThB business corporation tax on which this table is based is that levied under Art. Q'-a of the Tax Law. The public utility taxes included are those on gross earnings, excess dividends and capital stock. The ratio for each class of public utility is the percentage relation of aggregate State taxes to aggregate net income. The aggregate figures used are the sums of ten-year averages (1911-1920) for each of the corporations included.f The base in each case is net income before any taxes have been deducted. Ratio of State taxes Class of Corporation. to net income Business corporations (mercantile and manufacturing) 4.30 Steam Railroads « or Electric Railways ^ri Telephone and Telegraph *• ^" Gas and Electric: Electric Light and Power 2.7 Gas and Electric ( combined) 3.5 Gas (manufactured) ^ • * Gas (natural) ^ Total Gas and Electric ^'^^ The figures presented indicate that, with the exception of elec- tric railways, the public utilities pay a smaller percentage of their net income in State taxes than business corporations pay in meet- ing the net income tax. The latter figure appears as but 4.3 per cent of net income because the net income used as a base is net income before any taxes, property or otherwise, have been deducted. In comparison with this figure steam railroads pay but 2.65 per cent, gas and electric companies 2.8 per cent, tele- phone and telegraph companies 4.1 per cent, and electric railways 6.35 per cent of their net income.:|: * ThP following ratios have been worljed out independently for the years 1 ft! ^-15-17-18 They are based upon the average State taxes paid in those years, and the average net income earned from New York business by the different classes of public service corporatione : Ratio of State Taxes Class of Utility *» ^^t income Steam railroads 2.20 percent Electric railways ||| PfJ J^^J Telephone and telegraph 2 28 SIJ ceSt Gas and electric ^-^^ P®'^ ^^^^ These fieures which are based upon returns from aU the public utilities in the State lerl? as a check upon the results secured from the sample group studied. It should be pointed out that these ratios are not in all respects comparable to those given above in Table 82, t For the basis of the steam railroad figures cf. »}*pra,v. 201. „ t Attention should again be drawn to the fact that the "net ^^^ome jivon which these ratios are based Is not exactly the same for business corporations and ?or public lervice corporations. The differences are not great enough seriously to affect the ratios presented. Cf. p. 179, mpra- ( \f 259 A fairer comparison is secured if the taxes paid by public utilities on the intangible elements in their special franchise values are included with State taxes. The following table shows the percentage of net income paid by public utilities in meeting these combined taxes, in comparison with the franchise tax paid by business corporations. TABLE 83t Percentage of !N^et Income Paid in State Taxes Plus Taxes ON Intangible Elements in Special Franchise Values Public Service Corporations in New York State Ratio of State taxes plus taxes on intangible ele- ments in special fran- chise values to net income Class of Utility Percentage Steam Railroads 3. 74 Electric Railways 15 . 40 Telephone and Telegraph 7 . 10 Gas and Electric 7.15 When the taxes on intangible elements in special franchise values are included with State taxes the public service corpora- tions, with the single exception of steam railroads, are seen to be paying a larger percentage of net income in meeting these taxes than the business corporations pay under article 9-a. This tax, it was noted, amounted to 4.3 per cent of net income. The burden is materially heavier in the case of electric railways, which pay 15.4 per cent of their net income on these taxes.* The difference is less in the telephone and telegraph and gas and electric groups, while steam railroads show the smallest percentage. t The following ratios are based upon complete returns from all public utilities in New York State for the years 191 3-1. 5-1 7-18. For all groups except telephone and telegraph companies the ratios are less than in the table based upon ten-year averages : Ratio of State taxes plus taxes on intangible ele- ments In special fran- chise values to net in- come Class of Utility Percentage Steam railroads 3.23 Electric railways 14. 12 Telephone and telegraph 7 . 10 Gas and electric 6 . 62 ♦As in the preceding table these ratios are based upon aggregate taxes and aggregate net Income for sample groups from each class. Only corporations operating at a profit have been included. V \ 260 For the final comparison taxes paid on personal property by public service corporations are included with State taxes and taxes on intangible elements in special franchise values. This combination includes all taxes not levied on real property, and is thus directly comparable vsrith the net income tax on business cor- porations. The latter replaces all franchise taxes and personal property taxes, it will be recalled. The following table shows the percentage of net income paid in these combined taxes. TABLE 84* Percentage of 'Niet Income Paid in State Taxes Plus Taxes ON Personal Property and Taxes on Intangible Ele- ments IN Special Franchise Values Public Service Corporations in New York State Ratio of State Taxes Plus Personal Prop- erty Taxes and Taxes on Intangible Elements In Special Franchise Values to Net Income. Class of Utility Percentage Steam Railroads 3. 88 Electric Railways 15 . 60 Telephone and Telegraph 7 . 20 Gas and Electric 7 . 40 From the above tables it is apparent that when all public utility taxes other than those on real property are expressed in terms of net income there are striking inequalities of burden as between the different utility groups. When these burdens are compared with that borne by busines corporations taxed under article 9-a ♦ The following ratios are based upon complete returns from all public utilitios in New Yorli State for the years 1913-15-17-18. Ratio of State taxes plus taxes on intangible ele- ments in special franchise values and personal ' property taxes to net income Class of Utility Percentage Steam railroads 3 . 37 Electric railways !!!!....!.! 14 52 Telephone and telegraph ......'.'......'.'.'.".' 7 56 Gas and electric ...!...'.*.... 7 ! 24 These ratios are based upon returns from a larger group than are the ratios given in Table 84, but represent conditions for four years only (1913-15-17-18). #/ 261 it is seen that all the public service corporations, with the excep- tion of steam railroads, pay more than do business corporations. The latter pay approximately 4.3 per cent of net income (taking as the base net income before property taxes have been deducted). Comparable taxes for steam railroads amounted to 3.88 per cent of net income. For telephone and telegraph companies the figure is 7.2 per cent, and 7.4 per cent for gas and electric companies. Electric railways show the highest percentage, the amount paid in State taxes, taxes on intangible elements in special franchise values and taxes on personal property amounting to 15.6 per cent of net income. The complexities in the present system of taxing public utilities have been brought out.* The fact that present taxes fall with very unequal weight upon the individual corporations within any group has been demonstrated. It has been shown that the different utility groups are not on equal terms in the matter of tax burden, when that burden is expressed in terms of net income. In the final section the burden of taxes on the chief classes of public service corporations has been compared with the burden of taxes on mercantile and manufacturing corporations, f The figures there presented have shown that business corporations and public service corporations bear unequal tax burdens, the public utility groups, with one important exception, paying more, in terms of net income, than do mercantile and manufacturing corporations. The relation between taxes, net income and gross income of public utilities. — In the preceding study of the relative burden of taxes upon public service corporations in New York State, net in- come has been used as the chief standard of comparison. Net income as here used is gross income less interest charges and certain other deductions. This standard has certain defects, chief of which is one which arises from the varying methods employed by different ]niblic utilities in securing capital. The net income of a* company securing most of its capital by bond issue would be relatively small, while the corresponding figure for a company financed by the sale of stock would be much greater. The two might be in ♦ Cf. supra, p. 178 , ,. ._. t All real property taxes paid by both groups have been excluded in making this comparison. 262 positions of equal strength, yet if the burden of taxes were meas- ured on the net income basis the former would appear to be in a position distinctly less favorable than the latter. It is desirable, therefore, to determine the relative importance of interest charges and other deductions from gross income for the various classes of public utilities in 'New York State. This comparison has been made for the six-year period 1912- 1917, inclusive. The four chief classes of public utilities report- ing to the New York State Public Service Commission have been included. "No attempt has been made to allocate either net or gross income to New York, or to separate New York taxes from others. We are desirous of determining the general relations between tax payments and net and gross income,* and for this purpose no allocation is required. The details of this comparison, by years, are presented in tables XY, XYI, XYII and XYIII in the Appendix. The fol- lowing is' a summary, showing the relations between the average annual gross income, deductions from gross income, net income and tax accruals, for the different public utility groups. * Gross income is the sum of operating income (i. c, gross operating revenues less operating expenses, taxes assigned to operations and uncollectible revenues) and non-operating income, the latter composed of such net items as rents and interest and dividends received. / 263 TABLE 85 Comparison Between Gross Income, Deductions From Gross Income, Net Income and Tax Accruai^ Public Service Corporations in New York State (Based on Average Annual Figures, 1912-1017) ^^^ ClasB of utility Gross income Deductions from gross income Net income Steam railroads Electric railways . Telephone companies . .... Gas and electric companies ii 1255,133,333 52,163,576 64,300,080 53,825,744 $146,458,499 38,759,513 14,564,952 20,969,034 $108,674,833 13.404,063 49,735,138 32,856,709 Ratio of total deductions from groes income to gross income (percentage) 57.13 74.30 22.65 38.95 Class of utility Tax accruals Steam railroads Electric railways. . . . . . Telephone companies. Gas and electric com panics $31,949,333 8,116,185 4.971,285 7.740.447 Gross income before deduction of tax accruals $287,082,666 60.279,761 69.271.366 61.566,191 Net income before deduction of tax accruals Ratio of tax accruals to gross income before deduction of tax accruals (percentage) $140,624,166 21.520.248 54.707,423 40.597.155 Ratio of tax accruals to net income before deduction of tax accruals (percentage) 11.13 13.46 7.17 12.58 22.71 37.71 9.09 19.10 The varying importance of the gross income deductions is brought out in the column showing the ratio of these deductions (consisting chiefly of interest charges and rentals) to gross income For telephone companies they constitute but 22.65 per cent of ^oss income, while for electric railways these deductions are 74 30 per cent of gi'oss income. Gas and electric corporations and steam railroads stand between these two limits, the figure for the former being 38.95 per cent and for the latter 57.13 per cent. These figures indicate the relative importance of the various methods of securing capital employed by the different utilities, the electric railways being distinctly more dependent upon bor- rowing, with definite contractual obligations, than are the other f I (t 264 utilities. "Net income, after these contractual deductions are made, will be correspondingly lower. These differences are more sharply brought out by the figures showing the relation of tax accruals to gross and net income. For telephone companies tax accruals constitute but 9.09 per cent of net income (before deduction of tax accnials), the corresponding figure for electric railways being 37.71 per cent. Steam railroads and gas and electric corporations show less variation, the former being 22.71 per cent, and the latter 19.10 per cent. These wide variations are not entirely ironed out, but become much less pronounced, when gToss income is used as the standard of comparison. Electric railways still stand at the upper limit, taxes constituting 13.46 per cent of gross income, and telephone corporations are at the lower limit with a ratio of 7.17 per cent, but the spread between the two is less marked. Were the non- operating income of the latter group excluded, the difference would be less pronounced. Steam railroads have a ratio of 11.13 per cent, and gas and electric companies a ratio of 12.58 per cent. 'Net income is not, therefore, a perfect standard for measuring the burden of taxes. Insofar as there are variations in the methods employed in securing capital, this standard is imperfect. The extent to which these variations exist and their effect upon the tax ratios for the different classes of utilities have been indicated above. The Burden of Taxes on Insurance Companies Insura^ice companies doing business in New York State are taxed on their gross premiums less certain deductions allowed by law.* It is desirable to determine the relative burden of these taxes upon the individual insurance companies, and upon the insurance companies as a whole, in ecmparison with other classes of corporations. Securing a standard of comparison is not possible for certain classes of insurance companies, notably mutual life insurance companies. Difficulties are also encountered in con- nection with companies doing casualty and accident business. For these classes of corporations a figure directly comparable to the net income of business corporations or public utilities cannot be ♦ Cf. 9upra, p. 8 I ! 265 secured. For tire and fire and marine stock companies it is pos- sible, however, to approximate the net profits derived from Xew York business. These figures have been secured for the ten-year period 1911-1920, inclusive, and have been used as a standard for determining the burden of taxes paid on gross premiums during this period.* The general procedure in determining net profits from New York business has been as follows: The net underwriting profit for the period in question has been determined by subtracting from the total amount received as net premiums from New York business the amount of losses paid in New York State plus 40 per cent of the net premiums. The latter figure represents general underwriting expenses, the figure of 40 per cent being the average relation of such expenses to net premiums. A correction has been made for the lag between losses incurred and losses paid. To net underwriting profit as thus determined an allocated portion of the gain from investments has been added,f the sum being net profits from business in New York State. Inasmuch as taxes have been deducted in securing this figure, being included in the expense item, they are added back. The ratio of taxes to the base thus secured is then worked out. An exact determination of the net profit from New York business is impossible, but the above method gives an approximation sufficiently close for the purpose. The following table present the results secured by these calcula- tions. Tiie figures apply to domestic companies and foreign com- panies doing business in this State. ! it should be noted that no account is here taken of other taxes or license fee«. tThe basis of allocation has been the relation of total premiums received U New lork to total premiums written. CO oo M P pq M O ft GC o ■^^ I—) 1 a l-H "^ Oi OS i-H a> - .s •46 CD ^ ^ 9i o u M f^H Ph 5S •«» H M SO P^ 5 o s ^ PM <^ H 00 S 00 o 1^; V ^ Pm s O o P^ 00 o bi 8^ S ••»> Q W c fA Ai P-i a o Q QQ "a (A o o P 00 S H-l 0) s ai C u I 266 OD 0< o o o K H A a VO (4 m o > M o nSco N CI 00*^00 O CO ^3^ 1-H^i-l 65 d So a"S'*' 2 3 d 5 « ^ ^'^ ►^ S o g 5^-^ I I •8 ^ -* M . »ot» (N <-Ht>. 00 coo a> w eo eo eo rHOO 0> eooo eo«o oa a S s a c8 » V 267 The variation in burden on the general classes of insurance companies considered is apparent. When taxes are expressed in terms of net income the percentages vary from less than 1 per cent to over 25 per cent for companies operating at a profit. The largest single group is found within the class paying from 5 per cent to 6 per cent of net income in taxes. As representing the average situation that company lying midway in the distribution (the median) may be selected. Including only the profitable com- panies, the median has a value of 5.35 per cent. For fire com- panies alone the value is 5.1 per cent, and for fire and marine companies alone it is 5.71 per cent. In securing an average of this type (the median) equal weight is given to all companies, large or small. The burden of taxes upon the group as a whole is perhaps better represented by the ratio of the aggregate amount paid in taxes to the aggregate net profit from business in the State of New York. These ratios are presented below, all companies being included in one comparison and only the profitable companies in the other. TABLE 87 Relation of Taxes on Gross Premiums to Net Profit fro\ New York Business Fire and Fire and Marine Insurance Companies Number of corn- Class of insurance panies included Fire 33 Marine and fire and marine 58 All companies 91 Ratio of aggre> gate taxes to aggregate net profits (ex- pressed as a percentage re- lation) 4.76 5.89 5.75 268 TABLE 88 liELATlON OF TaXES ON GrOSS PbEMIUMS TO Net PkOFIT FllOM New York Business Fire and Marine Insurance Companies (Excluding companies operating at a loss) Ratio of aggre- gate taxes to aggregate net profits (ex- pressed as a percentage re- lation) 4.10 4.92 ^, ^ Number of com- Class of insurance panics included Fire 32 M«irine and fire and marine 50 Total ^ 4.84 The ratios based upon aggregate figures are somewhat greater for companies doing a marine or fire and marine business than for the fire insurance companies. This is true when companies operating at a loss are excluded as well as when these companies are included. For the entire group of 91 companies studied (including 9 companies operating at a loss) the taxes on gross premiums amounted to 5.75 per cent of net profits from [New York business during the decade 1911-1920. For the 82 companies reporting an average profit, the ratio of these taxes to net profits was 4.84 per cent. The frequency table presented above shows that present taxes fall with unequal weight on different insurance companies, when net profits are used as the standard of comparison. The general jx>sition of the insurance companies as a whole, in comparison with financial institutions, business corporations, and public utili- ties may be determined by reference to the tables presented in the earlier sections of this report.* • The comparison should be made with the understanding that the ratios for the different classes of corporations have been derived by different methods and are based upon periods of varying length. As between the different groups, therefore they should be used to establish general relations only. The corfespdnding tables for other classes of corporation appear on pp. 191,258-261 -puuuiuif laoiea JY 269 Expenses Involved in Paying Taxes and Contesting Assess- ments The burden of a complicated tax system is not measured by the amount of the taxes paid, alone. The corporations taxed are fre- quently put to considerable administrative and other expense in complying with the provisions of the tax law. An investigation to determine the amount of these expenses was conducted by the Committee, all public service corporations in the State being circularized. Of the 1628 corporations to which questionnaires were sent, replies were received from 717, or 44.1 per cent of the total number. Sixty-four of these replies were unsatisfactory. Of the remaining 653 corporations, 323 reported either that no expenses were involved in paying taxes, or that it was impossible to segregate these expenses. Figures in regard to expenses were received from 330 public service corporations. These figures are summarized in the following table : TABLE 89 Total Expenses Involved in Paying Taxes Total annual Total annual expenses in- expensesin- volved in Total annual dumber or volved In paying expenses in- replies paying spe- other taxes volved in ^ , ^„., stating ex- cial fran- (State and paying aU Class of utility expenses chise tax local) taxes Steam railroads 30 $12,993 $41,694 $54,687 Electric railways 27 8,798 17,631 26,429 Express and bus companies 6 15 15,346 15,361 Pipe lines 3 445 280 ^25 Water transportation 18 862 3,946 4,808 Telephone and telegraph.. 84 21,864 32,420 54*284 Gas and electric 119 18,780 77,566 96^346 Water companies 43 1,707 2,521 4,228 Total 330 $65,464 $191,404 $256,868 These figures indicate the amount of burden in the form of administrative expense to which public service corporations are put in complying with the present tax laws. For the 330 cor- I>orations from which figures were received, these expenses amount to more than one-quarter of a million dollars annually. The total figure for all corporations in the State would exceed this amount, of course. 270 In addition to the direct cost of paying taxes, it is desirable to determine the cost of contesting assessments of special franchises. The following table presents a summaiy of the returns from OS corporations which reported such costs. TABLE 90 Expenses Involved in Contesting Special Franchise Assess- ments Public Service Corporations in New York State Number of roplies stating cost of Total annual cost contesting as- of contesting as- Class of utility sessments sessments Steam railroads ^7 $6,257 Electric railways 10 2,381 Water transportation ^ ^10 Telephone and telegraph 6 1,047 Gas and electric 54 98,925 Water companies 19 /97 Total 98 $199,917 The replies received on this subject do not give a complete account of the situation in all utility groups, but, even though limited, indicate the importance of these costs. For the 98 com- panies replying the annual cost of contesting special franchise assessments amounted to $109,917. Adding this to the other expenses of paying taxes the total annual expenses, for 330 cor- porations alone, amount to $366,785. Of this total, $175,381, or 48 per cent, represents ex[>enses connected with the payment of the special franchise tax. It is obvious that exact figures as to the expenses involved in complying with the tax laws of the State are unobtainable. The average corporation has no means of segregating such expenses from other administrative expenses. The figures presented, there- fore, are to be taken as indicating the degree of expense to which taxpayers are put, rather than as measuring these costs exactly. Even with this qualification, however, the replies received indicate how considerable are these administrative and legal charges, which constitute a burden to the taxpayer, even though they bear no fruit for the State. jr STATISTICAL APPENDICES TO PART II [2711 I 272 273 pq » OQ » ^ QQ H M5 s H O 05 h] CO ii 3 u W5 05 CM CO XIN. 1-.M CO 00 ceo c^eo SO aca> ooo a*N 0C»^ ■*■* « - «0 00 ^ J3 ^OQ H M ^ H H,o ^ 00 U3 NOO* 0(N f-i CO coVr ?5 03 o H 05 OS CO 1-H eo 'id Hud CO vrf ^) •CO co^ 73 an A I^CP a oo X CJCO (4 COM «» - c-i r- 1 ©or r^-«i< M^ u z co"-* c •VC5 co-^t< C ceo CO It o: ■*« ^. coo «e>-i II occc ot>. co'm QCCO coco * • 00 o ^co co^" COM s eoi-« v S »o b-co co'o 1-1 eo t>.co t»o WO s CO ^ o>o W5C^ ^ H •II CO W 5S 'I n a 00 8 a M CI Men WO CO- 00 00 00 CO CVICO «« - 0( co< CK CD< Si (NO V4 •«t*< « Ik :s COO Tj«00 •91-1 MOO -^00 COO coo r*co ClOO MCO COiO COM CO f Pi, O «5 08 "3 o H $807,306,499 3.158,764,422 o u $635,547,519 2,505,563,939 00 o 1-i 03 O a i $171,758,980 653,198.483 a o •*> $2,153,317,770 8.361.511,249 Number of returns 47.535 317.579 •§1 ©c 00 »-H T-H I CO »-H 05 'tS rO «9 <^ >J eo M ^ S Q- f-i ss o »OcO 1 coS c O-H c •»4 co"co -t; r^oo « OOM !^ is; oeo eoo COM •tj N.eo t^oo MtO M CO^ rS r^M H 00 M t* T-t o S5 o *. . a •HCO toni act^ OM -<*oo a; COCO ;^ s;^ M-* §iS Tl >0-H COO 03 ^»H U. s M«0 M-<»< i-.^ « a 00 o CO H 00 1— I H CO o < ; 1 I— I IS O O p; o U o o I— I H m 02 i-i H '^ o o o O I a N^ |3 ■^00 CO «-! 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CO t^ o o i-^ (N r^ M CO ^-4 'M <• NOOOOOI 00>t«>0 o's' o* U5 t» o> !fMO CO lO ;0 OS 33 CO JO ^ t>. t>. OOC00S«30»(N»0t>. 5D t>-Oos:oaO'^coMO t>. "3 O X ^ C^l ^ t>. O t* fi <5«^ ^o» *<•*-< tJ «♦ CO CO 00 O-^OO-H 0-HOS05 0>0 'H »o OS OS •-4 CO o i to CO t^ CO OS CO c» gsciO«co»?.ososososcoro 00«O(N>O?3t--i|>t>--^ t>»rJl^(>. ^F-.ij<»OS00'-4t>. t* —« 1-H :0 1^ O -^ rl t>. OS M t^ ^H s § CO 30 ■* Ol ■* « C^ «• Pi CO CO -H Q^OSCO OOiO ^lO Vos^-* cioeo5o« coooaox X co»o 1— ( Tfi X X — »osxos O c^ O ■■'0 1!5 -H t>. :0 t>. COTt<05000SCOXX cor-.io-H?oas?3X'* C0C0^. -.*< -N OS : 'Ot>.-*OSOS < iTjtoS eo CO x_ lo o CO CO iM CO o «• -^«0 COS (NXOX x^co-^ OSX'^'o XiOr»t« t>.'*CO-^ ^®x«o CO OS 1-H CO CO CO 295 TABLE V-D. INCOME WHOLLY EXEMPT FROM FEDERAL INCOME TAX, REPORTED BY TRANSPORTATION AND OTHER PUBLIC UTIL- ITIES AND BANKS AND TRUST COMPANIES, STATE OF NEW YORK (Corporation income and profits tax returns for the calendar year ending December 3L 1918. Table compiled by Statistical Division, Income Tax Unit, Bureau of Internal Revenue) Interest on Divi nds from obligations INDUSTRIAL GROUPS other corporations of the subject to United States, federal income tax etc. CI ^ X i>. ■* OS OS t>. -^ r>» SiN OS Tj< -^ OS OS (N -H ^ -H CO '* o t>. OS o r- ^ CONO»00-H0«3t>r (N O0SX0S-O-«1«^C^-« OS 0»0!N'*OSCOX« t>. i-Ji-<-t>-i-lt^C0t>.t>.CO CO X^C»t>. CO-HCO CO X CO OS CO r>-osxco XlN.b.'^ xcooso oo>oaa COX'^-^ eg-* CO o CO »o CO SjOMtoos-Ht^eoN QCO'HCOXO'-^OS-H OOSOXOCNXCS C^C0Ot>.0>X'*. CI COOS cooeo»o* t>.ococo e0t>.»-H;O o OS CO S2 X co" X ^. CO CO •o" CI Transportation and other public utilities: Steam railroads Electric railways Electric light and power Gas companies Telephone and telegraph companies Water works Other railroads Water transportation Local transportation — Cartage, storage, etc . . All other public utilities, including express companies $5,692,239 1,146,248 1,067,935 2,208,624 40,799,236 307,495 1,865,935 894,073 352,108 2,983,391 Banks and trust companies: Bajoks — general — not properly defined, or private bankers National banks State banks Trust companies Related business, including — Stock and bond brokers, realty, holding and development companies, real estate loan and insurance agents, holding and leasing realty, etc Total, banks and trust companies $475,708 3,588,047 129,556 1.992,889 ",621,828 09 P' 8 o V o 04 s u JS a OS b. 60 Ji » OS ^ OS oj *• " OS o •^« O O S o^ ^ §• i. 3 ^ OS CJ U m 4) -^ 2 H S ?> Q. -^ • - * s .^ 3] i. 31 Li ^■S§-o 9i 3 3 a J3 -a c OS d _o '•5 bl o a eS u 5 a ki o « a CC hi a SI a 1^1 n o 3 « d o g.3 - 2 § - .S .5 3 13 2w 44^ O 9 « o H s OS 0) a s. a o u o a .a o • ■ I > dt • 5 •tJ o o a ca 21 $727,-272 7,630 152,087 76,210 136,405 4,127 100,380 7-23,518 54,321 65,631 Total, transportation and other public utilities. . . . $57,317,284 $2,047,581 $968,511 4,208,761 195,696 3,005,057 259,253 IJ, 808,028 $8,637,278 296 H n OJ te> C 2?- •- e3 .3 « cn o 2 o « ® ag-c a s 00 w a S a 2:a m; S^ag £. o ^ a s CQ V "" J; a « o cp a u C " CO CO TO CO 00 V «.2 ? 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C9-S-S-5? ft 299 TABLE YIII Comparison of Capital, Surplus, Aggregate Resources and Realty Holdings of Banks, Trust Companies and Invest- ment Companies in the State of New York, June 30, 1920 (Based upon the reports of the Comptroller of the Currency and of the Super- intendent of Banks of the State of New York) Number of institutions Capital Surplus and undivided profits Total capital, sur- plus and undi- >'ided profits. . . . Aggregate resources . . . Banking houses, fur- niture and fixtures . . Other real estate National banks 491 $194,171,000 355,224,000 $549,395,000 5.573,517.000 t42,935.000 2,544,000 State banks 229 $53,793,000 76.303.000 $130,096,000 Trust companies 97 $145,594,000 208.355,000 $3.13,949.000 1,460,557,000 3,563.321,000 21,282,000 .55.442,000 Investment companies* 29 $22,115,000 6.187,000 Savings banks 141 t$l88.020.00O $28,302,000 134 , 861 .000 $2,588.320,00 647.000 304.000 10.465 000 4.972.000 * The classification of investment companies in the report of the State Superintendent of Bank» does not correspond exactly with the classification set up in the Tax Law. The figures here given follow the former classification, except that foreign banking corporations are excluded. The condition of investment companies is shown as of December 31, 1920. t Surplus on market value of stocks and bonds. The surplus on par value of stocks and bonds amounted to $268,363,000. ^ This item may be subdivided into "banking houses," $40,211,003, and "furniture and fix- tures, " $2,724,000. » • 300 TABLE IX Summary of Financial Institutions in ]^ew York State Reporting to the Special Joint Legislative Committee on Taxation and Retrenchment CLASS National banks State banks Tru8t companies Investment companies. Savings banks Total number reporting* Number operating at a profit (i. e. reporting a net income, 1918-1920) 401 158 82 15 135 Number operating at a Ioa3 39S 156 81 15 135 S 2 1 fi^^ Tfc2ff.^*'T®1ii'***^fi°.**^ *S® subsidiary tables do not exactly correspond to these f 5^i^i. 7k " " *^"* ^*¥ ^^^ ^^\ ''«P^*«» ''ere received from a few institutions after some of Sa ?n ^fe «^K ^^r ° "^riY^- It should aJso be noted that the corporations listXbovTa!d?nc?uded in the subsidiary tables are only those from which complete returns were reSved It was ne^- Bary to exclude certain of the returns received because of deficiencies S twiu ' TABLE X Capital, Income, and Tax Payments, :NrATioNAL Banks in New York State (Based on returns to the Special Joint Legislative Committee on Taxation and Retrenchment) 1918 1919 1920 Number of complete return'* 397 397 ogj Capital, surplus and undivided profits $403,820,653 $454,361,969 $517, 122,65.5 Net taxable income as returned to the Commissions of Internal Revenue, United States 52,819,551 65,079,715 70,651,231 ^fi'^'^'' 187,743 205,347 m,6S5 Dividends received from other cor- porations subject to Federal Income , *^^*- • ; • •. 790,357 832,824 1,351,164 Non-taxable mterest on Federal bonds. 3 , 050 , 626 4 , 604 , 525 5 028 755 State net taxable income 56,497,734 71,557,238 76,'972,'30S ^^fi''^*^ UrW 245,521 * 45,733 Bank stock tax f 4,008,206 4,543,619 5,171,226 General property tax 998,592 1,056,204 1,161,951 Total New York taxes paid 5,006,798 5,599,823 6,333,'l77 :« TTKuVn"" ^o'^^iderable discrepancy between this figure for 1918 and the corresponding item m Table V-D. prepared by the Bureau of Internal Revenue. In computing tax ratuw the abov^ figure, based upon returns of the individual banks to this Committee has bin use? Th« Sf' ference affects the ratios by less than half of 1 per cent, however t There is a lag o^ one year in the annual tax payments recorded in the Report of the Tax Com- mission as compared with the figures given above. Thus the 1920 figures above would amiar under the year 1921 (the fiscal year m which received) in the Report of the Tax ComnfiSS^n This api^hes to the tax figures for all financial institutions. t^ommissioa -t > 301 TABLE Xa IvELATiox Between Taxes and INet Income, National Banks IN New York State General property tax to State Net taxable income* Bank stork tax to State net taxable income General property tax plus bank stock tax to State net taxable income*. . . General property tax to capital, sur- plus and undivided profits General property tax plus bank stock tax to capital, surplus and undivided profits Dividends received from other cor- porations to State net taxable income Non-taxable interest on Federal bonds to State net taxable income 1918 1919 1920 Percentage Percentage Percent tage 1.7 1.5 1.5 7.0 6.3 6.7 8.8 7.8 8.2 0.24 23 0.22 1.2 1.3 5.3 1.2 1.1 6.4 1.2 1.7 6.5 * If net income before property taxes have been deducted is used as a base, the following per- centages are secured: General property tax to net income General property tax plus bank stock tax to net income . 1918 1919 1920 1.7 1.5 1.5 8.7 7.7 8.1 TABLE XI Capital, Income^ and Tax Payments, State Banks in New York State (Based on returns to the Special Joint Legislative Committee on Taxation and Retrenchment) 1918 1919 1920 Number of complete returns 157 157 157 Capital, surplus, and undivided profits. $67 , 339 , 913 174 , 294 , 369 $97 , 559 , 078 Net taxable income 7,490,900 11,568,099 14,403,961 Deficits 38,797 227,943 39,843 Dividends received from other cor- porations subject to Federal tax. . 175,195 211,094 268,512 Non-taxable interest 518 , 71 1 9S7 , 878 954 , 677 State net taxable income 8,159,571 12,546,157 15,630,408 Deficits 13,562 7,029 43,10t Bank stock tax 673,399 742,943 975,590 General property tax 467,864 474,387 567,637 Total New York taxes paid 1 , 141 , 263 1 , 217 , 330 1 , 543 , 227 ■MM 302 TABLE XIa Relation Between Taxes and Income, State Banks in New York State General property tax to State net taxable income* Bank stock tax to State net taxable income General property tax plus bank stock tax to State net taxable income* .... General property tax to capital, sur- plus and imdivided profits General property tax plus bank stock tax to capital, sxuplus and undivided profits Dividends received from other cor- porations to State net taxable income Non-taxable interest on Federal bonds to State net taxable income 1918 1919 I9iX) Percentage Percentage Percentage 0.7 3.7 3.6 8.2 5.9 6.2 13.9 9.7 9.S 0.69 o.6r> 0.5S 1.7 2.1 6.3 1.6 1.6 7.8 1.5 1.6 6.1 ♦ If net income before property taxes have been deducted ia used as a base, the followinir oer- centagea are secured: General property tax to net income General property tax plus bank stock tax to net income 1918 1919 1920 5.4 3.6 3.5 13.3 9.4 9.tt TABLE XII Capital, Income, and Tax Payments, Trust Companies in ^ew York State (Based on returns to the Special Joint Legislative Committee on Taxation and Retrenchment) 1918 1919 1920 Number of complete returns 82 82 82 Capital, surplus, and undivided profits. $281,773,403 $292,764,579 $314,430,509 Net taxable income as returned to the Commissioner of Internal Revenue, United States Deficits Dividends received from corporations subject to Federal income tax Non-taxable interest on Federal bonds. State net taxable income* Deficits Franchise tax levied Credit given on account of State bonds held Franchise tax paid General property tax Total New York taxes 24,947,640 471,997 3,460,124 2,013,899 30,284,791 SS5,125 2,817,734 71,158 2,746,576 1,744,488 4,491,064 29,979,388 118,890 3,214,284 1,784,109 34,863,891 2,927,645 67,730 2,859,915 1,916,526 4,776,441 39,550,061 242,702 3,501,313 1,328,241 44,299,594 162,681 3,144,805 76,346 3,068,459 2,024,347 5,092,806 * To secure a figure comparable to those given above for national and State banks, the an ount Eaid aa a franchise tax should be added to the income figures here given. This corrected figure M been used in working out the ratios. »l • 303 TABLE Xlla Relation Between Ta^es and Income, Trust Companies in INTew York State General property tax to State net taxable income* Franchise tax to State net taxable income General property tax plus franchise tax to State net taxable income*. . General property tax to capital, sur- plus and undivided profits General property tax plus franchise tax to capital, surplus and undivided profits Credit given to tax levied Dividends received from other cor- porations to State net taxable income Non-taxable interest on Federal bonds to State net taxable income 1918 1919 1920 Percentage Percentage Percentage 5.2 5.1 4.3 8.4 7.6 6.5 13. G 12.7 10.6 0.61 0.65 0.64 1.5 1.6 1.6 2.5 2.3 2.4 11.4 9.2 7.S 6.6 5.1 2.9 centagrs*lre*se?ifred-^°'^^ Property taxes have been deducted is used as a base, the folloxving per- General property tax to net income \?^o ^4^8 ^4* 1 General property tax plus franchise tax to net income ..'..'. 12.9 12.0 10 . 3 TABLE XIII Capital, Income, and Tax Payments, Investment Companies IN I^Ew York State (Based on returns to the Special Joint Legislative Committee on Taxation and Eetrenchment) 1918 1919 1920 Number of complete returns 15 jg j- ^*P^**^ $8,150,000 $8,150,000 $12,150,000 Surplus and undivided profits 2,180,654 2,358,430 3,825,619 ■^^^^^ $10,330,654 $10,508,430 $15,975,619 Net taxable income as returned to the Commissioner of Internal Revenue, United States 649,185 1,152,090 2,040,779 Deficits 20,045 304 TABLE XUl — Concluded 1918 1919 1920 Dividends received from corporations subject to Federal income tax 4,528 3,SSS 18,078 Non-taxable interest on Federal bDnda. 13,729 18,753 12,988 State net taxable income* 037,412 1,174,731 2,071,845 Deficits 30,015 Tax levied 34,031 35,809 56,481 Credit given on account of State bonds held 10 50 50 Tax paidt 34,021 35,759 56,431 General property tax 11,633 23,071 14,756 Total New York taxes paid 45,654 58,830 71,187 ♦To secure a figure comparable to those given above for national and State banks, the amount paid as a franchise tax should be added to the income figures here given. This corrected figure has been used in working out the ratios. t Cf. footnote, table VIII. TABLE Xllla Relation Between Taxes and Income, Investment Companies in !N"ew York State General property tax to State net taxable income* Franchise tax to State net taxable income General property tax plus franchise tax to State net taxable income General property tax to capital, sur- plus and undivided profits Franchise tax to capital, surplus and undivided profits General property tax plus franchise tax to capital, surplus and undivided profits Credit given to franchise tax Dividends received from other cor- porations to State net taxable income Non-taxable interest on Federal bonds to State net taxable income 1918 Percentage 1.6 4.8 6.5 0.11 0.32 0.4 0.0 1919 Percental 1.9 2.9 4.9 0.22 0.3 0.5 0.0 1920 Percentage .7 2.7 3.4 0.1 0.3 0.4 0.0 0.67 •> o 0.33 1.6 0.87 0.6 * If net income before property taxes have been de lacteJ is usji as a base, the followinz per- centages are secured: General property tax to net income Genera! property tax plus franchise tax to net income. 1018 1919 1920 1.6 1.9 .7 6.4 4.8 3.3 •I* \\^ »»• • • » • 305 TABLE XIV Surplus, Income, and Tax Payments, Savings Banks in New Yoek State (Based on returns to the Special Joint Legislative Committee on Taxation and Retrenchment) 1918 1919 1920 Number of complete returns 13.5 135 135 Surplus and undivided profits $144, 780,305 $147,036,336 $98,080, 640 Net earnings (as defined in New York Banking Law) 84,203,342 91,556,330 105,510,976 Dividends paid to depositors 72, 365 , 327 78 , 336 , 727 85 , 971 , 196 Net earnings over expenses and divi- dends* 14,274,279 16,920,404 23,275,379 Franchise tax levied 1,447,803 1,470,363 980,806 Credit given on account of State bonds held 183,512 184,892 188,929 Tax paid 1,264,291 1,285,471 791,877 Property tax paid 887,605 * To secure a figure comparable to those given above for national and State banks, the a-nount paid as a franchise tax should be added to the net earnings figures here given. This corrected ngure has been used in working out the ratios. TABLE XlVa Relation Between Taxes and Net Earnings, Savings Banks IN ^N'ew York State General property tax to net earnings over ex- penses and dividends* Franchise tax to net earnings ov« expenses and divi lends General property tax plus franchise tax to net earnings over expenses and dividends* Credit given to franchise tax levied 1918 1919 1920 Percentage Percentage Percentage 8.1 7.0 12.6 12.5 3.7 3 3 7.0 19.3 * If net earnings before property taxes have been deducted is used as a base, the following per- centages are secured: General property tax to net earnings over expenses and dividends General property tax plus franchise tax to net earnings over expenses and dividends . 1920 3.6 6.8 I; » • XI 306 o C5 H "^ ^ o M s CQ l-H -^ E-t o 4m eS ^ S h « -^111 s— s (S-S-^ il's i 5 O"^ ^ ci ^^ N e^ ^^ N e^ •s1«^9 S 5-0 ■«»< Ci 00 t>- U5 iC t^»^ M «c •^ 00 S o ^^ o u »-i eo«it<'^(oeo s ooo»-Nr^ OS ^ t^ 00 N t^ Ci « c^eo •^ lO O O 00 •><»« eoo 5= 1 S M a> 8 £.2 g-f .5^ « l^-s 2.- o «D oi « oc t^ToT 00 "? 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OS to -H OS r- eocO-'fMO-H ^O-^-^'^M I — t •<<»• CO •* OO o " M -- eo CO ;o o eo eo c3 CO CO eo t^OS oo M r- o to -HOO cieo » o 5- a I a "ti u o o o -H oco ■* o «« SCO -^ oo»-< ■^-oo -^ •«»• o OOOO 00 0^» CO oco OOM coco MOO M ■*»« CO OS M O0O»C5»^M ■* .^ .-H i-i M M M M O Vo <— CO 00 OS •OO •- 2 -aia « O P P •5 2 P '-S «£: &) 1 OS M «-! OS — <-< to CO r— "s OO CO «r5 lO CO OS -"I" r» 00 OQ«0 CO M t>. M 00 (M OS M eo •* '-' «o OO 00 »HMMeO'««»P 90 aj 2i^ J MQOM O OS OS — « t^ CO io o eo o -^ '4* •-< CO o O OS t» t>- t» — < oiOtaOOMCO OS OS CO 00 o-^ CO CO f— t^ 00 00 g o •^ CO lO M 00 O -H :0 M ^ ""^ O CO OS O M 00 CO M eOM»0 -H»o OM -H"* CO O Tft 00 OS t» (>• CO iOMtPOS iO>C >o >o s OM OSOO MTO MiO Esl ^ • >, c«co-*"5«ot^ Sa OS OS OS OS OS OS O 9J 03 0> W9 99 V W'' r •^^ ,_! ,_| -H <-l T-l •-• C*!*" I ! 310 TABLE XIX Paving Costs of Electkic Railways, 1911-1920 (The figures presented in the foUowing tables have been compiled ^y* committee representing the electric railways of the State, and are printed as submitted by them. The first table relates to the 56 companies covered by the Committee's mvestigations The figures in the second table apply to 35 additional companies, while the third table presents the total costs for the entire 91 companies. The Committee does not wish to appear to take the position that these paving charges fall in the same category with taxes. It reaUzes that there f f s^^^f^K ^j^; ference of opinion as to their real economic character A portion at least of these charges are clearly expenses properly chargeable to the companies to o.™ * ^ctual damlge to the paving because of the presence of the tracks. The P'^ecise^vidmg line bitween such expenses and the portion of the payment which is economically of the nature of a tax is primarily an engineering problem, and is a proper subject Jor open legislative hearings at which the city engmeers may have an opportunitylto submit their views.) A — Paving Costs of 56 Companies 1911-1920 Amounts chargeable for paving To capita' Year ended June 30, 1911 *52-*?It Year ended June 30. 1912 ISq?? Year ended June 30. 1913 llAyil Year ended June 30. 1914 ^'q^'IS Year ended June 30. 1915 ^oVl^ Year ended June 30, 1916 SI'oAn Six months ended December 31, 1916 ^f ' «oa Year ended December 31. 1917 VA'l^ Year ended December 31, 1918 iTrlls Year ended December 31, 1919 lll'Hl Year ended December 31. 1920 2S2.^yi Total »7. 032. 198 (19 Companies report no paving charges.) To maintenance $323,039 422,824 419,512 485,851 357,902 319,619 182,509 375,369 362,515 466.208 837,800 Total $924,312 868,592 1,234.449 1,806,586 1,266.558 1,054.235 685,709 1,046,895 739,969 837,647 1,120,294 $4,553,048 $11,585,246 TABLE XIX — Continued B — Paving Costs of 35 Companies 1911-1920 Amounts chargeable for paving Year ended June 30. 1911 Year ended June 30, 1912 Year ended June 33, 1913 Year ended June 30. 1914 Year ended June 30, 1915 Year ended June S% 1916 Six months ended December 31, 1916 Y^ar ended December 31, 1917 Year ended December 31. 191S Year ended December 31, 1919 Year ended December 31, 1923 Total (12 Companies report no paving charges.) To To capital maintenance Total $228,088 $442,432 $670,520 291,309 515,790 807,099 409,272 1,013,147 1,422,419 446,. 303 1,367,063 1,813,366 423,923 1,103,733 1.. 527, 656 173,946 1,054,158 1,228.104 141 ,081 435,105 576.186 259,930 702,607 962.537 103,124 608,044 709.168 112,085 954,118 1,066.203 76,627 1,040,264 1.116.891 . $2,665,688 $9,234,461 $11,900,149 311 TABLE XIX — Continued C — Paving Costs 0/ 91 Companies 1911-1920 Amounts chargeable for paving > Year ended Year ended Year ended Year ended Year ended Year ended Six months Year ended Year ended Year ended Year ended June 30. 1911 June 30, 1912 June 30, 1913 June 30, 1914 June 30, 1915 June 30, 1916 ended December 31, December 31, 1 )17. . December 31, 1018. . December 31, 191 -t. December 31, 1921.. 1916 Total . To To Capital Maintenance Total $829,361 $765,471 $1,594,832 737.077 938,614 1,675.691 1,224.209 1,432,659 2,656.868 1,767,038 1,852,914 3,619,952 1,332,579 1,461,635 2,794,214 908,562 1,373,777 2,282.339 644.281 617.614 1.261.895 931.5.56 1,077,876 2,009.432 480,578 968,559 1,449.137 483,524 1,420,326 1,903,850 359,121 1.878,064 2,237,185 $9,697,886 $13,787,-509 $23,485,395 (31 companies report n» paving charges.) ; GENERAL APPENDICES APPENDIX A DIGEST OF LAWS, OF THE VARIOUS ^STATES RELAT- ING]TO THE METHODS OF TAXING PUBLIC UTILITIES PREPARED FOR THE JOINT LEGISLATIVE COMMITTEE ON TAXATION |AND RETRENCHMENT, NEW YORK STATE, BY C. EVELEEN HATHAWAY AND RUTH MONTGOMERY, LEGIS- LATIVE REFERENCE SECTION, NEW YORK STATE LIBRARY REVISED TO OCTOBER, 1921 [313] 314 DIGEST OF THE LAWS OF THE VARIOUS STATES RELATING PREPARED FOR THE JOINT LEGISI.ATIVE COMMITTEE By C. Eveleen Hathaway and Ruth Montgomery, Legislative Revised to I STATE Public utility corporation Ad valorem tax Alabanta Railroad corporations State tax commission shall assess all property for taxa- tion. Valuation of intangible property, obtained by deducting value of tangible from total, apportioned to local districts on basis of mileage. Tax rate same as for general property. General Acts, 1919. No. 328. a 3, 157. 167-169, 176, 178. 183. 184. 361. Sleeping car companies Telegraph companies Same as for railroads ••• Telephone companies other than community telephone lines not operated for profit Street or interurban railroads ExDreas companv Same as for railroads Same as for railroads Local assessment of tangible and intangible property located in State. Same as for railroads Electric light or power companies, water works, gas or heating com- pany or similar public utility. Transferring baggage or passengers. t ■i 315 TO THE METHODS OF TAXING PUBLIC UTILITIES ON TAXATION AND RETRENCHMENT Reference Section, New York State Library October, 1921 Capital stock tax Domestic company, based on authorized capital stock Foreign company based on capital employed in the State. Rate 60 cents per $1,000. Apportioned, two-thirds to the State, one-third to the counties Earnings tax Same as for railroads. Same as for railroads. Same as for railroads. Same as for railroads. Same aa for railroads. See license tax . Licenses and miscellaneous Local license taxes are imposed For license, privilege and franchise taxes the man of $8,000 is to be paid annually to the State. Same to be in full satisfaction for taxes upon the buaneas, property and intangible assets of car company. No car company paying such taxes shall be required to pay more than $10 to any municipality authorised by law to collect license tax of such company. Annual license tax for company operating between points wholly within the Slate is based on mileage of telegraph lines within State as follows; $1 per mile for lines not exceeding 150 miles: $500 when Imea exceed 150 miles and ll for each additional mile of such line. State license tax exempts company from county privilege tax. A municipal privilege tax based on population of the cities may be levied. License tax* — Each person, firm or corporation operat- ing a local telephone exchange or exchanges, shall pay annually to the State a privilege tax based on the mileage of telephone lines operated within the State as follows: 25 cents per mile when lines do not exceed 50 miles; 50 cents a mile when lines do not exceed 150 miles; $1 per mile when lines do not exceed 250 miles; $2 per mile when lines exceed 250 miles and also $1,030. Each person, firm or corporation ope- rating long distance telephone line or system shall pay annually to the State $2 per mile for each line as operated. No other privilege tax except license required by cities and towns. Privilege tax allowed in cities and towns. License tax, two mills on each dollar of gross receipts for preceding year to be paid to the State. Mini- mum for first two years of business, $100 per annum Maximum license tax municii^lities may assess annually is 2 per cent of gross receipts of business. License tax, $4,000 to be paid annually to the State. Exceptions: $250 to be paid if company operates on less than 50 miles of railroad: $500 if company oper- ates on more than 50 miles and less than 200 miles of railroad: $2,500 if on more than 200 miles and not over 500 miles. Privilege tax based on populatioa may be levied by cities and towns. License tax.— Same as for street railway. License tax. — Each person, firm and corporation en- gaged in business of transferring passengers or bag- gage to and from dwellings or hotels in cities of 5,000 or more population, or to and from railrcwd depots, docks, wharves or boat landings operating more than three vehicles shall pay annual license of $50. 316 Digest of the Laws op the Various States Relative STATE Alabftuia — Ccntinued. Public utility corporation Freight companies. AriMOMk General Taxation ajid Rier- ta)x»« Laws, 1918, pp 85, 90-91, »4-9€. 99, 101-102 (See also nctt en last page 00.) Private oar lines. *rkanf3ig . . Acta, 1911,' No. 251: No. 153:. 1&15. No. 224. 1913. I Refrigerated air, dockage, cranage, toll road, railroad equipment, navigation, canal, freight or pas- senger depots, or other public service or public utility corpora- tion Ad valorem tax Same as for railroads. Railroads, telegraph and companies telephone Assessments of all operative property, including fran- chise, are made by State Tax Commiasioa upon entire railroad within St«te. Valuation apportioned to local districts for local tax levies. Tax to be levied on full cash value of property within State at a rate which shtU equal average rate of levy for all purposes in the several taxing districts of the State for the current year. Said tax to be in lieu of all other taxes except annual license tax, the tnnual registration fee payable to the State corporation commission. Express companies. Railroads Express companies. Car company, car trust, mercantile company, freight line company other than railroad company, or individual owning such cars. Telegraph companies Telephone companies . Pipe lines. State Tax Commission assetses all property, tangible and intangible, including the franchise (except the ri?ht to be a corporation), railroad tracks, rolling stock, passenger and freight depots, office furniture, other property real and personal owned by each railroad or railway corporation of this State. Main track and rolling stock apportioned between several towns and districts through which railroad runs according to actual mileage in each. Buildings and aide tracks assessed as real estate in incorporated town where located. Materials and stores assessed as personal property in town or district where located. All other personal property except rolling stock and materials and real estate other than used for raiU-oad purposes assessed in county where situated. State Tax Commissioners value of property in State by taking the same proportion of aggregate value of entire property, tangible and intangible within and without State, as the number of miles of railway in this State over which such company carries on its business bears to the aggregate number of miles within and without State over which company carries on business. Basis for apportioning value to counties, towns and districts jjiall be the value per mile in the State. An average assessment valuation is put upon the cars required to make the total mileage of such cara within the State during one year. Same taxes are levied as upon other property. Property assessed, same as for express companiw. Taxable value of property within State, is found by taking a proportionate amount of value of entire property. Basis of apportionment, same as for express companies. State Tax Commission assesses property on basis of proportion of pole miles and stations within State to total pole miles and station.s of system. Appor- tioned to local districts on same basis. State Tax Commission assesses all property including office fixtures, teams, wagons and other apparatus. Taxable value in this State is found by taking same proportion of aggregate value of entire property within and without State as the number of miles iQ the State bears to total number of miles. Appor- tionment same as for express companies. i»^ >v\ 317 to the Methods of Taxing Public Utilities — (Continued) Capital stock tax Earnings tax > Same as for railroads . Same as for railroads. See license tax . Licenses and miscellaneous Franchise tax in proportion of paidup capital employed in tke State. Rate 1/15 of 1 per cent. Same as for railroads. per cent of the gross receipts to be paid in lieu of all other taxes upou properties of such company. State Tax Commission shall assess annually to ^icS freight or equipment company a privilege tsx or license of 3 per cent on the gross amount of incooie from all sources within the State reported by ejcU freight line or equipment company. Same as for railroads. Same as for railroads. Same as for railroads. Same ae fcr railroads. Privil^e tax of 5 per cent of grcss receipts. Specific tax for car trusts, $100 aaauaUy. 318 Digest op the Laws of the Various States Relating STATE Public utility corporation Arkansas — Contin ued . California Constitution, 1910, Art. XIII, § 14; Session Laws, 1921, ch. 22. Power, heating, electric, gas, water, street car, toll roads, toll bridge, interurban and other similar com- pany or corporation known as a utility corporation. Railroad companies including street r^Iways, sleeping car, drawing- room car, palace car companies: refrigerator, oil, stock, fruit, and other car companies: express com- panies doing business on railroad, steamboat vessel or stage line in this State: telegraph and telephone companies, companies engaged in transmission of gas or electricity. Corporations maintaining wharves, ferries, toll roads, toll bridges: constructing, maintaining and op- erating mains, pipes, canals, ditches, tanks, conduits or other means for conducting water, oil, or other Bubstance. Colorado Revised Statutes, 1908, §§ 6630, 5642, 5644, 5647-5650, 6653, 5G56-5667. Session laws, 1913, ch. 133. Connecticut General Statutes Revision, 1918. ch. 72. Public Acts. 1919. ch. 128. 249. Revised Code, 1915, pp. 37, 39-49, 65-66, 71-72. Water companies. Express, telephone, telegraph, sleeping car, car line, raUroad, power, pipe line, water, street railway, gas, lighting, heating companies. Also companies how ever owned or operated and having a continuity of business in two or more counties in the State. Railroads: water, gas, electric and power companies, express, tele- phone, telegraph, cables and car companies. Carriers of passengers by steam power, railroads and canal com panics. Telegraph companies. Ad valorem tax State Tax Commission assesses property. Constitution reserves to the State the right, in the case of a deficiency in State revenue, to collect an ad valorem tax upon all property in State. Looal districts tax non-operative property. State Tax upon franchise equal to 1 6/10 per cent of their actual cash value. All tangible proper^ subject to local taxation. State Tax upon franchise equal to 1 2/10 per cent o f its true cash value. All tangible property Bubjeet to local taxation. A ssessment for taxation by State tax commission, of all property excepting non-operatve property of railroads which is locally asseaied. Valuation taken to be that proportion of total value borne by mile- age within State to total mileage. Rate of tax, same as on other property. Local taxes on real estate. Real estate outside right-of-way and buildings on or off right of way are taxed locally for school and road purposes. Property subject and ad valorem taxes for school and road purposes. 319 to the Methods of Taxing Public Utilities — (Continued) Same as for railroads. Annual State license tax based on capit.'\l stock. Annual State license tax based on capital stock. Corporation license fee based on capital stock. Franchise tax of 2} mills on capital stock employed in State. Railroads, 7 per cent of gross receipts: street railways, 5i per cent of gross receipts: car companies, 5i per cent of gross receipts: express companies, 1 percent of gross receipts: telephone and telegraph companies, 5^ per cent of gross receipts. Companies engaged in transmission of gas or electricity, 7i per cent of gross receipts. Note; — If decided by courts that legis- lature is without power to fix dif ferent rate on street railways than that fixed upon railroads then rate shall be 7 per cent. Tax on gross earnings of intrastate business and such portion of gross earnings of interstate business as is represented by proportion of mileage or instruments within the State to total mileage or instruments. Rate; Steam or electric railroads other than street railways, 3i per cent: street railways, 4J per cent: water gas, electric and power companies, H per cent: express companies, 2 per cent: telegraph, cable and car com panics, 3 per cent: telephone com- panies, 4 per cent; Local taxes on real estate to be deducted from gross earnings. These taxes in lieu of all other taxes on such companies, including taxes on stocks and bonds in hands of owner. Gross earnings within the State. Fran- chise tax for telegraph corporation, 1 per cent of gross receipts to be paid annually. Taxes of one-half of one per cent npon eapHal stock, 10, per cent on net earnings, $100 per looomotiTe 825 for each passenger car, $10 for each frdght ear and truck, and 10 cents for each passenger commuted for following sums: 1. Phil., Bait., Wash., railroad company, $50,000 annually. Delaware Railroad Co., $25,000 amraaUy. 3. Baltimore and Phila. Raih-oad Co., $30,000 annuallj. " Maryland, Del. &Va. Railroad Co., $500 annually. Del., Md., & Va. Railroad Co., $1,500 annually. 6. Wilmington & N. Raih-oad Co., $5,000 annually. Annual tax as follows: 60 cents per mile for longest wire in State: 30 cents per mile for next longest wire in State: 20 cents per mile for each and every other wire. 320 Digest of the Laws of the Various States Relating 321 to the Methods of Taxing Public Utilities — {Continued) STATE Delaware — Continued. m Florida I Compiled Laws, 1920, pp 550-552, 593, 611-619-622 PuUic utility corporation Telephone companies . Cable corporation Express company Steam, gas and electricity Oil or pipeline corporations . Parlor, palace or sleeping car cor- porations. Railroads, street railroads, sleep- ing and parlor car companies. Telegraph companies. V Telephone companies . Steamboat companies Electric light or power plants Refrigerator and tank car companies Express company Sleeping and parlor car companies. . Gas plants, water companies. Capital stock tax Ad valorem tax Same as for telegraph companies . Same as for telegraph com- panies. Same as for telegraph companies. . Same as for telegraph companies.. Same as for telegraph companies. Same as for telegraph com- panies. Same as for telegraph com- panies, u^ I ... .^M . '9 Same as for telegraph com- panies. ,^ ,^ ^ Same as for telegraph companies . Same as for . panies. . telegraph com- ai:; Earnings tax Licenses and miscellaneous Same as for telegraph companies. Same as for telegraph companies. '^ame as for panies. telegraph com- Comptroller, attorney general and State treasurer assesses property and the comptroller apportions it to the counties- The county assessor of taxes apportions it to the cities and towns to be taxed lika any other property. t!.; fe«' Same as for telegraph companies. Franchise tax, 1 per cent of gross receipts to be paid annually. 6 per cent of gross earnings to be paid annually to the State. Franchise tax, 2/5 of 1 per centum upon its gross receipts each year and 4 per cent upon the dividends in excess of 4 per centum so declared. Annual tax of one mill on each dollar of gross receipts of the company to serve as license fee. Franchise tax, 3/5 of 1 per centum of the gross receipts each year. If part of its transportation Une is in this State and part in another, the fran- chise tax shall be at the aforesaid rates upon such proportion of its gross receipts as the length of line in this State bears to the whole length of line. Franchise tax 1^ per cent of gross receipts each year. Annual tax aa follows: 60 cents per mile for longeit wire in State; 30 cents per mile for next longest wire in State: 20 cents per mile for each and every other wire in State: 25 cents for each telephonic transmitter in this State furnished or rented to any person or party by such company. Annual license fee 1250 to be paid to State. Local express business exempt from license tax. Same as for raibroada. fad hi ^ Ml property assessed locally . Same as for telephone. Same as for telephone. Same as for telephone. Same as for railroad . i> Same as for telephone. See license tax. Tax on gross earnings.— $1.50 upon each -SIOO of gross earnings shall be paid annually into State treasury. Ten dollars per mile for each and everv mile of railroa.i track in this State to be paid annually. Oae-half amount is paid in to the State treasury and one-half distributed to various counties. This license tax in lieu of all other State or county license taxes on such railroad company. City license taxes author, ized for companies whose tracks pass through it corporate limits. * License tax. — 65 cents per mile to be paid to the Comptroller. One-half of sum to be paid to the counties in proportion to mileage in such counties No other license tax by county. License tax as follows: 10 cents for each of first 1,000 instruments installed; 8 cents for each of second 1,000 instruments installed; 6 cents for each ov?r 2,000 instruments installed. No license tax required if number is less than 100. Local license tax. License tax based on capacity of steamboat is paid to county. License tax, $50 to $100, according to population of city or town. License tax, $500, to be paid to Sute Comptroller. _No tax to be imposed by county or municipality. License tax. — 2 per cent of gross receipts from business done between points within this State to be paid annually to the Comptroller. One-half of license tax to be distributed among various counties, one-hal? to be paid into State treasury. Cities or towns are authorized to impose a license tax according to population. License tax. — $5,500 annual license tax for sleeping or parlor car companies who operat« cars on or ov.^ any railroad within this State. No other county ar mimicipal license-tax required. Local taxation for license. 11 i .1 322 Digest of the Laws of the Various States Relating STATE Seraion Laws, 1919. p. 55 1918, pp. 76-8. Annotated Code 1914. v.l, p. 468, 470... Public utility corporation Q^opgja Railroads, street and suburban rail- roads, sleeping car companies, express companies, telephone or telegraph companies, gas, water, electric light or power, steam heat, refrigerated air, dockage, or cran- age, toll road, toll bridge, railroad, equipment and navigation com- panies Ad valorem tax Idaho Compiled Statutes, 1910, pp. 906, 908-909, 912-914. BeeaoD Laws, 1921, p. 13. R^Iroeds, telegraph, telephone and electric current transmission lines, sleeping car and other car com- panies. IIKfi mn ComiNlatioii of Tax Laws and Judidsl Decisions, 1919, ?p. 30, 40, 50, 59, 61. 69. 71, 3, 215, 224. Indiana Law relating to the aasess- ment and taxation of property, 1919. pp. 11-12, 39-48, 62-54, 66, 09. 70. 115. Express companies. Railroads.. Telegraph companies. Express companies, bridges, ferry, gravel road, gas, plank road, stage, steamboat, street railway, transportation companies. Railroads, including street railroads. State assessment of all property including franchises . . Railroad companies operating raib-oads lying partly in this State and partly in other states shall be taxed as to rolling stock and other personal property, not permanently located in any of states through which they pass on so much of whole value as is propor- tional to length of railroad in this State. The value of the property of railroad companies, including- street, dummy and electric railrosiids to be report^ without dedacting their indebtedness. Non-resident sleeping car companies assessed upon property in the State in the same proportion to the entire value of Fuch sleeping cars, that the length of lines in this State over which such cars run beajs to the length of lines of all railroads over which such cars run. Equipment companies assessed on average amount of equipment of such company in this State during the year. Proportion of franchise taxable in this State shall be the proportion the car mileage of such equipment company in this State bears to the entire car mileage of such company. Rate of taxes same as that for other property. Bureau of Budget and Taxation submit an estimate of the values of the operating properties to State Board of Equalization, State Board of Ek]ua!ization assesses tax. Value per mile of railroad, telegraph and telephone lines is found by dividing total value within State by number of miles within State. Value per mile of electric current transmission lines ia found by dividing total value in each county by number of miles in such county. Sleeping car companies assessed annually for that pro- portion of the total value of such cars which the number of miles of main track over which cars were used within the State bears to total number of miles of main track over whicu such cars were used every- wiiere. Assessment of other car companies made upon the total value of the cars required to make the total mileage within the State during the year. Assessment apportioned to counties and various taxing districts on mileage basis. Franchises are included in valuation. Non-operating property assessable by county assessor. Property tax Capital stock, including franchise, rolfing stock and. " railroad track " assessed by State Tax Commission but listed and taxed in counties, towns, villag^. districts and cities in proportion that length of main track in such county, town, village, district or city bears to whole length of road in State. All personal [)roperty except " rolling stock " listed and assessed ocally. All real estate, including buildings other than " railroad track " listed and assessed locall^r. Capital stock assessed by State Tax Commission. Other property assessed locally. Same as for telegraph companies " Railroad track," " rolling stock " assessed at true cash value by State Board of Tax Commissioners. Same to be certified to cotmtj' auditors and distribu- ted by them in proportion to the length of main track within the county, town-ship, city or town. Other property locally assessed. Rate of tax, same as for other property. ^ 323 TO THE Methods of Taxing Public Utilities — (Cmtinited) Capital stock tax Franchise tax on capital stock. Earnings tax .* licenses and miscellanooaa •«•• •••« License tax, 3 per cent upon gross re- ceipts received in tflis State to be paid annually to the State Treasurer. Illinois Central railroad taxed 5 per cent of gross receipts in addition to property tax, providing tnat total taxes equal 7 per cent of gross re- ceipts and that property taxes in excess of three-fourths of one per cent be deducted from 5 per cent gross receipts tax. ) I 321 Digest of the Laws of the Various States Relating STATE Indiana — Continued. Iowa Supplement Code of Iowa, 1913, sees. 1305, 1330. 1330a 1330b, 1334, 1336-1337, 1340, 1342d-1342e, 1343, 1346d- 1346f: Supplement, 1915, §§1346m, 1346n. 1346q. Kansas Laws relating to assessment and taxation, 1919, pp. 19, 21, 24, 25, 45, 49, 50. Session Laws, 1921, ch. 200. Public utility corporation Navigation companies. Road and bridge companies, gas water and hydraulic companies; telegraph, telephone, express, car line and pipe line companies. Freight lines. Kntacky Statutes, 1915, v. 2, pp. 2065-2067, 2078. Supple- ment, 1918, V. 3, pp. 802-803 829. Louisiana Constitution and Statutes, Wolff, 1920, pp. 1882-1883, 1930, 1944-1945, 2145. Railway companies, including inter- urban ra'Iway companies, tele- graph, telephone, express and electric transmission line com- panies. Equipment and freight companies . Water, gas works, electric plants . street railways. Railroads, telegraph, telephone, pipe line and electric power companies Ad valorem tax Personal property assessed locally and taxed as other property. Capital stock and operating property assessed by State Tax Commission and apportioned to local cUatricts on basis of milea:re. Non-operative property as- sessed locally. All taxed at same rate as other property. Local assessment and taxation of real estate. Car companies . Express companies. Railroads and telephone companies. Telegraph, press dispatch, express, car companies, gas, water, ferry, bridge, street railway, electric power, turnpike, or other public service company. Oil companies Railroads, telegraph, telephone, car and express companies. Operative property assessed by executive council at 25 per cent (as other property) of its actual value, and valuation apportioned to counties on mileage basis. Non-operative property, grain elevators, and bridges across Mississippi locally assessed. Rate of tax same as for other property. Executive Council shall determine actual value of property within the State. From such value shall be deducted the actual value of cars locally taxed and then one-fourth of residue shall be taxed at the average rate of State and local taxation. Locally assessed and taxed as other property. Ad valorem tax on all property used in operation of railroads assessed by State Tax Commission. Same apportioned to the counties, townships, cities and districts. .A^ll property including franchises valued by the State Tax Commission. Property to be assessed in this State shall be such a percentage of the total value of all assets of the company as shall equal tne per- centage whicn the mileage made by tae rolling stock within this State during tne year ending December 31 next preceding is of the total mileage of the rolling stock in all the States and territories during year. Tax to be paid directly to State treasury. Jjocal assessment of tangible property. Tax rate same as for other property. State Tax Commission assesses tanfdble property and franchises and apportions same to counties. Rate of tax same as for other property. Franchise assessed in first class cities independently. Tangible property assessed locally. Franchise assessed by State. Tax rate same as for other property. Property other than wells assessed locally. Tax rate same as for other property. Board of State Affairs assessrs total value of property and apportions intangible property according to prin- cipal office and rolling stock and other movables ac« cording to mileage. Local assessment of real estat« for local taxes. Tax rate same as for other property. 325 to the Methods of Taxing Public Utilities — {Continued) Capital stock tax One per cent of value of the proportion of capital stock representing capital and property owned and used in State after value of real estate taxed locally has been deducted, shall be paid to State as excise tax. Earnings tax Licenses and miscellaneous Tax on tonnage; 3 cents per net ton of the registered tonnage of all vessels owned by company to be paid to State annually. Tax on tonnage s&all.'be m lieu of other taxation, except that on personal property which property is assessed to such com- panies as other personal property taxed. License tax on capital stock graded according to amount of stock employed in State. Same as for railroad. Same as for railroads. Excise tax, 4 per cent of the amount fixed by Tax Commission as gross receipts of company to be paid to the State auditor. See license tax . License tax is imposed in cities and towns. Annual tax for State purposes, 1 per cent of market value of all crude petroleum produced. County may impose tax of J per cent of market value of crude petroleum produced in county, .\bove ia lieu of all other taxes on wells. State and local license taxes based on gross receipts. 326 Digest of the Laws of the Various States Relating STATE Maine Bevised Statutes 1916,1 pp. 311-217: laws 1917. p. 208. Maryland Tax Laws, 1919, pp. 7-11, 14-15, 52, 60-61, 69-70, 77- 78, 81, 89-91. PuUio utility corporation Railroads. Street railroad corporations . Parlor car corporations. Telephone and telegraph corporft- tions. Ezi^ess companies. Railroad compani^. Ad valorem tax Land and buildings outside right of way and buildings within right of way subject to local assessment and taxation. > Same as for railroads . Real Mtate locally assessed and taxed. Same as for telephone. 327 TO THE Methods of Taxing Public Utilities — (Continued) Capital stock tax Real and personal property taxed locally. Rolling stock assessed in district that is legal situs of same. Licenses and miscellaneous Excise tax paid annually to the State as follows: 1. When average gross receipts per mile do not exceed $1,5J0, tax shall equal one-half of 1 per cent of gross transportation receipts. 2. When such receipts e.tceed $1,5)0 but do not exceed $1,9 J J, three-quarters of 1 per cent of gross receipts. 3. So on increasing rate one-quarter of 1 per cent for every additional $400 of receipts. Limit 5^ per cent, for freight lines 3 per cent. State to apportion and pay to the several cities and towns in which is held railroad stock of such company, 1 per cent on value of such stock pro- vided such sum does not exceed sum received by State. Above tax is in lieu of all other State taxes. Same as for railroads except when gross average receipts per mile do not exceed $1,000, tax shall be one- quarter of 1 per cent on gross trans- portation receipts, one-quarter of 1 per cent being added for each addi- tional $1,000 or fraction thereof. Excise tax paid annually to the State 9 per cent of gross receipts from business done wholly in State. Same in place of all other taxes. Excise tax paid annually to State in lieu of all other State taxes: 1. li per cent of gross receipts when such receipts exceed $1,000 but do not exceed $5,000. 2. IJ per cent of gross receipts when same exceed $5,000 but not $10,000. 3. If per cent when over $10,000 but not over I $20,000. 4. 2 per cent when over $20,000 but not over $40,000. 5. So on, increasing one-quarter of 1 per cent for each additional $20,000 up to 6 per cent. License tax paid annually to State. 4 per cent of gross receipts for all business done in this State including a proportional part of express busi- ness coming into State and going out to other States. In lieu of all other State taxes. .\ franchise tax is levied on gross receipts as follows: Ij per cent on $l,'j JO per mile of gross receipts, or on total earnings of less than $l,0OO per mile. 2 per cent on gross earn- ings above SI, 000 per mile and under $2,000 per mile. 2^ per cent on all earnings above S2,000 per mile. Above ta.\ in lieu of any State or local tax on shares or any State tax on real or personal property. if part of road is in this State and part in another, such railroad company shall pay on such proportion of gross earnings as length of line in this State bears to whole length of line. 328 ^^^^^'T OF THE Laws of the Various States Relating STATE Marjland — Continued, Public utility corporation Telegraph, cable, express or trans- portation, parlor car and sleeping car company. Telephone and oil pipe line company Electric light companies Ad valorem tax Electric construction and gas com- panies. Street and passenger railways, steam- ship, steamboat, turnpike, bridge and sewerage disposal, heating, refrigerating, water and gas com- panies. Capital stock assessed by State Tax Commission. Utber property locally assessed. Tax rate same as for other property. Same as for telegraph Same as for telegraph Same as for telegraph. Same as for telegraph. Freight line companies. Massachusetts Railroads. Laws relating to taxation, 1{*18, pp. 22-23. 103-104, 11^ 122, 124-125, 135. 140-141: ■Session Laws, 1918, Ch. 138, 253, 255, 1919 ch. 349, §21, 1920. ch. 600. Street railways and electric railroads State Tax Commissioner assesses intangible values. Tax on same equal to average aiitmal property tax rate for three years preceding, but not to exceed tax at said rate on amount 20 per cent in excess of value of real and personal property if owned by individuals, buch part of tax paid on account of shares of stock owned by nonresidents of Massachusetts shall be retained by State; remainder distributed to cities and towns m proportion to total assessed value of prop- erty actually taxed in each city and town for preced- ing year. Local taxes on tangible property locally assessed. Minimum taxes to equal 1-10 of I'p^r cent of market value of capital stock. Sameasforrailroadsexceptinregardtoapportionment. lax apportioned among cities and towns in prapor- tion to length of track in said cities and towiu. Telegraph . Telephone . Same as for railroads. In ca.se of domestic telephone company the a aount and market value of all stock in other corporatons neld by It upon which a tax has been been paid in this Mate or other States for the twelve months last preceding tae return, is deducted from cash value of all ot capital stock. In case of both domestic and foreign telephone company so much of it.-^ capital stock as IS proportional to the number of telephones ownecl or controlled by it without the State is also de- ducted. Rate same as for railroads. Naiue of works, structures, real estate, machinery, poles underground conduits, wires and pipes, subject to local assessment and taxation. 329 to the Methods of Taxing Public Utilities — {Continued) STATE Income tax same as for rail- roads. Income tax same as for rail- roads. '-4i_ Public utility corporation Franchise or State tax, 2^ per cent on gross receipts. Franchise or State tax, 2 per cent of annual gross receipts. Franchise or State tax, 1 per cent of annual gross receipts. Franchise or State tax, 1 J per cent of annual gross receipts. Two per cent on gross earnings of business within the State is levied in lieu of all taxes upon property of freight company. Income tax f of 1 per cent of the net income as returned to Federal gov- ernment for preceding year. Appor tioued to the State. Ad valorem tax Telegraph and express companies pay State !: . of $300 per annum. t»x Income tax same as for railroads. Commutation tax or excise tax an amount equal to such proportion of following percentages of gross receipts, as length of tracks in city or town bears to total length of tracks. Percentages based upon annual gross receipts iat each mile of track as follows and computed upon aggregate of said annual gross receipts: $4,000 or less, 1 per cent; over $4,000 and less than $7,000, 2 per cent: over $7,000 and less than $14,000, 2i per cent: over $14,000 and less than $21,000, 2 J per cent: over $21,000 and less than $28,000 2| per cent: $28,000 or more 3 per cent. Commutation tax not to be imposed 1920 and 1921. Digest of the Laws of the Various States Relating STATE Public utility corporation Massachusetts — Continued Michigan Compiled Laws 1915, v. 1, p. 1504, 1.507: Public Acts 1917, CL 339; Public Acts 1921; Senat€ enrolled act No. 27; Hwise enrolled act No. 228. Gas, electric light, gaa and electric, and water companies. Ships and vessels. .\d valorem tax Railroads, union station and depot companies, telegraph and tele- phone. Sleeping car companies. Express companies. 1^^ Minnesota General Statutes, 1913, pp. 2S0, 422, 424, 600-506; Laws, 191*'. pp. 678-679; Laws 1921, p. 6.50. ' Car loaning, stock car, refrigerator, fast freight line and other car companies. Gas, electric light, waterworks and hydraulic companies. Street raikoad, plank road, cable or electric railroad or transportation companies and bridge companies. Railroad compames. Same as for railroads except apportionment. Portion of tax paid on shares owned by non-residents of State is retained by State. Remainder paid to city or town where located or if business is carried on in several cities and towns said remainder is distributed to them in proportion to the value of works, structures, real estate, machinery, poles, underground conduits, wires and pipes. Works, real estate, etc., taxed locally. Tax Commissioner assesses annually every corporation organized under laws of State and having place of business therein which has interest in any ship or vessel. Tax to be 1 per cent of value of such mterest All real and personal property used in canying on their business assessed by State Tax Commission. Value of property based on statements filed by corporation. Franchise not assessed directly but considered in determining value of property. Rate same as for other property assessed for ad valorem tax. In obtaining true cash value of property to be a^ssed in State, the proportion which number of miles of main track within the State bears to the entire mileage of main track is considered. Real estate not occupied in service of franchise ot operated in conduct of business taxed locally. Property of telegraph or telepjone companies whose gross receipts within State for year ending December 31, do not exceed 4^500 shall be exempt from taxation. Total value of palace cars, drawinp-room cars, sleeping cars, and tourist cars to be taken as aggregate value of personal property. This amount is multiplied by number of miles of railroad main track over which such cars were used within the State. The amount thus obtained is divided by the number of miles of raibood track over which such cars are used both within and without the State. Result is true cash value of personal property to be assessed and taxed like personal property- of other companies assessed by State Board of .Assessors. Non-operative real estate assessed locally. Same as for railroads. True cash value of property to be taxed shall be obtained as follows: 1. Deter- mine actual value in money of entire amount of capital stock and bonded indebtedness. 2. From such amount subtract actual value of all real estate and personal property, wiiica is not used in express business. 3. Divide this remainder by total number of miles of route over which company does business. This gives the value per mile. 4. Multiply value per mile by total number of miles within the State over which company does business. 5. To this result add the value of all real estate owned by company in State and the result shall be actual value of property subject to assessment and taxation ^ in State. Non-operative real estate assessed locally. Same as for raihoads. Relation of aggregate car mileage made by entire number of cars to the car mileage in State is considered in obtaining value of property to be taxed. Non-operative real estate assessed locally. Local assessment of property. Rate of tax same as for other property. Same as for gas companies. I 331 to the Methods of Taxing Public Utilities — (Continued) Capital stock tax Income tax came as for rail roads. 1/ M ** Annual state iiri\ilege fee of 3^ mills on capital stock. Privilege fee 05 mills on each dollar of paid up capital and surplus to be paid annually to Secretary of State when report is filed. Such fee not to be less than 150 nor more than S 10,000. Earnings tax Licenses and miscellaneous Same as for sleeping car com- panies. Same as for sleeping car com- panies. Same at for sleeping car com- panies. Five per cent of gross earnings in lieu of all taxes upon property owned and operated for rulway porposes. Apportioned to taxing district ac- cording to proportion of business contributed by district. 332 Digest of the Laws of the Various States Relating STATE Public utility corporation Minnesota — Contiuurd Express companies. Gas, electric, water, street railways, etc. Vessels navigating international waters. Freight line companies . Sleeping car companies. Ad valorem tax 333 to the Methods of Taxing Public Utilities — {Continued) Capital stock tax Local assessment of property, for other property. Rate of tax same as Telegraph companies Rate fixed by State Board of Equalization on cash value of lines. Rate must not exceed avwa?e rat© of taxes, general, municipal and local. Such tax in lieu of ^1 other taxes, State and local. Telephone companies . Mississippi Raihoads. Code, 1917, V. 2, pp. 28S6- 2892, Laws 1918, pp. 143-146; Laws 1920, pp. 109-110, 112. 118-119, 123-126. Express. Sleeping car company, etc . Freight line companies and equip- ment companies. Street railways , Telephone. Missouri Revi-ed Statutes, 1919, v. 3, pp. 3310, 3015-3016. 4060- 4068, 4077-4078. 4079. 4094 Laws, 1921, pp. 173, 679; Extra Session Laws, Aug., 1921. Montana Laws, 1977, pp. 120-121, 143-145, Laws, 1919, pp. 105, 108-111: Session Laws, 1921, pp. 20-21, 186-190, 214-215. w Telegraph Gas companies Electric light Waterworks company. Tax Commission assesses property at its true value, taking into consideration value of franchise as well as capital stock. Apportioned to counties and other tax districts according to property located therein. Rate of tax same as for other property. Also special levee taxes. Same as railroads Same as railroads. Local assessment . Rate of tax same as for otiier property Same as raikoad Raihoads, street railways, car, telephone and telegraph companies Elxpress companies. Gas, water and other public utilities Railroads , Same as raih>oad , Same as street railways. Same as street railways . Same as street railways. Commissioner of Budget and State Board of Equali- zation shall assess operative property. Non- operative property assessed locally. Rate of tax same as for other property. Board apportions to counties, towns and cities value on a mileage basis. Franchises other than right to be corporation taxable. Real and personal property including franchise subject to taxation as if owned by private persons. .Assessed and taxed locally as other property Franchise, roadbed, rail and roUing stoek and all other property except as given under local tax, to be assessed by State Board of Equalization and appor- tioned to counties on mileage basis. Lots and parcels of real estate, not included in right of way, with buildings, structures and improvements thereon, dams and power houses, depots, stations, furoiture, machinery and other personal property assessed in coimty where located. Railroads oper- ated or situated in one county and not assessed by State Board of Equalisation must be listed and assessed in county where situated. Rate same as for property of individuals. 1^ Earnings tax Licenses and miscellaneous Eight per cent of gross earnings after deducting amount paid to railroads for carrying their freight. In lieu of all other taxes. Annual franchise tax equal to one-twentieth of 1 per cent of the par value of its capital stock and surplus employed in business in the State. Six per cent on gross earnings in lieu of other taxes. Five per cent of gross earnings in lieu of other taxes. Four per cent of gross earnings in lieu of other taxes. Pays 3 cents per net ton of registered tonnage to State Treasurer who pays one-half of it to county in which port of hail of craft is located. Pay to State Treasurer 3 per cent of gross earnings in lieu of other taxes Income tax equal to 1 per cent of net income of corporations. 8ame as railroads. Company paj^B tax of S2.50 on each $100 of gross receipts to State. Railroads pay pri\ilege tax to State auditor amounting from $2.50 to $45 per mile according to classilication of railroad. Local license taxes. Express company pays privilege tax to State auditor amounting to $500, and $6 per mile on Ist class railroad tracks o\er which business is operated. $3 per mile for 2d and 3d class railroad tracks. Sleeping car companies pay pri\ilege tax to State auditor of $3.50 per mile of 1st clas;; railroad over which company runs its cars, $2.50 over 2d and 3d class railroads. Dining car companies pay to auditor $150. Street car company pays to county, pri\ilege tax of $30 per mile of line operated. Pays privilege tax to county tax collector varjing from $5 to S750 according to number of suWribers. Long distance companies pay 35 cents per mile of pole line. Pays to State Auditor 35 cents per mile of pole line. Pay privilege tax to county of $50 to $400 according to population of town. Privilege tax of $50 to $500 to county according to population of town. Pays $50 to $500 privilege tax according to population of town. Annual registration fee required from corporations varying from $5 to $15 according to time paid. Paid to State. Same as railroads License tax of 1 per cent on intrastate net income. Pays annual registration fee. Same as railroads. <: 1^^ STATE 334 Digest op the Laws of the Various States Relating Public utility corporation Montaoa — Continued Nebraska Revenue Statutes, 1913, pp 26^71,11168, 1376, 1756- 1777, 2046-47: Laws, 1917, pp. 191-92, Chapter 117: Laws, 1021, Senate File 65. Nevada Statutes, 1917, chapter 177, section 5. (See also note at end.) New Hampshire Session Laws, 1911, ch. 169 statutes relating to taxation, 1914, p. 98: statutes relating to taxation, 1919, pp. 9. 13, 25: Session Laws, 1919, p. 169. J ' ' ' f Telegraph and telephone, electric power and transmission lines, ditches, canals and Humes. Freight line companies . Express companies . Railroads Car companies . Sleeping car companies. Express companies. Telephone and telegraph companies Street railways, water works, electric light, and gas works, etc. Railroads, sleeping-car, private car line, street railway, traction, tele- graph, water, telephone, electric light and power companies, express companies. Rulroads. Pole lines and rights of way and all other property except that subject to local taxation assessed by State Board of Equalization. Value for taxation of property to be assessed shall be that portion of total value of entire plant and property wherever situated that total mileage in the State bears to total mileage wherever situated, after deducting from such portion value of proprty assessed locally. Assessment ap- portioned to counties on mileage basis. Property locally assessed same as for railroads, electric light lines and similar property situated in one county, listed and assessed in that county. Rate same as for property of indi\-iduals. Local assessment. Rate of tax same as for other property. State Board of Equalization and .Assessment assesses all property including franchise except local property off the right of way. Real estate apportioned to local districts according to status. Rolling stock and intangible values according to mileage. Rate same as for other property. State Board of Equalization and Assessment assesses and levies tax on car companies. Rate i% equal to average of all general ta.xes. State, local and school. Tax paid into general fund. State Board of Equalization and Assessment assesses portion of true value of cars used which the number of miles of railroad track over which cars were used bears to total number of miles of track used every- where. -Apportioned to counties as railroads. Local assessment as any other property. Gross re- ceipts considered an item in valuation and represent franchise value which is not otherwise assessed. Same as for express companies . County assessment. property. Rate of tax same as for other Tax Commission establishes value of franchise and all physical property used directly in operation of busi- ness, as a collective unit, if company operates in more than one county, the commission determines the total aggregate mileage operated within the State and within the several counties and apportions same upon a mile unit valuation basis and the number of miles so apportioned is subject to the mile unit valuation established by the commission. Other property assessed locally. Rate of tax same as for other property. Tax Commission to determine actual ^-alue of all prop- erty used in its business. When only portion of property is in State, commission shall make propor- tional valuation c ) » 4 ^ J Franchise tax of 5 per cent of gross receipts each year is assessed by State board of taxes and assessment and apportioned to taxing districts according to value of property in streets. Paid directly to local col- lectors for local use. Tax upon gross receipts from their business in the State at " average rate of taxation " of State is in lieu of all State, county, school and local taxation of all per- sonal property, and of all railways, tracks, rails, ties, lines, wires, cables, poles, pipes, conduits, bridges, via- ducts, machinery, apparatus and equipment, except road and tvmnel taxes. Same is apportioned to tax- ing districts in proportion to value of property therein. This tax is in addition to franchise tax. 338 Digest of the Laws of the Various States Relating STATE New Jersey — Continued. New Maxico Laws, 1921, ch. 133, § 502- 503, ch. 137, 178. Public utility corporation Express, parlor, palace and sleeping car companies. Corporations other than those listed above using or occupying public streets. Ad valorem tax Railroads, telegraph, telephone and transmission companies. Express companies . New Yoifc Tax Law, 1920. §§ 2. 3. 4a, 11, 12, 45, 45e, 182-186, 205. Private car companies. Local assessment and taxation of properly Real and personal property taxed locally . . . State Tax Commission determines value of all property by taking value of property determined by Interstate Commerce Commission or other Federal authority and adding to it additions and betterments and value of rolling stock within State with reasonable and permanent percentage of increase in such tentative valuation. Value of rolling stock determined by dividing actual value of each locomotive, car or other unit by actual number of days in preceding year and multiplying result by actual number of days such locomotive, car or unit was upon line within State. Value of rolling stock is allocated to main and branch lines in State in proportion to use upon such lines. Value of property including allocated value of rolling stock in various counties is certified to respective local assessors. Tax levied as upon other property. All property within county not used in operation of line taxed locally as other property. Real estate and improvements assessed locally and taxed as other property. Steam railroads, sleeping car, tele- graph, telephone, canal, steam- bo0it, ferry, navigation companies and pipe lines. State Tax Commission assesses all personal property other than rolling stock, located im State, and used in business, and a proportion of rolling stock used in trips in, into, out of or through State. Proportion of rolling stock assessed to be such proportion of full value of the average number of cars used in trips in State during preceding year as the aggregate number of car miles traveled by such cars in State during year bears to the whole number of car miles traveled by such cars in State dJUri°S year. Tax rate to be average rate of taxation of State. Tax Commission certifies actual value of real estates located in re- spective counties to the county assessors. Tax Commission annually determines full and actual valuation of " special franchise " subject to assess- ment in each city, town or village and also equalises valuation of same . Other tangible property assessed locally. All subject to local taxation at same rate as other property. 330 to the Methods of Taxing Public Utilities — (Continyed) Capital stock tax Earnings tax < \ Annual franchise tax of 2 per cent of I gross receipts in the State to be paid to the State. Annual franchise tax of 5 per cent of gross receipts is assessed by State b(»rd of taxes and assessment and apportioned by them to taxing dis- tricts according to value of property in or on streets. Same paid direct to local collectors for local uses. If business is carried on partly in this State and partly in other States tax is upon such proportion of gross re- ceipts as length of lines, wires or mains in State bears to total length of lines, wires or mains. If gross re- ceipts do not exceed $50,000 assess ment shall be 2 per cent of gross re ceipts per annum. Franchise tax on capital stock at the rate oi $10 per $100,000. Same as for railroads. State Tax Commission determines gross receipts of company basing their estimate upon statements filed by such company. Five per cent of gross receipts paid to the State in lieu of all other taxes upon properties except real estate and improvements. Same as for railroads. Annual franchise tax paid to State treasurer is based upon capital stock of com- pany. Measure of capital stock in State is such por- tion of issued capital stoqk as gross assets employed in business in State bear to gross assets wherever employed in business. Rate of tax varies with rate of dividends. Annual franchise tax J of 1 per cent of gross earnings within State which shall include gross earnings from transportation business originating and terminating in State. Licenses and miscellaneous 340 Digest of the Laws of the Various States Relatixq STATE Public utility corporation Kew York — Continued. North Carolina Session Laws, 1921, pp. 164, 205, 254-267. 188- Street railroads. Private car companies Express, transfer, baggage express. Water, gas, electric light, power and heating companies. Raibroads, canal and steamboat com- panies . TangiUe property assessed locally and taxed as other property. Special franchise " tax. Same as for railroads. . . . Express companies . Ad valorem tax Same as for railroads . Telegraph companies. Commissioner of Revenue assesses value of tangible and intangible property within State. In assessing value of franchise gross earnings as compared with operating expenses, and value of in- tangible property are considered. The aggregate value of tangible property and the franchise shall be true value for ad valorem tax. Same is apportioned by State tax commission to counties, cities and towns on mileage basis. Tax due State paid directly to State. Privilege tax shall be one tenth of one per cent of value of property, tangible and intangible. No county, city or town allowed to collect franchise tax. Machine and re- pair shops, general office buildings, store-houses and contents located outside of right of way, real and personal property other than property as returned tu Tax Commission, are listed and assessed locally. State Tax Commission ascertain true cash value of entire property of company. From this is deducted value of real estate in State not specially used in business. Commission after deducting the assessed value of such real estate outside of State from entire value, assesses such proportion of value of property which length of lines or routesin State bears to entire length over which business is done. From aggregate value in State value of property taxed locally is subtracted. From this commission ascertains value per mile and determines value of assessment in each county. Tax due State is paid directly to State. Real estate, structures, machinery, fixtures and ap- pliances taxed locally. Tax Commission assesses part of aggregate value which length of lines within State bears to total length. Apportions value to counties on wire mileage basis. State tax paid directly to State. Structures, machinery, appliances, pole lines, wire and conduits assessed by commission but taxed locally. Land and buildings assessed and taxed as if owned by individuals. Telephone companies Same as for telegraph companies 341 TO THE Methods of Taxixg Public Utilities — (Continued) Capital stock tax Same as for'railroads. ••a - ■< -4 s^ i ! Same as for railroads. Earnings tax Licenses and miscellaneous inual franchise tax for elevated rail- roads and surface railroads not operated by steam to be paid State shall be 1 per cent of gross earnings from all sources within State and 3 per cent upon amount dividends declared or paid in excess of 4 per cent upon actual amount of paid- up capital. Same as for railroads. .\nnual franchise tax to be paid to State shall be i of 1 per cent on gross earn- ings from all sources within State and 3 per cent upon amount of divi- dends declared in excess of 4 per cent upon actualpaid-up capital. Income tax — 3 per cent of net income paid iUiBually m franchise tax. Income tax same as for railroads. Income tax same as for railroads. Income tax same as for railroads. Three per cent of gross receipts of tele- I^ooe company within the State Investment of assets in bonds of State, county, city or town of State, or of property in State and taxable therein may reduce tax as follows: 1. If at least one-quarter of assets are 80 inrested, tax shall be 2\ per cent. 2. If one-half of total assets, 2 per cent. 3. If three^uarters of total assets per cent. Annual State license tax varying from .<5 to $7 p>r mii# aooordiag to raie of earnings, municipal liceiis^ tax-?a varying from $5 to $75, according to popuhtioa )i city. Annual state license tax of $5 per mile for each p>)l; mile of telegraph line owned or operated within Stat^. Town licenses varying with population from flD to 150. i 342 Digest of the Laws of the Various States Relating STATE Public utility corporation North Carolina — Continued. . Chair and sleeping car companies. Ad valorem tax Same as for express companies . Refrigerator and freight car com- panies. Street railway, water companies, electric light and power, gas, ferry, bridge, canal and other corpora- tions, exercising right of eminent domain. Same as for express companies. North Dakota. Compiled Laws, 1913. S§ 2075, 2097, 2114, 2144, 2146, 2242-2262. 1915 — ch. 93: Session Laws, 1919, ch. 124, 220, 222, 224. Special Session Laws, 1919: ch. 59. Railroads including street railways . Same as for express companies . State board of equalixation assesses real estate and tangible personal property used in operating busi- ness. Valuations are fixed separately on franchises, roadway, roadbed, rails and rolling stock on each mainline, branch line and siding. Valuations are ap- portioned to several counties on a mileage basis. County auditor apportions to local taxing districts. Real and personal property not used in operating business assessed locally. Rate of tax same as for othea property. Express, freight line and equipment, sleeping car, dining-car, telegraph and telephone companies. Ohio Tax Laws, 1920, ch. 17-22. Franchise and all property within State assessed at actual value by State board of equalization. Valua- tion of property per mile determined by said board and apportioned to various counties according to number of miles of line in such county, county auditors apportion same to several taxing districts. Valuation so apportioned to unorganized counties taxed for State purposes only. Real and personal property not used in operating business assessed locally. Rate of tax same as for other property. Water, gas, heat, light and power companies. Freight line and car equipment com- panies. Steam railroads. Street, suburban and intcrurban railroads. All property assessed locally. 343 to the Methods of Taxing Public Utilities — (Continued) Capital stock tax > All personal property and all real estate necessary to operation of road, valued by State Tax Commission and apportioned on a mileage basis to various taxing districts for taxation. Valuation based on state- ments made by companies. In case of interstate business valuation of property in State is such pro- portion of total valuation as length of line in State bears to total length of line. Non-operative real estate ass^sed locally. Rate of tax same as for other property. I» Same as for steam railroads. Franchise fee — one-tenth of one per cent of its sub- scribed or issued and out- standing stock which fee shall not be less than $10. Fee to be paid State treas- urer. No county, city or town has power to levy franchise tax. This fee in addition to initial fee otherwise required by law Annual excise tax, 50 cents per $1,000 of fair average value of capital stock for previous year above legal exemption of $10,000. In case of interstate roads valuation of entire capital stock and bonds is appor- tioned to N. D. on ratio of gross earnings in State to total gross earnings, or value of property in State to total value of operating property of system. This ratio of property shall mean ratio of mileage within State to total mil age. Same as for railroads Earnings tax Same as for railroads. Income tax as fcr raiircads Three per cent of gross earnings for preceding year to be paid State as annual license fee. Income tax — same as for railroads. Income tax — same as for railroads. Income tax, 3 per cent of net earnings within the State. In case of inter state roads net earnings are ap- portioned to State on basis of ratio of gross earnings in State to total gross earnings or value of property in State to total value of operating property of system. This ratio of property shall mean ratio of mileage in State to total mileage. Income tax same as for railroads. Same as for railroads. Six per cent gross earnings from busi ness within State to be paid to State in lieu of all other taxes upon prop- erty used in operation of their lines within State. Four per cent of gross earnings on intra state business paid to State as excise tax. Such tax to be not less than 110. For maintenance of Public Utilities Commission, $75,000 shall be apportioned among and assessed upon railroads and public utilities in proportion to their intra-state gross earnings or receipts. Twelve-tenths per cent of gross earn- ings to be paid State as excise tax for intra-state business. Said tax shall not be less than SIO. .Additional tax for maintenance of Public Utilities Commission same as for railroads. Licenses and miscellaneoxis t II i\ 344 Digest of the Laws of the Various States Relating STATE Ohio — Continued. Oklahoma Revised Laws, 1910, v. 2, §§ 7336-7338, 745^7461, 7470- 7479: revised laws, supplement 1918, §§ 7488a, 7488d, 7488g, 74S8i-j,.7549w, 7549y, 7549x2. Public utility corporation Ad valorem tax Express. Telegraph . Telephone. Electric light, gas, natural gas, water- works messenger or signal, union depot, heating, cooling and water transportation. Sleeping car, freight line and equip- ment companies. I^peline. Steam railroads. Tax Commission values and assesses entire property in the State, but deducts from total value in State, the value, as assessed for taxation of any real estate within State. Tax Commission apportions value of property to various counties in which company does business in the proportion that gross receipts in county bear to entire gross receipts in State. Real estate asse^ed locally. Rate of tax same as for other property. Property valued and assessed same as for express com- panies but apportioned to counties in proportion that length of lines of wire in county bears to length of lines of wire in State. Same as for telegraph Local assessment, property. Rate of tax same as for other Local assessment of real estate, for other property. Rate of tax same as Express companies. Transportation and transmission lines, excepting railroads, street railways, car companies, pipe Iinc$ and telephone companies. Sleeping car, stock car, refrigerator car and other private car compa- nies, pipe line, telephone, gas, electric light, heat, and power companies. Raih-oads are classified according to proportion that operating expenses bear to gross receipts. Every railroad according to it« classification pays tax upon value of property and franchise. Valuation, amount of business done in State and mileage of each railroad is determined by State board of equalization. State auditor certifies same to county clerks. Tax paid to the State in lieu of all other State taxes shall be equal to a percentage of its valuation according to the class to which railroad belongs. Local tax at same rate as tax on other property. State Board of Equalization values and assesses prop- erty and a^ets. Asseasment shall be proportion of property and assets that mileage of express company in State bears to total mileage of such company. Assessment apportioned to counties on a mileage baus. Tax lened same as upon other property. Same to be in lieu of all other taxes in this State. Real and personal property assessed annually by State Board of Equalization and taxed for State and local purposes same as property of individuals. Assess- ment based on statements made by companies. Street railways Same aa for sleeping car companies 345 TO THE Methods of Taxing Public Utilities — (Continued) 9 « Capital stock tax Tax Commission to deter- mine value of proportion of capital stock owned and used in State. Twelve- tenths per cent of such capital stock to be paid to State as excise tax. Earnings tax Two per cent of gross receipts on intra- state business. Tax to be not less than SIO. Additional tax for main- tenance of Public Utilities Commis- sion same as for railroads. Same as for express companies. Twelve-tenths per cent of gross earn- ings on intra-state busiaess, but tax not to be lees than SIO. Additional tax for maintenance of Public Utili- ties Commission same as for rail roads. Same as for telephone. Four per cent of gross receipts on intra- state business to be paid State as e.xcise tax. Same to be not less than $10. Additional tax for maintenance of Public I. tilities Commission same as for railroads. V State auditor ascertains annual gross receipts of company in or across State. Four per cent of such gross receipts to be in lieu of all other taxes Tax on gross receipts to be paid an- nually to State if company operates wholly within State; if operating partly within and partly without State, such proportion of said per centage of gross receipts as portion of business done within State bears to whole business. Rate 3 per cent for car companies; 2 per cent for pipe lines; one-half of 1 per cent for tele- phone, gas, electric light, heat and power companies; one-quarter of per cent for water works. J Licenses and miscellaneous I mm 1 1 ■ ■ 346 Digest of the Laws of the Various States Relating STATE Oregon I4tw8 relating to assessment and taxation, 1919, §§ 3614, 3617-3626, 3635, 3641. Public utility corporation Railroad, sleeping car, union station and depot, electric and street rail- way, express, telegraph, telephone, refrigerator car, tank line and private car companies, water, gas, and electric companies. Ad valorem tax All property used in carrying on business of the com- pany including franchises and special franchises valued and assessed at true cash value by State Tax Comnussion. In assessment of companies using rail lines, Tax Commission ascertains value per mile of branch and main lines within State. In apportioning same to counties, the value per mile is multiplied by number of miles within several counties. In case of wire or pipe lines. Tax Commission determines a reasonable and fair rate per mile and in apportioning same multiplies rate per mile by number of miles of wire or pipe lines. In case of other public utilities Tax Commission adopts method for apportionment that seems feasible and proper. After apportion- ment. Tax Commission equalises all property aseessed by counties and that assessed by Tax Commission. Property not used in operation of business taxed locally. Docks, water craft and property devoted to navigation, assessed and taxed locally. Pennsylvania Purdon's Digest, v. 4, pp. 4565-4571, v. 7, pp. 7621, 7624, Laws 1919, ch. 433. Ruboad, pipe line, conduit, steam boat, canal, slack water naviga tion, transportation, street passenger railway, telephone, tele- graph, palace car, sleeping car, and electric light companies. Express companies Real estate assessed aid taxed locally. Same as for railroads. ir- ^ ■|' Rhode Island General Laws, 1909, p. 740- 44, Public Acts and Resolves, 1912, pp. 17-24. Raiboads. Sleeping car companies, gas, water, lighting and heating companies. Express companies Real estate and tan^ble property assessed and taxe , locally, at same rate as other property. Non-operative property assessed locally and taxed as other property. Telephone and telegraph. Same as for express. South Carolina Code of Laws, 1912, v. 1, §§ 305, 308, 317-320, 323-325, 334, 361, 369, Acts, 1915, p. 131. Street railways Same as for railroads Rjulroads. Tax Comnussion assesses and equalises value of property and franchises. Value of right of way, roadbed and track shall be fixed and apportioned pro rata to each mile of main track. To value of each mile of main track in various taxing districts is added value of real estate and personal property used in operation of road in such district. Total value of rolling stock, moneys and credits is appor- tioned pro rata to each mile of main track in such districts and added to value of main track of said district. Rate of taxes same as for other property. 347 TO THE Methods of Taxing Public Utilities — (Continued) 5 1 ^ i Capital stock tax Capital stock of corporations reported to auditor-general. Five mills on each dollar of capital stock of all kinds to be paid to the State. Same as for railroads , Earnings tax Eight mills on each dollar of gross receipts from business done wholly within the State to be paid semi- annually. Statements made to auditor-general. Amount of gross receipts returned to State auditor is divided by number of miles of rail and water routes to ascertain average gross receipts per mile. When such average gross receipts per mile shall not exceed $100, tax shall be 1 per cent of the gross receipts. When average re- ceipts per mile exceed S150 tax shall be 2 per cent of gross receipts, and so on increasing rate 1 per cent for each additional $50 of average receipts per mile. Rate not to exceed 5 per cent. One per cent of gross earnings as deter- mined by tax commissioners in lieu of other taxes on intangible property. Three per cent of gross earnings as determined by State Tax Commis- sioners, in lieu of other taxes on property used in their business. Two per cent of gross earnings as deter mined by State Tax Commissioners in lieu of other taxes on property used in their business. Same as for railroads. An additional State tax of 1 per cent on gross eam- ings, except if dividend is over 8 per cent tax is equal to excess of dividend over 8 per cent but must equal 1 per cent. No other State tax. Certain electric railways pay same tax as railroads instead of street railway tax. Annual license fee of 3 mills on gross income to be paid State treasurer. Licenses and miscellaneoos Tax on indebtedness. Four mills on every dollar of interest paid on indebtedness of corporation. Same assessed by corporation upon nonunal value of eaA evidence of indebtedness and paid to ^te. ' Municipal licenses varying with size of city permitted. 348 Digest of the Laws of the Various States Relating STATE South Carolina— Coniinwd... {Public utility corporation South Dakota RtAised Code, 1919; v. 2, pp. ISftT-ieit), 1624. Telegraph, telephone, express, and sleeping car companies. Ad valorem tax Tax Commission ascertains true cash value of all property of company. From this is deducted the value of real estate not used in regular business. Then Tax Commission assesses the value of property in State which is a proportionate amount of entire value. From this is deducted assessed value of property taxed locally. Remainder is amount assessed to company. Value per mile within State is ascertained and multi- plied by number of miles in each county and then apportioned to respective counties. Rate of tax same as for other property. Real estate, structures, machinery, fixtures and appliances assessed locally. Street railways, navigation com- panies, waterworks, power, light companies. Railroads Telephone companies. Tennessee Public Acts, 1919, ch. 2, 3; Acts. 1921, ch. 108. Telegraph . Express companies Car companies except sleeping cars Sleeping Car companies. Gas and water companies, street rail- ways. Railroads Express companies Sleeping car companies. Rate of tax same as Local assessment of property, for other property. State Tax Commission assesses property including franchise value and apportions same to counties according to property therein. Non-operative property locally assessed. Rate of tax same as for other property. State Tax Commission assesses property including franchise; fixes value on property within corpjrate limits of towns, etc. Property within corporate limits is subject to all taxes as other property. Property without corporate limits shall be subject to tax at the average rate for all taxes outside the corporate limits, and this tax is in lieu of all other taxes. Both paid to county and apportioned to locality. State Tax Commission assesses property and appor- tions value according to mileage in counties. Value so apportioned is taxed as other property in county and is in lieu of all other taxes. Local property not used in business assessed and taxed locally. Same as for railroads. Apportioned on the basis of mileage of business done in county. State Tax Commission assesses property including franchise value. Levies tax equal to average rate of general taxes, State, county, municipal, school and local. Paid to State Treasurer. Tax Commission ascertains total value of cars owned. This multiplied by number of miles traveled by cars in the State and divided by whole number of miles traveled any place is the cash value of company subject to assessment. Apportions value to counties according to mileage in counties. Value apportioned subject to taxation as other property. Property assessed locally and taxed at same rate as other property Railroad commission values and assesses property within the State considering capital stock, corporate property, franchise gross receipts and market value of shares of stock and bonded indebtedness. Local- ised property valued separately and apportioned according to situs. Other property apportioned according to mileage. State rate of 65 ceata on $100. Provision is made for sliding scale when assessment reaches $900,000,000. Rate for counties and municipalities, same as for other property. Railroad terminal companies Telegraph companies Telephone companies Same as for railroads Same as for railroads. Same as for railroads. Same as for railroads. Same as for railroads . ^} <# 349 to the Methods of Taxing Public Utilities — (Continued) Capital stock tax Earnings tax 4 \ Same as for railroads. Same as for railroads. ^ / Licenses and miscellaneous State Privilege tax — Each railroad not pajin? a 1 val- orem tax and operating or controlling railroad in State shall pay annually for each mile of railroii *> operated, $120. Tax does not apply to railroai exempt from privilege tax by le^slative contract. Company subject to above tax may be released bjr paying to State $4,500 annually in lieu of all other taxes for 10 years, 1899-1909, and agreeing that thereafter property and franchise shall be liable to ad valorem tax, waiving at the end of 10 years aQ charter exemptions as to ad valorem tax. If contract is not consummated privilege tax remains ia force. State privilege tax varying with population of county. State privilege tax varying with number of miles of wire. State privilege tax varying with popubtion of county. 20 cents to 30 cents for each instrument. Mutual cooperative telephone companies not rua for proSt are not liable for this tax. Telephone bo.xes or slot machines for collecting t: 350 Digest of the Laws of the Various States Relating O.Ji TO THE Methods of Taxing Public Utilities — {Continued) STATE Public utility corporation Tennesee — Continued. Water companies. Street car companies and interurban railroads. Railway inclines Lighting, other than electric light and gas companies. Electric light companies Texas Constitution, Art. VIH, §§ 1, 9, 11. Complete Statutes, 1920, pp. 173, 223, 1274-75 1280-93, 1299-1300, 1302. Ad valorem tax Capital Stock tax Earnings tax Local assessment of property. Rate of tax same as for other property. Same as for railroads. Power companies. Local assessment. Rate of tax same as for other property. Same as for railway inclines All property considered localized property. Same valued and assessed separately by Railroad Com- mission. Exception of $1,000 apportioned to taxing district in proportion to value of property assessed in such district. Rate of tax same as for other property. Same as for railroads Gas companies. Raihoads. Same as for electric light companies. Ferry, bridge, turnpike and toll company. Terminal companies Electric railways including street and interiirban. State Tax Board determines true value of intangible assets by subtracting value of all tangible property within State. Value of intangible property appor- tioned to several counties for levy of State and county ad valorem tax. .Annual State tax on same shall be in addition to other taxes allowed by law. Rate determined according to fixed rules. Real and personal property is listed in county where located except when same is in unorganized county then it is listed with comptroller. Value of rolling stock is determined by county board of equalization where principal office is located and same is apportioned to counties by State comptroller on mileage basis. All property of railroad companies within limits of city or town shall bear its proportional share of municipal taxation. Same as for railroads. Local assessment of property. Rate of tax same as for other property. Same as for terminal companies » Car companies. Sleeping, palace or dining car com- panies. Express companies. Same as for terminal companies. Same as for terminal companies . Licenses and miscellaneous Same as for terminal companies. Capitol stock tax of 25 cents per $100. Occupation tax, 1 per cent of total gross receipts paid to State quarterly. Electric railways pay quarterly occu pation tax to State of one-half of one per cent of gross receipts in towns of 10,000 to 20,000 population and three-fourths of one per cent in towns of more than 20,000 population. This does not apply to street rail- ways wholly within towns of less than 10,000 inhabitants. Pay tax of 3 per cent of gross earnings quarterly as an occupation tax. Five per cent of gross receipts from all sources in State except buffet service Eaid quarterly as occupation tax in eu of all other taxes except tax on capital stock. Two and one-half per cent of gross receipts is paid to State annua Uy as an occupation tax. State privilege tax varying with axe of dty.tSO to $150- Tax applies to water companies whether jdant b located within or without corporate limits. Tax does not apply to municipal corporations or domestic corporations in cities or towns of less than 3,000 inhabitants. Tax does not exempt from ad valorem tax. State pri\ilege tax of $3 to $10 per mfle 6t track according to population of city. Companies seUing light also pay tax assessed against electric light companies. State privilege tax of $100 to $250 accwtling to hn charged. State prinlege tax of $10 to $100 depending on popor lation of city. State privilege tax of $25 to $1000 depending Same as for express. elephone companies . Same as for raiboads. 353 TO THE Methods of Taxing Public Utilities — (Continued) Capital stock tax Corporations are required to pay annual franchise tax based on graduated scale of capitalization. Minimum tax for domestic corpora- tions $10, for foreign cor- porations 125. Same as for telegraph com panics Franchise tax same as for telegraph, except electric light plants and water- works are exempt in cities of less than 10,000 inhabi tants. Earnings tax Same as for telesrapb . Annual license tax on capital stock graduated from $5 on $10,000 to 1250 on $4,000 000. Two and three-quarters per cent of gross receipts paid quarterly to State treasurer as an occui>ation tax. One and one-half per cent of gross receipts paid to State quarterly as occupation tax. Companies pay quarterly to State an occupation tax of their gross receipts: one-half of one per cent in towns over 25,000 population, one-fourth of one per cent in towns of 10,000 to 25,000 population. Licenses and miscellaneous Pay to State quarterly an occupation tax equal to 2 per cent of gross receipts. There is an additional State occupation tax of $20 for gas, electric light and waterworks companies in cities of less than 10,000 inhabitants and $35 in cities of 10,000 or more inhabitants. Same as for railroads. Same as for railroads. Same as for railroads. Annual license tax based on capital stock graduated from $10 to $100. Same as for railroads. Franchise tax of 1\ per cent of capital invested or used by corporation in this State, to be paid annually to the State. Also annual license tax paid on capital stock, and graduated from $10 to $100. Same as for railroads. Same as for railroads. Same as for railroads. In lieu of tax on property and corporate franchise the corporation may pay to the State a sum equal to 4} per cent of entire gross earnings within the State. Annual tax to be paid to State shall be at rate of SI 6 for every mile of route located wholly witliin State over which company does business. Annual tax on property and corporate franchise shall be at rate of 65 cents per mile of poles and one line of wire and 5G cents per mile for each additional wire operated within State, Same to be paid to Sute ■BKai rtBM ^a«a 354- Digest of the Laws of the Various States Relating 355 to the Methods of Taxing Public Utilities — {Conlinued) STATE l^rginia Code, 1919 — Constitution S§ 157, 170, 176, 178-179. 1915 — Extra Session, eh 24 80 141 i916 — ch. 283, 472, § 361, 485. 1918 — ch. 384, 409. Acts, 1920, ch. 496 Washington Remington's Codes and Statutes, 1915, v. 2, pp. 3328- 3329. 3360-3362, 3550, 3558. 3675, Laws, 1917, pp. 73-75: Laws, 1921. pp. 354-355. Public utility corporation Railways, steam and electric, and canals. Sleeping, parlor, and dining-car companies. Express companies. Stock, furniture, fruit, refrigerator, meal, oil tank car companies. Telegraph companies. Telephone companies . Steamboat and steamship companies Electric light and power companies, gas and water companies. Railroads, including street railwa3rs and telegraph companies. Car companies . Express companies. Ad valorem tax Capital stock tax State Corporation Commission values all property and gross transportation receipts. Rolling stock of steam railroads assessed for State tax only. State tax on same 1 3/5 per cent of assessed value. Prop- erty other than rolling stock taxed by State and local divisions at same rate as similar property. Extra tax of 8 cents applies also to rolling stock. Same as for railroads including extra tax. State Corporation Commission ascertains and fixes value of the number of cars required to make total mileage of cars of each company within State during preceding year. Tax of 1 3/5 per cent of assessed value paid to State annually. Extra tax same as for railroads. Same as for railroads Same as for railroads. Same as for railroads. Same as for railroads. State Tax Commission assesses all property used in the operation of a railroad, including franchise value. Sutunitted to Board of Equalization which apportions value to counties according to length of line therein. Non-operative property locally assessed All property taxed at same rate as other property. Local assessment of tangible property for property tax. Same as for car companies. Earnings tax Annual State franchise tax, 1 5/16 per cent of gross transportation receipts within the State. Annual State tax for company operating wholly within State whose operating expenses ex- ceed gross transportation receipts, 1 3/16 per cent of gross transporta- tion receipts. Licenses and miscellaneous Registration fee not less than $5 nor more than $25 to be paid annually to the State. One and one-half per cent of gross receipts paid to Stat« for annual license fee. Annual license tax, 4} per cent of gross receipts from operation of business within State. License tax, 2\ per cent of gross receipts within State to be paid annually. License tax of 1 1/16 per cent on gross earnings in State for companies when earnings are under $50,000 and when number of miles of poles does not exceed 600 and when majority of stock is not owned by any other com- pany whose receipts exceed $50,000. When noss receipts exceed $50,000 or number of mile of poles exceeds 600, or majcMrity of stoc^ or property is controlled by company whose receipts exceed $50,000, license tax shall be equal to 1 per cent on gross receipts up to $50,000 and an addi- tional 2 per cent of such receipts exceeding $50,000, also sum equal to $2 per mile of line of poles or conduits. Annual license tax, 1 3/16 of one per cent on gross receipts within State. If business is partly within and partly without State then on gross receipts earned in State on business passing through, into or out of State. Annual State franchise tax 25/32 of one per cent of gross receipts. City or town may impose license tax for Privilege of doing business therein ut it shall not exceed \ of one per cent of gross receipts. Merchant license tax to be deducted from license tax. Annuid State fee for public service holding fund based on gross receipts. License tax, $3.15 for each mile of track over which cars operate in State paid to State. Same in lieu of all other taxes. State and local, but not in lieu of registration fee which is same as for railroads. Registration fee same as for railroads. Registration fee same as for railroads. License tax $2.12} per mile of line of pdes or conduits operated by company to be paid annually. Re^atration fee same as for railroads. Annual registration fee same as for railroads. Annual registration fee same as for railroads. Registration fee same as for railroads. State Tax Commission detenmnes gross receipts and levies tax of 7 per cent on such receipts. Paid to State. Annual State fee based on sross receipts same as for railroads. Pay to State 5 per cent of gross receipts as privilege tax. State Tax Coomussion determines amount. Annual State fee based 'on gross re- ceipts same as for railroads. I 356 Digest of the Laws of the Various States Relating 357 to the Methods of Taxing Public Utilities — (Continitcd) STATE Washington — Continued. Public utility corporation West Virginia Code, 1913: v. 1, pp. 397 p. 404-418, 543, 555-57. Code Supplement, 1918: 162, 240-47. 486-87. Session Lawa 1920, 1921. -98, PP Electric light line, telephone and electric fine companies. Gas and water companies and electric companies Railroads, street railroads, car com' panics, pipe line companies. ExiH-ess companies. Telephone and telegraph . Hydro-electric companies. Wisconsin Statutes, 1919, v. 1, pp. 979- 980, 984-985, 987-988, 991- 993, 99&-996. Session Laws, 1921. ch. 59. Gas and electric light and water com- panies. Railroad, street railway, light, heat and power companies operated in connection with street railways, telegraph. conservation and regulation companies. Ad valorem tax Capital stock tax Same as for car companies Same as for car companies The State board of public works fixes and assesses true value of property in each county and apportions this yahie to county courts. County courts appor- tion value to taxing districts. These are required to report levies to State auditor who collects all taxes and pays over to county amount due. Real estate not used for purposes immediately connected with business taxed locally. Same as for railroads. Same as for railroads. Local assessment . Annual franchise tax based on capital stock of domes- tic corporation and that part of capital stock of foreign corporation em- ployed within the State. Capital stock tax on domes- tic corporations. Same as for express . Local assessment . . Same as for railroads. Telephone companies . Sleeping car, express, freight line and equipment companies. All property within the State assessed as a unit by the tax commission annually. Rate is average rate of taxation, State, county, and local consolidated. Tax on true cash value is paid to the State treasurer. Fifteen per cent of tax paid by street railways, con- servation and regulation company is retained by State, 20 per cent distributed to counties and 65 per cent to cities, towns and villages in which busi- ness is done. This tax in lieu of all other taxes on operative property, except special assessment for local inprovement in cities and villages. All non- operative properties and the real estate of telegraph companies assessed and taxed locally. Same as for raiboads. Tax Commission shall determine value of capital stock used in business. This amount divided by total car mileage gives value per car mile. This is multiplied by number of car miles in State to find value of property for assessment and taxation. Rate same as for raih-oads. Tax in lieu of all other taxes and licenses in State Earnings tax Same as for railroads. Same as for railroads. Net income tax of J of 1 per cent. Same as for railroads. Same as for railroads. See license. Same as for railroads. Licenses and miscclUuieous Special license tax to defray commission cxprnsw, not to exceed $80,000 is apportioned to puWic service corporations by State auditor according to last asse&scd value of property. All corporations holding more than 10,000 acres of land shall pay a tax of 5 cents per acre for each acre in cxccw of 10,000 acres. Special franchise tax as for railroads. Additional license tax of SI. 50 for every mile of road over which business is done by foreign express companies. In no case less than 1100. Same special franchise tax as for railroads. Additional license tax from foreign companies of $1.00 per mile of wire over which messages are sent. EJoes not apply to local exchange of telephone compnnies within towns, etc. In no case less than $100. Same special license fee as railroads. Companies pay to State a royalty of 1 per cent of gross income. Annual license fee is as follows; 1. Five per cent of total gross receipts if such receipts equal or exceed $500,000. 2. Foiu: per cent of total gross receipts if they equal or exceed $300,000 and are less than $500,000. 3. Three per cent of total gross receipts if they equal or exceed $100,000 and arc less than $300,000. 4. Two and one-half per cent of total gross receipts if they are less than $100,000. License fee upon 15 per cent of gross receipts from exchange service is paid to State, balance upon 85 per cent of such gross receipts paid to towns, cities or villages in which same are located. License fees on gross receipts from toll line service paid to the State. If license fee upon gross receipts is less than 5 cents for each telephone in- strument operated, then license fee shall be 5 cents for every such instru- ment. 358 Digest of the Laws of the Various States Relating STATE Wisconsin — Continued. . . Wyoming. Public utility corporation Tax Laws, 1919, pp. 6-7, 31- 32, 54. Session Laws, 1921 pp. 82-83. 115-116. Water, light, beat and power com- panies. Railroad, telegraph, telephone and pipe line companies. Car companies Ad valorem tax 359 TO THE Methods of Taxing Public Utilities — (Concluded) Express companies . Other public utilities. Property assessed by Tax Commission as single item and apportioned to local districts. Tax rate the same as for other property in the district. State Board of Equalisation assesses all property and apportions vahiation to counties in proportion to mileage. Rate same as for other property. State Board of Equalization ascertains value and num- ber of cars of each kind and apportions same to the counties on basis of car mileage. Board of Equalization assesses all property and apportions valuation to counties. Notes: This digest does not include organization taxes on domestic corporations, or foreign corporations license fees and taxes imposed where the corporation registers in this State. Also special municipal license taxes are not included. ^^ iVnzona — Following statement was made by the State Tax Commission of Arizona, July 14, 1920: When the net earnings of telephone and telegraph lines and railroads exceed eight per cent, these classes of property are assessed at valuation found bj* capitalizing the net income." Nevada — FoUowing statement was made by Nevada Tax Commission, July 13, 1920: " Method of assessing public utilities in State of Nevada. 1. Where the gross receipts are less than actual expenses Capital stock tax Earnings tax Licenses and miscellaneous Five per cent of gross earnings each year to be paid to State in lieu of all taxes, State and county — one-half sum apportioned to counties balance kept by State. V .including taxes but excluding interest charges) the assessment valuation is based on the market or ^crap value of the plant or road. , „ . ,. .l i *• • 2 Where the gross receipts cover actual expenses by a small margin, the assessment valuation is based upon a re-duplication cost (new) of the plant. Where the gross receipts exceed the a^timl expenses by considerable margin, the assessment valuation is based on the re-duphcation cost (new) of the plant plus the franchise value. The franchise value is determined by capitalizing the annual net proct'eds at the prevailing rate of interest, and deducting the reduplication cost (new). In determining the net proceeds an annuity of 4 per cent of the plant cost is allowed in addition to the actual expenses. ■:5 APPENDIX B 361 DATA FOR ESTIMATING YIELD OF PROPOSED TAXES ON PUBLIC UTILITIES TABLE I General Summary, Average of Four Years, 1913, 1915, 1917 AND 1918 Gross operating revenue Net income* State taxes and personal property tax Special franchise tax Total above taxes Net income and above taxes . . . , Ration: above taxes to gross opera ing revenue Steam railroads $279,661,373 36.575,057 1,148.500 1.517.000 2.665,500 39,241,157 .953% Electric raUways $129,093,899 13.901,915 1,423,518 4,337,322 5,760.841 19,650,256 4.46% Tclephona and telegraph companies $58,837,846 16,279.860 761,230 2.029.981 2.791,236 19.021.072 4.74% Gas and electric $140,033,155 29,922,064 1,063,127 4,089.673 5,152.800 35.074,864 3.67% Total of all public utilities $607,626,273 96,679,496 4.396.375 11.973,976 16,370,377 113.037,349 2.69% TABLE III Steam Railroads, 1913-1918 Grow operating revenue Net incOTne* State tax and personal property tax Special franchise tax Total above taxes Net income and above taxes Ratio: above taxes to gross operating re venue a — 6 % . . . 1913 b$231 49, 1. 1. a 2, c 52, ,173.135 782.983 273,000 391.000 664,000 446,983 1.15 1915 $226,540,621 30,563.284 954,000 1.204.000 2.158,000 32,721,284 0.953 1917 $296,618,295 41.113,887 1,267,000 1,605,000 2,872,000 43.985,887 968 1918 $364,313,441 24,842,476 1,100,000 1,868,000 2,968,000 27,810.476 0.814 Total four years 1913-1918 $1,118,645,492 146,302,630 4,594,000 6.068,000 10,662,000 156,964.630 .953 Average, four years 1913-1918 $279,661,373 36,575.657 1.148.500 1.517,000 2.665.500 39.241,157 .«53 * After deduction of taxes. • After deduction of taxes3 TABLE II General Summary,* All Public Utility Companies, 1913, 1915, 1917, 1918 Gro8« operating revenue. Net inf'ome* State taxes and personal property tax Special franchise tax Total above taxes Net income plus total above taxes Ratio: above taxes to groes operating revenue 1913 $519,583,217 114,203,359 4,324,500 11,231,000 15.555,500 129,758,859 2.99% 1915 $526,331,248 96,651,581 4,175,700 9,524,000 13.699,700 110,351,272 2.60% 1917 $650,965,825 103,638.534 4,650.454 12.835.407 17.485.861 121.124,395 2.68% 1918 $733,624,807 72,224,514 4,434.848 14.305,503 18,740,351 90,964.865 2.55% Total four years 1913-1918 Average, four years 1913-1918 $2,430,505,097 386,717,988 17,585,502 47,895,910 65,481,412 452,199,391 2.69% $607,626,274 96,679,497 4,396,375 11,973,977 16,370,353 113.049,847 2.69% \ r -^ TABLE IV Electric Railways (Including Subways) 1913-1918 Gross operating revenue. Net income* State taxes and personal property tax Special franchise tax Total above taxes Net income and above taxes Ratio: above taxes to gross operating revenue a — b% 1913 $121,506,081 16,860,581 1,299,000 4,300,000 5,599.000 e 22.459.581 4.44 1915 $123, 15, 1, 3, 5, 431,830 590,221 517,000 600,000 117,000 20,707,221 4.14 1917 $134,570,404 15,726,949 1,476,475 4,692,880 6,169,361 21.896,310 4.58 1918 $136,867,284 7,429,909 1,401.599 4.756.405 6.15S.004 13,587,913 4.49 Total, four years 1913-1918 $516,375,599 55,607,660 5,694,074 17,349.291 23.043.365 78,601,025 4.46 Average, four years 1913-1918 $129,093,899 13.901,915 1,423,518 4,337.322 5.760.841 19,050,256 448 ♦ After deduction of taxes. * After deduction of taxes. [3«0] i4 362 APPENDIX C. TABLE V Telephone and Telegraph Companies, 1913-1918 1913 1915 1917 1918 Total, four years 1913-1918 Average, four years 1913-1918 Gross operating revenue. . Net income* b $48,168,691 15,321,521 787,000 1,930,000 o 2,717,000 « 18,038,521 5.64 $51,574,158 16,228.717 781,000 1,720,000 2,501,000 18,729,717 4.84 $65,860,416 15,785,296 719,196 2,182,185 2,901,381 18,686,077 4.40 $69,748,120 17,783,907 757,724 2,287,712 3,045,466 20,829,373 4.36 $235,351,385 65,119,441 3,044,920 8,119,927 11,164,947 76,284,288 4.74 $58,837,846 16,279,860 761,230 2,029,981 2,791,236 19,071,072 4 74 State taxes and personal property tax Special franchise tax Total above taxes Net income and above taxes Ratio: above taxes to gross operating revenue a — 6 * After deduction of taxes. TEXT OF PROPOSED BILLS PEOPOSED UNINCORPORATED-BUSINESS TAX LAW Introduced and developed by discussion and amendment in 1922 session of legislature. AN ACT To amend the tax law, in relation to imposing a tax upon and with respect to income from unincorporated trade or business. The People of the State of Neiv York, represented in Senate and Assembly, do enact as follows: Section 1. Chapter sixty-two of the laws of nineteen hundred and nine, entitled "An act in relation to taxation, constituting chapter sixty of the consolidated laws," is hereby amended by adding a new article, to be article seventeen, to read as follows: V TABLE VI Gas and Electric Companies, 1913-1918 Gross operating revenue. Net income* State taxes and personal property tax Special franchise tax Total above taxes Net income and above taxes Ratio: above taxes to gross operating revenue a-h% 1913 a $118, 32, 3, 4, 36. 735,310 238.274 965,500 610,000 575,500 813,774 3.85 1915 $124,784,639 34,269,359 923.700 3,000,000 3,923,700 38,193,050 3.14 1917 $153,916,710 31,012,402 1,187,783 4,355,336 5,543,119 36,555.521 3.60 1918 $162,695,962 22,168,222 1,175,525 5,393,356 6,568,881 28,737,103 4.04 Total, four years 1913-1918 $560,132,621 119,688,257 4,252,508 16,358,692 20,611,200 140,299,457 3.67 ♦ After deduction of taxes. Average, four years 1913-1918 $140,033,155 29,922,064 1,063,127 4,089,673 5,152,800 35,074,864 3.67 ARTICLE 17. Taxes Upon and With Respect to Income from Unincor- porated Trade or Business. S'ection 400. Imposing of tax ; rate. 401. Gross income. 402. Net income ; taxable net income. 403. Deductions. 404. Exemption. 405. Ascertainment of gain and loss. 406. Credit for loss in previous year. 407. Allocation of taxable net income. 408. Return. 409. Payment of tax. [363] I iii * ' ! 364 Section 410. First levy. 411. Additional tax. 412. Administration; application of article sixteen. 413. Exemption from certain other taxes. § 400. Imposing of tax ; rate. An annual tax of three and one- lialf per centum is hereby imposed on the taxable net income, al- located to the state, as provided by this article, derived from any trade or business carried on within the state for gain or profit by an individual, statutory or common law trust, estate, partnership or limited or special partnership, other than a trade or business in which the gain or profit is derived principally from the pro- fessional service of the individual or of the members of the part^ nership carrying on such trade or business, or from the profes- sional service of the employees of such individual or partnership, and in which no capital expenditure is required or only capital expenditure as compensation for or incidental to professional service. JSTet income received from commissions or brokerage fees for transactions or service within the state, by a commission merchant, factor, broker or converter, shall not be deemed derived from professional service and shall be subject to the tax imposed by this article, without regard to capital expenditure required. The investment and reinvestment of trust funds in real property and the holding and leasing of such real property by a trustee shall not be deemed carrying on a trade or business within the meaning of this article. § 401. Gross income. The term "gross income" includes gains, profit and income derived from the trade or business of whatever kind and in whatever form paid, including gains, profit or income from dealings in real estate or personal property, as compensation for services, or from interest, rents, commissions, brokerage fees or otherwise in carrying on such trade or business, but not including corporate dividends. § 402. Net income; taxable net income. The term "net in- come" means the gross income from the trade or business less deductions allowed by this article. The term "taxable net in- come" means the net income less the exemption allowed by this article. •\ \ f>0 365 § 403. Deductions. In computing the taxable net income from the trade or business there shall be allowed as deductions such deductions, enumerated in subdivisions one to nine, both inclusive, of section three hundred and sixty of this chapter as are directly connected with or incurred in carrying on the trade or business. A reasonable amount may also be deducted for the personal ser- vice of the individual or members of the partnership carrying on such trade or business, if actively engaged in the conduct thereof. In the case of a debt existing on January first, nineteen hundred and twenty-one, no more than its fair market value on that date shall be deducted. A worthless debt arising since January first, nineteen hundred and twenty-one, from unpaid wages, salarv, rent or any similar item of taxable income, is not an allowable deduction, unless the income which such item represents has been included as income by the taxpayer in a return rendered under this article. The items enumerated in section three hundred and sixty-one are not deductible. § 404. Exemption. In computing the taxable net income from the trade or business there shall be allowed in addition to the de- ductions allowed by the last preceding section an exemption of five thousand dollars. § 405. Ascertainment of gain and loss. 1. For the purpose of ascertaining the gain derived or loss sustained from the sale or other disposition of property, real, personal or mixed, the basis shall be in case of property acquired on or after January first, nineteen hundred and nineteen, the cost thereof, or the inventory value if the inventory is made in accordance with this article. 2. In case of property acquired prior to January first, nineteen hundred and nineteen, and disposed of thereafter, (a) 'No profit sha^l be deemed to have been derived if either the cost or the fair market price or value on January first, nine- teen hundred and nineteen, exceeds the value realized. (b) No loss shall be deemed to have been sustained if eitlier the cost or the fair market price or value on January first, ninc^ teen hundred and nineteen, is less than the value realized. (e) Where both the cost and the fair market price or value on January first, nineteen hundred and nineteen, are less than the value realized, the basis for computing profit, shall be the cost i:t M fr> '"^ 366 or the fair market price or value on January first, nineteen hundred and nineteen, whichever is higher. (d) Where both the cost and the fair market price or value on January first, nineteen hundred and nineteen, are in excess of the value realized, the basis for computing loss shall be the cost or the fair market price or value on January first, nineteen hundred and nineteen, whichever is lower. § 406. Credit for loss in previous year. If for any taxable year beginning after December thirty-first, nineteen hvindred and twenty, it appears upon the production of evidence satisfactory to the tax commission that in the conduct of a trade or business to which this article is applicable a net loss was sustained the amount of such net loss shall be deducted from the net income of such trade or business for the succeeding taxable year; and if such net loss is in excess of the net income for such succeeding taxable year, the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year. Such deduction shall be made under regulations prescribed by the tax commission. § 407. Allocation of taxable net income. 1. If the entire trade or business is carried on in this state, the tax imposed by this article shall be computed upon the entire taxable net income for the taxable year from such trade or business. 2. If the entire trade or business is not carried on in the state, the tax imposed by this article shall be computed upon a proper- tion of the entire taxable net income to be determined in accord- ance with the foregoing rules: (a) The taxable net income shall be allocated as follows: Of one-half of such taxable net income, such portion shall be at- tributed to the trade or business carried on within the state as shall be found by multiplying such one-half by a fraction whose numerator is the value of the tangible property employed in the trade or business and situated within the state, and whose denomi- nator is the value of all the tangible property employed in the trade or business wherever situated. (b) Of the remaining one-half of such taxal)lc net income, such portion shall be attributed to trade or business carried on within the state as shall be found by multiplying such one-half by a fraction b X. 4# v.^ m " 367 whose numerator is the expense paid for wages, salaries, commis- sions or other compensation to employees, and assignable to the state as hereinafter provided, plus the amount of purchases within the state, assignable to the state as hereinafter provided, plus the amount of gross receipts from trade or business, assignable to the state as hereinafter provided; and whose denominator is the total expense paid for wages, sall'aries, commissions or other com- pensation to all employees of the trade or business, plus the amount of purchases wherever made, plus the amount of the gross receipts from all business, wherever transacted. (c) If the foregoing rule for the apportionment of a part of the taxable net income by the location of the tangible property be inapplicable, the entire taxable net income from the trade or business shall be apportioned in accordance with rule (b). A rule shall not be deemed to be inapplicable merely because all of the tangible property, or the purchases, or the expense for wages, salaries, commissions or other compensation, or the gross receipts from the trade or business are found to be situated, made, in- currred or received outside the state. (d) The value of the tangible property for the purposes of this section shall be the average value of such property during the year for which the income is returned. The amount assignable to the state of expenses paid for wages, salaries, commissions or other compensation to employees shall be such expense for the year for which the income is returned as represents the compen- sation of employees not chiefly situated at, connected with or sent out from premises for the transaction of trade or business which are owned or rented outside the state. The amount of purchases assignable to the state shall be all purchases of tangible real or personal property actually located within the state at the time of purchase, and all other purchases of property negotiated or effected at a place of business owned or rented within the state except the purchase of tangible real or pei*sonal property actually located without the state at the time of purchase. The amount; of the gross receipts from the trade or business assignable to the state shall be the amount of gross receipts from (1) sales of property or servdco, except thpse negotiated or effected or executed by agents or ag^encies chiefly sitwated at, connpp.teii with or fiwnt t\ ji V 368 out from i^remises used for the transaction of business which are owned or rented outside the state, and sales othenvise determined by the tax commission to be attributed to trade or business con- ducted from such premises, or to be for other reasons allocated outside the state; (2) rentals of real property and tangible per- sonal property situated in the state and royalties from the use within the state of patents and other intangible propei-ty. (e) If by reason of the manner in which the books and records of a trade or business are kept, or otherwise, the tax commission deem that a different method of allocation than that prescribed by the foregoing niles will more accurately determine the amount of taxable net income from a trade or business reasonably at- tributable to the state, the tax commission may permit allocation upon such basis, provided the individual, fiduciary or partnership carr)^ing on such trade or business shall apply therefor on or before the time when the return is due to be fi]ed, and shall file with the tax commission, under oath, a supplemental return, in such detail as the tax commission may require, showing the facts upon which the amount of taxable net income from such trade or business reasonably attributable to trade or business within the state may be determined. § 408. Return. Every individual, fiduciary, and part- nership canning on a trade or business, income, profit or gain from which is subject to tax under this article, on or before the date prescribed by section three hun- dred and seventy-one for making returns of personal in- come, and although no return shall be required from such individual, fiduciary or partnership by such section, shall make under oath return as to such business or trade, and the ""ain, profit or income therefrom, as the tax commission may rc-quire for the purpose of making any computation or otherwise performing its duty under this article. The tax commission may require such return to be made as a part of a return from such individual, fiduciary or partnership under section three hundred and sixty- seven, section three hundred and sixty-eight or section three hun- dred and sixty-nine of this chapter. The tax commission may require return from any individual, fiduciary or partnership carrying on a trade or business within the state, although it 369 appears that the net income, profit or gain from such trade or business is less than ^\e thousand dollars. § 409. Payment of tax. If the trade or business be carried on by an individual, trust or estate, the tax on the net income allocated to and taxable in this state shall be paid by the individual or fiduciary at the same time and in the same manner as a tax upon and with respect to personal income. If the trade or business be carried on by a partnership the tax on the net income of the partnership allocated to and taxable in this state shall in like manner be paid by the individual partners in the proportion of their distributive shares. § 410. First levy. The tax imposed by this article shall be levied, collected and paid in the year nineteen hundred and twenty-two upon and with respect to the taxable income for the calendar year nineteen hundred and twenty-one, or for any tax- a'ble year ending during the calendar year nineteen hundred and twenty-one. § 411. Additional tax. The tax imposed by this article shall be in addition to all other taxes imposed by law, including taxes imposed under article sixteen of this chapter upon and with respect to personal income. § 412. Administration; application of article sixteen. The tax commission shall administer and enforce the tax imposed by this article. All the provisions of article sixteen of this chapter, so far as not inconsistent with this article, shall apply to the administration and enforcement of the provisions of this article, including the ascertainment, payment, collection and disposition of taxes hereunder. § 413. Exemption from certain other taxes. After this article takes effect, personal property employed in a trade or business to which this article is applicable shall not be assessed or taxed loca^lv • for state or local pur])oscs as personal property or as capital in- . vested in business or otherwise. The term " pci-sonal proportv '' for the purpose of the exemption and assessment from taxation locally as granted by this section shall include any movable luachinerv^ and equipment used for trade or manufacture and not essential for the support of the huilding, structure or superstruc- »*^ i> ,^ m 370 turc, and removable without material injury thereto. The term '" personal property/' as used in this section, shall not include boilers, ventilating apparatus, elevators, pKimbing, heating, light- ing and power generating apparatus, shafting other than counter shafting, equipment for the distribution of heat, light, power, gases and liquids, nor any equipment consisting of structures or erections to the operation of Avhich machinery is not essential. An owner of a building is entitled to the same exemption under this section as a lessee. § 2. The sum of three hundred thousand dollars is hereby aj)- propriated for the additional expenses of the state tax department required by this act. On or before April first, nineteen hundred and twenty-two, the tax department shall file with the governor, the chairman of the senate finance committee and the chairman of the assembly ways and means committee a tentative segregation of the amount hereby appropriated, and before any moneys shall be paid out of this fund by the state treasurer on the warrant of the comptroller such segregation shall have their approval. 'No change shall be made in this tentative segregation, without the approval of the governor, the chairman of the senate finance committee and the chairman of the assembly ways and means committee. The sum hereby appropriated shall be paid out of the treasurer on the warrant of the comptroller on the order of the tax commission. § 3. This act shall take effect immediatelv. ## '' 371 PKOPOSED PUBLIC-UTILITY TAX LAW. Preliminary Note Memorandum of prosix3ctive public utility bill imposing a gross-net tax in lieu of the source of taxation upon Public Util- ities now existing in the Stiitt' of New York. Under present con- stitutional limitation, the drafting of such a bill is a difficult matter, and the following is intended only as a tentative pro- posal. It is hercwith printed for further discussion and develo^>- ment. AN ACT To amend the tax law in relation to taxation of public utilities. The People of the Stale of New York, represented in Senate and Assembly, do enact as follows: Section 1. Subdivision four of section one hundred and seventy-one of chapter sixty-tw^o of the laws of nineteen hundred and nine, entitled "An act in relation to taxation, constituting chapter sixty of the Consolidated Laws," such subdivision having been last amended by chapter ninety of the law^s of nineteen hun- dred and twenty-one, is hereby amended to read as follows; Fourth. Assess, determine, revise, readjust and impose the cor- poration taxes under articles nine and [nine-a] nine-h and 'the taxes under article nine-a of this chapter, and on and after July first, nineteen hundred and twenty-one, ha\'e the power and per- form the duties of the state comptroller in the collection of such taxes and the crediting uf such taxes erroneously paid, as juris- diction thereof is vested in such commission bv section one bun- dred and seventy-nine of this chapter. § 2. Subdivision three of section one hundred and seventv- one-a of such chapter as added by chapter ninety of the laws of nineteen hundred and twenty-one, is hereby amended to read as follows: Exercising the powers and performing the duties con- ferred or imposed by articles nine, ninc-a, nine-h, and sixteen of this chapter on the tax connnission in relation to the revision and resettlement of accounts for taxes under such article, on appli'*a- tions made therefor; . :»,, tl i . l\ I \ 372 § 3. Article nine-a of such chapter as added hy chapter seven hundred and twenty-six of the laws of nineteen hundred and seventeen is hereby renumbered article nine-b. § 4. Such chapter is hereby amended by inserting therein a new article, to be known as article nine-a thereof, and to read as follows : AirnCE NINE-A. Public Utilities Tax. Section 207-a. Short title. 207-b. Definitions. 207-c. Rate of tax. 207-d. Computation of earnings. 207-e. Modification of computation. 207-f. Independent units. 207-g. Reports to commission. 2()7-h. Consolidated return. 207-i. Payment of tax and penalty for failure. 207-j. In lieu of other taxes. 207-k. Application of sections of article nine. 207-1. Unconstituticnality. Section 207-a. Short title. This article shall be known as the Public Utilities Tux Law. § 207-b. Definitions. When used in this article: (a) " Public utility " shall include any public service surface, elevated, or undergi'ound railroad, canal boat, steamboat, ferry, [except a ferry line operated between any of the boroughs of the City of New York, under a lease granted by the cityj express, telegraph, wireless telegraph, telephone, cable, navigation, pipe, transfer, baggage, express, freight car, palace car, or sleeping car line, and every other public service line for transportation, or for the transmission of messages, or any plant for the supply to the public of water, or gas, electric, or steam heating, lighting, or power purposes. (b) " Company " shall mean any corporation, joint stock com- pany, or association, or the receiver of any such company, operat- ing a public utility [but shall not include a political subdivision of the state]. 373 (c) "Gross earnings" shall include all receipts from the operation of a public utility. (d) " Net earnings '- shall be net earnings from the operation of a public utility after deduction of opei*ating expenses and taxe& assignable to operation, except special franchise taxes in this state or the tax imposed by this article. § 207-c. Rate of tax. Every company shall pay an annual tax which shall be based on gross earnings and which shall be the percentage of gross earnings fixed herein : (a) When it has no net earnings or its net earnings do not exceed 5 per cent of its gross earnings — 1 per cent ; (b) When its net earnings exceed 5 per cent of its gross earn- ings but do not exceed 10 per cent — 1^4 P^r cent ; (c) When its net earnings exceed 10 per cent of its gross earn- ings but do not exceed 15 per cent — V/^ per cent; (d) When its net earnings exceed 15 per cent of its gross earnings but do not exceed 20 per cent — 1% per cent ; (e) When its net earnings exceed 20 per cent of its gross earnings but do not exceed 25 per cent — 2 per cent. (f ) When its net earnings exceed 25 per cent of its gross earn- ings but do not exceed 30 per cent — 2 Vi per cent ; (g) When its net earnings exceed 30 per cent of its gross earnings but do not exceed 35 per cent — 21/2 per cent; (h) When its net earnings exceed 35 per cent of its gross earnings but do not exceed 40 per cent — 2% per cent; (i) Wlien its net earnings exceed 40 per cent of its gross earn- ings — 3 per cent. § 207-d. Computation of earnings, (a) In case the company carries on a public utility business wholly within the state, the total gross and net earnings shall be the basis for tlie tax. (b) In case the company carries on a public utility business within the state, partly or wholly in interstate and/or foreign commerce, the basis for the tax shall be in the follomng ratio of the total gross and net earnings : (1) In the case of a company operating a railroad operated by steam or other motive power and either underground, surface, or elevated, the ratio shall be that which the number of miles, includ- ing yard tracks, sidings, branches and spurs operated within the \ i L ,1 s. 374 state on December 31 of the tax year bears to the total number of such miles operated by the company l>oth within and without the state on such day. (2) In the case of a company not operating a raili-oad but operating cars or other vehicles, the ratio shall be that which the number of miles run by the ears or other vehicles of such com- pany within the state during the tax year bears to the total num- ber of miles run by the cars or other vehicles so operated, both within and without the state during such year. (3) In the case of a company operating lines of steam vessels or lines of other vessels, including barges or canal boats, the ratio shall be that which the number of passengers and/or the number of tons of freight embarked on board the vessels of such company within the state of Xew York during the tax year bears to the total number of passengers and/or tons of freight embarked both within and without the state during such year. (4) In the case of a company operating a telephone, telegraph or cable line, except as otherwise provided, the ratio shall be that which the total number of miles of wire operated by such com- pany within the state on December 31 of the year bears to the total number of such miles of wire operated within and without the state on such day, except in case of a company operating tele- phone systems whose principal business is the operation of tele- phone exchanges, in which case the basis shall be the ratio be- tween the number of telephonic instruments operated for hire within this state on December 31 of the tax year and the total number of such instruments so operated, both within and without the state on such day. (5) In the case of a company operating steam heating, water, gas, electric light, power or supply systems, or pipe lines for water, gas, or oil, the basis shall be the proportion which the total mileage of wire or lines of pipe operated within the state during the taxable year bears to the total mileage operated both within and without the state during such year. (6) In the case of a corporation, joint stock company or asso- ciation not operating a railroad and leasing cars to a company operating a railroad or car line, the ratio shall be that which tht number of car miles run by the cars of such company by whom- 375 soever operated within the state during the tax year bears to the total number of car miles run by such cars so operated, bctli within and without the state durino^ such vear. (7) In the case of a company operating a maritime cable or wireless svstem the ratio shall be that which the numl^er of mes- sages accepted in the state of New York during the tax year bears to the total number of messages accepted both within and without the state during such year. § 207-e. Modification of computation. Any company subject to the tax imposed by this article and carrying on a public utility business partly or wholly in interstate or foreign commerce, may petition the commission at or before the time when its report is due, to fix the ratio of its gross and net earnings on a basis differ- ing from that provided in this article. Such company shall file a statement, supplementary to its return, showing the business done and the value of property used in the business both within and without the state, and any other pertinent consideration. The commission may require further information or may pro- ceed as in case of an unsatisfactory report and shall, after a hear ing of whieh the company shall have at least five days' notice and at which it may appear in person or by counsel and present argu- ments, determine the ratio of total gross and net earnings reason- ably attributable to the value of the property as a going concern within the state, ^x the tax and notify the operating company. N^otice shall be contained in an envelope addressed to the post- office address of the company. The tax shall be due and payable at once, if the notice be mailed subsequent to the date on which the tax would have been payable had the company not petitioned, otherwise on such date, and interest upon the total amount found due to the state on the account stated for taxes, interest and other charges shall begin with the expiration of thirty days, after the tax is due until payment shall be made, and shall be added thereto and collected therewith. § 207-f. Independent units. A company doing business both within and without the state may segregate the gross and net earnings from a public utility substantially wholly within the state and such earnings shall be its gross and net earnings if such public utility is operated separate and apart from other public f jj I 376 utilities operated without the state or both within and without the state. Such company must inchide in its report a statement of its total gross and net earnings from operation of the separate public utility and any other facts which the Commission may require, and the Commission shall determine whether the utility is operated substantially wholly within the state. To determine the net earnings in such case the Commission shall allocate such portion of the general overhead and other expenses of the operat- ing company as is justly chargeable to the operation of the sepa- rate public utility. § 207-g. Keports to commission. Companies liable to pay a tax under this article shall report to the Commission as follows, in such form as it may requii*e: (a) Every company operating a transportation or transmission line shall, on or before August first in each year, make a written report to the Tax Commission of its condition at the close of its business on June 30 preceding, stating the amount of its gross and net earnings for the year. (b) Every company operating a water works, gas, electric, steam heating, lighting or power system shall, on or before December first of each year, make a written report to the Tax Commission of its condition at the close of its business on October 31st preceding, stating the amount of its gross earnings and net earnings for the year. Section 207-h. Consolidated return. If a company owns sub- stantially all the stock of one or more other companies and if the public utilities directly operated by it and those operate! through such other companies, are operated as a system, it may file with its report a consolidated report for itself and such other companies in such form as the Commission shall require, contain- ing a statement of the gross and net earnings of the system and such other information as the Commission may require, and peti- tion the Commission that it be deemed the company operating such system as a single public utility. If the Commission finds that the petition is true it shall approve it, and all deductions which could have been made by any of the companies so included shall be allowed to the company paying the tax. There shall be the same exemption from taxation in favor of the subsidiary com- L^ 377 panics in such case as if such subsidiary companies had them- selves paid a tax under this article. This section shall applv only to companies operating substantially wholly within the state and shall not excuse any company from making a report. Section 207-i. Payment of tax and penalty for failure. (a) The tax imposed on companies operating transportation and transmission lines shall be due and payable into the state treasury on or before the first day of August in each year. (b) The tax imposed upon companies operating water works, gas, electric or steam heating, lighting or power systems shall be due and payable into the state treasury on or before the fifteenth day of Januai-y in each year. (c) If such tax in any case is not paid within thirty days after it becomes due, or if the report of any company is not mad*/ within the time required by this article, the company liable to pay the tax shall pay into the state treasury in addition to the amount of such tax, a sum equal to five per centum thereof, and one per centum addition for each month the tax remains unpaid, which sum shall be added to the tax and paid or collected therewith. (d) Every company failing to make the annual report required by this article, or failing to make any special report required by the commission, within any reasonable time to be specified by the commission, shall forfeit to the people of the state the sum of ten dollars for each day that such failure continues. Such tax shall be a lien ujx)n and bind all the real and personal prop- erty of the company liable to pay the same from the time when it is payable until the same is paid in full. Section 207-j. In lieu of other taxes. The tax under this article shall be in lieu of all other taxes upon the company, except taxes or assessments upon its real estate and on special franchise, but the tax imposed by this article shall not be in addition to any tax paid on a special franchise, and any tax on special franchise due and paid during the twelve months pre- ceding the date on which the tax provided by this article is due, shall be deducted from the amount of such tax. If the special franchise tax has not been paid because of an appeal from the Tax Commission, the amount assessed shall be allowed as a (• 378 deduction and when the special franchise tax is finally paid the Tax Commission shall make an adjustment of the difference be- tween such payment and the amount assessed and the company shall thereupon be entitled to credit upon the books of the comp- troller for the amount of any excess in the amount paid. Such credit may be assigned by the company in whose favor it is allowed to a company liable to pay taxes under this article, and the assignee of the whole or any part of such credit on filing with the commission such assignment shall thereupon be entitled to credit upon the books of the Tax Commission for the amount thereof on the current account for taxes of such assignee in the same way and with the same effect as though the credit had originally been allowed in favor of such assignee. If. from such reassessment it appears that an additional tax is due from such company for such year, such company shall, within thirty days after notice has been given as provided in section 207-e of this chapter by the Tax Commission, pay such additional tax. Section 207-k. Application of sections of article nine. Sections one hundred and ninety-four, one hundred and ninety-five, one hundred and ninety-eight, one hundred and ninety-nine, tw^o hun- dreil, two hundred and one, two hundred and two, two hundred and three, two hundred and six, and two hundred and seven of this chapter shall apply to the taxes imposed by this article, so far as applicable. Section 207-1. Unconstitutionality. The legislature declares it to be its intention that if any provision of this act, or the applica- tion thereof to any company or circumstances, be held invalid: (a) The remainder of the act, and the application of such pro- vision to other companies or circumstances, shall not be affected thereby; and (b) Wherever necessary as a result of such decision, the tax on any company shall be reassessed by the Commission and the company shall have the same rights as in case of an original assessment, and the taxes shall be due as provided in sections 195 and 196 of the Tax Law. Section n. Acts repealed. Sections 184, 185 and 186 of such chapter and all other acts or parts of acts in conflict herewith are hereby repealed. Section 4. Section one hundred and ninety-two of such chapter is amended to read as follows : 4 ^ 379 § 192. Reports of corporations. Corporations liable to pay a tax under this article shall report as follows: 1. Corporations paying franchise. Eveiy corporation, associa- tion or joint-stock company liable to pay a tax under section one hundred and eighty-two of this chapter shall, Ixitween the first day of November and the fifteenth day of December in each year, make a written report to the tax commission of its condition at the close of its business on October thirty-first preceding, stating the amount of its authorized capital stock, the amount of stock paid in, the date and rate per centum of each dividend declared by it during the year ending with such day, the entire amount of the capital of such corporation, and the capital employed by it in this state during such year. Upon written application the State Tax Commission may, in its discretion, extend the time in which to make report, but not beyond the fifteenth day of February succeeding. [2. Transportation and transmission corporations. Every transportation or transmission corporation, joint-stock company or association liable to pay an additional tax under section one hundred and eighty-four of this chapter, shall also, on or before August first in each year, make a written report to the tax com- mission of its condition at the close of its business on June thirtieth preceding, stating the amount of its gross earnings from all sources and the amount of its gross earnings from its transportation or transmission business originating and terminat- ing within this state. [3. Elevated and surface railroad corporations. Every cor- [X)ration, joint-stock company or association liable to pay a tax under section one hundred and eighty-five of this chapter shall, on or before August first of each year, make a written report to the tax commission of its conditions at the close of its business on June thirtieth preceding, stating the amount of its gross earn- ings from business done in this state, the amount of dividends of every nature declared or paid during the year ending June thirtieth, the authorized capital of tlic company and the amount of capital stock actually issued and outstanding. [4. Water-works, gas, electric, steam-heating, lighting and power corporations. Every corporation, joint-stock company or i V 380 association liable to pay a tax under section one hundred and eighty-six of this chapter, shall, on or before December first of each year, make a written report to the tax commission of its con- dition at the close of its business on October thirty-first preced- ing, stating the amount of its gross earnings from business done in this state, the amount of dividends of every nature declared or paid during the year ending with October thirty-first, the author- ized capital of the company and the amount of capital stock actually issued and outstanding.] [5.] 2. Insurance corporations. Every- insurance corporation liable to pay a tax under section one hundred and eighty-seven of this chapter, shall, on or before March first in each year, make a written report to the tax commission of its condition at the close of its business on December thirty-first preceding, stating the gross amount of all premiums referred to in section one hundred and eighty-seven of this chapter, received during the preceding calendar year on business done thereby in this state during the year ending with such day and at all times prior thereto, whether the premiums were in money or in the form of notes, credits or other substitutes for money. [6] 3. Foreign bankers. Every foreign banker liable to pay a tax under section one hundred and ninety-one of this chapter sliall, on or before February first in each year, make a written report to the tax commission of the condition of his business on December thirty-first preceding, stating the amount of tax for which he is liable under this article, and giving in detail the facts required by the last preceding section for the purpose of ascertaining and computing the same. [7] 4. Trust companies. Every company liable to pay a tax under section one hundred and eighty-eight of this chapter shall, on or before August first in each year, make a written report to the tax commission of its condition at the close of business on June thirtieth preceding, separately stating the amount of its capital stock, the amount of its surplus, and the amount of its undivided profits, and containing such other data, information or matter as the tax commission may require. [8J 5. Savings banks. Every savings bank liable to pay a tax under section one hundred and eighty-nine of this chapter, shall ^ t i. *> » V ./ 381 on or before August first in each year, make a written report to the tax commission of its condition at the close of business on June thirtieth preceding, stating the par value of its surplus, and undivided earnings and containing such other data, informa- tion or matter as the tax commission may require. [9] 6. Investment companies. Every investment company liable to pay a tax under section one hundred and eighty-eight-a of this chapter shall, on or before August first in each year, make a written report to the tax commission of its condition at the close of business on June thirtieth preceding, separately stating the amount of its capital stock, the amount of its surplus, and the amount of its undivided profits, and containing such other data, information or matter as the tax commission may require. Section 5. Section one hundred and ninety-seven of such chap- ter is herebv amended to read as follows: Section 197. Payment of tax and penalty for failure. A tax imposed by section one hundred and eighty-two [or one hun- dred and eighty-six] of this chapter shall be due and payable into the state treasury on or before the fifteenth day of January in each year. [A tax imposed by section one hundred and eighty- four of this chapter on a transportation or transmission corpora- tion, or by section one hundred and eighty-five, on elevated rail- roads or surface railroads not operated by steam, shall be due and payable into the state treasury on or before the first day of August in each year.] A tax imposed by section one hundrefl and eighty-seven of this chapter on an insurance corporation shall be due and payable into the state treasury on or before the first day of June in each year. A tax imposed by section one hundred and eighty-eight, one hundred and eighty-eight-a or one hundred and eighty-nine shall be due and payable into the state treasury on or before the first day of September in each year. A tax imposed by section one hundred and ninety-one of this chapter on a foreign banker shall be due and payable into the state ti'eas- ury on or before February first in each year. If such tax in any case is not paid within thirty days after the same becomes due, or if the report of any such corporation is not made within the time required by this article, the corporation, association, joint- stock company, person or partnership, liable to pay the tax, shall pay into the state treasury in addition to the amount of such f A\ of 2 382 tax a sum equal to live per centum thereof, and one per centum additional for each month the tax remains unpaid, which sum shall be added to the tax and paid or collected theiiewith. Eveiy corporation, association, joint-stock company, person or partner- ship failing to make the annual report required by this article, or failing to make any special report required by the commission, within any reasonable time to be specified by the commission, shall forfeit to the people of the state the sum of one hundred dollars for every such failure, and the additional sum of ten dollars for each day that such failure continues. Such tax shall be a lien upon and bind all the real and personal property of the corporation, joint-stock company or association liable to pay the same from the time when it is payable until the same is paid in full. Section 6. This act shall take effect immediately. PROPOSED CONSTITUTIONAL AMENDMENT REGARDING DEBT LIMITATION Concurrent Resolution of the Senate and Assembly Proposing an amendment to article eight of the constitution, in relation to limitation of indebtedness of cities and counties. Section 1. Resolved (if the Assembly concur). That article eight of the constitution be amended by inserting therein a new section, to be section ten-a, to read as follows: § 10-a. The debt limitation of a city or county, or the limita- tion on the amount which the city or county is authorized to raise annually for city or county purposes, as prescribed by section ten of this article, shall not be affected by reason of a change in the system of taxation or in the definition of real estate or real prop- erty, whereby real estate then subject to taxation in such city or county shall be exempted from taxation or be taxed otherwise than on its assessment-rolls ; but the valuation of such real estate as it last appeared on such assessment-rolls shall continue to be a part of the base on which the debt limitation, or on which the limitation on the amount which the city or county is authorized to raise annually for city or county purposes, shall be calculated. The legislature in its discretion may confer appropriate juris- diction on the appellate divisions in the several judicial depart- 'h > t .> ^ \ ^ 383 ments for the purpose of determining the real estate In any city or viHage, which is so exemi>ted or otherwise taxal, and the value thereof. § 2. Resolved (if the Assembly concur). That the foregoing amendment be referred to the legislature to be chosen at the next general election of senators, and in conformity with section one of article fourteen of the constitution be published for three months previous to the time of such election. PROPOSED CONSTITUTIONAL AMENDMENT RE- GARDING THE TAXATION OF PUBLIC UTILITTKS Concurrent Resolution of the Senate and Assembly Proposing an amendment to section two of article ten of the constitution, in relation to the taxation of public service corporations. Section 1. Resolved (if the Assembly concur). That section two of article ten of the constitution be amended to read as follows: § 2. All county officers whose election or appointment is not provided for by this constitution, shall be elected by the electors of the respective counties or appointed by the boards of super- visors, or other county authorities, as the legislature shall direct. All city, town and village officers, whose election or appointment is not provided for by this constitution, shall be elected by the electors of such cities, towns and villages, or of some division thereof, or appointed by such authorities thereof, as the legisla- ture shall designate for that purpose. All other officers, whose election or appointment is not provided for by this constitution, and all officers, whose offices may hereafter be created by law, shall be elected by the people, or appointed as the legislature may direct. Nothing in this section or elsewhere in this constitution shall he held to prevent the legislature from providing by gen- eral law hoiu public service corporations, and the property of such corporations, shall be taxed and how such taxes shall he collected. § 2. Resolved (if the Assembly concur), That the foregoing amendment be referred to the legislature to be chosen at the next general election of senators, and in conformity with section one of article fourteen of the constitution be published for three months previous to the time of such election. i r A\ l» 0041443543 Date Due < Jtrtao-ai ^TUTf \ . 1 9 Vv'l I A^ v^^ n* <^ 4^ 4^7 / ^-^4t— <^-^^!^ I 1 ,«6rt oH^g- »« ""^ « v