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As the country passed from an agricultural into a commercial and manufacturing stage, there arose serious difficulties in connection with this general property tax.1 When property consisted of tangible things, lands, houses, live stock, etc., or mortgages on real property recorded at the county seat, it was easy for the assessor to secure a fairly complete and accurate list of the property of each resident within his district. However, when joint stock concerns and corporations came into existence, and persons could invest their wealth in the bonds or stocks of some corporation organized in a distant state, or even in a foreign country, and could lock their papers in a strong box, the assessors could no longer keep track of the property within their local units. There were many other reasons, too, why the states were forced to cast about for some other sources of revenue, but they cannot be discussed here. The result has been a revolution in the tax system of many states, New York having gone so far as to abandon altogether the general property tax for state purposes in favor of inheritance, corporation, excise, and other special taxes.

2. The inheritance tax, though long employed in Europe, has found favor in America only within recent years - practically since 1890, but it has now been adopted in some form by more than three-fourths of the states, and its principles are everywhere receiving extended development. The rates are being raised; the progressive rule increasing the rate with the amount of the inheritance is more frequently applied; the exemptions allowed to direct heirs are being lowered; and there is a tendency to apply it equally to real and personal property. In 1907, the highest rate collected was fifteen per cent imposed on collateral heirs in California, Idaho, and North Carolina; the highest amount exempted for direct heirs was $20,000 in Illinois and West Virginia; and the highest amount exempted for collateral heirs was $10,000 in Connecticut, Minnesota, and Utah."

In New York, property of less than $10,000 passing to a father,

1 See Readings, p. 597.

2 See Readings, pp. 592 ff., for extracts from state tax reports on this whole subject.

3 See Readings, p. 603.

4 S. Huebner, The Inheritance Tax in the American Commonwealths. Quarterly Journal of Economics, Vol. XVIII, 1904, p. 529.

Inheritance Tax Laws (Govt. Printing Office, 1907), p. 47.

mother, husband, wife, child, brother, sister, wife or widow of a son, or the husband of a daughter, or an adopted child, is entirely exempt; and property of more than $10,000, passing to such heirs, is taxed at the rate of one per cent, while a general rate of five per cent is imposed on other inheritances over $500. The amount derived by New York from this source, in 1909, was about $6,960,000 out of a total revenue of about $30,000,000 in round numbers.

Wisconsin, California, Idaho, and Massachusetts have progressive taxes - that is, increasing in rate as the inheritance increases on both direct and collateral heirs. The income from this tax is not very considerable when compared with the entire amount raised by our commonwealths, but it will no doubt be materially increased in time.

3. The income tax has been employed at different times in no less than sixteen states, and is now used in Massachusetts, Virginia, North Carolina, South Carolina, Tennessee, and Oklahoma. However, it has not proved a popular tax, nor an effective source of revenue, on account of the evasions. An attempt is being made in Oklahoma to overcome this difficulty of administration by requiring all persons to certify under oaths the excess of their incomes over $3500-the limit of exemption; by authorizing the assessor to send to the state auditor the names of persons who, he believes, have not correctly certified their incomes; and by empowering the auditor to resort to drastic measures for the purpose of ascertaining the truth in the matter.

4. A most fruitful and popular source of revenue is the tax on corporations now quite generally imposed. This branch of state finance, however, presents so many puzzling problems that it can be considered here only briefly. The taxation of manufacturing corporations doing business at a particular point within the state is comparatively simple: the property of the corporation may be estimated and included in the general mass of property within the state, and perhaps a special tax varying with the capitalization may be imposed for incorporation. However, railway, telegraph, express, street car, and other corporations of a quasipublic character, operating under special franchises or privileges, often monopolistic in character, are in an entirely different class. In taxing them, the legislature is constantly harassed by perplexing problems. A part of the total value of the property of any

one of these corporations is in tangible form in the state, a part in the privilege which it enjoys, and a part, perhaps, is due to operations carried on in other states or in foreign countries. Take, for example, an express company doing business in Ohio: its tangible wealth-horses, wagons, offices, etc. - is relatively slight, but the value of the privilege of doing business is enormous, because it carries goods to and from all points of the Union and the civilized world. In fixing the total value of the business of such corporations within any state, the public authorities are compelled to rely largely on statements made by corporation officials, which are not always entirely satisfactory sources of information; and in laying such taxes, states must also be careful not to come into conflict with the interstate commerce clause of the federal Constitution.1

To meet these perplexing problems a variety of expedients has been devised. Some states tax all corporations on the actual value of their capital stock; others tax quasi-public corporations according to their gross receipts or their earnings. In New York, for example, every stock corporation on its formation under any law of the state must pay to the state treasurer a tax of onetwentieth of one per centum' upon the amount of capital stock which it is authorized to have, and a like sum for any subsequent increase in the amount of stock. In addition, every corporation, joint stock company, and association must pay to the state treasurer an annual tax upon its capital stock, the value of which is based upon its earning power and taxed pro rata. Some concerns, such as saving banks, are exempt from this tax; but others, notably transportation and transmission companies, must pay an additional franchise tax.

5. All of the states which permit the sale of intoxicating liquors derive a revenue, state or local, or both, from the business. In New York, this tax on the liquor traffic amounts in some years to more than a fourth of the entire revenue of the commonwealth, but one-half of the amount collected by the state central government is returned to the communities from which it is derived.

6. A large proportion of the states, especially in the South, employ business and professional taxes for state or local purposes, or both. In some of these commonwealths only a few special trades, professions, and occupations are taxed. "At present nearly 1 See Readings, p. 348

all of the commonwealths levy license taxes on dealers in liquor, peddlers, travelling vendors, and various kinds of amusements, primarily for the purpose of regulation or suppression. . . . These taxes are more or less systematically employed for state purposes in Pennsylvania, in Delaware, and in all of the southern states, save South Carolina, Missouri, Arkansas, and Texas, and also in New Mexico, Idaho, and Montana. In practically all of these states and in several others similar taxes are employed and frequently much more extensively — for municipal purposes. Wilmington, North Carolina, for example, some years ago levied license taxes upon 124 classes of business. The license tax ordinance now in effect in Atlanta contains 466 items, thus permitting few persons other than manual laborers to follow their callings untaxed."1

A fine illustration of the revenue system of a state which has advanced far along the way of separating state and local taxes and imposing special taxes is afforded by this statement of the income of the central government of New York:

1908

Special tax for judges, stenog

raphers, etc.".

Tax on corporations.

Tax on organization of corporations

Tax on transfers of decedents' estates [inheritance]

Tax on transfers of stock

Tax on trafficking in liquors

Tax on mortgages .

Tax on racing associations
Tax on land of non-resident

owners

$368,098 31 8,937,635 24

207,535 49

6,605,891 46

3,907,373 38

9,359,318 63

1,666,527 51

247,443 31

1909

$330,436 87 8,671,920 20

343,938 99

6,962,615 23

5,355,546 16

5,140,524 21 1,844,821 45 65,166 74

17,229 58

24,018 12

$31,317,052 91 $28,738,987 972

The disbursements of state governments are generally distributed with more or less variation among the following objects: (1) maintenance of the government in its executive, legislative, and judicial branches; (2) the state militia; (3) health and

1 H. A. Millis, "Business and Professional Taxes, as Sources of Local Revenue," First National Conference on State and Local Taxation, 1908, pp. 442-451. 2 Miscellaneous receipts of $2,419,007.93 not included.

sanitation; (4) highways; (5) insane asylums; (6) charities; (7) penal institutions; (8) education; (9) interest on public state debt.

The following disbursements for the state of New York for the fiscal year ending September 30, 1907, will serve for the purpose of illustration:

State departments, commissions, etc.

Charitable institutions

Hospitals for insane

Educational purposes

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Canals, for all purposes, including $5,369,384.45

paid from Canal debt sinking fund

Legislature

Legislative printing, including advertising

Judiciary

National Guard, including arsenals and armories
State prisons, asylums for insane criminals, and

penitentiaries

Public buildings

Maintenance and repairs of county highways
Repairs of highways, money system

Construction of highways, Highway Improvement

Fund

Principal and interest temporary certificates for
highway improvement

Rivers, roads, bridges, etc.
Non-resident taxes, including redemption and erro-

neous payments

Adirondack Park and Catskill Preserve purchase

of land.

Principal and interest Adirondack Park bonds.
Refunds, Excise Department.
Jamestown Ter-Centennial Commission
Hudson-Fulton Celebration

State Educational Building

G. A. R. Encampment
Purchase of Watkins Glen

Purchase of Mansion of Sir William Johnson

Claims for Park Avenue damages

Relief of People of the State of California

Palisades Commission

Public administrators
Expense of public lands

$2,913,344 61 2,495,042 66

5,951,294 30 6,484,825 33

8,760,034 06 784,931 39

396,534 30

1,240,799 54

1,033,238 97

980,660 50

405,876 04

292,972 16

727,855 93

1,701,716 15

557,423 34 31,567 24

110,539 56

339,117 58

210,500 00

411,705 66 65,000 00

7,500 00 462,027 07

35,000 00 46,512 50

25,000 00

63,039 66

50,000 00

51,250 62 1,763 59 9,917 54

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