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A Report Prepared under the Direction of the Industrial Commission, by ROSWELL C. MCCREA.

I.-Development of the taxation of transportation companies...
A. First period-Public aid and tax exemption

B. Second period-Increasing and more uniform taxation.
C. Special lines of development....

D. Miscellaneous transportation and transmission compa-

E. Other expanding practices

CHAP. II.-Analysis of present methods of taxing transportation companies


A. The property tax principle
B. The income tax principle.

C. The fee or benefit principle.

D. Local taxation.

E. Uniformity in railway taxation among the States.

CHAP. III.-Double taxation..

A. Double taxation by the same jurisdiction.

B. Double taxation by competing jurisdictions

C. Double taxation of corporation and security holder..
CHAP. IV.-Summary of existing legislation..

A. Railroad companies...
B. Telegraph companies.

C. Telephone companies

D. Express companies...

E. Sleeping, parlor, and dining car companies
F. Freight line and equipment companies

G. Navigation companies.

H. Tax on corporate charters

CHAP. V.-Constitutional and statute provisions, by States.




























































CHAP. V.-Constitutional and statute provisions, by States-Continued.






New Hampshire
New Jersey.
New Mexico
New York

North Carolina.

North Dakota
Rhode Island.

South Carolina.

South Dakota





West Virginia



Tables showing methods of taxing transportation companies in each State.





































In its report, issued in 1880, the railway tax committee1 asserted that "there is no method of taxation possible to be devised which is not at this time applied to railroad property in some part of this country." When this statement was made the States were passing through a middle experimental stage in their taxation of transportation companies; and though twenty years have since elapsed, another period of more definite experiment has only just begun. A chaos of tax systems almost, if not quite, equal to that which confronted the committee still prevails. But confused and confusing as railway tax laws have been and still are, both legislation and judicial decision give evidence of progress toward a better state of things. Even prior to 1879, the year of the activity of the committee, clearer comprehension of tax problems to be solved had already set on foot a movement for reform; and the past two decades have witnessed changes still more notably in the same direction. It is the general trend of these changes which this chapter attempts to describe.

In the developing of its transportation facilities the United States has acted as a group of communities at widely different stages of industrial development. After the East had in a measure settled the question of an adequate transporta

1 The report of this committee was entitled Taxation of Railroads and Railroad Securities. The committee, the members of which were C. F. Adams, jr., W. B. Williams, and J. H. Oberly, was appointed at a convention of State railroad commissioners to report methods of taxation respecting railroads and railroad securities,

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tion system the railway growth of the West was still in its incipient stage. respondingly, the East after continuous experiment was the first to devise definite methods of railroad taxation, some mistakes in the developing of which the States of the West were subsequently enabled to avoid. But in the main the general course of the development has been the same in both sections, and the same conservative attitude toward innovation is to be noted throughout.

In tracing the course of this development it will be convenient to group the successive steps within two periods. To be sure, it will not be possible to assign any definite chronological limits to these separate stages; but the distinctive features in the process of change are so prominent as to group themselves broadly within the two periods which are here adopted.

The first of these stages was characterized by the policy of subsidy and exemption from taxation and by the introduction of tax methods which were made to operate very leniently toward the railroads. This period may be said to have ended with the close of the first decade after the civil war. The second or present stage has been characterized chiefly by the adoption and extension of definite methods of railway taxation, in the main distinct from the general-property tax as ordinarily administered in the taxation of individuals.


1. State construction of railroads.-One reason for the slight progress which has been made in the field of railway taxation is to be found in the comparatively recent origin of the railway systems themselves. The building of railroads in the United States had scarcely begun before 1830, and, from the financial standpoint, it was not until after the period of the civil war that the ultimate success of the railroad experiment was assured. In 1830 population was sparse and the capital of the country was limited. At that time the States themselves were quite widely engaged in works of interna. improvement, but with the introduction of railways the States appear to have been averse to engaging directly in this new form of enterprise, with the result that the construction of railway lines was left chiefly to individual initiative.'

2. State and local aid.-Capital, however, in addition to the mere fact of its scarcity, was hard to secure for investment in an enterprise which gave no prospect of substantial or immediate returns. Under these circumstances, it was but natural that the various State legislatures should be impressed rather with the expediency of stimulating railway investments by special auxiliary enactments than of restricting their extension by the imposition of taxes. Accordingly, with a view toward encouraging the growth of a service which was seen to be of vital

There are some instances of independent action on the part of States in the construction and ownership of railway lines, as well as cases where State policy looked definitely toward State ownership; but such instances are both relatively rare in number and almost entirely limited to the early period of railway construction. For instance, in Pennsylvania the canal commission was authorized in 1827 to estimate the expense of constructing a railroad from Harrisburg to Chambersburg, and in the following year the same commission was empowered to contract for the construction of a railroad from Philadelphia to Columbia. For a number of years after various appropriations for purposes of railroad construction are to be found in the State's general appropriation bills.

In Georgia during the thirties the State, through the agency of a board of State commissioners, constructed the Western and Atlantic Railroad. This road was operated by the State until 1870. It has since been operated under lease by private parties. The rental for 1900 amounted to $420,012.

During the thirties Michigan projected an elaborate plan of railway construction under the direction of a board of internal improvement. This plan provided for the building of a northern, a central, and a southern road. The northern project was abandoned in 1841 and a wagon road constructed instead; but large sums were expended on the central and southern lines up to 1846, when they were sold to private parties and incorporated, respectively, as the Michigan Central and Michigan Southern lines. In both cases the State reserved the right to repurchase after January 1, 1867.

In Massachusetts, to illustrate further, the State took an active interest, almost akin to ownership, in the construction of the Troy and Greenfield Railroad and Hoosac Tunnel. In 1872 the legislature provided that the interest of the State in the Hoosac Tunnel should never be sold; and since that time large sums have been devoted to the improvement of that line (e. g., in 1883, $264,552; in 1884, $66,000).

In a number of instances early State policy in incorporating railroad companies looked toward the possibility of subsequent State ownership. For instance, during 1831 and 1833 New York, in granting the charters of the New York and Albany, the New York and Erie, the Utica and Schenectady, and other roads, reserved the right of purchase, to take effect within a period of five years, beginning ten years after incorporation. In Massachusetts charters of the early thirties the right of purchase was reserved for ten years (e. g., in the charters of the Franklin, the Boston, Providence and Taunton, the Boston and Lowell, and other roads). Similar provisions are to be found a few years later in charters granted by Kentucky and Michigan. In the latter State at least a single instance of actual purchase is to be found, namely, in 1841, when the State purchased the River Raisin and Lake Erie Railroad and joined it to the Southern State road.

A recent instance of contemplated State ownership is furnished by Arkansas where, in 1897, a State board was created to locate, establish, and operate State railroads and telegraphs,

public importance, special aids,' partial or even complete exemptions from taxation, and lenient tax methods were frequently made the subjects of general statute and special charter provisions.

By 1860 the practice of granting aid to railways was widely prevalent. The outbreak of the civil war put a temporary check to the practice; but in 1865, particularly in the South, it became even more marked than before the war. By 1875, however, the practice began to fall into disfavor. In 1874, for instance, the legislature of Georgia provided that no more State aid should be given except where a road had a vested right to the same. In 1875 Alabama repealed her railroad-aid act of 1865, and Illinois in 1877 legislated that counties could not be held liable after 1880 for any aid which they had promised railroads.

In a few instances, however, the practice has persisted up to quite recent years. Such has been the case in Kansas, where, as late as 1887, the legislature empowered the counties, cities, and townships of the State to aid railways by granting them subsidies and subscribing to their stock; in Maine, as late as 1891 and 1893, when Washington County was authorized to guarantee, for thirty years, 5 per cent interest on $650,000 bonded debt of the Maine Shore Line Railroad, as well

1 Aid granted to railroads was of different types. The following classification, accompanied by brief illustrations, will serve to differentiate those types: State aid:

(1) By general enactment.

(a) Grants of land.

e. g., Iowa, 1853. Railroads were empowered to occupy any State lands without the payment of damages. (b) Grants and loans of money and security.

e. g., Alabama, 1868. The State agreed to indorse the first-mortgage bonds of railways to the extent of $12,000 per mile for each 20 miles of road, as completed, and $16,000 per mile for each 5 miles as completed, beyond the first 20 miles.

(2) By special enactment.

(a) Subscriptions to stock.

e. g., Massachusetts, 1836. State treasurer authorized to subscribe to 10,000 shares of stock in the Western Railroad Company.

(b) Grants of land.

e. g., Minnesota, 1862 and 1863. Numerous grants to the Minnesota and Pacific, the Root River and Southern Minnesota, the St. Paul and Pacific, and other railroad companies.

(c) Grants and loans of money and security.

e. g., Maine, 1836. The State agreed to pay the necessary incidental expenses of surveying the Belfast and Quebec Railroad; expenses not to exceed $5,000, to be refunded the State three years after completion of road. Massachusetts, 1837. Five million dollars loaned to the Eastern Railroad Company.

California, 1863. The State agreed to pay the Central Pacific Railroad Company, on completion of 20 miles of line, $10,000 for each mile constructed; only $100,000 to be paid during the first two fiscal years.

Local aid (authorized by State enactment): (1) By general enactment.

(a) Subscriptions to stock.

e. g., Illinois, 1843. Counties and municipalities authorized to subscribe to railway stock.

(b) Grants and loans of money and security.

e. g., California, 1870. Counties authorized to issue railroad-aid bonds, not to exceed in aggregate amount 5 per cent of the taxable value of property in those counties; aid to be granted any companies after 5 miles of road have

been constructed.

(2) By special enactment.

(a) Subscriptions to stock.

e. g., Kansas, 1855. Cities and counties authorized to subscribe to shares of stock in the Kansas Central Railroad Company.

(b) Grants and loans of money and security.

e. g., Alabama, 1859. City of Mobile authorized to issue bonds to aid the Mobile and Great Northern Railroad Company.

Michigan, 1864. County of Bay authorized to issue bonds to aid in the construction of a railroad from Bay City to East Saginaw.

2 For instance, in Arkansas we find the following in 1867: The State promises aid to any railroad at the rate of $1,000 per mile of line constructed up to the maximum limit of 100 miles, the State to be paid interest on the same and to be secured by a lien on the railroad; and again in 1868 authorization of aid was made to the amount of $15,000 per mile to such roads as had not received grants of United States lands, and of $10,000 per mile to such as had secured such grants, upon condition (1) that the total aid should not apply to more than 850 miles of road; (2) that a tax equal to the amount of interest on the State-aid bonds should be levied against the railroads until the bonds should be canceled, and (3) that five years after the completion of road receiving such aid 2 per cent addiupon the aid.

To illustrate further, the legislature of Georgia in 1868 authorized the indorsement of the bonds of the Macon and Augusta Railroad Company to the amount of $10,000 per mile of road, as well as of those of the Georgia Air Line to the amount of $12,000 per mile of road, with an aggregate maximum of $500,000, besides granting aid to numerous other lines.

In the North, too, the revival of the aid-granting policy is exemplified in numerous land grants, such as those in Michigan and Minnesota from 1865 to 1870, and in loans of funds, such as that by Massachusetts of $3,000,000 to the Boston, Hartford and Erie Railroad Company, of $2,000,000 to the Boston and Albany, and of $300,000 to the Lee and New Haven Company in 1868.

as to subscribe to the stock of the Washington County Railroad Company, and in Iowa, where local aid has been authorized as late as 1894.1

It would be impracticable to estimate the relative amounts of State and local aid which have been granted to the railroads of the country. It is a notorious fact that immense sums have been so granted by both classes of authorities. But surface indications point to the fact that aid from local authorities has exceeded in amount that from the State governments. A single typical instance will serve to give a notion of the extent to which possibilities of securing aid were embraced by the railways. In Illinois, as reported by the State auditor of public accounts in 1872, over $1,900,000 had been granted under the act of 1865, and over $1,400,000

under the act of 1869.

3. Exemption of railroads from taxation.-The practice of granting exemption from taxation never became so prevalent as that of direct aid. It reached its height probably during the decade or two subsequent to the civil war, when, generally in the form of specific grant, it came to be used sometimes as a supplement to, and in some cases as a substitute for, the policy of more direct aid. During the past two decades the practice has persisted where local conditions have warranted its continuance; but of recent years the tendency has been so far in the direction of its entire abolition that only a few survivals are any longer to be found. In New Hampshire, for instance, railroad lines are still exempted from taxation for a period of ten years after their construction. In New Mexico a similar provision is in force, except that the exemption is for a period of but six years. Another isolated example is to be found in Louisiana, where the Constitution of 1898 provided for the ten-years exemption of all railroad lines constructed in that State before 1904.

The whole tendency among the States of recent years has been to wipe out the last vestiges of railroad exemption privileges. Only a few instances of this tendency need be cited. In North Carolina, prior to 1891, three of the most important railways in the State were exempted from taxation. In that year, however, as the result of persistent effort on the part of State authorities, these exemptions were surrendered. In Arkansas the Cairo and Fulton Railroad (now part of the St. Louis, Iron Mountain and Southern) was exempt from taxation under its charter until it should yield a net profit of 10 per cent on its investment. The realization of this financial condition the railroad management was careful to avoid, so that the term of the exemption was indefinitely extended. A few years ago, however, the company reorganized. The State was not slow to realize its opportunity, and after a suit at law the company lost its exemption.

In Michigan, to illustrate further, the legislature of 1891 passed a law promising ten years exemption from taxation to all railway lines which should be constructed in that State north of the forty-fourth parallel of latitude. In 1897 the legislature repealed this law, and the State authorities proceeded to levy a tax on all of those roads which had already been built in that section of the State. The companies affected contested this action in the courts, but the procedure of the State was sustained on the ground that the exemption was a mere gratuity repealable at will. This doctrine had already been laid down in the courts of the United States, where it was held that a State legislative act, exempting the property of railroads from taxation, is not, when a mere gratuity on the part of a State, a contract to continue the exemption. In Michigan, too, those railroads which had formerly been taxed under special charter privileges were, by legislative enactment, in 1891 brought under the general railroad tax laws, though the provisions of this act were not carried into effect until 1898.


The courts of the States and of the United States have been one in their endeavors to bring all railroads under the provisions of general railroad tax laws. Exemptions from taxation constituting a contract on the part of a State not to tax, are held never to arise by implication, and are construed narrowly in favor of the State. It has been laid down, moreover, that immunity from taxation is not transferable, with the result that the reorganization of a railroad company or the sale of a railroad property effects the wiping out of an exemption. Furthermore, consolidation of lines, except where express provision has been made to the contrary, results in the loss of exemption.*

1 Arkansas, as late as 1897, granted lands to the Mississippi, Hamburg and Western Railroad and the Springfield, Little Rock and Gulf Railroad.

2 See Tucker v. Ferguson (22 Wall., 527) and West Wisconsin Railroad v. Supervisors (93 U.S., 595). 3 Railroad Co. v. Commissioners (103 U. S., 1). For full list of cases, see Taylor, The Law of Stock Corporations, sec. 489 and note.

4 Maine Central R. R. Co. v. Maine (96 U. S., 499). For full list of cases, see Pierce, The Law of Railroads, pp. 486-7.

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