How much this agitation is the result of merely transitory political influences, and how far it is the outcome of strictly economic causes, it would be difficult to determine. Whatever may be the verdict on that question, it is evident that the political struggle against the existing system has not yet spent its force; and in view of the fact that the people of the State, in the fall election of 1900, voted in favor of a constitutional amendment rendering property taxation possible, it ought not to be a matter of surprise if a measure substantially the same as the Atkinson bill were yet to find its way into the statute books of Michigan.

The experience of Maryland has been quite the opposite of that in Michigan and Wisconsin; for under the law of 1896 the gross-receipts tax on railroads was noticeably expanded.

4. Apportionment of taxes between States.-In connection with the taxation of transportation companies upon all of the bases which have been mentioned above, there has been rapidly spreading an administrative device for the prorating, according to mileage, of taxable elements of an interstate character. In the case of the tax on cash valuation of property the necessity for the adoption of this plan arises, of course, only in the taxation of rolling stock. The plan generally followed in such cases is to tax rolling stock upon that portion of its value which is represented by the proportion of mileage traversed within a State to the total mileage covered.

Under the tax on capital, in the case of foreign corporations, the legal requirement that only such portion of the capital stock of any company as is employed within a State shall be taxed by that State has resulted in the general adoption of the plan. The taxation of sleeping-car companies in Pennsylvania furnishes a good example of this practice. In that State the capital stock of every such company is assessed by a State official, taking as the basis of assessment such proportion of the capital stock as the number of miles of railroad over which the cars of the company are run in Pennsylvania bears to the mileage in that and other States over which its cars are run. The legality of this method has been repeatedly affirmed by the United States courts. In the case of domestic corporations, although the practice of prorating is not necessitated by legal decisions, recognition of the practical justice attainable under the method has led to its general adoption.

Under the gross receipts tax, so far as concerns foreign corporations, any attempt by a State to tax receipts other than those resulting from purely intrastate traffic encounters a direct prohibition in the decision of the United States Supreme Court. In the case of domestic corporations the right of any State to measure the value of a franchise which it has granted by total receipts, even including those from interstate traffic, has been upheld by the courts. But the plan generally followed in such a case has been that of taxing only a mileage proportion of the gross receipts. Such, for example, is the method followed in Maine, where receipts from business of an interstate character are prorated according to the ratio which mileage traversed in doing business within the State bears to total mileage covered both within and outside of the State.

There appear to be no cases where companies doing an interstate business are taxed on their entire gross receipts. Where the prorating method is not expressly provided for statutes usually declare that the tax shall apply to "receipts from business done within this State." In practice there appear to be two ways of carrying this out, either by taxing all companies (both foreign and domestic) upon their receipts from business done wholly within the State, or by taxing all companies by the prorating method, foreign companies not caring to appeal to the courts to avoid the resulting addition to their taxes.

D. MISCELLANEOUS TRANSPORTATION AND TRANSMISSION COMPANIES.

One of the practices which is constantly becoming more and more prominent in the enacting of State tax laws is that of making specific provision for the taxation of transportation and transmission companies other than railways. Of recent years this has been particularly the case with those companies which do a business upon the various railway lines of the country, complementary and subsidiary to the railway business. In legislating for the taxation of these companies the States have very noticeably avoided the property tax. It appears to have been quite generally recognized that a tax on the mere value of the property of these companies would be entirely ineffective in reaching their true taxable capacity. That this evil does actually arise under the property tax is amply affirmed in the experience of those States which still cling to that tax. But changes are con

1 See Pullman Car Company . Pennsylvania (141 U. S., 18).

2 State tax on railway gross receipts (15 Wall., 284); Maine v. Grand Trunk R. R. Co. (142 U.S., 217).

stantly being effected, and the general practice of recent years has been manifestly pointing to the abandonment of old methods and tending toward the adoption of others, which have already proved tolerably efficient in a number of the States.

1. Express companies.-In the case of express companies the need for specific tax provision has been very marked. Under the local general property tax these companies have almost entirely escaped taxation. The attorney-general of Montana not long ago made a statement bearing on this point, which is typical of the operation of this method wherever it is employed. He says:

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Take, for instance, one of the principal express companies operating in this State (Montana); in one county it undoubtedly does a business of several hundred thousand dollars, and the property owned by it in the county subject to taxation will not aggregate in value $5,000. The system now prevalent, which ignores the franchise and simply assesses the tangible property, is practically a farce."

Many States have sought to remedy this state of things by specific legislation on the subject, and in most cases where this has been done the gross receipts tax has been adopted. Of quite recent years, however, the legislative trend appears to be toward a form of tax based on capital stock. Indiana adopted such a tax in 1893; Wisconsin pursued a similar plan in 1899, and Iowa in 1900. Ohio several years ago changed over from a gross receipts tax to one nominally based on cash valuation of property, but in reality fixed very largely on the basis of net earnings. The practical difficulty of making adequate provision for the taxation of these companies, at least in the light of various legislative efforts in the matter, is not a slight one. It will be interesting to note the experience of Texas, which is not far from typical in this respect.

The first law in that State upon the subject, enacted in 1879, in line with Southern tendencies, provided for a specific annual tax of $700, to be paid by every company doing business within the State. In 1882 the amount of the tax was reduced to $500. This law continued in force for seven years, when the amount of the tax was raised to $1,000. This act was, in turn, repealed in 1895, when the present law, taxing these companies on the basis of their gross receipts, was enacted. The workings of this law appear thus far to have been attended with satisfactory results.

2. Palace-car companies.-The taxation of sleeping, palace, and dining car companies has claimed considerable attention during the past twenty years. In a number of States taxes based on cash valuation of rolling stock have been adopted. But in the majority of cases where the taxation of these companies has been the subject of legislation the gross receipts tax has been adopted. The tax on capital has also gained ground, as is shown by the enactment of the Indiana law of 1893 and the Wisconsin law of 1899. The experience of Texas in this matter, as in the case of express companies, is an interesting one. The first law on the subject, passed in April, 1879, provided for an annual tax of $2 per mile of road in the State over which cars were hauled. Three months later the system was changed to one of a tax of one-half of one per cent on the value of cars used in the State. In 1881 this law was repealed, and the law levying $2 per mile was reenacted. A year later the tax was reduced to 50 cents per mile. All of these laws having proved unsatisfactory the present law was passed in 1893. This, with the supplementary law of 1897, provides for a tax of one-fourth of one per cent on the annual value of the gross receipts of the companies concerned, in addition to a tax of 25 cents on each one hundred dollars' valuation of the capital stock employed within the State.

3. Fast-freight lines.-The problem of the taxation of fast freight and car lines has of recent years received a considerable share of attention. In the framing of laws for their taxation the tax on capital appears to have been the prevailing model. Such was the case with the Wisconsin law of 1899, as well as with the law passed in Minnesota in 1897, where all other transportation companies are taxed on the basis of gross receipts.

4. Summary.-Upon the whole, the most marked tendency to be noted of recent years in the legislation for the taxation of express companies, sleeping-car companies, and freight-line companies has been one which points to the increasing adoption of taxes on capital. The Maryland law of 1893, which already had noteworthy precedents in the general corporation tax systems of Pennsylvania and New York, appears to have set an example which has been followed quite widely in the States northwest of the Ohio River. The gross receipts tax, largely as the outcome of the intervention of the Federal judiciary, has of late been but little adopted.

The most notable practice among the States in the taxation of telegraph companies has been that of taxing them on a valuation of telegraph lines, determined on the principle of a fixed sum per mile of wire. This plan and that of the tax on gross receipts constitute the two methods which prevail in the majority of the States. With telegraph companies, as with railroads, the decisions of the United States Supreme Court have been unfavorable to the taxation of interstate receipts.'

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Legislation for the taxation of telephone companies has been upon much the same lines as with telegraph companies, except that not infrequently as regards the former, instead of the method of levy at a specific sum per mile of wire, the plan of a fixed tax per instrument in use has been followed. In a number of States, moreover, telephone companies have been made subject to taxes on gross receipts, where telegraph companies have been taxed on some other basis. This has been due, at least in part, to the fact that the telephone business is still mainly of a local character, with the result that a tax on the gross receipts of a telephone company, which are predominantly of an intrastate character, does not, as in the case of telegraph companies, encounter the limitations which have been imposed by Federal court decision.

E. OTHER EXPANDING PRACTICES.

1. Taxation of foreign corporations.-There yet remain to be noted several changes in the practice of taxing transportation companies, which are coming more and more to characterize the taxation of corporations generally. Chief of these is the growing practice of treating domestic and foreign corporations upon the same general footing. This has come to be the case almost universally with the tax on cash valuation of property. In the case of the tax on capital, State policy and practice are tending in the same direction; and even where the gross receipts tax prevails, although exceptions in practice still exist, State authorities are more and more striving to conform to this rule. The State courts are being instrumental in bringing about the same result. For example, in New Jersey the supreme court has decided that it is not competent for the State to lay a tax upon a foreign corporation in a mode which differs in principle from that which it applies to the taxation of its own corporations. In California it has been held by the court that in case a corporation does an interstate business, such that the State has no power to keep it out, the assumption is that the State must apply to it the same principle of taxation as is applied to domestic corporations. Further, the Louisiana constitution of 1898 provides that foreign corporations may be taxed in a different mode from domestic corporations, but that the principle which is applied must be the same in both cases.

With regard to those laws which have been enacted in many States, under a variety of names, for the levying of a fee upon corporate charters, similar facts are to be noted. In New York, for instance, according to the decision of the courts, the State tax on organization applies to foreign corporations beginning to do business within a State, as well as to those of domestic origin. The Vermont laws of 1890 and 1894 make provision to the same effect, as do, also, the more recent laws of Texas and Washington.

2. Taxes on incorporation.-Another practice which is of growing significance is that of levying taxes upon the incorporation and organization of corporations and joint-stock companies. Fifty years ago legislation of this character was far from general. At present laws of this type are to be found in nearly two-thirds of the States. The same, in the main, holds with regard to the levying of many of the so-called "license taxes" on corporations, and also, since 1878, with respect to the introduction of the franchise feature into the systems of many States.

3. Taxes on securities.-Finally, that change of attitude which is resulting in the abandoning of the tax on security holders must be noted. Not many years have passed since the practice of attempting to collect a tax from the holders of corporate securities was almost universal. Of recent years, particularly in the case of railroad securities, a large proportion of the States have given up the attempt, and, instead, have sought to tax the corporations directly to the full

Telegraph Company v. Texas (105 U. S., 460), and Ratterman v. Western Union Telegraph Company (127 U. S., 411). e. g., Connecticut, Mississippi (according to number of subscribers), and Tennessee. e. g., in Alabama, Kentucky, North Carolina, Vermont, and Wisconsin.

Erie Railway Company v. State (31 N. J., 531, 543).

San Francisco v. Liverpool Insurance Company (74 Cal., 113).

extent of their apparent taxable capacity. The laws of California and of Arizona, for instance, have gone so far as to forbid explicitly the taxation of both corporation and security holder, the law in the latter State asserting that “shares of stock in a corporation possess no intrinsic value over and above the actual value of the property of the corporation for which they stand." The increasing prevalence of this attitude, in addition to the fact of the practical impossibility of collecting a tax from the holders of securities, are both indicative of the abandonment of the practice.

CHAPTER II.

ANALYSIS OF PRESENT METHODS OF TAXING TRANSPORTATION

COMPANIES.

State practice in taxing transportation companies is a varied one. There seem, however, to be three principles upon which the different State systems have been based--the property-tax principle, the income-tax principle, and the fee principle. The essence of the property-tax principle is that all property shall be taxed at its true cash value-i.e., the price it would bring upon safe in the open market. The essence of the income-tax principle is that taxes shall be levied in proportion to income. Both property and income taxes are compulsory payments for the support of Government, and with both the aim is to adapt, as far as possible, the amount of levy to the taxable capacity of the various taxable subjects. The fee principle is different. The fee is a payment for benefit received. It may or may not bear a constant relation to taxable ability, and it may be either recurring in its levy or levied once for all. It may equal the full amount of benefit received or it may be less than the amount of benefit.

A. THE PROPERTY-TAX PRINCIPLE.

The property-tax principle underlies the systems of most of the States. It is embodied in two distinct forms. The predominant type is found in the property tax pure and simple, where direct assessment of property, as in the case of individuals, is the rule. Less prevalent, but no less significant, is the form exemplified in the various taxes on capitalization, based on indirect or inferred valuations of corporate property.

1. The property tax.-This is the most common method of taxing transportation companies. In a few cases it is subject to purely local administration, but in most of the States valuations are made by State boards or officials. The workings of the latter method, though not in detail identical in any two of the States, coincide in some such general characteristics as the following: Certain designated officials of the various railroad companies are required to return sworn statements or schedules to State officials, setting forth in detail the length of line with all its tracks, and the proportion thereof in each tax district of the State, all personal property of every kind, all rolling stock, and often a detailed description of the construction of track and roadbed, the time spent in that construction, and the value of materials employed. There is also required a full statement of all real estate owned or used in each tax district; of all stations, houses, or other buildings, and all equipment connected therewith; of the amount of capital stock, including its market value, or if there is no market value, the actual value of the shares, in some cases including a list of the shareholders and their places of residence, in addition to a statement of the total amount of all indebtedness, generally excluding current expenses. In some States the schedule must contain a statement of the respective companies' entire gross receipts, entire operating expenses, and entire net earnings, with a supplementary statement of the amount of such receipts, expenses, and earnings resulting from business done exclusively within the State. Neglect to furnish these sworn schedules is generally attended with heavy penalties, and false statements are punishable as perjury. Furthermore, in many cases, the State officials, to whom these reports are made, are empowered to require additional statements when necessary, and even, as provided in a number of States, to summon witnesses, to examine them under oath, and to compel the production of corporation books and papers. The work of assessment on the basis of these returns is generally intrusted to a specially con

stituted State board, by whom the valuation is determined and in most cases apportioned among the local taxing districts for the computation and collection of the tax. Railroad real estate not directly employed in traffic operations is generally both assessed and taxed by local officials.

The chief advantages of this general method may be summed up as follows: The duties of assessment are in the main performed by experienced and competent officials, thus minimizing the liability to unequal assessments, as between localities and between companies, under a property tax; the popular demand that corporations be taxed upon the same basis as individuals is realized; the method is in accord with both State and Federal constitutional provisions, besides being both reasonably productive and constant in its yield from year to year.

The reports of special State tax commissions in the main say little about the property tax except by way of condemnation, upon both practical and theoretical grounds; but the general attitude of State administrations and legislators toward the possibility of devising better methods appears to be much the same as that of the controller of Florida, when he says:

"The law provides for a uniform and equal rate of taxation, and that all property shall be assessed at its full cash value,' but it seems to be almost impossible to devise laws, however plain and explicit, that will result in an equal distribution of the burdens of government according to the value of the property owned and the ability of the person taxed to meet the obligation."

The chief defects of the method may be summed up by saying that it is cumbersome in its administration and not proportional to the earning power of the different companies taxed. The latter is its main failing. To illustrate: In Illinois, where the system of valuation is as exacting in its provisions and probably as thorough in its execution as in any other State, equality in distribution has not been reached. The following table will verify this statement:

It is interesting to note that with the above roads, which have been chosen indiscriminately, the tax varied inversely with the amount of earnings. Further investigation along the same line developed the fact that, though exceptions are too important to establish a general rule, the general trend was in this direction. Similar facts are to be noted in Kansas, although in that State, owing largely to more fluctuating business conditions, the property tax approaches even less than in Illinois the attainment of equality. A few instances are given in the following table:"

1 Report of the controller of Florida for 1898, p. 10.

2 Figures are for the year ending June 30, 1898, and are compiled in the case of Illinois from the reports of the Illinois State board of equalization, and of the railroad and warehouse commission, for 1898; and in the case of Kansas from the reports of the State auditor and of the State board of railroad commissioners for 1898. Net earnings here, as elsewhere, are taken to represent gross receipts less expenses of operation.