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 In 1875 Alabama repealed her railroad-aid act of 1865, and Illinois in 1877 legislated that counties could not be held liable after 1880 for any aid which they had promised railroads.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 fine, $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 any road receiving such aid 2 per cent additional should be levied upon the whole amount of State 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.

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.

With State policy and legal tendency, therefore, not only opposed to the extension of exemption, but even operating toward its complete abolition, the practice has come to be of but slight significance.

4. Low taxation of railroads. The practice of leniently taxing railroads was an important one until the close of the civil war period. It originated in the same conditions which gave rise to those two means of stimulating internal improvement which have just been outlined. Instances of the practice are too numerous to mention; but it may be said in passing that they generally took the form of taxes at a low rate (upon the bases of earnings, capital stock, and transportation property), in effect amounting to partial exemptions from taxation. A hasty survey of a few typical developments of the tendency to tax less and less leniently as time went on will serve to bring the early policy into clearer relief.

The early history of railway taxation in Georgia reveals a variety of methods applied at different times to various companies. Prior to 1850 exemption from taxes was the rule. At that time the Memphis Branch Railroad, the Central Railroad, and the Georgia Railroad (which will serve as types) were required by the State to pay taxes, respectively, of 314 cents on each $100 of capital stock paid in, 1 per cent on net income, and 14 per cent on net income in addition to 31 cents on each $100 increase of capital stock. In 1854 all railroads except those exempted by their charters, were required by legislative enactment to pay annual taxes on their capital stock and assets. In 1858 a tax of 14 per cent on net income was added to the tax on capital stock, besides, in 1863, a graduated tax ranging from 5 per cent to 25 per cent upon all net income in excess of 8 per cent on the capital stock. In 1866 the rate of the tax on capital stock was fixed at one-half of 1 per cent. In 1868 certain roads were exempted from the payment of this tax; but all were still required to pay the tax on net earnings. In 1874 a tax on property values was provided for in addition to the net earnings tax, and in 1888 a definite property tax on the lines of the present day method was adopted.

In New Jersey, likewise, the early railroad taxes were levied on a variety of principles in accord with special charter provisions. Justice Parker, in the case of State Board of Assessors v. Central Railroad Company, outlines with clearness the course of railroad taxation in New Jersey:

"In the infancy of this class of corporations, when struggling for existence, the amount of tax they were required to pay into the State treasury was small. The State favored them by limiting the annual tax to be paid by such corporations to the one-half of 1 per cent on the cost of their respective roads. This tax was for State purposes, and they were not assessed for local taxes. The wise and liberal policy adopted by the State was founded in part on the fact that the enterprises in which such companies were engaged were at that time of doubtful success, and in part on the belief that if successful they would contribute vastly to the public good. As time progressed, these corporations extended their business operations and acquired additional property, often of great value, until in some sections of the State, especially in the cities, the exemptions from local taxation became so great as to encumber the property of citizens liable to be taxed with a heavy burden. To prevent injustice arising from the inequality of taxation, and to equalize as far as possible the public burdens, the legislature, on the 2d day of April, 1873, passed an act the avowed object of which was to establish just rules for the taxation of railroad property. This act made a radical change in the system. The act of 1876, providing for State taxes on railroads, was passed after the adoption of the constitutional amendment. This act is almost identical with the act of 1873. The chief object of the act of 1876 seems to have been to make the system of railroad taxation conform to the constitutional amendment that took effect in 1875, which prescribed that the assessment should be on true value instead of cost. Where the acts of 1873 and 1876 did not conflict, the former stood, and under those two acts, both the State and local taxes on railroad property in this State were assessed and collected up to the enactment of the law of 1884.'

*

* *

The act of 1884 established the present system of New Jersey.

In Wisconsin the act of 1854 provided for a uniform tax of 1 per cent on the gross earnings of all railroads. In 1860 all railroad property requisite to purposes of operation was declared exempt from taxation. In 1862 the license tax on gross earnings was raised from 1 to 3 per cent. In 1874 it was raised to 4 per cent, where it remained until 1876, when a graduated tax was provided for upon lines which have been followed in modeling the present system.

1e. g., The charter of the Somerville and Eastern Railroad (1854) provided for a tax of one-half of 1 per cent on the cost of the road; that of the Northern Railroad Company (1854), for the payment of the sum of 4 cents for each passenger, and of 8 cents for each ton of merchandise carried across the State.

219 Vroom, 294.

B. SECOND PERIOD.-INCREASING AND MORE UNIFORM TAXATION. This stage in the development of railroad tax systems is characterized chiefly by the decadence of the policies of subsidy and exemption from taxation, and by the application of general regulations to the taxation of all railways upon lines increasingly stringent and uniform. As has already been intimated, early railroad tax methods were in many instances made the subjects of special charter provisions. But in probably the majority of cases, the States recurred, very naturally, to methods already employed in the taxation of individuals, and taxed railroads under the provisions of the general property tax.

With but slight exception (as in the case of Pennsylvania, which from the outset avoided the general property tax in this respect), the early practice of the States was the assessment of all real and personal property by local officials, in the same manner as with the similar property of individuals. The adoption of this plan was not altogether unwarranted by the conditions of the time. Up to 1850, the corporations of the country were nearly all of a purely local character. At that time none of the great trunk lines had been formed. But changed conditions soon began to appear. In 1851, for instance, various lines were brought together to form the New York Central Railroad; and in the few years following, the Baltimore and Ohio, Pennsylvania, and Erie lines were formed. As the result of changed conditions brought about by consolidations such as these, new tax requirements arose. Inadequate as had been the general property tax under local authorities, even under earlier conditions, it was now very soon shown to be entirely ill-adapted to this new office. Utter lack of uniformity in the operation of the system resulting from its local administration, facility of evasion, and failure of levies to measure even roughly the taxpaying ability of the different companies, among other difficulties, necessitated from time to time the adoption of modifications and substitutions, which have at length resulted in present systems.

In the course of this process, certain changes of quite general prevalence among the States have been effected. In the first place, there has been widely evidenced a tendency to tax transportation companies upon a different basis, or, to say the least, in a different manner from that which has been followed in the taxation of individuals. Thirty years ago the local general property tax was the main method applied to railroad taxation. Twenty years ago changes had already been so far effected that railroads were taxed on their property upon the basis of varied local assessments in less than one-fourth of the States. And more recently the application of the early method has been so far abridged that it is now to be found in its original form in but four States and one Territory. These which still cling to the primitive method are Louisiana, New Mexico, Oregon, Rhode Island, and Texas, and in the case of Texas there is a supplementary tax based on a different principle.

There is still prevalent in many sections of the country, however, an attitude favorable to the taxation of individuals and of corporations upon the same principle and in the same manner. Such, for instance, is the notion which pervaded the deliberations of the extra session of the Michigan legislature in 1898, convened to consider the subject of railroad taxation. Such, likewise, is the express requirement in a number of State constitutions. But the preponderance of practice is in the other direction; even in the cases of those constitutional requirements which have just been mentioned their practical force has been, in large measure, destroyed by the decisions of the Federal Supreme Court in a series of cases which hold that State constitutional provisions declaring that a certain large class of persons and corporations shall be taxed by general laws, uniform as to the class upon which they operate, allow a rule for railroads different from that which applies in the taxation of individuals.2

By way of explanation, however, it must be stated that in the majority of those cases where changes have been effected, the property tax has not been abandoned, but modified. There has been embodied in this growth simply an attempt to adapt the property tax to the most obvious requirements of a system of railroad taxation. The result of this process of adaptation has been the establishment of methods for railroad taxation which differ essentially both in their operation and in their administration from those employed in the taxation of individuals, and even of other corporations; railroad property is made a special class for purposes of taxation in that it is subject to assessment by State, not local, authorities.

1 Pennsylvania, at first, like many other States, employed special railway taxes. For instance, in the charter of the Pennsylvania Railroad Company, incorporated in 1846, a tax of 5 mills per ton-mile upon all merchandise transported, except the ordinary baggage of passengers, was provided for. 2 See State Railroad Tax Cases (92 U. S., 575).

The New Jersey tax commission of 1897, in its report. very well points out the distinct character of the two systems in a statement which is generally applicable: "It will be readily seen that these two systems, thus described and contrasted, are not coordinate; there is no tribunal in the State clothed with powers in which the values of the one class can be contrasted with the values of the other; they run in parallel lines, so to speak, being two separate, independent systems.”1

In fact, the incorporation of the feature of assessing the value of the railroad franchises, in addition to that of visible property, in the systems of many of the States, has so far obscured, or at least modified, the workings of the original property tax as to effect by existing methods a substantial divorce from the methods applied in the taxation of individuals.

As an offshoot of this tendency toward railway tax systems, distinct from those employed in the taxation of individuals, has come a process of change in the direction of a growing degree of centralization in railroad tax administrative machinery. With the widening scope of railway consolidation effective local administration of railway taxation has come more and more to be a matter of practical impossibility. Experience has shown that the problem is by so much furthered toward solution as the progressive steps toward the formulation of a tax system tend to broaden the field of the application of that system; legislative practice has of necessity followed these lines.

In the legislation of many of the States one of the accompaniments of the centralizing tendency which is becoming more and more noticeable is the practice of authorizing certain State officials to examine the books and papers of transportation companies for information in the making of assessments. There seems to be a growing desire to reach by taxation every company's full earning capacity, and the adoption and extension of this device of examining railroad accounts is an attempt toward the attainment of that end. Whether its workings are effectual as at present applied is questionable. The commissioner of railroads of Michigan, for instance, asserts that "that provision of the statute which gives the commissioner the right to examine books and papers is a humbug. It takes six months to examine a little broken bank in Lansing. How long would it take to examine the affairs of a great railroad?"? But aside from any consideration of the inefficient character of the regulation, the fact of its increasing prevalence is evidenced in State legislation. The growing advocacy of a uniform system of railway accounting deserves to be noted as tending in the same direction. Possibilities of railroad regulation, beyond the mere matter of taxation, are involved in these plans.

C. SPECIAL LINES OF DEVELOPMENT.

We must now consider a little more closely certain special features of the changes which have been brought about in the formulation of distinct systems for the taxation of transportation companies, namely, those changes which, developing from cruder methods, have resulted in transportation taxes upon the bases of property, capitalization, and business receipts, the latter two, broadly speaking, characterizing the States east of the Mississippi and north of the Ohio, and the first the remaining sections of the country. There are differences of opinion as to the relative advantages of the different methods. Thus, some writers and public men, approaching the question from the standpoint of justice in tax distribution among the various companies, look upon earnings taxes as the most desirable; others, impressed with the difficulties which appear to lie in the way of successfully administering taxes on earnings, favor taxes based on capitalization, and still others, who think that corporations ought to be taxed upon the same basis as individuals, favor the property tax. These differences of opinion will come out from time to time in what follows.

1. Taxes on property modified.—In the majority of the States, as we have already indicated, departures from early tax methods took the form of a modification of the original property tax as employed in the taxation of individuals. Systems based on cash valuation of property or of property and franchise by State officials came into use. In 1880 the general property tax, although lying at the bottom of the systems employed in most of the States, was, in its primitive form of local assessment, the exception rather than the rule, and during the two decades which have since elapsed the system of cash valuation by State boards or officials has made still further inroads into those States where the local property tax was formerly in vogue. Such, for instance, has been the case in Arkansas, in Iowa, and in other States where the demand for greater uniformity in administration has necessitated this change.

To be sure, the origin of this method in the general property tax and its subsequent development along the lines of that system do not warrant the expectation

1 Report of the New Jersey tax commission of 1897, p. 10.

2 Supplement to the Michigan Senate Journal, extra session of 1898, p. 11.