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D. LOCAL TAXATION.

There are four main plans followed in adjusting the relations of local taxing jurisdictions to transportation companies: (1) That of locally taxing all transportation property. (2) That of taxing locally only such property as is not directly employed in conducting transportation. (3) That of no local tax, but a distribu-. tion locally of a portion of the proceeds of State taxes, and (4) that of no local tax and no local distribution.

A variety of opinion exists with regard to the desirability of these different methods. The advisability of separating the objects of State and local taxation has been widely emphasized. The Pennsylvania tax conference, for instance, reported on this point substantially as follows:

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In many States the State government gets its revenue from a State tax on county valuations. This was originally the case in Pennsylvania; but a ‘series of amendments and judicial decisions-partly by accident and partly by design— resulted in the separation of State and local sources of revenue. A system of ad valorem State taxation, under which each county's quota is made to depend on the valuation of property in each county, renders a proclivity to low valuations irresistible. In neighboring States the assessed value of taxable property has reached a very low ratio, and it requires constant contention on the part of the taxing officers in those States to prevent it from getting still lower.' The following are the aggregate values of real estate in the States named for 1890 or 1891:

New York: Controller's Report, 1890, page 105..

Ohio: Auditor's Report, 1891, page 198..
Indiana: Auditor's Report, 1891, page 215.
Illinois: Proceedings of Board of Equalization, 1891, page 35.

Iowa: Auditor's Report, 1891, page 79.
Kentucky: Auditor's Report, 1891, page 249.
West Virginia: Auditor's Report, 1891, page 48.

"There is also a complaint against the undervaluation of taxable property in Pennsylvania, but it must be conceded that our total aggregate valuation of $2,002,942,127, as shown by the report of the secretary of internal affairs for 1891, bears a far higher ratio to the actual selling value of our real estate than is shown by the reports of the other States named."

$3,272, 423, 743 1, 151, 038, 031 795, 418, 117 375, 294, 398 376, 181, 276 236, 233, 808 121,202, 365

In the same report figures are given for State and local taxes in Pennsylvania in 1892, which may be grouped together as follows:

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Upon the question of local assessment the conference committee conclude: "While a difference of opinion exists as to whether taxation should be levied upon such property by the State or by the local boards, it seems to us manifest that it should be assessed and valued by officers whose jurisdiction extends over the entire State. Each railroad, canal, telegraph, or pipe line should be valued as a whole, and if any apportionment is made it should be an apportionment of the average valuation per mile, or of the avails of taxation. This plan has been adopted by a large majority of our sister States."

In New York the joint committee on taxation of the legislature of 1899 looked with favor upon the abolition of the local property tax on railroads, but found it impracticable to recommend its abolition. The committee said:

"We believe, as a fundamental principle of government, that a political entity, in this case the State, should have an independent jurisdiction, into which it alone may go, and from which it may realize sufficient revenue for its own support. Another result of the separation of the State from local taxation would be the strict accountability to which local officials would be held in raising and disbursing moneys used for the support of local government.

"The committee, therefore, has sought for subjects of taxation which, together with the indirect revenue now collected by the State, will be sufficient for the support of State government.

It was believed at the outset that this purpose might be accomplished by withdrawing from local taxation steam and surface railroads, telegraph, telephone, electric light and power companies, gas, water, and pipe-line companies, and banks and

trust companies, and by levying upon such corporations a definite rate of taxation for State purposes. In order to determine the feasibility of such a plan it became necessary to ascertain what proportion of the total tax raised by the political divisions of the State upon the property of such corporations was paid by them, and the committee with very great labor caused to be gathered the entire sums paid by the corporations named in three of the counties of the State, to wit: Oswego, Cattaraugus, and Chenango. The result was indeed startling in many of its aspects. It was found that in the county of Oswego, in the year 1897, the sum of $627,759.82 was raised by taxation for all purposes, and that of this sum the steam railroads alone paid 9.03 per cent, and that in the county of Cattaraugus, in the year 1898, $484,358.22 was raised by taxation for all purposes, and of this sum the steam railroads alone paid 11.89 per cent, and that in the county of Chenango, in the year 1897, $317,837.69 was raised by taxation for all purposes, and that of this sum the steam railroads alone paid 7.97 per cent. In some school districts in the counties named the steam railroads alone paid 50 per cent of the taxes. While the labor involved in the exact ascertainment of the taxes paid by the corporations named was so great that more counties could not be analyzed, it is safe to say that these three counties furnish a criterion for the rest of the State."

The following table will summarize the committee's investigation on this point. It must be borne in mind that the figures will have to do only with such taxes as are locally assessed;

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a County, city, town, village, local school, and highway taxes.

b Figures for 1897.

9.03

7.97

11.89

10.42

12.82

10.13

10.85

9.76

All corpora-
tions. d

Ratio of local to total tax.

$85, 193.34
44, 482.80
97,804.49

227,480.63

Per cent. 89.58

87.18

89.87

89.15

Proportion of total paid by all corporations.

Per cent.

13.57 13.99

20.19

15.90

c Figures for 1898.

Steam railroad, street railroad, telegraph, telephone, electric light, power, gas, water, pipe line, and trust companies, and banks.

The Maine tax commission viewed with disfavor the separation of State and local taxation. They say:

"It is believed by many that it may be possible to assess upon corporations an amount sufficient for State expenses, and thus the necessity for a property tax for State purposes be avoided. If this were possible within the limit of just taxation of corporations, it would, to a considerable extent, relieve the general tax burden of the people. But there are other questions besides that of a slight decrease of taxation to be considered in this connection. Would it be a wise and salutary thing to sever the financial ligament which now closely unites the State government with the town, and, in fact, with every individual? Would it be beneficial to the people at large to have the power and influence of corporations so immensely extended as they would be in case the State were dependent alone on them for its revenues?

"It appears to us that such a policy would not be wise, and that to resort to it would be to sacrifice an important principle, a paternal and unifying element of State government, at a very cheap price."1

1 Report of Maine Tax Commission of 1889, p. 56.

Upon the matter of a distribution of a portion of the proceeds of State taxation among the local districts, the Pennsylvania tax conference said:

"In this State we are drifting into a practice of collecting revenue into the State treasury far in excess of the needs of the State government, with the purpose of distributing the surplus among the townships and municipalities in aid of local taxation. The wisdom of such a policy is questionable. It is an unnecessary circumlocution, and exposes the public revenues to additional dangers of waste and misappropriation. There will be an irresistible tendency in the legislature year by year to increase the appropriations in aid of local charities and other objects whose benefits are not evenly diffused, thus decreasing the amount available each year for schools and roads. The honest and economical administration of public affairs can be better promoted, and the self-reliance of the people better preserved, by remanding the whole process of collecting and disbursing local public revenues to the local authorities as far as possible. To centralize the fiscal department of all branches of civil administration at the capital, making the local authorities dependent on the legislature for the means to defray their necessary expenses, is a vital thrust at the doctrine of local self-government.

In New Jersey the act of 1884, among other things, provided for the taxation of "main stem" or "first-class property," and for property other than main stem or "second-class property," by State authorities, with a subsequent distribution of the tax on "second-class property" among the local districts. "This system of taxing property, used for railroad and canal purposes, may be described in a sentence as a property tax by the State, through State assessors or officers, in its entirety as a unit, for the use of the State, with a distribution of a part of the tax by the State to the local taxing districts for the support and maintenance of the local or municipal governments."1

The New Jersey tax commission of 1897, whose report deals largely with local taxation, concludes that the method of distribution works injustice in that State. The commission says: "Assuming as a fact that the property used for railroad and canal purposes does pay as much tax, that is, as many dollars, relatively to a like amount of property owned by individuals and other corporations, it does not follow as a logical sequence that the distribution by the State to the local taxing districts is just or fair. On the contrary, it has been shown by evidence and facts before us that the act of 1884 in its practical operation works some injustice to the local districts of the State, not only in the relative amount of land withdrawn completely from the local or municipal tax comprised in the main stems' commonly known as first-class property, but also in the amount of tax which the local taxing districts receive from the land commonly designated as second-class property."2

*

And further: "A study of local or municipal taxation in the United States will show that land is the chief source, the principal object of local taxation. "Whenever this principle is violated in a system of taxation, it throws the local or municipal governments out of joint. In the city of Washington, where the land occupied by the buildings of the National Government was exempt from taxation, the burden became so onerous on the individual owners of land that at one time it threatened financial disaster to the District of Columbia, until the Federal Government assumed part of the expenses of the local government, or contributed to such expenses in lieu of the land which was held by the Federal and foreign governments exempt from local or municipal taxation. The lands used for railroad purposes in the principal terminal cities of the United States, such as New York, Boston, Buffalo, Chicago, Philadelphia, and Pittsburg, are taxed locally for the use of the local governments."3

* * * "When it is shown that

*

* * the geographical position of some of the local taxing districts in the State is such that in those taxing districts it is necessary, for the proper and legitimate development and operation of the railroad companies, to acquire and hold, in addition to their main stem, large tracts or blocks of land, there is no reason in good morals or sound principles of taxation why the State should deprive the local municipalities of the taxes derived from tracts or blocks of land held and used for railroad purposes, in addition to the main stems, and known as second-class property under the act of 1884. It is the illogical result of an otherwise logical system."4

1 Report of the New Jersey tax commission of 1897, p. 9.
2 Ibid., p. 13.

*

3 Ibid., p. 18.

4 Report of the New Jersey tax commission of 1897, p. 20.

*

In Massachusetts the method of distribution followed by that State was regarded with disfavor by the tax commission of 1897. The commission says:

"There are, however, some questions as to the present mode of distributing the proceeds of the taxes on corporate excess to which we think it necessary to call the attention of the general court. They are distributed, it will be remembered, among the several cities and towns according to the ownership of shares by their inhabitants. We have already referred to some anomalous results of this method of distribution. It causes disproportionately large sums to be turned over to a few towns much resorted to by people of means. But, even apart from these difficulties, there are others which make it doubtful whether under any circumstances corporate excess should be made a direct source of revenue to the towns and cities. "With many corporations there is a very large corporate excess. All railways, by an old decision of the courts, are exempt from local taxation on their right of way; and, in any case, the value of their real estate and machinery, taxable locally, is not a great proportion of their total valuation. This is even more strikingly true in the case of street railways. The cities and towns where the shareholders happen to reside, perhaps distant from the places where the enterprises are carried on, get the main benefit of the taxes."

In West Virginia the railroad taxes are paid into the State treasury, and a portion locally distributed upon the basis of the situs of the railroad property taxed. The New Hampshire method is a cross between the Massachusetts and West Virginia methods. In that State the tax on the general property of railroads (excepting real estate not in the right of way, which is locally assessed and taxed) is paid to State officials, who subsequently distribute among the towns onefourth of the proceeds of the tax according to the value of railroad property in those towns, and of the residue, to each town such proportion as the number of shares held by its residents bears to the total capital stock of the various railroad companies.3

In Wisconsin State court decisions have been adverse to the taxation of railroad property, whether by State or local authorities, and a similar state of affairs now exists in Minnesota.5

E. UNIFORMITY IN RAILWAY TAXATION AMONG THE STATES.

The table which follows will throw some light upon the question of the extent to which current State tax methods approach uniformity in their treatment of the individual railway systems of the country. Three of the trunk lines have

1 The following table, taken from page 67 of the report of the Massachusetts tax commission of 1897, will show the effect of the distribution carried out in that State:

State

Thirty-two cities

All towns..

Eighteen towns

Three hundred and three towns

Population,
1895.

All cities and towns in State
Fifty-eight towns and cities.
Twenty-seven towns and cities..
Six towns and cities...

2,500, 183
1,635, 767
864, 416
62,529
801,887

Population,

1900.

Tax distrib-
uted, 1896.

411,588
114,558
153,882
43, 139

$2,585,795.63
1,778, 359.23
807, 436.40
332, 310.77
475, 125.63

The 18 selected towns get five times as much as the average for the State, per head of population, of the proceeds of the tax on corporate excess. As compared with the remaining towns, less fortunate in the ownership of securities by their inhabitants, these few towns get nearly ten times as much per head of population.

2 Report of Massachusetts tax commission of 1897, p. 70.

3 The following table will illustrate the working of the New Hampshire method of distribution. The figures for population are compiled from the census returns of 1900; those for the amounts of the tax distributed, from the New Hampshire treasurer's report, June 1, 1900:

Tax distrib-
uted, 1899.

Tax distributed per capita.

$210, 105.94
13, 206.65
84,921.96
90,278.09

.$1.03 1.08 93 5.31

.59

Tax distributed per capita.

$0.51

.11 .55 2.09

For a history of this question see Wisconsin Central Railroad Co. v. Taylor County (52 Wis., 37). 5 Stearns v. Minnesota, decided in the United States Supreme Court, December 3, 1900.

been chosen as typical of what is probably the state of affairs throughout the country.

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Group.

Group I Group II Group III Group IV Group V

Total earn-
ings from
operation.1

Group VI
Group VII
Group VIII
Group IX
Group X

$75, 158, 880
29,453, 793

104, 612, 673

Total..

143, 378, 974
137,648, 247

281,027, 221

Operating expenses.1

$52,120, 853
22,304,853

74,425, 706

263,422,867
122, 407, 996

180, 287, 889
81, 636, 802

385, 830,863 261,924,691

Earnings from
operation.

90, 420, 837 95, 359, 669 185,780, 506

$88, 590, 148
315,653, 188
189, 018, 091
52, 562, 801
100, 295, 955
267,340, 002
51,869, 427
113, 419, 414
53,048, 923
81, 812, 169

1,313,610, 118

Net earn-
ings.1

Operating
expenses.

$23,038, 027
7,148,940

30, 186, 967

$61,025, 257 206, 144, 643 133, 306, 714 33,784, 443 68, 149, 233 163, 560, 566 29, 221,577 74, 331,845 37, 147, 422 50, 297, 299 856, 968, 999

52,958, 137
42,288,578

95, 246, 715

83, 134, 978 40, 771, 194 123, 906, 172

1 Aggregate figures for 1897, 1898, and 1899, compiled from the statistical reports of the Interstate Commerce Commission, territorial Groups II and III.

2 The bulk of taxes on Erie lines is paid in New Jersey, New York, Pennsylvania, Ohio, and Indiana. 3 Including the New York Central and Hudson River, Lake Shore and Michigan Southern, and Michigan Central lines, the Michigan Central including 380.04 miles not in the United States.

The bulk of taxes on New York Central lines is paid in New York, Ohio, Indiana, and Michigan. The bulk of taxes on Pennsylvania lines is paid in New Jersey, Pennsylvania, Delaware, Maryland, Ohio, and Indiana.

The following table' will show the effect of existing tax methods upon roads situated in different sections of the country, as grouped in the statistical report of the Interstate Commerce Commission:

Net earnings.

$27,564, 891
109, 508, 545
55, 711, 377
18,778, 358
32, 146, 722
103,779, 436
22,647, 850
39,087, 569
15,901, 501
31, 514, 870

456, 641, 119

Taxes.1

Taxes.

$2,076, 911
827,725

22,904, 636

6,685, 576
4,320,727

411,006, 303

6,277, 178
5,343, 189

511,620, 367

$4,690, 567
9, 254, 382
7,073,560
1,683, 866
3,556, 144
9, 629, 652
1,888, 053
4, 545, 117
1,338, 714
2,677,577

46,337, 632

Ratio of

taxes to net earn

ings.

Per cent.
17.01

Per cent.

9.01

11.57

9.62

8.45

12.69

12.62

10.21

11.55

8.96

11.06

9.28

8.33

11.63

8.41

8.41

10.01

7.55

13.10

9.38

Ratio of

taxes to Index net number.

earnings.

100.0

49.7

74.6

52.7

65.0

54.5

40.9

68.3

49.4

49.4

58.8

1 Figures compiled from the statistical report of the Interstate Commerce Commission, covering the year ending June 30, 1899; the territory covered by the different groups is outlined on page 36.

CHAPTER III.

DOUBLE TAXATION.

The problems arising out of double taxation are essentially the product of the complex industrial system of the present day. New complications in property rights have arisen, which, under the continued application of the principles of the property tax, have resulted in much injustice and confusion.

Double taxation arises from two sources-either from the repeated taxation of the same class of subjects by the same governmental authority, or from the taxa

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