burden, for the reason that his Pennsylvania or Ohio competitor's goods reach the market with no sales tax added. Assuming, therefore, that the conditions in West Virginia and neighboring states are equally favorable for the manufacturers of the competitive articles, the West Virginia manufacturer will bear the cost of the sales tax. The tax in this case is in effect, not a sales tax, in the accepted sense of the word, as used with reference to the proposed federal tax-a consumer's tax; but it is a privilege tax, pure and simple. In fact, a sales tax cannot be levied on interstate shipments, as we all know; so that there is really no such thing as a state sales tax applied to shipments to out-of-state points. The West Virginia manufacturer pays the State of West Virginia a privilege tax for the privilege of engaging in manufacturing in West Virginia, based on the entire value of the products manufactured in the state. ascertained by the gross proceeds derived from the sale thereof. In exactly the same way the West Virginia coal producer who ships his entire output to out-of-state points pays the State of West Virginia a privilege tax for the privilege of mining and producing coal in West Virginia, based on the value of the entire production in the state ascertained by the gross proceeds of sales. In effect, it is a production tax on the industries engaged in the mining of natural resources.

No importance at all is attached to the question as to where our gross sales tax actually falls. It is not even mentioned. That the tax rates are so small and the tax so negligible, perhaps, accounts for no discussion concerning it. Personally, I am of the opinion that this question occupies altogether too prominent a place in the discussion of revenue measures generally. Moneys necessary for the maintenance of government must be obtained, and I believe most of us feel that in the last analysis the consumer contributes a very large part, regardless of the name of the tax-whether it is ad valorem, license, excise, income or sales, or whether the tax is laid directly or indirectly. Down in West Virginia we feel that everyone who is receiving the protection of the state's sovereignty should contribute to the support of the government. It makes for better citizenship; it makes for more efficient and more economical administration; but we feel that the burden heretofore has been permitted to rest too heavily upon real estate and the small home

owners.

Prior to 1921 business activities contributed very little toward the support of the state government. For six years prior to 1921 there was levied and collected a tax for the privilege of doing business in a corporate capacity, the rate for the years 1915 and 1916 being 1⁄2 of 1% on the net corporate income from business transacted and capital invested in the state. In 1917 the rate was increased to 34 of 1%. The revenue produced from this source

fluctuated considerably, owing to business conditions. Collections in 1916 were $322,000; in 1917, $500,000; in 1918, $1,300,000; in 1919, $700,000; and so on.

The millions owed by West Virginia as a portion of the old debt of the Mother State, adjudicated by the supreme court not many years ago; the extensive road-building program; the rebuilding of the state capitol which was destroyed by fire in the early part of 1921 and the requirements of the schools of the state, demanded more revenue and it became necessary for the 1921 legislature to look about for another more dependable and more stable source of revenue. The corporate business of the state felt that it had been discriminated against more or less, because of the application of a tax on its net income, while the net income of persons, firms, partnerships and associations, unincorporated, escaped taxation. The legislature and those in authority, after six years' experience with the net income tax on corporations and the difficulties incident to the filing and checking of the returns in connection therewith and the collection of taxes, and finding the vexing questions, such as salaries of officers, the depreciation allowances and the allowances for depletion of natural resources in the case of coal mines and oil wells, a constant source of annoyance; being mindful also of the tendency of the corporate net income tax to fluctuate wildly; and being of the opinion that the tax should apply as far as possible to all businesses, whether incorporated or not, were willing to adopt and put into effect the so-called sales tax law.

So far as the State of West Virginia is concerned, the questions of whether the consumer pays the tax or it is absorbed; the turnover feature and its cumulative effect as regards taxes; the hurting of business; the difficulty of administration, and other suggested drawbacks, I find after an experience of more than a year are mere bugaboos.

Most of the state's records were lost in the fire which destroyed the capitol building; but I happen to have retained some of the returns of net income made by corporations, covering the calendar year 1919. By comparing what would have been paid by them in 1919, had the gross sales tax law been in effect, with the net income tax actually paid, I was surprised to find how equitably the tax applies against the various classes of business. Here and there, of course, the difference was found to have been noticeable, but on the whole the flat tax rates provided in our law are sufficiently equitable, in my opinion. Whenever it appears that a particular industry is paying out of proportion to the others, I feel sure our legislature will take due cognizance of the fact and make a proper modification.

True enough, equity might prevail to a greater extent, were the rates graduated or if a different rate might be fixed for practically

each class of business. It is common knowledge that while one business turns its stock over, say four times a year, another will turn only two or three times and still another only one time. The invested capital in one instance is low and the rate of net profit high; in another, the invested capital is high and the rate of net profit low. In some cases the manufacturers sell direct to the consumers-one turnover. In other cases, the tax will be cumulative, for the reason that the manufacturer sells to the wholesaler, the wholesaler to the retailer and the retailer to the consumer. But, in my opinion, considering the low rate, the taxes of any taxpayer will not be so large, out of proportion or unreasonable, as to justify the installation of a system of complicated returns with all the attendant confusion and costs to the taxpayers incident to their preparation. Simplicity in the preparation of returns is highly desirable. The taxpayer wants it. The state wants it. We have simplicity in the present law.

In going over a number of returns of net income covering the calendar year 1919, with a view to determining whether any industry or class of taxpayers would be discriminated against by reason of the flat rates provided in the gross sales tax law, I found that the gross sales of producers of coal, oil, gas, etc., in 1919 were 15% and the gross sales of manufacturers were 30% more than in 1922.

The taxpayer himself, if he so chooses, can make his return without the expense of special assistance and he knows almost to a certainty what his tax will be and that when the tax is remitted that is the end of it-no bills for back taxes, or to cover questions admitting of doubtful construction.

The tax is a certain and stable source of revenue. This, to my mind, is one of its most meritorious features and is quite in contrast with the fluctuating revenue that was produced by our tax on corporate net revenue.

Some manufacturers of our state have opposed the gross sales tax because of what they conceive to be a disadvantage in competition with manufacturers of adjoining states, but if these interests would look at this tax from the viewpoint of its being a franchise or privilege tax, the sales only being used as the measure by which the amount of tax is determined, and would then compare the amount of such tax with the franchise taxes of adjoining states-and this is the only correct way of viewing our gross sales tax-I feel quite sure that the disadvantage would not loom so formidably. On the whole, I am convinced that the business profession tax has been a success. True, it has not produced the revenue that was anticipated by the legislature that made it a law, but that has been due to the fact that the volume of business for the fiscal year ending June 30th, last, has been decidedly less than the normal

business in the state. It has essentially established the production tax principle in the state, in that the basic industries associated with our greatest natural resources-coal, oil, gas, limestone and other minerals-are classified under a distinctive division and are taxed at twice the rate imposed on general business activity. It is shown that for the first year of the operation of the tax, 46.5 per cent of the total revenue came from the production class business. While the heavier rate has imposed no undue burden on our natural resource industries and they have been content to accept the larger tax rate without question, this act of the legislature has been effective in quieting the agitation for a special tax on this class of industry. It seems to be a very happy solution of this problem and at the same time has prevented a discriminatory species of tax burden on the industries which have made West Virginia a great and prosperous state.

From July 1, 1921, to August 15, 1922, there was collected under the law the sum of $1,910,505.28, of which amount the producers of coal paid $674,383.40 or 35.8%; the producers of sand and limestone paid $17,690.79 and the producers of oil and gas $196,244.18; a total for production of $888,318.37, or 46.5% of the total amount collected. The manufacturers of the state paid $472,784.40, or 24.75%; the sellers of property, real and personal (except wholesalers) paid $327,394.23, or 17.1%; wholesalers and jobbers paid $39,718.59, or 2.1%; banks and public utilities paid $93,411.50, or 4.9%; and professions and all other businesses not included in the preceding items paid $88,878.19, or 4.7%. The period covered by the above collections was subnormal from a business standpoint. Coal production was unsettled and many factories were idle or at a low ebb in operation. Under normal conditions, the law as it stands, in my opinion, would produce approximately from $3,500,000 to $4,000,000 annually.

The law, of course, will need slight revisions from time to time, but no amendments to cause serious inconvenience to the taxpayer will be necessary.

I ruled that the sales value of coal and other minerals is to be used to determine the taxable amount, and that if the coal or other mineral is not sold in its original form, but is converted by manufacturing process into coke or other secondary product, the taxpayer is liable under the manufacturing section. This interpretation seems to conform to the general tenor of the law, which is to place a tax upon gross sales.

Some difficulty was experienced in the case of foreign corporations that send raw materials into West Virginia to be manufactured by affiliated or subsidiary corporations, due to the fact that the subsidiary corporation does not own the materials manufactured and makes the claim that it is not engaged in the business of manu

facturing and for that reason should be classed as a contractor, using the price paid by the foreign corporation for the operations conducted in West Virginia as the measure of the tax.

I am of the opinion that the wholesaler is escaping taxation to a great extent, both on account of the low rate of one-third of one per cent levied upon gross profits and on account of exemptions allowed on drop shipments. The present tax on gross profits, of course, is not a sales tax at all. It is a reversion to the old excise tax, with an advantage very much in favor of the taxpayer. The returns of wholesalers are much more cumbersome, harder to handle and more difficult to check, because the base of the tax in their case is gross profits. By changing the base from gross profits to gross sales and modifying the rate, the wholesaler's tax will be brought into harmony with other taxes levied under the act. At this time I am of opinion that a rate of one-tenth of one per cent on gross sales would place the wholesaler on a par with other businesses.

Our law provides that the basis of the tax, as relating to banks and trust companies and public utilities, shall be the gross income; in the case of public utilities, the gross income derived from intrastate business only. The gross income of banks and public utilities consists exclusively of the value of the services rendered. Any raw materials used by these organizations are used only in the way of installations necessary to perform the services, such as railroad maintenance, installation of rolling stock, materials, rail, etc. The value of the taxable amount does not compare with similar taxable amounts in the case of taxpayers whose taxes are based upon the value of tangible property sold. This argument applies, however, to all taxpayers not selling tangible property and whose taxable amounts are thereby reduced to a minimum, in comparison with the amount of net profits derived from the business. Two-fifths of one per cent instead of one-fifth of one per cent on gross income, as to banks and public utilities may be recommended. Banks especially are not paying a sufficient tax under the present rate as their taxable amount is practically the amount of their gross profits.

The law provides that the basis of the tax, as relating to the taxpayer engaged in a profession in West Virginia shall be the gross income, at a rate of one-fifth of one per cent. Outside of the office maintenance and the moderate expense incurred on account of equipment, the income derived from professional service consists largely of net income, and for this reason the tax should be increased in proportion to the ability of the taxpayer to pay. For instance, a doctor with a professional income of $10,000 is not subject to any tax. Assuming that his expense amounts to onethird of his gross income, his net income is $6,666.66. An average retailer, to produce a net income of $6,666.66, would do a business