MR. HALLANAN: Do you concede that a company in mining one million tons made eighteen thousand dollars net?

MR. BUELL: I don't concede anything of the kind. That is the report they made to the federal government, and they were not penalized or prosecuted in any way.

MR. HALLANAN: If the Hanna company mined one million tons, what would they have paid the State of Minnesota on a basis of six per cent or any other flat rate? I am asking that in order to draw a conclusion as to what they would have paid if the taxes had been similar to the West Virginia tax.

MR. BUELL: Well, your West Virginia tax, as I understand, is on the gross sales. A two per cent tax would have raised fifty-four thousand dollars, a six per cent tax would be three times fifty-four thousand dollars, which would be one hundred and sixty-two thousand dollars.

MR. HALLANAN: Now, is there anything in your proposed tax, which you are discussing now, which would prevent or prohibit the Hanna company from making a like return to the government of the State of Minnesota?

MR. BUELL: I assume that their return to the government at Washington was an honest and correct return. There is very specific provision for making their returns, and the tax commission has very wide authority to get correct information in case they suspect that there has been any skulduggery.

MR. HALLANAN: That would have to be very wide authority.

MR. BUELL: Oh, yes, I think the bill covers the ground very carefully. It was drawn with very great care by the attorney general and the tax commission, after we got the idea based on the principle of taxing only the natural element and not the gross value. That is the kernel of the whole question. We do not tax the gross value of the ore, because it would ruin all the small men. We do tax their net clean-up.

MR. HALLANAN: Don't you think it is more difficult to determine what the net clean-up is than it is to tax the gross sale value?

MR. BUELL: More difficult, oh yes; more difficult but much more just. Taxation should be fairly just, you know, even if it is a little more difficult.

MR. HALLANAN: Well, it is a problem then of administration. MR. BUELL: Largely, yes.

MR. DOUGLAS SUTHERLAND of Illinois: May I ask Mr. Hallanan a question? Do I understand that the revenues from your sales

tax go entirely to the state treasury? They are not distributed at all to the municipalities?

MR. HALLANAN: Exclusively state revenue.

MR. SUTHERLAND: And personal property that may be involved is then subject to any local ad valorem tax that may be levied?

MR. HALLANAN: Yes, sir.

Question: Isn't it a fact, Mr. Hallanan, that part of the moneys received from those sources go back to the local districts through appropriations for schools and other purposes?

MR. HALLANAN: Well, that is true, because of the fact that the state appropriates money for the support of local schools, but the essential fact remains that the tax collected by the state on the sales tax goes into the state fund and then is distributed by legislative appropriation.

MR. JOHN E. BRINDLEY of Iowa: I don't think the cost of administration was brought out in the paper. What is the cost of administration of this tax, Mr. Hallanan?

MR. HALLANAN: That was included in the paper but by reason of the time restriction I was compelled to go over it. The cost of administration is about one and one-fifth per cent.

MR. JOHN F. CASE of Missouri: You said that the sentiment of West Virginia you thought was favorable to the continuance of the West Virginia sales tax. How about the attitude of the farmers of your state?

MR. HALLANAN: In reply to that question, Mr. McKenzie is here. He represents the farm bureau, and he has been down through West Virginia, and if I may be permitted I should like him to respond to that question, because he has been in direct touch with the West Virginia farm bureau federation. May I ask Mr. McKenzie to reply to the question?

MR. H. C. MCKENZIE: I don't know that I would like to give a definite answer as to the sentiment of all the farmers in West Virginia. I might give some indication, though.

As Mr. Hallanan has said, I have been in West Virginia recently and in consultation with their tax committee, and I find they have a very able tax committee, as I conclude, and that they have an open mind; they have not drawn any definite conclusions yet as to this so-called sales tax, which in reality is not a sales tax as we ordinarily consider it.

The situation in West Virginia is, as to the farmer, very much as in many other states, and that is the greater proportion of the tax has come to be centered on real property, both through the

escape of tangible and intangible personal property and through the exemption of some real estate, so that the base has become narrow there as it has in many other cases. I don't think the farmers of West Virginia are inclined to condemn on the evidence they have at present. They have a committee which is now working, and which has been to see Mr. Hallanan. They have been to see the former tax commissioner, and they are out now looking for light, and within the next three or four months their position will be formulated so that they will have a definite position. Mr. Hallanan called your attention to the fact that on coal that is shipped, for instance, outside of the state, the tax won't be shifted to the consumer, because the same tax is not employed in Ohio, Pennsylvania or any other state, but I don't think that is true as to many of the other elements in the tax. You take all other wholesalers, all other people who do business exclusively within the state of West Virginia, and I apprehend that the tax will be very much more largely passed on to the inhabitants of West Virginia than the part that goes outside of the state. You will find the farmers of West Virginia and all over the United States opposed to the principle of a sales tax or a tax on gross production, which is not a real measure of a man's ability to pay taxes. In that respect I am much more inclined to think our friend from Minnesota has come nearer to the true idea of what a tax should be.

MR. HALLANAN: May I ask this question: Is it not true that in the information which was conveyed to the taxation committee of the West Virginia farm bureau federation, it was shown that less than two per cent of the farmers of West Virginia were paying a tax under our present law?

MR. MCKENZIE: You mean the sales tax?

MR. HALLANAN: Yes.

MR. MCKENZIE: Yes, I think that is true. As I got the figures, it was almost an infinitesimal part of this tax. I don't think the farmers would have any reason to complain of the part of the tax that they pay directly. The injustice, if any should exist, would be through the passing on of the tax on the proportionate business done in West Virginia.

MR. HALLANAN: Wouldn't that be negligible to the tax on the product of West Virginia transported to some other state?

MR. MCKENZIE: The great bulk of that tax will be collected from some parties outside of the state; no question about that.

MR. BUELL: Will you kindly permit me to call attention to one point I overlooked. I hope you have all noticed that the Minnesota iron ore tax is a tax that will not be passed on in any way

whatever. If you haven't, that is a good problem to study on between now and the next meeting of this association.

MR. HALLANAN: The rates were arrived at by the legislature as a matter of public policy, to determine the cost to the state of the protection of the industry. First I refer to the coal industry which is peculiarly expensive to the state, in this sense, that by reason of West Virginia's coal development there must be maintained a system of state supervision of mines, which costs some three to four hundred thousand dollars per year; also a state system of miners' hospitals established for the benefit of those who may be injured while engaged in the hazards of the mining industry, and which costs the state some three to four hundred thousand dollars a year; and finally, the fact that the coal industry has been developed in many communities where there is no local police protection, they expect the state to furnish protection through the state constabulary department, which is maintained at an extraordinary expense of some half-million dollars per year. For that reason the production industries were put into a separate class and that business activity was taxed double the rate of general business activities. The other classes, generally fixed at one-fifth of one per cent, contributed their proportionate share to the cost of state government. There are some inequities, such as I pointed out in connection with the taxes on wholesalers and jobbers, which are relatively small, and which I anticipate the next legislature will correct. The main point I desire to make is this; that the production industries give to the state certain special expenditures, and for that reason those particular industries are taxed at double the rate of ordinary and general business activities.

MR. ROTHSCHILD of New York: I should like to ask the gentleman from Minnesota why it would be impossible for the miners of iron ore to pass on a substantial tax.

MR. BUELL: I will try to answer that. I was in hopes I would be asked to answer that because it would be a good problem for you to mull over the next year. Here is the point: The gentleman from New York, I guess, will admit that if we were to tax royalties that are collected by the group of mineral land owners who do not operate but collect royalties-if they were to tax their royalties to any extent, we see right off it would simply come out of their pockets.

MR. ROTHSCHILD: I don't admit it. If you tax the royalties enough and the contract for royalties is one which can either be changed or new contracts made, why they will have to get that much more royalty.

MR. BUELL: Have to? They can't. They are getting all the

traffic will bear now. The man who owns the land out of which the ore is taken all the while gets every cent there is in it in royalty, every minute, and don't you forget it. He has an economic law there that is more powerful than any law any nation could make, that enables him, before he will let the ore be taken out, to collect all the royalty there is in that ore; he gets every bit of it all the while, just as the landlords who own the City of New York get the entire rental value in land of New York all the while.

MR. WHITE: Well, they don't. You are in error about that.
MR. BUELL: The rents don't go up unless your population in-

creases.

MR. WHITE: Taxes go up.

MR. BUELL: I think it will be pretty generally conceded that a tax on mining royalties will be a tax that the land owner who receives the royalty will have to pay. At any rate the land owners that were receiving royalties were the owners that got extremely busy in an attempt to defeat the royalty tax at the last session of the legislature of Minnesota, and I think they knew what they were doing.

Now then, this tax on the heritage element in the value of the ore taken out by those land owners who operate their own mines. is of the same economic character, exactly. If they do not see fit to operate their mines, then they lease them on a royalty and get that value in the form of a royalty, so that substantially our iron ore tax of six per cent on the net value of the ore is a tax on potential royalty.

Probably the Minnesota iron mines are the richest mines in the world. They can produce ore in Minnesota cheaper than any other place in the world.

MR. ROTHSCHILD: How about the corporation which produced a million tons and made a profit of only eighteen thousand dollars.

MR. BUELL: Don't you see the point? The costs of operation of that company were excessive. Their ore was deep down in the ground, or it was subject to some specially difficult process of operation. We had the Bangor company up there, that operated for four years, dug ore right along for four years, and lost over four million dollars on the process. Their ore cost them more than they could sell it for on the market.

MR. ROTHSCHILD: Did they stop operating?

MR. BUELL: They did stop operating and they have not operated at all for a number of years. Now, under our tax they would not pay any tax at all.

MR. ROTHSCHILD: They would not operate.