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vention that things be speeded up a little bit so we will have our final meeting Friday afternoon.

CHAIRMAN LORD: I assure the Captain that if it were in my power I would compel all delegates to be here on time, but that power does not seem to be vested in me. I think that the suggestion, however, is a wise one and that it would very much expedite matters if we could be here on time. Ten o'clock is not an especially early hour, and I suggest, if possible, that we meet tomorrow morning at ten o'clock sharp, so we can get along more rapidly with our work.

MR. W. W. LAW, JR., of New York: I have a resolution that in conformity with the request of the committee on resolutions to promptly submit, I should like to submit at this time and ask that it be referred to the committee on resolutions. It is in relation to the taxation of shares of national banks. If you will allow me, I will read the resolution. (Reads resolution)

CHAIRMAN LORD: The resolution will be received and referred under the rule. Mr. Moffett of the local committee on arrangements wishes to make an announcement which I am sure will be interesting to you.

MR. MOFFETT: Tomorrow at noon the Civic and Commerce Association has a meeting at the West Hotel, known as a Dutch lunch. Dr. Adams is to address them on some subject of taxation. You are all invited to attend. On Thursday noon the Minneapolis Real Estate Board has its weekly luncheon, and any of you who are interested to meet the real estate men of this town are invited to that luncheon. At five o'clock tomorrow afternoon there will be provided at the Third Avenue entrance of the hotel a number of automobiles to take you around the city, and we hope that we may have We have been waiting for it and hope to have

a bright day for it.

a large attendance. I thank you.

CHAIRMAN LORD: If there are no further motions or suggestions, the meeting will stand adjourned until tomorrow morning at ten o'clock.




CHAIRMAN LORD: The session this morning relates to the taxation of public utilities, with particular reference to interstate properties and the presentation of a report by a committee. Perhaps no man connected with the rather difficult matter of properly taxing this class of property has had a wider experience than the Honorable Nils P. Haugen of Wisconsin, now of Montana. He needs no introduction at my hands, but I am going to ask him to preside at this session, while this matter is under considerationMr. Haugen.

NILS P. HAUGEN, presiding.

CHAIRMAN HAUGEN: There is a resolution which has been handed in and which will be referred to the committee. The secretary will read it.


Resolved, that this conference sends its heartiest commendation to President Harding for his veto of the shameless attempt to commercialize the valor and patriotism of American soldiers, to whom it was a privilege and sacred duty to fight for their country.

SECRETARY HOLCOMB: Here is another resolution as to the taxation of national banks. (Reads resolution)

CHAIRMAN HAUGEN: That resolution will be referred to the committee.

Members of the conference, ladies and gentlemen: I have not prepared anything for an opening address as chairman of this meeting, but we know that the matter of the assessment of public utilities presents a great many difficult questions. As stated by President Lord, the matter under discussion will relate more specifically to interstate properties.

There seem to be at least three questions involved in the assessment of interstate property. The first is to find a unit value of the entire property, then to allocate to the state that portion of the property which properly belongs within the state for taxation purposes; and the third question will be to equalize between the valuation of the property thus found, and the other property of the state. Different methods have been followed in the states in that

respect. In Wisconsin, with whose system I have had the most experience, they equalize by endeavoring to put all property taxable in the state at one hundred per cent, and thus ascertain the average tax rate for the entire state. That can be done in a state like Wisconsin, where all the revenues from railroad properties go into the state treasury and become a part of the general fund, but when you step over into Iowa, they allocate the value upon railroad property to the different assessment districts throughout the state, or to the counties at least. That is more difficult. Then, we have another system which prevails in some of the western states, and especially I can speak of Montana. The same is true, however, of Washington and some of the other western states, where they try to find the value of the property and allocate that to the different assessment districts, but they permit the local assessor to assess part of the unit property. For instance, in Montana, the local assessor, the assessor of the county, assesses the depot buildings, stations, roundhouses, turn-tables, and things of that kind, which certainly are a part of the unit and cannot be detached from the unit without destroying the unit value. The property, when it is allocated to the different districts, becomes subject to the local rate. That, too, is somewhat complicated.

I notice by the program that Mr. Davenport, chairman of the committee on public utilities, has a paper on this subject this morning. Senator Davenport is chairman of the special committee on taxation in the State of New York, and I take great pleasure in introducing the Senator.

SENATOR FREDERICK M. DAVENPORT, of New York: You are going to be disappointed not only in other things, but because of the fact that when it comes to the question of apportionment, we have not yet gone very far. We found the first part of this job was a whale of a job, therefore this report ought to be called a report of the committee on the taxation of public utilities and not upon interstate apportionment of the tax. When Mr. Holcomb asked me to take the chairmanship of this committee I took it with the understanding that I was going to do my best to try to get the thing done. Personally I am just a plain, practical politician with leanings toward an interest in taxation, and with no claims whatever of detailed expertness.

JUDGE W. A. HOUGH of Indiana: Can't you substitute "principal" for "interest" in that?

SENATOR DAVENPORT: It might be, if you spell it, but we have got on the committee a very intelligent gentleman from one of the fresh water colleges of the country, at New Haven, a young man named Fairchild, and as I read this report, if you find that I mispronounce any terms or if I read any paragraph in such a way

that it is very evident I don't understand it, all you have to do is to call on Fairchild. He has had a good deal to do with the preparation of this report.



I. The problem of taxation of public utilities.

I. Introductory.

2. Present methods of taxing public utility corporations.

3. The model tax system.

II. Taxation in relation to the economic nature of public utilities.

1. The economic nature of public utilities.

2. Three theories of taxation of public utilities.

3. Measure of the burden of taxes on public utilities.

4. Why do the public utilities require special treatment?

III. Proposed method of taxing public utilities.

1. Ad valorem basis vs. earnings basis. Gross vs. net earnings.

2. The earnings tax, gross or net.

3. The tax on real estate.

4. Constitutionality of the gross earnings tax.

IV. Interstate apportionment, tax rates, etc.


I. THE PROBLEM OF TAXATION OF PUBLIC UTILITIES 1. Introductory. At the conference of the National Tax Association two years ago (1920) there was emphatic expression of the need of a definite formulation of policy to relieve the existing confusion in the taxation of property and income of interstate business. To meet this demand certain committees were authorized and charged with the duty of applying to the troublesome field of interstate business the principles developed by the committee on a model system of state and local taxation. One of these was the present committee on the apportionment of taxes on interstate public utilities. The committee was appointed late in the year and was able to make only a preliminary report to the conference of 1921. In this preliminary report attention was called to the great variety and confusion in the methods of taxing public utilities in the several states and to the extreme difficulty of working out a rational plan for apportioning an irrational collection of taxes. The association accordingly authorized the continuance of the committee and broadened the field of its inquiry to embrace the "consideration of the entire subject of utility taxation, with the suggestion of approaching a model law for all the states in the taxation of such property."

Pursuant to this authority the committee has continued its in

vestigation during the year past and now presents the following report.

2. Present methods of taxing public utility corporations. The most striking features of the existing taxation of public utility corporations are (1) the extraordinary variety in the methods followed by the several states, (2) the duplication and confusion arising from the decentralized taxation of property by the local jurisdictions, and (3) the lack of any guiding principle in the taxation of the public utilities and in the place of such taxes in the tax system as a whole.

As to the first, it is quite safe to say that there are as many varieties of public utility taxes as there are states, indeed, more, since the same state frequently uses different methods for different classes of utilities.1 From this bewildering collection of tax methods it is possible to select three types which stand out as of enough importance to merit special consideration. These are (1) the ad valorem basis, (2) the capitalization basis, and (3) the earnings basis.

Under the ad valorem basis the tax is imposed upon the value of the property of the corporation. This was the original method of taxing corporations under the general property tax. In the beginning, the valuation was made and the tax imposed by the local bodies, in exactly the same way as for natural persons. This crude method has now been generally abandoned. As employed in pro- . gressive states today, the ad valorem method involves a more or less expert valuation of the property of the corporation as a whole, made by a state board or officer, generally followed by apportionment of the taxable value thus determined among the local taxing districts. In determining the value of the corporation's property. a variety of evidence is used. It is safe to say that at present the most weight is given to the earning capacity of the corporation; in other words, the value of the property is determined primarily by capitalizing the corporation's net earnings.

The ad valorem basis is the one most widely used. About half the states rely on it exclusively for the taxation of railroads.

1 In order that it might have the facts before it, the committee has had a thorough analysis made of the present methods of taxing railroad companies in the several states. This study was made by Mr. Armson. A briefer analysis of the methods of assessing car companies was prepared by Mr. Goodwin. Reference is also made to a digest of the laws of the several states relating to taxation of public utilities made by the New York special joint committee on taxation and retrenchment and published in its report of 1922 (pp. 314-359), and to an analysis of the methods of the several states in the taxation of railroads, street railways, express companies, telephone companies, and telegraph companies, published by the Connecticut special commission on taxation of corporations paying taxes to the state, 1913 (pp. 192-228).


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