erty taxed in other ways. Who shall determine the rate? Who shall equate it? Shall it be left to the legislature or not? 8

FREDERICK M. DAVENPORT, Chairman,

Chairman Special Committee on Taxation and Retrenchment of New York

J. G. ARMSON,

State Tax Commission of Minnesota
FRED R. FAIRCHILD,

Yale University

F. N. FLETCHER,

Nevada Public Economy League

M. T. SANDERS,

Northern Pacific Railway Co.

SEPTEMBER, 1922.

SENATOR DAVENPORT, continuing: Now, gentlemen of the association, that completes the report of the committee so far as the first part of its work is concerned, the part that has to do with the taxation of public utilities. The committee has been in correspondence concerning this report considerably during the summer, and we thought we had pretty well in view the recommendations to make with respect to apportionment. We have had a pretty thorough discussion of the second part since we have been here, and we find that there are yet a good many things for this committee to learn with respect to this whole subject of apportionment; that while the principles appear reasonably plain, just what rules should be adopted are so largely matters of fact in connection with the experience of different states of the country, that the committee. after thorough consideration of the whole subject, last night made up its mind that it would ask the association to permit a continuation either of its life or the life of a similar committee, which might take this matter up, so that the whole subject of interstate apportionment might be gone into in great detail during the coming

8 The committee would like further opportunity to inquire into holding companies in connection with public utilities. Of course this is a problem involved in the state taxation of business income generally, although probably more important in the case of public utility taxation in some states. Many of the holding companies are not of the pure type which merely owns the stocks of the subsidiaries without performing any function which might be considered as doing business. Instead, these so-called holding companies to which we particularly refer, take to themselves various functions which may be centralized with profit, such as financing, legal and accounting services, purchasing, engineering and research. We append this foot-note because the matter cannot be entirely ignored, although in most states it will not present a serious obstacle and should not stand in the way of the acceptance of the main principles arrived at in this report.

year. The time is long and the national tax association is eternal and the committee does not want to put itself in the position of making recommendations with respect to this very important matter of apporionment until it has a good deal further light as to the experience of some of the states of this Union. And of course it has come to the point where it has just reached agreement on this general plan which I tried to make clear to you this morning, which does propose an arrangement which is novel in these respects:

It provides an alternative net or gross earnings tax, which is to take no account of franchise, which is in substitution for property taxes, and at the same time it suggests a possible additional tax on pure economic profit. Now, this plan may involve - probably will involve-two separate systems of apportionment, and the committee has not yet had an opportunity, as I have said, to test out, to check up the precise manner in which the various simple arbitrary rules of apportionment will operate. Consequently, it is not prepared to make a specific recommendation as to which of these rules is best suited to accomplish the task in the most acceptable

manner.

Then there are two other matters which the committee, if it is continued, or some other committee, if it shall be organized for the purpose, ought to take into consideration.

In the first place, further consideration should be given to the development of the method to be employed by the state in determining proper rates in a combination gross and net earnings tax. in order that the burden imposed shall fairly approximate the burden imposed on all other classes of property; and finally, Mr. Chairman and gentlemen of the convention, the committee thinks that the whole subject of holding companies, in connection with public utilities, should be gone into with a good deal of care, it appearing that the holding company is a development which ought to be taken cognizance of; that many of the holding companies are not of the purist type, which merely own the stock of the subsidiaries, but instead, a good many of these holding companies are taking to themselves various functions which may be profitably centralized, and as a part of the whole question of the taxation of public utilities, the committee believes this matter also should be considered in good time, and so, Mr. Chairman and gentlemen, I leave this report with you to be considered.

May I say one word more: The committee is very anxious to have the fullest discussion of these points which they have not yet been able to cover themselves, these points particularly that have to do with interstate apportionment, and I hope the discussion will be a discussion that will inform the committee. The committee has given you about all the information they have, and if you will help to inform the committee on the other points, we shall be glad of it.

MR. C. P. LINK of Colorado: I think that this committee is doing a wonderful work. It is a mammoth job. I move you, Mr. Chairman, that a vote of thanks be expressed to the committee and that they be continued for another year.

(Motion seconded)

CHAIRMAN HAUGEN: You have heard the motion, and I am sure that the conference is under great obligations to this committee for the voluminous report which they have submitted. Are you ready for the question?

(Call for the question)

(Ayes and noes)

CHAIRMAN HAUGEN: The ayes have it and the committee will be continued. I don't know whether that is a proper function of the conference or the association, but I take it that the association will confirm what the conference has done here this morning.

This question of the assessment of public utilities involves so many difficult features that the conference is under great obligations, as I said before, to the committee, and this committee consists of so much talent that I am at a loss who to call on for further remarks. Mr. Armson of the Minnesota tax commission has been connected with this work for many years, and he is the next man on the committee. Perhaps Mr. Armson would like to be heard for a few moments.

SECRETARY HOLCOMB: With the gentleman's consent, I should like to introduce a resolution, that is all.

CHAIRMAN HAUGEN: Mr. Holcomb has the floor at any time.

SECRETARY HOLCOMB (reading): Resolved, that this conference approves the recommendations of the report of the committee on taxation of public service corporations, to wit, that such corporations may be most equitably and satisfactorily taxed by reference to earnings, and that the details of such a method of taxation may be carried out by a combination of tax upon gross and net earnings. (Motion seconded)

CHAIRMAN HAUGEN: That resolution will be referred under the

rules.

(No response by Mr. Armson as called upon by the chairman)

MR. GEORGE LORD of Michigan: The report just made by Senator Davenport is, I think, the best report I have ever listened to on the important subject of taxing public utilities. It seems to me,

Mr. Chairman, that the report ought to be published separately in a bulletin and given publicity in the public press. If I am in order, therefore, I move it is the sense of this conference that the report be published in a bulletin and that it be given the widest publicity in the public press.

(Motion seconded)

CHAIRMAN HAUGEN: You have heard the motion which has been seconded; are there any remarks to be made?

(Ayes and noes)

CHAIRMAN HAUGEN: The ayes have it and the motion is carried.

MR. CHARLES J. TOBIN of New York: May I make an inquiry here? I noticed on the bulletin board a note to the effect that all resolutions to be acted upon should be handed in by noon today. I find, in looking over the program, that there are several committees yet to report, and they might find it necessary to ask that resolutions as concerns their work be made a part of the final result of this conference, and I fear that we may run into a difficult situation if we are to tie our hands by saying that no resolutions may be introduced after this particular session.

CHAIRMAN HAUGEN: Has the chairman of the resolutions committee some suggestions to make in that respect?

MR. H. P. SNEED of Louisiana: The original suggestion was that the resolutions be handed in early so there would be plenty of time to act upon them, but I think the committee is willing to handle any resolutions that come during the conference, irrespective of the time.

CHAIRMAN HAUGEN: There probably ought to be some limit. Supposing we make it tomorrow-that resolutions shall be handed in by the close of tomorrow afternoon's session. That will probably be satisfactory to the conference, and if there is no objection, the chair will say to the conference that resolutions should be handed in by the close of Thursday evening's session. It seems proper that they should all be in before Friday, that being the last day of the conference. Let that be considered the judgment of the conference.

We have a five-minute rule for general discussion, and the chair will try to enforce that rule as to the participants in the discussion of this public utility report that has been made. The chair suggested that Mr. Armson may have something to say. Is Mr. Armson of the Minnesota tax commission in the room?

MR. TOBIN: He was called to leave just a few minutes ago, Mr. Chairman.

CHAIRMAN HAUGEN: If Mr. Armson is not in the room, we have with us a man who represents probably the most universal public utility in the country, Mr. Francis N. Whitney of the Western Union Telegraph Company, and the chair will call on Mr. Whitney. He is a member of this committee.

MR. FRANCIS N. WHITNEY of New York: Gentlemen of the conference: As Senator Davenport has outlined to you, the committee found that it had a pretty large job to suggest to this conference a means of taxation of public utilities, particularly those of an interstate character; and it was our thought when we left the matter of apportionment undetermined, that it would be a wise thing to have this conference and the country at large criticize and digest this suggestion as to the methods of taxation of utilities. From that reaction and criticism we shall be in a position, we think, or, as Senator Davenport says, any committee which may succeed us, to attempt to lay down certain fundamental rules for such apportionment.

Personally I am in accord with the main part of the report, because of the many difficulties which come to a corporation which is operating in most if not all of the states. As the report has said, it would be surprising to some of you men to know the picayune methods which are prescribed by many statutes. It is quite true that utilities do receive bills and are required to pay taxes in all amounts from hundreds and thousands of dollars to a few cents. Where you have an assessment on a very small unit, such as we have in New York, with which state Senator Davenport and I are familiar, you have a condition which is not only harassing the taxpayer but is an infernal nuisance to the tax-collecting authorities.

MR. EDWARD LYLE of Georgia: How would you do away with the difficulty? You have to apportion this property. You would still have to pay as we pay, from two cents to one hundred thousand dollars. Now, the state officials have got to do it or you have go to do it.

MR. WHITNEY: There would be no difficulty in providing a method of apportionment within the state.

MR. LYLE: But I don't see how the payment is going to be avoided by that. You have got to apportion it to the various jurisdictions.

MR. WHITNEY: You would not pay a gross earnings tax to a minor jurisdiction; you would pay it to some central authority which would apportion it, and you might provide that the entire proceeds go for state government.