MR. LYLE: Then the state treasurer, you think, will do the work.

MR. WHITNEY: Well, there must be some way provided in the act for the apportionment of the yield, or that the yield shall be retained by the state, and it would make the payment to the individual tax districts. That is done in many ways in the states. It may be apportioned on school population or upon the value of property within the district or in some other way.

MR. LYLE: I should like to understand you. You mean you would deprive the smaller jurisdictions of their taxes and pay it all to the state?

MR. WHITNEY: No, I don't mean anything of the kind. We have not covered that feature at all. We were not asked to cover that. What we are trying to do is to solve the question of the taxation of an interstate corporation. We have not said anything at all about the yield.

MR. LYLE: I misunderstood the gentleman at first. I thought you were speaking about the distribution of the tax to the particular tax districts of the state. Now, we pay it out from two cents to one hundred thousand dollars. If you don't do it, will the . state officials have to do it?

MR. WHITNEY: It depends on what you do with your tax. You can keep it as a whole; you may divide it between the state and municipalities; you can give it all to the municipalities or do whatever you choose to do.

MR. LYLE: I beg your pardon, the states will do what they choose to do.

MR. WHITNEY: I did not know what side of the fence you

were on.

MR. LYLE: I am on that side.

MR. WHITNEY: Mr. Haugen has suggested that this report be discussed. Now, I think that is an especially wise thing to do, because we need that sort of help, we need to know what favor or disfavor this report is receiving and we wish that assistance in attempting to work out the matter of apportionment. That is, of course, a very difficult problem, and one that the committee, I don't think, fully appreciated until we got together last night and tried to work out some method, or discuss a method which had been suggested, and we found that we were right up against it, that we did not know enough about it, that we did not have the facts, and you cannot get very far unless you have sound basic facts. The report certainly should bring about a better understanding and bring about the assistance which we ask, that the association and

this conference asks from all its members, and it is with that end in view that we have gone as far as we have. We realize that it is not a finished product, and by the time the conference meets next year, with the added light which will be given by those who are interested and those who have practical administrative knowledge of the difficulties which are connected with the various types of interstate carriers or interstate corporations, we shall be able then to make a suggestion as to apportionment.

MR. LORD I should like to ask Mr. Whitney or Senator Davenport what they will do in those states where the constitution provides that such property shall be assessed on an ad valorem basis of valuation. How are you going to meet that?

CHAIRMAN HAUGEN: I presume in those cases they might advocate a change in the constitution.

MR. WHITNEY: Mr. Haugen has answered the question. The only thing to do is to amend the constitution. Of course that is easier said than done, but at the same time the trend is in the direction of the recommendation made by this report, and constitutions are being amended and re-written, as I know, in a good many states.

MR. LYLE: Just one other question: Has the committee consid ered the gross earnings tax on property that is non-operative too? There are some properties of that sort. Have you considered that phase of the question?

MR. WHITNEY: No gross earnings at all, non-operating-I think that would have to be added to one of the questions that Senator Davenport suggested, the holding company. We will put that one

on too.

MR. TOBIN: I should like to ask whether the committee has considered the competition of municipal plants as against privately owned plants. That is a problem that is peculiar in New York. They are to some extent under the jurisdiction of the public service commission, the publicly operated utility, both as to rates and otherwise, and I don't know whether in this particular problem of the taxation of the public utility the committee has considered that competition which the privately owned utility has from the publicly owned utility.

CHAIRMAN HAUGEN: The publicly owned utility in your state is exempt from taxation?

MR. TOBIN: Yes, but they are subject to the jurisdiction of the public service commission as concerns their rates, and I don't know whether this committee has considered the publicly owned utility as a part of the problem.

SENATOR DAVENPORT: No, Mr. Chairman, we have not been over that question at all. We know it exists.

CHAIRMAN HAUGEN: Oh, yes, it exists in Wisconsin as well as in New York.

MR. C. J. BUELL: I want to use a part of my five minutes to call attention to a certain matter. I quite agree with the gentleman over here that this is the best presentation of this case I have ever come in contact with anywhere, but I want to emphasize a certain point that Mr. Davenport brought out with some force, and that is this, that no matter how you do it, you are not taxing your public service corporation. In the nature of things it cannot be done. Mr. Davenport brought that point out with some force when he raised the question that in any case this is a tax upon the ultimate consumer or the original producer. He did not use those terms, but that is what it amounts to. That raises, of course, a very vital question whether it is your desire to add an additional burden to the ultimate consumer through the medium of taxing public service corporations. If that is what you are after, if that is what the ultimate consumers will probably stand for, without too much kicking, why then this scheme is probably the best that has ever been suggested, but I suspect the ultimate consumer is going to do some kicking before he gets through with it.

A DELEGATE: What good is it going to do him?

MR. BUELL: They will probably abolish the whole thing before they get through with it. The ultimate consumer is the final arbiter in the matter. They have the votes, and it is only a question of when he becomes sufficiently intelligent that he will be master of anything he has a mind to.

CAPTAIN W. P. WHITE: You mean sufficiently misinformed.

MR. BUELL: No, intelligent. In Minnesota we have the gross earnings tax on railroads. The farmers put it over. If the farmers had to do it today, they would not put it over. Now, so much for that. Your whole scheme is a scheme of putting additional tax on the consumer or the original producer. In Minnesota the farmer gets it both ways. He is raising crops that he must put into the terminal market and consequently he must pay the tax necessary to get his product into the terminal market. As an ultimate consumer he must pay the tax that comes back on him when he buys the stuff with the money that he gets from his product.

CAPTAIN WHITE: Why shouldn't he?

MR. BUELL: Why should he? He is paying a tax on everything he has in the world now.

CAPTAIN WHITE: So is everybody else.

MR. BUELL: No, sir, you are wrong, sir.

CAPTAIN WHITE: You are misinformed in that matter, that is all. MR. BUELL: We have one concern in the City of Minneapolis that is collecting two hundred and twenty thousand dollars a year ground rent for the use of a little piece of land over here and not paying one cent of tax to anybody anywhere in Minnesota; so you have to amend your proposition. There is just one other point in that connection. When your public utility becomes publicly owned, which is more or less in the future, probably for some public utilities in the very near future, and for some in the remote future, then you are going to be confronted with the question of not get ting any taxes at all out of them. That is another question that the committee will probably have to consider before they get through. That is all I care to bring out, those two points.

MR. TOBIN: I was not permitted to finish what I started to say. I wanted to bring back to the attention of the committee the necessity of inquiring into the taxation of publicly owned utilities in conjunction with this question. Now, we have a water company that extends through various taxing districts, and it not only supplies water to one particular city or village, but it also supplies water to other cities and villages, and there is a gradual encroachment of these utilities into the private field, and I believe it is quite proper that the question of the taxation of those utilities which are in competition with the privately owned utilities should be taken up and considered by this committee.

CHAIRMAN HAUGEN: Let the committee take that into consideration when they sit again. We better not drift off into the question of a single tax, because we know that is interminable. Mr. Alexander of the Boston & Maine Railroad is present with us. He has the floor.

MR. T. ALEXANDER: I have some temerity about expressing my opinion about the report which Mr. Davenport and Professor Fairchild and the other members of the committee have brought in. Nevertheless I do want to say that it seems to me as though the report certainly was making an effort towards progress in the right direction. I am not saying that with reference to the gross earnings part of the report. I am referring to the fact that the report does distinctly affirm and recognize that public utility corporations are creatures for the purpose of making profits, not necessarily profits for stockholders, but profits for the communities which they serve. And that is indicated by the fact that perhaps for the first time has a body of this sort brought in a report which has received any recognition-that is, so far as I know, I may be in error -which even attempts to recognize the principle of the taxation of public utilities upon a net earnings basis.

Now, at Bretton Woods I took the ground in a few remarks which I made to this body that net earnings or income, one or the other, or at least a recognition of the necessity of net earnings as a basis for taxation, must be considered in any legitimate and adequate and equitable form of taxation, and I think I stirred up some opposition amongst some few tax administrators who were perhaps wedded to the ad valorem or some other theory. I think Professor Fairchild perhaps at that time made some remarks to the effect that the gross earnings basis was the only basis which in his opinion was proper at that time. I am glad that he has progressed since then. Now, I do want to say a few words about this question of gross earnings-net earnings proposition being injected into taxation.

In the first place, I don't like the term "gross earnings-net earnings" as a term for a form of tax. I don't like this proposition of mixing the gross earnings with net earnings as a form of a tax to be adopted by this association. In the first place, I cannot see why there should be any necessity for the consideration of gross earnings in a public utilities tax. I am perfectly aware that you gentlemen who are administrative officials say that the practical necessities of the states require some income from public utility corporations, whether they are making any net earnings or any money or not. Granted. Anybody will admit that the state has to live, and I don't think that any intelligent public utility or railroad attorney or accountant or officer would claim at the present time, with the state taxes as they are, that the state should not receive some revenue even from a utility or a railroad or other corporation which was not making any net earnings. But why is it necessary to base your payment to the state for the privilege of existing, if you please, upon gross earnings? Where is there any equity in that? This is the result, that you are basing your tax on gross earnings as a purely arbitrary proposition, and it must work a great deal of inequity. Take, for instance, in 1920 in Maine, which has the gross earnings tax, the Bangor & Aroostock railroad made far less gross earnings than the Boston & Maine did. The Boston & Maine railroad made very much greater gross earnings, yet the loss of the Boston & Maine was much greater and still we paid a tax three or four times greater than the Bangor & Aroostock upon the gross earnings. So in this case, say you have one per cent as a minimum on gross earnings. In the case where two corporations are losing, that corporation which loses the most, because it has to have the greatest amount of business, would necessarily pay the greatest tax, and that seems to me entirely inequitable, and I cannot see the necessity for it, because you could have a definite minimum to. be paid to the state as a part of your net earnings tax without reference to gross earnings, which would be far more equitable to my mind. I thank you.