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MR. EDWARD P. DOYLE of New York: I want to satisfy my friend here in the convention as to the attitude of the ultimate consumer on any proposition that might seem to accord reasonable treatment to public utility companies. A friend of mine went into a saloon in New York-almost obsolete now-to get a cigar. There were three longshoremen at the bar. One of them said to the others, isn't it a rotten proposition that we have to pay six cents fare in the subway?" And the others agreed that it was, and then they turned around and paid four and one-half dollars for three rounds of drinks.

CHAIRMAN HAUGEN: The question we should like to discuss here more particularly is the question of allocation to the different states of the value of the public utility after its valuation has been found as a unit. Now, the chair suggests that there may be a number of members of the association who have something to say on that question, and let us confine the discussion for a few minutes at least to that question which was invited by the committee.

PROFESSOR FRED R. FAIRCHILD: That is just the question I wish to bring more specifically to your attention. I think all members of the committee feel somewhat ashamed that we have had to come before you today without anything to report on the subject of apportionment. That was the original problem that was set before us. We felt that it would be a case of the tail wagging the dog to study apportionment without first investigating the whole subject, and now, after considering the whole thing a year, after you gave us the dog to play with, that animal has grown .so large that he seems to have wagged the tail off entirely, and we come today without any report whatever on apportionment. It would be a great help if we could have right here some suggestions from those members who are practically engaged in the business of apportionment. I was glad to hear from Mr. Alexander, and I am sure that there are other men here who are directly connected with the railroads and other utilities, on this matter of interstate apportionment. Now, the problem can be boiled down, I think, to this: I have always supposed for the last eight or ten years, in particular since we overhauled our public utility taxes in Connecticut, that the most equitable way to handle the matter of apportionment was to select some simple, even arbitrary, criteria, which would apply to each particular class of corporations, for instance, the all-track mileage basis as a means of apportioning the earnings or property of railroad corporations; miles of wire for telegraph companies and long-distance telephone companies; the number of instruments or stations for operating exchange telephone companies, and so on. All of those were adopted by the Connecticut legislature in 1913 and 1915, and appear to have worked with very general satisfaction up to the present time.

Now, the advantages of those methods are their extreme simplicity, the fact that there cannot be any argument or question about the apportionment. After once determining the unit value or the unit total gross or net earnings, whatever it may be, the apportionment is a mere matter of calculation which anybody can perform, having once gotten the facts. The disadvantage, of course, of that method is that it is more or less arbitrary; it is a rough-andready rule of thumb. The more precise method would, of course, take care of every shipment of freight, every passenger ticket, and allocate to the several states just exactly the part to be assigned on each of these transactions.

Now, I was under the impression that the complications and the enormous labor of applying that sort of more refined and exact apportionment made the method rather out of the question, but recently things have been brought to my attention that have tended a little bit to shake my faith in my earlier position; and that I think really is the question that confronted the committee in its last periods of discussion, whether or not we should direct our attention toward a simple but arbitrary rule-of-thumb method of apportionment, selecting that which best applies to each class of corporations, or whether it is possible and desirable to try to seek a more refined, precise method, at the risk of a very considerable degree of complication. Now, I think the people best qualified to answer that question are the taxing officials who have this thing actually to administer in certain of the states, and perhaps even better qualified, the members of the public utilities who have to pay the taxes and deal with the matter of apportionment. I think, Mr. Chairman, if some of those gentlemen could tell of their experience, it would be a great help to all of us.

CHAIRMAN HAUGEN: Mr. Lyons, chairman of the Wisconsin tax commission, I see, is in the room. I will call on him.

MR. THOMAS E. LYONS of Wisconsin: I hadn't thought of discussing that particular question. I do want to say a word on the report, which is the only recommendation before us. I join with the members of the conference in acknowledging the thoroughness and excellence of the result. I was brought up with some faith in the ad valorem system and am inclined to favor that rather than gross earnings or net earnings, for some of the reasons stated, but among others, as to the difficulty of determining just what rate will equate the tax upon utilities with the tax upon other forms of property, and who shall determine that rate. Now, the committee in terms did not cover that point. It was referred to, but it was left open, and it seems to me there is the crux of the whole matter, who shall determine the rate which will equate the burden of the utilities in the same degree and to the same extent as other prop

erties and how shall it be done? If left to the legislature, which is the common thing, it is a mass meeting disposition, influenced by prejudice, caprice, ignorance and several other things; and if it is left to the commission, as I believe it should be, if you adopt that thing at all, it would be based on considerations which they now have before them in assessing on the ad valorem basis. I regard that pretty near the crux of determining whether or not a gross earnings or net earnings tax shall be the basis of a utility tax system, or whether it shall be the ad valorem system. Now, I want to point out that these two terms, that is, the earnings and the ad valorem bases, are not inconsistent in their nature, that everywhere in the valuation of all classes of property, earnings is a proper element, preferably net earnings, of course-that element is in fact used in determining the assessment under ad valorem laws-so that these two considerations are not exclusive; and, as the chairman very well knows, earnings are not only considered in the assessment of utilities in Wisconsin and in several other states, but they are the major consideration in arriving at the value.

Now, on the basis of apportionment, I shall detain you but a moment; all I wish to do is to explain that instead of adopting a single system in Wisconsin, where the ad valorem system has been in effect for many years, where apportionment is necessary, we have used several elements. The all-track mileage is a rough-andready test, as Professor Fairchild says, and as a single one possibly as good as any other, but it is not at all uncommon to have the mileage in one state, South Dakota, for instance, very much less profitable than in Iowa, and when you come to determine the value of an interstate road extending into both of these states, the all-track mileage would be to my mind quite a defective test. Perhaps the defect would be more pronounced between Iowa and Arizona or Nevada, states where the mileage is long and the traffic light, except as to interstate traffic. The mileage test would not be a fair index of the value for the portion of the tax which should be paid to these two jurisdictions. Therefore, we have added the gross earnings as well, which is neither accurate nor complete in itself, but we have put the two factors together. We have also added the net earnings in the different states. And then there is one other factor-car mileage-which in the amount of actual service rendered is as safe as any of the others, so our apportionment is made by a combination of these different elements in the case of railroads. I will not take the time or attempt to discuss here at length, or give the reasons why they are significant in the formula, but they are all used, and for one reason or another we have not had a great deal of difficulty with the railroads or utilities in making these apportionments.

CHAIRMAN HAUGEN: I should like to add a word to what Mr.

Lyons said. There has been another element taken into consideration, I think, in the last two or three assessments in Wisconsin, which I think is quite important, and that is the ton and passenger mileage in the different states. By using these combinations and applying them to the unit value of the entire property, we have been enabled to assign to each state its proportion and account for the total valuation. Secretary Holcomb wishes to say a few words.

SECRETARY HOLCOMB: Mr. Chairman and gentlemen, I dislike to inject myself so much into this meeting, as I have to. This matter here is something that touches me in my own private practice, so that I want to say a few words. As I understand it, the committee has rather limited the discussion at the present time for a few moments to the question of apportionment. I understood that the whole report of the committee was before the conference. I am very anxious to have everybody talk about the full report, but, of course, I remember that when this committee was organized it was organized with the distinct purpose of taking care of interstate properties, and that was done for a reason which does not appear to have been suggested here. It was not so much for the reason that we wanted to be absolutely accurate, but it was to avoid duplicate taxation. That is a little different slant, you see. If you can get an interstate agreement as to apportionment, the precision and nicety of the thing are not so prominent in a country-wide property, if you are thus able to eliminate the taxation of the same property in two states. That is the whole problem in apportionment, and that renders the matter of apportionment somewhat more simple.

Now, apportionment has two angles. One is apportionment between states, and the other is apportionment between localities within the state. Those two elements are very greatly confused, as I look at it, in my consideration of the matter; one is wholly distinct from the other. The matter of interstate apportionment is what we are considering. The matter of apportionment as between localities in a state is a totally distinct thing, which to my mind ought not to be the concern of the utility company. It is a matter within the province of the states, how they shall apportion the taxes that they receive from a state-wide utility. We start with the assumption that we are dealing with a state-wide utility, that would exclude small utilities, trolleys which are located in a single city but which are not of a state-wide character. The assumption is that the reason for avoiding complications is because the ad valorem system is complicated and not because it is unreasonable or unjust. If we assume that, then we must assume that the yield of the tax on the earnings, if that be the method, is a matter that is not the concern of the utility. In my consideration of the matter for a good many years, as you remember, I have always suggested

that the yield be apportioned on some basis, such as school enumeration or something which would give it a wide distribution, in conformity with the original assumption that it was a state-wide affair and did not belong to any particular locality. So much for the apportionment in its general principles.

In its details I should agree with Mr. Lyons. If possible, a combination of two or three factors should be applied, because in dealing with those matters, the more factors you can bring to the problem, the better equality will result. One inequality washes out the other. So, in the particular utility with which I am concerned, I have advocated the combination of stations, operated wire mileage, and gross receipts, and testing out a composite of those three, it has not reached a very bad result. Of course I am only familiar with the dealings I have had with state officials, who have applied it as in Minnesota. It so happens that I recently had an interview with the public examiner of this state, or his agent, They have a terrific time attempting to pro-rate the individual shipments. You can imagine what it means with a shipment running through the state and running from the state out of the state, and running from out of the state into the state, to attempt to localize and segregate the individual receipts, a stupendous undertaking; and I got the impression from this individual that it really resulted in a great many arbitrary assumptions. If you once admit those assumptions, your conclusions follow, but I don't see that it gets anywhere near the accuracy that is implied in the process, so that it would seem to me better to use some simpler method, even at the expense of going through a process which looks very accurate but in fact is not.

The essentials of this problem, as I look at it, are that if we assume a gross earnings tax, which I am committed to, by the remarks I made in 1911, and which recent events have shown me to be sound-I don't think in all my experience of a great many years that I have seen the fallacies of the ad valorem system so pronounced and so plain as they have been shown to me to be this year as I say, if we assume you have a gross earnings-net earnings tax, then your problem is as Mr. Lyons suggested, with what property shall you make comparison? That stands at the threshold of the inquiry, and I don't know what the solution is of that problem. We have been accustomed to saying that equality arises when you tax the railroad on the same basis as a farm, but for my part I see no relation between the character of the property represented by land under private ownership and under non-regulation and between rails and ties put together in the form of the business of a regulated utiilty. There seems to be no relation, no common ground between them, so that you have to take an arbitrary stand, and you have to equate the problem by considering the utility with

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