EIGHTH SESSION

THURSDAY MORNING, SEPTEMBER 21, 1922

CHAIRMAN LORD: The conference will be in order.

There are

several resolutions which the authors desire to have read and referred to the resolutions committee.

(Reading of resolutions)

Are there any local announcements, Mr. Moffett?

MR. C. T. MOFFETT: Yes, Mr. Chairman. At 12:15 today, at Donaldson's Tea Room, the Minneapolis real estate board invites you all to be their guests. That will follow just after the close of this session. I should like to have a show of hands of those who will attend.

CHAIRMAN LORD: I hope there will be a full attendance.

ROBERT MURRAY HAIG: In view of the fact that a rule has been adopted by the conference to the effect that resolutions should be referred to the committee by this evening, in spite of the fact that the session which is to be devoted to public expenditures is not slated until tomorrow morning, it has seemed desirable to some who are particularly interested in this program of public expenditures, that it might be well at this time to offer a resolution, to be referred to the resolutions committee, providing for the establishment of a committee of the association to study the problem of public expenditures.

The desirability of this action is somewhat accentuated by the fact that there are at work in this field already several bodies. which are making a study of the problem, and who have asked the cooperation of this association in their labors. Particularly I have in mind the efforts that are being made in the field of public school finance by an organization known as the educational finance inquiry. Informal cooperation has already been brought about with a number of the members of the association, but it is desired to establish some more formal relationship.

I therefore offer this resolution which I suppose will be referred in the regular way to the resolutions committee.

(Resolution read by Mr. Haig)

CHAIRMAN LORD: The resolution will be received and referred

to the committee on resolutions. I know of no one in the United States who has done more in a constructive way in the cause of tax reform than Professor Bullock of Harvard University, and I am going to call on him to preside at this session of the conference-Dr. Bullock.

CHARLES J. BULLOCK presiding. Members of the tax association, ladies and gentlemen: We have no formal program this morning, and until I arrived in town I did not know that I was to preside at this session. In view of all the conditions that have developed, it seems to me that it will perhaps be wise to conduct this session as a round table. That means that after calling upon a few speakers, to discuss, rather briefly, some aspects of these subjects that are listed as the subjects for the morning, we shall throw the meeting open to general discussion and questions.

Of course, it is evident to you that the subjects here listed relate more or less closely to the plan for a model system of state and local taxation, recommended by the committee appointed by this association. As the chairman of that committee I should like to make one or two introductory statements before the discussion begins.

The first is, that we did not take up that plan of a model system of state and local taxation until this association was nine years old, and was entering upon its tenth year, and until there developed among the members a very well-defined demand that the association do something to give articulate expression to the ideas. of income and classified property and business taxation, and per haps other things that had been engaging our attention at nine successive conferences.

The committee did not seek this job; the officers of the association did not propose to appoint the committee; it was appointed in response to a spontaneous demand developed at the Indianapolis conference in 1916, that something be done to bring to a head all these things that we have been discussing year after year at our annual meetings.

In the next place the committee when appointed did not undertake to commit the association or commit any member, to the result of its deliberations. All we did was to print and circulate a tentative plan, which you have had before you as a subject of discussion at successive conferences. That plan was printed in the winter or early spring of 1919, and considered at the Chicago conference.

In 1920 there came another demand, at this time from state officials, whose legislatures were going to meet in the following winter, for drafts of bills carrying out the suggestions made by the committee about personal income taxes and business income taxes, and therefore this committee, in the fall of 1920, held another pro

longed session and drew up and submitted to you a couple of bills. Those bills again were tentative; they were imperfect in various details; the committee did not know enough for the job. We spent a week at Buckhill Falls. There were men from all parts of the country; and we really did not get through with all the many details that had to be threshed out. We got through the important things, and then had to refer a good many details to a sub-committee that met later in New York and put us under great obligations, by getting these bills into final form.

Now, no member of the committee regards the report and the bills as necessarily a final expression of opinion. The work has been educational, as to both the members of the committee and the members of the association. Our minds have been open, and we have received during the two or three years that have passed numerous helpful suggestions, and this year in particular we have a number of helpful suggestions along the lines covered by the report.

This session of the conference will perhaps develop more fully than any we have yet had the state of mind of the members of the association, and it may prove desirable some time this winter or coming spring, before the next meeting is held, to reconvene the committee and see what changes, if any, they desire to make in these proposed bills. I make this statement in order that you may see that so far as the committee is concerned, the work of studying these problems is still going on, and that the members of the committee have no pride of authorship in anything they have published in their model report, or in their proposed income tax laws, and that they are anxious to get a general expression of opinion from all who are interested in the subject. We hope that the meeting this morning will conduce to that end.

Before throwing the meeting open to the discussion of any question, I am going to call on a few gentlemen who are in the thick of the work of administering income or classified property taxes in various states, to tell us something about the present workings of those taxes in their states, and I am going to begin first with a group of income tax states, namely, Wisconsin, New York and Massachusetts; states that have tackled this income tax proposition more seriously perhaps than any others, and have been willing to spend the money necessary to secure real administration of their income taxes.

I am going to call first upon Mr. Atwood of Wisconsin, if he is in the room, and ask him to tell us something about the Wisconsin income tax. Is Mr. Atwood present?

JUDGE ROSA of Wisconsin: Mr. Chairman, Mr. Atwood is not here.

CHAIRMAN BULLOCK: Will Mr. Strader either tell us something about the tax or suggest somebody else from Wisconsin who can.

FRANK D. STRADER of Wisconsin: Mr. Chairman, and members of the conference, ladies and gentlemen: I have been engaged by the Wisconsin tax commission since about the middle of the year 1918 in assisting in the administration of the corporation income tax law of the State of Wisconsin. I assume that the great majority of the members of this association are familiar with the Wisconsin income tax law. It does not vary in very many essentials from the model income tax law. We tax corporations and partnerships as well as individuals.

The corporation income tax law is directly under the supervision of the tax commission, and all corporation returns are filed with the commission. The personal income tax and the tax on fiduciaries and partners is under the direct supervision of forty-one assessors of incomes, who are located in the various districts and who audit the returns of individuals, partners and fiduciaries, and enter the assessments on the rolls.

The corporation returns are audited in the main office at Madison, where the assessments are made, and the tax commission makes up the assessment rolls. Both the corporation and the individual rolls are certified to the different county clerks, who in turn pass the rolls on to the local treasurers where the tax is collected. Under our system the assessment is made by the tax commission or its representatives, and the tax is collected by the local treasurers. In putting this law into effect it was not necessary to add any additional machinery for the collection of the tax. On the whole, that plan has worked out very satisfactorily.

I imagine that you are interested particularly in the problems we have to meet and how we meet them.

Professor Adams yesterday pointed out some of the difficulties of the income tax law, and I can say that one of the great problems confronting us is the valuation of property in figuring the profit or loss on the sale of the capital assets. We have to go back to January 1, 1911, and after a period of ten years has elapsed, it is interesting to note how the valuation of property from that time has increased. I would suggest that any state that is going to enact an income tax law should spend considerable time in tabulating valuations, so that as the years go by, and this question of fixing the value of property at any date becomes important, you will have the data upon which you can go back and determine what property was worth at that time.

This problem also comes up in the administration of the federal income tax law, and we are helped a little bit by the fact that January 1, 1911, and March 1, 1913, were so near together, and in some instances at least the government accepts our valuations, if

we have valued the property first, or we accept the government's valuations, because there was no very great difference in the value of property on those two dates. You can easily see that a question that is open to difference of opinion like that will necessarily cause considerable confusion and a whole lot of difficulty, although we meet it fairly satisfactorily, and both the commission and the taxpayer are satisfied with the valuations that we finally determine.

But if, when an income tax law is passed, the state would immediately proceed to collect data with reference to the value of farm lands, with reference to the values of plants and fixed assets in the different parts of the state, and have them tabulated, it would save a great deal of unnecessary work in years to come, when it becomes necessary to fix a value on that property.

Another phase of the law that is open to difference of opinion is the matter of depreciation and depletion and obsolescence. When the Wisconsin income tax law was passed, we had very little to guide us. The federal excise law had been in operation only a year or two, and the matter of depreciation had not at that time been given consideration, at least not the consideration that it has been given since.

The Wisconsin tax commission called upon the engineers of our railroad commission to recommend rates for depreciation of fixed assets, and the tax commission at that time published circulars recommending certain rates as the maximum. We have found that practically everybody thought that he was entitled to the maximum rates, and in recommending as a maximum rate ten per cent on machinery, where there was a classification of that machinery, we have found that in ten years a great many concerns have practically written off their machinery and still have plants one hundred per cent efficient, which of course shows that the rate of depreciation used was much too high. We are now engaged in revising the returns of some corporations for a few years back, and adjusting depreciation to a reasonable basis.

The question of depletion of mines also causes a lot of work. We have some lead mines, as you know, in the southwestern part of Wisconsin; we have a few iron mines up in the Lake Superior region; we have large gravel industries in the state, since our program of road-building has become extended, and naturally. every year these questions of depletion come up, and that of course requires us to go back, where the property was owned before 1911, and fix a valuation at that time.

On all the old properties we have these matters pretty well worked out now, but the question of depletion of course comes up where every new gravel pit is opened, or where new mines are opened up.

Another point that we have to face every year is to determine