interest. Is it intended that interest should be paid or not? This should be definitely stated. In my opinion, if the overpayment was due to erroneous rulings on the part of the tax commission, interest should be allowed at a stated rate; but if the overpayment was due to negligence on the part of the taxpayer, he should not be allowed interest.

Sec. 502. The last sentence is dangerous. "No tax amounting to less than one dollar shall be assessed." This might be a good rule for the tax commission to adopt for its internal management, but it would be poor policy to publish it as part of the statute— many taxpayers would deliberately make errors of ninety-nine cents in their own favor.

Sec. 600, Pars. 1 and 2. These paragraphs should also provide penalties for partnerships and persons required to file information returns under sec. 402, who fail to file returns as required. Nothing in the statute now covers them unless fraudulent intent is provable, except the practically useless provision of sec. 600, par. 5 (see note thereon).

Sec. 600, Par. 4. Too cumbersome. Sec. 600, par 9 is much better and would always be used instead. This seems to conflict and wou'd be much better omitted.

Sec. 600, Par. 5. We have this provision in the New York law, and it is too cumbersome to be useful. It leaves the fixing of the penalty to a jury, and its collection to the sheriff. Bear in mind that this penalty is for non-fraudulent failure to act. Fraudulent acts are otherwise provided for. It would be much better to make the maximum lower and allow the tax commission to assess it, without recourse to the courts. I suggest "Any person who, without fraudulent intent, shall fail, etc., . . shall be liable to a penalty, in addition to all other taxes, interest and penalties provided for by this act, of not more than one hundred dollars, to be assessed by the tax commission and collected in the same manntr as an additional tax found due under section 502." This would give the tax commission a really practical method of enforcing the requirements of the law.

But a penalty of $100 would be insufficient in case of a large partnership or an employer of thousands of taxpayers who failed to file information returns under sec. 402, so sec. 600, pars. 1 and 2 should also be amended.

Sec. 701. Power to review should be limited to appellate courts. If every county court can review, there will be great conflict of rulings. Why not provide for the same kind of review as is allowed on appeal from a trial court-the tax commission, being expert, is more likely to be right in the first instance than a county or circuit judge.

Sec. 801. The tax commission should be specifically empowered

to delegate the right to require the attendance of witnesses, take testimony, etc., or it might be held under the rule of delegatus non potest delegare that only the commission itself could do these things. The agent who examines books should also be allowed to examine witnesses.

Sec. 805. What constitutes a proper judicial order? Does a subpoena in a divorce case constitute one? Or is it intended that returns shall only be produced in proceedings arising under the income tax law itself? Does this prevent the commission from furnishing a copy of a return to the taxpayer who made it, or to his executor? Much trouble can be saved by settling these questions in advance. We had to amend the New York law to avoid litigation on these points.

Sec. 901. In exempting intangible personalty look out for your bank stock tax under the Richmond bank case.

THE BUSINESS INCOME TAX

I believe that the comments above made on the personal income tax act apply equally to the corresponding sections of the business income tax act, as far as the following sections are concerned:

Business Tax Act, Sec. 503. We have experienced considerable difficulty in New York in collecting assessments against nonresidents. Jurisdiction to levy the tax is dependent on jurisdiction to enforce it, and the Supreme Court of the United States has indicated the right of a state to enforce such a tax by arrest of the person (Shaffer v. Carter, 252 U. S. 36, at 49). It is doubtful whether a tax on the right to do business can be executed, in the

case of a non-resident, against property within the state which is not connected with the business; and obviously property without the state cannot be reached. I suggest a provision for bodyexecution in the case of non-residents; this would not necessarily be unconstitutionally discriminatory, any more than are provisions for writs of attachment.

I suggest the renumbering of the sections in the two acts so that corresponding provisions will have exactly corresponding numbers. It makes little difference if a number has to be skipped here and there, but endless confusion is likely to arise if identical passages have one number in one act and a different one in the other. When amendments are made by eliminating old sections or adding new ones, renumbering should be avoided-the old numbers of repealed sections should just be dropped and new sections should be given new numbers (using letters or fractions), thus avoiding the necessity of referring to section 1006, formerly 1004" or section 1006, which was 1004 when Jones v. Smith was decided."

CHAIRMAN BULLOCK: I might say, perhaps, that Mr. Ivins has submitted to us a number of helpful suggestions and criticisms. and I know we are all greatly indebted to him and are glad to give him leave to insert them in the minutes.

Time is short. May I ask the gentlemen to keep their seats, in order that we may proceed without interruption. There will be time after the adjournment to get these copies. Now, I want to call on Mr. Shaw, of Massachusetts. Is Mr. Shaw in the room?

I. L. SHAW of Massachusetts: Mr. Chairman, and members of the conference: The Commonwealth of Massachusetts is now completing its sixth year of administration of the personal income tax law. This law, however, is not, as the federal and New York laws are, and as I think Wisconsin is, in any sense a general income tax law. It is rather a series of special income tax laws, or perhaps we might call it a classified income tax law. Instead of having a rising scale of rates, Massachusetts adopted the scheme of a different rate upon different classes of income. For instance, the income of the productive worker-business income, income from professional employment, trade or business-is only taxed 12%; income from investments, where the individual simply holds and cuts the coupons from his bonds or receives the dividends from his stocks, is taxed at 6%. Throughout the state the rate is the same on everybody, whether he has a few dollars or a great many dollars. There is, of course, the usual minimum of income from business which goes without tax in our state. We really had an income tax long before anyone else—on the books at least a remnant of the old colonial faculty tax, and we have been taxing income from trade or business under the general property tax law for many years.

The income tax which went into effect January 1, 1917, was not intended as a cure-all for all the tax ills that would ever arise thereafter. It was really a substitute for the general property tax, which worked so very inequitably on intangibles. Certain localities were favored with an influx of wealth, simply because their rate was low, and one little town down on the Cape might have declared a dividend instead of having a tax rate, if it had not been for the income tax law stepping in to change the system. People moved from the cities and high-rate towns to low-rate towns, thereby making the inequalities all the more inequitable; the high rates went higher, and the low rates went lower, because of the changes in domicile, technically or otherwise. I probably ought not to attempt any advice, but since Massachusetts was the second state to enact an income tax law, which has been working for six years, perhaps it won't be out of place to make a few suggestions. For instance, centralization of administration is almost an absolute necessity. It is difficult enough under our scheme to keep the deputies in the Berkshire Hills working on the same basis as the deputies on Cape Cod, and they are not so very far apart, as you measure distance here in the West, so that I assume it to be axiomatic that an income tax, without centralized administration, is pretty sure to get into trouble. I think probably the greatest danger to the success of income taxes, as I see it at least, is the danger of the insidious nibbling away at the cheese by certain interests attempting to secure, as Mr. Ivins has suggested, special deductions for their peculiar cases, thereby undermining the tax and getting the public to feel that the tax after all is no better than the old general property tax, with all its inequalities, due to the differences in administration.

I may cite just one example. One tax, as I say, is a graded business income tax at one rate, and all the deductions and exemptions are confined to that rate and to that class of business income; interests and dividends are taxed at another rate. There are deductions for losses from sales of property, or any of that sort of thing in connection with income from interest and dividends, or the holding of securities, unless it is in the course of business. The interest and dividends received are always taxed at 6%, or should be, because the constitutional amendment requires that all income of a given class must be taxed at the same rate.

Now, in Massachusetts, and particularly in Boston, we were right up against it on that proposition, because our pawnbrokers were not permitted any deduction for their overhead expenses from the interest that they receive from loans; there was no provision for any deduction from the interest, and dividend class of income, for overhead or any other expense, so they came to the legislature with a proposition. First they went to the courts and the courts.

told them that the law was as is, and that interest must be taxed as interest. They said, "This is our business and it ought to be taxed as business income "; but the court said, "Notwithstanding it is your business, it is interest and it must be taxed at the interest rate, otherwise it is unconstitutional."

They did have a real grievance, because they were being taxed not only on their interest received at the high rate of 6% and got no deduction, but on top of that they had to pay a tax to the local authorities on the pledges held for the loans. After considerable discussion it seemed to be a place where a little equity ought to be dealt out, and the legislature finally agreed to provide that the interest received by persons in the business of loaning money on the pawn or pledge of tangible personal property should be taxed at the business rate, 12%, and not at the 6% rate. That was the opening wedge. Next came the cotton and wool brokers, who buy their goods of the growers and sell them to the mills on bills of lading, and they said, "We come in this class also, you cannot tax us on this interest that we charge the growers, when we advance 75% or 60% of the price of the goods, before we have sold it; this advance is secured by the bill of lading; this is a pawn or pledge of tangible personal property." Well, there is an argument there. no doubt. Up to the present time, however, no case has gone to the courts. We have constantly ruled against it wherever we have found it done. It is probable that a case may go to the courts. It is probable that the courts will uphold the position the commission has taken, but if the courts don't, there is another place where a little tinkering must be done with the statute, which ought, in my opinion, to have been done in another way.

On these same lines, last winter there was presented a bill by the bankers and brokers urging that the legislature put their interest in the class of business income, because they said, "This is a charge for service we perform in looking up the reliability of somebody, and so forth, and we ought not to pay at the high rate of 6% on our interest." Fortunately, we had an exceptionally good tax committee, with an exceptionally good senate chairmana good, clean, deep thinker who saw the whole problem, instead of just one or two items as sometimes happens, and that bill was not passed, but if it had, how long would it have been before the people would have been getting the idea-this socialistic idea-that favoritism was being shown to certain classes all the while, and there was no hope for the poor. This is just one example of what I mean by insidious nibbling at the cheese, undermining the strength of the law.

CHAIRMAN BULLOCK: The gentleman has two minutes more.

MR. SHAW: In conclusion, I should like to say that the Massa