understood. The matter of capital surplus and undivided profits, of course, was mentioned in the course of the review, but it was promptly dropped, because the law is mandatory. The result of that is-I believe in being fair to both sides to a controversy-the result of that is that there is and has been for several years a sincere feeling on the part of some of our bankers that there is a discrimination between the arbitrary 80% listing to which I have referred and the actual listing of local assessors of other classes of property. In that connection, however, I wish to be understood as expressing no personal opinion; I am merely stating to you the feeling and the facts.

The result of that situation, as it relates to the Richmond decision, is this: The average rate of taxation on the capital surplus and undivided profits of banks in Iowa varies from, we will say, three to five per cent, as contrasted with your rates, Judge Leser. For example, in the city of Ames, our rate was 234.5 mills this year. Of course, you must bear in mind that the listing, as I have explained, is not at full value, and that we have the onequarter assessment value; and you must bear in mind also the 80% provision; but when you bear in mind that banks at Ames pay a rate of 4.6%-I am figuring the thing up in my mind, now-the result is that with the Richmond decision a very serious situation has arisen which I fear may result in the repeal of the flat rate on moneys and credits, which has been in operation since 1911, and which has greatly increased the listing of that class of property and increased the revenue. It is a very serious situation and it is in that connection that our legislative commission is considering the preparation of a bill for a personal income tax, to take the place of the present flat system, and to present it to the next general assembly.

CHAIRMAN BULLOCK: The gentleman has one minute more.

MR. BRINDLEY: Before I sit down I want to state that I am not passing any opinions on the merits of this case at all, but I am merely calling your attention to what, with the Richmond decision as it stands, with the rate as it stands, and with the flat rate of five mills, we are up against. How it will come out, I don't know. I personally am very strongly in favor of such an income tax as they have in either Wisconsin or New York, rather than our flat rate on credits, and it is needless to say our flat rate on credits is for obvious reasons infinitely superior to the old general property tax, which was impossible.

CHAIRMAN BULLOCK: I should like to say a word. If Auditor General Lewis of Pennsylvania is now in the room, I should like him to tell us very briefly something about the Pennsylvania situation with respect to the taxation of intangibles. We have not yet heard from Pennsylvania. Is Mr. Lewis still here?

SAMUEL S. LEWIS of Pennsylvania: Mr. Chairman, I just came in the room, so that I am not familiar with the subject under discussion.

CHAIRMAN BULLOCK: The matter of your four mill tax on personal property moneys and credits - and foreign corporation

stocks, and corporation bond issues, and so forth.

MR. LEWIS: As I stated before, I am not familiar with the particular subject under discussion, and our method of taxation in Pennsylvania is so different from that in any of the other states. that really I have hesitated even to enter into these discussions. I came here more to be a listener than anything else.

In the first place, we have no direct property tax in Pennsylvania, that is, for state purposes. Eighty-five per cent of our revenues for state purposes comes from corporations. We levy a capital stock tax on all corporations-both foreign and domestic. The tax is upon the value of the capital stock. The method of arriving at the value of capital stock is determined by an act of the assembly and is very elastic. The tax is five mills on the value of the capital stock, which can be ascertained in three different ways; the selling price of the stock; the capitalization of the net income, and by taking into consideration the assets and the liabilities and the value of the franchise.

I might say that in the capital stock tax the manufacturers are exempt from taxation on that part of their capital that is employed exclusively in manufacuring, whether it be a foreign corporation or a domestic corporation. We also have what is called a loans tax. We collect about fifteen millions- I did not anticipate being called on, so I am talking at random-we collect in the neighborhood of fifteen millions of dollars in the capital stock tax from our corporations. There are about 25,000 corporations which repor annually to the auditor general. They make a capital stock tax report, a loans tax report, a gross receipts tax report and a bonus tax report, so that in all the auditor general has to make in the neighborhood of 60,000 settlements in the corporation bureau alone. That is exclusive of the 120,000 reports from gasoline dealers, so you see he has no little task.

In the loans tax I can only skim over the work. The rate is four mills on obligations held by residents of Pennsylvania. The theory is that the treasurer of the corporation acts as the agent of the commonwealth, to deduct the taxes. From that source we collect in the neighborhood of about four and one-half million dollars. You can see that with a domestic corporation the commonwealth or the auditor general has control over the agent or the treasurer of the corporation, but with a foreign corporation, where the treasurer is a non-resident, we have no control, and the result is

that the commonwealth loses the tax on the obligations held by non-residents where the treasurer of the corporation is a nonresident.

We also have a tax on both domestic and foreign corporations, which is more in the nature of a license and bonus, which is onethird of one per cent on domestic corporations-one-third of one per cent of the actual capital stock issued. Foreign corporations file an initial bonus report and pay one-third of one per cent on the actual amount of money invested in Pennsylvania. Of course, that only includes the tangibles. Each year the foreign corporations are compelled to file a bonus report, if in the succeeding year, after having filed the initial report, they have a larger amount invested in tangible properties. We collect the difference in the way of bonus over the amount previously paid on.

We also have what we call the gross receipts tax. We collect several millions of dollars from the public utilities. They pay, as I said before, a capital stock tax; the bonus tax; the loans tax, and we collect eight mills from transportation companies on receipts. derived from transportation of freight and passengers; and also from telegraph and telephone and electric light companies.

We also have what some states call the sales tax. We have a mercantile tax that has been in operation in Pennsylvania for a period of at least twenty-five years. Retail merchants we tax at a flat rate of $2, and a mill on each dollar of their gross sales. Wholesalers we tax at a $3 flat rate and one-half mill on their gross sales. We have a gasoline tax, which is one cent a gallon on the gasoline sold, not for re-sale, and I would say to any of the states who are about to tax gasoline, don't mcdel it after the Pennsylvania act. The dealers are required to report monthly to the auditor general and to make affidavit to the reports. Now we have in the neighborhood of 20,000 gasoline dealers reporting to the general auditor's office every month, twelve months in the year, and that is 120,000 reports. Figured roughly, it is costing gasoline dealers $120,000 a year for notary fees. The fee is fixed at fifty cents, which amounts to $120,000 for the year.

We have what you no doubt have all heard of and read about in the newspapers, the anthracite coal tax, which is 12% on the price of the anthracite or hard coal at the mines. As I stated before, we have no direct state property tax. Practically all of our taxes are collected from corporations.

In addition to the above, it is incumbent upon the auditor general to collect what is called the transfer inheritance tax, which is a combination of the direct inheritance tax and the collateral inheritance tax. The direct inheritance tax is 2%; the collateral is 10%. Under our constitution we cannot allow any exemptions. We are now endeavoring to pass a constitutional amendment to

permit of exemptions. I shall be glad to answer any questions. I came here entirely unprepared to make an address; in fact, I felt that our system of taxation was so entirely different from other states that I did not want to get into the discussion.

CHAIRMAN BULLOCK: Gentlemen, it is twelve o'clock, and the hour for luncheon is set at 12:15. After presenting one matter of business, I shall then present to the session the question of whether they wish to continue or adjourn.

Mr. Holcomb has given me an interesting little article by Mr. Fertig, the assistant director of the legislative reference bureau at Harrisburg, about this Pennsylvania tax on intangibles. On the secretary's suggestion that it need not be read, but that it would be an instructive and helpful thing to have published in the volume of proceedings, is there any objection to receiving it and turning it over to our secretary for publication in the volume of proceedings? (No response)

CHAIRMAN BULLOCK: If there is no objection, I will not put the motion.

(The article referred to is as follows.-Ed.)

THE PENNSYLVANIA TAX ON INTANGIBLES

J. H. FERTIG

Assistant Director, Legislative Reference Bureau of Pennsylvania

Since the passage of the act of June 17, 1913, P. L. 507, most of the Pennsylvania tax on intangibles is devoted to county purposes, except in Philadelphia, where the county and city are co-extensive. Here the tax is a city tax.

The tax imposed is at the rate of four mills on each dollar of the value of the subject made taxable, and is payable by the person, partnership, association, company or corporation owning, holding or possessing the subject of taxation.

The following subjects are made taxable under the act:

(1) All mortgages, except (a) such as are issued by, or payment thereof assumed by, any private corporation, and (b) such as are owned in their own right by any private corporation, limited partnership or joint stock association. Mortgages coming within exception (a) are taxable for state purposes under the corporate loans tax. Those coming within exception (b) are considered assets of the corporation, etc., and are included in ascertaining the actual value of capital stock, when assessing the capital stock tax for state purposes.

(2) All moneys owing by solvent debtors, whether by promissory note, or penal or single bill, bond or judgment, except as excepted in (1), and except (c) bank notes, and (d) notes discounted or negotiated by banking institutions.

(3) All articles of agreement and accounts bearing interest, except as excepted in (1).

(4) All public loans except (a) those issued by the commonwealth, or the United States, and (b) those made taxable for state purposes. The public loans taxable for state purposes are such as are issued by municipal, school and poor districts, and counties of the commonwealth. The public loans taxable under this clause would be such as are issued by other states, territories and foreign governments or by municipal units thereof. The tax could not be imposed upon public loans owned in their own right by private corporations, limited partnerships and joint stock associations liable to a tax on capital stock.

(5) All loans issued by any domestic or foreign corporation, association, company or limited partnership, including car-trust securities and loans secured by bonds or any other evidences of indebtedness, whether the interest be included in the principal of the obligation or payable by the terms thereof, except (a) such loans as are made taxable for state purposes. The exception includes scrip, bonds, certificates and evidences of indebtedness issued or assumed by private domestic and foreign corporations. These loans are subject to the payment of the state tax on loans. The obligations taxable under the act would be such as are issued by domestic and foreign associations, limited partnerships and unincorporated companies, and by foreign corporations not doing business in Pennsylvania and having no office in Pennsylvania or resident treasurer from whom a state tax might be collected. The tax could not be imposed upon obligations owned in their own right by private corporations, limited partnerships and joint stock associations liable to a tax on their capital stock.

(6) All shares of stock in any domestic or foreign bank, corporation, association, company or limited partnership except banks, corporations, and limited partnerships (a) liable to a tax on capital stock, or (b) relieved from payment of tax on capital stock.

The effect of this clause is to make taxable shares of stock of foreign corporations, associations, companies and limited partnerships not doing business in Pennsylvania, but does not include shares of stock of foreign corporations, associations, companies and limited partnerships engaged in manufacturing or laundering. Companies engaged in manufacturing and laundering are relieved from tax on capital stock by express provision.

(7) All moneys loaned or invested in other states, territories and foreign countries. This would not include investments by private corporations, limited partnerships and joint stock associations liable to a state tax upon capital stock.

(8) All other moneyed capital in the hands of individual citizens of the state.