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A review of the respective provisions of these various laws is impossible in this paper, but reference is made to an article by the writer in the Bulletin of the National Tax Association, May 1922, on "The Severance Tax". In perhaps every state where this tax exists, it is levied expressly upon or for the privilege of carrying on certain business transactions, and in the absence of the iron-clad shackles of property taxation, great disparity in the ultimate burden results.

One of the most interesting and elaborate opinions in the literature of this branch of the law is that handed down by the court of common pleas of Dauphin County, on Feb. 1, 1922, in the Pennsylvania case of Heisler v. Thomas Colliery Co.,1 wherein the distinction between the businesses of mining anthracite and bituminous coal, as the basis for the legislative classification, is presented with great ability and convincing force.

The power of the state to distinguish, select and classify objects of taxation has a wide range of discretion, and in the Oklahoma test case on the gross production tax of that state the supreme court recognizes this legislative discretion, and asks the question (In re Wolverine Oil Co., 154 Pac. 362, 367):

"Is the present act, levying one rate of tax on oil and gas, and a lesser rate on ores bearing lead, zinc, jack, gold, silver, copper, or asphalt, and which omits a gross production tax on coal, in conflict with this rule? Clearly it is not. That mining property or the business of mining may be placed in a class by itself and taxed by some method peculiarly appropriate to that class is a valid exercise of a constitutional right on the part of the legislature, and needs the citation of no authorities in its support."

But the learned justice might have gone further and pointed out obvious characteristics, inherent in the mineral products selected, which afford sufficient bases for different treatment in the revenue law. For example, coal in situ is capable of comparatively easy admeasurement, and hence is better adapted than oil or gas to valuation under the general property tax system where it was permitted for practical convenience to remain. Likewise as to the ores of less frequent occurrence in Oklahoma and whose extraction is attended with greater hazard, a lower tax rate was applied, perhaps from considerations of a policy in taxation, which states may undoubtedly adopt.

The Kennedy bill, c. 148 of acts of 29th Leg., Tex. (1905) was construed by the court of civil appeals in 1907; Producers' Oil Co.

1 Affirmed by Pennsylvania supreme court, 118 Atl. 394, and by the United States Supreme Court, November 27, 1922.

v. Stephens, 44 Tex. Civ. Ap. 327; 99 S. W. 157. In defining the tax as an occupation rather than a property tax, the court said:

"In our opinion, the tax is not upon the gross products of the oil wells, but upon the occupation of owning, controlling, or managing oil wells producing oil; and the amount of tax is measured by a percentage of the market value of the gross products. . . . It does not constitute double taxation, not permitted by the law, as it is within the authority of the Legislature to impose an ad valorem tax on the oil-producing property of appellants, and an occupation tax for the use of this. property in the production of oil."

In this view the supreme court concurred, as evidenced by its refusal of a writ of error in that case, and by its express approval of the doctrine in deciding a few weeks later Texas Co. v. Stephens, 100 Tex. 628; 103 S. W. 481, wherein at page 629 it is said:

"The taxes in the act are levied because the persons specified are engaged in particular, defined businesses, and are laid upon the carrying on of those businesses. . . . Had the statute simply defined the businesses and imposed a tax of a fixed sum upon each, no one would have questioned that it was a tax upon the doing of the businesses; in other words, an occupation tax. The fact that the amount of the tax is to be determined in prescribed methods from the value, or extent, or magnitude of the businesses done, cannot convert it into an ad valorem tax upon the property of the persons conducting them."

On appeal to the Supreme Court of the United States of a companion case, challenging the validity of the law, the decision of the state supreme court (Southwestern Oil Co. v. State, 100 Tex. 647; 103 S. W. 489) was duly affirmed by the United States Supreme Court. Mr. Justice Harlan, in the opinion (217 U. S. 114, 120; 54 L. ed. 688; 30 S. C. 496) said:

"The tax in question is an occupation tax only. . . . The tax was imposed by the legislature, charged with the duty of providing the means necessary for the support of the state government. That branch of the state government alone could declare what taxes should be imposed and upon whom or unon what kinds of business imposed. . . .

But it is contended that the statute contravenes the Fourteenth Amendment. . . . This position is based mainly on the ground that the statute by imposing a tax on wholesale dealers in coal oil, naphtha, benzine, mineral oils refined from petroleum . . . while omitting to put any such tax whatever on wholesale dealers in other articles of merchandise-such, for

instance, as sugar, bacon, coal and iron-so discriminates against wholesale dealers in the several articles specified in §9 as to deny them the equal protection of the laws."

The value of mining property, according to a mining engineer of repute, is not to be estimated by the amount of the dividends it may be paying at any particular time, but by the number and present value of the dividends it may be able to pay in the future.

Dr. H. L. Smyth of the Harvard chair of mining and metallurgy, in American mining congress proceedings, 1913, p. 29. cites the Michigan experience as confirming the applicability of the general property tax. He says: "The fundamental trouble is the fact that the valuations of mining property made by local assessors are generally not made on any uniform basis and that these valuations cannot be equalized by the ordinary Boards of Equalization with the valuations of other forms of property in the state.”

Professor Smyth goes on to speak of the long experience in Michigan with specific taxes on the mining industry, beginning as early as 1853 with a tonnage tax of ten cents on iron ore, reduced in 1872 to three cents and in 1873 to one cent, and abandoned altogether in 1891; saying:

"We then went back to the ad valorem system with valuations made by the local assessor under the General Property Tax Law. Conditions are perhaps somewhat peculiar in Michigan because there is a great preponderance of mining property in the Upper Peninsula and of other forms of taxable property as well as of political power in the Lower Peninsula. This, together with exaggerated notions on the part of the ignorant as to the profits made in mining, inevitably led to the general belief that mining property was undervalued, and caused the Legislature in 1911 to give the State Board of Tax Commissioners authority to value all the mines of Michigan.


Acting for the Board, this valuation was made by Mr. Finlay of New York in the early summer of 1911. The principle and method of this valuation have provoked wide discussion.

"Mr. Finlay's principle was to capitalize the net profits expected on an annuity basis. He first determined the probable annual net profits and the probable life of the mine. Part of the annual net profits he treated as income. The capital sum which at five per cent would yield that income was the value of the mine. The division of the annual net profits into these two parts was made by a well-known algebraic procedure followed by actuaries in solving similar problems.

2 R. H. Stretch, Prospecting, Locating and Valuing Mines, 11th ed., 1909,

"In order to determine annual profits it is necessary to know the cost per ton, the selling price per ton, and the tonnage that will be annually produced. In order to know the life of the mine, it is also necessary to know the total tonnage that the mine will produce.

"These four factors are more or less matters of fact which are capable of being more or less closely approximated from past experience or by physical examination in the case of each mine. In addition, there are two other factors in the Finlay valuation, namely the rates of interest and these were assumed. "The general result of the Finlay valuation was greatly to increase the valuations of the iron mines. . . . The main criticism of the Finlay valuation has been directed against his assumption that a reasonable return on a mining investment is 5%. It is hardly necessary to say that this figure is absurd. . . .” The Michigan tax commission had taken some account of these criticisms, by making a general reduction of 10% and 5% from the Finlay total, also by raising the interest rate to 6%, but Prof. Smyth contends that the proper rate is not less than 10%. He adds in conclusion:

"An experience of three years has, I think, convinced the operators of Michigan that with due care in the determination of the factors the Finlay method is well adapted to determining the value of iron mining property, and that it will give more equitable results, not only as between the mines themselves but as between them and other forms of property, than any other."

The great merit from their point of view is that it affords a satisfactory method of keeping the mines under the general property tax law. The alternative is the tonnage tax, and to that they seem unalterably opposed.

Mr. R. C. Allen, state geologist, Lansing, Mich., in the proceedings of the 17th annual session of the American Mining Congress, said (pp. 35 et seq.), in referring to the report of the Committee on Mine Taxation (pp. 27 to 33):

"In Michigan the general property tax extends to mines, and we are required to assess mines on the full ad valorem value, which is defined in law as the exchange value or sale value.

"It has also resulted in a much better spirit between the mining interests and the rest of the people, because the publicity given to the methods of mine valuation has amounted to a campaign of education. To the farmer, for instance, has been brought some of the important facts concerning the min

ing industry; these have carried conviction that the industrial difficulties in the mining communities are of the same order as those which prevail among the farmers; and with this interchange of ideas there has grown up something like an era of good feeling.

"We do not believe that the ad valorem is a perfect tax, but it has more nearly met the conditions in Michigan than any other tax we have ever had, and we have had some experience with the specific tax.

"Mines are valued for purposes of sale; they are valued as a basis for expenditure in plant installation; they are valued as a basis for marketing of stocks and bonds, and for other commercial purposes. In fact the chief business of a great many expert professional men in this country is the rendering of these valuations.

"These experts will admit that they are quite competent to go out and examine a property, no matter what state of development it is in, and advise the client as to its value for purposes of investment. Then why refuse to recommend such valuation for purposes of taxation?

"Now, gentlemen, let us lay hold of this fact-whatever a property is worth for commercial purpose it is also worth for purposes of taxation. That is the underlying principle of the ad valorem system of mine taxation. The valuation of a mine for taxation is merely the best possible estimate of what that property is worth in the market in the condition in which it is found on the day of the appraisal. . . ."

10. Forests as natural resources

Our rapidly diminishing forests afford a peculiar example of the necessity for scientific classification of natural resources as subjects of taxation. The field, as a source of public funds, has been even less explored than mining. When we consider that it takes from 30 to 50 or 100 years or more to grow a crop of merchantable trees, it does not seem appropriate to classify the slow maturing timber crop with agricultural crops, annually harvested.

Moreover, when we consider that many of the large timber stands at present held under private ownership are matured and virgin—the original bounty of nature and not the product of voluntary cultivation - the conviction is irresistible that the original owners of these virgin forests should be treated with at least no greater leniency from a taxation standpoint than is due those timber owners who have purchased such properties for value received at the current advanced market.

Lumbering comes next to agriculture among the basic industries of the United States. In 1917, according to an official report (No.

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