or national services, such as education, care of public health, and administration of justice. The expense of such services can only be met by taxation, which must be to a considerable extent onerous rather than beneficial to the local taxpayer; and regard for sound financial principles requires that such taxation should be levied on the basis of ability to pay. The city council accordingly submitted to the provincial government a request that it should be granted power to provide by means of an income tax for the maintenance of the more general or provincial services for which it is held responsible.

THE ASSESSMENT AND TAXATION COMMISSION

As the provincial government realized that the problem was not peculiar to Winnipeg, the city's request in turn led to the appointment of the Manitoba assessment and taxation commission, which, after an exhaustive inquiry covering the whole field of provincial and municipal taxation, reported in December, 1919. Amongst the changes recommended in the report were:

(1) The introduction of an income tax in the urban municipalities of the province and in those portions of the rural municipalities having urban characteristics;

(2) The substitution of a business tax, based on the net profits of business, for the existing municipal business tax based on rental value, or for the personal property tax where that still survived;

(3) The institution of a provincial tax commission, amongst the duties of which would be the administration of the income tax and the reformed business tax.

The Manitoba tax commission has been in existence for nearly two and a half years, but up to the present it has been chiefly engaged in securing a uniform method of municipal assessments, in accordance with the law, preparing the equalized assessments required for the purpose of the provincial government's levy, and making assessments and tax collections in the unorganized districts of Manitoba. The municipal business and personal property taxes still stand unreformed, and no income tax law has yet been placed on the statute book of the province.

The Winnipeg city council, it is true, has from time to time brought before the legislature a bill providing for a city income. tax. But the outcome has been merely to stimulate the provincial government and legislature to action on the lines of the assessment and taxation commission report of 1919.

In response to this pressure the government at the 1921 session of the legislature introduced a bill providing for an income tax for municipal purposes in urban communities only, as recommended

in the report already mentioned. The revenue from this tax, less cost of administration, was to go to the municipality within which it was raised, and there was thus clearly no motive for extending the operation of the tax to purely farming communities. The bill, however, after being mercilessly tossed on the horns of "capital" and "labor "—the former contending for a very slowly progressive rate and a very low exemption limit, and the latter for a highly progressive rate and a high exemption limit supplemented by lavish abatements-emerged from the committee stage so mutilated as to be obviously useless as an instrument of local revenue, and was accordingly withdrawn.

THE INCOME TAX UNSUITABLE AS A SOURCE OF LOCAL REVENUE Another and important stage in the educative process was now complete. The discussion in committee had afforded abundant illustration of the weaknesses both in principle and practice inherent in any provincial or state income tax scheme under which the revenue is allocated to the particular municipality within which it is collected, and had served to convince all thoughful observers that no such scheme is ever likely to be so devised as to meet the diverse financial situations of city, town and village. An exemption limit, for example, which is not too high for the city, destroys all hope of revenue from the tax in the case of the small town or village.

The rate of the income tax must be uniform throughout the province or state; it cannot be adjusted like that of the real property tax to the varied fiscal needs of different municipalities. Nor can the exemption limits be varied to suit the very different costs of living in city, town and village.

It follows that if the policy were adopted of distributing, in whole or in part, the proceeds of the income tax to the different municipalities, in proportion to their respective contributions. thereto, the outcome would be obviously undesirable in certain important respects.

(1) In the first place, some municipalities must under such a system receive less than they need and could in the general interest spend, while others will receive more than they require, the consequence being straitened financial conditions in some municipalities and a strong temptation to wasteful extravagance in others. The reality of this danger is, I believe, now admitted to have been shown by practical experience in the State of Wisconsin, where such a system has been in operation for a decade. A striking illustration of its working there is found in the experience of the town of Plover in Portage County, as cited in the "Bulletin of the National Tax Association" for January, 1922. Plover, we are there told, had no property tax whatever for state, county and

town purposes in the years 1921-22, owing to the town's share of the income tax paid by certain paper mill companies being more than sufficient to cover all local expenses.

(2) There is a further danger under such a system. The income tax is to be regarded as essentially an onerous tax (i. e. burdensome as regards the individual taxpayer) levied on the basis of faculty or ability to pay, and thus eminently suited to be the instrument of revenue for the maintenance of general services in the interest of the community as a whole. But if the revenue so secured is handed over to the municipalities, or shared with them, it may not be spent, as its origin would dictate and as it rightly should, on the maintenance or improvement of these general services. It may on the contrary, under the pressure of powerful organized interests, easily be spent on specifically local services which confer a measurable benefit on the local taxpayers and which can, on the benefit basis, be legitimately provided for by the taxation of real property and business, especially when we bear in mind the vital distinction between the immediate impact and the ultimate real incidence of these taxes.

In brief, it is now apparent that any real relief of the financial strain on the municipalities, and of the growing burden of taxation on the owners of real property, must be looked for neither in a city or municipal income tax, nor in a provincial income tax for municipal purposes. The true path of reform clearly lies in the adoption of a provincial income tax for provincial revenue purposes, the provincial government at the same time assuming responsibility for a corresponding proportion of the expense of the general services, more especially education, of the growing burden of which the municipalities now reasonably complain.

CHAIRMAN WHITE: I understand that Mr. Leason, Surveyor of Taxes of British Columbia, is at the conference, and if there is any information he desires to impart to the conference, of tax conditions in British Columbia, we should be glad to give him a few

moments.

E. E. LEASON, of British Columbia: Mr. Chairman and gentlemen, I find myself in rather an unique position today. I had only about two hours' notice to come and attend this convention. My minister, Honorable John Hart, had anticipated being here, and I understand he was quite fortified with a lot of data which he intended to bring in in an informal way to the convention. He unfortunately was called out of the city and he simply instructed me to come here and learn, and pick up and bring back all the good points for our benefit.

By the samples that have been handed out here during the

morning, I am satisfied that I shall derive a great deal of profit and pleasure from being present.

In regard to the tax situation in British Columbia, I find we are in a position similar to that which has been stated by a number of speakers here. I might say, that apparently from what I hear here, you seem to have a great many more sources of revenue than we have in British Columbia. We are looking for more. British Columbia is divided into thirty assessment districts and an assessor appointed from each. We have an alternative tax with the personal property. What I mean by that is, from the return made by the taxpayer, the assessor determines as to whether he will assess on personal property or income. The meaning in terms of taxes is, we simply take that which produces the greater revenue. I might state that there is considerable opposition to the personal property tax, and as a civil servant probably I had better not express my opinion on that. Suffice it to say that the taxpayer claims, and in many cases rightly so, that he is taxed on his losses, because in the Province of British Columbia, I am sorry to say, for the past two years, the returns of the taxpayers on income have not been such as would warrant our taxing them on it; consequently we have to tax them on personal property, which is really a merchandise tax. The result is that sometimes they are taxed on losses.

We also have an amusement tax, and recently we have inaugurated what is called a pari-mutual tax. We have just experimented on that, and over in Vancouver it resulted in the collection of one hundred and ninety-two thousand dollars and twelve thousand dollars amusement tax. The latter goes to the provincial government; the one hundred and ninety thousand dollars is distributed pro rata among the municipalities, which also receive onethird of the license on automobiles. Personal property tax on automobiles has been obliterated. And they also receive a very large portion of what is sometimes termed in the State of Washington a wet tax, liquid tax. You know there is sold a certain product from the corn juice of Iowa. The municipalities benefit from that to a large extent. What I hope to learn here is how you dispose of personal property. From conversations with some of your members it seems to me I am at a little difficulty to find where your real property, or rather what is classified as real property, ceases and personal property begins. I find in a great many cases that which is termed real property in our province is looked upon as personal property here, for the simple reason of getting additional revenue.

SECRETARY HOLCOMB: What is an example of that; can you remember any.

E. E. LEASON: Well, an example is machinery, not fixtures. I

have reference to certain factories in West Allis.

They informed me that they were taxed as real property. We would classify it as personal property, not being affixed to the land, or by cement foundations.

SECRETARY HOLCOMB: Of course, we have some machinery that is real and some personal, depending upon the character. I presume you refer to how it is attached. That is one test, but we have various tests. If it is a leased building, it might be called personal, and if in an owned building, it might be called real.

MR. LEASON: We cannot see the differences for purposes of taxation. We don't recognize a difference for the purpose of taxation. The fact of ownership or possession is sufficient for taxation purposes. As I say, we are only infants and we are going to learn.

We have recently inaugurated in connection with the income tax what we termed an audit bureau, for the purpose of instructing taxpayers how to make out their returns. We found that in a great many cases they had innocently neglected to properly classify the items of expense and would put down the sum total of all expenses involved in the creation of the particular income on which they were being assessed, because it had been an expense, so far as they were concerned, in the production of that income, but not all was permissible as a deduction under the act. The result of that audit bureau was that in the first four months it produced one hundred and eighty-four thousand dollars in excess of the tax that had been levied and paid by those particular firms which had been audited, at an expense of less than twenty-five hundred dollars. So I might state we are still progressing. They have now increased that force to nine men, and we are seeking for additions to the staff because we find it is very productive.

CAPTAIN W. P. WHITE: What is the character of the items which are not permissible to be charged as costs?

MR. LEASON: We found that they exceeded on depreciation largely, and also on salaries paid to partners, and in many cases interest and dividends derived by certain companies, where the parent company was not taxed, were omitted; then they claimed exemption from dividends arising from certain stocks, without making any return. Returns up to two years ago were very vague. We also found that the assessors as a rule were not as well versed in going into the corporation books as was necessary in order to get proper returns, and they were to a very large extent at the mercy of experts, who were engaged for the particular purpose of making out returns for taxation purposes and by bringing chartered accountants and certified bookkeepers to go into their books and make a thorough examination, we found in many cases, as I