THE UNIVERSITY OF TEXAS BULLETIN No. 3228: July 22, 1932 Un1Yers1ty or T :Z-Ubl1oat1one LIMITING TAXES ON TANGIBLE PROPERTY By Claiborne A. Duval, Ph.D. Interscholastic League Bureau Division of Extension U· 1 , fl v 1 Publ iaa 1o:i: PUBLISHED BY THE UNIVERSITY OF TEXAS AUSTIN Publications of The University of Texas Publications Committees: GENERAL: FREDERIC DUNCALF C.H. SLOVER J. F. DOBIE G. W. STUMBERG J. L. HENDERSON A. P. WINSTON H.J. MULLER OFFICIAL: E. J. MATHEWS L. L. CLICK C. F. ARROWOOD C. D. SIMMONS E. C. H. BANTEL BRYANT SMITH The University publishes bulletins four times a month, so numbered that the first two digits of the number show the year of issue and the last two the position in the yearly series. (For example, No. 3201 is the first bulletin of the year 1932.) These bulletins comprise the official publica­tions of the University, publications on humanistic and scientific subjects, and bulletins issued from time to time by various divisions of the University. The following bureaus and divisions distribute bulletins issued by them; communications concerning bulletins in these fields should be addressed to The University of Texas, Austin, Texas, care of the bureau or division issuing the bulletin: Bureau of Business Research, Bureau of Economic Geology, Bureau of Engineering Research, Interscholastic League Bureau, and Division of Extension. Communications concerning all other publications of the University should be addressed to University Publications, The University of Texas, Austin. Additional copies of this publication may be procured from the Interscholastic League Bureau, University of Texas, Austin, Texas Single copies 15 cents Eight copies for $1 THE UNIVERSITY OF TEXAS PRESS ~ THE UNIVERSITY OF TEXAS BULLETIN No. 3228: July 22, 1932 LIMITING TAXES ON TANGIBLE PROPERTY By Claiborne A. Duval, Ph.D. Interscholastic League Bureau Diviaion of Extenaion PUBLISHED BY THE UNIVERSITY FOUR TIMES A MONTH, AND ENTERED AS SECOND·CLASS MATTER AT THE POSTOFFICE AT AUSTIN, TEXAS, UNDER THE ACT OF AUGUST 24, un2 The bene6ta of education and of useful knowledge, generally diffused through a community, are eHential to the preservation of a free govern­ ment. Sam Houston Cultivated mind is the guardian reniua of Democracy, and while guided and controlled by virtue, the noblest attribute of man. It is the only dictator that freemen acknowledge, and the only security which freemen desire. Mirabeau B. Lamar FOREWORD The question for debate this year leads the student into devious paths. It is perhaps the most difficult query ever undertaken by the Interscholastic League. The great public interest in the subject, the mass of material which is being issued continually in printed form, the discussions which are occurring in deliberative assemblies through­out the Nation, the fact that the high school leagues of 33 states in the Union are this year debating practically the same question, all constitute a challenge to the ambitious young debater while at the same time furnishing him with a more abundant supply of authorita­tive material than was ever before available on an Interscholastic League debate question. This means that the team which begins early and works hard will have a great advantage over those that delay beginning their prepara­tion. The field of research is so extensive that even the most ener­getic debate squads can hardly hope to explore it with thoroughness, while the less diligent will surely be outdistanced before the race is fairly begun. We expect that not less than 1,500 Texas schools will participate in the contest this season. Judging from correspondence which has come into the State Office during the summer, quite a number of squads have been putting in hard study on the general question of taxation during the vacation months. So there is now no time to be lost. The present work has been prepared by Dr. C. A. Duval, a spe­cialist in economic theory, and instructor in The University of Texas. He has had the advice and counsel in this work of Dr. E. T. Miller, who is generally conceded to be the most distinguished author­ity on taxation in the South. The work deals largely with funda­mentals, Dr. Duval assuming that no intelligent discussion of this specific question is possible for those who are not well-grounded in fundamental theory. He has worked in close cooperation with the Extension Loan Library to the end that no material issued in the package libraries will be found duplicated in this bulletin. He has also been in close touch with the author of the bulletin which is being prepared on a cooperative basis for other state Leagues, and none of the matter published in that bulletin will be found in this one. A copy of that bulletin, by the way, will be included in each of the package libraries which are circulated on the debate query this year. The Extension Loan Library will circulate packages on the same terms as those of previous years, making only the small charge of 10 cents for the use of a package for a term of two weeks. The expense of the present pamphlet has been pared down to the quick in an effort to make it available for every student who enters the local tryouts. Although the publication runs above 180 pages and The University of Texas Bulletin is well printed and substantially bound, a price of 15 cents per copy has been set, and a further reduction made for quantity orders. As announced on another page, eight copies are sent postpaid for $1. An increasing number of practice debate-tournaments are being held each year. We approve of this enterprise with the proviso that there be little or no encroachment upon school time. We must re­member that debate, especially inter-school debating, is an extra­curricular activity, and should be so conducted as to interfere as little a3 possible with the regular work of the school. The elimination con­tests necessarily take some school time, so practice tournaments should be so arranged that there be little or no infringement upon the school schedule. This can be accomplished by holding small tournaments beginning Friday evening and continuing Saturday. If a large num­ber of teams enter, it is well to divide them and conduct the elimina­tions in two divisions simultaneously, placing the respective winners in competition for final honors. Where the number of entries is so small as to give a short schedule, arrange a "double elimination" tournament, plan for which will be furnished upon application to the State Office. We hope that the contests will be fairly and intelligently judged. Great care should be taken by debate directors in securing the very best judging talent that is available. Nothing else so impairs interest in debate as poor judging. Chief, Interscholastic League Bureau, Extenswn Diviswn, The University of Texas. EXPLANATION The Brief and the reading material included in the Bulletin cover a number of the essential points on the question of limiting revenues obtained from taxes on tangible property. The material, however, is not at all inclusive, but merely indicative and should be used as a starting point to the study of the subject. The suggestive briefs are neither complete nor model briefs; they are given in order to assist the debater, and the debate coach, in the analysis of the question. For a broader and more extensive study, the debater should procure, along with other readings, the valuable material collected by the Extension Loan Library of The University of Texas. In this brief, an attempt is made to use reliable statistical data and recognized authorities on public finance as references. In a num­ber of cases, however, suggestions are made without cited references. The question of limiting taxes on tangible property, as stated in this bulletin, is a comparatively novel proposal in the old and well developed field of public finance. Both the novelty of the idea and the magnitude of the field of knowledge involved force the makers of this bulletin and the package loan libraries to use a very large proportion of general material. It is believed however, that the debater will be able to select sufficient data for the debate from this general source of information. Quotations from the Bulletin, or the other sources, should be properly pointed out by the debater, in order to avoid the charge of plagiarism. It should be remembered, too, that the word of a well­known authority has more weight with the audience and judges than the mere assertion of the speaker. In addition to being a very live issue, the subject matter covered by this debate is very broad and very deep. For the debater and the debate coach who combine clear thinking with hard work, the question will prove an excellent one at the present time. It is hoped that this bulletin will be of aid in the study of Limiting Taxes on Tangible Property. CLAIBORNE A. DUVAL. The University of Texas. August 5, 1932. SUGGESTIVE BRIEFS Resolved, That at Least One-Half of All State and Local Revenues in Texas Should Be Derived from Sources Other Than Taxes on Tangible Property. INTRODUCTION I. The question of limiting the combined revenues of state and local governments in Texas obtained from taxes on tangible property to a maximum of fifty per ceRt of the total revenues is a very important one, because A. There has been much discussion for a number of years of the great inequalities in the state and local revenue systems of Texas. B. There is a widespread belief that tangible property is sup­porting a much heavier tax burden than is equitable or necessary, since a. It is generally admitted that most of the intangible and incorporeal property escapes taxation under existing condi­tions in Texas. b. Students of taxation usually agree that owners of farms and small homes in Texas are carrying a relatively excessive share of the tax burden. II. Definitions : A. "One-half of all state and local revenues," as used in this debate, refers to the combined revenues of the state and local governments. This meaning allows the state government to abandon, or to continue, the policy of obtaining revenues from the ad valorem tax. Any revenue system producing fifty per cent or more of the total combined revenues of the state and local governments from sources other than taxes on tangible property would meet this requirement. B. Revenues: All money receipts obtained by the state and local governments from taxes, licenses, fees, fines, rentals, aides, interest, court costs, suit settlements, etc. Receipts obtained by the state and local governments from gifts, property sales, bond sales, government owned commercial enterprises, and special assessments are excluded from the term "revenues" as used in this debate. Revenues received by districts bonded for specific purposes as irrigation, drainage, etc., are not included in the combined revenues of the state and local governments; revenues received by independent road and school districts are included. The University of Texas Bulletin C. Property: "That to which a person has a legal title; thing owned; an estate, whether in lands, goods, money, or intang­ible rights, such as a copyright, patent rights, etc.; anything, or those things collectively, in or to which a man has a right protected by law; . . . " 1 D. Kinds of Property. 1. In the Texas Constitution property is divided into "real," "personal," and "mixed" property. Land, buildings, and materials attached to the land or buildings are considered "real property." Movable tangible property, intangible property and incorporeal property are included under "personal property." The term "mixed property" is not explained in the Constitution. 2. Property is generally divided into tangible and intangible property. Property is also divided into corporeal and incorporeal property. Tangible property and corporeal property include the same things such as lands, buildings, domestic animals, etc. Both tangible and corporeal property represent positive rights in material goods. Incorporeal property is defined as "that which is intangible, consisting of rights in or to property in the possession of another."2 Incorporeal property includes such rights as mortgages, bonds, notes, etc. Incorporeal rights are positive rights, usually existing in a debtor-creditor relationship, that can be legally enforced under stipulated conditions.a Intangible property, on the other hand, consists of negative rights, such as patent rights, franchises, copyrights, good will, etc. The right, in the case of intangible property, represents a right to prevent a third party from interfering with an intangible economic relationship existing between two given parties. The term "intangible property" is often used to include both intangible property and incorporeal property as defined in this bulletin. If the latter meaning of the term is used, intangible property should be divided into representative intangible (incorporeal) and nonrepresenta­tive intangible property.4 The distinction between repre­sentative and nonrepresentative intangible property is a very important one; this is especially true in a study of the problem of double taxation. Throughout this bulletin an attempt will be made to use the term "intangible property" in the broader sense, and to divide intangible property into "representative intangible (incorporeal) property" and "nonrepresentative intangible property." 1Webster's New International Dictionary, p . 1718. • Ibid., p . 505. "Commons, J . R. : Legal Foundati-Ons of CapitoliBm, pp. 16-22. • Jensen, J. P . : Property Taa:ati-On in the United States, pp. 52-55. Limiting Taxes on Tangible Property E. Taxes: "A tax is a compulsory contribution from the person to the government to defray the expenses incurred in the common interest of all, without reference to special benefits conferred."5 1. Taxes on tangible property include only taxes on corporeal property, as land, buildings, furniture, automobiles, etc. Taxes on incorporeal (representative intangible) property, as mortgages, bonds, etc., and taxes on nonrepresentative intangible property, as patent rights, franchises, etc., are not considered taxes· on tangible property. The General Property Tax (ad valorem) in Texas is levied on all kinds of property, real and personal, tangible and intangible, and corporeal and incorporeal at a uniform rate and a uniform base except in cases of property specifically exempted. 2. Taxes on privileges, as severance, sales, inheritance, gross receipts, occupation, poll, etc., receipts from licenses, fees, fines, rentals, aides, etc., and income taxes are sources of revenue other than taxes on tangible property. III. Admitted Matter. A. Both sides will admit the necessity of a just and efficient revenue system for the state and local governments. B. Both sides will admit that the General Property Tax (ad valorem tax) in Texas is defective. C. Both sides will admit the feasibility of amending the State Constitution if it is necessary to do so. IV. Irrelevant Matter. A. A discussion of the advisability of decreasing, or increasing, public expenditures. It is assumed that a change in the revenue system will have little or no effect on public expendi­tures. B. A discussion of the advisability, or inadvisability, of using public credit. V. The Main Issues. A. Is there a real need for the proposed plan in Texas? B. Is the proposed plan based upon sound principles of taxation? C. Is the proposed plan practical in Texas? DISCUSSION OF THE DEFECTS OF THE GENERAL PROPERTY TAX I. The combined state and local revenue system in Texas is unjust and inefficient, because A. The principal source of revenue, the General Property Tax (ad valorem), is grossly inequitable, because "Seligman, E. R. A. : Eeaa11a i11 Te:llation, 10th ed., p. 432. 1. The General Property Tax is basically unsound from the point of view of economic theory,6 for a. It assumes: "... that property and property rights, taken as a homogeneous whole, constitute an adequate and comprehensive measure of the ability of all citizens to pay taxes."1 b. It assumes: "... that property is a sufficiently broad measure of ability to reach all persons who have tax­paying ability."s 2. The General Property Tax lacks uniformity, or equality of assessment,9 for a. Scarcely any two contiguous counties appraise property even land-in the same manner or at the same rate.10 b. There is a great inequality of assessments within the assessing units,11 i2 3. The General Property Tax lacks universality, or the ability to reach all kinds of property,1s for a. A very large proportion of personal property escapes assessment,H because ( 1) Personal property is easily concealed. (2) Owners of tangible personalty feel that the ad valorem tax is excessive, since a large proportion of tangible personalty is not income producing property. (3) Owners of representative intangible (incorporeal) personalty feel that the tax is excessive and results in double taxation. b. Nonrepresentative intangible personalty, one of the chief sources of income, is not reached by the ad valorem tax--except in the case of the railroads. 4. The General Property Tax causes dishonesty,15 for a. The county assessor is forced to violate his oath of office, because ( 1) Other counties are underassessing their property. (2) If he attempts to assess property according to the law he will lose his position. 'Lutz, H. L. : Public Fina'llCe, pp. 344-354. 7Ibid. •Ibid. •Seligman, op. cit., pp. 20-22. "'Texas Tax Survey Committee: Report to 41 st Legiswture, pp. 93, 235-238. llLeJand, E. S. : The Cwssified Property To.z, pp. 24-29. 12Jensen, op. cit., pp. 289--306. "'Seligman, op. cit.., pp. 22-26. "Texas Tax Survey Committee, op. cit., pp. 456-457. "Seligman, op. cit., pp. 26-28. b. The inducements to perjury from the point of view of the individual taxpayer is so great as to make its practice universal. 5. The General Property Tax is regressive in actual prac­tice,16 for a. The real property owned by the small home-owner, and the small farmer, is assessed at a higher rate than the real property possessed by the owners of large amounts of property.17 b. Practically all of the property possessed by the small property owner consists of assessed tangible property ; whereas a very large part of the property belonging to the large property owner consists of unassessed intan­gible and incorporeal property. 6. The General Property Tax causes double taxation,1s for a. A tax on a mortgage plus a tax on the security of the mortgage is double taxation if the debt is not deducted from the assessment of the security. b. Debt offsets are generally not allowed, since "deduction for indebtedness results practically in such injustice and deception as to be utterly unendurable."19 B. The system of property taxation in Texas is very inefficient, because 1. County assessments for state purposes force the county assessor to use low rates of assessments for the purpose of reducing county payments to the state. 2. The desire to increase local revenues without increasing county payments to the state forces the formation of new independent tax districts whenever there is a limit set on tax rates. 3. The ad valorem tax system encourages the escape of per­sonal property, for a. Many avenues of escape are provided by the system.20 b. The high tax rates encourage concealment. c. The owners of representative intangible (incorporeal) property are unduly penalized if they are honest.21 d. No adequate method of assessing nonrepresentative intangible property exists--except in the case of rail­roads.22 16fbid., pp. 28-29. 11Leland, op. cit., pp. 24-25. 18$eligman, op. cit., pp. 29-31. '"Ibid. ""Seligman, op. cit., pp. 26-27. "Texas Tax Survey Committee, op. cit., pp. 235-238. ""Ibid., pp. 55-56. 4. All attempts to assess representative and non-representa­tive intangible property have met with failure.28 5. All attempts to secure equalization of assessment among counties, and among individuals, have met with failure.24 DISCUSSION OF THE AFFIRMATIVE I. There is a real need for the proposed plan in Texas, because A. The chief defect of the present revenue system is that it places an inequitable burden on the owners of tangible property, for 1. Tangible property, as a whole, bears a heavier tax load proportionately than other sources, for a. Tangible property produces less than one-fifth of the total state income; whereas, tangible property produces over three-fifths of the total revenues.2s b. Intangible property, to a large extent, escapes taxa­tion, for ( 1) It is difficult to assess. (2) The evil of double taxation exists whenever repre­sentative intangible property is assessed. (3) Nonrepresentative intangible property escapes entirely~xcept in the case of railroads. c. Natural resources are not furnishing their share of revenue.26 2. Farms bear an unfair proportion of the tax burden.21 2s 3. The small home owner pays a much greater tax in propor­ tion to the amount of property he owns than other citizens.29 so B. The proposed plan is the only adequate plan to correct the chief defect in the Texas revenue system, for 1. All other plans have failed to correct this chief defect, for a. The classified property tax as used in Minnesota fails to relieve the burden on tangible property owners.a1 •Seligman, op. cit., pp. 22-26. "Ibid., p. 22. ""Gabbard, L. P. : Relation of Tazes to Income, Parm aRd Ranch, March 14, 19111, p. 1 . ..Brooks, Raymond: Some Vie11.•a on Taa:atiVernmtnt ._ Te:i:as, p. 2. "'Texas Comptroller: op. cit. 88National Industrial Conference Board: op. cit. ""Texas State Auditor: op. cit. '°Texas Tax Survey Committee: op. cit., p. 2!. 2. The centralized tax commission, a necessary part of the affirmative plan, is a progressive step.•1 4 2 3. The commission will be able to solve the inequalities of assessments and other weaknesses in the present system, for a. The commission will have power to make tax studies. b. The commission will have power to correct faulty original assessments. c. The commission will have the means to secure efficient assessments with the least amount of friction as the result of state aid.•a II. The proposed plan is based upon sound principles of taxation, because A. The proposed plan will meet all the tests of a good revenue system, for44 1. It will be fiscally adequate. 2. It will be economical.45 3. It will make the revenue system conform much more to the equity test. 4. By having a single central coordinating unit, the system will meet the test of simplicity. 5. It will meet the elasticity test. 6. It will broaden the base and meet the diversity require­ment. 7. It will force the revenue system to become more flexible. B. The proposed plan will meet the requirements of the principal theories of taxation, for 1. It will make the revenue system conform to a much greater extent to the ability theory, for a. Progressive income and inheritance taxes are designed to meet the requirements of the ability theory of taxa­tion. b. The equalization of assessments within the taxing unit will reduce the regressive evil in the ad valorem tax. c. The exemption of $3,000.00 on homesteads will reduce the regressive evil in the ad valorem tax. 2. The gasoline tax, the ad valorem tax on tangible property and the ad valorem tax on nonrepresentative intangible property are in conformity with the benefit theory. 3. The poll tax and luxury tax tend to meet the requirement that everyone contribute something to the support of the government so that all citizens will be tax conscious. "Ibid.. p. 18. "'Gulick, Luther, Nat. Tax Association, 16th, 1923, pp. 263-288. '"Pond, C. B., New York State Tax Co. : Special Report No. 8, PP. 169-170. "Lutz, H. L.: Public Finance, 2nd ed., pp. 275-291. "Texas Tax Survey Committee: op. cit ., p. 454. III. The proposed plan is practical in Texas, because A. The state income tax will produce ten to twenty millions of dollars.46 47 B. Severance taxes can be made to yield ten to thirty million dollars of additional income-especially if the rate is placed on a per unit basis. C. The Intangible Asset Law, now used only in the case of rail­roads, will add ten to thirty million dollars additional revenue if it is extended to include all of the large going concerns. D. Additional revenues can be secured from selective sales taxes, inheritance taxes, etc. CONCLUSION At least one-half of all state and local revenues in Texas should be derived from sources other than taxes on tangible property, because I. There is a real need for the proposed plan in Texas, for A. The chief defect of the present revenue system is that it places an inequitable burden on the owners of tangible property. B. The proposed plan is the only adequate plan to correct the chief defect in the Texas revenue system. C. The proposed plan will correct the remaining glaring weak­nesses in the present system. II. The proposed plan is based upon sound principles of taxation. A. The proposed plan will meet all the tests of a good revenue system. B. The proposed plan will meet the requirements of the principal theories of taxation. III. The proposed plan is practical in Texas, because A. The state income tax will produce ten to twenty millions of dollars. B. The severance taxes can be made to yield ten to thirty million dollars of additional income. C. The Intangible Asset Law, now used only in the case of rail­roads, will add ten to thirty million dollars additional revenue if it is extended to include all of the large going concerns. D. Additional revenues can be secured from selective sales taxes, inheritance taxes, etc. '6Address: An Ewtimate of the Yield of a PerstYnstract of the United States, 1931, p. 298. UNational Ind. Conf. Board: op. cit. ""Jensen, J. P .: op. cit., pp. 74-77, 90-92.. "'Ibid., pp. 61~2. 63, 73-74. ""Ibid., pp. 468-474. c. The principal field of taxation for the combined state and local governments is recognized by all students of taxation to be that of property taxation-especially the taxation of tangible property. 2. The three usually proposed plans to remedy the defects in the state and local revenue systems are not designed to reduce materially the proportion of revenue secured from taxes on tangible property,56 for a. The Classified Property Tax would have little or no effect on the proportion of revenues obtained from taxes on tangible property. b. The Separation of Source Plan would have little effect on this proportion. c. The Model Tax Plan would change very little the pro­portion of revenues produced by tangible property taxes. 3. Limiting revenues obtained from taxes on tangible property will force the state and local governments to encroach upon the field of federal taxation, for a. State income taxes secure revenues from the same sources reached by the Federal Income Tax, and they cause unnecessary waste and duplication.s1 b. State inheritance taxes cause double taxation and waste. c. Sales taxes of all types, except the gasoline tax for highway construction, should be left for the federal government. C. ~he proposed plan will cause a taxing system to develop which will be detrimental to the interests of the local governments, for 1. The shift of about thirty million dollars from taxes on tangible property to other sources will force the state to organize a powerful central tax commission which is con­trary to the principal of local self government. 2. The central tax commission will interfere with the rights of the cities in the field of taxation. 3. The large corporations will be able to concentrate their power against unfavorable action of the taxing authorities. II. The proposed plan is not based on sound principles of taxation, because A. The plan fails to meet the most important tests of a good revenue system, forss MNote: It is recommended that each school secure at least one good text on property taxation. ••Note: Reading material for this and other phases of the debate question can be secured from the Extension Loan Library of The University of Texas. Com­plete official State reports can be secured from county officials. OSNote: It is recommended that each school secure at least one good text on public finance. 1. It will fail to meet the all important test of fiscal adequacy. 2. It will fail to meet the test of elasticity. 3. The plan will not be simple. 4. The plan will not be economical. B. The plan is not based on the best theories of taxation, for 1. State income and inheritance taxes are unnecessary and wasteful, for a The test of the ability of a tax system to meet the various accepted theories of taxation can be ascertained only when the entire revenue system (federal, state, and local) is considered. b. The Federal Income Tax and the Federal Estate Tax, with their progressive rates, make the present system meet the ability theory. c. The federal government can administer all income and death taxes more efficiently than can the states. 2. Practically all proposed sales and severance taxes are shifted to the consumer and thus become regressive in fact. 3. The Intangible Asset Law applied to corporations now being taxed under gross receipts, franchise, and occupation tax laws will cause industry to be excessively taxed. III. The proposed plan is not practical in Texas, because A. The plan violates several of the tests of practical taxation for 1. Revenues from the proposed new sources will be fiscally inadequate, for a. The major sources cannot stand an increase, and the minor sources are insignificant. (1) Increasing auto licenses, already much higher than in other states, would lead to greater evasion. (2) The franchise and gross receipt taxes, if increased, will injure business and cause reluctance of expan­sion of foreign corporations.59 ( 3) Gasoline sales tax increase over the present five cent total tax would but add to the amount already shifted upon the people. ( 4) Severance tax increases will tend to destroy the market and shift the burden to the consumer. ( 5) Sales taxes are regressive, and they can be defended only upon the vicious theory of: "pluck the goose with the least amount of squawking." (6) Occupation taxes, except insurance, could be doubled and still be of little consequence. (7) Fines and fees, if doubled, would only add about $400,000 to the total. (8) An increase in the insurance companies occupation tax would drive the better companies out of the state. (9) Fish and oyster taxes would add only $25,000 if they were doubled. 2. The major sources other than taxes on tangible property are unreliable sources of income, for a. Gross receipts tax revenues are determined by business conditions. b. Franchise tax revenues fluctuate with economic trends. c. Income tax revenues depend upon the business cycle. d. Inheritance tax revenues are exceedingly variable. 3. The taxes on the above mentioned sources are inelastic, for a. Rates cannot be changed annually to meet conditions without doing Serious damage to industry. B. The plan includes the establishment of an income tax which is not now desirable in Texas, for6o ..Brooks, R. : op. cit., pp. 11-15. 1. It would be detrimental to industry, for a. Increased levies would tend to drive industry out of the state. b. We now have taxes similar to income taxes in the gross receipts and franchise taxes. 2. It would be difficult to administer effectively, for a. The simplest and most desirable methods of assessment opens the way to much evasion. b. Foreign corporations could evade it. c. Local and state governments cannot ascertain incomes of residents whose income comes from out of the state. 3. It has not been successfully applied by other governments, for a. The Federal government has not been successful. b. Other states have repealed their income tax laws or greatly modified them from time to time. 4. It would not prove adequate to the demand made for it, for a. The average rate of return in other states from this, if applied to Texas, will yield only from eight to ten million dollars. b. The exemption of intangibles from the ad valorem tax, always advocated wherever the income tax is applied as a state tax, would reduce the total revenues about six or seven million dollars. c. If higher rates than the usual states rates are put into effect, larger income receivers will move to other states. 90/bid. CONCLUSION At least one-half of all state and local revenues in Texas should not be derived from sources other than taxes on tangible property, because I. There is no real need for the proposed plan in Texas, because A. The relatively large share of the total estate and local revenues contributed by owners of tangible property is not a defect in the present revenue system. B. The limiting of taxes on tangible property is contrary to the teachings of recognized authorities on taxation. C. The proposed plan will cause a taxing system to develop which will be detrimental to the interests of the local government. II. The proposed plan is not based on sound principles of taxation, because A. The plan fails to meet the most important tests of a good revenue system. B. The plan is not based on the best theories of taxation. III. The proposed plan is not practical in Texas, because A. The plan violates several of the tests of practical taxation. B. The plan includes the establishment of an income tax which is not now desirable in Texas. BIBLIOGRAPHY NOTE.-The following bibliography contains a few of the best books available on the question of limiting taxes on tangible property. For fuller bibliography, see "Reference Shelf" which will be included in Package Libraries, and Jensen's "Property Taxation in the United States," which work will be found very valuable in this connection. Adams, H. C., The Science of Finance, 1898. Armistead, George, The Texas Tax Probl.em, Gulf Publishing Co., Houston, Texas, 1931. Bullock, Charles J., Selected Readings in Public Finance, Second Edition, Ginn and Company, 1920. Commons, John R., Legal Foundations of Capitalism, The Macmillan Company, New York, 1924. Hutchinson, Ruth Gillette, State-Administered Locally-Shared Taxes, Columbia University Press, New York, 1931. Jensen, Jens Peter, Property Taxation in the United States, The Uni­versity of Chicago Press, Chicago, Illinois, 1931. Leland, Simeon E., The Classified Property Tax, Houghton Mifflin Company, Boston, 1928. Lutz, Harley Leist, Public Finance, D. Appleton and Company, New York, 1930. Lutz, Harley Leist, The State Tax Commission, Harvard Economic Studies, Vol. XVII, 1918. Miller, Edmund Thornton, A Financial History of Texas, University of Texas Bulletin No. 37, 1916. National Industrial Conference Board, Cost of Government in the United States, 1929-1930. National Industrial Conference Board, Sales Taxes: General, Selec­tive, and Retail, New York, 1932. National Industrial Conference Board, State Income Taxes, New York, 1930. National Industrial Conference Board, State and Local Taxation of Property, New York, 1930. New York Tax Comission, Special Report No. 1, Special Assessment Procedure, Arthur Rowland Burnstan. New York Tax Commission, Special Report No. 2, Fiscal Problems of Rural Decline, Ralph Thedore Compton. New York Tax Commission, Special Report No. 3, Full Value Real Estate Assessment as a Prerequisite to State Aid in New York, Chester Baldwin Pond. New York Tax Commission, Special Report No. 4, Luxury Taxation and Its Place in a System of Public Revenues, Ralph Burnett Tower. Rufener, L. A., Principles of Ecoonmi.cs, The Riverside Press, Cam­bridge, Massachusetts. Technical Bulletins, Nos. 151-172-175, United States Department of Agriculture: United States Government Printing Office, Wash­ington, 1930. Texas Tax Survey Committee: Report to Forty-first Legislature, 1928. GENERAL MATERIAL THE AD VALOREM TAX ON PROPERTY A Discussion of the State's Revenue System, Following Careful and Intensive Study of the Entire Problem, Directing Attention to the Many Inequalities and Other Incongruities, Supported by Tables from the Public Records. Compiled by Dr. E. T. Miller, Department of Economies and Sociology, The University of Texas. 1. CONSTITUTIONAL PROVISIONS ARTICLE VIII SECTION 1. * * * All property in this State, whether owned by natural persons or corporations, other than municipal, shall be taxed in proportion to its value, which shall be ascertained as may be pro­vided by law. * * • Provided, that two hundred and fifty dollars' worth of household and kitchen furniture, belonging to each family in this State shall be exempt from taxation. • * • SEC. 2. • • * The Legislature may, by general laws, exempt from taxation public porperty used for public purposes; actual places of religious worship; places of burial not held for private or corporate profit; all buildings used exclusively and owned by persons or asso­ciations of persons for school purposes and the necessary furniture of all schools; also the endowment funds of such institutions of learn­ing and religion not used with a view to profit; and when the same are invested in bonds or mortgages, or in land or other property which has been and shall hereafter be bought in by such institutions under foreclosure sales made to satisfy or protect such bonds or mort­gages, that such exemption of such land and property shall continue only for two years after the purchase of the same at such sale by such institutions and no longer, and institutions of purely public charity; and all laws exempting property from taxation other than the property above mentioned shall be null and void. SEC. 4. The power to tax * • * corporate property shall not be surrendered or suspended by act of Legislature, by any contract or grant to which the State shall be a party. SEC. 5. All property of railroad companies, of whatever descrip­tion, lying or being within the limits of any city or incorporated town within this State, shall bear its proportionate share of municipal taxation; and, if any such property shall not have been heretofore rendered, the authorities of the city or town, within which it lies, shall have power to require its rendition, and collect the usual munici­pal tax thereon, as on the other property lying within said munici­pality. The University of Texas Bulletin SEC. 8. All property of railroad companies shall be assessed, and the taxes collected in the several counties in which said property is situated, including so much of the roadbed and fixtures as shall be in each county. The rolling stock may be assessed in gross in the county where the principal office of the company is located; and the county tax paid upon it shall be apportioned by the Comptroller, in proportion to the distance such road may run through any such county, among the several counties through which the road passes, as a part of their tax assets. SEC. 9. The State tax on property, exclusive of the tax necessary to pay the public debt, and of the taxes provided for the benefit of the public free schools, shall never exceed thirty-five cents on the one hundred dollars valuation; * * * SEC. 10. The Legislature shall have no power to release the in­habitants of, or property in, any county, city or town, from the pay­ment of taxes levied for State or county purposes, unless in case of great public c:alamity in any such county, city, or town, when such release may be made by a vote of two-thirds of each house of the Legislature. SEC. 11. All property, whether owned by persons or corporations, shall be assessed for taxation, and the taxes paid in the county where situated, but the Legislature may, by a two-thirds vote, authorize the payment of taxes of non-residents of counties to be made at the office of the Comptroller of Public Accounts. And all lands and other property not rendered for taxation by the owner thereof shall be assessed at its fair value by the proper officer. SEC. 12. All property subject to taxation in, and owned by resi­dents of, unorganized counties shall be assessed and the taxes thereon paid in the counties to which such unorganized counties shall be at­tached for judicial purposes; and lands lying in and owned by non­residents of unorganized counties, and lands lying in the territory not laid off into counties, shall be assessed, and the taxes thereon collected, at the office of the Comptroller of the State. SEC. 13. Provision shall be made by the first Legislature for the speedy sale of a sufficient portion of all lands and other property for the taxes due thereon, and every year thereafter for the sale of all lands and other property, upon which the taxes have not been paid; and the deed of conveyance to the purchaser for all lands and other property thus sold shall be held to vest a good and perfect title in the purchaser thereof, subject to be impeached only for actual fraud; provided, that the former owner shall, within two years from date of purchaser's deed, have the right to redeem the land upon the payment of double the amount of money paid for the land. SEC. 14. There shall be elected by the qualified electors of each county, at the same time and under the same law regulating the elec­tion of State and county officers, an assessor of taxes, who shall hold his office for two years and until his successor is elected and qualified. SEC. 15. The annual assessment made upon landed property shall be a special lien thereon, and all property, both real and personal, belonging to any delinquent taxpayer shall be liable to seizure and sale for the payment of all the taxes and penalties due by such delinquent; and such property may be sold for the payment of the taxes and penalties due by such delinquent, under such regulations as the Legislature may provide. SEC. 16. The sheriff of each county, in addition to his other duties, shall be the collector of taxes therefor. But in counties having ten thousand inhabitants, to be determined by the last preceding census of the United States, a collector of taxes shall be elected, to hold office for two years and until his successor shall be elected and qualified. SEC. 18. The Legislature shall provide for equalizing, as near as may be, the valuation of all property subject to or rendered for taxa­tion (the county commissioneril court to constitute a board of equal­ization), and may also provide for the classification of all lands with reference to their value in the several counties. SEC. 19. Farm products in the hands of the producer, and family supplies for the home and farm use, are exempt from all taxation until otherwise directed by a two-thirds vote of all the members elect to both houses of the Legislature. ARTICLE VII SEC. 3. * * * There shall be levied and collected an annual ad valorem State tax not to exceed thirty-five cents on the one hundred dollars valuation, as, with the available school fund arising from all other sources, will be sufficient to maintain and support the public schools of this State for a period of not less than six months in each year, and it shall be the duty of the State Board of Education to set aside a sufficient amount out of the said tax to provide free text books for the use of children attending the public free schools of this State; * * * ARTICLE III SEC. 51. There is hereby levied, in addition to all other taxes here­tofore permitted by the Constitution of Texas, a State ad valorem tax on property of seven ($.07) cents on the one hundred ($100) dollars valuation for the purpose of creating a special fund for the payment of pensions for services in the Confederate army and navy, frontier organizations, and the militia of the State of Texas, and for the widows of such soldiers serving in said armies, navies, organizations of militia; provided, that the Legislature may reduce the tax herein levied, * * * SEC. 56. The Legislature shall not, except as otherwise provided in this Constitution, pass any local or special law authorizing: * * * exempting property from taxation; * * * 2. STATUTORY PROVISIONS Instead of quoting the statutory provisions relating to the State tax on property, there will be given a brief and connected description of the tax based on the laws, court decisions, and departmental rulings. a. Taxable and Exempt Property The tax is a general property tax, by which is meant that all property, real and personal, except such as is exempt by law, is sub­ject to taxation. The statutes (Articles 7162 and 7204) enumerate the items of property which are to be rendered for taxation, but at the close of the lists there is a blanket demand for a statement of the value of all other property not named in the list. The exemptions from the property tax are those which the Con­stitution makes mandatory, those which, while statutory, are pre­sumably based on constitutional permission, and those which are of Federal origin. The Constitution itself exempts household and kitchen furniture in family use to the amount of two hundred and fifty dollars in value. It exempts also farm products in the hands of the producer and family supplies for home and farm use, but this exemption may be abrogated by a two-thirds vote of all the members elect to both houses of the Legislature. Statutory exemptions include the property of the State and of the political subdivisions of the State, property used for purely religious, charitable, or educational purposes, property belonging to the Young Men's Christian Association and the Young Women's Christian Asso­ciation, the property of the Boy Scouts, cemeteries not held with a view to profit, pensions granted by the State or the United States, the property of art leagues and societies of fine arts devoted wholly and without charge to the promotion of education; buffalo and catalo used for experimental purposes or kept in parks to preserve the species. An exception to the exemption of property belonging to the State is that the land of the penitentiary system farmed by con­victs is subject to county taxation and to the bond tax of a public school district of which the prison farm or property was a part at the time of the issue of the bonds. Exempt from State and local taxation by Federal law are the property of the United States government; securities, such as bonds, treasury notes, and certificates of indebtedness, issued by the United States; farm loan bonds issued by the Federal land banks and by the joint stock land banks; debentures of the Federal intermediate credit banks, and all the property, except real estate, of the Federal Re­ serve Bank at Dallas, of the Federal Land Bank at Houston, and of the National farm loan associations. United States notes, the popular names for which are "legal tenders" and "greenbacks," are not exempt from taxation, and the belief of some taxpayers that if Limiting Taxes on Tangible Property they convert on January 1 their money or deposits into greenbacks they are thereby exempt from taxation is not well founded. The bonds or other securities issued by the State and the political subdivisions of the State are subject to both State and local taxation. In general, the State for taxation purposes follows the legal and not the economic concept of property. The result is that not only is property of a material kind taxed, but also the rights to such prop­erty as evidenced by vendor's lien notes or other intangible evidences of ownership. In a few cases, however, this kind of double taxation is not practiced. It is not done in the case of the taxation of the shares of stock of National and State banks or in the case of the shares of stock of a domestic corporation whose property is taxable in this State. Exemption is accomplished through the provision of the law that one who has money at interest is taxable on the excess of the amount at interest over the amount on which he is paying interest, and that one who has debts or bills receivable due him is taxable onyl on the amount of such which is in excess of the debts due, or bills payable, by him. From credits may be deducted also the amount considered to be uncollectible. Debts are deductible only in these instances; they may not be deducted from the value of real property or of any per­sonal property other than credits. The Constitution, in its statement as to what property .may be exempted from taxation by the Legislature, imposes some important qualifications. Thus, not all public property may be exempted, but only that "used for public purposes"; not all property of a religious character may be exempted, but only "actual places of religious wor­ship"; only buildings "used exclusively" for school purposes and only institutions of "purely" public charity may be exempted. The Legis­lature has not always observed strictly these qualifications and local tax officials, especially, have been very lenient in interpreting them. Exemption of industries from city taxes, of which there are examples in this State, are in conflict with Article VIII, Section 2, of the Con­stitution. See also Article III, Section 56. The United States Bureau of the Census every ten years estimates the value of the taxable and of the exempt property of each of the states. The following table presents the estimates for Texas: Taxable Property Exempt Property 1890 -------------------------$2,015,501,000 $ 90,076,000 1900 ----------------------------2,218,997 ,000 103,155,000 1912 -----------------------------6,071,925,000 307 ,667 ,000 1922 ------------------9,452,719,000 398,169,000 Under the provision of Article VIII, Section 10, of the Constitution, the Legislature may, in case of great public calamity, release the property in a county, city, or town from the payment of taxes levied for State or county purposes. There are at present no counties, The University of Texas Bulletin towns, or cities released from the payment of State or county taxes, but there are cases where State ad valorem taxes are donated to counties and cities on account of some "public calamity" and for preparation against the recurrence of such a calamity. Existing donations are to the city of Galveston of all State ad valorem, three-fourths of the occupation and all of the general revenue poll taxes collected in Galveston county from September 1, 1903, to September 1, 1938; to the city of Corpus Christi the net amounts of all State ad valorem taxes collected in Nueces, Jim Wells, Jim Hogg, Brooks, Kleberg, Willacy, and Duval counties from September 1, 1921, to September 1, 1946; to the city of Aransas Pass eight-ninths of the net amount of State ad valorem taxes collected in San Patricio County from September 1, 1920, to September 1, 194.0; to the city of Rockport the net amounts of all State ad valorem taxes collected in Aransas County from September 1, 1920, to September 1, 1940; to the city of Freeport all State ad valorem taxes collected within the limits of Brazoria County Road District No. 23 from September 1, 1920, to September 1, 1940; to the city of Port Lavaca the net amounts of all State ad valorem taxes collected in Calhoun County from September 1, 1920, to September 1, 1940; to the county of Hidalgo all of the State ad valorem and three-fourths of the occu­pation taxes collected in Hidalgo County from 1923 to 1948; to the county of Wharton and to commissioners precincts Nos. 1, 2, and 4 of Matagorda County all of the State ad valorem taxes collected in Wharton County and in the said precincts of Matagorda County from 1923 to 1948; to Cameron County that part of the State ad valorem taxes which is in excess of ten cents on the hundred dollars valuation collected in Cameron County from January 1, 1926, to January 1, 1951; to Nevada Independent School District all of the State ad valorem taxes collected in said district from September 1, 1927, to September 1, 1952. The amount of State taxes donated or remitted amounted in 1926 to $493,717.58, and was as follows: Aransas County ---------------------------------------------------------$ 6,401.46 Brazoria County -------------------------------------------­11,391.38 Brooks County -----------------------------------------------------­15,373.02 Calhoun County -----------------------------------­15,217.43 Cameron County ------------------------------------------------­54,697.06 Duval County -------------------------------------------------­23,539.54 Galveston County ------------------------------------------­201,565.14 Hidalgo County ----------------------------------------------------1,896.38 Jim Hogg County________________________________________________ 10,623.58 Jim Wells County_______________ _________________________ _ _ 27,121.81 Kleberg County ---------------------------------------­27,017.21 Nueces County --------------------------------------------------­82,068.44 Willacy County -----------------------------------------------16,805.13 Total -------------------------------------------------------------$493,717.58 Of this amount, the aid to Corpus Christi alone totaled $202,393.14. The policy of donation is one that can be easily abused; strict ad­herence to the cases contemplated by the Constitution will result in very sparing use of it. b. Assessment and Collection of the Property Tax. (1) Administrative Agencies. (a) The Comptroller of Public Accounts. The Comptroller is an officer provided for by the State Constitu­tion; he is a member of the Executive Department of the State, is elected at each biennial general election for a term of two years, and his annual salary is fixed by the Constitution at $2,500. His duties are fixed principally by statute. The duties of his office connected with the property taxes have to do largely with the checking, adjustment, and settlement of the accounts of tax collectors with the State; With the forms used by the assessors and collectors of State and county taxes, and with the methods used by these officers in keeping and stating their accounts; with the ascertainment of the lands unrendered or omitted from assessment in organized counties and the forwarding of the lists of same to the proper county officers; with the ascertainment and assess­ment of unrendered lands in unorganized counties and with the ad­vertisement and sale of all such lands upon which the taxes are un­paid, and with the bidding in for the State of such of these lands for which there are no private purchasers; with the records of delinquent property taxes and of the lands sold to the State for de­linquent taxes; and with the custody of the bonds of tax assessors and collectors and the adequacy of the bonds of tax collectors. The Comptroller assesses and collects the State and county taxes on all lands situated in unorganized counties which are owned by non-residents of the counties, and payment may be made to him of the State and county taxes of non-residents of any county. He is authorized to adopt such regulations as he may deem essen­tial to the speedy and proper assessment and collection of the revenues of the State, provided these are consistent with the Constitution and statutes. He is furthermore empowered to suggest plans for the im­provement and management of the general revenue. Assessors and collectors of State taxes look to the Comptroller's Department for advice and for administrative interpretation of the statutes dealing with the assessment and collection of taxes; and the Department has published a pamphlet entitled "Instructions to As­sessors," in which are given the statutory requirements, and the in­structions of the Comptroller relative to the assessment of State and county taxes. Heretofore, in connection with the original assessment work of assessors, the Comptroller has been confined principally to The University of Texas Bulletin the prescription of the forms to be used and to the giving of advice at long range. He, or members of his department, come in personal contact with assessors at the annual meetings of the Association of Tax Assessors, but this relationship is purely unofficial. Lack of legislative appropriations has prevented that direct and personal official supervision of the work of the assessing officers and of advice to these officers, which would seem to be an indispensable accompani­ment of the position of the State's chief accounting officer and neces­sary to the carrying out of the statutory provision which devolves upon him the duty of seeing that there is a proper assessment and collection of the revenues of the State. In other words, in the past the work of the department has been largely of a bookkeeping and clerical character, with the result that while there has been uniformity in the matter of forms used and reports made there has been great diversity and lack of uniformity in the practices of assessment of property. Beginning in 1921 the Legislature made provision for special tax auditors. The number of these officers and the provision made for their expenses restricted their work to the auditing to a limited extent of certain taxes, such as the inheritance and gross receipts tax returns. The Fortieth Legislature, in 1927, discontinued the use of the term "special tax auditor" and made provision for the salaries and traveling expenses of twenty "tax supervisors." It is unlikely that these so­called tax supervisors will have anything to do with the way in which assessors perform their duties as assessors of the property taxes. The published annual report of the Comptroller is the public's source of information about the financial details of the property tax. The material relating to assessments is very complete, and that as to collections is probably as accurate as present accounting methods in use by the department and collectors will permit. One should be able to find without difficulty, in a report dealing with State finance, the net amounts received by the State during the fiscal year from each and every tax and other source of revenue in effect; also, the cost of collection of each where special provision is made for cost of collection, as is the case with the property tax, and the amounts of expenditures, classified according to purpose. This elemental infor­mation cannot be obtained from the Comptroller's report. (b) The State Tax Board. The State Tax Board is composed of the Comptroller, the Secretary of State, and the Tax Commissioner of the State of Texas. It was created in 1905, and for the purpose primarily of ascertaining and apportioning among the COlJnties the intangible assets of the com­panies subject to taxation on the basis of their intangible, as well as their tangible, property. The office of State Tax Commissioner was created at this time, and the incumbent thereof is appointed by the Governor, subject to the approval of the Senate, and he holds office for two years. The law establishing the Board and defining its duties gives the Board extensive powers of investigation into the operation of the revenue laws of the State. Revised Statutes, 1925, Article 7101, Section 2, makes it the duty of the Board "to examine all books, papers, and accounts and to interrogate under oath, or otherwise, any and all persons whom said Board, or any member thereof, may desire to examine for the purpose of obtaining or acquiring any information that may in any way aid in securing a compliance with any tax law or revenue law of this State * * *." Article 7102 provides that "Said Tax Board, or any member thereof, or the Comptroller, under the direction of said Board, or of the Governor, shall, at least once in each year, visit such counties of the State as said Board or the Governor may direct, for the purpose of investigating into and aiding in the enforcement of all revenue laws of this State, and especially those concerning the rendition, as­sessment, and collection of taxes." While the Board has clearly the power to investigate the admin­istration of the property tax, in practice it has never made any search­ing inquiry of this kind, and for the reason mainly that the Legisla­ture has never, through the provision of an adequate appropriation, contemplated that the Board should conduct investigations or inquiries of this character. The work of the Board throughout its history has lain in the ascer­tainment and apportionment among the counties of the intangible assets of the railroad, ferry, bridge, turnpike, or toll companies. Of these companies the railroads are by far the most important. As it has functioned, the Board may be said to be a State admin­istrative body for performing a task of ascertainment of property values which by their nature cannot be determined by the county assessors. These intangible assets are considered property and are taxable at the State and county rates applying to other property. A further discussion of the taxation of intangible property will be found under the captions of the taxation of railroads and the taxation of intangible values. (c) The State Tax Rate Board. Until 1907 the State rates on property for general revenue and for public free school purposes were enacted by the Legislature, but in 1907 a board consisting of the Governor, the Comptroller, and the Treasurer was delegated the duty of calculating the State property tax rates. The method of calculating the general revenue rate is set out in the statut.es, and is as follows: From the total of the appropriation for the fiscal year beginning September 1 of the current year is de­ducted the revenue for State purposes derived from taxes other than the ad valorem tax during the first half of the current calendar year and the latter half of the preceding calendar year. The remainder, plus 20 per cent thereof, is then divided by the total of assessed values as reported by the tax assessors to the Comptroller before July 15 of the current year, and the quotient divided by 100 gives the tax rate in cents on the $100 valuation of property. A rate for public free school purposes is calculated which will produce $4 per capita of the children of scholastic age. These rates are certified by the Comptroller to the assessors. The Board meets as soon after July 15 as possible to calculate these rates and, having once acted and the rates certified to the assessors, the decision is final. (d) The County Assessor. According to the State Constitution, there shall be a county assessor, who shall be elected for a term of two years at each general election. Any change, therefore, in the method of selection of this officer or in his tenure involves an amendment of the Constitution. His prin­cipal work is to assess the property in his county for State and county purposes. He may serve as assessor for school, drainage, and such like districts and for any incorporated city, town, or village. It is usual for him to serve as district assessor, but most unusual for him to act as assessor for a municipality. The office of the assessor is at the county seat, but in counties hav­ing a city other than the county seat with a population of 25,000 or over a branch office may be established in the city or cities. The nec­essary books and stationery are furnished him by the county com­missioners court. Deputies and assistants may be allowed by the court, but their salaries, fixed by statute, are paid out of the fees of the assessor's office. In the performance of his duties as assessor of State and county taxes he must use the forms and follow the instructions of the State Comptroller. Furthermore, the printed headings in the books used and what shall be filled in by the assessor, the number of copies of the assessment rolls and their disposition, as well as other details of similar clerical character, are set forth in the statutes. The assessor is required to make a bond which, when approved by the county commissioners court, is deposited in the Comptroller's office. He and his deputies, before entering upon the duties of the office, must take the official oath laid down in the Constitution for all State officers and, in addition, a special oath, which covers at length and in some detail the performance of the duties of the asses­ sor's office. Also, another oath or affidavit of the same tenor is made when the assessment rolls are turned over to the board of equaliza­ tian for its examination and action thereon. The assessor and his Limiting Taxes on Tangible Property deputies are authorized to administer all oaths necessary to obtain complete and correct assessment of all taxable property situated in his county. For failure or neglect to administer to each taxpayer the statutory oath or affirmation, unless the person refuses to take same, the assessor may be penalized for each offense by a deduction by the county commissioners court of $50 from his compensation and, furthermore, this delinquency is deemed malfeasance and shall be cause for the assessor's removal from office. Also, if the assessor knowingly fails or refuses to fix the value of property in compliance with the standard set forth in the law, such failure, neglect, or re­fusal is considered malfeasance and shall be cause for his removal from office. Suit for removal shall be filed by the Attorney General in the district court of the county in which the assessor resides. In case of failure or neglect on the part of the assessor to make out and return his rollll! or books to the commissioners court in the time and manner prescribed by law, the court may deduct from his com­pensation what it deems proper and may employ someone to correct or complete the rolls or books, and the expense connected therewith shall be deducted from the assessor's compensation. For assessing the property tax an assessor is paid in proportion to the property values assessed, but there are fixed maxima which vary according to the population of the county. For the first $2,000,000 of property assessed, the fee is 5 cents for each $100; for assessed values in excess of $2,000,000 and less than $5,000,000, the fee is 2% cents on each $100; and for assessed values in excess of $5,000,000 the fee is 214 cents on each $100. One-half of the fee is paid by the State and one-half by the county. The fees for assessing school district and other district taxes and the poll taxes are laid down in the statutes. In counties having less than 25,000 inhabitants, the assessor is entitled to receive a maximum salary of $2,250; in counties with a population of 25,000 and less than 37,500 and in which there is no city containing over 25,000 inhabitants, the maximum salary is $2,400 plus one-fourth of excess fees up to $1,250, or a possible total compen­sation of $3,650. One-fourth of the excess fees up to the amount of $1,250 may be retained by the assessor in counties with a popula­tion between 25,000 and 38,000. In counties containing 37,500 in­habitants or more, or having a city of over 25,000 population, the maximum salary is $2,750 plus one-fourth of the excess fees up to $1,500, or a possible total compensation of $4,250. The maximum of $1,500 of excess fees is restricted to counties having a population of over 38,000. By "excess fees" are meant those fees of office col­lected by an officer in excess of the amount needed to pay the amount allowed the officer and his assistants or deputies. If in any year an assessor fails to receive the maximum fixed salary (i.e., $2,250, $2,400, or $2,750) he may make up the deficiency out of any excess amounts of a later year. 34 The University of Texas Bulletin Ex-officio services shall not be performed by an assessor when the pay for such services will make the amount he receives from his office greater than the fixed salary plus the amount fixed in the statute which he may receive from excess fees. All fees of office beyond the total compensation allowed by law shall be paid into the treasury of the county, and it is out of these that salaries of deputies, clerical, and other expenses of the assessor's office are met. A record of the fees and commissions must be kept by the assessor and, except in counties with a population of 25,000 or less, the state­ment of the sums received is examined by the grand jury and re­ported on by the jury to the district court. A sworn statement also of the fees collected during the year must be made by the assessor to the district court and to the Comptroller. The fiscal year for the fee statement begins January 1. The Comptroller, upon receipt of the assessment roll, gives to the assessor an order on the collector of his county for the amount due for assessing the State taxes, and this order is payable out of the first money collected for that year. The Comptroller may not issue this draft, however, until after he has received from the Board of Equalization a certification that all taxable land in the county has been assessed. In the case of unorganized counties, the property of residents is assessed by the assessor of the county to which the unorganized county is attached for judicial purposes. The laws and regulations govern­ing assessors and assessments in organized counties apply here. The Comptroller assesses and collects the taxes of non-residents of un­organized counties, and while the details are somewhat different the principles are the same as those which govern assessment in general. At present Crane and Loving are the only two unorganized counties. (e) The County Collector. According to the State Constitution, there shall be a collector of taxes elected at each biennial election in every county having 10,000 inhabitants or more, but in counties having les sthan 10,000 inhabi­tants the sheriff shall be the collector. When the sheriff acts as col­lector he is subject to all of the provisions of the law governing col­lectors proper. The taxes on the lands of non-residents are col­lected by the Comptroller, and non-residents of any county may pay their taxes to the Comptroller, provided payment is made on or before January 1 next after the assessment. The taxes on the prop­erty of residents of unorganized counties are collected by the col­lector of the county to which the unorganized county is attached for judicial purposes. The duties of the collector pertain largely to the collection of the State and county ad valorem taxes, hut they include also the collec­tion of poll, general occupation, and inheritance taxes and motor license fees. He collects all district taxes, except where otherwise provided. Water improvement districts have one officer, who is both assessor and collector, and drainage districts may have an independent collector, but in the cases of other districts the county collector is the collector of the taxes. Any incorporated city, town, or village may have the county tax collector as the collector of its taxes. Under certain circumstances the collector shall assess, as well as collect, State and county property taxes. The commissioners court is de­barred from allowing compensation to the collector for ex-officio services should the fixed salary and allowable excess fees exceed the maximum compensation set by law. The forms used by tax collectors and the mode and manner of stating their accounts are furnished or prescribed by the Comptroller, and some of the details of these are set forth in the statutes. The collector must give bond, and same is subject to approval by the commissioners court and by the Comptroller, and it is in the custody of the Comptroller. The collector also must take the oath of office laid down in the Constitution of the State. The office of the collector is at the county seat, but branch offices may be established in cities other than the county seat which have a population of 25,000 or more. The collector may appoint one or more deputies, and they are paid out of the fees of his office. For collecting the State property tax the collector is entitled to receive 5 per cent on the first $10,000 collected, 4 per cent on the next $10,000, and 1 per cent on all above. The fee for collecting county, district, or other taxes and for services connected with de­linquent taxes and with the sale of property for taxes are all fixed by law. The fixed salaries of collectors are the same as those of assessors and the limits to the total compensation are the same, but payments for some services by collectors are excluded from the limita­tion on compensation fixed by the statutes. The collector is required to make under oath a monthly itemized report to the Comptroller, which shall show the collections made by him during the month of each kind of taxes and the disposition of all State taxes collected. The report must bear the certification of the county clerk that the items of the report and the stubs of the col­lector's receipt book agree. The collector must also file annually with the district court and the Comptroller a sworn statement of the amount of fees collected by him during the fiscal year beginning January 1. He is required to deposit in the county depository or de­positories as soon as collected all taxes collected by him and the interest accruing to each fund is credited by the collector to the fund. Failure on the part of the collector to remit promptly to the State or county treasurer shall be followed by action of the commissioners court, which looks to obtaining a compliance with the law. {f) The County Commissioners Court. The Constitution provides that each county shall be divided into four commissioners precincts and that one commissioner shall be elected biennially in each precinct for a term of two years. In coun­ties whose assessed valuation is $100,000,000 or more, the commis­sioners receive an annual salary which is fixed by statute and they are expected to give their whole time to their duties; in other counties they are paid a per diem for each day of service, but there is a limit to the total compensation which may be received during the year. The court has many duties in connection with the assessment and collection of the property tax, but probably the most outstanding one of these is the equalization of assessed values. Article VIII, Section 18, of the Constitution, provides that "The Legislature shall provide for equalizing, as near as may be, the valuation of all property subject to or rendered for taxation (the county commissioners court to con­stitute a board of equalization), and may also provide for classifi­cation of all lands with reference to their value in the several counties." The function of equalization has been construed to mean that the board shall see that as nearly as possible all property within the county shall be assessed at the same proportion of true value. The statutes, however, contemplate that the board shall have more than this to do with the valuation of property. They make it the duty of the board to see that property is valued in accordance with the laws of the State, and each member of the board takes an oath that he "will not vote to allow any taxable property to stand assessed on the tax rolls at what he believes to be less than its true market value, or, if it has not market value, then its real value." If the boards did what the oath enjoins, there would be a uniformity and equality in the assessment of property throughout the State, but it is notorious that there is no such uniformity. Conscious failure of the commissioners to carry out the provisions of the law constitutes malfeasance in office and shall be cause for removal from office. It is made the duty of the Attorney General to bring suit for removal in the district court of the county of the offending officer. The commissioners court sits as a board of equalization on the second Monday in May of each year, or as soon thereafter as prac­ticable before the first day of June. The board itself is not permitted to add any property to the assessment rolls, but it may only raise or lower or leave unchanged the valuation of any item of property appearing on the rolls. The board has no authority over the tax assessor in the matter of valuation until that officer has submitted his rolls to the board. The court, either as a court or a board of equalization, has no authority to instruct the assessor to assess prop­erty below its true or full value. The court, acting as a board of equalization, inspects the assess­ment rolls of both rendered and unrendered property, corrects errors, and approves or disapproves the rolls; it furnishes to the grand jury a list of the persons who refuse to render their property or to take the taxpayer's oath and who offer to the board no satisfactory reason for their refusal. In performing its duties in connection with valua­tion of property, the board has the power to swear or qualify persons and to compel the appearance or production before it of persons, books, and papers. If the board decides to raise an assessment, the county clerk must give to the taxpayer concerned written notice of the board's intention, and public notice through a newspaper or posted notice of the meeting at which raises in value are to be considered must be given ten days before the meeting. The last clause of Article VIII, Section 18, empowers the Legisla­ture to "provide for the classification of all lands with reference to their value in the several counties." Pursuant to this, the Legislature has put upon the county boards of equalization the duty of equalizing improved and unimproved lands each into three classes. There are some duties relating to the property tax which the com­ missioners court may perform even when not sitting as a board of equalization. The court at any meeting may refer omitted items or invalidated assessments of real property to the assessor for assess­ ment or reassessment. As a court, too, it can adjudicate differences between assessor and taxpayer over valuation. Also, excessive or un­ reasonable valuations of unrendered and unknown property may be reduced by the court at the request of the tax collector. The jurisdiction of the equalization board of the county to which the unorganized county is attached for judicial purposes extends to the assessments of property of residents of the unorganized county. In the case of disagreement over valuation between non-residents of unorganized counties and the Comptroller, appeal may be made by the taxpayer to a board composed of the Governor, the Attorney General, and the Secretary of State. (2) General Provisions. (a) Classes of Property. The statutes classify property into real, personal, or mixed. Real property is defined to include land, buildings, or other fixtures on land, and all the rights and privileges belonging or in anywise apper­ taining to land, and all mines, minerals, quarries, and fossils in and under land. Personal property includes all other property. How­ ever, there are classed as personal property improvements made by persons upon lands the title to which still vests in the State or in any railroad company or any other corporation whose property is not subject to the same mode and rules of taxation as other property. Personal property is made to include, also, the income of an annuity the capital of which is not taxed by the State. Nowhere in the stat­ utes is there stated what is meant by "mixed property." Although the terms "tangible" and "intangible" are not used in the laws, personal property may be classified under these terms. As The University of Texas Bulletin ordinarily used, intangible property means money, credits, and securi­ties; and tangible property includes all other personal property. (b) Persons Liable for Renditions. The owner or his agent shall render his taxable property, except that the property of a wife shall be rendered by her husband, unless he is of unsound mind, in which case it shall be rendered by her or her agent; the property of a minor child or <>f an idiot or lunatic shall be listed by the guardian or by the person having the property in charge; trustees, executors, administrators, and receivers shall list the property held by them. The listing of the property of a cor­poration shall be by the president or proper agent or officer, and the property of a co-partnership shall be by one of the partners or an agent. Persons listing property for others shall list it separately from their own. If any property is not listed by the owner or his agent, the assessor assesses the same to the owner if known, but if the owner is unknown it is assessed to "unknown owner," and the valuation that is placed upon it must be sanctioned by the board of equalization. A person who owns property and refuses to assess it when called upon by the assessor to do so shall be reported to the board of equalization, and the board in turn may report the person to the grand jury. (c) Place of Assessment and Collection. The Constitution (Article VIII, Sections 8, 11, and 12) sets forth at some length the rules governing the place where property shall be assessed and where the taxes shall be collected. County and local taxes on property accrue to the jurisdiction where they are collected. With the exception of p_roperty in unorganized counties and the rolling stock of railroads, property is assessed and the taxes collected in the county where it is ~ocated. As the Constitution and statutes have been construed, real prop­erty, except in unorganized counties, is assessed and the taxes col­lected in the county where such property is situated. The law as to the suits of tangible personal property is the same as that of real estate, but there are several exceptions to this rule. The exceptions are, first, that the rolling stock of a railroad company is all rendered and assessed in the county where the principal office is located; this assessment is reported to the Comptroller and is prorated by him among the counties served by the railroad on the basis of mileage in each; second, that livestock in pastures which extend over more than one county is taxable in proportion to the acreage in each county, but cattle running on the range which may extend over more than one county are taxable in the county where the owner resides or where the ranch is situated; third, that livestock temporarily removed from a county are assessable in the home county; and fourth, that Limiting Taxes on Tangible Property steamboats and other water craft are assessable in the county where licensed or, if not licensed, where kept. The taxes are collected in the jurisdiction where assessed and they accrue to that jurisdiction. With some exceptions, intangible personal property is assessed and the taxes collected where the owner resides. The principal exception to this rule of situs is bank stock. It is assessable and the taxes on it are collected where the bank is located. Another exception is intangible personal property owned by a non-resident of the State, but kept or deposited in this State. Such property is held to be assessable where located. County and local taxes on intangible personal property accrue to the jurisdiction where the property is assessed and the taxes thereon collected. (d) Taxpayer's Oath. A person listing property, either for himself or for others, must sign the assessment blank and must verify by oath or affirmation the rendition he has made. The oath is set forth in the statutes and relates to the completeness of the list or quantity of the taxable property and to the truth of the answers made to questions by the assessor relating to the rendition. This oath or affirmation is printed on each assessment form and must be signed by the person making the rendition. Severe penalties are prescribed for assessors who fail to administer the oath, and the names of the persons who refuse to take the oath may be referred by the board of equalization to the grand jury. The law calls upon the assessor to require another oath of taxpayers which is to the effect that the taxpayer has not on January 1, or within sixty days prior thereto, made any pretended or fictitious exchange effected by entry on bank books of taxable money or bonds for United States non-taxable notes or bonds. This law was enacted in 1891, and at that time notes issued by the Federal government were the United States notes (popularly called "greenbacks") and the Treasury notes of 1890. Both were money and were non-taxable. Inasmuch as they did not bear interest, they could not be considered investment securities. The United States notes were made taxable in 1895. Today the notes issued by the Federal government are interest-bearing securities and are therefore in demand by investors. The great war into which the United States entered in 1917 led to the appearance of a number of new types of government securities, and among them was the Treasury tax certificate of indebtedness. This is still employed, and it is technically neither a note nor a bond. On strictly technical grounds the Texas statute of 1891 does not cover them. This oath is not printed on the assessment blank, and it is rarely, if ever, administered. Many persons who render property believe that the oath or affirma­tion refers only to the quantity of the property and does not cover The University of Texas Bulletin statements relative to the value of the property. The language of the statutes, however, seems clearly to include value as well as quan­tity. Article 7161 of the Revised Civil Statutes states that each per­son required by law to list property shall make and sign a statement, verified by his oath, as required by law, of all his property. Article 7162 provides that this statement shall truly and distinctly set forth the quantity of each of the enumerated items and the value of each. As will be seen later, value for purposes of taxation is contemplated by the law to be the true cash or market value. Furthermore, in­tangible personal property and money items of tangible personal property cannot be listed as items, but only in terms of their value. A non-resident of a county may list his property, make the required oath before any officer authorized to administer oaths, and forward his inventory to the tax assessor of the county where the property is taxable. (e) Standard of Valuation. In respect to valuation, the Constitution provides merely that the value for taxation shall be that which shall be ascertained in accord­ance with law. In the legislation on this subject there are various terms employed to describe the value which shall constitute the basis for taxation. The following terms are to be found in the laws: "true and full value in money," "full value," "fair market value, in cash," "actual value," "actual cash value," "reasonable cash market value," "real or intrinsic value," "true value," "market value," "cash value," "real value," "true market value." Article 717 4, which deals spe­cifically with valuation, enjoins that each separate parcel of real property and personal property of every description shall be valued at their "true and full value in money," and elsewhere (Article 7149) it is provided that "the term true and full value wherever used shall be held to mean the fair market value in cash, * * * being the price which could be obtained at private sale, and not at forced or auction sale." There are to be found, also, in the statutes specific requirements of the full and true valuation of real estate, shares of bank stock, and the property of railroad, telegraph, plank road, and turnpike companies. The assessor takes an oath that to the best of his ability he will make a true estimate of the cash or market value of property or of the real value, if it has no market value, and the members of the board of equalization subscribe to an oath that they will not vote to allow any taxable property to stand assessed at a sum less than its true market value or, if it has no market value, its real value. As one is taxable on the property he had on January first of the year for which the assessment is made, it is the value of this property on January first, and not its value at the time or date of rendition, which is the basis of taxation. The duty to list and value property is, in the first instance, upon the owner of the property or his agent, and it is not in accord with either the letter or the spirit of law that the person rendering prop­erty shall seek to get by the assessor with a false valuation. (f) Time of Assessment and Collection. Under existing laws, property is assessed for State and county taxes between January 1 and April 30 of each year, and the amount held or owned on January 1 is what is assessed. An assessment after April 30, however, is a valid one. Unrendered property is assessed by the assessor after the rolls of regularly listed property have been submitted to the board of equalization and have been approved by the board and returned to the assessor. The collection of taxes begins on October 1, or as soon thereafter as the collector is prepared to begin. A penalty for non-payment of taxes does not begin to run until after the succeeding January 31. Non-residents of counties are authorized to pay State or county taxes to the Comptroller on or before January 1 following the assessment of such taxes. (g) Delinquent and Back Taxes. State and county property taxes become delinquent if not paid before the first of February of the year next succeeding the year for which the taxes are assessed, and a penalty of 10 per cent of the amount of the taxes begins to run, beginning February 1. If pay­ment is not made by March 31, it becomes the duty of the collector to make, in triplicate, a list of the lands and lots on which the taxes are delinquent. It is directed that this list shall go first to the com­missioners court for examination, correction, and approval, and that thereafter one copy shall be filed with the county clerk, one shall be sent to the Comptroller, and one shall be retained by the collector. The insolvent list is made up of persons who have not paid their taxes and who have no property out of which the taxes assessed may be recovered and of persons who have moved out of the county and who have no property in the county out of which the taxes can be collected. Article VIII, Section 13, of the Constitution, relates to the sale of property for taxes due thereon, and it provides for the right of re­demption by the former owner within a period of two years from the time of sale. The Supreme Court of Texas, in the case of Richey vs. Moor, 249 S. W. 172 (1923), states that the laws provide for three methods of compulsory collection of taxes: First, foreclosure of and sale under the constitutional lien imposed on each tract of land for the taxes assessed against it; second, the summary process of seizure and sale by the collector; and third, suit for taxes and the levy on and sale of lands in satisfaction of the judgment. The second and third of these methods are provided for at length in the statutes. The older one of the two is the second, and it dates back to the legislation of 1876. Under this method the collector may seize, levy upon and sell personal property. The property levied upon must be advertised for ten days prior to date of sale. If the per­sonal property first levied upon is insufficient to meet the taxes, penalty, interest, and costs, then other personal property may be levied upon and sold. If there is an insufficiency of personal prop­erty, then real property located in the county and belonging to the delinquent may be seized by the collector and sold. The real estate levied upon must be advertised for sale for three successive weeks in some newspaper published in the county where the land is to be sold, but if newspaper publication is not possible, then publication shall be by posting the advertisement of sale at the courthouse door and three other public places for thirty days previous to sale, and sale shall take place on the first Tuesday of the month. The advertise­ment must give the description which the property carries on the tax rolls, the name of the owner if known, but if owner is unknown the advertisement shall so state, and it must give the time, place, and terms of sale. Only so much real estate shall be sold as may be necessary to realize the amount due by the delinquent. Prior to the sale of any real property, the collector shall post for thirty days in three public places, including the courthouse door, the names of delinquents. If there should not be a private purchaser of the real estate, the collector must bid in the property for the State for the taxes, penalty, and costs. It is also the duty of the collector to execute a tax deed to the private purchaser or to the State, as the case may be. The owner of land which has been sold for taxes has two years from date of sale within which to redeem the land, and redemption is effected by paying or tendering to the purchaser or his heirs or legal representatives double the amount for which the land was sold. In the event the private purchaser cannot be found or is a non­resident of the county, and also in case of disagreement between the purchaser and former owner as to the amount of redemption money, the former owner may redeem the property by payment to the tax collector of the amount involved. If the land has been bid in by the State, redemption may be had by depositing with the collector double the amount of purchase money and all accrued taxes. The method which has just been described may be called the method of summary sale. The other method, which is fully set forth in the law, is the one of suit, judgment, and foreclosure of the tax lien. This one goes back to 1895 and is popularly known as the Colquitt Delin­quent Tax Law. Under it, the collector during April and May of each year, or as soon thereafter as practicable, must mail a notice to each delinquent real property owner which shall contain a descrip­tion of the property on which the taxes remain unpaid, a statement Limiting Taxes on Tangible Property of the amounts due each year, and a warning that unless the taxes, interest on same at 6 per cent, penalty of 10 per cent, and costs, are paid within thirty days from date of notice, the county or district attorney will bring suit for the collection of the amount due. If pay­ment of the amount due is not made within this thirty-day period, it becomes the duty of the county or district attorney, under penalty of fine and forfeiture of his office, to file suit. However, it is pro­vided that if the county or district attorney, after thirty days' writ­ten notice from the commissioners court, should fail to file delinquent tax suits, the court may contract with any competent attorney to en­force the collection of the amounts due and pay him on the basis of a per cent of collections. The Attorney General's Department has held this contract feature of the law unconstitutional, unless the at­torney is hired to assist the county or district attorney, and the department has ruled also that the court cannot contract to pay as commission any of the State's tax and that the court has no consti­tutional power to order suits for taxes on the basis of the amounts involved. This latter has reference to a provision of the law which makes it optional with the court to order suits where the amount is less than $5. The department has held also that the provision of a law that county and district attorneys are not to institute suit for the collection'of delinquent taxes accruing prior to December 31, 1908, is constitutional, because there are other ways than by suit for col­lecting delinquent taxes. Suit for taxes shall be brought as an ordinary foreclosure for debt, and in case of foreclosure an order of sale is issued and the land is sold. If there should be no private purchaser, the land shall be bid in to the State and a deed executed to the State. Redemption within two years from date of sale is permitted to the former owner, but in the case of land which has been bid in by the State, if it should not be redeemed within the prescribed time, it shall be sold publicly by the sheriff to the highest bidder. Redemption is effected by payment by former owner or his heirs or representatives of double the amount of money paid for the land at the tax sale. As a matter of history, the Legislature has every two years extended for two years the period of redemption of land which has been bid in by the State. A delin­quent taxpayer may at any time before the land is sold for taxes redeem it upon payment of all taxes, interest, penalties, and costs. Interest at 6 per cent and penalty of 10 per cent are based on the amount of the taxes, and all fees . are added as costs. The tax col­lector is entitled to a fee of $1 for each assessment and to 5 per cent of all delinquent taxes collected by him. The county or district attorney is entitled to a fee of $5 for the first tract in each suit and to $1 for each additional tract involved in the same suit. The sheriff is entitled to a fee of $1 for selling the land and making the deed; the district clerk to a fee of $1.50, and the county clerk to $1. In case the delinquent taxpayer pays up while the suit is pending, the The University of Texas Bulletin county attorney is entitled to a fee of only $2 for the first tract and $1 for each additional tract, and the district clerk to $1. All of the fees provided for are, with the exception of the tax collector's, to be regarded as additional compensation and do not fall within the limits set to receipts from fees of office. Besides the fees, another item of cost is that of advertising the delinquent list in the newspaper. When only personal property is involved, the procedure to follow may be either that of levy upon and sale by the collector or that of suit by the county or district attorney. The procedure most relied on in the collection of delinquent taxes has as its basis the lien upon real property which taxes upon such property have. However, all real and personal property owned by a person is liable for the property taxes due by such person, with the exception that the homestead is liable for only the taxes due on it. Taxes upon property constitute a first lien upon it, but in the case of the estate of a deceased person, this lien is inferior to the allow­ances to the widow and minor children, to funeral expenses and ex­penses of last illness. Furthermore, no statute of limitation may be invoked against the payment of any State, county, city, town, or inde­pendent school district tax. The statutory provisions relating to delinquent taxes and to the procedure for compulsory collection have been passed ae different times, beginning in 1876 under the present Constitution, and they are lacking in clearness and consistency. There is great need of their being clarified and brought together as a unified whole in one chapter of the code. 3. THE REVENUE IMPORTANCE OF THE GENERAL PROPERTY TAX There are levied at the present time by the State three different tax rates on property in general. The proceeds of the general revenue rate go into the general revenue fund and contribute substantially toward meeting the general expenses of the State government; the proceeds of the available school rate go into the available school fund and so assist in the support of the public free schools; and the pro­ceeds of the Confederate pension rate provide pensions for Confederate veterans or their widows. Previous to 1883 the constitutional maximum State tax rate was 50 cents on the $100 valuation, and there were no rates authorized for any special purposes. In 1883 the Constitution was amended to pro­vide that the rate of the general revenue tax, exclusive of the tax to pay the public debt, should never exceed 35 cents on the $100 valuation, and that a separate tax, not to exceed 20 cents, should be levied for the benefit of the public free schools. By the free text book amendment to the Constitution in 1918 the maximum of the school tax rate was raised to 35 cents. An amendment to the Con­stitution in 1912 authorized a special tax of 5 cents for the payment of pensions to Confederate veterans or their widows, and in 1924 an Limiting Taxes on Tangible Property 45 amendment was adopted which increased the rate to 7 cents. The school and pension ad valorem taxes are special property taxes in that each has independent constitutional existence and their pro­ceeds are dedicated to very specific purposes. The proceeds of the general revenue rate go to support the State departments, boards, com­missions, and offices, the charitable, the correctional, and the higher educational institutions, and the other State activities and agencies. From the points of view of both the State and the taxpayers, the three taxes on property are one tax. They fall on the same assessment basis, they are paid at the same time, and the payment of each is equally mandatory. Their combined total-the constitutional max­imum of which is 77 cents on the $100 valuation--constitutes the State property tax rate. The property tax has always been the most important single source of State revenue. Though the use and growth of other sources of State revenue are diminishing the proportion which receipts from the property tax are of total State revenue receipts, there has been in the last twenty-five years an enormous increase in the absolute and per capita amounts received from this tax. Table No. 1 presents the facts as to the amounts and the importance of the several sources of State revenue and the changes which have taken place during the past twenty-five years. Table No. 1 and Table No. 2 are based on reports of the United States census. The census publications entitled "Wealth, Debt, and Taxation"; "Financial Statistics of States," and "Financial Statistics of Cities," contain the best analysis and most complete presentation of State and local governmental financial statistics available. The features of Table No. 1 to which attention may be called are, first, the increase in revenue receipts between 1912 and 1926. The increase was 472.3 per cent, as compared with one of 62.5 per cent between 1902 and 1912. Second, while revenue receipts grew 472.3 per cent, receipts from taxes increased 490.1 per cent. Between 1902 and 1912 tax revenues increased 83.7 per cent. Third, the increase in the receipts from the general property tax was 320.4 per cent between 1912 and 1926, as compared with 116 per cent between 1902 and 1912; receipts from other taxes increased 834.2 per cent between 1912 and 1926, as compared with 41 per cent between 1902 and 1912. From the foregoing comparisons and from the per capita and per­centage columns of Table No. 1, it may be seen that between 1902 and 1912 the general property tax was called upon to supply by far the larger share of the increased revenue receipts. Reference to Table No. 2 shows that this increase was the result of the growth of assessed values, for the tax rate of 1912 was 8 cents lower than the rate in 1902. In 1926 the general property tax was of more absolute importance than ever before, though other taxes were relatively more important than formerly. Between 1912 and 1926, while the general property The University of Texas Bulletin tax receipts grew 320.4 per cent, the returns from other taxes in­creased 834.2 per cent. These other taxes were principally the re­cently introduced motor vehicle, oil and gasoline taxes, and their proceeds went for the most part to such specific purposes as high­ways and education. The rate of the general property tax was 65 cents in 1926, as compared with 26% cents in 1912. This was an increase in the rate of 143.7 per cent, as compared with a growth in assessed values of 45 per cent.* According to the report of the Comptroller for 1926, the general revenue rate of 35 cents produced $11,313,825, which was 49.4 per cent of all general revenue receipts; the available school fund rate of 35 cents brought in $11,313,825, which was 63.1 per cent of all the receipts of that fund; and the pension rate of 7 cents produced $2,262,765, which was 99.9 per cent of all of the receipts of that fund. The following table is an analysis of the statement of the general revenue fund for the year ended August 31, 1927, as given in the report of the Comptroller for 1927. TABLE No. 3 Ad valorem taxes (i.e., property taxes) ___________ $21,691,590.85 Poll taxes -----------------------------------------------1,395,277.34 General occupation taxes_____________________________ 326,793.80 Total of above taxes.________________________ ___$23,413,661.99 Less transfers to available school fund__________ 12,503,201.79 Less transfers to pension fund___________________ 2,299,125.79 Net general revenue from general taxes__ .$ 8,611,334.41 Gross receipts taxes ---------------------------------7,495,394.84 Franchise taxes and charter fees____________________ 1,698,220.18 Inheritance tax ---------------------------------------------1,560,336.34 Total net taxes, general revenue________________$19,365,285.77 Interest, department fees, etc._________________________ 1,539,950.08 Total income ----------------------------------------$20,905,238.85 Cash, August 31, 1926_____________________________ 5,396,951.42 Total ---------------------------------------------------------$26,302,190.27 *Note: The census publication does not give a division of the proceeds of the property tax according to funds. The total given by the Comptroller as received from this tax is $24,890,415. The total given in the census report is $26,604,863, but included in this amount is $1,709,001 of costs of assessment and collection, an item which is not included in the Comptroller's figure. This still leaves the census total greater than the Comptroller's by $5,446, and it is probable that this amount is to be found in some such item as °Comptroller's Miscellaneous Collections" or "Mis­cellaneous Deposits to Revenue" in the general revenue fund of the Comptroller's report. Texas was eleventh among the States in 1926 in the proportion of revenue receipts derived from the general property tax. The follow­ing table was based on the report of the census: TABLE No. 4 Arizona ___________________ ___________________________62.7 per cent New Jersey _______________ _____________47. per cent Utah _______________________________________-45.4 per cent Illinois ______ _____________________42.1 per cent Nebraska _ ______ ____________ ________________ ________40.2 per cent Washington _ _________________ _ ____ _ ______________39.7 per cent Kansas ________ ___________________________37.6 per cent Louisiana ______________________________________ ________37.5 per cent Michigan _____________________________________________ 37. per cent Colorado ________ ____ __ _____________________________37. per cent Texas -----------------------------------------------------------36.9 per cent The general property tax is used not only by the State but by the counties, incorporated places, and districts. In 1922, the State and the other taxing jurisdictions of the State collected $94,890,000 from the general property tax. Total taxes, licenses, permits, and special assessments collected by the State and local governments in Texas in 1922 amounted to $110,046,000, of which sum the taxes on property constituted 86 per cent. The following table shows the relative im­portance of the general property tax among the taxes employed by the different taxing jurisdictions in 1922: TABLE No. 5 Total From General Tax Receipts Property Tax State -------------------------------------------$30,210,000 $19,677,000 Counties --------------------------------------27,263,000 24,296,000 Incorporated places ----------------------30,921,000 29,425,000 Districts ----------------------------------21,652,000 21,492,000 The large part which the general property tax plays in the tax system of the State and its subdivisions makes the question of its operation of very great importance. 4. THE OPERATION OF THE GENERAL PROPERTY TAX a. It Is a Tax Principally on Real Property. The property tax has always been and still is a tax which falls mainly on real property. The following table shows the proportions which real property, intangible personal property (money, credits, bonds, and stock other than bank stock) and other personal property are of total assessed value : TABLE No. 6 Real Intangible Per-Other Per­Property sonal Property sonal Property Year Per Cent Per Cent Per Cent 1900 --------------------62.8 2.6 34.6 1910 -------------------------64.2 3.2 32.6 1912 ----------------------65.1 2.8 32.1 1915 ----------------65.4 2.6 32. 1920 ---------63.1 3.1 33.8 1922 ---------------66.1 2.2 31.7 1926 ---------67.8 1.6 30.6 Real property has for some time constituted about two-thirds of assessed values. If it made up about two-thirds of the wealth of ~he State, its ratio of assessed values would be acceptable, but according to the United States Census real property was 53.2 per cent of the tangible wealth of the State in 1912. The census did not include an estimate of intangible personal property, and when this omission is considered the disproportionate burden borne by real property is evi­dent. In 1922, according to the census; real property was 58.8 per cent of tangible wealth. Under our tax laws, however, intangible personal property is taxable, and had this been estimated and in­cluded in 1922, the proportion of real property would have been very much less than 58.8. The discrepancy between real property and other forms of property is shown by the following table, which is based on census statistics: TABLE No. 7 Per cent assessed value of census estimate of true value. 1922 1912 1900 Real property _______________________38.3 50 49.2 Live stock 48.3 39.5 42.2 Manufacturing machinery __________21.7 21.8 27.6 Railroads and equipment_ ______.38.7 64.9 41.1 Street railways ____ ____________19 Telegraph and telephone________25.6 b. Escape of Personal Property. Comparison between tangible property and intangible personal property cannot be made because the amount of the latter which is owned in the State is unknown, with the exception of the deposits Of State and national banks. On December 31, 1925, the demand deposits held by incorporated banks in this State amounted to $516,­618,000; the amount of money reported by taxpayers as on hand or on deposit on January 1, 1926, was $25,238,595, or 4.8 per cent of the demand deposits reported for the previous day. Time deposits should be included, but the consolidated bank statements do not separate the taxable deposits from those of counties, cities, and other governmental jurisdictions whose deposits are non-taxable. Some of the demand deposits are non-taxable because they belong to non­residents and some also may be government deposits, but, everything considered, 4.8 per cent is a fair indication of the non-rendition by taxpayers of their bank deposits. The same evasion characterizes the taxation of credits and of securities. Only $25,238,595 of taxable credits and $3,393,214 of taxable stocks and bonds were assessed as being owned on January 1, 1926. In 81 of the 250 counties whose assessment lists were reported in the report of the Comptroller for 1926 there was no assessment whatever of money; there were no credits assessed in 130 counties and no bonds or stocks in 217 coun­ ties. Assessments of money in Dallas County amounted to $6,890,­730, but in Harris County they were only $53,740. Credits other than those of bankers were $10,325,600 in Dallas County and $18,800 in Harris County. These returns and comparisons relating to the assessment of intangible personal property are indicative of the way the law relating to the assessment of personal property is being ad­ministered and is operating. c. Lack of Uniformity in Assessment Rates. There are varying percentages of assessed to true value of land and other property from county to county; also the different classes of property within the same county have different assessment ratios, and different individual owners of the same class of property within the same county are assessed at different proportions of true value. The conditions in the State in the matter of the assessment basis of property are chaotic. The Tax Survey Committee in its questionnaire to county judges sought to ascertain the assessment practices through­out the State, and the following table is a classification of the replies received: TABLE No. 8 Per Cent Assessment City Mer­ Ratio Farm Land Ranch Land Real Estate chandise 20 and under__________ lO 9 2 1 21-30 _____________________31 32 21 8 31-40 ________________________56 49 57 35 41-50 _______________________48 48 59 56 51-60 ______________________ll 10 16 35 61-70 ---------------------3 3 6 15 71-80 ----------------------6 11 11 17 81-90 ----------------------­ 1 1 91-100 ---------------------2 2 4 5 Total replies..167 164 177 173 The central tendency as to assessment basis of real property is be­tween 31 and 50 per cent. There is also revealed a tendency to assess city real estate and merchandise at a higher percentage than farm and ranch lands. The comparison can best be made between the different classes of real property, because there may be considerable non-listing of merchandise which would offset the higher assessment basis. It may be concluded from what has been presented in regard to the operation of the property tax that (1) it is a tax mainly on real property, (2) real property is undervalued for purposes of taxation, (3) other property which is taxable under existing laws is escaping taxation to a greater degree than is real estate and the extent of escape varies according to the tangible or intangible character and the simplicity or complexity of the property. The ease of conceal­ment of money, credits, and securities, and the complex and intricate character of large scale corporate properties, such as public utilities, oil companies, large department stores, explain how under our present tax laws and machinery of administration there is a steep gradation in the degrees of the actual amounts or values of the different taxable properties reached for taxation. The result of the failure of the property tax to reach all taxable property is that owners of some classes are penalized while owners of other classes of property are favored in the contributions they are compelled to make towards the support of the State government. The injustice of the actual situation is obvious. There are unjust dis­criminations among the owners of the different classes of property and there are equally unjust discriminations among the owners within the same class of property. The modest and comparatively inex­pensive home of the laborer can be, and is, more nearly valued and assessed at its real market value than can be, and is, the more costly residence of the well-to-do. This regressive operation of the tax is also true of the small and large mercantile establishments. While there is underassessment of rural property, yet quantitatively such property is more fully listed than is the property in the city. The city is the home of intangible personal property, of costly household furnishings, of diamonds and precious jewel, gold and silver plate, of valuable franchises, and only a fraction of all of this property is reached. d. Inducement to Perjury. The undervaluation and evasion which characterize the operation of the property tax have a more ominous significance than their effect on State revenue. They represent a widespread disregard for law and of the sanctity of legal oaths. The deception and perjury which the property tax leads to are menacing to public and private morals and to the future of good government. The ret.ention of a tax whose history in this and other states exhibits these unjust and immoral consequences may well be questiond. But if the tax is re­tained as a Stat.e tax there is no question about the need of making changes in it, of overhauling its administrative machinery. THE PRESENT STATUS OF PROPERTY TAXATION (From State and Local Ta4'atiOrations The tendency to exempt representative property is illustrated further by the practice in regard to the taxation of securities of most business corporations. Shares of stocks of most domestic corporations are now exempt in 32 states.19 These exemptions are frequently limited, however, to domestic corporations whose property is taxed within the taxing state-a further illustration of the tendency of states to attempt to tax property outside of their boundaries. In about 13 states the individual owners of the capital stock are exempt, but a tax equivalent to a property tax on the stock is imposed upon the corporation in the form of either a capital stock tax or a corporate excess or capital tax. Bonds are more frequently taxed than stocks, and they are also more frequently subject to low-rate annual or registry taxes. Bank stock is now exempt in 17 states. In 6 states the tax is col­lected from the banks. Bank stock is subject to low-rate taxes in only 5 states. The failure to include bank stock in the low-rate taxes results from the provision of the Federal statutes, Section 5219, R. S. U. S., which prescribes four methods of taxing national banks. One of these methods is a tax on the capital stock, and, as the four methods are mutually exclusive, if the capital stock is taxed, no other tax may be imposed upon a national bank. Hence, the imposi­tion of a low-rate capital stock tax upon the securities of national banks, would result in serious undertaxation. The limitations on the taxation of national banks are generally reflected also in the systems of taxing state banks and trust companies. In general, where a low­rate tax is imposed upon intangibles, the stock of national banks, and 11•see Table 7, pp. 136 ff. frequently also of all other banks, is exempted, and some other method of taxing such institutions is adopted. CONCLUSIONS Several tendencies in the taxation of general property are evident. Little change has taken place during the last half century in the taxation of real estate, except for the classification of particular types of real estate, such as mines and forests. In the case of mines classification has not gone far, and special taxation usually represents an attempt to provide a new method of administration rather than an attempt to adjust the tax burden. In the case of forest property, classification represents an attempt to adjust the time of payment of the tax rather than its amount. The same is true of tangible personal property. Such classification plans as have been adopted usually represent attempts to provide easier methods of enforcement rather than to relieve this property from taxation. In the case of intangibles two tendencies are discernible. The first is the tendency toward a low rate of taxation resulting from the belief-(1) that intangibles bear a higher burden of taxation under the general property tax than does other property, which is normally underassessed, and (2) that more intangibles will be listed under a low-rate tax than under a tax imposed at normal rates. The second is the tendency to exempt intangibles, particularly those types that are clearly seen to be merely representative of equities in tangible property. The latter tendency, however, is limited by the attempt to tax income sources in other states. Under the ideal system of taxation previously mentioned20 a state would tax all real estate, all tangible personal property that can be assessed, and all non-representative intangibles. The two reasons in favor of the low-rate taxation of intangibles, cited in the preceding paragraph, appear to be fallacious. If intangibles are overtaxed under the general property tax, this is because tangible property is undervalued and not because there is any difference between tangible and intagible property as regards relation of earnings to capital value. The remedy for this situation would, therefore, seem to be the improvement of tax administration rather than the imposition of special low-rate taxes. As regards the second reason cited, it has been stated that the attempt to induce listing by special concessions means an attempt to finance government by voluntary contributions rather than by taxation. The policy of exemption seems to be more equitable than low-rate taxation of intangibles, if equal distribution of tax burdens is the goal. Taxation of representative intangible property which, as stated, includes practically all the intangibles ordinarily taxed, means double taxation, and, under modern forms of corporate organization, if a tax llmpensation. •Allgeyer v. Louisiana, 165 U.S .. 678, 589 (1897). the privilege of pursuing an ordinary calling or trade, and of acquir­ing, holding, and selling property is an essential part of liberty and property as guaranteed by the Fourteenth Amendment."s Furthermore, while liberty of access to markets on the part of an owner is essential to the exchange-value of property, too much liberty of access on the part of would-be competitors is destructive of that exchange-value. During the past 300 years this excessive liberty has been restrained by the courts in the long line of cases going under the name of "goodwill" or "unfair competition." Evidently these deci­sions of the courts had been designed to protect the exchange-value of property, and now that the definition of property itself had been changed from physical things to the exchange-value of anything, it was an easy step to change the definition of goodwill from "fair com­petition" to "property." The long recognized goodwill of a business which had always possessed exchange-value, but which was merely the expected beneficial behavior of other people, now became simply a special case of property. Other courts followed, and the transition from the meaning of property as physical things to that of the most ethereal invisibility was reached in 1902 in a case involving the right to exclusive telephonic communication of news to the daily press by mere word of mouth. The lower court then said: "Property . . . is not, in its modern sense, confined to that which may be touched by the hand, or seen by the eye. What is called tangible property has come to be, in most great enterprises, but the embodiment, physically, of an underlying life--a life that, in its contribution to success, is immeasurably more effective than the mere physical embodiment."4 And, in 1911, by another lower court, Justice Swayne's definition in 1872 of labor as property became "the right to labor in any calling or profession in the future."~ The foregoing cases, it will be noted, have turned on a double meaning of property, and the transition is from one of the meanings to both of the meanings. Property, in the popular ordinary usage, the usage of the old common law and the one adhered to in th~ Slaughter House cases and the Munn case, meant any tangible thing owned. Property, in the later decisions, means any of the expected activities implied with regard to the thing owned, comprehended in the activities of acquiring, using, and disposing of the thing. One is property, the other is business. The one is property in the sense • Ibid., at 680, 689. This latter sentence was quoted in part from earlier decisions cited above, Powell v. Pennsylvania, 127 U.S. 678, 684 (1888) ; quoted in 166 U.S. 678, 590. For a discussion of the change in meaning of these terms while the process was going on, in 1891, see Shattuck, C.E., "The True Meaning of the Term 'Liberty' in those clauses in the Federal and State constitutions which protect life, liberty, and property. 4 HARV. LAW REV. 366 (1891). • National Telephone News Co. v. Western Union Tel. Co., 119 Fed. 294, 299 (1902), by Justice Grosscup. "Gleason v. Thaw, 186 Fed. 346, 347 (1911). of things owned, the other is property in the sense of exchange-value of things. One is physical objects, the other is marketable assets. Thus it is that "corporeal property," in the original meaning of the term, has disappeared, or, rather, has been relegated to what may be described as the internal "economy" of a going concArt. xii, sec. 3. taArkansas, Arizona. Georgia, Illinois, Missouri, New Mexico, South Carolina, Texas, and West Virginia. necessary to prove that they do almost fully escape is a survey of the tax roll to note the negligible amounts of such property thereon. In 15 statesH domestic real estate mortgages are taxable in one of the three ways employed under the classified property tax, either at a low uniform rate, or on a low fractional valuation, or by means of a non-recurrent recording tax. It is not necessary to develop at length the methods of taxing other mortgages, whether they be foreign real estate mortgages or domestic or foreign chattel mortgages. A mortgage secured by real estate in one state can be taxable only as personal property in any other state. It is therefore essentially like a chattel mortgage. And all mortgages, other than domestic real estate mortgages, are seldom significantly different from the general run of solvent credits. Nor are they, in general, taxed differently than solvent credits. There are some ex­ceptions to this statement. Thus in Colorado the Supreme Court decisions which held domestic real estate mortgages not to be taxable property extended to chattel moIV;gages; but this is not usual. It is in general legitimate to say that of all secured debts only domestic real estate mortgages merit and receive separate treatment for taxa­tion purposes. C. CORPORATE STOCK The development of the corporate form of business organization has introduced an additional problem into the already difficult task of administering property taxes. Corporations of diverse types are treated differently, hence, what is said here concerning taxation of corporate stocks is true only for corporations in general.15 In almost every state there will be exceptions, selected corporations being taxed in special ways. In general, according to the doctrines of the general property tax, the property of corporations is taxed on the same basis as that of individuals. But this statement requires elaborate modifications. In the first place, there are numerous adaptations in methods of assess­ment where the principle of the general property tax is retained. In the second place, certain corporations--of which insurance companies are an important type-have been withdrawn from the general prop­erty tax. Public utility property, especially railroads, and certain financial organizations are also often separately taxed. The question at this point is not how property owned by corpora­tions is taxed, but how shares of stock and bonds issued by corpora­tions and in the hands of owners are treated for taxation, whether "Alabama. Iowa. Kansas. Kentucky, Michigan, Minnesota, Nebraska, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Vermont, and Virginia. 15Specifically, it is not true for state and national banks. The taxation of banka constiUites a distinctly separate problem which is reserved for detailed treatment in a subsequent chapter. Limiting Taxes on Tangible Property 89 their owners be corporations or natural persons. Owing to the con­fusion of the two concepts of property as a tax base, namely, that of property as tangible things plus non-representative intangibles, on the one hand, and property regarded as equities in things, on the other, there has been a widely prevailing idea that no objectionable double taxation was involved in ta:x:ing property of the corporation to the corporation, and at the same time taxing the corporate securi­ties to the holders as property. Not that careful students of taxation held this view,16 but many taxpayers and legislators did. And the courts upheld the attitude that, while it might not be equitable, it was quite lawful to tax cor­porate property and also the shares representing this property. There was enough of truth in the contention for the courts. For there is or may be in the corporate shares of stock an element of non­representative intangible property which would not be reached by the tax on the value of the physical property, although it is also true that such non-representative intangible value may exist in any unin­corporate business enterprise. But the corporate franchise is a con­venient peg on which to hang the tax; for the share is documentary evidence of equity in the corporate property, and has no counterpart in unincorporate enterprise. That the corporate bonds are mainly representative property is not difficult to see. It is not so easy to iso­late the non-representative element in the shares. The taxation of corporate bonds is not, in fact, very different from the taxation of other representative intangibles. At this point the interest attaches primarily to the shar~s. The extreme of multiple property taxation of corporate interests occurs where the tangible property is taxed to the corporation, the stock is taxed to the corporation, and also to the holders. No state, however, directly imposes all of these taxes. But owing to the dif­ ferent methods in use, something of the kind does often occur; while, on the other hand, some property, for the same reason, escapes. The states may be grouped in somewhat arbitrary fashion, for description of their methods of taxing shares of stock. The first group consists of those states which do not tax the shares as such to the holders. This group may again be divided. There is, first the group of 12 states11 which have adopted a state income tax as the Colorado, by administrative practice, the shares of both foreign and alternative to the property tax on the shares. In general, these states levy no property taxes at all on any intangibles. There is, therefore, no discrimination in favor of stocks of domestic corporations. In "'Cf. E. R. A. Seligman, "The Taxation of Corporations," Essa11s in Ta.'ta.tion (9th ed.). pp. 142-315, Slld sources there cited. There is no adequate current treatise on the subject. nconnectieut, Delaware. Massachusetts, Mississippi, New Hampshire. New York. North Dakota, Oregon, Tennessee, Virginia, Washington, and Wisconsin. In Ohio, since 1931, shares are taxed at a low rate if not income-paying, otherwise on income. domestic corporations are not taxable property for a reason similar to that given by the courts for not taxing domestic real estate mort­gages. They are also exempt in Arizona, Louisiana, and Wyoming. In 11 statesis and the District of Columbia, the shares are either exempt to the holders or take the specified, uniform mill rates of the respective states. Whether or not they are exempt depends upon various conditions, such as the amount of business done, the amount of property in the state, having the principal office in the district, and the class of corporation. In Rhode Island any amount of business in the state will exempt, while in Kentucky 75 per cent of the cor­poration's property must be taxed in the state in order to exempt domestic shares. Eleven more statesi9 impose personal property taxes at the local rates upon both domestic and foreign shares unless the shares are exempt for some such reason as payment by the corporation of stipu­lated taxes on property or capital in the state. The law may dis­criminate against domestic shares but usually favors them. Thus in Oklahoma foreign shares must pay the personal property tax, but domestic shares may be exempt if the property of the corporation is taxed in the state. In Kansas, domestic shares are exempt if the corporation has paid the corporate excess tax; and foreign shares may be exempted if the corporation has its principal office in the state. The remaining states either permit exemptions contingent upon various conditions or require taxation of all shares at the regular local rate. But from these states it is reported that in practice the shares are not taxed, and that the assessors make no serious effort to reach them. It is not to be expected that the states should treat the shares of foreign corporations as leniently as those of corporations of their own creation. A stat~ possesses more extended powers of taxation and control over domestic than over foreign corporations. The idea also prevails that a domestic corporation has its property in the state, while a foreign corporation has its property elsewhere. This is not always true. For large corporations operating in many states and counties it is less likely that any larger part of the property will be located within the state of incorporation20 than in the other states in 18California, Iowa, Kentucky, Maryland, Minnesota, Nebraska, Ohio, Pennsylvania, Rhode Island, South Dakota, and Vermont. 19Florida, Georgia, Kansas, Missouri, New Jersey, North Carolina, Oklahoma, South Carolina, Texas, Utah, and West Virginia. 20For an example of the attitute of the courts, see Coca.-CoW. Compan11 'II. Cit11 of Atlanta, 110 S.E. 730. Plaintiff, a foreign corporation, had 15 per cent of its assets in Atlanta. which were there duly taxed. City of Atlanta was held entitled to tax shares held locally, although shares of domestic corporations were exempt. The classification into domestic and foreign corporations and the taxation of the shares of the latter only were held valid on the assumption that the assets of the plaintiff were situated outside the state. That there were exceptions to the rule, and that plaintiff was clearly an exception, were held not to invalidate the rule. Limiting Taxes on Tangible Property which it operates. Finally, if a corporation does no business in a state, a tax on the shares to a resident holder is the only way in which property in this form can be made to contribute toward local func­tions. For these reasons, and possibly others, shares of stock in for­eign corporations are generally taxable as personal property to the holder; this is not usually true of domestic stock. It should be obvious that this involves multiple taxation; for a corporation may have most, or practically all, of its property in states other than the state of incorporation. There are exceptions to this rule. The states of Utah and Montana have embodied provisions in their constitutions to the effect that "the definition of property" shall not authorize the taxation of shares of stock in corporations when the property an which the shares are based has been taxed. This appears to apply to both foreign and domestic corporations; and it would appear to apply whether the property is located in the state or without. So also the exemption in Massachusetts and Vermont appears to extend to both foreign and domestic stock. Nebraska, while taxing foreign shares as per­sonalty, includes them within the definition of intangibles subject to the low rate tax. To summarize briefl.y: Real property is taxable where situated to the legal rather than the equitable owner, or his representative. With minor exceptions this is coming to be true also of tangible personal property, particularly producers' goods. If there were no taxes on intangibles, the present American property tax would be a fairly consistent tax on possessions, regardless of ownership. The practice ranges all the way from that of Delaware, where practically no in­ tangibles are taxable or taxed, to that of Illinois and Indiana, where practically everything that is evidence of equity is taxable. To vary­ ing degrees, then, the states impose upon a relatively consistent sys­ tem of taxes on possessions, a partial and incongruent system of taxes according to equities in things. The bad effects of these practices will be pointed out in the following chapters. THE GENERAL PROPERTY TAX BY EDWIN R. A. SELIGMAN McVickar Professor of Political Economy in Columbia University. (From Essays in Tazation, pp. 19-32, The M!1"1llillan Company, Publishers, New York, 1925.) There is perhaps no single feature of our modern tax system that is commonly thought to be more thoroughly American than the general property tax. The proportional taxation of all property is held to be the result of an instinctive feeling original to and thoroughly in­grained in the minds of the American people. And yet it may be said that few institutions have evoked of late more angry protests and more earnest dissatisfaction than this very tax. The reason is plain. As long as prosperity was general and the public expenses were small, taxation was light and its burden was scarcely felt. But during the last few decades, with the complicated demands of modern civilization, public expenditures, both local and national, have in­creased to such an extent as to exert a sensible pressure on the popu­lation. The problems of public revenue have been pushed to the front. The expressions of discontent with various phases of the financial system have become numerous and loud. But for the most part the discussion has been superficial and the conclusions reached have been inadequate. The opponents of the general property tax have confined themselves to a portrayal of its practical shortcomings. No one has hitherto attempted to give the deeper reasons why the property tax is unsuited to the present generation, or to discuss the subject in its wider rela­tions to the science of finance. It is proposed in this chapter to show that the property tax is by no means original to America, but that it has gone through precisely the same evolution in many other places. It is further proposed to prove that the property tax is as destitute of theoretical justification as it is defective in its practical applica­tion. And it is proposed, finally, in subsequent chapters, to discuss the reforms of our direct taxation-some of them partly completed, some projected, and some hitherto neglected. I. PRACTICAL DEFECTS The defects of the general property tax may be treated under five heads.1 1. Lack of uniformity, or inequality of assessment.2 The property tax with us is an apportioned, not a percentage tax. According to the latter method, the tax would be levied on the individual by means of a fixed percentage of all property. According to the actual method, 'In a monograph by the present writer entitled Finance StatiBtics of the Americllhl Commonwealths (Publications of the American Statistical Association, Dec., 1889) may be found a large number of citations from the commonwealth financial reports for the preceding year. The reader is referred to that publication for the verification of statements for which no special authority is adduced in these pages See espe­cially pp. 401--417. Many facts and figures may also be found in Ely, Tti:i;ation in American States and Cities, 1887. See also, for some striking statistics, T. G. Shear­man, Tazf the official state rep1>rts <>n taxation. See chap. xx, below. Cf. also the valuable articles and addresses in the (thirteen) Pr<>Ceedings of the Con­ferences on Ta:i;ation under the Auspices of The Na.tiomal T""' As80Ciatiom, 1907~ 1920 (C<>lumbus, 1908. New Y<>rk, 1921). See especially the "Rep1>rt <>f the C<>m­mittee on Causes <>f Failure of General Pr<>perty Tax" in the Fourth Conference, C<>lumbus, 1911, pp. 299-310. At the sec<>nd c1>nference the name was chanired to International Tax Ass<>eiation, but at the fifth conference the oriirinal name was resumed. the total amount to be raised by the state is first ascertained and is then apportioned to the various subdivisions according to the ap­praised valuation in each. The final rate of taxation throughout a state is obtained by adding the local tax to the state tax. The rate of taxation ought therefore to vary only with the local needs, and would indeed so vary if property were everywhere assessed uniformly. As an actual fact, however, this is far from being the case. In most of the commonwealths the tax laws provide for the assessment of property at its "fair cash value." And in all the states it is expected that the valuation shall everywhere be made at a uniform rate. Yet it is a notorious fact that in scarcely any two contiguous counties is the property~ven the real estate-appraised in the same manner or at the same rate. In regard to the manner, it frequently happens that corporation property, e.g., the roadbed of a railway, is assessed in one county at an immense sum per mile and is treated in the ad­jacent county like a piece of grazing land.a In regard to the rate, the assessors follow the practice sanctioned by local usage, or decide by mere caprice. The official reports abound with complaints or open confessions that property is assessed all the way from par to one­twenty-fifth of the actual value. In one county the property is listed at its full worth; in the next county the assessment does not exceed a tithe of its value.4 That this is a glaring infraction of the funda­mental rule of equality in taxation is apparent. As between counties it leads to under-valuations which give an entirely fallacious view of the public resources; as between individuals it results in gross in­justice. A tax rate of a given amount on one may be double, quintuple, or decuple the nominally equivalent tax on another. The first constitutional injunction-that of uniformity of taxation-is flagrantly violated. Assessors are compelled openly to disregard their oaths, or to incur certain defeat at the next election.5 There is no pretense of complying with the law. An escape from these evils has been sought in the creation of state boards of equalization. A number of commonwealths6 attempted to 8Jn New York, for example, two adjoining counties made a difference of $24,000 per mile In assessing the same railroad. Other counties varied $20,000 per mile. Report of the State AseesBt>rB, 1879, p. 19. •Biennial Report of the Auditor, 1886, p. 4. In Illinois the range was from 100 to 6%. Report of the Revenue Com.miBBM>n of IUinoia, 1886, p. ii. •Report of the AB8"8Bors of New York, 1886, p. 20. In one case an assessor as­serted that it would be necessary to swear the merchant. The latter answered: "If you swear me. I'll vote against you next time#" West Virgi1t.ia Taa:: C01M'Jl,is­ sion, Prelimi71411"/1 Report, 1884, p. 13. 6State boards of equalization are found alm08t from the beginning in the New England states, spreading grad.ually to the Western and, after the Civil War, to the Southern states. By 1900 they we~e found in over twenty states, by 1912 in thirty-two states, and by 1921, if we include tax commissions with power of equaliza­tion, In over forty states. A sketch of the history will be found in H. L. Lutz, The State T..., C0111hn.isain, 1885, and 1886, p. 4. 9"No board of officials, however diligent or however conversant they may be with the subject, can make an equalization which to themselves will be absolutely satis­factory." Annual Report of State Assessors of New York, 1887, p. ii. From ocean to ocean the same complaint is found. lOM. I. Townsend, in Proceedmgs and Debates of the Constitutional Convention of New York, 1867-68, iii., p. 1945. Cf. the first Report of the (New York) Ctnnmis­sioner• to revise the Laws for the AsseBBment Mid Collection of Taxes, 1871, p. 88. 2. Lack of universality, or failure to reach personal property. This defect, although the most flagrant, perhaps requires the least com­ment; for it is so patent that it has become a mere byword through­out the land. The escape of personal property is noted almost from the beginning of the existence of the property tax in the American colonies. Thus in Massachusetts Bay as early as 1651 we find an interesting account of the difficulty experienced in ascertaining cer­tain personalty, followed by a resolution to the effect that: "To the end that all publicke charges may be aequally borne, and that some may not be eased and others burdened and it being found by experience that visible estates in land, corn, cattle are, according to order, wholly and fully taxed, but the estates of marchants, in the hands of neibours, straungers, or their factors, are not so obvious to view, but, uppon search, little of theire estates doe appeare, beinge of great valew, so that the law doth not reach them by that rule of taxing visible estates,-it is therefore ordered . . . . that all mar­chants, shopkeep.s and factors shall be assessed by the rule of common estemation. according to the will and doome of the assessors . . . . having regard to theire stocke and estate, be it psented to view or not."11 This was evidently not much use, for we soon after find an admoni­tion to the officials to see "that so many estates, though more obscure and difficult to find out, may bear their due and just portion with such estates as are more obvious and cannot be hid."12 What was true in a certain measure at this early date has become still more true of recent years. Personal property nowhere bears its just proportion of the burdens; and it is precisely in those localities where its extent and importance are the greatest that its assessment is the least. The taxation of personal property is in inverse ratio to its quantity; the more it increases, the less it pays. The reason is plain. So far as it is intangible, personal property escapes the scrutiny of the most vigilant assessor, so far as it is tangible, it is purposely exempted in its chief form, as stock in trade, in our com­mercial centres. In the mad race for wealth it is considered dan­gerous for the local assessors in large cities to list the merchant's capital, with the possible result of driving it away to localities more favored by their financial officers. It is scarcely necessary to give figures to substantiate these statements; but a few facts, taken from the official documents, national, state, and municipal, may be of interest. The tenth census of the United States asserts that from 1860 to 1880 the assessed valuation of real estate increased from 6,973 mil­lions of dollars to 13,036 millions, while that of personal property de­ llRecords of the G01Jernor and Company of MasMchusetts in New England, edited by N. B. Shurtleff, Boston, 1853, vol. iii., p. 221. lllJbid., vol. iii., p. 426. creased from 5,111 to 3,866 millions. In 1890 the assessed valuation of real estate had grown to 18,956, while that of personal property was 6,516 millions. Scarcely more than three decades earlier in Cali­fornia personal property was assessed in 1872 at 220 millions of dollars, in 1880 at 174 millions, and in 1887 at 164 millions-a net decrease in fifteen years of 56 millions. Real estate increased during the same period from 417 to 791 millions. Personal property paid 17.31 per cent, real estate 82.69 per cent of the taxes. By 1893, al­though the assessed value of real estate was 1,000 millions, that of personalty was only 173 millions. In Illinois in 1882 personal prop­erty paid 22.01 per cent of the taxes, in 1894 only 17.26 per cent. In Cook County (including Chicago), personal property paid only 14 per cent; in Kankakee County, only 11 per cent. In Iowa, while the real estate valuation in 1893 increased over that of the preceding year by 32 million dollars, the assessed valuation of personal prop­erty actually decreased. In New York the figures are as follows: Real Estate Personal Property 1843__ _____________ _ _ __________ __ _ _ ____ $ 476,999,000 $118,602,0001859_ _____________ _____ __ _ ___ ____________ 1,097,564,000 307,349,0001871___ ______ _____ ___ __________________________1,599,930,000 452,607,000 1888_ _______ __ ___ _ ______ _______ __ _ ______ 3,122,588,000 346,611,000 1893____ _ ____ __ ___________________ __ _______ 3,626,645,000 411,413,000 191l ________________ __ _ ___ _ ____________ _____ 9,639,001,868 482,499,19318 The proportion paid by personal property has decreased steadily almost every year, until according to the figures of 1910 it pays but five per cent of the state taxation, as against ninety-five falling on real estate. In forty years the valuation of real estate bas increased 8 billions; that of personalty bas increased only 30 millions. In the District of Columbia the valuation was in 1878: realty 83 millions, personalty 17 millions; in 1894 realty bad increased to 160 millions, personalty had decreased to 11 millions. In New Jersey, in 1887, in one township the real estate was assessed at $272,232, the personal property at $591; in another the figures were $2,274,900 and $47,150 respectively. Perhaps the most remarkable figures are found in the large cities. In Cincinnati the valuation in 1866 was: realty, $66,454,602; personalty, $67,218,101. In 1892 the realty had increased to $144,208,810; the personalty had decreased to $44,735,670. In Monroe County, New York, in which the city of Rochester is situated, the realty was assessed in 1892 at $132,202,478; the personalty at $8,408,803. Finally, in the city of Brooklyn in 1893 real estate was assessed at $486,497,186, while perrnnalty was valued at $10,123,170. Personal property, in other words, paid a little more than three per cent of the whole tax on property. In 1895 the proportion fell still lower,-to one and twenty-three hundredths per cent. 13A part of this prodigious difference between real and personal property is due to the placing of considerable personality like bank stock and mortgages in special classes. Limiting Taxes on Tangible Property These striking figures become ridiculous when it is remembered that in our modern civilization the value of personal property far exceeds that of real estate, as understood by the taxing power. It is true that the legal distinction between real and personal property fluc­tuates in the various commonwealths; but in the eyes of the assessors real estate generally includes only land and the fixtures thereto, all the other forms of wealth being regarded as personal property. In Massachusetts and a few other states it is indeed provided that mortgages of real estate shall be regarded and taxed as interests in real estate. But even if mortgages were counted as real state, and even if (as is nowhere done) other certificates of ownership in realty were also counted as real estate, it would still remain true that personal property constitutes the greater part of the national wealth. For personal property does not denote merely movable objects. It includes money, public obligations and the vast mass of intangible property represented by securities of corporations, of which only a small portion are certificates of ownership in realty. Above all, personal property includes the entire and ever-increasing annual products of agriculture and industry-the gigantic mass of modern wealth devoted mainly to consumption, but existing as the stock in trade of individuals. Even in our western commonwealths, where the communities are still mainly agricultural, it is an acknowledged fact that the personalty exceeds the realty. The auditor of Washington tells us that, if a true valuation could be reached, it is "clear and incontestable that the wealth of the territory in personal property, for the purposes of taxation, would largely predominate over that of real estate."14 And if this is true of the far West, how much greater must be the relative proportion of personalty in the busy marts of the East.is Yet the more differentiated the industry and the more predominant the personalty, the less does the latter contribute; until in the foremost state of the Union realty pays more than nine-tenths and personalty less than one-tenth; while in its second largest city realty in 1893 paid ninety-nine hundredths and personalty only one hundredth of the tax. The later figures are even more striking. The taxation of personal property, therefore, is in inverse ratio to its quantity. The more it increases, the less it pays. The general property tax thus sins against the principle of universality of taxa­tion even more than against the principle of uniformity. In the middle ages whole classes were exempt by express provision of the law; in our time and country whole classes are exempt by the "Report of the Territorial Auditor to the Legislati-oe Assembly, 1887, p. 94. Cf. Biennial Report of the Auditor of Iowa, 1881, p. 8, and that of the Comptroller of Idaho, 1887~8. p. 74, to the same effect. "'Cf. New York State Assessors' Report, 1880, and Comptroller's Report, 1889, p. 83 : "I am sure that the actual value of the personal property legally liable to taxation exceeds that of the real estate." inevitable working of the law. It is the law which is equally at fault in both cases. 3. Incentive to dishonesty. One of the worst features of the general property tax is that any attempt to enforce the taxation of personalty by more rigid methods results in evasion and deception. The property tax necessarily leads to dishonesty, and this for two reasons. In the first place, under our system, whole classes of personalty are exempt from state taxation. The most familiar examples are imported merchandise in the original package; United States bonds, notes, checks and certificates; property in transitu; goods produced in another state sent on commission; deposits in savings banks, etc. The temptation for the taxpayer to convert his property temporarily into these classes is generally irresistible. Not only does the law hold out to individuals inducements to practice fraud, but it sustains them in its commission.16 Secondly, wherever any pretence is made of enforcing the tax on personalty, and especially where the taxpayers are required to fill out under oath detailed blanks covering every item of their property, the inducements to perjury are increased so greatly as to make its practice universal. The honest taxpayer would willingly bear his fair share of the burden; but even he cannot concede his obligation to pay other men's taxes. When an effort is made to introduce still more drastic methods by the employment of so-called "tax-inquisitors" or "tax-ferrets," as until formerly in Ohio and Iowa, and recently in Indiana, Kentucky and Oklahoma, the situation becomes still worse. The only result of more rigid execution of the law is a more systematic and widespread system of deception. Official documents tell us that "instead of being a tax upon personal property, it has in effect become a tax upon ignorance and honesty. That is to say, its imposition is restricted to those who are not informed of the means of evasion, or, knowing the means, are restricted by a nice sense of honor from resorting to them."11 The tax commission of New Hampshire declares that "the mere failure to enforce the tax is of no importance in itself considered, in com­pari1on with the mischief wrought in the corrupting and demoralizing influences of such legislation."18 The Illinois commission asserts that the :1ystem is "debauching to the conscience and subversive of the public morals-a school for perjury, promoted by law."19 The Connec­ticut commission maintains that the resulting "demoralization of the 16In People ex rel. Ryan, 88 N.Y. 142, the Court of Appeals held that the -11 were bound by a transaction which the court itself declared to be '"a device to escape taxation." In 1892, however, a law was passed in New York requiring applicants for reduction of assessment to rna~e oath that they bad not incurred debts for the purpose of avoiding taxation. '"Report of the Commis..Wners of Taxes and Asses......,nts in the City of New York, 1872, p. 9. 16Report to the Legislature. By Hon. George Y. Sawyer, 1876, p. 6. '"Roport of the Revenue Commission. 1886, p. 8. Limiting Taxes on Tangible Property 99 public conscience is an evil of the greatest magnitude."20 A later New York report states that "it puts a premium on perjury and a penalty on integrity;"21 The Ohio commission tells us that "it results in debauching the moral sense and is a school of perjury, imposing unjust burdens on the man who is scrupulously honest."22 The Cleve­land commission of 1895 says that "the existing system is productive of the gravest injustice; under its sanction, grievous wrongs are inflicted upon those least able to bear them; these laws are made the cover and excuse for the grossest oppression and injustice; above all and beyond all, they produce in the community a widespread demoralization; they induce perjury; they invite concealment. The present system is a school of evasion and dishonesty. The attempt to enforce these laws is utterly idle."23 The West Virginia commission tells us that "the payment of the tax on personalty is almost as voluntary and is considered pretty much in the same light as dona­tions to the neighborhood ch11rch or Sunday schooI."24 The New Jersey commission tells us that "it is now literally true that the only ones who pay honest taxes on personal property are the estates of decedents, widows and orphans, idiots and lunatics."25 Every annual report of the state comptrollers and assessors complains bitterly that the assessment of personalty is nothing but an incentive to perjury.26 4. Regressivity. Taxes are progressive when their increase is more than proportional to the increase of the property or income taxed, i.e. when the rate itself increases with the increase of the property. Taxes are regressive when the rate increases as the property or income decreases. The general property tax in its practical effects is often regressive, since the tax on personalty is levied virtually only on those who already stand on the assessor's book as liable to the tax on realty. Those who own no real estate are in most cases not taxed at all; those who possess realty bear the taxes for both. The weight of taxation really rests on the farmer, because in the rural districts the assessors add the personalty, which is generally visible and tangible, to the realty, and impose the tax on both. We hear a great deal about the decline of farming land. But one of its chief causes "'Report of the Special Commission ­ tations from the reports of later tax commissions, see chaps. xix. xx of the earlier editions of this work. has been singularly overlooked. It is the overburdening of the agri­culturist by the general property tax. What is practically a real property tax in the remainder of the state becomes a general property tax in the rural regions. The farmer bears not only his share, but also that of the other classes of society. Thus official documents tell us that "the class of property that escapes taxation most is the class of property that pays the largest dividends."27 And in general it may be said, with our state auditors, that "the property of the small owner, as a rule, is valued by a far higher standard than that of his wealthy neighbor."28 Or, as it is put by others: "In every portion of the state we find the most unproductive property, and that oi' the lowest real value, assessed at the highest ratio. The rule holds good that those who have to battle hardest with life for subsistence, are compelled to pay the most onerous taxes on the real value of their property."29 It is no wonder that in their desperation the small farmers should cry out for the equal enforcement of the laws taxing personalty; it is no wonder that they should attempt to stem the current in ignorance of the impossibility of the task. They have forgotten Walpole's saying that it is safer to tax real than personal estate, because "landed gentlemen are like the flocks upon their plains, who suffer themselves to be shorn without resistance; whereas the trading part of the nation resemble the boar, who will not suffer a bristle to be pluckt from his back without making the whole parish to echo with his complaints."sa 5. Double taxation. Double taxation, as we shall see later on, is of various kinds. But there is one form which is particularly applicable to the property tax, namely that of debt exemption. This is perhaps the greatest weakness of the general property tax, and the one which has given rise to the most interminable discussion. On the one hand it is maintained that an offset should be made for all indebtedness, whether mortgage debts on real property or general liabilities on personalty. Individuals should be taxed on what they own, not on what they owe. To tax both borrower and lender is double taxation. This is the view of the Connecticut com­mission,31 and the practice of most of the states accords with it. On the other hand, the majority of American investigators assert that deduction for indebtedness results practically in such injustice and deception as to be utterly unendurable. They therefore demand that there shall be no offset of debts against property. This is the MBiennial Report of the Auditor of Iowa, 1880-81, p. 6. 28Biennwl Report of the Auditor of Kentucky, 1887, p . iv. ..Report of the State Assessors of New York, 1873, p. It. Cf. West Virginia Ta.: Commission, Preliminary Report, 1884, p. 8; Report of the Comptroller of Tennessee, 1888, p. 16. ""Cf. Sinclair, History of the Public Revenue, vol. iii., appendix, p . 79. 31Report of the Commission of 1887, p. 26. Limiting Taxes on Tangible Property 101 view of the Massachusetts and New Jersey commissions,~2 and the ana, Maryland and Missouri. Both these views are correct. To tax both lender and borrower for the same property is plainly double taxation, and therefore unjust. The fallacy of the contrary opinion consists in looking at the property rather than at the owner. What the state desires to reach is primarily the individual. It taxes his property simply because it considers this a test of his ability to pay. But his ability is manifestly reduced '/)'rO tanto by his debts. His true taxable property therefore consists in his surplus above indebtedness. Otherwise one would be taxed for what he has, and another for what he has not. As it has been well put, what we want to tax is ability, not liability. This is the view accepted by all European authorities.33 The only American scientist who holds to the contrary opinion, Amasa Walker, does so in a half-hearted way; for he bases his view on arbitrary data, confesses that much hardship will ensue, and finally concludes that the income-tax principle is the only just one.s4 To tax both property and inequitable in practice. On the other hand, it is equally true that deduction for debts is thoroughly pernicious in its operation. It is the universal testimony that no portion of the tax laws offers more temptations to fraud and perjury than this system of offsets. The creation of fictitious debts is a paying investment. In the states where such deductions are permitted, attempts to obtain immunity from taxation in this way are widespread and generally successful. And they are most sucessful in the case of property which already bears less than its share of the burdens. The great majority of officials cry out against debt-exemption as an utter abomination.85 Both methods are thus unendurable. Debt-exemption and no debt­exemption are equally bad. The states shift from one policy to the other in equal despair. We are therefore forced to the conclusion that the whole system is unsound. The fault lies not in the exemption, but in the taxation of property. The general property tax under either of these two methods produces crying injustice. As there is no third method possible, the inference is that the injustice is of the essence of the general property tax. The New York commission, indeed, came to the conclusion that mortgage debts should be deducted from realty, but that there should be no offset for debt in the assess­ ..MIJBsachusetts CommissWn, 1875, pp. 95-98; New Jersey Commission, 1880, p . 20: Comm.i88ion of 1891, PreliminaTl/ Report, p , 10. practice in some states like Pennsylvania, Georgia, Kentucky, Louisi­ 88Roscher, FinahzwiBBenschaft, p. 336; Wagner, Fina.nzwissenschaft, ii., p. 482. "'A. Walker, Science of Wealth (7th edition), 339. and credits, both lender and borrower, is plainly incorrect in principle MReport of the c,,.,.,,.iasioners of A886ssme1't anti Tao:ation m Oregon, 1886, p. t. The University of Texas Bulletin ment of personalty.as This would be a legal discrimination wholly subversive of the first principles of justice. As a matter of fact, just the contrary principle prevails at present in New York and Connecticut; debts are there deductible only from personalty. There is no logical escape from one of the two methods, debt-taxation or debt-exemption; and under either plan the general property tax stands convicted by the test of experience. Under a system, indeed, where there is no general property tax, but simply a tax on real estate, the question of taxing mortgages assumes a different aspect and must be decided independently. As that problem is discussed elsewhere in this volume,87 it may be omitted here. But as soon as we have the general property tax and exempt mortgage debts on real estate, the exemption must consistently be accorded to all debts. And we are then immediately confronted by the dilema just discussed. If we sum up all these inherent defects, it will be no exaggeration to say that the general property tax in the United States is a dismal failure. No language can be stronger than that found in the reports of the officials charged with the duty of assessing and collecting the tax. Whole pages might be filled with such testimony from the various states. Only the following extracts from the New York reports are given, as samples: "A more unequal, unjust and partial system for taxation could not well be devised."ss "The defects of our system are too glaring and operate too oppres­sively to be longer tolerated."S9 "The burdens are so heavy and the inequalities so gross, as almost to paralyze and dishearten the people."40 "The absolute inefficiency of the old rickety statutes passed in a bygone generation (is patent to all) ."u "The hope of obtaining satisfactory results from the present broken, shattered, leaky laws is vain."42 "The system is a farce, sham, humbug."4s "The present result is a travesty upon our taxing system, which aims to be equal and just."44 "(The general property tax is) a reproach to the state, an outrage upon the people, a disgrace to the civilization of the nineteenth 86First ReptYT"t, 1871, pp. 60-69, 71-79. CJ. the sharp criticism in the MMsa.chusetts Too: CommiBSioners' Report, 1875, p. 96. 87/nfra, chap. iv. 88First Annual Report of the State Assessors, 1800, p. 12. 89Comptrolle,-'s Report, 1859. ••Assessors' Report, 1873, p. 3. "Assessors' ReptYT"t, 1877, p. 5. "Report of Commi88iohers of Taa;es and Assessments, 1876, p. 52. "Assessors' Report, 1879, p. 28. "Comptroller's Report, 1889, p. 84. century, and worthy only of an age of mental and moral darkness and degradation, when the 'only equal rights were those of the equal rubber.' "45 After such self-criticism nothing more need be said. In comparison with this, the view of the European scientists is moderate, that "a cruder instrumentality of taxation has rarely been devised.''46 And yet, notwithstanding all this criticism, our methods limp along almost unchanged. REPORT OF COMPTROLLER (From Annual Report of the Comptroller of Public Accounts of the State of Texas, 1931, p. 7. A. C. Baldwin & Sons, State Printers, Austin.) TABLE No. 1 Summary Showing How the State's Dollar Was Obtained. Cents of Each Dollar Received Total Ad Valorem --------------------------------------­.2050 $22,189,612.24 Inheritance Tax -------------------------------.0038 901,332.72 Poll Tax ---------------------------------------.0179 1,934,511.22 Gross Receipts Tax___________________________ _ .0691 7,484,046.35 Insurance Companies Occupation Tax ----------------------------------------------------.0221 2,393,063.04 Occupation Tax ---------------------------------­.0030 327,698.46 Franchise Tax -----------------------------------­.0137 1,483,926.04 Gasoline Tax --------------------------------------.3048 32,993,614.17 Cigarette Tax ____ __ -------------------------------.0014 153,041.25 Fish and Oyster Tax._______ _ _____,_ __ ____ _ .0002 24,230.38 Licenses ------------------------------------------------.0439 4,752,090.87 Total Taxes and Licenses _ _____ __ _ .6894 $74,637,166.74 Cents of Each Dollar Received Total Charter Fees ------------------------------------­.0031 $ 336,780.05 Registration Fees -----------------------------­.0005 50,695.13 Fees of Office _ -------------------------------­.0069 747,928.09 Student Fees of The University of Texas ____ -----------------------------------.0037 398,021.63 Miscellaneous Fees _____----------------------.0005 57,306.03 Land Sales and Rentals __ ____________ _ .0328 3,548,208.61 Sale of Products, Books and Other Properties __ ______________ _ .0064 695,431.52 Court Costs and Suit Settlements .0037 399,688.24 Fines ---------------------------------.0001 14,787.98 Miscellaneous Revenues __________ . ______ _ .0009 103,288.91 County, Federal and Other Aid ______ _ .2186 23,636,152.69 Interest -----------------------------------------------.0334 3,614,801.82 Total Revenue Receipts ------------------1.00 $108,240,257.44 '"Aasenors' Report. 1879, p. 7. "Leroy-Beaulieu, Science des Finances (&•m M.), iii., p . 498 : "Rarement, dans la llscalite moderne. on a invente d'instrument plus grossier." TABLE 40 Sources of Local Tax Revenue, Fiscal Years 1928, 1929, and 19301 Computed by National Industrial Conference Board Amounts in Thousands (From Cost of Government in the United States, 1929-19·30. National Industrial Conference Board, Inc., New York, 1932. Extracts: pp. 114 and 118. 1928 1929 1930 Licenses Licenses Licenses Property Other and Total Property Other and Total Property Other and Total Taxes Taxes Permits Taxes Taxes Taxes Permits Taxes Taxes Taxes Permits Taxes _____ _ _____112,504 Wisconsin 1,682 2,266 116,452 119,556 10,053 2,329 131,937 123,758 11,819 2,359 137,937 ____________l 07,166 Minnesota 471 1,484 109,121 110,725 575 1,499 112,798 112,696 455 1,521 114,673 Texas ____________________113,137 498 8,401 122,036 118,444 484 9,420 128,349 120,014 416 10,334 130,764 California ___ ________ 287,567 17,432 304,999 305,835 18,750 324,585 322,968 19,859 342,828 1For s<>urces see Appendix B, p. 162. TABLE 42 Sources of State and Local Tax Revenue, Fiscal Year 1928 and 1929 Computed by National Industrial Conference Board Amounts in Thousands 1928 1929 Licenses Licenses Property Other and Total Property Other and Total Taxes Taxes Permits Taxes Taxes Taxes Permits Taxes __ _ ______ 122,136 Wisconsin 6,666 22,431 151,233 129,549 21,114 24,484 175,147 Minnesota ____________ 118,630 1,962 31,497 152,089 124,675 2,299 31,633 158,607 __________________140,578 Texas 3,386 49,947 193,911 145,300 3,277 51,694 200,271 California ____________296,403 10,968 79,048 386,419 314,998 13,180 90,136 418,314 Limiting Taxes on Tangible Property 105 TAXES AND INDEBTEDNESS OF LOCAL UNITS OF GOVERNMENT IN TEXAS (From Rep<>rt af the State Auditor, Austin, July 12, 1932, p. 2. Moore Lynn, C.P.A., State Auditor and Efficiency Expert.) It is expressly stated that the material contained in this report was not compiled by this office from original sources, and the report is subject to all the limitations stated herein. NUMBER OF LOCAL SUBDIVISIONS OF GOVERNMENT The information gathered indicates that there are not less than 9,000 local units of government in the State. SUMMARY OF REQUIRED INFORMATION COMPILED The amount of taxes collected for all purposes during the previous fiscal year by the counties and all governmental subdivisions (includ­ing State taxes collected by the county) was $149,880,675. This amount is divided as follows: Per Cent Local Units of Government Amount of Total Counties -------------------------------------------------·$ 35,610 ,858 23.76 Cities -------------------------------------------------------43,093,791 28.75 School Districts ----------------------------------------32,496,605 21.68 Road Districts --------------------------------------------6,446,592 4.30 Water Control, Water Supply, Con­ servation, Levee Improvement, Irri­ gation, Navigation, and Drainage Districts ------------------------------------------------5,369,688 3.59 Total, Local Units of Government______ 123,017,534 82.08 State Government -----------------------------------26,863,141 17.92 100.00 Total --------------------------------------------------------$149,880 ,675 The amount of county tax collections as disclosed by the foregoing statement, $35,610,858, includes county ad valorem taxes, poll taxes and occupation taxes, but does not include the counties' portion of highway license fees. The amount of $26,863,141 shown as taxes collected for the State government, includes only State ad valorem taxes, poll taxes, occupa­tion taxes, and inheritance taxes, these being the State taxes that are administered by county tax officials. The amount does not include highway license fees collected by the county tax collectors, nor does it include gasoline, gross production, gross receipts, franchise and other taxes collected by State departments direct. It will be noted that the total of State taxes collected is 17.92% of the entire amount, and that local units of government account for 82.08% of all taxes paid locally. 106 The University of Texas Bulletin The total amount of delinquent taxes reported as due the State, the counties, and all governmental subdivisions within the counties, was $65,368,254. It is believed that owing to the condition of the records in many of the local units of government, these figures are far from complete. NoTE.-The counties collected $8.853,501.69 from licenses for county purposes in addition to the amounts included in the State Auditor's Report and the Comptroller's Report for 1931. The Federal Government obtained $32,799,807.28 in taxes from Texas during the year ending June 30, 1931; the Federal income tax produced $31,607,743 of the total. AFFIRMATIVE MATERIAL 1 FINAL REPORT OF THE TAX SURVEY COMMITTEE (Formulated by Chairman John G. Willacy, ex-Senator John M. Henderson, and Dr. E. T. Miller, in Collaboration with Senator A. J. Wirtz and Representative C. E. Nicholson.) Austin, Texas, December 28, 1928. To Honorable Dan Moody, GCY1Jernor, and to the Forty-first Legislature: The Fortieth Legislature passed the following concurrent resolution which was approved by the Governor: Senate Concurrent Resolution No. 5, Providing for a Tax Survey for Texas. Whereas, The tax laws of Texas are a mass of indiscrim­inate enactments passed at various times and based on the then existing conditions and by reason of the exigencies at the time, and same constitute a mass of patchwork and were not the result of a discriminating study of the conditions or industries of Texas or of the comparative revenue returns of the same, and do not take into consideration the changes and development of subsequent years; and Whereas, There is a very general feeling that, as applied to present conditions, there exist many discriminations in the tax burdens as borne by the citizens and industries of the State, and a very general demand for the equalization of taxes in order that a reality be made of that provision in our Constitution that "taxes shall be equal and uniform"; and Whereas, Owing to the great importance and magnitude of this subject it is impracticable and impossible, at a session of the Legislature, by reason of the shortness of same and the necessity of considering so many other matters of legisla­tion, and the lack of accurate information upon which to base a fair and impartial recommendation to work out compre­hensive and fair legislation, to the end that tax burdens be equalized; therefore, be it Resolved by the Senate of Texas, the House of Repre­sentatives concurring, That a committee of fifteen persons, to be known as the Tax Survey Committee, be created, and the duties thereof be provided as follows, towit: The President of the Senate shall appoint as members of this committee three (3) members of the Senate, and the Speaker of the House of Representatives shall appoint as members of this committee four (4) members of the House; and the Governor of Texas, as member of this committee, shall appoint eight public-spirited and capable persons who are private citizens of Texas, at least one of the persons to be appointed by the Governor to be a man who has made a special study of government and taxation and be well versed in the principles of taxation; and the remaining members to •Practically all material can be used for either side of the debate question, by making judicious selections. 108 The University of Texas Bulletin be appointed by the Governor to be selected from different vocations and from different sections of the State. The said Tax Survey Committee shall meet within ten days from the time its membership is completed, at a time and place to be designated by the Governor, and shall organize, by electing one of its members chairman and another secre­ tary, and such other officers as it may deem necessary. The committee shall adopt such rules and regulations as necessary to carry out the provisions of this resolution. Said committee shall be provided with a committee room in the Capitol in Austin and its sessions shall be open to the public, except at such times as the committee may, by a majority vote, determine to hold executive session. Said committee shall begin its work following the adjourn­ment of the Regular Session of the Fortieth Legislature unless a Special Session of said Legislature shall be call_ed within ten days after the adjournment of said Regular Session, in which event it shall begin its investigation follow­ing the adjournment of said Special Session. Said committee shall continue its sessions and investigations as may be determined by a majority vote of said committee, and until its work has been completed; however, it shall conclude its investigations and make its report to the Regular Session of the Forty-first Legislature or to some Special Session of the Fortieth Legislature called by the Governor for the purpose of receiving and considering report of said com­mittee. The committe herein provided shall have free access to all books and records in the several departments of the State government and of any other political subdivision of the State. Said committee shall have the power to subpoena witnesses to appear before it at any time or place it shall decide and furnish to it such information as such witnesses have, and to issue subpoena for records, books, papers and other docu­ments, and to swear said witnesses; to reduce testimony to writing or typewriting; and to pay said witnesses t)le fees paid them in criminal cases in the District Court. Said committee shall also have the power to require from all persons, firms and corporations in this State, such infor­mation as it mav desire with reference to the propertiesand tax burdens being borne by same. Said committee shall have the power to issue such process as necessary to compel the attendance of witnesses or produc­tion of books, records or other information as may be desired by it in the proper discharge of its duties. The committee shall make a careful study of the subject of revenue and taxation with special reference to the prob­lems presented in Texas and the comparative burdens borne, and shall investigate and study the systems of raising revenue and administering same in other States. Said committee shall secure information as to Texas and as to such other States desired by it as to the taxable values of said States, the aggregate income of individuals and corporations within each of the same, the systems of taxation in same, the method of financing the educational and eleemosynary institutions and departments of government, and other information rela­tive to the wealth and resources of each of said States and the methods employed for securing revenue for the mainte­nance of such institutions and the pro rata and comparative cost of educational and eleemosynary institutions, and other departments of government. Said committee shall secure information as to Texas and as to such other States as it may find desirable with reference to the amount of taxes now being paid by the various classes of property and industries of such States so as to be able to determine the comparative tax burdens being borne in Texas and in other states by the various classes of property and industries therein. Said committee shall have power and authority to employ and compensate all necessary experts, investigators, stenog­raphers and other clerical help and it shall be the duty of said committee to make and keep a record of its investiga­tions and of all funds expended by it and to whom paid and the amounts thereof. It shall not be the duty, however, of said committee to keep a stenographic report of all informa­tion or investigations made by it but it shall have the authority to keep such record as it may deem advisable. The report of said committee, as herein provided, shall make such recommendations, as to legislation, as may, in its judgment, be necessary to secure sufficient funds for a proper and economical administration of the departments of government, educational and eleemosynary institutions and as will, as nearly as possible, fairly and equitably and impar­tially distribute such burdens against its citizens and their property and make a reality of the constitutional provision that "taxes shall be equal and uniform." Members of said committee shall each receive as compensa­tion the sum of $10 per day for each day they actually serve, together with railroad fare, hotel, telegraph, telephone, postage, and express expenses incurred in the discharge of their duties, and it shall be authorized and empowered to purchase such stationery and other supplies as may be neces­sary for the discharge of their duties. There is hereby appropriated from the contingent fund of the Fortieth Legislature, the sum of $25,000, or so much thereof as may be necessary for the purpose of defraying the compensation and expenses of the committee hereby created, including the publication of 2000 copies of the committee report, and the distribution of same to the citizens of Texas. Provided further, that all expenditures of such committee shall be made upon the sworn account of the persons entitled to such pay, when approved by the chairman and secretary of said committee. The Secretary shall file with the State Comptroller of Public Affairs a statement showing in detail the expenditures made by such committee and the amounts and to whom all payments were made. In pursuance of the terms of said resolution the following named persons were appointed: By the Governor: J. A. Kemp, A. P. Duggan, Jim Callan, John G. Willacy, E. T. Miller, J. M. West, J. M. Henderson, 0. B. Colquitt. By Hon. Barry Miller, Lieutenant Governor: Senator E. E. Witt, Senator A. J. Wirtz, Senator A. E. Wood. By Hon. R. L. Bobbitt, Speaker of the House: Hon. J. W. Stevenson, Hon. Adrian Pool, Hon. C. E. Nicholson, Hon. Claude Teer. In accordance with the provisions of said resolution the committee held its first meeting at Austin on May 9, 1927, and perfected organization by electing as chairman, Hon. O. B. Colquitt; as vice­chairman, Senator Edgar E. Witt, and as secretary, Hon. Claude Teer. Upon motion unanimously adopted, State Tax Commissioner F. C. Weinert, was invited to sit with the committee. Specific duties as to investigation and survey were assigned to subcommittees, five in number. This report is predicated upon the findings of these subcommittees as also upon those of Chairman Colquitt following an exhaustive examination into all matters pertaining to or affecting taxation and general information acquired by the committee as a whole. Reports of subcommittees, including that of Chairman Col­quitt, are hereto attached as exhibits. It is but proper to state that neither the findings of subcommittees, nor those contained in this final report, are as complete as, in the judgment of the committee, they might have been, because of indiffer­ent cooperation upon the part of local public officials to whom questionnaires were forwarded, and a suit raising the issue of the constitutionality of the resolution under the terms of which the committee was functioning. The District Court of Travis county having sustained in part the contentions of relator, and having granted a writ of injunction restraining the Comptroller from issuing to the legislative personnel of the committee warrants for services, or expenses incidental thereto, the subsequent progress of the work was materially retarded. The application for injunction having attacked the constitutionality of the resolution as a whole and the cause having been appealed and is, at the time of the prepara­tion of this report still pending in the Supreme Court, the citizen members of the committee are in doubt as to their own legal status. However, irrespective of the result of said litigation, your committee feels that it should submit such report as under the circumstances it has been able to formulate. After having performed very valuable service, including the preparation of a comprehensive report supported by full statistical data, which report is appended as an exhibit hereto, Chairman Colquitt, at a meeting held January 18, 1928, tendered his resignation a,; official head of the committee, effective January 23. Ex-Senator John G. Willacy was selected as his successor. Honorable Claude Teer, having resigned as secretary and as a member of the committee, Honorable Arthur P. Duggan was elected secretary. It being the judgment of the committee that the work of investiga­tion and assembling of statistics had progressed as far as under the limitations of its authority it could be extended, a special committee to be composed of Chairman Willacy and two other members was authorized to formulate, for the committee, a final report. Acting upon this authority Chairman Willacy appointed Senator John M. Henderson and Doctor E. T. Miller, Professor of Economics, The Uni­versity of Texas. Prompted by the hope that a final decision by the court would uphold the constitutionality of the resolution as a whole and that the special committee might give proper recognition to both House and Senate by including in its personnel a member of each branch of the Legislature, they deferred for a period the work assigned to it. However, as there has been no final decision by the Supreme Court, the committee composed of members not affected by the injunction, collaborating with Honorable C. E. Nicholson, member of the House of Representatives, and Senator A. J. Wirtz, member of the Senate, each acting upon invitation but in a voluntary capacity, has prepared and hereby submits this report. SCOPE OF THE SURVEY First: Equity in taxation being the objective, your committee, in its examination of each separate angle of the subject, has endeavored to proceed in the light of its relation to all other angles bearing upon the same subject matter. Second: Too much emphasis cannot be placed upon an obvious truth to the effect that public revenues, from whatever source obtained, can neither be stable nor dependable except that public expenditures be fairly constant. In an effort to point the way to a taxing system fair alike to the government, state and local, and to the people governed, inasmuch as all public revenue must be taken from the proceeds of private industry, it is of no less importance that we familiarize ourselves with the underlying causes of the tax burden than to acquaint ourselves with the taxpaying ability of sources of revenue. The authorization of public expenditures is a legislative function, and should remain so in a democracy. Likewise, limited by certain constitutional restrictions, the power to tax is a legislative function. Hence, it is that in so far as concerns the levy of taxes and expenditures of money derived therefrom the legislative body is the determining factor. Third: In the interest of candor it is deemed proper to state that members of the Tax Survey Committee have at no time been actuated by motives contemplating an increase of the tax burden in the interest of extended public spending of the public i;evenues. Rather would they reduce both; firmly of the opinion that an attractive field of private industry and opportunity is a supreme essential to the welfare of the whole people. They are concerned, however, with a purpose to aid in an effort equitably to distribute the burden and fix it where, rightfully, it belongs. This objective attained and the public service committed to judicious economy, your committee respectfully submits that with no injustice toward any form of private enterprise nor sacrifice of efficiency in the administration of govern­ment, the property tax, both State and local, can, as it should, be materially reduced and, in so far as concerns the State ad valorem tax, ultimately abolished. Fourth: To attain an objective so much to be desired-i. e., an equitable distribution of the tax burden, a proper share of the public revenues must first be obtained from personal property, intangible values, privilege and occupational pursuits now to a considerable extent escaping taxation. After all is said, ability to pay is funda­mentally the first rule in sound tax philosophy. The test of a tax is not so much that it reaches an entire population as that it applies equitably to all persons and corporations similarly situated. The wisdom of a tax is proven by its tendencies. Fifth: Practically all American States have accepted the principle that, in certain important public matters, the less favored com­munities should be aided by those more fortunately situated and enjoying the fruits of superior financial and industrial advantages. Especially is this true with references to support of the public free .school system and maintenance of the public highways, these being generally accepted as matters more statewide than of purely local concern. And while it might be true that, when measured by mere statistical arrangement of figures relating to the several counties and apart from consideration of other factors, including the one of ability to pay, it may appear on the surface that the practice of collecting tax revenue from the population of one community to be expended for the benefit of populations in other communities is inequitable, analysis of all elements properly to be considered will justify such practice both as an equitable distribution of the tax burden and a proper extension of the service sought, by means of taxation, to be rendered. It is important when considering the levy of taxes and the distri­bution of funds arising therefrom, that we do not lose sight of the fact that no small part of the taxable wealth that has centered in certain localities was made possible, and is still being made possible, by the industry of other communities. And it is likewise true that the city, or town, or county wherein taxes are paid is not necessarily the same place which produces the money with which to pay the tax. No one will contend, for instance, that the tremendous wealth assembled in the larger cities owes its being to the industry, solely, of the populations of these municipalities. Nor that it has been drawn from the productive industry of the counties in which they are located. Rather is it drawn from a territory co-extensive with their zones of commercial influence and activities. Did the wealth, agri­cultural or otherwise, remain in the several communities wherein produced, there would be less justification in a public policy that requires one community to help another. But the fact is that produced wealth does not so remain; that it drifts towards communities possessing superior strategic commercial advantages, and that in proportion as it adds to the taxpaying ability of the one it takes from the taxpaying ability of the other. Furthermore, and apart from considerations with respect solely to the taxpaying duty of centralized wealth, there is still another aspect which, while discussing equity in taxation, should not escape attention, and that is that no small part of income actually earned in commercial and industrial centers is made possible by the rest of the State or at least by such part of it as may, in a commercial sense, be tributory and within their zones of influence. Sixth: There are other factors to be considered it is true; notably an utter absence of uniformity among, and as between, the several counties in assessments of property subject to an ad valorem tax. Nor is there any other angle of our taxing system more difficult to reduce to terms reasonably conforming with principles of equality. Value, whether of rural or urban property, is much a matter of human opinion. Especially is this true in the absence of fixed or fairly determinable earnings. Furthermore, a given year's net earnings may with reasonable consistency be used as a fair basis upon which to determine tax liability upon incomes for the year under examination and yet lack stability and fairness in determining property value to be taxed ad valorem. Property value is not to be determined by any one single year's operations. Whether we would have it so or not it yields to the fluctuations of a reasonable number of years. Were the tax duty of farm lands, for example, and in fact no small part of urban property, measured by yearly net earnings, their annual tax contribution would vary so widely as, seriously, to impair its constancy as a dependable source of revenue. And yet all such holdings should be taxed to a consistent extent if for no other reason than that, except for the protection of the sovereignty, property could not be acquired nor held: the stronger arm would prevail as against the weaker. "Sale or market value," most generally used by assessors, is of itself insubstantial, inasmuch as value of all other property cannot be fairly determined by any single transaction. And yet, in the absence of more scientific methods based in net earning ability, it is the most available means at hand to the assessor. At the same time should the Legislature in its wisdom provide a means of lessening the tax burden upon those least able to pay, keeping in mind in particular the exigencies of our farming population, it would be doing no more violence to equity than now obtains in the State's policy of requiring, in certain important public matters, that less favored communities shall be aided by those more fortunately situated. Seventh: From a taxpaying standpoint your committee submits that an occupation earning a given sum possesses, during the same taxable year, the same taxable value as has a physical property earning a like sum, and should be considered to have an equal tax­paying duty. Both draw their substance from the wealth arising from: the industry of the whole people. Neither could prosper except for protection of government. Each should, in proportion as under protection of government it prospers, contribute toward support of that upon which its prosperity depends. Equally they share in the benefits of our public free schools, the protection of the police power and the courts; in the use of our public highways and other public improvements. In such circumstances by what peculiar interpreta­tion of equity is it that persuades us to grant preferential considera­tion to the one while withholding equity from the other. Eighth: A few chairs, a few books and a desk in an office, is n() criterion of the taxable value of an occupation. Rather it is the "going concern" value arising from contact with communities and in drawing its substance from community effort. To tax a highly lucrative occupation partakes no more of the character of taxing ability and good will than does a tax upon any other industry calling for skill and ability and which, to succeed, must first attract com­munity confidence. Furthermore, good will, no matter how valuable, rests in the community. As it responds to individual or corporate effort it adds value to such individual or corporate enterprise; value exchangeable for cash. Having a cash value it possesses a taxable value. THE AD V ALOREM OR PROPERTY TAX (1) Its Financial Importance The property tax has always been the most important single source of State revenue. Though the use and growth of other sources of State revenue are diminishing the proportion which receipts from the property tax are of total state revenue receipts, there has been h1 the last twenty-five years an enormous increase in the absolute and per capita amounts received from this tax. Table No. 1 presents the facts as to the amounts and the importance of the several sources of State revenue and the changes which have taken place during the past twenty-five years. Table No. 1 and Table No. 2 are based on reports of the United States Census. The Census publications entitled "Wealth, Debt and Taxation; Financial Statistics of States," and "Financial Statistics of Cities," contain the best analysis and most complete presentation of state and local governmental financial statistics available. The features of Table No. 1 to which attention may be called are, first the, increase in revenue receipts between 1912 and 1926. The increase was 472.3 per cent as compared with one of 62.5 per cent between 1902 and 1912. Second, while revenue receipts grew 472.3 per cent, receipts from taxes increased 490.1 per cent. Between 1902 and 1912 tax revenues increased 83.7 per cent. Third, the increase in the receipts from the general property tax was 320.4 per cent between 1912 and 1926 as compared with 116 per cent between 1902 and 1912; receipts from other taxes increased 834.2 per cent between 1912 and 1926 as compared with 41 per cent between 1902 and 1912. From the foregoing comparisons, and from the per capita and per­centage columns of Table No. 1, it may be seen that between 1902 and 1912 the general property tax was called upon to supply by far the larger share of the increased revenue receipts. Reference to Table No. 2 shows that this increase was the result of the growth of assessed values, for the tax rate of 1912 was 8 cents lower than the rate in 1902. In 1926 the general property tax was of more absolute importance than ever before, though other taxes were relatively more important than formerly. Between 1912 and 1926, while the general property tax receipts grew 320.4 per cent, the returns from other taxes increased 834.2 per cent. These other taxes were principally the recently introduced motor vehicle, oil ana gasoline taxes, and their proceeds went for the most part to such specific purposes as highways and education. The rate of the general property tax was 65 cents in 1926, as compared with 26% cents in 1912. This was an increase in the rate of 143. 7 per cent, as compared with a growth in assessed values of 45 per cent. TABLE No. 1 1902 1912 1926 Per capita 1902 1912 1926 Per cent receipts of total 1902 1912 1926 General property taxes _____________________ $ 2,928,515 $ 6,328,327 $26,604,863 $0.88 $1.52 $5.04 37.8 50.2 36.9 Special property taxes ---------------------­-----------------­Poll taxes -------------------------------------------­554,135Business and non-business licenses 541,971 844,350 2,646,353 1,780,171 0.17 0.13 0.20 0.50 0.34 7.2 .43 6.7 3.7 2.5 (gross receipts, gasoline, motor vehicles, etc.) ----------­----------------------­1,058,406 Special assessments and charges for outlays --------------------­--------------­-------­---­-------­Fines, forfeits and escheats.__ ___________ 438 949,845 --­----------------­10,039 24,760,494 604,923 11,412 0.32 0.22 4.69 0.11 21.4 13.8 0.1 34.3 0.8 Highway privileges, rents and interest --------------------------------­----------­Subventions, donations, etc.______ __ ______ 1,572,476 3,000 2,286,065 --­----------------­ 6,863,562 5,227,797 0.47 0.55 0.99 1.30 20.3 18.1 9.5 7.3 Earnings of general departments .... 1,031,224 847,601 3,606,556 0.31 0.20 0.68 13.3 6.7 5.0 Total revenue receipts_____ __ ________ _$ 7,751,738 $12,598,297 $72,106,131 $2.34 $3.02 $13.66 Increase --------------------------------­----­--­--------------­62.5%Special property taxes_ _______ ________ __ _______________ $ 1,544,990 472.3% Corporation stock taxes 1,801,363 Inheritance tax Business and non-business licenses -------------5,320,820 Motor fuel 9,039,793 All other business licenses 10,222,310 Non-business and motor vehicles 177,571 Hunting and fishing Fines, forfeits and escheats -------------------------9,412 Court fines 2,000 Commercial forfeits Subventions, etc. ----------------------------------------------331,565 From U.S. for education 4,432,497 From U. S. for highways 391,015 From U.S. for agriculture 42,906 From U. S. for health 29,814 From private persons for operation and maintenance TABLE No. 2 Per cent Per cent General Total valuation Real property Personal property including including real personal revenue rate School rate Pension rate Total rate 1902·-------$1,017,571,732 1912._______ 2,532,710,050 1926____ _ __ 3,674,414,327 $ 652,602,603 1,650,198,381 2,659,892,522 $ 364,969,129 882,511,669 1,014,521,805 152.8 61.1 147.2 14.9 .16% .10 .23 .18 .16% .35 .07 .34% .26% .65 NoTE.-The census publication does not give a division of the pro­ceeds of the property tax according to funds. The total given by the Comptroller as received from this tax is $24,890,415. The total given in the census report is $26,694,863, but included in this amount is $1,709,­001 of costs of assessment and collection, an item which is not included in the Comptroller's figures. This still leaves the census total greater than the Comptroller's by $5446, and it is probable that this amount is to be found in some such item as "Comptroller's Miscellaneous Collections" or "miscellaneous Deposits to Revenue" in the General Revenue Fund of the Comptroller's report. According to the report of the Comptroller for 1926, the general revenue rate of 35 cents produced $11,313,825, which was 49.4 per cent of all general revenue receipts; the available school fund rate of 35 cents brought in $11,313,825, which was 63.1 per cent of all of the receipts of that fund; and the pension rate of 7 cents produced $2,262,765, which was 99.9 per cent of all of the receipts of that fund. The following table is an analysis of the statement of the general revenue fund for the year ended August 31, 1927, as given in the report of the Comptroller for 1927: TABLE No. 3 Ad valorem taxes (i.e., property taxes) _____________ $21,691,590.85 Poll taxes -----------------------------------------------------------------1,395,277.34 General occupation taxes --------------------------------------326,793.80 Total of above taxes ------------------------------------------$23,413,661.99 Less transfers to available school fund ---------------------------------------------$12,503,201.79 Less transfers to pension fund .___ 2,299,125.79 14,802,327.58 Net general revenue from general taxes_ __ __ $ 8,611,334.41 Gross receipts taxes -----------------------------------------------7,495,394.84 Franchise taxes and charter fees___________________ ____ 1,698,220.18 Inheritance tax --------------------------------------------------------1,560,336.34 Total net taxes, general revenue ---------------------$19,365,285.77 Interest department feeis, etc.________________________________ 1,539,950.08 Total income -------------------------------------------------------$20,905,238.85 Cash, August 31, 1926___ _______________________________________ 5,396,951.42 Total --------------------------------------------------------------------$26,302,190.27 Texas was eleventh among the states in 1926 in the proportion of revenue receipts derived from the general property tax. The following table is based on the report of the census: TABLE No. 4 Per cent Arizona ····--····--·-····--···--------------------------··-·········-·······-······--···· 62. 7 New Jersey --------····-------------·-···-------·-············--····----····----···· 47. Utah ------·······-····--··------···---------·-----·-··----································-· 45.4 Illinois ·····------------------------------·-··-···---······------------·-······-······· 42.1 Nebraska ·····---------------------------------································-··-····-· 40.2 Washington ----···-·----------···········-----------·-········----··-··········· 39.7 Kansas -----········-··----··------------------------······-············-·················· 37.6 Louisiana ·········--------······--·-··-·----··--··-···········-········-··········· 37.5 Michigan ·········-·-···-····-······-------·······-······································ 37. Colorado ·············-···--------------···----······-··-·······------············· 37. Texas ·················-·----------------··----············································· 36.9 The general property tax is used not only by the state, but by the counties, incorporated places, and districts. In 1922 the State and the other taxing jurisdictions of the state collected $94,890,000 from the general property tax. Total taxes, licenses, permits and special assessments collected by the state and local governments in Texas in 1922 amounted to $110,046,000, of which sum the taxes on property constituted 86 per cent. The following table shows the relative importance of the i!'eneral property tax among the taxes employed by the different taxing jurisdictions in 1922: TABLE No. 5 Total From General Tax Receipts Property Tax State -----·-·····-··················----·---------$30,210,000 $19,677,000 Counties ····--··················-······-······-27,263,000 24,296,000 Incorporated places ··············-······ 30,921,000 29,425,000 Districts -----········-···················· 21,652,000 21,492,000 The large part which the general property tax plays in the tax system of the State and its subdivisions makes the question of its operation of very great importance. (2) The Operation of the Property Tax-A Tax Principally on Real Property The property tax has always been, and still is, a tax which falls mainly on real property. The following table shows the proportions which real property, intangible personal property (money, credits, bonds and stocks other than bank stock) and other personal property are of total assessed values: TABLE No. 6 Year Real Property Per cent Intangible Personal Percent Other Personal Per cent 1900_______________________________________________ 1910_________ _____________________________________ 1912________ __ ________ _______________ _______ 1915______________ ______________________ ___ __ 1920___________________________________________ 1922______________________________________________ 1926_______________________ _________ ___________ 62.8 64.2 65.1 65.4 63.1 66.1 67.8 2.6 3.2 2.8 2.6 3.1 2.2 1.6 34.6 32.6 32.1 32. 33.8 31.7 30.6 Real property has for some time constituted about two-thirds of assessed values. If it made up about two-thirds of the wealth of the State, its ratio of assessed values would be acceptable, but, according to the United States census, real property was 53.2 per cent of the tangible wealth of the State in 1912. The census did not include an estimate of intangible personal property and, when this omission is considered, the disproportionate burden borne .by real property is evident. In 1922, according to the census, real property was 58.8 per cent of tangible wealth. Under our tax laws, however, intangible personal property is taxable and, had this been estimated and included in 1922, the proportion of real property would have been very much less than 58.8. The discrepancy between real property and other forms of property is shown by the following table, which is based on census statistics: TABLE No. 7 Per Cent Assessed Value of Census--Estimate of True Value 1922 1912 1900 Real property ----------------------------------38.3 50. 49.2 Live stock ----------------------------------------48.3 39.5 42.2 Manufacturing machinery ___________ 21.7 21.8 27.6 Railroads and equipment______________ 38.7 64.9 41.1 Street railways --------------------------------19. Telegraph and telephone _______ ________ 25.6 (3) The Escape of Personal Property Comparison between tangible property and intangible personal prop­erty cannot be made because the amount of the latter which is owned in the State is unknown, with the exception of the deposits of State and National banks. On December 31, 1925, the demand deposits held by incorporated banks in this State amounted to $516,618,000; the amount of money reported by taxpayers as on hand or on deposit on January 1, 1926, was $25,238,595, or 4.8 per cent of the demand deposits reported for the previous day. Time deposits should be included, but the consolidated bank statements do not separate the taxable deposits from those of counties, cities and other governmental jurisdictions whose deposits are non-taxable. Some of the demand deposits are non-taxable because they belong to non-residents, and some also may be government deposits, but, everything considered, 4.8 per cent is afair indication of the non-rendition by taxpayers of their bank deposits. The same evasion characterizes the taxation of credits and of securities. Only $25,238,595 of taxable credits and $3,393,214 of taxable stocks and bonds were assessed as being owned on January 1, 1926. In 81 of the 250 counties whose assessment lists are reported in the Report of the Comptroller for 1926, there was no assessment whatever of money; there were no credits assessed in 130 counties, and no bonds or stocks in 217 counties. Assessments of money in Dalas county amounted to $6,890,730, but in Harris county they were only $53,740. Credits other than those of bankers were $10,325,600 in Dallas county, and $18,800 in Harris county. These returns and comparisons relating to the assessment of intangible personal property are indicative of the way the law relating to the assessment of personal property is being administered and is operating. The escape from taxation of money and credits when subject to the high general property tax rates has led some fifteen states to adopt a low rate of tax on such property. Among the states practicing this method are Kentucky, Maryland, Minnesota, Mississippi, Pennsyl­vania and Virginia. It has resulted in the states using it in a marked increase in the number of persons assessed for money and credits, in the amount assessed, and in the revenue received. These results are illustrated in Minnesota's experience with a low tax rate, as follows: Number Assessed Assessment Revenue 1910 (old law) 6,200 $ 13,919,806 $ 379,754 1911 (new law).......... 41,437 115,481,807 346,445 1926 ····-···-····-----····· 115,190 414,072,314 1,242,217 The Minnesota tax is one of thirty cents on the one hundred dollars and is the sole tax on money and credits. The proceeds are appor­tioned to the state, and to the county, the village, town, or city, and the school district in which the property is assessed. The favorable results of this method in Minnesota are to be attributed in considerable measure to the strong and efficient Tax Commission which that State has. In Texas, assessments of money and credits, other than those of banks or bankers, were $69,111,526 in 1910 and $57,303,577 in 1926-a decrease of $11,807,949, which is w be compared with an increase in Minnesota of over four hundred millions during the corresponding period of time. The "equal and uniform" clause of the Texas Constitution prevents the classification of property for purposes of taxation and the use of a different rate of tax on the several classes. At the present time thirty-three states permit classification of property for purposes of taxation, and in twenty-eight of these states some use is made of classification. Mortgages were taxed in nine states in 1926 by a mortgage registry tax. As a rule, the payment of the registry tax exempts the mort­gage from all other taxes, and when this is the rule the tax is heavier than when it is an additional tax. It is a tax which is easily administered, is just, and is productive of revenue. A state tax on cigarettes or on all tobacco products is the newest development in state taxation. It is at present found in ten states, namely, Alabama, Arkansas, Georgia, Iowa, Kansas, Louisiana, North Dakota, South Dakota, Tennessee and Utah. Iowa, for example, taxes only cigarettes and also charges cigarette dealers a license tax of from $50 to $100, and requires of them a $1000 bond for their observance of the law regulating the sale and the taxation of cigarettes. States see in this tax an equitable way of relieving property of some of its tax burden. Mercantile Pursuits Our tax laws provide that all property subject to the ad valorern tax shall be assessed to the owner as of the first day of January of each year. Under this provision, merchandise of every character coming into the hands of dealers between the second day of January and the thirty-first day of December of each year, both inclusive, get by without payment of any tax whatever. Opposed to this, land and related physical property being always present, is all and always taxed; every acre, whether subdivided or not, exists, is owned and in hand every day of the year and is assessed with reference to these facts on the first day of the year. In this, as in other notable respects, our ad valorem system has proven grossly inadequate. Furthermore, it is becoming more and more obvious that, in the interest of equity and good faith, some other method should be used with respect to commercial and occupational enterprises. Uniformity in taxation is not to be obtained by acts providing merely for a fixed and invariable rate. Imposed upon. ununiform percentages of true value, the rate automatically becomes widely variable. It is hardly to be assumed that, either in volume or value, stocks of goods and merchandise in Texas for the year 1927 were less than the year 1923. And yet, as shown by the reports of the State Comptroller, they were assessed: For the year 1923__________ ____________________________ _ _ __________$207,918,754 For the year 1927__________________________________________________ 202,904,476 A decrease for the year 1927 under 1923 of____$ 5,014,278 In contrast with the above, land, exclusive of city and town property, was assessed: Limiting Taxes on Tangible Property For the year 1923___________________________________________________$1,375,709,129 For the year 1927__ ____ ____________________________________________ 1,492,285,918 An increase for the year 1927 over 1923 of____$ 116,576,789 (4) Lack of Unifvrmity in Assessment Ratios There are varying percentages of assessed to true value of land and other property from county to county; also the different classes of property within the same county have different assessment ratios, and different individual owners of the same class of property within the same county are assessed at different proportions of true value. The conditions in the State in the matter of the assessment basis cf property are chaotic. The Tax Survey Committee, in its question­naire to county judges, sought to ascertain the assessment practices throughout the State, and the following table is a classification of the replies received: TABLE No. 8 Per cent assessment Farm Ranch City Real Merchan­ratio: Land Land Estate dise 20 and under__________________ 10 9 2 1 21-30 ------------------------------31 32 21 8 31-40 ------------------------------56 49 57 35 41-50 ------------------------------48 48 59 56 51-60 -----------------------------11 10 16 35 61-70 ------------------------------3 3 6 15 71-80 -----------------------------6 11 11 17 81-90 ------------------------------0 0 1 1 91-100 -----------------------------­ 2 2 4 5 Total replies __________ 167 164 177 173 The central tendency as to assessment basis of real property is between 31 and 50 per cent. There is also revealed a tendency to assess city real estate and merchandise at a higher percentage than farm and ranch lands. The comparison can best be made between the different classes of real property, because there may be con­siderable non-listing of merchandise which would offset the higher assessment basis. For further comparisons of assessed value, attention is directed tc the report prepared by Hon. 0. B. Colquitt. On page 1, under subtitle "Lands," Mr. Colquitt states: The United States census for 1920 figures the average assessment of land in Texas at 40 per cent of the real value, but the best analysis which I have been able to make in the short time I have been investigating results in the conclusion that lands in the black land belt were assessed at from 20 per cent to 25 per cent of the value; in East Texas, from 70 per cent to 80 per cent of their market value; in Middle-West Texas and Panhandle counties, from 20 per cent to 25 per cent of their value; in Middle Texas and South Texas counties, at about the same ratio." On pages 21 and 22, Mr. Colquitt submits the following interesting comparisons of both assessed valuations and rates imposed: County Valuation and Tax Rate on Land Land is assessed for taxation at average values of from 84 cents in Culberson county to $39.36 per acre in Harris county. In 52 counties it is assessed at $10 to $20; in 15 counties at $20 to $30, and in 7 counties from $30 to $39.36 per acre, Harris county being the highest at $39.26, Tarrant next highest at $35.68, and Navarro county third highest at $33.47. Taking Titus county and Wood county as average East Texas counties and my general knowledge of East Texas, I estimate that lands in that section of the State are being rendered at from 75 per cent to 80 per cent on their market value. The lands in Wood county, with the tax rate of $1.85 on the hundred, is assessed at an average value of $9.91. Titus county, with the tax rate $2.50 on the hundred, land is assessed at $9.78, whereas it is believed that the average market value of lands in East Texas is around $12 to $15 per acre. Taking Ellis county, with a tax rate of 25 cents and an average land value of $32. 78, and Dallas, with a tax rate of 70 cents and an average land value of $28.02, and Collin, with tax rate of 42 cents and an average land value of $32.97, as average black land counties, I estimate that lands in the black land belt are assessed at from 20 per cent to 25 per cent of their market value. Taking Jones county with $12.40 assessed valuation and a $3.05 tax rate; Taylor, with $8.58 assessed valuation and a 75 cents tax rate, and Brown county with $6.84 assessed value and a 70 cents tax rate, as representative middle-west counties, I estimate that the land is assessed at about 20 per cent to 25 per cent of their market value. I do not under­stand why the rate in Jones county is so high, but I am quoting the figure given by the Comptroller's report. Using Hall, with an assessed land valuation of $8.43 and a tax rate of 95 cents; Childress, with a valuation of $8.06 and tax rate of 85 cents; and Foard, with assessed valuation of $12 and tax rate of 65 cents, as counties representative of that section, I estimate that the valuation of taxation is from 20 per cent to 25 per cent of their market value. Taking DeWitt, with an assessed valuation of $14.83 per acre, 52 cents tax rate; Fayette, with assessed valuation of $15.16; tax rate of 65 cents; and Gonzales, with assessed valuation of $11.05, tax rate of 65 cents, illustrates about the same condition in percentage of values as cited in all of the illustrations, except East Texas situation, these being typical South Texas agricultural counties. West Texas lands, except in counties where oil has been discovered, are being Msessed on ~ relatively higher per­centage of valuation. Limiting Taxes on Tangible Property 125 On pages 244 to 249, both inclusive, under the subtitle of "County Statistics," of the statistical report compiled by Chairman Colquitt, will be found a very interesting tabulation reflecting the opinions of county judges of 177 counties as to what per cent of the reasonable market value was used for assessment purposes. Based upon opinions submitted, the tabulation shows that local assessments of: Farm lands vary from 20 to 75 per cent, the average being______________________________________________--42.5 per cent. Ranch lands vary from 20 to 100 per cent, the average being _______________________________________________-42. per cent. Railroads, 20 to 100 per cent, the average being ------------------------------------------------50.53 per cent. Public utilities, 16% to 100 per cent, the average being ----------------------------------------------48.5 per cent. Merchandise, 20 to 100 per cent, the average being ------------------------------------------------50.4 per cent. Manufacturies, 25 to 75 per cent, the average being ------------------------------------------------47.1 per cent. NOTE.-Merchandise assessed upon such part only as may be on hand January 1st each year. It may be concluded from what has been presented in regard to the operation of the property tax that (1) it is a. tax mainly on real property, (2) real property is undervalued for purposes of taxation, (3) other property which is taxable under existing laws is escaping taxation to a greater degree than is real estate and the extent of the escape varies according to the tangible or intangible character and the simplicity or complexity of the property. The ease of concealment of money, credits and securities, and the complex and intricate char­acter of large scale corporate properties, such as public utilities, oil companies, large department stores, explain how, under our present tax laws and machinery of administration, there is a steep gradation in the degrees of the actual amounts or values of the different taxable properties reached for taxation. The result of the failure of the property tax to reach all taxable property is that owners of some classes are penalized while owners of other classes of property are favored in the contributions they are compelled to make towards the support of the State government. The injustice of the actual situation is obvious. There are unjust discrim­inations among the owners of the different classes of property and there are equally unjust discriminations among the owners within the same class of property. The modest and comparatively inexpensive home of the laborer can be, and is, more nearly valued and assessed at its real market value than can be, and is, the more costly residences of the well-to-do. This regressive operation of the tax is also true of the small and large mercantile establishments. While there is under­assessment of rural property yet quantitatively such property is more fully listed than is the property in the city. The city is the home of intangible personal property, of costly household furnishings, of diamonds and precious jewels, gold and silver plate, of valuable franchises, and only a fraction of all of this property is reached. (5) Inducement to Perjury The undervaluation and evasion which characterize the operation of the property tax have a more ominous significance than their effect on state revenue. They represent a widespread disregard for law and of the sanctity of legal oaths. The deception and perjury which the property tax leads to are menacing to public and private morals and to the future of good government. As distinguished from other forms of taxation, the ad valorem tax, commonly known as the property tax, is a tax imposed upon values and must be paid irrespective of whether the subject taxed earns or not. And yet, property holdings of every character should be required to contribute some part towards support of the sovereignty. To relieve it would invite holding for speculative rather than development purposes. True, there is little equity in the administration of the property tax. Any tax law which takes no account of ability to pay is a stranger to equity. At the same time this committee submits that taxation reduced to an exact science is a thing unknown and that, in more or less degree, lack of uniformity obtains and will continue to obtain in all forms of taxation. In any event, in the opinion of your committee, the property tax should not too precipitously be abandoned. Too much of the wealth of the State is wrapped up in physical holdings to justify haste and certainly no part of our taxing system should be discarded until we are first convinced that, so far as concerns adequacy of the public revenues and a fairly equitable distribution of the burden, better methods are at hand of doing the same thing. Out of the total new wealth of the State coming into being each year agricultural land acquires but a small part at best. Upon the other hand, business and occupational pursuits secure the greater part. This aspect of our industrial and commercial life cannot well be regulated; human energies are too indifferently balanced. Yet this very fact presents all the more reason why our tax laws should be so designed that while all should pay some proper part those who profit most should pay most. As has been shown, the general property tax has from the stand­ point of equity in the distribution of the tax burden proven itself, in operation, inequitable. Taxes, in whatever manner imposed, are ultimately paid out of income. When the property tax was first adopted the principal wealth of the State was composed of large bodies of land and herds of cattle. These constituted the main source of income. However, many other and as a general rule, more profit­ able types of property have come into being; types in no respect less properly and legally taxable than are, or were, those originally depended upon. A large proportion of income is derived from sources other than property alone. In the formulation of a taxing system this is not to be ignored. TEXAS INTANGIBLE TAX LAW The Texas Intangible Tax Law, of itself, levies no tax whatever. It operates merely as a method of ascertaining the value of taxable entities, which already under our law are subject to an ad valorem tax, based upon the theory, as heretofore submitted, that inasmuch as the State has the power to tax, it logically possesses the right to know the value of the subject to be taxed. Its provisions might be extended to corporations, associations, and individuals engaged in business extending over many counties, rather than the one of their domicile, without violating equity or doing violence to principle. Intangible Value In one form or another, almost every state of the American Union has enacted laws providing for taxing intangible wealth. As a proper subject for taxation, that of intangible value is sustained by the courts, both state and Federal. Nor is there about such sort of wealth anything vague or insubstantial. Like all other value it may be fairly calculated, fairly assessed and equitably taxed. A flat rate imposed upon gross receipts takes no notice of whether, out of industry or community influence, a fair return is being earned on capital value, or of ability to pay. Hence it cannot be otherwise than a stranger to equity. Under the intangible tax law as originally enacted, subjects now under our gross receipts tax law were included under the intangible tax,-a great many more, in fact,-some having succeeded in having themselves withdrawn from either. It was con­tended in some instances that for the State to acquire knowledge of the real capital value of taxable subjects, involved pernicious inquiry into private business. Just why statements of financial operations rendered to the Federal government, under its income tax law, should be considered as no~ inconsistent, while less comprehensive statements made to the State government should be regarded as a vice, is not explainable. In operation, the chief difference between an income tax and an intangible tax, as imposed under Texas law, is one of method. Under income tax laws, taxes are imposed upon net earnings during a given year. One may have earned nothing during the preceding year, and may "go broke" the following year, yet the tax for the year assessed must be paid. Under our intangible law, the average over a period of years is used, and upon this average the capital value is calculated, credit being allowed for taxes paid upon physical holdings. State T~ Board In the judgment of your committee the State Tax Board should be in fact the State's principal tax department, its field of operations widened and the department, itself, put in intimate touch with all sources from which the State seeks to obtain revenue. By legislative g1·ant this Board already has the power. Adequately supported it could, and doubtless would, render both the State and the taxpaying public a valuable service. In this connection your committee directs attention to Chapter 4, Title 122, Revised Civil Statutes, 1925, under provisions of which the State Tax Board functions, and especially to Articles 7101, 7102, 7103 and 7104 thereof, which read as follows: Article 7101 (7410). Duties of Board.-It shall be the duty of said Tax Board: 1. To make such rules and regulations as said Board shall deem proper with respect to its own meetings and procedure, and to effectually carry out the purposes for which said Board is constituted. 2. To examine all books, papers and accounts and to interrogate under oath, or otherwise, any and all persons whom said Board, or any member thereof, may desire to examine for the purpose of obtaining or acquiring any infor­mation that may in any way aid in securing a compliance with any tax law or revenue law of this State by any and all persons, companies, corporations or associations liable to taxation or to pay any license fee under any law of this State, which is now in force, or which may hereafter be enacted. 3. To make diligent investigation and inquiry concerning the revenue laws and systems of other states and counties, so far as the same are made known by published reports, or statistics, or can be ascertained by correspondence with officers thereof; and, with the aid of information thus or otherwise obtained, together with experience and observation of the operation of the laws of this State, to recommend to the Legislature at each regular session thereof, such amend­ments, changes or modifications of the laws of this State, and such additional laws as may to said board, or any mem­ber thereof, seem necessary or proper to remedy injustice or irregularity in taxation, and to facilitate the assessment of taxes and collection of public revenues. 4. To report to the Legislature, at each regular session thereof, the whole amount of state revenues collected in this State for all purposes, and the sources thereof, the amount of such revenues which may be lost to the State through failure to make collection and the cause of such losses, a summary of the proceedings of said Board since the date of its last report, and such other matters concerning public revenues as said board, or any member thereof maydeem to be of public interest. (Id.) Article 7102 (7411). Visits. -Said tax board, or any member thereof or the Comptroller under the direction of said board, or of the Governor, shall, at least once in each year, visit such counties of the State as said Board or the Limiting Taxes on Tangible Property 129 Governor may direct, for the purpose of investigating into and aiding in the e11forcement of all revenue laws of this State, and especially those concerning the rendition, assess­ment and collection of taxes. (Id.) Article 7103 (7412). Powers of Board.-Each member of said board shall have power to administer oaths and to sub­poena and examine witnesses, and to issue subpoenas duces tecum, and shall have access to and power to order the production before such board, or any member thereof, of any and all books, documents and papers which may be in the possession or under the control of any person, company, corporation or receiver, assignee, trustee in bankruptcy, or bailee, whenever such Board, or any member thereof, may consider same necessary or proper in the prosecution of any inquiry under or in the execution of any provision of this chapter and all such process shall be served under the pro­visions of law governing the service of process in civil cases, in so far as applicable. (Id.) Article 7104 ( 7 413). Failure to Obey Subpoena. -Any person who shall disobey any such subpoena, or subpoena duces tecum, issued by any member of said board, or any such order of said board, or who shall fail or refuse to attend as by such subpoena directed, or to testify when so required to do so by any member of said board, under the provisions of this chapter, shall be deemed guilty of contempt, and may be punished therefor by said Board under the provisions of laws applicable to the district courts in such cases. (Id.) There is at present no way of ascertaining from any state depart­ment, the true value of physical property in Texas, other than those of railways and terminal companies. Those alone may be had by reference to the records in the Engineering Division of the State Railroad Commission. Assessed valuations as spread upon the tax rolls, differ too widely in percentages to be dependable. Utilities under the operation of the gross receipts tax law make reports of gross receipts only. Inasmuch as railway companies, ferries, toll roads and bridge companies are the only corporations required by Texas law to submit annual reports of operations, including receipts and disbursements of operating revenue, the net income of these groups only is obtainable from state records. Under competent engineering examination, and under the direction of the State Railroad Commission, the physical values of railway and terminal companies are ascertainable. Under provisions of our intangible tax law, as administered by the State Tax Commissioner, the "going concern" value of railways, bridge, ferry and toll road companies is calculated, their intangible values, if any, certified to the several county assessors for assessment. Selecting for the purpose of illustrating the operation of our intangible tax law the most important of the four groups, the valua­tion placed on the Railroad Commission on the railway and terminal companies operating in Texas was (Railroad Commission report issued 1927, page 514)­ 130 The University of Texas Bulletin $636,831,872.00 Less franchise value prior to 1920 --------------------------------13,972,381.00 (Corrected to year 1927) $ 622,859,491.00 Assessed by local assessors for the year 1927, Calhoun not included (p. 77, Comptroller's Report, 1927) --------------------------------------------------151,479,037.00 Plus Calhoun county since reported _______________ _ 292,540.00 Rolling stock --------------------------------------------------------37,140,057.00 Total local assessment of railroads ---------$ 188,911,634.00 Intangible valuations assessed by the State Tax Commissioner (year 1927) ____________________ 79,292,237.00 Total assessment of railway operating property ----------------------------------------------------$ 268,203,871.00 Percentage of Railroad Commission valuation asssesed --------------------------------------------------------------43.06o/o Like all other taxable entities, each utility is, for the purpose of arriving at its tax duty, an individual case. Whether owned by individuals or corporations, no two properties produce alike. The amount of money invested, while a factor to be considered, is not the final and determining one. Two manufacturing plants, alike in every respect, but located in different communities, do not necessarily represent the same tax value, inasmuch as one may be earning income, and the other not. Corporations Other Than Railways In arriving at values upon which corporations other than railway companies are assessed, one should not be confused by the figures given under the head of "Summary of Property and Value Thereof," on page 77 of the Comptroller's report for the year 1927, which shows assessed values of certain corporations, as follows : Value of all property of companies and corporations other than those of railways__$ 40,896,536.00 State and national banks -----------------------------------67,624,945.00 City railways --------------------------------------------------------13,089,236.00 Telegraph and telephone companies _______________ 25,071,481.00 Steamboats, vessels, pipe lines, etc._________________ 43,471,556.00 Total --------------------------------------------------------------$ 190,153,754.00 Inasmuch as quite a number of corporations other than railways and those engaged in production of oil and sulphur, and in the sale of gasoline, are assessed upon gross receipts in lieu of a tax upon their intangibles, there should be added to the total as shown in the preceding paragraph, a sum the equivalent of an assessed value, which, if taxed ad valorem would realize, at the same state rate (67 cents) for the year (1927), a sum in taxes equal to that received under the gross receipts tax. The total gross receipts tax paid by such corporations, excluding oil well owners and sulphur companies (page 97 of the Comp­ troller's report is referred to) was______________$ 1,079,114.47 This is the equivalent of the sum which would arise from an ad valorem tax, at the rate of 67c, upon an assessed valua­ tion of ------------------------------------------------------------­161,061,410.00 To which, when added a valuation of______________ 191,328,440.06 Representing the assessed valuation upon physical property of corporations, will give a total assessment value of___________________________$ 351,215,164.00 INHERITANCE TAXES Your committee, herein reporting, offers no specific recommenda­tions with reference to policy in the application of inheritance taxes, but submits in this connection a report previously prepared by one of the members, which includes an extensive digest of the salient features of inheritance or succession tax laws of all the states. The information contained therein will prove a valuable guide in working out a fair solution of this important angle of our taxing system. In many states, as compared to those now obtaining in Texas, rates are higher. In others the rates are lower. Texas rates appear to strike a fair average. The question of reciprocity between the states as to the inheritance tax on intangible personal property is one which the Legislature might well consider. The National Tax Association is making an earnest effort to secure uniformity among the states in the application of the tax to such property. DELINQUENT TAXES The official record of delinquent taxes presents a problem calling urgently for legislative action. Just what proportion of the total of arrears can be collected is admittedly problematical. In their present state these open accounts perform no useful public service. By some effective measure they should be settled and closed. Doubtless there are instances, many of them in fact, deserving of lrniency. When right intentioned people default in their public duty, usually there are extenuating circumstances. Crop failures and other unavoidable misfortunes happen at times. Furthermore, taxes are high; much too high on those least able to pay. Upon the other hand are those amply able to pay. With such the Legislature should deal with a determined mind; to the extent if found expedient of confer­ring power upon some central authority. Nor, when it comes to placing responsibility for tax delinquency extending over a long period of years is the State itself to be held altogether blameless. By the terms of our statutes enacted, presum­ably, for the purpose of enforcing collection, fees and charges are permitted to be pyramided to an extent that, in no small number of instances, the delinquent owner cannot afford to pay nor the State afford to foreclose. Personal property to a no inconsiderable extent escapes entirely, much of it passing out of existence or beyond the jurisdiction of the State. Real property stays and ultimately pays. True, there are no delinquencies against the major part of taxable intangible holdings nor against a majority of profitable occupations, but due to the circumstance that they are not taxed. It is not improbable that tax avoidance is a matter of no less importance than is the one of tax delinquency. Attention is directed to pages 38 to 54, both inclusive, of the report prepared by Hon. 0. B. Colquitt wherein the subject of tax delin­quency is discussed in a most comprehensive manner. On page 42 Mr. Colquitt states: I have received numerous letters making complaint against county and district attorneys, where suits for taxes have been filed, for making a separate suit for each tract or lot assessed in the name of the same owner. It occurs to me that the law should at least be amended in this respect so as to require all tracts of land, or town lots, in the same county assessed against the same person to be included and set out in one suit. COMPARATIVE C 0 ST OF OBTAINING REVENUE AS BETWEEN THE TWO MAJOR SOURCES, THE AD VALOREM TAX AND THE GASOLINE TAX (Comptr.oller's Statement) For ad 'Valorem purposes, total taxes assessed for 1926, ending March 31, 1927 -------------------$ 27,899,184.86 Total cost of assessing and collecting________________ 1,009,621.86 Cost of collecting $100.00_ ________________________________ 3.618 Total gasoline tax collected for 12 months__ _____ 19,346,501.68 Total cost of collecting gasoline tax.... ·------------38,699.00 Total cost of collecting $19,346,501.68 in ad valorem tax --------------------------------------------------------534,737.30 INCOME TAX While the report, for the year ended June 30, 1927, of the Commis­sioner of Internal Revenue at Washington, gives a summary (pagoe 79) of income tax collections from corporations and individuals by states, there is no segregation of income earned within from that earned without the several states. Hence the summary, while con­taining much valuable information, is by no means conclusive as to incomes arising solely from industrial, professional and occupational activities within any particular state. No small part of income, espe­cially that of corporations, is actually earned from activities conducted in states other than that of their domicile. Only such portion of income as may be derived within the State is taxable for the benefit of such State. For the year ending June 30, 1927, the total of income taxes paid by individuals, asso­ ciations and corporations reporting from Texas was -----------------------------------------------------$ 42,964,080.00 Of this total there was collected from cor­porations ------------------------------------------------------28,964,685.70 And from individuals ------------------------------------13,999,395.10 For the year ending June 30, 1926, a published condensed Federal statement in group formation of net incomes reported from, but not all earned in, Texas shows in the tabulation that-­ Individuals reporting had net income agre­gating ------------------------------------------------------------$ 496,820,447.00 Corporations reporting had net income aggregating -----------------------------------------------------209,658,194.00 Of the total number of corporations reporting (11,245), but 6,890, or 61.27 per cent, had net income, while 4,355, or 38.73 per cent, reported none. In all instances, operating expenses, interest, uncol­lectable revenue, allowance for obsolescence, repairs, deterioration, etc., were deducted before net income was arrived at. Sources and amounts of net income reported were as follows: Business ---------------------------------------------------------------$ 115,311,440.00 Partnerships ----------------------------------------------------57_,541,725.00 Profits from real estate, etc. ------------------------------33,244,817.00 Interest and investment income_____________ __________ 51,698,524.00 Dividends --------------------------------------------------------------54,983,718.00 Wages and salaries ------------------------------------------219,736,635.00 For a complete history and review of income tax laws adopted by certain states, together with a summary of the provisions thereof, attention is directed to the report hereto attached, prepared, following an exhaustive examination into all matters pertaining thereto by Senator Edgar E. Witt. CERTAIN RECOMMENDATIONS We recommend to the Legislature and the Governor that the State budget system should be an executive and administrative process. It should be so designed that the final budget figures shall, except in emergencies, be the maximum but not necessarily the minimum of departmental and institutional expenditures. The budget law of Maryland provides: "Neither House shall consider other appropriations until the budget bill has been finally acted upon by both houses and no such other appropriation shall be valid except in accordance with the provisions following: (1) Every such appropriation shall be embodied in a separate bill limited to some single work, object or purpose therein stated, and called therein a supplementary appropria­tion bill, which supplementary appropriation bill shall pro­vide the revenue necessary to pay the appropriation thereby made, by a tax direct or indirect, to be laid and collected as shall be directed in said bill. In the judgment of your committee the income tax is a just and equitable tax and as such is not to be ignored as an essential part of a comprehensive taxing system. From the standpoint of equitable taxation, those who profit most should pay most. * * * It is not to be denied that, should the following recommendations be adopted, a greater proportion than at present obtains of the State's revenue will be paid by commercial enterprises having their places of business in the larger cities. Wealth continuously and persistently drifts toward large centers of trade. If, under some provision of Providence, the wealth produced in the various counties remained in the communities where produced, there would be less need of seeking taxable wealth in populous centers. That occupations coming within class (c) as hereinafter defined, due to the fact that persons so engaged render purely personal services, be assessed under a graduated occupation tax, or under a moderate income tax. To promote the highest degree of simplicity, should an income tax be preferred, the rate imposed should be invariable. Occupations and professions come within three classes, namely: (a) Those in which the amount of capital invested in physical property is relatively small, and the net income relatively large. (b) Those which, from their quasi-public nature, or from the direct protection afforded by the State or the subdivision, or from the peculiar economic conditions surrounding them enjoy monopoly or other special privileges. (c) Certain professions. These enjoy certain privileges and protec­tion, under licenses received from the State. Many of such are beneficiaries of special training at the expense of the State. Without attempting to enumerate all the activities which, in the interest of equity toward all other taxpayers, should come under this classifica­tion, there may be mentioned attorneys at law, physicians, dentists, teachers, pharmacists, public accountants, undertakers, etc. To this class might be added, although such occupations are not of a profes­sional character, insurance agents and adjusters, itinerant merchants, real estate agents selling on commissions, and other like character of pursuits. Under class (a), which group should be brought either under the provisions of our intangible tax law or under the net income tax law, might be mentioned loan companies, insurance companies, mortgage companies, bonding companies, distributors, brokerage and commis­sion merchants, automobile finance corporations, automobile tire and accessory dealers, beverage dealers, film exchanges, bill poster and advertising concerns, real estate dealers, live stock, grain and cotton brokers, whether handling on commission or by purchase, or both, and others of like character. Under class (b) group, which should come under the provisions of the intangible tax law, or under the provisions of a gross receipts tax law, the rate of tax equated so that revenues arising therefrom will, as nearly as may, be the equivalent in amounts as would arise from the ad valorem tax, if imposed by the State upon valuations calculated and ascertained under the provisions of our intangible tax law, may be named; railroad, ferries, toll roads and bridge companies (now already under the operation of said law); all those which are now being taxed under what is commonly known as the gross receipts tax law, excepting from such group those engaged in oil and sulphur production (to which gas production should be added), and those taxed under the gasoline tax law. In addition thereto, there should be included in the group coming within class (b) as designated, pipe lines, bus lines carrying passengers and freight for hire, taxicab companies, compress companies, cement manufacturing companies, rock crushing companies and ice and ice cream companies, packing house companies and in general such enterprises as are engaged in activities, in their nature more intercounty than intracounty. With reference to the exceptions made a tax on gas, sulphur, oil, and other mineral production is in fact a severance tax, and should be taxed as such rather than as an occupation tax. In this list of taxables, gas is not now, but should be, included. Appended hereto as a part of this report are Exhibits "A," "B," "C," "D," "E," "F," "G," to which reference is made. NOTE.-The consolidated report of Subcommittees Nos. Four and Five, dealing with most phases of the subject of taxation and in particular with corporations, public utilities, mercantile pursuits, intangible holdings, those assessed and those escaping, and occupation taxes, including those imposed upon gross receipts, compiled by Sc:nator A. J. Wirtz and ex-Senator John G. Willacy, having been taken as the basis of this general report, is not in the form of an exhibit attached hereto. Respectfully submitted, JOHN G. WILLACY, Chairman EDGAR E. Wn-r C. E. NICHOLSON E.T. MILLER A. J. WIRTZ J.M. WEST ARTHUR P. DUGGAN JOHN M. HENDERSON ADRIAN POOL RELATION OF TAXES TO INCOME BY L. P. GABBARD Chief, Division of Farm and Ranch Economics, Texas Agricultural Experiment Station (Extract: Farm and Ranch, March 14, 1931, p. 1) It has been pointed out in previous articles of this series that a rela­tively large proportion of the income of individuals in Texas is derived from sources other than property. Such items as wages, salaries, professional fees, etc., constitute three-fourths to four-fifths of the total income of individuals in the State, while interest, rents, dividends, and income from the owner-operation of property make up one-fourth to one-fifth of the total income of individuals. Thus it is evident that a relatively small percentage of current net income is derived solely from the ownership of property and a still smaller percentage from the ownership of tangible property. In this connec­tion I wish to quote briefly from a report made by J. C. Watson, tax expert, Illinois Agricultural Association, at the American Farm Bu­reau Tax Conference held at Chicago, May 15-16, 1929. He says : "It thus appears that in ·many states the tangible property which pays nearly all of the general property taxes, produces only between 10 and 15 per cent of the net income of the entire population." The National Industrial Conference Board is authority for the statement that in 1927 Texas derived 76.15 per cent of its state and local revenues from the general property tax. In other words, all property, which is the source of one-fourth to one-fifth of the total net income of our entire population, pays about three-fourths of our total taxes. This is not all. The gravity of the situation becomes more serious in view of the fact that intangible property, probably 50 per cent of all property, practically escapes taxation, leaving tangible property, ~ich it is estimated is the source of about 15 per cent of the total net income of individuals, to pay about three-fourths of state and local revenues. Thus it is obvious that under our present system of taxation public revenues are levied and collected with little or no consideration of net income as ability to pay. This is a fundamental weakness of the general property tax, and a source of gross inequal­ity and injustice to owners of real estate in general. It should be pointed out in this connection, however, that farm real estate has been more adversely affected than city property because of the more violent decline in the value of farm property. SOME VIEWS ON TAXATION BY RAYMOND BROOKS (Published in The Austin American-Statesm.att., The Waco New1t-Tribune, and other Texas Newspapers, February 16-22, 1931.) I "No tax system is complete unless based on ability to pay, otherwise it is a stranger to equity." With that principle as a starting point I have secured the views of several of the leading tax authorities in Texas. Among those whose matured reasoning appears in the composite conclusions here reached are: John G. Willacy, former senator and former state tax commis­sioner. F. C. Weinert, former senator and former state tax commissioner, leader in taxation matters in the present Legislature. Representative Dewey Young, chairman of the House committee on revenue and taxation. Charles W. Hobbs, San Angelo banker. Representative Victor B. Gilbert, member, former chairman of the House revenue and taxation committee. William Cameron, widely known Waco business man. Senator W. A. Williamson. George M. Craig, Port Arthur financier. Published views of Governor Ross S. Sterling and Former Governor Dan Moody are alluded to. The statement that a complete tax system must be based on the ability to pay is that of Former Senator Willacy. All of those quoted agree there are injustices in the present sys­tem. What are the main inequalities and injustices of the existing system? 1. Principal levies come from property-primarily homes, farms, and ranches-regardless of whether it is revenue-producing. 2. Much property escapes taxes altogether. 3. Other property is confiscated by taxation. 4. Occupation, production, and excise levies are sporadic and in­equal. One industry is taxed. Another is not. No basis is fixed for a tax return on either value or wealth-production. 5. Irreplaceable resources, such as oil, gas, timber, sulphur, lignite, are being exhausted without return to the government that provides them and protects the ownership in their depletion. TREND EVIDENCED BY TAX BILLS Prefacing analysis of these points, it may be said that many affirm the theory that a direct income tax is the ultimate ideal of just leyy upon the basis of ability to pay. Three income tax bills were offered in the Legislature. But not many of those of mature experience and familiarity with taxation from whom this summary has been com­piled believes the income tax, in lieu of all others, is either just or possible in Texas within the next several years. It is a theoretical goal, some have said, toward which the State may move in calculated, gradual strides. Economic reasons against its immediate adoption are outlined fully later in this series. ABILITY TO PAY Texas is directly in line with thought of national leaders of busi­ness, industry, agriculture, and women's organizations, evolving from a nationwide conference in Chicago, February 6, to be followed by another conference this spring, committed to a joint study of taxa­tion "with a view of revamping the present system on the theory of ability to pay." Farms have decreased in value. Homes, occupied by owners, are not revenue-producers. Much real property is mortgaged, yet the one in possession must pay taxes on it all even with small equity. Farms and homes at present pay the cost of building highways. This, an outstanding injustice, has a remedy proposed in shifting the burden to road rent, letting him pay who benefits, and is before the Legislature in the Woodul-Hubbard constitutional amendments. Past and future unjust levies upon physical property are adjusted by re­payment and remission of required contributions to designated high­way construction. INJUSTICE SERIOUS What tax economists call the "remainder theory" is a fundamental injustice cited by Senator Willacy. It is that accruing and unallo­cated levies are tagged wholly on convenient real property levies. The basic cost of government is spread over the taxing range. Then all the complex overlaid bracket of special activities and functions, such as rural aid, is imposed as a "remainder" directly on the farms, homes, and physical property that can't escape assessment, instead of being spread over all the wealth. As a starting point, Senator Wil­lacy advocates that the "remainder," all the special levies and assess­ments for all correllary, incidental, and ancillary functions should be against other sources of revenue as well as physical property. SAVE MONEY, TOO Instead of making the property tax within constitutional limits, high enough to cover all this, it has been suggested that the Legis­lature can, and should, fix the property tax first, then meet the spe­cial needs and special money it grants for special purposes by the broadest possible range of fair taxes from other sources, such as in­tangibles, occupation, excise, production, severance levies. Economy measures will go hand in hand with the adjustment of taxes. Two outstanding measures to save money in government are those of Senator Walter F . Woodul, Houston, and Representative Walter Beck, Fort Worth, to extend the home rule system and joint city-county government to the counties that want them, destroying half of the parallel, duplicating set-ups of local government. The Limiting Taxes on Tangible Property 139 manager plan for state government as a whole is the goal of reforms being worked out by Moore Lynn, State Auditor. Intangible levies upon all corporations, as upon railroads now, have been advocated by former Senator Weinert as a practical sub­stitute for an income tax. Practical working of this has been ques­tioned by others. Objections to an income tax, that it would put a premium on industry and capital's leaving the State, rather than to attract them, as is needed in Texas now, would apply to this prac­tical income tax on corporation. Admittedly at present there is neither justice in the tax division between real property and productivity, nor in the maladjusted in­discriminacy of special levies on special objects. A broad, level, fair basis of taxing the profits of taking natural resources and products should be the first substantial step toward tax equity. II Economists' views of present taxation injustices have been out­lined. This article elaborates the views that there should be readjust­ments to take certain forms of levies off farms and homes, and that it can be done without an income tax. It quotes conclusions why an abrupt transition to an income tax would injure and discourage Texas industry and would be double taxation, penalizing industry. Views quoted in these articles are from Chariman Dewey Young and former Chairman Victor B. Gilbert of the House revenue and taxation committee; John G. Willacy and F. C. Weinert, former State tax commissioners; William Cameron, Charles W. Hobbs, and George M. Craig, prominent financial men; Senator W. A. Williamson, busi­nessman-legislator. Published views of Governor Ross S. Sterling and former Governor Dan Moody are alluded to. "It is unquestioned," Representative Victor B. Gilbert has said, "that the people of Texas are dissatisfied with the present system of taxation; it should be renovated with a view of equalizing, rather than increasing taxation." Mr. Gilbert believes that for the present the proper spread of tax levies based upon values and the ability to pay should be the starting point toward readjustment. PLAN UNIFIED TAX POLICY Chairman Dewey Young has indicated that instead of a hetero­geneous mass of unrelated bills, his committee expects to evolve a series of measures representing a composite system, a public policy of just taxation. "The State is growing," Mr. Young has said. "Its growth calls for additional expenditures, which means additional taxes from some source. "The ad valorem tax has passed its day of usefulness-wealth is no longer measured by land ownership. "Some other source must be looked to for the future supply of revenues for operation of the government. "The question we face is of equitably distributing it so as not to hurt any one industry, so as to provide for the best possible develop­ment of our State and the greatest possible increase of wealth and productivity. FIRST STEPS TOWARD GOAL "After all, taxes must be paid out of earnings. The man who hasn't, can't pay. Inevitably we are coming to the income tax; but I regard it as the ultimate goal, to be reached through a gradual process, in which the tax burden shall be shifted from property, re­gardless of its productivity, to productiveness. In that transition, it seems to me, first, the taxes must be placed upon the production of natural resources, particularly those which exhaust the State's wealth, and cannot be replaced, and upon occupations and the development of new wealth. This will be the practical equivalent of an occupation tax, levied specially upon those sources most clearly able to pay. Then, as these various occupation, severance, production, and excise taxes reach the saturation point, gradually they will be spread to the general level of a graduated income tax. TEXAS NEEDS DEVELOPMENT INDUSTRIALLY "Texas is not yet developed industrially. Other states round about do not have the income tax. We want to encourage, not discourage, industry and capital. We do not want to drive business firms out to other states, giving up the very assets we seek to encourage for Texas development." Senator W. A. Williamson commented: "Take the example of Wis­consin. That state suddenly adopted the income tax. Look what it did. It drove out such great industries as the Simmons bed manu­facturers. These industries simply went to other states where there was no income tax." INCOME AND TAXES OF URBAN PROPERTY (From Technical Bulletins Nos. 151-175, pp. 31-34, ahd Table 24 on p. 37 of Tech­nical Bulletin No. 172. United States Department of Agriculture, Office of Infor­mation, Division of Publications. United States Government Printing Office, Washington, 1930.) It has been asked whether the relation between income and taxes of farm property differs widely from that which prevails in the case of urban property. The available data permit no conclusive answer to this question, but studies of the subject have been made in nine of the states from which the farm data were secured. A summary of the percentage relation between taxes and net rents on farm and urban properties in these states is contained in Figure 7. The studies have been made to supply the demand for information con­cerning the taxation of types of property that are not devoted to agriculture. In five states it took a greater percentage of net rent to pay taxes on farms than to pay taxes on urban property. In the other four states the situation was reversed, taxes on the urban properties taking the greater percentage. On the basis of these data, no conclusive answer to the question of whether city or farm taxes take the greater proportion of the net return from real estate seems possible. In both cases the per­centage that goes to pay taxes is high throughout the country. Dur­ing the years immediately following the post-war deflation, it seems unquestioned that farm real estate contributed to public funds a greater proportion of its return than did urban real estate. Two circumstances tend to explain this situation. Net income on farm property was low, and often non-existant. Assessed valuations of farm property, on the other hand, were at their peak. The fall in market values of farm land was not reflected in a decline in its assessed valuation for several years. The fact that there is in all cases a period of about a year between assessment and payment of taxes makes a lag of one year inevitable. Besides, only half of the states assess farm real estate every year and in many of these states the annual assessment is a formal requirement which results in copy­ing the figures from the previous year's rolls. As a result in many cases farm properties were assessed for several years at a proportion of their actual value which was materially higher than the normal proportion. The effect of this was a high tax contribution at a time when income was exceedingly low. Too much emphasis shouid not be placed upon the influence of high farm assessments in causing farms to be taxed at a high proportion of their net yield. Farm taxation is largely local taxation. So far as this local taxation is concerned, it makes no difference whether the average relationship between assessed valuation and true value is high or low. If it is high, the tax rate may be low. If, on the other hand, the relationship is kept low, the tax rate must be high. Low assessment ratios have usually been accompanied by the maximum inequalities of assessment. In other words, it is considered much easier to assess uniformly at a high ratio than at a low rate. Outside of the local jurisdiction, a difference in the ratio of assessed to true value will tend to transfer part of the taxes from the low­assessed group to the higher groups. But these taxes in most agri­cultural sections of the country are relatively small in amount and could not account for a large inequality between urban and rural properties. As an examination of the effects of inequalities in as­sessment forms a later section of this bulletin, detailed attention is not given to the subject here, but it is mentioned as one of the several causes of relatively high taxes for agriculture during the years of the depression. The comparison which has been made of the taxes and yields of urban and rural properties does not give a satisfactory indication of the relative burdens of taxation on these types of property. From the point of view of current income to the owner of rented land, the comparison is exceedingly important. Examination indicates that both types of property pay high proportions of their net yields in taxes and that on the basis of the few states for which figures are available, farm property seems to pay a slightly greater proportion. Too much importance should not be attached to the meager con­clusions that may be drawn from the comparative data that have been presented. Urban and rural taxes are, in part, different things. That is, the taxpayer in the city is purchasing, through his tax pay­ments, types of services that are different from those paid for in rural tax payments. The city government provides fire and police protection. It maintains a school system which may be no better in its individual units than are the rural schools, but which enables pupils to carry their education further and provides a greater variety of training and more elaborate equipment. The streets maintained by city taxes are of a higher grade and are usually kept in better condi­tion than are roads in rural sections. Street cleaning and lighting are city services that rarely have rural counterparts. Thus, it is apparent that the things for which city taxes are paid are much more extensive than the things which the rural property owner pur­chases through his tax payments. In further qualifying the conclusions which might be drawn from a hasty consideration of the data from city and country, it should be recalled that although the services supplied by governmental units are much greater in the cities, the relatively inferior rural services may be provided at a greater unit cost to the taxpayers. No detailed consideration of this is possible at present. It is mentioned merely to suggest another direction in which it is necessary to look before finding the data that are essential to a complete consideration of the subject. Another problem relating to a comparison of the relative weight of taxation deserves attention. The payment of taxes into the public. treasury by an individual or corporation is in itself no indication of the amount which that individual or corporation actually contributes. An enumeration of direct contributions alone necessarily overlooks the possibility that the one who pays the tax may be able to add it to the price of goods or services that he sells or leases, or to subtract it from payments that he makes to others. In other words, he may be able to shift the tax on to someone else. The possibility of such Limiting Taxes on Tangible Property 143 shifting as applied to various taxes and different types of property is considered later. INCOME AND TAXES OF OWNER-OPERATED FARMS In a consideration of the income and taxation of farms that are operated by their owners, it must be kept in mind that the income figures are of a different nature from those which have been used in the preceding part of this bulletin. The rent that a tenant pays to his landlord is on an average a close approximation of the ability of the land to produce income. It is income from property rather than from labor. No similar figure for the owner-operated farm can be computed except on the basis of certain assumptions. The descrip­tion of the methods by which the income of farmers who own and operate their farms is computed will indicate what these assumptions are. Data are presented for the country as a whole and for certain states in which a large body of data has been secured. TABLE 24 Percentage relationship of taxes and net returns (receipts plus in­ ventory increases of personal property minus cash outlays) on owner-operated farms, 1922-1927, p. 37. Geographic Division 1922 1923 1924 1925 1926 1927 Per Per Per Per Per Per cent cent cent cent cent cent North Atlantic ---------·-····-·· 14.5 13.0 14.0 10.8 12.8 11.3 South Atlantic --------·-····-··· 12.7 12.9 15.7 16.2 17.7 11.9 East North Central..________ 18.5 17.6 16.6 14.0 15.1 16.4 West North Central..._____ 14.6 17.8 12.6 12.8 15.6 12.5 South Central ---------------··· 13.1 13.6 11.5 12.9 11.1 10.8 Western ---------------------------··· 21.5 17.1 14.4 11.7 12.4 10.1 Computed from reports of farm returns (17) . THE CLASSIFIED PROPERTY TAX IN THE UNITED STATES BY SIMEON E. LELAND Another defect is found in the inequality between amounts of prop­erty to be assessed. Smaller parcels are more easy of assessment than large ones; modest homes simply furnished can be appraised with more facility than the princely mansion; while the small store or manufacturing establishment can be more certainly valued than the larger enterprise. Because of this natural weakness the smaller pieces of property have been taxed regressively. Indeed, the Special Tax Commission of 1916, in Indiana, found that assessments showed a steady decrease in the ratio of the assessed to true value as the worth of the property increased.1 Investigation of a number of 1Report of Special Tax Commission, Indiana. 1916, p. v; . The University of Texas Bulletin pieces of real estate in the city of Vincennes shortly after the sub­mission of this report revealed the fact that the finest houses in that locality were assessed at one-tenth of their value, while the homes of those economically less fortunate were assessed at approximately three-fourths of their value. In the District of Columbia a few years earlier it was found that small houses were assessed at an average of 90 per cent of their true value while fine residences were listed at 50 per cent.2 Even considering the ground values alone, the sites of small homes were assessed at a higher percentage of true value than other property.a In Wisconsin it was found that "taking the assessment of persons whose personal property amounted to less than $1,000 at 100 per cent; those whose possessions ranged between $1,000 and $10,000 were assessed only 82 per cent as high; those who owned more than $10,000 and less than $50,000 were assessed at 60 per cent; and those who owned more than $50,000 and less than $500,000 were assessed at 43 per cent; and all who owned over $500,000 were as­sessed at only 28 per cent."" In Virginia the fact that assessment precentages vary inversely with the value of the property has been frequently demonstrated. This was brought out very clearly by the Joint Committee on Tax Revision in 1914 which found that small country tracts were assessed at nearly half of their true value while estates of over $10,000 were assessed at about one-fourth of their value.5 The same tendency was found in cities, but as assessments were larger the difference was less accentu­ated than in the counties. Table 5 will reveal the facts.6 TABLE No. 5 Ratio of Assessment to Selling Value of Property in Counties and Cities by Value of Property Owned: Virginia, 1914. Ratio of Assessment to Selling Price Value of Property In Counties In Cities (per cent) (per cent) Total ------------------------------------------------------33.5 53.1 Under $500 ----------------------------------------46.7 59.8 500-1,000 ----------------------------39.0 58.2 1,000-2,500 ---------------------------36.4 56.5 2,500-5,000 ---------------------------32.7 56.0 5,000-10,000 -----------------------31.1 53~0 Over 10,000 ------------------------------------------28.1 48.2 "Report on Assessment and Taxation of Real Estate in the District of Columbia, House Report, No. 1215, 62nd Congress, 2nd Session, pp. 5, 20-25. "Considering ground values by themselves, those acres occupied by small houses are assessed at 60 per cent of true value (p. 416) ; those by middle-class house, at 50 per cent; those by fine residences at 30 per cent ; and the large suburban areas at 20 per cent. House Report, Supra, PP-5--6. 'Francis E. McGovern, A State Income Tax, Address before Conference of Gov­ ernors, Richmond, Virginia, Dec. 5, 1912, pam., p. 4. •Report of Joint Committee on Tax Revision, Virginia, 1914, p. 10 ; Snavely, The Taxation of Negroes in Virginia, pp. 71, 72, 75. •Report of Joint Committee, op. cit., p. 10. For more recent examples see Chap­ ter X, infra. More recently an extensive investigation in Kansas covering the period from 1913 to 1922 brought out the same tendency toward re­gressive assessments,7 as shown in the following table: TABLE No. 6 Ratio of Assessment to Sale Price of Real Estate by Value of Property Owned: Kansas, 1913-1922. Ratio of Assessment to Sale Price* Value of Property Farm City Real Estate Real Estate Under $1,500 ------------------------------------85.7% 97.0% 1,500-2,999 ------------------------76.7 89.0 3,000-4,499 ------------------------72.9 82.9 4,500-5,999 ----------------------70.0 80.5 6,000-7,499 --------------------66.4 76.5 7,500-8,999 -----------------------65.3 74.5 9,000-10,499 --------------------62.3 70.9 10,500 and over -------------------58.7 69.1 All groups ------------------------------------65.6 73.3 •Weighted average. It must not be concluded, however, that the regressive character of the general property tax is confined to the taxation of real estate alone. In 1884 the following observation was recorded by a West Virginia tax commission:s By comparing a number of these appraisements (made for probate purposes) with the tax assessment made next prior to the death of such person, we find that a man with a per­sonal estate valued immediately after his death at $200 was rated immediately before his death at $178; while a man whose estate appraised at $5,000 was rated at only $1,500; this is to say, if the man of small means was rated in the same proportion as the man of large means, he would pay taxes on only $60 whereas he now pays on $178. These conclusions which may have evidenced only erratic assessment have been more recently substantiated by investigations in Wisconsin. Special assessors sent out by the tax commission to check the ac­curacy of assessments in two counties discovered considerab1e evi­dence of regression as a result of over 2,000 appraisals of personal estates.9 The evidence, presented in the following table, shows that holdings valued at $1,000 were assessed at a much higher percentage of true value, and therefore, were taxed at a greater effective rate • Englund, "Assessment and Equalization of Farm and City Real Estate in Kansas," Bull. No. 232, Kan. Agri. Exper. Station. • Preliminary Report of the West Virginia Tax Commission, 1884, quoted by Ely, Taxation in American States and Cities, p. 174. • Cf. Adams, "Income Tax as Substitute for Property Tax," Proc., N.T.A. , 1910, pp. 108 tr. than more valuable holdings, and that as the estates increased in value the ratio of assessed to true value declined. Regression, then, seems to be found in the taxation of both real and personal property under the general property tax system. TABLE No. 7 Inspections of Personal Property in Two Wisconsin Counties Classified According to the Value of the Individual Holdings10 Ratio of Number Assessed to Value of Holdings of In-Values True Value spections Assessed True (per cent) Under $1,000 -----------918 $ 355,870 $ 595,968 59.72 $1,000-9,999 ----------------1210 1,430,295 2,913,912 49.08 $10,000-49,999 ----------84 650,865 1,800,622 36.15 $50,000-499,999 -------25 826,261 3,207,027 25.76 $500,000 and over ______ 2 343,950 2,832,942 16.92 Total --------------2239 $3,607,241 $10,550,471 34.19 ASSESSMENT OF INTANGIBLES The attempted assessment of intangibles under the general prop­erty tax has been a tale of continual failure, dating back almost to colonial times,11 and has been the chief reason for the agitation for a classified property tax. The value of taxable intangibles ranges from at least a fourth to over a hundred per cent of the remaining total assessable wealth, but never in the experience of any state has this class of porperty been listed with even an approach to completeness. Because of its mobility and the ease with which it can be concealed its assessment depends largely on the honesty of the taxpayers and the efficiency of the administrative system in that locality, but even under model supervisory conditions assessments have been inadequate. In Massachusetts, in 1908, only 10 to 20 per cent of the intangibles were reached.12 In Nebraska, where this type of property should have constituted at the very least one-fourth of the total assessment, it never reached one-twentieth of the assessment in three decades.is When related to the assessment of personalty, intangibles, in that state in 1911 comprised but 20.95 per cent of that assessment,1' indi­cating that tangible property bore the brunt of the tax for personal property, just as real estate was the main support for total revenues. In Virginia, in 1910, it was estimated that only about 75 per cent of the intangibles were reported, but inasmuch as the total assessment of intangible property in 1910 was $93,607,498, while bank deposits 1oproc., N.T.A., 1910, p. 110. 11For more detailed treatment of taxation of intansribles see Chapters V and VIII, infra. 11Report of Special Tax Commission, Massachusetts, 1908, p. 84. 11Report of Special Committee on Revenue and Taxation, Nebraska, 191", pp. 53-58. "Ibid., p. 57. Limiting Taxes on Tangible Property 147 were $117,788,748, this estimate was liberal indeed.16 Moreover, the money which was taxed was listed at only 6.21 per cent of its real value. It is not surprising, therefore, that in Baltimore in 1914 there was assessed $35,000,000 more of intangible property than in the whole commonwealth of Virginia with its assessment of $157,­138,100, the largest assessment during the preceding five years.16 In Wyoming17 in 1910, after deducting mortgages, only $421,919 in money and unsecured credits was turned in, though bank deposits aggre­gated over $18,000,000. After 1910 mortgages were exempt from taxation and the assessment of money and credits showed a con­tinuous decline, falling to $198,431 in 1914, though it rose slightly after that date.18 In Austin, Texas, in 1911, credits assessed amounted to $688,391, or 3.5 per cent of the total assessment, while money as­sessed was but 0.65 per cent of the aggregate valuation with but 2.5 per cent of the bank deposits in the city appearing on the tax dupli­cate.10 The same condition was typical of the entire State. SIGNIFICANT PERCENTAGES BY PROFESSOR SIMEON E. LELAND University of Chicago Extract: ObHn>iiiions upon the Mi....esota Tao: S11Btem, p. 5. Reprinted from MiMtesota Municipalities, Vol. XVII, No. 1, January, 1982. (Publlahed by The League of :Minnesota :Municipalities, :Minneapolis, :Minnesota.) In 1908, for example, real estate constituted 82.3 per cent of the total assessment; personalty, 13 per cent; money and credits, 4.7 per cent. In 1928 the percentages were 77.7, 15.04 and 7.16, respectively. If money and credits are ignored, real estate constituted 84.4 per cent of the total assessments in 1908, while personalty accounted for 15.59. In 1928 real estate assessments were 88.1 per cent of the total, while personalty was 11.9 per cent. This number has increased from 41,439 in 1911 to 102,720 in 1928. TAXATION AND THE FARMER (Extract: United States Department of Agriculture, Bureciu of AgriculturnZ Eco­M1114cs, Aqrictdturcil. Economics BibUogrcvph11 No. S5, p. 32.. Compiled by :Margaret T. Olcott under the direction of :Mary G. Lacy, Librarian, Bureau of Agricultural Economics. Washington, D.C. June, 1928.) Gulick, Luther. Simplification in state administration as affecting efficiency in the assessment of property and the tax commission move- ll!Report of Special Tax Commission, Viririnia, 1911, pp, 61-68. ••Report of the Joint Committee on Tax Revision, Virginia, 1914, p, 52. '"Report of Tax Commissioner, Wyoming, 1910, pp. 13-14. 18()f. Biennial Reports of Commissioner of Taxation, Wyoming, '"Wooldridge in Bull. No. 286, Univ. of Tex., pp. 134-135. ment. (In Nat. Tax Assoc. Proc., 16th, 1923, pp. 263-288.) Includes discussion. In conclusion the speaker said: "So that the first of these considera­tions that I want to leave with you-to repeat-is this: That the creation of the tax commission has been a long stride toward simplifi­cation; one of the longest that has been taken at all. Another, gentle­men, is this: That the states in which the truest reforms have been made; the most genuine and real reforms; the states in which sentiment in regard to taxation appears to be most helpful; offering more promise of still further reform, are the states which have had for a reasonable length of time tax commissions, with reasonable pow­ers and with reasonable independence. Experience shows, therefore, that the best progress toward simplification that we are likely to make for a number of years to come is through the tax commission."-p. 276. SUMMARY BY CHESTER BALDWIN POND, Ph.D. New York State Fellow in Taxation at Cornell University, Research Investigator, New York State Tax Commission. (Extract: Special Report of the State Tax Co.,,..,.,;sBion, State of New York, pp. 169-171. J. B. Lyon Company, Printers, Albany, 1931.) The evidence obtained bears upon the operation of conditioned state aid rather than upon the prospects of enacting legislation. Hence this chapter is concerned with the operation of the full value proposal, a consideration which has a direct influence on the possi­bility of legalizing it. The plan provides for a state check up of local assessments and the withholding of state aid if a locality fails to assess within the sphere of tolerance. The locality may pay the cost of reassessment by the State as an alternative. The proposal does not interfere with the functions of local assessors. It differs from most conditioned state aid in that it requires some­thing which has no connection with the wise expenditure of the state aid. The subject matter is not one of general local interest, but on the other hand it demands no expenditure on the part of the locality. The plan attacks directly only one of the three major causes of low valuation, the incentive to underassess. It furnishes no new technique for value determination, but it should induce the selection of competent assessors, since it creates a popular desire for full value assessment. Consequently, it is unfair to expect a sudden and sweeping removal of all tax ills. A great reduction in the amount of injustice should take place, however, and conditions should improve with time. Several factors have an important bearing on the successful opera­tion of the scheme, aside from those mentioned above. The localities are overtaxed, the assessors favor full value and are willing to act together in bringing it about and high taxes are still confused with Limiting Taxes on Tangible Property high assessment. The relation of state aid to local revenues is important because it has a direct connection with the significance oi the full value requirement. If state aid is a negligible sum, the localities will be apt to disregard any threat of withholding it. State aid constituted seven per cent of local taxes in 1913 and 21 per cent in 1928. As the functions of government expand, the use of state aid to lighten the local tax burden will probably continue to increase, so that state aid in the future will be an even greater factor in local finance. The $147,000,000 of state aid is capable of exerting terrific pressure in favor of full value assessment under the scheme con­sidered in this study. Assessed valuation, when used as a basis of apportionment for taxes returned to tax districts, has failed to stimulate any great increase in valuations. This is chiefly because the ultimate gains for all the localities are uncertain and the inhibitions to higher appraisals are very powerful. Firmly entrenched practices of under­assessment require a strong force to dislodge them and something drastic must be in prospect before local assessors will depart from ancient procedure. When taxpayers see millions of dollars denied them as a penalty for illegal assessment, the assessors will find that the public has changed sides overnight. The voice of the voting tax­payer will surely reach those assessors who have their ears to the ground, a classification which will include the vast majority of such local officials. STATISTICS OF INCOME (From Statistics of Income fr owned. The per capita figures thus do not represent the average wealth of the citizens of each state. Amount (millions of dollars) Total Taxable r-~~~~~~~~~~~~--, ,-------, 1890 1900 1904 1912 1922 1922 Wisconsin __________ ____ l,833 2,405 2,839 4,328 7,866 7,545Texas ________________ ____2,106 2,322 2,837 6,379 9,851 9,453 THEORY OF GENERAL PROPERTY TAX (Extracts: Property Tao:ation in the United States, by Jens Peter Jensen, Proi­fessor of Economics, University of Kansas, pp. 61-62; 73-77; 90-!)2; 469-474. The University of Chicago Press, Chicago, Ill., December, 1931.) TAXES ON LAND The peculiar position of land arises from the fact that it is non­reproducible and hence has no cost of production. The value of land is the capitalized net income, the economic rent. But on marginal land at the extensive margin there is no rent, hence, no capital value, and hence no tax.1 The tax on the capital value will, therefore, not induce the owner of the marginal land or any other land to withdraw it from use. There can be no reduction in the supply of land, and, as demand is unaffected, no change in the amount or the price of the products of land, and hence no shifting of the tax. The tax simply reduces pro tanto the net return to the owner, or absorbs a part of the rent. Mr. Coombs himself, after a theoretical analysis, concludes that, with rare exceptions, the taxes on farm real estate cannot be shifted, but must be capitalized.2 And, in commenting upon the relationship of taxes to the value per acre, he says that "it is probable that an interrelationship exists between taxes and value. An increased level of taxation ttiat is expected to be permanent will be reflected in the price a buyer will offer for land since his return will be reduced by the taxes that he has to pay. It is impossible at present, however, to segregate definitely the effects of the capitalization of taxes from the other factors that have caused land to decline in value since 1919."3 Because the property tax is so largely unshiftable, it appears bur­densome in periods of depression, especially if the depression happens to coincide with rising taxes. But it is not correct to charge the variations in the property tax with causing or contributing to "hard times." The tax is, in fact, a much more constant factor than the 1Except where the assessor erroneously assigns a value to land that is really marginal. That such is often done, and that the presence of a "market value" on marginal land, often gives the assessor some show of justification, will he shown below. •Coombs, Tao:ation of Farm Property, pp. 61-65. •Ibid., p. 53. rent on farm property, as is shown in Table 19. Thus, in the peak year, 1919, when the rent per acre was $9.12, the rent per acre after taxes amounted to $8.46, the difference being 66 cents; in 1920-21, the year of lowest rent per acre, the corresponding figures were $1.24, 39 cents, and 85 cents. While the taxes per acre increased from 26 cents in 1909 to exactly $1.00 in 1927-28, the rate of increase was fairly steady. Rent, on the other hand, showed marked variations. Taxes are, in general, a reasonably forecastable factor. * * * * * * * PROPERTY TAXES AS AN ELEMENT IN THE TAX SYSTEM If the foregoing discussion of the capitalization of the unshiftable part of the general property tax presents a substantially true pic­ture, it serves to throw into sharper relief certain questions relating to the property tax as an element in the system. One question is con­cerned with how large a part of the total tax re'venue should be contributed by owners of property in the form of property taxes. An­other concerns the problem of temporal variations in the revenue re­quirements of the state and the variations in the tax burdens on property, as affected by varying yields of property and by varying capital values. A third has to do with the variations in tax rates among the various taxing units, which result largely from the dis­crepancies in the geographical distribution of taxable property as compared with the distribution of the needs for public services. And, finally, a fourth question relates to the much disputed uniformity rule, and involves the question of whether, once it is granted that a certain percentage of all tax revenue shall be raised on property, that quota should be equally distributed among all classes of property. Upon a satisfactory solution of the.se four problems depends the re­tention of the property tax as an equitable fiscal device. But before taking up each of these questions in turn, it is desirable to consider briefly the general principles that underlie or justify the tax. * * * * * * * THE PRINCIPLE OF AN ESTABLISHED TAX The justification of the American property tax is largely one of status. The tax is established; all parties interested have become adjusted to it. The tax official has set up his administrative machin­ery, such as it is. The public treasuries have come to rely upon the tax so completely that if a cog slips in the machinery and the assess­ment or the collection, or both, are delayed, the situation becomes extremely critical.4 The taxpayer, by virtue of the process of capital­ 'Consider, for example, the current condition of Cook County, Illinois, and an local governments within the county, resulting from the delay in collections due to the delay in the 1928 reassessment. Limitin.g Taxes on Tangible Property 159 ization, has bought himself free from any calculable, unequal part of the tax, and as for the general or equal or uniform part of it, he bears that in common with others. This argument is particularly applicable to real property taxes. So long as the tax does not increase rapidly either generally or locally, the payers of taxes on real prop­erty can have no valid claim, on the ground of justice, for material and sudden relief. It has, in effect, become an established practice to make the cost of public services of states and local governments a first charge upon the income from property in each particular taxing district, taxes on property having priority over practically all other claims, in good times or bad, regardless of temporal variations in the income. Some local governmental units have had their form and boundaries deter­mined by the consideration of their prospective capacity for function­ing as units of administration of the property tax. This is notably true of school districts, which are today the greatest spenders of public funds. It is true, perhaps, even more of park, drainage, and other improvement districts. No hope has been held out that prop­erty taxes would ever decline, and he must have been a reckless tax­payer who would have pinned his faith to such a hope had it been offered. Until recently no alternative source of revenue worth men­tioning has been available. The property owner, who bought property on the basis of its yield before taxes, did so at his peril and often to his grief. There have undoubtedly been hundreds of thousands of property owners who purchased property without reckoning ade­quately for taxes, who have suffered from their neglect.6 But that is not due to lack of warning. If in some miraculous way it should be possible to finance any local government upon its present standard of public service without re­sort to the use of property taxes, and without imposing taxes or taking such other fiscal measures as would equally depress property values, he would be a poor prophet who could not predict that any resultant relief to local property owners would be temporary, ex­tending only to the present owners. The relief would be capitalized. On the occasion of the first sale after the relief the seller would pocket the capital value of the annual relief. The subsequent owners would be in no better position than before. Owing to the frequency with which property changes hands in the United States, the relief would not last long. The new owners would have to pay, or impute in interest, what the original owners, at the time of the relief, paid in taxes. It is not necessary to contend that there should never be any reduction of taxes on property. What follows shows the con­trary. But local property tax relief is a temporary phenomenon. "They have, however, ouffered much more from their faiure accurately to fore­cast income from property before taxes, and In capitalizing temporary, abnormally high incomes. Cf. Newcomer, "The General Property Tax and the Farmer,'' Jovr. of Pol. Ec&n.., 'XXXVIII, No. 1 (1980), 66, 67. There does not, in fact, exist such a miraculous fund as was as­sumed above, from which the revenue lost by the abandonment of the local property tax could be replenished. It would be necessary to im­pose other taxes, and these taxes might be at least as depressing upon local property values as the property taxes, though this would not be likely with an income tax. Whether they would, in fact, be so depressive would depend upon many things, but chiefly upon the amount it was necessary to raise in other ways than on property, and upon the form and base of the tax. One need not adopt the physio­cratic doctrine that all taxes must come to rest on the land, to con­tend that business taxes, income taxes, or sales taxes, if locally levied and pressed to yield that revenue now derived from local prop­erty taxes, might constitute such disadvantage to the locality, or even to the state, as to more than offset the advantage of relief from the property tax. Central levy and administration of such taxes and division of yield would ameliorate but not obviate local inequalities. It is entirely possible, indeed highly probable, that in most states a better apportionment of the tax burden could be effected by heavier use of other taxes than is now the practice. The argument here is designed to show that such a shift in the revenue sources has limits that cannot be removed. Within proper limits, property taxation is rational and defensible. If the tax rates are increasing, whether slowly or rapidly, the ques­tion is inescapable whether there is a limit to the taxes that can be collected on property. Single-taxers insist that any rental value, and consequently any capital value, after taxes, of bare land, is proof that there is an untaxed value, which may be taxed away by raising the tax rate. There is, therefore, no assignable limit to the tax rate on bare land. We may grant the theoretical accuracy of their con­tention with respect to bare land and such other values as are bound indissolubly to a given locality. If the tax on land is considered as a separate tax, there is no theoretical difficulty in raising the tax rates as high as is desired to approximate infinity when based upon capital value, and 100 per cent when based upon annual value of the rent before taxes. But there is no theory which has specifically demonstrated either the possibility or the impossibility of such taxes on reproducible capital goods. And practical tax experience fur­nishes no guide here; for there is no record of recurrent taxes on producers' goods at such high rates as are here contemplated. Capital levies of earlier times, and such levies as those contemplated in Europe since 1918, it is true, were at high rates, in some cases much higher than the current rates of interest. But such taxes are not comparable with a recurrent property tax. They were essentially non-recurrent transfers to the public treasury of a part of the capital value of things owned. In contrast with land, reproducible goods must obviously have a value related to their cost of production, so long as they are to be Limiting Taxes on Tangible Property 161 provided through private initiative in an exchange economy. It is probably true that, as shown earlier in this chapter, at present tax rates the property tax on producers' goods must rest largely on the owners of capital in general in the form of a lower interest rate, owing to the relative unresponsiveness of habits and practices of saving. But this unresponsiveness is surely not absolute. Should, for example, the interest rate become negative, through high taxes on producers' goods, saving would undoubtedly be checked. The marginal produc­tivity of capital, before taxes, would increase, and that of labor would decrease. Thus the high taxes on producers' goods would tend to be partly borne by labor in the form of generally lower wages. The rigidity of the capital value of producers' goods, in contrast with land, would, with increasing true tax rates, result in enormous revenue, assuming that all producers' capital was taxed uniformly at those high rates. But, putting aside for the moment the question of this excess of revenue beyond governmental needs, one may ask how high the tax rates could go. Capital value could not, as a long-run proposition, be taxed away until all wages had been taxed away, that is, until taxes were taking substantially all of the national income. Such a stage would essentially be communistic or socialistic, de­pending upon the content assigned to those terms, as not only all property income but also substantially all other income would be taxed away. Such a system could not exist unless the state provided, by means of the tax revenue, for the needs of all. It is a corollary of this conclusion that property tax rates could not approach very close to infinity until the general property tax had displaced all other taxes. Since the tax rates of a general property tax are uniform for producers' goods and land, it follows that the economic rent could not be taxed away until all interest and all wages had also been taxed away, because, so long as the tax rate was less than infinity, there would still be some capital value left. If it were desired to tax away land values at an earlier stage in this contemplated development, differentially higher rates for taxes on land would be necessary. It is, of course, pedantic to talk of such high taxes on property or other items. Reference to Table 15 will disclose that the percentage of the national income taken in all taxes was 11.63, and that taken in the form of property taxes was 5.82. We are a long way from taking 100 per cent of all national income in taxes, and still farther from taking all the income in the form of property taxes. There is, as a matter al. fact, a practical limit to the tax, and to the expedient tax rate, very much lower than any theoretical limit. There are two reasons for this, one inhering in the nature of the institution of private property itself and in the form of the property tax, the other in the availability of alternative sources of revenue, which can be exploited with less sacrifice to the taxpayer than a property tax at high rates, perhaps even at present rates. TAX LIMITATIONS AND THEIR RESULTS To appreciate the limitation of tax rates, it is necessary to draw from the experience of the states that have practiced limitation to learn whether or not the hoped-for results have been attained. Ohio has had an outstanding experience with tax limitations.6 Where the tax limits occur in the constitutions of the states, they represent distrust of the legislature in the minds of the electorate. The statutory limits for the counties and other civil divisions indicate the distrust, on the part of the legislature, of the electors of the dis­trict in question, or their tax officials, in a matter that affects di­rectly the members of the smaller group and only indirectly the rest of the state. This local group must, of their own money, spend not less than the minimum prescribed, and not more than the maximum permitted, for specified purposes. Such restrictions are warranted only where the functions, for which the rates are limited, concern the stat.e as a whole; in such cases the local divisions must be kept from extreme tax policies. Another objective is the prevention of tax evasion. One reason that the taxes on intangibles cannot be enforced is the fact that the high tax rate often takes over half of the income, as in case of a 30-mill tax on a 5% per cent bond. If the tax rate were lowered, so as not to make the tax confiscatory, it is alleged that the vast number of such items of property that now evade taxation would be listed. In Ohio it was also hoped that, as the tax rate was lowered, those types of property that had been relatively undervalued would tend to be valued nearer the market value, as required by law. This would tend to increase the tax base, and consequently to bring about a further lowering of the rate, which again would induce more com­plete listing and more accurate valuation, resulting again in an in­creased tax base and potentially-lower rates. That was a conspicuous element in the arguments by which the Ohio "one per cent law" (the so-called Smith law) was advocated in 1910, and has since constituted its chief defense. Finally, the tax limits were deemed capable of serving still an­other purpose, namely, the limitation of public expenditures and of public functions generally. If the rates and the valuations can both be kept low, the revenue must necessarily remain low, and the ex­penditures limited. There has always been a class of interests active in limiting public functions. They point to the rapidly increasing expenditures as intolerable burdens. In presenting the effects of the various tax limits there is room for difference of opinion. A wag is reported to have suggested that the proper remedy for a city in need of additional revenue, whose tax- OR. C. Atkinson, The Ef!ecta of Tao: LimittJtioM upot1. Local Fiftaine• iai. OJl.io, (f923). To this source the present section is hea.vlly Indebted. rate had reached the legal limit, was to raise the limit. There is abundant evidence to show that when the need for additional revenue has become pressing under a restrictive tax limit, the remedy that most often has been used has been just such a change in the limit. This evidence is supported by the almost universal provision for the temporary lifting of the limit by popular vote. Frequently the statutory limit is raised by means of special legis­lation for certain local units. Such special legislation is facilitated by the general knowledge that the limits ought not to be identical for all counties, cities, towns, or school districts. The experience of Minnesota in this respect is typical. From the time of the adoption of the constitution in 1857 and up to 1892 the legislature of Minnesota was not prohibited from enacting special laws, that is, laws applying to a single county or municipal­ity. Under the exercise of this power, when a municipality wanted to increase its tax levies beyond the maximum fixed by general or special laws, resort was had to the legislature for authority to make the increase, and, as the bill applied only to the municipality asking for the increase, but little opposition to its passage was encountered. The policy of special legislation became so general that the greater part of each legislative session was occupied in the consideration of purely local bills to the exclusion of measures of state-wide interest. So rampant did the policy of special legislation become that in 1892 the constitution was amended prohibiting the enactment of a special law in all cases where a general law could be made applicable. The amendment was hailed as marking the end of special legisla­tion, often of doubtful wisdom, and, not infrequently, vicious in effect, because enacted at the behest of special interests or factions. But our joy was short-lived. It was discovered that the legislature could enact laws, general in their character but applicable only to counties or municipalities of a specified class, so the policy of class legislation has taken the place of special legislation, and the evil of the former is almost as great as the evil of the latter. Our earlier laws applicable to municipalities of a specified class had the virtue of being based on some well-recognized difference in population or economic conditions, but in more recent years almost any fantastic classification, if it does not embrace too much territory, can muster votes enough in the legislature to be enacted into law. Laws are now passed that are applicable only to counties or cities having a certain population, with full knowledge on the part of the legislature that such laws will affect one county or one city in the state. Likewise, laws are passed that are applicable to counties having an assessed value in excess of a specified amount when there is but one county in the state with the specified valuation. Some­times the representatives of two or three counties will get their heads together and devise a classification based on not less than and not more than a specified taxable value. Sometimes a combination of assessed value and population is used, and if this takes in too much territory, area or the number of congressional townships in a county is added to the combination to overcome possible objection. So in­genious have we grown in the art of classification that, in the refine­ment of its application, it has become almost a fixed science with us.7 It is improbable that the tax limits have been any more effective in improving the listing and valuation than in restricting tax levies. There are instances in which the lowering of the tax rate has re­sulted in so increasing the base as even to increase the yield of the tax from that source. Those instances are found chiefly in connec­tion with the very low taxes on special forms of intangibles, such as money, mortgages, and other credits, in lieu of the general property tax.8 But the potency of a low rate to increase the listing of hidden taxables has been overstressed. Taxes have too much the character of what Ely has called "one-sided transfers." The low rate does not always increase the tax base sufficiently to maintain the yield. If the presence of a rigid tax limit could have improved the assess­ment anywhere it should have done so in Ohio under the "one per cent law,'' enacted in 1910 and amended at various times since.9 It provided two kinds of limits: First, the levy for 1911, in any tax dis­trict, should not exceed the levy for 1910; the levy for 1912 should not exceed the 1910 levy by more than 6 per cent; the levy for 1913 should not exceed the 1910 levy by more than 9 per cent; and the levy for 1914 and any year thereafter should not exceed that of 1910 by more than 12 per cent. Second, the aggregate rate for all pur­poses was to be not over 10 mills, exclusive of levies for interest, sinking funds, and certain emergencies which might not bring the aggregate beyond 15 mills. Separate limits were also placed upon each of the subordinate tax districts, as follows: for all county pur­poses, 3 mills; all township purposes, 2 mills; all city or village pur­poses, 5 mills; all local school purposes, 5 mills. If the amounts re­quired by the separate units, as reported to the county auditor, aggre­gated more than the 10 or 15 mills permitted, respectively, it was the duty of a budget commission consisting of the county auditor, the mayor of the largest city in the county, and the county prosecuting attorney, to adjust the several budgets involved; for this purpose they were given extensive powers. It happened that a practical test was made immediately. Real property was assessed every tenth year, and 1910, the year of the new law, was the last before the decennial valuation. The assessment of all property rose 161.6 per cent between 1910 and 1912; real prop­erty, 162 per cent; and personal property, 159 per cent. The part of 7J . G. Armson, "Tax Limitations and Other Current Tax Problems with Special Reference to Minnesota," Proceedings, XV (1922), 41-