In the case of tangible property such as merchandise, the results of general evasion are similar. Selling prices are fixed on the assumption that the business will largely, if not wholly, escape taxation. The few merchants who are caught find themselves taxed out of all proportion to others, and are unable to recoup themselves for the tax by adding to prices, because of the competition with those who escape, or with non-residents-who may be wholly relieved from such liability in their own states.

To sum up, your committee finds:

That the general property tax system has broken down.

That it has not been more successful under strict administration than where the administration is lax.

That in the states where its administration has been the most stringent, the tendency of public opinion and legislation is not toward still more stringent administration, but toward a modification of the system.

That the same tendency is evident in the states where administration has been more lax.

That the states which have modified or abandoned the general property tax show no intention of returning to it.

That in the states where the general property tax is required by constitutional provisions, there is a growing demand for the repeal of such provisions.

We conclude, therefore, that the failure of the general property tax is due to the inherent defects of the theory; that even measurably fair and effective administration is unattainable; and that all attempts to strengthen such administration serve simply to accentuate and to prolong the inequalities and unjust operation of the system.

346. Multiple Taxation1o

BY THEODORE SUTRO

No one doubts the fact of double and multiple taxation in our system, but nevertheless it will be useful to point out some concrete examples.

Certain logs, cut on lands in Wisconsin owned by a Minnesota corporation, were hauled to a river and piled on the ice to await the opening of the river, that they might be floated down to Minnesota to be there manufactured into lumber. Under a statute of Wisconsin these logs were assessed in the month of April for taxation for

10 Adapted from "Double and Multiple Taxation," in State and Local Taxation, Second International Conference, 548-552. Copyright by National Tax Association (1909).

the year commencing on the last Monday in June, on the claim that the situs of the logs was in Wisconsin. It appears that under a law of the state of Minnesota the same logs were also assessed against the Minnesota corporation, and taxed there for part or all of the same period. The Wisconsin court admitted that this would result in double taxation of the same article in the same year and said: "Either it is lawful to tax the logs in Wisconsin or it is not. If lawful at all, the mere circumstance that the owner, after the tax is levied, voluntarily takes them into another state, where they are also taxed, can have nothing to do with the question of the constitutionality of the tax here."11

Here is a flagrant case of double taxation, but we may go farther. Let us assume that the Minnesota corporation had a permanently established agency in the city of New York, and that it sent these logs, subsequent to their taxation both in the states of Minnesota and Wisconsin, to the city of New York, where they would arrive before the tax period of Wisconsin and Minnesota had expired, and would, within that period, reach and be in the city of New York on the subsequent second Monday of January. They would thereupon become taxable for the third time in the city of New York.

Let us assume further that subsequently, say in the month of March, they were sawed into lumber in the state of New York, and were in or about the month of April shipped to another agency of the same Minnesota Corporation, in the state of New Jersey, and that this lumber was in the hands of the New Jersey agency on the twentieth day of May, on which date assessments for taxation are made in that state.

We should then have this result: that these logs were assessed in Wisconsin for the whole period of one year from the last Monday of June, for nearly the whole of that period also in the state of Minnesota, from the period from at least the second Monday in January until the last Monday of June also in New York, and from the period from the twentieth of May until the last Monday of June in New Jersey.

On the other hand, a competing Wisconsin corporation or individual growing and cutting these logs into lumber in that state and disposing of this lumber before the expiration of a year from the last Monday of June would have been taxed for the logs or their equivalent in lumber only a single time for the same tax period, for which the Minnesota corporation would have been taxed four times.

"C. N. Nelson Lumber Co. v. Town of Loraine, 22 Fed. 54 (1884).

Certain mortgages on lands in Oregon held by a California corporation were taxed in Oregon, under an Oregon statute, which provided that "mortgages of land shall for the purpose of assessment and taxation be deemed to be real estate." Under the laws of California the same mortgages were taxable against the California corporation for a part of the same period.12 This illustration also we might carry farther by assuming that before the tax period in California had expired the mortgages had been assigned by the California corporation to a resident of New York City. If held by that resident on the second Monday of January in the city of New York, the same mortgages would have been subject to another tax for the same tax period.

Money had been loaned by a resident of Kentucky to a firm in Ohio. It was taxed in both states. The court said: "Borrowed capital in Ohio is taxable as the borrower's property there, and the debt due to the lender in Kentucky is taxable here as her property" (i. e., the property of the minor daughter of the deceased lender). "In this case, the ward's right to the money in Ohio is a portion of the wealth of Kentucky, and ought to contribute to the burdens of the government which protects her; and if it could escape contribution by lending it in Ohio, a knowledge of that fact would encourage the exhaustive deportation of the money of Kentucky to augment the wealth of some other state."13

E. TENDENCIES IN TAXATION

347. The Massachusetts Corporation Tax11

In Massachusetts there is general provision for the taxation of corporations upon their "corporate excess." Although experience has shown that each class of corporations requires special treatment, and many modifications have been made, the central idea-corporate excess-is preserved throughout.

In ascertaining the corporate excess, this general provision requires an annual return by the corporation to the tax commissioner showing the amount and market value of its capital stock and assets, and also the names of the stockholders, with their holdings and addresses. He estimates the entire value of the capital stock from this return. This estimate is denominated the value of the "cor

12Johnson v. De Bary-Baza Merchant's Line, 37 L.R.A. 518; Savings and Loan Soc. v. Multnomah County, 60 Fed. 31 (1894).

18 Thomas v. Mason Co., 67 Ky. 135 (Court of Appeals, 1868). "Adapted from the Report of the Commission of Corporations on the Taxation of Corporations, I, 89-93 (1909).

porate franchise." Deduction is made for the value of real estate and machinery taxed locally, and the remainder, called the "corporate excess," is taxed at the average rate of taxation for the whole state during the last three years.

Such proportion of the tax collected by the state as corresponds to the amount of stock owned within the state is returned to the towns and cities in which the stockholders reside, in proportion to the number of shares there owned. The portion of the tax which represents the tax on shares of stock held outside the state goes to the state. Under this arrangement it is estimated that about 20 per cent of the tax accrues to the state. Shares in domestic corporations are not taxed to their owner as personal property. Bonds are taxable.

"Business corporations" were originally included under the tax on corporate excess above described; but owing to the effect of that tax in compelling Massachusetts corporations to give up their charters and incorporate under laws of other jurisdictions, it was found necessary to place limitations on the assessment of the corporate excess of such corporations. In 1903 “An act relative to business corporations" was passed, which law relates particularly to manufacturing and mercantile corporations as distinguished from financial and transportation and transmission corporations.

This law provides that domestic corporations having capital stock and established for the purpose of carrying on business for profit be taxed as follows: The corporation makes an annual return to the Tax Commissioner, from which he estimates the entire value of capital stock and this is denominated the value of the corporate franchise. There is a deduction of the value of real estate and machinery subject to local taxation within the state, and also of the value of property which is in another state or country and is subject to taxation therein. No deduction is made for securities which would be taxable if owned by a resident natural person, but if such securities would not be taxable in the hands of a natural person they are deducted. On the net valuation or corporate excess thus reached the state directly imposes a tax at the average rate of all the cities and towns in the state for the last three years. The tax, however, is not to exceed a tax at this rate on an amount 20 per cent in excess of the value of the real estate, machinery, and merchandise, and taxable securities; nor is it to be less than one-tenth of 1 per cent of the market value of the capital stock. The tax is paid by the domestic corporation to the state treasurer. The return also gives a list of stockholders, with their holdings and addresses.

The Tax Commissioner in determining the value of the corporate franchise of a business corporation may not take into consideration any debts of the corporation, unless the returns contain a sworn statement that no part of such debt was incurred for the purpose of reducing the amount of taxes.

Beginning with 1909, all of the tax apportioned to non-resident stock remains with the state and the rest of this tax is distributed, one-half to the cities and towns where the tangible property of the corporation is located and the other half to the cities and towns where the stockholders live. Shares in companies paying this tax are not taxed to the owner as personal property. Bonds of these companies are so taxed.

The tax upon railroad companies is on the same basis as the tax on corporations generally, namely, "corporate excess." Provision is made for a proportionate assessment of the tax where the line of the road extends outside the state. Every railroad corporation organized in the state returns a complete list of its stockholders, with residences and number of shares, and also a statement in detail of the works, structures, real estate, and machinery owned by the corporation and subject to local taxation, with location and value. Every railroad corporation, whether organized in this state or elsewhere, returns a statement of the whole length of its lines, and of so much of the length of its lines as is outside the state.

The Tax Commissioner ascertains from the returns or otherwise the true market value of all shares of every railroad corporation, which shall be taken as the true value of its corporate franchises. From this is deducted, in the case of both foreign and domestic corporations, so much of the value of its capital stock as is proportional to the length of that part of its lines, if any, lying without the state, and also the value of its real estate and machinery subject to local taxation within the state, for which purpose the assessed value may be taken as the true value. Upon the valuation so found the railroad pays to the state a tax at the average rate throughout the state.

No taxes are assessed locally upon the shares of any railroad which pays a tax on its corporate excess. Such proportion of the tax collected of a railroad corporation as corresponds to the proportion of its stock owned by residents of the state is distributed to the towns in which such owners respectively reside. Bonds of railroad companies are taxable to the owner as personal property.