between different states the rates of assessment should be different in the same kind of business. The extent to which such variations exist in different kinds of business is not the same. For example, it may be generally asserted first, that there is a much greater difference between gross and net receipts in railroad than in express companies; second, that as to railroad companies a greater difference between gross and net receipts will be found in sparsely settled regions than in densely populated districts; and third, that these latter variations will be much more important with railways than with express companies. New York and Pennsylvania tax all railroad, transportation, telegraph and telephone companies, both on their capital stock and their gross receipts. The gross receipts taxes are additional. In Michigan, on the contrary, where railroads are taxed primarily on their receipts, the property and capital stock are exempt. The receipts tax on Michigan railways is a classified or graduated tax ranging from 2 per cent. to 4 per cent. The system in Maine is similar; railroads are taxed according to the gross receipts per mile, in about a dozen classes, the rates ranging from one-fourth to three and one-fourth per cent. The realty and fixtures outside of the road itself are also taxable. In Vermont, in the taxation of railways, an alternative property or gross earnings tax is provided. In Minnesota certain railways are taxable on gross receipts in lieu of all other taxation. In Wisconsin, also, railways are subject to a graded receipts tax in lieu of property taxation. In North Carolina, only such railways as are not taxed on their capital are taxed on receipts. Gross receipts and property are taxed to telegraph, telephone and express companies in North Carolina, to express companies in Missouri, to telegraph, telephone and railway companies in Virginia, and to gas, water, electric light and various other companies in Alabama. In Virginia, however, the gross receipts taxes are part of a general income tax system. On the other hand, where gross receipts are taxed, the property is exempt in the taxation of express and telegraph companies in Georgia and Vermont, the car companies of Vermont and Michigan, and the telegraph companies of Wisconsin. The same diversity of practice is found in the taxation of insurance companies. In New York, Pennsylvania and North Carolina they are taxed on their premiums and also on their capital stock, and in Texas, Virginia, Alabama, Iowa, etc., they are taxed on their premiums and property. On the other hand, the property of insurance companies which are taxed on their premiums is exempt in some states, as, for example, in Ohio, Tennessee, Wisconsin and Georgia. In Pennsylvania the net earnings of private bankers and brokers are taxed as well as their real and personal property. In Massachusetts certain corporations organized to do business outside of the state, and holding most of their property abroad, are taxed on their net profits. The courts have seldom considered the justice of these taxes, since there has been little question but that they are within the scope of legislative authority. In Iowa, where under a former law both the property and the receipts of an express company were taxed, the court held that though it might be unequal and unjust, it was not invalid.1 Income from Privilege and Occupation. It is not easy to distinguish the taxes on privilege here included from many other taxes which are frequently assessed on the privilege of doing business, which have been already considered. There is, nevertheless, in general a plain economic division, which may be described as follows: The taxes on gross receipts, premiums and other taxes of a similar character, which we have treated above, are generally levied on corporations, or upon companies which do a business commonly undertaken by corporations, and particularly such as do an inter-state business; the taxes on privileges and occupations, on the other 1 U. S. Exp. Co. vs. Ellyson (1869), 28 Ia., 370. hand, may or may not be on the same legal footing, but, in either case, they are generally on individuals and the property affected is of a local character. One reason for the gross receipts taxes on great corporations doing an inter-state business is that they can be effectively taxed in that manner where a property tax would be of little consequence. Occupation taxes seem to stand also for the taxation of incomes which are only to a small extent derived from property, but they are aimed at the income of local business, and have a strong resemblance to license taxes. Although, therefore, in these methods of taxing the revenue of business, there is no clearly defined division, yet, theoretically as well as practically, the general distinction is at once recognized as legitimate and useful. The taxes on gross receipts are found all over the United States. Taxes on privilege or occupation for state purposes, however, are almost entirely limited to the southern states. In the northern and northwestern states they rarely occur, except for local purposes. State privilege taxes are generally supplementary to the general ad valorem taxation of property. Thus in Virginia, Louisiana and Tennessee, where very extensive systems of privilege taxes exist, property taxes are also levied, and in Virginia a general income tax besides. It is not to be presumed on this account that double taxation is necessarily involved, because the very purpose of these taxes is evidently to reach ability not adequately taxed by the ad valorem tax. In Missouri the privilege tax levied on merchants is in lieu of property taxation. The rates are generally specified for each particular occupation or business. Not all of these taxes take the form of income taxes. Most of those that are rated according to income do not follow it in strict proportion. The more common method is to classify the income in fixed groups, with either a percentage or a specific tax on each group. The most various methods may be found in Louisiana, Virginia, Tennessee, Texas and Florida. § 5. Income from Particular Kinds of Property. It is sometimes found that the income of certain kinds of property is taxable, especially if the property from which the income flows is itself exempt. There are two kinds; natural products of certain exempt lands, etc., as crops or ores, and the income of intangible property, such as bonds, stocks and annuities. It is doubtful often whether these taxes, though in appearance income taxes, are not often, in fact, property taxes. The rate on an income basis should be ten times or more, that levied on property; if, therefore, it is found that the rate assessed on such produce or income is approximately a property rate, then, undoubtedly, such a tax must be considered a property tax. An example of this kind of taxation is found in North Carolina, where the income from property not taxed is subject to a tax of five per cent. In Kentucky a similar tax on United States bonds was held unlawful.1 1 Bk. of Ky. vs. Com. (1872), 9 Bush, 47. CHAPTER V. PROPERTY, CAPITAL STOCK AND SPECIFIC TAXES. THIS chapter includes those forms of double taxation which occur through the taxation of property eo nomine, and also indirectly by taxes on capital stock, franchises and privileges. These are found chiefly in connection with corporations, though privilege taxes are often assessed to individuals. The economic identity which exists to a greater or less degree between capital stock and property is obvious. The term "franchise tax," as commonly applied to corporation taxation, has no necessary relation to any actual franchise or privilege which the corporation may possess; it is a convenient phrase used to. avoid certain constitutional limitations which are commonly connected with property taxes. It gives rise to double taxation in case it is really in substance an additional important tax on property. These "franchise taxes" are levied on various principles. As they are not generally taxes on franchise, economically viewed, they may be termed "excises" for convenience of distinction. We may then distinguish three important kinds of taxes to be here considered, viz., capital stock, excise, and privilege taxes. Capital Stock. Capital stock taxes are of various kinds; the value assessed may be the par, market or actual value. In every case it is evident that between the capital stock and the property there exists a virtual identity of values, of a greater or less extent, which under some conditions is practically complete.' The capital stock may sometimes represent more than 1 Cf. Seligman, Taxation of Corp., op. cit., p. 642. |