Year

1850.

1860.

1870.

1880.

1890.

1900.

1904.

1912.

1922_

TABLE 6.-ESTIMATED TRUE VALUE OF ALL TAXABLE PROPERTY, 1850-1922 1

1 Data for 1850-1870 are for taxable property only. Thereafter total includes exempt property of the following amounts (in millions): 1890, $3,833; 1900, $6,213; 1904, $6,831; 1912, $12,314; 1922, $20,506.

2 Currency basis. Gold basis, $24,055 million.

Source: U.S. Bureau of the Census, Wealth, Debt and Taxation: 1913, vol. 1, pp. 24-25; ibid., 1922, Estimated National Wealth, p. 18.

The property tax of this period was a locally-administered centrallyshared tax. Assessments were made by local officials practically without supervision or instruction. Collections were made by county and other officials, usually locally elected. They remitted the proper portion of the taxes collected to the various units, including the State. This was the opposite arrangement from what is now customary for other types of taxes-State-administered taxes with revenues shared with localities. As property tax levies began to rise during and after the Civil War, there were increasing incentives to competitive local undervaluation as a means of reducing the weight of State taxes, just as similar competition among townships and districts was used in efforts to reduce local shares of county taxes. County boards of equalization were first created to reduce inequalities in assessments within counties. Later State boards of equalization, first ex officio, then appointed or elected, were created to provide greater assessment equality among counties with respect to State levies. These measures had little success. Seldom could defective local assessments be made equitable by the equalization process so generally applied, nor could the boards overcome tendencies for individual members to try to favor their own localities at the expense of others.*

In due time the State equalization boards were replaced by State tax commissions, full-time officers (some of professional calibre) whose duty it was to supervise original assessments, make equalizations, and assess for all purposes intercounty properties, railroads, public utilities, and other corporations duties local assessors had not been able to perform satisfactorily. They also were made responsible for the direction and improvement of State tax systems. They helped lead the States away from the general property tax and sponsored the development of new taxes, such as gross receipts taxes on public utilities, low-rate taxes on intangibles, personal and corporate income taxes, the sales tax, and the like. They also spearheaded the movement of State officials to amend section 5219, as has been related.

4 See Lutz, The State Tax Commission, Harvard University Press, 1918, chs. II and III. Leland, op. cit. pp. 19ff, 34. 5 Lutz, op. cit., ch. IV and following.

During 1864-1922 many special taxes on corporations were developed. The franchise tax, at first an organization fee, was converted into an annual money raiser. Special property taxes also were imposed. Some of those in force in 1922 are indicated in table 7 which shows the receipts of State governments from these taxes. Corresponding detail for local government taxes is not available.

Över half of the special property taxes were paid by corporations generally. Of the $81 million aggregate of special property tax receipts of State governments, $62 million, or three-fourths, was reported for six States-Pennsylvania, California, New York, Massachusetts, Ohio, and Michigan.

The category designated "bank stock" taxes comprised one-sixth of the total for all States, although it was reported in only the 10 States named in the table. Of the bank stock taxes, 98 percent were received in five States-New York, California, Massachusetts, Pennsylvania, and Connecticut.

TABLE 7.-STATE RECEIPTS FROM SPECIAL PROPERTY TAXES, 1922

1 This table enumerates only those States for which a category of "bank stock" taxes is reported separately in the census compilation.

2 Includes receipts of all States, including those not named.

Source: U.S. Bureau of the Census, Financial Statistics of States, 1922, p. 12.

The general property tax was the important tax upon banks. In 1921, banks were taxed by this method in 38 States with 52.6 percent of the banking capital of the nation. Ten states reached bank stock through low-rate taxes, applicable to 38.3 percent of bank capital. Only the District of Columbia taxed banks on the basis of gross receipts. In all the general property tax States except New Hampshire and Vermont, the tax was levied at the location of the bank. In these two States, the law provided for taxing bank stock at the residence of the owner. Under the low- or special-rate taxes in California, Delaware, New Jersey, New York, Pennsylvania, and Virginia, the location of the bank was made the situs for taxation. In Maryland and Rhode Island the situs of shares owned by residents was at the residence of the

• In general these taxes were based on capital stock, authorized and paid in. Seldom did they include earned surplus. When made applicable to banks, among other corporations, they did not include national banks. Special license taxes were imposed on banks only in Florida (capital), Louisiana (capital, surplus, and undivided profits), Nevada (capital). Authorized capital was the base of franchise taxes in Colorado, Idaho, Oregon, Rhode Island, Utah, and West Virginia. Other bases were used in Alabama (paid up capital), Arkansas (capital subscribed, issued, and outstanding), Georgia (capital), Michigan (paid up capital and surplus), Missouri (par value capital and surplus), Ohio (subscribed, issued or outstanding), Texas (authorized or paid-in capital, surplus, and undivided profits whichever is higher), Vermont (capital stock or deposits), Washington ($15 each corporation). See Kimmel, op. cit., pp. 10-11, where further details are given.

66-236 0-72-pt. 3—20

owner. In conformity to Section 5219, bank shares owned by nonresidents were taxable at the location of the bank. In Connecticut and Maine, the situs for taxing all shares was the location of the bank, but the taxes derived from shares owned by residents of the State were distributed to local jurisdictions where these shareholders resided."

17 percent assessment law repealed 1927.

2 Bonds of other States and foreign governments taxable at 1 mill.

3 Also has a mortgage recording tax.

4 Bank deposits 1 mill.

5 Money in bank and elsewhere, 21⁄2 mills; bank stock, 70 percent of local tangible property rate.

Money and credit tax of 10 of 1 percent adopted 1925; intangibles subjected to special levy of 1% of 1 percent in 1927. 7 Intangibles assessed at 1 percent of value; taxed at 40 cents on the dollar. Bank stock and competing capital taxed at 2 percent.

Source: Leland, op. cit., p. 180.

1. Low-rate taxes on intangibles.-Low-rate taxes on intangibles were employed in 15 States and the District of Columbia, as is shown in table 8. It was the use of such a tax and the fact that the low rates were not applied to shares of bank stock which led to the Richmond decision and to the amendment of Section 5219 in 1923 and 1926.8 Failures to apply these and similar rates to shares of national banks left ad valorem share taxes in jeopardy until the passage of P.L. 91-156 in 1969. It has been said that the Richmond decision and the ensuing controversy over national bank taxation took the steam out of the classification movement and retarded both its extension and more intensive development. There is no doubt that the movement was given a severe setback. Nevertheless, even though many States collected more revenue under their low-rate taxes than they had previously collected under high-rate general property taxes, the revenue potential from these taxes was so low that they could not for long have satisfied the needs of State and local governments. Attention was turned to more productive sources administered by the State and often shared with local governments.

Some special taxes on intangibles also were adopted. Chief among these were the taxes on mortgages and bank deposits. The motive for these taxes was principally justice, since the high general property tax rates when and if applied to this property were confiscatory or almost

7 Kimmel, op. cit., pp. 4-7.

8 Cf. supra, pp. 195-221 in this appendix.

so. Some States preferred to exema: mtangibles from taxation. Other States adopted recording or regist" taxes since the pression, fa: recording documents no: our made collection easy but made nossible the use of revenue stamps Any attempt to annh hiệt annua rates te these taxes added to the costs to be met by borrowers. Moreover the mortgages were compietery representative of property already EsTAU Justice and expendien both Isvored the saoption of the mortgage registry taxes Those I force n. 192€ are shown in. table $!

The amount collected from State mortgage taxes in 1922 wo $29.329.000, of which. $2.785.000 was m. New York anc. $1.052.000 in Michigan. "

1 in 1927 an alternative stamp tax on secured debts registered with the State treasurer was adopted, rate, kjo al 1 percent 2 Declared unconstitutional.

Source: Leland, op. cit., p. 195.

Although justice was the early motivation for mortgage recording taxes, several States have since adopted such taxes as a means of collecting information useful in improving the quality of local assoss ments, particularly real estate. County equalization ratios computed in Illinois and used to equalize assessments are derived from such data." Mortgage recording taxes have thus become a useful tool for State use in improving the operation of the property tax.

At the time low-rate taxes on intangibles were putting national bank taxes in jeopardy, as in Virginia, some students of the problem wondered if the mortgage recording taxes would not produce the same consequences. Though long delayed, the answer came in 1969 when the Supreme Court decided the appeal in Dickinson v. First National Bank of Homestead.12

2. Bank deposit taxes.-Bank deposit taxes were another phase of the classification movement, although the early special taxos on savings deposits can hardly be attributed to that movement. A cout decision in Mississippi in 1876 holding that national bank notes Word obligations of the United States and therefore exempt from taxation led to passage of the Act of August 13, 1894. This not permitted taxation by States of bank notes, U.S. legal tender notes, and other notes and certificates payable on demand, circulating or intended to circulate, and gold, silver, and other coins as money on hand or on

Leland, op. cit., pp. 187 95. On the present use of stamps,

see infra. table 16, 7th column

10 U.S. Bureau of the Census, Financial Statisties of States 1922, p 15

for real estate tianafi fax

11 Cf. Illinois Department of Revenue, linols Property Tax Statafioa, 1994, Apaingeld, M. 1 12 291 F. Supp. 855 (1968), affirmed 89 8. CL. 655 (1904),

deposit, provided that they were taxed in the same manner and at the same rate as other money or currency circulating in the State. This would seem to be an overall permission for States to tax money on hand or on deposit. Of course, discrimination between deposits in State and national banks would not be permitted.13

14

Taxes on savings deposits in Connecticut, Maine, Massachusetts, New Hampshire, and Vermont were of early origin. Deposits taxes in other States came as part of general classification programs and in general applied to all money on deposit. These taxes are listed in table 10. Other States either included deposits among intangibles subject to general property tax rates or to low-rate taxes or exempted them entirely. In some States, individuals were required to list their deposits for taxation; in others collection at the source was employed; in still others, the taxes were levied on the banks to be borne by the banks or collected from depositors as competitive conditions dictated. Often as an inducement to increase deposits, many banks assumed the burden of deposits taxes. This constituted an added tax on shareholders if it affected the amount of bank dividends, otherwise only profits (perhaps undeclared profits) were reduced. Since these taxes were at low rates, the burdens were nominal.15

In the history of national bank taxation, taxes on bank deposits did not have much impact.

TABLE 10.-LOW-RATE TAXATION OF BANK DEPOSITS: 1927

1 Average deposits, reserve funds and undivided profits less certain deductions.

2 Less certain deductions.

* Assessed at 7 percent.

4 Law of 1925 provided for gradual reduction of rate. Rate to be 50 cents after 1931.

.40 Deposits to bank; all

other to taxpayers.

40 Individual.

.70 Bank.

.20 Individual.

5 At first applied to deposits and reserves (K. M. Williamson, "State taxes on savings deposits in New England," American Economic Review, vol. xviii, No. 1 (March, 1928), p. 48); later to savings deposits, Acts and Resolves, Rhode Island, 1893, ch. 37. Since 1912, 4-mill rate has applied to all money. Cf. General Laws, 1923, ch. 59, sec. II, p. 307.

Source: Leland, op. cit., p. 217.

13 J. R. Horne, Tax Collector v. J. & T. Green, 52 Miss. 452. Cf. Welch, op. cit. ch. v; Clement National Bank v. Vermont, 231 U.S. 120, 135 (1913). For the text of the 1894 law, see supra, p. 8, appendix I-F, 31 U.S.C. 425, 426.

14 Money and deposits were exempt from taxation in the following states: Alabama, money on deposit in banks, and solvent credits; Delaware, ready money; Louisiana, cash on hand and on deposit; Massachusetts, savings deposits in hands of individual; Mississippi, money on deposit; New York, savings deposits; North Dakota, money; Washington, money; Wisconsin, money; Ohio, "Dunker's money." U.S. Bureau of the Census, Digest of State Laws Relating to Taxation and Revenue. 1922.

15 These taxes are fully discussed in Welch, op. cit., ch. v.