has brought forth strenuous objections from assessing officers, among others, who have been often frustrated in their attempts to assess credits, by the assertion of debts owing which, they believed at least, were not bona fide.

All statutes allowing exemptions on account of debts owing are enacted for the purpose of relieving debtors to some extent from the injustice of double taxation which would result from the assessment of credits without corresponding reduction in the assessment of the debtor's actual property. They seem to be practicable only when limited to the case of credits secured by mortgage or other express lien upon specific property. As to credits not so secured, such statutes fail signally to work satisfactory or equitable results..

The states which now have statutes in force by which double taxation is avoided in respect to mortgages or other equivalent lien on real estate are California, Colorado, Connecticut, Idaho, Massachusetts and New Jersey. Such statutes have also been enacted in Oregon and Michigan, but have since been repealed. The California plan was recently adopted in Missouri by constitutional amendment, but it has since been declared invalid. by the supreme court of that state,1 on account of the provisions excepting mortgages of railroads and other quasi-public corporations from the operation of the law. In some of the states mentioned the constitution forbids the direct exemption of mortgages by legislative act. In such states double taxation is avoided by taxing the mortgage and permitting the amount of the mortgage to be deducted in the assessment of the mortgaged real estate. This practice is also adopted in some of the states where exemption of the mortgage is not prohibited by the constitution. In California, as already shown, an agreement by the mortgagor to pay the tax upon the mortgage is prohibited. The law once in force in Oregon and the attempted enactments in Missouri were the same in this respect. But in Massachusetts, the mortgagor is at liberty to bind himself to pay the tax upon the mortgage, and usually does so; both mortgagor and mortgagee are at liberty to have the mortgage assessed but

1 Russel vs. Croy, 164 Mo., 69,

neither is obliged to do so; if the mortgage is not assessed, no
deduction in the assessment of the land is allowed on account
of the mortgage. Thus where the mortgagor has undertaken
to pay the tax upon the mortgage, there is no incentive to have
the mortgage assessed. As a result very few mortgages are
assessed; one tax is paid on the entire value of the mortgaged
real estate and no more. In practical working and results the
system is the same as if mortgages were expressly exempt. The
laws of New Jersey and Connecticut, and the Michigan law,
now repealed, are substantially the same as that of Massa-
chusetts in these respects. Colorado, whose constitution seems

to prohibit direct exemption, seeks to accomplish the same re-
sult by declaring the mortgage to be an interest in the real
estate covered thereby, requiring the interest of the mortgagor
and of the mortgagee to be assessed together as a unit, and for-
bidding the mortgage interest to be assessed separately or in any
other way.
In Idaho alone, credits secured by mortgage or
other express lien on real estate are directly and expressly
exempt.

A more complete statement of the statutes and constitutional provisions above mentioned is given in a bulletin of the Taxation Department of the National Civic Federation issued in November, 1902. This bulletin contains the full text of such laws with citations to the original acts and also much useful related information, together with explanations and comment. It is reprinted as an appendix to this report.

1

CHAPTER VI.

STOCK IN CORPORATIONS.

Shares of stock in business corporations bear such close analogy to credits that much of what is said respecting the taxation of credits is equally applicable to the subject of taxing such stocks; consequently the latter subject will not require extended discussion under a separate head. In Ruggles vs. Fond du Lac, 53 Wis., 436, this analogy is recognized in the ruling there made that shares of stock in an incorporated bank may be regarded as a debt of the corporation to the stockholder, so as to entitle the latter to deduct in the assessment of such stock the amount of debts by him owing, under the provisions of subdivision 10 of Sec. 1038, Stat. 1898, which allows, in the assessment of credits, an exemption equal to the amount of bona fide unconditional debts owing by the person assessed.

That double taxation results from taxing the corporation upon its capital or the value of its property and taxing also the shareholders upon the value of their shares of stock, is generally recognized and admitted. It is more apparent to some minds than that double taxation results from taxing credits as property without corresponding reduction in the assessment of the property of debtors. In the opinion, of the Supreme Court of Pennsylvania in Commonwealth vs. Fall Brook Coal Co.,1 the following language is used:

1

A corporation is an artificial person created by law for the purpose of becoming the business representative, agent or trustee of so many persons as may join to furnish the money with which the business to be done by the corporation may be The corporation comes into existence, like a natural The money furnished by those whose represent

carried on. person, naked.

1156 Pa. St., 488, 494.

ative it is to be, is its capital stock. The amount that each person contributes to this fund is his share in the venture, and is called his share or shares in the stock. The legal title to the whole sum so contributed is in the corporation, and so is the legal title to all the property real or personal in which it may be invested. The equitable title, that is, the right to the profits from the business done, and to a return of the capital when the corporation is dissolved, is in the stockholders. There is one estate, one business, but the title has been divided, by the separation of the power of control, from the right to receive the profits.

Now, how shall this single estate be taxed. It may well be taxed in the name of the corporation, the legal owner, or the names of the shareholders, the equitable owners.

It

Whatever method may be adopted the same capital is reached, and the ultimate burden rests on the same persons. is clear, therefore, that to tax the capital stock in the hands of the corporation, and then tax the owners of the parts or shares into which it is divided, upon their respective holdings in the same capital, is double taxation pure and simple.

To the same effect are the following extracts from the opinion of the Supreme Court of Michigan in Stroh vs. Detroit, 90 N. W. Rep., 1029:

.

The constitution of this state requires that there be a uniform rate of taxation The taxation of shares to the shareholder, and property to the corporation, is clearly double taxation within the spirit of the constitutional provision, and while we appreciate the fact that the shareholders and the corporation are different entities in the law, and that shares of stock are recognized as property, and distinct from the corporate property, it is plain that the shareholders are the corporation and that they are the owners of its property. The constitution does not permit the taxation of both property and shares, and we must, if possible, give such a construction to the law as to make it reconcilable with the constitution.

Substantially the same principles are declared in California by statute:

Shares of stock in corporations possess no intrinsic value over and above the actual value of the property of the corporation which they stand for and represent, and the assessment and taxation of such shares and also of the corporate property would

be double taxation. Therefore all property belonging to corporations shall be assessed and taxed, but no assessment shall be made of shares of stock, nor shall any holder thereof be taxed therefor.1

The legislature of Wisconsin has recognized this principle for many years in the provision now found in subdivision 9 of section 1038, Stat. 1898, exempting from taxation "stock in any corporation in this state which is required to pay taxes upon its property in the same manner as individuals."

By the foregoing provision the legislature has granted relief against double taxation in the case of corporations in this state which are required to pay taxes upon their property in the same manner as individuals, but not in the case of other corporations. The expression "corporations in this state" is understood to mean corporations organized by or under the laws of this state, and no other. There is at least a question whether stocks in those corporations which are taxed by license fee or other special method in lieu of direct taxation upon their property, such as railroad corporations, can be regarded as exempt under the provision quoted above. When the license fee method of taxing railroad corporations was first adopted in this state, the tax by such method was expressly declared to be in lieu of taxation of shares of stock in such corporations as well as the corporate property itself, and such stock was expressly declared to be exempt.2 But the provisions expressly exempting shares of stock in railroad corporations were not retained in the later revisions of the statutes, and it is at least a serious legal question whether such shares are now exempt.3

Every consideration of justice and equity requires that the principle embodied in subdivision 9 of Sec. 1038 should be extended to stock in every corporation which is required to be taxed directly upon its property or indirectly by license fee or other special method in lieu of a direct tax upon its property, and this without regard to the location of the property or whether the corporation be organized under the laws of this

1 Political Code, Sec. 3608.

2 Chap. 74, Laws of 1854; R. S. 1858, Chap 18, Sec. 183.

3 See note, "Railroad Stocks," under Sec. 1038, Stat. 1898, p. 803.