It will be noticed that a large part of the collections for the second period of three years was on account of licenses levied on coal and ore mining and for the registration of dogs. In addition to these two new licenses there was also levied licenses for the use of carbonic gas, turpentine distilleries, dog registration, and on many other lines of business which were not levied under the Act of 1915, and some schedules in the Act of 1915 were increased. If these new licenses are taken out of the above statement the totals of collections would be as follows:

The large increase of collections for the last three years, as compared with the three years next preceding on substantially similar statutory provisions, was due partly to the close supervision of the work of license inspectors by this Board and partly to the work of the agents of this Commission.

From a careful examination of the reports made to this office by the probate judges of this State, within a few months after the organization of this Board, we came to the conclusion that there was not as close a collection of licenses required by law as there should be. We, therefore, organized and trained a force for license work. This force, varying in number,

began work in June, 1920, and were continued in service until the close of 1921. The men constituting this force were sent into all the counties of the State, except Jefferson, for the purpose of collecting delinquent licenses which had escaped the notice of local inspectors, and in order that they might train local inspectors in the proper construction of the license laws and in the best method of discovering delinquencies. During the time of their employment State License Inspectors reported twelve thousand eight hundred and fifteen delinquencies. Collections were made in nine thousand six hundred and eighty-six cases reported, amounting to a total of $102,279.17. In addition to the licenses thus collected this same force collected in delinquent franchise taxes an amount of $37,574.00, or a total of $139,853.17. The cost of this work, paid from the appropriation of this Commission, was $19,794.88.

These agents of the Commission remained in each county only a short time. Within this time they collected all delinquent licenses which could be collected from citations issued to the persons delinquent. They could not remain in a county long enough to swear out warrants and try cases thus begun and, therefore, all licenses which could not be collected by citation which they had discovered to be delinquent were reported to the local inspectors and these local inspectors were instructed to swear out warrants and institute civil proceedings in all such cases. A large number of these licenses so reported to local inspectors were afterwards collected. In some cases it is found that the licenses so reported were not due or there was a lack of evidence to sustain the claim of the State and in a few cases proceedings are still pending for the collection of the amounts due.

The value of the work of the agents of the Commission is not fully shown by the amount actually collected, $139,853.17, and the additional amount reported to local license inspectors for subsequent collection, as a total cost of $19,794.88. We think one of the principal benefits of this work was in impressing the public that the State Tax Commission would use its utmost efforts to see that all delinquent licenses would be collected and that an attempt to evade payment would entail the payment of additional amounts as penalties and court costs, thus insuring a better voluntary payment in the future.

The present license law seems to be working fairly well, but we think probably equally as large collections could be made if local license inspectors were abolished and the collection of licenses placed in the hands of tax adjusters, except in a few counties.

We think the adjusters in nearly all counties have enough time to give attention to the collection of delinquent licenses in addition to their present work and the penalties for delinquencies could, if the change suggested were made, be paid into the State treasury, reducing the cost to the State on account of salaries paid to tax adjusters.

In the above statements amounts received from the sale of automobile tags are not included. We do not include these amounts with licenses because they do not constitute revenue available for governmental purposes, the whole amount collected being a fund for use in connection with the work of the State Highway Department.

The amounts received from the sale of automobile tags were as shown in the following statement:

The large increase received from this source we believe is in part due to the efforts of this Commission, but undoubtedly the principal reason for the increase is the result of the higher rates in the present law and of the larger number of automobiles owned.

The present law could probably be amended in some particulars to advantage. We do not, however, suggest any changes in the law at this time because we are of the opinion that the Highway Commission is more fa- miliar with this subject than we are and we recommend that in the consideration of any new revenue measure the schedule of automobile licenses be submitted to the State Highway Commission.

INCOME TAX

The Revenue Act of 1919 contained for the first time in the history of the State an income tax law, with graduated rates of taxation. It became necessary immediately after its organization for this Commission to begin preparations for putting this law into effect. This work of preparation began with a careful study of the law and the adoption of regulations covering all doubtful points of construction, to the end that enforcement should be uniform. Numerous blank forms,-some involved and difficult,-required by the law were prepared and a force of men for field work were employed and carefully trained.

The enforcement of the law began on January 1st, as provided by the statute, and shortly after that date a force of field agents were sent to the different sections of the State to instruct and assist taxpayers in making proper and legal returns for the assessment of the tax. More than twenty thousand returns had been received, audited and properly filed and indexed when the law was declared unconstitutional by the Supreme Court.

While this tax under the law did not become due until October, 1920, a number of taxpayers with small incomes remitted the amount of the tax with returns and approximately $19,000.00 was collected in this way. All payments have been refunded in cases where taxpayers have made application as required by law. There still remains in the State treasury several thousand dollars to the credit of this fund which has not been refunded, the present address of the taxpayers being unknown and it being impossible to get them to make proper applications, though attention has been called to the matter several times by publication in the newspapers of the State. We recommend that this balance be closed into the general fund of the State.

In the opinion of this Commission, it is unfortunate that an income tax with graduated rates of taxation has been decided unconstitutional in Alabama. In the early history of a government such as that in this State, when population is small and scattered, the principal function of government is the protection of its people in the peaceable enjoyment of their liberties and in safeguarding their rights of property. Government is simple and those enjoying the larger part of its benefits are the owners of property and those who derive a support from some business the conduct of which requires the ownership of a relatively small amount of property. The revenue required is small and the necessary amount can easily be raised by the two kinds of taxes which suggest themselves as fairest, the property and privilege taxes. Later on, as population thickens, as business becomes more complex, and government activities are extended in more and more direcEither this tions, there is an ever increasing demand for a greater revenue. additional revenue must be raised or the government must become inefficient and fail to provide for the people the things they demand and to which they are entitled. The needed revenue can be raised from property and privilege taxes only by such rates of taxation on property as would be practically

confiscatory and by such privilege rates as would tend to prohibit many kinds of business, unless conducted by monopolies or through combinations with an assured profit through the medium of high prices to consumers. Property taxes in Alabama while less than in almost any other state, are relatively as high as they should be at present, and, in our opinion, some new sources of revenue should be sought.

It seems to be the almost unanimous opinion of tax students that an income tax with graduated rates best meets at this time the growing needs of government. Such a tax is now being collected in more than half of the states in the Union and the number of such states increases each year. We, therefore, recommend the submission of a constitutional amendment permitting the levy of an income tax with graduated rates. Such a tax would be paid principally,--not by owners of tangible property, but by business concerns whose profits exceed a reasonable return on property investment, by owners of investment securities not now reached by our tax laws, and by salaried and professional men who do not now contribute a fair proportion to the expense of the government.

Pending the adoption of a constitutional amendment as above recommended, we suggest for your consideration the wisdom of an income tax law conforming to the decision of our Supreme Court. Such a law could be enacted with a total uniform rate on all incomes of one dollar and seventy cents on each one hundred dollars of income. Of this rate one dollar and five cents would be apportioned to the counties of the State and sixty-five cents to the State.

If all incomes in excess of five hundred dollars received by single men and one thousand dollars received by married men were subject to tax, we estimate that a law such as is here suggested for your consideration would yield a net revenue of not less than six hundred thousand dollars annually, of which the State would receive approximately two hundred and twentyfive thousand dollars and the counties approximately three hundred and seventy-five thousand dollars.

The objection that the counties would receive too large a share of the total collected could be met by an amendment to the franchise tax law making the entire amount of tax collected from that tax available for State purposes instead of distributing one-third of the amount to the counties as at present.

In the rate of $1.70 on each $1,000.00 of income suggested above, no consideration has been given to the right of the counties of the State to levy special school district taxes. It is possible that under the authority of counties to levy these special school district taxes, the rate could be increased by thirty cents on each $100.00 in those counties which had adopted a special tax for the county, and by still another thirty cents on the incomes of residents of special districts established as provided by law. We doubt, however, if any attempt should be made to increase the rate by reason of special school district taxes, because the entire additional tax received would belong to the county, could not be fairly equalized by the change in the franchise law suggested, and would add materially to the cost and difficulty of administering the law.

Statement showing receipts from the several counties of the State and also the amounts returned to the several counties by the State Treasurer.