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FOURTH SESSION

WEDNESDAY EVENING, AUGUST 31, 1910

CHAIRMAN, HON. WM. HODGES MANN, VIRGINIA

PROGRAM

1. RAILROAD TAXATION PROBLEMS.

Robert H. Shields, Member Michigan State Board of
Assessors, Houghton, Mich.

2. DISCUSSION OF RAILROAD TAXATION.

3. RAILROADS AS TAXPAYERS.

T. A. Polleys, Tax Commissioner, Chicago, St. Paul,
Minneapolis & Omaha Railway Company, St. Paul,
Minn.

4. DISCUSSION OF RAILROAD ASSESSMENT.

5. SOME JUDICIAL OPINIONS AGAINST DOUBLE TAXATION. Courtenay Crocker, Attorney, Boston, Mass.

6. TAX LEGISLATION OF 1910.

Clement F. Robinson, Attorney, Portland, Me.

7. DISCUSSION.

RAILROAD TAXATION PROBLEMS

BY ROBERT H. SHIELDS

Member Michigan State Board of Assessors, Houghton, Mich.

To one who has had to do with the practical side of life rather than with the theoretical, who has been educated in the slow school of experience rather than in the university whose curriculum includes the science of political economy, it is no small task to prepare in form and verbiage appropriate to so august a body as the International Tax Association an essay on a theme so pregnant with theories as "Railroad Taxation Problems." And so my subject might well be "Experience vs. Theory." Because of individual selfishness there exists, and probably always will exist, great inequality in the taxation of railroads, as in other property, and any theory tending to ameliorate this condition ought to receive the closest study and attention from those interested in this great problem.

Speaking from experience, I would say that of all the theories advanced for the equitable taxation of railroads, at least those that have come under my observation, not one in its universal application supplies a satisfactory remedy. Experience teaches me that no single theory, no hard and fast rule may be applied to all railroads alike and produce equitable results in taxation.

The lack of uniformity of method in the taxation of railroads in the different States furnishes one of the great railroad taxation problems of the day; and if some method could be devised and applied whereby all railroads, and especially interstate railroads, could be taxed upon the same general basis, one of the great railroad problems would be solved; but no theory should be arbitrarily employed without first considering the equity of the results which follow it.

A casual study of the revenue laws of the various States of the Union reveals a wide divergence both in taxation principles and in their application, resulting in a corresponding difference in tax burdens that is well-nigh startling. For instance, the resultant tax on railroad property varies from $148 per mile in Indian Territory to $1936 per mile in New Jersey (1908), the average tax per mile for all States being $382, with only ten States approaching even approximately the average, the rate for Michigan being $396. This wide divergency in results cannot be entirely explained away by any theory of value; it is the inevitable result of the application of different theories, or methods, of taxation by the taxing bodies in the different States, and calls for a remedy.

Given a body of twelve hundred or fifteen hundred local assessing officers, each in his district valuing different parts of the railway property of the State, and the result will be inharmonious and inequitable. And yet in as great a measure this situation is produced to-day through the lack of anything even approaching uniformity of methods employed by the taxing bodies of the different States. And the results attained force the conclusion upon the investigator that the question of method is one of the most complex connected with the matter of railroad taxation. It also furnishes convincing proof that certain forms of specific taxation are employed because of their simplicity of administration rather than because of the equity of the results obtained.

Whatever the first impression, analysis will show that the diversities in the various systems employed in the different States are not altogether accidental or without reason, but they arise from the diversities in the general theory of taxation and from the peculiar problems which surround the whole subject of railroad taxation.

My own State, Michigan, has had much experience in the taxation of railroads. It was some twelve or thirteen years ago that Hazen S. Pingree, then Governor, first warned the people of the great danger threatened by powerful private corporations, and he was the first to awake to the great inequalities in railroad taxation and to initiate steps for reform. At that time, railroad influence controlled the politics of the State, and railroad prop

erty did not pay its fair proportion of the taxes. To-day all this has changed. The railroads of Michigan are not only out of politics, but are paying, under the system now in vogue, fully as much if, indeed, not more, taxes in proportion to their value than any other class of property.

In Michigan all property is now assessed under the ad valorem system. By this is meant assessment according to the actual value of the property, and does not apply to the physical value of the property alone. In regard to railroads, it includes all their property, real or personal, used in carrying on their business. It includes the right of way, roadbed, stations, cars, rolling stock, tracks, and all franchises; although the franchises are not directly assessed, but are taken into consideration in determining the value of the property.

For the purpose of arriving at the amount and character and true cash value of railroad property, the State Board of Assessors may personally inspect the property belonging to the company, and may also take into consideration the reports filed with that board or the reports and returns of those companies filed in the office of any officer of the State, and such other evidence or information as may be obtainable or be possessed by that board bearing thereon. In other words, the board may avail itself of all the information it may obtain from any reliable source.

Previous to the adoption of the present system, the railroads paid a specific tax. The principal objection to this system was the inequalities produced in the relative amount of taxes paid by the different railroad companies. The plan provided for a certain per cent of the gross earnings per mile, and was graduated. It may have been largely the fault of the graduation, but the fact remains that the tax was not an equitable one, and the system was abolished.

Many theories were submitted to the State Board of Assessors, every one of them having strong advocates; but we found no single theory adapted to an equitable assessment of all the railroads.

Take the theory of net earnings as a basis of taxation. We no sooner began its application than we found a railroad that had no net earnings, and this theory in this particular instance had to be abandoned forthwith. The utter lack of uniformity of

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