THE INCREASING IMPORTANCE OF SPECIAL TAXES

GEORGE VAUGHAN

Special Counsel in Tax Matters for State of Arkansas

PRESENTED AT THE SEVENTEENTH NATIONAL TAX CONFERENCE

HELD AT ST. LOUIS, MO., SEPTEMBER 15-19, 1924

NATIONAL TAX ASSOCIATION

OFFICE OF SECRETARY

195 BROADWAY, NEW YORK CITY

the impetus given to industrial development by the adoption of the corporate form of business organization, a natural quest arose for the most effective machine to reach this new kind of property, which to such a marked degree was intangible and invisible.

Special taxes had already been devised for banking and insurance companies, the earliest development being in New Jersey in 1910, with a law requiring the president of specified banks to pay into the state treasury one-half of one per cent on the paid-up capital stock.

THE HUMBLE POLL TAX

The obnoxious poll tax centuries ago had been the cause of Wat Tyler's Rebellion, and since 1698 has been unknown on British soil; yet we find it retained as a persistent though inconspicuous revenue feature in forty-three of the American states. There has been a distinct trend, however, to allocate or identify it with the suffrage right, so that in point of practice the $1 poll tax has come to be regarded by many as the price of the sovereign right to vote!

TAXES BASED ON GROSS RECEIPTS

In 1862, Iowa adopted a tax on gross receipts of railroads; and the New York Corporation Tax Law of 1880 was a further departure from the old inflexible system. The New Jersey act of 1830 imposed a tax based upon the number of passengers and tonnage of freight transported, which was changed in 1849 to a tax at a fixed percentage of the cost of all roads having a net income of six per cent or more. The United States Supreme Court sustained the Minnesota tax on gross receipts of foreign express companies.1 A conspicuous example of a special tax is that of 7% of its gross income imposed on the Illinois Central Railroad, by the Act of 1851. Under this law, the company pays semi-annually to the State of Illinois, in lieu of property taxes, an amount ranging from $1,000,000 to $1,500,000 a year.

In Pennsylvania the special tax on capital stock yielded, all told, in 1909 nearly $10,000,000, probably then the most productive single tax levied in any of the states, but surpassed by its 1922 performance of $20,493,882.

THE ULTRA MODERN GASOLINE TAX

The tax of four cents per gallon on gasoline, together with the schedule of license fees imposed in Arkansas by the Harrelson Highway Act,2 has yielded during the first year of its operation

1 State v. U. S. Express Co., 114 Minn. 346; 131 N. W. 489; aff'd in 223 U.S. 335.

2 Approved Oct. 10, 1923; Special Acts, 1923, p. 11.

franchises, gasoline or consumption taxes and taxes on receipts from production or severance taxes.

But the census report groups separately "poll taxes" and "business taxes," the latter being defined as taxes upon business and business activities exacted from persons, natural or corporate, (1) in proportion to the volume of their business, (2) by reason of the business in which they are engaged, or (3) by reason of some activity which constitutes a part of their business."

Additional major sources of revenue are combined under the head "non-business and license taxes," and described as taxes, other than upon businesses, that are exacted primarily for the purpose of regulation and are collected in connection with the issue of so-called licenses or permits," with reference to measurable or assumed benefits conferred upon the licensees. Representative of this class are dog licenses, marriage licenses, building permits, motor vehicle licenses, etc., not to suggest, let us hope, a necessarily progressive series or a natural sequence, in which these ultra-modern "satisfactions" are normally demanded-dogs, wedding-bells, bungalows and limousines.

The final classification of the census bureau is "special assessments" and " and "special charges for outlay," the former being described as compulsory contributions levied under the taxing or police power, to defray the costs of special public improvements or public services undertaken primarily in the interest of the public."

It is explained that special assessments differ from general property taxes in that they are apportioned according to assumed benefits to the property specially affected by the improvement, or assumed benefits to individuals or corporations by reason of the special service performed.

In this paper, however, the terminology of the census bureau will not be followed to its ultimate refinements; but the term "special taxes" is used herein in a broader sense, and as comprehending all levies other than those imposed ad valorem, on property in general. It will, for the purpose of the comparative analysis proposed by this discussion, explicitly include taxes for local improvements, which confessedly are technically "special assessments," and not taxes at all.

GENERAL TAXES FOUND INADEQUATE

The general property tax originated and found its most suitable application in an agricultural stage of economic growth, when the mass of property was tangible and but slightly differentiated. Until within the last fifty years the general property tax was nearly everywhere preeminently the source of all public funds. But beginning about the middle of the nineteenth century, with