will now hear from Mr. John Edgerton, executive assistant to the state board of equalization, formerly secretary of the state tax and license commission.

JOHN EDGERTON OF MONTANA: I am a little surprised at the statement of our honorable chairman here, that we have undertaken to tax postal savings deposits. I think the judge has in mind some other state. We do not do it. I am here a good deal like Professor Phillips. It has been a process of elimination.

MONTANA PROBLEMS

JOHN EDGERTON

Executive Assistant, State Board of Equalization of Montana, former Secretary, Special Tax and License Commission

Montana became a state in 1889. The Constitution, as then adopted and since amended, is still the supreme law. It defines property and requires that it shall be taxed by valuation, but authorizes its classification for the purpose of taxation.

A uniform rate of assessment by valuation, has always been and still is, laid upon all taxable property. The taxes must be uniform upon the same class of subjects, within the territorial limits of the authority levying the tax. Neither a specific tax, nor a tax upon gross earnings, nor the taxing of intangibles at a flat rate in lieu of property taxes based upon an assessment by valuation, is permitted. Authority is given the legislature to impose a license tax upon persons and corporations doing business in the state.

Besides the usual exemptions of public property and property actually used for religious worship and for purely charitable purposes, the constitution exempts all mines and mineral deposits themselves, from taxation and provides that in lieu thereof, the annual net proceeds from mines and mining claims shall be taxed as provided by law. Mining claims are taxed at the price paid the United States therefor but if the surface ground has a separate and independent value for other purposes and is so used, it is taxable at its value for such pur

poses. All improvements, machinery, etc., on mining claims, are also assessed and taxed.

The Constitution originally provided for a state board of equalization but for twenty-seven years the Constitution so limited and restricted the board's power of supervision, review and equalization, that but little could be accomplished. The following amendment to Section 15 of Article XII, was adopted by the people in 1916:

"The board of county commissioners of each county shall constitute a county board of equalization and the governor, secretary of state, state treasurer, state auditor and attorney general shall constitute a state board of equalization. The duty of the county board of equalization shall be to adjust and equalize the valuation of taxable property within their respective counties and all such adjustments and equalization may be supervised, reviewed, changed, increased or decreased by the state board of equalization. The state board of equalization may adjust and equalize the valuation of taxable property among the several counties and the different classes of taxable property in the same and in the several counties and between individual taxpayers; supervise and review the acts of county assessors and county boards of equalization; change, increase or decrease valuations made by county assessors or equalized by county boards of equalization and has such authority and may do all things necessary to secure a fair, just and equitable valuation of taxable property among the counties and between the different classes of property and individuals."

In February, 1919, the legislature made it the duty of the state board of equalization to enforce all of the powers granted in this amendment. Now that board not only may, but it must supervise, review, adjust and equalize assessments, so that taxes for the maintenance of the state and its subdivisions, .shall be uniform upon the same class of subjects in each. The wisdom of this mandate is unquestioned. The benefits therefrom cannot yet be estimated but at least they will be satisfactory.

While it shall be my purpose to discuss the Montana situation, the remedies already applied and those yet to be suggested, reference will be made to only the most discussed problem. This is the exemption of the mines from taxation and the lieu tax on net proceeds. Net proceeds are determined by deducting the cost of mining, transportation and reduction, from the gross yield and are taxed as personal property. The

contributions under this law, that have been made to the revenues of the state itself, while considerable and important, necessarily have varied widely from year to year and yet have not relatively affected the total that has been required for its maintenance and support.

Thus limited as it is, by law and locality, the revenue from net proceeds has been confined almost exclusively to Silver Bow county, or to the Butte District. Had the Butte mines ceased profitable production at any time, the loss in revenue from net proceeds, would not so much have disturbed the state's revenue as the revenues of Silver Bow county. The tax system ultimately to be adopted in Montana, should admit of no abuses arising in a subdivision, because that subdivision depends largely upon such a source of revenue, rather than upon the revenue derived from those sources that are common to all subdivisions throughout the state.

The issue of net proceeds has excluded other important questions and become the "storm center", when taxation has been considered. Every such discussion, because of differences of opinion, has resolved itself into two contentions. One side, without substantial data, has charged that the mining industry did not pay its share of the taxes and the other side, equally without conclusive data, has maintained that it paid more than its share of taxes. This division of opinion is not altogether confined to the net proceeds controversy. stockmen, farmers, bankers, public utilities, merchants and other interests, have each entered the lists at times and maintained, as against all of the others, that their respective class has paid more than its proportion of the taxes. Possibly such an experience is not a Montana monopoly.

The adjustment of these controversial discussions of the past and those apparent for the future, will not be long delayed. Montana has come from the night that covered the administration of its revenue laws. Complete and comparable statistics relating to the true value, the productivity, the assessment and the revenue from all classes of taxable property in Montana will be assembled, correlated and interpreted before the legislative session of 1921. By that time, the state board of equalization, vitalized as it now is by every possible

delegation and mandate of constitutional and statutory authority, will have completed this task. Animated by their love of the square deal, guided by the wisdom, laws and experience of other states, and with more complete information of their own affairs, the people of Montana will settle the questions referred to, and when they are settled they will be settled right and equitably. Further amendments to the Constitution may be found expedient. But as has been intimated, every advance or change must be based upon facts that as yet remain to be ascertained and tested.

Following its realization of statehood, and acting under the optional authority granted by the new Constitution, Montana adopted the general property tax and continued thereunder for twenty-nine years. Last February it repudiated this wornout system and adopted a classified property tax. Nothing was said in defense or commendation of the old system. The tenure of the general property tax had simply exposed the usual accumulation of injustices and inequalities.

However, when the general property tax was adopted, it served the people well. Montana was then an undeveloped frontier, greater in expanse, by nine thousand square miles, than the combined areas of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Delaware and Maryland. There were sixteen counties then. Today there are fifty. Seven new counties have already been created in 1919. The agricultural area and the products therefrom, the livestock and livestock products, the lumber, the production of mineral wealth and the development of water power and other natural resources, now exceed in aggregate volume and value, the volume and value of corresponding industries in all of the states named.

When Montana became a state, its taxable property was valued at $113,000,000. This was in real estate and improvements, livestock and other tangible personal property. All of this was accessible, though perhaps not readily so, to the inspection, count and valuation of the sixteen county assessors. At that time the assessors in two counties not only assessed all the property in an area as large as the states of Vermont, New Hampshire and Massachusetts combined, but in addition, each of these assessors wrote his own tax rolls.

The development of the natural resources of the state followed. New classes of property came into existence. Invisible and intangible personal property of an immense aggregate value, could not be discovered by the assessors. This development of the state and the collapse of the general property tax, varied inversely as their progress and retrogression.

Let the truth be told for its own sake. For years preceding 1919, taxes shifted more and more each year to land and improvements, to city real estate and to other tangible property. Without any centralized supervision, review or equalization, as flagrant inequalities and injustices came to exist in Montana as any American commonwealth ever permitted for so long a period. Yet, standing as it did in the light of its own development, with the tax rate exceeding the interest on government bonds, Montana's growth has been tremendous. Today it points with pride to its achievements, to achievements realized in spite of the general property tax. Having set up instead a more modern and a better system, Montana looks towards a future for which its past holds no criterion. The rejection of the general property tax and the substitution of a classified property tax, will long stand unsurpassed in Montana's constructive legislation.

Years ago, Montana's tax system had broken down and tax inequalities were progressively becoming greater. Legislature after legislature "sensed" this but each moved along lines of least resistance, the remedy becoming a legacy that was bequeathed to the succeeding legislature. So imperative did a reform finally become, that the legislature of 1913 was forced to act. It passed a law creating a tax commission consisting of the Governor, the Attorney General, the Secretary of State, the State Treasurer, the State Auditor and one other member, to be known as the State Tax Commissioner. In spite of the hope of the legislature and the excellent personnel of the commission, nothing could prevail against or overcome the iniquities of the general property tax, entirely administered as it was, by underpaid county assessors. No central authority could supervise, review and equalize such assessments as between counties, classes of property or individuals. The next legislature (1915) abolished that commission.