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the operation of the investment tax law, the state received $1,262,000. For the corresponding five months in the second year, after the Cohalan decision, the revenue was $730,000, a falling off of $532,000. Other minor causes may have and probably did contribute to that result, but if so, they would account for but a minor fraction of the reduction—a very minor fraction indeed.

Surrogate Cohalan states in his opinion, if I interpret it correctly, as the two main reasons for holding the five per cent penalty provision to be unconstitutional, the following:

One: That the transfer tax is a tax on the right of succession, not on property; that the transfer takes place at the moment of death; that the rights of the transferee, which are taxed by the transfer tax law, accrue at the moment of death; that this penalty provision varies the rate of tax imposed, depending upon whether the decedent, in his lifetime, paid taxes on his personal property, or had investment stamps affixed to his securities; and that such a provision constitutes a discrimination, not a classification of property, and is repugnant to the constitution, in that it deprives of their property, without due process of law, those individuals who succeed to possession and title.

Two: That the penalty section (221b of the tax law) offends the constitution, because it exempts from the imposition of the penalty, investments held by a decedent actually engaged in the business of purchasing and selling investments at the time of his death, if such investments be held by him for the purposes of his business for a period no longer than eight

months.

The learned surrogate says that inasmuch as a class of property known as investments has been established, the tax and the penalty thereon must be imposed alike upon all property belonging to that class, irrespective of the vocation of the person who may be the owner or holder thereof, and that any discrimination between owners or holders, respecting that class of property, violates the constitution and renders the statute invalid.

An appeal was taken from the surrogate's decision and the appellate division of the supreme court unanimously sustained

him. The comptroller then carried the case to the court of appeals, and within the last month, that court, by a decision of four to three, reversed the lower courts and held the act to be constitutional. I shall not burden you with the technical legal reasons which are stated in the opinion. That is published in our official reports and may be read by anyone interested therein. (See In re Watson's Estate, 226 N. Y. 384.)

The story of our investment tax seems nearing its end. It is quite clear that the legislature, by enacting the personal income tax law, intended to abolish, as it were, the permissive tax on intangibles. Whether it has succeeded in doing so remains an open question. Of course, inasmuch as the investment tax is and always has been a permissive one, there is no obligation on the part of the owner of an investment to pay the tax. Nevertheless, as I have said, two penalties for the failure to pay the investment tax are provided. First, if the owner of the investment fails to pay the tax, he may be assessed in respect thereof, on the assessment-roll of his tax district, without being permitted to deduct just debts. Second, if he fails to pay the investment tax or a personal property tax in respect of such investments, he will, at death, be charged with an extra inheritance tax of five per cent of the appraised value of the investments.

Since the enactment of the income tax law, the court of appeals has held the additional inheritance tax provision to be constitutional, as above noted. In the meantime the legis lature has said, in section 352 of the income tax law, that after July 31, 1919, the assessors of a tax district shall not include in the valuation of personal property any assessment on account of

"money on hand, on deposit or at interest, bonds, notes and choses in action and shares of stock in corporations other than banks and banking associations, owned by any individual or constituting a part of a trust or estate subject to the income tax."

It will be immediately observed that this provision autmatically eliminates one of the penalties prescribed for the failure to pay the investment tax; that is, the assessment of the individual on account thereof, without permission to deduct just debts.

Furthermore, the new law has a direct effect on the other penalty provision-the one imposing an additional inheritance. tax of five per cent. As has been seen, that additional tax is imposed if the decedent did not, during his lifetime, pay (a) the investment tax or (b) a personal property tax. How can one pay a personal property tax if the assessors cannot place upon the assessment-rolls a personal property assessment, on account of intangibles.

A cold analysis of the law leads to the inevitable conclusion that the investment tax stands and that individuals will refrain, at their peril, from paying the investment tax on and after August 1, 1919. I say "at their peril" because it seems, that in such case if they fail to do so and die thereafter, holding securities upon which the investment tax, the old secured debt tax, or a personal property tax, has not been paid, for a term including the date of death, an additional inheritance tax of five per cent will be imposed. That being true, the question then arises-Is interest income from investments upon which the investment tax shall be paid since May 14, 1919, taxable under the personal income tax law? The answer to that question appears to be in the affirmative because the legislature in defining income, not included in gross income, uses the language

"investments upon which the tax provided for in section three hundred and thirty-one of this chapter has heretofore been paid since June first, nineteen hundred and seventeen, during the period of years for which such tax shall have been paid."

The word "heretofore" is the stumbling block. It seems that, if the investment tax was paid since May 14, 1919 (the date of the enactment of the income tax law), the interest income on such investments is nevertheless taxable against the recipient. I mention these matters merely to indicate the predicament in which we find ourselves. Quite likely we shall ask the legislature, at its next session, to repeal the provision of law imposing the additional five per cent inheritance tax, or if not, at least to eliminate from the individual income tax act the word "heretofore", when used in the clause which I have quoted.

CHAIRMAN THOMAS: The two topics that have just been covered, are somewhat related to each other and the matter will now be thrown open for general discussion. I understand that the state of North Dakota has had a tremendous increase in the assessment of intangibles, possibly one thousand per cent. If there are any members of the commission of that state or a representative here, we should be very glad to hear from them concerning the operation of their new tax law in North Dakota.

H. H. STEELE OF NORTH DAKOTA: The increase in the assessment of money and credits in North Dakota for the year 1918 is due to legislation providing for a new money and credits law, and to the activities of the North Dakota Tax Commission. In 1911 the legislature of North Dakota passed an act providing for a permanent non-partisan tax commission. This act was copied largely from the tax commission laws of Minnesota and Wisconsin. Among the activities of the tax commission was that of urging the passage of a money and credits law which would tax moneys and credits at a flat rate, in lieu of the general property tax then assessed. A law was passed by the legislative assembly of 1915, but by reason of imperfection the supreme court declared it unconstitutional.

In 1917 a new money and credits act was passed, which was copied largely from the Minnesota statute, which had previously been construed by the Minnesota courts and held valid. This law went into effect on the first day of July, 1917, but under a ruling of the attorney general, the first assessment that could be made, was for the year 1918. In 1914, under the general property tax law, the assessed value of money and credits was one and a quarter millions. In 1918 the tax commission began the administration of the new law. Professor Carl Plehn of California, in a letter to the commission stated, among other things, that "A fairly good law well administered is better than an excellent law poorly administered", and the North Dakota Tax Commission went ahead with the administration of the money and credits law on that theory. We started out by instructing assessors to make a special effort to secure a full listing of money and credits. A member of the tax commission visited

many counties in the state at the time of the annual gathering of local assessors in the county, and instructed the assessors to make a special effort to uncover intangible property and secure a fair assessment thereof. After the assessors had made their returns, we found many tax districts which had not returned any, or but a small amount of moneys and credits; a re-assessment of these tax districts was ordered. In many instances the same assessor, in a re-assessment of this class of property, secured large amounts of intangible property. Later, a field agent of the tax commission was sent out over the state to make investigations as to intangible property which had escaped assessment. The most fertile field was found in the larger cities and more densely settled communities. The field agent made extensive inquiries as to holdings of individual property owners and, upon such investigation, reported the names of hundreds of persons who had made no returns upon intangible property, or had made returns in smaller amount than was owed. Upon receipt of this list by the tax commission, a notice was sent to each party so reported, that we were recommending an assessment against him on money and credits, naming the amount of such assessment. We played sharp practice, to some extent. If the field agent found a man credited with having $25,000 or $50,000 in money and credits we proceeded to notify him. that the tax commission proposed to put him on the tax list for an amount which was fifty or one hundred per cent more than we thought he had. Such notice stated that if he had any objections to this assessment he could appear before a member of the tax commission, at the courthouse in his county, at a certain date and hour. Those, of course, who were notified of our intention to put them on the tax list for more than they had, promptly attended the hearing and denied that they had so much. They were put under oath and examined by the member of the tax commission. The statute gives our tax commissioners the right to put taxpayers under oath and take testimony in connection with their taxable property. This provision of the statute was exercised in most of the counties of the state and the results were favorable. In one city one hundred and sixty taxpayers were heard in two

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