suspicion of putting that net loss provision in the statute if they had assumed or supposed that anybody who sold goods at a little more than he paid for them, would come in and ask to be permitted to put them in at a low figure. I think they would have been asked to get out of the committee room if they made such a request.

E. C. TOURJE OF ILLINOIS: Closely allied to the question asked before, relative to the publishing lists, here is another question, relative to taxation under sections 327 and 328 of the profits act, in respect to which I would like to ask a question. That is, whether it is possible at this time or within the relatively near future, to call in the returns which have been filed in order that the claims filed under those sections may have an early determination, and I ask that question for this reason. All the cases which have come to my attention in which returns have been filed under those sections, are cases in which the tax, I believe, that will ultimately be assessed, is far less than the initial deposit as required under those sections, namely, fifty per cent of the profits as excess profits, and the balance subjected to the income tax. Owing to the fact, as I understand, that those returns have not been called into Washington, and that none have yet reached a determination, those concerns which are falling under those sections, are in my judgment, being handicapped because a large amount of their capital and earnings are being tied up in the payment of taxes greatly in excess of the amount that they will ultimately be assessed. For this reason I ask if there is any reasonable probability or possibility of having those returns called in in order that the assessments may be made as speedily as possible.

CHAIRMAN MONTGOMERY: I think you have gone to the right place.

MR. ADAMS: I think that ought to be done and will in the natural course of events be done. Speaking unofficially, I think it might be appropriate for this body to urge speed in the adjustment of claims in which there is delay, and also in the early settlement of those cases the reasons for the early settle

ment of which have been fairly and moderately stated by the preceding speaker.

CHAIRMAN MONTGOMERY: I think that might be referred to the committee.

MR. TOURJE: If I may add a word to that, Mr. Chairman, it arises out of the fact that in the last few years a large number of concerns, which formerly were classified as professional concerns, have become commercialized to an extent which removes them from the class of personal service corporations and puts them in the invested capital class. The average capital employed in the business is relatively unimportant and for that reason the tax is relatively small, and the inability of the concerns falling under those sections, to secure at this time an early adjustment under those sections makes it, it seems to me, a big hardship upon them, a hardship possibly which is not experienced by those who fall purely under the invested capital theory.

J. L. SAYLER OF ILLINOIS: There is one feature in the committee's report I want to endorse and that is the giving of power to the commission which passes on these questions of relief, greater authority and greater power in a case of this kind. Take a corporation that has been organized and existing for a number of years, where there has been no consolidation and no opportunity for placing on the books any account for good will but where, in addition to that, they are turning out an unusually high grade product, earning a high rate on their capitalization. The tax placed on them is much greater than in other cases where the companies in the last fifteen or twenty years have either merged or consolidated or for other reasons have put this good will on their books. I think in future legislation consideration should be given to that class of corporations, like the English practice and the Canadian practice, by allowing a greater consideration for concerns of that kind which desire to make correct return so that they may be given consideration such as the committee here has suggested.

CHAIRMAN MONTGOMERY: I just want to make one statement

for the record. I think the government should be relieved of any criticism as to the requirement of fiscal year bases. The privilege of reporting on the fiscal year basis was asked for by corporations, by partnerships and individuals and was pressed by a very large number of them for a long period of years and it was only after long continued request of the lawmaking authorities that that privilege was granted. As it was a request of the taxpayers themselves, I think it would be a mistake to allow the criticism to go forth as if it were a requirement emanating purely from the government.

The reading and consideration of the paper of Mr. Tanzer has been postponed until tomorrow morning at 10 o'clock.

[Further discussion of income taxes will be found in the record of the next session.-SECRETARY.]

[Adjournment of the Session.]

SEVENTH SESSION, THURSDAY MORNING, JUNE 19, 1919

PERMANENT CHAIRMAN ARMSON: Gentlemen, while each of the six sessions that have been held during the past two days, has been both interesting and instructive, I believe I can safely predict that the session scheduled for this morning will be the most interesting and the most instructive session of the entire conference. This morning we are going to consider a model system of state and local taxation, a thing that students of taxation have been looking for almost since the dawn of civilization. I am going to call to the chair to preside over the session a distinguished and well known student of taxation, Professor Carl C. Plehn of California, and I now have the pleasure of introducing Professor Plehn, chairman of the session.

CHAIRMAN PLEHN: I highly appreciate the honor of presiding at this session. I understand that a very important paper was left over until this morning. Everybody in the country

is interested I know, in the turn of New York to the state income tax, and we shall be extremely interested to hear from Mr. Tanzer of New York on State Income Taxation, with Special Reference to the New York Income Tax,-Mr. Tanzer.

L. A. TANZER OF NEW YORK: Mr. Chairman and gentlemen of the association, the topic assigned to me is state income taxation with special reference to the New York income tax law. It seemed to me that rather than indulge in any general theoretical discussion of the subject of income taxation, I could render you a more useful service by giving briefly a summary of just what it is and what the state of New York is undertaking at this time to do with respect to the income tax. You will be interested to know that representatives of the National Tax Association met with the legislative committee. I am not speaking of the general consideration that no important step of this kind can safely be taken without taking into account the progress in the art of taxation-I won't venture to call it an exact science-but of the progress of the art of taxation as represented by the deliberations of this association. I refer more specifically to the men who assisted the committee in framing the law, Professor Bullock, president of this association and Professor Seligman one of its ex-presidents. I think may also safely claim Dr. Adams as one of the authors of the law in this sense that while Dr. Adams' arduous duties with the federal government prevented the committee from calling on him at this junction, he was one of the experts for the Mills Committee of the New York legislature which reported in 1916 in favor of an income tax and actually prepared a bill. The report of that committee was in large part the foundation of the labors of the Davenport committee, which drew the bill that has now been enacted.

I

25

STATE INCOME TAXATION, WITH SPECIAL REFERENCE TO THE NEW YORK INCOME TAX LAW

LAURENCE ARNOLD TANZER

New York is one of the first states to adopt a general individual income tax law since the federal income tax has come into being. The bill was prepared and introduced by a committee of the legislature. The problems before that committee and its solutions of them, may be of interest to other states contemplating an income tax.

The first question naturally was whether the enactment of a state income tax was desirable. Additional revenue was needed. The enlarged functions of state and city governments, the extraordinary expenses occasioned by the war, and the increased cost of everything, were accompanied by a prospective decrease in revenues from the loss of excise moneys. As a means of raising the necessary funds, the income tax had in its favor its simplicity, its universality and equity, its productiveness and the familiarity resulting from experience with the federal income tax. The general personal property tax had been proven a failure and no other source of revenue was suggested which would yield the large amount required to meet state and local needs.

Doubts were felt as to the advisability of imposing a state income tax in addition to the existing high rates of federal income tax. The objection was, upon analysis, found to apply to the imposition of any additional burdens. But notwithstanding the heavy load of tax burdens resulting from war conditions, the needs of the state and of the localities must be met; and if there must be additional taxes, an additional income tax seemed to afford no more of a grievance than additional taxes of other kinds, perhaps more burdensome and less productive. On the contrary, those who had become accustomed to paying a federal income tax could, it was thought, be brought to pay an addition thereto at a low rate with less hardship than would be occasioned by the addition of one or more taxes of a new and different kind.

It was thought desirable to avoid an unnecessary multi