STATE TAX LEGISLATION IN 1918 C. C. WILLIAMSON, PH.D. The legislatures of twenty-one states have held regular or special sessions, or both, during the year. The unusual number of special sessions were required by emergencies growing out of war problems. Apparently in no case did a special session take up important problems of taxation and finance. And for that matter, little tax legislation of especial importance was undertaken by the eleven states which met in regular session. A few noteworthy acts are to be pointed out, but for the most part the numerous enactments are concerned with removing defects which have appeared in recent statutes. It is apparent that something which may be called a system of state and local taxation is gradually emerging from the chaos that has existed for several decades. One of the principal influences in bringing about some degree of uniformity and interstate comity has been the work of the National Tax Association. This year the tendencies which have been manifest in the tax legislation of the more progressive states, have been crystallized in the report of the Association's committee on a model tax law.1 This code, when it is later elaborated and discussed, is likely to have a very marked influence in promoting uniformity and efficiency in state tax systems. Probably in no state has a more intelligent and drastic program of financial legislation been put through than in New Jersey. Under the guidance of the Commission for the Survey of Municipal Financing of New Jersey, at least a dozen acts were passed as a part of a comprehensive plan which was aimed to bring the entire fiscal program of municipalities and counties under uniform statutes without regard to their size or class, to improve budget procedure and debt administration, and complete the system of state supervision and control of municipal and county finances. The commission which was 1 Preliminary report of the Committee appointed by the National Tax Association to prepare a plan of a model system of state and local taxation. September, 1918, 45 pp. originally created in 1916 has been continued for the third time (Joint Res. No. 2). PROPERTY TAX The New Jersey acts, just referred to, thoroughly revised and codified the general property tax law (ch. 236) without materially changing its policy. The main purpose of a series of acts was to rearrange the dates for assessment, levy and collection of taxes so as to establish two collection periods and bring to hand local revenues at the time they are needed, as well as to bring in all collections before the close of the fiscal year.2 In two states the matter of situs of personal property has been the subject of new legislation. The Massachusetts law was amended (ch. 129) so as to tax all tangible personal property, except ships, where located, instead of at the residence of the owner. This change, it may be noted, follows the recommendations of the National Tax Association's committee on a model system of state and local taxation (p. 19). In Texas a provision has been added (ch. 40) to require moneys and securities, deposited according to law with a state officer, to be taxed in the county in which the owner resides or has a domicile. Domicile for purposes of taxing personal property was also defined in Virginia (ch. 369). Bills introduced in New York to tax tangible personal property where located, were abandoned. CORPORATION TAXES Several amendments (chs. 236, 239, 240 and 284) to the New Jersey laws taxing the property and franchises of railways, canals and other public service corporations merely changed the date of filing returns, and the date of assessment and payment of taxes to conform to the new system referred to above. By a new act (ch. 148) additional taxes are imposed on the gross receipts upon which franchise taxes are 2 See "Analysis of the laws affecting municipal and county finances and taxation," by A. N. Pierson. Published by the Commission for the Survey of Municipal Financing of New Jersey. Trenton, October, 1918, 124 pp. already levied on street railways, traction, gas, electric light, heat and power corporations, at the average rate of taxation. in the state. This new tax is in lieu of all state, county, school and local taxation of personal property of the corporations. Four separate acts (chs. 271, 276, 292 and 417) were passed, amending the New York tax on net income of manufacturing and mercantile corporations. By a new definition of personal property, an attempt is made to clear up doubt and controversy as to what machinery is to be classified as personal property and exempted from the local personal property tax. A number of corporations, chiefly mercantile, not included originally, are brought under the provisions of the act. A minimum tax of $10 and not less than one mill on each dollar of capital stock employed in the state, is provided in case the 3 per cent tax on net income does not equal 1/10 of 1 per cent of the capital stock. Another amendment gives the state tax commission authority to determine the taxable income instead of levying the tax on the return made for the federal income tax without opportunity for correction of fraud or error. A temporary emergency tax of 1 per cent of the net income of foreign and domestic corporations, as reported for federal income taxes, is levied in Massachusetts (chs. 253 and 255). This tax, as provided in the acts, is operative for the current year only. The revenue is to be used for the general purposes of the commonwealth. Additional taxes were levied by the Virginia legislature (ch. 409) on various kinds of public service corporations in the year 1919 and thereafter. In most cases the tax is on gross receipts, though for certain corporations a mileage tax is added or substituted. Too much space would be required to give here all details as to the different rates. A number of minor changes in the corporation taxes were made by other Massachusetts acts. The excise tax of 1/100 of 1 per cent of the par value of authorized capital stock in excess of $10,000,000 was repealed (ch. 76). Machinery is added to the property of telephone and telegraph companies, the value of which is to be determined by the state tax commission (ch. 138). The penalty for evading the tax on the stock of corporations was removed (ch. 43). Stock without par value is to be considered as $100 par (ch. 235). In Maryland the bonus tax on corporations has been graduated (ch. 466) and the rate fixed so as to reduce the tax on capitalization in excess of $1,000,000. The rates of the franchise tax on capital stock above $50,000 is also reduced. By the same act, domestic corporations are exempted from the tax on their securities if they do no business within the state. Fertilizer companies are relieved of the gross receipts tax (ch. 469) but must pay the graduated franchise tax on capital stock imposed on foreign corporations. A Mississippi act (ch. 466) imposes an additional bonus tax of $150 per million dollars of capital stock on authorized capital in excess of $1,000,000 to $5,000,000 and $20 additional on each million thereafter. The tax was formerly 20 cents for each $1,000 of authorized capital stock. A Virginia act (ch. 209) relieves domestic corporations which do no business in the state from income and ad valorem taxes (either state or local) on stocks, bonds, capital or other intangible property. BANK TAX Maryland has also amended the bank tax law (ch. 294) by including trust companies with banks whose stock is taxed at 1 per cent in lieu of local taxes, except in Baltimore city. The 1 per cent tax is to be paid at the place of residence of resident shareholders and where the bank is located for nonresident shareholders. A similar provision in regard to situs of shares of non-residents was made in Virginia (ch. 356). A new bank stock tax act in New Jersey (ch. 265) replaces the act of 1914, the principal object being to make dates of assessment, collection, etc., conform to the new tax plan. A tax of 3/4 of a mill is levied on the capital, surplus and undivided profits of all banks (excluding savings banks) and trust companies. One-half of the revenue goes to the county and the other half to the taxing district in which the bank is located. INCOME TAX South Carolina repealed (no. 433) its income tax law which imposed a graduated tax on incomes from property, profes sions, trades, employments and vocations. The Massachusetts law was amended (ch. 32) by removing exemptions of income of married persons in cases where the joint income of both husband and wife exceeded $1200. An exemption of $300 is to be allowed every person whose income does not exceed $600. The Virginia income-tax law was amended (ch. 219) by defining more elaborately the income liable to taxation and deductions and exemptions allowed. Administrative provisions are also changed, and local governments specifically prohibited from levying income taxes. An act passed by the Wisconsin legislature and vetoed by the governor would have levied, in addition to the existing tax on income, graduated rates of 1⁄2 of 1 per cent to 12 per cent on incomes over $15,000. It was expected to yield about $1,400,000. The Massachusetts income-tax law was amended (ch. 257, sec. 62-74) to give the tax commission authority to require employers to report not only the names and addresses of employees paid a compensation of $1800 or more, but also the exact amount. Other amendments remedy minor defects in the law. An additional tax, for one year only, is levied in Massachusetts on all incomes taxed at present (ch. 252) at a rate equal to 10 per cent of existing taxes. An income tax law passed by the lower house of the Mississippi legislature was defeated in the Senate. INHERITANCE TAX The special joint commission of Mississippi, in recommending an inheritance tax law pointed out that of the five states without an inheritance tax, four were in the south and one of them, Mississippi. The legislature followed the recommendation and passed an act (ch. 109), providing an estate tax and a graduated inheritance tax on both direct and collateral heirs. The estate of every decedent, resident or non-resident, must pay a tax of 12 of 1 per cent when the value exceeds $5,000. On transfers of any kind of property by will, in contemplation of death without adequate consideration, a graduated tax is levied. The rate for direct heirs runs from 1/2 of 1 per cent on amounts from $4,500 or $7,500 to $25,000, to 3 per cent on amounts in excess of $500,000. Other heirs must pay from 5 per cent on amounts of $500 to $25,000 to 8 per cent on amounts in excess of $1,000,000. |