PREFACE This is a study of the taxation of corporations in Illinois, other than railroads, since 1872. It considers chiefly those features of the state and local taxing methods that have been designed especially for taxing the intangible property of corporations. Detailed exposition of the taxing of corporations under the provisions of the general property tax, is not attempted; the general property tax is a large study in itself. The same policy has been followed in regard to special taxes on corporations. Railroad taxes are excluded also because they require a lengthy separate study; and any general statement in these pages, may or may not apply to railroad corporations. Eighteen hundred seventytwo is the date selected for the beginning of this study because under the new constitution adopted in 1870, the general assembly in that year enacted the general revenue law which in its main features has remained unchanged to the present. This study was made in 1909; but has been edited and revised to include changes in the revenue law and data since that time. 279859 CHAPTER I. INTRODUCTION AND BRIEF ANALYSIS OF CORPORATION TAXES IN ILLINOIS. Business organization in Illinois, as in other states, has long been predominantly that of the corporation. Every year of the last forty years, the period under examination, has seen a larger number of business enterprises adopting the methods of investment, management and liability peculiar to the corporation. Greater and greater amounts of property have been taking a more or less intangible form. Some of these forms are stocks, bonds, leases, franchises and good will. This intangible form of property defies the most assiduous efforts of the local assessor to value it properly1 under the head of real estate and personalty. This is not necessarily because of obstructions placed in his way by the corporation, as a person seeking to evade proper assessment, though too often such may be the case; but it is largely due to an inherent defect in the system of taxing on a general property valuation, namely, that the system was not devised so as to reach intangible values, (or "invisible value", as denominated by a certain prominent Chicago corporation.2) Our New England forefathers adopted the general property tax at a time when the modern business corporation was practically non-existent, when a person's ability to pay taxes could be quite accurately determined by the amount of his real estate and personal property. Both were intimately associated with his person and were in a form that could be seen and valued by the assessor. But the corporate person of to-day as a busi 1Argued by corporation that it is practically impossible to value franchise. Porter et al vs. R. R. I. & St. L. R. R. Co., 76 Ill. 561 (1875). 2Chicago Chamber of Commerce, letter to State Board of Equalization, seeking to justify its refusal to return statement of capital stock value. Proceedings State Board of Equalization, 1873, p. 17. ness unit often controls real estate whose value to the corporation is, for the assessor, very difficult to determine.3 Secondly, as a business unit, the corporation very often controls personal property in the shape of stocks, bonds, franchises and good will, the values of which to the corporation it is practically impossible for the assessor to determine. 5 This defect in the general property method whereby corporations escape proper assessment has long been recognized in American states, especially the older ones. Several of the Commonwealths have gone so far toward correcting it as to put corporation taxes into a separate system. In Illinois the defect became a matter of administrative and constitutional concern a few years prior to and at the time of the framing of the constitution of 1870. Evidence on this point may be found in the records of the State Board of Equalization in 1867, and in the records of the debates in the Constitutional Convention of 1869.7 But while, perhaps,under the present constitution, of 1870, a separate system might have been devised for taxing corporations in Illinois, none has, as yet, been devised by the legislature. However, something has been done toward remedying the defect, above discussed, in the assessment of intangible property of corporations. In 1872 the legislature enacted a new revenue law, which modified the system of assessment in regard to the property of corporations organized under the laws of Illinois. In taking up the analysis of corporation taxes under E.g. road-bed, mines, timber lands and wharf, dock and elevator sites. Monopoly of organization and services might be added. 5E.g., New York, Massachusetts, New Jersey, Pennsylvania. Proceedings State Board of Equalization, 1867, pp. 37-38, 58-59. "Debates and Proceedings of Constitutional Convention, pp. 211, 263. 8The proposal of the Revenue Commission of 1885-6 assumes as much. Also, so argued by Gov. Oglesby. Rep. to Assembly, 1887, vol. I, p. 13A. See also opinion Sup. Ct., Raymond vs. Hartford Fire Ins. Co., 196 Ill. 329 (1902) obiter. the system established since 1872, it will be well first to define them. In the words of Professor Seligman, "Taxation of the corporation does not mean taxation of the security holder who has purchased the stock or bond from the original owner." It has been argued that the taxation of the shares of stock in the hands of stockholders is also a tax upon the corporation, and that the shareholders, not the corporation, own the properties of the corporation; but in denial of this, it has been held by the Courts of Illinois, of the United States and of England, that the property of the shareholders in a corporation is quite distinct from that of the corporation.10 Evidently then Professor Seligman's definition of what is not a corporation tax, has found standing in jurisprudence. In a positive way, corporation taxes may be defined as those taxes which the corporation as a person, through its officers, must pay to the governments, local, state and national. This definition may be further extended in the words of the Supreme Court in 1876: It has been held that a corporation is possessed of three kinds of property subject to taxation: I. capital stock; 2. corporate property; 3. franchise.11 The Justice in reinforcing the Court's opinion cites a similar opinion of the United States Supreme Court.12 In the same year, 1876, the United States Supreme Court, in a corporation tax case, arising under the present Illinois law, the law of 1872, spoke as follows: That the franchise, capital stock, business, and profits of all corporations are liable to taxation in the place where they do business, and by the State which creates them, admits of no dispute at this day.13 Pending Problems in Public Finance. Pamphlet, 1904. 10 Porter vs. R. R. I. & St. L. R. R. Co., 76 Ill. 561 (1875), citing opinion of U. S. Sup. Ct. 1865, "The tax on shares is not a tax on the banks", Van Allen vs. The Assessors, 3 Wallace 583 (1865), citing opinion of Lord Denman in case of Queen vs. Arnand (9 Adolphus & Ellis, N. S. 806). 11Ottawa Glass Co. vs. McCaleb, 81 Ill. 556 (1876). 12 Gordon vs. The Appeal Tax Court, 3 Howard 133 (1844). 18 (Ill.) State Railroad Tax Cases, 2 Otto 603 (1876), citing Society for Savings vs. Coite, 6 Wall 607 (1867). |