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these franchises could be arrived at by assessing sixty per cent. of the gross earnings of the road, or of the franchise, whether telephone, gas or electric light, as being a correct basis of taxation. If he would take that as a basis for estimating the value of the franchise I would be inclined to agree with him, yet I am afraid in many cases that might be in excess, for as some of our friends pointed out, many of these smaller companies are simply making a bare living There, however, appears to be considerable misunderstanding as to what a franchise really is. We have heard some of the gentlemen speak about a franchise differing in value as you went on; a twenty year franchise becoming less and less in value as it went on. While that is true as far as the selling value of the franchise is concerned, I contend the taxing value of the franchise it has nothing to do with. The value of the franchise for the purpose of taxation is the revenue which it will produce in any given year, so that the year before the franchise terminates, for the purpose of taxation, should be just as valuable as when the franchise was first granted; in fact our experience has been that it would be more valuable, because the earning power has generally increased as the municipality has increased in population. Now when you look at it from this point of view you see that the question of whether the franchise is a monopoly or not has nothing whatever to do with the value. It has a great deal to do with the selling value for speculative purpose, but it has nothing to do with its value for taxes that is what we have to do with. As long as any company has, I don't say an exclusive right, to use the street, but the exclusive use of them, it has a greater value than if that franchise is divided in two; and as we proceed we see it is very easy to determine whether the value is increased or decreased. If the earning of a Gas Company falls off in consequence of the long franchise being divided up between the Electric Light Companies, then there is a falling off in the franchise value, and there has to be a diminution of the tax rate. Now it has been stated that in many cases there is no value in a franchise. If that is so, then there can be no reasonable objection on the part of the holders of those franchises to have the franchise taxed according to its value. If there is none why that settles it. Now in order to arrive at the value of a franchise we have to do some figuring, and surely if a thing is worth doing at all it is worth doing properly order to determine the value of a franchise for taxing purposes from year to year we must estimate in the first place what is the actual capital invested in the plant for carrying on the business of the particular company. If we still stick to the antiquated method of taxing wealth wherever you can find is, it simplifies the matter very much, because you can then more readiy ge at the whole value of the thing as a going concern, based on its earning power. But if you do as I think should be done, encourage industry by taking the tax off wealth and useful services, then we must estimate the actual capital that is invested in this business, allow the ordinary percentage for capital engaged in business, which is about five or six per cent.-that could be easily arranged if necessary, either by statute or by custom of the municipality-and then having deducted that income, that amount representing the interest on the capital actually invested, deduct that from their net income and you then have a basis for determining what their franchise is. Of course this is only a temporary expedient, this taxing of franchise; public opinion is of such a nature now that in a very short time it may be a question of public ownership, but during the interim, as in the case of the Street Railway Company where there has been a franchise granted for a certain period of years, we claim they should take the value of the franchise. But aside from basing my argument as to the advisability of assessing franchise in that way, we have the other way of looking at it. In the case of such a Street Railway who are paying a certain rental to the city of Toronto or other municipality, they are in exactly an analagous position to a purchaser of land from the city, or a lessee of land from the city; they have to pay not only rent but taxes, and there is no reason why they should escape paying their taxes on the land value, because the franchise value is not simply to use the street, it is practically the exclusive right in the case of Toronto, it is the exclusive ownership of the city of Toronto for the purposes of the Electric Railway; it is the exclusive ownership of the city of Toronto for carrying on a gas business-it is not simply the ownership of two or three streets, it is actually and virtually the ownership of the whole municipality for carrying on their busiress

Mr. WILKIE: That is what they purchased?

Mr. THOMPSON: Well, in many cases there has been no purchase money paid.

In

Mr. WILKIE: You have mentioned one instance.

Mr. THOMPSON: They have not paid.

Mr. WILKIE: That is what they bought.

Mr. THOMPSON: They bought the right of carrying on exclusively certain business, just the same as a man who bought a lot, bought the exclusive right of using that lot, but always subject to taxation. It has been stated by the solicitor for the London Street Railway Company that whereas it has been said they pay no rent, they have actually paid a very considerable rent in the form of making the road and so on, and that therefore they should be exempt from taxation. Well, the same argument would apply in the case of Toronto that I referred to. Then he states that there is no franchise value there, and yet he admits that there is a large earning capacity. Now the whole idea of the franchise is to permit them to carry on business and to enable them to have an earning capacity; and the admission that there is an earning capacity, if that earning capacity is anything above the actual ordinary rate of interest for the amount of capital invested, proves that there is a very valuable franchise. Another statement was made that in cases of taxing the franchise of these different companies there would be a very material loss in the value of the stock. That, I think, is hardly an argument that should be introduced before this Commission, as an alteration of the taxes in any shape or form is bound to interfere with some person's profit, and I don't think it has ever been recognized that alterations made by the taxing power should be followed by compensation to any interests adversely affected; and, consequently, if there is no question of compensation it is an argument that should have no weight before any judicial committee. It has been stated that in Chicago the average assessment is only twenty per cent. If the Commission which was appointed in the State of Illinois to go into the question of taxation was fully studied it would be found that while that is true, generally speaking, yet, whereas the average is about twenty per cent., the poorer the person, the smaller the property owner, the higher his taxes are on property. The poorer properties are assessed about forty per cent., the richer properties about five per cent., so that it is a question there not so much of the carrying on of any kind of a tax law as the utter rottenness and corruption of politics in that city; so that I don't think you can base very much or draw very many sound deductions of the inequalities of taxes there except in so far as it involves the principle. It has been suggested that in a case where a ground landlord rents land to an individual that is analagous to where the city allows a corporation to have possession of the streets for the purpose of carrying on electric lighting or anything of that kind, and that the ground landlord pays the taxes. Well, I have had some little experience in that line, and I think the custom of the country is quite the contrary. The ground tenant not only pays the ground rent but he pays the taxes too, and he has to build whatever property he erects on the land in addition.

The CHAIRMAN: Suppose an arbitrator was fixing the rent for a period of ten years between the landlord and the proposed tenant, and the tenant was to pay taxes, would not the arbitrator have to regard that in fixing the rent?

Mr. THOMPSON: He would; of course the tenant paid not only the rent but the taxes, no matter how you put it.

The CHAIRMAN: Putting that question first in that form, would an arbitrator, in estimating rents which he would fix for the tenant to pay in ten years, not regard the fact that the tenant was going to pay taxes?

Mr. THOMPSON: I don't think so, for this reason

The CHAIRMAN: Don't you think he would be a very unjust arbitrator who would propose to say that the rental he was going to fix would be quite the same whether the tenant was going to pay the taxes or not?

Mr. THOMPSON: Oh, not at all, but the custom is-

The CHAIRMAN: I am not asking the custom, I am asking what would be just for the arbitrator to do.

Mr. THOMPSON: The rent and taxes would be both part of the payment he pays to his landlord.

The CHAIRMAN: Would he not fix a lower rent if the tenant was to pay the taxes than he would if the landlord was to pay the taxes?

Mr. THOMPSON: Certainly.

The CHAIRMAN: Then who pays the taxes, pray, I ask ↑

It may be

If the land

Mr. THOMPSON: As a matter of fact the tenant always pays the taxes. there in so many words or not, but the tenant pays the rent and the taxes. lord was to pay the taxes he would charge the tenant that much more rent. The CHAIRMAN: I am not considering whose hand would pay the taxes; if the agreement was that the landlord was to pay the taxes he would pay them, if otherwise the tenant would pay them.

Mr. THOMPSON: The tenant always pays the taxes in a case of that kind.
The CHAIRMAN: That is according to agreement?

Mr. THOMPSON: No, he might pay them twice but he can never escape paying the taxes; that is the one thing that cannot be passed on, the tax on land. That, I think, every political economist will bear me out, even the orthodox school. John Stuart Mill bears me out; he lays it down that tax on land cannot be shifted, that it comes out of the owner of the land, but the tenant who takes that has got to pay it, and it comes out of the landlord's net rent. If the rent and taxes on a piece of property are $1,200 a year, if the tax is $200 a year the landlord gets that much more.

Mr. JUSTICE MACMAHON: You say the landlord is exonerated from the payment of the taxes by reason of their coming out of the pocket of the tenant.

Mr. THOMPSON: Yes, that is right, and whether it is included in the lease or not of course it comes out of the tenant, but if by actual agreement the landlord is supposed to pay the rent, of course he will get that much more from the tenant, I think that is quite clear. There is another suggestion I would make in reference to this talk of a Provincial Board. It appears to me that inasmuch as the Ontario Government are now having the course to direct taxation, it would be only fair that these franchises which are in the nature of income franchises should be taxed and the money retained by the Ontario Government itself. That would relieve the municipalities from a great deal of figuring that Mr. MacKelcan is so much afraid of, and at the same time I think prevent any jealousy between the municipalities and supply the Province with a revenue to which I think it is justly entitled. That is a revenue derived from the whole of the Provincial franchises.

Mr. JUSTICE MACMAHON: How would the public works of a municipality like Toronto be kept up if they did not get the taxes from these !

Mr. THOMPSON: They would get the taxes from all their local values. For instance, a telegraph wire between one end of the Province and the other does not get its value from any municipalities; it owes its value to the fact that it has a right of way from one end of the Province to the other. As it is now, you don't get anything approaching to the value of the land as it is now used.

The CHAIRMAN: Why do you give that tax to the Province 1

Mr. THOMPSON: Because it is really a Provincial franchise.

The CHAIRMAN: No, these companies are incorporated by parliament.

Mr. THOMPSON: You are speaking now of their incorporation; I am speaking as to how their value arises. Any concern which runs through one municipality to another and within the bounds of the Province I should say was a Provincial franchise and should be treated as such.

The CHAIRMAN: Would not the same reasoning give it to the Dominion!

Mr. THOMPSON: If it is in the Dominion more than the Provincial it might. Nearly all the original railways, for instance, were Provincial.

The CHAIRMAN: The telegraph and telephone are Dominion.

Mr. THOMPSON: The railways were nearly all Provincial except the Intercolonial and the Canadian Pacific. The systems have grown up out of the absorption of the local railways, and it would be a comparatively easy matter to determine the value of a railway of that kind within the Province.

Mr. BUTLER: There are a great many companies that have no Provincial charter whatever.

Mr. THOMPSON: You are speaking of charter; I am speaking of them carrying on business in the Province.

Mr. JUSTICE MACMAHON: The Grand Trunk was largely subsidized by the Dominion. The CHAIRMAN: How would you estimate the value of franchises such as you have been speaking of, for assessment purposes ?

Mr. THOMPSON: I would estimate the cost it would take to replace them, without taking into consideration the value of the land at all-just the cost of the actual wealth

invested, and then I would estimate the value, and I would capitalize their net earnings and deduct the one from the other.

The CHAIRMAN: Capitalize their net earnings?

Mr. THOMPSON: Yes. Of course it would require some little consideration to find out what their net earnings would be.

The CHAIRMAN: Would you tax their freehold as well?

Mr. THOMPSON: That would be freehold in that case.

Mr. WILKTE: If you'capitalize their earnings what is the object of forming a value of the land and improvements?

Mr. THOMPSON: Because in order to get their net earnings you must get the interest on the capital.

Mr. J. S. FULLERTON, QO.: Mr. President and gentlemen of the Board, I desire to speak on this question, but this is an entirely new proposition, arises nowhere else—at least nowhere else that we are acquainted with-which has been brought here after three weeks.

The CHAIRMAN: We are open to hear any new proposition.

Mr. FULLERTON: Quite so. This proposition strikes me as specious but not fair, and I would like a little time before being called on to express my views concerning it. The CHAIRMAN: Do you mean the proposition of Mr. Robinson?

Mr. FULLERTON: Yes.

The CHAIRMAN: I hope you have been considering the whole subject for the last three weeks just as Mr. Robinson has, and have formed some conception of the best principle of taxation.

Mr. FULLERTON: Yes, but that is a very different thing from considering the proposition of taxing on the earnings or receipts. That is something that does not arise on any system of taxation that has ever been debated here. It is something that Mr. Robinson while on his feet was not able to give an example of.

The CHAIRMAN: What we are trying to do is to obtain some system that has not been in operation here and which would be better.

Mr. FULLERTON: I submit that a little time for consideration of this to speak upon it as representing the municipalities would only be reasonable, and I ask for that time. The CHAIRMAN: To morrow?

Mr. FULLERTON: Tomorrow is too soon to allow me to get some documents, papers, figures and matters that I think are important.

Tho CHAIRMAN: Very well, we will hear you Thursday at 1.30 p.m.
Adjourned at 4 p.m., till to-morrow at 10 30.

SEVENTEENTII DAY-WEDNESDAY, DECEMBER 12TH, 1900.

The Commission met at 10.30 a. m:-Present all the Commissioners. No one being present to address the Commissioners the commission adjourned till to-morrow.

EIGHTEENTH DAY-THURSDAY, DECEMBER 13TH, 1900.

The Commission met at 10.30 a. m. -Present all the Commissioners except Mr. Wilkie.

The SFCRETARY read the following communications: (1) resolution of the County Council of Elgin, (~); (2) a communication from the Reeve of North Easthope, (a), and one from 8. B McCully (a)

The SECRETARY then read a communication from Mr. R. G. Barrett, Barrister, Toronto (b)

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The CHAIRMAN: I suppose that is so Mr. Fleming, what he complains about as to vacancies?

Mr. FLEMING: Yes, that is the by-law, but I am not certain about the wording of the Act.

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· Mr. FULLERTON; I think that would be so. I think Mr. Caswell gave an opinion that they were confined to the year.

The CHAIRMAN: A man's store might be vacant within a day of six months consecutively and yet be entitled to no allowance.

Mr. FULLERTON: I think that is so.

The CHAIRMAN: That would seem to be a hardship."

Mr. FULLERTON: It does.

Mr. PRATT: The vacancy must be for three months in one year.

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Mr. FULLERTON: The other ground of complaint, that the assessors refuse to consider value other than rental, would not be well taken,

The

The CHAIRMAN: He complains that he has a lease for twenty-one years. arbitrators probably fixed that rent for twenty-one years on a sliding scale, making it lower at the beginning in anticipation of a higher value at the end, then in the course of eight or ten years the value of the property falls, falls strikingly, perhaps, as it has done in some cases, yet the owner and tenant are both assessed on the basis of the current rent without regard to the depreciation.

Mr. FLEMING: We never take into consideration the question as to the rent that is paid between the landlord and the lessee. That forms no part of our calculation at all. We simply assess that property at the same rate as the surrounding property. It is just possible, though, that with the high rent a tenant is paying as lessee of the property, that the ground rent and taxes on that property amount to more than he can get from the property; but his complaint would not be against the city, but against the landlord who gets so much more for the ground rent than he can get out of it.

Mr. FULLERTON: That would arise in this way: when he would go up to the Court of Revision and Judge, undoubtedly parties wishing to establish the value would cite the

rent.

The CHAIRMAN: But the other circumstances ought to be brought to the attention of the Judge too The tenant would go there and he would show what he has been able to get from the occupying rents. He says, "I have got to pay a higher rent to my landlord, that is my misfortune."

Mr. FULLERTON: That should be so, but in going before the Court of Revision and the Judge many of those cases are disposed of without a lengthy trial, and they are not gone into as they should be in an arbitration,

The CHAIRMAN: Do you mean the appellant would not be listened to?

Mr. FULLERTON: He would be listened to, but his statement as against the decision of the arbitrators

The CHAIRMAN: Not the arbitrators?

Mr. FULLERTON: The arbitrators had found the rent.

The CHAIRMAN: He says the arbitrators did find that rent- ten years ago, but the property has fallen in value since. He says, "I have to pay the land rent for twentyone years, but here is what I get out of it."

Mr. FULLERTON: I think he would be listened to, I think he would be heard, I think the value of other properties would be heard, experts are called, evidence is taken All I mean to say is that it cannot be taken in ten, or twelve, or fifteen days length that arbitrations go.

The CHAIRMAN: Or fifty days?

Mr. FULLERTON: Or fifty days.

Mr. FLEMING: All we take into consideration is the real value of the property at the time regardless of the lessee, and we assess the whole property in a block at practically the same rate unless one piece is a little more valuable than the other.

The CHAIRMAN: I do not blame the assessor very much; the assessor says to the tenant, "What is your ground rent?" If it is truly answered the assessor might be guided by it.

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