been chosen as typical of what is probably the state of affairs throughout the country.

1 Aggregate figures for 1897, 1898, and 1899, compiled from the statistical reports of the Interstate Commerce Commission, territorial Groups II and III.

The bulk of taxes on Erie lines is paid in New Jersey, New York, Pennsylvania, Ohio, and Indiana. 3 Including the New York Central and Hudson River, Lake Shore and Michigan Southern, and Michigan Central lines, the Michigan Central including 380.04 miles not in the United States.

The bulk of taxes on New York Central lines is paid in New York, Ohio, Indiana, and Michigan. The bulk of taxes on Pennsylvania lines is paid in New Jersey, Pennsylvania, Delaware, Maryland, Ohio, and Indiana.

The following table will show the effect of existing tax methods upon roads situated in different sections of the country, as grouped in the statistical report of the Interstate Commerce Commission:

1 Figures compiled from the statistical report of the Interstate Commerce Commission, covering the year ending June 30, 1899; the territory covered by the different groups is outlined on page 36.

CHAPTER III.

DOUBLE TAXATION.

The problems arising out of double taxation are essentially the product of the complex industrial system of the present day. New complications in property rights have arisen, which, under the continued application of the principles of the property tax, have resulted in much injustice and confusion.

Double taxation arises from two sources-either from the repeated taxation of the same class of subjects by the same governmental authority, or from the taxa

tion of the same class of subjects by competing authorities. The latter is the outcome of the modern mobility of capital and labor; the former results largely from the fact that property and certificates of ownership in property in their various forms have both become the objects of taxation.

It might be well to remark at this point that double taxation is not necessarily unjust taxation. This fact is often overlooked in the use of a phrase which is itself brimful of duplicity and highly convenient for sophistical reasoners."

A. DOUBLE TAXATION BY THE SAME JURISDICTION.

1. Double taxation of property and indebtedness.-It is almost superfluous to state that this question arises only under the property tax. One of its phases is the taxation of corporate property and corporate indebtedness.

In the taxation of individuals it is not an unusual practice in the assessment of property either to deduct indebtedness from the final valuation or to exempt indebtedness from taxation when the total property is taxed. This is done, for instance, in the case of mortgages on real estate in several States, to avoid what might otherwise be unjust double taxation. The analogy, however, must not be carried over into the taxation of the capital stock and indebtedness of a corporation; a distinction between corporate and individual indebtedness must not be overlooked. In the case of individuals it would generally be unjust to tax both property and mortgage debt, because the real taxable property, when the mortgage is taxed, is only the surplus above indebtedness. Corporate bonded debt is a portion of the corporate capital. To tax indebtedness of this character in addition to the capital stock is not double taxation, for the capital stock is representative of only a portion of the corporate property. To tax corporate property as well as indebtedness, however, is another question, which gives rise to considerations very similar to those involved in the taxation of both property and capital stock. This will come up later.

It is not uncommonly the practice among the States to forbid the exemption of funded debt when capital stock is taxed. A number of States, notably California, Connecticut, Illinois, and Maryland, permit individuals to deduct indebtedness, but forbid the same practice on the part of corporations. This policy was upheld in the California courts in a decision which pointed out clearly the distinction between individual and corporate indebtedness. The Utah statute which forbids the deduction of bonds in the listing of credits illustrates an analogous practice.

There is really no injustice in such a policy. Injustice, in fact, in most cases arises from the opposite practice. As an illustration of this fact may be cited the case of a company which never paid a dollar of State tax upon capital stock prior to 1895. The New York, Pennsylvania and Ohio Railroad Company, with a capital stock of $44,999,350 and $129,853,080 bonded and other indebtedness outstanding, the cost of the road and equipment being $170.987,509, was the owner of 429.59 miles of railroad, extending from Salamanca, N. Y., to Dayton, Ohio, it being the connecting link between the east and the west of the Erie Railway system and competing with the Lake Shore, Baltimore and Ohio, and Pennsylvania railroads. Of the total mileage, 126.18 were within the State of Pennsylvania. As stated before, this company had never paid to the State a tax on capital stock or bonds, because it was claimed that this property was bonded' far beyond its actual value, and therefore the capital stock was worthless. The bonds were owned by nonresidents of the State, and therefore not taxable. * This case is given as an example, showing how many corporations have heretofore escaped taxation by reason of a funded debt, which is capital invited by the stockholders with the hope that they will derive additional benefit from such added capital."

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In New York, as concerns the local taxation of capital stock, it has been held by the courts that in estimating the value of the capital stock of a corporation its indebtedness is to be considered; but the valuation having been fixed, only the value of the real estate and not the amount of indebtedness is to be deducted therefrom. Where, however, the "capital stock is of no actual value" because of indebtedness exceeding assets, it must not be assessed. This is applicable only to domestic corporations.

1 Report of the Joint Committee on Taxation, New York legislature, 1900, p. 10. Central Pacific Railroad Co. v. Board of Equalization, 60 Cal., 35.

* Report of the Auditor General of Pennsylvania for 1897, p. vi.

People, ex rel. Broadway and C. R. R. Co., v. Commissioners of Taxes (1 Thomp. & C., 635). People, ex rel. West Side and Yonkers Railway Co., v. Commissioners of Taxes (31 Hun., 32).

The taxation of the interest on bonds involves the same principle as the taxation of the bonds themselves. Interest on bonded debt as fully as dividends on stock constitute an integral part of the corporate income and are, as much as the latter, a product of the corporate investment.

2. Double taxation of property and stock.-A second phase of the double taxation of the same class of subjects by the same jurisdiction is the double taxation of property and of capital stock. To tax a corporation on its property and at the same time to levy a tax on its securities, as if they were substantive and independent property, is in effect unjust double taxation. It can not be denied that corporate property and capital stock are not identical. As brought out in Commonwealth v. Hamilton Manufacturing Co., "the market value of the shares of a corporation * * * does not necessarily indicate the actual value or amount of property which a corporation may own. The price for which all shares would sell may greatly exceed the aggregate of the corporate property, or it may fall very far short of it. Undoubtedly the amount of property belonging to a corporation is one of the considerations which enter into the market value of its shares, but such market value also embraces other essential elements. It is the estimate put on the potentiality of a corporation, on its capacity to avail itself profitably of the franchise, and on the mode in which it uses its privileges as a corporate body, which materially influences and often controls its market value." While this is true, it will readily be granted that the value of the property is bound up in the value of the capital stock, i. e., that the property is at least a part, if not the whole, of the corporate investment which capital stock is supposed to represent. So far as the two are representative of the same taxable capacity, therefore, the taxation of both by the same authority would be unjust double taxation.

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In general, the legislation and legal decisions of the various States have been adverse to double taxation of this character. The courts of Maryland have from the beginning followed the principle that a tax on capital stock covers a tax on property, and that, therefore, the taxation of both at the same time is unjust. In a number of States (e. g., Alabama, Illinois, Indiana, and Vermont) this principle is recognized and only the excess of capital stock over property is taxed. recent law in Wyoming provides that the property of domestic corporations shall be assessed and taxed in the same manner as the property of individuals; “but the capital stock of such corporations, representing, as it does, simply the interests of the owner thereof in the property of such corporation, shall not be taxed." In California the taxation of both property and capital stock has been declared by statute to be double taxation, so that neither the corporation nor the shareholder is taxed on capital stock or shares. Colorado follows the dictum that the taxation of tangible property and of shares of stock is not double taxation. The opposite is the practice in Illinois, as well as in Florida and Idaho, where it has been declared that, when corporations are taxed on their property, shares of stock in those corporations shall not be taxed. In Kansas, shares of stock are taxable to holders after property deductions have been made. In New Jersey, shares of stock are not assessed against holders when the corporation is taxed on its property and franchise. In New Mexico, statute provision declares that when a corporation is taxed, either on its property or on its capital stock, shareholders are not to be taxed on their shares. The same provision is made in South Carolina, Tennessee, Utah, Washington, West Virginia, and a few other States; though in Tennessee a legal decision arrives at the conclusion that the State may lay such a tax, notwithstanding the statute to the contrary. In all of these cases, however, a distinction must be drawn between capital stock and shares in the hands of holders. This will be brought up again later.

Early legal opinion in Pennsylvania was not adverse to a tax on both corporate property and capital stock. In Pittsburg, etc., R. R. Co. v. Pennsylvania,3 the court delivered the opinion that "the power of the legislature is as ample to tax twice as to tax once, and it is done daily, as all experience shows. Equality of taxation is not required by the constitution." But the general trend of subsequent decisions has been in the opposite direction. For instance, it has been held that the capital stock of corporations representing tangible property outside of Pennsylvania is not taxable in Pennsylvania; and further, that "capital stock represents the franchises as well as the property of the company," affirming several previous

112 Allen, 303.

23 Pickle, 406.

366 Pa., 77.

4Commonwealth v. Standard Oil Co. (101 Pa., 119) and Commonwealth v. American Dredging Co. (122 Pa., 387). Commonwealth v. Delaware, Susquehanna and Schuylkill R. R. Co. (165 Pa., 44).

decisions to the effect that the property of a corporation essential to the carrying on of its business is included in its capital stock and must not, therefore, be separately taxed.

Those State methods which tax capital stock after making deductions for the value of property locally taxed (as in Massachusetts), act as a discrimination against individuals, which is not necessary as a guard against double taxation. Individuals are taxed on their property by both State and local authorities. The analogous practice in the case of corporations would be local taxation on its present basis, and State taxation of capital without property deduction. The decision in Commonwealth v. Cemetery Co.1 very well expresses this view: "A tax on capital stock is a tax for State purposes only, so that local taxation upon the property in which the capital stock of a company is invested is not double taxation."

B. DOUBLE TAXATION BY COMPETING JURISDICTIONS. This problem is one in which possible complications are numerous. It is one which may arise in its different forms between foreign States, separate commonwealths, or separate local districts. In the present instance those questions which come up among the several States are the important ones.

A variety of practice has sprung up in this respect, and a practical solution of the difficulties of the situation is by no means simple. Professor Seligman believes that the easiest way out of the confusion would be that of levying the tax in those districts where economic interest is involved. Such a plan would necessitate a division of the tax between the place of domicile of a corporation and the place or places in which business is done and earnings derived. With transportation companies such a plan might be followed out somewhat in the following manner: Regarding the domicile of the company as the place of its incorporation, let the incorporation tax-possibly an annual sum-represent that portion which should go to the State of domicile of the corporation; then let the main tax, or tax proper, be paid to the State or States in which the corporate business is carried on. Such a plan could be completely realized only after substantial interstate agreements have been reached or the National Government has taken a hand in the matter. There is thus far no complete uniformity in the practice of the States on any of the various phases of the question.

1. Interstate taxation of corporate property.-The first phase of the problem arises in the interstate taxation of corporate property. As concerns real estate the interstate feature of the problem is a simple one, the universal rule being that such property shall be taxed where situated. An early New York decision to the effect that real estate is not to be assessed at a company's principal place of business, but where it lies, shows the general attitude on this question. The difficulty arises in the taxation of personal property. Here the practice varies between the taxation of this class of property according to its actual situation, as well as according to the residence or domicile of its owner; i. e., in legal terminology, according to the principle of situs or that of mobilia personam sequuntur. In New York, property located out of the State can not be made the subject of taxation by its power; and, conversely, the personal property of a nonresident, situated within the State, may be taxed by it, except as modified by statute provision. It has been further held, however, that to exempt the personal property of a corporation because it is outside of the State, the change of location must be permanent and unequivocal. A similar decision has been reached in Illinois. În Missouri, likewise, "the actual situs of personal property, and not the domicile of the owner, determines under the law where it shall be taxed."

In Pennsylvania the same principle has been recognized in the taxation of capital stock. The court has decided that capital stock invested in real estate and in other railroads outside of the State, as well as in vessels, barges, etc., wholly used outside of the State, is not subject to taxation in Pennsylvania, but in the State where it exists and is used. In Maryland, Kansas, Michigan, South Carolina, and other States the principle of situs is likewise applied. As stated in a prominent

1170 Pa., 227.

2 Hudson River Bridge Co. v. Patterson (11 Hun., 527).

3 People ex. rel. Hoyt v. Commissioners of Taxes (23 N. Y., 224). It would appear from the decision that ships at sea, registered at a port within the State, and consequently having no situs elsewhere, are justly taxable to the resident owner.

4 People ex rel. Pacific Mail Steamship Co. (64 U. S., 541).

5 Supervisors, etc., v. Davenport (40 II., 197).

St. Louis v. Taylor's Admrs. (47 Mo., 594).

7 Commonwealth v. Delaware, Lackawanna and Western R. R. Co. (145 Pa., 96)

legal treatise," Personal property, permanently remaining in a State, has a situs therein for the purposes of taxation although belonging to a foreign corporation." In other States, however, the practice of taxing domestic companies on their entire property, regardless of its location, is in some cases applied, so that the same property is taxed twice by different States. With railroads the difficulty is no longer of particular significane so far as concerns tangible personality subject to measurably permanent location, but with rolling stock the question is more complicated. The difference between the two kinds of property is recognized in the Tennessee law taxing railroad companies. Real estate and personalty having stable location are taxed as "localized property," and assessed in the locality where situated; property having no actual situs-i. e., rolling stock-is known as "distributable property." and is assessed against the company employing it on a pro rata mileage basis. In those States where rolling stock is assessed as part of a general railroad-property valuation, the same method is generally employed. In Marye v. Baltimore and Ohio Railroad Co., it was decided that the situs of rolling stock may be fixed in whatever locality such property may be brought and used by its owner by the law of the place where it is found. In this particular case the right of Virginia to tax the rolling stock of the Baltimore and Ohio Railroad Company was not allowed on the ground that the Virginia law had application only to domestic corporations. But in respect to the general right of a State to tax the rolling stock of foreign corporations employed within its limits, the court said that "it would certainly be competent and legitimate for the State to impose upon such property, thus used and employed, its fair share of the burdens of taxation imposed upon other similar property used in the like way by its own citizens.'

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In the State railroad freight tax cases, the court, referring to the principle of mooilia personam sequuntur, says that it may be doubted very reasonably whether such a rule can be applied to a railroad corporation as between the different localities embraced by its line of road; the rule is merely the law of the State which recognizes it * [and] therefore, subject to legislative repeal." In Baltimore and Ohio Railroad Co. v. Allen, it was held that in the case of a leased line, rolling stock used thereon has its situs there. In Pullman Palace Car Co. v. Twombly, it was decided that cars used on a railroad, and owned by a nonresident of any State in which they are employed, are not exempt from taxation in that State by reason of their being instrumentalities used exclusively for interstate commerce.

From these decisions it will be seen that the power of the States to tax rolling stock used at all within their borders is not subject to narrow restrictions. The right to do this upon a pro rata mileage basis in the case of companies engaged in interstate commerce is undisputed; and State practice, as already indicated, is following this plan.

The rule as to vessels engaged in foreign or interstate commerce is, that their situs for purposes of taxation is their home port of registry, or if unregistered, the residence of their owner. Somewhat analogous is the Pennsylvania decision that corporate property like barges, dredges etc., without permanent location in any place, is taxable only in the State of the corporation's domicile.

2. Interstate taxation of corporate securities.-The second phase of the double taxation of the same class of subjects by competing authorities is the interstate taxation of corporate securities. The evils resulting from double taxation of this character have been so generally recognized as to call for express legislation on the subject in a number of instances. In New York the law of 1880 (chap. 42) provided for the taxation of corporations on their entire capital stock. In 1885 this was so amended as to extend only to that portion of the capital stock employed in business within the State. A court decision in 1887, however, on the basis of the law of 1880, held that the entire capital stock, and not the portion of it employed within the State, was the legal measure of business done within the State. Subsequent legislation came around to the principle of the law of 1885 for both foreign and domestic corporations.

In Pennsylvania the practice has uniformly been that of taxing only that portion of the capital stock represented by business done in the State. This was given judicial sanction in Commonwealth v. Standard Oil Co., where it was held