Georgia. Special Tax Commission.

Report of the Special tax commission for Georgia online

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REPORT



OF THE



Special Tax Commission



ATLANTA, GEORGIA

1919



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REPORT

OF THE

Special Tax Commission

For Georgia



Hugh M. Dorsey, Governor, Chairman Ex-Officio.
H. R. DeJarnette, Eatonton.
R. A. Denny, Rome.
Seaborn Wright, Rome.
E. Z. Arnou), Fort Gaines.
L. R. Akin, Brunswick.
E. H. Callaway, Augusta.
J. H. T. McPherson, Athens.
E. H. Johnson, Oxford.
H. J. FuLLBRiGHT, Tax Commissiouer,
State Capitol.



J. W. LeCraw, Secretary,
Room 133, State Capitol.



ATLANTA, GA.

1919

BYRD printing CO., State Printers,



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TABLE OF CONTENTS



Page
Letter of Transmittal 1

INTEODUCTION 2

1. Law Creating Tax Commission 3

2. The Commission 5

3. Organization and Meetings 5

L THE PRESENT SYSTEM 7

1. The Law 7

2. Administrative Machinery 7

3. Present Systema Failure . 8

4. Why the System has Failed 11

11. SUGGESTED REMEDIES , 12

1. Changes in Law 12

2. Constitutional Amendment 14

in. REASONS FOR PROPOSED AMENDMENT 15

1. European Opinion 15

2. American Scientific Opinions 16

3. Louisiana Tax Commission 17

4. Massachusetts Tax Commission 17

5. Ohio Tax Commission 18

6. Nebraska Tax Commission— 18

7. Mississippi 18

8. Wisconsin 19

9. Court Opinion i 19

10. National Tax Association 20

11. Classification Used in Georgia 21

12. Address by Murphey Candler 22

13. Experience of Wisconsin 23

14. Minnesota's Experience 23

15. Maryland'fif Experience 24

16. Virginia 25

17. Kentucky 27

18. States Using Classification 30



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Page
IV. RECOMMENDATIONS AS TO ADMINISTRATIVE MA-
CHINERY AND OTHER LAWS TO FOLLOW CON-
STITUTIONAL AMENDMENT ^-21

1. State Tax Commission. _ 33

2. Deputy State Tax Commissioners 1 37

3. County Boards of Review 37

4. County Tax Receiver _ 38

5. Other Of fieials 39

6. Taxpayers 40

7. Banks , 41

8. Business License Tax 41

9. Corporations" 42

10. Household Furniture 42

11. Income Tax 43

12. Inheritance Tax 43

13. Merchants -. 44

14. Real Estate . . 46

15. Secured Debts 48

16. Tax Maps __ 51

17. Budget System 51

li. Insurance . 52

19. Wild Lands 52

EXHIBITS: -

A. Banks 53

B. Income Tax _ __ 54

C. Inheritance Tax 55

D. Merchants z. ^6

E. Secured Debts 58

F. State Tax Commissions— 59

G. South Dakota Commission 60

H. Kentucky Commission 60

I. Advance of Tax Commission 61

J. Results in Wisconsin 62

K. Results in North Dakota 62

L. Results in Kentucky 63

M. Kentucky and Ga. Compared 65

N. Secured Debts, New York 66

O. Pennsylvania Intangible Tax 67



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Pag

P. Tax Maps 67

Q. Georgia Deficit 68

R. Intangible Property in Georgia^ 69

APPENDIX— BILLS INCORPORATING PROPOSED CON-
STITUTIONAL AMENDMENTS 71

Bill No. 1 - 71

Bill No. 2 — 73

Bill No. 3 75

MINORITY REPORT OF REPRESENTATIVE SEABORN

WRIGHT 77

1. Disagrees as to Method of Assessment 77

2. Disagrees as to Proposed Constitutional Amendments 82

CHART No. 1 — Percentage of Assessment in Georgia 4

CHART No. 2 — Proportionate Assessment of Real Estate,

Money, etc. 13

CHART No. 3— What Classification did for Minnesota 20

CHART No. 4— Per Capita State Tax __ 28

CHART No. 5— Virginia System vs. Georgia System 34

CHART No. 6— Kentucky System vs. Georgia System 40



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EEPORT OF SPECIAL TAX COMMISSION FOR
GEORGIA



Letter of Transmittal:

June 1, 1919.

To the Honorable Hugh M. Dorsey,

Governor of Georgia:

The undersigned members of the Special Tax
Commission, appointed under the terms of Section
14 of the Act of the General Assembly Approved
August 20, 1918, have the honor to transmit here-
with the report of said Commission.

Hugh M. Dorsey, Chairmcm, Ex-Officio.

L. R. Akin,

E. Z. Arnold,

E. H. Callaway,

H. R. DeJarnette,

R. A. Denny,

H. J. FULLBRIGHT,

E. H. Johnson,

J. H. T. McPherson.



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INTRODUCTION.

The General Assembly of 1917-18 found itself in
a dilemma when it came to the consideration of the
State's financial affairs. It was charged with the
duty of providing revenue for the proper mainten-
ance of the various State departments. To do this,
within the law, it was restricted to a levy of 5 mills
upon the ad valorem valuation of property returned
for taxation, together with receipts from a poll tax,
inheritance and numerous business license taxes,
and the rental income from the State's railroad
property, etc. These sources of revenue had proved
inadequate for this purpose for several years and
there was, therefore, accumulating quite a consider-
able floating debt. To make the problem more dif-
ficult the high prices incident to conditions brought
about by the world war had greatly increased the
necessary living expenses of every state official and
employee, and also increased the general expense
acount of practically every department of the State's
business. The Legislature found itself face to face
with the question of more income, more debt or such
a retrenchment in expenditure as would seriously
impair the usefulness, of several departments of the
State's business, some of the most important of
which were already but poorly maintained. The
members of the Legislature knew that the material
wealth of the citizens of the State was greater than
ever before and were at a loss to know just why such
a condition should have come about. Not having
time during the regular session to satisfactorily in-
vestigate the causes which had brought about the ex-
isting situation, they provided for a Special Tax
Commission as set out in the following extracts from
the Act approved August 20, 1918 :



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1. Law Creating Tax Commission.

Section 14. Special Tax Commission. Within ten
days from the adjournment of the present General
Assembly the Governor shall appoint three business
men, citizens of Georgia, and the President of the
Senate shall appoint two Senators, and the Speaker
of the House three members of that body, who, to-
gether with the Governor as ex-officio chairman
shall constitute a Special Tax Commission for
Georgia.

This Commission, together with the State Tax
Commissioner acting as consulting and advisory
member, shall thoroughly investigate Georgia's pres-
ent tax system, comparing its methods and efficiency
with those of other States and countries. Should
they deem it advisable, the Commission may hold as
many as six meetings in different sections of the
State, to which the general public shall be invited
and at which any citizen may have the right to dis-
cuss with them any phase of the taxation question
as it affects the interest of any section of the State
or any class of its people.

Upon the completion of their investigations they
shall make up and place in the hands of the Govr-
nor, to be transmitted by him to the 1919-20 General
Assembly within the first five days of the opening
session, a report embodying their conclusions and
recommendations. A copy of this report sKall be
forwarded by the Governor to each member of
1919-20 General Assembly at least ten days before
they convene. The commission shall also make up
an abridged copy of its findings couched in non-
technical language and clear in expression, and ten
thousand copies of which shall be printed and dis-
tributed through the Governor's office to the citizens

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of the State, and a copy of which shall be forwarded
to each newspaper in the State with the request that
they publish the same as a matter of common inter-
est. The purpose and intent of this being to ac-
quaint the citizens of the State with existing condi-
tions and suggested remedies so that they may un-
derstand and act intelligently.

It shall be the further duty of the Commission to
prepare and submit to the next General Assembly,
for their consideration, a scomprehensive revenue
bill based upon their investigation, so that the
members may have before them in concrete, legal,
finished form the result of the Commission 's work.

2. The Commission.

Upon authority invested in them as above shown.
President Samuel L. Olive named Senators H. R.
De Jarnette, of Eatonton, and R. A. Denny, of Rome.
Speaker J. N. Holder named Representatives L. R.
Akin, of Brunswick; E. Z. Arnold, of Fort Gaines,
and Seaborn Wright, of Rome. Governor Hugh M.
Dorsey who is named in the bill as ex-officio chair-
man of the Commission, appointed from the State
at large Dr. E. H. Johnson, of Emory University,
Oxford; Judge E. H. Callaway, of Augusta, and
Hon. Toombs Dubose, of Athens. These with Judge
John C. Hart, State Tax Commissioner, made up
the original Commission.

Hon. Toombs Dubose having resigned on account
of ill health. Dr. J. H. T. McPherson, of the State
University, Athens, was appointed in his stead, and
the vacancy caused by Judge Hart's death was filled
by H. J. FuUbright, his successor in office.

3. Organization and Meetings.
The Commission held its first meeting in Atlanta

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on September 18, 1918, and elected E. H. Callaway,
vice-chairman, and later elected J. W. LeCraw, Sec-
retary. •

It then immediately began its work by assigning
to each member certain phases of the system of
revenue and taxation in Georgia as well as of the
system of other states, with instructions to prepare
papers on their respective subjects and submit them
at the next meeting. These papers were very com-
prehensive, evidencing the fact that the commission-
ers had consulted the highest authorities on both the
theory of the laws touching taxation and the modern
methods of administering them.

At subsequent meetings, after careful considera-
tions of the view presented in these reports, tenta-
tive recommendations embodying such changes in the
present system as the Commission deemed wise were
drafted and presented to the public through the
newspapers, as well as at a series of public meetings
held in various parts of the State. The Commission
sought thus to acquaint the citizens generally with
existing conditions and their suggested remedies,
and frankly asked for candid criticism and help in
their difficult work.

The meetings were very helpful both in dissemi-
nating information and securing the support of those
in attendance for the revision of the existing system.
Any citizen present was free to ask any question,
and all the light possible was given both by the Com-
mission and by the public. It was an open, demo-
cratic discussion of the most vital, perhaps, of all
State questions, viz., how to equitably raise and dis-
tribute the State's revenue. After these meetings
the Commission formulated its final report, which
is herewith submitted.



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I THE PRESENT SYSTEM

1. The Law. Georgia's present system is based
upon what is known as the general property tax,
which requires all property to be taxed ad valorem
(according to value) and at the same rate. This prin-
ciple of taxation was first made a part of our funda-
mental law by the Constitutional convention of
1867, which was held under the military rule that
ushered in the Bulloch regime, and is therefore, so
far as Georgia is concerned, the child of carpet-bag-
gerism. It is thus set out in Section 27, Article 1,
of that Constitution of 1867 :

**And taxation on property shall be ad valorem only, and uniform
on all species of property. ' '

The Constitution of 1877 contains different
phraseology on this subject. It reads thus, in para-
graph 1, Section 2, Article 7:

*'A11 taxation shall be uniform upon the same class of subjects,
and ad valorem on all propejiiy subject to be taxed within the terri-
torial limits of the authority levying the tax. ' '

Our Supreme Court has held, in substance, that
the legal effect is the same in both instruments and
we are therefore required to tax all property at the
same rate, whether it returns much, little or no in-
come, so long as* the constitution remains as it is.

2. ADMiNiSTBATrvB Maojiineby. The framework
of the machinery for administering our tax laws
dates back to 1804,* and has been changed very little
since that time. The most important change was
that made in 1913, when a State Tax Commissioner
and County Boards of Assessors were added to it.
This was certainly a step in the right direction, and



*C. M. Candler, in Proceedings of National Tax Association,
Volume 3.



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if properly followed up with other feasible changes
the system can be made a fine one, in keeping with
modern business methods.

Under the present law there cannot be any sys-
tematic organization and proper supervision, which
is so essential to the success of great business estab-
lishments. Both the Comptroller-General and the
State Tax Conamissioner are necessarily executive
men and must remain in charge of their offices. The
Tax Commissioner is provided with no help except
a stenographer and a clerk. Having no field agent
to inspect the work of and advise with the local tax
officials, many of whom are inexperienced, organ-
ized team work is impossible. Consequently satis-
factory results cannot be expected so long as this
condition remains. No successful business concern
would attempt to operate under it, and yet Georgia,
collecting and spending between seven and eight
million dollars pep year, still clings to it.

3. Pbesent System a Failure.

The Commission, after its investigation, believes
that the system now in use is a failure because :

1st — It does not get on the tax list a reasonable
part of the actual value of property in the State.
According to estimates of the U. S. Census Bureau
only 36 per cent of the actual value of the property
in the State was listed for taxation in 1912. The
Commission's statistician, basing his estimate upon
the Census Bureau's ;figures for 1904 and 1912,
computing the average gain for those years and ap-
plying it to the total property valuation for the
years 1912 to 1918, reached the conclusion that only
25 per cent of the total value appeared on the re-
turns for 1918. Making due allowance for such



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property as is under the law exempt from taxation
(a very small part of the whole) we think our con-
clusion is amply justified.

2nd — The property returned is not equitably ap-
portioned between the various classes of property.
It appears to us, from a study of the Census Bu-
reau's reports as described above, that the classes
of property mentioned below returned for taxation
in 1918 approximately the following percentage of
their real values:

Banks - -70%

Real Estate 35%

Live Stock 30%

Farming Implements and Mchy_-28%
Public Service Corporations 22%

The last item, ** public service corporations,'' in-
cludes railroads, street railways, shipping, water
works, telephone companies, express companies, etc.,
this figure, 22 per cent, being obtained by taking the
figures for this entire class of public service corpo-
rations from the U. S. Census reports and from the
Comptroller-General's reports. With reference to
the railroads alone, a separate calculation has been
made for us by the railroad commission, which indi-
cates that the total railroad property in Georgia is
worth approximately $275,000,000, and by subtract-
ing the value of the railroads which are exempt from
ad valorem taxation and comparing the result with
the assessed value of the railroads as contained in
the Comptroller-General's report we reached the
conclusion that the railroads as a whole are paying
on approximately 42% per cent of their total valu:

We have no data upon which to base a similar esti-
mate of merchandise. We do know, however, that

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only about $53,000,000 was placed upon the tax roll
in 1918, and we have good reason, we think, for Re-
lieving that there is that much in one Georgia city.

Again, we are unable to form any well grounded
conclusion as to the value of money, notes and ac-
counts, bonds and taxable stocks in the State. It
appears, however, that there was $322,000.00 on de-
posit in the Banks of the State in September, 1918,
according to the Bankers* Enclyclopaedia. We know
from the tax digests that there was returned last
year, in round numbers, in money, notes, mortgages,
accouiits, bonds and taxable stocks, $65,000,000.
This condition would be ludicrous if it was not abso-
lutely distressing to all fair-minded citizens.

We submit that the above figures demonstrate
that the system not only fails to secure a reasonably
fair return of intangibles, but of real estate and
tangible personal property as well. It also demon-
strates that at least a majority of the owners of
every class of property fail to comply with the law
and that the suggested remedies should be such as
will seek to correct the evil in each class. Of course,
the correction should be applied first and most
streneously where the greater wrong is being done
the State and the honest taxpayer. To do otherwise
would be to accentuate the wrongs already existing,
and this the Commission has kept in mind in prepar-
ing its recommendations.

3rd — ^It does not provide adqeuate revenue for the
proper maintenance, on a reasonable basis, of the
State's various departments. In support of this
statement we call attention to the fact that within
the past few years the State has accumulated a de-
ficit of about $3,000,000.

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Even should the annual expenditures of the State
not increase any, which we can scarcely expect under
existing conditions, isn't it true that we are justified
in our assumption that failing in the past as an ade-
quate revenue producer it will do likewise in the
future?

4. Why the System Has Failed.

There are several localities in Georgia where the
combined State and local taxes amount to forty-five
dollars per thousand, and quite a number where
they run from thirty to forty, with a still larger
number ranging from twenty to thirty dollars. In
all such, money in savings banks, which earns only
three and a half or four per cent, brings its owner
only enough to pay his taxes. Even when the in-
come from secured debts is five to eight per cent, the
percentage taken for taxes under our present law is
so great that owners almost without exception refuse
to admit having such property. They frankly say
that such a law is so unfair that they propose to
evade it if possible, and it is usually possible. This
condition is the most difficult one to reach and
remedy.

Again, our system fails where no such difficulty
as this is found. To illustrate : In four counties in
Georgia a special agent employed by the State has
just collected $381.96, $1321.34, $1579.23, and $1800,
as business license taxes, which the regular tax of-
ficials had failed to collect. If the system was prop-
erly organized, as any successful private business
would be, this would not have happened. But our
law provides for no such organization.

Georgia collects and spends between seven and
eight million dollars for State purposes alone, not

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to mention what is due her and she fails to get, as
above set out. Isn't it about time to *' recreate" the
entire system, both as to its basic law and adminis-
trative machinery?

II. SUGGESTED EEMEDIES

1 — Changes in Law. Recognizing the pressing
need of an increase in the State's income, the Com-
mission believes that this is not the most importan'
feature of present conditions which.it must attempt
to improve.

A careful investigation has so impressed us with
the inequitable distribution of the tax burden, not
only among the various classes of property, and
among the various localities, but even among the
various items of the same class in the same locality,
that the injustice of the present system, even more
than its inadequacy, seems to us to demand redress.
We deem it our chief duty to try to remedy this con-
dition first of all, and have so formulated our recom-
mendations. The question which we have been
called upon to consider is so important, so vital, in-
deed, to the future welfare of the State, that we have
not thought it wise to advocate measures which,
while they might bring some temporary relief
through an increase in income, would be of no ma-
terial permanent benefit because of their failure
to remove the real cause of the most serious fault in
the present system. Indeed, the Commission is so
impressed with the greater benefit which will come
to the State and its citizens through permanent im-
provement rather than mere temporary relief that
we are submitting a plan which cannot be perfected
under several years, but which, when perfected,
either by the enactment into law of the recommenda-


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