Robert Murray Haig.

The exemption of improvements from taxation in Canada and the United States [electronic resource] : a report prepared for the Committee on Taxation of the City of New York online

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It is not pretended that such testimony as that given above shows defi-
nitely what have been the effects upon building. It does show, however,

(1) Figures are for the fiscal year ending February 28th.


that there are many difficulties in the path of one who seeks to demonstrate
that the effect upon building is very direct and very important.

The citizens of Houston are proud of their many large business build-
ings. An ordinance which has been in effect since January, 1913, provides
that no building " shall exceed one hundred feet in height when occupied
as stores, warehouses or factories, nor one hundred and twenty-five feet
for any other occupancy."(l) The council may make exceptions to this
general rule. There are a number of buildings which exceed the one hun-
dred and twenty-five foot limit. Two buildings, the Carter Building
and the Rice Hotel, are more than two hundred feet in height. The
limit has been exceeded only once since the ordinance has been in force. This
is the case of the Texas Building, whose height is 191 feet.

Even the foes of the system in Houston agree that rents have fallen.
*^ Several business men stated that the town was overbuilt. There is the
usual difference of opinion as to the desirability of the low rents, depending
upon whether the individual is the property owner or a renter. Mr. Pas-
toriza makes much of the decrease in rents, attributing it to the tax system
as a corollary of the effect upon building. The causal connection is no
more definitely established, however, than in the other case.

One of the opponents of the system gives it credit for an unfavorable
^' effect upon speculation. It has made it more difficult, he states, for real
estate men to dispose of outlying property to individuals who sometimes
buy land in order to hold it for a rise in value.

In 1900, according to the results of the United States census, the popu-
lation of Houston was 44,633. By 1910, it had increased to 78,800. Esti-
mates of the present population vary considerably. One local estimate gave
the city a population of 125,000 in 1913 and 135,000 in 1914. Mr. Pastoriza,
basing his estimate upon the city directory, believes the population in 1914
to be about 129,500. The school census revealed a school population of
21,754 in 1913 and 24,064 in 1914, a considerable increase. But in 1914
the area of the city was twice as large as had been the case in 1913 and the
1914 figures include the new area.

Unfortunately the clearing house statistics in Houston were compiled
upon an entirely different basis before 1913 than after that date. Before
1913 the clearings included the debits within as well as between the banks.
The figures are as follows :


1908 $1,063,835,612 00 1911 $1,379,107,623 00

1909 1,279,764,128 00 1912 1,886,008,085 00

1910 1,340,403,095 00

(1) Revised Building, Plumbing, Gas and Electrical Ordinances, 1913, p. 39.


The statistics since the beginning of 1913, when the American Bankers'
Association plan of reporting clearings was adopted, are:


1913. 1914,

January $37,890,336 00 $49,688,421 00

February 39,735,897 00 38,052,508 00

March 49,527,018 00 38,749,183 00

April 35,863,674 00 34,373,981 00

May 39,137,386 00 34,054,952 00

June 30,127,485 00 32,109,004 00

July 32,582,477 00 31,075,665 00

August 36,239,707 00 28,248,054 00

September 48,935,743 00

October 49,864,334 00

November 45,115,291 00

December 41,862,958 00

$486,882,306 00

(a) These statistics were transcribed from the records of the clearing house.

The total receipts of the Houston post-office for a number of years
are given below. Since September, 1910, postal savings receipts have been
included, but the amounts are small :


1908 $302,335 00 1911 $454,316 00

1909 340,567 00 1912 497,796 00

1910 400,880 00 1913 591,033 00

It will be seen that the data presented above is inconclusive. The
changes have been made in prosperous years, have not decreased the tax
base or increased the tax rates above the former figures. There has been
an increase in building activity and a drop in rents. Whether these effects
are due to the tax system alone or in great measure is open to question.

It is an occasion for wonder that the present arrangement, illegal as
it is, persists. (1) For it does persist, in spite of the fact that the people have
had an opportunity to protest against it. Mayor Campbell estimates that
not more than twenty per cent, of the people are dissatisfied. It is true that
there was considerable opposition in 1912 and again in 1914. In 1914 it
accumulated sufficient force to justify formal organization, the Harris
County Taxpayers' Association. Counsel was retained and the preliminary
steps were taken of protesting the assessments before the city authorities.
But little vigor has been shown in taking the case to the state courts, al-
though it is generally agreed that the " Houston Plan " would be declared
illegal if tested in the courts. Why the opposition has been so weak and
ineffective is therefore an interesting question.

Doubtless the most important reason for the absence of dissatisfaction
is that the imposition of the " Houston Plan " really involved less change

(1) Since this was written, certain taxpayers have appealed to the courts for a
mandamus and injunction. On March 3, 1915, the petition was granted and the city
officials were directed to assess according to the terms of the law. J. W. Baker et al.
V. City of Houston et al., No. 65,847.


from the old system than might be expected. Andrew Dow, an ex-council-
man and member of the Board of Appraisement, states that it has always
been the practice in Houston to value buildings at least twenty-five per cent,
lower than land. Just what the change amounted to cannot be estimated
because of the chaotic conditions present before 1912. It will be noticed,
however, that the assessed value of buildings decreased only slightly in 1912.
'^ The increased value of real estate was undoubtedly great enough to absorb
Without shock the initial transition. It must be remembered, also, that the
county tax base on which was levied about one-third of the taxes in 1911,
remained unchanged.

Mr. Pastoriza himself testifies that the change has not been great.
Replying to attacks charging that the great bulk of the taxes were being
shifted to the land, he made the following statement under date of January
28, 1915:

About all the Houston Plan did was to equalize the assessed
value of land and buildings, making the man with very valuable land
pay the same proportion of taxes as the man who owned a less valu-
able piece of land.(l)

The second great reason for the absence of dissatisfaction is the fact
that the reduction of the tax on buildings is inextricably intertwined with
the general improvement in assessment methods. The question has not been,
High or low assessment of buildings? but rather. Low assessments with
equality or high assessments and the old chaotic assessment system? Mr.
Pastoriza has performed a great public service in introducing accuracy and
certainty in the city assessments and the people are undoubtedly very grate-
ful to him.

A third reason why so little objection is made is because property
owners fear what Mr. Pastoriza may do if ordered by the courts to observe
the constitutional injunction of uniform assessments. He promises an
orgy of efficiency in administering the personal property tax. This is a
farce which no one is enjoying more than Mr. Pastoriza himself.

Undoubtedly the majority of the voters of Houston are persuaded that
it is to their advantage to undervalue buildings. Their belief is probably
/Well founded for less than one-half of the area of the city is built upon and
such statistics as are available indicate that approximately one-sixth of the
property owners are non-residents. (2) Moreover, the house of the average
man appears more valuable in proportion to the land on which it stands than
is the typical business block.

Finally, there is no disposition in Houston to refuse free advertising.

It will be seen that the situation in Houston is very complicated and
interesting but that there is little basis for drawing conclusions either in
favor of or in opposition to the plan of exempting buildings from taxation.

(1) Tempest in Teapot (circular).

(2) The county records show that in 1913 one property owner out of every nine
was a non-resident. In 1914, the number had so increased that one property owner
in every six was a non-resident.


B. Pueblo, Colorado

A modified form of the single tax was adopted in Pueblo, Colorado,
in the fall of 1913.(1) An initiative petition had been circulated, calling
for the submission to the vote of the people of an amendment to the
city charter. The vote cast at the election was light and the majority
obtained was not great. (2)

The text of the charter amendment as passed reads as follows :

Section 2, Article IX, shall be amended to read as follows :

Section 2 — Tax Levy, How Made — The council shall have power
to levy by ordinance an annual tax upon all the taxable property
within the limits of Pueblo and upon all the taxable property of
the several parts, water districts and park districts thereof, to provide
funds for the general expenses of the city and for the payment of
interest on the outstanding debts of the city and of the several
parts, water districts and park districts thereof and for the payment
of the principal of such debts or for the creation of sinking funds
for the purpose of making such payments; provided that all taxes
levied shall be levied in the manner following, and not otherwise :

a. — On and after January 1, 1914, a tax of not less than one-
quarter of one mill, and not more than one mill, shall be levied
upon all taxable personal property within the limits of the city,
and upon all taxable personal property within the several parts,
water districts and park districts thereof.

b. — Real estate improvements and all improvements in or upon
land shall, on or after January 1, 1914, be exempt from all taxation-
for municipal purposes to the extent of fifty per cent, or one-half
of its present assessed value ; and all such property shall, on or after
January 1, 1915, be exempt from all taxation for municipal purposes
to the extent of ninety-nine per cent, of its value.

c. — Land, exclusive of all improvements in or upon it, and the
franchises of all public service corporations, and all other rights of
way and franchises in the public streets and alleys shall never be
exempt from taxation for municipal purposes.

d. — Nothing in this amendment shall be construed to abolish or
to reduce, or in any way to affect the taxes and licenses levied upon
saloons, or dealers in, or dispensers of liquors, as such, nor shall
anything herein be construed to affect the collection of taxes hereto-
fore levied and now unpaid.

e. — Nothing in this amendment shall be construed as imposing
a tax upon property used exclusively for purely educational or relig-
ious purposes, or upon such other property as may now by law be
exempt from taxation.

f. — Anything in the charter of Pueblo in conflict with, or incon-
sistent with the provisions of this amendment, is hereby repealed.

Under the plan outlined in this amendment little time is wasted in
putting Pueblo on a land-tax basis. The tax on personal property for

(1) The election was held November 5, 1913. Acknowledgment is made of in-
debtedness to Professor Warren M. Persons, of Colorado College, Colorado, for most
of the data upon which this statement is based.

(2) The vote, as reported in The Public. Nov. 14, 1913, was 2,711 to 2,171.


city and park purposes is immediately reduced to not more than one mill
and, all except one per cent, of the taxes levied on buildings and improve-
_ments for the same purposes are to be removed within another year. It]
should be noted, however, that the assessment in Pueblo is a county assess-? •*' 'J^^
ment and that state, county and school taxes continue to be levied as [ '
before on a base made up of all property. Only the taxes for city and/
)ark purposes, a little more than one-half of the total taxes, are levied
under the new plan.(l) State, county and school taxes, amounting to 13.69
mills, are imposed in 1914 upon the old tax base made up of land, buildings
and personal property. (2) City taxes for 1914 consist of a one-mill rate
on personal property, and a rate of 16.3 mills upon a base made up of the
full value of land and one-half the value of improvements.

The first levy under the single-tax amendment was made late in 1914.
Mr. J. Knox Burton, commissioner of finance and supplies, states that
no changes " in values, rentals, building activity or general business
activity " can be traced to the adoption of the amendment. " As a matter
of fact," he states, " no one has gained anything by the single tax except
merchants renting the buildings they occupy, who are paying this year about
one-eighth the tax on their stock of goods they paid last year." (3)


(1) Figures furnished by Mr. Samuel P. McCoun, the county assessor.

(2) Some Facts About Taxes, The Pueblo Chieftain. February 28, 1915.

(3) Letter dated April 2, 1915.


C. Pittsburgh and Scranton, Pennsylvania

In May, 1913, an act was passed by the Pennsylvania legislature which
changed the tax systems in force in Pittsburgh and Scranton, by prescribing
a gradual reduction in the tax on buildings. The act applies to " cities
of the second class," of which these cities are the sole members. The text
of the act prescribing the terms of the change is as follows :(1)

They (the assessors) shall classify all real estate in the city
in such a manner, and upon such testimony as may be adduced before
them, so as to distinguish between the buildings on land and the
land exclusive of the buildings, and to certify to the councils of
said city the aggregate valuation of city property subject to taxation.
It shall be the duty of said councils, in determining the rate for the
years one thousand nine hundred and fourteen and one thousand nine
hundred and fifteen to assess a tax upon the buildings equal to nine-
tenths of the highest rate of tax required for said years ; and for the
years one thousand nine hundred and sixteen, one thousand nine
hundred and seventeen, and one thousand nine hundred and eighteen
to assess a tax upon the buildings equal to eight-tenths of the highest
rate of tax required to be assessed for those years ; and for the years
one thousand nine hundred and nineteen, one thousand nine hundred
and twenty, and one thousand nine hundred and twenty-one, to
assess a tax upon the building equal to seven-tenths of the highest
rate of tax required to be assessed for those years ; and for the years
one thousand nine hundred and twenty-two, one thousand nine
hundred and twenty-three, and one thousand nine hundred and
twenty-four, to assess a tax upon buildings equal to six-tenths of
the highest rate of tax required to be assessed for those years ;
and for the year one thousand nine hundred and twenty-five,
and for each year thereafter, to assess a tax upon the buildings
equal to five-tenths of the highest rate of tax required to be assessed
for the year one thousand nine hundred and twenty-five, and for
each year thereafter, respectively, so that upon the said classes
of real estate of said city there shall, in any year, be two rates of
taxation. (2)

As will be seen from the above quotation, the initial reduction of one-
tenth of the value of buildings is to be made in 1914; the second ten per
cent, reduction is to be made in 1916; and further reductions of the same
amount are to be made every third year thereafter until 1925, when the
assessment of buildings will equal fifty per cent, of their full value.

It should be noted that this arrangement applies merely to municipal
taxes, not to county taxes; and, moreover, that school rates are not included
within the scope of the plan.

This proposal to reduce the tax on buildings seems to have originated
with the Committee on Housing of The Pittsburgh Civic Commission,

(1) Acknowledgment is made of indebtedness to Mr. W. D. George for his kind-
ness in furnishing copy of the law.

(2) Act of the General Assembly No. 147, approved May 15, 1913.


which recommended, in a report made in December, 1911,(1) that the
legislature enact a law reducing the assessment on buildings to fifty per
cent, of their full value. It is part of a movement toward the rearrange-
ment of the taxation system of Pittsburgh which started several years before.
As early as 1908, when the investigators connected with The Pittsburgh
Survey examined the situation in that city, the tax system in force at that
time began to be the object of sharp criticism. In 1909 the Pittsburgh
Board of Trade began an attack upon the system. In the summer of 1910,
Mr. Shelby M. Harrison was delegated by The Pittsburgh Survey to make
an investigation of the situation and draft a report. This report was pre-
pared late in 1910, and was laid before a number of local bodies which
joined together in a movement to correct the abuses which had been shown
to exist.

Mr. Harrison pointed out two main defects in the tax system of
Pittsburgh as it existed in 1910. The first was the system of classifying
real estate for taxation. (2) Land in the outskirts of the city "either
untillable or used mainly for growing agricultural products," was designated
as " agricultural " land and was taxed at one-half of the full tax rate. A
concession was also given to the so-called " rural " real estate, which was
defined as " district occupied as residences, mainly by business men of the
city, not divided into small lots, but large and of unequal size, ornamented
with lawns, trees, shrubberies, flowers, etc." Such property was taxed
at two-thirds of the full rate. " City " real estate consisted of tracts " either
compactly built up as places of business or residences, or localities con-
tiguous to the built-up portions, laid out into small city lots, partly built
upon, and rapidly being sold or improved."

The second defect consisted of the " separate ward rates." A large
share of the school expenses was allocated to particular districts, with the
result that there were within the city limits sixty-three districts, each with
a separate and distinct rate of taxation.

These were defects, according to Mr. Harrison, because they made it
easy to carry real estate unimproved, thus holding it out of use, and
because they resulted in shifting the burden of taxation from the well-to-do
classes which lived largely in the " agricultural " and " rural " districts,
to the poorer classes in the community who lived in the congested tenement
districts. It should be pointed out that the classification applied not only
to. land but to buildings also.

So effective were the efforts of the organizations demanding a change
in the system, that in 1911 the legislature passed the Halferty Bill, abolishing
the classification of real estate. Moreover, a new school code was adopted,
which did away with the " separate ward rates " for school purposes.
After securing this legislation, attention was turned to the advisability of

(1) Shelby M. Harrison, The Disproportion of Taxation in Pittsburgh. Re-
printed from The Pittsburgh District : Civic Frontage, The Pittsburgh Survey. P. 208.

(2) Ibid., p. 161.


distinguishing between land and buildings for tax purposes, with the result
which has already been indicated. ( 1 ) In the report of the Civic Com-
mission urging the adoption of the plan, it is pointed out that the price of
land in Pittsburgh was higher in comparison to the prices in other American
cities of about the same size. This was caused by the city's peculiar
topography, by over-speculation in real estate, and by the ownership of
great tracts by few individuals. The plan of reducing the tax on buildings,
it was urged, would result in lower rents, because the price of land and
the carrying charges on buildings would be decreased.

Mr. Thomas J. Hawkins, chief assessor of Pittsburgh, is of the opinion
that the law will probably be repealed at the 1915 session of the legislature.

In opposition to the opinion quoted above. Professor J. T. Holdsworth,
of the University of Pittsburgh, believes that there is very little likelihood
of the act being repealed in the near future.

Because of the very complicated tax situation which has been present in
Pittsburgh in the past, and the radical changes which were made in 1911, it
will be very difficult to trace the effects of the new law assessing buildings
at a lower rate. The effect of the classification scheme and the system
of separate ward rates described above was very different in the various
parts of the city. It is quite probable that it will be many years, under the
new law, reducing the tax ten per cent, every third year, before a consid-
erable number of buildings receive the same degree of undervaluation which
was theirs under the old system. The hopelessness of expecting clear-cut
immediate results under these circumstances is patent.

(1) Harrison, op. cit., p. 209.


D. Everett, Washington

In Everett, Washington, a city of approximately twenty-five thousand
inhabitants located near Seattle, the electors voted in favor of a charter
amendment exempting buildings from taxation in November, 1911.(1)
Soon after, a new charter was submitted to the people. The following
section of this charter was adopted in April, 1912:

Section 154. The assessment, levy and collection of taxes on
real and personal property for all corporate or municipal purposes
of the city of Everett, and to provide for the payment of the debts
and expenses thereof, shall be uniform in respect to persons and
property therein : Provided, that for the years 1912 and 1913 there
shall be exempt from such taxation twenty-five per cent., and for the
years 1914 and 1915, fifty per cent., and for the year 1916 seventy-five
per cent., and thereafter one hundred per cent, of the value of all
buildings, structures and improvements, and other fixtures of what-
soever kind upon land within said city. Nothing herein shall affect
property in said city, exempt from taxation under the laws of the
State of Washington.

/ When an effort was made to put the plan into operation, however, the
county officials, whose assistance was essential, refused to pay any attention
to the measure and continued to make the assessments on the old basis.
j This stand was taken, it is said, upon the advice of the state tax commission
< which took the position that the measure violated the constitutional provi-
sion that "all property in the state not exempt by the laws of the United
I States, or under this Constitution, shall be taxed in proportion to its value."
/Threats of legal action were made but the question seems never to have
I reached the courts, the friends of the measure being convinced of the
I hopelessness of the case. The provision has, therefore, never gone into

(1) Single Tax Review, XV, No. 2, p. 78 (March-April, 1915).

(2) Acknowledgment is made of indebtedness for information concerning Everett
to Prof. Ralph E. George, of Whitman College, Prof. E. J. Brown, of Oregon Agri-
cultural College, Thomas P. Howe, secretary, state board of tax commissioners of
Washington, W. H. Clay, mayor of Everett, and Mr. S. E. Skaggs, formerly tax com-
missioner of Washington.



In Part One there are presented in detail the available facts bearing
upon the situation in those places in the United States and Canada where
special land taxes have been adopted. It remains to summarize the evidence
and to draw such conclusions as seem to be justified.


Summary of the Special Land Taxes in Force in Canada and

THE United States

The Canadian municipalities which legally taxed improvements at a
lower rate than land in 1914 are shown in the table on the following page.

In the United States, Pueblo, Colorado, reduced the assessment of
buildings from one hundred to fifty per cent., late in 1914. Pittsburgh
and Scranton, Pennsylvania, the same year, reduced the tax on buildings
from one hundred to ninety per cent.(l) It is impossible to enumerate
the municipalities which undervalue buildings as compared with land without
the sanction of law. Such undervaluation is very common both in Canada
and the United States. Usually it is accomplished merely by the informal

Online LibraryRobert Murray HaigThe exemption of improvements from taxation in Canada and the United States [electronic resource] : a report prepared for the Committee on Taxation of the City of New York → online text (page 27 of 31)