United States. Interstate Commerce Commission.

Railways in the United States in 1902. A twenty-two-year review of railway operations; a forty-year review of changes in freight tariffs; a fifteen-year review of federal railway regulation; a twelve-year review of state railway regulation; and a twelve-year review of state railway taxation online

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Online LibraryUnited States. Interstate Commerce CommissionRailways in the United States in 1902. A twenty-two-year review of railway operations; a forty-year review of changes in freight tariffs; a fifteen-year review of federal railway regulation; a twelve-year review of state railway regulation; and a twelve-year review of state railway taxation → online text (page 2 of 65)
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presented :

1. Nature: Nature of the tax; its application; roads or property exempt, if any; treatment
of leased property.

2. Assessment: By whom; functions and duties of the railroad company in the making of the
assessment, returns, etc.; penalty for failure of return; procedure upon failure of return; time
and place of assessment; rules governing the assessment: powers of the assessing body; record;
and report of assessment, if anj*.

3. Apportionment of valuation: Apportionment to counties, by whom and how made
apportionment to lesser districts, by whom and how made; record of apportionments.



14 RAILWAYS IN THE UNITED STATES IN 1902.

4. Determination of the tax: Bjr whom; time, place, and manner of determining the tax,
and rules concerning the same; rate of the tax, and how computed; notice of the amount of the
tax to railroad companies and State and local officials.

5. Pa3mient of the tax: When due; to whom payable or by whom collectible; distribution
of proceeds; effect of payment, etc.

6. Default of payment: When companies in default; penalty for default; provisions for lien;
collection on default

7. Remedies: To alter taxable value as determined; to alter amount of tax as determined.
In the minor taxes — taxes imposed on privileges, on particular real estate for loch,l purposes,

etc. — seldom if ever are all these headings employed. This may be for either of the two follow-
ing reasons: tirst, because the law itself is so simple as to dispense with some of the complications
of the more general and complex law; or, second, because the general revenue laws themsehes
supph' a procedure that maj' readily be adjusted to the needs of specific taxation of railroads or
other transportation agencies.

It should also be held in mind that throughout the entire analysis, unless there are impera-
tive reasons for doing otherwise, only such laws as are specificallj' applicable to the taxation of
railroads are here anah'zed and discussed. AVhen railroad taxation in any point falls under the
general laws, the analysis usually satisfies itself with a statement of such fact. Any other treat-
ment would involve an almost intei'minable exposition, cumbersome in the extreme.

DESCRIPTION OF STATE BAILKOAD TAXATION.

DEVELOPMENT OF THE PRESENT SYSTEM.

Railroad property was not originally taxed differently from other kinds of property. Its
peculiarities, whether one consider the method of its capitalization, the rules for its valuation,
or its significance from the social or industrial point of view, were not at first adequately under-
stood, or, if understood, were not considered of sufficient importance to warrant special legisla-
tion. One or two States, notably Pennsylvania, differentiated their fiscal treatment of railroads
at the outset, but the general rule was otherwise.

A survey of legislation at the present time, however, shows the law of railroad taxation to be
almost universally a law of special enactment. It is true that, in the great majority of cases,
railroads are still taxed like indi^'iduals upon tlaelr general property, but special methods have
been devised for the application to railroads of the principles of the general property tax. The
method of assessment is usually different. There is not uncommonly an apportionment of the
assessed valuation between the States and the minor civil divisions. The nonphysical or fran-
chise element, either by express provision of the statute or by interpretation of the assessors,
is often considered in the assessment and taxation of railroad property, a practice unknown to
the primitive system. Even in the minor points of administration, as procedure on default of
payment, time of payment, and the like, many diffei'ences may be noted.

It must not be understood that the early method of taxing railroad property has entirely passed
away. Rhode Island is a conspicuous instance to the contrary, for in this State there is no dis-
tinction between the taxation of railroad corporations, in fact of corporations generalh', and the
taxation of individuals. The same was, in general, true of Louisiana at the beginning of the
decade, though, unlike Rhode Island, there were special statutes upon the subject. The effect
of these statutes, however, was not such as to render the taxation of railroads different from the
taxation of other properties. Thus the I'eal estate was assessed and taxed in the parish where
located and the other property at the domicile or principal office of the company in the State.
But by article 2:i0 of the new State Constitution, adopted May 12, 1S9S, provision was made for
the creation of a State Board of Appraisers in\ested with the power " to assess tlie property
belonging to corporations, associations, and individuals employed in railroad, telegraph, tele
phone, and sleeping-car business." Under the provisions of this article, and Act 106, July 13,
1898, which carried it into effect, this State board determines the value for taxation of all the
property used in the railroad business in the State, and distributes this xaluation to the minor



DESCRIPTION OF RAILROAD TAXATION. 15

civil divisions of the State. This was not a rcvohitionary departure from the primitive system.
The real estate continued to be taxal)le where located, the personalty at the domicile or principal
place of l)usiness of the company in the State (Act 17ti, Julj^ 14, IH'.KS), but it is in line with the
evolution toward equality and uniformity, or, in other words, toward centralization of ass(»ssnient,
and as such is a change of signal importance.

It is frequently stated liy writers on the subject that Oregon, like Rhode Isliuid, and like
Louisiana until within the last few years, still adheres to the primitive system, but ther(> seems
good reason for doubting the accuracy of such a statement. Like Louisiana the real estate is
assessed and taxed where located, but for rolling stock there is an entirely different rule. An
Act of November 2-4, 1SS5, provides that the movable property, or rolling stock, shall be appor-
tioned among the several counties of the State through which the line or lines may pass, in the
ratio that the number of miles of such road in each county bears to the total numljer of miles of
the road in the State. It is made the duty of the secretary or managing agent of every such
person, company, or corporation annually ''to make out and send to the county clerks of the
several counties of the State a sworn statement in writing of the total amount of the rolling stock
owned, leased, or opei'ated by such person, company, or corporation, particularly describing it,
and also the number of miles of road operated by such person, company, or corporation within
the State, and the total number of miles of road so operated." The fact, then, that there is some-
thing like an apportionment of rolling stock valuation, though this valuation and apportionment
is not made by a State aiithority, would seem sufficient to remove Oregon at least one stage from
the primitive system. Yet it may be that because there is no State or central assessment of the
other elements of the railroad property, and because the general revenue laws do in most respects
apjjlj' torailroads, it is properly described in broad terms as still adhering to the primitive system.

Again, it is stated by some authorities that New Mexico still clings to the old system, but as
to the manner of the assessment, at least, this statement is open to criticism. Until February 17,
ISHT, the assessment and taxation of railroads conformed in all respects to that of properties of
individuals and corporations. By Act 12, February 17, 1897, however, a territorial board of
equalization was given the power of "fixing the valuation upon all property belonging to railroad,
telegraph, telephone, and sleeping-car companies doing business within the Territory of New
Mexico." And the valuation as made by this board is certified 1)y the auditor of the Territorj- to
the boards of county commissioners "of the various counties in which any of the above-mentioned
class of propert}' may be located." The apportionment is upon a mileage basis.

The conditions in the State of Texas are in a somewhat similar case. Here, at the present
time and throughout the decade, the real estate has been assessed and taxed where located.
The rolling stock is rendered in the county where the companj"- has its principal office in the State;
the return is revised by the county board of equalization of the county in which the return is made,
and the results of such review must be certified to the comptroller of public accounts of the State.
The comptroller apportions the rolling stock valuation to the several counties through which the
railroad runs "in proportion to the distance such road may run through any such count3^"
Supplementary- to the property tax on railroads there is a tax on gross receipts from passenger
traffic payable to the State, and railroad companies are also required to pay an annual "franchise
tax" to the State. In these several respects, then, Texas has grown away from the primitive
system.

The District of Columbia does not distinguish railroad from other property in its revenue
laws, though here, as conditions of administration and political responsibility are somewhat
anomalous, peculiar conditions of taxation might well be expected.

In Hawaii the taxation of railroads is the same as that of other corporations, but a degree of
advancement has been attained there in the provision that where property of several kinds is
" combined and made the basis of an enterprise for profit," such property shall be assessed as a
whole on its fair and reasonable aggregate value. And in making such assessment, net profit,
gross receipts, actual running expenses, the market price of its stock, and " all other facts which
reasonably and fairh* bear upon such valuation " are to be taken into consideration.



16 BAILWAYS IN THE UNITED STATES IN 1902.

EXEMPTIONS FROM TAXATION.

Before entering' upon a more detailed description of the modern method of taxing railroads,
it may be proper to say a word respecting exemptions. The experiments of tlie States with
internal improvements lietween l.s30 and 1845 ended disastrously, and as a result the task
of providing the country with a means of inland communication was handed over to private
enterprise. This change in public sentiment took place about the time that engineers convinced
themselves of the enduring superiority of railroads, as compared with canals. B}^ 186(» the peo-
ple also had begun to realize the importance of railroads and to encourage private corporations
l)y every means in their power to build and equip these new highways of commerce. Aid was
given, subsidies granted, franchises and privileges bestowed, and prominent among these priv-
ileges was a limited immunity from taxation. This practice of exempting railroads from taxa-
tion, however, did not continue for any considerable length of time and very early in their
histoi-y railroads were called upon to contribute their quota for the support of government.

While the above is true, as a general statement, it must not be understood that the exemption
of railroads from taxation lielongs to a policy entirely past. In Arizona acts were passed in 1891,
1893, 1S9.5, 1897, 1899, and 1901 which, in order to encourage the construction of railroads, pro-
vided for exemptions for varying periods in case of compliance with the provisions of the said
acts. In New Mexico, by Act of Februar}^ 1, 1897, it was provided that every railroad corpoi'a-
tion formed under this act should be exempt from all taxation until the expiration of six 3'ears
from the completion of its x'oad, and this act further guaranteed the railroad's profits by the pro-
■^'ision that the maximum charges for freight and freightage as fixed ]>y the act should not be
reduced so as to affect any such corporation until the surplus earnings of its road and telegraphs
exceed ten per cent upon the cost of the construction and equipment thereof. B3' the laws of New
Hampshire it is provided that any portion of every railroad which has not been opened for use
for the period of ten years from September 15th preceding the time when such tax is assessed, shall
be exempt from taxation. The Louisiana Constitution of 1898 provides that any railroad con-
structed after the adoption of such constitution and completed prior to January 1. 1901, shall,
subject to certain conditions, be exempt for ten years from the date of its completion. Thus it
is seen that these provisions for exemption are not limited to States of undeveloped resources.
Some of the older communities even have perpetuated them. The history of the ^lichigan law
during the past decade is well in point here. Act 171, June 30. 1891, reenacting with some
changes the law providing for the taxation of the gross receipts of railroad companies, provided
that the tax should not apply to any railroad or railroad company "hereafter building and
operating a line of railroad within this State north of parallel forty-four of latitude, until the same
has been operated for the full period of ten years," etc., with certain limitations. These provi-
sions reappeared in substance in Act 129, May 27, 18!i3. but w(n-e entirely superseded and abro-
gated by Act 228, June 4, 1897, which provided that " Every railroad company and union railroad
station and depot company owning or operating any railroad situated in whole or in part in this
State" shall pay the tax imposed, the provisions concerning roads built and operated north of
the forty-fourth parallel being omitted. The railroads for this short period exempted from
taxes fought the new law in the courts, but it was decided that the exemption was merely a
gratuity repealable at will.

There have been numerous cases in which the property, franchises, etc., of particular roads
have been exempted in whole or in part, some of which exemptions still continue. North Caro-
lina, prior to 18'.il, exempted three of its most important railroads, but in that year these
exemptions were annulled, the fruit of a persistent agitation. One way in which particular roads
have been released from the revenue laws is worthy of special notice here, viz., those cases in
which francliises have been granted by the United States, and, by virtue of their source and
the conditions of their creation, have been held nontaxable. Several of the Western States in
framing their tax laws have taken cognizance of their incapacity with respect to such properties,
and so have provided that the property real and personal and the franchises of railroads, except
franchises derived from the United States, shall be taxed. It is somewhat beyond our purpose



DKSi'RIPTION OF RAILROAD TAXATION. 17

here, however, to inquire into .special charters and ])articular privileges, and we believe sufficient
has already been said to show that the policy of exempting railroad property from taxation is
still quite tirmly entrenched in the laws of scN'cral of the Commonwealths.

CONDITION OF RAILROAD TAXATION IN 1890.

As alreadj' remarked, the general jtropci'ty tax, that is to say, a tax based on the value of real
and personal property, is quite generally employed by the States in securing contributions from
the railroads, special legislation for this species of property being confined, for the most part, to
, questions of administration and procedure. At the beginning of the decade l.S!)()-li»()(», the main
features of the general property tax found expi-(\ssion in the laws of Alabama, Arizona, Arkansas,
California, Colorado. District of Columbia, Florida, Idaho, Illinois, Indiana, Iowa, Kansas,
Kentucky. Louisiana, ^lissouri, ^Montana, Nebraska, Nevada, New Hampshire, New Mexico, Ohio,
Oklahoma (1S91). Oregon. Rhode Island, Soutli Carolina, South Dakota, Tennessee, Texas, Utaii,
Washington. West Virginia, and AVyoming.

Subject to some (|ualifications several oth(n' States might be included in this list. Georgia
provided for the taxation of rolling stock and appurtenant personalty of railroads, partly in the
State, for State purposes, and of the general property of railroads in the counties through which
the same pass, for county purposes. Mississippi may be properly included, though here an alter-
native system obtained. Railroads at the beginning of the decade were taxable both for State
and local purposes on their general property, but it was stated in the statute that, in case a
company should accept the act providing for the payment of a stated sum per mile for State and
county purposes, said company should be exempt from all taxes on its property, except those
imposed for city and town purposes. Conditions were somewhat similar in North Dakota. By
Act loT, March T. 1SS9, all companies accepting the act were to pay a tax upon their gross
receipts and be exempt from all other taxes whatsoever, and companies not accepting the act were
taxed upon their property under the general laws providing for the assessment and taxation of
property. In North Carolina railroads, as a rule, were taxed upon the valuation of their general
property, and those for any reason not so taxed were subject to a tax upon their gross receipts.
New Jersey presents a distinct case, but may perhaps be classed in this group. At the beginning
of the decade the entire valuation assessed by the State board, i. e., the valuation of all of the
property except that not used in the operation of the road, was subject to taxation for State
purjjoses. The real property used in the operation of the road, but not included in the "main
stem."" as defined, was subject to taxation for both State and local purposes. And, hnalh', the
property owned by the company but not used in the operation of the road was taxable like similar
propert}' belonging to individuals. Virginia also occupies a position on the boi'derland. At the
beginning of the decade railroads were taxed both on their general property and on net earnings,
taxes that continued with but slight changes, throughout the decade.

The general property tax was not in all of the above cases an exclusive tax at the beginning of
the decade. The cases of alternative taxes have been noted. In addition to these cases, in Alaliama
there was a tax to defray the expenses of the railroad commission, levied in proportion to the
gross earnings of the particular road. In Illinois the Illin-ois Central Road, in lieu of other taxes,
paid seven per cent on its gross earnings to the State. In Texas railroads paid one per cent in
gross receipts from passenger traffic in the State for State purposes. Nor should it be assumed
that those States not having the gcnei'al property tax did not, and that frequently, ]eyy a tax
upon some element or elements of the pro])ei'ty. In Minnesota, indeed, the tax on gross earnings
was exclusive; in North Dakota, when at the ix'ginning of the decade and for some years afterwards
the alternative system of gross earnings and general propertj' taxes obtained, companies electing
the gross-earnings tax were exempt from all taxes on property. ' The capital-stock taxes in
Connecticut and Massachusetts were virtually, if not technically, exclusive of taxes on property;
for in Connecticut, if real estate not used for railroad purposes is taxable locally, the valuation
on which the State tax is based is reduced by the amount of the local taxes. Similar conditions
make the Massachusetts law exceptional. Besides these cases, there is not a State or Territory
9563— PT V— ( 4 2



18 RAILWAYS IN THE UNITED STATES IN 1902.

in which some part of the property of railroads did not bear a direct burden of taxation at the
beginning of the decade.

In the paragraphs immediately preceding, the States have been mentioned in which the general
property tax, or something closely allied to it, existed on January 1, 1890. The remaining States
and Territories put in practice some other form of ad valorem taxation or some form of specific,
taxation. In Connecticut the value of capital stock and of funded and floating indebtedness was
taxed for State purposes. The real estate in the State owned by the company, but not used for
railroad purposes, was taxed for both State and local purposes, although, as suggested a>)ove, the
value of this property was deducted from the amount of the valuation of the capital stock taxable
for State purposes. In Massachusetts the value of the capital stock assignable to the State, less
the value of real estate and machinery subject to local taxation, was taxable for State and local
purposes. The real estate and machiner}- were taxable entirely for local purposes. In Dela-
ware, New York, and Pennsylvania, there were taxes on capital-stock valuation which, if not of
major importance in their several systems, wore at least coordinate with the other taxes imposed.
They are discussed below in connection with the specific taxes.

Among the specific taxes, the most prominent is the gross-earnings tax. At the beginning
of the decade it was in operation, in one form or another, as the paramount tax on railroads, in
the States of Maine, Marjdand, Michigan, Minnesota, North Dakota (alternative). Vermont, and
Wisconsin. In New York, Pennsylvania, and Texas, also, the gross-earnings tax was used,
though in each of these cases it was described as an additional tax. In Noith Carolina it was
imposed in an exceptional condition of circumstances. In Delaware a tax on net income was
levied and here was entirelj^ coordinate with the several other taxes. Virginia presents a some-
what similar case, as is shown later on. In Alabama, Maine, and Massachusetts, furthermore,
taxes were levied for the support of the railroad commission, apportioned according to gross earn-
ings of the several companies; in New York, according to net earnings and length of line.

In some cases the gross-earnings taxes were at a stated rate for all companies; in others at a
rate graduated according to earnings per mile of line or some other compai'ative measure. In
Maine the tax was graduated according to earnings per mile of line. In addition to the tax on
gross receipts which is for State, city, and town purposes, a tax was levied on all buildings
within and without the located right of way and upon lands and fixtures without the located right
of way, for municipal purposes. The Maryland gross- receipts tax as operative at the beginning
of the decade was at a stated rate and was for State purposes onh\ The law considered only
such coni])anies as are incorporated in the State, but this fact is not of importance, as there was
in 1890 no railroad company in the State not incorporated, either by the general laws of the
State or l)y some special act of the legislature. The real and personal propertj' was taxable at
the same rate as the property of individuals, for county and municipal purposes, and was almost,
if not quite of the same importance as the gross-receipts tax. The Michigan gross-receipts tax
was graduated according to earnings per mile of line, was payable to the State and applicable to
purposes of a general State nature, e. g., the pul)lic-school expenses, the real property not used
in the operation of the road being taxable for th(>sanie general purposes as is other real property.
The Minnesota gross-receipts tax was exclusively for Stati^ purposes and was declared to be in
lieu of (lU other taxation on the property, franchises, etc., of such companies. In this reo-ard
the law of Minnesota was huI (jencrix at the l)eginning of the d(>cade. It is true that a like law
and practice prevailed in North Dakota, though here, provision for the alternative taxation of the
general property deprived the tax of its rigid character, and now that North Dakota has. throuo-h
the decisions of the courts, entirely abandoned the system of gross-receipts taxation, Minnesota
stands quite by itself. Land held by railroad companies in Minnesota was not subject to taxa-
tion until it had been sold or leased or contracted to be sold or leased by the company. Vermont's
gross-receipts tax was a tax graduated according to earnings per mile of line. It was for State
purposes, and nothing was said about the pi'operty. The Wisconsin gross-receipts tax was o-rad-
uated according to earnings per mile of line for State purpost^s. But it was expresslv provided
that lands owned or claimed by the railroad not adjoining the tracks should be subject to taxation



DKSCRIPTION OF EAILKOAD TAXATION. 19

for the sumo purposes as other lands, and property otherwise exempt, that is, all property used
in the operation of the road except lands not adjoining the tracks, was taxable for local iiHpi'o\c-



Online LibraryUnited States. Interstate Commerce CommissionRailways in the United States in 1902. A twenty-two-year review of railway operations; a forty-year review of changes in freight tariffs; a fifteen-year review of federal railway regulation; a twelve-year review of state railway regulation; and a twelve-year review of state railway taxation → online text (page 2 of 65)