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WAGE CERTIFICATES TAXED AS NOTES

In 1882 the Philadelphia and Reading was in poor financial condition, which condition had been forerun by an issue of wage certificates made somewhat previously. These wage certificates were simply the promissory notes of the company issued in small denominations to its employees in lieu of cash. Under the act of 1875, which laid a tax on the issue of notes for circulation, these wage certificates were taxed, and the railway company asked to be relieved. A bill was introduced to relieve the creditors of the road-it being in bankruptcy-from paying the tax.23 The committee on ways and means which reported on the question24 thought that it was not the purpose of Congress to prevent corporations or individuals from issuing promissory notes and that the wage certificates were not currency, but did not commit itself further. The company seems to have been taxed, for the bill was laid on the table and no further record of the matter is found.

TAXATION OF LAND GRANTS

In treating of the relation of Congress to railway taxation the subject of land grants should be given mention. It was held by the supreme court that technically the title to lands granted by Congress did not vest in the railroad companies until formally certified and patented, and that the states could not tax these lands so long as they were public lands and did not belong to the railways.25 Accordingly railway companies found it to their advantage to delay patenting as long as possible and thus avoid taxation. Millions of acres were held by them, and even made the basis for bond issues, without paying a dollar of taxes.26 It is little wonder that many bills were introduced with the purpose of declaring such lands subject to state and local taxation. Needless to say the Pacific railways were the great offenders in this matter.

» Cong. Rec., 1881-82, pp. 884-890.
** H. Rep., 1881-82, no. 25.
25 16 Wall. 607, R. R. vs. Trescott.

* For accounts of the situation see H. Rep., 1873–74, no. 474; 1878-79, no. 709; Sen. Docs., 1875–76, no. 20; Cong. Rec., 1885-86, p. 1428. And see above,

p. 25 l.

The evil appears to have reached a climax about 1886, the Northern Pacific being a chief offender.27 It was stated that this road held 50,000 square miles subject to a provision that no patents should issue until all fees arising from selection and survey had been paid. But until patents were issued the land was untaxable. The railway profited by the situation in a twofold way: it exempted itself from taxation by not paying the fees; and demanded a high price for the land, as being tax-free! The Northern Pacific was not the only offender. A law was finally enacted to provide for the taxation of railroad land grants; such lands were not to be exempt from state or local taxation because of any lien of the United States for selecting, surveying, etc.28

SUMMARY

As the present chapter has been chiefly occupied with a war tax it might have been included in the preceding chapter, but inasmuch as the subject of taxation has such economic distinctness it has seemed well to devote separate attention to it. Moreover, the internal revenue taxes of the Sixties are not the only taxation matters in which the government has been related to the railways.

The conclusion to be reached, as to the record of facts and events, is that in no case has a federal tax been avowedly levied upon railways. The tax upon gross receipts was laid with the idea that it would be shifted; and, though we know this could not well have occurred in the case of railways having a monopoly, it was stated to have been generally done. Making due allowance for the operation of patriotism and for the increased demand for transportation on many lines, the deduction might be made that many railways were not receiving the highest net returns prior to the war. Water competition was of considerable importance, and most railways were in poor financial condition at that time.

27 See Cong. Rec., Feb. 15, 1886, p. 1428 ff. 28 Statutes at Large, 24: 143.

It is obvious that the tax on interest and dividends was a part of the income tax system and it seems proper to regard the whole tax simply as a means of raising revenue from the people. Congress certainly did not comprehend the complicated action and reaction of the tax, nor the extent to which it would lie with the railways.

In addition, railways were subjected to stringent restrictions in certain cases where they were designated as routes for carrying dutiable imports, and their notes in the form of wage certificates were taxed. There was a strong movement against the taxes imposed by certain states, and an effort was made to subject un patented land grants to state and local taxation.

The growth of nationalism during the war has been commented on, and it is in connection with this fact that the attack on illegal state taxes should be considered. Coming just about 1870 on the eve of the beginning of active state and national railway regulation, it indicates the growing restiveness of the nation under the abuses of the old railway regime. And the passage of a tax so clearly bearing on intrastate traffic is further evidence of the same tendency.

INCORPORATE RAILWAY

CONGRESS FORBIDS TERRITORIES TO

COMPANIES : 1867

The first important action taken by Congress concerning railways in the territories came in 1867, when they were forbidden to incorporate railway companies. The act was amendatory to an act to provide a temporary government for Montana passed in 1864. Section one enacted that, after its passage, the legislative assemblies of the several territories of the United States should not grant private charters or special privileges; but they might, by general incorporation acts, permit persons to associate

mselves together as bodies corporate for mining, manufacturing, and other industrial pursuits." ;

Railway transportation clearly might have been included as an industrial pursuit, but it was not so construed and for five years after 1867 Congressmen were accustomed to preface arguments for bills incorporating railways in the territories by remarking that these political units could not incorporate railways.

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TERRITORIES AUTHORIZED TO INCORPORATE RAILWAYS BY GEN

ERAL LAWS: 1872

The right to incorporate railways being denied the territories and concentrated in Congress, the evils and difficulties of special legislation soon became apparent. In 1872 a bill was up in the Senate which proposed to annul a general law passed by the territory of Dakota authorizing subscriptions by counties and townships to railway companies, but excepting from its ban anything done towards authorizing and constructing the Dakota Southern railroad, running from Sioux City, Ia., to Yankton.8

The committee on territories, which reported the bill, approved the particular railway concerned, but favored the nullification of the territory's general law. The fear had arisen that the territory had gone beyond its power in passing the general law and allowing subscriptions and bond issues, so that it had

Statutes at Large, 14: 426. & Cong. Globe, 1871-72, p. 2836.

The bill went over and was not passed.

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the earlier years of the second half of the century: it was on a stronger basis than interference within a state; but its constitutionality was doubted, while its inexpediency was certain.

EPISODE WITH LAND-GRANT RAILWAYS

During the years just referred to the congressional history of railways in the territories consists mainly of land-grant affairs. One illustrative episode follows. In 1854, Congress granted land to Minnesota for railways with the proviso that none should enure to companies then constituted or organized. It was charged that during the course of the bill the words were fraudulently altered by substituting and" for "or" in the proviso and that a “company of Wall Street land catchers" under the name of the Minnesota and Northwestern Railroad Company had profited by the change in that, technically, they had been only “constituted” at the time of the grant, not organized. Accordingly it was resolved that, whereas the law organizing the territory of Minnesota provided that all her legislation should be submitted to Congress for approval and if disapproved be void, the act incorporating the Minnesota and Northwesternand the Transit Company-be declared null and void.

Down to the time of this action seven railway companies had been incorporated by Minnesota, so that five companies remained intact. Mr. Rice (Minn.) then offered a resolution that the charters of these other companies be annulled on the ground that otherwise discrimination would result." He desired to save the land grant,-believing the territory able to act wisely in its own interests and regretting Congressional interference in local affairs,—and wished a fresh start. The entire grant was finally repealed.

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3 Statutes at Large, x: 302, s. 3. * Cong. Globe, 1854-55, p. 450, 451. s Ibid., p. 481. This resolution does not appear to have been carried. Ibid., pp. 2172, 2178.

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