"All lands liable to taxation in this state, held by deed, grant or entry, shall be taxed equal and uniform, in such manner that no one hundred acres shall be taxed higher than another, except town lots which shall not be taxed higher than two hundred acres of land each. No freeman shall be taxed higher than one hundred acres, and no slave higher than two hundred acres on each poll.” 1 From 1800 to 1860. During the first half of the nineteenth century, new and revised state constitutions gave more attention to the subject of taxation. The Illinois constitution of 1818 contained a more positive requirement than in any previous constitution that taxes should be levied by valuation so that each person will pay in proportion to the value of his property. The Missouri constitution of 1820 had a similar provision. That of Maine in 1818 and of Alabama in 1819 required taxes on lands and real estate to be assessed in proportion to valuation. Other constitutions adopted during this period also contained provisions for taxation by valuation, with specifications as to the property to be taxed, and also some provisions as to exemptions. In the later years of this period, new and revised constitutions contained longer and more detailed provisions, including restrictions on state debt, as in the Illinois constitution of 1848. The second Ohio constitution of 1851 had still more explicit provisions as to the taxation by a uniform rule of all moneys, credits and other intangible property, as well as real and personal property. This probably marks the maximum of express constitutional provisions for a uniform general property tax. From 1860 to 1900. In the latter part of the nineteenth century the state constitutional provisions on taxation and finance became still more detailed. In most states the general property tax remained the basis of the tax system, and requirements for uniformity were continued. But some modifications were authorized. Classification of property for taxation was authorized in the constitutions of Pennsylvania (1873), Colorado (1876), Georgia (1877), and Delaware (1897). Various forms of special taxes, usually in addition to the general property tax, were authorized-such as taxes on occupations and business, on corporations and on inheritances and incomes. On the other hand, poll taxes were abolished in many states; while numerous provisions relating to exemptions were adopted. Other provisions in a number of states prohibited the surrender of the power of taxation, and in some cases prohibited the commutation of taxes. Restrictions on state debt limits were adopted in most states, and in many states limits were also placed on municipal debts. In a number of states limitations on tax rates were placed in the constitutions. 1 Tennessee Constitution of 1796, Art. I, Sec. 26. 1 Since 1900. Changes in the provisions of state constitutions relating to taxation have been proposed in large and increasing numbers since 1900; and a large proportion of proposed changes have been made by the adoption of constitutional amendments and by new or revised constitutions. From 1900 to 1906, 52 proposed amendments on taxation were submitted to popular vote, of which 37 were adopted and 15 failed. From 1907 to 1918, there have been 205 amendments submitted, of which 101 were adopted and 101 failed. Constitutional Amendments on Taxation This movement has been widespread. One or more amendments have been submitted in all but six states (Vermont, Connecticut, Khode Island, Delaware, New Jersey and Indiana). But some states have been much more active than others. Proposed amendments have been most numerous in Louisiana (35), California (30), and Missouri (23); and have also been frequent in Oregon (18), Utah (13), South Carolina (14), Minnesota (14) and Ohio (10). In Missouri and Minnesota most of the amendments proposed have failed. A large number of these proposed amendments have been on matters of minor importance, such as changes in tax rates and methods of administration, taxes for specific purposes, small changes in exemptions, and (in South Carolina) relating to special assessments in particular cities and towns. But important changes in the rules and methods of taxation have also been proposed and adopted. Amendments or new constitutions authorizing the classification of property for purposes of taxation have been submitted in about 20 states (in some states several times), and have been adopted in 11 states Minnesota, Michigan, Oklahoma, New Mexico, Arizona, Louisiana, Kentucky, North Dakota, South Dakota, Maryland and Oregon.2 An amendment authorizing classification received an affirmative vote in Ohio in 1918; but was held to conflict with another amendment to prevent double taxation which had been adopted by a larger vote. A number of states have provided for more specific modifications of the general property tax, by provisions for exemptions or for special taxation of certain classes of property: Mortgages have been exempted in Utah, Louisiana, California, and North Carolina; laws to prevent double taxation of mortgages and the property mortgaged have been authorized in Ohio; and a special tax on intangible property has been authorized in Maine. State income taxes have been authorized in Virginia, Wisconsin, Ohio and Massachusetts; special corporation taxes in Ohio, South Dakota and Louisiana; special methods of taxing mines in Virginia, Nevada and Utah; and special taxes on or exemption of forest lands in Massachusetts and Ohio. Exemptions have been provided for vessels in California, Louisiana and Oregon; for property of educational institutions in California; and for farm products in the hands of the producer in Georgia. Active efforts have also been made to obtain other and more fundamental changes in taxation. The separation of state and local taxation has been authorized in Oklahoma and more definitely established in California; but proposals for separation have failed in other states. The single tax on land values has been proposed in several states (sometimes in connection with provisions authorizing income, excise and inheritance taxes), but thus far has not been adopted in any state. Single tax proposals were rejected in Colorado (1902), Oregon (1912), Missouri (1912 and 1918), and California (1916 and 1918). An amendment authorizing local option in taxation was adopted in Oregon in 1910, but was repealed two years later. California in 1912 rejected local option in taxation. Existing constitutional provisions. At the present time the states may be arranged in several groups, on the basis of the degree of legislative freedom, especially from the requirement of a uniform general property tax. Five states have no definite constitutional restrictions relating to the subjects or methods of taxation, or only brief and indefinite phrases which are held by the courts not to limit legislative discretion. These are: New York, Connecticut, Rhode Island, Vermont and Iowa. Fifteen state constitutions now have definite provisions authorizing the classification of property for taxation. These are: Pennsylvania (1873), Colorado (1876), Georgia (1877), Delaware (1897), Virginia (1902), Minnesota (1906), Oklahoma (1907), Michigan (1908), Arizona (1911), North Dakota and New Mexico (1914), Kentucky and Maryland (1915), Oregon (1917), South Dakota (1918). Eight states have constitutional requirements for uniformity of taxation, which have been construed by the courts as permitting classification to some extent at least, and requiring uniformity only for each. class. These are: New Jersey, North Carolina, Florida, Alabama, Mississippi, Indiana, Kansas and Wyoming. Four states have provisions for uniformity, but also clauses which seem to permit classification. These are: Missouri (1875), Idaho and Montana (1889), and Louisiana (1916). Eight states have provisions for uniform taxation of property (or provisions which have been construed as requiring uniformity) supplemented by provisions for special taxes of certain kinds. These are: California, special state taxes on corporations, etc., established in 1910, and separation of state and local revenues; Illinois, special taxes on certain specified occupations, businesses and franchises are authorized; Maine, amendment of 1913 authorizes taxation of intangible personal property at special rate; Massachusetts, amendments of 1912 and 1917 authorize special taxation of forests and incomes; Virginia, Nevada and Utah, recent amendments authorize special taxation of mines; Ohio, amendment of 1918 authorizes laws to prevent double taxation of mortgages and mortgaged property; Wisconsin, amendment of 1908 authorizes special taxes on incomes, privileges and occupations. Eight states have constitutional provisions for uniform taxation which are held to debar classification. These are: Arkansas, Nebraska, New Hampshire, South Carolina, Tennessee, Texas, Washington and West Virginia. In an appendix to this pamphlet are printed a number of typical constitutional provisions on taxation. That of New York represents the states with practically no specific provisions on taxation: that of Pennsylvania shows brief and liberal provisions authorizing classification; those of Kentucky, Maryland and South Dakota are more detailed classification provisions. The Wisconsin provision specifically authorizes an income tax, and the Minnesota provisions provide for classification with specific reference to gross earnings taxes on railroads. The Ohio provision illustrates the extreme form of the requirement of uniformity, modified by the amendment of 1918 to prevent double taxation in connection with mortgages; and with this is published the liberal classification amendment voted on in 1918. The Illinois provisions are typical of the states still requiring the uniform general property tax; but authorizing special taxes in addition. The California provisions show a detailed system of classification and of segregation of state and local revenues. Tax Laws and their Operation. Some light may be thrown. on the problem of taxation in Illinois by examining briefly some features of the tax laws and their operation in other states, especially those with less restrictive constitutional provisions than Illinois, where industrial and social conditions are comparable to those in Illinois, and where recent changes in taxation have been introduced. For this purpose, there will be considered conditions in the large and important eastern states of New York, Pennsylvania, Massachusetts and Maryland; in the middle-western states of Iowa, Kentucky, Minnesota and Wisconsin; and in California. These states present a variety of illustrations of different methods of taxation, involving departures from the uniform general property tax. In most cases a much larger use is made of taxes on corporations for state revenue than in Illinois before 1919; and special taxes on mortgages, intangible property and incomes are successfully used in place of attempting to tax intangible property under the general property tax. The tax laws of these states will indicate some of the methods which could be considered in Illinois, if the restrictive provisions of the present constitution were relaxed or removed. New York. The constitution of New York state contains practically no restrictions on the legislature in matters of taxation, but before 1880, the general property tax was in use as the principal source of state and local revenue. Serious complaints as to the escape of personal property from taxation, especially in the case of corporations, led to the introduction in 1880 of new franchise taxes on corporations. Since then corporation taxes have been greatly developed ; and in addition an elaborate series of special taxes has been established-including an inheritance tax, an excise tax, a motor vehicle tax, a tax on transfers of shares of stock, a mortgage recording tax, a tax on secured debts or investments, and (in 1919) a tax on incomes. Corporation taxes include organization and license fees, an annual franchise tax on capital stock, additional taxes on certain classes of corporations based on gross earnings and dividends; and a tax on the income of other business corporations. About 30 per cent of the general revenue of the state has been received from corporation taxes. Other important sources of state revenue have been the excise, inheritance and stock transfer taxes, and automobile license fees. For several years the direct property tax was almost eliminated for state revenue; but in recent years about 20 per cent of the state general revenue is from this source. The mortgage recording tax is at the rate of five mills on the dollar; and the net revenue is divided equally between the state and county. The tax on investments is at the rate of 20 cents per annum on each $100 of face value. This applies to serial bonds, notes, debentures, etc., except bonds secured by mortgage on real property wholly within the state. A tax of three per cent on the income of mercantile and manufacturing corporations was imposed in 1917, corporations subject to this tax being exempt from taxation on their personal property, and from the capital stock and the annual franchise tax. Two-thirds of the revenue from this tax goes to the state and one-third to the localities. In 1918 this tax yielded approximately $18,000,000. In 1919, this corporation income tax was extended to all "business corporations"-applying to all corporations except public service, insurance and financial companies. The rate was increased to 41⁄2 per cent. |