DETAILED EDUCATIONAL STATISTICS FOR NORTH CAROLINA AND UNITED STATES,

TAXATION FOR STATE PURPOSES IN PENNSYLVANIA NATHAN C. SCHAEFFER, STATE SUPERINTENDENT OF PUBLIC INSTRUCTION FOR PENNSYLVANIA

The revenues of the state of Pennsylvania for the fiscal year ending November 30, 1904, were $19,560,698.15. Out of this revenue about six millions were set apart for educational purposes. Not a dollar was derived from taxes on real estate, which is taxed only for local purposes. According to the estimates of the auditor general, this revenue would be diminished by $13,853,865.00, if railroads and other corporations were to pass under federal

control as proposed by Mr. Garfield. The loss to the public schools of Pennsylvania would be very serious and far-reaching.

Very few persons, even in Pennsylvania, know how the state gets its revenue. It has therefore been deemed proper to add statements showing from what sources this revenue is derived, and how the present system of taxation for state purposes was developed. The statement of the sources of revenue is from the pen of Mr. H. C. Greenawald of the Treasury Department. The "Historical Sketch of Tax Legislation" is reprinted from Eastman's treatise on Taxation for State Purposes in Pennsylvania.

SOURCES OF REVENUE

Tax on capital stock.-Corporations pay a tax of five mills upon the actual value of their capital stock of all kinds, common, special, and preferred. Manufacturing companies are exempt (including newspapers) except such as are engaged in brewing or distilling spirits or malt liquors, and such as enjoy and exercise the right of eminent domain. Under a proviso, fire and marine insurance companies pay three mills. See supplement to act approved June 1, 1889, as amended 1891 and 1893.

Tax on loans.-Taxes on corporate and municipal loans, at the rate of four mills, are deducted by the treasurers of corporate bodies or municipalities from the interest when paid to the holders of their bonds or other obligations, and by them paid into the state treasury. The compensation is 5 per cent. on the first thousand, 1 per cent. on the second thousand, and half of 1 per cent. on all sums over $2,000. Moneys loaned at interest to individuals are returned by the lender to the local assessor and tax on same (four mills) paid to county treasurer, and by him to state treasurer. This constitutes what is known as 'state personal tax," three-fourths of which is returned to the counties paying the same. There is no tax whatever on real estate paid into the state treasury. In addition, transportation, transmission, and electric light companies pay a tax of eight-tenths of I per cent. on gross receipts earned in Pennsylvania.

Tax on premiums.-Foreign-fire, marine, life, and accident-insurance companies pay, thru the insurance commissioner, a tax of 2 per cent. on all business in Pennsylvania. Domestic insurance companies pay eight-tenths of 1 per cent. on premiums within the state.

Bonus on charter.-New corporations pay one-third of 1 per cent. on amount of authorized capital stock in addition to fees paid to the secretary of the commonwealth.

Tax on bank stock.-Banks pay four mills on actual value of shares as indicated by adding together the amount of capital stock paid in, surplus and individual profits; dividing same by number of shares; or ten mills on the par value. Banks are exempt from local taxes, except on real estate.

Notary public commissions.—A fee of $25 for each commission is collected by executive department.

Fees of office.-Paid quarterly by secretary of the commonwealth, insurance commissioner, secretary of internal affairs, health officer of Philadelphia, and attorney general, after $7,000, which amount he retains, annually, in addition to fixed salary.

Tax on writs.-Registers, recorders, and prothonotaries of the several counties pay 3 per cent. on all receipts of fees, for entering judgments, agreements, mortgages, and other instruments of writing.

Collateral inheritance tax.-There is a tax of 5 per cent. on clear value of all estates which go to heirs, other than father, mother, husband, wife, or children and their descendants born in lawful wedlock, and also on bequests to other than as stated.

Licenses.-Licences on mercantile, liquor (wholesale and retail), brewing, distilling,

eating-houses, billiard saloons, on brokers, auctioneers, peddlers, theaters, and circuses are collected by county treasurers and paid into the state treasury monthly.

Expenses of bank examinations.—This is a tax on state and private banks, loan associations, etc., to reimburse in part the commonwealth for cost of making these examinations by the state bank examiners of the banking department.

Interest on treasury deposits of state moneys.-The state now receives 2 per cent. interest on all deposits, payable May 1 and November 1.

Altho the receipts of the treasury are $19,370,447.39, less than $17,000,ooo of the amount can be used for the payment of appropriations. As a matter of revenue the difference is a fiction. In the summary of the receipts I have indicated by italic type items which are paid in and returned by auditor general's warrant, viz: Three-fourths of the state personal tax, personal fees of office, annuity for right of way from Erie Railroad company, all licenses and fines from the department of agriculture, game commissions, fish commissions and forestry commissions.

STATE TREASURY OF PENNSYLVANIA, RECEIPTS FOR YEAR ENDING

HISTORICAL SKETCH OF TAX LEGISLATION IN PENNSYLVANIA

(From Eastman's Taxation for State Purposes in Pennsylvania)

Prior to 1831 Pennsylvania could hardly be said to have any system of state taxation. For many years the expenses of state government were so small as to permit of being almost wholly defrayed by the revenue derived from sales of lands, from the dividends paid on stocks of corporations in which the state had invested, and from similar sources. The commonwealth's quota of the Revolutionary War debt was apportioned among the counties. In 1814 a tax was laid on bank dividends, and prior to 1826 this tax, with certain taxes on court officers, constituted the entire state taxation, save in the way of licenses. In 1826 the tax on collateral inheritances was imposed, which is still in existence.

In 1831 the first act creating anything like a system of state taxation was passed. It taxed ground-rents, moneys at interest, moneys owing by solvent debtors, mortgages, and corporation stocks on which dividends were paid, public stocks, except those issued by the state, and pleasure carriages, one mill on the dollar of the value thereof annually. This tax was collected by the county officers for the use of the commonwealth. In the same year the commissioners of the several counties were required to increase the county rates by one mill upon the dollar of the value of all real and personal property subject by law to local taxation, and to pay the additional amount raised in this manner for the use of the state. Both the act providing for this taxation and the other act of 1831 above referred to were limited in their operation to five years, it being generally believed that, at the expiration of that time, the income from the gigantic public works, consisting of canals, railroads, etc., which were then in course of construction, would be sufficient to defray all expenses of state government. Both acts of 1831 were repealed by acts of February 18, 1836, and March 10, 1836. From 1836 to 1840 the commonwealth realized certain large sums from the United States bank, incorporated as a state bank after the expiration by limitation of its charter from the general government, and from the United States, the surplus then existing in the United States treasury being divided among the several states. At the beginning of 1840 the taxes on bank dividends, collateral inheritances, writs, etc., and licenses, were the principal sources of state revenue.

The debt created for the erection of the public works had by this time assumed such proportions, and the interest charge thereon was so onerous, that it soon became apparent that the commonwealth could not look to the income derived from such works as a means of defraying the expenses of government; and the sale of the works began to be agitated. At this juncture was passed the act of June 11, 1840, which imposed a tax of one mill on the stock of banks and other institutions making or declaring a profit, half a mill on certain personal property, a small tax on household furniture, pleasure carriages, and watches, and a tax on the salaries of the officers of the state. It was estimated that these taxes would produce $500,000 or $600,000 per annum. As the interest charge on the public debt alone was $1,600,000 for that year, however, this act proved ridiculously insufficient for the purposes which it was intended to attain, and in 1843 the commonwealth defaulted in the payment of interest to its creditors.

The storm of criticism which followed this violation of faith resulted in awakening all citizens to the demands of the hour, and on April 29, 1844, and act was passed, very sweeping in its provisions, which forms the basis of the tax system now in existence.

The act of April 29, 1844, created the existing taxes on capital stock and on personal property. The state tax on real estate therein provided for was repealed by act of February 23, 1866 (P. L., p. 83), and the tax on horses and cattle, for state purposes, by act of March 21, 1873 (P. L.. p. 46). The tax on watches, household furniture, and pleasure carriages was repealed by act of May 13, 1887 (P. L., p. 114). The said act of 1844 also originated the practice, universally observed in subsequent legislation, of taxing corporations directly thru state officers, and personal property through the medium of county officers, acting, for that purpose, as agents of the state.

From the inauguration of the new system of taxation by the acts of 1844 and 1846, down to the beginning of the Civil War, no material changes were effected in that system. The taxes on personal property, capital stock of corporations, bank stock and dividends, writs, deeds, etc., fees of public officers, collateral inheritances, and the various kinds of licenses, constituted during that time the main sources of revenue.

The breaking out of the Rebellion necessitated greatly increased expenditures, and to meet these new taxes were imposed. Among these were the tax on the net earnings or income of private bankers and brokers (1861); the tax on the gross receipts of transportation companies (1866); tax on the net earnings or income of corporations (1864); tax on tonnage of transportation companies (1864); tax on the mining of coal (1867); and