"7. To obviate the criticism that both gross and net earnings vary from year to year, it is suggested that in place of a single year's income account, the average income account of a period of 10 years be accepted as the basis of computation. The reason for accepting a period of 10 years is that under existing commercial conditions it is likely that the corporation whose property is appraised would during that period pass through years of both prosperity and adversity. "8. It will be observed that the above rule fails to appraise the speculative element in railway property. While this element doubtless affects the price of corporate stocks and corporate bonds, it is not entirely clear that it should influence appraisals for the purpose of taxation. Should, however, the commission desire to compute the present worth of property, as resting upon expectations in the future as well as upon earnings in the past, the pertinency of the above rule would not thereby be impaired. This is true because the speculative value of properties must, from the nature of the case, be a modification of their value computed upon the basis of their earning capacity." We are advised that the "certain per cent" referred to as a basis of capitalization in the foregoing rule was 4 per cent, that being regarded as a proper criterion for the purpose for which it is employed. While it is possible that this theoretical method applied to all income-producing property and business of corporations and natural persons throughout the State might evolve" equal taxation," we apprehend that the suggestion of such a universal application would not commend itself to general public esteem. Certainly its rigid application as a basis of valuation to one class of property upon which is to be levied the "average rate" of taxation, while all other property is assessed under the general property tax, would result in taxation unequal in the extreme. When this complicated and expensive process is followed out, the fact remains that a tax based upon such valuations is nothing more or less than a tax upon income, and its use would transform the general property tax, with respect to one class of property, from a mere inefficient and inadequate method to a system of extortionate taxation sanctioned by law. Its modification with a view to the attainment of approximate equality would obviously require the vesting of discretion and power of adjustment as to rates or valuation in a board, and involve continued contention; in short, would continue the fundamental defects of the property tax which progressive thought and legislation is seeking to escape. If adopted, it would apparently be a distinct departure from correct principles. RAILROAD VALUES. The result of the foregoing appraisment of physical and nonphysical values is shown as follows: Cost of reproduction, all elements new, by Professor Cooley ... Cost of reproduction, allowing for depreciation, by Professor Cooley. $201, 013, 081 164,812,230 35, 988, 632 200, 800, 862 Total value of physical and nonphysical elements. The compilation of these novel reports in their detailed forms will occupy 7 volumes. APPRAISAL BASED ON EARNING POWER. Besides the appraisals of Professor Cooley and Professor Adams, another appraisal of the values of railroad properties in Michigan was prepared by Robert C. Oakman, one of the State tax commissioners in 1900. The values of the former were absolute, no attention being paid to the conditions of operation or prosperity of the roads. Mr. Oakman's values were based chiefly upon the principle of earning power, due regard being given to such elements as advantage and disadvantage of location, quality, quantity, market facilities, environment, and other conditions, which, while not susceptible of separate valuations, are considered as means of fixing the true value of a property as an entirety. Due regard was also given to gross earnings, expenses, stock values, bonded debts, etc. Mr. Oakman says in his report that the board " has found that in the markets of the world these properties have a value which is measured mainly by the income which they will produce. The commercial world, when it desires to invest in stock and bonds issued by these corporations, informs itself about the earning capacity of the properties on which they are based. All its searchlights are directed upon their earning power. Why should not the State do likewise?" He also points out clearly that the State board in the valuation of these properties has followed the mandate of the law to ascertain their actual cash value. The following comparison of taxes based upon Mr. Oakman's valuations is made: Specific taxes paid on railroad earnings in 1899, $1,240,730.90, showing a rate of taxation based upon cash valuations of $6.652 per $1,000. Taxes that would have been paid under the average rate of 1899, $21.13 per $1,000, $3,940,985.57. Taxes that would have been paid under average rate of 1900, $15.47, $2,885,331.13. What the average rate of taxation might be in case all the property in the State were as completely valued by the method applied to railroad property is significantly omitted. Commenting upon the work of the commission in his report, Mr. Oakman says: "If railroad property is to be assessed and taxed at cash value at the average rate, and not specifically, it would, in my opinion, be unfair to allow exemptions or deductions of other property in the State. It must be remembered that restrictions of rates and fares of transportation companies operates as a tax. Hence all exemptions of other property creates an excess as against those incapable of shifting the burden. When exemptions are made or deductions allowed the total of such exemptions or deductions is thrown upon property which is not exempt. "I wish to say that months before any law taxing railroads on an ad valorem basis could take effect there would be ample time in which to give these appraisals a thorough review, to the end that railroad properties would be assessed and taxed in the same manner and to the same extent' as other properties paying taxes under the general tax laws of the Commonwealth." Earning power is the keynote of his valuation. In the manner thus briefly set forth Mr. Oakman estimates the cash value of the railroad properties of the State to be $186,511,885.34. The following comments on "fixing valuations" are taken from his report: "Having in mind the necessity for the specific examination of the roads, it may be stated that the valuation of the railroad property operated within the State found by capitalizing at 6 per cent the net earnings of the revenue-producing roads, figured upon the system herein referred to, and computing the earning power of the roads showing deficits in operation in their reports on the basis of the average ratio of expense to income for all the roads within the State, say 73.79 per cent, will reach the sum of $186,511,385, while the valuation of the same property computed throughout on a capitalization of 6 per cent upon net earnings, based upon the said average, 73.79 per cent of expense to income, will amount to $172,154,412. It is probable that an examination of the accounting method of the roads as suggested, and a further investigation as to location, traffic arrangements, terminals, connections, and other elements that go to make value, would result in a material increase, or perhaps some decrease in special cases, of the valuations which appear in the appendix." REPORT ON TAXATION IN CANADA. [Prepared under the direction of the Industrial Commission by GEORGE CLAPPERTON, expert agent.] The systems of taxation in vogue in the Provinces of Ontario and Quebec, which are fairly representative of the systems throughout the entire Dominion of Canada, present features and principles of especial interest and importance. A distinctive feature of the systems of taxation in the provinces named is the complete separation of municipal from provincial or state taxation. Each municipality (county, city, or town) is entirely independent of the Provincial Government in the assessment and levying of taxes for local purposes. In the Province of Ontario the "Revenues from Companies," so called, is becoming an important source of provincial taxes, and is a distinctively modern method of taxing corporations. The supplementary revenue act imposes an annual tax upon the income or capital stock of corporations or companies for provincial purposes. The yield from this source in the year 1900 was more than a quarter of a million dollars. Another distinguishing and established feature of Ontario taxation, and one embodying a principle of especial interest in the United States, is that of the tax upon incomes. The annual income of individuals and corporations, within welldefined limitations, is assessed as property, and taxed at the same rates as other property. While the income tax law is indifferently administered, it constitutes an important factor in the Ontario system of taxation. In the Province of Quebec there is a provincial tax on commercial corporations, based upon capital and income, and in the case of railways, upon mileage. In the city of Quebec there is no property tax in the usual sense of the term. Municipal taxes are based upon the rental values of property, and are supplemented by certain fixed annual duties upon particular kinds of business. Personal property is not directly taxed. In the city of Montreal there is a property tax upon real estate, but no distinct tax upon personal property either tangible or intangible. There is a "business tax based upon the rental values of premises occupied for business purposes, special taxes upon certain persons and kinds of business, and an elaborate system of licenses, from which sources a large portion of the municipal revenues are derived. PROVINCE OF ONTARIO. The revenues of the Province of Ontario, amounting to about four and one-half millions of dollars in 1900, are provided through special subsidies from the Dominion of Canada, receipts from Crown lands, various license and other fees, stamp taxes, and, latterly, revenues from companies and graduated succession duties. The amount received from law stamps in the year 1900 was $55,410.27; from succession duties or inheritance taxes, $229,676.51; and the amount of revenues from companies, so called, $229,774.44. REVENUES FROM COMPANIES. Until the year 1899, the taxation of companies was left as a source of revenue exclusively to the various municipalities of the Province, but in that year an act was passed and subsequently amended appropriating a large proportion of the income taxes upon companies for supplementary provincial taxes, thereby seriously encroaching upon what had theretofore been an important source of local revenue. This act effected a great change in the local taxation of certain classes of companies, limiting the local income tax to so much of the income of such companies as was earned in the municipalities in which they are located, and imposing an annual government or provincial tax on all other income, and in some cases upon capital. By this act the following classes of companies, transacting business in the Province of Ontario under their names or otherwise, are taxed for provincial purposes as set forth below: BANKS. Every bank is required to pay a tax of one one-hundredth of 1 per cent on its paid up capital stock, when such paid up capital stock is $2,000,000 or less, and $25 for every $100,000 or fraction thereof in excess of the sum of $2,000,000 and not exceeding $6,000,000. Every bank is also required to pay an annual provincial tax of $100 for the head office in the Province, and $25 for each additional office, branch, or agency in the Province, but not upon more than one branch or agency in any one place. When the principal place of business of any bank is in another Province of Canada, and it employs within Ontario only a part of its paid up capital, and has not to exceed five agencies or branch offices within Ontario, the Lieutenant-Governor-inCouncil has power to reduce the amount of the aforesaid tax, “regard being had to the amount of capital or other moneys of such bank" at any time in use in Ontario, but the tax exacted shall not, in any case, be less than one-tenth of 1 per cent upon one-half of the paid up capital of such bank. INSURANCE COMPANIES. Every life insurance company transacting business in Ontario is required to pay a tax of 1 per cent, and every other insurance company a tax of two-thirds of 1 per cent, calculated upon the gross premiums received by such company from business transacted in the Province during the preceding year. In the case of mutual fire insurance companies which receive premiums in cash, the tax is calculated on the gross premiums received by such companies in cash, in respect of the insurance transacted on the cash plan in said Province during the preceding year. Where a life insurance company has its head office outside of Ontario and has an annual income of less than $20,000 from premiums on policies on the lives of residents of said Province, and where such company loans money on the security of lands within the Province, it is required to pay a tax of 1 per cent calculated on the gross premiums received from such policies, and of one-fourth of 1 per cent on the gross annual income received from loans on policies and on lands, or securities on lands, in the Province. Where an insurance company pays the tax thus imposed for provincial purposes, it is exempt from assessment and taxes by or on behalf of the municipality in which the head office is situated upon so much of its income as is derived outside of the municipality in which the head office is situated; but this does not exempt it from local assessment or prevent the taxation of shareholders resident in such municipality or of shareholders residing in other municipalities, as otherwise provided. The premiums received by a company are not assessable by a municipality. Provision is made for retaliatory taxes upon companies organized in any other country or state and doing business in Ontario, where such country or state imposes a tax or license fee which has the effect of discriminating against Canadian companies having their principal offices in Ontario. Provision is made for annual statements to the provincial treasurer of gross premiums received by companies or agents of companies doing business within the Province. LOAN COMPANIES. Every loan company which transacts business in Ontario is required to pay a provincial tax as follows: a. Companies with fixed or paid-up capital, $65 where the paid-up capital is $100,000 or less, and 65 cents on every additional $1,000 or fraction thereof of paid-up capital. b. Companies having terminating or withdrawable capital as well as permanent or fixed capital, the sum of 65 cents on every $1,000 of paid-up, terminating, or withdrawable capital after the first $100,000, in addition to the amount payable under clause a. c. Companies having terminating or withdrawable capital only, the sum of 65 cents on every $1,000 of such capital after the first $100,000. d. Where a company has its organization and head office in Great Britain or in a Province of the Dominion outside of Ontario and employs a part of its funds in Ontario, the Lieutenant-Governor in Council may direct that the tax shall be calculated upon the amount of the funds used or employed by the company in Ontario. A loan company paying the tax thus imposed by the Province is exempt from assessment or taxation, by or on behalf of the municipality in which the head office is situated, upon so much of the income as is derived from moneys invested in outside municipalities or places, but shareholders residing in the municipality where the head office is located, or elsewhere in the Province, are taxable by such municipality. TRUST COMPANIES. Every trust company doing business in Ontario pays a tax of $250 when the paidup capital does not exceed $100,000 and the sum of $65 on each additional $100,000 or fraction thereof; and when the gross profits, exclusive of interest from invested paid-up capital, are $25,000 or more, it pays the further sum of $500 per annum. A trust company paying this provincial tax is not taxable by the municipality in which the head office is situated for or in respect of trust money, or securities therefor, or income arising therefrom, or personal property held in trust for persons who reside elsewhere within the Province, but such last-mentioned persons are taxable by the municipality in which they reside. RAILWAY COMPANIES. Every steam railway company operating lines within the Province is required to pay a provincial tax of $5 per mile of railway operated, for which both owning and operating companies are liable. The measurement does not include switches or double track. Such companies are also taxed for local purposes, as hereinafter set forth, but are not liable to municipal tax on the tracks and roadways upon or along any street or highway. STREET RAILWAYS. Every street or electric railway in any city in the Province pays a provincial tax of $20 per mile for each mile of track when the whole does not exceed 20 miles; $35 for each mile when the whole line exceeds 20 miles but does not exceed 30 miles; $45 per mile for each mile when the whole line exceeds 30 miles but does not exceed 50 miles, and $60 per mile when the whole line exceeds 50 miles. The mileage in each instance is computed on single track, each mile of double track being counted as 2 miles of single track; switches, sidings, etc., and track not in general use for passenger traffic not being counted. TELEGRAPH COMPANIES. Every telegraph company owning a line operated within the Province pays a tax of one-tenth of 1 per cent on the paid up capital of such company, and every company operating in the Province a line or part of a line under lease or agreement with the owners pays a tax of one-tenth of 1 per cent on the paid-up capital of such operating company, both owning and operating companies being liable for the payment of the tax. Every railway company or other company other than a telegraph company which owns or operates a telegraph line in the Province pays a tax of one-tenth of 1 per cent upon the total amount of capital invested in the whole telegraph line or works. Power is vested in the lieutenant governor in council to remit the tax upon the capital invested in telegraph lines used exclusively for railway and not for commercial purposes, and upon so much of the capital as shall be invested in portions of lines beyond the limits of Ontario. TELEPHONE COMPANIES. Every telephone company operating a telephone line for gain in the Province pays a provincial tax of one-eighth of 1 per cent upon the paid-up capital of such company. GAS AND ELECTRIC COMPANIES. Every gas and electric company is required to pay a provincial tax of one-tenth of 1 per cent on its paid-up capital, but this does not apply to any such company operated by a municipality. NATURAL-GAS COMPANIES. In compliance with the provincial policy of retaining and deriving benefit from the natural resources of the country, every company engaged in producing, transmitting, or transporting natural gas is required to pay into the provincial treasury the sum of $1,500 and a tax of 1 per cent upon its gross receipts. The lieutenant-governor in council has power to remit or reduce taxation on any small domestic natural-gas company organized for the purpose of lighting or producing heat for mere domestic or local purposes within the county in which the gas |