It is stated by the commission that on account of this unequal valuation and omission of property from the assessment rolls, statistics and daily experience show that the people least able to bear the burden of taxes are often those upon whose shoulders these burdens are laid most heavily. "Because the possessions of the poor man are few and tangible and in plain sight they are all carried into the assessment roll, while the stocks, bonds, mortgages, and other valuable securities of the wealthy man for the most part escape the assessor's notice."

Statistics are produced by the commission showing that about three-fourths of the live stock owned by the farmers is assessed upon the rolls at about 60 per cent of the total true value as fixed by the State census, and comparison is made between that class of property and bank deposits, the amount of individual deposits at a given date being shown as follows:

In the National banks
In the State banks.

In private banks.

Total

$26, 633, 453. 86 24, 583, 141.45 4,537, 542.64

55, 754, 137.95

According to the report of the secretary of state, the total assessed value of money in possession and on deposit on the same date was only $3,032,103, or a little over 5 per cent of the true value of deposits alone.

It is estimated that the amount of personal property in Wisconsin is fully equal in value to real estate, yet the amount assessed is only 17 per cent, or about onesixth, of the total property assessed and has been steadily decreasing for several years. Aside from the vast amount of intangible property omitted from the rolls, it is stated that there are millions of dollars worth of tangible, visible property which at present escapes taxation through the imperfection and looseness of the laws. The vicious practice of undervaluation and unequal valuation by local assessors is clearly pointed out and severely condemned by this commission:

"The habit of undervaluation is one of such long standing that in most assessment districts sets or series of arbitrary valuations for assessment purposes having become established, those originating in slight departures from true values have been changed from time to time, according to the notions of successive assessors, previous assessments being taken as a guide or standard rather than actual values, until the whole becomes but a mass of arbitrary figures. Assessment valuations have thus come to be a fact, and are commonly considered and treated as something apart from and unrelated to actual values.

"The feeling on the part of the assessor that he is bound by no definite rule or standard begets indifference and carelessness, gives bias or prejudice free play, and with the easy-going or intentionally dishonest official affords both room and cover for favoritism and partiality. The members of the tax commission have found frequent instances of an almost open and avowed practice of favoring particular interests and industries or classes of property by low assessments, such discrimination being justified upon grounds of supposed public policy. Of course there are localities where the assessments have for years been made or supervised by men of character and ability, and in these no glaring inequalities exist. But in very many instances, perhaps in the majority of cases, the assessment has come to be hardly more than a farce. But this so-called assessment roll, with a piece of perjury attached in the form of the assessor's oath, is solemnly accepted as the basis on which citizens are asked, and virtually forced, to make their contribution to the heavy and constantly increasing burden of taxation. The perjury documents are also supposed to form the basis of the county equalization and ultimately the basis for the apportionment of State taxes. They are, in fact, in most instances discredited and almost wholly disregarded. The legislature itself recognizes their unreliability by directing the abstracts of assessments to be supplemented by statistics of population and such other loose data as may be gathered to aid boards of equalization to guess at the value of taxable property in the various districts.

The county assessment becomes a disgraceful struggle between the members of the county board, each striving to help his own district at the expense of the others. The members of the county board from the towns are often arrayed against those from the city and whichever side is in the minority immediately proceeds to make more towns or wards, as the case may be, in order to get more votes."

"Nor does the evil end with the county assessment. The arbitrary and unreliable local assessments, supplemented by the equally unreliable county assessment, constitute the principal data upon which the State board of equalization must

make its assessment."

Dr. R. T. Ely, in his work on Taxation in American States and Cities, in discussing taxation in Wisconsin, refers to a statement made to him by a gentleman of prominence and an officeholder in that State, as follows: "You see in me a monument of the iniquity of our present system of taxation. When I was a poor and struggling young man with $500 or $600 worth of personalty, I paid on all that I had, but now that I really have something I keep still and pay taxes on only a part of my property. Indeed, when I think about taxation, I feel like turning anarchist and blowing things up with dynamite."

For the purpose of providing a remedy that would reach the "root of the evil" and prevent undervaluation of property, the tax commission of 1898 recommended radical changes in the laws of property assessment and a rigid listing of personal property by owners.

TAXATION OF NOTES, BONDS, MORTGAGES, AND OTHER SECURITIES.

This subject of commanding interest to the people of all States where such securities are locally taxed under the valuation system is ably discussed by the Wisconsin tax commission as to its effect in that State. The omission of this kind of property from assessment is said to be the most noticeable of all defects in the administration of the tax laws in Wisconsin, and it is shown that such property largely escapes taxation entirely.

From 1877 to 1897 the aggregate assessed valuation of real estate in Wisconsin increased from $274,417,883 to $519,990,552, or about 894 per cent. During the same period the assessed value of personal property increased from $77,362,481 to $108,513,489, or only about 404 per cent. Assuming that the aggregate true value of personal property is ordinarily at least equal to that of real estate and keeps pace with it in a growing Commonwealth, these facts indicate not only that personal property is very largely withheld in this State, but that the practice is steadily growing.

In 1897 the total assessed value of money, credits, notes, bonds, and mortgages in the State was $20,677,671. This amount is about 19 per cent of all personal property and is only 3 per cent of the assessed value of all real and personal property.

"The small fraction of this class of property actually assessed is chiefly owned by persons who have not acquired the art of evasion or whose scruples will not permit them to evade the law, and those whose situation is such that their property affairs are for the time being exposed to inspection, as in the case of estates in the probate court and the like.

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The pernicious custom of undervaluation of all classes of property fosters and promotes the practice of evasion.

Again, very large numbers of people regard the taxation of moneys loaned and full taxation also of the property upon which the loan is secured as double taxation which they have a moral right to evade. As the property itself can not ordinarily be hidden, the intangible thing, the mortgage, is kept out of sight if possible.

MORTGAGES.

Under the system existing in this State a mortgage of real estate is deemed personal property, and is liable to taxation as such according to its value. The real estate covered by the mortgage is also liable to taxation according to its value, without reduction on account of the mortgage.

While no definite data are obtainable from assessment statistics to show the value of mortgages actually assessed for taxation, it is shown that only a very small proportion of mortgages liable to taxation in Wisconsin are in fact assessed.

The commission, after this showing, state that "a considerable number of the ablest investigators have frankly declared that the direct taxation of intangible assets as property by the valuation method is wholly impracticable as to those who seek to evade, and very unjust as to those who do not. But the greater number of suggestions and demands have been for more stringent laws and more drastic methods to compel individuals to disclose what they have of this kind of property, and to compel assessors to discover and assess the same. State legislatures have frequently enacted laws of this character and many States have for years maintained most rigid systems in this respect, but in no case have we found that substantial or satisfactory results have been obtained. Professor Ely, in his work on taxation, speaking of such systems, says: 'It is characteristic of this system that the more you perfect it the worse you make it.""

The commission, after discussing the experience of Ohio, New York, California, and Massachusetts on the taxation of such securities, says: "While fully concurring in the conclusion reached in the other States that an attempt to tax

directly most forms of intangible assets is only partially successful, and that so far as successful the law operates quite unequally, we are still unable to recommend the repeal of the laws for the taxation of such property at the present time. Our chief reason for this is the want of a complete substitute meeting our approval."

The commissioners recommend as a partial substitute an inheritance tax. They also recommend that the entire administration of the tax laws be placed in the hands or at least under rigid supervision of capable and disinterested agents of the State, to give their entire time to official duty, such agents to consist of a State board or officer and such subordinate officers as may be necessary.

TAXATION OF CORPORATIONS.

Except as otherwise specially provided, corporations pay taxes upon property valuations in the same way as natural persons, and this applies to foreign corporations doing business in the State as well as to those organized under the laws of the State. But stock in such corporations as are required to pay taxes upon their property in the same manner as individuals is expressly exempted from taxation. As to all corporations taxed upon property valuation, there are no special provisions for a tax on corporate franchises.

Upon organization domestic corporations pay a fee of $25 per thousand dollars of capital for incorporating if the capital stock is $25.000 or less, and $1 per thousand in addition for each $1,000 of capital stock over and above $25,000.

Foreign corporations desiring to do business within the State file with the secretary of state an authenticated copy of their articles of association, and pay therefor a fee of $25. These fees applied to corporations are not regarded as a franchise tax.

The real property of corporations is required to be taxed in the assessment district where located at local rates.

Personal property belonging to foreign corporations is assessed in the assessment district where the agent in charge resides; or if none, wherever such property is located.

The personal property of domestic corporations is assessed in the district where the principal office or place of business is located, by local assessors, and is taxed at local rates.

The legislature, recognizing from the earlier experience of the State the impracticability of assessing such property in separate parts or the franchises separately, recently made special provisions as to mains, hydrants, pipes, and other fixtures and appurtenances of waterworks, gas, and electric light plants not owned or operated by any municipality. Such property, and all real estate necessarily used in the operating of such plants, including machinery, corporate franchises, if operated by a corporation-in short, the entire property of such a company-is required to be valued and assessed together as a single item or unit and as personal property in the assessment district where the principal place of business is located. Further special provisions are made for the apportionment of such values where the mains, pipes, poles, wires, etc., of such companies are partly in one and partly in another taxing district. Such property is taxed at local rates upon such assessed valuations in the same way as other personal property.

RAILROADS.

In 1854 a statute was passed by which "the legislature committed itself to the theory of taxing railroads on the basis of gross earnings." This system has since been adhered to and still prevails, changes in taxation rates having been made from time to time and railroads classified according to amount of gross earnings per annum.

The tracks, right of way, depot grounds and buildings, machine shops, rolling stock, and all other property necessarily used in operating any railroad in this State, belonging to any railroad company, including pontoon and pile pontoon railroads, are exempt from taxation for any purpose, except special assessments for local improvements in cities and villages, such property coming under the license system. All lands owned or claimed by any such railroad company not adjoining its track are subject to all taxes.

Every railroad company and every person operating a railroad in the State, except railroads operated by horse power, is required to make and return to the State treasurer, upon blanks to be furnished by the treasurer, before the 10th day of February in each year, a true statement of the gross earnings for the preceding calendar year, of the number of miles of road operated by such company or

person, and the gross earnings per mile per annum during such year. Such statement must be verified by the oath of the secretary or treasurer of the company or of the person so operating such railroad.

Upon the return of such statement and payment of the license fee hereinafter stated such company or person is entitled to and receives from the State treasurer a license to operate such railroad for the calendar year commencing on the 1st day of January preceding.

The annual license fees required to be paid are as follows:

1. Four per cent of the gross earnings of all railroads, except those operated on pile and pontoon or pontoon bridges, whose gross earnings equal or exceed $3,000 per annum per mile of operated railroad.

2. Three and one-half per cent of the gross earnings of railroads, except those operated on pile and pontoon bridges, whose gross earnings equal or exceed $2,500 and less than $3,000 per annum per mile of operated railroad.

3. Three per cent of the gross earnings of all railroads, except those operated on pile and pontoon or pontoon bridges, whose gross earnings equal or exceed $2,000 and are less than $2,500 per annum per mile of operated railroad.

4. Five dollars per mile of all operated railroads, except those operated on pile or pontoon bridges, whose gross earnings equal $1,500 per mile per annum and are less than $2,000 per annum per mile of operated road, and in addition 24 per cent of their gross earnings in excess of $1,500 per annum per mile and under $2,000 per mile per annum.

5. Five dollars per mile of operated railroad by all companies whose gross earnings are less than $1,500 per mile per annum.

6. Two per cent of the gross earnings of all railroads which are operated on pile and pontoon or pontoon bridges, which gross earnings shall be returned as to such parts thereof as are within the State.

This license fee is based upon the gross earnings from operation in the State, including such proportion of earnings from interstate traffic as is calculated to have been earned within the State.

One-half the license fee is required to be paid at the time the license is issued, and one-half before the 10th day of August in each year.

The penalty attached for neglect to obtain such license or to pay the fee therefor, or any part thereof, is declared to be the forfeiture of the sum of $10,000 to the State, to be recovered by an action brought by the attorney-general therefor, and the forfeiture of all rights, privileges, and franchises; but such company or person so neglecting may make such return and pay such license fee upon application to the court in which such action to declare the forfeiture is pending, and upon such terms as such court shall direct.

The blanks furnished by the State treasurer for such statement, and which must be fully filled out, require the statement of gross receipts to be itemized, showing receipts separately from passengers, mails, express companies, freight, use of cars, sleeping-car companies for transportation of sleeping cars, and from all other sources, specifying the same; also the gross receipts as earned or received each month, the number of miles in operation on December 31 next preceding, and the number of miles built and operated in the preceding calendar year.

The money derived from such taxation is paid into the general fund of the State, and is applied to the general State expenses, thus giving all districts of the State equal benefit from such taxation by reducing the amount of State taxes, whether or not such districts are traversed by railroads.

This general distribution of railroad license fees is the cause of some complaint, because of the amount of such property centered in the cities. A partial answer is made that railroads are peculiarly subject to the control of the State, derive their valuable franchises from the State, and at times are vitally dependent upon the State for protection.

As herein before stated, this method of taxation has been held to be constitutional. While the method as applied to railroads carrying on interstate commerce can hardly be conceded by railroad companies to be within the Federal Constitution, it has been generally acquiesced in as reasonably satisfactory. Indeed, we were informed by public officials of that State that railroad companies generally preferred to be taxed by this method, even though the amount of taxes imposed should be as large or even somewhat larger than under the general property tax, because of its simplicity, reliability, certainty, and cheapness to both State and railroads.

From the table compiled by a tax commissioner appointed by the legislature of Wisconsin in 1898 to investigate and report upon the subject we find that railroads of the first class, the cost of construction of which aggregated $275,013,119, paid a tax of $1,238,065.14, or about forty-five one-hundredths of 1 per cent of such cost.

Roads of the third class, costing $1,051,432, paid a tax of $3,005.81, or about twenty-eight one-hundredths of 1 per cent of the cost.

Roads of the fourth class, costing $11,506,940, paid a tax of $4,645.32, or about four and one-third one-hundredths of 1 per cent of the cost.

Roads of the fifth class, costing $15,255,962, paid a tax of $2,487.61, or one and six-tenths one-hundredths of 1 per cent of the cost.

There are no roads belonging to the second class.

The yield of the railroad taxes for the years 1882-1898 is shown by the following table:

The gross earnings of Wisconsin roads for 1898 were $35,191,000 and the net earnings $12,225,000.

The taxes paid that year were $1,247,357, or about one-tenth of the net earnings. As stated elsewhere, the cost of this class of property affords no reliable criterion of its true value. This is illustrated by the business condition of Wisconsin railroads. While some are operated with profit and pay large dividends, others are not, and some are in the hands of receivers, this class of property being of such peculiar character, its corporate elements of value so fluctuating and changeable, that it can hardly be measured by the standards applied to general property. The true cash value of a railroad can probably be determined only by the result of its operation for a period of years, regardless of its cost.

In 1899 a determined effort was made in the legislature to change the method of taxation in the State, and also to increase the amount of taxes or license fees, but nothing definite in that direction was accomplished.

A statute was enacted creating a State tax commission for the purpose of investigating the existing system of taxation and reporting the result of such investigation to the legislature, with recommendations for the improvement of the system and the equalization of taxes throughout the State.

This commission is now actively engaged in carrying out its important work and giving special attention to the investigation of the subject of railroad taxation, with a view to determining whether or not the present system of license fees on gross earnings should be abolished and the ad valorem method, so called, adopted for the taxation of railroad property; or, if the present system should be retained, what method should be adopted to determine the percentage of gross earnings to be paid which will make the tax equal to the rate of taxation imposed on other property.

Governor Scofield, in his message to the legislature for 1899, made the following comments and recommendations as to the operation of the license system:

* #

"I am convinced that, while the license system of taxing certain corporations now in force is the most practicable method yet evolved, it yet has elements of unfairness and inequality which might, partially at least, be eliminated. Our present graded license system of taxing the railroad companies contains some glaring inconsistencies. We have under this system five classes of roads, the classification being based upon the earnings per mile. The first class pays 4 per cent upon its gross earnings. The second class is taxed 33 per cent on its gross earnings. The fourth class pays $5 per mile and 24 per cent on all earnings over $1,500 per mile up to $2,000 per mile. The fifth class pays $5 per mile only.

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The report of the railroad commissioner of the State, which will be laid before you, contains some figures which show the inequalities of this classification. For instance, the class of roads which pay 4 per cent of their gross earnings pay the