PENNSYLVANIA. A distinguishing feature of the taxation system of this State is the separation of State and local taxation. The work of assessing State taxes is put into the hands of a single tribunal, while local assessments are confined strictly to local purposes. Property, real and personal, liable to local taxation is not taxed for State purposes, and vice versa. Taxes for county, township, and municipal purposes are assessed upon real estate, horses and cattle over 4 years of age, occupations, professions, and posts of profit. Real estate so taxed does not include that essential to the operation of the quasi-public corporations, that being included in the State taxation. All this property is taxable for local purposes only, and assessed by local assessors who have nothing to do with State taxes. All other personal property is assessed by the State board, but three-fourths of the State tax on personal property is apportioned to the several counties in reduction of the local taxes. Revenue derived from retail liquor licenses is also given up to counties, townships, and municipalities. The taxes for State purposes are almost wholly paid by corporations, leaving individuals subject to taxation for local purposes only, except that the mortgages, bonds, and other classes of personal property taxable under State laws held by them pay a State tax, but three-fourths of this tax is returned to the counties. Corporations pay no local tax except upon real estate (and in case of railroads and other quasi-public corporations, not upon that), and except upon horses and cattle owned by them. The property of corporations is in the main taxed by the State board for State purposes. The real estate of manufacturing companies is subjected to local taxation as other real estate in the districts where the same is located, but the capital stock of such companies engaged in manufacturing business is exempt from taxation for all purposes by statute. This exemption is by way of encouragement to manufacturing investments. STATE TAXES. The revenues of the State are collected by two distinct methods and divided into two classes: First. Taxes paid directly or through other State officers to the State treasurer. Second. Taxes collected by county officers, and by them paid to the State treasurer. BONUS ON CHARTERS. One of the sources of direct revenue for State purposes is a bonus on charters of corporations, such a bonus being defined by the courts to be the price paid the Commonwealth by a corporation for the privileges conferred on such corporation by its charter. It is not regarded as a tax in a legal sense, although for our purpose it may be considered as such, and it does not relieve any corporation from regular taxation. The bonus is fixed by law at the rate of one-third of 1 per cent of the amount of authorized capital stock, and a like amount on authorized subsequent increases of stock on one class of corporations, payable before the charter's issue, and onefourth of 1 per cent on another class, payable one-eighth of 1 per cent before the charter's issue, and a like amount at the expiration of one year from the date of the charter. The amount realized by the State from this source in 1898 was as follows: From incorporated State banks From trust companies.... From corporations and associations.. Total $984.50 7,333.34 438, 579.71 446, 897.55 TAX UPON CAPITAL STOCK. This State derives about one-half of its public revenue from the taxation of corporations. All such taxes are assessed and collected by State officers. The principal tax upon corporations is that upon capital stock, so called, to which all corporations having capital stock, except banks, savings institutions, and foreign insurance companies, are subject. The companies subject to such tax include every corporation having capital stock, associations and limited partnerships organized or incorporated by or under the laws of the State or incorporated or organized by or under the laws of any other State or Territory, by the United States, or by any foreign government and doing business in and liable to taxation within Pennsylvania or having capital or property employed within the State, with the exceptions above named. Formerly this tax was assessed on the capital stock on the basis of the dividends paid, but under an act passed in 1891, which provides increased revenue for the purpose of relieving the burden of local taxation and for greater uniformity, the taxing of dividends based on assessment of capital stock was abandoned, and provision was made for the assessment of the capital stock of all corporations upon its true value. In the assessment of capital stock of corporations by State officers, the value of such capital stock is based in the judgment and discretion of such officers upon a wide range of inquiry and investigation, and such assessment is made to include the actual value of all property, franchises, and everything of value they possess. Under the decisions of the courts of the State and the practice of State assessing officers, the value of capital stock of corporations is based upon all the property, assets, franchises, and earning capacity of such corporations, without regard to their debts. As a factor in determining such valuations, sworn detailed reports are required annually from officers of corporations, except banks, savings institutions, and foreign insurance companies, showing: (1) The total authorized capital stock. (4) Par value of each share. (5) Amount paid into the treasury on each share. (6) Amount of capital stock paid in. (7) Amount of capital stock on which dividend was declared. (8) Date of each dividend declared during the year. (9) Rate per cent of each dividend declared. (10) Amount of each dividend during previous year. (11) Gross earnings during the year. (12) Net earnings during the year. (15) Amount of surplus. (16) Amount of profit added to sinking fund. (17) Highest price of sales of stock between the 1st and 15th days of November of the year. (18) Highest price of sales of stock during the previous year. (19) Average price of sales of stock during the year, and also the sworn estimate and appraisement of two officers of each corporation of the capital stock at its actual value in cash, not less than the average price which said stock sold for during the previous year, and not less than the price or value indicated or measured by net earnings, or by the amount of profits by dividends or carried into surplus or sinking fund. These reports are not conclusive upon the State assessing officers, who ascertain the value of this capital stock not only from the extensive data furnished in these sworn reports, but from information obtained from other sources. This method of valuation takes into consideration, as we have stated, not only the franchises or rights of business, but the success of business, good will, future prospects, administrative efficiency, and everything that goes to make up the value of capital stock. A distinguished judge of that State recently said, "There is a tendency in Pennsylvania to settle down upon the earning capacity as the true subject of taxation." However this may be, it seems clear that everything going to make up the earning capacity of corporations is practically taken into consideration in determining the assessment of their capital stock. It will be observed that the law requires that the valuation of capital stock shall in no case be less than the average price of sales of shares. The actual value may be much greater, but in no case may it be less. The supreme court, construing the act of the legislature governing the valuation of capital stock for taxation in the case of Commonwealth v. N. Y. P. & O. R. R. (188 Penn. State Rep., p. 169), held the declared purpose to be to tax the capital stock by ascertaining its value in view of the tangible assets of corporations, what was owing to them, the value of their franchises, and the rights and privileges they possessed under their grants. The question of the actual value in cash of the capital stock is a question of fact which must be determined by considering the value of the company's tangible property and assets of every kind, including its bonds, mortgages, and money at interest, and its franchises and privileges; and the amount of the incumbrance on its property and franchises is also a relevant fact to be considered, but is not to be specifically deducted from the valuation so ascertained and determined. Foreign corporations doing business in Pennsylvania are taxable like domestic corporations, on so much of their capital as is invested in the State. The fact that a foreign transportation company running its cars into, through, and out of the State, also operates them in other States, does not exempt the company from taxes upon the capital invested in cars in Pennsylvania. Palace car companies whose cars run into Pennsylvania and other States are taxable on the proportion which the total number of miles traveled in Pennsylvania by their cars bears to the miles traveled by all their cars in all States. Railroad companies whose lines extend from Pennsylvania into other States are taxable on the proportion of their capital stock which the mileage of the main track in Pennsylvania bears to the total mileage of the company. Telegraph companies doing business in many States, where the like value of the tangible property representing capital within and without the State can be accurately ascertained, are taxed on the proportion of their entire capital stock which the length of their lines within the State bears to the total length of all their lines. The capital stock of corporations representing tangible property permanently located outside the State of Pennsylvania is not taxable. By the payment of the tax on capital stock, corporations do not relieve themselves from any local taxation to which they would otherwise be subject. Corporations, except quasi-public ones, are also taxed locally upon real estate, and the value of such real estate is also included in the capital stock valuation. Quasi-public corporations are taxable locally on real estate not necessary to the operation of their lines. It has been held that the tax on capital stock being a tax for State purposes only, local taxation upon the property in which the capital stock of a company is invested does not constitute double taxation. An appeal from the tax assessment of the State officers may be taken by any corporation in the State to the court of common pleas of Dauphin county, where the capital of the State is located. Blank forms of reports of capital stock for the use of different classes of corporations are prepared by State officers. Corporations which pay a tax upon their capital stock, or which are expressly relieved from such payment as in the case of manufacturing companies, thus relieve their shares of stock from taxation in the hands of the holders thereof, and are not required to make any report nor pay any further tax on the mortgages, bonds, and other securities held by them in their own right. The rate of taxation upon capital stock is fixed by law, being a uniform rate of 5 mills upon each dollar of the actual value of the stock. The amount actually collected from this source during the year 1897 upon a valuation of $765,518,672 was $3,827,593.36, or about 29 per cent of the entire revenue of the Commonwealth. In 1899 the capital stock tax was $4,575,511. TAX ON LOANS OF PUBLIC AND PRIVATE CORPORATIONS. The law also imposes a tax on corporate loans, requiring the payment of 4 mills on the dollar on all investments by residents of the State in the bonds and other obligations of corporations, public or private, for profit, except banks, savings institutions, and foreign insurance companies. Instead of depending upon the holders of such obligations returning them to the assessors for taxation, the treasurer of each corporation is made the agent of the State for the collection of this tax, and is required to deduct it from the interest accruing on such obligations and pay it to the State, the corporation, however, being responsible for its payment. These obligations of domestic owners are then exempt from taxation in the hands of the owner. Obligations held by nonresidents of the State in their own right are not taxable. The amount of this tax in 1897 on a valuation of $219,994,522 was $879,978, or 6.08 per cent of the entire revenue of the State. The amount of this tax in 1898 was $866,316.88, and in 1899, $1,149,409. This method of taxation has been declared to be constitutional by State and Federal courts. It is practically a tax upon individual property in the hands of the individual taxpayer. The auditor of the State in his report of 1897 says; "This method of collecting the tax upon the obligations of corporations has been successful, and has secured a tax upon a class of securities dificult to reach through the local assessors. TAX ON GROSS RECEIPTS OF CORPORATIONS. A tax of 8 mills on the dollar is imposed upon the gross receipts of railroad, street passenger railway, express, telegraph, telephone, and electric-light companies doing business in the State, from business done wholly within the State; the act thus limiting gross receipts being prepared with a view to conformity with the interstate-commerce clause of the Constitution of the United States. The treasurer of each corporation is required to furnish the auditor-general of the State with a statement under oath of the amount of gross receipts of such company derived from all sources, and of gross receipts of business done wholly within the State. It is interesting to note the method by which the gross receipts tax of companies doing business in this and other States is apportioned. In the case of the palace car companies, for instance, the gross receipts are taxed as follows: The company reports all the moneys received for transportation between places in Pennsylvania and other places in the same State. It returns separately, or in different schedules, the receipts of this nature earned by cars running wholly within the State, and in another schedule such receipts as are earned by cars whose trips are not confined to the State, but are continued beyond the borders of Pennsylvania, or, beginning without the State, pass through or terminate in it. The tax on gross receipts, however, is settled upon the full amount of receipts earned wholly in Pennsylvania, so returned, whether earned by cars running only within the State or by those engaged in interstate commerce. 66 Mr. Frank M. Eastman, from whose excellent work on Taxation in Pennsylvania we obtained much information relating to taxation in this State, says: So long as the traffic is carried on within the State, it makes no difference whether the cars earning the receipts are engaged in interstate commerce or run only within the State. The fact that a car runs between States does not make so much of the traffic carried on by it, as is limited to the territory of a given State, interstate traffic." The tax upon gross receipts of corporations for 1896, such gross receipts amounting to $89,188,400, yielded a revenue of $713,373.12, being 5 per cent of the total revenue of the State for that year. The receipts from this source for 1895, 1896, and 1897 were collected from the following classes of corporations: The receipts for 1898 were $691,522.99, and in 1899 $748,214. This tax has been held by the courts to be constitutional upon so much of the gross receipts as are derived from business wholly within the State. TAX ON PREMIUMS OF INSURANCE COMPANIES. This tax is divided into two classes: First, tax on foreign insurance companies; second, tax on gross premiums of domestic insurance companies having capital stock. First. The tax on foreign companies. These companies are required to obtain from the commissioner of insurance a certificate of authority, showing that the company or association is authorized to transact business in the State; and as a condition of the annual renewal thereof, the duty is imposed upon every such company or association to make report to the commissioner in the month of January in each year, under oath of the president or secretary thereof, showing the entire amount of premiums of every character and description received by said company in Pennsylvania during the year or fraction of the year ending with the 31st day of December preceding, whether said premiums were received in the form of money, credits, or any other substitute for money, and to pay into the State treasury a tax of 3 per cent upon said premiums. The commissioner has no power to grant a renewal to such company or association until the tax is paid into the State treasury. This tax upon foreign insurance companies has been held by the courts in Pennsylvania to be constitutional. The tax is paid directly to the commissioner of insurance, no settlement therefor being made by the accounting officers. The commissioner ascertains whether the amount paid corresponds with the premiums reported, and if so, pays the money into the State treasury. The law provides that one-half of the amount of this tax shall be paid by the State treasurer to the treasurers of the several cities and boroughs of the Commonwealth. The amount collected from these companies was: Second. The tax on gross premiums of domestic insurance companies having capital stock. A tax of 8 mills on the dollar is imposed, in addition to the tax on capital stock, upon the gross premiums and assessments, received from business transacted within the State, of all domestic insurance companies except those doing business on the mutual plan without any capital stock or accumulated reserve, and except purely mutual beneficial associations. This tax is based upon semiannual reports of these companies, and is required to be paid on the last days of July and January in each year. The revenue from this source was: A tax of 4 mills on the dollar is imposed upon the actual value of the shares of stock of every bank or savings institution incorporated under the laws of Pennsylvania or of the United States and represented in Pennsylvania. Each bank having capital stock is required to file with the auditor-general an annual report, under oath of one of its officers, showing— (1) The full number of shares of capital stock subscribed for or issued by such bank or savings institution, and (2) The actual value thereof; and the actual value of the shares is to be ascertained by adding together the amount of (a) Capital stock paid in, and (b) The surplus and undivided profits. The tax is assessed by the auditor-general on the actual value of these shares so ascertained and a copy of the assessment or settlement is transmitted to the bank, whose duty it is to post it in a conspicuous place in the bank, so as to give notice of the valuation to the stockholders. The bank may then within forty days from the receipt of a copy of such settlement either collect the tax from its shareholders or pay it out of the general fund. The auditor-general has the power, and it is his duty under the law, in case he shall not be satisfied with the correctness of the report as made by any bank or savings institution, to summon the officers before him for examination and require them to bring with them the books of their bank; and he may take further evidence to satisfy himself as to the correctness of the report. |