TAX REVISION REPORT OF COMMITTEE ON TAXATION TEXAS COMMERCIAL SECRETARIES AND BUSINESS MEN’S ASS N FORT WORTH, TEXAS 1910 The Committee on Taxation appointed by the Texas Commercial Secretaries’ Association has completed its labors and makes its final report herein. .The committee was instructed to draft a revision of our tax laws and submit it for consideration, but the committee deemed it advisable to make a report of its investigation of the present tax system and has recommended that a non- political tax commission be appointed to make needed revision on the basis of taxing every dollar and taxing it alike whether that dollar be private, corporate, home or foreign. The report of the committee follows: ‘‘Your committee has undertaken to investigate the operation of our present tax system as a preliminary step in the revision of our tax laws and to determine as far as possible the inequalities to which the system subjects the different classes of property. In order to determine equality in taxation there must be a standard of measure. An investment of an equal sum of money in different lines of industry and a comparison of the taxes paid on each investment is regarded by the committee as the true test of equality. Our revenue system recognizes occupa- tion, franchise, intangible and tangible values, but these are sub-divisions of the market value, and when property is purchased on the open market, the price paid represents the total value of the property, and we consider that the basis of comparison above outlined is therefore right and just to each and every class of property. The tangible value of property is the market value. The intangible value is applied to railroads only and is merely a separation of the market value between the physical or tangible value of the property and the intan- gible value. All property except legal tender has intan- gible values and these values are included in the market value of the property. The only hardship it works on the railroads is in forcing them to render intangible prop- erty at its full value while other property is assessed at an average of 46 per cent of its true value. The franchise tax is a tax levied against all corporations for corporate privileges, the State granting individuals who take stock in corporate property relief from any obligation beyond the amount of the stock. It adds no value to property. A factory for example owned by a private individual is worth no more after it is incorporated than it was under private ownership and the State is therefore taxing a thing of no commercial value. The occupation or gross tax receipts tax is levied for the privilege of occupying or doing busi- ness in the State. Applied to a farm it would mean that the man who owned a farm could not cultivate it without giving the State a portion of the gross earnings for the privilege of occupancy. The farmers however are exempt from occupation tax by constitutional amendment, and this tax is applied in the main to corpora- tions. The man who pays tax cares very little for names. It is the amount of the tax receipt that interests him and if tax experts of the country would devote their energies to adding commercial value to property instead of discovering tax values it would make our country far more prosperous. We find gross inequalities both in the law and in the administration of the law. These inequalities exist be- tween the different classes of property and between dif- ferent properties within each class, as shown in the follow- ing statement. The figures used in this report are taken from the printed official reports of the various depart- ments of State of date January 1, 1909, and the results can be easily verified by anyone who cares to make the calculations. For convenience in discussion, we will divide property into two classes, viz., corporate and private. In compar- ing these properties and the taxes paid by each class, it should be borne in mind that Texas has reached a period in its growth where it must develop through corporate investments. We cannot build railroads, open mines, build factories and large industrial enterprises necessary to our material progress without first forming a corpora- tion. Figure 1 illustrates the proportion of corporate to private property in the State. The upper portion of the circle shows 16 per cent corporate and the lower portion of the circle shows 84 per cent private. Figure 2 gives the proportion of State tax, general revenue, paid by corporate and private property. Fig. 2 The corporate property, which constitutes 16 per cent of property values pays 55 per cent of the State tax, gen- eral revenue, and the private property, which constitutes 84 per cent of the property values, pays 45 per cent of the tax. These inequalities in some instances extend to the county assessment as well as State, and especially is this true with railroad property. There is also a vast differ- ence in the tax paid between the different classes of prop- erty and between the same classes of property in different counties. The variation in the per cent of true value of property rendered for assessment probably ranges from 25 per cent to 100 per cent. The average per cent of true value of property rendered is as near as we can determine 46 per cent. Figure No. 3 illustrates the inequalities in taxation between different classes of property. An investment of $10,000 is made in property at the market price and the figures shown in the circle repre- sent the total amount of tax paid on each investment Inequalities in taxation must be due to one or two causes; the law or the administration of the law. Figure No. 3 gives the law as administered and accurately pho- tographs our revenue system in operation. Figure No. 4 gives the same information for the law as written. Fig. 4 The enforcement of all our statutes would give the results shown in the above circle in so far as it would affect the different classes of property. The difference between Figure No. 3 and Figure No. 4 is due to the fact that the railroads pay taxes on the full value of their intangible property, while other classes of property render at an average of approximately 46 per cent of true value, and if the law were enforced and all property was ren- dered at full value it would lower the tax rate without increasing the rendition of railroad property, as the rail- roads already render intangible property at full value. There are inequalities in both the law and the adminis- tration of the law. The inequalities in the lav/ lie in the various enactments taxing different classes of properties; and the inequalities in administration arise from the de- fective application of the full rendition law. The State has placed three valuations upon railroad property, one by the Railroad Commission for the pur- poses of issuing bonds and making rates; one by the Tax Commission for purposes of taxation, and another by the tax assessor, as shown in Figure No. 5. Fig. 5 We do not know which of these three valuations is correct, but it is self-evident that two of them are wrong. A merchant who would have three yard-sticks in the reg- ular course of his business would have trouble with the grand jury, and the State should certainly practice the same standard of honesty that it requires of its citizens. The difference between the Tax Commission and the tax assessors’ figures lies in the valuation of tangible prop- erty. The Tax Commission finds the true value of intan- ble property of railroads within the various counties and furnishes these figures to the tax assessors, who are com- pelled by law to use them; the tax assessors place their own valuation upon tangible property of railroads at $79,000,000 less than the Tax Commission. This inequality in railroad assessment extends throughout the counties and aggregates $750,000 per annum more than the rail- roads would pay if their property were assessed at the same per cent of its true value as all other property. We need railroads to develop our agricultural lands. We have 30,000,000 acres of land now under cultivation and 137,865,000 uncultivated, as shown in Figure No. 6. The uncultivated portion needs railroads to develop it and bring its products in touch with the market. Large quantities of mineral wealth lie beneath its surface. It takes corporate capital to build railroads and open mines, and our revenue system should harmonize with the State's needs. The total value of raw material for the factory pro- duced on the Texas farms per annum amounts to $527,- 905,000, and of the amount $75,600,000 is manufactured in Texas and $452,305,000 is shipped to other States and countries, as shown in Figure No. 7. It will require a billion dollars of capital to manu- facture the raw material shipped out of the State. This capital must be corporate and our revenue system should encourage factory investments. Our revenue system is rigid and stupid, and is not sufficiently elastic to meet changing conditions, and has not inherent provisions which unfold to meet new condi- tions. If we are to approximate equality in our revenue system, drastic revision both in our laws and in our en- forcement is absolutely necessary and we recommend the appointment of a non-political Tax Commission to sub- mit a revision of our tax system on the basis of taxing every dollar and taxing it equally, whether it be private, corporate, home or foreign. Respectfully submitted, B. B. CAIN, Chairman, Dallas. W. P. H. McFADDEN, Beaumont. R. E. HUFF, Wichita Falls. A. S. CLEVELAND, Houston. H. M. MOORE, Austin. S. W. WILLIAMS, Paris. M. LASKER, Galveston. CLARENCE OUSLEY, Fort Worth. i if i