Taxation of Land Values BEING CHAPTER XII OF THE THIRD BIENNIAL REPORT OF THE Minnesota Tax Commission 1912 ST. PAUL, MINNESOTA MINNESOTA TAX COMMISSION 165 CHAPTER XII TAXATION OF LAND VALUES There has been a noticeable trend in many of the American states in recent years toward either partial or total exemption of personal property from taxation. This movement is due in part to the admitted failure of the personal property tax, especially when an attempt is made to apply it to the many elusive forms of intangibles that now play an important part in our industrial sys- tem, and in part to a groAving sentiment that the conveniences and necessities of the home, the farm stock and tools of the farmer, and the tools and machinery of the manufacturer should not be taxed — that taxes should be imposed on production, not on the means of production. Several states noAV exempt many forms of personal property from taxation, Avhile others impose either a Ioav rate or a small registration tax on securities and other forms of credits. In New York secured debts may be exempt from taxation by paying a small registry tax; Wisconsin has in effect substituted an income tax for personal property taxes, while our own state in its mortgage registry tax and the three mill tax on money and credits has taken a long step in the direction of exempting in- tangible property from taxation. Personal Property Taxes Abolished in All Other Civilized Countries The United States is the only advanced nation in the Avorld that still retains the personal property tax. It has been abandoned "TEn all of the progressive nations of Europe ; the Australian colonies have long since ceased to use it, and in Canada within the last decade province after province has abandoned the personal property t tax and substituted other forms of taxation more equitable and more certain in results. That it will eventually be abandoned in this country is not only possible but very probable. The trend is * distinctly in that direction in nearly every state in the Union. The personal property tax stands condemned by every thoughtful student of taxation as the easiest of all taxes to evade, as incapable of equitable enforcement, and hence unjust in application. 166 THIRD BIENNIAL REPORT Taxes a Necessity Revenues are necessary for the support of government and taxa- tion is the only means used by civilized nations to secure such rev- enues. Organized government is not only necessary for the pro- tection of the weak and for the enforcement of law and order, but also for the important functions it can and does perform in bring- ing into useful development the powers and forces, natural and artificial, surrounding mankind. To do the many things now re- quired of government by civilized society it becomes necessary to provide some means of raising revenue to meet the expenses of such undertakings, and taxation in some form or other is the only method by which such expenses can be met. The functions of government, too, are being constantly enlarged which means in- creased expenses, and increased expenses 'mean increased taxes. It therefore follows that the elimination of personal property from -the tax rolls does not mean a reduction in taxation ; it simply means the substitution of some other form of taxation for the in- equitable and unsatisfactory personal property tax. Substitutes for the Personal Property Tax Various substitutes for personal property taxes have been sug- gested, the most common being the income tax and the single tax on land values. The arguments in favor of an income tax as a sub- stitute for personal property taxes have been covered in another chapter of this report and need not be here repeated. The ad- vocates of the land tax oppose the income tax because they object to any kind of a tax on production. They are opposed to taxes on all forms of personal property, and upon improvements on lands — upon dwellings, and stores, and factories, and upon the buildings and improvements of the farmer. In short, they are opposed to the taxation of anything and everything that comes from human ingenuity and human toil. They believe that a tax on incomes is a tax on industry and thrift, just as much as is a tax on the home or the furniture of the home, and on the farmer’s buildings and fences and ditches ; so they oppose it, as they oppose all taxes on industry, or anything that comes from industry. They offer as a substitute a tax on the rental value of land as the only method by which public revenues may be raised without penalizing toil and thrift. Land the Fundamental Basis of Taxation The advocates of the single tax claim that land is the funda- mental basis of any just system of taxation. It has a fixed situs MINNESOTA TAX COMMISSION 167 and cannot be moved; it is tangible and cannot be concealed; its value can be measured with reasonable accuracy, and therefore it can be taxed with greater certainty and equality than any other form of property. The advocates of the single tax system propose to abolish all taxes on personal property, on houses, buildings, farm animals and farm improvements, and on machinery, tools and goods of all kinds, and in lieu thereof to impose a tax on the value that inheres in the land. They contend that the value that attaches to land because of the growth of population and the development of industry be- longs to the people and consequently should be taken for the use of the people. They hold that there are two distinct kinds of value, one the result of individual effort, which in equity belongs to the individual; the other, the result of the presence, needs, and activities of the whole community, and in justice ought to be de- voted to the public use, because created by the public. The Single Tax Would Destroy Speculation That the single tax would destroy speculation in lands is a con- tention of its advocates. If taxes were levied on land only it would be unprofitable to hold land out of use. The owner would have to use his land, and use it in the most productive way in order to pay the taxes. The holding of idle land, it is claimed, is made possible by a low tax rate. By increasing the tax rate the speculat- or, who does nothing to create value, would be eliminated because under such conditions land would be acquired and held only for use. Moreover, it is contended, the removal of taxes on buildings and improvements would encourage the improvement of property, just as the present system discourages improvements, because it puts a penalty in the form of a tax on industry and enterprise. A Modification of the Single Tax The more recent trend of sentiment in favor of the taxation of land values as the principal source of state and local revenues is in the direction of a modified form of the Henry George theory of community ownership. That theory does not appeal to the average American citizen in whom the desire for ownership is almost as deeply rooted as the love of home and family. He cannot or will not reconcile himself to the theory that the growth in the value of land is a communal interest and should be shared in common by all the people. The new school confines its advocacy of the land 168 THIRD BIENNIAL REPORT tax to the simple proposition of making land values the basis of state and local taxation, exempting improvements and all forms of personal property. The Henry George advocates would social- ize land; the new school would simply use it as the sole basis of state and local taxation. It is with the latter phase of the question that we propose to deal in this chapter. Tax Systems of Other Countries Among other things it is made the duty of the tax commission to investigate the tax laws of other states and countries and to formulate and submit to the legislature from time to time such suggestions and recommendations as it may deem expedient to prevent evasions of assessment and taxing laws and to secure just and equitable taxation in this state. To this end the commission has recently made a careful investigation and study of the tax systems of the western Canadian provinces, particular attention being given to the taxation of land, and to the exemption from taxation of improvements on land and most forms of personal prop- erty, a system that is now of very general application in those provinces. There were several reasons why western Canada was selected at this time for an investigation of its taxing system. Its physical conditions are not unlike our own. It has its agricultural lands, its timber lands, and its mineral lands, as we have. Its social and economic conditions are similar to our own. It is being settled and developed by a rugged and progressive class of people having the same ancestry as those who made the American West great and prosperous. For these and other reasons, and for the further fact that its taxing system is in the making unhampered by precedent and custom, its revenue system seemed to offer a profitable field for investigation and study. Taxation in Western Canada The western Canadian provinces have been blazing some new trails in the field of taxation during the past dozen years. They have put into successful operation some principles of taxation that were thought by many well-meaning people to be impossible of application. Unlike Minnesota and other western states that copied the crude and restrictive tax system of Ohio and other eastern states, western Canada did not adopt the tax system of the older eastern provinces, but devised a scheme of taxation to fit the in- MINNESOTA TAX COMMISSION 169 dustrial and economic conditions of the new empire of the West. While in the main their schemes of taxation have worked equit- ably and satisfactorily, they have not been slow to change when experience suggested that change was desirable. They ascribed no sanctity to their systems, for they realized that changing condi- tions, social, economic, and industrial, bring new problems in taxa- tion that must be met with new machinery and new methods. The provincial legislatures of the Canadian provinces are in- vested with much greater legislative powers in matters of taxa- tion than the state legislatures of the American commonwealths. Their powers are not limited by restrictive constitutional pro- visions, as in most of the American states. Under the Canadian confederation act each provincial legislature can devise its own scheme of direct taxation. It may impose taxes on land, or per- sonal property, or income, or all of them, and it may exempt any class of property from taxation. It may also delegate to a munic- ipality the exclusive power to tax or exempt any class of prop- erty. Briefly stated, the entire scheme of taxation is left to the wisdom of the legislature, unhampered by constitutional restric- tions. Diversity in Taxing Systems This wide latitude in the powers of the legislature results, as would be expected, in a wide diversity of tax systems in the dif- ferent provinces, and even in different municipalities of the same province. In practice none of the western provinces impose a state or provincial tax on lands, except in unorganized districts, nor is any state tax imposed on personal property except in British Col- umbia. Indeed, some of the provinces levy no direct tax on any kind of property. They depend entirely on special taxes and fees and the Dominion subsidy for the necessary revenue for provincial purposes. In most cases the power to tax or exempt property is delegated to municipalities. The delegated' power is usually a re- stricted one, though in some cases there seems to be no limitations on the taxing power of the municipality. Under their taxing sys- tem there is entire separation of the sources of state and local revenues. The power of the municipa'lity to tax or exempt property means local option in taxation, hence the wide diversity of tax systems in the different municipalities. A brief review of the taxing systems of the four western pro- vinces — Manitoba, Saskatchewan, Alberta, and British Columbia — may be of interest. 170 THIRD BIENNIAL REPORT Taxaticn in Manitoba The province of Manitoba imposes no provincial tax on real or personal property. The public revenues, in addition to the Domin- ion subsidy, are derived principally from provincial lands, liquor licenses, railroad, corporation, and inheritance taxes, and other special taxes and fees. Municipalities, however, are authorized to impose a tax on both real and personal property, subject to cer- tain exemptions. The real estate exemptions are similar to our own and include public property, and property used for educa- tional, religious and charitable purposes. Creameries and cheese factories are also exempt. Personal property exemptions include household goods and effects, and the live stock and farm tools and implements of farmers used and kept on the premises of the owner. Cities and villages are authorized under certain conditions to im- pose a business tax in lieu of personal property taxes. Winnipeg, the principal city of the province, derives its public revenue from real estate, business, and franchise taxes. Land for purposes of taxation is assessed at full value and buildings and improvements at two-thirds of full value. The rate of taxation in 1911 was 13.25 mills. The business tax was introduced in Winnipeg in 1893 to take the place of personal property taxes. Originally the tax was based on measurement, that is, on the number of square feet occupied by the business. This system was changed in 1906 to a rental basis. The tax is now imposed on the rental value of the property occu- pied by the business. The assessed rental value may be more or less than the actual rent paid if, in the opinion of the assessment commissioner, the true rental value is more or less than the actual rent paid. The present rate is h 2/3 per cent on the rental value. Under this rate, if the rental value of a stone building was $3,000 per year the tax would amount to $200. The total tax derived from this source amounted to about $270,000 in 1911. While the business tax in Winnipeg does not give entire satis- faction, it is regarded with greater favor than the personal prop- erty tax. Taxation in Saskatchewan Saskatchewan, the first province west of Manitoba, imposes no provincial tax on real or personal property. The provincial rev- enues are derived from sources similar to that of Manitoba. The power to tax real estate and to impose business and income taxes is delegated to the municipalities, but they are not authorized to MINNESOTA TAX COMMISSION 171 tax personal property. Land is assessed at full value, but build- ings and improvements cannot be assessed at more than 60 per cent of full value. Under a law passed in 1910 cities and villages may reduce the assessment on buildings and improvements 15 per cent per year until entirely eliminated. This law will enable cities and villages to bring about entire exemption of buildings and im- provements within a period of four years if they so desire. Many of the cities and villages are taking advantage of this provision of law and will eventually entirely exempt this class of property from taxation. The business tax in the cities of Saskatchewan is based on the floor space occupied by the business. Businesses are classified and a different rate applied to each class. The rate of assessment varies from 50 cents to $8 per square foot, according to the class of business. The lowest rate is on flour mills and sash and door fac- tories, and the highest on banks, brokers, and financial institutions. The business tax seems to give general satisfaction. An interesting example of the working of the two systems of taxation — taxing land and improvements and taxing land only — was exemplified in the city of Lloydminster, half of which is in Saskatchewan and half in Alberta. That part of the city which is in Saskatchewan levied a tax on buildings and improvements as well as on lands, while the part in Alberta taxed the land only. The result was that the Alberta side forged ahead of the Saskat- chewan side, and while most of the retail business was done in the latter, all of the better class of residences were built on the Alberta side. Commenting on the exemption of buildings and improvements from taxation, the minister of municipal affairs of Saskatchewan in a report issued in 1911 says: In connection with cities might be mentioned the growing interest in the single tax system and the application in our cities of some of the prin- ciples propounded by Henry George. It has often been stated, and should be as often repeated, that the public-spirited owner of a lot, who erects thereon a building which improves the street and enhances the value of the surrounding property, should not be made to pay a penalty by way of taxes as a result of his efforts and enterprise while the neighboring land owner, who keeps vacant the adjoining lot for speculative purposes, enjoys, without effort on his part, the fruits of another’s enterprise in making proper use of his holding. On the other hand, the fact is not to be over- looked that a building is more of a charge on the municipality by way of 5 police and fire protection than is a vacant lot. It has many opponents in eastern provinces, but the examples set by the cities of Vancouver and Ed- monton and the sentiments in this regard expressed by many leading munic- ipal men in the province go to show that it has many strong advocates in western Canada. 172 THIRD BIENNIAL REPORT Taxation in Alberta The tax system of Alberta is similar to that of Saskatchewan, with the difference that buildings and improvements are now ex- empted from taxation in almost the entire province. Except in one or two cities, personal property is also exempted from taxation. A peculiar feature of the Alberta taxing system is a tax levied in rural municipalities at so much per acre without regard to the value of the land. In such municipalities a tax of one and one- quarter of a cent per acre is levied for educational purposes, and an additional tax varying from - 1 % cents to 5 cents an acre for general purposes. A tax levied on the acre principle has little to commend it, but as the rate is quite low it seems to be accepted without much criticism. In Calgary, the principal city of Alberta, land is assessed at full value. Prior to 1909 buildings and improvements were assessed at full value. In 1909 the assessment was made at 80 per cent, in 1910 at 50 per cent, and in 1911 at 25 per cent of full value. Un- der a recent law the assessment on buildings and improvements must be reduced at least 10 per cent each year until entirely elim- inated. Edmonton, the capital city of the province, is the only city of importance in the Canadian West that has adopted the single tax system in its entirety. A tax on land values alone is the only tax levied in that city. The city has had a marvelous growth in the past few years, but whether or not such growth has been due in part to its tax system is a question of some dispute. That jit Is giving general satisfaction is evidenced by the fact that nearly every resident of the city is an ardent single taxer. Taxation in British Columbia There is no provincial tax on real estate in British Columbia, except in unorganized districts. A provincial tax, however, is levied on personal property and incomes. Household goods, money and credits, and several other classes of personal property are ex- empt from taxation. Land for purposes of taxation is classified as improved, wild, timber, and coal lands, and a different rate of taxation imposed on each class. The rate for the revenue year of 1910-1911 was one-half of 1 per cent on the assessed value of im- proved lands, 4 per cent on wild lands, 2 per cent on timber land, and 1 per cent on worked and 2 per cent on unworked coal lands. Mines are taxed on the output, the rate being 2 per cent on the value of the ore mined. MINNESOTA TAX COMMISSION 173 In 1911 a royal commission on taxation was appointed to in- vestigate the revenue system of the province and to make such recommendations as it deemed expedient for the improvement of its taxing system. After a careful investigation, the commission recommended, among other things, the abolition of the personal property tax, and the tax on buildings and improvements on lands. On the latter question the commission says: Further, it has been argued, again as a matter of principle, that im- provements on lands should be exempt from taxation altogether, and that the basis of valuation for the purposes of taxation should be the reasonable sale price of the land in a state of nature, due regard being had in fixing the price to all the conditions as to location, facility of access, fertility, and so on, that would influence a purchaser. On such a theory it would follow that all lands of the same class or character would not necessarily be valued at the same rate, and also the use to which the owner may put the land would not be taken into account. One might put a building on his land; another might grow hay; another might use his as a pasture. All these uses would be beneficial to the community, but, according to such theorists, they ought not to be the determining causes of the value of the land. If they were, the value would fluctuate with the changing uses to which the land might be put from time to time. Further, it has been contended that an improved piece of land should be valued for purposes of taxation at the same value as a similar piece of unimproved land, but that in valuing the improved land the value of the improvements should not be considered except for the purpose of arriving at the value of the land itself, and that this true value should be the sell- ing value of the land subject to deduction for the present value of the im- provements thereon. * * * It has been urged that the taxation of im- provements, like the taxation of personal property, would be a penalization of thrift and energy, and ought to be' abolished in a community whose chief aims are progress and the development of all kinds of industry. Finally, it has been maintained that the exemption of improvements from taxation would more especially relieve the farmers and the agricul- tural classes generally, who, in the judgment of your commissioners, should be especially encouraged, the prosperity of no other class being so essential to the best interests of the province at large. Largely as a result of the report of the royal commission an amendment to the tax laws of the province was enacted under which no tax will he imposed on buildings and improvements on lands or on personal property after January first of the coming year. Vancouver, the metropolis of British Columbia, was the first city in Canada to exempt buildings and improvements on land from taxation. The first step toward exemption was taken in 1895 when the assessment on improvements was reduced to 50 per cent of full value. This was followed in 1906 by an additional decrease of 25 per cent, and in 1910 entire exemption was brought about. The result, it is claimed was magical. There was an immediate leap forward in local prosperity, huge buildings at once began to rise up where shacks had stood, and the city grew in population by 174 THIRD BIENNIAL REPORT leaps and bounds. Ten years ago it had a population of less than 27,000; today it exceeds 150,000. In 1901 the assessed value of land was less than $23,000,000 ; today it exceeds $100,000,000. That the marvelous growth of the city is entirely due to its taxing sys- tem is not claimed, but that it has stimulated and aided such growth is generally admitted. In Vancouver, as elsewhere, some criticism of the principle of exempting buildings is heard because of the claim that as build- ings increase in size and number there is a corresponding increase in the cost of police and lire protection and other public service, and that it is unfair to require the land to bear this added burden. In answer, it is contended that buildings increase the value of the land — the adjoining vacant lot as well as the lot on which the building is erected — and that therefore the added burden should justly fall on the land. They point out that it is land, not build- ings, that increases in value in a growing city; that police and fire protection and other public service are not elements of value ; that such service neither increases nor decreases the cost of a building, and therefore in justice should not be charged to the building. Whatever merit there may be in either contention, it is but fair to add that a large majority of the people of Vancouver seem to be strong advocates and supporters of the principle of exempting buildings and improvements from taxation. Growth of the Single Tax Principle in Western Canada The most striking feature in a study of tax reform in western Canada is the strong trend throughout the entire country in the direction of the single tax principle. That so far it is working satisfactorily wherever tried is generally admitted, even by op- ponents of the principle. In no district in which the principle has been applied is there any noticeable desire to return to the old system. From present indications it is safe to predict that within the next ten or twenty years the single tax principle will be adopt- ed by every taxing district in western Canada. The Single Tax Would Require a Constitutional Amendment in 4 Minnesota Whether or not the single tax principle could be successfully applied in Minnesota is a question of considerable difference of opinion. BeTore it could be put into effect, however, the state con- stitution would have to be amended. MINNESOTA TAX COMMISSION 175 The old tax provision of the state constitution adopted in 1857 required that taxes should be equal and uniform on all classes of property. The legislature was authorized and directed to pass laws .“taxing all monies, credits, investments in bonds, stocks, joint stock companies, or otherwise, and also all real and personal prop- erty according to its true value in money.” This provision of the constitution circumscribed all tax legislation in the state for nearly half a century. In 1906 an amendment to the tax provision of the state con- stitution was adopted, known as “the wide open tax amendment,” permitting the classification of property for purposes of taxation. The tax provision now reads: “The power of taxation shall never be surrendered, suspended or contracted away. Taxes shall be uniform upon the same class of subjects, and shall be levied and collected for public purposes.” While the amendment permits the classification of property, it does not enlarge the exemption pro- vision of the constitution. A low rate of taxation may be imposed on selected classes, but no class, other than those specifically men- tioned in the constitution, can be entirely exempted from taxation. It would therefore not be possible to exempt personal property, or buildings and improvements on lands without first amending the state constitution. The Single Tax Would Not Reduce the Burden of Taxation The exemption of personal property, and buildings and im- provements on lands from taxation would not mean in itself a les- sening of the tax burdens, but it would make a considerable dif- ference in the incidence of the tax, and, consequently, in the dis- tribution of the tax burdens. As stated in another chapter of this report, it is the expenditures, not the assessment, that make a tax high or low. Unless expenditures were reduced, the elimination of persona] property and buildings and improvements from the tax rolls would not reduce taxes; it would, as already stated, change the incidence but not the burden of the tax. A study of the probable effect of such exemptions may be of interest. Exemption of Personal Property The total assessment this year, exclusive of money and credits, is $1,365,676,469, of which amount, $1,150,393,544, or about 84 per cent is on real, and $215,282,925, or 16 per cent is on personal property. If the personal property should be eliminated from the 176 THIRD BIENNIAL REPORT tax rolls, it would be necessary, in order to make up the loss of revenue from the personal property tax, to increase the assessed value of real property about 18.7 per cent. The other alternative would be to increase the rate of levy a sufficient amount to make up the loss. In either case the change would be somewhat radical if brought about in a single year. If it was decided to exempt personal property, it would probably be better to have the process of exemption extend over a short period of years, beginning, say, with household goods, and farm tools and live stock used on the farm, and perhaps money and credits, and then extend it in sub- sequent years to other classes until total exemption was brought about. Ratio of Real to Personal Property The ratio of real to personal property in the state, based on assessed values, would indicate a fairly uniform growth in the two classes of property during the past twenty years. During the past six years, however, the relative increase has been greater in real than in personal property, due in part to the increase in mineral values, and in part to the change in the method of listing and assessing certain forms of credits. The following table shows the total real and personal property assessment of the state, and the percentage of real and personal to the total during each ten years from 1860 to 1890, and each two years from 1890 to 1912 : Total Assessed Value of Real and Personal Property, and Percentage of Real and Personal to the Total for a Period of Years Year Total Assessed Value Real Estate Per Cent of Total Personal Per Cent Property of Total 1860 $41,383,315 $36,753,408 88.8 $4,629,907 11.2 1870 93,339,558 67,221,348 72.0 26,118,210 28.0 1880 268,517,736 202,272,048 75.3 66,245,688 24.7 1890 606,527,729 497,128,295 81.9 109,399,434 18.1 1892 655,473,393 541,116,517 82.6 114,356,876 17.4 1894 658,759,254 553,157,461 83.9 105,601,793 16.1 1896 579,036,806 478,742,654 82.7 100,294,152 17.3 1898 599,358,546 489,565,789 81.7 109,792,757 18.3 1900 610,979,258 490,537,617 80.3 120,441,641 19.7 1902 784,493,325 647,253,261 82.5 137,240,064 17.5 1904 870,502,652 701,066,776 80.5 169,435,876 19.5 1906 941,346,881 751,887,611 79.9 189,459,270 20.1 1908 1,091,641,300 898,597,981 82.3 193,043,319 17.7 1910. 1,222,430,377 1,012,449,518 82.8 209,980,859 17.2 1912 . . . . 1,365,676,469 1,150,393,544 84.2 *215,282,925 15.8 *Does not include money and credits MINNESOTA TAX COMMISSION 177 The average percentage of real to personal for the years cov- ered in the above table is 82 real to 18 personal. If personal prop- erty had not been subject to taxation during this period, and 'if the same amount of revenue had been required for state and local purposes, it would have been necessary to increase either the as- sessed value or the rate of taxation on land an average of 22 per cent to produce the required amount of revenue. While the exemption of personal property from taxation would mean higher taxes on real estate, it would not necessarily mean that each individual owner of real property would pay an increased amount of taxes. In many cases he would pay less, because the amount saved on personal property taxes would be greater than the increase in real estate taxes. In other cases the reverse would be true. To the average owner and occupant of a home or a farm the change would probably not mean much one way or the other. The elimination of personal property taxes, however, would un- doubtedly add somewhat to the tax burdens of speculators and owners of idle property. Exemption of Structures and Improvements In assessing real property in this state the law requires that the value of the land and the value of structures and improve- ments on the land shall be shown in separate columns on the as- sessment roll. Under this practice the relative assessed value of land, and structures and improvements on land can be readily ascertained for any year. The following table shows the assessed value of land and struc- tures on land, and the relative percentage of each class to the total assessment of real property during each ten years from 1880 to 1900, and for each two years from 1890 to 1912 : Assessed Value of Lands and Structures Total Value Assessment of Per Cent Assessment Per Cent Year Real Lands Exclusive of of of Property of Structures Total Structures Total \ 1880 $ 202 , 272,048 $ 155 , 538,653 76.9 $ 46 , 733,395 23.1 1890 497 , 128,295 395 , 545,187 79.6 101 , 583,108 20.4 , 1900 490 , 537,617 365 , 023,976 74.4 125 , 513,641 25.6 1902 647 , 253,261 487 , 387,700 75.3 158 , 865,561 24.7 • 1904 701 , 066,776 530 , 295,225 75.6 170 , 771,551 24.4 1906 751 , 887,611 563 , 589,908 75.0 188 , 297,703 25.0 1908 898 , 597,981 689 , 211,302 76.7 209 , 386,679 23.3 1910 1 , 012 , 449,518 773 , 888,282 76.4 238 , 561,236 23.6 1912 1 , 150 , 393,544 880 , 471,664 76.5 269 , 921,880 23.5 178 THIRD BIENNIAL REPORT It will be noticed that the relative assessed value of lands and structures has varied but little during the period covered in the above table. The difference in the ratio between 1880 and 1912 is less than one-half of 1 per cent. The .average ratio for the entire period is 76.3 per cent on lands, 23.7 per cent on structures. If structures had been exempt from taxation during this period, an average increase of 31 per cent on either the assessed value of lands or in the rate of taxation would have been necessary to produce the same amount of revenue as the combined assessment produced during the same period. The increase, however, would have been greater in cities and villages and less in rural districts than the above average. The following table shows the relative percentage of assessed value of land and structures on rural property, and land and struc- tures on city and village property from 1880 to 1912 : Percentage of Assessed Value of Land and Structures on Acre Property and Also on Platted Property in Cities and Villages , Acre Property N City and Village Property Year Lands Structures Lands Structures 1880 84 . 72 % 15 . 28 % 59 . 85 % 40 • 15 % 1890 90.21 9.79 71.67 28 , ,33 1892 89.96 10.04 70.58 29 , ,42 1894 89.73 10.27 69.39 30 , ,61 1896 87.13 12.87 61.59 38 , ,41 1898 87.16 12.84 61.48 38 . ,62 1900 86.73 13.27 59.83 40 , ,17 1902 . 87.61 12.39 56.99 43 , .01 1904 88.72 11.28 54.80 45 . ,20 1906 89.32 10.68 52.63 47 , ,37 1908 91.24 8.76 49.87 50 . .13 1910 91.03 8.97 50.10 49 , .90 1912 90.98 9.02 49.30 50 . ,70 It will be noticed from this table that during the past twelve years the relative assessment of structures is decreasing in the rural districts and increasing in cities and villages. In 1900, structures represented 13.27 per cent of the total real estate asssessment in rural districts, and 9.02 per cent in 1912. During the same period the assessment of structures in cities and villages increased from 40.17 per cent in 1900 to 50.70 per cent in 1912. The average ratio for the entire period is 88.81 per cent on lands and 11.19 per cent on structures in rural districts, and 59.08 per cent on lands and 40.92 per cent on structures in cities and villages. If structures had been exempt during this period an average increase on lands of 12.6 per cent in rural districts, and 103.75 per MINNESOTA TAX COMMISSION 179 cent in cities and villages would have been necessary to produce the required amount of revenue. If structures were exempt this year the increase would be 12.3 per cent in rural districts, and 102.84 per cent in cities and villages. The exemption of structures and improvements on lands from taxation would, as in the case of personal property, result in a con- siderable increase in the tax burdens on lands. The increase, as already shown, would be greater in cities and villages than in rural districts, but, again as in personal property exemptions, the change would not necessarily mean increased taxes to each individual owner of land. In many cases the amount saved in taxes because of the exemption of structures and improvements would be greater than the increase in the land tax, but it would no doubt add con- siderably to the tax burden on unimproved land, and especially on high priced unimproved city property. As nearly 75 per cent of all taxes are levied for local purposes, the change would but slight- ly affect the amount any taxing district would contribute to county or state government. Exemption of Personal Property and Structures If personal property and structures were both placed on the ex- empt list and taxes levied on land values only, the added tax bur- den on land would of course be greater than if the exemption ap- plied to only one of the classes. The following table shows the total assessed value of real and personal property, the assessed value of land, of structures, and of personal property, and the per- centage of each to the total from 1880 to 1912 : ASSESSED VALUE OF LANDS, STRUCTURES AND PERSONAL PROPERTY, 1880 1912 Year Total Assessment Assessment of Lands ! exclusive of Structures Per Cent of Total Assessment of Structures Per Cent of Total Assessment of Personal Property Per Cent of Total 1880. . . $268,517,736 $155,538,653 | 57.9 $46,733,395 17.4 $66,245,688 24.7 1890. . . 606,527.729 395,545.187 65.2 101,583,108 16.7 1 109,399,434 18.1 1900. . . 610,979.258 365,023,976 59.7 125,513,641 20.6 120,441,641 19.7 1902. . . 784,493,325 487,387,700 62.1 159,865,561 20.4 137,240,064 17.5 1904. . . 870,502.652 530,295,225 60.9 170,771,551 19.6 169,435,876 19.5 1906. . . 941,346,881 563,589,908 59.9 188,297,703 20.0 189,459,270! 20.1 1908. . . 1,091,641,300 689,211,302 63.1 209,386,679 19.2 193,043,319 17.7 1910. . . 1,222,430,377 773,888,282 63.3 238,561,236 19.5 209,980,859; 17.2 1912. . . 1,365,676,469 880,471,664 64.4 269,921,880 19.8 215,282.925 15.8 It will be noticed again from this table that the relative per- centage of assessment on lands has been increasing in recent years, while the relative assessments on structures and personal property have been decreasing. In 1900, land represented 59.7 per cent of 180 THIRD BIENNIAL REPORT the total real and personal property assessment, structures 20.6 per cent, and personal property 19.7 per cent. In 1912, land increased to 64.4 per cent of the total, while structures and personal property both show a decrease, the former falling to 19.8 per cent, and the latter to 15.8 per cent of the total. The average ratio for the period is 61.8 per cent on lands, 19.3 per cent on structures, and 18.9 per cent on personal property. ^ If both personal property and structures had been exempt from taxation during this period, it would have been necessary to increase either the assessment or rate of taxation on lands an average of v 61.8 per cent to make up the loss in state and local revenues. If both classes of property were exempt this year it would require an increase of 55.3 per cent on lands to produce the same amount of revenue as the combined assessment will produce. The exemption from taxation of personal property, and struc- tures and improvements on lands, as already stated, would not re- duce taxes; it would simply change the incidence of the tax. Re- duced expenditures mean reduced taxes, just as increased expen- ditures mean increased taxes, but the method of levying the tax, or the class of property on which it is levied will neither decrease nor increase the aggregate tax burdens. All that the advocates of the single tax principle claim is that land is the natural heritage of all the people, and hence should bear the burdens of govern- ment, and that a tax on anything but land is a tax on thrift and industry. This review of the development of the single tax principle in western Canada, and the effect it would have on the incidence of taxation if adopted in this state, is submitted as a matter of in- formation, and not as a recommendation. The single tax principle has many earnest advocates in Minnesota, but the time is scarcely ripe for its adoption in this state. While this commission neither advocates nor condemns the principle at this time, it does com- mend it to the serious study of every student of taxation. J i •*