The basis of the present system of state taxes in Pennsylvania is found in the act of 1844. *9 This act included or added to all the earlier taxes for state purposes and gave the state a system of taxes upon real and personal estate, upon the stock of corporations, on bank dividends, on collateral inheritances, and on county, municipal, and other local government loans. During the sixteen years following 1844, no important new taxes were added to the state revenue system. Such changes as were made in the rates of existing taxes or in the manner of their assessment were intended either to increase state revenue or to accomplish a more equitable distribution of the burden of government among taxpayers.

The changes in the revenue system between 1861 and 1874 involved the introduction of several new and important taxes, and the repeal of the state tax on real estate. Among the new duties, which were either corporation or special business taxes, were the tax on the gross receipts of private bankers,10 the tax on the gross receipts of transportation companies, *11 the tax on the net earnings of practically all corporations doing business with the state, transportation companies excepted, *12 the tax on traffic carried by transportation companies, *13 the tax on loans of private corporations, *14 and the tax on the premiums of foreign insurance companies. *15

9 As was pointed out in Chapter IV, the first special tax on corporations was that imposed upon banks by the act of 1814 (Act 21 May, 1814, P.L p. 169). In 1840 a tax was imposed upon the capital stock of corporations and jointstock companies (Act 11 June, 1840, P.L. pp. 612-614). The provisions of this act were changed in some particulars by the act of 1843 (Act 31 March, 1843, P.L. p. 121). It should also be noted that a state tax was imposed upon personal property in 1831 (Act 25 March, 1831, P.L. pp. 206 ff.). An inheritance tax for state purposes had also been in operation for more than a decade in 1840.

10 Act 16 May, 1861, P.L. p. 708.

11 Act 23 February, 1866, P.L. p. 82.

12 Sec. 2, Act 30 April, 1864, P.L. pp. 218-219.

13 Act 30 April, 1864, P.L. p. 218.

14 Act 30 April, 1864, P.L. p. 219. This tax was new in the method of assessment. The expedient of stoppage at the source was substituted for assessment by local assessors. See Eastman, Taxation in Pennsylvania, II, pp. 686-687.

15 Sec. 10. Act 4 April, 1873, P.L. p. 26.

While the state was thus enriching its treasury by the invention of tax burdens to be applied to corporate wealth and income, the localities were left with about the same revenue resources as in 1844. No new local taxes were introduced. In one important respect, however, the localities suffered a gradual diminution of their revenue resources. When the state imposed its taxes upon corporate wealth and income, it frequently exempted the property of the corporation in whole or in part from local taxation. *16 In 1844, when a state-wide tax was levied upon real estate owned either by natural persons or by corporations, the holdings of neither class of owners were exempted from local levies. But the gradual exemption of a great part of corporate wealth from local taxation in later years caused the burdens of supporting local government to bear heavily upon real estate in the hands of natural persons, and land owners began to protest against these arrangements and to demand a readjustment of the burden of taxation. In 1857 the Board of Revenue Commissioners reported that real estate was paying a disproportionate share of the cost of state and local government. *17 The Commission to Revise the Revenue Laws reported in 1863 that in certain townships state and local levies combined amounted to three per cent on the assessed value of the real estate. *18 Reports of the Board and of the Commission also contained much evidence of gross inequality in the assessment of the state tax on real and personal property. The Commission proposed that the state increase corporation taxes and repeal the state tax on real estate. These proposals were designed to increase the revenue resources of the local governments, and to bring about a more equitable division of revenue resources between the state and the localities. Furthermore, the abolition of the state tax on real estate was advocated because of the gross inequalities that prevailed in its apportionment among the counties. *19 These arguments seem to have carried weight with the General Assembly for, in 1866, the state tax on real estate was repealed. *20

16 As early as 1874 at least one state official had pointed out the effect of separation of sources. At that time about two-third of the state revenue was derived from the corporation taxes. "But it should be kept in mind that by far the larger amount of corporate wealth is not taxed at all for county, city, school, road, or poor taxes. The large state tax they [the corporations] pay is not even a full equivalent for their escape from nearly all local taxation." Bureau of Statistics, Second Annual Report (1873-74), p. 155.

17 Leg. Docs., (1857), Report of the Board of Revenue Commissioners, p. 613.

18 Leg. Docs. (1863), Report of the Commissioners to Revise the Revenue Laws, p. 500.

19 Ibid.

20 Act 23 February, 1866, P.L. p. 83.