In 1844 was passed the act that laid the foundation of the present system of taxation in Pennsylvania. *5 This law levied a direct state tax upon real estate; upon certain personalty, including live-stock, mortgages, notes, money owed by solvent debtors, bank shares, shares in savings institutions, shares in corporations, public bonds and stock, excepting those of the state, all household furniture, including gold and silver plate, subject to an exemption of $300, and upon pleasure carriages; upon occupations, professions, and trades, except that of farmer. *6 The act further provided for the assessment and collection of the tax upon corporation shares directly by state officers. The assessment of taxes upon real estate and upon personalty, other than corporation shares, was entrusted to county officers. *7 Other taxes levied by the state in 1844 were: taxes on bank dividends; auction duties and auction commissions; license taxes on tavern-keepers, on retailers, on pedlers and on brokers; taxes on writs; a collateral inheritance tax; and a tax on certain offices.

5 Eastman, Taxation for State Purposes, p. xii.

6 Sec. 32, Act 29 April, 1844, P.L. pp. 497-498.

7 Secs. 33-41, Act 29 April, 1844, P.L. pp. 498-501.

The following table shows at a glance the development of new taxes, together with the revenue received from all sources:

State Revenue Received From Principal Taxes, And From Other Sources, For Certain Years, 1844 To 1873

(in thousand of dollars)1

1 From the totals there have been excluded in each year the following items entered by the Auditors General in their Reports: Sales of property, other than land, including securities and payments for the public works, canal and railroad tolls, canal fines and sales of old canal materials, loans, refunds, and interdepartmental receipts and payments.

2 Interest paid by the railroad companies that purchased the state works.

3 The state tax on real estate was repealed in 1866. See Sec. 4, Act 23 Feb., 1866, P. L., p. 83.

4 This was a special tax levied upon the Pennsylvania R. R. Co. because it competed with the state works. This tax was later commuted for an annual payment of $360,000, Eastman, Taxation for State Purposes, p. 145.

During this period, 1844-1873, the state's financial policy was controlled by two factors. From 1844 to about 1860 the burden of the internal improvement debt made economy and restriction of expenditures for other purposes an absolute necessity. Hence new subventions could not develop, and those already in existence were curtailed or prevented from increasing. But from 1860 to 1873 the growth of corporate wealth made it much easier for the state to secure revenue.

The most significant fact in this development of state revenues is the monopolizing of the new sources of revenue by the state. Banks appeared, and the state promptly taxed them, leaving their tangible property subject to local levy; corporations and public service concerns came with the development of railroads and of the great industrial enterprises, and the state taxed them. The state also levied indirect taxes, including the tonnage tax and the numerous license taxes on wholesalers and retailers. These taxes were imposed not only on the sellers of alcoholic liquors but also on the vendors of general merchandise, on pedlers, on theatres, circuses and places of amusements, on restaurants and inns, and on brokers.

The occasion for the elaboration of the tax system seems to have been the heavy burdens imposed by the Civil War, but, undoubtedly, the need for new taxes to hit new forms of wealth was a potent factor in the development of new duties. With the elaboration of the revenue system, came also an elaboration of the services performed by the state and an extension of its subvention policy. It is undeniable that the principal cause of the development of new taxes was the need for revenue to meet the extraordinary expenditures of the war and to pay the debt; but it is also true that the new taxes were retained after the needs which they were created to meet had been filled. In part they were retained to finance the new services which the state was rapidly developing, and in part to impose a heavier burden upon corporate wealth which largely escaped local taxation. *8 The effect of the changes in the financial policy of the state upon the amount and character of the state subventions which was most marked will be dealt with in the succeeding sections of this chapter.

8 The rearrangement of the revenue system during this period for the purpose of accomplishing a better equalization of the burden of taxation upon different forms of wealth will be discussed in Chapter VI.