Many objections have been made to what has been known as the ad valorem basis for taxing corporations. These objections have arisen, largely, because of a misunderstanding of the term, and because of the discrepancies which arose in attempting to use different methods of valuation. The discrepancies arose because of the limited powers and abilities of the assessors, and because too few factors were taken into account in arriving at the valuation. The excess value of the stocks and bonds over real estate has been tried; the average selling price of the securities over a period of years has also been adopted. In using these as bases for value, all the manipulations of the market and outside influences must be considered, which makes accurate results difficult. Likewise, in seeking to determine the original cost, the cost of reproduction, capitalized earnings, or the amount of business, the administrative difficulties become so great as to forestall satisfactory results in many cases. A value basis for taxing corporations has consequently been condemned as unusable.

Present Meaning of Ad Valorem. - As the expression is now used, however, an ad valorem tax means one placed upon a corporation as a piece of property, rather than as divided into several elements. The system further implies a more or less expert valuation of the corporation by some centralized state board. The fiscal officials of Michigan and Wisconsin, upon discarding the earnings basis, adopted the ad valorem plan, and have given their unqualified approval of the results. The Virginia Joint Committee on Tax Revision, after a careful analysis of the different tax bases, said: "We believe that under an ad valorem system, administered by a competent board, untrammeled by any single prescribed standard or rule, it is easier to establish justice in taxation than under any other method." 1

Conditions Necessary for Success. - The ability of the ad valorem tax to secure justice depends, according to the

1 Report of the Joint Committee on Tax Revision, Virginia, 1914.

Virginia committee, upon the competency of the assessing board, and upon the extent of the power conferred upon it. The importance of this contention is at once evident. It would be considered absurd to send a man or group of men whose lives had been spent as sailors, to value an automobile. And it would be considered just as absurd to instruct men who were capable of valuing an automobile to arrive at such value by taking into consideration only the wheels, or motor, or top, or electrical system, or tires. A particular automobile might have no top, or no electrical system, or the wheels might have been newly painted, or the tires might just be worn out, so that no one of these could be taken as the determining factor in its value. Likewise the bearings, transmission, and cylinders should be examined to discover how much they are worn - in short, all parts should be taken into consideration in determining its value.

In determining the value of a corporation, likewise, the board must not only be competent, but it must have broad powers. It must be allowed to consider all the factors which may contribute to value - franchise, earnings, reproduction cost, etc. Not only must it be given power to consider all these items, but it must be given access to them. In order to carry out its work efficiently, the books, accounts, and records of the corporation must be placed at its disposal. It should be given power to examine witnesses and require reports - in short, given every possible privilege which will enable it to make a proper valuation. With this combination - a competent board with extensive powers - the prevalent objections to ad valorem taxation are somewhat minimized.

Relation Between a Tax on Value and a Tax on Earnings. - Where corporations are under regulation, as in the case of public utilities, there is not such a variance between a tax on value and a tax on earnings as it might at first seem. Where the charges for services are not regulated, there may be no definite relation between the value of the property in use and its earnings. Public utility commissions are expected to fix rates so that but a fair return will be realized. Of course there is no absolute rule for determining the value upon which earnings shall be allowed, and it is impossible to determine value so exactly, or to fix rates so accurately in each case, that only a fair return will be realized. But the more nearly this is approximated the more nearly will a tax on earnings correspond to one on value.

It could make but little difference in a case of perfect valuation and regulation of charges, where 10 per cent were allowed as a fair return, whether 10 per cent of the net earnings were taken or 1 per cent of the valuation. Because of the indefinite relation between net and gross returns, however, there could not be this close approximation between a gross earnings tax and a tax on value, even if regulation could be such as to allow exactly a fair return. Yet they would more nearly correspond than under a system of no regulation.

Reform in Local Taxes. - The adoption of some central system of assessment would open the way for securing reform in the local taxation of corporations, with but little added burden of expense. The entire abolition of local assessments might be secured if the localities could be made to see that, by such a change, they would not be the losers, and if legislators could be made to see that greater equality could be secured thereby. Some states have already recognized the advisability of having all assessments made by central authorities, where the plants extend into more than one taxing district. With the central board and machinery already in existence and making valuations, the addition of taxes for local purposes could be made very easily, and the proceeds distributed to the local districts.

Difficulty might arise in choosing a basis for this distribution. Possibilities would be the length of trackage, line, or mains, the amount of business arising within the district, or the amount of property found there. The first basis appears the most equitable, since the others involve the valuation of parts of a business and open the way for inequalities. Where business is greatest, moreover, tracks, lines, or mains are duplicated, so that the amount of business is reflected in the extent of these factors.