174. Different Causes Have Placed Special Taxes on Corporations

The introduction of the corporate form of industry was heralded with delight, and corporations were looked upon and treated as a class of public benefactors. Valuable concessions, in the form of bounties and exemptions, were granted by municipal, state, and Federal legislative bodies to foster the development of this form of industry. These concessions have taken various familiar forms. Protective tariffs, for example, have been granted to the benefit of particular industries, while the financial assistance and large land grants, by which the railroad companies were subsidized, are familiar to all. Aside from this, many exclusive and irrevocable franchises were granted, while immunities were often extended from existing legislation. This was particularly true of tax laws in their application to public utility companies. Provision was frequently made that no taxes would be collected until the company had been in operation a certain length of time, nor even then, unless the net income were a certain per cent of the capital stock. Under such favorable circumstances it is self-evident why these organizations had a phenomenal growth, and why they became powerful institutions.

Hostile Attitude of Public. - With the growth of their industrial and political strength, corporations began to assume the attitude that the public existed for their benefit rather than that they were brought into existence for the benefit of the public. With the unfair practices which 22 arose, and the unreasonable demands which were pre-sented, the public soon became convinced that special immunities should no longer be granted. It was awakening to the fact that it was being exploited by companies that had been granted long time or perpetual franchises, with no reservations to protect the interests of the public. A franchise, it began to appear, no longer primarily conveyed the idea of service to the public, but appeared to grant the right to exploit the public. When the people began to realize the value of these rights which they had so lavishly bestowed, and when they turned to attempt to correct the evil which they had brought upon themselves, no weapon seemed so readily available as increased taxation. The first step was to abolish special favors and immunities which had been granted, and then the attempt was made to apply the existing tax laws to corporate property.

Use of Existing Taxes. - Practically the only tax in existence at this time was, of course, the general property tax, and the attempt was made to reach the value of corporate property through its channels. The tax laws of most states made the property of all persons in the state subject to assessment and taxation, and corporations frequently attempted to escape on the ground that they were not persons. The courts, however, uniformly took the opposite view, and eliminated this difficulty.

The use of the general property tax, when applied to corporations, was even less satisfactory than were the results in reaching other kinds of property. The burden of the assessment was placed upon the local assessor, who was either incapable of making proper valuations, or else unable to do so. The inequalities of assessment have been outstanding. Assessors in some districts have either had different bases of valuation, have possessed better facilities for locating values, or have been more or less determined to secure a full valuation than assessors of other districts. The stocks and bonds of corporations, which were supposed to be assessed, generally escaped. The accurate valuation of a large factory with its machinery, raw materials, goods in the process of making, and stock of finished products, is beyond the possibility of accurate assessment by the average local assessor. Particular districts, moreover, have frequently offered freedom from heavy tax burdens, as a special inducement for corporations to locate in their midst.

Outstanding Inequalities. - These inequalities are especially marked where the property of a corporation is located in different assessment districts, as is the property of railroads. Assessors have no satisfactory way of placing a value upon such part of the road as lies within their jurisdiction, and yet some valuation must be made. Examples are numerous in which the assessed valuation per mile in contiguous districts has varied many thousands of dollars. Some districts have sought to pay the school expenses from such taxes; others, the maintenance of highways, while others have been negligent in attempting to realize any return from corporations.

The stipulation has usually been made that the capital stock is to be taxed at the location of the principal office, which one would naturally suppose would be located where the majority of the business is to be found. Corporations, however, soon discovered the advantage of stipulating that the principal office of the company be in some out-of-the-way district, where the taxes were low, or where the assessors had no idea that a corporation had its principal office in their midst. The capital stock of some corporations was consequently burdened with taxes while that of others escaped.

The result of these situations was that corporations, as a whole, were so unequally and inadequately taxed that the public began to demand that special taxes be placed upon them. From the above sketch it might be said that this demand arose from three causes: the rapid growth in extension and power of the corporations, the change in the attitude of the public toward their nature, and the inability of existing methods of taxation to reach corporate values.