Some basic modifications of American property taxation

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Content SOM E BASIC MODIFICATIONS OF AMERICAN PROPERTY TAXATION
A D is s e r ta tio n
P resen ted to
th e F a cu lty o f th e Graduate S chool
The U n iv e r s ity o f Southern C a lifo r n ia
In P a r t ia l F u lfillm e n t
o f th e R equirem ents fo r th e Degree
D octor o f P h ilo so p h y
by
Lang Lew is C a n tr e ll
i t )
June 1953
UMI Number: DP23252
All rights reserved
INFORMATION TO ALL USERS
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In the unlikely event that the author did not send a complete manuscript
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a note will indicate the deletion.
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P^.D E«. '53 C . cX35
This dissertation, written by
Lang Lew is C a n t r e ll
under the guidance of h.%§...Faculty Committee
on Studies, and approved by all its members, has
been presented to and accepted by the Council
on Graduate Study and Research, in partial ful
fillment of requirements for the degree of
D O C T O R OF P H I L O S O P H Y
Dean
3 00
roo -\
£l!b
C ot . on Studies
CONTENTS
CHAPTER PAGE
PART O N E
I . TH E PR O BLEM AND ITS DEVELOPMENT.......................... 2
I I . HISTORY AND FISCAL IM PORTANCE OF AM ERICAN
PROPERTY TAXATION........................................................ 15
I I I . ECONOM ICS OF PROPERTY TAXATION............................... 41
IV . ECONOM ICS OF PROPERTY TAXATION (CONTINUED) . . . 73
PART T W O
V. MODERNIZING LOCAL ADMINISTRATION OF TH E
G ENERAL PROPERTY TAX. ............................................112
V I. CENTRAL ADMINISTRATIVE MODIFICATIONS OF
PROPERTY TAXATION ............................................... 184
V II. TH E CLASSIFIED PROPERTY TA X .......................................259
V III. TH E PR O BLEM OF PROPERTY TAX EXEMPTION . . . . . 298
IX . PROPERTY TAX LIMITATION................................................367
X. SPECIAL PROPERTY TAX PROBLEMS.................................. 409
X I. PROPERTY TAX REPLACEMENTS........................................... 449
PART THREE
X II. SU M M AR Y , CONCLUSIONS, AN D RECO M M ENDATIO N S . . . 520
!
BIBLIOGRAPHY................................................................................................. 560
TABLE OF CONTENTS
CHAPTER
PART O N E
I . TH E PR O BLEM A N D ITS DEVELOPM ENT......................................
The problem . ....................................................
Statem ent o f th e problem ...........................................
Im portance o f th e stu d y ................................................
P r e sen t s t a tu s o f th e problem .......................... . .
Review o f th e lit e r a t u r e in th e f i e l d . . . .
Methods used in t h i s stu d y . . . . . . . . .
O rgan ization o f rem ainder o f th e t h e s i s . . • *
I I . HISTORY AND FISCAL IM PORTANCE OF AM ERICAN
PROPERTY TAXATION...................................... .... .......................
H is to r y o f American p ro p erty ta x a tio n . . . ♦ .
The C o lo n ia l P e r io d .........................................................
From th e R ev o lu tio n a ry to th e C iv il War. . .
The p ro p erty ta x from th e C iv il War to 1900.
The g e n e r a l p ro p erty ta x in th e T w entieth
C entury................................. ...............................................
The s in g le ta x ..............................................................
The se p a r a tio n o f s t a t e and lo c a l
reven u es .......................................................................
The c l a s s i f i c a t i o n o f p ro p erty ........................
E f f o r t s to improve a d m in istr a tio n . . . . .
PAGE
2
4
4
4
6
9
12
12
15
15
16
17
21
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2 4 1
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27;
29
30,
; CHAPTER PAGE
!
I D ep ression in s p ir e d ch a n g es.................................. 31
i
j P re sen t day f i s c a l im portance o f g e n e r a l
j p ro p erty t a x ........................................................................ 3J2
C o n c lu sio n s..................................................................................... 38
, I I I . ECONOM ICS ©P PROPERTY TAXATION.......................................... 41
The con cep t o f ta x a b le p r o p e r ty ...................................... 48
Problem s o f d i s t i n c t i o n .................................................... 48
Theory o f th e g e n e r a l p ro p erty ta x . . . . . . 46
C onfusion in th e g e n e r a l p ro p erty ta x . . . . 46
Kinds o f g e n e r a l p r o p e r ty ............................................... 48
S ig n ific a n t ta x d iff e r e n c e s betw een r e a l
and p erso n a l p r o p e r ty ............................................... 48
Economic c o n s id e r a tio n s in ta x in g r e a l
p r o p e r t y ................................................................................ 53
Economic c o n s id e r a tio n s in ta x in g p erso n a l
p r o p e r t y ............................................................................. 58
T angible p erso n a l p r o p e r t y ...................................... 58 j
I n ta n g ib le p erso n a l p ro p erty ................................. 59
C h a r a c te r is tic fe a tu r e s o f p ro p erty t a x e s . . 6 8
E a rly a p p r o p r ia te n e ss................................................ 6 8 :
E a r ly t h e o r e t ic a l sou n d n ess..................................... 63
U n ifo r m it y ........................................................................... 63 |
- i
^ B a s is o f v a l u a ti o n .................................................... 64 j
v
!
CHAP‘ TER PAGE j
y/ Method or a ssessm en t 64 I
i
P rop erty ta x a tio n i s a r e s id u a l le v y . . . 65
i
| The p ro p erty ta x an in rem t a x ........................ 66
i The problem o f th e j u r is d ic t io n to ta x
I p r o p e r t y .............................................................................. 6 8
I
T axation o f land .................................. 69
i I
T angible p e r s o n a lty . ............................ 6 9 :
I n ta n g ib le s and j u r is d ic t io n to ta x . . . . . 70
IT. ECONOM ICS OP PROPERTY TAXATION (CONTINUED) . . . 73
The g en er a l problem o f p ro p erty v a lu a tio n . . . 73
The ad valorem con cep t .................................. 75
L e g is la t iv e e la b o r a tio n o f v a lu a tio n
| sta n d a rd s................................................ 76
J u d ic ia l d e f in it io n s o f v a lu e . . . . . . . . 78 1
Value d is tin g u is h e d from a c tu a l c o s t and
from replacem ent c o s t ........................................... 80
• t
P a ir market v a lu e and cu rren t m arket
v a lu e ....................... 80
Market v a lu e and v a lu e to th e owner. . . . 81
V a lu a tio n on th e b a s is o f annual incom e. . 83
A dvantages to annual v a lu e a sse ssm en t. . . 65
D isad van tages o f annual v a lu e assessm en t . 86 j
T h e o r e tic a l m e r its o f th e p ro p erty ta x . . . 87 j
I
1
v i
CHAPTER PAGE
B e n e fits r e c e iv e d . 87
A b ilit y to pay..................................................... . . . 8 8
O ther m e r its o f th e p ro p erty t a x . . . . . . 89
C r itic is m s ©f th e p ro p erty t a x .................................. 90
Poor m easure o f a b i l i t y to p ay............................. 90
Poor t e s t o f b e n e f it s r e c e iv e d ............................. 91
R e su lts in double ta x a tio n ....................................... 92
Timing i s in c o n v e n ie n t * ............................ 92
U n d iffe r e n tia te d in im p a ct..................................... 93
Burden on h ou sin g ................................. 93
R eg ressiv e in e f f e c t . . .. . .. .................... 93
M erits on th e a d m in istr a tiv e s i d e ........................ 94
C r itic is m s on th e a d m in istr a tiv e s id e . . . . 94
J A ssessm ent in e q u a l it i e s " w ith in ” th e
same d i s t r i c t .............................................................. 94
A ssessm ent in e q u a l it i e s "betw een” ta x
d i s t r i c t s ..................................... 95
R eg r essiv e e f f e c t due to a d m in istr a tio n . . 95
Tax m ig ra tio n stim u la te d by p ro p erty t a x . . 96
P rop erty ta x e v a s io n ..................................................... 96
F is c a l p o lic y lim it a t io n s o f p ro p erty t a x e s . . 97
S h if t in g and in c id e n c e o f p ro p erty t a x e s . . . . 100
Land t a x e s ........................................................ 101
CHAPTER PAGE
C a p ita liz a tio n o f lan d t a x e s . . . . . . . . 103
106
107
108
108
S h if t in g o f ta x e s on b u ild in g s ...................
S h if t in g ta x e s le v ie d on consumer goods
S h if t in g ta x e s on b u sin e ss in v e n to r ie s .
S h if t in g t a x e s on in ta n g ib le p ro p erty .
C o n clu sio n s . . . . . . . . . . . . . . . .
PART T W O
V. MODERNIZING LO C AL ADMINISTRATION OF TH E G ENERAL
PROPERTY TAX.................................................................................118
The prim ary assessm en t o f p r o p e r ty ........................ .... 114
Governmental u n its in p ro p erty ta x
a d m in is tr a tio n ...................................................................114
P r in c ip a l ty p e s o f a ssessm en t d i s t r i c t s . . ♦ 116
Prim ary assessm en t d i s t r i c t s ..................................116 .
O verlapping a ssessm en t d i s t r i c t s ........................ 118 ■
i
D i s t r i c t s which cla im revenue . ........................ 119
P rop erty ta x a d m in istr a tiv e s te p s ............................. 1 1 9 j
• |
G eneral s t a t e m e n t ........................ ..................................... 119
i
The o r ig in a l o r prim ary assessment. . . . . 120
P r o v is io n fo r assessm en t review ....................121;
C en tra l a ssessm en t and e q u a liz a tio n . . . . 1 2 2 '
The g en er a l le v y . ................................. .... • 123 j
Apportionm ent o f ta x e s and s e t t in g r a t e s . . 1 2 4 i
• " ' v i i T
i CHAPTER PAGE
t
j C o lle c t in g th e t a x ..................................................... . 125
P r o v is io n f o r f i n a l a p p e a l. . . . . . . . . 126
! i
i O rg a n iza tio n o f lo c a l a ssessm en t a g e n c ie s;
p e r so n n e l, t o o l s and te c h n iq u e s . . . . . . . 127
I G eneral s t a t e m e n t ............................................................ 127
i
i /
v/ A ssessm ent o r g a n i z a t i o n ................................................ 127
, P erso n n el . . . . . . . 130
;
v A ssessm ent t o o l s and te c h n iq u e s . . . . . . 132
J Im proving lo c a l a s s e s s m e n t s .........................135
G eneral s t a t e m e n t ....................................................................135
'Z T ech n ica l a s s is t a n c e . ............................................136
!
M in n eso ta 's program ....................................................... 137
! K entucky's program.....................................139
R ea p p ra isa l o f p r o p e r t y ...................................... 142 ,
R ea p p ra isa l in N e b r a s k a .................................................144 j
R ea p p ra isa l in C olorado .............................................. 148
R eassessm ent in I n d i a n a ................................................151,
A pplying an assessm en t s t a n d a r d ..................................155,
• i
A p p ra isa l o f l a n d ...............................................................156 ;
A p p ra isa l o f b u ild in g s and im provem ents . . 160
i
L ocal e q u a liz a tio n and r e v i e w .......................168
G eneral sta tem en t . . . . . . . . .................... . 168;
!
L o ca l e q u a l i z a t i o n .............................................................. 170 j
IX
i CHAPTER PAGE
D isc lo su r e o f p r o p e r t y . ...........................................171
Im proving lo c a l a sse ssm en t. . . . . . . . . 172
L ocal rev iew o f a s s e s s m e n t s ..................................178
C o n c lu s io n s ...................................... .......................................... 182
7 1 . CENTRAL AIMINI STRATI VE MODIFICATIONS OF PROPERTY
TAXATION.......................................................................................... 184
Forms o f c e n tr a liz e d a d m in istr a tio n . .. .. . 185
S ta te s u p e r v i s i o n ....................... ..................................... 185
W isc o n sin 's e x p e r ie n c e . ........................................... 186
S ta te a ssessm en t o f p ro p erty . . . . . . . . . 188
C en tr a l rev iew o f a s s e s s m e n t s ..................................189
C en tra l e q u a liz a tio n o f th e p ro p erty ta x . . . 190
R easons f o r c e n tr a liz e d a d m in is tr a tio n ................... 193
G eneral s t a t e m e n t .................................................... 193 :
Reasons f o r s u p e r v i s i o n ................................................ 194
j
R easons f o r c e n tr a l a s s e s s m e n t ......................... .... 194
t
M eaning o f c e n tr a l a ssessm en t . . . . . . . 195 ;
.. f
Economic rea so n s In c e n t r a l a sse ssm e n t. . . 196
R easons f o r c e n tr a l e q u a liz a t io n .............................200 .
P ro p erty ta x e s a re p r in c ip a l l o c a l reven u e. 201
P ro p erty ta x e s are im portant s t a t e reven u e. 202;
C om p etitive u n d erv a lu a tio n by d i s t r i c t s . . 203;
i
D is t r i b u t i o n o f f i n a n c i a l a s s i s t a n c e . . . . 2 0 4 !
CHAPTER
PAGE
Tax r a te and d eb t lim it a t io n s made
/ e f f e c t i v e . . . . . . ....................
V A ssessm ent by e l a s s e s o f p ro p erty
J S ta te assessm en t o f in te r c o u n ty u t i l i t y
p r o p e r tie s r e q u ir e s c e n tr a l e q u a liz a tio n .
E q u a liz a tio n n e c e ssa r y in v etera n s*
p ro p erty ta x exem p tion ..................................
Need fo r c e n tr a l e q u a liz a tio n in a id to
ed u ca tio n ..............................................................
E q u a liz a tio n req u ired in a id to needy
a ged , b lin d , and c h ild r e n ........................
M ethods o f c e n t r a l a d m in istr a tio n
G eneral sta tem en t . . . . . . .
C en tra l su p e r v is io n . ; ...................
Methods o f c e n tr a l s u p e r v is io n .
C en tral a sse ssm e n t..................................
/ C en tra l a ssessm en t o f a l l ta x a b le p ro p erty . .
V Methods o f c e n tr a l assessm en t o f s p e c ia l
p r o p e r t ie s .........................................................
C en tra l a ssessm en t and th e u n it r u le ....................
Value o f th e p h y s ic a l p ro p e rty . . . . . . .
H is t o r ic a l o r o r ig in a l c o s t . . . . . . . .
204
205
207
208
209
209 :
2 1 0 ;
210
212 '
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212 j
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2 1 4 ;
214
215 ‘
217 ;
x i
CHAPTER PAGE.
I
I R eproduction c o s t s l e s s d e p r e c ia tio n . . . . 217
[
t
i V alue o f o u tsta n d in g s e c u r it ie s . . . . . . 218
A ssessm ent by c a p it a liz in g income ...................... 218
C en tra l e q u a liz a t io n ...........................................................220
G eneral statem en t . . . . . ......................................... 220
E q u a liz a tio n a t th e cou n ty l e v e l . ........................222
Methods o f e q u a liz a tio n on th e s t a t e l e v e l . . 223
The u n ifo r m -r a tio m ethod................................. . 223
The v a r ia b le - r a t lo m e th o d ................................... 226
E q u a liz a tio n and a p p r a is a ls . . . . . . . . . 227
R ecent tren d s in e q u a liz a tio n . . . . . . . . . 230
I G eneral s t a t e m e n t .........................................................230
I l l i n o i s * f u ll - v a lu e assessm en t program . . . 231
R easons f o r ad op tion o f th e program . . . . 232
M achinery f o r f u ll - v a lu e assessm en t . . . . 232
D eterm in ation o f cou n ty assessm en t r a t io s . 233
i
A dvantages and w eak n esses o f I l l i n o i s * l
i
f u ll - v a lu e assessm en t program ........................ 233
E q u a liz a tio n in P e n n sy lv a n ia ....................... 236
E q u a liz a tio n in U tah......................... 236,
E q u a liz a tio n in M in n e s o t a .................................................237
i
Powers and d u t ie s o f cou n ty su p e r v iso r s |
o f a s s e s s m e n t ....................................................................237
: x i i
CHAPTER PAGE
Powers and d u t ie s o f cou n ty a s s e s s o r s . . . 258
E q u a liz a tio n in Iowa ....................... . . . . . . 239
E q u a liz a tio n i n Ohio ......................................241
E q u a liz a tio n in K a n s a s ............................... 242
E q u a liz a tio n in C a l i f o r n i a ............................... 242
P r o v is io n s o f th e C a lifo r n ia In te r c o u n ty
e q u a liz a tio n la w o f 1949 ............................... 243 :
Methods o f e q u a liz a tio n p rovid ed . . . . . 244 ;
E q u a liz a tio n in a llo c a t in g s t a t e fu n d s . • 246
E q u a liz a tio n and maximum ta x r a t e s . . . . 246
C o n clu sio n s on C a lifo r n ia e q u a liz a tio n . . . 247
E v a lu a tio n o f c e n tr a l a d m in istr a tio n ...................... 248
G eneral sta tem en t . . 248
E v a lu a tio n o f c e n tr a l s u p e r v is io n ........................... 249 :
E v a lu a tio n o f c e n t r a l a s s e s s m e n t .............................2 5 1 j
E v a lu a tio n o f c e n t r a l e q u a liz a tio n . . . . . 253
■ • i
M e rits o f c e n tr a l e q u a l i z a t i o n ........................... 253 j
« « « 1
C o n c lu sio n s 255 i
i
7 1 1 . TH E CLASSIFIED PROPERTY TAX................................................... 259 !
I
The m eaning and m ethods o f c l a s s i f i c a t i o n . . . 260
The m eaning o f c l a s s i f i c a t i o n ....................................... 260
M ethods o f se c u r in g c l a s s i f i c a t i o n . . . . . 263
C l a s s i f i c a t i o n b y r a t e d i f f e r e n t i a l s . . . 264
r ' " " ......................" " ’ x i i r
I CHAPTER PAGE
! C la s s i f ic a t i o n by assessm en t d i f f e r -
i
e n t i a l s . . . . . ..................................................... 365
C la s s i f ic a t i o n by f ix e d a sse ssm e n ts. . . . 266
C la s s i f ic a t i o n by v a ry in g a sse ssm e n ts. . • 267
C la s s i f ic a t i o n by v a ry in g exem p tions . . . 268
C la s s i f ic a t io n by in d ir e c t m ethods . . . . 268
i E xten t and p u rp oses o f c l a s s i f i c a t i o n ..........................269
i
E x ten t o f c l a s s i f i c a t i o n . 269
P a r t ia l c l a s s i f i c a t i o n ........................................... 270
Comprehensive c l a s s i f i c a t i o n . . . . . . . 271
West V ir g in ia exam ple............................................271
M innesota exam ple * 272
Ohio example ......................................................273
Examples o f ta x e s w hich are c l a s s i
f ic a t i o n ....................................................................... 274
P urposes o f c l a s s i f i c a t i o n . . . 274
Reducing e v a sio n by c l a s s i f i c a t i o n . . . . 275
I
| C la s s i f ic a t i o n to produce more revenue . . 278 i
In c r e a sin g e q u ity by c l a s s i f i c a t i o n . . . . 278
C la s s i f ic a t i o n to stim u la te p ro d u ctio n . . 280
C la s s i f ic a t i o n to encourage c o n se r v a tio n . 281.
i
I S p e c ia l u se s o f c l a s s i f i c a t i o n .................................. 282
| H om estead c l a s s i f i c a t i o n ........................................... 2 8 3 |
CHAPTER PAGE
E f f e c t s o f M innesota hom estead c l a s s i
f i c a t io n ......................................................... . . . 264
Arguments f o r hom estead c l a s s i f i c a t i o n . . 265
Arguments a g a in s t hom estead c l a s s i
f i c a t i o n .................................................... 266
C o n clu sio n s on hom estead c l a s s i f i c a t i o n . . 287
S p e c ia l c l a s s i f i c a t i o n o f in t a n g ib le s . . . . 288
The ta x a tio n o f in ta n g ib le p erso n a l
p ro p erty in O h i o .......................................................... 289
A d m in istra tio n o f th e t a x ............................................291
E f f e c t s o f c l a s s i f i c a t i o n in O hio......................... 292
C o n clu sio n s on O hio’ s c l a s s i f i c a t i o n o f
in t a n g ib le s ........................................................ 295
E v a lu a tio n o f c l a s s i f i c a t i o n ....................................... 294
C o n c lu sio n s.......................................................................................295
V I I I . TH E PRO BLEM OF PROPERTY TAX EXEMPTION.........................298
i
The th e o r y and p urp oses o f p ro p erty ta x
exem ption. ......................................................... 300
The th e o r y o f p ro p erty ta x exem ption . . . . 300
P urposes o f p ro p erty ta x e x e m p tio n ......................... 301.
The e x te n t and grow th o f p ro p erty ta x
exem p tion .......................................................................................302
G eneral sta te m e n t....................................................................302
CHAPTER
i
E x ten t o f p ro p erty ta x exem ption
Kinds o f p ro p erty ta x exem p tion. .
i
. , G eneral sta te m e n t..................................
312
315
316
316
The th e o r y o f in d u s t r ia l ex em p tio n s.........................317
Economic im p lic a tio n s o f in d u s t r ia l
/ exempti o n s ................................................................................ 320
F avorable econom ic im p lic a t io n s ..............................320
U nfavorable econom ic im p lic a t io n s . . . . . 323
R e s u lts and e v a lu a tio n o f in d u s t r ia l
exem ption* ................................................................... 326
Homestead exem p tion. . . . . . .................................. 330
G eneral sta te m e n t ....................... 330
The th e o r y o f hom estead e x e m p t io n s .........................331
i i
The e x te n t o f hom estead ex em p tio n ....................... 332»
E f f e c t s o f hom estead e x e m p t io n ............................. 334,
Are hom estead exem p tions e q u ita b le . . . . 334
E f f e c t o f hom estead exem ption on home
ow n ersh ip ........................................................ 338
V Exemption o f p u b lic p ro p erty....................................
C o n clu sio n s on exempted p u b lic p ro p erty . . .
I n d u s t r ia l exem ption ..........................................................
1
G eneral sta te m e n t..............................................................
xv
PAGE
303
310
310
x v i
CHAPTER PAGE
E f f e c t o f hom estead exem p tion s on th e
ta x b a s e ............................................................................. 3 4 5
R eplacem ent o f r e v en u e s.................................................350
E v a lu a tio n o f hom estead exem p tion ......................... 352
1
V eteran s exem ption ....................................... . .. .. 352 :
G eneral sta te m e n t................................................................. 352 (
The th e o ry o f v e te r a n s exem ption . . . . . . 354 !
E f f e c t s and e v a lu a tio n o f v e te r a n s !
e x e m p t io n .............................................................................. 355
I n s t it u t i o n a l e x e m p t io n s ..................................................... 357
G eneral sta te m e n t....................................................................357
Theory o f i n s t i t u t i o n a l e x e m p t io n s .........................358
E v a lu a tio n o f in s t i t u t i o n a l exem ptions . . 360
| Exemption problem s and a b u se s 360 !
f 1
! G eneral sta te m e n t......................................... 360
Abuses o f exem p tion . ....................................... 361
E v a lu a tio n and c o n c lu s io n s .. .. . .................... 363
IX . PROPERTY TAX LIMITATION...............................................................367
K inds o f p ro p erty ta x li m i t a t i o n s .................................. 368
G eneral sta te m e n t. . . . » .................................... 368
S p e c if ic lim it a t io n . . 368
O v e r -a ll l i m i t a t i o n ...............................................................370
O ther ty p e s o f l i m i t a t i o n . ............................................371
xv i i
CHAPTER PAGE
O b je c tiv e s ©f p r o p er ty ta x lim it a t io n s . . . . 372
i
G eneral sta te m e n t.............................................................. 372 I
R eduction o f e x p e n d itu r e s.................................... 373 !
P u ll v a lu e a sse ssm e n t.............................................. 376 I
D is c lo s u r e o f in t a n g ib le s . . ..............................377
P r o te c tio n a g a in s t c o n f is c a t o r y r a t e s . . . . 378
W ider revenue s o u r c e s .............................................. 379 j
Tax m o d if ic a tio n s ........................................................ 382 j
L ocal government r e fo im ......................................... 383 ;
i ..
S ta te a id to ed u ca tio n ..............................384
] Reduce ta x d e lin q u e n c y ..................................................... 385
E f f e c t s and c r it ic is m s o f ta x lim it a t io n . . . 386 .
i
G eneral sta te m e n t.......................................................... 386
C rea tio n o f a r e g r e s s iv e system o f !
t a x a t i o n ................................................................. 388 j
l
C u rtailm en t o f im portant s e r v ic e s . . . . . 393
F a ilu r e t o p ro v id e f l e x i b i l i t y f o r l o c a l
c ir c u m sta n c e s.......................................................... 394
Undermines c r e d it o f lo c a l governm ent. . . 395
N eg a tiv e and in d ir e c t way to o b ta in ta x
refo rm s.........................................................................396
F a ilu r e to reduce th e t o t a l ta x burden . . 398
R e d u c tio n i n l o c a l c o n t r o l o f governm ent . 403
x v i i i
CHAPTER PAGE
C o n c lu sio n s.......................................................................................40?
X. SPECIAL PROPERTY TAX PROBLEMS.................................................409
P erso n a l p ro p erty t a x a t i o n ..................................... . . 409
■ i
Economic b a s i s 410 j
T angible in com e-producing p e r s o n a lty . . . 410
H ousehold goods and p erso n a l e f f e c t s . • . 411
I n ta n g ib le p erso n a l p r o p e r t y ...................................412
E v a lu a tio n o f p erso n a l p ro p erty ta x a tio n . . 413
C o n clu sio n s on p erso n a l p ro p erty ta x e s . . . 421
Taxing s p e c ia l ty p e s o f p r o p e r t y ....................... * . 423
M erchants* i n v e n t o r i e s ............................................... 424
Taxing m erchants* in v e n to r ie s . ............................. 424
V a r ia tio n s in in v e n t o r ie s ............................................ 424
A ssessm ent "as o f tt a g iv e n day . . . . . . 425
A sse ssin g in v e n to r ie s a t average v a lu e . . 426
F o r e s ts ..................................... 42?
Taxing f o r e s t s ........................................................................ 427
P r o v is io n s f o r s p e c ia l t a x a t io n ...................................428
Economic c o n s id e r a tio n s ..................................................... 429
E f f e c t s o f p ro p erty ta x e s on f o r e s t s . . . . 430
C o n c lu sio n s. ........................................................................ 431
M ines and m in e r a ls . . .
Economic c o n s id e r a tio n s
432
432
CHAPTER
i
!
PAGE
P ro p erty ta x a p p lie d t o m in e s..............................433
D i f f i c u l t y o f a s s e s s m e n t ........................ 433
P ro p erty ta x e s are n o t geared to incom e. . 434
Severance t a x e s ...............................................................434
C o n c lu sio n s.............................................................. .... 435
O il and g a s w e a l t h .......................................................... 435
G eneral sta te m e n t.......................................................... 435
C o n c lu sio n s............................................................. 436
O ther problem s in p ro p erty t a x a t io n .................... 437
D elinquency and c o l l e c t i o n . . . . . . . . . . 437
G eneral sta te m e n t........................ ............................ .... . 437
C auses o f ta x d e lin q u e n c y ....................................... 438
Economic c a u s e s .......................................................... 438
O ther c a u se s ........................ .......................................... 439
S u g g e stio n s to reduce d elin q u e n c y ................... .... 440
Use o f e f f i c i e n t c o l le c t io n m ethods. . . . 440
C o r r e la tio n o f a d m in is tr a tio n .........................440
P e n a lt ie s fo r d elin q u en cy .................................. 441
C o n c lu s io n ............................................................................ 4 4 2 1
P rop erty ta x a tio n in u n in corp orated a r e a s . . . 442!
G eneral sta te m e n t.......................................................... 442
Tax problem s in u r b a n iz a t i o n ..............................443
I n e q u ita b le double t a x a t io n ..............................443
xx;
CHAPTER PAGE'
J eo p a r d iz es p ro p erty v a lu e s ............................. 444
D u p lic a tio n o f c o s t s ...................................... 445
Proposed s o lu t io n s ............................................. . . . 446
. I
C o n c lu s io n ............................................................................ 4 4 8 j
XT. PROPERTY TAX REPLACEMENTS.................................................449
The sea rch f o r a d d itio n a l l o c a l rev en u es . . . 450
Why th e need f o r more re v en u e. . ....................4 5 1 1
i
I n f la t io n a r y f a c t o r s ............................ 451:
i
t
In cr ea sed urban p o p u l a t i o n .............................453 :
D eferred c o n s tr u c tio n and m ain ten an ce. . . 453
W elfare e x p e n d itu r e s . . . . . . . . . . . 454
Demands f o r expanded governm ental
s e r v ic e s . . . . . . . . 454
P ro p erty ta x unable to b ear in c r e a se d j
ex p en d itu re b u r d e n ............................................. 455 j
E x ten t o f use o f n on p rop erty t a x e s ................456
Im portance o f n onp rop erty t a x e s .........................461
L e g is la t iv e h is t o r y o f n onp rop erty t a x e s . . 464
M u n icip al e x p e r ie n c e ................................................ 465
S p e c ia l c o n s id e r a tio n s in m u n icip a l revenue
p r o b le m s .............................................................. .... 466
F req u en tly used n onp rop erty t a x e s ......................... 467
\
G eneral sta te m e n t. ........................ .... 467
CHAPTER
i
i
x x i
PAGE I
- I
M otor f u e l t a x e s ................................................................... 468 I
i
S ta te m otor f u e l t a x e s ................................. 469
M u n icip al m otor f u e l t a x e s ............................................ 470
S a le s t a x e s 471 I
i
S ta te s a le s t a x e s 471 ;
M u n icip al s a le s t a x e s .................................................... 472
I
C a lifo r n ia m u n icip a l s a le s t a x e s 474 ;
E v a lu a tio n o f m u n icip a l s a le s t a x e s 476 |
I
Income t a x e s ............................................... 478
S ta te p e r so n a l income t a x e s ............................................ 478
M u n icip al income t a x e s ................................. 479
The P h ila d e lp h ia income t a x .................................* 480
Y ield o f m u n icip a l income t a x e s ...................................481
A p p ra isa l o f m u n icip a l income t a x e s ......................... 482
C on clu sion on m u n icip a l income ta x e s . . . . 484
C ig a r e tte and to b a cco t a x e s ....................... 484
S ta te to b a cco t a x e s . ....................... 485
S ta te tob acco ta x c o l l e c t i o n s ...................................485
M u n icip al c ig a r e t t e and tob acco t a x e s . . . . 486
E v a lu a tio n o f m u n icip a l c ig a r e t t e and
to b a cco t a x e s . . . . . . . . . . . . . . . 487
A lc o h o lic b everage ta x e s . 487 1
S ta te a lc o h o lic beverage ta x e s ............................. 490
CHAPTER
I
*
x x i l
PAGE
M u n icip al a lc o h o lic b everage ta x e s .................... 490
t
i
A dm issions t a x e s 493 i
i
I
S ta te a d m issio n s ta x e s ................... 4 9 4 !
L ocal a d m issio n s t a x e s ................................................ 4 9 4 1
E v a lu a tio n o f l o c a l a d m issio n s ta x e s . . . . 496 j
M otor v e h ic le t a x e s ....................................................................497
S ta te m otor v e h ic le t a x e s .................................................497
i
L ocal m otor v e h ic le lic e n s e t a x e s . .. . . . 498 !
!
I l l i n o i s m u n icip a l m otor v e h ic le ta x e s . . 499
C o n clu sio n o f m u n icip a l m otor v e h ic le t a x e s . 499
G ross r e c e ip t s b u s in e s s t a x e s ............................ 500
S ta te g r o s s r e c e ip t s t a x e s ....................................... 500
L o ca l g r o s s r e c e ip t s lic e n s e t a x e s .................... 508
P u b lic u t i l i t y t a x e s 503 !
S ta te n onproperty ta x e s on p u b lic u t i l i t i e s . 504 ;
j
L ocal p u b lic u t i l i t y ta x e s ....................................... 504
Sewer and r e fu s e s e r v ic e ch a rg es ............................. 505
Sewer r e n t a ls o r s e r v ic e ch a rg es ........................ 505
B ases o f ch arges and r a t e s ....................................... 506
E v a lu a tio n o f sew er s e r v ic e c h a r g e s.........................507
R efuse c o l l e c t i o n c h a r g e s.................................................510
E v a lu a tio n o f r e fu s e c o l l e c t io n ch a r g e s. . . 510
L ess fr e q u e n tly used nonproperty ta x e s . . . . 511
CHAPTER P A G E S
G eneral sta te m e n t.......................................................... 511
O ther nonp rop erty t a x e s .............................« . . . 511
O ther m u n icip a l revenue s o u r c e s ..............................5 IS
G eneral sta te m e n t................................... .......................... 512
G r a n ts -in -a id . . . . . . . . . . ........................ 513
Shared ta x e s ........................................................................ 514
M u n ic ip a lly owned com m ercial e n t e r p r is e s . . 515
C o n c lu sio n s. .................................. 515
PART THREE
X L I . SUM M ARY , CONCLUSIONS, A N D RECOM M ENDATIONS. . . . 580
Summary........................................................................................... 520
C o n clu sio n s and recom m endations. . . . . . . . 525
C o n clu sio n s and recom m endations on p ro p erty
ta x th e o r y ................................. 525
C o n clu sio n s and recom m endations on
a d m in istr a tio n . . . . . ....................................... 533
C o n c lu sio n s and recom m endations on
s u b s ta n tiv e ch a n g es.................................................541
C o n clu sio n s and recom m endations on
c l a s s i f i c a t i o n .......................................................... 541
C o n clu sio n s and recom m endations on
exem p tion ....................................................................544
C o n clu sio n s and recom m endations on
in d u s t r ia l ex em p tio n s...........................................
C o n clu sio n s and recom m endations on
hom estead exem p tion s ....................................... .
C o n clu sio n s and recom m endations on
v etera n s* exem p tions ....................................... ,
C o n clu sio n s and recom m endations on
i n s t i t u t i o n a l exem ptions ............................. ,
C o n clu sio n s and recom m endations on
r a te lim it a t i o n s ....................................................
C o n clu sio n s and recom m endations on
p e rso n a l p ro p erty ta x a tio n ........................ .
C o n clu sio n s and recom m endations on
d elin q u e n c y ........................ .......................................... ....
C o n clu sio n s and recom m endations on ta x
problem s o f th e u n in corp orated urban
f r i n g e ........................ ........................................................
C o n clu sio n s and recom m endations on p ro p erty
ta x r e p la c e m e n t s ......................................
BIBLIOGRAPHY................................................ .... ..........................................
x x l r
PA®
545
I
546 !
547
i
I
i
548 |
i
1
i
549
551
553 |
I
I
f
i
555
557
560
TABLE
X.
I I .
I I I .
IV .
V.
V I.
/ V II.
V III.
IX .
LIST OF TABLES
P ro p erty Tax C o lle c t io n s o f S ta te and L ocal
Governments - T o ta l in M illio n s - S e le c te d
F is c a l Y ears........................................................................
P ro p erty Tax C o lle c t io n s o f S e le c te d S ta te s
a s P ercen ta g es o f T o ta l Revenue ........................
P ro p erty Tax a s P ercen ta g e o f Tax C o lle c t io n s
in S e le c te d C it ie s o f 3 0 0 ,0 0 0 o r More
P o p u la tio n , 1948 and 1951 . . . . ...................
Types o f G eneral P ro p erty ...........................................
R efinem ent P o in t Schedule f o r One and One-
H a lf S to ry O ne-Fam ily R esid en ce ........................
B a sic R eproduction C ost p er Square Foot
One and O ne-H alf S to r y O ne-Fam ily
R e s i d e n c e ............................. ....................................
A ssessm en t-S a le R a tio s fo r Allam akee C ounty,
Iow a, 1949-1950 by D i s t r i c t s ............................ .
Farm R eal E sta te P r ic e s fo r N ebraska,
1930-1949 . . . ..............................................................
Example o f A pplying ♦ ’ M u lt ip lie r ” to
D eterm ine F u ll V alu e. . . . . . . ....................
PAGE I
t
36 i
37
i
I
I
39 ;
49
165
i
i
■I
166 j
I
175
177
234
y r y i
TABU PAGE
X. C a lifo r n ia County A ssessm ent R a tio s and
S ta tew id e R a tio a s o f F ir s t Monday in
March, 1 9 5 1 ..............................................................................E45
1 i
XX. I n ta n g ib le P ro p erty Tax a s P ercen ta g e o f
T o ta l S ta te Revenue o f V i r g i n i a ..............................279
3 1 1 . A ssessed V alue o f T o ta l Exem ptions fo r
S e le c te d C a lifo r n ia C o u n ties Under Church,
C o lle g e , W e lfa r e , V etera n s Exem ptions . . . 307
X III. A g r ic u ltu r a l and I n d u s t r ia l E xem ptions,
1 9 4 4 ............................................................. 311
XIV. Tax-Exempt R eal E s ta te In B o sto n . . . . . . . 314
XV. Occupancy o f D w ellin g U n its f o r th e U hited
S t a t e s , 1 9 4 0 ........................................................................ 340
XVI. Occupancy o f D w ellin g U a its fo r th e U nited
S ta te s , 1 9 5 0 ........................................................................ 341
XVII. Owner-Occupied D w ellin g U n its fo r S e le c te d
S t a t e s , 1 9 4 0 ............................................... 343
X V III. Owner-Occupied D w ellin g U n its fo r S e le c te d
S t a t e s , 1 9 5 0 ......................................................... 344
XIX. Owner-Occupied D w ellin g U n its , Urban and
R u ral, in S t a t e s G ranting Homestead
Exem ption, 1940 . . ................................................ 345
TABLE
XX.
XXX.
XXII.
X X III.
I
I
I
I XXEV.
I
i
XXV.
!
i
|
i
x m .
XXVII.
x x v ii
PAGE
A ssessed V a lu a tio n o f Tax-Exempt Hom esteads
and o f T o ta l Taxable P ro p erty in 1948 . . . 3 4 7
P ercen tage o f T o ta l Revenue D erived from
S a le s and Use Taxes in P ro p erty Tax
L im it S t a t e s . ....................... 380
P ercen tage o f T o ta l Revenue D erived from
S a le s and Use Taxes in 20 N on -L im itation
S t a t e s ...................................................................................... 3 8 1 1
S ou rces o f M ich ig a n 's S a le s Tax D o lla r ,
1945-1946 . ...................................................................... 392
P ercen ta g e o f F u ll V alue a t Which P ro p erty
i s A ssessed in P r a c t i c e .......................................... 400
S ta te E xp en d itu res a s P erce n ta g e s o f Combined ,
S ta te and L ocal E xp en d itu res in Tax
L im ita tio n S t a t e s , 1932 and 1 9 4 2........................ 406
Number o f S ta te s U sing S p e c ifie d N onproperty
T axes, 1 9 5 0 , and P erc en ta g es o f T o ta l
Revenue D erived from E a c h ....................... 458
M u n icip al N onproperty T axes, Number o f {
S ta te s in Which One o r More C i t i e s Use |
S e le c te d N onproperty T axes, J u ly 1 , ,
1 9 5 1 ................................................................................................ 459
TABLE
XXVIII.
XXIX.
XXX.
XXXL.
x m i .
x x v i i i
PAGE
P ro p erty Taxes a s P er ce n ta g es o f T o ta l
i
G eneral Revenue i n C i t i e s U sing and Not |
j
U sing N onproperty T axes, 1949 468 !
M u n icip al N onproperty T axes, C i t i e s Over I
1 0 ,0 0 0 P o p u la tio n , June 3 0 , 1 9 5 1 . . . . . . 463
S ta te S a le s Tax R a te s, O ctob er, 1952. . . . . 473 ,
}
I
M u n icip al C ig a r e tte and Tobacco Taxes !
(O rdinances Sunn& arized) 488 j
A lc o h o lic Beverage Tax C o lle c t io n s f o r
S e le c te d S ta te s (As P ercen ta g e o f T o ta l
Tax R even u e), 1 9 5 0 ....................... 491
LIST OF FIGURES
FIGURE PAGE
1 . P ercen tage o f S ta te and L ocal Tax Revenue |
R eceived From P ro p erty a s Compared w ith j
; i
That From O ther S ou rces 33 '
I
2 . P ercen tage o f S ta te and L ocal Tax Revenue
D erived From P ro p er ty Tax C o lle c t io n s . . . . . 34
i
3 . O rg a n iza tio n o f Los A n geles County !
i
i
A s s e s s o r ’ s O ffic e . 129 |
4 . R e la tio n sh ip o f P ro p erty Taxes to N a tio n a l
Income From 1932 to 1948........................... ...... 375
5 . S ta te Tax C o lle c t io n s : 1 9 4 0 -1 9 5 1 ....................................... 501
PART ONI
CHAPTER I
THE PRO BLEM AND ITS DEVELO PM ENT
Everybody i s concerned w ith t a x e s . -Among th e im
p o rta n t cu rren t problem s few are more in th e fo r e fr o n t than
th o se r e la t in g t o ta x a tio n . In th e p a st ta x e s g e n e r a lly
have been regarded a s b ein g m erely a ”m eal t i c k e t ” fo r
governm ent. T h is no lo n g e r d e s c r ib e s th e im portance a s
crib ed to ta x a tio n a s one o f th e b a s ic c o n tr o l d e v ic e s in
th e hands o f th e governm ent.^ A lthough s in c e Adam S m ith fs
tim e ta x a tio n h as been re co g n ize d a s h avin g econom ic e f f e c t s
w hich should be co n sid er ed in a p p r a isin g ta x m easu res, a
new em phasis h as been put on ta x a tio n a s a fa c t o r in a ggre
g a t iv e econom ics s in c e th e s o - c a lle d "K eynesian R ev o lu tio n ”
o f th e 1930*s .
The use o f ta x a tio n a s one o f th e p a r ts o f th e "bal
ance w h eel” in th e economy i s a r e l a t i v e l y new developm ent.
A lthough p ro p erty ta x e s are n o t so w e ll s u ite d as c e r ta in
o th e r m ajor ta x e s to f l e x i b l e f i s c a l p o l i c i e s o f c o n t r o l,
th e y co n tin u e to p ro v id e th e ”m eal t i c k e t ” f o r s t a t e and
lo c a l governm ents— p a r t ic u la r ly l o c a l . For many y ea r s th e
^ Harold M. G roves, ”A G eneral A p p ra isa l o f th e
American Tax P rob lem ,” The Annals o f th e American Academy
o f P o l i t i c a l and S o c ia l S c ie n c e . November, 1949, pp. 4 9 -5 0 .
5
g e n e r a l p ro p erty ta x h as been th e p r in c ip a l revenue-produceij
f o r s t a t e and lo c a l governm ents in th e U n ited S t a t e s . I t
has o n ly been in th e v er y r e c e n t p a st th a t th e ta x has l o s t
i t s p la ce a s th e la r g e s t r e v e n u e -r a is e r in .America.
The g e n e r a l p ro p erty ta x i s som etim es r e fe r r e d to as
a c h a r a c t e r is t i c a l l y American form o f ta x a tio n s in c e i t has
2
r e c e iv e d i t s g r e a te s t developm ent in th e U nited S t a t e s .
A lso , i t i s som etim es thought to be th e t h e o r e t i c a l ly id e a l
foim o f ta x s in c e i t i s a ta x on p ro p erty ir r e s p e c t iv e o f
th e p erson or h i s economic s t a t io n o r circu m sta n ce— th u s , i t
i s a c o m p le te ly o b je c tiv e ta x .
D esp ite sev ere c r it ic is m in b oth th e o r y and p r a c tic e
th e ta x c o n tin u e s to be w id e ly u sed . Of a l l th e p r in c ip a l
American ta x e s none h as been c r i t i c i z e d more s e v e r e ly , y e t
changed more r e lu c t a n t ly than th e g e n e r a l p ro p erty ta x . I t
h as proved to be th e m ost r e l i a b l e sou rce o f revenue a v a i l
a b le to lo c a l governm ents, and fo r t h i s r e a so n , i f f o r no
o th e r , r e s i s t s rap id or r a d ic a l ch a n g es. N e v e r th e le s s , th e
o ld g e n e r a l p ro p erty ta x h as undergone much change w ith th e
W illiam J . S h u ltz and C. L ow ell H a r r i s s American
P u b lic Finance ( f i f t h e d it io n ; New York: P r e n tie e -H a ll,
I n c . , 1 9 4 9 ), p . 323.
® M. S lad e K endrick, P u b lic F inance P r in c ip le s and
Problem s (New York: H o u gh ton -M ifflin Company, 1 9 5 1 ) , p . 13.
4
r e s u lt th a t i t i s now p r in c ip a lly a le v y on r e a l e s t a t e . 4
I . THE PR O BUM
Statem ent o f th e Problem
The p urp oses o f t h i s stu d y are; (1) to p r e se n t
b r i e f l y the h i s t o r i c a l r o le o f th e g en e r a l p ro p erty ta x
in th e American system o f ta x a tio n ; (2) to c o n sid e r th e
p r e se n t-d a y r o le o f th e ta x in th e American economy and ta x
system ; (3) to a n alyze th e econom ics o f g e n e r a l p ro p erty
ta x a tio n ; (4) to in v e s t ig a t e th e more im portant r e c e n t
m o d ific a tio n s w hich have been made in th e ta x in th e l i g h t
o f econom ic th e o r y , p o l i t i c a l ex p ed ien c y , and a d m in istr a tiv e
e x p er ien ce s in c e i t s r a th e r g e n e r a l breakdown during th e
g r e a t d e p r essio n ; (5) to ex p lo r e th e p o s s i b i l i t i e s and sug
g e s t io n s fo r im proving th e ta x ; and (6) to seek out and
c o n str u c t p o s it iv e m easures f o r such im provem ent, e s p e c ia lly
fo r th e p urp oses o f .lo c a l revenue r a is in g .
Im portance o f th e Study
Taxes assume an ev e r in c r e a s in g im portance in th e
econom ic a f f a i r s o f th e n a tio n as w e ll as o f th e in d iv id u a l
as tim e g o es by. L ike d ea th , ta x e s appear in e v it a b le ;
how ever, u n lik e th e w eather som ething can be done about
4 I b i d . , p. 1 6 4 .
5
t a x e s . A lthough in th e n a tio n a l com plex o f t a x e s th e pro
p o r tio n a te im portance o f p ro p erty ta x e s h as le s s e n e d , th e
la r g e r p a rt o f l o c a l governm ental revenue d e r iv e s from
p ro p erty t a x e s . In th e t o t a l t a x p ic tu r e th e re i s a
co u n terb a la n ce to th e d ecrea sed im portance o f p ro p erty
ta x e s ; i . e . , p ro p erty ta x e s have assumed g r e a te r im portance
to lo c a l governm ents w hich are n o t allow ed to em ploy c e r ta in
o th e r ta x e s le v ie d by th e s t a t e . Thus, l o c a l governm ents
may be lim it e d la r g e ly to p ro p erty t a x e s , even though most
d ir e c t s e r v ic e s are rendered to th e c i t i z e n s by l o c a l
governm ents.
The g e n e r a l p ro p erty ta x te n d s to be a r e l a t i v e l y
unvarying le v y and may be ex trem ely o p p r e ssiv e during a
d e p r e ssio n w ith h ig h d elin q u en cy r a t e s , fo r c e d s a l e s , and
much h a rd sh ip . In in f la t io n a r y p e r io d s when c o s t s are
m ounting, in c r e a se d a s s e s s e d v a lu a tio n s and h ig h e r r a t e s
imposed may co n tin u e to be a heavy burden on p ro p erty
ow ners. T h is i s more l i k e l y where l o c a l governm ents have
no o th e r im portant so u r c e s o f rev en u e. In s h o r t, w hether
th e l e v e l o f econom ic a c t i v i t y i s expanding or d ep ressed
th e n eed s co n tin u e f o r th e b a sic s e r v ic e s rendered by l o c a l
governm ent— p o lic e and f i r e p r o t e c t io n , s a n ita r y and s a f e t y
r e g u la tio n s , e d u c a tio n , to m ention a few— and lo c a l govern
m ents base t h e ir ta x system s p r im a r ily on th e p ro p erty ta x .
6
J u st th e same, th e p ro p erty ta x base h as been weakened by
exem ption o f much p erso n a l p ro p erty ; much r e a l e s t a t e i s
exempt under governm en tal, r e l i g i o u s , c h a r it a b le , and home
ste a d ex em p tio n s. Rate lim it a t io n s fu r th e r weaken th e
p ro p erty ta x in some c a s e s . In o th e r w ords, th e p ro p erty
ta x problem i s s i g n if ic a n t from many v ie w p o in ts and war
r a n ts c a r e f u l stu d y and r e stu d y .
P r e se n t S ta tu s o f th e Problem
A lthough m ost cu rren t books in th e f i e l d o f ta x a tio n
and p u b lic fin a n e e in e lu d e a treatm en t o f th e g e n e r a l prop
e r ty ta x th e re h a s been no d e f in i t e stu d y s in c e 1931 devoted
e x c lu s iv e ly to t h i s t a x . The b a s ic work on th e t o p ic i s
Jens P. J e n se n ’ s P ro p erty T axation in th e U n ited S t a t e s ,
p u b lish ed in 1931. As was tr u e when P r o fe s s o r J e n se n ’ s
book was w r itte n th e r e i s sin enormous amount o f l i t e r a t u r e
in th e f i e l d o f p ro p erty ta x a tio n ; how ever, much o f i t i s
o f a h ig h ly s p e c ia liz e d n atu re d e a lin g w ith p a r t ic u la r o r
s p e c i f i c problem s or a s p e c ts in th e f i e l d and i s n o t con
v e n ie n t ly a v a ila b le in an in te g r a te d and o rg a n ized form .
J e n se n ’ s book was th e f i r s t o rg a n ized p r e s e n ta tio n o f th e
e s s e n t i a l a s p e c ts o f p ro p erty ta x a tio n in th e U n ited S t a t e s .
I t r e p r e s e n ts th e cu lm in a tio n o f a te n year stu d y by i t s
7
g
a u th o r. When I t was w r itte n p ro p erty ta x e s were dom inant,
s in c e a t th a t tim e ,
From a f i s c a l p o in t o f view p ro p erty ta x e s are now
and alw ays have been more im portant than any o th e r ta x ,
and fo r s t a t e and l o c a l p urposes in th e U nited S t a t e s ,
more im portant than a l l o th e r ta x e s to g eth e r.®
The au th or d ev elo p s in c o n sid e r a b le d e t a i l th e th e o r y and
econom ics o f p ro p erty ta x a tio n and shows th e a d m in istr a tiv e
f a ilu r e s o f th e t a x and i t s p r o g r e s s iv e d is in t e g r a t io n from
a g en er a l p ro p erty t a x , whose b a s ic co n eep t i s th a t a l l
p ro p erty i s v a lu ed u n ifo rm ly and ta x ed a t a uniform r a te in
each j u r is d ic t io n , in to component p a r ts in w hich th e s e p r in
c i p le s ap p ly in v a ry in g d e g r e e s. The a d m in istr a tiv e
p r o c e s s e s o f th e ta x — lo c a l a sse ssm e n t, c e n tr a l s u p e r v is io n ,
c e n tr a l a sse ssm e n t, lo c a l and s t a t e e q u a liz a t io n , c o lle c t io n
and d elin q u en cy — are t r e a te d in d e t a i l . F in a lly , th e book
p r e s e n ts ch a n g es, a d ju stm e n ts, and m o d ific a tio n s thought to
be n e c e ssa r y to c r e a te a sound system o f p ro p erty ta x a tio n .
D esp ite th e r e la t iv e d e c lin e in th e im portance o f
th e g e n e r a l p ro p erty ta x in th e t o t a l t a x p ic tu r e i t con
t in u e s to be th e backbone o f lo c a l t a x sy stem s. I t no
lo n g e r o c c u p ie s th e p o s it io n o f number one r e v e n u e -r a is e r
® Jen s P . J en sen , P ro p erty T axation in th e U nited
S ta te s (C hicago: U n iv e r s ity o f Chicago P r e s s , 193177
p . v l i i .
6 IM & *, P- 1*
8
in view o f th e g ig a n tic amounts r a is e d by fe d e r a l income
t a x e s . I r o n ic a lly , how ever, i t assum es in c r e a se d im port
ance b ecau se o f th e w eig h t o f o th e r t a x e s , and because th e
p ro p erty ta x o fte n s e r v e s a s th e b a s is fo r f in a n c ia l a id by
s t a t e s to lo c a l governm ents, e s p e c i a l l y sch o o l d i s t r i c t s .
T h e o r e tic a l and a d m in is tr a tiv e w eak n esses o f p ro p erty ta x a
t io n are e v er more s ig n if ic a n t a s a r e s u l t o f th e co n tin u ed
im portance o f th e tax t o l o c a l u n it s o f governm ent. I r o n i
c a l l y , t o o , th e in c r e a se d demands on p ro p erty ta x a tio n have
been accom panied by a d ecrea sed e f f e c t iv e n e s s in p ro p erty
v a lu a tio n r e s u lt i n g in an e v e r low er r a t io o f a s s e s s e d
v a lu e to tr u e v a lu e .
U n d ervalu ation a c t s to compound in e q u it ie s in th e
ta x s in c e a p p r a isa l stan d ard s and p r a c t ic e s v a ry w id e ly
betw een ta x in g j u r is d ic t io n s , a s w e ll as among v a r io u s
ty p e s o f p r o p e r tie s w ith in ta x d i s t r i c t s . In s h o r t, prop
e r ty ta x a tio n as p r e s e n tly employed i s c h a r a c te r iz e d by an
ex trem ely co n fu sed s e t o f p r a c t ic e s w hich do g r e a t v io le n c e
to th e p r in c ip le s o f uniform ad valorem ta x a tio n o f a l l
p r o p e r ty . The r e s u l t o f th e s e c o n d itio n s i s to p la c e th e
lo c a l a s s e s s o r , v e r y o fte n an e le c t e d o f f i c i a l , whose
fu n c tio n i s to fin d and a p p r a ise p ro p erty a t f u l l v a lu e , in
th e p o s it io n o f c h a r tin g th e f i s c a l p o lic y o f many lo c a l
governm ents.
Under th e im pact o f th e p r e s su r e s from th e heavy
p ro p erty ta x lo a d much e f f o r t has heen d ev o ted to im proving
t h i s form o f ta x a tio n . These e f f o r t s stem from a ra th er
w id esp read r e c o g n itio n o f th e breakdown o f th e o ld "unre
formed" g e n e r a l p ro p erty t a x . The r e c e n t "reform s" or
" m o d ifica tio n s" to th e g e n e r a l p ro p erty ta x make up th e
m ajor p art o f t h i s stu d y .
Review o f th e L ite r a tu r e in th e F ie ld
P ro p erty ta x a tio n h as been th e su b je c t o f much stu d y .
Books in p u b lic fin a n c e and ta x a tio n g iv e v a ry in g em phasis
to p ro p erty t a x e s , Among r e c e n t books c o n ta in in g e x c e lle n t
b a s ic treatm en t o f th e t o p ic a re: M. S lade K endrick, P u b lic
Finance P r in c ip le s and Problem s (1 9 5 1 ); W illia m .H . Anderson,
T axation and th e American Economy (1 9 5 1 ); Harold M. G roves,
F in an cin g Government (1 9 5 0 ): and W illiam I . S h u ltz and
G. L ow ell E a r r is s , American P u b lic Finance (1 9 4 9 ). The Tax
I n s t i t u t e (fo r m erly th e Tax P o lic y League, I n c .) conducted
a symposium in December, 1959 d evoted to problem s in prop
e r t y ta x a tio n and p u b lish e d th e p ro ce ed in g s in P ro p erty
T axes.
Many governm ent p u b lic a tio n s c o n ta in im portant d ata
on p ro p erty t a x e s . Among th o se p u b lish ed by th e F ed era l
governm ent are th e fo llo w in g : S ta te F in a n c e s. C ity F in a n c es.
County F in a n c e s. The S t a t i s t i c a l A b stra ct o f th e U nited
10
S t a t e s - - a l l p u b lish ed by th e Bureau o f th e C ensus; The
F ed eral R eserve B u lle t i n , p u b lish e d m onthly by th e Board o f
G overnors o f th e F ed eral R eserve System ; The Survey o f
Current B u s in e s s , and The M onthly Labor Review p u b lish ed
m onthly by th e Department o f Commerce and th e Department o f
Labor, r e s p e c t iv e ly .
The Tax Com m ission, or Department o f R evenue, o r th e
Board o f E q u a liz a tio n o f many s t a t e s have made s p e c ia l
s t u d ie s o f p ro p erty t a x e s in a d d itio n to t h e ir annual pub
l i c a t i o n s and r e p o r ts . For exam ple, in 1951 th e C a lifo r n ia
S ta te Board o f E q u a liz a tio n made a sta te w id e su rv ey o f
p ro p erty ta x assessm en t p r a c t ic e s and p ro ce d u res, r e p o r tin g
th e a ssessm en t r a t io fo r ea ch co u n ty .
O ther so u rces o f in fo r m a tio n on p ro p erty t a x e s are
s p e c ia l r e p o r ts by l e g i s l a t i v e com m ittees, such as th e
Report o f th e Senate In terim Committee on S ta te and L ocal
T a x a tio n . C a lifo r n ia S ta te S en a te , 1949. A lso , s p e c ia l
com m issions have been e s t a b lis h e d by many s t a t e s t o stu d y
t h e ir t a x system and make recom m endations to th e l e g i s
la t u r e . The R eport o f th e Revenue Laws Commission o f th e
S ta te o f I l l i n o i s . S p r in g f ie ld . 1949, i s an example o f such
a stu d y .
U n iv e r s it ie s and c o l l e g e s , b o th p r iv a te and p u b lic ,
fr e q u e n tly conduct s p e c ia l s t u d ie s w hieh may u s u a lly be
11
o b ta in ed in l i b r a r i e s o r d i r e c t l y . Many u n iv e r s i t ie s m ain
t a in a r e sea r ch bureau in th e f i e l d o f b u s in e s s and econ
om ics w herein s p e c ia liz e d s tu d ie s and r e p o r ts are a v a ila b le .
Many o r g a n iz a tio n s o f a s e m i-p u b lic , n o n -p r o fit
n atu re are th e sou rce o f much in fo rm a tio n in th e f i e l d .
Examples o f such o r g a n iz a tio n s a re: The N a tio n a l I n d u s tr ia l
C onference Board, th e Committee fo r Economic D evelopm ent,
th e M u n icip al F inance O ffic e r s A s s o c ia tio n , th e N a tio n a l
A s s o c ia tio n o f A s s e s s in g O f f ic e r s , th e N a tio n a l A sso c ia tio n
o f Tax A d m in istra to rs, the N a tio n a l Tax A s s o c ia tio n , Tax
p ayers A s s o c ia tio n s , and Chambers o f Commerce.
A nother im portant source o f lit e r a t u r e on th e sub
j e c t i s p u b lic a tio n s o f le a r n e d o r g a n iz a tio n s . The fo llo w
in g a re some o f t h e ir p u b lic a tio n s : The American Economic
R eview . The A nnals o f th e American Academy o f P o l i t i c a l and
S o c ia l S c ie n c e . The Jou rn al o f A ccountancy. Land Econom ics
(fo rm e rly The Jou rn al o f Land and P u b lic U t i l i t y Econom ics) ,
The Q u a rterly Jou rn al o f E conom ics. P u b lic U t i l i t i e s F o rt
n ig h t l y . The Jou rn al o f S o c io lo g y , and The Jou rn al o f
F in a n c e .
S t i l l o th e r im portan t so u rces o f in fo rm a tio n are
com m ercial p u b lish in g com panies such as P r e n t ic e - H a ll, I n c .,
and Commerce C lea rin g H ouse, I n c . Each o f th e s e com panies
p r o v id e s an up to date S ta te and L ocal Tax S e r v ic e .
1 2
M ethods Used In T h is Study
The m ethods used in t h i s stu d y w ere: (1) sea rch o f
lib r a r y f a c i l i t i e s a v a ila b le , (2) p e rso n a l in te r v ie w w ith
a u t h o r it ie s o r o f f i c i a l s , (3) correspon d en ce w ith o f f i c i a l s
and a g e n c ie s on s p e c ia liz e d p roblem s, (4) o b ta in in g s p e c ia l
r e p o r ts and s tu d ie s made by such a g e n c ie s a s s t a te revenue
departm ents and com m issions and u n i v e r s i t i e s . W ith h a rd ly
an e x c e p tio n a l l p u b lic and p r iv a te a g e n c ie s c o n ta c te d by
th e w r it e r su p p lie d , f r e e o f ch a rg e, many such s p e c ia l
s t u d ie s .
I I . ORGANIZATION OF REMAINDER OF THE THESIS
P art One t r e a t s th e g e n e r a l p ro p erty ta x in i t s
broad s e t t in g — i t s h is t o r y , th e o r y and p r a c t ic e , in th e ta x
system and in th e economy. As an in tr o d u c tio n to t h i s
stu d y th e h is t o r y o f th e g e n e r a l p ro p erty ta x in th e U n ited
S ta te s i s rev iew ed b r i e f l y . A lso , th e im portance o f th e
ta x in th e American ta x system i s in d ic a te d , b oth h i s
t o r i c a l l y and c u r r e n tly . S n p h asis i s p la ce d on th e broad
changes w hich have taken p la c e , b oth in th e o r y and p r a c tic e .
C hapter I I I p r e s e n ts some o f th e b a s ic econom ic con
s id e r a tio n s o f p ro p erty ta x a tio n : (1) th e n atu re o f prop
e r t y and i t s c l a s s i f i c a t i o n , and c h a r a c t e r is t ic s fo r ta x
p u rp o ses; (2) th e n atu re o f th e g e n e r a l p ro p erty t a x in
13
th e o r y and p r a c t ic e , i . e . , what i t i s and what i t se ek s t o
do; (3) problem s in v o lv e d in th e v a lu a tio n o f th e ta x b a se;
and (4) c r it ic is m o f th e g e n e r a l p ro p erty ta x w ith p o in ts
fo r and a g a in s t , in th e o r y and p r a c t ic e . Some c o n sid e r a
t io n s o f th e g e n e r a l p ro p erty ta x in c o n n ectio n w ith f i s c a l
p o lic y are g iv e n ; what can and cannot be ex p ecte d o f th e
ta x in modern f i s c a l p o lic y .
P art Two, th e main body o f th e stu d y , d e a ls w ith th e
ta x in term s o f th e m ajor changes and m o d ific a tio n s w hich
have been made in i t .
The fo llo w in g problem s were stu d ie d in t h i s p a rt o f
th e p ap er. F i r s t , th e changes w hich have been made in th e
a d m in istr a tio n o f th e t a x , on b oth th e s t a t e and l o c a l
l e v e l in v o lv in g p e r s o n n e l, a ssessm en t or v a lu a tio n , eq u a l
i z a t io n , and s u p e r v is io n . Second, th e c l a s s i f i c a t i o n o f
g e n e r a l p ro p erty fo r ta x p u rp oses i s an im portan t m o d ific a
t io n t o th e ta x . T h ird , th e in c r e a s in g ly im portan t problem
o f exem ption o f p r o p er ty from ta x a tio n i s s tu d ie d . A
fo u r th im portant m o d ific a tio n stu d ie d i s th a t o f p ro p erty
ta x lim it a t i o n . F if t h , some s p e c ia l problem s such a s ta x
in g p erso n a l p r o p e r ty , ta x in g m erch a n ts’ in v e n t o r ie s , ta x
in g p ro p erty in u n in corp orated a r e a s , and ta x d elin q u en c y
were s tu d ie d . F in a lly , a d d itio n a l ta x so u rc es f o r s t a t e
and lo c a l governm ents were sought ou t and a n a ly ze d .
P art Three com p rises th e g e n e r a l c o n c lu s io n s and
recom m endations o f th e stu d y .
CHAPTER I I
HISTORY AND FISCAL IMPORTANCE
OF AM ERICAN PROPERTY TAXATION
I . HISTORY OF AM ERICAN PROPERTY TAXATION
The h is t o r y o f p ro p erty ta x a tio n i s lo n g . I t was a
sou rce o f revenue in b oth a n c ie n t and m ed iev a l European
c i v i l i z a t i o n s . P ro p erty was ta x ed in Roman tim e s and th e
ta x exten d ed to lan d and f i x t u r e s , a s w e ll a s to many form s
o f ta n g ib le p erso n a l p r o p er ty . In th e m ed iev a l c i v i l i z a
t io n s o f Europe th e ta x a tio n o f p ro p erty was th e p r in c ip a l
sou rce o f re v en u e. The ta x became b a d ly weakened by e x te n
s iv e exem ptions g iv e n to th e n o b i l i t y and c le r g y , and th e
e v a sio n o f th e ta x by an ev e r in c r e a s in g amount o f p er so n a l
p r o p e r ty . By th e c lo s e o f th e n in e te e n th c e n tu r y th e
European g e n e r a l p ro p erty ta x had shrunk to a ta x on r e a l
p ro p e r ty , in w hich form i t c o n tin u e s to be u sed . The
" g en era l p ro p erty t a x ” i s p e c u lia r ly ^ui American d ev elo p
m ent. As i t d evelop ed from i t s e a r ly b eg in n in g s m ost o f
th e European— p r in c ip a lly E n g lish — in flu e n c e s have been
absorbed in to t h i s c h a r a c t e r i s t i c a ll y American ta x . A l
though i t c o n tin u e s t o be th e p r in c ip a l sou rce o f revenue
f o r lo c a l governm ents, i t no lo n g e r ranks a s th e g r e a te s t
reven u e-p rod u cer in Am erica.
16
In th e U n ited S t a t e s , a s happened in Europe, th e
g e n e r a l p ro p erty ta x has been g r e a t ly m o d ifie d and weakened.
In f a c t , i t i s p r in c ip a lly a le v y on r e a l e s ta te ,'* ’ having
l o s t much o f i t s "general" c h a r a c te r . I t I s e stim a te d th a t
from 80 to 85 p er c e n t o f t o t a l p ro p er ty ta x rev en u es in
th e U nited S ta te s are d eriv ed from l e v i e s on r e a l p ro p erty
and c e r ta in ty p e s o f p erso n a l p ro p erty sueh as in v e n t o r ie s ,
2
m achinery and equipm ent.
The C o lo n ia l P erio d
In la r g e m easure th e New England c o lo n ie s em ployed
p ro p erty ta x e s to supplem ent p o ll ta x e s and ta x e s on earn
in g a b i l i t y ro u g h ly d e fin e d a s " fa c u lty ." O r d in a r ily ta x e s
were le v ie d on th e "person" and m easured by ow nership o f
p ro p erty . In a d d itio n , c e r t a in s e le c t e d ty p e s o f p ro p erty
were ta x ed a t r a t e s s p e c if ie d by s t a t u t e . T his s o r t o f
ta x a tio n proved in c o n v e n ie n t when th e k in d s o f p ro p erty
M. S lad e K end rick, P u b lic F inance P r in c ip le s and
Problem s (New York: H b u gh ton -M ifflin Company, 1 9 5 1 ) , p . 164.
T h is i s a ls o tr u e in Canada. See J . H. P erry , T axation in
Canada (T oronto: U n iv e r s ity o f Toronto P r e s s , 1 9 5 1 ), p . 273.
2 R obert H. Johnson and Lew is E. Wagner, "A Com
p a r a tiv e Study o f th e Tax System s o f Iowa and th e Surround
in g S ta t e s ," S tu d ie s in B u sin e ss and E conom ics. New S e r ie s ,
No. 3 (Iowa C ity : Bureau o f B u sin ess and Economic R esearch ,
S ta te U n iv e r s ity o f Iow a, June, 1 9 5 2 ), p . 225. A lso , se e
W illiam I . Herman, "Im proving P ro p erty A d m in istra tio n ,"
Tax Review (New York: The Tax F oun d ation , I n c ., J u ly , 1 9 5 2 ),
p . 28.
17
b ein g ta x ed beeame v a r ie d and unequal in v a lu e . S ta tu to r y
l i s t i n g s o f ta x sc h e d u le s v a r ie d a s th e y sought to in c lu d e
th e ta x a b le v a lu e o f p r o p e r ty . There were c o n sid e r a b le
v a r ia tio n s among l o c a l i t i e s , b oth in the th in g s ta x ed and
t h e ir v a lu a tio n .
As tim e w ent by ch an ges were g r a d u a lly made. Em
p h a s is was s h if t e d from th e b a s ic p r in c ip le o f ta x in g th e
" p erso n ’ s* income ea r n in g c a p a c ity "measured" by h is p os
s e s s io n o f p ro p erty to a more o b je c t iv e t a x , i . e . , a ta x in
rem (on th e th in g ) ir r e s p e c t iv e o f who owned th e p ro p erty .
In th e m idd le and sou th ern c o lo n ie s lan d ta x e s were
n o t used w id e ly s in c e th e y were opposed by th e p la n ta tio n
ow ners. Thus custom s d u t ie s and e x c is e s on c e r ta in prop
e r t i e s , such as s la v e s and c a t t l e , were th e p r in c ip a l
re v en u e s. C erta in o f th e sou th ern s t a t e s le v ie d p o l l t a x e s .
In a d d itio n th e re were d u t ie s and lic e n s e t a x e s w hich were
2
q u ite p r o d u c tiv e .
Prom the R ev o lu tio n a ry to th e C iv il W eir
The R ev o lu tio n a r y War brought heavy f in a n c ia l demands
and n e c e s s it a t e d p ro p erty ta x a tio n , even in th e sou th ern
c o lo n ie s , where i t s u se had d evelop ed more s lo w ly than in
® Jen s P . J en sen , P ro p er ty T axation in th e U n ited
S ta te s (C hicago: U n iv e r s ity o f C hicago P r e s s , 1 9 5 1 ), p . 3 4 .
----------------- - : I Q
th e New England c o lo n ie s . In 1 7 9 8 , and a gain d u rin g th e
War o f 1812 and th e C iv il War, th e F ed era l government
4
le v ie d a d ir e c t ta x on d w e llin g s , s la v e s and la n d . With
th e s u c c e s s f u l c o n c lu sio n o f th e R ev o lu tio n a ry War and th e
e sta b lish m e n t o f th e N a tio n a l C o n s titu tio n th e s t a t e s l o s t
th e custom s d u t ie s w hich had been a m a in sta y in t h e ir ta x
sy stem s. The C o n s titu tio n er ea ted a f e d e r a l m onopoly on
custom s d u t ie s . T h is f a c t , to g e th e r w ith in c r e a s in g p u b lic
e x p e n d itu r e s, e x e r te d stro n g p ressu re toward an in c r e a se d
ta x base f o r th e s t a t e s w ith th e r e s u l t th a t g e n e r a l prop
e r ty soon came to be in c lu d e d .
W ith th e a d o p tio n o f th e C o n s titu tio n l o c a l govern
m ents had g r e a te r r e s o r t to land t a x e s . A ls o , th e newer
w estern s t a t e s used lan d ta x e s based p r im a r ily on s p e c i f i c
r a t e s per a cre a p p lie d to d if f e r e n t k in d s o f lan d r a th er
than on "land v a lu e s ." A fte r about 1815 many s t a t e and
lo c a l governm ents began p la c in g more f i s c a l dependence on
th e la n d t a x , but expanded i t in t o a more " g en era l p ro p erty
ta x ." As tim e went by v a r io u s k in d s o f p ro p erty were ta x ed
w ith th e r e s u lt th a t th e " g en era l p ro p erty tax" tended to
r e p la c e th e s p e c i f i c l i s t s o f ta x a b le p r o p e r ty . More and
more k in d s o f p e r so n a l p r o p e r ty , b oth ta n g ib le and
4 S id n ey R atn er, American T axation (New York: W . W .
N orton and Company, I n c . , 1 9 4 2 ), p . 29.
19
in t a n g ib le , came to be in c lu d e d in th e g e n e r a l p ro p erty
t a x . 5 In a d d itio n , th e now broadened ta x p rovid ed fo r
uniform r a t e s and u n iv e r s a l a p p lic a t io n . C erta in s t a t e
c o n s t it u t io n s adopted in th e e a r ly 1830*s req u ired b oth
p e rso n a l and r e a l p ro p erty to be ta x ed a t a uniform propor-
ft
t io n to i t s v a lu e .
As c i t i e s grew and Improvements were made on th e
la n d , th e ta x base was changed to in c lu d e th e s e im prove
m en ts. P r e v io u s ly th e lan d had been c l a s s i f i e d in t o a few
c a t e g o r ie s and th e ta x le v ie d a t a s p e c i f i c r a t e on each o f
th e c l a s s e s o f la n d . Now th a t th e t a x base in clu d ed
v a r io u s form s o f p ro p erty in a d d itio n to la n d s th e ta x was
le v ie d on a l l p ro p erty ta x ed a cco rd in g to v a lu e . Hence
f o r t h , th e p ro p erty had to be v a lu ed o r a p p ra ised s in c e a
mere l i s t i n g was no lo n g e r s a t is f a c t o r y . A v a s t and com
p lic a t e d s e t o f problem s were r a is e d by v a lu a tio n or ap
p r a is a l . S in ce land and p e r so n a l p ro p erty were no lo n g e r
to be n e a t ly c l a s s i f i e d and tr e a te d u n ifo rm ly w ith in each
5 W illiam J . S h u ltz and C. L ow ell H a r r iss , .American
P u b lic F inance ( f i f t h e d it io n ; New York: P r e n t ic e - H a li,
I n c ., 1 9 4 9 ) , p. 324.
6 Claude R. Tharp, P ro p erty Tax A d m in istra tio n in
M ich ig a n . I n s t i t u t e o f P u b lic Admini s t r a t io n , Pamphlet
No. 22 (Ann Arbor: U n iv e r s ity o f M ichigan P r e s s , 1 9 5 1 ),
p . 1; a ls o , C onstance C. B inhorn and H. K. A lle n , "D evelop
ment o f th e I l l i n o i s Revenue System ," R eport o f th e Revenue
Laws Commission o f th e S ta te o f I llin o is ? . T 9 4 9 . p . 1 .
20
e l a s s , com plex problem s o f e q u a liz a tio n and rev iew came
in to th e p ic tu r e b ecau se v a lu a tio n by lo c a l a s s e s s o r s in
v o lv e d p o s s ib le e r r o r and " d is c r im in a tio n .” M ethods fo r
" a d ju stin g ” o r " e q u a liz in g ” in e q u a l it i e s and i n j u s t i c e s
r e s u lt in g from l o c a l a p p r a isa l had to be p ro v id ed . Charac
t e r i s t i c a l l y , p ro p erty ta x a tio n has been a d m in istered
l o c a l l y w ith v a lu a tio n and c o l le c t i o n made by l o c a l o f f i
c i a l s . W ith a le v y im posed by th e s t a t e on th e a s s e s s e d
v a lu a tio n a s determ ined by l o c a l a s s e s s o r s i t became th e
in t e r e s t o f a l o c a l d i s t r i c t to be " u n d er-a ssessed " a lo n g
s id e i t s n eig h b o r . To c o n tr o l such p r a c t ic e s o f "com peti
t iv e u n d er-v a lu a tio n " co u n ty and s t a t e "boards o f eq u a l
iz a tio n " were s e t up a s e a r ly as th e 1 8 3 0 f s . U n ifo rm ity a s
among d i s t r i c t s was p o s s ib le o n ly i f a ssessm en t was made in
a sta n d a rd ized manner on th e b a s is o f th e v a lu e o f p ro p erty
s u b je c t to th e ta x . At t h i s tim e no p a r tic u la r concern was
ex p re sse d o v er how th e v a lu e came to b e , or w hether some
k in d s o f p ro p erty in v o lv e d more c o s t to governm ent than
o th e r s . The e f f o r t was to a s s e s s f a i r l y th e p ro p erty sub
j e c t to th e ta x .
The tren d toward u n ifo r m ity was accom panied by a
ten d en cy toward u n iv e r s a l it y . Some s t a t e s , fo r example
O h io ,7 adopted c o n s t it u t io n s r e q u ir in g a l l r e a l and p erso n a l
? J en sen , op . c i t . , p. 39.
SI
p ro p erty to be ta x ed by a uniform r u le a cco rd in g to i t s
tr u e money v a lu e . I t was more common, how ever, f o r s t a t e
c o n s t it u t io n s to r e q u ir e o n ly u n ifo r m ity and le a v e i t to
th e l e g is la t u r e to d ecid e what k in d s o f p ro p erty to ta x .
The P ro p erty Tax from th e C i v i l War to 1900
In th e y ea r s fo llo w in g th e C iv il War many s t a t e s
adopted new c o n s t it u t io n s w hich co n tin u ed to embody th e
u n ifo r m ity and u n iv e r s a lit y r u le . The g e n e r a l p ro p erty ta x
had become w e ll e s t a b lis h e d as th e b a s ic sou rce o f s t a t e
and lo c a l governm ental r e v e n u e s. The o ld p r a c tic e o f
m erely l i s t i n g th e p ro p erty ta x ed had now been m o d ifie d to
in c lu d e l i s t i n g and a ssessm en t o r v a lu a tio n .
An im portant break in th e tr en d toward u n ifo r m ity
d evelop ed by th e 1870*s . Some s t a t e c o n s t it u t io n s p rovid ed
f o r c l a s s i f i c a t i o n o f p ro p erty fo r t a x p u rp o ses.
P e n n sy lv a n ia , Nevada, Montana, Wyoming, and Idaho p ro v id ed
fo r c l a s s i f i c a t i o n and ta x in g each c l a s s d i f f e r e n t l y .
During th e l a s t h a lf o f th e n in e te e n th ce n tu ry th e
g e n e r a l p ro p erty ta x was im posed on a l l ta x a b le item s a t a
uniform ad valorem r a te by alm ost a l l th e s t a t e s . During
t h i s same p erio d o f tim e th e p r in c ip a l developm ents in th e
ta x were o f an a d m in is tr a tiv e c h a r a c te r . One o f th e
im portan t developm ents was c e n tr a l e q u a liz a tio n o f l o c a l l y
a s s e s s e d p r o p e r ty . T h is was n e c e ssa r y s in c e l o c a l
22
d i s t r i c t s v a r ie d in th e r a t io o f a s s e s s e d to f u l l v a lu a tio n .
For exam ple, one d i s t r i c t m ight he a s s e s s e d a t an average
o f 50 p er c e n t o f f u l l v a lu e , w h ile an o th er was a s s e s s e d a t
a d if f e r e n t r a t e . C en tra l e q u a liz a tio n se e k s to e q u a liz e
th e t a x burden by a d ju s tin g th e v a lu a tio n o f th e p ro p erty or
by a p p ly in g d if f e r e n t ta x r a t e s w ith in th e d i s t r i c t s .
F req u en tly th e s e s t a t e boards o f e q u a liz a tio n were ex
o f f i c i o , o r tem porary, appointm ents and n o t e s p e c ia l l y w e ll
q u a lif ie d in ta x m a tte r s . In a d d itio n to s t a t e boards o f
e q u a liz a t io n , l o c a l boards w ere d ev elo p ed to e q u a liz e l o c a l
a ssessm en ts and to se rv e a s rev iew boards w ith in th e co u n ty .
Another s ig n if ic a n t a d m in is tr a tiv e developm ent was
c e n tr a l a sse ssm e n t. J u st a s a s h i f t from th e lan d ta x t o
in c lu d e o th e F form s o f p ro p erty was fo r c e d by changed
econom ic cir cu m sta n ce s— so a ls o , th e p r a c tic e o f a ssessm en t
a cco rd in g to v a lu e . F u rth er, th e a ssessm en t by s t a t e
a g e n c ie s o f p a r t ic u la r ty p e s o f p ro p erty , such a s r a ilr o a d s
and p u b lic u t i l i t i e s , was la r g e ly th e r e s u lt o f changed
in d u s t r ia l and econom ic c o n d itio n s . The l o c a l a s s e s s o r 's
j u r is d ic t io n does n o t go beyond th e d i s t r i c t , w hereas th e
v a lu e o f th e p ro p erty w ith in a d i s t r i c t o f an i n t e r d i s t r i c t
r a ilr o a d would be la r g e ly dependent on th e w hole o f th e
o p e r a tio n s and p ro p erty o f th e r a ilr o a d . C e n tr a liz e d
a ssessm en t o f such p ro p erty i s u n a v o id a b ly n e c e s s a r y . In
23
a d d itio n , in ta n g ib le p ro p erty o f such a company m ight be
e n t ir e ly beyond th e reach o f l o c a l a u t h o r it ie s , y e t much o f
th e v a lu e o f a company he in th e form o f in t a n g ib le s .
S t i l l a n o th er rea so n fo r c e n t r a liz e d a ssessm en t o f i n t e r
d i s t r i c t com panies i s seen in th e problem such as r o l l i n g
s to c k . I n ta n g ib le s and m ovable t a n g ib le s in se p a r a b ly
a tta c h to t h e e n t ir e e n te r p r is e and have b u s in e s s s i t u s
through out th e company system and th u s c a l l fo r c e n t r a liz e d
a sse ssm e n t.
B efore th e tu rn o f th e ce n tu r y many s t a t e s had e s ta b
lis h e d s t a te ta x com m issions to r e p la c e th e boards o f
e q u a liz a tio n made up o f e x o f f i c i o a p p o in te e s . These boards
g e n e r a lly fu n ctio n ed in an u n s a t is f a c t o r y manner s in c e th e
members were p o l i t i c a l appointm ents and c e n t r a liz e d a s s e s s
ment and e q u a liz a tio n commonly y ie ld e d to p o l i t i c a l ex p e-
p
d ie n c y o r p opu lar p ressu r e from a f fe c t e d gro u p s. The
s t a t e ta x com m ission was an e x p er t board made up o f f u l l
tim e members tr a in e d in ta x m a tte r s . The s t a t e ta x com
m is s io n s perform ed such fu n c tio n s a s e q u a liz a tio n o f lo c a l
a sse ssm e n ts and a s s e s s in g p r o p e r tie s o f r a ilr o a d s and u t i l i
t i e s . The s tr e n g th o r w eakness o f th e com m issions v a r ie d
from s t a t e to s t a t e ; n e v e r t h e le s s , th e y r e p r e se n te d a m ajor
8 I b i d . , p. 4 1 9 .
24
ste p a lon g th e road t o e f f i c i e n t and ex p ert a d m in istr a tio n
o f th e g e n e r a l p ro p erty t a x . E very s t a t e now p r o v id e s a
com parable agency or a g e n e ie s f o r c e n t r a liz e d a d m in istra
t io n o f s t a t e t a x e s . 9 The t a x com m issions have sought to
b rin g about more e f f i c i e n c y and u n ifo r m ity in th e ad m in is
t r a t io n o f th e t a x . G eneral su p e r v iso r y and a d v iso r y
a c t i v i t i e s o f th e com m issions has h elp ed to improve a s s e s s
ment o f v a r io u s form s o f p r o p e r ty and to g e t im provem ents
in th e ta x law s by p r o v id in g e x p e r t a d v ice to th e l e g i s
la tu r e .
The G eneral P ro p erty Tax in th e Ito en tieth C entury
During th e l a t e n in e te e n th cen tu ry th e s t a t e s le v ie d
th e g e n e r a l p r o p erty ta x on a l l ta x a b le p ro p erty a t a u n i
form r a te on an ad valorem , o r a s s e s s e d v a lu a tio n b a se .
The l i s t i n g o f p ro p erty on th e s t a t u t e b ook s, f o r p u rp oses
o f ta x a tio n , had la r g e ly been abandoned and su p p lan ted by
a p p r a is a l o r a sse ssm e n t. The fun ds c o lle c t e d from th e ta x
were used fo r b oth s t a t e and l o c a l p u rp o ses. In th e l a t e
1880*s and th e e a r ly 1900*s th r e e im portant reform m ove-
*
m eats d evelop ed : th e e a r l i e r one would have done away w ith
e s t a b lis h e d p la n o f ta x in g p ro p erty and s u b s tit u te d an o th er
in i t s p la c e , w h ile th e l a t e r p la n s advocated m o d ific a tio n s
9 K endrick, 0 £ . c i t ., p. 121.
25
to th e g e n e r a l p ro p erty t a x a s i t th en e x i s t e d .
The s in g le t a x . — The a d v o ca tes o f th e s in g le ta x
sought to e lim in a te th e e s t a b lis h e d g e n e r a l p ro p erty ta x
and r e p la c e i t w ith a ta x on th e econom ic v a lu e o f la n d .
The le a d e r o f t h i s proposed p la n was Henry George who s e t
fo r th th e id e a in h is book, P ro g r ess and P o v e r ty , p u b lish ed
in 1879. O rthodox, or th orou gh goin g s in g le - t a x e r s propose
a r a te o f 100 p er ce n t on th e econom ic r e n t o f la n d . By
econom ic r e n t i s meant th e annual m arket v a lu e o f th e u se
o f a p ie c e o f la n d . I t was th ou gh t th a t a ta x on econom ic
r e n t would p ro v id e s u f f i c i e n t fun ds to d efra y a l l govern
ment c o s t s , and th u s o n ly t h i s s in g le ta x would be n e c e s
sa r y . L evying a s in g le - t a x on th e econom ic r e n t o f lan d
would make i t u n n ecessa ry , i t was th o u g h t, to ta x p er so n a l
p ro p erty ; th a t i s , i f th e s in g le ta x produced s u f f i c i e n t
rev en u es.
The s in g le - t a x p lan o f Henry George w as, in a la r g e r
s e n s e , a s o c ia l reform movement and th e f i s c a l o b j e c t iv e s
were o f secon d ary im p ortan ce. A ccording t o G eorge, th e
b a s ic e v i l o f s o c ie t y a s he knew i t , was th e p e r s is te n c e o f
p o v erty in th e m id st o f an ev er in c r e a s in g amount o f w e a lth
and p r o d u c tiv ity . The re a so n fo r co n tin u ed p o v e r ty was
ro o ted in th e p r iv a te ow nership and u se o f th e la n d . P r i- -
v a te p ro p erty in lan d e s t a b li s h e s th e r ig h t to r e c e iv e th e
income from la n d , w hereas la n d i s th e g i f t o f n a tu re and i s
n o t produced by man’ s work o r sa v in g . In a d d itio n , th e
annual v a lu e (econom ic r e n t) o f lan d in c r e a s e s a s s o c ie t y
d e v e lo p s , ir r e s p e c t iv e o f any e f f o r t expended by th e
p r iv a te ow ner. These two circu m sta n ces ca u se th e retu rn
r e c e iv e d from la n d i t s e l f , to be unearned. T h is o f f e r s
j u s t i f i c a t i o n , fo r th e s e s o c i a l re fo r m e rs, to t a x such an
incom e.
A nother im portant r e s u lt o f p r iv a te ow nership o f
la n d i s t h a t mere h o ld in g o f th e lan d i s encouraged.
Owners need o n ly a w a it s o c i a l grow th to r e a liz e d in c r e a se d
v a lu e . The r e s u l t i s th a t la n d i s d e lib e r a t e ly w ith h e ld
from p ro d u ctiv e u s e . T h is w ith h o ld in g o f lan d from p ro
d u c tiv e use i s th e k ey to p e r s is t e n t p o v erty d e s p ite in
c r e a s in g w ea lth and p r o d u c tiv ity . The s i n g le - t a x ad vocate
w ould ta x th e econom ic r e n t o f la n d and th e r e b y , i t i s
cla im ed , encourage use o f th e la n d s in c e f r e e in g im prove
m ents from ta x a tio n would encourage t h e ir p ro d u c tio n . The
r e s u lt o f th e s in g le ta x , a cco rd in g t o th e th e o r y , would be
to b rin g th e la n d in to u se s in c e i t would be made cheap by
th e ta x . Owners w ould th u s be encouraged t o c r e a te c a p it a l
im provem ents, w hich would be t a x f r e e , a s a sou rce o f i n
come. Thus, as m entioned e a r l i e r , th e s o c ia l reform ob
j e c t i v e s o f th e s in g le - t a x p la n are prim ary; th e f i s c a l
o b j e c t iv e s are seco n d a ry .
The se p a r a tio n o f s t a t e and l o c a l r e v e n u e s. — A
second form o f th e g e n e r a l p ro p erty t a x in th e e a r ly 1900*3
was th e se p a r a tio n o f revenue so u rc es f o r s t a t e and l o c a l
governm ents. T h is reform movement fo llo w e d th e le a d e r s h ip
o f P r o fe s s o r 1 . R. A. S eligm an . I t was f e l t th a t i f th e
s t a t e s would w ithdraw from p ro p erty ta x a tio n in fa v o r o f
l o c a l governm ents i t w ould f a c i l i t a t e reform o f th e t a x ,
e s p e c i a l l y in a ssessm en t and a d m in is tr a tio n . A dvocates o f
se p a r a tio n o f revenue so u rc e s r e c o g n iz e d th e n e c e s s it y f o r
s t a t e a ssessm en t and a d m in istr a tio n o f p r o p e r ty t a x e s on
c e r t a in k in d s o f c o r p o r a tio n s , such as r a ilr o a d s and p u b lic
✓
u t i l i t i e s . Removing th e s t a t e a ssessm en t from lo c a l prop
e r t y w ou ld , i t was f e l t , remove th e inducem ent to under
v a lu a tio n , s in c e lo c a l governm ents co u ld no lo n g e r reduce
s t a t e t a x e s by low a sse ssm e n ts. l o c a l governm ent, more
o v e r , co u ld c o n tr o l i t s own reven ue so u rc es and would have
adequate reven ue from th e p r o p e rty t a x , i t was th o u g h t.
F u rth er, i t w as f e l t , rem oval o f th e s t a t e le v y from
g e n e r a l p ro p e rty t a x e s w ould e a s e th e ta x burden on both
r e a l and p e r so n a l p r o p e r ty . In a d d itio n , s t a t e and lo c a l
governm ent w ould r e t a in th e ta x e s each co u ld b e s t ad m in is
te r .
S ep a ra tio n o f revenue so u rces was adopted by a
38
number o f s t a t e s , but i t proved t o be d is a p p o in tin g . I t
d evelop ed th a t se p a r a tio n was no cure f o r g e n e r a l p ro p erty
ta x p roblem s. I n e q u a lit ie s and m ista k e s in a sse ssm en ts
were n o t c o r r e c te d or removed by th e s t a t e r e lin q u is h in g
th e g e n e r a l p ro p erty t a x . Owners co n tin u ed to seek low er
v a lu a tio n s and a s s e s s o r s s t i l l v a lu ed p ro p erty a t v a ry in g
r a t i o s o f i t s v a lu e . JMso, se p a r a tio n d id n o th in g in th e
d ir e c t io n o f rem oving th e c o n fu sio n o v er th e v a lu a tio n
stand ard to be a p p lie d in a s s e s s in g p r o p e r ty . I n e q u a lit ie s
in th e lo c a l a sse ssm en t o f n eig h b o rin g p r o p e r tie s and o f
v a r io u s k in d s o f p ro p erty c o n tin u e s d e s p ite s e p a r a tio n .
F urtherm ore, th e v a lu a tio n o f c e r t a in p r o p e r tie s by th e
s t a t e and o f o th e r p r o p e r tie s by l o c a l a s s e s s o r s r e s u lte d
in i n e q u a l i t i e s in a sse ssm e n t.
The se p a r a tio n o f ta x a b le p ro p erty betw een s t a t e and
l o c a l governm ent does n o t n e c e s s a r ily redu ce th e ta x burden
on r e a l e s t a t e or o th e r p ro p e r ty . Removing s t a t e t a x e s may
be fo llo w e d by l o c a l governm ents in c r e a s in g t h e ir v a lu a tio n
o r r a t e s , o r b o th . M oreover, i f th e s t a t e d is c la im s
r e s p o n s i b i l i t y fo r l o c a l p r o p e r ty -ta x a d m in is tr a tio n , i t
g iv e s l o c a l governm ents more room to expand t h e ir t a x a tio n ,
but w ith o u t a id in g them in such d i f f i c u l t i e s a s a sse ssm e n t,
r e v ie w , e q u a liz a t io n , and en forcem en t.
I t appears d e s ir a b le , so fa r as p r a c t ic a b le , fo r th e
29
s t a t e to le a v e p ro p erty ta x a tio n to l o c a l governm ents.^-®
T h is h e lp s en su re them an in dependent sou rce o f reven u e,
w ith o u t w hich home r u le i s i n e f f e c t i v e . For th e p ro p erty
t a x to be a d m in ister ed w ith a rea so n a b le d egree o f e q u ity
and e f f i c i e n c y , how ever, m ore, n ot l e s s , s t a t e r e s p o n s i
b i l i t y i s needed in problem s o f a sse ssm e n t, e q u a liz a t io n ,
and en fo rcem en t.
The c l a s s i f i c a t i o n o f p r o p e r ty . — A lthough c l a s s i
f i c a t i o n was p r a c tic e d lo n g b e fo r e th e tw e n tie th c e n tu r y ,
th e c l a s s i f i e d p r o p e r ty -ta x movement a ro se about th e b eg in
n in g o f th e c e n tu r y . The c l a s s i f i c a t i o n movement, le d by
P r o fe s s o r C h a rles J e s s e B u llo c k , was a m ajor m o d ific a tio n
to th e e x i s t i n g g e n e r a l p ro p erty t a x . I t sought to reduce
o r e lim in a te th e ta x on p ro p erty r e p r e s e n tin g lim it e d
ta x a b le c a p a c ity , and to in c r e a s e th e o p e ra tin g e f f i c i e n c y
o f th e p ro p erty t a x . C la s s i f ic a t i o n o f p ro p erty m ight
a r is e from c o n s t it u t io n a l p r o v is io n s , l e g a l en actm en ts or
s t a t u t e s , or p r a c t ic e . I t o c c u r s , in e f f e c t , when d i f f e r
en t ty p e s o f p ro p erty are ta x ed a t d if f e r e n t r a t e s due t o
v a ry in g th e e f f e c t i v e r a te through v a r ia t io n s in th e r a t io
o f a s s e s s e d t o f u l l v a lu e , o r by v a ry in g th e r a t e , o r by a
com b ination o f ea ch .
A lfr e d G. B u eh ler, P u b lic F inance (th ir d e d it io n ;
New York: M cGraw-Hill Book Company, 1 9 4 8 ) , p . 3 6 4 .
30
For p u rp oses o f ta x a tio n , a c l a s s o f p ro p erty i s a
ty p e e c o n o m ic a lly d if f e r e n t from o th e r p ro p e r ty . L e g a lly ,
p r o p erty must be c l a s s i f i e d on a r e a so n a b le b a s is r e le v a n t
to th e o b je c t iv e o f d is t in g u is h in g d if f e r e n t c l a s s e s o f
p ro p erty f o r d if f e r e n t ta x a tio n . For exam ple, d w e llin g s
and f a c t o r ie s are s u f f i c i e n t l y d i f f e r e n t , a s are urban
la n d s , r u r a l la n d s , and m ining la n d s . R eal and p erso n a l
p r o p e r ty , b oth t a n g ib le and in ta n g ib le may be c l a s s i f i e d
and ta x ed d i f f e r e n t l y . There i s l i t t l e u n ifo r m ity in th e
c l a s s i f i c a t i o n p la n s o f th o se s t a t e s u sin g i t . Some s t a t e s
c l a s s i f y p ro p erty on a p a r t ia l b a s i s , w h ile o th e r s have
adopted a com prehensive p la n .
E f f o r t s t o improve a d m in is tr a tio n . — A nother a sp e c t -
o f th e e a r ly tw e n tie th cen tu ry e f f o r t to im prove th e prop
e r t y ta x was th e em phasis on b e t t e r a d m in is tr a tio n , par
t i c u l a r l y a sse ssm e n t. C o n sid era b le e f f o r t was g iv e n to
d ev elo p in g a more o r d e r ly system o f v a lu in g r e a l e s t a t e .
Contem porary w ith a d o p tio n o f c l a s s i f i c a t i o n , and th e de
velopm ent o f new so u r c e s o f in fo r m a tio n from c o r p o r a tio n s ,
em p lo y ers, and f in a n c i a l i n s t i t u t i o n s , some s t a t e s made
g r e a t improvement in a s s e s s in g in ta n g ib le p ro p erty and
ta n g ib ly p e r so n a l p r o p e r ty . 1 1
1 1 James W. M a rtin , "The P ro p erty Tax and th e Econo
my, " The A nnals o f th e American Academy o f P o l i t i c a l and
S o c ia l S c ie n c e . November, 1949, p . 1 4 0 .
51
D ep ressio n in s p ir e d ch a n g es. — There were c e r t a in
im portant p o l i c i e s d ev elo p ed in th e d e p r e s s io n . The im pact
o f th e d e p r e ssio n o f th e 1930*s brought a marked d e c lin e in
th e revenue produced by th e p ro p erty t a x , due to shrunken
v a lu e s and abnorm ally h ig h d e lin q u e n c y . In a d d itio n t o th e
changes m entioned a b o v e, o th e r m o d ific a tio n s to th e nun-
r e f ormed" g e n e r a l p ro p erty ta x were d e p r e s s io n -in s p ir e d as
th e r i g i d i t y o f th e ta x made th e burden ex trem ely h eavy.
F i r s t , c o n s t it u t io n a l o r s t a tu t o r y l im i t a t i o n s , b oth "over
a l l ” and " s p e c if ic ” were ad opted by some s t a t e s . An o v e r
a l l lim it a t io n means f i x i n g a minimum p r o p e rty ta x r a te o r
r a t e s w h ich may n o t be r e g u la r ly exceed ed by th e combined
r a t e s o f th e s t a t e and a l l o f i t s ta x in g j u r is d i c t i o n s .
S p e c if ic ta x lim it a t io n s p la c e a l im it on th e r a te w hich
may be a p p lie d to g iv e n c l a s s e s o f p ro p erty o r w hich may be
a p p lie d by su b o rd in a te l e v e l s o f governm ent, o r o th e r ta x in g
j u r is d i c t i o n s . In 1950 o n ly e le v e n s t a t e s em ployed o v e r - a ll
l i m i t a t i o n s . 1 2 Second, hom estead exem ption p r o v is io n s were
in c o r p o r a te d in t o th e c o n s t it u t io n s o r s t a t u t e s o f some
s t a t e s . These p r o v is io n s may have exem pted c e r t a in c l a s s e s
o f homes from a l l p r o p e rty t a x e s , o r in some s t a t e s from
such ta x e s le v ie d by th e s t a t e governm ent. Twelve s t a t e s
^ System s ( t w e lf t h e d it io n ; New York: Commerce
C le a r in g H ouse, I n c . , 1 9 5 0 ), pp. 1 8 5 -9 7 .
33
a llo w ed some form o f hom estead exem ption in 1 9 4 8 , w h ile a l l
but s i x o f th e s t a t e s a llo w a v e te r a n * s exem ption o f some
ty p e on p r o p erty t a x e s .1^
I I . PRESENT DAY FISCAL IMPORTANCE
OF GENERAL PROPERTY TAX
/
By th e tu rn o f th e ce n tu ry th e g e n e r a l p ro p erty ta x
had reach ed i t s peak a s a sou rce o f s t a t e re v en u e . New
so u rc es o f reven u e have been d e v ise d t o m eet th e in c r e a se d
c o s t s o f governm ent, m ost o f them s in c e th e e a r ly t h i r t i e s .
The g e n e r a l p ro p erty t a x p rovid ed a t l e a s t 50 p er cen t o f
14
th e reven u e f o r s t a t e governm ents in 1900. By 1950 th e
s t a t e s no lo n g e r o b ta in ed such a h ig h p ro p o r tio n o f revenue
from th e g e n e r a l p ro p erty t a x . F igure 1 shows th e changing
r e la t io n s h ip betw een p ro p erty ta x e s and o th e r revenue
so u r c es f o r s t a t e and l o c a l governm ents.
L ocal governm ents have co n tin u ed to r e l y p r in c ip a lly
on p ro p erty t a x e s f o r t h e i r incom e. A lthough s t a t e depend
en ce on th e revenue from p ro p erty ta x e s h a s been g r e a t ly
red u ced , and l o c a l dependence le s s e n e d , th e ta x c o n tin u e s
to be im p o rta n t. F igu re 3 , page 3 4 , shows th e p ercen ta g e
1 5 I b id . . pp. 1 9 8 -3 0 0 .
1 4 K end rick, o p . c i t . . p . 133.
.Per
cent
33
C__J Other
1932 1942 1945 1946 1947 1948 1949
FIGURE 1
PE R C E N T A G E O F STA TE A N D L O C A L T A X R E V E N U E RECEIV ED F R O M
PR O PER T Y AS C O M P A R E D W ITH T H A T F R O M O T H E R SO U R C E S
Source: Calculated from data In U.S. Bureau of the Census,
S ta tis tic a l A bstract of the United S ta te s . 1951 (Washington, D.C.:
U.S. Government P rin tin g O ffice, 1951), p. 352.
34
Per
cent
100
90
80
70
60
50
40
30
20
10
0
1890 1902 1913 1932 1942 1945 1946 1947 1948 1949
FIGURE 2
PE R C E N T A G E O F STA TE A N D L O C A L T A X R E V E N U E
D ERIV ED mm PR O PER T Y T A X C O LLEC TIO N S
Source: Calculated from data in United S tates Bureau of the Census,
S ta tis tic a l A bstract of the United S ta te s, 1951 (Washington, D.C.:
U.S. Government P rin tin g O ffice, 1951), p. 350.
State
C H I Loeal
1
1 1 1
o f s t a t e and l o c a l rev en u es c o l le c t e d from th e p ro p erty
t a x , f o r s e le c t e d y e a r s , from 1890 to 1 9 4 9 . The p ercen ta g e
o f s t a t e reven u e d er iv e d from t h i s sou rce d e c lin e d from
about 64 p er c e n t in 1890 to l e s s than 3 p er c e n t in 1 9 4 9 . i
i
During th e same y e a r s th e p ercen ta g e o f l o c a l ta x revenue !
from t h i s source h a s v a r ie d from about 85 p er ce n t in 1890
i
t o a h ig h o f 90 p er c e n t in 1932 t o a p p ro x im a tely 75 p er
i
c e n t in 1 949. At p r e s e n t, a p p ro x im a tely 30 p er c e n t o f th e i
I K
t o t a l rev en u es o f l o c a l governm ent comes from s t a t e a id .
The g e n e r a l p r o p e rty t a x p rod uces about 50 p er c e n t o f
| t o t a l lo c a l r e v en u e s. By 1951 th e p r o p e r ty t a x had v ir t u -
!
a l l y c e a se d t o be a ma^or sou rce o f ta x revenue f o r s t a t e s ;
in 1950 i t produced 2 .6 p er c e n t o f s t a t e g e n e r a l r e v e -
16
n u e s.
T able I d e p ic ts th e tren d o f s t a t e and l o c a l prop
e r t y ta x c o l l e c t i o n s s in c e 1890 f o r s e le c t e d y e a r s . I t i s !
e v id e n t from th e f ig u r e s t h a t lo c a l governm ents r e l y much
more h e a v ily upon p ro p erty ta x e s than do s t a t e governm ents.
T able I I , page 3 7 , shows th e p e r c e n ta g e s o f t o t a l
j revenue c o l le c t e d from p ro p er ty ta x e s by s e le c t e d s t a t e s
rnmmmmmtmm t n » " . „ i j
I
1 5 Edward L. H enry. "Ihe Farmer*s Tax Burden,"
N a tio n a l Tax J o u r n a l. IV (Decem ber. 1 9 5 1 ), 3 4 4 .
U n ited S t a t e s Bureau o f C ensus, Compendium o f
S ta te Government, F in a n ces in 1950 (W ashington, D .C .: U .S .
Government P r in tin g O f f ic e , Ju ne, 1 9 5 1 ), p . 6 .
36
TABLE I
PROPERTY TAX COLLECTIONS OP STATE AND LOCAL G O VERNM ENTS
TOTAL IN MILLIONS
SELECTED FISCAL YEARS
1950 1949 1948 1942 1932 1902 1890
T o ta l #7,366 # 6 ,6 4 2 # 6 ,1 2 8 # 4 ,5 4 4 # 4 ,6 8 2 # 706 # 443
S ta te 311 276 279 271 328 82 69
L o ca l 7 ,0 5 6 6 ,5 6 6 5 ,8 5 0 4 ,2 7 3 4 ,3 5 3 624 374
S o u rce: W illiam I . Reim an, "Im proving P ro p er ty Tax Adm inis
t r a t i o n , ” Tax R eview (New York: The Tax F ou n d ation , I n c .,
J u ly , 1 9 5 2 ), p . 2 8 .
T A B L E II
P R O P E R T Y T A X C O L L E C T IO N S O F S E L E C T E D ST A T E S
A S P E R C E N T A G E S O F T O T A L R E V E N U E
State 1942 1943 1944 1945 1946 1947 1948 1950* 1951**
Alabama 6.95 7.54 7.65 7.77 6.85 5.92 5.50 5.9 6.3
Arizona 24.52 19.27 16.70 5.97 12.00 4.74 11.45 14.7 18.7
Georgia 5.83 6.38 5.78 5.39 5.20 4.53 4.60 5.2 4.6
Maine 17.60 16.61 17.46 17.68 16.95 15.19 12.29 12.8 13.7
Nebraska 23.13 22.05 20.72 20.59 19.31 21.62 -27.52 27.6 30.3
New Hampshire •09 .08 .15 .11 .08 .06 .04 •05 .05
Ohio 2.92 3.25 3.54 4.07 4.05 3.96 .42 •34 .41
Pennsylvania 2.45 2.24 .11 .09 .05 .02 .002 .003 •003
Texas 10.65 13.9 8.38 9.44 11.13 5.93 8.40 6.08 8.6
Utah 16.42 10.77 7.68 7.95 9.66 5.42 13.76 15.2 14.1
Wisconsin .71 .65 .58 .62 .73 .74 .67 .81 .77
45 S tates using
Property Tax 3.8 3.7 2.98 2.77 2.81 2.35 2.06 3.4 3.6
Source: Adapted from Tax Systems (tw elfth edition: New York: Commerce Clearing House, In c..
1950), p. 307.
♦Calculated from data in United S tates Bureau of the Census, S ta tis tic a l Abstract of the United
S tate s. 1951 (Washington, D.C.: U.S. Government printing Office, 1951), p. 363.
♦♦Calculated from United States Bureau of the Census, State Tax Collections in 1951, State
Finances, No. 4 (Washington, B.C.: U.S. Government Printing Office, August, 1552), p. 5.
«
S I
38
and th e average f o r a l l f o r t y - e ig h t s t a t e s f o r th e y ea r s
1 9 4 2 -1 9 4 8 , and 1 9 5 0 . D esp ite th e la c k o f u n ifo r m ity among
th e s t a t e s in ta x in g p r o p er ty many s t i l l u se t h i s a s a
p r in c ip a l revenue so u r c e . Nebraska d e r iv e s a la r g e r share
than any o th e r s t a t e from th e ta x . I l l i n o i s , New Ham pshire,
Oklahoma, South C a r o lin a , and Vermont ea ch d e r iv e s l e s s
than 1 p er cen t o f t h e i r revenue from i t .
Table I I I shows s e le c t e d c i t i e s o f 3 0 0 ,0 0 0 o r more
p o p u la tio n , and th e p ercen ta g e o f t h e i r t o t a l ta x revenue
d e r iv e d from p r o p e r ty t a x e s . S m a ller c i t i e s r e l y more
h e a v ily on p ro p erty ta x e s th an th e la r g e r o n e s.
I I I . CONCLUSIONS
There i s l i t t l e to su g g e st th a t th e o ld g e n e r a l
p ro p erty ta x w i l l r e g a in i t s form er s t a t u r e . At th e same
tim e , th e r e i s l i t t l e b a s is to suppose th e ta x in g o f prop
e r ty i s t o be abandoned. D esp ite s u s ta in e d and sev er e
c r i t i c i s m , b o th in th e o r y and p r a c t ic e , lo c a l governm ents
and some s t a t e governm en ts, are fir m ly en tren ch ed in prop
e r t y t a x a tio n . One o f th e im portant ch an ges w hich has been
made i s th e g e n e r a l w ith d raw al o f s t a t e governm ents from
p ro p erty ta x e s a s an im portan t sou rce o f rev en u e. O ther
s i g n i f i c a n t ch an ges have o ccu rred such a s more s t a t e a id
and s u p e r v is io n to l o c a l a u t h o r it ie s in a d m in iste r in g th e
TABLE I I I
PROPERTY TAX AS PERCENTAGE OP TAX COLLECTIONS IN
SELECTED CITIES OP 3 0 0 ,0 0 0 OR M O R E POPULATION
1 1948 AND 1951
P er c e n t o f
C ity T o ta l f o r 1948
P er e e n t o f
T o ta l f o r 1951*
A tla n ta , Ga. 76 72
B a ltim o r e , Md. 73 8 6
B o sto n , M ass. 98 97
B u ffa lo , N .Y . 94 94
C h icago, 111. 69 65
C in c in n a ti, 0 . 94 8 8
C le v e la n d , 0 . 96 95
Columbus, 0 . 61 43
D enver, C olo. 58 6 6
H ouston, Tex. 94 89
I n d ia n a p o lis , In d . 97 95
J e r s e y C ity , N .J . 83 91
K ansas C ity , Mo. 69 57
Los A n g e le s, C a lif . 64 64
L o u i s v i l l e , Ky. 82 54
M ilw aukee, W ise. 94 35
M in n e a p o lis, M inn. 97 92
Newark, N .J . 92 84
New O r lea n s, La. 43 49
New York, N.Y. 79 65
O akland, C a lif . 71 71
P h ila d e lp h ia , P a. 6 8 53
P itts b u r g h , P a. 80 82
P o r tla n d , Ore. 84 70
R o c h e ste r , N.Y. 87 94
San F r a n c is c o , C a li f . 94 8 6
Average f o r Above C i t i e s 82 76
S ource: Adapted and p e r c e n ta g e s c a lc u la t e d from d a ta in
Tax System s ( t w e lf t h e d it io n : New York: Commerce C le a r in g
H ouse, I n c . , 1 9 5 0 ), pp. 4 1 0 -1 4 .
^ C a lcu la ted from d ata in U n ited S ta t e s Bureau o f th e C ensus,
L a r g e -C ity F in a n ces in 1 9 5 1 . C ity F in a n ces 1 9 5 1 . No. 3
(W ashington, D .C .: U .S . Government P r in tin g O f f ic e , O ctover,
1 9 5 2 ), p . 1 2 .
40
t a x . Much rem ains to he done in reform in g and str e n g th e n in g
th e o p e r a tio n o f th e ta x . Improved m ethod s, b e t t e r tr a in e d
and b e t t e r p aid p e r s o n n e l, b e t t e r l e g i s l a t i o n and e n fo r c e
ment p r a c t ic e s are but a few .
S e v e r a l rea so n s su g g e st th e c o n tin u a tio n o f th e ta x :
( 1 ) a lt e r n a t iv e so u r c e s o f reven u e f o r l o c a l governm ents
are n o t r e a d ily a p p a ren t. S e r io u s problem s a re seen in
lo c a l governm ents em p loyin g a lt e r n a t iv e s — th e s t a t e l e g i s
la tu r e must a llo w g r e a te r ta x in g power t o l o c a l b o d ie s ;
su g g e ste d a l t e r n a t i v e s , such a s s a le s t a x e s , are a s in
e q u ita b le a s p r o p e rty ta x e s ; ( 2 ) i t i s w e ll e s t a b lis h e d and
d e s p ite co n tin u ed o b je c t io n to th e t a x , i t h as a h ig h
degree o f p u b lic a ccep ta n ce and s t a b i l i t y . In a c tu a l p ra c
t i c e i t i s so fir m ly en tren ch ed th a t d r a s tic ch an ges are
seldom e f f e c t e d ; (3) th e t a x i s c l o s e l y t i e d in w ith th e
co n cep t o f home r u le , and s u g g e s tio n s to fu r th e r c e n t r a liz e
i t s a d m in is tr a tio n are u s u a lly r e s is t e d ; (4) i t has th e
v ir t u e o f b e in g a f a i r l y s t a b le revenue p rod ucer on th e
l o c a l f r o n t , where from 60 to 70 p er c e n t o f ta x rev en u es
a re from t h i s t a x ; (5) e f f o r t s w i l l c o n tin u e t o improve th e
tea:; and ( 6 ) some f e e l p ro p erty i s a j u s t i f i a b l e b a s is f o r
t a x a t io n .
CHAPTER I I I
ECONOMICS OF PROPERTY TAXATION
The g e n e r a l p ro p erty ta x i s founded on c e r t a in b a s ic
econom ic p r in c ip le s . P ro p er ty c o n s t it u t e s one o f th e fo u r
b a se s f o r t a x a t io n , th e o th e r s b e in g incom e, ex p en d itu re o r
consum ption, and b u s in e s s . P ro p erty i s an im portan t p a rt
o f th e w e a lth and may y ie ld incom e, e it h e r in money form o r
in want s a t i s f y i n g s e r v ic e s , o r b o th . In e it h e r c a s e , th e
p ro p er ty i t s e l f , th e incom e, o r th e s e r v ic e s , each o r a l l ,
r e p r e se n t some d egree o f v a lu e .
The t r a d it i o n a l manner o f le v y in g p r o p e rty ta x e s i s
on th e assum ption th a t p ro p erty i s s u f f i c i e n t l y homogeneous
to w arrant a p p ly in g uniform v a lu a tio n and r a t e s w ith o u t
unduly v i o l a t i n g th e p r in c ip le o f e q u ity . A ll p r o p e r ty ,
b oth t a n g ib le and in t a n g ib le , u n le s s s p e c i f i c a l l y exem pt,
i s s u b je c t to t a x a t io n . The p r in c ip le o f h om ogeneity has
been r e c o g n iz e d a s in c r e a s in g ly in a p p r o p ria te and b a s ic
m o d ific a tio n s have been in tro d u ced in to p r o p e rty ta x a tio n
se e k in g t o im prove i t .
P ro p erty t a x a tio n has been j u s t i f i e d on th e t r a d i
t i o n a l econom ic p r in c ip le s o f a b i l i t y to pay and b e n e f it s
r e c e iv e d , a lth o u g h i t i s open to se v e r e c r i t i c i s m from
th e s e p o in ts o f v ie w . A ls o , th e p ro p erty ta x i s c o n sid e r e d
42
t o be o b j e c t iv e s in c e i t i s a ta x on p ro p erty w ith o u t r e
gard fo r th e circu m sta n ce s o f th e owner. I t i s th u s th e
v a lu e o f th e p ro p er ty i t s e l f w hich i s le v ie d upon.
Other b a s ic econom ic p r in c ip le s u n d erly in g th e prop
e r t y ta x are th o s e o f r e la t i v e f i s c a l s t a b i l i t y and ade
quacy. T h is ta x i s l e s s s e n s i t i v e to econom ic f lu c t u a t io n s
than some o th e r prom inent t a x e s .
A lthough th e p r o p er ty ta x i s b ased on econom ic p r in
c i p l e s i t cannot be t r e a t e d in an e f f e c t i v e manner e x c e p t
in c o n ju n c tio n w ith th e i n s t i t u t i o n a l , l e g a l , and ad m in is
t r a t i v e framework w hich accom panies i t s u s e . I t i s in t h i s
c o n te x t th a t th e ta x i s d is c u s s e d b elow .
I . THE CONCEPT OP TAXABLE PR0P1BTY
As i t has d ev elo p ed through th e y ea r s th e g e n e r a l
p ro p erty ta x h as been a p p lie d to a l l p r o p e r ty , u n le s s
s p e c i f i c a l l y exem pted, a t a u niform r a te on th e b a s is o f
th e v a lu e o f th e p r o p e r ty . The law may n o t s p e c if y what i s
t o be ta x e d , i . e . , w hether th e " r ig h t” o r " t i t l e ” a s
p r o p e r ty , o r th e th in g i t s e l f . I t may l i s t s p e c i f i c "prop
e r t y ” w hich i s t o be exempt from t a x a t io n .
Problem s o f D is t in c t io n
In l e g a l language "property" r e f e r s to a "bundle o f
le g a l r ig h ts " r e l a t i v e to th in g s ca p a b le o f ow nersh ip . The
43
e s s e n c e o f th e con eep t i s th e " c o n t r o l,” " p o s s e s s io n ,” o r
"enjoym ent” o r th e use o f th e p ro p erty to th e e x c lu s io n o f
o t h e r s . W hile a l l t a x e s u lt im a t e ly f a l l on p e r s o n s, "prop
er ty " ta x e s are s a id to he le v ie d on th e " th in g s" and are
th e r e fo r e c a lle d in rem t a x e s . The main p o in t i s th a t
th e r e i s no c le a r and c o n s is t e n t d e f i n i t io n and use o f th e
co n cep t o f p ro p erty in -American t a x a t io n .3 ' T h is la c k o f
u n ifo r m ity v i o l a t e s th e re a so n a b le requ irem en t th a t p ro p erty
be ta x e d o n ly o n ce. The " th in g s" — th e la n d , or b u ild in g s ,
o r o th e r p h y s ic a l t h in g s — are th e s u b je c ts o f th e i n s t i t u
t io n o f p ro p erty and th e p h y s ic a l e v id e n c e o f th e unseen
r ig h t s o f ow nership.
In econom ic a n a ly s is a s im ila r problem e x i s t s in
d is t in g u is h in g betw een "w ealth" and "property" a s e x i s t s in
a le g a l d i s t i n c t i o n betw een p ro p e rty a s a "bundle o f r ig h ts "
and a s th e p h y s ic a l " th in g s ." W ealth i s d e fin e d a s s c a r c e ,
m a t e r ia l, u s e f u l t h in g s and in ta n g ib le r ig h t s sueh a s do
n o t redu ce th e r i g h t s o f o th e r s in m a te r ia l t h in g s .
Exam ples o f such in ta n g ib le r ig h t s are p a t e n t s , tra d e m arks,
1 W illia m H. A nderson. T axation and th e American
Economy (New York: P r e n t ic e - H a ll, I n c ., 1 9 5 1 ), p . 1 1 5 .
^ le n s P . J en se n , P ro p erty T axation in th e U nited
S t a t e s (C hicago: U n iv e r s ity o f C hicago P r e s s , 1 9 3 1 ), p . 4 9 .
® Idem .
44
and good w i l l . They have v a lu e , in w hole o r in p a r t,
se p a ra te o r u n a tta ch ed to p h y s ic a l p r o p e r ty . To i l l u s t r a t e
fu r th e r , "good w ill" o r "going con cern valu e" would he in
a d d itio n to th e v a lu e o f th e p h y s ic a l p r o p e r ty . T h is form
o f in ta n g ib le i s c a l le d " n o n -r e p r e se n ta tiv e " s in c e th e y are
n o t r e p r e s e n ta tiv e o f o th e r p r o p e r ty , a s c o n tr a s te d w ith
s t o c k s , bonds, o r m ortgages w hich are m ere ly r e p r e s e n ta tiv e
o f o th e r p r o p e r ty .
There are many in t a n g ib le s w hich red u ce th e i n t e r e s t
o f o th e r s in s p e c i f i c t h in g s . A m ortgage on r e a l e s t a t e
red u ces th e r ig h t s o r e q u ity o f th e ow ner. N on -rep resen
t a t i v e in t a n g ib le s are n e t v a lu e s , to th e e x te n t th a t th e y
have v a lu e , and sh ou ld be in c lu d e d in th e mass o f p ro p e rty
v a lu e s f o r ta x p u rp o ses; how ever, th e v a lu e o f a farm i s
n o t th e sum o f th e v a lu e o f th e la n d p lu s th e amount o f th e
m ortgage. In th e e v e n t th a t a l l p h y s ic a l p ro p er ty were
c o m p le te ly m ortgaged th e sum o f th e v a lu e s u b je c t t o ta x
w ould be e i t h e r th e in ta n g ib le o r th e p h y s ic a l p r o p e r ty ,
4
but n o t th e t o t a l o f b o th .
C o n sid e rin g "property" in term s o f th e "bundle o f
r ig h t s ," n o t a l l r ig h t s w i l l be a tta c h e d to o r secu red by
p h y s ic a l th in g s b u t are p e r so n a l in n a tu re ; i . e . , th e y are
4 M. S lade K end rick, P u b lic F inance P r in c ip le s and
Problem s (New York: H ou gh tori-M ifflin Company, 1 9 5 1 ), p . 167.
45
’’p r o p e r ty ” o r " r ig h ts ” in personam . Exam ples o f such
’ ’p r o p e rty ” would be a cc o u n ts r e c e iv a b le o r bank d e p o s it s .
H o n -r e p r e se n ta tiv e in t a n g ib le s co u ld be ta x ed to t h e ir
owner a cc o rd in g t o t h e ir f u l l v a lu e ; w h erea s, r e p r e s e n ta
t i v e in t a n g ib le s co u ld be ta x ed in aceord anee w ith th e n e t
r ig h t or e q u ity o f each ta x p a y er in a g iv e n p ie c e o f phy
s i c a l p r o p e r ty . W hatever th e d iv is io n o f r i g h t s w ith
r e s p e c t to th e p h y s ic a l p r o p er ty each c o u ld be ta x e d in
p ro p o rtio n to i t s share o f th e w h o le. The v a lu e o f th e sum
o f th e r i g h t s w ould be th e t o t a l o f th e sh a r e s .
In a d d itio n to th e co n ce p t o f p ro p erty as a ’’bundle
o f r i g h t s ” th e r e i s th e id e a o f p ro p erty a s " t h in g s .” Here
th e p o s s e s s io n o f th e p h y s ic a l g o o d s, and n o n -r e p r e se n ta
t i v e in t a n g ib le s , serve as th e b a s is o f t a x a tio n . Based on
t h i s co n cep t o f p ro p erty th e g e n e r a l p ro p erty t a x m ight
b e t t e r be e a l le d a t a x on p o s s e s s io n s . In a c tu a l u se
American p r o p e r ty ta x a tio n i s more n e a r ly th e ta x in g o f
" th in g s" than n e t e q u i t i e s , a lth o u g h th e name " g en era l
p ro p erty tax" p e r s i s t s .
The c o n fu sio n in th e co n cep t o f p r o p e r ty , w hether
th e "bundle o f r ig h ts " o r th e " th in g s ," to g e th e r w ith th e
problem in econom ic a n a ly s is o f d i f f e r e n t i a t i n g "property"
5 I b i d . . p . 5 1 .
and "w ealth" adds t o th e c o n fu s io n , i n e q u i t i e s , m u ltip le
t a x a t io n , and a d m in is tr a tiv e problem s so c h a r a c t e r is t ic o f
th e g e n e r a l p ro p erty t a x .
I I . THEORY O F THE G E N E R A L PROPERTY TAX
C onfu sion in th e G eneral P r o p er ty Tax
The w eakness and c o n fu sio n in th e g e n e r a l p ro p erty
ta x i s h eig h te n e d by th e la c k o f a c le a r n o tio n as to th e
6
in t e n t o f th e ta x . I s i t in te n d e d to ta x "property" in a
l e g a l se n se and ta x a l l r i g h t s in f u l l ? Or i s i t in te n d ed
to be a ta x on "w ealth" and th u s ta x o w n ers’ n e t w orth or
e q u ity ?
S ta te c o n s t it u t io n s o r p ro p e rty ta x s t a t u t e s do n o t
alw ays g iv e c le a r e x p r e s s io n as to th e in t e n t o f th e t a x .
In th e c o lo n ia l p e r io d and e a r ly n a tio n a l era o f our h is t o r y
th e p r o p e rty ta x was lim it e d t o s p e c i f i c l i s t s o f p r o p e r ty
w ith th a t n o t l i s t e d b ein g exem pt. B efo re th e C iv i l War --
th e t r a n s it io n had been made from th e " s p e c if ic " t o th e
" g e n era l p ro p erty ta x ." N e a r ly a l l p ro p erty was ta x ed w ith
o n ly th a t s p e c i f i c a l l y m entioned b ein g exem pted. The con
c e p t o f p r o p e r ty , to g e th e r w ith c o n s t it u t io n a l and s ta tu to r y
p r o v is io n s , was expanded to encom pass more w e a lth — ta n g ib le s
6 J en sen , 0£ . c i t . . p . 1 0 0 .
47
and in t a n g ib le s , r e p r e s e n ta tiv e and n o n -r e p r e s e n ta tiv e
p e r s o n a lty . Changes have been made in th e " g e n e r a l” n a tu re
o f th e t a x , e s p e c i a l l y s in c e th e 1930*s , such a s ex ten d in g
th e l i s t o f ex em p tio n s, lim it a t io n o f r a t e s , c l a s s i f i c a t i o n ,
and o th e r s . D e sp ite th e ch an ges and m o d ific a tio n s i t i s
s t i l l a f a i r g e n e r a liz a t io n to s t a t e th a t th e p ro p erty ta x
i s " gen eral" in n a tu re and m ost s t a t e s in te n d t o ta x prop-
7
e r t y " g e n e r a lly ."
Under th e o ld g e n e r a l p ro p erty t a x in th e U n ited
S ta t e s th e ta x was le v ie d on a l l p ro p erty w ith in th e ta x in g
j u r i s d i c t io n , u n le s s s p e c i f i c a l l y exem pted, on th e b a s is o f
v a lu e and a t a uniform r a t e . The b a s ic p r in c ip le s o f
u n iv e r s a l it y a n d ,u n ifo r m ity have b een m o d ifie d by c o n s t i
t u t io n a l p r o v is io n , s t a t u t o r y en actm en t, and a d m in is tr a tiv e
p r a c t ic e . These p r in c ip le s were much more a p p r o p ria te when j
th e economy was b a s i c a l l y a g r ic u lt u r a l and r e l a t i v e l y
sim p le , th e b ulk o f th e w e a lth b ein g q u ite homogeneous and
e v e n ly d is t r ib u t e d . The v a s t and r a p id r e v o lu tio n a r y
changes in th e economy— g ig a n tic i n t e r s t a t e (o r i n t e r
n a tio n a l) econom ic o r g a n iz a tio n s w ith e x c e e d in g ly com plex
arrangem ents; w id esp rea d d i v e r s i t y in th e d is t r ib u t io n and
c o m p o sitio n o f w e a lth w ith in t a n g ib le s in c r e a s in g ly
^ Tax System s ( t w e lf t h e d it io n ; New York: Commerce
C le a r in g H ouse, I n c . , 1 9 5 0 ), pp. 1 8 5 -9 7 .
, , - $ 8
im p ortan t—make th e o p e r a tio n o f th e s o - c a lle d " g en era l
p r o p e rty tax" in c r e a s in g ly i n e f f i c i e n t and o b s o le t e . Con
tin u e d s u c c e s s f u l use o f th e p ro p e rty tiax w i l l , in la r g e
m easu re, depend on i t s e f f e c t i v e m o d ific a tio n t o conform
more c l o s e l y to th e r e a l i t i e s o f a h ig h ly s p e c ia liz e d ty p e
o f c r e d it econom y.
K inds o f G eneral P ro p er ty
The t h in g s ca p a b le o f ow nership are v a r ie d and numer
o u s. Under p r e s e n t-d a y c ir c u m sta n c e s, p a r t ic u la r ly in
u rb an ized a r e a s , any g iv e n ta x in g d i s t r i c t w ould in c lu d e
many ty p e s o f p r o p e r ty . O r d in a r ily p r o p erty i s d iv id e d
betw een r e a l e s t a t e and p e r s o n a l p r o p e r ty . R eal e s t a t e in
c lu d e s la n d s o f v a r io u s k in d s and b u ild in g s and im prove
m ents on th e la n d — th e "im m ovables." P e r so n a l p ro p erty on
th e o th e r hand co m p rises th e "m ovables." The d is t in c t i o n
betw een r e a l and p e r so n a l p ro p er ty i s n o t n e c e s s a r ily so
c l e a r , a s T able IV i l l u s t r a t e s .
S ig n if ic a n t t a x d if f e r e n c e s betw een r e a l and p er
so n a l p r o p e r ty . — The " m o v a b ility " o f v a r io u s k in d s o f
r e a l o r p e r so n a l p ro p erty i s a m a tte r o f d e g r e e . Land i t
s e l f i s alm ost c o m p le te ly im movable; how ever, many b u ild
in g s and im provem ents on th e la n d co u ld be moved w ith
r e l a t i v e l y l i t t l e d i f f i c u l t y . The e a s e o r d i f f i c u l t y w ith
w hich c e r t a in k in d s o f p r o p erty may be moved are im portant
49
TABLE IV
TYPES OP GENERAL PROPERTY
R eal E s ta te P er so n a l P ro p er ty
Land: T a n g ib les:
M e r c a n tile lan d F u rn itu re
Farm la n d A utom obiles
F o r e st la n d J ew elry
R e s id e n t ia l la n d M erchandise
O ther L iv e s to c k
Grain
Im provem ents: O ther
B u sin e ss b u ild in g s
Farm b u ild in g s I n ta n g ib le s :
R esid e n c es S to ck s
V a ca tio n c o t t a g e s N o tes
O ther Bonds
M ortgages
Money
O ther
Source: Adapted from H arold M. G roves, F in a n cin g Govern
ment ( th ir d e d it io n ; New York: Henry H o lt and Company,
1 9 5 0 ), p . 4 4 .
50
where ta x d if f e r e n c e s e x i s t among d i s t r i c t s o r s t a t e s . Two
s t a t e s , New York, w hich t a x e s s p e c ia l f r a n c h is e s , and
Delaw are exempt a l l p e r so n a l p r o p e rty ; o th e r s c l a s s i f y p er
so n a l p ro p er ty and ta x i t a t d if f e r e n t r a t e s ; s t i l l o th e r s
ta x " a ll" p r o p erty — r e a l and p e r s o n a l— a t th e same r a te In
p r o p o rtio n to i t s v a lu e . A d m in istr a tiv e d i f f i c u l t i e s may
fr e q u e n tly a r is e where p e r so n a l p ro p erty i s exempted or
c l a s s i f i e d a s ta x p a y e r s seek e it h e r exem ption o r p r e fe r r e d
trea tm en t fo r p a r t ic u la r p r o p e r ty .
The d i s t i n c t i o n betw een r e a l and p e r so n a l p ro p erty
i s im p ortan t in co n n ectio n w ith ta x in g n a tio n a l banks. The
r e a l e s t a t e o f n a tio n a l banks can be ta x e d a s a p art o f th e
m ass o f r e a l p r o p e r ty . T h is has been th e c a se s in c e th e
8
second N a tio n a l Banking Act o f 1 864. A lthough amended—
th e l a s t tim e in 1926— S e c tio n 5219 o f th e R ev ised S t a t u t e s
o f th e U n ited S t a t e s makes no p r o v is io n f o r ta x in g t a n g ib le
p e r s o n a l p ro p erty o f n a tio n a l banks. L o ca l rev en u es stan d
to s u f f e r where p ro p erty i s c l a s s i f i e d a s p erso n a l p ro p erty
b e lo n g in g t o n a tio n a l b an k s, th e reb y b ein g beyond th e ta x
in g power o f l o e a l governm ent. Three c o n s id e r a tio n s e n te r
in to d eterm in in g w hether p ro p er ty i s r e a l o r p e r so n a l:
( 1 ) th e d egree o f p h y s ic a l c o n n e c tio n betw een improvement
8 K e n d ric k , o p . c i t . , p. 421.
51
and th e r e a lt y , ( 2 ) th e a d a p t a b ilit y o f th e u se w ith th e
r e a lt y , and (3) th e in t e n t io n to annex th e p ro p erty to th e
I n 1946 th e C a lif o r n ia Supreme Court reduced th e
em phasis g iv e n to in t e n t io n in d e c id in g i f p e r so n a l prop
e r t y w ere a p a rty o f th e r e a lt y . In t h i s c a se th e p ro p erty
in v o lv e d c o n s is te d o f t e l l e r s ’ c a g e s , p a r t i t i o n s , b o o th s,
and c e r t a in o th e r f i x t u r e s , to g e th e r w ith a v a u lt and v a u lt
door frame and door. The ta x a s s e s s o r found t h a t b oth th e
f ix t u r e and th e v a u lt door frame and door were an in t e g r a l
p a rt o f th e b u ild in g and a s s e s s e d them to th e la n d lo r d even
though th e y had been i n s t a l l e d by th e te n a n t N a tio n a l Bank.
Landlord p a id * th e t a x e s under p r o t e s t and f i l e d s u it to
r e c o v e r . The t r i a l co u rt found th a t th e v a u lt door frame
and door were p r o p e r ly a s s e s s a b le t o th e la n d lo r d a s th e y
were in t e g r a l p a r ts o f th e b u ild in g . F u rth er , th e t r i a l
co u rt h e ld th e tra d e f i x t u r e s to be th e p e r so n a l p ro p e rty
o f th e bank and th u s beyond th e ta x in g power o f th e co u n ty
o r c i t y governm en ts. The S ta te Supreme Court r u le d th a t
th e o r i g in a l a sse ssm en t sh ou ld sta n d in i t s e n t ir e t y — th a t
th e v a u lt frame and d o o r, a s w e ll a s th e tra d e f i x t u r e s are
in th e same c a te g o r y f o r ta x p u rp oses and a s s e s s a b le to th e
r e a lt y .
9
9 A nderson, 0£ . c i t . . p . 1 1 8 .
52
la n d lo r d , ir r e s p e c t iv e o f p r iv a te agreem ents betw een la n d
lo r d and te n a n t re g a r d in g t h e i r i n s t a lla t io n * The a s s e s s o r
m ust be p erm itte d to a c t on th e b a s is o f outward appearances
o f th e p ro p e r ty . He i s n o t req u ir ed to d eterm in e th e in
t e r e s t o f v a r io u s p e rso n s in tr a d e f ix t u r e s o r im provem ents
t o a s s e s s them a l l a s im provem ents to r e a l t y . The co u rt
s ta te d :
I f th e owner o f la n d i s d e s ir o u s o f a v o id in g t a x e s ,
w hich th e te n a n t sh ou ld p ay, he may arrange so by con
t r a c t . But th e m u n ic ip a lity in a s s e s s in g lan d i s n ot
o b lig e d to c a s t around t o see who h as a le a s e h o ld
i n t e r e s t t h e r e in . 1 0
T h is co u rt showed c o n s id e r a b le sympathy f o r problem s o f th e
a s s e s s o r and sought to e x p e d ite th e a sse ssm en t p r o c e s s . I t
h e ld th e work o f a s s e s s in g e o u ld be e x p e d ite d by d isr e g a r d
in g d if f e r e n c e s betw een im provem ents i n s t a l l e d by ow ners o r
te n a n t s , and th a t sueh a p rocedu re w ould ten d toward u n i
fo r m ity in ta x a tio n .
A lthough th e r e may be no uniform p r a c tic e among ta x
in g j u r is d ic t io n s th e r e i s a stro n g ten d en cy to f o llo w th e
law o f f i x t u r e s in a s s e s s in g p e r so n a l p r o p e r ty t o th e owner
o f th e b u ild in g .1^ * The d egree o f attachm ent t o th e r e a lt y
1 0 Trabue P ittm an C orp. v . Los A n geles C ounty.
Supreme Court o f C a lif o r n ia , 29 G al. 2nd 385 (1 9 4 6 ), r e
p o rted in P au l W. B ruton , C ases and M a te r ia ls on T axation
(seco n d e d it io n ; S t . P au l: West P u b lis h in g Company, 1 9 4 8 ),
pp. 1 8 0 -8 8 .
A n d erso n , 0 £ . c i t . . p. 1 1 8 .
53
i s im portant s in c e equipm ent m ere ly p lu gged in t o an
e l e c t r i c o u t l e t would be b a s i c a l l y u n a tta ch ed .
Economic C o n s id e r a tio n s in T axing R eal P ro p erty
R eal p ro p erty c o n s i s t s o f la n d and "permanent* o r
"immovable" im provem ents on la n d . Both th e permanency and
im m o b ility o f im provem ents a re r e l a t i v e c o n c e p ts a s few , i f
an y, man-made im provem ents p o s s e s s e it h e r c o n d itio n ab so
l u t e l y . C e r ta in ly la n d in th e se n se o f a r e a , o r M a r s h a ll’ s
e x t e n s io n , i s f ix e d and beyond man’ s c o n tr o l f o r p r a c t ic a l
p u r p o se s. O nly s l i g h t ch an ges by d r a in a g e, f i l l - i n , o r
c r e a tin g la k e s , and th e l i k e , are made t o th e la n d a r e a .
Land area may th u s be an apt s u b je e t f o r ta x in g s in c e i t i s
in d e s t r u c t ib le and th u s th e su p p ly i s u n a ffe c te d by t a x e s .
T h is w ould be e s p e c i a l l y p e r tin e n t in urban lo c a t io n s where
a rea i s th e m ost v a lu a b le a t t r ib u t e o f la n d . A lthough lan d
can n ot m ig ra te to esca p e t a x e s , ow ners o f e x i s t i n g im prove
m en ts— o r c a p i t a l —may move them o r a llo w them t o d e p r e c ia te
b eca u se o f t a x e s . F u r th er , v a lu a b le lan d a rea o f urban
lo c a t io n may lo s e i t s v a lu e due t o d e p le tio n o f su rroun ding
n a tu r a l r e so u r c e s (la n d ) o r by ch an ges in improvement such
a s from c a n a ls and tu r n p ik e s . C o n v e r se ly , lan d w hich has
no urban a rea v a lu e may a cq u ire i t by d is c o v e r y o f n a tu r a l
r e s o u r c e s o r by c o n s tr u c tio n o f im provem ents such a s , f o r
exam ple, an a r t i f i c i a l la k e may c r e a te lo c a t io n v a lu e fo r
54
r e s o r t s .
Taxing lan d in th e se n se o f n a tu r a l r e s o u r c e s — o i l
and coed d e p o s it s , f e r t i l i t y , and f o r e s t s , e t c . — in v o lv e s
somewhat d if f e r e n t econom ic c o n s id e r a tio n s . A lthough lan d
i s th e g i f t o f n a tu re and th u s in v o lv e s no o r i g in a l c o s t o f
p ro d u ctio n th e use o f th e r e s o u r c e s can he d i r e c t l y and
in d i r e c t l y in flu e n c e d by t a x a t io n . On f o r e s t s , fo r exam ple,
l i g h t t a x e s co u ld be used to d isco u ra g e c u t t in g and to en
courage c o n s e r v a tio n and r e f o r e s t a t io n . A d m in istr a tiv e
d i f f i c u l t i e s may make some o th e r ta x than th e ad valorem
p ro p erty ta x more p r a c t ic a l how ever, e s p e c i a l l y on m ines
and o i l d e p o s it s .
In econom ic a n a ly s is lan d i s in c a p a b le o f reprodu c
t io n and th e r e fo r e t a x e s le v ie d on i t are c a p it a liz e d and
are n o t p a ssed on to consum ers a s h ig h e r p r ic e s , a s are
many t a x e s on c a p i t a l . Taxes on la n d th u s make la n d ch eap er
s in c e p r o s p e c tiv e b u yers d isc o u n t t h e ir p r ic e s by th e amount
o f th e p r e se n t o r " p r o s p e c tiv e ” t a x e s . Land t a x e s are some
tim e s s a id to be " b u rd e n less” inasm uch a s p u rch a sers a llo w
f o r them; how ever, p r e s e n t h o ld e r s o f lan d f e e l th e burden
each tim e t a x e s a re due and when th e la n d i s s o ld . The
in d iv id u a l who has worked and saved to buy th e la n d in s te a d
o f some o th e r w ea lth may be unconvinced t h a t la n d t a x e s are
" b u r d e n le s s ."
55
Taxes may be used to good advantage in en cou ragin g
p ro d u ctio n o f im provem ents on th e la n d . A li g h t e r t a x on
a l l fo a a s o f c a p it a l can s tim u la te i t s c r e a tio n and expan
s io n ; a h e a v ie r t a x burden w ould ten d to d isc o u r a g e i t s
form a tio n o r e x p a n sio n . P u ttin g t a x e s on h o u sin g w ould
have th e lo n g -r u n e f f e c t o f re d u cin g th e su p p ly o f h ou ses
and th u s r a is in g r e n t s — demand rem ain in g th e same. The
p r o p e rty ta x on im provem ents i s borne b y in v e s t o r s to th e
e x te n t th a t th e ta x i s no h ig h e r than t a x e s on a lt e r n a t iv e
u se s o f c a p i t a l . To th e e x te n t th a t th e p ro p erty ta x in
one j u r i s d i c t i o n , o r on one g iv e n k in d o f tr a n s fe r a b le
c a p i t a l , i s h ig h e r than th a t in o th e r j u r i s d i c t i o n s , o r on
o th e r ty p e s o f in v e s tm e n ts , t h e p r o p erty t a x i s p a ssed on
t o te n a n ts o r o th e r u s e r s o f th e ty p e o f c a p it a l goods
in v o lv e d .
A nalyzed e c o n o m ic a lly la n d i s c o n sid e r e d more
ca p a b le o f b ea rin g t a x e s w ith o u t u n d e sir a b le s o c i a l e f f e c t s
than im provem ents on th e la n d . The b a s ic rea so n su p p o rtin g
t h i s p r o p o s itio n i s t h a t lan d d o es n o t in v o lv e a p ro d u ctio n
c o s t and a ta x on i t d o es n o t in flu e n c e th e a lr e a d y f ix e d
su p p ly ; w h erea s, man-made im provem ents may n o t be produced
i f ta x e d . In o th e r w ords, lan d i s n o t produced by man, i t
i s used by him , and t a x e s le a v e i t u n d istu rb ed . However,
th e w illin g n e s s o f man to work and save t o c r e a te w ea lth
56
may be d i r e c t l y in flu e n c e d by t a x e s . O ther t h in g s b e in g
e q u a l, h ig h e r p r o p erty ta x e s would be d is c o u r a g in g , w h ile
lo w er on es w ould be en co u ra g in g .
O ther t h in g s may n o t rem ain th e sam e, how ever, be
cau se in p r a c t ic e p r o p e r ty t a x e s a re p r o p o r tio n a l t o f u l l
v a lu e — o r some p ercen ta g e t h e r e o f — and th e a s s e s s o r com
m only a p p r a is e s sm a ll b u ild in g s and im provem ents n e a r e r
t h e i r f u l l v a lu e than th e more e la b o r a te and p r e t e n t io u s .
T his may be tru e fo r a t l e a s t th e s e r e a s o n s : (1 ) th e
t y p ic a l a s s e s s o r comes from r a th e r m odest circu m sta n ce s and
i s th u s more fa m ilia r w ith such c o n d itio n s ; ( 2 ) mere s i z e
and e la b o r a tio n may make a cc u r a te a p p r a is a l more d i f f i c u l t ;
and (3) exch an ges o f p r e te n tio u s p ro p erty are o fte n in
freq u en t and no r e c e n t reco rd o f s a l e s v a lu e may e x i s t .
When compared to th e h ig h ly p r o g r e s s iv e p e r so n a l income
ta x e s th e p r o p o r tio n a l p ro p erty t a x e s may be more r e p r e s
s iv e on th e p ro d u c tio n o f ’ ’m o d est” b u ild in g s than on th e
more e la b o r a te . In f a c t th e p e r s o n a l incom e ta x and th e
co r p o r a te incom e and e x c e s s p r o f i t s t a x e s may encourage
h ig h income groups t o b u ild " e la b o r a te ” p r o p e r t ie s . Income
may th u s b e ,d iv e r te d from h ig h b ra ck et r a t e s to p ro p o r tio n
a l (and p ro b a b ly low) p ro p erty ta x r a t e s w ith th e l i k e l i
hood th a t " u n d e r -v a lu a tio n ” w i l l o c c u r . I f exchange o r
s a le s v a lu e i s th e v a lu a tio n stan d ard u se d , th e "under-
57
e v a lu a t io n ” o f la r g e and p r e te n tio u s e s t a t e s may be q u ite
v a lid b ecau se o f th e r e s t r i c t e d m arket f o r such p r o p e r t ie s .
A more tr u e a p p r a is a l o f sm a lle r p r o p e r t ie s on th e
b a s is o f s a le s v a lu e i s more p ro b a b le , how ever, s in c e th e
m arket i s w id er and exch an ges fr e q u e n t. The p r o p e r ty ta x •
i s s a id to be p r o p o r tio n a l in form and r e g r e s s iv e in
e f f e c t . 12 The fo r e g o in g a n a ly s is su p p o rts t h i s v iew ; a ls o ,
o th e r e q u a lly im portan t r e a so n s do lik e w is e . As income
g o e s up th e p er c e n t o f i t sp en t on h o u sin g d e c r e a s e s sub
s t a n t i a l l y .
Not to o much h as been done by th e s t a t e s to s e t up
th e p ro p er ty ta x a cc o rd in g t o th e d if f e r e n t econom ic
c h a r a c t e r is t ic s o f th e v a r io u s k in d s o f p r o p e r ty . Some
s t a t e s ta x p e r so n a l p ro p er ty a t low er r a t e s th an r e a l prop
e r t y . M inn esota and M ontana, f o r exam ple, have r a th e r
com prehensive system s o f c l a s s i f i c a t i o n o f r e a l and p erso n a l
p r o p e r ty . Only r a r e ly are lan d and im provem ents on th e
la n d ta x ed d i f f e r e n t l y . Some s t a t e c o n s t it u t io n s c o n ta in
" u n ifo rm ity c l a u s e s ” w hich make c l a s s i f i c a t i o n o f p ro p erty
im p o s s ib le ; how ever, some a llo w re a so n a b le c l a s s i f i c a t i o n
^ H arold M. G roves, "A G eneral A p p ra isa l o f th e
American Tax P ro b lem ,” The A nnals o f th e American Academy
o f P o l i t i c a l and S o c ia l S c ie n c e . November, 1 949, p . 5 7 .
13 K end rick, o p . c i t . . p . 181; a l s o , Tax System s
( t w e lf t h e d i t i o n ) , op . c i t . . ch a rt on pp. 1 8 5 -9 7 .
58
even under such a c la u s e
Economic C o n s id e r a tio n s in T axing P er so n a l P ro p erty
P e r so n a l p ro p erty sh ou ld be ta x ed a cco rd in g t o v a lu e
and a t a uniform r a te under th e th e o r y o f th e g e n e r a l prop
e r ty t a x . Many im portant r e a so n s j u s t i f y ta x in g p e r so n a l
p r o p e r ty in a d if f e r e n t manner th an r e a l p r o p e r ty . At t h i s
p o in t c e r t a in b a s ic p r in c ip le s w i l l be m en tion ed b r i e f l y .
T a n g ib le p e r so n a l p r o p e r ty . — P e r so n a l p r o p e rty i s -
d iv id e d in t o two b a s ic c l a s s e s — ta n g ib le and in t a n g ib le .
T a n g ib le p e r so n a l p ro p erty in c lu d e s m ovable p r o p er ty h avin g
p h y s ic a l e x is t e n c e and i s n o t r e p r e s e n ta tiv e o f o th e r
t h in g s . I t may be in th e n a tu re o f c a p it a l goods and th u s
p ro v id e s e r v ic e o r a money in com e; o r I t may be in th e form
o f consum ption g o o d s. B ecause o f i t s m o b ilit y i t may be
c o n c e a le d and th u s esca p e a sse ssm en t and t a x e s . Exam ples
in c lu d e f u r n it u r e , c lo t h in g , a u to m o b ile s, in v e n t o r ie s , f i x
t u r e s , m ach in ery, t o o l s , e t c . A d m in istr a tiv e problem s con
n e c te d w ith ta x in g t a n g ib le p e r so n a l p ro p erty have fr e q u e n t
l y ou tw eighed s u b s ta n tiv e econom ic c o n s id e r a tio n s . In
econom ic a n a ly s is h o u seh o ld goods and p e r so n a l e f f e c t s may
y ie ld incom e in term s o f s a t i s f a c t i o n m easurable in money
^ H arold M. G roves, F in a n cin g Government ( th ir d
e d it io n ; New Yorfc: Henry H o lt and Company, 1951) , p . 418.
59
from an a lt e r n a t iv e u se p o in t o f v ie w . The s a t i s f a c t i o n s
y ie ld e d by such goods make up a p a rt o f th e incom e r e a liz e d
by th e in d iv id u a l. E co n o m ica lly view ed th e r e i s sound b a s is
f o r ta x in g p e r so n a l t a n g ib le p r o p e r ty . Such p r o p e r ty r e
c e iv e s th e p r o te c tio n o f governm ent— f o r in s t a n c e , f i r e and
p o lic e . A ls o , ta x in g a cc o rd in g to a b i l i t y to pay j u s t i f i e s
ta x in g such p r o p e r ty . A d m in istr a tiv e d i f f i c u l t i e s , par
t i c u l a r l y a sse ssm e n t, have r e s u lt e d in w id e v a r ia t io n s in
ta x in g ta n g ib le p e r s o n a lty .
I n ta n g ib le p e r so n a l p r o p e r ty . — I n ta n g ib le p e r so n a l
p r o p e r ty in c lu d e s " r e p r e s e n ta tiv e " and " n o n -r e p r e se n ta tiv e "
t y p e s . I n ta n g ib le p r o p e r ty c o n s i s t s m o s tly o f l e g a l and
c o n tr a c tu a l r i g h t s r e l a t i v e t o p ro p erty and incom e. R epre
s e n t a t iv e in t a n g ib le s are th o se th in g s w hich are " rep re
s e n ta tiv e " o f o th e r k in d s o f p ro p erty ; i . e . , r e a l o r ta n
g ib le p e r so n a l p r o p e r ty . Exam ples o f " r e p r e s e n ta tiv e in
ta n g ib le s " are b on d s, s t o c k s , n o t e s , m o rtg a g es, paper m oney,
e t c . These p ap ers would l o s e t h e i r v a lu e i f th e t a n g ib le
p ro p erty were d e str o y e d s in c e th e y have no a p p r e c ia b le
v a lu e in th e m se lv e s . D e s tr u c tio n o f th e r e p r e s e n t a t iv e
in t a n g ib le s w ould n o t d is tu r b th e p h y s ic a l p r o p e r ty .
Double ta x a tio n may o ccu r when r e p r e s e n ta tiv e i n
t a n g ib le s are ta x e d , and w here th e r e a l o r p e r so n a l ta n
g ib le p r o p e r ty r e p r e se n te d w as a ls o ta x e d . Some o f th e
60
double t a x a tio n co u ld be red u ced o r e lim in a te d i f th e con
c e p ts o f p r o p e r ty and th e n a tu re and in t e n t o f th e t a x w ere
sh arp en ed . For i f a l l p r o p erty i s to be t r e a t e d e q u a lly
r e p r e s e n ta tiv e in t a n g ib le s sh ould n o t be ta x e d a s prop-
g iv e n r e a l p r o p e r ty g iv e s r i s e to d if f e r e n t form al and
le g a l arrangem ents r e l a t i v e t o ta x in g . I f r e p r e s e n ta tiv e
in t a n g ib le s a re ta x e d , b o th th e r e a l p r o p erty and th e c o r
p o ra te sh a r e s w i l l be ta x e d i f c o r p o r a te ly owned; how ever,
o n ly th e r e a l p ro p erty i f in d iv id u a lly owned. D iv e r s it y in
r e s id e n c e may fu r th e r co m p lic a te th e m ech an ics y e t n o t
a l t e r th e b a s ic f a c t o f d ou b le t a x a t io n . I t sh ou ld be
s a id , how ever, t h a t double t a x a t io n i s n o t n e c e s s a r ily bad.
Some double t a x a tio n i s d is c r im in a to r y and s e r v e s no good
purpose— o th e r double ta x a tio n may be d e s ir a b le , depending
on c ir c u m sta n c e s.
A secon d group o f in t a n g ib le s are c l a s s i f i e d a s non
r e p r e s e n ta tiv e in t a n g i b l e s . These a re r i g h t s w h ich do n o t
redu ce th e r i g h t s o f o th e r s in r e a l t h in g s . These non
r e p r e s e n ta tiv e in t a n g ib le s are such t h in g s a s c o p y r ig h ts ,
p a t e n t s , good w i l l , fr a n c h is e v a lu e , e t c . , and may be ta x ed
e r t y
15
C orporate compared to in d iv id u a l ow nership o f
15 J e n se n , oj>. c i t . , p . 1 1 3 .
c
16 K e n d ric k , o jd. c i t . , p p . 1 9 0 -9 1 .
17
w ith o u t th e o b je c t io n o f double t a x a t io n .
There i s w ide v a r ia t io n in th e ta x in g o f in t a n g ib le s
th rou gh ou t th e c o u n tr y . O b je c tio n s such a s h eavy e v a s io n
and a v o id a n c e, d i f f i c u l t y o f en fo rcem en t, double t a x a t io n ,
e t c . , have b rou gh t c o n s id e r a b le m o d ific a tio n o r com p lete
abandonment o f ta x in g in t a n g ib le s . Much p e r so n a l p r o p e r ty ,
b o th r e a l and in ta n g ib le h a s b een exempted c o m p le te ly in
two s t a t e s — Delaware and New York— a lth o u g h th e l a t t e r
ta x e s some form s o f f r a n c h is e s . M in n eso ta , W isco n sin , and
C a lifo r n ia are exam ples o f s t a t e s where in t a n g ib le s are
ta x ed d i f f e r e n t l y . W isco n sin e n t i r e l y exem pts in ta n g ib le s ;
M inn esota c l a s s i f i e s in t a n g ib le s and a p p lie s low m i l l
r a t e s ; C a lifo r n ia exem pts in t a n g ib le s e x c e p t s o lv e n t
c r e d it s sueh as bank d e p o s it s , a c c o u n ts r e c e iv a b le , and
1 8
money.
The in a p p r o p r ia te n e ss o f th e o ld g e n e r a l p r o p e r ty
ta x h a s b een r e c o g n iz e d , to an e x t e n t , a s r e p r e se n te d by
th e w id esp read exem ption o f p e r s o n a l and in ta n g ib le prop
e r t y . O ther b a s ic m o d if ic a tio n s o f th e ta x (c o n sid e r e d
elsew h ere in t h i s stu d y) co n firm and su pp ort th e sta tem en t
th a t th e ta x h as la r g e ly become a ta x on r e a l p r o p e r ty .
J e n se n , op . c i t . . pp. 5 1 -5 3 .
^ ax S ystem s ( t w e l f t h e d i t i o n ) , o p . c i t . , p p . 185-
96.
62
O h a r a c te r is tic F ea tu r es o f P ro p erty Taxes
In th e U n ited S ta t e s th e re a re c e r t a in fe a t u r e s
w hich tend t o d is t in g u is h th e p r o p e r ty ta x from o th e r
reven u e s o u r c e s . Some o f th e s e f e a t u r e s are d is c u s s e d in
19
th e fo llo w in g p a g e s.
E a r ly a p p r o p r ia te n e s s . — The p r o p e r ty ta x a n te d a te s
a l l o f our m ajor reven u e s o u r c e s . When th e economy was
e s s e n t i a l l y a g ra r ia n th e p ro p erty ta x was w e ll adapted t o
th e economy o f th e tim e as p u b lic s e r v ic e s were few and
reven ue n eed s r e l a t i v e l y sm a ll. S in c e c o l o n ia l tim e s lo c a l
p u b lic s e r v ic e s have expanded g r e a t l y , and have been
la r g e ly fin a n c e d from g e n e r a l p ro p erty t a x e s . T h is has
o ccu rred d e s p ite e f f o r t s to th e c o n tr a r y and e f f o r t s to
p rev en t fu r th e r in c r e a s e s in p r o p e rty t a x e s . Many tim e s
th e added s e r v ic e s r e s u lt e d in c r e a tin g new o r s p e c ia l ta x
d i s t r i c t s . The g r e a t ly en la r g ed s tr u c tu r e o f l o c a l govern
ment i s m o stly fin a n c e d by p r o p e r ty t a x e s . A lthough th e
ta x i s open to sev er e c r i t i c i s m , b oth in th e o r y and p ra c
t i c e , i t i s w e ll e s t a b lis h e d and rem arkably s t a b l e . In
f a c t , i t i s so w e ll en tren ch ed i t s v e r y s o l i d a r i t y and
s t a b i l i t y ten d to p reclu d e marked o r ra p id ch an ges t o th e
See B ert Y a n d e r v lie t, " P roperty T axation in
Theory and P r a c tic e ," P r o c e e d in g s . n a tio n a l Tax A s s o c i
a t io n , 1 9 5 1 , pp. 1 5 2 -6 0 . See a l s o , G roves, F in a n cin g
Government. o p . c i t . . pp. 4 6 -4 9 .
_ _ _ _ _ _ _ — — -
63
t a x .
B a r ly t h e o r e t ic a l so u n d n ess. — The g e n e r a l p r o p e r ty
ta x conform ed w ith th e th e o r y o f a b i l i t y to p a y , e s p e c i a l l y
b e fo r e th e developm ent o f th e c o r p o r a te form o f b u s in e s s .
P r o p er ty ow nership was th o u g h t t o be a good in d ic a t io n o f
f in a n c i a l s t a t u s and a b i l i t y t o pay a s l i t t l e in ta n g ib le
p ro p erty e x i s t e d . The t a x h as n o t been k ep t up to d a te
from th e a d m in is t r a t iv e , econ om ic, or l e g a l v iew p o in t s .
Changed econom ic circu m sta n ce s have n o t found co rresp o n d in g
ch an ges made to th e t a x . V a rio u s e f f o r t s have been made,
f o r exam p le, c l a s s i f i c a t i o n o f p r o p e r ty , t o make th e o ld
p r o p e rty ta x f i t changed c ir c u m sta n c e s. T h is s it u a t io n i s
more a p p r o p r ia te ly a c r it i c i s m o f th e l e g i s l a t i v e , j u d i c i a l ,
and a d m in is tr a tiv e p r o c e s s e s o f th e ta x th an o f th e ta x
i t s e l f . The ta x i s n o t sound o r p r a c t ic a l f o r th e v a r ie t y
o f in t a n g ib le s and p e r so n a l in t a n g ib le s , y e t many s t a t e s
a p p ly i t t o su ch .
U n ifo r m ity . — U n ifo r m ity w a s-c o n sid e r e d v er y im
p o r ta n t in tim e s p a st s in c e many s t a t e c o n s t it u t io n s con
t a in u n ifo r m ity c l a u s e s . The g e n e r a l requ irem en t i s f o r
u n ifo r m ity o f trea tm en t w ith in a g iv e n j u r is d i c t i o n .
U n ifo rm ity p r o v is io n s may have p rev en ted c l a s s i f i c a t i o n , a s
64
20
in I l l i n o i s , but n o t exem ption by th e l e g i s l a t u r e o f
s p e c if i c c l a s s e s o f p r o p e r ty . Where c l a s s i f i c a t i o n i s
c o n s t i t u t i o n a l , u n ifo r m ity r e q u ir e s eq u a l trea tm en t w ith in
c l a s s e s w h ich are r e a so n a b ly e s t a b lis h e d . A lthough u n i
fo r m ity was th o u g h t t o a ssu r e r e a so n a b le e q u a lit y o f burden,
i t may f a i l to do so b ecau se o f d if f e r e n c e s in s h i f t i n g and
in c id e n c e ; o r b ecau se o f v a r ia t io n s in th e r a t io o f a s s e s s e d
t o tr u e v a lu e .
B a s is o f v a lu a t io n . — An im portan t fe a tu r e o f
American p ro p er ty t a x a tio n i s th e b a s is f o r v a lu a tio n o f
p r o p e r ty . D e sp ite innum erable d if f e r e n c e s found among
p r o p e r tie s th e y ea ch have one a t t r ib u t e in common, so fa r
a s th e ta x c o l l e c t o r i s co n cern ed , nam ely, v a lu e . F u rth er
m ore, th e p r o p erty ta x i s b ased on exchange v a lu e . C o n s ti
t u t io n a l and l e g i s l a t i v e in s t r u c t io n s fo r v a lu a tio n u s u a lly
r e q u ir e exchange v a lu e be used t o th e e x c lu s io n o f o th e r
v a lu e s such a s "use v a lu e ," o r " se n tim e n ta l v a lu e ."
Method o f a s s e s s m e n t. — Among t h e ' im p ortan t t a x e s
used th e p r o p e r ty ta x i s th e o n ly one where k ey a d m in istr a
t i v e o f f i c i a l s a re e le c t e d and empowered to use broad
d e s c r e tio n a r y pow ers, o r even p e r so n a l judgm ent, in
20 James A. Sprow l, " C la s s if ic a t io n o f P erso n s or
P ro p erty f o r P u rp oses o f T ax a tio n Under th e I l l i n o i s C o n s ti
t u t io n ," R eport o f th e Revenue Laws Commission o f th e S ta te
o f I l l i n o i s . 194^7 pp. 7 3 -7 9 .
65
d eterm in in g in d iv id u a l a s s e s s m e n ts . In f a c t , in th e absence
o f overw helm ing ev id e n c e o f fr a u d , ta x p a y e r s have l i t t l e
g l
j u d i c i a l r e c o u r s e . The p r o p e r ty owners remedy may con
s i s t l a r g e l y o f h e a r in g s o r r e v ie w s b y b oard s composed o f
th e same e l e c t e d o f f i c i a l s who made th e a s s e s s m e n ts . Thus,
th e in flu e n c e o f p e r s o n a l judgment i s v e r y s tr o n g , in b oth
th e o r i g in a l a sse ssm e n t and r e v ie w . T h is i s n o t to say
th e r e a re no in s t a n c e s o f d e s c r e tio n in o th e r t a x e s ; how
e v e r , th e r e i s more u n ifo r m ity in incom e ta x a d m in istr a tio n
than in p r o p e r ty ta x a d m in is tr a tio n .
A nother d i s t i n c t fe a tu r e o f th e r e a l p r o p e r ty t a x i s
th a t a sse ssm e n ts are u s u a lly s u b je c t to r e v is io n ev e r y two
to fo u r y e a r s , w h ile m ost o th e r t a x e s are le v ie d on r e tu r n s
su b m itted by th e ta x p a y e r . T h is l a t t e r method i s used in
income and p e r s o n a l p ro p erty t a x e s .
P r o p er ty ta x a tio n i s a r e s id u a l l e w . — The amount
t o be r a is e d from t h i s form o f t a x a tio n i s determ ined by
e s tim a tin g t o t a l e x p e n d itu r e s , and s u b tr a c tin g th erefrom
th e t o t a l o f rev en u es l o c a l governm ents w i l l r e c e iv e in th e
form o f a id s , o th e r t a x e s , and m is c e lla n e o u s s o u r c e s . The
rem ainder i s sp read o v er o r exten d ed a g a in s t th e ta x a b le
p r o p e r ty and c o n s t it u t e s th e le v y . W henever o th e r re v en u es
^ V a n d e r v lie t, o £ . c i t . . p . 1 5 5 .
66
in c r e a s e , such a s g r a n t s - in - a id , s a l e s , o r incom e t a x e s ,
th e amount re q u ired from p r o p e r ty t a x a tio n may n o t in c r e a s e
c o r r e sp o n d in g ly . T h er efo r e , u n lik e s a le s and incom e t a x e s ,
th e y i e l d s from p r o p e r ty t a x e s do n o t a u to m a tic a lly r i s e
w ith h ig h e r l e v e l s o f money incom e and e x p e n d itu r e s . A l
though th e d o lla r y i e l d o f p r o p e r ty ta x e s h as in c r e a se d
s i g n i f i c a n t l y s in e e 1 9 4 0 , such c o l l e c t i o n s , a s p e r c e n ta g e s
o f com bined s t a t e and l o c a l rev en u es have n o t changed
g r e a t l y .
The p ro p erty ta x an in rem t a x . — W ro m an a d m in is-
anBMnaaaanMi. I h M B M k M t M I M M * W M W M W - aaM BM * • m m M M M ' 4 M M P W I
t r a t i v e o r l e g a l v ie w p o in t th e p ro p e rty ta x i s co n sid er ed
t o be a ta x on " th in g s" more so than on " p erso n s." T h is
d i s t i n c t i o n i s n o t so c l e a r in econom ic a n a ly s is b eca u se o f
u n c e r t a in t ie s in th e s h i f t i n g and in c id e n c e o f t a x e s . The
g e n e r a l p r o p e r ty ta x i s a v e r y co m p lica ted problem and many
22
p o s s i b i l i t i e s o f s h if t in g a r is e from i t . C o n sid era b le
e v id e n c e — l e g a l , a d m in is tr a tiv e , and econom ic— su p p o rts th e
p r o p o s itio n th a t th e ta x i s an in rem t a x . In th e f i r s t
p la c e , r e a l t y can o n ly be ta x e d by th e j u r is d ic t io n w herein
i t i s lo c a t e d . A p erson i s n o t ta x ed on p r o p e r ty he owns
o u ts id e th e t a x in g d i s t r i c t . S econ d , th e a s s e s s o r c a r r ie s
th e p r o p e r ty on h is r o l l s by i t s l e g a l d e s c r ip tio n
G roves, ffin an cin g G overnm ent, o p . c i t . . p . 1 3 4 .
A ls o , K en d rick , op . c i t . . p . 5 7 1 .
67
ir r e s p e c t iv e o f th e names o r r e s id e n c e o r c ir c u m sta n c e s’ o f
th e ow ners. T h ird , th e p r o p e r ty s e r v e s a s s e c u r it y to en
su re payment o f th e ta x le v ie d on th e p r o p e r ty and i f i t i s
n o t p a id th e p ro p er ty may be so ld to s a t i s f y ta x c la im s .
F ou rth , r e a l t y i s ta x e d to th e l e g a l owner r a th e r th a n to
e q u ita b le o w n e r s.' P ro p er ty may be p a r t ly o r c o m p le te ly
m ortgaged y e t be ta x e d a t f u l l a s s e s s e d v a lu e t o th e l e g a l
owner ir r e s p e c t iv e o f h is i n t e r e s t o r n e t e q u ity in i t .
There are good r e a so n s why p r o p e r ty i s n o t ta x ed on th e
b a s is o f n e t e q u i t i e s . I t may be d i f f i c u l t i f n o t p rac
t i c a l l y im p o s sib le f o r th e ta x a d m in is tr a to r s to d eterm in e
y e t e q u i t i e s . A ls o , th e a c t u a l owner may l i v e in one
ta x in g j u r is d ic t io n w h ile th e t a n g ib le p r o p e r ty i s s it u a t e d
in a n o th e r . F u rth er , double ta x a tio n o f th e same w e a lth
r e s u l t s when r e p r e s e n t a t iv e in t a n g ib le s ( e q u it ie s ) are
ta x ed a lo n g w ith th e r e a l p r o p e r ty . In a d d itio n s e r io u s
problem s a r is e in c o n n e c tio n w ith ta x a b le s i t u s where n e t
e q u it i e s are to be a s s e s s e d . F if t h , a lth o u g h th e owner may
be h e a v ily in d eb t he i s n o t a llo w ed to deduct h i s d e b ts
from th e a s s e s s e d v a lu e o f p r o p e r ty f o r ta x p u r p o se s. T h is
p o in t h as been e s t a b lis h e d in New York s t a t e where in
t a n g ib le s su ch a s m ortgages are exem pted from p ro p erty
t a x e s . C er ta in l o t s owned by th e ta x p a y er in New York C ity
were a s s e s s e d and ta x e s le v ie d w ith o u t reg a rd f o r m ortgages
68
on them . The co u rt d ecid ed th e is s u e o f w heth er o r n o t th e
s t a t e co u ld ta x th e lan d a t i t s f u l l v a lu e w ith o u t f i r s t
d ed u ctin g th e amount o f any m ortgage from th e lan d v a lu e in
fa v o r o f th e s t a t e . The co u rt h e ld th e r e was no in f r a c t io n
23
o f th e 1 4 th Amendment by su ch a t a x .
The Problem o f th e J u r is d ic t io n t o Tax P ro p erty
In a fe d e r a l system o f governm ent w ith co m p lica te d
and in t e r r e la t e d c o n s t it u t io n a l p r o v is io n s r e g a r d in g ta x in g
pow ers o f th e n a t io n a l, s t a t e , and l o c a l l e v e l s governm ents,
some s e t o f r u le s has to be e s ta b lis h e d -w h e r e b y th e r ig h t
t o ta x may be d eterm in ed , o th e r w ise in t o le r a b le d u p lic a tio n ,
m u l t i p l i c i t y and i n e f f i c i e n c y would r e s u l t . By a p r o c e ss
o f in c lu s io n and e x c lu s io n th e c o u r ts have d ev elo p ed a s e t
o f c o n c e p ts and r u le s to a id in d eterm in in g th e power o f
governm ents to t a x . L eg a l s i t u s and b u s in e s s s i t u s a re th e
b a s ic c o n c e p ts . B e a l e s t a t e , t a n g ib le p e r so n a l p r o p e r ty ,
and in ta n g ib le p r o p e r ty may each be view ed from t h e i r l e g a l
and b u s in e s s s i t u s . The b a s ic p rem ise f o r j u r is d ic t io n to
t a x h as been p h y s ic a l lo c a t io n " w ith in ” th e ta x in g a r e a .
Land and perm anent s t r u c t u r e s on th e la n d o f f e r no r e a l
d i f f i c u l t y ; how ever, m ovable t a n g ib le s and in t a n g ib le s
23 P a d e ll V. C it y o f New York. 211 U .S . 446 (1 9 0 8 ),
re p o r te d in B ruton, op . c i t . . p p. 1 7 0 -7 3 .
69
cau se e x c e e d in g ly co m p lica ted problem s in j u r is d ic t io n to
t a x .
T axation o f la n d . — The l e g a l lo c a t io n o f la n d i s
th e d i s t r i c t w h erein lo c a te d and no o th e r d i s t r i c t may ta x
th e la n d . A p erso n r e s id in g in one s t a t e can n ot be ta x ed
by th a t s t a t e on r e a l p r o p e r ty owned and lo c a te d e lse w h e r e .
I f such a ta x were a llo w ed th e p erson would n o t be r e c e iv in g
an e q u iv a le n t s e r v ic e o r p r o t e c t io n f o r h i s p ro p er ty s i t u
a te d w ith o u t th e ta x in g s t a t e . In o th e r w ord s, th e ta x in g
s t a t e would be in no p o s it io n t o ren d er s e r v ic e s o r p ro
t e c t i o n to th e p r o p e r ty and such a ta x would be a v i o l a t i o n
24
o f due p r o c e ss o f la w . The b a s ic j u s t i f i c a t i o n o f th e
power o f governm ent to ta x i s th u s th a t an e q u iv a le n t
s e r v ic e or p r o te c tio n be ren d ered w h ich can be p ro v id ed by
governm ent. C e r ta in o f t h e s e p r o t e c t io n s , f o r exam ple,
f i r e and p o l i c e , can b e s t be done by governm ent, w hereas
o th e r s e r v ic e s co u ld be p r iv a t e ly p ro v id ed . Which s e r v ic e s
a re "proper” f o r governm ent to ren d er i s a h ig h ly c o n tr o
v e r s i a l problem .
T a n g ib le p e r s o n a lt y . — S in ce t a n g ib le p e r s o n a lty i s
m ovable some r u le s re g a r d in g i t s l e g a l lo c a t io n s are n e c e s
s a r y . L ike la n d , t a n g ib le p e r s o n a lty can be ta x ed o n ly by
Union R e fr ig e r a to r T r a n s it Co. v . K entucky: 199
U .S . 194 (1905) , re p o r te d in B ruton , op., c i t . . pp. 6 0 -6 2 .
70
C
th e d i s t r i c t w h erein lo c a te d and r e g u la r ly used and k e p t.
Mere tem porary p resen ce g iv e s no ta x in g j u r is d i c t i o n . A
v a r i e t y o f cir c u m sta n c e s a r is e in c o n n e c tio n w ith ta x in g
ta n g ib le p e r s o n a lty . T a n g ib le p e r s o n a lty w hich i s moved so
f r e q u e n tly th a t i t d oes n o t a cq u ire l e g a l s i t u s in a n o th er
25
s t a t e may be ta x ed by th e s t a t e o f d o m ic ile o f th e ow ner.
In th e c a s e o f r o l l i n g sto c k o f a r a ilr o a d o r tan k c a r s o f
an o i l company a s t a t e may n o t ta x a l l o f such p r o p e r ty
w hich comes w ith in i t s b o u n d a ries d u rin g a y ea r; how ever,
i t can ta x th e average number o f sueh w ith in th e s t a t e a t
26
any one tim e . I t i s w ith in th e power o f th e s t a t e l e g i s
la tu r e to d e fin e and p r e s c r ib e ta x a b le s i t u s on t a n g ib le
p r o p e r ty . T axable s i t u s i s fr e q u e n tly d e fin e d a s h a lf a
y ea r o r m ore.
I n t a n g ib le s and J u r is d ic t io n to Tax
I t i s f r e q u e n tly d i f f i c u l t to e s t a b li s h ta x a b le
s i t u s f o r in ta n g ib le p r o p e r ty . The b a s ic r u le has been
th a t in t a n g ib le s f o llo w t h e i r owner and a re ta x ed w herever
th e owner makes h is d o m ic ile . T h is h as been m o d ifie d
Southern P a c if ic v . K entucky: 222 U .S . 63 (1 9 1 1 ),
r e p o r te d in N o el T. D ow ling, G ases on C o n s tit u tio n a l Law
( t h ir d e d it io n ; C hicago: The F oundation P r e s s , I n c . , 1 9 4 6 ),
pp. 7 1 3 -1 8 .
^ Johnson O il R e fin in g Go. v . Oklahoma: 290 U .S .
158 (1 9 3 3 ), re p o r te d in B ruton, o p . c i t . . pp. 6 2 -6 5 .
71
c o n s id e r a b ly in r e c e n t y e a r s . Any s t a t e in w hich in ta n
g i b l e s are lo c a te d may t a x , a cc o rd in g to r e c e n t d e c is io n s
o f th e c o u r t, on th e th e o r y th a t th e in t a n g ib le s r e c e iv e
27
p r o t e c t io n and b e n e f it from th e s t a t e w h erein lo c a t e d .
M u ltip le t a x a tio n o f in t a n g ib le s may become more w id esp read
a s a r e s u l t o f such d e c i s io n s . The co u rt h e ld th a t th e
F o u rteen th Amendment d o es n o t r e q u ir e ta x a tio n o f in ta n
g i b l e s by o n ly one s t a t e by a t t r ib u t in g a s i t u s to them
w ith in th a t s t a t e .
A nother i n t e r e s t i n g developm ent in th e t a x a tio n o f
in t a n g ib le s i s th e co n ce p t o f b u s in e s s s i t u s . In W heeling
S t e e l C orp oration v . ffox. 8^ th e co u rt u ph eld W est V ir g in ia 's
power to ta x in t a n g ib le s used in th e con d uct o f a b u s in e s s
a lth o u g h th e in t a n g ib le s were n o t p h y s ic a lly lo c a te d in th e
s t a t e . The co u rt p o in te d ou t t h a t th e s t a t e co u ld ta x
s in c e c o n tr o l o r management was e x e r c is e d w ith in th e s t a t e .
The W heeling S t e e l C o rp o ra tio n was ch a r te r e d by Delaware
and i t s p r in c ip a l o f f i c e i s m a in ta in ed t h e r e . The g e n e r a l
b u s in e s s o f f i c e s o f th e c o r p o r a tio n are in W h eelin g , ¥/est
V ir g in ia . The p r in c ip a l m an u factu rin g p la n t s o f th e c o r
p o r a tio n are lo c a te d in O hio. The b u s in e s s con d u cted and
37 Curry v . M cC an less. 307 U .S . 357 (1 9 3 9 ), rep o rted
in B ruton, o £ . c i t . . pp. 1 0 6 -2 1 .
38 298 U .S . 193 (1 9 3 6 ), r e p o r te d in B ruton , o p .
c i t . . pp. 9 8 -1 0 6 .
| 72
moneys expended by th e c o r p o r a tio n in v a r io u s s t a t e s are
c o n t r o lle d from th e g e n e r a l b u s in e s s o f f i c e s in W h eeling.
The c o r p o r a tio n had e s t a b lis h e d a "com m ercial d o m icile" a t
W h eelin g , and i t was th e r e "the management" fu n c tio n e d ,
even though th e c o r p o r a t i o n s " p r in c ip a l” o f f i c e was in
D elaw are. W est V ir g in ia l a i d an ad valorem p r o p e r ty ta x on
th e a cc o u n ts r e c e iv a b le , a s se p a r a te ite m s o f p r o p e r ty ,
a cc o rd in g t o th e c o r p o r a tio n r e c o r d s in i t s W heeling
o f f i c e s . The C o rp o ra tio n t r i e d t o a v o id th e ta x c la im in g
West V ir g in ia co u ld t a x o n ly th e a cc o u n ts r e c e iv a b le and
bank d e p o s its o f th e c o r p o r a tio n w hich had a r is e n from th e
s a le o f goods produced w ith in th e s t a t e . S in c e c o n tr o l o f
th e e n t ir e b u s in e s s o f th e c o r p o r a tio n was e x e r c is e d in
W heeling th e s t a t e c o u r t s d e c is io n u p h o ld in g th e s t a t e d
power was a ffir m e d by th e U .S . Supreme C ou rt. I n t a n g ib le s
may be ta x ed by a s t a t e where th e y have "com m ercial domi
c i l e " o r " b u sin e ss s it u s " even though no t a n g ib le s o f th e
p a r t ic u la r owner are s it u a t e d w ith in th e s t a t e . r
CHAPTER IV
ECONOMICS OF PROPERTY TAXATION (CONTINUED)
I . THE GENERAL PROBLEM OF PROPERTY VALUATION
l a c e r t a in b a s ic w ays v a lu e problem s have been e x
tr e m e ly im portan t in N e o c la s s ic a l o r n on -K eyn esian econom ic
th e o r y . The a llo c a t i o n o f th e f a c t o r s o f p ro d u ctio n and
th e d is t r ib u t io n o f income were r o o ted in v a lu e th e o r y . In
th e c o n te x t o f t a x a t io n , v a lu e th e o r y , t h a t i s , what i s
meant by v a lu e and how i t i s to be d eterm in ed , i s a funda
m en tal econom ic problem . The p r o p e r ty ta x i s le v ie d on th e
v a lu e o f th e p r o p e r ty s u b je c t to ta x a cc o rd in g to c e r t a in
e s t a b lis h e d r u le s and p r a c t i c e s . In o th e r w ord s, th e ta x
b ase i s th e v a lu e o f th e p r o p erty to be ta x e d . Even
assum ing a c l e a r , o r u n eq u iv o ca l d e f in i t io n o f p r o p e r ty ,
d eterm in in g i t s v a lu e may b e , a t b e s t , l a r g e ly an e s tim a t e .
P ro p erty h as v a lu e b eca u se o f i t s c a p a c ity to ren d er want
s a t is f y i n g s e r v ic e s to i t s owner through use by th e owner,
o r in exchange f o r o th e r p ro p erty o r money."*' A nalyzed
c l o s e l y , th e n , th e v a lu e o f a p a r t ic u la r p a r c e l o f p ro p erty
i s th e w o rth , o r e ste em , or d e s ir e d n e s s , o f th e p ro p erty to
lam es C. B o n b rig h t, V a lu a tio n o f P ro p er ty (New
York: M cGraw-H ill Book Company, 1 9 3 7 ), p . 1 5 .
74
th e owner. Thus a g iv e n p ie c e o f p r o p e r ty may have d i f f e r
e n t v a lu e to v a r io u s in d iv id u a ls , o r i t may have v a lu e o n ly
t o a g iv e n in d iv id u a l, a s f o r exam p le, a p a ir o f e y e g la s s e s
o r a s e t o f d e n tu r e s. Any p ie c e o f p r o p e r ty h a s v a lu e o n ly
where i t g iv e s some ad vantage to p r e s e n t o r p r o s p e c tiv e
ow ners through p r e s e n t o r fu tu r e e x p lo it a t io n o f th e prop
e r t y . What th e a d v a n ta g e, and th u s th e v a lu e , w i l l be
co u ld v a r y w ith p e r so n s; h ow ever, th e m ost a c c e p ta b le
m easure o f th e v a lu e i s m oney. N e v e r th e le s s , money v a lu e
o r m arket v a lu e may f a i l to p e r f e c t l y , or even a p p ro x i
m a te ly , m easure th e " r e a l v a lu e" o f p a r t ic u la r p ro p erty to
a g iv e n in d iv id u a l. No amount o f money m ight p e r f e c t l y
m easure th e v a lu e o f c e r t a in ir r e p la c e a b le a r t p ie e e s ; j u s t
th e sam e, money i s th e m ost tr u stw o r th y m easure a v a ila b le .
In eco n o m ics, la w , and b u s in e s s , v a lu e i s commonly
used a s a synonym f o r m arket p r ic e o r s a l e s p r ic e . T h is
le a d s t o a d i f f i c u l t y , s in c e f o r p ro p erty to be v a lu a b le ,
i t m ust p o s s e s s exchange o r s a l e s v a lu e , w h erea s, in r e a l
l i f e mueh p r o p e r ty may be e x tr e m e ly v a lu a b le to p a r t ic u la r
ow ners a lth o u g h have l i t t l e i f any m arket v a lu e . For
exam ple, th e New York S tock Exchange b u ild in g i s e x c e e d in g
l y v a lu a b le to i t s ow ners in u s e , y e t i t i s c o n sid e r e d to
be u n s a la b le , or a lm o st s o . Thus two c o n c e p ts o f p ro p erty
v a lu e must be acknow ledged; one r e f e r s to s a l e s v a lu e o r
s a l e s p r ie e , th e o th e r to v a lu e to th e owner.
D eterm in in g th e v a lu e o f p ro p erty f o r t a x p u rp o ses
i s u n lik e an in d em n ity circu m sta n ce where th e w orth o f th e
p r o p e r ty i s d eterm in ed by th e amount o f ca sh n e c e s s a r y to
recom pense th e owner f o r l o s s o f h is p r o p e r ty . In ta x
a t io n th e owner i s co m p elled to pay t a x e s , fo r some r e a so n ,
b ased on th e v a lu e o f h i s p r o p e r ty . B oth th e m eaning o f
v a lu e and th e m ethod o f i t s d e te r m in a tio n are ex tre m e ly
im p o r ta n t.
The Ad Valorem C oncept
The g e n e r a l p r o p e r ty ta x c o u ld be q u ite a c c u r a te ly
d e sc r ib e d a s an ad valorem r e a l e s t a t e t a x . However,
d u rin g i t s e a r ly u se th e ta x w as u s u a lly le v ie d a t a g iv e n
r a te on p a r t ic u la r k in d s o f p r o p e r ty . A fte r th e a d o p tio n
o f th e n a t io n a l c o n s t it u t io n s t a t e and l o c a l governm ents
had g r e a te r r e s o r t to t a x e s on la n d . T h is was e s p e c i a l l y
tr u e in th e new er w e ste r n s t a t e s where th e ta x was le v ie d
on v a r io u s k in d s o f la n d a t s p e c i f i c r a t e s . As tim e p a ssed
and v a r io u s new k in d s o f w e a lth ap p eared , th e t a x base was
e n la r g e d to in c lu d e them . Thus i t came to be th a t p r o p e r ty ,
b o th r e a l and p e r s o n a l, had to be in d iv id u a lly a p p r a ise d ,
o r v a lu e d , b eca u se th e p r o p e r ty was to o v a r ie d to be con
v e n ie n t ly c l a s s i f i e d and a s s e s s e d a t s p e c i f i c r a t e s f o r
ea ch c l a s s i f i c a t i o n . In th e U n ited S t a t e s where la n d was
76
p l e n t i f u l , and was fr e q u e n tly bought and s o ld , i t came to
be a p p ra ised on th e b a s is o f i t s m arket v a lu e o r s a le s
v a lu e . The same th e o r y o f v a lu e came t o be a p p lie d to
o th e r form s o f w e a lth .
In E urope, th e p r o p e r ty ta x d ev elo p ed in a d if f e r e n t
manner than in th e U n ited S t a t e s . Due to th e v e r y lim it e d
su p p ly o f lan d in E urope, owning f a m il ie s were r e lu c t a n t to
s e l l o r a llo w i t to g e t o u t o f th e fa m ily . B ecause o f th e
in fr e q u e n c y o f s a l e s th e b e t t e r econom ic m easure o f th e
v a lu e o f la n d was i t s use o r r e n t a l v a lu e . Thus, th e
p o lic y o f ta x in g la n d on th e b a s is o f i t s annual r e n t a l, o r
incom e v a lu e , grew up in E urope. Canada u s e s th e same
b a s is o f v a lu a tio n a s th e U n ited S t a t e s , t h a t i s , th e
nw illin g - b u y e r , w i l l i n g - s e l l e r " fo rm u la , w ith th e e x c e p tio n
o f S t . J o h n 's , N ew foundland. Here th e European b a s is o f
/ o
a sse ssm en t a cc o rd in g to t h e r e n t a l v a lu e i s u sed .
Lemis l a t i v e E la b o r a tio n o f V a lu a tio n Stan dards
The s t a t e l e g i s l a t u r e s have d ev elo p ed s t a tu t o r y
v a lu a tio n sta n d a rd s w h ich are b ased on th e ad valorem con
c e p t. The b a se fo r p r o p e r ty t a x e s h a s been th e "value" o f
th e p r o p e r ty "as o f" th e day d e sig n a te d f o r a sse ssm e n t. In
^ J\. H. P e r r y , T axation in Canada (T oron to: U n iver
s i t y o f Toronto P r e s s , 195X }, P- 277.
77
a c tu a l p r a c t ic e a l l p r o p e r ty i s n o t a s s e s s e d on th e d e s ig
n a te d day; h ow ever, th e v a lu e i s ta k e n to be what i t was
"as o f" th a t d ay.
The l e g i s l a t u r e s have added v a r io u s q u a lify in g ad
j e c t i v e s to t h e i r s t a t u t e s in t r y in g to c l a r i f y th e m eaning
o f v a lu e . T y p ic a l exam ples o f th e s e a re " f u ll v a lu e ,"
" f a ir v a lu e ," " f a ir ca sh v a lu e ," " a c tu a l v a lu e ," " f a ir
m arket v a lu e" and " tru e v a lu e ." In a c tu a l p r a c tic e th e s e
have done l i t t l e in c l a r i f y i n g th e c o n c e p t. Value f o r
t a x a tio n p u rp o ses h as come to mean m arket v a lu e , w hich in
tu rn means th e p r ic e th e p r o p e r ty w ould b r in g in an open
m a rk et, in a f r e e s a le betw een a w i l l i n g b uyer and a w i l l i n g
< 3
s e l l e r . T h is i s l a r g e ly an im a g in a ry s it u a t io n b eca u se on
a sse ssm en t day n o t a l l p r o p e r ty i s bought and s o ld , th e r e b y
e s t a b lis h in g v a lu e . P erhaps th e c l o s e s t m easure o b ta in a b le
w ould be what th e p r o p e r ty d id s e l l f o r a t p r e v io u s " free"
s a l e s In an open m ark et. In th e a b sen ce o f such in form a
t io n th e v a lu e can o n ly be e s tim a te d — u n t i l such tim e a s a
" free" s a le o c c u r s . The ta x in g a u th o r ity cannot w a it f o r
s a l e s t o o ccu r b e fo r e le v y in g t a x e s . I f t h i s were done
many p r o p e r tie s would esca p e t a x e s b eca u se t h e i r v a lu e had
® Claude R. Tharp, P r o p e r ty Tax A d m ln istr a tio n in
M ich ig a n . I n s t i t u t e o f P u b lic A d m in istr a tio n , Pam phlet
N o. 22 lAnn Arbor: U n iv e r s ity o f M ich igan P r e s s , 1 9 5 1 ),
p . 5 .
78
n o t been e s t a b lis h e d by a s a l e . Im p e r fe c tio n d o es n o t
ren d er t a x a tio n in o p e r a t iv e .
Hot a l l s t a t e s a s s e s s , o r v a lu e , p ro p erty in th e
same m anner; th a t i s , th e y v a ry in th e r a t e o f a sse ssm en t
a p p lie d to th e p r o p e r ty . Some f o llo w a " f u ll v a lu e"
a sse ssm en t o f 1G0 p er c e n t , w h ile o th e r s may a p p ly 90 p er
c e n t , o r 80 p er c e n t , o r some o th e r p ercen ta g e o f " fu ll"
v a lu e . For exam p le, In d ia n a a p p lie d a r a te o f a ssessm en t
n o t e x c e e d in g 35 1 /3 p er c e n t o f th e re p r o d u ctio n c o s t s a s
o f March 1 , 1 9 4 9 .4
J u d ic ia l D e f in it io n s o f ¥ a lu e
In in t e r p r e t in g and d e f in in g th e m eaning o f v a lu e ,
th e c o u r ts s t a r t w ith th e w ording o f a p a r t ic u la r s t a t u t e
o r c o n s t it u t io n a l p r o v is io n w h ich d ir e c t s th a t p ro p erty
m ust be a s s e s s e d a cc o rd in g t o c e r t a in sta n d a rd s, su ch a s ,
" f a ir v a lu e ," " true v a lu e ," e t c . They le a n h e a v ily on th e
t r a d it i o n s o f e a r l i e r c a s e s in and o u t o f th e f i e l d o f
t a x a t io n , t o s e t t l e d is p u te s a s to what th e s e term s mean
when th e y are a p p lie d in a s s e s s in g p r o p e r ty . As a r u le
c o u r ts read no p a r t ic u la r m eaning o r s ig n if ic a n c e in t o such
p h ra ses w h ich th e y w ould n o t f in d in th e p la in word
4 R eal E s ta te A ssessm en t G uide. Ho. 1 (I n d ia n a p o lis :
S ta te Board o f Tax C om m issioners, S ta te o f In d ia n a , May,
1 9 4 9 ), p . 1 0 .
79
" v a lu e . "5
The c o u r ts d is t in g u is h - betw een " cu rren t m arket value"
and "normal" v a lu e ; a ls o betw een "market v a lu e" and " value
to th e ow ner." These d i s t i n c t i o n s beeome v e r y im p ortan t in
d e p r e s s io n s , o r in c o n n e c tio n w ith s p e c i a l l y b u i l t p ro p erty ,
f o r exam ple. In d e p r e s s io n s th e ta x p a y er may com p lain th a t
h i s p r o p erty i s a s s e s s e d f o r more than i t co u ld be s o ld f o r
on th e m ark et. A ls o , ow ners o f s p e c ia l l y b u i l t p ro p erty
may contend th e a sse ssm e n t i s g r e a te r than th e r e a liz a b le
m arket v a lu e o f th e p r o p e r ty , even though econom ic c o n d i
t io n s a re assumed "norm al."
C anadian c o u r ts have d ev elo p ed r u le s to accompany
th e " w illin g -b u y e r w i l l i n g - s e l l e r " form u la used in th a t
co u n try :
1 . Ho item o f r e a l p r o p e r ty can p o s s e s s more than one
r e a l o r a c t u a l v a lu e .
2 . The purpose f o r w hich th e r e a l o r a c tu a l v a lu e i s t o
be d eterm in ed d o es n o t a f f e c t o r in f lu e n c e th e
r e s u l t s .
3 . To s t a t e th e v a lu e o f a n y th in g in term s o f money i s
to e x p r e s s th e o p in io n th a t th e th in g v a lu ed i s
s u s c e p t ib le to b ein g exchanged f o r th e amount o f
money s t a t e d . To e x p r e s s th e v a lu e o f a n y th in g in
term s o f money w ith a p r o v is io n th a t i t can n ev er be
exchanged f o r th e amount o f money s t a te d i s a s o f
f e n s iv e to th e i n t e l l e c t a s a p ro m isso ry n o te in th e
body o f w hich i s in c o r p o r a te d a d e c la r a tio n by th e
d eb to r th a t he w i l l n ev er be w i l l i n g o r a b le to pay
th e d e b t.
5 B o n b r ig h t, c i t . . p. 4 6 1 .
80
4 . Q u a lit ie s w h ich a re im parted to a th in g by th e owner
b ut w hich cannot be tr a n s fe r r e d t o a n o th er a lo n g
w ith th e t h in g do n o t a f f e c t th e v a lu e o f i t .
5 . Any p a r t ic u la r and p erh ap s p r o f it a b le u se w hich th e
owner o f a th in g makes o f i t d o es n o t in c r e a s e i t s
v a lu e ; i t i s th e u se w hich can be made o f th e th in g
by o th e r s w hich d eterm in es th e v a lu e .
6 . R eplacem ent c o s t i s n o t a m easure o f v a lu e ; i t
m ere ly c o n s t i t u t e s a c e i l i n g o v e r w hich v a lu e can n ot
n o rm a lly g o .6
V alue d is t in g u is h e d from a c t u a l c o s t and from r e
placem ent c o s t . - - In t a x a tio n "market v a lu e ” i s a cc ep te d
a s th e stan d ard a p p lic a b le to m ost ty p e s o f p r o p e r t y .7
N e ith e r a c t u a l, h i s t o r i c a l c o s t , n or rep la cem en t c o s t are
n e c e s s a r ily a c c e p ta b le a s th e m easure o f p r e s e n t v a lu e .
H is t o r ic a l c o s t i s u n a c cep ta b le s in c e i t may have l i t t l e
corresp on d en ce to p r e s e n t v a lu e due to d e p r e c ia t io n , te c h
n o lo g ic a l im provem ents, a changed p r ic e l e v e l , o r p r e s e n t
e a r n in g power. R ep rod uction c o s t i s a ls o an im p e r fe c t
m easure o f p r e s e n t power s in c e i t d o es n o t in c lu d e p r e s e n t
and fu tu r e ea r n in g power o f th e p r o p e r ty . N e ith e r o f th e s e
m easu res can be a p p lie d v e r y w e ll to la n d s in c e i t h as no
c o s t o f p r o d u c tio n — p a st o r p r e s e n t. F u r th er , n e it h e r o f
th e s e sta n d a rd s a llo w f o r s u b j e c tiv e v a lu e to th e ow ner.
F a ir m arket v a lu e and cu r r e n t m arket v a lu e . — In
t a x a tio n th e co n cep t o f a " w illin g b uyer and a w i l li n g
6 P er r y , o p . c i t . . p . 378.
7 B o n b rig h t, o £ . c i t . , p . 4 6 3 .
81
s e l l e r ” i s d esig n ed t o guard a g a in s t ab norm ally low v a lu
a t io n s a t w h ich p r o p e r t ie s may be s o ld in fo r c e d s a l e s , o r
on t h e o th e r hand, to guard a g a in s t a sse ssm e n ts a t h ig h ly
in f l a t e d boom p r ic e s . "P air m arket v a lu e" th e n , m eans th e -
p r ic e a t w h ich i t c o u ld a c t u a lly be s o ld , a llo w in g re a so n
a b le e f f o r t s f o r ea ch to shop around, when a "normal"
m arket p r e v a i l s . T hus, " f a ir m arket v a lu e" i s a t h e o r e t ic a l
c o n c e p t, b ased on a " free" s a le in a "normal" m ark et.
T h e r e fo r e , v a lu a t io n s w h ich are abnorm ally lo w , though n o t
fo r c e d s a l e s , w ould n o t p r o p e r ly r e f l e c t th e "normal" v a lu e
o f th e p ro p erty ; n or w ould h ig h ly in f l a t e d p r ic e s do s o .
T axpayers stan d to be a d v e r s e ly a f f e c t e d by to o h ig h a s s e s s
m eats in b o th th e boom and d e p r e s sio n phase o f th e b u s in e s s
c y c l e . P r ic e s in th e cu r r en t m arket may be e i t h e r g r e a te r
o r l e s s than th e p r ic e w hich would r e s u l t in a norm al
m ark et. A f a i r v a lu e may be a k in to an a verage v a lu e w hich
would o b ta in o v e r a co m p lete sw ing o f th e b u s in e s s c y c l e .
M arket v a lu e and v a lu e to th e ow ner. — M arket v a lu e
i s n o t a p e r f e c t m easure i f a c tu a l r e a l i z a t io n p r ic e i s
ta k en a s th e v a lu e o f p r o p e r ty w hich i s c l e a r l y w orth more
t o i t s owner. T h is problem a r i s e s where a s t a t u t e r e q u ir e s
u se o f " f a ir m arket v a lu e" f o r a p p r a is a l p u rp o ses and p a r
t i c u l a r p r o p er ty i s h ig h ly s p e c ia liz e d and th u s h a s no
"normal" m ark et. In W isc o n sin , f o r exam p le, where r e a l
82
p ro p erty i s a s s e s s e d a t f u l l v a lu e o r d in a r ily o b ta in a b le in
a p r iv a te s a l e , th e c o u r ts s u sta in e d a ssessm en t on th e
b a s is o f m arket v a lu e r a th e r th a n v a lu e t o th e owner.
M eadowland, im proved a s a g o l f c o u r s e , had to be a s s e s s e d
a s meadowland and on th e th e o r y th a t i f i t w ere s o ld i t
would be p urch ased a s o r d in a r y meadowland and n o t a s a g o l f
Q
c o u r s e . S p e c ia lly c o n s tr u c te d b u ild in g s g iv e r i s e to th e
problem o f a s s e s s in g a t "market" o r " r e a liz a t io n ” p r ic e , o r
on th e b a s is o f v a lu e to th e ow ner. In W isco n sin th e
c o u r ts h e ld t o th e r e a l i z a t i o n o r liq u id a t io n p r ic e r a th e r
than u se v a lu e in a llo w in g an a ssessm en t o f a b u ild in g
s p e c i f i c a l l y d esig n ed a s an o f f i c e b u ild in g f o r an in s u r -
a
Q
ance company. In t h i s c a s e th e co u rt h e ld t o th e s t a t u t e
w hich s t ip u la t e d " s a le v a lu e" m ust be u sed , y e t i t su g
g e s te d th a t i f a " f a ir m arket v a lu e" had been d eterm in ed
th e a ssessm en t w ould have been s u s ta in e d . The c o u r ts o f
W isco n sin have th u s h e ld th a t m arket v a lu e o f th e s t a t u t e s
means a p r ic e w hich co u ld be r e a liz e d .
New York c o u r ts have ta k en about th e o p p o s ite stan d
to th a t o f th e W isco n sin c o u r ts on th e v a lu a tio n o f s p e c ia l
purpose b u ild in g s . Owners o f th e New York S to ck Exchange
® S ta te v . P e t r ic k . 172 W isco n sin 8 2 , 178 N.W. 251
(1 9 2 0 ), c i t e d in B o n b rig h t, o £ . c i t . . p . 4 7 2 .
9 Idem .
83
B u ild in g were n o t s u c c e s s f u l in g e t t in g th e a s s e s s e d v a lu e
reduced to th a t r e p r e se n te d s o l e l y by th e lan d v a lu e .
T h eir c o n te n tio n was t h a t th e b u ild in g was so h ig h ly sp e
c i a l i z e d a s to a c t u a lly be a l i a b i l i t y in liq u id a t in g th e
p r o p e r ty . However, th e co u rt h e ld more to th e co n cep t o f
v a lu e to th e ow ner, r a th e r th an liq u id a t io n p r i c e . 10 Here
th e co u rt h e ld t h a t th e s t a t u t e c a l l s f o r " f u ll v a lu e" and
th a t m arket v a lu e m ust be u sed o n ly in c ir c u m sta n c e s, o r
under such ter m s, a s w i l l f a i r l y r e f l e c t tr u e o r f u l l v a lu e .
A lthough th e c o u rt f a i l e d t o c l e a r l y d e f in e what i t meant
b y tr u e o r f u l l v a lu e , i t d id l i b e r a l i z e th e in t e r p r e t a t io n
o f " f a ir m arket" v a lu e b y h o ld in g i t in c lu d e s more than
cu rr en t liq u id a t io n p r ic e .
V a lu a tio n on th e b a s is o f annual in com e. — A nother
im p ortan t problem in v o lv e d in p r o p e r ty t a x a tio n i s th a t o f
a s s e s s in g p r o p e r ty on th e b a s is o f i t s annual v a lu e o r
annual incom e. Some p e o p le urge t h a t r e a l e s t a t e t a x e s
sh o u ld be b a sed on th e n e t incom e o f p r o p e r ty in s t e a d o f on
th e m arket v a lu e . The s u c c e s s f u l e x p e r ie n c e o f England
w ith t h i s s o r t o f p r a c tic e i s c i t e d in fa v o r o f th e su g -
g e s t i o n . 11
10 B o n b rig h t, op. c i t . . p . 4 7 4 .
11 The q u e s tio n i s d is c u s s e d in "Should th e U n ited
S t a t e s Adopt th e B r it is h System o f A s s e s s in g R ealty?"
Forum P am p h let. No. 2 (New York: The Tax I n s t i t u t e , I n c . ,
1 9 4 4 ). ~
The B r it is h have d ev elo p ed t h i s method o f a s s e s s in g
r e a l e s t a t e , p r in c ip a ll y b eca u se th e la n d i s s o ld i n f r e
q u e n tly th e r e a s compared t o A m erica. T hus, annual r e n t a l
v a lu e became th e m easure o f r e a l t y v a lu e s b eca u se i t was
about th e o n ly m easure a v a ila b le ; a l s o , i t i s a s t r a ig h t
forw ard m ethod o f v a lu a tio n s in c e l i t t l e , i f an y, lan d
sta n d s i d l e . F u r th e r , i t i s r e a l i s t i c and th u s i n con
fo r m ity w ith p r a c t ic a l th in k in g and e x p e r ie n c e o f th e la y
man and b u sin essm a n . The m ost w o rth w h ile m ethod o f v a lu
a t io n , fo r th e p r a c t ic a l b u sin essm an , i s t o c a p i t a l i z e th e
e a r n in g r a t e o f p r o p e r ty . C a p ita l v a lu e i s th e m arket r a te
o f fu tu r e in com e, d isc o u n te d in t o a p r e s e n t o r cu r r en t
w o rth . The p r o s p e c tiv e owner d is c o u n ts in to th e p r e s e n t,
th e s e r v ic e , o r incom e, he a n t ic ip a t e s can be d e r iv e d from
th e p r o p e r ty . The v a lu e o f a p a r t ic u la r p a r c e l o f p r o p er ty
i s d isc o u n te d and c a p it a liz e d a s compared t o a lt e r n a t iv e
o p p o r t u n it ie s . The im m ediate m o tiv e s o f b u y ers and s e l l e r s
v a r y w ith t h e ir in d iv id u a l r e la t io n t o a g iv e n o b je c t o f
p r o p e r ty . A s p e c u la to r may have o n ly th e in t e n t io n o f
s e l l i n g th e p r o p e r ty and n o t w a itin g to r e c e iv e th e flo w o f
incom e, or s e r v ic e s , w hich a re a n t ic ip a t e d . The consum er-
p u rch a ser pays ou t p r e s e n t d o lla r s f o r p r o p e r ty and p la n s
to r e c e iv e th e fu tu r e flo w o f incom e, e i t h e r in d o lla r s o r
s e r v ic e s . The s e r v ic e s ren d ered are w orth m oney, o r th e y
85
w i l l be when re n d er ed . T hus, w h a tev er th e m o tiv e o f th e
p r o s p e c tiv e b u y er, o r s e l l e r , th e c a p i t a l v a lu e can o n ly be
th e a n t ic ip a t e d incom e d isc o u n te d in t o a p r e s e n t w o rth .
A dvantages t o annual v a lu e a s s e s s m e n t. — There are
c e r t a in p o in ts in fa v o r o f a s s e s s in g on th e b a s is o f n e t
annual v a lu e . F i r s t , th e a sse ssm e n t w ould be made w ith
r e s p e c t to th e p r e s e n t. R e n ta l ineom e i s c u r r e n t, o r in
n ea r p r o s p e c t, and i t s u se a s th e b a s is f o r v a lu a tio n
a v o id s th e w eakness o f d eterm in in g cu rr e n t v a lu e on th e
b a s is o f fu tu r e ineom e. The co n c e p t o f a " f a ir v a lu e ” i s
u n a v o id a b ly b ased on what fu tu r e income i s th o u g h t to be in
p r o s p e c t. Second, a r e a so n a b ly tr u e v a lu a tio n co u ld be
made s in c e e x p en se s and m ainten an ce co u ld be d ed u cted from
incom e and a " tr u e ” v a lu e d eterm in ed by c a p i t a l i z i n g t h i s
n e t r e tu r n on th e b a s i s o f a lt e r n a t iv e o p p o r t u n it ie s .
T h ird , o w n er-occu p ied p r o p e r t ie s co u ld be v a lu ed on an ob
j e c t i v e b a s is s in c e much p r o p erty i s r e n te d and th u s a
la r g e number o f s im ila r p r o p e r t ie s would p ro v id e a good
b a s is f o r com p arison . In o th e r w ord s, a la r g e number o f
s im ila r p r o p e r t ie s b ein g v a lu ed in t h i s manner g iv e s an ob
j e c t i v e way o f a s s e s s in g ow n er-occu p ied p rem ises where an
u n c e r ta in amount o f " u se” o r " p s y c h ic ” v a lu e i s in v o lv e d .
F ou rth , th e annual r e n t a l v a lu e approach i s a m ethod o f
k eep in g v a lu a tio n s on a c u rr e n t b a s i s . I t i s q u ite common
86
f o r a sse ssm e n ts to rem ain unchanged f o r lo n g p e r io d s o f
tim e , d e s p it e ch an ges in b o th incom e and m arket v a lu e .
F i f t h , th e annual v a lu e approach r e d u c e s th e u n certa in ty -
in v o lv e d , and p o s s ib le h a r d sh ip , o f b a sin g v a lu a tio n on
g u e s s e s a s to in c r e a s e d v a lu e and incom e. S ix th , t h i s
approach h a s th e d e s ir a b le fe a tu r e o f t a x in g when and w here
income a c t u a lly e x i s t s .
P i sad van tage s o f annual v a lu e a s s e s s m e n t. — The
annual v a lu e m ethod h as im p ortan t d i f f i c u l t i e s . F i r s t ,
p r o p e r ty w hich has no incom e y e t d o es have m arket v a lu e
o f f e r s a hard problem . P ro p er ty such as a v a ca n t l o t i s an
exam p le. Should such esca p e t a x e s , s in c e i t p ro d u ces no
incom e? Second, a c o n s id e r a b le am ount, o r p erh ap s a l l , o f
th e m arket v a lu e o f a g iv e n p ie c e o f la n d may be due to
s o c i a l grow th and n o t t o any e f f o r t on th e p a r t o f th e
ow ner. Should such an "unearned" in crem en t in v a lu e go ta x
fr e e ? T h ird , some a r e a s w ith lo w r e n t a l v a lu e p r o p e r ty , o r
sm a ll amounts o f i t , m ight have a r e s t r i c t e d ta x b a se y e t
have h ig h governm ent c o s t s . F o u rth , much p e r s o n a l p r o p e r ty
may p o s s e s s no income p rod u cin g pow er, and th u s be d i f f i
c u l t to e s t a b l i s h a v a lu e o n . F i f t h , perhaps th e b a s ic
d i f f i c u l t y in e s t a b lis h in g su ch a b a s is in th e U n ited
S t a t e s w ould be ch an gin g r a th e r f ir m ly e s t a b lis h e d m ethods
and p r a c t ic e s w ith ow ners and t a x c o l l e c t i o n a g e n c ie s
87
a d ju ste d to them .
T h e o r e tic a l M e r its o f th e P r o p e r ty Ta-g
The co n cep t o f th e g e n e r a l p r o p e r ty ta x i s th a t a l l ‘
p r o p e r ty , u n le s s exem pted, i s taxed on th e b a s is o f i t s
y a lu e a t a uniform r a te w it h in a g iv e n ta x in g j u r i s d i c t i o n .
M ost o f th e s t a t u t e s do n o t a ttem p t t o s p e c if y what p rop erty
i s to be ta x ed ; r a th e r th e y m e r e ly l i s t such c l a s s e s o f
p r o p e r ty w hich are n o t to be ta x e d . Thus, th e co n cep t i s
v e r y broad and i t i s u n n ec e ssa r y to p a ss new l e g i s l a t i o n to
t a x new form s o f w e a lth a s th e y ap p ear.
Two b a s ic t h e o r ie s are in vok ed t o j u s t i f y th e use o f '
such a com prehensive ta x : (1) b e n e f it s r e c e iv e d , and (s)
a b i l i t y to p a y .12
B e n e f it s r e c e iv e d . — B e n e f it s w hich flo w t o r e a l
e s t a t e from m u n icip a l e x p e n d itu r e s can be d iv id e d in to two
c l a s s e s : (1 ) d ir e c t s e r v ic e s ren d er ed , and (2) in d ir e c t
s e r v ic e s ren d ered w h ich fa v o r a b ly in flu e n c e r e a l e s t a t e
v a l u e s .1®
D ir e c t s e r v ic e s in c lu d e governm en tal a c t i v i t i e s
12 H arold M. G roves and L o u ise P ro b er, "E quity
Grounds f o r P ro p erty T a x a tio n R e-exam ined," Land E con om ics.
XX7II (May, 1 9 5 1 ), 1 4 3 -5 0 .
13 Edwin H. S p e n g le r , "The P ro p er ty Tax a s a B e n e fit
Tax," P ro p er ty T axes (New York: Tax I n s t i t u t e , I n c . , 1 9 4 0 ),
pp. 1 6 5 -7 3 .
88"
w hich add t o th e d e s i r a b i l i t y o f p r o p e r ty w heth er i t i s to
be s o ld , r e n te d o r o ccu p ied by th e ow ner. Exam ples o f such
s e r v ic e s are c o l l e c t i o n and d is p o s a l o f garb age; sewage
d is p o s a l; s t r e e t m ainten an ce and c le a n in g ; p o lic e and f i r e
p r o t e c t io n . A ll o f th e s e add d i r e c t l y to th e v a lu e o f
p r o p e r ty , p a r t ic u la r l y in urban a r e a s . E ire and p o lic e
p r o t e c t io n a re d ir e c t a id s inasm uch a s th e y red u ce l o s s e s
and th e r e b y in su r a n c e r a t e s are lo w ered .
In a d d itio n to th e d ir e c t a id s l o c a l governm ents
p ro v id e such in d ir e c t s e r v ic e s a s l i b r a r i e s , p a rk s, s c h o o ls ,
h o s p i t a l s , museums, e t c . , w h ich add to th e d e s i r a b i l i t y ,
and th u s to th e v a lu e o f p r o p e r ty . A lthough such s e r v ic e s
a re f o r th e b e n e f it o f p e r s o n s , th e y n e v e r t h e le s s add to
th e v a lu e o f p r o p e r ty . T hus, p a y in g f o r th e s e s e r v i c e s ,
b oth d ir e c t and i n d i r e c t , in w hole o r in p a r t, o u t o f fu n d s
from th e g e n e r a l p r o p e r ty ta x can be j u s t i f i e d .
A b i l i t y t o p a y . — In th e p a s t , p a r t ic u la r l y d u rin g
th e 1 9 th C en tu ry, th e p o s s e s s io n o f p r o p e r ty , p a r t ic u la r ly
r e a l p r o p e r ty , was c o n sid e r e d a b e t t e r in d ic a t io n o f t a x -
p ayin g a b i l i t y th an i t i s t o d a y .14 T h is was tr u e b eca u se
th e g r e a t m a jo r ity o f p ro p er ty was r e a l in n a tu r e , t h a t i s ,
14 H. D. Sim pton, "The C hanging Theory o f P ro p erty
T a x a tio n ," American Economic R eview . XXIX (Septem ber,
1 9 3 9 ), 4 5 3 -6 7 .
89
la n d and b u ild in g s . There w a sn ’t a s much in th e way o f
in t a n g ib le s and man-made p e r s o n a l p r o p e r ty a s e x i s t s now
a d a y s.
C o n sid era b le argum ent has been d ev elo p ed c r i t i c i z i n g
th e p ro p e rty ta x on th e b a s is o f a b i l i t y to p a y . However,
somewhat o f a c a s e can be made j u s t if y i n g th e t a x on th e
a b i l i t y th e o r y . Ownership o f p r o p e r ty , when more th an a
minimum am ount, i s somewhat o f an in d ic a t io n o f a b i l i t y to
p ay. When th e p ro p erty i s incom e p rod u cin g i t a f fo r d s a
s tr o n g e r e a s e f o r a b i l i t y to p a y . Though incom e from prop
e r t y may be ta x e d under th e p e r s o n a l o r c o r p o r a te incom e
t a x e s , th e r e i s s t i l l str o n g grounds f o r t a x in g th e prop
e r t y p rod u cin g incom e s in c e i t d o es n o t a r is e from p e r s o n a l
e f f o r t . I f p ro p er ty were n o t ta x e d , u n q u e stio n a b ly some
incom e (ta x -p a y in g a b i l i t y ) would be put in t o p r o p e r ty to
esca p e o th e r t a x e s . I n o th e r w ord s, much income i s
r e a liz e d in th e form o f s e r v ic e s and s a t i s f a c t i o n s rend ered
by p r o p e r ty , and th u s p ro p e rty ow nership i s ev id e n c e o f
a b i l i t y to p ay. A lthough th e d i f f i c u l t i e s in v o lv e d in
re a d in g and t a x in g a b i l i t y are a d m itte d ly g r e a t , t h i s d o es
n o t o v e r r u le th e t h e o r e t i c a l j u s t i f i c a t i o n f o r t a x in g prop
e r t y on th e a b i l i t y to pay th e o r y .
O ther m e r its o f th e p r o p e r ty t a x . — In a d d itio n to
th e t h e o r e t i c a l j u s t i f i c a t i o n s j u s t d is c u s s e d , th e g e n e r a l
— 90
p r o p e rty ta x h as o th e r good p o in t s in i t s fa v o r . From th e
p o in t o f v iew o f l o c a l and s t a t e governm ents i t p r o v id e s a
r e l i a b l e so u rce f o r c o n s id e r a b le r e v e n u e . The y i e l d i s
r e l a t i v e l y more s t a b le th a n c e r t a in o th e r t a x e s , even in
d e p r e s s io n t im e s . A ls o , i t le n d s i t s e l f to l o c a l ad m in is
t r a t io n s in c e th e r e a l p r o p e r ty i s lo c a te d w ith in th e a re a
and can n ot e sc a p e th e t a x . F u r th er, th e t a x i s c o n v e n ie n t
l y f l e x i b l e s in c e e i t h e r th e b ase o r th e r a t e , o r b o th , can
be a d ju ste d to conform to ch an ges in reven u e n eed s and
s o u r c e s .
C r it ic is m s o f th e P ro p er ty Tax
There are many im p ortan t c r i t i c i s m s o f th e g e n e r a l
p r o p e r ty t a x , b o th t h e o r e t i c a l and a d m in is tr a tiv e . As a
m a tte r o f f a c t th e c r i t i c i s m s f a r outnumber th e argum ents
in fa v o r ; y e t , i r o n i c a l l y , th e ta x c o n tin u e s to be u sed
w id e ly — d em o n stra tin g anew th e in flu e n c e o f e x p e d ie n c y in
f i s c a l m a tte r s . C er ta in o f th e t h e o r e t i c a l c r i t i c i s m s w i l l
be t r e a t e d f i r s t ; th e n th o s e o f an a d m in is tr a tiv e ch a ra c
t e r .
Poor m easure o f a b i l i t y to p ay. — The sta tem en t
t h a t p r o p e r ty i s an ev id e n c e o f a b i l i t y t o pay i s to o broad
and l o o s e . I f p r o p e r ty i s in com e-p rod u cin g t h i s may be
c o r r e c t . However, i f i t i s non-incom e p r o p e r ty , i f th e
owner i s " p ro p erty p o o r," i f th e p r o p e r ty i s q u ite o ld , i f
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p r o p e r ty i s u n o ecu p ied , o r i f i t i s h e a v ily m ortgaged , t h i s
may n o t r e p r e s e n t a b i l i t y to p a y . There i s v e r y l i t t l e
c o r r e la t io n betw een ow nersh ip and a b i l i t y in th e c a s e o f
m ost ta n g ib le p e r s o n a l p r o p e r ty . The p ro p erty ta x i s a ta x
in rem. t h e r e fo r e th e owner i s n o t a llo w e d to ded uct any
15
d e b ts o r l i a b i l i t i e s a tta c h e d to th e p r o p e r ty .
Poor t e s t o f b e n e f it s r e c e iv e d . - - A s tr o n g e r argu
ment f o r th e p r o p er ty ta x i s b ased on th e ground o f b en e
f i t s r e c e iv e d r a th e r than a b i l i t y to pay but t h i s t o o , h as
i t s w e a k n e sse s. One o f th e s e i s th e f a c t th a t th e r e i s no
c le a r way we can d eterm in e th e b e n e f i t s r e c e iv e d — e s p e c ia lly
under a " g e n e r a l” t a x , such a s th e p r o p e r ty t a x , and "gen
e r a l ” s e r v ic e s ren d ered by l o c a l governm ents w ith revenue
from p r o p e r ty t a x e s . S ta te governm ents ren d er few s e r v ic e s
f o r th e b e n e f it o f p r o p e r ty so i t i s d i f f i c u l t to J u s t i f y
" s t a t e ” p r o p e r ty ta x e s on t h i s th e o r y . At th e l o c a l l e v e l
th e c o r r e la t io n betw een t a x e s and b e n e f i t s i s even l e s s ,
s in c e s e r v ic e s ren d ered t o p e r s o n a l p r o p e r ty (e x c e p t a u to
m o b ile s) i s c o n s id e r a b ly l e s s than th a t su p p lie d r e a l
p r o p e r ty .
On th e w h ole to o la r g e a p r o p o r tio n o f p r o p e r ty
C la ren ce H eer, "The P ro p er ty Tax a s a M easure o f
A b i lit y ," P ro p er ty Taxes (New York: Tax I n s t i t u t e , I n c . ,
1 9 4 0 ), pp. 1 5 5 -6 4 ; a l s o , G roves and P ro b er, o p . c i t . ,
pp. 1 4 3 -5 0 .
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t a x e s go f o r n o n -p r o p e r ty s e r v ic e s t o j u s t i f y th e " f u ll*
p r o p e r ty ta x on th e b e n e f i t s p r in c ip le — s in c e many o f th e
s e r v ic e s ren d ered w ith th e p r o ce ed s o f th e g e n e r a l p ro p erty
t a x are to " p erso n s” and a re " p erson al" in c h a r a c te r — sueh
a s e d u c a tio n , h e a lth s e r v ic e , p o lic e p r o t e c t io n t o p e r s o n s ,
r e c r e a t io n a l s e r v ic e and o t h e r s .
R e s u lts in double t a x a t io n . — Many s t a t e s exem pt
c e r t a in k in d s o f in t a n g ib le s , b u t in th o s e s t a t e s ta x in g
b o th r e a l p r o p e r ty and c e r t a in in ta n g ib le p e r s o n a l p r o p e r ty ,
th e p o s s i b i l i t y o f d oub le t a x a t io n a r i s e s . S in c e th e prop
e r t y t a x i s a t a x in rem . th e f u l l a s s e s s e d v a lu e i s ta x ed
to th e l e g a l owner o f th e p r o p e r ty w ith o u t any r e d u c tio n
f o r an o u tsta n d in g m o rtg a g e. At th e same tim e th e m ort-
g a g e e -c r e d it o r i s t a x e s on h i s i n t e r e s t on th e m o rtg a g e,
r e s u lt i n g in two t a x e s b e in g p a id w here th e r e i s o n ly one
p ie c e o f p r o p e r ty . T h e r e fo r e , th e l e g a l owner p ays a f u l l
t a x on th e p r o p e r ty even th ou gh he h a s o n ly a p a r t i a l
e q u ity in i t ; i f th e m ortgagee s h i f t s h is t a x t o him when
h e e n t e r s th e m ortgage a greem en t, he may be fo r c e d t o pay
an even h ig h e r r a t e o f i n t e r e s t .
Tim ing i s in c o n v e n ie n t. — C e r ta in ty p e s o f p r o p e r ty
go f o r lo n g p e r io d s w ith o u t r e tu r n in g incom e t o th e owner—
y e t th e g e n e r a l p ro p e rty ta x c o n tin u e s . In tim e s o f d e p re s
s io n much r e n t a l p r o p e r ty sta n d s u n ren ted , p la n t s and
93
equipm ent a re i d l e , and sm a ll b u s in e s s e s are u n o ccu p ied .
N a tu ra l r e so u r c e p r o p e r tie s a re o th e r s th a t are a f f e c t e d by
th e g e n e r a l p r o p e r ty t a x , in th e same w ay, th a t i s , th e y
may be y ie ld in g no incom e a lth o u g h be ta x e d .
U n d iffe r e n tia te d in im p a c t. — The " g e n e r a l” prop
e r t y t a x d o es n o t d i f f e r e n t i a t e betw een k in d s o f p r o p e r ty .
In many s t a t e s e v e r y c o n c e iv a b le ty p e o f p r o p e r ty i s i n
clu d ed in th e ta x b a se w h ich t r e a t s a l l p r o p e r ty a l i k e .
R e s id e n t ia l p r o p e r ty i s t r e a t e d w ith in d u s t r ia l and com
m e r c ia l p ro p erty ; im provem ents made b y man are t r e a t e d th e
same a s la n d su p p lie d by n a tu r e ; consum ption good s are
tr e a t e d w ith p ro d u c tio n go o d s— th e s e econom ic b a s e s f o r
d if f e r e n c e s in v a r io u s ty p e s o f p ro p er ty a re o f t e n d i s
re g a rd ed .
Burden on h o u s in g . — A g r e a t b u lk o f th e p r o p e r ty
ta x i s b ased on r e s i d e n t i a l p r o p e r ty . Taxes c o n s t it u t e a
s u b s t a n t ia l " fix e d charge" th a t a l l homeowners pay d i r e c t l y
and r e n t e r s pay I n d i r e c t l y . In tim e s o f unem ploym ent, t h i s
ta x burden in c r e a s e s and o f te n c o n tr ib u te s to th e l o s s o f
m ortgaged p ro p e rty by th e d eb to r-o w n er.
R e g r e ssiv e in e f f e c t . - - The g e n e r a l p r o p e r ty ta x
o p e r a te s on a " f l a t r a te " r e g a r d le s s o f th e amount o f prop
e r t y . When th e amount o f t a x p a id by th e low income ea rn er
and sm a ll p r o p e r ty owner i s r e la t e d to h i s in com e, th e t a x
94
becom es " r e g r e s s iv e in e f f e c t " - - t h e ta x a b so rb s a la r g e r
p o r tio n o f h is income th an a man w ith a la r g e r in com e. In
t h i s way i t " h its" th e l i t t l e man h ard er and c u ts in t o h i s
l i v i n g stan d ard b eca u se he p o s s e s s e s a sm a lle r incom e and
a h ig h e r p r o p e n s ity to consum e.
M e r its on th e Admini s t r a t iv e S id e
The p r o p e r ty ta x h a s some a d v a n ta g es o f an ad m in is
t r a t i v e n a tu re from th e l o c a l u n it o f g overn m en t's p o in t o f
v ie w . The g r e a t b u lk o f t h e p r o p e r ty i s u s u a lly " w ith in
th e J u r is d ic tio n " o f th e t a x in g u n it . R eal p r o p e r ty can n ot
m ig r a te , so th e l o c a l u n it s are in a b e t t e r p o s it io n to
a d m in iste r t h i s t a x th an any o th e r . I f th e p r o p e r ty ow ners
do n o t pay t h e i r t a x e s , th e l o c a l u n it s can p r o te c t them
s e lv e s by a c t in g upon th e p r o p e r ty under th e ta x l i e n and
ta x s a l e .
C r it ic is m s on th e Admini s t r a t iv e S ide
One o f th e s tr o n g e s t c r i t i c i s m s a g a in s t th e p r o p e r ty
t a x i s in i t s a d m in is tr a tio n and a p p lic a t io n , p a r t ic u la r l y
th e a sse ssm en t o f p r o p e r ty .
A ssessm ent i n e q u a l i t i e s " w it h in " th e same d i s t r i c t .
— The w ea k est lin k in th e p r o p e r ty ta x a d m in is tr a tio n l i e s
in th e e s ta b lis h m e n t o f th e t a x b ase o r " v a lu a tio n " o f
p r o p e r ty . Many p r o p e r ty ow ners are burdened w ith h eavy
95
ta x e s w h ile o t h e r s , h a v in g e s s e n t i a l l y s im ila r p ie c e s o f
p ro p erty in th e same t a x in g d i s t r i c t may esca p e w ith much
l i g h t e r t a x e s . Some o f t h e s e i n e q u a l i t i e s may be cau sed by
h o n e st e r r o r w h ile o th e r s are due to b r ib e r y , f r ie n d s h ip ,
o r p o l i t i c s . The u n ifo r m ity r e q u ir e d by law b reak s down in
th e a d m in is tr a tiv e a s p e c t s , much t o th e d e m o r a liz a tio n o f
th e ta x p a y e r and t o th e d is r e s p e c t o f th e p ro p erty t a x .
A ssessm ent i n e q u a l i t i e s "b etw een " t a x d i s t r i c t s . —
Some s t a t e s have f a i r l y good p ro ced u res f o r e q u a liz a t io n o f
t a x e s w h ile o th e r s have s e v e r a l l e v e l s o f governm ent h avin g
th e r ig h t t o p a rt, o f th e p r o p e r ty ta x in a g iv e n t a x d i s
t r i c t . In th e l a t t e r e a s e , c o m p e titiv e u n d e r v a lu a tio n
o f t e n o c c u r s , due to th e l o e a l a s s e s s o r " u n dervalu in g" th e
p ro p er ty in h is d i s t r i c t in o rd er to red u ce th e sh are o f
th e t a x w h ich g o e s t o th e o v e r ly in g c e n t r a l u n it — w hieh i s
u s u a lly th e co u n ty o r th e s t a t e . When t h i s o c c u r s th e
p ro p erty ow ners in t h e d i s t r i c t th a t h a s b een "undervalued"
pay l e s s th an t h e i r f a i r sh are o f th e c e n t r a l u n i t ’ s sh are
o f th e p r o p e r ty ta x w h ile th o s e in o th e r d i s t r i c t s are
fo r c e d to pay p r o p o r tio n a te ly m ore.
R e g r e ssiv e e f f e c t due to a d m in is tr a tio n . — The way
th e p ro p erty i s a s s e s s e d may le a d to th e t a x b e in g r e
g r e s s iv e . The sm a ll p r o p e r ty owner pays more than h is
p r o p o r tio n a te sh a r e , w h ile th e b ig p r o p e r ty owner p ays a
96
ta x much s m a lle r th an i t sh ou ld h e . U s u a lly p ro p erty o f
sm a ll v a lu e i s a s s e s s e d q u ite a c c u r a te ly b ecau se th e
a s s e s s o r i s f a m ilia r w ith th e p r o p e r ty v a lu e s in th e lo w er
b r a c k e ts . However, some a s s e s s o r s may ten d to ”u n d erv a lu e”
th e h ig h -p r ic e d p r o p e r ty . T h is may be due t o h i s la c k o f
know ledge o f th e h ig h v a lu e o f th e p r o p e r ty o r may depend
on how much in flu e n c e th e p r o p e r ty owner h as w ith th e
a s s e s s o r or th e community.
Tax m ig r a tio n stim u la te d by p r o p e r ty t a x . — When
th e c i t y p r o p e r ty t a x e s a re q u ite h ig h , ”ta x c o lo n iz a t io n ”
o f te n o e c u r s— th e ta x p a y er m ig r a te s to a suburban a rea
h a v in g lo w er ta x r a t e s . Here th e p u b lic e x p e n d itu r e s are
k ep t low in r e la t io n to th e t a x b a s e . U s u a lly , th e s e
p eo p le c o n tin u e to work in th e c i t y and e n jo y th e many
s e r v ic e s from c i t y governm ent w ith o u t c o n tr ib u tin g a n y th in g
f o r th e c o s t o f th e s e s e r v ic e s . T h is le a v e s th e urban d i s
t r i c t ta x p a y e r s t o b ear th e e n t ir e t a x b urden. In many
s t a t e s , th e p e o p le l i v i n g in th e c i t i e s a c t u a lly h e lp pay
f o r th e s e r v ic e s ren d ered by th e co u n ty governm ent in th e
u n in co rp o ra ted a r e a s .
P r o p er ty ta x e v a s io n . — On th e w h o le , th e r e i s no
s e r io u s e v a s io n o f " r e a l p r o p e r ty ” t a x e s , a lth o u g h some
tim e s p ie c e s o f p r o p e r ty are o m itted from th e a ssessm en t
r o l l s b y a c c id e n t. Under th e ’’g e n e r a l” p r o p e r ty t a x ,
- 9T
h ow ever, in many s t a t e s t a x e v a s io n c o n s t it u t e s a r e a l
problem in r e la t io n t o b oth " ta n g ib le " and " in ta n g ib le "
p e r s o n a l p r o p e r ty . Many tim e s , th e a sse ssm e n t o f in ta n
g i b l e s i s c o n sid er ed a s a "joke" and has done much to add
to th e d is r e p u te o f th e p r o p e r ty t a x .
I I . FISCAL POLICY LIMITATIONS OF PROPERTY TAXES
C e r ta in v e r y d e f i n i t e li m i t a t i o n s d r a s t i c a l l y reduce
th e use o f th e p r o p e r ty ta x as an in stru m en t o f f i s c a l
p o lic y . Among th e li m i t a t i o n s a r e : {1) th e c o n s t it u t io n a l
req u irem en ts r e l a t i v e to th e f e d e r a l governm ent; (2) la c k
o f a d a p t a b ilit y and e x p e r ie n c e o f s t a t e governm ents in
broad f i s c a l p o lic y ; and (3) th e p r o p e rty ta x i t s e l f i s n o t
w e ll adopted to u se a s a f i s c a l in str u m e n t.
The f e d e r a l governm ent m u st, i f i t l e v i e s a d ir e c t
t a x , a p p o r tio n i t among th e s t a t e s a cc o rd in g to th e p op u la-
T6
t i o n . In a c o n s t it u t io n a l s e n s e , r e a l e s t a t e t a x e s are
17
c o n sid e r e d a s d ir e c t t a x e s . In p r a c t ic a l term s t h i s has
made i t e x c e e d in g ly d i f f i c u l t , i f n o t im p o s s ib le , f o r th e
rea so n th a t such t a x e s are commonly a p p o rtio n ed o v e r th e tax
b ase on w hich th e y a re l e v i e d , w hereas th e c o n s t it u t io n a l
16 A r t. I , S e c . 2 , C l. 3 ; A rt. I , S e c . 9 , C l. 4 .
17 W illia m H. A nderson, T ax a tio n and th e American
Economy (New York: P r e n t ic e - H a ll, I n c . , 1 9 5 1 ), p . 3 4 .
98
req u irem en t i s t h a t th e y a r e to be a p p o rtio n ed among th e
s t a t e s a cc o r d in g to p o p u la tio n . A pportionm ent o f t a x e s
a c c o r d in g to a s s e s s e d v a lu e and a cc o rd in g to p o p u la tio n o f
th e s t a t e s , a t th e same tim e and by th e same governm ent, i s
in co n g ru o u s. T h e r e fo r e , w henever th e f e d e r a l governm ent
u sed such a t a x , i t u s u a lly r e q u is it io n e d money from th e
s t a t e s a cc o rd in g to p o p u la tio n and su b se q u e n tly re q u ir ed
th e s t a t e s to im pose a p r o p o r tio n a l r a t e on i t s t a x b ase
s u f f i c i e n t t o m eet th e r e q u i s i t i o n . T h is m ethod proved t o
be u n s u c c e s s fu l and c o n g r e ss has n o t le v i e d such a t a x
s in c e th e C i v il War. In s h o r t , th e re are o n ly lim it e d p o s
s i b i l i t i e s f o r u se o f th e g e n e r a l p r o p e r ty ta x in f i s c a l
p o l i c y . T h is i s tr u e s in c e th e ta x h a s become m o s tly a
le v y on r e a l e s t a t e , and th u s a d ir e c t t a x , and th e r e fo r e
u n s u ita b le f o r th e f e d e r a l governm ent.
In ou r " fe d e r a l scheme" o f governm ent th e s t a t e s are
n o t w e ll ad apted t o th e use o f o v e r - a l l f i s c a l p o l ic y .
They are in a su b o rd in a te p o s i t i o n , c o n s t i t u t i o n a l - w is e ,
w ith regard to i n t e r s t a t e p rob lem s. F urtherm ore, th e v e r y
n a tu re o f f i s c a l p o l i e y o f a c o u n t e r - c y c lic a l c h a r a c te r in
a h ig h ly s p e c ia liz e d and c l o s e l y in te g r a t e d economy r e
q u ir e s a c t io n by th e c e n t r a l governm ent in s t e a d o f l o c a l
iz e d o r p ie c e -m e a l e f f o r t . S ta te and l o c a l govern m en ts,
h e a v ily dependent on p r o p e r ty t a x e s , are p o o r ly s u it e d f o r
99
f i s c a l a c t io n on a broad f r o n t .
Lack o f u n ifo r m ity among th e s t a t e s in ta x in g prop
e r t y a ls o a c t s a s an o b s t a c le t o any e f f o r t to a p p ly th e
p r o p e r ty t a x in a c o u n t e r - c y c lic a l program . Some s t a t e s
c l a s s i f y p r o p e r ty f o r ta x p u r p o se s, o th e r s im pose c o n s t i
t u t io n a l l i m i t s on th e r a te a t w hich p r o p e r ty may be ta x e d ;
s t i l l o th e r s r e q u ir e p r o p e r ty t o be ta x e d a t a u niform r a te
b ased on i t s v a lu e . T h is v a r i e t y o f sta n d a rd s makes u se o f
th e t a x in a f i s c a l p o l i c y p r a c t i c a l l y , i f n o t a c t u a lly ,
im p o s s ib le .
Som ething m ight be s a id , in th e o r y , f o r th e use o f
t a x e s on la n d v a lu e a s a p a r t o f a c o u n t e r - c y c lic a l p o li c y .
B ecause la n d su p p ly i s f ix e d and n o t r e p r o d u c ib le , t a x e s on
i t make i t ch ea p . T h is i s th o u g h t to be tr u e b eca u se such
t a x e s are c a p it a liz e d and th e r e b y red u ce th e p r ic e o f la n d .
T h is w ould encourage use o f la n d in p ro d u c tio n b ecau se i t
would be ch ea p . When la n d , w ith i t s f ix e d su p p ly , i s ex
p e n siv e i t s u se i s d isc o u r a g e d . Thus a t a x on la n d eo u ld
be used t o p r ev e n t i t s p r ic e from r i s i n g i n d e f i n i t e l y — and
th e r e b y encourage i t s u se a s a f a c t o r o f p r o d u c tio n . The
p r ic e o f th e o th e r f a c t o r s o f p ro d u ctio n ean n ot r i s e beyond
t h e i r c o s t o f p r o d u c tio n . T h eir u se i s a f f e c t e d in v e r s e ly
w ith ch an ges in ta x e s on them; i . e . , a h ig h e r ta x r a i s e s
th e p r ic e o f c a p i t a l , f o r exam ple, s in c e th e t a x i s s h i f t e d .
100
The e f f e c t i s to d isc o u ra g e th e use o f c a p i t a l . So a t
l e a s t , a cc o rd in g to th e p ro p o n en ts o f a s p e c ia l ta x on
18
la n d . However, n o t a l l ec o n o m ists make much o f th e d i s
t i n c t i o n s betw een la n d and c a p i t a l .
From th e a d m in is tr a tiv e s id e th e p r o p e r ty ta x i s
i n f l e x i b l e and n o t w e ll s u it e d f o r th e ch an ges r e q u ir e d in
an a d a p ta b le f i s c a l p o lic y . P ro p er ty i s a s s e s s e d and c o l
le c t e d on an an nu al b a s i s . V arying th e a sse ssm en t and
r a t e s o f th e p r o p e r ty t a x in an e f f o r t to co u n te r th e
b u s in e s s c y c le may have l i t t l e d e s ir a b le e f f e c t s s in e e th e
p ro p erty t a x b e a r s o n ly weak r e la t io n to a b i l i t y - t o - p a y o r
t o th e b u s in e s s c y c le . A ls o , much income p rod u cin g prop
e r t y , e s p e c i a l l y in t a n g ib le p e r s o n a l p r o p e r ty , i s n o t ta x ed
in many s t a t e s .
I I I . SHIFTING A N D INCIDENCE OF PROPERTY TAXES
The p o s s i b i l i t i e s in th e s h i f t i n g o f p r o p e r ty t a x e s
a re g r e a t b ecau se o f th e com plex n a tu re o f th e g e n e r a l
p r o p e r ty t a x . For exam p le, th e y are co m p lic a te d by such
t h in g s a s r e n t c o n t r o ls , and th e d e d u c t i b i l i t y o f p r o p er ty
18 H arold M. G roves, F in a n cin g Government ( th ir d
e d it io n ; New York: Henry H o lt and Company, 1 9 5 1 ), p . 3 4 6 .
For a n o th er d is c u s s io n fa v o r a b le to t h i s p o in t o f v iew se e
H arry Gunnison Brown, ’’T a x a tio n A ccord in g t o A b i lit y to
P a y ,” The Am erican J o u rn a l o f Econom ics and S o c io lo g y
IV (J u ly , 1 9 4 5 ), 4 6 1 -7 7 .
101
ta x e s in com puting incom e s u b je c t t o t a x a t io n . D ed u ction
o f p r o p e r ty ta x e s f o r incom e t a x p u rp o ses c o m p lic a te s t h e ir
s h i f t i n g s in c e incom e t a x e s are p a id a t v a r io u s r a t e s w h ich
makes th e n e t c o s t o f p r o p e r ty ta x e s on a p a r t ic u la r p rop -
19
e r t y v a ry from owner t o ow ner. P roblem s in s h i f t i n g are
d if f e r e n t in c a se o f ta x e s on la n d , o r on im provem ents on
la n d , o r on v a r io u s form s o f p e r s o n a l p r o p e r ty . In a d d i
t i o n , th e im p e r fe c tio n s in a sse ssm en t and a d m in is tr a tio n
make f o r unknown q u a n t it ie s in s h i f t i n g .
Land Taxes
I t i s custom ary to ta x lan d on th e b a s is o f i t s
v a lu e ; how ever, la n d and t h e im provem ents on i t may be
a s s e s s e d t o g e t h e r . In econom ic th e o r y i t i s w e ll e s ta b
lis h e d th a t r e n t i s a r e tu r n in th e n a tu re o f a s u r p lu s .
T h is i s tr u e s in c e la n d r e n t i s a r e tu r n o v e r and above th e
c a p i t a l and la b o r c o s t s in em p loyin g la n d . R ents on la n d
are a s c a r c i t y incom e due to th e f ix e d su p p ly o f la n d and
t o s o c i a l f o r c e s , r a th e r than b e in g due t o e f f o r t o f th e
in d iv id u a l. Thus m a rg in a l la n d , o r th e m a rg in a l u s e s o f
la n d , y ie ld no incom e above th e c o s t s o f la b o r and c a p i t a l .
Such m a rg in a l la n d , t h e r e f o r e , h as no v a lu e s in c e i t y i e l d s
19 G. L o w ell H a r r is s , " P u b lic F in a n ce," A S urvey o f
Contem porary Econom ics (Bernard F. H a le y , e d it o r ; Homewood,
I l l i n o i s : R ichard D. I r w in , I n c . , 1 9 5 2 ), p . 262.
University of Southern OsHfornifl L!bf3f^
1 0 g
no r e tu r n , and a ta x l e v ie d on th e v a lu e o f lan d would n ot
to u ch such m a rg in a l la n d . I t i s th e m a rg in a l la n d , o r i t s
m a rg in a l u s e s , w hich m easure th e n e c e s s a r y c o s t s and th u s
e s t a b l i s h what th e r e n t w i l l be on la n d s where c o s t s p er
u n it are l e s s th an a t th e m a rg in s. Thus th e th e o r y i s th a t
p r ic e s a re r e n t d eterm in in g and n o t r e n t d eterm in ed . Now,
a ta x im posed on th e v a lu e (n e t incom e p ro d u cin g power) o f
la n d w i l l f a l l o n ly on su p er-m a rg in a l la n d s in c e i t a lo n e
has v a lu e , and c o u ld n o t be s h i f t e d b eca u se p r ic e s are
20
d eterm in ed by c o s t s m easured a t th e m argin . The i n d i
v id u a l ta x p a y er h as no way o f ad d in g th e t a x to th e p r ic e
o f h is p ro d u ct s in c e p r ic e s are d eterm in ed f o r him . The
v a lu e b ein g ta x e d a r i s e s from th e c o n tr ib u tio n o f lan d in
p r o d u c tio n , and r e g a r d le s s o f th e u se to w hich la n d i s p u t,
i f i t y i e l d s a r e n t , t h i s c o u ld be ta x ed and no s h i f t i n g
o c c u r . However, n o t a l l a u t h o r it ie s ag ree on w h eth er r e n t
i s p r ic e d eterm in ed o r p r ic e d eter m in in g . Viewed s o c i a l l y ,
p r ic e s appear t o be r e n t d eterm in in g ; how ever, f o r th e i n
d iv id u a l s e l l e r , p r ic e i s in p a rt r e n t d eterm in ed .
I f th e p r o p e r ty t a x i s le v ie d in such a way— fo r
in s t a n c e , a t a uniform r a te p er a c r e , o r upon th e g r o s s
20 E. A. M usgrave, e t a l . , " D is tr ib u tio n o f Tax Pay
m ents by Income Groups: A Case Study f o r 1 9 4 8 ," N a tio n a l
Tax J o u r n a l. IV (M arch, 1 9 5 1 ), 2 2 .
103
produce o f a l l la n d — a s n o t t o d is c r im in a te among v a r io u s
la n d s a s to t h e i r n e t incom e p ro d u cin g pow er, th e e f f e c t
w ould he to fo r c e th e m a rg in a l p ro d u cers o u t. T h is in tu rn
w ould red u ce su p p ly and ( c e te r u s p a r ib u s ) th e r e b y in c r e a s e
p r ic e s and a llo w th e t a x to be in c lu d e d in th e h ig h e r
p r i c e s . At l e a s t t h i s w ould be th e lo n g -r u n r e s u l t .
H ie p r o p erty t a x c o u ld be s h if t e d i f i t were le v ie d
on th e v a lu e o f la n d used f o r a c e r t a in p u rp o se , fo r
exam p le, c o m . T h is w ould te n d to r e s t r i c t th e u se o f th e
la n d fo r t h a t p r o d u c tio n , re d u cin g su p p ly and e f f e c t i n g a
h ig h e r p r ic e , th u s a llo w in g s h i f t i n g o f th e t a x . Thus,
t a x e s on th e v a lu e o f la n d te n d to be s h if t e d in th e lo n g
run i f l e v ie d on (1) th e v a lu e o f lan d from s p e c i f i c u s e s ,
(2) th e g r o s s p rod u ct o r a rea o f la n d , (3 ) o r on m a rg in a l
la n d .
C a p it a liz a t io n o f la n d t a x e s . — In c o n s id e r in g
s h i f t i n g o f t a x e s on la n d c a p i t a l i z a t i o n i s an im p ortan t
c o n c e p t. Tax c a p i t a l i z a t i o n m eans th e change in v a lu e o f
th e th in g ta x ed by an amount eq u a l to th e c a p it a liz e d v a lu e
o f th e ta x . The a c t o f c a p it a l iz a t i o n o c c u r s when la n d i s
s o ld . P r o s p e c tiv e b u y ers d isc o u n t e x p e c te d t a x e s w hich
w i l l lo w er th e incom e from th e la n d , and th e y o f f e r l e s s
f o r th e la n d . The e f f e c t i s th a t th e s e l l e r i s fo r c e d to
ab sorb fu tu r e t a x e s by a c c e p tin g a low er p r ic e . Tax
104
c a p i t a l i z a t i o n r o s u i t s in a redu ced p r ic e w hich th e buyer
w i l l o f f e r , w hereas s h i f t i n g i s commonly d is c u s s e d in term s
o f p r ic e in c r e a s e s w hich b u yers must p ay. In exam ple o f
c a p i t a l i z a t i o n w i l l show how i t o p e r a te s . Suppose a p ie c e
o f lan d h as an annual y ie ld o f $180, and th e r a te o f r e tu r n
on com parable in v e stm e n ts i s 3 p er c e n t . On t h i s b a s is th e
la n d w ould be w orth $ 6 ,0 0 0 — ($ 6 ,0 0 0 a t 3 p e r c e n t w ould
y i e l d $ 1 8 0 ). I f a ta x o f 1 p er c e n t on th e c a p i t a l v a lu e
o f th e la n d i s im posed th e r e tu r n i s red u ced to $120. The
v a lu e o f th e la n d i s red u ced by th e c a p it a liz e d v a lu e o f
$6 0 — th e amount b y w hich th e annual r e tu r n i s redu ced by
t a x e s ; i . e . , th e b uyer w ould o f f e r $ 4 ,0 0 0 f o r th e la n d .
C er ta in c o n d it io n s , g e n e r a liz a t io n s , and q u a l i f i c a
t io n s a re im p ortan t in c o n s id e r in g c a p i t a l i z a t i o n . C a p ita l
iz a t io n o c c u r s o n ly under c e r t a in c o n d it io n s , among them
b e in g : (1 ) th e t a x i s put on an in co m e-p ro d u cin g good; (2)
fu tu r e t a x e s m ust be f o r s e e a b le and a n tic ip a te d ; (3) th e
su p p ly o f th e good b ein g ta x e d i s p e r f e c t l y i n e l a s t i c ; (4)
21
th e t a x i s u nequ al among in v estm en t a lt e r n a t i v e s .
Im portan t g e n e r a liz a t io n s can be made about c a p i t a l
i z a t i o n . F i r s t , i t may ten d to lo w er th e r a t e o f r e tu r n on
o th e r in v e stm e n ts in th e lo n g -r u n . C a p ita l w i l l ten d to
flo w from ta x ed f i e l d s t o u ntaxed f i e l d s w h ich w i l l have
^ G ro v e s, o p . c i t ., p p . 1 2 7 -2 8 .
105
th e e f f e c t o f r e d u c in g th e r e tu r n in u ntaxed f i e l d s b ecau se
o f in c r e a s e d s u p p lie s o f c a p i t a l se e k in g in v e stm e n t. Fur
th erm o re, th e ta x may a f f e c t th e in t e r e s t r a te and th e r eb y
22
th e r a te u sed in c a p i t a l i z a t i o n . S econ d , c a p i t a l i z a t i o n
may c o n fe r a bonus on p r e s e n t ow n ers, a lth o u g h th e y more
commonly a re burdened by th e p r o c e s s . I f ta x e s are lo w ered ,
a s f o r exam ple by ta x l i m it a t i o n la w s , p r e s e n t ow ners r e
c e iv e a bonus s in c e th e y are a b le to g e t h ig h e r p r ic e s than
b e f o r e . T h ird , th e u se made o f th e ta x money h a s a b e a rin g
on th e burden o f c a p i t a l i z a t i o n . I f th e governm ent u se s
th e money in such a way a s to in c r e a s e th e incom e from th e
p ro p erty ( f o r exam p le, a governm ent i n s t a l l a t i o n n earby) th e
s e l l e r may n o t be fo r c e d t o ta k e a lo w er p r ic e . A ls o , th e
ta x money c o u ld be used in p r o v id in g n on-m onetary income
s u f f i c i e n t to in du ce th e buyer t o c a p i t a l i z e a t a lo w er
r a te th an o b ta in a b le on l e s s d e s ir a b le a l t e r n a t i v e s . For
ex a m p le, l i b r a r i e s , museums, s c h o o ls , c i v i c b e a u t i f i c a t i o n ,
e t c . make p r o p e r ty more d e s ir a b le .
C e r ta in q u a l i f i c a t i o n s are im p o rta n t w ith regard t o -
c a p i t a l i z a t i o n . F i r s t , th e p r o c e s s o f c a p i t a l i z a t i o n i s
o r d in a r ily a s s o c ia t e d w ith la n d s in c e i t s su p p ly i s con
s id e r e d f ix e d . Land su p p ly i s o n ly r e l a t i v e l y f ix e d .
^ C a rl Shoup, " C a p ita liz a tio n and S h if t in g o f th e
P r o p e r ty T a x ,” P r o p e r ty Taxes (New York: The Tax I n s t i t u t e ,
I n c . , 1 9 4 0 ), pp. 1 8 7 -2 0 1 .
106
R ural la n d i s somewhat s im ila r t o c a p it a l in th e se n se th a t
i t s su p p ly i s s u b je c t to d e p r e c ia tio n due to l o s s e s by
e r o s io n , f e r t i l i t y , e t c . Urban la n d s i t e s a re v e r y n e a r ly
f ix e d in su p p ly , a lth o u g h g r a d in g , d r a in a g e , e t c . add
s l i g h t l y to su p p ly . S econ d , c a p i t a l i z a t i o n may o p e ra te
s u b s t a n t i a lly th e same on b u ild in g s a s on lan d s in c e con
s id e r a b le tim e i s r e q u ir e d f o r th e su p p ly o f homes to be
b rou ght in e q u ilib r iu m w ith th e demand. In ste a d o f t a x e s
on b u ild in g s b e in g s h if t e d th e y may be c a p it a liz e d b eca u se
o f i n e l a s t i c i t y o f su p p ly .
S h if t in g o f ta x e s on b u il d i n g s . — T axes on b u ild
in g s , w hich are r e p r o d u c ib le , may ten d to be s h i f t e d ; how
e v e r , in p e r io d s o f r e n t c o n tr o l s h i f t i n g may be made more
d i f f i c u l t . The su p p ly o f b u ild in g s i s th u s somewhat
e l a s t i c and a ta x w i l l r a is e th e c o s t o f p r o d u c tio n . T h is
r e s u l t s in a s m a lle r q u a n tity b ein g produced w ith th e p r ic e
b e in g e s t a b lis h e d a t a h ig h e r l e v e l than b e fo r e th e t a x .
S h if t in g may a ls o be a cco m p lish ed in r e n t a l p r o p e r ty
by th e owner p o stp o n in g o r f a i l i n g to make r e p a ir s and up
k e e p . 23 The lo n g -r u n e f f e c t o f t h i s i s to reduce su p p ly
and a llo w h ig h e r p r ic e s t o c o v e r th e t a x . P r o p e r ty t a x e s ✓
l e v ie d on o w n er-o ccu p ied h o u ses w i l l n o t l i k e l y be s h if t e d
23 M usgrave, jet a l . , oj£. c i t . . pp. 2 2 -2 3 .
: _
107
s in c e no way ap p ears a v a ila b le , e x c e p t p erh ap s k e ep in g
a s s e s s e d v a lu a tio n lo w . As a m a tter o f f a c t , th e econom ic
su p p ly o f r e n t a l p r o p e r ty may be in c r e a s e d s l i g h t l y a s a
r e s u l t o f th e t a x , w h ich w ould fu r th e r redu ce s h i f t i n g
p o s s i b i l i t i e s . Owners may be in flu e n c e d by in c r e a s e d c o s t s
to r e n t rooms o r a p a rtm en ts, w h ich o r d in a r ily w ould n o t be
r e n te d . S im ila r e f f e c t s m ight r e s u l t in th e e a s e o f com
m e r c ia l b u ild in g sp ace a s o w n er-o ccu p a n ts econom ize in
t h e i r use o f b u ild in g s and make more sp ace a v a ila b le to
t e n a n t s .
S h if t in g t a x e s le v i e d on consum er g o o d s . — A ta x on
consum er g o o d s in th e hands o f consum ers co u ld n o t be
s h if t e d s in c e fu r th e r s a l e s o f th e goods w ould be ex cep
t i o n a l . About th e o n ly way such a t a x c o u ld be s h if t e d
w ould be by th e co n su m er-ta x p a y er o b ta in in g h ig h e r w ages to
co v er th e t a x . T h is m ight be u n lik e ly e x c e p t where str o n g
u n io n s e x i s t .
S h if t in g ta x e s on b u s in e s s in v e n t o r ie s . — Where
p r o p e r ty ta x e s are le v i e d r e g u la r ly on a l l s e l l e r s th e y
w i l l ten d to be s h i f t e d . Such t a x e s c o n s t it u t e a p a rt o f
th e s e l l e r s * c o s t s and p r ic e s w i l l be r a is e d t o co v e r
them . 2 4 At l e a s t two p o s s i b i l i t i e s f o r n o n - s h if t in g may
Idem .
108
e x i s t . F i r s t , m ig r a tio n by some s e l l e r s t o lo w er o r non
t a x a r e a s w ould ten d to redu ce th e chance o f s h i f t i n g th e
t a x . S econ d , where s e l l e r s f a c e an e l a s t i c (p r ic e s e n s i
t i v e ) demand s h i f t i n g p o s s i b i l i t i e s a r e l e s s .
S h if t in g t a x e s on in t a n g ib le p r o p e r ty . — Not a l l
s t a t e s t a x in t a n g ib le p e r s o n a l p r o p e r ty . Where i t i s ta x ed
th e u su a l r e s u l t i s c o n s id e r a b le e v a s io n o f th e t a x . In
f a c t , payment o f such t a x e s may be c o n s id e r e d v o lu n ta r y , so
good a re o p p o r tu n itie s t o a v o id them . Where in t a n g ib le s
are a c t u a lly ta x e d , s h i f t i n g w i l l o ccu r o n ly v ia a change
in th e p r ic e f o r th e in t a n g ib le , o r in a changed r a t e o f
r e tu r n on i t .
IV . CONCLUSIONS
C e r ta in c o n c lu s io n s and g e n e r a liz a t io n s can be made
about th e g e n e r a l p r o p e r ty ta x a s d is c u s s e d in th e c h a p te r s
on th e Econom ics o f P ro p e r ty T a x a tio n :
1 . The ta x h a s been th e m a in sta y o f s t a t e , and e s
p e c i a l l y l o c a l , governm ent d u rin g ou r e n t ir e h is t o r y . The
f e d e r a l governm ent h a s u sed th e t a x o n ly s l i g h t l y .
2 . Today th e p r o p e r ty ta x i s l a r g e l y on r e a l e s t a t e ,
w hereas in i t s e a r ly form i t was l e v ie d on c e r t a in ennumer-
a ted t y p e s o f p r o p e r ty . The s o - c a l l e d " g e n e ra l p r o p e r ty
ta x " h a s l o s t m ost o f i t s g e n e r a l c h a r a c te r s in c e through
109
ex e m p tio n s, and s p e c i f i c e x c lu s io n s i t s b ase i s m o s tly con
f in e d to r e a l t y .
3 . The r e l a t i v e f i s c a l im portance o f th e t a x h as
d e c lin e d . I t no lo n g e r o c c u p ie s f i r s t p la c e a s th e
c o u n tr y 's la r g e s t revenue s o u r c e , h a v in g been d is p la c e d by
th e f e d e r a l incom e t a x , a lth o u g h i t rem ains th e la r g e s t
s in g le so u rce o f l o c a l re v en u e .
4 . L o ca l rev en u e problem s c o n tin u e c l o s e l y co n n ected
w ith p r o p e r ty t a x a t io n — p a r t ly b eca u se o f , and p a r t ly in
s p it e o f — th e r e l a t i v e d e c lin e in th e f i s c a l im portan ce o f
th e t a x . L o c a l governm ents m ust e i t h e r f in d o th e r reven ue
so u r c e s o r im prove and in c r e a s e p r o p e r ty t a x e s when th e
f e d e r a l and s t a t e governm ents preem pt o th e r ta x s o u r c e s .
5 . The g e n e r a l p r o p e r ty ta x i s open t o c o n s id e r a b le
c r i t i c i s m in b o th th e o r y and p r a c t i c e . I t s com plex n a tu re
makes i t d i f f i c u l t to a d m in is te r e f f i c i e n t l y , o r t o know
c l e a r l y i t s f u l l e f f e c t s . G e n e r a liz a tio n about th e t a x i s
d i f f i c u l t b eca u se i t i s a d m in iste r e d by th ou san d s o f j u r i s
d i c t i o n s , and w hat i s im p ortan t in one c a se may be unim
p o r ta n t in a n o th e r . Some problem s in th e o r y th a t are n o t
25
s a t i s f a c t o r i l y so lv e d a s y e t may be n o te d . How v a lid a
b a s is do we have f o r ju d g in g i f th e t a x i s r e a so n a b ly f a ir ?
25 See H a r r i s s , o £ . c i t .. p p . 2 9 4 -9 5 .
110
S 7
How can th e t a x " b e e v a lu a te d when i t f a l l s on g r o s s v a lu e
in s te a d o f n e t w orth? Or when i t i s presum ably p a ssed on
by b u s in e s s t o consum ers? Or where i t f a l l s on pure la n d
r e n t and i s c a p it a liz e d ? F i n a lly , what e f f e c t d o es im
p e r f e c t a d m in is tr a tio n o f th e t a x d i s t o r t o r in v a lid a t e th e
th eo ry ?
6 . A ssessm en t o r v a lu a tio n c o n tin u e s t o be th e m ost
im p ortan t h u rd le to r e a so n a b ly e f f i c i e n t use o f th e t a x .
7 . Many r e a so n s su g g e st th e co n tin u e d u se o f th e t a x .
Among th e s e a r e : (a) c o n s id e r a b le e f f o r t i s b ein g made to
im prove and m odern ize th e t a x ; (b) i t i s f ir m ly e s t a b lis h e d
a t th e l o c a l l e v e l and th u s n o t l i k e l y to be abandoned fo r
o th e r so u r c e s l e s s r e l i a b l e ; (c ) a lt e r n a t iv e revenue
so u r c e s are n o t r e a d i ly a p p a ren t.

CHAPTER V
MODERNIZING LOCAL A1MINI STRATI O N OP
THE GENERAL PROPERTY TAX
The g e n e r a l p r o p e r ty ta x in th e U n ited S t a t e s i s
b a s i c a l l y an ad valorem t a x . The amount o f th e t a x depends
on th e v a lu e o f th e p r o p e r ty and th e r a te a p p lie d . V arying
am ounts o f p r o p e r ty may n o t be ta x e d b eca u se o f ex em p tio n ,
e v a s io n o r a v o id a n c e , and o m is s io n . Wide d if f e r e n c e s e x i s t
among th e s t a t e s and l o c a l a r e a s in t h e i r u se o f th e gen
e r a l p r o p e r ty t a x . In a d d itio n th e r e are d if f e r e n c e s ,
w ith in one s t a t e , o r c o u n ty , due to v a r ia t io n s in o p e r a tio n
o f th e t a x , p a r t ic u la r l y in a sse ssm en t o r v a lu a t io n . In
f a c t a sse ssm e n t i s u s u a lly c o n sid e r e d to be th e w eak est
lin k in th e p r o p e r ty t a x c h a in . I t i s a ls o th e m ost im
p o r ta n t s te p in a s u c c e s s f u l p r o p e r ty t a x .
A d m in istr a tio n o f th e g e n e r a l p r o p e r ty ta x c o v e r s
th e p r o c e s s by w h ich th e v a lu e o f th e p r o p e r ty s u b je c t to
ta x i s d eterm in ed , th e t a x r a t e i s a p p lie d to t h a t v a lu e ,
and th e t a x e s c o l l e c t e d . In i t s b road er o u t li n e i t com
p r is e s th e f o llo w in g p r in c ip a l s t e p s : ( 1 ) th e o r i g i n a l
a ssessm en t o r d e te r m in a tio n o f th e v a lu e o f th e p r o p e r ty to
be ta x e d ; (2 ) t a x r e v ie w . o r in d iv id u a l e q u a liz a t io n , w hich
p r o v id e s f o r p o s s ib le ad ju stm en t f o r th e in d iv id u a l
113
ta x p a y e r who c la im s h i s p r o p e r ty i s o v e r -a s s e s s e d ; ( 3 ) th e
le v y and c o l l e c t i o n , w h ich in c lu d e th e l e g i s l a t i v e agen cy
im p osin g th e t a x on th e com m unity, and th e a d m in is tr a tiv e
a g en cy w hich c a l c u la t e s and e x te n d s th e t a x a g a in s t a l l
l i a b l e p ie c e s o f p r o p e r ty , and th en c o l l e c t s b oth c u r r e n t
and d e lin q u e n t t a x e s ; (4 ) c e n t r a l e q u a liz a t io n , w hich s e e k s
to rem ove, o r r e d u c e , i n e q u a l i t i e s among th e v a r io u s d i s
t r i c t s w h ich a r is e from d if f e r e n c e s in th e a sse ssm e n t o f
p r o p e r ty by l o c a l a s s e s s o r s .
C h a r a c t e r is t ic a ll y , th e g e n e r a l p r o p e r ty ta x i s
l o c a l l y o r ie n t e d , a lth o u g h c o n s id e r a b le change c o n tin u e s to
be made in th e form o f amending c o n s t it u t io n s and l e g i s l a
t io n t o conform more c l o s e l y to th e r e a l i t y o f changed
econom ic c ir c u m s ta n c e s . Exam ples o f th e s e ch an ges are
c l a s s i f i c a t i o n , ex em p tio n , l i m i t a t i o n , s e p a r a tio n o f r e v e
nue s o u r c e s , and developm ent o f a d d it io n a l ta x so u r c e s f o r
l o c a l g o v ern m en ts. A nother a rea o f change i s on th e ad
m in is t r a t iv e s id e where some im p ortan t d evelop m en ts in c lu d e
g r e a te r s t a t e a id in t e c h n ic a l a s s i s t a n c e , a s s e s s m e n t, and
e q u a liz a t io n . The p r in c ip a l em p h asis o f c e n t r a l a id h as
been tow ard a sse ssm en t and e q u a liz a t io n s in c e th e s e are th e
m ost im p o r ta n t, y e t m ost p o o r ly co n d u c te d , p h a ses o f prop
e r t y ta x a d m in is tr a tio n .
A b r i e f su rv ey o f th e govern m en tal o r g a n iz a tio n and
114
a d m in is tr a tiv e p ro ced u res in v o lv e d in th e l o c a l a p p lic a t io n
o f th e t a x w i l l be p r e s e n te d b e fo r e d is c u s s in g d e t a i l s o f
s p e c i f i c s t e p s t o m odern ize th e p r o c e s s .
I . THE PRIMARY ASSESSMENT OP PROPERTY
G overnm ental U n its in P r o p e r ty Tax Adminl s t r a t io n
The p r o p e r ty ta x i s th e c h i e f so u rce o f t a x reven u e
f o r l o c a l govern m en ts. T h is i s tr u e in p a r t ic u la r s t a t e s
a s w e ll a s f o r th e n a tio n . W hile s t a t e governm ents r e ly
l e s s h e a v ily on t h i s so u rce o f reven ue th a n p r e v io u s ly , in
1948 a t l e a s t f o r t y s t a t e s d e r iv e d fu n d s from p r o p e r ty
t a x e s . 1 In M in n eso ta , f o r exam p le, th e p r o p e r ty ta x i s th e
S
m ost im p ortan t elem en t in th e ta x sy stem . P r o p e r ty t a x e s
a re th e so u rce o f a p p r o x im a tely 44 p er c e n t o f th e revenue
r e c e i p t s f o r s t a t e and l o c a l govern m en tal u n it s in Indiana.®
In I l l i n o i s 90 p er c e n t o f a l l t o t a l t a x r e v e n u e s are from
p r o p e r ty t a x e s , a lth o u g h th e s t a t e governm ent d o es n o t le v y
1 Tax S ystem s ( t w e lf t h e d it io n ; New York: Commerce
C le a r in g B ou se, i n c . , 1 9 5 0 ), p . 5 5 8 .
2 The Minnesota Tax System ( S t . P a u l: The M in n esota
I n s t i t u t e o f G overnm ental R esea rch , I n c . , May, 1 9 4 8 ),
p . 1 1 .
® B ea l E s ta te A ssessm en t G u id e. No. 1 (I n d ia n a p o lis :
S ta te Board o f Tax C om m ission ers, S ta te o f In d ia n a , May,
1 9 4 9 ), p . S .
1 1 5
A
th e t a x . O ther s t a t e s w h ich d e r iv e r e l a t i v e l y la r g e p er
c e n ta g e s o f t h e i r reven u e from p r o p e r ty t a x e s are A rizo n a ,
C o lo ra d o , M aine, N ebraska, Nevada and U tah .
F r e q u e n tly th e r e are a g r e a t many l o c a l u n it s o f
governm ent dependent on th e same p r o p e r ty fo r su p p o rt.
Large c i t i e s have numerous t a x in g e n t i t i e s o r d i s t r i c t s
w hich le v y t a x e s on th e g e n e r a l p r o p e r ty . In Los A n g e le s,
f o r exam p le, th e c i t y governm ent, th e c o u n ty , th e c i t y
s c h o o l sy stem , th e flo o d c o n t r o l d i s t r i c t , and th e M etro
p o lit a n W ater D i s t r i c t depend on th e p r o p e r ty ta x f o r r e v e
n u e s. O ther la r g e c i t i e s have ev en g r e a te r numbers o f
ta x in g d i s t r i c t s .
In 1950 th e Bureau o f th e C ensus r e c o r d e d 1 5 5 ,1 1 5
5
u n it s o f s t a t e and l o c a l govern m en ts. M ost o f th e s e are
in some way in v o lv e d in th e a d m in is tr a tio n o r use o f th e
g e n e r a l p r o p e r ty t a x . T y p ic a l o f th e l o c a l u n it s are th e
c i t y , c o u n ty , town and to w n sh ip , s a n it a t io n , f lo o d , i r r i
g a t io n , p a rk , w a te r , and m osq u ito abatem ent d i s t r i c t s .
B ecause o f th e e x c e e d in g ly la r g e number o f governm en tal
u n it s in v o lv e d d e t a i l s v a ry among them . D e ta ile d a c c o u n ts
4 H, K. A lle n , "The G en eral P ro p e r ty T ax," R eport o f
th e Revenue Laws Com m ission o f th e S ta te o f I l l i n o i s . 1 9 4 9 ,
p . 3 0 .
^ S t a t i s t i c a l A b str a c t o f th e U n ited S t a t e s . 1 9 5 0 ,
p . 3 4 9 .
' 116
o f a d m in is tr a tiv e te c h n iq u e s and p ro ced u res a re f r e q u e n tly
u n a v a ila b le , e x c e p t b y d ir e c t c o n ta c t w ith p a r t ic u la r l o c a l
a g e n c ie s . When a v a ila b le su ch in fo r m a tio n may be in a p p li
c a b le e x c e p t in th e p a r t ic u la r l o c a l i t y .
P r in c ip a l Types o f A ssessm en t D i s t r i c t s
S e v e r a l ty p e s o f a sse ssm en t d i s t r i c t s are found in
th e U n ited S t a t e s . They are commonly c l a s s i f i e d a s to th e
u n it o f governm ent w hich h as c o g n iz a n e e o f th e a sse ssm en t
o f p r o p e r ty . On t h i s b a s i s th e c o u n ty , o r to w n sh ip , o r a
co m b in a tio n o f th e s e w ith in a s t a t e are m ost im p o rta n t.
H owever, l e s s e r u n it s o f governm ent may som etim es be
r e s p o n s ib le f o r , o r p erh ap s be p e r m itte d t o , a s s e s s th e
p r o p e r ty . A nother m ethod o f c l a s s i f i c a t i o n re g a rd s th e
a sse ssm en t d i s t r i c t s from th e p o in t o f v ie w o f t h e ir
p r i o r i t y — t h a t i s , w h eth er p rim ary, o v e r la p p in g , o r r e v e
n u e -c la im in g .
P rim ary a sse ssm en t d i s t r i c t s . • — Of f i r s t im p ortan ce
i s th e prim ary a sse ssm en t d i s t r i c t w h erein th e o r i g i n a l o r
s o le a sse ssm e n t o f p r o p e r ty w ith in a d i s t r i c t , f r e q u e n tly
th e c o u n ty , i s c a r r ie d ou t by t h a t u n it o f governm ent f o r
a l l w ith in th e d i s t r i c t . The reven u e n eed s o f a l l u n it s o f
governm ent w ith in th e co u n ty a r e t o t a l l e d and a r a t e i s
l e v ie d t o y i e l d th e fu n d s w h ich are to be r a is e d from prop
e r t y t a x e s .
117
In th e w e ste r n and so u th ern a r e a s o f th e co u n tr y
th e co u n ty s e r v e s a s th e prim ary a sse ssm e n t d i s t r i c t .
A
T w e n ty -six s t a t e s have t h i s form o f o r g a n iz a tio n . In th e
Hew In g la n d a rea th e tow n sh ip i s th e p rim ary a sse ssm en t
d i s t r i c t . F if t e e n s t a t e s have t h i s ty p e o f arrangem ent,
w h ile sev en s t a t e s em ploy a co u n ty a sse ssm e n t d i s t r i c t in
7
one o r more c o u n tie s and a tow n sh ip p a tte r n e ls e w h e r e .
The prim ary a sse ssm en t d i s t r i c t i n d i c a t e s t h a t u n it
o f governm ent w hich c a r r ie s o u t th e a sse ssm e n t o f p r o p e r ty
f o r a l l u n it s o r d i s t r i c t s w ith in th e a r e a . The co u n ty i s
th e m ost common govern m en tal u n it to se r v e a s th e prim ary
a sse ssm en t d i s t r i c t , e x c e p t in New England where i t i s th e
to w n sh ip . A dvantages o f t h i s form a re seen in th e c o n tr o l
o v er c o m p e titiv e u n d e r v a lu a tio n by su b o rd in a te d i s t r i c t s
w ith in th e c o u n ty , to g e th e r w ith th e a ssu ra n ce t h a t each
d i s t r i c t w i l l be r e q u ir e d t o sh o u ld e r i t s sh are o f th e t a x
lo a d .
S p e c ia l p rob lem s a r is e w here th e r e are in d ep en d en t
prim ary a sse ssm en t d i s t r i c t s w ith in th e c o u n ty . Where
th e s e e x i s t th e ten d e n c y f o r ea ch to u n d ervalu e i t s prop
e r t y p r e v a i l s , th e r e b y s e e k in g t o esc a p e p a r t o f th e
6 A lle n , 0£ . c i t . , p . 4 5 .
^ Idem .
118
c e n t r a l (co u n ty ) t a x . In th e s t a t e s w h ich le v y a s t a t e
p r o p e r ty t a x , th e ten d e n c y f o r c o u n tie s t o com pete in
u n d e r v a lu a tio n i s p r a c tic e d s in c e th e s t a t e le v y i s im posed
on th e a s s e s s e d v a lu e o f p r o p e r ty w it h in ea ch co u n ty a s
d eterm in ed b y th e a s s e s s o r w ith in ea ch c o u n ty . I t i s ob
v io u s , t h e r e f o r e , th a t th e s m a lle r th e a s s e s s e d v a lu e w ith
in th e c o u n ty , th e s m a lle r th e t o t a l s t a t e , o r co u n ty ,
p r o p e r ty ta x p a id . D is t r ib u t io n o f s t a t e a id may a ls o be
an in c e n t iv e to u n d ervalu e p r o p e r ty w it h in th e d i s t r i c t
s in c e th e g r e a t e r a id w ould be p ro v id ed f o r d i s t r i c t s
h a v in g lo w a s s e s s e d v a lu e s . Some form o f c e n t r a l (co u n ty
o r s t a t e ) e q u a liz a t io n i s n e c e s s a r y to c o n tr o l t h e s e p ra c
t i c e s and th e a b u ses and i n e q u a l i t i e s w h ich r e s u l t from
them . C o n sid e ra b le e f f o r t h a s been made a lo n g t h i s l i n e .
I t i s d is c u s s e d a t a l a t e r p o in t in t h i s c h a p te r .
O verlap p in g a sse ssm e n t d i s t r i c t s . - - In c o u n t ie s ,
to w n sh ip s, to w n s, and c i t i e s a sse ssm e n t d i s t r i c t s may be
e s t a b lis h e d and g r a n ted a u th o r it y to a s s e s s p r o p e r ty w ith in
t h e i r b o u n d a ries in a d d itio n to th e prim ary a ss e s s m e n t.
T hus, th e y a re known a s o v e r la p p in g a sse ssm en t d i s t r i c t s .
These a d d it io n a l a sse ssm e n ts a r e fo r l o c a l ta x d is t r ib u t io n
o n ly . As a g e n e r a l r u le such o v e r la p p in g a sse ssm e n ts a re
c o n tr a r y t o sound p r a c t ic e s in a d m in is te r in g th e p r o p e r ty
119
t a x , and th e r e fo r e sh o u ld n o t he u s e d . 8
D i s t r i c t s w h ich c la im r e v e n u e . — There i s a la r g e
number o f s p e c ia l ty p e s o f d i s t r i c t s w hich c u s to m a r ily do
n o t perform th e a c tu a l a sse ssm e n t o f p r o p e r ty , y e t are
dependent on th e p r o p e r ty ta x f o r r e v e n u e . C h a r a c t e r is t ic
o f th e s e are s c h o o ls , p a r k s, and f lo o d c o n t r o l d i s t r i c t s .
Such d i s t r i c t s f u l f i l l th e a d m in is tr a tiv e r o l e o f c a l c u la
t i n g th e r a t e to be a p p lie d t o th e v a lu e o f th e p r o p e r ty
in t h e i r d i s t r i c t , in v ie w o f t h e i r reven u e n e e d s . These
d i s t r i c t s m ust a c c e p t th e a sse ssm e n t perform ed by e i t h e r
th e prim ary o r o v e r la p p in g a sse ssm en t d i s t r i c t . There are
e x c e p tio n s t o th e f o r e g o in g , s in c e o f th e more th an 1 0 0 ,0 0 0
sc h o o l d i s t r i c t s in th e c o u n tr y , a few hundred a c t u a lly
9
a s s e s s th e p r o p e r ty in t h e i r d i s t r i c t s .
I I . PROPERTY TAX ADMINISTRATIVE STEPS
G en eral S tatem en t
The g e n e r a l a d m in is tr a tiv e s t e p s in v o lv e d in prop
e r t y t a x are u s u a lly r e fe r r e d t o a s th e " P rop erty Tax
C a len d a r." The p r in c ip a l s t e p s , a c c o r d in g t o common u sa g e ,
8 N a tio n a l A s s o c ia tio n o f A s s e s s in g O f f i c e r s ,
A ssessm en t P r in c ip le s (C h icago: R. R. D o n n e lly and S o n s,
1 9 3 8 ), p . 1 6 .
9 W illia m H. A n d erson . T a x a tio n and th e American
Economy (New York: P r e n t ic e - H a ll, I n c . , 1951)', p . 1 3 6 .
120
a re a s f o llo w s : ( 1 ) th e o r i g i n a l o r prim ary a sse ssm en t o f
p r o p e r ty ; (2) p r o v is io n f o r a sse ssm e n t r e v ie w ; (3 ) c e n t r a l
e q u a liz a t io n ; (4 ) th e g e n e r a l le v y ; (5 ) d e te r m in a tio n and
e x te n s io n o f th e r a t e a g a in s t l i a b l e p r o p e r ty ; ( 6 ) c o l
l e c t i o n o f th e ta x ; and (7) p r o v is io n f o r f i n a l a p p e a l.
These s t e p s w i l l be b r i e f l y d e s c r ib e d b e fo r e d e t a ile d con
s id e r a t io n o f th e m ajor m o d if ic a t io n s w h ich have been made
to c e r t a in o f them .
The o r i g in a l o r prim ary a s s e s s m e n t. — L o g ic a lly ,
th e f i r s t s te p in a d m in is te r in g th e p r o p e r ty t a x i s th e
a sse ssm e n t o f p r o p e r ty s u b je c t to th e t a x . I t i s f o r th e
l e g i s l a t u r e t o d eterm in e what ty p e s o f p r o p e r ty are to be
ta x e d , and a t th e same t im e , what ty p e s are exem pted.
Those t y p e s o f p r o p e r ty to be ta x e d m ust th en be lo c a te d
and r e le v a n t f a c t s a s to d e s c r ip t io n , o w n ersh ip , e t c . ,
reco rd ed and m a in ta in e d . N ex t, th e p r o p e r ty m ust be v a lu e d .
T h is i s u s u a lly done by th e l o c a l a s s e s s o r ; h ow ever, c e r
t a in p r o p e r t ie s may be c e n t r a l l y a s s e s s e d .
f r e q u e n tly th e s t a t u t e s r e q u ir e th e p r o p e r ty t o be
a s s e s s e d on a g iv e n d a te , v a r y in g from s t a t e t o s t a t e . In
a c t u a l p r a c t ic e th e p r o p e r ty i s a s s e s s e d a s o f a ssessm en t
day r e g a r d le s s o f th e d a te on w hich i t d id o c c u r . A s s e s s
ment day i s im p o r ta n t, from th e ta x p a y e r 's v ie w p o in t, s in c e
ta x a b le p r o p e r ty a cq u ire d a f t e r th e d a te i s n o t in c lu d e d
121
u n t i l th e f o llo w in g y e a r . The m ost common d a te s f o r
a sse ssm en t o c c u r betw een January and O cto b er . 1 0
P r o v is io n fo r a sse ssm e n t r e v ie w . — When th e a s s e s s
ment p r o c e s s i s f in is h e d p r o p e r ty ow ners are e n t i t l e d to
know th e v a lu a tio n p la e e d on t h e i r p r o p e r ty . Owners m ust
have o p p o r tu n ity to be heard and c o n t e s t such v a lu a t io n s
b e fo r e th e a sse ssm e n t becom es f i n a l . Such a h e a r in g may be
b e fo r e q u a s i - j u d i c i a l b o d ie s o r a c o u r t.
In many s m a lle r a sse ssm e n t d i s t r i c t s th e re v iew
a g e n c ie s a re com posed o f ex o f f i c i o members su ch a s th e
m ayor, th e town c l e r k , th e c i t y a t to r n e y , and so f o r t h .
U s u a lly th e a sse ssm e n t d i s t r i c t p r o v id e s i t s own r e v ie w
a g e n cy . Where t h e co u n ty i s th e prim ary a sse ssm e n t d i s
t r i c t , a s in th e South and W est, th e County Board o f Super
v i s o r s s e r v e s a s a R eview Board.
C o n sid e ra b le v a r ia t io n e x i s t s among s t a t e s r e l a t i v e
to t h e pow ers o f re v iew a g e n c ie s . In some th e y may change
a s se ssm e n ts o n ly on sworn e v id e n c e ; in o th e r s t h e y may
a l t e r v a lu a t io n s on t h e i r own i n i t i a t i v e and th e r e b y ch eck
c a p r ic io u s a c t s o f th e a s s e s s o r . W henever th e r e v ie w
a g en cy ta k e s a c t io n a d v erse t o th e ta x p a y e r , ”due p r o c e s s ”
J en s P . J e n se n , P r o p e r ty T a x a tio n in th e U n ited
S t a t e s (C h icago: U n iv e r s ity o f C hicago P r e s s , 1 9 3 1 ),
pp. 3 3 2 -3 3 .
122
r e q u ir e s n o t ic e and an o p p o r tu n ity f o r a h e a r in g . U s u a lly
th e re v ie w body, on i t s own a u t h o r it y , can a l t e r v a lu a tio n s
b eca u se o f c l e r i c a l e r r o r s , im proper c l a s s i f i c a t i o n , o r
u n ju s t v a lu a t io n . The p r o p e r ty owner h as th e b u rd en , in
th e r e v ie w in g p r o c e s s , o f e s t a b lis h in g t h a t h i s p r o p e r ty
w as a s s e s s e d a t a h ig h e r r a t io o f a s s e s s e d to tr u e v a lu e
th a n th e g e n e r a l l e v e l o f a s s e s s m e n ts in th e a r e a .
The m ost im p ortan t rea so n f o r p r o v id in g f o r re v iew
o f th e l o c a l a sse ssm en t i s to p r e v e n t, o r a t l e a s t m in i
m iz e , i n j u s t d if f e r e n c e s in th e r a t io o f a s s e s s e d t o tr u e
v a lu e among s im ila r p r o p e r t ie s in th e d i s t r i c t .
C e n tr a l a sse ssm en t and e q u a liz a t io n . — I t i s to o
o f te n th e c a s e t h a t th e l o c a l a sse ssm e n t can n ot be u se d ,
u n q u e stio n e d , a s th e b a s is f o r d is t r ib u t in g th e t a x lo a d
im posed by th e c e n t r a l governm ent ( s t a t e o r co u n ty ) among
s m a lle r u n i t s . T h is i s tr u e b eca u se o f d if f e r e n c e s in th e
r a t io o f a s s e s s e d t o tr u e v a lu e among d i s t r i c t s , w ith th e
o b v io u s r e s u l t t h a t th e t a x lo a d w ould be u n f a ir ly d i s
t r ib u t e d . E q u a liz a tio n i s t h e term a p p lie d to th e p r o c e s s
o f e q u ita b ly a d ju s tin g th e t a x lo a d among d i s t r i c t s .
E q u a liz a tio n by a c e n t r a l agen cy ( s t a t e o r c o u n ty m ost
commonly) i s p r e fe r a b le to a d u p lic a te a sse ssm en t f o r
r e a so n s o f econom y. A ls o , e q u a liz a t io n a llo w s r e t e n t io n
o f th e d e s ir a b le p r a c t ic e o f l o c a l l y a s s e s s in g p r o p e r ty ,
' 123
y e t d o es n o t p r e c lu d e c e n t r a l a sse ssm e n t o f g iv e n p r o p e r tie s
such a s r a ilr o a d s and c e r t a in o th e r p u b lic u t i l i t i e s w h ich
can b e t t e r be a s s e s s e d by s t a t e a g e n c ie s .
C e n tr a l e q u a liz a t io n i s n e c e s s a r y t o d e fe a t co m p eti
t io n among d i s t r i c t s t o u n d ervalu e p r o p e r ty in s t a t e s w hich
e i t h e r le v y a p r o p e r ty t a x o r d is t r ib u t e a id on th e b a s is
o f a s s e s s e d v a lu a t io n s .
The g e n e r a l l e v y . — The g e n e r a l le v y i s th e l e g i s
l a t i v e enactm ent a u th o r iz in g th e im p o s itio n o f a ta x on th e
ty p e s o f p r o p e r ty s p e c if i e d in th e a c t . 1 1 The l e g i s l a t i v e
body may d eterm in e th e e x t e n t o f th e t a x by e i t h e r s p e c i
f y in g th e r a t e w hich may be a p p lie d t o th e a s s e s s e d v a lu
a t io n , o r by s e t t i n g a d e f i n i t e sum to be r a i s e d . The more
common p r a c t ic e i s f o r th e l e g i s l a t i v e body— s t a t e , c o u n ty ,
m u n ic ip a l— t o d eterm in e th e amount o f reven u e t o be r a is e d
and th u s c a l c u la t e th e r a t e n e c e s s a r y to produce th a t
amount when th e a s s e s s e d v a lu e h as been d eterm in ed . The
a p p lic a b le r a t e th e r e fo r e v a r i e s among d i s t r i c t s depending
on th e amount o f ta x a b le p r o p e r ty and th e reven u e n eed s o f
1 1 Of c o u r s e , th e power o f th e l e g i s l a t u r e to t a x
stem s from th e s t a t e * s c o n s t it u t io n w hich may c o n ta in r a te
l i m i t a t i o n s , c l a s s i f i c a t i o n , and u n ifo r m ity c la u s e s . Fur
t h e r , s t a t e c o n s t it u t io n s may a llo w th e s t a t e l e g i s l a t u r e
t o exem pt o r c l a s s i f y p r o p e r ty f o r ta x p u r p o se s, o r to
d e le g a te broad t a x in g power to su b o rd in a te l e g i s l a t i v e
b o d ie s .
124
th e govern m en tal u n it s in th e d i s t r i c t .
A pportionm ent o f ta x e s and s e t t in g r a t e s . — When
a s s e s s m e n t, r e v ie w , and e q u a liz a t io n have b een com p leted
t a x e s can be a p p o rtio n ed and r a t e s d eterm in ed . A p p ortion
ment i s done on th e b a s is o f c e n t r a l a sse ssm en t and e q u a l
i z a t i o n . Each d i s t r i c t s sh are o f th e c e n t r a l le v y ( s t a t e
o r cou n ty) i s th e r a t i o i f i t s a s s e s s e d v a lu e to th e t o t a l
a s s e s s e d v a lu e o f th e c e n t r a l u n it . For exam p le, i f d i s
t r i c t X c o n ta in s 1 /1 0 o f th e t o t a l a s s e s s e d v a lu e o f th e
c e n t r a l d i s t r i c t , X w ould be ta x e d f o r 10 p er c e n t o f th e
t o t a l c e n t r a l l e v y . Assuming t h a t f ig u r e t o be # 5 0 ,0 0 0 .0 0
and d i s t r i c t X t o have an a s s e s s e d v a lu a tio n o f
# 1 2 ,5 0 0 ,0 0 0 .0 0 , th e a p p lic a b le r a t e w ould be 0 .4 p er c e n t ,
o r 4 m i l l s , t o m eet th e c e n t r a l le v y on d i s t r i c t X.
Each t a x in g u n it ( s c h o o ls , c i t y , e t c . ) in d i s t r i c t X
m ust d eterm in e th e r a t e w h ich , when a p p lie d t o th e a s s e s s e d
p r o p e r ty , w i l l y i e l d th e reven u e t o m eet i t s n e e d s . For
exam p le, i f th e s c h o o l d i s t r i c t r e q u ir e s #2 , 0 0 0 , 0 0 0 .0 0 th e
r a te a p p lic a b le t o th e # 1 2 ,5 0 0 ,0 0 0 .0 0 b a se w ould be 1 .6 p er
c e n t , o r # 1 .6 0 on ea ch # 1 0 0 .0 0 0 o f a s s e s s e d v a lu e . When
ea ch u n it w ith in th e prim ary d i s t r i c t h as d eterm in ed i t s
b u d get and th e p r o p e r ty i s a s s e s s e d th e f i n a l r a te can be
d eterm in ed . The f i n a l ta x b i l l ex ten d ed to ea ch p ie c e o f
p r o p e r ty i s th e com bined r a t e o f a l l t a x in g j u r i s d i c t io n s
, 1 25
w ith in th e d i s t r i c t . T h is r a te may be a s h ig h a s 5 o r 6
p er c e n t . For in s t a n c e , th e 1 9 5 0 -1 9 5 1 t o t a l r a t e f o r San
F r a n c isc o (c o u n ty , c i t y , s c h o o ls ) was 6 .2 9 p er c e n t . 1® In
th a t c i t y a p a r c e l o f p r o p e r ty a s s e s s e d a t $ 5 ,0 0 0 would
have been b i l l e d f o r $ 3 1 4 .5 0 — $ 5 ,0 0 0 m u lt ip lie d by 6 .2 9 p er
c e n t .
C o lle c t in g th e t a x . — D e sp ite d e t a ile d and c a r e f u l
e x e c u tio n o f a l l p r e v io u s s t e p s in th e p r o p e r ty ta x c a le n
d a r , th e f i n a l — and p erh a p s, o n ly w o rth w h ile— m easure o f
th e s u c c e s s o f th e t a x i s th e reven u e i t p ro d u c es. As a
g e n e r a l r u le p r o p e r ty t a x e s are l i s t e d on a s in g l e b i l l and
a re c o l l e c t e d b y a one o f f i c i a l , o r d in a r ily th e co u n ty t a x
c o l l e c t o r o r t r e a s u r e r .
The tim e and manner o f payment a re v e r y im p o r ta n t.
In th e p a s t th e r u r a l in flu e n c e on th e l e g i s l a t u r e r e s u lt e d
in arrangem ents s u it a b le f o r th e farm ers* co n v en ien c e in
p a y in g p r o p e r ty t a x e s . Thus th e p r a c t ic e t h a t ta x e s were
due a s a lump sum in th e f a l l and w in t e r - - t im e s when th e
farm er had th e means t o p a y . T h is tim in g i s in c o n v e n ie n t
f o r o th e r ta x p a y e r s and i s i l l a d v ise d f o r e f f i c i e n t ad-
♦
m in is t r a t io n in t h a t th e work i s u n d u ly bunched, and ta x
b i l l s may f a l l due when l e a s t c o n v e n ie n t f o r b u s in e s s e s and
C a lif o r n ia T axpayers A s s o c ia t io n , The Tax D ig e s t .
XXVIII (D ecem ber, 1 9 5 0 ), 4 2 1 .
126
*
urban ta x p a y e r s.
Im p ortan t a d m in is tr a tiv e ch an ges have been made such
a s p r o v id in g branch o f f i c e s , and p e r m ittin g th e ta x to be
p a id in in s t a llm e n t s . V ery o f t e n i n s t i t u t i o n s le n d in g on
m ortgages in c lu d e o n e - t w e lf t h o f th e t a x w ith th e m on th ly
m ortgage paym ent; th e ta x p a y er th e r e b y a ccu m u la tin g enough
to pay th e t a x a t th e end o f th e y e a r .
P r o v is io n s f o r c o l l e c t i o n o f d e lin q u e n t t a x e s i s an
e s s e n t i a l c o n s id e r a tio n in a d m in is t r a t io n . A lthough p ra c
t i c e s em ployed in th e c o l l e c t i o n o f d e lin q u e n t t a x e s v a r y
among j u r i s d i c t i o n s , i n any e v e n t th e ta x p a y e r ma&es him
s e l f l i a b l e to have h i s p r o p e r ty f o r f e i t e d i f he f a i l s to
pay t a x e s im posed . T h is i s d is c u s s e d in more d e t a i l in a
l a t e r c h a p te r .
P r o v is io n fo r f i n a l a n n e a l. — The r i g h t s o f th e t a x -
\
p a y er v a ry from s t a t e to s t a t e . He may a p p ea l to h ig h e r
a g e n c ie s th an th e l o c a l r e v ie w board. Even a f t e r r e v ie w ,
e q u a liz a t io n , and e x te n s io n o f th e t a x , a p p ea l may be h a d ,
o f t e n to some a g en cy o f th e ta x d ep artm en t, but alw ays a
f i n a l a p p ea l t o a co u r t m ust be p o s s i b l e . The ta x p a y e r may
be h eard i f he can prove th e p roced u re w as i l l e g a l , o r t h a t
h is a s s e s s e d v a lu a tio n i s s u b s t a n t i a lly g r e a te r than th a t
o f e s s e n t i a l l y th e same ty p e p r o p e r ty in th e a r e a .
187
I I I . ORGANIZATION OF LOCAL ASSESSMENT AGENCIES:
PERSONNEL, TOOLS AND TECHNIQUES
G eneral S tatem en t
B ecause th e p r o p e r ty ta x a f f e c t s so many p e o p le and
in v o lv e s la r g e seme o f m oney, th e utm ost ca re m ust be e x e r
c is e d in i t s a d m in is tr a tio n . T h is i s n e c e s s a r y to p r o te c t
th e s o lv e n c y o f l o c a l governm ents a s w e ll a s to en su re
e q u ita b le d is t r ib u t io n o f th e t a x burden among p r o p e r ty
ow ners.
The a d m in is tr a tiv e a g e n c ie s w h ich c a r r y o u t th e
p r o p e r ty ta x v a ry from s t a t e t o s t a t e . As a g e n e r a l r u le
th e g e n e r a l p r o p e r ty t a x i s l o c a l l y a d m in iste r e d , a lth o u g h
th e r e are many v a r ia t io n s in th e k in d and e x te n t o f cen
t r a l i z e d a s s i s t a n c e , s u p e r v is io n , and c o n tr o l o v e r i t .
A ssessm ent O r g a n iz a tio n
The m ost common ty p e o f a sse ssm en t agen cy i s th e
l o c a l o f f i c e manned by an a s s e s s o r , e i t h e r f u l l o r p a r t-
1 * 5
tim e , and one o r a few c l e r k s . In la r g e r d i s t r i c t s where
th e r e i s s i g n i f i c a n t d i v e r s i f i c a t i o n o f p r o p e r ty , th e o r
g a n iz a tio n i s u s u a lly s p e c ia liz e d and in t e g r a t e d . The
13
N a tio n a l A s s o c ia tio n o f A s s e s s in g O f f i c e r s ,
A ssessm en t O r g a n iz a tio n and P e r so n n e l (C h icago: N a tio n a l
A s s o c ia tio n o f A s s e s s in g *6 f f i c e r s , 1 9 4 1 ), p . 1 8 3 .
188
o r g a n iz a tio n may be on a f u n c t io n a l b a s is w ith d ep a rtm en ta l
o r g a n iz a tio n , o r on a g e o g r a p h ic a l b a s is where fu n c tio n s
a re l e s s s p e c ia liz e d . T h is l a t t e r ty p e o f o r g a n iz a tio n i s
more a d a p ta b le to la r g e r a r e a s h a v in g h ig h ly d i v e r s i f i e d
p r o p e r ty . For exam ple, in Los A n g eles C ounty, C a lif o r n ia ,
th e County A s s e s s o r ’ s o f f i c e i s s e t up on a s p e c ia liz e d
b a s i s , w ith th e a s s e s s o r a c t in g m o s tly i n th e c a p a c ity o f ar
e x e c u tiv e o f f i c e r . D epartm ent h ea d s, and th o s e under them ,
a c t u a lly c a r r y o u t th e fu n c tio n o f a s s e s s in g p r o p e r ty .
F ig u re 3 i l l u s t r a t e s th e a d m in is tr a tiv e o r g a n iz a tio n o f th e
Los A n g eles County A s s e s s o r ’ s o f f i c e .
In I l l i n o i s , th e S ta te D epartm ent o f Revenue a s s e s s e s
c e r t a in p r o p e r t ie s , such a s " o p e r a tin g p ro p erty " o r r a i l
ro a d s and th e " o p e r a tin g p e r s o n a l p ro p erty " o f p r iv a te ea r
l i n e com panies n o t in c o r p o r a te d in th e s t a t e . 1 4 O ther
s p e e ia l ty p e s o f p r o p e r ty su ch a s c a p i t a l s to c k and fr a n
c h i s e s , n o t s p e c i f i c a l l y a s s e s s a b le by l o c a l a s s e s s o r s , are
a s s e s s e d by s t a t e a g e n c ie s . A ll o th e r p r o p e r ty in c o u n tie s
o f I l l i n o i s i s a s s e s s e d by l o c a l a g e n c ie s .
D if fe r e n c e s in d e t a i l o f o r g a n iz a tio n among
a s s e s s o r ' s o f f i c e s a re n o t to o im p o rta n t s in c e t h e o f f i c e s
are d e sig n e d to co v er th e n eed s and problem s o f p a r t ic u la r
14 A lle n , o p . c i t . , p . 3 1 .
Oil Marina Land
Veteran Public
Service
Assessor
Branch
Offices
Public
U tility
Building
Adminis
tratio n
Res. Pars
Property
Ass’t .
Assessor
Bus. Pars.
Property
FIG U R E 3
O R G A N IZ A T IO N O F L O S A N G E L E S C O U N T Y A SSESSO R ’S O FFICE
Source: Annual Report of the Los Angeles county Assessor to the Board of Supervisors, Fiscal
Year 1947-1948, p. 2.
M
< 0
130
a r e a s . C le a r ly , n o t a l l o f f i c e s w ould r e q u ir e th e sp e
c i a l i z e d o r g a n iz a tio n found in la r g e , h ig h ly d i v e r s i f i e d
d i s t r i c t s . I n any e v e n t , t h e a s s e s s o r * s b a s ic d u ty i s to
co m p ile th e a sse ssm e n t r o l l w h ich i s an o f f i c i a l l i s t show
in g th e a s s e s s e d v a lu a tio n o f ea ch p a r c e l o f p r o p e r ty ,
s u b je c t t o th e t a x , in th e d i s t r i c t , t o g e th e r w ith n e c e s
s a r y d e s c r ip t io n s o f p r o p e r t ie s and t h e names o f known
ow n ers. The same g e n e r a l d u t ie s d e v o lv e on th e a s s e s s o r in
15
Canada, a l s o .
P e r s o n n e l. — P e r so n n e l req u irem en ts v a ry from d i s
t r i c t to d i s t r i c t , d ep en din g on th e s i z e and n a tu re o f th e
p r o p e r ty t a x problem in a g iv e n d i s t r i c t . R e c e n tly th e
s t a t e s have sou gh t t o im prove th e o p e r a tio n o f th e t a x and
red u ce i n e q u a l i t i e s . T h e ir e f f o r t s have been a lo n g broader
l i n e s such a s c e n t r a liz e d e q u a liz a t io n , s u p e r v is io n and a id
in l o c a l a s s e s s m e n t, c e n t r a l a sse ssm e n t o f c e r t a in prop
e r t i e s , s e p a r a tio n o f reven u e s o u r c e s , c l a s s i f i c a t i o n ,
l i m i t a t i o n , and ex e m p tio n . D e s p ite th e s e e f f o r t s th e r e i s
much c r i t i c i s m o f th e g e n e r a l p r o p e r ty t a x and a ten d en cy
to p o in t a l l c r i t i c i s m o f p r o p e r ty t a x a d m in is tr a tio n
tow ard t h e l o c a l a s s e s s o r s . A lthough some j u s t i f i c a t i o n
f o r t h i s e x i s t s , a s s e s s o r s sh o u ld n o t be reg a rd ed a s
I . H. P e r r y , T a x a tio n in Canada (T oronto: U n iver
s i t y o f T oronto P r e s s , 1 9 5 1 ), p . 2 8 4 .
1311
" m iracle" men. E s p e c ia lly i s t h i s th e c a s e when th e y are
p la c e d in th e job w ith o u t mueh reg a rd f o r t h e i r q u a l i f i c a
t i o n s , t o g e t h e r w ith m eager co m p en sa tio n .
The minimum q u a l i f i c a t i o n s f o r th e p o s it io n i n d i
c a te d , a s recommended b y th e C a lif o r n ia S ta te Board o f
1 ft
E q u a liz a tio n a re a s f o llo w s :
P o s it io n Minimum Q u a lif ic a t io n s
1 . S e n io r A p p ra iser
E. S e n io r S tr u c tu r a l
C ost E stim a to r
5 . A p p ra iser
G raduation from c o l le g e w ith s p e c i a l
i z a t i o n in m a th em a tics, eco n o m ics,
a c c o u n tin g , b u s in e s s a d m in is tr a tio n ,
p h y s ie s , e n g in e e r in g , o r a r c h ite c tu r e
and two y e a r s o f e x p e r ie n c e in prop
e r t y a p p r a is in g (o r e q u iv a le n t e x
p e r ie n c e ) .
G raduation from c o l l e g e w ith s p e c i a l
i z a t i o n in m a th em a tics, eco n o m ies,
a c c o u n tin g , b u s in e s s a d m in is tr a tio n ,
p h y s ie s , e n g in e e r in g , o r a r c h ite c tu r e
and two y e a r s o f e x p e r ie n c e in s t r u c
t u r a l c o s t e s tim a tio n (o r e q u iv a le n t
e x p e r ie n c e ) .
G raduation from c o l le g e w ith s p e c i a l
i z a t i o n in m a th em a tics, eco n o m ics,
a c c o u n tin g , b u s in e s s a d m in is tr a tio n ,
T
h y s i c s , e n g in e e r in g , o r a r c h ite c tu r e
o r e q u iv a le n t e x p e r ie n c e ) .
16 prom a su rv ey con d u cted by th e G a lifo r n ia S ta te
Board o f E q u a liz a t io n , " P rop erty Tax A ssessm ent in
M endocino C ounty," 1 9 5 1 , Appendix B . ( A c tu a lly th e su rv ey
was on a s ta te -w id e b a s i s . M endocino C ounty i s a r e l a t i v e
l y sm a ll a g r ic u lt u r a l c o u n ty . A lthou gh i t may n o t be to o
r e p r e s e n t a t iv e o f C a lif o r n ia c o u n t ie s , i t d o es show th e
v e r y h ig h p e r so n n e l q u a l i f i c a t i o n s recommended by th e
B o a r d .)
P o s it io n Minimum. Q u a lif ic a t io n s
132
4 . S ea so n a l G radu ation from h ig h s c h o o l and two
A p p ra iser y e a r s o f r e s p o n s ib le e x p e r ie n c e in
fa rm in g , m e rc h a n d isin g , o r o th e r
a c t i v i t i e s r e q u ir in g o r i n s t i l l i n g
know ledge o f th e v a lu e o f h o u seh o ld
f u r n is h in g s , l i v e s t o c k , and farm
m a ch in ery .
5 . S e n io r Map G raduation from c o l le g e w ith c o u r s e s
D raftsm an in d r a f tin g and tw o y e a r s o f e x p e r i
en ce in map d r a f tin g (o r e q u iv a le n t
e x p e r ie n c e ) .
6 . Map D raftsm an G raduation from e o l l e g e w ith c o u r s e s
in d r a f t in g (o r e q u iv a le n t e x p e r i
en ce ) .
7 . S e n io r A ssessm ent G raduation from c o l l e g e w ith s p e c ia l-
C lerk i z a t i o n in b u s in e s s o r p u b lic a d m in is
t r a t io n o r from b u s in e s s sc h o o l and
th r e e y e a r s o f e x p e r ie n c e in a c o u n ty
o r c i t y a s s e s s o r ’ s o f f i c e (o r e q u i
v a le n t e x p e r ie n c e ) .
8 . A ssessm en t C lerk G raduation from c o l le g e w ith s p e c i a l
i z a t i o n in b u s in e s s o r p u b lic ad m in is
t r a t i o n o r from b u s in e s s s c h o o l (o r
e q u iv a le n t e x p e r ie n c e ).
A ssessm en t t o o l s and te c h n iq u e s . — Each a s s e s s o r ’ s
o f f i c e sh ou ld be eq u ipp ed w ith adequate t o o l s and s u p p lie s
a d ap ted to th e p a r t ic u la r re q u ir em en ts o f th e o f f i c e . To
th e f u l l e s t e x t e n t p o s s ib le te c h n iq u e s and p ro ced u res
em ployed by th e a s s e s s o r and h is a s s i s t a n t s sh o u ld be ob
j e c t i v e . n e v e r t h e le s s , te c h n iq u e s and p r o c e d u r e s, how ever
e x a c t and s ta n d a r d iz e d , do n o t c o m p le te ly overcam e o r
e lim in a te t h e in flu e n c e o f p e r s o n a l judgment on th e p a rt o f
133
17
th e a s s e s s o r . U p -to -d a te a s s e s s o r s * o f f i c e s are u s u a lly
eq u ip p ed w ith two p r in c ip a l k in d s o f m aps. L ot and b lo c k
m aps, d e sig n e d to show each b lo c k and l o t lo c a te d w ith in
th e a sse ssm en t d i s t r i c t , are u sed in a s s e s s in g la n d . Land
v a lu e u n it m aps, d e sig n ed t o show th e "key values** f o r ea ch
b lo c k . These maps a r e th e r e s u l t o f accum ulated e x p e r ie n c e
and d a ta r e l a t i v e to v a lu e s in g iv e n a r e a s . The k ey v a lu e
u n it i s commonly th e c e n te r l o t o f th e b lo c k o f a g iv e n
w id th and d ep th .
M o th e r t o o l o f th e a s s e s s o r i s th e c o n s tr u c tio n o f
what i s c a l l e d a d e p th -fa c to r t a b l e . T h is i s d e v is e d from
accum ulated e x p e r ie n c e r e g a r d in g s a l e s and v a lu a tio n s o f
l o t s in g iv e n a r e a s . A s s o c ia te d w ith th e d e p th -fa e to r
t a b le s a re c o r n e r -in flu e n c e t a b l e s . These are a ls o com p iled
o u t o f e x p e r ie n c e and in d ic a t e o f th e v a lu e o f co rn er l o t s
compared t o c e n te r l o t s . Such t o o l s and te c h n iq u e s , a l
thou gh h a r d ly i n f a l l i b l e , are v e r y u s e f u l and r e l i a b l e
s in c e th e y o r ig in a t e w ith " r e a l experience** in th e m ark et.
In th e more modern and e f f i c i e n t a s s e s s o r s * o f f i c e s
now adays, s p e c i a l l y d e sig n e d f i l e s and r e c o r d s are m ain
ta in e d w h ich show a v e r y co m p lete and c o n tin u o u s re co r d o f
ea ch p ie c e o f p r o p e r ty . Such r e c o r d s th u s a re an u p -to -d a te
17 P e r r y , opt. c i t ., p« 2 7 9 .
134
p ic t u r e o f p r o p e r ty , e s p e c i a l l y th e im provem ents. A e r ia l
photograp hy i s a r e c e n t developm ent w hich h as b een o f co n -
18
s id e r a b le h e lp to l o c a l a s s e s s o r s .
te c h n iq u e s o f a sse ssm e n t c o n s t it u t e th r e e s t e p s ,
d is c o v e r y , r e c o r d in g , and v a lu a t io n . Where s t a t e s do n o t
t a x p e r s o n a l p r o p e r ty d is c o v e r y i s n o t a s e r io u s problem
s in c e la n d and im provem ents can n ot be e a s i l y c o n c e a le d .
H ow ever, where p e r s o n a l p r o p e r t ie s , p a r t ic u la r l y in ta n
g i b l e s , are ta x ed many problem s in d is c o v e r y e x i s t . Record
in g o f a l l p e r t in e n t in fo r m a tio n in an a c c u r a te and u s e f u l
manner i s v e r y im p o rta n t i f a c c u r a te v a lu a tio n i s to be
m ade. Such in fo r m a tio n a s a g e , t y p e , l o c a t i o n , c o n d it io n ,
in com e, s a l e s p r i c e s , and known ow ners sh ou ld be r e c o r d e d .
The t h ir d s te p in th e p r o c e s s o f a s s e s s in g p r o p e r ty
i s th a t o f a r r iv in g a t a v a lu a tio n o f each p a r c e l. T h is i s
th e m ost im p ortan t s t e p , and a ls o th e m ost d i f f i c u l t . Much
e f f o r t h a s been c o n c e n tr a te d on im proving th e v a lu a tio n o f
p r o p e r ty f o r ta x p u r p o se s. I f l o c a l a s s e s s o r s w o u ld , o r
c o u ld , a s s e s s a l l p r o p e r ty s u b je c t t o th e p r o p e r ty t a x in a
u niform m anner, a s s t ip u la t e d in m ost s t a t e c o n s t i t u t i o n s ,
th e r e w ould be l i t t l e n eed f o r s t a t e in t e r v e n t io n in th e
W. W. W alsh, "R ecent D evelopm ents in P r o p e r ty Tax
A d m in is tr a tio n ,” P r o c e e d in g s . N a tio n a l Tax A s s o c ia tio n ,
1 9 4 6 , p . 1 5 4 .
135
a ssessm en t p r o c e s s o r th e g e n e r a l a d m in is tr a tio n o f th e
t a x . 19
IV . IMPROVING LOCAL ASSESSMENTS
G eneral S tatem en t
Many s t a t e s have g r e a t l y red u ced , o r c o m p le te ly
abandoned, t h e i r dependence on th e g e n e r a l p r o p e r ty t a x , o r
have se p a r a te d th e reven u e so u r c e s betw een s t a t e and l o c a l
govern m en ts. l u s t th e same, s t a t e governm ents c o n tin u e to
be r e s p o n s ib le , i n la r g e m ea su re, fo r e f f i c i e n t ad m in is
t r a t io n o f th e p r o p e r ty t a x . D e s p ite th e req u ir em en t,
found in m ost s t a t e c o n s t i t u t i o n s , t h a t p r o p e r ty be
a s s e s s e d u n ifo r m ly a t f u l l v a lu e , th e r e a re w ide v a r ia t io n s
among d i s t r i c t s in th e r a t io o f a s s e s s e d t o f u l l v a lu e in
a s se ssm e n ts o f p r o p e r ty . The g e n e r a l r u le i s f o r p r o p e r ty
t o be g r e a t ly u n d erv a lu ed . These two c o n d itio n s su g g e s t a t
l e a s t th r e e im p ortan t r e a so n s f o r some rem ed ia l a c t io n by
s t a t e a u th o r ity :
1 . To in s u r e more e q u ita b le d is t r ib u t io n o f s t a t e and
l o c a l p r o p e r ty t a x lo a d s among p r o p e r ty ow ners
th rou gh th e p rom otion o f u n iform v a lu a tio n sta n d a rd s
f o r b o th c e n t r a l l y and l o c a l l y a s s e s s e d p r o p e r ty .
19 J en s P . J e n se n . Government F in ance (New York:
Thomas Yi C ro w ell Company, 1 9 3 7 ), p . 2 5 9 . A ls o , M. S la d e
K en d rick , P u b lic iln a n c e P r in c ip le s and P roblem s (New York:
H o u g h to n -M ifflin Company, 1 9 5 1 ) , p . 2 2 4 .
_ 136
2 . To p r o te c t th e d is t r ib u t io n o f v a r io u s s t a t e a id s
and shared t a x e s from b e in g underm ined by th e l o c a l
p r a c t ic e o f c o m p e titiv e u n d era ssessm en t.
3 . To p r o t e c t th e f i s c a l i n t e g r i t y o f l o c a l governm ent
i t s e l f from b e in g underm ined by th e p r a c t ic e o f
f r a c t io n a l a ss e s s m e n t. The p e r v a s iv e p r a c t ic e o f
a s s e s s in g ta x a b le p r o p e r ty a t a f r a c t io n o f th e
v a lu e s t ip u la t e d by s t a t e law i n t e n s i f i e s w ith a
ven gean ce th e c o n s t i t u t i o n a l and s t a t u t o r y r e s t r i c
t i o n s on th e ta x and d eb t pow ers o f l o c a l govern
ment . 20
Faced w ith th e s e b a s ic a sse ssm e n t a n d .f i s c a l prob
le m s, s e v e r a l s t a t e s have und ertak en program s s in c e 1946
t o make th e p r o p e r ty ta x a more e q u ita b le and e f f e c t i v e
revenue so u rce f o r l o c a l g o v ern m en t.21 Some s t a t e s adopted
a p la n em p h a sizin g a s s i s t a n c e t o l o c a l a s s e s s o r s ; o th e r s
have u ndertaken p a r t i a l o r f u l l r e - a p p r a is a l; w h ile o th e r s
have c o n c e n tr a te d t h e i r e f f o r t s l a r g e l y in th e d ir e c t io n o f
str e n g th e n in g a sse ssm e n t and e q u a liz a t io n , d i r e c t l y .
T e c h n ic a l A s s is ta n c e
One o f th e im p ortan t w ays by w hich l o c a l a sse ssm en t
o f p r o p e r ty h a s been im proved h as been th ro u g h t e c h n ic a l
a s s is t a n c e by s t a t e a g e n c ie s . C a lif o r n ia , K entucky,
20 F . John Shannon, "R ecent S ta te w id e Programs to
Improve L o ca l A ssessm ents.** P r o c e e d in g s . N a tio n a l Tax
A s s o c ia t io n , November, 1 9 5 1 , p . 1 6 1 .
21 H. C lyde R eeves and Lea P ard u e, "Some R easons Why
P r o p e r ty i s P o o r ly A sse sse d f o r Taxation,** N a tio n a l Tax
J o u r n a l. I (D ecem ber, 1 9 4 8 ), 3 6 6 -6 8 .
137
M in n eso ta , O regon, and W isco n sin are s t a t e s w h ich have
fo llo w e d t h i s p la n . L o ca l a s s e s s o r s have been h e lp e d in
i n s t a l l i n g uniform a p p r a is a l sy ste m s and p r o c e d u r e s. S ta te
a g e n c ie s may p ro v id e l o c a l a s s e s s o r s w it h a sse ssm en t
m an u als, m aps, r e co r d ca rd sy ste m s, and s u g g e s tio n s fo r
t h e i r p rop er u s e . In a d d it io n , i n - s e r v i c e t r a in in g pro
grams have b een p ro v id ed to en su re p rop er u t i l i z a t i o n o f
th e s e a sse ssm e n t t o o l s .
M in n eso ta ’ s program . — The program and e x p e r ie n c e
o f M in n esota in a id in g l o c a l a s s e s s o r s i s r e p r e s e n t a t iv e
f o r th e s e s t a t e s . In t h a t s t a t e ,
The work o f a sse ssm en t in , to w n sh ip s and v i l l a g e s
m ust be perform ed in A p r il, May and June o f each y ea r;
r e a l e s t a t e i s a s s e s s e d e v e r y two y e a r s . In March
p r e lim in a r y co u n ty m e e tin g s are h e ld in e v e r y c o u n ty a t
w h ich tim e th e C om m issioner o f T a x a tio n and h i s s t a f f
h o ld a s s e s s o r s s c h o o ls w here th e y a d v is e them o f new
p rocedu re and ch a n g es in th e t a x la w . T hese m e e tin g s
are supplem ented by a th r e e day c o u r se sp on sored by th e
U n iv e r s ity o f M in n eso ta , th e Departm ent o f T a x a tio n and
th e League o f M in n esota M u n ic ip a lit ie s j o i n t l y . For
th e m ost p a r t i t i s a tte n d e d by c i t y and v i l l a g e
a s s e s s o r s .
The C om m issioner o f T a x a tio n p u b lis h e s b i e n n i a l l y a
m anual o f in s t r u c t io n fo r a s s e s s o r s and p r e s c r ib e s a l l
a sse ssm en t fo rm s. A s u p e r v is o r o f ad valorem t a x a tio n
on th e s t a f f o f th e D epartm ent o f T a x a tio n a s s i s t s in
p r o p e r ty v a lu a t io n s by p e r s o n a l a d v ic e , c a r d s , maps
and o th e r t e c h n ic a l h e lp . He and h i s s t a f f a re a v a i l
a b le f o r c o n s u lt a t io n b y m a il o r p e r s o n a l in te r v ie w ,
and w i l l a s s i s t a ls o in u p h o ld in g a s s e s s m e n ts made by
l o c a l a s s e s s o r s t h a t are c h a lle n g e d in l i t i g a t i o n .
Thus th e s t a t e Departm ent o f T a x a tio n en d ea v o rs to
im prove t h e q u a li t y o f work done by th e a s s e s s o r s .
These tow n sh ip o f f i c i a l s are n o t e x p e r ts , b u t f o r th e
138
m ost p a r t fa rm ers. Some are r e t i r e d b ut some are
a c t iv e and, t h e r e f o r e , m ust do th e a s s e s s in g in th e
sp r in g when th e y a re n eed ed to g e t c r o p s s t a r t e d .
O ften th e y do n o t se ek th e work b u t are p r e s se d to do
i t . R em uneration i s m o d est, and th e r e i s i n s u f f i c i e n t
c o n t in u it y o f te n u r e . Even in many c i t i e s and v i l l a g e s
th e a s s e s s o r i s n o t em ployed f u l l t im e .22
T e c h n ic a l a id i s an e f f o r t to l i f t l o c a l a s s e s s o r s
o u t o f t h e ir r o le o f " r o ll-c o p y in g " and t o p la c e them in
th e a p p r a is e r c l a s s . V ery o f t e n , e s p e c i a l l y in r u r a l o r
s e m i-r u r a l a r e a s , th e a s s e s s o r s are n o t e x p e r ts . In
a s se ssm e n ts in v o lv in g e s p e c i a l l y d i f f i c u l t p r o p e r ty s t a t e
v a lu a tio n e x p e r ts a s s i s t l o c a l a s s e s s o r s .
I n th e s e s t a t e s th e t e c h n ic a l a s s is t a n c e i s g iv e n on
a p e r s u a s iv e b a s is and n o t by u sin g a r b it r a r y s t a t e su p e r-
P3
v is o r y p ow ers. B efore s t a t e a s s i s t a n c e can be made f u l l y
e f f e c t i v e l o c a l a s s e s s o r s and o f f i c i a l s , to g e th e r w ith th e
p u b lic , m ust be co n v in ce d o f th e need f o r im proved a s s e s s
m en t. The developm ent o f s t a t e approved a p p r a is a l m anuals
and p ro ce d u res need n o t be e x p e c te d t o r a p id ly change w e ll
e s t a b lis h e d a sse ssm en t p r a c t ic e s . A ccord in g t o th e 1949
R eport o f C a lif o r n ia * s D iv is io n o f A ssessm en t S tan d ard s t o
th e S ta te Board o f E q u a liz a tio n th e p r in c ip a l re a so n f o r
22 M in n esota Tax S y stem , o p . c i t . , p . 2 6 .
H arold M. G roves and A. B r i s t o l Goodman, "A P a t
te r n o f S u c c e s s fu l P r o p e r ty Tax A d m in istr a tio n : The
W isc o n sin E x p e r ie n ce — I . S ta te S u p e r v is io n ," J o u rn a l o f
Land and P u b lic U t i l i t y E con om ics. XIX (May, 1 9 4 3 ), 1 4 1 -5 2 .
139
slo w p r o g r e ss in im provin g a sse ssm en t p r a c t ic e s i s t r a c e
a b le t o la c k o f p u b lic su p p o rt:
D evelopm ent in a sse ssm en t te c h n iq u e s and su p p ort o f
a s s e s s o r s f o f f i c e s by b u d g e tin g b o d ie s la g g e d f a r b e
h in d d evelopm ent in o th e r f i e l d s . T h is was l a r g e l y due
to a f a i l u r e o f a d m in is tr a tiv e o f f i c i a l s and th e p u b lic
t o r e c o g n iz e th e t e c h n i c a l , j u d i c i a l , and a d m in is
t r a t i v e n a tu re o f th e a s s e s s o r s * t a s k . No one l i k e s to
pay t a x e s o r have much to do w ith t a x e s . The g e n e r a l
f e e l i n g seemed t o be th e l e s s th e y gave him t o work
w ith th e b e t t e r . T h is a t t it u d e n e v e r has and n ev er
w i l l produce a s a t i s f a c t o r y and e q u a liz e d a sse ssm en t
r o l l . 2d
Kentucky* s program . — In K entucky, a s in many
s t a t e s , th e c o n s t it u t io n r e q u ir e s t h a t p r o p e r ty t a x e s be
im posed in a u niform manner and th a t a s s e s s m e n ts a re to be
th e e s tim a te d amount f o r w h ich p r o p e r ty w ould s e l l a t a
f a i r v o lu n ta r y s a l e . 25 A ls o , in K entucky, a s in o th e r
s t a t e s , th e c o n s t i t u t i o n a l p r o v is io n s are n o t c o n s c ie n t io u s
l y en fo r c e d w ith th e r e s u l t t h a t th e p r o p e r ty t a x c o n ta in s
many i n e q u i t i e s . As in C a lif o r n ia , th e prim e r e a so n f o r
f a i l u r e o f l o c a l a sse ssm e n t w as la c k o f p u b lic co n cern o v er
th e n a tu re and problem s o f th e a s s e s s o r * s jo b .
The c o r n e r sto n e o f K entucky*s program f o r im proved
24 1949 R eport t o th e S ta te Board o f E q u a liz a tio n by
i t s D iv is io n o f A ssessm ent S ta n d a r d s. 1 9 4 9 , p . 2 1 .
K entucky C o n s t it u t io n . s e c s . 171 and 1 7 2 .
26 F r a n c is John Shannon, "A ssessm ent Improvement
Program fo r Kentucky,** N a tio n a l Tax J o u r n a l. I l l (Septem ber,
1 9 5 0 ), 233.
140
l o c a l a d m in is tr a tio n was th e p r o v is io n f o r s t a t e a ssessm en t
a id t o l o c a l governm ent. In 1949 th e l e g i s l a t u r e p ro v id ed
$ 3 0 0 ,0 0 0 f o r l o c a l a id by th e Departm ent o f R evenue. These
fu n d s were u sed p r im a r ily to p r o v id e s u it a b le f a c i l i t i e s
27
and t e c h n ic a l a s s i s t a n c e .
To c a r r y o u t th e in t e n t o f th e l e g i s l a t i o n th e
K entucky Departm ent o f Revenue h a s ad opted and put in t o
e f f e c t th e f o llo w in g a d m in is tr a tiv e p o l i c i e s : (1 ) p la c e
r e s p o n s i b i l i t y on l o c a l a s s e s s o r s f o r s e c u r in g uniform
l o c a l p r o p e r ty a s s e s s m e n ts ; (3 ) employment o f a sm a ll cen
t r a l s t a f f o f s p e c i a l i s t s to p ro v id e t e c h n ic a l a s s is t a n c e
and g e n e r a l g u id a n ce to l o c a l a s s e s s o r s ; (3 ) p la n and c a r r y
ou t a sound program o f i n - s e r v i c e t r a in in g f o r th e te c h
n ic a l s t a f f , l o c a l a sse ssm en t r e p r e s e n t a t iv e s , and l o c a l
a s s e s s o r s ; (4 ) d e v e lo p p r o p e r ty a sse ssm e n t sta n d a rd s and
p r e s c r ib e r u l e s , m eth o d s, and p ro ce d u re s; (5 ) fo rm u la te and
se c u r e uniform u se o f form s and r e c o r d s , m an u als, and o th e r
a sse ssm en t t o o l s and te c h n iq u e s ; (6 ) i n i t i a t e a lim it e d
number o f r e a p p r a is a l program s con d u cted in c o o p e r a tio n
w ith c o u n t ie s ; (7) engage i n an a c t iv e p u b lic su pp ort p ro
gram f o r th e d ep a rtm en t’ s e f f o r t s t o se c u r e g r e a te r u n i-
fo r m ity in l o c a l a sse ssm en t o f p r o p e r ty . °
27 I b i d . . p . 2 3 6 .
88 I b i d . . p p . 2 3 6 -4 0 .
141
K en tu ck y’ s p la n o f a s s is t a n c e i s a lo n g -r a n g e one anc
i s b a sed p r im a r ily on l o c a l i n i t i a t i v e in se c u r in g g r e a t e r
t a x e q u a lit y . S ta te p a r t ic ip a t io n i s m o s tly lim it e d t o
h e lp in g l o c a l a u t h o r it ie s a t t h e i r r e q u e s t—n o t th ro u g h
e x e r c is e o f s u p e r io r s t a t e p o w ers. Time and teamwork are
r e q u ir e d to overcom e th e lo n g -s ta n d in g a b u ses r e s u l t i n g
from d e v ia t io n s from u n ifo r m ity and f u l l v a lu e in a s s e s s
m en ts; however* s t a t e a ssessm en t i s n o t c o n sid e r e d t o be
th e a n sw er. ^
In a d d itio n t o p r o v id in g t e c h n ic a l a s s is t a n c e and in -
s e r v ic e t r a in in g f o r th e l o c a l a s s e s s o r s , many s t a t e s have
en d eavored t o im prove th e q u a li t y and e f f e c t i v e n e s s o f
a sse ssm en t by r a i s in g th e q u a l i f i c a t i o n s f o r th e a s s e s s o r ,
30
and t o g iv e him g r e a te r te n u r e and pay w h ile in o f f i c e .
A ls o , c o n s o lid a t io n o f numerous sm a ll prim ary and o v e r
la p p in g a sse ssm e n t d i s t r i c t s in t o few er d i s t r i c t s h e lp s to
j u s t i f y e f f o r t s to a t t r a c t and em ploy e x p e r t ly - t r a in e d and
q u a li f ie d a s s e s s o r s .
29 I b id . , P- 241.
H arold M. G roves and A. B r i s t o l Goodman, "A P a t
te r n o f S u c c e s s fu l P r o p e r ty Tax A d m in istr a tio n : The
W isc o n sin E x p erien ce— I I I . L o ca l A ssessm en t and I t s Re
s u l t s , * * The J o u rn a l o f Land and P u b lic U t i l i t y E con om ics.
XIX (Novem ber, 1 9 4 3 ), 4 2 0 -2 4 .
142
H e a p p ra isa l o f P ro p er ty
The f i r s t r e q u is i t e f o r s u c c e s s f u l p r o p e r ty t a x a t io n
i s r e a l i s t i c a p p r a is a l. C e r ta in p e r s i s t e n t w ea k n e sse s
c h a r a c te r iz e our u se o f t h i s t a x . In th e f i r s t p la c e ,
f r a c t io n a l a sse ssm en t h a s c o n t in u a lly c u t in t o th e t a x b a se
o f l o c a l g overn m en ts. T h is i s tr u e in g e n e r a l f o r b o th
t a n g ib le and in t a n g ib le p r o p e r t ie s . The a verage s ta te -w id e
a sse ssm e n t r a t i o h a s dropped s t e a d i l y d u rin g th e l a s t te n
y e a r s . S e c o n d ly , much p r o p e r ty i s c o n s i s t e n t l y l e f t o f f
th e a sse ssm en t r o l l s , e i t h e r by a c c id e n t o r d e s ig n . For
exam p le, in C o n n e c tic u t, South C a r o lin a , and A rizo n a , r e a l
e s t a t e and b u ild in g s w ere found to have been o m itte d from
3P
th e t a x r o l l s . Exam ples a re le g io n o f w h o le s a le e v a s io n
o f in t a n g ib le s from t a x r o l l s . A ccord ing t o one a u th o r ,33
Ohio h a s a s u c c e s s f u l in t a n g ib le p e r s o n a l p r o p e r ty ta x
b ased on c l a s s i f i c a t i o n ; how ever, ta x in g in t a n g ib le s i s
o f t e n u n s u c c e s s fu l.
A t h ir d w eak n ess i s th e la c k o f e q u a lit y in a s s e s s
ment r a t i o s w ith in t a x in g d i s t r i c t s . V ery o f t e n s m a lle r ,
31 Shannon, "R ecent S ta te w id e Program s to Improve
L o ca l A sse ssm e n ts," o£ . c i t . . p . 1 6 6 .
3^ K en d rick , o p . c i t . , p . 1 9 4 .
33 George W . T h a tch er, " T axation o f I n ta n g ib le P er
s o n a l P r o p e r ty in O h io ,” n a t io n a l Tax J o u r n a l. IV (December,
1 9 5 1 ), 3 5 1 -6 0 .
143
l e s s v a lu a b le p r o p e r t ie s are a p p r a ise d a t a h ig h e r r a t i o o f
a s s e s s e d to tr u e v a lu e th an la r g e r o r more v a lu a b le prop
e r t i e s w hich in c o r p o r a te s an elem en t o f r e g r e s s io n in t o th e
34
t a x . T h is s o r t o f w eak n ess can o n ly be removed by b e t t e r
o r i g i n a l a p p r a is a l, by in t e r n a l e q u a liz a t io n , o r by en
f o r c in g a d is c r im in a te o v e r - a l l e q u a liz a t io n . C e n tr a l
e q u a liz a t io n by means o f b la n k e t in c r e a s e s o r d e c r e a s e s
w i l l n o t remove t h i s w ea k n ess.
In th e fo u r th p la c e , d if f e r e n c e s in th e r a t i o o f
a s s e s s e d to tr u e v a lu e o f p r o p e r ty in d i f f e r e n t d i s t r i c t s
i s a s e r io u s w ea k n ess. Where in t e r n a l o r l o c a l e q u a liz a
t io n f a i l s to a cco m p lish a u n iform a sse ssm e n t r a t i o , o v e r
a l l o r c e n t r a l e q u a liz a t io n becom es n e c e s s a r y to a v o id
in e q u i t i e s in th e d is t r ib u t io n o f b o th c e n t r a l l e v i e s and
f i n a n c i a l a s s i s t a n c e . I n te r n a l o r l o c a l e q u a liz a t io n w ould
e lim in a te th e n eed f o r c e n t r a l e q u a liz a t io n i f i t r e s u lt e d
in th e same r a t io o f a s s e s s e d to f u l l v a lu e among d i s
t r i c t s .
In an e f f o r t to remove th e f a u l t y a sse ssm e n t some
s t a t e s have c a r r ie d o u t a r e a p p r a is a l o f p r o p e r ty .
C a lif o r n ia , In d ia n a , O regon, and K entucky have d ev elo p ed
G roves and Goodman, "A P a tte r n o f S u c c e s s fu l
P r o p e r ty Tax A d m in istr a tio n : The W isco n sin E x p er ie n ce—
I I I . L o ca l A ssessm en t and I t s R e s u l t s ,” o £ . c i t . , p . 4 2 8 .
144
a r e a p p r a is a l program i n c o n ju n c tio n w ith fu r n is h in g t e c h
n i c a l a s s is t a n c e to l o c a l a s s e s s in g o f f i c i a l s . Each s t a t e
h a s a s s i s t e d in th e i n s t a l l a t i o n o f u n iform a p p r a is a l
s y s te m s , t o g e t h e r w ith ad eq uate u p -to -d a te equipm ent , a s
w e ll a s t r a in in g program s to f a c i l i t a t e t h e i r u s e .
Oregon h as i n s t i t u t e d a r e a p p r a is a l program t o r e
v a lu e a l l t a x a b le p r o p e r ty . The p urpose o f th e program i s
t o e q u a liz e th e in te r c o u n ty and in tr a c o u n ty a sse ssm en t o f
p r o p e r ty . The Oregon Tax C om m ission ad opted a p o li c y o f
en co u ra g in g c o u n tie s t o v o lu n t a r i ly r e v a lu e t h e i r p r o p e r ty .
The s t a t e and l o c a l governm en ts sh are th e e x p en se s e q u a l-
, 36
i y *
37
R e a p p r a isa l in N eb rask a. — N ebraska r e l i e s h e a v ily
on th e g e n e r a l p r o p e r ty t a x , f o r b o th s t a t e and l o c a l r e v e
n u e s, a s th e s t a t e d o es n o t le v y s a l e s o r incom e t a x e s .
T h is t a x in 1950 su p p lie d about #104 m illi o n ou t o f a t o t a l
fzo
o f about #140 m i l li o n in s t a t e and l o c a l r e v e n u e s .100
35 shannon, "R ecent S ta tew id e Program s t o Improve
L o c a l A sse ssm e n ts," 0 £ . c i t . . p . 1 6 2 .
36 I b i d . . p . 1 6 4 .
37 Edward B. Sch m id t, "The 1946 R e a p p r a isa l o f R eal
E s ta te in York, N eb rask a, A C ase Study o f S c i e n t i f i c
A ssessm en t f o r Tax P u r p o se s," B u sin e s s R esearch B u l l e t i n .
No. 51 (L in c o ln ; U n iv e r s ity o f N ebraska P u b lic a t io n , 1 9 4 8 ),
p . 2 .
3® Edward B. Sch m id t, " C a te g o r ic a l I n e q u a l i t i e s in
A ssessm en t in N ebraska, 1 9 3 0 -1 9 5 0 ," N a tio n a l Tax J o u r n a l.
V ( J u n e , 1 9 5 2 ), n o t e , p . 1 5 0 . ______________
145
I n e q u i t i e s and w ea k n esses in th e p r o p e r ty ta x a r e , th e r e
f o r e , e x tr e m e ly s i g n i f i c a n t . In N eb rask a, a s In many
s t a t e s , th e a sse ssm e n t o f p r o p e r ty f o r t a x p u rp o ses i s a
r a th e r c a s u a l p ro ced u re. A s s e s s o r s u s u a lly a r e p o o r ly
tr a in e d in a p p r a is in g r e a l e s t a t e and may have o n ly c a s u a l
e x p e r ie n c e in th e b u ild in g f i e l d . The r e s u l t i s v e r y o f t e n
th e mere co p y in g o f p r e v io u s a sse ssm e n t r o l l s .
In 1945 York C oun ty, N eb rask a, ad op ted a p la n o f
" s c i e n t i f i c a sse ssm e n t." P r e v io u s ly , Omaha and Grand
I s la n d , N ebraska had c a r r ie d o u t s c i e n t i f i c a sse ssm e n ts but
th e r e s u l t s w ere n o t o f f i c i a l l y a d o p ted . I n t e r e s t in th e
s c i e n t i f i c a sse ssm e n t d ev elo p e d f i r s t in m u n ic i p a li t i e s f o r
th e p r in o ip a l r e a so n th a t c i t y t a x r a t e s a re commonly
h ig h e r th an r u r a l r a t e s w hich f a c t te n d s to m a g n ify th e
e v i l s o f p oor a sse ssm e n t. I n a d d itio n s c i e n t i f i c p ro
ce d u res are g r e a t ly needed in urban d i s t r i c t s w h ich u s u a lly
c o n ta in a v a r i e t y o f com plex ty p e s o f p r o p e r ty . A lso ,
s c i e n t i f i c a sse ssm e n t le n d s i t s e l f more r e a d i ly t o u se in
v a lu in g man-made p r o p e r ty th an t o la n d , w h ich h a s no pro
d u c tio n o r r e p r o d u c tio n c o s t . In some urban d i s t r i c t s
a lm o st a l l p r o p e r ty may be man-made w ith la n d v a lu e s b e in g
a m inor p r o p o r tio n o f a s s e s s e d v a lu a t io n . I n a s c i e n t i f i c
a sse ssm en t sy stem th e e f f o r t i s to s u b s t it u t e o b j e c t iv e
r u le s and sta n d a rd s f o r th e p e r s o n a l judgment o f th e
1 4 6
a s s e s s o r . For exam p le, b u ild in g v a lu e s a re b ased la r g e ly
on s i z e , s t r u c t u r e , and c o s t s b eca u se s a l e s v a lu e s a lo n e
a re n o t e n t i r e l y s a t i s f a c t o r y g u id e s to v a lu e . S c i e n t i f i c
a sse ssm e n t d id n o t , a s em ployed in t h i s c a s e , e n t i r e l y
abandon e x p e r t o p in io n in d eterm in in g v a lu e s ; r a th e r i t
sou gh t to u t i l i z e i t . In f a c t , in th e c a s e o f r e a l e s t a t e
th e co n se n su s o f o p in io n o f th o s e f a m ilia r w ith such v a lu e s
39
was th e prim ary b a s is f o r v a lu a t io n .
P r o fe s s o r Schm idt*s stu d y o f th e s c i e n t i f i c a s s e s s
ment p r o j e c t in York, N ebraska c o n ta in e d t h e s e c o n c lu s io n s :
1 . S ig n i f ic a n t i n e q u a l i t i e s in r e a l e s t a t e a sse ssm en t
w ere p r e v a le n t in th e c i t y o f York p r io r to th e
s c i e n t i f i c a sse ssm en t in 1 9 4 6 . These i n e q u a l i t i e s
w ere c h a r a c t e r i s t ic o f b o th l o t s and im provem ents
and o f b o th b u s in e s s and r e s i d e n t i a l p r o p e r t ie s .
L o ts ten d ed to be r e l a t i v e l y o v e r a s s e s s e d and b u ild
in g s to be u n d e r a s s e s s e d .
S . B u ild in g a s s e s s m e n ts p r io r t o 1946 d id n o t c o r r e c t ly
r e f l e c t d if f e r e n c e s in a g e , c o s t , and q u a lit y o f
c o n s t r u c t io n . A te n d e n c y , uncommon e ls e w h e r e , was
d is c o v e r e d f o r th e a sse ssm e n t r a t i o to v a r y d i r e c t l y
r a th e r th an in v e r s e ly w ith t h e v a lu e o f th e prop
e r t y .
3 . A s s e s s o r s had f a i l e d to m a in ta in a c o n s ta n t b a s is o f
v a lu a tio n f o r new s t r u c t u r e s in th e f a c t o f f l u c t u
a t in g c o n s tr u c tio n c o s t s , and t h i s c o n tr ib u te d to
th e in e q u a l it y o f a s s e s s m e n t.
4 . A s s e s s o r s had o f t e n f a i l e d to r e c o g n iz e lo c a t io n a l
o b s o le s c e n c e .
3 9 I b i d . .■ P« *E.
147
5 . S c i e n t i f i c a sse ssm e n t produced an in c r e a s e in th e
e i t y f s ta x b ase b ut d id n o t r e s u l t in in c r e a s e d
governm ent e x p e n d itu r e .
6 . S c i e n t i f i c a sse ssm en t ca u sed York c i t y r e a l e s t a t e
ow ners t o assume a la r g e r p r o p o r tio n o f th e s t a t e
and co u n ty p r o p erty ta x burden than b e f o r e , b u t th e
in c r e a s e in ta x was n e it h e r la r g e n o r n e c e s s a r i ly
u n ju s t.
7 . The q u a li t y o f a s s e s s m e n ts under th e s c i e n t i f i c
m ethod o f a sse ssm e n t i s n o t dependent upon i t s b ein g
a cco m p lish ed a t any g iv e n phase o f th e p r ic e c y c l e .
8 . S c i e n t i f i c a sse ssm en t i s r e l a t i v e l y in e x p e n s iv e and
p r e fe r a b ly sh ou ld be done b y o u ts id e r a th e r than
l o c a l p e r s o n s . These p e r s o n s sh o u ld be s p e c i a l i s t s
in r e a l e s t a t e a p p r a is a l.40
In a stu d y o f th e a sse ssm e n t r a t i o tr e n d s from 1930
to 1950 f o r th e f i v e p r in c ip a l c a t e g o r ie s o f p r o p e r ty in
N eb rask a, (1) farm r e a l t y , (2 ) c i t y r e a l t y , (3 ) l i v e s t o c k ,
(4) a u to m o b ile s , and (5 ) g r a in s , P r o fe s s o r Schm idt made th e
fo llo w in g summary o f a sse ssm e n t r a t io s :
1 . Farm r e a l e s t a t e i s c u r r e n tly a s s e s s e d a t l e s s th a n
40 p er c e n t o f m arket v a lu e ,
2 . C it y r e a l e s t a t e i s a s s e s s e d a t l i t t l e more th a n 25
p er c e n t ,
3 . C rain s a r e a s s e s s e d a t about 75 p er c e n t ,
4 . C a tt le and h ogs are a s s e s s e d a t a p p r o x im a tely 50 p er
c e n t ,
5 . A u tom ob iles a re a s s e s s e d a t d if f e r e n t p e r c e n ta g e s
d ep en d in g upon t h e i r make and a g e .41
40 I b i d . , p . v i .
41 Sch m id t, " C a te g o r ic a l I n e q u a l it i e s in A ssessm ent
in N eb rask a, 1 9 3 0 -1 9 5 0 ," oj>. o i t . . p p . 1 4 3 -4 4 .
148
42
A ccord in g to P r o f e s s o r S ch m id t, b o th s t a t e and
l o c a l ta x a d m in is tr a tiv e o f f i c i a l s a r e becom ing in c r e a s in g
l y aware o f th e n eed f o r im proved a sse ssm e n t; h ow ever, th e y
have n o t e lim in a te d i n e q u a l i t i e s in th e a sse ssm e n t l e v e l
betw een c l a s s e s o f p r o p e r ty . C a te g o r ic a l i n e q u a l i t i e s in
a ssessm en t r e s u l t in an in e q u ita b le d is t r ib u t io n o f th e
c o s t s o f governm ent b eca u se t h e p a tte r n o f p r o p e r ty owner
s h ip , in d iv id u a l and r e g io n a l i s n o t u n ifo rm . The g e n e r a l
downward tr e n d in th e l e v e l o f a s s e s s m e n ts h as ca u sed a
s e r io u s in c r e a s e in th e t a x r a t e s . F in a l l y , he c o n c lu d e s ,
t h i s stu d y co n firm s th e c o n c lu s io n , backed by many i n v e s t i
g a t io n s , t h a t c e n t r a liz e d e q u a liz a t io n d o es n o t e lim in a te
th e r e s u l t s o f p oor o r i g in a l a sse ssm e n t.
R e a p p r a isa l in C o lo ra d o . - - The T h ir t y - s ix t h G en eral
A ssem bly o f C olorado p a sse d l e g i s l a t i o n a u th o r iz in g a r e
a p p r a is a l o f p r o p e r ty s u b je c t to ad valorem p r o p e r ty ta x e s
in 1 9 4 7 .^ The C olorad o Tax Com m i s s i o n e s t a b lis h e d a
R e a p p r a isa l D iv is io n to su p e r v is e th e o p e r a tio n . The Com
m is s io n has a c t i v e l y d ir e c t e d th e r e a p p r a is a l and h a s p re
s c r ib e d th e uniform a p p r a is a l fo rm s, p ro ced u res and p rop erty
c l a s s i f i c a t i o n s to be used in a l l a sse ssm e n t j u r i s d i c t i o n s
42 Idem .
45 L. D. D a ily , " R e a p p ra isa ls in C o lo r a d o , n S ta te
Governrctent. XXIII (O cto b er, 1 9 5 0 ), S 2 6 -S 9 .
149
th rou gh ou t th e s t a t e . The trem endous econom ic t a s k o f
d e v is in g u n iform v a lu a tio n p ro ced u res f o r th e e n t ir e s t a t e
was g r e a t l y c o m p lic a te d by th e p o l i t i c a l d e v o tio n t o l o c a l
autonomy and th e l i v e l y fe a r t h a t r e a p p r a is a l w ould serv e
a s a s u b te r fu g e f o r in c r e a s e d l o c a l p r o p e r ty t a x lo a d s .
The h o s t i l i t y on th e p a rt o f many a s s e s s o r s t o s t a t e i n t e r
v e n tio n in th e l o c a l a sse ssm en t p r o c e s s h a s been undoubted
l y one o f th e m ost im p o rta n t c o n tr ib u tin g f a c t o r s r e s p o n s i
b le f o r th e n e c e s s a r y r e v is io n s o f th e r e a p p r a is a l tim e
t a b l e . The C olorad o r e a p p r a is a l h a s ta k en on many o f th e
a s p e c ts o f a lim it e d but s u s ta in e d o p e r a tio n .
The G olorado approach to th e a sse ssm e n t problem , o f
n e c e s s i t y , p la c e d h ea v y r e lia n c e on th e s u p e r v is in g pow ers
o f th e Tax Com m ission t o e f f e c t r e a p p r a is a l. A s t a t e -
i n i t i a t e d and s t a t e - d ir e c t e d r e a p p r a is a l program , by i t s
v e r y n a tu r e , a g g r a v a te s th e p e r e n n ia l problem o f a sse ssm en t
m a in ten a n ce. T h is f a c t was c l e a r l y r e c o g n iz e d by th e
form er D ir e c to r o f th e G olorado r e a p p r a is a l p r o j e c t , L. D.
D a ily . " I t i s f a r e a s i e r to argue t h a t th e r e v a lu a tio n
w i l l e q u a liz e a s s e s s m e n ts th a n to e n v is io n what sh o u ld be
a cco m p lish ed in t h e w ay o f a sse ssm e n t and e q u a liz a t io n m ain-
44
t e n a n c e ."
In an a ttem p t to p r o t e e t and " p o lic e " th e r e v a lu a tio n
44 id em .
150
th e C olorado L e g is la t u r e s t ip u la t e d t h a t i f a co u n ty
a sse ssm en t r a t i o v a r ie d hy more th an 5 p er c e n t from th e
s t a t e a verage r a t i o , th e S ta te Board o f E q u a liz a tio n must
o r d er a h o r iz o n t a l ad ju stm en t in th e a g g r e g a te a sse ssm en t
'f o r th e c o u n ty . In th e e v e n t any co u n ty r e fu s e d t o r a i s e
i t s a s s e s s m e n ts t o th e p r e s c r ib e d l e v e l th e S ta te T rea su rer
had to w ith h o ld a l l s t a t e a id to th e c o u n ty . T h is p ro
v i s i o n d e sig n e d to put " te e th ” in t o th e r e a p p r a is a l law was
p rom ptly r e p e a le d by th e n e x t l e g i s l a t u r e .
As l a t e a s O cto b er, 1951 a t l e a s t o n e - s ix t h o f th e
c o u n tie s o f th e s t a t e had f a i l e d t o e f f e c t r e a p p r a is a ls and
e x t e n s io n s o f v a lu a t io n s on t h e i r a p p r a is a l ca rd s a f t e r
co m p letio n o f f i e l d w ork. O ther c o u n t ie s , h a v in g com p leted
r e a p p r a is a ls p la n to a p p ly th e r e s u l t s to th e a sse ssm en t
r o l l s in 1 9 5 2 .45
In O c to b er, 1951 th e C olorad o Tax Com m ission adopted
a r e s o lu t io n d ir e c t in g a l l co u n ty a s s e s s o r s t o a s s e s s a l l
ta x a b le p r o p e r ty f o r th e y ea r 1952 a t i t s f u l l ca sh v a lu e
a s r e q u ir e d by s t a t u t e . The r e s o lu t i o n d ir e c t e d a s s e s s o r s
a s f o l l o w s : #
A ll ta x a b le p r o p e r ty s h a l l be l i s t e d and v a lu e d ,
each y e a r , and s h a l l be a s s e s s e d a t i t s f u l l ca sh
v a lu e ; la n d to be l i s t e d and v a lu e d se p a r a te and a p a rt
C olorado Tax C om m ission, F o r t ie t h Annual R ep o rt,
1 9 5 1 , p . 5 .
151
from th e p e r s o n a l p r o p e r ty and im provem ents th e r e o n .^ 6
In a d d it io n , th e Tax Com m ission recommended t o th e
l e g i s l a t u r e a d o p tio n o f l i m i t a t i o n s so t h a t ta x in c r e a s e s
4J7
w ould n o t exeeed 5 p er c e n t more than th e p r e v io u s y e a r .
S ea sse ssm en t in In d ia n a . — The G en eral A ssem bly o f
In d ia n a in 1949 p a ssed l e g i s l a t i o n p r o v id in g f o r th e r e
a sse ssm e n t o f a l l r e a l e s t a t e and im provem ents f o r p u rp o ses
48
o f t a x a t io n . The r e a s s e s s m e n t, to be made e f f e c t i v e
March 1 , 1 9 5 0 , was t o be c a r r ie d o u t by th e d u ly c o n s t i
tu te d t a x in g a u t h o r i t i e s under th e g e n e r a l s u p e r v is io n o f
th e S ta te Board o f Tax C om m ission ers. The S ta te Board was
d ir e c t e d to p r e s c r ib e r u l e s , r e g u la t io n s , form s, and sta n d
a r d s , t o g e t h e r w ith c o u r s e s o f in s t r u c t io n deemed t o be
n e c e s s a r y and p ro p er. The board p rep ared an a p p r a is a l
49
g u id e f o r a s s e s s in g o f f i c i a l s and t h e i r a d v is o r s .
A lthou gh th e e n a b lin g l e g i s l a t i o n g iv e s th e t a x Com
m is s io n e r s g e n e r a l pow ers t o p r e s c r ib e sta n d a r d s, r u le s and
p ro ced u re s t o be fo llo w e d by l o c a l a s s e s s in g o f f i c i a l s ,
46 I b id . , p . 6 .
47 Idem .
48 C hapter 225 o f A cts o f th e 8 6 th In d ia n a G eneral
A ssem b ly. 1 9 4 9 .
49 R ea l E s ta te A ssessm en t G uide. Mo. 1 , o p . c i t . .
p . 1 4 5 .
152
th e y ad op ted a c o o p e r a tiv e and n o n -c o e r c iv e ap proach , as
ev id e n c e d by th e f o llo w in g sta te m e n t o f p u rp ose in a d o p tio n
o f th e R eal E s ta te A ssessm en t G u id e:
The b a s ic p h ilo s o p h y o f th e S ta te Board o f Tax Com
m is s io n e r s i s th a t i t can c o n tr ib u te m ost t o a s c i e n t i
f i c and u n iform a sse ssm e n t o f r e a l e s t a t e by a sse m b lin g
and in t e r p r e t in g in fo r m a tio n t h a t w i l l add to and
supplem ent th e know ledge and judgment o f a s s e s s in g
o f f i c i a l s and t h e i r a d v is e r s and by th e p r e p a r a tio n o f
s c h e d u le s o r sta n d a rd s o f v a lu e t h a t w i l l f a c i l i t a t e
th e a p p lic a t io n o f such in fo r m a tio n .
In th e f i n a l a n a ly s is th e r e l i a b i l i t y and sou n d n ess
o f a ss e s s m e n ts h in g e s upon th e know ledge and judgment
o f a s s e s s in g o f f i c i a l s and t h e i r a d v is e r s .
The p o l i c i e s , sta n d a rd s and p ro ced u res su g g e ste d a re
in te n d e d a s s t a r t in g p o in t s o r g u id e p o s t s . The de
velop m en t and a p p lic a t io n w i l l be d is c u s s e d a t a s s e s s
o r s s c h o o l s .50
In I n d ia n a , a s in o th e r s t a t e s c a r r y in g o u t a gen
e r a l r e a p p r a is a l o f p r o p e r ty , th e n eed f o r i t was due to
th e many econom ic ch a n g es w h ich had o ccu rred s in c e a s s e s s
m ents w ere a d ju ste d but w ere n o t p r o p e r ly e n te r e d on th e
a sse ssm e n t r o l l . B ecause some p r o p e r t ie s had in c r e a s e d
much in v a lu e s in c e a s se ssm e n ts were a d ju s te d in 1932 th e
e x i s t i n g a ss e s s m e n ts f a i l to f u l f i l l th e l e g a l requ irem en t
o f u n if o im it y .
E q u ita b le a sse ssm e n t o f p r o p e r ty f o r t a x a t io n , i s o f
, i
c o u r s e , a b a s ic e s s e n t i a l f o r good governm ent in a l l o f th e
50 I b i d . , p . 1 .
155
s t a t e s . In In d ia n a , a s in o th e r s t a t e s , p r o p e r ty ta x e s
loom la r g e in t h a t (1) 44 p er c e n t o f s t a t e and l o c a l r e v e
n u es a re from t h i s so u r c e ; (2 ) bonded in d e b te d n e ss i s
lim it e d to 2 p er c e n t o f th e a s s e s s e d v a lu a tio n in each
d i s t r i c t ; (3 ) th e maximum s c h o o l r a t e w h ich may be le v ie d
i s 2 p e r c e n t o f a s s e s s e d v a lu a tio n ; (4) th e G eneral
A ssem bly r e q u ir e s t h a t th e r a t i o o f a s s e s s e d v a lu a tio n o f
r e a l e s t a t e t o th e s a l e s p r ic e s h a ll be a f a c t o r in d e te r
m in in g th e amount o f s t a t e fu n d s d is t r ib u t e d to s c h o o ls .
The Tax C om m issioners co n clu d ed th a t th e G eneral
A ssem bly in i t s A ct o f 1949 d id n o t in te n d th a t p r o p e r ty be
a s s e s s e d a t i t s p r e s e n t i n f l a t e d v a lu e , and th a t i t w ould
be sound p o l i c y to k eep th e t o t a l a s s e s s e d v a lu a tio n a t o r
n ea r p r e s e n t l e v e l s . Thus, w ith l i t t l e o r no in c r e a s e in
t o t a l a sse ssm e n ts e x p e c te d to r e s u l t , th e m ain g o a ls o f th e
re a sse ssm e n t w ere a s f o llo w s : (1 ) e q u a liz in g a sse ssm e n ts
among th e t a x in g u n it s w ith in th e s t a t e by u se o f a uniform
sy stem ; (2) e q u a liz in g a s se ssm e n ts w ith in any g iv e n ta x
d i s t r i c t ; (3) ad d in g o m itte d p r o p e r t ie s to th e r o l l s ; and
(4) m aking in c r e a s e s o r d e c r e a s e s w here j u s t i f i e d by
ch an ges in la n d u s e , d e p r e c ia t io n , added im provem ents, o r
new c o n s t r u c t io n .52
51 I b i d . , p . 2 .
52 I b i d . , p . 9 .
154
In In d ia n a , a s in C olorado and e ls e w h e r e , th e la w s
r e q u ir e t h a t la n d and im provem ents m ust he e v a lu a te d
s e p a r a te ly and ta x ed in a u n iform m anner. To a t t a in
r e a so n a b le u n ifo r m ity guessw ork m ust be e lim in a te d a s much
a s p o s s ib le by th e a p p lic a t io n o f stan d ard s c h e d u le s , pro
c e d u r e s , and r u l e s . H owever, i t i s n o t f e a s i b l e n o r de
s ir a b le t o r e l i e v e th e a s s e s s o r o f a l l need t o e x e r c is e
sound judgm ent.
The b a s ic g u id e s and t a b l e s a re p ro v id ed f o r th e
a p p r a is a l o f a l l c l a s s e s o f r u r a l and urban la n d s a s t h e ir
v a lu e may be a f f e c t e d by l o c a t i o n , p r o d u c t iv it y , s i z e and
sh a p e. In a d d it io n , in o r d e r to e s t a b l i s h e q u ita b le la n d
v a lu e s th e Tax C om m issioners recommended th a t each C ounty
and Township A s s e s s o r form a d v is o r y grou p s c o n s is t in g o f
fo u r to s i x com petent c i t i z e n s who a re f a m ilia r w ith la n d
v a lu e s . A s s e s s o r s w ere encouraged to ta k e advantage o f th e
f a c t t h a t in e v e r y community th e r e a re a number o f p erso n s
who a r e w e ll inform ed w ith reg a rd t o lan d v a lu e s . They a re
a ls o f a m ilia r w ith com p arative v a lu e s o f d if f e r e n t p a r c e ls
o f r e a l e s t a t e .
V a rio u s s c h e d u le s , r a t e s , t a b le s and r u le s a re s e t
f o r t h in th e A p p r a isa l G uide in te n d e d to c o v e r th e b u lk o f
b u ild in g s and im provem ents t o r e a l p r o p e r ty . R eplacem ent
c o s t s a r e th e b a s ic sta n d a rd f o r v a lu a t io n . T a b les o f
155
b u ild in g c o s t in d ic e s w ere c o n s tr u c te d b a sed on I n d ia n a p o lis
c o s t s r e p r e s e n tin g an in d e x o f 1G0. The b a s ic u n it c o s t s
w ere c a lc u la t e d on a s c a le in te n d e d g e n e r a lly t o r e s u l t in
a r a t e o f a sse ssm e n t n o t e x c e e d in g 33 1 /3 p er c e n t o f th e
53
r e p r o d u c tio n c o s t a s o f March 1 , 1949.
A p p lyin g an A ssessm en t Standard
As m en tion ed e a r l i e r th e b a s ic w eak ness in th e gen
e r a l p r o p e r ty t a x h as b een th e p e r s i s t e n t p r a c t ic e o f
a s s e s s in g p r o p e r ty a t l e s s th a n i t s f a i r v a lu e . S t a t e s
have sou gh t by v a r io u s'm e a n s t o p ersu ad e o r p r e ssu r e l o c a l
o f f i c i a l s to r a i s e and m a in ta in t h e i r g e n e r a l a sse ssm e n t
l e v e l s . On th e w h o le , such e f f o r t s have n o t been o v e r ly
s u c c e s s f u l, a s w itn e s s e d by th e co n tin u e d d e c lin e in th e
a sse ssm e n t l e v e l . E v id e n tly th e s o lu t io n l i e s in a p p ly in g
o t h e r , and more f o r c e f u l m eth o d s. Among th e ways used to
a cco m p lish t h i s have been l o c a l r e v ie w and e q u a liz a t io n ,
and c e n t r a l a sse ssm e n t and e q u a liz a t io n .
D if fe r e n c e s in th e r a t i o o f a s s e s s e d t o f u l l v a lu e
o f th e v a r io u s p r o p e r t ie s w ith in a ta x in g d i s t r i c t are th e
h e a r t o f th e r e a l e s t a t e t a x a tio n problem .® 4 E q u a liz in g
53 I b i d . , p . 1 0 .
® 4 W illia m G -. M urray, "Improvement in R eal E s ta te
T a x a tio n Through A s s e s s m e n t-S a le s S tu d ie s ," N a tio n a l Tax
j o u r n a l. V (M arch, 1 9 5 2 ), 8 6 .
156
th e s e d if f e r e n c e s w ith in th e d i s t r i c t s i s th e c r i t i c a l
problem and m ust be a cco m p lish ed b e fo r e co u n ty o r s t a t e
w ide e q u a liz a t io n i n t e r d i s t r i c t . The f i r s t ta s k can b e s t
be done by th e u n iform a p p lic a t io n o f a g iv e n sta n d a rd o f
v a lu e w ith in th e d i s t r i c t . U n ifo r m ity in a sse ssm e n ts
w ith in in d iv id u a l d i s t r i c t s i s th e f i r s t req u irem en t f o r
an im proved p r o p e r ty t a x , s in c e d if f e r e n c e s among d i s t r i c t s
in th e r a t i o o f a s s e s s e d to f u l l v a lu e can be e q u a liz e d by
s t a t e a u t h o r it y .
C e r ta in b a s ic sta n d a rd s have been d ev elo p e d t o
a s s e s s v a r io u s ty p e s o f p r o p e r ty . Land i s a s s e s s e d by a t
l e a s t th r e e m eth od s, o r by a co m b in a tio n o f th e s e : th e
s a l e s m ethod, th e incom e m ethod , and by a com parison w ith
l i k e p r o p e r t ie s . R eal p r o p e r ty such a s b u ild in g s and im
provem ents may be v a lu e d by u s in g th e fo r e g o in g m eth od s,
o r b y rep la cem en t c o s t s . P e r so n a l p r o p e r ty i s o r d in a r ily
a p p r a ise d a t f a i r m arket v a lu e .
A p p ra isa l o f la n d . — One o f th e p r in c ip a l m ethods
o f a p p r a is in g la n d i s th e u se o f s a l e s d a ta . The p rocedu re
i s t o compare th e a s s e s s e d v a lu e o f a g iv e n p a r c e l o f la n d
w ith th e l a t e s t p r ic e f o r w h ich th e la n d was s o ld o r
o f f e r e d f o r s a l e . I f such a p r ic e i s r e c e n t and e n t i r e l y
v o lu n ta r y i t w ould presum ably e s t a b l i s h a f a i r v a lu e . A
v e r y im portan t l i m i t a t i o n to t h i s m ethod i s la c k o f bona
157
f i d e s a l e s o r o f f e r s t o s e l l . For exam p le, Iowa h a s been
engaged in a program d e sig n e d to im prove r e a l e s t a t e ta x a
t io n by u se o f a s s e s s m e n t - s a le s s t u d ie s b u t th e la c k o f
s a l e s d a ta was a r e a l p ro b lem .55 Such d a ta a s w ere a v a i l
a b le , and s t u d ie s made, ten d ed to e s t a b l i s h th e e x is t e n c e
o f a sse ssm e n t i n e q u a l i t i e s . In one co u n ty th e a s s e s s m e n t-
s a l e s r a t io v a r ie d from a lo w o f 45 p e r c e n t to a h ig h o f
94 p er c e n t . A ten d en cy was f o r low v a lu e lan d t o be
o v e r a s s e s s e d , a s were la r g e t r a c t s when compared t o s m a lle r
o n e s.
A nother i n t e r e s t i n g d evelopm ent in * Io w a ’ s a sse ssm en t
im provem ent program was th e u se o f t e c h n ic a l s o i l su r v e y s
made by Iowa S ta te C o lle g e and th e U n ite d S t a t e s D epartm ent
o f A g r ic u ltu r e . These s o i l su r v e y s were co n v er te d in to
la n d v a lu e s by a p p ly in g p r o d u c t iv it y r a t in g s to them . The
r e s u l t s w ere c o r r e la te d w ith a s s e s s m e n t- s a le s r a t i o s a s a
m ethod o f e s t a b l i s h i n g o b j e c t iv e v a lu a t io n s .
P r o p e r ty may be a s s e s s e d by c o n v e r tin g i t s incom e o r
e a r n in g c a p a c ity in t o a c a p i t a l v a lu e . In o th e r w ord s, th e
55
I b i d . . p . 8 7 . T h is same s i t u a t i o n was tr u e in
N ebraska w here th e number o f a c r e s s o ld a n n u a lly i s o n ly a
sm a ll p e r c e n ta g e o f a l l farm la n d s . A ls o , se e S chm idt,
’’C a te g o r ic a l I n e q u a l i t i e s in A sse ssm e n ts, 1 9 5 0 -1 9 5 0 ,”
o p . c i t . , p . 1 3 4 .
56 Idem.
158
e a r n in g c a p a c ity o f a p ie c e o f p r o p e r ty i s tak en in t o
c o n s id e r a tio n in d eterm in in g a f a i r v a lu e . The m ethod con
s i s t s o f c a p i t a l i z i n g th e income from th e p ie c e o f la n d a t
th e g o in g r a t e o f r e tu r n on com parable p i e c e s . For exam ple,
i f th e incom e i s $210 f o r th e y e a r , and 7 p er c e n t i s th e
g o in g r a t e o f r e tu r n on s im ila r p ie c e s o f la n d , th e
c a p i t a l iz e d v a lu e w ould be $ 5 ,0 0 0 — i . e . , #210 .0 7 .
Where th e incom e i s a c c u r a te ly determ in ed and th e
in fo r m a tio n a v a ila b le to th e a s s e s s o r i t s c a p i t a l i z a t i o n
may y i e l d a r e a so n a b le v a lu a tio n f o r a sse ssm e n t p u r p o se s.
However, i f incom e d a ta are in a c c u r a te o r u n a v a ila b le f o r
a s u f f i c i e n t number o f c a s e s to be r e p r e s e n t a t iv e f o r a l l
la n d b e in g a s s e s s e d , t h i s m ethod a lo n e w ould be u n s a t is
f a c t o r y b eca u se i t c o u ld be a p p lie d o n ly t o th o s e p a r c e ls
where incom e co u ld be d eterm in ed . Where la n d i s used f o r
n on -com m ercial p u r p o se s, a s a r e s id e n c e o r sm a ll farm , i t s
incom e w ould have to be im p u ted , in w hole o r in p a r t, and
th e r e f o r e be l a r g e l y an u n c e r ta in q u a n tity . In o th e r
w ord s, i t w ould become a " valu e in use" s i t u a t i o n d i f f i c u l t
o f o b j e c t iv e d e te r m in a tio n .
Land may a ls o be a s s e s s e d by use o f a com p arative
m ethod . In th e a b sen ce o f in fo r m a tio n on s a l e s o r incom e
from a p a r t ic u la r p a r c e l o f la n d i t s v a lu e co u ld be
e s tim a te d by com paring i t t o o th e r b a s i c a l l y s im ila r
159
p a r c e ls h a v in g an e s t a b lis h e d v a lu e . A lthough im p e r fe c t,
t h i s m ethod o f v a lu a tio n may be a c c e p ta b le i f used w ith
ca re and judgment in c o n ju n c tio n w ith th e two fo r e g o in g
p r o c e d u r e s. I t s g r e a t e s t w eak n ess l i e s in th e f a c t th a t
d if f e r e n t p ie c e s o f la n d ca n n o t be p e r f e c t l y com parable.
N e v e r t h e le s s , a d ju stm e n ts can b e made in th e f i n a l v a lu a
t io n s t o a d ju s t f o r d if f e r e n c e s w hich a re m in or. The
v a l i d i t y o f v a lu a t io n s d eterm in ed by com parison r e s t s on
th e p r io r d e te r m in a tio n o f th e f a i r v a lu e o f p a r c e ls s e r v
in g as th e c r i t e r i a .
A lthough s t a t e c o n s t it u t io n s f r e q u e n t ly command th a t
p r o p e r ty be a s s e s s e d a t i t s f a i r m arket v a lu e , n e it h e r
s a l e s n o r incom e d a ta may g iv e such a v a lu e . The c o u r ts
o f te n h o ld t h a t c u r r e n t s e l l i n g p r ic e s do n o t n e c e s s a r i l y
r e p r e s e n t th e norm al v a lu e co n tem p la ted by c o n s t it u t io n a l
p r o v is io n s . In o th e r w o rd s, th e c o u r ts o f t e n h o ld to th e
co n cep t o f "normal" v a lu e and may h o ld c u r r e n t s e l l i n g
p r ic e s in p e r io d s o f d e f la t i o n o r i n f l a t i o n t o be made
under o r o v e r th e "normal" v a lu e o f th e p r o p e r ty . T h is may
prove t o be o f no a s s is t a n c e t o th e a s s e s s o r i f th e c o u r ts
f a i l t o d e c la r e w hat th e "normal" v a lu e i s in q u a n t it a t iv e
term s.
A g a in , a s s e s s in g a g iv e n p ie c e o f la n d on th e b a s is
o f th e incom e from a n o th er w h ich i s c o n sid e r e d to be
com parable i s h ig h ly u n c e r ta in . C a p it a liz in g th e c u r r e n t
incom e from th e p r e s e n t u se Of a p ie c e o f la n d would n o t
e s t a b l i s h i t s "econom ic v a lu e" u n le s s th e p r e s e n t u se i s
th e b e s t p o s s ib le u se to w hich i t c o u ld be p u t. In a d d i
t i o n , c u r r e n t incom e from p r e s e n t u se may be l e s s th an
e c o n o m ic a lly p o s s ib le b eca u se o f i n e f f i c i e n c i e s . C on verse
l y , c u r r e n t incom e from p r e s e n t u se may be h ig h due to
tem porary m onopoly c o n d itio n s w hich may n o t p e r s i s t . A ls o ,
su ch a p rocedu re n e c e s s a r il y assum es th e p a r t ic u la r prop
e r t y b e in g a s s e s s e d w ould o r d o es have a com parable ea r n in g
c a p a c ity .
A p p ra isa l o f b u ild in g s and Im provem ents. — S a le s
and incom e d a ta , when a v a il a b l e , may be used t o a s s e s s
b u ild in g s and im provem ents in co m b in a tio n w ith v a lu a tio n by
com p arison . Use o f s a l e s d a ta a lo n e w ould be im p e r fe c t
s in c e b u ild in g s and im provem ents are n o t c u s to m a r ily s o ld
e x c e p t in c o n ju n c tio n w ith s a le o f th e la n d on w hich th e y
a re lo c a t e d . W henever s a l e s do o c c u r , how ever, th e v a lu e
o f th e im provem ents c o u ld be d eterm in ed by s u b tr a c tin g th e
v a lu e o f th e la n d from th e t o t a l s a l e s p r ic e . A gain , s a l e s
d a ta may be f a l l a c i o u s in v a lu in g im provem ents s in c e th e
la n d may have s o ld f o r l e s s th an com parable v a ca n t la n d
b eca u se o f th e im provem ents. From t h i s p o in t - o f - v ie w th e
b u ild in g s w ould have no s a l e s v a lu e , a lth o u g h th e y m igh t
161
have some u se v a lu e . T hus, outmoded o r h ig h ly s p e c ia liz e d
b u ild in g s w ould have th e e f f e c t o f red u cin g th e s a l e s p r ic e
o f th e la n d i f t h e i r rem oval w as n e c e s s a r y to put th e la n d
t o a b e t t e r u s e .
The v a lu e o f an in com e-p rod u cin g p r o p e r ty can be
judged by i t s n e t e a r n in g s . To g e t a f a i r norm al v a lu e by
c a p i t a l i z i n g th e incom e i t i s n e c e s s a r y to d e c id e what
norm al n e t incom e ean be e x p e c te d o v e r a p e r io d o f y e a r s .
Good judgm ent and c a r e f u l a n a ly s is m ust be used t o a r r iv e
a t a norm al n e t incom e.
The fo llo w in g exam ple w i l l i l l u s t r a t e th e c a p i t a l
i z a t i o n o f incom e to e s t a b l i s h an a s s e s s e d v a lu a tio n f o r
ta x p u r p o se s. Assume t h a t th e t a x r a t e i s 3 p e r c e n t o f
th e f u l l v a lu e o f a p ie c e o f p r o p e r ty (la n d and im prove
m ents) and 5 p e r c e n t i s a f a i r n e t re tu rn on an in v e stm e n t.
On t h e s e a ssu m p tio n s one can a ffo r d to own la n d f o r 8 p er
c e n t p er annum. I f an a d d it io n a l 3 p er c e n t o f f u l l v a lu e
i s c o n sid e r e d s u f f i c i e n t to p ro v id e f o r in s u r a n c e , m ain
te n a n c e , a m o r tiz a tio n , and c o n t in g e n c ie s f o r a new b u ild in g
w ith an e s tim a te d l i f e o f f o r t y y e a r s , such p r o p e r ty co u ld
be owned f o r 11 p er c e n t o f i t s sound v a lu e p e r y e a r .
B u ild in g s w h ich a r e a lr e a d y p a r t i a l l y d e p r e c ia te d c o u ld be
owned a t h ig h e r p e r c e n ta g e s o f r e tu r n . C o n sid e r in g a r e
tu rn o f 16 p er c e n t n e c e s s a r y on a b u ild in g 50 p er c e n t
162
d e p r e c ia te d th e c a p i t a l i z a t i o n o f incom e w ould he a s f o l
lo w s :
The norm al an nu al g r o s s r e n t from t h i s b u ild in g i s
$ 7 ,5 0 0 .0 0 . The a p p r a ise d v a lu e o f th e la n d i s
$ 2 5 ,0 0 0 .0 0 . l i g h t p er c e n t o f $ 2 5 ,0 0 0 .0 0 i s $ 2 ,0 0 0 .0 0 ,
o r th e annual c o s t o f owning th e la n d . T h is le a v e s
$ 5 ,5 0 0 .0 0 a s th e annual c o s t o f owning th e b u ild in g ,
w hich e q u a ls 16$ o f $ 3 4 ,3 7 5 .0 0 . The t o t a l v a lu e o f
t h i s p r o p e r ty i s t h e r e fo r e a p p r o x im a te ly $ 5 9 ,3 7 5 .0 0 .57
Example: 50$ D ep r e c ia te d B u ild in g
Normal an nu al g r o s s r e n t $ 7 ,5 0 0 .0 0
A p p raised v a lu e o f lan d $ 2 5 ,0 0 0 .0 0
Annual c o s t o f owning la n d
(8 $ o f $ 2 5 ,0 0 0 .0 0 ) 2 .0 0 0 .0 0
Annual c o s t o f owning b u ild in g $ 5 ,5 0 0 .0 0
($ 5 ,5 0 0 .0 0 c a p i t a l iz e d a t 16$ e q u a ls
$ 3 4 ,3 7 5 .0 0 w h ieh i s v a lu e o f b u ild in g )
V alue o f th e la n d $ 2 5 ,0 0 0 .0 0
V alue o f th e b u ild in g 3 4 4 5 7 5 .0 0
T o ta l v a lu e $ 5 9 ,3 7 5 .0 0
R eplacem ent c o s t i s a n o th e r , and g e n e r a lly more
s a t i s f a c t o r y , m ethod o f e v a lu a tin g b u ild in g s and im prove
m en ts. A lthough t h i s m ethod g e t s away somewhat from th e
co n cep t o f s a le o r m arket v a lu e , i t i s more s c i e n t i f i c and
o b j e c t iv e . I t se e k s to e s t a b l i s h th e v a lu e o f e x i s t i n g tsi
im provem ents b y com paring th e c o s t o f re p r o d u cin g them as
o f th e tim e an a p p r a is a l i s made. R ep rod u ction c o s t must
th en be redu ced by th e e q u iv a le n t amount o f d e p r e c ia tio n
S e a l E s t a t e A ssessm en t G u id e . No. 1 , o p . c i t . ,
p p . 5 3 -5 4 .
163
r e a liz e d on th e e x i s t i n g s t r u c t u r e s . T h is m ethod o f v a lu
a t io n f o llo w s th e m arket v a lu e c o n c e p t s in c e , to he r e a l i s
t i c , r e p r o d u c tio n c o s t s m ust he c a lc u la t e d on th e h a s i s o f
th e m arket p r ic e o f la b o r and m a t e r ia ls .
D if f e r e n t ty p e s o f im provem ents can he grouped
a c c o r d in g to t h e i r b a s ic u s e , i . e . , r e s i d e n t i a l , incom e-
r e s i d e n t i a l , com m ercial or b u s in e s s , and i n d u s t r i a l .
W ith in ea ch b a s ic groups f u r th e r d i f f e r e n t i a t i o n s can be
made a c c o r d in g to s i z e , ty p e and q u a lit y o f c o n s t r u c t io n ,
l o c a t i o n , o r o th e r r e le v a n t p o in t s . For exam ple, r e s i
d e n t ia l p r o p e r t ie s eo u ld be c l a s s i f i e d a s , one s to r y - one
fa m ily ; Itl s t o r y - one fa m ily ; tw o -s to r y - one fa m ily ;
d o u b le; e t c . I n d iv id u a l b u ild in g s w ith in any g iv e n c l a s s
co u ld be fu r th e r graded a c c o r d in g to th e ty p e and q u a lit y
o f c o n s t r u c t io n , w heth er low c o s t , a v e r a g e , g o o d , o r
s p e c i a l . F u r th e r , inasm uch as r e s id e n c e s w ith in a g iv e n
grade v a ry a s t o ty p e o f m a te r ia l u sed and th e number o f
r e fin e m e n ts in c o r p o r a te d , an ad ju stm en t co u ld be made to
com pensate f o r added r e fin e m e n ts o r la c k o f sam e. The
In d ia n a S ta te Board o f Tax C om m issioners d iv id e s a r e s i
dence in to th e f o llo w in g r e fin e m e n t c l a s s i f i c a t i o n s : (1)
fo u n d a tio n , (2) b asem en t, (3 ) w a l l s , (4) r o o f in g , (5 ) ex
t e r i o r tr im , (6) i n t e r i o r f i n i s h , (7 ) f l o o r s , (8) a t t i c ,
(9) h e a tin g , (10) l i g h t , (11) p lum b ing, (12) b u i l t - i n
164
58
g a r a g e .
By in s p e c t io n o f ea c h r e s id e n c e th e a s s e s s o r m ust
d eterm in e th e number o f r e fin e m e n ts in c lu d e d and th e ty p e
o f e a c h . A r a t in g p o in t s c a le i s p ro v id ed f o r ea ch c l a s s
o f r e s id e n c e . Eaeh r e fin e m e n t i s a s s ig n e d a number o f
p o in t s d ep en din g on th e ty p e o f c o n s t r u c t io n . For th e
t y p i c a l o r average r e s id e n c e f o r each grade 100 re fin e m e n t
p o in t s a re a s s ig n e d . The b a s ic r e p r o d u c tio n c o s t p er
square f o o t o f ground a re a i s c a lc u la t e d f o r each grade o f
house w ith in ea ch c l a s s on th e b a s is o f 100 r e fin e m e n t
p o in t s . T able V g iv e s th e sc h e d u le o f re fin e m e n t p o in t s
f o r a ik s t o r y - one f a m ily c l a s s o f r e s id e n c e .
T able V I, page 1 6 6 , shows th e b a s ic r e p r o d u c tio n
c o s t p e r square f o o t o f ground a rea f o r a l £ s t o r y - one
f a m ily c l a s s r e s id e n c e and th r e e g ra d es w ith in th e c l a s s
b ased on 100 re fin e m e n t p o in t s .
The a s s e s s o r w ould p ro ceed a s f o llo w s in a p p r a is in g
ea ch r e s id e n c e . F i r s t , d eterm in e by o b s e r v a tio n th e c l a s s
o f th e b u ild in g and th e g r a d e . Assume th e b u ild in g i s a
1& s t o r y - one fa m ily o f a v era g e g r a d e . S eco n d , th e b u ild
in g m ust be in s p e c te d t o d eterm in e th e number and ty p e o f
r e fin e m e n ts and r e fin e m e n t p o in t s a s s ig n e d f o r each
58 I b i d . . p . 4 4 .
165
TABLE T
REFINEMENT POINT SCHEDULE POE ONE AND ONE-HALF
STORY - ONE FAMILY RESIDENCE
*fyp@ o f R efin em en t iy p e o f R efin em en t
C o n str u c t Ion P o in ts C o n str u c tio n P o in ts
F oun d ation i n t e r i o r F in is h
C on crete 5 P in e 22
Cement B lock 4 Hardwood 27
S ton e 5 F ir e p la c e 3
B r ick 5
P ie r s 3 F lo o r s
P in e 8
Basem ent Hardwood 11
F u ll E x ca v a tio n 4
Cement F lo o r 2 .5 A t t ic
Wood F lo o r 2 Mcine
F in is h e d Room 2 .5
H ea tin g
W a lls Mot a i r 5
s id in g 15 Hot w a te r 12
Wood S h in g le s 16 Steam 10
A sp h a lt S h in g le s 13 A ir C o n d itio n in g 10
A s b e s to s S h in g le s 17 R adiant 14
Cut S ton e 38
S tu cco on Frame 15 L ig h t
S tu cco n on Mason 17 E l e c t r i c 4
Common B rick 23 Gas 2
Face B r ick 27
B r ick V eneer 22 Plum bing
F ie ld S ton e 32 One Batli
Two B a th s
7
10
R o o fin g
T o i l e t s 1
C om p osition 5 L a v a to r ie s 2
M etal
10 T i le F lo o r (B ath ) 1
A sp h a lt S h in g le 7 T ile W all (K itch en ) 4
Wood S h in g le 9 Sewer 2
A s b e s to s S h in g le 10 W ater 1
S la t e 10 Gas 0 .5
T ile 12
B u ilt - I n Garage
E x te r io r Trim
One Car 4
P la in
17 Two Car 6
Dormer 2 Three Gar 8
Bay Window 2
S ou rce: R ea l E s ta t e A ssessm en t G u id e. No. 1 I I n d ia n a p o lis :
S ta te Board o f Tax C om m issioner, May, 1 9 4 9 ), p . 5 7 .
166
TABLE VI
BASIC REPRODUCTION GOST PER SQUARE FOOT O NE AND
ONE-HALE STORY - ONE FAMILY RESIDENCE
Area Low C ost A verage Good
700 # 3 .1 0 # 4 .0 0 # 5 .5 0
800 2 .9 5 3 .9 0 5 .2 5
900 2 .8 5 3 .7 0 4 .9 5
1 ,0 0 0 2 .8 0 3 .6 0 4 .8 5
1 ,1 0 0 2 .7 0 3 .5 0 4 .6 0
1 ,2 0 0 2 .6 5 3 .4 0 4 .5 0
1 ,3 0 0 2 .6 0 3 . 35 4 .5 0
1 ,4 0 0 2 .5 0 3 .2 5 4 .4 0
1 ,5 0 0 2 .4 5 3 .1 5 4 .3 0
1 ,6 0 0 2 .4 5 3 .1 5 4 .1 5
1 ,7 0 0 2 .3 5 3 .0 5 4 .1 0
1 ,8 0 0 2 .3 5 3 .0 5 4 .0 5
1 ,9 0 0 2 .3 0 2 .9 5 3 .9 5
2 ,0 0 0 2 .3 0 2 .9 0 3 .9 5
2 ,5 0 0 2 .1 5 2 .8 0 3 .7 5
3 ,0 0 0 2 .1 5 2 .7 5 3 .7 0
4 ,0 0 0 2 .1 5 2 .7 5 3 .7 0
S ou rce: R ea l E s ta te A ssessm en t G u id e, No. 1 (I n d ia n a p o lis :
S ta te Board o f tfax C om m issioner, May, 19^ 9)7 P* 5 7 .
167
a c c o rd in g t o i t s ty p e . T h ir d , th e ground d im en sio n s must
he m easu red . F o u rth , t o t a l th e re fin e m e n t p o in t s . F if t h ,
m u lt ip ly th e number o f re fin e m e n t p o in t s by th e b a s ic c o s t
p er sq uare f o o t f o r a house o f th e c l a s s and grade b ein g
a s s e s s e d . S ix th , m u lt ip ly th e above r e s u l t by th e square
f e e t in t h e ground a r e a . T h is g iv e s th e e o s t o f rep ro
d u c tio n f o r th e b u ild in g . To i l l u s t r a t e : suppose a 1&
s t o r y - one fa m ily house h as been judged a v era g e and
a s s ig n e d 109 r e fin e m e n t p o in t s and by m easurem ent th e
ground a re a i s 900 sq uare f e e t . From th e sc h e d u le th e b a se
p r ic e i s foun d t o be $ 3 .7 0 . M u ltip ly $ 3 .7 0 by 109 e q u a ls
$ 4 .0 0 . Ground a rea o f 900 square f e e t (900 by $ 4 .0 0 e q u a ls
$ 3 ,6 0 0 .0 0 ) g iv e s th e c o s t o f th e h o u se . I f th e h o u se had
100 refin e m e n t p o in t s i t s v a lu e w ould be $ 3 ,3 0 0 .0 0 (100
p o in t s X 900 sq uare f e e t X $ 3 .7 0 } . Should th e house have
96 re fin e m e n t p o in t s th e v a lu e w ould be $ 3 ,1 9 6 .8 0 (900 X 96
X $ 3 .7 0 ) . A p e r c e n ta g e o f th e v a lu e th u s d eterm in ed m ust
be su b tr a c te d to a llo w f o r d e p r e c ia t io n , o b s o le s c e n c e , o r
o th e r d e tr im e n ta l c o n d it io n s .
A s im ila r p roced u re can be ad op ted f o r u se in
a s s e s s in g in d u s t r ia l and com m ercial b u ild in g s . The In d ia n a
S ta te Board o f Tax C om m issioners grou p ed , c l a s s i f i e d , and
graded such p r o p e r t ie s in th e f o llo w in g o rd er: (1 ) A part
ment B u ild in g s , (2) T o u r is t C a b in s, (3) Departm ent and
168
Large R e t a il S t o r e s , 5 c l a s s e s , (4) O f f ic e B u ild in g s ,
6 t y p e s , (5) H o t e ls , 7 t y p e s , (6 ) T h e a tr e s , 5 t y p e s ,
(7) S e r v ic e S t a t io n s , 5 t y p e s , (8 ) S t e e l Q uonset B u ild in g s ,
(9) G r een -h o u ses, (10) G rain E le v a t o r s , (1 1 ) I n d u s t r ia l
B u ild in g s o f 16 t y p e s , (12) R u r a l-r e s id e n c e s and o th e r im
provem ent s .
For each o f t h e s e g r o u p s, c l a s s e s o r t y p e s , and
g r a d e s , d e t a i l s o f p roced u re and b a s ic g u id e s are c a lc u
la t e d to a r r iv e a t p r e s e n t v a lu e in term s o f rep la cem en t
c o s t s . G o n sc ie n tio u s a p p lic a t io n o f such an a sse ssm en t
p la n w ould u n q u e stio n a b ly go f a r in b r in g in g about an
e q u a liz e d a sse ssm en t r o l l .
V. LOCAL EQUALIZATION AND REVIEW
G eneral S tatem en t
D e s p ite i t s numerous and w e ll known w e a k n e sse s, b oth
in th e o r y and p r a c t ic e , th e g e n e r a l p r o p e r ty ta x seem s
d e s tin e d to c o n tin u e f o r some tim e t o com e. I t s g r e a t e s t
w eakness in p r a c t ic e i s in e q u a lit y in in d iv id u a l a s s e s s
m en ts. F u n d am en tally, th e o n ly .way t o b r in g about e q u a lit y
in a sse s s m e n ts i s f o r th e o r i g i n a l v a lu a tio n to be made in
a u niform m anner, i . e . , f u l l v a lu e , o r a g iv e n p e rcen ta g e
o f f u l l v a lu e , a p p lie d t o a l l p r o p e r ty s u b je c t t o th e t a x .
A v a r ia b le sta n d a rd , a p p lie d in a v a r ia b le manner to
169
v a r ia b le amounts o f l i a b l e p r o p e r ty p rod u ces th e hodge
podge w h ich h as so o f t e n c h a r a c te r iz e d t h i s t a x . u n v a r y in g
a p p lic a t io n by th e a s s e s s o r o f a uniform sta n d a rd o f v a lu e
would remove th e n e c e s s i t y fo r e q u a liz a t io n , e i t h e r l o c a l l y
o r i n t e r d i s t r i c t by a c e n t r a l b oard .
G reat s t r e s s i s p la c e d on th e n e c e s s i t y f o r b e t t e r 6
o r i g in a l a s s e s s m e n t. M ost o f th e w r it e r s in th e f i e l d em
p h a siz e t h i s f a c t a s th e h e a r t o f p ro p erty ta x p rob lem s,
K endrick s a y s , ’'The p r in c ip a l n eed in th e a d m in is tr a tio n o f
th e p r o p e r ty ta x i s an e q u ita b le o r i g in a l a sse ssm en t o f
R Q
r e a l e s t a t e . ” P r o fe s s o r G roves d is c u s s e s d i f f i c u l t i e s in
e q u a liz in g a sse ssm e n ts betw een d i s t r i c t s and c o u n t ie s ;
how ever, he a d d s, "Much more s e r io u s , u s u a lly , are th e in -
flA
e q u a l i t i e s among ta x p a y e r s w it h in th e same d i s t r i c t . ”
A ccord ing t o Anderson:
In many r e s p e c t s l o c a l a sse ssm en t h a s proved to be
th e w ea k est lin k in th e p ro p erty ta x c h a in . T h is has
a r in g o f ir o n y when one r e a l i z e s th a t a c c u r a te v a lu
a t io n o f p r o p e r ty i s th e cru x o f e q u ita b le t a x ad-
m in i s t r a t i o n .
J en sen d e c la r e s :
There i s no p o s s i b i l i t y o f e q u a liz in g unequal in d i
v id u a l a s se ssm e n ts by means o f b la n k e t in c r e a s e s o r
K en d rick , 0£ . c i t . . p . 2 2 4 .
60 H arold M. G roves, F in a n cin g Government ( th ir d
e d it io n ; Hew York: Henry H o lt and Company, 1 9 5 1 ), p . 5 9 .
A n d erso n , o p . c i t . , p . 1 4 6 .
170
d e c r e a s e s . The o n ly way to e q u a liz e a sse ssm e n ts i s to
make them eq u a l i n th e f i r s t p l a c e .6 2
The w r it in g s o f o th e r a u t h o r it ie s in th e f i e l d p la c e g r e a t
em phasis on th e same p o in t . F a ilu r e t o g e t an e q u a liz e d
o r i g i n a l a sse ssm e n t r o l l r e q u ir e s some fo im o f c e n t r a liz e d
e q u a liz a t io n , i n t r a d i s t r i c t a s w e ll a s i n t e r d i s t r i c t .
L o ca l E q u a liz a tio n
The e s s e n c e o f l o c a l e q u a liz a t io n i s th e o r i g i n a l
a sse ssm en t o f a l l p r o p e r ty in a uniform m anner. A mueh
str o n g e r c a s e f o r th e p r o p e r ty t a x c o u ld be made i f th e
id e a l o f an e q u a liz e d a sse ssm en t r o l l w ere r e a liz e d in
p r a c t ic e . G reat e f f o r t h a s gone in t o th e move t o b r in g i t
a b o u t. A lthough th e r e are v a r ia t io n s among s t a t e s , th e y
have d ev elo p e d and em ployed p la n s — some v o lu n ta r y and ad
v is o r y , o th e r s m andatory— d e sig n e d t o en cou rage o r e n fo r c e
u n ifo r m ity in a s s e s s m e n ts . Among th e s t e p s ta k en a re th e
fo llo w in g : (1 ) p r o v id in g t e c h n ic a l a id t o l o c a l a s s e s s o r s ,
(2) p r o v id in g e f f i c i e n t f a c i l i t i e s and ad eq uate c l e r i c a l
h e lp , (3 ) p r o v id in g t r a in in g c o u r s e s , (4) u r g in g s e l e c t io n
o f q u a li f ie d a s s e s s o r s w ith ad eq uate pay and te n u r e , (5)
p r o v id in g f o r r e a p p r a is a l o f p r o p e r ty , (6 ) en co u ra g in g
p u b lic co n cern and u n d er sta n d in g o f th e problem , (7) c l a s s i
f i c a t i o n o f p r o p e r ty , and f i n a l l y (8 ) c e n t r a liz e d
62 J e n s e n , G overnm ent F in a n c e . o p . c i t . , p . 2 5 9 .
171
e q u a liz a t io n by s t a t e a u t h o r it y .
D is c lo s u r e o f p r o p e r ty . ■ — The f i r s t req u irem en t fo r
an e q u ita b le a sse ssm e n t i s th e d is c lo s u r e o f a l l p r o p e r ty
o f a l l ty p e s s u b je c t t o t h e t a x . To encourage t h i s tw o-
t h ir d s o f th e s t a t e s have abandoned t a x in g in ta n g ib le s .® ®
The o n ly in t a n g ib le p r o p e r ty ta x e d in C a lif o r n ia i s s o lv e n t
c r e d i t s , w h ile Hew York exem pts a l l p e r s o n a l p r o p e r ty ex
c e p t c e r t a in f r a n c h is e s , and D elaw are exem pts a l l p e r s o n a l
p r o p e r ty . Many s t a t e s - - F l o r i d a , I n d ia n a , K entucky,
M is s o u r i, V ir g in ia , among them— t a x p e r s o n a l p r o p e r ty , b oth
t a n g ib le and in t a n g ib le a t lo w er r a t e s th a n th o s e a p p lie d
t o r e a l p r o p e r ty on th e th e o r y t h a t th e lo w er r a t e s w i l l
en cou rage d is c lo s u r e . To a cco m p lish f u l l d is c lo s u r e th e
ta x p a y in g p u b lic m ust be brought t o a b e t t e r u n d ersta n d in g
o f th e problem and i t s e f f e c t s . The p u b lic g a in s n o th in g
b y th e p a r t i a l d is c lo s u r e o f p r o p e r ty s in c e i t i s compen
s a te d f o r by e i t h e r h ig h e r r a t e s o r reduced governm ent
s e r v i c e s . I n a d d it io n , and p erh ap s more s e r io u s , th e c o s t s
o f governm ent are u n j u s t ly d is t r ib u t e d .
I f a l l p r o p e r ty w ere f u l l y d is c lo s e d in d iv id u a l ta x
p a y ers m igh t w e ll fin d t h e i r t o t a l t a x b i l l no g r e a te r a s
lo w er r a t e s c o u ld produce t h e same governm ent reven u e when
® ® Tax S y stem s ( t w e l f t h e d i t i o n ) , o p . c j l t . , t a b l e
b e g in n in g p . 1 8 5 .
172
a p p lie d t o th e la r g e r "base. V ery o f t e n th e p u b lic i s
s u s p ic io u s o f e f f o r t s t o e f f e c t f u l l d is c lo s u r e a s m erely
a su b te r fu g e to r a i s e t a x e s . I r o n i c a l l y , th e v e r y rea so n
ta x e s m ust be r a is e d may be th a t th e a s s e s s o r f a i l e d t o
l i s t a l l p r o p e r ty on th e a sse ssm en t r o l l s . An e f f e c t i v e
p u b lic e d u c a tio n program , d esig n ed t o p u t a c r o s s th e id e a
th a t th e p u b lic i n t e r e s t w ould be b e t t e r se rv ed by a more
e q u ita b le a d m in is tr a tio n o f p r o p e r ty t a x a t io n ap p ears t o be
th e g r e a t e s t s in g le n eed . Eor so lo n g a s p u b lic ap a th y
and c o n fu s io n p e r s i s t , g en u in e im provem ent i s u n li k e l y . I t
i s a s k in g to o much f o r th e a s s e s s o r to be c o n s c ie n t io u s
when th e p u b lic i s n o t . I n e f f e c t th e a s s e s s o r and th e
ta x p a y e r a id and a b et each o th e r in re d u cin g th e ta x r o l l .
Im proving l o c a l a s s e s s m e n t. — As a g e n e r a l r u le
s t a t e c o n s t i t u t i o n s d ir e c t th a t p e r s o n a l p r o p e r ty be
a s s e s s e d a t f a i r m arket v a lu e . I f i t w ere c o n s c ie n t io u s ly
d e s ir e d t h a t such p r o p e r ty be so a s s e s s e d i t c o u ld be done
w ith o u t p a r t ic u la r d i f f i c u l t y . In o th e r w ord s, th e p er
s i s t e n t and lo n g e s t a b lis h e d p r a c t ic e o f u n d e fa s s e s s in g
m ost p e r s o n a l p r o p e r ty i s n o t b eca u se o f th e d i f f i c u l t y o f
th e t a s k . On th e o th e r hand, a s s e s s in g more co m p lica ted
ty p e s o f p r o p e r ty , b o th p e r s o n a l and r e a l , becom es a v a s t l y
d i f f i c u l t problem and i s a lm o st alw ays im p e r f e c tly done.
E xcept f o r sh e e r n e g lig e n c e o r c o l l u s i o n , o r b o th , l i t t l e
173
r e a l p r o p e r ty o r t a n g ib le p e r s o n a l p r o p e r ty sh o u ld esca p e
b ein g l i s t e d .
64
As d is c u s s e d a b o v e , c e r t a in b a s ic m ethods o f a p p ly
in g th e sta n d a rd o f v a lu e have b een d e v e lo p e d . These a r e ,
to r e c a p it u la t e : ( 1 ) s a le s d a ta m ethod, (£) c a p i t a l i z a t i o n
o f in com e, (3) r e p r o d u c tio n c o s t , (4) com parison w ith
s im ila r p r o p e r ty , and (5) f a i r m arket v a lu e f o r p e r so n a l
p r o p e r ty .
Much i n t e r e s t h a s been e x p r e sse d r e c e n t ly in im prov
in g l o c a l a s s e s s in g by co n d u c tin g s t u d ie s in th e r a t i o o f
a s s e s s e d - t o - s a l e s v a lu e . Townsend in v e s t ig a t e d in e q u a li
t i e s o f t a x a t io n w ith in c i t i e s co m p risin g m e tr o p o lita n
B oston and among th e s e c i t i e s . A lthough M a ssa c h u se tts law
gg
r e q u ir e s t h a t a s s e s s m e n ts s h a l l be th e f a i r ca sh v a lu e ,
he found a s se ssm e n ts were l e s s than th e m arket p r ic e o f a l l
re p o r te d s a le s w ith l e s s v a lu a b le r e s id e n c e s b e in g a s s e s s e d
a t a h ig h e r p e rc en ta g e o f s a l e s v a lu e than more s u b s t a n t ia l
r e s id e n c e s .
The Iowa S ta te Tax C om m ission, th e S ta te A s s o c ia tio n
6 4 S up ra. p . 1 5 6 , e t s e c .
R o sw ell G. Townsend, " I n e q u a lit ie s o f R e s id e n t ia l
P r o p e r ty T a x a tio n i n M e tr o p o lita n B o sto n ," N a tio n a l Tax
J o u r n a l. IV (D ecem ber, 1 9 5 1 ), 3 6 1 -6 9 .
Tax S y stem s ( t w e l f t h e d i t i o n ) , o£ . o i t . . p . 189.
174
o f A s s e s s o r s , and Iowa S ta te C o lle g e began a program in
1950 to a id c i t y and eo u n ty a s s e s s o r s in im p rovin g t h e ir
w ork. Uppermost in t h e ir program w ere a id s to th e a s s e s s o r
w h ich w ould e n a b le him t o do a b e t t e r job in o b ta in in g
e q u ita b le a s s e s s m e n ts w it h in h i s co u n ty o r c i t y . The p la n
w as d iv id e d in t o th e s e p h a se s: ( 1 ) u se o f a s s e s s m e n t - s a le s
s t u d ie s t o a c q u a in t a s s e s s o r s w ith t h e ir l o c a l s i t u a t i o n ,
(2) a s c h o o l f o r a s s e s s o r s a t Iowa S ta te C o lle g e , and (3) a
s e r i e s o f d i s t r i c t c o n fe r e n c e s on d e t a ile d m ethods t o be
used in th e 1953 a s s e s s m e n t . 6 7 The a s s e s s m e n t - s a le s
s t u d ie s w ere b ased on p la n s o u tlin e d by th e N a tio n a l
ft A
A s s o c ia tio n o f Tax A d m in istr a to r s. The s t u d ie s con d u cted
con firm ed th e f a c t o f s e r io u s i n e q u a l i t i e s in a s s e s s m e n ts .
T able V II i s a t a b u la t io n o f th e r e s u l t s o f an a sse ssm e n t-
s a l e s stu d y made o f one eo u n ty in Iowa d iv id e d in t o fo u r
d i s t r i c t s .
The f ig u r e s in T able V II r e v e a l u n d era ssessm en t o f
a l l r e a l e s t a t e r e l a t i v e t o s a l e s p r ic e and s u b s t a n t ia l
o v e r a sse ssm e n t o f low v a lu e p r o p e r t ie s com pared t o h ig h
v a lu e d o n e s . C hecking th e r a t i o s o f se v e n te e n c o u n tie s
6 7 M urray, o £ . c i t . . pp. 8 6 -9 2 .
Preliminary R eport o f th e Committee on S a le s
R a tio D ata and Guide f o r A ssessm en t S t u d ie s ,N a t i o n a l
A s s o c ia tio n o f Tax A d m in is tr a to r s , 1950.
175
TABLE V II
ASSESajlNT-SALE RATIOS FOR ALLAM AKEE COUNTY, IOWA
1 9 4 9 -1 9 5 0 BY DISTRICTS9 *
(A verages are M edians)
S a le s Ranked A verage
R a tio s b y D i s t r i c t s
by P r ic e
P e r Aere
P r ic e
P er Aere
R a tio
W
# 1
m
# 2
m
#3
w W
F ir s t Group $156 37 32 33 34 40
Second Group 1 0 0 42 43 48 42 41
T hird Group 63 52 51 51 47 59
F ourth Group 33 6 6 8 8 6 8 55 67
M edian A verage 80 45 43 51 42 46
S ou rce; W illia m 0 . M urray, "Improvement in R ea l E s ta te
T a x a tio n Through A s s e s sm e n t-S a le s S tu d ie s ," R a tio n a l Tax
J o u r n a l. V (M arch, 1 9 5 2 ), 8 8 .
*C ounty was d iv id e d in t o fo u r d i s t r i c t s b y g ro u p in g tow n
s h ip s a lp h a b e t ic a lly .
176
d is c lo s e d an a v era g e r a t io o f a s s e s s e d - t o - s a l e s v a lu e o f
69
35 p er c e n t . Io w a ’ s la w s s p e c i f y t h a t r e a l , p e r s o n a l,
t a n g ib le and in t a n g ib le p r o p e r ty be a s s e s s e d a t 60 p er c e n t
70
o f a c t u a l v a lu e .
71
P r o fe s s o r S ch m id t’ s stu d y o f a s s e s s e d - t o - s a l e s
v a lu e o f r e a l t y in N ebraska shows th e same g e n e r a l r e s u l t s
a s th o se in Iowa and M a s s a c h u s e tts , i . e . , w id esp rea d i n
e q u a l i t i e s in a ss e s s m e n ts and a c o n tin u o u s d e c lin e in th e
r a t io o f a s s e s s e d - t o - s a l e v a lu e . T able V III shows th e
d e c lin e in th e a sse ssm en t r a t i o f o r farm r e a l t y in N ebraska
f o r th e y e a r s 1 9 3 9 -1 9 4 9 .
The f ig u r e s in T able V III show th a t w ith h a r d ly an
e x c e p tio n th e r a t i o o f a s s e s s e d - t o - s a l e s v a lu e i s in v e r s e ly
r e la t e d to th e s a l e s v a lu e o f farm la n d . From 1930 to 1959
th e average s a l e s p r ic e p e r a cr e d e c lin e d from # 3 6 .5 0 to
# 1 3 .7 4 , w h ile th e a sse ssm e n t r a t i o in c r e a s e d from 75 to 104
p e r c e n t . D uring th e p e r io d 1940 t o 1949 th e a v era g e p r ic e
p e r a cre in c r e a s e d by more th an 155 p er c e n t w hereas
a s s e s s e d v a lu a t io n s r o s e 2 p er c e n t , w h ile f o r th e same
p e r io d th e a sse ssm e n t r a t i o d e c lin e d from 96 to 40 p er
6 9 M urray, o j j. c i t . . p . 8 8 .
^ S ystem s ( t w e lf t h e d i t i o n ) , ojc. c i t . . p . 1 8 7 .
71 S ch m id t, " C a te g o r ic a l I n e q u a l i t i e s in A ssessm en ts
in N ebraska, 1 9 3 0 -1 9 5 0 ," 0 £ . c i t . . pp. 1 3 0 -4 4 .
TABLE V III
FJm HEAL ESTATE BRICES EOR NEBRASKA,
177
1 9 3 0 -1 9 4 9
A verage p e r A cre S o ld A ssessm ent
A sse sse d S a le s R a tio
Year V alue
V alu e
.(*>
1949 # 2 0 .4 4 # 5 0 .8 9 40
1948 2 0 .5 6 4 7 .5 4 43
1947 2 0 .0 8 4 1 .8 1 48
1946 1 9 .2 0 3 4 .3 0 56
1945 1 8 .8 0 3 0 .6 8 61
1944 2 0 .5 1 3 1 .8 7 64
1943 2 1 .4 6 3 0 .0 0 72
1942 2 0 .5 5 2 4 .1 7 85
1941 1 6 .6 0 1 6 .2 9 91
1940 1 4 .0 6 1 4 .6 6 96
1939 1 4 .2 8 1 3 .7 4 104
1938 1 3 .3 7 1 4 .6 0 92
1937 1 4 .7 5 1 8 .2 4 81
1936 1 6 .8 3 2 1 .2 8 79
1935 2 0 .4 7 2 6 .4 0 78
1934 1 9 .8 6 2 4 .7 2
80
1933 2 4 .4 7 3 0 .6 6 80
1932 2 6 .0 4 2 9 .6 0 8 8
1931 3 2 .1 7 3 8 .6 9 83
1930 2 6 .5 2 3 6 .5 0 73
S o u r c e : Adapted from E. B . S eb m id t, " C a te g o r ic a l In e q .u a li-
t i e s in A ssessm en ts in N eb rask a. 1 9 3 0 -1 9 5 0 , H N a tio n a l Tax
J o u rn a l , V (J u n e, 1 9 5 2 ), 1 3 3 .
178
cen t* In g e n e r a l th e b e h a v io r o f th e a sse ssm e n t r a t i o i s '
th e same f o r urban a s f o r r u r a l r e a l e s t a t e , f o r th e
p e r io d 1945-1949 th e a sse ssm en t r a t i o d e c lin e d from 61 t o
72
27 p e r c e n t , o r by 56 p e r c e n t , w h ile th e e s tim a te d v a lu e
o f urban r e a l t y in c r e a s e d 262 p e r c e n t .
L o ca l r e v ie w o f a s s e s s m e n ts . — B ecause o r ig in a l
a sse ssm e n ts are o f t e n u nequ al some p r o v is io n s m ust be made
f o r re v iew o f in d iv id u a l a sse s s m e n ts o f ta x p a y e r s who p ro
t e s t th e v a lu a tio n p la c e d on t h e ir p r o p e r ty , and f o r e r r o r s
made by th e a s s e s s o r in a p p r a is in g p r o p e r t ie s . G e n e r a lly ,
th e s t a t e s p ro v id e l o c a l a d m in is tr a tiv e a g e n c ie s t o h ear
a p p e a ls from a s s e s s e d v a lu a tio n by p r o t e s t in g ta x p a y e r s .
Though d e t a i l s o f th e pow ers and fu n c tio n s , o f r e v ie w
a g e n c ie s v a ry among s t a t e s t h e i r p rim ary fu n c tio n i s to
ch eck o r d o u b le-ch ec k th e work o f th e l o c a l a s s e s s o r .
O r d in a r ily , such a r e v ie w board can r a i s e o r lo w er v a lu
a t io n s , add o r ta k e p r o p e r ty from a sse ssm en t r o l l s . Such
boards o f re v iew may be th e o r i g in a l a s s e s s in g a g en cy , o r a
se p a r a te a d m in is tr a tiv e b ody, o r a c o u r t. V ery o f te n th e
s t r i c t l y l o c a l board o f r e v ie w i s made up o f e x o f f i c i o
members such a s th e m ayor, c i t y a t to r n e y , town c l e r k , and
so f o r t h . In many s t a t e s , C a lif o r n ia f o r exam p le, a l l
72 I h l d . . p . 1 3 5 .
179
p r o p e r ty e x c e p t th a t a p p r a ise d by a s t a t e a g en cy , i s ap
p r a is e d by th e eo u n ty a s s e s s o r and th e a sse ssm en t r o l l so
produced i s rev iew ed and e q u a liz e d by a co u n ty body,
u s u a lly th e Board o f S u p e r v is o r s .
In c o u n tie s w here p r o p e r ty i s a s s e s s e d by one cen
t r a l agen cy one m ethod o f e q u a liz a t io n i s t o in s p e c t th e
a sse ssm e n t r o l l and a d ju s t in d iv id u a l a s s e s s e d v a lu a t io n s ,
o r th e v a lu a tio n s o f p a r t ic u la r c l a s s e s o f p r o p e r ty , by
such am ounts a s n e c e s s a r y t o c a u se ea ch p a r c e l o f p r o p e r ty
to be a s s e s s e d a t th e same p e r c e n ta g e o f i t s tr u e v a lu e .
A nother m ethod u sed i s to a d ju s t th e r a te a p p lic a b le to
in c o r r e c t l y a s s e s s e d in d iv id u a l p a r c e ls o r c l a s s e s o f prop
e r t y by such amounts a s to ca u se ea ch t o pay th e same
amount in t a x e s a s w ould have been p a id had th e y been c o r
r e c t l y a s s e s s e d and l e v ie d on a t th e same r a te a s a l l o th e r
p r o p e r t ie s .
In c o u n tie s w here p r o p e r ty i s a s s e s s e d by m u n ic ip a l
or d i s t r i c t a s s e s s o r s th e co u n ty e q u a liz a t io n board m ust
e q u a liz e th e in d iv id u a l p a r c e ls and c l a s s e s o f p r o p e r ty
w ith in each d i s t r i c t a s w e ll a s e q u a liz e th e r a t io o f
a sse ssm en t among th e d i s t r i c t s . The a c t u a l e q u a liz in g may
be c a r r ie d o u t by e i t h e r o f th e m ethods m en tion ed ab ove.
T h is a c t io n may be ta k e n on th e b o a r d ’ s own i n i t i a t i v e , in
w hich c a se i t n o t i f i e s th o s e ta x p a y e r s o f th e a c t io n and
180
a llo w s them a h e a r in g .
W henever ta x p a y e r s com p lain about t h e i r a s s e s s e d
v a lu a tio n th e y are g iv e n a h e a r in g by th e e q u a liz a t io n
b oard . The a s s e s s o r may be c a l le d by th e board t o e x p la in
and d efen d th e v a lu e p la c e d by him on th e p r o p e r ty . On
h e a r in g b o th p a r t ie s — a s s e s s o r and ta x p a y e r — th e board may
d e c id e no r e d u c tio n i s j u s t i f i e d , i t may g ra n t a r e d u c tio n ,
o r i t may o rd er a r e a sse ssm e n t and a new h e a r in g when th e
p r o p e r ty h a s been r ech ech ed and r e v a lu e d .
In Los A n g eles County in 1947 th e Board o f E q u a liz a
t i o n redu ced th e a s s e s s e d v a lu a tio n on 1 ,2 5 2 a s s e s s m e n ts ;
in 1948 on 1 ,0 1 5 ; in 1949 on 1 ,4 7 4 ; in 1952 on 6 2 3 . The
t o t a l number o f ite m s on th e a sse ssm en t r o l l s w as a p p ro x i
m a te ly 2 ,0 0 0 ,0 0 0 in 1 9 4 6 -4 7 and 2 ,3 0 0 ,0 0 0 in 1 9 5 1 -5 2 . In
1948 th e t o t a l r e d u c tio n o rd ered by th e Board o f E q u a liz a
t io n amounted t o 27 h u n d red th s o f 1 p er c e n t o f th e t o t a l
a s s e s s e d v a lu a tio n ; in 1949 to 33 h u n d red th s o f 1 p er
c e n t . 73
73 Annual R eport o f th e Los A n g eles C ounty A sse sso r
to th e Board o f S u p e r v is o r s . 1 9 4 7 -1 9 4 8 , 1 9 4 8 -1 9 4 9 , 1951-
1 9 5 2 , pp. ll,” Tl, and 10 r e s p e c t i v e l y . (When in te r v ie w e d
by th e w r it e r , December 1 1 , 1 9 5 2 , n e it h e r th e o f f i c e o f th e
C ounty Board o f S u p e r v is o r s n o r th e C ounty A s s e s s o r had
s t a t i s t i c s r e v e a lin g th e number o f r e q u e s ts f o r r e d u c tio n
o f a s s e s s e d v a lu a t io n . The v e r y sm a ll r e d u c tio n in t o t a l
v a lu a tio n o rd ered by th e Board o f E q u a liz a tio n s u g g e s ts
e i t h e r an e x c e p t io n a lly w e l l e q u a liz e d a sse ssm e n t r o l l , o r
p o s s ib ly d e n ia l o f many a p p li c a t io n s .)
181
F in a l a p p ea l to a c o u r t m ust be a v a ila b le t o p ro
t e s t i n g ta x p a y e r s , a lth o u g h such an a p p ea l i s in fr e q u e n t
b eca u se th e ex p en se and burden o f p r o o f r e s t on th e t a x
p a y er . The n e t g a in m ight l i k e l y be l e s s th an th e c o s t s ,
even i f th e ta x p a y e r w in s th e c a s e .
L o ca l r e v ie w , w h ile i t may h e lp d isc o u r a g e g r o s s
i n e q u a l i t i e s in a s s e s s m e n ts , i s n o t a f i n a l s o lu t io n t o th e
problem . O nly th o s e who f e e l t h e i r p r o p e r ty i s o v e r
a s s e s s e d r e s o r t t o an a p p e a l, w h ile a l l u n d e r a sse sse d prop
e r t y ow ners c o n s id e r th e m se lv e s lu c k y . Any v a lid d e c is io n
on c la im s o f o v e r a sse ssm e n t w ould r e q u ir e a re v ie w o f th e
a sse ssm e n t r a t io o f a l l p r o p e r ty in th e d i s t r i c t s in c e
o v e r a sse ssm e n t i s a r e l a t i v e o r com p arative problem . L o c a l
r e v ie w b o d ie s may have n e it h e r th e tim e n o r th e f a c i l i t i e s
to perform such a r e v ie w . For ex a m p le, th e 1948-1949
a sse ssm e n t r o l l o f Los A n g eles C ounty com p rised 337 volu m es
74
w ith a t o t a l o f about 7 5 ,0 0 0 p a g e s. The r e s u l t may be
t h a t l o c a l r e v ie w a g e n c ie s do n o t remove th e b a s ic problem
w hich g iv e s r i s e t o t h e i r e x i s t e n c e ; i . e . , unequal a s s e s s
m ent.
7 4 H arold T. S h a fe r , e d i t o r , Los A n g eles C oun ty.
A Handbook o f I t s Government and S e r v i c e s . Los A n g eles
C ounty Board o f S u p e r v is o r s , 1 9 5 0 , p . 3 4 1 .
182
V I. CONCLUSIONS
A lthou gh much e f f o r t h a s been d ev o ted to im p rovin g
th e l o c a l a d m in is tr a tio n o f p r o p e r ty t a x a tio n r e s u l t s are
none to o im p r e s s iv e . T h e o r e tic a l w ea k n esse s and a d m in is
t r a t i v e d i f f i c u l t i e s in p r o p e r ty t a x a t io n , t o g e t h e r w ith
p u b lic ap ath y and r e s is t a n c e to change make e f f e c t i v e r e
form o f th e t a x m ost d i f f i c u l t . The h e a r t o f th e problem —
th e w ea k est lin k in th e p r o p e r ty ta x c h a in — i s t h a t o f
l o c a l a s s e s s m e n ts . F urtherm ore, th e p o l i t i c a l problem s
in v o lv e d are more d i f f i c u l t to r e s o lv e th an th e p u r e ly
eco n o m ic.
Commenting on e f f o r t s to im prove a sse ssm e n t on th e
l o c a l l e v e l , one a u th o r s a y s :
In e v a lu a tin g v a r io u s s t a t e program s to im prove
l o c a l a sse ssm e n ts one f a c t em erges above a l l o t h e r s .
When s t a t e s a tte m p t, th ro u g h t e c h n ic a l a s s is t a n c e and
v o lu n ta r y r e a p p r a is a l, to e q u a liz e l o c a l a sse ssm en t
r o l l s , th e y a re on c o m p a r a tiv e ly s a fe g ro u n d s. I f ,
how ever, s t a t e s a ttem p t t o r a i s e th e g e n e r a l l e v e l o f
a s s e s s m e n t, th e y move o u t o f th e t e c h n ic a l realm o f
econom ic v a lu a tio n and in t o b i t t e r p o l i t i c a l c o n tr o
v e r s i e s co n cern in g s h i f t i n g ta x b urdens and in c r e a s e d
p r o p e r ty ta x lo a d . Many s t a t e s , t h e r e f o r e , a s s i s t th e
a s s e s s o r a p p r a ise p r o p e r ty a t f u l l v a lu e b u t a llo w th e
l o c a l a s s e s s o r to a s s e s s th e p r o p e r ty a t th e p e rc e n ta g e
o f f u l l v a lu e he deems p o l i t i c a l l y e x p e d ie n t to u s e .
T h is p r a c t ic e can produce an e q u a liz e d a sse ssm e n t r o l l
f o r ta x p a y e r s , b u t a t th e same tim e i t f a i l s t o ta k e
in t o c o n s id e r a tio n a v e r y s e r io u s f i s c a l problem p osed
f o r l o c a l governm en t.
The f i s c a l i n t e g r i t y o f l o c a l governm ent i s b e in g
s t e a d i l y underm ined by th e p e r v a s iv e p r a c t ic e o f
a s s e s s in g p r o p e r ty a t a m inor f r a c t io n o f i t s a c tu a l
183
v a lu e . The average s ta te -w id e a sse ssm en t r a t i o has
dropped s t e a d i l y d u rin g th e l a s t te n y e a r s . F r a c tio n a l
a sse ssm en t h a s , in e f f e c t , h u t th e a c t u a l ta x r a te
pow ers o f l o c a l governm ent t o a f r a c t io n o f t h e i r l e g a l
e n t it le m e n t .
F r a c tio n a l a sse ssm en t h a s th e added e v i l o f com
p l e t e l y u p s e t t in g th e norm al p o l i t i c a l p r o c e s s o f l o c a l
b u d g eta ry d e te r m in a tio n . A fte r a u n it o f governm ent
h as rea ch ed i t s maximum r a t e l i m i t a t i o n , i t s fu tu r e
b u d g eta ry p o l i c y i s l a r g e l y in th e hands o f th e a s s e s s
o r . The d e c is io n made in h is o f f i c e a s t o th e p e r c e n t
age o f m arket v a lu e t h a t w i l l be u sed f o r a sse ssm en t
p u rp o ses i s a lm o st c o n t r o lli n g . M oreover, d e c is io n s
made by th e a s s e s s o r s are more ap t to be in flu e n c e d by
c o n s id e r a tio n o f h i s p o l i t i c a l fu tu r e th an by th e
le g it im a t e reven u e n eed s o f l o c a l governm ent. Thus we
have th e s p e c t a c le o f th e co u n ty a s s e s s o r , whose s o le
fu n c tio n i s to fin d and v a lu e p r o p e r ty a t i t s f u l l
v a lu e , c h a r tin g th e f i s c a l p o lic y o f m ost l o c a l govern
m en ts. 75
Where p r o p e r ty i s a s s e s s e d by th e co u n ty a s s e s s o r
in s te a d o f by a l o c a l , to w n sh ip , o r d i s t r i c t a s s e s s o r , th e
b u d g eta ry p o lic y o f a c i t y governm ent c o u ld be p lann ed on
a more s t a b le b a s is s in c e th e co u n ty a s s e s s o r w ould be
l a r g e l y beyond th e p o l i t i c a l c u r r e n ts o f a g iv e n m u n ici
p a l i t y . In o th e r w ord s, s t r i c t l y l o e a l p o l i t i c a l e x p e d i
en cy may have l i t t l e o r no in flu e n c e on th e a sse ssm en t o f
p r o p e r ty f o r such an o f f i c i a l . T hus, th e r e s u l t w ould be
a more s t a b le a s s e s s e d v a lu a tio n w h ich w ould m inim ize l o c a l
f i s c a l i n s t a b i l i t y .
75 Shannon, "R ecent S ta te w id e Programs to Improve
L o ca l A sse ssm e n ts." o p . c i t . . pp. 1 6 6 -6 7 .
CHAPTER VI
CENTRAL AEMINI STRATI VE MODI ETC ATI ONS
OF PROPERTY TAXATION
An im p o rta n t m o d if ic a tio n o f th e o ld g e n e r a l prop
e r t y ta x h a s b een th e w ith d ra w a l by many s t a t e governm ents
from t h i s f i e l d o f t a x a t io n . The m ain th o u g h t u n d e r ly in g
t h i s change was th e b e l i e f t h a t i t w ould remove th e in d u ce
ment to u n d erv a lu e p r o p e r ty by l o c a l a s s e s s o r s , a s w e ll a s
le s s e n th e burden o f t a x e s l e v i e d on p r o p e r ty . F u rth er
m ore, i t w ould s tr e n g th e n home r u le and l o c a l governm ents
b y g iv in g them c o n tr o l o v e r t h e i r t a x r e s o u r c e s w h ich , i t
was th o u g h t, w ould be a d eq u a te.
Some form o f c e n t r a liz e d a d m in is tr a tio n , e i t h e r
co u n ty o r s t a t e , o r b o th , h a s c o n tin u e d to be n e c e s s a r y
d e s p it e s e p a r a tio n o f reven u e so u r c e s betw een s t a t e and
l o c a l g o v ern m en ts. Many im p o rta n t r e a s o n s , p r e se n te d
b elo w , e x i s t f o r t h i s . As a g e n e r a l r u le c e n t r a l a d m in is
t r a t io n r e f e r s to s t a t e a g e n c ie s and t h e i r f u n c t io n s ; how
e v e r , c o u n ty b o d ie s fr e q u e n tly perform a d m in is tr a tiv e
f u n c t io n s o f a c e n t r a l n a tu re su ch a s s u p e r v is io n and
e q u a liz a t io n . In t h i s c h a p te r th e p r in c ip a l em p h asis i s
on s t a t e a c t i v i t i e s in a d m in is tr a tio n o f th e p r o p e r ty t a x ,
w ith th e r o le o f co u n ty a g e n c ie s seco n d a r y .
185
I . FORMS OF CENTRALIZED AEMINISTRATION
C e n tr a liz e d a d m in is tr a tio n o f th e g e n e r a l p r o p e r ty
ta x h a s m ost f r e q u e n tly ta k en th r e e m ain form s: su p er
v i s i o n , a s s e s s m e n t, and e q u a liz a t io n - - o r a co m b in a tio n o f
t h e s e .
S ta te S u p e r v isio n
In r e c e n t y e a r s s t a t e s u p e r v is io n o f l o c a l t a x in g
o f f i c i a l s h a s become w id e sp r e a d . In 1950 a l l but s i x o f
th e s t a t e s had some form o f c e n t r a l s u p e r v is io n o v e r l o c a l
p r o p e r ty t a x a t io n . 1 S u p e r v iso r y a g e n c ie s , and t h e i r powers
and d u t ie s v a r y among th e s t a t e s . In t h ir t y - o n e s t a t e s in
1950 th e c e n t r a l ta x a d m in is tr a tiv e body had power t o o rd er
a r e a sse ssm e n t o f p r o p e r ty . 2 No s i g n i f i c a n t change h as
o ccu rred in t h i s r e s p e c t s in c e 1930 when t h ir t y - t w o o f th e
3
s t a t e s had c e n t r a l a g e n c ie s w ith t h i s pow er.
S ta te s u p e r v is io n h a s ta k en a v a r i e t y o f fo im s . The
p r in c ip a l aim o f a l l form s o f c e n t r a l c o n t r o l and su p er
v i s i o n i s th e r e d u c tio n o f i n e q u a l i t i e s among in d iv id u a l
1 Tax S ystem s ( t w e lf t h e d it io n ; New York: Commerce
C le a r in g H ouse, I n c . , 1 9 5 0 ), t a b le p p . 1 5 6 -6 0 .
2 Idem .
3 J en s P . J e n se n , P r o p e r ty T a x a tio n in th e U n ited
S t a t e s (C h icago: U n iv e r s ity o f C hicago P r e s s , 1 9 31H
pp. 3 9 6 -9 8 .
186
a sse ssm e n ts and among ta x d i s t r i c t s . Among th e m ethods and
p ro ced u res u sed to a cco m p lish th e fo r e g o in g aim a re th e
fo llo w in g : ( 1 ) e x te n s io n o f g e n e r a l a s s is t a n c e to l o c a l
o f f i c i a l s , (2) p r o v id in g i n - s e r v i c e t r a i n i n g , (3) g iv in g
t e c h n ic a l a s s i s t a n c e where n e e d e d , (4 ) p r o v id in g s p e c i a l
a sse ssm e n t m anuals and g u id e s . In a d d itio n to s u p e r v is in g
l o c a l a sse ssm e n t and a d m in is tr a tio n some s t a t e s — C o lo ra d o ,
K entucky, I n d ia n a , N ebraska and Iow a, among th em --h ave
u nd ertak en r e a p p r a is a l o f p r o p e r ty to c a r r y th rou gh on im
p ro v in g a s s e s s m e n t.
4
W is c o n s in ’ s e x p e r ie n c e . — W isco n sin has r e l i e d
p r in c ip a ll y upon s t a t e s u p e r v is io n and t e c h n ic a l a s s is t a n c e
t o im prove th e q u a l i t y o f p r o p e r ty t a x a t io n . The em p hasis
was on v o lu n ta r y c o o p e r a tio n betw een s t a t e and l o c a l
go v ern m en ts, r a th e r th a n th e s t a t e d ic t a t i n g to l o c a l
a g e n c ie s .
W isc o n s in ’ s e x p e r ie n c e w ith s t a t e s u p e r v is io n g o e s
back as f a r a s 1867 when th e s e c r e ta r y o f s t a t e had ad
v is o r y s u p e r v is o r y pow ers o v e r l o c a l a s s e s s m e n t. At th e
tu r n o f th e c e n tu r y — 1899— th e s t a t e ta x com m ission was
c r e a te d to s tr e n g th e n s t a t e s u p e r v is io n . In a d d itio n to
4 H arold M. G roves and A. B r i s t o l Goodman, ”A P a t
te r n o f S u c c e s s fu l P r o p e r ty Tax A d m in istr a tio n : The
W isco n sin E x p er ien ce— I . S ta te S u p e r v is io n ,” J o u rn a l o f
Land and P u b lic U t i l i t y E con om ics. XIX (May, 1 9 4 3 ), 1 4 2 -5 2 .
187
th e Com m ission th e s t a t e c r e a te d th e o f f i c e o f co u n ty
s u p e r v is o r o f a ssessm en ts* The co u n ty s u p e r v is o r o f
a ss e s s m e n ts was g iv e n g e n e r a l pow ers to s u p e r v is e l o c a l
a s s e s s o r s . In 1911 th e c o u n ty a sse ssm en t s u p e r v is o r s were
d is c o n tin u e d and r e p la c e d b y a s s e s s o r s o f incom e who were
to s u p e r v is e p r o p e r ty t a x a t io n in c o n ju n c tio n w ith a d m in is-
£
t r a t io n o f th e p e r s o n a l incom e t a x . In 1933 th e t a x com
m is s io n recommended th e s e p a r a tio n o f incom e and p r o p e r ty
ta x a d m in is tr a tio n . The l e g i s l a t u r e fo llo w e d th e su g
g e s t io n and a u th o r iz e d th e ap pointm ent o f s u p e r v is o r s o f
a sse ssm e n t fo r v a r io u s d i s t r i c t s o f th e s t a t e . W isco n sin
s t i l l u s e s t h i s form o f c e n t r a l s u p e r v is io n , how ever th e
d i s t r i c t s have been reduced in number from e le v e n t o fo u r
5
and a r e undermanned and u n d e r fin a n c e d .
One o f th e c o n t r ib u t io n s o f s t a t e s u p e r v is io n in
W isco n sin h as b een th e o p e r a tio n o f th e sy stem by su p er
v is o r s ch o sen under a m e r it p la n . Such a c i v i l s e r v ic e
system made i t p o s s ib le to a t t r a c t b e t t e r q u a li f ie d men
6
th a n l i k e l y i f s e le c t e d by l o c a l i t i e s . A nother way by
w hich s t a t e s u p e r v is io n was made e f f e c t i v e was by sh a r in g
5 H arold M. G ro v es. F in a n c in g Government ( th ir d
e d it io n ; New York: Henry H o lt and Company, 1 9 5 1 ), p . 7 1 .
6 G roves and Goodman, "A P a tte r n o f S u c c e s s fu l
P r o p er ty Tax A d m in istr a tio n : The W isco n sin E x p e r ie n c e —
I . S ta t e S u p e r v is io n ," o p . c i t . . p . 1 4 4 .
188
th e ex p en se o f s u p e r v is io n w ith c o u n t ie s .
Im portan t m ethods and p ro ce d u re s o f a sse ssm e n t
s u p e r v is io n in W isco n sin a r e : ( 1 ) annual co u n ty c o n fe r
e n c e s , (2) f i e l d d e m o n str a tio n s, (3) a s s e s s o r s * b u l l e t i n s ,
(4 ) t e c h n ic a l a s s i s t a n c e on d i f f i c u l t a s s e s s m e n ts , (5)
s p e c ia l m anuals f o r a s s e s s o r s , and ( 6 ) c o o p e r a tio n betw een
a s s e s s o r s and s u p e r v is o r s .
S ta te A ssessm ent o f P ro p er ty
In a l l b u t se v en o f th e f o r t y - e ig h t s t a t e s c e r t a in
ty p e s o f p r o p e r ty , e s p e c i a l l y t h a t o f p u b lic u t i l i t i e s , a re
7
a s s e s s e d by s t a t e a g e n c ie s . The p h y s ic a l p r o p e r t ie s o f
p u b lic u t i l i t i e s a re u s u a lly o f a v e r y co m p lic a ted n a tu r e
a s compared to o r d in a r y r e a l e s t a t e s u b je c t to p r o p e r ty
t a x a t io n . In a d d it io n , t h e i r p r o p e r t ie s are commonly
h ig h ly s p e c ia liz e d and t h e i r o p e r a tio n s com plex when com
pared to b ulk o f r e a l e s t a t e . F urth erm ore, t h e i r a c t i v i
t i e s a s a b u s in e s s fir m a re e s s e n t i a l l y u n ita r y in n a tu re
a lth o u g h th e y o f t e n e x te n d beyond eo u n ty o r s t a t e bounda
r i e s . A ls o , th e u t i l i t i e s a re c h a r a c te r iz e d by com plex
form s o f ow nersh ip r e l a t i v e t o th e rank and f i l e o f g e n e r a l
r e a l e s t a t e . S t i l l a n o th er im p ortan t fe a tu r e o f u t i l i t i e s
^ S y stem s ( t w e l f t h e d i t i o n ) , o £ . c i t . . p p . 1 5 6 -
6 0 .
189
i s t h a t th e y are s u b je c t to p u b lic r e g u la t io n . The f o r e
g o in g r e a s o n s , to g e th e r w ith o th e r s c o n sid e r e d in d e t a i l
b elo w , j u s t i f y a sse ssm e n t o f th e s e p r o p e r t ie s b y s t a t e
a g e n c ie s .
A nother im p o rta n t a r e a in w h ich s t a t e s u p e r v is io n ,
a s w e l l a s a s s e s s m e n t, p la y s a v i t a l p a r t i s in s o c i a l l y
s i g n i f i c a n t w a s tin g a s s e t in d u s t r ie s and p r o p e r t ie s , such
a s m in e s, o i l f i e l d s , and th e l i k e , w hose u ltim a te end i s
e x h a u s tio n . F o r e s ts sire a n o th e r s o c i a l l y s i g n i f i c a n t ty p e
o f p r o p e r ty w hich c a l l f o r s p e c ia l ta x tr e a tm e n t compared
to o r d in a r y g e n e r a l p r o p e r ty .
Thus, c e n t r a l a sse ssm e n t a s one o f th e form s o f
s t a t e a c tio n in p r o p e r ty t a x a t io n , i s an e f f o r t t o put in t o
o p e r a tio n r e c o g n it io n o f th e f a c t t h a t p r o p e r ty i s n o t
homogeneous a s assum ed under th e o ld * * unreform ed” g e n e r a l
p r o p erty t a x .
C en tr a l R eview o f A ssessm en ts
R eview o f a s s e s s m e n ts i s p ro v id ed to h ea r in d iv id u a l
c a s e s o f a lle g e d in e q u a lit y in a s s e s s m e n ts . A lth ou gh f i n a l
a p p ea l to a j u d i c i a l body m ust be a v a ila b le t o th e ag
g r ie v e d ta x p a y e r th e g r e a t m a jo r ity o f g r ie v a n c e s a re heard
and r e s o lv e d by n o n - j u d ic ia l b o d ie s . T h is i s tr u e p r in
c i p a l l y b eca u se th e c o u r ts a re r e lu c t a n t to change a s s e s s
m ents s in c e th e y presum e, u n le s s th e r e i s c o n tr a r y
190
e v id e n c e , th a t th e a s s e s s o r ' s fu n c tio n h as heen p r o p e r ly
p erform ed . The a s s e s s o r h a s s u p e r io r know ledge o f th e
p r o p e r ty o f th e co m p la in in g ta x p a y e r a s r e la t e d t o a l l
p r o p e r ty in th e d i s t r i c t . I n a d d it io n to th e burden o f
p r o o f th e ta x p a y e r m ust pay th e c o s t s w hich m igh t eq u a l o r
ex cee d th e g a in i f a c o u r t a e t io n w ere won.
R eview a g e n c ie s have been e s t a b lis h e d w hereby t a x
p a y ers may have a h e a r in g and r e v ie w o f t h e i r c la im s sh o r t
o f f u l l j u d i c i a l a c t io n . Many s t a t e s p ro v id e f o r some
b oard s o f r e v ie w , e i t h e r s t a t e , o r l o c a l , o r b o th . V ery
o f te n l o c a l r e v ie w boards are ex o f f i c i o , b e in g com posed o f
members o f such b o d ie s a s th e C ounty Board o f S u p e r v is o r s ,
o r th e C it y C o u n c il, o r o th e r l o c a l p u b lic o f f i c i a l s .
C e n tr a l— s t a t e — r e v ie w a g e n c ie s a re o f t e n one o f th e
f o llo w in g : (1 ) S ta te Tax Com m ission o r Board o f E q u a liz a
t io n ; (2) Board o f Tax A p p ea ls; (3) Tax o r Revenue Com
m is s io n e r ; o r (4 ) an ex o f f i c i o body o f p u b lic o f f i c i a l s
8
su ch a s s t a t e t r e a s u r e r , a u d it o r , a t to r n e y -g e n e r a l, e t c .
C e n tr a l E q u a liz a tio n o f th e P r o p e r ty Tax
I f ea ch a s s e s s o r c a r r ie d o u t h is ta s k a s n e a r ly
8 N a tio n a l A s s o c ia tio n o f A s s e s s in g O f f ic e r s ,
A ssessm en t O r g a n iz a tio n and P e r so n n e l (C h icago: N a tio n a l
A s s o c ia tio n o f A s s e s s in g O f f i c e r s , 1 9 4 1 ), Ch. 7 .
191
p e r f e c t l y a s p o s s ib le e q u a liz a t io n would be u n n e c e ssa r y . 9
What i s n eed ed , so f a r a s th e a ssessm en t f u n c t io n i s con
ce r n e d , i s u niform a p p lic a t io n o f a g iv e n stan d ard o f v a lu e
w ith in r e a so n a b le c l a s s i f i c a t i o n s o f p r o p e r ty . Though th e
stan d ard o f v a lu e and i t s a p p lic a t io n may v a r y among
c l a s s e s o r ty p e s o f p r o p e r ty w ith o u t v i o l a t i n g r e q u ir e d
u n ifo r m ity o f s t a t e c o n s t i t u t i o n s , unequal a p p lic a t io n o f
th e sta n d a rd , i n t e r c l a s s o r i n t e r d i s t r i c t , v i o l a t e s u n i
fo r m ity and r e s u l t s in i n e q u i t i e s . The m ain p urpose o f
e q u a liz a t io n , e i t h e r co u n ty o r s t a t e , i s t o m in im ize th e
i n e q u a l i t i e s by e q u a liz in g th e t a x burden b etw een k in d s o f
p r o p e r ty and b etw een d i f f e r e n t ta x d i s t r i c t s . E q u a liz a tio n
r e c o g n iz e s th e f a e t o f u nequ al a sse ssm e n ts and a tte m p ts to
co u n te rb a la n c e them . Where s t a t e s le v y no p r o p e r ty ta x o r
d is t r ib u t e no f i n a n c i a l a id c o r r e la te d t o p ro p e rty a s s e s s
m ents e q u a liz a t io n by a s t a t e a g en cy would be u n n e c e ssa r y .
In t h i s e v e n t e q u a liz a t io n by co u n ty a g e n c ie s w ould appear
t o be s a t i s f a c t o r y .
E q u a liz a tio n , by i t s v e r y n a tu r e , in v o lv e s problem s
o f a sse ssm en t and c o n s i s t s o f d eter m in in g th e r a t io o f
a s s e s s e d v a lu e to some sta n d a rd , o r d in a r ily s a l e s v a lu e ,
® H arold M. G roves and A. B r i s t o l Goodman, "A P a t
te r n o f S u c c e s s fu l P r o p e r ty Tax A d m in istr a tio n : The
W isco n sin E x p e r ie n c e - - I I . C e n tr a l A ss e s s m e n t.” J o u rn a l o f
Land and P u b lic U t i l i t y E con om ics. XIX (A u g u st, 1 9 4 3 ), 3 0 0 .
192
w ith in each d i s t r i c t o r c o u n ty . W ith such a r a t i o d e te r
m ined ea c h ty p e o f p r o p e r ty o r e a c h d i s t r i c t can be a l
lo c a te d i t s p ro p er sh are o f t a x e s o r f i n a n c i a l a id .
C e n tr a l a sse ssm en t i s n o t t o be co n fu sed w ith e q u a liz a t io n
s in c e th e form er r e f e r s t o e x c lu s iv e a sse ssm e n t o f c e r t a in
p r o p e r t ie s by c e n t r a l a g e n c ie s .
A lthough s t a t e e q u a liz a t io n has b een p r a c tic e d f o r
many, many y ea rs'1 '® i t h as r e c e iv e d renew ed i n t e r e s t s in c e
1940 even though many s t a t e governm ents no lo n g e r le v y
p r o p e r ty t a x e s . 1 1 A number o f s t a t e s — I l l i n o i s , M in n eso ta ,
C a lif o r n ia , U tah , P e n n s y lv a n ia , Iow a, C o lo ra d o , In d ia n a ,
N eb rask a, and Ohio among them— have e x e r te d much e f f o r t
tow ard im p rovin g p r o p e r ty a sse ssm en t by more e f f e c t i v e
c e n t r a l e q u a liz a t io n .
C e n tr a l e q u a liz a t io n i s n o t su p p orted a s a panacea
to a l l p r o p e r ty ta x d i f f i c u l t i e s . I n th e a b sen ce o f u n i
fo r m ity in in d iv id u a l a s se ssm e n ts e q u a liz a t io n o f f e r s an
e f f e c t i v e way to e q u a liz e th e t a x b urden. Where a p p lie d
c o n s c ie n t io u s ly much p r e s su r e can be put on a s s e s s o r s to
im prove t h e i r a sse s s m e n ts o r be r e s p o n s ib le f o r h ig h e r ta x
1® J e n se n , oj). c i t . , p . 3 6 9 .
1 1 Eugene A. M yers and R an d all S . S to u t, ’’R ecent
Trends in P r o p e r ty Tax E q u a liz a t io n ,” N a tio n a l Tax J o u r n a l,
I I I (J u n e, 1 9 5 0 ), 1 7 9 .
193
r a t e s o r l e s s s t a t e a id a s a l t e r n a t i v e s . C o n s c ie n tio u s
c e n t r a l e q u a liz a t io n may en gen d er o p p o s itio n from l o c a l
o f f i c i a l s b eca u se o f in t e r f e r e n c e in home r u le .
I I . SEASONS FOR CENTRALIZED AIMINISTRATION
C en era l S tatem en t
The p r in c ip le s o f l o c a l autonom y, home r u le , and
l o c a l s e l f r e lia n c e have r e c e iv e d g r e a t em p h asis in ou r
dem ocracy. S ta te governm en ts have sou gh t alw a y s to en
courage and p e r p e tu a te th e s e d e s ir a b le p r i n c i p l e s . V a rio u s
m o d if ic a t io n s to th e g e n e r a l p r o p e r ty ta x have been made to
th e s e e n d s. N e v e r t h e le s s , s t a t e s have been u nab le to d i
v e s t th e m se lv e s o f many r e s p o n s i b i l i t i e s co n n ected w ith
p r o p e r ty t a x a t io n . Among th e im p ortan t r e a so n s f o r t h i s
are th e fo llo w in g : ( 1 ) c o n s t i t u t i o n a l p r o v is io n s r e g a r d in g
p r o p e r ty t a x e s ; ( 2 ) rev en u e n eed s o f s t a t e governm en ts;
( 3 ) p r o t e c t io n o f f i n a n c i a l i n t e g r i t y o f l o c a l governm ent;
(4) e x is t e n c e o f much s t a te -w id e p r o p e r ty ; (5) s ta te -w id e
b u s in e s s o r g a n iz a tio n s and o p e r a tio n s ; ( 6 ) c o m p lica ted
n a tu re o f c e r t a in p r o p e r t ie s ; (7) in e q u ita b le d is t r ib u t io n
o f th e p r o p e r ty ta x lo a d ; (8 ) d is t r ib u t io n o f s t a t e a id s
and sh ared t a x e s c o r r e la te d to p r o p e r ty ta x a sse s s m e n ts ;
( 9 ) s t a te -w id e c h a r a c te r o f governm ent f u n c t io n s , p a r t i
c u la r ly e d u c a tio n , su p p orted l a r g e l y by p r o p e r ty t a x e s ;
.......... 194
and ( 1 0 ) f a i l u r e o f l o c a l a d m in is tr a tio n to a c h ie v e re a so n
a b le u n ifo r m ity in th e o p e r a tio n o f th e t a x .
R easons f o r S u p e r v isio n
The b a s ic re a so n f o r s t a t e s u p e r v is io n , a s w e ll a s
f o r o th e r form s o f c e n t r a liz e d a d m in is tr a tio n o f th e gen
e r a l p r o p e r ty t a x , i s th e u n s a t is f a c t o r y manner and r e s u l t s
o f l o c a l a d m in is tr a tio n o f th e t a x . Im p e r fe c t r e s u l t s are
p a r t i a l l y u n a v o id a b le in th e n a tu re o f th e t a x f o r th e
rea so n th a t h e te r o g e n e o u s p r o p e r t ie s are u s u a lly t r e a te d
a s though th e y w ere hom ogeneous. Such m o d if ic a t io n s a s
ex em p tio n s and c l a s s i f i c a t i o n , f o r ex a m p le, have been aimed
a t t h i s b a s ic problem . In a d d itio n t o th e h e t e r o g e n e it y o f
p r o p e r ty th e r e a re w ide v a r ia t io n s among l o c a l a sse ssm e n t
p r a c t ic e s a r i s i n g from d if f e r e n c e s in th e com petence and
w ork in g c o n d itio n s o f in d iv id u a l a s s e s s o r s . S ta te su p er
v i s i o n , a lth o u g h ta k in g many fo rm s, s e e k s t o m in im ize
v a r ia t io n s in th e l o c a l a sse ssm en t p r o c e s s t o th e end t h a t
th e ta x lo a d may be more e q u ita b ly d is t r ib u t e d and th e
f i n a n c i a l i n t e g r i t y o f b o th s t a t e and l o c a l governm ents be
p r o te c te d .
R easons f o r C e n tr a l A ssessm en t
Where s t a t e governm en ts le v y on a ta x b a se w hich I s
l o c a l l y d eterm in ed b a s ic problem s a r i s e . One o f th e s e i s
195
th e p r a c t ic e of* " c o m p e titiv e u n d erv a lu a tio n " among c o u n tie s
o r d i s t r i c t s w ith in a c o u n ty . By t h i s m ethod th e c o u n ty o r
d i s t r i c t s e e k s to reduce i t s sh are o f th e s t a t e le v y . As .a
r e s u lt th e e f f i c i e n c y o f s t a t e and l o c a l governm ent i s im
p a ir e d , a s w e ll a s th e a sse ssm e n t p r a c t ic e i t s e l f .
S ta te a sse ssm e n t h a s heen su g g e ste d t o d e a l w ith th e
p roblem . T h is w ould tu rn o v e r t o s t a t e o f f i c i a l s th e en -
12
t i r e job o f a s s e s s in g a l l ta x a b le p r o p e r ty . Such a
p r a c t ic e , i t i s c la im e d , w ould e lim in a t e l o c a l a sse ssm en t
c o m p e titio n and r e s u l t in a u niform s ta te -w id e v a lu a t io n .
L o e a l g o v ern in g b o d ie s — c o u n ty , c i t y , s c h o o l b o a r d s, e t c . —
w hich are h ig h ly dependent on p r o p e r ty t a x e s w ould th u s
have a more s t a b le ta x b a se and g r e a t e r f i n a n c i a l i n t e g r i t y .
S ta te a sse ssm e n t o f a l l p r o p e r ty i s o b je c t io n a b le t o many
a s th e y f e e l i t in f r in g e s th e d o c tr in e o f home r u le . S ta te
a s s e s s m e n t, lim it e d t o s p e c ia l ty p e s o f p r o p e r ty , i s used
w id e ly . G en eral p r o p e r ty , in a l l f o r t y - e i g h t s t a t e s , i s
a s s e s s e d by co u n ty and l o c a l a s s e s s o r s .
Meaning o f c e n t r a l a s s e s s m e n t. — Some a u th o rs u se
th e term s " c e n tr a l a ssessm en t" and " c e n tr a l e q u a liz a tio n "
12 The League o f C a lif o r n ia C i t i e s , in i t s 1946 Con
v e n t io n , adopted a r e s o lu t io n u rg in g amendment o f th e S ta te
C o n s tit u tio n to p r o v id e a S ta te a g en cy w hich w ould a s s e s s
a l l p r o p e r ty s u b je c t t o ad valorem t a x a t io n . W estern C it y .
O cto b er, 1 9 4 6 , p . 3 1 .
196
t o mean th e same t h in g . Each d o e s , in f a c t , have t o do
w ith th e a sse ssm en t o f p r o p e r ty ; h ow ever, a s used h ere th e
form er r e f e r s to s o le o r e x c lu s iv e v a lu a t io n o f p r o p e r ty by
s t a t e a g e n c ie s , w h ile th e l a t t e r h a s to do w ith d eterm in in g
and e q u a liz in g a sse ssm en t r a t i o s betw een c o u n t ie s by s t a t e
a u th o r it y .
A lthough c e r t a in r e a s o n s in common c a l l f o r c e n t r a l
a sse ssm e n t and c e n t r a l e q u a liz a t io n th e r e are im p ortan t
problem s w hich r e q u ir e s e p a r a tio n o f th e two f u n c t io n s .
B a sic econom ic r e a so n s n e c e s s i t a t e , o r a t l e a s t j u s t i f y ,
c e n t r a l e v a lu a tio n o f c e r t a in p r o p e r ty . R a ilr o a d s and th e
o th e r p u b lic u t i l i t i e s in v o lv e problem s t h a t d i f f e r g r e a t ly
from th o s e o f t a x in g o r d in a r y r e a l e s t a t e . W ith o n ly se v en
ex em p tio n s th e s e p r o p e r t ie s are a s s e s s e d e x c l u s i v e l y by a
IS
s t a t e agen cy o r j o i n t l y by s t a t e and l o c a l a s s e s s o r s .
Economic r e a so n s in c e n t r a l a s s e s s m e n t. — R a ilr o a d s
and p u b lic u t i l i t i e s make up th e g r e a te r p a rt o f s t a t e
a s s e s s e d p r o p e r ty . Many r e a so n s a r e o f f e r e d t o su p p ort th e
n eed f o r c e n t r a l a sse ssm e n t: ( 1 ) la r g e v a lu a tio n o f prop
e r t y ; (2) s p e c ia liz e d n a tu re o f th e p r o p e r ty ; (3) unequal
d is t r ib u t io n o f p r o p e r ty ; (4) u n ita r y n a tu r e o f th e
b u s in e s s ; (5) com plex ty p e o f o w n ersh ip ; ( 6 ) c o m p lic a tio n s
Tax S y stem s ( t w e l f t h e d i t i o n ) , op. c i t . . t a b l e
p p . 1 8 5 -9 7 .
197
in o p e r a tio n s ; (7) m o b ilit y o f c e r t a in p r o p e r t ie s ; (8 ) i n
fr e q u e n t s a l e o f p r o p e r ty ; (9 ) governm ent r e g u la tio n o f
u t i l i t i e s ; and ( 1G) n e c e s s i t y f o r s p e c i a l l y t r a in e d a s s e s s
o r s . The u su a l m ethods o f a s s e s s in g p r o p e r ty by in d iv id u a l
p a r c e ls a re g e n e r a lly in a p p r o p r ia te when a p p lie d t o th e
p u b lic u t i l i t i e s , e s p e c i a l l y r a i lr o a d s .
By w h a tev er m easure th e p u b lic u t i l i t i e s have prop
e r t y o f enormous v a lu a t io n . I t i s o b v io u s ly in th e i n
t e r e s t o f l o c a l u n it s o f governm ent to have such p r o p e r ty
a s s e s s e d f a i r l y a s i t may com p rise a m ajor p a r t o f th e t a x
b a s e . A lthou gh l o e a l a p p r a is a l m igh t be more a d v an tageou s
f o r p a r t ic u la r d i s t r i c t s , m ost s t a t e s p ro v id e f o r c e n t r a l
a sse ssm e n t o f s t a te -w id e o r in t e r - c o u n t y u t i l i t i e s t o p ro
t e c t th e i n t e r e s t s o f v a r io u s l o c a l governm ents a s w e ll a s
th e u t i l i t y .
A lm ost any p h y s ic a l p r o p e r ty i s s p e c ia liz e d t o some
e x t e n t , how ever th e p r o p e r ty o f u t i l i t i e s i s h ig h ly s o .
T elep h o n e, t e le g r a p h , o r power l i n e s , w a te r and g a s m a in s,
e l e c t r i c g e n e r a tin g eq u ip m en t, r a ilw a y t r a c k s , and o th e r
r e la t e d p r o p e r t ie s can n ot r e a d i l y be t r a n s fe r r e d t o o th e r
u s e s . T h is f a c t makes a p p r a is a l, e s p e c i a l l y in a p ie c e by
p ie c e m anner, d i f f i c u l t s in c e a com parable p r o p e r ty may be
u n a v a ila b le . F urtherm ore, p u b lic u t i l i t i e s w i l l c o n tin u e
t o o p e r a te o v er a lo n g e r p e r io d o f tim e th a n o th e r p r iv a te
198
b u s in e s s e s g e n e r a lly , ev en though, n o t a l l c o s t s a re com
p l e t e l y c o v e r e d . The mere f a c t t h a t th e y c o n tin u e t o
o p e r a te may in flu e n c e th e a p p r a is a l, i f done l o c a l l y , in
t h a t th e f a c t o f o p e r a tio n may be assum ed to e v id e n c e v a lu e
w h ich i s t a x a b le . R e g u la tio n s may w e ll r e q u ir e c o n tin u e d
o p e r a tio n s d e s p it e f a i l u r e to earn p r o f i t s . F a ilu r e to
earn p r o f i t s , how ever, d o es n o t mean th e v a lu e o f th e prop
e r t y h as e x p ir e d . A p p r a isa l on th e b a s is o f h i s t o r i c a l o r .
r e p r o d u c tio n c o s t w ould p la c e v a lu e i n some amount on prop
e r t y even thou gh a f a i r r e tu r n may n o t be ea rn ed . P ie c e by
p ie c e a p p r a is a l m ight y i e l d a t o t a l v a lu e g r e a te r th an
a c t u a l f a i r v a lu e a s d eterm in ed by c e n t r a l a u th o r it y u sin g
a l l p e r m issa b le m ethods o f v a lu a t io n .
t&iequal d is t r ib u t io n o f th e u t i l i t y ’ s r e a l p r o p e r ty
among v a r io u s c o u n tie s and t a x in g d i s t r i c t s op en s th e door
t o p o s s ib le a b u se . A ssessm en t d i s t r i c t s may be m a n ip u la ted
t o in c lu d e c e r t a in i n s t a l l a t i o n s o f f ix e d p r o p e r ty , o r
a sse ssm e n t r a t i o s v a ry m arkedly among d i s t r i c t s .
Much p r o p e r ty o f r a i lr o a d s i s m o b ile w hich f a c t com
p l i c a t e s th e t a x p ro b lem s. C e n tr a l a sse ssm e n t i s urged a s
th e o n ly p r a c t ic a b le means o f a s s u r in g f a ir n e s s and u n i
fo r m ity in ta x in g such p r o p e r ty . A s t a t e a g en cy can ta k e
an o v e r a ll v iew and a l l o c a t e p ro p er p o r t io n s t o l o c a l d i s
t r i c t s .
199
One o f th e b a s ic r e a s o n s back o f c e n t r a l a p p r a is a l
o f u t i l i t y and r a ilw a y p r o p e r ty i s th e u n ita r y n a tu re o f
th e b u s in e s s o r g a n iz a tio n . P h y s ic a l p r o p e r ty i n s t a l l a t i o n s
lo c a te d in a p a r t ic u la r co u n ty are n o t d i s t i n c t b u s in e s s
u n it s b u t a re m e r e ly p a r ts o f a s in g le o r g a n iz a tio n . Such
p r o p e r t ie s ca n n o t be d is c o n tin u e d , a s th e y a re lin k s in th e
w hole ch a in r e q u ir e d f o r o p e r a tio n . Compared t o a r e t a i l
ch a in s t o r e , such p r o p e r t ie s and t h e i r o p e r a tio n s a re
c l o s e l y r e la t e d and in te r d e p e n d e n t. A r e t a i l ch a in may
d is c o n tin u e a p a r t ic u la r u n it w ith l i t t l e e f f e c t on th e
w h o le. For th e s e r e a s o n s a p p r a is a l can be r e a so n a b ly done
o n ly b y a c e n t r a l a g en cy .
B ecause th e ow nersh ip o f p u b lic u t i l i t i e s and r a i l
ro a d s i s f r e q u e n t ly o f a com plex n a tu re a sse ssm e n t o f t h e i r
p r o p e r t ie s i s b e s t done by s t a t e a u t h o r i t i e s . A lthough
much s i m p l i f i c a t i o n o f c o r p o r a te o r g a n iz a tio n h a s tak en
p la c e s in c e 1935 i t rem ain s com plex and s t r e s s e s th e n eed
f o r u n ita r y a s s e s s m e n t.
As compared t o o r d in a r y r e a l e s t a t e p u b lic u t i l i t y
p r o p e r ty i s o n ly r a r e ly s o ld . Thus a com parable and f r e
q u e n tly u sed b a s is f o r a s s e s s in g o r d in a r y p r o p e r ty i s n o t
a v a ila b le f o r r a ilw a y o r u t i l i t y p r o p e r ty . T h is f a c t , t o o ,
s t r e s s e s th e n e c e s s i t y f o r u n ita r y a p p r a is a l. H aving no
s a l e s d a ta and fa c e d w ith p la c in g a v a lu e on one p a r t o f
200
la r g e e n t e r p r is e * s p r o p e r ty , th e l o c a l a s s e s s o r i s a t a
d isa d v a n ta g e — to sa y th e l e a s t .
M o th e r im p o rta n t c h a r a c t e r is t ic o f p u b lic u t i l i t i e s
and r a ilr o a d s i s th e f a c t o f governm ent r e g u la tio n stemming
from th e s t a t u s o r n a tu re o f th e b u s in e s s . O r d in a r ily th e y
have p e r m issio n and p r i v i l e g e to u se p u b lic p r o p e r ty . T h is
f a c t , t o g e t h e r w ith w hat may be f e l t to be a g u a ra n teed
f a i r r e tu r n , m igh t ten d to c r e a te an e x a g g e r a te d im p r e ssio n
in th e l o c a l a s s e s s o r s mind o f th e v a lu e o f such p r o p e r ty .
A f i n a l r e a so n f o r c e n t r a l a p p r a is a l o f such prop
e r t y i s found in th e n eed f o r a h ig h ly s p e c ia liz e d and
tr a in e d s t a f f to ca r r y ou t e f f e c t i v e v a lu a tio n o f th e s e
p r o p e r t ie s . L o c a l govern m en tal b o d ie s may la c k b o th s t a f f
and f i n a n c i a l r e s o u r c e s f o r su ch a p u rp o se.
R easons f o r C e n tr a l E q u a liz a tio n
E q u a liz a tio n i s n e c e s s a r y b eca u se o f i n e q u a l i t i e s in
in d iv id u a l a s se ssm e n ts w ith in ta x d i s t r i c t s , and b eca u se
r a t i o s o f a s s e s s e d t o tr u e v a lu e v a ry w id e ly among d i s
t r i c t s and c o u n t ie s . The b a s ic problem in r e a l e s t a t e
t a x a tio n i s th e in e q u a l it y among in d iv id u a l a s s e s s m e n ts .
T h is can be red u ced o r e lim in a te d o n ly by b r in g in g about
c o n s c ie n t io u s a p p lic a t io n o f a u niform sta n d a rd o f v a lu e by
ea ch a s s e s s o r . T h is would r e s u l t in in t e r n a l e q u a liz a t io n
i f perform ed a c c u r a te ly and w ould rem ove th e n eed f o r
SOI
14
r e v ie w o f a s s e s s m e n ts o r f o r c e n t r a l e q u a liz a t io n . Such,
a c c u r a cy i s n o t r e a liz e d in p r a c t i c e , how ever, and c e n t r a l
e q u a liz a t io n , b oth i n t r a d i s t r i c t and i n t e r d i s t r i c t i s n e c e s
s a r y . C e n tr a l e q u a liz a t io n a g e n c ie s w ere in u se p r io r to
15
1 7 0 0 , and c o n tin u e to be u sed in m ost s t a t e s . Em phasis
on p r o p e r ty t a x e q u a liz a t io n can be acco u n ted for by a
number o f r e a s o n s .
P r o p e r ty ta x e s a re p r in c ip a l l o c a l r e v e n u e . - -
C ounty i n t e r e s t in e q u a liz a t io n a r i s e s from th e p r a c t ic e o f
u nequ al a sse ssm e n t o f ta x a b le p r o p e r ty . A lthough e q u a liz a
t i o n may n o t be e f f e c t i v e in en d in g th e p r a c t ic e o f a s s e s s
in g p r o p e r ty a t a f r a c t io n o f th e v a lu e c a l le d f o r b y s t a t e
la w , i t can en su re th a t th e t a x l e v ie d by th e e o u n ty be
borne e q u it a b ly by th e v a r io u s t a x d i s t r i c t s . C o n scien
t i o u s e q u a liz a t io n s t r i k e s a b low a t th e p e r n ic io u s p rac
t i c e o f c o m p e titiv e u n d e r v a lu a tio n and th u s s tr e n g th e n s
th e p r o p e r ty ta x by in c r e a s in g i t s e q u it y . E q u a liz a tio n ,
a s su c h , how ever c o n s c ie n t i o u s ly p erform ed , w i l l n o t s o lv e
th e problem o f poor o r f r a c t io n a l o r i g i n a l a sse ssm e n t.
S in c e c o n s t i t u t io n a l and s t a t u t o r y r e s t r i c t i o n s are f r e
q u e n tly p la c e d on th e t a x in g and borrow ing pow ers o f l o c a l
governm en ts f r a c t io n a l a sse ssm e n t je o p a r d iz e s t h e i r
J e n se n , op . c i t ., p. 3 6 1 .
15 Idem .
202
f in a n c e s more s e r i o u s l y th a n im p e r fe c t e q u a liz a t io n .
A u th o r ity o f e q u a liz a t io n boards i s u s u a lly lim it e d to
e q u a liz in g c e n t r a l l e v i e s among d i s t r i c t s on th e b a s i s o f
th e l o c a l l y d eterm in ed a sse ssm en t r o l l and d o es n o t ex ten d
t o o r d e r in g ch an ges in in d iv id u a l a s s e s s m e n ts . B la n k et
in c r e a s e s o r d e c r e a s e s can be u sed t o e q u a liz e c e n t r a l
l e v i e s among d i s t r i c t s but le a v e s untouched th e more im
p o r ta n t problem o f unequal o r i g i n a l a s s e s s m e n ts . A com
p le t e r e a sse ssm e n t w ould be n e c e s s a r y to a cc o m p lish t h i s .
P r o p e r ty t a x e s a re im p o rta n t s t a t e r e v e n u e . —
P r o p e r ty t a x e s s t i l l c o n s t it u t e an im p o rta n t reven u e so u rce
f o r many s t a t e govern m en ts. Where t h i s i s th e c a se e q u ity
r e q u ir e s th a t th e s t a t e le v y be borne f a i r l y by th e coun
t i e s o f th e s t a t e . S ta te b oard s o f e q u a liz a t io n have th e
d u ty o f b r in g in g t h i s a b o u t. Such a g e n c ie s , a s i s tr u e o f
co u n ty b o a r d s, do n o t g e t a t th e problem o f u nequ al i n d i
v id u a l a sse ssm e n ts s in c e t h e i r a u th o r it y i s o f t e n lim it e d
t o o r d e r in g b la n k e t, o r d i s t r i c t , ch an ges in th e e n t ir e
16
a sse ssm e n t r o l l o f a c o u n ty .
Where a s t a t e c o n s t it u t io n s e t s a l i m i t on th e r a t e
w hich th e s t a t e governm ent may a p p ly th e amount o f reven ue
1 6
T h is i s tr u e in C a lif o r n ia . See M alcolm M.
D a v isso n and W illia m K. S c h m e lz le , " E q u a liz a tio n o f Prop
e r t y Tax A ssessm en ts in C a lif o r n ia ," N a tio n a l Tax J o u r n a l.
I l l (S ep tem b er, 1 9 5 0 ), 2 2 1 .
d e r iv e d w ould be redu ced by u n d e r v a lu a tio n o f p r o p e r ty
w ith in any d i s t r i c t . To en su re th e s t a t e g e t t i n g th e f u l l
amount o f reven u e th e E q u a liz a tio n Board c o u ld r a i s e th e
e n t ir e a sse ssm en t r o l l in u n d ervalu ed d i s t r i c t s .
C o m p etitiv e u n d e r v a lu a tio n by d i s t r i c t s . — D e s p ite
c o n s t i t u t i o n a l m andates r e q u ir in g u n iform a sse ssm en t o f
p r o p e r ty a t i t s f a i r m arket v a lu e , many r e a so n s are found
in p r a c t ic e f o r la c k o f u n ifo r m ity . F u n d am en tally, com
p e t i t i v e u n d e r v a lu a tio n stem s from a p p ly in g a f ix e d r a t e by
a c e n t r a l u n it o f governm ent— co u n ty o r s t a t e — to a ta x
b a se l o c a l l y d eterm in ed . I n d iv id u a l a sse ssm en t d i s t r i c t s
may e s c a p e a p a rt o f t h e i r f a i r sh are o f th e c e n t r a l t a x by
e s t a b lis h in g an u n d ervalu ed a sse ssm e n t r o l l . I f a l l d i s
t r i c t s en gage in th e p r a c t ic e , and to th e same d e g r e e , none
w ould b e n e f i t ; h ow ever, r e l a t i v e u n d e r v a lu a tio n by any one
g iv e s i t an ad vantage a lo n g s id e i t s n e ig h b o r .
A seco n d re a so n f o r th e p r a c t ic e a r i s e s from th e
d e s i r e , more o r l e s s n a t u r a l, o f th e a s s e s s o r to a v o id p ro
t e s t and c o n f l i c t w ith th e ta x p a y e r s l i k e l y to r e s u l t from
a p p r a is in g t h e i r p r o p e r ty a t o r n ea r f u l l v a lu e . T axpayers
w ould more l i k e l y demand r e v ie w and r e d u c tio n o f t h e ir
a s s e s s m e n ts th e more n e a r ly th e a p p r a ise d v a lu e a p p r o x i-
«
m a tes f u l l v a lu e . O b v io u sly , th e ta x p a y e r who r e a l i z e s h i s
p r o p e r ty i s u n d ervalu ed w ould c o n s id e r h im s e lf lu c k y and
304
n o t ask f o r r e v ie w .
A nother im p o rta n t rea so n f o r c o m p e titiv e under
v a lu a tio n e x i s t s where f i n a n c i a l a id i s g iv e n by upper t o
lo w e r l e v e l s o f governm ent in in v e r s e p r o p o r tio n t o th e
a s s e s s e d v a lu a tio n o f th e co u n ty o r d i s t r i c t . S e l f in
t e r e s t w ould d ic t a t e e s t a b l is h i n g a low a s s e s s e d v a lu a t io n .
D is t r ib u t io n o f f i n a n c i a l a s s i s t a n c e . — As men
tio n e d above c o m p e titiv e u n d era ssessm en t te n d s t o be en
cou raged by d is t r ib u t io n o f a id g ea red t o a s s e s s e d v a lu a
t io n in in v e r s e p r o p o r tio n . The same w ould be tr u e i f
t a x e s are sh ared on a s im ila r b a s i s . C e n tr a l e q u a liz a t io n
i s n e c e s s a r y , t h e r e f o r e , to p r o t e c t th e d is t r ib u t io n o f
v a r io u s s t a t e a id s from th e in r o a d s o f c o m p e titiv e under
v a lu a tio n .
Tax r a te and debt l i m i t a t i o n s made e f f e c t i v e . —
E f f e c t iv e c e n t r a l e q u a liz a t io n p r e v e n ts l o c a l m a n ip u la tio n
o f a s se ssm e n ts d e sig n e d to evade l i m i t a t i o n s p la c e d on ta x
r a t e s o r in d e b te d n e s s o f l o c a l govern m en ts. Where su ch
l i m i t a t i o n s are b a sed , e i t h e r w h o lly o r in p a r t , on s t a t e
a sse ssm e n t l o c a l b o d ie s w ould be r e s t r i c t e d in m a n ip u la tin g
a sse ssm e n t r o l l s .
A sse ssm e n ts b y c l a s s e s o f p r o p e r ty e q u a liz e d . —
Where a s s e s s o r s u se d i f f e r e n t sta n d a rd s in a p p r a is in g d i f
f e r e n t c l a s s e s o f p r o p e r ty , o r v a lu e some ty p e s a t a h ig h e r
205
r a t io th a n o t h e r s , c e n t r a l e q u a liz a t io n can be used t o
red u ce th e i n e q u a l i t i e s . T h is co u ld be a cco m p lish ed by
a llo w in g m ass ch a n g es in a s s e s s e d v a lu a tio n o f c l a s s e s o f
p r o p e r ty . E q u a liz a tio n by c l a s s o f p r o p e r ty may be e s
p e c i a l l y im p o rta n t w ith r e s p e c t t o in d u s t r ia l p r o p e r ty ,
where l o c a l p r e s su r e f o r a low v a lu a tio n may be v e r y
17
s tr o n g .
S ta te a sse ssm e n t o f in te r c o u n ty u t i l i t y p r o p e r t ie s
r e q u ir e s c e n t r a l e q u a liz a t io n . — W here, a s in C a lif o r n ia ,
s t a t e - a s s e s s e d p r o p e r ty m akes up an im p o rta n t p a r t o f l o c a l
ta x r o l l s , e q u a liz a t io n on a s ta te w id e b a s i s i s n e c e s s a r y
i f such p r o p e r t ie s are to be s u b je c t t o t a x a tio n to th e
same e x t e n t and in th e same manner a s o th e r p r o p e r ty . Each
co u n ty m ust have i t s a s s e s s e d v a lu a tio n e q u a liz e d w ith a
common s ta te w id e l e v e l o f a s s e s s e d to f a i r v a lu e , f o r
exam ple 50 p e r c e n t , t o en su re u n ifo r m ity in t a x in g r e a l
p r o p e r ty o f in te r c o u n ty u t i l i t i e s . V a r ia tio n s in th e r a t io
o f a s s e s s e d t o f a i r v a lu e among c o u n tie s would s u b je c t
th e s e s t a t e - a s s e s s e d p r o p e r t ie s t o d i f f e r e n t d e g r e e s o f
t a x a tio n u n le s s e q u a liz e d t o a s ta te w id e b a s e .
A nother re a so n f o r c e n t r a l e q u a liz a t io n a r i s e s when
^ G roves and Goodman, "A P a tte r n o f S u c c e s s fu l
P r o p e r ty Tax A d m in istr a tio n : The W isco n sin E x p er ien ce—
I I . C e n tr a l A s s e s s m e n t,” o p . c i t . . p . 3 0 6 .
206
a s t a t e t a x i s l e v i e d on th e p e r s o n a l p r o p e r ty o p era ted
o v e r th e r a ilr o a d s o f th e s t a t e . C a lif o r n ia im p o ses such
a t a z on " p r iv a te c a r s ”— p a sse n g e r e a r s , s le e p in g c a r s ,
tan k c a r s , e tc .--c o m p u te d a t th e p r e c e d in g y e a r ’ s a verage
r a t e o f p r o p e r ty t a z a t io n . The p r o p e r ty i s a p p r a ise d by
th e S ta te Board o f E q u a liz a tio n and th e t a z i s im posed in
l i e u o f a l l o th e r s t a t e , c o u n ty , m u n ic ip a l, o r d i s t r i c t ad
valorem t a x e s .
E q u a liz a tio n n e c e s s a r y in v e te r a n s * p r o p e r ty t a z
e z e m p tio n . — E q u a liz a tio n o f a s s e s s m e n ts i s im p ortan t
where p r o p e r ty ta x exem p tion i s g ra n ted t o v e t e r a n s . For
exam p le, th e C a lif o r n ia C o n s tit u tio n p r o v id e s t h a t p r o p e r ty
t o th e amount o f $1 ,0 0 0 owned by r e s id e n t v e te r a n s i s
exempt from, p r o p e r ty t a x e s i f th e v e te r a n d o es n o t own
19
p r o p e r ty v a lu e d a t $ 5 ,0 0 0 o r m ore. As i t o p e r a te s in
p r a c t ic e t h e exem p tion r e f e r s t o th e a s s e s s e d v a lu e o f th e
p r o p e r ty . In o th e r w o rd s, th e v e te r a n i s e l i g i b l e f o r
exem p tion o f $1 ,0 0 0 a s s e s s e d v a lu e from p r o p e r ty t a x e s so
lo n g a s th e a s s e s s e d v a lu e o f th e p r o p e r ty d o es n o t ex c eed
$ 5 ,0 0 0 . I t i s c l e a r t h a t th e c o n s t i t u t i o n a l p r o v is io n
v a r ie s in im portan ce d ep en din g on th e a sse ssm e n t l e v e l s
1 8 D a v isso n and S c h m e lz le , o £ . c i t . . p . 2 2 3 .
C a lif o r n ia C o n s t it u t io n , A r t ic le XEI, s e c . 1 * .
^ 307
w hich p r e v a il among th e v a r io u s t a x in g d i s t r i c t s . In d i s
t r i c t s w ith a lo w r a t i o o f a s s e s s e d to tr u e v a lu e f u l l
b e n e f it o f th e exem p tion may be r e a liz e d on p r o p e r ty w orth
much more th a n $ 5 ,0 0 0 , w h ile v e te r a n ow ners in d i s t r i c t s
h avin g a h ig h a sse ssm e n t r a t io m igh t r e a l i z e no b e n e f it
from th e ex e m p tio n . E f f e c t iv e e q u a liz a t io n co u ld red u ee
su ch i n e q u i t i e s .
Need f o r c e n t r a l e q u a liz a t io n in a id to e d u c a tio n . —
M ost o f th e reven u e f o r e d u c a tio n com es from p r o p e r ty ta x a
t i o n . The n eed f o r e f f e c t i v e c e n t r a l e q u a liz a t io n i s e x
tr e m e ly im p o rta n t in t h i s problem . The arrangem ent in
C a lif o r n ia can be d is c u s s e d a s r e p r e s e n t a t iv e o f th e prob
lem .
In C a lif o r n ia th e S ta te a l l o c a t e s fu n d s to l o c a l 1
s c h o o l d i s t r i c t s in am ounts d e sig n e d t o e s t a b l i s h a b a s ic
minimum stan d ard th ro u g h o u t th e s t a t e . To a cco m p lish t h i s
d e s ir e d stan d ard th e S ta t e f i r s t a p p o r tio n s a id to l o c a l
d i s t r i c t s f o r b a s ic n e e d s . In a d d itio n t o t h i s b a s ic a id
g r a n t, l o c a l d i s t r i c t s m ust r a i s e enough p r o p e r ty t a x
re v en u e s by a p p ly in g a u n iform ta x r a te to th e t a x b a se t o
p ro v id e fu n d s to m eet minimum s t a t e r e q u ir e m e n ts. I f th e
sum o f l o c a l p r o p e r ty t a x e s and b a s ic s t a t e a id f a l l sh o r t
o f th e minimum r e q u ir e d , th e S ta te g r a n ts su p p lem en ta l a id
t o make up th e d e f ic ie n c y . Thus s c h o o l d i s t r i c t s h a v in g
208
h ig h a sse ssm e n t r a t i o s stan d t o r e c e iv e l e s s f in a n c i a l a id
them th o s e where a sse ssm e n t r a t i o s a re lo w . In a w ord,
d i s t r i c t s e l f - i n t e r e s t d i c t a t e s low a sse ssm en t l e v e l s .
The n eed f o r e f f e c t i v e e q u a liz a t io n in c o n n e c tio n
w ith a id t o e d u c a tio n was w e ll s t a t e d in a r e c e n t e d i
t o r i a l :
The o n ly e x i s t i n g f u n c t io n a l in d e x o f a com m unity’ s
a b i l i t y to fin a n c e i t s s c h o o ls i s th e a s s e s s e d v a lu e
o f i t s t axa b le p r o p e r ty . T h is in d e x i s now u sed f o r
th e d is t r ib u t io n o f S ta te A id , b o th f o r c u r r e n t o p era
t i o n and c a p i t a l o u t la y t o th e v a r io u s s c h o o l d i s
t r i c t s .
R ecent r e v e la t io n s fo r c e one to th e r e lu c t a n t con
c lu s io n t h a t in many a r e a s o f th e s t a t e th e a s s e s s e d
v a lu e o f ta x a b le p r o p e r ty i s n o t an in d e x o f w e a lth b u t
an in d ic a t io n o f a sse ssm e n t p o l i c y . T h is m eans t h a t
when th e L e g is la t u r e a d o p ts a form u la f o r th e d i s t r i
b u tio n o f S ta te Aid t o th e s c h o o ls , a m ost im p o rta n t
v a r ia b le in d eterm in in g th e a c t u a l amount o f money
r e c e iv e d by a l o c a l d i s t r i c t i s th e p o l i c y o f a s s e s s
ment a u t h o r i t i e s .
Mien hundreds o f m i l l i o n s o f s t a t e m onies a re b e in g
d is t r ib u t e d a n n u a lly on th e b a s is o f l o c a l v a lu a t io n s ,
th e n a sse ssm e n t p r a c t ic e c e a s e s to be m e r e ly a l o c a l
o r co u n ty i n t e r e s t and becom es a m a tte r o f s ta te w id e
c o n c e r n . When th e s t a t e p r o v id e s th e s e fu n d s th e s t a t e
h a s th e r ig h t and d u ty t o i n s i s t t h a t e q u ita b le and
r e a so n a b ly uniform p r a c t ic e s be fo llo w e d in th e d i s
t r ib u t io n o f t h e s e g r a n t s . 20
E q u a liz a tio n r e q u ir e d in a id to n eed y a g e d , b l i n d .
and children. — S ta te g r a n ts f o r a id to th e b lin d , c h i l d
r e n , and n eed y a g ed , w here b ased on a s s e s s e d v a lu a tio n o f
20 C 'TA J o u r n a l. The J o u rn a l o f th e C a lif o r n ia
T each ers A s s o c ia t io n , XLVIII (F eb ru a ry , 1 9 5 2 ), 5 .
209
p r o p e r ty , a s in C a lif o r n ia , c a l l s f o r c e n t r a l e q u a liz a t io n
t o en su re u n ifo r m ity . To be e l i g i b l e f o r f in a n c i a l a id th e
a p p lic a n t may n o t own p r o p e r ty h a r in g an a s s e s s e d v a lu a tio n
beyond a s p e c i f i c am ount. L e ss d e s e r v in g a p p lic a n ts m igh t
q u a lif y in c o u n tie s where a sse ssm en t l e v e l s a re lo w , w h ile
more n eed y a p p lic a n ts may f a i l to q u a lif y in d i s t r i c t s
h a v in g h ig h a sse ssm en t r a t i o s .
I I I . M ETHODS OF CENTRAL ALMINI STRATI ON
G eneral S tatem en t
Heavy dependency by l o c a l governm ent on p r o p e r ty
t a x e s , t o g e th e r w ith w id esp rea d u n s a t is f a c t o r y o p e r a tio n o f
th e t a x , h as co n tin u e d to fo c u s a t t e n t io n on th e need f o r
i t s im proved a d m in is tr a tio n . A lthough many s t a t e s have
a lm o st e n t i r e l y tu r n e d t h i s reven u e so u rce o v e r t o l o c a l
g o v ern m en ts, o r have made many m o d if ic a t io n s t o th e t a x ,
th e y have n o t b een a b le to d iv e s t th e m s e lv e s o f r e s p o n s i
b i l i t y f o r i t s a d m in is tr a tio n . In f a c t i t i s th e f a i l u r e
by l o c a l a u th o r ity to s u c c e s s f u l l y a d m in iste r t h e t a x t h a t
n e c e s s i t a t e s fir m e r c e n t r a liz a t io n in i t s a p p lic a t io n .
M o d ific a tio n s and ch a n g es, a lth o u g h h e lp f u l in v ie w o f th e
t h e o r e t i c a l and p r a c t ic a l w ea k n esses o f th e t a x , have n o t
s o lv e d b a s ic problem s in c o n n e c tio n w ith th e a sse ssm e n t o f
p r o p e r ty . The k ey to s u c c e s s f u l u se o f th e ta x i s t o be
210
found in im proved and e q u ita b le a sse ssm e n t on th e l o c a l
l e v e l . The m ost co m p ellin g rea so n f o r s t a t e s u p e r v is io n ,
a s s e s s m e n t, and e q u a liz a t io n stem s from unequal and f r a c
t i o n a l a sse ssm en t by l o c a l a s s e s s o r s .
CENTRAL SUPERVISION
M ethods o f C e n tr a l S u p e r v isio n
S u p e r v isio n by c e n t r a l a g e n c ie s h a s been h e lp f u l in
im p rovin g a sse ssm e n t p r a c t i c e s . In C a lif o r n ia th e S ta te ^
/
Board o f E q u a liz a tio n th rou gh i t s D iv is io n o f A ssessm ent
S tan d ard s h as worked w ith co u n ty a s s e s s o r s in im p rovin g
l o c a l a sse ssm e n t p r a c t i c e s . In 1949 th e Board s ta te d :
P r o g r e s s h a s b een made d u rin g th e p a s t y ea r in th e
m o d e r n iz a tio n o f a s s e s s o r s * o f f i c e s , in th e o b ta in in g
o f b e t t e r maps and equipm ent and in th e t r a in in g o f
p e r s o n n e l. T h is h a s r e s u lt e d in d e f i n i t e im provem ent
in a sse ssm en t p ro ced u res and in e q u a liz a t io n o f a s s e s s
m en ts, b o th in tr a e o u n ty and in te r c o u n ty . 2 1
S a t is f a c t o r y l o c a l a sse ssm e n t, a c c o r d in g t o th e
D iv is io n o f A ssessm en t S tan d ard s o f th e C a lif o r n ia S ta te
Board o f E q u a liz a t io n , r e q u ir e s c a r e f u l l y d ev elo p e d
sy ste m s, r o u t in e s , and f i l e s f o r th e job t o be done w ith
any d egree o f e q u it y and e f f i c i e n c y .
I t in h e r e n t ly becom es a problem in modern stream
lin e d o f f i c e sy ste m , r e q u ir in g c a r e f u l l y d ev elo p e d
^ Annual R eport o f th e C a lif o r n ia S ta te Board o f
E q u a liz a t io n . 1 9 4 8 -1 9 4 9 . p . 6 .
211
r o u t in e s and p ro ced u re s w ith a c a r e f u l l y tr a in e d s t a f f
t o c a r r y th ro u g h w ith th o s e r o u t in e s and p r o c e d u r e s.
System i s e s s e n t i a l , f i r s t i f th e job i s to be done
s a t i s f a c t o r i l y and s e c o n d ly i f i t i s to be done w ith
any d eg ree o f e f f i c i e n c y .
E x p erien ce has shown t h a t good a s s e s s in g d o es n o t
j u s t happen b u t i s o n ly th e r e s u l t o f hard work in
o b ta in in g f a c t s and e x e r c is e o f i n t e l l i g e n t judgment in
th e a n a ly s is o f th o s e f a c t s . G O O D ASSESSMENT AND
SATISFACTORY EQUALIZATION CAN NEVER BE FULLY ACHIEVED
UNTIL THE ORIGINAL ASSESSMENT I S M ADE BY TRAINED
APPRAISERS HAVING THE FACTS AND W ORKING O N UNIFORM
STANDARDS [ c a p it a l iz e d in th e o r i g i n a l } . Furtherm ore
th e g r e a t e s t e f f i c i e n c y i n th e perform ance o f th e t a s k
w i l l r e s u lt under t h i s p ro ce d u re.
One r e a so n f o r t h i s i s t h a t when th e r e i s no system
f o r m aking a sse ssm e n ts and th e v a lu e s are m e r e ly
g u e sse d a t by an u n tr a in e d p a r t-tim e d ep u ty; th e
g u e s s e s a re g e n e r a lly lo w so th a t th e y w i l l be s a t i s
f a c t o r y t o th e ta x p a y e r w ith o u t any argum ent. I t i s
o n ly human n a tu re t o u n d e r a sse s s much p r o p e r ty i f th e
d ep u ty d o es n o t have th e f a c t s and th e know ledge to
d efen d h is v a lu e s . I f u n d era ssessm en t w ere u n if o m i t
w ould n o t p r e s e n t su ch a problem b u t t h i s i s n e v e r th e
c a s e . 22
A lthough many s t a t e s — C a lif o r n ia , Iow a, In d ia n a ,
I l l i n o i s , K entucky, O regon, C o lo ra d o , among them— have con
c e n tr a te d much e f f o r t tow ard im p rovin g l o c a l a sse ssm en t
sta n d a rd s th rou gh v a r io u s s u p e r v is o r y a c t i v i t i e s r e s u l t s
a re f a r from i d e a l . For exam p le, C a lif o r n ia co u n ty a s s e s s
ment r a t i o s in 1951 ran ged from 24 to 46 p er c e n t o f f u l l
v a lu e , 23 w h ile in I l l i n o i s in 1945 th e range w as from 1 4 to
2 2 1949 R eport t o th e S ta te Board o f E q u a liz a tio n by
i t s D iv is io n o f A ssessm en t S ta n d a r d s. 1 9 4 9 , p . 2 2 .
23 R eport o f C a lif o r n ia S ta te Board o f E q u a liz a t io n .
J u ly 1 6 , 1 9 5 1 .
212
24
6 8 p e r c e n t .
C en tr a l a sse ssm e n t and e q u a liz a t io n have been de
v e lo p e d to d e a l w ith p r o p e r ty t a x a tio n in v ie w o f i t s
g e n e r a lly u n s a t is f a c t o r y perform ance when a d m in iste r e d
l o c a l l y .
CENTRAL ASSESSMENT
C e n tr a l a sse ssm e n t may b e em ployed in a t l e a s t two
w a y s, i . e . , a sse ssm e n t by a c e n t r a l agen cy o f a l l ta x a b le
p r o p e r ty , o r a sse ssm e n t by such an agen cy o f c e r t a in
s p e c ia liz e d p r o p e r t ie s . In a d d it io n , .many a u t h o r it i e s g iv e
th e same m eaning t o c e n t r a l a sse ssm e n t and c e n t r a l e q u a l
i z a t i o n . The w r it e r h a s drawn a d i s t i n c t i o n betw een th e
tw o . 25
7
C e n tr a l A ssessm en t o f A ll T axable P ro p er ty
P r o p o s a ls to e s t a b l i s h s t a t e a sse ssm e n t o f a l l t a x
a b le p r o p e r ty a ro u se str o n g o p p o s itio n by l o c a l i n t e r e s t s .
Such o p p o s itio n i s a cco u n ted f o r , a t l e a s t in p a r t , by
t r a d i t i o n a l em p hasis in our c o u n tr y on th e d e s i r a b i l i t y o f
home r u le . P r o p o s a ls t o fu r th e r c e n t r a l iz e governm ent a re
2 4 H. K. A lle n , " E u ll-V a lu e A ssessm en t Program, n
R eport o f th e Revenue Laws Com m ission o f th e S ta te o f
I l l i n o i s . 1 9 4 9 , p . 5 4 .
25 £ £ • a n t e , p p . 1 9 5 -9 6 .
215
o f te n view ed w ith s u s p ic io n by th e a u to n o m ic a lly m inded.
N e v e r t h e le s s , t h e s e same ’ ’l o c a l s t a lw a r t s ” may be lo u d -
spoken in t h e i r demands f o r more c e n t r a l a id t o l o c a l
governm ent f o r e d u c a tio n a l, o r o th e r n e e d s .
A d vocates o f co m p lete c e n t r a l a sse ssm en t em phasize
th e t e c h n ic a l n a tu re o f th e ta s k and th e r a p id te ch n o
l o g i c a l ch a n g es, w hich r e q u ir e h ig h ly tr a in e d p e r s o n n e l and
u niform m ethods and p ro ced u res i f a sse ssm e n t i s to be
r a is e d from r o ll- c o p y in g and gu essw ork . U n ifo r m ity and
e q u it y can o n ly be a c h ie v e d by o b j e c t iv e a s s e s s in g done by
a s ta te w id e s t a f f in d ep en d en t o f l o c a l i n t e r e s t s o r p r e s
s u r e s , a cc o rd in g to t h i s v ie w p o in t. F urth erm ore, th e e v e r -
in c r e a s in g demand f o r a d d it io n a l s t a t e - a i d by l o c a l g o v ern
m ent r e q u ir e s more u n ifo r m ity in a sse ssm en t p r a c t ic e w hich
can be b e s t a cco m p lish e d b y c e n t r a l a sse ssm e n t o f a l l
p r o p e r ty . T h is w ould e lim in a t e th e p r a c t ic e o f c o m p e titiv e
u n d e r v a lu a tio n and th e j u n g le - lik e hodge-podge so common in
p r o p e r ty t a x a t io n .
D e s p ite th e c la im s o f th o s e fa v o r in g com p lete cen
t r a l a sse ssm en t o f a l l ta x a b le p r o p e r ty , i t h a s n o t been
ad op ted e x c e p t in c o n n e c tio n w ith p a r t ic u la r p r o p e r t ie s
su ch a s r a ilr o a d s and p u b lic u t i l i t i e s . C e n tr a l e q u a liz a
t io n h a s b een d ev elo p ed t o d e a l w ith c o u n ty and d i s t r i c t
d if f e r e n c e s in a sse ssm e n t l e v e l s .
214
M ethods o f C e n tr a l A ssessm ent o f S p e c ia l P r o p e r tie s
pfl
As d is c u s s e d above g e n e r a l p r o p e r ty i s a s s e s s e d b y
l o c a l b o d ie s in a l l f o r t y - e i g h t s t a t e s w h ile in a l l but
sev en r a ilr o a d s and p u b lic u t i l i t i e s are a p p r a ise d by a
s t a t e a g en cy o r j o i n t l y by s t a t e and l o c a l a s s e s s o r s . The
s t a t e s may be grouped a s f o llo w s w ith r e s p e c t to a sse ssm e n t
o f p u b lic u t i l i t y p r o p e r t ie s : ( 1 ) in a p p r o x im a tely o n e-
fo u r th p r o p e r ty t a x e s on a l l m ajor u t i l i t i e s a re a s s e s s e d
e x c l u s i v e l y by s t a t e a g e n c ie s ; (2 ) in a n o th er group i n t e r -
eo u n ty u t i l i t i e s are a s s e s s e d by s t a t e a g e n c ie s ; (3 ) a
t h ir d g rou p , in c lu d in g ab out o n e -fo u r th o f th e s t a t e s ,
a s s e s s e s o p e r a tin g p r o p e r ty o f th e s e com panies by s t a t e
a g e n c ie s ; and (4) in a p p r o x im a tely te n s t a t e s a l l p r o p e r ty
e x c e p t n o n -o p e r a tin g r e a l p r o p e r ty i s a s s e s s e d by s t a t e
a g e n c y . 27 From th e fo r e g o in g i t i s e v id e n t t h a t s t a t e
a g e n c ie s have c o n s id e r a b le a u th o r it y in a s s e s s in g p u b lic
u t i l i t i e s .
C e n tr a l A ssessm en t and th e U n it B uie
One o f th e p r in c ip a l r e a s o n s f o r c e n t r a l a sse ssm e n t
o f p u b lic u t i l i t y p r o p e r ty i s t o e n la r g e th e a sse ssm e n t
P. 195 e t s e q .
27 Tax S y stem s ( t w e l f t h e d i t i o n ) , ©P. c i t . . t a b l e on
p p . 1 8 5 -9 7 .
815
d i s t r i c t and th e r e b y make p o s s ib le a p p r a is a l o f th e p rop erty
on a u n it b a s is in s t e a d o f by p ie c e s and p a r t s . Under ce n
t r a l i z e d a sse ssm en t a l l o f th e p r o p e r ty o f th e company can
be a s s e s s e d a s a w h o le , and a s a g o in g c o n c e r n . Under t h i s
p ro ce d u re , i f d e s ir e d , in t a n g ib le s o f a company may be
in c lu d e d . T hus, i t i s th o u g h t, a more t r u e in d ic a t io n o f
m arket o r f a i r v a lu e can be d eterm in ed th a n i f a p ie c e by
p ie c e a sse ssm e n t w ere made.
S t a t e s w h ich h a re e x c lu s iv e a u th o r it y t o a s s e s s
pQ
p r o p e r ty o f p u b lic u t i l i t i e s u se th e u n it r u le p la n .
Three b a s ic m ethods are em ployed in a s s e s s in g su ch prop
e r t i e s : ( 1 ) v a lu e o f th e p h y s ic a l p r o p e r ty e s tim a te d by
c o n s id e r in g (a) th e o r i g i n a l c o s t , and (b) th e c o s t o f r e
p ro d u c tio n l e s s d e p r e c ia tio n ; ( 2 ) th e v a lu e o f th e s e c u r i
t i e s ; and (3 ) th e c a p i t a l i z a t i o n o f e a r n in g s . G a refu l
a p p lic a t io n o f t h e s e m ethods can be e x p e c te d to y i e l d a
29
" c o n s tr u c tiv e m arket v a lu e" a lth o u g h s t a t u t e s commonly
c a l l f o r a sse ssm e n t a t " f a ir m arket v a lu e ."
V alue o f th e p h y s ic a l p r o p e r ty . — In e s t a b lis h in g
th e v a lu e o f th e p h y s ic a l p r o p e r ty th e s t a t e a gen cy may
2 8 H. K. A lle n , "The G en eral P r o p e r ty Tax," R eport
o f th e Revenue Laws Commlsalon o f th e S ta te o f I l l i n o i s .
1 9 4 9 , p . 3 9 .
29 W illia m H. A nderson, T a x a tio n and th e American
Economy (New York: P r e n t ic e - H a ll, I n c . , 1 9 5 1 ), p . 3 5 7 .
216
em ploy a co m b in a tio n o f p r o c e d u r e s. I t may send i t s own
s t a f f — a p p r a is e r s , e n g in e e r s , e c o n o m is ts , a c c o u n ta n ts ,
la w y e r s - - in t o th e f i e l d to su rv e y and a s s e s s th e p r o p e r ty .
In e f f e c t t h i s w ould c o n s t it u t e a p h y s ic a l in v e n to r y and
an a p p r a is a l o f th e v a lu e o f sam e.
A nother p ro ce d u re , com ing in t o more fr e q u e n t u s e , i s
f o r t a x com m ission s t o h o ld h e a r in g s a t w h ich r a ilr o a d s and
p u b lic u t i l i t i e s subm it t h e i r own v a lu a t io n s o f t h e ir prop-
30
e r t y s u b je c t t o t a x a t io n . C le a r ly , th e com m ission m ust
be in a p o s it io n to r e j e c t o r r e v is e su ch v a lu a t io n s a s th e
u t i l i t y o f f i c i a l s m ig h t o v e r s t a t e th e v a lu e o f th e p ro p e r ty .
S in c e th e p u b lic u t i l i t i e s are p e r m itte d t o in c lu d e ta x e s
a s c o s t s and a r e e n t i t l e d to a f a i r r e tu r n a f t e r t a x e s i t
w ould be in t h e i r i n t e r e s t to subm it a la r g e v a lu a tio n and
pay t a x e s on i t b eca u se th e same la r g e v a lu a tio n c o u ld be
cla im ed f o r r a t e m aking p u r p o se s. Though th e r a t e o f r e
tu rn c o n sid e r e d f a i r rem ain unchanged, th e g r e a te r th e
v a lu e o f th e p r o p e r ty th e h ig h e r th e p e r c e n ta g e r e tu r n on
common s t o c k , w ith a g iv e n f i n a n c i a l s tr u c tu r e o u ts ta n d in g .
Two o th e r c o n s id e r a tio n s are r e le v a n t in e s t a b l i s h
in g th e v a lu e o f th e p h y s ic a l p r o p e r ty . T hese are (1) h i s
t o r i c a l o r o r i g i n a l c o s t , and (2 ) r e p r o d u c tio n c o s t l e s s
217
d e p r e c ia t io n .
H is t o r ic a l o r o r i g in a l c o s t . - - Where d a ta on th e
o r i g i n a l c o s t o f r a ilr o a d s o r p u b lic u t i l i t i e s a re a v a i l
a b le th e y se rv e a s a b a s is f o r e s tim a t in g th e v a lu e o f th e
p r o p e r ty . O r ig in a l c o s t d a ta on th e r a ilr o a d s a re g e n e r a l
l y u n a v a ila b le s in c e ad eq u ate r e c o r d s w ere n o t k ep t in th e
e a r ly d ays o f t h e i r c o n s t r u c t io n . For r e g u la to r y p u r p o ses
th e I n t e r s t a t e Commerce Com m ission in v e n to r ie d th e p r o p e r ty
o f th e r a ilr o a d s under th e V a lu a tio n Act o f 1913 a s o f th e
a v era g e d a te o f 1 9 1 6 , and v a lu e d i t a cco rd in g , t o th e
31
a v era g e p r ic e s p r e v a ilin g from 1910 to 1 9 1 4 . A s im ila r
com prehensive v a lu a tio n o f p u b lic u t i l i t i e s h a s n o t been
m ade. F ig u r e s a v a ila b le on o r i g i n a l c o s t s o f p u b lic u t i
l i t i e s , e s p e c i a l l y f o r th o s e c o n s tr u c te d a lo n g tim e a g o ,
33
and would n o t n e c e s s a r i l y r e f l e c t o r i g in a l c o s t s .
R ep rod u ction c o s t s l e s s d e p r e c ia t io n . — Repro
d u c tio n c o s t , l e s s d e p r e c ia t io n , i s a more r e a l i s t i c ap
proach t o th e v a lu e o f th e p h y s ic a l p r o p e r ty th a n o r i g i n a l
o r h i s t o r i c a l c o s t . T h is p roced u re i s an e f f o r t to b r in g
o r i g i n a l c o s t f ig u r e s up to d a te s in c e th e ch a rg e s are in
I r s t o n R. B a rn es, The E conom ics o f P u b lic U t i l i t y
R e g u la tio n (Few York: F. S . C r o fts and Company, 1947)1
p . 5 1 1 .
3 2 M. S la d e K en d rick , P u b lic F in an ce P r in c ip le s and
Problem s (New. York: H o u g h to n -M Ifflin Company, 1 9 5 1 ), p . 245.
£18
term s o f p r e s e n t p r ic e s under e x i s t i n g te c h n iq u e s o f con
s t r u c t io n . D e p r e c ia tio n i s d ed u cted from th e c o s t to
r e c o n s tr u c t th e p r o p e r ty t o make th e w orth e q u iv a le n t to
th e p r e s e n t c o n d it io n .
V alu e o f o u ts ta n d in g s e c u r i t i e s . — A nother im port
a n t m ethod u sed in e v a lu a t in g r a ilr o a d and p u b lic u t i l i t y
p r o p e r ty i s t o m u lt ip ly th e s e c u r i t i e s o u ts ta n d in g by th e
p r ic e f o r w hich ea ch k in d i s s e l l i n g . These p r i c e s , f o r
m ost r a ilr o a d s and th e la r g e p u b lic u t i l i t i e s , may be
r e a d i ly a s c e r ta in e d a s t h e i r s e c u r i t i e s a re l i s t e d on e x
ch a n g es. S in c e c e n t r a l a sse ssm en t under th e u n it r u le
se e k s to d eterm in e th e v a lu e o f th e " o p era tin g " p r o p e r ty ,
th e v a lu e o f th e n o n o p e r a tin g p r o p e r ty m ust be d ed u cted
from f ig u r e e s t a b lis h e d from p r ic e s o f s e c u r i t i e s . The
n o n o p e r a tin g p r o p e r t ie s a re a p p r a ise d l o c a l l y a lo n g w ith
o th e r g e n e r a l p r o p e r ty .
A ssessm en t b y c a p i t a l i z i n g in com e. — C e n tr a l
a s s e s s in g b o d ie s , a s w e ll a s l o c a l a s s e s s o r s , may c a p i t a l
i z e th e e a r n in g s o f th e p r o p e r ty b e in g ta x e d t o d eterm in e
o r e s t a b l i s h th e v a lu e o f th e p r o p e r ty . C a p it a liz a t io n o f
th e n e t o p e r a tin g incom e o f th e p r o p e r ty i s a p p ly in g th e
th e o r y th a t th e v a lu e o f th e p r o p e r ty i s i t s n e t incom e
t r a n s la t e d in to a c a p i t a l v a lu e by a p p ly in g a f a i r r a te o f
r e tu r n t o i t . To c a p i t a l i z e th e incom e two b a s ic e le m e n ts
219
m ust be d eterm in ed : ( 1 ) th e amount o f th e n e t Incom e, and
(2 ) what c o n s t i t u t e s a f a i r r a t e o f r e tu r n . The p a s t earn
in g re co r d w ould be a v a ila b le and th e fu tu r e e a r n in g s c o u ld
be p r o je c te d from t h a t , a lth o u g h t h i s may n o t be p e r f e c t l y
sound a s th e fu tu r e i s l a r g e l y unknown. To th e e x te n t t h a t
*
such a p r o j e c t io n i s sound th e p r e s e n t w orth o f th e prop
e r t y can be e s t a b l i s h e d . The r a te a t w h ich th e e a r n in g s ,
p a s t o r p r o j e c t e d , a re to be c a p it a liz e d m ust be d eterm in ed .
B oth r a ilr o a d s and p r iv a t e ly owned p u b lic u t i l i t i e s a re
r e g u la te d , t o g e t h e r w ith t h e i r e a r n in g s . A fte r w eig h in g
a l l r e le v a n t c o n s id e r a t io n s — f o r in s t a n c e , d eg ree o f r i s k
in v o lv e d , e a r n in g s in c o m p e titiv e n o n -r e g u la te d e n t e r p r is e ,
a b i l i t y to a t t r a c t c a p i t a l to t h e in d u s tr y — th e r e g u la to r y
a g en cy m ust d e c id e what r a te o f r e tu r n th e r a ilr o a d o r
33
u t i l i t y h as th e r i g h t to e a r n .
The m ethod o f com puting c a p i t a l v a lu e by c a p i t a l
iz in g n e t income i s n o t d i f f i c u l t . Assume, f o r exam p le,
th e a v era g e y e a r ly n e t incom e f o r th e l a s t f i v e y e a r s o f a
u t i l i t y t o have b een $ 4 2 0 ,0 0 0 . A ls o , assume th e f a i r r a te
o f r e tu r n to be 7 p er c e n t . $ 4 2 0 ,0 0 0 * by .0 7 = $ 6 ,0 0 0 ,0 0 0
— th e c a p it a l v a lu e o f th e u t i l i t y .
The g r e a t e r th e r is k o r u n c e r t a in ty o f th e e s tim a te d
^ S om etim es, l e s s f r e q u e n tly now th an e a r l i e r , th e
l e g i s l a t u r e o r c o u r ts may p r e s c r ib e th e r a t e a llo w a b le .
220
fu tu r e r e tu r n b e in g r e a liz e d th e g r e a t e r w ould be th e r a te
o f r e tu r n a llo w a b le , and th e lo w er th e p r e s e n t c a p it a l
v a lu e ; th e l e s s th e r is k th e l e s s th e r a t e , and th e h ig h e r
th e p r e s e n t c a p i t a l v a lu e . Eor ex a m p le, assum ing a h ig h ly
c e r t a in p r o je c te d incom e and c a p i t a l i z i n g th e same $ 4 2 0 ,0 0 0
a t 3 p er c e n t w ould e s t a b l i s h a c a p i t a l v a lu e o f
$ 1 4 ,0 0 0 ,0 0 0 ; c a p i t a l i z i n g a t 12 p er c e n t w ould y i e l d a
c a p i t a l v a lu e o f $ 3 ,5 0 0 ,0 0 0 .
A fte r a p p ly in g a l l o f th e fo r e g o in g m ethods th e cen
t r a l a s s e s s in g a g en cy m ust a n a ly z e th e r e s u l t s and d e t e r
m ine t h e i r r e l a t i v e w e ig h ts in c o n s tr u c tin g a v a lu e f o r th e
p r o p e r ty . When t h i s i s done th e a sse ssm e n t may be sub
je c t e d to r e v ie w and a p p e a l from in t e r e s t e d p a r t ie s to
change i t . A fte r such r e v ie w a f i n a l f ig u r e w i l l be e s ta b
li s h e d a s th e a s s e s s e d v a lu e o f th e p r o p e r ty .
CENTRAL EQUALIZATION
G en eral S ta tem en t
3 4
As m en tion ed e a r l i e r th e b a s ic problem in p r o p e r ty
t a x a tio n i s th e in e q u a lit y among in d iv id u a l a sse ssm e n ts
w ith in ta x in g d i s t r i c t s . Much e f f o r t h as been d ir e c t e d
tow ard im p rovin g o r i g in a l a s s e s s m e n ts ; h ow ever, th e in
e q u a l i t i e s have n o t y e t b een overcom e. T h is f a c t makes
3 4 SuP ra. P* ©£ s e q »
221
some form o f c e n t r a l e q u a liz a t io n n e c e s s a r y — e i t h e r c o u n ty ,
o r s t a t e , o r b o th .
As d is c u s s e d h ere c e n t r a l e q u a liz a t io n r e f e r s to th e
e q u a liz a t io n fu n c tio n as c a r r ie d out by e i t h e r co u n ty o r
s t a t e a g e n c ie s and th e p r in c ip a l m ethods u se d . At th e
co u n ty l e v e l e q u a liz a t io n i s u s u a lly c a r r ie d o u t by a com
m itt e e o f th e C ounty Board o f S u p e r v is o r s . M ost o f t e n
s t a t e e q u a liz a t io n b o d ie s a re c a l le d th e "Board o f E qual
i z a t i o n ," "Tax C om m ission ," o r " S ta te Board o f A s s e s s o r s ."
E q u a liz a tio n i s th e p r o c e s s u sed t o m o d ify th e
a s s e s s e d v a lu a t io n s t o ta k e a cc o u n t o f v a r ia t io n s in th e
r a t i o o f a s s e s s e d t o " a c t u a l,” " f u l l ," " tr u e ," o r "market
v a lu e ” o f ta x a b le p r o p e r ty a s d eterm in ed by in d iv id u a l
a s s e s s o r s . The D iv is io n o f A ssessm en t S tan d ard s o f th e
C a lif o r n ia S ta te Board o f E q u a liz a tio n in i t s 1949 R eport
s t a t e s :
A n a ly s is o f th e s t a t u t e s i n d i c a t e s th a t i t w as n e v e r
in te n d ed f o r a r e a sse ssm e n t o f p r o p e r ty t o be made
under th e e q u a liz a t io n f u n c t io n . R ather th e e q u a liz a
t io n fu n c tio n w as in te n d e d o n ly to be u sed a s a m eans
o f a p p ea l from th e judgm ent o f th e a s s e s s o r who i s
human and may w e ll e r r on o c c a s io n . The c o u n ty board
o f e q u a liz a t io n i s th e board o f f i r s t a p p e a l f o r th e
ta x p a y e r and th e c o u r ts th e se c o n d . N e ith e r tim e n or
th e m ach in ery p ro v id ed f o r co u n ty e q u a liz a t io n p er m its
“ ' e o f more th an a v e r y sm a ll p e r c e n ta g e o f th e
1949 R e p o rt t o th e S t a t e B oard o f E q u a l i z a t i o n .
o p . c i t . , p . 2 2 .
222
E q u a liz a tio n a t th e C ounty L e v e l
Where p r o p e r ty i s a s s e s s e d in m u n ic ip a lit i e s o r
d i s t r i c t s hy a m u n ic ip a l o r d i s t r i c t a s s e s s o r v a r ia t io n s
o c c u r in th e a sse ssm e n t r a t i o among d i s t r i c t s and c l a s s e s
o f p r o p e r ty . T h is f a c t m akes e q u a liz a t io n n e c e s s a r y in
o rd er t h a t th e c o u n ty le v y be f a i r l y d is t r ib u t e d . F re
q u e n tly th e C ounty Board o f S u p e r v is o r s p erform s th e eq u a l
i z a t i o n .
In many c o u n t ie s , Los A n g e le s , C a lif o r n ia , f o r
exam p le, a l l p r o p e r ty i s a s s e s s e d by th e C ounty A s s e s s o r .
E q u a liz a tio n i s n e c e s s a r y in such a e a s e t o a d ju s t i n
e q u a l i t i e s in a sse ssm e n t r a t i o s a s among d if f e r e n t c l a s s e s
o f p r o p e r ty , a s w e ll a s among in d iv id u a l p ie c e s o f p r o p e r ty
w ith in c l a s s e s . The C ounty Board o f S u p e r v is o r s , s i t t i n g
a s a Board o f E q u a liz a t io n , d oes th e e q u a liz in g .
The a sse ssm e n t r o l l , w h ich in c lu d e s th e l e g a l
d e s c r ip t io n s and v a lu e o f ta x a b le la n d , th e v a lu e o f im
p rovem ents and p e r s o n a l p r o p e r ty , and th e names o f p e r so n s
to whom i t i s a s s e s s e d , w ith t h e i r a d d r e s s e s i f known, i s
com p leted and tu rn ed o v e r t o th e Board o f S u p e r v is o r s . The
1948 a sse ssm e n t r o l l o f Los A n g eles C ounty c o n s is t e d o f 227
« 7 f i
volum es and c o n ta in e d a lm o st 7 5 ,0 0 0 p a g e s.
36 H arold T. S h a fe r , e d it o r , Los A n g eles C oun ty.
A Handbook o f I t s Government and S e r v i c e s . Los A n g eles
C ounty Board o f S u p e r v is o r s , 1 9 5 0 , p . 3 4 1 .
2 23
The e q u a liz a t io n p r o c e s s in Los A n g e les i s c a r r ie d
ou t by th e Board o f S u p e r v is o r s s i t t i n g a s a Board o f
E q u a liz a tio n b e g in n in g th e f i r s t Monday in J u ly each y ea r
and en d in g n o t l a t e r th an t h e t h ir d Monday in J u ly . T h is
Board o f E q u a liz a tio n exam in es th e a sse ssm e n t r o l l and
e q u a liz e s th e a ss e s s m e n ts w h ich a re ou t o f l i n e , i . e . ,
th o s e t h a t a re o v e r - o r u n d e r -a s s e s s e d a s compared to
«
s im ila r p r o p e r t ie s . W hile th e board i s co m p le tin g th e
e q u a liz a t io n i t p r o v id e s a h e a r in g a t w h ich ta x p a y e r s may
be h eard c o n c e r n in g c o m p la in ts r e l a t i v e t o th e v a lu e p la c e d
on t h e i r p r o p e r ty .
M ethods o f E q u a liz a tio n on th e S ta te L e v e l
There are two p r in c ip a l m ethods o f e q u a liz a t io n u sed
37
i n th e U n ited S t a t e s . The two are (1 ) th e u n ifo r m -r a tio
m ethod, and ( 2 ) th e v a r ia b le r a t i o m ethod.
The uniform-r a t io m eth od . — T h is m ethod o f e q u a liz a
t i o n in v o lv e s th e a d ju stm en t o f a l l a s s e s s e d v a lu e s to a
g iv e n o r u n iform p e rc en ta g e o f f u l l v a lu e . As in t e r p r e t e d ,
th e C a lif o r n ia C o n s t it u t io n a l p r o v is io n f o r e q u a liz a t io n
l i m i t s th e S ta te Board o f E q u a liz a tio n t o in c r e a s in g o r
re d u cin g th e e n t ir e a sse ssm e n t r o l l o f a co u n ty b u t n o t th e
37 D a v is so n and S e h m e lz le , oj>. c i t . , p . 2 2 4 .
224
38
in d iv id u a l a s s e s s m e n ts . The Board, u s in g t h i s m ethod,
m ust d eterm in e th e l e v e l o f a s s e s s e d t o f u l l v a lu e in ea ch
c o u n ty and make " a c r o ss th e hoard" a d ju stm e n ts o f v a r io u s
co u n ty a ssessm en t r o l l s so a s t o e q u a liz e them . V ery
o f t e n , c e n t r a l e q u a liz a t io n a g e n c ie s w i l l seek t o e q u a liz e
a l l d i s t r i c t s and c o u n tie s t o a g iv e n p er c e n t o f a c tu a l
f u l l v a lu e , f o r exam p le, 50 p er c e n t . Any co u n ty show ing
a h ig h e r a sse ssm e n t r a t io w ould have a r e d u c tio n in
a s s e s s e d v a lu e , w h ile th o s e h a v in g a r a t io o f l e s s th an 50
p e r c e n t w ould have an a c r o s s th e board in c r e a s e im posed .
T h is method o f c e n t r a l e q u a liz a t io n le a v e s i n e q u i t i e s in
in d iv id u a l a ss e s s m e n ts u n d istu r b e d s in c e th e e n t ir e a s s e s s
ment r o l l i s e i t h e r in c r e a s e d o r d e c r e a se d .
To u se th e u n ifo r m -r a tio m ethod o f e q u a liz a t io n th e w
c e n t r a l e q u a liz a t io n body m ust make i t s own d e te r m in a tio n
o f th e a s s e s s e d v a lu e o f ea ch c o u n ty . The r a t i o o f a s s e s s
ment th u s e s t a b lis h e d may th en be compared to t h a t r e p o r te d
by l o c a l a s s e s s o r s . The l o c a l r a t i o can r e a d i ly be ad
j u s t e d , w here n e c e s s a r y , t o conform to th e c e n t r a l r a t i o .
W ith co u n ty a sse ssm en t r a t i o s e q u a liz e d a s t a t e le v y o f a
g iv e n r a te w ould th u s f a l l u n ifo r m ly on ea ch c o u n ty . The
same w ould be tr u e o f a c o u n ty ta x i f p r o p e r ty c l a s s e s o r
38 I b i d . , p. 2 2 1 .
225
d i s t r i c t a sse ssm en t r a t i o s a r e e q u a liz e d . I n e f f e c t t h i s
m ethod, a s d e s c r ib e d so f a r , e q u a liz e s a c e n t r a l l e v y - -
co u n ty o r s t a t e — by f i r s t e q u a liz in g a sse ssm e n t r a t i o s t o
w hich th e g iv e n e e n t r a l l e v y i s e x te n d e d .
A nother way t o a cc o m p lish th e same en d , i . e . , e q u a l
i z a t i o n o f th e burden o f a c e n t r a l le v y , i s to v a ry th e
r a te a p p lie d t o th e l o c a l l y d eterm in ed a sse ssm e n t r o l l .
Use o f t h i s p ro ced u re r e q u ir e s th a t th e e q u a liz a t io n
a g e n c y , co u n ty o r s t a t e , d eterm in e th e v a lu e o f th e prop
e r t y in ea ch d i s t r i c t o r e o u n ty . The c e n t r a l le v y w ould be
made on ea c h d i s t r i c t o r co u n ty on th e b a s is o f th e r a t io
o f th e v a lu e o f th e d i s t r i c t o r co u n ty to th e v a lu e o f th e
e n t ir e c o u n ty or s t a t e . For exam p le, i f d i s t r i c t A con
t a i n s 20 p e r c e n t o f th e p r o p e r ty v a lu e o f th e co u n ty th e
d i s t r i c t w ould be r e q u ir e d to pay 20 p e r c e n t o f th e co u n ty
p r o p e r ty t a x ; i f d i s t r i c t B c o n ta in s 25 p er c e n t o f th e
t o t a l co u n ty a s s e s s e d v a lu a tio n i t m ust pay 25 p er c e n t o f
th e co u n ty p r o p e r ty t a x . Each d i s t r i c t m ust t h e r e fo r e e x
ten d to th e a sse ssm e n t r o l l a r a t e w h ich w i l l y ie ld th e
r e q u ir e d r e v e n u e s f o r th e co u n ty in a d d itio n to o th e r d i s
t r i c t r a t e s , su ch a s s c h o o l, o r c i t y .
The e q u a liz a t io n i s a cco m p lish ed by ea ch o f th e
fo r e g o in g u s e s o f th e u n ifo r m -r a tio m ethod by th e s u p e r i
o r i t y o f th e c e n t r a l a s s e s s m e n t. In th e f i r s t , su b o r d in a te
226
a sse ssm en t r o l l s are a d ju s te d t o conform to th e c e n t r a l
o n e; in th e se co n d , th e t a x r a t e s a re a d ju s te d on l o c a l
r o l l s to y i e l d c e n t r a l r e v e n u e s eq u a l to what w ould he
r a is e d b y a p p ly in g a g iv e n r a te to th e c e n t r a l l y d eterm in ed
a sse ssm e n t v a lu a t io n . E ith e r p roced u re r e a c h e s th e same
re s u i t .
The v a r ia b le - r a t i o method. — T h is m ethod o f e q u a l
i z a t i o n r e q u ir e s th a t th e c e n t r a l e q u a liz a t io n agen cy
d eterm in e th e a v era g e a sse ssm e n t r a t i o in ea ch a sse ssm en t
d i s t r i c t . C e n tr a lly a s s e s s e d p r o p e r ty , such a s r a ilr o a d s
or p u b lic u t i l i t i e s w ould be c e r t i f i e d to l o c a l t a x
a u t h o r it ie s a t th e r a t io p r e v a ilin g in ea c h d i s t r i c t .
S ta te f i n a n c i a l a id w ould be d is t r ib u t e d in a cco rd a n ce w ith
l o c a l a sse ssm e n t r a t i o s w here a s s e s s e d v a lu a tio n e n t e r s
in t o th e a l l o c a t i o n o f su ch a id . T h is p ro ced u re d o es n o t
change l o c a l a sse ssm e n t r o l l s . I t i s , in e f f e c t , th e
d e te r m in a tio n by s t a t e a g en cy o f th e a verage a sse ssm en t
r a t i o w ith in th e c o u n t ie s and th e s t a t e a d ju s tin g t o l o c a l
p r a c t i c e . 39
The C a lif o r n ia E q u a liz a tio n Law o f 1 9 4 9 , o r i g i n a l l y
sc h e d u le d to go in t o e f f e c t in Septem ber, 1 9 5 0 , c o n ta in s a
39 R oland B. W elch, " P r a c tic a l Means o f S tr e n g th e n
in g L o ca l P r o p e r ty Tax A d m in is tr a tio n ,” Revenue A dm inis
t r a t io n . 1 9 4 9 , p . 5 1 .
327
co m b in a tio n o f th e u n ifo r m -r a tio and v a r i a b le - r a t io m ethods
o f e q u a liz a t io n . The S ta te Board o f E q u a liz a tio n d e te r
m in es th e r a t io o f a s s e s s e d t o m arket v a lu e o f ta x a b le
p r o p e r ty f o r ea c h c o u n ty . A ls o , th e Board d e term in es th e
a verage r a t i o o f a s s e s s e d to m arket v a lu e o f l o c a l l y
a s s e s s e d p r o p e r ty f o r th e s t a t e a s a w h o le . Where l o c a l l y
d eterm in ed a sse ssm e n t r a t i o s do n o t v a r y by 10 p er c e n t o r
more from th e s ta te w id e a v era g e r a t i o no eh a n g es in l o c a l
a ss e s s m e n ts are m ade. Xf th e co u n ty r a t i o v a r i e s 10 p er
c e n t o r more th e Board o f E q u a liz a tio n may a d ju s t c o u n ty
a sse ssm en t r o l l s a c r o s s th e board to conform to th e s t a t e
w id e a v e r a g e .
E q u a liz a tio n and A p p r a isa ls
As m en tio n ed , e q u a liz a t io n i s n o t p r o p e r ly con
s id e r e d a s a co m p lete r e a p p r a is a l o f a l l p r o p e r ty . R a th er,
J
i t i s an e f f o r t t o m in im ize i n e q u a l i t i e s and to b r in g about
more u n ifo r m ity in p r o p e r ty t a x a t io n , p a r t ic u l a r l y in con
n e c t io n w ith a sse ssm e n t p r a c t i c e s . The b a s ic t a s k o f th e ^
c e n t r a l e q u a liz a t io n a g en cy i s to d eterm in e th e l o c a l
a sse ssm en t r a t i o w ith o u t i t s e l f h a v in g to c a r r y ou t a com
p l e t e a p p r a is a l. Furtherm ore th e v a lu e o f p r o p e r ty m ust b e'
d e te rm in ed 'b y a u niform sta n d a rd . The f o llo w in g q u o ta tio n *
from th e D iv is io n o f A ssessm en t S tan dards o f th e C a lif o r n ia
S ta te Board o f E q u a liz a tio n e x p la in s how th e y p ro ceed and
228
some p rob lem s en co u n tered :
a . Sam pling
To d eterm in e th e l e v e l o f a sse ssm e n t in a r e s p e c t iv e
c o u n ty , i t i s n e c e s s a r y f i r s t t h a t th e a p p r a is a ls be
c a r e f u l l y and a c c u r a te ly made and se c o n d ly th a t th e
sam p lin g o f p r o p e r ty w ith in th e c o u n ty be c a r e f u l l y
d on e. P rop er sam p lin g r e q u ir e s a sam pling o f ea ch
c l a s s o f p r o p e r ty a s b etw een r e s i d e n t i a l , com m ercial,
farm , i n d u s t r i a l , tim b e r , e t c . ; sam p lin g o f r e s p e c t iv e
a r e a s o f a c o u n ty , and sam p lin g o f p r o p e r t ie s o f
v a r io u s q u a l i t i e s w ith in th e r e s p e c t iv e c l a s s e s and in
th e r e s p e c t iv e a r e a s .
The sam p lin g o f th e r e s p e c t iv e a r e a s i s im p ortan t a s
a s s e s s in g i s f r e q u e n tly done by v a r io u s d e p u tie s c o v e r
in g th e r e s p e c t iv e a r e a s o f a c o u n ty , and th e y a re
in c li n e d to a s s e s s p r o p e r ty a t d i f f e r e n t l e v e l s u n le s s
a c a r e f u l stan d ard a p p r a is a l system i s u sed and th e men
a re c a r e f u l l y t r a in e d . Sam pling by c l a s s o f p r o p e r ty
i s a ls o im p o rta n t a s i t i s n o t in fr e q u e n t th a t one
c l a s s o f p r o p e r ty i s a s s e s s e d a t a lo w er o r h ig h e r
l e v e l th a n o th e r c l a s s e s o f p r o p e r ty b eca u se o f slo w
n e s s in f o llo w in g tr e n d s , b eca u se o f la c k o f h e lp o r
sy stem o r o th e r f a c t o r s . The sam p lin g a s t o q u a lit y o f
p r o p e r ty i s im p ortan t a s i t i s a n a tu r a l ten d e n c y to
o v e r a s s e s s p r o p e r ty o f p oor q u a li t y and t o u n d e r a sse s s
p r o p e r ty o f good q u a lit y u n le s s c a r e f u l l y p rep ared
sta n d a rd a p p r a is a l sy stem s are u sed and th e a p p r a is e r s
are p r o p e r ly t r a in e d . As h a s b een done in th e p a s t ,
c o n s ta n t ca r e w i l l be u sed t o s e l e c t sam ples t o m eet
th e s e r e q u ir e m e n ts.
I t i s d i f f i c u l t t o o b ta in an ad eq u ate sam p lin g o f
s a l e s a s g e n e r a lly s a l e s a re more a c t iv e in a p a r t i
c u la r a rea o f th e co u n ty o r o f a p a r t ic u la r c l a s s o f
p r o p e r ty . Commonly th e r e a re v e r y few s a l e s in com
m e r c ia l o r in d u s t r ia l d i s t r i c t s , and r e lia n c e on a
p u r e ly s a l e s b a s is in su ch a d i s t r i c t would be in a d e
q u ate .
The number o f sam ple a p p r a is a ls t h a t th e d iv is io n
h a s been a b le to make w ith th e p r e s e n t s t a f f h as been
in a d e q u a te t o m eet p rop er sa m p lin g re q u ir em e n ts.
The p e r c e n ta g e o f sam p les r e q u ir e d v a r ie s w ith th e
r e s p e c t iv e c o u n t ie s . Those c o u n tie s w ith a w e l l -
229
e s t a b lis h e d a p p r a is a l system w here th e s t a f f i s w e ll
tr a in e d and i s w orking on u niform sta n d a rd s r e q u ir e a
much s m a lle r p e rc en ta g e o f sam ples th an a eo u n ty t h a t
i s p o o r ly e q u a liz e d .
k* O b ta in in g o f D ata
The l a r g e s t ta s k in th e m aking o f a la r g e number o f
sam ple a p p r a is a ls i s th e o b ta in in g o f f a c t u a l d a ta .
The f a c t u a l d a ta r e fe r r e d t o are s a l e s p r i c e s , b u ild in g
rep la cem en t c o s t e s t im a t e s , incom e d a ta , s o i l c l a s s i
f i c a t i o n d a ta , in fo r m a tio n on q u a n tity and q u a li t y o f
t r e e s and v i n e s , in fo r m a tio n on q u a n tity and q u a li t y
and a c c e s s i b i l i t y o f tim b e r , e tc .
The f a c t u a l in fo r m a tio n needed by your s t a f f f o r th e
making o f sam ple a p p r a is a ls i s th e same a s th e f a c t u a l
in fo r m a tio n n eed ed by th e a s s e s s o r s in th e m aking o f a
f a i r and p rop er o r i g i n a l a ss e s s m e n t. By f a r th e m ost
eco n o m ica l and p r a c t ic a l way o f o b ta in in g t h i s f a c t u a l
in fo r m a tio n i s to do i t in c o o p e r a tio n w ith th e a s s e s s
o r s in th e c o u n t ie s w here t h a t i s f e a s i b l e . In some
c o u n tie s th e a s s e s s o r s have g a th e red f a c t u a l in form a
t io n in a th orou gh and s a t i s f a c t o r y m anner. In such
c a s e s th e f a c t u a l in fo r m a tio n can be o b ta in e d d i r e c t l y
from th e a s s e s s o r s . I n o th e r c o u n tie s th e a s s e s s o r who
i s a ls o d e s ir o u s o f o b ta in in g th e f a c t u a l in fo r m a tio n
i s q u it e w i l l i n g to a s s ig n a p o r tio n o f h i s s t a f f to
work w ith th e board a p p r a is e r s in th e g a th e r in g o f such
in fo r m a tio n f o r m utual b e n e f i t . T h is makes th e pro
cedu re much more e f f i c i e n t f o r b o th th e a s s e s s o r and
th e board s t a f f . F urth erm ore, o f te n th e o n ly p r a c t i c a l
means f o r th e Board to o b ta in f a c t u a l in fo r m a tio n on
p r o p e r t ie s i s th rou gh th e a s s e s s o r ^ o f f i c e .
c. A p p r a isa l
I t sh o u ld be th o r o u g h ly u n d ersto o d th a t th e co o p er
a t iv e g a th e r in g o f f a c t u a l in fo r m a tio n d o es n o t mean
th a t th e d iv is io n a p p r a is e r s do n o t make an a p p r a is a l
b a sed on t h e ir in d ep en d en t sound Judgm ent. T h is p o in t
h a s been s t r e s s e d and th e r e i s no re a so n why a good
a p p r a is e r w ould be u nd uly in flu e n c e d by th e v ie w s o f
th e a s s e s s o r o r h i s a p p r a is e r s . E x p er ien ce in th e
d iv is io n h as in d ic a t e d t h a t th e men do b a se t h e i r
a p p r a is a ls on t h e i r own in d ep en d en t judgm ent. U s u a lly
th e a p p r a is e r s do n o t have th e a s s e s s e d v a lu e o f th e
230
p r o p e r ty b e fo r e them when m aking t h e i r a p p r a is a ls , and
th u s a re n o t in c lin e d to be in flu e n c e d by su ch a s s e s s e d
v a l u e s .40
I ¥ . REGENT TRENDS IN EQUALIZATION
G en eral S tatem en t
The a sse ssm e n t o f p r o p e r ty I s o r d in a r ily reg a rd ed a s
" e q u ita b le " w it h in a g iv e n a s s e s s in g d i s t r i c t I f th e ta x
a b le v a lu e s o f a l l p r o p e r t ie s b ear a p p r o x im a tely th e same
r e la t io n s h ip to " tru e v a lu e ." Thus, a sse ssm e n t m igh t be
e q u ita b le i f a l l p r o p e r ty w ere a s s e s s e d a t 20 p e r c e n t ,
60 p er c e n t , o r 120 p e r c e n t o f tr u e v a lu e . However, th e
t e s t o f e q u it y i s n o t t r u l y m et u n le s s th e r a t i o s o f
a s s e s s e d to tr u e v a lu e a re th e same in a l l a s s e s s in g u n i t s ,
a s w e ll a s u n iform f o r a l l p r o p e r ty w it h in any g iv e n u n it .
Where l e v i e s are im posed by a h ig h e r l e v e l o f
governm ent on th e p r o p e r ty in a l l d i s t r i c t s , o r where
f i n a n c i a l a id s a r e g ea red to a s s e s s e d v a lu a t io n s , th e
r a t i o s o f a s s e s s e d t o tr u e v a lu e s m ust be u n iform in a l l
a s s e s s in g u n it s i f e q u it a b le d is t r ib u t io n o f th e ta x burden
i s to be r e a liz e d .
I n some s t a t e s p r o p e r ty i s c l a s s i f i e d and d if f e r e n t
a sse ssm e n t r a t i o s s p e c i f i e d f o r v a r io u s c l a s s e s . E q u ity ,
40 1949 R eport t o th e S ta te Board o f E q u a liz a t io n .
o p . c i t . , p p . 3 4 -3 6 .
231
in su ch c a s e s , i s m easured l a r g e l y in term s o f th e d eg ree
o f u n ifo r m ity w ith in each c l a s s o f p r o p e r ty . Thus e q u ity
in p r o p e r ty t a x a tio n i s g e n e r a lly v iew ed a s a m a tte r o f
41
u n ifo r m ity in th e r a t i o s o f a s s e s s e d t o tr u e v a lu e .
Many s t a t e s have en d eavored t o go to th e h e a r t o f
th e problem o f in e q u it y in p r o p e r ty t a x a t io n by t r y in g t o
im prove a sse ssm e n t a t th e l o e a l l e v e l . D e s p ite s t a t e
e f f o r t t o im prove l o e a l a p p r a is a l th e a sse ssm e n t r o l l , a s
u s u a lly made u p , i s f a r from e q u a liz e d . P ro p er ty ta x
e q u a liz a t io n h a s r e c e iv e d c o n s id e r a b le em p h a sis, e s p e c i a l l y
in th e l a s t d eea d e, a s many s t a t e s have p a sse d l e g i s l a t i o n
A O
d e a lin g w ith th e problem .
43
I l l i n o i s * F u ll-V a lu e A ssessm en t Program
In 1945 I l l i n o i s e n a e te d l e g i s l a t i o n d e sig n e d to
b r in g about a sse ssm e n t o f ta x a b le p r o p e r ty a t ’ ’f u l l value.**
W ith th e a d o p tio n o f th e program i t became a req u irem en t
4- * - R obert H. Johnson and L ew is E . W agner, A Com
p a r a tiv e Study o f th e Tax S ystem s o f Iowa and th e Surround
in g S t a t e s . StudT es in B u sin e ss and E con om ics, New S e r i e s ,
No. 3 , Bureau o f B u s in e s s and Econom ic R esea rch (Iow a C ity :
S ta te U n iv e r s ity o f Iow a, J u n e, 1 9 5 2 ), p . 2 6 3 .
42 See M yers and S to u t, o p . c i t . . p p . 1 7 9 -8 6 .
43 T h is s e c t io n was b ased la r g e ly on M yers and
S t o u t , l o c . c i t . ; A lle n , " F u ll-V a lu e A ssessm en t Program,**
o p . c i t . , Ch. 5 ; and W. I . Herman, ’’Im proving P r o p e r ty Tax
A d m in is tr a tio n ,” Tax R ev iew . X III ( J u ly , 1 9 5 2 ).
232
t h a t th e S ta te D epartm ent o f R evenue c e r t i f y to ea c h c o u n ty
c le r k a " m u ltip lie r " f o r use in c o n v e r tin g l o c a l a s s e s s
m ents to f u l l v a lu e .
R easons f o r a d o p tio n o f th e program . - - S in c e 1927
a sse ssm e n t o f p r o p e r ty on a f u l l - v a l u e b a s i s h a s b een r e
q u ir ed by s t a t u t e . D e s p ite s t a t u t o r y re q u ir em en t, h ow ever,
a s se ssm e n ts have been a t s u b s t a n t i a l l y l e s s th a n f u l l -
v a lu e . The 1945 r a t i o s o f a s s e s s e d to f u l l v a lu e ran ged
from 14 to 68 p er c e n t in c e r t a in c o u n tie s w ith a s ta te w id e
a v era g e o f 46 p er c e n t . Wide d i s p a r i t i e s e x i s t e d b etw een
ta x p a y e r s who l i v e d in d i f f e r e n t t a x in g d i s t r i c t s , a s w e ll
a s b etw een s t a t e - a s s e s s e d and l o c a l l y - a s s e s s e d p r o p e r ty .
M achinery f o r f u l l - v a l u e a s s e s s m e n t. — The D ep art
m ent o f Revenue i s r e q u ir e d t o a d ju s t th e t o t a l a s s e s s e d
v a lu e o f ea ch co u n ty t o i t s f u l l , f a i r , c a sh v a lu e . S t a r t
in g w ith th e 1946 a s s e s s m e n ts th e D epartm ent o f Revenue
m ust d eterm in e th e r a t i o o f th e a s s e s s e d v a lu e o f l o c a l l y -
a s s e s s e d p r o p e r ty to f u l l v a lu e in ea ch c o u n ty . A fte r t h i s
in fo r m a tio n h a s b een d eterm in ed th e Departm ent m ust e e r t i f y
t o each c o u n ty c le r k th e p e r c e n ta g e by w hich th e t o t a l
a s s e s s e d v a lu a tio n m ust be in c r e a s e d o r d e c r e a s e d . The
D epartm ent o f Revenue com putes a " m u lt ip lie r ," w h ich i s th e
r e c ip r o c a l o f th e co u n ty a sse ssm e n t r a t i o , to be a p p lie d by
th e eo u n ty c le r k t o in d iv id u a l a s se ssm e n ts f o r p u r p o ses o f
233
com puting t a x r a t e s and e x te n d in g t a x e s . To g iv e an e x
am ple: suppose a co u n ty had a r a t i o o f a s s e s s e d t o f u l l
v a lu e o f 40 p er c e n t , th e m u lt ip lie r would be 2 .5 ; an
a sse ssm en t r a t io o f 75 p er c e n t w ould have 1 .3 3 a s a m u lt i
p l i e r ; an a sse ssm e n t r a t i o o f 120 p er c e n t w ould have a
m u lt i p l i e r o f .8 3 3 . T ab le IX i l l u s t r a t e s a p p lic a t io n o f
th e m u l t i p l ie r t o d eterm in e f u l l v a lu e .
Det er m in a tio n o f co u n ty a sse ssm e n t r a t i o s . — To
d eterm in e th e r a t i o o f a s s e s s e d to f u l l v a lu e o f p r o p e r ty
in each co u n ty th e D epartm ent o f Revenue a n a ly z e s p r o p e r ty
t r a n s f e r s and m akes sam ple a p p r a is a ls . Where th e r e i s a
p a u c ity o f ex ch a n g es o f p a r t ic u la r k in d s o f p r o p e r ty in
c e r t a in d i s t r i c t s more e x t e n s iv e u se i s made o f sam ple
a p p r a is a ls . A ll c l a s s e s o f p r o p e r ty , r e a l and p e r s o n a l,
a re w e ig h te d a c c o r d in g to t h e i r im portan ce in th e t o t a l to
c a l c u la t e th e a sse ssm e n t r a t i o . ”I t i s d e s ir a b le t h a t th e
p r o v is io n s o f th e la w w h ich p r e s c r ib e s th e m ethod o f com
p u tin g co u n ty a sse ssm e n t r a t i o s be s e t f o r t h in g r e a te r
d e t a i l . ”44
A dvantages and w ea k n esses o f I l l i n o i s 1 f u l l - v a l u e
a sse ssm e n t program . — The f o llo w in g sh o rtco m in g s o f th e
44 A lle n , ”lP u ll-V a lu e A sse ssm e n t P ro g ra m ,” o £ . c i t . ,
p • 55 •
T A B L E IX
E X A M P L E O F A P P L Y IN G nM JLTIELIERw T O D E T E R M IN E FOIL V A L U E
S tate Determined
County Assess
ment Ratio
W
Locally Determined
Individual
Assessment
M u ltiplier
to be
Applied
Full-Value
Assessment
County A
40 $4,000.00 3.5 $10,000.00
County B 50 4,000.00 3.0 8,000.00
County C 75 4,000.00 1.33 5,330.00
County D 100 4,000.00 1.0 4,000.00
County 1 130 4,000.00 .333 3,333.00
Source: H. K. A llen, "Full-Value Assessment Program, ” Report oftheRe venue Laws commission
of the S tate of I llin o is , 1949, p. 55.
235
program a re d is c u s s e d by P r o fe s s o r A lle n : (1) I n e q u a li
t i e s in a sse s s m e n ts among in d iv id u a l ta x p a y e r s w ith in a
c o u n ty a re n o t c o r r e c te d by s t a t e e q u a liz a t io n a t f u l l
v a lu e . S ta tew id e e q u a liz a t io n se e k s t o p u t th e g e n e r a l
l e v e l o f a s s e s s m e n ts on th e same b a s is in a l l c o u n t ie s .
P r o f e s s o r A lle n u r g e s th e e s ta b lis h m e n t o f a C ounty Super
v i s o r o f A ssessm en ts t o d e a l w ith in d iv id u a l a sse ssm e n t
i n e q u a l i t i e s . (a) A nother w eakness o f th e program i s t h a t
th e p u b lish e d l i s t s o f p r o p e r ty a s se ssm e n ts show th e
o r i g i n a l and n o t th e e q u a liz e d ( f u l l v a lu e ) a s s e s s m e n ts .
T h is makes i t more d i f f i c u l t f o r th e in d iv id u a l ta x p a y e r to
compare th e a s s e s s e d v a lu e o f h i s p r o p e r ty w ith t h a t o f h i s
n e ig h b o r . A lthough th e ta x b i l l w i l l show th e e q u a liz e d
v a lu e , i t i s th e n to o l a t e f o r th e ta x p a y e r to a p p ea l f o r
a r e v is i o n . (3) A t h ir d w eak n ess e x i s t s in t h a t p e r s o n a l
p r o p e r ty may be w ith h e ld from a s s e s s m e n t, o r i t s f u l l v a lu e
may be d i f f i c u l t t o d eter m in e.
Among th e a d v a n ta g es o f th e program A lle n 46 d i s
c u s s e s th e fo llo w in g : (1) P u ll- v a lu e e q u a liz a t io n te n d s t o
e q u a liz e t a x burdens in d i s t r i c t s w hich o v e r la p c o u n ty
b o u n d a r ie s. (2 ) The program r e n d er s t a x r a te and d eb t
45 I b i d . , p p . 5 9 -6 0 .
46 Idem .
236
l i m i t s u niform among c o u n tie s o f th e s t a t e , (3) A t h ir d
ad vantage o f th e program i s th e e q u a liz a t io n o f ta x b urdens
betw een l o c a l l y - a s s e s s e d and s t a t e - a s s e s s e d p r o p e r ty . (4 )
A nother ad van tage i s t h a t i t e q u a liz e s th e g r a n tin g o f
s t a t e a id . (5) F u r th e r , th e f u l l - v a l u e e q u a liz a t io n p ro
gram sh ou ld red u ce th e la g b etw een ch a n g es in p r o p e r ty
v a lu e s and a s s e s s e d v a lu a t io n s . (6) F i n a l l y , f u l l - v a l u e
e q u a liz a t io n by th e s t a t e te n d s t o m a g n ify and make i n
e q u a l i t i e s among l o c a l a s s e s s m e n ts more c o n sp icu o u s t o a l l
co n cern ed . T h is sh o u ld en co u ra g e b e t t e r o r i g i n a l a s s e s s
m en t.
E q u a liz a tio n in P e n n sy lv a n ia
In 1947 P e n n sy lv a n ia e s t a b lis h e d a S ta te Tax E qual
i z a t i o n Board w hose f u n c t io n w as to d eterm in e th e m arket
v a lu e o f r e a l p r o p e r ty in a l l s c h o o l d i s t r i c t s . The Board
r e p o r ts to th e S u p er in ten d en t o f P u b lic I n s t r u c t io n th e
m arket v a lu e s and a sse ssm e n t r a t i o s o f a l l r e a l p r o p e r t ie s
i n ea ch s c h o o l d i s t r i c t ea ch y e a r . S ta te a id to e d u c a tio n
i s b a sed on f u l l v a lu e o f r e a l p r o p e r ty in s t e a d o f on de
b ased v a lu e s r e f l e c t e d in l o c a l a sse ssm e n t r a t i o s th rou gh
o u t th e s t a t e .
E q u a liz a tio n in Utah
I n 1947 U tah e n a e te d im p o rta n t l e g i s l a t i o n about
237
a sse ssm en t and e q u a liz a t io n . B efo re th a t d a te s t a t u t e s
r e q u ir e d th a t p r o p e r ty be a s s e s s e d a t " f u ll c a sh v a lu e ."
Under th e new la w s a s se ssm e n ts a re t o be a t 40 p er c e n t o f
" rea so n a b le f a i r ca sh v a lu e ." To en su re th e 40 p er c e n t
r a t io th e Tax C om m ission m ust make an annual in v e s t i g a t io n
o f p r o p e r ty v a lu a t io n s in ea ch c o u n ty and in c r e a s e o r de
c r e a s e a sse ssm e n t r a t i o s t o e q u a liz e them a t 40 p er c e n t .
E q u a liz a tio n in M in n eso ta
M in n esota la w p r o v id e s f o r r e v ie w and e q u a liz a t io n
o f th e l o c a l a s s e s s o r s ’ work on th r e e l e v e l s : (1 ) th e tow n,
v i l l a g e , o r c i t y board o f r e v ie w ; (2) th e co u n ty board o f
e q u a liz a t io n made up o f th e co u n ty co m m issio n ers; and
(3) th e s t a t e co m m issio n er o f t a x a t io n s i t t i n g a s a board
o f e q u a liz a t io n . An im p ortan t change was made a t th e
co u n ty l e v e l in 1947 when th e co u n ty co m m issio n ers were
a u th o r iz e d t o a p p o in t e i t h e r a co u n ty su p e r v is o r o f a s s e s s
m ent o r a c o u n ty a s s e s s o r .
Pow ers and d u t ie s o f co u n ty s u p e r v is o r s o f a s s e s s
m en t. — The co u n ty s u p e r v is o r o f a sse ssm e n t i s a p p o in ted
by th e c o u n ty co m m issio n er s, s u b je c t t o a p p ro v a l o f th e
S ta t e C om m issioner o f T a x a tio n f o r a term o f fo u r y e a r s .
He m ust be s e le c t e d on th e b a s is o f a b i l i t y and e x p e r ie n c e .
H is pow ers and d u t ie s a r e : (1 ) to s e r v e a s a d v is o r to l o c a l
and co u n ty b oard s o f r e v ie w ; (2) to in s t r u c t l o c a l
238
a s s e s s o r s and m a in ta in a p p r o p r ia te maps and m a t e r ia ls f o r
t h e i r g u id a n ce ; and (3) t o a tte n d m e e tin g s o f th e S ta te Tax
C om m issioner and a c t a s l i a i s o n b etw een l o c a l o f f i c i a l s and
th e Tax C om m issioner. T hus, th e d u t ie s o f th e eo u n ty
s u p e r v is o r o f a s s e s s m e n ts a re l a r g e l y a d v is o r y .
Pow ers and d u t ie s o f co u n ty a s s e s s o r s . — In a d d i
t io n t o a l l o f th e pow ers p r e s c r ib e d f o r co u n ty s u p e r v is o r s
o f a ss e s s m e n ts c o u n ty a s s e s s o r s have t h e s e pow ers and
d u t ie s : (1) t o d eterm in e t h e v a lu e o f a l l p r o p e r ty s u b je c t
t o t a x a t io n , b ased upon a p p r a is a ls o f l o c a l a s s e s s o r s ;
(2) t o d eterm in e th e v a lu e o f p r o p e r ty w h ich i s d i f f i c u l t
f o r th e l o c a l a s s e s s o r t o a p p r a is e ; (3 ) to p rep are a l l
m aps, c h a r t s , and form s a s p r e s c r ib e d by th e Tax Commis
s io n e r ; (4) to c a r r y p u t a l l o th e r r e g u la r f u n c t io n s , i n
c lu d in g n e c e s s a r y book w ork, in c o n n e c tio n w ith th e a s s e s s
m ent p ro ce d u re .
T h ir t y - e ig h t o f M in n eso ta * s e ig h t y - s e v e n c o u n tie s
have e l e c t e d to em ploy a co u n ty a s s e s s o r w h ile th e r e -
47
m ain d er u se a c o u n ty s u p e r v is o r o f a s s e s s m e n ts .
These o f f i c e r s , a c c o r d in g to th e Tax C om m issioner,
have a id e d m a t e r ia lly in im provin g a sse ssm e n t and o ccu p y
an im p o rta n t p o s it io n in th e s t a t e e q u a liz a t io n p r o c e s s ,
^ M yers and S t o u t , o p . c i t .. p. 1 8 3 .
239
o u t lin e d a s f o llo w s :
In 1948 . . . a new p roced u re was in tr o d u c e d w hereby
co u n ty a s s e s s o r s a n d /o r co u n ty s u p e r v is o r s o f a s s e s s
m ents w ere r e q u ir e d to a tte n d m e e tin g s o f th e S ta te
Board o f E q u a liz a tio n . T h is was a cco m p lish ed b y d i
v id in g th e S ta t e in t o t h ir t e e n r e g io n s and h a v in g th e
co u n ty a s s e s s o r s o r s u p e r v is o r s from th e e o u n t ie s in
ea ch o f th e r e g io n s a tte n d a f u l l day s e s s io n o f th e
S ta te Board o f E q u a liz a t io n . At t h e s e m e e tin g s r e a l
and p e r s o n a l p r o p e r ty c l a s s e s w ere compared by town
sh ip and c i t y and v i l l a g e and d if f e r e n c e s betw een th e
c o u n t ie s p r e s e n t w ere a n a ly z e d and s tu d ie d . The sta n d
a rd s o f a sse ssm e n ts u sed in ea c h o f th e e o u n tie s
p r e s e n t w ere compared and d is c u s s e d and o r d e r s o f th e
S ta t e Board o f E q u a liz a tio n f o r th e purpose o f s e c u r in g
u n ifo r m ity betw een c o u n t ie s w ere d r a f te d . The r e p o r ts
and comments made b y th e v a r io u s co u n ty a s s e s s o r s and
s u p e r v is o r s o f a s s e s s m e n ts g r e a t l y f a c i l i t a t e d th e work
o f th e S ta te Board and h e lp e d im m easurably in se c u r in g
a g r e a t e r u n ifo r m ity o f v a lu e s th ro u g h o u t th e S t a t e .
T h is p ro ced u re w i l l become a perm anent p a r t o f th e
p r o c e e d in g s o f th e S ta te Board o f E q u a liz a tio n n o t o n ly
b eca u se o f i t s v a lu e in s e c u r in g g r e a te r u n ifo r m ity but
a ls o b eca u se t h e s e m e e tin g s proved to be v e r y h e lp f u l
t o th e c o u n ty a s s e s s o r s and s u p e r v is o r s o f a s s e s s
m ents.^®
E q u a liz a tio n in Iowa
Iow a’ s program o f a sse ssm e n t and e q u a liz a t io n i s
c h a r a c te r iz e d by c e n t r a l i z a t i o n o f th e s e f u n c t io n s a t th e
co u n ty l e v e l . L e g is la t io n in 1947 a b o lis h e d th e system o f
town and to w n sh ip a s s e s s o r s and to w n sh ip , c i t y , and c o u n ty
b o a rd s o f r e v ie w ; i t e s t a b lis h e d th e o f f i c e o f c o u n ty
a s s e s s o r a tta c h e d to th e o f f i c e o f th e co u n ty a u d ito r and
s e t up new c o u n ty b oard s o f r e v ie w . G i t i e s o f 1 0 ,0 0 0
48 Id em .
240
p o p u la tio n o r more may p r o v id e f o r a c i t y a s s e s s o r and c i t y
board o f r e v ie w and th e r e b y n o t be s u b je c t to c o u n ty
a sse ssm en t o r r e v ie w . The co u n ty a s s e s s o r i s a p p o in ted by
a co u n ty c o n fe r e n c e board a f t e r q u a l i f i c a t i o n by exam ina
t i o n . The c o n fe r e n c e board a ls o a p p o in ts a board o f r e v ie w
composed o f from th r e e to f i v e members in c lu d in g a t l e a s t
one fa rm er, one r e a l e s t a t e b r o k er , and one e x p e r ie n c e d in
b u ild in g and c o n s t r u c t io n .
The m ost im p ortan t change made by th e l e g i s l a t i o n
. . . w as th e t r a n s f e r o f th e d u ty o f m aking a s s e s s
m ents from a v e r y la r g e number o f tow n sh ip a s s e s s o r s
and b oard s o f r e v ie w to a more c e n t r a liz e d co u n ty
sy stem s u b je c t to s u p e r v is io n by th e S t a t e . 49
The Iow a S ta te Tax Com m ission r e p o r te d in 1949 t h a t
th e new arrangem ent was h ig h ly s u c c e s s f u l in a c h ie v in g
u n ifo r m ity o f a s s e s s m e n ts .50
51
A 1952 stu d y in d ic a t e d marked d if f e r e n c e s in th e
a v era g e a s s e s s e d v a lu e s a s p e r c e n ta g e s o f s a l e s v a lu e s in
c o u n tie s and to w n s. For farm p r o p e r t ie s in tw en ty c o u n tie s
th e a v e r a g e s b ased on 1 9 4 9 -1 9 5 0 d a ta ranged from 5 0 t o 45
p er c e n t . A farm h a v in g a s a l e s v a lu e o f # 5 0 ,0 0 0 w ould be
a s s e s s e d a t # 9 ,0 0 0 in a co u n ty h a v in g a 50 p e r c e n t
49 I b i d . , p . 1 8 4 .
Idem .
K " l
Jo h n so n an d W agner, o £ . c i t . , p p . 2 6 6 -6 8 .
241
a sse ssm e n t r a t i o , w h ile i f th e r a t i o w ere 45 p er ce n t i t
w ould he a s s e s s e d a t $ 1 3 ,5 0 0 — o r by 50 p er c e n t m ore.
For town p r o p e r t ie s 194 9 -1 9 5 0 s a l e s d a ta showed a
h ig h e r d eg ree o f u n ifo r m ity in c o u n ty -to -c o u n ty a sse ssm en t
r a t i o s th a n farm p r o p e r t ie s w ith th e a v era g e a sse ssm en t
r a t io ra n g in g from 24 to 32 p er c e n t . The h ig h e s t a v era g e
co u n ty a sse ssm e n t r a t io ex cee d e d to lo w e s t by 50 p er ce n t
f o r farm p r o p e r t ie s ; f o r urban p r o p e r t ie s th e h ig h e s t
a v era g e w as 33 1 /3 p er c e n t above th e lo w e s t r a t i o .
These a u th o r s co n clu d e th a t a v a ila b le d a ta , though
lim it e d in c o v e r a g e , in d ic a t e th a t farm p r o p e r t ie s in Iowa
a re a s s e s s e d a t about 35 p e r c e n t and urban p r o p e r t ie s a t
52
a p p r o x im a tely 25 p e r c e n t o f c u r r e n t m arket v a lu e s . &
E q u a liz a tio n in Ohio
In 1949 th e Ohio L e g is la t u r e p a ssed l e g i s l a t i o n
d esig n e d to make p r o p e r ty t a x e q u a liz a t io n more e f f e c t i v e
by r e q u ir in g co u n ty a u d ito r s to a d ju s t a s s e s s e d v a lu a t io n s
to conform w ith th o s e d eterm in ed b y th e S ta te Board o f Tax
A p p ea ls. I f th e c o u n ty a u d ito r f a i l s to do so th e s t a t e
a u d ito r m ust w ith h o ld from th e co u n ty o n e - h a lf o f i t s sh a re
o f s t a t e fu n d s d is t r ib u t e d f o r poor r e l i e f and s c h o o l
Id em .
242
s u b s i d i e s .53
E q u a liz a tio n in K ansas
K ansas p a ssed l e g i s l a t i o n in 1947 and 1949 aim ed a t
g r e a te r u n ifo r m ity in a s s e s s m e n t s .54 I t h a s p ro v id ed th a t
th e S ta te C om m issioner o f Revenue and T a x a tio n s h a l l make
u se o f s a l e s r a t io d a ta in com puting r a t i o s o f a s s e s s e d t o
tr u e m arket v a lu e s . The r e g i s t r a r o f d eed s in ea ch e o u n ty
m ust f u r n is h th e Com m ission w ith s a l e s d a ta f o r r e a l
e s t a t e f o r th e p e r io d January 1 , 1933 to J u ly 1 , 1 9 4 9 , and
m o n th ly t h e r e a f t e r . The Com m ission th en m ust compute th e
r a t i o s o f a s s e s s e d t o s a l e s v a lu e f o r ea ch co u n ty and f o r
th e e n t ir e s t a t e . The S ta te u s e s th e r a t i o s in c o n n e c tio n
w ith g r a n tin g f in a n c i a l a id to c o u n ty and l o c a l g o v ern
m en ts.
A secon d im p o rta n t p r o v is io n o f th e l e g i s l a t i o n r e
q u ir e s co u n ty a s s e s s o r s t o u se c e r t a in r e c o g n iz e d nt o o l s n
su ch a s t a x m aps, stan d ard d e p r e c ia t io n t a b l e s , and s a l e s
d a ta in m aking a p p r a is a ls .
E q u a liz a tio n in C a lif o r n ia
S im ila r r e a so n s e x i s t f o r c e n t r a l e q u a liz a t io n in
53 M yers and S t o u t , 0£ . c i t . , p . 1 8 5 .
54 I b i d . . pp. 1 8 5 -8 6 .
243
C a lif o r n ia a s in o th e r s t a t e s . H owever, marked in c r e a s e s
in th e p o p u la tio n flo w in t o th e s t a t e and th e r a p id in
d u s t r i a l ex p a n sio n d u rin g and im m e d ia te ly f o llo w in g World
War I I brought th e problem o f f r a c t io n a l and u n eq u al a s s e s s
ment o f p r o p e r ty to th e f o r e f r o n t .
P r e ssu r e f o r e q u a liz a t io n o f a s s e s s m e n ts c u lm in a te d
in th e p a ssa g e by th e l e g i s l a t u r e o f th e 1949 in te r c o u n ty
55
e q u a liz a t io n la w . The 1949 la w arou sed much c o n tr o v e r s y
among a s s e s s o r s and ta x p a y e r s . As a r e s u l t o f compromise
in th e l e g i s l a t u r e no fu n d s w ere a p p r o p r ia te d to c a r r y o u t
t h e a d d it io n a l a c t i v i t i e s d e le g a te d t o th e S t a t e Board o f
E q u a liz a tio n by th e l e g i s l a t i o n . In J u ly , 1951 th e
G overnor sig n e d l e g i s l a t i o n w h ich p ostp on ed f o r two y e a r s
t h e e f f e c t i v e d a te o f Septem ber 2 , 1 9 5 0 . The p r o v is io n s o f
t h i s la w w i l l th u s become e f f e c t i v e f o r th e f i r s t tim e w ith
r e s p e c t t o a s s e s s m e n ts made a s o f th e f i r s t Monday in
M arch, 1953.
P r o v is io n s o f th e C a lif o r n ia I n te r c o u n ty E q u a liz a
t i o n Law o f 1 9 4 9 . — The e q u a liz a t io n p ro ce d u res t o be
fo llo w e d by th e S ta t e Board o f E q u a liz a tio n are s e t f o r t h
55 A ssem bly B i l l 2 0 2 7 , C a lif o r n ia L e g is la t u r e , 1 9 4 9 ,
R egu lar s e s s io n .
56 C a lif o r n ia S t a t u t e s 1 9 4 9 , Ch. 1 4 6 6 .
5 6
in th e 1949 la w . The board m ust make an an n u al su rv e y o f
244
ea c h co u n ty t o d eterm in e th e r a t i o o f a s s e s s e d t o m arket
v a lu e o f p r o p e r ty on th e a sse ssm e n t r o l l a s e n te r e d fey th e
c o u n ty a s s e s s o r . In d eterm in in g t h i s r a t io th e board i s to
u se s a le s and a p p r a is a l d a ta a s com p iled fey com petent
a p p r a is e r s o f r e p r e s e n t a t iv e sam ples in each co u n ty w ith
s u f f i c i e n t d is p e r s io n to en su re a good c r o s s - s e c t i o n o f th e
ta x a b le w e a lth w it h in th e c o u n ty . When th e board h a s ob
ta in e d such d a ta f o r ea c h co u n ty i t i s to d eterm in e th e
a v era g e r a t io o f a s s e s s e d to m arket v a lu e f o r th e s t a t e a s
a w h o le.
A lthou gh th e law was n o t in e f f e c t a t th e tim e , th e
board made a c o u n ty a sse ssm e n t r a t i o stu d y and p u b lish e d
i t s f in d in g s in J u ly , 1 9 5 1 . T able X shows th e co u n ty
a sse ssm e n t r a t i o s and th e s ta te w id e w eig h ted r a t io a s r e
p o rted by th e b oard .
M ethods o f e q u a liz a t io n p r o v id e d . — Two m ethods o f
e q u a liz a t io n a re s e t f o r t h in th e 1949 law — th e v a r ia b le -
r a t i o and th e u n ifo r m -r a tio .
The v a r i a b le - r a t i o m ethod i s u sed w henever th e r a t io
o f a s s e s s e d to m arket v a lu e in a co u n ty d o es n o t d i f f e r
from th e s ta te w id e a v era g e r a t io by more th an 10 p e r c e n t .
In t h i s c a s e th e board e q u a liz e s t a x e s w it h in th e co u n ty
by a d ju s tin g S t a t e - a s s e s s e d p r o p e r ty v a lu e s to e q u a l th e
l o c a l a sse ssm e n t r a t i o . In t h i s manner b o th l o c a l l y
T A B L E X
C A L IF O R N IA C O U N T ? A S S E S S M E N T R A T IO S A N D S T A T E W ID E
R A T IO A S O F FIRST M O N D A Y IN M A R C H , 1951
County Ratio County R atio County R atio
Alameda 37 Madera 39 San Joaquin 40
Alpine 32 Marin 36 San Luis Obispo 33
Amador 43 Mariposa 36 San Mateo 29
B utte 39 Mendocino 42 Santa Barbara 40
Calaveras 44 Merced 36 Santa Clara 39
Colusa 36 Modoc 32 Santa cruz 32
Contra Costa 34
M ono 39 Shasta 27
Del Norte 36 Monterey 39 S ierra 36
E l Dorado 43 Napa 40 Siskiyou 37
Fresno 44 Nevada 30 Solano 37
Grlenn 44 Orange 46 Sonoma 42
Humboldt 33 P lacer 36 S tanislaus 33
Im perial 36 Plumas 40 S u tter 44
Inyo 37 R iverside 43 Tehama 40
Kern 39 Sacramento 34 T rin ity
24
Kings 44 San Benito 32 Tulare
32
Lake 40 San Bernardino 32 Tuolumne 46
Lassen 32 San Diego 39 *
Ventura 37
Los Angeles 43 San Francisco 44 Yolo 36
Yuba 40
Statewide weighted ra tio : 40
Source: Report of Surrey under Section 1631, Revenue and Taxation code, C alifornia S tate
Board of E qualization, Sacramento, July 16, 1951.
846
a s s e s s e d and S t a t e - a s s e s s e d p r o p e r ty i s v a lu e d a t th e same
p r o p o r tio n o f m arket v a lu e .
In c o u n tie s where th e l o c a l l y d eterm in ed a sse ssm e n t
r a t io d i f f e r s from th e s ta te w id e a v era g e by more than 10
p er c e n t th e board may use e i t h e r th e u n ifo r m -r a tio o r
v a r i a b l e - r a t i o m ethod t o e q u a liz e p r o p e r ty t a x e s . I f i t
u s e s th e u n ifo r m -r a tio m ethod i t w i l l r a i s e o r lo w er th e
v a lu e s a s e n te r e d on t h e c o u n ty a sse ssm e n t r o l l s t o conform
t o th e s ta te w id e a v era g e r a t i o .
E q u a liz a tio n in a l l o c a t i n g S ta te fu n d s . — In th e
a l lo c a t i o n o f S ta te fu n d s th e 10 p er c e n t t o le r a n c e in
a sse ssm e n t r a t i o s i s im p o r ta n t. When th e co u n ty a sse ssm en t
r a t i o v a r ie s from th e s ta te w id e a v era g e b y more th an 10 p er
e e n t , S ta te a g e n c ie s a l l o c a t i n g fu n d s to a co u n ty on th e
b a s i s o f a s s e s s e d v a lu a t io n s o f p r o p e r ty e i t h e r r a is e o r
lo w er th e a s s e s s e d v a lu a t io n t o e lim in a t e th e d if f e r e n c e
betw een th e co u n ty and s ta te w id e r a t i o s .
In d i s t r i c t s ly in g in more th an one co u n ty th e d i f -
l
f e r e n c e s in co u n ty a sse ssm e n t r a t i o s m ust be e q u a liz e d in
a l l o c a t i n g S ta t e fu n d s to th e d i s t r i c t s .
E q u a liz a tio n and maximum ta x r a t e s . — To a ssu re
th a t th e l e g a l maximum t a x r a t e produce a s much reven u e
when a p p lie d to l o c a l l y a p p r a ise d p r o p e r ty a s though th e
p r o p e r ty w ere a s s e s s e d by th e S t a t e , th e 1949 la w p r o v id e s
847
57
f o r ad ju stm en t o f th e maximum r a t e . In o th e r w ord s, i f
th e l o c a l a sse ssm e n t r a t i o d i f f e r s from th e s ta te w id e r a t io
by more th a n 10 p e r c e n t th e maximum t a x r a te may be i n
c r e a se d o r d e c r e a se d b y th e .same p e rc en ta g e a s t h a t u sed in
a d ju s tin g a s s e s s e d v a lu a t io n .
C o n c lu sio n s on C a lif o r n ia E q u a liz a tio n
There i s rea so n t o b e lie v e t h a t th e 1949 in te r c o u n ty
eq .u a liza tj.o n la w w i l l r e s u l t in g r e a te r e q u it y in l o c a l
agen cy o f th e a v era g e r a t i o o f a s s e s s e d to m arket v a lu e in
ea ch co u n ty sh o u ld fo c u s a t t e n t io n o f p r o p e r ty ow ners on
th e q u e s tio n o f w h eth er t h e i r p r o p e r ty i s a s s e s s e d in
accord an ce w ith t h i s a v era g e r a t i o . B e tt e r in tr a c o u n ty
e q u a liz a t io n sh o u ld r e s u l t a s i n e q u i t i e s in in d iv id u a l
a s s e s s m e n ts a re b rou ght t o l i g h t and a d ju s te d by o r d e r s
from e q u a liz a t io n b o a r d s. In a d d it io n , b e t t e r o r i g in a l
a sse ssm en t sh o u ld r e s u l t t o f o r e s t a l l e q u a liz a t io n o r d e r s
f o r o u t - o f - l i n e a p p r a is a ls .
In th e seco n d p la c e , th e law m e ets th e o b je c t io n o f
S ta t e in t e r f e r e n c e in l o c a l home r u le by m aking th e
v a r i a b l e - r a t i o m ethod o f e q u a liz a t io n a v a ila b le t o th e
58
a s s e s s m e n ts . F i r s t , th e an nu al d e te r m in a tio n by a S ta te
57 D a v isso n and S c h m e lz le , oj>. c i t . , p . 2 2 8 .
58 I ^ i d . , p . 2 3 2 .
248
S ta te b oard . By t h i s m ethod S ta te a s s e s s e d p r o p e r ty , S ta te
f i n a n c i a l a id , and maximum t a x r a t e s are a d ju s te d to con
form to th e l o c a l l y d eterm in ed a sse ssm en t r a t i o w ith no
co m p u lsio n e x e r te d by th e S t a t e .
V. EVALUATION OF CENTRAL ADMINISTRATION
G eneral S ta tem en t
S tu d y o f p r o p e r ty t a x a t io n in th e o r y and in p r a c t ic e
le a d s t o th e c o n c lu s io n t h a t p e r f e c t e q u ity and j u s t i c e in
t h i s t a x a re d i f f i c u l t , i f n o t im p o s s ib le , o f a tta in m e n t.
Many r e a s o n s a re o f f e r e d t o su p p o rt t h i s c o n c lu s io n ; how
e v e r , m ost a u t h o r i t ie s se e l i t t l e lik e l ih o o d o f abandoning
p r o p e r ty t a x a t io n . T h e r e fo r e , e f f o r t s have b een d ev o ted to
m in im iz in g i t s i n e q u i t i e s by s tr e n g th e n in g i t s w ea k n e sse s
th ro u g h m o d if ic a t io n s and a d ju stm e n ts d ic t a t e d by t h e o r y ,
a s w e ll a s b y s tr o n g e r , more s c i e n t i f i c and e f f e c t i v e
s ta n d a r d iz e d t o o l s , te c h n iq u e s and p ro ced u re s in i t s ad
m in is t r a t io n . More and more i t h a s come t o be r e c o g n iz e d
t h a t c e n t r a liz e d s u p e r v is io n , a s s e s s m e n t, and e q u a liz a t io n
a re r e q u ir e d in th e e f f e c t i v e and e q u ita b le u se o f th e
p r o p e r ty t a x . These are r e c o g n iz e d a s n e c e s s a r y b eca u se
o f th e n a tu re o f th e ta x and th e econom ic c o n te x t in w hich
i t i s u se d .
P r e ssu r e to red u ce th e t a x lo a d on p r o p e r ty
249
c u lm in a te d , n o ta b ly in th e d e p r e s s io n -r id d e n t h i r t i e s , in
w id esp rea d a d o p tio n o f r a te l i m i t a t i o n s on l o c a l ta x in g
b o d ie s . L o c a l governm ents have been p la c e d in in c r e a s in g ly
narrow f i n a n c i a l bounds under th e d u a l p r e s s u r e s o f r a te
and d eb t l i m i t a t i o n s on one hand, t o g e t h e r w ith f r a c t io n a l
a s s e s s m e n t, and in c r e a s in g demands f o r s e r v ic e and i n f l a
t io n a r y p r ic e r i s e s on th e o th e r . C o n se q u e n tly e v e r
s tr o n g e r demands by l o c a l govern m en ts f o r a d d it io n a l s t a t e -
a id have d e v e lo p e d . S ta n d a r d iz a tio n o f p r o p e r ty t a x ad
m in is t r a t io n i s n e c e s s a r y t o e q u ita b ly a l l o c a t e s t a t e - a i d
t o l o c a l governm ents w hose p r in c ip a l f i n a n c i a l r e so u r c e i s
p r o p e r ty t a x e s . I n o th e r w ord s, th e tr e n d h a s b een tow ard
g r e a te r c e n t r a l i z a t i o n o f p r o p e r ty t a x a t io n , and u navoid
a b ly s o , b eca u se o f th e problem s in v o lv e d .
E v a lu a tio n o f C e n tr a l S u p e r v is io n
In r e c e n t y e a r s s u p e r v is io n o v e r l o c a l a ss e s s m e n ts
by some form o f c e n t r a l a g en cy h a s in c r e a s e d g r e a t l y . In
1950 fo r ty -tw o s t a t e s p ro v id ed f o r such s u p e r v is io n . S ta te
s u p e r v is o r y a g e n c ie s and t h e ir pow ers and d u t ie s v a ry among
th e s t a t e s . In many c a s e s th e s u p e r v is io n may be more
ap p aren t th a n r e a l , h ow ever, s in c e i t i s lim it e d t o su p p ly
in g p r in te d m a tte r and s u g g e s tio n s a s to p r in c ip le s and
p ro ced u res to be u sed .
One o f th e g r e a t d i f f i c u l t i e s in s u p e r v is io n h as
350
b een In th e realm o f p o l i t i c s founded on th e t r a d i t i o n a l
a lle g ia n c e to th e p r in c ip le o f home r u l e . A ccord in g to
Shannon:
In e v a lu a tin g v a r io u s s t a t e program s t o im prove
l o c a l a s s e s s m e n ts one f a c t em erges above a l l o t h e r s .
When s t a t e s a tte m p t, th ro u g h t e c h n ic a l a s s is t a n c e and
v o lu n ta r y r e a p p r a is a l, to e q u a liz e l o c a l a sse ssm e n t
r o l l s , th e y a re on c o m p a r a tiv e ly s a f e g ro u n d s. I f ,
h ow ever, s t a t e s a ttem p t t o r a i s e th e g e n e r a l l e v e l o f
a s s e s s m e n t, th e y move o u t o f th e t e c h n ic a l realm o f
econom ic v a lu a tio n and in t o b i t t e r p o l i t i c a l c o n tr o
v e r s i e s c o n c e r n in g s h i f t i n g t a x b urdens and in c r e a s e d
p r o p e r ty ta x l o a d .59
S u p e r v is io n o f p r o p e r ty t a x a t io n by a S ta te a g en c y ,
though i t t a k e s a v a r i e t y o f fo rm s, h as a s I t s b a s ic aim
th e im provem ent o f l o c a l a sse ssm e n t. The fu n c tio n o f th e
a s s e s s o r h a s become more s p e c ia liz e d due t o th e in c r e a s in g
c o m p le x ity o f s o c i e t y and r a p id t e c h n o lo g ic a l ch a n g es and
r e q u ir e s w e ll tr a in e d men t o do a good jo b . W isco n sin to o k
an e a r ly le a d i n t h i s d ir e c t io n in 1934 when i t ad opted a
p la n under w h ich th e S ta te Tax C om m ission a p p o in ted d i s
t r i c t s u p e r v is o r s o f a sse ssm e n t on a m e r it b a s is who c a r
r ie d on in t e n s iv e e d u c a tio n a l and in fo r m a tio n a l program s
w ith l o c a l a s s e s s o r s . Three in te r d e p e n d e n t e s s e n t i a l s are
n e c e s s a r y f o r a s u c c e s s f u l s t a t e s u p e r v is o r y program .
These a r e : (1) A dequate w e ll - t r a in e d t e c h n ic a l p e r s o n n e l;
9 F. John Shannon, "B ecent S ta te w id e Program s to
Im prove L o c a l A ss e s s m e n ts.n P r o c e e d in g s . N a tio n a l Tax
A s s o c ia t io n , Novem ber, 1 9 5 1 , p . 1 6 6 .
251
(2) e f f e c t i v e and a g g r e s s iv e le a d e r s h ip by th e s t a t e d e
partm ent o f t a x a t io n ; and (3) a d eq u a te and c o n tin u in g
a p p r o p r ia tio n s to en a b le th e r e c r u itm e n t and r e t e n t io n o f
th e n e c e s s a r y s t a f f . 60
Many s t a t e s — K en tucky, Iow a, N eb rask a, M in n eso ta ,
W isc o n sin , O regon, C a lif o r n ia among them— have done much
th rou gh s u p e r v is io n , and o th e r m ethods a s w e l l , to im prove
p r o p e r ty t a x a sse ssm en t and a d m in is tr a tio n . Some have
c o n s o lid a t e d many sm a ll a sse ssm e n t d i s t r i c t s in t o few er
la r g e r o n e s , p ro v id ed f o r f u l l - t i m e a s s e s s o r s — b e t t e r p a id
and on a m e r it b a s i s — and f o r a sse ssm e n t s u p e r v is o r s .
A lthough s t a t e c o n s t i t u t io n s u s u a lly g iv e th e l e g i s -
«
la t u r e ample a u th o r it y to r e g u la te and s u p e r v is e p r o p e r ty
t a x a t io n , in c lu d in g l o c a l a s s e s s m e n t, s u p e r v is io n i s v u l
n e r a b le in th e fa c e o f l o c a l b a r r ie r s when in a d e q u a te ly
fin a n c e d and backed by weak la w s.
E v a lu a tio n o f C e n tr a l A ssessm en t
61
For th e many r e a so n s d is c u s s e d above c e n t r a l
a sse ssm e n t ap p ears to be th e m ost f e a s i b l e m eans o f a s s e s s
in g th e p r o p e r t ie s o f p u b lic u t i l i t i e s and r a ilr o a d s .
G roves and Goodman, "A P a tte r n o f S u c c e s s fu l
P r o p e r ty Tax A d m in istr a tio n : The W isco n sin E x p e r ie n c e —
I . S ta te S u p e r v is io n ,” o £ . c i t . . p . 1 5 2 .
61 S u p ra , p p . 1 9 4 -9 9 .
252
V ery o f t e n i t i s a d v o ca ted t h a t d ir e c t a sse ssm en t o f
a l l p r o p e r ty be c a r r ie d o u t by th e s t a t e . Much can be s a id
in fa v o r o f su ch a p la n s in c e t h e b a s ic w ea k n ess o f th e
p r o p e r ty t a x in p r a c t ic e i s th e u n s a t is f a c t o r y a sse ssm e n t
o f p r o p e r ty a s c a r r ie d o u t by l o c a l a s s e s s o r s . S ta te
a sse ssm e n t w ould be done by a h ig h ly t r a in e d s t a f f u s in g a
g iv e n stan d ard a p p lie d in a uniform m anner. Such a p ro
ced u re w ould prod uce an e q u a liz e d a sse ssm e n t r o l l m aking
n e it h e r r e v ie w n o r e q u a liz a t io n n e c e s s a r y , th e r e b y e l i
m in a tin g n e e d le s s d u p lic a t io n and e x p e n s e .
There i s sm a ll l ik e l ih o o d o f w id esp rea d a d o p tio n o f
c e n t r a l a sse ssm e n t b eca u se i t i n f r in g e s th e b a s ic d o c tr in e
o f home r u le . There i s much s k e p tic is m o f p r o p o s a ls w h ich
w ould f u r t h e r c e n t r a l iz e governm en t.
The m ethods u sed i n a p p r a is in g s p e c ia liz e d p u b lic
u t i l i t y and r a ilr o a d p r o p e r t ie s a re s u b je c t t o c o n s id e r a b le
c r i t i c i s m . At th e same tim e such m ethods may n o t be more
in a p p r o p r ia te th a n many em ployed by l o e a l a s s e s s o r s . Fur
th erm o re, th e same m ethods u sed on t h e s e s p e c ia liz e d prop
e r t i e s n eed n o t n e c e s s a r i l y be fo llo w e d in a p p r a is in g
o r d in a r y p r o p e r t ie s w here b e t t e r m ethods may be a v a i l a b l e .
The many im p o rta n t and unique c h a r a c t e r i s t i c s o f
u t i l i t i e s and r a i lr o a d s , t h e i r p r o p e r t ie s and o p e r a t io n s ,
make c e n t r a l a sse ssm e n t n e c e s s a r y . C r it ic is m s o f th e b e s t
253
m ethods d e v is e d to do th e Job are n o t a s muoh an argument
a g a in s t c e n t r a l a sse ssm e n t a s an acknowledgm ent o f im
p e r f e c t io n s in th e m ethods u sed .
E v a lu a tio n o f C e n tr a l E q u a liz a tio n
E x p erien ce d em o n stra tes t h a t l o c a l a sse ssm e n t r e
s u l t s in an a sse ssm e n t r o l l c h a r a c te r iz e d by i n e q u a l i t i e s .
F urth erm ore, th e p e r v a s iv e p r a c t ic e o f f r a c t i o n a l a s s e s s
ment w orks w ith a ven gean ce t o th e d etrim en t o f l o c a l
f i s c a l i n t e g r i t y in v iew o f th e w id esp rea d im p o s itio n o f '
r a t e l i m i t a t i o n s . Some form o f c e n t r a l a d m in is tr a tio n h a s
been found n e c e s s a r y to d e a l w ith w ea k n esses and a b u ses in
>
p r o p e r ty t a x a t io n . S u p e r v is io n by a s t a t e agen cy h a s n o t
proved to be a co m p lete s o lu t io n , a lth o u g h some s t a t e s have
had good r e s u l t s from i t . O r ig in a l a sse ssm e n t by th e s t a t e
h a s n o t been fa v o r a b ly v iew ed o r w id e ly a d o p te d , e x c e p t in
a s s e s s in g s p e c ia liz e d t y p e s o f p r o p e r t ie s su ch a s r a ilr o a d s
and p u b lic u t i l i t i e s . C e n tr a l e q u a liz a t io n i s u sed more
e x t e n s iv e l y , and h a s proved more s u c c e s s f u l, th an e i t h e r o f
th e fo r e g o in g .
M e r its o f c e n t r a l e q u a liz a t io n . — Though a d v o c a te s
o f d ir e c t a sse ssm e n t o f a l l p r o p e r ty b y th e s t a t e c r i t i c i z e
e q u a liz a t io n a s a ’ ’m a k e s h ift com p rom ise,” o r an e f f o r t to
”p ic k up s p i l l e d m i l k ,” i t a p p ea rs t o be one o f th e jaost
a p p r o p r ia te w ays to d e a l w ith th e p rob lem s o f p r o p e r ty
254
t a x a t io n when c a r r ie d o u t v ig o r o u s ly , and in c o n ju n c tio n
w ith s u p e r v is io n and c e n t r a l a sse ssm e n t o f s p e c i a l prop
e r t i e s . The f o llo w in g a re a d v a n ta g es o f c e n t r a l e q u a liz a
t i o n . F i r s t , i t can have a s a lu t a r y e f f e c t upon l o c a l
a sse ssm e n t b y f o c u s in g a t t e n t io n o f p r o p e r ty ow ners on th e
q u e s tio n o f w h eth er o r n o t t h e i r p r o p e r ty i s a s s e s s e d in
a cco rd a n ce w ith th e s t a t e d eterm in ed a s s e s s m e n t. In t h i s
way a s s e s s o r s who u n d er- or o v e r - a s s e s s would be e x p o se d .
T h is sh o u ld red u ce a sse ssm e n t i n e q u a l i t i e s a s l o c a l
a s s e s s o r s w ould p r e fe r n o t to have t h e i r work o v e r r u le d by
s t a t e e q u a liz a t io n o r d e r s . S econ d , c e n t r a l e q u a liz a t io n
w ould d em on strate th a t t a x e s w ould n o t be h ig h e r b eca u se o f
u niform a p p r a is a l. T h ird , th e t a s k o f d eterm in in g w h eth er
th e r e i s o v e r -a s s e s s m e n t i s made e a s i e r f o r th e in d iv id u a l
ta x p a y e r s in c e he may compare h i s a sse ssm e n t w ith th e
s t a t u t o r y sta n d a rd in s t e a d o f w ith h i s n e ig h b o r * s . F o u rth ,
e q u a liz a t io n m akes f o r u n ifo r m ity and e q u it y in th e d i s
t r ib u t io n o f s u b v e n tio n s by c o n t r o lli n g th e p r a c t ic e o f
c o m p e titiv e u n d e r v a lu a tio n . F i f t h , c e n t r a l e q u a liz a t io n
w ould red u ce d is s e n s io n b etw een r u r a l and urban a r e a s
r e s u lt i n g from d if f e r e n c e s i n a sse ssm e n t r a t i o s . S ix th ,
" ta x c o lo n iz a tio n " and m ig r a tio n t o u n in c o r p o r a te d a r e a s
w ould have t h e i r a d v a n ta g es removed b y e f f e c t i v e c e n t r a l
e q u a liz a t io n . S e v e n th , and l a s t , e f f e c t i v e c e n t r a l
255
e q u a liz a t io n would im prove th e m o ra le and i n t e g r i t y o f th e
e n t ir e a sse ssm e n t p r o c e s s and g r e a t l y s tr e n g th e n th e u n i
form and e q u ita b le a d m in is tr a tio n o f a ta x w hich h a s many
c o u n ts in i t s in d ic tm e n t h u t i s u n q u e stio n a b ly d e s tin e d t o
be u sed f o r a lo n g tim e t o com e.
V I. CONCLUSIONS
As tim e g o e s by th e s t a t e s f in d th e m s e lv e s b e in g
fo r c e d t o assum e an e v e r la r g e r r e s p o n s i b i l i t y f o r a d m in is
t r a t io n o f th e g e n e r a l p r o p e r ty t a x , even though m ost s t a t e
governm ents do n o t r e l y h e a v ily on t h i s t a x f o r t h e i r
r e v e n u e s . The in c r e a s e d s t a t e r e s p o n s i b i l i t y h a s come
ab out in la r g e m easure b eca u se o f th e u n s a t is f a c t o r y manner
in w hich th e ta x h a s b een a d m in iste r e d by l o c a l govern
m en ts. L o c a l g o v ern m en ts, f in d in g th e m s e lv e s in f i n a n c i a l
d i s t r e s s , p a r t ly th rou gh f a i l u r e o f th e p r o p e r ty ta x t o
p ro v id e s u f f i c i e n t r e v e n u e s , have tu rn ed in c r e a s in g ly to
th e S ta t e f o r a id . To m in im ize such a p p e a ls f o r a id , o r t o
e q u ita b ly a d m in is te r t h a t p ro v id ed t o l o c a l g o v ern m en ts,
th e s t a t e h a s had t o ta k e a hand in l o c a l p r o p e r ty t a x ad
m in is t r a t io n . The p r in c ip a l m ethods d ev elo p e d by th e
s t a t e s in t h i s c o n n e c tio n a re : s u p e r v is io n , a sse ssm e n t o f
p r o p e r ty , r e v ie w and e q u a liz a t io n .
1 . M ost o f th e s t a t e s p r o v id e some d eg ree o f
256
s u p e r v is io n , w hich em p h a sizes c o o p e r a tio n betw een s t a t e and
l o c a l govern m en ts.
2 . S u p e r v is io n o f t e n t a k e s th e form o f s t a t e le a d e r
s h ip through p r o v id in g e x p e r t t e c h n ic a l a s s i s t a n c e t o l o c a l
o f f i c i a l s .
3 . S u p e r v isio n i s l i k e l y t o be more s u c c e s s f u l where
lim it e d to t e c h n ic a l a s s i s t a n c e and c o o p e r a tio n s in c e l o c a l
se n tim e n t i s u s u a l ly op p osed t o f u r t h e r e n fo r c e d c e n t r a l
i z a t i o n o f governm en t. T h is i s tr u e s in c e th e p r o p e r ty t a x
h a s lo n g b een c o n s id e r e d a l o c a l t a x .
4 . Though s t a t e s u p e r v is io n h a s proved to be h e lp
f u l , th e p r o p e r ty ta x can b e s t be a d m in iste r e d a t th e l o c a l
l e v e l .
5 . S u c c e s s fu l s t a t e s u p e r v is io n depends h e a v ily on
a w e l l - t r a i n e d , w e ll- p a id s t a f f c a p a b le of, r e n d e r in g r e a l
a s s i s t a n c e to l o c a l o f f i c i a l s .
6 . A r e a l w eak n ess o f s t a t e s u p e r v is io n i s i t s
chance o f b e in g d is c o n tin u e d a s a r e s u l t o f demands f o r
"economy" in governm ent.
7 . S u p e r v is io n i s a way t o b r in g more u n ifo r m ity
in t o p r o p e r ty t a x a t io n y e t r e t a i n th e d e s ir a b le p r in c ip le
o f o v e r - a l l l o c a l a d m in is tr a tio n o f th e ta x .
8 . A p p r a isa l o f a l l p r o p e r ty by a s t a t e agen cy i s
urged by some. On th e w h o le t h i s d o es n o t f in d to o much
357
su p p o r t.
9 . S ta te a p p r a is a l o f s p e c i a l ty p e s o f p r o p e r ty ,
su ch a s p u b lic u t i l i t i e s and r a ilr o a d s h a s been w id e ly
ad op ted and ap p ears t o be s u c c e s s f u l.
1 0 . S ta t e a p p r a is a l o f s p e c i a l p r o p e r t ie s h a s a good
in flu e n c e on l o c a l a sse ssm e n t p r a c t ic e in th o se d i s t r i c t s
w h ich u n d erv a lu e t h e i r p r o p e r ty i f good c e n t r a l e q u a liz a
t i o n i s c a r r ie d o u t b y th e s t a t e .
1 1 . The n e c e s s i t y f o r good c e n t r a l iz a t io n c o n tin u e s
t o be o f paramount im p o rta n ce t o e q u it a b ly d i s t r i b u t e th e
burden o f c e n t r a l l e v i e s , a s w e ll a s f i n a n c i a l a id by th e
s t a t e to l o c a l g o v ern m en ts.
1 2 . E f f e c t iv e s t a t e and c o u n ty e q u a liz a t io n and r e
v ie w i s n e c e s s a r y b eca u se o f th e la r g e number o f p rim ary
a sse ssm e n t d i s t r i c t s and v a r i a t io n s in th e a sse ssm e n t r a t io
betw een d i s t r i c t s .
1 3 . Good e q u a liz a t io n can have a s a lu t a r y e f f e c t upon
l o c a l a sse ssm e n t p r a c t ic e s by r e v e a lin g u n s a t is f a c t o r y
l o c a l a p p r a is a l, a lth o u g h i t i s n o t to be reg a rd ed a s th e
e n t ir e answ er to th e im provem ent o f p r o p e r ty a s s e s s m e n t.
1 4 . E f f e c t iv e c e n t r a l e q u a liz a t io n w ould red u ce th e
in c e n t iv e f o r " c o m p e titiv e u n d e r v a lu a tio n ” betw een d i s
t r i c t s .
1 5 . "Tax c o lo n iz a tio n " w ould be d isc o u r a g e d by good
258
c e n t r a l e q u a liz a t io n .
1 6 . F i n a l l y , c o n s c ie n t io u s s u p e r v is io n , a ss e s s m e n t,
r e v ie w and e q u a liz a t io n w ould im prove t h e m orale and in
t e g r i t y o f th e e n t ir e p r o p e r ty t a x and i t s a d m in is tr a tio n .
CHAPTER 711
THE CLASSIFIED PROPERTY TAX
Many s u g g e s t io n s have b een made a s to ch a n g in g th e
m ethod o f t a x in g p r o p e r ty . These in c lu d e p r o p o s a ls o f a
com p reh en sive n a tu r e , such a s s h i f t i n g from an ad valorem
ta x t o an iiicam e b a s is f o r v a lu a t io n . O ther p r o p o s a ls are
f o r p a r t i a l a l t e r a t i o n s , such a s p r o v id in g s p e c i a l t r e a t
ment f o r c e r t a in c l a s s e s o f la n d . S t i l l o th e r p r o p o s a ls
a d v o ca te a p p ly in g d i f f e r e n t ta x r a t e s to v a r io u s c l a s s e s o f
p r o p e r ty , su ch a s r e s id e n c e s , a p a rtm e n ts, co m m ercia l, and
in d u s t r ia l p r o p e r t ie s . In a d d it io n , some p la n s p ro p o se u se
o f s p e c ia l a s s e s s m e n ts a s an a lt e r n a t iv e m eans o f m o d ify in g
th e t a x in g o f p r o p e r t y .1
P r o p o sa ls to c l a s s i f y p r o p e r ty c h a lle n g e th e th e o r y
o f th e g e n e r a l p r o p e r ty t a x t h a t p r o p e r ty i s b a s i c a l l y
hom ogeneous and t h u s ca p a b le o f b e in g lumped t o g e t h e r and
ta x e d a t a u n if o m r a t e on th e b a s is o f i t s v a lu e . In a
young, r e l a t i v e l y sim p le ty p e o f econom y t h i s th e o r y would
be more a p p r o p r ia te th an in a m odern, h ig h ly s p e c ia liz e d
and com plex s o c i e t y . I n a modern econom y, d i v e r s i t y r a th e r
I P a u l E . M alone, "The Movement f o r P ro p er ty Tax
M o d if ic a t io n ," N a tio n a l C o n feren ce P r o c e e d in g s . N a tio n a l
Tax A s s o c ia t io n , 1 9 4 6 , p p . 1 6 6 -6 7 .
260
th a n h o m o g en eity , c h a r a c t e r iz e s p r o p e r ty , and th u s t r y in g ,
t o t a x a l l ty p e s o f p r o p e r ty on a unifoxm b a s is i s b o th
im p r a c t ic a l and in e q u i t a b le . E. A. C ole q u o te s P r o fe s s o r
Simeon L e la n d ’ s comment on c l a s s i f i c a t i o n a s f o llo w s :
The w h o le p r in c ip le o f c l a s s i f i c a t i o n . . . i s
sim p ly an e f f o r t t o d i f f e r e n t i a t e so t h a t t h in g s t h a t
a re n o t a l i k e s h a l l n o t be t r e a t e d a s thou gh th e y w ere.
You f in d th e p r in c ip le o f c l a s s i f i c a t i o n e x te n d in g
th ro u g h o u t th e incom e t a x . . . . To r e fu s e t o a p p ly i t
in th e c a s e o f p r o p e r ty t a x a t io n , i t seem s t o m e,
sim p ly i s tantam ount to c l o s in g your e y e s t o th e f a c t
t h a t e v e r y th in g in th e u n iv e r s e in t h e form o f w e a lth
i s n o t a l i k e . 2
A d v o ca tes o f c l a s s i f i e d p r o p e r ty t a x a t io n u rge t h a t
i t s p rop er u se w i l l r e s u l t in e lim in a t io n o f many in
j u s t i c e s found in th e g e n e r a l p r o p e r ty ta x and w ould h e lp
b r in g in t a n g ib le p r o p e r ty o u t o f h id in g w h ich h a s evad ed
h ig h ta x r a t e s .
I . THE MEANING A N D M ETHODS OF CLASSIFICATION
The M eaning o f C l a s s i f i c a t i o n
C l a s s i f i c a t i o n o f p r o p e r ty f o r t a x p u r p o se s m eans
more th an th e sim p le a c t by th e l e g i s l a t u r e o f d e c id in g
w h ich p r o p e r ty i s t o be ta x ed and w h ich i s t o be exem pted.
The p r in c ip le o f th e c l a s s i f i e d p r o p e r ty t a x m eans th e
E. A. C o le , " C la s s if ic a t io n o f P r o p e r ty f o r Tax
P u r p o se s," P r o c e e d in g s . N a tio n a l Tax A s s o c ia t io n , 1 9 5 0 ,
p p . 1 1 1 - 1 2 .
261
c l a s s i f i c a t i o n o f p r o p e r ty f o r t a x p u r p o se s, and th e ap
p l i c a t i o n o f a d i f f e r e n t a sse ssm e n t r a t i o o r t a x r a t e to
d i f f e r e n t c l a s s i f i c a t i o n s . L eland d e f in e s c l a s s i f i c a t i o n
a s f o llo w s : "The c l a s s i f i e d p r o p e r ty t a x i s th e ad v a lo rem
t a x a t io n o f p r o p e r ty "by i t s s e g r e g a tio n o r t y p e s and th e
a p p lic a t io n to th e s e v a r io u s c l a s s e s o f d i f f e r e n t e f f e c t i v e
r a t e s . ” 3
From t h i s d e f i n i t i o n i t i s e v id e n t t h a t th e c l a s s i
f i e d p r o p e r ty t a x i s th e a p p lic a t io n o f a d i f f e r e n t p e r
c e n ta g e ta x r a te t o th e v a lu e o f v a r io u s c l a s s e s o f prop
e r t y . I t i s s h a r p ly d is t in g u is h e d from th e g e n e r a l
p r o p e r ty t a x w hich s e e k s t o t a x a l l p r o p e r ty a t a uniform
r a t e . C l a s s i f i c a t i o n , w ith i t s d i f f e r e n t i a t i o n in e f
f e c t i v e r a t e s , may e x i s t b eca u se o f la w , o r b eca u se o f
o p e r a tio n o f th e la w , or b e ca u se o f a d m in is tr a tiv e de
c i s i o n s . I n a d d it io n , d if f e r e n c e s in e f f e c t i v e r a t e s
a p p lie d t o v a r io u s p r o p e r t ie s co u ld be e x t r a - l e g a l , i f n o t
A
i l l e g a l . For ex a m p le, a c c o r d in g to P r o fe s s o r A lle n ,
I l l i n o i s h a s an e x t r a - l e g a l sy stem o f a d m in is tr a tiv e
3 Simeon E. L e la n d , The C l a s s i f i e d P ro p e r ty Tax in
th e U n ited S t a t e s (New York: Houghton M i f f l i n Company,
1 9 2 8 ), p . 4 1 .
^ H. K. AJLlen, "The G en eral P r o p e r ty T ax," R eport o f
th e Revenue Laws Com m ission o f th e S ta te o f I l l i n o i s . 1 9 4 9 ,
pp. 3 7 -3 8 .
262
c l a s s i f i c a t i o n , a lth o u g h a c l a s s i f i e d p r o p e r ty t a x would
p ro b a b ly n o t be c o n s t i t u t i o n a l in th e s t a t e . The a s s e s s o r
o f Cook C ounty s e t up an a d m in is t r a t iv e sy stem o f c l a s s i
f i c a t i o n o f c e r t a in ty p e s o f p e r s o n a l p r o p e r ty . I n f a c t ,
ow ners o f o r d in a r y h o u seh o ld f u r n it u r e and f u r n is h in g s were
n o t r e q u ir e d to l i s t them . A ls o , s p e c i f i c p ro ced u res w ere
s e t f o r t h by th e a s s e s s o r ’ s i n s t r u c t io n s f o r a s s e s s in g
in t a n g ib le s w h ich w ere t a x a b le , such a s s t o c k s and b on d s.
The sy stem o f c l a s s i f i c a t i o n in Cook C ounty i s an e f f o r t
to im prove p e r s o n a l p r o p e r ty a s s e s s m e n t, a lth o u g h i t i s
w ith o u t l e g a l a u t h o r it y , a c c o r d in g t o P r o fe s s o r A lle n .
D i f f e r e n t i a l s i n e f f e c t i v e r a t e s — th e e s s e n c e o f
c l a s s i f i c a t i o n — may r e s u l t from su ch a c t i v i t i e s a s (1 ) u se
o f d i f f e r e n t m ethods o f a s s e s s m e n t, ( 2 ) a p p ly in g v a r y in g
e x e m p tio n s, (3 ) u se o f f r a c t i o n a l a s s e s s m e n ts f o r d i f f e r e n t
ty p e s o f p r o p e r ty , (4) u se o f f ix e d a s s e s s m e n ts d e s p it e
ch a n g es in p r o p e r ty v a lu e s , (5) o r b y a co m b in a tio n o f
t h e s e a c t i v i t i e s . H ow ever, e r r o r s in judgm ent, f a u l t s in
a s s e s s m e n t, o r o th e r u n in ten d ed a c t s sh o u ld n o t be co n -
5
s id e r e d a s c l a s s i f i c a t i o n .
Two t e s t s a re r e q u ir e d t o d eterm in e w h ich ty p e s o f
5 Simeon E. L e la n d , "Some O b se r v a tio n s C oncernin g
th e C l a s s i f i e d P r o p e r ty T a x ,” P r o p e r ty T axes (New York: The
Tax I n s t i t u t e , I n c . , 1 9 3 9 ), p . 8 3 .
263
la w s sh o u ld he c o n sid e r e d a s p h a ses o f c l a s s i f i c a t i o n :
( 1 ) i s th e t a x a p r o p e r ty t a x , and ( 2 ) i s th e r e a d i f f e r
en ce i n t h e e f f e c t i v e r a t e o f t a x a t io n on th e c l a s s o f
p r o p e r ty b e in g c o n sid e r e d r e l a t i v e t o o th e r c l a s s e s o f
p r o p e r ty . 6
M ethods o f S ecu rin g C l a s s i f i c a t i o n
C l a s s i f i c a t i o n , w h ich i s th e d i f f e r e n t i a t e d ta x
trea tm e n t o f d i f f e r e n t c l a s s e s o f p r o p e r ty , can be accom
p lis h e d in d i f f e r e n t w ays: P r o fe s s o r L elan d l i s t s f i v e
m eth od s.
(a) By th e a d o p tio n o f d i f f e r e n t i a l r a t e s f o r d i f f e r e n t
c l a s s e s o f p r o p e r ty and th e a sse ssm e n t o f such'
p r o p e r ty a t tr u e v a lu e (o r a t a u niform p e r c e n ta g e
o f tr u e v a l u e ) ;
(b) By th e a d o p tio n o f f r a c t i o n a l a ss e s s m e n ts f o r
v a r io u s c l a s s e s o f p r o p e r ty t o w h ich a u n iform ad
v a lo rem r a t e i s a p p lie d ;
(c ) By a d o p tio n o f a s s e s s m e n ts a t f ix e d amounts w hich
r e p r e s e n t v a r y in g p e r c e n ta g e s o f th e tr u e v a lu e o f
th e p r o p e r ty b e in g t a x e d , and th e a p p lic a t io n to
t h e s e f i x e d a s s e s s m e n ts o f u n iform ad v a lo rem
r a te s ;
(d) By th e a d o p tio n o f v a r y in g a sse ssm e n t m ethods w h ich
by th e in c lu s io n o r e x c lu s io n o f c e r t a in f a c t o r s
a r r iv e a t th e v a lu e o th e r th a n th e tr u e v a lu e o f
th e p r o p e r ty b e in g a s s e s s e d , and a s a r e s u l t , p ro
duce d i f f e r e n t e f f e c t i v e ta x r a t e s a lth o u g h ta x e d
by u n ifo im ad v a lo rem r a t e s ;
6 L e la n d , The C l a s s i f i e d P r o p e r ty Tax in th e U n ite d
S t a t e s , o p . c i t . , p . 4 5 .
264
(e ) By th e a d o p tio n o f v a r y in g e x e m p tio n s w hich ca u se
d if f e r e n t p e r c e n ta g e s o f th e tr u e v a lu e o f c l a s s e s
o f p r o p e r ty t o he ta x e d a t th e r e g u la r u niform ad
valorem r a t e s . 7 —
C l a s s i f i c a t i o n by r a t e d i f f e r e n t i a l s . — When
c l a s s i f i c a t i o n i s a c h ie v e d by r a te d i f f e r e n t i a l s a l l
c l a s s e s o f p r o p e r ty a re v a lu e d o r a s s e s s e d a t a u n iform
sta n d a rd b u t ea c h c l a s s h a s a d i f f e r e n t t a x r a t e a p p lie d .
T h is s o r t o f c l a s s i f i c a t i o n system w ould l o g i c a l l y be
c r e a te d by s t a t u t e r a th e r th a n by e x p l i c i t c o n s t i t u t i o n a l
g r a n t. C l a s s i f i c a t i o n can be a c h ie v e d in t h i s manner by
s e t t i n g up th e c l a s s e s o f p r o p e r ty and th e r a t e t o be
a p p lie d t o each c l a s s . S t a t u t e s f r e q u e n t ly c a l l f o r
a sse ssm e n t o f p r o p e r ty a t f u l l v a lu e , a lth o u g h in p r a c t ic e
t h i s may n o t be done b eca u se o f i n a b i l i t y , in n o c e n t e r r o r ,
o r d e lib e r a t e d e s ig n . C l a s s i f i c a t i o n w ould o b ta in , a t
l e a s t on p a p e r, d e s p it e a sse ssm e n t a t l e s s th a n f u l l v a lu e .
A ty p e o f a d m in is tr a tiv e c l a s s i f i c a t i o n th u s c o u ld e x i s t
w it h in a s t a t u t o r y sy stem o f c l a s s i f i c a t i o n . F u rth erm ore,
i t w ould be p o s s ib le f o r c l a s s i f i c a t i o n t o be n u l l i f i e d ,
in e f f e c t , by a d m in is t r a t io n . For ex a m p le, p r o p e r t ie s o f
eq u a l v a lu e in d i f f e r e n t c l a s s e s m ig h t be a s s e s s e d a t such
a p e r c en ta g e o f f u l l v a lu e a s t o pay th e same amount o f
t a x when t h e i r r e s p e c t iv e r a t e s a re a p p lie d t o th e a s s e s s e d
7 I b i d . , p . 5 2 .
265
v a lu a t io n . The r a t e s may be s p e c i f i e d d i r e c t l y b y s t a t u t e ,
o r th e y may be s p e c i f i e d r e l a t i v e to o th e r r a t e s . In Ohio
incom e p ro d u cin g in t a n g ib le s a re ta x e d a t a u niform s t a t e
w ide r a t e , a lth o u g h a t a lo w er r a t e th a n t h a t on t a n g ib le s
w h ich a re ta x e d a t l o c a l r a t e s e f f e c t i v e in v a r io u s t a x in g
O
j u r i s d i c t i o n s .
C l a s s i f i c a t i o n a c c o r d in g to t h i s m ethod d o es n o t
co n tem p la te v a r i a t io n s in a s s e s s m e n ts s in c e a u n iform
stan d ard i s p r o v id e d . T h is m ethod a llo w s f o r f l e x i b i l i t y
s in c e th e r a t e s may be v a r ie d w ith changed n e e d s o f govern
m ent.
C l a s s i f i c a t i o n by a sse ssm e n t d i f f e r e n t i a l s . — To
se e u r e c l a s s i f i c a t i o n by t h i s m ethod, p r o p e r ty t o be ta x e d
m ust be c l a s s i f i e d and t h e grou p s a s s e s s e d a t d if f e r e n t
p e r c e n ta g e s o f f u l l v a lu e but ta x ed a t th e same r a t e .
V a r ia tio n s in v a lu a t io n , P er s e . i s n o t c l a s s i f i c a t i o n .
A sse ssm e n ts m ust v a ry from c l a s s t o c l a s s , y e t be u n iform
w ith in ea ch c l a s s . C l a s s i f i c a t i o n w ould th u s be a c h ie v e d
u n le s s th e t a x r a t e ( s ) a p p lie d w ere su ch a s t o n u l l i f y o r
o f f s e t th e d i f f e r e n t i a l a s s e s s m e n ts . A good i l l u s t r a t i o n
o f such a sy stem o f c l a s s i f i c a t i o n i s found i n M in n esota
® G. W. T h a tch er, " T axation o f I n t a n g ib le P e r so n a l
P r o p e r ty in O h io," N a tio n a l Tax J o u r n a l. IV (D ecem ber,
1 9 5 1 ), 3 5 4 .
266
where n in e c l a s s e s o f p r o p e r ty a re a s s e s s e d a t 5 0 , 4 0 ,
35 1 / 3 , 2 5 , 2 0 , 15 and 10 p e r c e n t o f " f u l l and tr u e "
9
v a lu e . On p ap er th e e f f e c t i s th e same a s though seven
r a t e s w ere a p p lie d to c l a s s e s o f p r o p e r ty a s s e s s e d on a
u niform b a s i s , o r t h a t a u n iform r a te w ere a p p lie d to
c l a s s e s o f p r o p e r ty a s s e s s e d a t th e a p p r o p r ia te p er c e n t o f
i t s f u l l v a lu e . S e t t in g up a sy stem o f c l a s s i f i c a t i o n by
a p p ly in g u niform r a t e s t o d i f f e r e n t d e g r e e s o f u n d erv a lu a
t i o n may be m e r e ly l e g a l i z i n g what e x i s t s in a c t u a l p ra c
t i c e . That i s , c l a s s i f i c a t i o n may be s e t up a s an e x
p e d ie n t , t o conform to th e e s t a b lis h e d sy stem o f under
a sse ssm e n t w ith th e hope o f en co u ra g in g b e t t e r l i s t i n g o f
p r o p e r ty . T h is was th e c a s e in M in n eso ta when i t ad op ted
th e c l a s s i f i e d p r o p e r ty t a x . 10
C l a s s i f i c a t i o n by f ix e d a s s e s s m e n ts . — A nother
m ethod o f a c h ie v in g c l a s s i f i c a t i o n may be t o a p p ly f ix e d o r
f l a t a s s e s s m e n ts t o g e t h e r w ith a u n iform t a x r a t e . D if f e r
e n t i a l s i n e f f e c t i v e r a t e s a re o b ta in e d from a p p ly in g v a r y
in g p e r c e n ta g e s o f f ix e d to f u l l v a lu e s a d o p ted f o r d i f
f e r e n t c l a s s e s o f p r o p e r ty . An exam ple o f t h i s k in d o f
^ The M in n eso ta Tax System ( S t . P a u l: The M in n esota
I n s t i t u t e o f G overnm ental R e se a r c h , I n c . , May, 1 9 4 8 ),
p . 1 6 .
1 0 L e la n d , The C l a s s i f i e d P ro p er ty Tax i n t h e U n ited
S t a t e s . o p . c i t . . p . 5 4 .
267
c l a s s i f i c a t i o n m igh t be where a s s e s s o r s a r b i t r a r i l y v a lu e
e l a s s e s o f p r o p e r ty a t f ix e d f ig u r e s w h ich r e p r e s e n t d i f
f e r e n t p e r c e n ta g e s o f f u l l o r tr u e v a lu e t o ea ch c l a s s .
A ls o , ch a n g es in th e v a lu e o f p r o p e r ty , w here th e a s s e s s
ment b a s i s i s f ix e d w ould b r in g th e same r e s u l t .
C l a s s i f i c a t i o n by v a r y in g a s s e s s m e n ts . — Use o f
v a r y in g a sse ssm e n t m ethods a p p lie d t o d i f f e r e n t c l a s s e s o f
p r o p e r ty c o u ld se c u r e c l a s s i f i c a t i o n . For ex a m p le, c e r t a in
f a c t o r s such a s age and c o n d itio n o f p r o p e r ty c o u ld be
in c lu d e d o r e x c lu d e d in a sse ssm e n t and th u s r e s u l t in n o t
a tr u e v a lu e . A p p lic a tio n o f a u n ifo rm r a t e t o v a lu e s th u s
o b ta in e d r e s u l t s in a d i f f e r e n t i a l t a x burden among th e
c l a s s e s o f p r o p e r ty . C l a s s i f i c a t i o n a c h ie v e d by t h i s
m ethod p la c e s em p h asis on d is c r e t io n a r y a c t i v i t y by th e
a s s e s s o r . I f th e r e s u l t s o f th e v a r io u s m ethods o f a s s e s s
m ent a re to produce s u b s t a n t i a l l y u n iform v a lu a t io n s r e l a
t i v e to tr u e o r f u l l v a lu e , d i f f e r e n t i a t i o n in e f f e c t i v e
r a t e s w ould n o t o c c u r . A nother v a r ia t io n in th e m ethod o f
a s s e s s in g c l a s s e s o f p r o p e r ty co u ld be th e u se o f d i f f e r e n t
i n t e r e s t r a t e s i n c a p i t a l i z i n g incom e t o d eterm in e c a p i t a l
v a lu e . To i l l u s t r a t e , two p r o p e r t ie s ea ch w ith # 3 ,5 0 0 n e t
incom e i f c a p i t a l i z e d a t 5 and 7 p er c e n t i n t e r e s t ,
r e s p e c t i v e l y , w ould have c a p it a l v a lu e s o f # 7 0 ,0 0 0 and
# 5 0 ,0 0 0 . I f ea ch i s a s s e s s e d a t th e same p e r c e n ta g e o f
268
f u l l v a lu e and ta x e d a t th e same r a t e t h e i r r e s p e c t iv e t a x
burdens are d i f f e r e n t . Assum ing ea ch i s a s s e s s e d a t 50 p e r
c e n t o f e a p i t a l v a lu e and ta x e d a t 1 p e r c e n t on a s s e s s e d
v a lu e , t h e i r r e s p e c t iv e t a x paym ents w ould be #350 and
#250.
C l a s s i f i c a t i o n by v a r y in g e x e m p tio n s. — I f c e r t a in
ty p e s o f p r o p e r ty a re g r a n ted p a r t i a l exem p tion w hich a re
d en ie d t o o th e r t y p e s , c l a s s i f i c a t i o n r e s u l t s . I f a g iv e n
c l a s s o f p r o p e r ty i s c o m p le te ly exem pted on a perm anent
b a s i s no c l a s s i f i c a t i o n e x i s t s . By th e a d o p tio n o f v a r y in g
ex em p tio n s f o r d i f f e r e n t c l a s s e s o f p r o p e r ty , d i f f e r e n t
p e r c e n ta g e s o f th e f u l l v a lu e o f th e c l a s s e s o f p r o p e r ty
a re ta x e d . C l a s s i f i c a t i o n by p a r t i a l exem p tion i s q u ite
common. Many s t a t e s g r a n t p a r t i a l exem p tion to c e r t a in
k in d s o f p r o p e r ty , b o th r e s i d e n t i a l and i n d u s t r i a l ; or
c e r t a in p r o p e r t ie s may be c o m p le te ly exem pted from a g iv e n
t a x .
C l a s s i f i c a t i o n by in d i r e c t m eth o d s. — D i f f e r e n t i a l
r a t e s may r e s u l t from in d ir e c t a c t i v i t i e s . When th e r e i s
a s e p a r a tio n o f rev en u e s o u r c e s o f l e v e l s o f governm en ts
c l a s s i f i c a t i o n may e x i s t u n le s s guarded a g a in s t . For
ex a m p le, i f c e r t a in c l a s s e s o f p r o p e r ty a re e n t i r e l y
exem pted from g iv e n t a x e s o f one l e v e l o f governm ent, th e
r e s u l t may be a d if f e r e n c e in th e p e r c e n ta g e o f f u l l v a lu e
269
o f v a r io u s c l a s s e s o f p r o p e r ty b e in g ta x e d . D i f f e r e n t i a l
r a t e s may r e s u l t from d i f f e r e n t t a x tr ea tm e n t g iv e n to
d o m estic and o u t o f s t a t e c o r p o r a tio n s . A ls o , c l a s s i f i c a
t io n may have r e s u lt e d from o p e r a tio n o f th e la w s in a
manner u n fo r e se e n and u np lan ned.
I I . EXTENT AM) PURPOSES OP CLASSIFICATION
E x te n t o f C l a s s i f i c a t i o n
Many s t a t e s w hose c o n s t it u t i o n s a llo w i t have
ad op ted some f o r a o f c l a s s i f i c a t i o n . At th e p r e s e n t tim e
t h r e e - f o u r t h s o f th e s t a t e s have c o n s t i t u t i o n s p e r m ittin g
p r o p e r ty c l a s s i f i c a t i o n and, o f t h e s e , h a l f le v y c l a s s i f i e d
r e a l p r o p e r ty t a x e s . H New York, P e n n s y lv a n ia , and
W isc o n sin exem pt m ost p e r s o n a l p r o p e r ty from t a x a t io n .
*
About o n e -fo u r th o f th e s t a t e s do n o t t a x in t a n g ib le s ;
w h ile o n e - h a lf o f th e s t a t e s t a x in t a n g ib le s a t low r a t e s
12
com pared t o o t h e r p r o p e r ty . S o - c a lle d com p reh en sive
c l a s s i f i c a t i o n h a s b een a d o p ted by K en tu ck y, M in n eso ta ,
13
M ontana, O h io, V ir g in ia and W est V ir g in ia . Under such a
H Edward L. H enry. "The Farmer"s Tax B u rd en ,” The
N a tio n a l Tax J o u r n a l. IV (D ecem ber, 1 9 5 1 ), 3 4 3 .
12 Tax S ystem s ( t w e l f t h e d i t io n ; New York: Commerce
C le a r in g H ou se, I n c . , 1 9 5 0 ), pp. 1 8 5 -9 7 .
13 A lle n , o £ . c i t . . p . 3 7 .
270
sy stem c l a s s e s o f p r o p e r ty are s e t up and ea ch i s a s s e s s e d
and ta x e d in a manner com en su rate w ith th e n a tu re o f th e
p r o p e r ty .
P a r t i a l c l a s s i f i c a t i o n . — C e r ta in s t a t e s c l a s s i f y
' t •
p r o p e r t y 'f o r t a x p u rp o ses on a p a r t i a l b a s is ; i . e . , th e
a p p lic a t io n o f d if f e r e n t t a x f a t e s t o s p e c i a l ty p e s o f
p r o p e r ty . The m ost common exam ple o f p a r t ia l c l a s s i f i c a
t i o n i s t h a t o f a p p ly in g s p e c i a l r a t e s ( u s u a lly low ) t o
in t a n g ib le p r o p e r ty . P e r so n a l t a n g ib le p r o p e r ty i s some
tim e s c l a s s i f i e d and ta x e d a t d i f f e r e n t r a t e s , or may be
exem pted e n t i r e l y . T a n g ib le p e r s o n a l p r o p e r ty u sed in
b u s in e s s may be ta x e d d i f f e r e n t l y from th a t in th e home.
There i s w ide v a r ia t io n among th e s t a t e s em p loyin g some
form o f c l a s s i f i c a t i o n . I n a d d it io n t o th e c o n s t i t u t i o n a l
and s t a t u t o r y p r o v is io n s , c l a s s i f i c a t i o n r e s u l t s from
v a r ia t io n s i n p r a c t ic e s and p ro c e d u re s by o f f i c i a l s in th e
s e v e r a l s t a t e s . For in s t a n c e , in M ich igan 1 4 th e c o n s t i t u
t i o n r e q u ir e s t h a t a s s e s s m e n ts be made a t f u l l "cash v a lu e "
e s t a b lis h e d by a f r e e p r iv a t e s a l e . A c t u a lly , th e m arket
i s n o t s u f f i c i e n t l y a c t i v e , e s p e c i a l l y in r e a l p r o p e r ty , t o
su p p ly ad eq u ate d a ta . U n ifo r m ity i s seldom a c h ie v e d ,
1 4 C laude R. Tharp, P r o p e r ty Tax A d m ln istr a tio n in
M ic h ig a n . I n s t i t u t e o f P u b lic A d m in is tr a tio n , Pam phlet
N o . £2 TAnn Arbor: U n iv e r s it y o f M ich ig a n P r e s s , 1 9 5 1 ),
p . 5 .
271
n o ta b ly in r u r a l a r e a s , s in c e th e r e are no d e f i n i t e r u le s
to f o llo w . A s s e s s o r s r e l y m a in ly on t h e i r own judgm ent in
m aking a s s e s s m e n ts . Many do n o t p o s s e s s n e c e s s a r y s p e c i
a l i z e d know ledge t o make f a i r and e q u ita b le a s s e s s m e n ts .
As a r u l e , th e a s s e s s m e n ts v a r y w id e ly in t h e i r r a t i o o f
a s s e s s e d v a lu e to a c tu a l o r ca sh v a lu e . T hus, p a r t i a l
c l a s s i f i c a t i o n may be w id esp rea d and e f f e c t i v e in a c t u a l
p r a c t ic e , y e t be u n o f f i c i a l .
C om prehensive c l a s s i f i c a t i o n . — There a re s i x
s t a t e s — K en tu ck y, M in n e so ta , M ontana, O h io, V ir g in ia and
W est V ir g in ia — w hich c l a s s i f y p r o p e r ty on a com p reh en sive
b a s i s . Though th e r e a re e r r o r s and im p e r fe c tio n s in p ra c
t i c e s and p ro ced u res in t h e s e s t a t e s , th e y s e e k to r e c o g
n iz e p r o p e r ty d if f e r e n c e s and a p p ly t a x e s in term s o f th e
d i f f e r e n c e s . A ls o , th e r e a re v a r i a t io n s among t h e s e s t a t e s
a s t o th e m ethods u se d .
W est V ir g in ia ex a m p le. — In West V ir g in ia c l a s s i
f i c a t i o n i s a cc o m p lish e d by e s t a b l i s h in g fo u r c l a s s e s o f
p r o p e r ty f o r p u rp o ses o f t a x l e v i e s . T hese c l a s s e s and th e
maximum r a t e a p p lic a b le to each a re a s f o llo w s :
C la s s I . A ll t a n g ib le p e r s o n a l p r o p e r ty em ployed
e x c l u s i v e l y in a g r i c u lt u r e , in c lu d in g h o r t ic u lt u r e and
g r a z in g .
A ll p ro d u c ts o f a g r ic u lt u r e ( in c lu d in g l iv e s t o c k )
w h ile owned by th e p ro d u cer.
A ll m oneys and a l l n o t e s , b o n d s, b i l l s and a c c o u n ts
272
r e c e iv a b l e , s t o c k s and any o th e r in t a n g ib le p e r s o n a l
p r o p e r ty , ( $ ,5 0 p er $100 a s s e s s e d v a lu a tio n )
C la s s I I . A ll p r o p e r ty owned, used and o cc u p ied by
t h e owner e x c l u s i v e l y f o r r e s i d e n t i a l p u r p o se s.
A ll fa rm s, in c lu d in g la n d u sed f o r h o r t ic u lt u r e and
g r a z in g , o c c u p ie d and c u lt iv a t e d by t h e i r ow ners o r
bona f i d e t e n a n t s . ($ 1 . 0 0 p e r $ 1 0 0 a s s e s s e d v a lu a tio n )
C la s s I I I . A ll r e a l and p e r s o n a l p r o p e r ty s it u a t e d
o u t s id e o f m u n i c i p a l i t i e s , e x c lu s iv e o f c l a s s e s I and
I I . ( $ 1 .5 0 p er $100 a s s e s s e d v a lu a tio n )
C la s s IV . A ll r e a l and p e r s o n a l p r o p e r ty s it u a t e d
in s id e o f m u n i c i p a l i t i e s , e x c lu s i v e o f c l a s s e s I and
I I . ($ 2 . 0 0 p er $100 a s s e s s e d v a lu a t io n ) ^ 5
M in n eso ta ex a m p le. — N ine c l a s s e s o f p r o p e r ty are
s e t up in M in n e so ta ’ s sy stem o f c l a s s i f i e d p r o p e r ty ta x a
t i o n . These c l a s s e s , t o g e t h e r w ith th e f r a c t i o n o f " f u l l
and tr u e " v a lu e s p e c i f i e d by law on w h ich th e t a x l e v y i s
im p osed , a re a s f o llo w s :
C la s s 1 . Ir o n o r e , unmined o r in s t o c k p i l e s , 50$
o f " f u l l and tr u e " v a lu e .
C la s s l a . D ir e c t p r o d u c ts o f b l a s t and open h e a r th
fu r n a c e s , 1 5 $ .
C la s s 2 . H ou seh old g o o d s, je w e lr y , w ea rin g a p p a r e l,
2 5 $ .
C la ss 3 . R ural la n d s and b u ild in g s ( u n le s s home
ste a d o f $ 4 ,0 0 0 o r l e s s ) , raw m a t e r ia l, g o o d s in p ro
c e s s , m erc h a n d ise, m a ch in ery , m in in g , eq u ipm en t,
15 C. H. K o o n tz, West V ir g in ia P r o p e r ty Tax Law
( C h a r l o t t e s v i l l e , V ir g in ia : The M ich ie Company, 1 9 5 1 ),
p . 54; r e p r in te d from M ic h ie * s W est V ir g in ia Code o f 1949
and th e 1951 su p p lem en t.
273
lu m b er, c o a l , e o k e , o i l , s to r e and o f f i c e f i x t u r e s ,
h o t e l and r e s ta u r a n t eq u ip m en t, 3 3 1 / 3 $ .
C la s s 3 a . A g r ic u ltu r a l p r o d u c ts h e ld by th e p ro
d u c e r , 1 0 $ .
C la s s 3 b . R ural h o m estea d s to $ 4 ,0 0 0 in v a lu e ,
20$.
C la s s 3 c . Urban h o m estea d s t o $ 4 ,0 0 0 in v a lu e ,
2 5 $ .
C la s s 3 d . A g r ic u ltu r a l m a ch in ery u sed by th e farm er,
h o r s e s , c a t t l e , and o th e r l i v e s t o c k on th e farm , 2 0 $ .
C la s s 4 . P u b lic e l e v a t o r s , w a te r c r a f t , p o le s ,
w ir e s , c a r s o f s t r e e t r a ilw a y s , equipm ent o f e l e c t r i c
co m p a n ies, g a s and w a te r com p anies (e x c e p t r u r a l t r a n s
m is s io n l i n e s ) , urban la n d s and b u ild in g s , 4 0 $ .1 6
Ohio exam p le. ^ 7 — O hio h a s a m o d ifie d c l a s s i f i e d
sy stem s in c e th e s t a t e m akes no g e n e r a l p r o p e r ty t a x le v y .
The g e n e r a l p r o p e r ty t a x le v y i s l e f t to c o u n t ie s , s c h o o ls ,
and l o c a l g o v ern m en ta l u n it s w here i t c o n s t i t u t e s th e p r in
c i p a l rev en u e s o u r c e . Ohio ad op ted i t s sy stem o f c l a s s i
f i c a t i o n in 1 9 3 1 . I n t a n g ib le s are c l a s s i f i e d s e p a r a t e ly
X 8
from t a n g i b l e s and ta x e d a t a u n iform s ta te w id e r a t e .
T a n g ib le s u sed in b u s in e s s a re c l a s s i f i e d in t o s e v e r a l
B ased on The M in n eso ta Tax S ystem , o p . c i t . ,
pp. 1 1 -2 6 .
■ * -7 C o le , o £ . c i t . , p . 1 0 7 .
C. E. G lander and A. E. Dewey, " T axation o f I n
t a n g ib le P r o p e r ty i n O h io," G en eral Tax P r a c t ic e I n s t i t u t e ,
a P r a c t ic in g Law I n s t i t u t e o f th e Ohio Bar A s s o c ia t io n ,
P a l l , 1 9 5 0 . 47 pp.
874
c a t e g o r ie s and ta x e d a t l o c a l r a t e s in e f f e c t in th e
v a r io u s ta x in g j u r i s d i c t i o n s where t h e y a re lo c a t e d .
M ach in ery, eq u ip m en t, and in v e n t o r ie s o f m a n u fa ctu rers a re
a s s e s s a b le a t 50 p er c e n t o f n e t book v a lu e , in v e n t o r ie s
o f m erch an ts a t 70 p e r c e n t , and f u r n it u r e and f i x t u r e s o f
m erch an ts and m a n u fa ctu re rs a t 70 p er c e n t . A utom otive
equipm ent i s ta x e d by an in l i e u t a x . T a n g ib le s n o t u sed
in b u s in e s s a re exem p ted .
Exam ples o f t a x e s w h ich a r e c l a s s i f i c a t i o n . — One
o f th e m ost f a m ilia r exam p les o f c l a s s i f i c a t i o n i s th e low
m i l l r a t e a p p lie d t o in t a n g ib l e s . Commonly th e s e r a t e s do
n o t e x c e e d 5 o r 6 m i l l s , o r # .5 0 t o # .6 0 p e r #100 v a lu a tio n .
O ther ex a m p les o f t a x e s a r e th o s e l e v i e d a t a f l a t r a t e on
c e r t a in p r o p e r ty p ro v id ed t h e y are n o t e q u a l t o th e p re
v a i l i n g ad v a lo rem g e n e r a l p r o p e r ty t a x e s .
A nother exam ple o f c l a s s i f i c a t i o n i s se e n in t a x e s
le v ie d in l i e u o f o th e r t a x e s and a t r a t e s d if f e r e n t from
th e g e n e r a l p r o p e r ty t a x r a t e . For in s t a n c e , r a ilr o a d s o r
p u b lic u t i l i t i e s may pay g r o s s r e c e i p t s t a x e s in s t e a d o f
g e n e r a l p r o p e r ty t a x e s . M otor v e h i c l e s may be ta x e d a t a
r a t e d i f f e r e n t from t h a t a p p lie d to o th e r p e r s o n a l prop
e r t y .
P u r p o ses o f C l a s s i f i c a t i o n
The b a s ic p u rp ose o f c l a s s i f i c a t i o n o f p r o p e r ty f o r
275
t a x p u r p o se s i s to s e t up a system o f p r o p e r ty ta x a tio n
w h ich i s b ased on th e r e c o g n iz a b le and s i g n i f i c a n t econom ic
d if f e r e n c e s in p r o p e r ty t y p e s . A ta x sy ste m , so d e v is e d ,
w ould be more s c i e n t i f i c and e q u ita b le th a n a sy stem w hich
t a x e s p r o p e r ty a t a u n iform r a t e . O ther p u rp o ses o f
c l a s s i f i c a t i o n a r e : ( 1 ) to prom ote more co m p lete a s s e s s -
/
m en ts by re d u c in g e v a s io n and h id in g ; ( 2 ) t o produce
g r e a te r rev en u e; (3) to b r in g a b o u t g r e a t e r e q u it y by
b e t t e r c o r r e la t io n betw een ta x a tio n and th e e a r n in g power
o f th e p r o p e r ty and a b i l i t y t o pay o f th e ow ner; (4) to
s tim u la te d e s ir a b le econom ic p r o d u c tio n ; (5 ) to en co u ra g e
c o n s e r v a tio n o f n a tu r a l r e s o u r c e s .
R educing e v a s io n by c l a s s i f i c a t i o n ♦ — Much p r o p e r ty
c a p a b le o f d o in g so h a s c o n tin u o u s ly e sc a p e d p a y in g a l l o r
p a rt o f a g e n e r a l p r o p e r ty t a x . T h is h a s been m o s tly tr u e
o f p e r s o n a l p r o p e r ty , p a r t i c u l a r l y i n t a n g i b l e s . One pur
p o se o f c l a s s i f i c a t i o n h a s b een t o red u ce th e e v a s io n by
a p p ly in g l e s s se v e r e r a t e s t o i n t a n g ib le s and th e r e b y en
co u ra g e t h e i r d is c l o s u r e and a s s e s s m e n t. I f t h i s o ccu rred
i t w ould in c r e a s e th e amount o f ta x a b le p r o p e r ty on th e
a sse ssm en t r o l l s and p o s s ib ly l i g h t e n th e burden c a r r ie d by
19
p r o p e r ty w hich ca n n o t h id e . A ccord in g to one a u th o r ,
■ * - 9 T h a tc h e r , ©£. c i t . . p . 3 5 9 .
276
c l a s s i f i c a t i o n h a s r e s u lt e d in a s u b s t a n t i a l r e d u c t io n , in
O h io, o f th e ta x burden on r e a l e s t a t e . In p r a c t ic e i t
h a s b een p r a c t i c a l l y im p o s s ib le t o o b ta in an a c c u r a te l i s t
in g and d is c lo s u r e o f p e r s o n a l p r o p e r ty f o r t a x p u r p o s e s .
In 1940 in M is s o u r i, f o r ex a m p le, th e a s s e s s e d v a lu a tio n
o f p e r s o n a l p r o p e r ty was a p p r o x im a te ly o n e - s ix t h t h a t o f
ta x a b le r e a l e s t a t e ; ta x a b le h o u seh o ld go o d s w ere v a lu ed a t
o n ly $14 p er c a p i t a . 20 The g r e a t e s t d is c r e p a n c y a r o se w ith
r e s p e c t t o in t a n g ib le s w here o n ly 3 .4 p er c e n t o f th o s e
l e g a l l y ta x a b le w ere a s s e s s e d .2^ Such e x p e r ie n c e a s t h i s
h a s le d some s t a t e s t o c l a s s i f y p r o p e r ty and t a x p e r s o n a l
p r o p e r ty a t lo w e r r a t e s th a n r e a l p r o p e r ty .
The s u c e e s s o f c l a s s i f i c a t i o n in e f f e c t i n g d i s
c lo s u r e has been in c o m p le te . Lack o f d ilig e n c e by th e
a s s e s s o r may be v e r y s i g n i f i c a n t in n o t p u ttin g t a n g ib le
p e r s o n a lt y on t h e a sse ssm e n t r o l l s . However, w here th e r e
i s c e n t r a l iz e d a d m in is tr a tio n and s u p e r v is io n , a s in O h io,
r e s u l t s a re b e t t e r . T a n g ib le s u sed in b u s in e s s are c l a s s i
f i e d and th e p er c e n t o f f u l l v a lu e a s s e s s a b le to ea c h
c a te g o r y p r e s c r ib e d . A d m in is tr a tiv e a u th o r it y i s v e s t e d in
2 0 M. S la d e K en d rick , P u b lic F in a n ce P r in c i p l e s and
P roblem s (Hew York: H o u gh ton -M i'fflin Company, 1951) ,
p p . 1 7 9 -8 0 .
2^ Idem .
277
a s t a t e a g en cy f o r r e tu r n s o f $ 5 ,0 0 0 o r more and i n t e r -
22
c o u n ty p r o p e r ty . T h is u n ifo r m ity in a p p lic a t io n and
a d m in is tr a tio n h a s b een th e m o st im p o rta n t g a in from
23
c l a s s i f i c a t i o n .
C l a s s i f i c a t i o n o f i n t a n g ib le s h a s b een r e l a t i v e l y
s u c c e s s f u l . One re a so n f o r t h i s i s seen in th e f a c t th a t
th e r e was g r e a t room f o r im provem ent s in c e m ost in t a n g ib le s
had f a i l e d to pay any t a x . The e x p e r ie n c e o f many s t a t e s —
M is s o u r i, K entucky, Iow a, C o n n e c tic u t, K an sas, N ebraska—
h a s b een s u b s t a n t i a l l y th e sam e. In ea ch s t a t e o n ly a
f r a c t io n o f in t a n g ib le p r o p e r ty f in d s i t s way o n to a s s e s s
m ent r o l l s . Three s t a t e s — O h io, M a s s a c h u s e tts , and
P e n n sy lv a n ia — w ere found t o have good a sse ssm e n t o f in
t a n g ib le p r o p e r ty . 2 4 D e s p ite p a r t i a l f a i l u r e o f c l a s s i
f i c a t i o n to d iv u lg e a l l in t a n g ib le p r o p e r ty l e g a l l y l i a b l e
f o r t a x a t io n , P r o f e s s o r L e la n d ’ s c o n c lu s io n o f more th an
tw en ty y e a r s ago i s s t i l l p e r t in e n t :
A lth ou gh c l a s s i f i c a t i o n h a s n o t a c h ie v e d th e h ig h e s t
p o s s ib le s u c c e s s , i t s a cco m p lish m en ts sh o u ld n o t t h e r e
f o r e be d is c o u n te d . In e v e r y c a s e i t h a s b een a
2 2 C o le , o p . c i t . , p . 1 0 7 .
2® Idem .
2 4 The T a x a tio n o f I n t a n g ib le s in M isso u r i and th e
O ther S t a t e s ( S t . L o u is: G overnm ental R esea rch I n s t i t u t e ,
1 9 4 4 ), p p . 4 0 -4 5 .
278
d i s t i n c t im provem ent o v e r th e g e n e r a l p r o p e r ty t a x
w hose d e f e c t s i t was d e sig n e d t o r e m e d y . 28
S t r i c t e r en fo rcem en t t o g e t h e r w ith a p p lic a t io n o f p e n a l t i e s
w ould a id g r e a t l y in e n la r g in g a sse ssm e n t r o l l s .
C l a s s i f i c a t i o n to produce more r e v e n u e . — I t i s
a x io m a tic t h a t a sse ssm e n t r o l l s m ust be e n la r g e d o r r a t e s
in c r e a s e d t o produce more re v en u e . A lthou gh c l a s s i f i c a t i o n
h a s ca u sed l i s t i n g p e r s o n a l p r o p e r ty , b o th t a n g ib le and
in t a n g i b l e , h e r e to f o r e n o t l i s t e d , n o t to o much a d d it io n a l
26
reven u e h as b een p rod u ced . T h is f a c t i s l a r g e l y due to
th e low r a t e s a p p lie d to th e s e t y p e s o f p r o p e r ty . In
V ir g in ia , where in t a n g ib le s a re ta x e d o n ly by th e s t a t e and
n o t l o c a l g o v ern m en ts, in t a n g ib le p e r s o n a l p r o p e r ty ta x
y i e l d s were a s shown in T able XL.
I n c r e a s in g e q u it y by c l a s s i f i c a t i o n . — One o f th e
b a s ic p u r p o se s o f c l a s s i f i c a t i o n i s t o enhance e q u ity in
t a x a t io n — o r t o red u ce i n e q u i t i e s found in g e n e r a l p r o p e r ty
t a x a t io n . C l a s s i f i c a t i o n i s a m eans to h e lp overcom e th e
in d is c r im in a t e and u n eq u al o p e r a tio n o f t h i s t a x . The k ey
s to n e o f th e e q u it y c la im s in c l a s s i f i c a t i o n i s r e c o g n it io n
L ela n d i The C l a s s i f i e d P r o p e r ty Tax i n th e U n ited
S t a t e s , o p . c i t . , p . 4 1 4 .
26 W illia m H. A nderson, T a x a tio n and th e American
Economy (New York: P r e n t ic e - H a ll, I n c . , 1 9 5 1 ), p . 157;
a l s o , H arold M. G ro v es, V ie w p o in ts on P u b lic F in a n ce (New
York: Henry H o lt and Company, 1 9 4 7 ), p . 8 6 .
279
TABLE XI
INTANGIBLE PROPERTY TAX AS PERCENTAGE OP TOTAL
STATE REVENUE OP VIRGINIA
{IN MILLIONS)
Year
1948 1940 1934 1930
T o ta l S t a t e Revenue # 1 1 4 .3 # 5 5 .9 # 2 7 .7 # 3 4 .2
I n ta n g ib le P r o p e r ty Tax 5 .5 2 .6 2 .3 3 .1
* P er c e n t o f T o ta l 4 .8 4 .7 8 .3 9 .0
S ou rce: " S ta te and L o ca l R evenu es and E x p e n d itu r e s ,"
R eport o f th e Com m ission on S ta t e and L o c a l R evenues and
E x p e n d itu re s t o th e G overnor and The G en era l A ssem bly o f
V ir g in ia , Richmond, 1 9 4 9 , p . 1 5 .
^ C a lc u la te d b y w r it e r .
280
o f econom ic d if f e r e n c e s in c l a s s e s o f p r o p e r ty . As prop
e r t i e s p o s s e s s d i f f e r e n t in co m e-p ro d u cin g c a p a c i t i e s ,
c l a s s i f i c a t i o n s e e k s t o t a x on th e b a s is o f th e d i f f e r e n t
e a r n in g pow ers o f th e p r o p e r ty c l a s s e s . Mere p o s s e s s io n o f
p r o p e r ty , p er s e . d o es n o t co n n o te a b i l i t y t o p a y . A b i l i t y
e x i s t s o n ly where incom e h a s b e en , o r i s b e in g p rod u ced .
C l a s s i f i c a t i o n se e k s t o c o r r e la t e th e le v y in g o f p r o p e r ty
t a x e s w ith th e e a r n in g power o f p a r t ic u la r p r o p e r t ie s .
C l a s s i f i c a t i o n i s an e f f o r t to c o r r e c t th e i n e q u i t i e s and
i n j u s t i c e s w h ich flo w from th e o p e r a tio n o f a u niform
g e n e r a l p r o p e r ty t a x . A lth ou gh i t may be e a s y t o c r i t i c i z e
th e g e n e r a l p r o p e r ty t a x , i t i s e x tr e m e ly d i f f i c u l t to sa y
j u s t what th e c l a s s i f i c a t i o n s sh o u ld be and th e r a t e s t o be
a p p lie d . C l a s s i f i c a t i o n s may be due a s much to p r e s s u r e s
o r p r e j u d ic e s a s t o sound econom ic d i s t i n c t i o n s o r good
a d m in is tr a tiv e r e a s o n s .
C l a s s i f i c a t i o n t o s tim u la te p r o d u c tio n . — One o f
th e more common u s e s o f c l a s s i f i c a t i o n i s t o en co u ra g e
p r o d u c tio n th o u g h t t o be s o c i a l l y d e s ir a b le — o r to d i s
co u ra g e u n d e s ir a b le p r o d u c tio n . For ex a m p le, s p e c ia l
c l a s s i f i c a t i o n and t a x tr e a tm e n t may be g iv e n t o im prove
m en ts and r e s i d e n t i a l c o n s t r u c t io n . In M in n eso ta urban
h om estead s are a s s e s s e d a t a sm a lle r p e r c e n t o f f u l l v a lu e
th a n i n d u s t r i a l b u ild in g s and la n d ; r u r a l h o m estea d s a t
281
l e s s th an r u r a l la n d and b u ild in g s . S t a t e s may c l a s s i f y
and g iv e s p e c i a l tre a tm e n t to en co u ra g e in d u s t r ia l p ro
d u c tio n a s w e l l .
i
A nother v a r ia t io n in p r o p e r ty t a x a t io n to en cou rage
in d u s t r ie s i s th e u se o f g r o s s e a r n in g s t a x e s . M in n esota
t a x e s c e r t a in u t i l i t i e s and r a ilr o a d s in t h i s m anner.
"These t a x e s are l e g a l l y p r o p e r ty t a x e s m easured by g r o s s
e a r n in g s from b u s in e s s in th e s t a t e , t h e r e f o r e , com panies
27
ta x ed on t h i s b a s is are exem pt from p r o p e r ty t a x e s ." The
r a t e s v a r y from 4 t o 9 p er c e n t . G ross e a r n in g s t a x e s te n d
t o en cou rage a company to c o n s tr u c t f a c i l i t i e s in th e s t a t e
s in c e i t w ould be l i a b l e f o r t a x e s a f t e r o p e r a tio n s w ere
b egu n.
C l a s s i f i c a t i o n to en cou rage c o n s e r v a t io n . — F or
e s t s , o r e s , and o th e r n a tu r a l r e s o u r c e s a re som etim es
c l a s s i f i e d and ta x e d d i f f e r e n t l y from o th e r p r o p e r ty to
en co u ra g e t h e i r c o n s e r v a tio n and w is e u s e . Growing f o r e s t s
a re o f t e n ta x e d a t v e r y lo w r a t e s w h ile m ature f o r e s t s a re
ta x e d by a se v e r a n c e t a x when t r e e s a re c u t . The same ty p e
o f ta x a tio n i s a p p lic a b le to o th e r n a tu r a l r e s o u r c e s w hich
a re r e p r o d u c ib le . N o n -r e p r o d u c ib le r e s o u r c e s such a s o r e s
o r o i l o f f e r econom ic j u s t i f i c a t i o n f o r s p e c i a l t a x a tio n
27 The M in n e s o ta Tax S y ste m , o p . c i t . . p . 5 1 .
282
p r o c e d u r e s. The s t a t e may c l a s s i f y o r e s and t a x them in
su ch a way a s to d isc o u r a g e e x p l o i t a t i o n o f th e r i c h e r ,
more a c c e s s i b l e d e p o s it s and t o en co u ra g e d is c o v e r y o f
a d d it io n a l so u r c e s o r more e f f e c t i v e u se o f p o o r e r , l e s s
a c c e s s i b l e g r a d e s . M in n eso ta h a s a r a th e r e la b o r a te m ethod
o f t a x in g ir o n o r e s . They a re a s s e s s e d a t 50 p er c e n t o f
" f u l l and tru e" v a lu e under th e c l a s s i f i e d p r o p e r ty ta x
a p p lie d th ro u g h o u t th e s t a t e . In a d d it io n , th e " f u l l and
tru e" v a lu e i t s e l f i s d eterm in ed on th e b a s i s o f a c l a s s i
f i c a t i o n system w h erein s i x c l a s s e s o f o re p r o p e r t ie s w ere
e s t a b lis h e d by c o n fe r e n c e s b etw een th e Tax C om m ission ers,
th e m ine o p e r a t o r s , and l o c a l t a x d i s t r i c t s .
I I I . SPECIAL USES OF CLASSIFICATION
The th e o r y o f c l a s s i f i c a t i o n o f p r o p e r ty f o r t a x
p u r p o se s i s t o adapt th e t a x t o s i g n i f i c a n t econom ic d i f
f e r e n c e s in t y p e s o f p r o p e r ty . The u n m od ified g e n e r a l
p r o p e r ty ta x i s b a sed on th e th e o r y t h a t p r o p e r ty t y p e s are
s u f f i c i e n t l y a l i k e t o be ta x e d i d e n t i c a l l y . In a d d it io n to
econom ic d i f f e r e n c e s , c l a s s i f i c a t i o n s e e k s to r e c o g n iz e
l e g a l and a d m in is tr a tiv e r e a s o n s w h ich j u s t i f y t a x in g t y p e s
o f p r o p e r ty d i f f e r e n t l y . H om esteads and p a r t ic u la r k in d s
28 I b i d . , p . ? 8 .
283
o f in t a n g ib le s a r e exam p les o f s p e c ia l u s e s o f c l a s s i f i c a
t i o n .
29
Homestead C l a s s i f i c a t i o n
M in n eso ta h as a s p e c ia l hom estead c l a s s i f i c a t i o n law
e n a c te d in 1 9 3 3 . T h is la w p r o v id e s f o r a s s e s s in g th e f i r s t
$ 4 ,0 0 0 o r urban h om estead s a t 25 p er c e n t o f ”f u l l and
t r u e ” v a lu e in s t e a d o f 40 p er c e n t a p p lie d to c e r t a in o th e r
urban p r o p e r ty . E u ral h o m estea d s a re a t 20 p e r c e n t o f th e
f i r s t $ 4 ,0 0 0 o f tr u e v a lu e in s t e a d o f 33 1 /3 p e r c e n t
a p p lie d to o th e r r u r a l p r o p e r ty . The p r o p e r ty ow ner, in
ea c h c a s e , may be r e q u ir e d t o f i l e an a f f i d a v i t t h a t th e
h ouse i s a c t u a l l y o c c u p ie d b y him f o r r e s i d e n t i a l p u r p o se s.
S in c e th e a d o p tio n o f th e law th e r e h a s b een a marked in
c r e a s e in hom estead p r o p e r ty . In 1934 hom estead p r o p e r ty
r e p r e s e n te d ab out 15 p er c e n t o f th e t o t a l ta x a b le r e a l
e s t a t e ; in 1944 i t was 2 3 .7 p er c e n t .
W est V ir g in ia a ls o u s e s a s p e c i a l c l a s s i f i c a t i o n o f
p r o p e r ty . A ll p r o p e r ty ow ned, u sed and o c c u p ie d by th e
ow ner, e x c l u s i v e l y f o r r e s i d e n t i a l p u r p o se s, i s s u b je c t t o
a lo w e r maximum r a t e th a n some o th e r ty p e s o f p r o p e r ty .
A ll p r o p e r ty i s a s s e s s e d a n n u a lly a s o f January 1 a t i t s
tr u e and a c t u a l v a lu e . T h is v a lu e i s ta k e n to mean th e
Based on The M in n eso ta Tax System ( I b i d . ,
pp . 1 6 - 1 8 ) .________________________. _________________
284
amount fo r w hich p r o p e r ty w ould s e l l i f v o lu n t a r i ly o f f e r e d
f o r s a l e , and n o t th e p r ic e w hich m igh t be r e a liz e d a t a
fo r c e d s a l e . True and a c t u a l v a lu e o f p r o p e r ty owned, u sed
and o c c u p ie d b y th e owner e x c l u s i v e l y f o r r e s i d e n t i a l pur
p o s e s , s h a l l g iv e p rim a ry , but n o t e x c l u s i v e , c o n s id e r a tio n
to th e f a i r and r e a so n a b le incom e w h ich th e p r o p e r ty w ould
earn i f r e n t e d .30
E f f e c t s o f M in n eso ta hom estead c l a s s i f i c a t i o n . —
What have b een th e p r a c t i c a l e f f e c t s o f th e hom estead
c l a s s i f i c a t i o n law? P i r s t , th e c l a s s i f i c a t i o n a c t u a lly
r e s u lt e d in a sm a ll r e d u c tio n th a n m ig h t have been e x
p e c te d . T h is was due t o th e f a c t t h a t th e reduced a s s e s s e d
v a lu e r e s u lt e d in an in c r e a s e d m i l l r a t e . The r a te in
c r e a s e d from 81.30- m i l l s in 1933 t o 9 9 .2 0 in 1 9 3 4 . The
owner o f a $ 5 ,0 0 0 home in S t . P a u l in 1934 p a id a t a x o f
14 p er c e n t l e s s th a n in 1 9 3 3 . On th e a v era g e th e owner
o f n on -h om estead ed p r o p e r ty p a id a t a x b i l l 22 p er c e n t
31
g r e a t e r in 1954 th an in 1 9 3 3 .
S econ d , t h e t o t a l t a x a b le v a lu e o f r e a l e s t a t e
dropped from 1932 t o 1934 by $ 1 3 0 ,0 0 0 ,0 0 0 -- o r b y 9 p e r c e n t
30 K o o n tz, 0£ . e i t .. p. 1 0 .
The M in n eso ta Tax S y stem . o p . c i t . . p. 17; a l s o ,
R. E. H a t f i e ld , ’’Hom estead P r e fe r e n c e in th e M in n eso ta Tax
S y ste m ,” The B u l l e t i n o f th e N a tio n a l Tax A s s o c ia t io n .
M arch, 1 9 4 7 , p . 1 6 6 .
285
a t t r ib u t a b le t o th e h om estead c l a s s i f i c a t i o n . I n c r e a s e d
r a t e s became u n a v o id a b le in th e f a c t o f t h i s r e d u c tio n .
T h ird , th e e x t r a t a x burden on r u r a l n on -h om estead
p r o p e r ty ca u sed in c r e a s e d t a x d e lin q u e n c y and f o r f e i t u r e ,
t o g e t h e r w ith a c c e le r a t e d d e s t r u c t io n o f m a rg in a l b u ild
in g s . The f i n a l outeom e o f th e s i t u a t i o n was ow ners o f
hom estead p r o p e r ty r e c e iv e d l i t t l e r e l i e f s in c e th e y w ere
fo r c e d t o abandon n on -h om estead p r o p e r ty th e y owned, u n le s s
th e y co u ld p a s s th e t a x e s on to th e r e n t e r . The r e s u l t s
w ere v e r y s im ila r in urban a r e a s . In 1 9 4 0 , 16 p e r c e n t o f
th e p a r c e ls o f r e a l e s t a t e in S t . P a u l had la p s e d to th e
s t a t e f o r d e lin q u e n t t a x e s . The hom estead c l a s s i f i c a t i o n
32
la w u n q u e s tio n a b ly c o n tr ib u te d to t h i s r e s u l t .
F o u rth , hom estead c l a s s i f i c a t i o n had a p a r t in
b r in g in g ab ou t a g r e a t e r amount o f s t a t e a id . C l a s s i f i c a
t io n o p e r a te s to red u ce th e t a x b a se and th e r e b y p u ts
r e s t r i c t i o n on l o c a l f in a n c e s . More s t a t e a id f o r l o c a l
governm en ts was fo llo w e d by an in c r e a s e in g a s o lin e t a x e s .
Argum ents f o r h om estead c l a s s i f i c a t i o n . — The c h i e f
argum ent fa v o r in g g r a n tin g s p e c i a l ta x tre a tm e n t to home
ow ners i s t o en cou rage home o w n ersh ip . T h is argum ent
assum es th e d e s i r a b i l i t y o f home o w n ersh ip a s a s t a b i l i z i n g
The M in n e s o ta Tax S y ste m , o p . c i t . . p . 1 7 .
286
fo r c e in s o c i e t y i n th e p r e s e r v a tio n o f d em o cra tic i d e a l s
and i n s t i t u t i o n s . W ithout q u e s tio n , a s e m i- t r a n s ie n t
p o p u la tio n h as l i t t l e co n cern o v e r th e lo n g -r u n w e lfa r e o f
th e l o c a l com m unity. Too h ig h p r o p e r ty t a x e s te n d to d i s
cou rage home o w n ersh ip .
A nother im p o rta n t argum ent in fa v o r o f hom estead
c l a s s i f i c a t i o n was t o c o r r e c t in e q u it y in th e a d m in istr a
t io n o f th e g e n e r a l p r o p e r ty t a x . I t was g e n e r a lly b e
l i e v e d t h a t lo w e r -v a lu e d p r o p e r t ie s w ere a s s e s s e d a t n e a r e r
t h e i r " f u l l and tr u e " v a lu e th an w ere h ig h e r -v a lu e d prop
e r t i e s .
Argum ents a g a in s t hom estead c l a s s i f i c a t i o n . — In
th e f i r s t p la c e , I t i s n o t e n t i r e l y c le a r to w hat e x t e n t
t a x exem p tion e n c o u ra g e s home o w n ersh ip . I t s in f lu e n c e may
be r e l a t i v e l y s m a ll s in c e th e r e a re o th e r im p o rta n t
f a c t o r s , such a s c o s t o f b u ild in g , i n t e r e s t r a t e s , co n
d i t i o n s o f em ploym ent, s i z e o f incom e and a v a i l a b i l i t y and
33
p r ic e o f r e n t a l p r o p e r ty .
S econ d , t h e hom estead c l a s s i f i c a t i o n g ra n ted an
exem p tion w h ich was a s u b s id y f o r ow ners a t th e tim e th e
33 H elen G. G anoyer and R oland S. V a ile , E conom ics
o f Incom e and C onsum ption (Hew York: The R onald P r e s s
Company, 1 9 5 1 ), pp. 1 1 5 -2 2 ; a l s o , C on stan ce C. E in h orn ,
"Homestead P r o p e r ty Tax E x em p tio n s," R eport o f th e Revenue
Laws Com m ission o f th e S ta te o f I l l i n o i s . 1 9 4 9 , p . 6 5 .
287
la w w as p a s s e d . When such p r o p e r ty su b s e q u e n tly changed
9
hands th e ad van tage w as c a p i t a l i z e d and added t o th e s a l e s
34
p r i c e . T h is would happen b eca u se th e red u ced t a x r e
s u lt e d i n a la r g e r n e t incom e from th e p r o p e r ty . The
p r o p e r ty th u s becom es more d e s ir a b le and would s e l l f o r a
h ig h e r p r i c e , w ith th e s e l l e r p o c k e tin g th e in c r e m e n t.
A t h ir d o b j e c t io n t o th e hom estead c l a s s i f i c a t i o n
in v o lv e s th e le g it im a c y o f n on -h om estead p r o p e r ty b e in g
fo r c e d t o b ea r an added sh a re o f th e ta x lo a d . W henever
s p e c ia l ex em p tio n i s g r a n ted t o c e r t a in p r o p e r t ie s th e
a s s e s s e d v a lu a tio n o r th e r a te (o r b o th ) m ust be in c r e a s e d
on n o n - p r iv ile g e d p r o p e r t ie s ; o r o th e r t a x e s m ust be im
p o sed ; o r governm ent e x p e n d itu r e s m ust be redu ced c o r r e s
p o n d in g ly ; o r d e f i c i t fin a n c in g m ust be a d o p ted .
F o u r th , hom estead c l a s s i f i c a t i o n te n d s t o d isc o u r a g e
new in d u s t r ie s com ing to a s t a t e f o r f e a r o f h ea v y ta x a
t i o n . T h is s o r t o f d evelop m en t i s th e o p p o s ite o f what
m ost p e o p le d e s i r e , t h a t i s , an in c r e a s e in econom ic
a c t i v i t y w it h in th e s t a t e .
C o n c lu sio n s on h om estead c l a s s i f i c a t i o n . — The
M in n eso ta I n s t i t u t e o f G overnm ental R ese a rc h , I n c o r p o r a te d ,
c o n c lu d e s h om estead c l a s s i f i c a t i o n p ro d u ces th e s e r e s u l t s :
5 4 ipfrQ M in n e s o ta Tax S y ste m , o p . c i t . . p . 1 8 .
288
(1) i t a id s th o s e m ost a b le t o pay in s te a d o f th o s e l e a s t
a b le t o p ay; (2 ) i t d i s t o r t s th e f in a n c i a l p la n s o f g o v ern
m en t, e s p e c i a l l y l o c a l governm ent; (3 ) i t p la c e s an un
n e c e s s a r y burden on n on-hom estead p r o p e r ty ; (4) d is c o u r a g e s
new in d u s t r ie s e n te r in g th e s t a t e ; (5 ) en co u ra g es t a x
d e lin q u e n c y , in s h o r t , th e argum ents a g a in s t t h i s s o r t o f
s p e c i a l exem p tion o u tw eig h th o s e in fa v o r o f su ch a p r o -
35
gram .
S p e c ia l C l a s s i f i c a t i o n o f I n t a n g ib le s
S p e c ia l u se o f c l a s s i f i c a t i o n h a s been a p p lie d to
in t a n g ib le s in some s t a t e s . V ir g in ia ad op ted a c l a s s i f i e d
p r o p e r ty t a x sy stem in 1915 in w hich in t a n g ib le s w ere
s p e c i a l l y c l a s s i f i e d and ta x e d a t lo w e r r a t e s , and o n ly by
36
th e s t a t e governm en t. Ohio ad op ted a c l a s s i f i e d p r o p e r ty
t a x in 1931 and s p e c i a l l y c l a s s i f i e s in t a n g i b le s . O ther
s t a t e s w h ich s p e c i a l l y c l a s s i f y i n t a n g ib le s a re F lo r id a ,
G e o rg ia , In d ia n a , K en tu ck y, M ich ig a n , N eb rask a, N orth
n t n
C a r o lin a , Oklahoma, V ir g in ia , and W est V ir g in ia . In 1950
o n ly tw e lv e s t a t e s and th e D i s t r i c t o f Colum bia fo r m a lly
Idem .
W illia m H. S t a u f f e r , T a x a tio n in V ir g in ia (New
York: The C en tu ry Company, 1 9 3 1 ), p . x i i .
Tax S y stem s ( t w e l f t h e d i t i o n ) , o £ . c i t . .
p p . 1 8 5 -9 7 .
289
38
exem pted i n t a n g ib le s from p r o p e r ty t a x a t io n .
I n t a n g ib le s co m p rise a tro u b leso m e problem in ta x a
t i o n . The problem beeame more im p o rta n t w ith th e d e v e lo p
ment o f th e c o r p o r a te form o f b u s in e s s o r g a n iz a t io n ,
to g e t h e r w ith m odem ban k in g d e v elo p m en ts. These d e v e lo p
m en ts b rou ght ab out a g r e a t in c r e a s e in in t a n g ib le p r o p e r ty ,
su ch a s s t o c k s , b o n d s, bank d e p o s it s , n o t e s , m o r tg a g e s.
H owever, o n ly a s m a ll p a r t o f th e s e found t h e i r way o n to
a sse ssm e n t r o l l s . W idespread e v a s io n o f p r o p e r ty t a x e s by
in t a n g ib le s w as a common o c c u r r e n c e , and le d t o much
e r i t i c i s m o f th e g e n e r a l p r o p e r ty t a x . C l a s s i f i c a t i o n h as
b een one o f th e e f f o r t s t o c o r r e c t and im prove th e t a x .
O h io ’ s e x p e r ie n c e in s p e c i a l l y c l a s s i f y i n g i n t a n g ib le s w i l l
be d is c u s s e d a s r e p r e s e n t a t iv e .
The t a x a t io n o f in t a n g ib le p e r s o n a l p r o p e r ty in
O h io. — The b a s is o f a sse ssm e n t i s a l l m oneys, c r e d i t s ,
in v e s tm e n ts , d e p o s i t s , and, o th e r in t a n g ib le p r o p e r ty o f
r e s id e n t s o f th e s t a t e and o f n o n - r e s id e n t s when used in
and a r i s in g o u t o f b u s in e s s tr a n s a c te d i n th e s t a t e . Such
p r o p e r ty o f r e s i d e n t s u sed in o r a r i s in g o u t o f b u s in e s s
39
tr a n s a c te d o u ts id e th e s t a t e i s n o t s u b je c t to t a x a t io n .
38 Idem.
Ohio G en eral C ode, s e c t io n 5 3 2 8 -1 , c i t e d in
G lander and Dewey, o p . c i t . , p . i .
290
Ohio h a s a d o p ted , in m o d ifie d form , th e p r in c ip le o f domi
c i l i a r y s i t u s w ith r e s p e c t t o j u r i s d i c t i o n to t a x in ta n
g i b l e s . R e s id e n ts o f th e s t a t e a re l i a b l e f o r t a x e s on
i n t a n g ib le s a r i s i n g o u t o f o r u sed in b u s in e s s w it h in th e
s t a t e . H owever, th o s e in t a n g ib le s b e lo n g in g to r e s id e n t s
w hich have a b u s in e s s s i t u s o u ts id e th e s t a t e are n o t
ta x e d . Thus th e problem o f d e te r m in in g th e s i t u s o f in
t a n g ib le s i s s i m p l if i e d .
T a x a tio n o f i n t a n g ib le s in Ohio i s d i s t i n c t i v e in
th a t i t com bines a ta x m easured b y incom e from p r o d u c tiv e
in v e s tm e n ts and a lo w -r a te ta x on u n p ro d u c tiv e in v e s tm e n ts
and o th e r n on-in com e p ro d u cin g i n t a n g i b l e s . P r o d u c tiv e
in v e s tm e n ts in c lu d e ite m s su ch a s s t o c k s , b o n d s, n o t e s and
a n n u it ie s . T hese i n t a n g ib le s are ta x e d a t 5 p e r c e n t o f
t h e i r in com e. For exam p le, in c a s e o f an in t a n g ib le w hich
y i e l d s i n t e r e s t , such a s a bond, th e incom e y i e l d i s th e
amount o f i n t e r e s t s e p a r a t e ly ch arged and p a id d u rin g th e
p r e c e d in g c a le n d a r y e a r , e x c lu s iv e o f paym ents on th e
p r in c i p a l . 40 U n p rod u ctive in v e s tm e n ts a re th o s e o f th e
above c l a s s e s w h ich d id n o t y i e l d any incom e d u rin g th e
y e a r . In O h io, s to c k d iv id e n d s o f th e i s s u i n g c o r p o r a tio n
41
a re n o t c o n sid e r e d a s in co m e.
40 I b i d . , p . 5 .
4^ T h a tc h e r , o p . c i t . . p. 3 5 4 .
891
Under Okio la w d e p o s i t s , m oney, and c r e d i t s in
f i n a n c i a l i n s t i t u t i o n s a re ta x e d a t t h e sou rce a t a r a t e o f
42
two m i l l s on th e d o lla r . Banks are a u th o r iz e d to d ed u ct
th e t a x from d e p o s it s . S h a res o f s to c k o f f i n a n c i a l i n s t i
t u t io n s such a s b an k s, t r u s t co m p a n ies, and lo a n com p anies
a re ta x ed a t two m i l l s on th e d o lla r o f book v a lu e . S to c k s
o f d o m estic in su r a n c e com panies a re exempt from th e i n
t a n g ib le p r o p e r ty ta x but sueh com p anies p ay a t a x a t th e
r a t e o f 0 . 2 p er c e n t on e i t h e r t h e i r c a p it a l and s u r p lu s ,
. 4 3
o r 8 1 /3 tim e s t h e i r g r o s s prem ium s.
A A
A d m in istr a tio n o f th e t a x . — A lthou gh th e ad
m in is t r a t io n o f th e ta x i s d iv id e d betw een s t a t e and l o c a l
o f f i c i a l s u ltim a te r e s p o n s i b i l i t y i s w ith s t a t e a u t h o r it ie s .
S e v e r a l s o u r c e s a re a v a ila b le f o r c h e e k in g in t a n g ib le prop
e r t y ta x r e tu r n s b y s t a t e o f f i c i a l s . One o f th e s e i s a
v e r i f i e d summary o f o n e ’ s f e d e r a l incom e ta x r e tu r n .
A nother i s sta te m e n ts f i l e d by c o r p o r a tio n s . C o rp o ra tio n s
d o in g b u s in e s s in th e s t a t e a re r e q u ir e d t o f i l e an annual
sta te m e n t o f s h a r e h o ld e r s , t h e ir a d d r e s s e s and number o f
sh a r e s h e ld by e a c h . Each c o u r t r e p o r ts to th e s t a t e t a x
4 2 G-lander and Dewey, oj>. c i t . . p . 6 .
^ T h a tch er, o|>. c i t . , p p . 3 5 4 -5 5 .
4 4 G lander and Dewey, o£ . c i t . . pp. 1 0 -1 1 .
292
o f f i c i a l s ea eh p e r so n in ch arge o f any e s t a t e in su ch
c o u r t , t o g e t h e r w ith th e t o t a l v a lu e o f th e c l a s s e s o f
p r o p e r ty in th e e s t a t e . P ro b a te c o u r ts a ls o f i l e w ith
s t a t e ta x a u t h o r it i e s a cop y o f th e in v e n to r y o f ea ch e s
t a t e f i l e d . Ohio th u s em p loys in fo r m a t io n -a t - th e - s o u r c e
a s w e l l a s c o l l e c t i o n - a t - t h e - s o u r c e in a d m in is tr a tio n o f
th e ta x on in t a n g ib le p e r s o n a l p r o p e r ty .
45
E f f e c t s o f c l a s s i f i c a t i o n in O h io. — T h atch er
a n a ly z e s th e e f f e c t s o f c l a s s i f i c a t i o n o f in t a n g ib le s in
th r e e r e s p e c t s . F i r s t , th e r e was a d e f i n i t e b ro a d en in g o f
th e ta x b a se f o llo w in g th e a d o p tio n o f c l a s s i f i c a t i o n and
a sp re a d in g o f t h e t a x burden o v e r s e v e r a l b i l l i o n d o lla r s
o f in t a n g ib le p r o p e r ty w h ich had p r e v io u s ly b een u n ta x ed .
In 1930 in t a n g ib le p e r s o n a l p r o p e r ty made up o n ly 6 . 8 p er
c e n t o f th e t o t a l a s s e s s e d v a lu a t io n , w h ile in 1947 i t w as
4 1 .4 p er c e n t o f th e t o t a l .
S econ d , c l a s s i f i c a t i o n h a s r e s u lt e d in a more com
p le t e a sse ssm e n t o f in t a n g ib le s th a n w as had b e fo r e c l a s s i
f i c a t i o n . A stu d y o f in t a n g ib le s o f e s t a t e s in p ro b a te
c o u r ts o f f i v e c o u n t ie s r e v e a le d t h a t th e in t a n g ib le s
l i s t e d f o r p ro b a te had been r e p o r te d on p e r s o n a l p r o p e r ty
t a x r e tu r n s on an a v era g e o f about 6 4 p e r c e n t . A lthough
45 T h a tc h e r , o p . c i t . . p p . 3 5 6 -5 9 .
293
in c o m p le te , a sse ssm e n t lia s b een s u b s t a n t i a l l y g r e a te r s in c e
in t a n g ib le s were c l a s s i f i e d .
T h ir d , th e Ohio sy stem o f c l a s s i f i c a t i o n h a s redu ced
th e ta x burden on r e a l e s t a t e . S in c e 1935 th e r e l a t i v e and
a b s o lu te burden on r e a l e s t a t e h as c o n tin u e d to d e c lin e
w h ile th a t on t a n g ib le and in t a n g ib le p e r s o n a lt y h a s i n
c r e a s e d . In 1932 th e le v y on r e a l e s t a t e and in t a n g ib le s
w as 8 6 .9 and 6 .1 p er c e n t , r e s p e c t i v e l y , o f th e t o t a l ta x
le v y . In 1935 th e p e r c e n ta g e s w ere 8 3 .2 and 7 .9 ; in 1946
th e y w ere 7 2 .8 and 1 1 .5 .
C o n c lu sio n s on Ohio * s c l a s s i f i c a t i o n o f i n t a n g i b l e s .
— F i r s t , in s t a t e s w hich do n o t em ploy an incom e t a x , a
sy stem o f c l a s s i f i c a t i o n o f f e r s a s u c c e s s f u l way to ta x
i n t a n g ib le s w h ich o r d in a r ily e sca p e t a x a t io n . In th e fa c e
o f a d m in is t r a t iv e and t h e o r e t i c a l d i f f i c u l t i e s in t a n g ib le s
h ave f r e q u e n tly b een exem pt from t a x e s , o r th e ta x h a s b een
o n ly w ea k ly e n fo r c e d .
S econ d , i f n o t made e x c e s s i v e l y c o m p lic a te d , c l a s s i
f i c a t i o n o f in t a n g ib le s and t a x in g them a c c o r d in g to incom e
i s s u p e r io r t o an ad valorem t a x .
T h ir d , c e n t r a liz e d a d m in is tr a tio n w ith th e u se o f
in f o r m a t io n - a t - t h e - s o u r c e and c o l l e c t i o n - a t - t h e - s o u r c e have
g r e a t l y str e n g th e n e d t a x in g o f in t a n g ib le p r o p e r ty and
a cco u n t f o r much o f th e s u c c e s s Ohio h a s e n jo y e d .
294
E v a lu a tio n o f C l a s s i f i o a t i o n
A str o n g c a s e can be made f o r c l a s s i f i c a t i o n o f i n
t a n g i b l e s . S t a t e s w h ich have ad op ted lo w er r a t e s f o r in
t a n g ib le s th a n f o r g e n e r a l p r o p e r ty have in c r e a s e d t h e i r
a sse ssm e n t o f such p r o p e r ty . A lthough e x p e r ie n c e v a r i e s a s
t o th e e f f e c t i v e n e s s o f c l a s s i f i c a t i o n in e n la r g in g a s s e s s
m ent r o l l s , in no c a se h a s i t red u ced th e t a x b a s e . The
in e q u it y o f th e o ld unreform ed g e n e r a l p r o p e r ty t a x h a s
been red u ced by c l a s s i f i c a t i o n o f in t a n g i b le s . Under i t
th e h o n e st ta x p a y e r who r e p o r te d in t a n g ib le s w as p e n a liz e d
a lo n g s id e n o n -r e p o r tin g ow n ers. A ls o , lum ping a l l ta x a b le
p r o p e r ty t o g e t h e r and t r e a t i n g i t a l i k e r e s u lt e d in d oub le
t a x a t io n s in c e r e p r e s e n t a t iv e in t a n g ib le s were ta x e d a s
w e ll a s th e r e a l p r o p e r ty . The problem i s a c c e n tu a te d by
th e la c k o f u n iform a sse ssm e n t p ro ce d u re s and e x e m p tio n s.
A d m in istr a tio n o f t a x e s on in t a n g ib le s c o u ld be im proved by
a d o p tin g in f o r m a t io n -a t - th e - s o u r c e and e o l l e e t i o n - a t - t h e -
s o u r e e , a s some s t a t e s have d on e. D e s p ite se v e r e c r i t i c i s m
t h r e e - f o u r t h s o f th e s t a t e s t a x in t a n g ib l e s .
C l a s s i f i c a t i o n f r e q u e n t ly i s c r i t i c i z e d a s b e in g
e x c e s s i v e l y c o m p lic a te d . I n O h io, w here a com p reh en sive
sy ste m o f c l a s s i f i c a t i o n i s in u s e , one a u th o r found no
46
o b j e c t io n by ta x p a y e r s on t h i s b a s i s .
46 Id em .
295
The c a s e f o r c l a s s i f i c a t i o n o f t a n g ib le p r o p e r ty i s
n o t so c l e a r . To th e e x t e n t t h a t p r o p e r ty t y p e s a re s u f
f i c i e n t l y d i s t i n c t t o w arran t d i f f e r e n t i a t e d t a x tr e a tm e n t,
c l a s s i f i c a t i o n a p p ea rs j u s t i f i a b l e . S i g n i f i c a n t econ om ic,
s o c i a l , o r a d m in is t r a t iv e r e a s o n s sh ou ld s u f f i c e . Lower
r a t e s on r e s id e n c e s may en co u ra g e more home o w n ersh ip ;
lo w er r a t e s on h o u se h o ld good s d is c o u r a g e s e v a s io n o f t a x e s .
Any sy stem o f c l a s s i f i c a t i o n c o n t a in s a l a t e n t
d anger o f m a n ip u la tin g r a t e s and a s s e s s m e n ts in re sp o n se t o
econom ic p r e s s u r e gro u p s o r a d m in is tr a tiv e c o n v e n ie n c e .
IT . CONCLUSIONS
A s tr o n g c a s e can be made f o r th e c l a s s i f i c a t i o n o f
i n t a n g i b l e s .
1 . To w h a tev er e x t e n t c l a s s i f i c a t i o n adds t o th e t a x
b a se w ould i t ap pear t o be j u s t i f i e d . I n th e ab sen ce o f
c l a s s i f i c a t i o n e x p e r ie n c e c l e a r l y d e m o n stra tes th e m a jo r ity
o f ta x p a y e r s r e p o r t o n ly a f r a c t io n o f t h e i r i n t a n g i b l e s .
A lthou gh th e b u lk o f i n t a n g ib le s c o n tin u e t o go t a x f r e e ,
c l a s s i f i c a t i o n i s h a r d ly to be blam ed.
2 . C l a s s i f i c a t i o n , th ou gh d e f e n s ib le in th e o r y and
p r a c t ic e , d ep en ds f o r i t s s u c c e s s upon e f f e c t i v e a d m in is
t r a t i o n . C l a s s i f i c a t i o n a lo n e w i l l n o t p ut a l l in t a n g ib le
p r o p e r ty on th e a sse ssm e n t r o l l s ; h ow ever, i f w e ll
296
a d m in iste r e d more s u c c e s s h a s fo llo w e d w here in t a n g ib le s
are c l a s s i f i e d .
3 . I n e q u i t i e s o f d o u b le t a x a t io n , a s w e ll as a
p e n a lty on h o n e st r e p o r tin g by ta x p a y e r s , have been red u ced
by c l a s s i f i c a t i o n .
4 . Laek o f u n ifo r m ity in a sse ssm e n t sta n d a rd s and
p r o c e d u r e s te n d s t o d e f e a t th e o b j e c t iv e s o f c l a s s i f i c a t i o n
s in c e th e f i n a l r e s u l t s a re u n c e r ta in .
5 . E x p e r ien ce o f some s t a t e s d em o n str a tes th a t
c l a s s i f i c a t i o n o f in t a n g ib le s can be s u c c e s s f u l in r e d u c in g
e v a s io n .
The c a s e f o r c l a s s i f i c a t i o n o f t a n g ib le p r o p e r ty i s
n o t to o c l e a r .
1 . E v a sio n n eed n o t be a s common w ith t a n g ib le a s
w ith in t a n g ib le p e r s o n a l p r o p e r ty . C l a s s i f i c a t i o n i s urged
a s a m ethod o f r e d u c in g th e e v a s io n w h ieh d o es o c c u r , p ar
t i c u l a r l y w ith h o u se h o ld good s and p e r s o n a l e f f e c t s .
2 . C l a s s i f i c a t i o n and d i f f e r e n t i a t e d t a x trea tm en t
f in d s j u s t i f i c a t i o n in econom ic r e a s o n s . The s t a t e may u se
o
i t s pow ers t o c o n t r o l t h e p r o d u c tio n and u se o f b o th man-
made and n a tu r a l r e s o u r c e s . Many s t a t e s have h ig h ly de
v e lo p e d sy stem s o f c l a s s i f i c a t i o n d e s ig n e d t o e n su r e w is e
u se o f n a tu r a l r e s o u r c e s su ch a s o i l and o r e d e p o s it s and
f o r e s t s .
297
3 . Some s t a t e s have so u g h t t o en cou rage home owner
sh ip th rou gh th e u se o f c l a s s i f i c a t i o n ; h ow ever, r e s u l t s
a re in c o n c lu s iv e .
There a re w ea k n e sse s in a sy stem o f c l a s s i f i c a t i o n .
1 . I t c o n t a in s a l a t e n t d anger o f m a n ip u la tin g r a t e s
and a s s e s s m e n ts in -r e s p o n s e t o econom ic p r e s s u r e gro u p s o r
a d m in is t r a t iv e c o n v e n ie n c e .
2 . U nw ise c l a s s i f i c a t i o n m ig h t w e ll a g g ra v a te th e
i n e q u i t i e s i t so u g h t to rem ove.
3 . The m ethods t o a c c o m p lish c l a s s i f i c a t i o n are to o
c o m p lic a te d f o r th e a v er a g e c i t iz e n - t a x p a y e r t o u n d ersta n d
w e l l . T h is b r e e d s d is c o n t e n t and d is r e s p e c t f o r th e ta x
la w s . T h is a p p ea rs n o t t o be a str o n g argum ent in th o s e
s t a t e s u s in g c l a s s i f i c a t i o n .
CHAPTER V I I I
THE PROBLEM OP PROPERTY TAX EXEMPTION
One o f th e im p o rta n t e f f o r t s t o s tr e n g th e n th e e q u ity
and im prove a d m in is tr a tio n o f th e g e n e r a l p r o p e r ty t a x h a s
b een by g iv in g t a x ex em p tio n t o c e r t a in t y p e s o f p r o p e r ty .
S tro n g r e a s o n s f o r g r a n tin g ex em p tio n a re w e l l e s t a b lis h e d
in ou r s o c i e t y . E conom ic, s o c i a l , p o l i t i c a l and e t h i c a l
j u s t i f i c a t i o n f o r e x te n d in g ex em p tio n s a re r e a d i l y a p p a ren t.
These a re r e f l e c t e d in some s t a t e c o n s t i t u t i o n s w h ich a llo w
ex em p tio n , a lth o u g h th e y may p r o h ib it c l a s s i f i c a t i o n o f
p r o p e r ty f o r t a x p u r p o se s, o r im pose se v e r e r a t e l i m it a
t i o n s . In I l l i n o i s , M ich ig a n , P e n n s y lv a n ia , T en n essee and
W ash in gton , c o u r t in t e r p r e t a t io n s o f th e " u n ifo r m ity
c la u s e s " have p r o h ib ite d c l a s s i f i c a t i o n o f p r o p e r ty .^
In g e n e r a l ex em p tio n from t a x a tio n i s b a sed on pub
l i c p o li c y o f th e s t a t e . H owever, u n le s s th e law a p p lic a b le
g r a n t s o r p r o v id e s ex em p tio n s from t a x a t io n i t i s th e gen
e r a l r u le th a t none e x i s t s , and o n ly th e p r o p e r ty d e s ig n a te d
o r ennum erated in th e law i s exem p t. A part from c o n s t i t u
t i o n a l l i m i t a t i o n s th e power o f th e l e g i s l a t u r e t o exempt
from t a x a t io n i s p le n a r y , and i t s e x e r e is e n eed o n ly be
1 M u r ie l M a g e lsse n , " S upplem enting th e G en eral Prop
e r t y T ax," M u n icip a l F in a n c e . XVII (May, 1 9 4 5 ), 2 - 7 .
£99
r e a so n a b le , and w it h in th e paramount a u th o r it y o f th e
c o n s t i t u t i o n . 2
The problem o f ta x exem p tion i s l a r g e l y one o f th e
in c r e a s in g abuse o f th e p r i v i l e g e . 3 D e s p ite some j u s t i
f i c a t i o n f o r t a x im m unity f o r w e lfa r e and a d m in is tr a tiv e
r e a s o n s , r e c e n t ly many o r g a n iz a tio n s have b een g iv e n
ex em p tio n s w h ich have weak j u s t i f i c a t i o n . Some ta x -ex em p t
e d u c a t io n a l, c h a r i t a b le , r e l i g i o u s , and f r a t e r n a l i n s t i
t u t io n s have e n te r e d v a r io u s com m ercial a c t i v i t i e s . Much
r e c e n t e x p a n sio n o f in d u s t r ia l ex em p tio n h a s b een d i r e c t l y
f o s t e r e d by l e g i s l a t i o n . A lthou gh th e f e d e r a l governm ent
d o es n o t le v y a p r o p e r ty ta x c e r t a in o f th e fo r m e r ly t a x -
exem pt o r g a n iz a tio n s have th e incom e from t a x - f r e e p r o p e r ty
ta x e d under f e d e r a l incom e t a x la w s .
On th e s t a t e l e v e l th e problem o f p r o p e r ty ta x
exem p tion i s a grow ing one b eca u se j u s t i f i c a t i o n f o r
"w orthy” ex em p tio n s i s e a s y t o f in d ; b eca u se on ce e s ta b
li s h e d an exem p tion i s p o l i t i c a l l y im p reg n a b le; and b eca u se
th e f e d e r a l governm ent c o n tin u e s to expand and i t s p r o p e r ty
2 Eugene M cQ u illa n , The la w o f M u n icip a l C orpora
t i o n s ( t h ir d e d i t io n ; C h icago: C a lla g h a n and Company,
1 9 5 0 V, V o l. XVI, p p . 1 6 5 -6 7 .
3 D onald C. M i l l e r , "The Problem o f Tax-Exempt
R e a lty ," P r o c e e d in g s . N a tio n a l Tax A s s o c ia t io n , 1 9 5 1 ,
p . 1 9 3 .
300
i s "beyond th e t a x in g power o f s t a t e and l o c a l g o v ern m en ts.
E xem p tions c r e a t e s e r io u s p rob lem s s in c e t h e y de
c r e a s e th e t a x b ase and th e r e b y n e c e s s i t a t e e i t h e r h ig h e r
t a x e s on th e rem a in in g ta x a b le p r o p e r ty , o r r e s o r t to u se
o f o t h e r t y p e s o f t a x e s w h ich may be a s u n d e s ir a b le a s
p r o p e r ty t a x e s . F urth erm ore, ex em p tio n s open th e door t o
p r e s s u r e b y p o w erfu l g ro u p s who have e q u a lly d e s e r v in g
p r o p e r t ie s . I t i s e x tr e m e ly d i f f i c u l t t o draw th e l i n e
b etw een p r o p e r t ie s w hich a re e n t i t l e d to t a x ex em p tio n and
th o s e w h ich a re n o t . Viewed i n d i v i d u a l l y , ex em p tio n s a re
n o t d i f f i c u l t t o J u s t i f y , w h ereas ex em p tio n a s a p o l i c y , i f
w id e sp r e a d , i s hard t o j u s t i f y .
I . THE THEORY AND PURPOSES OF PROPERTY TAX EXEMPTION
The Theory o f P r o p e r ty Tax E xem ptions
The b a s ic th e o r y b eh ind p r o p e r ty t a x exem p tion i s
t h a t c e r t a in k in d s o f p r o p e r ty have s i g n i f i c a n t s p e c ia l
c h a r a c t e r i s t i c s w hich make i t in th e s o c i a l i n t e r e s t t o
exem pt them from t a x a t io n . A ls o , g r a n tin g o f p r o p e r ty t a x
ex em p tio n s i s due t o some d e s ir e t o im prove th e e q u it y o f
th e p r o p e r ty t a x , w h ich i s b a s i c a l l y a t a x on t h in g s , in
su ch a way a s to make i t conform more c l o s e l y t o a d e s ir e d
sta n d a rd f o r t a x in g p e r s o n s . By m a n ip u la tin g th e p r o p e r ty
t a x exem p tion th e d i s t r i b u t i o n o f th e t a x can be in f lu e n c e d .
301
The im pact o f o th e r t a x e s can be com pensated o r a d ju s te d
f o r by d is c r im in a te u se o f p r o p e r ty t a x e x e m p tio n s. A
number o f r e a so n s can be su g g e s te d f o r tea: ex em p tio n —
eco n o m ic, s o c i a l , e t h i c a l , p o l i t i c a l and a d m in is t r a t iv e .
P r o p e r ty o f e d u c a t io n a l, r e l i g i o u s , and c h a r it a b le organ
i z a t i o n s i s commonly exem pted b eca u se t h e i r a c t i v i t i e s a re
c o n s id e r e d s o c i a l l y good and w o rth y o f en cou ragem en t.
P e r s o n a l p r o p e r ty , and e s p e c i a l l y in t a n g ib le p e r s o n a l prop
e r t y , i s f r e q u e n t ly exem pted b eca u se o f d i f f i c u l t i e s in
e f f e c t i v e l y a d m in is te r in g su ch a t a x . E v a sio n and a v o id
ance a re commonplace in p e r s o n a l p r o p e r ty t a x a t io n .
P u b lic ly -o w n e d p r o p e r ty i s o r d in a r il y exem pt on t h e th e o r y
t h a t t o t a x su ch p r o p e r ty i s s im ila r t o t r a n s f e r r in g fu n d s
from one p o ck et t o a n o th er w ith n o th in g g a in e d .
P u rp o ses o f P ro p er ty Tax Exem ption
A lth ou gh th e r e i s l i t t l e u n ifo r m ity among th e s t a t e s
in t h e i r p r o p e r ty t a x ex em p tio n s a l l s t a t e s a llo w some*form
o f ex em p tio n . S e v e r a l b a s ic p u r p o ses a re so u g h t t o be
se rv ed by g r a n tin g t a x ex em p tio n t o v a r io u s p r o p e r t ie s .
The f o llo w in g a re some o f th e p u r p o se s o f ta x exem p tion :
( 1 ) t o en cou rage s o c i a l l y b e n e f i c i a l a c t i v i t i e s ; ( 2 ) t o
en cou rage p r iv a t e assu m p tio n o f p a r t ic u la r f u n c t io n s w h ich
w ould o th e r w is e be su p p o rted b y th e governm ent; (3 ) t o
prom ote and in f lu e n c e th e l o c a t io n o f in d u s tr y ; (4 ) to
502
a v o id in te r g o v e r n m e n ta l t a x a t io n ; ( 5 ) t o im prove a d m in is
t r a t io n o f th e t;ax; (6 ) to rew ard s e r v i c e s r e n d e r e d , such
a s m i l i t a r y s e r v ic e .
Not a l l ex em p tio n s can he j u s t i f i e d by s o c i a l l y
la u d a b le p u r p o s e s . In some c a s e s th e ex em p tio n may be th e
r e s u l t o f p o l i t i c a l c o n s id e r a t io n s ; in o t h e r s th e exem p tion
may be d e sig n e d t o c o n tin u e bad a d m in is tr a tio n by m aking i t
l e g a l . A lthou gh p r o p e r ty t a x ex e m p tio n , a s a p o l i c y , i s
n e it h e r w h o lly condemned n o r d efen d ed th e cu m u la tiv e e f f e c t
may l i k e l y be b o th f i n a n c i a l l y and e t h i c a l l y u n d e s ir a b le .
I I . THE EXTENT AND G R O W T H OF PROPERTY TAX EXEMPTION
G en eral S ta tem en t
P r o p e r ty ta x ex e m p tio n s have c o n tin u e d t o be s i g n i
f i c a n t th rou gh th e y e a r s . I t h a s a lw a y s b een th e p r a c t ic e
f o r governm ents t o exem pt some form o f p r o p e r ty from ta x a
t i o n . I n c o l o n i a l tim e s ex em p tio n s w ere w id esp rea d s in c e
i t was th e p r a c t ic e t o l i s t o n ly th e p r o p e r ty w hich was to
be ta x e d . M in is t e r s o f th e g o s p e l and t e a e h e r s w ere u s u a l
l y exem p ted , t o g e t h e r w ith many form s o f i n d u s t r i a l p rop
e r t y . As a m a tte r o f f a c t , t a x exem p tion w as an a c c e p te d
p r a c t ic e f o r en co u ra g in g in d u s t r y . 4
4 J en s P . J e n s e n , P r o p e r ty T a x a tio n in th e U n ited
S t a t e s (C h ica g o : U n iv e r s it y o f C hicago P r e s s , 19517%
p . 1 2 5 .
303
As th e g e n e r a l p r o p e r ty t a x e v o lv e d tow ard a u n iform
and u n iv e r s a l ad valorem t a x on p r o p e r ty many ex em p tio n s
w ere rem oved. As we know, h ow ever, th e movement f o r a
u niform g e n e r a l p r o p e r ty t a x ran i t s c o u r se and many b a s ic
m o d if ic a t io n s have b een made t o i t , in c lu d in g th e p r e s e n t
p r e v a le n t p r a c t ic e o f ex e m p tio n .
E x ten t o f P r o p e r ty Tax Exem ption
I t i s d i f f i c u l t to d eterm in e th e e x t e n t o f exemp
t i o n s . T h is i s th e c a s e f o r s e v e r a l r e a s o n s . In th e f i r s t
p la c e , th e r e a re v a r i a t io n s among th e s t a t e s in t h e i r u se
o f th e g e n e r a l p r o p e r ty t a x and th e ex em p tio n s g r a n te d .
S e c o n d ly , q u a n t it a t iv e d a ta a re n o t a v a ila b le w h ich r e v e a l
th e t o t a l amount o f p r o p e r ty exem p ted . T h is i s tr u e f o r
in t a n g ib le p r o p e r ty a s w e ll a s f o r t a n g ib le p e r s o n a l prop
e r t y and r e a l e s t a t e . In th e t h ir d p la c e , th e r e may be an
in d e te r m in a te amount o f v a r io u s t y p e s o f p r o p e r ty w h ich a re
exem pted u n in t e n t io n a ll y , o r p erh ap s i l l e g a l l y , f o u r t h ly ,
exem pted p r o p e r ty may n ot be v a lu e d a t a l l , o r i f s o ,
v a lu e d a t a lo w er r a t i o o f a s s e s s e d t o tr u e v a lu e th a n
s im ila r n on-exem p t p r o p e r ty . I n o t h e r w o rd s, when exem pt
p r o p e r ty i s a s s e s s e d i t may be done w ith much l e s s c a r e
th a n t a x a b le p r o p e r ty .
J en se n c a lc u la t e d th e p e r c e n ta g e o f r e a l p r o p e r ty
exem pt in th e U n ite d S t a t e s t o be 9 .7 p er c e n t in 1890 and
304
1 1 .6 p er c e n t in 1 9 2 2 .5 In th e e a r ly 1 9 3 0 * s th e ex em p tio n s
from p r o p e r ty t a x e s w ere e s tim a te d t o be a p p r o x im a te ly 20
p e r c e n t o f th e t o t a l v a lu e o f r e a l e s t a t e in th e U n ite d
6
S t a t e s . In 1938 th e r a t io o f exem pt t o t a x a b le r e a l prop
e r t y was e s tim a te d t o be o v e r 18 p er c e n t f o r th e e n t ir e
n
c o u n tr y . In 1945 r e a l e s t a t e ex em p tio n s amount to about
i
o n e - s ix t h , o r 1 6 .6 p e r c e n t , o f th e r e a l e s t a t e v a lu e s o f
th e c o u n tr y , w h ile p o st-w a r e s t im a t e s run a s h ig h a s 20 p er
c e n t . 8
The r a t i o o f exem pt to t a x a b le r e a l p r o p e r ty may run
h ig h e r in g iv e n s t a t e s o r c i t i e s th a n th e n a t io n a l a v e r a g e .
In s t a t e s o r c i t i e s , f o r ex a m p le, w here much p r o p e r ty i s
p u b lic ly owned t h e r a t i o w ould l i k e l y be h ig h . In some
s t a t e c a p i t a l c i t i e s th e exem pt p r o p e r ty may com p rise a s
much a s 30 p e r c e n t o f th e t o t a l p r o p e r ty .
The t o t a l amount o f t a x - f r e e p r o p e r ty in B o sto n , f o r
5 I b i d . , p . 1 2 6 .
6 W illia m H. A nderson, T a x a tio n and th e Am erican
Beonoiay (Hew York: P r e n t ic e - H a ll, I n c . , 1 9 5 1 }, pT 158;
a l s o , K. P . Sanow, " P ro p erty Tax E x em p tio n s," S ta te G overn
m ent . XLX ( A p r il, 1 9 4 6 ), 1 0 8 .
7 N a tio n a l I n d u s t r i a l C o n feren ce B oard, E n te r p r is e
and S o c ia l P r o g r e s s (New York: N a tio n a l I n d u s t r ia l C o n fer-
en ce B oard , I n c . , 1 9 3 8 ), p . 6 0 .
8 W illia m «T . S h u ltz and C. L o w ell H a r r is s , Am erican
P u b lic F in an ce ( f i f t h e d i t i o n ; New York: P r e n t ic e - H a ll,
I n c . , 1 9 4 9 ), p . 3 2 8 .
_ 305
ex a m p le, h a s in c r e a s e d h y a p p r o x im a te ly 50 p e r c e n t from
1930 t o 1 9 5 1 . In term s o f a r e a , ab ou t t w o - f i f t h s o f a l l
la n d in B o sto n , e x c lu s iv e o f s t r e e t s , i s ta x f r e e . In
term s o f v a lu a t io n , a la r g e r and la r g e r p r o p o r tio n o f th e
t o t a l r e a l e s t a t e in t h a t c i t y i s b e in g exem p ted . In 1 9 3 0 ,
1 9 .3 p e r c e n t o f th e w h o le was t a x f r e e ; i n 1 9 5 1 , 3 1 .3 p e r
Q
c e n t was ta x -e x e m p t. B o sto n h a s a h ig h e r p r o p o r tio n o f
t a x - f r e e r e a l p r o p e r ty th a n o th e r p r in c ip a l c i t i e s , e x c e p t
W ash in gton , D .C .^ °
I n C a lif o r n ia p r iv a t e ta x -e x em p t p r o p e r ty h a s i n
c r e a s e d g r e a t l y in r e c e n t y e a r s . Under c h u r ch , c o l l e g e ,
w e lf a r e and v e te r a n s exem p tion p r o v is io n s su ch p r o p e r ty
in c r e a s e d by o v e r 75 m i l l i o n d o l l a r s , o r by 15 p er c e n t
from 1949 to 1 9 5 0 ,^ and by o v er 60 m i l l i o n d o lla r s ( 1 0 .1
p e r c e n t) from 1950 t o 1 9 5 1 . I n C a lif o r n ia th e v a lu e o f
ta x -e x em p t p r o p e r ty more th a n d ou b led from 1941 to 1 9 5 1 .
9 B o sto n M u n icip a l R esea rch B ureau, "What i s Happen
in g t o B o s to n ’ s Tax Base?" B u l l e t i n , No. 1 6 7 , December 2 7 ,
1 9 5 1 .
Idem .
11 C a lif o r n ia T axp ayers A s s o c ia t io n , "Tax E xem ption
P r o p e r ty 1 9 4 9 -1 9 5 0 T o ta l Up 15 P er C en t," The Tax D i g e s t .
2X V III (F eb ru a ry , 1 9 5 0 ), 4 3 .
1 2 "T axable and Tax Exempt P r o p e r ty V a lu a tio n s f o r
1 9 5 0 -1 9 5 1 R ep o rted ," The Tax D i g e s t . D ecem ber, 1 9 5 0 ,
p . 4 1 2 .
306
The r a t i o o f ta x -e x em p t t o t o t a l p r o p e r ty in 1 9 4 1 -4 2 was
3 p e r c e n t; in 1 9 5 0 -5 1 i t w as 4 .8 p er c e n t . ' 1 '3 From 1944 to
1950 th e ta x -ex em p t p r o p e r ty in c r e a s e d from $ 2 0 5 ,7 8 8 ,4 7 4 to
$ 6 5 4 ,1 3 7 ,7 5 7 — o r by 2 1 8 .9 p e r c e n t f o r th e e n t ir e s t a t e .
I n one c o u n ty , San F r a n c is c o , th e in c r e a s e in ta x -e x em p t
p r o p e r ty from 1944 t o 1950 w as 5 8 1 .8 p er c e n t . T ab le X II
shows th e a s s e s s e d v a lu e o f ex em p tio n s o f c e r t a in o f th e
l a r g e r , more h e a v ily p o p u la te d and w e a lt h ie r c o u n t ie s o f
th e s t a t e , t o g e t h e r w ith s ta te w id e t o t a l s .
Large a s t h e s e f i g u r e s a re ($ 6 5 4 ,1 3 7 ,7 5 7 ) o f prop
e r t y exem pt from t a x a t io n t h e y a re r e l a t i v e l y sm a ll when
compared t o th e t o t a l p r o p e r ty ($ 1 3 ,6 1 8 ,9 1 4 ,5 3 7 ) s u b je c t to
l o c a l t a x r a t e s , o r 4 .8 p er c e n t .
In 1 9 4 6 , a c c o r d in g t o one s u r v e y , p r iv a t e exem pt
p r o p e r ty in C a lif o r n ia amounted to ab out o n e -fo u r th o f th e
t o t a l t a x exem pt p r o p e r ty — th e rem a in in g t h r e e - f o u r t h s was
p u b lic p r o p e r ty . I n t h e same y e a r th e t o t a l p r o p e r ty o f
b o th p r iv a t e and g o v ern m en ta l ow n ersh ip exem pt from ta x a
t i o n had an e s tim a te d v a lu e o f $ 1 ,9 1 2 ,0 0 0 ,0 0 0 .14 T h is
13
~ Thomas A. A lex a n d er, " R ea p p ra isa l o f P r o p e r ty Tax
E xem ption: From a C ase S tu d y o f th e S ta te o f C a l i f o r n i a ,”
(u n p u b lish ed M a s te r ’ s t h e s i s , U n iv e r s it y o f S ou th ern
C a lif o r n ia , L os A n g e le s , J u n e, 1 9 5 0 ), p . 8 5 .
C a lif o r n ia S ta t e Chamber o f Commerce, S t a t e - L o ca l
F i s c a l R e la t io n s in C a l i f o r n i a . Summary R ep o rt, Ja n u a ry ,
1 9 4 7 , p . 2 9 .
T A B L E XII
A S S E S S E D V A L U E O F T O T A L E X E M P T IO N S F O R S E L E C T E D C A L IF O R N IA C O U N T IE S
, U N D E R C H U R C H , C O L L E G E , W E L F A R E , V E T E R A N S E X E M P T IO N S
County 1944-45 1946-47 1947-48 1948-49 1949-50 1950-51
Alameda $12,166,650 $13,888,155 $28,112,565 $33,395,240 $39,110,155 $41,374,965
Fresno 3,631,732 5,694,960 7,987,56© 9,919,705 11,312,850 12,354,945
Los Angeles 86,665,795 170,787,455 180,770,915 209,771,910 244,227,260 290,785,755
Orange 13,199,010 14,961,560 20,390,260 27,069,630 29,762,380 14,080,880
San Diego 10,546,920 18,329,950 23,169,720 28,571,790 32,968,620 37,616,020
San Francisco 7,637,645 16,967,838 34,899,392 39,402,920 42,142,642 45,421,420
Statewide to ta ls 205,788,474 332,499,334 424,413,175 517,083,148 593,891,040 654,137,757
Source: The Tax D igest, C alifornia Taxpayers A ssociation, February, 1950, p. 44.
307
303
f ig u r e amounted t o ab out 18 p e r c e n t o f th e t o t a l e s tim a te d
15
a s s e s s a b le v a lu e in th e s t a t e .
A lthou gh no more r e c e n t f i g u r e s a re a v a ila b le on th e
t o t a l a s s e s s a b le v a lu e f o r C a lif o r n ia , th e r a t io o f exem pt
t o t a x a b le p r o p e r ty h a s c o n tin u e d to in c r e a s e . Tax exempt
p r o p e r ty d o es n o t in c lu d e t h a t owned b y f e d e r a l , s t a t e , and
l o c a l govern m en ts s in c e i t i s n o t a s s e s s e d . D uring th e
s i x y ea r p e r io d 1 9 4 4 -1 9 5 0 no c o u n ty showed a d e c r e a se in
p r i v a t e l y owned ta x -e x em p t p r o p e r ty w h ile many c o u n t ie s
16
showed la r g e in c r e a s e s .
The v a lu e o f t a x exem pt p r o p e r ty in New York s t a t e
f o r t h e y e a r 1 9 4 7 , w as ab ou t 30 p e r c e n t o f th e t o t a l
17
a s s e s s a b le v a lu e , in c r e a s in g from 25 p er c e n t in 1 9 3 9 .
The a s s e s s e d v a lu a t io n o f ta x a b le p r o p e r ty i n th e s t a t e f o r
1947 was # 2 6 ,5 1 9 ,2 7 2 ,0 4 9 and th e a g g r e g a te o f exem pt prop
e r t y w as a s s e s s e d a t a v a lu e o f $ 7 ,8 8 6 ,7 9 6 ,6 4 9 .^ ® P u b lic ly -
owned am ounted t o 80 p er c e n t o f th e ta x -e x em p t p r o p e r ty
w h ile th e rem a in in g 2 0 p er c e n t was p r i v a t e l y owned.
15 idem .
The Tax D ig e s t . D ecem ber, 1 9 5 0 , p . 4 1 2 .
1 7 M i l l e r , o £ . c i t . . p . 1 9 6 .
1 8 S ta te o f New York, Annual R eport o f th e S ta te Tax
Com m ission (New York: P u b lis h e r s P r in t in g Company, 1 9 4 8 ),
p p . 1 1 9 , 1 5 5 .
309
P r o p e r ty o f th e U n ited S t a t e s Government accou n ted f o r 8 .6 6
19
p er c e n t o f th e t o t a l .
In O regon, w here ta x -ex em p t p r o p e r ty i s e v a lu a te d by
co u n ty a s s e s s o r s , th e t o t a l o f such p r o p e r ty in 1950 w as
$ 6 4 8 ,0 8 0 ,0 0 6 w h ile th e t o t a l ta x a b le p r o p e r ty was a s s e s s e d
a t $ 1 ,6 0 7 ,8 7 6 ,2 6 2 . Thus in th a t y ea r 40 p e r c e n t o f th e
a s s e s s a b le p r o p erty o f th e s t a t e w as exem pt from t a x a t io n .
The U n ited S t a t e s governm ent owned 53 p er c e n t o f th e
20
exempt p r o p e r ty in Oregon in 1950.
The Bureau o f Land Management o f th e I n t e r i o r D ep art
m ent c o n t r o ls 6 8 p er c e n t o f th e la n d o f N evada, 48 p er c e n t
i n U tah, 28 p er c e n t in Wyoming. In g e n e r a l th e departm ent
h a s c o n t r o l o v e r 35 p er c e n t o f th e a re a o f th e e le v e n f a r -
w e ste r n s t a t e s . 2^
For th e n a tio n a s a w h o le, a c c o r d in g to one a u th o r i
t y , ’’th e p a in f u l f a c t i s t h a t we do n e t know how much r e a l
e s t a t e i s exem pt o r how much th e r e a l e s t a t e exem pted i s
w o r t h . I n a lm o st tw o -th ir d s o f th e s t a t e s exempt r e a l
19 I b i d . , p . 1 1 7 .
20 Oregon S ta te Tax C om m ission, T w en tieth B ie n n ia l
R e p o r t. Jan u ary. 1 9 5 1 , pp. 7 8 , 9 4 .
21 F ortune M agazin e. XLV (F eb ru ary, 1 9 5 2 ), 1 1 1 .
22 M abel L. W alker, E x e c u tiv e D ir e c t o r , Tax I n s t i
t u t e , I n c . , "R eal E s ta te Tax E xem ptions in th e F u tu r e ,”
(u n p u b lish ed P aper p r e se n te d a t M u n icip a l C o n feren ce ,
A lb any, Hew York, November, 1 9 4 5 ), p . 1 .
310
e s t a t e i s n o t a s s e s s e d . The v a lu e o f exem pt r e a l e s t a t e
can o n ly " b e e s tim a t e d .
I I I . KINDS OF PROPERTY TAX EXEMPTION
G en eral S ta tem en t
The p r in c ip a l K inds o f p r o p e r ty t a x ex em p tio n have
been : ( 1 ) p u b lic ly owned p r o p e r ty by n a t io n a l , s t a t e and
l o c a l g o v ern m en ts; (S ) i n d u s t r i a l p r o p e r ty ; (3 ) h o m estea d s;
(4 ) v e t e r a n s ; (5) a g r ic u lt u r a l ; and {6 ) i n s t i t u t i o n a l . In
a d d it io n t o t h e s e g e n e r a l c l a s s e s th e r e i s an in d e te r m in a te
amount o f p e r s o n a l p r o p e r ty , b o th t a n g ib le and in t a n g i b l e ,
exem pted from t a x a t i o n .
P r o p er ty t a x ex em p tio n i s a more im m ediate problem
on th e s t a t e and e s p e c i a l l y th e l o c a l l e v e l s b eca u se o f th e
h ea v y r e lia n c e on p r o p e r ty t a x r e v e n u e s . l u s t th e same i t
h a s r e s u lt e d i n many problem s f o r th e f e d e r a l governm ent in
c o n n e c tio n w ith s a le o f p r o p e r ty b y com p anies t o ta x -ex em p t
i n s t i t u t i o n s , such a s s c h o o ls , who l e a s e th e p r o p e r ty back
t o t h e o r i g i n a l owner and th e r e b y se e k t o make incom e from
th e p r o p e r ty t a x - f r e e f o r f e d e r a l incom e t a x e s . Some
e f f o r t h a s been made to d e a l w ith t h i s s o r t o f a c t i v i t y .
The e x t e n t and v a r i e t y o f ex e m p tio n s a re e v id e n t from
T ab le X I I I .
311
TABLE X I I I
AGRICULTURAL AND INDUSTRIAL EXEMPTIONS - 1944
, < ' < 5 ■ ’i
Number o f
Type o f E xem ption S t a t e s A llo w in g
A g r ic u ltu r a l
' ’ 1 • ‘
a . S p e c if ie d p r o d u c ts 16
b . A g r ic u ltu r e A s s o c ia t io n s 34
e . Farm a n im a ls 13
d. Farm im provem ent s 7
e . F o r e s ts and o rc h a r d s 15
f . Growing c r o p s 7
I n s t i t u t i o n a l
a . E d u c a tio n a l P r o p e r ty A ll
b . C h a r ita b le I n s t i t u t i o n s A ll
c . R e lig io u s I n s t i t u t i o n s A ll
d» C e m e te r ie s A ll
I n d u s t r ia l
a . S p e c if ie d p r o d u e ts 5
b . S p e c if ie d p r o p e r ty under v a r y in g
c o n d it io n s 17
e . M ech an ics t o o l s 13
I n d iv id u a l
a . H om esteads 13
b . V e te r a n s 31
c . H o u seh o ld ers X
d . P e r s o n a l p r o p e r ty X
x n o t a v a ila b le
M is c e lla n e o u s
a . M a ch in ery , Feed and Seed
17
b . V e s s e ls 7
c . M inin g P r o p e r ty 5
S o u rce: A dapted from K. P . Sanow, " P ro p erty Tax
E xem p tion ." S ta t e G overnm ent. XIX ( A p r il, 1 9 4 6 ), 108*
312
E xem ption o f P u b lic P r o p e r ty
I n t h ir t y - t w o o f th e f o r t y - e i g h t s t a t e s th e r e i s no
e f f o r t to a s s e s s exem pt r e a l e s t a t e . 2 3 I t i s e s tim a te d
th a t r e a l e s t a t e ex em p tio n s amount t o $25 b i l l i o n f o r th e
e n t ir e c o u n tr y , o r f o r o n e - s ix t h o f th e v a lu e o f t h i s prop
e r t y , o r f o r c o n s id e r a b ly more th a n o n e -fo u r th o f th e r e a l
* ' 24
e s t a t e a c r e a g e .
P u b lic t a x exem pt p r o p e r ty h a s in c r e a s e d g r e a t l y
s in c e 1940 w ith F e d e r a l a c q u is it io n o f p r o p e r ty f o r m i l i
t a r y r e s e r v a t io n s and f o r war i n d u s t r i a l and d e fe n s e p u r
p o s e s . I n some a r e a s t h i s h a s r e s u lt e d in la r g e d e c r e a s e s
in l o c a l t a x b a s e s . For ex a m p le, i t i s e s tim a te d t h a t
H oboken, New J e r s e y , l o s t more th a n # 1 2 ,0 0 0 ,0 0 0 in rev en u e
from 1923 t o 1943 b eca u se o f a c q u i s i t io n by th e F e d e r a l
governm ent o f th e c i t y ’ s p ie r te r m in u s. 2 5 The a c q u is it io n
removed 14 p er e e n t o f th e c i t y ’ s a s s e s s e d p r o p e r ty from th e
ta x r o l l s .
In B o sto n , f o r ex a m p le, in term s o f v a lu a t i o n s , a
la r g e r and la r g e r p r o p o r tio n o f th e t o t a l r e a l e s t a t e i n th e
c i t y i s b e in g exem p ted . The p e r c e n ta g e o f t o t a l l i s t e d a s
23 Idem .
2^ Idem .
25 Sanow, oj>. c i t . . p . 1 0 9 .
313
exem pt h a s in c r e a s e d from 1 9 .3 in 1930 to 3 1 .3 in 1 9 5 1 .26
T ab le XIV shows th e amount o f ta x -ex em p t r e a l e s t a t e in
B o sto n in 1930 and 1 9 5 1 , t o g e t h e r w ith th e amount and p e r
c e n ta g e in c r e a s e o f 1951 o v e r 1 930.
The b ig g e s t owner o f ta x -ex em p t r e a l e s t a t e in
B o sto n i s th e c i t y i t s e l f , w h ich h o ld s 40 p er c e n t o f such
p r o p e r ty . The F e d e r a l Government I s th e secon d l a r g e s t
owner o f p u b lic p r o p e r ty , w ith about 19 p e r c e n t o f t a x -
exem pt r e a l e s t a t e . The S ta t e owns 17 p er c e n t o f th e t a x -
f r e e r e a l e s t a t e . The rem a in d er o f ta x -ex em p t r e a l e s t a t e
i s owned by v a r io u s e d u c a t io n a l, r e l i g i o u s , and c h a r it a b le
o r g a n iz a t io n s .
In te r g o v e r n m e n ta l t a x im m unity i s a w id e ly r e c o g
n iz e d p rob lem , a lth o u g h t h e r e i s la c k o f agreem ent a s t o an
o v e r - a l l s o l u t i o n . I t may b e argu ed t h a t much f e d e r a l l y -
owned r e a l e s t a t e sh o u ld be exem pted b eca u se o f th e b en e
f i t s d e r iv e d l o c a l l y . F or in s t a n c e , such p r o p e r ty a s a
p o s t o f f i c e w h ich s e r v e s p r im a r ily l o c a l n eed s c o u ld be
exem pted j u s t i f i a b l y , w h ile some f e d e r a l p r o p e r t ie s may
b r in g u n ju s t b u rd en s to p a r t ic u la r co m m u n ities. A l o c a l
governm ent may have i t s ta x b a se re d u ce d , o r have added
e x p e n se s p la c e d on i t b eca u se o f n a t io n a l l y owned
26 "What i s H appening t o B o s to n ’ s Tax B a se? ” o p .
c i t . , p . 2 .
T A B L E XIV
T A X -E X E M P T H E A L E S T A T E W B O S T O N
1930 1951
Increase
1951 over 1930
Amount ($}
C ity of Boston #191,675,900 #263,830,200 # 72,154,300 37.6
U.S.A. 69,378,100 123,505,600 54,127,500 78.0
C o m m , of M assachusetts 51,234,500 111,922,800 60,688,300 118.5
L itera ry In stitu tio n s 41,237,200 56,775,100 15,537,900 37.7
Churches 34,427,600 36,814,500 2,386,900 6.9
Benevolent In stitu tio n s 33,155,200 33,480,400 325,200 1.0
A ll Others 16,238,000 27,605,200 11,367,200 70.0
T otal #437,346,500 #653,933,800 #216,587,300
Source: Boston Municipal Research Bureau, B u lletin No. 167, December 27, 1951.
w
H
315 1
!
p r o p e r t ie s n ea rb y such a s a p r is o n , o r p a rk , o r r e c la m a tio n
p r o j e c t . The f e d e r a l governm ent i s c o g n iz a n t o f such p ro b -j
lem s and h a s done som eth in g tow ard t h e i r r e l i e f through i n !
l i e u paym ents t o l o c a l and s t a t e g o v ern m en ts. !
; Somewhat th e same p rob lem s a r i s e a t th e s t a t e and
I '
j l o c a l l e v e l s o f governm en t. V ery o f t e n b e n e f i t s o f ta x
exem pt p r o p e r ty ex ten d beyond a l o c a l a r e a . Where p r o p e r ty
r e n d e r s b e n e f i t s beyond t h e l o c a l a r e a , t a x in g th e p r o p e r ty i
w ould be more e q u ita b le th a n ex em p tio n and su b seq u en t su b - j
‘ s i d i z a t i o n o f th e l o c a l governm en t.
I
Exem ption o f p r o p r ie ta r y g o v ern m en ta l a c t i v i t i e s and
p r o p e r t ie s i s f r e q u e n t ly c r i t i c i z e d , w here th e y com pete
w ith ta x p a y in g p r iv a t e e n t e r p r i s e s . The e x i s t e n c e o f ,
p r o p r ie ta r y go v ern m en ta l a g e n c ie s f o r " y a r d stic k " p u r p o ses
l o s e s much o f i t s v a l i d i t y i f g iv e n t a x im m unity. T h is i
i i
s o r t o f arrangem ent in v o lv e s th e d a n g ers o f a narrow ed ta x j
b a se f o r l o c a l govern m en t, a s w e l l a s an " u n n eu tral" t a x
sy stem .
C o n c lu sio n s on Exempted P u b lic P r o p e r ty
! There i s g r e a t n eed f o r more s p e c i f i c d a ta on th e
|e x t e n t and v a lu e o f p u b lic ly -o w n e d ta x -e x em p t p r o p e r ty .
A p p ro x im a tely o n e - h a lf o f a l l exem pt p r o p e r ty i s owned b y
s t a t e and l o c a l g o v ern m en ts, and t h i s l a r g e s t b lo c k o f
316
exem pt p r o p e r ty w i l l p ro b a b ly remain, exem p t. s7 As g o v ern
m en ts c o n tin u e t o grow and th e p u b lic econom y p e r fo r c e
ex p a n d s, p rob lem s o f ex em p tio n becom e more a c u t e . W herever
th e f e d e r a l governm ent w i l l a llo w i t , s t a t e s w i l l t a x su ch
p r o p e r ty . A ls o , in l i e u paym ents by th e f e d e r a l governm ent
w i l l c o n tin u e .
IY . INDUSTRIAL EXEMPTION
G en eral S ta tem en t
The p o l i c y o f g r a n tin g ta x ex em p tio n to i n d u s t r i a l
p r o p e r ty h a s grown i n c r e a s in g ly im p o rta n t in r e c e n t y e a r s .
Many s t a t e s , e s p e c i a l l y th o s e i n th e s o u th , h a v e b een v e r y
a c t iv e in f a v o r in g i n d u s t r i a l d evelopm en t th ro u g h t a x
e x e m p tio n s . A g r e a t many s t a t e s e x te n d some l e g a l p r e
f e r e n t i a l t a x tr e a tm e n t t o i n d u s t r i a l fir m s ; o t h e r s a llo w
e x t r a - l e g a l f a v o r s , su ch a s u n d e r -a sse ssm e n t o f p r o p e r ty ,
a lth o u g h th e e x t e n t o f th e l a t t e r p r a c t ic e i s u n c e r ta in .
I n some s t a t e s th e fa v o r may be o n ly tem p orary and t e r
m in a te when a fir m becom es e s t a b l i s h e d , o r i t may end a f t e r
a g iv e n number o f y e a r s ; w h ile in o th e r s th e arrangem ent
may be p ro v id ed f o r in a c o r p o r a tio n ’ s c h a r t e r .
C o n s t it u t io n s , s t a t u t e s and m u n ic ip a l c h a r t e r s
27 W a lk e r, o £ . c i t . , p . 2.
317
som etim es exem pt m a n u fa ctu rin g e s ta b lis h m e n ts from m uni
c i p a l t a x a t io n f o r c e r t a in p e r io d s o f tim e o r a u th o r iz e
m u n i c i p a l i t i e s to e n t e r in t o c o n t r a c t s f o r th e ex em p tio n o f
new in d u s t r ie s from t a x a t i o n . The c o n s t i t u t i o n a l i t y o f
such p r o v is io n s g e n e r a lly i s s u s t a in e d . 2 8
The m ajor r o l e o f th e p r o p e r ty t a x in t h e f i s c a l
s tr u c tu r e o f l o c a l u n it s o f govern m en ts r e q u ir e s t h a t l o c a l
p u b lic o f f i c i a l s , in th e i n t e r e s t o f m a in ta in in g and ex
p an d in g th e r e v e n u e s from t h i s s o u r c e , e a r e f u l l y exam ine
th e e f f e c t s w h ich ch a n g es in th e econom ic d evelopm en t o f
th e com m unity, t h e i r own a d m in is t r a t iv e a c t i o n s , and th e
en a ctm en ts o f l o c a l l e g i s l a t i v e b o d ie s a re l i k e l y t o have
w ith r e s p e c t t o th e b a se and r a t e o f t h i s t a x .
I n d u s t r ia l e x e m p tio n s , a s an im p o rta n t m o d if ic a t io n
to th e g e n e r a l p r o p e r ty t a x , w i l l be c o n s id e r e d from th e
f o llo w in g v ie w p o in ts : ( 1 ) th e th e o r y in v o lv e d ; ( 2 ) th e
e x t e n t and v a r i a t io n s in t h e i r u s e ; (3 ) econom ic im p lic a
t io n s ; and (4 ) r e s u l t s and e v a lu a t io n o f th e p o l i c y .
The Theory o f I n d u s t r ia l E xem ptions
. I n d u s t r ia l ex e m p tio n s a re b ased on th e im p ortan ce o f
p r o p e r ty t a x e s in in f lu e n c in g th e l o c a t io n o f i n d u s t r i a l
p r o p e r ty . In t h e v ie w o f i n d u s t r i a l m an agers, o r
28 M c Q u illa n , oj). c i t . . p p . .1 9 5 -9 6 .
318
e n tr e p r e n e u r s , th e t a x r a te i s an im p o rta n t c o n s id e r a tio n
29
in such d e c i s i o n s , a lth o u g h o t h e r s , such a s a v a i l a b i l i t y
o f la b o r and wage r a t e s , may be more i n f l u e n t i a l . 30
I n many in s t a n c e s d if f e r e n c e s in th e ta x r a t e s
a p p lie d t o th e a s s e s s e d v a lu a t io n o f ta x a b le p r o p e r ty have
m eant s i g n i f i c a n t d i f f e r e n c e s i n p r o p e r ty t a x b urdens a s
b etw een g iv e n a r e a s . In 1 9 3 5 -3 6 th e t o t a l ta x r a t e a p p lie d
t o t a x a b le p r o p e r ty w it h in th e c i t y o f S acram en to,
C a lif o r n ia , amounted t o # 5 .1 9 p e r #100 a s s e s s e d v a lu a t io n ,
w h ile th e t a x r a te in an a d ja c e n t a re a o u t s id e th e c i t y w as
o n ly # 2 .1 1 .31 In 1 9 4 6 -4 7 , th e d if f e r e n c e w as even g r e a t e r ,
ra n g in g from # 5 .9 0 w it h in th e c i t y , t o # 2 .6 9 in th e same
o u t s id e a r e a s . C le a r ly t h i s # 3 .2 1 p er #100 a s s e s s e d v a lu a
t io n w ould be an im p o rta n t c o n s id e r a t io n . On an a s s e s s e d
v a lu a t io n o f # 1 0 0 ,0 0 0 ta x a b le p r o p e r ty i t w ould be more
29 W. B. S p r ie g e l and R. H. L ansburgh, I n d u s t r ia l
Management (New York: John W ile y and S o n s, I n c . , 1 9 4 7 ),
p . 4 8 .
30 Raymond F. f / a l l a c e , "The Econom ic Background and
M a n a g eria l D e c is io n s in th e L o c a tio n o f I n d u s t r ia l P la n ts
i n M i s s i s s i p p i Under th e B a la n ce A g r ic u ltu r e w ith I n d u s tr y
Program ," (u n p u b lish e d D o cto r* s d i s s e r t a t i o n , N o rth w estern
U n iv e r s it y , E v a n sto n , I l l i n o i s , 1 9 5 0 ), p . 2 7 0 .
3 ^ * R ep ort o f th e S en a te I n te r im C om m ittee on S ta te
and L o c a l T a x a tio n . C a lif o r n ia S ta te S e n a te , P a r t T h ree,
" A ggregate P r o p e r ty Tax R a te s and t h e i r I m p lic a t io n s w ith
R esp ect t o B u s in e s s L o c a tio n s and D evelopm ent in
C a lif o r n ia i" C a lif o r n ia L e g is la t u r e , F i f t y - n i n t h s e s s i o n ,
J u n e, 1 9 4 9 , p . 9 .
319
th a n # 3 ,0 0 0 p er annum. T h is b e in g th e c a s e , s t a t e s and
c i t i e s com pete f o r th e e s ta b lis h m e n t o f i n d u s t r i a l fir m s by
o f f e r i n g t a x ex em p tio n s a s an in d u cem en t.
I n t e r - s t a t e , o r i n t e r - c i t y , c o m p e titio n o f t h i s s o r t
i s n o t w ith o u t fo u n d a tio n . C i t i e s o r s t a t e s w hich su c c e e d
in f a v o r a b ly in f lu e n c in g th e l o c a t io n o f new in d u s t r i e s , o r
r e t a in in g e s t a b lis h e d o n e s , lo o k forw ard t o econom ic and
o th e r b e n e f i t s r e s u l t i n g from i n d u s t r i a l f ir m s . The ineom e
and em ploym ent o f a com m unity may be d i r e c t l y a f f e c t e d .
The p o l i c y o f I n d u s t r ia l ex em p tio n may en cou rage d i v e r s i
f i c a t i o n and th e r e b y red u ce t h e a r e a ’ s v u l n e r a b i l i t y to
c o n t r a c t io n o f a p a r t ic u la r a c t i v i t y . M i s s i s s i p p i ’ s t a x
ex em p tio n s f o r new in d u s t r y under i t s "B alance A g r ic u ltu r e
w ith In d u str y " program i s an exam ple o f t h i s r e a s o n in g .
M i s s i s s i p p i w i l l p r o v id e t a x - f r e e p la n t s i t e s and b u ild in g s
f o r i n d u s t r ie s under i t s "BAWI" p la n . T h is p la n a u th o r iz e s
p o l i t i c a l s u b - d iv is io n s t o i s s u e bonds t o p u rch ase s i t e s
and c o n s tr u c t b u ild in g s f o r d e s ir a b le fir m s s e e k in g new
lo c a tio n s.® * *
The im p ortan ce o f th e th e o r y w ith reg a rd t o in c r e a s
in g and s t a b i l i z i n g em ploym ent i s s i g n i f i c a n t in th e
F ortu n e M a g a zin e. XLII (D ecem ber, 1 9 5 0 ), 1 8 9 .
(A d v er tisem en t by M i s s is s ip p i A g r ic u ltu r a l and I n d u s t r ia l
B oard .)
320
e f f o r t s o f s t a t e s t o a t t r a c t new i n d u s t r i e s . Both
T e n n e sse e , L o u is ia n a , and I l l i n o i s in th e 1951 e f f o r t s t o
a t t r a c t new in d u s t r ie s em p h asize th e p o in t t h a t t h e i r pur
p o se i s to prom ote em ploym ent, t o a id in r e h a b i l i t a t i n g
v e t e r a n s , and t o red u ce th e e v i l s a tte n d in g unemployment.®®
F urth erm ore, th e th e o r y o f in d u s t r i a l t a x exem p tion
c o n te m p la te s h ig h e r t a x a b le p r o p e r ty v a lu e s in su rro u n d in g
a r e a s , w ith in c r e a s e d l e v e l s o f em ploym ent and incom e. A
la r g e r t a x b a s e , t h e r e f o r e , w ould n o t r e q u ir e h ig h e r r a t e s ,
and in l a t e r y e a r s may a llo w red u ced r a t e s a s new in d u s
t r i e s become e s t a b lis h e d and no lo n g e r n eed th e p r o t e c t io n
o r b e n e f it o f ta x ex em p tio n .
Econom ic I m p lic a t io n s o f I n d u s t r ia l E xem ptions
Those who fa v o r i n d u s t r i a l ex e m p tio n s a s a p o l ic y
w ould c o n s id e r th e fa v o r a b le im p lic a t io n s o u tw eig h th e un
fa v o r a b le o n e s . A lth ou gh th e r e a re many d e s ir a b le r e s u l t s
e x p e c te d t o flo w from th e p o l i c y , th e r e a re im p o rta n t un
fa v o r a b le p o i n t s . Econom ic im p lic a t io n s a re em p h asized
h e r e , y e t th e r e may be e q u a lly s i g n i f i c a n t im p lic a t io n s ,
b o th fa v o r a b le and u n fa v o r a b le , w h ich a re n o t b a s i c a l l y
eco n o m ic.
F a v o ra b le econom ic im p l ic a t io n s . — Among th e
33 M i l l e r , 0£ . c i t . , p . 1 9 3 .
321
e x p e c te d d e s ir a b le ou tcom es o f a p o l i c y o f g r a n tin g i n
d u s t r i a l ex em p tio n s a r e th e f o llo w in g : (1 ) in c r e a s e d l e v e l s
o f em ploym ent and incom e; (2 ) d i v e r s i f i c a t i o n o f p r o d u c tio n
and more s t a b le em ploym ent l e v e l s ; (3 ) en la rg em en t o f
m ark ets f o r e x i s t i n g fir m s ; (4) r e d u c tio n o f u t i l i t y
s e r v ic e r a t e s due t o la r g e r volum e o f o u tp u t and lo w e r u n it
c o s t s ; (5 ) fu tu r e in c r e a s e d p r o p e r ty t a x b a se w ith red u ced
r a t e s ; (6 ) s tr e n g th e n in g o f a l t e r n a t i v e rev en u e s o u r c e s f o r
g overn m en t.
I n c r e a s e d em ployment w ould be e x p e c te d t o r e s u l t f o r
new i n d u s t r i e s , b o th in c o n s t r u c t io n o f th e p la n t s and
t h e i r o p e r a t io n , by e i t h e r a b so r b in g any e x i s t i n g unem
p lo y e d , o r by b r in g in g a d d it io n a l w ork ers in t o th e l o c a l i t y .
A common f e a t u r e o f such t a x ex em p tio n p r i v i l e g e s i s p re
fe r e n c e m ust be g iv e n to l o c a l w o rk ers a s f a r a s i s r e a so n
a b ly p o s s i b l e . A v a i l a b i l i t y and e f f i c i e n c y o f la b o r may be
a s i n f l u e n t i a l a s t a x ex em p tio n in l o c a t i o n a l d e c i s i o n s .
The c o n s t r u c t io n and o p e r a tio n o f new i n d u s t r ie s w ould v e r y
l i k e l y r e s u l t in some r e - d i r e c t i o n o f th e p r e v a ilin g
a c t i v i t i e s , a lth o u g h th e f i n a l e f f e c t s w ould be e x p e c te d
t o be a n e t in c r e a s e in incom e and em ploym ent. The " m u lti
p l i e r e f f e c t " o f new in d u s tr y in a g iv e n l o c a l i t y w ould
v a r y w ith th e p a r t ic u la r c ir c u m sta n c e s and g e n e r a l econom ic
c o n d it io n s .
3 2 2
A noth er fa v o r a b le e f f e c t e x p e c te d t o r e s u l t from
i n d u s t r i a l ex em p tio n s and new i n d u s t r ie s i s d i v e r s i f i c a t i o n
o f a s t a t e ’ s econom y. T h is w ould red u ce th e v u l n e r a b i l i t y
o f th e s t a t e to a r e c e s s io n o r c o n t r a c t io n o f em ploym ent
and incom e in h e r e n t in a s p e c i a l i z e d econom y. For ex a m p le,
M i s s i s s i p p i , p red o m in a n tly a s p e c i a l i z e d a g r i c u lt u r a l
s t a t e , h a s u n d erta k en a p la n t o ’ ’B alan ce A g r ic u ltu r e w it h
In d u stry " b y e x te n d in g i n d u s t r i a l t a x ex e m p tio n .
In a d d it io n to th e new em ploym ent e x p e c te d t o be
g e n e r a te d d i r e c t l y by new i n d u s t r i e s , e x i s t i n g p r o d u c tio n —
raw m a t e r ia ls , m a n u fa c tu r in g , and a g r i c u lt u r a l— w ould f in d
la r g e r m a rk ets f o r t h e i r p r o d u c ts , b o th d i r e c t l y and i n
d i r e c t l y . I n c r e a s e d a c t i v i t y in t h e s e b a s ic i n d u s t r ie s
w ould r e s u l t in g r e a t e r demand f o r th e s e r v ic e s o f secon dary
i n d u s t r i e s .
A d ir e c t r e s u l t o f new i n d u s t r ie s b e in g e s t a b lis h e d
may be th e demand f o r u t i l i t y s e r v ic e s i n g r e a t e r volu m e,
su ch t h a t a la r g e r and more e f f i c i e n t s e r v ic e c a p a c it y m ust
be p r o v id e d . I n c r e a s e d c a p a c it y and e f f i c i e n c y c o u ld be
e x p e c te d t o r e s u l t in red u ced c o s t s t o th e e n t i r e com m unity
f o r t h e s e s e r v i c e s .
A lth ou gh th e r e may be no im m ediate in c r e a s e in th e
p r o p e r ty ta x b a se from n ew ly c o n s tr u c te d p r o p e r t ie s , a
la r g e r ta x b a se may r e s u l t in th e fu tu r e i f ex e m p tio n s a re
323
w ith d raw n , w h o lly o r p a r t i a l l y , a s new fir m s become e s ta b
l i s h e d . An in c r e a s e d t a x b a se may d e v e lo p from new t a x -
exem pt p r o p e r t ie s , o r by in c r e a s e d v a lu e s o f e x i s t i n g
p r o p e r t ie s . In a d d it io n , i f l e v e l s o f incom e in c r e a s e
d e lin q u e n c y o f p r o p e r ty t a x e s w ould be r e d u c e d , o r p o s s ib ly
e lim in a t e d , and t h e r e b y , in e f f e c t , in c r e a s e th e p r o p e r ty
t a x b a s e . L a te r o n , a f t e r th e n ew ly lo c a t e d in d u s t r i e s no
lo n g e r r e c e iv e th e p r i v i l e g e o f ex e m p tio n , t a x r a t e s c o u ld
be re d u ce d , o r in d e b te d n e s s be r e t i r e d , o r more and b e t t e r
g o v ern m en ta l s e r v ic e s re n d ered from la r g e r r e v e n u e s b e in g
c o l l e c t e d .
W ith e n la r g e d em ploym ent and incom e a lt e r n a t iv e
s o u r c e s o f l o c a l reven u e w ould be s tr e n g th e n e d . I n f a c t ,
on e o f th e s tr o n g e r argum ents f a v o r in g i n d u s t r i a l t a x e x
em p tion s i s t o d i v e r s i f y th e t a x b a se and red u ce th e h ea v y
dependence o f l o c a l govern m en ts on th e g e n e r a l p r o p e r ty
t a x . 34
U n fa v o ra b le econom ic im p l ic a t io n s . — 'Ehere a re some
u n fa v o r a b le a s p e c t s o f t a x ex em p tio n . Among them are
t h e s e : (1) g a in s in one l o c a l i t y a re o f f s e t by l o s s e s to
a n o th e r ; (2) i n t e r - s t a t e g a in s may c a n c e l o u t; (5) e x c e s
s iv e and unsound t a x c o m p e titio n ; (4 ) h e a v ie r t a x e s on
34 W a lla c e , o £ . c i t . , p . 2 7 4 .
324
n on-exem pt p r o p e r ty ; (5 ) weak fir m s may a g g ra v a te i n s t a
b i l i t y ; (6 ) u n d e s ir a b le s o c i a l a s p e e t s o f i n d u s t r i a l de
velop m en t .
The b e n e f i t s o f i n d u s t r i a l m ig r a tio n t o a new a re a
are m atched by th e l o s s e s t o th e form er com m unity w here th e
p la n t w as l o c a t e d . H owever, th e r e w ould be a n e t g a in f o r
b o th t h e fir m and f o r s o c i e t y i f h ig h e r l e v e l s o f p ro
d u c t i v i t y and incom e r e s u l t from th e m ig r a tio n . I n t e r
s t a t e , g a in s and l o s s e s o c c a s io n e d b y i n d u s t r i a l s i t e
ch a n g es may ten d to c a n c e l o u t .
Tax e x e m p tio n , a s a p o l i c y , in v o lv e s th e p o s s i b i l i t y ,
i f n o t th e p r o b a b ilit y , o f e x c e s s iv e c o m p e titio n on s t a t e
and l o c a l l e v e l s , w ith a tte n d in g i n s t a b i l i t y . B u s in e s s
d e c i s io n s may become u n d u ly in flu e n c e d by ta x exem p tion
o f f e r s and f a i l to g iv e p ro p er c o n s id e r a t io n t o o th e r
econom ic f a c t o r s su ch a s a v a i l a b i l i t y and m o b il it y o f th e
la b o r su p p ly , raw m a t e r ia ls , t r a n s p o r t a t io n , m a r k e ts, and
so f o r t h , in c lu d in g n e c e s s a r y governm ent s e r v i c e s . For an
in d iv id u a l fir m to make a r a t i o n a l d e c is io n a s t o th e com
p a r a tiv e ad van tage o f a lo c a t i o n in an a r e a where th e
a g g r e g a te t a x r a t e i s h ig h a s op p osed t o one w here i t i s
c o m p a r a tiv e ly lo w , r e q u ir e s t h a t th e fir m g iv e c a r e f u l
c o n s id e r a tio n to th e p e c u lia r im p ortan ce to t h a t fir m o f
th e s e r v i c e s p ro v id e d by governm en t, su ch a s p o lic e and
325
f i r e p r o t e c t io n , w a te r , se w e ra g e , w a ste d i s p o s a l, and th e
l i k e . The fa v o r a b le d i f f e r e n t i a l b etw een a g g r e g a te t a x
r a t e s may be g r e a t l y r e d u c e d , o r e n t i r e l y rem oved, i f th e
fir m m ust p erform th e s e s e r v i c e s a t i t s own e x p e n s e , o r
pay s p e c i a l ch a rg e s f o r them . E x c e s s iv e t a x c o m p e titio n
among l o c a l i t i e s , l i k e th e e r e c t io n o f t a r i f f b a r r ie r s o r
th e d e v a lu a tio n o f c u r r e n c ie s among n a t io n s , i s open to
r e t a l i a t i o n by o t h e r s , and f a i l s t o a cc o m p lish sound
d e c i s i o n s .
E x ten d in g t a x ex e m p tio n s t o n ew ly lo c a t e d i n d u s t r ie s
may r e s u l t in h ig h e r p r o p e r ty t a x e s on th e e x i s t i n g ta x
b a s e , a t l e a s t te m p o r a r ily , b e c a u se o f added demand f o r
g o v ern m en ta l s e r v i c e s b y th e new f ir m s . To th e e x t e n t t h a t
new i n d u s t r ie s en g en d er a d d it io n s t o th e t a x b a s e , r a t e s
c o u ld be k e p t th e same o r ev en be lo w e r e d . A ls o , e x i s t i n g
r a t e s c o u ld be su pp lem ented b y o th e r t a x e s , o r b y le v y in g
s p e c i a l c h a r g e s on th e new fir m s f o r s e r v ic e s r e n d e r e d .
H owever, th e l a t t e r a l t e r n a t i v e te n d s t o d e f e a t th e p u rp o se
o f t a x e x e m p tio n .
I f ta x ex em p tio n s a t t r a c t m e r e ly su b m argin al fir m s
th e r e i s q u e s tio n a s t o th e w isdom o f such a p o l i c y . Such
f ir m s , i f th e y c o n tin u o u s ly depend on ta x f a v o r s t o
35
s u r v iv e , w ould be u n s t a b le . T h e ir dependence on t a x
A ccord in g t o W a lla ce (I b i d . . p . 2 9 6 ), th e B.A .W .I.
program o f M i s s is s ip p i h a s b een c o n s e r v a t iv e ly a d m in ister e d )
3S6l
exem p tion w ould amount t o t h e i r b e in g s u b s id iz e d i n d i r e c t l y
w h ich adds t o th e c o s t s o f o th e r f ir m s . Thus, in s t e a d o f
new i n d u s t r ie s r e s u l t i n g in lo w er t a x e s f o r a l l , p r e v io u s ly I
m a rg in a l fir m s may th e m s e lv e s lo o k w ith fa v o r tow ard a r e a s \
o f f e r in g l e s s e r t a x e s . T h e r e fo r e , ta x e x e m p tio n s may ^
a c t u a l l y b r in g ab out th e v e r y t h in g s th e y a re e x p e c te d t o
i
p r e v e n t; t h a t i s , red u ced l e v e l s o f incom e and em ploym ent, i
t o g e t h e r w ith a red u ced p r o p e r ty ta x b a s e . j
!
O ther s o c i a l l y u n fa v o r a b le r e s u l t s may f o l l o w i n - j
j d u s t r i a l d ev elo p m en t. E x is t in g a c t i v i t i e s may be p e n a liz e d
b y i n d u s t r i a l i z a t i o n and th u s tem per th e a d v a n ta g e s g a in e d .
I
F or ex a m p le, a g r i c u lt u r a l c r o p s may be damaged by i n
d u s t r i a l fu m es, strea m s be p o llu t e d by w a s t e s , w a tersh ed
r u in e d by c u t t in g o f f o r e s t s , s t r e e t and highw ay f a c i l i t i e s
jren d ere d in a d e q u a te , t o m en tio n a fe w . j
1 ;
R e s u lt s and E v a lu a tio n o f I n d u s t r i a l E xem ption 1
t
f
The in f lu e n c e o f p r o p e r ty t a x ex em p tio n on th e lo c a
t i o n a l c h o ic e o f a b u s in e s s fir m w ould o b v io u s ly depend on
th e amount o f ex em p tio n o f f e r e d , w h eth er i t w as tem porary
and o n ly f i n a n c i a l l y s t a b l e fir m s have b een g r a n te d c e r t i
f i c a t e s o f co n v e n ie n c e and n e c e s s i t y t o e s t a b l i s h b ra n ch es
in t h e s t a t e under th e p la n .
' 327 I
o r f o r a lo n g e r t i m e ,36 and on th e p o s s i b i l i t y o f s p e c i a l
ch a rg e s in p la c e o f p r o p e r ty t a x e s .
B u s in e s s fim a s w ith a s s e t s com posed l a r g e l y o f in
t a n g ib le s o r more v o l a t i l e in v e n t o r i e s , o r fir m s s e l l i n g
s e r v i c e s and r e q u ir in g l i t t l e in v e stm e n t in r e a l e s t a t e and I
equipm ent w ould f in d s m a lle r a t t r a c t i o n t o th e lu r e o f j
p r o p e r ty ta x ex em p tio n th a n b u s in e s s e s w hose a s s e t s are
m o s tly r e a l e s t a t e , eq u ip m en t, and i n v e n t o r i e s . j
i
Firm s w h ich c o n s id e r s i g n i f i c a n t m onopoly e le m e n ts j
i
a tta c h e d t o a g iv e n lo c a t i o n may pay o n ly m inor a t t e n t io n
i
;to d if f e r e n c e s in p r o p e r ty ta x r a t e s .
!
M oreover, d i f f e r e n t i a l p r o p e r ty t a x r a t e s a re o n ly a
p a r t o f th e t o t a l d e c i s io n and may be o u tw eig h ed by o th e r
c o n s id e r a t io n s su ch a s p r o x im ity t o m a r k e ts, raw m a t e r ia ls ,
I la b o r , t r a n s p o r t a t io n , cheap w a te r and power and th e l i k e .
j ;
F u rth erm ore, th e p r o p e r ty t a x burden t o be. e x p e c te d j
a f t e r exem p tion p r i v i l e g e s a re c u r t a ile d o r w ithdraw n i s |
im p o r ta n t. S h o r t-ru n e x e m p tio n s may be m e a n in g le s s when
view ed in th e fu tu r e and a p r e s e n t r e l a t i v e c o m p e titiv e
36 W a lla ce (Idem ) s t a t e s t h a t u nd er th e B .A .W .I.
P la n o f M i s s is s ip p i t a x e s become burdensom e a f t e r e x p ir a
t i o n o f th e ta x -e x em p t p e r io d , may be e lim in a t e d d i r e c t l y
by th e u se o f a lo n g -te r m l e a s e , o r i n d i r e c t l y by p o l i t i c a l
a c t io n by company e x e c u t i v e s . In one com m unity w here two
B .A .W .I. p la n t s a re lo c a t e d , an e x e c u tiv e from ea ch i s a
member o f th e M u n icip a l Board o f A lderm en.
328
ad van tage becom es a d is a d v a n ta g e .
W ith reg a rd t o d i f f e r e n t i a l s in th e t a x r a t e s in
u n in c o r p o r a te d a r e a s com pared to th o s e w it h in in c o r p o r a te d j
*
c i t i e s in f o r t y - f o u r r e g io n s s tu d ie d in C a lif o r n ia , th e J
I
e v id e n c e a p p ea rs c o n c lu s iv e t h a t no r e a l ad van tage e x i s t s
in fa v o r o f lo c a t i o n s o f in d u s tr y o u t s id e c i t i e s . 3 ^ The
same r e a s o n in g w ould seem to a p p ly to i n t e r s t a t e ta x d i f
f e r e n t i a l s s in c e o th e r c o n s id e r a t io n s a re more i n f l u e n t i a l i
in l o c a t i o n a l c h o ic e s h y f ir m s . |
i
In 1943 th e S outh C a r o lin a S ta te P la n n in g Board made
i '
a stu d y o f th e e f f e c t s o f such ex em p tio n s in t h a t s t a t e ,
!
and came t o th e c o n c lu s io n t h a t ”i t a p p ea rs to be th e co n
s id e r e d and c o l l e c t i v e o p in io n o f th e m a jo r ity o f th e
c o u n t ie s t h a t t a x e x e m p tio n s do n o t have a c o n t r o l l i n g in -
! r to
jflu e n c e in l o c a t in g i n d u s t r y .” T h is same P la n n in g Board '
'se n t i n q u ir i e s t o a number o f S o u th ern , n o r th e r n , and j
W estern s t a t e s , a sk in g t h e i r o p in io n s o r e x p e r ie n c e s w ith
r e s p e c t t o g r a n tin g i n d u s t r i a l e x e m p tio n s. M ost o f t h e i r
39
r e p l i e s w ere h ig h ly c r i t i c a l o f th e p r a c t ic e ,
j The f a c t o r s w h ich in f lu e n c e p la n t lo c a t i o n s a re
! _ _ _ _ _ _ _ _ _ _ _ _ ^ j
37 R eport o f th e S en a te I n te r im C om m ittee on S ta te
and L o c a l T a x a tio n . o p . c i t . , p . 4 6 5 .
38 W alker, o £ . c i t . , p . 5 .
39 Idem .
1
4 0 1
c l a s s i f i e d by W a lla c e a s p rim ary and se c o n d a r y . P rim ary j
p la n t lo c a t i o n f a c t o r s a r e : (1) p r o x im ity t o raw m a t e r ia l; J
(s) p r o x im ity to m a rk ets; (3) a v a i l a b i l i t y o f s u it a b ly
s k i l l e d la b o r ; (4) tr a n s p o r ta t io n and com m unication f a c i l i - !
I
t i e s ; (5) power and f u e l . S econ d ary p la n t l o c a t i o n f a c t o r s I
i
a r e : (1) governm ent r e g u la t io n and s u b s id y ; (s) g e o g ra p h ic j
f a c t o r s ( c lim a t e , s o i l , to p o g r a p h y ); (3 ) w a te r su p p ly ;
(4) w a ste d is p o s a l; (5 ) c o s t o f la n d and b u ild in g s ; (6 ) e x - j
p a n sio n p o s s i b i l i t i e s . The m ost im p o rta n t s i n g l e f a c t o r in
a t t r a c t i n g p la n t s to M i s s is s ip p i h a s been la b o r su p p ly and
| wage r a t e s .
S in c e ta x ex e m p tio n s f o r a lim it e d p e r io d a re a v a i l
a b le in many s t a t e s , t h e i r a v a i l a b i l i t y in M i s s is s ip p i
com m u n ities may be s a id to be n e c e s s a r y t o m eet th e
c o m p e titio n from com m u n ities in o th e r s t a t e s . These
t a x ex e m p tio n s ca n n o t be reg a rd ed a s r e a l a d v a n ta g es o f
th e M i s s is s ip p i lo c a t i o n e x c e p t w here th e a l t e r n a t i v e (
l o c a t io n in a n o th e r s t a t e d o es n o t make a s im ila r i
o f f e r . 41
' • |
I t i s in d e e d c o n c e iv a b le , p o s s i b l e , and p ro b a b le
th a t , i n t h e lo n g ru n , th e com panies w h ieh have r e
c e iv e d B JS W I s u b s id ie s w i l l pay s t a t e and l o c a l t a x e s
t o t a l l i n g more th a n th e amount o f th e BJWI s u b s id y
w h ich th e y r e c e iv e d . S in c e th e com p anies do n o t pay
h ig h e r t a x e s in M i s s i s s ip p i th an t h e y do in o th e r
s t a t e s , t h i s a s p e c t o f t h e s u b s id y program i s i n - .
d i c a t i v e o f a n e t g a in t o th e econom y o f th e s t a t e . 48
40 W a lla c e , o £ . c i t . , p . 2 7 6 .
41 * P« 305 •
42 I b i d . , p . 3 0 6 .
330
S e v e r a l s t a t e s have u sed some form o f inducem ent t o
en cou rage i n d u s t r i a l i z a t i o n . E xem ption o f i n d u s t r i a l
p r o p e r t ie s from t a x a t io n i s a fr e q u e n t p a r t o f su ch p la n s .
V ery o f t e n t h i s s o r t o f a c t i v i t y i s more p r e v a le n t in tim e
o f d e p r e s s io n . The e x t e n t t o w h ich exem p tion o f in d u s t r ie s
from p r o p e r ty t a x e s h a s b een i n f l u e n t i a l i s n o t to o c l e a r
s in c e o th e r f a c t o r s s t r o n g ly in f lu e n c e l o c a t i o n a l c h o ic e s .
Where a l l o th e r f a c t o r s w ere s u b s t a n t i a l l y e q u a l in in
f lu e n c e , d if f e r e n c e s in t a x ex em p tio n s may be th e d e c id in g
j f a c t o r . I n d u s t r ia l e x e m p tio n s, a s a p o l i c y , a p p ea rs n o t t o
|h a v e c o m p le te ly run i t s c o u r se inasm uch a s th e r e h ave been
I 43
new e x t e n s io n s w it h in th e l a s t few y e a r s . Many o f th e
so u th ern s t a t e s (w here i t was u sed p r im a r ily ) have come to
44
p u t l e s s em p h a sis on th e p r a c t ic e .
j V. HOM ESTEAD EXEMPTION
\
\
G eneral S ta tem en t
An im p o rta n t form o f p r o p e r ty t a x ex e m p tio n , e i t h e r
co m p lete o r p a r t i a l , i s t h a t known a s h om estead ex e m p tio n .
In th e f i e l d o f t a x a t io n th e term m eans th e d w e llin g
^ H arry W. W o lk s te in , "R ecent P roblem s and D ev elo p
m en ts in P r o p e r ty Tax E x em p tio n s," P r o c e e d in g s . N a tio n a l
Tax A s s o c ia t io n , 1 9 5 1 , pp. 1 6 7 -9 0 .
44 P e r s o n a l co r re sp o n d en ce w ith South C a r o lin a Re
s e a r c h , P la n n in g and D evelopm ent B oard, C olum bia, d a ted
A p r il 8 , 1 9 5 2 .
331 ]
o c c u p ie d fey th e owner a s a r e s id e n c e , th e la n d on w h ich th e
d w e llin g i s lo c a t e d , and v a r y in g am ounts o f la n d . R u ral
ex em p tio n s may ex ten d t o . c o n s id e r a b le p r o p e r ty — la n d and
b u ild in g s — u sed i n m aking a l i v i n g . H om estead ex em p tio n s
a re lim it e d t o r e a l p r o p e r ty o f t h e g e n e r a l p o p u la tio n , and :
n o t t h a t o f s p e c i a l g r o u p s, su ch a s v e t e r a n s , and o t h e r s .
Many s t a t e s g r a n t ex em p tio n s t o h o u seh o ld go o d s a lth o u g h ,
t h e s e , a s su ch , a re n o t h om estead e x e m p tio n s. A g r e a t d e a lj
o f th e l e g i s l a t i o n w h ich o r ig in a t e d o r p e r m itte d t h i s form \
I
o f t a x exem p tion d ev elo p ed d u r in g th e d e p r e s s io n days o f
1 i
i
ith e 1 9 3 0 T s when th e r a t e o f m ortgage f o r e c lo s u r e s ran h ig h .
A lth ou gh th e r e a re many v a r i a t io n s in th e u se o f h om estead
ex em p tio n s th e b a s ic th e o r y and p rob lem s in v o lv e d are
e s s e n t i a l l y th e same among th e s t a t e s u s in g th e d e v ic e .
♦
The Theory o f H om estead E xem p tions
F u n d am en tally h om estead ex em p tio n s are a d v o ca ted on ^
th e th e o r y t h a t home ow n ersh ip i s s o c i a l l y d e s ir a b le and
can be en cou raged b y t a x ex e m p tio n . U n q u e stio n a b ly th e r e
i s w id esp rea d agreem ent t h a t home ow n ersh ip i s d e s ir a b le
45
and sh o u ld be en co u ra g ed , p r i n c i p a l l y on th e grou n ds t h a t
s o c i a l , eco n o m ic, and p o l i t i c a l s t a b i l i t y a r e s tr e n g th e n e d j
45 R. E. C a r ls o n , "Economic I m p lic a t io n s o f Home
s te a d Tax E xem p tion ," J o u rn a l o f - Land and P u b lic U t i l i t y
E con om ics, X III (Novem ber, 193TJ", 3 4 3 .
332
i
th e r e b y . N e v e r t h e le s s , th e r e a re str o n g argum ents a g a in s t
en co u ra g in g home o w n ersh ip w here p o p u la tio n i s m o b ile and
i
econom ic c ir c u m sta n c e s h ig h l y u n c e r t a in . A ls o , th e r e i s
much doubt a s t o t h e e f f e c t s o f t a x exem p tion on en co u ra g -
i
in g home o w n e rsh ip . In a d d it io n , c o n s id e r a b le e v id e n c e can ;
be a rrayed w hich s e r i o u s l y o f f s e t s th e s o c i a l b e n e f i t s
w h ich a l l e g e d l y a re c o n fe r r e d b y ex e m p tio n . In f a c t , th e
!
b u lk o f th e e v id e n c e su p p o r ts th e v ie w t h a t th e d is a d -
I
v a n ta g e s o u tw eig h th e a d v a n ta g e s. j
| The E x te n t o f H om estead Exem ption
! Twelve o f th e f o r t y - e i g h t s t a t e s g r a n t some form o f
I , ,
h om estead ex em p tio n — Alabam a, F lo r id a , G eo rg ia , Iow a,
L o u is ia n a , M in n eso ta , M i s s i s s i p p i , N orth D ak ota, Oklahoma,
South D akota, T e x a s, and W yom ing.46 The v a lu e o f th e ,
ex em p tio n ra n g e s from $500 in Wyoming t o $ 5 ,0 0 0 in j
■ M is s is s ip p i and F lo r id a .
In c i t i e s and urban a r e a s th e ex em p tio n o r d in a r il y
e x te n d s to th e h ou se and l o t a c t u a ll y o c c u p ie d by th e owner
a s h i s home. The amount o f farm la n d exem pted v a r i e s from
40 t o 160 a c r e s . In N orth D ak ota, ex em p tio n may be cla im e d
f o r f u l l v a lu e o f farm la n d used f o r a g r i c u lt u r a l p u r p o se s
46 Tax S y stem s ( t w e l f t h e d i t i o n ; New Y ork: Commerce
C l e a r i n g H o u se , I n c . , 1 9 5 0 ), p p . 1 9 8 -2 0 0 .
353
and f o r tlie v a lu e o f " b u ild in gs th e r e o n w h eth er th e y a re
47
r e s id e n c e s o r o u t b u ild in g s . S ou th D akota r e q u ir e s t h a t
th e p e rso n c la im in g exem p tion m ust have t i t l e t o b o th th e
48
h o u se and th e la n d on w h ich i t i s lo c a t e d .
F lo r id a , G e o r g ia , and M in n eso ta do n o t a llo w exem p- ^
t io n o f t a x e s l e v i e d t o pay i n t e r e s t on o r r e t i r e bonded
in d e b te d n e s s .
M in n eso ta h a s a c l a s s i f i e d p r o p e r ty t a x sy stem whichJ
a p p li e s a ls o to hom estead ex e m p tio n . The la w o f 1933 w h ich j
t
e s t a b lis h e d b o th c l a s s i f i c a t i o n and ex em p tio n p r o v id e s f o r
I
[ a s s e s s in g th e f i r s t # 4 ,0 0 0 o f urban h o m estea d s a t 25 p er
c e n t o f " f u l l and tru e" v a lu e in s t e a d o f th e 40 p er c e n t
r e q u ir e d on o t h e r urban p r o p e r t ie s . R ural h o m estea d s a re i
a s s e s s e d a t 20 p e r c e n t o f " f u l l and tr u e " v a lu e w h ereas
o th e r ta x a b le r u r a l p r o p e r ty i s a s s e s s a b le a t 33 1 /3 p er j
Jcen t o f such v a l u e .49 j
* i
At th e p r e s e n t tim e hom estead exem p tion a p p ea rs to
be a t a s t a n d s t i l l s in c e th e movement o r ig in a t e d in th e
d e p r e s s io n 1 9 3 0 * s h a s sp en t i t s e l f , no s t a t e s h a v in g
47 I b i d . . p . 1 9 9 .
48 I b i d . . p . 2 0 0 .
4 ^ The M in n eso ta Tax System ( S t . P a u l: The M in n eso ta
I n s t i t u t e o f G overnm ental R e se a r c h , I n c . , May, 1 9 4 8 ),
p. 16.
33 4 I
i
a d o p ted i t s in c e 1 9 3 9 .
E f f e c t s o f Hom estead Exem ption
Some o f th e e f f e c t s o f h om estead ex em p tio n are
i
o b scu r e and in d e te r m in a te . T h is i s th e c a s e p a r t ly b eca u se j
i
o f th e v a r i a t io n s among th e s t a t e c o n s t i t u t i o n s and la w s on 1
th e s u b j e c t , and p a r t ly b eca u se o f th e m u ltitu d e o f o th e r
in f l u e n c e s w h ich c o n d itio n th e e f f e c t s o f th e h om estead
j
ex em p tio n . C e r ta in in d iv id u a l f a m i l i e s may be in flu e n c e d i
l i t t l e , i f a t a l l , by th e ex em p tio n ; f o r o t h e r s , i t m ig h t I
jprove t o be a s i g n i f i c a n t c o n s id e r a tio n in th e d e c is io n to
i
buy o r n o t t o buy a h o u se .
E f f e c t s o f h om estead ex em p tio n s in th e fo u r f o llo w
in g a r e a s w i l l be c o n s id e r e d : (1 ) are th e e f f e c t s e q u it a b le ,
(2) do th e y s t im u la t e home o w n e rsh ip , (3 ) e f f e c t s on th e j
i
jta x b a s e , and {4) rev en u e r e p la c e m e n t. i
! Are h om estead ex e m p tio n s e q u it a b le ? — H om estead '
exem p tion i s a s p e c ia l p r i v i l e g e e x ten d ed t o a p a r t ic u la r
group and th u s v i o l a t e s th e p r in c ip le t h a t th e t a x in g power
o f th e governm ent sh o u ld n o t be u sed t o fa v o r s p e c ia l
' 50
ig r o u p s.
H om estead exem p tion may o p e r a te t o red u ce th e
50 Raymond D. Thomas, ch airm an , “R eport o f th e Com
m it t e e on P r o p e r ty Tax L im ita tio n and H om estead E xem p tion ,"
P r o c e e d in g s . N a tio n a l Tax A s s o c ia t io n , 1 9 3 8 , pp. 7 8 8 -8 0 4 .
335 1
• i
p r o p e r ty ta x b a s e , and th e r e b y n e c e s s i t a t e e i t h e r r e p la c e - I
m ent ta x e s o r a r e d u c tio n o r im pairm ent (o r b oth ) in !
i
governm ent s e r v i c e s . A r e d u c tio n i n th e p r o p e r ty t a x b ase
w ould r e s u l t from h om estead exem p tion u n le s s a d d it io n a l
b u ild in g w ere s tim u la te d s u f f i c i e n t l y t o o u tw e ig h th e !
e f f e c t s o f su ch ex em p tio n . R eplacem ent t a x e s a re v e r y
o f t e n ev en more in e q u it a b le th an p r o p e r ty t a x e s . T h is may
be e s p e c i a l l y tr u e when s a l e s t a x e s a re ad op ted f o r th e
r e a so n th a t su eh t a x e s ta k e a p r o p o r t io n a t e ly h e a v ie r t o l l |
I from th e incom e o f low -ln com e g ro u p s. A la r g e sh a re o f th e
iincom e o f lo w p a id g ro u p s g o e s f o r " e s s e n t i a l s , " su ch a s
fo o d and h o u s in g . The c o s t o f h o u sin g a v era g ed s l i g h t l y
more than o n e -fo u r th o f t o t a l fa m ily sp en d in g in 1947 in
W ash in gton , D .C ., Richm ond, V ir g in ia and M a n c h este r, New
H am pshire. The t o t a l sp en t f o r h o u sin g c o s t s g e n e r a lly ■
! |
'r e p r e s e n te d a d e c r e a s in g p r o p o r tio n o f t o t a l sp en d in g a s ;
51 I
incom e in c r e a s e d . I f th e s e " e s s e n t i a l s ” a re ta x e d th e
burden i s . b orn e d is p r o p o r t io n a t e ly by low incom e g ro u p s.
Where red u ced governm ent " w elfa re" s e r v i c e s r e s u l t
from hom estead ex em p tio n s th e lo w e r incom e ta x p a y e r s may I
H elen M. Humes and L o u ise Chubb, "F am ily S pend in g
f o r H ousing in Three C i t i e s , 1 9 4 7 ," M on th ly Labor R ev iew .
LXIX (O cto b e r, 1 9 4 9 ), 3 7 7 -8 4 ; a l s o , H elen G. G anoyer and
R oland S . V a ile , E conom ics o f Income and C onsum ption (New
York: The R onald P r e s s Company, 1 9 5 1 ), p . 1 3 4 .
336]
s u f f e r d i r e c t l y by red u ced o p e r a t io n , o r abandonm ent, o f
h e a lt h and w e lf a r e s e r v ic e s # Such n s e m i-lu x u r y ” a c t i v i t i e s
o f governm ent a r e m ost l i k e l y t o f e e l th e p in c h o f red u ced
rev en u e s .
!
H om estead ex em p tio n c l e a r l y o p e r a t e s w ith u n eq u al j
e f f e c t s among t a x in g d i s t r i c t s and among in d iv id u a l t a x -
i
p a y e r s . For ex a m p le, an exem p tion o f $ 2 ,0 0 0 h a s v e r y d i f - .
1
f e r e n t e f f e c t s on th e owner o f a hom estead v a lu e d a t $ 1 ,0 0 0
and th o s e v a lu e d a t more th a n $ 2 ,0 0 0 . A ssum ing a 30 m i l l
t a x r a t e th e form er w ould r e c e iv e a t a x b e n e f it o f $30 I
i
jw h ereas th e l a t t e r w ould r e c e iv e a r e d u c tio n in t a x e s o f
$60. The e f f e c t o f su ch an exem p tion i s to work t o th e
b e n e f it o f th e ow ners o f more v a lu a b le hom es. T h is s o r t o f .
i
d i f f e r e n t i a l may be a v o id ed o r red u ced by a p p ly in g a lo w e r ,
r a t io o f a s s e s s e d t o t r u e v a lu e on l e s s v a lu a b le hom es, a s
! i s done in M in n eso ta and W est V ir g in ia .
I
The ta x b a se w ould be red u ced p r o p o r t io n a t e ly more
in d i s t r i c t s w ith a h ig h p e r c e n ta g e o f home o w n ersh ip . I n
o th e r w o rd s, h om estead ex e m p tio n s w ould te n d t o have a
g r e a te r ’’w ea k en in g ” e f f e c t on th e t a x b a se in d i s t r i c t s
w here home ow nersh ip , i s h ig h . T h is r e s u l t s , in t u r n , in
g r e a te r c la im to su b v e n tio n s b y su ch d i s t r i c t s , w hich
sh o u ld be more s e l f s u f f i c i e n t t a x - w is e .
A n o th e r i n e q u i t y i n h o m e ste a d e x e m p tio n s a r i s e s
557)
t
w here p r o d u c tiv e o r incom e p r o p e r ty i s in c lu d e d . For
ex a m p le, some s t a t e s e x te n d r u r a l ex em p tio n to in c lu d e a s
much a s 160 a c r e s , w h ile urban home ow ners are lim it e d t o
ex em p tio n on th e a e t u a l c i t y l o t o c c u p ie d by th e h o u se . \
i
t
T h is a p p ea rs to be l e g a l r e c o g n it io n o f an u n r ea so n a b le I
I
d is c r im in a t io n b etw een r u r a l and urban home o w n e r s.5 ^
)
Hom estead ex em p tio n i s in e q u it a b le in th a t i t f o r c e s ;
• !
o t h e r s — t e n a n t s o r o th e r p r o p e r ty — t o assum e a d d it io n a l !
t a x e s t o p ay f o r g o v ern m en ta l s e r v i c e s re n d er ed f o r th e j
b e n e f it o f home ow n ers. In DeLand, F lo r id a , in 1945
| a c c o r d in g to th e c i t y m anager, 670 p i e c e s o f r e s id e n c e
p r o p e r ty a r e c a r r y in g th e lo a d t h a t sh o u ld be borne by
1 ,8 3 0 p i e c e s . F urth erm ore, few h o u se s b u i l t in th e fu tu r e
w i l l be d e sig n e d to e x c e e d th e $ 5 ,0 0 0 h om estead e x e m p tio n .53,
In o th e r w o rd s, a la r g e sh are o f l o c a l g o v ern m en ta l s e r v
i c e s , su ch a s f i r e and p o l i c e p r o t e c t io n , r e fu s e and sewage
d i s p o s a l , a r e f o r th e b e n e f i t o f home ow ners who sh o u ld pay
f o r t h e i r f a i r sh a re o f su ch s e r v i c e s . 5 ^ In f a c t , home
ow ners a r e u s u a lly th o u g h t t o be th e m ost s t a b le elem en t o f
th e p o p u la tio n and w ould be e x p e e te d t o su p p o rt sound and
5S Thomas, o £ . c i t . . p . 7 9 5 .
E . M. B e a r d s le e , "Homestead Exem ption in DeLand,
F l o r i d a ,” M u n ic ip a l F in a n c e . XVII {May, 1 9 4 5 ), 3 1 -3 4 .
5^ Id em .
538
s t a b le governm en t.
Effect of h om estead ex em p tio n on home o w n e r sh ip . - -
One o f th e s t r o n g e s t argum ents fa v o r in g hom estead ex em p tio n
a s a p o l i c y i s th a t i t w i l l en cou rage home o w n ersh ip . Un
d o u b te d ly ta x exem p tion h a s some e f f e c t on th e d e c is io n t o
I
buy o r n o t t o buy a h o u se ; h ow ever, i t s e x a c t e x t e n t i s
d i f f i c u l t to e s t a b l i s h c l e a r l y . Such s t a t i s t i c s a s are
l
a v a ila b le f a i l t o le n d much w e ig h t t o t h i s argum ent f a v o r - i
jin g hom estead ex em p tio n . J
I Home ow n ersh ip h a s in c r e a s e d m ark ed ly th ro u g h o u t th e >
1
:c o u n tr y s in c e 1 9 4 0 . The F e d e r a l R eserve B u l l e t i n o f
S ep tem b er, 1949 r e p o r te d t h a t a p p r o x im a te ly tw en ty m i l li o n
f a m i l i e s in th e U n ited S t a t e s owned t h e i r homes a t th e i
b e g in n in g o f 1 9 4 9 , an in c r e a s e o f ab out two m i l l i o n o v e r
1 9 4 8 . Among f a m i l i e s w ith in com es o f l e s s th an # 3 ,0 0 0 !
I |
a b ou t fo u r o u t o f te n owned t h e i r hom es; w ith in com es o f ;
i
from # 3 ,0 0 0 t o # 4 ,0 0 0 ab out o n e - h a lf owned. F a m ilie s
h a v in g an incom e o f more th a n # 7 ,5 0 0 a p p r o x im a te ly se v en
o u t o f te n own t h e i r hom es. About o n e - h a lf o f a l l homes
have b een bought s in c e P e a r l Harbor and w ere m o r tg a g e -fr e e
1 55
jas o f Septem ber, 1 9 4 9 .
j I n 1950 th e r e w ere a p p r o x im a te ly 4 5 ,8 7 5 ,0 0 0 d w e llin g
55 F e d e r a l R eserv e B u l l e t i n . S eptem ber, 1 9 4 9 ,
p p . 1 0 3 7 -5 2 .
339
u n it s i n th e c o u n tr y . In th e same y ea r home ow ners e x -
i
ceed ed r e n t e r s f o r th e f i r s t tim e s in c e su ch in fo r m a tio n
was f i r s t g a th e r e d in th e c e n s u s o f 1 8 9 0 . Home ow n ersh ip
in c r e a s e d 54 p e r c e n t , o r 8 ,1 8 7 ,0 0 0 u n i t s , from 1940 t o
1950 a s a r e s u l t o f new c o n s t r u c t io n and s a le o f e x i s t i n g !
I
r e n t a l homes to o w n e r -o c c u p a n ts. The s h i f t from r e n t e r to
[
owner w as so g r e a t t h a t , ev en w ith th e volum e o f c o n s tr u c
t i o n o f r e n t a l u n it s s in c e 1 9 4 0 , th e r e was a n e t d e c r e a se j
56 f
in th e number o f r e n t e r s . j
I
Of in c i d e n t a l i n t e r e s t i s t h e f a c t t h a t a p p r o x i-
i
im a te ly 70 p er c e n t o f a l l d w e llin g u n i t s had a p r iv a t e b a th
i . . .
1
and f lu s h t o i l e t . In 1940 th e p er c e n t was 5 5 . F u r th e r ,
th e m edian v a lu e o f o w n e r-o ccu p ied n on -farm s in g l e f a m ily
* i
u n it s was # 7 ,4 0 0 . ,
T ab le XV shows th e t o t a l number o f d w e llin g u n it s [
' f o r th e c o u n tr y in 1940 and th e p e r c e n ta g e o f th e t o t a l and i
i !
o f ea ch ty p e ow ner- and t e n a n t -o c c u p ie d . Of th e t o t a l 4 6 .4 j
p er c e n t w ere r e n te d w h ile 4 3 .6 p er c e n t w ere owned. I3h.its
f o r s a l e , v a c a n t, o r o th e r w is e u n a v a ila b le f o r occu p an cy j
a re in c lu d e d in th e t o t a l . j
T ab le XVI, page 3 4 1 , shows t h e p e r c e n ta g e o f ow ner- i
Bureau o f th e C en su s, 1950 C en su s o f H o u sin g .
P r e lim in a r y R e p o r ts . F eb ru ary 1 7 , 1 9 5 1 , s e r i e s HD-5, n o . 1 ,
pp. 1 - 2 .
T A B L E X V
O C C U P A N C Y O F D W E L L I N G U N IT S F O R T H E U N IT E D STA TES, 1940
U R B A N A N D R U R A L N O N F A R M
•
T O T A L T O T A L U R B A N R U R A L N O N F A R M R U R A L F A R M
Number
Per
cent Number
Per
cent
Per
Number cent Number
Per
cent Number
Per
cent
A ll
dwelling
u n its 34,854,532 100.0 27,747,973 100 20,596,500 100.0 7,151,473 100.0 7,106,559 100.0
Owner
Oceupied 13,195,763 43.6 11,413,036 100 7,714,960 37.5 3,698,076 51.7 3,782,727 53,2
Renter
Occupied 19,658,769 46.4 16,234,937 100 12,881,540 62.5 3,453,397 48.3 3,323,832 46.8
Source: U.S. Department of Commerce, Housing, General C h aracte ristic s, S ixteenth Census,
Yol. I I , P art 1, U.S. Summary, p. ?.
m
o
T A B L E X V I
O C C U P A N C Y O F D W E L L I N G U N ITS F O E T H E U N IT E D STA TES, 1950
U R B A N A N D R U R A L N O N F A R M
T O T A L T O T A L U R B A N R U R A L N O N F A R M R U R A L F A R M
Number
Per
cent Number
Per
cent Number
Per
cent Number
Per
cent Number
Per
cent
A ll
duelling
u n its 45,875,000 100.0 39,390,000 100.0 29,256,000 100.0 10,134,000 100.0 6,485,000 100.0
Owner
Occupied 23,383,000 51.0 19,528,000 49.6 14,195,000 48.5 5,332,000 52.6 3,855,000 59.4
Renter
Occupied 19,136,000 41.7 17,098,000 43.4 13,913,000 47.6 3,185,000 31.4 2,039,000 31.4
Source: Bureau of the Census, 1950 Census of Housing, Prelim inary Reports, Housing Character
is tic s of the United S ta te s. A pril 1, 1950, February 17, 1951, se rie s HC-5, No. 1, p. 1.
341
342|
and r e n te r -o c c u p ie d d w e llin g u n it s f o r th e U n ite d S t a t e s a s
o f A p r il, 1 9 5 0 . O w n er-occup ied u n it s co m p rise 51 p er c e n t
o f th e t o t a l , w h ile r e n t e r s o ccu p y 4 1 .7 p e r c e n t o f a l l
u n i t s . A lso in c lu d e d in th e t o t a l a r e v a c a n t u n it s and
t h o s e f o r s a l e o r o th e r w ise n o t a v a ila b le f o r o ccu p a n cy . !
The h ig h e s t p e r c e n ta g e o f o w n ersh ip s e x i s t s in r u r a l
farm u n i t s w here 5 9 .4 p e r c e n t a re o w n e r -o c c u p ie d . N ext ;
h ig h e s t p e r c e n t o f ow n ersh ip i s in r u r a l n on -farm u n it s |
w ith 5 2 .6 p e r c e n t o w n e r -o c c u p ie d , w h ile 4 8 .5 p er c e n t o f j
urban u n i t s a re o c c u p ie d b y ow n ers. I n ea ch ty p e o f 1
;d w e llin g u n it — u rb an , r u r a l n on -farm and r u r a l farm — th e r e
i
a re more ow ners th a n r e n t e r s . The g r e a t e s t r e d u c tio n in
r e n te r -o e e u p a n e y i s seen in urban u n i t s .
T able XVII g i v e s th e f ig u r e s f o r o ccu p a n cy f o r n in e
p o p u lo u s s t a t e s in 1 9 4 0 , in c lu d in g th e t o t a l and p e r c e n ta g e :
'ow ned, t o g e t h e r w ith th e p e r c e n ta g e s owned and r e n te d f o r
i !
ea ch ty p e o f d w e llin g u n i t .
In T ab le X V III, page 3 4 4 , are f i g u r e s show ing th e
t o t a l number o f owner o c c u p ie d and r e n te d d w e llin g u n i t s ,
and th e p er c e n t ea ch co m p rise s o f th e t o t a l , f o r th e n in e
m ost p o p u lo u s s t a t e s in 1 9 5 0 . T hese f i g u r e s r e f l e c t , f o r
t h e s e s t a t e s , what i s a ls o tr u e f o r th e c o u n tr y a s a w h o le;
t h a t i s , in c r e a s e d o w n er-occu p an cy o f a l l t y p e s o f h o u sin g
u n i t s .
T A B U m i
O W N E R -O C C U P IE D D W E L L I N G U N IT S F O R S E L E C T E D STA TES, 1940
U R B A N R U R A L N G N F A R M R U R A L F A R M
Owner Occupied O w n Rent O w n Rent O w n Rent
T otal Per Per Per Per Per Per per
S tate Number cent cent cent cent cent cent cent
C alifornia 928,796 39.7 37.5 55.9 42.8 41.3 51.3 40.0
I llin o is 882,870 38.7 34.0 62.8 55.6 37.5 47.9 48.1
M assachusetts 426,785 34.9 33.2 61.4 41.3 28.5 72.5 17.9
Michigan 773,755 50.9 45.7 50.8 52.4 25.7 69.8 22.2
M issouri 472,950 41.5 33.0 61.1 50.1 43.1 52.0 41.3
N ew York 1,111,388 30.3 23.8 76.2 58.4 41.6 74.8 25.2
Ohio 948,354 50.0 44.0 56.0 59.4 40.6 66.9 33.1
Pennsylvania 1,154,948 45.9 41.2 53.8 50.7 49.3 71.4 28.6
Texas 1,687,396 42.8 40.7 59.3 49.4 50.6 41.4 58.6
Source: U.S. Department of Commerce, Housing, General C h aracteristics. Sixteenth Census,
Vol. I I , P arts 2, 4 , 5, 1943.
T A B L E m i l
O W N E R -O C C U P IE D D W E L L IN G U N ITS F O R S E L E C T E D STA TES, 1950
S tate
T O T A L *
U R B A N R U R A L
O w ned
Rented O w ned Rented
Number
Per
cent Number
Per
cent Number
Per
cent Number
Per
cent Number
Per
eent
C alifornia 3,489,000 100 1,410,000 49.9 1,276,000 45.1 353,000 53.4 229,000 34.6
I llin o is 2,263,000 100 916,000 44.5 1,092,000 53.1 348,000 60.8 183,000 32.0
M assachusetts 1,400,000 100 484,000 42.6 625,000 55.0 143,000 54.2 49,000 18.6
Michigan 1,932,000 100 798,000 61.4 460,000 35.8 391,000 60.5 104,000 16.1
M issouri 1,283,000 100 383,000 50.1 362,000 47,4 319,000 61.5 139,000 26.8
N ew York 4,621,000 100 1,159,000 30.6 2,430,000 64.1 420,000 50.7 138,000 16.6
Ohio 2,442,000 100 947,000 56.1 705,000 41.8 466,000 61.8 217,000 28.8
Pennsylvania 3,013,000 100 1,184,000 56.1 872,000 41.3 548,000 60.7 266,000 29.5
Texas 2,447,000 100 805,000 52.4 647,000 42.1 443,000 48.7 354,000 38.9
Average 49.3 47.3 56.7 26.9
Source: Bureau of the Census, 1950 Census of Bousing, Prelim inary Reports, se ries HG-4,
Nos. 1-9 inc.
^Includes vacant u n its and u n its fo r sa le .
:
I
T able XIX shows th e p e r c e n ta g e o f o w n er-o ccu p ied
d w e llin g s in 1940 f o r th e tw e lv e s t a t e s g r a n tin g hom estead
l
t a x e x e m p tio n . The h ig h e s t p e r c e n ta g e o f o w n ersh ip was in j
M in n eso ta f o r ea c h c a s e o f d w e llin g u n i t . The a v era g e p e r - j
i
ce n ta g e o f o w n ersh ip was g r e a t e s t in r u r a l n on -farm u n it s j
where 4 7 .4 p e r c e n t w ere o w n e r -o c c u p ie d . R ural farm u n it s
w ere 4 5 .1 p er c e n t o w n er-o eeu p ied w h ile t h e p e r c e n ta g e f o r
I
urban u n it s was 3 9 .4 . The a v er a g e p e r c e n ta g e o f ow ner-
occu p an cy f o r a l l c l a s s e s o f u n it s f o r th e tw e lv e s t a t e s j
i
w as 4 2 .8 . The f ig u r e f o r a l l u n it s f o r th e e n t i r e c o u n tr y
w as 5 1 .0 p e r c e n t in 1 9 5 0 .
At th e p r e s e n t w r it in g f ig u r e s a re n o t a v a ila b le f o r
th e hom estead ex em p tio n s t a t e s show ing o w n er-occu p an cy f o r
1 9 5 0 . A v a ila b le f i g u r e s f a i l to in d i c a t e t h a t home owner
s h ip h a s b een s i g n i f i c a n t l y in flu e n c e d b y g r a n tin g home- j
!
!s te a d ta x ex em p tio n . j
E f f e c t o f hom estead ex e m p tio n s on th e t a x b a s e . —
A f r e q u e n t ly ask ed q u e s tio n i s , "How much d o es h om estead
exem p tion a f f e c t th e p r o p e r ty t a x b ase?" T ab le XX, page
3 4 7 , I s d e sig n e d t o show th e t o t a l amount o f r e a l p r o p e r ty
t h a t w ould be t a x a b le In s t a t e s w ith hom estead exem p tion
la w s , a s compared w ith th e amount t h a t i s a c t u a l l y ta x a b le
w ith e x i s t i n g e x e m p tio n s. The p e r c e n ta g e r e d u c tio n
o c c a s io n e d b y h om estead ex e m p tio n , a s in d ic a t e d b y column
T A B L E X I X
O W N E R -O C C U P IE D D W E L L IN G UNITS, U R B A N A N D R U S A L , IN S T A T E S
G R A N T IN G H O M E S T E A D E X E M P T IO N , 1940
S tate
Nu mb e r P e r c e n t
Year
Adopted T otal Urban
Rural
Non Farm
Rural
Farm T otal Urban
Rural
Non Farm
Rural
Farm
Alabama 226,460 70,224 51,943 104,293 33.6 30.9 33.0 36.1 1938
F lorida 226,655 115,528 70,654 40,473 43.6 39.2 46.4 55.4 1935
Georgia 231,689 76,968 61,297 93,424 30.8 26.6 35.9 31.9 1938
Iona 361,477 157,732 94,440 109,305 51.5 50.5 58.6 47.9 1938
Louisiana 218,447 83,491 65,967 68,989 36.9 31.8 48.3 35.7 1939
Minnesota 402,318 184,886 82,143 135,289 55.2 48.2 60.5 64.6 1933
M ississippi 178,118 71,452 36,840 99,826 33.3 34.4 38.4 31.3 1939
No. Dakota 75,710 13,549 24,526 37,635 49.8 39.8 52.2 53.0 1939
So. Dakota 74,338 18,259 23,708 32,421 45.0 41.9 47.8 44.8 1938
Oklahoma 261,162 109,403 65,746 86,013 42.8 42.9 47.1 39.8 1935
Texas 717,682 326,544 177,577 213,561 42.8 40.7 49.4 41.4 1938
W yoming 33,749 12,645 9,768 11,336 48.6 46.3 42.8 59.0 1939
Average 42.8 39.4 47.4 45.1
Source: U.S. Bureau of the Census, S ta tis tic a l A bstract of the United S tate s, 1951, p. 730'.
346
T A B L E X X
A S S E S S E D V A L U A T I O N O F T A X -E X E M P T H O M E S T E A D S A N D O F
T O T A L T A X A B L E F R O F E R T T IN 1948
(IN M ILLIO N S)
S tate
Homesteads
Amount
Per
cent
Taxable Property
For
Amount cent
T otal Amount
(Taxable and Exempt)
Alabama 293 25.2 868 74.8 1,161
F lorida 869 33.6 1,720 66.4 2,589
Georgia 329 36.2 580 63.8 909
Iowa 666 21.2 2,478 78.8 3,144
Louisiana 467 29.0 1,142 71.0 1,609
Minnesota* 1,358 39.9 2,047 60.1 3,405
M ississippi 194 40.3 287 59.7 481
Oklahoma 244 25.0 733 75.0 977
Texas 953 17.6 4,475 82.4 5,428
W . V irginia 471 32.1 998 67.9 1,469
W yoming 14 7.0 182 93.0 201
Source: N ational A ssociation o f Assessing Of fle e rs . Assessors* News L e tte r, X V (October, 1949).
83. See also , W ade S. Smith, "Revenue Needs S potlight Tax Exemption," fcaHonal M unicipal
Review, XXXVIII (June, 1949), 300-301.
*Full value. Under the c la ssifie d property tax system the property is assessed a t a lover
percentage.
347
3481
i
th r e e r a n g es from 7 .0 p er c e n t In Wyoming t o 4 0 .3 p e r c e n t
in M i s s i s s i p p i .
Each s t a t e l i s t e d in T ab le XX, page 3 4 7 , e x c e p t
Wyoming, shows a h ig h e r p e r c e n ta g e o f exem pt p r o p e r ty in
I
1948 th an t h e e s tim a te d 1 6 .6 p er c e n t exem pted f o r th e |
i
c o u n tr y a s a w h ole in 1 9 4 5 .
Where h om estead ex em p tio n e x te n d s o n ly to ta x e s
57 !
l e v ie d by th e s t a t e , a s in T e x a s, f o r ex a m p le, th e ad - i
i
v a n ta g e s c o n fe r r e d b y ex em p tio n may be so sm a ll a s t o have
l i t t l e in f lu e n c e on th e d e c is io n in home o w n e rsh ip . In
■ c a s e t h e ex em p tio n c o v e r s many p r o p e r ty t a x l e v i e s such a s
s t a t e , s c h o o l, d i s t r i c t , and co u n ty m a in ten a n ce t a x e s , a s
in M i s s is s ip p i o r F lo r id a , f o r exam p le, w here r a t e s are
h ig h , th e r e may be m a te r ia l e f f e c t from th e ex e m p tio n .
T h is may be th e more l i k e l y i f th e a d v a n ta g es c o n fe r r e d by |
' • I
hom estead ex em p tio n a re a g g r e s s iv e ly e x p lo it e d by prom oters.!
I
A lth ou gh th e ex em p tio n w ould n o t l i k e l y change th e t o t a l
demand f o r o r su p p ly o f h o u s in g , i t may in c r e a s e th e demand
f o r owned h o u se s an d , a t th e same tim e red u ce th e demand
f o r r e n te d h o u s e s . I f th e in c r e a s e d ow n ersh ip i s m e r e ly
p u r c h a sin g o f e x i s t i n g r e n t a l h o u sin g th e im m ediate and
c l e a r e f f e c t w ould be to red u ce th e t a x b a se a s ea ch new
owner a p p lie s f o r th e ex em p tio n .
57 ^ax S ystem s ( t w e l f t h e d i t i o n ) , o p . c i t . , p . 200.
5491
S in c e th e p r i v i l e g e , and b e n e f i t , o f ex em p tio n e x
ten d to a c l a s s o f p e r s o n , t h a t i s ow ners a s d is t in g u is h e d
from r e n t e r s , and n o t to c l a s s e s o f p r o p e r ty , th e norm al
e f f e e t w ould be t o en cou rage o w n e rsh ip . I f th e s tim u lu s t o ;
i
I
o w n ersh ip r e s u l t s in a d d it io n a l b u ild in g i t w ould in c r e a s e :
th e t a x b a s e , e x c e p t w here h ig h exem p tion o r lo w v a lu a t io n
(o r b o th ) ca u se no in c r e a s e t o ap pear on th e t a x b a s e .
C o n c e iv a b ly , hom estead exem p tion c o u ld so s t im u la t e j
home o w n ersh ip , a s t o s t a r t a "boom” in r e a l e s t a t e v a lu e s .
| As v a lu e s in c r e a s e beyond a f ix e d amount o f ex em p tio n t h e r e ;
i
i w ould be a n e t in c r e a s e in t h e t a x b a s e — u n le s s a s s e s s e d
l
v a lu a t io n s a re a llo w e d to l a g . P r e s e n t ow ners o f r e a l
e s t a t e b e n e f it from such a boom. I f su ch a boom tu rn ed
in t o a r e c e s s io n th e ta x b a se w ould sh r in k a s v a lu e s de
c l i n e . D uring t h i s p h ase many new homeowners may s u f f e r I
; |
th rou gh f o r e c lo s u r e s and d e f la t e d v a lu e s . F o r e c lo s u r e s j
w ould ta k e p r o p e r t ie s o f f th e h om estead exem p tion l i s t , y e t
w ould v e r y l i k e l y r e p r e s e n t d e lin q u e n t t a x e s .
In summary, o th e r b a s ic econom ic f o r c e s a re more
im p o rta n t in f lu e n c e s on home ow n ersh ip th a n h om estead t a x
ex em p tio n — such f o r c e s a s s e c u r it y o r i n s e c u r i t y o f in com e,
i n t e r e s t r a t e s , zo n in g r e g u l a t io n s , r e a l e s t a t e c r e d it
c o n d it io n s and i n s t i t u t i o n s , p u b lic a s s i s t a n c e a s to
v e t e r a n s . In s h o r t , hom estead exem p tion i s o f d o u b tfu l
_ 350l
im p ortan ce in th e lo n g run in en co u ra g in g home ownership.**® j
R eplacem ent o f r e v e n u e s . — W henever, f o r any
r e a s o n s , th e t a x b a se i s red u ced a d d it io n a l s o u r c e s o f j
I
rev en u e m ust be fo u n d , o r th e t a x r a t e in c r e a s e d i f th e !
i
same l e v e l o f e x p e n d itu r e s b y governm ent i s t o be m ain - j
i
t a in e d . The g e n e r a l u n w illin g n e s s o f th e p u b lie t o a c c e p t '
red u ced s e r v i c e s from th e govern m en t, t o g e t h e r w ith th e
I
r e lu c t a n c e o f th o s e in governm ent p o s i t i o n s t o urge red u ced \
j
a c t i v i t i e s , r e s u l t s in a d o p tio n o f o th e r form s o f t a x e s to |
i
! su p p ly th e r e v e n u e .
i
I C e r ta in s t a t e s , n o ta b ly P e n n s y lv a n ia and Hew York
have a llo w e d l o c a l govern m en ts to ta p v a r ie d reven u e
s o u r c e s . For ex a m p le, P e n n s y lv a n ia in 1947 g r a n te d a lm o st
a f r e e hand t o l o c a l t a x in g j u r i s d i c t i o n s t o t a x p e r s o n s ,
t r a n s a c t io n s , o c c u p a tio n s , p r i v i l e g e s , s u b j e c t s and p e r - |
59 I
s o n a l p r o p e r ty . H ow ever, none o f th e s e l o c a l a u t h o r i t i e s i
j !
may t a x a n y th in g w hich i s now o r d o es h e r e a f t e r become sub
j e c t t o a S ta te t a x o r l i c e n s e f e e . A ls o , th e amount t h a t
any l o c a l u n it may l e v y m ust n o t e x c e e d an amount e q u a l to
t h a t w h ich can be r a is e d by th e en actm en t o f a r e a l
58 Thomas, o p . c i t . , p . 8 0 0 .
89 M iner B. P h i l l i p p s , 1949 Supplem ent t o Where
C i t i e s Get T h eir Money (C h icago: M u n ic ip a l F in an ce O f f ic e r s
A s s o c ia t io n , Jan uary 1 5 , 1 9 4 9 ), p . 1 .
3 5 1 ,
60
p r o p e r ty ta x a t th e maximum m illa g e a llo w e d by la w .
As a r e s u l t o f th e above a u th o r iz a tio n l o e a l g o v e r n - !
m en ts have a d o p ted many new t a x e s . As o f S ep tem b er, 1948
a t o t a l o f 38S l o c a l t a x in g a u t h o r it i e s had ad op ted 503
i
t a x e s . S ev era n ce and r e la t e d t a x e s to p p ed th e l i s t w ith I
120 a d o p tio n s . N ext came amusement t a x e s w ith 119 adop
t i o n s . E x c lu s iv e o f P h ila d e lp h ia th e r e w ere s e v e n t y - e ig h t ;
incom e t a x e s , s e v e n ty -tw o p er c a p it a t a x e s , and f i f t y - s i x j
t a x e s on m ech a n ica l d e v i c e s . ^ j
i In 1947 and 1948 th e New York l e g i s l a t u r e g ra n ted
I
'many t a x in g pow ers t o c o u n t ie s , c i t i e s , and l o c a l g o v e r n -
i
m en ts. O ther s t a t e s g r a n tin g b ro a d er t a x in g pow ers t o
lo w e r l e v e l s o f governm ent w ere I l l i n o i s , N eb rask a, O h io,
W isc o n s in , L o u isia n a and K entucky.
i
In a d d it io n t o g r a n tin g b road er t a x pow ers t o l o c a l j
governm en ts many s t a t e s a c te d t o in c r e a s e sh a r in g o f t a x e s J
c o l l e c t e d and a d d it io n a l g r a n t s - i n - a i d .
Not a lo n e s t a t e s g r a n tin g hom estead ex e m p tio n , b u t
o t h e r s a s w e l l , have b een fa c e d w ith an in c r e a s in g problem
o f a d d it io n a l rev en u e s o u r c e s ; h ow ever, th e problem became
more im m ediate and p r e s s in g a s a r e s u l t o f hom estead
Idem .
Idem .
3 5 2 ,
ex e m p tio n . R eplacem ent t a x e s f o r l o c a l govern m en ts a re j
t r e a t e d in more d e t a i l in a l a t e r c h a p te r o f t h i s p a p er.
E v a lu a tio n o f h om estead ex e m p tio n . — On b a la n ce
hom estead ex em p tio n s a re u n d e s ir a b le .62 They c u t in t o th e
ta x b a se and th e r e b y red u ce t h e a b i l i t y o f th e governm ent J
t o re n d er s e r v i c e s t o th e v e r y t h in g s e x e m p t e d . T h e y
r e p r e s e n t p r e f e r e n t i a l tr e a tm e n t t h a t may be u n r e la te d t o
n eed . They a re in e q u it a b le a s lo w in co m e, n o n -p r o p e r ty j
ow ning grou p s may be fo r c e d to s u b s id iz e more p r o sp er o u s j
ow n ers. They may f o r c e r e s o r t to l e s s e q u it a b le t a x e s . !
They f a i l to prom ote home o w n ersh ip to an y s i g n i f i c a n t e x
t e n t .
7 1 . VETERANS EXEMPTION
G en eral S ta tem en t j
I n 1950 some form o f v e te r a n s ex em p tio n was ex ten d ed j
R A
by t w e n t y - f iv e s t a t e s . T h e amount o f th e exem p tion
v a r ie s from a v a lu e o f #200 in Oklahoma t o # 8 ,0 0 0 in
M a s s a c h u s e tts . Many o f th e s t a t e s g r a n tin g t h i s exem p tion
62 C on stan ce C. E in h o rn , "Homestead P r o p e r ty Tax
E x em p tio n s," R eport o f Revenue Laws C om m ission o f th e S ta te
o f I l l i n o i s . 1 9 4 9 , p . 6 8 .
6^ S h u ltz and H a r r is s , oj>. c i t . . p . 3 3 1 .
6^ Tax S ystem s ( t w e l f t h e d i t i o n ) , o £ . c i t . . p p . 198-
200.
353
s p e c i f i c a l l y p r o v id e t h a t th e v e te r a n may n o t own p r o p e r ty
o f more th a n a g iv e n v a lu e and c la im th e ex e m p tio n . Most
o f th e s e s t a t e s ex ten d th e exem p tion to unm arried w idow s o f
v e t e r a n s .
|
C a l i f o r n i a 's e x p e r ie n c e w ith t h i s exem p tion i l l u s - ■ '
i
t r a t e s th e e x t e n t and some o f th e p ro b lem s. In 1 9 5 0 -5 1 th e
6 2 6 ,9 8 9 ex em p tio n s averaged # 7 9 7 . The v a lu e o f p r o p e r ty
m 6 5 1
exem pted w as # 4 9 9 ,6 6 8 ,3 3 1 . V e te r a n s e x e m p tio n s amount t o j
I
7 6 .4 p e r c e n t o f #650 m i l l i o n o f p r o p e r ty e x e m p tio n s \
s
g r a n ted f o r c h u r c h e s , c o l l e g e s , v e t e r a n s , and w e lfa r e in -
I ft ft
i s t i t u t i o n s . The ex em p tio n s g ra n ted to v e te r a n s are th e
t
l a r g e s t and m ost im p o rta n t ty p e in th e s t a t e .
The m agn itu d e o f v e t e r a n s ex em p tio n i s v e r y im p o rt
a n t when view ed n a t i o n a l l y s in c e more th an o n e - h a lf o f th e
s t a t e s g r a n t th e ex em p tio n . In W orld War I I 1 2 ,0 0 0 ,0 0 0 o r i
i
more v e t e r a n s w ere ad ded. I f th e v e te r a n s o f p e a c e -tim e j
s e r v ic e r e c e iv e th e same tr e a tm e n t, w h ich i s p r o b a b le , th e
fu tu r e w i l l s e e even more p r o p e r ty p u t beyond th e t a x in g
pow ers o f l o c a l g o v ern m en ts. A lthough n o t a l l v e te r a n s
becom e p r o p e r ty o w n ers, and th u s be e l i g i b l e to c la im th e j
!
65 C a lif o r n ia S ta te Board o f E q u a liz a t io n , Annual
R e p o r t. 1 9 4 9 -1 9 5 0 , p p . 5 6 -5 7 .
66 C a lif o r n ia T axp ayers A s s o c ia t io n , The Tax D i g e s t .
D ecem ber, 1 9 5 0 , p . 4 2 6 .
354
ex em p tio n , more th a n o n e - h a lf o f C a l i f o r n i a ’ s v e t e r a n s ta k e
i
ad van tage o f th e ex e m p tio n . I
I
The T heory o f V eter a n s E xem ption
E xem p tions e x ten d ed to v e te r a n s a re in th e n a tu re o f
a g i f t o r bonus t o th o s e who se rv ed th e c o u n tr y in tim e o f
war in some m i l i t a r y r o l e . A lth ou gh th e e f f e c t o f th e
exem p tion may be t o en co u ra g e home ow n ersh ip to v e te r a n s j
t
th e p o l i c y i s a l e s s d e lib e r a t e o r d ir e c t e f f o r t to i n - j
f lu e n c e econom ic a c t i v i t y b y th e governm ent th a n h om estead !
|o r i n d u s t r i a l e x e m p tio n s. E xem ptions t o v e te r a n s a re som e-
t
I w hat l i k e th e p r a c t ic e o f g r a n tin g o u t r ig h t f i n a n c i a l g i f t s
o r b o n u se s, e x c e p t t h a t th e p r o p e r ty ta x ex em p tio n i s i n
d ir e c t .
I t i s a w e l l e s t a b lis h e d p r in c ip le th a t t a x exem p- j
I
t i o n to v e te r a n s i s a p e r m is s ib le u se o f th e t a x in g power j
i
if o r a p u b lic p u r p o se , ev en though th e b e n e f i t s are co n - '
fe r r e d on a p a r t ic u la r g ro u p , and c o n fe r r e d a f t e r th e
s e r v ic e h a s b een re n d er ed .
J u s t i f i c a t i o n o f th e p r a c t ic e , a s w e ll a s a v e te r a n s
i
Jbonus, i s l a r g e l y an e t h i c a l q u e s tio n s in c e th e econom ic
b a s i s f o r i t a p p ea rs to be no s tr o n g e r th a n i t w ould be f o r
any p a r t ic u la r g rou p . C e r ta in ly i t i s n o t w ith o u t p o l i t i
c a l im p lic a t io n s w here a p p e a ls t o p a t r i o t i c and n a t io n a l
i s t i c s e n tim e n ts are so c o m p e llin g .
3551
E f f e c t s and E v a lu a tio n o f V e te r a n s Exem ption
V e te r a n s ex e m p tio n , l i k e any o t h e r , have th e im
m ed ia te and u n d e s ir a b le e f f e c t o f ta k in g p r o p e r ty , o r a t j
l e a s t a p o r t io n o f i t , from th e t a x r o l l s . The o b v io u s !
r e s u l t o f t h i s i s t o throw th e sh a re o f p r o p e r ty t a x e s J
I
o th e r w is e due on exem pted p r o p e r ty to th e n o n -ex em p t. T h is !
i s in e s c a p a b le s in c e th e r e i s n o th in g in h e r e n t in such an
!
ex e m p tio n , a t l e a s t in th e sh o r t ru n , t o b r in g about a c o r - j
r e sp o n d in g r e d u c tio n in governm ent e x p e n d itu r e s and ta x J
r a t e s . Over a p e r io d o f tim e i f new c o n s t r u c t io n i s i n - !
i
'c r e a s e d b eca u se o f th e ex em p tio n p r i v i l e g e , th e ta x b a se
f
m ig h t in c r e a s e more th an enough t o o u tw eig h th e p r o p e r ty
exem p ted . I f th e ex em p tio n r e s u l t s in s a le o f e x i s t i n g
I
h o u s e s , n o t p r e s e n t ly exem p t, to v e te r a n s in s t e a d o f new
o n e s , th e r e w ould be a r e d u c tio n in th e t a x b a s e . j
I i
; The problem o f v e te r a n s ex em p tio n may be p e c u l i a r l y
p r e s s in g in new h o u sin g d ev elo p m en t, su ch a s se e n in South
ern C a lif o r n ia , w here th e y a re l a r g e l y v e te r a n o c c u p ie d .
W ith a s s e s s e d v a lu a tio n a t n o t more th an o n e - h a lf a c t u a l
6 7
v a lu e , th e e x t e n s io n o f # 1 ,0 0 0 ex em p tio n p e r v e te r a n
67 The C a lif o r n ia S ta te Board o f E q u a liz a tio n r e
p o r te d in J u ly , 1951 a s t a te w id e a v er a g e r a t i o o f 40 p er
c e n t o f a s s e s s e d t o m arket v a lu e s o f p r o p e r ty e n te r e d on
l o e a l ta x r o l l s . The r a t i o v a r ie d from a lo w o f 24 p er
c e n t in one co u n ty t o a h ig h o f 46 p e r c e n t in o t h e r s .
R ep ort o f S u rvey Under S e c tio n 1 8 5 1 . Revenue and T a x a tio n
C ode. o f r e l a t i v e a sse ssm e n t r a t i o s a s o f th e f i r s t Monday
356 1
w ould l i k e l y remove a s muck a s o n e -fo u r th o f th e ta x b a s e .
For ex a m p le, a h ou se w ith a m arket v a lu e o f $ 1 0 ,0 0 0 w ould
be a s s e s s e d a t $ 4 ,0 0 0 . A llo w in g th e $ 1 ,0 0 0 ex em p tio n w ould
red u ce th e t a x a b le v a lu e from $ 4 ,0 0 0 to $ 3 ,0 0 0 , o r by 25
p e r c e n t . !
i
The e f f e c t s o f v e te r a n exem p tion a r e h id d en and
c a p r ic io u s . The ex em p tio n s are n o t u n iform among th e
s t a t e s g r a n tin g them . A ls o , a sse ssm e n t l e v e l s v a ry w id e ly ,
b o th i n t e r - s t a t e and in t e r - c o u n t y , w h ich f u r th e r c o m p li- J
i
c a t e s th e o p e r a tio n o f th e ex e m p tio n . A ls o , p r o p e r ty owner
s h ip i s r e q u ir e d t o c la im th e b e n e f it and th u s th e n on -
I
ow ning v e t e r a n s a re p e n a liz e d . The c u m u la tiv e b e n e f i t s
o v e r a p e r io d o f y e a r s w ould th u s v a r y g r e a t l y f o r i n d i - i
I
j v id u a l v e t e r a n s .
V e te r a n s a s a group d e se r v e no s p e c ia l f i n a n c i a l j
1 rew ard from l o c a l governm en ts f o r s e r v i c e s ren d ered t o th e j
i '
n a tio n a s a w h o le ; h ow ever, i f su ch i s t o be p a id i t w ould
be more d e s ir a b le t o pay i t d i r e c t l y and th e r e b y a v o id th e
c a p r ic io u s n e s s o f th e t a x ex em p tio n .
in March o f 1951 f o r E q u a liz a tio n P u rp o ses (Sacram ento:
C a lif o r n ia S ta t e Board o f E q u a liz a t io n , J u ly 1 6 , 1 9 5 1 ).
(P r e s s r e le a s e )
V I I . INSTITUTIONAL EXEMPTIONS
357
G en eral S ta tem en t
Our g o v ern m en ts, b o th f e d e r a l and s t a t e , have a lw a y s
ad hered to th e fu n d am en tal p o l i c y o f g r a n tin g t a x exem p tion
!
to p r i v a t e l y owned r e l i g i o u s , e d u c a t io n a l and p h ila n t h r o p ic |
o r g a n iz a tio n s w h ich p erform an e s s e n t i a l o r d e s ir a b le j
f l O f
g o v ern m en ta l o r p u b lic f u n c t io n . Such o r g a n iz a t io n s i n - |
e lu d e c h u r c h e s , c h a r it a b le and b e n e v o le n t f r a t e r n a l g r o u p s, j
l i t e r a r y and s c i e n t i f i c s o c i e t i e s w hich a re n o n - p r o f i t , |
-
I c e m e te r ie s , c o l l e g e s and u n i v e r s i t i e s . L o c a l and s t a t e
p
govern m en ts o r d in a r il y exem pt th e s e from a l l p r o p e r ty
69
t a x e s , e x c e p t s p e c i a l a s s e s s m e n ts , i f t h e i r p r o p e r ty i s
u sed f o r t h e s e p u r p o se s and i s n o t u sed in o r d in a r y b u s i
n e s s p u r s u it s . j
The im p o rta n ce o f t h i s ty p e o f exem p tion i s r e a d i l y j
a p p a ren t in v ie w o f th e m agn itu d e o f th e p rob lem . One 1
a u th o r s t a t e s :
8 For d is c u s s io n o f o r g a n iz a tio n s c la im in g t a x
ex em p tio n under S e c t io n 101 o f th e I n t e r n a l Revenue C ode,
s e e H arry W. W o lk ste in , " C r ite r ia f o r Tax E xem ption a s a
R e li g io u s , E d u c a tio n a l, o r P h ila n th r o p ic O r g a n iz a tio n ,"
The J o u rn a l o f A cco u n ta n cy . LXXXEX (May, 1 9 5 0 ), 4 0 4 -1 2 .
C edars o f Lebanon H o s p ita l v . Los A n a e le s C o u n ty .
35 A .C . 7 7 9 , c i t e d i n C a lif o r n ia S ta t e Board o f E q u a liz a -
t i o n , Annual R e p o r t. 1 9 5 0 , p . 3 1 .
" 358 1
A lre a d y n e a r ly o n e - t h ir d o f th e t o t a l a s s e t s o f th e
U .S .A .— some #157 b i l l i o n o u t o f #542 b i l l i o n - - i s owned
by e d u c a t io n a l, c h a r i t a b le , and r e l i g i o u s i n s t i t u t i o n s ,
Theory o f I n s t i t u t i o n a l E xem ptions
The th e o r y behind ex em p tio n o f e d u c a t io n a l, r e l i
g io u s , c h a r i t a b le , and su ch i n s t i t u t i o n s , i s t h a t th e y
t h a t p r iv a t e p erform an ce o f t h e s e f u n c t io n s i s p r e fe r a b le
t o g o v ern m en ta l o p e r a tio n an d , t h e r e f o r e , t h e i r en co u ra g e
m ent by ta x exem p tion i s j u s t i f i e d . F u r th e r , i t i s th o u g h t
th e g e n e r a l p u b lic b e n e f i t i s g r e a t e r th an th e l o s s in
g a n iz a t io n s a s s c h o o ls and e h u reh es add t o th e v a lu e o f
su rro u n d in g p r o p e r ty and th e r e b y i n d i r e c t l y c o n tr ib u te to
G am er M. L e s t e r , ”G o-op Tax E x em p tio n ,” P u b lic
U t i l i t i e s F o r t n i g h t ly . XLV (June 2 2 , 1 9 5 0 ), 8 4 1 .
71 S ch o o l o f Dorn. A r ts and S c ie n c e v . Garr ( 1 9 2 6 ),
322 1 1 1 . 5 6 2 ; 153 N .E . 6 6 9 .
72 Layman F ou n d ation v . L o u i s v i l l e . 232 Ky. 259
(1 9 2 9 ).
"R eal P r o p e r ty Tax E xem ptions o f E d u c a tio n a l
I n s t i t u t i o n s , ” The Am erican C it y (P rep ared by th e N a tio n a l
I n s t i t u t e o f M u n icip a l Law O f f i c e r s ) , J u ly , 1 9 4 5 , p . 1 1 5 .
co s , governm ent c o r p o r a tio n s and a g e n c ie s
p erform s e r v ic e s on a n o n - p r o f it b a s is t h a t w ould o th e r w is e
71
h ave t o be perform ed b y govern m en t. I t i s o f t e n f e l t
72
t a x e s o c c a s io n e d by th e e x e m p tio n . In a d d it io n su ch o r -
73
th e ta x b a se in a la r g e r amount th a n t h e i r own v a lu e .
“ ’ ' 3591
One o f th© o l d e s t t e s t s f o r exem p tion i s mere owner
s h ip s , w h ich , i f fo llo w e d s t r i c t l y , w ould exem pt a l l prop
e r t y owned by exem pt i n s t i t u t i o n s , r e g a r d le s s o f u s e . T h is
r u le w as f o llo w e d in H o b les C ounty v . H am line U n iv e r s it y 7^ j
w here th e t e r r i t o r i a l l e g i s l a t u r e g ra n ted th e c h a r te r t o j
l
th e u n i v e r s i t y . T h is ty p e o f c h a r te r i s r a r e ly g r a n te d . I
The u se t e s t i s a more common t e s t f o r ex em p tio n o f
i n s t i t u t i o n a l p r o p e r ty . Here th e t e s t i s con cern ed w ith !
t
th e u se to w hich p r o p e r ty i s put and n o t o w n e rsh ip . C o u rts j
have h e ld t h a t th e u se o f n e t incom e f o r e d u c a tio n a l p u r-
i J 7 g
. p o s e s e n t i t l e s i n s t i t u t i o n s t o e x e m p tio n s, o r p r o p e r ty
i
•u sed f o r com m ercial p u r p o se s b y th e exem pt i n s t i t u t i o n i s
e n t i t l e d to ex e m p tio n , 9 a lth o u g h a s im ila r c la im was
77
d en ied in P e n n s y lv a n ia .
M ost I n s t i t u t i o n a l ex em p tio n la w s do n o t co n tem p la te I
'u se o f th e p r o p e r ty f o r p r iv a t e g a i n , 78 and th e r e a l i z a t i o n '
t
1 !
74 M inn. 3 1 6 , 49 N.W. 1119 (1 8 9 1 ).
75 V a n d e r b ilt U n iv e r s it y v . C h en ey. 116 Tenn. 259
(1 9 0 5 ).
76 T r u s te e s o f K entucky Fem ale Orphan S ch o o l v . C it y
o f L o u i s v i l l e . 100 Ky. 470 (1 8 9 6 ): C it y o f L o u i s v i l l e v .
P r e s b y te r ia n 0 rphan Home e t a l . . , 10 M unicT pal Law J o u rn a l
32 (1 9 4 5 ).
77 P o n g b erty v . C it y o f P h ila d e lp h ia . 3 1 4 P a. 298
(1 9 3 4 ).
7® Hew York Tax Law, A r t. 1 , s e c . 4 ( 6 ) ; A rizon a
R e v ise d C ode, 1 9 2 8 , s e c . 3066 (2 ) c i t e d in The Am erican
C i t y , o p . c i t . . p p. 1 1 6 -1 7 .
"360l
o f such, v i o l a t e s th e exem p tion i f th e g a in g o e s t o p r iv a t e
p a r t i e s .
E v a lu a tio n o f i n s t i t u t i o n a l e x e m p tio n s. — A lthou gh 1
i n s t i t u t i o n a l ex em p tio n s ca n n o t a l l he condem ned, much !
d is c r e t i o n i s c a l l e d f o r in th e u se o f th e p o l i e y . T hese |
e x e m p tio n s , a lo n g w ith m ost o t h e r s , r e s u l t in a n e t r e - ;
i
d u c tio n o f th e t a x b a s e . Where th e i n s t i t u t i o n s a re n on -
!
f
p r o f i t m aking and p erform f u n c t io n s w h ich w ould o th e r w is e
be g o v ern m en ta l a c t i v i t i e s , t h e i r ex em p tio n i s more e a s i l y !
d e f e n s ib le than many o th e r e x e m p tio n s. The g r e a t w eak n ess
!in th e p o l i c y , h o w ev er, i s th e a b u se s c o n n ected w ith i t .
I
For ex a m p le, i n s t i t u t i o n s a c q u ir in g p r o p e r ty f o r in com e-
p r o d u c tio n o r f o r s p e c u la t iv e p u rp o ses v i o l a t e th e p h ilo s o
phy o f su ch e x e m p tio n s. A much c l e a r e r d e f i n i t i o n o f
" r e l i g i o u s , c h a r it a b le , s c i e n t i f i c , l i t e r a r y , o r n o n - j
i
'p r o f it " i n s t i t u t i o n s i s g r e a t l y n e e d e d . E ver in c r e a s in g j
*79
”e x e m p tio n itis " i s a s e r io u s i l l o f ou r r e a l e s t a t e t a x .
Till. EXEMPTION PROBLEMS AND ABUSES
G en era l S ta tem en t
. Many o f th e p rob lem s o f p r o p e r ty ta x ex e m p tio n s a re
!q u ite e v id e n t: th e d i r e c t , and som etim es d r a s t i c , r e d u c tio n |
79 Thomas, o p . c i t . , p . 8 0 4 .
, : 3 6 1 '
o f th e ta x b a s e ; th e a lm o st c e r t a in s h i f t i n g o f th e r e s u l t
in g burden t o th e n o n -ex em p t, a t l e a s t in th e s h o r t run;
f u r t h e r c o m p lic a tio n o f th e u n c e r ta in e q u ity c o n s id e r a t io n s
o f th e p r o p e r ty t a x ; th e r e s o r t to o th e r rev en u e s o u r c e s ,
l
f r e q u e n t ly l e s s d e s ir a b le th a n p r o p e r ty t a x e s ; in c r e a s e d 1
in c e n t iv e to evad e o r a v o id t a x e s ; in c r e a s e d t a x d e li n -
t
quency in hard tim e s ; a g i t a t i o n f o r a d d it io n a l ex em p tio n s t
f o r o t h e r "w orthy” e n d e a v o r s , a lo n g w ith r a t e l i m i t a t i o n s i
f o r th e n on -exem p t; th e r e d u c t io n o f r e v e n u e s from th e j
p r o p e r ty ta x ; and th e im pairm ent o f g o v ern m en ta l s e r v i c e s . .
A buses o f E xem ption
The problem o f p r o p e r ty ta x exem p tion i s l a r g e l y one
i
o f th e grow ing ab use o f t h i s p r i v i l e g e . The le g it i m a t e
p r a c t i c e s o f exem p tion have been pushed to th e l i m i t , o r j
b ey o n d , when some ta x -ex em p t c h a r i t a b l e , e d u c a t io n a l,
r e l i g i o u s , and o th e r i n s t i t u t i o n s have gone in t o p u r e ly
com m ercial a c t i v i t i e s .
One fo r m .o f abuse h a s b een th e t r a n s f e r o f t i t l e to
p r o p e r ty by a m a n u fa ctu rin g con cern t o a ta x exem pt c o l l e g e
and r e n t in g back th e p r o p e r t y .80 The m a n u fa ctu rin g company
c o u ld th e n d ed u ct th e r e n t p a id f o r incom e ta x p u r p o se s
80 "Abuse o f Tax E xem p tion ," F ortu n e M a g a zin e. XLX
(May, 1 9 5 0 ), 7 4 -7 6 ; a l s o , " S ch o o ls T ax-F ree B u s in e s s ,"
U n ited S t a t e s N ew s. Jan u ary 9 , 1 9 4 8 .
363
w h ile th e c o l l e g e i s ta x -e x e m p t.
A nother ab u se h a s b een th e c o n tin u e d u n d e r -a s s e s s
m ent o f v e t e r a n s ' p r o p e r ty . The a s s e s s o r may r e p o r t a
v a lu a tio n f a r b elo w th e f a i r v a lu e o f th e p r o p e r ty in o r d e r
t o q u a li f y th e v e te r a n f o r th e ex em p tio n ; o r th e v e te r a n
may n o t d e c la r e i n t a n g i b l e s , or m e r e ly d e c la r e a f r a c t i o n ;
i
o f t h e i r v a lu e , t o be e l i g i b l e f o r th e e x e m p tio n . ;
S t i l l a n o th e r abuse a r i s e s w here in t a n g i b l e s a re \
t a x e d , y e t o n ly h a lf - h e a r t e d e f f o r t made to t a x a l l l e g a l l y j
l i a b l e in t a n g i b le s . A p p lic a tio n o f a ta x in t h i s m anner
am ounts t o a p e n a lt y on h o n e s ty and th e r e b y e n co u ra g e s d i s
h o n e s ty by ta x p a y e r s . D e s p ite g e n e r a l econom ic grow th
s t a t e s r e p o r t a s s e s s m e n ts o f i n t a n g i b l e s , t o t a l and p er
c a p it a , have d e c l i n e d .81 One s t a t e 82 r e p o r te d t h a t p e r -
:s o n a l p r o p e r ty co m p rised 33 p e r c e n t o f th e a s s e s s e d v a lu - j
| ;
a t io n o f r e a l p r o p e r ty in th e s t a t e in 1 8 7 0 , w h erea s i t 1
amounted to o n ly 1 .2 p e r c e n t in 1 9 3 2 . Tax ex em p tio n i s an
e a s i l y overw orked p r a c t ic e w here ex e m p tio n s a r e ex ten d ed t o
a c t i v i t i e s and a g e n c ie s w hich a re n o t t r u l y d e s e r v in g , such
a s lo d g e s , f r a t e r n i t i e s , and th e l i k e . j
I
|
81 S h u ltz and H a r r is s , o p . c i t . . p . 3 4 1 .
82 Annual R eport o f New York S ta te Tax C om m ission .
1 9 3 2 , p p . 1 1 0 -1 1 , c i t e d in M. S la d e K en d rick , P u b lic
F in an ce P r in c i p l e s and P roblem s (New York: H o u g h to n -M ifflin
Company, 1 9 5 1}, p . 1 8 5 .
363
Government owned p r o p e r ty used in a p r o p r ie ta r y
f u n c t io n , y e t exem pted from t a x e s p a id by com p etin g p r i
v a t e l y owned p r o p e r ty , i s abuse o f th e p h ilo s o p h y and
p u r p o se s o f ex e m p tio n . H owever, governm ent p r o p e r ty u sed
f o r p u b lic s e r v i c e s w h ich a re n o t i n c o m p e titio n w it h
p r iv a t e b u s in e s s e s may j u s t i f i a b l y be exem pted. J u s t th e
sam e, sueh an exem p tion may p la c e a h ea v y burden on l o c a l
governm ent u n le s s com pensated f o r by in l i e u p aym en ts.
IX . EVALUATION AND CONCLUSIONS i
Many o f th e im p lic a t io n s o f t a x exem p tion are la r g e
l y in d e te r m in a te b eca u se o f th e u n c e r t a in t i e s and r e p e r
c u s s io n s s e t in m o tio n by u se o f e x e m p tio n s. The i n t e r -
i
r e l a t io n s h i p s b etw een t h e p a tt e r n o f b e n e f i t s flo w in g from
th e g r a n tin g o f ex em p tio n s and th e t a x burden p a tte r n w h ich ;
i
' r e s u l t s from th e ex e m p tio n s w i l l have a fu n d am en tal e f f e c t !
i !
on th e e q u it y c o n s id e r a t io n s , th e s o c i a l im p l ic a t io n s , and
th e d i s t r i b u t io n o f in co m e. The b e n e f i t s o f th o s e who r e
c e iv e ex em p tio n s m ust be b a la n ced a g a in s t th e b u rd en s
im posed on th o s e who do n o t , a s t h e s e p a t t e r n s w i l l d e t e r
m ine t h e r e l a t i v e w e lfa r e o f gro u p s in v o lv e d . The im
m ed ia te e f f e c t o f an ex em p tio n i s t o put an added burden
<
on th e n o n -ex em p t, u n le s s governm ent e x p e n d itu r e s are
red u ced p r o p o r t io n a t e ly . E xem ptions sh o u ld be c l o s e l y
364]
lim it e d and c a r e f u l l y r e a p p r a is e d to m in im ize a b u se s and
u n c e r t a in t i e s in th e d i s t r i b u t i o n o f t a x b urdens and b en e-
I
f i t s . " |
1 . The b a s ic th e o r y back o f p r o p e r ty t a x ex em p tio n !
I
i s t h a t th e s o c i a l i n t e r e s t i s se rv ed by g r a n tin g ex em p tio n i
t o c e r t a in p r o p e r t ie s , and t h a t s e l e c t i v e ex em p tio n s e x
p e d it e a d m in is tr a tio n o f th e p r o p e r ty t a x and th e r e b y make
i
i t more e q u it a b le . A r e a p p r a is a l o f th e w hole p o l i c y i s !
n eed ed s in c e a b u se s a re com m onplace. More d is c r im in a t e u se !
<
t
o f th e p o l i c y i s r e q u ir e d i f i t i s t o se r v e i t s b a s ic p u r-
j p o s e s .
2 . A c o n s id e r a b le p r o p o r tio n o f th e p o t e n t i a l t a x
b a se i s exem pted w h ich p a r t ly a c c o u n ts f o r th e f i n a n c i a l
d i s t r e s s o f many l o c a l g o v ern m en ts. In a d d it io n to la n d
th e f e d e r a l govern m en t, on an e v e r in c r e a s in g s c a l e , J
;a c q u ir e s t i t l e t o p l a n t s , in v e n t o r ie s , and work in p r o g r e s s !
' I
under term s o f war go o d s c o n t r a c t s , a l l o f w h ich a re beyond
th e power o f l o c a l governm en ts t o t a x .
3 . The p r a c t ic e by s t a t e govern m en ts o f g r a n tin g ta x
ex em p tio n to i n d u s t r i a l p r o p e r ty h a s grown i n c r e a s in g ly
im p o rta n t in r e c e n t y e a r s . T h is p r a c t ic e i s b a sed on th e
th e o r y t h a t t a x e s (o r th e la c k o f them) may be th e c r u c ia l
f a c t o r in econom ic d e c i s i o n s , where o th e r t h in g s a r e r e l a
t i v e l y e q u a l. C o n sid e r a b le doubt e x i s t s a s t o th e
365"!
i
so u n d n ess o f such, a p r a c t ic e i f c a r r ie d o u t on a w id esp rea d j
ha s i s • j
i
4 . Many s t a t e s g r a n t hom estead t a x ex em p tio n s on th e j
j
th e o r y t h a t th e r e b y home o w n ersh ip w i l l be in c r e a s e d . T h is !
f o i a o f ex e m p tio n , l i k e m ost o t h e r s , r a i s e s s e r io u s d o u b ts I
a s to i t s e f f e c t i v e n e s s and e q u it y . S t a t i s t i c s do n o t show ,
I
s i g n i f i c a n t d i f f e r e n c e s in home ow n ersh ip b etw een s t a t e s
a llo w in g and th o s e n o t a llo w in g hom estead ex em p tio n . On '
b a la n c e th e p r a c t ic e i s u n j u s t i f i e d . >
i
5 . P r o p e r ty ta x ex e m p tio n s ex ten d ed t o v e te r a n s b e -
i
come more im p o rta n t a s th e number o f v e t e r a n s in c r e a s e s and
|a s more s t a t e s e x te n d th e ex e m p tio n . T h is exem p tion i s
hard t o j u s t i f y s in c e th e s e r v ic e re n d er ed by v e te r a n s was
t o th e n a tio n a s a w hole and n o t t o th e l o c a l governm en t.
IThe p r o p e r ty o f th e v e te r a n r e c e iv e s th e same l o c a l !
i l
|s e r v i c e s a s o th e r p r o p e r ty y e t p a y s l e s s th an i t s sh a re o f !
i
th e ex p en se to p r o v id e them . The in t e n t o f th e la w i s
o f t e n v i o l a t e d by u n d era ssessm en t w ith th e r e s u l t t h a t th e
v e te r a n i s g iv e n com p lete ex em p tio n in s t e a d o f a lim it e d
am ount.
6 . Tax ex em p tio n t o en co u ra g e p r iv a t e perform ance o f
c h a r i t a b le , e d u c a t io n a l, s c i e n t i f i c , c u l t u r a l , and r e l i
g io u s a c t i v i t i e s in l i e u o f go v ern m en ta l assu m p tio n o f them
h a s lo n g b een p r a c t ic e d . C lo s e r s c r u t in y i s c a l l e d f o r in
g r a n tin g t h e s e ex em p tio n s t o m in im ize a b u s e s .
I
!
CHAPTER IX /
PROPERTY TAX LIMITATION
P r o p e r ty ta x l i m i t a t i o n o f an o v e r - a l l n a tu r e g a in ed
prom inence d u rin g th e d e p r e s s io n o f t h e 1 9 3 0 * s . C o n s id e r - !
a b le d e f la t i o n in r e a l e s t a t e v a lu e s o ccu rred in th e l a t e
i
1 9 8 0 * s w h ich , t o g e t h e r w ith th e d e p r e s s io n 1 9 3 0 * s , r e s u lt e d j
in much d e lin q u e n c y and demands f o r r e d u c tio n o f r e a l |
e s t a t e t a x e s . As a g e n e r a l r u le l o c a l governm en ts a re f r e e |
t o le v y t a x e s on p r o p e r ty , b o th a s t o r a t e s and p u r p o se s o f I
th e t a x . H ow ever, t h e y a r e som etim es lim it e d by c o n s t i t u
t i o n a l and s t a t u t o r y p r o v is io n s a s t o maximum r a t e s and
v a lu a t io n . For exam p le, l o c a l governm en ts o r s c h o o l b oard s
may l e v y t a x e s up t o b u t n o t beyond a g iv e n r a t e f o r a
s t ip u la t e d a s s e s s e d v a lu a t i o n . Not in f r e q u e n t ly t h e s e j
t
f
proved t o be l i t t l e , i f a n y , l i m i t a t i o n s in c e c o n s t it u t io n a l]
i I
and s t a t u t o r y p r o v is io n s w ere to o l o o s e l y fram ed . Even b e
fo r e th e 1 9 3 0 *s many s t a t e s had some form o f t a x l im i t a t i o n .
V ig o ro u s e f f o r t s t o e s t a b l i s h o v e r - a l l p r o p e r ty t a x l i m i t a
t i o n s , in a d d it io n to d i v e r s i f i c a t i o n o f l o c a l and s t a t e
t a x s o u r c e s , d e v e lo p e d in th e d e p r e s s io n o f th e 3 0 * s . T hisJ
movement w as sp o n so red by p r iv a t e com m ercial r e a l e s t a t e
i n t e r e s t s headed up b y t h e N a tio n a l A s s o c ia tio n o f R ea l
1 i
E s ta te B oard s. J
I
I . KINDS OF PROPERTY TAX LIMITATIONS j
G en eral S ta tem en t j
Tax l i m i t a t i o n s may be s p e c i f i c o r o v e r - a l l and j
e i t h e r s t a t u t o r y o r c o n s t i t u t i o n a l . Some s t a t e s a p p ly
l i m i t a t i o n s in c o n n e c tio n w it h c l a s s i f i c a t i o n o f p r o p e r ty ,
i
where d i f f e r e n t maximum r a t e s a r e a p p lie d t o v a r io u s
c l a s s e s o f p r o p e r ty . R ate l i m i t a t i o n s em bodied in c o n s t i
t u t i o n a l p r o v is i o n s , i f c l e a r l y drawn t o p r e v e n t e v a s io n , :
I '
may p rove t o be r i g i d and to o d i f f i c u l t t o m o d ify when
changed c o n d it io n s o c c u r . S ta t u t o r y l i m i t a t i o n s are l e s s
r i g i d s in c e t h e y may b e a lt e r e d by th e l e g i s l a t u r e .
S p e c if ic L im ita tio n j
A s p e c i f i c l i m i t a t i o n may p r e s c r ib e th e maximum r a t e i
f • ‘
f o r a g iv e n u n it o f govern m en t, su ch a s a c i t y o r c o u n ty .
I n a d d it io n a s p e c i f i c l i m i t a t i o n may s e t th e maximum
amount w h ich may be sp e n t f o r a g iv e n s e r v ic e o r f u n c t io n
o f a p a r t ic u la r govern m en t. F u r th e r , s p e c i f i c l i m i t a t i o n s
may v a r y in th e e x c e p tio n s a llo w e d . L im it a t io n s o r d in a r il y
■ * - G. M. M o r r is , Tax L im ita tio n L aw s. R eport No. 152
(C h ica g o : A m erican M u n ic ip a l A s s o c ia t io n , J a n u a ry , 1 9 4 3 ),
p . 1; a l s o , A. M. H illh o u s e and R. B. W elch, Tax L im its
A p p r a ise d . P u b lic a t io n N o. 55 (C h ica g o : P u b lic A dm inis
t r a t i o n S e r v ic e , 1 9 5 7 ), p . 1 . ________________________________
369
e x c e p t t a x e s l e v i e d t o pay i n t e r e s t on p u b lic in d e b te d n e s s ,
e s p e c i a l l y th e p a r t o f th e d eb t in c u r r e d b e fo r e th e l i m i t a
t i o n was a d o p te d . The e x p e r ie n c e o f W est V ir g in ia on t h i s
p o in t i s i n t e r e s t i n g . That s t a t e ad op ted a c o n s t i t u t i o n a l
amendment in 193S w h ich lim it e d p r o p e r ty t a x r a t e s on th e !
b a s i s o f a f o u r - f o l d c l a s s i f i c a t i o n o f p r o p e r ty w ith a
d i f f e r e n t r a t e f o r ea ch c l a s s i f i c a t i o n .
C la s s I . Farm equipm ent and m a ch in e ry , p r o d u c ts o f i
a g r ic u lt u r e w h ile owned by th e p r o d u c e r , in t a n g ib le i
p e r s o n a l p r o p e r ty su ch a s s t o c k s , b o n d s, b i l l s , n o t e s , 1
m oney, a c c o u n ts r e c e iv a b l e , e t c . Maximum r a t e , # 0 .5 0
on each #100 a s s e s s e d v a lu a t io n .
C la s s I I . O w n er-occup ied r e s id e n c e s and farm s
o c c u p ie d and c u l t i v a t e d b y ow ners o r bona f i d e t e n a n t s .
Maximum r a t e , # 1 .0 0 on ea c h #100 v a lu a t io n .
G la s s I I I . A ll o th e r p r o p e r ty e x c lu s iv e o f C la s s e s
I and I I s it u a t e d o u t s id e m u n i c i p a l i t i e s , such a s
b u s in e s s and r e n t a l p r o p e r ty , h o u seh o ld good s and a u to
m o b ile s . Maximum r a t e , # 1 .5 0 on ea ch #100 a s s e s s e d
v a lu a t io n . j
G la s s IV . A ll o th e r p r o p e r ty s it u a t e d w it h in m uni- j
c i p a l i t i e s , su ch a s b u s in e s s and r e n t a l p r o p e r ty ,
h o u se h o ld g o o d s and a u to m o b ile s . Maximum r a t e , # 2 .0 0
on ea c h #100 a s s e s s e d v a lu a t io n .
The fra m ers o f th e amendment had a p p a r e n tly m eant f o r th e
l i m i t a t i o n s t o a p p ly o n ly t o t a x l e v i e s f o r cu r r e n t
2 James H. Thompson, " E ff e c ts o f P r o p e r ty Tax
L im ita tio n in W est V ir g in ia ," N a tio n a l Tax J o u r n a l. IV .
(J u n e, 1 9 5 1 ), 1 2 9 -3 8 , b a sed on a stu d y by H arold J .
Sham berger and James H. Thompson, "The O p era tio n o f th e
T a x -L im ita tio n Amendment in W est V ir g in ia ," Bureau o f
B u s in e s s H esearch and Bureau f o r Government R e se a r c h .
V o l. I , N o. 2 (M organtown: W est V ir g in ia U n iv e r s it y ,
Novem ber, 1 9 5 0 ).
' ~ ' 3701
e x p e n s e s , and n o t t o in c lu d e s e r v ic in g o f in d e b te d n e s s .
H ow ever, in t e s t c a s e s th e W est V ir g in ia Supreme C ourt h e ld
t h a t th e l i m i t a t i o n s in c lu d e d t a x e s f o r s e r v ic in g o u ts ta n d
in g and n ew ly in c u r r e d in d e b te d n e s s , a s w e l l a s th o s e f o r
c u r r e n t e x p e n d itu r e s . T h is p u t e x tr e m e ly r i g i d c o n d it io n s
i
on some l o c a l g o v ern m en ts, p a r t i c u l a r l y th o s e h a v in g o u t
sta n d in g in d e b te d n e s s t o s e r v ic e . In f a c t th e t o t a l le v y
m igh t have b een ab sorb ed f o r t h i s p u r p o se , m aking any t a x !
f o r c u r r e n t p u rp o ses im p o s s ib le . j
A r e v is io n o f th e amendment c l e a r l y s t i p u l a t i n g how
much o f th e maximum le v y was to be a llo c a t e d t o s e r v ic in g
e x i s t i n g and c u r r e n t in d e b te d n e s s was u p h eld by th e S ta te
4
Supreme C o u rt. ,
O v e r - a ll L im ita tio n j
i
The o v e r - a l l ty p e o f l i m i t a t i o n i s a c o n s t i t u t i o n a l ;
i ;
io r s t a t u t o r y p r o v is io n f i x i n g th e maximum p r o p e r ty t a x r a t e ‘
j
o r r a t e s w h ich may n o t be c o n s i s t e n t l y ex c eed e d by th e
t o t a l o r com bined r a t e s o f a l l l e v e l s o f governm ent h a v in g
t a x in g power in a p a r t ic u la r d i s t r i c t . As p rop osed d u rin g
I r e c e n t y e a r s th e o v e r - a l l ty p e o f l i m i t a t i o n was in te n d e d
t
® Bee v . H u n tin g to n . E a k le v . C ounty C ourt o f
B raxton C o ., and S n id er v . M a r tin . 114 W. Va. 40 (1 9 3 3 ),
c i t e d by~l?hompson, oj>. c i t . , p . 1 3 0 .
4 W ilso n v . C ounty C ourt o f C la y C oun ty. 114 W. Va.
603 (1934) , c i t e d by Thompson, o p . c i t . , p . 1 3 0 .____________
“s t TI
t o p r e v e n t fu tu r e p r o p e r ty t a x in c r e a s e s a s w e ll a s to
f o r c e a r e d u c tio n in l e v i e s and m a in ta in them a t th e lo w er
r a t e s . The o v e r - a l l ty p e o f l i m i t a t i o n s e e k s t o e s t a b l i s h
an a g g r e g a te or maximum p r o p e r ty ta x r a te w it h in th e s t a t e , !
a llo w in g th e ta x t o be a p p o r tio n ed among th e u n it s o f
governm ent— c o u n ty , c i t y , s c h o o l d i s t r i c t s , e t c . — by an
a g en cy such a s a Tax Com m ission o r Board o f P u b lic W orks.
The r e s t r i c t i o n s o f an o v e r - a l l l i m i t may be red u ced by
p r o v is io n f o r s p e c i a l o r e x c e s s l e v i e s i f approved by a
s p e c i f i e d p e r c e n ta g e o f th e e l e c t o r a t e . For ex a m p le, W est
! T ir g in ia a llo w s th e r e g u la r maximum to be ex c ee d e d b y a s
i
much a s 50 p e r c e n t . H ow ever, th e e x c e s s l e v i e s a re
lim it e d to th r e e y e a r s o r l e s s and m ust be p a ssed by a
t h r e e - f i f t h s m a jo r ity o f th e v o t e r s .
1 O ther Types o f L im ita tio n
O ther t y p e s o f p r o p e r ty t a x l i m i t s a re th e f o llo w -
i
in g :
1 . J u r i s d ic t i o n a l p r o p e r ty t a x l i m i t s w h ich l i m i t a
p a r t ic u la r l e v e l o f governm ent b u t n o t th e t o t a l r a t e o f
i
th e o v e r la p p in g l e v e l s o f governm en t.
2* F u n c tio n a l l i m i t s w h ich a p p ly to a p a r t ic u la r
fu n c tio n o f governm en t. T h is ty p e o f arrangem ent p u ts a
l i m i t on what a g iv e n l e v e l o f governm ent may spend on a
p a r t ic u la r s e r v i c e . Such a l i m i t a t i o n i s j u r i s d i c t i o n a l
372
a s w e l l .
3* P a r t i a l l i m i t a t i o n w h ich a p p lie s t o o n ly t h a t
p a r t o f t o t a l t a x w h ich i s f o r f in a n c in g c u r r e n t e x p e n s e ,
in c lu d in g i n t e r e s t and repaym ent o f d e b t. |
4 . S p e c ia l l i m i t s w h ich a p p ly to a p a r t ic u la r c l a s s
i
o f p r o p e r ty b u t do n o t to u ch o th e r t y p e s o f p r o p e r ty w hich ;
may be s u b je c t t o v a r ia b le r a t e s .
C l a s s i f i e d ta x l i m i t s , f o r exam ple l i k e West j
V i r g i n i a ' s , w h ich a p p ly t o d i f f e r e n t c l a s s e s o f p r o p e r ty |
j
and a p p ly d i f f e r e n t r a t e s to ea ch c l a s s y e t l i m i t th e r a t e ■
5
on e a c h .
I I . OBJECTIVES OF PROPERTY TAX LIMITATIONS
G en eral S tatem en t
! A d v o ca tes o f p r o p e r ty t a x l i m i t a t i o n s t r e s s s e v e r a l
I i
o b j e c t i v e s . F i r s t , a r e d u c tio n o f p u b lic e x p e n d itu r e s ; j
se c o n d , a sse ssm e n t o f p r o p e r ty a t f u l l v a lu e ; t h ir d , v o lu n
t a r y d is c lo s u r e o f in t a n g ib le s f o r ta x p u r p o se s; f o u r th ,
p r o t e c t io n o f p r o p e r ty from c o n f is c a t o r y t a x e s ; f i f t h , i n
c r e a se d u se o f n o n -p r o p e r ty ta x s o u r c e s ; s i x t h , e n fo r c e d
m o d if ic a t io n s o f th e t a x s t r u c t u r e ; s e v e n th , reform o f
l o c a l govern m en tal a d m in is tr a tio n ; e ig h t h , more s t a t e a id
5 H illh o u s e and W elch, o £ . c i t . , p . 2 .
t o e d u c a tio n ; n in t h , r e d u c tio n in ta x d e lin q u e n c y
R ed u ctio n o f E x p e n d itu re s
The p r in c ip a l argum ent o f th o s e fa v o r in g t a x l i m i t a
t i o n h a s t e e n t h a t r e a l e s t a t e f s sh are o f th e t a x burden
w as d is p r o p o r t io n a t e ly h eavy and l i m i t a t i o n o f f e r s th e b e s t
way to red u ce t h a t b u rd en . R ea l e s t a t e o w n ers, and t h e i r
o r g a n iz e d spokesm en, co n ten d th a t i t i s u n f a ir f o r r e a l
e s t a t e to pay th e b u lk o f l o c a l and s t a t e t a x e s . Even
thou gh p r o p e r ty t a x e s i n 1950 a cco u n ted f o r n e a r ly 90 p er
6
c e n t o f l o c a l t a x c o l l e c t i o n s , th e y co m p rise a much
s m a lle r p e r c e n ta g e o f th e t o t a l t a x e s c o l l e c t e d by a l l
l e v e l s o f govern m en t. In 1947 p r o p e r ty t a x e s w ere 1 1 .1 5
7 i
p e r c e n t o f th e t o t a l (e x c lu d in g p a y r o ll t a x e s ) ; in 1949
8 i
t h e y w ere 1 2 .9 1 p er c e n t . P e r c e n ta g e w is e th e r e are many j
v a r i a t io n s among th e s t a t e s in th e u se o f th e g e n e r a l J
' |
(p r o p erty ta x in t h e i r ta x sy ste m s; h ow ever, when view ed from;
th e s ta n d p o in t o f th e n a t io n a l ta x sy stem th e t a x e s im posed
on r e a l e s t a t e do n o t ap pear t o be d is p r o p o r t io n a t e ly h eavy.
I n th e d e p r e s s io n y e a r s o f th e 1 9 3 0 *s when l i m i t a t i o n w as
v ig o r o u s ly a d v o ca ted th e p r o p e r ty ta x o c c u p ie d a fa r more
6 l a x P o l i c y . XVII (Novem ber, 1 9 5 0 ), 4 . j ^
f
7 ^ax P o l i c y . XV (A u g u st, 1 9 4 8 ), 4 .
8 Tax P o l i c y . XVII (Novem ber, 1 9 5 0 ), 4 .
374 1
I
im p r e s s iv e p o s i t i o n in th e econom y th a n in more r e c e n t
tim e s . F ig u re 4 shows th e r e la t io n s h ip o f th e p r o p e r ty t a x
i
t o th e n a t io n a l incom e from 1932 to 1 9 4 8 . I
<
Much o f th e e x p la n a tio n fo r th e la r g e show ing o f th e ■
i
p r o p e r ty ta x in 1932 compared to l a t e r y e a r s l i e s in th e |
s e v e r e ly d e p r e sse d n a t io n a l incom e o f t h a t y e a r . For th e
i
l a t e s t y ea r shown, 1 9 4 8 , th e p r o p e r ty ta x amounted to l e s s
th an 3 p er c e n t o f th e n a t io n a l in com e. S in c e 1948 th e i
n a t io n a l incom e h a s in c r e a s e d by a g r e a te r p r o p o r tio n th an ;
i
h a s th e amount o f th e g e n e r a l p r o p e r ty t a x .
; S p o n so rs o f th e l i m i t a t i o n urge a r e d u c tio n o f
jgovern m en tal e x p e n d itu r e s and co n ten d t h e i r m ethod w i l l
f o r c e a l a s t i n g r e d u c tio n . Inasm uch a s l o c a l governm ents
' r e l y s u b s t a n t i a ll y on th e g e n e r a l p r o p e r ty ta x an i n -
I
j f l e x i b l e l i m i t a t i o n la w may w e l l f o r c e th e r e d u c tio n o f |
l I
governm ent s e r v ic e s b u t n o t in d e s ir a b le d i r e c t i o n s . T h is j
m igh t be th e r e s u l t b eca u se a la r g e p r o p o r tio n o f l o c a l
governm ent ex p en se g o e s t o p r o t e c t and b e n e f it p r o p e r ty .
j
Many s e r v i c e s m a in ta in e d by l o c a l governm ent d i r e c t l y b en e
f i t p r o p e r ty o w n e r s --fo r ex a m p le, se w e r s , r e fu s e d is p o s a l,
s t r e e t s and s id e w a lk s , p o lic e and f i r e p r o t e c t io n , and
o t h e r s . Looked a t from a n o th er p o in t o f v ie w , p r o p e r ty ,
th e m ain so u r c e o f l o c a l r e v e n u e , i s a m ajor u n a v o id a b le
ex p en se o f l o c a l govern m en t. A dop tion o f t a x l i m i t s c o u ld
375
12
1942 1946 1932 1945 1947
1948
FIGURE 4
RELATIONSHIP O F PR O P E R T Y T A X E S T O N A T IO N A L
IN C O M E F R O M 1932 T O 1948
Jamas W . M artin , "The P ro p erty Tax and th e Economy,” The
o f p o l i t i c a l and S o c ia l sc ie n c e ,
Source
A nnals o f th e American Acadet
C C L X V I TNovamber, 1949), 138
r e s u l t in red u ced e x p e n d itu r e s on l e s s p r e s s in g a c t i v i t i e s j
su ch a s p ark s and p la y g r o u n d s, l i b r a r i e s , e t c . , th e m s e lv e s
d e s ir a b le and b e n e f i c i a l to p r o p e r ty v a lu e s . In a d d it io n j
to th e a b o v e, th e governm ent m igh t be fo r c e d t o r e s o r t to
o th e r w ays o f r a i s i n g reven u e s in c e th e p u b lic may be un- '
w i l l i n g to fo r e g o e s t a b lis h e d governm ent s e r v i c e s .
The a b s o lu te burden o f t a x e s borne by r e a l e s t a t e ,
i
i s v i t a l l y a f f e c t e d by th e f a c t th a t la n d , a m ajor p a r t o f !
r e a l e s t a t e , d e r iv e s some o f i t s v a lu e from s o c i e t y . T h is !
i s r e fe r r e d to a s an "unearned" in crem en t w h ich i s n o t
I
|r e l a t e d to e f f o r t o r c o s t expended o r s e r v ic e ren d ered by
th e ow ner. A ta x on r e a l e s t a t e o f f e r s a way o f r e a c h in g
t h i s v a lu e w hich a c e r u e s a s a r e s u l t o f s o c i e t y ’ s grow th .
F u ll V alu e A ssessm en t I
— T : r L-~............. j
A secon d o b j e c t iv e o f t a x l i m i t a t i o n s i s t o b r in g j
ia b o u t a sse ssm e n t o f p r o p e r ty a t f u l l v a lu e . C e r ta in ly i t !
i s t r u e t h a t p r o p e r ty a sse ssm e n t v a r i e s w id e ly . In f a c t ,
n o t many in s t a n c e s o f v a lu a tio n a t f u l l v a lu e a re foun d in
9
p r a c t ic e . S ta tu to r y and c o n s t i t u t i o n a l p r o v is io n s may
i
i
{ s t i p u l a t e f u l l v a lu e a s s e s s m e n t; h ow ever, th ro u g h e i t h e r
i n a b i l i t y o r i n t e n t — o r b o th — t h i s i s seldom th e c a s e .
A d v o ca tes o f p r o p e r ty t a x l i m i t s b e l i e v e t h a t th e r e w i l l
9 ^ a x S y ste m s ( t w e l f t h e d i t i o n ; New Y ork: Commerce
C l e a r in g H o u se, I n c . , 1 9 5 0 ), p p . 1 8 5 -9 7 .____________________ _
377!
be l e s s in c e n t iv e t o u n d e r v a lu a tio n i f th e r a t e s a re |
li m i t e d . A ls o , s t a t u t e s and c o n s t i t u t i o n s c o u ld r e q u ir e |
f u l l v a lu e a sse ssm e n t w h ich , i t i s c la im e d , w ould red u ce |
i
in e q u i t i e s p r e v a le n t in th e p r o p e r ty t a x . W ith f u l l v a lu e ^
!
a s s e s s m e n ts i n o p e r a tio n and th e r a t e f i x e d , a d d it io n a l 1
rev en u e e o u ld be r a is e d o n ly by a grow th in th e amount o f
p r o p e r ty s u b j e c t to t a x a t io n o r b y r e s o r t t o o t h e r s o u r c e s .
I
As t r a d i t i o n a l l y used th e g e n e r a l p r o p e r ty t a x r a te i s j
i
d e r iv e d from th e amount o f fu n d s t o be r a is e d and th e v a lu e
o f th e a s s e s s e d p r o p e r ty . A la r g e le v y and a lo w a s s e s s e d
v a lu a tio n w ould c a l l f o r a h ig h r a t e ; a lo w l e v y and a h ig h
i
j a s s e s s e d v a lu a t io n w ould r e s u l t in a low r a t e . A lo w f ix e d
r a t e w ould u n d o u b ted ly f o s t e r a sse ssm e n t a t f u l l v a lu e .
T h is in tu r n w ould ten d toward u n ifo r m ity in tr e a tm e n t o f
p r o p e r ty under th e p r o p e r ty t a x — a d e s ir a b le r e s u l t a c c o r d - j
i -
lin g to th e a d v o c a te s o f ta x l i m i t a t i o n . j
f '
i
D is c lo s u r e o f I n t a n g ib le s
A t h ir d o b j e c t iv e o f ta x l i m i t a t i o n i s to b r in g
ab ou t v o lu n ta r y d is c lo s u r e o f in t a n g ib le s f o r a sse ssm e n t
p u r p o se s. T h is i s p r e d ic te d on th e th e o r y t h a t w ith lo w
p r o p e r ty ta x r a t e s th e r e w ould be l e s s in c e n t iv e to a v o id
o r evade t a x e s th rou gh f a i l u r e to d i s c l o s e i n t a n g i b le s .
In o th e r w o rd s, h ig h r a t e s on r e a l t y en cou rage ta x p a y e r s
t o d e l i b e r a t e l y f a i l to d e c la r e t h e i r i n t a n g i b l e s . I t
378
seem s u n li k e ly th a t ta x p a y e r s w ould v o l u n t a r i l y d i s c l o s e
i n t a n g ib le s to s u b je c t them t o t a x a t io n , how ever lo w th e
t a x , i f su ch p r o p e r ty h a s b een s u c c e s s f u l l y h id d en in th e
p a s t . Tax l i m i t a t i o n la w s , p e r s e . w ould p ro b a b ly have
l i t t l e , i f a n y , m oral r e g e n e r a tin g pow er. In th e a b sen ce !
o f s tr o n g e r la w s and more s k i l l e d and v ig o r o u s e f f o r t by
a s s e s s o r s , in t a n g ib le s w i l l c o n tin u e to be " m issin g ” from
th e t a x r o l l s . j
|
P r o t e c t io n A g a in st C o n fis c a to r y R a tes
i
The fo u r th o b j e c t iv e o f p r o p e r ty t a x l i m i t s i s to
p r o t e c t p r o p e r ty ow ners from c o n f is c a t o r y t a x e s . L im its on
t a x e s are a p r o t e c t io n o f m in o r it y r i g h t s ; i . e . , t h e y p ro
t e c t th e ow ners o f p r o p e r ty from c o n f is c a t io n th ro u g h th e
power to t a x . T h is p r o t e c t io n , i t i s c la im e d , i s n e c e s s a r y
s in c e ow nersh ip i s no lo n g e r a c o n d itio n o f th e r ig h t t o
v o t e . The p r o p e r t y le s s m a sses c o u ld c o n f is c a t e th e p rop -
i
e r t i e d m in o r ity by u se o f th e t a x in g p o w e r.10 E x p er ien ce
f a i l s t o g iv e much su p p o rt t o th e f e a r o f m in o r ity p r o p e r ty
ow ners h a v in g t h e i r p r o p e r ty c o n f is c a t e d . T h is i s p a r t i-
i
j c u la r ly tr u e when th e p r o p e r ty t a x p la y s a p r o g r e s s iv e ly
s m a lle r r o l e in t h e t o t a l t a x sy ste m , t o g e t h e r w ith a much
10 M onthly B u l l e t i n . Ho. 135 (R o c h e s te r , Hew Tork:
R o c h e ste r Bureau o f M u n ic ip a l R e se a rc h , A u g u st, 1 9 4 8 ),
p . 5 4 2 .
379
w id e r s u f f r a g e .
W ider Revenue S o u rces !
i
A f i f t h o b j e c t iv e o f t a x l i m i t a t i o n h a s b een t o e n - |
co u ra g e , o r f o r c e , w id er u se o f reven u e s o u r c e s o th e r th an i
| ;
th e p r o p e r ty t a x . W ithout d o u b t,, t h i s o b j e c t iv e h a s g en - 1
j
e r a l l y b een r e a liz e d b y s t a t e s em p loyin g t a x l i m i t s on
g e n e r a l p r o p e r ty . On th e o th e r h an d , t h i s d o es n o t mean j
th a t a more e q u ita b le and f a i r t a x sy stem h a s r e s u l t e d . j
W ith one e x c e p t io n , H evada, th e t a x l i m i t a t i o n s t a t e s em- I
f i
}p lo y s a l e s and u se t a x e s w h ich a r e g e n e r a lly con ced ed to be
r e g r e s s i v e .
T able XXI shows t h a t th e ta x l i m i t a t i o n s t a t e s c o l
l e c t e d a p p r o x im a te ly o n e - th ir d o f t h e i r r e v e n u e , a s an
a v e r a g e , from s a l e s and u se t a x e s f o r th e y e a r s shown.
W est V ir g in ia r a is e d o n e - h a lf o f i t s reven u e from s a l e s
t a x e s ; W ashington c o l l e c t e d 4 2 .4 p er c e n t , and M ich igan 1
4 0 .8 p e r c e n t from th e same k in d o f t a x e s . Over th e n in e
y e a r p e r io d th e s e s t a t e s c o l l e c t e d an a v era g e o f 3 2 .4 p er
c e n t o f t h e i r rev en u e from s a l e s and u se t a x e s .
Twenty s t a t e s , in a d d it io n t o th e ta x li m it a t i o n
s t a t e s o f T able XXI, l e v y s a l e s and u se t a x e s . The a v era g e
p e r c e n t o f t h e i r rev en u e d e r iv e d from t h e s e t a x e s f o r th e
y e a r s l i s t e d i s shown in T ab le X X II, page 3 8 1 . The a v era g e
f o r th e se v en y ea r p e r io d i s a p p r o x im a tely 13 p e r c e n t l e s s
T A B L E XXI
P E R C E N T A G E O F T O T A L R E V E N U E D E R IV E D F R O M S A L E S
A N D U S E T A X E S IN P R O P E R T Y T A X LIMITS S T A T E S
Tear
S tate 1942 1943 1944 1945 1946 1947 1948 1949* 1950* Average
Indiana 27 27 31 34 33 36 37 38 39 33.5
Michigan
Nevada^
33 36 38 40 39 47 44 44 46 40.8
N ew Mexico 29 29 31 32 33 34 35 33 29 31.7
Ohio 21 22 21 23 29 32 37 31 32 27.5
Oklahoma 17 20 22 23 21 23 24 22 21 21.3
Rhode Island 12 11 11 11.1
Washington 39 40 39 40 40 44 49 48 43 42.4
West V irginia 45 50 50 53 53 52 51 52 49 50.5
Average 30 32 33 35 35
*
38 36 35 34 32.4
(Averages calculated by w rite r.)
♦Percentages calculated from data in Supplement to Twelfth E dition of Tax systems (New York:
Commerce Clearing House, In c ., January 1 ,1 9 5 1 ), pp.
♦♦Nevada dees not employ sales tax . w
©
o
T A B L E m i
1
P E R C E N T A G E O F T O T A L R E V E N U E D E R IV E D F R O M S A L E S
. A N D U S B T A X E S IN 20 N O N -L IM IT A T IO N .S T A T E S .
Year
1942 1943 1944 1945 1946 1947 1948 Average
Average fo r
20 sta te s 17.2 18.8 20.75 21.95 21.85 24.3 27.8 21.81
Source: Tax Systems (tw elfth ed itio n ; N ew York: Commerce clearing House, In c ., 1950), p. 308.
(Averages calculated by w rite r.)
381
382
th a n th e a v era g e f o r th e same sev en y e a r s in th e ta x
l i m i t a t i o n s t a t e s .
I
As th e g e n e r a l r u le m ost o f th e s t a t e s le v y t a x e s j
on j u s t about th e same k in d s o f p r o p e r t ie s , b u s in e s s e s , and
a c t i v i t i e s . There i s an im p o rta n t e x c e p tio n in s t a t e r e v e -
i
I
nue sy stem s in t h a t a lm o st o n e - h a lf o f th e s t a t e s do n o t j
i
em ploy s a l e s o r use t a x e s . Among th o s e s t a t e s le v y in g '
i
s a l e s and u se t a x e s th e r a t e s are s i g n i f i c a n t l y h ig h e r in j
I
th e p r o p e r ty ta x l i m i t a t i o n s t a t e s . O nly t h r e e — Hew M exico j
i
Oklahoma, and Bhode I s la n d — t a x l i m i t a t i o n s t a t e s le v y an
incom e t a x . 11
Tax M o d ific a tio n s
A s i x t h o b j e c t iv e o f ta x l i m i t a t i o n sp o n so r s h a s
i
been to f o r c e b a s ic m o d if ic a t io n s o f th e t a x s t r u c t u r e . Asj
i
m en tio n ed a lr e a d y , th e b a s ic o b j e c t iv e o f l i m i t a t i o n w a s, >
I and c o n tin u e s t o b e , t o p erm a n en tly l i m i t th e t a x lo a d on
r e a l e s t a t e . The m ost d i r e c t and e f f e c t i v e way to accom
p l i s h t h i s aim was l e g a l l i m i t a t i o n s , e i t h e r c o n s t i t u t i o n a l
o r s t a t u t o r y , p r e f e r a b ly th e fo rm er. Such e n fo r c e d l i m i t a
t i o n s , i t s sp o n so rs have a lle g e d , w i l l c a r r y in i t s wake
p a r t ic u la r d e s ir a b le m o d if ic a t io n s t o th e t a x and g o v ern
m en ta l s t r u c t u r e . Among t h e s e m o d if ic a t io n s are th e
11 S u p p lem en t t o T w e lfth E d it i o n o f Tax S y stem s (New,
Y ork: Commerce C l e a r in g H o u se, J a n u a r y 1 , 1 9 5 1 ), p p . 6 6 -7 8 .
3 8 5 1
f o llo w in g : s i m p l i f i c a t i o n o f tlie s t r u c t u r e o f governm en t,
r e d u c tio n o f e x p e n d itu r e s ; r e d u c tio n o f w a ste and e f f i c i
en cy ; more e q u ita b le a s s e s s m e n ts ; and ta x r e fo r m s. As f o r
ta x m o d if ic a t io n s and r e fo r m s, th e p o in t b e in g d ev elo p ed
h e r e , c o n s id e r a b le s u c c e s s can be cla im ed by t a x l i m i t s — I
le a v in g a s id e , f o r th e moment, q u e s tio n s o f e q u ity and ;
J
f a ir n e s s in t a x a t io n . S ta te and l o c a l governm en ts have
i
fa c e d d r a s t ie reven u e l o s s e s and have t h e r e f o r e s u b s t a n t i- ;
i
a l l y red u ced s e r v i c e s o r r e s o r t e d to o th e r means o f r a is in g !
i
fu n d s , te m p o r a r ily o r p erm a n en tly . Many s t a t e s have em-
i
p lo y ed a la r g e r number o f in d i r e c t t a x e s , p a r t ic u la r l y
i
b u s in e s s and o c c u p a tio n t a x e s , co n su m ers’ s a l e s and use
t a x e s , g a s o lin e t a x e s , and p e r s o n a l and c o r p o r a te n e t i n
come t a x e s .
1
I
I
L o ca l Government Reform
f - : T - 1 '~1 “ ■ -■ ■ ■ < ■ . - ' I
I
The se v e n th o b j e c t iv e o f ta x l i m i t a t i o n s was to
i
b r in g about reform o f l o c a l go v ern m en ta l a d m in is t r a t io n .
Reform w ould come about a s a r e s u l t o f th e r e s t r i c t i o n t a x
l i m i t s would p la c e on th e money r a i s in g and sp en d in g pow ers
o f l o c a l governm en t. U n n ecessa ry and d u p lic a t in g g o v ern
m en ta l a g e n c ie s and s e r v ic e s w o u ld , p e r f o r c e , be c u t ou t o r
red u ced f o r la c k o f fu n d s . T h is s o r t o f r ig o r o u s p r o c e s s
w ould c a u se a c lo s e and c a r e f u l a p p r a is a l and re ex a m in a tio n
o f go v ern m en ta l f u n c t io n s to j u s t i f y t h e i r e x i s t e n c e and
384
c o n t in u a t io n . Thus, i t was c la im e d , some p ru n in g w ould be
u n a v o id a b le and l o c a l i n t e r e s t and r e s p o n s i b i l i t y w ould
en su re i t b ein g done w i s e l y . S p o n so rs o f ta x l i m i t a t i o n
co n ten d t h a t i t s a d o p tio n w i l l r e s u l t in g r e a te r r e s p o n s i-
• j
b i l i t y in l o c a l governm ent b e ea u se ea ch and e v e r y a g en cy
|
o r s e r v ic e m ust be c l e a r l y j u s t i f i e d . L o ca l home r u le
w ould n o t be ended; r a th e r i t w ould r e s u l t in a c l o s e r
harmony b etw een governm ent and p u b lic th rou gh th e in c r e a s e d j
govern m en tal r e s p o n s i b i l i t y t o p u b lic d e s i r e .
i
|S t a t e Aid t o E d u ca tio n
The e ig h th o b j e c t iv e o f ta x l i m i t a t i o n h a s b een t o
b r in g about g r e a t e r s t a t e a id t o e d u c a tio n . The r e a s o n in g
o f ta x l i m i t a t i o n a d v o c a te s w as q u ite d i r e c t on t h i s p o in t .
To a c co m p lish t h e prim ary o b j e c t iv e o f r e d u c in g th e ta x
i
i
burden on r e a l e s t a t e th e m ost d i r e c t m ethod w ould be t o
i '
i j
J lim it le v y in g l o c a l p r o p e r ty t a x e s and th e r e b y f o r c e th e
!
s t a t e t o g iv e g r e a t e r a id t o e d u c a tio n . S ch o o l d i s t r i c t s
w ould be u n a b le to su p p o rt th e m s e lv e s s in c e t h e i r c h i e f
so u rce o f rev en u e h a s been th e p r o p e r ty t a x .
V a rio u s argu m en ts, pro and c o n , can be m ustered on
b o th s id e s o f th e is s u e o f th e c e n t r a l governm ent p r o v id in g
f in a n c i a l a id t o e d u c a tio n . W ithout g o in g in t o them in
d e t a i l , t a x l i m i t a t i o n sp o n so r s argue t h a t c e n t r a liz e d a id
i s n e c e s s a r y and d e s ir a b le from an econom ic v ie w p o in t s in c e
. 385 I
i
th e r e i s f r e q u e n tly a low c o r r e la t io n b etw een n e ed s o f
l o c a l s c h o o ls and r e s o u r c e s o f l o c a l g o v ern m en ts. T h is i s
i
p a r t i c u la r l y t r u e , i t i s e la im e d , where th e p r in c ip a l
reven u e so u rc e i s th e p r o p e r ty t a x . F urth erm ore, eo n -
!
s id e r a t io n s o f e q u it y c a l l f o r a id t o e d u c a tio n from r e v e - |
l
nue s o u r c e s o th e r th an th e p r o p e r ty t a x . A ls o , eco n o m ies
in a d m in is tr a tio n and e q u a liz a t io n o f e d u c a tio n a l f a c i l i
t i e s and sta n d a r d s , d e s ir a b le in th e m s e lv e s , a re a t t a in a b le j
th rou gh c e n t r a liz e d s t a t e a id . J
i
1 Reduce Tax D elin q u en cy
, S t i l l a n o th er o b j e c t iv e o f th e t a x l i m i t a t i o n spon
s o r s w as th a t i t w ould r e d u c e th e d e lin q u e n c y on p r o p e r ty
t a x e s . T h e ir argum ent w as b a sed on th e th e o r y t h a t prop
e r t y , and e s p e c i a l l y r e a l e s t a t e , was overbu rd en ed w ith
t a x e s th u s c a u s in g w id esp re a d d e lin q u e n c y . A gain t h e i r j
r e a so n in g was d i r e c t ; red u ce p r o p e r ty t a x e s th rou gh ta x t
l i m i t a t i o n and th e r e b y red u ce d e lin q u e n c y .
Tax d e lin q u e n c y w as w id esp rea d in th e e a r ly 1 9 3 0 1 s .
I n M in n e so ta , f o r exam p le, p r o p e r ty t a x d e lin q u e n c y in
c r e a s e d from 19S7 when i t was 6 .7 7 p er c e n t o f th e l e v y to
1932 when i t rea ch ed a peak o f 2 0 .1 8 p er c e n t . 12
12 The M in n esota Tax System ( S t . P a u l: The M in n eso ta
I n s t i t u t e o f G overnm ental R ese a rc h , I n c . , May, 1 9 4 8 ),
p . 5 0 .
A s i t u a t i o n s im ila r t o M in n eso ta e x i s t e d in many s t a t e s a t
t h a t t im e . The sh arp d e c lin e in l e v e l s o f incom e may n o t
have b een f u l l y a p p r e c ia te d f o r some tim e w ith th e r e s u l t
t h a t p r o p e r ty a sse ssm e n t and th e t a x le v y w ere n o t redu ced
1
a s s h a r p ly a s th e d e c lin e in incom e had b e e n . In f a c t many !
I
spokesm en e x p r e sse d th e v ie w t h a t th e d e c lin e w as o n ly
tem porary and t h a t p r o s p e r it y was " ju s t around th e c o r n e r ."
T h is "lag" p la c e d a s e v e r e lo a d on th e p r o p e r ty ow ners r e
s u l t i n g in much d e lin q u e n c y and f o c u s in g a t t e n t io n on th e
burdensom eness o f th e g e n e r a l p r o p e r ty t a x . The e f f e c t w as J
i
it o add f u e l to th e f i r e f o r ta x l i m i t s .
t
i
W ith th e a d o p tio n o f l i m i t a t i o n by some s t a t e s th e r e
was an im provem ent in th e d e lin q u e n c y p ic t u r e — p a r t ly due
t o th e r e d u c tio n in p r o p e r ty t a x e s and p a r t ly due to
g r a d u a lly im p rovin g econom ic c o n d it io n s g e n e r a lly . j
I I I . EFFECTS AND CRITICISMS OF TAX LIMITATION
G eneral S ta tem en t
Many a u t h o r i t i e s can be c i t e d who s e r i o u s l y q u e s tio n
15
th e wisdom o f t a x l i m i t s . P r o f e s s o r Simeon L elan d s a y s
ta x l im i t a t i o n i s an u n i n t e l l i g e n t and i n e f f i c i e n t m ethod
Sim eon L e la n d , " A lte r n a tiv e s : A C o n s tr u c tiv e Out
lo o k ," P r o p e r ty Tax L im ita tio n Laws (G lenn Leek and R obert
M. P a ig e , e d i t o r s ; C h icago: P u b lic A d m in istr a tio n S e r v ic e ,
1 9 5 6 ), p . 8 9 .
3 8 7 1
i
o f a c c o m p lis h in g d e s ir a b le r e s u l t s ; i t i s n e g a t iv e and
s e l f i s h , r a th e r th a n c o n s t r u c t iv e and in th e s o c i a l i n
t e r e s t . P r o f e s s o r H arold M. G roves h a s s a id : j
i
Tax l i m i t a t i o n s , born o f p r e s su r e p o l i t i c s , are n o t !
th e m ost c r e d it a b le c h a p te r in s t a t e f i n a n c i a l h i s t o r y . ;
B ig id , n e g a t iv e , im posed from a b o v e, th e y la c k th e '
I c o n s t r u c t iv e q u a l i t i e s t h a t sh ou ld c h a r a c te r iz e s t a t e
j reven ue s y s t e m s .14
P r o fe s s o r J en se n co n clu d ed t h a t ” . . . t a x l im i t a t i o n h a s
n o t e f f e c t e d , n o r i s i t l i k e l y to e f f e c t any f i s c a l o r i
i
s o c i a l g a in s t h a t co u ld n o t have been b e t t e r r e a liz e d w ith - j
o u t i t . ”15 !
| The N a tio n a l Tax A s s o c ia tio n a p p o in ted a com m ittee
i
to exam ine r a t e l i m i t a t i o n and hom estead e x e m p tio n s. The
com m ittee d e fin e d p r o p e r ty t a x l i m i t a t i o n t o mean "the
e s ta b lis h m e n t o f an o v e r - a l l o r upper l i m i t on th e p r o p e r ty
t a x r a t e , a c e i l i n g r a th e r r i g i d l y f ix e d by th e s t a t e in
!
' c o n s t i t u t i o n a l p r o v is io n s o r ev en in s t a t u t o r y p r o v i s i o n s .” j
I 1
The co m m ittee’ s r e p o r t co n clu d ed t h a t p r o p e r ty ta x l i m i t a -
16
t io n d o es n o t conform to sound ta x th e o r y and p r a c t ic e .
G. M. M o rris sa y s:
14 H arold M. G ro v es, F in a n c in g Government ( th ir d
e d i t i o n ; New York: H enry H o lt and Company, 1 9 5 1 ), p . 1 0 8 .
15 J e n s P . J e n se n , "Tax L i m it a t io n ,” P r o c e e d in g s .
N a tio n a l Tax A s s o c ia t io n , 1 9 3 5 , p . 3 5 4 .
Tfi
Raymond D. Thomas, chairm an, "R eport o f th e Com
m itte e on P r o p e r ty Tax L im ita tio n and Hom estead E x em p tio n ,”
P r o c e e d in g s . N a tio n a l Tax A s s o c ia t io n , 1 9 3 8 , p . 796.
3881
The e f f e c t s o f th e scheme ( t a x li m i t a t i o n ) have
v a r ie d from s t a t e to s t a t e . G e n e r a lly , th e o p e r a tio n
o f th e scheme h a s s e r i o u s l y a f f e c t e d l o c a l governm en ts
b y b r in g in g c u r ta ilm e n ts o f s e r v ic e s and th e w eak en in g
o f t h e i r c r e d it and f i n a n c i a l s t a b i l i t y . In some
s t a t e s th e d o lla r l o s s in t a x reven u e h a s been in a
la r g e m easure r e p la c e d , b u t, in payment f o r t h i s , l o c a l
governm en ts have s a c r i f i c e d th e l a s t v e s t i g e o f s e l f - |
governm ent— th e c o n t r o l o f t h e i r own f in a n c e s — and have '
become mere pawns o f th e s t a t e . 17
C r e a tio n o f a R e g r e s s iv e sy stem o f t a x a t io n . — A
fr e q u e n t c r i t i c i s m o f ta x l i m i t s i s th a t th e y fo r c e e i t h e r i
a c u r ta ilm e n t o f s e r v i c e s by s t a t e and l o c a l governm ent o r j
a r e s o r t to o t h e r , and l e s s d e s ir a b le s o u r c e s o f r e v e n u e , i
e s p e c i a l l y s a l e s , u s e , and g r o s s ineom e t a x e s . R eso r t to
su eh t a x e s , i t h a s b een g e n e r a lly co n ce d ed , in tr o d u c e r e -
g r e s s i v i t y in t o a ta x sy stem and h a s been t r a d i t i o n a l l y
18
condemned f o r t h a t r e a so n .
The m a jo r ity o f s a l e s t a x e s w ere s t a r t e d d u rin g th e
1930*8 a s s t a t e s so u g h t more reven u e t o c o v e r e x p e n d itu r e s ;
' t
land to conform to p o l i t i c a l p r e s s u r e to red u ce p r o p e r ty 1
t
T9
t a x e s . A dop tion o f ta x 1 imi t a t i o n a , - C u t . „ d e e p l y - ^ i n t O - . . . l o c a l
re v e n u e s and r e s u lte d ...in ..g r e a t e r ~ d e p e n d e n c g o v e r n -
m en ts on th e s t a t e . To m eet th e added rev en u e n ee d s many
17 M o r r is , o p . c i t . . p p . 1 - 2 .
1® John F . Due, " R e ta il S a le s T a x a tio n in Theory and
P r a c t ic e ." N a tio n a l Tax J o u r n a l. I l l (D ecem ber, 1 9 5 0 ), 3 1 4 .
^ Idem .
369
s t a t e s ad opted s a l e s t a x e s , o r p e r m itte d l o c a l governm en ts
t o do so on a lim it e d s c a l e . Some s t a t e s r e l y more h e a v ily
on s a l e s t a x e s th an o t h e r s , a s T able XXI, page 3 8 0 , i l l u s
t r a t e s . T hese s o r t s o f t a x e s a re l e s s in a cco rd w ith th e
a b i l i t y - t o - p a y co n c e p t th an th e p r o p e r ty t a x e s th e y r e
p la c e d .20
The d eg ree o f r e g r e s s i v i t y o f a s a l e s t a x v a r i e s ,
d ep en d in g on th e ite m s exem pted from th e ta x and th e r a t e |
a p p lie d ; i . e . , w h eth er th e r a t e i s p r o p o r tio n a l (a f ix e d
r a t e ) on any s i z e t r a n s a c t io n , o r p r o g r e s s iv e , in c r e a s in g
i
;w ith th e amount o f th e s a l e . In r e c e n t y e a r s th e r e h a s
I
been a g e n e r a l tr e n d tow ard in c r e a s e d u se o f s a l e s t a x e s ,
y e t in m ost s t a t e s w here t h e y are used fo o d bought fo r home
E l
con su m p tion i s n o t ta x e d . The p r a c t ic e o f exem p tin g food
from s a l e s t a x e s h a s ten d ed to r e d u c e , som ewhat, th e r e - j
i
' g r e s s i v i t y o f s a l e s t a x e s . The e x t e n t t o w h ich r e g r e s s i v i t y
22
i s le s s e n e d v a r i e s w ith c o n d it io n s . i
Sham berger and Thompson, o p . c i t . . p . 1 5 .
2^ D onald C. M i l l e r , " S a le s-T a x P r o g r e s s i v it y A t t r i
b u ta b le to Food E x e m p tio n ,” N a tio n a l Tax J o u r n a l. IV (J u n e,
1 9 5 1 ), 1 4 8 .
22 I b i d . . pp. 1 4 8 -5 9 . In t h i s a r t i c l e th e au th o r
t r a c e s v a r io u s s t u d ie s and r e p o r t s on th e q u e s tio n o f th e
e x t e n t to w hich an accom panying food ex em p tio n may a l l e v i
a te the, r e g r e s s i v i t y o f s a l e s t a x e s . A stu d y o f th e
D iv is io n o f Tax R ese a rc h , T reasu ry D ep artm ent, p rep ared fo r
th e House Ways and M eans Com m ittee e v a lu a te d v a r io u s
390
Among th e t a x li m i t a t i o n s t a t e s , W est V ir g in ia ,
W ash in gton , and M ich igan r e l y m ost h e a v ily on s a l e s t a x e s .
In W est V ir g in ia th e p e r c e n ta g e o f s t a t e rev en u e d e r iv e d
from s a l e s and g r o s s r e c e i p t s t a x e s i s la r g e r to d a y th an a t
i
any tim e i n th e p a s t . 23 !
M ich igan ad opted p r o p e r ty t a x l i m i t a t i o n s in 1932
w ith th e r e s u l t t h a t th e s t a t e tu rn ed t o o th e r reven u e
m ethods o f s a l e s t a x a t io n in c lu d in g fo o d ex em p tio n . I t
co n clu d ed t h a t a 10 p er c e n t r e t a i l s a l e s ta x e x c lu d in g
fo o d w ould be r e g r e s s iv e in i t s e f f e c t . The a verage ta x
w ould ab sorb 5 .7 p er c e n t o f incom e gro u p s under # 5 0 0 ,
w h ile i t would o n ly ta k e 1 .4 p er c e n t o f in com es o f # 1 0 ,0 0 0
land o v e r . The t a x w ould be more r e g r e s s iv e i f fo o d were
I in c lu d e d . W ith fo o d in c lu d e d th e ’’ta k e" r a n g e s from 9 .4 to
2 .1 p er c e n t o f th e s e incom e g ro u p s.
A stu d y f o r th e Nevada L e g is la t u r e came to th e same
r e s u l t ; i . e . , t h a t a s a l e s t a x w ith fo o d exem pt i s r e
g r e s s i v e . A C o n n e c tic u t stu d y em phasized ’’s u b s t a n t ia l
e le m e n ts o f p r o g r e s s i v i t y ” in tr o d u c e d by fo o d exem p tion ;
h ow ever, a m in o r it y r e p o r t d is a g r e e s w ith t h i s c o n c lu s io n .
The a u th o r s e t s up h y p o t h e t ic a l h o u seh o ld b u d g ets
f o r c e r t a in incom e grou p s to i l l u s t r a t e th e e f f e c t o f fo o d
I exem p tion a s p ro v id ed in C a lif o r n ia la w . He c o n c lu d e s t h a t
t h e s e b u d g ets do in d ic a t e th a t th e fo o d ex em p tio n i s a
m o d era tin g f a c t o r in th e r e g r e s s i v i t y o f th e s a l e s t a x .
D e s p ite q u a l i f i c a t i o n s and h y p o t h e t ic a l budget d a ta
th e C a lif o r n ia fo o d ex em p tio n r e v e a ls an im p o rta n t con
s id e r a t io n in c h a lle n g in g th e t r a d i t i o n a l e o n c e p t o f r e
g r e s s i v i t y in s a l e s t a x a t io n . They in d i c a t e s a l e s t a x e s
may be u sed in su ch a way a s t o red u ce much o f th e r e g r e s
s i v i t y .
A f u r th e r i n t e r e s t i n g d evelopm en t o f th e id e a th a t
s a l e s t a x e s co u ld be u sed a s an a n t i - i n f l a t i o n a r y m easure
i n w artim e in su ch a way a s to be p r o g r e s s iv e in s t e a d o f
r e g r e s s iv e i s p r e s e n te d by P r o f e s s o r W a lter A. M orton o f
th e U n iv e r s it y o f W isco n sin in th e same volum e o f th e
N a tio n a l Tax J o u r n a l, p p . 1 6 0 -6 6 .
P3
S h am b e rg er and Thom pson, o p . c i t . . p . 1 5 .
3 9 1 ;
s o u r c e s . She ad opted th e s a l e s t a x in 1 9 3 3 . j
I
D e s p ite th e r e d u c tio n o f p r o p e r ty t a x e s th e p e o p le j
o f M ich igan a re now p a y in g h e a v ie r t a x e s th a n b e fo r e !
. . . The s a l e s t a x i s t h e l a r g e s t p rod u cer o f s t a t e j
r e v e n u e , and th e secon d l a r g e s t p ro d u cer o f rev en u e f o r j
l o c a l and s t a t e p u r p o se s.
i
The M ich igan s a l e s ta x d o lla r f o r f i s c a l 1 9 4 5 -1 9 4 6 ■
w as c o l l e c t e d from th e s o u r c e s shown in T able X X III. The
t a x i s a t th e r a t e o f 3 p er c e n t o f g r o s s p ro ce ed s l e s s
ex e m p tio n s and d e d u c tio n s . Scope o f th e ta x in c lu d e s th e j
s a l e o f e l e c t r i c i t y , g a s , and steam . D e a le r s are p e r m itte d j
an exem p tion o r d e d u c tio n o f $ 5 0 .0 0 from s a l e s ea ch month !
■as payment f o r c o l l e c t i n g th e t a x . D e a le r s a re lic e n s e d
i
?
and m o n th ly r e p o r ts o f s a l e s m ust be made. From 1936 to
1946 th e s a l e s t a x y i e l d in c r e a s e d from $ 4 6 ,6 0 0 ,0 0 0 t o
# 1 1 8 ,0 0 0 ,0 0 0 , an in c r e a s e o f a lm o st 40 p er c e n t .
/• - In a d e fe n s e -p r e p a r e d n e s s o r w artim e economy when :
i
i n f l a t i o n a r y p r e s s u r e s a re g r e a t som eth in g can be s a id in j
! !
f a v o r o f u s in g r e g r e s s iv e t a x e s su ch a s s a l e s and co n - ;
sum ption t a x e s . H ow ever, i t n eed n o t be n e c e s s a r y to r e -
duce p r o p e r ty t a x c o l l e c t i o n by im p o sin g l i m i t a t i o n s t o
j u s t i f y th e u se o f s a l e s t a x e s a s a n t i - i n f l a t i o n a r y m eas
u r e s .
Thus i t can be co n clu d ed t h a t a d o p tio n o f p r o p e r ty
g4r The M in n e s o ta Tax S y stem , o £ . c i t . . p . 1 1 7 .
392
TABLE X X III
SOURCES OF MICHIGAN’ S SALES TAX DOLLAR, 194 5 -1 9 4 6
S ou rce P er c e n t
Food 3 6 .3
D epartm ent S to r e s 1 4 .1
A utom obile
1 3 .2
A pp arel 7 .8
B u ild in g M a te r ia l 6 .9
Mi s c e lla n e o u s 6 .7
U t i l i t i e s 3 .5
Drugs 5 .4
F u r n itu r e 3 .3
F u el 1 .9
Hardware 1 .8
J e w e lry 1 .0
S o u rce: A dapted from The M in n eso ta Tar System ( S t . P a u l:
The M in n eso ta I n s t i t u t e o f G overnm ental He s e a r c h , I n c . ,
May, 1 9 4 8 ), p . 1 1 8 .
393
ta x l i m i t a t i o n s ten d e d to f o r c e s t a t e and l o c a l governm en ts
I
t o r e s o r t t o s a l e s and u se t a x e s g e n e r a lly c o n s id e r e d t o be I
t
r e g r e s s iv e ; h ow ever, r e g r e s s i v i t y i s a m a tte r o f d eg ree and
p a r t i a l l y in d e te r m in a b le . F u rth erm ore, under some con
d i t i o n s , f o r exam ple i n f l a t i o n a r y p r e s s u r e s , r e g r e s s iv e !
i
t a x e s may be d e s ir a b le t o d isc o u r a g e consum ption and e n - f
l
courage s a v in g -in v e s tm e n t, and p r o d u c tio n , th e r e b y com bat
t i n g i n f l a t i o n a r y p r e s s u r e s . j
C u rta ilm en t o f im p o rta n t s e r v i c e s . — One o f th e |
i
l
'im m ediate e f f e c t s o f t a x l i m i t a t i o n s w as t o f o r c e a c u r -
I ' i
jta ilm e n t o f govern m en tal s e r v i c e s , o r r e s o r t t o o th e r
rev en u e s o u r c e s , o r b o th . In m ost s t a t e s th e f i r s t e f f e c t
i
o f t a x l i m i t a t i o n w as a m arked, som etim es d r a s t i c , red u ctio n ;
in r e v e n u e . P en d in g r e l i e f o f some s o r t , e i t h e r in c r e a s e d
[ta x in g power in o th e r a r e a s , a d d it io n a l b o rro w in g , o r j
I j
[ f in a n c ia l a id from th e s t a t e , m u n ic i p a l i t i e s w ere fo r c e d t o j
abandon g iv e n s e r v i c e s e n t i r e l y o r c u t them d r a s t i c a l l y .
V it a l s e r v ic e s such a s p u b lic s a f e t y , h e a lt h and s a n i t a t i o n ,
f i r e p r o t e c t io n , were m a in ta in e d on a minimum b a s i s . O ther
|s e r v i c e s , l e s s v i t a l im m e d ia te ly and ca p a b le o f p o stp o n e
m en t, w ere s u b s t a n t i a l l y redu ced o r e lim in a t e d . Exam ples
o f such s e r v ic e s are s t r e e t c o n s t r u c t io n and m a in ten a n ce,
p a r k s, r e l i e f , and l i b r a r i e s , m o t h e r o r n o t s i g n i f i c a n t
r e a l eco n o m ies r e s u l t from c e r t a in p ostp on em en ts o f
594j
m ain ten an ce and r e p la c em en t o f f a c i l i t i e s w h ich a re o f a
c a p i t a l n a tu r e i s n o t e n t i r e l y c l e a r . P ostponem ent o f
r e p a ir s and r e p la c e m e n ts may be f a l s e economy in th e lo n g
run a s su ch e x p e n se s ten d t o in c r e a s e more th a n p r o p o r tio n -
i
a t e l y th e lo n g e r th e y a re n e g le c t e d . A ls o , r i s k s o f b rea k - I
• i
downs and co m p lete f a i l u r e o f f a c i l i t i e s a re in c r e a s e d .
M u n ic ip a lit ie s may accu m u late d e fe r r e d l i a b i l i t i e s i n th e
i
form o f n e g le c t e d s t r e e t s , s e w e r s , and o th e r p u b lic f a c i l i - }
t i e s . |
F a ilu r e t o p ro v id e f l e x i b i l i t y f o r l o c a l circu m -
I
j s t a n c e s . — One o f th e b a s ic w ea k n e sses in l o c a l rev en u e
i
sy ste m s h a s been th e i n f l e x i b i l i t y o f th e s e sy ste m s. Adop
t io n o f p r o p e r ty t a x l i m i t a t i o n s m e r e ly adds to th e unde-
(
s ir a b l e i n f l e x i b i l i t y . S in c e l o c a l governm en ts a re n arrow ly
lim it e d in t h e i r t a x in g p o w e rs, p la c in g l i m i t a t i o n s on th e ir j
1 c h i e f reven u e so u rce f a i l s t o make ad eq u ate a llo w a n c e s f o r j
p o s s ib le in c r e a s e s i n th e f i n a n c i a l n e e d s o f l o c a l g o v e r n - !
m en t. A lth ou gh p r o v is io n i s made i n th e amendments o r
s t a t u t e s f o r s p e c i a l l e v i e s t o be su b m itte d t o th e v o t e r s
j t h i s i s n o t a v e r y d e s ir a b le m ethod o f f in a n c in g r e g u la r ly j
o c c u r r in g e x p e n s e s . I t a ls o m akes p la n n in g o f e x p e n d itu r e s j
h a za rd o u s s in c e a h ig h p e r c e n ta g e m a jo r ity o f th e e l e c t o r a t e
may be r e q u ir e d t o v o te in fa v o r o f su ch e x c e s s e x p e n d i
t u r e s . For in s ta n c e in W est V ir g in ia e x c e s s l e v i e s may
395'
e x c e e d th e r e g u la r maximum by a s much a s 50 p e r c e n t .
H owever, t h e s e l e v i e s a re lim it e d to th r e e y e a r s and m ust
be approved by a 60 p e r c e n t m a jo r ity o f v o t e s in a l o c a l j
e l e c t i o n . 25 A r e l a t i v e l y sm a ll change i n p u b lic se n tim e n t !
i
r e g a r d in g a p a r t ic u la r le v y may d e fe a t i t a t t h e p o l l s . !
i
Too much r i g i d i t y i s in c o r p o r a te d in t o l o c a l reven u e :
sy stem s when r a t e l i m i t a t i o n amendments o r s t a t u t e s a p p ly
th e same r e q u ir e m e n ts to v a r io u s m u n ic i p a li t i e s w ith in th e j
s t a t e . Such a p roced u re ig n o r e s l o c a l n e e d s and d e s i r e s . J
D if f e r e n c e s such a s g e o g r a p h ic a l l o c a t i o n , r e s i d e n t i a l !
j 1
|c o n s t r u c t io n , tr a d e and in d u s t r y , r e s u l t in d i f f e r e n t
f i n a n c i a l r e q u ir e m e n ts t o p r o v id e th e l o c a l s e r v ic e s need ed
and d e s ir e d .
In a d d it io n to d if f e r e n c e s in l o c a l n e e d s m u n ie i-
i
J p a l i t i e s v a r y w id e ly in th e k in d s and amount o f ta x a b le j
•w e a lth w it h in t h e i r b o u n d a r ie s . j
Underm ines c r e d i t o f l o c a l govern m en t. — O v e r -a ll
p r o p e r ty ta x l i m i t a t i o n i s c r i t i c i z e d on th e grou n ds th a t
i t te n d s t o underm ine th e c r e d i t o f l o c a l govern m en t,
j P u r ch a se r s o f m u n ic ip a l s e c u r i t i e s n a t u r a lly p r e fe r th a t
th e o b lig a t io n s be backed by ad eq u ate t a x in g pow er. L o ca l
governm ents may be u n ab le t o s e l l lo n g -te r m s e c u r i t i e s
25 Thom pson, o p . o i t . . p . 1 3 1 .
396
e x c e p t a t a d is c o u n t b eca u se p r o s p e c tiv e p u r ch a ser s may
a n t ic ip a t e fu r th e r r e s t r i c t i o n s b e in g p la c e d on th e t a x in g
power o f l o c a l g o v ern m en ts. When lo n g -te r m bonds a re r e
gard ed w ith d is f a v o r by in v e s t o r s l o c a l governm ents may
I
th u s be fo r e e d t o borrow on a s h o r te r term b a s is and a t a i
h ig h e r i n t e r e s t r a t e t o fin a n c e e x p e n d itu r e s o f a lo n g -te r m
n a tu r e . T h is v i o l a t e s more a c c e p ta b le f i n a n c i a l p r a c t ic e s
I
s in c e r e s o r t to in a p p r o p r ia te p r a c t ic e s may s t a r t a p ro - j
t
g r e s s iv e d e t e r io r a t io n o f l o c a l f in a n c e s , la c k o f s u f - J
f i c i e n t t a x in g power may com pel r e s o r t t o b orrow in g to !
|f in a n c e c u r r e n t o p e r a tin g e x p e n s e s . A ls o , l o c a l g o v ern
m ent o f f i c i a l s may evade l i m i t a t i o n s b y d iv e r t in g s in k in g
fu n d s p la n n ed to redeem bonds to pay f o r c u r r e n t e x p e n s e s . !
T h is w ould mean th e f a i l u r e to r e t i r e bonds d u rin g th e
l i f e t i m e o f an im provem ent w ith th e r e s u l t t h a t d e b ts con
t in u e a f t e r th e u s e f u ln e s s o f th e a s s e t h a s c e a s e d .
N e g a tiv e and in d ir e c t way t o o b ta in ta x r e fo r m s . - -
A d v o ca tes o f t a x limitation se e in i t a way o f r e a l i z i n g
d e s ir a b le m o d if ic a t io n s in th e t a x sy stem . They eo n ten d
t h a t l i m i t s p la c e d on p r o p e r ty t a x r a t e s w i l l fo r c e a
[b ro a d en in g o f th e t a x b a se and th u s th e c r e a t io n o f a more
d e s ir a b le and e q u ita b le t a x sy ste m .
One o f th e im p ortan t p r in c i p l e s o f American democ
r a c y h a s b een th e e f f o r t t o a c h ie v e j u s t i c e in t a x a t io n .
5971
T h is h a s r e s u lt e d in th e d evelop m en t o f a t a x sy stem in
w h ich many reven u e s o u r c e s a re u se d . E v id e n tly no one
w ould s e r i o u s l y p ro p o se t h a t a l l governm ent e x p e n se s he
borne by th e p r o p e r ty t a x , n or any o th e r one t a x , w ith th e
I
p o s s ib le e x c e p tio n o f th e ’ ’s in g l e ta x " w hich w ould t a x th e j
i
n e t in com e, o r econom ic r e n t , o f la n d i t s e l f . A r b it r a r ily
l i m i t i n g th e p r o p e r ty t a x rat© i s a n e g a tiv e way o f f o r c in g
t a x e s on to o th e r o b j e c t s , su ch a s co n su m p tio n , and d o es I
i
i
n o t d i r e c t l y approach th e la r g e r and more b a s ic problem o f |
I
f in a n c in g th e governm ent. The b e t t e r approach w ould be a
i
!d ir e c t one o f d e te r m in in g th e amount o f fu n d s t o be r a is e d
and expended f o r a g iv e n p e r io d , and th e d e te r m in a tio n o f
th e m ost e q u it a b le w ays o f r a i s i n g th e fu n d s . Such a p r o -
ced u re w ould se ek t o p la c e on p r o p e r ty , and on o th e r
s o u r c e s , a f a i r sh a re o f th e t a x b u rd en . A d i r e c t , co n - !
|
' s t r u c t i v e reform o f th e t a x sy stem i s d e s ir e d , w ith th e j
r e a l n eed b e in g to keep e x p e n d itu r e s w ith in th e bounds o f i
reven u e r e s o u r c e s . °
In W est V ir g in ia , and o th e r s t a t e s l i m i t i n g p r o p e r ty
t a x e s , t h e gap in th e reven ue system ca u se d by p r o p e r ty -ta x j
l i m i t a t i o n was f i l l e d by th e u se o f s a l e s t a x e s and g r o s s j
r e c e i p t s b u s in e s s t a x e s . A lth ou gh th e change red u ced th e
"Symposium on T ax-R ate L im it a t io n s ," N a tio n a l
M u n icip a l R ev iew . XXIV ( 1 9 3 5 ), 6 0 5 -3 4 .
3 Q 8 I
burden borne by r e a l e s t a t e , i t d id n o t r e s u l t in a more
e q u ita b le t a x sy stem b e c a u se th e s a l e s ta x f e l l d isp r o p o r
t i o n a t e l y h ea v y on lo w incom e consum ers and more th an
o f f s e t th e red u ced p r o p e r ty t a x e s on th e sm a ll p r o p e r ty !
27 I
ow ner. !
i
F a ilu r e t o red u ce t h e t o t a l t a x b u rd en . — S p o n so rs !
o f t a x l i m i t a t i o n c la im th a t th e m ost e f f e c t i v e — in d e e d th e ,
*
i
o n ly — way o f r e d u c in g th e ta x burden i s t o p la c e a p r io r ,
f ix e d l i m i t on p r o p e r ty t a x e s . T h is i s th e c a s e , th e y !
i
c la im , s in c e l o c a l govern m en ts r e l y h e a v ily on t h i s t a x 1
so u r c e ; t h e r e f o r e , to red u ce e x p e n d itu r e s r e q u ir e s a l i m i t
w h ich may n o t be e x c e e d e d e x c e p t by s p e c i f i c m andate o f th e
v o t e r s . T h e ir p r i n c i p a l , i f n o t t h e i r s o le o b j e c t i v e , w as :
i
r e l i e f f o r p r o p e r ty ow ners a t any c o s t , w ith o u t reg a rd to
a l t e r n a t i v e s o r r e s u l t s . M o rris q u o te s a spokesm an f o r
1 th e N a tio n a l A s s o c ia tio n o f R ea l E s ta te Boards on th e q u e s- ;
t '
t i o n o f p o s s ib le rep la cem en t t a x e s a s f o llo w s :
A ttem pt a f t e r a tte m p t w as made by a c e r t a in group
op posed t o o u r l i m i t a t i o n amendment t o g e t u s t o come
o u t s p e c i f i c a l l y and s t a t e where rep la cem en t t a x e s
sh o u ld f a l l . They knew t h a t w ould be o u r ”A c h ilie s |
h e e l ” and th e y w ere o u t t o s t r ik e u s in a weak and j
v o ln e r a b le s p o t . 28
27 Sham berger and Thompson, o|>. c i t . . p . 1 7 .
28 M o r r is , o p . c i t . . p . 3 . (T h is q u o ta tio n r e f e r s
t o t h e cam paign t o a d o p t th e 1 p er c e n t l i m i t a t i o n amend
ment in Ohio in 1 9 3 3 .)
399j
In p r a c t ic e l i m i t a t i o n h a s p roved to be much l e s s j
e f f e c t i v e th an i t s a d v o c a te s p r e d ic te d in r e d u c in g th e t a x i
I
lo a d . V a rio u s m ethods have been found t o a v o id , e v a d e , o r !
j
circu m ven t th e p r o v is i o n s . T y p ic a l o f t h e s e m ethods a re :
j
h ig h e r a s s e s s m e n ts o f p r o p e r ty ; u se o f s p e c i a l a s s e s s m e n ts ;-
in c r e a s e d in d e b te d n e s s ; e l im i n a t io n o f c e r t a i n e x p e n d i
t u r e s from th e seo p e o f th e l i m i t a t i o n ; and u se o f s p e c ia l
t a x in g d i s t r i c t s . I
One o f th e o u ts ta n d in g p r a c t ic e s o f p r o p e r ty t a x a - |
f
t i o n h a s b een t h e u n d e r -a sse ssm e n t o f p r o p e r ty , in g e n e r a l
i and on th e a v e r a g e . T able XXIV shows t h a t th e m a jo r ity o f
i
s t a t e s a s s e s s p r o p e r ty a t som eth in g l e s s th an f u l l v a lu e .
A w id e ly used and e a s y way t o a v o id th e p in c h o f r a t e
l i m i t a t i o n s i s t o in c r e a s e th e a s s e s s e d v a lu a t io n . In
I n d ia n a , f o r in s t a n c e , a lm o st none o f th e urban governm ents;
O Q
' and few r u r a l o n e s o b serv ed th e r a t e l i m i t a t i o n s . ’ In
1 i
a d d it io n t o in c r e a s in g th e a s s e s s e d v a lu a tio n r a t e li m i t a - i
t i o n s w ere i n e f f e c t i v e b ec a u se o f em ergency p r o v is io n s
w h ich a llo w e d l i m i t a t i o n s t o be ex ceed e d i f th e C ounty
t
j Board o f Tax A djustm ent d e c la r e d an em ergency t o e x i s t . j
F u r th e r , l e v i e s im posed to p r o v id e fu n d s to s e r v ic e e x i s t - j
i
in g d eb t w ere e x c lu d e d from l i m i t a t i o n s by co u rt
F r a n k lin P . H a ll, " In d ia n a E x p er ien ce w ith
G eneral P r o p e r ty Tax L im it a t io n s ." B u lle t i n o f th e N a tio n a l
Tax A s s o c ia t io n . XXXI (May, 1 9 4 6 ), 2 3 9 -3 3 .
400
TABLE XXIV
PERCENTAGE OP FULL VALUE AT W H EC H PROPERTY
IS ASSESSED IN PRACTICE
S t a t e P er c e n t S t a t e P er c e n t
Alabama 60
A rizon a 4 0 -6 0
A rkansas 50
C a lif o r n ia 50
C olorado 2 0 -1 0 0
C o n n e c tic u t 8 0 -9 0
D elaw are v a r i e s
D ie t , o f C olum bia 9 0 -1 0 0
F lo r id a f u l l
G eorgia 4 0 -7 0
Id aho 33 1 /3 - 7 5
I l l i n o i s 100
In d ia n a 5 0 -1 0 0
Iowa 60
K ansas 33 1 /3 - 7 5
K entucky 5 0 -8 0
L o u isia n a 2 5 -1 0 0
M aine 33 1 /3 - 7 5
M aryland 100
M a s sa c h u s e tts 100
M ich igan v a r i e s
M in n eso ta 5 -5 0
M i s s is s ip p i 60
M is s o u r i 100
M ontana 100
N ebraska 3 0 -1 0 0
Nevada 2 5 -1 0 0
New Hampshire 7 0 -1 0 0
New J e r s e y 4 0 -1 0 0
New M exico 2 0 -1 0 0
New York f u l l
N o. C a r o lin a 2 5 -1 0 0
N o• D akota 50
Ohio 5 0 -1 0 0
Oklahoma 50
Oregon 3 7 -7 0
P e n n s y lv a n ia 2 5 -1 0 0
Rhode I s la n d 6 0 -1 0 0
S o . C a r o lin a 1 0 -4 2
S o . D akota 3 5 -1 0 0
T en n essee 4 0 -1 0 0
T exas 4 0 -6 0
Utah 4©
Vermont 3 3 1 /3 -1 0 0
V ir g in ia 40
W ashington 45
W. V ir g in ia l e s s th a n 100
W isc o n sin 4 0 -1 0 0
Wyoming 4 0 -6 5
S ou rce: Ta^- S ystem s ( t w e l f t h e d i t i o n ; New York: Commerce
C le a r in g H ouse, I n c . , 1 9 5 0 ) , p p . 1 8 5 -9 7 .
4011
I n t e r p r e t a t io n . A ls o , th e c o u r ts u p h eld th e Board o f Tax
A djustm ent in v a lid a t in g ta x l e v i e s w h ich ex ceed ed th e
l e g a l maximum.30
A nother way o f a v o id in g l i m i t a t i o n s h a s been th e
i
c r e a t io n o f new t a x in g d i s t r i c t s . For ex a m p le, in I n d ia n a , 1
no governm ent may c o n tr a c t d eb t in e x c e s s o f 2 p e r c e n t o f ;
i t s t o t a l t a x a b le s . T h is i s a v o id ed l e g a l l y b y c o n s t i t u
t in g new ta x u n i t s . As an i l l u s t r a t i o n , th e c i t y o f !
I n d ia n a p o lis in c lu d e s f i v e ta x d i s t r i c t s - - a c i v i l c i t y , a J
j
s c h o o l c i t y , a p u b lic u t i l i t y d i s t r i c t , a s a n it a r y d i s t r i c t ,
|and a bank d i s t r i c t . In a c t u a l p r a c t ic e th e c i t y can le v y
1 31
d eb t up t o 10 p er c e n t .
M ich igan ad op ted an o v e r a ll 1 5 - m ill t a x l i m it a t i o n
in 1 9 3 2 . D e s p ite th e r e d u c tio n in p r o p e r ty t a x e s w hich
ifo llo w e d , th e p e o p le o f th e s t a t e are p a y in g h e a v ie r t a x e s
I 3 0
!now th a n b e f o r e . The e f f e c t i v e n e s s o f th e l i m i t a t i o n i s
i
o f f s e t by th r e e im p o rta n t f a c t o r s : (1) th e c o u r ts r u le d
th a t u n in co r p o r a te d c i t i e s and v i l l a g e s a re n o t s u b je c t to
th e l i m it a t i o n u n le s s t h e y c o te d t o a c c e p t i t , and much o f
th e t a x a b le p r o p e r ty i s lo c a t e d in u n in c o r p o r a te d a r e a s ;
30 I b i d . . p . 2 3 1 .
3 ^ M in n eso ta Tax Sy stem , o p . c i t . , p . 1 1 2 .
32 I b i d . , P. 1 1 7 .
. . _ ' 4 0 2 1
(S) l e v i e s f o r s e r v ic in g d eb t in c u r r e d p r io r t o th e adop
t io n o f l i m i t a t i o n a re e x c e p te d ; (3) by an a f f ir m a t iv e v o te
o f t ir o - th ir d s o f th e e l e c t o r s c o n s t i t u t i o n a l l i m i t s can be
ex ceed ed f o r f i v e y e a r s . !
In O h io, a s in o th e r s t a t e s u s in g l i m i t a t i o n , th e i
t o t a l t a x burden h a s n o t been redu ced s in c e o th e r t a x e s i
have b een a d o p ted t o f i l l th e b reach c r e a te d by p r o p e r ty :
1
t a x l i m i t a t i o n . The fo u r l a r g e s t p ro d u c er s o f s t a t e r e v e
nue in 1948 w ere s a l e s , g a s o li n e , m otor v e h i c l e , and a lc o - J
h o l i c b ev era g e t a x e s . i
I - 1
i
The t e n - m i l l l i m i t a t i o n in e f f e c t i n Ohio s in c e 1933
p r o v id e s t h a t no p r o p e r ty ta x ed a c c o r d in g t o i t s v a lu e ,
s h a l l be so ta x ed in e x c e s s o f one p er c e n t o f i t s tr u e
v a lu e in money f o r a l l s t a t e and l o c a l p u r p o se s, but
la w s may be p a ssed a u th o r iz in g a d d it io n a l t a x e s t o be
l e v i e d o u t s id e o f such l i m i t a t i o n , e i t h e r when approved 1
by a t l e a s t a m a jo r ity o f th e e l e c t o r s o f th e t a x in g
d i s t r i c t v o t in g on such p r o p o s it io n , o r when p ro v id ed i
f o r by th e c h a r te r o f a m u n ic ip a l c o r p o r a t i o n . j
W ith r e s p e c t to th e e f f e c t i v e n e s s o f l i m i t a t i o n in j
r e d u c in g th e t a x lo a d in O h io, th e D ir e c t o r , D iv is io n o f
R esea rch and S t a t i s t i c s , D epartm ent o f T a x a tio n , sa y s:
I t i s c e r t a i n l y t r u e , in O h io , th a t th e p r o p e r ty
ta x r a t e h a s c o n tin u e d to r i s e , and i s now eq u a l to th e
l e v e l w h ich o b ta in e d b e fo r e th e c o n s t i t u t i o n a l l i m i t a
t io n was r a t i f i e d . T h is h a s o cc u r re d in s p i t e o f an
33 Tax S ystem s ( t w e l f t h e d i t i o n ) , o p . c i t . . p p . 108
34 Ohio C o n s t it u t io n , A r t ic l e 2X1, s e c . 2 , r e p r in te d
i n M o r r is, p p . c i t . . pp. 3 0 -3 1 . (A ppendix: " O v er-A ll P ro
p e r ty Tax L im ita tio n M e a su r e s .” )
403
a lm o st i n f i n i t e in c r e a s e in a id t o l o c a l g o v e r n m e n ts.33
In West V ir g in ia in c r e a s e d u se o f s a l e s and g r o s s
r e c e i p t s t a x e s have f a r ex c eed ed th e n e t r e d u c tio n in p rop - j
e r t y t a x e s , w ith th e r e s u l t t h a t com bined s t a t e and l o c a l j
j
t a x e s have in c r e a s e d by ab ou t th e same p e r c e n ta g e a s in j
a d jo in in g s t a t e s and th e n a tio n a s a w h o le.
i
R ed u ctio n in l o c a l c o n t r o l o f govern m en t. — P rop-
i
i
e r t y t a x l i m i t a t i o n i s c r i t i c i z e d on th e ground t h a t i t j
le a d s t o more c e n t r a liz e d c o n t r o l o v e r l o c a l governm ent by J
i
th e s t a t e governm en t. T h is i s a v i o l a t i o n o f what h a s b een i
|assum ed t o be a d e s ir a b le p r in c ip le in our s o c i e t y .
Throughout th e y e a r s we have s t r e s s e d th e d e s i r a b i l i t y o f
k e e p in g c o n t r o l o f governm ent a t home on th e th e o r y th a t
l o c a l governm ent i s c l o s e r t o th e p e o p le and th e r e b y
ca p a b le o f p erfo rm in g th e f u n c t io n s d e s ir e d , a s d eterm in ed
l o c a l l y , more e f f i c i e n t l y and e c o n o m ic a lly . A ls o , th e j
governm ent c o u ld be more e a s i l y h e ld a c c o u n ta b le and
r e s p o n s ib le i f l o c a l l y c o n t r o lle d , a s w e l l a s p r o v id in g
g r e a t e r f l e x i b i l i t y and a d a p t a b i lit y to ch an ges in n eed s
o r d e s i r e s o f th e p o p u la tio n . H owever, th e r e i s much
33 L. E. Sm art, D ir e c t o r , D iv is io n o f R esearch and
S t a t i s t i c s , D epartm ent o f T a x a tio n , S ta te o f O h io,
Colum bus, p e r s o n a l l e t t e r d a ted O ctob er 2 , 1 9 5 1 .
36 S h am b erg er an d Thom pson, o £ . c i t . . p . 1 7 .
404 j
c o n tr o v e r s y a s t o tlie m ost s u it a b le d iv i s i o n o f f u n c t io n s
a s b etw een s t a t e and l o c a l g overn m en ts.
T r a d it io n a lly th e .American p r o p e r ty t a x h a s b een !
l o c a l in c h a r a c te r — le v ie d on l o c a l p r o p e r ty , by l o c a l
i
o f f i c i a l s , f o r l o c a l p u b lic f u n c t io n s . What t h e s e p u b lic i
f u n c t io n s w ere was l o c a l l y d eterm in ed , l o c a l l y c o n t r o lle d ,
i
and l o c a l l y fin a n c e d . B ecau se th e r e w ere few o th e r reven u e
s o u r c e s a v a ila b le to l o c a l g o v ern m en ts, th e c o s t o f l o c a l I
f u n c t io n s becam e, in e f f e c t , a f i x e d ch arge on l o c a l p ro p - j
rz 17 I
e r t y w ith few r e s t r i c t i o n s im posed b y th e s t a t e .
! The t r a d i t i o n a l l o c a l c h a r a c te r o f th e p r o p e r ty t a x
|
was n o t w ith o u t d e f e c t s . U nequal d i s t r ib u t io n o f ta x a b le
p r o p e r ty , t o g e t h e r w ith u n eq u al a s s e s s e d v a lu a tio n in th e
v a r io u s d i s t r i c t s r e s u lt e d in w id e d if f e r e n c e s in t a x r a t e s ,
and q u a li t y and q u a n tity o f s e r v ic e s r e n d e r e d . D i s t r i c t s
w h ich a re p oor in ta x a b le p r o p e r ty m ust l e v y h ig h r a t e s o r
j
p r o v id e poor s e r v i c e s , o r b o th . T h is in e q u a l it y among
d i s t r i c t s h a s som etim es b een in c r e a s e d by th e p r a c t ic e o f
t a x c o lo n iz a t io n and g errym an d erin g.
1
O v e r a ll t a x l i m i t a t i o n s , in e f f e c t , se e k to e s t a b
l i s h u niform r a t e s in ea ch d i s t r i c t — o r a t l e a s t t o p r e v e n t
h ig h r a t e s . L o c a l c o n t r o l i s d i r e c t l y w eakened by a d o p tio n
^ J e n s e n , o p . c i t . . p. 3 4 7 .
405j
o f low f ix e d r a t e l i m i t s b eca u se l o c a l governm ent may no
lo n g e r be a b le t o fin a n c e i t s e l f , and th u s be fo r c e d t o
se ek a id from th e s t a t e . One a u th o r a s s e r t s t h a t l o c a l
governm ent in Ohio i s so d ep en d en t on s t a t e a id t h a t l o c a l
I
com m u n ities are a r e a s w h ich e x i s t s o l e l y f o r l o c a l a d m in is - !
30 '
t r a t io n o f s t a t e la w s . ,
The tr e n d tow ard c e n t r a l i z a t i o n i s i l l u s t r a t e d by
I
T ab le XXV. As se e n from th e f ig u r e s in t h i s t a b l e , th e j
J
I
e x t e n t o f c e n t r a l i z a t i o n i s g r e a t e r i n th e t a x l i m i t a t i o n [
I
j s t a t e s th a n t h e a v era g e f o r th e n a t io n . The e x p la n a tio n
; f o r th e in c r e a s e d r a t i o o f s t a t e e x p e n d itu r e s i s found in
i
th e f a c t t h a t l o c a l govern m en ts have so u g h t f i n a n c i a l a id
from th e s t a t e . P r o p e r ty ta x l i m i t a t i o n s have b een la r g e ly ,
i
r e s p o n s ib le f o r th e tr e n d b eca u se l o c a l governm ents l o s t
m ost o f t h e i r so u rc e o f r e v e n u e . The e x t e n t o f c e n t r a l i z e - j
39 I
t io n v a r ie s among th e s t a t e s w ith M ich ig a n , O h io, and
38 D. P . Emch, P r o p e r ty T a x e s. Symposium con d u cted
by Tax P o lic y League (P h ila d e lp h ia : Tax I n s t i t u t e , I n c . ,
1 9 3 9 ), p . 6 9 .
" S ta te paym ents f o r th e b e n e f it o f l o c a l u n it s
have ten d ed to p r o v id e a la r g e r and la r g e r sh a re o f l o c a l
r e v e n u e s . As t h i s o c c u r s , s t a t e paym ents have in c r e a s e d in
r e l a t i o n to l o c a l p r o p e r ty t a x l e v i e s . In th e p e r io d 1941
to 1 9 4 6 , s t a t e paym ents amounted t o 72 p er c e n t o f th e
p r o p e r ty t a x l e v i e s , b u t f o r th e p e r io d 1946 t o 1950 th e y
had r i s e n to 92 p e r c e n t ." C laude R. Tharp, P r o p e r ty Tax
A d m ln istr a tio n in M ic h ig a n . I n s t i t u t e o f P u b lic A dm inis
t r a t i o n , Pam phlet Ho. 22 (Ann Arbor: U n iv e r s it y o f M ich igan
P r e s s , 1 9 5 1 ), p . 2 .
406
TABLE XXV
STATE EXPENDITURES AS PERCENTAGES OF COMBINED STATE
AND LOCAL EXPENDITURES IN TAX LIMITATION STATES
1932 AND 1942
S ta te *
1932 1942
M ich igan 23 48
In d ia n a 24 45
Nevada 3 3 53
New M exico 49 64
Ohio 16 47
Oklahoma 33 54
Rhode I s la n d 25 45
W ashington 25 55
W est V ir g in ia 37 63
A verage f o r above s t a t e s 30 52 *6
A verage f o r a l l 48 s t a t e s 26 45
S o u rce: Bureau o f th e C en su s, C ensus o f G overnm ents.
F in a n c ia l S t a t i s t i c s o f S ta te and L o c a l G overnm ents, 1 9 3 8 ,
Government F in a n c e s in th e U n ite d S t a t e s (W ashington, B .C .:
U .S . Government P r in t in g O f f i c e , 1 9 4 2 ).
407
W est V ir g in ia b e in g le a d e r s . The tr e n d tow ard c e n t r a l i z a
t io n and away from l o c a l governm ent i s a g e n e r a l movement
w h ich p r o p e r ty t a x l i m i t a t i o n h a s h a ste n e d in c e r t a in o f
th e s t a t e s .
i
i
IV . CONCLUSIONS
C e r ta in e f f e c t s o f p r o p e r ty t a x l i m i t a t i o n s may be
summ arized a s f o llo w s : i
i
1 . The o v e r - a l l ty p e o f p r o p e r ty t a x l i m i t a t i o n was j
i
l a r g e l y due to th e v e r y h e a v y burden o f p r o p e r ty t a x e s
d u r in g th e d e p r e s s io n o f th e 1 9 3 0 * s . Many s t a t e s s u ff e r e d
a sharp d e c lin e o f incom e i n th e e a r ly t h i r t i e s from th e
h ig h l e v e l s o f t h e l a t e t w e n t i e s . S ta te f i s c a l r e q u ir e - j
m en ts w ere t a r d i l y a d ju s te d to th e r a p id ly d e c lin in g s t a t e
i
incom e t o e a s e th e burden on ta x p a y e r s . T h is t a r d in e s s
I sp u rred th e e f f o r t s o f p a r t ic u la r grou p s t o i n s t a l l a j
program o f o v e r - a l l p r o p e r ty ta x l i m i t a t i o n s . I n d ia n a ,
M ich ig a n , New M e x ic o , W ashington and W est V ir g in ia e n a c te d
l i m i t a t i o n m easu res d u r in g 1932 and 1 9 3 3 , w h ile Oklahoma
and Ohio m o d ifie d e x i s t i n g l i m i t a t i o n p r o v is io n s .
2 . The r e l a t i v e im p ortan ce o f th e p r o p e r ty t a x in
i
th e t a x sy stem o f c e r t a in o f th e t a x - l i m i t a t i o n s t a t e s h as
b een red u ced ; h ow ever, th e t o t a l amount o f t a x e s c o l l e c t e d
by th e s t a t e s , in e lu d in g th o s e l i m i t i n g p r o p e r ty t a x e s ,
In c r e a se d each y e a r from 1933 t o 1948 e x c e p t in 1 9 3 9 .40
T h e r e fo r e , l o c a l e x p e n d itu r e s hy s t a t e and l o c a l g o v ern
m ents have n o t b een red u ced by p r o p e r ty t a x l i m i t a t i o n s .
3 . The u se o f i n d i r e c t , co n su m p tio n , and g r o s s r e
c e i p t s t a x e s are r e l a t i v e l y more im p o rta n t in th e li m i t a - j
t i o n s t a t e s th a n t h e o th e r s t a t e s w hich u se t h e s e t a x e s .
i
The t a x sy stem s o f th e l i m i t a t i o n s t a t e s a re th u s more
i 1
i
r e g r e s s iv e th a n th o s e o f o th e r s t a t e s . !
I
4 . Tax l i m i t a t i o n s have n o t r e s u lt e d in th e d i s - j
c lo s u r e o f in t a n g ib le s f o r t a x a sse ssm e n t p u r p o s e s . j
i • 1
! 5 . Tax l i m i t a t i o n h a s n o t r e s u lt e d in d e s ir a b le
■
i
govern m en tal re fo r m s t h a t c o u ld n o t have been a c h ie v e d more
d i r e c t l y .
i
6 . Tax l i m i t a t i o n h as redu ced th e p r o p e r ty ta x t o a
r e l a t i v e l y i n f l e x i b l e so u rc e n o t r e a d i l y a d a p ta b le to j
I j
1 ch a n g in g l o c a l c o n d it i o n s . I
i j
7 . Tax l i m i t a t i o n , th ou gh i t may f o r c e a r e d u c tio n
in l o c a l e x p e n d itu r e s , may a c t u a l ly be u n eco n o m ica l in th e
lo n g run where c a p i t a l rep la cem en t o r c r e a t io n i s p o stp o n ed .
40 Tax S y stem s ( t w e l f t h e d i t i o n ) , oj>. c i t . . p . 301
CHAPTER X
SPECIAL PROPERTY TAX PROBLIMS
!
j
Under t h e th e o r y o f th e g e n e r a l p r o p e r ty t a x a l l j
p r o p e r ty sh o u ld be ta x e d a t a uniform , r a t e . U n ifo r m ity
!
d o es n o t n e c e s s a r i l y en su re m a th em a tic a l e q u a lit y f o r ea ch
ta x p a y e r in th e a d m in is tr a tio n o f a g iv e n t a x . I t d oes
i
p r o t e c t th e ta x p a y e r from i n t e n t i o n a l o r s y s te m a tic d i s - j
c r im in a tio n a s compared t o o th e r ta x p a y e r s in th e same |
n !
j c l a s s . D e s p ite c o n tin u e d u se o f th e t i t l e " g e n e ra l p ro p - ■
j e r t y ta x " o n ly a few s t a t e s now a ttem p t to t a x a l l p r o p e r ty
I
u n ifo r m ly . I t h a s b een found p r a c t i c a l l y im p o s s ib le to
o b ta in an a c c u r a te in v e n to r y and v a lu a t io n o f a l l p r o p e r ty , ■
e s p e c i a l l y p e r s o n a l p r o p e r ty , b o th t a n g ib le and i n t a n g ib le .
M ost s t a t e s have ad opted s p e c ia l p r o ce d u re s f o r t a x in g p e r - J
i
so n a l p r o p e r ty . In a d d it io n , many s t a t e s ta x su ch p ro p er- |
i ' !
t i e s a s r a ilr o a d s and p u b lic u t i l i t i e s , m in e r a ls , and
f o r e s t s , in a s p e c i a l manner a s compared to o r d in a r y r e a l
e s t a t e . Many r e a s o n s , b o th econom ic and a d m in is t r a t iv e ,
j j u s t i f y t h i s .
I . PERSONAL PROPERTY TAXATION
There c o n tin u e s to be a g r e a t d e a l o f d is c u s s io n on
^ Henry R o tt s c h a e fe r , C o n s t it u t io n a l Law ( S t . P a u l,
M in n eso ta : W est P u b lis h in g Company, 1 9 3 9 ), p . 6 7 5 . ___
410
th e q u e s tio n , "What sh o u ld be done about th e p e r s o n a l
p r o p e r ty tax?"^ Some urge i t s a b o l i t i o n , w h ile o th e r s de
fen d th e ta x a s ".worthwhile.
Econom ic B a s is 1
There i s a w id e v a r i e t y o f p e r s o n a l p r o p e r ty and
d i f f e r e n t econom ic b a s e s may e x i s t r e l a t i v e to th e t a x in g
o f e a c h . Eor c o n v e n ie n c e sake p e r s o n a l p r o p e r ty w as h ere |
i
d iv id e d in t o th r e e b a s ic g ro u p s. These w ere: (1 ) t a n g ib le
p r o p e r ty c a p a b le o f y i e l d i n g money in com e, (2) t a n g ib le
p r o p e r ty th a t d o es n o t y i e l d a money in com e, and (3) i n
t a n g ib le p r o p e r ty .
T a n g ib le incom e- p ro d u cin g p e r s o n a lt y . — T h is ty p e
o f p r o p e r ty i s o b j e c t iv e and im p erso n a l in about th e same
s e n s e a s r e a l e s t a t e . Exam ples o f such p r o p e r ty a re
I
(m ach in ery, raw m a t e r ia ls in p r o c e s s , in v e n t o r ie s o f w h o le -
i
is a l e r s o r r e t a i l e r s , b u s in e s s f u r n it u r e and eq u ip m en t, e t c . ,
and on th e farm su ch ite m s a s a n im a ls, m a ch in ery , s to c k s
o f g r a in , e t c .
Good econom ic r e a so n s e x i s t f o r t a x in g t a n g ib le
p e r s o n a l p r o p e r ty w hich y i e l d s , o r may y i e l d , a money i n
com e. I t p o s s e s s e s a b i l i t y - t o - p a y and r e c e iv e s b e n e f i t s
2 See " P erso n a l P r o p e r ty T a x a tio n ," P r o c e e d in g s .
N a tio n a l Tax A s s o c ia t io n , 1 9 5 0 , p p . 7 7 -1 1 2 .
“ i i n
i
from l o c a l governm ent s e r v ic e s such a s f i r e and p o lic e
p r o t e c t io n . I f t a x in g r e a l e s t a t e i s j u s t i f i a b l e on th e s e
i
g r o u n d s 4 th e same r e a s o n s ap pear t o j u s t i f y t a x in g t a n g ib le j
p e r s o n a lt y w hich y i e l d s money in com e, la c h ty p e o f prop
e r t y i s im p e rso n a l and o b j e c t iv e and may be an in v e stm e n t I
f o r p u rp o se s o f in com e. I f one i s ta x e d and th e o th e r n o t
ta x e d in v e s t o r s w ould be in flu e n c e d by t h a t f a c t and in v e s t ;
i
in t a x - f r e e p r o p e r t ie s a lth o u g h ea c h ty p e may have com-
i
p a ra b le e a r n in g power* J
H ousehold g o o d s and p e r s o n a l e f f e c t s . — As a g en - |
i
i
( e r a l r u le t h e s e p r o p e r t ie s do n o t y i e l d a money incom e.
J u s t th e sam e, money r e p r e s e n te d b y su ch t h in g s a s f u r n i
t u r e , je w e lr y , a u to m o b ile s , c l o t h in g , e t c . m ig h t have b een
in v e s t e d in p r o p e r ty t h a t w ould produce money in com e. Thus
j i t can be argued t h a t t h e s e r v ic e s o f th e s e good s w ere |
1 p r e fe r r e d by t h e i r owner t o th e money incom e from a com- |
i i
p a r a b le in v e s tm e n t. Should th e owner r e n t them t o o th e r s
th e y produce incom e; t h e r e f o r e , t h e i r s e r v ic e s t o t h e i r
owner have a money e 'q u iv a le n t. B e s id e s h a v in g a b i l i t y - t o -
j pay such p r o p e r t ie s r e c e iv e p r o t e c t io n and b e n e f it from
governm ent s e r v ic e s and sh o u ld pay some p a r t o f t h e i r c o s t s
w h ich a r e l a r g e l y borne by t a x e s on r e a l p r o p e r ty . In
a d d it io n t o y i e l d i n g v a lu a b le s e r v i c e s t o t h e i r ow ners
t h e s e p r o p e r t ie s have a money v a lu e .
412
D e s p ite th e sound econom ic b a s is f o r ta x in g th e s e
p r o p e r t ie s a d m in is t r a t iv e p ro b lem s, p a r t i c u l a r l y a s s e s s
m en t. make e f f e c t i v e t a x in g d i f f i c u l t . Where v o lu n ta r y j
r e p o r tin g b y th e ta x p a y e r i s r e l i e d on much e v a s io n o c c u r s . !
A p p r a isa l by th e a s s e s s o r i s o f te n c u r s o r y s in c e he i s an |
e l e c t e d o f f i c i a l and lo a t h to do an e f f e c t i v e jo b . Fur-
I
t h e r , th e p r o p e r ty may be h id d en from v ie w , o r may be j
d i f f i c u l t to a p p r a is e a c c u r a te ly i f d i s c l o s e d . F i n a l ly ,
e f f e c t i v e en fo rcem en t o f t h i s s o r t o f t a x in g m ig h t w e ll be
I
u n econ om ical b e ca u se o f th e en o rm ity o f th e job and b eca u se I
o f th e d i f f i c u l t y o f o b ta in in g and r e t a i n in g a com petent
s t a f f .
I n t a n g ib le p e r s o n a l p r o p e r ty . — M ost a u t h o r it ie s
a g re e t h a t e f f e c t i v e t a x in g o f in t a n g ib le s o f f e r s an e x
c e e d in g ly d i f f i c u l t p rob lem . I t i s e v id e n t t h a t e v a s io n by
/ [
1 th e ow ners o f i n t a n g ib le s w ould be e a s y . T h is form o f j
• ' t
p r o p e r ty can be d iv id e d in t o " r e p r e s e n ta tiv e " and "non
r e p r e s e n t a t iv e ” t y p e s . The form er c o n s i s t s o f " ev id en ce
o f ” o r " i n t e r e s t s i n ” o th e r p r o p e r ty , e i t h e r r e a l o r
t a n g ib le p e r s o n a lt y . The v a lu e o f " r e p r e s e n t a t iv e ” in
t a n g ib le s depends on t h e t h in g s th e y r e p r e s e n t and w ould
lo s e t h e i r v a lu e w ere th e l a t t e r d e s tr o y e d . Exam ples o f
such " r e p r e s e n t a t iv e ” in t a n g i b l e s a re s t o c k s , b on d s, and
m ortgage s .
' "4131
There i s no econom ic b a s is f o r t a x in g " r e p r e s e n ts - j
t iv e " i n t a n g ib le s i f a l l p r o p e r ty o f th e same v a lu e i s t o
be ta x e d e q u a lly . The v a lu e o f th e s e i s d e r iv e d from
t a n g ib le p r o p e r ty and i f ea ch i s t a x e d , th e one b a s is o f
v a lu e i s ta x ed t w ic e .
" N o n -r e p r e se n ta tiv e " in t a n g ib le s a re p r o p e r ty in !
i
t h e i r own r i g h t and are n o t r e p r e s e n t a t iv e o f o th e r t h in g s . ,
i
Exam ples o f t h i s form o f in t a n g ib le a re p a t e n t s , tr a d e - !
m arks, f r a n c h i s e s , good w i l l , e t c . Where su ch in t a n g ib le s j
I
I
|a re p r o d u c tiv e o f incom e o r have m oney v a lu e th e r e i s j
i
econom ic j u s t i f i c a t i o n f o r t a x in g them . A d m in is tr a tiv e
j d i f f i c u l t i e s in l o c a t in g and a s s e s s in g th e s e form s o f prop
e r t y have o f t e n p r e c lu d e d t a x in g them under th e p r o p e r ty i
t a x , a lth o u g h some s t a t e s in c lu d e them in t h e i r ta x b a s e .
i
|E v a lu a tio n o f P e r s o n a l P r o p e r ty T a x a tio n j
I n J u ly , 1948 th e P r e s id e n t o f th e N a tio n a l Tax J
A s s o c ia tio n a p p o in ted a C om m ittee on P e r so n a l P r o p e r ty
T a x a tio n t o c a r r y o u t a g e n e r a l stu d y and i n v e s t i g a t i o n o f
p e r s o n a l p r o p e r ty t a x a t io n . The f o llo w in g i s a summary o f
th e p o in t s on w h ich a m a jo r ity o f th e com m ittee a g re ed .
1 . That th e r e i s v e r y l i t t l e u n ifo r m ity in m ethods o f
a sse ssm e n t o f t a n g ib le and in t a n g ib le p e r s o n a l
p r o p e r ty w it h in each t a x in g j u r i s d i c t i o n .
2 . That a good m easure o f u n ifo r m ity co u ld be o b ta in e d
by th e use o f t h e b ooks and r e c o r d s and f r a n c h is e
' — 4141
!
and incom e t a x r e tu r n s o f th e ta x p a y e r and by su p e r -j
v i s i o n by an a u t h o r it a t iv e c e n t r a l s t a t e a g en cy . j
3 . That th e same m eth o d s, a s f a r a s a p p lic a b le , sh o u ld t
be em ployed f o r ea ch and a l l i n d u s t r ie s . |
i
4 . That u n iform m illa g e r a t e s sh o u ld be made to a p p ly i
on a l l t a x a b le p r o p e r ty , and, i f such p r o p e r ty i s i
s u b je c t to " c l a s s i f i c a t i o n , ” t h a t su ch u niform r a t e s I
sh o u ld be made t o a p p ly w it h in ea ch c l a s s . >
i
5 . That lo w er u n ifo rm r a t e s sh ou ld be made to a p p ly on
in t a n g ib le p e r s o n a l p r o p e r ty .
6 . That h o u se h o ld g o o d s, p e r s o n a l e f f e c t s , and je w e lr y ;
sh o u ld be exem pted from t a x , s in c e i t n o t a d m in is- ;
t r a t i v e l y f e a s i b l e to se a rch o u t and t a x su ch p ro p - |
e r t y . I
I
i
7. That ta x a d m in is t r a t o r s , g e n e r a lly , do n o t u se th e
same r a t i o o f a s s e s s e d to tr u e v a lu e on a l l p r o p e r ty ,
I n o r do th e y u se u n iform r a t i o s a s t o a l l ta x p a y e r s ;
I t h i s , t h e r e f o r e , i s th e m ost g la r in g f a u l t o f th e
sy stem .
8 . That g e n e r a lly m ost o f th e reven u e d e r iv e d from th e
t a n g ib le p e r s o n a l p r o p e r ty t a x com es from in v e n
t o r i e s o f m erch a n ts and m a n u fa c tu r e r s .3
i ;
, . i
! Q u e stio n s on w h ich no co n se n su s o f o p in io n was
I 1
rea ch ed by th e com m ittee f o llo w : ^
i
I n t a n g ib le P r o p e r ty
1 . Should in t a n g ib le p e r s o n a l p r o p e r ty , w h eth er u sed in
b u s in e s s o r n o t , be (a ) exem pt from th e ad valorem
p r o p e r ty ta x ? (b) ta x e d in some manner o th e r th an
ad v a lo rem ? (c ) c l a s s i f i e d s e p a r a te ly from t a n g ib le
p e r s o n a l p r o p e r ty and ta x e d a t a lo w er r a te ?
2 . Should th e tr e a tm e n t a cco rd ed in t a n g ib le p e r s o n a l
J o sep h S. M a r te l, "What Should Be Done About th e
P e r so n a l P r o p e r ty Tax?" P r o c e e d in g s . N a tio n a l Tax A s s o c i
a t i o n , 1 9 5 0 , p p . 8 7 -8 8 .
415
p r o p e r ty u sed in b u s in e s s d i f f e r from t h a t a cco rd ed
o th e r in t a n g ib le s ?
3 . Should a l l in t a n g ib le p e r s o n a l p r o p e r ty be a s s e s s e d
by a c e n t r a l s t a t s agency?
T a n g ib le P r o p e r ty
1 . Should a l l t a n g ib le p e r s o n a l p r o p e r ty a s s e s s m e n ts be
e q u a liz e d w ith r e a l p r o p e r ty a sse ssm e n ts?
2 . Should a l l t a n g ib le p e r s o n a l p r o p e r ty be a s s e s s e d
by a c e n t r a l s t a t e agency?
3 . I f h o u seh o ld g o o d s, p e r s o n a l e f f e c t s , and je w e lr y
a re to be exem pted from th e t a n g ib le p e r s o n a l prop
e r t y t a x , sh o u ld t h e y be ta x ed in some manner o th e r
th a n ad v a lo rem ?
4 . What m ethod and b a s is sh ou ld be em ployed in th e
t a x a t io n o f a u to m o b ile s and t r u c k s , w h eth er used in
b u s in e s s o r n o t?
5 . What m ethod and b a s is sh o u ld be em ployed in th e
t a x a t io n o f m erch a n d ise in v e n to r ie s ? ^
Three t a x a d m in is tr a to r s on th e C om m ittee on P er
so n a l P r o p e r ty T a x a tio n p r e s e n te d p a p ers a t th e 1950 Gon-
' fe r e n c e o f th e N a tio n a l Tax A s s o c ia tio n d e fe n d in g p e r s o n a l
p r o p e r ty t a x a t io n . The C ity Tax A s s e s s o r o f W aterbury,
C o n n e c tic u t acknow ledged t h a t p e r s o n a l p r o p e r ty a s s e s s m e n ts
a re n o t made on a s h ig h l e v e l a s r e a l e s t a t e a s s e s s m e n ts ,
la r g e l y b eca u se th e a s s e s s o r la c k s an a d eq u a te d e f i n i t i o n
o f th e m easure o f v a lu e t o be a p p lie d t o a v a s t v a r i e t y o f
p r o p e r ty . He urged d is c o n t in u in g ad valorem t a x in g o f
4 I b i d . , p . 8 8 .
416
i n t a n g ib le s and c l a r i f i c a t i o n o f ex e m p tio n s and c l a s s i f i c a
t i o n o f t a n g i b l e s . F u r th e r , th e n eed f o r c a r e e r men,
q u a l i f i e d , a d e a u a te ly p a id , and p r o te c te d in t h e i r j o b s , ;
I
and c o n tin u o u s ly t r a in e d was s t r o n g ly s t r e s s e d . T h is same !
spokesm an s a id :
The a d m in is tr a tio n o f th e p e r s o n a l p r o p e r ty t a x m ust
be l e f t in th e hands o f l o c a l o f f i c i a l s and n o t be
c e n t r a l iz e d . W hile i t i s e n t i r e l y p o s s ib le t h a t th e r e
m ight be some g r e a te r d e g r e e o f u n ifo r m ity a s betw een !
t a x a t io n d i s t r i c t s i f th e ta x w ere c e n t r a l l y a d m in is- I
t e r e d , i t d o es n o t f o llo w t h a t in d iv id u a l a s s e s s m e n ts j
w ould be any more u n iform o r e q u it a b le th a n th e y now
a r e . S in c e l o c a l govern m en ts m ust dep en d, t o a la r g e |
j e x t e n t , on th e g e n e r a l p r o p e r ty t a x f o r t h e i r r e v e n u e s , i
! t h i s t a x sh o u ld n o t be tu r n e d o v er to th e s t a t e f o r
j a d m in is tr a tio n u n le s s th e l o c a l governm en ts are w i l l i n g
I t o g iv e up p a rt o f th e r i g h t s t h a t th e y now h a v e . Bad
a s p e r s o n a l p r o p e r ty t a x a d m in is tr a tio n i s , i t sh o u ld
be im proved from w ith in r a th e r th an abandoned t o a
s t a t e a g e n c y .5 j
!
The Tax C om m issioner, M ilw au k ee, W isc o n sin , in d e - |
fe n d in g th e p e r s o n a l p r o p e r ty ta x s t r e s s e d two im p o rta n t
p o in t s . F i r s t , i s i t p r a c t i c a l l y p o s s ib le t o a b o lis h th e '
t a x and have th e burden o f i t s t a x e s s h if t e d t o r e a l 1
e s t a t e ? S eco n d , i s i t p o s s ib le to im prove th e p e r s o n a l
p r o p e r ty ta x ? On th e f i r s t q u e s tio n he co n clu d ed t h a t th e
p e r s o n a l p r o p e r ty ta x c o u ld n o t be r e a d i l y a b o lis h e d w ith
o u t s u b s t it u t io n o f an in l i e u t a x to r a is e th e same r e v e
n u e. He s t a te d :
5 A ld ro J e n k s, ”A d m in istr a tio n o f P e r so n a l P r o p e r ty
T a x e s ,” P r o c e e d in g s . N a tio n a l Tax A s s o c ia t io n , 1 9 5 0 , p . 9 2 .
417
I am fo r c e d t o c o n c lu d e t h a t th e r e i s no su re answ er
to many o f t h e s e q u e s tio n s now and t h a t th e r e h as
p r e s e n t ly t e e n made no s u g g e s tio n o f a t a x w h ich w ould |
be s u b s t a n t i a l ly more e q u it a b le , more e a s i l y w o rk a b le, i
more e a s i l y a d m in is t r a t is , o r l e e s p a in f u l th a n th e j
p e r s o n a l p r o p e r ty t a x . . . . I t w ould s t r ik e m e,
t h e r e f o r e , t h a t b e fo r e we a b o lis h what we have we !
sh o u ld ta k e a n o th er lo o k a t i t . 6
To im prove a d m in is tr a tio n o f th e t a x Byrne l i s t e d 1
s i x fun dam en tal r e q u ir e m e n ts a s f o llo w s : '
1 . The ta x m ust c o n tin u e a s a ta x f o r th e su p p o rt o f j
l o c a l g overn m en t. !
2 . I t ou gh t to c o n tin u e t o be l o c a l l y a d m in iste r e d and |
a s s e s s e d , but th e a sse ssm e n t j u r i s d i c t i o n s m ust be ;
s u f f i c i e n t l y e n la r g e d to p erm it a d m in is tr a tio n by
s t a f f s o f ad eq u ate s i z e , t r a in e d t o do th e jo b ; and
th e s t a f f s sh o u ld be under c i v i l s e r v ic e .
3 . A s s e s s o r s sh o u ld be s e le c t e d on th e b a s is o f m e r it;
w h eth er e l e c t e d o r n o t, by s e t t i n g up s u it a b le job
c l a s s i f i c a t i o n s ; and th e l e v e l o f co m p en sa tio n sh ould
be s u f f i c i e n t t o p erm it th e r e c r u itm e n t o f men who
a c t u a l l y have th e r e q u ir e d q u a l i f i c a t i o n s .
i
4 . There sh o u ld be an ad eq u ate program o f s t a t e a s s i s t - J
ance and s u p e r v is io n , w h eth er th e s t a t e l e v i e s a ;
p r o p e r ty ta x o r n o t . I t i s p ro b a b ly no lo n g e r :
enough t h a t th e s t a t e d ep artm en ts m e r e ly e q u a liz e :
v a lu a t io n s f o r th e p u rp o se o f d i s t r i b u t i n g c o u n ty
and s t a t e t a x e s and a id s and sh ared t a x e s . E q u al
i z a t i o n a t th e l o e a l l e v e l b etw een v a r io u s a s s e s s in g
j u r i s d i c t i o n s in th e same im m ediate a rea ( e s p e c i a l l y
in m e tr o p o lita n c e n t e r s ) a p p ea rs to be n e c e s s a r y t o
sa v e th e j u r i s d i c t i o n in w h ich a good a sse ssm e n t i s
made from th e a c t u a l damage i t and i t s ta x p a y e r s
s u f f e r from th e u nequ al a s s e s s m e n ts made in c o n t ig u
ou s a r e a s .
6 Thomas A. B y rn e, ”S tr e n g th e n in g P e r s o n a l P ro p er ty
Tax A d m in is t r a t io n ,” P r o c e e d in g s . N a tio n a l Tax A s s o c ia t io n ,
1 9 5 0 , p . 9 9 .
418
5 . Good and ad eq u ate r e p o r tin g by p e r so n s and co rp o ra
t i o n s s u b je c t to tb e ta x sh o u ld be r e q u ir e d by
s t a t u t e under p e n a lty .
t
6- C l a r i f i c a t i o n sh ou ld be mads s i t h e r b y s t a t u t e o r byj
a d m in is tr a tiv e r u lin g o r by b o th , a t th e s t a t e l e v e l j
o f th e r e la t io n s h ip b etw een book v a lu e and c a sh |
v a lu e . ' j
E. L. M aynard, S u p e r v is o r , P r o p e r ty Tax D iv is io n ,
I l l i n o i s D epartm ent o f R evenue, in d e fe n d in g th e p e r s o n a l !
p r o p e r ty ta x s t a t e d : I
T a x a tio n o f p r o p e r ty , in c lu d in g p e r s o n a lt y , h a s and j
sh o u ld c o n tin u e t o h a v e, a d e f i n i t e p la c e in th e ta x j
sy ste m . As a so u rc e o f reven u e f o r r e s p o n s ib le l o c a l I
governm en t, i t i s p r e fe r a b le t o m ost o th e r form s o f <
t a x a t io n a v a ila b le t o them . I t i s more d ir e c t th an
m ost o th e r form s o f t a x a t io n p rop osed f o r l o c a l g o v ern
m ent, and u s u a l ly w ould have l e s s d is t u r b in g in f lu e n c e
on a f r e e c o m p e titiv e sy ste m . I f u sed p r im a r ily f o r
l o c a l governm en ts and n o t s u b je c te d t o to o many exemp
t i o n s , l i m i t a t i o n s , e t c . i t sh o u ld p r o v id e a broad ta x i
b ase t h a t w i l l make f o r r e s p o n s ib le l o c a l governm ents
E xcep t f o r r e p r e s e n t a t iv e i n t a n g i b l e s , th e r e w ould
seem to be a p resu m p tion th a t a l l o th e r p r o p e r ty sh o u ld
be ta x e d u n ifo r m ly u n le s s and u n t i l th e p resu m p tion i s
d e f i n i t e l y overcom e by p r a c t i c a l a d m in is tr a tiv e prob
lem s t h a t may d i c t a t e ex e m p tio n , ta x a tio n in l i e u , o r
p o s s ib ly c l a s s i f i c a t i o n and t a x a t io n a t d if f e r e n t
e f f e c t i v e r a t e s . I t i s on t h i s p o in t t h a t many o f us
p a r t company, f o r many sa y th a t p r a c t i c a l a d m in is
t r a t io n d o es d ic t a t e a b o l i t i o n , g e n e r a l c l a s s i f i c a t i o n ,
o r in l i e u t a x e s b eca u se e x p e r ie n c e h a s p roved t h a t th e
p e r s o n a l p r o p e r ty t a x i s unw orkable. W ith t h i s I can
n o t a g r e e , f o r I th in k any o th e r ta x g iv e n th e same
ty p e o f a d m in is tr a tio n t h a t h a s m ost o f t e n b een th e l o t
o f p e r s o n a l p r o p e r ty w ould r e s u l t in a ta x a s bad o r
w o rse . C l a s s i f i c a t i o n d o es n o t answ er th e problem o f
e q u ita b le t a x a t io n . The s u c c e s s o f th e c l a s s i f i e d
7 I b i d . . p p . 1 0 1 -1 0 2 .
419
p e r s o n a l p r o p e r t y t a x w here i t h a s su c c e e d e d , I t h in k ,
i s l a r g e l y due to good a d m in is t r a t io n .8
O ther spokesm en a re l e s s co n v in ce d o f th e d e s ir a
b i l i t y o f im p rovin g th e a d m in is tr a tio n o f p e r s o n a l p r o p e r ty
!
t a x e s and m a in ta in in g them . Some p o in t o u t t h a t th e y are J
m o s tly t a x e s on b u s in e s s p r o p e r ty s in c e t h e y are n o t e n - !
fo r c e d a g a in s t ow ners o f h o u se h o ld g o o d s, j e w e lr y , and p e r - :
s o n a l e f f e c t s . T h is c r e a t e s i n e q u i t i e s s in c e th e r e a re no \
i
c l e a r c r i t e r i a o f v a lu e f o r th e v a r i e t y o f p r o p e r t ie s w ith
th e r e s u l t t h a t m erch a n ts' in v e n t o r ie s a re a s s e s s e d a t a
j h ig h e r p e r c e n ta g e o f f a i r v a lu e th an o th e r t a n g ib le p e r -
|s o n a l p r o p e r ty . A g r o s s p r o f i t s t a x , i t i s u rg ed , w ould be
p r e fe r a b le to an ad valorem t a x f o r th e s e r e a so n s:
|
1 . A new and d i f f e r e n t t a x w ould be im posed d e d ic a te d 1
s o l e l y a s a s u b s t it u t e f o r th e p e r s o n a l p r o p e r ty t a x
on m erch an d ise in v e n t o r ie s o f m erch a n ts. I
2 . E f f e c t i s g iv e n t o th e amount o f g r o s s p r o f i t in th e j
1 In v e n to r y as w e ll a s th e tu r n o v e r o f th e m erchan- j
d i s e .
3 . E q u a liz a tio n and u n ifo r m ity in th e ta x burden among
a l l m erch an ts h a v in g in v e n t o r ie s w ould be a c h ie v e d .
4 . Im ported m erch a n d ise exempt from th e g e n e r a l p rop
e r ty t a x w ould be ta x e d on g r o s s p r o f i t j u s t l i k e
o th e r m e r c h a n d ise .
5 . A d m in istr a tio n w ould be s i m p l i f i e d . S in c e s a l e s
w ith in th e t a x in g j u r i s d i c t i o n can g e n e r a lly be
® E. L. M aynard, ’’P e r s o n a l P r o p e r ty T axes Are Worth
P r e s e r v in g ,” P r o c e e d in g s . N a tio n a l Tax A s s o c ia t io n , 1 9 5 0 ,
p . 1 0 5 .
4 2 0 1
d eterm in ed and v e r i f i e d and s in c e tlie c o s t o f s a l e s
can “ be ch eck ed in th e manner s t a t e d a b o v e, g r o s s
p r o f i t t a x r e tu r n s can be much more e x p e d it io u s ly
a u d ite d th a n ad v a lo rem p r o p e r ty ta x r e t u r n s . '
i
I
6 . A l i c e n s e t a x m easured by g r o s s p r o f i t can be c o l - !
le c t e d w ith th e r e t u r n s , th e r e b y m a t e r ia ll y sp e e d - 1
in g up c o l l e c t i o n , w h ich now r e q u ir e s m onths and j
som etim es a y e a r o r more f o r ad valorem t a x e s . j
7 . The t a x a t io n o f g r o s s p r o f i t a t a lo w m illa g e r a te
i s p r e f e r a b le , p s y c h o lo g ic a lly , t o a p r o p e r ty t a x on
m erch an d ise a t a h ig h m illa g e r a t e . 9
A nother spokesm an, a n a ly z in g th e problem o f p e r s o n a l 1
p r o p e r ty t a x a t io n , draws t h e s e c o n c lu s io n s : (1 ) The p e r - j
1
■ so n a l p r o p e r ty t a x , a s a t h e o r e t i c a l m a tte r , i s p ro b a b ly
|s u s c e p t ib le o f b e t t e r a d m in is tr a tio n th a n th e r e a l e s t a t e
jta x . (2) The ta x i s b a s i c a l l y unsound and sh ou ld n o t be
m a in ta in e d . (3) The r e a l problem i s n o t th e im provem ent o f ■
p e r s o n a l p r o p e r ty t a x e s , b u t r a th e r what t o put in i t s
p l a c e . J
B e t t e r a d m in is tr a tio n o f p e r s o n a l p r o p e r ty t a x e s on j
311 ilil v a lo rem b a s is c o u ld be d ev elo p e d s in c e th e r e i s a
c o n tin u in g m arket f o r m ost t y p e s o f p e r s o n a l p r o p e r ty ,
e s p e c i a l l y b u s in e s s i n v e n t o r ie s , and th u s p r ic e s and v a lu e s
more r e a d i l y a s c e r t a in a b le th a n w ith r e a l e s t a t e . B e tt e r
s t i l l , a g r o s s p r o f i t s t a x i s a m a tte r o f a r ith m e tic and
n o t s u b je c t t o th e u n c e r t a in ty o f ad v a lo rem v a lu a t i o n s .
9 M a r te l, o p . c i t . . p p . 8 6 -8 7 .
_____
F u rth erm ore, a c c o r d in g to t h i s spokesm an, p e r s o n a l j
p r o p e r ty t a x a tio n i s m o s tly lim it e d to m e r c h a n tsf in v e n
t o r i e s and. a s su c h , i s in a. c o n s ta n t s t a t e o f flu x ^ T h is ■
r e n d e r s i t s v a lu a tio n on an ad, valorem "basis h ig h ly un
c e r t a in and in e q u it a b le b etw een m erch an ts s in c e some have
r a p id tu r n o v e r w h ile o t h e r s do n o t .
F i n a l l y , t h i s a u t h o r it y would s u b s t it u t e a g r o s s
p r o f i t s ta x on in v e n t o r ie s in l i e u o f p e r s o n a l p r o p e r ty
t a x e s , and t a x in t a n g ib le p e r s o n a lt y by an incom e tax.***®
I
I
| C o n c lu sio n s on P e r s o n a l P r o p e r ty Taxes
Two b a s ic p o in t s - o f - v ie w e x i s t c o n c e r n in g th e p rob
lem o f p e r s o n a l p r o p e r ty t a x e s . F i r s t , t h e r e a re many
q u a li f ie d c r i t i c s who w ould a b o lis h i t . They p o in t to th e i
t a x a s uneconom ic in c o n c e p tio n , unsound in p r a c t i c e , un- j
s c i e n t i f i c in a d m in is t r a t io n , u nequ al in a p p li c a t io n , and I
t
;u n d em ocratic in p r i n c i p l e . T hese spokesm en c o n c lu d e : I
1 . The ad v a lo rem t a x a t io n o f t a n g ib le p e r s o n a l
p r o p e r ty sh ou ld be d is c o n tin u e d and an in l i e u t a x , such a s
a g r o s s p r o f i t s t a x , be u sed in s t e a d .
J 2 . I n ta n g ib le p e r s o n a l p r o p e r ty sh o u ld be ta x e d v ia
an incom e ta x in s t e a d o f on sin ad valorem b a s i s .
W illia m M i l l e r , ’’P e r s o n a l P r o p e r ty Tax R efo rm ,”
P r o c e e d in g s . N a tio n a l Tax A s s o c ia t io n , 1 9 5 0 , p . 9 4 .
4 2 2 1
A seco n d b a s ic v iew on th e p e r s o n a l p r o p e r ty ta x
problem u r g e s r e t e n t io n o f th e t a x b u t s t r e s s e s th e n e c e s
s i t y o f im p rovin g i t s a d m in is t r a t io n . Spokesmen f o r t h i s j
I
v ie w p o in t c o n c lu d e : !
1 . The p e r s o n a l p r o p e r ty t a x i s c l e a r l y ca p a b le o f !
e f f i c i e n t a d m in is tr a tio n .
2 . P e r so n a l p r o p e r ty co m p rise s a s i g n i f i c a n t p a r t o f
th e t a x b a se f o r l o c a l governm ent and sh o u ld n o t be rem oved !
from th e ta x r o l l s . j
i
3 . S ep a ra te c l a s s i f i c a t i o n o f t a n g ib le s and in ta n - !
i
I g ib le s w ould a id in a d m in is te r in g th e t a x .
I
i
i 4 . A d eq u ate, b e t t e r t r a in e d , b e t t e r p a id p e r s o n n e l,
t o g e t h e r w ith g r e a t e r p u b lic u n d er sta n d in g o f th e problem
a re b a s ic to i t s im provem ent.
U nd ou bted ly one o f th e g r e a t e s t o p p o r t u n it ie s f o r ;
iim p rovin g th e p r o p e r ty t a x i s in th e d ir e c t io n o f im proved |
p e r s o n a l p r o p e r ty t a x in g . The n o to r io u s l a x i t y in i t s :
a d m in is tr a tio n i s w e ll known. Much o f th e in e q u it y com
p la in e d o f in p r o p e r ty t a x a t io n i s t r a c e a b le to i t s weak
e n fo r ce m e n t. To im prove th e s i t u a t i o n a c o n c e r te d e f f o r t j
| i s r e q u ir e d , r e a c h in g from th e l o c a l g r a s s r o o t s to th e !
s t a t e l e v e l . R ig o ro u s e n fo r c e m e n t, u n le s s on a s ta te w id e
b a s i s , may p e n a liz e th e d i s t r i c t s in v o lv e d . L o c a l g o v ern
m en ts, in t h e i r se a r c h f o r a d d it io n a l reven u e s o u r c e s ,
423
appear t o be o v e r lo o k in g a s u b s t a n t ia l one in p e r s o n a l
p r o p e r ty .
I I . TAXING SPECIAL TIFES OF PROPERTY
P r o p e r ty t a x a t io n i s n o t a sim p le p rob lem . L ik e
m ost o th e r p rob lem s i t becom es more and more c o m p lic a te d
a s s o c i e t y grow s in c o m p le x ity . In g e n e r a l p r a c t ic e th e
d is a r m in g ly sim p le in j u n c t io n o f th e g e n e r a l p r o p e r ty t a x I
t h a t a l l p r o p e r ty was t o be ta x e d u n ifo r m ly a c c o r d in g to j
1 i t s v a lu e so t h a t ev ery o n e w ould be ta x e d in p r o p o r tio n to j
I
. t h e amount o f p r o p e r ty he o r she p o s s e s s e d d id n o t work to o
i
I w e l l . Many r e a s o n s have b een o f f e r e d t o e x p la in why n o t .
*
B a s i c a l l y , i t s f a i l u r e i s to be found in th e e v e r in c r e a s
in g c o m p le x ity o f th e w e a lth t o be ta x ed and th e num erous
I
i n s t i t u t i o n a l arran gem en ts w hich have been d e v e lo p e d . j
i
'P r o p e r ty t a x a t io n i s c a r r ie d o u t under a la r g e number o f |
i i
l e g a l r e q u ir e m e n ts im posed b y th o u sa n d s o f j u r i s d i c t i o n s .
S p e c ia li z a t io n in p r o p e r ty t a x a t io n h as accom p an ied , in
v a r y in g d e g r e e s , th e s p e c i a l i z a t i o n w h ich h a s ta k en p la c e
in th e economy and th e r e s u l t i n g d i v e r s i t y o f w e a lth . In
a d d it io n to th e problem o f p e r s o n a l p r o p e r ty t a x a t io n
( d is c u s s e d in o th e r p la c e s in t h i s s t u d y ) , th e t a x in g o f
o th e r s p e c i a l t y p e s o f p r o p e r ty a re t r e a t e d b e lo w . Those
d is c u s s e d are th e t a x in g o f (1 ) m e r c h a n ts’ i n v e n t o r ie s ,
4241
i
(2) f o r e s t s , m in e s , and o i l la n d s . j
MEBS HANTS* INVENTORIES !
i
I
T axing M erch a n ts* I n v e n t o r ie s
The t a n g ib le p e r s o n a l p r o p e r ty u sed in b u s in e s s i n
c lu d e s two p r in c ip a l k in d s: (1) a s s e t s such a s m a ch in ery ,
eq u ip m en t, f u r n it u r e and f i x t u r e s , and (2) m erch an d ise
in v e n t o r ie s . The f i r s t k in d i s v e r y s im ila r to r e a l e s t a t e !
I
s in c e t h e y are n o t p u rch ased f o r r e s a l e . M erchan dise i n - J
I
v e n to r y , u n lik e r e a l e s t a t e u sed in th e b u s in e s s , i s p u r- j
ch a sed a s f in is h e d g o o d s f o r r e s a le o r p urch ased a s raw
m a te r ia l to be f a b r ic a t e d and s o ld a s f in i s h e d g o o d s.
S p e c ia l problem s a r is e in c o n n e c tio n w ith t a x in g m erchan
d is e in v e n t o r ie s .
Y a r ia tio n s in i n v e n t o r i e s . — Some b u s in e s s e s o p e r - !
'a t e w ith a r e l a t i v e l y sm a ll m erch a n d ise in v e n to r y but w ith ;
t 1
a h ig h r a te o f tu r n o v e r ; o th e r s have a la r g e in v e n to r y and
a sm a ll tu r n o v e r . The form er ty p e m ig h t w e ll be d o in g a
la r g e r volum e o f b u s in e s s and be e a r n in g more th a n th e
j l a t t e r , y e t pay l e s s p r o p e r ty t a x e s . D if f e r e n c e s in th e
r a t i o o f s a l e s t o i n v e n t o r ie s , and th e a b i l i t y - t o - p a y
t a x e s , may be in v e r s e ly r e l a t e d . Where t h i s w ere tr u e a
p e r s o n a l p r o p e r ty ta x on in v e n to r y w ould be in e q u it a b le .
A ccord in g to one a u th o r , in 1948 th e r a t i o o f s a l e s to
425
in v e n t o r ie s w as 6 .2 5 f o r a l l m a n u fa ctu rin g b u s i n e s s e s , but
was 1 3 .9 f o r m a n u fa c tu re rs o f fo o d p r o d u c ts and 5 .5 2 f o r
i
m a n u fa ctu rers o f t e x t i l e m i l l p r o d u c ts; w h ile in a l l r e
t a i l i n g th e r a t i o was 7 .8 6 b u t f o r fo o d r e t a i l i n g i t was
1 6 .2 5 .11
W ealth in th e form o f m erch a n d ise in v e n to r y te n d s to
i
i
be in a s t a t e o f f l u x and may b ea r d is t a n t r e la t i o n s h i p t o
an in d iv id u a l b u s in e s s c o n c e r n 's econom ic s t a t u s and t a x - i
p a y in g a b i l i t y . Ad v alorem t a x a t io n i s th o u g h t by many t o i
be in a p p r o p r ia te in t h i s c a s e . They urge an e x c i s e , such
i
, a s a g r o s s p r o f i t s t a x , in l i e u o f th e ad valorem t a x .
I
A ssessm en t na s of" a g iv e n d a y . — A nother im p o rta n t
so u rc e o f in e q u it y a r i s e s o u t o f th e r e q u ir e m e n t, found in
many s t a t e s , t h a t a l l p r o p e r ty be a s s e s s e d "as o f" a g iv e n
d ay. T h is req u irem en t p r o v id e s th a t th e ta x p a y e r can be j
j f
1 a s s e s s e d o n ly on th e in v e n to r y in h i s p o s s e s s io n on th e j
g iv e n d a t e .
S in c e th e a sse ssm e n t d a te i s known by th e m erchant
he may i n t e n t i o n a l l y a llo w h i s s to c k s t o be p a r t i a l l y de
p le t e d p en d in g th e a s s e s s m e n t. T h is form o f a c t i v i t y may
be p a r t i c u l a r l y e a s y f o r c e r t a in b u s in e s s e s . For exam p le,
th o s e w hose b ig g e s t volum e o f tr a d e com es in th e l a t e
summer, e a r ly f a l l , o r w in te r m onths w ould l i k e l y have
11 I b i d . , P. 95.
426 I
i
sm a ll in v e n t o r ie s on hand in th e sp r in g when a s s e s s m e n ts
a re m ade. Such fir m s may g e t o f f w ith l i g h t e r t a x e s th an
l
o th e r s h a v in g la r g e in v e n t o r ie s on a sse ssm e n t d ay.
Some b u s in e s s e s , su ch a s ch a in s t o r e s , h a v in g
c e n t r a liz e d s to r a g e and d e liv e r y arran gem en ts may o p e r a te |
ea ch u n it w ith a r e l a t i v e l y l i g h t in v e n to r y a s a sta n d a rd !
p r a c t i c e , y e t be a b le t o move s to c k s o u t a n t ic ip a t in g
a sse ssm e n t and r e tu r n them soon a fte r w a r d . S m a ller s e l l e r s J
i
com p etin g w ith la r g e c h a in s , are s u b je c t t o in e q u it a b le t a x
tr e a tm e n t.
I i
| A s s e s s in g in v e n t o r ie s a t a v era g e v a lu e . - - A su g g e s
t i o n f o r overcom in g th e i n e q u i t i e s r e s u l t i n g from a " g iv en
d ay” a sse ssm e n t h a s been t o a s s e s s th e a v era g e v a lu e o f |
th e in v e n to r y . A v era g in g th e in v e n to r y on hand a g iv e n day
o f e a c h month w ould te n d t o red u ce ch a n ces t o m a n ip u la te j
I
1 th e in v e n to r y to a d v a n ta g e. A veragin g in v e n t o r ie s f o r
a sse ssm e n t p u rp o ses w ould a ls o a llo w f o r ch an ges in th e
p r ic e l e v e l . Betw een th e a sse ssm e n t d a te and th e tim e th e
a s s e s s o r c a l l s t o a s s e s s h i s in v e n to r y th e b u sin essm a n may
have ta k e n in v e n to r y l o s s e s b eca u se o f p r ic e r e d u c t io n s .
A cco rd in g t o th e c h i e f a s s e s s o r o f th e B u s in e s s P e r so n a l
P r o p e r ty D iv is io n o f th e Los A n g e les C ounty A s s e s s o r * s
(
O f f i c e , "T his i s why m ost b u sin essm en fa v o r a change in th e
la w s to p r o v id e f o r a s s e s s m e n ts b ased on th e a v era g e
427
IP
in v e n t o r ie s c a r r ie d d u rin g th e p r e v io u s y e a r .n Of
c o u r s e , i f p r ic e s in c r e a s e d th e b u s in e s s man w ould have no
i
o b j e c t io n to a sse ssm e n t b ased on e a r l i e r p r i c e s . In t h a t i
i
e v e n t th e ta x p a y e r g a in s from th e p r ic e in c r e a s e ; h ow ever,
in th e lo n g run a s s e s s m e n ts b a sed on a v era g e p r i c e s and I
.
q u a n t i t ie s w ould appear t o be f a i r and f e a s i b l e .
i
To en su re th a t th e in v e n to r y f ig u r e s p ro v id ed by th e
m erchant be t r u e , random b u t r e p r e s e n t a t iv e , unannounced j
I
ch eek s c o u ld be made. T h is p r o c e d u r e , h o w ev er, would r e - j
l
jq u ir e a d d it io n a l p e r s o n n e l and th u s m igh t be to o e x p e n s iv e .
i
FORESTS
13
T axing F o r e s ts
S p e c ia l problem s are c o n fr o n te d in th e t a x a tio n o f
i f o r e s t s a s compared t o o r d in a r y r e a l e s t a t e . M ost r e a l j
I |
' e s t a t e can be e x p e c te d to y i e l d an an n u al r e tu r n o v e r a j
J J
lo n g p e r io d o f t im e , w h ereas a m ature f o r e s t may be e x - 1
p l o i t e d r a p id ly and th u s y i e l d a r e tu r n o n ly f o r a sh o r t
tim e , A young o r im mature f o r e s t w ould r e q u ir e many y e a r s
Annual R eport o f th e Los A n g e les C ounty A s s e s s o r
t o th e Board o f S u p e r v is o r s . 1 9 5 1 -1 9 5 2 , p . 2 3 .
" j
* * For a com p reh en sive stu d y o f f o r e s t t a x a t io n se e
Fred R. F a ir c h ild and a s s o c i a t e s , F o r e s t T a x a tio n in th e
U n ited S t a t e s . M isc . p u b lic a t io n No. 218 (W ash in gton , D .C .:
U .S . D epartm ent o f A g r ic u ltu r e , 1 9 3 5 ).
428
f o r grow th b e fo r e any r e tu r n i s p rod u ced . In v ie w o f th e
g r e a t im p ortan ce o f f o r e s t r e s o u r c e s in our econom y, t o
g e th e r w ith t h e i r v a s t d e p le t io n and th e n eed to m a in ta in
them and r e s t o r e them , s p e c i a l c o n s id e r a tio n h a s b een g iv e n
to th e e f f e c t s o f p r o p e r ty t a x e s on t h i s form o f p r o p e r ty |
and i t s p r o d u c tio n and u s e . The p u b lic i n t e r e s t i s more 1
!
v it a lly .c o n c e r n e d in th e p r o d u c tio n , u s e , and c o n s e r v a tio n
o f f o r e s t s th a n w ith o r d in a r y r e a l e s t a t e . T h is same t h in g
i s tr u e in c o n n e c tio n w ith o r e s , o i l s , and g a s p ro d u cin g J
p r o p e r ty . !
i
P r o v is io n s f o r S p e c ia l T a x a tio n
Some o f th e s t a t e s r e c o g n iz e th e need f o r s p e c i a l
I ta x trea tm en t o f f o r e s t s . As o f 1950 tw en ty s t a t e s made
14
I s p e c i a l p r o v is io n f o r th e t a x a t io n o f f o r e s t s . A v a r i e t y ,
! |
I o f m ethods was u s e d . A common m ethod u sed w as to exem pt
t
: th e t r e e s , f o r a v a r y in g number o f y e a r s . A nother m ethod
t
was t o exem pt young f o r e s t s . Some s t a t e s l e v ie d a s p e c i
f i e d lo w r a te p er a c r e o f f o r e s t la n d d ep en d in g on th e age
o f th e t r e e s . T hese s p e c i a l p r o v is io n s , w h eth er f o r
! ex em p tio n , red u ced a s s e s s m e n t, o r lo w er t a x r a t e s w ere
u s u a l ly accom panied by a se v e r a n c e t a x d e sig n e d t o d i s
co u ra g e c u t t in g . On th e w h ole th e e f f o r t s to en cou rage
14 Tax S y stem s ( t w e l f t h e d i t i o n ; New Y ork: Commerce
C l e a r in g H o u se, I n c . , 1 9 5 0 ), p p . 2 0 1 -2 0 2 ; 2 2 1 -2 4 .
429
th e w ise u se o f f o r e s t r e s o u r c e s have n o t b een to s u c c e s s
f u l . 15
i
Econom ic C o n s id e r a tio n s j
i
The h ig h d eg ree o f econom ic dependence on f o r e s t s
I
and t h e i r p r o d u c ts , t o g e t h e r w ith t h e i r d e s t r u c t i b i l i t y and ;
d i f f i c u l t y o f r e p r o d u c tio n g iv e r i s e t o s p e c i a l p rob lem s in
t a x a t io n . F o r e s ts su p p ly a m ajor p a r t o f m a t e r ia ls u sed by !
j
modern in d u s t r y . On a l o c a l b a s i s f o r e s t p r o d u c ts may be j
th e p r in c ip a l so u rce o f in com e. G eneral c o n s e r v a t io n , p r e - •
m en tion o f f i r e s , f l o o d s , and e r o s io n , a s w e ll a s th e r e
c r e a t io n a l a d v a n ta g es o f f o r e s t s a re a l l s i g n i f i c a n t
econom ic p ro b lem s.
O ther econom ic c o n s id e r a t io n s in v o lv e d in f o r e s t
t a x a t io n a re im p o r ta n t. W ith a m ature f o r e s t th e owner h as
th e c h o ic e o f c o n v e r tin g th e tim b er in to incom e on a r a p id
I |
io r liq u id a t io n b a s i s , o r he may d e r iv e a more s u s ta in e d I
incom e from th e f o r e s t b y g ra d u a l e x p l o i t a t i o n . In o th e r
w o rd s, a m ature f o r e s t may be c a p a b le o f r e tu r n in g th e
c a p i t a l in v e s t e d in i t in a sh o r t t im e , w h erea s h o u s e s ,
15 M. S la d e K en d rick , P u b lic F in an ce P r in c ip l e s and
P roblem s (New York: H o u g h to n -M ifflin Company, 1 9 5 1 ;,
p . 2 6 7 . For s p e c i a l i z e d s t u d ie s se e B. C. H a ll, nA p p ra isa l
o f S p e c ia l F o r e s t Tax L e g is la t io n in P r a c t i c e , ” P ro ceed
i n g s . N a tio n a l Tax A s s o c ia t io n , 1941; George S . W ehrwem ,
" A p p ra isa l o f S p e c ia l F o r e s t Crop T a x a tio n in W is c o n s in ,”
P r o c e e d in g s . N a tio n a l Tax A s s o c ia t io n , 1 9 4 1 .
450
p l a n t s , e t c . u s u a lly r e tu r n th e in v e stm e n t a f t e r a con
s id e r a b le p e r io d o f tim e .
In th e c a s e o f young f o r e s t s , a g r e a t d e a l o f tim e j
i s r e q u ir e d b e fo r e any incom e i s p ro d u ced . M ost o th e r r e a l;
i
p r o p e r ty can be brought t o p roduce incom e r e l a t i v e l y
q u ic k ly . The lo n g p e r io d o f grow th r e q u ir e d g iv e s r i s e t o
a number o f r i s k s such a s w e a th e r , i n s e c t s , f i r e , o r
ch an ges in th e r a t e o f i n t e r e s t and th e p r ic e o f lum ber |
w hich may w ipe o u t any p r o f i t s . T hese lo n g -r u n r i s k s a re \
I
l a r g e l y , i f n o t c o m p le te ly unknown and ca n n o t be a v o id e d .
i
i
I E f f e c t s o f P r o p e r ty T axes on F o r e s ts
B a s i c a l l y , t a x a t io n may be fa s h io n e d in w ays to d i s
c o u r a g e , o r a t l e a s t n o t en c o u r a g e , r a p id e x p l o i t a t i o n o f
f o r e s t s . Or, t a x e s may be d e sig n e d t o en cou rage r e f o r e s t s - j
I
f
t io n and c o n s e r v a tio n o f th e s e r e s o u r c e s . !
t j
A lth ou gh ta x e s may n o t be th e m ost im p o rta n t con
s id e r a t io n in th e d e c is io n to cu t th e f o r e s t q u ic k ly o r
g r a d u a lly — o th e r c o s t s o r lum ber p r ic e s may be more s i g -
16
n i f i c a n t — th e y do p la y a p a rt s in c e t h e y are a c o s t . The
^ h ig h e r th e t a x e s th e more te n d e n c y to liq u id a t e th e f o r e s t
j
q u ic k ly . j
P r o p e r ty t a x e s may have a more d ir e c t e f f e c t on
^ F a i r c h i l d , o p . c i t . . p . 8 6 5 .
431
young f o r e s t s and t h e i r d evelop m en t th a n on m ature f o r e s t s .
The t a x e s a re a ch arge on an e n t e r p r is e w h ich w i l l n o t
y i e l d incom e f o r a lo n g tim e . Owners may be u n w illin g t o
pay t a x e s on d e fe r r e d incom e in v ie w o f th e r i s k s in v o lv e d ,
in c lu d in g th e r i s k o f t a x e s b e in g in c r e a s e d .
Where p r o p e r ty t a x e s en co u ra g e r a p id c u t t in g o f
m a tu re, o r p a r t ly m ature f o r e s t s , o r d is c o u r a g e r e f o r e s t s - |
i
t i o n , ta x d e lin q u e n c y o f t e n d e v e lo p s s in c e c u t -o v e r la n d s j
y i e l d no incom e and ca n n o t pay t a x e s . Large a r e a s o f such J
|
la n d have been abandoned to th e s t a t e s .
i
1 C o n c lu sio n s
S e v e r a l s t a t e s have r e c o g n iz e d th e problem o f f o r e s t
t a x a t io n and have made some e f f o r t t o d e a l w ith i t in a
c o n s t r u c t iv e m anner. On th e w h ole th e r e s u l t s a re d is - , ^
c o u r a g in g . ' Much i s l e f t t o be done in t h i s h ig h ly s i g n i - j
f i e a n t a r e a . Tax la w s can do more toward c o n s e r v in g e x i s t - I
i
in g f o r e s t s th a n in r e f o r e s t a t i o n . The lo n g p e r io d o f
t im e , th e h ig h d eg ree o f r i s k in v o lv e d , w ith rem ote p r o f i t
p o s s i b i l i t i e s a re u n li k e ly to be o f f s e t b y t a x la w s s u f
f i c i e n t l y to in c r e a s e r e f o r e s t a t i o n by p r iv a t e e n t e r p r i s e .
A cco rd in g t o so m e,17 governm ent a c t io n ( l o c a l , s t a t e , and
17 See Halph W. M arq u is, "S everan ce T axes on F o r e s t
P r o d u c ts and T h eir R e la tio n to F o r e s t r y ,” Land E co n o m ics.
XXV (A u g u st, 1 9 4 9 ), 3 1 5 -1 9 ; a l s o , K en d rick , o £ . e i t . .
p . 271; and W illia m H. A nd erson , T a x a tio n and th e A m erican
_ _ 1
f e d e r a l) i s r e q u ir e d i f n e c e s s a r y r e f o r e s t a t i o n i s to be !
u n d e r ta k e n . I
MINES AM) MINERALS
Econom ic C o n s id e r a tio n s
M in era l d e p o s i t s , o i l and n a tu r a l g a s , u n lik e many
form s o f p r o p e r ty are n o t r e p r o d u c ib le and a r e , t h e r e f o r e ,
s u b je c t o n ly t o e x h a u s tio n . The co n se q u e n ce s o f t a x e s
a p p lie d to su ch d e c l in in g o r w a s tin g a s s e t i n d u s t r i e s
sh o u ld be g iv e n c a r e f u l c o n s id e r a t io n . The b a s ic p e a c e
t i m e aim o f ta x p o l i c y in such c a s e s sh o u ld be d ir e c t e d to
i
c o n s e r v in g t h e s e a s s e t s r a t h e r th a n e n c o u r a g in g ra p id e x
p l o i t a t i o n . F u r th e r , t a x e s sh o u ld n o t d isc o u r a g e th e flo w
o f v e n tu r e c a p i t a l in t o m in in g , w h ich i s an e x c e e d in g ly
r i s k y b u s in e s s , in o r d e r t h a t e x p lo r a t io n w i l l c o n tin u e fo r
a d d it io n a l d e p o s i t s . In a d d itio n c o s t s sh o u ld n o t be
ta x e d , o th e r w is e o n ly th e r i c h e s t and m ost e a s i l y a c c e s
s i b l e d e p o s it s w ould be w orked. W ar-tim e demands f o r e v e r
Economy (New York: P r e n t ic e - H a ll, I n c . , 1 9 5 1 ), p . 4 5 3 .
j O tiier a u t h o r i t i e s su p p o r tin g t h i s v iew a r e : H enry S.
! G ra v es, chairm an, P roblem s and P r o g r e s s o f F o r e s tr y in th e
' U n ite d S t a t e s . R eport o f th e J o in t C om m ittee on F o r e s tr y o f
th e N at i'onaT R esea rch C o u n cil and th e S o c ie t y o f Am erican
F o r e s te r s (W ashington, B .C .: S o c ie t y o f Am erican F o r e s t e r s ,
1 9 4 7 ), pp. 7 6 -8 8 ; W illia m B. G r e e ly , F o r e s ts and Men
(Garden C it y , New York: D oubleday and Company, I n c . , 1 9 5 1 ),
e t p a ssim : L u th er H. G u lic k , Am erican F o r e st P o l i c y (New
York: P u b lish e d f o r th e I n s t i t u t e o f P u b lic A d m in is tr a tio n ,
D u e ll, S lo a n and P e a r c e , 1 9 5 1 ), p p . 2 2 3 -2 6 .
433
la r g e r o u tp u t o f m in e r a ls may r e v e r s e th e b a s ic p o l i c i e s o f
c o n s e r v a tio n and em phasize th e m ost r a p id rem oval p o s s i b l e .
To en cou rage c o n s e r v a tio n o f m in e r a l r e s o u r c e s th e
t a x p o l i c y m ust be d e l i b e r a t e l y and o v e r t l y g ea red to
a cc o m p lish i t a s a n e u tr a l p o l i c y w ould le a v e ea ch p r iv a t e
owner f r e e t o e x p l o i t h i s h o ld in g s t o h i s own b e s t advan
t a g e , th u s le a d in g to th e u s in g up o f th e " b e s t” r e s o u r c e s
f i r s t . In p r a c t ic e a n e u tr a l p u b lic p o lic y i s n o t one in
f a c t ; in s t e a d , i t i s a p o l i c y w h ich w ould en co u ra g e , r a th e r
jthan d is c o u r a g e , u s in g up o f th e m in e r a l d e p o s it s .
P r o p e r ty Tax A p p lied t o M ines
M ost s t a t e and l o c a l govern m en ts have ta x e d m in es
under th e g e n e r a l p r o p e r ty t a x . Im p ortan t w ea k n esses
c h a r a c te r iz e th e ad v alorem t a x in g o f m in es and m in e r a l
d e p o s it s . C e r ta in o f th e s e a re b r i e f l y d is c u s s e d ,
i D i f f i c u l t y o f a s s e s s m e n t. — A ssessm en t o f any prop
e r t y i s a d i f f i c u l t and u n c e r ta in p r o c e s s ; h o w ev er, m in es
and m in e r a l d e p o s it s a re e s p e c i a l l y d i f f i c u l t to f a i r l y
a s s e s s . The d e p o s it s a re underground and v a ry a s t o ex
t e n t , r i c h n e s s , q u a l i t y , e t c . and th e b e s t m ethods o f
| p ro b in g and e x p lo r a tio n g iv e o n ly a g e n e r a l e s tim a te o f th e
c h a r a c te r o f a g iv e n d e p o s it . The c o s t s o f m in in g th e
d e p o s it s a ls o d i r e c t l y a f f e c t s t h e i r f a i r v a lu e . A r ic h
d e p o s it i f d e e p ly lo c a t e d , o r f a r from t r a n s p o r t a t io n ,
"434 1
w ould be l e s s v a lu a b le th a n a t h in d e p o s it lo c a t e d n e a r th e
e a r t h 1s s u r fa c e w ith t r a n s p o r t a t io n and o th e r f a c i l i t i e s I
n ea rb y . I n a w ord, a sse ssm e n t o f m in e r a l d e p o s it s i s so
u n c e r ta in a s to ren d er ad v a lo rem t a x a t io n a m ere g u e s s .
i
P r o p e r ty t a x e s are n o t g ea red t o in co m e. — Ad !
valorem t a x in g , b e ca u se f a i r v a lu a t io n i s u n c e r ta in , f a i l s
t o g ea r th e t a x e s t o in com e. The t a x e s may fo r c e m a rg in a l
m in es o u t o f p r o d u c tio n w h ich th e r e b y en co u ra g es more r a p id 1
e x p l o i t a t i o n o f th e r ic h e r d e p o s i t s . T h is c o n t r a d ic t s th e j
i
b a s ic aim o f t a x p o l ic y d e s ig n e d t o c o n se rv e m in e r a ls .
!
i S ev era n ce T axes
, * ■ :
T w e n ty -fiv e o f th e s t a t e s le v y a se v e r a n c e t a x on
th e e x p l o i t a t io n o f n a tu r a l r e s o u r c e s , b a sed e i t h e r on th e
1 o
q u a n tity o r v a lu e o f th e o u tp u t. Thus th e o u tp u t o f c o a l ,
| o r ir o n o re may be ta x e d by th e to n o r some p e r c e n ta g e o f j
i t s v a lu e . j
i
S ev era n ce t a x e s may be in l i e u o f o r in a d d itio n t o
ad v a lo rem t a x e s on m in es and m in e r a ls a s p r o p e r ty . A to n
nage ty p e o f se v e r a n c e t a x i n j e c t s an elem en t o f r e g r e s -
| s i v i t y s in c e p o o rer m in e s , o r i n f e r i o r q u a li t y o r e s , a re
ta x e d e q u a lly w ith b e t t e r q u a l i t y , more p r o d u c tiv e m in e s. j
^ Tax S y stem s ( t w e l f t h e d i t i o n ) , o £ . c i t .. p p . 2 2 1 -
24 •
4351
i
Such a se v e r a n c e t a x d is c o u r a g e s th e m in in g o f le a n e r i
v e i n s . ^ I
C o n c lu sio n s |
P r o p e r ty t a x e s a r e n o t w e ll ad ap ted f o r u se in t a x - j
!
in g m in e r a ls and m in e s. A gra d u a ted n e t incom e t a x from
th e o u tp u t would have t h e a d v a n ta g es o f b e in g much more
p r e c is e th a n p r o p e r ty t a x e s a s w e l l a s p rom otin g s o c i a l l y !
!
d e s ir a b le c o n s e r v a tio n p o l i c i e s . A se v e r a n c e t a x im posed |
on th e v a lu e o f th e o u tp u t b a sed on a sc h e d u le g rad u ated
i t
Jby d if f e r e n c e s in th e c o s t o f p r o d u c tio n w ould a cc o m p lish
th e same r e s u l t s a s a n e t incom e t a x . E ith e r t a x w ould
r e q u ir e s t a t e a d m in is tr a tio n to a v o id a m u l t i p l i c i t y o f
l o c a l r a t e s .
M ines and m in e r a ls c o u ld be ta x e d b e t t e r on an ad ,
v alorem b a s is i f a sound sy stem o f c l a s s i f i c a t i o n w ere s e t ,
<
I
up and a sse ssm e n t be p erform ed b y a s t a t e a g en cy .
OIL A K fD GAS W EALTH
G en eral S ta tem en t
A lthou gh s t i l l used by some s t a t e s , C a lif o r n ia and
19 Roy G. B la k e y , T a x a tio n in M in n eso ta
(M in n e a p o lis: The U n iv e r s it y o f M in n eso ta P r e s s , 1 9 3 2 ),
p p. 2 5 8 -5 9 ; a l s o , The M in n eso ta Tax System ( S t . P a u l: The
M in n eso ta I n s t i t u t e o f G overnm ental R ese a r c h , I n c . , May,
1 9 4 8 ) , p . 8 5 .
436"
I l l i n o i s , f o r ex a m p le, ad valorem t a x in g o f o i l and n a tu r a l
g a s w e a lth i s in a p p r o p r ia te . V a lu a tio n i s v a s t l y t e c h n ic a l
where done hy e x p e r t s ; h ow ever, w here e x p e r t s are n o t p ro
v id e d i t i s o n ly an a p p r o x im a tio n .
i
Many o i l p ro d u cin g s t a t e s u se a m ethod o f v a lu a tio n i
b a sed on a p p ly in g v a r y in g m u lt ip le s to a known r a t e o f |
on
a v er a g e d a i l y p r o d u c tio n .
i
Some s t a t e s u se a g iv e n f l a t r a t e t a x p er b a r r e l o f i
o i l e x t r a c t e d . T exas l e v i e s a ta x o f 4 1 /8 c e n t s p er j
;b a r r e l o r 4 1 /8 p er c e n t o f th e m arket v a lu e i f i t e x c e e d s
i
j$ 1 .0 0 p er b a r r e l. Oklahoma l e v i e s a f l a t r a t e o f 5 p er
|c e n t on t h e g r o s s v a lu e o f g a s and o i l p ro d u ced .
C o n c lu sio n s
O ther form s o f t a x a t io n — g r o s s r e c e i p t s , n e t in com e, (
!o r se v e r a n c e t a x e s — a re s u p e r io r to ad v a lo rem t a x a t io n o f i
t — — — — — — — —
i o i l and n a tu r a l g a s w e a lth . These p r o p e r t ie s , t o g e t h e r ;
w ith f o r e s t s , m in e s , and m in e r a ls , have p e c u lia r and s i g
n i f i c a n t s p e c i a l t a x c o n s id e r a t io n s .
I I f ad v a lo rem t a x e s a re u sed t h e y can b e s t be ad -
1
j m in is te r e d by c e n t r a l a u t h o r it y ca p a b le o f p r o v id in g e x -
jp e r ts f o r th e jo b .
i
20 Truman G. T racy, " T axation o f O il P r o p e r t i e s ,”
R eport o f th e Revenue Laws Com m ission o f th e S ta te o f
I l l i n o i s . 1 9 4 9 , p . 8 6 .
4 3 7 j
I I I . OTHER PROBLEMS IN PROPERTY TAXATION
DELINQUENCY AND COLLECTION
G en eral S ta tem en t
, : _ |
I n th e p a s t , p a r t i c u l a r l y d u rin g a d e p r e s s io n , p ro p - |
e r t y t a x d e lin q u e n c y h a s b een a s e r io u s p rob lem . Even
b e fo r e th e g r e a t d e p r e s s io n i t w as a c u te in s p e c i a l a r e a s ,
m o s tly in and around la r g e c i t i e s , a lth o u g h i t had n o t j
assum ed th e p r o p o r tio n s common in th e 1 9 3 0 * s . 21 The |
, I
a v er a g e d e lin q u e n c y r a t i o f o r th e c o u n tr y in c r e a s e d from
ab ou t 6 p er c e n t in 1 9 2 8 -1 9 2 9 t o 17 p er c e n t in 1 9 3 2 -1 9 3 3 .
In th e la r g e r c i t i e s i t a v era g ed a s h ig h a s 25 p e r c e n t in
1 9 3 3 . By 1938 c u r r e n t and a ccru ed d e lin q u e n c y in th e l a r g e ,
22
c i t i e s a v era g ed a p p r o x im a te ly 43 p er c e n t . D uring th e
1 9 4 0 f s d e lin q u e n t t a x e s w ere g r e a t l y red u ced ; h o w ev er,
! s p e c i f i c a r e a s w ere hard h i t . In 1 9 4 0 , f o r ex a m p le, th e
C hicago and Cook C ounty a r e a had d e lin q u e n t t a x e s a g g r e
g a t in g ab out $ 4 0 0 ,0 0 0 ,0 0 0 . Much o f t h i s had a ccru ed s in c e
1 9 2 8 .23
21 F a ir c h ild , o p . c i t . , p . 1 6 3 .
22 F r e d e r ic k L . B ir d , " R e la tio n o f Tax C o lle c t io n
M ethods to D e lin q u e n c y ,” P r o p e r ty T axes (New York: Tax
P o lic y League Symposium, 1 9 3 9 ), p . 2 5 5 .
23 George 0 . F a ir w e a th e r , " D elin q u en cy , Tax S a le s ,
and R e la te d P roblem s in M e tr o p o lita n C h ic a g o ,” I l l i n o i s Tax
P ro b lem s. S p e c ia l R eport N o. 5 ( S p r in g f ie ld ; I l l i n o i s Tax
C om m ission, 1 9 4 0 ), p . 1 9 6 .
4 3 8 1
W ith th e p r o s p e r it y e x p e r ie n c e d d u rin g and s in c e
W orld War I I d e lin q u e n t p r o p e r ty t a x e s w ere l a r g e l y
liq u id a t e d and have n o t a g a in assum ed s e r io u s p r o p o r tio n s .
N e v e r t h e le s s , th e d i f f i c u l t i e s fa c e d b y s p e c i a l a r e a s , and
th e r ig o r o u s e x p e r ie n c e o f th e 1 9 3 0 's p o in t up th e p o s s i -
i
b i l i t y o f s im ila r t r o u b le s in th e f u t u r e .
I
D elin q u e n c y h as n o t been a s e r io u s problem in p e r - |
t
s o n a l p r o p e r ty t a x a t io n . W idespread ex em p tio n and lo w j
r a t e s , t o g e t h e r w ith e v a s io n and a v o id a n c e , l a r g e l y e x p l a i n 1
\
Jwhy t h i s h a s b een t r u e .
i
C auses o f Tax D elin q u e n c y
i
Numerous and i n t e r r e l a t e d c a u s e s f o r t a x d e lin q u e n c y
e x i s t . They a re l i k e l y to be a co m b in a tio n o f eco n o m ic,
a d m in is t r a t iv e , and p o l i t i c a l r e a so n s w here ea c h may n o t be j
i
| c l e a r l y d i s t i n c t . Some o f th e r e a s o n s f o r d e lin q u e n c y a re j
:d is c u s s e d b e lo w . '
Econom ic c a u s e s . — The r o l l o f t a x d e lin q u e n ts and
th e am ounts owned in c r e a s e s in an econom ic d e p r e s s io n .
Incom e and p r o p e r ty v a lu e s d e c l i n e , a lth o u g h a s s e s s e d
v a lu e s o f t e n d e c lin e a t a slo w e r r a t e th a n incom e w ith th e
r e s u l t t h a t d e lin q u e n c y te n d s t o be c u m u la tiv e d u rin g
d e p r e s s io n . S ev e r e s t e p s a g a in s t d e lin q u e n ts may w e l l be
s e l f - d e f e a t i n g a s t a x s a l e s f u r t h e r d e p r e s s v a lu e s .
I n a d d i t i o n t o t h e g e n e r a l e f f e c t s o f a d e p r e s s io n
4S91
!
p a r t ic u la r a r e a s may s u f f e r s e r io u s d e lin q u e n c y from su ch ]
i
c a u s e s a s e x h a u s tio n o f b a s ic n a tu r a l r e s o u r c e s where o th e r !
i
ty p e s o f p r o d u c tio n p rove t o be su b m a rg in a l. i
A nother ca u se may have b een th e prem ature su b - !
d iv id in g o f urban la n d . E x p en siv e i n s t a l l a t i o n s ahead o f I
I
th e a b i l i t y o f th e a r e a to s u s t a in them le a d t o d e lin q u e n c y .
1
Lack o f an e q u a liz e d a sse ssm e n t te n d s t o r e s u l t in
I
d e lin q u e n c y on o v e r - a s s e s s e d p r o p e r t ie s . Any undue f in a n
c i a l d i s t r e s s on th e owner may c a u se t a x d e lin q u e n c y . !
i A ssessm en t o f p r o p e r ty on th e b a s i s o f c a p i t a l v a lu e
\
;may r e s u l t in d e lin q u e n t ta x e s on p r o p e r t ie s y i e l d i n g no
jin c o m e. A v e r y h ig h p e r c e n ta g e o f p r o p e r ty s o ld f o r t a x e s
p A
d u rin g th e d e p r e s s io n w ere v a ca n t l o t s .
A noth er im p o rta n t r e a so n f o r t a x d e lin q u e n c y e x i s t s .
| w here bonded in d e b te d n e s s i s to o h eavy w ith a h ea v y f ix e d j
i n t e r e s t ch arge a g a in s t p r o p e r ty . The r e s u l t o f any d e lin - |
i
i
q u e n c ie s i s to add to th e burden o f th e n o n -d e lin q u e n t.
T h is f u r t h e r a g g r a v a te s th e p rob lem .
O ther c a u s e s . — I n e p t n e s s , i n e f f i c i e n c y , and n e g l i -
i
I g en ce by t a x o f f i c i a l s , a s w e l l a s e v a s io n and n e g lig e n c e
by ta x p a y e r s a re fu r th e r c a u s e s o f t a x d e lin q u e n c y .
A lv in T. M. L e e , ”Tax D elin q u e n c y on th e H u ral-
Ufban F r in g e ,” P r o c e e d in g s . N a tio n a l Tax A s s o c ia t io n , 1 9 4 1 ,
p . 6 1 8 .
440”1
S u g g e s tio n s to Reduce D e lin q u e n c y |
The p o l i t i c a l and a d m in is t r a t iv e c a u s e s o f d e l i n - «
q uency w ould ap pear more am enable t o c o n t r o l th a n c e r t a in !
o f th e econom ic c a u s e s , e s p e c i a l l y f l u c t u a t i o n s o f th e
b u s in e s s c y c l e . The f o llo w in g recom m endations w ould ap p ear'
t o be w it h in th e p r a c t i c a l realm *
Use o f e f f i c i e n t c o l l e c t i o n m eth o d s. — T hese w ould ,
in c lu d e g e t t i n g ta x b i l l s o u t w e ll in advance o f th e d a te i
due; a fo llo w -u p in d e lin q u e n c y c a s e s ; payment in i n s t a l l - j
m en ts; and u se o f m o d em , u p - to - d a te re c o r d p r o ce d u r e s >
I w h ich do n o t a llo w d e lin q u e n t t a x e s to become " s ta le " b e -
i
fo r e e f f o r t i s made t o c o l l e c t them .
C o r r e la tio n o f a d m in is t r a t io n . — L eg a l r e q u ir e m e n ts ,
ten d t o make f o r d e lin q u e n c y w here th e a sse ssm e n t d a te and
th e d a te t a x e s are due a re n o t w e ll c o r r e la t e d t o th e r e - |
j
1c e i p t o f incom e o f some ta x p a y e r s . Where ta x p a y e rs* incom e!
!
i s s e a s o n a l t a x b i l l s sh o u ld be c o o r d in a te d w ith incom e 1
p a t t e r n s . Payment on a q u a r te r ly o r m o n th ly b a s i s w ould
ten d t o m in im ize d e lin q u e n c y f o r ta x p a y e r s r e c e iv in g incom e
i
r e g u la r ly th ro u g h o u t th e y e a r .
C o n s o lid a tin g and c o o r d in a tin g th e a d m in is tr a tio n o f
p r o p e r ty t a x e s w ould re d u ce d e lin q u e n c y s in c e i t w ould
j u s t i f y m a in ta in in g a f u l l - t i m e s t a f f . W ith such a s t a f f
o r d e r ly p ro c e d u r e s c o u ld be fo llo w e d in s t e a d o f th e
4427!
i
p e r io d ic b un ch in g o f th e work so c h a r a c t e r i s t i c in s m a lle r
d i s t r i c t s .
More o r d e r ly a d m in is tr a tio n w ould en su r e l e s s d e l i n - i
i
i
quency and a more s te a d y , d ep en d ab le flo w o f rev en u e f o r '
th e governm ent. T h is w ould red u ce th e n eed f o r b orrow in g 1
in a n t ic ip a t io n o f t a x e s w h ich re d u ce s i n t e r e s t c o s t s - a s
w e l l a s d e lin q u e n c y I t s e l f .
I
B e tt e r f i s c a l p la n n in g and management by governm ent |
i
a u t h o r i t i e s , in c lu d in g d evelop m en t o f n o n p ro p er ty reven u e j
s o u r c e s , m ust be e f f e c t e d a s an im p o rta n t p a r t o f th e o v e r - i
| a l l e f f o r t t o red u ce and c o n t r o l p r o p e r ty t a x d e lin q u e n c y .
<
S in c e p r o p e r ty t a x e s com p rise th e backbone o f l o c a l f i
n a n c e s t h e i r r e l i a b i l i t y m ust be p r o t e c t e d , o th e r w is e
f i n a n c i a l d i s t r e s s f a c e s l o c a l governm en ts in th e e v e n t o f
i
econom ic r e c e s s io n o r d e p r e s s io n .
1 P e n a lt ie s f o r d e lin q u e n c y . - - P e n a lt ie s f o r d e l i n - j
! ' . I
quency m ust be r e a s o n a b le b ut c e r t a in and r e a l . I f p e n a l
t i e s a r e m ild and a d m in is tr a tio n la x d e lin q u e n c y may become
a " p r o fita b le " a lt e r n a t i v e t o p a y in g t a x e s . The governm ent
m ust be a b le t o se c u r e a b s o lu te t i t l e to t a x d e lin q u e n t
i p r o p e r ty w ith o u t undue d e la y and l i t i g a t i o n . The p e r io d o f
red em p tion m ust be su ch a s t o p r o t e c t ow ners y e t n o t en
cou rage s p e c u la t io n .
442 j
C o n c lu sio n
L ik e o th e r p rob lem s c o n n e c te d w ith p r o p e r ty t a x a t io n
d e lin q u e n c y ca n n o t be s o lv e d by any sim p le s o lu t io n . S im i
l a r l y , i t s s o lu t io n c a l l s f o r an o v e r - a l l approach in
v o lv in g a b e t t e r u n d er sta n d in g o f th e w hole p rob lem .
D elin q u e n c y may prove to be u n a v o id a b le in th e e v e n t o f j
a n o th e r d e p r e s s io n , how ever b e t t e r a sse ssm e n t and a d m in is-
i
t r a t i o n , t o g e t h e r w it h l e s s abuse th ro u g h su ch t h in g s a s |
ex e m p tio n , co u p led w ith a broadened and d i v e r s i f i e d ta x
I b a se in d i c a t e im provem ents a re p o s s i b l e . I t b eh o o v es u s to ;
do w hat we can in th e way o f im provem ents d u r in g o u r p r e
s e n t-d a y p r o s p e r it y .
PROPERTY TAXATION IN UNINCORPORATED AREAS
\
G en eral S ta tem en t
Many c i t i e s have been v ie w in g w ith co n ce rn th e ^
str o n g and w id e -sp r e a d tr e n d tow ard su burbanism . T h is h a s
b een e s p e c i a l l y tr u e in C a lif o r n ia w here th e grow th o f
p o p u la tio n h a s b een phenom enal. In C a lif o r n ia th e u n in
c o r p o r a te d a r e a s have grown f a s t e r , s in c e 1 9 4 0 , th a n c i t i e s .
For exam p le, "Between 1940 and 1950 th e c i t i e s have grown
25
4 1 .3 p er c e n t , th e u n in co r p o r a te d a r e a s 7 9 .3 p e r c e n t ."
25 W estern C i t y . O f f i c i a l P u b lic a tio n o f th e League
o f C a lif o r n ia C i t i e s , XXVIII (J u n e, 1 9 5 2 ), 4 8 .
443
M s urban sp read h a s h o t b een lim it e d to r e s i d e n t i a l
grow th a lo n e s in c e much com m ercial and i n d u s t r i a l d e v e lo p -
i
ment h a s o c c u r r e d . The 1950 c e n s u s r e v e a le d : j
i
M o d esto , w ith a p o p u la tio n o f 1 7 ,5 0 0 h a s an a r e a !
p o p u la tio n o f 5 0 ,0 0 0 . . . . B a k e r s f ie ld (h a s) 3 4 ,7 8 4 j
p e r s o n s in th e c i t y and a f r in g e a r e a o f 6 6 ,9 1 2 . ;
Saeram ento r e p o r ts 1 3 7 ,5 7 2 in s i d e th e c i t y and in
e x c e s s o f 1 0 5 ,0 0 0 o u t s id e . Los A n g e les w ith a p o p u la
t i o n o f two m i l l i o n h a s an im m ediate f r in g e o f 5 8 6 ,0 0 0
p e r s o n s .86
Tax P roblem s in U r b a n iz a tio n
The u n in c o r p o r a te d f r in g e a r e a s o f many c i t i e s a r e ,
i
| i n e f f e c t , a p a r t o f th e c i t y s o c i a l l y , c u l t u r a l l y , and
e c o n o m ic a lly ; h ow ever, th e y a re n o t a p a r t o f th e c i t y
g o v e r n m e n ta lly . The tr e n d tow ard f r in g e - a r e a e x p a n sio n
m ay, in p a r t , have b een f o r p r o p e r ty ta x c o n s id e r a t io n s .
I n e q u ita b le d ou b le t a x a t i o n . — I n e q u ity a r i s e s in
p r o p e r ty t a x a t io n b eca u se o f th e urban n a tu re o f h e a v ily
s e t t l e d u n in co r p o r a te d a r e a s . Such a r e a s r e q u ir e e s s e n t i
a l l y th e same governm ent s e r v i c e s a s in c o r p o r a te d c i t i e s .
R ichard G raves n o t e s , f o r ex a m p le, t h a t
. . . t h e s e urban u n in c o r p o r a te d a r e a s a re b e in g
p r o v id e d an urban sta n d a rd o f m u n ic ip a l s e r v i c e s , by
th e co u n ty governm ent a t th e ex p en se o f a l l th e t a x -
; p a y ers w it h in th e c o u n ty , in c lu d in g th e ta x p a y e r s
j w ith in th e c i t y . 27
26 W estern C i t y . 2X 7II (Novem ber, 1 9 5 2 ), 2 7 .
27 R ichard G ra v es, "Fr in g e A reas S hould Pay T h e ir
W ay,” P u b lic M anagem ent. 1X8X7 (F eb ru a ry , 1 9 5 2 ), 3 0 .
The r e s u l t o f su ch a p roced u re i s t o p r o v id e urban f r in g e
d w e lle r s s e r v ic e s com parable t o th o s e ren d er ed to c i t y
d w e lle r s , a lth o u g h th e urban f r in g e c i t i z e n d o es n o t pay
t h e i r w h ole c o s t . A h e a v ie r ta x burden i s th e r e b y p la c e d
i
on p r o p e r ty ta x p a y e r s in th e c i t y inasm uch a s th e y p a r t i a l - j
l y s u b s id iz e ta x p a y e r s l i v i n g in th e u n in c o r p o r a te d b ord er
a r e a s . P o lic e and f i r e p r o t e c t io n , ro a d s and s t r e e t s ,
»
>
p ark s and r e c r e a t io n a l f a c i l i t i e s , and l i b r a r i e s a re u s u a l- I
l y made a v a ila b le t o urban f r in g e d w e lle r s by th e co u n ty j
governm ents o u t o f c o u n ty r e v e n u e s c o l l e c t e d from a l l !
I
'c o u n ty d w e lle r s . In c o r p o r a te d c i t i e s p r o v id e th e s e
i
s e r v ic e s f o r t h e i r r e s i d e n t s , su p p orted in la r g e m ea su re,
from t h e i r own p r o p e r ty t a x e s .
The in e q u it y o f d ou b le t a x a t io n o f c i t y p r o p e r ty
ow ners i s o f f s e t somewhat w here in c o r p o r a te d c i t i e s l e v y j
1 . - !
m u n ic ip a l t a x e s , su ch a s s a l e s , a d m is s io n s , and in com e. |
; 1
Many n o n - c it y d w e lle r s make p u r c h a se s in th e downtown
sh op p in g a r e a s and m ust pay th e s a l e s ta x ; o r many earn
t h e i r incom e w it h in t h e c i t y and th u s may pay c i t y incom e
t a x e s . Urban f r in g e d w e lle r s te n d t o a v o id m u n ic ip a l s a l e s
t a x e s , h ow ever, a s sh op p in g d i s t r i c t s grow up o u t s id e c i t y
l i m i t s . Some c i t i e s p erm it c i t y m erch a n ts t o s e l l t o non
c i t y r e s id e n t s w ith o u t th e ta x f o r r e a s o n s o f c o m p e titio n .
J e o p a r d iz e s p r o p e r ty v a l u e s . — A nother p r o p e r ty t a x
445
problem o f th e "urban spraw l" i s jeo p a rd y t o p r o p e r ty
v a lu e s and th e t a x b a s e . The random, unplanned developm en t
o f f r in g e a r e a s , many f e e l , c o n s t i t u t e s a r e a l problem
w h ich w i l l become in c r e a s in g ly more s e r io u s u n le s s c o n -
\
I
t r o l l e d . S u b d iv is io n p rom oters and s p e c u la t o r s do n o t h ave;
i
th e same in c e n t iv e t o m a in ta in a d eq u a te sta n d a r d s a s c i t y i
p r o p e r ty ow ners whose p r o p e r ty may be p e n a liz e d by n ea rb y
su b sta n d a rd d ev elo p m en ts i n u n in c o r p o r a te d a r e a s .
C i t i e s a re u n a b le to d e v e lo p and c a r r y o u t i n t e - !
!
g r a t e d , o r d e r ly , lo n g -r a n g e d ev elo p m en ta l p la n s d e sig n e d t o
i
; p r o t e c t a l l i n t e r e s t s and p r o v id e a r e a s o n a b ly s t a b le t a x
b a se w here th e y becom e e n c ir c le d by a h e a v ily p o p u la ted
u n in c o r p o r a te d f r i n g e . C ounty governm en ts may be more in
t e r e s t e d in th e a g r i c u lt u r a l a c t i v i t i e s o f th e c o u n ty and
a llo w f r in g e a r e a s t o d e v e lo p in a random m anner. The ,
' t h r e a t t o c i t y p r o p e r ty v a lu e s may r e s u l t from su b sta n d a rd j
b u ild in g r e q u ir em en ts and im p rovem en ts, a s w e l l a s from !
i n d u s t r i a l and com m ercial u s e s o f th e la n d .
D u p lic a tio n o f c o s t s . — Many governm ent s e r v i c e s
b e in g ren d ered t o c o n tig u o u s u n in c o r p o r a te d a r e a s by c o u n ty
a g e n c ie s c o u ld be p ro v id ed more e c o n o m ic a lly and e f f i c i e n t
l y by th e c e n t r a l c i t y . C o n f l i c t s o v e r j u r i s d i c t i o n and
r e s p o n s i b i l i t y w ould be e lim in a t e d . F rin g e a r e a s w h ich
have become h e a v ily s e t t l e d , and i n a l l t h e i r e s s e n t i a l
I
4461
r e s p e c t s e q u iv a le n t to th e c i t y th e y b o r d e r , m ust be p r o -
v id e d th e same n e c e s s a r y s e r v i c e s a s th e c i t y . S in c e t h e s e |
s e r v i c e s m ust be ren d ered by th e c o u n ty governm ent much j
d u p lic a tio n r e s u l t s and c o s t s a re g r e a t e r . j
i
i
P rop osed S o lu t io n s
The c i t y ta x p a y e r o b j e c t s t o h i s " f r in g e - d w e llin g
c o u sin " r e c e iv in g th e same s e r v i c e s y e t pay l e s s in p rop - j
i
e r t y t a x e s . C ity o f f i c i a l s and. o r g a n iz a t io n s have d ev o ted j
c o n s id e r a b le tim e and stu d y t o d e v is in g a s o lu t i o n . T h e ir !
b a s ic aim s a re t o r e q u ir e f r in g e - d w e lle r s t o pay f o r th e
|s e r v i c e s w h ich th e c i t y ta x p a y e r s p r o v id e f o r th e m s e lv e s ,
and to c o n t r o l fu tu r e d evelop m en t o f f r in g e a r e a s and
th e r e b y p r o t e c t p r o p e r ty v a lu e s .
A n n exation i s f r e q u e n t ly p rop osed a s a s o l u t i o n . ,
I
The League o f C a lif o r n ia C i t i e s in i t s 1952 C o n v en tio n ,
' ■ . . . . \
I
!ad op ted a r e s o lu t i o n u r g in g th e l e g i s l a t u r e t o adopt la w s
w hich w ould e s t a b l i s h s ta te w id e sta n d a rd s f o r urban la n d
28
u se and s u b d iv is io n . The r e s o lu t i o n f u r th e r urged e s t a b
lis h m e n t o f p ro ce d u r e s r e q u ir in g a v o te by d ev elo p e d
i
j f r in g e - a r e a s on a n n e x a tio n t o th e c i t y . Should su ch a v o te
i
i
go a g a in s t a n n e x a tio n th e s e a r e a s sh o u ld th e n be ta x e d by
th e c o u n ty governm ent t o pay f o r th e s e r v ic e s th e y r e c e iv e
28 W estern C i t y , m i l (Novem ber, 1 9 5 2 ), 2 8 .
447 1
fro m i t . 29 J
An argum ent in fa v o r o f a n n e x a tio n h a s been th a t th e j
!
la r g e r t a x b a se w ould make lo w er r a t e s p o s s i b l e . R ecen t I
s t u d ie s e a s t doubt on t h i s h o p e. C a p ita l o u t la y s f o llo w in g '
i
a n n e x a tio n may be n e c e s s a r y , o r th e l e v e l o f s e r v i c e s may !
30
be b elo w c i t y sta n d a r d s , th u s p r e v e n tin g ta x r e d u c t io n s . ;
Two s t u d ie s by R obert C. S ch m itt q u e s tio n w h eth er h ea v y
f r in g e grow th a f f e c t th e t a x r a t e s in t h e c e n t r a l c i t y , o r i
w h eth er a n n e x a tio n a f f o r d s any ta x r e l i e f f o r th e c e n t r a l !
31 1
, c i t y T s ta x p a y e r s . In th e f i r s t s tu d y , ea ch o f tw e n ty
c e n t r a l c i t i e s w ith e x t e n s iv e f r in g e a r e a s was m atched w ith
a com parable c i t y in th e same s t a t e h a v in g l i t t l e o r no
f r in g e p o p u la tio n . H ie found a cordon o f unannexed com
m u n itie s d o es n o t make f o r h ig h e r t a x r a t e s i n th e c e n t r a l
c i t y . W hile o th e r b y -p r o d u c ts o f n o n a n n ex a tio n may o r may j
n o t be d e s ir a b l e , i t i s tr u e t h a t a h ea v y f r in g e d o es n o t ,
g r e a t l y a f f e c t th e ta x r a t e s o f th e c e n t r a l e i t y . !
S c h m i t t s seco n d stu d y in c lu d e d a l l t h i r t y - s i x
Am erican c i t i e s w ith a 1950 p o p u la tio n b etw een 2 2 0 ,0 0 0 and
29 R ich ard G ra v es, o p . c i t . . p . 3 3 .
30 Am erican S o c ie t y o f P la n n in g O f f i c i a l s , ” Annexa
t i o n o f Urban F rin g e A r e a s, In fo r m a tio n R ep ort Ho. 30
(C h icago: P la n n in g A d v iso ry S e r v ic e , S ep tem b er, 1 9 5 1 ),
p . 1 1 .
31 R obert C. S c h m itt, "F ringe Growth and Tax R a te s,"
N a tio n a l Tax J o u r n a l. I V (D ecem ber, 1 9 5 1 ), 5 7 0 -7 1 . _________
4 4 8 1
6 8 0 ,0 0 0 and t h e i r e x p e r ie n c e s w ith a n n e x a tio n and ta x |
r a t e s . He co n clu d ed : j
Ho r e a l d if f e r e n c e appeared b etw een t a x r a t e s tr e n d s I
o f c i t i e s a n n ex in g a la r g e f r in g e p o p u la tio n , c i t i e s |
a n n ex in g a sm a ll f r in g e p o p u la tio n , and th o s e m aking no '
a n n e x a tio n s w h a ts o e v e r .3 *
j
O o n clu sio n
A n n ex a tio n o f f r in g e a r e a s d o es n o t o f f e r a f in a n
c i a l p an acea t o c i t i e s . Thus c i t i e s sh o u ld n o t e x p e c t an I
in d is c r im in a t e a n n e x a tio n p o l i c y t o p roduce g r e a t l y im - |
i
p roved ta x r a t e s . i
| The q u a li t y o f m u n ic ip a l s e r v i c e s m ig h t w e ll be im -
|p ro v ed by c o n s o lid a t in g c i t y and c o u n ty u n it s o f governm ent
in h e a v ily p o p u la te d u n in c o r p o r a te d a r e a s , th e r e b y e c o n o
m iz in g on th e f u n c t io n s p erfo rm ed . Where su ch a c o n s o lid a -
o !
t i o n i s n o t f e a s i b l e r e s id e n t s o f u n in c o r p o r a te d a r e a s
!
1 sh o u ld be ta x e d to pay f o r th e d i r e c t m u n ic ip a l-ty p e j
s e r v ic e s and b e n e f i t s r e c e iv e d from th e c o u n ty governm en t.
C ity ta x p a y e r s sh o u ld n o t be ta x e d to s u b s id iz e f r in g e
d w e lle r s .
32 H obert C. S c h m itt, "A nnexation and Tax H a t e s ,”
N a tio n a l Tax J o u r n a l. V (J u n e, 1 9 5 S ), 1 7 6 -7 8 .
CHAPTER XE
PROPERTY TAX REPLACEMENTS
At th e s t a t e l e v e l th e g e n e r a l p r o p e r ty t a x lo n g ago
p roved in a d eq u a te to fin a n c e th e govern m en t. More and more
th e same t h in g h a s p ro v ed t o be tr u e on th e l o c a l l e v e l .
The p r o p o r tio n o f b o th s t a t e and l o c a l t a x r e v e n u e s from
p r o p e r ty l e v i e s h a s d e c lin e d s in c e th e 1 9 3 0 * s , w ith th e |
d e c lin e much more pronounced f o r s t a t e g o v ern m en ts. I n -
j e r e a s in g ly s t a t e s have u sed o th e r rev en u e s o u r c e s . The
p r in c ip a l n o n p ro p erty t a x e s u sed b y th e s t a t e s have b een
in d iv id u a l and c o r p o r a te incom e t a x e s , e x c is e t a x e s su ch a s
g e n e r a l s a l e s , a lc o h o li c b e v e r a g e , t o b a c c o , m otor f u e l , and
m otor v e h i c l e , t o g e t h e r w ith l i c e n s e s , p e r m its , and m is-
ic e lla n e o u s t a x e s . T h is d evelop m en t in s t a t e f in a n c e s h a s
1 i
(b een g o in g on f o r a good many y e a r s ; h o w ev er, th e e x t e n s io n ;
; i
o f many o f th e s e m ea su res t o c i t y and l o c a l governm en ts i s
r e l a t i v e l y new.
D uring th e t w e n t ie t h c e n tu r y p r o p e r ty t a x e s h ave
been d e c lin in g in s i g n i f i c a n c e f o r s t a t e g o v ern m en ts. A l
m ost a l l o f th e s t a t e s have w ithdraw n from p r o p e r ty t a x a
t i o n . I n 1948 o n ly one s t a t e , N eb rask a, r e c e iv e d o v e r 20
p e r c e n t o f i t s rev en u e from p r o p e r ty t a x e s , w h ile fo u r
o th e r s d e r iv e d o v e r 10 p e r c e n t from t h i s s o u r c e , l i g h t
s t a t e s d id n o t l e v y a p r o p e r ty t a x . The a v era g e p er c e n t
o f t h e i r t o t a l rev en u e r a is e d b y t h e f o r t y s t a t e s from
p r o p e r ty t a x e s was £ .0 6 p er c e n t . j
f
D e s p ite th e red u ced f i s c a l im p o rta n ce o f p r o p e r ty
t a x e s c i t y g o v ern m en ts, and e s p e c i a l l y th e s m a lle r o n e s , I
c o n tin u e to o b ta in 50 p er e e n t o r more o f t h e i r r e v en u e s
from th e s e t a x e s . Faced w ith h eavy and in c r e a s in g c o s t s a s ,
i
th e p o p u la tio n becom es more u r b a n iz e d , c i t i e s f in d them - |
s e l v e s u n a b le t o fin a n c e t h e i r a c t i v i t i e s from p r o p e r ty !
i
t a x e s a lo n e . The s e a r c h by c i t i e s f o r o th e r s o u r c e s o f
|rev en u e was n e c e s s a r y b eca u se t h e p r o p e r ty t a x ca n n o t b ear
th e f u l l lo a d a lo n e ; b eca u se c i t i e s , h ig h ly dep en dent on
p r o p e r ty t a x e s , c o u ld n o t r i s k b r e a k in g t h i s so u rc e down by
a d d in g more t o i t ; b eca u se many have f e l t p r o p e r ty was
i
b e a r in g an u n f a ir sh a r e o f th e ta x burden; and b eca u se a j
I
t 1
more d i v e r s i f i e d t a x b a se was n e e d e d . j
;
C o n s id e r a b le v a r i e t y e x i s t s b etw een th e s t a t e s and j
c i t i e s a s t o th e s o u r c e s and p r a c t ic e s used in r a i s in g
a d d it io n a l r e v e n u e s , d ep en d in g on l o c a l c o n d it io n s .
i
I . THE SEARCH FOR ADDITIONAL LOCAL REVENUES
Many s t a t e and l o c a l governm ents are under c o n s ta n t
f in a n c i a l p r e s su r e from la g g in g r e v en u e s and in c r e a s in g
c o s t s . A lth ou gh th e tr e n d tow ard a d o p tio n o f n o n p ro p erty
451
t a x rev en u e s o u r c e s h a s b een a c o n tin u in g o n e , on th e l o c a l
l e v e l i t h a s b een a c c e le r a t e d g r e a t l y d u rin g th e l a s t few
y e a r s . |
B efo re ta k in g up c e r t a in o f th e n o n p ro p er ty t a x !
i
rev en u e so u r c e s some c o n s id e r a t io n w i l l be g iv e n t o th e I
1
f o llo w in g p rob lem s: (1 ) Why th e n eed f o r more r e v e n u e ,
(2 ) P r o p e r ty t a x u n a b le to b ea r in c r e a s e d e x p e n d itu r e bur
den a lo n e , (3 ) E x ten t o f u se o f n o n p ro p erty t a x e s , (4 ) Im- j
p o r ta n c e o f n o n p ro p er ty t a x e s , (5 ) L e g i s l a t i v e h is t o r y o f j
n o n p ro p erty t a x e s , and (6 ) Some s p e c i a l c o n s id e r a t io n s . i
!
i Why th e Meed f o r More Revenue
I n c r e a s e s in m u n ic ip a l e x p e n d itu r e s have r e s u lt e d
from a number o f c a u s e s . Even th ou gh g iv e n c i t i e s may
e x p e r ie n c e n eed f o r g r e a t e r r e v e n u e s f o r d i f f e r e n t r e a s o n s , j
| th e r e a re r e a s o n s common t o m ost o f them . Among th e common j
jr e a s o n s a r e th e f o llo w in g : (1 ) i n f l a t i o n a r y f a e t o r s , (2 ) |
i
in c r e a s e d urban p o p u la tio n , (3 ) d e fe r r e d c o n s t r u c t io n and I
m a in te n a n c e , (4 ) w e lf a r e e x p e n d itu r e s , (5) in c r e a s e d
demands f o r more and b e t t e r g o v ern m en ta l s e r v i c e s , and
(6 ) th e i n a d v i s a b i l i t y o f in c r e a s in g p r o p e r ty t a x e s .
I n f l a t i o n a r y f a c t o r s . — An im p o rta n t f a c t o r in th e
p r e s s u r e on l o c a l governm en ts f o r more r e v e n u e s i s th e i n
f l a t i o n in th e p r ic e l e v e l . M u n icip a l c o s t s , l i k e a l l
c o s t s , have in c r e a s e d b eca u se o f i n f l a t i o n , and f o r l o c a l
— — j
I
govern m en tal s e r v ic e s to be m a in ta in ed on p r e v a ilin g j
!
l e v e l s , o r t o be in c r e a s e d , a d d it io n a l r e v e n u e s m ust be i
> I
o b ta in e d . A lth ou gh p r o p e r ty a s s e s s m e n ts have I n c r e a s e d ,
b o th a b s o lu t e ly and r e l a t i v e l y , d u rin g th e r e c e n t i n f l a
t io n a r y y e a r s , t h e y have n o t in c r e a s e d a s much a s p r o p e r ty !
v a lu e s in th e m a rk et. In o th e r w o rd s, th e r a t i o o f
a s s e s s e d t o tr u e o r f u l l v a lu e h a s n o t in c r e a s e d p ro p er-
I
t i o n a t e l y w ith p r o p e r ty v a lu e s , n or have p r o p e r ty t a x r a t e s :
in c r e a s e d enough to make up th e d if f e r e n c e in r e v e n u e s
n eed ed . L o ca l governm en ts have had t o in c r e a s e s a l a r i e s (
and w ages t o t h e i r o f f i c e r s and em p lo y ees and t o pay h ig h e r
I p r ic e s f o r m a t e r ia ls and eq u ip m en t. The i n a b i l i t y o r i n -
<
a d v i s a b i l i t y — o r b o th — o f s e e k in g th e n e c e s s a r y a d d it io n a l
re v e n u e s from p r o p e r ty t a x e s h a s fo r c e d l o c a l governm ents
t o lo o k e ls e w h e r e . j
1 I n c r e a s e d urban p o p u la tio n . — The urban p o p u la tio n <
I j
o f th e c o u n tr y h a s b een in c r e a s in g s t e a d i l y an d, n o tw ith
s ta n d in g th e f a c t t h a t some o f th e l a r g e s t c i t i e s a re now
g a in in g in p o p u la tio n b u t s lo w ly or n o t a t a l l , i t a p p ea rs
q u it e c e r t a in th a t th e t o t a l urban p o p u la tio n w i l l c o n tin u e
I
:to in c r e a s e f o r some tim e to com e. I t i s w e ll known t h a t
th e c o s t s o f m u n ic ip a l g overn m en t, p er c a p it a , in c r e a s e a s
th e s i z e o f a c i t y in c r e a s e s . T h is f a c t h e lp s e x p la in th e
more p r e s s in g f i n a n c i a l problem s foun d in la r g e r c i t i e s
4531
th an in th e s m a lle r o n e s .1 j
D e fe r red c o n s t r u c t io n and m a in te n a n c e . -« * * The f in a n - j
c i a l problem s o f m u n ic i p a li t i e s a re made th e more a c u te by
th e f a c t t h a t many c i t i e s a re fa c e d w ith th e n e c e s s i t y f o r
1
m aking la r g e o u t la y s f o r d e fe r r e d c o n s t r u c t io n and m ain - j
te n a n c e . Many c i t i e s p o stp o n ed c o n s t r u c t io n o f new p r o - I
I
j e c t s d u rin g th e war y e a r s a t th e u rg in g o f th e n a t io n a l
govern m en t, o r b eca u se m a t e r ia ls and la b o r w ere n o t a v a i l - I
a b le . P ostw ar p r o j e c t s w h ich ca n n o t be lo n g e r d e fe r r e d now !
c o s t th e c i t i e s , in m oney, much more th a n th e y w ould have
i
c o s t in p re-w a r y e a r s . The same i s tr u e o f d e fe r r e d m ain-
J ten a n c e. F u rth erm ore, m a in ten a n ce to o lo n g d e fe r r e d
becom es u n eco n o m ica l w h ich f a c t h e lp s a c co u n t f o r expanded
e x p e n d itu r e s by e i t i e s in t h e r e c e n t p o st-w a r p e r io d .
D uring th e 1 9 3 0 * s h ea v y demands f e l l on c i t i e s to h e lp
•fin a n c e w e lfa r e c o s t s a r i s i n g o u t o f th e d e p r e s s io n . Con- j
I
s t r u c t io n and m a in ten a n ce w h ich w ere d e fe r r e d t o make fu n d s i
a v a ila b le f o r w e lf a r e paym ents were a g a in p o stp o n ed b eca u se
o f th e w a r. Some accu m u lated d e fe r r m e n ts m ust now be
i
u n d er ta k en , and a t g r e a t l y in c r e a s e d c o s t s . C a p ita l o u t la y
i
f o r 1949 com pared to 1942 w as up 327 p e r c e n t f o r c i t i e s
^ C. M. K n e ie r , C it y Government in th e U n ited S t a t e s
(New York: H arper and B r o th e r s , 1 9 4 6 ); a l s o , C lyd e F .
S n id e r , " P o t e n tia l New S o u rces o f M u n icip a l R even u e,"
R eport o f th e R evenue Laws Com m ission o f th e S ta t e o f
I l l i n o i s . 1 9 4 9 , p p . 3 4 9 - 9 5 . ________________________________
2
h a v in g 2 5 ,0 0 0 p o p u la tio n in 1 9 4 0 .
W elfa re e x p e n d itu r e s . — As m en tio n ed a b o v e, h eavy
w e lfa r e e x p e n d itu r e s a r i s i n g from th e d e p r e s s io n y e a r s f e l l j
(
on t h e c i t i e s . T h e ir e f f e c t s have c a r r ie d o v e r in t o th e !
i
p r e s e n t th rou gh d e p r e s s io n — and w a r -d e fe r r e d c o n s t r u c t io n
and m a in ten a n ce p r o j e c t s now " f a l l i n g d u e .” C o n sid e r a b le
i
w e lfa r e e x p e n d itu r e s c o n tin u e d to be n e c e s s a r y in th e p o s t -
i
war p e r io d d u rin g r e c o n v e r s io n and re a d ju stm en t to p e a c e - i
tim e p r o d u c tio n , t o g e t h e r w ith r e tu r n in g v e t e r a n s . H ard ly j
I
had th e p o stw a r gap b een b r id g e d when th e Korean w ar p la c e d |
a d d it io n a l demands on l o c a l f in a n c e s .
A lth ou gh th e p rob lem s v a r y from c i t y t o c i t y , o r
a r e a t o a r e a , g iv e n l o c a l i t i e s a r e fa c e d w ith p r e s s in g
p roblem s o f r e l i e f t o in d i g e n t s .
Demands f o r expanded go v ern m en ta l s e r v i c e s . — S t i l l j
I ’
.'another im p o rta n t ca u se f o r in c r e a s e d m u n ic ip a l c o s t s i s
; I
th e demand f o r im proved said expanded g o v ern m en ta l s e r v i c e s , j
T h is demand i s f o r b o th an ex p a n sio n o f cu stom ary s e r v ic e s
a s w e ll a s th e u n d er ta k in g o f new o n e s . In su ch a r e a s a s
th o s e o f w e lf a r e , r e c r e a t io n , h e a lt h , and t r a n s p o r t a t io n ,
demands a re f r e q u e n t ly made f o r in c r e a s e d and im proved
2 M u n icip a l Year Book (C h ica g o : The I n t e r
n a t io n a l C it y M anagers A s s o c ia t io n , 1 9 5 1 ), p . 2 0 1 .
3
s e r v i c e s .
P r o p e r ty Tax U nable t o B ear I n c r e a se d E x p en d itu re Burden |
~ —— —— — ^
i
In th e p a s t i t was th e p r a c t ic e t o m eet added r e v e - (
I
nue n e e d s by in c r e a s e s in th e p r o p e r ty t a x . Each in c r e a s e
I
b rou ght s tr o n g e r o b j e c t io n s t o th e u se o f t h i s t a x w hich
h a s lo n g b een c r i t i c i z e d a s in e q u i t a b le , r e g r e s s i v e , p o o r ly '
c o r r e la t e d to a b i l i t y - t o - p a y and b e n e f i t s r e c e iv e d , and n o t J
p r o p e r ly r e la t e d t o th e econom ic c y c l e . M ost s t a t e g o v er n - j
m e n ts, r e c o g n iz in g th e b e t t e r a d a p t a b ilit y o f th e p r o p e r ty j
! t a x t o l o c a l u s e , a s w e l l a s i t s i n a b i l i t y t o m eet b o th
; s t a t e and l o c a l n e e d s , have w ithdraw n from t h i s t a x f i e l d .
i
As t r a d i t i o n a l l y a d m in iste r e d p r o p e r ty t a x e s have
come t o be m o s tly lim it e d t o r e a l p r o p e r ty . One r e s u l t o f
t h i s was th e d evelopm en t o f r e a l e s t a t e ow ners and d e a le r s j
i
o r g a n iz a tio n s w ith s u f f i c i e n t s t r e n g t h t o in f lu e n c e th e :
s t a t e l e g i s l a t u r e s . The outcom e o f t h e ir e f f o r t s , e s - I
p e e i a l l y d u r in g th e 1 9 3 0 * s , was th e a d o p tio n , e i t h e r b y
c o n s t i t u t i o n a l o r s t a t u t o r y p r o v is io n , o f p r o p e r ty t a x
l i m i t a t i o n s on co u n ty and l o c a l govern m en ts in p r a c t i c a l l y
a l l o f th e s t a t e s . W henever th e s e governm en ts r e a c h t h e i r j
3 M u n icip a l F in a n ce O f f i c e r s A s s o c ia t io n , " M u n icip ali
N on p rop erty T a x es," 1951 Supplem ent to Where P i t i e s Get i
T h eir Money {C h icago; M u n ic ip a l F in a n ee O f f ic e r s A s s o c i
a t io n o f th e U .S . and C anada, 1 9 5 1 ), p . 8 ; a l s o , James D.
K itc h e n , " A d m in istr a tio n o f M u n icip a l S a le s T axes in
C a lif o r n ia ," (Bureau o f G overnm ental B e se a r c h , U n iv e r s it y
o f C a lif o r n ia , L os A n g e le s , D ecem ber, 1 9 4 9 ), p . 1 .
456]
l e g a l l i m i t s t h e y a re fo r c e d to lo o k e lse w h e r e f o r a d d i
t i o n a l r e v e n u e s . What added s o u r c e s t h e y may u se v a r i e s a s
i
among th e s t a t e s .
A nother b a s ic r e a s o n th e p r o p e r ty ta x ean n ot b ea r
much, i f a n y , more o f th e t a x burden i s th e p r o b a b il it y o f
i t s breakdown w ith d e m o r a liz a tio n and e x c e s s iv e d e lin q u e n c y .
T h is w ould be more p ro b a b le in th e e v e n t o f a s u s ta in e d
i
econom ic r e c e s s io n o r d e p r e s s io n . j
»
E x ten t o f Use o f H on orop ertv Taxe s ‘
!
( H i s t o r i c a l l y , th e m ajor so u rce f o r l o c a l r e v e n u e s
h a s b een th e p r o p e r ty t a x , and u n t i l q u ite r e c e n t ly m ost
j s t a t e s d e r iv e d an im p o rta n t p a r t o f t h e i r r e v e n u e s from th e
j same t a x . In v ie w o f th e u n p reced en ted f i n a n c i a l problem s
I o f th e f e d e r a l governm ent d u rin g th e l a s t d e c a d e , w h ich
have r e g u la r ly demanded th e l i o n * s sh are o f p u b lic a t t e n -
t
j t i o n , s t a t e and l o c a l f i n a n c i a l p rob lem s have b een pushed |
i n t o th e b ackground. S ta te f in a n c e s a re n o t u n lik e th o s e
o f th e f e d e r a l governm ent s in c e a t ea ch l e v e l d e f i c i t
f in a n c in g i s com m onplace. D uring th e p o stw a r p e r io d s t a t e
e x p e n d itu r e s have in c r e a s e d more r a p id ly th a n r e v e n u e , w ith \
i * i
|th e r e s u l t t h a t s t a t e s as a w h o le a re sp en d in g more th a n
i
t h e y ta k e i n . For exam p le,
. . . I n f i s c a l 1946 o n ly one s t a t e sp e n t more th a n
i t r e c e iv e d . The number r o s e t o s ix t e e n in 1948 and in
1950 t o t h i r t y - s i x . In f i s c a l 1 9 5 1 , tw e n ty -s e v e n
s t a t e s had an n u al d e f i c i t s . 4
The th r e e m ajor ite m s o f s t a t e e x p e n d itu r e s are
s c h o o ls , h ig h w a y s, and p u b lic w e l f a r e .5 To r a i s e re v en u e s
t o m eet t h e i r n e e d s s t a t e , l i k e l o c a l , governm en ts have j
r e s o r t e d to n o n p ro p erty t a x re v en u e s o u r c e s . The p r in c ip a l
n o n p ro p erty t a x e s u sed by s t a t e s are s a l e s , in co m e, m otor
£
f u e l , to b a c c o , a l c o h o l i c b e v e r a g e s , and m otor v e h i c l e . ,
T able XXVI shows th e number o f s t a t e s u s in g t h e s e t a x e s and
th e p e r c e n ta g e o f t h e i r t o t a l rev en u e d e r iv e d from ea ch a s
i o f 1 9 5 0 .
f
I As o f June 3 0 , 1951 a p p r o x im a te ly o n e - h a lf o f th e
c i t i e s o f o v e r 1 0 ,0 0 0 p o p u la tio n w ere le v y in g one o r more
t y p e s o f im p o rta n t n o n p ro p er ty t a x e s . 7 T able XXVTI, page
4 5 9 , shows th e number o f s t a t e s in w h ich one o r more c i t i e s
u sed s e l e c t e d n o n p ro p er ty t a x e s .
I
i
! A lth ou gh c i t i e s c o n tin u e t o u se n o n p ro p erty t a x e s •
more f r e q u e n t ly , a s tim e g o e s b y , th e r e i s no com p reh en sive
4 Trends i n S ta te E x p e n d itu r e s . 1 9 4 0 -1 9 5 1 . An
! A n a ly s is o f S ta te Spend in g D uring and A ft e r World War I I
| {Hew York: The Tax F o u n d a tio n , 1 9 5 2 ), p . 1 .
® Idem .
6 M ajor S ta te T a x e s. 1959 and 1 9 5 0 . P r o j e c t Hote
No. 29 (Hew York: The Tax F o u n d a tio n , 1 9 5 1 ), p . 4 .
7 " M u n icip al N on p rop erty T a x e s," 1951 S up plem en t,
o£. jc it. , . p . 5.
458
TABLE x m
NHOER OF STATES USING SPECIFIED NONPROPEHTY TAXES, 1 9 5 0 ,
AND PERCENTAGE OF TOTAL REVENUE DERIVED FR O M EACH
Number o f "
S t a t e s U sin g P e r c e n ta g e
S a le s 29 3 5 .5
P e r s o n a l Incom e 35 1 5 .3
C o rp orate Incom e 33 1 1 .9
M otor F u e l 48 1 9 .5
Tobacco 40 6 .6
A lc o h o lle B everage 48 5 .3
M otor V e h ic le 48 9*5
S o u rce: Ma.lor S ta t e T a x e s. 1959 and 1950 (New York: The
Tax F o u n d a tio n , D ecem ber, 1 9 5 1 ).
459
TABLE XSVTI
MUNICIPAL NONPROPERTY TAXES
NUM BER OF STATES IN WHICH ONE OR M ORE CITIES
USE SELECTED NONPROPERTY TAXES
JULY 1 , 1951
Tax
T o ta l S t a t e s
P e r m ittin g Use
o f T h is Tax
1 . A d m ission and Amusement T axes 17
2 . B u s in e s s G ross R e c e ip ts T axes 26
3 . C ig a r e t t e and Tobacco T axes 7
4 . Deed T r a n s fe r T axes 3
5 . Garbage and R efu se S e r v ic e C harges 36
6 . G a s o lin e T axes 5
7 . Incom e T axes 4
8 . L iq u or and A lc o h o lic B everage T axes 6
9 . M otor V e h ic le T axes 11
1 0 . O ccupancy T axes (H o te ls ) 3
1 1 . P o l l and S t r e e t T axes 9
1 2 . P u b lic U t i l i t y G ross R e c e ip ts T axes 33
1 3 . S a le s T axes 9
1 4 . Sew er S e r v ic e C harges 41
S o u rce: A dapted from " M u n icip al N on p rop erty T a x e s ," 1951
Supplem ent t o Where C i t i e s G et T h eir Money (C h ic a g o :
M u n icip a l F in a n ce O f f i c e r s A s s o c ia tio n o f th e U .S . and
C anada, 1 9 5 1 ), p . 4 .
460
c o m p ila tio n a v a ila b le a s t o th e number o f c i t i e s t h a t have
ad op ted new rev en u e s o u r c e s in th e p a s t t e n y e a r s .8 M uni-
i
c i p a l rev en u e p rob lem s f i r s t became a c u te in th e la r g e r j
i
c i t i e s l a r g e l y b eca u se o f th e c o m p le x ity o f th e s e r v ic e s !
th e y p erfo rm , and b eca u se c o s t s o f r e n d e r in g th e s e s e r v ic e s
i
ten d to be h ig h e r in la r g e r c i t i e s th an in sm a ll o n e s .
One o f th e f o llo w in g n in e n o n p ro p er ty t a x e s — (1 ) j
p u b lic u t i l i t y g r o s s r e c e i p t s , (2) b u s in e s s g r o s s r e c e i p t s , :
(3 ) a d m is s io n s , (4) m otor v e h i c l e , (5 ) s a l e s , (6 ) c i g a r e t t e ■
and to b a c c o , (7) m otor f u e l , (8 ) liq u o r , and (9) incom e— !
th e la r g e r c i t i e s u se them more e x t e n s i v e l y th a n s m a lle r
c i t i e s . For ex a m p le,
Where o n ly 3 2 .5 p er c e n t o f th e c i t i e s o f 1 0 ,0 0 0 t o ,
2 5 ,0 0 0 p o p u la tio n u sed two o r more o f n in e n o n p ro p er ty -
t a x e s , 6 3 .2 p e r c e n t o f th o s e from 2 5 0 ,0 0 0 t o 5 0 0 ,0 0 0
p o p u la tio n u se two o r more o f them , and 7 3 .3 p e r c e n t ;
o f th o s e o v e r 5 0 0 ,0 0 0 u sed two o r more o f th e m .9 j
'Among more th a n 500 c i t i e s o f 1 0 ,0 0 0 o r more p o p u la tio n th e ■
n in e n o n p ro p erty t a x e s u sed m ost f r e q u e n t ly are in th e
o r d e r l i s t e d a b o v e.
S m a lle r c i t i e s , e s p e c i a l l y in th e p o stw a r p e r io d ,
have b een c o n fr o n te d w ith f i n a n c i a l p rob lem s c l o s e l y a k in
to th o s e o f la r g e r c i t i e s . They a re fa c e d w ith th e d ual
8 I b i d . . p . 1 .
9 i f r i a . » p p « 5-® •
461!
i
p r e s s u r e s o f i n f l a t e d c o s t s and th e demand f o r more and
b e t t e r s e r v i c e s co u p led w ith th e n ea r e x h a u s tio n o f prop
e r t y t a x a d a p t a b i lit y . C o n s t it u t io n a l and ta x r a t e l i m i t a -
i
t i o n s , a lo n g w ith in c r e a s in g ly a r t i c u l a t e argum ent t h a t th e j
p r o p e r ty t a x c a r r ie s a d is p r o p o r t io n a t e ly h eavy sh a re o f
l o c a l governm ent c o s t s , h ave c l o s e l y a f f e c t e d l o c a l g o v er n - !
m e n ts. C o n se q u e n tly , m ost o f th e r e c e n t n o n p ro p er ty ta x (
a d o p tio n s have b een by s m a lle r c i t i e s . i
j
Im portan ce o f H on property T axes
i
| As w ould be e x p e c te d , t h e r e i s l e s s dependence upon
p r o p e r ty t a x e s in c i t i e s u s in g n o n p ro p erty t a x e s , th a n in
c i t i e s o f th e same p o p u la tio n n o t u s in g n o n p ro p erty t a x e s .
i
C i t i e s n o t u s in g n o n p ro p er ty t a x e s o b ta in 60 p er c e n t o r
more o f t h e i r r e v e n u e s from p r o p e r ty t a x e s ; w h e r e a s, c i t i e s ,
t h a t u se n o n p ro p er ty t a x e s d e r iv e n o t more th a n 50 p er c e n t
: o f t h e i r r e v e n u e s from p r o p e r ty t a x a t io n . T ab le XXVIII '
i
shows th e p e r c e n ta g e o f g e n e r a l r e v e n u e s r a is e d by p r o p e r ty
t a x e s i n c i t i e s o f 2 5 ,0 0 0 o r more p o p u la tio n f o r th o s e t h a t
u se t h e n in e l i s t e d n o n p ro p er ty t a x e s and f o r th o s e t h a t do
n o t.
A lth ou gh few er c i t i e s em ploy incom e t a x e s th a n any
i o f th e o th e r n in e n o n p ro p erty t a x e s l i s t e d , in term s o f p er
c a p it a y i e l d , th e y le a d a l l th e o t h e r s . T ab le XXIX, page
4 6 3 , shows th e av era g e p er c a p it a y i e l d and th e a v era g e t a x
462
TABLE X X VIII
PROPERTY TAXES AS PERCENTAGES OF TOTAL GENERAL REVENGE
IN CITIES USING AND NOT USING NONPROPERTY TAXES— 1949
P e r cen ta g e
P o p u la tio n
U sin g N on p rop erty
T axes
Not U sin g Non
p r o p e r ty T axes
Over 5 0 0 ,0 0 0 4 9 .8 8 6 4 .5 5
2 5 0 ,0 0 0 t o 5 0 0 ,0 0 0 5 0 .4 2 7 4 .7 1
1 0 0 ,0 0 0 t o 2 5 0 ,0 0 0 4 8 .8 6 5 3 .6 8
5 0 ,0 0 0 to 1 0 0 ,0 0 0 5 3 .8 6 6 3 .2 1
2 5 ,0 0 0 t o 5 0 ,0 0 0 4 5 .5 1 6 1 .8 8
S o u rce: " M u n icip al N on p rop erty T a x e s ,” 1951 Supplem ent t o
Where C i t i e s Get T h eir Money (C h ica g o : M u n ic ip a l F in a n ce
O f f i c e r s A s s o c ia t io n o f th e U .S . and C anada, 1 9 5 1 ), p . 8 .
463
TABLE X IIZ
MUNICIPAL NONPROPEBTY TAXES
(CITIES OVER 1 0 ,0 0 0 POPULATION)
JUNE 3 0 , 1951
P er
C a p ita
Y ie ld
A verage
Tax
R ate
Number o f
C i t i e s
H aving
Tax
P a y r o ll-In c o m e Tax # 1 2 .9 3 0 .7 5 # 24
S a le s Tax 1 1 .7 1 0 .7 4 # 92
G ro ss R e c e ip ts B u s in e s s
L ic e n s e s 5 .0 8 0 .4 4 # 196
M otor F u e l T axes 3 .7 6 1 .9 8 ^ g a l . 40
C ig a r e t t e & Tobacco T axes 2 .9 9 2 .4 0 ^ pack 67
C it y L iq u o r T ex es 2 .3 7
- -
35
P u b lic U t i l i t y T axes 1 .8 6 2 .8 7 # 274
M otor V e h ic le T axes 1 .7 1
—
117
C it y A dm ission T axes .9 3 4 .9 7 # 192
T o ta l 1 ,0 3 7
S o u rce: " M u n icip al N on p ro p erty T a x e s," 1951 Supplem ent to
Where C i t i e s G et T h e ir Money (C h ic a g o : M u n ic ip a l F in a n ce
O f f ic e r s A s s o c ia t io n o f th e U .S . and C anada, 1 9 5 1 ), p . 7 .
r a te f o r t h e c i t i e s u s in g t h e s e n o n p ro p erty t a x e s . Income
t a x e s r e v e a l a p e r c a p it a y i e l d o f # 1 2 .9 3 , f o llo w e d b y th e
s a l e s ta x w ith # 1 1 .7 1 p e r c a p it a . The h ig h e s t a v era g e t a x
r a te i s c i t y a d m issio n s t a x e s , fo llo w e d by t a x e s on p u b lic
j
| u t i l i t i e s , to b a c c o and c i g a r e t t e s , and m otor f u e l . !
L e g is la t i v e H is to r y o f N on p rop ertv T axes
The p o st-W o rld War I I tr e n d h a s been f o r s t a t e s to
i
a u th o r iz e m u n i c i p a l i t i e s t o d i v e r s i f y t h e i r reven u e |
s o u r e e s .10 S in c e c i t i e s a re e s s e n t i a l l y c r e a t io n s o f th e |
i „ ,
I s t a t e and a r e d ep en d en t upon th e s t a t e f o r s p e c i f i c
|a u t h o r it y to im prove t a x e s , th e number o f a d o p tio n s o f new
i
reven u e s o u r c e s i s d i r e c t l y r e la t e d t o p e r m is s iv e l e g i s
l a t i o n ad op ted by th e s t a t e s .
A form o f s t a t e s a l e s t a x h a s been i n u se in th e I
U n ite d S t a t e s s in c e 1821 when P e n n sy lv a n ia a d o p ted a m er- j
ch a n t l i c e n s e t a x , a lth o u g h i t w as reg a rd ed a s a b u s in e s s
i
t a x r a t h e r th a n a consum ers* tax.'*''*’ W est V ir g in ia l e v i e d
th e f i r s t com p reh en sive s a l e s t a x in th e U n ited S t a t e s in
1 9 2 1 , a lth o u g h tw e lv e more s t a t e s had ad opted s a l e s t a x e s «
10 A rthur W. Brom age, "Our C i t i e s in 1 9 5 1 ," The
M u n ic ip a l Year Book (C h ica g o : The I n t e r n a t io n a l C it y
M anagers A s s o c ia t io n , 1 9 5 2 ), p . 3 .
11 K itc h e n , o £ . c i t . . p . 1 .
I 465
|
by 1 9 3 4 .12
M u n ic ip a l e x p e r ie n c e . — M u n icip a l e x p e r ie n c e w ith
n o n p ro p er ty t a x e s b egan in 1934 when New York C it y o b ta in e d
p e r m iss io n from th e s t a t e l e g i s l a t u r e t o le v y p e r s o n a l '
p r o p e r ty , s a l e s , and u se t a x e s . In 1936 New O rlea n s was
p e im itte d t o le v y a s a l e s t a x .
i
The number o f s t a t e l e g i s l a t u r e s a d o p tin g m ea su res ;
p e r m ittin g e x p a n sio n o f m u n ic ip a l reven u e s o u r c e s h a s i n - i
c r e a se d m ark ed ly in th e r e c e n t p a s t . S in c e 1943 a s many a s !
i
tw e n ty -s e v e n s t a t e s have a llo w e d m u n ic i p a l i t i e s t o em ploy
(
|n o n p ro p er ty t a x e s . T h is i n d i c a t e s an im p o rta n t tr e n d ,
a c c o r d in g t o th e M u n ic ip a l F in a n ce O f f i c e r s A s s o c ia t io n ,
I
I s in c e ,
. . . ju d g in g from th e number o f m u n ic ip a l reven u e
m easu res a d o p ted by th e s t a t e l e g i s l a t u r e s , th e r e |
a p p ea rs to be a ten d e n c y to change from th e p h ilo s o p h y j
o f g r a n tin g s t a t e a id s and sh a r in g s t a t e t a x e s t o
1 r e l i e v e rev en u e p r e s s u r e s on m u n i c i p a l i t i e s , t o a
p o l i c y o f p e r m ittin g th e s e m u n i c i p a l i t i e s to s in k or
swim in f in d in g t h e i r own revenue s a l v a t i o n . 13
The b r o a d e st a u th o r it y e x ten d ed by a s t a t e t o muni
c i p a l i t i e s h a s o c c u r r e d in M aryland, New York, and
I
iP e n n s y lv a n ia . In 1945 B a ltim o r e w as p e r m itte d by th e s t a t e
l e g i s l a t u r e to u se any reven u e m easu res i t deemed n e c e s s a r y
12 Idem .
13 "M un icipal N on p rop erty T a x e s," 1951 S u p p lem en t,
o p . c i t . , p . 1 .
4661
i
f o r a p e r io d o f two y e a r s . T h is a u t h o r it y was made perma
n en t in 1 9 5 1 . New York g ra n ted p e r m is s io n in 1950 to
c i t i e s and c o u n t ie s t o im pose n in e form s o f n o n p ro p er ty
I
t a x e s . P e n n s y lv a n ia , l i k e w i s e , g r a n ts "broad a u t h o r it y t o
l o e a l u n it s o f governm ent t o u se n o n p ro p erty t a x e s . |
W ashington s t a t e , in 1 9 4 3 , w ith d rew from th e u se o f !
th e a d m issio n t a x , th u s le a v in g i t t o c i t i e s . In 1947
O h io, V ir g i n ia , and M aryland p e r m itte d l o c a l u se o f ad - i
m is s io n t a x e s . In th e same y e a r New J e r s e y , I l l i n o i s ,
jOklahom a, Id a h o , N eb rask a, Alabam a, N orth D akota, N orth I
I
.C a r o lin a , and K entucky ea ch a u th o r iz e d u se o f n o n p ro p erty
t a x e s .
D uring 1951 se v en s t a t e s ad opted l e g i s l a t i o n d i r e c t
l y a f f e c t i n g reven u e s o u r c e s o f l o c a l g o v ern m en ts. T hese
j s t a t e s w ere New M ex ico , Wyoming, T e n n e sse e , W ash in gton ,
New Y ork, M ontana, and West V ir g in ia . i
| I
S p e c ia l C o n s id e r a tio n s in M u n ic ip a l Revenue Problem s
The f o llo w in g a r e su b m itted a s s p e c i a l p rob lem s r e
q u ir in g c o n s id e r a t io n by in d iv id u a l s t a t e s and c i t i e s in
a d d it io n t o t h e c o n s ta n t n e c e s s i t y o f p erfo rm in g e s s e n t i a l
s e r v ic e s e f f i c i e n t l y and e c o n o m ic a lly . In s e t t i n g up a
reven u e sy stem to conform to th e c h a r a c t e r i s t i c s o f th e
in d iv id u a l c i t y , th e f o llo w in g c o n s id e r a t io n s a re p e r tin e n t;
(1) th e s i z e o f th e c i t y ; (2) th e g e o g r a p h ic a l r e la t io n s h ip
46 7 1
i
o f th e m u n ic ip a lit y to o th e r c i t i e s ; (3) th e s ta g e i n th e j
grow th o f th e c i t y s in c e a young o r grow in g c i t y w ould have j
d i f f e r e n t reven u e p rob lem s th an o ld e r , w e ll e s t a b lis h e d
c i t i e s ; (4) th e v a r i e t y and sta n d a rd o f m u n ic ip a l s e r v i c e s
d e s ir e d ; (5 ) th e n a tu re o f th e w e a lth in a g iv e n c i t y ; |
j
(6) th e b a s ic econom ic c h a r a c te r o f th e a r e a — w h eth er in
d u s t r i a l , g o v ern m en ta l c e n t e r , r e s o r t , e t c . ; (7 ) th e con
s t i t u t i o n a l and g o v ern m en ta l arran gem en ts w it h in th e s t a t e
— some s t a t e s g r a n t a g r e a t e r d e g r e e o f home r u le them J
i
o t h e r s , w h ile o th e r s r e l y more on c e n t r a l a id s and sh a red i
14
ta x e s .
I I . FREQUENTLY USED NONPROPERTY TAXES
j G en eral S ta tem en t
j S p eak in g g e n e r a lly , Am erican c i t i e s d e r iv e a p r in - ;
' c i p a l p a rt o f t h e i r r e v e n u e s from p r o p e r ty t a x e s . In 1950 !
i !
c i t i e s o f more th a n 8 5 ,0 0 0 p o p u la tio n r e c e iv e d a p p r o x i
m a te ly 52 p er c e n t o f t h e i r r e v e n u e s from p r o p e r ty t a x e s ,
25 p e r c e n t from v a r io u s governm ent a id s , and 23 p e r c e n t
15
from n o n p ro p erty t a x e s . In 1946 c i t i e s r e c e iv e d about
* |
14 See A. M. H illh o u s e and M u rie l M a g e lsse n , Where J
C i t i e s Get T h e ir Money (C h ica g o : M u n icip a l F in a n ce O f f ic e r s
A s s o c ia t io n , 1 9 4 5 ), C h ap ter 1 2 .
P e r c e n ta g e s c a lc u la t e d from d a ta in Compendium o f
C it y Government F in a n c e s in 1 9 5 0 . No. 2 , Bureau o f th e
C en su s, 1 9 5 0 , p . 5 .
468
70 p er c e n t o f a l l t h e i r rev en u e from p r o p e r ty t a x a t io n ,
15 p er c e n t from governm ent a id s , and 15 p e r c e n t from n on -
I
16
p r o p e r ty t a x e s .
numerous n o n p ro p erty t a x e s have b een u sed a s a d d i
t i o n a l s o u r c e s o f r e v e n u e , a lth o u g h t h e i r u se v a r i e s from |
s t a t e to s t a t e and from c i t y t o c i t y . Taken t o g e t h e r th e y
produce c o n s id e r a b le r e v e n u e s f o r l o c a l g o v ern m en ts, y e t
I
any one a lo n e may f a l l sh o r t o f p r o v id in g n eed ed a d d it io n a l J
r e v e n u e . j
The f o llo w in g n o n p ro p erty t a x e s a r e among th o s e now
i
[most f r e q u e n t ly u sed by b o th s t a t e and l o c a l g o v ern m en ts,
i
'a lth o u g h c e r t a in o f them are u sed o n ly on th e l o c a l l e v e l :
I
(1 ) m otor f u e l t a x e s , (2) s a l e s t a x e s , (3 ) incom e t a x e s ,
(4 ) c i g a r e t t e and to b a c c o t a x e s , (5 ) a d m is sio n s t a x e s ,
|
(6 ) liq u o r t a x e s , (7 ) m otor v e h ic le l i c e n s e t a x e s , (8) j
i
b u s in e s s t a x e s , (9) p u b lic u t i l i t y t a x e s , (10) garb a g e and j
r e f u s e s e r v ic e c h a r g e s , (1 1 ) sew er s e r v ic e c h a r g e s . Each
o f t h e s e are c o n s id e r e d in th e d is c u s s io n w h ich f o llo w s .
*
M O TO R FUEL TAXES
S M otor f u e l t a x e s have lo n g b een an im p o rta n t so u rce
|o f rev en u e and have b een l e v i e d by b o th F e d e r a l and s t a t e
1
\
16 P a u l S tu d e n s k i, ’’Post-W ar F in a n c in g o f M u n ici
p a l i t i e s and New S o u r ces o f R e v e n u e ,” P r o c e e d in g s . N a tio n a l
Tax A s s o c ia t io n , 1 9 4 6 , pp. 6 - 1 6 .
governm en ts f o r many y e a r s . I n 1939 th e F e d e r a l governm ent
c o l l e c t e d more th an 5 p e r c e n t o f i t s t o t a l rev en u e from
m otor f u e l t a x e s , b u t in 1950 t h e y produced l e s s th a n 2 p erj
c e n t o f th e t o t a l , a lth o u g h th e amount c o l l e c t e d a lm o st |
t r e b le d . ;
S ta t e M otor F u el T axes
E very one o f th e f o r t y - e i g h t s t a t e s l e v i e d a t a x on !
i
m otor f u e l in 1950 when i t a cco u n ted f o r a lm o st 20 p er c e n t |
1 7 -
o f t h e t o t a l s t a t e t a x c o l l e c t i o n s . The t a x r a te p e r ;
g a llo n o f g a s o li n e v a r ie d from a lo w o f 2 c e n t s in M is s o u r i
t o a h ig h o f 9 c e n t s in L o u is ia n a , w h ile th e a v er a g e f o r
a l l s t a t e s was 4 .6 5 c e n t s in 1 9 5 0 .
C o lle c t io n s from m otor f u e l t a x e s in 1939 amounted i
t o a p p r o x im a te ly 26 p e r c e n t o f th e t o t a l s t a t e t a x r e v e -
i
n u e s . By 1950 th e m otor f u e l t a x produced about 20 p e r !
i j
c e n t o f s t a t e t a x r e v e n u e s , h a v in g b een r e p la c e d by th e I
IS
s a l e s t a x a s th e le a d in g rev en u e s o u r c e . T o ta l s t a t e t a x
r e v e n u e s in c r e a s e d 157 p er c e n t from 1939 to 1 9 5 0 , w h ile
17
Ma.ior S ta te T a x e s. 1959 and 1 9 5 0 . o p . e i t . ,
p . 1 4 .
l ft
For th e f i s c a l y e a r en d in g June 3 0 , 1952 th e
C a lif o r n ia M otor v e h i c l e f u e l ta x produced $ 1 6 2 ,0 7 6 ,1 9 5
w h ich w as 15 p er c e n t o f th e s t a t e * s r e v e n u e . (C a lc u la te d
from f ig u r e s r e le a s e d to th e p r e s s by th e S ta te C o n t r o lle r
on November 2 6 , 1952 a s r e p o r te d in The Los A n g e les T im es.
November 2 7 , 1 9 5 2 .)
470 i
r e v e n u e s from m otor f u e l t a x e s in c r e a s e d 95 p e r c e n t in th e
19
same tim e p e r io d .
i
M u n icip a l M otor F u e l T axes
t
As o f June 3 0 , 1951 f o r t y e i t i e s o f 1 0 ,0 0 0 o r more
p o p u la tio n , lo c a t e d in se v en s t a t e s , im posed m otor f u e l
t a x e s , w ith an a v era g e t a x r a te o f # 0 .0 1 9 8 p er g a l l o n . 20
S t . L o u is , W ash in gton , D .C . and K ansas C it y , M is s o u r i are
i
th e o n ly c i t i e s o f more th an 2 5 0 ,0 0 0 p o p u la tio n le v y in g a j
m u n ic ip a l g a s o lin e t a x . In 1950 th e s e t h r e e c i t i e s r a is e d !
im ore than te n m i l l i o n d o lla r s from t h i s t a x . 21 The s t a t e s
I
in w h ich m u n ic ip a l g a s o li n e t a x e s a r e u sed a r e : Alabama,
F lo r id a , M is s o u r i, Mew M e x ico , M i s s i s s i p p i , N evada, and
Wyoming.
The m u n ic ip a l g a s o li n e t a x ta k e s th e form o f th e j
I s t a t e g a s o lin e t a x . I t i s le v i e d a s an e x c i s e on w h o le- i
i j
; s a l e r s and d i s t r i b u t o r s , a lth o u g h r e t a i l e r s m ust p ay th e
i
e x c i s e on g a s o li n e w h ich h a s n o t b een ta x e d .
As a rev en u e m easure i t p ro d u ces a b e t t e r y i e l d in
i s o l a t e d c i t i e s , o r th o s e on m ajor h ig h w a y s, o r w here th e y
M ajor S ta te T a x e s , 1959 and 1 9 5 0 . o p . c i t . ,
p . 1 5 .
1 go
" M un icipal N on p rop erty T a x e s ,” 1951 S up plem en t,
o p . c i t . , p . 1 0 .
U .S . Bureau o f th e C en su s, L arge- C it y F in a n c e s in
1 9 5 0 . No. 3 , O cto b er, 1 9 5 1 , T able V I I , p . 1 2 .
_ _ 4 7 1 1
have e x t e n s iv e b o u n d a r ie s w h ich te n d t o d e f e a t th e in c e n
t i v e t o go e lse w h e r e t o b u y. F u rth erm ore, i f m ost c i t i e s
in a g iv e n s t a t e have ad opted a g a s o lin e t a x en fo rcem en t
and y i e l d a re b o th s tr e n g th e n e d .
i
Y ery o f t e n m u n ic ip a l g a s o lin e t a x e s are d isc o u r a g e d !
s in c e t h e y a re th o u g h t to have d e tr im e n ta l e f f e c t s on l o c a l i
22
commerce in c o m p e titio n w ith su rro u n d in g a r e a s .
t
SALES TAXES j
i
i
A lth ou gh th e F e d e r a l governm ent h a s n o t u sed a s a l e s !
|
' t a x i t becom es more w id e ly u sed on th e s t a t e and l o c a l
l e v e l s , a c c o u n tin g f o r a la r g e amount o f r e v e n u e .
S ta te S a le s T axes
S a le s t a x e s have come in t o more prom inence s in c e th e j
! 1 9 3 0 * s and now make up an im p o rta n t p a r t o f th e t a x s t r u c - j
tu r e o f t h ir t y - o n e s t a t e s in 1 9 5 2 . In 1949 s a l e s t a x e s I
produced a p p r o x im a te ly 24 p er c e n t o f t o t a l s t a t e t a x r e v e
n ue; in 1950 ab ou t 21 p er c e n t o f t o t a l s t a t e t a x e o l l e c -
23
t i o n s came from s a l e s t a x e s . For th e f i s c a l y e a r en d in g
2 C. Emory G la n d er, ”New Types o f M u n icip a l Non
p r o p e r ty Tax R e v e n u e s,” N a tio n a l Tax J o u r n a l. I l l (J u n e,
1 9 5 0 ), 1 0 0 .
® U .S . Bureau o f th e C en su s, S ta te Government
F in a n c e s in 1 9 4 9 , and S ta t e Tax C o lle c t io n s in 1 9 5 0 .
472!
i
June 3 0 , 1952 th e C a lif o r n ia r e t a i l s a l e s t a x produced
$ 4 1 7 ,6 9 2 ,5 7 4 w h ich was 38 p er c e n t o f th e S t a t e * s r e v e -
P 4 . !
n u e . 6 i
!
i
The s a l e s ta x h a s s e v e r a l fo rm s: (1 ) i t may be a ta x j
on r e t a i l s a l e s w h ich u s u a lly in c lu d e s a d m is sio n s; (2 ) i t
may be a ta x on g e n e r a l s a l e s w h ich , in a d d it io n t o t a x in g
r e t a i l s a l e s , a p p lie s t o m a n u fa c tu r in g , w h o le s a lin g a c t i v i - !
i
t i e s , and e x t r a c t i v e i n d u s t r i e s ; (3) i t may be a g r o s s r e - I
c e i p t s t a x w h ich t a x e s th e above t r a n s a c t io n s and r e c e i p t s !
a s w e l l a s s a l e s o f p u b lic , p e r s o n a l, and p r o f e s s io n a l
s e r v i c e s ; o r (4 ) i t may be a g r o s s incom e t a x a p p ly in g to
a l l th e above t r a n s a c t io n s and r e c e i p t s , and t o r e c e i p t s
from n o n -b u s in e s s a c t i v i t i e s su ch a s w ages and s a l a r i e s , ;
i
i n t e r e s t , r e n t and d iv id e n d s . The r e t a i l s a l e s t a x i s u sed
more o f t e n , w ith g r o s s r e c e i p t s seco n d in p o p u la r it y . Each !
' o f t h e s e i s u s u a lly su p p lem en ted by a u se t a x . T ab le mnc
shows th e s t a t e s u s in g s a l e s t a x e s , t o g e t h e r w ith th e form
u se d and th e r a t i o a p p lie d .
M u n icip a l S a le s Taxes
I n 1945 o n ly se v e n c i t i e s had a s a l e s t a x ; New York,
i
|New O r le a n s, A t la n t ic C it y , San B ern a rd in o , S an ta B arb ara,
I
P4
* C a lc u la te d from f ig u r e s r e le a s e d to th e p r e s s by
t h e S ta t e C o n t r o lle r on November 2 6 , 1952 a s r e p o r te d in
The Los A n g e les T im es, November 2 7 , 1 9 5 2 .
TABLE XXX
STATS SALES TAX RATES
OCTOBER, 1952
473
l e v y R ate
S t a t e Form o f Tax Use Tax
m
Alabama R e t a i l S a le s
X
3
A rizo n a G en era l S a le s 2
A rkansas R e t a i l S a le s X 2
C a lif o r n ia R e t a i l S a le s X 3
C olorad o R e t a i l S a le s X 2
C o n n e c tic u t R e t a i l S a le s X 2
F lo r id a R e t a i l S a le s X 3
G eo rg ia R e t a il S a le s X 3
I l l i n o i s R e t a i l S a le s 2
I n d ia n a G ross Incom e 5 /8
Iowa R e t a i l S a le s X 2
K ansas R e t a i l S a le s X 2
L o u is ia n a R e t a i l S a le s X 2
M aine R e t a il S a le s X 2
M aryland R e t a i l S a le s X 2
M ich igan R e t a il S a le s X 3
M i s s i s s i p p i G ross R e c e ip ts X 2
M is s o u r i R e t a il S a le s 2
Hew M exico G ross R e c e ip ts X 2
N orth C a r o lin a G en era l S a le s X 3
N orth D akota R e t a i l S a le s X 2
Ohio R e t a i l S a le s X 3
Oklahoma R e t a il S a le s X 2
Rhode I s la n d R e t a il S a le s X 1
S outh C a r o lin a R e t a i l S a le s X 3
S ou th D akota R e t a il S a le s X 3
T en n essee R e t a i l S a le s X 2
U tah
R e t a i l S a le s X 2
W ashington R e t a i l S a le s X 3
n
G ross R e c e ip ts 1 /4
W est V ir g in ia R e t a i l S a le s 2
1 /2
tt
G ross R e c e ip ts
Wyoming R e t a i l S a le s X 2
S o u r c e : C a lif o r n ia T axp ayers A s s o c ia t io n ,
XXX (O c to b e r , 1 9 5 2 ) , 3 3 6 .
The Tax D ig e s t .
474
C h a r le s to n , and H u n tin g to n , W est V ir g in ia . S a le s t a x e s
were le v ie d a s o f J u ly 1 , 1 9 5 1 , by n in e ty -tw o c i t i e s h a v in g
a p o p u la tio n o f 1 0 ,0 0 0 o r m o r e .25 I n 1950 th e e s tim a te d
reven u e f o r th e s e c i t i e s from t h i s t a x w as # 1 9 1 ,1 6 0 ,0 0 0
w h ich w as # 1 1 .7 1 p er c a p i t a , and the r a t e s im posed v a r ie d '
26 !
from 1 /2 p e r c e n t t o 3 p er c e n t . The p e r c a p it a y i e l d o f
s a l e s t a x e s i s la r g e r in th e b ig g e r c i t i e s .
C a lif o r n ia m u n ic ip a l s a l e s t a x e s . — M u n icip a l s a l e s |
m u - i n -—i
t a x e s a re u sed w id e ly in C a lif o r n ia w here 141 c i t i e s in |
P7 '
1950 em ployed them . W ith th e g r e a t i n f l u x o f p e o p le in t o
C a lif o r n ia d u rin g th e war many c i t i e s w ere fa c e d w ith
s e r io u s f i n a n c i a l c r i s e s . The p r o p e r ty t a x , b eca u se o f
u n d e r -a s s e s s m e n t, r a te l i m i t a t i o n s , and ex e m p tio n s proved
in a d e q u a te t o m eet rev en u e n e e d s . C o n se q u e n tly c i t i e s w ere
fo r e e d to lo o k e ls e w h e r e f o r a d d it io n a l r e v e n u e s . |
I
San B ern a rd in o , in 1 9 4 5 , became th e f i r s t c i t y in !
25 " M un icipal N on p ro p erty T a x e s," 1951 S upplem ent,
o p . c i t . . p . 1 2 .
26
Idem.
Annual R eport o f F in a n c ia l T r a n s a c tio n s o f Muni
c i p a l i t i e s and C o u n tie s o f C a lif o r n ia (Sacram ento:
C a lif o r n ia S t a t e C o n t r o lle r , June 3 0 , 1 9 5 0 ), p p . 8 6 -9 1 ;
a l s o , Edward R oesk en , "R ecent S t a t e Tax T ren d s," T a x e s.
Commerce C le a r in g H ouse, XXX (J a n u a ry , 1 9 5 2 ), 9 .
(A m im eographed p a m p h let, " C ity S a le s and Use T axes in
C a lif o r n ia ," p rep a red by th e S ta te and L o c a l Government
Departm ent o f th e Los A n g e le s Chamber o f Commerce l i s t s
161 c i t i e s em p lo y in g t h e s e t a x e s on A ugust 1 5 , 1 9 5 2 .)
475
C a lif o r n ia to le v y a s a l e s t a x . In th e same y e a r , C o lto n ,
R ed la n d s, and S an ta B arbara a d o p ted s a l e s t a x e s . W ith in
one y ea r a f t e r L os A n g e les l e v i e d a s a l e s t a x in 1 9 4 6 , j
I
f i f t y - t h r e e c i t i e s had e n a c te d s a l e s t a x o r d in a n c e s . As
one so u rc e s a id , "In th e p a s t y e a r a d o p tio n o f m u n ic ip a l ;
i
s a l e s and u se t a x e s h a s b een sp r e a d in g l i k e w i l d f i r e among ;
i
28
C a lif o r n ia c i t i e s . " In D ecem ber, 1 9 4 9 , i t was e s tim a te d ,
i
t h a t th e a g g r e g a te p o p u la tio n o f th e t a x in g c i t i e s r e p r e - i
s e n t s o v e r 80 p er c e n t o f a l l p e o p le l i v i n g in C a lif o r n ia \
!
i
c i t i e s and a p p r o x im a te ly 60 p e r c e n t o f th e t o t a l s t a t e
| p o p u la t io n .29
In 1 9 4 9 , when s ix t y - n in e C a lif o r n ia c i t i e s l e v i e d a
s a l e s t a x , th e r e v e n u e s c o l l e c t e d th e refro m amounted to
ab ou t 10 p e r c e n t o f a l l l o c a l l y - c o l l e c t e d m u n ic ip a l r e v e -
30
n u e s . At th e p r e s e n t tim e m u n ic ip a l s a l e s t a x e s p rod uce
a h ig h e r p e r c e n ta g e o f l o e a l r e v e n u e s . For ex a m p le, S a n ta |
i
M oniea d e r iv e s 1 9 .1 p e r c e n t o f i t s t o t a l reven u e from 1
i , . 31
s a l e s and u se t a x e s .
28 n a t io n a l M u n ic ip a l R ev iew . XXXVT (May, 1945) ,
2 9 8 .
29
K itc h e n , o £ . c i t . . p . 6 .
30 £ b i d . , p . 8 .
Annual R eport f o r t h e F i s c a l Year 1 9 5 1 -1 9 5 2 f o r
th e C ity o f S a n ta ~ lIo n ic a . C a l i f o r n i a .A u g u s t , 1 9 5 2 , p . 2 3 .
3 o
E v a lu a tio n o f M u n icip a l S a le s T axes ,
M u n icip a l s a l e s and u se t a x e s produce s iz e a b le I
i
r e v e n u e , a re r e l a t i v e l y e a s y to a d m in is te r a t lo w c o s t , and
f o r t h e s e r e a so n s are n o t l i k e l y to be d is c o n t in u e d . C o st
i
o f a d m in is te r in g th e t a x i s lo w b eca u se i t i s c o l l e c t e d a t !
j
th e so u r c e by r e t a i l e r s . Many c i t i e s have h a n d led th e t a x
w ith l i t t l e a d d it io n a l ex p en se o th e r th an p r in t in g and t
p o s ta g e c h a r g e s . <
The s a l e s t a x h a s th e a d v a n ta g e, a l s o , o f r e a c h in g
v i s i t o r s and t r a n s i e n t s s in c e i t i s c o l l e c t e d a t th e sou rce.;
(
i
T h is fe a t u r e m akes i t e s p e c i a l l y a d a p ta b le f o r u se b y r e
s o r t c i t i e s , o r th o s e w ith la r g e c e n t r a l sh o p p in g d i s t r i c t s .
The r e t a i l l e v y a ls o h a s th e a d v a n ta g e o f d ir e c t n e s s .,
I t i s p a id a t th e f i n a l t r a n s a c t io n and i s o f t e n q uoted
s e p a r a t e ly . The ta x p a y e r i s th e r e f o r e d i r e c t l y aware o f !
th e t a x he i s p a y in g . L ev y in g t a x e s w h ich f o r c e ta x p a y e r j
a w a ren ess a re p r e f e r a b le to in d i r e c t t a x e s . In a d d it io n t o ■
d ir e c t n e s s s a l e s t a x e s a re p erh a p s l e s s p a in f u l to th e t a x
p a y er th a n a p r o p e r ty t a x , b e c a u se t h e form er a re p a id in
sm a ll am ounts a t th e tim e o f p u r c h a se .
There a re many argum ents op p osed to r e t a i l s a l e s
32 John F . Due, " R e ta il S a le s T a x a tio n i n T heory and
P r a c t ic e ," N a tio n a l Tax J o u r n a l. XXX (D ecem ber, 1 9 5 0 ) ,
3 1 4 -2 5 ; a l s o , G la n d er, o p . p i t . , p . 9 9 .
477!
t a x e s , some o f which, a re summ arized h e r e . A n ta g o n is ts o f I
i
th e t a x c la im t h a t i t i s more burdensom e on th e lo w e r i n - j
i
come gro u p s th a n on th o s e w ith h ig h e r in com es s in c e th e J
p erso n w ith sm a ll incom e m ust spend m ost o f h i s ineorne f o r j
i
ite m s t h a t may be s u b je c t t o t a x . R e g r e s s i v it y o f th e t a x j
i s redu ced c o n s id e r a b ly w ith th e exem p tion o f fo o d , r e n t ,
m e d ic in e s , and o th e r e s s e n t i a l co m m o d itie s. M ost o f th e
i
i
s a l e s t a x e s im posed by m u n i c i p a l i t i e s p erm it t h e s e exem p- \
t i o n s . Thus th e argum ent t h a t th e t a x i s r e g r e s s iv e i s
c o n s id e r a b ly w eakened. B ecau se th e t a x i s u n iv e r s a l ly i
i
c o l l e c t e d a t th e s o u r c e , i t d o es p la c e a burden on th e
I
v en d or s in c e he i s r e q u ir e d t o f i l e r e t u r n s , and m ust k eep
a d d it io n a l r e c o r d s . The t a x a ls o f r e q u e n t ly le a d s t o
m u l t i p l i c i t y o f t a x a t io n by d i f f e r e n t j u r i s d i c t i o n s . In
some o f th e s t a t e s , su ch a s C a lif o r n ia and M i s s i s s i p p i , th e i
s t a t e im p o ses a s a l e s t a x so t h a t th e m u n ic ip a l ta x i s an j
i i
a d d it iv e t a x . I f th e r a t e s o f b o th become h ig h , th e t o t a l
t a x may becom e burdensom e. D u p lic a tio n o f a d m in is tr a tio n
a ls o e x i s t s in th e s e i n s t a n c e s , w h ich im p o ses an added
burden on t h e c o l l e c t i n g v en d o r, p a r t i c u l a r l y i f th e r e a r e
v a r i a t io n s in th e t a x e s im p o sed , such a s th e co m m o d ities
i
t a x e d . A d m in is tr a tiv e and en fo rcem en t p rob lem s may be r e - !
i |
duced i f th e t a x i s s t a t e c o l l e c t e d and a d m in is te r e d . !
O pponents o f th e s a l e s t a x have a ls o argued th a t i t
478!
i
d r iv e s b u s in e s s o u t o f th e c i t y w here th e t a x i s im posed t o
th e suburban a r e a s where th e t a x i s n o t im p osed . T h is may
o c c u r a t t h e f r in g e a r e a s o f a c i t y , b u t i f th e c i t y i s a
i
la r g e sh o p p in g a r e a , i t i s q u e s tio n a b le w h eth er im p o s itio n
o f a s a l e s t a x w i l l s e r i o u s ly a l t e r th e b u y in g h a b it s o f
th e p e r s o n s upon whom th e t a x i s im p o sed .
INC Q M S TAXSS !
i
More s t a t e s l e v y and c o l l e c t incom e t a x e s now th an J
I i
in th e p a s t . P er c a p it a , th e incom e t a x i s th e le a d in g ,
rev en u e p rod u cer in many s t a t e s w h ich em ploy i t . A lth ou gh
i
fe w e r s t a t e s l e v y a s a l e s t a x th an an incom e t a x , th e
form er p ro d u ces a g r e a te r p e r c e n ta g e o f t o t a l t a x - c o l l e c t e d
r e v e n u e s . S a le s t a x e s , i n 1 9 5 0 , a cc o u n ted f o r 3 5 .5 1 p er
c e n t o f th e t o t a l ta x c o l l e c t i o n s in s t a t e s u s in g t h a t t a x , j
i
w h ile incom e t a x e s , b o th c o r p o r a te and p e r s o n a l, r a is e d j
2 7 .1 9 p e r c e n t o f th e t o t a l t a x c o l l e c t i o n s in th e s t a t e s
* 3 3
im p o sin g incom e t a x e s . The t h ir t y - t w o s t a t e s le v y in g
c o r p o r a tio n incom e t a x e s r a is e d 1 1 .9 p er c e n t o f t h e i r t a x
r e v e n u e s from t h i s t a x in 1 9 5 0 .
S ta te P e r s o n a l Incom e T axes
i P e r s o n a l incom e t a x e s w ere l e v ie d in t h ir t y - o n e
M a.ior S t a t e T a x e s . 1959 and 1 9 5 0 . o p . c i t . ,
p . 2 5 .
4791
s t a t e s in 1950 com pares t o t h i r t y - t h r e e s t a t e s in 1 9 3 9 .
A ll h u t fo u r o f th e s e s t a t e s im pose th e t a x on a g ra d u a ted
b a s is v a r y in g from 1 p e r c e n t on th e f i r s t # 1 ,0 0 0 t o 15 p e r
c e n t on a l l above # 1 5 ,0 0 0 . P e r s o n a l incom e t a x c o l l e c t i o n s
i
a cco u n ted f o r 1 5 .8 6 p e r c e n t o f th e t a x r e v e n u e s in th o s e !
s t a t e s u s in g t h i s t a x in 1 9 5 0 . For th e f i s c a l y e a r en d in g
June 5 0 , 1952 th e C a lif o r n ia p e r s o n a l incom e t a x produced
j
# 9 0 ,9 0 4 ,2 8 1 w h ich w as 8 . 4 p e r c e n t o f th e s t a t e f s r e v e - i
3 4
n u e.
i
M u n ic ip a l Incom e T axes
| P h ila d e lp h ia h a s had more e x p e r ie n c e w ith a m u n ie i-
i
p a l incom e t a x th a n any o th e r c i t y . 35 The P h ila d e lp h ia
incom e t a x o rd in a n c e w as b a sed on a s t a t u t e o f 1932 w h ich
a llo w e d m u n i c i p a l i t i e s t o t a x any s u b je c t o f s t a t e t a x a t io n
!w h ich th e s t a t e i t s e l f d o es n o t t a x . Use o f an incom e t a x |
t
h a s n o t sp rea d t o many c i t i e s , la r g e l y b eca u se l e g i s l a t i v e i
a u t h o r it y i s la c k in g . W isc o n sin s t a t u t e s p r o h ib it m u n ic i
p a l i t i e s from le v y in g an incom e t a x . As o f m id -1951 o n ly
tw e n ty -fo u r m u n i c i p a l i t i e s w ith 1 0 ,0 0 0 o r more p o p u la tio n ,
54r C a lc u la te d from f i g u r e s r e le a s e d t o t h e p r e s s by
th e S ta te C o n t r o lle r on November 2 6 , 1952 a s r e p o r te d in
The Los A n g e les T im es. November 2 7 , 1 952.
35 W ash in gton , D.C. h a s had a g ra d u a ted incom e ta x
in e f f e c t s in c e 1 9 3 9 .
480
in K entucky, Ohio and P e n n s y lv a n ia w ere u s in g t h i s tax.® ®
The P h ila d e lp h ia incom e t a x .®7 — The P h ila d e lp h ia
I
t a x i s v a r io u s ly d e s c r ib e d a s a " p a y r o ll t a x , ” a "wages
t a x , ” and an "earned incom e t a x , ” a lth o u g h none o f t h e s e
* ^
c l e a r l y d e s c r ib e i t s in c e i t a p p li e s t o th e n e t p r o f i t s o f !
u n in co r p o r a te d b u s in e s s e s and p r o f e s s i o n s . I t d i f f e r s from
th e F e d e r a l incom e t a x in th e f o llo w in g r e s p e c t s : (1 ) i t i s
n o t a gra d u a ted t a x , (S) th e r e a re no e x e m p tio n s , (3) i t
d o es n o t a p p ly to c o r p o r a tio n s , (4) i t a p p lie s o n ly t o
" earn ed ” incom e o f in d i v id u a ls , and (5 ) i t i s a ”n e t ” i n - !
come t a x o n ly f o r u n in c o r p o r a te d b u s in e s s e s o r p r o f e s s i o n s .
"Unearned” in com e, such a s i n t e r e s t , r e n t , o r d iv id e n d s ,
r e c e iv e d by in d iv id u a ls a re n o t ta x e d e x c e p t a s su ch incom e
i s in v o lv e d in c a l c u l a t i n g n e t incom e o f t a x a b le
1 ® ® " M un icipal N on p rop erty T a x e s ,” 1951 S up plem en t,
o p . c i t . , p . 1 5 .
37 d is c u s s io n o f th e P h ila d e lp h ia t a x , se e
H illh o u s e and Mage I s s e n , o je .. c i t . . p p . 1 0 2 -1 0 8 , and ”1951
Supplem ent” t h e r e t o , pp. T o -16; R eport o f t h e R evenue Laws
C om m ission o f th e S ta te o f I l l i n o i s . 1 9 4 9 , p p . 3 6 0 -6 2 ;
Edward W. G a rter and Edward B. S h i l s , " P h ila d e lp h ia ’ s
Earned Income T a x ,” Am erican P o l i t i c a l S c ie n c e R ev iew «
A p r il, 1940; Edward W . C a r te r and Edward B. S h i l s ,
:" P h ila d e lp h ia * s F i r s t Year o f Earned Income T a x ,” N a tio n a l
M u n icip a l R ev iew . A u g u st, 1941; R obert I . P a tt e r s o n ,
" P h ila d e lp h ia Tax in F i f t h Y ear," N a tio n a l M u n icip a l Re
v ie w , O cto b er, 1 9 4 4 ; A lfr e d G. B u e h le r , "The Incom e Tax a s
a L o ca l R even u e," B u l l e t i n o f th e R a tio n a l Tax A s s o c ia t i o n .
November, 194 7 ; M o rris B eck , "The P h ila d e lp h ia Income Tax:
A S o lu tio n to M u n ic ip a l F in a n c ia l D i f f i c u l t i e s , " B u lle t i n
o f th e N a tio n a l Tax A s s o c ia t io n . Decem ber, 1 9 4 7 .
4 8 1 1
i
u n in c o r p o r a te d b u s in e s s e s o r p r o f e s s i o n s . j
I
The t a x a p p lie s t o incom e o f P h ila d e lp h ia r e s i d e n t s ,j
w h eth er d e r iv e d from w it h in o r w ith o u t th e c i t y , and t o
incom e o f n o n - r e s id e n t s d e r iv e d from b u s in e s s o r s e r v ic e s
i
perform ed w it h in th e c i t y . E m ployers w it h in th e c i t y a r e !
r e q u ir e d t o w ith h o ld th e t a x and make q u a r te r ly r e p o r t s
and r e m it t a n c e s . Those ta x p a y e r s w hose t a x i s n o t w ith h e ld
make an n u al r e tu r n s and q u a r te r ly p aym en ts. The ta x r a t e i
I
im posed i s lk p e r c e n t . j
Y ie ld o f M u n icip a l Incom e T axes
Incom e t a x e s a re u sed in o n ly a sm a ll number o f
c i t i e s , y e t th e y produce a s i g n i f i c a n t p a r t o f t h e i r r e v e
n u e s . A cco rd in g to a r e c e n t s tu d y ,
Of t h e v a r io u s t a x e s im p o sed , th e incom e t a x y i e l d s
a g r e a te r r e tu r n p er c a p it a th an any o f th e o th e r n o n - j
p r o p e r ty t a x e s u sed by m u n i c i p a l i t i e s . I t w ould a ls o 1
appear t h a t th e y i e l d from t h i s so u r c e o f rev en u e f o r j
a g iv e n r a t e in c r e a s e s a s th e s i z e o f th e c i t y i n
c r e a s e s . That i s , a 1$ r a t e g iv e s a h ig h e r r a t e o f
r e tu r n i n a c i t y o f o v e r 5 0 0 ,0 0 0 p o p u la tio n th a n th e
same 1$ r a t e y i e l d s p er c a p it a f o r a c i t y o f 1 0 ,0 0 0
p o p u la tio n . T o ta l y i e l d f o r th e c i t i e s u s in g t h i s
so u r c e i s e s tim a te d t o be # 6 5 .6 3 8 ,5 0 0 f o r 1 9 5 0 . The
y i e l d p e r c a p it a ra n g e s from fS .E S t o # 1 9 .9 3 and th e
r a t e s im posed v a r y from 3 /1 0 $ to 3 $ . E x c lu d in g
¥¥ash in gton , B .C ., w hose t a x i s g ra d u a ted and i s s im ila r !
to th o s e im posed by s t a t e s , t h e maximum p a y r o ll-in c o m e j
t a x r a te i s th e 1 -1 3 $ r a t e l e v i e d by P h ila d e lp h ia .
For an e q u iv a le n t r a t e , t h e y i e l d p er c a p it a from an
incom e t a x i s g r e a te r th a n t h e p e r c a p it a y i e l d fvom a
s a l e s t a x . T h is i s e s p e c i a l l y tr u e in th e la r g e r
c i t i e s . From th e d a ta o b ta in e d from t h i s s tu d y , i t i s
e s tim a te d t h a t a 1$ incom e t a x w ould y i e l d # 1 7 .5 1 p er
482
c a p it a f o r c i t i e s o v e r 5 0 0 ,0 0 0 p o p u la t io n , w h ile a
s im ila r s a l e s t a x r a t e y i e l d s $ 1 1 .4 1 p e r c a p it a in
c i t i e s o f t h i s s i z e .
I
R eturns from p a y r o ll-in c o m e t a x e s p e r c a p it a y i e l d |
an amount eq u a l t o a b o u t 50$ to 70$ o f th e r e tu r n from |
p r o p e r ty t a x e s p er c a p it a o f th e c i t i e s u s in g t h i s !
reven u e s o u r c e . T hus, th o s e c i t i e s a d o p tin g t h i s t a x »
f in d t h a t i t i s one o f t h e i r m ajor s o u r c e s o f r e v e
nue . 38
A p p r a isa l o f M u n icip a l Incom e Ta-ges
P erhap s t h e p r in c ip a l argum ent i n fa v o r o f th e
m u n ic ip a l incom e t a x i s t h a t i t d o es b r in g in a la r g e
amount o f r e v e n u e . I t h a s no e q u a l among th e n o n p ro p erty
I
t a x e s a s a rev en u e r a i s e r .
I
J I t i s a ls o a good m e tr o p o lita n t a x w here i t i s made
t o a p p ly t o b o th r e s i d e n t s and n o n - r e s id e n t s . I t p r o v id e s
a m eans o f r e a c h in g t h a t p a r t o f th e p o p u la tio n in a m etro
p o lit a n a r e a w h ich e n jo y s b e n e f i t s from th e c e n t r a l c i t y
!y e t makes no d ir e e t f i n a n c i a l paym ent t o i t s su p p o r t.
I
Under an incom e t a x su ch a s P h ila d e lp h ia u s e s e v e r y wage
e a r n e r and e v e r y b u s in e s s s u b j e c t t o th e t a x m akes a d ir e c t
payment t o th e c i t y . The t a x i s n o t h id d en and th e r e i s a
c le a r c o n n e c tio n b etw een t h e p erform an ce o f govern m en tal
s e r v i c e s and th e c o s t o f m aking th e s e r v ic e s a v a il a b l e .
T hus, th e ta x p a y e r i s made b o th " ta x c o n s c io u s ” and " c o st
38 " M u n icip al N on p rop erty T a x e s," 1951 S upplem ent,
o p . c i t . . p . 1 5 .
483 |
c o n s c io u s ."
A noth er p o in t in fa v o r o f m u n ic ip a l incom e t a x e s i s j
low a d m in is t r a t iv e c o s t s . W ith h o ld in g th e t a x by em ploy- j
e r s , a lth o u g h a c o s t to them , c o u ld be c a r r ie d o u t in co n - |
i
I
ju n c tio n w ith f e d e r a l incom e and S o c ia l S e c u r ity t a x e s a t ;
l i t t l e a d d it io n a l e x p e n s e . O ther a d m in is t r a t iv e p rob lem s
may be q u it e d i f f i c u l t b u t c e r t a i n l y n o t any more so th a n j
I
th e p r o p e r ty t a x . I
F i n a ll y , th e m u n ic ip a l incom e ta x i s more e q u it a b le
( th a n a s a l e s t a x , p a r t i c u l a r l y i f b a sed on r e a s o n a b le !
| ex em p tio n s and e x c lu s io n s a s w e l l a s a g ra d u a ted r a t e .
S e v e r a l argu m en ts op p osed to m u n ic ip a l incom e t a x e s
have been r a i s e d . One o f th e m ajor o b j e c t io n s i s t h a t su ch
t a x e s a r e r e g r e s s i v e . T h is i s t r u e , i t i s c la im e d , s in c e
c i t i e s u s u a lly l e v y th e t a x a t a u n iform r a t e and a llo w j
1 l i t t l e o r no e x e m p tio n s. !
j !
A nother argum ent i s t h a t th e ta x a p p lie s o n ly to
earn ed in com e, a s in th e c a se o f P h ila d e lp h ia .
P e n n s y lv a n ia p r o h ib i t s p o l i t i c a l s u b d iv is io n s from t a x in g
in c o r p o r a te d b u s in e s s e s ; th u s any unearned incom e o f such
b u s in e s s e s i s n o t ta x e d by c i t i e s .
i
S in c e o th e r l e v e l s o f governm ent im pose incom e
t a x e s , o v e r la p p in g o f t a x a t io n can a r i s e . In P e n n s y lv a n ia
and O h io , c i t i e s may n o t t a x so u r c e s or ite m s ta x e d by th e
4 8 4 1
i
s t a t e . A d m in istr a tio n o f th e t a x may become more d i f f i c u l t
when a p p lie d t o n o n - r e s id e n t s s in c e su rro u n d in g c i t i e s may
i
u se s im ila r t a x m ea su re. Such p rob lem s are r e c o g n iz e d and j
d e a lt w it h , in p a r t , by a d o p tio n o f r e c ip r o c a l tr e a tm e n t |
I
o f n o n - r e s id e n ts among c i t i e s . j
C o n c lu sio n on M u n ic ip a l Incom e T axes !
M u n icip a l incom e t a x e s a r e u n d o u b ted ly r e g r e s s i v e , i
s in c e th e y are n o t g ra d u a ted and a llo w l i t t l e o r no exem p- j
t i o n s . T h e ir r e g r e s s i v i t y i s p a r t ly m itig a te d when view ed j
from th e p e r s p e c t iv e o f th e e n t ir e t a x sy ste m . S in e e
f e d e r a l incom e t a x e s a r e b a sed p r im a r ily on a b i l i t y - t o - p a y
i
th e r e g r e s s iv e n a tu re o f m u n ic ip a l incom e t a x e s i s c o u n t e r - :
b a la n c e d som ewhat.
The u se o f th e m u n ic ip a l incom e t a x i s l i k e l y t o
sp read b e ca u se i t i s a good reven u e p ro d u c er . j
j i
I
CIGARETTE AND TOBACCO TAXES
C ig a r e tt e and to b a c c o t a x e s have lo n g been a so u rc e
f o r t a x r e v e n u e s f o r b o th s t a t e and f e d e r a l g o v ern m en ts.
| For in s t a n c e , in 1939 th e f e d e r a l governm ent r e c e iv e d 1 3 .1 1
[
p e r c e n t o f i t s t a x rev en u e from t h i s so u r c e ; h ow ever, in
See J o sep h S . C la r k , J r . , " S ou rces o f A d d itio n a l
M u n icip a l R ev en u es," M u n icip a l F in a n c e . XXIV (A u g u st,
1 9 5 1 ), 6 B -6 8 .
485
1950 o n ly 3 .6 6 p e r c e n t came from th e same s o u r c e .4^
S ta te Tobacco Taxes
Of th e v a r io u s to b a c c o t a x e s u se d , th e c i g a r e t t e ta x
i s th e m ost im p o r ta n t. F o r ty -o n e s t a t e s , in 1 9 5 0 , l e v i e d aj
I
c i g a r e t t e ta x a s compared t o t w e n t y - f iv e s t a t e s i n 1 9 3 9 .
In 1950 s t a t e to b a c c o t a x e s a cco u n ted f o r 5 .2 4 p er c e n t o f
41 I
s t a t e r e v e n u e s . The r a t e on c i g a r e t t e s p e r pack age J
v a r i e s from $ .0 1 t o $ . 0 8 . 4 2 j
S ta te to b a c co ta x c o l l e c t i o n s . — Tobacco t a x e s p r o - i
1 - i
J v id e a m ajor so u rc e o f incom e w h ich a p p ea rs t o be in l i t t l e
d anger o f d r y in g u p . One stu d y by The Tax F ou n d ation
sh ow s;
S ta te to b a c c o t a x c o l l e c t i o n s in 1950 were more th a n 1
sev en tim e s a s g r e a t a s th e 1939 c o l l e c t i o n s . T h is was
th e l a r g e s t p r o p o r tio n a l in c r e a s e o f any o f th e sev en '
j m ajor t a x e s under c o n s id e r a t io n . E very s t a t e le v y in g j
> to b a c co t a x e s more th an d ou b led i t s c o l l e c t i o n s d u rin g .
! th e p e r io d b etw een 1939 and 1 950; and even A rk an sas, ;
w hich redu ced i t s t a x r a t e by 20 p er c e n t w it h in t h i s
p e r io d , c o l l e c t e d 229 p e r c e n t more rev en u e in 1950 j
th a n i t d id in 1 9 3 9 .
^ M ajor S ta te T a x e s. 1939 and 1 9 5 0 . o p . c i t . ,
p . 1 7 . -----------
i
j 43* F. M. P a r k in so n , ’’A m erica’ s H ig h e s t H idden T a x ,”
j T a x e s. Commerce C le a r in g H ouse, XXX (A u g u st, 1 9 5 2 ), 6 4 5 .
4^ For s t u d ie s o f s t a t e to b a c c o t a x e s , s e e Roy G.
B la k ey and G ladys C. B la k e y , ’’C ig a r e tt e and O ther Tobacco
T a x e s ,” T a x e s. S ep tem b er, 1942; B jg e s t o f Tobacco T a x e s.
F e d e r a tio n o f Tax A d m in is tr a to r s , 1 9 3 9 . 19 pp.
I n 1 9 3 9 , 168 131111011 c i g a r e t t e s w ere w ithdraw n f o r
co n su m p tio n . By 1 9 5 0 , t h i s f ig u r e had in c r e a s e d by
111 p er c e n t and 355 b i l l i o n c i g a r e t t e s w ere w ithdraw n
f o r co n su m p tio n . In t h e te n s t a t e s w h ich made no r a te
ch a n g es d u rin g t h i s p e r io d , c o l l e c t i o n s in c r e a s e d 180
p er c e n t . T hese co m p a ra tiv e f i g u r e s w ould in d ic a t e
t h a t much o f th e in c r e a s e in c o l l e c t i o n s was due to
g r e a t e r con su m p tion o f c i g a r e t t e s .
T obacco t a x c o l l e c t i o n s f o r th e s t a t e s t o t a l e d
#59 m i l l i o n in 1939 and #415 m i l l i o n in 1950 w h ile
F e d e r a l c o l l e c t i o n s in c r e a s e d from #580 m il l i o n in 1939
t o # 1 ,3 2 8 m i l l i o n in 1 9 5 0 .4 3
M u n icip a l C ig a r e tt e and Tobacco T axes
T h is so u rc e o f re v en u e h a s n o t b een to o w id e ly u sed
1 by c i t i e s . In m id -1 9 5 1 , s ix t y - s e v e n c i t i e s o f 1 0 ,0 0 0 o r
Jmore p o p u la tio n w ere u s in g some form o f to b a c co t a x , w ith
t
th e m ost common ty p e b e in g a le v y on c i g a r e t t e s . I n th e
same y ea r th e a v er a g e t a x r a te a p p lie d w as # .0 2 p e r p ackage
and t h i s produced an e s tim a te d # 1 9 ,0 0 0 ,0 0 0 .
In g e n e r a l, th e t a x i s c o l l e c t e d e i t h e r th ro u g h th e
t
i s a le o f stam ps w h ich a r e a tta c h e d t o th e packaged p rod u ct
i
o r th ro u g h m e te r in g d e v ic e s w h ich im p r in t th e package so a s
t o in d i c a t e payment o f th e t a x . O ften t h e w h o le s a le r o r
jo b b er i s made r e s p o n s ib le f o r a t ta c h in g th e stam ps o r
m e te r in g th e p a c k a g e s. A ls o , a d is c o u n t o f 10 p e r c e n t i s
p e r m itte d from th e v a lu e o f th e stam ps p u rch ased t o
^ M a jo r S t a t e T a x e s . 1959 and 1 9 5 0 . o p . e i t . .
4 8 7 1
i
com pensate f o r a d m in is t r a t iv e c o s t s to th e w h o le s a le r . j
A lth ou gh t h e d e t a i l s o f a d m in is tr a tio n v a r y among e i t i e s j
th e f o llo w in g summary o f to b a c c o t a x o r d in a n c e s i s r e p r e - !
s e n t a t i v e , a s shown in T ab le X^XI. !
!
I
t
E v a lu a tio n o f M u n icip a l C ig a r e t t e and Tobacco T axes
The m ost im p o rta n t form o f to b a c c o t a x i s th e
c i g a r e t t e t a x . Y ie ld s f o r t h i s t a x have b een h ig h and
!
s t a b le p ro d u cin g s iz e a b le re v en u e s f o r e i t i e s u s in g them . ;
R ev en u ew ise, th e t a x ad ds d i v e r s i t y to th e m u n ic ip a l t a x
s t r u c t u r e , y e t e v a s io n may be a s e r io u s p rob lem .
i
Opposed t o th e t a x i s th e s tr o n g argum ent t h a t th e
t a x i s h ig h ly r e g r e s s i v e , w e ig h in g h e a v ily on lo w e r incom e
g r o u p s. C o n s id e r in g th e number o f sm okers (e s tim a te d to be '
6 0 ,0 0 0 ,0 0 0 ) a s tr o n g c a s e e x i s t s a g a in s t c l a s s i f y i n g
I i
j c i g a r e t t e s a s a s e m i-lu x u r y g o o d s. j
t
I
I
ALCOHOLIC BEVERAGE TAXES
From th e e a r l i e s t tim e s a lc o h o li c b e v e r a g e s have
b een ta x e d on th e n a t io n a l and s t a t e l e v e l s . L iq u o r t a x e s
do n o t now a c c o u n t f o r a s la r g e a p e r c e n ta g e o f F e d e r a l ;
44 1
jrev e n u es a s in some p a s t y e a r s . In 1950 liq u o r t a x e s
Supplem ent to T w e lfth E d itio n o f Tax S ystem s
(New York: Commerce C le a r in g H ouse, I n c . , January 1 , 1 9 5 1 ),
t a b l e , p . 9 .
488
TABLE XXXI
MUNICIPAL CIGARETTE AND TOBACCO TAXES
(ORDINANCES SUMMARIZED)
O f f i c i a l name o f ta x :
B a ltim o r e , Md.
Grand J u n c tio n , C o lo .
S e d a lia , Mo.
Year o f O rdinance:
B a ltim o r e , Md.
Grand J u n c tio n ,
S e d a lia , Mo.
Tax a p p lic a b le to :
B a ltim o r e , Md.
Grand J u n c tio n , C o lo .
S e d a lia ,
B ase o f ta x :
B a ltim o r e , Md.
Grand J u n c tio n ,
S e d a lia , Mo.
P r e s e n t r a t e :
B a ltim o r e , Md.
Grand J u n c tio n , C olo,
S e d a lia , Mo.
C ig a r e tt e and to b a c c o p r o d u c ts
t a x .
C ig a r e tt e t a x .
O c c u p a tio n a l t a x on th e s e l l i n g
o f c i g a r e t t e s .
1948
1948
1948
S a le o f c i g a r e t t e s , c i g a r s ,
sm oking to b a c co and ch ew in g t o
b a c c o .
S a le o f c i g a r e t t e s . I l l e g a l f o r
v en d o r t o a d v e r t is e t a x w i l l be
assum ed b y v e n d o r .
R e t a il s a l e o f c i g a r e t t e s .
Package o f SO c i g a r e t t e s o r
f r a c t i o n ; c i g a r ; package o f smok
in g o r eh ew in g to b a c c o .
P ackage o f 20 c i g a r e t t e s .
1000 c i g a r e t t e s s o ld , o f f e r e d , de
li v e r e d o r d is p la y e d f o r s a l e .
C ig a r e t t e s : on ea e h pack o f
o r f r a c t i o n . C ig a r s : s e l l i n g
p r i c e , toT 7 -1 5 ^ ; z4 f o r 1 5 -
30^ ; Zi f o r th o s e s e l l i n g a t o v e r
3 0 c e a c h . Sm oking and ch ew in g
to b a c c o : ljf on ea c h 20^
Z4 on ea ch pack o f 2 0 . L ic e n s e
f e e s : r e t a i l e r , # 1 5 , w h o le s a le r ,
| 5 .
#1 p e r th o u sa n d c i g a r e t t e s .
L ic e n s e f e e f o r w h o le s a le r s , jo b
b e r s , r e t a i l d e a le r , m a n u fa ctu r
e r s
JB33L.2reS£a.
, 489
TABLE XXXI (c o n tin u e d )
MUNICIPAL CIGARETTE AN© TOBACCO TAXES
(ORDINANCES SUMMARISED)
-------------— ■iVl -iV ^ - i-'-:T!- - aiasg sa^ - 1 --"-- — —— -± - ' ................. .............
M ethod o f c o l l e c t i o n : ! r > j
B a ltim o r e , Md. C it y T r ea su re r r e s p o n s ib le f o r c o l
l e c t i o n . S a le s o f sta m p s, a d i s
co u n t o f 10% a llo w e d f o r q u a n t it ie s
o f #100 f a e e v a lu e . M e te r in g ma
c h in e s , d e ca lco m a n ia s and o th e r
d e v ic e s p e r m itte d i f approved by
T r e a su r e r .
Grand J u n c tio n , C o lo . C it y T r ea su rer c o l l e c t s t a x . S a le
o f stam ps t o be a f f i x e d to p a ck a g e .
A d is c o u n t o f 10% o f fa c e amount i s
a llo w e d . M e te rin g p e r m itte d . C it y
M anager t o p r o v id e r e g u l a t io n s .
S e d a lia , Mo. C ity C o lle c t o r r e ,sp o n sib le f o r ad
m in i s t r a t i o n . S a le o f stam ps o r
m e te r in g . A d is c o u n t o f 10% o f
f a c e v a lu e a llo w e d . W h o le sa le r and
jo b b e r r e q u ir e d t o make m u lt ip le
I n v o ic e s fo rw a rd in g one co p y t o
C it y C o lle c t o r . R ecord s o f s a l e s
m ust be k e p t f o r two y e a r s by
w h o le s a le r s and r e t a i l e r s .
S p e c ia l en fo rcem en t m ethod s:
B a ltim o r e , Md. T r e a su r e r empowered t o exam ine r e
c o r d s o f to b a c c o s e l l e r s , may s e iz e
p r o d u c ts on w h ich ta x h a s n o t b een |
p a id , s e l l a t a u c tio n r e t a i n in g ta x
p lu s p e n a lty o f 50% and c o s t s i n
c u r r e d , #5 t o #500 f i n e o r im
p riso n m en t n o t e x c e e d in g 6 m on th s.
Grand J u n c tio n , C o lo . S e iz u r e and s a le o f unstam ped
c i g a r e t t e s . From p r o c e e d s , r e t a i n
t a x , p l u s . 50% p e n a lt y and c o s t s
in c u r r e d . P in e o f #10 t o # 5 0 0 .
S e d a lia , Mo. S e iz u r e and s a le o f unstam ped
c i g a r e t t e s . From p r o c e e d s , r e t a i n
amount o f t a x p lu s 50% p e n a lt y and
c o s t s in c u r r e d . F in e o f $10 to
$100.
S o u rce: " M un icipal N on p rop erty T a x e s ,” 1951 Supplem ent t o
Where C i t i e s G et T h e ir Money (C h icago: M u n ic ip a l M n an ce
O f f i c e r s A s s o c ia t io n o f t h e U .S . and Canada, 1 9 5 1 ), p . 2 0 .
I 4 9 0 1
i
p rod uced 5 .7 p e r c e n t o f F e d e r a l t a x r e v e n u e s , com pared t o j
i
1 2 .9 p er c e n t in 1 9 3 6 . !
i
S ta t e A lc o h o lic B everage T axes
T axes on th e s a le o f a lc o h o li c b e v e r a g e s are l e v i e d , j
in some form , in e v e r y s t a t e . The s a le o f b e e r i s ta x e d j
in e v e r y s t a t e a t r a t e s r a n g in g from # .0 2 p er g a llo n t o :
$ .4 5 p er g a l l o n . Two s t a t e s , M is s is s ip p i and Oklahoma, a r e j
d ry and do n o t p erm it w in e and w h isk e y to be s o ld . S ev en - i
I
t e e n s t a t e s m a in ta in a s t a t e m onopoly on th e s a le o f w in e ;
i ' ,
[and w h isk e y and r e c e iv e re v en u e on t h e i r s a l e b y a p r ic e
!m arkup. I n th e rem ain in g s t a t e s th e a v er a g e t a x r a t e on
i
d i s t i l l e d s p i r i t s in 1950 w as $ 1 .5 3 p er g a llo n . T ab le
XSXL1 shows th e p e r c e n ta g e o f t a x c o l l e c t e d rev en u e d e r iv e d j
from a lc o h o li c b ev era g e t a x e s by s e le c t e d s t a t e s in 1 9 5 0 . ;
I
1 I
| !
M u n icip a l A lc o h o lic B everage T axes I
L o c a lly c o l l e c t e d r e v e n u e s from a lc o h o li c b e v e r a g e s
a re u s u a l ly o f th r e e t y p e s : (1 ) l i c e n s e s , (2) con su m p tion
o r e x c is e t a x e s , and (3) p r o f i t s from m u n ic ip a l r e t a i l
liq u o r s t o r e s . In a d d it io n , m u n i c i p a l i t i e s may r e c e iv e a
pro r a t a sh are o f liq u o r t a x e s c o l l e c t e d b y th e s t a t e . i
C ou n tryw id e, th e m ost f r e q u e n t ly u sed l o c a l a lc o
h o l i c b ev era g e t a x i s a l i c e n s e f e e . S e v e r a l s t a t e s ,
I l l i n o i s f o r exam p le, a llo w m u n i c i p a l i t i e s to l i c e n s e l o c a l
491
TABLE XXXIX
ALCOHOLIC BEVERAGE TAX COLLECTIONS EOR SELECTED STATES
(AS PERCENTAGE OE TOTAL TAX REVENUE)
1950
S ta te P e r c e n t
A rizo n a 4 .3 5
G eorgia 8 .9 8
K entucky 1 0 .2 1
L o u is ia n a 7 .0 7
M aryland 4 .6 1
M a s sa c h u s e tts 8 .0 8
M in n eso ta 2 .7 2
M is s o u r i 4 .2 4
New Ham pshire 6 .3 0
New J e r s e y 9 .9 5
New York 7 .6 7
S outh C a r o lin a 1 6 .0 3
S ou th D akota 7 .9 3
T exas 4 .7 6
V ir g in ia 4 .9 4
Wyoming 2 .7 3
A ll 48 s t a t e s 4 .5 *
S o u rce: Supplem ent t o T w e lfth E d itio n o f Tax S y stem s (New
York: Commerce C le a r in g H o u se, Jan u ary T 7 1 9 5 1 ) , p p . 1 4 -6 0 .
*Bureau o f th e C en su s, S t a t e Tax C o l l e c t i o n s i n 1952
(W ash in gton , D .C .: U .S . Government P r in t in g O f f i c e , 1 9 5 2 ),
p . 3 .
r e t a i l e r s and f i x th e f e e s t h e r e f o r . A lth ou gh a s t a t e
l i e e n s e i s r e q u ir e d , a l o e a l l i c e n s e m ust f i r s t he ob
t a in e d . Some s t a t e s a llo w l o c a l g overn m en ts to l i c e n s e
45
w h o le s a le r s a s w e l l a s m a n u fa c tu r e r s. O ther s t a t e s , f o r
exam ple C a lif o r n ia , c o n t r o l th e l i c e n s i n g , t a x in g , manu
f a c t u r e , d i s t r i b u t i o n , and s a le o f a lc o h o lic b e v e r a g e s
th rou gh a s t a t e a g en cy su ch a s a Board o f E q u a liz a t io n .
A nother group o f s t a t e s c o n t r o l th e s a le o f a lc o
h o lic b e v e r a g e s th ro u g h a s t a t e s t o r e sy ste m , o r by l i c e n s e
t o o p e r a to r s o f r e s t a u r a n t s , ta p room s, e t c . P e n n s y lv a n ia
i s an exam ple o f t h i s p ro ced u re w h ere,
The s t a t e c o l l e c t s a l i c e n s e from e a c h su ch l i c e n s e e
in th e sum o f # 6 0 0 . The s t a t e th e n r e b a te s t o th e
m u n ic ip a lit y a pro r a t a sh a re from th e liq u o r l i c e n s e s
c o l l e c t e d w it h in i t s l i m i t s . # 1 ,6 5 9 ,7 8 5 w as r e c e iv e d
by P h ila d e lp h ia from t h i s so u r c e in 1 9 5 0 . The number
o f liq u o r l i c e n s e s w it h in th e com m unity i s r e g u la te d b y
th e S ta t e L iq u o r C o n tr o l Board in th e i n t e r e s t s o f
m in im iz in g th e undue u se o f a lc o h o li c b e v e r a g e s and
e n a b lin g l i c e n s e e s t o o b ta in enough p a tr o n a g e to run
r e l a t i v e l y h i g h - c l a s s e s t a b lis h m e n t s . L iq u or l i c e n s e s
a re a c c o r d in g ly much so u g h t a f t e r , and th e r e i s no
s a l e s r e s is t a n c e t o c o l l e c t i o n o f t h i s t a x . 46
Four s t a t e s , th e D a k o ta s, M in n e so ta , and W isco n sin
a u th o r iz e th e o p e r a tio n o f m u n ic ip a l liq u o r s t o r e s w hich
47
have proved t o be a good so u rc e o f l o c a l r e v e n u e .
45 H illh o u s e and M a g e lsse n , o£ . c i t . . p . 7 1 .
46 C la r k , J r . , o £ . c i t . . p . 6 5 .
47 " M un icipal N on p rop erty T a x es," 1951 S up plem en t,
o p . c i t . , p . 3 4 . ________ _____________
4 9 3 1
As o f m id -1951 o n ly t h i r t y - f i v e e i t i e s o v e r 1 0 ,0 0 0
p o p u la tio n w ere u s in g s p e c ia l ta x e s on a lc o h o li c b e v e r a g e s ,
in a d d it io n t o r e q u ir e d l i c e n s e s . The r a t e s l e v i e d by
A tla n t a , G e o rg ia , a re i l l u s t r a t i v e o f t h e s e s p e c i a l c i t y ^
I
t a x e s :
a . 14ji p er c a s e o f 24 b o t t l e s o r ca n s o f b o t t le d o r
canned m a lt b e v e r a g e s in 7 o z . c o n t a in e r s ;
b . 24# p e r c a s e on b o t t le d o r canned m a lt b e v e r a g e s in |
12 o z . c o n t a in e r s ; ;
c . 32ft p e r c a s e on b o t t le d o r eanned m a lt b e v e r a g e s in J
32 o z . c o n t a in e r s ; I
d . # 1 .5 0 p er b a r r e l, k e g , drum o r o th e r c o n ta in e r o f
15 1 /2 g a llo n c a p a c it y o f m a lt b e v e r a g e s s o ld on
d r a u g h t;
e . 75pt p e r b a r r e l, k e g , drum o r o th e r c o n ta in e r o f
7 .7 5 g a llo n c a p a c ity o f m a lt b e v e r a g e s s o ld on
d r a u g h t;
f . 96ft p e r e a s e on s p i r i t o u s liq u o r s ; j
g . 48ft p e r c a s e on w in e .48 j
i
i
I
ADMISSIONS TAXES
One o f th e m ajor e x c i s e s o f th e f e d e r a l governm ent
h a s b een th e ta x on a d m is s io n s . An a d m is sio n s t a x was
I
j f i r s t e n a c te d on th e f e d e r a l l e v e l i n 1917 and h a s b een r e -
49
t a in e d in s u b s t a n t i a l l y th e same form . The t a x h a s come
48 Idem .
49 George E . L e n t, "The A d m issio n s T a x ,” N a tio n a l
Tax J o u r n a l. I (M arch, 1 9 4 8 ), 3 1 .
494|
i
in t o more fr e q u e n t u se on s t a t e and l o e a l l e v e l s in r e c e n t
t im e s .
j
i
S ta te A d m issio n s T axes
C o n n e c tic u t was th e f i r s t s t a t e to ta x g e n e r a l a d - j
50 •
m is s io n s w ith i t s le v y in 1 9 2 1 . South C a r o lin a i n t r o - i
duced a ta x on a d m is sio n s in 1923 and M i s s is s ip p i in 1 9 3 0 .
At th e p r e s e n t tim e t w e n t y - e ig h t s t a t e s l e v y t a x e s on ad - !
51 1
m is s io n s o f v a r io u s k in d s . The ta x may be in t h e form j
o f a l i c e n s e ta x o r a d i r e c t a d m is sio n s t a x . As th e d a ta
! on s t a t e f in a n c e s a r e p r e s e n te d i t i s n o t p o s s ib le to g iv e
■ co m p lete f ig u r e s on r e v e n u e s c o l l e c t e d from a d m is sio n s
t a x e s i n s t a t e s , b eca u se t h e s e t a x e s a re n o t se g r e g a te d
from o th e r t a x e s on am usem ents, n o r from g e n e r a l s a l e s
t a x e s w here t h e y form a p a r t o f th e s e l e v i e s . A ll t o g e t h e r ,
I
t
g e n e r a l and s p e c i a l a d m is s io n s t a x e s y ie ld e d # 1 1 .2 m i l l i o n s ;
! in 1947 and # 1 1 .7 5 m i l l i o n s in 1 9 5 0 . 1
I
L o c a l A d m issio n s T axes
P h ila d e lp h ia w as one o f th e f i r s t c i t i e s to u se a
50 I b i d . . p . 4 2 .
C a rl H. C h a t t e r s , "The Use o f th e A d m issio n s Tax
by M u n icip a l G overnm ents," The M u n ic ip a lit y . XLV (M arch,
1 9 5 0 ), 5 2 .
D er iv ed from U .S . Bureau o f th e C en su s, S o u rces
o f S ta te Tax Bevenue i n 1 9 5 0 . S ta t e F in a n c e s , No. 5 ,
Novem ber, 1 9 5 0 , p . 2 9 .
495m
l o c a l a d m is s io n s t a x when she l e v i e d a one c e n t t a x on ea c h
53
25 c e n t s in 1 9 3 7 . By 1947 c i t i e s in many s t a t e s w ere
le v y in g a d m issio n s t a x e s a t r a t e s v a r y in g from 1 to 10 p e r
c e n t . I n 1950 one w r it e r e s tim a te d th e r e are a s many a s
54
650 c i t i e s u s in g a d m issio n s t a x e s . L o c a l a d m is sio n s
t a x e s a r e p r e v a le n t in C a lif o r n ia , O h io, New Y ork,
P e n n sy lv a n ia and W ash in gton . j
Of th e m ajor n o n p ro p erty t a x e s l e v i e d by c i t i e s , th e ;
a d m is sio n s t a x i s one o f th e e a s i e s t t o a d m in is te r . A l- !
th ou gh d e t a i l s v a r y from s t a t e to s t a t e , and among c i t i e s !
i '
w it h in a s t a t e , t h e l o c a l o rd in a n c e u s u a lly p r o v id e s d e-
' g g
t a i l s r e l a t i v e t o a d m in is t r a t iv e p r o c e d u r e s. M ost o f t e n
o r d in a n c e s r e q u ir e th e o p e r a to r o f th e p la c e s s u b je c t to
th e t a x t o c o l l e c t i t , make r e p o r ts , k eep r e c o r d s , and
/ :
su bm it t h e s e t o g e t h e r w ith th e t a x e s c o l l e c t e d to th e !
I
p ro p er m u n ic ip a l o f f i c e r . S p e c ia l c ir c u m s ta n c e s , su ch a s j
i
tem p orary amusement— c i r c u s e s , c a r n i v a l s , e t c . — a r e h a n d led ;
in a d i f f e r e n t m anner th a n p erm a n en tly e s t a b lis h e d p la c e s .
O p era to rs a r e f r e q u e n t ly r e q u ir e d t o g e t a p erm it b e fo r e
L e n t, o cit.. p . 4 5 .
54 C h a t t e r s , oj>. c i t . , p . 5 2 .
]? o r sum m aries o f o r d in a n c e s se e H illh o u s e and
M a g e lsse n , o jd . c i t . : and " M u n icip al N on p rop erty T a x es,"
1951 S u p p lem en t, oj>. c i t . , p . 2 2 .
496,
i
th e y may do b u s in e s s . In a d d it io n f i e l d a u d it s may be u sed j
t o f a c i l i t a t e a d m in is tr a tio n o f t h e t a x , e s p e c i a l l y w ith I
i
r e s p e c t to tem p orary e s ta b lis h m e n ts . j
E v a lu a tio n o f L o c a l A d m issio n s T axes j
i
The a d m issio n t a x h a s b een d e s c r ib e d a s w e l l ad apted
f o r l o c a l u s e . Among th e p o in t s advanced t o fa v o r i t s u se
a r e th e f o llo w in g : (1 ) i t i s a t a x on s e m i- lu x u r ie s w h ich
f a c t r e d u c e s th e s ig n i f i c a n c e o f r e g r e s s i v i t y , f o r w hich j
many e x c is e t a x e s a re o p p o sed ; (S) th e t a x i s on a l o c a l j
i
|s e r v i c e and th u s a v o id s p rob lem s o f a j u r i s d i c t i o n a l
I
jn a tu r e ; (3) i t p ro d u ces a r e l a t i v e l y s t a b le y i e l d a lth o u g h
i
i t shows some s e n s i t i v i t y t o ch a n g es in th e b u s in e s s c y c l e .
The c o n tin u in g sp read o f t e l e v i s i o n h a s made in r o a d s on
ja tte n d a n c e a t m o v ies and o th e r e n te r ta in m e n ts ; (4 ) th e |
t a x r e a c h e s t r a n s ie n t s w it h in a c i t y , a s w e ll a s f r in g e i
i
d w e lle r s who u se c i t y amusement f a c i l i t i e s ; (5 ) c o s t o f '
a d m in is tr a tio n i s lo w , due in p a r t t o u se o f r e c o r d s r e
q u ir e d f o r f e d e r a l t a x p u r p o se s; and (6) en fo rcem en t i s
r e l a t i v e l y e a s y . !
i
Few argum ents have b een r a is e d a g a in s t th e l o c a l u se !
j j
j o f a d m is sio n s t a x . One argum ent i s t h a t i t i s an o v e r la p
p in g t a x s in c e th e f e d e r a l govern m en t, and some s t a t e s , in
56 "M un icipal N on p rop erty T a x es," 1951 S up plem en t,
o p . c i t . , p . 2 1 .
497 I
w h ich m u n ic i p a li t i e s may le v y a d m issio n t a x e s , a ls o im pose j
I
t h i s t a x . A noth er argum ent a g a in s t th e t a x i s t h a t i t may j
d r iv e some b u s in e s s o u t o f a c i t y . For ex a m p le, d r i v e - in j
t h e a t e r s may be b u i l t o u t s id e c i t y l i m i t s t o a v o id th e t a x . j
s
!
M O TO R TAXES \
The f e d e r a l governm ent d o es n o t im pose a t a x on
57
m otor v e h ic le r e g i s t r a t i o n , how ever i t d o es im pose a t a x
!
o f 7 p e r c e n t on th e m a n u fa c tu r e r s s e l l i n g p r i c e . T axes ;
j
on m otor v e h i c l e s and o p e r a to r s * l i c e n s e t a x e s are u sed in j
a l l s t a t e s and p roduce an im p o rta n t p a r t o f t a x r e v e n u e s .
t
I n a d d it io n , an e v e r la r g e r number o f c i t i e s im pose a m otor
v e h ic le t a x .
S ta te M otor Y e h ie le T axes ;
| I
l T axes on m otor v e h i c l e s w ere im posed by a l l s t a t e s
t J
J
i n 1 9 5 1 . Some s t a t e s l e v y a ta x b ased on h o rsep o w er o r
w e ig h t , some l e v y a f l a t f e e , w h ile o t h e r s le v y a com bina
t i o n o f t h e s e .
C o lle c t io n s from s t a t e m otor v e h i c l e and o p e r a to r s*
l i c e n s e t a x e s have in c r e a s e d o v e r th e y e a r s , y e t t h e s e
r e v e n u e s c o n s t it u t e d a s m a lle r p e r c e n ta g e o f s t a t e t a x
57
D uring W orld War I I th e f e d e r a l governm ent l e v i e d
a $ 5 .0 0 u se t a x on a u to m o b ile s .
493
r e v e n u e s in 1950 th an in 1 9 3 9 . A stu d y b y The Tax Founda
t io n sh ow s,
i
C o lle c t io n s from s t a t e m otor v e h i c l e and o p e ra to r s*
l i c e n s e t a x e s in c r e a s e d from #358 m i l l i o n in 1939 to
#756 m i l l i o n in 1 9 5 0 , an in c r e a s e o f 111 p e r c e n t .
D e s p ite t h i s in c r e a s e d y i e l d , c o l l e c t i o n s from t h i s
s o u r c e , w h ich had a cco u n ted f o r a p p r o x im a te ly 1 1 .5 p er !
c e n t o f t o t a l ta x c o l l e c t i o n s in 1 9 3 9 , y ie ld e d o n ly
n in e - a n d - o n e - h a lf p er c e n t o f th e t o t a l s t a t e c o l - j
l e c t i o n s in 1 9 5 0 . The #79 m i l l i o n c o l l e c t e d by Hew
York w as th e h ig h e s t sum c o l l e c t e d by any s t a t e in 1950
from m otor v e h ic le and o p e r a to r s* l i c e n s e t a x e s , w h ile j
Id a h o ’ s #1 m i l l i o n w as th e s m a lle s t amount c o lle c te d .® ® !
L o c a l M otor Y e h ic le L ic e n se T axes
' A m otor v e h i c le t a x was in u se in 117 c i t i e s o f
59
1 0 ,0 0 0 p o p u la tio n in J u n e, 1 9 5 1 . E s s e n t i a l l y th e same
argum ents are made to su p p o rt th e l o c a l u se o f t h i s t a x a s
a re made t o j u s t i f y i t s u se by th e s t a t e govern m en t. F i r s t ,
th e ta x i s an a id t o e f f e c t n e c e s s a r y c o n t r o l o f v e h i c l e s . j
i
I S eco n d , th o s e b e n e f it i n g from l o c a l s e r v i c e s o f governm ent J
i j
are h e lp in g pay f o r th e s e r v i c e s . T h ir d , th e ta x p r o v id e s
!
a s i g n i f i c a n t amount o f r e v e n u e . F o u rth , th e a u to m o b ile i s
r e s p o n s ib le f o r an im p o rta n t p a r t o f l o c a l governm ent e x
p e n s e . In a w ord, m otor v e h ic le t a x e s do have m e r it when
jud ged in term s o f th e b e n e f it c o n c e p t. F i f t h , th e t a x i s
58 M ajor S ta te T a x e s. 1959 and 1 9 5 0 . o p . e i t . .
p . S I .
59 " M un icipal N on p rop erty T a x e s," 1951 S up plem en t,
o p . c i t . , p . 2 4 .
4991
f a i r l y e a s y to a d m in is te r , and e v a s io n can be m in im ized j
th rou gh c o o r d in a tio n w ith s t a t e a d m in is tr a tio n o f su ch a |
i
t a x . j
I l l i n o i s m u n ic ip a l m otor v e h ic le t a x e s . — T h is t a x !
i
60 '
h a s b een p a r t i c u l a r l y p o p u la r in I l l i n o i s . M u n ic ip a l!- I
i
t i e s may l i c e n s e v e h i c le s o p e r a tin g w it h in t h e i r l i m i t s i f
th e y a r e owned by r e s i d e n t s . The r a t e s l e v i e d , d eterm in ed
I
b y s t a t u t e , v a ry a c c o r d in g to h orsep ow er o f th e v e h ic le and i
I
th e p o p u la tio n o f th e c i t y . In c i t i e s o f 8 0 0 ,0 0 0 o r more 1
th e maximum r a t e i s #10 p e r y e a r f o r v e h i c l e s o f l e s s th an
:35 h o rsep o w er, o r #S0 f o r th o s e o f g r e a t e r h orsep ow er;
jw h ile in s m a lle r c i t i e s th e maximum r a t e s a re #5 and .#10
r e s p e c t i v e l y . In c i t i e s o f 3 ,0 0 0 o r more n o t more th a n 15
p e r c e n t o f th e g r o s s r e v e n u e s from t h i s t a x may be u sed t o
{pay s a l a r i e s o f t r a f f i c p o lic e m e n . I
! j
iG o n o lu sio n o f M u n icip a l M otor V e h ic le T axes I
From th e p o in t s - o f - v ie w o f a b i l i t y - t o - p a y , b e n e f i t s
r e c e iv e d , e n f o r c e a b i l i t y , and y i e l d , a m u n ic ip a l m otor
v e h ie le t a x may be a s e a s i l y j u s t i f i e d a s many o th e r ty p e s
o f l o e a l t a x e s . UShere a d m in iste r e d in c o n ju n c tio n w ith
s t a t e m otor v e h i c l e t a x e s e n f o r c e a b i l i t y a s w e l l a s economy
in c o l l e c t i o n w ould be en h an ced .
S n id e r , o p . c i t . , p p . 3 6 7 -6 9 .
GROSS RECEIPTS BUSINESS TAXES
500!
The g r o s s r e c e i p t s t a x i s l e v i e d o f t e n a s a ”b u s i- !
!
n e s s p r i v i l e g e t a x ” o r a s a t a x in l i e u o f a t a x on b u s i- |
I
n e s s p r o p e r ty . O r d in a r ily th e ta x i s l e v i e d on th e g r o s s
I
r e c e i p t s o f a b u s in e s s , on b o th w h o le s a le and r e t a i l s a l e s ,
a s w e l l a s p e r s o n a l and p r o f e s s i o n a l s e r v i c e s , w ith o u t
d e d u c tio n s f o r any c o s t s in c u r r e d in p ro d u cin g th e in com e. |
I
G ross r e c e i p t s t a x e s a re u sed m o s tly by l o c a l govern m en ts j
i
and a r e im posed f o r r e g u la t o r y a s w e l l a s rev en u e p u r p o s e s .i
i ;
j S ta te G ross R e c e ip ts T axes
I n 1948 g r o s s r e c e i p t s t a x e s w ere l e v i e d in th r e e
61
s t a t e s — A riz o n a , I n d ia n a , and W est V ir g in ia . As was tr u e
o f o th e r p r in c ip a l s t a t e t a x c o l l e c t i o n s , th e amount c o l
l e c t e d from g e n e r a l s a l e s and g r o s s r e c e i p t s t a x e s i n -
1 c r e a s e d d u rin g th e l a s t d e c a d e . T h is f a c t i s i l l u s t r a t e d
- I
by F ig u re 5 . From 1942 t o 1951 th e in c r e a s e in t h e s e t a x e s
am ounted to 2 1 6 .3 p e r c e n t . In 1951 t h e y p roduced 2 2 .4 p er
c e n t o f s t a t e t a x c o l l e c t i o n s .
G ross r e c e i p t s t a x e s may be l e v i e d a t lo w f l a t p e r
c e n ta g e r a t e s on a l l b u s in e s s e s s u b je c t to th e t a x w ith o u t j
any form o f c l a s s i f i c a t i o n o r d i f f e r e n t i a t i o n in r a t e s , o r J
C o m p iled fro m Tax S y stem s ( t w e l f t h e d i t i o n ; New
Y ork: Commerce C l e a r in g H o u se, i'n c T , 1950) , p p . 5 1 5 -4 4 .
501
1940 41 42 43 44 45 46 47 48 49 50 51
FIGURE 5
STATE TA X COLLECTIONS: 1940-1951
(BILLIONS O F D O LLA RS)
Source: Bureau of th e Census, S ta te Tax c o lle c tio n s In 1951, S tate
Finances, No, 4 (Washington, D .C.: U.S. Government P rin tin g O ffice,
August, 1951), p, 1,
Legend: a . General S ales and Gross R eceipts
b. Motor Fuel S ales
c. In d iv id u al and Corporate Income
d . Motor V ehicle and Operator Licenses
e . Taxes Other than those sp ecified
5 0 2 1
i
th e s t a t e s may c l a s s i f y b u s in e s s e s and a p p ly d i f f e r e n t |
i
r a t e s . The y i e l d from t h i s t a x i s s i g n i f i c a n t . Two j
s t a t e s , In d ia n a and W est V ir g i n ia , r e c e iv e d o n e - th ir d o f !
6 P *
t h e i r re v en u e from t h i s so u rce in 1 9 5 0 .
L o c a l G ross R e c e ip ts L ic e n s e T axes
M u n ic ip a li t ie s have a u t h o r it y t o r e q u ir e l i c e n s e s
from b u s in e s s e s lo c a te d w it h in t h e i r j u r i s d i c t i o n . T r a d i- i
!
t i o n a l l y t h e s e w ere im posed under p o lic e o r r e g u la t o r y j
i
a u t h o r it y , and a t f l a t r a t e o r s im ila r b a s is r e l a t e d t o th e 1
c o s t s o f r e g u la t io n . In r e c e n t y e a r s th e r e h a s b een a
tr e n d tow ard th e u se o f such t a x e s f o r rev en u e a s w e l l a s
f o r r e g u la to r y p u r p o se s. Thus in 1951 c l o s e t o 200 c i t i e s
o f 1 0 ,0 0 0 o r more p o p u la tio n w ere u s in g g r o s s r e c e i p t s a s a
63
m easure f o r some o f th e l i c e n s e f e e s im p osed .
From th e s ta n d p o in t o f y i e l d t h i s ta x r a t e s h ig h , i
b e in g su rp a sse d o n ly by r e t a i l s a l e s t a x e s and incom e ta x e s .|
The a v era g e p er c a p it a y i e l d f o r c i t i e s u s in g t h i s t a x in
1951 w as $ 1 4 .6 8 .
L o c a l a d m in is tr a tio n o f a g r o s s r e c e i p t s b u s in e s s
i
I
■ l i c e n s e t a x may be more d i f f i c u l t th a n f l a t r a t e l i c e n s e s ,
I
I
62 Bureau o f th e C en su s, Compendium o f S ta te Govern
m ent F in a n c e s in 1 9 5 0 . p . 1 1 .
63 " M u n icip al N on p rop erty T a x es," 1951 S up plem en t,
o p . c i t . , p . 2 6 .
" “ 5031
l i c e n s e s b a sed on p h y s ic a l o u tp u t, o r l i c e n s e s b a sed on
p h y s ic a l volum e su ch a s s e a t in g c a p a c it y , o r number o f
u n it s u se d . T h is may l i k e l y be tr u e s in c e g r o s s r e c e i p t s
may be more d i f f i c u l t t o v e r i f y th a n o th e r f a c t o r s . How
e v e r , t h e rev en u e t o be o b ta in e d may more th a n o f f s e t th e ■
c o s t s o f an a u d it s t a f f .
G ross r e c e i p t s l i c e n s e s , a s i s tr u e o f o t h e r t a x e s
and l i c e n s e s , p o se a problem in e q u it y . H a tes sh o u ld be a sj
i
e q u it a b le a s p o s s ib l e a s betw een d i f f e r e n t b u s in e s s e s w ith j
v a r y in g m ark-ups and tu r n o v e r , and sh o u ld n o t c r e a t e a
c o m p e titiv e d isa d v a n ta g e a s b etw een b u s in e s s e s ta x e d and
th o s e n o t ta x e d . Thus a g r o s s r e c e i p t s l i c e n s e t a x m ust be
c a r e f u l l y drawn up and a d m in iste r e d to be e f f e c t i v e and
64
e q u it a b le .
I
i PUBLIC UTILITY TAXES !
; ;
P u b lic u t i l i t y t a x e s b a sed upon g r o s s r e c e i p t s are
among th e m ost common ty p e o f n o n p ro p er ty t a x e s u sed b y
s t a t e and l o c a l g overn m en ts; h ow ever, o th e r form s o f t a x e s
a re f r e q u e n t ly u se d .
64
James W. M a rtin and Mary E v in s , ’’D e v is in g a Hate
S tr u c tu r e f o r th e C it y B u s in e s s T a x ,” N a tio n a l Tax J o u r n a l.
I l l (M arch, 1 9 5 0 ), 6 4 -7 4 .
504
S ta te H on p rop erty T axes on P u b lic U t i l i t i e s
The m ost common m ethod o f t a x in g p u b lic u t i l i t i e s by
n o n p ro p erty t a x e s i s t o le v y a ta x on th e g r o s s r e c e ip t s o f i
th e u t i l i t y in l i e u o f ad v alorem p r o p e r ty t a x e s . Commonly'
i t i s l e v i e d a t a f l a t r a te upon th e g r o s s e a r n in g s o f th e '
company.
In a d d it io n to a g r o s s r e c e i p t s t a x in l i e u o f prop
e r t y t a x e s , s t a t e s f r e q u e n t ly im pose incom e t a x e s w h ich a re
a p p lic a b le t o p u b lic u t i l i t i e s , o r s t a t e s im pose f r a n c h is e , j
j s a l e s , l i c e n s e , p r o d u c tio n , o r o t h e r fo im s o f t a x e s on i
! p u b lic u t i l i t i e s . In 1 9 5 1 , t w e n t y - s ix s t a t e s l e v i e d a
55
l i c e n s e t a x on p u b lic u t i l i t i e s .
L o c a l P u b lic U t i l i t y T axes
One o f th e m ost common m u n ic ip a l n o n p ro p er ty t a x e s
i
i s a l i c e n s e ta x b a sed on g r o s s r e c e i p t s o f p u b lic u t i l i -
1 t i e s . T h is t a x i s in t h e n a tu re o f a f r a n c h is e f o r th e
_
p r i v i l e g e o f e n g a g in g in b u s in e s s and u s in g p u b lic s t r e e t s
and a l l e y s . As many a s 275 c i t i e s o f more th a n 1 0 ,0 0 0
p o p u la tio n w ere u s in g t h i s t a x in 1 9 5 1 , where i t produced
I 66
, an e s tim a te d rev en u e o f # 6 3 ,5 2 2 ,0 0 0 .
i
\
i
I _ _ ^
U .S . Bureau o f th e C en su s, S ta te Tax C o lle c t io n s !
in 1 9 5 1 . p . 7 . j
66 “M u n ic ip a l N on p rop erty T a x e s ,” 1951 S u p p lem en t,
o p . c i t . . p . 2 6 .
The t a x i s w e l l s u it e d t o l o c a l u se s in c e i t h a s a j
r e l a t i v e l y s te a d y y i e l d and i s e a s y to a d m in is te r s in c e few
com panies a re in v o lv e d and t h e y are made r e s p o n s ib le f o r !
I
p a y in g th e t a x . :
i
i
SEW ER ARP REFUSE SERVICE CHARGES i
i
One o f t h e c u r r e n t d ev elo p m en ts in m u n ic ip a l fin a n c e
i s th e in a u g u r a tio n in many c i t i e s o f s p e c i a l c h a r g e s f o r
«
c e r t a in m u n ic ip a l s e r v ic e s w hich have t r a d i t i o n a l l y b een 1
| p a id f o r from g e n e r a l t a x fu n d s . An e v e r 'in c r e a s in g number
! o f c i t i e s have b een a d o p tin g sew er and r e f u s e s e r v ic e
c h a r g e s t o f in a n c e t h e s e s e r v i c e s . Sew er s e r v ic e c h a r g e s
w ere l e v ie d by c i t i e s in f o r t y - o n e s t a t e s , and garb age and >
r e fu s e s e r v ic e c h a r g e s in t h i r t y - s i x s t a t e s a s o f J u ly 1 ,
, 6 7
1 9 5 1 .
i
i |
Ssw er R e n ta ls o r S e r v ic e C harges
The term "sew er r e n ta l" o r "sew er s e r v ic e ch arge" i s
a p e r io d ic ch a rg e to th e u s e r s o f a sew er sy ste m , w h eth er
ow ners o r r e n t e r s , b a sed m o s tly upon th e e x t e n t o f t h e i r
u se o f th e sew er sy stem . The term d o es n o t in c lu d e s p e c i a l
a s s e s s m e n ts f o r sew er c o n s t r u c t io n , ta p p in g o r s e r v ic e
c h a rg e s f o r sew er c o n n e c t io n s , n o r p r o p e r ty t a x e s earm arked
67 I b i d . . p . 4 .
506 |
68
f o r sew erage p u r p o se s. W hile th e r e i s la c k o f agreem ent
on t h e e x t e n t t o w h ich u s e r s sh o u ld p ay d i r e c t l y f o r
sew erage s e r v i c e , a grow in g number o f c i t i e s l e v y some j
i
d ir e c t c h a r g e . More th a n 275 c i t i e s o f 1 0 ,0 0 0 o r m ore !
6 9 i
p o p u la tio n had sew er s e r v ic e c h a r g e s in 1 9 5 0 .
B a ses o f c h a r g e s and r a t e s . — Of t h e v a r io u s d i f - '
f i c u l t i e s in v o lv e d in u s in g a sew er r e n t a l c h a r g e , one i s
i
th e problem o f f in d in g an e q u it a b le m ethod o f c h a r g in g |
in d iv id u a l u s e r s o f th e sy ste m . T here a re s e v e r a l m ethod s
;u se d , th e more p o p u la r b e in g : (1 ) m etered w a te r consum ption,'
(2 ) a f ix e d p e r c e n t o f th e w a te r b i l l , (3 ) a u n iform o r
j f l a t r a t e , (4) th e number o f plum bing f i x t u r e s , and (5 ) th e
number o f sew er c o n n e c t io n s . The f a i r e s t m ethod w ould
p ro b a b ly be a ch arge b a sed on t h e volum e and ty p e o f sewage
»
d isc h a r g e d in to t h e sy stem a s re co r d e d by m e te r s . The j
c o s t s o f t h i s m ethod— m e te r s , i n s t a l l a t i o n , r e a d in g , b i l l - j
in g and c o l le c t io n - - w o u ld make i t p r o h ib i t iv e e x c e p t f o r
th e la r g e r u s e r s .
In c i t i e s r e c e n t l y a d o p tin g sew er s e r v ic e c h a r g e s
s e v e r a l b a s e s have b een u s e d . For ex a m p le, i
t
' I
i
l
i
■ ' " ■ ■ ■ ■ ■ ■ - ■ .......— — j
The M u n ic ip a l Year B ook. 1 9 5 1 . o p . c i t . , p . 5 2 0 ; j
a l s o , H illh o u s e and M a g e lsse n , o p . c i t . . Gh. 8 .
^ The M u n ic ip a l Y ear B ook. 1 9 5 1 . o p . c i t . . p . 3 2 0 .
I ~507^
I
O c e a n sid e , C a lif o r n ia c h a r g e s 50 c e n t s p e r m onth f o r
each s in g le f a m ily d w e llin g u n it . Where w a te r i s u sed
to c a r r y on a b u s in e s s and i s d isc h a r g e d in t o th e
s a n it a r y sew er sy ste m , th e ch a rg e i s one c e n t p e r !
hundred c u b ic f e e t o f w a te r . In M o d esto , C a lif o r n ia , I
th e ch arge i s 85 c e n t s p er m onth f o r s i n g l e f a m ily i
d eta ch ed d w e llin g u n i t s , 50 c e n t s p er month f o r a p a r t- i
ment u n i t s , and 65 c e n t s p er m onth f o r ea ch u n it in I
d u p le x e s . The com m ercial ch arge i s b ased on th e number'
o f plum bing f i x t u r e s w it h in a minimum ch a rg e o f 50
c e n t s p e r m onth. In Long B each , New Y ork, th e charge
i s e q u a l to th e ch arge f o r w a te r . I n New York C it y th e *
sew er ch arge i s e q u a l t o o n e - th ir d o f th e ch arge fo r
w a te r . In S ch en ecta d y th e sew er ch arge i s 56 p er c e n t J
o f t h e w a te r c h a r g e . The S ch en ecta d y o rd in a n c e d o es I
n o t become e f f e c t i v e u n t i l 1 9 5 2 .
1
T w en ty -th ree c i t i e s b etw een 5 ,0 0 0 and 1 0 ,0 0 0 p o p u la
t i o n r e p o r te d th e a d o p tio n o f sew er c h a r g e s in 1 9 5 0 .
; For r e s i d e n t i a l sew er s e r v i c e , n in e o f th e 23 c i t i e s
b a se c h a r g e s on a f i x e d p er c e n t o f th e m o n th ly w a te r
b i l l , e ig h t on a f l a t r a t e , fo u r on m etered w a te r co n -
( su m p tio n , one on th e number o f plum bing f i x t u r e s , and
j one on th e number o f sew er l i n e c o n n e c t io n s .
j R ed la n d s, C a lif o r n ia , a c i t y o f, ab ou t 1 8 ,5 0 0 p o p u la - •
|t i o n ad op ted a sew er ch a rg e on November 2 6 , 1 9 5 2 . The
! ch arge w i l l be b a sed on w a ter con su m p tion by b u s in e s s
• i
; f ir m s , w h ile ea ch r e s id e n c e w i l l be ch arged $ .7 5 p er j
m onth.
E v a lu a tio n o f Sew er S e r v ic e C harges
j Among th e argum ents f a v o r in g u se o f a sew er r e n t a l
! o r s e r v ic e ch a rg e th e f o llo w in g have b een made: (1 ) th e
70 £ b id * t p p . 3 2 0 -2 1 .
^ News ite m in The Los A n g e les T im es. November 2 7 ,
1 9 5 2 .
I
c o s t s o f " b u ild in g, m a in ta in in g , and o p e r a tio n , (2) p r o t e c - j
t i o n o f th e p u b lic h e a lt h , (3) d ir e c t b e n e f i t s to u s e r s , [
(4 ) s t a b le reven u e y i e l d , and (5 ) r e l a t i v e e a s e o f a d m in is- i
t r a t i o n . !
T r a d it io n a lly th e c o s t o f c o n s t r u c t in g a sew er 1
sy stem have b een borne by s p e c ia l a s s e s s m e n ts on p r o p e r ty
t o fin a n c e bond i s s u e s . M ain ten an ce and o p e r a tin g c o s t s
i
have b een p a id from th e g e n e r a l r e v e n u e s o f th e l o c a l [
g o v ern m en ts. I n r e c e n t y e a r s more and more c i t i e s have |
I
been le v y in g s p e c i a l c h a r g e s on u s e r s o f th e sew er sy stem ;
t o fin a n c e o p e r a t io n , m a in ten a n ce, and en la rg em en t o f th e
;sy ste m . Such a ch arge a p p ea rs to be j u s t i f i e d f o r e s s e n t i -
.
a l l y th e same r e a s o n s a s c h a r g e s f o r w a te r s in c e th e d i s -
[
jp o s a l o f w a ste i s a s d i r e c t an ex p en se on governm ent a s
* y
J su p p ly in g w a te r to p u r c h a s e r s . The consum er r e c e i v e s a s {
I . . . . i
d ir e c t a b e n e f i t from th e governm ent f o r d is p o s a l o f w a ste |
a s f o r su p p ly o f w a te r . Each a r e c l e a r l y e s s e n t i a l . A l
th o u g h s e r v ic e c h a r g e s may be in a d e q u a te t o c o m p le te ly
fin a n c e a sew er sy ste m , e x p e r ie n c e h a s shown th e y can be an
im p o rta n t c o n s id e r a tio n in f in a n c in g th e o p e r a t io n , m ain
te n a n c e , and e x p a n sio n o f se w e r s . i
M a n if e s t ly , an ad eq u ate sew age d is p o s a l sy stem i s
n e c e s s a r y i n th e p u b lic i n t e r e s t t o p r o t e c t th e p u b lic
h e a lt h . A ll who u se th e sew er sy stem sh ou ld sh a re in th e
5091
i
e o s t s t o p r o v id e i t . A s e r v ic e ch a rg e t o a l l u s e r s i s a j
|
d ir e c t way o f t r y in g to a c c o m p lish t h i s . Few o th e r c h a r g e s)
w ould ap pear t o have a c l o s e r c o r r e la t io n b etw een th e c o s t )
in v o lv e d and th e b e n e f it r e c e iv e d . A ls o , t h i s form o f !
ch arge c o u ld be w e ll c o o r d in a te d w ith a b i l i t y - t o - p a y , i f !
f o r ex a m p le, i t w ere l e v i e d a c c o r d in g to th e number o f
plum bing f i x t u r e s . Thus th e more p r e t e n t io u s r e s id e n c e s
w ould be ch a rg ed m ore, a lth o u g h p resu m ab ly, th e y m ig h t !
t
a c t u a l l y d is c h a r g e l e s s in t o th e sew ers th a n s m a lle r I
r e s id e n c e s in h e a v ily p o p u la te d a r e a s . T h is t a x , a s many ;
i
; o t h e r s , i s n o t w ith o u t w e a k n e s s e s , y e t im p e r fe c tio n ea n n o t
s to p th e p erform an ce o f n e c e s s a r y g o v ern m en ta l f u n c t io n s .
Sew er s e r v ic e c h a r g e s w ould appear t o be a s t a b le
so u rce o f r e v e n u e . S t a b i l i t y o f y i e l d i s a h ig h ly d e s ir a -
t ,
j b le f e a t u r e inasm uch a s c e r t a in b a s ic f u n c t io n s o f g o v er n - !
I j
m ent m ust c o n tin u e w h eth er th e f i n a n c i a l w ea th e r be f a i r o r j
f o u l . D elin q u e n c y h a s been r e l a t i v e l y l i g h t w ith t h i s t a x
s in c e u se o f th e sew er sy ste m i s a lm o st a lw a y s com p u lsory
w ith en fo rcem en t m ethods a v a i l a b l e , i f n e c e s s a r y , su ch a s
p e n a l t i e s — o r in extrem e e a s e s tu r n in g o f f w a te r s e r v ic e
i f s u p p lie d by m u n ic ip a lly owned w a te r w o rk s.
W here, a s i s o f t e n th e c a s e , th e w a te r w orks a re
p u b l ic l y owned a sew er s e r v ic e ch a rg e c o u ld e a s i l y be
b i l l e d and c o l l e c t e d in c o n ju n c tio n w ith w a te r b i l l s . I n
510
any e v e n t a d m in is tr a tio n o f a sew er s e r v ic e ch arge d o es n o t i
p r e s e n t an y more fo r m id a b le p rob lem s th a n o th e r m u n ic ip a l I
t a x e s . ;
: I
H efu se C o lle c t io n C harges 1
S e r v ic e c h a r g e s f o r r e fu s e and garb age c o l l e c t i o n
have become i n c r e a s in g ly w id e sp re a d i n m u n ic ip a l f in a n c e s .
A lth ou gh n o t a s p r o d u c tiv e a s sew er s e r v ic e c h a r g e s t h i s
i
so u r c e p r o v id e s a s i g n i f i c a n t p o r tio n o f rev en u e f o r c i t i e s j
u s in g i t . I
t.l - !
; One hundred t w e n t y - s ix c i t i e s o f 1 0 ,0 0 0 o r more
, p o p u la tio n in t h i r t y - s i x s t a t e s used r e f u s e c o l l e c t i o n
72
c h a r g e s in 1 9 5 1 . The m ost common ch arge was # 1 .0 0 p e r
m onth f o r r e s id e n c e s , w h ile c h a r g e s f o r com m ercial e s ta b
lis h m e n ts v a r ie d from # 1 .5 0 t o # 1 5 .0 0 d ep en d in g on th e ty p e I
i
o f b u s in e s s and th e fr e q u e n c y o f c o l l e c t i o n . ■
1 j
i In m ost c i t i e s p r o v id in g a r e f u s e c o l l e c t i o n s e r v ic e <
l
i t i s com p u lsory o n ly t o th e e x t e n t t h a t some p r o v is io n
m ust be made f o r ad eq u ate d is p o s a l. T hus, many h o u se h o ld s
and i n d u s t r ie s p r o v id e f o r p r iv a t e d is p o s a l and th e r e b y
i
j a v o id th e c h a r g e .
I
E v a lu a tio n o f R efu se C o lle c t io n C harges
R efu se c o l l e c t i o n c h a r g e s a r e j u s t i f i e d on ab ou t th e
72 Ttle M u n ic ip a l Y ea r B ook. 1 9 5 1 . o p . c i t . , p . 2 3 1 .
511]
same grou nds a s sew er s e r v ic e c h a r g e s: (1 ) c l e a r and d ir e c t j
c o n n e c tio n b etw een t h e c o s t and b e n e f i t s r e c e iv e d , (£ ) e s - i
I
i
s e n t i a l to p r o t e c t th e p u b lic h e a lt h , (3) s t a b l e so u rc e o f j
i
m u n ic ip a l r e v e n u e , and (4) r e l a t i v e l y e a s y and e c o n o m ic a l to
a d m in is te r . R efu se c o l l e c t i o n c h a r g e s a r e an a ttem p t t o |
p u t t h i s g o v ern m en ta l s e r v ic e on a s e lf - s u p p o r t in g b a s is
and to o b ta in th e rev en u e from th o s e who u se th e s e r v ic e .
Where garb age d is p o s a l u n i t s a re u sed a r e fu s e c o l - j
l e c t i o n ch a rg e in l i e u o f a sew er ch a rg e c o u ld be l e v i e d . j
i
I f a sew er r e n t a l i s u sed a h ig h e r r a t e c o u ld be a p p lie d
i 1
w here garbage d is p o s a l u n it s a re i n s t a l l e d .
I I I . LESS FREQUENTLY USED NONPROPERTY TAXES
G en eral S ta tem en t
j A lthou gh th e e le v e n t a x e s d is c u s s e d in th e p r e c e d in g |
I 1
'p a g es are th e m ost f r e q u e n t ly u sed n o n p ro p erty t a x e s , th e y
' 1
do n o t co m p rise an e x c lu s iv e l i s t . Many s t a t e s and c i t i e s '
l e v y n o n p ro p er ty t a x e s w h ich a re ad ap ted t o l o c a l circu m
s t a n c e s . W h ile c i t i e s c o n tin u e t o r e l y h e a v ily on p r o p e r ty
t a x e s many have d e v elo p e d o th e r form s o f t a x e s to su p p le
m ent th e rev en u e y ie ld e d by th e p r o p e r ty t a x .
O ther N on n ron erty T axes
I n 1950 r e c e i p t s from sev en m ajor s t a t e t a x e s —
(1 ) g e n e r a l s a l e s , (£ ) a lc o h o li c b e v e r a g e , (3 ) to b a c c o ,
5 lS !
(4 ) m otor f u e l , (5) m otor v e h i e l e , (6) p e r s o n a l Incom e, and
(7) c o r p o r a te incom e— c o n s t it u t e d 70 p e r c e n t o f a l l s t a t e
l
t a x c o l l e c t i o n s , e x c lu d in g unem ploym ent co m p en sa tio n j
i
73 . I
ta x e s* In a d d it io n to t h e s e sev en t a x e s th e f o llo w in g !
n o n p ro p erty t a x e s w ere l e v i e d by v a r io u s o f th e s t a t e s in
<
1950: (1 ) a d m issio n and am usem ent, (2) bank, (3 ) c h a in
s t o r e , (4) f r a n c h is e , (5) in h e r it a n c e and g i f t , (6 ) in s u r
a n c e , (7 ) l i c e n s e , (8 ) o le o m a r g e r in e , (9) p a y r o ll, (10) '
1
p o l l , (1 1 ) s e v e r a n c e , (1 2 ) s o f t d r in k , (1 3 ) s to c k t r a n s f e r j
74 '
and docum entary r e g i s t r y , and (1 4 ) p u b lic u t i l i t y .
A lth ou gh n o t a l l a r e e q u a lly a d a p ta b le t o l o c a l u s e ,
c e r t a in o f th e fo r e g o in g t a x e s have been em ployed b y c i t i e s ,
v a r y in g w it h l e g a l and econom ic c ir c u m sta n c e s among th e
s t a t e s . Some o th e r n o n p ro p erty t a x e s used in c i t i e s a r e :
i ( l ) t a x e s on p a rk in g l o t s , (2 ) p a rk in g m e te r s , (3 ) t a x e s on !
1 !
c o in o p e r a te d v e n d in g m a c h in e s, and (4 ) t a x e s on t r a n s ie n t j
r e n t a l o f h o t e l rooms and a p a rtm e n ts.
IV . OTHER MUNICIPAL R EV EITU E SOURCES
.
G en eral S ta tem en t
B e s id e s a l l o f th e f o r e g o in g t a x e s u sed by l o c a l
Ma.ior S ta te T a x es, 1959 and 1 9 5 0 . o p . c i t . , p . 3 .
^ S u p p lem en t t o T ax S y stem s ( t w e l f t h e d i t i o n ) , o p .
c i t . , p. 62.
5X31
i
g o v em m e a ts th e y axe c o n tin u o u s ly engaged in d e v is in g w ays i
and m eans t o produce more r e v e n u e s . Four a d d it io n a l r e v e -
i
nue s o u r c e s a re b r i e f l y d is c u s s e d b elow : (1 ) g r a n t s - i n - a i d , i
(2 ) sh ared t a x e s , (3) m u n ic ip a lly owned com m ercial e n t e r - j
p r i s e s , and (4 ) t r a f f i c f i n e s . '
i
G ran ts- in - a i d
Hie p r in c ip a l reven u e s o u r c e , e x c e p t p r o p e r ty t a x e s , j
!
f o r l o c a l g overn m en ts— i . e . , c i t i e s — i s g r a n t s - i n - a id w h ich j
»
a re f i n a n c i a l a id t o l o c a l u n it s by upper l e v e l s o f g o v ern - !
m en t, e i t h e r s t a t e o r F e d e r a l. G r a n ts -in -a id b y s t a t e
jgovernm ents in 1951 am ounted t o a p p r o x im a te ly 35 p e r ce n t
I 75
{o f a l l s t a t e r e v e n u e . G r a n t s - in - a id a re made by th e
s t a t e s t o t h e i r l o c a l govern m en ts f o r a w id e v a r i e t y o f
p u r p o s e s , b u t th e m ost num erous and e x t e n s iv e g r a n t - in - a id j
< ■ !
program s a re in th e f i e l d s o f e d u c a tio n , h ig h w a y s, w e lf a r e , |
I
and h e a lt h . I
Today c i t i e s on th e a v era g e r e c e iv e a b o u t o n e - s ix t h
o f t h e i r t o t a l r e v e n u e s from s t a t e s o u r c e s , and t h i s p ro
p o r tio n c o n s t a n t ly in c r e a s e s . For ex a m p le, "In th e f i s c a l
I . i
jy ea r 1951 s t a t e a id to l o c a l governm en ts am ounted to a lm o st i
L. L . E ck er-H acz, " In ter g o v ern m e n ta l Tax Co
o r d in a tio n : R ecord and P r o s p e c t," N a tio n a l Tax J o u r n a l.
V (S ep tem b er, 1 9 5 2 ) , 2 5 0 .
5 1 4 '
$5 b i l l i o n (# 4 .7 ) com pared w ith # 1 .8 b i l l i o n in 1 9 4 2 . j
I
The te n d e n c y o f s t a t e govern m en ts t o p r o v id e more f i n a n c i a l i
<
l
a s s i s t a n c e t o c i t i e s stem s from r e c o g n it io n t h a t many m uni- ;
i
i
e i p a l s e r v i c e s a r e o f s ta te w id e r a t h e r th a n p u r e ly l o c a l
i n t e r e s t , and t h a t some o f th e m ost p r o d u c tiv e s o u r c e s o f '
77
rev en u e have b een preem pted by th e s t a t e s .
Shared T axes
A noth er im p o rta n t so u rce o f l o c a l rev en u e i s sh a r in g ,
by th e s t a t e w ith l o c a l governm en ts t a x e s im posed and c o l - \
i
J le e te d by th e s t a t e . W hile a g r a n t - in - a id i s m easured by
th e n eed o f th e r e c e iv in g g o v ern m en ta l u n i t , sh ared t a x e s
m e r e ly a l l o c a t e s t o l o c a l governm ent a p o r tio n o f th e
amount c o l l e c t e d .
T h is m ethod o f in te r g o v e r n m e n ta l a id h a s b een w id e ly
| - . i
I u sed on t h e s t a t e - l o c a l l e v e l . I n 1948 o n ly fo u r s t a t e s — j
^ ■ j
: F lo r id a , K en tu ck y, T e x a s, and Vermont— sh a red no s t a t e t a x
fu n d s w ith t h e i r m u n i c i p a l i t i e s . K very o th e r s t a t e sh ared
78
th e p r o c e e d s o f from one t o n in e s t a t e t a x e s .
I
76 Idem .
77 S n id e r , ©£. c i t . . p . 3 7 5 . j
7® 1948 Supplem ent t o S t a t e - C o lle c t e d M u n ic ip a lly -
Shared T axes (C h ica g o : A m erican M u n icip a l A s s o c ia t io n ,
1 9 4 8 ).
515;
M u n ic ip a lly Owned C om m ercial E n t e r p r is e s {
■ ■ i
The demand f o r new n o n p ro p e r ty t a x r e v e n u e s h a s e n - j
cou raged c i t i e s t o d e v e lo p reven u e from t h e i r com m ercial I
I
a c t i v i t i e s , o r a t l e a s t p u t them on a s e lf - s u p p o r t in g !
7
b a s i s . Such a c t i v i t i e s a s p u b lic m a r k e ts, a u d ito r iu m s ,
sta d iu m s, g o l f c o u r s e s , z o o s , and swimming p o o ls a re
e x a m p les. M u n ic ip a lly owned u t i l i t i e s f r e q u e n t ly p r o v id e a ,
I
sh a re o f l o c a l r e v e n u e s .
There i s a w id e v a r i e t y o f m u n ic ip a l r e v e n u e - r a is in g J
i
a c t i v i t y , but i t i s beyond th e sco p e o f th e p r e s e n t stu d y
i
I t o se a r c h th e s e o u t in d e t a i l .
i
I
Y. CONCLUSIONS
J
S ta te and m u n ic ip a l fin a n c e p rob lem s a re com plex and ;
do n o t le n d th e m s e lv e s to any s i n g l e , sim p le s o l u t i o n . On
s t a t e l e v e l s th e i n a b i l i t y o f p r o p e r ty t a x e s t o su p p o rt
p r e s e n t day f i n a n c i a l b u rd en s i s w id e ly r e c o g n iz e d . The
tren d on b o th s t a t e and l o c a l l e v e l s h a s b een tow ard s e t
t i n g up t a x sy stem s on a more d i v e r s i f i e d b a s i s . A lth ou gh
l o c a l governm en ts r a i s e o n e - h a lf o r more o f t h e i r rev en u e
i
! from p r o p e r ty t a x e s , many n o n p ro p erty t a x e s a re w id e ly u sed
by them . C i t i e s d i f f e r among th e m s e lv e s in t h e i r r e v e n u e -
79 See H illh o u s e and M a g e lsse n , o jd . c i t . , Ch. 9 ,
and M u n icip a l Y ear B ook. 1 9 5 3 .
516 '
i
n e e d s and th e t a x e s w h ich can be l o c a l l y a d m in iste r e d in a !
s a t i s f a c t o r y manner w i l l v a ry from c i t y t o c i t y w ith su ch j
f a c t o r s a s p o p u la tio n , p r o x im ity to o th e r c i t i e s , and I
i
econom ic b a s e . L o c a l r e v e n u e sy ste m s sh o u ld be s u f f i c i e n t -
i
l y f l e x i b l e t o a llo w f o r su ch v a r ia b le f a c t o r s . 1
Any r e a l s o lu t io n o f th e problem c a l l s f o r c o o p e r -
i
a t i v e a c t io n o f th e m u n i c i p a l i t i e s and th e s t a t e , a s w e ll
!
i
a s o f th e f e d e r a l govern m en t. On th e w h o le , th e same t a x - j
p a y e r s su p p ort th r e e l e v e l s o f govern m en t, and th e i n d i - !
i
| !
;v id u a l ta x p a y e r i s i n t e r e s t e d in h i s t o t a l t a x b i l l more so '
!
: th a n in what p a r t ic u la r t a x e s he p a y s to e a c h govern m en t.
jIn o th e r w o rd s, an o v e r - a l l , lo n g -te r m , c o o r d in a te d t a x
program i s n e e d e d , r a th e r th a n more s to p -g a p m e a su r e s. The :
t a x r e s o u r c e s o f th e n a tio n sh o u ld be th o r o u g h ly in v e n -
! I
!t o r ie d and a llo c a t e d t o th e t a x in g u n i t s in th e m ost e q u i- ;
' j
t a b le manner t h a t can be d e v is e d . i
t I
The f i n a n c i a l p l i g h t o f l o c a l f in a n c e s i s e s s e n t i a l
l y a problem o f s t a t e - l o c a l r e l a t i o n s . The p u b l i c ’ s demand
f o r more and b e t t e r l o c a l s e r v i c e s can be fin a n c e d o n ly b y
h e a v ie r t a x e s on p r o p e r ty , o r by th e s t a t e s g r a n tin g more
I t a x in g a u t h o r it y to l o c a l g o v ern m en ts, ta k in g o v e r some o f
th e l o c a l f u n c t io n s , o r by t r a n s f e r r in g fu n d s to l o c a l
g o v ern m en ts. As a m a tte r o f f a c t , ea c h o f th e s e h a s been
and i s b e in g d on e. A lth o u g h much h a s b een done t o im prove
th e a d m in is tr a tio n o f p r o p e r ty t a x a t io n , w h ich i s th e back
bone o f l o c a l r e v e n u e , a r a t h e r c l e a r tr e n d h a s been e s ta b
l i s h e d by many s t a t e s d e le g a t in g w id er t a x in g pow ers t o
l o c a l g o v ern m en ts. T h is tr e n d i s r e f l e c t e d in l o c a l u se o f
i
in co m e, s a l e s , a d m is s io n s , and a number o f s e l e c t i v e e x c is e '
t a x e s .
The tr e n d tow ard l o c a l u se o f n o n p ro p er ty t a x e s h a s
1
in i t s fa v o r th e f a c t t h a t r e s p o n s i b i l i t y f o r r a i s i n g more |
fu n d s i s p la c e d w here c o n t r o l ean b e s t be e x e r c is e d — upon j
.t h o s e who spend th e m oney. In a d d it io n , i t sh o u ld ten d t o '
I
;red u ce p r e s s u r e on s t a t e governm en ts f o r in c r e a s e d g r a n ts -
i n - a i d . C e r t a in ly , a c i t y w h ich i s u n w illin g to assum e th e
r e s p o n s i b i l i t y f o r le v y in g su ch t a x e s to m eet m u n ic ip a l
i
n ee d s sh o u ld n o t e x p e c t th e s t a t e t o fin a n c e them .
| The tr e n d tow ard w id e r l o c a l u se o f n o n p ro p e r ty
!
t a x e s i s n o t w ith o u t d is a d v a n ta g e s . I n t h e f i r s t p la c e , i t j
! ' I
co u ld r e s u l t in d e la y in b r in g in g a b o u t m uch-needed re fo rm s
i n p r o p e r ty ta x a d m in is tr a tio n by ta k in g some o f th e f in a n
c i a l lo a d from t h a t t a x . 3Por ex a m p le, in th e f i e l d o f
p e r s o n a l p r o p e r ty t a x a t io n , w h ich i s o f t e n a l o c a l g o v ern
m ent reven u e s o u r c e , e v a s io n and a v o id a n c e a re l e g i o n .
R eso r t t o n o n p ro p er ty t a x e s may m e r e ly p r o lo n g t h i s s i t u
a t io n .
S eco n d , many o f th e n o n p ro p erty t a x e s u sed l o c a l l y
a re r e g r e s s i v e , w hich i n f r i n g e s sound p r i n c i p l e s o f ta x a
tio n * H owever, r e g r e s s i v i t y i s n o t lim it e d t o t h e s e t a x e s .
T h ird , l o c a l n o n p ro p erty t a x e s may te n d t o he c o s t l y
t o a d m in is te r . T h is may he t r u e , in p a r t , b e c a u se o f p oor
j q u a lit y e n fo r c e m e n t. More v ig o r o u s en fo rcem en t m ig h t w e ll
red u ce th e a d m in is t r a t iv e c o s t s p er d o lla r o f reven u e c o l
l e c t e d .
F o u rth , to o much em p hasis on l o c a l n o n p ro p er ty t a x e s
may r e s u l t in e x c e s s iv e d e c e n t r a liz a t io n w ith l o c a l fin a n
c i a l i n s t a b i l i t y . Such a tren d c o u ld he a s u nw ise a s to o
much c e n t r a l i z a t i o n and w id esp rea d e x t e n s io n o f g r a n t s - in -
a id by s t a t e t o l o c a l g o v ern m en ts. A m id d le -o f -t h e - r o a d
p o l i c y em bodying r e a so n a b le e x e r c is e o f l o c a l ta x in g
p o w ers, t o g e t h e r w ith sh ared t a x e s and g r a n t s - i n - a i d , t o
en su re th e f i n a n c i a l in d ep en d en ce and i n t e g r i t y o f l o c a l
'govern m ents seem s th e w is e r c o u r s e .
PART THREE
CHAPTER X II
!
I
SUM M ARY, CONCLUSIONS, AND RECOMMENDATIONS
i
I . SU M M A RY !
f
i ;
P r o p e r ty t a x a t io n c o n tin u e s t o be an im p o rta n t prob
lem . The p r o p e r ty t a x to u c h e s more p e o p le d i r e c t l y th an
an y o th e r t a x e x c e p t th e f e d e r a l p e r s o n a l incom e t a x . A
I
g r e a t d e a l o f e f f o r t h a s b e e n , and c o n tin u e s to b e , d e- ,
I
v o te d to im p rovin g p r o p e r ty t a x a t i o n . D e s p ite s e v e r e and j
j s u s ta in e d c r i t i c i s m , b o th in t h e o r y and p r a c t i c e , few
spokesm en s e r i o u s l y recommend a b o lis h in g i t .
The p r o p e r ty t a x i s one o f th e o l d e s t form s o f t a x a
t i o n . Over th e y e a r s many ch a n g es have b een made to th e
I o ld " g e n e r a l p r o p e r ty t a x ” so t h a t t h i s t i t l e , a lth o u g h i t j
I ,j
J p e r s i s t s , no lo n g e r a c c u r a t e ly d e s c r ib e s th e t a x . In p r a c - >
i t i c e fe w , i f a n y , s t a t e s im pose a u n iform ad v alorem t a x on '
a l l p r o p e r ty . In th e U n ited S t a t e s i t r a is e d more t a x
re v e n u e s th an any o th e r t a x u n t i l q u it e r e c e n t ly . By 1900
i t had reach ed i t s peak a s a so u rc e o f s t a t e r e v e n u e . Many
I
o th e r t a x e s have b een d ev elo p e d b y th e s t a t e s ; t h u s , in j
1950 l e s s th a n 3 p e r c e n t o f s t a t e t a x r e v e n u e s came from
p r o p e r ty t a x e s . L o c a l governm en ts c o n tin u e t o r e l y h e a v ily
on p r o p e r ty t a x e s . In 1950 a p p r o x im a te ly p er c e n t o f
l o c a l re v en u e s came from t h i s t a x .
5 2 1 !
i
The econom ic "bases f o r t a x a t io n a r e w e a lth and i n - |
I
come. P o s s e s s io n o f p r o p e r ty h a s lo n g b een reg a rd ed a s a J
b a s is f o r le v y in g t a x e s . A lthou gh th e h is t o r y o f p r o p e r ty j
i
t a x a t io n i s lo n g i t s u se on an ad v alorem b a s is i s m o s tly !
an Am erican d ev elo p m en t. Many European c o u n t r ie s le v y
p r o p e r ty t a x e s on th e b a s is o f th e incom e from p r o p e r ty .
In th e b r o a d e st form th e g e n e r a l p r o p e r ty ta x w ould
t a x a l l go o d s t h a t have exchange v a lu e a t a u n iform r a t e . ,
Many s t a t e s have m o d ifie d th e t a x by c l a s s i f i c a t i o n and j
;ex e m p tio n . G en eral p r o p e r ty i s d iv id e d i n t o r e a l e s t a t e
and p e r s o n a l p r o p e r ty , o f w h ich th e l a t t e r i s su b d iv id e d
j in t o t a n g ib le and in t a n g ib le p e r s o n a lt y . P r o p e r ty t a x e s ,
e x c e p t on i n t a n g i b l e s , a r e im p e rso n a l and a re l e v i e d on th e
p r o p e r ty where i t i s lo c a t e d r a th e r th a n w here i t s owner
I
< r e s i d e s . j
The p r o p e r ty t a x i s c r i t i c i z e d on t h e o r e t i c a l |
grounds b e c a u se a sse ssm e n t la c k s a c l e a r sta n d a r d , b o th a s
to m eaning and m anner o f d e te r m in a tio n . In a d d it io n t o
b a s ic w ea k n e sse s i n v a lu a t io n th e t a x shows p oor c o r r e la -
j t io n w it h b o th a b i l i t y t o pay and b e n e f i t s r e c e iv e d . As
a c t u a l l y a d m in iste r e d th e t a x i s o f t e n d a im e d to be i n
e q u it a b le , in c o n v e n ie n t , r e g r e s s i v e , and c h a r a c te r iz e d by
much e v a s io n by p e r s o n a l p r o p e r ty . A lth ou gh th e p r o p e r ty
t a x i s more o f t e n c r i t i c i z e d th a n d e fe n d e d , th e r e i s much
5221
to be s a id in i t s f a v o r . As p r o p e r ty c o m p rise s one o f th e !
m ajor b a s e s f o r t a x a t io n a p r o p e r ty t a x can be j u s t i f i e d i f
i t can b e a d m in iste r e d e f f e c t i v e l y . B e t t e r a d m in is tr a tio n i
i
w ould do much toward overcom in g e e r t a in acknow ledged !
I
t h e o r e t i c a l w e a k n e sse s. j
The problem o f p r o p e r ty t a x a d m in is tr a tio n i s a
c o m p lic a te d o n e . The t a x i s a d m in iste r e d by a la r g e num ber.
o f j u r i s d i c t i o n s and under a v a r i e t y o f r u le s and r e q u ir e - i
i
m e n ts, in v o lv in g a number o f s t e p s . |
j The p r o p e r ty ta x i s e s s e n t i a l l y a l o c a l t a x , b e in g i
i
I l o c a l l y a d m in iste r e d and s u p p ly in g th e g r e a te r sh a re o f
l o c a l r e v e n u e s . Much o f t h e e f f o r t t o im prove i t h a s been
c o n c e n tr a te d on l o c a l a d m in is t r a t io n . C om plete c e n t r a l
i z a t i o n o f a d m in is tr a tio n on th e s t a t e l e v e l , a lth o u g h
! s u g g e s te d by som e, i s u s u a lly r e s i s t e d on th e l o c a l l e v e l .
! I
S p e c ia liz e d p r o p e r t ie s , su ch a s r a ilr o a d s and p u b lic u t i l i - j
I j
t i e s , a r e u s u a lly a s s e s s e d by a s t a t e a g en cy . Many s t a t e s '
s u p e r v is e l o c a l a sse ssm e n t and e q u a liz a t io n and th e m s e lv e s
p er fo im c e n t r a l e q u a liz a t io n .
1
j I n a d d it io n t o a d m in is t r a t iv e im provem ents th e
p r o p e r ty t a x h a s undergone c o n s id e r a b le s u b s ta n tiv e m odi
f i c a t i o n in th e r e c e n t p a s t , in c lu d in g e x e m p tio n s, r a t e
l i m i t a t i o n , and c l a s s i f i c a t i o n . C l a s s i f i c a t i o n i s an
e f f o r t t o d i f f e r e n t i a t e b etw een p r o p e r t ie s w h ich have
5S 3l
s i g n i f i c a n t d if f e r e n c e s and t a x them on a more r e a s o n a b le
b a s is th a n i f a l l a re t r e a t e d a l i k e . A lth ou gh c l a s s i -
!
f i c a t i o n h a s n o t p roved a p an acea f o r t a x p rob lem s th e j
p r in c ip le i s a p p lie d w id e ly , b e in g foun d in many o f o u r
im p o rta n t t a x e s . '
Exem ption o f p r o p e r ty frcaa t a x a t io n h a s b een one o f
th e im p o rta n t m ethod s used t o red u ce i n e q u i t i e s in th e ta x
?
i
i
and t o im prove i t s a d m in is t r a t io n . S tro n g r e a s o n s f o r ‘
g r a n tin g ex em p tio n to c e r t a in t y p e s o f p r o p e r ty a re w e ll \
known in ou r c o u n tr y . J u s t i f i c a t i o n f o r ex em p tio n i s found ■
in eco n o m ic, s o c i a l , e t h i c a l , p o l i t i c a l , and a d m in is t r a t iv e
(C o n s id e r a tio n s . The p r a c t ic e o f ex em p tio n i s b ased on th e
p u b lic p o li c y o f th e s t a t e s , and i s p ro v id ed f o r in th e <
l
c o n s t i t u t i o n and la w s o f th e s t a t e s . I n c r e a s in g ly , th e
(problem h a s become one o f ab use o f th e p r in c ip le w hich |
i I
te n d s t o d e f e a t i t s b a s ic p u r p o s e s . Some e s t im a t e s o f t a x - i
! _
exempt r e a l p r o p e r ty run a s h ig h a s 20 p e r c e n t f o r th e
n a t io n . Tax exem p tion to i n d u s t r i a l c o n c e r n s h a s became
more w id esp re a d in i n t e r s t a t e c o m p e titio n .
Rate l i m i t a t i o n , a lth o u g h a d r a s t ic p r o c e s s , h a s
b een ad opted by many s t a t e s . The b a s ic m o tiv a tio n o f t h i s
p r a c t ic e was t o red u ce th e t a x burden on p r o p e r ty , p a r t i
c u l a r l y r e a l e s t a t e . I t came in t o prom inence d u rin g th e
g r e a t d e p r e s s io n . Many a d v a n ta g es a r e cla im e d f o r i t ;
5 2 4 1
n e v e r t h e l e s s , m ost a u t h o r i t i e s condemn i t a s a n e g a tiv e
approach to th e problem o f p r o p e r ty t a x a t io n . One im p o r t-
i
a n t e f f e c t o f l i m i t a t i o n h a s b een t o in c r e a s e th e r e g r e s - i
s i v i t y in th e ta x sy ste m s o f s t a t e s im p o sin g l i m i t a t i o n s |
s in c e th o s e s t a t e s w ere fo r c e d to r e s o r t t o o t h e r t a x e s !
w h ich a r e e q u a lly in e q u i t a b le . f
i
P e r s o n a l p r o p e r ty t a x a t io n h a s b een c r i t i c i z e d even
(
more s t r o n g ly th a n r e a l p r o p e r ty t a x a t io n . Much o f th e i
i
\ |
c r i t i c i s m s t r e s s e s th e u n s a t is f a c t o r y a sse ssm e n t o f b o th ’
I
t a n g ib le and in t a n g ib le p e r s o n a lt y and th e w id esp rea d
I e v a s io n by b o th ty p e s o f p r o p e r ty . The d i f f i c u l t i e s i n -
i
Jvolved in e f f e c t i v e l y a d m in is te r in g such a t a x have le d
many a u t h o r i t i e s to recommend ab and oning i t , e s p e c i a l l y on
i n t a n g i b l e s . A few s t a t e s have done t h i s , how ever a
m a jo r ity c o n tin u e t o ta x b o th t y p e s o f p e r s o n a l p r o p e r ty . !
t I
i
Some s t a t e s c l a s s i f y and t a x p e r s o n a l p r o p e r ty , b o th j
* ,
t a n g ib le and i n t a n g i b l e , d i f f e r e n t l y th a n th e y do r e a l 1
p r o p e r ty , w h ile in o th e r s i n t a n g ib le s a re w h o lly o r p a r t ly
exem pt o r a re ta x e d a t lo w r a t e s . P e r s o n a l p r o p e r ty ta x a -
i
t i o n d oes n o t f o llo w a u n ifo rm p a tt e r n among th e s t a t e s ,
j A few s t a t e s r e c o g n iz e th e u n iq u e n e ss o f such p rop -
• e r t i e s a s f o r e s t s , m in e s , and o i l f i e l d s and have en
d eavored to adapt t h e ir p r o p e r ty ta x la w s to en cou rage
i n t e l l i g e n t h a n d lin g o f t h e s e form s o f w e a lth .
52 5 1
i
The g e n e r a l p r o p e r ty t a x h a s proved to be in a d e q u a te j
t o m eet th e reven u e n e e d s o f modern s t a t e and l o c a l g o v e r n - I
i
m en ts. T h is h a s r e s u l t e d from th e b a s ic f a c t t h a t p r o p e r ty
la c k s th e econom ic a b i l i t y to b ea r th e w hole o f such e x -
i
panded f i n a n c i a l b u r d e n s. I n e f f e c t i v e a d m in is tr a tio n o f |
th e p r o p e r ty t a x — u n d e r v a lu a tio n and e v a s io n — may f a i l to
y i e l d th e maximum rev en u e th e t a x i s ca p a b le o f p r o d u c in g .
As a con seq u en ce m ost s t a t e and many l o c a l governm en ts have j
b een d e v e lo p in g rep la cem en t t a x e s . As in p r o p e r ty t a x a t io n J
I
I th e r e i s no u n iform p a tte r n in th e d evelopm en t o f r e p la c e -
im e n ts. There a p p ea rs to be c o n s id e r a b le agreem ent t h a t th e
l i m i t s on p r o p e r ty t a x e s have b een , o r a re b e in g r e a c h e d .
I I . CONCLUSIONS A M D RECOMM ENDATIONS
i
C o n c lu sio n s and R ecom m endations on P r o p e r ty Tax T heory j
1 . The c r i t i c s o f p r o p e r ty t a x a t io n a re o f t e n more j
i ' I
o u tsp o k en than i t s d e fe n d e r s . As a r e s u l t some are le d to
th in k t h a t th e p r o p e r ty t a x i s a l l bad and d ev o id o f good .
T h is i s n o t th e c a s e . A lthou gh p e r f e c t e q u it y and j u s t i c e
in t h i s t a x appear u n a t ta in a b le , i t i s n o t a s u n d e s ir a b le
a s many c r i t i c s c o n te n d . The f a c t t h a t i t d o es n o t c o r
r e l a t e p e r f e c t l y w ith th e t h e o r e t i c a l i d e a l s in t a x a t i o n - -
fe w , i f a n y , t a x e s do— i s i n s u f f i c i e n t re a so n t o condemn
th e t a x c o m p le te ly and urge i t s a b o l i t i o n . A b e t t e r
recom m endation w ould be an o b j e c t i v e , r e a l i s t i c r e a p p r a is a li
!
o f th e t a x w ith th e o b j e c t in mind o f s tr e n g th e n in g and j
im p rovin g i t . j
Much o f th e c r i t i c i s m h as stemmed from a ca d e m ic ia n s !
I
who have w eig h ed th e t a x on th e s c a l e s o f t h e o r e t i c a l p e r - I
f a c t i o n and have found i t w a n tin g . T h is i s n o t to s a y th a t
i t i s u n an im ou sly d efen d ed i n a l l i t s a s p e c t s by a d m in is
t r a t o r s — i t i s n o t . The f a c t s t i l l rem ain s t h a t p r o p e r ty
i s one o f th e m ajor b a s e s f o r t a x a t io n , t h e o r e t i c a l w eak-
f
in e s s e s and a d m in is tr a tiv e im p e r fe c tio n s in t h e p r o p e r ty
i
i
t a x , to th e c o n tr a r y n o tw ith s ta n d in g . A lth ou gh i t s
t h e o r e t i c a l and a d m in is t r a t iv e sh o rtco m in g s have lo n g b een
r e a l i z e d , few com p eten t c r i t i c s a d v o ca te a b o lis h in g th e
p r o p e r ty t a x . What i s n e e d e d , in p a r t , i s a change in
i
a t t i t u d e tow ard th e p r o p e r ty ta x in o r d e r th a t i t can be j
u sed to b e s t a d v a n ta g e. Many c o n s t r u c t iv e im provem ents •
have b een and a r e b e in g made; h ow ever, we sh o u ld r e c o g n iz e
i t i s n o t a h o p e le s s m ess in c a p a b le o f e f f i c i e n t and e q u i
t a b le u s e .
S. I t i s q .u ite g e n e r a lly r e c o g n iz e d t h a t ow n ersh ip
j o f p r o p e r ty d o es n o t n e c e s s a r i l y r e p r e s e n t a b i l i t y t o pay
i i
! c u r r e n t annual t a x e s . T h is a p p ea rs to be more o f an ad - ;
m is s io n o f th e f a c t t h a t th e p r o p e r ty t a x la c k s p ro p er
d is c r im in a t io n in i t s u se th a n an argum ent t h a t p r o p e r ty
527
ow nersh ip n e v e r r e f l e c t s a b i l i t y t o p a y . I t a p p ea rs m ani
f e s t t h a t th e m a jo r ity o f p r o p e r t ie s y i e l d o r a re c a p a b le i
o f y i e l d i n g in co m e, e i t h e r in money o r s e r v ic e s and e n jo y - j
I
m ent. Where t h i s i s th e c a s e th e ow ner, i t can be s a id , !
|p o s s e s s e s a b i l i t y to pay s in c e he i s in r e c e i p t o f e i t h e r
money o r s e r v i c e s w h ich have a money e q u iv a le n t . In th e
se n s e o f r e a l i z a t i o n o f in com e, en joym ent o f s e r v i c e s by
: I
th e owner a r e a s much a p a rt o f h i s incom e a s money r e - I
c e iv e d . As a m a tte r o f f a e t , a l l form s o f p r o p e r ty a re th e j
I
|o b j e c t s o f ow n ersh ip b e ca u se o f th e in co m e, e i t h e r money o r
; s e r v i c e s , p r o p e r ty i s th o u g h t t o be ca p a b le o f p r o d u c in g ,
now o r in t h e f u t u r e . No r e a so n e x i s t s , p resu m a b ly , f o r
h o ld in g o n e 's econom ic power o r incom e in t h e form o f prop
e r t y u n le s s i t be th e p r e s e n t o r e s tim a te d incom e o r
s e r v i c e s th e p r o p e r ty i s th o u g h t c a p a b le o f y i e l d i n g . j
1 The g r e a t w eak n ess in th e p r o p e r ty t a x , in t h i s co n - J
i
n e c t io n , i s i t s la c k o f s u f f i c i e n t d is c r im in a t io n among
p r o p e r t ie s in d eterm in in g th e form and amount o f incom e
y ie ld e d , and by th e same to k e n what i s n eed ed i s a more
d is c r im in a te a d m in is t r a t iv e p ro ced u re in p r o p e r ty t a x a t io n .
» j
|Owners o f p r o p e r ty w h ich y i e l d o n ly s e r v i c e s , f o r exam ple
;r e s i d e n t i a l p r o p e r ty , co u ld be s a id to p o s s e s s a b i l i t y
i
eq u a l t o th e f a i r money v a lu e o f th e s e r v i c e s . H owever,
t h i s may n o t be r e a l i s t i c s in c e some p r o p e r t ie s may be
5281
i
m ortgaged and o th e r s n o t , y e t th e y may be p r a c t i c a l l y
i d e n t i c a l . The l o g i c a l way t o ta x m ortgaged p r o p e r t ie s
i
w ould be on th e b a s is o f th e e q u it y o f th e d eb to r and ;
i
c r e d it o r , a lth o u g h t h i s m ig h t be d i f f i c u l t to d eterm in e* *
i
As a p p lie d in th e U n ited S t a t e s t h e d e b to r h a s b een made •
r e s p o n s ib le f o r th e t a x w hich may p erm it th e c r e d it o r , who
m igh t w e l l have more a b i l i t y , to go f r e e o f th e p r o p e r ty
t
t a x . H owever, t h e c r e d it o r m ust pay incom e t a x on i n t e r e s t |
j
from th e m o rtg a g e. Here th e t a x i s a lt e r e d f o r a d m in is- j
t r a t i v e c o n v e n ie n c e and may f a i l to t a x s t r i c t l y a c c o r d in g !
!to a b i l i t y t o p a y .
I n t h e c a s e o f m ortgaged p r o p e r ty i t may be a m a tter
o f in d if f e r e n c e w h ich p a r ty , th e d e b to r o r c r e d it o r , w ere
made r e s p o n s ib le f o r th e t a x s in c e th e burden o f th e t a x
w ould be a d ju s te d th rou gh th e i n t e r e s t r a t e . I f th e d e b to r I
I
m ust p ay th e t a x e s he w ould be w i l l i n g to pay l e s s i n - j
I J
t e r e s t , w h ile i f th e c r e d it o r i s r e s p o n s ib le f o r p r o p e r ty j
t a x e s he w ould lo a n o n ly a t a r a t e s u f f i c i e n t to in c lu d e
th e t a x e s . T h is a n a ly s is w ould be in d ic a t e d in a s u f -
i f i c i e n t l y c o m p e titiv e m a rk et.
I n th e a c t u a l w orld i t may be im p o s s ib le t o d e v is e i
t
f in e ly - b a la n c e d a d m in is t r a t iv e p ro ce d u re s such a s y i e l d
p e r f e c t r e s u l t s ; n e v e r t h e l e s s , c o n tin u in g e f f o r t i s c a l l e d
f o r in r e f i n i n g p r o p e r ty t a x a d m in is tr a tio n to conform a s
c l o s e l y a s p o s s ib le to th e i d e a l s o f p e r f e c t i o n . I t w ould
seem f e a s i b l e and p r a c t i c a l to in tr o d u c e more d is c r im in a - i
t io n in t o th e im p act o f th e ta x by t a x in g m ortgaged p ro p - i
e r t i e s on th e b a s i s o f n e t e q u i t i e s . '
The p r o p e r ty t a x i s c r i t i c i z e d , f u r t h e r , from th e
a b i l i t y t o pay v ie w p o in t b eca u se i t i s r e g r e s s iv e in
p r a c t i c e . What o c c u r s in p r a c t i c e , h ow ever, i s n o t sound
c r i t i c i s m o f th e th e o r y o f any g iv e n t a x . The p r o p e r ty ta x 1
; I
w ould be l e s s r e g r e s s iv e i n p r a c t ic e i f a d m in iste r e d r e -
j
a l i s t i c a l l y . The b e t t e r p ro ced u re w ould be im p rovin g
! a d m in is tr a tio n t o red u ce i t s r e g r e s s i v i t y . The f a c t o f
| r e g r e s s i v i t y in any t a x , in a co u n tr y com m itted t o th e
p r in c ip le o f p r o g r e s s iv e t a x a t io n , d o es n o t J u s t i f y th e
j p a r t ic u l a r t a x ; n e v e r t h e l e s s , i t i s d o u b tfu l i f p r o p e r ty
t a x e s a re more r e g r e s s iv e th an some o th e r prom inent t a x e s . !
' S a l e s t a x e s , f o r ex a m p le, a lth o u g h p r o p o r tio n a l in name, ■
i |
a re r e g r e s s i v e . B e tt e r a d m in is tr a tio n c o u ld remove much
o f th e r e g r e s s i v i t y in p r o p e r ty t a x a t io n . I n o th e r w o rd s,
i t i s th e w r i t e r ’ s c o n te n tio n t h a t p r o p e r ty t a x e s , i f ad -
jm in is te r e d r e a l i s t i c a l l y , com bined w ith r e a so n a b le c l a s s i
f i c a t i o n and ex em p tio n , w ould co rresp o n d a s c l o s e l y w ith
i
a b i l i t y t o pay a s do m ost o f ou r t a x e s . In a d d it io n , some
r e g r e s s i v i t y can be j u s t i f i e d i n a c o u n tr y h a v in g p r o g r e s
s iv e t a x e s .
5 3 0 1
i
F u rth er e v id e n c e t h a t i t i s th e p r a c t ic e , more so |
th a n th e th e o r y , w h ich v i o l a t e s th e p r in c ip le o f a b i l i t y t o I
i
pay i s se en in th e manner o f t a x in g p e r s o n a l p r o p e r ty , b o th
t a n g ib le and in t a n g i b le . As a g e n e r a l r u le m ost in t a n g ib le
i
; p e r s o n a l p r o p e r ty i s n o t ta x e d , w h ich f a c t , a llo w s much '
I :
a b i l i t y to esca p e p r o p e r ty t a x e s , a lth o u g h i t d o es n o t
esca p e incom e t a x e s . T a n g ib le p e r s o n a lt y i s ta x ed u n e q u a l- ,
l y v e r y o f te n s in c e b u s in e s s p e r s o n a l p r o p e r ty and s o lv e n t ;
i
c r e d i t s a re o r d in a r il y a s s e s s e d and a t a h ig h e r r a t i o o f
I
j a s s e s s e d to tr u e v a lu e th a n m ost r e s i d e n t i a l p e r s o n a lt y .
JFor ex a m p le, in Los A n g e les co u n ty th e more th an 500 d ep u ty
I
a s s e s s o r s a re in s t r u c t e d t o th e e f f e c t t h a t th e ta x p a y e r * s
home i s h is c a s t l e and th e a s s e s s o r i s to e n te r o n ly on
i
i n v i t a t i o n . A g a in , t h i s i s a w ea k n ess in p r a c t ic e and n o t
i
in t h e th e o r y o f th e p r o p e r ty t a x . U n q u e stio n a b ly much j
i !
'v a lu e — a b i l i t y t o pay— e s c a p e s a p p r a is a l. A gain , a l s o , th e j
in j u n c t io n i s t o im prove a d m in is tr a tio n o f th e t a x .
3 . There i s a h ig h c o r r e la t io n b etw een th e p r o p e r ty
t a x and b e n e f i t s r e c e iv e d by p r o p e r ty and p r o p e r ty ow n ers.
Many s e r v i c e s o f l o c a l governm en ts a re o f d ir e c t b e n e f it t o
f
" p r o p e r ty , ” w h ile o t h e r s have a fa v o r a b le in f lu e n c e on
p r o p e r ty v a lu e s . S e r v ic e s o f th e form er ty p e in c lu d e
m a in ta in in g sew age sy ste m s, garb age d i s p o s a l, and s t r e e t i
m a in te n a n c e , t o g e t h e r w ith p o lic e and f i r e p r o t e c t io n ;
t
th o s e o f th e l a t t e r ty p e such a c t i v i t i e s a s s c h o o ls , p a r k s,
h o s p i t a l s , l i b r a r i e s , and o th e r p u b lic im provem ents w hich
<
add to th e d e s i r a b i l i t y o f th e com m unity. j
S in c e m ost o f th e s e r v i c e s w hich b e n e f it p r o p e r ty !
and p r o p e r ty ow ners a re ren d ered by l o c a l g o v ern m en ts, a ^
i
s t a t e p r o p e r ty t a x i s n o t a s e a s i l y j u s t i f i e d on th e bene
f i t s r e c e iv e d p r i n c i p l e . In o th e r w o rd s, s t a t e governm ent
i
s e r v i c e s a re n o t ren d ered a s d i r e c t l y f o r th e b e n e f it o f j
i
p r o p e r ty a s l o c a l governm ent s e r v i c e s . j
4 . J u s t i f i c a t i o n f o r p r o p e r ty t a x a t io n can be found !
| i n th e p r in c ip le o f th e c o s t s in v o lv e d . A r e l a t i v e l y la r g e
l
p o r tio n o f l o c a l g o v ern m en ta l c o s t s a re in c u r r e d in r e n d e r
in g s e r v ic e s t o p r o p e r ty . Where s e r v ic e s a re d ir e c t and
th e c o s t s ca p a b le o f c l e a r m easurem ent ea ch p a r c e l o f .p r o p -
e r t y c o u ld be ch arged a s p e c i f i c f e e to c o v e r th e c o s t s . j
i
!H owever, many governm ent s e r v ic e s a re n o t d i r e c t , o r th e j
I 1
c o s t s are n o t e a s i l y d e ter m in a b le f o r ea ch p r o p e r ty . !
I n a b i l i t y t o a l l o c a t e p e r f e c t l y th e c o s t o f s e r v ic e s
ren d ered t o ea ch p a r c e l o f p r o p e r ty d o es n o t in v a lid a t e
; t
j th e j u s t i f i c a t i o n o f t a x in g on th e b a s is o f c o s t s . The
broad p u b lic i n t e r e s t r e q u ir e s t h a t th e govern m en t-p erform
c e r t a in e s s e n t i a l f u n c t io n s . P r o p e r ty b e n e f i t s , d i r e c t l y
and i n d i r e c t l y , from su ch f u n c t io n s . A t a x on p r o p e r ty to
h e lp pay f o r th e s e s e r v ic e s i s j u s t i f i e d . I m p e r fe c tio n in
532 !
I
th e ta x d o es n o t make i t u n j u s t i f i e d . j
J u s t i f y in g th e p r o p e r ty t a x on th e b a s is o f th e j
i
c o s t s in v o lv e d may c o n f l i c t w ith th e p r in c ip le o f a b i l i t y
t o pay b ased on p r o p e r ty v a lu e s . For ex a m p le, th e c o s t o f j
sew age and garbage d is p o s a l would be h ig h e r f o r th e la r g e '
I
fa m ily in an i n f e r i o r p r o p e r ty th an f o r th e r ic h b a c h e lo r
in an e x c lu s iv e a p a rtm e n t.
5 . The p r o p e r ty t a x c o n s t i t u t e s th e p r in c ip a l r e v e - ■
nue so u rc e f o r l o c a l g o v ern m en ts, and on th e w hole m ea su res j
i
jup w e ll to th e t e s t o f f i s c a l ad eq u acy. T h e r e fo r e , a s a
j p r a c t ic a l m a tte r th e p r o p e r ty ta x ca n n o t be e lim in a te d and
^ p rop osals f o r im p rovin g i t a re r e le v a n t .
i
| There a r e im p o rta n t r e a s o n s why th e p r o p e r ty ta x
j w ill be c o n tin u e d .
| i
(1) The t a x h a s been em ployed f o r a lo n g tim e b e fo r e i
! p r e s e n t ow ners a cq u ire d t h e i r p r o p e r t ie s . There-!
i
f o r e , t o th e e x t e n t t h a t th e t a x h a s b een c a p i
t a l i z e d , abandonment o f th e t a x w ould r e s u l t in
w in d f a ll c a p i t a l g a in s to p r e s e n t o w n ers. Many
j w ould oppose such an outcom e a s in e q u it a b le .
I (2 ) From a t h e o r e t i c a l v ie w p o in t th e p r o p e r ty ta x i s
c o n s id e r e d to be somewhat l e s s o f a burden on
i n c e n t i v e s , e s p e c i a l l y in th e s h o r tr u n , th an
some o th e r t a x e s w hich co u ld be s u b s t it u t e d in
533 !
i
i t s p la c e . i
i
(3 ) P u b lic o p in io n h o ld s s t r o n g ly t o th e p r in c ip le 1
o f f i s c a l in d ep en d en ce f o r l o c a l g o v ern m en ts, [
' i
1 r e a c t in g u n fa v o r a b ly to th e u se o f n o n p ro p er ty j
I t a x e s by l o c a l g o v ern m en ts. !
(4 ) E f f o r t s have b een and a r e b e in g made to im prove
th e t a x .
j
C o n c lu sio n s and R ecom m endations on A d m in istr a tio n 1
i
1 . Much h a s been a cco m p lish ed in im provin g p r o p e r ty !
!
]ta x a d m in is t r a t io n , y e t much rem ain s to be d on e. On th e
i
a d m in is tr a tiv e s i d e , im provem ents have b een made in th e
sta n d a r d s in th e s e a r e a s : P e r s o n n e l, m ethods and p r o c e d u r e s,
c e n t r a l s u p e r v is io n , a s s e s s m e n t, and e q u a liz a t io n .
2 . Recom m endations f o r f u r th e r im p rovin g p e r s o n n e l j
;sta n d a rd s I n c lu d e th e f o llo w in g : j
(1 ) A s s e s s o r s sh o u ld be s e l e c t e d on th e b a s i s o f
i
p r o f e s s io n a l q u a l i f i c a t i o n s and be p r o te c te d by
c i v i l s e r v ic e s t a t u s .
!
(2 ) C om pensation f o r p e r s o n n e l sh o u ld be ad eq uate to
j em ploy com p eten t p e o p le .
(3 ) R e sid e n c e r e q u ir e m en ts are ir r e l e v a n t and sh o u ld
be a b o lis h e d .
(4 ) I n - s e r v i c e t r a in in g sh ou ld be d ev elo p e d to
en su re p r o f e s s io n a l com petence o f p e r s o n n e l.
5 3 4 «
5 . S ta te s u p e r v is io n and a s s is t a n c e c o n tin u e to be |
h ig h ly im p o rta n t e s p e c i a l l y in p r o p e r ty t a x a s s e s s m e n t. I
T h is i s tr u e b eca u se ea ch s t a t e h as a d ir e c t i n t e r e s t in j
i
th e l o c a l a d m in is tr a tio n o f t h e t a x s in c e i t e i t h e r l e v i e s
I
on th e lo c a lly - d e te r m in e d ta x b ase o r d i s t r i b u t e s g r a n t s - |
in - a i d on th e same b a s i s , o r d o es b o th . I n t h i s a re a i t i s i
recommended:
(1 ) That th e s t a t e m a in ta in an e x p e r t s t a f f to
a s s i s t l o c a l a s s e s s o r s in d e v e lo p in g uniform >
p ro ced u res and sta n d a r d s. S ta t e a g e n c ie s sh o u ld (
p r o v id e and recommend u niform fo rm s, r e c o r d s ,
m ethods and p r o c e d u r e s. These t h in g s c o u ld be
brou ght to r e a l i z a t i o n th rou gh s u p e r v is io n o v e r
i
and c o n fe r e n c e s w ith l o c a l a s s e s s o r s .
(2 ) S ta t e s u p e r v is io n o f a sse ssm e n t and le a d e r s h ip i
m ust be p o s i t i v e and a c t i v e , and m ust be ca p a b le !
o f d em o n stra tin g i t s w orth s in c e i t i s in a
h ig h ly v u ln e r a b le p o s i t i o n . I t w i l l f a c e r e
s is t a n c e on th e l o c a l l e v e l from v e s te d i n
t e r e s t s on th e one hand, and i n s u f f i c i e n t fu n d s
from above on th e o t h e r . A g g r e ssiv e s u p e r v is io n
o f f e r s a w ork ab le com prom ise tow ard re d u c in g o r
rem oving i n e q u i t i e s in p r o p e r ty t a x a t io n . Un
b r id le d l o c a l autonom y h as d em on strated i t s
u n w o r th in e ss in p r o p e r ty t a x a t io n ; co m p lete cen
t r a l i z a t i o n i s n o t reg a rd ed a s a d e s ir a b le s o lu - [
t i o n . E f f e c t i v e s t a t e s u p e r v is io n and a s s i s t - j
ance to l o c a l a d m in is tr a to r s i s a way to b r id g e ^
J i
th e gap b etw een th e e x tr e m e s.
4 . The im provem ent o f a sse ssm e n t sta n d a r d s i s o f
c r u c ia l im p o rta n ce. A la r g e amount o f th e in e q u it y a s s o c i - ,
I
a te d w ith p r o p e r ty t a x a t io n i s r o o te d in i n e q u a l i t i e s in I
i
a s s e s s m e n t, and e s p e c i a l l y u n d e r v a lu a tio n . The f o llo w in g J
i !
'recom m endations in t h i s c o n n e c tio n a re o f f e r e d : :
I
(1) The l e g a l d e f i n i t i o n o f ”v a lu e ” sh o u ld be s t a t e d
i
in more p r e c is e form . T h is i s th e f i r s t r e
quirem ent f o r e q u it y i n a s s e s s m e n t. S in c e prop
e r t y t a x e s a re ad valorem t a x e s , th e o n ly sta n d
ard o f v a lu e upon w h ich a l l can r e l y i s an |
' o b j e c t iv e v a lu e ; i . e . , th e p r ic e s f o r w h ich J
p r o p e r t ie s a c t u a l l y exchan ge in bona f id e t r a n s
a c t i o n s . So lo n g a s th e a s s e s s o r i s c a l l e d on
t o a llo w f o r ”a l l o th e r m a tte r s w h ich a f f e c t th e I
v a lu e o f p r o p e r ty ” e q u ity and e q u a liz a t io n w i l l
n o t be r e a l i z e d . The in f lu e n c e s o f ”a l l o th e r
m a tt e r s ” on p r o p e r ty v a lu e s are s u b je c t to th e
d is c r e t io n o r im a g in a tio n o f th e in d iv id u a l
a s s e s s o r . Thus th e a s s e s s o r h a s a c o n v e n ie n t
5361
i
way to r a t i o n a l i z e d is c r e p a n c ie s betw een j
j
a s s e s s e d and m arket v a lu e s . In o th e r w o rd s, th e 1
i
o n ly s a t i s f a c t o r y sta n d a rd o f v a lu e i s an o b je c - |
t i v e o n e , and m arket v a lu e eom es n e a r e s t to f u l - J
i
f i l l i n g t h a t r e q u ir e m e n t. To th e e x t e n t t h a t |
incom e from p r o p e r ty can be r e l i a b l y a n t ic ip a t e d
i t w i l l be r e f l e c t e d in m arket v a lu e . In any
e v e n t , i f incom e i s t o be ta x e d , i t c o u ld b e t t e r <
be done by th e u se o f an incom e ta x th a n th rou gh |
I
an valorem t a x w h ich i s b a se d , in p a r t , on an ;
a s s e s s o r s e s tim a te o f what incom e w i l l be in
th e f u t u r e .
F u rth erm ore, i f p r o p e r ty w ere a s s e s s e d a t ,
100 p e r c e n t o f c u r r e n t m arket v a lu e th e a s s e s s o r
i s n o t r e q u ir e d to s e t a "normal v a lu e " about 1
w h ich p r o p e r ty v a lu e s a re e s tim a te d to f lu c t u a t e .'
i
The a s s e s s o r i s in no s u p e r io r p o s it io n to know ;
w h eth er p r e s e n t p r ic e s a re i n f l a t e d s in c e ' he
ca n n o t know what fu tu r e p r ic e s w i l l b e . Of
c o u r s e , f l u c t u a t i o n s in th e ta x b a se w i l l o c c u r
a s a sse s s m e n ts a re changed to conform t o v a r y
in g m arket p r i c e s . Where govern m en tal c o s t s
v a r y w ith th e p r ic e l e v e l , r a te ch a n g es may b e
come u n n e c e ssa r y ; h ow ever, m illa g c r a t e s co u ld
537
t
be v a r ie d to com pensate f o r ch a n g in g p r ic e s and j
s te a d y g o v ern m en ta l c o s t s , o r v i c e v e r s a . I
(2) S p e c ia l t y p e s o f p r o p e r t ie s , such a s p u b lic j
u t i l i t i e s , r a i lr o a d s , and i n d u s t r i a l c o n ce rn s j
I
are seldom s o ld , and t h e r e f o r e , m arket v a lu e i s
an u n s a t is f a c t o r y sta n d a r d . I t i s recommended
t h a t th e s e t y p e s o f p r o p e r ty be a s s e s s e d on a
rep la cem en t (m inus o b s o le s c e n c e , d e p r e c ia t io n ,
e t c . ) b a s i s . T h is m ethod c o r re sp o n d s to th e
m arket v a lu e m ethod o f a s s e s s in g o th e r p r o p e r ty .
(3 ) I t i s recommended t h a t th e p r o p e r t ie s o f p u b lic
u t i l i t i e s , r a i lr o a d s , and m ajor i n d u s t r i a l con
c e r n s be a s s e s s e d by a s t a t e a g en cy . To a s s e s s
a c c u r a t e ly such p r o p e r t ie s r e q u ir e s e x p e r t
s k i l l s n o t l i k e l y to be a v a ila b le in m ost l o c a l
a s s e s s o r s * o f f i c e s . In a d d it io n , d u p lic a t io n o f |
e f f o r t and e x p en se co u ld be a v o id ed by u s in g a
s ta te w id e o r g a n iz a t io n . F urth erm ore, s t a t e
a p p r a is a l o f th e s e p r o p e r t ie s w ould r e s u l t in a
more u n iform s ta te w id e a sse ssm e n t th a n w ould
l i k e l y be a c h ie v e d b y e q u a liz in g l o c a l ap -
1
p r a i s a l s . j
(4 ) I t i s fu r th e r recommended th a t t h e s e s t a t e -
a s s e s s e d p r o p e r t ie s be ta x e d a t th e a v era g e
538 1
s ta te w id e m illa g e r a t e a p p lie d to o th e r r e a l j
p r o p e r ty . T h is recom m endation i s made t o en
cou rage a more u n iform d is t r ib u t i o n o f th e
p r o p e r ty t a x lo a d . To i l l u s t r a t e , assum e a new
!
#20 m i l l i o n in d u s t r i a l p la n t l o c a t e s in a ta x
d i s t r i c t h a v in g an a s s e s s e d v a lu a tio n o f #10
m i l l i o n . I f th e new p la n t i s a s s e s s e d a t 25 p er
j
c e n t o f i t s v a lu e th e t a x b a se o f th e d i s t r i c t
i
i s in c r e a s e d by 50 p er c e n t . T h is in c r e a s e in !
th e t a x b a se w ould a llo w a r e d u c tio n o f o n e- !
t h ir d in t h e r a t e on a l l o th e r p r o p e r ty , i f th e
new p la n t ca u sed no in c r e a s e in th e c o s t s o f
l o c a l governm en t.
A f u r th e r c o n s id e r a tio n in t h i s recom
m en d ation i s t h a t t o a c o n s id e r a b le e x t e n t th e |
(
v a lu e o f u t i l i t y and m a n u fa ctu rin g p r o p e r t ie s |
depends on c ir c u m sta n c e s o u t s id e th e l o c a l d i s - I
t r i e t in w h ich th e p h y s ic a l p r o p e r ty i s lo c a t e d .
These c o n c e n tr a te d m a sses o f ta x a b le p r o p e r ty
sh o u ld n o t be t r e a t e d a s p u r e ly l o c a l w in d f a ll
g a in s , n o r sh o u ld th e y be g r o s s ly o v e r - o r
u n d e r a sse s se d a lo n g s id e o th e r p r o p e r ty .
(5) The r e v e n u e s c o l l e c t e d by th e s t a t e in le v y in g a
s ta te w id e a v era g e r a te on u t i l i t y and
559'
m a n u fa ctu rin g p r o p e r t ie s sh ou ld " b e sh ared w ith
th e d i s t r i c t s in w h ich th e p r o p e r t ie s are
lo c a t e d . The rem a in in g p o r tio n o f su ch fu n d s j
l
sh o u ld be used t o e q u a liz e e d u c a tio n a l s ta n d a r d s :
and th e p r o p e r ty t a x burden among v a r io u s d i s -
j t r i c t s .
(6) C e n tr a l a sse ssm e n t and t a x in g o f th e s e p ro p er
t i e s , w ith th e r e v e n u e s sh ared and d is t r ib u t e d
a s e q u a liz a t io n g r a n t s , w ould m in im ize some o f j
i
th e p rob lem s o f l o e a l p r o p e r ty t a x a t io n . L o c a l ;
d i s t r i c t s c o u ld no lo n g e r com pete b y o f f e r in g
i
fa v o r a b le t a x tr e a tm e n t, o r by r e lo c a t in g
b o u n d a r ies t o in c lu d e th e s e " p lu m s.”
5 . E q u a liz a tio n o f a sse ssm e n t r a t i o s i s an e x tr e m e ly
j im p o rta n t f u n c t io n in p r o p e r ty ta x a d m in is t r a t io n . I t i s
; n e c

Asset Metadata

Creator Cantrell, Lang Lewis (author)

Core Title Some basic modifications of American property taxation

Contributor Digitized by ProQuest (provenance)

Degree Doctor of Philosophy

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, general,OAI-PMH Harvest

Language English

Advisor Anderson, William H. (committee chair), Garis, Roy L. (committee member), Harley, John Eugene (committee member), Phelps, Clyde William (committee member), Pollard, Spencer D. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-250230

Unique identifier UC11259168

Identifier DP23252.pdf (filename),usctheses-c20-250230 (legacy record id)

Legacy Identifier DP23252.pdf

Dmrecord 250230

Document Type Dissertation

Rights Cantrell, Lang Lewis

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA