The sun. [volume] (New York [N.Y.]) 1833-1916, 1899-06-19
REJECTS IN OUR TAX LAWS


Western Union Telegraph Company-concern-
ing which serious doubts had been enter
tained. In addition. several OF the new indus
trials declared dividends for the first time.
much to the increase OF their favor with the
public How great an influence the payment
OF dividends exerts on prices Is siRnally evil
denced by American Sugar Refining stock.
which. in spite OF n general belief that the COM
rany is not making money. commands high
figures solely because Of its persistent cash
distributions. Conversely. when company
ceases paying dividends or even reduces their
rate the price OF its stock falls. The final test
OF values is income: all others yield to it.
The decision OF the Supreme Court in tho
Manhattan Elevated Railroad Tax case. COM
ing ms 1t does. on tho heels OF the passage OF
the Ford Franchise Tax act. and being accom-
panied by the revelations made before tho
Mazet Committee OF the imperfect methods of
assessing both real and personal property in
this city. direct renewed attention to the in
constituencies OF our present tax laws and to
the necessity of thoroughly reforming them.
The Manhattan Elevated case has already
been in litigation nvo years and two
years more will probably be required
10 end it, notice has been given that
the Enforcement of the Franchise Tax act
will be contested in the courts and the wit
nesses examined by the Mazet Committee
have made 1t plain that a large number Of tho
assessments Of our own Tax Commissioners
could be declared Illegal II the taxpayers af-
fected chose to attack them Should the COM
mittee recently appointed by the Legislature
TO bring order out Of the prevailing confusion
OF our tax system. succeed in pishng
Its object it will render great service.
There would be more ground for expecting a
satisfactory result from the committees labors.
were it not for the fact that most of the defects
In the tax system now have proceed from
the inability OF our Legislators to frame the
laws on the subject in proper language. and TO
the ingenuity displayed by our courts In SO
constituting them as to render them Ineffective.
or this the taxation OF franchises affords n
conspicuous illustration. To an unpreJudiced
mind it would seem that franchises so valu-
able that millions OF dollars are paid for them
are property Justly subject to taxation as
any other property. and yet upon the ground
that they are not mentioned by name as liable
20 taxation. they have escaped 1t for years and.
IL the new Franchise Tax act should be de-
clared unconst itutional. they will escape it for
several years to come.
In 1857 the Legislature enacted that tho
capital stock" OF every company liable to
taxation. deducting surplus profits not exceed
ing 10 per cent. OF the capital. the assessed
value OF it's real estate. and all shares OF stock
in other corporations taxable under the laws
OF this State should be assessed at its actual
value" and taxed In the same manner as other
personal and real estate. This enactment was
Incorporated in the Tax law OF 1895 and Is still
in force but the construction put upon 1t by
the Court Of Appeals in 1890 was by the same
court in 1891 completely changed. 80 that I'M
less the new Franchise Tax act Is sustained it
will have almost entirely failed OF its purpose.
The decision OF 1860 was that capital
stock means the aggregate Of the shares OF a
company's capital and that actual value"
means market value Hence In the case Of the
Oswego Starch Factory It was held that the
proper assessment OF the company's capital
liable to taxation was the aggregate market
value of it's shares OF stock. less the assessed
value OF It's real estate and the other decfuc-
lions allowed by law. This rule was followed for
more than thirty years. and was upheld by the
Court OF Appeals In mum Der OF contested cases.
Assessors all over the State fixed the taxes OF
corporations upon the basis OF tho market
values OF their shares. and the correctness OF
the practice was not disputed until the Union
Trust Company Of this city. being assessed
upon market value OF six times the par value
OF it's capital. carried tho assessment to the
Court OF Appeals. and there. in 1891, procured
q ruling that capital stock" does not mean
stock" but the money and securities in the
company's business. and that actual" value
does not mean market value. but the cash
value Of the company's assets. which. IN the
trust company's case. was much less than the
proportionate market value OF the stock owing
t. the fact that buyers OF the stock included
in the price they paid for 1t the value Of the
eompany's reputation and great and growing
business. and the large dividends they e1-
pected to get in the future. In the same way
the stock OF the Chemical Bank sells at over
$4,000 per share. while the amount Of cash
assets represented by each share Is but a little
more than $4,000 the remaining $4,000 being
paid for mere goodwill and earning power.
There are many other instances OF a similar
discrepancy not necessary to mention.
The rule laid down in the Union Trust Com
pany case is in direct contradiction not only to
that which had for thirty years been followed
In this State. but to that which prevails In
Massachusetts, and in Ohio. and which has
been approved by the Supreme Court Of the
United States. 1t is also opposed to recent de-
csions OF the Court of Appeals itself. decar-
ing that the goodwill OF q business has a
money value. and therefore is taxable. II. for
example. J. T. Morgan Il Co. should be con-
verted into corporation formed for the pur-
pose Of carrying on their business. q large sum
would undoub tedly be paid for the good-wi
OF the concern over and above its cash assets.
and this sum would DO represented by an
equal amount OF stock and be taxable accord
ingIy. Why q good will acquired by II corpor-
alton subsequent to Its formation should be
treated differently 1t is impossible to explain.
To make the matter worse. the Court OF Ap-
peas, in deciding that the earning power OF
the Union Trust Company's business was not
taxable as part Of its capital. inadvertently or
iSnorantly spoke OF this earning power as the
company's franchise. whereas the only fran
chise possessed by it is the franchise to be a
corporation and 10 do business as a corpora
ton. which any thirteen citizens can obtain for
trhing sum. and which, therefore. has no
money value worth considering. Having made
this blunder the court proceeded. in 1885 in
the case If the Manhattan Elevated Company.
to deci !e. further. that. inasmuch as 1t had
once decided that the Union Trust Company's
franchise" was not taxable. all franchises. in
GLIDING that OF the railway company to occupy
many miles OF public highway for its own
rront. come under the same head. and are not
taxahl" either. Tho confusion on the subject
In the minds OF tho judges is shown by their