Omaha daily bee., 1903-04-05

without IN the slightest impairing the value
OF the assets. And the reverse may hap
pen; a bank with impaired resources may
recoup its falling fortunes by a change OF
responsible management without the adj
ditlon Of a single dollar of new capital.
Again. in gauging property values OF mer-
camille concerns tr assessment on the
basis Of earnings. confusion is created by
the fact that real earnings are teo often
hidden. Earnings may be In kind a. we'll
as in money and profits distributed through
channels other than dividends. Finally
there may be no earnings at all, or even
an actual loss, with property values still
maintained and still subject TO assessment
and taxation.
6. CAPITALIZATIoN-The relation Of
capitalization to the value Of the property
by which the stocks and bonds are Sc
cured is ordinarily direct and proportionate.
but still neither the face value Of the Sc
%curities nor yet their market quotations
necessarily measure the valuation that
should be put upon them for taxation. As
everyone knows, while capitalization is gen.
orally built upon earning power. the prices
Of stocks and bonds can be readily manipu-
lated by various disturbing influences. As
there may be hidden earnings. so there may
be hidden capital; and there may also be
fictitious capitalization based on worthless
assets or unfounded promises. In the prac-
tical work OF assessment for taxation the
most perplexing problem presented by cap
italization is the determination OF the tax
able value Of a portion of a going concern
In one taxing district as distinguished from
other portions outside OF the taxing juris-
diction. To cite an example that has come
under recent observation: A telephone
company doing business in three states
was called upon to make return for assess
ment for city taxation within boundaries
that embraced only one OF its exchanges,
albeit the principal one and the seat Of
the corporation headquarters. The COM
pany contended that, inasmuch as It's out
standing securities consisted exclusively OF
stocks sggregating 81, 79s, 900 face value
bearing s per cent dividends and selling
for par on the market, its entire system
must be taken 70 equal S1,79s, 900 in value.
In order to ascertain the part returnable
for the one exchange in question its oficera
prepared an appraisement Of all the tangible
property, Of which $500, 900 in personal
property and $3.50 o in real estate was
credited to the head ONCE. The remainder
left after subtracting the value Of the
tangible property from the capitalization
figures was then distributed along the line
In the same ratio, as representing the
franchise value. The resulting return for
the part Of the plant under consideration
embraced 1878, 900 as the total personal as
sessment in addition to the real estate
listed at 5000. Further inquiry, how
ever, disclosed aggregate earnings for the
whole system Of 1851, Zoo, Of which approxi-
mately $780, 900 came from the business
transacted through this one exchange. In
earning capacity, therefore, the part to be
assessed constituted six-nineteenths in
value of the entire system and the capital
ization subject to assessment In that tax
ing jurisdiction figured out $685., APO, in
stead Of $466, 900, as its officers would have
preferred; while computed on the basis OF
net earnings, the proportion Of the capital
properly represented in the main exchange
would have been still greater. o.
Whether mortgages should be considered
as important factors in property valuations
is decidedly questionable. A mortgage may
arise out of many different conditions. 1t
may represent an unpaid portion Of the
purchase price; II so, It bears no definite
relation to the value of the whole property.
It may be merely evidence of part owner
ship or OF a different ownership; as such
1t is a device resorted to solely for the
purpose Of obscuring title to protect the
real owner in which the consideration may
be far in excess of the value of the Sc
curity. A mortgage anchoring a bond issue
Indicates nothing more than that the prop
erty or business involves borrowed capital
in addition to that represented by the
shares Of capital stock. In some instances,
too, the mortgage security covers all the
capital actually Invested. the stocks being
pure water. AS a general rule, however, IL
is safe to assume in the absence Of abb
normal features that mortgaged property
is worth at least a considerable nercenfa0a
Of value greater than the face Of the obliga-
tion.
CONCLUSION-From this discussion IL
might appear that an equitable assessment
of property for taxation were an absolute
impossibllity. But we need have no Sc
rious apprehension on that score. No
single tax has yet been devised or il likely
to be devised that will produce automatic
ally a just distribution Of the burdens Of
government. Likewise for the property
tax; no one basis OF valuation is infallible,
but all Of them are useful. Not only that,
but the one serves to check the other and
to offset errors Of exaggeration and OF de-
probation. The most satisfactory assess
ment Of property for taxation will be thar
made with the fullest knowledge Of all the
essential factors bearing upon the ques-
ton Of values while the most defective
assessment will be the one tina Is based
upon only one factor to the exclusion Of
all the others.