The Richmond Virginian. (Richmond, Va.) 1910-1920, 1913-09-26
Taxation in Virginia
The Corporation Tax.-yI. In the Constitutional
Convention.
Nv EDGAR sYDrSsrRICKER

Convention,
In the 1--WE preceding articles the corpora
ton tax In Virginia the purpose has been TO
show the development of the system through
series Of experiments starting In ls4z-ls4S
and repeated in various forms in lS55-lS5ss
iS69-lS7i and 1SS1-1sS2. We found that the
last method used that of a property tax
earnings In principle this method is largely
the in now; in practice there Is a
vast difference.
As a matter of fact little reflection
the history of the corporation tax Tor any tax
IN Virginia, II may he said Will convince the
student that the development IN taxation mas
been more a question of administration than
of the theory of taxation. and that this develop
ment in methods of administration mas
the Importance Of the taxpayer from the
standpoint OF obtaining revenue. The tax
alton of railroads illustrates this point When
railroads were regarded as public enterprises
to which the State, cities, towns and private
individuals contributed. they We're not looked
upon as sources OF revenue for purposes OF
taxation. For the most part they were exempt
from taxation, their exemption being but one
form Of popular and governmental encourage
ment Later, after the days Of political re-
construction. but in times of industrial chaos
they were still lightly dealt with. Practically
all of them failed financially two three ana
even four times. When, after 1880, the state
began on that really marvellous rebound from
economic ruin and the railroads began reap
ing the harvests OF increased tratnc. Tor the
first time they seriously regarded as pos
sessing valuable property and as earning con-
siderable income. The theory or taxation
net earnings then gross earnings, then property
and finally property together with net earnings
as the basis for taxation--was more or less
academic 1t remained very much the same
! from 1912 until the present time, with the I'M
portant exception of the addition OF the prop
erty tax for reasons which shall sec when
we review property taxation as a separate form
of tax The question of enforcing the tax was
the question which increased In importance,
and this matter of making the railroad cor
porauon pay what the people considered its
share of the revenue of the State became the
uppermost phase of corporation taxation during
the last thrty-hve years.
In tho debates on corporation taxation in
| the constitutional convention of 1qo1-1e02, how
| to enforce the tax the real question. The
board OF public works had proved to he an
unsa satisfactory agency First of all. some better,
10 act for the state in Legislative, executive
and judicial capacities in relation to corpora
tions. This done in the creation or cor
pOration commission.
Early in the discussion Il to be agreed
to allow this new body to do everything that
had been done with the exception Of applying
the franchise tax The taxation Of the prop,
erty of corporations left practically I'M
challenged, since 1t had proven satisfactory in
( obtaining revenue when the State assessing ma
+chlnery Well oiled. The franchise tax of
Tone per cent of net earnings the corporations
being the Judges of what should he deducted
from gross earnings to leave net earnings mac
been farce. Even the representatives OF
the railroads. who were called into consulta-
ton with the conventions committee. tacitly
/ admitted the absurdity of 1t; all they asked
was that the franchise tax be not revised so
as to exact too great revenue at once, that
seme lcniency be shown.
The convention committee corporations
was at first inclined to use a form of taxation
IN public discussions, the so-called capitaliza-
ton plan. There were several varieties OF this
tnx--in Maine, New York and Connecticut, for
1 example The Connecticut plan, which was
particularly favored, was that of providing for
/ a franchise tax on valuation OF corporate capt
tai and floating and funded Indebtedness. The
progenitor of this plan In Virginia tax history
has already been pointed out In the act Of
I 1S71-1s72, taxing the bonds of public service
cprpnratiOnS. The convention committee mad
even worked out tho details of capitalization
tax nlan Ii was proposed to let the State
tax two-thirds OF the aggregate amount and the
counties and cities one-third. according to the
mileage rate in each particular county or city.
taxes alone about $400, 900 year and provide
n proper distribution between State and locali-
ties This such decided increase that
the railroads in their representations to the
committee pleaded not only for more grad
uai increase but for a different method. They
argued that because of various concentrations
during the lean years a great deal more stock
outstanding In the shape of successive
issues under the various managements than
represented the real value of the franchise. and
they suggested simpler plan. protesting, how
ever, against any constitutional provision for any
definite plan.
This plan was in principle the same plan
ALREADY in and the same now used As sug-
gested by the railroads in 901, it was the old
property tax plus a seven-mil franchise tax on
gross earnings. Chairman Meredith in ex-
planning the recommendation OF the committee
/ in favor of this plan, said:
After due consideration we came to the
conclusion that, as that tthe capitalization
plan) would perhaps bear pretty harshlv upon
! the railroads. and looking forward
TO control over the rates through the cor
| poration commission, it would perhaps be wiser
not 10 be too hard in the beginning but to be
fair and take reasonable step. so as to get
what would be fair compensation at present
considering the conditions surrounding the COM
panies."
/ The committee did raise the tax from seven
mills to one cent the dollar OF gross earnings
however. 1t recommended also that this method
! be effective for ten years without interference
/ from the legislature, provided that the
poraton commissions power of assessing the
! value of the corporations property the leg
/ islature's power OF changing the rate of prop
erty tax be not affected. There was good
deal of debate the ten years clause, the
opposition arguing that II tied the hands OF
the legislature for a specified time when il
might be necessary to get greater revenue, and
that If the existing valuation of railroad prop
erty OF $4,000 per mile continued-and it was
urged by that 1t shopld be from $40, 900
to $4,000 a mile-~-the legislature could not
I force the corporation to increase the valuation
Fayortism the railroads bitterly charged
and denied In answer to this opposition. how
ever. and emitting references motions IL
was argued by the advocates of the gross earn
ings plan that tho railroads should be en-
oin pfufa 81.