In the taxation of transportation companies, the main trend of legislation has been away from the local general property tax, toward a scheme of local taxation based on real estate only. It will be recalled that the property valuation method, which prevails in the majority of the states, in nearly every case provides for the local computation and collection of the state tax on the basis of values apportioned by a state board, and in most instances, in addition, for a local tax at the usual local rate upon the same apportioned values. This method must not be confused with the local general property tax pure and simple. In its administration at least, it is quite distinct; and in effect, it amounts to much the same thing as, for instance, the West Virginia method, by which the tax is entirely computed and collected by state authorities, with a subsequent distribution of a portion of the proceeds among the local districts. In reality, the only tax which in these cases remains exclusively subject to local control is the tax on railroad property, situated outside of the right of way; and this in actual practice applies only to real estate. In a number of states, the complete separation of the sources of state and local railway tax revenues has already been effected. Upon the whole, this has been a practice of growing significance. But it has not been unattended with opposition, especially from the local districts, where it is urged that the removal of so large a source of revenue operates with injustice to the local divisions. There are many, too, who, for other reasons, regard the policy of separation as a dangerous innovation, especially should it apply to the taxation of corporations in general. In line with the attitude of the Maine Tax Commission of 1889, they deem it unwise "to sever the financial ligament which now closely unites the state government with the town, and in fact with every individual." Whether the policy is a wise one or not is still an open question. The practice of the states, at any rate, appears upon the whole to be pointing in that direction. ticularly in the case of railway taxation, the legislation of the past fifty years has tended to expand the taxing sphere of the more central authorities to the restriction of the sphere of local activity. Par In several states, as in New Hampshire and West Virginia, where railroad taxation is exclusively a matter of state administration, the plan of locally apportioning a share of the proceeds of the state tax in aid of local finances is in vogue. Although this practice is not at present of very great significance, in the event of the further general assumption of the functions of railroad tax administration by state authorities, its adoption, at least during transitional adjustments, might be expected as a matter of practical fiscal necessity. In Minnesota railroad taxation is practically distinct from local activity. There, railroad property, excepting lands granted by the state or by the United States, is exempt from local taxation. But this is altogether exceptional, the preponderance of state practice being on the side of a local tax on railway real estate. CHAPTER XVI INHERITANCE TAXES IN THE UNITED STATES 62. The Development of Inheritance Taxes. Solomon Huebner describes the development of inheritance taxes in American states, as follows:1 While most of the progressive nations of Europe have for many years used the inheritance tax extensively as a means of perfecting their systems of taxation, its development in the United States has taken place almost wholly within the last decade. The American commonwealths, in fact, have just emerged from the first stages of inheritance tax reform; for until about 1895 the legislation was confined almost exclusively to an extension of the tax to collateral heirs. Inasmuch, however, as twenty-four states, or over one half of the total number, have introduced the tax since 1890, and seven states almost simultaneously in 1901, the movement may now be said to have attained a distinctly national importance. The probable direction of this movement in the future constitutes an important question, which can be best answered by analyzing its past development. The successive stages of this development may be conveniently discussed under three periods, the first comprising the history of the tax from its adoption by Pennsylvania in 1826 to the year 1890, the second extending from 1890 to 1900, and the third comprising the legislation of the years 1901 and 1903. (During the period from 1826 to 1890, Mr. Huebner shows that some of the states imposed light probate fees or taxes, and that a few imposed light taxes on collateral inheritances. Except in Pennsylvania and Maryland, all of the taxes established 1 Reprinted, with consent of author, from the Quarterly Journal of Economics, August, 1904. prior to 1885 were abandoned for various reasons. In 1885 New York established a 5 per cent tax on collateral inheritances, which soon began to yield considerable revenue and was subsequently a model for taxes introduced in other states. Thus at the close of this first period the inheritance tax was used by only a few of the Eastern states.) LEGISLATION FROM 1890 TO 1900 The period between 1890 and 1900 was one of rapid growth. With the exception of 1890 and 1898 every year saw new states added to the list, and by the close of the decade eighteen new taxes were in operation. Associated with this rapid increase in the number of taxes there was also a strong disposition to improve the tax itself. Two new tendencies appeared prominently for the first time; namely, the introduction of progressive rates and the extension of the tax to direct as well as collateral relatives. In accordance with these tendencies ten states supplemented their collateral inheritance taxes with taxes on direct heirs. Schemes for the adoption of progressive rates were also constantly brought forward, and several radical measures succeeded in passing the lower branches of the legislatures. A considerable number of the new taxes still applied only to collateral heirs. Of the twenty-one states establishing such laws during this period, over one half applied the tax exclusively to collateral heirs. In all of these states the original rate was 5 per cent, except in Louisiana, Maine, North Carolina, and Ohio, where the rates were 10 per cent, 2 per cent, 1 per cent, and 3 per cent respectively. Before the close of the decade, however, the acts of Louisiana and North Carolina were abolished; while in Ohio, Maine, and Connecticut the rates were changed to 5, 4, and 3 per cent respectively, thus placing the rate at 5 per cent in all of these states except Maine and Connecticut. 1 Massachusetts, Laws of 1891, ch. 425; Tennessee, Acts of 1893, ch. 174, P. 347; New Jersey, Acts of 1892, ch. 122; Acts of 1894, ch. 210; Ohio, Laws of 1893, p. 193; Maine, Laws of 1893, ch. 146, p. 168; California, Laws of 1893, ch. 168, p. 193; Vermont, Laws of 1896, No. 46, p. 38; Virginia, Laws of 1895–96, p. 367; Iowa, Laws of 1896, ch. 28, p. 35; Missouri, Laws of 1899, p. 328; Louisiana, Laws of 1894, No. 130, p. 165. This act applied only to foreign heirs. The original property exemption was $500 in all cases except Massachusetts, Ohio, Wisconsin, Minnesota, Vermont, Iowa, North Carolina, Tennessee, and Virginia, the first two states exempting $10,000, Wisconsin and Minnesota exempting $10,000 and $5000 respectively on personal property, Tennessee $250, Vermont and Iowa $2000 and $1000, while North Carolina and Virginia subjected the entire estate to the tax. The Wisconsin and Minnesota laws, however, were nullified by the courts; North Carolina repealed its law in 1899; while Massachusetts and Ohio changed their $10,000 exemption to $500 and $200, thus leaving the property exemption for collateral relatives at $500 in all of these states except five. In this connection it should also be said that there existed a marked tendency to exempt bequests for charitable, educational, religious, or purely public purposes. This policy began in New York and Connecticut in the previous period, and was extended to ten states in this period, Iowa, Massachusetts, Montana, Vermont, California, Illinois, Maine, New Jersey, Ohio, and Virginia. Of these ten states only the first four provided for such exemptions in their original laws, all the remaining states adopting the policy by subsequent acts. Moreover, Louisiana, California, and Missouri provided that the entire proceeds of the tax should be applied to specific purposes, and not to the general expenses of the state. Louisiana devoted the proceeds to charitable purposes, California applied the tax to the general school fund, and Missouri appropriated it for higher education. Lastly, we must notice the two tendencies which particularly distinguish this period from the former one; namely, the marked effort to introduce a progressive rate and to apply the tax to direct heirs. (Mr. Huebner then discusses certain unsuccessful attempts made in the legislatures of five states to introduce progressive rates.) Of the successful attempts at direct or progressive taxation, New York afforded the first instance in 1891 by supplementing its collateral tax with a tax on direct heirs, and was followed in 1893 by the direct tax of Michigan. In 1894 followed the |