including four of the larger cities, whose annual payments for interest and sinking fund purposes consume from 40 to 71 per cent of their gross tax revenue.1 Perhaps the most striking illustration of increasing demands upon government is seen in an act of 1913, which compels a levy of one-half mill upon each dollar of taxable property in each county, the proceeds to be used for the construction and maintenance of market roads. This levy is superior to all limitations upon the tax rate, and the legal maximum rate is therefore now fifteen and one-half mills. Other departures from the Smith law grew out of the disastrous floods which visited large areas of Ohio in the spring of 1913, and necessitated large emergency expenditures for repair and reconstruction of roads, bridges and other public improvements. Public authorities were at once authorized to borrow money for these purposes and to levy taxes for interest and sinking fund payments without regard to existing limitations upon the borrowing power or upon the tax rate.3

The pressure upon the revenues from property taxes has, moreover, been somewhat augmented by the reduction in the revenues from the liquor traffic under the constitutional amendment adopted in 1912, which limits the number of saloons to one for each five hundred of the population. This had the effect of reducing the number of saloons in the forty-three "wet" counties of the state from 8,485 to 5,523.5 The excise tax on saloons is $1,000; so that the revenue of the state and

1 Governor's Message, July 20, 1914.

2 103 Ohio Laws, 155, amended by 102 Ohio Laws, 862. This act followed hard upon the defeat of a proposed constitutional amendment in 1912, which would have permitted the issuance of $50,000,000 of bonds for similar purposes.

103 Ohio Laws, 141, amended by 103 Ohio Laws, 760.

• Section 9 of Article XV, Constitution of Ohio.

Statement by Auditor of State to press, April 29, 1914.

its subdivisions from this source declined $2,962,000.1 Of this loss of revenue, more than $1,500,000 fell upon the eight counties containing the largest cities of the state (those having over 50,000 population in 1910).2 So precarious had the financial condition of the cities become by last spring, that a commission was created to investigate the subject, altho hopes are entertained that the difficulty will be relieved by the improvement in the assessment of property, which is next to be discussed.

4

III

The recommendation by the constitutional convention and the adoption by the people of the amendment re-enacting the uniform rule and restoring the tax upon municipal bonds was quite naturally interpreted by the tax commission as a mandate from the people to draft a bill which should not only provide the administrative machinery believed to be necessary to secure an efficient assessment of property, but should so revise the definitions of taxable property and the rules of valuation as to conform to the commission's idea of a general property tax, and include property and values now untaxed. These ideas were submitted to the governor and assembly in the form of a bill with explanatory notes."

1 Since the revenue from the liquor traffic is divided among state, county, and city or township in the ratio of 3, 2, and 5, local liquor revenues declined more than $2,000,000. The loss of revenue to the state was compensated by certain fees payable to the state liquor license board.

? The estimates of revenue are based upon statements given to the press. The total revenue from the liquor traffic is likely to be somewhat increased under the "home rule" amendment adopted November, 1914, which substitutes local option for county option on the question of saloons. But this can hardly increase the revenues of the larger cities, which were already "wet."

104 Ohio Laws, 192. The commission is to report in December, 1914.

See above, p. 486.

Recommendations of the Tax Commission of Ohio. Columbus, February 20, 1913. P. 123.

The bill proposed to make changes (1) in the administrative machinery, (2) in the definition of taxable property and the rules of valuation and situs, and (3) in the provisions for the collection of taxes. Since the collection of taxes is a phase of tax administration quite distinct in interest from the principles of taxation and the assessment machinery intended to enforce the principles, it may be passed over in this paper.1

Altho the sections of the bill which proposed to change the definition of taxable property and the rules of valuation did not receive legislative sanction, it seems worth while briefly to discuss them because they show what measures the state may be driven to adopt, by the pressure for more revenue, if it adheres to the general property tax and to rate limitation. The spirit of the bill is well suggested by the definition of the term " personal property" to include

"every thing, interest, right or privilege, all and singular, of whatsoever kind, name, nature or description, being the subject of ownership, which the law may define or the court interpret, declare or hold to be property, whether animate or inanimate, tangible or intangible, corporeal or incorporeal, other than and not forming part of a parcel of real property, as defined in this chapter. . . . Other sections of the bill define with considerable particularity various specific kinds of property. Mortgages are defined as money loaned by residents, secured by lien on real estate without the state; money loaned by residents or non-residents and secured by lien upon real estate within the state; and all sums owing to residents or non-residents, secured by lien on any real or personal property within the state and belonging to any corporation or public utility. Mortgages and bonds secured by lien on property within the state could thus be inevitably taxed, wherever owned, by making the tax a lien on

1 This part of the commission's proposed bill was introduced in the Senate by Mr. Haas, but did not come to a vote.

the mortgaged property; but no deduction from the valuation of the mortgaged property was contemplated, as is the usual practice where mortgages are taxed where the encumbered property is located.

It is obvious that the adoption of this proposal would result in a much more flagrant case of double taxation of mortgages than the present system. Nor does it seem likely that such a plan would successfully run the gauntlet of the federal courts. In the leading case of State Tax on Foreign-held Bonds, arising in Pennsylvania, the court held that bonds owned by non-residents, altho secured by a mortgage upon property situated in the state, are property beyond its jurisdiction. In explanation, the court remarked that in Pennsylvania, a mortgage, tho in the form of a conveyance, is a mere security for a debt and transfers no estate in the mortgated premises.1 In essential harmony with the Foreign-held Bonds case, the supreme court has since explicitly held that due process of law is observed and equal protection afforded, where the mortgage is taxed as land, wherever owned, and the mortgagor is permitted to deduct the mortgage from the value of his property. The tax commission of Ohio expressly refused to regard a mortgage as an interest in real estate: to do so would imply the right of the mortgagor to deduct the mortgage debt from the value of his property for purposes of taxation.

Several later cases have upheld the right of a state to tax credits belonging to non-residents when those credits are in the hands of a resident agent, or arise from a regu

115 Wallace, 300.

Apparently in

↑ Savings and Loan Society v. Multnomah County, 169 U. S. 421. the effort to justify the Oregon legislature in regarding a mortgage as land, the court rejected its earlier interpretation of the Pennsylvania law as to the character of a mortgage there. See also Goodnow, "Congressional Regulation of State Taxation," Political Science Quarterly, vol. xxviii, pp. 405, esp. 412, 413 (September, 1913).

lar business carried on in the state. The non-resident investor in the mortgage bonds of Ohio corporations or in mortgages on Ohio real estate will not ordinarily fall within these classes, and hence, it would seem, cannot be taxed by the state of Ohio except at the cost of permitting the mortgagor whether corporation or individual to deduct the debt from the value of the taxable property.

The present law defines credits as the excess of legal claims over bona fide debts. The proposed bill sought to increase the amount of taxable property by excluding mortgages from the category of legal claims, thus preventing the deduction of debts from the value of mortgages owned in arriving at their taxable value. This proposal was strongly opposed by domestic insurance companies, whose legal reserve is chiefly invested in mortgages and is therefore practically exempt from taxation under the law permitting the reserve to be regarded as a debt for purposes of taxation.2 It was further proposed to confine the deduction of debts to those owing to residents.

3

The bill proposed also to tax the shares of all corporations at full value unless the entire corporate property was taxed in the state, but this proposal occasioned such a storm of protest that the commission so far yielded as to propose (in the bill as introduced in the house) to tax such shares in that proportion of their value which the

1 New Orleans v. Stempel, 175 U. S. 309; Bristol v. Washington County, 177 U. S. 133; Metropolitan Life Insurance Company . New Orleans, 205 U. S. 395.

2 Section 9357, General Code of Ohio.

It had been the policy of the state since 1846 to exempt from taxation the shares of corporations all of whose property was taxed within the state. Acts of 1900 and 1902 exempted, under certain conditions, the shares of foreign corporations at least twothirds of whose property was taxed within the state, and an act of 1904 exempted the shares of all domestic corporations. The last mentioned act would appear to be clearly unconstitutional, while the constitutionality of the act of 1902 has been questioned by high authority. See Report of the Honorary Tax Commission, 1908, p. 13, and Report of the Tax Commission, 1911, p. 5.