CHAPTER XI

PROPERTY TAXES 1

126. Taxes on Property Have Developed from Early
Times. It has been pointed out that taxes first came into
use to meet extraordinary needs for funds. When their
use became somewhat general some definite system of
levy became essential, and the base at first chosen was
property usually land. Records of the tax systems of
ancient Greece and Rome have been preserved with suffi-
cient accuracy to indicate the early use of land taxes in
these countries. With the development of other forms of
property attempts were made to extend the tax systems
to include them as a part of the base, so that in reality a
general property tax was established. There is no indi-
cation, however, that much was attempted in the way of
assessing intangible forms of wealth when they began to
accumulate.

The history of tax development has been much the
same, through the early stages, at least, in most new
countries. Practically all the early English taxes were
forms of land taxes. Gradually other forms of wealth
were added, until a general property tax was the result.
An interesting feature to develop very early in the English
system was the use of the annual return from the land as
the base of the tax, rather than the actual value of the land.

1 In this and the following chapters which treat different kinds of taxes,
no attempt will be made, except occasionally, for illustrative purposes, to
go into the specific problems of individual states. Those who want to
investigate these details should consult such sources as the reports of the
State Tax Commissions and the Proceedings of the National Tax Asso-
ciation.



PROPERTY TAXES 231

In France, Germany, and Italy, the sequence of events
in tax development followed those in England. Land was
the first source drawn upon, to which was gradually added
the other forms of wealth, until the general property tax
was in vogue. Subsequent history shows, however, that
as more and more intangible wealth accumulated in the
various countries, and as the failure in making fair and
equal assessment became apparent, such vigorous opposi-
tion developed that the result has been the practical
abandonment of the general property tax.

Early American Taxes. In the American Colonies the
use of a tax on property came very early. Funds became
necessary, and the officials knew of no better source than
the existing evidences of wealth. In the colony of New
York, for example, as early as 1654 Peter Stuyvesant suc-
ceeded, as previously noted, in having an " honest and
fair tax" placed upon "land, houses or lots, and milch
cows or draft oxen." Soon after this, under the English
rule, the principle of assessing every person in proportion
to his aggregate property became the fundamental rule.
The principle of property assessment continued to be the
center around which all future revenue measures were
formulated.

In some of the Colonies the development of the general
property tax was gradual. Specific classes of property
were designated as the basis for assessment, and frequently
the value of the property was regulated by law. Land,
horses, cattle, and other forms of property were classified
into different grades. Gradually, as the pressure for in-
creased revenue became felt, the category of taxable ob-
jects was extended, until it included all forms of property.
In some of the Colonies also levies were placed upon cer-
tain classes of business and professions.

The necessity of holding land before being admitted to
the full rights of citizenship, as well as the provision in the
Federal Constitution which forbids the levy of export
and import duties by the several states, helped to tighten



232 OUTLINES OF PUBLIC FINANCE

the grip on property as the chief source of revenue. This
situation has continued throughout the development of
revenue systems in the various states; consequently, as
new forms of wealth appeared, it became inevitable that
an attempt be made to assess this wealth by an extension
of the general property tax. Although some of the states
have recently made efforts to place less reliance on its use,
the general property tax still holds the place of primary
importance in the revenue systems of most states and
localities.

127. Democratic Ideals Have Influenced the Tax Sys-
tem. It is difficult to describe the minutia of the workings
of the general property tax by the use of broad generaliza-
tions. Each of the forty-eight states is governed by an
individual constitution, and different ideas prevail among
the older and newer sections of the country as to the
nature and functions of government. One need not be
surprised, then, to find wide variations in the application
of revenue systems the fundamentals of which are the
same. Perhaps the most easily traced are those which
arise because the conceptions as to the functions of gov-
ernment are not uniform.

The most purely democratic form of government on the
Continent was developed in the New England colonies,
and this spirit of democracy still permeates the New Eng-
land states, and those which have been modeled after
them. The machinery and working of the general property
tax in this district corresponds to what one might expect
under such circumstances. The important governmental
unit is small, usually designated as the town or township,
and varies in size from a small city ward in some of the
Eastern states to the regulation township in some of the
states farther west. The burden placed upon each asses-
sor is so small that his duties can generally be performed
in a few days, and do not materially interfere with his
ordinary business. He is elected by his associates, usually
for one or two years, and would naturally be expected to



PROPERTY TAXES 233

have some knowledge of the property which it becomes
his duty to assess.

There is a wide variation in the amount of centralized
control which is exercised over the fiscal machinery in
the region where this type prevails. It may be said to
exist in some degree in the territory north and east of the
Ohio and Mississippi rivers. It would naturally be ex-
pected that this centralized control would be less in those
districts where the ideals of democracy were most firmly
fixed. In the old New England states, therefore, there is
comparatively little supervision from any central authori-
ties. Rhode Island furnishes the most extreme example of
absence of centralization, although the same situation pre-
vails to a less extent in other states.

In Rhode Island the county does not exist in the sense
that it is found in other states. The state provides for
the tax by general statute, determines the amount of the
state levy, and leaves the administrative details entirely
to local authorities. The necessary number of assessors is
elected at the regular town meeting, and these assessors
have broad and practically final powers in the assessment
of property. In some states these ideals of local autonomy
have been less fixed, and the amounts collected for the
counties and states have assumed a large proportion of
the entire tax. Under these conditions there has been a
gradual development of central supervision. County and
state equalization boards have been instituted; super-
vision is exercised over local assessors by county and state
officers, and meetings of local assessors are frequently
held that they may be instructed in more just and efficient
methods of rendering their services.

128. The Southern and Western States Present Cen-
tralized Tax Systems. Less importance is attached to
the duties of local officials in the parts of the country that
failed to develop strong local governments. The planta-
tion type of development in the South did not encourage
local assemblies for the purpose of determining fiscal,



234 OUTLINES OF PUBLIC FINANCE

political, and economic policies. The important adminis-
trative governmental unit in the South, consequently, is
the county, and because of the size of the unit the tax
system is necessarily more centralized than that described
above.

The property in the county is usually assessed by one
or more assessors under the direction of the county court.
Obviously the assessors can know little concerning either
the persons or property to be assessed. Much more re-
liance must be placed upon the declaration of the tax-
payer, and less upon the personal judgment of the assessor
than in the Northern states. Systems to prevent evasion
have been introduced, and penalties have been prescribed
against violators of the tax laws. Property frequently
escapes the assessors, and it becomes necessary to sup-
plement their efforts by those of other officials.

In the Western states the plan of centralization is car-
ried to greater lengths. The county is not an automaton,
but an administrative unit which acts under the direction
of the state. Methods, rates, and the different adminis-
trative features are usually formulated by state officials,
while state equalization boards are maintained to equalize
the assessments among the counties. The extent and
effectiveness of central control have become an important
factor in the success of property tax administration.

129. Some Features of the Early Property Tax Do Not
Now Exist. In the course of its development many
changes have occurred in the nature of the general prop-
erty tax. At its inception it was distinctly a personal tax
levied to secure revenue for local purposes. In the modern
use of the tax the property itself, rather than the owner,
is the fundamental basis of the assessment. The practice
of requiring personal declarations continues to be followed
in a number of localities, but where these cannot be
secured an assessment is made against the property. This
method of procedure illustrates the importance which is
attached to the property aspect. Assessors are usually



PROPERTY TAXES 235

instructed to assess all the property in their district,
whether ownership be located there or not. As the func-
tions of government grew the services rendered by the
locality were supplemented by those of the state and
county, and need for a larger revenue appeared in these
larger political units. The most feasible process to follow
to supply the necessary funds, it seemed, was to use the
machinery already in existence, and to add a state and
county tax rate to the one for local purposes.

Classification of Property. The classification of property
has come with the development of the property tax. The
attempt has been made to designate two general classes
real property and personal property, with the further
division of personal property into tangible and intangible
property. In general, real property refers to land and that
which is attached to it, while personal property designates
movables, or those objects which are more closely related
to personal use than they are to land.

Property does not fall naturally into the above classes,
and the inconsistencies and difficulties which are encoun-
tered in the various states in the attempts at classification
but illustrate the arbitrariness of such a division. A tree
in the forest, for example, is real estate, but as soon as it is
felled it becomes personal property; gravel in the creek
bed is real estate, but as soon as it is thrown out on the
bank it becomes personal property.

One may find court decisions which have classified
property in a purely arbitrary manner. Many legisla-
tures also make arbitrary classifications for administra-
tive purposes. The state of New York, for example,
classes the special franchise value of public utilities as
real estate. It is impossible, then, to generalize as to what
property belongs in each division, but one must rely upon
the more or less arbitrary decisions of legislatures and
courts, the lack of uniformity of which, in the different
states, is striking.

Property and Ability, Changes in economic institu-



236 OUTLINES OF PUBLIC FINANCE

tions have resulted in the situation that the possession of
property no longer represents ability to meet tax burdens.
In a purely agricultural community, in its primitive stage
of development, property was an approximate test of
ability, for here each individual was concerned with real-
izing a return from his land, and the amount of land was
a measure of opportunity and ability. As industries and
trades developed, however, livelihoods came from other
sources than the ownership of property. Some ability to
bear tax burdens must be recognized in the receipt of a
salary or wage, even though there be no possession of
property.

The forms of property have also differentiated with
economic development, so that all property does not have
the same ability to bear burdens. The real criterion of
taxpaying ability is the productiveness of the property.
In the case of two factories or farms, each of the same
value, one may enjoy a profitable year and the other meet
with reverses; the one be able to bear tax burdens and the
other not. In our modern economic organization prop-
erty represents ability to meet burdens only as it is a
productive entity.

130. Marked Variations Occur in the Assessment of
Real Property. The instructions which most assessors re-
ceive require that real estate be assessed at a fair cash
value that is, what it would bring at sale with a willing
purchaser and willing seller. That some method of uni-
form assessment should be used becomes apparent when
consideration is given to the fact that the state and
county taxes on property are apportioned among the
various districts on the basis of the assessed valuation.

Results of Apportionment. The total amount to be ob-
tained by the state is determined and then apportioned to
the local tax district ; a district which had an assessed val-
uation of say $100,000 would be asked to contribute
twice as much toward the state fund as one where the
valuation was $50,000. Counties frequently apportion



PROPERTY TAXES 237

their demands among the townships or tax districts in
the same way, so that the total rate is a composite sum
of the state rate, plus the county rate, and in addition the
rate representing the needs of the local district itself. In
order, then, that the tax burden of the state and county
be equally distributed, it is necessary that some uniform
system of valuation be used. Whether it be full valua-
tion or a partial valuation would make little difference as
long as the same basis was used in all the districts.

It is a matter of common knowledge that anything but
uniformity exists in making assessments. Lands of prac-
tically the same nature in adjoining townships and coun-
ties have been assessed at figures in which there is a wide
variation, while a comparison of the assessment figures of
a whole state frequently shows startling results. In some
states the assessed value has ranged all the way from 20
to 100 per cent of the actual value. In adjoining counties
the assessment of railroad property has varied more than
$20,000 per mile.

Such discrepancies in assessment must mean an in-
equality in the tax burden levied by the state and county.
If the same basis of assessment were followed within a
district, and none of the taxes collected went out of the
district, it would make no difference in the burden whether
the property were assessed at 100 per cent or 20 per cent
of actual value. Suppose two farms in this district, one
worth $100,000, the other worth $50,000, and that the
assessment has been at full value. The officials of the
district decide that it is necessary to assess $1,500 against
this property. This will mean a ten mill tax (tax rates
are expressed as the number of mills taken from each dol-
lar valuation), and the burden upon the farms will be
$1,000 and $500, respectively. Let us suppose, however,
that the property had been assessed at 50 per cent of the
actual value, or $50,000 and $25,000. The basis upon
which taxes are to be levied is thereby reduced, and to get
the required revenue the rate must be raised. To secure



238 OUTLINES OF PUBLIC FINANCE

the $1,500 the officials must levy a twenty mill tax, which
imposes exactly the same burden as in the previous assess-
ment at full value.

Suppose, now, that under certain property valuations,
the state levies a five mill tax, the county a ten mill tax,
and each local district a five mill tax. The actual prop-
erty values in the districts, let us assume, are practically
equal, but the assessor in one district values it at 100 per
cent; in another at 50 per cent, and in still another at
20 per cent. The inequality which arises from collecting
a twenty mill tax, the total of the three rates, at once
becomes apparent. The property assessed at full value
is paying twice as much to the state and county as that
assessed at 50 per cent and five times as much as that
assessed at 20 per cent.

The Local Assessor. It is too much to expect that
assessors for a whole state, or even for a county, will have
the same ability in appraising property, or would use the
same basis of calculating values, even though their abili-
ties were approximately equal. The qualifications of as-
sessors, moreover, frequently leave much to be desired.
The remuneration is so small that men of ability do not
care for the task, and it is left to be performed by men of
little ambition and second-rate qualifications.

The fact that a goodly portion of the revenue collected
in most districts is turned over to the state and county,
makes it desirous to the property owners that their as-
sessments be kept low. It is one of the expectations of a
satisfactory assessor that he keep values down. In order
to receive the votes of his constituency for a continuance
in office, therefore, he too frequently, from the standpoint
of justice, attempts to do what is expected of him.

The assessor must frequently make returns under oath
that he has made the valuation to the best of his ability.
In one of the states where the discrepancy between the
actual value and the assessed value is most flagrant, the
assessors subscribe to an oath in which they declare that



PROPERTY TAXES 239

the assessment has been made at the full value of the
property. In the same state a statute provides that an
assessor who falsely subscribes to an oath shall be liable
to the penalties of perjury, which are both fine and im-
prisonment. As yet it seems they are still liable for the
punishment, but have not received it.

131. Much Personal Property Is Not Assessed. The in-
equalities in real estate assessments fade into insignificance
when the results of the attempts to reach personal prop-
erty values are brought in review. If assessors have been
unable to give a semblance of equality in the assessment
of real estate, how much less could satisfactory assess-
ments of the multitudinous forms of personal property be
expected. When one considers the task which devolves
upon the assessor when he is instructed to get the value
of all property, there is little wonder that results are so
uncomplimentary.

The early assessor, in valuing personal property, had
but to consider live stock, agricultural implements, and
other objects which were easily discernible, and the value
of which was well known. To the modern assessor, how-
ever, the assessment of tangible objects of personalty
presents a problem which is more complex. Public utili-
ties, factories, wholesale establishments, retail stores of
various kinds, and the many other institutions whose
business is of a complex nature, may be in his district. In
a number of states the assessor is required to secure the
full and true value of all the property as it is on the first
day of April, or " assessment day," as it is sometimes
called. Consider the magnitude and impossibility of the
task. He must locate and appraise the value of the rolling
stock and equipment of the public utilities; he must
evaluate the machinery in the factory, the raw materials
and finished products on hand; he must assess the stock
of goods contained in the wholesale establishments, as
well as those in department and simple retail stores. To
concede even the possibility of anything like satisfactory



340 OUTLINES OF PUBLIC FINANCE

results presupposes a degree of intelligence and ability
not likely to be found in the ordinary assessor. Indeed,
few would claim to possess sufficient qualifications to fit
them for such a task.

Intangible Property. To the burden of assessing the
various forms of tangible property is added the task of
securing the value of intangibles, and here the property
tax system becomes confusion worse confounded. A re-
flection on the nature of much of the intangible property
immediately leads one to sense the difficulty. One writer
partially describes it as follows:

Thus a large part in fact, the larger part of what is to-day termed
personal property, in every civilized state, is of the most intangible
character, and in a great part invisible and incorporeal; such, for ex-
ample, as negotiable instruments in the form of bills of exchange,
state, municipal, and corporate bonds, and the multiplied forms of
evidence of indebtedness, certificates of stocks, copyrights, patents,
legal-tender notes, etc., all of which, if entitled to the name of property,
is, through a great variety of circumstances, constantly exposed to fluc-
tuations in value, frightful in amount, and incalculable in their sudden-
ness, and under the influence of which wealth vanishes as if by the wave
of a magician's wand. It is offset or measured by indebtedness which
may never be the same one hour with another, is easy to transfer, and as
essential to using, is, in fact, continually transferred from one locality
to another, and from the jurisdiction of one state to the jurisdiction
and laws of another and different state; is here to-day, gone to-mor-
row; is burned, sunk at sea, lost in mines, patents, railways, factories,
trading associations, and in a thousand other different ways. It has
been recently said that five men who do business in Boston can to-
gether control or dispose of an amount of property which equals one-
fifteenth of the entire assessed valuation of that city; and that they
could, if they pleased, carry round the evidence of the existence of that
property in their coat pockets, or, according to popular theory, the
property itself. 1

This description vividly portrays the nature of what the
assessor is expected to value, and it is little wonder that
he takes the path of least resistance, places on the assess-
ment roll the property which is easily found, and allows the rest to escape. When we consider, moreover, that the
laws designate all such evidences of wealth as stocks and
bonds to be assessable property, it becomes evident that,
in most districts, the assessed value of personalty should
far exceed that of real estate. Yet it is a notorious fact
that nowhere does the value placed upon personal property
even approximate that placed upon real estate. In some
states where there has been a large increase in the real
estate valuations, the assessed valuation of personal prop-
erty has actually decreased. It is a very common situa-
tion for personal property to bear less than 20 per cent
of the tax burden, and it frequently falls as low as 3
to 5 per cent.