can approach a system which has for its object a constant valuation, the nearer we are to a perfect system of taxation.

The Franchise Tax, which is still the subject of litigation, seems to me through the few years that it has been in operation to have demonstrated that it is inequitable, and a source of annoyance and constant litigation. Some corporations can bear this burden without serious results following. But as is well known, the continued increase of street railroad traffic and the demands for lighting, water, telephone and other public utility facilities have perhaps brought into existence many corporations which cannot bear the excessive burden which is now imposed under the present law.

Under the operation of the Franchise Tax Law it was sought to impose upon all those using streets and highways a greater tax for the privileges thus accorded. There is a great misconception however as to the results produced. A single corporation in the boroughs of Manhattan and the Bronx has seven-sixteenths of the total valuation of such properties in these two boroughs. This corporation is paying as much tax as many great railroad systems. By provisions of the law it is entitled to deductions because of car licenses and percentages paid to the city—at least so the law was interpreted until a recent decision of the court in a case in Buffalo, which held that such tax should not be deducted. The increase in receipts under this law upon the one hundred and sixty-seven millions of franchise valuations in Manhattan and the Bronx, after making all allowances for the tangible properties in the streets and the deductions ordered by the courts of one-third of the total assessment, are four hundred and thirty thousand dollars of new revenue. If this same proportion were carried out therefore in the city of New York it would mean an added

a See Heerwagen v. Crosstown St. R. Co. (1904), 90 App. Div. 275.

revenue to the local treasury of $860,000. The State has accorded to every locality the power to enter into contracts for all franchises which may be granted, and it seemed to me at the time of the enactment of this measure that ample provision was possessed by the cities to properly guard and protect their interests and that to surrender therefore what should belong to the State to the municipalities—that is, franchise rights-was unnecessarily giving away powers which should belong to and which are inherent in the State. With corporations as with individuals we should be fair, and while perhaps these corporations had not been paying the proportion which they should, still whatever is of value for a franchise should be paid for to the State, because it creates the corporation; while for the use of the streets there should be a direct contract between the company seeking such privileges and the municipality affected. I am of the opinion also that under the present law those who might desire to use the powers possessed for taxing purposes could do so to the great disadvantage of almost any corporation or with resultant unfairness to the municipalities affected. It seems to me, therefore, that the only safe and conservative way of assessing such corporations is upon their earning capacity, a plan which would not permit unfair discrimination. This would avoid many complications and would be a much safer system than the one now in operation.

The present method of mortgage taxation is unfair because it reaches only a small proportion of the whole, and permits an excessive tax. Whatever may be the reasoning as to the propriety or justice of imposing such a tax, the experience of other commonwealths has demonstrated beyond any question or doubt that the tax upon mortgages must be paid by the borrower and, therefore, to that extent it becomes double taxation. We must consider, however, the disinclination of local assessors to relieve those who loan money, upon the theory, in which there is much justice,

that if mortgage taxation were entirely abolished a greater burden would be imposed upon real estate free from mortgage debt. This subject presents many peculiar conditions, and, while some hardships may be imposed, it is well for us to understand that it will be impossible to entirely relieve from the ultimate cost of borrowing those who are unfortunate enough to have their houses or lands burdened with mortgage. We have endeavored to protect the borrower, however, by fixing a maximum interest rate. The cheapness of money has reduced this rate, and whenever the lender of money is satisfied that his rate of interest will be as large as he can secure upon collaterals upon which no tax is due, he will loan upon real estate and millions of money that is now invested in other directions will immediately become available for investment in real estate mortgages. We may assume, therefore, that while it is impossible at the present time to entirely eliminate some form of taxation upon mortgages wherever found that we can still satisfy the localities by a more equitable distribution of the tax and thus bring about a lowering of the tax, with the natural sequence a lowering of the interest rate. Whatever tends to correct an abuse in part is in the direction of equity and justice, while not fully satisfying every demand. In view, therefore, of the failure to secure some such equitable form of mortgage taxation through the opposition of those who felt that their local assessment rolls would be decreased and a greater burden of local taxation placed upon real estate, we should not attempt to correct the evil entirely because failure would again result. Whatever of injustice has been done, or whatever of inequality is apparent, can be well considered when the subject of indirect revenue is under consideration. And in framing new laws we can avoid errors which produce hardship by exacting unjust tribute. It appears to me, therefore, that in providing new revenues advantage should be taken of a more

liberal mortgage tax and the reassumption of privileges which were surrendered to localities under the so-called Franchise Tax Law.

I recommend therefore that the rate of taxation upon mortgages shall not exceed four mills annually, and be in lieu of all other taxes, the mortgages to be assessed locally, two-thirds of the amount collected to go into the local treasuries and one-third to the State, excepting only from the operation of this law mortgages and bonds held by savings banks, fraternal orders, local building and loan associations, life insurance companies and charitable, religious and educational bodies. This law would produce as near as can be estimated eight millions of dollars annually, twothirds of which, amounting to about $5,350,000 would go to the localities and $2,650,000 to the State. The local machinery for the collection of the tax will be much simpler than a State bureau because it will be the local registrar's and county clerk's offices that will furnish the desired information to each locality to determine its assessment, leaving to them the corrections and deductions which should be made. The constant fear that mortgages will be subject to excessive or varying rates of taxation will be thus eliminated and borrowers and lenders can negotiate their loans with a sure knowledge of the tax obligation.1

Bonds of corporations, owing to the difficulty of reaching them for taxing purposes, can be left for assessment under existing law. The Franchise Tax Law should then be amended so that a tax could be assessed upon gross earnings, at double the present State tax, the revenue to be paid direct to the State, relieving public utility companies from local taxation, except upon tangible property in the streets, and other real and personal estate. This will operate much more equitably than does the present law,

1 A mortgage tax bill was introduced in the Senate, but it was not passed. A mortgage tax law was passed in 1905, chap. 729. It was amended in 1906, chap. 532, in 1907, chap. 340, and in 1908, chap. 296. This subject was included in the tax law, which was reenacted in 1909, chap. 62, as a part of the Consolidated Laws.

and will not be an unjust burden upon the corporations that are affected.2 I estimate that from the mortgage tax and the amended Franchise Tax Law the increased revenues will amount to $3,530,000. Whatever may be lost in the total of the assessments under the Franchise Tax Law can be more than replaced by the listing of mortgages, and would therefore increase rather than decrease the debt limit of municipalities for bond issues.

For further revenues I recommend a tax of ten cents on each notary certificate, which will produce $750,000, and a tax of ten cents per hundred dollars for the recording of all transfers of property, real or personal, to be known as a recording tax, which from the best available data at hand will produce $1,200,000 annually, making the total result $5,480,000 in new revenue. These recommendations, if enacted into law, will produce enough funds for the present and the constant increase of receipts under their operation will be sufficient to care for the increased expenditures of the State outside of canal improvement, and will thus redeem the pledge that has been made for entire relief from direct taxation for State purposes.

The enactment of these laws would take away from the localities franchise revenues of $1,325,000. Inasmuch as of the total assessed valuation of the personal property of the State, from the best estimates obtainable, there is only $135,000,000, in the hands of individuals, and assuming that all this represents mortgages and that the tax were two per cent, the localities would lose $2,700,000 by the abolition of the present mortgage tax, so that the total loss would be $4,025,000, while the new income from the

2 In 1906 an act was passed, chap. 474, amending the provisions of the Tax law, section 182, relative to the method of assessing a franchise tax on a corporation. The section was reconstructed and the regulations contained in it relative to this form of taxation were materially modified.

3 In 1905, an act, chap. 241, was passed providing for the taxation of the transfer of stock. The act was sustained in People ex rel. Hatch v. Reardon, 110 App. Div. 821, affirmed 184 N. Y. 431.