“There is evident injustice in the light taxation of corporations. I have not the slightest sympathy with the outcry against corporations as such, or against prosperous men of business. Most of the great material works by which the entire country benefits have been due to the action of individual men, or of aggregates of men, who made money for themselves by doing that which was in the interest of the people as a whole. From an armor plant to a street railway no work which is really beneficial to the public can be performed to the best advantage of the public save by men of such business capacity that they will not do the work unless they themselves receive ample reward for doing it. The effort to deprive them of an ample reward, merely means that they will turn their energies in some other direction; and the public will be by just so much the loser. Moreover, to tax corporations or men of means in such a way as to drive them out of the State works great damage to the State. To drive out of a community the men of means and the men who take the lead in business enterprises would probably entail, as one of its first results, the starvation of a considerable portion of the remainder of the population.
“But while I freely admit all this, it yet remains true that a corporation which derives its powers from the State should pay to the State a just percentage of its earnings as a return for the privileges it enjoys. This should be especially true for the franchises bestowed upon gas companies, street railroads and the like. The question of the municipal ownership of these franchises can not be raised with propriety until the governments of all municipalities show greater wisdom and virtue than has been recently shown, for instance, in New York City; and the question of laying and assessing the tax for franchises of every kind throughout the State should in my opinion be determined by the State itself. I need not point out to you that in foreign communities a very large percentage of the taxes comes from corporations which use the public domain for pipes, tracks and the like.”
I stated that the power of assessing the tax on franchises should be left with the State authorities—not the local authorities—because in my view this was desirable both for the sake of providing against improper favoritism of or discrimination against corporations by the local authorities, for the sake of working equity as between the franchises in different localities, and finally for the sake of providing for the cases where a railroad or telephone or telegraph line runs through several different communities.
Many representatives of corporations owning franchises heartily approve of having them properly taxed; and I am confident that, in the end, this will be of positive benefit to the franchise owners, and in no way oppressive to them, save as all taxes are oppressive to all owners of property.
The line of cleavage between good and bad citizenship does not follow the line dividing the men who represent corporate interests from the men who do not; it runs at right angles to it. We are bound to recognize this fact, to remember that we should stand for good citizenship in every form, and should neither yield to demagogic influence on the one hand, nor to improper corporate influence on the other. There is no intention of oppressing people who have put their money into franchises. We recognize that, as in the case of all legitimate business, they benefit not only themselves but the community at large. If a franchise is worth very little, it should be taxed very little; but where the franchise is of great value, it certainly should be heavily taxed; and the value is of course based upon the use of the city’s or State’s real estate. Such use of the public real estate should not be given without substantial returns; returns not only in the way of service to the public, which of course a street railway or a gas company gives, precisely as the proprietor of a grocery or dry goods store gives it, but also in the way of bearing a just share of the burden of taxation; again, precisely as the owner of the grocery or dry goods store bears his share, the difference being that a railroad company, for instance, owes infinitely more than the proprietor of a big business establishment does, to the real estate itself. Of course, this value differs greatly in different places. Where population is dense, as in New York City, the real estate along which the tracks are laid on Broadway may be worth an immense amount for every lineal foot, exactly as the real estate fronting this portion of Broadway is worth an immense amount for every lineal foot. In sparsely settled districts, however, the value of the real estate of the railroad will diminish greatly, just as the value of the realty through which it runs diminishes.
I am perfectly well aware that as Chief Justice Marshall says: “The power of taxation is the power of destruction.” But this applies to every species of property. If demagogues or ignorant enthusiasts who are misled by demagogues could succeed in destroying wealth, they would of course simply work the ruin of the entire community; and first of all, of the unfortunates for whom they profess to feel an especial interest. But the very existence of unreasoning hostility to wealth should make us all the more careful in seeing that wealth does nothing to justify such hostility. We are the true friends of the men of means, we are the true friends of the lawful corporate interests which do good work for the community, when we insist that the man of means and the great corporation shall pay their full share of taxes and bear their full share of the public burdens. If this is done, then sooner or later will follow public recognition of the fact that it is done; and when there is no legitimate basis for discontent, the American public is sure sooner or later to cease to feel discontent.
The Legislature passed, and there is now before me, a bill for the taxation of franchises by treating them as realty. After watching the progress of this bill I became convinced that the opposition to it was less to its particular features than to the general principle of taxing franchises in any way; in other words, I became convinced that any really effective measure of taxation aimed at franchises would be vigorously opposed. It therefore became of the utmost importance to secure this year some statutory enactment which would distinctly recognize the principle which we seek to establish. Toward the end of the session it became evident that the influences against the taxation of franchises would be content with nothing save the defeat of any measure of substantial relief; and a measure of less than substantial relief I would not accept. Finally it became evident that the Legislature could pass only one bill and that without amendment. I therefore sent in a special message asking for the passage of this bill. It was passed on the last day of the session. It represents a long stride in the right direction, and one from which there must be no retrogression.
Nevertheless, it can be greatly bettered if amended in two important particulars. In its essential principle, that of taxing franchises as realty, it is right and proper. After much study of the question, I am convinced that in this way we can come nearer to doing justice than in any other which has as yet been proposed. It is no new thing to treat franchises as realty. They are so treated in Washburn’s work on real property, and by Chancellor Kent; but under the laws of New York as they are now a franchise can not be taxed except by special statute, and as a matter of fact this extremely valuable species of property is in very many, if not in most, cases untaxed or taxed far below its value in comparison with other kinds of real estate. Local franchises are granted for various purposes and under varying conditions; sometimes by special statute and sometimes by the municipal authorities under a general statute. The value of the franchise of course varies widely in different localities, depending upon a variety of circumstances; but a great part of its value is dependent upon the same causes which operate to make other kinds of real estate more valuable in one locality than in another. The franchise is inseparable from the property of the corporation in the street, whether this property consists of poles, pipes, or tracks, above the ground, under the ground, or on the ground. The right to lay a railroad track and operate a railroad in a public street can not be separated or dissociated from the railroad itself. This is equally true of the right to lay water and gas mains and the like. The franchise is a necessary and inevitable element of value and is a proper subject of consideration in determining the taxable value of the real property of the corporation enjoying it. The right to occupy a street should not be classed as an intangible something, distinct from the other property of the company, but should be treated as a necessary incident to the tangible property and one to be considered in measuring the value of the whole property. The Nichols law in Ohio which provides for the taxation of certain kinds of corporations such as telegraph and telephone companies and the like, doing business in the public streets, proceeds along these lines, and has in practice been found to work admirably. It is possible that further experience may enable us to find some better method of taxing franchises, but with our present knowledge it is certainly wisest to tax them as realty.
Under the bill before me the assessment will be levied by the local authorities. This would result in many cases in a dozen different sets of local authorities assessing the value of different parts of the same franchise. It is on every account far better that this assessment should be delegated to the State authorities who will necessarily ascertain all the conditions affecting the franchise and obtain information which will enable them to judge of the value of the franchise in the different localities in which it is exercised. The Board of State Tax Commissioners can collate the facts, compare conditions and determine values as a result of a wider range of observation and experience than can be obtained by local officers, and under them the system of assessment will tend to produce justice, harmony and uniformity. This is the system adopted under the Nichols law and it has worked well in practice.