USA > Rhode Island > Providence County > Providence > State of Rhode Island and Providence Plantations at the end of the century : a history, Volume 3 > Part 27
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upon the schools of the Catholics. It exempted only "buildings for frec publie schools or for religious worship" and the land upon which they stood to the extent of one aere, so far as both land and buildings were used exclusively for such purposes. Under this law the rented property and invested funds of sueh institutions and the school prop- crty of the Catholic church and other semi-private educational insti- tutions were taxed. The Supreme Court in a test ease which was presented to it deelared that the Catholic sehools were not "free public sehools" in the statute sense of the words. Continued agitation in favor of extending exemptions to the sehools of the Catholic church resulted in the passage of a law to that effect in 1894. Charitable institutions were also added to the list of those whose buildings and land to the extent of one aere were freed from property taxes. There can be little doubt that such laws, in as far as they relate to religious property, violate the striet letter of the state constitution, but in view of the inealeulable value of religion as a conserver of our political institutions, the statute law of exemptions is much more sane than the antiquated narrowness of the constitution of 1842.
The deduction of personal indebtedness from the valuation of per- sonal property, provided for in the valuation laws of 1766, beeame a part of the general law of the state in 1857. Soon after the Rebellion it was provided that personal indebtedness should be reduced by the amount of government bonds owned by the tax payer, and only the balanee of his indebtedness should eount in offsetting the value of his personal property.
The property of Brown University and that of its professors was exempted by its eharter, granted in 1764, but by an agreement with the University corporation in 1863 the exemption of the property of its professors was limited to $10,000.
A potential Jaw relating to exemptions was passed in 1892. By it town electors were empowered to exempt manufacturing property from taxation for a period not exceeding ten years. Some towns have taken action under this law and certain large manufacturing prop- erties have been exempted. The constitutionality of the law, how- ever, is doubted by many and publie opinion is generally opposed to it.
In discussing the law of taxation as applied to corporate property, it will be well to recall the fact that by a law passed during the Revo- lution real estate was taxable to the oecupier. The peculiar nature of the corporation as a legal personality capable of owning all sorts of property, although recognized in the eharters which were issued to banks and insurance companies about the beginning of the present eentury, does not seem to have been considered by the tax assessors. It is not improbable, therefore, that the oeeupiers' tax then in vogue may have been the cause of the euston, which was adopted by the assessors of taxing the first corporations for their real estate only.
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At the same time stockholders were taxed for their stock held in such corporations, and if such stock had been taxed at its full value, the results would have been double taxation of all real estate owned by the corporation. But as property was then not assessed at more than two-thirds of its real value, perhaps little injustice was done. With the introduction of the manufacturing corporations, however, the forms of corporate property began to be more complex, and it became necessary for the laws to specify to whom the various forms of it should be taxed. The law of 1822 declared that the waterwheel, the main shaft and other fixed machinery should be considered real estate, and that picking and carding frames and other movable machinery should be considered personal property. The custom of taxing real estate to the occupier and personal property to the owner, when coupled with this law, resulted in taxing fixed machinery to the cor- poration and movable machinery to the stockholder. By a law of 1844 machinery of every kind and nature propelled by stcam or water power was taxed at its locus to its owner, and fixed machinery was declared to be real estate only when owned by the owner of the build- ing to which it was attached. In 1849 the list of especially taxed property was increased so as to include "merchandise, stock in trade, lumber, coal, stock in livery stables, machinery and machine tools belonging to persons not residing in this state". Such property, like machinery, was to be taxed to its owner at its locus.
Corporate forms of industry increased rapidly in number and char- acter between 1830 and 1850. The statute of 1837 first provided for co-partnerships of limited liability, and in June, 1847, the first general corporation act was passed. The character of a corporation as a legal person for purposes of taxation began to be more clearly understood. When, therefore, in 1855, the tax laws were codified, bodies corporate as well as individuals were required to make a personal return of their ratable property. Real estate which, by a change made in the law in 1826, had been taxable either to the occupier or owner, was for the first time made exclusively taxable to its owner. This law also for the first time particularized personal property. It was declared to include all goods, chattels, moneys and effects, debts due from solvent persons and stock and shares in corporations, except those of religious and charitable corporations, and such property followed its owner for purposes of taxation. Machinery, however, and certain forms of tangible merchandise belonging to those residing outside of the state, though classed as personalty, were taxed to their owner where they were located.
It was evident that from the clauses requiring a personal return from corporations, the inference might be drawn that corporations were to be taxed for both real and personal property, while the clauses defining personal property implied that stockholders should be taxed
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for the value of their stoek. If so, both the real and personal property of corporations would be twiee taxed. The courts, however, deeided in the American Bank case, that the personalty of a corporation was represented by its stoek and could alone be taxed to its stoekholders at their residenee. In a codification of the laws made in 1857 an attempt was made to assist the assessors on these indefinite points in the law. It was provided that no shareholder should be deemed liable for taxation for shares held in corporations within the state which in thicir corporate capacity were taxed for the amount of their eapital stoek. In 1872 the words were changed so that shareholders were not taxable for shares held in corporations which in their corporate capacity were taxed for the amount of their corporate property. Such phrases were of little value, however, inasmuch as the early laws did not provide any means of reaching, through the corporation, the names of its shareholders or the value of their holdings. The law of 1872, therefore, also marks a step in advance on these points. Asses- sors were given power to demand the amount of stock held in any corporation by any individual living within their jurisdietion, pro- vided sueh individual was named in the request, and in the returns required of corporations, the par value and the cash market value of their shares and the proportionate amount per share at which their real estate and machinery were last assessed were to be stated. Stoek- holders were to be taxed for the difference between the cash market value and the proportionate value per share of real estate and machin- ery, if any, for which the corporation had been last assessed. These latter clauses were mandatory, and under the eourt's interpretation of them corporations were liable to taxation only upon real estate and machinery.
It is plain from the phrasing of the tax laws that they were framed to meet the needs of a period in which corporations were exelusively confined to banking, insurance and manufacturing enterprises, and with a special reference to the last. Within the last two decades another form of corporation, the business corporation, devoted to the wholesale and retail trade, has become common, but the tax laws of Rhode Island have not been modified to meet the changed conditions. By a premature dietum of the court, rendered in 1887 in the Dunnell Manufacturing Company ease, it was deelared that the laws providing that corporations should be taxed only for real estate and machinery were applieable to all business corporations having a eapital owned in shares. As a result of the inadequaey of the law, therefore, all tan- gible property in the form of stoek in trade, owned by retail and wholesale business corporations, has been brought within the purview of the law intended to apply to manufacturing corporations. It might seem that such property, when owned by those residing outside the state, could be taxed under the elause taxing stoek in trade at its
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locus, when belonging to such persons, but such non-residents have formed themselves into corporations under Rhode Island charters and a Rhode Island corporation is a legal resident of Rhode Island. As a corporation it can only be taxed for real estate and machinery. The curious fact in this condition of affairs is that a Rhode Island corpora- tion, whose stockholders reside without the state, cannot in its capac- ity as a corporation be taxed for the stock in trade with which it does business, but because it is a corporation and a legal resident of the state, its non-resident stockholders cannot be taxed for its personal property. It has been estimated that within the city of Providence alone tangible personal property, in the form of stock in trade to the value of $20,000,000, escapes taxation.
We have seen that toward the end of the last century the custom had been to tax every kind of property, with a few specified exemptions, but it was not the custom of the local assessors nor of the state com- mittees of valuation to tax all property at its full value, although in many cases they claimed to do so. There was a special tax law during the Revolution, directing a full valuation to be placed on all property, but no general law to that effect. In the laws providing for state valuations in 1849 and 1855 provision was made for undervaluation of country land, as had been done in the valuation of 1767. The com- mittee of 1849 was to estimate at two-thirds of their value "all farms and farm lands and waste and unimproved lands except town and village lots". The first law to specifically direct that all taxable prop- erty should be estimated at its "full and fair cash value" was that of 1855.
State valuations have been adopted in 1796, 1824, 1849, 1855, 1874 and 1893. The committee which reported in 1796 seemed to have been actuated by political and sectional motives, rather than by a spirit of justice. A convention held in Providence protested against the report and declared that the committee had made "arbitrary and capricious apportionments" of value to some towns in Providence and Bristol counties, in spite of evidence to the contrary; that in some towns property was estimated by the local committees at its full value, in some at only three-fourths value, in some at fifteen years' rent and in some, entirely regardless of actual prices, in terms of corn at three shillings a bushel; that when the state committee met to equalize the returns of the town committees and make final apportionments, several days were spent in adding sums to certain towns ranging from 25 per cent. to 100 per cent., "without regard to the quantity of land or stock or the number of inhabitants", that when it was decided to reduce the total valuation from $16,000,000 to $15,500,000, reductions of valua- tion were made in those towns which would give the greatest number of votes in favor of the estimate. Washington county, the most fertile in the state, with 18,075 inhabitants, was valued at $2,780,000. Provi-
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denee county, outside the town of Providenec, with poor land, less stock and 17,675 inhabitants, was valued at $3,829,723. The total state valuation was fixed at $15,500,000. The valuation reported in 1824 indieated that local assessors had been for many years in the habit of estimating property at from one-half to two-thirds its fair value. In Newport real estate was estimated at full value and per- sonalty at two-thirds value, and in some of the rate lists eaeh pareel of real estate was defined and the lands distinguished from the improve- ments. The state committee made its report as best it could from the returns of local committees appointed to act with local assessors in making the estimates at full value. The state valuation was fixed at $32,640,000.
In 1849, as we have seen, the committee was instructed to be lenient with country land, but individuals were to report to the town eommit- tees a partieular and exact list or schedule of "all their ratable prop- erty, annual income or productiveness". This last clause indicates an attempt to rate the ability of individuals just as the law of 1744 had done, by means of a "faculty tax". The total valuation was $70,731,- 390 ($49,398,229 real and $21,333,161 personal). The earlier state taxes were apportionments of a lump sum among the towns, except in one or two instances in 1698-99, but in 1849 the method of a ecrtain rate per hundred dollars was set, the sum being only three cents. The same method has been followed sinee. During the war period state valuations were at times abandoned and local valuations formed a basis of the state taxes levied between 1861 and 1868. Very heavy burdens were laid on the people during this period. The rate of state taxes, which was only 6 cents in 1861, was raised to 9 cents in 1862, to 15 cents in 1863, to 25 cents in 1864 and to 40 eents in 1865, remaining at that figure until 1869, when it was reduced to 25 eents.1
Of the 40 cents of taxes assessed in 1865-68, 34 cents was apportioned to debt purposes, leaving 6 eents for ordinary expenses, as had been the case in 1861. The state valuations adopted in 1874 and 1893 indicated that real estate seemed to be valued at 60 per eent. and 85 per cent. of its real values respectively, and that despite the apparent attempts of the laws to aid them in assessing corporate prop- erty, there was in 1874 very little distinction made by assessors be- tween machinery and real estate, all manufacturing property being rated as real estate. In 1893 there seemed to be no standard for valu- ing this kind of property, under valuation being particularly notiee- able. The system of personal property valuations in general was very defeetive. Personal property was thought to be valued in the most
1The rates of state taxation since 1849 have been as follows, the dates being in all cases inclusive: 1849-55, 3 cents; 1856, 5 cents; 1857-60, 51% cents; 1861, 6 cents; 1862, 9 cents; 1863, 15 cents; 1864, 25 cents; 1865-68, 40 cents; 1869-72, 25 cents; 1873, 20 cents; 1874-78, 15 cents; 1879-80, 12 cents; 1881, 15 cents; 1883-87, 12 cents; 1888, 15 cents; 1889-1900, 18 cents.
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careful towns at only 80 per cent. of its real value. Here, as else- where, the heaviest relative burdens fall upon those possessed of mort- gages and those of limited means.
The total state valuation in 1855 had been $118,504,576 ($80,595,174 real and $37,909,402 personal). In 1874 it was increased nearly three- fold, being fixed at $328,530,559 ($243,658,190 real and $84,872,369 personal). There was much opposition to this high valuation and Governor Lippitt commented severely upon it, claiming that the tem- porary state committee was less able to determine values than local assessors. The local valuations of the towns in 1875 were $270,415,- 023. The state committee's valuation of the same property therefore was $58,123,536 (about 21 per cent.) higher than that of the local assessors. No representative of the city of Providence was a member of this committee, and it is interesting to note that the state valuation of the city was $168,547,000, while the local valuation was $121,954,- 000. Thus $46,593,000 of the $58,123,000, excess valuation of the whole state was apportioned to Providence alone. Only six of the thirty-six towns in the state were valued at less than the valuations of the local assessors, those so valued being with one exception wholly farming towns.
A committee report in 1891 proposed a valuation of $396,794,000 ($291,907,000 real and $104,887,000 personal), but this was reduced in 1893 to $359,549,000 ($264,508,000 real and $95,041,000 personal). The total local valuations at the same time were $346,544,000 ($262,- 015,000 real and $84,529,000 personal). The local valuations of 1900 were $407,404,772 ($320,318,384 real and $87,086,388 personal).
In spite, however, of the inadequacy of the tax laws and the impossi- bility of a just state valuation, the state is compelled to rely to a very large extent upon a direct property tax for its income, but the propor- tion of income from it to the total income is growing constantly less. The following figures will illustrate this fact :
Gen'l property tax
Total income ..
1800 $4,300 6,200
1825 $12,500 15,100
1850 $17,0001 84,400
1875 $492,400 786,690
1900 $647,000 1,482,200
The state imposed no corporation taxes until 1881-the taxes im- posed in 1863 being an incorporation tax or a fee for the issue of a charter, at the minimum rate at present of $100 for corporations with a capitalization of $100,000 or less, and $100 additional for every $100,000 of additional capitalization. The most important corpora- tion taxes are levied by the localities, the steam railroads paying only a real property tax to each separate town through which they pass. The peculiar compactness of the territory of the state and the solidarity of its interests would seem to have made it a field particularly adapted
'This was the first year in which property tax had been collected since 1825.
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for some forms of corporation tax, which, either like that of Massaehu- setts or New Jersey, would have furnished a large portion of the state income. But the diversity of interests between the eities and the towns, which, in the eighteenth eentury was illustrated in the struggles between the eommereial and agricultural interests, have resulted in the latter part of this century in a system of unjust tax laws relating to corporate property, and have not been without their effeet in pre- venting the enactment of any laws imposing an adequate state corpor- ation tax.
A franchise tax was imposed on quasi-publie corporations by a law of 1881 at the rate of one per eent. on the gross earnings, on business done within the state, of telegraph, telephone and express companies. In 1898 a tax of one per cent. on the gross earnings of street railways was provided for, unless the dividends of the company exceeded eight per cent. per annum. When the annual dividend shall exeeed eight per cent. the tax is to be increased by an amount equal to such exeess rate of dividend. Of the franchise taxes, that on street railway eompanies is by far the most important, having increased from $17,700 in 1898 to nearly $24,500 in 1900.
Special franeliise taxes may be imposed by the eities and towns upon any of the quasi-public corporations in return for an exelusive franchise. These taxes are imposed under a law passed in 1891, and contracts have been entered into by many of the cities and towns in which electrie light, gas and street railway companies are located. The rate of tax varies from one and one-half to five per eent. upon the gross earnings of such companies. The franchise tax does not exempt sueh companies from a general property tax. The city of Providenee, un- der existing franchise contracts, receives in the form of franchise taxes from street railways, eleetrie light, telephone and gas companies about $107,000 annually.
The state expenditures show a natural growth during this period, due partly to an extension of duties performed in 1800, but largely also to the addition of new duties. The increase of expenditures was delayed in Rhode Island longer than in many other states, as the state did not undertake the building of extensive internal improvements, such as highways and eanals, as did many of the other states about 1830. The interests of inland transportation were here eared for by private enterprises. The state took over the Providenee and Paw- tueket turnpike in the "thirties" and received some ineome from it for thirty years, but like the purchase of two ferries in 1748, the under- taking was not finaneially a success and the receipts after the first few years deereased to about $1,000 a year. The most important act of assistance to transportation was the twelve year exemption from tax- ation granted to the New York, Providenee and Boston railroad.
The marked inerease of state expenditures, therefore, is of a later
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date in Rhode Island than elsewhere, and is due to other causes ; to the aid granted to the public school system, and to that widespread wave of democracy which culminated in the Dorr war in 1842, and broke down some of the barriers of conservatism which had been the natural growth of the freehold franchise. A more liberal electorate, a more liberal legislature and a rapidly growing population-there was nearly a forty per cent. increase in the decade 1840-50-combined to add to the demands on the public purse. In each of the five years ending 1848 there had been deficits in the treasury ranging from $14,000 to $8,000, and they amounted to a total of $69,600. The state debt was over $187,000, and the outgo for some years seemed likely to exceed the income by $10,000 to $12,000 annually. The total expenditures, which in 1800 had been but about $5,800 and had increased to only $18,300 by 1825, suddenly increased in the latter "forties" until maintenance charges alone exceeded $92,000 in 1850.
This date marks the beginning of modern state finances, which can be traced statistically, but before describing the expenditures of the last fifty years, a few topics of special interest need fuller discussion.
The state entered upon the war of 1812 reluctantly. It shared with the rest of New England the feeling that its commercial interests were being sacrificed to national aggrandizement. Governor Jones spoke of it as "a war of conquest", protracted by means ruinous and unnec- essary. The state finances were not in a prosperous condition in 1812, as numerous heavy taxes had been levied to buy up the Revolutionary debt. The sum of $60,000 was borrowed mainly for war purposes, and during the war the sum expended seems to have been about $52,550. Of this amount the United States at various times after the war reimbursed the state to the extent of $42,422.57.
The cost of the Dorr war was $106,044.47, and as the state had no means of meeting the expenses, except by taxation, the expediency of a direct property tax, which had been abandoned in 1825 was discussed, but it was avoided for a few years longer by borrowing from the funds deposited with the state by the United States under the act of June, 1836.
Of the funds which Jackson took from the national depositories and distributed among the states, Rhode Island received $386,611.33. The income of this deposit was by law appropriated to the support of public schools.
Rhode Island as a state with an excessive conservatism born of the freehold franchise and an extreme individualism which limited the state function to the narrowest possible scope, was extremely slow in recognizing the advantages of widespread public education. The first act authorizing the towns to establish free public schools was passed in 1800, after nearly a generation of almost ceaseless agitation on part
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of its advocates. It was at once repealed, and the town of Providence alone maintained public schools until the law was re-enacted with some important modifications in 1828. The state then appropriated $10,000 to be annually distributed among the towns according to the number of children under sixteen years of age. By the same act a permanent school fund was established, $5,000 being appropriated as a nucleus, and all income derived from the taxes on lotteries and auctioneers was devoted to school purposes. The surplus of such income, over the $10,000 to be annually distributed among the towns, was to be added to the permanent school fund. This surplus income was carried in the general balances of the state funds instead of in a special account, but for the first few years seems to have been carefully invested from time to time. In 1833 the demand on the treasury began to exceed the income, and the surplus income of the school fund became a convenient means of forced loans. In 1834 the state owed the fund $12,884.30. Part of this sum was repaid, but in 1838 the state held $14,662 of the school funds. Meanwhile the state had received some of the United States deposits and had loaned them to the various state banks at five per cent. interest, and had appropriated the accruing income to public school purposes, under the same conditions as had been provided for the income from lotteries and auctioneers.1
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