TAXATION OF TELEPHONE COMPANIES IN THE STATE OF NEW YORK

National Tax Association

TAXATION OF TELEPHONE COMPANIES IN THE STATE OF NEW YORKAuthor(s): Hugh TaylorSource: State and Local Taxation: International Conference under the Auspices of theInternational Tax Association: Addresses and Proceedings, Vol. 3 (SEPTEMBER 21-24, 1909), pp.181-191Published by: National Tax AssociationStable URL: http://www.jstor.org/stable/23398594 .

Accessed: 21/05/2014 04:44

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

National Tax Association is collaborating with JSTOR to digitize, preserve and extend access to State andLocal Taxation: International Conference under the Auspices of the International Tax Association: Addressesand Proceedings.

http://www.jstor.org

This content downloaded from 194.29.185.71 on Wed, 21 May 2014 04:44:45 AMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=nta

http://www.jstor.org/stable/23398594?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


TAXATION OF TELEPHONE COMPANIES IN THE STATE OF NEW YORK*

By Hugh Taylor

Federal Telephone and Telegraph Co., Buffalo, New York.

It would be a very interesting study to trace out the evolution of the tax laws of New York State. Most of us can remember

having seen some town which has grown up on the banks of a

winding river, or on the seashore, and trace the resultant confu

sion of streets which have grown to larger proportions than the first street makers had any idea was possible. This is an illus tration of the way tax laws have grown up, based on the primi tive idea, still adhered to in country towns, that everybody must

go personally to the tax collector's office and pay his taxes in hard cash. The first laws framed did not contemplate the pos

sibility of any one person, or corporation, paying taxes in a number of districts and by check. Yet no radical change has been made with a view of overcoming the resulting confusion.

Fortunately it is not so expensive to change tax laws as it is to

* One of the resolutions adopted at the Toronto Tax Conference in 1908 recited that as "In some states the system of taxing the property and franchises of

public service corporations requires the action of a large number of assessing bodies and the laws are frequently indefinite, resulting in costly litigation and

delay in payment of taxes, a rational system of taxation requires greater

simplicity and certainty, and action by the smallest possible number of assess

ing boards." Mr. Taylor was invited to address the Louisville Conference on this subject.

He was prevented from attending, and has submitted the following statement

of the existing system of taxing public service corporations in New York. As

sessments aggregating over one billion dollars are subject to these uncertainties.

Similar difficulties confront officials and taxpayers in other States that retain

local assessment of this class of property. No better illustration than Mr.

Taylor's article could be given of the need for the reforms suggested in the reso

lution quoted. 181



182 STATE AND LOCAL TAXATION

raze houses and lay out new streets. We need not, therefore,

despair of seeing a new tax system put into effect. The State Board of Tax Commissioners themselves recognize

the unnecessary confusion that exists in the tax laws, and any one interested in the subject is recommended to procure from them a copy of their annual report.

Owing to the above-mentioned idea of appearing personally to pay taxes, the tax manager of any public service corporation is largely dependent on local representatives to secure necessary data. He is often hampered, owing to the deficiency of the in formation furnished, and because the local representative is often too busy to give the matter proper attention, or does not think of it at the right time, or does not thoroughly understand what is required of him, difficulties natural enough when one considers the great complexity of the subject.

The business of keeping account of the taxes, examining the tax bills, and handling the necessary details for their payment requires the expenditure of much thought and study, but the work is well rewarded. For the purpose of illustrating this point

it may be stated that the tax department of our company kept one record for a term of forty-four days of the errors made

against the company and in favor of tax officials, and finds that it amounted to the astonishing average of $3.35 per day. A second record of like duration showed an average of $3.68 a

day — say $1000 a year on a total tax payment of $45,000. There are no less than eleven divisions under which the taxes

paid by telephone companies naturally fall, in addition to the new federal corporation tax. They are :

1. Organization Tax. 2. State Capital Stock Tax. 3. Gross Earnings Tax. 4. Mortgage Recording Tax. 5. Special Franchise Taxes. 6. County and Town Taxes. 7. City Taxes. 8. Highwaj' Taxes. 9. Village Taxes.

10. School Taxes. 11. Special Local District Taxes.



TAXATION OF TELEPHONE COMPANIES . 183

The Stock Transfer and Inheritance taxes, though not paid by the company, also require office attention.

The first four kinds are comparatively simple in operation and do not necessitate dealing with a number of assessing and col

lecting officials.

Organization Tax: This is one-twentieth of 1 per cent on the amount of authorized issue of capital stock, due and payable upon the organization of the company, or upon any subse

quent increase in the authorized amount.

Capital Stock Tax: This is a "franchise" tax payable annually in advance to the State for the privilege of doing business as a

corporation, based on the amount of capital employed within the State. The method of computing this tax is extremely com

plicated. In general, its effect is similar to an income tax of

234. per cent, but there is a minimum rate that is heavier on

companies earning a small net income or none.

Gross Earnings Tax: This is a "franchise" tax additional to the capital stock tax, and applies to "transportation and trans mission" corporations. It is one-half of 1 per cent on gross earnings (50 cents per $100). Earnings from interstate busi ness are not taxable under this section.

This tax in effect sometimes imposes multiple taxes on the same earnings, when one corporation owns stock in another,

and receives dividends, each dividend being taxable, although there is a difficulty in determining the proportion of dividends taxable.

State Mortgage Recording Tax: This is a tax of 50 cents on each $100 of principal of mortgage recorded, and must be

paid before bonds can be issued on the mortgage. No trust

company will certify bonds unless they have proof that this

tax has been paid. The bonds, however, are then exempt from

personal property tax in New York. The above taxes are the only ones on which rates do not

fluctuate from year to year, and consequently are the only ones

on which the tax can be approximately figured in advance.

We now come to the group of taxes assessed by and in vary

ing and overlapping jurisdictions at different periods and sub

ject to fluctuating rates.

Special Franchise Tax: This tax is based on the value of the




privilege of using the public highways for wires, etc. The

assessment includes the value of all tangible property used in

connection with this privilege and is made by the State Board

of Tax Commissioners. They certify the amount to local as

sessors, by whom the assessment is then placed on the local roll, to be taxed at the same rate as other real estate.*

The State board is supposed to assess the "special franchise"

at full value. The board gets out a booklet of some twenty-two

pages which telephone companies have to fill out annually.

They take the value of the property reported by the companies as a basis, compare it with the value reported by the town as

sessors, and also take into consideration the earnings shown by the company, the value of the right to be on the highway, and

the general business outlook of the company. There is no defi nite rule guiding these assessors in the performance of their

duty, and the amount of assessment is very largely dependent on their judgment.

County and Town (Township) Taxes: Property on the high ways, though assessed by the State board, is placed on the town rolls to be taxed for county and all local purposes. (The New York "town" is a county subdivision correspond ing to the Western township.) Property which is not on the

highways is assessed by the board of town assessors, and they

also give reports of property on the highway to the State board to enable the latter to check values against our own report.

We have to pay taxes known as county and town tax, the

basis for which is the combined total of the assessment placed

* After ten years' litigation, the Court of Appeals has just decided definitely that this assessment must be reduced or "equalized" to the same percentage of full value that ordinary real estate is assessed by the local officials.

This point was decided in 1902 by Judge Earl as referee, whose opinion as a whole was sustained by the NewtYork Court of Appeals and the Supreme Court of the United States. But as the affirming decisions did not specify the equaliza tion feature, it was disputed by one city and set aside by a lower court last year.

Neither the State nor the local officials can make this equalization, and court

proceedings by certiorari are necessary, involving corporations in a separate proceeding in court for each town, in which they desire to secure a reduction. The result is that in many cases the expense of carrying on the proceedings would amount to more than the amount saved ; thus they are practically com

pelled to submit to an injustice which is acknowledged, but for which the

remedy is too complicated and expensive. Bills to remedy this have been in troduced in the legislature; the only one which passed was vetoed.



TAXATION OF TELEPHONE COMPANIES 185

on our property on the highways by the State board and assessments made by the town assessors on our property off

the highways. The rates differ according to varying needs of the different towns.

In August of each year the assessment roll should be com

pleted, and is open for inspection until the third Tuesday in the

month, which is "grievance day." On or before the 15th of

September a certified copy of the roll is given to the town clerk, and on October 1 the original roll is delivered to the supervisor of the town. The roll is passed upon by the board of supervisors, and on December 15, it is given to the collector. In the mean time the clerk of the board of supervisors has made a transcript of the roll and turned it over to the county treasurer. On July 31 of the following year all property upon which taxes remain

unpaid is sold. Certain corporations are allowed, as a special concession, to

write to the county treasurer, obtain a statement and pay these taxes within thirty days by one check, covering all the county and town taxes for all the towns in the county for one year, with a 1 per cent fee, which fee is paid to the collectors, although they do no work to collect taxes paid in such a manner.

The tax rolls are split up and sent out to the tax collectors in each town at the same time that they are given to the county

treasurer. These collectors are not obliged to give any notice

of the taxes. It is the telephone company's business to find out what they are by writing to the collector, if they can discover his name. The collectors change every year. An additional

penalty of 4 per cent accrues after thirty days. If the col lector can collect within three months, he gets 5 per cent. After

that he must return the tax rolls, whether collected or not, to

the county treasurer, who then proceeds to collect the unpaid taxes at 5 per cent, and gives the collector 2 per cent. For the

sake of getting the extra 3 per cent, the collector does usually send a notice, seldom until after the 1 per cent period has elapsed. Often the county treasurer does not notify the local collectors

that he has been paid, consequently we get notices at 5 per cent,

long after we have paid. Hence arises the necessity for constant

watchfulness on our part, and the keeping of complete records, to avoid duplication of payments.




We usually transact our business with the county treasurer, but often our experience has been that the treasurer's records are

not complete, or are full of errors.

As a result of omissions and errors in the reports sent us by the treasurer, we get within a month or two a request for the

tax from his town collector, with an additional 5 per cent pen

alty. To this we reply, stating that we have already applied for a bill for this tax from the county treasurer, and setting forth

that we must decline to pay the collector, but will wait until

the tax has been reported back to the county treasurer as un

collectible, when we stand ready and willing to pay as at first.

City Taxes: City taxes are separate and distinct from

county and town taxes, and are governed by the charters of the

various cities, each charter being different from every other

in many important respects. In the main, however, they are

levied and collected in much the same manner as the county and town taxes, except that they can be paid without the

addition of 1 per cent for collector's fees.

Companies operating in several cities have to watch their

manager in each city, and have them watch the assessments

and obtain bills for taxes, as the city officials are under no obli

gation to send notices to the main offices, and penalties will

probably be incurred if a complete record of dates on which as

sessments are fixed and taxes levied is not kept and followed up.

Highway Taxes: Each town is divided into various high

way districts to care for the highways. In towns which in

clude a village, the property in the village is not subject to the

town highway taxes, which necessitates an apportionment on

the total valuation for the town, between the village and the

town outside of the village, which is done by the town assessors.

The same difficulty arises here as with village taxes. The town

assessors have not sufficient information to enable them to deter

mine the comparative valuation of the special franchise within

and without the village. The highway tax is collected by the

county treasurers at the same time that they collect the county

and town taxes.

Village Taxes: Village taxes have also to be paid, and the

assessment levied by the State board and by town assessors is

usually adhered to by the village assessors. They have, how




ever, the power to make their assessment independently of

the assessment of the town board, and if their ideas of the value exceed the ideas of the town assessors, they have a perfect right to levy such increased assessment. The rate of tax is subject wholly to the village board, and is spread over the various

village needs, such as lighting, paving, etc. One point to be watched most closely is to see that the assessment in each town on property outside the village does not exceed the total assess ment for the entire town when added to the amount assessed in the villages. Another is to see that taxes are not paid both in

villages for street purposes and again on the same total valua tion to the town for road purposes. In other words, the village assessments should be deducted from the total town assess

ments, and the remaining assessment is all that can be ap portioned for highway tax.

However, the village assessors determine what parts of a

special franchise assessment shall be taxed in the village, but the town assessors decide the apportionment for highway taxes outside the village. Therefore the two parts of a special fran chise assessment sometimes add up to more than the whole.

Villages are divided into four classes, according to population, and the procedure relative to assessments, hearing of grievances, etc., is different in the different classes and is done on different dates.

School Taxes: School taxes are the most complicated of any. The property of a telephone company in any single town may

be located in school districts numbering all the way from one to twenty or more. Each one of the twenty school districts in the same town has its own rate, and the rate fluctuates vio

lently from year to year, according to whether the district in

question wants to build a new schoolhouse, hire an additional teacher or increase a teacher's wages.

School taxes, because of the different dates on which they may be assessed, are the only ones for which the law insists on notice being given by the collector, and the collector is required to give twenty days' notice, during which twenty days the school taxes can be paid with a 1 per cent penalty. If not paid within the twenty days, the penalty is 5 per cent. The theory is that school taxes must be paid within thirty days after the




spreading of the taxes. After the thirty days the penalty is 5

per cent. The collectors naturally wish to get the 5 per cent, so their custom is to wait until the last day of the thirty days before sending the notice in, so that it is impossible for a person receiving the notice to pay within the thirty-day period. People who are not aware of the provision of the law which makes it obligatory on the collector to give twenty days' notice

irrespective of the thirty-day period are liable to be roped in to the tune of 4 per cent additional fees.

Owing to the great number of school districts, the fact that no definite date is set for their assessment, the fact that some are levied annually and some semi-annually, and the frequent inefficiency of the collectors, who sometimes cannot write a

legible hand, the work of keeping track of and paying taxes is a herculean task. The schools themselves undoubtedly lose a

great deal of money, owing to the system in use, as many school taxes that could be levied are never collected. In theory, the amount of assessment on which school taxes are paid into

any given town should equal the combined assessment levied

by the State board and the town board, but probably no at

tempt is made to collect more than 75 per cent of such a sum. The most important thing to do in authorizing school taxes

for payment is to write to the town clerks, and obtain a copy of the apportionment of the combined special franchise and local assessments as made to the various school districts. You then have an authoritative check on the amounts appearing on the school tax collectors' bills.

Unpaid taxes are returned to the county treasurer, who col lects the amount, with 5 per cent additional, until directed by the board of supervisors to make a levy, when he collects, with 7

per cent additional. The county treasurer usually collects re turned school taxes at the same time he receives county and town taxes for the following year.

One peculiar thing about taxes generally, and school taxes in particular (State taxes excepted), is that you can never find the exact date of the period covered by the taxes you are paying.

Another frequent cause of trouble is that school collectors often give only the name of their own district, when they are in

reality collecting for a joint district, the other half of which may




be in another town. Notwithstanding this omission on their

part, they usually express great surprise and annoyance when

they are sent only the amount payable in the district they ask for. No matter what explanation one writes, there always comes back a request to "please hurry up with your check," notwithstanding the fact that they may have been proven con

clusively to have made two or three errors in their notice. The situation is well illustrated by the following letter re

cently received by one of the telephone companies from a school

trustee who was asked to furnish information to enable the com

pany to compute the tax, the collector having rendered a bill

which was plainly incorrect and to understand which more detail

was necessary. "Nov. 4, 1909.

" Sirs. In regard to your School tax in District No. 16 ***** this is Disgusting are you Willing to Pay any tax at all ?

you have had your tax given you On two Occasions and Still refuse to Pay. you know that this District Lies in two towns and the rate is Different in each town. Owing to a Fund for the Children of ***** 0f Which no Part Belongs to you you might figure the Way you are figuring untill the north Pole Melts and then you Would not get it to Suit you after all the time Lost and Paper Wasted you tax Remains unpaid, you Seem to think this School District is trying to Beat the Billion are * * * * * q0 Qut 0f a few cents if you Pay anything you Will

have to Pay the Same as all the rest of the District that Comes under the Same Conditions that you Do. Now Remember this that What Ever you Vauations is (7 have not got the amount) the Rate is 45 cts On Each Hundred the Same as all * * * *

People and that Mr. ***** is Entitled to 5 per cent for Col lections as you have Let the 30 Day Limit Pass. I am a man that Blieves in a Square Deal. Now for heavens Sake Pay your tax as any fair honest Person Would and give a Poor Un

paid Trustee a Little Peace."

Local managers who receive notices of taxes from school

collectors, and who have to report to a distant office, should

always bear in mind the fact that the twenty days' notice to

which their firm is entitled free of penalty begins from the in

stant a verbal or written notice is given to such manager by the

collector, and he should always keep the notice and notify his

home office of that exact date, no matter on what date he may receive a corrected notice after asking for additional information.




Special District Taxes: Areas comprising a portion of a town are laid out sometimes for one or more of the following special purposes, viz., lighting, water supply, fire protection, sewerage and garbage collection. The taxable property within the limits of a lighting district, for instance, is taxed specially for the cost of the lights, on the assessed valuations. This necessitates another apportionment, of both ordinary realty and of special franchises.

Still another tax was added this year, for "snow removal." This will require special attention by us, as it is a separate as

sessment, collected at a different time from ordinary county and town taxes, and based on the old highway labor system.

When we get through paying all these taxes, and if we have not neglected to give notice of instituting certiorari proceedings at the proper time, it is possible to get a refund of part of our taxes by using the figures of the State Board of Equalization as a basis for a claim that telephone companies have been assessed on the full value of their property, whereas other property holders only pay on equalized values. By this means we ob

tain usually repayment of about 25 per cent of our county and

town, city, highway, village and school taxes, the percentage depending upon the State board figures, which percentages vary in each county. Truly a most ingenious way of compli cating tax matters.

Stock Transfer and Inheritance Tax: While these taxes are not

paid by the companies, they involve some extra work. It is

required that the transfer of stock shall not be made upon the books unless the inheritance tax has been paid. The penalties imposed upon the corporation are severe, and the corporation is put to no little trouble and expense in connection with this tax.

The new Federal Corporation Tax which was approved by the President of the United States on August 5, 1909, and which is retroactive, going back to January 1, 1909, adds one more to the list of taxes to be paid by corporations. This tax is at the rate of 1 per cent on net earnings over and above $5000.

Aside from any questions as to the amount of taxes that should be contributed by public service corporations to the

public treasury, the methods by which they are taxed in the




State of New York lead to friction, errors and needless expense of time and money.

The situation was summed up by "Telephony" in an editorial of August 7,1909:

"The taxation system in New York, in so far as it applies to corporations, seems to be particularly characterized by its afford ing to grasping local representatives of the government an op portunity for extracting tribute from telephone companies, and particularly from small companies, which by their negligence or their ignorance allow themselves to be subjected to the heavy penalties which accrue from delayed payment. Without taking up the merits of the individual assessments,it is apparent that the system is extremely cumbersome, entailing a large amount of work both on the officials of the State, county, etc., and upon those of the telephone companies, so that the actual taxes are accompanied by an altogether too heavy proportion of in direct expense.

"It is one thing to dodge taxes, and quite another to insist upon a square deal."



Documents

TAXATION OF TELEPHONE COMPANIES IN THE STATE OF NEW YORK