482 



ILLINOIS. 



earnings or income of tho road ; 3. The amount of 

 net earnings or income ; 4. The amount expended in 

 this State during the same time in purchase of real 

 estate, lands and lots, and for improvements and bet- 

 terments thereon, for construction of depots, shops, 

 and other buildings, principal and interest on bonds 

 and indebtedness, dividends on stock, purchase of 

 other lines of roads, construction of new track, and 

 all other expenses not properly chargeable as operating 

 expenses. 



Part of this information is required of the 

 roads by the existing law, but the bill pro- 

 poses to make the requirements much more 

 searching. The particular object aimed at in 

 these provisions was to prevent the frauds 

 extensively practiced by charging up to operat- 

 ing expenses expenditures for purposes men- 

 tioned in the above section. This section was 

 regarded as of the utmost importance for se- 

 curing accurate information as to the actual 

 net earnings of any one of the great railroads. 

 Without such facts, it was impossible to deter- 

 mine how much of the earnings had been bur- 

 ied up in improvements of various kinds and 

 other expenditures, which were actually paid 

 for out of the net earnings just as much as 

 were dividends, and which were as properly 

 chargeable to the income account and as justly 

 subject to taxation. 



But the principal feature of the bill was the 

 new method which it proposed for arriving at 

 the taxable value of the capital stock and 

 franchises of the railroad corporations. It was 

 contained in this section : 



The valuation and assessment of the capital stock 

 and franchise of railroad companies shall be deter- 

 mined by said Board in the manner following, viz. : 

 The net annual earnings or income of each railroad 

 company shall be taken as being a certain percentage 

 on the actual value of the property and franchises rep- 

 resented by the capital stock thereof ; the actual rate 

 of such percentage shall be fixed upon, and the prin- 

 cipal sum which would produce the amount of such 

 net earnings or income at such rate per cent, shall be 

 held to be the true cash value of such capital stock : 

 Provided, that the same rate per cent, shall apply to 

 each and every railroad company for the same year's 

 valuation and assessment. The valuation so found 

 shall be taken as the assessed valuation of the capital 

 stock, and tho same shall be equalized by the Board 

 and distributed to the several counties, towns, cities, 

 villages, and districts, in the same manner now pro- 

 vided by law. 



The purpose of this rule was to secure the 

 equitable taxation of all the roads. Without 

 interfering in any way with the method of tax- 

 ing the tangible property, it proposed only to 

 change the method of ascertaining the taxable 

 value of the capital stock and franchise. Un- 

 der it the Board have no discretion, except in 

 determining the rate per cent, upon which the 

 taxable value of the capital stock depends. 

 The lower this percentage, the higher would 

 be the tax. It was believed by the advocates 

 of the bill that, as the value of money and of 

 all property fluctuated from year to year, it 

 would not be just to fix this percentage to rigid 

 limits. It was estimated that on an average 

 the industrial and agricultural interests of the 

 State realized 5 per cent, per annum, net, on 



the amounts invested and expended. But, in 

 order that no injustice should be done, it was 

 assumed that the railroads of the State ought 

 to be allowed 10 per cent, on their invest- 

 ments, which obviously gave them a decided 

 advantage over any other business or industry. 



To illustrate the operation of the bill, it was 

 then supposed, as an instance, that a railroad 

 company was reported by the local assessors 

 of the counties through which its line runs to 

 possess $500,000 worth of tangible property. 

 The sworn returns made by its officers show 

 its actual net earnings last year to have been 

 $200,000. Ten per cent, having been agreed 

 upon as the rate, "the true cash value" of 

 the capital stock and franchise of the company 

 is found to be $2,000,000. The State rate for 

 purposes of taxation is 60 per cent, of this, 

 which would give $1,000,000. Now, deduct 

 therefrom the value of the " tangible property, 1 ' 

 and the assessed valuation of the capital stock 

 and franchise is fixed at $500,000, the taxes 

 upon which are to be distributed among the 

 several counties, etc., in proportion to the 

 mileage of the road in each. The value of the 

 tangible property is deducted, because the taxes 

 thereon belong to counties in which it is as- 

 sessed. The theory of the law is that the as- 

 sessed value of the tangible property represents 

 its intrinsic value, what it would sell for wheth- 

 er the road was running or torn up. A large 

 proportion of the $500,000, in the case sup- 

 posed, might be represented by the machine- 

 shops, located in one county, while the ad* 

 joining county perhaps would not be justly en- 

 titled to any taxes except upon the track and 

 its share of the capital stock. This explains 

 why the value of the tangible property is de- 

 ducted in the calculation. The application of 

 the rule to three or four of the railroads in the 

 State showed the following results : The Chi- 

 cago and Alton road under the rule would be 

 taxed on $16,536,685. The equalized value of 

 the State Board was $5,078,627". The company 

 actually earned 41 '5 per cent, upon the amount 

 on which it was taxed. The Chicago and 

 Northwestern under the rule should have been 

 taxed on $11,323,635, but the amount on which 

 it was taxed was $3,225,955. On this amount 

 it realized the enormous income of TO'l per 

 cent. The results were similar in other cases. 

 The bill, however, failed to become a law. 



On an early day of the session the House re- 

 quested the Governor to inform them of the 

 expense to the State of the Board of Railroad 

 and Warehouse Commissioners, together with 

 such information as he might have regarding 

 the benefit (if any) of the Commission to the 

 people of Illinois. The cost of the Commis- 

 sion from July 1, 1871, to September 30, 1878, 

 has been $118,682; of which $46,159 have 

 been used for expenses, and chiefly in the pros- 

 ecution of suits against railroad companies for 

 violation of law. His answer relative to the 

 benefit of the Commission is full of interesting 

 and important facts bearing upon the relations 



