W

WITH the rapidly mounting costs of local government, the inequalities in assessments which are the basis for figuring taxes become more and more serious in the administration of the finances of municipalities. The subject is receiving increasing attention in many sections of the country. In the state of Connecticut, for example, a serious effort is being made to correct the unsatisfactory conditions which have existed for many years.

Present Methods of Assessment Under existing Connecticut state laws real estate and personal property are both taxed locally on the ad valorem basis at the "fair market value," which means something different to nearly every assessor in the 169 towns in the state. In Connecticut each assessor or group of assessors is a law unto himself and interprets the laws relating to the assessment of property to suit himself. Although the state law requires that property be assessed at full value, the practice in the various towns differs widely.

The courts of this state have not handed down any decisions regarding methods of determining the "fair market value" of personal property, so there arise great differences of opinion between the taxpayer and the assessors. Many appeals to court are filed by taxpayers, but almost invariably these are compromised. While the market value of raw material is comparatively easy of determination, stock in process of manufacture may be valued in a number of different ways, varying from scrap value to cost including factory overhead. A fair compromise is to value it at cost of material and direct labor only. Finished goods naturally have to be valued the same way; otherwise manufacturers would soon learn to omit the final operation until just before shipment.

Machinery presents a difficult problem. It may be valued at cost less depreciation or at

appraisal value, known as "sound value," or at what it will bring in the second-hand machinery market. The legal method has never been determined. An earnest effort to solve these problems has been made by the State Tax Commissioner, but bills presented by him have not so far met the approval of the General Assembly.

Efforts of the Municipalities to Meet the
Difficulties of Assessment

Some of the cities and towns have made an effort to establish a uniform system of determining the value of land and buildings, but the valuation of personal property continues to be determined by the old bargaining process, as the task set for the assessor by law is impossible of fulfillment. The result is that very little effort is made to collect a tax upon the personal property of individuals, with the exception of certain classes of property like automobiles, where a source of information exists in the state records of registration. The assessment of personal property of corporations, principally machinery and merchandise, presents a very difficult problem; about the only basis for valuation that exists consists of book values, which are not always accessible and which are established by standards which vary greatly. Nevertheless, the present method of taxing such property seems to be more popular than a change in the law which would raise the income by means of an increase in the state income tax on corporations in a similar way to that employed by the state of New York. Several cities in the state have met the problems by cooperation of the interested parties in an effort to distribute the burden more equitably. One city has persuaded the manufacturers to fill in a confidential schedule of inventory and material valuations to a definite formula, which results in a fairer distribution of the tax burden between manufacturers but does not comply with the law. Inasmuch as the

basis of values as represented by the reports is evidently below the legal limits, there is no reason for an appeal to the courts. The basis is justified by the city assessor as not increasing the burden of other classes of taxpayers, on the ground that individuals rarely list any of their personal property such as musical instruments, household furniture and jewelry.

Abuse of the Power of Assessment for
Political Purposes

Politics has its hand in this matter, as an administration which increases the tax rate has some explaining to do; so the common trick is to increase assessments where it will do the least harm to the political party in power, instead of increasing the rate. This also helps out in another direction, that of bonding, as the state law provides that towns and cities may issue bonds to the extent of 5 per cent of their "Grand List." The higher the Grand List, the greater the bond issue, and the greater the bond issue the more money for the politicians to spend.

For many years one of the largest cities in the state used the tax assessor's office both to reward the faithful and to punish the opponents of the political machine, until a special act of the Legislature took away the control of appointments from the mayor and the local political machine and legislated their appointees out of office. This course was taken on the theory that an emergency existed whereby it was as necessary for the state to protect the pocketbooks of the taxpayers of the city as it would be for it to protect the persons and property of its citizens by martial law when necessary. The report of conditions which existed was made to the Governor by the State Tax Commissioner after a lengthy investigation and summoning of many witnesses who testified under oath. It was determined that many illegal practices existed which benefited one group of taxpayers at the expense of another.

Illegal Reductions of Taxes Section 1255 of the Connecticut statutes reads as follows: "Any clerical omission or mistake in the assessment of taxes may be at

any time corrected according to the facts by the assessors or board of relief, and the tax shall be levied and collected according to such corrected assessment." It was the custom for many years, in the city referred to, for the assessing authority at discretion to issue to the tax collector what they called "Certificates of Error." They claimed the right under this statute to reduce valuations at any time within their discretion, even after the Board of Relief had rendered its report and the final tax rate had been determined, and in one year they issued Certificates of Error reducing the Grand Lists of previous years more than two million dollars. This practice was put a stop to by the State Tax Commissioner, who caused an action to be brought by the local tax collector against a corporation that had benefited by such a certificate. The Supreme Court handed down its opinion in favor of the city, which at once branded as illegal the hundreds of Certificates of Error which had been previously issued reducing valuations.

Section 1289 of the Connecticut statutes reads as follows:

"The selectmen of towns, the mayor and aldermen of cities, the warden and burgesses of boroughs, and the committees of other communities may abate the taxes assessed by their respective .communities upon such persons as are poor and unable to pay the same; and shall present to each annual meeting of their respective communities a list of all persons whose taxes they have abated in the preceding year."

Another illegal method of reducing taxes was to wilfully misinterpret the above statute and to abate taxes by vote of the aldermen and approval of the mayor upon recommendations of the claims committee of the common council. By this practice the favored taxpayer was relieved of his tax burden in whole or in part, including interest thereon.

The writer is of the opinion that centralized but limited control should be placed by law with the state tax commissioner, at least to the extent of giving him the right to interpret all state laws relating to taxation and obliging the towns and cities to follow his regulations, with the privilege, of course, on the part of the taxpayer, of an appeal to the court. -Copyright, 1927, Guy P. Miller.

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