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PART IV. THE TAX ON PERSONAL INCOMES
The Legislature of the State of New York in January, 1919, passed a concurrent resolution creating a Joint Legislative Commission consisting of three assemblymen and three sena sisted by experts and counsel, upon whom devolved the duty to investigate the general subject of taxation and to devise means to raise taxes that would take the place of the revenue that would be lost through the adoption of the Prohibition Law.
This special committee headed by Senator Frederick M. Davenport and Assemblyman Franklin W. Judson, after holding public hearings in various parts of the State of New York and after studying the available tax propositions, introduced towards the end of the Legislative session, a series of bills intended to relieve the financial straits in which the State of New York found itself. The first of these bills, which became Chapter 627 of the Laws of 1919, introduced an entirely new scheme of taxation into the state system and imposed a personal income tax at a graded rate of one, two and three per centum on individual incomes in excess of $1,000 for single persons and $2,000 for married persons. The rate of one per centum applied to all persons whose income was $10,000 or less. The rate of two per centum applied to such part of the personal income as exceeded $10,000 and did not exceed $50,000, the rate of three per centum attached to so much of the income as exceeded $50,000. The second bill which was enacted and is known as Chapter 628 of the Laws of 1919, was an amendment to the tax law in relation to the franchise tax on business corporations. This class of corporations had already been taxed under Chapter 726 of the Laws of 1917 as amended by the Laws of 1918. The new act broadened the tax so that it applied practically to all business cor
porations and increased the rates from three to four and one-half per centum upon the net income of such corporations.
The work of the Davenport committee, which resulted in the passage of these two bills, was perhaps a corollary or a sequel to the labors of the Joint Legislative Committee on Taxation, sometimes known as the Mills Committee, appointed by the New York Legislature in 1915, to examine generally the subject of taxation.
Among other things, the Mills Committee devoted its attention to
“A. An investigation of the personal property tax, the causes of its failure and possible remedies or substitutes, involving a study of systems tried elsewhere;
B. The reform of taxation of general business corporations, including mercantile, manufacturing and miscellaneous, involving a study of the principal methods of taxing general business corporations in the principal states of the Union.” (See page 4 of report of Joint Legislative Committee on Taxation.)
The Mills Committee made its report to the Legislature of 1916 and in its conclusions, the Committee recommended, among other things, as a result of its investigations, “1, abolition of the present tax on personal property; 2, the withdrawal of general business corporations from the provisions of Section 182 of the Tax Law; and 3, the imposition of an income tax on individuals and general business corporations, including manufacturing corporations.” (See page 207 of the Joint Legislative Committee's report.)
In the year this report was made, various conferences held by other bodies, municipal and civic, adopted reports proposing a plan basing the taxation of business corporations on the reports made by such corporations to the Federal Government, and suggesting a division of the tax between the State and localities.
In June, 1917, the law now known as Chapter 726 of the Laws of 1917, which carried out many of those recommendations, was approved by the Governor.
The principal feature of the law of 1917 was a franchise tax on