tionally satisfactory condition. In 1917 the auditor of public accounts stated that in his opinion the financial condition of the state was so fortunate that the rates of taxation on intangible personalty could be reduced and the taxes on tangible personalty entirely removed. These recommendations were made solely on the grounds noted above, namely the presence of a surplus; for the usual dissatisfaction with the operation of the tax on intangibles was conspicuously absent in Virginia at that time.

The recommendations for reductions in the rate of taxation were not followed, and the situation changed so rapidly that in 1919 it was decided that it was necessary to extend the income tax for the purpose of raising additional revenue. Even with the additional rate the income from the tax is still moderate. It should be borne in mind in estimating Virginia's success with the tax that the financial needs of the state are also moderate. On the whole it umust now be granted that Virginia has used the tax satisfactorily, in spite of the absence of centralized administration and other modern provisions.

3. The repeal of the South Carolina income tax law

The only recent example of the failure of an income tax law in such a way that the abandonment of the whole system became necessary was given in South Carolina in 1918. In so far as the failure of the law can be ascribed to any one cause, it appears to lie in the fact that the administration was left in the hands of the local assessors, and accordingly the law was never fully enforced.

1 Virginia Auditor of Public Accounts, Report, 1917, pp. xiii, xiv. 'Laws of South Carolina, 1918. no. 433. An Act to Repeal Sections 354 and 360, Inclusive, of the Code of Laws of 1912, Volume I, Relative to Tax on Incomes and All Acts Amendatory Thereof. Approved Feb. 14, 1918.

The forerunner of the recent income tax law in South Carolina is to be found in colonial times. A law imposing a "faculty tax," passed in 1701, continued in force, with modifications, until the Civil War brought the necessity for additional revenue.1 During the Civil War a one per cent tax was laid on incomes and certain profits, but this method of taxation proved unpopular and soon after the war it was abandoned. The revival of the tax occurred in 1897, when an income tax on a progressive scale was introduced. It was this law which with few changes remained in operation until the repeal in 1918.

The tax introduced in 1897 was a general income tax, imposed at the following rates:

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2

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The tax applied to the income of persons living outside the state who owned property or conducted business within the state. The word income was to mean gross profits," and from this amount business expenses were allowed to be deducted in computing net income. The tax was assessed and collected by the same officials and at the same time as other taxes. The proceeds of the tax were to be distributed among the counties according to an apportionment made by the legislature.

The yield of the tax throughout its history was as follows: 3

1 Seligman, op. cit., pp. 379, 398.

'Laws of South Carolina, 1897, ch. 22.

'Kennan, op. cit., p. 230; Seligman, op. cit., p. 417; South Carolina Tax Commission, Report, 1917, p. 105.

The tax officials of the state, realizing the impossibility of enforcing the law, have argued its repeal from the beginning. The comptroller general repeatedly described the difficulties of enforcement and concurred in an appeal for the abolition of the law. The state tax commission from the time of its organization expressed great dissatisfaction with the working of the income tax.2

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This tax, which is most equitable and fair, is unevenly enforced throughout the State. In some counties its enforcement is but partial.... We ask the members and other taxpayers to examine the lists in their own counties, and note the absence of names of those whom they know to be liable. . The auditors refusing to enforce the law should be removed by the Governor.

In later years the commission became even more explicit in its denunciation of continual lack of enforcement.&

1 Seligman, op. cit., p. 417.

'South Carolina Tax Commission, First Annual Report, 1915, p. 26. Report, 1916, p. 20.

In some counties but little is done to enforce the law, notably in Darlington, Saluda, and Marlboro. No one appears to pay the tax in these counties. One taxpayer paid in Saluda last year and he quit this year.

With the type of local administration referred to the failure of the law was inevitable. It was a matter of general information throughout the state, almost from the beginning, that there was insufficient provision for the enforcement of the law with the result that a few persons paid an income tax while the vast majority escaped. The repeal of the law in 1918 cleared the revenue code of a tax law the returns of which in recent years had hardly paid for the trouble and expense of collection, and which probably had a demoralizing effect both upon the taxpayers and the assessors.

The income tax in South Carolina was not yet dead, however. The Special Joint Taxation Committee which reported to the legislature in 1921 devoted a considerable amount of attention to the inequitable operation of the general property tax, and the resulting heavy burdens on the farmer. In the same report the argument that taxation of income from property already taxed constitutes double taxation was attacked. The Committee stated that in its opinion the state taxation of incomes relieves property taxed upon an ad valorem basis from a part of the double burden of state and local taxation, and leaves the major part of the property tax to one taxing jurisdiction, that of the locality. This, in the opinion of the Committee, "is the place, object, and function of an income tax in a system of state taxation." Although an income tax bill and a business tax bill failed of passage in the legislature of 1921, the determined advocacy of an income tax as a

1

'Quoted in Bulletin of the National Tax Association, vol. vi, no. 6 (March, 1921), p. 180.

source of state revenue indicates that the tax is still to be heard from in South Carolina.

4. The taxation of incomes in North Carolina

In 1921 the state of North Carolina completed 72 continuous years of income taxation, and demonstrated its reliance upon this form of tax by the passage of a new law along modern lines.

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An income tax was first introduced in North Carolina in 1849, when a three per cent tax was laid upon profits from financial dealings, and a three-dollar tax upon salaries and fees. The law underwent frequent changes, one of the most important of which was an extension during the Civil War period, when rates were increased and progressive scales introduced. In 1870 the rate of taxation was greatly reduced. In succeeding years changes have been made repeatedly. Another trial of progressive rates was made from 1893 to 1901, but the proportional plan of taxation was reintroduced in the latter year, to be succeeded by a graduated tax in 1919.

According to the law in force in the early years of the present century, a tax of one per cent was imposed upon the excess over $1,000 of gross incomes from all property not otherwise taxed, salaries and fees, annuities, and trades and professions. The amount yielded by the tax in this form was insignificant, although the receipts had improved over those of earlier years. In the decade 1890-1900 the revenue from the income tax had ranged from about $2,000 to $4,500 a year. In the next decade the receipts increased, and furnished from $20,000 to $40,000 a year. In succeeding years the proceeds expanded as follows:

1 Seligman, op. cit., p. 403, et seq.

'North Carolina Tax Commission, Report, 1918, p. 20.

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