sessment of income taxes had become a matter of universal knowledge by 1919. No other course was open but to provide central administration. The natural disposition of the state income tax was in the hands of the state tax commission, which has charge of the assessment of the franchise tax on corporations. Collection would naturally have gone to the state comptroller. The passage of the income tax law was urged by the state tax commission and opposed by the state comptroller. In the end, and as the result of political considerations, the entire administration of the law, including assessment as well as collection, was left to the state comptroller. The comptroller was empowered to divide the state into income tax districts and to establish branch offices in these districts. In actually working out the system advances were made over the simple directions contained in the law. A state income tax bureau was established as a separate branch of the comptroller's office and Mr. Mark Graves was appointed income tax director, to have entire charge of the administration. It became the practice of the bureau to issue frequent statements, reports, and instructions, and to make the details of the operation of the state income tax matters of common knowledge. In 1921 a new tax commission was organized and the administration of the income tax was put into the hands of the new organization.

With regard to collection and information at the source, New York has undertaken an experiment the outcome of which is still in doubt, although the operation of the law during its first year has been regarded as almost unqualifiedly successful. Collection at the source was adopted for the incomes of non-residents in the law as it was passed in 1919. In order that the employer should not act as judge on a question of residence, it was required that the tax should be deducted in every case in which the salary

amounted to $1,000 or more, unless the employee filed a certificate that he was a resident of the state. This withholding at the source was required only in the case of salaries and other compensation for personal services. Owing to an oversight an unexpected difficulty developed. The income tax bill in the original form in which it was presented to the legislature provided for a tax on individual incomes at a uniform rate of two per cent, and the rate of withholding stood at two per cent to correspond with the tax rate. In the course of the discussion of the bill in the legislature the income tax rates were changed to one, two, and three per cent on different amounts of income, but the corresponding change in the amount to be withheld at the source was neglected. While the first collections were being made the attorney-general and the comptroller ruled that an employer need not withhold more than one per cent on salaries not exceeding $10,000. In May, 1920, the law was changed so as to provide for withholding for compensation for personal services of non-residents at the rates of one, two, and three per cent.1 The provision that residents might be excluded from the withholding by filing certificates of residence was continued.

The usefulness of such a provision for collection at the source remains to be demonstrated. At the time when collection at the source was tried under the federal income tax act dissatisfaction was almost universal. The Committee on Model Taxation regards collection at the source as undesirable for the reason that the trouble of taxpaying and possibly even a part of the tax burden itself is passed on from the person upon whom taxpaying should devolve. These experimental results concerning collection at the source are not exactly applicable to New York, however, as the

1 Laws of New York, 1920, ch. 691. Effective May 10, 1920.

withholding in New York applies only to the incomes of non-residents, and only to salaries and the compensation for personal services received by such non-residents. Several

other states tax the income of non-residents derived from sources within the state levying the income tax, but aside from New York no state attempts to collect the tax on such incomes at the source. The arguments for collection at the source for incomes of non-residents are good, particularly with respect to the prevention of evasion. It remains to be seen whether the burden imposed upon the persons or corporations paying the compensation for personal services is so heavy that dissatisfaction becomes general.

Information at the source is required very much as under the federal law. Such information is required concerning all payments of $1,000 or more. For failure to make a return, or for fraud, a fine of not more than $1,000 may be imposed and a double tax paid on the tax not originally paid. Lighter penalties are provided for delinquent returns made voluntarily and for delayed tax payments.

Like Wisconsin and Massachusetts, New York distributes a part of the proceeds of the income tax to the localities. At the time when the New York income tax act was passed the needs of the state and the localities for additional revenue were ever-increasing. The income tax promised to satisfy this demand as well as to remedy some of the most conspicuous defects in the existing property tax system. Accordingly the principle of division of yield was adopted. After the retention of a fund of $250,000 for the payment of refunds and abatements, the comptroller was instructed to pay 50 per cent of the remainder into the state treasury and to distribute the equivalent sum among the counties in proportion to the assessed valuations

of real estate in the counties. The county treasurers were required to apportion the amount received among the cities and towns in proportion to the assessed valuations of real property. Each city's share goes into the city's general funds, and each town's share is credited against the amount of the county tax payable against it. These provisions bring about a tendency in the assessment of real estate which counteracts the ordinary effects of the assessment machinery. Under the present income tax law, the higher the assessments in any locality the greater the share of the proceeeds of the income tax which that locality is entitled to receive; while the old system encouraged the undervaluation of real estate so that the localities might lighten their shares of the general tax.

This requirement of a distribution to the localities of one-half of the proceeds of the income tax resulted in the early support for the tax from individuals and localities which might ordinarily have been sceptical of the effects upon business of a progressive tax on personal incomes. In fact, a committee appointed by the Conference of Mayors came promptly to the assistance of the state comptroller when the constitutionality of the income tax act was questioned.1

The question of the proper distribution of the proceeds of the income tax is not one which may be answered simply by pointing to the probable efficacy of the particular plan adopted in New York in bringing about a better assessment of real property. The New York plan has been severely criticized, principally on the ground that since the income tax is supposed to tap sources of revenue which were untouched by the general property tax, a distribution according to the assessed value of real estate has little per

1 New York Times, Dec. 14, 1919.

tinence or meaning.1 This was acknowledged in a discussion at the annual meeting of the National Tax Association in 1919, when a well-known Wisconsin expert referred to the New York plan as "less logical but more practical" than the Wisconsin plan of distribution according to the derivation of the tax. The "practical" aspects of the New York plan are apparently conceived to be the appearances of relief with which the local body of taxpayers receive the funds distributed by the state comptroller. On the other hand, distribution according to source is regarded in Massachusetts as conducive to great injustice, and distribution according to the apportionment of the state tax as a fairer method. It is plain that income tax method has not yet progressed far enough to yield as definite results with regard to proper distribution as with administration, and the New York plan is neither to be criticized or approved until it has been tried out over a longer period.

The career of the New York provision for the taxation of non-residents was destined to be eventful. The question of the constitutionality of taxing the incomes of nonresidents had been recognized as one which was likely to become pressing since the first application of the Wisconsin law to such incomes. When this form of taxation was finally determined upon in New York the question took on a new aspect, for New York is unique not only in its taxpaying ability in comparison with the rest of the country but also in the extent to which incomes are earned within its borders by non-residents. The situation was described by Professor Seligman as follows: 3

1A. E. Holcomb, State Income Taxes," Bulletin of the National Tax Association, vol. vi, no. 4 (Jan. 1921), p. 127.

2 Report of the (Massachusetts) Joint Special Committee on Taxation, 1919, pp. 50, 51.

'E. R. A. Seligman, “The Taxation of Non-Residents in the New York Income Tax," Bulletin of the National Tax Association, vol. v, no. 2 (Nov. 1919), p. 41.