state, and the final solution of the problem waits for further evidence.

Still another question which is yet to be worked out in New York is that of collection at the source of taxes on the incomes of non-residents. The main argument for the use of the method is the incontrovertible one that it is the only really effective means of obtaining taxes due from persons resident outside of the state. In the Yale and Towne case, whch had its origin in the refusal of a withholding agent to withhold the percentage of payments made to its employees which the New York income tax law specified, it was held that the right of the state to impose a tax upon the incomes of non-residents arising from business or occupations carried on within its borders carried with it the right to enforce payment "so far as it can by the exercise of a just control over persons and property within the state, as by garnishment of credits (of which the withholding provision of the New York law is the practical equivalent)." It was held that in the case of non-residents the state merely adopted a convenient substitute for the per sonal liability which it could not impose. It was also held that the burden imposed upon the withholding agent was not an unjust one and not an unreasonable regulation of the conduct of business within the state.

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The question of collection at the source is linked up with the taxation of non-residents so closely that if the latter goes the former goes with it. The experience of the state of New York ought to furnish a conclusive demonstration of the practicability of the method. Meanwhile many critics remain as sceptical of the ultimate success of the means as of the permanent value of the non-resident taxation itself.

1 Bulletin of the National Tax Association, vol. v, no. 6 (March, 1920), p. 183.

In the collection of a tax of the dimensions of the New York income tax, questions which are in the last analysis questions of the accounting methods sanctioned by the state loom up in great importance. In March, 1921, such a question presented itself, at the very time when income tax computations were being made. The question arose in connection with the assessment of federal income taxes. When Solicitor General Frierson announced that excess realized on the sale of stocks was no longer to be considered as constituting taxable income under the federal law, -a decision which was announced to the United States Supreme Court in connection with the case of Goodrich vs. Edwards, taxpayers under the New York income tax law were thrown into confusion. The New York income tax bureau, which had followed the policy of levying against payers of the income tax on any excess realized on the sale of stocks and bonds, at once announced that it would continue its former policy, and would not interpret section 353 of the state law in the way in which the federal law was to be interpreted according to the new decision. The difficulty which was immediately emphasized by the opponents of the state's policy was the fact that when a tax is levied on the excess realized from the sale of stocks above the market value on January 1, 1919, when the state income tax law became effective, the taxpayer may have incurred an actual loss in the transaction, on account of the price paid in purchase before January 1, 1919. At the time the above decision was announced the case of the People ex rel. Edward Klauber, a New York lace manufacturer, against Comptroller James A. Wendell, was being heard in the Appellate Division at Albany. The case was similar to that of the Goodrich case in the United State Supreme Court, and the position taken by the counsel for Mr. Klauber was that the state must confine its tax to income

and that it lacks the power to turn a loss into a theoretical profit. The decision was expected in May, 1921, and the case was to be taken before the Court of Appeals in the following month.

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After the federal decision the state policy was attacked with increasing vigor, and the director of the income tax bureau announced that he had laid the matter before the senate and assembly tax committees with the suggestion that a change in the state income tax law should be considered. The provision had been condemned as unduly harsh" by the committee on model taxation, with whom the director had conferred. The model tax committee suggested the use of a rule by which the taxpayer is given the benefit of the higher of two estimates at the date of the tax,-basis cost or market value. In the meantime, the director reminded the taxpayers, the income tax bureau had no choice but to administer the law is it stood.

Later in the same month the United States Supreme Court announced a decision establishing the rule that unless a given transaction which was completed prior to the basic date for computation prescribed in the federal law resulted in an actual gain, no "income" could result. It then became a more urgent question as to whether the state of New York could continue to maintain its stand with regard to January, 1919, values, for although the state is not hedged about by the same constitutional limitations, the aim and methods of the laws should be as consistent as possible.

In May, 1921, two events occurred which tended to clear up the matter. The Third Appellate Division handed down decisions denying the right of the state to tax stocks sold at a loss, and a bill was signed which changed the method of computing profit and loss, with the intention of doing away with the injustice which the older method had

produced. It was expected that the construction of the state law in the cases not covered by the ruling of the court would still present troublesome complications. The situation illustrates the difficulties of the administration of the income tax in highly developed financial communities.

The distribution of the proceeds of the income tax to the local units is not yet universally approved, and the particular scheme of distribution adopted by New York, that of dividing the proceeds of the income tax among the counties according to assessed valuation, has few supporters. Distribution according to educational needs seems to be coming ino favor, and if New York is not to lag behind the rest of the country in this matter it should give further consideration to the possibilities of such a plan. The possible over-productiveness of the income tax in New York has already been referrel to. Coupled with the program of economy undertaken early in 1921, the great productiveness of the tax may bring about unforeseen problems if a more careful plan of distribution is not made.

Finally, New York has not yet come to know its own mind with respect to the administration of the income tax. When the law was passed in 1919 the usual functions of the state tax commission were disregarded, and the work given to the state comptroller, although the state tax commission continued to administer the corporation taxes. In the following two years an extensive organization was built up and large sums collected with a fair degree of economy. Suddenly, in 1921, the state tax commission was organized and awarded the tax-collecting powers of the comptroller and the secretary of state. The type of organization of tax functions is in accord with the best modern opinion and with the recommendations of the committee on model taxation, but it is probable that the state will encounter temporary difficulties in making the change.

It was not to be expected, even with the wealth of expert assistance which was at hand while the New York income tax law was being worked out, that a perfect system could be evolved in the first year. It is in fact remarkable that a fiscal device which was in general disrepute as a state measure less than ten years before could have been made a uniquely productive source of revenue, and that it could have been employed without active opposition and other undesirable social and political consequences. The questions which remain in part unsettled, the rates of the tax in relation to the federal rates, the various aspects of the taxation of non-residents and the collection of those taxes, the distribution of the yield, the best type of general and local administration of the tax as it is used in New York, and other more evanescent questions of the proper computation of the taxes,—are in fact, important as they are in bringing about justice and fairness in taxation, matters which are minor in importance when the great fact of the acceptance of the income tax by the public is given its proper place. If an increasingly skillful use is made of this means of taxation, New York will be enabled to occupy a place of as great significance in the field of tax laws and administration as it already does in the field of business finance.