PORTO RICO REVENUE ACT Porto Rico revenue J. H. HOLLANDER PH.D. ASSOCIATE PROFESSOR OF FINANCE, JOHNS act HOPKINS UNIVERSITY The act of the Legislative Assembly of Porto Rico, approved Jan. 31, 1901 [P. R. '01 p. 43], being an act to provide revenue for the people of Porto Rico, and for other purposes "—commonly known as the Hollander bill-provided for a property tax, a series of excise taxes, an inheritance tax and certain important administrative changes. The property tax replaced the existing territorial tax and the industrial and commercial tax. The rate of the new tax for insular purposes for the fiscal year 1901-2, and thereafter until otherwise provided by the Legislature of Porto Rico, was fixed at one half of one per cent; and provision was made that the rate to be levied for local purposes should in no case exceed an additional one half of one per cent. The tax itself differed from the more advanced forms of the property tax, as known in the United States, only to the extent required by peculiar local conditions. Real and personal property not specifically exempted was subject to assessment, nominally at its actual market value. The list of exemptions was generous, including the property of persons whose estate was valued at less than $100 and debts to the extent of assessed credits. Mortgages were treated as an interest in the property, and were made subject to taxation except where an unequivocal covenant existed making the taxes payable by the mortgagor. The assessment was placed in charge of a supervisor of assessment, appointed by the governor. The supervisor appointed division assessors, with the approval of the treasurer; and the division assessors nominated, for appointment by the treasurer, enough district assessors to complete the assessment within a convenient period of time. Tax appeals were heard, in the first instance, by selected groups of division and district assessors sitting as boards of review and, in the last instance, by the executive council sitting as a board of equalization and appeal. The treasurer was authorized to institute an annual revision and correction of the original assessment of property, in accordance with the provisions of the orig revenue act Porto Rico inal valuation. Ordinary corporations were assessed by the treasurer upon the actual market value of their capital invested in Porto Rico. Surety, insurance or building and loan companies paid, in addition to a special stamp tax upon policies, an annual tax of 3% upon the gross amount of premiums or dues collected in Porto Rico. For the collection of the property tax the treasurer was empowered to divide the island into suitable districts and to appoint a corps of bonded and salaried collectors and deputy collectors. The severity of the Spanish procedure for the collection of delinquent taxes, whereby the property of the taxpayer was forthwith attached and sold, was modified by the adoption of a period of grace and of a term of redemption thereafter, during which the property so sold might be redeemed, with the noteworthy provision that in no event might property be sold for delinquent taxes without the written consent of the treasurer, previously obtained in each special case. The excise taxation of the act consisted of three schedules. Schedule A imposed duties on distilled spirits, beers and wines, cigars, cigarettes, manufactured tobacco, playing cards, proprietary medicinal preparations, oleomargarin, arms and ammunition, and matches, manufactured in or imported into Porto Rico. Schedule B imposed a scale of license taxes upon dealers in or importers of the foregoing articles. The rates were in most cases materially less than the corresponding internal revenue taxes. of the United States, and domestic products were protected by differentials on imports from foreign countries. Schedule C imposed moderate documentary taxes on bills of lading, customhouse entries and notarial instruments. Provision was made for the appointment of a corps of internal revenue agents, with adequate powers, and of a sufficient number of internal revenue stamp agents; and detailed and stringent penalty clauses were inserted. The municipal districts were prohibited from levying consumption taxes, other than local licenses, upon any of the articles subject to an insular excise. In lieu thereof they were to receive, in proportion to population, 50% of the proceeds of the insular excises in monthly allotment until July 1, 1901, and 15% thereafter. All articles exported from the island were exempt from the insular excise. revenue The inheritance tax was slightly progressive, varying in Porto Rico accordance with the relationship of the heir and the value of act each separate inheritance or bequest. The first $200 in value of every inheritance, and all property passing to the wife, child, adopted child or grandchild, were exempt; from $200 to $5000, husbands and lineal descendants paid 1%, other heirs 3%; from $5000 to $20,000, 11% and 41%; upon the next $30,000, 2% and 6%; and upon the value in excess of $50,000, 3% and 9% respectively. Among the important administrative modifications made by the revenue act were the substitution of salaried deputy collectors for fee-paid tax gatherers, the annulment of municipal octrois or consumo taxes upon articles subject to insular excise taxes, and the release of collectors from the duty of disbursing the expenditures of the insular courts. Also the treasurer was directed to examine periodically the condition and financial standing of surety, insurance, and building and loan companies, and of banks and quasi public corporations doing business in Porto Rico, revoking the license granted to any such company whenever it should appear that its assets were insufficient to justify continuance in business or that its condition was unsound; provided that before such revocation or before any publication thereof should have been made, the executive council should have approved the same. Under the provisions of the act the excise taxes and the inheritance tax went into operation with its passage, Jan. 31, 1901. The property tax was levied for the fiscal year beginning July 1, 1901, but provision was made for an immediate preparatory assessment of property.1 'For particulars in regard to the measure and its operation, see Hollander, The Finances of Porto Rico," in Political Science Quarterly, December 1901; also "Excise Taxation in Porto Rico" in Quarterly Journal of Economics, February 1902. Taxation of mortgages TAXATION OF MORTGAGES1 FREDERICK N. JUDSON OF THE ST LOUIS BAR The state of Missouri ['99 p. 383] at the general election Nov. 6, 1900, adopted a constitutional amendment on the subject of the taxation of mortgages, which was substantially taken from the provisions of the California constitution of 1879. It was as follows: §22 A mortgage, deed of trust, contract or other obligation by which a debt is secured, shall, for the purposes of assessment and taxation, be deemed and treated as an interest in the property affected thereby, except as to railroad and other quasi public corporations, for which provision has already been made by law; in case of debts so secured the value of the property affected by such mortgage, deed of trust, contract or obligation, less the value of such security, shall be assessed and taxed to the owner of the property in the manner hereinafter to be provided by law, and the value of such security shall be assessed and taxed to the owner thereof, in the county, city or local subdivision in which the property affected thereby is situate. The taxes so levied shall be a lien upon the property and security, and may be paid by either party to such security; if paid by the owner of the security, the tax so levied upon the property affected thereby shall become a part of the debt so secured; if the owner of the property shall pay the tax so levied on such security, it shall constitute a payment thereon, and to the extent of such payment a full discharge thereof; provided, that in all such cases the interest of the owner of the security, as well as that of the owner of the property affected by such mortgage, deed of trust, contract or obligation, shall be assessed on terms equally fair and just. If the note or other obligation secured is entitled to a credit by payment made on the principal thereof, the assessable value of the owner of the security, upon the fact being made known to the assessor prior to the assessment, shall be diminished by the amount of such payment, and the assessable value of the owner of the land or other property correspondingly increased, the intent hereof being to place those interested in any way in such land or other property on the plane of absolute equality as to taxation. § 23 Every contract hereafter made by which a debtor is obligated to pay any tax or assessment on money loaned, 'See also Comparative Summary and Index, 1901, no. 1544-47. mortgages or on any mortgage, deed of trust, or other lien, shall, as to Taxation of any interest specified therein and as to such tax or assessment, be null and void. There was little discussion in the state during the campaign over the merits of the amendment, and it seems to have been carried on account of the vigorous campaign for certain other amendments submitted at the same election. The situation, however, in Missouri with reference to the taxation of mortgages was not the same as that of California in 1879. In the latter state mortgages had been held by the Supreme Court of that state not to be taxable, the court holding that the taxation of the mortgage interest to the mortgagee, after taxing the full value of the mortgaged land to the mortgagor, would be double taxation. The purpose of the constitution, therefore, was not only to relieve the holder of real estate from what was deemed an unjust burden of taxation, but also to compel the taxation of property which had hitherto escaped. But in Missouri prior to the adoption of this amendment mortgages, i. e. notes secured by deeds of trust, were taxable as personal property, being included in the general property tax, and were required to be listed by the holder like other personal property for taxation at his domicile. The state thus exercised its utmost power in the taxation of this class of property, as all the land in the state was taxed to its full value without deduction for mortgage, and all the mortgages and mortgage notes held by citizens of the state were taxed whether the notes were in the state or not. The effect of the system when enforced was to tax both the property and the credit whose value rested upon the property. Practically, however, in the failure of the general property tax to reach personal property, very few mortgages were listed for taxation, except those held by trustees and estates in probate and those included in the capital and surplus of banks and trust companies, these institutions being taxed, not on their property, but on their capital and surplus. Thus in California mortgages were legally exempt before the new system was adopted, while in Missouri, with the exceptions noted, they were practically exempt.1 1 Judson. Law and Practice of Taxation in Missouri, p.282. |