LIBRARY. A & M COLLEGE. campus. E119—12M—L180 TEXAS AGRICULTURAL EXPERIMENT STATl0N A. B. CONNER. DIRECTOR conmzcn STATION, BRAZOS COUNTY, TEXAS BULLETIN NO. 505 FEBRUARY, 1935 DIVISION OF FARM AND RANCH ECONOMICS Relative Importance of Intangible Property I in Texas A, AGRICULTURAL AND MECHANICAL COLLEGE OF TEXAS T. 0. WALTON, President Administration : A. B. Conner, M. S., Director R. E. Karper, M. S., Vice Director Clarice Mixson, B. A., Secretary M. P. Holleman, Chief Clerk J. K. Francklow, Asst. Chief Clerk Chester Higgs, Executive Assistant Howard Berry, B. S., Technical Asst. Chemistry: . S. Fraps, Ph. D., Chief; State Chemist . E. Asbury, M. S., Chemist . F. Fudge, Ph. D., Chemist . C. Carlyle, M. S., Asst. Chemist . L. Ogier, B. S., Asst. Chemist . J. Sterges, M. S., Asst. Chemist Ray Treichler, M. S., Asst. Chemist W. H. Walker, Asst. Chemist Velma Graham, Asst. Chemist Joanne F. DeMottier, Asst. Chemist W. E. Merrill, M. S., Asst. Chemist W. H. Garman, M. S.. Asst Chemist A. R. Kemmerer, Ph. D., Asst. Chemist A. W. Walde, Ph.D., Asst. Chemist Horticulture : S. H. Yarnell, Sc. D., Chief Range Animal Husbandry: J. M. Jones, A. M. Chief B. L. Warwick, Ph. D., Breeding Investiga. S. P. Davis, Wool and Mohair J. H. Jones, B. S., Animal Husbandman Entomology: F. L. Thomas, Ph. D., Chief; State Entomologist H. J. Reinhard, B. S., Entomologist R. K. Fletcher, Ph. D., Entomologist W. L. Owen, Jr., M. S., Entomologist J. N. Roney, M. S., Entomologist J. C. Gaines, Jr., M. S., Entomologist S. E. Jones, M. S., Entomologist F. F. Bibby, B. S., Entomologist "R. W. Moreland, B. S., Asst. Entomologist C. E. Heard, B. S., Chief Inspector C. J. Burgin, B. S., Foulbrood Inspector Agronomy: E. B. Reynolds, Ph. D., Chief R. E. Karper, M. S., Agronomist >HEE1L1FBQ DIAIIUL‘ Dlflffl Veterinary Science: "‘M. Francis, D. V. M., Chief H. Schmidt, D. V. M., Veterinarian "F. P. Mathews, D. V. M., M. S., Veterinarian J. B. Mims, D. V. M., Asst. Veterinarian Plant Pathology and Physiology: J. J. Taubenhaus, Ph. D., Chief W. N. Ezekiel, Ph. D., Plant Pathologist L. B. Loring, M. S., Asst. Plant Pathologist G. E. Altstatt, M. S., Asst. Plant Pathologist "Glenn Boyd, B. S., Asst. Plant Pathologist Farm and Ranch Economics: L. P. Gabbard, M. S., Chief W. E. Paulson, Ph. D., Marketing C. A. Bonnen, M. S., Farm Management I**W. R. Nisbet, B. S., Ranch Management **A. C. Magee, M. S., Farm Management Rural Home Research: Jessie Whitacre, Ph. D., Chief Mary Anna Grimes, M. S.. Textiles Sylvia Cover, Ph. D., Foods Soil Survey: "W. T. Carter, B. S., Chief E. H. Templin, B. S., Soil Surveyor J. W. Huckabee. B. S., Soil Surveyor I. C. Mowery, B. S., Soil Surveyor Botany: V. L. Cory, M. S., Acting Chief Swine Husbandry: Fred Hale, M. S., Chief Dairy Husbandry: O. C. Copeland, M. S., Dairy Husbandman Poultry Husbandry: R. M. Sherwood, M. S., Chief J. R. Couch, M. S., Assoc. Poultry Husb. Paul D. Sturkie, B. S., Asst. Poultry Husb. Agricultural Engineering: H. P. Smith, M. S., Chief Main Station Farm: G .T. McNess, Superintendent Apiculture (San Antonio): H. B. Parks, B. S., Chief A. H. Alex, B. S., Queen Breeder Feed Control Service: F. D. Fuller, M. S., Chief James Sullivan, Asst. Chief. P. C. Mangelsdorf, Sc, D., Agronomist 5_ D_ Pearce, secretary D- T- Klllqugh, M. 5-, AgYOIIOmISt _ J. H. Rogers, Feed Inspector J. T. Vantlne, Jr., M. S., Asst. Agronomist K_ L_ Kirkland, ]3_ s" Feed Inspector J. _O. Beasley, M. S., Asst. Agronomist S_ D_ Reynolds, Jr" Feed Inspector Publlwtmnsi , P. A. Moore, Feed Inspector A- D‘ Jackson» Chlef E. J. Wilson, B. s., Feed Inspector - H. G. Wickes, D. V. M., Feed Inspector SUBSTATIONS No. l, Beeville, Bee County R. A. Hall, B. S., Superintendent No. 2, Tyler, Smith County: P. R. Johnson, M. S., Superintendent No. 9, Balmorhea, Reeves County: J. J. Bayles, B. S., Superintendent No. 10, College Station, Brazos County: R. M. Sherwood, M. S., In Charge “B- H- Hendrickson, B. S., Sci. in Soil Erosion L. J. McCall, Farm Superintendent "R. W. Baird, M. S., Assoc. Agr. Engineer No. 3, Angleton, Brazoria County: R. H. Stansel, M. S., Superintendent H. M. Reed, B. S., Horticulturist No. 4, Jefferson County: R. H. Wyche, B. S., Superintendent “H. M. Beachell, B. S., Junior Agronomist No. 5, Temple, Bell County: Henry Dunlavy, M. S., Superintendent C. H. Rogers, Ph. D., Plant Pathologist H. E. Rea, B. S., Agronomist "E. B. Deeter, B. S., Soil Erosion No. 11, Nacogdoches, Nacogdoches County: H. F. Morris, M. S. Superintendent "No. 12, Chillicothe, Hardeman County: "J. R. Quinby, M. S. Superintendent "J. C. Stephens, M. A., Asst. Agronomist No. 14, Sonora, Sutton-Edwards Counties: W. H. Dameron, B. S., Superintendent I. B. Boughton, D. V. M., Veterinarian W. T. Hardy, D. V. M., Veterinarian O. L. Carpenter, Shepherd . ‘*0. G. Babcock, B. S., Asst. Entomologist No. 15, Weslaco, Hidalgo County: ‘*1’. L. HODKlHS, B. S., Junior Civil Engineer W, H, Friend, B_ S" superintendent No. 6 Denton, Denton County: P. B. Dunkle, M. S., Superintendent "I. M. Atkins, B. S., Junior Agronomist No. 7, Spur, Dickens County: R. E. Dickson, B. S., Superintendent B. C. Langley, M. S., Agronomist No. 8, Lubbock, Lubbock County: D. L. Jones, Superintendent Frank Gaines, Irrig. and Forest Nurs. Members of Teaching Staff Carrying . W. Adriance, Ph. D., Horticulture W. Bilsing, Ph. D., Entomology . Scoates, A. E., Agricultural Engineering . K. Mackey, M. S., Animal Husbandry . G. Reeves, Ph. D., Biology S. Mogford, M. S., Agronomy R. Brison, M. S., Horticulture "‘Dean, School of Veterinary Medicine. HHFU>USI7Q S. W. Clark, B. S., Entomologist W. J. Bach, M. S., Plant Pathologist J. F. Wood, B. S., Horticulturist No. 16, Iowa Park, Wichita County: C. H. McDowell. B. S., Superintendent L. E. Brooks, B. S., Horticulturist No. 19, Winterhaven, Dimmit County: E. Mortensen, B. S., Superintendent "L. R. Hawthorn, M. S., Horticulturist Cooperative Projects on the Station: W. R. Horlacher, Ph. D., Genetics J. H. Knox, M. S., Animal Husbandry A. L. Darnell, M. A., Dairy Husbandry R. O. Berry, B. S., Biology R. T. Stewart, Ph.D., Agronomy V. A. Little, M. S., Entomology TAs of January 1, 1935 "In cooperation with U. S. Department of Agriculture. iln cooperation with Texas Extension Service. “In cooperation with State Department of Agriculture. This study reveals gross inequalities in the taxation of tangible compared with intangible property. The seriousness of these in- equalities becomes more intense as the size of estates increases be- cause of the concentration of intangibles in the larger estates. Similarly, rural communities bear a disproportionate share of government costs compared with town and city communities be- cause of the concentration of intangibles in the latter. According to specific references in the Constitution of Texas and subsequent legislation all property in the State, except that ex- pressly exempted, is subject to taxation. Nevertheless, almost all intangible property, such as stocks, bonds, mortgages, notes, cash in hand, cash on deposit, etc. escapes the payment of a direct tax. The escape of intangible property under our system of taxation is significant in two important respects: first, the extent to which intangible property constitutes a substantial proportion of all property, and, second, the distribution of intangibles relative to the size of property holdings and to different types of communities, such as rural, town, and city. County probate records have been analyzed to indicate the rela- tive importance of intangible property, and its distribution rela- tive to size of property holdings and to different types of com- munities. The study involves a complete compilation and classifi- cation of property values of 25,187 estates probated in 47 selected counties during the period 1922-1931. ' An analysis of the probate records shows: 1. Tangible property constituted 54.1 per cent, and intangible property 45.9 per cent of all property probated. 2. Tangible property constituted 97.1 per cent of the property assessed for taxation for state and county purposes in the 47 counties studied, and intangible property 2.8 per cent. 3. Of all real estate probated 17.8 per cent was in estates of $500,000 and over, while of all intangibles probated 33.9 per cent was in estates of $500,000 and over, thus indicating a rather high degree of concentration of intangible property in large estates. 4. Intangible property constituted 31.6 per cent of the property probated in rural communities, 38.4 per cent in town com- munities, and 50 per cent in city communities. 5. In recently developed agricultural areas intangibles made up only 12.6 per cent of the total, while in older urban areas in- tangibles constituted 52.6 per cent of all property probated. CONTENTS Page Introduction _______________________________________________ ____________ __ 5 Object ................. -_ 6 Method of Procedure ..................... __ _- 6 Source and Scope of Data _____ __ 6 Intangible Property Constitutes Almost One-Half of the Property Probated _____________________________________________________________________________________________________________ _e 7 Intangible Property Practically Escapes Direvt Taxation ____________________ n 1O Estates Vary Widely in Size and Indicate a High Degree of Concentration in a Few Estates ........................................ _________________________ __10 Distribution of Property by Size Groups According to the Different Classes of Property rrrr W11 Distribution of Property Relative to Different Types of Communities Rural, Town, and Cityru- 12 How Other States Have Approached the Problem of Taxing Intangibles 13 Summary and Conclusions .................................................................................... __14 i the social. BULLETIN NO. 505 FEBRUARY, 1935 RELATIVE IMPORTANCE OF INTANGIBLE PROPERTY IN TEXAS L. P. GABBARD According to Article 8, Section 1, of the Constitution of the State of Texas, “taxation shall be equal and uniform.” It further declares, “all property in the state, whether owned by natural persons or corporations, other than municipal, shall be taxed in proportion to its value, which shall be ascertained as may be provided by law * * *.” According to subsequent legislation, “all property, real, personal, and mixed, except such as may be hereinafter expressly exempted, is subject to taxation * * *.” It is specif- ically stated that personal property of every description shall be valued at its true and full value in money. Obviously, it is unmistakably clear both from specific references in the constitution and from subsequent legis- lation that all property in the State, except that expressly exempted, is subject to taxation. Undoubtedly, the intent of the law is that of equalizing the tax burden insofar as property is to be used as a basis of taxation. Private property has at least two important aspects, the individual and Property is not an absolute right, but is conditioned by an obligation to society. The right of eminent domain and the right of taxa- tion find their justification in the social side of private property. In fact, taxation may be considered as a return to the general public and society for their recognition of private property rights. Police protection, public security, and secured opportunity for doing business give meaning and value to property. Such attributes are not inherent in property but are provided by organized society. Government is the agency through which organized society functions. The revenues for maintaining governmental activities are obtained through taxation. It is vitally important that the taxes levied be considered just and equitable. To permit gross inequalities in the taxation of property is calculated to develop a serious disrespect for property rights and ultimately to undermine the position of private property. An institution such as private property has its meaning through its relationship to society, and the more harmonious this relationship the more firmly intrenched and secure is the institution. It is logical to in- quire how effectively the provisions of the state constitution together with supporting legislation regarding the taxation of property are being enforced, and how nearly the goal of tax equalization is being approached. In Texas Agricultural Experiment Station Bulletin No. 458, inequalities in the taxation of farm lands and city property due to scope and method of assessment were treated. It was pointed out in that publication that almost all intangible property escapes the payment of a direct tax. For example, attention was called to the fact that during the past ten years intangible property has averaged only about 2 per cent of the total property assessed for state and county purposes. The Tax Survey Committee of Texas, created by the Fortieth Legislature, in its final report, 1929, stressed with much emphasis the escape of personal property from taxation. In 6 BULLETIN NO. 505, TEXAS AGRICULTURAL EXPERIMENT STATION short, the failure of the tax system to reach this type of property is quite generally recognized and especially by these familiar with the problems of assessing property for purposes of taxation. At this point the question arises as to how important intangible property is as related to the total property of a community or the state. Object of Study The chief objects of this study are: (1) to determine the importance off intangible property in Texas as related to real estate and chattels, (2) to indicate the extent to which each class of property is taxed for state and county purposes, and (3) to ascertain the nature of the distribution of the three classes of property in relation to size of estates and to certain popula- tion groups—such as, rural, town, and city. Method of Procedure The general method of procedure employed in this study has been the com- pilation of the values of estates of deceased persons as recorded in the minutes of the county probate courts. The adequacy of this method de- pends upon the extent to which the probate records are representative of the normal distribution of property. Probate records provide perhaps the only complete official inventory and appraisal of the total value of each estate. This method, however, applies to the distribution of personal wealth only, and does not include property controlled by corporations. Even though this method has its limitations, it is believed that probate records offer the best available criterion of the distribution of property among the members of society. This method of_ determining the distribution of property among the mem- bers of society was employed in a report made by the Federal Trade Commission, 1926. It was employed by the Illinois Revenue Investigating Committee, 1930, and recently by Dr. E. D. Tetreau in a study of the “Migration of Agricultural Wealth by Inheritance” in two Ohio counties. Source and Scope of Data As a basis for this study data were secured from the probate records of 47 counties selected as representative of the state. Care was exercised to select counties so as to include the important areas of the state, and at the same time maintain a proper balance between different types of communities; such as, rural, town, and city. The location of the selected counties is indicated in Figure 1. A complete compilation was made in each county of all estates probated during the ten-year period, 1922-1931. In all, records of 25,187 estates were compiled. The property inventoried and appraised in each probated estate is di- vided into real estate and personal, and the personal property so itemized and described as to be grouped readily into “chattels” and “intangibles.” Chattels are defined to include all those objects, whether animate or in- animate, which in contemplation of law are movable. Intangibles have RELATIVE IMPORTANCE OF INTANGIBLE PROPERTY IN TEXAS 7 no substantive existence, existing merely in a legal sense. Intangibles con- sist for the most part of notes, stocks, bonds, cash, book accounts, etc. nun“ Fig. 1. Shaded counties are those in which a complete compilation and classification of the property values of probated estates were made for the period 1922-1931, inclusive. Thus the property of each estate compiled was classified and tabulated under three headings-real estate, chattels, and intangibles. Intangible Property Constitutes Almost One-Half of the Property Probated Table 1 shows the amount and proportion of property probated as to real estate, chattels, and intangibles in each of 47 selected counties in Texas for the period 1922 to 1931, inclusive. According to this table, real estate constituted 50.6, chattels 3.5, and intangibles 45.9 per cent of the total property probated. Thus, real estate and intangible property com- prise 96.5 per cent of probated estates, and chattels made up the remaining smallipercentage of 3.5. A casual examination of this tablereveals Wide variations in the percentages of the different classes of property from county to county. These variations Will be treated more fully later in the 8 BULLETIN NO. 505, TEXAS AGRICULTURAL EXPERIMENT STATION Table 1. Amount and percentage of property probated in 47 selected countieB of Texas as to real estate, chattels, and intangibles, for the ten-year period 1922-1931. Total Real Per P er I Per County property estate cent of Chattels cent of Intangibles cent‘ of probated total total total Harris $112,921,699 $51,154,318 I 45.30 $1,046,964 I .93 I$60,720,417 I 53.77 Dallas I 92,204,819 I 41,791,800 I 45.32 I 2,025,396 I 2.20 I 48,387,623 I 52.48 Bexar I 65,558,599 I 30,579,928 I 46.65 I 1,687,129 I 2.57 I 33,291,542 I 50.78 Tarrant I 51,231,897 I 26,512,972 I 51.75 I 2,248,253 I 4.39 I 22,470,672 I 43.86 Travis I 22,590,054 I 11,376,623 I 50.36 I 585,050 I 2.59 I 10,628,381 I 47.05 McLennan I 22,190,511 I 13,670,914 I 61.61 I 662,333 I 2.98 I 7,857,264 35.41 Wichita I 12,051,030 I 5,684,859 I 47.17 I 572,236 I 4.75 I 5,793,935 I 48.08 Collin I 10,942,500 I 6,872,279 62.80 I 245,903 2.25 I 3,824,318 I 34.95 Nueces I 10,620,811 I 6,254,373 58.89 I 520,712 4.90 I 3,845,726 36.21 Tom Green I 10,363,246 I 5,046,076 48.69 I 760,332 7.34 I 4,556,838 43.97 Navarro I‘ 8,733,666 I 3,851,962 I 44.10 I 182,108 I 2.09 I 4,699,596 ‘ 53.81 Williamson I 8,658,807 I 5,277,571 I 60.95 I 248,073 I 2.86 I 3,133,163 36.13 Taylor I 6,461,277 I 4,002,860 I 61.94 I 287,024 I 8.67 I 2,221,893 34.39 Lubbock I 5,839,113 I 4,404,367 I 75.43 I 810,169 I 13.87 I 624,577 10.70 Denton 5,775,892 I 3,852,184 I 66.69 I 321,668 5.57 I 1,602,040 27.74 Victoria 5,689,708 I 2,781,201 I 48.88 I 758,432 13.33 I 2,150,075 I 37.79 Parker 5,532,890 I 3,610,595 I 65.26 I 189,346 3.42 I 1,732,949 I 31.32 Lavaca. I 5,292,548 I 8,023,853 I 57.18 I 191,482 I 3.62 I 2,077,208 I 69.25 Washington 5,174,792 I 2,707,810 52.33 I 214,132 I 4.14 I 2,252,850 43.54 Smith 5,158,982 I 2,934,598 56.88 I 183,175 I 3.55 I 2,041,209 39.57 Hill 4,760,700 I 3,296,889 69.25 I 140,135 I 2.94 I 1,323,676 27.80 Harrison 4,597,982 I 2,008,119 I 43.67 I 325,201 I 7.07 I 2,264,662 49.25 Fayette 4,065,597 I 1,974,209 I 48.56 I 195,012 I 4.80 I 1,896,376 46.64 Eastland 3,816,719 I 2,172,875 I 56.93 I 172,646 I 4.52 I 1,471,198 38.55 Duval 6,287,265 I 1,791,787 I 54.51 I 167,921 I 5.11 I 1,827,607 40.39 Uvalde I 2,811,035 1,616,473 I 57.50 I 248,979 I 8.86 I 945,583 33.64 Clay I 2,790,554 1,854,355 I 66.45 I 444,502 I 15.93 I 491,697 17.62 'Anderson I 2,789,850 1,476,984 I 53.92 I 89,286 I 8.26 I 1,178,080 I 42.82 Bee I 2,639,415 I 1,624,967 I 61.57 I 361,606 I 13.70 I 652,842 24.73 Sutton 2,460,637 I 1,495,199 I 60.76 I 613,104 I 24.92 I 352,334 I 14.32 Gillespie 2,254,737 I 993,365 I 44.06 I 150,177 I 6.66 I 1,111,195 49.28 Wise 1,663,257 I 1,178,497 70.85 I 76,107 I 4.58 I 408,653 24.57 Medina I 1,606,155 I 933,536 58.12 I 145,957 I 9.09 I 526,662 32.79 Dallam I 1,444,171 953,989 66.06 I 239,839 I 16.61 I 250,343 17.33 Blazos 1,424,300 829,305 58.23 I 146,203 10.26 I 448,792 31.51 Randall 1,393,707 1,025,888 73.61 I 179,567 12.88 188,252 13.51 Kerr 1,307,003 I 569,607 I 43.58 I 61,739 4.72 675,657 51.70 Llano 1,175,040 I 708,307 I 60.28 97,881 8.33 368,852 31.39 Pecos 1,120,226 455,123 I 40.63 160,877 14.36 504,226 45.01 Carson 1,018,375 I 783,554 I 76.94 85,427 8.39 149,394 14.67 Dawson 941,076 I 729,481 I 77.51 I 83,943 8.92 127,652 13.56 Qchiltree 867,136 I 658,703 I 75.96 I 110,154 I 12.70 98,279 11.33 Rockwall 757,571 I 474,817 I 62.68 I 25,206 3.33 I 257,548 34.00 Gregg - 733,368 I 431,746 I 58.87 I 19,725 2.69 I 281,897 38.44 Tyler I 414,405 I 231,441 I 55.85 I 26,145 6.31 I 156,819 37.84 Lamb 334,799 I 263,534 I 78.71 I 22,277 I 6.65 I 48,988 14.64 Zavalla 315,714 166,780 I 52.83 I 35,855 11.36 113,079 35.82 Total 525,733,130 266,090,123 50.61 I 18,115,388 3.45 241,527,619 45.94 discussion. Perhaps the fact of greatest significance to be stressed at this point is the relatively large proportion of property included in intangibles. RELATIVE IMPORTANCE OF INTANGIBLE PROPERTY IN TEXAS 9 Table 2. Amount and classification of property assessed in 47 selected counties of Texas - for the year 1931* Total Assessed Per Assessed Per Assessed Per County assessed value cent of value cent value cent value real estate total chattels total intangibles total Harris I $341,788,442‘ $264,438,134] 77.37 l] $71,109,283‘ 20.81 I $ 6,241,025] 1.82 Dallas I 322,832,130 219,083,345 67.86 91,907,975 28.47 11,840,810 3.67 Bexar I 191,576,852 153,692,125 80.22 32,476,712 16.95 5,408,015 2.82 Tarrant I 177,438,110 140,011,660 78.91 30,895,900 17.41 6,530,550 3.68 McLennan I 70,468,270] 57,993,240] 82.30 I 10,867,400] 15.42 I 1,607,630] 2.28 Wichita I 53,762,359] 43,818,598] 81.50 I 8,762,381] 16.30 1,181,380 2.20 Pecos I 52,771,518 7,125,033] 13.50 I 45,583,385 86.38 63,100 _12 Travis I 50,223,894 42,249,316 84.12 5,421,063 10.79 2,553,515 5.08 Nueces I 38,071,115 33,452,890 87.87 4,109,626 10.79 508,599] 1.34 Eastland I 33,492,910 21,473,735 64.11 11,817,075 35.28 202,100] .60 Navarro I 29,654,381 23,027,056 77.65 I 5,431,839 18.32 1,195,486 4.03 Williamson I 27,762,710] 22,159,810] 79.82 I 4,472,115 16.11 1,130,785 4.07 Hill I 27,755,811 22,843,600 82.30 I 4,292,573 15.46 619,638 2.23 Tom Green I 27,696,240 22.707,860 81.99 I 3,780,160 13.65 1,208,220 4.36 Collin I 26.631870 22,083,964 82.90 I 3,544,896 13.31 1,009,010 3.79 Lubbock I 24,901,127] 21,761,441] 87.39 2,963,217 11.90 176,469] .71 Taylor I 24,138,010] 19,401,775] 80.38 3,803,415 15.76 932,820 3.86 Denton I 20,823,230] 17,680,190] 84.91 2,856,220 13.72 286,820 1.38 Fayette 18,671,158 14,262,750 76.39 3,567,023 19.10 841,385 4.51 Smith 18,019,680 15,066,658 83.61 2,695,722 14.96 257,300 1.43 Harrison 17,435,150 14,450,645 82.88 2,525,120 14.48 459,385 2.63 Lavaca 17,031,060 13,657,070 80.19 2,345,030 13.77 1,028,960] 6.04 Anderson I 16,138,196 13,178,915] 81.66 2,671,181 16.55 288,100] 1.78 Carson I 15,753,051 6,849,159] 43.48 8,821,142 56.00 82,750] .52- Victoria I 14,912,212 10,224,510 68.56 3,824,722 25.65 I 862,980] 5.79 Clay I 13,128,520 10,635,495 81.01 I 2,379,075 18.12 I 113,950] .87 Washington I 12,349,630 8,854,210 71.70 I 2,958,630] 23.96 I 536,790 4.35 Parker I 12,186,560 10,047,325 82.44 I 1,396,055 11.46 743,180 6.10 Wise I 11,943,767 10,307,532 86.30 1,488,855 12.46 147,380 1.23 Dallam I 11,479,004 9,502,181 82.78 1,778,346 15.49 198,477 1.73 Medina 11,367,815 8,828,585 77.66 2,115,675 18.61 423,555 3.72 Brazos 10,838,991 8,930,254 82.39 1,603,381 14.79 305,356 2.82 Bee 10,783,900 8,361,355 77.54 2,008,660 18.63 413,885 3.84 Uvalde 10,672,258 7,543,750 70.68 2,521,758 23.63 606,750 5.68 Duval I 8,830,705] 7,522,605 85.19 I 1,260,000] 14.27 I 48,100 .54 Lamb I 8,368,370] 7,012,620 83.80 I 1,297,750] 15.51 I 58,000] .69 Randall 7,509,484 6,340,565 84.43 1,080,349 14.39 I 88,570 1.18 Dawson 6,663,330 5,624,980] 84.42 978,750 14.69 I 59,600 .89 Ochiltree 6,583,453 5,851,345 88.88 731,908 11.12 200 .003 Zavala 6,517,888 5,355,583 82.17 1,097,323 16.84 64,982 1.00 Tyler I 6,443,876 _ 5,528,584 85.80 915,292 14.20 I Gillespie I 6,482,225 4,280,540 66.55 I 1,458,895] 22.68 692,790] 10.77 Llano I 6,369,115 4,590,961 72.08 I 1,465,158] 23.00 312,996] 4.91 Kerr I 6,308,828 4,484,093 71.08 I 1,347,635 21.36 477,100] 7.56 Gregg I 6,282,445 4,497,425 71.59 I 1,684,770 26.82 100.250] 1.60 Sutton I 4,690,129 3,201,226 68.25 1,246,178 26.57 242,725] 5.18 Rockwall 3,850,864 3,245,271] 84.27 522,293 13.56 83,3007 2.16 Total property as- sessed in 47 se- lected counties $1,849,356,643 $1.393,239,964 75.34 $403,881,911 21.84 $52,234,768 2.82 Total property as- sessed in the State $4,241,682,299 $3,198,739,083 75.41 $944,292,053 22.26 $98,651,163 2.33 Property assessed l in 47 selected counties as % of] total in State I 43.60 43.56 42.77 52.95 *Report of state comptroller. 10 BULLETIN NO. 505, TEXAS AGRICULTURAL EXPERIMENT STATION If the figures presented in Table 1 are accepted as a cross section of the proportions of the different classes of property as they exist in society, the question may be raised as to the relative proportions of these classes of property as revealed by the assessment rolls of the same 47 counties. Intangible Property Practically Escapes Direct Taxation A compilation of the assessment rolls in each of the 47 selected counties as to real estate, chattels, and intangibles is shown in Table 2. According to this table, real estate constituted 75.3, chattels 21.8, and intangibles 2.8 per cent of the total property assessed. A comparison of these percentages with those of similar classes revealed by the probate records should be of interest. According to the probate records, real estate constituted 50.6 per cent of all property, whereas it constituted 75.3 per cent of all assessed property. Intangible property, which comprised 45.9 per cent of all prop- erty passing through probate, constituted but 2.8 per cent of all property assessed in the 47 counties in 1931 for state and county purposes. Chattels constituting 3.5 per cent of probated property represented 21.8 per cent of all assessed property. Thus it is seen that tangible forms of property constituted 97.1 per cent of all property assessed. It should be observed that all intangible property in Texas is not taxable under the laws of the state. Certain forms of intangibles such as U. S. bonds and other Federal securities, and shares of stock of domestic corpora- tions whose property is taxable in the state, are exempt. But making liberal allowance for exemptions, undoubtedly, a vast amount of taxable intangible property escapes taxation. The escape from taxation of such large and expanding taxable source places an ever-increasing burden of taxes on the more tangible forms of property, especially real estate. Estates Vary Widely in Size and Indicate a High Degree of Concentration ' of Property in a Few Estates From Table 3 it will be seen that the total value of the 25,187 estates was $525,733,130 with an average value per estate of $20,873. Slightly Table 3. Distribution of property in 47 selected counties of Texas as indicated by the probate records from 1922-1931, inclusive. I g __ ‘ l Percentage of total * ‘ b t Size Group l Number of Value of Average I estates pro a ed estates estates value I I No. l Value l l I I Under $1,000 4,519 $ 2,128,535 I $ 471 17.94 I .40 $1,000 to $5,000 8,747 22,121,792 I 2,529 34.73 I 4.21 $5,000 to $10,000 4,198 29,261,337 6,970 16.37 I 5.57 $10,000 to $20,000 3,300 46,068,531 13,960 13.10 I 8.76 $20,000 to $100,000 3,537 146,112,363 41,310 14.04 I 27.79 $100,000 to $500,000 767 147,170,398 191,878 I 3.04 | 27.99 $500,000 to $1,000,000 79 53,434,607 676,387 I .31 I 10.16 $1,000,000 and over 40 79,435,567 1,985,889 I .16 I 15.11 I Total probated estates 25,187 525,733,130 20,873 100.00 I 100.00 RELATIVE IMPORTANCE OF INTANGIBLE PROPERTY IN TEXAS 11 more than 82 per cent of the number fell below the average in size. Estates varied widely in size and indicated a high degree of concentration of property in a relatively few estates. For example, of the 25,187 estates 4,519 were under $1,000 each and averaged but $471. At the other ex- treme were 40 estates $1,000,000 and over in amount with an average of $1,986,889. Four-fifths of the number of estates represented one-fifth of the total value of all estates. On the other hand, a group of the larger estates representing 3.5 per cent of all estates comprised 53.3 per cent of the total value of estates probated. Distribution of Property by Size Groups According to the Different Classes of Property Table 4 shows the distribution of real estate, intangibles, and chattels according to size groups. From an examination of this table it will be observed that real estate was the most generally distributed of the three Table 4. Distribution of real estate, intangibles, and chattels in 47 selected counties of Texas as indicated by the probate records from 1922-1931, inclusive. l ‘ Percentage of total Size group Number of Value of Average I estates probated estates estates value No. Value Section A——real estate l l l l Under $1,000 2,734 $ 1,156,488 l 5 423 l 13.65 l .43 $1,000 to $5,000 6,501 13,606,028 l 2,093 l 32.46 l 5.11 $5,000 to $10,000 3,626 19,141,170 l 5,279 l 18.11 l 7.19 $10,000 to $20,000 l 3,009 l 29,808,311 l 9,906 l 15.02 l 11.20 $20,000 to $100,000 l 3,319 l 83,938,788 l 25,290 l 16.57 l 31.55 $100,000 to $500,000 722 l 70,956,547 l 98,278 l 2.61 l 20.07 $500,000 to $1,000,000 77 21,378,204 277,638 l .38 l 8.03 $1,000,000 and over 39 26,104,587 669,348 ' .19 l 9.81 Total estates probated 20,027 266,090,123 13,286 100.00 l 100.00 Section B—intangibles l l Under $1,000 ‘ 2,053 841,883 410 l 12.95 .35 $1,000 to $5,000 l 4,856 l 7,346,958 1,513 30.64 3.04 $5,000 to $10,000 l 2,693 l 8,734,073 3,243 16.99 3.62 $10,000 to $20,000 2,407 14,273,580 l 5,915 15.19 l 5.91 $20,000 t0 $100,000 2,985 57,079,536 19,122 l 18.83 l 23.63 $100,000 to $500,000 735 71,379,807 97,115 l 4.64 l 29.55 $500,000 to $1,000,000 l 80 l 29,834,482 l 372,931 l .50 l 12.35 $1,000,000 and Over 40 l 52,037,300 |1,300,9s2 l .25 l 21.55 Total estates probated l 15,849 l 241,527,619 l 15,239 l 100.00 l 100.00 Section C——chattels l l Under $1,000 l 789 131,489 167 7.63 l .72 $1,000 to $5,000 3,072 1,188,749 387 29.69 I 6.56 $5,000 to $10,000 1,956 1,417,679 725 l 18.90 l 7.82 $10,000 to $20,000 1,776 2,031,818 1,144 l 17.16 I 11.22 $20,000 to $100,000 2,142 5,156,957 2,408 I 20.70 l 28.47 $100,000 t0 $500,000 524 4,809,147 9,178 l 5.06 l 26.55 $500,000 to $1,000,000 59 2,191,142 ' 37,138 I .57 l 12.10 $1,000,000 and over 29 1,188,407 40,980 l .28 l 6.56 Total estates probated 10,347 18,115,388 1,751 l 100.00 l 100.00 12 BULLETIN NO. 505, TEXAS AGRICULTURAL EXPERIMENT STATION classes of property. For example, 20,027 of the 25,187 estates had real estate, 15,849 intangibles, and 10,347 chattels. All classes showed a con- centration of property values, but this feature was especially marked in the case of intangibles. A glimpse at section B of the table reveals that 3%, of one per cent of the number of estates comprised 34 per cent of the value of all intangible property probated. Distribution of Property Relative to Different Types 0f Commun-ities— Rural, Town, and City Table 5 indicates a significant difference between the investment of rural people and that of town and city people. For example, country communities showed a relatively large investment in real estate and chattels and a rela- Table 5. Amounts and percentages of the different classes of property in different types of communitiesi‘ as indicated by probate data, 1921-1931. Classes of property Typu of l T0121 community Property m group Real Per Chattels Per Intangibles Per estate cent cent l cent l l I l l l I _ Rural l$ 42,366,559 |$ 25,334,757 l 59.81 l $ 3,628,269 8.61 l$ 13,403,533 I 31.61 l l l l l l l Town l 116,668,992 l 65,668,811 l 56.31 | 6,231,994 5.31 l 44,768,187 l 38.41 l l l l l l City l 336,697,579 l 175,086,555 47.81 l 8,255,125 l 2.31 l 183,355,899 | 50.00 I l l I l l 18,115,388 l 3.51 241,527,619 | 45.91 l l Grand totall 525,733,130 | 266,090,123 | 50.61 *Rural—includes those counties of the 47 selected counties without a town of a population of 5,000, '1‘own—those having towns of 5,000 to 50,000 population, and Citye-those having a city with a population over 50,000. tively small investment in intangibles; however, with an increase in urban population the relative importance of tangible property decreased and that of intangible property increased. Intangibles represented on an average 31.6 per cent of property values probated in. rural communities, 38.4 per cent in town communities, and 50 per cent in city communities. These figures are quite significant, considering the tax system as it operates at present. The property of rural communities, with a relatively large amount of tangibles, is taxed in much greater proportion to the total than is the property of town and city communities, which have a relatively large amount of intangibles, which practically escape taxation. The extremes of this situation are well illustrated by a comparison of the distribution of pro- bated property in a group of frontier, rural counties with a group of counties having a high percentage of urban population. A brief examination of Table 6 will tell the story. The percentages of real estate, chattels, and intangibles are 74.5, 12.9, and 12.6 per cent respectively for the frontier group. Similarly, for the urban group, the percentages are 45.6, 1.8, and 52.6. It will be noted that tangible property comprised 85 to 90 per cent of all property probated in the group of frontier counties, and 45 to 50 per cent in the group of urban counties. Intangible property comprised 12.6 per cent of probated property in the rural group and 52.6 per cent in rate has been so low as to be relatively unproductive of revenue. y.’ criticism is offered not with the idea of minimizing such efforts to correct I. a defect in the tax system, but as a warning not to be too optimistic over the results of such legislation. RELATIVE IMPORTANCE OF INTANGIBLE PROPERTY 1N TEXAS 13 the urban group. This situation strongly signifies that the Wealth of communities largely rural is far more vulnerable to taxation than is the wealth of communities having a high percentage of intangibles. In like Table 6. Percentages of the different classes of property probated in a group of selected rural and urban counties, Classes of property probated County Per cent of Per cent of Per cent of real estate chattels to intangibles to total total to total 10.7 17.3 13.6 14.6 11.3 13.5 14.7 12.6 13.9 16.6 8.9 6.9 12.7 12.9 8.4 12.9 75.4 66.1 77.5 78.7 76.0 73.6 77.0 74.5 SVEPIIEE Section B I I Harris 45.3 I .9 I 53.8 Dallas 45.3 2.2 I 52.5 Bexar 46.6 2.6 I 50.8 Group average 45.6 1.8 I 52.6 manner, individual estates composed largely of tangible property are much more exposed to taxation than are those estates made up largely or en- tirely of intangibles. How Other States Have Approached the Problem of Taxing Intangibles* It is inconceivable that inequalities as grave as those caused by the wholesale escape of intangible property will continue to be tolerated in Texas without a vigorous endeavor to remedy them. It is not the object of this study to recommend any particular remedy, but it is thought proper to call the reader’s attention briefly to the procedure of some of the states in their effort to reach intangible property. About 20 states provide for a preferential treatment of intangibles in their system of taxation. The approach to the. problem has varied rather widely. In a number of states intangibles carry a low-rate tax based on an annual evaluation. There is serious doubt as to Whether intangible prop- erty can be reached effectively by this method. The experience of states having such laws, notably, Minnesota, Kentucky, Virginia, and Montana, is none too encouraging. True enough, they have been fairly successful in increasing the amount of intangible property on their tax rolls, but the This A fractional assessment law has been ‘Leland, “The Classified Property Tax in the United States," ch. VIII, DD. 179-221. 14 BULLETIN NO. 505, TEXAS AGRICULTURAL EXPERIMENT STATION enacted by at least one state, Louisiana. Under this law various types of i bonds are assessed at 10 per cent of their market value and taxed at the regular rate. A registration or recording tax has been employed by a number of states. Under such a law mortgages, bonds, and other types of intangibles are exempt from the payment of a property tax upon the regis- ' tration and payment of a given tax on each $100 worth of such inevstments. The failure to register documents subject under the law generally carries a penalty. The registration tax raises the question as to the shifting of the burden of the tax, in full, or in part, to the borrower through an in- crease in the interest rate on mortgages. Students of tax problems are not in complete agreement on the answer to this question. It can be said with a fair degree of certainty, however, that the degree of shifting depends upon a number of factors, such as the availability of other investments, the rate of the tax, the extent of the area to which the law applies, etc. For example, a low rate and a poor opportunity for other investments make it difficult for the lender to shift the tax to the borrower. Customary rates tend to become fixed and discourage sudden changes in rates. A few states have made an effort to reach intangibles by means of income taxes, rather than through low-rate taxes. The income taxes em- ployed have been of two types. The first type is the general income tax which taxes the income of intangibles along with the income from all other sources. This type prevails in Delaware, Mississippi, Missouri, New York, North Carolina, Virginia, and Wisconsin. The second typei of income tax is one especially designed to reach income from intangibles or other spe- cifically designated property. This latter type of income tax is found in Massachusetts and New Hampshire and is in lieu of personal property taxes on intangibles. Summary and Conclusions In this study of the distribution of property according to probated records, a complete compilation of probated estates was made in 47 selected counties for the ten-year period 1922-1931, inclusive. In all, records of 25,187 estates were compiled. The property of each estate was classified under three headings-—real estate, chattels, and intangibles. Sum- marized on this basis real estate constituted 50.6, chattels 3.5, and intangi- bles 45.9 per cent of the total property probated. A compilation of the assessment rolls in the same 47 counties for the year 1931 shows that real estate comprised 75.3, chattels 21.8, and intangibles 2.8 per cent of all property assessed for state and county purposes. Accepting these figures as a reliable cross section of the proportions of the different classes of property existing in society, one may conclude that intangible property comprises 45 to 50 per cent of all property. Furthermore, according to the facts revealed by the assessment rolls, in- tangibles made up but 2.8 per cent of all property assessed. Thus, a dis- proportionate tax burden is placed on tangible forms of property. An analysis of the data relative to size of estates indicates a wide range and a high degree of concentration of property in a comparatively few estates. The probated property of the 25,187 estates totaled $525,733,130 RELATIVE IMPORTANCE OF INTANGIBLE PROPERTY IN TEXAS l5 with an average value of $20,873 per estate. Eighty-two per cent of the number fell below the average in size. t. Four-fifths of the number of estates represented only one-fifth of the total value of all estates. On the other hand, a group of the larger estates representing 3.5 per cent of all estates constituted 53.3 per cent of the total value of estates. Intangibles showed a considerably higher degree of concentration than did either real estate or chattels. Thus, it is seen that not only do intangibles almost escape taxation, but that such property has a strong tendency to be as- sociated with the larger estates, presumably more able to pay taxes than the smaller estates. A significant revelation is the variation in the composition of property of different types of communities. For example, intangibles represented 31.6 per cent of the property probated in rural communities, 38.4 per cent in town communities, and 50 per cent in city communities. A more extreme situation is illustrated by a comparison of the distribution of property in a group of newly developed counties with that of a group of urban counties. In the rural group intangibles made up but 12.6 per cent of the total while in the urban group intangibles constituted 52.6 per cent of the total. This situation strongly signifies that the wealth of communities largely rural is far more vulnerable to taxation than is the wealth of communities having a high percentage of intangibles. About twenty states have made provision in their tax laws for a pre- ferential treatment of intangibles. The approach to the problem has varied widely, but with few exceptions legislation dealing with the taxation of intangibles may be grouped under one of the following headings: 1. A low-rate tax based on an annual evaluation: This method has been employed especially by Minnesota, Kentucky, Virginia, and Montana. 2. A fractional assessment law: Under such a law various types of in- tangibles are assessed at some per cent less than 100 and taxed at the regular rate. ~ 3. A registration or recording tax: The registration fee is usually in lieu of all property taxes. 4. An income tax: Income taxes employed for the purpose of reaching intangible property are of two types. The first is the general income tax which taxes the income of intangibles along with the income from all other sources. A number of states employ this type, notably, Delaware, Mississippi, Missouri, New York, North Carolina, Virginia, and Wisconsin. The second type is an income tax designed specifically to reach incomes from intangibles.