Original assessments and the correction of original assessments of real and personal property; an argument in support of a bill to provide for original assessments of real and personal property, and for the correction of all original assessments of such property ..

Front matter

AN ARGUMENT FOR A BILL to provide for

Original Assessments

and tHe

PART I. Page

The determination of the taxable value of property is a professional and

judicial, not a legislative function 5

Experience is the factor of highest value 6

Ample compensation. Continuous employment 7

The fundamental purposes of assessing property for taxation 7

Undervaluation is the cause of nearly all injustice in taxation 9

County boards of equalization confirm, they do not correct, undervaluations. All county boards of equalization should be abolished 10

The state board of equalization confirms, it cannot correct, undervaluations. It should be abolished 11

PART II. Chaotic condition of assessment work . . : 13

Quadrennial assessors of real property; their election and term of service 13 Conditions under which quadrennial assessors have done their work

This office should be abolished 14

Annual assessors of personal property 16

All personal property is never discovered nor fully valued. The office

of annual assessor of personal property should be abolished 17

City boards of review and equalization. All such boards should be

abolished 18

County boards of review and equalization. All such boards should be abolished 18

PART III. The present condition of assessment work 20

The assessment of personal property is a farce 21

What will taxpayers do? 21

What taxpayers can do. A permission to increase taxes. A tax rate of less than one per cent 22

Assessments cannot be corrected in time for the 1911 tax list. Tax lists should be completed on the following dates:

Taxing districts, first Monday in July;

Counties, first Monday in August;

State, first Monday in October.

Tax payable one-half in December, 1911, one-half in June, 1912 23

PART IV. Page The old machinery to be discarded 25

The new machinery to be installed: City Boards of Assessors, County

Assessors, County Tax Appeal Jury 25

County tax appeal juries 27

Taxpayers’ right to protest 27

Taxpayers’ right of appeal:

1. County tax appeal jury;

2. Tax Commission of Ohio;

3. Common pleas court.

Decision of common pleas court final 28

Assessors to defend assessments 28

Taxes to be paid when due; refund of excess taxes 29

No abatement or refund of taxes to be allowed except by decision on

protest 29

Results expected 29

PART V. Making the 1911 tax list 31

The completion of the 1911 tax list must be forced. How this is to be

done 31

Protests and corrections 32

No injustice to taxpayers will result from forcing the tax lists as proposed 33

By forcing the tax list as proposed, a great gain will be made for every

taxing district 34

An enormous number of protests expected 35

The burden of the work must fall on 1911 36

The advantages and the prestige of a full-valued tax list belong to 1911 . . 37 Conclusion 38

Appendix

1. For the original assessment, and the correction of all original assessments, of real and personal property;

2. To create city boards of assessors;

3. To create county assessors;

4. To create county tax appeal juries.

Contents of sections of Bill

40-41

Part I. The Determination Of The Taxable Value Of Property Is A

PROFESSIONAL AND JUDICIAL, NOT A POLITICAL, FUNCTION.

Two fundamental purposes must be recognized in order that there may be a profitable discussion of remedies for the imperfections of the administrative features of the tax system of Ohio.

First: That the determination of the taxable value . of property, real and personal, is a professional and judicial, not a legislative function.

In the commercial world the valuation of property for business purposes is a daily duty performed with sufficient accuracy to be accepted as a basis for credit when loans are sought, or for purchase and sale when ownership of the property involved is to pass from one owner to another.

It ought not to be difficult to draw from the records, rules and experience involved by the daily necessity of determining values for such purposes, records, rules and experience equally reliable and satisfactory for determining the value of property for taxation. Failure to do this has been caused by the lack of a clear conception of the true requirements of assessment work.

Second: That the amount of money to be raised by taxation, and the rate of the levy, are questions entirely outside the jurisdiction and duties of assessors of real and personal property, boards of review, boards of equalization, or the Tax Commission of Ohio.

Such assessors, boards and officials have but one duty to perform. This duty is to discover all taxable real and personal property situated within their respective jurisdictions and to list and value the same for taxation at its true value in money.

The question as to whether or not the valuations made by them will produce a tax list large enough to enable any taxing district to raise a given amount of money by levying a 1% tax, or any other pre-determined rate, is not a proper question for their consideration or action. The amount of money to be raised or the rate of the tax levy are not factors that can properly be taken into consideration in determining the taxable value of any property at its true value in money.

EXPERIENCE IS THE FACTOR OF HIGHEST VALUE.

The fundamental requirement is that all taxable property shall be discovered and listed for taxation at its true value in money. This requirement cannot be properly complied with unless certain necessary conditions are recognized and provided for.

Records must be kept and continuously corrected for each taxing district, showing the location, description and ownership of all property within such district, supplemented with memorandums showing changes in conditions affecting values.

Rules must be devised for determining the taxable value of all parcels of land, however' divided, owned and used, and the taxable value of all structures and improvements situated thereon. Such rules must be revised from time to time, and exceptions to their application must be noted, as experience may demonstrate to be necessary.

Persons appointed to perform the duties of assessors should be selected on account of their fitness to do the work required. They should be retained in office as long as they perform their duties in an intelligent and satisfactory manner and no longer. Ordinary mental ability combined with due diligence and a desire to do well whatever is to be done are necessary, but experience counts for more in securing true assessments than any other factor.

Any business man who gives proper consideration to the proposition will know that office records and rules cannot take the place of intelligent field work, however well they may be devised and kept. Such records and rules are absolutely necessary. When well devised and kept, they are indispensable aids to correct judgement. But no such rules can have universable application or enable the public to dispense with the services of men competent to apply them with the discretion imperatively demanded by dissimilar and changing conditions as they actually exist at any given time.

In the case of buildings, neither the cost of construction nor the age of a building is an infallible index to its value. Rules are necessary to intelligent valuations, but they cannot be substituted for the judgment of an experienced assessor. No system of allowing for depreciation by zones can enable a clerk in an office to value buildings correctly. An assessor who knows the conditions, and who knows how to make valuations, must personally inspect the buildings and other structures and judge of the amount that should be allowed for age, obsolecence and changes in surrounding conditions. In such work experience is the factor of highest value.

AMPLE COMPENSATION, CONTINUOUS EMPLOYMENT.

To become expert in keeping necessary records, making rules and developing ability to form correct conclusions, an assessor must devote himself to his work and develop it into a profession. To enable him to do this, his compensation must be ample and he must be permitted to hold office continuously by right of his service record.

' - It is obviously absurd to employ inexperienced men to do special work, which must be done every year, discharge them and again employ other inexperienced men to do the same work for the next fiscal period.

The people cannot gain the advantages of experience unless they retain assessors in office long enough to enable them to acquire it, and then retain them in service long enough after that to secure the benefit of the experience gained.

■ j The selection of assessors by election is a misapplication of the true function of popular government.

The appointment of assessors for short terms is a violation of the requirements of efficient administration.

THE FUNDAMENTAL PURPOSES OF ASSESSING PROPERTY FOR TAXATION.

The fundamental purposes of assessing property for taxation are:

First: To supply a basis on which to compute a tax rate necessary to raise the amount of money required.

Second: To determine the portion of the total tax which each taxpayer must pay.

The total of the tax list and the total amount of money to be raised determine the tax rate. When property is undervalued the total of the tax list is correspondingly decreased and the tax rate is correspondingly increased. This may be done without injustice to any one.

Injustice results from unequal valuations, not from the tax rate. Unequal valuations are as great a cause of injustice when the standard of valuation is fifty per cent, of full value as it is when the standard is true value in money.

Small properties are invariably valued at full standard value by inexperienced assessors, but very large properties are not, because an inexperienced assessor is more likely to make a reasonably close estimate of the value of a small property than he is of a large one.

Assessments deliberately made by experienced and capable men always equalize values by raising under-valuations to the adopted standard. Whenever and wherever this has been done, it has resulted in decreasing the proportion of the total tax paid by small property owners and increasing the proportion paid by large owners, and this will be the result when this work is properly done in Ohio. For this reason, the demand for experienced expert assessors ; for permanent and continuously corrected records and rules ; and for full valuations that can be demonstrated to be correct by the use of such records and rules, is a demand for the relief of small property owners from over taxation.

When property is unequally valued the owners of property valued at the highest per cent, of full value are obliged to pay more than their share while the owners of the property valued at the lowest per cent, of full value are favored by being called upon to pay less than their share.

Valuations made by experienced experts who are capable of determining, and do determine, the true value of all property are the only means by which injustice can be eliminated from the work of determining the proportionate share of the burden of taxation that each taxpayer should pay.

UNDERVALUATION IS THE CAUSE OF NEARLY ALL INJUSTICE IN TAXATION.

It is obvious that under-valuation is the means universally employed to escape the payment of a just portion of taxation.

It is equally obvious that the amount saved by one taxpayer by undervaluation must be paid by some other taxpayer. This fact gives every taxpayer as direct and as vital an interest in the assessed value of all property situated within his taxing district as he has in his own. A person should be willing to pay his own fair share of the burden of taxation, but he should protest most vigorously against being compelled to pay taxes for other people.

The most effective and helpful protest against such injustice that can possibly be made will be made when the conditions under which assessment work is done are reorganized in a way to render undervaluations practically impossible. Such a reorganization is now imperatively demanded.

Assessors elected without a due regard to their fitness for the work to be done ; the absence of well kept consecutive records and of well tested rules ; short terms of service and the entire lack of efficient supervision, have all conspired to develop and confirm the custom of making undervaluations as a blind method of taking security against injustice on the part of individuals and collectively on the part of representatives of taxing districts to escape a portion of county taxation, and of counties to escape a portion of state taxation.

Under- valuation is the cause of nearly all inequalities between taxpayers, between taxing districts and between counties. Instead of devising an administrative system intelligently designed to correct this evil, and thereby remove the cause of injustice to taxpayers, the General Assembly has continued the method of making valuations, and of correcting the same, that have been in use since the adoption of the present state constitution. These methods confirm and perpetuate the evil of undervaluation, they cannot correct it.

COUNTY BOARDS OF EQUALIZATION CONFIRM, THEY DO NOT CORRECT UNDERVALUATIONS.

The only way in which the evil of undervaluation can be exterminated is to correct the valuation of every undervalued piece of property by raising it to true value in money. This county boards of equalization do not attempt to do. They seek to eliminate inequalities between taxing districts, not between individuals. They deal with the totals of tax lists, not with individual tax lists.

County boards of equalization do their work by considering the relative total value of property returned for taxation by the taxing districts within their respective counties. In doing this they will find evidence of attempts to evade the payment of a portion of their fair share of county taxes, on the part of some districts, shown by the low total of their tax list. If they inquire into the cause of this low total, they find that the assessors for such districts considered it a patriotic duty to save their constituents as much as they possibly could by making an undervalued tax list which would help the people of their district to evade the payment of a part of their fair share of county taxes. The question of the injustice of compelling the people of some other district to pay the part of the tax they thus evade does not trouble them. They do not permit their constitutional oath of office, by taking which they solemnly swore that they would assess all property at its true value in money, to interfere with their determination to bring down the amount of the county tax to be paid by their constituents to the lowest possible notch. Long established custom justifies assessors in doing their work in this way. The conviction of an assessor for violating his oath of office is an unheard of and as improbable an event as the conviction of a taxpayer for perjury committed by subscribing to a false statement in signing his tax list.

The problem of the county board of equalization is to equalize the totals of the tax lists of all taxing districts in their county so that each district shall pay its fair share of the county tax. To do this it adopts the simple expedient of determining the average percentage of true value at which the property in each of

IO the several districts has been assessed, and then ordering a corresponding reduction of the total tax list of those districts that have been assessed above, and a corresponding increase of the total tax list of those districts that have been assessed below, this average per cent, of full value. To give practical effect to this order, it is necessary to increase or to decrease the assessed value of every parcel of property situated within a taxing district by the per cent, by which the total tax list of the district has been changed by order of the county board of equalization.

Clearly, this makes no change whatever in the relative values of individual parcels of property. All such values are decreased or increased by an identical percentage; therefore, no undervaluation or no overvaluation is corrected. But every such incorrect valuation is confirmed and its unfairness increased.

It is impossible to establish justice between taxpayers by such a system. The only equalization that should be permitted is the work of correcting individual assessments by decreasing them when above, and increasing them when below, the true value in money of the property affected. Such equalization work will eradicate the evil of under- valuation. It will establish justice between taxpayers. It will render county boards of equalization unnecessary. All county boards of equalization should be abolished. This statement necessarily includes city boards of equalization.

THE STATE BOARD OF EQUALIZATION CONFIRMS, IT CANNOT CORRECT UNDERVALUATIONS.

The state board of equalization is removed one degree further from the problem of the original assessment of individual parcels of property than are county boards of equalization. Therefore, it is by so much less competent to determine the percentage of true value at which property in all taxing districts has been assessed. If inequalities are to be discovered and corrected, the search for them and the work of correction must be done in the district where they occur. The farther those who attempt the work of discovery and correction are removed from the scene of original assessment, the less able are they to discover original errors. The less able are they to correctly correct such errors.

ii

No state board of equalization has ever attempted to correct errors in the assessments of individual pieces of property. Therefore, no state board of equalization has ever attempted to establish justice between taxpayers.

The only function of the state board of equalization has been to prevent counties, regarded as taxing districts, from evading the payment of their fair share of the state tax by means of undervalued county tax lists. In performing this duty, its method of procedure, the results of its work, and the method of giving practical effect to its orders, has necessarily been identical with the procedure, results and methods of execution described for the work of county boards of equalization.

In looking for the cause of undervalued county tax lists, the state board of equalization will find it in the incompetency of assessors, accentuated by a misconception of duty giving a wrong direction to the work to be accomplished, making evasion of a fair share of county and state taxes, by means of undervaluation instead of the establishment of justice between taxpayers, the objective point of their assessment work, supplemented by an entire absence of correct records and rules, and encouraged possibly by an “understanding” obtained from the county auditor that an assessment of — say forty percent of true value would be “about right.”

The state board of equalization, nor any other administrative body, has never been properly organized and equipped to deal intelligently and effectively with these evils, which have been permitted to exist and to become more firmly established year after year, decade after decade, since the system of county and state boards of equalization was established fifty years ago.

The abolishment of this system is now imperatively demanded in order that the conditions in which it has culminated may be dealt with in the way an intelligent conception of requirements necessary to promote the general welfare of the state demonstrates must be done.

To do this, the obstructions to progress embodied in county boards of equalization and in the state board of equalization must be removed. These boards must be abolished.

Part II. Chaotic Condition Of Assessment Work

The present condition of assessment work is chaotic. No other result can be reasonably expected. A correct assessment of property for taxation has never been made in Ohio.

However the work of assessing real property was done at the beginning of any decennial period, the experience gained, the records made, the rules adopted, were not available for the same work which had to be done for the next decennial assessment period. Add to this the fact that no adequate machinery has ever been provided for correcting inequalities existing in the original assessments, and the other fact that these inequalities, instead of being removed, were confirmed by the work of county boards and by the state board of equalization, so they could not be corrected during the decennial assessment period of ten years, and it will be seen at once that such conditions rendered it impossible for the quadrennial assessors of real property, in office in 1910, to make a correct assessment.

QUADRENNIAL ASSESSOR OF REAL PROPERTY.

Two thousand, five hundred and eleven (2,511) assessors of real property were elected in November, 1909, to assess all real property in Ohio at its true value in money. They took the oath of office and were commissioned to commence their work on January 15, 1910, their term of service being limited by law to terminate on July 15, 1910. Of course, a vast amount of work was not completed on that date. By means of a doubtful construction of the law, a large number of assessors have been permitted to continue in service for indefinite periods in order to enable them to complete their work. In addition to this, a proposal has been made, and a Bill has been introduced in the General Assembly, to give these assessors a new lease of life in order to enable the Tax Commission of Ohio to call them to its assistance in an attempt to create some tangible result out of the chaotic work that has been done.

CONDITIONS UNDER WHICH QUADRENNIAL ASSESSORS HAVE DONE THEIR WORK.

To expect two thousand, five hundred and eleven elected, inexperienced, assessors, unaided by well devised and continuously corrected records, unguided by thoroughly tested and intelligently adjusted rules, to make a correct assessment of all real property in Ohio within a period of six months betrays a childish confidence in the infallibility of elected officials which the mind of primitive man might be capable of entertaining, but which has no reasonable place in this enlightened age.

It is well here to recall the state-wide demand made on the auditor of state immediately after election by this army of raw recruits for instructions that would enable them to do their work intelligently and correctly. The attempt to give this instruction, en masse, at a state conference, called by the auditor of state, held in Columbus on the 15th day of December, 1909, at which approximately eighteen hundred (1800) assessors were present, was an object lesson long to be remembered.

To aid this purpose in the most effective way, the Ohio State Board of Commerce, at its own expense, engaged the services of Mr. A. C. Pleydell and Mr. George J. Craigen to come to Columbus and explain to the assembled assessors how assessment work is done by men who have had fifteen years’ or more continuous experience in the doing of it. These explanations could not be made without reference to certain tables and rules that have been developed by experience and are in daily use by assessors who are making a life’s profession of their work, being permitted to work under conditions that enable them to hold their positions continuously so long as they desire to serve and continue to do satisfactory work.

Naturally, there was an instant demand for copies of these tables and rules. This demand was supplied by the Ohio State Board of Commerce at its own expense. It arranged with Mr. A. C. Pleydell and Mr. George J. Craigen, and Mr. Lawson Purdy, President of the Department of Taxes and Assessments for New York City, to compile these tables and rules and to publish the i4 same in a booklet, a copy of which was supplied to every one of the twenty-five hundred and eleven (2511) elected assessors of real property without charge.

One other incident occurring at this conference will be clearly remembered by all who attended it. It was the forcible desire on the part of these assessors to respect their oath of office and assess all real property at its true value in money, coupled with an equally clearly expressed fear that if this was done taxpayers would be heavily penalized by such an assessment through being obliged to pay more taxes on the full valued tax list for 1911 than they did pay on the undervalued tax list of 1909.

While the amount of money to be expended, and the tax rate by which it should be raised, cannot be taken into consideration in the work of assessors whose only duty is to discover all property situated within their jurisdictions and to assess it for taxation at its true value in money, these considerations have a determining influence upon public opinion, and legislative enactments designed to build a bridge over which assessment work can pass from the old condition of unregulated and uncorrected undervaluations to the new condition of regulated and intelligently corrected full valuations.

Meeting this issue, I frankly stated to the members of the conference that a full valued tax list, unsafeguarded by an effective limitation of power of taxation, would produce a calamity of the first magnitude for the people of the state ; that unless such a safeguard was provided by the General Assembly they would, in my opinion, be justified in making assessments at such a percentage of full value as custom established. This is a case where custom is stronger than the law. An evil custom cannot be broken without the aid of a law that will effectively safeguard the people from unnecessary hardship on account of the change.

Following this conference, members of the General Assembly for 1910 will remember the strenuous efforts made to secure the enactment of an effective tax-limiting law. They will recall the frequent appeals made by assessors of real property that such a law be enacted promptly so that they might know whether they would be expected to make assessments at full value, or at some customary per cent, of full value.

These are the conditions under which the quadrennial assessors of real property have done their work. Can any intelligent person entertain a reasonable expectation that this work has been correctly done ; that all real property in the State of Ohio has been assessed at its true value in money; that by reason of such assessment all inequalities between taxpayers have been eliminated; that justice has been established?

The wonder is, not that the work of this army of assessors, viewed en masse, appears chaotic, but that, upon inspection in individual detail, so much of it is found to be comparatively well done.

The duty of the hour is to utilize their work in the best possible way, muster out the quadrennial assessors and proceed to create and establish a tax list for 1911 that can be used as a basis for the computations that must be made to determine the tax rates that must be levied to raise the amount of money each taxing district in the state is to collect on the basis of the 1911 tax list.

ANNUAL ASSESSORS OF PERSONAL PROPERTY.

Assessors of personal property elected biennially, are given duty two months in each year of their two-year term, beginning with the first of April and ending with the fourth Monday in May.

Here is another exhibition of childlike faith in the omniscence of elected officials. Without the experience that can only be acquired by continuous service; without proper records or rules, this army of raw recruits are expected to find and assess at its true value in money, all personal property located within their respective jurisdictions.

As a matter of practical work, they do not attempt to do anything of the kind. They simply distribute blank statements for taxpayers to fill out, and collect them up when they have been signed. No provision is made on these blanks for the entry against the several items of the assessed values determined by the assessor. The only value given is the self-assessed value written in by the taxpayer.

Is it reasonable to expect that no personal property will be omitted, that no undervaluations will be made, under these conditions ?

ALL PERSONAL PROPERTY IS NEVER DISCOVERED OR FULLY VALUED.

Statistical reports show all too clearly that personal property is elusive, both as to its existence and value. Human ingenuity in no age, in no civilization, in no community or state, has ever been equal to the task of finding and assessing at full value, or any established percentage of full value, all tangible and all intangible personal property and levying a tax on such valuation uniform with the rate levied on real property, as the constitution of Ohio requires. The attempt to do this has been abandoned by every government excepting the States of this American Union, and many of these States are now diligently searching for practicable substitutes for their personal property tax.

These facts, however, do not justify the inefficient administration of personal property tax laws which has been so long permitted.

To secure an efficient administration of personal property tax laws, the same methods must be pursued and the same conditions must be established as have been indicated as being necessary for the efficient administration of laws for assessing real property.

Personal property and real property should both be assessed by the same assessors. The conditions of service, the records, rules and methods, the powers and duties in making original assessments and in correcting original assessments, should be identical for both classes of property, so far as practicable.

The assessors of personal property elected in November 1909 will finish their last service on the fourth Monday in May 1911. Their work, in whatever condition it may be, should be promptly transferred to a city board of assessors and a county assessor, so that personal property and real property assessments may be combined and the tax list for 1911 may be completed without delay. With this transfer the race of annual assessors of personal property should cease to exist. The office of annual assessor of personal property should be abolished.

i7

CITY BOARDS OF REVIEW AND EQUALIZATION.

A step in the right direction was taken when city boards of review were created, the members of which are appointed to serve for the considerable period of five years.