derive very considerable revenues from moneys which produce interest, dividends and profits, and who do not contribute a due proportion to the public exigencies of the same, be it resolved," etc. The dissatisfaction here manifested led to a three-per-cent tax on all moneys at interest, and on all profits from moneys invested in shares or in trade. Profits to the extent of sixty dollars were exempt. The law also provided that after the first five years of their practice all professional classes except ministers and judges should pay an annual tax of three dollars, provided their income exceeded five hundred dollars.1 The tax was popularly known as the "tax on salaries and fees," but it was in reality a kind of license tax levied on all commercial and precarious incomes. In 1851 the exemption was reduced from sixty to thirty dollars, and other slight alterations were made. In 1855 the exemption was still further reduced to six dollars, and various minor changes were introduced.3 In 1857 the rate was increased to four per cent, and in 1859 the tax was further extended and slightly changed so that, while the rate of income from interest remained at four per cent, the tax upon salaries and fees was now applied to all individuals at the rate of one per cent. Soon afterward, however, the Civil War broke out, which led to a notable change in the system.

In Alabama the movement toward the taxation of income dates from 1843. The new tax began there, as in the other southern states that have been noticed, as a tax on certain business incomes, at the rate of twenty-five cents on every hundred dollars of the income of auctioneers, factors, cotton brokers, and commission brokers. In 1844 it was reduced to twenty cents, and there was added a tax of one-half of one per cent on the income of lawyers, physicians, surgeons,

1 North Carolina, Acts of 1848-1849, c. 77, p. 129. Law of January 29, 1849. 2 Laws of 1850-1851, c. 120, sec. 2.

3 Laws of 1854-1855, c. 37, secs. 19–21. 4 Laws of 1856-1857, c. 34, secs. 19–21. Laws of 1858-1859, c. 25, sec. 27.

Alabama, Laws of 1842-1843, act I, sec. 5.

and dentists, and of all persons receiving salaries from the state government, or from any bank, mercantile house, or educational institution.1 If any one refused to hand in a return, he was to be assessed at three thousand dollars. In 1848 the tax on professions was extended to the income of "every person of whatever craft, employment or profession except artisans and manual laborers." 2 The law also provided that the tax upon commissions and brokers should not apply when the capital invested in the business was taxable. In 1850 it was enacted that surgeons, physicians, and dentists who had practised three years might pay either a specific tax of ten dollars or a one and one-half per cent tax upon their annual income. Thus the professional income tax was again partly changed into a license tax, and after a few years it became entirely a license tax. In the case of public officials, clerks, and the officers of corporations, the tax was now to be levied only on the income above five hundred dollars. Cotton pickeries and warehouses for the storage of cotton and other products were made taxable at the rate of one per cent of the income. The tax continued in this shape until the Civil War.

Finally, it may be stated that in Florida the system was also initiated in 1845, when a tax of twenty cents was levied upon every hundred dollars of income received by lawyers, doctors, public weighers of cotton and other products, public inspectors, and pilots. In 1850, after the state comptroller had recommended an extension of this tax to business incomes in general, commission merchants and factors were made. subject to a tax of two per cent on their commissions.5 In Florida, however, the law seems to have worked even less successfully than in the other southern states, and in 1855 the whole system was abolished."

1 Alabama, Laws of 1843-1844, act 106, secs. 5, 7, 8.

2 Laws of 1847-1848, act I, sec. 1.

8 Laws of 1849-1850, act 1, sec. I.

Laws of Florida, 1845, c. 10, sec. 7, and c. 28, sec. 9.

5 Laws of Florida, 1850, c. 3, 5, 7.

6 Laws of Florida, 1855, c. 715, sec. 4.

It will be seen, therefore, that all these early attempts at income taxation were exceedingly crude, and that in the southern states they amounted to very little more than a system of license taxes. In no case was the revenue at all significant, and in only one case that of Virginia – was it even appreciable. In Virginia, in 1844, the income tax yielded about $16,000 out of a total state tax of $432,000. But of that amount almost $12,000 came from the tax on interest.1 During the fifties the yield slowly increased. In 1853, out of a state tax of over a million, the income tax yielded only $36,000. In 1856, after the tax rate had been doubled, the revenue amounted to over $99,000, and in 1858 it increased to $104,000. In the other states, however, these figures were never approached, although North Carolina did fairly well. In 1849, the first year of the operation of the law in that state, the yield was slightly over $28,000, most of it being derived from the tax on interest. In 1851 the yield was about $30,000, but it then began to diminish. Virginia was virtually the only state in which the tax can be taken at all seriously.

§3. The Period of the Civil War

When the Civil War broke out, the southern states found themselves in a grave predicament. Practically none of them had developed the system of the general property tax as it was found in the North, and it was felt to be entirely out of the question to expect that the burdens of the impending conflict should be borne entirely by the owners of real estate and slaves. What, therefore, was done in a comparatively easy way in the North, through a simple increase in the rate of the general property tax, it was necessary to accomplish in a different way in the non-industrial South, where the capital invested in industry was exceedingly small. The South, therefore, was compelled to turn primarily to the commercial and professional classes, and had to make use of an income

1 Auditor's Report, November 20, 1845.

tax rather than a property tax. This movement soon became well-nigh universal throughout the South.

In Virginia, where, as we remember, there had been since the forties a kind of partial income tax, the real change took place in 1862. In 1861, indeed, the old progressive salaries tax was replaced by a low proportional tax of one per cent on the amount in excess of five hundred dollars;1 but in 1862, after the war had broken out, comprehensive changes were made, chiefly in the rates of the existing tax.2 In 1863, however, not alone were the rates still further increased, so that salaries and fees paid two and one-half per cent, and interest of bonds and income from toll-bridges and ferries paid seventeen per cent, but a tax of ten per cent was now levied upon the income received from any licensed trade, business, or occupation, from the use of money by others, from the exchange of any kind of property, and from any other trade or speculation. The amount of three thousand dollars was exempt in all cases; and there were additional exemptions in the case of certain profits from property to be used by the purchaser and from the sale of cattle or farm produce on the part of the farmer.

This system continued until 1866, when a new system was introduced, including a general property tax as well as license taxes and a tax on incomes. Incomes were now subjected to an elaborate classification in six categories, and salaries were separately assessed in a distinct schedule. The rates varied from one and one-half to three per cent, according to the different classes of income. In 1867 the rates were changed so as to vary from one to five per cent. In 1870, however, all the schedules and classes were abolished, and a general tax of two and one-half per cent was imposed on the amount 1 Virginia, Acts of General Assembly, 1861, c. 1, sec. 10.

2 The rate upon salaries and fees was increased one and one-half per cent; the rate upon interest from bonds and from purchases to ten per cent. Laws of General Assembly, 1861-1862, c. 1, sec. 9.

8 Acts of General Assembly, 1863, p. 1.

Acts of General Assembly, 1865-1866, c. 3, secs. 8 et seq.

Acts of General Assembly, 1866-1867, c. 298, secs. 18 et seq.

of incomes in excess of fifteen hundred dollars, while the combined license and income tax upon professional classes was converted into a pure license tax.1 Incomes were defined so as to comprise certain specified items, together with "all other gains and profits derived from any other source whatever," and deductions were granted for losses by fraud or shipwreck, losses incurred in trade, sums paid for fertilizers, labor, or service, except the outlay for improvements, new buildings, and betterments. In 1871 the exemption was reduced to one thousand dollars, and the rate to one and onehalf per cent. In 1872 some minor changes were made, and in 1874 the exemption was lowered to six hundred dollars and the definition of income was somewhat altered. In this form the Civil War income tax has continued to exist, with only slight modifications, to the present time.

During the war the tax yielded substantial revenues. In 1863 the proceeds amounted to $178,945, of which $92,780 was due to the ten-per-cent tax on profits. As soon, however, as the war was over, and the law was changed in 1866, the yield decreased greatly, amounting in 1866 to only about $23,000. The revenue thereafter remained at an insignificant figure. In 1873, for instance, the income tax yielded only $33,140 out of a state tax of $2,268,000.4

In North Carolina, where, as we remember, the old tax, dating from the forties, was in existence at the outbreak of the Civil War at the rate of four per cent, the law of 1851 modified the system to some extent by repealing the exemption of judges from the tax, and by increasing the rate of tax upon toll roads, bridges, and ferries to two and one-half per cent. In 1863, however, when the general exemption in the case of salaries and fees was raised to one thousand dollars, the tax on profits was extended and modified, and various

1 Virginia, Acts of General Assembly, 1860-1870, c. 226.

2 Acts of General Assembly, 1870-1871, c. 193, sec. 7.

3 Acts of General Assembly, 1874, c. 240, sec. 109.

4 Cf. the figures quoted in Kinsman, op. cit., p. 56.

5 North Carolina, Laws of 1861, Second Extra Session, c. 31.