to Mr. Evarts.
Vienna , March 20, 1879. (Received April 5.)
Sir: Referring to my dispatch No. 174, giving the information respecting Austrian railroad taxation, as desired by your dispatch No. 87, I now submit the following report touching the system adopted by the Government of Hungary:
I. “On what general recognized principle, if any, is the railroad taxation of Hungary based?”
Answer. On the principle that the transportation should pay the taxes, these being levied upon the passengers and owners of the property transported. The particulars appear in the analysis of the Hungarian law, hereto appended. (Inclosure 1.)
II. “In how far are the railroad companies taxed as holders of realty?”
Answer. All the realty is exempt from taxation.
III. “In how far as holders of personalty?”
Answer. The personalty is also exempt from taxation.
IV. “In how far are they subject to a franchise tax?”
Answer. There is no tax on this franchise.
V. “In how far is their stock taxed as personalty to its owners?”
Answer. The shares are not subject to taxation.
VI. “What taxes are levied on the receipts of the companies, whether net or gross?”
Answer. There is no tax upon either gross or net receipts in Hungary.[Page 55]
With one or two exceptions, in both Austria and Hungary the plan was early adopted of providing for the ultimate acquisition of the railroads by the government. To this end the concessions were granted for 90 years, with the condition that at the end of that period the whole franchise and property, with an equipment equal to the original amount, should revert absolutely to the state. To save the builders and owners from loss, a system of amortization was established, in pursuance of which a certain portion of the capital in shares and bonds was to be refunded in each year, by which the reimbursement would be completed in 90 years. In principle it is a sinking fund. In Hungary, the government guarantees the amortization fund and an interest of 5 per cent. on capital and bonded debts, in silver; and if the net earnings are not sufficient, the deficiency is made good out of the national treasury, but to be refunded if subsequent net receipts are sufficient. In point of fact, in the aggregate there is each year a deficiency of several millions charged upon the state treasury of Hungary. Under such circumstances it is evident that taxes upon the corporation would involve the paying in of money with one hand only to be paid back by the other.
Hence the state levies its revenue upon passengers and freighters as a surtax upon the regular tariff charges of the railroads, these latter being the agents to collect it and to account to the government.
In effect, it is a tax on the gross receipts, while in law it is a tax on private business
This explanation, together with the summary of the legal provisions hereto appended, will fully answer the inquiries so far as they relate to Hungary.
Some further elucidation of the railroad system is reserved for a subsequent dispatch, when some expected documents shall have been received at the legation, showing more completely the legal provisions for Austrian railroads.
I have, &c.,