No. 32.
Mr. Kasson to Mr. Evarts.

No. 175.]

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.

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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.,

[Inclosure 1 in No. 175.]

on taxing the use of railways and steamship transportation.

[XX. Law articles of the year 1875.]

(Sanctioned the 6fch May, 1875; promulgated in the House of Deputies the 14th May, 1875; in the Upper House the 18th May, 1875.)

Within the frontiers of the countries belonging to the Hungarian Crown, passengers, consignees, and receivers of goods must, for the use of railway and steamship conveyances, pay the tax rates enumerated in the ensuing paragraphs.

§ 1. The following taxes have to be paid on railways as well as on steamships:

For conveyance of passengers, 10 per cent. of the fare.
For forwarding passengers’ baggage, 10 per cent. of the amount paid for overfreight: on excess of weight over free allowance.
Ten per cent. of the whole fare for special trains and steamships.
Five per cent. of the transportation charges on goods conveyed by the mail trains and 2 per cent. on that conveyed by freight trains.
Ten per cent. on fare paid for a special cabin on board a steamship and for a carriage sleeping compartment on railways.

In settling the accounts of these rates, the manipulation fees (cost of tickets, stamps, &c.), and the agio (exchange) for metallic money must be added to the dues and amounts enumerated above. So far as such additional payments are not collected through some company or for some transportation, the tax will only be levied on the dues, charges, and manipulation fees collected.

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§ 2. All these tax rates are collected from the passengers, consignees, and receivers of goods by the railway and steamship administrations, and then remitted to the proper state treasury.

§ 3. The tax rates laid down in § 1 must be added to the fare and conveyance dues fixed in the tariffs of charges of the respective enterprises and to their manipulation fees; and they must be brought to public notice in these tariff tables, and be reckoned as one sum, and must be paid in together with the metallic agio mentioned in § 1. Tariffs prepared in this manner must be submitted to the government.

§ 4. Small fractions, resulting from the calculation of the tax rates to be paid according to the present law, are to be omitted if they do not exceed half a kreuzer on the fare and half-a-tenth kreuzer in the conveyance taxes. If these fractions exceed the sums mentioned, they must be accounted for as a whole or as one-tenth kreuzer.

§ 5. Those who enjoy the privilege of a reduction of tax rates pay only the amount of tax resulting from the reduced rate, the manipulation fee, and the agio on metallic money.

§ 6. The following are exempt from the tax established by this law:

The royal court.
The conveyance of passengers and freight for the common army and the militia, if these transports are furnished with the usual military documents.
The railway and steamship companies are exempt in regard to those goods which they convey for their own use from one of their stations to another, for their own constructions, and for the completion of the objects of the undertaking or pertaining to their business.
The street railways.
Steamers and railways conveying passengers between the capital and adjoining localities.

§ 7. The stamp dues to be paid upon the railway and steamship traffic according to the present laws will continue in force.

§ 8. The steamship and railway companies are at the end of each month obliged to pay into the state treasury (without detriment to the right of a future co rectification within a fortnight, thereafter) the amount of taxes corresponding to the passenger, luggage, express, and freight traffic of the same month of the preceding year. The regular monthly exhibits of traffic, in which the taxable transportation, the revenue derived therefrom, and the taxes levied according to this law must be clearly exhibited; and the passenger, luggage, express goods, and freight rubrics, recorded as one sum, must within three months be sent to the financial direction as designated by the minister of finance. The companies that extend their business transactions to the Austrian territory or to foreign countries are required to show all these sums in their exhibits, as well as exhibiting the tax laid thereon, and paid in the before-mentioned countries for the use of the conveyances by railway or steamer in Hungary. If this exhibit of traffic shows the sum previously paid in to be excessive, the difference forthwith must be returned to such company. A deficiency, on the other hand, must be made good by it.

The rubricated exhibit must correspond with the company’s original entries or books; the companies and their manager are responsible for its correctness, and the financial direction is empowered to have it compared with the company’s books or entries by authorized agents.

§ 9. The tax-rates that may not have been paid by the respective companies in the time mentioned in§ 8 will, with 8 per cent. interest for delay, be collected in the manner prescribed for the direct taxes.

§ 10. This law will on the first of the following month come into force at all the stations in the territory of the Hungarian Crown, excluding such portions of the railway and steamship traffic as are situated outside the frontiers. With respect to all its enactments, however, it will only be in operation on the first day of the fourth month after its promulgation.

§ 11. Until the entry into operation of all the enactments mentioned in the present law, the minister of finance will appoint by ordinance the time and manner of accounting and paying the tax to the State treasury, resulting from the traffic exclusively within the frontiers.

§ 12. The minister of finance and the minister for public works and communications are empowered to carry this present law into effect.