Taxing of Franchises are sub to taxation unless they are specifically ex 3t therefrom by their own terms. In the first ce they may be taxed as property at their ? value, either separately or as part of the ets of the corporation holding the franchise. the second place, since franchises are special vileges which the State is not obliged to int, it may stipulate the payment of heavy .cial taxes as a condition of granting the .nchise, or as the price of not revoking it en once granted. Most students of the .nchise question believe that it is contrary public policy to place special taxes upon .nchises, at least those hereafter to be granted. ch taxes are ultimately shifted to the con ning public in the form of increased prices r the services supplied. It is urged that the antee of a franchise should he subjected to many obligations and duties in return for • special privilege enjoyed that the money lue of the franchise itself would be very small. It should then be taxed in common with other property at its fair value.
By what governments franchises are taxable in the United States is a problem of some com plexity. This is especially true if the term .franchise is used in a broad enough sense to in clude the right of a corporation to carry on business under the terms of its charter, a meaning frequently given to the word. It is well established that a franchise granted directly by the Federal government cannot be taxed by a State or any subdivision thereof. Otherwise a State, by heavy taxation, could destroy en tirely the privilege or right thus granted by the national government. This rule, however, does not prevent a State from taxing such property of a corporation holding a Federal franchise as may lie within its jurisdiction. It would be equally true that franchises granted by the States are free from na tional taxation were it not for the fact that the Federal government frequently assumes jurisdiction over such franchises by reason of its power to regulate interstate commerce. A further limitation upon the power of the State to tax franchises is found in the rule that no State can tax or burden the right to engage in interstate commerce. Whether the franchise to engage in such commerce is granted by the Federal or the State government it is equally free from State taxation. Nor can a State tax as such the franchise of a corporation chartered by another State since that franchise is re garded as property only in the State which grants it. No corporation, however, has a right to carry on business not interstate in character in any State except that of its creation without obtaining special consent. As the price of this privilege a State may demand practically any thing it sees fit. Thus while a State may not tax the franchise of a foreign corporation as such it may require it to pay as the privilege of doing business within its borders a tax measured by the entire capital stock of the corporation, a sum which includes the value of the franchise which it may not tax directly. Many students of the problem advocate the Federal incorporation of corporations engaged in interstate commerce in order, among other things, to secure relief from the injustices and inconveniences arising from the existing system of franchise taxation.
Provisions of The provisions of franchises differ widely according • to the date of issuance, the municipality or other au thority granting them and the purposes for which they are given. Any adequate franchise at the present time deals with the following points: (I) Tenure. Three policies may be followed in fixing the tenure of a franchise. First, it may be perpetual, although in many States this is now expressly forbidden. Second, it may be for a fixed term of years, as 20 or 25. Third, it may be indeterminate in duration. allowing the municipality to revoke it at will after a plan which protects the rights of the grantee. (2) Compensation. It is common at present to secure to the State or city something in return for the valuable rights given in a public utility franchise. This may be done in a number of ways; (a) a lump sum may be required as a fee; (b) payment may be re quired in kind, as when a water company sup plies a city without charge with water for fire protection; (c) other services may be required of the grantee, such as paving or watering of the streets occupied; (d) a certain percentage of the earnings of the corporation may be taken annually as a tax. (3) Rates, service and ex tensions. Provision may be made to have these matters handled by a periodic revision of the terms of the franchise by the municipal au thorities or by a permanent public utility com mission. Most franchises contain elaborate pro visions relating to all these matters. (4) Laborers and strikes. Continuity of service is vital in the case of a public utility and inter ruptions due to labor disputes may be sought to be avoided either by fixing the conditions of labor in a satisfactory manner in the franchise itself or by requiring the arbitration of such disputes. (5) Capitalization. So many evils have arisen from the overcapitalization of pub lic utility companies that it is wise to regulate this matter closely by definite restrictions and by requirements of publicity regarding the financial operations of the grantee. (6) Re version to the city. Some modern franchises contain stipulations of the conditions under which the rights granted will revert once more to the city together with the properties acquired by the public utility corporation. The transi tion to a system of municipal ownership is made possible in this way. The provisions now found in many franchises afford a reasonably adequate protection to the public interests in volved in the important services rendered to the community by public service corporations. Consult Beard, C. A., City Govern ment' (New York 1912); Joyce, (Treatise on Franchises' (ib. 1909); (Regula tion of Public Utilities' (ib. 1912) ; Munro, 'Bibliography of Municipal Government' (1915); Pond, (Public Utilities' (1913) ; Whinery, (Municipal Public Works' (New York 1903) ; Wilcox, (Municipal Franchises' (1910).