operation, and in the belief of the assessors, a greater revenue would accrue to the Territory by the passage of this proposed amendment.

In considering the fourth subject noted above, the Commission has considered various suggestions for the provision of a greater revenue for the use of the various counties. It is manifest to this Commission that the need of additional revenue for county use is great, and that some means must be taken at an early date to provide the revenue which is needed.

The cost of maintaining county and city and county governments has increased greatly since the organization of such in this Territory. While these expenses have increased the income has not kept pace, with the result that conditions in Honolulu and the several counties absolutely demand that more revenue be given.

After careful consideration, this Commission has come to the conclusion that the best method of affording relief is by increasing the allowance of the counties from two-thirds of one per cent to a full one per cent and further, that that portion of Section 1236 known as sub-division 2, relating to Permanent Improvements be stricken out. This Commission is of the opinion that each of the Board of Supervisors can be depended upon to spend on such permanent improvements all the money possible considering their income.

If the above named amendment to the tax law is adopted the City and County of Honolulu will be enabled to furnish sewers and free garbage and extend the sewer and water system as needed.

The Commission feels strongly that the City of Honolulu, the principal port of the Territory, to which come vessels from many ports where infectious diseases are prevalent, should be kept in the best sanitary condition and to this end the city should provide for the free use of sewers and at the same time compel the owner or owners of every building to connect with such sewers.

This arrangement would place the City and County in a position to finance the construction from year to year of sections of a permanent roadway in the country outside of the city proper, until said road be paved around the island; and would also be placed in funds to properly maintain and repair the city streets and assist in the permanent improvement of the same.

The office of the Auditor of the aytiC dnotnuCyrlwofm HDtofic-y12 The office of the Auditor of the City and County of Honolulu has furnished the Commission with a schedule of additional work that can be accomplished with the increase of funds, and has shown the Commission that after certain works which have been neglected in the past from lack of funds are completed, that there will be a gradual reduction in the tax rate.

The consideration by this Commission of the fifth subject, relating to abuses and to harmonize any conflict in existing laws, has resulted in the recommendation that certain penalties be applied where the authority of the tax assessor is not now sufficiently strong, to cause the necessary information, that existing law contemplates should be given to the assessor, to be forthcoming.

The Commission recommends that every tax payer who fails to render a a statement, list or return required by law shall be subject to a penalty of 10 per cent. of his gross tax, which penalty shall be and become a part of such tax and be collected as a part thereof. We recommend also that the income tax law be amended so that all tax payers subject to said law shall be required to keep regular and accurate books of accounts, and failing so to do, to be guilty of a misdemeanor, an dsubject to a nominal fine for the first offense, and increasing fines for the second and third offense.

In order that a better qualified official of the Territory shall serve upon the committee of estimates provided for the consideration of the School Budget, the Commission wishes to suggest that Section 299, Revised Laws of 1915, be amended in line 4 thereof by striking out the word "Secretary" and inserting in lieu thereof the word "Treasurer."

This change would bring to said committee the services of an official conservant with the financial affairs of the Territory, and one better able to judge the effect upon the condition of Territorial finances of the proposed budget.

Amendments to existing law will also be presented in an effort to harmonize and clarify doubtful sections of existing laws.

This Commission has also considered what it deems to be an abuse of the tax power, namely, the continued collection of a stamp duty tax upon all documents. This law has been in force since 1868, continuing without substantial change until an exemption of only $1000 was passed by the Legislature of 1911. The principle of this law is that the levying of a stamp duty is to meet sudden and heavy unnatural expenses of the act. The revenue derived from this form of taxation is on an average government and is always considered elsewhere as a strictly emergency of $35,000 per year.

Upon investigation we find that the abolition of this tax could readily be borne by the Territory at this time, and that the burden of this tax is so generally put upon the individual about to acquire a home, that it is extremely obnoxious in character and should be done away with. The Commission will therefore recommend and forward an entire repeal of this act, saving only a provision for the poststamping of a document executed. but not stamped, during the life of the act.

In taking up the consideration of the inheritance tax law, the Commission finds only one portion of the law which it seems wis to change. The present law calls for a flat tax of 2 per cent. upon all inherited property in excess of the exemption of $5000 when the kindred be of direct line. And imposes upon collateral kindred and strangers a flat tax of 5 per cent. and allowing an exemption of $500.

The Commission, upon investigation, finds that the general policy in the United States has been to apply progressive rates to inheritance instead of the flat rate.

Only fifteen states still cling to the flat rate while twenty-seven apply progressive rates to inheritances.

The manifest ease with which this tax is paid, and the more even justice of the application of progressive rates, causes this Commission to recommend the adoption ofthe following schedule of rates instead of the existing flat rate. We also recommend an additional clause relating to a tax upon inheritance going to an alien.

In all other cases, except aliens, the rate of tax of the market value of such property in excess of five thousand dollars. shall be as follows, viz:

500 and $

5,000 and

5,000. 20.000.

20.000 and

50.000.

50.000 and 100.000.

100,000.

3 per cent. on amounts between $ 5 per cent. on amounts between 5% per cent. on amounts between 6 per cent. on amounts between 6% per cent. on amounts over When the beneficial interest to any property or income therefrom shall so pass to an alien, the rate of tax shall be 12 per cent. of the market value of such property received by each person, in excess of $500.

All property so passing for which exemption of five thousand dollars can be maintained shall not be taxable as income under the provisions of any other law.

The Commission feels that insuffcient time has been alloted for as complete a study of the broad subject of our taxation problems as to the most important questions that have been brought to our attention. should have been given, but has endeavored to give earnest consideration The Commission wishes to express its appreciation of the assistance rendered it by various officials of the Government and others.

In a short time the Commission expects to transmit drafts of proposed amendments and new laws embodying the subjects hereinabove set forth and expresses the hope that favorable action will be taken thereon.

Respectfully submitted,

C. J. McCARTHY, Chairman;
Wm. H. MCCLELLAN,

L. P. SCOTT,

CHAS. H. MERRIAM, Secretary
Commissioners.

Honolulu, Hawaii,

December 30, 1916.

MINORITY REPORT.

The lateness of the appointment of the Commission and the time within which to report has not given that opportunity which is desirable for a thorough consideration of the tax system.

Fundamentally, the tax system of the Territory has proved satisfactory. Inequalities in isolated instances arise under any system of taxation.

The minority concurs in a general way with the recommendations of the majority, with the exceptions as hereinafter appearing. The minority objects to the adoption of the Somer's System of valuation, causing an amendment of Section 1241 of the Revised Laws of Hawaii 1915. The minority also objects to the further following change in the basis of valuation of land for taxation called for by the majority report, towit: "Used and unused, cultivated and uncultivated land of same quality and similarly situated shall be assessed at the same value." On its face this language may seem to be fair, yet in its interpretation a drastic change could be made in the present system of taxation of certain areas and certain holdings which might prove to be quite undesirable. Further thought and study should be given to the matter of taxation of unoccupied lands or the use of lands for particular purposes, when the same are capable of a more profitable employment, before a method for taxation of the same be proposed. To effectuate the last mentioned amendment an addition to said Section 1241 is sought by the majority.

The Commission considers that as a whole the taxation system of the Territory is satisfactory. Certain changes in details in order to permit of the smoother working of the system, as found in practice by the various assessors, should be made, and, as outlined in the majority report, are recommended.

Experience of recent years has demonstrated that the City and County of Honolulu should be in receipt of more funds to properly carry on the functions of City and County Government. By the application of business principles. overhead charges could be much reduced and the funds so sent would be available for other purposes. However, the growth of the City and County nevertheless has created legitimate requirements for additional funds for City and County purposes. Should the Legisla

ture enact legislation providing the City and County and the several counties with additional funds, the electorate should require that public officials best show their appreciation of the confidence bestowed in such governmental subdivisions by displaying a keen interest in reducing the proportion of public funds spent for overhead as against the amount found in the finished work.

Honolulu, December 30, 1916.

Respectfully submitted,

A. LEWIS, JR.

Upon motion by Senator Correa, seconded by Senator Desha, the foregoing report was referred to the Committee on Enrollment, Revision and Printing.

At 1:10 o'clock p. m., upon a motion by Senator Pacheco, seconded by Senator Correa, the Senate adjourned to Tuesday, February 27, 1917, at 12:30 o'clock p. m.

FIFTH DAY

Tuesday, February 27, 1917.

The Senate met at 12:30 o'clock p. m. pursuant to adjournment. After prayer by the Chaplain, the roll was called showing all Senators present with the exception of Senator Castle, excused owing to his ill

ness.

The Journal of the Fourth Day was read and approved on motion by Senator Robinson, seconded by Senator Pacheco.

The Clerk read a communication from the Governor (Dept. Com. No. 5), transmitting copies of the Report of the Adjutant General of the Territory of Hawaii, 1915-1916, as follows:

Executive Chamber,

Honolulu, Hawaii,
February 26, 1917.

Hon. Charles F. Chillingworth,

President of the Senate of the Territory of Hawaii,

Honolulu, T. H.

Sir: I beg to advise that I am forwarding you copies of the Report of the Adjutant General of the Territory of Hawaii, 1915-1916.

Respectfully,

The communication was ordered filed.

L. E. PINKHAM,
Governor of Hawaii.

The Clerk read a communication from the House of Representatives (House Com. No. 5), returning Senate Bill No. 1, as follows:

Honolulu, T. H., February 27, 1917.

The Honorable President and
Members of the Senate of the

Territory of Hawaii.

Gentlemen:-I have the honor to return herewith Senate Bill No. 1, which this day passed Third Reading in the House of Representatives of the Territory of Hawaii.

Very respectfully,

EDWARD WOODWARD, Clerk, House of Representatives.

The Clerk read a communication from the House of Representatives (House Com. No. 6), transmitting House Bill No. 14, entitled "An Act to authorize the Board of Supervisors of the City and County of Honolulu to make an appropriation for the purpose of defraying the expenses