The income tax levied during the war was not an income tax in the strict sense of the term, but was really an occupation tax. Governor Throckmorton recommended certain changes in it, the chief ones being that the rates should be graduated and that there should be an exemption.5 His suggestions were carried out in the act of November 6, 1866.6 This act provided that there should "be levied on and collected from every person, firm, corporation, or association, doing business within this state, at any time during the year 1866, and in every year thereafter, an annual income tax, as follows: on the first $1000 of net taxable income, a tax of 1 per cent; on the second, a tax of l 1/3 per cent; on the third, fourth, and fifth, a tax of 2 per cent; and on all taxable income above $5000, a tax of 3 per cent."

1 Laws of 1866, p. 37.

2 Laws of 1866, p. 257.

3 House Executive Document, No. 159, Forty-ninth Congress, Second Session. Dunbar, "The Direct Tax of 1861," in Quarterly Journal of Economics, vol. 3, pp. 450, 453. The Southern Intelligencer, May 10 and June 7, 1866. By the act of Congress of March 2, 1891, refunding the direct tax, Texas received $180,886.72. This amount was held in trust for, and distributed to, those who paid or their heirs, until March 2, 1897, when the balance of $66,197.89 reverted to the general treasury of the state.

451st Cong. First Sess., House Report, No. 683.

5 House Journal, 11th Leg., Reg. Sess., p. 79.

6 Laws of 1866, p. 91.

This tax was known as the "income tax." It was provided also "that upon the salaries of all salaried persons, serving in any capacity whatever, except upon persons in the army or navy of the United States, or those whose salaries are $600 or less per annum, an annual tax of one-half of 1 per cent on all sums over $600 so received" should be levied. This tax was known as the "salary tax."

In the assessment of the income tax the sworn schedule provided for a statement of the gross income and the deductions therefrom. The following deductions were allowed: from all incomes, when returned by heads of families, $600; losses on real estate, if purchased within the year; interest, taxes; amount actually paid for rent of homestead; and salaries. In addition to these, rent, insurance, and other expenses were allowed to be deducted from the profits of trade; from the rent of land, the average annual outlay for the repair of fences was deductible; and from the rent of buildings, actual repairs, not to exceed 10 per cent of the rent and insurance paid by the owner; from farming operations, the amounts paid for labor, repairs, live stock bought and sold during the year, insurance, and interest on any incumbrance upon the farm.1

It is to be noted in regard to the assessment of the income tax that no use whatever was made of the principle of stoppage at the source. The salary tax also was self-assessed.

The income and salary taxes were in operation four years, or from 1867 to 1870. The returns, and especially those of the salary tax, were small. The law was poorly drawn and laxly administered, and evasion was wholesale. In 1867 no incomes were assessed in forty-two and no salaries in one hundred and one out of one hundred and thirty-three counties; in 1868 no incomes were assessed in sixty-one out of one hundred and thirty-six counties, and no salaries in one hundred and fifteen counties.1

1 Act of November 10, 1866; Laws of 1866, p. 140. See Millar v. Douglas, 42 Tex., 288 (1875).