the state, it becomes necessary to inquire what those sources are that can be taxed.

The following are the only ones that present themselves to my mind:

1st. Merchants, traders, peddlers and tavern licenses, or specific state taxes.

2d. Auction duties.

3d. Direct taxation upon property.

The two first items form a small part of the yearly amount necessary to defray the expenses of the state, so that the burthen must fall upon the property holders in shape of a direct tax. Heretofore, as is exhibited by reference to the reports of former years, the amount derived from all sources, taxation included, has been greatly less than the expenditures; and upon that subject it may be truly said, the people have not been onerously taxed for the support of the state government, however much a contrary report may have been circulated for political or sinister purposes, and which no doubt has operated against the best interests of the state.

I annex an estimate of the probable expenses of the state for the coming fiscal year, and the probable amount of resources, (see statement C.)

Taxation and return of delinquent taxes.-Taxation.

By the "Act to provide for the assessment and collection of taxes for the year 1838, and for other purposes," approved April 19, 1839, all taxes for state purposes levied previous to 1338, were to be remitted, and the amount actually paid into the state treasury, or otherwise made available, was to be credited to the counties making such payments respectively, to apply on the assessment to be made under that act for the year 1838, and by the practical operation of the act, to apply toward payment of the assessments for the year 1839, against those counties having balances due them. I have appended the following abstract statements and statement of accounts with the counties, showing the practical operation of the above mentioned act. By reference to statement F, it will be seen that the net revenue accruing for the year 1838, amounted to only $4,067 49, viz:

1st. Statement of state tax apportioned to the several counties for the year 1838, at the rate of two mills on the dollar, on the aggregate assessment for years 1837 and 1838, marked D.

E.

2d. Statement of state tax apportioned for year 1839, marked

3d. Recapitulation of balances due to and against the several

:

of revenue accruing to the state by the apportionment of state tax for year 1838, after deducting previous payments and interest on the same, marked F.

4th. Recapitulation of balances due from the several counties on account state taxes for years 1838 and 1839, as per the accounts current with the several counties, marked G.

5th. Recapitulation of balances due to the several counties for delinquent taxes, returned to this office, for year 1838, as per accounts current with the several counties, marked H.

6th. Statement of the amount of delinquent taxes returned to this office for year 1838, from the several counties, respectively, marked I.

Also statement of accounts with the several counties, numbered from No. 1 to No. 31, inclusive.

Delinquent Taxes.

Returns have been made from all the peninsula counties in the state for the year 1838, and from the county of St. Clair, only, for years 1836 and 1837, of lands delinquent for taxes, and amounting to the sum of $99,961 51, which have been entered to the credit of the several counties, and are in part accounted for, as will appear more fully by reference to the statement of accounts with the counties. In consequence of the great redundancy of state stocks, and exceeding depressed state of the eastern money markets, from whence purchasers of our stock are to be sought, cash sales of the stocks contemplated to be issued for the purpose of anticipating the amount of taxes returned, have been made to the extent of $20,000 only. The consequence is, that the law, which contemplates prompt payments being made to the counties for any balances due them for taxes returned, has not been fully carried out. An apportionment of cash funds received from sale of stocks has been made to the several counties, pro rata, with the exception of the county of St. Clair, which county has received nearly the whole amount due it, by the receipt of its portion of cash funds, and a sale of state bonds to the bank of St. Clair, to the amount of $11,000, upon condition that the latter should apply in payment of dues to that county alone, and to which amount that bank becomes responsible to the county for, under an amicable arrangement with its treasurer.

The amount due to the several counties on account delinquent taxes may be liquidated by applying the balances to the payment, in part, of state taxes for the year 1839, which will leave in the hands of the county treasurers the amount of those balances in cash funds collected by them, to be applied to the internal uses of the counties. A resolution of the legisla

made as by the revised law, the county treasurers are required to pay over cash funds collected on account of state taxes within a given time, and the auditor general to draw warrants on the state treasury for any balances due the counties for delinquent taxes. In consequence of the want of funds to meet the warrants, it has been deemed advisable to postpone drawing the warrants for the whole amount due the counties, until legislative action could be had upon this subject. The necessary legislation will be required to obviate the difficulty of meeting the balances due the counties by reason of not being able to dispose of state stocks, so that the accounts with the several counties may be closed yearly, and confusion avoided. As the system of return of delinquent taxes upon lands to this office has greatly increased the duties of the auditor, necessary provisions should be made for the employment of such number of clerks as the prompt performance of the duties may require, attendant upon this system, which may be done by authorizing the auditor to employ, from time to time, a sufficient number of clerks, and to pay their salaries, as well as any other contingent charges attending the system, from the "delinquent tax fund." In that way he may be able to perform the duties required by the system, in a timely manner, and without extra. charge upon the treasury.

By proper provisions being made for performing the labor incident to the return of lands delinquent for taxes to this of fice, the system may be said to be one which will meet with general favor, as well with resident as non-resident land holders, and, it is believed, will be attended with less inconvenience and increased regularity in the returns themselves, than under the old system of returning to the county treasurer. And here it may be proper to add, that any material change in return of lands delinquent for taxes, would throw the whole system, as at present organized, into interminable confusion. The incidental charges attending the system, should properly, as it was no doubt intended they should, form a charge upon the tracts returned, and a sufficient sum should be taxed as charges, to defray all the needful expenses. The amount of charges, however, upon each tract should be defined by the legislature.

Appended, is the account current with the "delinquent tax fund," showing the amount received and paid; balance on hand $15,255 91, applicable to the payment of interest on stock issued on account of delinquent taxes, and ultimate redemption of the principal.

Previous to the distribution of the above mentioned law in relation to taxes, the 11th section of which requires that the delinquent road taxes for the year 1838, shall be included in the

tax are assessed, a few county treasurers had returned to this office the road taxes for the year 1838, and inadvertently they had been copied upon the books of this office and treated as other taxes weree-besides payments of those taxes had in some instances been made by those interested, so that a return of them to the counties from whence received, would have been attended with much confusion. Under the circumstances, it was deemed most advisable to retain them in the office, and ask of the legislature the passage of an act legalizing the transaction. In other words, an act authorizing the collection of those taxes in the same manner as if they had been returned as contemplated by the above act.

State stocks, and yearly interest on the same.-State Stock.

Up to July 15th last, inclusive, stocks have been issued by this state to the amount of $5,611,000, the interest upon which now forms a yearly charge upon the treasury of $337,170. A detail statement of which is herewith submitted.

Interest on Stocks..

The future prompt payment of interest upon the several stocks issued by this state, is a subject that may be deemed of paramount importance, and one that will require special legislative action at the coming (present) session, that the faith of the state may be preserved inviolate. Up to this time, the interest upon all the stocks issued has been promptly paid by the state, and its credit, thus far, maintained; but from the present state of our finances, it may be questioned whether, without some additional means accruing at the regular required periods, and which are based upon resources unquestionable, the state can continue to meet her interest. This is a subject, which, from its importance, commends itself to the early and special action of the legislature. The extended system of internal improvement, projected in this state, as contemplated by the acts of the former legislatures, precludes the idea that the funds accruing to the state from the Morris canal and United States bank, are adequate to their completion; and even if completed, much doubt exists, whether the net revenue to be derived from them would furnish a sufficient sum to pay the interest upon their cost. With this view, it may properly form a subject of inquiry, how the yearly payments of interest, and the ultimate redemption of the stocks issued for the purposes of internal improvements, are to be met, without a resort to direct taxation. The present and prospective state of the money marts, at home and abroad, for a long time to come, present an unfavorable aspect for the future sale of stocks to the extent the completion of our works, as projected, will require; so that no additional means can safely be calculated upon from

that source, with which to complete the works. Assuming the ground, then, that the state is limited to its present accruing means to prosecute the works with, the expenditures of those means in order to prevent a resort to direct taxation, should be confined to those objects alone that will surely yield an income. The works themselves failing to yield a sufficient sum to pay the interest upon the stocks issued, a resort to direct taxation is inevitable.

Annexed is a statement of the net receipts upon the central railroad, up to the 30th of November, which shows the amount that may be calculated upon, applicable to payment of interest. Under the present system of taxation and return of delinquent taxes to this office, the shortest period of time taxes can be made available, by forcing a sale of non-resident lands, is three years and four months, so that an immediate resort to taxation, commencing with the year 1840, will not render the taxes available before June 1, 1844, before which time the payments accruing upon our loan will all have fallen due, and if paid, will, no doubt, have been expended.

The subject of negotiating for the immediate payment of the balance due the state on the 1st of January next, by a surrender of its bonds by the United States bank, (if such a measure is practicable,) having been suggested, it may be desirable to know what position the state would, by such a measure, occupy, so far as regards the payment of its interest debt. With that view, I have appended a statement of the amount which will have been received on the 1st day of January next, from the five million loan, and the yearly interest accruing and probable means of meeting it.

Sinking Fund.

Annexed is a statement of account with the sinking fund, to the credit of which the net receipts of our public works are carried, as well as the interest accruing on the several payments due on the five million loan, and to which account all charges of interest heretofore made on the same, are made. The result shows a large sum due from that fund to the internal improvement fund.

Internal Improvement Fund.

I herewith submit a statement of account with the internal improvement fund and the amount of outstanding warrants. A misapprehension on the part of the officers of the state in regard to the practical operation of the subsequent contract of governor Mason with the Morris canal and banking company, as to the payment of interest on the state loan of five millions, by the terms of which the state is held liable for the half yearly