The old rule of
mobilia sequuntur personam has been
modified so that the owner of personal property may be taxed on its
account at its situs although not his residence or domicil; but the
mere presence of notes within a state which is not the residence or
domicil of the owner does not bring the debts of which they are the
written evidence within the taxing jurisdiction of that state, and
a tax thereon by that state is illegal and void under the due
process clause of the Fourteenth Amendment.
An attempt to escape proper taxation in one state on the debt
represented by a note does not confer jurisdiction on another
state, not the residence or domicil of the owner, to tax the note
on account of its mere presence therein.
Mortgage notes made and payable in Ohio and secured by mortgages
on property in that state, the owner whereof resides in New York,
are not taxable in Indiana because they are therein for
safekeeping.
Judgment against the plaintiff in error (who was defendant
below) was recovered in a state circuit court in Indiana, which was
affirmed by the supreme court of the state (164 Ind. 37), and the
plaintiff in error brings the case here to review that judgment.
The predecessor of the defendant in error, being at the time
Treasurer of Tippecanoe County, in the State of Indiana, brought
this action in 1897 against the plaintiff in error to subject funds
in his hands to the payment of taxes alleged to be due from the
estate of one Job M. Nash, deceased, which taxes had been assessed
in above county and state in 1894, after the death of Nash, on
personal property of the deceased that
Page 206 U. S. 393
had been omitted from the tax list in his lifetime, during the
years 1881 to 1893, both inclusive.
The point in dispute between the parties relates to the
assessment for omitted property on what are called the"Ohio notes,"
the plaintiff in error insisting that such assessment was illegal
as beyond the jurisdiction of the state to impose.
The material facts are not really in dispute. It appears that
Nash died in 1893, at that time, and for more than twenty years
prior thereto, a resident of the City and State of New York. He
left a will which was admitted to probate in Hamilton County, Ohio,
and his executors qualified there. They thereafter refused to pay
the tax imposed upon the Ohio notes in Indiana. By the terms of the
will, a trust was created, and part of the personal property
constituting such trust (more than enough to pay the taxes in
dispute) was turned over to James Buck, plaintiff in error and one
of the two trustees named in the will. He resided in Lafayette, in
the State of Indiana, and the other trustee resided in Cincinnati,
in the State of Ohio. From this fund, in the hands of Buck, the
defendant in error asked to have the taxes paid which had been
assessed, as above stated, and which he claimed were due the state.
This was refused, and this action was thereupon commenced.
A former action had been brought by the trustees for relief by
injunction against the predecessor of the defendant in error to
enjoin him from seizing upon or interfering with the trust fund for
the payment of the taxes in dispute, and in that action the
trustees had been unsuccessful.
Buck v. Miller, 147 Ind.
586, decided in 1896.
The amount assessed on the estate of decedent upon the "Ohio
notes" from 1884 to 1893, on account of omitted assessments during
those years, aside from the penalties for nonpayment, was
$36,357.71.
During the above-mentioned years, while the decedent was, as
stated, a resident of the State of New York, he had a large sum of
money invested in the States of Ohio and Indiana, approximating
$750,000. The money loaned by him in Ohio
Page 206 U. S. 394
was evidenced by Ohio notes, made by the borrowers, who were
residents of Ohio, the payment of the money borrowed being secured
by mortgages on lands situated in Ohio. The moneys loaned in Ohio
were loaned through an agent of Mr. Nash, residing in Cincinnati.
The notes were dated and payable in Cincinnati, to the order of Mr.
Nash, but were not indorsed by him, and all renewals and payments
on account of them were made to his agent in Cincinnati. All moneys
paid upon or by reason of these notes were deposited in a bank in
Cincinnati to the credit of Mr. Nash, and no part thereof was sent
to Indiana. The Cincinnati agent commenced loaning decedent's money
about 1860, and, upon the removal of decedent to New York in 1870,
and until his death, in 1893, the agent made investments on
decedent's behalf in Ohio, collected the principal and interest
upon his mortgage loans, and had general charge of his financial
interests in that state.
James Buck was the agent of decedent at Lafayette, in the State
of Indiana, for many years preceding the death of Mr. Nash. The
Ohio notes were sent to him from Cincinnati by the agent there,
during the years in question, together with the mortgages securing
the payment of the notes, and they were kept in a safe at
Lafayette, Indiana, by Mr. Buck, but no business was transacted in
regard to them, nor any use made of them in Indiana otherwise than
that, a short time before the interest on or principal of the notes
became due, they were sent to the Ohio agent to have the interest
payments made to him indorsed upon them, or to be delivered up if
the principal were paid.
Nothing else was done in Indiana in regard to the notes except
that, a few days prior to the first day of April in each year
(which is the day upon which assessments for taxes are, by law,
made in the State of Indiana), Mr. Buck sent the notes and
mortgages to the Ohio agent, and a few days subsequent to that day
in each year, the same were returned by the Ohio agent to Mr. Buck,
who retained them in his possession.
When the Ohio notes and mortgages were sent from Cincinnati
Page 206 U. S. 395
to Mr. Buck by the Ohio agent, Mr. Buck made a record of their
receipt in a book kept by him for that purpose, showing the dates
and amounts of the notes and when due, and whenever payment or
renewal of said notes was reported by the Ohio agent to the Indiana
agent, he made entries of the facts in the register kept by
him.
Mr. Buck also had possession of the notes and mortgages given to
Mr. Nash for moneys loaned in the State of Indiana, and such moneys
were invested and reinvested in that state during these years, and
the taxes thereon were duly paid.
Mr. Buck transacted no business directly with the makers of the
Ohio notes or mortgages, but, as stated, sent the notes to the Ohio
agent for any business to be done in regard to them.
During Mr. Buck's agency, money was sometimes sent to him at
Lafayette from Cincinnati to be invested, which money was placed on
deposit in the bank in Indiana and loaned for Mr. Nash. Such moneys
have nothing to do with the "Ohio notes" in issue in this
action.
During these years, at least from 1886, Mr. Buck was authorized
by virtue of a power of attorney from Mr. Nash to satisfy when due
and when the money was paid all notes and mortgages; but, so far as
the Ohio notes and mortgages were concerned, he never assumed to
satisfy any of them or receive payment for the same. That was all
done by the Ohio agent at Cincinnati.
Page 206 U. S. 399
MR. JUSTICE PECKHAM, after making the foregoing statement,
delivered the opinion of the Court.
The only question involved here is in regard to the taxability
of the Ohio notes in the State of Indiana.
The plaintiff in error asserts that the simple physical
presence
Page 206 U. S. 400
of the Ohio notes in Indiana, payable to, and not indorsed by,
the decedent, did not constitute taxable property there, because
such notes were given and were payable and were paid in Ohio, by
residents of Ohio, and to a nonresident of Indiana, and for loans
made in Ohio, the capital represented by such notes never having
been used in business in Indiana, and he insists that a tax upon
such capital or upon the notes themselves as representing that
capital is an illegal tax, and that to take property in payment of
such an illegal tax is to take it without due process of law, and
constitutes a violation of the Fourteenth Amendment.
If the facts in this case constituted the debts evidenced by the
Ohio notes property in the jurisdiction of the State of Indiana at
the time when such taxes were imposed, then the tax was valid if
there were statutory authority of that state for the same. The
state court has held that there was such authority,
Buck v.
Miller, 147 Ind. 586;
Buck v. Beach, 164 Ind. 37,
being the case at bar, and that construction of the statute
concludes this Court.
Delaware &c.. Co. v.
Pennsylvania, 198 U. S. 341,
198 U. S.
352.
The sole question, then, for this Court, is whether the mere
presence of the notes in Indiana constituted the debts of which the
notes were the written evidence property within the jurisdiction of
that state, so that such debts could be therein taxed.
Generally, property, in order to be the subject of taxation,
must be within the jurisdiction of the power assuming to tax.
State Tax on Foreign-held
Bonds, 15 Wall. 300;
Erie Railroad v.
Pennsylvania, 153 U. S. 628,
153 U. S. 646;
Savings Society v. Multnomah County, 169 U.
S. 421,
169 U. S. 427;
Louisville &c. v. Kentucky, 188 U.
S. 385;
Delaware &c. v. Pennsylvania,
198 U. S. 342;
Union Transit Co. v. Kentucky, 199 U.
S. 194;
Metropolitan Ins. Co. v. New Orleans,
205 U. S. 395.
In regard to tangible property, the old rule was
mobilia
sequuntur personam, by which personal property was supposed to
follow the person of its owner, and to be subject to the law
Page 206 U. S. 401
of the owner's domicil. For the purpose of taxation, however, it
has long been held that personal property may be separated from its
owner, and he may be taxed on its account at the place where the
property is, although it is not the place of his own domicil, and
even if he is not a citizen or resident of the state which imposes
the tax.
Pullman's Palace Car Co. v. Pennsylvania,
141 U. S. 18,
141 U. S. 22;
Tappan v. Merchants' National
Bank, 19 Wall. 490;
People ex Rel. Hoyt v.
Commissioner of Taxes, 23 N.Y. 224, 240. The same rule applies
to intangible property. Generally speaking, intangible property in
the nature of a debt may be regarded, for the purposes of taxation,
as situated at the domicil of the creditor and within the
jurisdiction of the state where he has such domicil. It is property
within that state. Thus, it has been held that a debt owned by a
citizen of one state against a citizen of another state and
evidenced by the bond of the debtor, secured by a deed of trust or
mortgage upon real estate situated in the state where the debtor
resides, is properly taxed by the state of the residence of the
creditor if the statute of that state so provides, and such tax
violates no provision of the federal Constitution.
Kirtland v.
Hotchkiss, 100 U. S. 491,
100 U. S.
498.
Rejecting the fiction of law in regard to the situs of personal
property, including therein choses in action, the courts of Indiana
have asserted jurisdiction by reason of the statute of that state
over these Ohio notes for the purpose of taxation in Indiana,
founded upon the simple fact that such notes were placed in the
latter state by the Ohio agent of the decedent under the
circumstances above set forth. The Supreme Court of Indiana refused
to accept the testimony of the agents that the Ohio notes were sent
to Lafayette merely for safekeeping and for clerical convenience,
and said that
"the court below was authorized to make the opposite deduction
from the uniform course of the business in respect to the keeping
of said notes and mortgages and from the evidence that decedent
gave the direction which established the practice that was pursued
in that particular. More than that, the evidence
Page 206 U. S. 402
clearly warranted the conclusion that Buck was vested with a
control of said notes and securities for the purpose of enabling
decedent to escape taxation in Ohio. We must therefore conclude, in
support of the general finding, that the court below found that, in
conducting the business of the Ohio agency, the decedent separated
from said business the possession of said notes and mortgages and
vested the right to such possession in said Buck. There was no
return for taxation of said notes, or of the investments
represented by them, either in Ohio or New York during the lifetime
of the decedent."
Taking this to be a finding of fact by the supreme court of the
state, it is plain that the action of the decedent in sending the
Ohio notes into the State of Indiana for the purpose stated
(whether successful or not) was improper and unjustifiable. The
record does show, however, that the executors subsequently paid the
Ohio authorities over $40,000 for taxes on the moneys invested in
Ohio.
But an attempt to escape proper taxation in Ohio does not confer
jurisdiction to tax property asserted to be in Indiana which really
lies outside and beyond the jurisdiction of that state.
Jurisdiction of the State of Indiana to tax is not conferred or
strengthened by reason of the motive which may have prompted the
decedent to send into the State of Indiana these evidences of debts
owing him by residents of Ohio. The question still remains, was
there any property within the jurisdiction of the State of Indiana,
so as to permit that state to tax it simply because of the presence
of the Ohio notes in that state? It was not the value of the paper
as a tangible thing, on which these promises to pay the debts
existing in Ohio were written, that was taxed by that state. The
property really taxed was the debt itself, as each separate note
was taxed at the full amount of the debt named therein or due
thereon. And jurisdiction over these debts for the purpose of
taxation was asserted and exercised solely by reason of the
physical presence in Indiana of the notes themselves,
Page 206 U. S. 403
although they were only written evidence of the existence of the
debts which were in fact thereby taxed.
A distinction has been sometimes taken between bonds and other
specialty debts belonging to the deceased, on the one hand, and
simple contract debts, on the other, for the purpose of probate
jurisdiction, and the probate court where the bonds are found has
been held to have jurisdiction to grant probate, while, in the
other class of debts (including promissory notes), jurisdiction has
attached to the probate court where the debtor resided at the death
of the creditor. 1 Williams on Executors, 6th Am. from 7th English
ed., bottom paging 288, 290, note [
h];
Wyman v.
Halstead, 109 U. S. 654.
See also Beers v. Shannon, 73 N.Y. 292, 299;
Owen v.
Miller, 10 Ohio St. 136.
Under such rule, the debts here in question were not property
within the State of Indiana, nor were the promissory notes
themselves, which were only evidence of such debts. The rule giving
jurisdiction where the specialty may be found has no application to
a promissory note. Assuming such a rule, the case here is not
covered by it.
Questions of the validity of state taxation with reference to
the federal Constitution have become quite frequent in this Court
within the last few years. The case of
Metropolitan Life
Insurance Company v. New Orleans, 205 U.
S. 395, is the latest. The question there was in
relation to the validity of certain taxes assessed in the City of
New Orleans against the Metropolitan Life Insurance Company by
reason of the company's doing business in lending money to the
holders of its policies in New Orleans. The domicil of the company
was in the City of New York, and the evidences of the credits, in
the form of notes, were kept most of the time in New York, being
sent to New Orleans when due. The tax was, under the laws of the
State of Louisiana, levied on the "credits, money loaned, bills
receivable," etc., of the plaintiff in error, and its amount was
ascertained by computing the sum of the face value of all the notes
held by the company in New Orleans
Page 206 U. S. 404
at the time of the assessment. The assessment was made under an
act which provided that "bills receivable, obligations, or credits
arising from the business done in this state" shall be assessable
at the business domicil of the nonresident, the assessment being
made in such a way under the statute as would "represent in their
aggregate a fair average on the capital, both cash and credits,
employed in the business of the party or parties to be assessed."
The tax was sustained because, as is stated in the opinion of the
Court, which was delivered by MR. JUSTICE MOODY,
"the insurance company chose to enter into the business of
lending money within the State of Louisiana, and employed a local
agent to conduct that business. It was conducted under the laws of
the state. The state undertook to tax the capital employed in the
business precisely as it taxed the capital of its own citizens in
like situation. For the purpose of arriving at the amount of
capital actually employed, it caused the credits arising out of the
business to be assessed. We think the state had the power to do
this, and that the foreigner doing business cannot escape taxation
upon his capital by removing temporarily from the state evidences
of credits in the form of notes. Under such circumstances, they
have a taxable situs in the state of their origin."
The temporary absence of the notes given for the loans from the
state (being in New York, the domicil of the company) except when
they became due was regarded as unimportant. The law, it was said,
regarded the place of their origin as their true home, to which
they would return to be paid, and their temporary absence, however
long continued, was left out of account.
The prior cases of
New Orleans v. Stempel, 175 U.
S. 309, and
Board of Assessors v. Comptoir National
D'Escompte, 191 U. S. 388,
were also cited. In the first, there was a tax on credits,
evidenced by notes (secured by mortgages on real estate in New
Orleans) which the owner, a nonresident, who had inherited them,
left in Louisiana in the possession of an agent, who collected the
principal and interest as they became due. The
Page 206 U. S. 405
capital of the owner was thus invested in the state, and was
thereby subject to taxation there, and the notes did not alter the
nature of the debt, but were merely evidence of it. In the latter
case, a foreign banking company did business in New Orleans, and
through an agent lent money which was evidenced by checks drawn
upon the agent, treated as overdrafts and secured by collateral,
the checks and collateral remaining in the hands of the agent until
the transactions were closed. The credits thus evidenced were held
taxable in Louisiana. The corporation was held to be doing business
and had capital employed in the City of New Orleans to the extent
of the assessment made upon it therein.
In
Bristol v. Washington County, 177 U.
S. 133, the assessment was upheld because it appeared
that the person assessed was doing business in Minnesota through an
agent, in lending money in that state, which was secured by
mortgages on real property therein. The amount of money thus
invested in that state was held to be properly taxable therein.
In
Savings & Loan Society v. Multnomah County,
169 U. S. 421, the
assessment was upon the real estate mortgaged, the interest of the
mortgagee therein being taxed to him and the rest to the mortgagor,
and it was held by this Court that the fact that the mortgage was
owned by a citizen of another state, and in his possession outside
of the State of Oregon, where the real estate was situated, did not
violate the Fourteenth Amendment. It was stated that
"the state may tax real estate mortgaged, as it may all other
property within its jurisdiction at its full value. It may do this
either by taxing the whole to the mortgagor or by taxing to the
mortgagee the interest therein represented by the mortgage, and to
the mortgagor the remaining interest in the land. And it may, for
the purpose of taxation, either treat the mortgage debt as personal
property, to be taxed like other choses in action, to the creditor
at his domicil or treat the mortgagee's interest in the land as
real estate, to be taxed to him, like other real property at its
situs."
Under the statute of Oregon,
Page 206 U. S. 406
the assessment was made against the mortgagee upon his interest
in the land as real estate.
There are no cases in this Court where an assessment such as the
one before us has been involved. We have not had a case where
neither the party assessed nor the debtor was a resident of or
present in the state where the tax was imposed and where no
business was done therein by the owner of the notes or his agent
relating in any way to the capital evidenced by the notes assessed
for taxation. We cannot assent to the doctrine that the mere
presence of evidences of debt such as these notes under the
circumstances already stated amounts to the presence of property
within the state for taxation. That promissory notes may be the
subject of larceny, as stated in 48 N.Y. cited below, does not make
the debts evidenced by them property liable to taxation within the
state where there is no other fact than the presence of the notes
upon which to base the claim.
In
People v. Board of Trustees, &c., 48 N.Y. 390,
it was held that money due upon a contract for the sale of land was
personal property, and that, where such contract belonging to a
nonresident was in the hands of a resident agent, it might, for the
purposes of municipal taxation, be assessed to the agent and taxed.
In the opinion, Judge Earl said:
"The debts due upon these contracts are personal estate, the
same as if they were due upon notes or bonds, and such personal
estate may be said to exist where the obligations for payment are
held."
The contracts spoken of in that case were contracts for the sale
of land by a nonresident owner to persons within the county where
the lands were situated. The debtors resided within the state, and
the agent of the nonresident for the sale of the land resided in
the state and had possession of the contracts. A different case as
to its facts from the one before us.
In
People v. Smith, 88 N.Y. 576, jurisdiction to tax in
New York was denied under the statute of that state because the
personal estate was not within the state, although the
Page 206 U. S. 407
same principle, page 581, as contained in 48 N.Y.,
supra, was asserted.
If payment of these notes had to be enforced, it would not be to
the courts of Indiana that the owner would resort. He would have to
go to Ohio to find the debtor as well as the lands mortgaged as
security for the payment of the notes. It is true that, if the
notes were stolen while in Indiana, and they were therein a subject
of larceny, the Indiana courts would have to be resorted to for the
punishment of the thieves. That would be in vindication of the
general criminal justice of the state. This consideration, however,
is not near enough to the question involved to cause us to change
our views of the law in regard to the taxation of property, and
make that property within the state which we think is clearly
outside it.
Although public securities, consisting of state bonds and bonds
of municipal bodies, and circulating notes of banking institutions,
have sometimes been treated as property in the place where they
were found, though removed from the domicil of the owner,
State Tax on Foreign-held
Bonds, 15 Wall. 300,
82 U. S. 324,
it has not been held in this Court that simple contract debts,
though evidenced by promissory notes, can, under the facts herein
stated, be treated as property and taxed in the state where the
notes may be found.
As is said in the above-cited case at page
82 U. S.
320:
"All the property there can be in the nature of things in debts
of corporations belongs to the creditors, to whom they are payable,
and follows their domicil, wherever that may be. Their debts can
have no locality separate from the parties to whom they are due.
This principle might be stated in many different ways, and
supported by citations from numerous adjudications, but no number
of authorities and no forms of expressions could add anything to
its obvious truth, which is recognized upon its simple
statement."
The cases cited in
Metropolitan Insurance Co. case,
supra, show that this rule is enlarged to the extent of
holding that capital evidenced by written instruments, invested in
a
Page 206 U. S. 408
state, may be taxed by the authorities of the state although
their owner is a nonresident and such evidences of debt are
temporarily outside of the state when the assessment is made.
Although the language of the opinion in the case of
State Tax
on Foreign-held Bonds, supra, has been somewhat restricted so
far as regards the character of the interest of the mortgagee in
the land mortgaged,
Savings &c. Society v. Multnomah
County, 169 U. S. 421,
169 U. S. 428,
the principle upon which the case itself was decided has not been
otherwise shaken by the later cases.
New Orleans v.
Stempel, 175 U. S. 309,
175 U. S.
319-320;
Blackstone v. Miller, 188 U.
S. 189,
188 U. S. 206.
In the
Stempel case,
supra, the notes, as we have
said, represented the capital of the owner invested in the state,
and the capital was taxed although the owner was a nonresident.
Cases arising under collateral inheritance tax or succession tax
acts have been cited as affording foundation for the right to tax
as herein asserted. The foundation upon which such acts rest is
different from that which exists where the assessment is levied
upon property. The succession or inheritance tax is not a tax on
property, as has been frequently held by this Court,
Knowlton
v. Moore, 178 U. S. 41, and
Blackstone v. Miller, 188 U. S. 189, and
therefore the decisions arising under such inheritance tax cases
are not in point.
Our decision in this case has no tendency to aid the owner of
taxable property in any effort to avoid or evade proper and
legitimate taxation. The presence of the notes in Indiana formed no
bar to the right, if it otherwise existed, of taxing the debts
evidenced by the notes in Ohio. It does, however, tend to prevent
the taxation in one State of property in the shape of debts not
existing there, and which, if so taxed, would make double taxation
almost sure, which is certainly not to be desired, and ought,
wherever possible, to be prevented.
For the reason that, as the assessment in this case was made
upon property which was never within the jurisdiction of the State
of Indiana, the state had no power to tax it, and the
Page 206 U. S. 409
enforcement of such a tax would be the taking of property
without due process of law.
The judgment of the Supreme Court of Indiana is reversed, and
the case remanded for further proceedings not inconsistent with the
opinion of this Court.
Reversed.
MR. JUSTICE DAY, dissenting:
I am unable to concur in the opinion and judgment of the Court
in this case, and believe that its importance and far-reaching
effect warrant a statement of the grounds upon which I differ.
Before stating the view which it seems to me should be
controlling, I believe that the statement of facts, as outlined by
the learned Justice speaking for the Court, should be somewhat
amplified, with a view to a more complete showing of the case.
The office in Lafayette, Indiana, was the office of Nash, for
which he paid the rent. The safes in which the notes were kept in
this office were the safes of Nash, and the power of attorney under
which the agent held the "Ohio notes" not only authorized him to
enter satisfaction of them when paid, but gave him complete control
and dominion over them, with power of sale. And while it does not
clearly appear that the proceeds of the notes in question were
reinvested by the agent in Indiana, it does appear that, after
1886, large sums of money were sent from Cincinnati to Lafayette,
and were invested by Nash's agent in Indiana. Furthermore, in the
opinion it is said that the executors, subsequently to the death of
Nash, paid over $40,000 of taxes on money invested in Ohio. It does
appear that, after the death of Nash, under the Ohio law, the
Auditor of Hamilton County instituted a proceeding for the
collection of five years (of the thirteen here involved) of back
taxes upon some of the notes representing the Ohio investments,
and, rather than litigate, a settlement was made
Page 206 U. S. 410
by the executors for this five years' claim in the sum of
$40,000. Whether that was for the notes here in question the record
does not disclose. As the Ohio agent testified, only a part of the
Ohio notes were sent to Indiana, and others in large amounts were
kept in Ohio. We know of no statute in Ohio which would tax the
notes permanently kept in Indiana, and none is pointed out. The
Supreme Court of Indiana in this case reached the conclusion that
these particular notes were not taxable in Ohio. Of course, the
settlement of the claim could not affect the legal proposition here
involved, but, for accuracy of statement, it must not be regarded
that equitably, the claim for taxes upon these notes has been
satisfied. On the contrary, this record discloses that, by the
scheme adopted, more than three quarters of a million of dollars in
capital invested in notes and mortgages successfully evaded taxes
during Nash's lifetime in New York, where he was domiciled, and in
Ohio and Indiana, where his agents were loaning his money for him,
and where his notes and mortgages, the results of such loans, were
held for him.
Accepting the decision of the supreme court of the state that a
statute of the state has undertaken to tax these notes, it is now
held that the Constitution of the United States prevents such
taxation of notes and mortgages held under the protection and
within the power of the state by the agent of a nonresident owner,
although such agent holds the securities in an office belonging to
the owner, in a safe provided by him, with a power of attorney
which gives him full dominion over them, and, for the convenience
of the owner, keeps a book in which transactions concerning them
are recorded at the instance of the owner, and sends them out for
collection. These notes were sent beyond the borders of the State
of Indiana only for collection, or for the few days when they were
supposed to be liable for taxation, and, when such danger was
thought to be past, returned to the agent in Indiana.
I agree that a debt intangible in form cannot acquire a situs
for the purpose of taxation, but I submit that, when a
Page 206 U. S. 411
debt takes the shape of note and mortgage, it may, if the state,
in the exercise of its taxing power, so wills, acquire a situs
separate from the domicil of the owner under the circumstances
shown in this case. I concede that the precise point here involved
has not been decided in previous cases in this Court, but, in my
view, the principles declared in this Court were followed in the
Supreme Court of Indiana and require the affirmance of its
judgment.
This Court, in a series of cases, has held that notes, bonds,
and mortgages may acquire a situs at the place where they are held.
Some of the cases are:
New Orleans v. Stempel,
175 U. S. 309;
Bristol v. Washington County, 177 U.
S. 133;
Blackstone v. Miller, 188 U.
S. 189;
Board of Assessors v. Comptoir
National, 191 U. S. 388;
Carstairs v. Cochran, 193 U. S. 10;
Scottish Union & Nat. Ins. Co. v. Bowland,
196 U. S. 611.
It would unnecessarily extend this dissent to analyze these
cases. Brief reference to some of them, in my judgment, shows that
the principles therein declared, when extended to this case, would
warrant the state, if it so chose in exerting its taxing power, to
reach notes and mortgages held within its jurisdiction under the
circumstances which we have detailed.
In
New Orleans v. Stempel, supra, a tax on credits
evidenced by notes and secured by mortgages was upheld where the
owner left them in Louisiana in the possession of an agent who
collected the same as they fell due. There was no fact of
investment and reinvestment of capital in the case, and the Court,
speaking through MR. JUSTICE BREWER, said:
"This matter of situs may be regarded in another aspect. In the
absence of statute, bills and notes are treated as choses in
action, and are not subject to levy and sale on execution, but, by
the statutes of many states, they are made so subject to seizure
and sale, as any tangible personal property. 1 Freeman, Executions,
ยง 112; 4 Am. & Eng. Enc.Law, 2d ed. p. 282; 11 Am. & Eng.
Enc.Law, 2d ed. p. 623. Among the states referred to in these
authorities as having statutes warranting
Page 206 U. S. 412
such levy and sale are California, Indiana, Kentucky, New York,
Tennessee, Iowa, and Louisiana,
Brown v. Anderson, 4 Mart.
(N.S.) 416, affirmed the rightfulness of such a levy and sale. In
Fluker v. Bullard, 2 La.Ann. 338, it was held that, if a
note was not taken into the actual possession of the sheriff a sale
by him on an execution conveyed no title on the purchaser, the
court saying:"
"In the case of
Simpson v. Allain, it was held that, in
order to make a valid seizure of tangible property, it is necessary
that the sheriff should take the property levied upon into actual
possession. 7 Rob. (La.) 504. In the case of
Goubeau v. New
Orleans & New Orleans & Nashville Railroad Company,
the same doctrine is still more distinctly announced. The court
there says:"
"From all the different provisions of our laws above referred
to, can it be controverted that, in order to have them carried into
effect, the sheriff must necessarily take the property seized into
his possession? This is the essence of the seizure. It cannot exist
without such possession."
"6 Rob. (La.) 348. It is clear, under these authorities, that
the sheriff effected no seizure of the note in controversy, and
consequently his subsequent adjudication of it conferred no title
on Bailey."
"The same doctrine was reaffirmed in
Stockton v.
Stanbrough, 3 La.Ann. 390. Now, if property can have such a
situs within the state as to be subject to seizure and sale on
execution, it would seem to follow that the state has power to
establish a like situs within the state for purposes of taxation.
It has also been held that a note may be made the subject of
seizure and delivery in a replevin suit.
Graff v. Shannon,
7 Ia. 508;
Smith v. Eals, 81 Ia. 235;
Pritchard v.
Norwood, 155 Mass. 539."
"It is well settled that bank bills and municipal bonds are in
such a concrete tangible form that they are subject to taxation
where found, irrespective of the domicil of the owner, are subject
to levy and sale on execution, and to seizure and delivery under
replevin, and yet they are but promises to pay -- evidences of
existing indebtedness.
Notes and mortgages are of the same
nature, and, while they may not have become
Page 206 U. S. 413
so generally recognized as tangible personal property, yet
they have such a concrete form that we see no reason why a state
may not declare that, if found within its limits, they shall be
subject to taxation."
In commenting on this case and
State Assessors v. Comptoir
National &c., 191 U. S. 388, MR.
JUSTICE MOODY, speaking for the Court in the late case of
Metropolitan Life Ins. Co. v. New Orleans, 205 U.
S. 395, said:
"In both of these cases, the written evidences of the credits
were continuously present in the state, and their presence was
clearly the dominant factor in the decisions."
In
Blackstone v. Miller, 188
U. S. 206, MR. JUSTICE HOLMES, speaking for the Court,
said:
"There is no conflict between our views and the point decided in
the case reported under the name of
State Tax on
Foreign-held Bonds, 15 Wall. 300. The taxation in
that case was on the interest on bonds held out of the state.
Bonds and negotiable instruments are more than merely evidences
of debt. The debt is inseparable from the paper, which
declares and constitutes it by a tradition which comes down from
more archaic conditions.
Bacon v. Hooker, 177 Mass. 335,
337."
To the consideration of the subject in the opinions of the
learned Justices just quoted, it may be added that bills and notes
are the subject of conversion in trover, and the measure of damages
is the collectible value of the obligation.
Mercer v.
Jones, 3 Camp. 477; 2 Ames' Bills & Notes, p. 693, and
numerous cases there cited. Bills and notes may be the subject of
donatio causa mortis, even though payable to order and
unindorsed. 2 Ames' Bills & Notes, 699-701. They are held to be
governed by the designation of "goods and chattels" in the statute
of frauds and other statutes. 2 Ames' Bills & Notes, 706.
Bills and notes have been held to be "goods, wares, and
merchandise" within the meaning of the statute of frauds.
Baldwin v. Williams, 3 Met. 365;
Somerby v.
Buntin, 118 Mass. 279.
Page 206 U. S. 414
In view of this recognition of the character of bills and notes
as tangible property, it seems to me inaccurate to say that they
are mere evidences of debt. They are tangible things, capable of
delivery, passing from hand to hand, and for many purposes may be
regarded as of the value of the debt which they evidence.
It is elementary that the power of the states as to matters of
taxation is very broad, and subject only, in the limitation of its
exercise, to the Constitution of the state and the nation.
It seems to me that a state, in pursuance of its taxing policy,
may give a situs to such evidences of debt held within its
jurisdiction as have taken the tangible form of bonds, notes, and
mortgages.
It is said to deny this power to the states under the
circumstances of this case will tend to prevent double taxation --
a thing much to be desired. This case seems to me an apt
illustration of the contrary view; by denying the power to Indiana
to tax these notes under the circumstances shown, the scheme of the
owner to avoid any tax upon them is made effectual, and, except for
the recovery after his death for a small part of the taxes actually
due, this vast sum of money escapes taxation altogether. I think
that the powers of taxation here invoked by the State of Indiana
ought not to be denied, and if the practical effect can be given
any weight in deciding legal rights, to me it seems evident that
such denial will work immunity from just taxation of property
represented in promissory notes and mortgages sent beyond the
jurisdiction of the state where the owner is domiciled, and held by
agents in distant states, within the protection of their laws, for
the sole purpose of avoiding contribution to the public treasury.
As I understand the opinion, municipal bonds or other such
securities held as these are would be legitimately subject to
taxation. They are but promises to pay, in a concrete form, of the
same character as notes and mortgages. In my opinion, there is no
constitutional objection to their localization for
Page 206 U. S. 415
taxation by the law of the state when the owner has chosen to
give them a situs there as in this case.
Without further extending these views, I am constrained to
dissent from the opinion and judgment of the court in this
case.
MR. JUSTICE BREWER concurs in this dissent.