Where a policyholder simply withdraws a portion of the reserve
on his policy for which the life insurance company is bound, and
there is no personal liability, it is not a loan or credit on which
the company can be taxed as such, and this is not affected by the
fact that the policyholder gives a note on which interest is
necessarily charged to adjust the account.
To tax such accounts as credits in a state where the company has
made the advances would be to deprive the company of its property
without due process of law.
Metropolitan Life Ins. Co. v. New
Orleans, 205 U. S. 395
distinguished.
Even if a state can tax a bank deposit that is created only to
leave the state at once, a statute purporting to levy a tax upon
all property within the state should not be construed, in the
absence of express terms or a direct decision to that effect by the
state court, as intending to include such a deposit, and so held as
to the statute of Louisiana involved in this case.
158 F. 462 affirmed.
The facts are stated in the opinion.
Page 216 U. S. 521
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a bill in equity to restrain the collection of a tax
from the plaintiff, the appellee, on the ground that the tax is
contrary to the Fourteenth Amendment. The plaintiff had a decree,
and the defendants appeal to this Court. 158 F. 462. The tax is
based upon an assessment of the plaintiff for credits amounting to
$568,900, whereas the plaintiff says that it has no credits in the
state, and for money on deposit, distinct from what the plaintiff
admits to be taxable, amounting to $50,700. There is no dispute
about the facts, and the issue as to each sum is upon matter of
law.
The so-called credits arise out of transactions denominated
policy loans and premium lien note loans, which are explained at
length by the judge below, but which may be summed up more shortly
here. When the plaintiff's policies have run a certain length of
time and the premiums have been paid as due, the plaintiff becomes
bound ultimately to pay what is called their reserve value, whether
the payment of premiums is kept up or not, and this reserve value
increases as the payments of premiums go on. A policyholder
desiring to keep his policy on foot, and yet to profit by the
reserve value that it has acquired, may be allowed at the
plaintiff's
Page 216 U. S. 522
discretion, to receive a sum not exceeding that present value,
on the terms that, on the settlement of any claim under the policy,
the sum so received shall be deducted with interest (the interest
representing what it is estimated that the sum would have earned if
retained by the plaintiff), and that, on failure to pay any premium
or the above-mentioned interest, the sum received shall be deducted
from the reserve value at once.
This is called a loan. It is represented by what is called a
note, which contains a promise to pay the money. But as the
plaintiff never advances more than it already is absolutely bound
for under the policy, it has no interest in creating a personal
liability, and therefore the contract on the face of the note goes
on to provide that, if the note is not paid when due, it shall be
extinguished automatically by the counter credit for what we have
called the reserve value of the policy. In short, the claim of the
policyholder on the one side and of the company on the other are
brought into an account current by the very act that creates the
latter. The so-called liability of the policyholder never exists as
a personal liability, it never is a debt, but is merely a deduction
in account from the sum that the plaintiffs ultimately must pay. In
settling that account, interest will be computed on the item for
the reason that we have mentioned; but the item never could be sued
for, any more than any other single item of a mutual account that
always shows a balance against the would-be plaintiff. In form, it
subsists as an item until the settlement, because interest must be
charged on it. In substance, it is extinct from the beginning,
because, as was said by the judge below, it is a payment, not a
loan. A collateral illustration of the principle will be found in
Starratt v. Mullen, 148 Mass. 570, and cases there
cited.
Instead of receiving an advance, the policyholder may draw upon
the reserve value for a premium due, again giving a note; but the
transaction is similar in legal characteristics to that which we
have described. It is unnecessary to set out the documents at
length, because, although the same language
Page 216 U. S. 523
is not used in all, there is no nice question of construction,
no doubt possible as to the effect and import of the contracts. In
none of the cases is there a loan, and therefore there are no
credits to be taxed. In
Metropolitan Life Ins. Co. v. New
Orleans, 205 U. S. 395, so
far as appeared, the insurance company made loans, properly so
called, to its policyholders, and the question now before the court
was not raised or discussed.
What we have said disposes of the item of $568,900. The other
consists of a bank account of $50,700, kept separate from a small
account for current expenses, admitted to be taxable. The account
in question consists of deposits made solely for transmission to
New York, and not used or drawn against by anyone in Louisiana. We
shall not inquire whether it would or would not be within the
constitutional possibilities for a state to tax a person outside
its jurisdiction for a bank deposit that only became his or came
into existence as property at the moment of beginning a transit to
him, and that thereafter left the state forthwith. It is enough to
say we should not readily believe that the supreme court of the
state would interpret the statutes of Louisiana as having that
intent.
See Metropolitan Life Ins. Co. v. Newark, 62
N.J.L. 74. The Louisiana cases cited as contrary, and as showing
the purpose of the legislature to reach such a deposit as this, do
not seem to us to sustain the appellant's point.
Bluefields
Banana Co. v. Board of Assessors, 49 La.Ann. 43;
Parker v.
Strauss, 49 La.Ann. 1173. The statute purports to levy a tax
upon all property within the state, and enumerates different kinds.
Act 170 of 1898. We see no indication that it intended to include
under that head property that becomes such only to leave the state
at once.
Decree affirmed.
MR. JUSTICE BREWER dissents, believing that the case is
controlled by the decision in
Metropolitan Life Ins. Co. v. New
Orleans, 205 U. S. 395.