1. A statute of Kentucky, where the recording of mortgages is
essential to the protection of mortgagees against
bona
fide purchasers and creditors, conditions the recording of
mortgages not maturing within five years upon the payment of a tax
of 20� for each $100 of value secured, but mortgages maturing
within that period it exempts entirely.
Held that the tax
is void under the equal protection clause of the Fourteenth
Amendment. Pp.
277 U. S.
35-38.
2. The equal protection clause means that the rights of all
persons must rest upon the same rule under similar circumstances.
It applies to the exercise of all the powers of the state which can
affect the individual or his property, including the power of
taxation. P.
277 U. S.
37.
3. Classification must always rest upon some difference which
bears a reasonable and just relation to the act in respect of which
the classification is proposed.
Id.
4. Discriminations of an unusual character especially suggest
careful consideration to determine whether they are obnoxious to
this constitutional provision.
Id.
5. In the application of the equal protection clause to the tax
here in question, it is immaterial whether it be called a privilege
tax or a property tax. P.
277 U. S.
38.
6. The time within which the indebtedness secured by a mortgage
is to be paid may be a proper element in fixing the amount of a tax
for recording it, but this classification cannot be used to justify
taxing some, while others, under circumstances identical in all
respects save taxable value, are entirely exempt.
Id.
7. Owing to the character and
quasi-public purposes of
building and loan associations in Kentucky, the provision of the
statute in question exempting them from payment of the recording
tax is not violative of the equal protection clause. P.
277 U. S.
40.
13 Ky. 762 reversed.
Page 277 U. S. 33
Error to a judgment of the Court of Appeals of Kentucky which
affirmed a judgment dismissing an action to recover money exacted
as a tax on the recording of a deed of trust.
Page 277 U. S. 35
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
The plaintiff in error, a Kentucky corporation, executed a deed
of trust of property in that state to secure bonds amounting in the
aggregate to $150,000,000, of which $18,805,000 were issued,
bearing date November 1, 1922, and maturing November 1, 1952. The
deed was presented to the clerk of the Jefferson County Court for
record, and payment made of the lawful recording fee required by
the state statute, but the clerk refused to record the deed unless
plaintiff in error paid to him a tax of 20 cents on each $100 of
the $18,805,000, as required by § 4019a9 of the Kentucky Statutes,
Carroll's Edition 1922, the pertinent portions of which follow:
"A tax of twenty cents (20�) is hereby imposed upon each one
hundred dollars ($100.00) or fraction thereof of indebtedness which
is, or may be, in any contingency secured by any mortgage of
property in this state, which mortgage shall be lodged for record
after this act goes into effect where the indebtedness does not
mature within five years. . . .
Provided, however, the
provisions of this section shall not apply to mortgages executed to
building and loan associations."
It is provided by another Kentucky statute that no deed or deed
of trust or mortgage shall be valid against a purchaser for a
valuable consideration without notice thereof or against creditors
until such deed or mortgage shall be lodged for record. Ky.Stats. §
496. In view of this statute, plaintiff in error concluded that it
was absolutely necessary to place the deed of trust of record,
Page 277 U. S. 36
and thereupon, unwillingly and under protest, paid the amount
demanded in addition to the lawful recording fee.
Subsequently, plaintiff in error brought this action in the
proper state court to recover the amount of the tax so paid upon
the ground that the quoted provisions of § 4019a9 were contrary to
the Kentucky Constitution requiring uniformity of taxes upon all
property of the same class, and upon the further ground that these
provisions denied the equal protection of the law and deprived
plaintiff in error of its property without due process of law, in
contravention of the Fourteenth Amendment of the federal
Constitution. A demurrer to the petition was sustained by the court
of first instance, and the petition dismissed. Upon appeal to the
state court of appeals, the judgment was affirmed,
sub nom.
Louisville Gas & Electric Co. v. Shanks, Auditor, 213 Ky.
762, upon the authority of
Middendorf v. Goodale, 202 Ky.
118.
The state court of appeals, in disposing of the contention that
the statute violated the state constitution, held that the tax
imposed was not a property tax, but a privilege tax -- that is, a
tax imposed upon the privilege of recording mortgages, etc., the
payment of which, it was said, was entirely optional with the
owners or holders thereof. This determination of the state court,
insofar as it affects the challenge under the state constitution,
we accept as conclusive, in accordance with the well settled rule.
Merchants' & Mfrs. Nat. Bank v. Pennsylvania,
167 U. S. 461,
167 U. S. 462.
But the state court further held that the statute was not in
conflict with the equal protection clause of the Fourteenth
Amendment, and this presents a different question calling for our
independent consideration and decision.
The contention on behalf of plaintiff in error is that the equal
protection clause is contravened by the provisions exempting from
the operation of the tax, first, indebtedness which does not mature
within five years,
Page 277 U. S. 37
and second, mortgages executed to building and loan
associations.
The equal protection clause, like the due process of law clause,
is not susceptible of exact delimitation. No definite rule in
respect of either, which automatically will solve the question in
specific instances can be formulated. Certain general principles,
however, have been established in the light of which the cases, as
they arise, are to be considered. In the first place, it may be
said generally that the equal protection clause means that the
rights of all persons must rest upon the same rule under similar
circumstances,
Kentucky Railroad Tax Cases, 115 U.
S. 321,
115 U. S. 337;
Magoun v. Illinois Trust & Savings Bank, 170 U.
S. 283,
170 U. S. 293,
and that it applies to the exercise of all the powers of the state
which can affect the individual or his property, including the
power of taxation,
County of Santa Clara v. Southern Pac. R.
Co., 18 F. 385, 388-399;
Railroad Tax Cases, 13 F.
722, 733. It does not, however, forbid classification, and the
power of the state to classify for purposes of taxation is of wide
range and flexibility, provided always that the classification
"must be reasonable, not arbitrary, and must rest upon some
ground of difference having a fair and substantial relation to the
object of the legislation, so that all persons similarly
circumstanced shall be treated alike."
Royster Guano Co. v. Virginia, 253 U.
S. 412,
253 U. S. 415;
Air-way Corp. v. Day, 266 U. S. 71,
266 U. S. 85;
Schlesinger v. Wisconsin, 270 U.
S. 230,
270 U. S. 240.
That is to say, mere difference is not enough; the attempted
classification
"must always rest upon some difference which bears a reasonable
and just relation to the act in respect to which the classification
is proposed, and can never be made arbitrarily and without any such
basis."
Gulf, Colorado & Santa Fe Ry. v. Ellis,
165 U. S. 150,
165 U. S. 155.
Discriminations of an unusual character especially suggest careful
consideration to determine whether they are obnoxious to the
constitutional
Page 277 U. S. 38
provision.
Compare Martin v. District of Columbia,
205 U. S. 135,
205 U. S. 139;
Bell's Gap R. Co. v. Pennsylvania, 134 U.
S. 232,
134 U. S.
237.
While, for the purpose of determining whether the statute
assailed violates the federal Constitution, we are not bound by the
characterization of the tax by the state court,
St. Louis
Cotton Compress Co. v. Arkansas, 260 U.
S. 346,
260 U. S. 348,
the matter is here of little importance. The application of the
equal protection clause does not depend upon what name is given to
the tax. Whether the tax now in question be called a privilege tax
or a property tax, it falls in effect upon one indebtedness and not
upon another where the sum of each is the same; where both are
incurred by corporations or both by natural persons; where the
percentage of interest to be paid is the same; where the mortgage
security is identical in all respects; where, in short, the only
difference well may be that one is payable in 60 months and the
other in 59 months. No doubt the state may take into consideration
as an element in fixing the amount of the as an element in fixing
the amount of the to be paid, for, since the tax is a flat sum
covering the entire life of the lien, the privilege of recording
the short-time lien and that of recording the long time lien have
different taxable values. But classification good for one purpose
may be bad for another, and it does not follow that, because the
state may classify for the purpose of proportioning the tax, it may
adopt the same classification to the end that some shall bear a
burden of taxation from which others, under circumstances identical
in all respects save in respect of the matter of value, are
entirely exempt.
Here, it seems clear that a circumstance which affects only
taxable values has been made the basis of a classification under
which one is compelled to pay a tax for the enjoyment of a
necessary privilege which, aside from the amount of the recording
fee which is paid by each, is
Page 277 U. S. 39
furnished to another as a pure gratuity. Such a classification
is arbitrary. It bears no reasonable or just relation to the
intended result of the legislation. The difference relied upon is
no more substantial, as the sole basis for the present
classification, than a difference in value between two similar
pieces of land would be if invoked as the sole basis for a like
classification in respect of such property. Certainly one who is
secured by the state in the priority of his lien for a period less
than five years enjoys a privilege which in kind and character
fairly cannot be distinguished from a like privilege enjoyed by
another for a longer period of time. The former reasonably may be
required to pay proportionately less than the latter, but to exact,
as the price of a privilege which, for obvious reasons neither
safely can forego, a tax from the latter not imposed in any degree
upon the former produces an obvious and gross inequality. If the
state, upon the same classification, had reversed the process and
taxed indebtedness maturing within a shorter period than five
years, and exempted such as matured in a longer period, the
inequality probably would be readily conceded, but the
constitutional infirmity, though more strikingly apparent, would
have been the same.
We are not dealing with a charge made for services rendered or a
fee for regulation, but a tax in the strict sense of the term. It
is said that it is a tax upon a privilege which the owner or holder
of the instrument creating a lien is free to accept or reject. But,
for practical purposes, there is not such option, for, as this
Court recently held, there is a practical necessity to record such
instruments, because, if not recorded, the statute overrides them
in favor of purchasers without notice and creditors, and the choice
is like one made under duress.
"The state is not bound to furnish a registry, but, if it sees
fit to do so, it cannot use its control as a means to impose a
liability that it cannot impose directly, any more than it can
escape
Page 277 U. S. 40
its constitutional obligations by denying jurisdiction to its
courts in cases which those courts are otherwise competent to
entertain.
Kenney v. Supreme Lodge of the World,
252 U. S.
411,
252 U. S. 415."
Federal Land Bank v. Crosland, 261 U.
S. 374,
261 U. S.
377-378.
The exemption of building and loan associations from the
operation of the tax is a different matter. The equal protection
clause of the Fourteenth Amendment does not preclude a state, in
imposing taxes, from making exemptions, provided the power is not
exercised arbitrarily. It may exempt the property of churches,
charitable institutions, and the like, and it does not admit of
fair doubt that, under the circumstances disclosed by the opinion
of the court below in the
Middendorf case, it has lawfully
exempted building and loan associations. That court points out that
a building and loan association under the Kentucky statutes must
receive payments from members only and make loans to members only,
in pursuance of a plan set forth. Money accumulated is to be loaned
to members according to a rule of priority. The essential principle
of such an association is mutuality. The purpose of the statute,
the court below says, was to provide the members of the
associations with the means of borrowing money for the acquisition
of homes, in recognition of the duty of the state to encourage the
acquisition of homes by its citizens. Such associations are also
placed by the state statute in a separate class for purposes of
ad valorem taxation. It is made clear by the lower court
that the purpose of the exemption was to enable these associations,
by relieving them of a burden, more completely to carry out the
quasi-public purpose which the legislature designed in
providing for their creation. This exemption therefore must be
upheld, but, since the effect of the exemption first considered is
to deny plaintiff in error the equal protection of the law in
violation of the
Page 277 U. S. 41
equality provision of the Fourteenth Amendment, the court below
erred in sustaining the validity of the tax and affirming the
action of the trial court in dismissing the petition.
Judgment reversed, and cause remanded for further
proceedings not inconsistent with this opinion.
MR. JUSTICE HOLMES dissenting.
When a legal distinction is determined, as no one doubts that it
may be, between night and day, childhood and maturity, or any other
extremes, a point has to be fixed or a line has to be drawn, or
gradually picked out by successive decisions, to mark where the
change takes place. Looked at by itself, without regard to the
necessity behind it, the line or point seems arbitrary. It might as
well or nearly as well be a little more to one side or the other.
But, when it is seen that a line or point there must be, and that
there is no mathematical or logical way of fixing it precisely, the
decision of the legislature must be accepted unless we can say that
it is very wide of any reasonable mark.
There is a plain distinction between large loans secured by
negotiable bonds and mortgages that easily escape taxation and
small ones to needy borrowers for which they give their personal
note for a short term and a mortgage of their house. I hardly think
it would be denied that the large transactions of the money market
reasonably may be subjected to a tax from which small ones for
private need are exempted. The legislature of Kentucky, after
careful consideration, has decided that the distinction is clearly
marked when the loan is for so long a term as five years. Whatever
doubt I may feel, I certainly cannot say that it is wrong. If it is
right as to the
Page 277 U. S. 42
run of cases, a possible exception here and there would not make
the law bad. All taxes have to be laid by general rules.
I think that the judgment should be affirmed.
MR. JUSTICE BRANDEIS, MR. JUSTICE SANFORD, and MR. JUSTICE STONE
concur in this opinion.
MR. JUSTICE BRANDEIS dissenting.
Pursuant to power conferred by the Constitution of Kentucky, its
legislature imposed a recording tax of 20 cents per $100 upon
mortgages given to secure loans which do not mature within five
years from the date of the mortgage. The statute discriminates
between long- and short-term loans as subjects of taxation. A loan
maturing in 60 months or more would be subject to the tax, whereas
one maturing in 59 months or less, but otherwise similar in all
respects, would not be. The distinction between long-term and
short-term loans -- with differences in yield for securities
otherwise identical in character -- is one familiar to American
investment bankers and their clients. Did the Kentucky Legislature,
in adopting that classification for purposes of the mortgage
recording tax, exceed the bounds of that "wide discretion in
selecting the subjects of taxation" which this Court sanctions, as
declared in
Lake Superior Mines v. Lord, 271 U.
S. 577,
271 U. S. 582,
so long as the state "refrains from clear and hostile
discrimination against particular persons or classes"?
Classifications based solely on factual differences no greater
than that between a loan maturing in 59 months or less and one
maturing in 60 months or more, have been sustained in many fields
of legislation. [
Footnote 1] In
Citizens'
Telephone
Page 277 U. S. 43
Co. v. Fuller, 229 U. S. 322,
229 U. S. 329,
it was said that, in taxation, there is a broader power of
classification than in some other exercises of legislation. The
cases dealing specifically with classification for purpose of
taxation, on a basis similar to that here employed, are not
discussed in the opinion of the Court, and only one of them is
cited. It seems desirable to call attention to some of them, as the
rule which they declare is embodied in the tax systems of the
nation and of many states.
Page 277 U. S. 44
In
Magoun v. Illinois Trust & Savings Bank,
170 U. S. 283,
170 U. S.
299-300, the inheritance tax, in the case of strangers
to the blood, exempted estates of $500, but did not allow that
exemption to larger estates. [
Footnote 2] Moreover, it prescribed
Page 277 U. S. 45
progressive rates, rising in steps with the amount of the gift
and applying to the entire gift, and not merely to the excess.
[
Footnote 3] Under the law, a
legatee of $10,000, being subject to a 3 percent tax, would receive
net $9,700, whereas a legatee of $10,001, being subject to a 4
percent tax on the entire legacy, would receive net only $9,600.96.
The Court held the classification reasonable, saying:
"The condition is not arbitrary because it is determined by that
value [of the inheritance]; it is not unequal in operation because
it does not levy the same percentage on every dollar; does not fail
to treat 'all alike under like circumstances and conditions, both
in the privilege conferred and the liabilities imposed.' The
jurisdiction of courts is fixed by amounts. The right of appeal is.
As was said at bar, the Congress of the United States has
classified the right of suitors to come into the United States
courts by amounts. Regarding these alone, there is the same
inequality that is urged against classification of the Illinois
law. All license laws and all specific taxes have in them an
element of inequality; nevertheless they are universally imposed,
and their legality has never been questioned."
The Court has likewise sustained a statute which imposed an
ad valorem tax upon telephone companies with annual
earnings of $500 or more, while exempting others similarly situated
whose earnings were less than $500,
Citizens' Telephone Co. v.
Fuller, 229 U. S. 322,
229 U. S. 329;
a statute which imposed a license fee upon "all persons"
Page 277 U. S. 46
engaged in the laundry business, but exempted concerns employing
not more than two women, and steam laundries,
Quong Wing v.
Kirkendall, 223 U. S. 59,
223 U. S. 62;
[
Footnote 4] an ordinance under
which a $5 tax was laid upon merchants whose gross sales were
$1,000, and a tax of $10 upon those similarly situated whose sales
were $1,001,
Clark v. Titusville, 184 U.
S. 329,
184 U. S. 331;
[
Footnote 5] an ordinance which
laid a tax of $1,000 upon theaters whose admission was $1 or more,
but only $400 upon those similarly situated whose admission prices
were less than $1 and more than 50 cents,
Metropolis Theater
Co. v. Chicago, 228 U. S. 61,
228 U. S. 69-70.
[
Footnote 6]
In the light of these decisions, I should have supposed the
validity of the classification made by the Legislature of Kentucky
to be clear. Recognizing that members of
Page 277 U. S. 47
the legislature of the state which made the classification, and
members of the court which sanctioned it, necessarily possessed
greater knowledge of local conditions and needs than is possible
for us, I should have assumed that this classification, which
obviously is not invidious, was a reasonable one unless some facts
were adduced to show that it was arbitrary.
Compare Heisler v.
Thomas Colliery Co., 260 U. S. 245,
260 U. S. 255;
Ohio ex rel. Clarke v. Deckbach, 274 U.
S. 392,
274 U. S. 397.
No such facts have been adduced by the company. On the other hand,
facts called to our attention by counsel for the Commonwealth, and
of which we may take judicial notice,
New Mexico ex rel. McLean
v. Denver & Rio Grande R. Co., 203 U. S.
38,
203 U. S. 50;
Sligh v. Kirkwood, 237 U. S. 52,
237 U. S. 61,
show that the classification was adopted by the Legislature of
Kentucky in an effort to equalize the tax burden incident to
loans.
The mortgage recording tax is a feature of the revenue system of
at least nine states. [
Footnote
7] Its purpose in all is substantially the same -- to supply an
effective means for reaching this form of intangible property,
which is likely to evade taxation under the general property tax.
The recording tax is commonly accompanied either by a complete
exemption of mortgage securities from other property taxation or,
as in Kentucky, by exemption of such
Page 277 U. S. 48
securities from local taxation alone. As imposed in Alabama and
New York, the states which first adopted it, the tax is levied at
the same rate irrespective of the length of the loan. The obvious
unfairness of such an arrangement, both to the short-term borrower
and to the state, has been one of the chief objections to adoption
of the tax. [
Footnote 8] Other
states, impressed with the general efficiency of the tax, have
attempted to eliminate the unfairness produced by the flat rate.
Thus, in Oklahoma, the rates are 2 cents per $100 for loans of less
than 2 years, 4 cents where the loan is for 2 years or more, 6
cents where for 3 or more, 8 cents where for 4 or more, and 10
cents where for 5 or more. [
Footnote 9] In South Dakota, the tax was 10 cents per $100
per year or fraction thereof, with a proviso that in no event
should the tax be more than 50 cents per $100. [
Footnote 10] Such taxes obviate only in
part the objection urged against the flat rate tax -- namely, that
mortgages for a long-term are taxed proportionally at a lower rate
than those for a short. In Minnesota, which had originally enacted
the flat rate tax, [
Footnote
11] a different expedient was devised. In 1913, it was provided
that the tax should be 15 cents per $100 unless the loan was for
more than 5
Page 277 U. S. 49
years, in which event the tax was to be 25 cents. [
Footnote 12] In Minnesota, the
discrimination between long- and short-term securities is thus 10
cents per $100; in Kentucky, it is 20 cents. But the distinction
and the reasons for it are substantially the same.
The mortgage recording tax adopted in Kentucky only after the
most serious consideration. It was part of the general system of
taxation enacted in 1917 after investigations by two special tax
commissions appointed to inquire into the particular needs of the
state. In the reports of both commissions, the fact that
theretofore mortgage loans had largely escaped taxation was a
subject of much consideration. [
Footnote 13] The first commission, which was appointed in
1912, submitted a preliminary report recommending an amendment to
the state constitution so as to permit the classification of
property for purposes of taxation and the application of different
methods of taxation to different classes. The amendment proposed
was submitted to the people and adopted. Kentucky Constitution, §
171. In December, 1913, the commission submitted its final report.
It recommended, among other things, that mortgages, bonds, and
other choses in action "be taxed by a method which will bring them
out of hiding." [
Footnote
14] It submitted with the report a draft of a bill for the
taxation of intangibles, but recommended that the bill should not
be passed until the subject had received further study by another
commission.
The second commission filed its report in 1916. Like the first
commission, it adverted to the fact that
"even in
Page 277 U. S. 50
the case of mortgages, numerous ingenious and decidedly
reprehensible methods are resorted to in order that the real owner
of such securities may escape his lawful portion of the burden of
taxes,"
and it recommended, among other things, the imposition of a
mortgage recording tax. [
Footnote 15] This was passed at an extraordinary session
of the legislature, called "for the sole purpose of considering the
subject of revenue and taxation," which remained in session from
February 14 to April 25, 1917. The legislation subjected different
classes of intangible property to widely varying rates, and
supplemented the property taxes by license fees, including the
mortgage recording tax here in question. It subjected credits
secured by mortgage to the annual general property tax of 40 cents
per $100 for state purposes, but exempted them from local taxation,
imposed the mortgage recording tax, and retained a statute then in
force laying a flat recording tax of 50 cents on all mortgages
(except chattel mortgages for less than $200). Kentucky Statutes,
Carroll's 1922 Edition, § 4238. We are told that the commission and
the legislature concluded that the taxes imposed by the several
statutes would, in view of facts to be stated, approximately
equalize the
pro rata amount of taxes to be paid on loans
secured by mortgage, taking account of the difference in the dates
of maturity. In determining whether the equal treatment required by
the federal Constitution has been afforded, we must, of course,
consider all the statutes operating upon the subject matter.
Farmers' & Mechanics' Savings Bank v. Minnesota,
232 U. S. 516,
232 U. S. 529;
Interstate Busses Corp. v. Blodgett, 276 U.
S. 245.
In Kentucky, local reasons exist for treating long-term mortgage
loans somewhat differently from those for a
Page 277 U. S. 51
short term. There is among those loans which are secured by
mortgages of real or personal property, and hence require
registration, commonly a marked difference in the character of the
short-term and the long-term loans. Probably 90 or 95 percent of
the short-term loans are evidenced by promissory notes payable to
the lender. The larger part are for amounts less than $300, many of
them maturing within a few months and providing for the payment of
interest in advance. Another large part consists of loans secured
by mortgage upon the residence of the borrower and made for
domestic purposes. On the other hand, the long-term loans are
commonly evidenced by coupon bonds, are issued for large amounts,
and represent borrowings for business purposes. The rate of
interest on short-term mortgage loans is generally higher than that
on long-term loans of equal safety, in part for the following
reason: because the short-term loans are usually evidenced by
promissory notes payable to the lender, the registration of the
mortgage discloses the identity of the holder of the notes, and he
is commonly subjected to the tax of 40 cents per $100 imposed by
law upon all mortgage loans. [
Footnote 16] Because the long-term loans are commonly
represented by negotiable coupon bonds and are secured by a deed of
trust, registration does not disclose to the assessors who the
holders of the securities are, and they frequently escape taxation
thereon. Laying the mortgage recording tax only upon the long-term
loans tends in some measure to reduce the disadvantage under which
the short-term borrower labors.
At what point the line should be drawn between short-term and
long-term loans is, of course, a matter on which even men
conversant with all the facts may reasonably differ. There was much
difference of opinion concerning this in the Kentucky Legislature.
The bill, as recommended
Page 277 U. S. 52
by the tax commission and as introduced in the House, exempted
from the tax here in question only such mortgages as secured
indebtedness maturing within three years, and it imposed a tax of
25 cents for $100. [
Footnote
17] In the House, the bill was amended so as to exempt loans
maturing in less than five years. [
Footnote 18] In the Senate, the House bill was amended so
as to reduce the period to three years. [
Footnote 19] The House refused to concur in the Senate
amendment. [
Footnote 20] The
Senate receded, [
Footnote
21] and thereupon the bill was passed granting the exemption of
loans maturing within five years, but with the rate reduced to 20
cents. [
Footnote 22] Thus,
we know that, in making this particular classification, there was
in fact an exercise of legislative judgment and discretion. Surely
the particular classification was not such as to preclude (in law)
"the assumption that [it] was made in the exercise of legislative
judgment and discretion."
See Stebbins v. Riley,
268 U. S. 137,
268 U. S. 143.
Whether the exercise was a wise one is not our concern.
That it was permissible for Kentucky, in levying its mortgage
recording tax, to take account of the probability that certain
types of mortgage would escape further taxation is not open to
doubt.
Watson v. State Comptroller, 254 U.
S. 122,
254 U. S. 125.
There is abundant proof that the legislature was justified in
thinking that the bulk of the long-term loans would escape the
general property tax, while most of those for a short-term would
not. That the statute taxes certain long-term loans which, because
of their similarity in other respects to those for a short-term,
are likely to be subjected to the state property tax,
Page 277 U. S. 53
would not render the statute invalid even as applied to them.
Compare Citizens' Telephone Co. v. Fuller, 229 U.
S. 322,
229 U. S. 332.
Wherever the line might be drawn, the statute would sometimes
operate unjustly. But such occasional instances of injustice would
not render the classification arbitrary. As was said in
Metropolis Theater Co. v. Chicago, 228 U. S.
61,
228 U. S.
69-70:
"The problems of government are practical ones and may justify,
if they do not require, rough accommodations -- illogical, it may
be, and unscientific."
Moreover, the deed of trust here in question is not similar to
the Kentucky mortgages maturing within five years. It is a deed of
trust given by a public service corporation to secure $150,000,000
in thirty-year 5 percent coupon bonds of $1,000 each, the bonds to
be issued from time to time, the initial issue being $18,805,000.
The equality clause would not prevent a state from confining the
recording tax to deeds of trust given to secure bonds of a public
service corporation.
Compare Kentucky Railroad Tax Cases,
115 U. S. 321,
115 U. S. 338;
Bell's Gap Railroad Co. v. Pennsylvania, 134 U.
S. 232,
134 U. S. 237;
Pacific Express Co. v. Seibert, 142 U.
S. 339,
142 U. S. 351;
American Sugar Refining Co. v. Louisiana, 179 U. S.
89,
179 U. S. 92;
New York ex rel. Hatch v. Reardon, 204 U.
S. 152,
204 U. S. 158.
The characteristics of this deed of trust clearly furnish a basis
for reasonable classification as compared with probably every
mortgage exempted from the recording tax. If the statute as applied
does not in fact discriminate in favor of any property of a like
nature, there is not inequality in treatment. A "tax is not to be
upset upon hypothetical and unreal possibilities if it would be
good upon the facts as they are."
Pullman Co. v. Knott,
235 U. S. 23,
235 U. S. 26.
See Crescent Oil Co. v. Mississippi, 257 U.
S. 129,
257 U. S.
137-138.
As Kentucky might lawfully have levied the recording tax only on
deeds of trust securing bond issues like that
Page 277 U. S. 54
here involved, and as there is no showing that there exist any
similar deeds of trust securing loans for less than five years, no
constitutional right of the plaintiff is invaded because the
statute may also include loans actually similar to those exempted
except in regard to their term, and which, because similar in fact
could not be treated differently from those exempt.
Clark v.
Kansas City, 176 U. S. 114,
176 U. S.
117-118;
Aluminum Co. v. Ramsey, 222 U.
S. 251,
222 U. S. 256;
Murphy v. California, 225 U. S. 623,
225 U. S. 630;
Darnell v. Indiana, 226 U. S. 390,
226 U. S. 398;
Mountain Timber Co. v. Washington, 243 U.
S. 219,
243 U. S. 242;
Roberts & Schaefer Co. v. Emmerson, 271 U. S.
50,
271 U. S. 54-55.
One who would strike down a statute must show not only that he is
affected by it, but that, as applied to him, the statute exceeds
the power of the state. This rule, acted upon as early as
Austin v.
Boston, 7 Wall. 694, and definitely stated in
Albany County v. Stanley, 105 U.
S. 305,
105 U. S. 314,
has been consistently followed since that time. In my opinion, it
is sufficient alone to require affirmance of the judgment.
MR. JUSTICE HOLMES and MR. JUSTICE STONE join in this
opinion.
[
Footnote 1]
A statute which fixed the maximum rate of fare on railroads more
than 75 miles long at 3 cents, but, on railroads in all other
respects similarly situated, at 5 cents if the line was between 15
and 75 miles long, and at 8 cents if the line was 15 miles or less
in length.
Dow v. Beidelman, 125 U.
S. 680,
125 U. S.
690-691.
Compare Chesapeake & Ohio Ry. Co. v.
Conley, 230 U. S. 513,
230 U. S. 522.
A statute which permitted railroads less than 50 miles in length to
heat passenger cars by stove or furnace, but denied such permission
to lines of 50 miles or more.
New York, New Haven &
Hartford R. Co. v. New York, 165 U. S. 628,
165 U. S. 633.
A statute which permitted railroads of less than 50 miles in length
to be operated without a complete crew, but denied such permission
to lines of 50 miles or more.
Chicago, Rock Island &
Pacific Ry. Co. v. Arkansas, 219 U. S. 453;
St. Louis, Iron Mountain & Southern Ry. Co. v.
Arkansas, 240 U. S. 518,
240 U. S. 520.
An inspection law which applied to mines employing 6 or more men,
but not to those employing 5 or less.
Consolidated Coal Co. v.
Illinois, 185 U. S. 203,
185 U. S. 207.
A screen law which applied to mines employing 10 or more men, but
not to those employing 9 or less.
McLean v. Arkansas,
211 U. S. 539,
211 U. S. 551.
A statute requiring a washroom at mines where there was a request
by 20 employees, but not at mines where by only 19.
Booth v.
Indiana, 237 U. S. 391,
237 U. S. 397.
Workmen's compensation laws which apply to employers of 4 or 5 men,
but not to employers of less.
Jeffrey Manufacturing Co. v.
Blagg, 235 U. S. 571,
235 U. S. 576;
Middleton v. Texas Power & Light Co., 249 U.
S. 152,
249 U. S. 159;
Ward & Gow v. Krinsky, 259 U.
S. 503,
259 U. S. 516.
A fire inspection law which applied to hotels with 50 or more
rooms, but not to hotels with 49 or less.
Miller v.
Strahl, 239 U. S. 426,
239 U. S. 434.
A law which required the licensing of physicians who during the
preceding year had treated 11 or less persons, but not those who
has treated 12 or more.
Watson v. Maryland, 218 U.
S. 173. An ordinance which prohibited the keeping of a
private market within 6 squares of a public one, but not within 7.
Natal v. Louisiana, 139 U. S. 621. A
statute which prohibited the herding of sheep within 2 miles of a
dwelling house, but not if a yard or more beyond.
Bacon v.
Walker, 204 U. S. 311. A
law which prohibited the establishment of a carbon black factory
within 10 miles of an incorporated town, but not if a rod more
remote.
Walls v. Midland Carbon Co., 254 U.
S. 300,
254 U. S. 324.
A statute permitting, in a suit against a corporation, a change of
venue where it had more than 50 stockholders, but not if it had 50
or less.
Cincinnati Street Ry. Co. v. Snell, 193 U. S.
30. Statutes exempting from certain requirements banks
whose transactions average $500 or more.
Engel v.
O'Malley, 219 U. S. 128;
Dillingham v. McLaughlin, 264 U.
S. 370. A tax law providing for the forfeit of tracts of
1,000 acres or more, but which does not provide for forfeiting,
under like circumstances, tracts of 999 acres or less.
King v.
Mullins, 171 U. S. 404,
171 U. S. 435.
A statute which fixed the number of peremptory challenges to jurors
at 8, but allowed 15 in cities having a population of over 100,000
inhabitants.
Hayes v. Missouri, 120 U. S.
68. Many other statutes involving the classification of
cities according to population, under which a single resident more
or less may affect vitally not only the power and duties of the
municipality, but the rights and liabilities of persons resident
therein.
Missouri v. Lewis, 101 U. S.
22;
Budd v. New York, 143 U.
S. 517,
143 U. S. 548;
Moeschen v. Tenement House Department, 203 U.S. 583;
Northwestern Laundry Co. v. Des Moines, 239 U.
S. 486,
239 U. S. 495;
Marcus Brown Co. v. Feldman, 256 U.
S. 170,
256 U. S. 198;
Packard v. Banton, 264 U. S. 140,
264 U. S. 143;
Radice v. New York, 264 U. S. 292,
264 U. S.
296.
[
Footnote 2]
Compare the statutory provisions in Arkansas, Crawford
& Moses' Digest 1921, § 10221; Kansas, Revised Statutes 1923, §
79-1501; Maryland, Bagby's Code 1924, Art. 81, § 124; Michigan,
Complied Laws 1915, § 14525; Nebraska, Session Laws 1923, c. 187.
See In re Fox's Estate, 154 Mich. 5. The more common type
of statute which taxes only the amount above the exemption,
e.g., Revenue Act of 1926, 44 Stat. 9, 69, likewise
discriminates between different dollars. The constitutionality of
such exemptions was affirmed as recently as
Hope Natural Gas
Co. v. Hall, 274 U. S. 284,
274 U. S. 289.
Compare Minot v. Winthrop, 162 Mass. 113;
Gelsthorpe
v. Furnell, 20 Mont. 299, 51 P. 267;
State v. Alston,
94 Tenn. 674;
In re Hickok's Estate, 78 Vt. 259.
[
Footnote 3]
Compare In re McKennan's Estate, 27 S.D. 136,
sustaining a similar provision in Laws 1905, c. 54. Even where such
rates do not apply to the total amount, but only to that over a
certain excess, they seem to violate the standards now laid down by
the court. But, since
Magoun v. Illinois Trust & Savings
Bank, 170 U. S. 283, and
Knowlton v. Moore, 178 U. S. 41,
178 U. S. 109,
the validity of taxes of this type has no longer been open to
doubt.
[
Footnote 4]
For statutes exempting small producers, borrowers, etc., from
license taxes of various sorts,
compare Florida Revised
Statutes 1920, §§ 842, 843, 855; Georgia Code 1926, § 993(115) and
(124); Carroll's Kentucky Statutes 1922, §§ 4224, 4238; South
Carolina Code 1922, § 5188; Tennessee, Public Acts 1923, c. 75, p.
258 (mortgage registration tax); Virginia, Tax Bill, § 92 1/2; West
Virginia, Acts Extraordinary Session 1919, c. 5.
See Los
Angeles Gas & Electric Corp. v. Los Angeles, 163 Cal. 621,
627;
Cobb v. Commissioners, 122 N.C. 307, 312;
Eureka
Pipe Line Co. v. Hallanan, 87 W.Va. 396.
[
Footnote 5]
For stepped taxes of this type,
compare California
Political Code 1920, §§ 3376, 3379; Florida Revised Statutes 1920,
§§ 839, 850; Georgia Code 1926, § 993 (53) and (54); Nebraska
Compiled Statutes 1922, § 681; New Hampshire Public Laws 1926, c.
225, § 91; Oregon Laws 1920, § 6883; Shannon's Tennessee Code Supp.
1926, § 712, pp. 200, 206, 208, 227, § 717; Utah Compiled Laws
1917, § 1271, as amended by Laws 1925, c. 112; Virginia, Tax Bill,
§§ 46, 46 1/2, 109; Remington's Washington Compiled Statutes 1922,
§ 3841, as amended by Laws Extra Session 1925, c. 149, p. 418, § 3;
Wyoming, Laws 1925, c. 117, § 1.
Compare Saks v. Mayor of
Birmingham, 120 Ala.190;
In re Martin, 62 Kan. 638;
Gordon v. City of Louisville, 138 Ky. 442;
State v.
Merchants' Trading Co., 114 La. 529;
Wayne Mercantile Co.
v. Commissioners of Mount Olive, 161 N.C. 121;
Salt Lake
City v. Christensen Co., 34 Utah 38.
[
Footnote 6]
Compare California Political Code 1920, § 3380;
Shannon's Tennessee Code Supp. 1926, § 712, pp. 214, 220.
[
Footnote 7]
Alabama, Acts 1903, p. 227; Kansas, Laws 1925, c. 273; Kentucky,
Acts Special Session, 1917, c. 11, § 9; Michigan, Pub. Acts 1911,
No. 91, p. 132; Minnesota, Laws 1907, c. 328, as amended by Laws
1913, c. 163, and Laws 1921, c. 445; New York, Laws 1906, c. 532,
and Laws 1907, c. 340, amending Laws 1095, c. 729; Oklahoma,
Session Laws 1913, p. 684; Tennessee, Pub. Acts 1923, p. 258, Acts
1925, p. 472; Virginia, Acts 1910, p. 488.
See State v. Alabama
Fuel & Iron Co., 188 Ala. 487;
Middendorf v.
Goodale, 202 Ky. 118;
Union Trust Co. v. Common Council of
Detroit, 170 Mich. 692;
Mutual Benefit Insurance Co. v.
County of Martin, 104 Minn. 179;
People v. Ronner,
185 N.Y. 285;
Trustees' Insurance Corp. v. Hooton, 53 Okl.
530;
Pocahantas Consolidated Collieries Co. v.
Commonwealth, 113 Va. 108;
Saville v. Virginia Ry. &
Power Co., 114 Va. 444.
[
Footnote 8]
This objection to the flat rate tax was brought to the attention
of the Kentucky commission of 1916 in a brief filed on behalf of
the Louisville Real Estate Board, though the board itself favored
the flat rate plan.
See letter of Mr. A. E. Holcomb
criticizing the New York law, p. 41; letter of Mr. George Lord
criticizing the Michigan law, p. 45.
See also Report of
Committee of National Tax Association on Taxation of Personal
Property, 1911; Report of Minnesota Tax Commission, 1908, p. 165;
Robinson, The Mortgage Recording Tax, 25 Pol. Sci. Q. 609.
[
Footnote 9]
Oklahoma, Session Laws, 1915, c. 105, p. 167, amending Session
Laws 1913, p. 684.
[
Footnote 10]
South Dakota, Session Laws 1919, c. 113, repealed by Session
Laws 1923, c. 110.
[
Footnote 11]
Minnesota, Laws 1907, c. 328.
[
Footnote 12]
Minnesota, Laws 1913, c. 163. By Laws 1921, c. 445, the line of
cleavage was changed from 5 years to 5 years and 60 days.
[
Footnote 13]
Report of Kentucky Tax Commission, 1912-1914, pp. 70-97; Report
of Kentucky Tax Commission, 1916, p. 6.
[
Footnote 14]
Report, 1912, p. 10.
[
Footnote 15]
Report, 1916, pp. 6, 10. In a brief submitted to the Tax
Commission, the Louisville Real Estate Board had urged the
enactment of a recording tax of 50 cents per $100, applicable only
to mortgages of real estate.
[
Footnote 16]
Acts Special Session 1917, c. 11, § 1. By Acts 1924, c. 116, §
1, the rate was raised to 50 cents.
[
Footnote 17]
Report, 1916, p. 35; House Journal, 1917 Special Session, p.
219.
[
Footnote 18]
House Journal, p. 255.
[
Footnote 19]
Senate Journal, pp. 152, 153.
[
Footnote 20]
House Journal, p. 550.
[
Footnote 21]
Senate Journal, p. 257.
[
Footnote 22]
See Senate Journal, p. 153; House Journal, pp. 645,
649, 650.