though the mortgage security is in such other state,19 and the bonds are payable therein.20 The converse of this proposition, however, is not true. In other words, bonds of a domestic corporation owned and held by inhabitants of a foreign state are not subject to domestic taxation,21 even though the security have a domestic situs.22

*

Bonds "are intangible property, and can have no actual situs. They are the mere evidences of debts by the company to the holder or owner thereof. The bond is evidence to support a demand for payment of money. Its destruction by accident would not discharge the debt. The debt would remain, and might still be demanded and recovered. * The bond is property, but it is the property of the owner, the creditor and not the debtor. It is not like a share of stock, which is not a debt, but which represents the interest owned by the stockholder in the profits of a business conducted here by his agents. The owner of the bond has no interest in the business of the corporation, and no control over it whatever. The losses of the business must be borne, and its profits shared, by the stockholders. In all this the creditor, by bond or otherwise, has no interest other than that which every creditor has in seeing his debtor preserve an ability to meet his debts. A tax upon the bond is not a tax upon the corporation. It is a tax upon the owner of the bond. Bonds are undoubtedly subject to taxation. But when? By what government? The answer cannot be doubtful. They can only be taxed by the government having jurisdiction of the owner. The situs of intangible personals, such as bonds, notes, accounts, etc., is necessarily the situs of the owner. That these debts are secured by a mortgage

*

upon property situated here can make no difference. That the legal fiction as to the situs of personals will under certain circumstances yield is most true. If the state had in the charter of this company authorized the issuance of bonds only upon condition that they should be taxable here, and this provision had been contained in

19 Kirtland v. Hotchkiss, 100 U. S. 491, 25 L. Ed. 558; Mackay v. City & County of San Francisco, 113 Cal. 392, 45 Pac. 696; Buck v. Miller, 147 Ind. 586, 37 L. R. A. 384, 62 Am. St. Rep. 436, 47 N. E. 8, 45 N. E. 647.

20 Kirtland v. Hotchkiss, 100 U. S. 491, 25 L. Ed. 558; Mackay v. City & County of San Francisco, 113 Cal. 392, 45 Pac. 696; Buck v. Miller, 147 Ind. 586, 37 L. R. A. 384, 62 Am. St. Rep. 436, 47 N. E. 8, 45 N. E. 647.

21 Com. v. Chesapeake & O. R. Co., 27 Gratt. (Va.) 344, aff'd 94 U. S. 718, 24 L. Ed. 310.

22 South Nashville St. R. Co. v. Morrow, 87 Tenn. 406, 2 L. R. A. 853, 11 S. W. 348. Contra, Maltby v. Reading & C. R. Co., 52 Pa. St. 140, declared unsound in Cleveland, P. & A. R. Co. v. Com. (State Tax on Forcign-held Bonds), 15 Wall. (U. S.) 300, 21 L. Ed. 179.

the bonds and coupons it could not be doubted that each purchaser would take such bonds with notice and would by contract subject himself to taxation here. In such a case the purchaser would undoubtedly take this burden into consideration when he bought, and abate his price accordingly; and thus the tax would fall at last upon the debtor.23 The fiction that debts have no situs but that of the creditor is founded upon a consideration of the nature of such property. It is not property save in the hands of the creditor.

To sustain the jurisdiction of the state over these bonds for purposes of taxation, we must ignore or contradict the legal fiction which ascribes to such property the situs of the owner. If the actual situs upon examination should prove to be here, then the legal fiction must yield. But the actual situs is not here, and to sustain the jurisdiction we must create a fictitious or constructive situs, based upon the notion that debts are in some way property in the hands of the debtor, or that the security for the debt being here, therefore the debt is here. By no sort of fiction can the jurisdiction of the state be held to extend to the property which a nonresident has in a debt which he holds against a resident. The creditor cannot be taxed because he is not within the jurisdiction, and his property cannot be taxed because it is not within the jurisdiction." 24

23 The legality of a tax on foreignheld bonds "would not be questioned," according to the Federal Supreme Court, "if in the charter of the company the imposition of the tax were authorized, and in the bonds of the company, or its certificates of loan, the liability of the loan to taxation were stated. The tax in that case would be in the nature of a license tax for negotiating the loan, for in whatever manner made payable it would ultimately fall on the company as a condition of effecting the loan, and parties contracting with the company would provide for it by proper stipulations." Cleveland, P. & A. R. Co. v. Commonwealth of Pennsylvania (State Tax on Foreign-held Bonds), 15 Wall. (U. S.) 300, 21 L. Ed. 179.

24 South Nashville St. R. Co. v. Morrow, 87 Tenn. 406, 2 L. R. A. 853, 11 S. W. 348.

are not

"Debts owing by corporations, like debts owing by individuals, property of the debtors in any sense; they are obligations of the debtors, and only possess value in the hands of the creditors. With them they are property, and in their hands they may be taxed. To call debts property of the debtors, is simply to misuse terms. 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 domicile, wherever that may be. Their debts can have no locality separate from the parties to they are due. This principle might be stated in many different ways, and supported by citations in numerous adjudications, but no number of authorities and no forms of expression I could add anything to its obvious truth, which is recognized upon its simple statement." Cleveland, P. &

whom

In a leading case decided by the Federal Supreme Court, it was held that bonds of a domestic corporation, owned by nonresidents of the state, are property beyond the jurisdiction of the state, and, as applied thereto, a statute, which requires the treasurer of each domestic corporation, excepting banks, etc., doing business in the state, to retain a certain per cent of the interest due upon its bonds as a tax which is to be paid over to the state, impairs the obligation of the corporation's contract and cannot be sustained.25 Again, a state statute imposing a tax on "money owing by solvent debtors

by bond" cannot be applied to bonds of a consolidated railroad company, chartered by two different states including the one enacting the statute, which bonds were secured by a mortgage on the company's entire line of road, part of which lies in the foreign state, when such bonds are held by a nonresident alien, since to permit it to be so applied would be to permit a state to tax property and interests without its jurisdiction.26

A. R. Co. v. Pennsylvania (State Tax on Foreign-held Bonds), 15 Wall. (U. S.) 300, 21 L. Ed. 179.

25 Cleveland, P. & A. R. Co. v. Pennsylvania (State Tax on Foreignheld Bonds), 15 Wall. (U. S.) 300, 21 L. Ed. 179. The railroad company attacking the Pennsylvania statute involved in this case was a corporation both of the state of Pennsylvania and of the state of Ohio and its bonds were secured by mortgages upon its entire road which extended from Erie, Pennsylvania, to Cleveland, Ohio. The opinion of the court was delivered by Mr. Justice Field, who, summarizing a portion of such opinion in which he quoted from different Pennsylvania cases, said, in one of his headnotes to the case: "The exemption from taxation, by the state of Pennsylvania, of bonds thus issued to and held by non-residents of that state, citizens of other states, is not affected by the fact that the bonds are secured by a mortgage, executed simultaneously with them, upon property situated in that state. A mortgage there, though in the form of a conveyance, is a mere security for a debt, and transfers no estate in the mortgaged premises. It

simply creates a lien upon them, and only confers upon the holder or the party for whose benefit the mortgage is given a right to proceed against the property mortgaged upon a given contingency, to enforce the payment of his demand. This right has no locality independent of the party in whom it resides." In the subsequent case of Savings & Loan Society v. Multnomah County, 169 U. S. 421, 42 L. Ed. 803, however, the same court speaking through Mr. Justice Gray, declared that "the remarks in the opinion [of Mr. Justice Field in Cleveland, P. & A. R. Co. v. Pennsylvania, supra], supported by quotations from opinions of the Supreme Court of Pennsylvania, that a mortgage, being a mere security for the debt, confers upon the holder of the mortgage no interest in the land, and where held by a non-resident, is as much beyond the jurisdiction of the state as the person of the owner, went beyond what was required for the decision of the case, and cannot be reconciled with other decisions of this court and of the Supreme Court of Pennsylvania."

26 Northern Cent. R. Co. v. Jack

§ 4623. Situs of shares of stock in general. Since shares of stock in a corporation in the hands of the individual stockholders are personal property, even when the corporation owns land, their situs for the purpose of taxation is the residence of the owners or holders, within or without the state, as the case may be, unless there is express statutory provision to the contrary.27

While a state has no right to tax the property of its citizens when such property is permanently located in another jurisdiction,28 in case of the intangible interest of the shareholder, there is manifestly no question of physical situs, so far as this distinct property right is concerned, and the jurisdiction to tax it is not dependent upon the location of the lands and chattels of the corporation.29 As in the case of other personal property, however, it is within the power of the legislature, if it sees fit, to separate shares from the person of the holder, and tax them, without regard to his residence, in the place where the corporation is located.30 "Personal property," said Chief Justice Waite, "in the absence of any law to the contrary, follows the person of the owner, and has its situs at his domicile. But, for the purpose of taxation, it may be separated from him, and he may be taxed on its account at the place where it is actually located." 31

is personal estate, and, in the absence of any statute to the contrary, is taxable to the owner, as other personal estate, at the place of his residence, whether the corporation be foreign or domestic." Greenleaf v. Board Review Morgan Co., 184 Ill. 226, 75 Am. St. Rep. 168, 56 N. E. 295.

28 Union Refrigerator Transit Co. v. Kentucky, 199 U. S. 194, 50 L. Ed. 150, 4 Ann. Cas. 493; Delaware, L. & W. R. Co. v. Pennsylvania, 198 U. S. 341, 49 L. Ed. 1077; Louisville & J. Ferry Co. v. Kentucky, 188 U. S. 385, 47 L. Ed. 513.

29 Hawley v. Malden, 232 U. S. 1, 58 L. Ed. 477, Ann. Cas. 1916 C 842.

30 United States. Tappan v. Merchants' Nat. Bank of Chicago, 19 Wall. 490, 22 L. Ed. 189.

Illinois. Danville Banking & Trust Co. v. Parks, 88 Ill. 170; First Nat. Bank of Mendota v. Smith, 65 Ill. 44.

New York. Williams v. Weaver, 75 N. Y. 30.

Tennessee. Street R. Co. v. Morrow, 87 Tenn. 406, 2 L. R. A. 853, 11 S. W. 348.

Virginia. Union Bank v. Richmond, 94 Va. 316, 26 S. E. 821.

"If provision for the taxation of the shares [of stock] at the locality

of the company be made in its charter, their taxability at such locality is annexed as an incident to the shares, and it does not matter where the domicile of the owner may be. The tax may then be enforced through the corporation by requiring it to withhold the amount from the dividends payable thereon." Minot v. Philadelphia, W. & B. R. Co. (The Delaware Railroad Tax), 18 Wall. (U. S.) 206, 21 L. Ed. 888.

31 Tappan v. Merchants' Nat. Bank of Chicago, 19 Wall. (U. S.) 490, 499, 22 L. Ed. 189.

To same effect see:

United States. Waite v. Dowley, 94 U. S. 527, 24 L. Ed. 181; First Nat. Bank of Louisville v. Com., 9 Wall. 353, 19 L. Ed. 701; Austin v. Aldermen, 7 Wall. 694, 698, 19 L. Ed. 224.

Massachusetts. Providence Inst. for Savings v. Boston, 101 Mass. 575; Austin v. Board of Aldermen of Boston, 14 Allen 359.

Michigan. Howell v. Village of Cassopolis, 35 Mich. 471.

North Carolina. Kyle v. Commissioners of Fayetteville, 75 N. C. 445. Tennessee. McLaughlin v. Chadwell, 7 Heisk. 389.

Compare First Nat. Bank of Mendota v. Smith, 65 Ill. 44.