8 In Ogden v. Saunders, the Supreme Court held that a State of the Union could not give an extraterritorial effect to its insolvency laws. Due Process of Law. In the immediately foregoing cases the Supreme Court of the United States held the State laws invalid simply as ultra vires from the standpoint of territorial jurisdiction, and without reference to any specific inhibition laid upon the States by the Federal Constitution. However, in the later cases of Louisville, etc., Ferry Co. v. Kentucky, decided in 1903, and Delaware, L. & W. R.R. Co. v. Pennsylvania,10 decided in 1905, the Federal Supreme Court declared that an attempt of a State to tax property which did not have its situs within the State was in violation of the express prohibition laid upon the States by the Federal Constitution that they should deprive no person of property without due process of law.11 In the first of these cases was invalidated the attempt of the State of Kentucky to include, for purposes of taxation, the value of a franchise granted by the State of Indiana to a Kentucky ferry company. "There is, in our judgment,” said the court, "no escape from the conclusion that Kentucky thus asserts its authority to tax a property right, an incorporeal hereditament,12 which has its situs in Indiana. . . .The taxation of that franchise or incorporeal hereditament by Kentucky is, in our opinion, a deprivation by that State of the property of the ferry company without due process of law in violation of the Fourteenth Amendment of the Constitution of the United 8 12 Wheaton 214. 188 U. S. 385. 10 198 U. S. 341. "Fourteenth Amendment. As to this shifting of ground by the Federal Supreme Court, see the article by Dr. F. J. Goodnow, "Congressional Regulation of State Taxation," in the Pol. Sci. Quar., vol. XXVIII (1913), p. 405. "An incorporeal hereditament is ordinarily distinguished from intangible personalty by being a right attached to land. States; as much so as if the State taxed the real-estate owned by that company in Indiana.” In Delaware L. & W. R.R. Co. v. Pennsylvania, the court, upon the same constitutional ground, held that a State of the Union could not, for purposes of taxation, include in the appraisement of the capital stock of a domestic corporation the value of coal mined by it within the State, but situated within other States, and there awaiting sale when the appraisement was made. In Union Refrigerator Transit Co. v. Kentucky,13 decided in 1905, the court similarly held that due process of law was denied a corporation of Kentucky by a tax of that State assessed upon its rolling stock permanently located in other States and there used for carrying on the company's business. The court said: "The arguments in favor of the taxation of intangible property at the domicil of the owner have no application to tangible property. The fact that such property is visible, easily found, and difficult to conceal, and the tax readily collectible, is so cogent an argument for its taxation at its situs, that of late there is general consensus of opinion that it is taxable in the State where it is permanently located and employed, and where it receives its entire protection, irrespective of the domicil of the owner." (Citing numerous cases.) In Maguire v. Trefry,14 decided in 1920, the court held valid the law of the State of Massachusetts taxing the income of a resident of the State from a trust, administered under the laws of another State, in securities in the possession of the trustee in such other State. "It is true," said the court, "that the legal title of the property is held by the trustees in Pennsylvania. But it is so held for the beneficiary of the trust, and such beneficiary has an equitable right, title, and interest distinct from its legal ownership. It is this property right belong ing to the beneficiary, realized in the shape of income, which is the subject matter of the tax under the statute of Massachusetts." In Savings and Loan Society v. Multnomah County,15 the court expressly overruled the dictum in the State Tax on Foreign-Held Bonds case that a non-resident mortgagee's equitable interest in land may not be taxed to him in the State where the land is situated. In Corry v. Baltimore,18 the court held that prior adjudications had conclusively settled the doctrine that the State could fix, for purposes of taxation, the situs of stock in a domestic corporation, whether held by residents or non-residents. Inheritance Taxes. Some questions regarding the situs of property have been raised in connection with inheritance taxes. In general, however, with reference to the estates of non-resident decedents it has been held that, as to property within the State, the tax may be upheld as one upon the right of succession or as a transfer of title tax. Thus, in Blackstone v. Miller, 17 the court upheld a tax upon the transfer, under the will of a nonresident, of debts due the decedent by citizens of the taxing State. The court said: "No one doubts that succession to a tangible chattel may be taxed wherever the property is found, and none the less that the law of the situs accepts its rule of succession from the law of the domicil, or that by the law of the domicil the chattel is a part of a universitas and is taken into account again in the succession tax there. . . The question, then, is narrowed to whether a distinction is to be taken be 15 169 U. S. 421. tween tangible chattels and the deposit in this case. . . . If the transfer of the deposit necessarily depends upon and involves the law of New York [the taxing State in the instant case] for its exercise, or, in other words, if the transfer is subject to the power of the State of New York, then New York may subject the transfer to a tax.. . It is plain that the transfer does depend upon the law of New York, not because of any theoretical speculation concerning the whereabouts of the debt, but because of the practical fact of its power over the person of the debtor." 18 Taxation of Foreign Shareholders of Domestic Corporations. In Michigan Central R. R. Co. v. Slack,19 the Supreme Court, interpreting and applying a provision of the Federal Internal Revenue Law as amended by the law of 1886, upheld as an excise tax a percentum tax on interest due by an American corporation, doing business in America, on its bonds issued before the revenue law was enacted and held at the time by non-resident foreigners. The law in question levied a general tax on corporations, such as was the plaintiff company, to be paid by them out of their earnings, income and profits, and provided that the amounts payable should be deducted by the companies from their dividends, interest or funded debt, etc., and paid over to the revenue agents of the American Government. In the course of its opinion the Court said: "Whether Congress, having the power to enforce the law, has the authority to levy such a tax on the interest due by a citizen of the United States to one who is not domiciled within our limits, and who owes the Government no allegiance, is a question which we do not think necessary to the decision of this case. The tax, in our opinion, is 18 See also Keeney v. New York, 222 U. S. 525. 19 100 U. S. (10 Otto), 595. essentially an excise on the business of the class of corporations mentioned in the statute." In other words, the tax was not, in truth, upon the non-resident holders of the bonds, although it was deducted from and paid out of the interest due them as such holders, but upon the corporations which paid the interest. However, the court went on to say: "It is true that the Act went further, and declared that, except when the company had contracted otherwise, it might deduct this tax from the amount due the bondholders. And where the bondholder was subject to congressional legislation by reason of citizenship, residence or situs of the property taxed, it was within the lawful power of Congress to do so. Whether, as a question of international law, this declaration would relieve the corporation from the obligation to pay its foreign bondholder the full sum for which it contracted, we need not discuss; for this court, on all such subjects is bound by the legislative and political departments of its own Government." In United States v. Erie R. R. Co.,20 decided in 1882, which was an action to recover taxes paid under protest, levied under the same revenue provision as that involved in the case just considered, Chief Justice Waite declared that the authority of that case should govern. Justices Bradley and Harland concurred in the judgment rendered, but not for the reasons stated in the earlier case. Justice Bradley, speaking for Justice Harlan as well as himself, said that he had always been of the opinion that the tax in question was on the incomes pro tanto of the holders of the bonds or stocks of the companies concerned. "The objection," he said, "that Congress had no power to tax non-resident aliens, is met by the fact that the tax was not assessed against them personally, but against the rem, the credit, the debt due to them. 106 U. S. (16 Otto), 327. |