domicil of their owners and be there reached by the taxing power. 25

In Buck v. Beach,26 the Supreme Court held that the mere presence of promissory notes within the State was not sufficient to create a situs, for purposes of taxation by that State, of the intangible personalty represented by such instruments, and that it was immaterial that these instruments had been sent into the State by their owner in order to avoid taxation upon them by the State of his residence. The court said: "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."

Upon the other hand, in Metropolitan Life Insurance Co. v. New Orleans,27 the court held that a company could not escape taxation by sending the evidences of credits outside of the State, when there were other reasons why the company should be taxed upon them. In this case the plaintiff, a foreign corporation, was doing business within the State and the court said: "The State undertook to tax the capital employed in the business precisely as it taxed the capital of its own citizens in like

25

Quoting a decision of a state court (Jefferson v. Smith, 88 N. Y. 576), the Supreme Court said: "It is clear from the statutes referred to and the authorities cited and from the understanding of business men in commercial transactions, as well as of jurists and legislators, that mortgages, bonds, bills and notes have for many purposes come to be regarded as property, and not as the mere evidences of debts, and that they may thus have a situs at the place where they are found, like other visible tangible chattels."

As to the conformity of the doctrine of the instant case with that of the case of State Tax on Foreign Held Bonds (15 Wallace, 300), the court said: "The taxation in that case was on the interest on bonds held out of the State. Bonds and negotiable instruments are more than mere 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."

2206 U. S. 392. 205 U. S. 395.

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." 28

A careful examination of the cases which have been reviewed shows that not yet has the Supreme Court of the United States found it necessary to pass squarely upon the jurisdictional power of the United States to tax non-resident aliens upon intangible personalty which cannot be construed to be actually or physically within the United States, or to be of the nature of a license or excise or franchise tax upon business carried on within, or special corporate rights granted by, the United States,29

The present federal income tax law requires the payment by non-resident aliens of a tax assessed upon incomes derived by them from all property owned or from any business or profession carried on in the United States. This tax, it is to be observed, is collected in many cases by the United States, not directly from the recipients of the income but from the corporations or concerns which earn it, and before it is paid over to those to whom it is due. It yet remains to be seen whether the Supreme Court will find itself able to hold that such income is property within the United States, even though the instruments evidencing the ownership of the property from which the income is derived are not physically within the United States, and the owners are non-resi

28 Justices Day and Brewer dissented.

"In R. R. v. Jackson, 7 Wallace 262, the court held that Congress had not intended, by its Income Tax Law of 1864, to tax incomes of non-resident aliens.

dent aliens and have no agents in the United States for the collection, or collection and reinvestment, of the incomes due them. If, however, one may judge by the general trend of the cases that have been reviewed, it is more than likely that the Supreme Court, when the question is presented to it, will uphold the federal law in this respect. If it should do so, it would of course be within the right of foreign Governments to hold that such income cannot properly be deemed to be property within the United States, and, therefore, to complain that the United States, taking advantage of the fact that it has within its actual control the property or businesses from which such income is derived, is improperly withholding property from the citizens of the complaining States, who are not residing and have no domicil in, and own no property located within, the United States. In other words, they might admit, as, of course, they would be compelled to admit, that the United States may tax business carried on or property located within its borders or the income derived therefrom, but that it cannot justly tax the income of non-resident aliens merely by reason of the fact that such income is derived from the earnings of such businesses or property: that the payments due to their own citizens remain the property of the concerns earning them until they are paid over to the persons to whom they are due, and that only when so paid to and received by these creditors do they become income, by which time, in the case of non-resident aliens, they will have passed beyond the jurisdiction of the United States.

Such an argument as this would of course be valid only as a matter of international right or as a rule sanctioned by generally accepted international law. It would have no force in municipal courts. For them, as has been so often reiterated, the only question would be as

to what the municipal law provided. If, in bald terms, the statute should declare that a tax should be levied personally upon non-resident aliens, who owned no property within the State, who derived no income from property located or business carried on within the State, or that a tax should be levied upon alien-owned property located outside of the State, the courts of the enacting State would be bound to recognize the validity of such a law. The courts, when called upon to issue a decree in enforcement of such taxes might not be able to find any property within its jurisdicton against which a judgment in rem could be entered and enforced, but, if the municipal law so provided, it might enter a judgment in personam in default against the defendant, which might be satisfied out of property within the jurisdiction of the court which, at some later time, the defendant might come into possession of. It scarcely need be said that if the attempt were made to institute proceedings in a foreign jurisdiction to collect this judgment out of property there located and owned by the defendant, the courts of that State would be justified in refusing to give force to the judgment decrees, which, as to itself, would be foreign ones.30

A possible constitutional difficulty peculiar to the United States with reference to income taxation and not related to the implications of its sovereignty, is that raised by the powers of Congress under the Federal Constitution to levy direct taxes. Should it take the position which has been indicated, the court would have to hold that the tax thus collected was an income tax even though the jurisdiction to levy it was founded upon the proposi

For an interesting discussion of movements that have been made to obtain an international agreement and harmony of practice with regard to the taxation of intangible personal property, especially with reference to incomes, see the article by G. G. Cobaugh, "International Comity in Taxation" in the Journal of Political Economy for April, 1923, vol. XXXI, p. 262.

tion that the interest of the non-resident aliens in the earnings of the property or business represented by the stock, bonds or mortgages held by them, constituted property within the jurisdiction of the United States. For if the tax were not still regarded as upon incomes it would be a direct tax not covered by the Seventeenth Amendment to the Federal Constitution, and would therefore have to be apportioned among the States of the Union according to their respective populations.31

Addendum. Since the preceding pages were in type the Supreme Court of the United States, in the case of Cook v. Tait,32 has decided that the United States might impose a tax on income received by an American citizen who, at the time the income was received, was permanently resident and domiciled in a foreign country; the income being derived from property located in that country. The scope and the power of a sovereign State to tax, it was declared, "is based on the presumption that government by its very nature benefits the citizen. and his property wherever found." This doctrine, it was asserted, was implicit in the holding of the court in United States v. Bennett,33 which, in effect, held that "the basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, it being in or out of the United States nor was not and cannot be made dependent upon the domicil of the citizen, that being in or out of the United States, but upon the relation of the latter to him as citizen."

Article I, section 9, paragraph 4, of the Federal Constitution provides: "No capitation, or other direct tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken." The Seventeenth Amendment provides: "The Congress shall have power to lay and collect taxes on incomes, from whatever sources derived, without apportionment among the several States, and without regard to any census or enumeration."