Only exceptions to the laws taxing mortgages as personal property

Only exceptions to the laws taxing mortgages as personal property will be noted here. When objec- tions were raised to the system of double taxation the natural solution of the problem was to tax mortgages as an interest in the real estate. When this is done the vital question is whether or not the parties to the mortgage are permitted to enter into a contract con- cerning the payment of the taxes. If this privilege is not granted and the law is enforced then each party to the mortgage must pay taxes on his respective in- terest the mortgagee on the value of the mortgage at the situs of the property and the mortgagor on the value of the real estate minus the indebtedness. If contracts are permitted then the mortgagor usually agrees to pay all taxes on the encumbered property and the mortgagee is exempt, the theory being that the mortgagor will get the loan at a reduced rate of interest by agreeing to relieve the mortgagee from all obligations with regard to taxes.

Both systems have been tried. California is the best example of a state where contracts were not per- mitted. This system prevailed there from the time of the adoption of the second constitution in 1879 un- til the court held that separate contracts were permis- sible (120 Cal. 220, 1898). The objectional part of the constitutional provision was repealed in 1906 and a new law passed in 1907 permitting contracts. Mis- souri had a similar law (1900) but the supreme court of the state declared it unconstitutional on the ground that since the mortgages of certain corporations were not to be treated as an interest in the real estate, such corporations were thus deprived of the equal protec- tion of the law provided for under the fourteenth- amendment.

At the present time mortgages in California, Conn- ecticut, Massachusetts, New Jersey and Wisconsin are taxable as an interest in the real estate and the parties to the mortgage are permitted to enter into a contract concerning the payment of the taxes. Michigan and Oregon had similar laws but they were both silent with regard to contracts. The Michigan court in La- tham v. Board of Assessors (91 Mich. 509, 1892) held tfiat such agreements were permissible. In both states the laws have since been repealed (1893).

If the actual enforcement and working out of the laws are considered, Colorado belongs in the same class as Massachusetts and Wisconsin. The law pro- vides that the mortgage and the property given as se- curity are to be assessed as a unit and that the mort- gages are not to be returned or assessed. In Indiana a somewhat different system prevails. The mortgagor may have the amount of the mortgage indebtedness not exceeding seven hundred dollars de- ducted from the assessed value of the mortgaged prem- ises. In no case can this deduction be greater than one half of the assessed value of the real estate. If this deduction is claimed and allowed the mortgage debt or that portion of it which is taxable is assessed as personal property to the mortgagee at his place of residence.