Laws, 1907 (c. 160 as amended by c. 253, Laws, 1907)

Laws, 1907 (c. 160 as amended by c. 253, Laws, 1907). The Connecticut law contains a provision which permits any person to take or send any note, bond, or other chose in action, or a description of it, to the state treasurer, and pay a state tax of 2 per cent on the face amount for five years, or for a longer or shorter time at the same rate. The treasurer makes an endorsement upon the contract or gives a receipt stating that the tax has been paid. The instrument is then exempt from all other taxes. The state treas- urer classifies all notes, bonds, choses in action upon which the state tax has been paid according to assess- ment districts, and sends these lists to the town c’erks.

History. Laws, 1897 (c. 381 as amended by c. 25, Laws, 1898). It was the duty of the assessor to list for state and county purposes, at three-fourths of their value, all investments paying interest or yielding an in- come. Mortgages were included under investments. All such property, whether situated within the state or elsewhere, whether owned or held in trust, was to be assessed, unless it was taxed in some other state or county. It was declared to be the intention of the act to tax the owner and not the borrower or debtor, and any person asking, demanding, contracting for, or receiving any money or consideration on account of the tax or in reduction of the tax, or any person who imposed or tried to impose the tax or any part of it upon a debtor, was to be deemed guilty of a mis- demeanor and subject to a heavy fine.

Where the creditor was a non-resident, the debtor was liable for the tax in the first instance, but must deduct the amount paid from the interest due or ac- cruing on the debt. If the creditor refused to allow this deduction, he was to forfeit all the accrued inter- est and the debtor was not to make any payment to a creditor living outside of the state until the tax had been paid.

Railroads and other companies paying a stipulated tax in lieu of all other taxes were not included under the provisions of the law.

The tax amounted to thirty cents on the one hun- dred dollars of the assessment as made and returned by the assessor, and, as a rule, one-fourth of the money collected from this source went to the state, and three- fourths to the county.

In the case of E. G. & T. Co. v. Donahoe (3 Pen- ij< class="msoIns">’s Del. Rep. 191, 1901) the court held this law unconstitutional. The original act was for the purpose of equalizing taxation for state and county purposes. The amendment considered municipal taxation a? well without proper designations in the title. The court held that so much of the amending act as related to taxation for municipal purposes was unconstitutional and void under the constitution because not embraced within the title of the act, and that since the uncon- stitutional part could not be separated from the resi- due without emasculating the statute, that, therefore, the act as amended was unconstitutional and void.

Constitution, 1876, art. 10, sec. 3. All taxes shall be uniform upon the same class of subjects

Constitution, 1876, art. 10, sec. 3. All taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws, which shall prescribe such regulations as shall secure a just valuation for taxation of all property, real and personal.

Present Law. Mills’ St., 1905, sec. 3806. In Colo- rado mortgaged property is taxed to the mortgagor and the mortgagee as such is exempt. Whenever any property within the state is mortgaged, the property .and the notes, mortgage, deed of trust, trust deed, contract or other conveyance is to be assessed as a unit; the value of this unit for assessment purposes is to be equal to the value of the property only. Such contracts are not to be otherwise returned or assessed.

sec. 3924o. If the mortgagor fails or neglects to pay the tax, the mortgagee may pay it and include the amount with interest in any judgment rendered on the mortgage.

Connecticut

History. In the session laws of Connecticut for 1836-37 (c. ‘12, sec. 2) a statement may be found to the effect that mortgages were to be taxed to the owner as personal property. By 1852 it would seem that the custom had grown up of taxing mortgages as an interest in the property. At least the law stated .that whenever in the ‘making of ariy tax list, any real estate was omitted or abated because of any indebted- ness, secured by a mortgage, the indebtedness was to be taxed in the town or district in which the real es- tate was situated. (Laws, 1852, c. 67, sec. 1.) If the creditor was a resident of the town or district in which the mortgaged property was situated, the amount deducted from the value of the property because of the mortgage debt was simply added to his list, but if he was a non-resident, a statement of his credits was made out and notice sent. He might then appear be- fore the assessors or board of relief and show cause why such indebtedness should not be taxed to him. (Laws, 1852, c. 67, sec. 2.) A law somewhat simi- lar was passed in 1865 (c. 93, sec. 1), and in 1867 it was provided that no greater amount of indebtedness was to be deducted from the list of any person than the assessed value of the property for which the in- debtedness was contracted. (Laws, 1867, c. 25.) The present law, the main .provisions of which were passed in 1875 (c. 27), carried out the ideas intro- duced much earlier _ and provided for the taxation of mortgages as an interest in the real estate to an amount equal to the assessed value of the mortgaged land.

Constitution, 1818, art. 1, sec. 11. The property of no person shall be taken for public use without just compensation therefor.

Present Law. Gen. St., 1902, sec. 2319. Money lent at interest and secured by a mortgage which con- tains an agreement that the borrower is to pay the taxes, is to be exempt from taxation to an amount equal to the assessed value of the mortgaged land. The excess of any such loan over the value of the real estate is assessed and taxed in the town where the lender resides.

sec. 2323. Money secured by mortgage upon real estate, where there is no agreement that the borrower shall pay the taxes, is assessed to the owner, but is assessed in the town where the real estate is situated and not at the residence of the mortgagee.

sec. 2326. The rule that tax payers need not list property located outside of the state if they can prove that such property has already been assessed, does not apply to money loaned at interest to non-residents. Such property must be listed.

Constitution, art. 13, sec. 4. A mortgage, deed of trust, contract

Constitution, art. 13, sec. 4. A mortgage, deed of trust, contract, or other obligation by which a debt is secured, shall, for the purposes of assessment and tax- ation, be deemed and treated as an interest in the property affected thereby. Except as to railroad and other quasi-public corporations, in case of debt so se- cured, the value of the property affected by such mort- gage, deed of trust, contract, or obligation, less the value of such security, shall be assessed and taxed to the owner of the property, and the value of such se- curity shall be assessed and taxed to the owner there- of, in the county, city, or district in which ,the prop- erty affected thereby is situate. The taxes so levied shall be a lien upon the property and security, and may be paid by either party to such security; if paid by the owner of the security, the tax so levied upon the property affected thereby shall become a part of the debt so secured ; if the owner of the property shall pay the tax so levied on such security, it shall consti- tute a payment thereon, and to the extent of such pay- ment, a full discharge thereof; provided, that if any such security or indebtedness shall be paid by any such debtor or debtors, after assessment and before the tax levy, the amount of such levy may likewise be retained by such debtor or debtors, and shall be com- puted according to the tax levy for the preceding year. Present Law. Sec. 4, art. 13, of the constitution still remains in force, but sec. 5 has been repealed.

Statutes, 1907, c. 368, sec. 1. With minor changes- in the punctuation and wording, sec. 4 of the consti- tution is reproduced in the statutes, but that part of the statutes that formerly corresponded to sec. 5 of art. 13 of the constitution has been materially changed since the repeal of that section in 1906. Now the par- ties to any mortgage are given the right to provide by contract that the debtor shall pay all or any taxes or assessments on the money loaned, or on the mortgage, deed of trust, or other lien, or on the property covered or the obligation secured. Such contracts are to be valid and constitute a waiver by the debtor of all rights to treat the payment of such tax or assessment as a payment on the amount loaned or secured.

sec. 7. To assist in the work of assessment, the re- corder is required to transmit annually to the assessor a complete abstract of all mortgages remaining un- satisfied on the records of his office; this abstract to embrace all information requisite for the assessor. If partial payment has been made, the owner is author- ized to make the proper deductions. This information would be of use to the assessor only in cases where no agreement had been entered into between the debtor and creditor as to the payment of the taxes.

The constitution of 1849 (art. 11, sec. 13) stated that taxes

History. The constitution of 1849 (art. 11, sec. 13) stated that taxes shou d be uniform and equal throughout the state and that all property should be taxed in proportion to its value. The statutes enac- ted about the same time (1849-50, c. 52, sec. 2, 4) provided that mortgages were to be taxed as personal property. In 1851 (c. 6, sec. 21) a special clause was incorporated, and money loaned at interest was made subject to a tax of one dollar for each one hundred dollars of value. This system was used for one year only, when change was made and mortgages were made taxable as an interest in the real estate (St. 1852, c. 3, sec. 13) the mortgagee to pay taxes on the money secured by the mortgage, and the mortgagor on the value of the property less the value of the mort- gage. The next year (1853) the mortgagor was re- quired (c. 167, art. 10, sec. 9) to pay taxes on the value of the property without deduction, and the mort- gagee on the amount of money lent (c. 167, art. 1, sec. 1). In addition to this persons engaged in the business of lending money were subject to a license tax of ten cents for every one hundred dollars of busi- ness estimated to have been done (c. 167, art. 3, sec. 1).

This system continued until 1870 when an effort was made to re ieve the owners of encumbered real estate from double taxation (St. 1869-70, c. 424, 485). The law read as follows : “No mortgage or lien given and held upon real estate, or the debt thereby secured, or promissory note secured by mortgage, shal be as- sessed upon the books of any assessor, state, county, or otherwise.” At first the courts held that mort- gages were property, and as such could not be exempt from taxation under the constitution (People v. Eddy, 43 Cal. 331, 1872; Lick v. Austin, 43 Cal. 590, 1872). Later the court practica’ly reversed these decisions and stated that mortgages should not be taxed because such action would violate the constitutional requirement providing that all taxation should be uniform and equal and that property should be taxed in proportion to its value. The court held that a tax on the mort- gage and on the property given as security was a case of double taxation, and, as such, forbidden by the con- stitution. (People v. Hibernia Bank, 51 Cal. 243, 1876). See Savings and Loan Society v. Austin, 46 Cal. 415, 1873).

The present constitution in California was adopted in 1879 and did contain two sections relating to the taxation of mortgages. Under sec. 4, art. 13, mort- gages were to be taxed as an interest in the real es- tate, and each party to the contract was to pay taxes on his respective interest ; sec. 5 stated that all con- tracts by which a debtor was obligated to pay any tax or assessment on money loaned, or on any mortgage, deed of trust or other lien, were to be null and void. Court decisions practical’y annulled that part of the law forbidding contracts, for in the case of London and San Francisco Bank v. Bandman (120 Cal. 220, 1898) the court held that an allegation and finding which did not state that the agreement of the mort- gagor to pay the taxes was part of the mortgage con- tract, was not broad enough to establish an agreement violative of the constitution.

Sec. 5 was actually repealed in November, 1906 (See Const. St., 1907) and the question of repealing sec. 4 is to be voted on by the people in November, 1908 (St. 1907, p. 1159).

Revised Statutes, 1901. In Arizona (sec. 3847) property under mortgage

Revised Statutes, 1901. In Arizona (sec. 3847) property under mortgage or lease is listed by and taxed to the mortgagor or lessor, unless it is listed by the mortgagee or lessee. With certain enumerated exceptions (sec. 3834) all property is subject to taxa- tion, but double taxation is not permitted. Liabilities may be deducted from solvent debts (sec. 3835). Constitution, 1874, art. 16, sec. 5. All property sub- ject to taxation shall be taxed according to its value, that value to be ascertained in such manner as the gen- eral assembly shall direct, making the same equal and uniform throughout the state.

Present Law. Dig. of St., 1904. In Arkansas mortgages are taxed as personal property. The law requires (sec. 6873) that all property, including mon- eys and credits, shall be taxed, and credits are defined (sec. 6872) as the excess of the sum of all legal claims and demands over and above the sum of legal bona fide debts which the person owes. Every person (sec. 6899) is required to list all moneys loaned by him, but is not required (sec. 6902) to list a greater portion of any credits than he believes can be collected.

Court Decisions. A note given for land, and the land itself, are both subject to taxation; the note as property of the holder, and the land as property of the purchaser. Ouachita County v. Rumph, 43 Ark. 525, 1884.

In Pennsylvania mortgages are uniformly subject to a tax of four mills on the dollar

In Pennsylvania mortgages are uniformly subject to a tax of four mills on the dollar; the proceeds from this source are divided between the state and the counties.

Mortgagees in certain enumerated counties of Mary- land are required to pay a tax of eight per cent upon the gross amount of interest covenanted to be paid on mortgages held by them.

Idaho and Washington exempt mortgages from tax- ation by law.

In Alabama, Minnesota, New York and Virginia mortgages are subject to a recording or privilege tax paid at the time of recording depending on the amount

of the tax of the mortgage debt All other states tax mortgages as personal property. History. In Alabama prior to 1903 mortgages were subject to taxation as personal property (Code, 1896, vol. 1, sec. 3911, sub sec. 7). In 1903 (Acts, 1903, p. 227) a privilege tax of fifteen cents on every one hundred dollars was imposed at the time of record- ing. The present law was passed in 1907, and is but a slight modification of the law of 1903.

Constitution, 1901, art. 11, sec 1. All taxes levied on property in this state shall be assessed in exact pro- portion to the value of such property.

Present Lau>, Acts, 1907, p. 455, sec. 1. No mort- gage, deed of trust, contract of conditional sale, or other instrument in the nature of a mortgage executed so as to convey real property or any interest in real or personal property situated within the state is to be received for record unless a privilege tax has been paid. This tax amounts to fifteen cents, if the in- debtedness secured is one hundred dollars or less ; and an additional fifteen cents is added for every addi- tional one hundred dollars or fraction thereof. The law states definitely that the tax is to be paid by the lender. When the mortgage is presented to the judge of probate of the county in which any of the property conveyed is situated and the tax is paid, the probate judge makes a certification to that effect on the instru- ment, and then the mortgage may be recorded in any county where property given as security is situated without any additional tax, except the fee for record- ing. An extension or renewal contract is subject to the same tax as the original mortgage. If the tax prescribed by this act has been paid, neither the mort- gage nor the debt secured is to be subject to an ad valorem tax, either for state, county, or municipal purposes. The probate judge receives 5 per cent of the amount collected by him as compensation for his services. Of the remainder, one-third is paid to the county treasurer of the county in which the taxes are collected, and two-thirds to the state treasurer. If the land which is given to secure the debt is situated in more than one county of the state, then, this one- third is divided among the county treasurers in pro- portion to the value of the property given as security in each county. In cases where only part of the prop- erty is within the state, the proportional part within and without is determined by the state board of com- promise, and the taxes paid accordingly.

It is made a misdemeanor, punishable by a fine, for the probate judge to file for record any mortgage upon which the taxes have not been paid.

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.