We had occasion to pass upon the validity of the sections of the General Statutes under which the tax in question was laid in Bankers Trust Co.
v. Blodgett, 96 Conn. 361, 114 A. 104. We said: "The pecuniary liability imposed . . . is a penalty in the nature of a tax for an omission to list property for taxation. . . . The obvious legislative purpose is to
compel estates to pay to the State a sum which shall approximately equal the taxes which property of the estate has escaped paying while in the hands of the decedent. . . . Under this section, property which has not been subject to a town or city or State tax during the year preceding the death of the decedent, is liable to a tax of two per centum of its appraised inventory value for the five years next preceding the date of the death of decedent, provided that a proportionate reduction of this tax may be had by proof that any part of the tax has been paid, or that the decedent did not own any of this property during this period." The State cannot assess this penalty tax with respect to property of a decedent which was not taxable locally during his lifetime, or was not within the power of the State or its subdivisions to tax. The "penalty tax" can only be imposed upon the taxable property of an estate upon which no town or city tax has been assessed, so that the underlying question for decision is, whether Connecticut or any of its subdivisions, had the power to tax these bonds and mortgages prior to the decedent's death.
General Statutes, § 1184, provides: "All notes, bonds and stocks, not issued by the United States, moneys, credits, choses in action, . . . belonging to any resident
in this State, shall be set in his list in the town where he resides at their then actual valuation." The statute has been in existence substantially in this form for nearly a century. In its earlier form it specifically provided that debts secured by mortgage must be set in the list of the owner. The present form of the statute includes in its general terms debts secured by mortgage. The statute was intended to cover all classes of intangible property, and that construction has been reflected in the practice in this jurisdiction and in the decisions of this court. We are asked to determine whether our statute providing for the taxation in Connecticut of bonds and mortgages secured by real estate in New York which are executed by a resident in New York and are owned by one domiciled in Connecticut is a valid exercise of the taxing powers. A like question arose in Kirtland v. Hotchkiss, 42 Conn. 426; the bonds and mortgages were executed in Illinois on land there and owned by a resident here. In this case the bonds and mortgages were in New York, in that case in Illinois. We held that the owner of these securities had a right to receive the sum of money named, with interest or damages for its detention, and that the debtor was under an obligation to pay this demand. We disposed of the question of the situs of this debt in these words (p. 438): "It seems to us therefore that the appropriate place to tax money at interest, is where the creditor resides, and that for that purpose it may with propriety be said to be located with the creditor." The case was affirmed in 100 U.S. 491, upon the theory announced by this court. Mr. Justice Harlan, saying (p. 498): "The bond, wherever actually held or deposited, is only evidence of the debt, and if destroyed, the debt — the right to demand payment of the money loaned, with the stipulated interest — remains. Nor is the debt, for the purposes of taxation,
affected by the fact that it is secured by mortgage upon real estate situated in Illinois."
We subsequently held, in Bridgeport Projectile Co.
v. Bridgeport, 92 Conn. 316, 102 A. 644, that a general deposit in a commercial bank in New York by a Connecticut corporation engaged in business here was taxable here upon the right of the corporation to draw on the deposit at its discretion. We said: "The undoubted rule is that, for the purposes of taxation, a debt is property at the residence or domicil of the creditor." See also Fidelity Columbia Trust Co. v. Louisville,245 U.S. 54, 58, 38 Sup. Ct. 40; Silberman v. Blodgett,105 Conn. 192, 134 A. 778. The case of Kirtland v.Hotchkiss, 100 U.S. 491, has been cited with approval many times by the United States Supreme Court and never been directly disapproved of in any particular, so far as we have ascertained. It is the settled law of this jurisdiction that intangibles have a taxable situs
at the domicil of the owner. In State Tax on Foreign-heldBonds, 82 U.S. (15 Wall.) 300, at page 320, Mr. Justice Field said: "Debts owing by corporations, like debts owing by individuals, are not property 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." In Buck v. Beach,206 U.S. 392, 401, 27 Sup. Ct. 712, the court, by Mr. Justice Peckham, reiterates this rule: "Generally speaking, intangible property in the nature of a debt may be regarded, for the purposes of taxation, as situated at the domicil of the creditor and within the jurisdiction of the State where he has such domicil. It is property within that State. . . . Kirtland v.Hotchkiss, 100 U.S. 491, 498." The appellants seek to avoid the effect of that rule by having us adopt the rule that "a bond and mortgage are either tangible property, or sufficiently of that nature, so as to be subject
to the rule for the taxation of tangible personal property, that is, where physically located. They rely in support of this claimed rule upon our holding inSilberman v. Blodgett, 105 Conn. 192, 134 A. 778, in accordance with the holding in State Tax on Foreign-heldBonds, 82 U.S. (15 Wall.) 300, where, at pages 323 and 324, the court says: "It is undoubtedly true that the actual situs of personal property which has a visible and tangible existence, and not the domicile of its owner, will, in many cases, determine the State in which it may be taxed. The same thing is true of public securities consisting of State bonds and bonds of municipal bodies, and circulating notes of banking institutions; the former, by general usage, have acquired the character of, and are treated as, property in the place where they are found, though removed from the domicile of the owner; the latter are treated and pass as money wherever they are." The same reasoning, the appellants urge, applies to real-estate mortgages as to public securities.
The appellants assert that our holding in Silberman
v. Blodgett, supra, goes further than the United States Supreme Court has gone. We find many instances in which that court has accepted the principle quoted from the opinion in State Tax on Foreign-held Bonds,supra, and in no instance has it ever disapproved of it. We cite some of these. In New Orleans v. Stempel,175 U.S. 309, 322, 20 Sup. Ct. 110, Mr. Justice Brewer, twenty-five years later, wrote: "It is well settled that bank bills and municipal bonds are in such a concrete tangible form that they are subject to taxation where found, irrespective of the domicil of the owner." InBuck v. Beach, 206 U.S. 392, 407, 27 Sup. Ct. 712, Mr. Justice Peckham states: "Although public securities, consisting of State bonds and bonds of municipal bodies, and circulating notes of banking institutions
have sometimes been treated as property in the place where found, though removed from the domicil of the owner, State Tax on Foreign-held Bonds, 15 Wall. [82 U.S.] 300, 324, it has not been held in this court that simple contract debts, though evidenced by promissory notes, can under the facts herein stated be treated as property and taxed in the State where the notes may be found." In his dissenting opinion Mr. Justice Day quotes with approval that which we have just quoted from New Orleans v. Stempel. In Wheeler v. NewYork, 233 U.S. 434, 439, 34 Sup. Ct. 670, Mr. Justice Holmes says: "As to authority, it has been asserted or implied again and again that the States had the power to deal with negotiable paper on the footing of situs;" and then he quotes the part we have already quoted from New Orleans v. Stempel. In the dissenting opinion Mr. Justice McKenna quotes a part of what was said in Buck v. Beach as to the physical presence of notes not constituting property; "and," he continues (p. 445), "it was pointed out that the prior cases, which were specifically reviewed, gave no support to the rejected doctrine. It was not overlooked that certain specialty debts, State and municipal bonds and circulating notes of banking institutions, have sometimes been treated as property where they were found though removed from the domicile of the owner." The reasons which impelled the holding of public securities to be of the nature of tangible personal property are not present in the case of mortgages or private negotiable securities. These have no public recognition as a species of tangible personal property, and in the case of mortgages they do not pass from hand to hand on delivery. In addition, the authority of the Supreme Court of the United States is against the extension of this doctrine to specialties of a private character. The statement of Mr. Justice
Brewer in New Orleans v. Stempel, supra, at page 322 — that "it is well settled that bank bills and municipal bonds are in such a concrete tangible form that they are subject to taxation where found, irrespective of the domicile of the owner; . . . Notes and mortgages are of the same nature; and while they may not have become so generally recognized as tangible personal property, yet they have such a concrete form that we see no reason why a State may not declare that if found within its limits they shall be subject to taxation" — if not obiter as to notes and mortgages, is certainly not the law of that court; it has been distinctly disapproved of, and never subsequently sanctioned by it.
We rest upon the oft-cited passage from the notable opinion of Mr. Justice Field in State Tax on Foreign-heldBonds, supra, pp. 320, 324: "To call debts property of the debtors is simply to misuse terms. . . . Their debts can have no locality separate from the parties to whom they are due. . . . But other personal property, consisting of bonds, mortgages, and debts generally, has no situs independent of the domicile of the owner, and certainly can have none where the instruments, as in the present case, constituting the evidences of debt, are not separated from the possession of the owners." Counsel for the appellants treat this case as a practically overruled case. They find in one opinion a statement that this case has been cut down to its true basis by subsequent opinions. We think the opinion in its main theme is as sound authority as when written and that it has always been regarded by the courts as a leading case. The constant citation of this case by its own court, as well as this language from Mr. Justice Peckham's opinion in Buck v. Beach,206 U.S. 392, 408, 27 Sup. Ct. 712, confirms our opinion of its present authority: "Although the language of the opinion in the case of State Tax on Foreign-held Bonds, supra, has been somewhat restricted so far as regards the character of the interest of the mortgagee in the land mortgaged, Savings Loan Society v.Multnomah County, 169 U.S. 421, 428,18 Sup. Ct. 392, the principle upon which the case itself was decided has not been otherwise shaken by the later cases."
In Fidelity Columbia Trust Co. v. Louisville,245 U.S. 54, 58, 59, 38 Sup. Ct. 40, we find the court, speaking by Mr. Justice Holmes, says: "It is argued that in a later case this court has held the power of taxation not to extend to chattels permanently situated outside the jurisdiction although the owner was within it; Union Refrigerator Transit Co. v. Kentucky,199 U.S. 194, 26 Sup. Ct. 36; and that the power ought equally to be denied as to debts depending for their validity and enforcement upon a jurisdiction other than that levying the tax. But this court has not attempted to press the principle so far and there is opposed to it the long-established practice of considering the debts due to a man in determining his wealth at his domicile for the purposes of this sort of tax." It was broadly stated in the course of the opinion inNew Orleans v. Stempel, supra, that "negotiable paper had such tangibility as to be of itself a taxable entity." Mr. Justice McKenna, in his concurring opinion inWheeler v. New York, 233 U.S. 434, 442,34 Sup. Ct. 670, pointed out that the facts of the case did not call for it; and, we may add, the matter decided did not call for it. Mr. Justice Holmes had indicated in one or more earlier opinions that he regarded a debt as having a situs in the jurisdiction of the debtor for purposes of taxation, and that whichever jurisdiction has the paper has the debt, that is, possesses the property. In Wheeler v. New York he definitely incorporated this proposition in the opinion of the court and gave his interpretation of Buck v. Beach. His opinion
was concurred in by three justices. Mr. Justice McKenna concurred in the result, but dissented from the proposition, "that the States have power to deal `with negotiable paper on the footing of situs,' that is, to regard such paper so far concrete and tangible as to be of itself a subject of taxation, irrespective of the domicile of its owner or, I add, the locality of the debt which it represents." He analyzed at length the opinions upon which the opinion of the court relied. In his opinion one of the justices concurred, while three dissented from the majority opinion, but took occasion to express in their dissent the fact that they concurred in Mr. Justice McKenna's analysis of Buck v. Beach and the other cases. We take it that this is a concurrence in this quotation from Buck v. Beach, supra, p. 406: "We cannot assent to the doctrine that the mere presence of evidences of debt, such as these notes, under the circumstances already stated, amounts to the presence of property within the State." The majority of the court were thus not in accord with Mr. Justice Holmes upon the principal ground of his opinion.
But whether or not the mere presence of specialties or negotiable private paper in a jurisdiction other than that of its owner gives that jurisdiction the right to tax it, this will not prevent the jurisdiction of the owner also taxing it, as the authorities we shall cite show, or unless it is otherwise provided by statute. Since the State Tax on Foreign-held Bonds decision, which held that intangibles have no situs independent of the domicil of the owner, a number of decisions have established the "business situs" theory, which gives the intangible a situs in a jurisdiction other than that of its owner when it is a part of a business which the owner is there conducting, or the intangible is being so used as to give it a business situs there. Cooley on Taxation, Vol. 2 (4th Ed.) § 465, says:
"What will constitute a business situs is not susceptible of precise definition." It means "a situs in another State where a nonresident is doing business through an agent, manager or the like, in which business and as a part thereof business credits, such as open accounts, notes, mortgages, deposits in banks, etc., are used and come within the protection of the State; . . . but the most common application of the rule is where a resident of one State has an agent in another State who loans money of the nonresident, more or less as a regular business, and takes care of the collections and reinvestments, in which case the notes, mortgages, etc., taken by the agent are held to be subject to taxation although the owner is a nonresident." The taxation of intangibles in a jurisdiction not that of the owner has frequently been sustained upon the "businesssitus" theory. Bristol v. Washington County, 177 U.S. 133,20 Sup. Ct. 585; State Board of Assessors v.Comptoir National D'Escompte, 191 U.S. 388,24 Sup. Ct. 109; Metropolitan Life Ins. Co. v. New Orleans,205 U.S. 395, 27 Sup. Ct. 499; Liverpool, London Globe Ins. Co. v. Orleans Assessors, 221 U.S. 346, 354,31 Sup Ct. 550; Bass, Ratcliff Gretton, Ltd. v. StateTax Commission, 266 U.S. 271, 45 Sup. Ct. 82; Fidelity Columbia Trust Co. v. Louisville, 245 U.S. 54,58, 38 Sup. Ct. 40. The analysis of the first three of these cases by Mr. Justice McKenna, which was approved by the majority of the court, will be found inWheeler v. New York, 233 U.S. 442, 443,34 Sup. Ct. 607.
The mere presence of the specialty or negotiable paper in the jurisdiction other than that of the owner will not be a factor in determining the right of that jurisdiction to tax the intangible. Nor will the fact that it was in the hands of an agent as custodian, or for the purpose of collecting the interest thereon, give
it a business situs there. But if it be in the hands of "an agent of the owner for the purpose of collection or renewal, with a view to new loans and carrying on such transactions as a permanent business," it will have a business situs while in the hands of the agent for these purposes. State Board of Assessors v. ComptoirNational D'Escompte, 191 U.S. 388, 404,24 Sup. Ct. 109; Bridgeport Projectile Co. v. Bridgeport,92 Conn. 316, 102 A. 644; National Leather Co. v. Commonwealth,256 Mass. 419, 152 N.E. 916. Cooley on Taxation, Vol. 2 (4th Ed.) § 458, says: "A credit does not lose its situs for taxation in the State where the creditor is domiciled merely because it is secured by a mortgage upon real property in another State. Mortgages and mortgage debts are taxable at the domicile of the mortgagee, and are not subject to taxation in another State where the mortgagor is domiciled nor where the mortgaged land is situated — barring the exception in case the mortgage has obtained a `business situs' — except that a State may subject a nonresident's interest in a mortgage to taxation as an interest . . . taxable in the State where the mortgaged land is located." Except in the method indicated, intangibles are only taxable at the domicil of the owner.
The stipulated facts show that the bonds and mortgages of Mr. Luke were in the hands of attorneys in New York, who merely collected the interest and instalments on the principal and remitted the same to him. This did not give them a business situs in New York for taxation. If the attorneys had had authority to invest and reinvest the principal in addition to the authority they in fact had, the bonds and mortgages would have had a "business situs" in New York; they would have constituted a part of a business. Intangibles which have a business situs in a jurisdiction other than that of the owner and so may be subject to tax
there, remain subject to taxation in the jurisdiction where the owner is domiciled. Fidelity ColumbiaTrust Co. v. Louisville, 245 U.S. 54, 38 Sup. Ct. 40.
The second point advanced by the appellants — that even if these bonds and mortgages are held to be intangible personal property, their taxation by Connecticut is a taking of property without due process of law — is disposed of in the recent case of Cream ofWheat Co. v. Grand Forks, 253 U.S. 325, 329,40 Sup. Ct. 558, in the court's declaration, "Nor has it [the Fourteenth Amendment] any application to intangible property, Union Refrigerator Transit Co. v. Kentucky,199 U.S. 194, 205, 26 Sup. Ct. 36; Hawley v. Malden,232 U.S. 1, 11, 34 Sup. Ct. 201; [Citizens NationalBank v. Durr, 257 U.S. 99, 109, 42 Sup. Ct. 15], even though the property is also taxable in another State by virtue of having acquired a `business situs' there.Fidelity and Columbia Trust Co. v. Louisville," supra.
The third point discussed by the appellants — that Connecticut had no power to impose an ad valorem tax on these bonds and mortgages during the lifetime of this decedent, since the tax commissioner was without power to impose this penalty tax unless the property it sought to tax was taxable by the State of Connecticut or by the town of Greenwich, in which the decedent resided during his lifetime — has necessarily been determined in our consideration of point one. The bonds and mortgages were intangible property and their situs the domicil of the owner. The appellants' argument rests upon the proposition that these bonds and mortgages are tangible personal property and taxable where physically situated. To reach this conclusion, Kirtland v. Hotchkiss, supra, must be overruled, specialties as such held to be tangible personal property, and the doctrine of Union RefrigeratorTransit Co. v. Kentucky, supra, and Frick v. Pennsylvania, 268 U.S. 473, 45 Sup. Ct. 603, applied to this kind of property, thus making the place where these bonds and mortgages happened to be the sole situs
for their taxation. We agree with Mr. Justice Holmes' view, that the Supreme Court of the United States "has not attempted to press the principle so far."
The limitation of the taxation of specialties or instruments evidencing the existence of the indebtedness to the place where they are physically located, without reference to whether they are used there in the conduct of a business, "is unsound both in law and economics."
The last point urged by the appellants is that a statute of Connecticut has exempted these bonds and mortgages from ad valorem taxation. General Statutes, § 1184, under whose authority the State imposed this tax, the appellants claim is limited in the imposition of the tax by § 1196 as amended by Chapter 149 of the Public Acts of 1923, which reads: "The list of any person need not include any money in any savings bank or in the savings department of any bank or trust company or any other property situated in another State, when it shall be made satisfactorily to appear to the assessors that the same is fully assessed and taxed in such State, to the same extent as other like property owned by any citizen of such State; but the provisions of this act shall not apply to moneys loaned by residents of this State to any person out of this State, as money at interest." There is nothing in this record which has made it, or ought to have made it, satisfactorily to appear to the assessors of Greenwich that these bonds and mortgages were fully assessed and taxed in New York, assuming these securities to be situated in that State. The section expressly exempts from its provisions "moneys loaned by residents of this State to any person out of this State, as money
at interest," which covers the case of these bonds and mortgages. Finally, the limitation of the statute only applies to "any other property situated in another State" such as it has before described, money on deposit. The bonds and mortgages do not fall within that class of property, and furthermore have no situs
in New York. The bonds and mortgages were not exempt from taxation under § 1196.
We answer question one, no; and questions two and three, yes.
In this opinion the other judges concurred.