And as illustrative of the attitude of the larger corporations and business houses, it may be noted that before the year 1866 the Guarantee Society alone had been adopted by the Bank of England, The East India Company, the Corporation of the City of London, the Bank of Ireland, the North Western Railway, the Eastern Counties Railway, and many others.86 An act of Parliament of the year 1867 providing that the heads of departments in the public service were authorized to accept the security only of companies which satisfied certain financial requirements, also testifies to the magnitude of the business.87 The corporate surety was now an object of government regulation and control.

By the year 1875 the corporate surety had thus become an established institution. The fidelity business, as already noted, was extensive and was being written on sound underwriting principles. In this field the "floating policy," sponsored by the London Guarantee and Accident Co., had made its appearance. The companies had also ventured into the field of the contract bond. Walford says also that bonds were being given "for malt tax and * * * the securing of judgment debts."88 But the business still was new; only in a measure had private suretyship "ceased to be one of the duties of life." It remained for the New World to develop that which the Old World had introduced.

(To be continued)

Prospectus of The Fidelity Insurance Co. of New York, published in 1866. A copy of this is to be found in the New York Public Library, New York City. 5 BANKERS' MAGAZINE, 89.

8730 and 31 Vict. c. 108.

33 Supra note 63, p. 290.

"JAMES KNIGHT, PRIVATE AND PUBLIC GUArantee for PERSONS APPOINTED TO OFFICES OF TRUST CONSIDERED (1847).

State Inheritance Tax on Foreign-Held Bonds or Notes Secured by a Mortgage on Land in the State

MELBER B. CHAMBERS*

I.

For many years inheritance tax laws have loomed increasingly large in the lawyer's practice. Numberless cases have arisen involving their construction and constitutionality. Here as in other parts of the law of taxation the courts have been trying to chart their way through a myriad of intricate problems. Taking one step at a time, aided by a few tried principles, they have attempted to describe the jurisdiction of a state to tax.

One of these problems of jurisdiction which has not yet been before the Supreme Court is whether a state can tax the inheritance of foreign-held bonds or notes which are secured by a mortgage on land in the state. Has a state power to levy such a tax or would it run afoul of the Fourteenth Amendment?

This question is presented under the inheritance tax statute of practically every state.1 It cannot be avoided by construction, by a decision that the legislature did not intend to include the transfer of such bonds or notes within the tax, for the legislatures have invariably made clear their intention to tax all the transfers within their power.

It was early decided that a state could tax any property within the state. And it has since been determined that the same test will

*Of the New York Bar.

The following is a typical provision for a tax upon the property of a nonresident decedent: "A tax shall be and is hereby imposed upon the transfer of any property, real or personal or mixed, or of any interest therein or income therefrom ** in the following cases: ** (b) When the transfer is by will or intestate laws of property within the state and the decedent was a non-resident of the state at the time of his death." Statutes of South Carolina, 1922, Vol. 32, p. 800.

2Some statutes state that the tax shall affect all property over which the state has jurisdiction for purposes of taxation, e. g., No. 188 Michigan Public Acts of 1899, § 21; New York Laws of 1892, Ch. 399, § § 1, 22; Minn. Laws 1905, p. 427, c. 288, § I, as amended Laws of 1911, p. 516, c. 372, § 1. The typical statute as set forth in note 1, supra, accomplishes the same result by describing the taxable property as "all property within the state". Such a statute "is as broad as the jurisdiction of the Commonwealth". Kinney v. Treasurer & Receiver General, 207 Mass. 368, 369, 93 N. E. 586, 587 (1910).

McCulloch v. Maryland, 4 Wheat. (U. S.) 316, 429 (1819); State Tax on Foreign Held Bonds, 15 Wall. (U. S.) 300 (1872); Kintzing v. Hutchinson, Fed. Cas. No. 7834, 14 Fed. Cas. 645 (1877).

tell whether a state has the power to tax the inheritance of property as will tell whether it has the power to tax the property itself. The principle that the subject to be taxed must be within the jurisdiction of the state applies as well in the case of a transfer tax as in that of a property tax. A state has no power to tax the devolution of the property of a non-resident unless it has jurisdiction over the property devolved or transferred." It may also be said that the true basis of the inheritance tax is the service rendered by the state in supplying its law to govern the transfer, and that as to non-residents it renders that service only for transfers of property that is within the state. But whether or not that reasoning is accepted, the essential requisite of jurisdiction for either the direct property tax or the inheritance tax upon property of a non-resident is the presence of the property within the state." This principle has become firmly fixed among the principles of the common law of Conflict of Laws and of our Constitutional Law."

The general question to arise under these statutes, therefore, was whether or not this or that property belonging to a non-resident decedent was "within the state". Did it have a situs there? About immovables there of course was never any question." Their situs was fixed. About movables there was at first some doubt. There was the long revered doctrine of mobilia personam sequuntur. Or, as stated in many of the early decisions, "personal property having no situs of its own attends the person and domicil of its owner". But the fiction was soon made to yield to the facts. When the judge could look out of the court house window and see the horse and the wagon, the furniture and the working tools-all a part of the estate of the non-resident decedent-he found some difficulty in convincing

'Frick v. Pennsylvania, 268 U. S. 473, 492, 45 Sup. Ct., 603 (1925); Rhode Island Hospital Trust Co. v. Doughton, 270 U. S. 69, 80 (1926); Matter of Estate of Swift, 137 N. Y. 77, 85-86, 32 N. E. 1096, 1098 (1896).

"It is not necessary to state here that the "presence" must not be merely temporary but must have some permanence. The property must have a situs there. Hays v. Pacific Mail S. S. Co., 17 How. (U. S.) 596 (1854). See collection of cases in (1918) 28 YALE L. J. 525.

"Jurisdiction to tax the inheritance of any property having a situs outside the state could only be based upon the residence of the owner within the state. Fidelity & Columbia Trust Co. v. Louisville, 245 U. S. 54,38 Sup. Ct. 40 (1917). But see Frick v. Pennsylvania, supra note 4. But we are not concerned here with the power of a state to impose a personal tax. Our inquiry is limited to a consideration of the inheritance tax based upon jurisdiction over the property. "Hoyt v. The Commissioners of Taxes, 23 N. Y. 224, 226 (1861); 28 YALE L. J. 525, 526.

Mobilia personam sequuntur is a maxim of law as old as the law itself." Monidah Trust v. Sheehan, 45 Mont. 424, 123 Pac. 692 (1912); Hornthal v. Burwell, 109 N. C. 10, 13 S. E. 721 (1891).

'Kintzing v. Hutchinson, et al., supra, note 3.

himself that these mobilia were not within his state but were following the person of the owner. So the fiction was held not to limit the taxing power of the state of actual situs. All tangibles, movable and immovable, could be subjected to a direct property tax and to an inheritance tax in the state where they were physically present.10

The situs of many kinds of intangibles for the purpose of taxation is still undetermined. There are few parts of the law of equal importance so unsettled. A long line of state decisions will suddenly find itself called to account by the Supreme Court and an accepted doctrine will be overturned."

At first, relying upon the old maxim mobilia, the courts fixed the situs of all intangibles at the domicil of the owner.12 And there alone were they taxable.

The first weakening of the maxim is found in the cases of business situs. When a bond or note or other intangible was connected with a business in some other place than the domicil of the owner, they were said to have acquired a situs there. This localization of the debt gave a basis for taxation. Since it was property within the state, it could be made subject to the state's property and inheritance tax.13 A doctrine of the law merchant has also been used to break in upon the maxim when bonds or notes were the intangibles in question. The bond and the note has long been considered to be not merely evidence of the obligation but the obligation itself. They pass freely from hand to hand and have value in themselves. "It is not primitive

10Coe v. Errol, 116 U. S. 517, 6 Sup. Ct. 475 (1886); American Steel & Wire Co. v. Speed, 192 U. S. 500, 24 Sup. Ct. 500 (1904); Mills v. Thornton, 26 Ill. 300 (1861); Scollard v. American Felt Co., 194 Mass. 127, 80 N. E. 233 (1907); Tobey v. Kip, 214 Mass. 477, 101 N. E. 998 (1913); John Hancock Ice Co. v. Rose, 67 N. J. L. 86, 50 Atl. 364 (1901); Lehigh & Wilkesbarre Coal Co. v. Junction, 75 N. J. L. 68, 66 Atl. 923 (1907); People v. Dunckel, 69 N. Y. Misc. 361, 125 N. Y. Supp. 385 (1910).

"Union Transit Co. v. Kentucky, 199 U. S. 194, 26 Sup. Ct. 36, (1905); Frick v. Pennsylvania, supra note 4.

12State Tax on Foreign Held Bonds, 15 Wall. (U. S.) 300 (1872); Kirtland v. Hotchkiss, 100 U. S. 491 (1879); Holland v. Commissioners, 15 Mont. 460, 39 Pac. 575 (1895); Small's Estate, 151 Pa. 1, 25 Atl. 23 (1892); Goldgart v. The People, 106 Ill. 25 (1883); Street Railroad Co. v. Morrow, 87 Tenn. 406, 434, II S. W. 348 (1888); Kintzing v. Hutchinson et al., supra note 3. But see Joyslin's Estate, 76 Vt. 88, 56 Atl. 281 (1902).

13New Orleans v. Stempel, 175 U. S. 309, 20 Sup. Ct. 110 (1899); Bristol v. W. County, 177 U. S. 133, 20 Sup. Ct. 585 (1900); Metropolitan Life Ins. Co. v. New Orleans, 205 U. S. 395, 27 Sup. Ct. 499 (1907); Buck v. Beach, 206 U. S. 392, 27 Sup. Ct. 712 (1907); Liverpool Ins. Co. v. Orleans Assessors, 221 U. S. 346, 31 Sup. Ct. 550 (1910); Buck v. Miller, 147 Ind. 586, 45 N.E. 647 (1897); National Fire Ins. Co. v. Board of Assessors, 121 La. 108, 46 So. 117 (1908); State ex rel Langer v. Packard, 40 N. D. 182, 168 N. W. 673 (1918); People v. Smith, 88 N. Y. 576 (1882); State v. Fidelity and Deposit Co., 35 Tex. Civ. App. 232, 80 S. W. 554 (1904); Catlin v. Hull, 21 Vt. 152 (1849); Contra Jack v. Walker, 79 Fed. 138 (1897); Baars v. City of Grand Rapids, 129 Mich. 572, 89 N. W. 328 (1902).

tradition alone that gives their peculiarities to bonds, but a tradition laid hold of, modified and adapted to the convenience and understanding of business men. The same convenience and understanding apply to bills and notes ***"'14 So it has been held that the obligations of bonds and notes although unconnected with any business have a situs where the bonds and notes are permanently kept, as do chattels, and they are taxable there.15

A third place where it has been contended that the obligation of a bond or note may be localized for purposes of taxation is at the domicil of the debtor. In the absence of a controlling Supreme Court decision much has been written concerning this contention both in the opinions of State courts and in legal periodicals. Learned jurists have arrayed themselves on each side of the controversy.16 It is clear that the debt not represented by a tangible form cannot have a situs.17 So attempts to seize upon the place of residence of the debtor as a means of localizing the obligation must be regarded as unsound. Let the process of localization be applied only when the obligation is represented by some tangible form or is attached to some business and then only when some good reason exists, as in the two instances already discussed.

It is true that the debt is protected by the state of the debtor's domicil, but so is it protected by every other state into which the debtor goes. There he may be sued and the debt collected. If there were some strong social interest in finding a basis for a tax on a debt at the domicil of the debtor, then consideration might be given to this

"Mr. Justice Holmes in Wheeler v. Sohmer, 233 U. S. 434, 439, 34 Sup. Ct. 607 (1914).

isScottish Union & National Insurance Company v. Bowland, 196 U. S. 611, 25 Sup. Ct. 345 (1904); Wheeler v. Sohmer, supra note 14; Walker v. Jack, 88 Fed. 576 (1898); Callahan v. Woodbridge, 171 Mass. 595, 51 N. E. 176 (1898); Kennedy v. Hodges, 215 Mass. 112, 102 N. E. 432 (1913); State v. County Court, 69 Mo. 454 (1880); Matter of Whiting, 150 N. Y. 27, 44 N. E. 715 (1896); Matter of Morgan, 150 N. Y. 35, 44 N. E. 1126 (1896); In re Gates Estate, 243 N. Y. 193, 153 N. E. 47 (1926); Matter of Tiffany, 143 App. Div. 327 (1911), aff'd. 202 N. Y. 550, 95 N. E. 1140; Hall v. Miller, 102 Texas 289, 115 S. W. 1168 (1909). Contra: Estate of McCahill, 171 Cal. 482, 153 Pac. 930 (1915); Howell v. Gordon, 127 Mich. 517, 86 N. W. 1042 (1901); Myers v. Seaberger, 45 Ohio St. 232, 12 N. E. 796 (1887); Orcutt's Appeal, 97 Pa. St. 179 (1881).

16Professor Joseph H. Beale, (1914) 27 HARV. L. REV. 107, 114 and (1919) 32 HARV. L. REV. 586, 604; Professor Charles E. Carpenter, Jurisdiction over Debts for the Purpose of Administration, etc., (1918) 31 HARV. L. REV. 918; Blackstone v. Miller, 188 U. S. 189, 23 Sup. Ct. 277 (1903); Street Railway Co. v. Morrow, 87 Tenn. 438, 11 S. W. 348 (1888); Walker v. People, 64 Colo. 143, 171 Pac. 747 (1918). For limitations on the doctrine of the dictum of Blackstone v. Miller, see: Matter of Gordon 186 N. Y. 471, 79 N. E. 722, 10. L. R. A. (n. s.) 1089 (1906); Bliss v. Bliss, 221 Mass. 201, 109 N. E. 148, L. R. A. 1916 A, 889 (1916).

17Street Railway Co. v. Morrow, supra note 16.