State Board of Assessors of the Parish of Orleans v. Comptoir National D'Escompte De Paris/Opinion of the Court

The Constitution of the state of Louisiana of 1898, article 225, declares that all property shall be assessed in proportion to its value. Section 1 of the act of 1898, passed by the general assembly of the state, defines 'property' to include 'all personal property, all rights, credits, bonds, and securities, promissory notes, open accounts, and other obligations, all cash, all money loaned at interest, and all movable and immovable, corporeal and incorporeal articles or things of value owned and held and controlled within the state of Louisiana by any person in any capacity whatsoever.' Section 7 of the act provides that it shall be the duty of the assessor to place upon the tax roll all property subject to taxation. 'This shall apply with equal force to any person or persons representing, in this state, business interests that may claim a domicil elsewhere, the intent and purpose being that no nonresident, either by himself or through any agent, shall transact business here without paying to the state a corresponding tax with that exacted of its own citizens; and all bills receivable, obligations, or credits arising from business done in this state, are hereby declared assessable within this state, and at the business domicil of said nonresident, his agent, or representative.' This act undertakes to give to the state the right and authority to assess and collect taxes upon all bills receivable, obligations, and credits within the state.

This legislation was before this court in the case of New Orleans v. Stempel, 175 U.S. 309, 44 L. ed. 174, 20 Sup. Ct. Rep. 110, in which it was sought to tax certain notes secured by mortgage on real estate in the city of New Orleans. The notes were owned in New York, but were in the hands of an agent of the owner in New Orleans, who collected the proceeds thereof and the interest as it became due, and deposited the same in a bank at New Orleans. In that case, the decisions of the supreme court of Louisiana, construing its Constitution and laws, particularly the act in question, were exhaustively reviewed by Mr. Justice Brewer, and the conclusion reached that the act, as interpreted by the supreme court of the state, permitted the taxing of the notes in the hands of the agent, and that such action did not impair any right secured by the Federal Constitution. Since the decisions which were in review in the Stempel Case, the supreme court of Louisiana, in a suit brought by the present complainant against the board of assessors, has had before it a case involving the right to tax credits and moneys of the complainant under a state of facts in most respects identical with that now before the court, the difference being that when the Comptoir loaned money upon bills of lading or other collateral security, it took the non-negotiable note of its customer, which note was canceled either by the payment of the amount due or the exhaustion of the collateral. Comptoir National D'Escompte de Paris v. Board of Assessors, 52 La. Ann. 1319, 27 So. 801. In the method of doing business shown in the present case, instead of giving a non-negotiable note, the customer gives to the Comptoir his check, which check is not returned, but held as an evidence of the indebtedness, and is later sent to the office of the Comptoir at Paris. While called 'checks,' and so referred to in the record and by the parties in their dealings, the instrument delivered to the Comptoir, in form an ordinary check, as though drawn for payment on presentation from moneys deposited, had no such function. The money was paid to the customer upon the security of the collateral, and the so-called check taken and held as a memorandum of the indebtedness to the Comptoir.

The exact question is whether these checks, secured by collateral held by the agent, are evidence of credits for money loaned upon interest, having a local situs in New Orleans, and constitutionally taxable within the meaning of the Louisiana statutes.

In this case we are not dealing with that branch of the business of the Comptoir which relates to bills of exchange sold to its customers, but the assessment is sought to be made upon those credits which arise when money is loaned and advanced or paid in the state to the customer upon collateral security, and the latter's check is taken therefor. The transaction from which the alleged credits arise is briefly this: The customer applies for a loan of money, and offers as security a bill of lading or other collateral, and the money is paid to him. Instead of a note the Comptoir takes the check of the customer, which is regarded as an overdraft, upon which the customer can make payment from time to time and upon which he is charged interest, and, upon the nonpayment of the check, the collateral is subject to sale.

Is this a credit, for money lent on interest, taxable under the laws of Louisiana as interpreted by the supreme court of that state?

The real transaction between the parties was intended to create and did create a debt held for the Comptoir by its agent in the state of Louisiana, and evidenced by the check, and secured by the collateral, which debt, when paid, created a fund in the hands of the agent subject to loan and reinvestment by him without consultation with the principal, in such sense as to localize the credit for the purpose of taxation as effectually as it would if a non-negotiable note had been taken, as was done in the case decided in 52 Louisiana, supra. It is true that the agent testifies that the money when repaid was remitted by an exchange transaction to Paris, and the average balance in money in New Orleans banks was $20,000, which has been assessed without objection; but it is equally clear that the transactions of this kind were large and the funds subject to the control of the agent, who could lend them at will to customers.

Whether this change, from notes to checks, was purposely made with a view to escaping taxation, as is argued by the respondents, or is a different method of evidencing the debt for the convenience of the customer, as is argued by the complainant, it is, in our judgment, equally a credit for money lent, localized in Louisiana, within the scope of the taxing laws of that state as construed by its supreme court.

Was the attempted taxation in violation of the Federal Constitution?

Speaking to this subject, in New Orleans v. Stempel, 175, U.S. 309, 44 L. ed. 174, 20 Sup. Ct. Rep. 110, Mr. Justice Brewer said:

'When the question is whether property is exempt from taxation, and that exemption depends alone on a true construction of a statute of the state, the Federal courts should be slow to declare an exemption in advance of any decision by the courts of the state. The rule in such a case is that the Federal courts follow the construction placed upon the statute by the state courts, and in advance of such construction they should not declare property beyond the scope of the statute, and exempt from taxation, unless it is clear that such is the fact. In other words, they should not release any property within the state from its liability to state taxation unless it is obvious that the statutes of the state warrant such exemption, or unless the mandates of the Federal Constitution compel it.'

It may be taken as a general rule of the law of taxation of personal property that such property can only be taxed at the residence of the owner, or at such place as it has acquired a situs, which will subject it to the taxing power of the state where found. In its application to tangible property, there is little difficulty in applying this principle. The difficulty arises in determining whether a credit or chose in action has acquired a local situs in contemplation of law at a place other than the domicil of the owner in such sense as will permit the state to tax it in the place of its localization. The cases are numerous, both state and Federal, which recognize the right of the state, in view of the protection and remedial rights which its laws give to the owner of intangible property, such as notes and bills, to require from such property a contribution to the funds of the state, to be collected by taxation, for the purpose of maintaining and enforcing the laws which give force and effect to such obligations. This right has been the subject of such recent adjudication in this court that we will only notice some of the later decisions. We have already referred to New Orleans v. Stempel. The question came before the court in Bristol v. Washington County, 177 U.S. 133, 44 L. ed. 701, 20 Sup. Ct. Rep. 585, in which case it was held that the personal property of a nonresident of the state of Minnesota, in the shape of notes payable at the office of the agent in Minnesota, where the mortgages securing the notes were retained by the agents, and the notes were returned from time to time when required for renewal, collection, or foreclosure, the agents collecting the money and making loans in the name of the principal, generally on their own judgment, remitting to the principal the collections when required, or investing them in new loans, was properly taxable in Minnesota. Still later the subject was under consideration in Blackstone v. Miller, 188 U.S. 189, 47 L. ed. 439, 23 Sup. Ct. Rep. 277, in which it was held that a deposit by a citizen of Illinois in a trust company in New York was within the taxing power of the latter state, even though the depositor intended to withdraw the monty for further investment, and although the deposit had been subjected to taxation in Illinois as a part of an estate to which it belonged.

From these cases it may be taken as the settled law of this court that there is no inhibition in the Federal Constitution against the right of the state to tax property in the shape of credits, where the same are evidenced by notes or obligations held within the state, 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.

The maxim, Mobilia sequuntur personam, which was applied in the court below as forbidding taxation of the checks in the hands of the agent in New Orleans, has been frequently held to be but a fiction of law, having its origin in considerations of general convenience and public policy, and not to be applied to limit and control the right of the state to tax property within the jurisdiction, it being intended to permit the owner to deal with his personalty according to the law of his domicil, and to make testamentary disposition of it according to the law where he is rather than that of the situs of the property. It was intended for convenience, and not to be controlling where justice does not demand it.

Applying these principles to the facts in the case, we have no doubt that these checks, secured in the manner stated, and given for the purpose of evidencing an interest-bearing debt, were the evidences of credits for money loaned, localized in Louisiana, protected by its laws, and properly taxable there.

The Comptoir was a foreign corporation; its business in Louisiana was in the hands of an agent; it furnished to the customer a sum of money and took from him a collateral security; for reasons satisfactory to the parties, instead of taking the ordinary evidence of indebtedness, the customer drew a check, never intended to be paid in the ordinary way, but intended by the parties to be held as evidence of the amount of money actually loaned; this loan could be satisfied by partial payments from time to time, interest being charged upon the outstanding amounts, and if not paid at maturity the collateral was subject to sale; when paid, the money might be again loaned by the agent to other parties, or remitted to the home office, and the business was continuing in its character.

It is true the money to be paid to the customer was generally obtained by the Comptoir drawing its draft upon New York or upon its home office, and a large part of the business of the Comptoir was in selling foreign exchange, but we cannot perceive that the transaction between the parties was any the less a loan because of the source from which the money was obtained.

We find nothing in the requirements of the Federal Constitution or the statutes of the state of Louisiana, as construed by its supreme court, which should exempt such property from bearing its burden of taxation for the public benefit. It follows that the circuit court erred in holding otherwise, and in granting a perpetual injunction.

Decree reversed and cause remanded with instructions to dismiss the bill.