Intangible Personalty

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All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

To determine whether a state may tax intangible personal property, the Court has applied the fiction mobilia sequuntur personam (movable property follows the person) and has also recognized that such property may acquire, for tax purposes, a permanent business or commercial situs. The Court, however, has never clearly disposed of the issue whether multiple personal property taxation of intangibles is consistent with due process. In the case of corporate stock, however, the Court has obliquely acknowledged that the owner thereof may be taxed at his own domicile, at the commercial situs of the issuing corporation, and at the latter’s domicile. Constitutional lawyers speculated whether the Court would sustain a tax by all three jurisdictions, or by only two of them. If the latter, the question would be which two—the state of the commercial situs and of the issuing corporation’s domicile, or the state of the owner’s domicile and that of the commercial situs.1

Thus far, the Court has sustained the following personal property taxes on intangibles: (1) a debt held by a resident against a nonresident, evidenced by a bond of the debtor and secured by a mortgage on real estate in the state of the debtor’s residence;2 (2) a mortgage owned and kept outside the state by a nonresident but on land within the state;3 (3) investments, in the form of loans to a resident, made by a resident agent of a nonresident creditor;4 (4) deposits of a resident in a bank in another state, where he carries on a business and from which these deposits are derived, but belonging absolutely to him and not used in the business;5 (5) membership owned by a nonresident in a domestic exchange, known as a chamber of commerce;6 (6) membership by a resident in a stock exchange located in another state;7 (7) stock held by a resident in a foreign corporation that does no business and has no property within the taxing state;8 (8) stock in a foreign corporation owned by another foreign corporation transacting its business within the taxing state;9 (9) shares owned by nonresident shareholders in a domestic corporation, the tax being assessed on the basis of corporate assets and payable by the corporation either out of its general fund or by collection from the shareholder;10 (10) dividends of a corporation distributed ratably among stockholders regardless of their residence outside the state;11 (11) the transfer within the taxing state by one nonresident to another of stock certificates issued by a foreign corporation;12 and (12) promissory notes executed by a domestic corporation, although payable to banks in other states.13

The following personal property taxes on intangibles have been invalidated: (1) debts evidenced by notes in safekeeping within the taxing state, but made and payable and secured by property in a second state and owned by a resident of a third state;14 (2) a tax, measured by income, levied on trust certificates held by a resident, representing interests in various parcels of land (some inside the state and some outside), the holder of the certificates, though without a voice in the management of the property, being entitled to a share in the net income and, upon sale of the property, to the proceeds of the sale.15

The Court also invalidated a property tax sought to be collected from a life beneficiary on the corpus of a trust composed of property located in another state and as to which the beneficiary had neither control nor possession, apart from the receipt of income therefrom.16 However, a personal property tax may be collected on one-half of the value of the corpus of a trust from a resident who is one of the two trustees thereof, not withstanding that the trust was created by the will of a resident of another state in respect of intangible property located in the latter state, at least where it does not appear that the trustee is exposed to the danger of other ad valorem taxes in another state.17 The first case, Brooke v. Norfolk,18 is distinguishable by virtue of the fact that the property tax therein voided was levied upon a resident beneficiary rather than upon a resident trustee in control of nonresident intangibles. Also different is Safe Deposit & Trust Co. v. Virginia,19 where a property tax was unsuccessfully demanded of a nonresident trustee with respect to nonresident intangibles under its control. Likewise, the more recent case of North Carolina Department of Revenue v. Kimberly Rice Kaestner 1992 Family Trust, which saw the Court invalidating a state tax imposed on trust income of an in-state beneficiary, appears to be limited to its facts, where the beneficiaries (1) had not received any trust income, (2) had no right to demand that income, and (3) were uncertain to ever receive that income.20

A state in which a foreign corporation has acquired a commercial domicile and in which it maintains its general business offices may tax the corporation’s bank deposits and accounts receivable even though the deposits are outside the state and the accounts receivable arise from manufacturing activities in another state. Similarly, a nondomiciliary state in which a foreign corporation did business can tax the “corporate excess” arising from property employed and business done in the taxing state.21 On the other hand, when the foreign corporation transacts only interstate commerce within a state, any excise tax on such excess is void, irrespective of the amount of the tax.22

Also a domiciliary state that imposes no franchise tax on a stock fire insurance corporation may assess a tax on the full amount of paid-in capital stock and surplus, less deductions for liabilities, notwithstanding that such domestic corporation concentrates its executive, accounting, and other business offices in New York, and maintains in the domiciliary state only a required registered office at which local claims are handled. Despite “the vicissitudes which the so-called ‘jurisdiction-to-tax’ doctrine has encountered,” the presumption persists that intangible property is taxable by the state of origin.23

A property tax on the capital stock of a domestic company, however, the appraisal of which includes the value of coal mined in the taxing state but located in another state awaiting sale, deprives the corporation of its property without due process of law.24 Also void for the same reason is a state tax on the franchise of a domestic ferry company that includes in the valuation of the tax the worth of a franchise granted to the company by another state.25

1: Howard, State Jurisdiction to Tax Intangibles: A Twelve Year Cycle, 8 Mo. L. Rev. 155, 160–62 (1943); Rawlins, State Jurisdiction to Tax Intangibles: Some Modern Aspects, 18 Tex. L. Rev. 196, 314–15 (1940).
2: Kirtland v. Hotchkiss, 100 U.S. 491, 498 (1879).
3: Savings Soc’y v. Multnomah Cnty., 169 U.S. 421 (1898).
4: Bristol v. Washington Cnty., 177 U.S. 133, 141 (1900).
5: These deposits were allowed to be subjected to a personal property tax in the city of his residence, regardless of whether or not they are subject to tax in the state where the business is carried on. Fidelity & Columbia Tr. Co. v. Louisville, 245 U.S. 54 (1917). The tax is imposed for the general advantage of living within the jurisdiction (benefit-protection theory), and may be measured by reference to the riches of the person taxed.
6: Rogers v. Hennepin County, 240 U.S. 184 (1916).
7: Citizens Nat’l Bank v. Durr, 257 U.S. 99, 109 (1921). “Double taxation” the Court observed “by one and the same State is not” prohibited “by the Fourteenth Amendment; much less is taxation by two States upon identical or closely related property interest falling within the jurisdiction of both, forbidden.”
8: Hawley v. Malden, 232 U.S. 1, 12 (1914). The Court attached no importance to the fact that the shares were already taxed by the State in which the issuing corporation was domiciled and might also be taxed by the State in which the stock owner was domiciled, or at any rate did not find it necessary to pass upon the validity of the latter two taxes. The present levy was deemed to be tenable on the basis of the benefit-protection theory, namely, “the economic advantages realized through the protection at the place . . . [of business situs] of the ownership of rights in intangibles. . . .” The Court also added that “undoubtedly the State in which a corporation is organized may . . . [tax] all of its shares whether owned by residents or nonresidents.”
9: First Bank Corp. v. Minnesota, 301 U.S. 234, 241 (1937). The shares represent an aliquot portion of the whole corporate assets, and the property right so represented arises where the corporation has its home, and is therefore within the taxing jurisdiction of the state, notwithstanding that ownership of the stock may also be a taxable subject in another state.
10: Schuylkill Tr. Co. v. Pennsylvania, 302 U.S. 506 (1938).
11: The Court found that all stockholders were the ultimate beneficiaries of the corporation’s activities within the taxing State, were protected by the latter, and were thus subject to the State’s jurisdiction. Int’l Harvester Co. v. Dep’t of Tax’n, 322 U.S. 435 (1944). This tax, though collected by the corporation, is on the transfer to a stockholder of his share of corporate dividends within the taxing State and is deducted from said dividend payments. Wis. Gas Co. v. United States, 322 U.S. 526 (1944).
12: New York ex rel. Hatch v. Reardon, 204 U.S. 152 (1907).
13: Graniteville Mfg. Co. v. Query, 283 U.S. 376 (1931). These taxes, however, were deemed to have been laid, not on the property, but upon an event, the transfer in one instance, and execution in the latter which took place in the taxing state.
14: Buck v. Beach, 206 U.S. 392 (1907).
15: Senior v. Braden, 295 U.S. 422 (1935).
16: Brooke v. City of Norfolk, 277 U.S. 27 (1928).
17: Greenough v. Tax Assessors, 331 U.S. 486, 496–97 (1947).
18: 277 U.S. 27 (1928).
19: 280 U.S. 83 (1929).
20: See N.C. Dept. of Revenue v. Kimberly Rice Kaestner 1992 Family Tr., 139 S. Ct. 2213, 2221 (2019).
21: Adams Express Co. v. Ohio, 165 U.S. 194 (1897).
22: Alpha Cement Co. v. Massachusetts, 268 U.S. 203 (1925). A domiciliary state, however, may tax the excess of market value of outstanding capital stock over the value of real and personal property and certain indebtedness of a domestic corporation even though this “corporate excess” arose from property located and business done in another state and was there taxable. Moreover, this result follows whether the tax is considered as one on property or on the franchise. Wheeling Steel Corp. v. Fox, 298 U.S. 193 (1936). See also Memphis Gas Co. v. Beeler, 315 U.S. 649, 652 (1942).
23: Newark Fire Ins. Co. v. State Board, 307 U.S. 313, 324 (1939). Although the eight Justices affirming this tax were not in agreement as to the reasons to be assigned in justification of this result, the holding appears to be in line with the dictum uttered by Chief Justice John Harlan Stone in Curry v. McCanless, 307 U.S. 357, 368 (1939), to the effect that the taxation of a corporation by a state where it does business, measured by the value of the intangibles used in its business there, does not preclude the state of incorporation from imposing a tax measured by all its intangibles.
24: Delaware, Lackawanna & W. R.R. v. Pennsylvania, 198 U.S. 341 (1905).
25: Louisville & Jeffersonville Ferry Co. v. Kentucky, 188 U.S. 385 (1903).