Davis v. Penn Mut. Life Ins. Co.

• Citation: 32 S.E.2d 180,198 Ga. 550
• Decision Date: 13 October 1944
• Docket Number: 14902.
• Parties: DAVIS, Tax Assessor, et al. v. PENN MUT. LIFE INS. CO.
• Court: Supreme Court of Georgia

32 S.E.2d 180

198 Ga. 550

DAVIS, Tax Assessor, et al. v. PENN MUT. LIFE INS. CO.

No. 14902.

Supreme Court of Georgia

October 13, 1944

Rehearing Denied Nov. 22, 1944.

Syllabus by the Court.

1. The determining factor in the taxability of intangibles, as of tangibles is territorial jurisdiction of the taxing soverignty. The want of power to tax property outside the territorial jurisdiction is an inherent limitation on the power to tax. This State, having no external sovereignty under our Federal system, cannot exercise jurisdiction or authority over persons or property without its territory, and 'cannot tax where it has jurisdiction over neither the owner nor the property.' To do so would violate the due-process clause of our State Constitution.

2. 'According to previous decisions by this court construing Georgia statutes, a promissory note executed by a resident of this State, but owned by a non-resident and held by him at his domicile out of this State, is to be taxed here only if it is derived from or is used as an incident of property owned or of a business conducted by the non-resident or his agent in Georgia; and this is true although the note may be secured by a mortgage on land situated in this State.'

3. While this court will correct clear and palpable error in a prior ruling, 'a decision concurred in by the entire bench after argument and careful consideration, and followed in other cases, will not readily be overturned, unless clearly erroneous.' Being convinced of their soundness we again decline to review and overrule the decisions in Columbus Mutual Life Insurance Co. v. Gullatt (Guardian Life Insurance Co. v. Gullatt), 189 Ga. 747, 8 S.E.2d 38; and National Mortgage Corp. v. Suttles, 194 Ga 768, 22 S.E.2d 386; and also decline to review and overrule the decisions in Suttles v. Associated Mortgage Companies, 193 Ga. 78, 17 S.E.2d 272, and Davis v Metropolitan Life Insurance Co., 196 Ga. 304, 26 S.E.2d 618.

This case involves the State's power to impose a tax on certain intangibles during the years 1931 through 1937. These are credits represented by promissory notes made and owing by persons resident of, and secured by deeds to lands located in, Fulton County. They are owned by a nonresident corporation and held at its domicile. They are not derived from or used as an incident of property owned or a business conducted by such nonresident or its agent in Georgia. In addition to these facts it is alleged substantially by such nonresident owner in its petition that it had during such years engaged solely in a life-insurance business in this State; that the notes referred to are payable at the nonresident payee's office in Philadelphia, Pennsylvania; that at no time during such period has it had any agent in this State authorized to invest its funds or to deal in any manner with said notes; that during the entire period involved these notes and deeds have been physically situated without this State; and that the taxing authorities of Fulton County have threatened to assess such credits for taxation and to collect taxes thereon, and will do so unless enjoined. It it also alleged that such intangibles are not legally subject to taxation in Georgia for these years, and that the imposition of such tax would violate the due-process clauses of both the State and Federal Constitutions. The nonresident owner of these credits sought to enjoin the taxing authorities of Fulton County from levying and collecting a tax on such credits for the named years. The defendants filed general and special demurrers to the petition as amended. These were overruled by the trial court, and exceptions to this judgment bring the case here.

E. Harold Sheats, Standish Thompson and W. S. Northcutt, all of Atlanta, for plaintiffs in error.

Grover Middlebrooks and Alston, Foster, Sibley & Miller, all of Atlanta, for defendant in error.

PRATT Judge.

1. This suit was filed on October 22, 1937, and does not involve the amendment to art. VII, section II, par. I of the State Constitution (Code, § 2-5001), adopted in 1937, and laws enacted pursuant thereto relating to taxes on intangibles. The question here presented must be determined under applicable provisions of the Constitution and laws of this State as they existed before such constitutional amendment and statutes made thereunder. Counsel for the plaintiffs in error insist only on their general demurrer. Therefore the sole question to be determined is the taxability in Fulton County of the credits involved for the years 1931 through 1937. The constitutional provision above referred to and of force during the period involved in the instant case is: 'All taxation shall be uniform upon the same class of subjects and ad valorem on all property subject to be taxed within the territorial limits of the authority levying the tax.' It is the contention of counsel for the plaintiffs in error that the State Constitution can not limit by implication the power of the State to tax, but any such limitation must be declared in clear and unambiguous terms; that, since there is no contrary constitutional restraint, the State's power of taxation extends to 'all subjects over which the State is capable of demonstrating the practical fact of its power through its laws operating territorially within the State.' We are clear that it is not essential to the existence of the rule precluding the State from taxing property without its territorial limits that express language to this effect shall be in the organic law. This principle is declared in Cooley on Taxation, 4th Ed., § 86, in the following language: 'Great as is the sovereign power of any government to levy and collect taxes from its citizens, that power in a constitutional country has very distinct and positive limitations. Some of them inhere in its very nature, and exist, whether declared or not declared in the written constitution; but some of them it is not uncommon to specify, either out of abundant caution, or to keep them fresh in the minds of those who administer government. Other limitations spring from the peculiar form of our government, and from the relation of the States to the national authority. What may be called inherent limitations on the power to tax include * * * the want of power to tax property outside the territorial limits.' There is no power under the Constitution to tax property outside the State's territorial jurisdiction. The lack of extraterritorial power inheres in our Federal system, where the separate States and the people within them have surrendered a portion of sovereignty to the national government. It is well established that States, having entered into the Union, are not now possessed of external sovereignty. It has been stated that the reason for this rule is that to allow a State extraterritorial jurisdiction would be to take from the jurisdiction of a sovereign sister State, and the States are equal. In re C. A. Taylor Logging & Lumber Co., D.C., 28 F.2d 526, 529.

It was declared in Pennoyer v. Neff, 95 U.S. 714, 722, 24 L.Ed. 565, that 'Every State possesses exclusive jurisdiction and soveregnty over persons and property within its territory. * * * No State can exercise direct jurisdiction and authority over persons or property without its territory.' It is stated in 59 C.J. 21, that 'In the absence of any particular agreement or of particular provisions in the acts of admission varying the ordinary rules, the jurisdiction of a State is coextensive with its boundaries, extending throughout its territorial limits and operating upon all the persons and things there, and, conversely, limited to its own territorial limits and not extending beyond its bounderies.' The following from Cooley on Taxation, 4th Ed., § 92, is to the same effect: 'The political jurisdiction of a State does not extend beyond its territorial limits, and therefore it can not lawfully impose a tax upon persons, natural or artificial, or property, residing or situated beyond such limits. A State cannot tax where it has jurisdiction over neither the owner nor the property. In such a case the State affords no protection, and there is nothing for which taxation can be equivalent.'

The opposing views on this question of the power of a State to tax intangible credits owned by nonresidents against resident debtors have converged on this point of territorial jurisdiction. The contending armies of argument still clash on this battle line. It may be confidently asserted that the side which wins this battle wins the final victory--that it is decisive. This conflict arises doubtless from the peculiar nature of intangible properties, and the shrinking of the elements of time and space in commercial and business transactions, now so largely interstate, due to modern means of communication and transportation. This was commented on in Curry v. McCanless, 307 U.S. 357 365, 59 S.Ct. 900, 905, 83 L.Ed. 1339, 123 A.L.R. 162, as follows: 'Very different considerations, both theoretical and practical, apply to the taxation of intangibles, that is, rights which are not related to physical things. Such rights are but relationships between persons, natural or corporate, which the law recognizes by attaching to them certain sanctions enforceable in courts. The power of government over them and the protection which it gives them cannot be exerted through control of a physical thing. They can be made effective only through control over and protection afforded to those persons whose relationships are the origin of the rights. See Chicago, R.I. & P. R. Co. v. Sturm, 174 U.S. 710, 716, 19 S.Ct. 797, 799, 43 L.Ed. 1144; Harris v. Balk, 198 U.S. 215, 222, 25 S.Ct. 625, 626, 49 L.Ed. 1023, 3 Ann.Cas. 1084. Obviously, as sources of actual or potential wealth--which is an...