Hedges v. Shipp

• Decision Date: 20 July 1933
• Citation: 62 S.W.2d 49
• Parties: HEDGES et al. v. SHIPP.
• Court: Tennessee Supreme Court

62 S.W.2d 49

HEDGES et al. v. SHIPP.

Supreme Court of Tennessee.

July 20, 1933.

Appeal from Chancery Court, Hamilton County; W. B. Garvin, Judge.

Suit by James R. Hedges and another against Alvin Shipp, trustee. From an adverse decree, complainant appeals.

Reversed.

Sizer, Chambliss & Kefauver, of Chattanooga, for appellant.

W. French Grubb and Lynch, Bachman, Phillips & Lynch, all of Chattanooga, for appellees.

CHAMBLISS, Judge.

The question presented on this appeal is whether or not certain notes belonging to M. M. Hedges on the 10th of January, 1929, were lawfully subject to assessment for taxation ad valorem in Hamilton county. The stipulated form of the notes in the record shows that they were each negotiable instruments, being (1) in writing and signed by the makers, (2) an unconditional promise to pay, (3) payable on demand, and (4) payable to order (Acts of 1899, chap. 94, Code 1932, § 7325). These notes were loans on call, that is, on demand, made in the city of New York for Hedges and from his funds under an arrangement made with two New York banks acting for him, under which he received interest on the loans at 6 per cent. per annum.

The trustee insists that they are assessable ad valorem, because falling within class 5 of section 7, Pub. Acts 1929, chap. 86, § 7, amending the Acts of 1907, c. 602, reading, "Money on hand or on deposit in this State or elsewhere not otherwise assessed in this State." No question of liability for income tax is presented.

For Hedges it is insisted that these demand, or "call," notes are not "money on hand or on deposit," but are evidences of money invested, not taxable ad valorem, regardless of whether or not they fall within the exception to "bonds" (defined as "all obligations issued by any person * * * evidenced by an instrument, whereby the obligor is bound to pay interest to the obligee"), the income on which is subjected to a tax by chapter 86, Pub. Acts 1929, § 4, the exception reading: "Provided, that the word `bond' shall not include ordinary commercial paper, trade acceptances and rent notes, etc., maturing in six months or less from the date of issuance."

That certain short term — within six months — loans are not taxed appears to have been recognized in the opinion of Chief Justice Green in Shields v. Williams, 159 Tenn. at page 367, 19 S.W.(2d) 261, 267, wherein he concedes: "The propriety of a legislative classification for purposes of taxation which burdens the income from long-term loans and relieves the income from short-term loans." He proceeds: "We think such classification is permissible. Short-term loans are employed in merchandising, manufacturing and trade. Such business activities produce wealth and create new taxable values. On the other hand, the proceeds of long-term loans are used ordinarily for investment, to acquire property, not to produce property, not to create new taxable values. This consideration seems to justify a distinction in the matter of the taxation of the two classes of securities. A line of separation must be drawn somewhere, and a six months' maturity appears to be a suitable boundary."

Elsewhere in that opinion, in discussing double taxation, he draws the distinction between taxation of basic property and that of the ultimate right to receive such property. What is said under this head in that opinion apparently justifies the failure of the Legislature by the act of 1929 to provide for the taxing of "short term loans" on the theory that there is no constitutional obligation on the Legislature to authorize what is in effect double taxation, although its power to do so is not denied. Also, in a very recent opinion [Hamilton National Bank v. Chattanooga, 165 Tenn. 283, 54 S.W.(2d) 943], it was again recognized that a justifiable distinction exists and has been made by recent legislation between money loaned out and money on deposit.

It results, therefore, that we have a class of choses in action which is not taxed either ad valorem, or as to income, being that class embraced within...