Lockwood v. Blodgett

• Citation: 106 Conn. 525,138 A. 520
• Parties: LOCKWOOD ET AL. v. BLODGETT, TAX COM'R.
• Decision Date: 03 August 1927
• Court: Supreme Court of Connecticut

138 A. 520

106 Conn. 525

LOCKWOOD ET AL. v. BLODGETT, TAX COM'R.

Supreme Court of Errors of Connecticut.

August 3, 1927

Case reserved from Superior Court, Fairfield County; Edwin C Dickenson, Judge.

Action by Charles D. Lockwood and another, executors of the will of George Luke, deceased, against William H. Blodgett, Tax Commissioner, in the nature of an appeal to the superior court from the computation of a tax due from plaintiff's decedent. On reserved questions. Questions answered.

The parties stipulated that the facts were as follows: George Luke died on September 9, 1925, having been domiciled at Greenwich for at least 6 years prior to his death, and leaving a will, which was duly probated, in which the appellants were named as executors and duly qualified as such. In the inventory were three Bonds and mortgages on real estate in Brooklyn, N. Y.; those on 500 Howard avenue were dated November 22, 1908, and made for $4,500, and were inventoried at this value; those on 502 Howard avenue were dated November 27, 1908, and originally made for $4,750, but had been reduced to $4,500, and were inventoried at this value; and those on 1910 Bergen street were dated May 1 1903, and made for $3,750 and assigned to George Luke on May 20, 1912, and were inventoried at this value. there was also a bond and mortgage for $10,000 on 232 East Ninety-Seventh street, New York City, which were dated February 18, 1912 and assigned to George Luke December 15, 1921, and were inventoried at this value. The decedent owned the first two of the above Bonds and mortgages from the dates of their execution, and the last two from the dates of assignment up to the date of his death. The first three of the above-mentioned Bonds and mortgages were in the hands of Charles Phillips, attorney at law, of New York City, and the fourth of the Bonds and mortgages were in the hands of Francis B. Sanford, attorney at law, of New York City. These attorneys collected in New York City interest and installments on principal and remitted the same to the decedent, Luke, in Connecticut. These mortgages were duly recorded in the land records of the counties in which the lands described therein were situated. The decedent during his lifetime never listed any of the foregoing Bonds and mortgages in his tax lists filed in Greenwich and never paid a tax thereon to the state of Connecticut and no assessment was ever levied thereon.

On December 31, 1925, the tax commissioner of Connecticut assessed a tax of $2,050 on untaxed property of decedent under the provisions of the statutes in the foot note^[1] which included, among other property, the four described Bonds and mortgages. At no time during the 5 years next preceding the death of the decedent were these mortgage Bonds and deeds ever within this State, but were during all of this time within the state of New York. The mortgagors named in these mortgages were and are nonresidents of Connecticut. On March 9, 1926, the executors duly appealed from this assessment to the superior court.

The parties represent that the questions of law reserved for the advice of this court are:

(1) Is the tax on untaxed property, so far as it covers these four mortgages, a taking of property without due process of law in violation of the Fourteenth Amendment of the Constitution of the United States?

(2) Were the Bonds and mortgages subject to taxation by the town of Greenwich or by the state of Connecticut during the lifetime of the decedent?

(3) Is the computation of the tax on untaxed property of the decedent correct?

Walter N. Maguire, of Stamford, and Wilfred P. Forrest, of New Canaan, for plaintiffs.

Lucius F. Robinson and Farwell Knapp, Inheritance Tax Atty., both of Hartford, and Benjamin W. Alling, State's Atty., of New Britain, for defendant.

Argued before WHEELER, C.J., and MALTBIE, HAINES, HINMAN, and BANKS, JJ.

WHEELER C.J. (after stating the facts as above).

We had occasion to pass upon the validity of the sections of the General Statutes under which the tax in question was laid in Bankers' Trust Co. v. Blodgett, 96 Conn. 361, 114 A. 104. We said:

" The pecuniary liability imposed * * * is a penalty in the nature of a tax for an omission to list property for taxation. * * *" " The obvious legislative purpose is to compel estates to pay to the State a sum which shall approximately equal the taxes which property of the estate has escaped paying while in the hands of the decedent. * * * Under this section, property which has not been subject to a town or city or state tax during the year preceding the death of the decedent is liable to a tax of 2 per centum of its appraised inventory value for the 5 years next preceding the date of death of decedent, provided that a proportionate reduction of this tax may be had by proof that any part of the tax has been paid, or that the decedent did not own any of this property during this period."

The state cannot assess this penalty tax with respect to property of a decedent which was not taxable locally during his lifetime, or was not within the power of the state or its subdivisions to tax. The " penalty tax" can only be imposed upon the taxable property of an estate upon which no town or city tax has been assessed, so that the underlying question for decision is whether Connecticut, or any of its subdivisions, had the power to tax these Bonds and mortgages prior to the decedent's death.

General Statutes, § 1184, provides:

" All notes, Bonds and stocks, not issued by the United States, moneys, credits, choses in action, * * * belonging to any resident in this State, shall be set in his list in the town where he resides at their then actual valuation. * * *"

The statute has been in existence substantially in this form for nearly a century. In its earlier form it specifically provided that debts secured by mortgage must be set in the list of the owner. The present form of the statute includes in its general terms debts secured by mortgage. The statute was intended to cover all classes of intangible property and that construction has been reflected in the practice in this jurisdiction and in the decisions of this court. We are asked to determine whether our statute providing for the taxation in Connecticut of Bonds and mortgages secured by real estate in New York which are executed by a resident in New York and are owned by one domiciled in Connecticut is a valid exercise of the taxing powers. A like question arose in Kirtland v. Hotchkiss, 42 Conn. 426, 19 Am.Rep. 546, the Bonds and mortgages were executed in Illinois on land there and owned by a resident here. In this case the Bonds and mortgages were in New York; in that case, in Illinois. We held that the owner of these securities had a right to receive the sum of money named, with interest or damages for its detention, and that the debtor was under an obligation to pay this demand. We disposed of the question of the situs of this debt in these words:

" It seems to us, therefor, that the appropriate place to tax money at interest is where the creditor resides, and that for that purpose it may with propriety be said to be located with the creditor."

The case was affirmed in 100 U.S. 491, 25 L.Ed. 558, upon the theory announced by this court, Mr. Justice Harlan saying:

" That bond, wherever actually held or deposited, is only evidence of the debt, and if destroyed, the debt--the right to demand payment of the money loaned, with the stipulated interest--remains. Nor is the debt, for the purposes of taxation, affected by the fact that it is secured by mortgage upon real estate situated in Illinois."

We subsequently held in Bridgeport Projectile Co. v. Bridgeport, 92 Conn. 316, 102 A. 644, that a general deposit in a commercial bank in New York by a Connecticut corporation engaged in business here was taxable here upon the right of the corporation to draw on the deposit at its discretion. We said:

" The undoubted rule is that, for the purposes of taxation, a debt is property at the residence or domicile of the creditor." Fidelity & Columbia Tr. Co. v. Louisville, 245 U.S. 54, 58, 38 S.Ct. 40, 62 L.Ed. 145, L.R.A. 1918C, 124; Silberman v. Blodgett, 105 Conn. 192, 134 A. 778.

Kirtland v. Hotchkiss, 100 U.S. 491, 25 L.Ed. 558, has been cited with approval many times by the United States Supreme Court and never been directly disapproved of in any particular, so far as we have ascertained. It is the settled law of this jurisdiction that intangibles have a taxable situs at the domicile of the owner. In State Tax on Foreign-Held Bonds, 15 Wall. 300, at page 320, 21 L.Ed. 179, Mr. Justice Field said:

" * * * Debts owing by corporations, like debts owing by individuals, are not property of the debtors * * * and only possess value in the hands of the creditors. With them they are property, and in their hands they may be taxed."

In Buck v. Beach, 206 U.S. 392, 401, 27 S.Ct. 712, 715 (51 L.Ed. 1106, 11 Ann.Cas. 732), the court, by Mr. Justice Peckham, reiterates this rule:

" Generally speaking, intangible property in the nature of a debt may be regarded, for the purposes of taxation, as situated at the domicile of the creditor and within the jurisdiction of the state where he has such domicile. It is property within that state. * * * Kirtland v. Hotchkiss, 100 U.S. 491, 498 ."

The appellants seek to avoid the effect of that rule by having us adopt the rule that a bond and mortgage are either tangible property, or sufficiently of that nature so as to be subject to the rule for the taxation of tangible personal property, that is, where physically located. They rely in support of this claimed rule upon our holding in Silberman v. Blodgett, 105 Conn. 192, 134 A. 778, in accordance with the holding in State Tax on...