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MASSACHUS

Declaration of Rights, X.-No part of the property of any individual can, with justice, be taken from him or applied to public uses, without his own consent, or that of the representative body of the people.

Constitution.-(Part 2, Chap. 7, Sec. 1.)-The General Court has power "to impose and levy proportional and reasonable assessments, rates and taxes upon all the inhabitants of, and persons resident, and estates lying, within the said Commonwealth."

Mortgage Tax Law. The existing law was adopted in 1881. It does not exempt mortgages from taxation, although that is the usual outcome of the statute. The Report of the Tax Commission of 1897 (pp. 7, 8) gives the following account of the law:

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"It is often stated that mortgages on Massachusetts real estate are exempt from taxation; but this, while it may express the usual outcome of the statutes, does not state their exact provisions. Strictly, the legislation is designed to bring about one tax on the real estate, and one only, whether it be mortgaged or not. . . Either the mortgagor or the mortgagee may bring to the assessors of the town where the mortgaged real estate lies, a statement of the amount of the mortgage and the name and residence of every holder of an interest therein as mortgagee or mortgagor. If this be done, the mortgage is taxed to the holder, usually at its face value, but not to an amount exceeding the fair cash value of the mortgaged premises. The mortgagor, however, is usually under no inducement to make a return, stating the mortgage on his property and the extent of his equity. He would have such an inducement only if taxes on the mortgage thereby became chargeable not to himself but to the mortgagee. Mortgage deeds, however, are invariably drawn so as to stipulate that the mortgagor shall assume all taxes. The mortgagor consequently has no inducement to declare the mortgage. The outcome of the legislation is thus that but one tax is levied on the real property, and that the mode of payment of this one tax is left to be adjusted between the mortgagor and the mortgagee in such manner as they may agree. In practice, the mortgagor or borrower agrees to pay the one tax, and contracts his loan with the mortgagee or the lender on this basis."

Law of 1881.- Section 16. "If any person has an interest in real estate. not exempt from taxation under section five, as holder of a duly recorded mortgage given to secure the payment of a fixed and certain sum of money, the amount of his interest as mortgagee shall be assessed as real estate in the place where the land lies; and the mortgagor shall be assessed only for the value of such real estate after deducting the assessed value of the interest therein of such mortgagee. If such estate is situated in two or more places, the amount of the mortgagee's interest to be assessed in each place shall be proportioned to the assessed value of the mortgaged real estate in the respective places, deducting therefrom the taxable amount of prior mortgages, if any, thereon."

Section 17. "If the holder of such mortgage fails to file in the assessor's office a statement under oath of all his estate liable to taxation under

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the preceding section, including a statement of the full amount remaining unpaid upon such mortgage and of his interest therein, the amount stated in the mortgage shall be conclusive as to the extent of such interest; but his interest in such real estate shall not be assessed at a greater sum than the fair cash valuation of the land and the structures thereon or affixed thereto."

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Section 18. 66 Mortgagors and mortgagees referred to in the two preceding sections shall for the purpose of taxation be deemed joint owners until the mortgagee takes possession and until such possession is taken by a first mortgagee, an assessor or the collector of taxes, upon application, shall give to any such mortgagee or mortgagor a tax bill showing the whole tax on the mortgaged estate and the amount included in the valuation thereof as the interest of each mortgagee and of the mortgagor respectively. If the first mortgagee is in possession he shall be deemed sole owner; and any other mortgagee in possession shall be deemed joint owner with prior mortgagees."

Mortgages held by residents on real estate situated outside the State are taxed to the holders as personal property.

Other Debts.-Loans on mortgage of property other than real estate are taxed as personal property. Bonds of Massachusetts corporations, and stocks and bonds of foreign corporations, are assessed as personal property.

Effects of the Law.--The Tax Commission of 1897 pointed out that prior to 1881, when the existing law took effect, savings banks were taxed only 34 of 1 per cent. on their mortgages, and that individuals lending on mortgages were not certainly and unfailingly taxed on their loans. The rate of interest demanded by individuals, therefore, was affected rather by a "risk of taxation" than by a "certain and unfailing charge 99 on the mortgage interest. Consequently, it could not be expected that the law of 1881 would have had the effect of reducing interest on mortgages more than 34 of 1 per cent., and this reduction, the Commission believes, did actually take place. "Trustees and others formerly liable to taxation on mortgages and so hesitating to make them, now compete for them actively, and are willing to accept a low rate of interest" (p. 37).

The decline in interest rates is obscured in Massachusetts by the fact that farm property has depreciated in value, and the decline in rates which has been evident on other classes of real estate mortgages "has been more than offset by the inevitable unwillingness of investors to increase or even to retain loans on farming security" (p. 38). Where security is the same, the rate of interest has declined. Where security is less valuable the rate has not declined, but this is owing to greater risk, which tends to offset the advantages of greater supply of loanable capital.

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CONNECTICUT.

Constitution.- The only clause in the State Constitution which refers in any way to Taxation is Art. I, Sec. II: "The property of no person shall be taken for public use, without just compensation therefor." The Su

preme Court says: "Taxation is not the taking of private property without compensation " (23 C., 189). Consequently the State legislature is free to exempt mortgages from taxation, or to tax them differently from other property.

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Mortgage Tax Law. The existing law was adopted in 1876. Like the Massachusetts law, it is designed to provide but one tax on mortgaged real estate. The law reads:

(1875-Chap. 26, Revision, 1902, Sec. 2319) "Money loaned on interest, with an agreement that the borrower shall pay the taxes thereon, and secured by a mortgage on real estate in this State, shall, to an amount equal to the assessed value of the mortgaged land in the assessment list of the town where it is situated, be exempt from taxation; but the excess of any such loan over such valuation shall be assessed and taxed in the town where the lender resides, in the same manner as other money on interest. Nothing herein shall exempt any savings bank from the payment of its direct tax to the State."

(1889, Chap. 165; Rev., 1902, Sec. 2323.) "But money secured by mortgage on real estate in this State, where there is no agreement that the borrower shall pay the tax, shall be set in the list and taxed only in the town where said real estate is situated. The provisions of this section shall not include money or property actually invested in merchandise or manufacturing carried on out of the state."

Mortgages on real estate located in other States are taxed to resident holders under the provision that "All notes, bonds and stock not issued by the United States, moneys, credits, choses in action, vessels, etc., belonging to any resident in this State shall be set in his list in the town where he resides at their actual value, except when otherwise provided."

There is also in Connecticut a peculiar law enacted in 1889, which gives the taxpayer an option of paying into the State treasury a tax of 4 per cent. (formerly 2 per cent.), for five years on the face amount of bonds, notes or other choses in action. The State Treasurer gives receipt for this tax, which may be paid in advance for any number of years, at the same proportionate rate, and during that period the bond, etc., is exempt from local taxation. The privilege of this option, however, is not extended to moneys loaned by residents of the State to parties outside the State. (Laws 1889, Ch. 248, Sec. 9; Gen. Stat. 1902, Sec. 2325.)

NEW JERSEY.

Constitution. - (Adopted 1875.) "Property shall be assessed for taxes under general laws, and by uniform rules, according to its true value."

Mortgage Tax Law.- Under the act approved March 28, 1893, it is provided:

"That hereafter no mortgage on real or personal property, or both, whether given by individuals or corporations, or the debt secured by such mortgage, shall be assessed for taxation unless deduction therefor shall have been claimed by the owner of such mortgaged property and allowed by the assessor."

This is practically a re-enactment of the act of 1876. Prior to that time a mortgage was taxable against the owner at the place of his resi

dence, and it was the taxpayer's duty to make return to the assessor of all mortgages owned by him, whether on lands in the township where he resided or elsewhere.

No taxpayer is obliged to make return of any mortgages to the assessor. The assessor cannot tax any mortgage against the owner unless he has first allowed a deduction to the owner of the lands covered by the mortgage.

Where a mortgage indebtedness has been claimed and allowed, the mortgage is assessable to the holder or owner of the mortgage in the city or township wherein the lands in the mortgage described are situated. (Gen. Stat., p. 3304, No. 13; P. L. 1876, p. 160.)

The act known as the “Five Counties Act," applying to certain counties in New Jersey adjacent to New York City, legalizes contracts between mortgagor and mortgagee, wherein the mortgagor agrees not to apply for ́ deduction on account of such mortgage. It reads:

Section 1. "That hereafter it shall be lawful for the owners of lands situated in the counties of Hudson, Essex, Union, Bergen and Passaic, and in the cities of Trenton, New Brunswick and Camden to agree for themselves and their heirs and assigns with the holder of any mortgage now in existence or hereafter to be made, which binds or may bind lands in said counties or cities, not to apply for any deduction, by reason of any mortgage, from the taxable value of such lands embraced in such mortgage.

Section 2. "That in case of any mortgagor or owner of lands or the heirs or assigns of any mortgagor or owner of land situate in said counties and cities mentioned in section one, who shall have agreed not to claim any deduction from the taxable value of lands described in any mortgage, shall claim a deduction therefrom in violation of such agreement, that then and in that case said mortgage in said agreement described shall become immediately due and payable, and the amount of tax paid by the mortgagee shall be added to the principal of the debt secured thereby and recoverable therewith with interest thereon from the entire payment." (Gen. Stat., p. 2109, No. 37; P. L. 1876, p. 159.)

While the foregoing act applies only to five counties, there is no law on the statute book prohibiting similar contracts in other counties. Consequently such contracts are legal and enforceable throughout the State. As a matter of fact, therefore, mortgages are usually drawn with a proviso that the mortgagor is not to claim deduction. This amounts, in effect, to an exemption of mortgages from taxation throughout the State. No deduction can be allowed when the mortgagee is not a resident of New Jersey. Only debts due to creditors residing within the State can be deducted. (11 Vroom, 461; 20 Vroom, 365.)

A mortgage held by a resident of New Jersey made upon lands situate in another State, is taxable in New Jersey. (22 Vroom, 140.)

A mortgage upon lands exempt from taxation is taxable, but it must be assessed to the mortgagee at the place of his domicile. (24 Vroom, 578.)

A land owner cannot have deducted from the value of his land for taxing purposes a mortgage which is exempt from taxation. (12 Vroom, 505.) The right to have debts deducted is extended only to residents of the

State. Non-residents owning real or personal estate situate within the State, cannot be allowed a deduction even though the creditors reside within the State. (5 Vroom, 65; 6 Vroom, 548.)

In case the mortgage is assessed to the holder, delinquent taxes on the mortgage or debt secured thereby are levied "on the goods and chattels of the delinquent in the county of his residence," and if these "cannot be found, or are not sufficient to make the money required, the constable shall take his or her body, if to be found in the county, and deliver the same to the sheriff of such county or his jailors, to be kept in close and safe custody until payment be made of the said tax with cost.” (Gen. Stat., p. 3301, Nos. 112-116; P. L. 1876, p. 160.)

Corporations.-The above law regarding taxation of mortgages applies to corporation bonds secured by mortgage, as well as real estate owned by individuals. (State v. Yard, 13 Vroom, 357.) The law does not apply to railroads and canal companies, but the same principle holds good in the case of these corporations, since they are assessed on their property and franchises while their stocks and bonds are exempt.

Other Debts.-There is no similar law applying to other debts, but such debts owing to creditors residing within the State, may be deducted from the personal estate of the taxpayer, provided the person claiming the deduction state in writing under oath to whom the debt is owing and where the creditor resides. (Gen. Stat., p. 3298, No. 80; P. L. 1866, p. 1078.)

Effects of the Law.-Since mortgages in the State are usually drawn with the proviso that the mortgagor will not claim deduction, there is practically no taxation of mortgages, with the result that interest rates are as low as the money market and the security will warrant. On the other hand, mortgages held by residents on lands in other States, although taxable in law are not reached by the assessors. The assessors are not diligent in ferreting out intangible personal property. It is an unpopular species of activity. Legislators have encouraged the assessors in this respect by exempting various stocks and securities within recent years, and there is a very small proportion of intangible personal property taxable (in New Jersey. Probably 90 per cent. of the personal property is non-taxable, either by judicial construction or by express statute.

COLORADO.

Constituion. Art. 10, Sec. 3. "All taxes shall be uniform upon the same classes of subjects within the territorial limits of the authority levying the tax and shall be levied and collected under general laws, which shall prescribe such regulations as shall secure a just valuation for taxation of all property, real and personal."

Sections 4 and 5 exempt mines for ten years after adoption of Constitution, public property, property used for educational, religious, charitable and burial purposes.

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