CHAPTER V.

TAXATION OF CREDITS.1

I. Status of the Law.

There have been no recent changes in the laws of this state respecting the taxation of credits. The constitution seems to leave the matter largely in the discretion of the legislature by the provision in Section 1 of Article VIII, that "taxes shall be levied upon such property as the legislature shall prescribe.” This provision is subject to the restriction, in the same section, that "the rule of taxation shall be uniform."

The authority thus given to the legislature to determine what kinds or classes of property shall be subject to taxation necessarily implies that the legislature may exempt from taxation such kinds or classes of property as to it seems wise or expedient provided the exemptions are not unreasonable, are uniform in their application to the classes of persons or property to which they relate, and do not involve arbitrary or discriminating classification2.

Under this constitutional authority the legislature has "prescribed" that "taxes shall be levied upon all property in this state except such as is exempted therefrom," and that the term "personal property" as used in the assessment laws "shall be construed to mean and include

all debts

due from solvent debtors, whether on account, note, contract, bond, mortgage or other security, or whether such debts are due or to become due."

1 In this discussion the term "credits" is intended to include obligations of every nature, secured or unsecured, subject to taxation under Wisconsin laws, unless a different meaning is plainly indicated by the context.

2 Wisconsin Central Railway Co. vs. Taylor County, 52 Wis., 37; Black vs. The State, 113 Wis., 205; S. C., 89 N. W. Rep., 523.

3 Section 1034, Stat. 1898.

4 Section 1036, Stat. 1898.

The laws of the United States provide that bonds and other obligations of the United States shall be exempt from taxation, except that "United States legal tender notes and other notes and certificates of the United States payable on demand, circulating or intended to circulate as currency" and the circulating notes of national banks, may be subject to taxation under state laws.1

The statutes of this state exempt from taxation "so much of the debts due or to become due to any person as shall equal the amount of bona fide and unconditional debts by him owing." As to other kinds or forms of property no deduction or exemption is allowed on account of debts owing."

In addition to the exemptions mentioned above, credits held by banks, trust companies, life and fire insurance companies and various other corporations taxed by license fee or other special method in lieu of taxation upon their personal assets as property, are not subject to assessment for taxation."

It is believed also that credits owned by persons whose legal residence is in another state although owing by residents of this state and secured upon property in this state, are not subject to taxation here under existing statutes."

1 U. S. Rev. Stat. 1878. Sec. 3701; Act of Cong. approved August 13, 1894--28 Statutes at Large, p. 278, Ch. 281.

2 Subd. 10, Sec. 1038, Stat. 1898. The term "person" undoubtedly includes corporations as well as natural persons.

3 But in Ruggles vs. Fond du Lac, 53 Wis., 436, it is held that shares of stock in a national bank may be regarded as a species of credit so as to entitle the shareholder to exemption of such shares from taxation to the extent of bona fide debts owing by him. This ruling is equally applicable to shares of stock in other incorporated banks.

4 In addition to the corporations mentioned above whose credits are thus exempt from direct taxation, are railroads, street railway, telegraph, telephone, title guaranty, express and sundry other classes of companies of less importwe as regards the quantity of credits usually included in their assets. Crediis arising from loans by building and loan associatiors to their members are also exempt. Subd. 24, Sec. 1038, Stat. 1898.

5 State ca rel. Dwinnell vs. Gaylord, 73 Wis., 316. In this case the creditor was a resident of Wisconsin, and the credits in question arose upon loans made to residents of another state secured by mortgages upon lands in such other state, the notes and mortgages taken upon such leans being in the possession of an agent of the creditor residing

From the foregoing it will be seen that while the laws of the state provide for the taxation as property of virtually every kind of credit known to business transactions, a very large portion of such credits are not and would not be assessed if the laws were fully and efficiently enforced.

The rules given by statute for determining the amount of credits for which any person shall be assessed, and the means provided by law for the discovery and listing of the same, are as follows:

"To determine the amount of notes, bonds, mortgages, or other securities for which any person should be assessed, and the amount of indebtedness which any person may be entitled to deduct from credits as exempt, such person shall be required to make a statement thereof under oath giving the average amount of such notes, bonds, mortgages or other securities owned or held by him, and the average amount of indebtedness which he may be so entitled to deduct, for each and every month during the year ending on the first day of May; and the average amount for such year, so determined, shall be assessed for taxation."1

It is further provided that the assessor "after arriving at the total valuation of all articles of personal property which he shall be able to discover as belonging to any person, if he shall have reason to believe that such person has other personal property consisting of money, credits, debts due or to become due, or any other thing of value liable to taxation, he shall add to such aggregate valuation of personal property an amount which,

in such other state, who had authority to collect the demands, discharge the securities and re-loan the funds. It was held that the propertythe thing to be assessed--consists in the right of the creditor to receive payment and enforce his demand and not in the paper evidences of such right in the possession of the agent; that in the absence of any statute expressly governing the matter, the property-the right of the creditor can have no situs except at the legal domicil of such creditor; that therefore such credits are to be considered as located and subject to taxation in the assessment district in which such creditor resides in this state. Applying the same principles to a case where the conditions are reversed, as stated in the text, such credits would not be subject to taxation in Wisconsin-would not be "property in this state" within the meaning of that phrase as used in Sec. 1034, Stat. 1898, quoted on a preceding page.

1 Sec. 1056, Stat. 1898.

in his judgment, will render such aggregate valuation a just and equitable valuation of all the personal property liable to taxation belonging to such person.1

The foregoing outline presents all the laws of importance respecting the taxation of credits except those general provisions which relate to the assessment of all kinds of personal property. The law has thus stood for many years without substantial change except that the legislatures of 1899 and 1901 have enacted some provisions looking to a better enforcement of the assessment laws in general, which will be mentioned presently. There have never been effectual provisions in the laws by which sworn statements of credits liable to taxation have been obtained from property owners. Such owners, with comparatively few exceptions, have omitted or refused to furnish such statements; and in so far as credits have been assessed for taxation, it has been accomplished chiefly by the assessors themselves without information from such owners, or upon such unsworn and partial or incomplete information as they may choose to give.

The act creating the present commission (Chap. 206, 1899) provided in general terms that the commissioner of taxation "shall have general supervision of the system of taxation throughout this state," without other or more specific statement of authority or duty in respect to the administration of the assessment laws. The term of office of the commissioners appointed under such act did not begin until May, 1899. Before they could qualify and actively enter upon the discharge of their official duties, the work of local assessors for 1899 was so far advanced that there was virtually no opportunity for exercising such supervision in that season. The exercise of such power of supervision was undertaken in 1900. As shown above, the power was hardly more than supervisory. The principal effort was embodied in a pamphlet of instructions to local assessors and boards of review. The purpose of such pamphlet was to

1 Sec. 1055, Stat. 1898. There is some question whether the assessor has power to increase the assessment of any individual for moneys or credits if the sworn statement required by Sec. 1056 has been furnished, notwithstanding the power conferred by Sec. 1055 quoted above. See Tax Commission's Instructions to Assessors, 1902, p. 43.

secure better observance of the law on the part of assessing officers. They were advised of the illegality of the practice of undervaluation of property and of the evils resulting therefrom, of the large amounts of intangible property including credits usually escaping assessment, and urged to a better performance of their duty, the more important provisions of law enacted for their guidance being pointed out and explained.

By Chapter 220, Laws of 1901, the powers of the commission were somewhat enlarged and made more specific. By chapters 330 and 379 of the same year assessing officers were inade liable to penalties and to forfeiture and to removal from office for violation of official duty. By Chapter 445, Laws of 1901, the office of county supervisor of assessments was created, such officer having supervision, chiefly advisory, of the work of local assessors in his county, with permissive authority to make complaint for removal of assessors for violation of duty. By the provisions of said chapter 445 the county supervisor of assessments did not take oflice until January, 1902; consequently these officers had nothing to do with the assessment of 1901.

In 1901 the pamphlet of instructions to local assessing officers was revised and enlarged; the attention of such officers was called to the new laws mentioned above providing penalties, etc., and renewed and greater effort was made to induce such ficer having supervision, chiefly advisory of the work of local sessment of property for taxation. This was supplemented by a voluminous correspondence containing special instructions and explanations of the law in answer to numerous inquiries and various requests for assistance received from individual officers in all parts of the state.

In 1902 the pamphlet of instructions was enlarged and extended to cover the subject more thoroughly and more in detail and greater stress was laid upon the duty of assessing officers to fully comply with the law. Special instructions by correspondence greatly execeded these of previous years, and a number of circulars relating to particular topics were also sent out. In most of the counties the supervisor of assessments, under the supervision of the commission, performed his duties eficiently, and assessors were held to a much stricter observance of the law