In Re Hayes' Estate , 161 Or. 1 ( 1938 )

The state has filed a petition for a rehearing and accompanying brief, both of which manifest concern lest our previous decision permits residents of this state, who desire to escape taxation, to sell their securities outside of this state, establish trusts with the proceeds, and thereby achieve their purpose.

In our previous decision we went to great length to point out that Dr. Hayes' acquisition of federal reserve notes in Illinois and his deposit of them there were not sufficient in themselves to give the notes an Illinois situs. We pointed out that (1) Dr. Hayes had resided less than two years in this state when the challenged transaction took place; (2) he never conducted any business in this state; (3) his fortune was made before he came here; (4) only a minor part of his securities was ever in this state; (5) his only bank account was with an Illinois bank; (6) the major part of his securities was in the possession of an Illinois trust company which collected sums due him, deposited them to his credit, honored his checks, and made investments for him; (7) the federal reserve notes were purchased with money thus accumulated: a Chicago bank account, money borrowed from a Chicago bank, and the proceeds from the sale in Illinois of bonds which had never been in this state; (8) he never planned to bring the notes into Oregon; (9) the notes were acquired for the purpose of enabling Dr. Hayes to effect a transaction with them in Illinois; and (10) the trustee that he chose was domiciled in Illinois and the trust res was kept in that state.

We shall now consider the sixth element again.

In New Orleans v. Stempel, 175 U.S. 309, 44 L. Ed. 174,20 S. Ct. 110, the issue for determination was thus stated in the decision:

"Under the circumstances disclosed by the testimony, were the money and credits subject to taxation? It appears that these credits were evidenced by notes largely secured by mortgages on real estate in New Orleans; that these notes and mortgages were in the city of New Orleans, in possession of an agent of the plaintiff, who collected the interest and principal as it became due and deposited the same in a bank in New Orleans to the credit of the plaintiff. The question, therefore, is distinctly presented whether, because the owners were domiciled in the State of New York, the money so deposited in a bank within the limits of the State of Louisiana, and the notes secured by mortgages situated and held as above described, were free from taxation in the latter state."

In rejecting the contention of the New York owner that these securities were not taxable in Louisiana, the court quoted from many authorities, and we now quote from its decision:

"In Goldgart v. People, 106 Illinois, 25, 28, the court said: ``If the owner is absent, but the credits are in fact here, in the hands of an agent, for renewal or collection, with the view of reloaning the money by the agent as a permanent business, they have a situs here for the purpose of taxation, and there is jurisdiction over the thing.' * * * This proposition was reaffirmed in People ex rel. v. Smith, 88 N.Y. 576, in which the Court of Appeals of that State held that a resident of New York was not liable to taxation on moneys loaned in the States of Wisconsin and Minnesota on notes and mortgages, which notes and mortgages were held in those States for collection of principal and interest and reinvestment of the funds, it appearing that property so situated within the limits of those States were there subject to taxation. See also * * *" The decision sustained the Louisiana tax.

In Hall v. Miller, 102 Tex. 289, 115 S.W. 1168, the plaintiff, domiciled in Missouri, owned notes of the value of $116,285, which were in the possession of his agents located in Texas. These notes arose out of sales by his agents of Texas property. Payments made to the agents upon the notes from time to time were deposited by them in a Texas bank to the credit of the plaintiff, and the latter drew upon the account as his needs required. In holding that the notes were taxable in Texas, the court declared that they had acquired a business situs in that state, and depended largely upon NewOrleans v. Stempel, supra. See to same effect Monongahela RiverConsolidated Coal Coke Co. v. Board of Assessors, 115 La. 564,39 So. 601, 2 L.R.A. (N.S.) 637, 112 Am. St. Rep. 275.

In Ewa Plantation Co. v. Wilder, 289 Fed. 664, the plaintiff, a Hawaii corporation, was represented in San Francisco by an agent. The latter sold sugar produced by the plaintiff and deposited the sums received in a San Francisco bank to the credit of the plaintiff. Against these deposits the plaintiff drew from time to time. The San Francisco agent also possessed securities owned by the plaintiff, but had no authority to make investments. The decision stated:

"The plaintiff in error contends that the bonds, notes and deposits here in question have become localized and have acquired a business situs in San Francisco, and they cite cases in which foreign held bonds have been taxed at the place of their situs irrespective of the owner's domicile. The general doctrine of these cases is expressed in De Ganay v. Lederer, 250 U.S. 376,39 Sup. Ct. 524, 63 L. Ed. 1042. In that case stocks and bonds issued by Pennsylvania corporations, and mortgages on real estate in Pennsylvania, were owned by an alien nonresident but were in the hands of an agent, a Pennsylvania corporation, authorized to sell, assign, and transfer them and to invest and reinvest the proceeds as it might deem best under a power of attorney to represent the owner and in the owner's behalf to vote and act at all meetings of corporations connected with such stocks and bonds. It was held that the income derived from the stocks and bonds was subject to taxation under the Income Tax Law of 1913. The court said: ``We have no doubt that the securities herein involved are property. Are they property within the United States? It is insisted that the maxim mobilia sequuntur personam applies in this instance, and that the situs of the property was at the domicile of the owner in France. But this court has frequently declared that the maxim, a fiction at most, must yield to the facts and circumstances of cases which required it; and that notes, bonds and mortgages may acquire a situs at a place other than the domicile of the owner, and be there reached by the taxing authority.'

"In that case the significant facts were that the stocks and bonds were in the hands of a local agent empowered to sell and dispose of them or any of them according to his own judgment, to reinvest at his discretion, to hold the same for the owner's account, and to represent the owner and manage generally the owner's business affairs * * *."

Having so quoted, the decision pointed out that the San Francisco agent had no authority to make investments or reinvestments, and held that the money was taxable in Hawaii. In other words, mere authority to collect and deposit in a bank did not give a local business situs.

In Crane Co. v. Des Moines, 208 Iowa 164, 225 N.W. 344, 76 A.L.R. 801, the court held that $35,000 of bank accounts possessed by the plaintiff's agency in Des Moines were taxable in Iowa. The plaintiff was an Illinois corporation with its principal place of business in Chicago. Its Des Moines agency sold the plaintiff's products, collected the book accounts, deposited the sums collected in a Des Moines bank, and periodically remitted the proceeds to the home office. The company challenged an Iowa tax levied upon the bank accounts. In holding that they were subject to Iowa taxation, the court declared that the company had given them a business situs independent of its domicile. It cited with approval Marshall Wells Hardware Co. v.Multnomah County, 58 Or. 469, 115 P. 150, wherein this court sustained a tax upon accounts receivable in the sum of $225,000 held by the Portland branch of the Marshall Wells Hardware Company, a New Jersey corporation, the principal office of which was located in Minnesota. That company maintained a branch in Portland and also a bank account varying in amount from $3,000 to $5,000. In sustaining the tax, this court, after reviewing many supporting decisions, said:

"In the case before us the choses in action were a part of the Oregon business, arising from sales made here, and the only evidence concerning them was in the hands of the Portland manager and were collectible by him; and whether the debtor is in or out of the state these debts are a part of the capital of the Oregon business, and were properly taxable in Multnomah County."

In the present instance, the stipulation of the parties states:

"As such agent said Harris Bank had collected income and principal on said bonds and dividends on stocks, had credited income so collected to a checking account of decedent in Harris Bank, subject to decedent's order, had acted as decedent's financial agent in his investments in bonds, stocks, and reinvestments in bonds and stocks of moneys received from maturities of principal of bonds and of moneys derived by Harris Bank from sales of bonds and stocks held by Harris Bank in said agency account for decedent. The bonds and stock certificates from time to time owned by decedent and held for decedent's account by Harris Bank were never physically present or situated within the State of Oregon, but were at all times while owned by decedent physically present and situated in Chicago."

Thus, the facts before us are similar to those which induced other courts, including the federal supreme court, to hold that securities were taxable at the place where they were constantly used; that is, where they had gained a business situs. Had the situation been reversed and the securities been maintained in this state by an elderly individual domiciled in Illinois, who, upon retirement from active pursuits, had conferred upon a local agent the authority possessed by the Harris Bank, we feel certain that Oregon would have believed that the securities had gained a local situs, that the fiction mobilia sequuntur personam was inapplicable, and that the securities were subject to Oregon taxation. It would have pointed out that the securities and the various transactions which were taking place constantly concerning them had the benefit and protection of the laws of this state — the quid pro quo for which tax money is taken. In view of the above, a belief that Dr. Hayes intended to give an Illinois situs to the federal reserve notes, and never intended to bring them into Oregon, is greatly fortified.

Let us now consider further the tenth element stated in the second paragraph of this decision.

In Safe Deposit T. Co. v. Virginia, 280 U.S. 83,74 L. Ed. 180, 50 S. Ct. 59, 67 A.L.R. 386, the court held that securities in the possession of a trustee domiciled in Maryland were not taxable in Virginia, that being the domicile of the two beneficiaries of the trust, who were, respectively, five and eight years of age when the trust was established. The latter was to continue until the beneficiaries reached the age of twenty-five. In speaking of the doctrine of mobilia sequuntur personam which Virginia invoked, the court declared:

"Here, where the possessor of the legal title holds the securities in Maryland, thus giving them a permanent situs for lawful taxation there, and no person in Virginia has present right to their enjoyment or power to remove them, the fiction must be disregarded. It plainly conflicts with fact; the securities did not and could not follow any person domiciled in Virginia. Their actual situs is in Maryland and cannot be changed by the cestui que trust."

The situation in the present instance is substantially similar to that pictured in the language just quoted. The record does not disclose the residence of the beneficiaries of Dr. Hayes' trust.

The annotator in 67 A.L.R., at page 393, states:

"As a general principle, unless modified by statute, an executor, administrator or trustee is regarded as the owner, for purposes of property taxation, of the personal property which he holds by virtue of his office, and is taxable in the state in which he is domiciled. Nor, in the absence of statute, is such situs affected by the fact that the beneficiaries are not residents; or by the fact that the decedent was domiciled in, and the executor, administrator or trustee, as the case may be, receives his authority from the court of, another state. * * *"

Thus, the notes were acquired with the proceeds from assets which were never in Oregon, but which, under the foregoing decisions, had acquired a business situs in Illinois. The notes were never brought into this state and their owner's only intention was to keep them in Illinois during his ownership. The notes were obtained for the purpose of enabling Dr. Hayes to consummate a transaction in Illinois with an Illinois bank; and, finally, upon the consummation of the transaction, the notes, upon becoming the trust res, definitely had an Illinois situs.

In our previous decision we pointed out that tangible personal property is taxable in the place where it is permanently located; that is, more or less permanently. We also pointed out that in determining whether the property has acquired a location of a more or less permanent character the type of property must be taken into consideration; for instance, perishables have a permanency of very short duration; money may last for centuries and yet change hands daily. The permanency for purposes of taxation is determined, not by the life of the article but by the duration of each individual's ownership. In the present instance Dr. Hayes owned the federal reserve notes for a span of only a few days, but during that time the notes were in Illinois and, as already indicated, Dr. Hayes intended that they should remain there. He there engaged in a business transaction with them which constituted the only use to which he ever put them.

Without further analysis, we remain satisfied that the taxation situs of these notes was not in Oregon. To make the matter entirely clear, we state that we have considered all of the foregoing facts, and have not based our conclusion upon only one or two of them, as the State seems to believe. We do not mean to say, however, that each and every one of them was entirely essential.

The petition for a rehearing is denied.

RAND, C.J., and KELLY and BAILEY, JJ., concur.