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History and present law; 9



ADAMS, THOMAS S. Mortgage statistics and taxation in Wis-
consin and neighboring states. Report of the Wisconsin
Tax Commission, 1907.

A scientific, statistical investigation of the effect of the mortgage
tax law of Wisconsin. 1903. together with many other facts of spe-
cial interest to the economist and tax expert.

, Mortgage Taxation in Wisconsin. Quarterly Jour-
nal of Economics, Nov. 1907.

Based 011 the preceding, more detailed discussion by the same

FETTER, FRANK A. Change in mortgage taxation in New
York, 1906. Quarterly Journal of Economics, Aug. 1906.
A brief, concise statement of the introduction of the recording
tax on mortgages in New York.

HAUGEN, NILS P. The exemption of credits, 1903.

A general discussion of the Question of exempting credits.
PLEHN, CARL C. Taxation of mortgages in California. Yale
Review, May, 1899.

A discussion of the California law and the effect of its adminis-

SELIGMAN, EDWIN R. A. The new mortgage tax in New
York. Review of Reviews, July, 1905.

A brief discussion of the law imposing an annual tax on mort-
gages. 1905.

ERS, 1906.

Contains a brief discussion by each of the commissioners on the
subject of taxing moneys and credits.

STATE AND LOCAL TAXATION. First National Conference,
1907. Published by The Macmillan Company.

An up to date treatment of many of the leading questions of tax-
ation .


The proper method of taxing mortgages is still an
unsettled problem. In a great majority of states
mortgages are taxable as personal property to the
holder at his place of residence and the real estate
given as security is taxable to the, owner at the situs
of the property. It is the system usually known as
double taxation of the mortgage debt and the mort-
gaged property. The mortgagor almost without ex-
ception pays taxes on the property without deduction
and oftentimes agrees to pay taxes on the mortgage in
the hands of the owner, should it be taxed.

These laws providing that mortgages are tax-
able as personal property are never fully enforced
and it is only in rare instances and for short periods
that any considerable percentage of the mortgages are
listed for taxation at their full value.

A percentage of the total number of mortgages is
listed, it is true, but that percentage is small and is
usually made up of mortgages where both parties to
the contract are residents of the same assessment dis-
trict, mortgages brought to light by the settlement of
estates, and mortgages representing but a fractional
part of large holdings of similar property which are


given in to allay suspicion and thus aid in concealing
the amount actually owned and held.

Only exceptions to the laws taxing mortgages as
personal property will be noted here. When objec-
tions were raised to the system of double taxation the
natural solution of the problem was to tax mortgages
as an interest in the real estate. When this is done
the vital question is whether or not the parties to the
mortgage are permitted to enter into a contract con-
cerning the payment of the taxes. If this privilege
is not granted and the law is enforced then each party
to the mortgage must pay taxes on his respective in-
terest the mortgagee on the value of the mortgage at
the situs of the property and the mortgagor on the
value of the real estate minus the indebtedness. If
contracts are permitted then the mortgagor usually
agrees to pay all taxes on the encumbered property
and the mortgagee is exempt, the theory being that
the mortgagor will get the loan at a reduced rate of
interest by agreeing to relieve the mortgagee from all
obligations with regard to taxes.

Both systems have been tried. California is the
best example of a state where contracts were not per-
mitted. This system prevailed there from the time of
the adoption of the second constitution in 1879 un-
til the court held that separate contracts were permis-
sible (120 Cal. 220, 1898). The objectional part of
the constitutional provision was repealed in 1906 and
a new law passed in 1907 permitting contracts. Mis-
souri had a similar law (1900) but the supreme court


of the state declared it unconstitutional on the ground
that since the mortgages of certain corporations were
not to be treated as an interest in the real estate, such
corporations were thus deprived of the equal protec-
tion of the law provided for under the fourteenth-

At the present time mortgages in California, Conn-
ecticut, Massachusetts, New Jersey and Wisconsin are
taxable as an interest in the real estate and the parties
to the mortgage are permitted to enter into a contract
concerning the payment of the taxes. Michigan and
Oregon had similar laws but they were both silent
with regard to contracts. The Michigan court in La-
tham v. Board of Assessors (91 Mich. 509, 1892) held
tfiat such agreements were permissible. In both states
the laws have since been repealed (1893).

If the actual enforcement and working out of the
laws are considered, Colorado belongs in the same
class as Massachusetts and Wisconsin. The law pro-
vides that the mortgage and the property given as se-
curity are to be assessed as a unit and that the mort-
gages are not to be returned or assessed.

In Indiana a somewhat different system prevails.
The mortgagor may have the amount of the mortgage
indebtedness not exceeding seven hundred dollars de-
ducted from the assessed value of the mortgaged prem-
ises. In no case can this deduction be greater than
one half of the assessed value of the real estate. If
this deduction is claimed and allowed the mortgage
debt or that portion of it which is taxable is assessed


as personal property to the mortgagee at his place of

In Pennsylvania mortgages are uniformly subject to
a tax of four mills on the dollar; the proceeds from
this source are divided between the state and the

Mortgagees in certain enumerated counties of Mary-
land are required to pay a tax of eight per cent upon
the gross amount of interest covenanted to be paid on
mortgages held by them.

Idaho and Washington exempt mortgages from tax-
ation by law.

In Alabama, Minnesota, New York and Virginia
mortgages are subject to a recording or privilege tax
paid at the time of recording depending on the amount
of the tax of the mortgage debt

All other states tax mortgages as personal property.




History. In Alabama prior to 1903 mortgages were
subject to taxation as personal property (Code, 1896,
vol. 1, sec. 3911, sub sec. 7). In 1903 (Acts, 1903,
p. 227) a privilege tax of fifteen cents on every one
hundred dollars was imposed at the time of record-
ing. The present law was passed in 1907, and is but
a slight modification of the law of 1903.

Constitution, 1901, art. 11, sec 1. All taxes levied
on property in this state shall be assessed in exact pro-
portion to the value of such property.

Present Lau>, Acts, 1907, p. 455, sec. 1. No mort-
gage, deed of trust, contract of conditional sale, or
other instrument in the nature of a mortgage executed
so as to convey real property or any interest in real
or personal property situated within the state is to be
received for record unless a privilege tax has been
paid. This tax amounts to fifteen cents, if the in-
debtedness secured is one hundred dollars or less ; and
an additional fifteen cents is added for every addi-
tional one hundred dollars or fraction thereof. The
law states definitely that the tax is to be paid by the


When the mortgage is presented to the judge of
probate of the county in which any of the property
conveyed is situated and the tax is paid, the probate
judge makes a certification to that effect on the instru-
ment, and then the mortgage may be recorded in any
county where property given as security is situated
without any additional tax, except the fee for record-
ing. An extension or renewal contract is subject to
the same tax as the original mortgage. If the tax
prescribed by this act has been paid, neither the mort-
gage nor the debt secured is to be subject to an ad
valorem tax, either for state, county, or municipal
purposes. The probate judge receives 5 per cent of
the amount collected by him as compensation for his
services. Of the remainder, one-third is paid to the
county treasurer of the county in which the taxes are
collected, and two-thirds to the state treasurer. If
the land which is given to secure the debt is situated
in more than one county of the state, then, this one-
third is divided among the county treasurers in pro-
portion to the value of the property given as security
in each county. In cases where only part of the prop-
erty is within the state, the proportional part within
and without is determined by the state board of com-
promise, and the taxes paid accordingly.

It is made a misdemeanor, punishable by a fine, for
the probate judge to file for record any mortgage upon
which the taxes have not been paid.



Revised Statutes, 1901. In Arizona (sec. 3847)
property under mortgage or lease is listed by and
taxed to the mortgagor or lessor, unless it is listed
by the mortgagee or lessee. With certain enumerated
exceptions (sec. 3834) all property is subject to taxa-
tion, but double taxation is not permitted. Liabilities
may be deducted from solvent debts (sec. 3835).


Constitution, 1874, art. 16, sec. 5. All property sub-
ject to taxation shall be taxed according to its value,
that value to be ascertained in such manner as the gen-
eral assembly shall direct, making the same equal and
uniform throughout the state.

Present Law. Dig. of St., 1904. In Arkansas
mortgages are taxed as personal property. The law
requires (sec. 6873) that all property, including mon-
eys and credits, shall be taxed, and credits are defined
(sec. 6872) as the excess of the sum of all legal claims
and demands over and above the sum of legal bona
fide debts which the person owes. Every person (sec.
6899) is required to list all moneys loaned by him, but
is not required (sec. 6902) to list a greater portion of
any credits than he believes can be collected.

Court Decisions. A note given for land, and the
land itself, are both subject to taxation; the note as
property of the holder, and the land as property of the
purchaser. Ouachita County v. Rumph, 43 Ark. 525,



History. The constitution of 1849 (art. 11, sec.
13) stated that taxes shou d be uniform and equal
throughout the state and that all property should be
taxed in proportion to its value. The statutes enac-
ted about the same time (1849-50, c. 52, sec. 2, 4)
provided that mortgages were to be taxed as personal
property. In 1851 (c. 6, sec. 21) a special clause was
incorporated, and money loaned at interest was made
subject to a tax of one dollar for each one hundred
dollars of value. This system was used for one year
only, when change was made and mortgages were
made taxable as an interest in the real estate (St. 1852,
c. 3, sec. 13) the mortgagee to pay taxes on the
money secured by the mortgage, and the mortgagor
on the value of the property less the value of the mort-
gage. The next year (1853) the mortgagor was re-
quired (c. 167, art. 10, sec. 9) to pay taxes on the
value of the property without deduction, and the mort-
gagee on the amount of money lent (c. 167, art. 1,
sec. 1). In addition to this persons engaged in the
business of lending money were subject to a license
tax of ten cents for every one hundred dollars of busi-
ness estimated to have been done (c. 167, art. 3, sec.


This system continued until 1870 when an effort was
made to re ieve the owners of encumbered real estate
from double taxation (St. 1869-70, c. 424, 485). The
law read as follows : "No mortgage or lien given
and held upon real estate, or the debt thereby secured,


or promissory note secured by mortgage, shal be as-
sessed upon the books of any assessor, state, county,
or otherwise." At first the courts held that mort-
gages were property, and as such could not be exempt
from taxation under the constitution (People v. Eddy,
43 Cal. 331, 1872; Lick v. Austin, 43 Cal. 590, 1872).
Later the court practica'ly reversed these decisions and
stated that mortgages should not be taxed because such
action would violate the constitutional requirement
providing that all taxation should be uniform and
equal and that property should be taxed in proportion
to its value. The court held that a tax on the mort-
gage and on the property given as security was a case
of double taxation, and, as such, forbidden by the con-
stitution. (People v. Hibernia Bank, 51 Cal. 243,
1876). See Savings and Loan Society v. Austin, 46
Cal. 415, 1873).

The present constitution in California was adopted
in 1879 and did contain two sections relating to the
taxation of mortgages. Under sec. 4, art. 13, mort-
gages were to be taxed as an interest in the real es-
tate, and each party to the contract was to pay taxes
on his respective interest ; sec. 5 stated that all con-
tracts by which a debtor was obligated to pay any tax
or assessment on money loaned, or on any mortgage,
deed of trust or other lien, were to be null and void.
Court decisions practical'y annulled that part of the
law forbidding contracts, for in the case of London
and San Francisco Bank v. Bandman (120 Cal. 220,
1898) the court held that an allegation and finding


which did not state that the agreement of the mort-
gagor to pay the taxes was part of the mortgage con-
tract, was not broad enough to establish an agreement
violative of the constitution.

Sec. 5 was actually repealed in November, 1906
(See Const. St., 1907) and the question of repealing
sec. 4 is to be voted on by the people in November,
1908 (St. 1907, p. 1159).

Constitution, art. 13, sec. 4. A mortgage, deed of
trust, contract, or other obligation by which a debt is
secured, shall, for the purposes of assessment and tax-
ation, be deemed and treated as an interest in the
property affected thereby. Except as to railroad and
other quasi-public corporations, in case of debt so se-
cured, the value of the property affected by such mort-
gage, deed of trust, contract, or obligation, less the
value of such security, shall be assessed and taxed to
the owner of the property, and the value of such se-
curity shall be assessed and taxed to the owner there-
of, in the county, city, or district in which ,the prop-
erty affected thereby is situate. The taxes so levied
shall be a lien upon the property and security, and
may be paid by either party to such security; if paid
by the owner of the security, the tax so levied upon
the property affected thereby shall become a part of
the debt so secured ; if the owner of the property shall
pay the tax so levied on such security, it shall consti-
tute a payment thereon, and to the extent of such pay-
ment, a full discharge thereof; provided, that if any
such security or indebtedness shall be paid by any


such debtor or debtors, after assessment and before
the tax levy, the amount of such levy may likewise be
retained by such debtor or debtors, and shall be com-
puted according to the tax levy for the preceding year.
Present Law. Sec. 4, art. 13, of the constitution
still remains in force, but sec. 5 has been repealed.

Statutes, 1907, c. 368, sec. 1. With minor changes-
in the punctuation and wording, sec. 4 of the consti-
tution is reproduced in the statutes, but that part of
the statutes that formerly corresponded to sec. 5 of
art. 13 of the constitution has been materially changed
since the repeal of that section in 1906. Now the par-
ties to any mortgage are given the right to provide by
contract that the debtor shall pay all or any taxes or
assessments on the money loaned, or on the mortgage,
deed of trust, or other lien, or on the property covered
or the obligation secured. Such contracts are to be
valid and constitute a waiver by the debtor of all
rights to treat the payment of such tax or assessment
as a payment on the amount loaned or secured.

sec. 7. To assist in the work of assessment, the re-
corder is required to transmit annually to the assessor
a complete abstract of all mortgages remaining un-
satisfied on the records of his office; this abstract to
embrace all information requisite for the assessor. If
partial payment has been made, the owner is author-
ized to make the proper deductions. This information
would be of use to the assessor only in cases where
no agreement had been entered into between the debtor
and creditor as to the payment of the taxes.



Constitution, 1876, art. 10, sec. 3. All taxes shall be
uniform upon the same class 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

Present Law. Mills' St., 1905, sec. 3806. In Colo-
rado mortgaged property is taxed to the mortgagor
and the mortgagee as such is exempt. Whenever any
property within the state is mortgaged, the property
.and the notes, mortgage, deed of trust, trust deed,
contract or other conveyance is to be assessed as a
unit; the value of this unit for assessment purposes is
to be equal to the value of the property only. Such
contracts are not to be otherwise returned or assessed.

sec. 3924o. If the mortgagor fails or neglects to
pay the tax, the mortgagee may pay it and include the
amount with interest in any judgment rendered on the


History. In the session laws of Connecticut for
1836-37 (c. '12, sec. 2) a statement may be found to
the effect that mortgages were to be taxed to the
owner as personal property. By 1852 it would seem
that the custom had grown up of taxing mortgages as
an interest in the property. At least the law stated
.that whenever in the 'making of ariy tax list, any real


estate was omitted or abated because of any indebted-
ness, secured by a mortgage, the indebtedness was to
be taxed in the town or district in which the real es-
tate was situated. (Laws, 1852, c. 67, sec. 1.) If
the creditor was a resident of the town or district in
which the mortgaged property was situated, the amount
deducted from the value of the property because of
the mortgage debt was simply added to his list, but if
he was a non-resident, a statement of his credits was
made out and notice sent. He might then appear be-
fore the assessors or board of relief and show cause
why such indebtedness should not be taxed to him.
(Laws, 1852, c. 67, sec. 2.) A law somewhat simi-
lar was passed in 1865 (c. 93, sec. 1), and in 1867 it
was provided that no greater amount of indebtedness
was to be deducted from the list of any person than
the assessed value of the property for which the in-
debtedness was contracted. (Laws, 1867, c. 25.)

The present law, the main .provisions of which were
passed in 1875 (c. 27), carried out the ideas intro-
duced much earlier _ and provided for the taxation of
mortgages as an interest in the real estate to an
amount equal to the assessed value of the mortgaged

Constitution, 1818, art. 1, sec. 11. The property of
no person shall be taken for public use without just
compensation therefor.

Present Law. Gen. St., 1902, sec. 2319. Money
lent at interest and secured by a mortgage which con-
tains an agreement that the borrower is to pay the


taxes, is to be exempt from taxation to an amount
equal to the assessed value of the mortgaged land.
The excess of any such loan over the value of the real
estate is assessed and taxed in the town where the
lender resides.

sec. 2323. Money secured by mortgage upon real
estate, where there is no agreement that the borrower
shall pay the taxes, is assessed to the owner, but is
assessed in the town where the real estate is situated
and not at the residence of the mortgagee.

sec. 2326. The rule that tax payers need not list
property located outside of the state if they can prove
that such property has already been assessed, does not
apply to money loaned at interest to non-residents.
Such property must be listed.

Laws, 1907 (c. 160 as amended by c. 253, Laws,
1907). The Connecticut law contains a provision
which permits any person to take or send any note,
bond, or other chose in action, or a description of it,
to the state treasurer, and pay a state tax of 2 per
cent on the face amount for five years, or for a longer
or shorter time at the same rate. The treasurer makes
an endorsement upon the contract or gives a receipt
stating that the tax has been paid. The instrument is
then exempt from all other taxes. The state treas-
urer classifies all notes, bonds, choses in action upon
which the state tax has been paid according to assess-
ment districts, and sends these lists to the town



History. Laws, 1897 (c. 381 as amended by c. 25,
Laws, 1898). It was the duty of the assessor to list
for state and county purposes, at three-fourths of their
value, all investments paying interest or yielding an in-
come. Mortgages were included under investments.
All such property, whether situated within the state or
elsewhere, whether owned or held in trust, was to be
assessed, unless it was taxed in some other state or
county. It was declared to be the intention of the
act to tax the owner and not the borrower or debtor,
and any person asking, demanding, contracting for,
or receiving any money or consideration on account
of the tax or in reduction of the tax, or any person
who imposed or tried to impose the tax or any part
of it upon a debtor, was to be deemed guilty of a mis-
demeanor and subject to a heavy fine.

Where the creditor was a non-resident, the debtor
was liable for the tax in the first instance, but must
deduct the amount paid from the interest due or ac-
cruing on the debt. If the creditor refused to allow
this deduction, he was to forfeit all the accrued inter-
est and the debtor was not to make any payment to a
creditor living outside of the state until the tax had
been paid.

Railroads and other companies paying a stipulated
tax in lieu of all other taxes were not included under
the provisions of the law.

The tax amounted to thirty cents on the one hun-
dred dollars of the assessment as made and returned
by the assessor, and, as a rule, one-fourth of the money


collected from this source went to the state, and three-
fourths to the county.

In the case of E. G. & T. Co. v. Donahoe (3 Pen-
ij< will's Del. Rep. 191, 1901) the court held this law
unconstitutional. The original act was for the purpose
of equalizing taxation for state and county purposes.
The amendment considered municipal taxation a? well
without proper designations in the title. The court
held that so much of the amending act as related to
taxation for municipal purposes was unconstitutional
and void under the constitution because not embraced
within the title of the act, and that since the uncon-
stitutional part could not be separated from the resi-
due without emasculating the statute, that, therefore,
the act as amended was unconstitutional and void.

Constitution, 1897, art. 8, sec. 1. "All taxes shall
be uniform upon the same class of subjects w'thin the
territorial limits of the authority levying- the tax, and
shall be levied and collected under genera 1 laws, but
the general assembly may by general law exempt from
taxation such property as in the opinion of the general

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Online LibraryRobert Argyll CampbellMortgage taxation → online text (page 1 of 4)