TAXATION WITHOUT JURISDICTION UNCONSTITUTIONAL. By DAVID A. WELLS. [Reprinted, from The Atlantic Monthly for March, 1875.] TAXATION WITHOUT JURISDICTION UNCONSTITUTIONAL. A majority of the readers of The Atlantic, after glancing at the above title, will doubtless think, if they do not openly say, “ Here comes again this dry, wearisome subject of taxation! Is it not enough to be obliged to pay taxes without being continually asked to read about them? Why not exclude this whole subject from the pages of popular magazines and relegate it to the strict politico-economic, financial, or social- science journals, where those who fancy this sort of intellectual pabulum can go and be satisfied ? ’ ’ As an answer pertinent in some de¬ gree to these criticisms and questions, let us suppose that at the commence¬ ment of this new year which we have entered upon, every man and woman in the nation had been personally served with an official notice that for the com¬ ing twelve months one tenth part at least, on an average, of all that he or she might produce or receive in the way of income should be taken from them as soon as earned, and expended with¬ out their direct supervision, and not un- frequently in direct opposition to their wishes! that every man who bought ten pounds of brown sugar should be col¬ lared as he left the grocery, and then and there be forced to allow two pounds to be taken out of his package! that every time a man took a chew of to¬ bacco or lighted a cigar or indulged in a pinch of snuff, he should be tapped on the shoulder by an official and made to pay a fine! that every woman who went to buy a silk dress should have five and a half yards out of every ten cut from her purchase as she left the counter, and walked off with by some one whom she did not know! Suppose that these and a hundred other similar transac¬ tions should be made the subject of daily occurrence for the whole year, and throughout the length and breadth of the land; can it be doubted that a very considerable amount of interest would at once be awakened, and that the public, over their breakfast and dinner tables, in the press, on change, and in the. streets, would very soon sat¬ isfy themselves whether it was neces¬ sary to have so much of this world’s goods taken from them; whether the contributions should be forced so often, and especially whether the methods of taking were the best that could be de¬ vised? And yet substantially all that has been imagined was done every day of last year, and will continue to be done every day of the present year; and although it is not pretended that any continued discussion or any extension of popular information will do much to¬ wards hastening that millennial period when there will be no more taxes, in common with other disagreeable things, yet it is certain that continued discus- •sion and an extension of popular infor¬ mation will do much in the way of speed¬ ily reforming the most important busi¬ ness (measured by the amount of money involved) which the country has in hand, in at least the following particulars: 1st. It will prevent more than is neces¬ sary from being taken in the way of tax¬ ation. 2d. It will put a stop to any¬ thing like arbitrary taxation, taxation without legal or territorial jurisdiction, or taxation without returning an equiv¬ alent in the way of its correlative pro¬ tection to person or property — all of which proceedings are only forms of spo¬ liation or confiscation. 3d. It will pre¬ vent anything like double taxation, or taxation at one and the same time, by conflicting jurisdictions, of one and the same property. 4th. It will do away with the necessity of resorting to oaths and declarations, and the power of mak¬ ing secret inquisitions into a man’s per¬ sonal affairs, all of which things tend to lower the standard of morality in a country more than almost any or all other agencies. 5th. It will tend in a great degree to prevent the tax payer 2 Taxation without Jurisdiction Unconstitutional. from becoming, as under the present system, the interpreter for himself, not only of the law, but also of the fact, in respect to his liability for taxation, and thus render it more difficult for him to become the assessor of his neighbor; for every man who takes advantage of re¬ mediable defects in the law, to evade his own share of direct taxation, thereby not only assesses some others of the com¬ munity for the difference, but is helped by the community to do it. How much of what has of late been written on this subject has been effect¬ ive in promoting reform, may be an open question; but that a general inter¬ est is beginning to be awakened to the necessity of reform in the matter of State or local taxation is made evident by the facts that during the past year four States — New York, Massachusetts, Virginia, and New Hampshire —have authorized committees or commissioners to investigate and report as to what changes in existihg tax laws may be ex¬ pedient; and that during the past two years more essays and pamphlets have been written and published on this special topic than probably during the whole period of our previous national history. Thus far the proposition that personal property shall be excluded from direct assessment, for the reason, mainly, that no system has ever been devised which will enable a State to tax it with any approach to uniformity and equity, has not received a full measure of popular approval, although commending itself to almost all who have taken the trouble to impartially acquaint themselves with the facts in the case. But, on the other hand, if the public has not yet intereste'd itself sufficiently in this particular mat¬ ter to form a judgment, the tax-paying portion of it, at least, are rapidly find¬ ing out that so long as we maintain a system of separate State governments, and have over all that troublesome in¬ strument which we call the Federal Con¬ stitution, with a Supreme Court fairly and impartially to interpret its provis¬ ions, the assumption of power on the part of State officials to tax citizens for personal (movable) effects situated be¬ yond the territory or jurisdiction of the taxing power, or, as the statute of Mas¬ sachusetts has it, 11 wherever they are," is something wholly unwarranted, and that it is only a question of time, and that a brief one, of its entire abandon¬ ment. THE SITU8 OF PERSONAL PROPKRTV. This question was definitely settled by the reebnt decision of the United States Supreme Court in the case known under the title of State Tax on For¬ eign held Bonds (15 Wallace, 306, 328), in which the State of Pennsylvania at¬ tempted to tax the coupons, or inter¬ est, of mortgage bonds — the same being negotiable instruments — issued by rail¬ roads within her territory and jurisdic¬ tion, but held and owned by non-resi¬ dents of the State, the exact language of the court being as follows: “ Prop¬ erty lying beyond the jurisdiction of the State is not a subject upon which her tax¬ ing power can be legitimately exercised. Indeed it would seem that no adjudication should be necessary to establish so obvious a proposition .” And yet a good deal of adjudication has been necessary to get so common-sense a proposition distinctly affirmed by a court of last resort; and so firmly, moreover, has the opposite doctrine been ingrained into most of our systems of State taxation, that assessors everywhere are doubtless still acting in conformity with the old practice, and assessing citizens for property whose actual location, or situs, is not within the taxing district. It is time, however, that State officials should begin to un¬ derstand that in thus disregarding the decision of the United States Supreme Court above quoted, they render them¬ selves personally liable to aggrieved par¬ ties for acting without jurisdiction; and that no legislative acts of Massachusetts, Connecticut, Ohio, or any other State to the contrary will be of binding force on a tax payer in respect to listing his prop¬ erty', or upon assessors, or on the State judiciary; for enactments that have been adjudicated to be unconstitutional Taxation toithout Jurisdiction Unconstitutional. are not laws, and are not to be obeyed. And if it should so happen that Statu courts should fail to give full force and effect to this same decision, a writ of error will carry any case involving the points at issue to the United States Su¬ preme Court, and the attempted arbi¬ trary spoliation will be defeated by the Federal court, and the decrees of the court enforced, if need be, by the whole power of the general government. TAXATION OF PERSONAL PROPERTY A KELIC OF PERSONAL SERVITUDE. It is interesting to here recall one of the antecedents of this so-called “per¬ sonal tax,” and of the fiction of law that personal property, irrespective of its situs, follows the owner, for the purpose of taxation. Its prototype was the an¬ cient taille, a tax of servitude, imposed on persons originally bondmen, or on all persons who held in farm or lease, or resided on lands of the suzerain; and from which proprietors or suzerains of the land were exempt. And as no vas¬ sal could at will divest himself of servi¬ tude, or allegiance to his lord or suze¬ rain, so the obligation to pay taxes al¬ ways remained upon him as a personal servitude whatever might be the location of his property. In other words, the conditio” of the masses all over Europe during tne Middle Ages was not unlike the condition of the slaves in the United States previous to emancipation. They (the slaves) had property in their pos¬ session, and spoke of themselves as own¬ ers of property, but in reality their property followed the condition of the servitude of their persons, and both per¬ sons and property belonged equally to the masters. The taille, furthermore, as a badge of servitude, was supposed to dishonor whoever was subject to it, and degrade him not only below the rank of a gentleman, but of that of a burgher, or inhabitant of a borough or town; and “ no gentleman, or even any burgher,” says Adam Smith, “ who has stock will submit to this degradation.” Now the idea embodied in the word servitude is an obligation to render serv¬ ice irrespective of or without compen¬ sation; and the idea upon which the taxation of personal property in this country has been hei’etofore based is, that the property owes a servitude to the State where the owner resides, irre¬ spective of its actual location, in virtue of the obligation which its owner as a citizen may owe to the State by reason of the protection which the State gives him in respect to his person. But the decision of the Supreme Court in ques¬ tion sweeps away all these fictions and relics of old feudalism, and in conform¬ ity with the spirit of the age decides (inferentially) that if the person is to be taxed it must be solely as a person: and (directly) that if property is to be taxed it must be solely because of its actual location within the territory and jurisdiction of the taxing power. Thus the court has in fact completed the work of emancipation in the United States commenced by executive proclamation during the war, by abolishing the last remaining relic of personal servitude; and hereafter States must limit the ex¬ ercise of their taxing power to persons (poll-tax), business, and property with¬ in their territorial limits. THE RIGHT TO TAX IMPLIES AN Oll- LIGATION TO PROTECT. But apart from this, it must be so clearly obvious that extra-territorial tax¬ ation is a mere arbitrary exaction, or an exercise of brute force, analogous to the power which a brigand exercises in ex¬ acting ransoms in proportion to the sup¬ posed ability of his victims, that public opinion and sound moral sentiment can¬ not fail to condemn it, when investigated in any community claiming to act upon principles of equality and justice. In the first place the right to tax arises from the correlative duty to protect; but if there is no jurisdiction over the property, there can be no protection, and consequently no rightful taxation. (United States v. Rice, 4 Wheaton, 246.) Secondly, things cannot occupy two places or two jurisdictions at the same time. “The fundamental requisite of 4 Taxation without Jurisdiction Unconstitutional. a well adjusted system of taxation,” said Judge Comstock in giving the de¬ cision of the New York Court of Ap¬ peals in the celebrated case of Hoyt v. The Commissioners of Taxes, deny¬ ing the right of the State of New York to tax the visible, tangible personal property of its citizens not within the territory of the State, “ is that it be harmonious: but harmony di.es not ex¬ ist unless the taxing power is exerted with reference exclusively either to the situs of the property or to the residence of the owner. Both rules cannot obtain unless we impute inconsistency to the law and oppression to the taxing power. Whichever of these rules is the true one, whichever we .find to be founded in justice and the reason of the things, it necessarily excludes the other.” In this case, as already intimated, the New York Court of Appeals (as far back as 18G1) found the true rule to be that “ the property must be within the State or there is no right to tax it at all; ” and now the United States Supreme Court, in the case of the “ foreign held bonds,” has come to the same conclusion, and the decision thus made necessarily and forever excludes the adoption of any other rule or practice. Thus one defi¬ nite and important step has at last been taken in determining what shall be the principles which are to govern in the future the method or the practice of local taxation in every State in the Union. An important prop has also at the same time been knocked out from under all systems which have as their type the system at present existing in the State of Massachusetts; and what is not less important, this prop cannot be put back again. LOGICAL RESULTS OK THE FOREIGN HELD BONDS DECISION. Furthermore, although the decision of the Supreme Court in the foreign held bonds case, in respect to extra-territo¬ rial taxation, is only legally applicable to States, it is nevertheless clear that through its logical results cities, towns, and even school districts, in common with States, will commit acts of spolia¬ tion by taxing any property actually sit¬ uated beyond their territorial boundaries and jurisdiction. And as it will be a matter of great difficulty, if not a physic¬ al impossibility, accurately to ascertain what movable personal property was on a given day within any given taxing dis¬ trict of limited territorial area, or to re¬ strain it in such a district if disposed temporarily to move off in anticipation of the da}- of assessment, the ultimate result will be exactly what equity and the principles of sound political economy require should be; namely, an entire abandonment of all attempts to tax per¬ sonal property, and the adoption of a plan of taxing but a few articles — tan¬ gible property and fixed signs of prop¬ erty like real estate — in such a way that the results of the taxation will dif¬ fuse themselves with equality and uni¬ formity not only over all personal prop¬ erty, but also upon all other property of every description TAXATION OF INDEBTEDNESS. Another matter of great importance and interest, which legitimately connects itself with the decision of the Supreme Court denying to States the power to tax extra-territorially, is the question of the taxation of indebtedness. That any State has the right to tax contracts, within her territory, between resident creditors and resident debtors at the time ivhen made, cannot be doubted, whatever may be thought concerning the expedi¬ ency of such taxation. But how about the constitutionality and legality of the assumption and practice, which prevails so extensively, of taxing by State au¬ thority debts to a creditor who resides in a State other than that of the resi¬ dence of the debtor? And does not this assumption and practice fall within the forbidden exercise of extra - territorial taxation? In order to solve this ques¬ tion, it is necessary first to ascertain on whom primarily a tax on contracts falls. It is a law of human nature, that a lender will exact from a borrower the average profits of other investments of Taxation without Jurisdiction Unconstitutional. the same degree of security, and tlie tax in'addition, at . the time the con¬ tract is made, in an additional rate of interest, or some other form. The tax must be agreed to be paid by the bor¬ rower or he cannot get the money; and it therefore becomes a direct tax upon the contract, collected from the debtor by the creditor at the time the contract is made, whatever may be the time or manner of paying over the money by the creditor, acting as collector of taxes for the State. There are no sane persons who loan money on instruments subject to taxation in the hands of the lender at the same rate of interest as upon un¬ taxed instruments. Taxes are in many instances assessed and collected from tenants, but nevertheless they are direct land taxes, because the burden is pri¬ marily and immediately upon the land; and for the same reason a tax, or a right or power to tax, in form on a lender, is, in legal effect and sound reasoning, a tax on a contract, and the burden is im¬ mediately sustained by the debtor simul¬ taneously with the making and execut¬ ing of the contract. This axiom of polit¬ ical economy has been confirmed by the United States Supreme Court in the case of Weston against the City of Charles¬ ton, in which the court declare that “ a tax on stock of the United States, held by an individual citizen of a State, is a tax on the power to borrow money' on the credit of the United States.” This decision was given by Chief Jus¬ tice Marshall, who further expressed the opinion of the court as follows: “The tax in question is a tax upon the con¬ tract. The right to tax the contract to any extent when made must oper¬ ate upon the power to borrow before it is exercised, and have a sensible influ¬ ence on the contract.” Here then tlie great jurist confirms, in an actual, prac¬ tical, and not hypothetical case, a fun¬ damental principle of political economy, and in behalf of the highest court of the land decides that taxes imposed through the agency or medium of the lenders are taxes upon contracts and are immediate (not diffused or remote) burdens on the borrowing power of the debtor. Or, in other words, it was the borrower—in this case the United States — which was exempt. Now, there can¬ not be one principle of political economy, or of law, for individuals, and another principle or law for the United States. But primary taxation must be the same whether the subject of the tax is an United States bond or an individual bond; and if it is primary taxation of the contract and the burden is upon the borrower in one case, it must be the same in the other case. Let us then see where we stand in respect to this assumed power of a State to tax resident creditors for debts in¬ curred and owed to them by non-resi¬ dent (State) debtors. We have certain¬ ly a clear adjudication that if Connect¬ icut, for example, taxes, through the agency or medium of resident creditors, bonds and mortgages made in Michi¬ gan. she taxes extra-territorially debtors in Michigan. But Connecticut has no more power to tax a debtor in Michigan than she has to tax the United States. Neither is under or subject to her juris¬ diction. A citizen of Michigan cannot constitutionally be prevented from mak¬ ing any lawful contracts in Michigan with a citizen of Connecticut; nor can Connecticut impede, obstruct, impair, or restrain such contracts, made by her citizens with the citizens of Michigan. When a citizen of Connecticut lends money’, or sells and delivers commodi¬ ties, to a citizen in Michigan, the money or the goods — the things tangible and visible — pass out from the territory and jurisdiction of Connecticut into the territory' and jurisdiction of Michigan or some other State. If the transaction is represented simply by a book ac¬ count, then the man in Michigan has the property, and the man in Connecti¬ cut has in return a conclusion of law; namely, that in-consideration of part¬ ing with and transferring actual owner¬ ship anil possession of certain specific things, he has acquired a general lien upon all of the previously unincumbered property of the purchaser to the extent of the agreed-upon value of the pur¬ chase. If the transaction, on the other 6 Taxation without Jurisdiction Unconstitutional. hand, is represented by a transfer of the actual property and the giving in return of a written promise to pay, in the form of a note or a bond and mortgage, then all there is in the possession of the man in Connecticut is a contract made out¬ side of the territory of Connecticut by a man in Michigan. Now if Connecti¬ cut has any power to tax contracts, she must not only tax them when made, but must also confine herself to contracts made within her own territory between resident creditors and resident debtors, or she will be guilty of obstructing com¬ merce between the States, and of taxing extra-territorially by an arbitrary exac¬ tion on resident creditors holding obliga¬ tions of non-resident debtors. TAXATION OF INTER-STATE COMMERCE PROHIRITED. The United States Supreme Court in the case of Almy v. the State of Califor¬ nia unanimously decided that a bill of lading given for goods transported from one State to another was an inter-State instrument; or, more specifically, that a stamp - tax imposed by the State of California on bills of lading for the transportation of gold and silver from any point within the State to.any point without the State was “ a regulation of commerce” “in conflict with the authority of Congress ” and with the “ freedom of transit of goods and per¬ sons between one State and another,” and therefore unconstitutional and not to be permitted. But if a bill of lading, as a representative and instrumentality of inter-State commerce, cannot in any form be taxed by the States, how much greater claim for exemption from State taxation for the same reason has the lending of money by a citizen of one State to a citizen of another State, which requires the transportation of money or other property from State to State, and the making and taking of inter-State instruments as the evidence of the contract and evidence of the entire transaction? Is not the latter the very essence or life-blood, as it were, of inter-State commerce V the machinery in the absence of which inter-State com¬ merce could hardly exist, or exist only under the most imperfect and embarrass¬ ing conditions? Again, the power to tax inter-State commerce by a State is the power to destroy it. Can Connecticut, for ex¬ ample, levy a tax of ten per cent, on all of her residents who lend money in Michigan? Can she tax verbal con¬ tracts, book accounts, or written instru¬ ments arising from the delivery and sale of property passed and transferred from Connecticut to some other State? If she has the power thus to tax extra- territorially, to tax conclusions of law, or contracts arising from transactions in other States, in the slightest degree, she has it also in the fullest degree. She may fix any rate, and she may dis¬ criminate as to the States upon whose citizens the burden shall fall; or she may adopt a rate which would be pro¬ hibitory upon contracts made by her citizens with citizens of certain desig¬ nated States, as her caprice might dic¬ tate. The acknowledgment or the as¬ sumption that the separate States pos¬ sess this power of taxation in the slight¬ est degree is therefore the acknowledg¬ ment or assumption that they possess the power to destroy inter-State commerce if they so will; which is a reductio ad absurdum. DEUTS ARE TITLES OR CONCLUSIONS OF LAW AND NOT PROPERTY, AND HAVE NO SITUS INDEPENDENT OK THE PROPERTY WHICH IS THE SUII- JECT OF THE QUALIFIED TITLE. We now advance to another position, to which is asked the careful consider¬ ation of all those who believe that, with the necessary complications of business growing out of rapidly widening and in¬ creasing commercial relations between individuals and communities, it is most important to have the rights of State sovereignties and the obligations arising from business transactions so clearly de¬ fined and settled, as to remove them forever from the province of dispute and litigation. Taxation without Jurisdiction Unconstitutional. 7 In the taxation of evidences of indebt¬ edness or titles of ownership, it is not the mere paper evidence or muniment of title to a credit that is taxed, but the credit itself, which is taxed in the form of the paper title. That this must be so is made evident by the fact that if the paper documents, even when in the form of negotiable instruments and capable of delivery from hand to hand, were regarded as salable chattels and capa¬ ble of taxation where found, they would be removed to States where they are exempt, or where their presence would be unknown to the local assessors. But if a negotiable instrument is destroyed, the credit is not destroyed or impaired; for on proof of the destruction of the paper instrument, the credit still sur¬ vives and can be enforced. There have been attempts to claim salvage for sav¬ ing from wreck bills of exchange or other papers constituting evidence of debt or title to property; but the courts have decided that salvage in such cases is not allowable, and therefore, practi¬ cally, that credits and titles are not property. (See Emblem, Davis’s Re¬ ported Cases, Cl.) * The making of no form of indebtedness, lease, deed, mort¬ gage, or any other form of title, creates or produces any new property, but sim¬ ply indicates the rights, titles, or inter¬ ests of parties in preexisting proper¬ ty; and any tax on any of these titles is only another form of burdening the property which is the subject of those titles. A deed is a title to land, and a credit is a qualified lien or title to all of the debtor’s property, according to certain priorities of lien. If one State taxes the land and another State taxes the deed on the valuation of the land; or if one State taxes the debtor’s prop¬ erty and another State taxes the cred¬ itor’s lien on, or title in, that proper¬ ty, we have an exhibition in both cases of extra-territorial taxation, or manifest ■spoliation. In each case the tax is put upon the property and then upon the title to the property by the taxing power of another and a hostile jurisdiction. It 18 also important to note here that the "’ted States Supreme Court in the case of Fletcher v. Peck (6 Cranch, 87) decided that a “ grant ” (or deed) “ is an executed contract;” and, ‘‘in its own nature, amounts to an extin¬ guishment of the right of the grantor, and implies a contract not to reassert that right.” If a State therefore has a general power, as is assumed in Mas¬ sachusetts, Connecticut, and elsewhere,, to tax contracts, it has the power to tax deeds of real estate in the hands of its citizens, and may thus practically exercise jurisdiction over the territory of any and all other sovereignties. The inevitable judgment to which an impartial investigation of these ques¬ tions must therefore lead is, that credit , title, and ownership are not things; but are conclusions and deductions of law from certain facts, and can no more be said to have a situs than a ‘‘baseless fabric of a vision,” or a disembodied spirit, for they have no corpus to be lo¬ cated, or body to be taxed, or material¬ ity to fill space in any State. On the other hand, the property itself of the debtor is the source of the title or debt, and is always a fund held for the se¬ curity of the title of the creditor. And if this reasoning is unsound, and if the title is with the property, then the keep¬ ing of the property, which gave origin to the title, intact as a fund for the payment of the creditor is unnecessary; and if by some natural phenomenon the property should be destroyed or annihi¬ lated, it ought to be a matter of entire indifference to the title holder. How far the United States Supreme Court has already gone in sustaining these conclusions will appear by refer¬ ence to the following cases. Thus, in the case of Brown v. Kennedy (15 Wallace-, .591) it was held that a bond and mort-