County of Mecklenburg v. Sterchi Bros. Stores, Inc.

Clarkson, J. In the agreed statement of facts (3) is the following: “That the defendant corporation operates a number of stores in several states, but has no store in the State of Delaware, and that all stores are operated under the direct supervision and control of the Knoxville, Tennessee, office. They also own and operate a store located in the city of Charlotte, Mecklenburg County, North Carolina, for the sale of furniture and other types of merchandise in the nature of home furnishings.” The defendant is a Delaware corporation. *83 The merchandise from the Charlotte store is sold to purchasers in Mecklenburg County and other counties in North and South Carolina, for either cash or partly cash and the balance in weekly or monthly installments, under conditional sales contracts or agreements, some of which are recorded. These contracts to pay are retained and collected by the Charlotte office and, when necessary, the laws where the debtor resides are resorted to to enforce collection. The funds are deposited in defendant’s name in a Charlotte bank and subject to withdrawal by the' Knoxville office. Local operating expenses, exclusive of rent and the purchase of merchandise, are paid by check drawn by the local store on a Charlotte Bank, out of an account which is supplied by the Knoxville office out of its general fund. The Knoxville office pays the rent and furnishes the merchandise, this is not entered on the books of the local unit as an obligation. The contracts or agreements are not listed for ad valorem tax in Tennessee or elsewhere, but the State of Tennessee has a capital stock tax which defendant contends taxes these accounts indirectly as part of the assets back of the capital stock. The defendant pays ad valorem taxes on merchandise and cash on hand each year on the tax listing date. Fads: (8) “On the tax return date in 1935 the defendant owned and held in physical custody of their Charlotte store contracts and agreements to pay as hereinbefore referred to in amounts aggregating in excess of $36,295.” Plaintiffs, the governing authorities of Mecklenburg County, N. C., listed these contracts or agreements and assessed the same for taxation against the defendant. The defendant made objection, in conformity to law, and appealed to the Superior Court of Mecklenburg County, N. C. The court below held that these solvent credits were subject to an ad valorem tax in North Carolina, and in this we see no error. Does such a tax levy contravene the State Constitution and the 14th Amendment of the Federal Constitution? We think not. As a general rule, the principle "mobilia personam sequunlur” governs the situs of tangible property for the purpose of taxation. In other words, movables follow the law of the person. There is a well recognized and just exception to this rule where there is a “business situs” of intangibles separate and apart from the domicile of the owner. When the manner of doing business establishes this situs, the intangibles are taxable, and this does not contravene Art. XIV, sec. 1, of. the Federal Constitution (in part), as follows: “No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws.” “Business situs — A situs acquired for tax purposes by one who has carried on a business in the state more or less permanent in its nature. *84 Endicott, Johnson & Co. v. Multnomah County, 190 P., 1109, 1111, 96 Or., 679. A situs arising when, notes, mortgages, tax sale certificates and tlie like are brought into the state for something more than a temporary purpose, and are devoted to some business use there, and thus become incorporated with the property of the state for revenue purposes. Honest v. Gann, 244 P., 233, 235, 120 Kan., 365; Lockwood v. Blodgett, 138 A., 520, 525, 106 Conn., 525.” Black’s Law Dictionary (3d Ed.), p. 261. In Cooley Taxation, Vol. 2 (4th Ed.), sec. 465 (pp. 1031-37), speaking to the subject, it is said: “Business situs — In General. While ‘the undoubted rule is that, for the purposes of taxation, a debt is property at the residence or domicile of the creditor,’ it is also true that a debt may acquire a situs elsewhere. ‘Business situs’ has come to be a well recognized term in the law of taxation. Primarily, it is an exception to the rule that the situs of intangible personal property is at the domicile of the owner, so as to- make property which has acquired a ‘business situs’ in a state other than the domicile of the owner taxable in such state. The rule is settled that credits belonging to a nonresident may acquire a business situs so as to be taxable; but just what will constitute a business situs is not susceptible of precise definition. This ‘business situs’ means, it would seem, what the words indicate, i. e., a situs in another state where a nonresident is doing business through an agent, manager, or the like, in which business and as part thereof business credits, such as open accounts, notes, mortgages, deposits in bank, etc., are used and come within the protection of the state. The question arises in connection with various business transactions conducted by a person or corporation, generally through an agent, in another state; but the most common application of the rule is where a resident of one state has an agent in 'another state who loans money of the nonresident, more or less as a regular business, and takes care of the collections and rein-vestments, in which case the notes, mortgages, etc., taken by the agent are held to be subject to taxation although the owner is a nonresident. The rule of business situs has been applied also to credits arising from loans made by agents of foreign insurance companies; credits arising from premiums due in connection with the local business of an insurance company; credits arising from a business in the state as a branch of the business of a foreign corporation or partnership; a branch brokerage business conducted through a local agent; and the sale of lands through agents.” In Redmond v. Commissioners, 87 N. C., 122, we find: Fads: “The plaintiffs are domiciled in the State of New York, but were owners of lands lying in several of the counties of this State, which had been sold by their agent, who keeps an office in the town of Rutherfordton in this *85 State, and bad power to sell and execute covenants for title and to collect the money. The covenants to pay the purchase moneys are solvent only because of the fact that the title to the lands is retained as a security. These covenants for the purchase money amount to many thousands of dollars, and are all kept in the office of said agent at Rutherfordton; and the single question presented in the record is, whether they are liable to a State, county, and corporation tax.” At p. 123 it is said: “The theory of taxation is, that the right to tax is derived from the protection afforded to the subject upon which it is imposed. . . . The actual situs and control of the property within this State, and the fact that it enjoys the protection of the laws here, are conditions which subject it to taxation here; and the legal fiction, which is sometimes for other purposes indulged, that it is deemed to follow the person of the owner, and to be present at the place of bis domicile, has no application. In such case, the maxim mobilia personam sequuniur gives way to the other maxim in fictions juris semper cequitas existat.” This Court held in the above case that the intangibles were taxable, citing many cases in other jurisdictions. This decision was rendered in 1882 and has been the unquestioned law of this State ever since. 76 American Law Reports (Anno.), p. 820. Ransom v. Board of Comrs. of Town of Weldon, 194 N. C., 237. Cooley, supra, cites a wealth of authorities to support the text, both state and Federal authorities: New Orleans v. Stempel, 175 U. S., 309, 22 L. Ed., 174; Bristol v. Washington County, 177 U. S., 133, 44 L. Ed., 701; State Board of Assessors v. Comptoir National D’Escompte, 191 U. S., 388, 48 L. Ed., 232; Metropolitan Life Ins. Co. v. New Orleans, 205 U. S., 395, 51 L. Ed., 853. The defendant contends that Farmers’ Loan & Trust Co. v. Minnesota, 280 U. S., 204, 74 L. Ed., 371, is authority for its contention. We think not. On the contrary, we find that opinion an affirmation of the above “business situs” principle. At page 218 it is said: “New Orleans v. Stempel, supra, Bristol v. Washington County, supra, and Liverpool & L. & G. Ins. Co. v. Board of Assessors, 221 U. S., 346, 55 L. Ed., 762, recognize the principle that cboses in action may acquire a situs for taxation other than at the domicile of their owner if they have become integral parts of some local business. The present record gives no occasion for us to inquire whether such securities can be taxed a second time at the owner’s domicile.” There are numerous decisions in different states that have adopted the “business situs” of intangibles for taxation. We think the case of Wheeling Steel Corporation v. Fred L. Fox, Tax Comr. of West Va., delivered by Chief Justice Hughes 18 May, 1936, fully sustains the position we have taken, and the Court has added same to the opinion after being banded down, as the matter involves a Federal question. *86 Art. Y, sec. 3, of the N. C. Const., provides: “Laws shall be passed taxing, by a uniform rule, all moneys, credits, investments in bonds, stocks, joint stock companies, or otherwise; and, also, all real and personal property, according to its true value in money,” etc. In accordance with this constitutional mandate, the North Carolina Legislature has enacted the following statutes: N. C. Code, 1935 (Michie), sec. 7911 (13) — “All property, real and personal, within jurisdiction of the State, not especially exempted, shall be subject to taxation.” Sec. 7971 (18)— “Personal property shall include: (10) All other personal property not herein enumerated and not expressly exempted by law.” In Latta v. Jenkins, 200 N. C., 255 (258), it is said: “By virtue of the provisions of section 3 of Article Y of the Constitution of North Carolina, all property, real and personal, in this State is subject to taxation, in accordance with a uniform rule, under laws which the General Assembly is required by the Constitution to enact, without regard to its ownership, and without regard to the purposes for which specific property is held.” In Town of Benson v. County of Johnston, 209 N. C., 751, it is declared: “Taxation is the rule and exemption the exception. The rule has repeatedly been laid down by this Court, the exemptions from taxation are to be strictly construed,” citing authorities. Defendant cites section 7971 (18) (6) : “All notes, bonds, accounts receivable, money on deposit, postal savings, securities, and other credits of every kind belonging to citizens of this State over and above the amounts respectively owed by them, whether such indebtedness is due them from individuals or from corporations, public or private, and whether such debtors reside within or without the State.” It contends that the tax is limited “to citizens of this State” — “whether such debtors reside within or without the State,” but section 7971 (18) (10) declares, “All other personal property not herein enumerated and not expressly exempted by law.” Section 7971 (36) (1) — (How to list property), in part, says : “Every person owning property, real or personal, is required to list and shall make out, sign, and deliver to the assistant supervisor, list taker, or assessor a statement, verified by his oath, of all the real and personal property, money, credits, investments in bonds, annuities, or other things of value,” etc. The above section distinctly says, "Every person owning property, real or personal ” etc. Further: “Which was in the possession or control of such person or persons on the 1st of April, either as owner or holder thereof, or as . . . agent, factor, or in any other capacity.” These sections, construed in pari materia, clearly include intangible property to be the subject of taxation under the laws of this State. *87 Defendant contends that the Redmond case, supra, is based on a dissimilar revenue statute from the present ones, and contends that the 1819 law, under which the decision is based, “phraseology of 1879 is all inclusive.” From the present statutes, taken in pari materia, we think is all inclusive, and the position taken by defendant is at least a “distinction without a difference.” In the agreed statement of facts is the following: “11. It is agreed that the amount of $36,295 is net solvent credits, which the plaintiff seeks to tax, was arrived at as follows: The tax supervisor ascertained the total assets of the defendant and the percentage of such assets in Mecklenburg County; the defendant was allowed as deductions against solvent credits the same percentage of its total liabilities as its assets in Mecklenburg County bore to the total assets of the defendant.” The defendant contends that the plaintiffs made a rule of their own, contrary to the Constitution of North Carolina, Art. I, sec. 8, and the statute, in taxing defendant’s property. If this was done, we cannot see bow defendant can complain. Defendant, under section 7971 (18) (6) and (10), and other sections referred to, was required to return all solvent credits. This was taxable. The defendant was entitled as against the solvent credits to deduct liabilities, bona fide indebtedness. Sec. 7971 (47). Hardware Mutual Fire Ins. Co., v. Stinson et al., ante, 69. Tbe defendant denied tbat it has such a “business situs” in Mecklen-burg County, N. 0., tbat was subject to taxation. If it bad made its returns in Mecklenburg County, N. 0., as it was required to do by law, it could have deducted its liabilities. ¥e can see no prejudicial injury to defendant from tbe assessment as made by plaintiffs. We tbink from tbe agreed case tbat this was such a “business situs” as was subject to tax by tbe plaintiffs, tbe taxing authorities. If tbe defendant was allowed to escape tax in this jurisdiction, under tbe facts and circumstances of this case, a foreign corporation, by establishing a “business situs,” as in tbe present case, would have a special privilege over other installment stores of like nature located and doing business in Mecklen-burg County, N. 0. Defendant could undersell them at least to tbe amount it escapes taxation on intangibles — which tbe other installment stores have to pay under tbe law. We tbink the tax valid, and tbe intangibles are taxable under tbe Constitution of North Carolina and tbe North Carolina Revenue Act. Tbe tax does not contravene tbe Constitution of North Carolina, Art. Y, sec. 3; Art. I, sec. 8, nor tbe 14th Amendment to tbe Constitution of tbe United States. For tbe reasons given, tbe judgment of tbe court below is Affirmed.