Messrs. George H. Terriberry, H. Garland land Dupre, and Harry P. Sneed for appellants.[ Bd. of Assr. of the Parish of Orleans v. New York Life Ins Co. 216 U.S. 517 (1910) ]
[216 U.S. 517, 520] Messrs. James H. McIntosh, Charles S. Rice, and Richard B. Montgomery for appellee.
Mr. Justice Holmes delivered the opinion of the court:
This is a bill in equity to restrain the collection of a tax from the plaintiff, the appellee, on the ground that the tax is contrary to the 14th Amendment. The plaintiff had a decree and the defendants appeal to this court. 158 Fed. 462. The tax is based upon an assessment of the plaintiff for credits amounting to $568,900, whereas the plaintiff says that it has no credits in the state; and for money on deposit, distinct from what the plaintiff admits to be taxable, amounting to $50,700. There is no dispute about the facts, and the issue as to each sum is upon matter of law.
The so-called credits arise out of transactions denominated policy loans and premium lien note loans, which are explained at length by the judge below, but which may be summed up more shortly here. When the plaintiff's policies have run a certain length of time and the premiums have been paid as due, the plaintiff becomes bound ultimately to pay what is called their reserve value, whether the payment of premiums is kept up or not; and this reserve value increases as the payments of premiums go on. A policy holder desiring to keep his policy on foot, and yet to profit by the reserve value that it has acquired, may be allowed, at the plaintiff's [216 U.S. 517, 522] discretion, to receive a sum not exceeding that present value, on the terms that, on the settlement of any claim under the policy, the sum so received shall be deducted with interest (the interest representing what it is estimated that the sum would have earned if retained by the plaintiff); and that, on failure to pay any premium or the above-mentioned interest, the sum received shall be deducted from the reserve value at once.
This is called a loan. It is represented by what is called a note, which contains a promise to pay the money. But as the plaintiff never advances more than it already is absolutely bound for under the policy, it has no interest in creating a personal liability, and therefore the contract on the face of the note goes on to provide that if the note is not paid when due, it shall be extinguished automatically by the counter credit for what we have called the reserve value of the policy. In short, the claim of the policy holder on the one side and of the company on the other are brought into an account current by the very act that creates the latter. The socalled liability of the policy holder never exists as a personal liability, it never is a debt, but is merely a deduction in account from the sum that the plaintiffs ultimately must pay. In settling that account, interest will be computed on the item for the reason that we have mentioned; but the item never could be sued for, any more than any other single item of a mutual account that always shows a balance against the would-be plaintiff. In form it subsists as an item until the settlement, because interest must be charged on it. In substance it is extinct from the beginning, because, as was said by the judge below, it is a payment, not a loan. A collateral illustration of the principle will be found in Starratt v. Mullen, 148 Mass. 570, 2 L.R.A. 697, 20 N. E. 178, and cases there cited.
Instead of receiving an advance, the policy holder may draw upon the reserve value for a premium due, again giving a note; but the transaction is similar in legal characteristics to that which we have described. It is unnecessary to set out the documents at length, because, although the same language [216 U.S. 517, 523] is not used in all, there is no nice question of construction, no doubt possible as to the effect and import of the contracts. In none of the cases is there a loan, and therefore there are no credits to be taxed. In Metropolitan L. Ins. Co. v. New Orleans, 205 U.S. 395 , 51 L. ed. 853, 27 Sup. Ct. Rep. 499, so far as appeared, the insurance company made loans, properly so called, to its policy holders, and the question now before the court was not raised or discussed.
What we have said disposes of the item of $568,900. The other consists of a bank account of $50,700, kept separate from a small account for current expenses, admitted to be taxable. The account in question consists of deposits made solely for transmission to New York, and not used or drawn against by anyone in Louisiana. We shall not inquire whether it would or would not be within the constitutional possibilities for a state to tax a person outside its jurisdiction for a bank deposit that only became his or came into existence as property at the moment of beginning a transit to him, and that thereafter left the state forthwith. It is enough to say we should not readily believe that the supreme court of the state would interpret the statutes of Louisiana as having that intent. See State, metropolitan L. Ins. Co., Prosecutor, v. Newark, 62 N. J. L. 74, 40 Atl. 573. The Louisiana cases cited as contrary, and as showing the purpose of the legislature to reach such a deposit as this, do not seem to us to sustain the appellant's point. Bluefields Banana Co. v. Board of Assessors, 49 La. Ann. 43, 21 So. 627; Parker v. Strauss, 49 La. Ann. 1173, 22 So. 329. The statute purports to levy a tax upon all property within the state, and enumerates different kinds. Act 170 of 1898. We see no indication that it intended to include under that head property that becomes such only to leave the state at once.
Mr. Justice Brewer dissents, believing that the case is controlled by the decision in Metropolitan L. Ins. Co. v. New Orleans, 205 U.S. 395 , 51 L. ed. 853, 27 Sup. Ct. Rep. 499.