INTRODUCTION 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 mortgaged property. The mortgagor almost without exception 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. tax These laws providing that mortgages are 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 district, 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 objections 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 concerning 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 interest-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 permitted. This system prevailed there from the time of the adoption of the second constitution in 1879 until the court held that separate contracts were permissible (120 Cal. 220, 1898). The objectional part of the constitutional provision was repealed in 1906 and a new law passed in 1907 permitting contracts. Missouri 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 protection of the law provided for under the fourteenth amendment. At the present time mortgages in California, Connecticut, 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 Latham v. Board of Assessors (91 Mich. 509, 1892) held that 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 provides that the mortgage and the property given as security are to be assessed as a unit and that the mortgages 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 deducted from the assessed value of the mortgaged premises. 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 residence. 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 counties. Mortgagees in certain enumerated counties of Maryland 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 taxation 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. LAWS AND JUDICIAL DECISIONS, Alabama 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 recording. 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 proportion to the value of such property. Present Law, Acts, 1907, p. 455, sec. 1. No mortgage, 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 indebtedness secured is one hundred dollars or less; and an additional fifteen cents is added for every additional one hundred dollars or fraction thereof. The law states definitely that the tax is to be paid by the lender. |