(c)

$205. Taxation.

In levying taxes to defray the expenses of government, no duty is imposed upon a State to leave unburdened either property owned by aliens, or persons who may themselves be aliens.1 Nor does any principle of international law forbid the territorial sovereign to impose, in some instances, a heavier burden upon the interests of such individuals than is placed upon those of its own nationals.2 The existing practice of enlightened States in so far as it is manifested by conventional arrangements tends, however, to place aliens generally upon an equal footing with nationals. Save in cases indicating a marked abuse of power, or a disregard of the terms of a treaty, the United States does not appear to find in the taxation of its nationals or of their property abroad reasons for diplomatic remonstrance or interposition.*

A State may doubtless wrongly determine that persons or property within its territory is subject to taxation. Thus, it may, for example, attempt to impose a tax on the person of an alien who is in no sense a permanent resident within its domain. Or it may endeavor to tax tangible property as such which happens to be merely temporarily therein and which belongs elsewhere.5

1 Mr. F. W. Seward, Acting Secy. of State, to Mr. Acosta y Foster, April 8, 1878, 122 MS. Dom. Let. 403, Moore, Dig., II, 56; Mr. Cadwalader, Asst. Secy. of State, to Mr. Melizet, Mar. 16, 1875, 107 MS. Dom. Let. 172, Moore, Dig., IV, 20; Mr. Fish, Secy. of State, to Mr. Cushing, Minister to Spain, Jan. 12, 1876, MS. Inst. Spain, XVII, 432, Moore, Dig., IV, 21; Mr. Evarts, Secy. of State, to Mr. Kasson, Minister to Austria-Hungary, Jan. 17, 1880, MS. Inst. Austria-Hungary, III, 80, Moore, Dig., II, 56. See, also, Frantz's Appeal 52, Pa. St. 367. With respect to Forced Loans and War Taxes, cf. Neutral Persons and Property within Belligerent Territory, infra, §§ 630, 631.

See, for example, Act 130 of the Louisiana law of July 11, 1894, imposing an inheritance tax of ten per cent. on the value of all successions passing to non-resident aliens. Acts passed by the General Assembly of the State of Louisiana, regular session, 1894, p. 165. See, also, E. M. Borchard, Diplomatic Protection, 95-96, § 41.

3 The following Articles of treaties of the United States may be noted: Art. X treaty with the Argentine Republic (Confederation), July 27, 1853, Malloy's Treaties, I, 23; Art. VII convention with France, Feb. 23, 1853, id., 531; Art. I treaty with Japan, Feb. 21, 1911, Charles' Treaties, 77; Art. II treaty with Spain, July 3, 1902, Malloy's Treaties, II, 1701; Art. II treaty with Serbia, Oct. 14, 1881, id., 1614. See, also, provisions contained in Art. IV of the treaty with China of Oct. 8, 1903, Malloy's Treaties, I, 263; award of Hon. Wm. R. Day, Arbitrator in the matter of the claims of John D. Metzger & Co., against the Republic of Haiti, For. Rel. 1901, 264, 272-276. 4 Mr. Fish, Secy. of State, to Mr. Cushing, Minister to Spain, Jan. 12, 1876, MS. Inst. Spain, XVII, 432, Moore, Dig., II, 63, 64; see, also, Mr. Evarts, Secy. of State, to Mr. Langston, Minister to Haiti, No. 25, April 12, 1878, MS. Inst. Haiti, II. 143, Moore, Dig., IV, 23.

See, in this connection, an illuminating paper by Joseph H. Beale, entitled "Jurisdiction to Tax", Harv. Law Rev., XXXII, 587.

It must be clear that the right of the territorial sovereign to impose a personal tax upon an individual depends upon the intimacy and closeness of the relationship that has been established between itself and him. Internationally, a sufficient relationship always exists between the State and its national, and that regardless of his residence.1 It will be observed, however, that circumstances other than nationality may also suffice to create the necessary relationship. It must be equally clear that the right of the territorial sovereign to tax property as such depends upon its having such a connection with the taxing State as to justify the conclusion that it is an asset belonging thereto, protected by its power and from which contribution should be made to support the government. These fundamental principles require constant recognition. The extent to which they have met with judicial approval in the United States in certain cases of a domestic (rather than an international) character may be noted.

In general, all immovable property within the territory of a State, regardless of the residence or nationality of the owner, is, with a few notable exceptions which are explainable on precise grounds,2 subject to taxation;3 likewise, all movable property therein, provided it may be fairly regarded as incorporated in the mass of property there belonging. Difficulties may arise

1 Thus no international problem arises if a State endeavors to tax personally a non-resident national and to collect what is levied against him out of his property found within its territory. In case no such property is there to be found, all diplomatic protection may be withheld from such a national who declines to pay what is assessed against him. The imposition of such a penalty is hardly a matter of international concern.

It may be observed that the Income Tax Law of Sept. 8, 1916, contemplated the taxation generally of every "citizen" as well as "resident" of the United States. 39 Stat. 756.

Cf., United States v. Bennett, 232 U. S. 299, in which the constitutionality of § 37 of the Tariff Act of 1909, imposing a tax on foreign-built yachts, was upheld, and the law applied to a yacht owned by an American citizen but which had not been within the jurisdiction of the United States during any part of the period for which the tax was levied.

2 The property owned by a foreign government and used as its embassy or legation may be noted as an exception. Concerning the taxation of diplomatic officers, infra, § 440; concerning that of consular officers, infra, § 472.

3 See, for example, Hoyt v. Commissioners of Taxes, 23 N. Y. 224. Conversely, a State cannot lawfully tax immovable property in a foreign country. Mr. Root, Secy. of State, to Mr. Leishman, American Minister to Turkey, Feb. 27, 1906, For. Rel. 1906, II, 1408.

4 Cf. how this principle has been worked out and applied, for example, in Hays v. Pacific Mail Steamship Co., 17 How. 596; Pullman's Palace Car Co. v. Pennsylvania, 141 U. S. 18; Blackstone v. Miller, 188 U. S. 189; Union Refrigerator Transit Co. v. Kentucky, 199 U. S. 194; Ayer & Lord Tie Co. v. Kentucky, 202 U. S. 409; New York Central Railroad v. Miller, 202 U. S. 584; Union Tank Line Co. v. Wright, 249 U. S. 275. Also cf. Beale's Cases on Conflict of Laws, III, Summary, § 35; Lorenzen's Cases on Conflict of Laws, 291, note; Harvard Law Rev., XX, 138, note.

in ascertaining whether a particular chattel falls within such a category, and is to be so regarded. Normally, the problem is oftentimes one of fact rather than of law. It has been held, however, that a vessel having no permanent location within another State of the Union, possesses an artificial situs for purposes of taxation at the domicile of the owner. It is acknowledged that moneys, notes and evidences of credit may be taxed in the State where they are employed and found, irrespective of the legal home of the owner. It has been declared, however, that the mere presence of notes within a State which is not the domicile of the owner does not bring the debts of which they are the written evidence within the taxing power of that State.3

$206. The Same.

The domicile of an individual within its limits has been deemed to justify a State in taxing him upon shares owned by him in foreign corporations doing no business within its territory, on the theory that such intangible interests of the shareholder may be justly regarded, for purposes of taxation, as belonging to, or having a so-called situs within, the State of the domicile. Again, it is declared to be the right of a State to tax a person domiciled within its territory, on moneys derived from business in a foreign State and deposited with a bank therein. Such a tax appears to be regarded as one of a personal character, rather than as a tax on property.5

Doubtless the foregoing principles would be judicially applied in the United States to property owned by aliens as well as nationals. It is unlikely that in American tribunals, the additional element of the foreign nationality of the owner would be deemed to lessen the reasonableness of a tax, otherwise sustainable on the theory of domicile, as in the case of a pure chose in action, or on the theory of the place of abiding, in the case of corporeal property.

1 Southern Pacific Co. v. Kentucky, 222 U. S. 63, where the principle stated in the text was applied to ships owned by the Plaintiff in Error, itself incorporated in Kentucky, when the vessels were enrolled at the port of New York, engaged in the Atlantic coastwise trade, and had never touched at any Kentucky port. They were deemed to be taxable in Kentucky as the property of a Kentucky corporation.

2 New Orleans v. Stempel, 175 U. S. 309; Metropolitan Life Ins. Co. v. New Orleans, 205 U. S. 395; Burke v. Wells, 208 U. S. 14; De Ganay v. Lederer, 250 U. S. 376, where the property was owned by a non-resident alien. Buck v. Beach, 206 U. S. 392.

4 Hawley v. Malden, 232 U. S. 1; also Darnell v. Indiana, 226 U. S. 390; Kidd v. Alabama, 188 U. S. 730.

"Fidelity & Columbia Trust Co. v. Louisville, 245 U. S. 54.

Difficulties which have perplexed American courts in determining where property of various kinds may be lawfully taxed as such have commonly been of an essentially domestic nature; and if the effort to find the solution has at times betrayed confusion of thought, or apparent inconsistency, probably the result although commonly favorable to the assertion of the taxing power by the territorial sovereign, has not been one which would be regarded by foreign States when applied to property of their nationals as internationally illegal.1

A State may lawfully tax all persons as such who, regardless of their nationality, have, by reason of the closeness of their connection with its territory, established such a relationship with it as to justify the inference that they are residents thereof.2 Such a relationship does not require the acquisition of a domicile as that term is understood either in America or England. It is founded rather on the sheer fact of residence. Thus, an American citizen who had satisfied every requirement of the common law for the retention of a legal home in American territory, might still, in consequence of long-continued residence in a foreign country, be there subjected not unreasonably to the payment of an income tax.1

1 These difficulties seem to have been due in part, first, to the belief that corporeal property is, under any circumstances, taxable as such in a place where it is not to be found, and where, in consequence, it can not be levied upon, and secondly, to the belief that although notes and other evidences of indebtedness may be treated as chattels and taxed accordingly as such, there remains between them and the domicile of the owner a peculiar relationship serving at times to restrict the State where they are found in dealing with them as assets belonging within its domain, and at others, to extend the theoretical control of the State of the domicile over them as though they were in fact within its limits. See, in this connection, dissenting opinion of Mr. Justice Day, in Buck v. Beach, 206 U. S. 392, 409. It is believed that tangible property, embracing all that possesses a corporeal character, is to be taxed as such only where it is to be found and can be levied upon; and that difficulties in determining whether it strictly belongs where it is found, hardly justify recourse to a fiction even as a means of preventing property to escape taxation altogether.

It is probable, however, that as a practical matter, any objections on such a score which might be raised by an aggrieved foreign State, could be met substantially by the suggestion that the particular tax imposed was of a personal character rather than a tax on property, and that the connection of the owner with the domain of the territorial sovereign sufficed to subject him to the imposition of it.

2 Mr. Fish, Secy. of State, to Mr. Cushing, Minister to Spain, Jan. 12, 1876, MS. Inst. Spain, XVII, 432, Moore, Dig., II, 63, 64.

This is well illustrated by the exaction by Japan of an income tax from foreign missionaries. For. Rel. 1900, 760-762; see, also, Mr. Fish, Secy. of State, to Mr. Davis, Minister to Germany, Nov. 21, 1874, For. Rel. 1875, I, 488-489; Moore, Dig., II, 58-60. Compare the attempt of the authorities of Frankfort-on-the-Main, in 1887, to levy an income tax on Mrs. S. R. Honey, the wife of an American citizen, domiciled in the United States, For. Rel. 1888, I, 623, 630, 642, 650, 655, Moore, Dig., II, 60–61.

4 Memorandum of law officer of Department of State, March 1, 1909, For.

Personal taxes levied upon individuals subject thereto may assume a variety of forms. When they are levied upon aliens, the law of nations appears to offer few restrictions beyond the possible requirement that the tax be in a broad sense uniform and general in its operation. Such individuals may be subjected, for example, to the payment of a poll tax,1 or of an income tax; 2 and in the latter case the tax may doubtless be assessed according to the amount of income from whatsoever source derived, and whether or not from assets outside of the taxing State. It may be doubted, moreover, whether any rule of international law forbids discrimination on grounds of alienage. When a tax is levied upon the income of a non-resident alien, it is obviously in the nature of a tax upon his property within the control of the territorial sovereign rather than a personal tax.1

According to American opinion the State of the domicile of a decedent may tax the succession to the universitas as incidental

Rel. 1909, 285. Compare Mr. Porter, Acting Secy. of State, to Mr. Emmet, June 8, 1885, For. Rel. 1885, 848, Moore, Dig., IV, 22, where the statement as to principle is believed to place undue stress upon domicile.

1 Opinion of Justices, 7 Mass. 523; Opinion of Justices, 8 N. H. 573; Kuntz v. Davidson County, 6 Lea (Tenn.) 65.

2 Mr. Fish, Secy. of State, to Mr. Davis, Minister to Germany, Nov. 21, 1874, For. Rel. 1875, I, 488-489, Moore, Dig., II, 58-60. As to the procedure to be followed by an American citizen abroad who alleges that he is not properly liable to the exaction of an income tax in the country of his sojourn, cf. Mr. Hay, Secy. of State, to Mr. Harris, Minister to Austria-Hungary, May 31, 1899, For. Rel. 1899, 50; Moore, Dig., II, 61; also, Mr. Bayard, Secy. of State, to Mr. Honey, Mar. 21, 1887, For. Rel. 1888, I, 631, Moore, Dig., II, 61, note.

See Memorandum of the Solicitor of the Department of State, on the payment of income taxes by American Consular Officers in Great Britain, March 1, 1909, For. Rel. 1909, 285; correspondence with Germany in 1906, concerning the exemption of American citizens in the territory of that Empire from the payment of church taxes, For. Rel. 1906, I, 658-660; correspondence with Haiti in 1907, respecting the requirement of that State compelling foreign firms to take out retail licenses in lieu of the enforcement of the Haitian tax law of 1876, For. Rel. 1907, II, 728-742.

In 1910, the Department of State, noting that several European Powers opposed the collection of a supplemental income tax from foreigners engaged in business in Bulgaria, on the ground that by the operation of the capitulations existing under the Turkish régime which were "still in force in Bulgaria", the government of that country lacked the right to enforce the collection of any new taxes upon foreign residents without the consent of their respective governments, gave its approval to representations made by the American Chargé d'Affaires, that American citizens be accorded the same treatment as that applied to other foreigners engaged in business in Bulgaria. For. Rel. 1910, 128.

3 Foreign Relations 1900, 760-762.

4 Thus, according to the Act of Sept. 8, 1916, 39 Stat. 756, provision was made for the taxation upon the entire net income received in the preceding calendar year from all sources within the United States "by every individual, a non-resident alien, including interest on bonds, notes, or other interestbearing obligations of residents, corporate or otherwise." See, in this connection, De Ganay v. Lederer, 250 U. S. 376, sustaining a tax under the Income