George Sutherland

“ Laying the mortgage recording tax only upon the long-term loans tends in some measure to reduce the disadvantage under which the short-term borrower labors.
At what point the line should be drawn between short-term and long-term loans is, of course, a matter on which even men conversant with all the facts may reasonably differ. There was much difference of opinion concerning this in the Kentucky Legislature. ”

“ The mortgage recording tax is a feature of the revenue system of at least nine states. [7] Its purpose in all is substantially the same-to supply an effective means for reaching this form of intangible property, which is likely to evade taxation under the general property tax. The recording tax is commonly accompanied either by a complete exemption of mortgage securities from other property taxation or, as in Kentucky, by exemption of such securities from local taxation alone. ”

“ On the other hand, the long-term loans are commonly evidenced by coupon bonds, are issued for large amounts, and represent borrowings for business purposes. The rate of interest on short-term mortgage loans is generally higher than that on long-term loans of equal safety, in part for the following reason: Because the short-term loans are usually evidenced by promissory notes payable to the lender, the registration of the mortgage discloses the identity of the holder of the notes; and he is commonly subjected to the tax of 40 cents per $100 imposed by law upon all mortgage loans. ”

“ Pursuant to power conferred by the Constitution of Kentucky, its Legislature imposed a recording tax of 20 cents per $100 upon mortgages given to secure loans which do not mature within five years from the date of the mortgage. The statute discriminates between long and short term loans as subjects of taxation. A loan maturing in 60 months or more would be subject to the tax, whereas one maturing in 59 months or less, but otherwise similar in all respects would not be. ”

“ Whether the exercise was a wise one is not our concern.
That it was permissible for Kentucky, in levying its mortgage recording tax, to take account of the probability that certain types of mortgage would escape further taxation, is not open to doubt. Watson v. State Comptroller, 254 U.S. 122, 125, 41 S.C.t. 43, 65 L. Ed. 170. There is abundant proof that the Legislature was justified in thinking that the bulk of the long-term loans would escape the general property tax, while most of those for a short-term would not. ”

“ When a legal distinction is determined, as no one doubts that it may be, between night and day, childhood and maturity, or any other extremes, a point has to be fixed or a line has to be drawn, or gradually picked out by successive decisions, to mark where the change takes place. ”

“ That the statute taxes certain long-term loans which, because of their similarity in other respects to those for a short-term, are likely to be subjected to the state property tax, would not render the statute invalid even as applied to them. ”

“ In Kentucky, local reasons exist for treating long-term mortgage loans somewhat differently from those for a short term. There is among those loans which are secured by mortgages of real or personal property, and hence require registration, commonly a marked difference in the character of the short-term and the long-term loans. ”

“ Like the first commission, it adverted to the fact that 'even in the case of mortgages numerous ingenious and decidedly reprehensible methods are resorted to, in order that the real owner of such securities may escape his lawful portion of the burden of taxes,' and it recommended, among other things, the imposition of a mortgage recording tax. ”

“ No such facts have been adduced by the company. On the other hand, facts called to our attention by counsel for the Commonwealth, and of which we may take judicial notice, New Mexico ex rel. McLean v. Denver & Rio Grande R. R. Co., 203 U.S. 38, 50, 27 S.C.t. 1, 51 L. Ed. 78; Sligh v. Kirkwood, 237 U.S. 52, 61, 35 S.C.t. 501, 59 L. Ed. 835, show that the classification was adopted by the Legislature of Kentucky in an effort to equalize the tax burden incident to loans. ”

“ Cas. 1913D, 745, sustaining a similar provision in Laws 1905, c. 54. Even where such rates do not apply to the total amount but only to that over a certain excess, they seem to violate the standards now laid down by the court. ”