Buck v. Beach

Background

A deceased non-resident investor held promissory notes given by Ohio borrowers. An Ohio agent placed some of those notes in an office and safe in Lafayette, Indiana, and Indiana assessed taxes on the debts by treating the paper as taxable property.

Reasoning

The Court asked whether the mere physical presence of unpaid notes in Indiana made the underlying Ohio debts taxable there. It held that promissory notes are only written evidence of debts and that debts generally sit with the creditor’s home. Because neither the owner nor the debtors nor the main business were in Indiana, simply keeping the papers there did not create taxable property in that State, and enforcing the Indiana tax would violate the Fourteenth Amendment’s protection against taking property without due process.

Real world impact

The decision prevents a State from taxing debts that exist and are payable outside its borders just because the paper evidence happened to be held there. It leaves intact prior lines of cases allowing taxation where capital is actually invested in a State or where a non-resident conducts business there through an agent. The Court reversed Indiana’s judgment and barred enforcement of the tax assessed on those notes.

Dissents or concurrances

A dissent argued the Indiana agent had control and dominion over the notes, kept them in the owner’s office and safe, and that the State could lawfully give those papers a local situs for taxation to prevent tax evasion.