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STAMP TAX-MORTGAGES-BONDS.

Bonds provided for in a mortgage, to be issued or not as the future action of the mortgagor may determine, are not until issued the subject of taxation or an element in estimating the amount of stamps required for the mortgage.

A bond, though prepared and signed, still in the possession of the obligor unissued, and which may never be, is not a debt or obligation which is liable to taxation.

As under the resolution of February 28, 1899, only one stamp is required upon two separate papers which constitute one transaction, as where a bond or note is given to evidence a debt and the mortgage executed to secure the same, the purposes of the law are fulfilled when the stamp in proper amount is affixed to either and canceled, such stamp being the highest rate required by said papers or either of them.

DEPARTMENT OF JUSTICE,

July 17, 1899.

SIR: I have the honor to acknowledge receipt of yours of May 13, 1899, inclosing a copy of a letter from the Commissioner of Internal Revenue, requesting my opinion as to the stamps required on a mortgage proposed to be executed by the Baltimore and Ohio Railroad Company and certain bonds, the payment of which is to be secured thereby. These are the facts:

The directors and stockholders of the Baltimore and Ohio Railroad Company have approved the execution by the company of prior lien bonds to the amount of $75,000,000, and the securing of the same by mortgage deed of trust to the Mercantile Trust Company of New York, trustee. Of this issue bonds to the amount of $70,000,000 are to be presently issued and sold, and $5,000,000 are reserved in the hands of the trustee to be issued and sold after 1902 at the rate of $1,500,000 per year. The directors and stockholders of the railroad company have also approved and authorized the issue of first mortgage 4 per cent bonds of the company to the amount of $63,000,000, secured by mortgage deed of trust to the United States Trust Company of New York, of which bonds $50,000,000 are to be presently issued and sold. Six million dollars are reserved to take up a like amount of bonds of the Baltimore Belt Railroad Company, should the Baltimore and Ohio Railroad. Company exercise its option to do so, and $7,000,000 are reserved to be hereafter issued

and sold for the purpose of acquiring new equipments or otherwise adding to the mortgaged property.

In and by the mortgage deed of trust to the United States Trust Company the railroad company reserves the right to issue hereafter, for certain specified purposes, additional bonds to the amount of $27,000,000, and it is provided that if and when these additional bonds are issued they shall be entitled to the security of the mortgage deed of trust pari passu with the other bonds isued thereunder. Neither the directors nor stockholders of the railroad company have approved or authorized the issue of these additional bonds. Upon these facts the Commissioner of Internal Revenue in his letter to you submits these three interrogatories:

"(1) Must the stamps in this case be affixed to the bonds or to the mortgages?

"(2) If to the bonds, can such stamps be affixed to the bonds as issued, or can they be affixed to the mortgages as the bonds are issued?

"(3) If the stamps are to be affixed to the mortgages, must the amount of the same be equal to the entire tax on the bonds provided for by said mortgages?"

The several provisions of law involved in the consideration of the questions are

That portion of the first paragraph of Schedule A of the act of June 13, 1898, which reads as follows:

"Bonds, debentures, or certificates of indebtedness issued after the first day of July, anno Domini eighteen hundred and ninety-eight, by any association, company, or corporation, on each hundred dollars of face value, or fraction thereof, five cents."

That part of Schedule A which says:

"Mortgage or pledge of lands, estate, or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money, lent at the time or pre viously due, and owing or forborne to be paid, being payable; also, any conveyance of any lands, estate, or property whatsoever, in trust to be sold or otherwise converted into money, which shall be intended only as security, either by express stipulation or otherwise; on any of the foregoing

exceeding one thousand dollars, and not exceeding one thousand five hundred dollars, twenty-five cents; and on each five hundred dollars, or fractional part thereof, in excess of fifteen hundred dollars, twenty-five cents."

The following resolution of Congress, approved February 28, 1899:

"That an act passed June thirteenth, eighteen hundred and ninety-eight, entitled 'An act to provide ways and means to meet war expenditures, and for other purposes,' be amended by adding to the end of Schedule A, section twenty-five, the following: Whenever any bond or note shall be secured by a mortgage or deed of trust, but one stamp shall be required to be placed upon such papers: Provided, That the stamp tax placed thereon shall be the highest rate required for said instruments, or either of them."" And also section 15 of the act of June 13, 1898, which is as follows:

"That it shall not be lawful to record or register any instrument, paper, or document required by law to be stamped unless a stamp or stamps of the proper amount shall have been affixed and canceled in the manner prescribed by law; and the record, registry, or transfer of any such instruments upon which the proper stamp or stamps aforesaid shall not have been affixed and canceled as aforesaid shall not be used in evidence.'

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The main question presented by the facts in this case and interrogatories submitted thereon by the Commissioner of Internal Revenue is as to the amount of stamp required under the provisions of the war-revenue act, at the time the mortgage is offered for registration, upon the transaction described.

There is no trouble in arriving at the amount of tax required upon a bond for a certain sum, because that is definitely ascertained by the statute, being governed by the sum stated on the face of the bond. The difficulty, if there be any, in the present case arises because the property conveyed in the mortgage is not in fact security at the time the mortgage is offered for registration for the payment of the full amount of bonds provided for, the issue of some of the bonds being made dependent upon future contingencies. If

the company, by the action of its directory, decides to issue at one time bonds to a definite amount, and at the same time executes a mortgage upon its property as security for the payment of these bonds as they become due, the stamp tax required could be readily estimated. But in the matter under consideration such is not the case. Certain of the bonds provided for in the mortgage are ready to be issued at the time the mortgage is offered for registration; certain others of the bonds are held in reserve by the company, and the issue of still others depends upon future contingencies, which may or may not happen. The law says that the instrument which is taxable is a mortgage of lands, estate, or property, etc., where the same shall be made as a security for the payment of any definite and certain sum of money, lent at the time or previously due and owing or forborne to be paid, being payable. Evidently the law intended to determine the amount of tax to be paid upon a mortgage by the amount of debt actually incurred and existing, and for the payment of which the property conveyed is security. Certainly a bond, though prepared and signed, still in the possession of the obligor, unissued, and which may never be issued, is not a debt or an obligation. Such bond can not be construed as an evidence of a definite and certain sum of money, lent at the time or previously due and owing or forborne to be paid, being payable. In such instances the bond is operative when it is issued and goes into the hands of a lender or purchaser, and is held as evidence of an obligation to pay the sum of money indicated by its terms.

I do not deem it necessary to discuss the question as to bonds provided for in the mortgage to be issued or not as the future action of the mortgagor may determine. My conclusions above apply, and such bonds can not, until they are issued, be the subject of taxation or an element in estimating the amount of stamp required for the mortgage.

Under the provisions of the war-revenue act relative to bonds, and mortgages executed as security for the payment of the same, both the mortgage and the bond were taxable, and consequently, in cases like the one under consideration, it was with some difficulty that a definite ruling could be established, more particularly because the mortgage required

stamps to a certain amount and the bonds stamps of a different amount.

Now, under the resolution of Congress approved February 28, 1899, above quoted, which is an amendment to the provisions of the war-revenue act in respect to mortgages and bonds and notes secured thereby, the stamp is not required upon each of the instruments, but only upon the transaction evidenced by both instruments, the amount of said stamps to be the highest rate for said instruments or either of them. This amendatory resolution not only changes the law so as to require but one stamp, but upon a perusal of the same it will be seen that it provides that this one stamp may be placed on either of the papers, the language of the law being this:

"Whenever any bond or note shall be secured by a mortgage or deed of trust, but one stamp shall be required to be placed upon such papers."

It seems that there can be but one conclusion as to the meaning of this language, and that is that the placing of the requisite stamp upon either of the papers fulfills the requirements of the law, such stamp being of the highest rate required by said papers or either of them.

The only provision of law I find which appears to stand in the way of this conclusion and its practical application is section 15 of the war-revenue act, copied above. It will be observed that this seetion says:

"That it shall not be lawful to record or register any instrument, paper, or document required by law to be stamped unless a stamp or stamps of the proper amount shall have been affixed and canceled in the manner prescribed by law."

Anterior to the resolution of February 28, 1899, when, as I have stated before, both the mortgage and bond or note for which it was given as security were subject to tax, a mortgage offered for registration should have had the proper stamp affixed and canceled. But now, when the law is so amended as to require only one stamp upon two separate papers which constitute one transaction, it is my opinion that the purposes of the law are fulfilled when the stamp in proper amount is affixed to either and canceled. I have

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