Summary
In Industrial Loan and Investment Company v. Adams County, 1932, 163 Miss. 654, 141 So. 756, tax exemption of notes representing loans made by appellant was denied because the loans did not comply with the installment loan act.
Summary of this case from Bailey v. North American Finance Co.Opinion
No. 30033.
May 16, 1932.
TAXATION.
Where lender delivered to borrower ninety-five dollars, taking note for one hundred dollars due ten months after date, loan held not exempt from taxation (Code 1930, section 3108).
APPEAL from circuit court of Adams county. HON. R.L. CORBAN, Judge.
Brandon Brandon, of Natchez, for appellant.
The Industrial Loan Investment Company, Inc., is a corporation under the Laws of the State of Mississippi, domiciled at Natchez, Adams County, Mississippi, wherein it is engaged in making what are commonly called installment loans, under the provisions of Section 1971 of the Mississippi Code of 1930.
In accordance with the authority of the aforesaid section of the Code, in making said loans the company deducts from the principal of the amount borrowed and at the time the loan is made five (5%) per centum thereof as interest and also deducts, in accordance with the authority of said section of the Code, certain sums to cover expenses of investigation of the security. The indebtedness and evidence thereof bears no other interest except after the maturity when it bears interest at the rate of six per cent per annum. The notes in question on their face bear no interest other than after maturity and then at the rate of six per cent per annum.
The following shall be exempt from taxation:
All state, county, municipal, levee, drainage and all school bonds or other government obligations and all bonds and/or evidences of debt issued by any church or church organization of this state, and all notes and evidences of indebtedness bearing a rate of interest not greater than six per cent per annum; and all stocks in or bonds of foreign corporations or associations shall be exempt from all ad valorem taxes.
Sec. 3108, ch. 61, Mississippi Code of 1930.
The Industrial Loan Investment Company, Inc., is an industrial loan company and as such pays privilege taxes under section 129, chapter 88, of the Laws of 1930.
In adopting sub-section (v), section 3108, of the Code of 1930, it was the policy of the legislature by exempting money loaned at six (6%) per cent or less to encourage lending money at a cheap rate.
It is obviously within the intent of the legislature that loans of the character here under discussion should not be burdened with ad valorem taxes as evidenced by the privilege taxes assessed against such business under said section 129 of the Privilege Taxes of 1930.
The notes and loans of money of the Industrial Loan Investment Company, Inc., clearly come within the provisions of exemptions contained in section 3108 of the Code of 1930.
We have not been able to find any case directly in point with the issues here involved, but submit that the opinion rendered in the case of Equitable Finance Co. v. Board of Supervisors of Lee County, 146 Miss. 734, 111 So. 871, sustains our contention in this case.
The test is what amount of interest per one hundred dollars loaned is paid by the borrower and received by the lender and what per cent or amount of interest is the borrower absolutely required to pay upon a loan of one hundred dollars. In examining into the question the court will not presume that there will be defaults, or that on January 1, 1931 there were notes in default upon which the loan company might possibly have been exacting interest on deferred payments. There is no evidence that there were any such instances whatsoever and no presumptions will be indulged in. The notes will be treated as being in good grace and so as to each and all.
Kennedy Geisenberger, of Natchez, for appellee, Adams county.
A decision of this question involves the construction of sections 1951 and 1971, Mississippi Code 1930.
In order for the appellant to be entitled to tax exemptions, it must prove its right to such exemption, as they are never presumed to exist. In other words, appellant must bring itself squarely within the terms of the statute granting the exemptions and show a compliance with all of the provisions thereof.
Barnes v. Jones, 139 Miss. 675, 103 So. 773, 43 A.L.R. 673; Gulfport Bldg. Loan Ass'n. v. City of Gulfport, 155 Miss. 498, 124 So. 658; Magnolia Bldg. Loan Ass'n. v. Miller, 128 So. 585 (appeal dismissed 51 S.Ct. 86, 282 U.S. 803, 75 L.Ed. 722.)
The loans made by appellant do not fall within the provisions of section 1971, Code of 1930, allowing the division of principal and interest into monthly installments.
Even though section 1971 authorized appellant to deduct interest at five per cent (5%) per annum in advance, and require repayment of the loan in monthly installments, yet, if by so doing a rate of interest in excess of six per cent (6%), per annum was thereby laid against the loan, then it became subject to taxation.
A mere reading of section 1971, Code of 1930, shows that it does not authorize any discount or deduction of interest on the loan. Stretching its terms to the utmost, all that this statute authorizes the appellant to do is to calculate interest on the one hundred dollar ($100) loan at five per cent (5%) per annum for ten months and then add the principal and interest together and divide the sum into ten equal installments, payable one each month. Not only does it not authorize the deduction of interest in advance of the loan, but most emphatically negatives any such right by the expressed directions for the aggregation of principal and interest for the entire period of the loan — which in the case now before the court is ten months. Nor does this section allow the computation of interest for twelve months to be repaid in installments of ten months.
By deducting interest in advance, the appellant increased the rate of interest. This question has been long since settled by an unbroken line of authorities in this state. Commercial Bank v. Nolan, 7 How. 508; Hyde v. Finley, 26 Miss. 468; Polkinghorne v. Hendrix, 61 Miss. 366; Hiller v. Ellis, 72 Miss. 701, 18 So. 95, 41 L.R.A. 707. It is true that all of the cases last cited were dealing with the proposition of usury, but the rule of law therein announced applies with equal force to the case at bar, to-wit, that the deduction of interest in advance for the entire period of the loan (and in this case for two months longer) increases the interest rate.
We submit that the appellant having deducted from the amount of the one hundred dollars ($100) loan applied for five per cent. (5%) per annum, or five dollars ($5), and delivered to the borrower, only ninety-five dollars ($95) which was payable in installments of ten dollars ($10) per month over a period of ten months, when the rate of interest on ninety-five dollars ($95) at six per cent (6%) for ten months is only four dollars and seventy-five cents ($4.75) became liable to taxation.
Engle Laub, of Natchez, for appellee.
The undersigned, of counsel for appellees, adopt the brief of W.C. Martin and brief of Kennedy Geisenberger herein and submit that the within case on the facts, which show a higher rate of interest than six (6%), per cent, under the statute involved, should be affirmed.
W.C. Martin, of Natchez, on behalf of City of Natchez, appellee.
These notes were property and all property in Mississippi is subject to ad valorem unless specially exempted by some Act of the Legislature. Exemptions from taxation will not be presumed, they must clearly appear in the laws.
Appellant charged more than five per cent for the time the note had to run — ten months and took all the interest in advance, so that his ten installment payments were not composed of any part of the interest, but only of the principal.
The pre-payment of interest calculated at the full rate of interest allowed by law makes the note usurious.
Polkinghorne v. Hendricks, 61 Miss. 366.
The principle involved in the Polkinghorne case governs this case. In the Polkinghorne case the penalty for usury was involved, in this case the denial of an exemption because the pre-payment of interest ran the rate of interest taken above six per cent per annum on the money borrowed.
Appellant contends that there was no rate of interest charged in its notes except the rate of six per cent per annum after maturity and that, for that reason the notes are exempt from taxation. This, we submit is a fallacy. The five dollars taken in advance was treated by all parties as interest prepaid. The course of dealing made it interest.
Six per cent per annum, upon ninety-five dollars for ten months is equal to four dollars and seventy-five cents, but the lender received five dollars, consequently he got more than six per cent and his note was taxable.
Section 1951 of Code of 1930 does not help appellant.
The provision of this statute do not, and cannot, apply to contracts such as those involved in this suit.
Argued orally by G.H. Brandon, for appellant, and by Lawrence T. Kennedy, for appellee.
These cases present appeals from assessments for taxation of debts due the appellant. Under section 3108, Code of 1930, "all notes and evidences of indebtedness bearing a rate of interest not greater than six per cent. per annum, and all money loaned at a rate of interest not exceeding six per cent per annum" are exempt from taxation.
The appellant is a domestic corporation engaged in lending money to be repaid in installments. When making a loan for, to illustrate, one hundred dollars, it delivers to the borrower ninety-five dollars in cash, and takes his note for one hundred dollars payable in ten monthly installments of ten dollars each. On the failure to pay any installment, all the other installments immediately become due and payable. The note bears interest only after maturity, and then at the rate of six per cent. per annum. Such a note is not within the provision of section 1971, Code of 1930, for two reasons: The interest payable before maturity of the note is deducted therefrom instead of being added to the principal, the aggregate thereof being then divided into monthly payments, and is not at the rate of five per cent. per annum for the length of time the note runs, but is flat five per cent.
Leaving out of view the effect, if any, on the rate of interest on such a loan of the fact that it is repayable in installments, of which the appellant, of course, cannot complain, and treating it as a loan due ten months after date, what actually occurs when it is made is this: The lender delivers to the borrower ninety-five dollars, and takes his note for one hundred dollars due ten months after date, the five dollars retained by the borrower representing the interest on the loan prior to its maturity. Hyde v. Finley, 26 Miss. 468; Chandler v. Cooke (Miss.), 137 So. 496. Interest at the rate of six per cent. per annum on the loan would be only four dollars and seventy-five cents, consequently the lender collects thereon a rate of interest exceeding six per cent. per annum, and therefore the loan is not exempt from taxation.
In Equitable Finance Co. v. Board of Supervisors of Lee County, 146 Miss. 734, 111 So. 871, a dealer in automobiles took from the purchasers thereof notes for deferred payments, bearing interest at the rate of six per cent. per annum. He sold them to another at a discount, which, when added to the interest which the maker agreed to pay, would net the purchaser more than six per cent. per annum on the face of the notes. The purchaser was sought to be taxed on the notes on the theory that the discount paid therefor by him when added to the interest borne by the notes, made them in effect loans by him, at at greater rate of interest than six per cent. per annum. The court held that such was not the case; the test of the rate of interest on the notes for the purpose of taxation being that which the maker actually paid or contracted to pay thereon.
Affirmed.