However, in the case of State Tax on Foreign-Held Bonds,44 decided in 1873, was laid down a rule which, if strictly adhered to, would have greatly embarrassed the States in their attempts to tax intangible personal property. In this case it was declared that bonds and other evidences of indebtedness are property in-the hands of the holdlders, and, when held by non-residents of the state in which issued, are property beyond the jurisdiction of, and therefore not taxable by, that State. The law contested in this case had required that a railroad company should, before the payment of the interest on certain of its bonds, retain out therefrom the amount of the tax and pay it over to the State. By this direction, it was held, the law operated to impair the obligation of the contract between the company and its non-resident bondholders. And the court held that it was such an impairment because it was not a proper exercise of the taxing power, the court saying: "The bonds issued by the Railway Company in this case are undoubtedly property, but property in the hands of the holders, not property of the obligors. So far as they are held by non-residents of the State, they are property beyond the jurisdiction of the State. The law which requires the treasurer, of the company to retain five per cent. of the interest due to the nonresident bondholder is not, therefore, a legitimate exercise of the taxing power. It is a law which interferes between the company and the bondholder, and under pretense of levying a tax commands the company to withholds portion of the stipulated interest and pay it over to the State. It is a law which thus impairs the obligation of the contract between the parties."

43 199 U. S. 194; 26 Sup. Ct Rep. 714; 50 L. ed. 1155. 44 15 Wall. 300; 21 L. ed. 179.

The reasoning by which the court reached the doctrine that the bond in the hands of non-resident bondholders was property without the jurisdiction of the State is given in the note below.45

45 "Corporations may be taxed, like natural persons, upon their property and business. But debts owing by corporations, like debts owing by individuals, are not property of the debtors in any sense; they are obligations of the debtors, and only possess value in the hands of the creditors. With them they are property, and in their hands they may be taxed. To call debts property of the debtors, is simply to misuse terms. All the property there can be, in the nature of things, in debts of corporations; belongs to the creditors, to whom they are payable, and follows their domicile, wherever that may be. Their debts can have no locality separate from the parties to whom they are due. This principle might be stated in many different ways, and supported by citations in numerous adjudications, but no number of authorities and no forms of expression could add anything to its obvious truth, which is recognized upon its simple statement. The property mortgaged belonged entirely to the Company, and so far as it was situated in Pennsylvania was taxable there. If taxation is the correlative of protection, the taxes which it there paid were the correlative for the protection which it there received. And neither the taxation of the property, nor its protection, was augmented or diminished by the fact that the Corporation was in debt or free from debt. The property in no sense belonged to the non-resident bondholder or to the mortgagee of the Company. The mortgage transferred no title; it created only a lien upon the property. Though in form a conveyance, it was both at law and in equity a mere security for the debt.

"Such being the character of a mortgage in Pennsylvania, it cannot be said, The principles thus broadly laid down in the State Tax on Foreign-Held Bonds had soon to be modified, and, in fact, the case has since been held down to the precise point decided. That public securities, consisting of state bonds and bonds of municipal corporations and circulating notes of banking institutions are exempted from the principle mobilia sequuntur personam, is stated in the case itself. But in later cases the same exemption is applied to shares of stock, mortgages, and, to a certain extent, to promissory notes and other credits. This will appear in the sections which follow.