Opinion — Keeney v. Comptroller of NY

KEENEY v. NEW YORK. 525

222 U. 8. Syllabus.

KEENEY, AS ADMINISTRATOR, ». COMPTROL-

LER OF THE STATE OF NEW YORK.

ERROR TO THE SURROGATE’S COURT OF THE COUNTY OF

KINGS, STATE OF NEW YORK.

No. 81. Argued December 6, 1911.—Decided January 9, 1912.

The statute of New York of 1896, providing for a transfer tax on prop-

erty passing by deed of a resident intended to take effect in possession

or enjoyment at or after the death of the grantor, is not unconsti-

tutional as taking property without due process of law nor does it

deny the equal protection of the law by arbitrary classification of the

subject-matter or by different rates of taxation depending on the

relationship of the beneficiaries to the grantor.

The privilege of acquiring property by trust instrument, taking effect

on the death of the grantor, is as much dependent on the law as that

of acquiring property by inheritance and is subject to taxation by

the State.

Where a state tax on the transfer of property does not offend the Con-

stitution of the United States, its validity must be determined by

the law of the State.

An excise on transfers does not become an ad valorem tax on the prop-

erty conveyed because the amount is based on the value of such

property. Magoun v. Illinois Trust Bank, 170 U. 8. 283.

The Fourteenth Amendment does not diminish the taxing power of

the State or deprive the State of the power to select subjects for

taxation, but only requires that the citizen be given opportunity to

be heard on questions of liability and value, and be not arbitrarily

The Fourteenth Amendment does not require a State to tax all trans-

fers because it taxes some transfers.

While there can be no arbitrary classification without denying equal

protection of the law, there need not be great or conspicuous differ-

ences in order to justify a classification.

A State may impose a graduated tax on transfers of personal property

by instrument taking effect on the grantor’s death without violating

the equal protection clause.

One assessed at the lowest rate under a graduated tax statute cannot

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526 OCTOBER TERM, 1911.

Statement of the Case. 222 U.S.

object to the constitutionality because others are taxed at the higher

rate.

A statute imposing a graduated tax would not necessarily be held un-

constitutional as to the initial rate, even if the provisions as to the

higher rates were unconstitutional.

A State may impose a transfer tax based on personal property passing

under a trust deed to take effect at the grantor’s death if the prop-

erty had its situs in that State when the deed was made.

Where the power to tax exists, the State may fix the rate and say when

and how the amount shall be ascertained and paid, and if the personal

property has its situs in the State when the deed is made, it may tax

a transfer of personal property under a trust deed to a resident of

the State to take effect at the grantor’s death, although the personal

property at that time may be without the State.

194 N. Y. 281, affirmed.

On June 13, 1903, Susan A. Keeney, a resident of New

York, being in good health, executed in Kings County a

deed, whereby she conveyed a cattle ranch in Texas and

certain stocks and bonds to the Fidelity Trust Company

of Newark, New Jersey, in trust, to hold the same during

her lifetime, and to divide the net income equally between

herself and her three children, two of whom reside out of

the State of New York. The deed further provided that

after her death the trustees should pay the entire income,

or transfer the property, to her children, or their issue,

on terms and limitations not material to this investigation.

In the deed she ‘‘reserved the right to revoke or alter the

whole or any part of the trust conveyance, at any time

after six months notice in writing.” She died March 29,

1907, being at the time a resident of Kings County, leav-

ing an estate of the value of $25,900 and the three children

as sole heirs at law.

In tax proceedings the proper officers found that the

stocks and bonds were of the then value of $773,600,

one-fourth ($193,400) being for the use of Mrs. Keeney

for life, and the remainder to her children, being intended

to take effect at her death. It was held that their in-

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KEENEY v. NEW YORK. 527

222 U. S. Argument for Plaintiffs in Error.

terest was subject to the tax imposed by the New York

statute of 1896 (May 27, 1896, Laws 1896, v. 1, c. 908,

_§ 220, Subd. 1, 3), which provides:

‘*\ tax shall be and is hereby imposed upon the trans-

fer of any property, real or personal . . . or of any

interest therein or income therefrom, in trust or other-

wise. . . . (3) When the transfer is of property made

by a resident or by a non resident, when such non resi-

dent’s property is within this state, by deed, grant, bar-

gain, sale or gift made in contemplation of the death of the

grantor, vendor or donor, or intended to take effect, in

possession or enjoyment, at or after such death.”

Mrs. Keeney’s administrator and children appealed

on the ground that the taxable transfer act of New York,

in so far as it imposes a tax upon property transferred

inter vivos, violated the Fourteenth Amendment, in that

it took the property without due process of law, and the

different rates of taxation and classification were of such

discriminatory a character as to deny the equal protection

of the law.

The judgment was affirmed. The case is here on writ

of error from the final order of the Surrogates’ Court, en-

tered in pursuance of the mandate of the Court of Appeals.

194N. Y. 281.

Mr. George F. Canfield, with whom Mr. Karl T. Fred-

erick was on the brief, for plaintiffs in error:

Even if the State was taxing a transfer of property (an

assumption contrary to fact) the transfer in this case was

strictly a conveyance inter vivos, and was in no sense tes-

tamentary. The tax must therefore be sharply distin-

guished from an inheritance tax. Ridden v. Thrall, 125

N. Y. 572; Basket v. Hassel., 107 U. S. 602; Knowlton v.

Moore, 178 U. S. 41; United States v. Perkins, 163 U. S.

625; Matter of Brandreth, 169 N. Y. 437; Billings v. Ill-

nois, 188 U.S. 97; Matter of Pell, 171 N. Y. 48.

528 OCTOBER TERM, 1911.

Argument for Plaintiffs in Error. 222 U.S.

A tax upon the special form of transfers inter vivos

covered by this act is unconstitutional because arbitrarily

discriminatory and not based upon any legal or natural

classification bearing any legally reasonable relation to the

subject. Nichol v. Ames, 173 U.S. 509.

The tax in this case upon all remainders limited to

take effect in possession after the death of the grantor is

not imposed under the taxing power proper of the State,

and cannot be upheld as an exercise thereof because it is

based upon a classification which has no reasonable rela-

tion to taxation. Frazer v. McConway Co., 82 Fed. Rep.

257; Hatch v. Reardon, 184 N. Y. 431; affirmed, 204 U.S.

152; Farringdon v. Mensching, 187 N. Y. 8; Matter of

Brandreth, 169 N. Y. 437.

The tax cannot be upheld under the general regulative

or police power of the State, because it is not imposed for

the purpose of regulating or promoting any of those in-

terests of society which may be regulated or promoted

under the police power.

That line of reasoning is entirely untenable; because

such an object does not come fairly within the scope of the

regulative or police power of the State; is not limited to

cases having any connection at all with the subject of in-

heritance taxation; and, even if limited to cases which

might be availed of for the purpose of escaping taxation,

the act would be entirely ineffective and useless to prevent

the accomplishment of such a purpose. Barbier v. Con-

nelly, 113 U.S. 27; Mugler v. Kansas, 123 U.S. 623; Matter

of Graves, 52 N. Y. (Misc.) 433; Matter of Edgerton, 35

N. Y. App. Div. 125; S. C., affirmed, 158 N. Y. 671.

The assumption that the tax is upon the transfer of

property is contrary to fact. No such tax was imposed in

this case, and the section of law under which the tax was

imposed does not in effect provide for a tax upon “‘a trans-

fer” of property but only upon “‘a coming into possession ”’

of property previously transferred. Matter of Gould, 156

KEENEY v. NEW YORK.

222 U.S. Argument for Defendant in Error.

N. Y. 423; Mugler v. Kansas, 123 U. 8. 623; Yick Wo v.

Hopkins, 118 U. 8. 356; Soon Hing v. Crowley, 113 U.S.

703; Neal v. Delaware, 103 U.S. 370; Ex parte Virginia, 100

U. 8. 339; Re Seaman, 147 N. Y. 69; Hatch v. Reardon, 184

N. Y. 431; Farrington v. Mensching, 187 N. Y. 8; Matter of

Brandreth, 169 N. Y. 437.

A tax upon the coming into possession of property is

unconstitutional because it deprives appellants of their

property without due process of law and denies to them the

equal protection of the laws. Matter of Pell, 171 N. Y. 48.

The tax upon the coming into possession of the prop-

erty in this case is also bad because the property was

situated and the coming into possession took place in a

State other than New York, and of the three persons bene-

ficially interested in the property, two were non-residents

of that State. The State, therefore, had no jurisdiction

over such property. Union Transit Co. v. Kentucky, 199

U. 8. 194; Matter of Pell, 171 N. Y. 48.

Mr. William Law Stout for defendant in error:

The enactment of rules, regulations and principles gov-

erning the transmission of property by will, intestacy or

other conveyances testamentary in character and effect

are within the exclusive province of the State. This court

will look to the statutes of the State for the rules govern-

ing the descent and testamentary transfer, alienation and

succession of property. This court will not only adopt

but is bound by the decisions of the highest courts of the

States as to the effect and interpretation of wills and

instruments of title. Orr v. Gilman, 183 U. 8S. 278, 283,

290; De Vaughn v. Hutchinson, 165 U. S. 566, 570; Clarke

v. Clarke, 178 U. 8. 186, 190; Magoun v. Illinois Trust Co.,

170 U. S. 283; Yazoo & Miss. Valley R. R. Co. v. Adams,

181 U. S. 580, 583; Eastern B. & L. Assn. v. Ebaugh, 185

U.S. 114, 132; L. & N. R. R. Co. v. Melton, 218 U. S. 36;

Leffingwell v. Warren, 2 Black, 599, 603; Randall v. Brig-

VOL. ccxxm—34

530 OCTOBER TERM, 1911.

Argument for Defendant in Error. 222 U. 8.

ham, 7 Wall. 523, 541; Morley v. Lake Shore R. R. Co.,

146 U. S. 162, 167; Moffitt v. Kelly, 218 U. S. 400, 405.

This court will also be bound by the decision of the

highest court of the State that there is nothing in the stat-

ute or its enforcement in conflict with the constitution

of the State, and that the proceedings taken therein for

its ascertainment did not deprive the plaintiffs in error

of their property without due process of law within the

meaning of the state constitution. Met. St. Ry. Co. v.

Tax Commrs., 199 U. 8. 1, 47; Orr v. Gilman, 183 U. S.

278, 283; Carpenter v. Pennsylvania, 17 How. 452; Wallace

v. Meyers, 38 Fed. Rep. 184.

The interpretation and construction placed by the

highest court of the State upon its statutes is conclusive

upon this court. Smiley v. Kansas, 196 U. S. 447; Hibben

v. Smith, 191 U. S. 310; Blackstone v. Miller, 188 U. S.

189, 207; Watson v. Maryland, 218 U. 8S. 173; Kentucky

Union Co. v. Kentucky, 219 U.S. 140, 151; Tilt v. Kelsey,

207 U.S. 43, 56; Lindsley v. Natural Gas Co., 220 U.S.

61.

The only question left to this court is whether the stat-

ute as interpreted by the highest court of the State is in

violation of the Federal Constitution. Mo. & Kan. R. R.

Co. v. Haber, 169 U. S. 613.

By the decisions of the courts of New York the inten-

_ tion of the grantor, vendor or donor must be found.

This is the test of the alleged gift. The enjoyment for life

of the former owner is a determining feature; necessarily

the character of the gift is determined by the acts of the

owner; the withholding of this possession and enjoyment

of the corpus or any determinable part thereof, determines

how much thereof is applicable to the statute. Matter of

Brandreth, 169 N. Y. 487; Matter of Green, 153 N. Y. 223;

Matter of Crueger, 66 N. Y. Supp. 636; Matter of Cornell,

170 N. Y. 423; Matter of Skinner, 106 App. Div. 217;

Matter of Palmer, 117 App. Div. 360; Matter of Ballard,

KEENEY v. NEW YORK. 531

222 U.S. Argument for Defendant in Error.

76 App. Div. 207; Matter of Bostwick, 160 N. Y. 489;

Matter of Keeney, 194 N. Y. 281.

The Fourteenth Amendment does not affect or control

the States in the exercise of their sovereign authority to

regulate inheritances and to determine the persons or

objects upon which an inheritance tax shall be imposed.

Campbell v. California, 200 U. 8S. 94.

The tax upon the right to testamentary successions is

not in contravention or in violation of any provision of

the Constitution of the United States. Carpenter v. Penn-

sylvania, 17 How. Pr. 456; Mager v. Grima, 8 How. Pr.

490; Magoun v. Illinois Trust Co., 170 U. 8. 283; Knowlton

v. Moore, 178 U. S. 33; Blackstone v. Miller, 183 U. S.

189, 201; Billings v. Illinois Trust Co., 188 U.S. 97, 104;

Chanler v. Kelsey, 205 U.S. 466; Moffitt v. Kelly, 218 U.S.

400, 405.

The right to take property by devise or descent is a

creature of the law and not a natural gift; since it is a privi-

lege granted and conferred by the State, the State may

confer particular rights of succession, but with them im-

pose conditions, limitations, classifications, and imposi-

tions upon the right of each particular succession granted.

Cases supra and Plummer v. Coler, 178 U. S. 115; United

States v. Perkins, 163 U. S. 625, 628; Wallace v. Meyers,

38 Fed. Rep. 184; Matter of Hoffman, 143 N. Y. 329, 331;

In re Cullum, 145 N. Y. 593.

The highest court of the State of New York has con-

strued the statute imposing this tax as a tax upon the right

to particular succession, and not upon the property. In

re Swift, 137 N. Y. 77, 88; In re Merriam, 141 N. Y. 479,

484; In re Hoffman, 143 N. Y. 329, 331; In re Cullum, 145

N. Y. 593; In re Sherman, 153 N. Y. 1, 6; In re Dows, 167

N. Y. 227, 232; In re Vanderbilt, 172 N. Y. 69, 72.

The interpretation of the tax as one upon the right of

testamentary successions has been uniformly recognized

by this court. Cases supra and Louisville & Nashville R.

III PE AERIAL ENOL OEY RS HIE DLAI LE SELES IESE SRE TTY: ERR i rc

532 OCTOBER TERM, 1911.

Argument for Defendant in Error. 222 U.S.

R. Co. v. Melton, 218 U. S. 36; United States v. Fox, 94

U. S. 315.

This court will take it to have been found that the pos-

session or enjoyment of the property passed to the plain-

tiffs in error, at the death of “usan A. Keeney, and that

the statute was applicable to ue right of succession of the

plaintiffs in error to the remainders therein which vested

in possession and enjoyment at her death. Cases supra

and Williams v. Arkansas, 217 U. 8. 79; Watson v. Mary-

land, 218 U. 8. 173; Gulf, Col. & Santa Fe Ry. Co. v. Ellis,

165 U. 8S. 150; Bell’s Gap R. R. Co. v. Pennsylvania, 134

U. S. 232; Board of Education v. Illinois, 203 U. 8. 553,

563; Orient Ins. Co. v. Daggs, 172 U.S. 557; Orr v. Gilman,

183 U. S. 278, 287; Cahen v. Brewster, 203 U.S. 552; Ozan

Lumber Co. v. Union County Bank, 207 U.S. 251.

The classification of remainders which take effect in

possession and enjoyment at or after the death of the

grantor, donor or vendor, wherein the beneficial enjoy-

ment of the property is reserved to the grantor, donor or

vendor, is not unreasonable, unjust or arbitrary. Cases

supra and Heath-Milligan Co. v. Worst, 207 U. S. 338,

354.

The Constitution does not, generally speaking, control

the power of the State to select and classify subjects of

taxation. Cases supra and Cahen v. Brewster, 203 U. S.

543, 549; Orr v. Gilman, 183 U. S. 278, 287; Provident

Savings Institution v. Malone, 221 U. S. 661, 666.

The cases cited sustain the proposition that the statute

imposing a tax upon the transfer of this class of remainders,

limited to vest in possession and enjoyment at the death

of the donor, the former owner of the property, and which

cannot vest at any other time or upon any other contin-

gency, does not deprive the plaintiffs in error of any of

their rights or any of the privileges and immunities of

citizens of the United States, nor does it violate the Four-

teenth Amendment or any provision of the Constitution

fa a a | SIRES See Tay NN PEE

KEENEY v. NEW YORK. 533

222 U.S. Opinion of the Court.

of the United States. See also McMillen v. Anderson,

95 U. S. 37.

Mr. Justice Lamar, after making the foregoing state-

ment, delivered the opinion of the court.

So much of the New York statute, as imposes an inher-

itance tax, was sustained in Plummer v. Coler, 178 U. S.

115, and in several decisions of the Court of Appeals of

that State. But the plaintiffs insist that there is a radical

difference between an inheritance tax and one on transfers

inter vivos. The first, they say, is an excise, imposed on a

privilege; while that complained of here is really on prop-

erty, though called a tax on a transfer. They argue that

inheritance taxes have been sustained on the ground

(United States v. Perkins, 163 U. 8S. 625), that no one has

the natural right to acquire property by will or descent, and

if the State permits such acquisition, it may require the

payment of a tax as a condition precedent to the right of

using that privilege. On the other hand, they contend

that the right to convey, or come into possession, does

not depend upon a statutory or taxable privilege, but is

a right incident to the ownership of property, and that

the tax imposed by the statute on that right is in effect

a tax on the property itself, and void because lacking in

the elements of uniformity and equality required in the

assessment of property taxes.

But, if any such distinction could be made between

taxing a right and taxing a privilege, it would not avail

plaintiffs in the present case. There is no natural right

to create artificial and technical estates with limitations

over, nor has the remainderman any more right to succeed

to the possession of property under such deeds than

legatees and devisees under a will. The privilege of ac-

quiring property by such an instrument is as much de-

pendent upon the law as that of acquiring property by

ARABS EIEN LS EOL QE TY ARIE IG REE IS IS AD, PSO

534 OCTOBER TERM, 1911.

Opinion of the Court. 222 U.S.

inheritance, and transfers by deed to take effect at death,

have frequently been classed with death duties, legacy

and inheritance taxes. Some statutes go further than

that of New York, and tax gratuitous acquisitions under

marriage settlements, trust conveyances, or other instru-

ments where the transfer of property takes effect upon

the death, not merely of the grantor, but of any person

whomsoever.

This was true under the Internal Revenue Act of 1864

(June 30, 1864, 13 Stat. 223, c. 173). It imposed a suc-

cession tax on ‘‘all dispositions of real estate, taking effect

upon the death of any person.” It was not apportioned,

and would have been void if a tax on property. But it

was held that “‘it was not a tax on land,” since “the

succession or devolution of the real estate is the subject

matter of the tax . . . whether . . . effected

by will, deed or law of descent.”” Scholey v. Rew, 23 Wall.

331, 347, cited and followed, Knowlion v. Moore, 178 U.S.

41, 78-81.

Wherever the amount of a tax is, as here, to be measured

by the value of property, it has been earnestly argued

that it was to tax the property itself, and that to ignore

that feature is to put the name above the fact. But when

the State decides to impose such a tax the amount must

be determined by some standard. To require the same

amount to be paid on all transfers is not so fair as to

impose the burden in proportion to the value of the prop-

erty. An excise on transfers therefore does not lose that

character because the amount to be paid is determined

by the values conveyed. In view of the decisions in

Magoun v. Illinois Trust Bank, 170 U. S. 283, and other

cases already cited, it is unnecessary to review the argu-

ments pro and con, and again point out the distinction

which has been made and sustained between excises and

ad valorem taxes. We therefore accept the conclusion

of the Court of Appeals of New York that the statute of

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KEENEY v. NEW YORK. 535

222 U.S. Opinion of the Court.

that State imposing a tax on the transfers of property

‘intended to take effect in possession or enjoyment at or

after the death of grantor’ is ‘‘not a property tax, but in

the nature of an excise tax on the transfer of property.”

194 N. Y. 281.

The validity of the tax must be determined by the laws

of New York. The Fourteenth Amendment does not

diminish the taxing power of the State, but only requires

that in its exercise the citizen must be afforded an op-

portunity to be heard on all questions of liability and

value, and shall not, by arbitrary and discriminatory pro-

visions, be denied equal protection. It does not deprive

the State of the power to select the subjects of taxation.

But it does not follow that because it can tax any transfer

(Hatch v. Reardon, 204 U. 8S. 152, 159), that it must tax

all transfers, or that all must be treated alike.

It is true that in New York it is as lawful to create an

estate for life, with remainder after the death of grantor,

as it is to convey in fee, or with remainder after the death

of a third person, or on the happening of a particular event.

But there is a difference in law as well as in practical effect

between these various estates. Every encouragement is

given to making conveyances in fee. But, from an early

date, public policy has been opposed to the private interest

which impelled men to withdraw property from the chan-

nels of trade and tie it up with limitations intended, among

other things, to secure to the beneficiary the use of the

property, while at the same time removing it, to some ex-

tent, from liability for his debts. The favored transfers in

fee need not be taxed with the latter, even though the law

permits their creation. These latter estates also differ

among themselves. Where the grantor makes a transfer

of property to take effect on the death of a third person, it

might, under the ruling in Scholey v. Rew, supra, be taxed

as a devolution or succession. But under such an instru-

ment the grantor does not retain the use and power during

536 OCTOBER TERM, 1911.

Opinion of the Court. 222 U.S.

his own lifetime, the remainder does not fall in at his death,

and such conveyances would not be so often resorted to as

a means of evading the inheritance tax. 194 N. Y. 287.

They are not so testamentary in effect as those transfers

wherein the grantor provides that the property shall

go to his children, or other beneficiary, at and after his

death.

The New York statute recognizes this difference. It im-

poses a tax on transfers by descent, or will, which take

effect at the death of the testator; and then a tax upon

transfers made in contemplation of death. It was but log-

ical to take the next step, and tax transfers intended to

take effect at or after the death of the grantor—even

though that event was not actually impending when the

deed was signed.

There can be no arbitrary and unreasonable discrimina-

tion. But when there is a difference it need not be great

or conspicuous in order to warrant classification. In the

present instance, and so far as the Fourteenth Amendment

is concerned, the State could put transfers intended to take

effect at the death of the grantor in a class with transfers

by descent, will or gifts in contemplation of the death of

the donor, without, at the same time, taxing transfers in-

tended to take effect on the death of some person other

than the grantor, or on the happening of a certain or con-

tingent event.

As to the other discriminatory features which, it is al-

leged, operate to deny the equal protection of the law, it is

sufficient to say that it is now well settled that the State

may impose a graduated tax in this class of cases. Magoun

v. Illinois Trust and Savings Bank, 170 U.S. 283, 298. The

plaintiffs in error being children of the grantor were as-

sessed at the lowest rate. They are, therefore, not in a

position to take advantage of the fact that transfers to col-

laterals and strangers in blood are, by this act, taxed at a

higher rate. The entire statute would not be invalidated

KEENEY v. NEW YORK. 537

222 U.S. Opinion of the Court.

even if that feature should ultimately be held to be dis-

criminatory and void. 194 N. Y. 286.

The real estate and tangible property in Texas were not

within the taxing jurisdiction of the State of New York,

and there was no effort to tax the transfer of that property.

St. Louis v. Ferry Co., 11 Wall. 423, 430; Tax on Foreign

Held Bonds, 15 Wall. 301, 319. It is urged that on the

same principle the stocks and bonds could not be taxed be-

cause they were in New Jersey in the hands of a trustee

holding title and possession, by virtue of a deed made

three years before the grantor died.

But the statute does not impose a tax on the property,

but on the transfer. The validity of that burden must be

determined by the situation as it existed in 1903, when the

deed was made. At that time the grantor was a resident of

the State of New York. This personal property there had

its situs. She there made a transfer, which was taxable,

regardless of the residence of the trustee or beneficiary.

The fact that the assessment and payment were postponed

until the death of the grantor would be a benefit to the re-

mainderman in the many instances in which values de-

creased. But where the power to tax exists, it is for the

State to fix the rate and to say when and how the amount

shall be ascertained and paid. The fact that the liability

was imposed when the transfer was made in 1903, and that

payment was not required until the death of grantor in

1907, does not present any Federal question.

Affirmed.