# Amicus Curiae Brief — New York Trust Co. v. Eisner

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1921
- **Citation:** 256 U.S. 345

## Text

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1920.

No, 286,

New Yorn Trust COMPANY and ALBERT W, PRoss,
us executors of the last will and testament of

A. TEARSEN Purpy, deceased,
Plaintif[s in Error,

Vs,

MAK Mixxer, Colleetor,
Defendant in Brror,

BRIEF ON BEHALF OF STATE OF MINNE-
SOTA, SUBMITTED BY ITS ATTORNEY
GENERAL AS AMICUS CURIAE.

CLIFFORD L. HILTON,
Attorney General,
ERGBERT 8. OAKLEY,
Assistant Attorney General,

° For Minnesota.

SUBJECT INDEX.

Page.

Statement of the question discussed......... 1

DOI 05a se 5 5 SRR SR RAEEE CARE EAH COON 4
1. Statement of principles bearing upon

the question discussed ..............

Difference between “Estate Tax Act”
and the Act involved and construed in

Knowlton v. Moore pointed out......

Application of certain principles made
in Knowlton v. Moore discussed and an-

MD Soe ncavuseweamneenns aaveces

The question of burden of State power
of regulation of successions must be de-
termined hy the mode of the imposition
of the exaction, and its operation and
effect as enforced, and noi by mere
name or characterization of the parti-

PNR RRS eh eer ee tee ete ERO

11

Sh RS Se AP Ee | SEMPRE RC ENp NT TET ROA hg

at oR ee
Mow!

Snie

fee enh ih aes

GATE wel

toe a
Mba

do. The scope and boundaries of state pow-

Oe GU, cos io ees eee 22

6. The exaction attempted to be imposed
by the Act of September Sth. 1916,
Whether considered as attaching to the
interest that ceases at death or as at-
taching to the interest to which some
person succeeds at death, by its opera-
tion and effect as enforced, is a form of
regulation of snecessions, and directly
interferes with and casts a burden up-

on state power of regulation ......... 28

7. Any construction of the Act which would
permit the state to deduet its tax before
computation of the Estate Tax, cannot
affect or militate against the conten-
tion that the states’ power of regula-
tion or its laws of succession, are bur-
dened or impaired to the extent of the

MI, ote ne aa ee Care oe 46

S. The question of power is not to be de-
termined by the amount of the burden

attempted to he cast ..........c-..;:. 48

I rls eer gens Git oe pn ew wee Ss i-Xi

TABLE OF CASES.

SUPREME COURT OF THE UNITED STATES.

Page
Ambrosini v. United States, I8S7 U.S. 1... 32
Ashley v. Ryan, 153 U.S. 486.......... 21
Blackstone y. Miller, 88 U.S. 189... ... 23
Boyd v. United States, 116 U.S. 616.. ‘i 4s
brown vy. [linois, 227 U. a 33
Brown v. Maryland, 12 Wheaton 419. ... 13
Byers v. McAuley, 149 U.S. GOS... 23-31-32
Carpenter vy, Pennsylvania, 17 Howard
cgvigal EE et eS 2 NO 24
Chanter vy. Kelsey, 205 U.S. 466... ... 23
Collector v. Day, 11 Wallace 11B........ 32
Fairbank vy. United States, 181 U.S. 283. 49
Fargo v. Hart, 193 U.S. 490............ 20
Flint v. Stone Tracy Co., 220 U.S. 107 32
Galveston, H. & S. AL Ry. Co. y. Texas,
ccnclibe a Ee rete.

Yonley vy. Lavender, 21 Wallace 276

23-31

STATE DECISIONS.

Corbin v. Townshend, 92 Conn, 501.....
Estate of Week, 169 Wis. 316..........
People vy. Northern Trust Co. 289° TIL.

Se a 0 I ek a wea cek
People v. Pasfield, 284 Tl, 450..........
Plunkett v. Old Colony Trust Co., 233

mane 491,7 AS TR. OUR. kis

Knight's Estate, 261 Pa. State Rep. 537..
Re Hamlin, 226 N, Y. 407, 7 A. L. R. Pe

Re MeKennan (S. Dak.) 33 L. R-.

A.

(N.

et Ps sce TET Oe ECT Te ee

PEE Riess ste’ oulenne Te en

“tate ve Probate Court, 189 Minn.

30
30

30
30

9-38
9-30
9-30

en)
ct

SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1920.

No, 286,

New York TrRust COMPANY and ALBERT W. PRoss,
as executors of the last will and testament of
J. THArRsSEN Purpy, deceased,

Plaintiffs in’ Error,
Vs.

Mark E:snxer, Collector,

Defendant ino Rrvor,

BRIEF ON BEHALF OF STATE OF MINNE-
SOTA, SUBMITTED BY ITS ATTORNi:Y
GENERAL AS AMICUS CURIAE.

cd bl rn i
STATEMENT,

In the case above entitled there has been drawn
in question the constitutionaliiy of the act of Con-

gress of September &, 1916, (389 Statute 777), gen-

Cys each RSS Meas a Be ae a a ii OR LT Beal ae

2

erally known as the Estate Tax Aet, and its valid-
ity has been assailed upon several grounds, among
others, upow the ground that the act “attempts to
levy a tax upon the operation of the laws of the
several states, and ¢o diminish and impair the exer-
cise by the several states of their exclusive consti-
tutional right to control and regulate the admini-

sthition of the esrates of decedents.’

The state of Minnesota will necessarily be af-

a

ane

fected by the decision of this court upon the ques-

tion raised by the ground of attack above quoted.

seReaw

rt lt is not interested in the discussion of any other
2 grounds of alleged invalidity of the law. Hence,
5 this brief submitted on behalf of the state will be
4 limited solely to a discussion of the proposition
4 Whether or not the aet in question by its operation
a and eifect, so far invades the field of its exclusive
; jurisdiction in the matter of sueeessions, as to
4 burden, interfere With or impair its power of regu
: lation in that field.

; There is, of course, no thought or intention on
] the part of the state to claim or contend here that

hecause the power of regulation of successions: is
vested in the states, the United States may not tax
transfers of property effected by death. The power
to do so on the part of the Pederal Government is
fully acknowledged so long as its exercise is so
provided for as not to invade the powers of the
states’ regulation, which for obvious constitution

v} reasons, must remain forever inviolate.

+3

3

Were it possible, by any reasonable construction

of the act, to so restrict its operation as to avoid

the results here complained of, there would, of

course, be no valid objection to this act on the part
of the state, but because we believe that a serious
invasion of the state's exclusive right of regulation
is inevitable if the act is to be given the operation
intended by Congress, we deem it our duty to sub-
mit to the serious consideration of this court. the
contentions upon which this conclusion is reached,
knowing full well that this Court would not. hesi-
tate to protect and preserve inviolate the reserved
power of the states involved in the operation of

this et.

ARGUMENT,

Before undertaking to show the operation of the
act in question it is well to call the attention of
the Court to some of the well settled principles of
constitutional how whieh bear directly upen the
solution of the main question here, and whieh may

be sumorized as follows:

First: The Federal Government is supreme
within the scope of its delegated powers, and the
State governments are eqmially supreme in the exer
cise of those powers not delegated hy them nor in-
hibited to them and that when these supreme fine
tions are exercised by the Federal and State gov
ernments within their respective limitations, they

never come into contliet,

Necond: Vout if either government enacts a haw
upon a matter whieh is within the exclusive con
cern and power of regulation of the other, the valid:
ity of aneh bow depends upon the supremacy of the
power by whieh it was enaeted,

Gibbons vs, Qaden, WY Wheat. 1, 100.205,

License Cases, 3 Taw, S04-588,

Thirds The United States, not possessing, us
the States do, the right to regulate stecessions,
when the United States calls into pliy its teuing
power over the subject of the passage ov receipt of

property by death, the extent of its authority is to

he measured solely by the scope of the taxing power
conferred hy the constitution,

Nnowlton vs, Moore, VIS US, Al.

Fouwth: While the taxing power of Congress
extends to all usual subjects of taxation, ineluding
receipt or transmission of praperty occasioned by
death, vet its power to tax, eamnot be so exercised,
in the constitutional sense, as to impose burdens on
the exclusive power of the states to regulate sue-
COSSTONS,

Nnowlion vs. Moore, VIS US. 4 OO, and

enses cited,

Fifth: Whether an exercise of the taxing power
by Congress, as manifested by the act in question,
does or does not burden or impair the States’ power
of regulation of successions, depends upon the op-
eration and effect of the act as enforced, and not
upon the manner in which the taxing scheme has
heen characterized,

Western Union Teleg, Co. vs, Kansas, 216-0,
Ss. 1,

Galveston vs, Teras, 210 U.S. 217,

Gloucester Perry Co vs, Pennsylvane, 14

US. 196,

2. DIrrerence ReTween “Esrare TAX Aer”
AND THE ACT INVOLVED AND CONSTRUED IN) KNowl.
TON vs, Moore, romnrep our,

Before discussing the application of the princi

ples above stated, it is proper at the outset to ex-

amine the salient provisions of the Estate Aet in
question, Which give rise to Che main question under
consideration, The full text of the act will be
found in the appendix at the end of this brief.

By section 201 of the Act, a tax equal to certain
percentages of the value of the net estate to be de-
termined as provided in Section 203, is imposed
upon the “transfer of the net estate’ of every de-
cedent dying after the passage of this aet.

By Section 202 the value of the gross estate is
determined by including the value at the time of
his death, of all property wherever situated, to the
extent of the interest of the decedent at the time
of his death, which, after his death, is subject to
the payment of the charges against his estate and
the expenses of his administration, and is subject
to distribution as a part of his estates including
i so any interest of which the decedent had, at any
9 time, made a transfer, in contemplation of death or
to take effect at death, and alse to the extent of wy

interest of certain jointly held property,

: By Section 203 it is provided that for the pur:
. poses of the tax, the value of the net estate shall
i he determined by dedueting from the value of the

gross estate, certain amounts for fineral expenses,

+

7

administration expenses, claims against the estate,
ele, and a specific exemption of $50,000.

By subsequent sections a tax is made due and
Payable within one year after the decedent's death,
and penaltios are provided for its hon-payment
Within due time, The exeentor is required to make
a return to the collector contiining certain de.
tailed information as to the value of the estate, the
deductions allowed by the act and the value of the
het estate, and the Commissioner of Internal
Revenue is by law directed to make all assessments
Of the tax under the authority of the existing pro-
Visions of law relating to the assessment and col-
lection of taxes. The executor is required to pay
the tax to the collector, and the collector is. re-
quired to grant to the person paving the tax dupli-
eile receipts which shall entitle the executor to
he credited and allowed the amount of such tax
by any court: having jurisdiction to settle his ae.
counts,

By Section 208, if the tay is hot paid within Go
days, the collector is required to bring suit for the
enforcement of the tax and by said section it is pro-
vided that “it being the purpose and intent of this
tithe that se far as is practicable, and unless other-
Wise directed by the will Of the decedent, the tax
shall be paid out of the estate hefore its distribu.
tion,”

By section 209, it is provided that the tax shall
hea lien for ten Yes upon the gross estate of the
decedent and by subsequent sections all general

provisions of law for the HASESSINONT And collection

PARES

8

of taxes are made applicable, and the commissioner
of internal revenue with the approval of the Secre-
tary of the Treasury, is directed to make such reg:
ulations as he may deem necessary to carry out the
provisions of said act.

A cursory examination of the Act reveals the
faci that the tax is imposed upon the “transter of
net estate” urifhout reference to the persons to
to irhom the property passes, or the mnount of
henesit taken by them, but is levied indifferently,
whether they are relatives of the decedent) or
strangers in’ blood, and without reference to
any seltled policy of any state in the requlation
of suecessions, Ut seives upon the net estate en
messe, asa unit for taxation, graduated according
to the valne of the entire net estate, and the tar
does not at all depend upon the way in which the
property passing becoues distributed upon the
death of the owner,

That such is the manifest intention of the aet,
is confirmed by the Regulations No. 37, promulgat-
ed pursuant to the provision of the act, reading as
follows:

“ARTICLE TF. Neither a property nor a
legacy tax. The Federal Estate Tax is im
posed upon the transfer of the net estate, de
termined in the manner prescribed, of every
person dying after September 8, 1916. The
tax is not laid upon the property, but upon its
transfer from the decedent to others. The
subject of tax is the transfer of the entire net
estate not any particular legacy, devise, or
distributive share. Tt is not. an individual in-

9

heritance tax. The value of the separate in-
terests and the relationship of the beneficiary
to the decedent have no bearing upon the ques-
tion of liability or the extent thereof. The
transfer of property is taxable, although it
escheats to the State for lack of heirs.

“ARTICLE II. Nature of transfer.—The
statute embraces transfers by will or under
the intestate laws, and also transfers made by
the decedent in his lifetime, when made in con-
templation of death or intended to take effect
in possession or enjoyment at or after his
death. The statute also enumerates certain
special cases not strictly of either character
just described. The practical test of the ex-
istence of a taxable transfer is whether the
statute directs that the property in question
be included in the gross estate.

ARTICLE 46.0 (Which has reference to the
deductions authorized by Sec, 203 of the Act);
* * * ‘No estate, succession, legacy or inherit-
ance tax is deductible.’ ”

and by the state decisions where the question was
directly involved.
In ve Hamlin, 226 N. Y. 407, 124 N. E. a5 %
A. L. BR. 701 and note.
Plunkett rs. Old Colony Trust Co., 233 Mass.
471, 124 N. E. 265, 7 A. L. R. 696.

Knight's Estate, 261 Pa, St. 587-538.

In the cases above cited, the courts, construed the
act as one imposing an “Estate Tax” as distinguish-

ed from any inheritance or succession tax: that is

10

to say, that the tax is on the interest that ceased
by reason of death, and not on the interest to which

soe person succecds at death.

The distinction between the character of the
two kinds of taxes was clearly pointed out in the
case of Anoirlton vs, Moore, 17S CLS. 41, where the
court quoted approvingly from TLanson’s Death
Duties; referring to the estate duty imposed by the
English finance Net of ISO:

“What it taxes is not the interest to which
some person succeeds on a death, but the inter

est whieh ceased by reason of the death.”

And in sustaining the tax in the Anoirlton case,
usa taX on passing of a legaey, to be measured by
the value of each separately determined legacy or
share, the court, in rejecting constructions of the
act, Which would measure the tax upon each legacy
by the whole value of the personal estate, said:

“Indeed, the confusion which gives rise to
both of the constructions of the statute which
we have just considered comes from the want
of insight pointed out by Tlanson ina passage
Which we have heretofore quoted; that is, it
arises from not keeping in mind the distinetion
hetween a tax on the interest to which some
person succeeds on a death and a tax on the
interest whieh ceased by reason of the death,
the two being different objects of taxation.”

The court will observe that in the respect refer:
red to this act is fundamentally different from any

state inheritance tax law, or any federal law here-

11

tofore existing. It is unique in the feature of im-
posing a tax upon the estate itself, instead of on
each distributive share. Tt seems to have been
framed without any reference to prior federal or
state legislation on the subject. In whatever as-
pect regarded, it is obvious that the aet is radically
different from the one considered and involved in

Nnoiwlton vs. Moore, 178 U.S Al.

3. APPLICATION OF CERTAIN PRINCIPLES MADE IN

Knowlton vs. Moore, DISCUSSED AND ANALYZED.

In this connection, and before proceeding more
in detail with the question of the effect of operation
of this act upon state’s power, it is proper here
to consider the application of principles upon which
the decision in Anoilton vs. Moore, was rested, as
against the objection that the tax there involved,
burdened the states power of regulation.

The consideration of the Nnoirlton case seems
also desirable at this point, because it is believed
that the opinion of the court in that case has been
misunderstood and misinterpreted.

The Anowlton case, in our view, has been decided
with due regard for the principles of constitutional
law stated at the head of this argument, and the
argument here is founded upon the application of
the same principles, respecting the limitations of
powers of respective governments, as were dis:

cussed in that case.

EE Pe

At the outset it should be observed that in’ the
Knowlton case, the tax was not an “Estate Tax,”
but a tax on “legacies and distributive shares.” In
the Knowlton case the subject of taxation was the
“transmission or receipt of property occasioned by
death” and the argument of counsel that the tax
there imposed cast a burden upon the state's ex-
elusive power of regulation was based upon the as-
stuption that the tax on the “transmission or re-
ceipt of property oecasioned by death” is imposed
on the exelusive power of the state to regulate,
overlooking the imporGaint circumstance, as stated
by Mr. Justice White in the opinion, that ‘the
thing forming the universal subject of taxation up-
on Which inheritance and legaey taxes rest is the
transmission or receipt, and not the right existing
to regulate.”

The fallacy of that argument was clearly pointed
out by Mr. Justice White in his opinion (178 UL 8.
59-60). This fallacy consisted in the assumption
that the two governments finding exercise of their
powers through measures of the same description,
must come in collision solely because the subject
matter of the tax imposed by Congress was at some
time or some point within the state power of regu-
lation, overlooking the important fact, that at some
point the power of the states to regulate becomes
expended and regulation ceases, and that thereupon
an object or a subject arises which is introduced
throngh the medium of the states power of regula-

tion and hecomes open to the taxing power of Con-

—

1s

gress. That this must be so is clearly evident from
the conclusion drawn in the opinion in the course
of which Mr. Justice White said (178 U8. 60):
“Certainly a tax placed upon an inheritance,
diminishes to the extent of the tax, the valne
of the right to inherit or receive, but this is a
burden cast upon the recipient, and wot apon
the power of the state to regulate.”

In reaching this conclusion, the court first con-
ceded that the power of regulation resides in the
states and not in Congress, and that Congress may
hot interfere with nor burden an exelusive power
of the states. Et must be obvious therefore, that
the tax was sustained in the Knowlton case, solely

| upon the principle of the recognition of Che state's
power of regulation, as a factor in the (ransmission
or the receipt of the legacy, and that the power of
Congress to tax successions, may be given full play,
only at the point when the power of state regula:
tion has ceased. The application of tie same prin-
ciple is Hlustrated by a variety of cases in’ this
court, involving validity of state enactments, ob-
noxious to the exclusive power of Congress to regu-
late intersiate commerce, or inhibiting the states
from taxing imports,
Gibbous vs. Ogden, 9 Wheat. 1, 199-205,
Brown vs. Maryland, ete., 12 Wheat. 419,
Welton vs. Missouri, 91 U.S. 275,

Leisy vs. Hardin, 85 0. 8. 100,

In Brown vs. Maryland, supra, the conrt, while

recognizing the difficulty in drawing the line of

14

distinction between the restriction upon the power
of states to lay a duty on imports, and their ac-
knowledged power (o tax persons and property,
(saving that the two, though quite distinguishable
When they do not approach each other, may vet,
like the intervening colors between white and black,
approach so nearly as to perplex the understanding,
as colors perplex the vision in marking the distine-
tion between them) kid down the principle that
the power of one government to tax cannot he
brought into play. until the power of regulation
of the other lias heen so far expended, as to intro-

duce a new taxable object open to both,

So in Welton vs. Vissouri, supra. this court
denied the validity of state enactment levying a tax
on sale of goods, upon the ground that it was a tax
on the goods themselves and was therefore a burden
upon the interstate commerce, and that the exclu-
sive power of Congress to regulate commerce ex-
tended to and protected the goods from state tanxa-
tion even after the property had entered the state,
and until it has mingled with and become a part

of the general property of the country.

Soin Leisy vs. Hardin, 15 U.S. 100. supra. a
law of the state of Lowa which forbade the receipt
of an imported article, or its sale, was held in vio-
lation of the power of Congress to regulate com-
merce; that such power protected the property un-
til it was received at the destination and sold in
original packages and that to hold otherwise, is to

burden the commerce.

15

Many other cases familiar to the court may be
cited to the same effect, but the principle enunciat-
ed in all of them, which bears directly upon the
reasons for the decision in Knowlton case, is: pre-
cisely the same. That principle is that with refer-
ence to any usual subject of taxation, when the ex-
clusive power of one government to regulate the
particular matter shall have been exhausted or ex-
pended, the power to tax may extend to both goy-
ernments to such a new subject. Tt is only when
the principle considered is thus viewed that the
respective powers of the two governments, having
no claim to identity, and between which no analogy
may be drawn, may find expression, each within its
proper sphere, and have operation to the attain-
ment of its own particular ends, without conflict
nor interference by one of any right or authority
of the other.

Thus it is, that when the court found ino the
Knowlton case by the application of the principle
last discussed, that the “transmission or receipt of
property by death” was the usual subject of taxa-
tion open to both governments, the conclusion was
inevitable that no burden was cast upon the state's
power of regulation. But the finding by the court
that the burden was cast upon the recipient and
not upon the state power could be justified only
pon the theory that the states power of regulation
was in no way involved in the particular subject
of the tax; or that the power of states regulation

no longer extended to the particular subjeet. or,

SR iN tT

rad

SEILER ET REE ne PPE EELS,

SRS Ea ane

16

that the rights or privileges with whieh the power
of the state had concern, had found consumunation
in the subject taxed before the incidence of the tax,
In other words, the finding of the court that the
burden was cast upon the recipient was not the
reason for finding that no burden was cast upon
the state, but a necessary conclusion from the prey:
ious determination that “tramsmission or receipt
of property occasioned by death” was at the time
of the incidence of the tax a usual subject of taxa-
tion upon which, the power of regulation of the
state has been cousuimmated, Upon no other
theory is it possible to reconcile Che Knowlton case
with the principles of constitutional law. If the
question of the invasion of the exercise of an ex-
clusive power of one government by the other was
to be tested, by the determination of the sole fact
of the burden of the tax falling upon the persons
immediately concerned then such cases as Brown
rs. Maryland, Western Union vs. Kansas, Galves-
ton vs, Tevas, were all wrongly decided. Thus the
argument in Brown vs. Maryland, that the burden
was on the importer because he must pay the tax,
in Western Union vs. Kansas, that the burden was
on the telegraph company because it must pay the
tax, or in Galveston vs, Texas that the burden was
on the Railway Company because it must pay the
tax, and that therefore no burden would be con-
ceived to be east upon the power of Congress to
regulate interstate commerce, should have pre-

vailed, but in each of those cases the fallacy of sueh

17%

argument was exploded and the question of the in-
vasion or burden of the exclusive power of the
federal government was determined by other con-
sideratious in conformity to the principles above re-
ferred to,

It must be conceded in any event, that had the
court found in the Knowlton case hat the act there
involved was a burden upon the power of the state
regulation of successions, the decision of the court
would have been the other way, whieh makes ob-
vious the conclusion that the Knowlton case is not
an authority for the proposition that Congress cian
tax transfers of property eiYected by death, regard:
less of the effect of such taxation upon the state
power of regulation, On the contrary, in reaching
the conclusion as the court did, that the burden
Was cast upon the recipient and not upon the state
power, the decision stands as an entirely consist-
ent authority for the preposition that Congress
Cannot so tax successions as to cast a burden upon
the states exclusive power of regulation, It should
not be overlooked in this connection that the con-
clusion of the court as to the casting of the burden
upon the recipient was of the very essence of the
decision, is put beyond doubt by the dissenting
opinion of Mr. Justice White in Snyder vs, Bett-
man, 190, UL Ss, 249-258, where referring to his con-
clusion in the Knowlton case, that the burden was
cast upon the recipient and not upon the states
power, he said: “This conclusion was absolutely
essential to the construction of the statute in

Knowlton vs. Moore.”

OE A NEI

M4
jae dns

1A pa ee

as 4 ae

oes

U

3
&
by

ey

18

Now the very question for decision here is
whether a burden is cast upon the power of the
state to regulate successions, and this question can:
not be answered merely by saying, that because in
the Knowlton case, it was held that no burden was
cust upon the state, therefore no burden can be said
to be cust upon the state by the act under consider:
ation.

As already noticed, the acts are radieally differ.
ent, and are designed to have wholly different op-
eration; therefore, while the Knowlton case is de-
cisive on the question of casting of burden by the
aet there considered, it did net invelve the ques:
tion as to whether a tax levied by Congress upon
the mass of the estate, regardless of its destination,
and in utter disregard of any state policy of regu.
lation of successions, can be said to be a valid exer-
cise of the taxing power of Congress, when the op-
eration and effect of the act is shown to have di-
rect effect upon the state power. In other words,
when the court decided in the Knowlton ease, that
the tax was upon the “transmission or receipt of
property occasioned by death,” thus giving full ef-

fect to state power of regulation, by which a new
object was introduced, open to taration by Con-
gress, the conclusion that no burden was cast upon
the state power was inevitable, since no burden up-
on state power could be conceived, when the object
of taxation was found not to be a subjeet of the
state’s power of regulation, when intercepted by
the tax,

1y

4.
OF RPGULATION OF SUCCESSIONS MUST BE DETER:

THE QUESTION OF BURDEN oF Stare Power

MINED BY THE MODE OF THLE TMPOSITION OF TILE EX-
ACTION, AND ITS OPERATION AND EF PDCT AS ENFORCED,
AND NOT BY MERE NAME OR CILARACTERIZATION OF
THR PARTICULAR TAX,

Here the subject of the tax and the manner of
its imposition, being radically different from that
involved in the Knowlton case, the question wheth-
er the act does impose a burden or interfere with
the state power of regulation, must be determined
by the effect and operation of the act as enforced
and not by the name given to the tax, and if in the
manner and effect of its operation, it is shown to
impair, interfere with or burden the state's power
of regulation, then the act cannet be regarded as a
lawful exercise of the taxing power of Congress,
and its invalidity cannot be saved by the mere
name or characterization which the act gives to that
particular tax,

That this is the true test to be applied to the act
in question is illustrated by the many cases decided
by this court, involving the validity of state enact-
ments, with respect to their operation and effect, as
a burden upon the power of Congress to regulate
interstate commerce.

The subjects of taxation in all these cases, are
generally either the privileges of exercising cor-
porate franchises within the state, or the property

emploved in their business—all usual subjects of

Ter Se eee

DOE ROLE ES OE TORE Se TEE

bine te al

DA ee as $ OS

20

taxation, within the acknowledged taxing power
of states. Yet, because of the exclusiveness of the
power of Congress to regulate commerce being in-
volved, this court invariably looked beyond the par-
ticular characterization of the tax, and determined
the question of the burden on comerce power, by
the operation and effect of the act as applied and
enforced, and not by the name given to the tax.
Western Union Telegraph Co. vs. Kansas, 216
a); Ss
(iloucester Ferry Co. vo Pennsylvania, 114 0.
Ss. 196;
Philadelphia & S. Mail 8.8. Co. v. Pa. 122 U.
S. 326;
Meyer v. Wells, Fargo & Co., 223 U.S. 298;
Galveston TH. & S. ALR. Co. vy. Texas, 210 U0.
8. 217;
Fargo v. Hart, 193 U.S. 490;
International Paper Co. vs. Massachusetts,
246 U.S. 135;
Looney vs. Crane Co, 245 U.S. 178;

Kansas City vs. Botkin, 240 U.S. 227.

As was said in Kansas City, Po S. & M. RL Ry. v.
Botkin, 240 U.S. 231. in discussing whether a state
exaction burdened the interstate commerce power
of the national government:

“In determining whether a tax has such a
direct: relation to interstate commerce as to
he an exercise of power prohibited by the com-
merce clause, our decision must regard the
substance of the exaction—its operation and
effect as enforced—and cannot depend upon

21

the manner in which the taxing scheme has
been characterized.”

And again, in Mugler v. Kansas, 123 U.S. 623:
“The courts are not bound by mere forms,
nor are they to be misled by mere pretenses.
They are at) liberty-—indeed, and under a
solemn duty—to look at the substance of
things, whenever they enter upon the inquiry
Whether the Legishiture has transcended the
limits of its authority.”

In Galveston Hl. & S.A. R. Co. v. Texas, 210 U.
S. 217, 227, which involved the validity of Texas
Statute, imposing an annual tax equal to one per
cent of gross receipts on each railroad lying wholly
Within the state, the court, in condemning the
statute said :

“Neither the state courts, nor the legisla-
tures, by giving the tax a pariicufar name, or
by the use of some form of words, can take
away our duty to consider its nature and ef-
fect.”

Again in Ashley v. Ryan, 158 U.S. 436, the court
said :

“Whether the charge be viewed as i tax, a
license or a fee, if its exaction violated the in-
terstate commerce clause * * * or involved
the assertion of the right of a state to exercise
its powers of taxation beyond its limits, it was
void, whatever might be the technical ehar-
acter affixed to the exaction.”

Again in St. Louis 8. W. R. Co. vy. Arkansas, 235

UL SS. 350, 363, the court said:

,
:
]
i
:
:
i
a
tad
3
‘3
a
a:
ze
4

ope)

“We must regard the substance rather than
the form, and the controlling test is to be
found in the operation and effect of the law
as applied and enforced.”

It thus appears that in considering the question
of burdening the state power of regulation by the
act in question, itis not so important to look at the
hame given to the tax by the act, as it is important
to look into the operation and effect) of the
act, as it) bears upon the State's exclusive
power of regulation. But, manifestly, before the
operation and effect of the act, can be properly ex-
posed to view, we must first ascertain the function,
scope and extent of the state power in question, so
as to intelligently inquire whether and to what ex-
tent it is or will be burdened or interfered with, by

the federal enactment in question.

> THE Score AND BOUNDARIES OF STATE POWER

oF REGULATION,

Upon this phase of the question, what was said
by Chief Justice Marshall in Gibbons vs. Ogden,
supra, in defining “regulation” is in point:

“To regulate implies in its nature full power
over the thing to be regulated; it excludes ne-
cessarily the action of all others that would
perform the same operation on the same thing.”
** * A regulation when adopted is designed

for the entire result, and the production of a
uniform whole.”

23

This court will notice judicially that at the time
of the pasage of the Estate Act, Congress found
the several states in the exercise of their respective
powers of regulation, by the enactment of laws, in-
tended to operate upon the devolution of property
effected by death. In doing so, each state has the
exclusive right to prescribe the couditions, attach
privileges or grant exemptions, as it sees fit, to the
exercise of the right to transmit or to receive prop-
erty on death.

That such regulation, in whatever form it may
he exercised by each state, is designed for the en-
tire result and the production of a uniform whole
is but a necessary deduction from the nature of the
power itself; and that such power must be allowed
full exercise, without interference of another gov-
ernment, for the consummation of its purpose, is
of the very essence of the power itself.

That the power to regulate descent and succes-
sion of property on death is a sovereign power,
and belongs exclusively to the states, is so well at-
tested by a variety of cases decided by this court,
that it seems unnecessary to do more than to cite
a few of them by way of illustration.

United States v. Fox, 94 U. S. 315.
Yonley vy. Lavender, 21 Wall. 276.
Chanler v. Kelsey, 205 U.S. 466.
Blackstone v. Miller, 188 U.S. 189.
Maxwell v. Bugbee, 250 U.S. 525.

Tilt v. Kelsey, 207 U. 8. 438.

United States v. Perkins, 168 U.S. 625,
Mager y. Grima, 8 How. 490.

Byers vy. MeAuley, 149 U.S. 608.

SES

Si oe

p= 5 77,

ape
x

ASNT TET POA

a ee oes otal

‘
a
$
$
f
4

24

Manifestly, if regulation is designed “for the
entire result and the production of uniform whole”
as stated by Chief Justice Marshall in the Gibbons
case, then the boundaries of that power must be
coextensive with the attainment of such entire ce-
sult, and since the power is admitted]y both sover-
eign and exclusive, the state may impose any con-
ditions it sees fit, in the exercise of that power, be-
fore the designed result is produced, without inter:
ference or embarrassment by another government,
Hence it is that this court has repeatedly said, that
the so-called succession or inheritance tax enaet-
ments by several states was out ar exercise of the
power of regulating the devolution of property by
death.

Mager v. Grima, 8 Tow, 40.
Magoun vs. Iinois Trust Co., 170 UL 8, 283,
280, 200.
Carpenter vo Pennsvivania, 17 How. £56.

United States v. Perkins, 168 U.S. 625.

The point we wish to make here is that death
duties, under whatever name, imposed by the sey-
eral states, while in some aspects may be regarded
as taxes, exacted in the exercise of power of taxa-
tion, vet in their essence, as attested by the cases
decided by the court, all such laws may be and are
generally sustained, as manifestations of the ex-
elusive power of regulation. This consideration is
important, as marking sharply © > boundaries be-
tween a amere power to tar (possessed by Congress

in the matier under consideration) and a tax by a

25

state imposed as a measure adopted in the exer-
cise of a sovereign power of regulation. The dis-
tinction between the two makes obvious the limita-
tions of the federal government to far “usual sub-
jects of taxation” in the exercise of taxing power
and a like measure adopted by a state in the exer-
cise of its power of regulation.

The cases cited in support of the proposition that
astate succession or inheritance tax, is but a mea-
sure adopted in the exercise of the power of regula-
tion, are all illustrations of the application of the
same principle in another line of cases involving
the reverse proposition, namely, that of the en-
croachment of the state power to tax “usual sub-
jects of taxation” upon subjects which at the time,
are within the exclusive power of Congress to regu-
late. In all such cases as already noticed, this
court has never hesitated to condemn the tax by
whatever name, or combination of words, it might
have been characterized, as soon as it found that
the particular subject attempted to be taxed by the
state, Was at the time subject to the regulating com-
merce Clause. Among the large number of cases
already cited on the proposition just mentioned,
this court in Philadelphia & Southern Steamship
Company vs. Pennsylvania, 122 U. S. 326, where
the right of a state to tax gross receipts of an inter-
state steamship company was involved, and was
defended upon the ground that the tax was not on
commerce, did not hesitate to sav:

“Tt cannot be pretended that the state could
constitutionally regulate or interfere with that

26

commerce itself. But taring is one of the
forms of regulation. [tis one of the principal
forma. 122 U. S. 326, 336.

That statement by the court is pertinent here,
not only as indicating that taxation Is one of the
principal forms of regulation, but also that taxa-
tion by way of regulation belongs ecclusively to
the sovereign possessing the power of regulation,
and may not be usurped or interfered with by an-
other government. Further illustrations of such
regulation by way of taxation may be found in that
line of cases decided in this court (collected in: 12
Corpus Juris, p. YS See, 1s) where a tax by a
state was attempted to be exacted upon property
while in transit from one state to another. This
court invariably condemned the tax, whether the
tax is laid by the state of origin, or the state of
destination, upon the ground that in one case the
protection of the commerce chiuse has attached,
and in the other such protection has not ceased.

It being manifest that regulation of successions
is designed as well as exerted to produce certain
results, it must deal with all the property within
the state’s dominion. It is designed to define and
specify the rights of those who succeed to property
in death, and the proportion each shall take, as
well as to impose conditions on such taking, and
while revenne is an incident to such regulation, it
is Obvious that the ultimate object of the power, is
to define and determine the manner, the tenure, and

the conditions upon which all property within the

27

state's jurisdiction may be acquired or received on
the occasion of death.

It is inconceivable that the results Gus to be pro-
duced in the exercise of exclusive regulation can
be produced by a sovereign government otherwise
than by entire freedom of action, and as this power
of regulation from its very nature is brought into
exercise at the very point of death, its exclusive-
ness and freedom of action begins at that point,
and must obviously continue until the specitic
rights and interests of the successors are produced
and defined, in accordance with rules prescribed
by such regulation. Therefore, “the interest that
ceases on death” is the primary thing with which
the power deals, and the right or privilege of the
owner to transmit it on death, or the exercise of
that right, is the very first step in state regulation,
or the inception of regulation.

For the federal government to step fm and im-
pose an exaction at any point between the incep-
tion of regulation, and until the full rights of sue-
cessors are defined and produced, is, on principle,
just as much an usurpation of the power as it is
for a state to impose a tax upon property in transit
from one state to another, whether such tax is laid

by the state of origin or the state of destination.

Ae ENO A ae OAS SDE. art

Fae

i. THE EXACTION ATTEMPTED TO BE LMPOSED BY
THE ACT OF SEPTEMBER STH, 1916, WHETHER CON-
SIDERED AS ATTACHING TO THE INTEREST ‘THAT
CHASES AT DEATIL, OR AS ATTACHING TO INTEREST To
WHIHCH SOME PERSON SUCCEEDS AT DEATH, BY ITS OP-
ERATION AND EFPPECT AS ENFORCED, IS A) FORM oF
REGULATION OF SUCCESSIONS, AND DIRECTLY INTER:
PERES WITH AND CASTS A BURDEN UPON STATE POWER

OF REGULATION,

As already noticed, in determining the question
Whether the exaction here has such relation to, or
bearing upon, the state regulation of succession, ibs
to amount to exercise of the power prohibited to
Congress, we must regard the operation and effect
of the exaction, and not the name by which the
taxing scheme has been characterized. dn this as-
peet, therefore, it| is not important whether the
exaction is by the act intended to attach to the in-
terest that ceases at death, or to the interest: to
Which some person succeeds ona death, if in either
case by its manner of imposition and enforcement,
it operates as a form of regulation of suecessions,
or interferes with or burdens the paramount pow-
erof the state regulation.

It is manifest in anv aspect, that the exaetion
imposed by this Act is some kind of a death duty
which concerns property of a decedent, but its im-
position, acernal and enforcement is not postponed

to the time of the ascertainment or emergence of

ey

any specific beneticial interest in successors, and in
this respect as already noticed, it is radically dif-
ferent from any federal death duty heretofore con-
sidered by this court. What then is the operation
of this act?

By Section 201, the tax is levied upon the “trans:
fer of net estate” which is specifically detined in
subsequent sections, solely by reference to the value
of the estate, after making ceriain deductions,
Without reference to the persons to whom the prop-
erty may pass, and in utter disregard of the amount
of benefit taken by them, or any of them, and with:
out reference to any conditions or exemptions im-
posed upon or granted to the successors by the par:
ticular poliey of the state. Nowhere in the act is
there any recognition of the distribution of the
estate, whether by will or under intestate laws,
and the amount of the tax is not made to depend
upon how and to whom the estate is to be distri-
Iated,

The imposition of the tax is not postponed to the
completion of administration, but on the contrary
the time of its payment is fixed solely by reference
to the time of death (section 204). Again its pay-
ment is required to be made hy the personal rep-
resentative (section 207). and if not paid, “the
property of the decedent” is to be sold under decree
Of court for the satisfaction of the tax. (Section
208). By the same section, the intent is Clearly
expressed, that the “undistributed estate’ shall

bear the burden of the tax. ‘it heing the purpose

i a

30

and intent of this tithe that so far as practicable
and unless otherwise directed by the will of the
decedent, the Gax shall be paid before its distrita
tion.” Thos if would seem that in one view the
taiN is dimposed upon the “estate of the decedent,
“the interest that ceases on death’ and ot upon
levatees or devisees. This view was taken by sev:
eral state courts where the controversy arose is
between legatees and residiary beneficiaries as to
whether this tax fell upon the estate or upon the
partionlar legatees or devisees,
Re. Hamlin, 226 N.Y. 407, 7 AT. RR. TOb and
Hotes.
Plinkett vs, Old Colony Trust Co., 233° Miss,
WIS TALL. RR. 696,

Knight's Estate, 261 Pas St. 5387,

Some courts have also decided that this tax be-
ing imposed upon the estate of the decedent, and
being payable out of net estate, is no part of the
estate at the time of its distribution, but is a
charge or expense against the estate, before distri-
bution.

Corbin vs. Townsend, 92 Conn, SOT.
People vs. Pasetield, 284 TH. 450.

State vs. Probate Court, 139 Minn. 210,

People vs. Northern Trust Co, 280 TIL 4%:

ALL. Ro 709 and notes,

See Contra:
Estate of Week, 169 Wis. 316.
Re. Sherman, 166 N.Y. Sup. 1) Caflirmed 222
N. ¥. 340).

31

Looking then upon the mode of imposition and
enforcement of the exaction here, as being one in
total disregard of any transfer to the successors or
legatees, but directly upon the “net estate as de-
fined by the Aet, then manifestly it amounts to
nothing else than a direct tax on property, and
void for want of apportionment commanded by the
cOMSTItUtiOn,

If, on the other damd., by giving some effect or

meaning to the words “transfer” the exaction be
viewed as one not upon the transfer to the beneficial
suecessors, but upon the transitory or intermediate
transfer from the decedent to the exeeutor or ad-
mninistrator whieh takes place on death, then clear:
lv the exaction would be objectionable as a tax up-
on the state itself, or upon its instrumentalities,

The transfer of the estate to the exeentor or ad-
Winistrator, if it can be regarded in any sense as
such, is not a transfer to them of any beneticial
interest, but a transfer solely in trust for the pur-
poses of carrying out the regulations of the state
in that behalf prescribed. “The legal effect of
vranting letters testamentary or administrative is
to place the whole estate, real and personal, within
the custody of the law and leave it there until the
administration has heen completed.”

Yonley vs, Lavender, 21 Wall, 276.

Byers vs. MeAulev, 149 0 8. G08,

In that view, the personal representative is noth-

ing more nor less than an instrumentality of the

state for the purposes of carrying out its regula-
tions.

Tilt vs, Kelsey, 207 UL 8. 43, 55.

In fact this intermediate transfer to the personal
representative, cannot be viewed otherwise than as
a transfer required and commanded by the laws of
the state in the exercise of its sovereign and ex-
clusive power te regulate and control the descent
and distribution of the estate, as shown by a var
iety of cases,

Tilt vs. Kelsey, 207 UL 8. 43.
Wall vs. Bissell, 125 U.S. 382.

vers vs. MeAnley, 149 U8. 608,

This transitory transfer, as the court) will ob
serve, of the “interest that ceases on death’ is the
very initial step in the administration of every
estate, by the exercise of the state regulation, and
upon whieh every subsequent preceeding ino the
state regulation is founded. A] tax upon such
transfer cannot be regarded otherwise than as a
tax upon the state ageney or instrumentality pro-
vided by its sovereign will, and is obviously objec-
tionable under our dual system of government.

Collector vs. Day, 11 Wall, 113.
Ambrosini vs. United States, IST UL 8S. 1,
Veazie Bank vs. Fenno, 8 Wall, 5383-541,

lint vs. Stone Tracy Co. 220 U.S. 107, 155.

Moreover, to view the exaction as one attaching

upon the transfer to the personal representative, is

mei a

_—

33

to intercept the passage of property from the de-
cedent to the beneticial successors, at a point where
the power of state regulation is in the very act of
operation, and would be as objectionable, and for
the same reisons thata tax by a state upon prop
erty in transit: from one state to another, is con-

denned as a burden upon interstate commerce, 12

SAGES A le RO

Corpus Juris, 9s,

In Brown vs. Ulineis, 227 U.S. 504, the court ;
said f
“This argument proceeds upon a miseon-
ception of the ground upon whieh the power 3

to tax articles actually moving in interstate f
transportation is denied to the states. That ,

denial rests upon the supremacy of the Federal
power to regulate interstate commerce, Its
postulate is the necessary freedom of that com-
merce from the burden of such local exactions
as are inconsistent with the control and pro:
tection of that power, The fact that sueh a
burden is sought to be imposed by the state
of the domicile of the owner, upon property
moving in interstate commerce, creates no ex-
ception, That state enjoys no prerogative to
muatke levy upon such property passing through
it, because it may belong to its citizens. They,
as well es others, are under the shelter of the
commerce clause. The question is determined
not by the residence of the owner, but by the
nature and effect of the partienlir state ae-
tion with respect toa subject whieh has come
teder the sway of a paramount authority.”

Paraphrasing the principle thus expressed by the

quotation above, we say that the ground on whieh

io
~
: al

a

: 34

ae

the denial of the power of congress to tax the
transitory passage of property while it is in the

custody of the state and upon which the state pow-

SPARE RI Tie PS 4

er is at the time being wielded, rests, is the suprem-
acy of the state to regulate successions.

Its postulate is the wecessary freedom of that

:
&
Be
2
2

regulation from the burden of such federal exac-
; tions as are inconsistent with the control and pro-
tection of that power, The question is determined
not by the name of the exaction, but by the nature

and effect of the particular federal action with

s respect toa subject which has come under the sway

: of a paramount authority.

: If on the other hand we look upon the exaction

: aus one not directly upon the net estate and not
upon the transitory transfer to the executors, but

: us an exaction upon the transfer of aggregate bene-

ficial interesis which the state has undertaken to
effect in the successors of the decedent, the imposi-
tion cannot escape the condemnation as one casting
a burden upon state power when its operation and
effect as enforced are given due weight.

It will be observed at the outset, that all death
duties, imposed by the various states, are by the
overwhelming weight of authority. regarded as a
tax in the nature of a bonus exacted by the state
for the privilege granted by its laws of inheritance
or succecding to property on (he death of the own-
ers. Thev are generally regarded as being upon
the interest to which persons succeed on a death,

und not upon the interest that ceases by reason of

BP scttaix: Pon vee? ta

——

35

death; such taxes are commonly called “inherit-
anee” or “succession” or “transfer” taxes.
(See collection of cases in note to Re. Mclsen-
nan, 33: L. RAL ON. SS.) 606.)

It is undoubtedly true that the taxing power of
Congress, extends to and may be exercised upon
“the interest that some person succeeds at death,”
but the imposition of the exaction must be so pro-
vided for, that the state’s power of regulation, as
a factor in the transmission or the receipt of prop-

erty on death, is first given full play, which is but

DEERE LIES ONE SS PR

another way of saying, that the power of congress
to tax does not begin or attach until the state regu-

lation upon the particular subject had ceased, or

has heen so far expended as to produce a definable

or ascertainable subject, no longer under the sway
of the paramount power.

It was upon the application of that) principle
that a tax on a legacy or receipt, was sustained in
Knowlton vs. Moore and Scholey vy. Rew, 28 Wall,
331, and there are no federal cases holding that
a federal inheritance or succession tax ever at-
tached or became a charge against any interest,
until by the process of state requlation and by its
authority, there emerged or was introduced a sub-
ject for the exercise of federal taxing power.

But here by the manner of the imposition of the
tax, and its enforcement, it is manifestly impos-
sible to give effect to or enforce the tax, without
at the same time, to so far disregard the states

power of regulation, as a factor in the transmis-

nohe

ISTE OES

P

RR

hkcrbtises

Le
a
Sy
:
2g

36

sion, as to interpose the federal exaction as a fac-
tor or a condition in such transmission.

by intercepting the consummation of the “trans-
fer” in the beneficiaries, as this act does, before the
transfer is completed and the respective rights of
the successors are defined, as by state law com-
manded, the exertion of the federal power, as mani-
fested in’ the act, hecomes an intermeddling or
regulating factor, ov a price er a coudition of the
transmission.

Measuring the tax as it does here, solely by the
mass of the estate in its process of transmission,
Without reference to its beneficial desiination, and
in utter disregard of the state’s regulations, relat-
ing to its final distribution, it manifestly presents
the state from performing its operation, or carry:
ing out its sovereign will, according to its own

pol

“v
Sl,

Pertinent are the remarks of Chief Justice Mar-
shall in Gibbons vrs. Ogden: “To regulate implies
in its nature full power over the thing to be regu-
lated; if ercludes necessarily the action of all others
that would perform the same operation on the
same thing.”

But how can the action of the federal govern:
ment be deemed to have been excluded in the state
regulation, when by the very design of the act, the
state is prevented from performing its operation,
by the intermeddling of another power, which at
the same time reaches over and withdraws from
that operation, and appropriates to its purpeses, the

very object of that operation?

—

37

Certainly a tax imposed as this one is, measured
by the mass of the estate diminishes not only to the
extent of the tax, the “net estate,” but also the sep-

arate shares of the successors. Bearing in mind

this diminution of the net estate, as well as the sep-

| arate shares which must result from the enforce- :
| ment Of the tax in its method of imposition, the :
following results are inevitable: :
(a) A condition or price is imposed upon the gy
successors which must be complied with before i
; they may take their shares in the residue. e
(b) There is withdrawn from the operation of F
the state’s power a part of the thing (net estate) #
which the state by its laws has conceded to the
successors, as well as a part of the same thing :
which the state has exacted or reserved for itself,
In either case, the power of the state is thus sen- :
sibly burdened and directly invaded; (a) by im- :
posing a condition or a price before a successor
may take his share in the residue, it denies to the ;

state its paramount right to say what shall pass

to such successor, to the extent of the imposition,
and (b) by withdrawing from the state regulation
the part of the thing which the state has exacted
for itself, it denies to the state to the extent of the
tax, its paramount right to determine for itself
what part of the thing shall be exacted as a condi-
tion of the transfer.

Had the exaction been measured by the value of
each specific distributive share, and enforced after

each such share was ascertained, or made ascertain-

38

able by means of state regulation, it is obvious that
no burden upon or invasion of state power could
then be conceived, but by the very design of the
act, this is made impossible, since the measurement
of the tax and the method of its imposition and en-
forcement, expressly forbid the taking into account
of the separate value of each distributive share,
but on the contrary the command of the act, is to
measure and enforce the tax by the value of the
mass of the estate, regardless of its destination.

A few examples by way of illustration of the op-
eration and effect of the exaction upon the state's
power of regulation may be appropriate here.
Thus, looking at the table for compnting the estate
tax prepared by the Commissioner, (Article 8,
Regulations No. 37), insofar as it applies to the
act of September Sth, 1916, the following appears:

Upon an estate of $250,000 the tax amounts to
$5,500.00; upon an estate of $1,000,000.00 the tax
is $41,000.00; upon an estate of $5.000,000.00° the
tax is $341,000.00. and upon an estate of 810,00,
000.00 the tax is $841,000.00. These sums com-
prising the taxes are obviously parts of such sev-
eral estates before their distribution in accordance
with the siate regulations. Obviously the with-
drawal of those sums from the estate prevents the
states from exercising their power of regulation
thereon. In other words, the sums mentioned,
representing the estate tax, and ranging from
$5,500.00 to $841,000.00 never come within the

sway of the state’s power. It must follow, there-

39

fore, that to the extent oO. the imposition, the fed-
eral power becomes a factor or a condition in the
transmission, and to that extent invades and di-
rectly burdens the exclusive power of state regu-
lation, by denying to the state, to the extent of the
imposition, its paramount right to say what shall
pass to the successor, as well as by denying to the
state, to the same extent, its paramount right to
determine for itself what part of the estate shall
he exacted for itself as a condition of the transfer
or succession.

Ifad the act in question in express words provid-
ed—“that to the extent of the tax hereby imposed,
no state shall permit the succession to property of
any decedent dying after the passage of this aet”’—
would any one then pretend that the power of
states’ regulation was not directly burdened or em-
barrassed in its operation, to the extent of such
express prohibition? Would it not then be obvious
that Congress had imposed a condition upon the
laws of descent of every state as well as a condi-
tion upon each state's paramount right of regula-
tion of succession or descent of property? Would
anyone then pretend that such law was a valid ex-
ercise of taxing power of Congress? Why not?
Obviously, because the power of regulation of sue-
cessions is not within the province of the national
government, but is vested exclusively in the states.

Tt is beyond doubt that the taxing power knows
no limitations upon its exercise, when within its
lawful sphere, save only the will or discretion of the

legislative body, and so, here, if Congress may thus

a

40

impose its taxation upon the occasion of death, it
may do so to any extent. If the power so to do be
conceded, is it not manifest that by an increase of
the rates to, say, fifty per cent, or one hundred per
cent of the vales of net estates, that the enactment
must operate to inhibit to the states to the same ex-
tent and the same thing, the operation of their laws
respecting devolution of property on death? — Is it
not apparent from mere statement, that an inter
diction of the states power in such manner must be
as effectual as if expressly worded as above? — [tis
too obvious to require discussion, that whatever is
withdrawn by Congress from the operation of the
states power and before that power can be ex-
pended, may not come within the operation of that
power,

Hence, if the mode of its imposition, operation
and enforcement be given, as it must be, due weight,
the exaction here operates precisely in the same

way and produces the same result which would have

ee ean — — ne - a — — — -
eS NF = 2 cera ee te a PES Te rece he eae GEN, © ne So ss Fa OP Mey at Oe
4 5b ets, Ba oF renee PPE alin epi Sg on ee rok ie are eel :

been accomplished, had the act in question in. ex-

is
ap
aor

Fai Shr Tea

press words contained the prohibition to the states
in the words above quoted. Thus is revealed the

iNegality of the exaection. /n substance the exac-

ox

ee
cal

tion is not only a tax upon transfer of property

cae

effected by death, but by its operation and effect,
by withdrawal of part of the estate from state regu-
lation it necessarily operates as a regulation of
descent of property and thereby casts a direct bur:
den upon the states’ paramount power of such reen-
lation.

|

41

The act in question presents the problem whether
it and the states laws taken with respect to the
regulation of the transmission of property on death,

may, concurrently, have operation upon the same

subject without resulting conflict.

The solution of the question requires that in con-
sidering the nature and intended operation of the
Act of Congress, that due consideration be also
given to the operation of such state laws, and the
power given expression by them, relating to the
subject with which the Act deals; and so, when it
is admitted that those laws are the exercise of a
paramount authority respecting the subject) in
hand committed exclusively to the states, and that

the operation of those laws may not be interfered

OE ELLIE ELIE NIL AE ELE ER

with by Congress, the question resolves itself into

one whether the Act of Congress may have opera-

tion. 4
The states may not be trammelled in the exercise 4

of their power. Thus full operation must be ae-

corded the states laws. How then may the Aet of

Congress have force and effect? If its operation

is to embarrass or burden the states power then 4

it must be promptly conceded that it may not be
given effect, Statutes must be interpreted, if pos-
sible, so as to make them consistent with the Con-
stitution and the paramount law. Presser rs. [Ii-
nois, 116 U.S, 252.

Now, were it to be argued, that there must be
ascribed to “the transfer of the net estate” the

significance or meaning of the transfer which the

42

siutes effect in successors, it must appear from the
demonstration that has been made, that, if such be
the conception of what is the subject of taxation,
the states are never permitted to effect: transmis-
sion or the transfer to successors of that portion of
of estates comprising the Federal exaction,
The tax is measured by the mass of what
is defined by the Aet to be cnet estate’ and is de-
ducted from that mass, and provision is made hy
the Net, Sec. 207, for the isstanmee by the collector
of a receipt evidencing payment whieh “shall en-
title the executor to be credited and allowed the
amount thereof by any court having jurisdiction to
audit or settle his accounts.” Tt is to be observed
that what the states prescribe shall be taken by
persons designated as successors, is) the residue
only of estates of decedents shown by the account
of administration upon allowance and settlement,
So that, the deduction of this tax before or at the
point of the definition of what shall pass to sue-
cessors clearly diminishes that whieh the states
may pass to successors. In other words, the oper-
ation and effect of the tax, through the mode of
measurement and the deduction or withdrawal of
the amount from estates before the shares to pass
to suecessors can be measured, defined or ascertain-
ed, and the deduction or withdrawal of which
sensibly lessens the shares which the states may
pass to successors, militates against such being the
subject of taxation. Sueh a construction immedi-

ately exposes the tax as a condition exacted by

—

43

Congress of the states or of the successors which

must be performed before the states may define or

pass, or the successors may receive, the residue,

The difficulty is found in the plain wording of the
enactinent, whieh by the mode of imposition and
enforcement denies the conception that such is the i
subject of taxation. As already noticed, there is if
no word of recognition in the Act of persons stand: H
ing us successors; nor of the relation or want of :
relation of successors to a decedent; nor of refer: ;
ence to the distribution of the estate; nor of state i
laws regulating the transmission and succession H
to property; but on the contrary the net estate as i

defined in the Act is seized upon as the unit of tax-

ation and the tax thereon is graduated in accord:

k

ance with its value, without regard to the provisions é

of state laws determining the manner property on ;

death shall he split and divided between persons ,

designated as successors.

‘

This court in /lenderson vo Wickham, Mayor, 92 ‘

US. 259, speaking in reference to the Act of sev- i

eral states requiring shipmasters to give a bond
for each passenger landed by them, in the penal
sum of $300 to indemnify the states against expense

for relief or support of the passenger named, or
alternatively to pay $1.50 for each passenger land-
ed, held the Acts to be invalid regulations of com-
merce, and said:
“In whatever language a statute may be
framed, its purpose must be determined by its
natural and reasonable effect; and if it is ap-

44

parent that the object of this statute as judged
by that criterion, is to compel the owners of
vessels to pay a sum of money for every pas-
senger brought by them from a foreign shore
* * * if is as much a tax on passengers if col-
lected from them, or a tax on the vessel or
owners for the exercise of the right of landing
their passengers * * * as was the statute held
void in the Passenger Cases, (7 Tow, 283.)

* 8 * The effective operation of this law
commences at the other end of the voyage,
The master requires of the passenger, before
he is admitted on board, as a part of the pas:
sage money, the sum which he knows he must
pay for the privilege of landing him in’ New
York, Tt is, as we have already said, in effeet,
a tax on the passenger, whieh he pays for the
right to make the voyage-—a voyage only com:

pleted when he hinds on the Amerioan shore”
*? @#

So here whatever be considered the subject. of
taxation, the effective operation of this law com-
mences at the beginning of the voyage, and requires
toll from all that whieh is to pass, before the states,
giving direction to the voyage, may determine what
shall pass toa certain destination,

Paraphrasing what was said in Western Union
rs, Kansas, supra, (216 U.S. on page 380), we say:
Looking then at the natural and reasonable effect
of the statute, disregarding mere forms of expres:
sion, it is clear that the exaction here, is in its es-
rence not simply a tax upon a transmission or re:
ceipt of property occasioned by death, but a form

of regulation of successions as well, and therefore

PERSE

45

a burden upon and an usurpation of the states
paramount power of regulation. In other words,
the subject of taxation, as actually revealed by the
operation and effect of the Act, is in fact broader
than the boundaries of the taxing power of Con-
gress, and therefore cannot be regarded as a legi-

timate subject of taxation,

As in the Western Cnion vo Nansas case, the
court, While yielding to the state its unlimited
power to impose a tax upon a foreign corporation
asa condition of its right to do local business in
Kansas, declared the tax invalid because by its
measurement and imposition, it) was based upon
something more than the business of the corpora:
tion solely within the state and thereby burdened
interstate commerce; so here, while acknowledging
to Congress its power to tax legitimate subjects
of taxation, the exaetion by the mode of its im-
position, measurement and enforcement, is ob-
viously based upon, and includes within it, some-
thing more than the mere transmission of property
occasioned by death; to-wit: the exaction, in facet,
overreaches the houndaries of that subject of taxa-
tion and by its own force and at the same time,
operates as a regulation of descent—a_ subject
within the sway of another paramount power and
therefore prohibited to Congress,

The power to tax is the power to destroy, WeCul-
loch v. Maryland, 4 Wheat. 316, which principle is
pertinent only where there is no power to tax:

Nnoielton rv. Moore, supra,

u
:
ba
&

FLOP ELODIE LOL TITLE ERATED ALOE RDO TR IT =

46

7. ANY CONSTRUCTION OF TILE ACT WHICH WOULD
PERMIT TILE STATE TO DEDUCT IPS TAN BEFORE COM-
PUTATION OF THE ESTATE TAN, CANNOT AFPPECT On
MILITATE AGAINST THE CONTENTION THAT TILE
STATES POWER OF REGULATION OR TTS LAWS OF SUC:
CESSION, ARE BURDENED OR IMPAIRED TO TILE EXTENT
OF THE EXNACTION,

If it be once conceded, as we think it must be,
that by its operation, enforcement and effect, the
exaction here withdraws to the extent of the tax,
a part of the estate upon which the power of the
state is being at the time wielded, and thereby ex.
cludes its operation to that extent, it is obvious
that any construction of the Aet whieh would
merely permit the state to deduct its tax before the
computation of the Estate Tax can in noe way im
pair or militate against the soundness of the con-
tention that even then the state's power is never:
theless burdened and denied to the extent of the
exaction,

To demonstrate the soundness of this proposi-
tion, requires mereiy recalling to the attention of
the court, the force of two considerations whieh
hear upon this question: (a) as universally consid:
ered by the vast majority of state courts, and alse

by this court, the so-called “inheritance, “sucees-

sion” or “transfer” taxes exacted by the states, are
in reality a bonus or price which the state has a
right to and does exact, as a condition or considera-

tion for such inheritance, succession or transfer.

_ —

47

This bonus or price is exacted for the performance
by the state of certain result, viz: effectuating the
succession or the transfer in conformity to its laws
of regulation of successions. (hb) “Regulation

when adopted is designed for the entire result, and

the production of a uniform whole” (Gibbons vr,

Ogden.)

“tar

Bearing in mind these considerations, the val-
idity of which cannot be disputed, the question is:
how can the state produce the certain result, by
the mere receipt of the consideration for it, when

it is shown as here, that the performance of the
very result, for which the consideration is exacted,
is interrupted and burdened by the intervention of '
another power coming in and withdrawing from

the operation of such performance, a part of the
sume thing upon which the state had undertaken
to perform that certain result?

It is true that by such deduetion, the state's ex-
action is satisfied, but has the state performed the
result for which it exacted the bonus? Certainly
not, Manifestly the result whieh it undertook to
perform is nevertheless diminished to the extent
of the federal exaction, and to that extent the law
of the State has been nullified or denied,

48

8. TILE QUFSTION OF POWER IS NOT TO BE DETER-
MINED BY THE AMOUNT OF THE BURDEN ATTEMPTED

TO BE CAST,

Were it to be contended that the Act complained
of cannot be considered as casting a burden upon
the states’ power in a relatively immediate way,
because in many or most cases the tax must be com-
paratively small or insignificant, the sufficient an-
swer must be that the extent of an injury never
measures the rightfulness of the act producing it.
Indeed, it can hardly be claimed that a tax which
withdraws from the operation of the states’ power,
or burdens that power in its exercise, to the extent
noted in the foregoing illustrations (and mate-
rially greater under the Revenue Act of 1918 by
increased rates reaching one-quarter of all estates
in excess of $10,000,000) is or can be other than
substantial, immediate and direct.

This court having occasion to consider the ques-
tion of the compulsory production of the books and
papers of persons charged with violation of the
revenue laws of the United States, as an unwar-
ranted search and seizure within the meaning of
the Fourth Amendment, said in Boyd rv, United
States, 116 U.S, 616,

“Though the proceeding in question is di-
vested of many of the aggrevating incidents of
actual search and seizure, vet, as before said,
it contains their substance and essence, and
effects their substantial purpose. It may be
that it is the obnoxious thing in its mildest

| —

49

and least repulsive form; but illegitimate and
unconstitutional practices get their first foot-
ing in that way, namely: by silent approaches
and slight deviations from legal modes of pro-
cedure, This can only be obviated by adhering
to the rule that constitutional provisions for

the security of persons and property should be ;
liberally construed, A close and literal con- _
struction deprives them of half their efticacy ;
and leads to gradual depreciation of the right, é

as if it consisted more in sounds than in sub- ,
stance. It is the duty of courts to be watchful i

for the constitutional rights of the citizen, and ;
against any stealthy encroachments thereon. %
Their motto should be obsta principiis.” :
Again in Fairbank v. United States, 181 U.S.
288, which reviewed a conviction for issuing an 4
export bill of lading without affixing thereto an bs
internal revenue stamp of ten cents required by the if
Act of June 18, 1898, the constitutionality of which :

Act was assailed as in violation of the provision
that no tax or duty shall be laid on any articles
exported from any state, this court speaking in
reference to the small amount of the tax, said:

“e * * The question of power is not to
be determined by the amount of the burden
attempted to be cast. The constitutional lan-
guage is, ‘no tax or duty. A 10-cent tax or
duty is in conflict with that provision as cer-
tainly as a 100-dollar tax or duty. Constitu-
tional mandates are imperative. The question
is never one of amount, but one of power.
The applicable maxim is, ‘obsta principtis’,
not *De minimis non curat ler!”

* * * * *

50

or the reasons which have been advanced, the
State of Minnesota deems that Tithe TL, Estate
Tax, of the Act of Congress, September Sth, 116,
entitled “An Aet to increase the revenue, and for
other purposes,” is an encroachment upon and in
terference with its exclusive power to regulate the
transmission of property on death, and impedes,
embarrasses and burdens the exercise of that pow-
er, and in consequence that the tax laid is in viola-
tion of its sovereign rights, and the Constitution
of the United States.

Respectfully submitted,

CLIFFORD L. HILTON,
Attorney General,
EGBERT Ss. OAKLEY,
Assistant Attorney General,

For Minnesota.

——

APPENDIX.

Provisions of the Estate Tax Act of 1916.
Estate Tax Law of 1916 (Revenue Act of 1916,
Title Il).

Sec, 200. That when used in this tithe—

The term “person” includes partnerships, cor
porations, and associations ;

The term “United States” means only the Staies,
the Territories of Alaska and Hawaii, and the Dis-
trict of Columbia ;

The term “executor” means the executor or ad-
ministrator of the decedent, or, if there is no exe-
cutor or administrator, any person who takes pos:
session of any property of the decedent; and

The term “collector” means the collector of in-
ternal revenue of the district in) which was the
domicile of the decedent at the time of his death,
or. if there was no such domicile in’ the United
States, then the collector of the distriet in which is
situated the part of the gross estate of the deced-
ent in the United States, or, if such part of the
gross estate is situated in more than one district,
then the collector of internal revenne at Baltimore,

Marvland.

oe as

PEELED ENGIN SPX

=

ROT ARLES IES IIS, FOILS

7

Sec. 201. That a tax (hereinafter in this title
referred to as the tax), equal to the following per-
centages of the value of the net estate, to be deter-
mined as provided in section two hundred and
three, is hereby imposed upon the transfer of the
net estate of every decedent dying after the pas-
sage of this Act, whether a resident or nonresident
of the United States:

One per centum of the amount of such net estate
not in excess of S50,000;

Two per centum of the amount by which such
net estate exceeds S50,000 and does not exceed
$150,000 ;

Three per centum of the amount by which such
net estate exceeds S150,000 and does not exceed
$250,000;

Four per centum of the amount by whieh such
net estate exceeds $250,100 and does not exceed
$450,000 ;

Five per centum of the amount by which such
net estate exceeds $450,000 and does not exceed
$1,000,000;

Six per centum of the amount by which such net
estate exceeds $1,000,000) and does not exceed
$2,000,000.

Seven per centum of the amount by which such
net estate exceeds $2,000,000 and does not exceed
$3,000,000 ;

Fight per centum of the amount by which such
net estate exceeds $38,000,000 and does not exceed
$4,000,000 ;

_—

Nine per centum of the amount by which such
net estate exceeds $4,000,000 and does not exceed
$5,000,000 5 and

Ten per centum of the amount by which such

net estate exceeds 35,000,000.

Sec, 202. That the value of the gross estate of :

the decedent shall be determined by including the

value at the time of his death of all property, real

or personal, tangible or intangible, whatever sit- 5
uated : b

(a) To the extent of the interest therein of the é
decedent at the time of his death which after his e
death is subject to the payment of the charges :
against his estate and the expenses of its admini- i
stration and is subject to distribution as part of e
his estate. 5

(b) To the extent of any interest therein of 8
which the decedent has at any time made a trans- 3
fer, or with respect to which he has created a trust, 4
in contemplation of or intended to take effect in
possession or enjoyment at or after his death, ex- :
cept in case of a bona fide sale for a fair consider- :
ation in money or money's worth. Any transfer :
of a material part of his property in the nature of :

a final disposition or distribution thereof, made

by the decedent within two years prior to his death
without such a consideration, shall, unless shown
to the contrary, be deemed to have been made in
contemplation of death within the meaning of this

title; and

iii

can

(ec) To the extent of the interest therein held
jointly or as tenants in the entirety by the deced-
ent and any other person, or deposited in banks or
ocher institutions in their joint names and pruay-
able to either or the survivor, except such part
thereofias may be shown to have originally belonged
to such other person and never to have belonged
to the decedent.

lor the purpose of this tithe stock in a domestic

corporation owned and held by a nonresident de-

cedent shall be deemed property within the United
States, and any property of whieh the decedent his
made a transfer or with respect to whieh he has
created a trust, within the meaning of subdivision
(hid of this section, shall be deemed to be situated
in the United States, if so situated either at the
time of the transfer or the creation of the trust,

or at the time of the decedent's death.

See, 203. That for the purpose of the tax the

vilue of the net estate shall be determined—

tat) In the ease of a resident, by deducting from
the valne of the gross estate

(1) Such amounts for funeral expenses, ad-
Ininistration expenses, claims against the estate,
unpaid mortgages, losses incurred during the set-
tlement of the estate. arising from fires, storms,
shipwreck, or other casnaliv, and from theft, when
such losses are not compensated for by insurance
or otherwise, support during the settlement of the
estate of those dependent npon the decedent. and

such other charges against the estate, as are al-

_——

lowed by the laws of the jurisdiction, whether with-
in or without the United States, under which the
estate is being administered; and

(2) An exemption of 350,000;

(b) In the case of a nonresident, by deduecing
from the value of that pari of lis gross estate which

ut the (ime of his death is situated in the United

States that proportion of the deductions specitied
in paragraph (1) of subdivision (ay of Chis see-
tion Which the value of sieh pari bears to the value

of his entire gross estate, wherever situated. But

SPA PRS a aay sieasees

no deductions stall be allowed in the case of a non-

resident unless the executor includes in the return 7
required to he filed under seetion two hundred and )
five the value at the time of his death of that part :
of the gross estate of the nonresident not situated ’
in the United States. A
i
Sec, 204. That the tax shall be dune one vear
after the decedent's death. If the tax is paid: be- :
fore it is due a discount at the rate of five per cent- q
Win per annum, calenlated from the time payment x
is made to the date when the tax is dve, shall be de- d
dueted. Tf the tax is not paid within ninety days :
after if is due interest at the rate of teu per centum :
per annum from the time of the decedent's death

shall be added as part of the tax, unless because of
claims against the estate, necessary litigation, or
other unavoidable delay the collector finds that the
tax cannot be determined, in which case the inter:
est shall be at the rate of six per centum per an-

num from the time of the decedent's death mutil the

cause of such delay is removed, and thereafter at
the rate of ten per centum per annum. Litigation
to defeat the payment of the tax shall not be deemed

necessary litigation.

See. 205. That the executor, within thirty days
after qualifying as such, or after coming into pos-
session of any property of the decedent, whichever
event first occurs, shall give written notice to the
collector, The executor shall also, at such times
and in such manner as tay be required by the regu-
lations made under this title, tile with the collector
a return under oath in duplicate, setting forth (a)
the value of the gross estate of the decedent at the
time of his death, or, in case of a non-resident, of
that part of his gross estate situated in the United
States; (b) the deductions allowed under section
two hundred and three (¢) the value of the net
estate of the decedent as defined in section two
hundred and three; and (d) the tax paid or pay-
able thereon; or such part of sueh information as
may at the time be ascertainable and such supple-
mental data as may be necessary to establish the
correct tax.

Return shall be made in all cases of estates sub-
ject to the tax or where the gross estate at the
death of the decedent exceeds $60,000, and in the
case of the estate of every nonresident any part of
whose gross estate is situated in the United States.
If the executor is unable to make a complete return
as to any part of the gross estate of the decedent,

he shall include in his return a description of such

vi

ee

part and the name of every person holding a legal
or beneficial interest therein, and upon notice from
the collector such person shall in like manner make
a return as to such part of the gross estate. The
Commissioner of Iniernal Revenue shall make all
ussessinents Of the tax under the authority of exist-
ing administrative special and general provisions
of law relating to the assessment and collection of

taxes.

See, 206. That if no administration is granted
upon the estate of a decedent, or if no return is
filed as provided in section two hundred and five,
ov if a return contains a false or incorrect state-
ment of a material fact, the collector or deputy col-
lector shall make a return and the Commissioner

of Internal Revenue shall asess the tax thereon.

Sec, 207. That the executor shall pay the tax
to the collector or deputy collector. If for any
reason the amount of the tax cannot be determined,
the payment of a sum of money sufficient, in the
opinion of the collector, to discharge the tax shall
be deemed payment in full of the tax, exeept as in
this section otherwise provided. If the amount so
paid exceeds the amount of the tax as finally deter-
mined, the Commissioner of Internal Revenue shall
refund such excess to the executor. Tf the amount
of the tax as finally determined exceeds the amount
so paid the commissioner shall notify the executor
of the amount of such excess. From the time of

such notification to the time of the final payment

vii

er

yer
IR

seis.

RED Ry

5S Sen a

ON RT

of such excess part of the tax, interest shall be
added thereto at the rate of ten per centum per
wnnom, and the amount of such excess shall be a
lien Upon the entire gross estate, except such part
thereof as may tatve been sold to a bona fide pur-
chaser fora fair consideration in money or money's
worth.

The collector shall grant to the person paving
the tax duplicate receipts, either of whieh shall be
sufficient evidence of such payvinent, and shall en-
title the exeentor to he evedited and allowed the
amount thereof by auy court having jurisdiction to

andit or settle his necounts.

See, 2OS. That if the tax herein imposed is not
paid within sixty days after itis due, the collector
shall, unless there is reasonable cause for further
delay, commence appropriate proceedings in any
court of the United States, in the name of the Unit
ed States, to subject the property of the decedent
to be sold under the judgment or decree of) the
court, From the proceeds of such sale the amount
of the tax, together with the costs and expenses of
every description to be allowed by the court, shall
be first paid, and the balanee shall be deposited ae:
cording to the order of the court, to be paid under
its direction to the person entitled thereto, Tf the
tax orany part thereof is paid by, or collected out
of that part of the estate passing to or in the pos
session of, any person other than the exeentor in
his capacity as such, such person shall be entitled

to reimbursement ont of any part of the estate et

viii

ae

_—

a ee eae

undistributed or by a just and equitable contribu-
tion by the persons whose interest in the estate of
the decedent would have been reduced if the tax
had been paid before the distribution of the estate
or whose interest is subject to equal or prior lia-
bility for the payment of taxes, debts, or other
charges against the estate, it being the purpose and
intent of this title that so far as is practicable and
unless otherwise directed by the will of the deced-
ent the tax shall be paid out of the estate before its

distribution,

Sec, 200. That unless the tax is sooner paid in
full, it shall be a lien for ten years upon the gross
estate of the decedent, except that such part of the
vross estate as is used for the payment of charges
against the estate and expenses of its administra:
tion, allowed by any court) having jurisdiction
thereof, shall be divested of sueh lien.

If the decedent makes a transfer of, or creates a
trust with respect to, any property in contempla-
tion of or intended to take effect in possession or
enjoyment at or after his death (except in the case
of a bona fide sale fora fair consideration in money
or money's worth) and if the tax in respect thereto
isnot paid when due, the transferee or trustee shall
he personally diable for sueh tax, and such prop-
erty, to the exient of the decedents interest there-
incat the time of such transfer, shall be subjeet to
a dien equal to the amount of such tax. Any part
of sneh property sald by such transferee or trustee

tou bons tide purchaser fora fair consideration in

i

FRASER Oh Rea Ee S

SOA PHI ESO

ht od

eeeenerneerenemenenennnnemeemeetinminemnnneneeeat ay

money or money's worth shall be divested of the
lien and a like lien shall then attach to all the
property of such transferee or trustee, except any
part sold to a bona tide purchaser for a fair cou.

sideration in money or money's worth.

See, 20. That whoever knowingly makes any
false statement in any notice or return required to
he filed by this tithe shall be liable to a penaliy of
not exceeding 35,000, or imprisonment not exceed:
ing one year, or both, in the diseretion of the court.

Whoever fails to comply with any duty imposed
upon him by section two hundred and five, or hav-
ing in his possession or control any record, file, or
paper, containing or supposed to contain any in-
formation concerning the estate of the decedent,
fails to exhibit the same upon request to the Com-
missioner of Interne! Revenue or any collector or
law officer of the United States, or his duty author-
ized deputy or agent, who desires to examine the
same in the performance of his duties under this
title, shall be liable to a penalty of not exceeding
S500, to be recovered, with costs of suit, in a civil
action in the name of the United States,

Sec. 211. That all administrative, special and
general provisions of law, including the laws in re-
lation to the assessment and collection of taxes, not
heretofore specifically repealed are hereby made to
apply to this title so far as applicable and not in-
consistent with its provisions,

see, 212.) That the Commissioner of Internal
Revenue, with the approval of the Secretary of the
Treasury, shall make such regulations, and pre-
scribe and require the use of such books and forms,
ws he may deem necessary to carry out the provi-

sious of this title.

XI

Supreme Court of the Cnited States

OCTOBER TERM, 1920

No. 286

NEW YORK TRUST COMPANY AND
ALBERT W. PROSS

AS EXECUTORS OF THE LAST WILL AND TESTAMENT OF
J. HARSEN PURDY, DECEASED

PLAINTIFFS IN ERROR

Vv.

MARK EISNER

COLLECTOR
DEFENDANT IN ERROR

BRIEF ON BEHALF OF THE COMMONWEALTH
OF MASSACHUSETTS, SUBMITTED BY
ITS ATTORNEY-GENERAL AS
AMICUS CURIAE

J. WESTON ALLEN

Attorney-General

CONTENTS.

1. Statement, .
2. Argument, .

First: The Federal estate tax cannot be sustained upon the
grounds on which succession taxes were sustained in
Knowlton v. Moore, 178 U. 8. 41, and Scholey v.
Rew, 23 Wall. 331, .

Second: The Federal estate tax is an encroachment upon the
exclusive power of the several states to regulate the
descent and distribution of property of decedents
domiciled therein, and is for that reason, unconsti-
tutional and void,

I. The several states possess the exclusive power to regu-
late and control the descent and distribution of prop-
erty,

II. The Federal estate tax imposed by the Act of Septem-
ber 8, 1916, is in its operation and effect an invasion
of the sovereign power of the states to regulate the
descent and distribution of property to decedents,

Third: The Federal estate tax is a direct tax and therefore
unconstitutional because not apportioned in ac-
cordance with the requirements of the Federal Con-
stitution,

3. Conclusion,

AUTHORITIES CITED.

PAGE
Brown v. Maryland, 12 Wheat. 419, — . : ‘ : > ; , 13
Carpenter v. Pennsylvania, 17 How. 456, _ ; . ‘ : 14
Collector v. Day, 11 Wall. 113, — . , ; : : : : ; 12
Collins vy. New Hampshire, 171 U.S. 30, 2... he ae ; 25
Cook v. Pennsylvania, 97 U. 8. 566, . ; : rede : ; 13
Cooley, Thomas M., d ; . ; : ; d . 24
Corbin vr. Tow saad! 92 Conn. 501, . ; 3
Dawson v. Kentucky Distilleries & W: aeiel Co. — U. s.

—— (decided February 28,1921), . 2. 2... 28
Estate of Henry Miller, ——— mt, , decided Jan. 18,1921, — . 3
Farrington v. Tennessee, 95 U. 8. 679, . : : : ; ; 11
Flint v. Stone Tracy Co., 220 U. Fou | () aa 2 = - 24
Galveston, Harrisburg & San Antonio v. Texas, 210 t. Ses oe 27
Gloucester Ferry Co. v. Pennsylvania, 114 U. 8. 196, ; . : 13
Hanson, Alfred, ae 6 ree Me Ae Meee Lemathe Fy’ 6
Knight’s Estate, 261 Pa. St. 5337, ane ve ORS a, Sue 3
Knowlton v. Moore, 178 U. 8. 41, f : . 2,7, 19; 20; 22
Ludwig v. Western Union Telegraph Co., 216 U. S16, me
MeCoach vr. Minehill & Schuylkill Haven R.R., 228 U.S. 295, 24
Mager v. Grima, 8 ay. 490, ee See ee en ns
Nicol vr. Ames, 173 U.S. 509, me, te ; 23
Northern Trust Co. rv. raceme 257 Fed. 12: affirmed in Lederer

v. Northern Trust Co., 262 Fed.52,. . . . . . . 3
Orr v, Gilman, 183 U. 8. 278, Velie uate statute must be taken
into consideration when deciding as to its validity, even if that
result is not in so many words either enacted or distinctly pro-
vided for. In whatever language the statute inay be framed,
its purposes must be determined by its natural and reasonable
effect.”’

Applying this rule to the act in question, it is felt
that it has all the attributes of a direct tax. Its direct
and necessary result is to levy a tax upon the property
owned by a decedent at the time of his death, measured
by the value of such property and collectible out of such
property, without reference to the shares passing to
legatees or distributees, and without reference to their
relationship to the decedent.

That this tax is in effect a tax on property and not
a tax upon the transfer of property by death, is indi-
cated by those provisions of the act which undertake
to tax transfers which were completed during the
testator’s lifetime.
Section 202 contains the arbitrary provision that
the gross estate of the decedent shall include the value
at the time of his death of all property

26

“to the extent of any interest therein of which the decedent has
at any time made a transfer, or with respect to which he has
created a trust in contemplation of, or intended to take effect,
in possession, at or after his death, except in case of a bona
fide sale for a fair consideration in money or money’s worth,”

and further

“to the extent of the interest therein held jointly or as tenants
in the entirety by the decedent and any other person, or de-
posited in banks or other institutions in their joint names and
payable to either, or the survivor, except such part thereof as
may be shown to have originally to have belonged to such
other person and never to have belonged to the decedent.”

These provisions are inconsistent with the claim
that the Federal estate tax is a tax upon the transfer
of property or the transmission of property by death.
In both cases the transfer took place prior to death.

If the tax is valid, its natural and necessary effect
is to impose a tax at the end of man’s life not only upon
property which he owned at the time of his death but
also property which he had ceased to own at the time
of his death.

The meaning of the word ‘transfer’? involves the
existence of a transferor, as well as a transferee, and
an act in which both participate.

The decedent cannot be regarded as a transferor.
His title and ownership cease at the instant of his
death, and not until his death is there a change of
ownership. That change of ownership results from no
act of the former owner, but is wholly created by the
operation of the State law.

If it be true that the tax in its real essence is a direct

27

tax upon property, the fact that it is labelled as a tax
on the transfer of property should not prevent. its
being declared unconstitutional because not appor-
tioned in accordance with the requirements of the
Federal Constitution.

This Court in Galveston, Harrisburg & San Antonio
R. R. v. Texas, 210 U.S. 217, 227, said:

“Neither the state courts nor the legislatures by giving the
tax a particular name or by the use of some form of words can
take away our duty to consider its.nature and effect.”

And in Pollock v. Farmers Loan & Trust Co., 157
U.S. 429, 581, this Court said:

“If it be true that by varying the form the substance may
be changed, it is not easy to see that anything would remain
of the limitations of the Constitution or of the rule of taxation
and representation so carefully recognized and guarded in
favor of the citizens of each state. But constitutional provi-
sions cannot be thus evaded. It is the substance and not the
form which controls, as has indeed been established by repeated
decisions of this Court.”

The Supreme Court of Missouri in State v. Switzler,
143 Mo. 287, 327, 328, considered the constitutionality
of an erroneously so-called succession tax statute. In
holding the tax to be a tax on property it said:

“The General Assembly has declared that it intended to
levy a ‘collateral succession tax’, and we all agree that by
whatever name this exaction may be called, it is referable to
the taxing power of the state. The controlling question is,
upon what did it authorize that the tax be levied, upon the
property or estate of the deceased person, or upon the right or

eo ey

28

privilege of his beneficiaries to receive his estate by inheritance
or devise? If upon the latter, it is settled by the great weight
of authority that it does not fall within the ordinary taxation
of property which our Constitution requires shall be in propor.
tion to its value.”

“A ‘succession’ tax, as the words indicate and the history
of such taxes clearly establishes, is an excise or duty upon the
right of a person or corporation to receive property by devise
or inheritance from another under the regulation of this state,
Wherever properly laid this is the distinguishing feature in
contradistinction from a property tax... . When it is clear
that the tax is upon the succession, it is computed not on the
aggregate valuation of the whole estate of the decedent con-
sidered as a unit for taxation, but on the value of the separate
interest into which it is divided by the will or by the statute
laws of the State, and is a charge against each share or interest
according to its value and against the person entitled thereto.”

“Section 1 (a) requires the tax to be levied upon the ap-
praised value of the whole estate left by the deceased. The
tax is at once levied upon that estate, and the personal repre-
sentatives of the deceased, not the devisees and legatees, are
required to pay the tax. How such a tax differs from general
taxes upon the property of the deceased under our system we
are not able to state. The mere calling of such a tax a sue-

cession tax does not make it different from an ordinary tax on
property when the effeet and operation are identical with an
ordinary property tax.”’

The case of Dawson v. Kentucky Distilleries &
Warehouse Company, decided by the United States
Supreme Court February 28, 1921, has a bearing on
the question whether the Federal estate tax is a direct
tax.

The question arose under a Kentucky statute im-
posing a tax of fifty cents a gallon upon every person

_—

29

engaged in the business of manufacturing whiskey or
“in the business of owning and storing” the same in
bonded warehouses within the State, the tax being
called in the Statute an “annual license tax’’, but
being payable only when such whiskey was either
withdrawn from bond or transferred in bond from
Kentucky to a point outside the State.

The case was on appeal from the District Court of
Kentucky which had granted an injunction against
the collection of the tax. It was admitted by the At-
torney-General of Kentucky that the tax was void
under the Kentucky constitution if it was a tax on
property. The only questions considered in the Su-
preme Court were (1) whether the case was one for
equitable relief and (2) whether the tax was void under
the Kentucky constitution. It was recognized that
the latter was a question of State law, but not having
been passed by the State Courts, it was necessary that
it should be determined in the Federal Courts. The
decision was against the State on both points.

The Court in unanimously holding the tax to be a
direct tax on property said:

“The question is whether as to such this fifty cents a gallon
tax is an occupation tax or is a property tax.”

“The name by which the tax is described in the statute is,
of course, immaterial. Its character must be determined by
its incidents; and obviously it has none of the ordinary inci-
dents of an occupation tax.”

“In fact the tax is one imposed upon each lot of whiskey
at the time it is removed frem bond within the State. The
tax might be said to be upon the act of removal from the
bonded warehouse within the State. But as stated by the lower
court, ‘the thing really taxed is the act of the owner in taking

30

his property out of storage into his own possession (absolute or
qualified) for the purpose of making some one of the only
uses of which it is capable, i.¢., consumption, sale or keeping
for future consumption or sale... . The whole value of the
whiskey depends upon the owner's right to get it from the
place where the law has compelled him to put it, and to tax
the right is to tax the value’, To leey a tax by reason of
ownership of property is to tax the property. Compare Thomp-
son, Auditor, ve. Kreutzer, 112 Miss. 165; Thompson, Auditor
v. McLeod, 112 Miss. 383. /t can not be made an occupation
or license tax by calling it so. See Flint ve. Stone Tracy Co.,
220 U.S, 107, 148-150; Zonne ve. Minneapolis Syndicate, 220
U.S. IS7; United States e. Emery, 287 U.S, 28,"

The estate tax in its natural and necessary effect
is the analogue of local property taxes. The provisions
in Section 209 declaring the tax to be a lien upon the
estate of the decedent, and the provisions in Section
208 providing for the collection of the tax froin the
proceeds of the sale of the property are patterned in a
general way upon long established systems in effect
for the collection of local taxes upon real estate.

It is submitted that a tax, the only necessary and
essential condition of which is ownership of property
at a particular instant of time is in substance and effect
a direct tax on property, that the Federal estate
tax is such a tax, and therefore invalid because not
apportioned according to Constitutional requirements.

CONCLUSION.

For the reasons which have been stated, it is respect-
fully submitted that the estate tax imposed by the
Act of Congress of September 8, 1916 (39 Stat. 756,
777), is unconstitutional for the reasons:

31

1. That its necessary operation and effect burden
and impair the sovereign rights of the States to regulate
descent and distribution; and

9. That in substance and effect, it is a direct tax
without apportionment among the States on the basis
of population.

J. WESTON ALLEN,

Attorney-General.

INDEX.
BRIEF.
PAGE
Poist I. The Estate Tax is void if its necessary
effect is to require the deduction of the
Estate Tax in the adjustment of the State
a Coded ieee CeCe ddan es eee 1
Point II. The tax is upon the transfer of the
net estate to the beneficiaries and is paid by
them or for their account proportionately ;
for no one else has any money to pay it.. 13
Query, if the tax is not valid, if con-
strued as a legacy tax.............. 22
Point ILI. If the tax is ‘‘an estate tax” it
is void as a regulation of the transfer,
and asa tax on property without appor-
ES ee ee ere 23
AUTHORITIES CITED.
Austin, Lectures on Jurisprudence.......... 23-25
Bierstadt, Matter of, 178 App. Div. 836......
Billings v. U. S., 282 U. S. 261.............. 31
Cooley Const. Limitations. ................. 15
Dawson v. Kentucky D. & W. Co., U.
eee 13, 29
Flint v. Stone-Tracy Co., 220 U. S. 107...... 31
Garcia, Matter of, 183 App. Div. 712...... 9, 17, 18
Gihon, Matter of, 169 N. Y. 443............. ee
Gleason v. Thaw, 236 U. S. 558.............. 14

eee wre

‘ II
: PAGB
Hales v. Petit, 1 Plowden 253...........-+-- 6
Hamlin, Matter of, 226 N. Y. 407.........--- 11
Hooper v. Bradford, 178 Mass, 95.....-+++++- x
. Kingsbury v. Chapin, 186 Mass, 533. ......- 8
9 Knowlton v. Moore, 178 U.S. 41........--22 , 30, 32
q Mager, 7. Grima, 8 How. ep chy eek Chee Oe 26
4 Maxweil v. Bugbee, 250 U.S. 525.......-5. a
4 Meyer, Matter of, 209 N. Y. ie epee eR ete EP 10
x Miller, estate of, 61 Cal. Dec. 90.........-- ; 3
: Nicol v. Ames, 173 U.S. 500... 6... eee ee eee 5
3 Orvis, Matter of, 223 N. Y. 1......-. 0+ + eee )
: Pollock v. Farmers Loan & Trust Co., 157 U.
s So cig key bee a es ESAS eee CoE Oe Bt
; Penfold v. State Comptroller, 248 U.S. 537.. 3
i Ramsdill, Matter of, 190 N.Y. 492.......--- .
3 Sherman, Matter of, 179 App. Div. 497....-- 2, 12
: Scholey v. Rew, 23 Wallace 331......-.-+++- 30, 31
: Snyder v. Bettman, 180 U. 5. 240. .......+-- 26
¢ Watson, Matter of, 226 N. Y. 384............ 25, 26
STATUTES CITED.
New York Tranefor Tax. .....:.s.ssescceee. 7
American Inheritance Tax Statutes......... 12
English Estate Duty of 1S04.........--55+5: 12
Federal Estate Tax, Section of........ 13, 17, 18, 19

Bese. Bri tay or

_ pa neitenn
|

3
E
14 — |

Supreme Court of the Anited States,
OCTOBER TERM, 1920.

No. 286.

New York Trust Co. et al., as
Executors, etc.,
Plaintiffs-in-Error,

V.

MARK EISNER.

/

BRIEF SUBMITTED BY JOHN B.
GLEASON IN BEHALF OF THE

STATE COMPTROLLER OF NEW
YORK.

POINT I.

The Estate Tax is void if its necessary
effect is to make a deduction from the
estate or from the transfer prior to the
imposition of the State Transfer tax, or
if the State tax must be adjusted as

stated at page 48 of the brief of the So-
licitor General.

At page 48 of the brief of the Solicitor General,
after correctly stating the decision in Matter of
(ihon, 169 N, Y. 443, refusing to make a deduction

EET HETERO IL ET GL IIIT RE LEN PIAS

Net ta ESS IRS

2

from the New York transfer tax on account of the
Federal legacy tax of 1898, it is said:

“Of course a different rule would have ap-
plied if one of the taxes had been an estate tax,
which must be paid before the amount for dis-
tribution and, therefore, the amount to be re-
ceived by the legatees and devisees could be
ascertained. In such cases, of course, the
estate tax is first deducted, and the legacy tax
is imposed on the amount to which the legatee
is entitled after the estate tax has been de-
ducted from the net estate. In the present case
it happens that the estate tax—that is, the tax
which must be paid before the share of the
legatee can be ascertained,—is the tax levied by
the Federal Government.”

But the State of New York refuses to permit any
duction on account of the estate tax;

Matter of Bierstadt, 178 App. Div. 836.
Matter of Sherman, 179 App. Div. 497;
affirmed without opinion, 222 N. Y. 540.

In each of these cases, in my brief for the State
Comptroller, the constitutionality of the Federal
estate tax was directly challenged, if construed
otherwise than as a legacy tax. In the Bierstadt
case, the court expressed the opinion that if the tax
was not a legacy tax it was void as a direct tax on
property. In the Sherman case the court decided
that the New York transfer tax law did not con-
template or permit any deduction on account of the
Estate Tax, and also said:

“The conditions of transfer have been em-
bodied by the State in the Transfer Tax Law.
If the Federal Government may impose an in-
heritance tax which is entitled to be deducted
from the estate prior to the assessment of the
State Transfer Tax, it has interfered with such
conditions, and has diminished the amount

Ae nec Ral

3

which the State has appropriated as a condi-
tion of the transfer being had, by the percent-
age upon the sum appropriated by the Federal
Government. The State Transfer Tax will thus
have become one not upon the whole estate
transmitted, but upon the whole estate less the
amount of the Federal tax * * *# The con-
stitutionality of a Federal act entitled to such
construction and effect might well be doubted.”

In Matter of Penfold, 216 N. Y. 163, the residuary
legatee complained because in adjusting the trans-
fer tax upon the transfer to him, the tax was
measured upon the value of the property as of the
date of death, although as the result of large losses
in realizing upon the securities, he actually received
much less; also he complained because no deduc-
tions were allowed on account of the transfer taxes
of other States. The Court of Appeals having up-
held the method of taxation, he obtained a writ of
error to this court, which was dismissed for want of
jurisdiction (Penfold vy. State Com ptroller, 248
U.S. 587).

In my brief in that case, it was claimed that the
power of the State was plenary, and that no Federal
question was presented.

As regarded the assignment of error for refusal to
deduct the inheritance taxes of other States, the
brief of the plaintiffs-in-error in the Penfold case
urged many and more reasons than those announced
by the Supreme Court of California in Estate of
Miller, Calif. (61 Calif., Dec. 90, decided
Jan., 1921), where that court held that the inherit-
ance tax of Nevada must be deducted from the Cali-
fornia estate before computing the California trans-
fer tax, because the authority of the State of Nevada
over the stock of one of its corporations was
superior to the law of the domicil, ete. That court

eo VAT ERNE AO HIND AR LON PUI READ NE MLE NALIN PRAT RGD APAM CBRL NALA bce pRB Me NLEDY sarah

z

4

also decided that, assuming the validity of the
Federal estate tax, it must also be deducted.

It seems that the dismissal of the writ of error in
the Penfold case sanctions the position that it is for
the State to say whether or not it will permit the
deduction of the Federal estate tax, and that this
court will not so construe this tax as requiring the
State to measure its tax in the manner indicated by
the brief of the Solicitor General; for then the
statute will regulate the transfer tax law of New
York, and the difference between such regulation
and the present operation of the New York transfer
tax law is a difference of some millions of dollars
vearly.

The 1919 rates take 25% of all suias over
$10,000,000, which would here mean a loss to the
State of one-fourth of its tax at its highest graded
rate.

E.ramples of requlation of transfer:

1. Transfer without residuary clause.

NR i a ye ie ad Kawi ke eae $13,240,000
Debts and expenses........... 1,000,000
SE Ss bdacc kita pesaseRe s $12,240,000
oe er re $12,240,000

2. Under will with residuary clause.

Ss cw od a 0 ok oe $13,240,000
Debts and expenses........... 1,000,000
A er $12,240,000
Passing to legatee A.......... $10,000,000
Passing to residuary legatee R. 2,240,000

- ey be om 1072 SIN ADEPT HEA Oy ire wralr® WAM ENR OES EER TRAD) TR ASA HORM RNY SA ON
DOORS Nee RN AOS WS he Sy ee

5

Se

Legatee A in each case receives $10,000,000, no
matter by what name the tax is called. The rest
equals the estate tax at 1919 rates. In the second
example the entire residuary estate equals the
| estate tax. The tax at 1916 rates is $1,065,000.

: The foregoing instance is approximated to an
actual case in the New York transfer tax office
| where, however, the estate tax is larger and does
not exactly equal the residuary estate. Any ex-
ample is adequate, but the foregoing is easy to fol-
low and it will be seen that each increase of
$4,000,000 over the above example would be a loss
of $1,000,000 of property taxable by the State, if

the estate tax should be deducted before the com-
putation of the State tax. If we must do this, it is
respectfully submitted that, hy whatever name the
tax is called, and we should prefer to call it by
some hard name, the law of property of the State
of New York has been regulated by the Federal
statute. To follow the reasoning of this court by
Mr. Justice Peckham in Nicol v. Ames, 173 U. 8.
509, 515, et seq., ina passage rather too long to
quote ‘no abstruse or subtle distinction, or miero-
scopic examination is called for, or any scientific
or economical problem. This is a practical matter
and a court’

OPPRESSED NEE Een EERE Sy

SALT per aay 27

AP geerme

SPER SANE BOS EMO

oF ena

i ee i a a aes

“would not be justified in placing it in a class
different from which its practical result would
consign it. Taxation is eminently practical,
and is, in fact brought to every man’s door, and
for the purpose of deciding upon the validity
a tax should be regarded in its actual practical
results” (id).

ae at

POET

In New York it is a law of property that a man
Shall have more than a life estate in his property,
upon condition of the payment at death of a per-

a CARA B88 Re OL A a

6

centage called the transfer tax. If, for example,
the State had adopted a “fee-farm” tenure of real
estate, reserving to itself the title and a perpetual
rent, the interest of the feoffee would be transmitted
at his death, nor could Congress by an estate tax
diminish the rights of the State. The matter will
be further considered infra,

In point of fact, the State transmits by as many
different transfers as there are legatees. Each act
of transmission is not divisible into parts, as in the
rule of Se offendendo, laid down in Hamlet follow-
ing /lales y. Petit, 1 Plowden, 2538,

There is an instant vesting at death in the lega-
tees of that part of ownership of the net estate
Which made the ownership of the decedent greater
than a life estate, and deemed to be of its value
at the date of death,

The entire net estate is lawfully in the transmis:
sion, and Congress imposes its tax upon the value
at death of the property in the transfer, If the
case is the descent of real estate worth $12,240,000
to the heir, with no other property or debts, there
is no inch of this real estate which does not descend
to the heir, but the whole of the property is received
by him at the instant of death, and the tax is
properly computed upon the full value of the prop-
erty transmitted. Inasmuch as there is no property
to pay the tax except the property in the transfer,
the transferee must pay it. Title of the transferee
is unquestionable and the situation is as if he gave
his individual bond, for the immediate payment of
the tax on account of this valid transfer to him, and
secured by mortgage upon the property.

te oe ae et

7

New York requlation of transfers wherein death
is a determining factor.

Tax Law, 8. 220. “A tax shall be and is hereby
imposed upon the transfer of any property
* * * to persons and corporations * * #
I, When the transfer js hy will or by the intes-
tate laws of this state from any person dying
seized or possessed thereof while a resident of
the state” ete,

(ross Estate,

In the adjustment of the tax, the actual value
of the gross estate at the date of death is taken as
the starting point (as is also the case with the
Federal estate tax). From this value is deducted
the debts and expenses of administration. It isa
rule of property in New York that the portion of
the gross estate which is appropriated by law to
the payment of debts and administration expenses
does not vest in the beneficiaries—does not pass to
them.

Matter of Gihon, 169 N.Y, 448.

Expenses of Administration.

These are incidental disbursements made, sub-
ject to the approval of the surrogate, for counsel
fees, advertising for creditors and the like, but the
executor in making up his accounts is not always
careful to discriminate between the fund for the
obligations of the decedent incurred in his lifetime,
and his official disbursements, and disbursements
in fact for the account of certain of the legatees.

Net Estate.

The remainder (as in the Federal statute) is the
net estate, which is deemed to be transferred to the

;
4
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!
i
:
4
|

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beneficiaries proportionately, so that in the second
example above given there is

A fund not passing to the legatees..... $1,000,000
A transfer to legatee A............555 10,000,000
A transfer to residuary legatee R...... 2,240,000

ce ean ibew ne $13,240,000

In this regulation, the interest of the residuary
legatee is as definite and certain as is the interest
of any other legatee, although it will inevitably
happen that the amount actually received by him
on the final distribution will differ from these
figures (Matter of Penfold, supra).

The terms legatee, legacy, legacy tax are con-
veniently used with reference to the above situation,
whether arising by will or by intestacy.

Vesting.

The rights of the legatecs vest at the death of the
decedent.

In Matter of Ramsdill, 190 N. Y. 492, 495-496,
the highest court of New York quoted with ap-
proval the following from

Hooper v. Bradford, 178 Mass. 95, 97
(opinion by Mr. Chief Justice Holmes
followed in)

Kingsbury v. Chapin, 186 Mass, 533:

“The rights of all parties, including the
right of the Commonwealth to the tax, vest at
the death of the testator. It is true that the
interest of the legatee is subject to an account:
ing, but it is an interest in an existing fund
and is analogous to that of a cestui que trust”.

In the New York statute (as well as in the Fed-
eral statute) the legatees are conclusively deemed
to receive the portions of the net estate thus vested
in them at death.

Classification of Transfers.

(1) Transfers where the executor receives noth-
ing.

This large and important class includes

(la) Real estate passing hy intestacy or by will
without an active trust,

(1b) Estates by Entirety, and joint estates

(le) Transfers inter vrivos, in contemplation of
death, or intended to take effect in pos-
session or enjoyment at death.

Intresting examples under this heading are sup-
plied by
Matter of Orvis, 173 App. Div. 1; affirmed
223 N. Y. 1.
Matter of Garcia, 183 App. Div. 712.

(2) Transfers by intestacy. The statute of de-
scent of real estate differs from the statute of dis-
tribution of personalty to the next of kin, as re-
gards representation, and it may happen that one
person who takes but part of the real estate will
take all the personalty.

(8) Transfers by will, (8a) Where the estate is
livided proportionately; (3b) Where there is a
residuary clause. Large estates ordinarily pass
under a will containing a residuary clause. A
direction in a will to pay inheritance taxes from
the residue increases the legacies by the amount of
the tax (Matter of Gihon, supra),

The Executor.

The executor, including in this term an adminis-
trator, is an officer appointed by the Surrogate and
is required to take an oath of office (Code of Civil

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10

Procedure, § 2568 “Official oaths of executors,
ée.”’).

The State confers upon him certain rights of ad-
ministration regarding the property vested in the
legatee, enabling him to take the personal property
into his possession, as well as real estate held upon
an active trust, giving him remedial rights in aid
of this possession, and with the right and duty to
convert into money the portions required to pay the
debts and his expenses, or receivable by the legatee
in money.

He represents the power of the State and not of
the testator. He is a receiver appointed by the
court and subject to its direction He is the cus-
todian of two funds, one of which is the fund in
which the creditors have a vested right—plus his
incidental disbursements,—and the other fund is
the net estate as above defined and in which the
legatees have vested rights. For the purpose of the
adjustment of the transfer tax (as well as of the
Federal tax) he is deemed to have the net estate as
above ascertained. Case of tar lawfully assessed
against the legatee, where the erecutor receives no
money. Such a case was presented by WWatter of
Meyer, 209 N. Y. 386, where a transfer tax was as-
sessed against the legatee according to the value
at death of mortgaged property, upon which the
mortgage was subsequently foreclosed and_ the
equity was destroyed—held; that the executor was
not personally liable to pay the tax, despite the
command of the statute.

Inasmuch as the executor is the custodian of two
funds; one fund for the payment of debts and one
fund comprising the net estate transmitted to the
legatees, the Federal law must tell him from which
fund he shall pay the Federa] tax, If he pays from

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11 |

the first fund, he pays a debt of the decedent; if he
pays fro: the second fund, he pays for the account
of the legutecs proportionately. Upon the ussump-
tion that the Federal estate tax was of the same
character as the State tax, as a tax on the transfer,
Mr. Surrogate Fowler, in Maiter of Bierstadt, 166
Supp. 168, stated the case of the tax upon the
transfer of a bequest of $10,000 to a nephew where
the State tax is taken as $500 and the estate tax as
$100, as follows:

“The net amount which the legatee would
receive from the executor would be $9,400.
But that would not be the value of the prop-
erty transferred to the legatee under the will
of the decedent. The actual value of that
transfer was $10,000. The $500 tax paid to
the State of New York was not transferred to
it by the will of the decedent, neither was the
$100 paid to the United States transferred to
it by the will of the decedent.” (Italics ours.)

Here it may be noticed that if the executor pays
the Federal estate tax without objection and the
parties to the final accounting admit

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386004_0512%3A1. Public record. Not legal advice.