Amicus Curiae Brief — Nichols v. Coolidge

Supreme Court brief1927

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INDEX.

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STATEMENT OF THE CASE 2

1. THE NATURE OF THE FEDERAL ES.

TATE TAX ACT OF 1918 AS APPLIED TO

TRANSACTIONS COMPLETED BEFORE

THE LAW WAS ENACTED.

In its essence it is a tax upon a past trans-

action--a tax upon a completed transfer 4

(A) The coming into possession theory of

the nature of the tax 14

(B) The uncompleted transfer theory of

the nature of the tax 18

(() The measurement theory of the na-

ture of the tax 19

(D) Theories that the tax is on the pass.

ing of property at death or on the

cessation of an interest 24

1. THE FEDERAL ESTATE TAX ACT IN

TAXING GIFTS MADE BEFORE ITS

ADOPTION IS UNCONSTITUTIONAL.

(A) It is an unappertioned direct tax 27

(B) It violates the fifth amendment 45

tions of free government 60

Hl. SECTION 402) (¢) REASONABLY CON.

STRUED DOES NOT APPLY TO TRANS.

ACTIONS TAKING PLACE PRIOR TO

THE 1916 ESTATE TAX LAW 71

CONCLUSION 83

>... ER ET OLE GA DEES RDI NOMS TETNIRE ONG IC AR KOE te raat me -

PAGE

TABLE OF CASES.

Bemis v. Converse, 246 Mass. 131; 140 N. E. 686

(1924) 7

Black v. State, 113 Wis. 205; 89 N. W. 522 (1902) oy

Blair v. Herold, 150 Fed. 199; 158 Fed. 804 (1907) 56,57

Brushaber v. U. P. Ry. Co, 240 U.S. 1 (1915) 41

Calder v. Bull, 3 Dallas 386 (1798) 60

Carroll v. Ins. Co. 199 U.S. 401 (1904) 48

Chambers v. Lamb, 186 Cal. 261: 199 Pace. 33 (1921) o7

Chanler v. Kelsey, 205 U.S. 466 (1907) 48,55

Chapman, In re, 133 App. Div. 337; 117 NX. Y. 8. 679

(190) nw)

Chase v. U.S., 222 Fed. 593 (1915) os

Child Labor Tax Case, 259 U.S. 20 (1922) 39, 43, 47, 64, 84

Church of Holy Trinity v. U.S., 143 US. 457 (1892) x

Commonwealth v. Mect'auley’s Executors, 156 Kv.

450, 179 S. W. 411 (1915) bd

Commonwealth v. Wellford, 114 Va. 372; 76S. FE.

917 (1913) i

Cook v. Pennsylvania, 97 U.S. 566 (1878) os

Craig's Estate, In re, 97 App. Div. 289; 89 N.Y. S.

971 (1904) 42, 0

Craig v. Taylor & Sons, 192 Ky. 36; 252 S. W. 395

(1921) 18, 34, 42

Curley v. Tait, 276 Fed. 840 (1921) ih

Dawson v. Ky. Distilleries Co, 255 U. S. 288

(1921) 18, 33, 441, 42

Delaware L. & W. Ry. Co, Pennsylvania, 198 U. 8.

SAL (1904) 23

Edwards v. Slocum, 264 U.S. 61 (1924) 1b

Eisner v. Macomber, 252 U.S. 189 (1920) 27, 35, 36, 37

Eury's Executors v. State, 72 Ohio St. 488: 74 N. E.

HO (19K) 55

pesmi ae

— iii —

PAGE

Farmers Loan & Trust Co. v. Winthrop, 238 N.Y.

458; 144 N. E. 686 17

Felton's Estate, In re, 176 Cal. 663: 169 Pac. 392

(1917) o4

Flint v. Stone Tracy Co., 220 U. S. 107 (1911) 23, 31

Forbes Boat Line vy. C ommissioners, 258 U.S. 378

(1922) of

Frew v. Bowers, 12 F. (2nd) 625 (1926) 44, 60

Galveston, Harrisburg ete. Ry. Co. v. Texas, 210

U.S. 217 (1907) 23

Gould v. Gould, 245 U.S. 151 (1917) 75

Haggerty, In re, 128 App. Div. 479, 112 N.Y. 8. 1017

( 1908) 54

Hamilton v Kentucky Distilleries Co. 251 US. 146

(1919) 46

Hartman v. Greenhow, y U.S. 672 (1881) 65

Hill v. Wallace, 259 U.S. 44 (1922) 43

Hitchin's Estate, In re, 4 7 App. Div. 634, 89 N.Y.

1106 (1904) 54

Houston's Estate, In re, 276 Pa. 330; 120 Atl. 267

(1923) 52

Hunt v. Wicht, 174 Cal 205; 162 Pac. 639 (1917) 10,24, 50

Hurtado vy. People, 1IOU.S. 516 (1883) 47

Kansas ( ity Ry. Co, y, Botkin, te U.S. 227 (1916) 40)

Keeney v. New York, 222 U.S. 525 “(11912 ») 1]

Kemmler, Ex parte, 136 U.S. a neon 48

Knowlton vy. Moore, 178 U.S. 41 (1900)

20, 22, 25, 37, 40, 57, 65,71, 79

Lacey v. State Tre ‘asurer, 152 la. 477; 132 N. W. 843

(1911)

Lansing's Estate, In re, 182 N.Y. 238, 74 N. E. 9a2

(1905) 53

Levy v. Wardell, 258 US 542 (1921) 20

ANS TS Oi EY pater entes

——

— ee

PAGE

Lewellyn v. Frick, 268 U.S. 238 (1925)

13, 14, 41, 73, 74, 79, 82

Lyon's Estate, In re, 253 N. Y. 208; 135 N. E. 247

(1922) D4

Maxwell v. Bugbee, 250 U.S. 525 (1918) a

MeNeir v. Anderson, 10 FL (2nd) S15 (1926) 33

Miller vo MelLaughlin, 141 Mich. 425, 104 N. W. 777

(1905) i

Miller et al. vo UL S., Ct. of Claims, No. D809 (6.14

26) os

Milligan, Ex parte, 4 Wall. 2 (1S86) Th

New York Trust Co. v. Eisner, 256 U.S. 345 (1921) 40, 41]

Nicol vo. Ames, 173 U.S. om (ist) “te

Osborn v. Nicholson, 13 Wall 644 (1872) om

Panama R. Co. v. Johnson, 264 US. S75 (1924) 7

Pell, Matter of, G) App. Div. 286; 171 No YS. 48;

63 N. E780 (iar) 18, 42, 48, 55

People v. Trust Co. of America, 205 N.Y. 74; GR N

B. 207 (1912) i

Pollock v. Farmer's Loan & Trust Co. 157 U.S. 425;

158 U.S. G1 (1895) 28, 20, 39, 43. 61

Pratt v. Dean, 246 Mass. 300, 140 N. BE. a4 (1924) iv

Proutt v. Starr, 188 U.S. S37 (190) 4

TWENTY -PIRST SUNDAY APTN THINTTS

Reynolds v. Marthar, 2 Peters 417 (1829) 75

Ripley's Estate, In re, 122 App. Div. 419, 106 N.Y,

S. S44 (17) ot

Savings & Loan Ass'n v. Topeka, 20 Wall. G55 (1874) 4

Shwab v. Doyle, 258 U.S. 529 (269 Fed S21) (1921)

14, 14,15, 61, 72, 74, 2

Smith, In re, 140 App. Div. 86; 155 N. YS. 240

(i912) 5

fe ERS te A ae

—yv—

South Carolina v. U. S., 39 Ct. of Claims 257; Affd.

199 U.S. 437 (1905) 30

ictiiteedonn Coal & Imp. Co. v. MeBride, 185 U.S.

499 (1902) 76

Standard Oil Co. v. UL 8. 221 U.S. 1 (1910) 80)

State v. Ferris, 53 Ohio St. 314; 41 N. E. 579 (1895) 67

State v. Probate Court, 102 Minn. 268; 113 N. W. 888

(1907) 52

State v. Safe Deposit & Trust Co., 132 Md. 251; 103

Atl. 435 (1918) 54

Terrett v. Taylor, 13 U.S. 43 (1815) 60

Thomas v. U.S. 192 U.S. 363 (1908) 30

Thompson v. Kreutzer, 112 Miss. 165; 72 So. 891

(1916) 18, 34, 42

Thompson v. MeLeod, 112 Miss. 383; 73 So. 193

(1916) 18, 34, 42

Towne \ Fisner, 245 U. S. 418 (1917) 35

Union Pacifie R. Co, y. Laramie Stoc ‘kyards Co., 231

U.S. 190 (1913) 76

Union Pacifie R. Co. vy. Snow, 231 U.S. 204 (1913) 78

U.S. v. American Tobacco C ®, 221 U.S. 106 (1910) RO

S. v. Armstrong, 265 Fed. 683 (1920) 47

Sv B&O RR. Co. 84 UL S. Spe (1872) 64

8S. v. Cohen Croce Ty Co. 255 U_S. Sl] (1920) 47

_S.v. Kirby, s v —S. 482 (18689 79

S. v, Russell, ’ Wall. 623 (1871) 46

Vanderbilt’ ® Estate, In re, 172 N.Y. G9: G8 N. E.

7R2 (1902) oF

Wagoner v. Evans, 170 U.S. 588 (1808) 58

Wallace vy. Hines s, 253 U. S. OG (1919) 22

Wardell v. Blum, 276 Fed. 226 (1921) 25, 57

Webber, In re, 15] App. Div. 529, 136 NX. Y. S. &3

(1922) 19, 24,55

Cag ens § ace > : ONES P LONI TPE CEG BER LEA NI ge NE ROT ai i NaS SE

ails

Western Union Telegraph Co. v. Kansas, 216 U. 8.1

(1909)

Y. M. C. A. v. Davis, 264 U.S. 47 (1924)

TEXT BOOKS CITED.

Cooley on Constitutional Limitations (7th Ed.)

Cooley on Taxation

LLOA EL OOM NK > Hee pepe

PAGE

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Supreme Court of the United States

October Term, 1926

Ne. 88

MALCOLM EL NICHOLS. Onlieetor of Veteewanl Mes ena

of the United States for the INetriet of Mi weed beer tite,

Math «me Eves

HAROLD J OCOOLIDOR aed ADat STUS P Laewing

Raewutore of th Will of Jule « vlog

a Beeve

iN Shon Te) THe eevee cee So) oF 188 © SNS eheatee

ron THe Meany of Weemer Ht ee Pee

Tyson S Dimes, Peter i Hele, Harel 1) Behowes

amd J. Cherehill ‘een, Cith eomered of cmmeed fae ue

partivs alewe named, and after Gres bette wehbe gad ot

tained leave of (Wart, file thie boued botren, aol te chew

eteumde for there epee!

the follwing farts

....

eietwel um the cme of oe oe

Vederal District Court for the District of Colo

and entitled Reed ¢. Howbert, By this suit Mrs.

Heed socks to recover from Howbert, United States Col

kector of Internal Revenue, the «am of approximately one

million dollars, paid under protest as an additional estate

tax levied ender the Federal Ketate Tax Law of 1915, in

respect to the property in a treet created wm 1902. Mr.

Reed died April 20, 19190 few months after the passage

of the law.

trust was irrevarable and provided for the pay

ment of the income to the deewtent for life with remain

dere to bis deecemdante. The value of the property acte

ally amd alectutely transferred to the trust was at the time

of transfer approuimately two ond « quarter million del

The valee of the asects in the trust at the date of

and aeeccend as of that date was about four millon

Thee an incremented capital value of appron

and three quarter million dollars accruing te

the corpus after ite transfer to the trust and never owned

or transferred by the dower of the trast was tanec! a

part of the decedent's eetate Furthermore, over a half

snilliom dollars worth of the aserts in the trust at date of

death eere cabetitute aserts teenlting fron feinvestment>

bw the trester These hed newer been ened of trans

ferred by the dener, bet were taxed ae « part of the o

tate

The application of Sevtion #1 fc) of the Revenor

of VOUS to theee ferte« eift made years prior te it

tte tome et hae raiees! the quretion of the constitationality

of the retreective provisions This ie one of the maw

points involved in the case at bar, of Nichols v, Coolidge.

In both cases there is the retroactive taxation of a trans.

fer on the theory that it was intended to take effect at

death. In both cases the rights were created prior to the

paveage of the Eetate Tax Law, Although there are o

few slight differences in the facts of the two cases, these

differences are not material in the questions here to be

discussed, as the general effect and result of the tax in

both cases ix the same. This is our justification for ask.

ing the court's and counsel's permission to intervene and

file this brief anne: cure,

In the following pages we shall not contend that Con.

gress has not power to levy an estate tax. That is

settled. We shall not argue that Congress has no power

to tax transfers intended to take effect in possession or

enjoyment at death, That also is settled. The constitu.

tronal point raised by these cases is limited to the propos.

tien that Congress cannot tax transfers intended to take

effect in poseeesion of enjoyment at death when the trans.

fers were completed proor to the passage of the tarmg

law. The tax collected i« not an inheritance tax, estate tax

or tax on the passing of property at death, but is simply

a tax on a past and completed gift. Thus analyzed we

shall then proceed to show that these provisions impose

& tax wreenstitetional, first, as an anappertioned direct

tax; second, as «a deprivation of property without due pro-

com of law within the Fifth Amendment; and third, as a

vielation of the fundamental conceptions of free govern.

ment. Finally we shall venture to suggest a possible way

te clear these hurdles of unconstitutionality: that Section

#2 (ic) reasonably construed does not apply to transac

theme taking place prior to the 1916 Estate Tax Law,

nsiatbiee

ARGUMENT.

THE NATURE OF THE FEDERAL ESTATE TAX

ACT OF 1918 AS APPLIED TO TRANSACTIONS

COMPLETED BEFORE THE LAW WAS

ENACTED,

IN ITS BASENCE PT IS A TAX UPON A PAST TRANSACTION —

A TAX UPON A COMPLETED TRANSFER.

The Revenue Act of 1918 provides in part as follows:

“Sec. 401. That * * * a tar equal to the sum

of the following percentages of the value of the net

estate (determined as provided in Section 403) 4

hereby imposed upon the transfer of the net estate

of every decedent dying after the passage of this

aa?

"See. 402. 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, wherever sito-

eg ?'* 5

**(e) 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 at any

tame created a trust, in contemplation of or in.

tended to take effect in possession or enjoyment at

or after his death (whether such transfer on trust

ts made or created before on after the passage of

thes aet)."’

“See. 407. That the Executor shall pay the

tax to the Collector * * *."" That if there is an un

paid exeess ‘Such excess shall be a lien upon the

entire estate ° °* *°"'

“See 4. That unless the tax is sooner pard

in fallit shall be a lem for ten years wpow the gross

estate of the decedent * * *,"’

“ ERR OE CRF EOL FN oy MIP TAMER EY Eee te ae py

—|

“If (a) the decedent makes @ transfer of, or

creates a trust with respect lo, any property in

contemplation of or intended to take effect in pos-

session or enjoyment at or after his death (except

in the case of a bona fide sale for a fair considera-

tion in money or money's worth) or (b) if insur-

ance passes under a contract executed by the de-

cedent in favor of a specific beneficiary, and if in

either case the tar in respect thereto is not paid

when due, then the transferee, trustee, or bene-

ficiary shall be personally liable for such tax, and

such property, to the extent of the decedent's in-

terest therein at the time of such transfer, or to

the extent of such beneficiary's interest under such

contract of insurance, shall be subject to a like

len equal to the amount of such tax * * *

(Italies ours.)

The ultimate, the essential nature of the retroactive

provisions of this tax, rather than the name by which the

statute in its entirety goes, is the first important matter

to be determined. This essential nature is to be ascer-

tained by looking to the substance of the Act and to the

effect of the Act when these retroactive features are ap-

plied to the transactions of the persons claimed to be

Within its scope. We believe that this Act retroactively

applied is neither an estate tax, ap inheritance tax, nor a

death duty of any kind. It is either a tax on certain per-

sons because they transferred property or created rights

prior to the passage of the law, or a tax on past trans.

actions, In either case it ix a direct tax.

Congress said: ‘4 tay is hereby imposed upon

the transfer of the net estate’’ ete.

This is not a tax upon the receipt of anything by any-

baly. Congress did not approach the problem from the

Viewpoint of the recipient. The law looks at the entire

aT te

property of a man about to die and it says: Before you

can finally pass on any interest in what is yours at the

moment of death (or in some instances in what used to be

yours), the Government must first be satisfied.

The thing sought to be taxed, ‘‘the net estate’’, is no

isolated phrase shorn of a context, neither is it a the-

oretical or algebraic concept or other mathematical ab.

straction. It is always a direct derivative of the gross

estate and what constitutes the gross estate the law makes

clear, as well as what may be deducted therefrom. Every

item that goes into the gross estate directly swells the

resultant net estate. Congress did not intend to enforce a

tax on a man's obligations, on the expense involved in the

machinery of winding up his affairs after death. It did

not see fit to tax the first $50,000.00, nor to tax property

that had recently paid a government estate tax, nor to

tax his public or charitable gifts. It therefore allowed

certain deductions (Sec. 408).

Nevertheless, Congress included all his property in

its definition of his gross estate, the value of which, item

by item, the executor’s report must state. Furthermore,

when it dealt with the subject of payment of the tax, and

was making sure that the Government should be pro

tected, it did not limit the Government's lien to the net

estate; it provided that the lien should be ‘‘upon the en

tire gross estate’’ (Sec. 407) or ‘upon the gross estate”

(See. 409). So when the statute is read as a whole, as of

course it must be, the thing obviously sought to be taxed

and actually taxed is the passage or the transfer of prop-

erty—call it the transfer of a value, or the transfer of the

net estate, or what you will-«f «« the transfer of property,

the thing of value that human beings are all seeking to

get. That this is a tax on the transfer of the decedent's

estate and primarily collectible from hi« estate as a whole

seems obvious.

__ —

ial ses

This meaning of the Act is made particularly clear

in See. 409 where, in regard to enforcement of 402 (c),

it is provided:

‘If the decedent makes a transfer of or creates

a trust with respect to any property in contempla-

tion of death or intended to take effect in posses-

sion or enjoyment at or after his death * * * and

if in either case the tax in respect thereto is not

paid when due, then the transferee, trustee * * *

ete., shall be personally liable * * *,”

There can be no possible ambiguity as to the meaning and

correlation of these words. The making of a transfer or

the creation of a trust are the acts sought to be taxed,

and the tax is imposed in respect thereto,

Now apply this law, this tax upon the transfer of the

net estate, to the facts of the Reed case, as they were taken

for purposes of argument on demurrer. In 1902, seven-

teen years before the passage of the 1918 Estate tax law,

Reed created a trust; he put certain property absolutely

out of himself and into the trustee; he reserved no power

to recall it; the transaction was complete; he had finally

parted with title. When he made these gifts he was doing

a legitimate thing. He was not evading. There was no

occasion for the existence of an ulterior motive. The

1918 law was passe a few months before he died. It

taxes his precedent transfers of these assets and makes

his estate pay not 25% of their value when he parted

with them—that would have been bad enough—but 25%

of everything in the Trust based upon the values into

which the assets had grown on the date of death. Values

and assets are taxed which never at any time had been

the decedent's.

Years before the 1918 law, in 1907, Mr. and Mrs.

Coolidge joined together and transferred to trustees cer-

tain real and personal property, which was to be held ir-

PEORIA yO apc g NTR NPD Et LTE ee irra Ry

ie cas

revocably, the trustees agreeing to pay the income in cer-

tain proportions to them for life, remainder to survivor

for life, remainder equally among their children. This

Was an out and out transfer; the trustees had full con.

trol, This was a perfectly legitimate act; no evasion was

present. Then the 1918 law comes into being and taxes

this past act of transferring property, and collects the

tax from the executors and from the beneficiaries through

an imposition based, not on the aggregate value of the

property parted with, but on the value into which this

property had grown at the time of the death.

Therefore, when we look, not to the name by which

this whole tax law is called, but to the essential nature of

the retroactive clauses when applied to transactions such

as these, what can this law be but a tax on a past trans

fer of property, a past transaction, a completed gift!

The law plainly taxes the transfer of decedent's prop

erty. A common argument for the Government is that

some kimd of transfer took place at the decedent's death.

This is clearly erroneous. Years before death the dece-

dent had made at irrevocable transfer of the property to

the trustee and if °-. ceased to be the decedent's prap-

erty in any sense of the word. The transfer was complete

and absolu’ the instant this property was placed in the

trust amd, when deoedent died, no tithe whatsoever passed.

It is true that in the Reed Case the beneficiaries of the

trust actually began to get the income on the decedent's

death, while in the case at bar the Coolidge beneficiaries

had been receiving the income since 1917; but in each case

the thing into the enjoyment of which the beneficiaries

came Was not the property of the decedent. All that the

decedent had was a life interest which did not and could

not pass at death because it ended the moment of death.

Long before the decedent's death and before the passage

of this tax law, the children had the ownership in this

property subject te the life estate; and when death came

calles

and the life estate was terminated, they simply came into

the enjoyment of their own property rights. If John Doe

had leased property to Mr. Reed for life, John Doe would

come into the enjoyment of the property on Mr. Reed's

death but it would be absurd to say that this amounted

to a transfer from Mr. Reed to John Doe. Then, too, it

is always to be borne in mind that the tax is not levied

upon the fact of anyone's coming into enjoyment.

That no transfer took place at the decedent's death

is particularly evident in the case at bar; for there, in

1917, one year before the tax law was passed and four

years before her death, Mrs. Coolidge assigned all her

life interest to the beneficiaries, This meant that at her

death nothing passed from her: her death was simply the

signal for the distribution of the corpus of the trust

fund.

The absurdity is even more clearly illustrated by a

case of a transfer made in contemplation of death." If

*Foot Note From time to time in this brief we shall refer to

the tax on transfers in contemplation of death Although such trane-

actions differ from the type of transfer involved in the case at bar,

they afford an additional test of the statute. The same sentence of

the law links together transfers in contemplation of death and trans-

fers intended to take effect in possession or enjoyment at or after

death and these two {ypes of transfer are treated in an identical

manner throughout the statute Since the statute must be given some

consistent meaning applicable to al) its perts, @ resort to the {ilustra-

tien of & transfer in rontemplation of death is justified as throwing

fight on the real nature of the tax in the case at bar.

Moreover, the “before and after” clause in section 402 (c) is a

single clause applying equally to each of these types of transfer if

this clause is unconstitutional as to either type of transfer, it makes

the law unconstitutional as to both types of transfer, Under well

titted rules of law. there is no pousible severabliity in the applica-

lion of thie “before and after’ clause, It is UnHecessary to elaborate

thie point because we do not heed lo argue the question of the in-

validity of the tax on a past transfer in contemplation of death —

but. in order to show the court that our illustrations are applicable.

Fe with to point out that the invalidity of # retroactive tax on such

& transfer would make the retroactive “before and after” clause in-

valid as applied in the case at bar

=a TREE ah re OTE etm Ae Ee Ohi POE LEGION NEN GEHL ABBA tiga RS

—

in 1907 Mrs. Coolidge had made an absolute gift in con-

templation of death, both the title and possession and

enjoyment of the property would have passed at once and

at her death absolutely nothing would have happened to

the property. Nevertheless, the law would impose a tax

on the transaction. Certainly this could not be a tax on

the passing of the property at death.

The 1907 transfer is the only transfer from or by

the decedent sid the only transfer which could be taxed.

That the transfer is the thing taxed is the view supported

by the authorities.

The matter is well expressed in Hunt co. Wieht, 174

Calif. 206, 162 Pac. 639 (1917). That case involved a

transfer intended to take effect at death. The decedent

had made a deed of property to his wife, but had placed

it in eserow for delivery to her on his death. By the

California law, at the time when the deed was made,

transfers intended to take effect at death were not tax.

able; when the death occurred, however, the law made

such transfers taxable. In holding the tax unconstitution-

al, Chief Justice Angellotti said:

**The succession to the property by the grantee

which ws the thing attempted to be tared, was com-

plete wpon the deliwery of the deed m escrow, not-

withstanding the reservation of the life estate. The

whole estate conveyed vested irrevocably in inter

est at once, notwithstanding that actual possession

of the property itself and enjoyment of the profits

thereof were deferred until the death of the life

tenant. His death added nothing to the title there.

tofore acquired by the grantec, and there was no

transfer of any property im any legal sense at the

time of such death, or at any time subsequent to

the delivery im escrow.”” (Mtalies ours.)

yh ae AER ER LEAL LEE LLC LE LE PSL se ps

—

a oe

Keeney v. New York, 222 U. §. 525, 56 L. Ed. 299

(1912), a case that doubtless will be cited by the Govern-

ment, also forcibly illustrates this point. That case in-

volved a transfer similar to the one in the case at bar.

It does not involve this constitutional question because

the law taxing the transfer was in effect before the trans-

fer was made. But it does throw light upon the proposi-

tion that in truth the tax as applied to the facts in the

Reed and Coolidge cases is a tax on past transfers. At

the time of transfer decedent was a resident of New York,

and the property was situated in New York. At the date

of death, decedent was no longer a resident of New York,

and the property was no longer situated in New York.

New York collected a tax, on the theory that this was a

transfer intended to take effect at death. Even though

New York had no jurisdiction to collect a tax on property

passing from a non-resident, this Court upheld the tax

because New York had jurisdiction over the property at

the date of the transfer.

Mr. Justice Lamar said (222 U. S. 537; 56 L. Ed.

305) :

‘But the statute does not impose a tax on the

property, but on the transfer. The validity of that

burden must be determined by the situation as it

erwsted im 1903, when the deed was made, At that

time the grantor was a resident of the state of

New York. This personal property there had its

situs. She there made a transfer, which was tax-

able, regardless of the residence of the trustee or

beneficiary. The fact that the assessment and pay-

ment were postponed until the death of the grantor

would be a benefit to the remainderman in the

many instances in which values decreased. But

where the power to tax exists, it is for the state

to fix the date and to say when and how the amount

shall be ascertained and paid. The fact that the

a RDNA IIE NETS AED LEESON ERATE LLORES A REESE, or

ie,

seni

liability was imposed when the transfer was made,

in 1903, and that payment was not required until

the death of grantor, in 1907, does not present any

Federal question."’ (Italies ours.)

The New York law involved in that case was similar

to the Federal law involved in the case at bar. This hold-

ing of this Court conclusively shows that what is taxed

is the original transfer and not a devolution of property

at death.

The wording of the Federal Law itself makes this

perfectly plain. The tax i« based on property

“of which the decedent has at any time made a

transfer, or with respect to which be has at any

time created a trust, in contemplation of or in.

tended to take effect in possession or enjoyment at

or after his death.”’

If Mrs. Coolidge and all the other beneficiaries of the

trust could have gone to the Trustee before this tax law

was passed and revoked the trust, and could have had the

Trustee give this property to some third person, then

Mrs. Coolidge’s death would have had no connection

whatsoever with this property. Yet this statute would

authorize the collection of this same tax. The same sec-

tion of the statute applies to transfers which take effect

after death. In the case of such a transfer, nothing

passes at death—the original transfer is the only thing

which could be the object of the tax.

The plain, simple truth is that this property did not

pass from Mrs. Coolidge on her death, and that this law

does not even purport to tax what passed at Mrs. Coo-

lidge's death. The taz us ow the transfer wmto the trust.

The only connection whatsoever between this tax and

death is that death is used to describe the type of transfer

which is taxed, and that death fixed the time for the pay-

ment of the tax.

ae RR

It may be well to point out here that there was noth-

ing testamentary about this transfer. It was irrevocable

and not ambulatory. In the case of a revocable trust, the

creator may change the situation at any moment up to

his death just as he may change his will. In such a case,

there is in a sense a transfer at death. In the present

case where the trust was irrevocable, it is the very op-

posite of ‘testamentary’? and there is no transfer at

death under any conceivable theory.

In defending the numerous suits brought by taxpay-

ers fo recover taxes assessed under the 1916 estate tax

law, a8 well as under the 1918 law, counsel for the Govern-

ment have resorted to various theories as to the real na-

ture of these statutes. It is obvious in their statement of

these theories that they have sought to avoid the admis-

sion that either of these statutes Was retroactive in the

full sense, the brazen sense of the word, They have tried

to show that even though reaching back into the past,

there was still some act, some eccurence in the instant

ease, taking place subsequently to the enactment, that

would give the law a prospective operation. This is a

commendable attitude on the part of Counsel, for it is

inherently offensive to any right thinking person, to any

lover of fair play, to hold a man to the consequences of

his act when the consequences were unforseeable and

came about ax consequences only because of the later en.

actment of a law.

We believe that there is but one tenable theory as

to the nature of this tax when applied to a case in which

the trust was created or the gift made before the date of

passage of the Act and that is that it is @ tar on the past

completed transfer or gift. We deem this to have been

absolutely and finally determined by Shwab v. Doyle,

298 U.S. 529 (1921), and the group of cases decided

therewith, and by the case of Lewellyn v. Frick, 268 U. 8.

238 (1925).

— RINNE EE LS ELE OLE NETL RIN I ee

——

If the Supreme Court in any of those cases could

have found another theory upon which to hang the tax,

there would have been no occasion for any considera.

tion or discussion of the question of retroactivety; the

question of whether Congress intended to tax past

acts or transfers would not have been present. A con

trary conclusion sustaining the tax would therefore

have been reached in each of those cases. In short ie

Shwab v. Doyle and in Lewellyn o. Preek thie Coart bee

killed all other theories, The Shwab ©. Doyle group of

cases and the late case of Lewellyn ©. Preek are partie

larly conclusive on this point because they invelwed «eb

stantially every sort of case that could ariee ander the

sub-paragraphs of Section 42 and its predeowssor in the

1916 law.

While we believe there is bat one tenable theory a

to the nature of this tax retroactively applied, namely

that it is @ fer on @ post completed transfer, newerth

less, before proceeding to a discussion of the cometite

tional questions, we feel it desirable briefly te cement

certain other theories which, from time te time, have heow

advance! and which we deem aneound Thee ee hope te

leave unquestionable our premise as te the tree natere

of the tax.

(4) THE COMING ENT POeneenes Tite oe

THE SATU RG OF THe Tee

According to this theory the Gewerngment aeeerte thet

this is not « tat on a pest transfer, bet « tan om the

present privilege of coming inte poseresion, and bear

that the act dees not really affect past transectooee

Stated somewhat differently, the theory ie thet the tas «

on the right of the remausiermen te come inte [oreo cee

of their remainders.

The ameter to thie theory ie snansifieid .

First, the law expressly parperte te he @ tee oe «

transfer, tet om the privilnge of peewteing

ln Cortes ©. Tot, 276 Ved. S00 (INDE), ot pee O68,

the Cowart cand in @ case lewelving the 9006 lew.

Parer's Tught tm eeeweve te Chee suen

Agee & Dlwerde + Oa Me

ot, the feet of the property by the begatee.”

(alee cure)

Reoke FM. Ao Derwe, MUR

cree)

A ther’ phew of the aeewrr te the coming inte peo

ewortem theory te that 4 be leeemetetent with the teasing of

tremeters es comteenpheticns of death, ae orll ae of gifts

te tahoe ofeet lm peeereeioe after death, Ie the came

{

ee @ were te be epg’ te eee @ the othe of tow

tegen of Get) canheered & the come eretonew of the ofatute

ted oe comes Cee tend @lebe

te fepertie o@ the Peckewel Dietate Tee of t000

a §7 ..

“Your Committee deemed it adviaable to ree.

ommeml a Federal Extate Tax upon the transfer

of the net estate rather than upon the shares pass

ing to heirs and distriluters or devisees and leg

In wddition to all these reasons for holding the tax

te be in ite nature « tax upon the transler and not upon

the comInG inte Possession, we suggest that the very

methe! of taxation under which the estate, rather than

the legates of remainderman, pays the tax ie more than

senifivant. The rate of the tax and its amount are hased

eet on what be reewived, het on what ic transmitted. Even

im the case of transfers intended to take effect at or after

death, of transfers made in contemplation of death, the

harden of the tax falls, not upon the transferee, bat

aye the reendoary estate (except where the assets of the

tate ate net coficient te ay the tax)

Parmcrs Loan & Trast Co. ©. Winthrop, 28

N,V. a88 144 NK G8: certiorari denied

4 Sep. OF 225 (1985)

Heme +. Comerree, 26 Maw m1; wo NE

mm, (1a)

Pratt +. Dean, 26 Mae OO 10 NB ay

cia)

The date of coming inte reer dor net news

sarily Gs oF have any relation to the date of paying the

tan. fF the chewwslont hae made o eft to take effeet twenty

rere after hie death, the tax will be pavable at his death,

7 terety veere before there ic anv ening inte [romeo

wom Uf the property be beet, etolen or tlestroved in the

mierval the deme newer ill cme inte [ere er enon

Dive if thie evuhd be constrund to he o tax on the

Na te come inte poeeresion of a remainder where the

pregerty rebte are already wete!d in those taking pros

—

session, the tax would be a direct tax and unconstitu.

tional because not apportioned, as argued elsewhere in

this brief.

Dawson v. Kentucky Distilleries, 255 U.S. 288

(1921).

Matter of Pell, © App. Div. 286; affirmed 171

N. Y. 49 (1902).

Craig e. Taylor & Sons, 192 Ky. 36, 232 8. W.

395 (1921).

Thompson «. Kreutzer, 112 Miss. 165, 72 So.

BY] (1916).

Thompson ¢. McLeod, 112 Miss, 383, 73 So. 193

(1916).

(8) THE CNOOMPLETED TRANSFER THRORY oF

THE NATURE OF THR TAX.

According to this theory, transactions such as took

place in 1907 in the Coolidge case and in 1902 in the Reed

ease are sought to be viewed as not really complete until

death made them so; and that as this event occurred after

the law was passed the law is not truly retroactive.

One fatal defect in this theory is that it fails to cover

the case of gifts in contemplation of death, and is abso

lutely inconsistent with the attempt to tax them as

pointed in our argument, swpra. Again two distinct

theories of the tax would have to be resorted to in apply.

ing See. 42 (¢) according as the Department might be

dealing with one sort of gift or the other.

When the property was transferred to the trust in

1907, the owner had performed ber last act in respect to

it and nothing she could say or do thereafter could change

what she had done, It is true the date of full possession

amd! enjoyment on the part of her children was postponed

= ae

until her death; but to press that point forces the govern-

ment back into the coming into possession theory already

discussed, So far as Mrs. Coolidge’s or Mr. Reed's rights

were concerned, the transfer was irrevocable, indefeasible

and complete and its terms were fixed when it was made.

It must always be borne in mind that the whole scheme of

this law was developed from the end of the transaction

opposite to that which forms the basis of the usual state

inheritance tax laws, It is the ‘‘whence’’ rather than the

‘whither’? which must be considered.

In holding unconstitutional a similar law, the New

York Court said in Jn re Webber, 151 App. Div. 539 at

41:

**The deed became operative immediately upon

its delivery with the intention of vesting title in the

trustees for the purposes of the trust, which pro-

vided for the final distribution of the property, and

only the benefits were postponed to the happening

of a particular event, and the law of that contract

must be determined by the law as it existed when

the deed became effective."’

This uneompleted transfer theory is obviously but

another effort to get away from the obnoxious retroactive

tax-—it is an effort to fasten upon something occurring

after the passage of the law asx the basis for the imposi-

ton.

NATURE OF THE TAX.

This theory may be stated in several ways, but all are

Variations on the same theme. One possible statement of

this theory is that past transfers infer vires may proper

ly be included in the computation of the tax as a measure

of the tax even though the thing taxed is only the trans

fer of property owned at the time of death.

Seta EO Sak UN oe Rae et ae ee sk PRIORI aT: Hrs RAE

This theory would permit, without taxation, the trans-

fer of an entire estate in contemplation of death; because,

while the measure would exist, the matter to be taxed,

i. e., the transfer of things owned at death, would not

No tax could be collected in those cases where the dece-

dent dies without leaving any estate, as in Levy v. Wardell,

258 U.S. 542 (1921). Congress certainly never intended

any such result as that.

Furthermore, this theory would here result in a tax

on A’s property measured by the value of B’s property

and thus fall within the inhibition recognized in Knowlton

t. Moore, 178 U.S. 41, and so conclusively illustrated in

the hypothetical case set out by Mr. Justice White at page

76 (quoted mfra).

Another statement of the same theory is that the ‘‘net

estate"’, the value of which determines or measures the

tax, ineludes everything taxable under the act; but that

the ‘‘net estate’’, the transfer of which is taxed, includes

only property which was actually possessed by decedent

at his death. |

Sec. 401 of the Act provides: |

**A tax equal to the sum of the following per.

centages of the value of the net estate (determined

as provided in Section 409) is hereby imposed upon

the transfer of the wet estate of every decedent”

°° * (Italies ours.)

In other words, this theory requires that the phrase ‘‘net

estate’ shall have two different meanings in the same see.

tion and sentence of the law; that ‘'net estate’, ax it first

appears in Section 40], and the value of which is to

measure the tax, shall be different from ‘‘net estate”,

used in the next line of the same sentence, the transfer of

which is taxed. There is no ground for believing that

Congress intended different meanings for these two iden.

tieal phrases. Under the well settled rule of construction

they should be given the same meaning.

The scheme of the Act inherent! ows that the past

transfers themselves are taxe) and | ‘they do not serve

merely as the measure of a tax on + mething else. As

indicated earlier in this argument the tax in certain events

may be collected from the transferee or trustee per-

sonally or out of the actual property transferred. See

Sec. 409. Neither one of these possibilities is consistent

with the theory that the past transfers are merely mea-

suring rods. They are the substance, not the shadow.

Sec. 409 provides:

“If (a) the decedent makes a transfer of, or

creates a trust with respect to any property in con-

templation of or intended to take effect in posses-

sion or enjoyment at or after his death * * * and if

in either case the tar in respect thereto is not paid

when due then the transferee * * * shall be person-

ally liable,"’ ete. (Italies ours, )

The measurement theory would make these words

meaningless. The tax is on and in respect to these trans-

fers as definitely as words can place it there.

The Government in its Distriet Court brief in the

Coolidge case, stated that this tax “is imposed not upon

4 transfer of property but upon the transfer of the ‘net

estate’ which under the statutory definition is not prop-

erty, but is merely a value’, and that “The tax is

measured not by the transfer of property but by the

talue of property’. This sounds like a play on words,

In the Reed case the Executrix reported on all the

property of the testator, but excluded that covered by this

trust. The usual deductions were subtracted and the tax

paid on the net estate. Later the Commissioner valued the

assets of the trust as of the date of death and collected a

SOTA

ae,

a ee

tax of 25% on the total valuation. The amount of the

tax in dispute was imposed upon, and arose solely from

the value of these trust assets included as a part of de-

cedent’s net estate. Call this additional tax what you

may; a tax on the net estate, a tax on ‘ta value’’, a tax

On an occasion, a tax on the ‘‘cessation of an interest'’’—

the fact is that all of the assets included in the past gift

were appraised and 25° of that appraised value had to

be paid by the Executrix and if she had had nothing with

which to pay it, the trustee and the beneficiaries would

have been held personally liable for it.

Counsel for the Government in some of these cases

have contended that this is ‘‘a far on a present occasion

measured by some past events'’; ‘‘a tax generated by the

decedent's death’’.

If Congress intended this to be a tax on a ‘present

occasion’, viz, a tax on death, why did Congress use the

expression ‘A tax * * * is hereby imposed upon the

transfer of the wet estate of every decedent dying after

the passage of this Act'’f How could language be more

aptly chosen to express the intent to tax the transfer of

property? This is not a tax on the privilege or the fact

of dying measured by the decedent's past life and conduct.

If Congress had meant that, it could easily have said so.

The resort to a fanciful, hairsplitting, contrary-to-fact

argument carries with it its own refutation.

Even if the law could be construed in accordance with

the measurement theory, it would be unconstitutional. No

amount of subtle reasoning can obscure the plain fact that

this is in truth # tax in respect to a past gift and not

merely a tax on something elxe but measured thereby. It

ts well settled that a valid excise tax on one thing cannot

be measured by the value of some other thing which can

not be taxed. Anowlfon ©. Moore, supra; Wallace ¢.

ie aoe SELES See wee ee Te” aes Or eS

= =a

Hines, 253 U. 8. 66 (1919); Delaware L. & W. Ry. Co. v.

Pennsylvania, 198 U. 8. 34] (1904); Galveston, Harris-

burg, etc., Ry. Co. v. Teras, 210 U. 8. 217 (1907); West-

ern Union Telegraph Company v. Kansas, 216 U. §. 1

(1909).

Our position is not in conflict with Flint v. Stone

Tracy Co., 220 U. 8. 107 (1911). There the tax was ex-

pressly upon the privilege of doing business, not upon

income. The privilege was measured by the income of

the corporation. This was upheld even though a part of

such income would have been exempt from ordinary taxa-

tion. The decision was rested expressly on the ground

that this was in substance as well as form, a tax not on

the income, but on the true value of the privilege of do-

ing business. The total income, including that from ex-

empt sources was held a true and reasonable measure of

the value of the privilege taxed. In Maxwell v. Bughee,

200 U. S. 525 (1918), the New Jersey Inheritance Tax

Law was upheld even though the rate of tax was made to

depend upon all of the property of the decedent whether

Within the taxing jurisdiction of the state or not. Extra-

territorial, nontaxable property was not fared in that

case, although the rate of tax in New Jersey was fixed by

a wholly reasonable standard which incidentally included

nontaxable property. But even the property considered

in determining the rate of tax Wap property all belonging

to the decedent at his death, and there was no intimation

that property previously disposed of and belonging to

another person could be considered for any purpose.

According to the measurement theory, the tax in the

present case is a tax on A's estate measured by B's prop-

erty. In other words, it is a tax on B's property collected

from A. There is absolutely no authority even suggesting

that such an exaction would be valid.

| PRS E TL LENE IRE AIG LER LORIE et vee

——,

a a

THEORIES THAT THE TAX 18 ON THE PASSING

OF PROPERTY AT DEATH OR ON THE

CESSATION OF AN INTEREST.

(Dp)

In endeavoring to arrive at the true nature of this

tax—what it really is—as applied to the facts of the Coo.

lidge or Reed case, it may be helpful to point out one or

two more things which it is not. When retroactively applied,

it is wot a tar upon the passing of property at or after

death. In the case of the gifts to the trust prior to 1916, in

the Reed case the property did not pass from the decedent

on his death. Upon the transfer made irrevocably several

years before, the property had ceased to be Reed's. When

he died no title passed from him. What the beneficiaries got

was not his life estate, nor his property. Long before Mr.

Reed's death his children had the ownership in this prop-

erty, subject to his life estate, and when he died and his

life estate ended, they merely came into the enjoyment of

their own property.

We should like to quote again from Hunt vc. Wicht,

174 Calif. 205, involving a transfer to take effect at death.

In holding unconstitutional a subsequent tax on the trans-

fer the Court said (p. 209):

**The succession to the property by the grantee

* * * was complete upon the delivery of the deed

in escrow, notwithstanding the reservation of the

life estate * * ° His death added nothing to the

title theretofore acquired by the grantee, and there

was no transfer of any property in any legal sense

at the time of such death * * *."’

See Je re Webber, supra.

The impropriety of holding that this law taxes any

succession at death is apparent if we consider what would

have been the case if in 14/7 Mrs. Coolidge had made an

absolute giff wm contemplation of death. Both the title

and possession and enjoyment would have passed at once;

Ci ARE SNORE IEE SRR 8 9. URN RR OLB T Ne ym aseyy _—

ce Nes

at her death absolutely nothing would have happened and

yet under the 1918 law a tax would have been levied. We

submit this clearly shows that the tax cannot be a tax on

the passing of property at death. If no property passes

there is nothing on which to levy a tax.

In Knowlton v. Moore, 178 U.S. page 78, speaking of

death duties, the Court said:

“Of course, they concern the passing of prop-

erty by death, for if there was no property to

transmit, there would be nothing upon which the

tax levied on the occasion of death could be com.

puted,"

In Wardell v. Blum, 276 Fed, 226 (1921), the Cireuit

Court of Appeals of the Ninth Cireuit, in holding that a

wife's share in community property was not taxable as

a part of her husband's estate under the Federal Law,

said at page 227:

“All inheritance taxes are imposed on the

transfer of the net estate of the ‘deceased’, from

which the conclusion is inevitable that the property

upon which such a tax is imposed must, in truth,

be the property of the deceased.”’

The law does not say anything about property pass.

ing at death. The tax is on the transfer into this trust.

The only connection whatever between this tax and death

is that death is used to describe the type of transfer

which is taxed, and that death fixes the time for the pay-

ment of the tax.

Again in neither the Coolidge nor the Reed case can

it be a tax upon the “cessation of an interest”’ at death.

Mrs. Coolidge had no interest in the trust which ceased at

death. Mr. Reed had a life interest in the income of an

irrevocable trust created in 1902. It was his life interest,

and this alone, that ceased at death. What was that in.

RR ihog in ers esse

36 .-

terest worth at the moment of death? What was its fair

market value? Obviously nothing. May a million dollar

tax be collected on the cessation of an interest worth noth-

ing? But counsel may say his interest was in the whole

trust and the whole trust was worth four million dollars.

If the fact of having any interest draws into the estate

the whole source of this interest we come to this absurdity:

Suppose Reed's interest, instead of being a right dur-

ing his life to all the income, had been a right to one per

cent of all the income for life. Could it then be con.

tended that the value of the entire trust must be taxed

when that meagre life estate ceased. Could it be reason-

ably contended that the same interest would have ceased

in the supposed case of the right to one per cent of the in-

come, as would have ceased if Reed had owned the four

million dollars worth of assets unaffected by any trust!

Obviously no. If the interest which ceased on the day of

his death, be valued as of that moment when ex hypothess

his expectancy was nothing, it must be found to be value-

less. Then on what reasonable theory can it be taxed as

though it were worth 4,000,000T We submit that on these

facts the tax cannot be deemed to be a tax on the cessa

tion of an interest.

After having considered the coming into possession

theory, the uncompleted transfer theory, the measurement

theory and the theories that the tax is on the passing of

property at death or on the cessation of an interest, cach

of which does violence to the plain meaning of the words

of the Act and fails to meet consistently the various calls

of the statute, we submit that the law in reality compels

the taxing of a past transfer—a past transaction. The

group of cases considered by this Court with Shwobh o.

Doyle, supra, dealt with a vanety of past transactions and

in each instance held in substance that the 1916 law prop-

erly construed did set reach those transactions completed

LA LET IRE EI EIEN NI TEE SENIOR ERTS

_—

eo as

before its enactment; thus rejecting all these theories that

a prospective occurrence was being taxed. When the 1918

Act is applied to a state of facts like those in the Coo-

lidge case the statute necessarily raises the constitutional

question, Congress in this instance has passed a statute

expressly on the theory of retroactive taxation, Is it

constitutional f

II,

THE FEDERAL ESTATE TAX ACT IN TAXING

GIFTS MADE BEFORE ITS ADOPTION IS

UNCONSTITUTIONAL.

(A) IT 18 AN UNAPPORTIONED DIRECT TAX.

The United States Constitution provides, Article 1,

Section 2, Clause 3:

‘Representatives and direct taxes shall be ap-

portioned among the several states which may be

included within this union, according to their re-

spective numbers, * * *,'"

And in Article 1, Section 9, Clause 4:

‘No capitation or other direct tax shall be

laid, unless in proportion to the census or enumera.

tion hereinbefore directed Yo be taken.”

As said by the United States Supreme Court in Eisner

tr. Macomber at 252 U. 8. 189, 206 (1920), in speaking of

the 16th amendment;

"A proper regard for its genesis, as well as its

very clear language, requires also that this Amend.

ment shall not be extended by loose construction, so

as to repeal or modify, except as applied to income,

those provisions of the Constitution that require an

— PERNT RE AOL AN NN NRE INE LY HAN NNT MS BIG

apportioned according te pepelation, & le clearly ee

constitutional if it ie « dint tea

We propose te give we henge rewlew of the wartewe de

cisions of the Supreme Court dealing sith the qeretion of

direct as distingwished from indinet tame We bediewe

then, om the other thee of tedivewt tenetien That « de

Uiterteem @Rrete wend thet tbe I remere of Uke 1 cmreiubations os

ne we Heh dene

"% Ge Sheng ff Ce we She ‘at Aue @

Spee oe Le | 2 woe OF enw

——

‘Whatever the speculative views of political

economists or revenue reformers may be, can it be

properly held that the Constitution, taken in its

plain and obvious sense, and with due regard to the

circumstances attending the formation of the Goy

ernment, authorizes a general unapportioned tax on

the products ef the farm and the rents of real es

tate, alfhough imposed merely because Of owner

ship and with neo possthle means of escape from

payment, as belonging to a totally different class

from that which includes the property from whence

the imecome proceeds!

** There car be but one AnSsWer, vniess the ear

stitutional restriction is toa be treated as utterly

illusory and futile, and the object of the framers

defeated, We find it impossible to hold that a far

damental requisition, deemed so important as to lk

enforeed by two provisions, one affirmative and on

negative, can be refined awny by forced distinctions

between that which gives value to property, and the

property itself."’ (Italies ours}

In South Carolma ve. U. 8. 39 Court of Claims, 257,

tt iw saad

“A tax is obligatory; from it there is no es

cape, Aw ereese us coluntary. the purchaser wh

would pay tf camnet be compelled to purchase

(Affirmed in 199 U.S, 437 (1905).)) CItalies ours.)

In Thomas « ( S., 192 UL S. 363 (1904), the So

preme Court has held valid a stamp duty on sales of cor

porate stock synarely on the ground that there was no

absolute amd unaveidahble demand. Mr. Chief Justice

Fuller said at page 371:

The stamp duty is contingent on the happen

ing of the ewent of sale, and the element of absolute

and waariidable demand ww lacking Aa such it

uD a ar eee oe a ee . ween canton se . . ‘ . POPES ek

ney oe

falls, as stamp taxes ordinarily do, within the see-

ond class of the forms of taxation.’’ (Italies ours. )

In Flint v. Stone Tracy Co., 20 U.S. 107 (1911),

this same test was applied in passing upon the Validity ot

the Federal Excise tax on corporations, Mr, Justice Day

said for the Court at page 151:

‘The tax under consideration, as we have con

strued the statute, may be described as an excise

upon the particular privilege of doing business in a

corporate capacity, i.e, with the advantages which

arise from corporate or quasi corporate organiza.

hous; or when upphed to insurance companies, for

doing the business of such companies, As was said

in the Thomas case, 192 U.S. supra, the require.

ment to pay such taxes involves the exercise of

privileges, and the cleme nf of absolute and unavcord

able demand ts lacking. Uf business is not done im

the manner dese ribed an the Statule, no tax is pay

able." (Italies ours.)

Itmay be helpful to eve a Moment’s consideration to

the capitation tax, expressly classified by the Constitution

as a direct tax, What is it which makes a capitation tax

a direct tax! Clearly it must be something in the nature

of the tax, and not the mere fact that it is an isolated type

of taxation included within direct: taxation merely by an

arbitrary classification. The essence of the capitation tax

is the fact that it is a tay Open persons. Clearly the di-

rect character of the tax is not changed by the fact that

tomay be Limited to a certain class of persons, such as

zens of the United States or male citizens over twenty

one Years of age. All will agree that such a tax is a direct

fax. Suppose the class of persons taxed to he narrowed

down to include only bachelors. Could any one doubt that

this would be a direct tax? Or, suppose the tax were

applied only to persons who had theretefore been mar-

—— ‘sshaneeatrtonry enya RB YARRA Pg RRO

, ws

ried, This tax on a certain class of persons would be

just as direct as any other capitation tax. In fact, a tax

upon any class of persons classified according to their

condition at the date of enactment of the tax law, or ac

cording to their past conditions or past actions, could be

no different in principle. The same characteristic which

makes the ordinary capitation tax a direct tax brings any

unavoidable tax upon any determinable group of persons

within the same category. This characteristic is the also-

lute and unavoidable demand

When a past act is taxed, the taxpaver has no choice

hut to pay it, When the 1018 law was passed, Mr. Reed,

Mrs. Coolidge and all other persons who had made similar

contracts or transfers in the pot were made absolutels

liable for the tax. Nothing the, could have done or re

fraine! from deing after they knew of this law would

have altered their tax lishility. They had given away

their property in a certain way and they had to die. The

tax bere directly on the persons of these transferors be

cause no matter what happened or failed to happen after

the passage of the law, the hability remained unaltered,

When a law taxes all persons who have done certain acts

in the past, the tax is net on the happening of any event,

but i essentially a tax on a class of persons persons

classified by their past actions; and utterly unlike a tax

on persons who shall import or shall manufacture or sell

Komis in the future, If this tax be indirect then a tax

on all persons who obtained a divorcee in the past or who

had red hair in the past might be levied as an indirect

tax, Se considered the tax here is obviously more of a

capitation than a privilege tax, for if there ever had been

a privilege, it had long since heen exercised and was non

existent when the Statute was passed The fact that pay

ment of the tax is postponed antil death in no way alters

the direct nature of the tax, The lability attached de:

rectly by the passage of the law and mot mdirectly by

Pe HY ESATO) Caney gee Aa Mea aE TT ee oe ae a ee aN?

i...

reason of some future act or event. The future event of

death was certain and unaveidable and merely fixed the

pay-day.

A tax on lands is a direct tax. A tax on the income

from land is a direct tax: so is a {ax on personal prop-

erty or the income therefrom. A tax on property be-

cause of Ownership is a property tax, a direct tax. Like-

Wise, a tax on the exercise of an essential element of

ownership is a Property tax,

In MeNew wv. Anderson, 10 F. (2nd) 813 (D. CL N. y.

2-15-26), the 1924 Gift Tax was held to be unconstitu

tional as a direct tax unapportioned. At page 815, Judge

Augustus Hand said:

a I cannot see how this tax can be

defended, which would not seem to be

license tax for the

an excise or

privilege of doing someting,

but a tax upon a necessary incident of the owper.

ship of property, which has not been apport oned,

In Dawson v-. Kentucky Distilleries Co., 255 U. 8.

288 (1921), a Kentucky statute

taxing all liguer with

drawn from bond was involved,

In holding the tax to be

a property tax, Mr. Justice Brandeis for the Court said

at page 294:

**In fact, the tax is ong imposed upon each lot

of whiskey at the time it is removed from 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 Cour?

‘the thing really taxed is the uct of the owner 4

taking 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.e. consumption, sale, or keeping for

SARUM gt cate SEMPRE LES IS ISILON tert et

— ry

cab:

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 bas

compelled him to put it, and to tax the right is to

tax the value.” To leey a tar by reason of owner

ship of property ws to tar th property.”’ (Italics

ours.)

In Crag v. Taylor & Sons, 192 Ky. 36, 222 8. W. 303

(1921), the Supreme Court of Kentucky saves (p. 39)-

} ‘ : I

“The mere right to own and hold property

cannot be made the subject of CAC ses, ailice the

levying of a tax by reason of ownership of prop.

erty is to tax the property."’

In Thompson e. Areutzer, 112 Miss. 165, 72 Se. 89]

(1916), the Court says (p. 167):

“A tax on a thing is a tax on all its esse niial

attributes; and a tax on an essential attribute of

thing is a tax on the thing itself. © * * No

definition of property can be framed which does pot

include the right of ownership. Consequently, no

tax can be unposed on the right of ownership which

tm net also a tax on property."’

Thompson ce. McLeod, 112 Mins, SSS, 73 So. I

(1916), involved a statute taxing the extraction of turpen

tine from any trees in the state. The Supreme Court of

Mississippi held that this was a property tax, saying

(73 Se. 194):

This act strikes down the inherent right of

the property owner to lay hand upon his own

property. Every owner of a pine tree enjoys the

same natural right to extract gum from the tree

as the owner of a vineyard has to pluck his own

grapes, It would be the same thing to require

privilege tax as a precedent right of the owner to

— wa

pull the ripe pecans from his pecan orchard or to

enjoy a drink of pure water from the cool spring

of the old homestead.”’

In Kisner 0. Macomber, 252 U. §. 189 (1920), the

Supreme Court held that the tax on stock dividends was a

direct tax not protected by the Sixteenth Amendment

because stock dividends, whatever Congress might label

them, in their essence are not income. A tax thereon is

4 {4X on past aecumulations which cannot be an

tax, cannot be a privilege tax, but is a direct tax,

Ine« ‘mne

A consideration of a decision rendered by the Su.

preme Court prior to that of Kisner v. Macomber wiil

possibly make the significance of the

obvious.

Macomb ’ Case Nore

In Towne v. Fisne r, 245 U.S. 418 (1917). the Su.

preme Court held that the 1913 Revenue Act, which pro

vided that net income should include *‘dividends”’

and

also derived from any source

caine or profits and income

whatever’’, did not as 4 matter of construction attempt

fo tax # stock dividend made jn 19}4

against surplus

earned prior to January 1, 1913

Seeking to cover the subject of stock dividends, Con

Kress, in the Revenue Act of 1916, and after the Towne

decision, expressly declared that ‘a stock dividend shalj

be considered income’, Congress thus sought to bring

stock dividends within the scope of the Sixteenth Amend

ment. The Macomber euse in effect decided that Congress

wuld not make white black by legislative fiat: that (on.

Ktees could not w nden the RCO

Ment by the device

of a constitutional amend

of a legislative declaration or defini

Gen; and that calling a thing “aneome"’, which was really

something else, could not blind the eves of the court to

the reality. In reaching its conclusion, the fact that this

definition as to stock dividends Mare included ib w section

Of the statute dealing with items which in truth consti

PDE SERIES IN APE De See

ce Se

tuted income, did not prevent the court from segregating

this definition and determining its true character. The

context in which the definition stood and the company

which it kept failed to give this definition a character

which it did not deserve.

In the case at bar, Section 40° (ce) of the Statute,

which would be appropriate and free from objection as

an estate tax if prospectively applied, absolutely loses its

character as an estate tax and as an excise tax when

retrospectively applied. Consequently, under the reason.

ing of the Macomber case, the court wil! seek out the true,

the real nature of this section when apphed to past trans

actions and will not be misled by the fact that this section

is associated with valid excise features or bw the fact that

it is part of a statute which goes by the name of an

estate tax.

In the Macomber case. the Supreme Court answered

the Government's argument that the tax was indirect as

follows (252 U.S. at page 217):

the Government, * * * Virtually

ahandoning the contention that a stock dividend in.

creases the interest of the stockholder or otherwise

enriches him, insisted as an alternative that. by the

true construction of the Act of 1916, the tax is im.

posed not upon the stock dividend, but rather up

the stockholder’s share of the undivided profits

previously accumulated by the corporation; the tax

being levied as a matter of convenience at the time

such profits became manifest through the stock

dividend. If so construed, would the act be consti.

tutional?

** That Congress has power to tax shareholders

upen their property interests in the stock of corpo

rations is beyond question; and that such interests

might be valued in view of the condition of the

—_—

company, including its accumulated and undivided

profits, is equally clear. But that this would be

faration of property because of ownership, and

hence would require apportionment under the pro-

vistons of the Constitution ts settled beyond per-

adventure by previous decisions of this Court.”’

(Italies ours.)

Differently expressed, counsel for the Government in

that case in effect argued that the previous accumulating

of profits by a corporation for the benefit of its stockhold-

ers Was a taxable occasion or act and that it Was appro.

priate for Congress to make the tax, so levied, payable

when those accumulated profits became manifest through

the declaration of a stock dividend. After realizing the

futility of contending that a stockholder receiving a stock

dividend thereby got income, counsel for the Government

in that case sought to defend the tax a8 an eXcise or in

direct tax, on the only other possible occasion for the tax,

viz, the past act of accumulating. That act was seized

upon by government counsel, but the court decided that

a tax on the past act of accumulating was a direct tax.

This holding is directly applicable to the case at bar.

If, as the Macomber cane holds, a tax upon the past act

of accumulating profits prior to the enactment of the tax.

ing law is a direct tax, it follows in the case at bar that

Stax upon a transfer of property, prior to the date of the

law is also a direct tax.

In Kaouwlton v. Moore, VIR US. 41, 47 (1900), Chief

Justice White quoted with approval the following French

definition :

“Direct taxes bear immediately upon persons,

upon the possession and enjoyment of rights: in

direct taxes are levied upon the happening of an

event or an exchange."’

eee SPREE ANIL CLEP

—,

Whatever may be said in favor of a tax upon a future

optional disposal of one’s property in a given way, it is

a vastly different thing to tax the value of property dis.

posed of mfer-cimos in the past, simply because it was so

disposed of. In the latter case, it is a tax on an essential

attribute of property and therefore a tax on the property

itself. If this be constitutional, why may not Congress

place a tax on every one of us in respect of every house

ever owned and lived in by any of us in the past!

In the case at bar, the tax was on a past transfer of

the property. Certainly the right of disposition is one of

the most fundamental rights of ownership and is the right

which gives property its value. If a man could not dis.

pose of his property in any way, his property would not

be worth much. If a man were taxed for making any kind

of disposition of his property, it would in substance he

4 tax on his property. This Court has recognized this in

Cook vo. Pennsyleama, 97 U.S. O66, 24 LO Bd. 1015 (187s),

where it was held that a tax imposed by a Pennsylvania

statute on the amount of sales made by an auctioneer was

& tax on the property sold.

In New! «. Ames, LTS US. 8 48 L. Ed. 786 (1808),

a Federal law, taxing sales made at Boards of Trade or

Exchanges, was held valid on the ground that the tar

was on the privilege of using the special facilities for

making sales. The court expressly recognized that a tar

on all sales of property would be a property tax. In de

livering the opinion, Mr. Justice Peckham said at page

S21:

“A tax apen the prvilege of selling property

at the exchange and of thus using the facilities

there offered in aceomplishing the sale differs rad

ically from a tax open every sale made in ant

place. The latter tax is really and practically upon

property. It takes no notice of any kind of privi

lege or facility, and the fact of a sale is alone re

garded."’

wae gre ere ? SS a

— 39 —

Under the holding of the above case, it is clear that

a tax on all sales or transfers of property would be a

direct property tax. A tax on future transfers similar to

the transfer in this case would not be a property tax be

cause the tax would be limited to a particular type of

transaction. But when a past disposition of property,

which was lawful and non-taxable when made, is the sub-

ject of the tax, the tax is not on any privilege but is a

tax on the property, or, what amounts to the same thing,

is a tax on the past act of exercising the right of owner.

ship.

This all sounds rather technical but is

really a simple

matter of plain common sense.

Congress cannot tax us

reperty or because we owned

property several vears ago. Now if Congress tries to tax

us because at some time in the past we had walked into

our own front door or had sold our !

it away, Congress would sumply be

simply because we own |

roperty or had given

using a roundabout

way to tax the property. If this sert of tax Were upheld,

Congress could place a tax on

all property ever owned or

teed in the past and

could do the very thing which is

forbidden by two different provisions of the Constitution.

We do not believe that under the guise of taxing a

privilege, where the privilege is non-existent because ex

ercised before the law was passed, Congress may evade

the constitutional provisions, In the Chidd Laber Tar

case, 259 UL OS. 20 (1922), this Court refused to permit

Congress under the guise of the taxing power to regulate

the internal affairs of a state.

In the Pollock case, supra, at page S81, the 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 repre.

REAL i etc tase uERY AM ONS RPh ere NS a Reet RY NS RTS

miveraate ae res

—<a

—

sentation so carefully recognized and guarded jn |

favor of the citizens of each state. But constitu.

tional provisions cannot be thus evaded. It is the

substance and not the form which controls ax has

indeed been established by repeated decisions of

this Court."’

In Dawson ¢. Kentucky Distilleries Co., supra, at

page 292, Mr. Justice Brandeis said:

“The name by which the tax is described in

the statute is, of course, immaterial. It« character

must be determined by its incidents."’

As said in Kansas City Ry. Co. v. Botkin, 240 UL &

227, 235 (1916):

“A tax may be in form a privilege tax and vet,

in substance, may be a tax on property."

Unless the Government shall go counter to the prin-

ciple that the substance and not the form is controlling,

it may not brush aside the conclusion that the retroactive

provisions of the 1918 Act impose a direct tax, by an-

nouncing that generically and historically death duties are

amd have always been regarded as indirect taxes and that

therefore the tax under consideration is an indirect tax,

and then cite Knowlton ©. Moore, 178 UL 8S. 41 (190m),

and N.Y. Trust Company v. Eisner, 256 U.S. 345 (1921),

as authority.

The truth is, in our view, that the retroactive pro-

Visions of this law do not properly belong in a death duty

statute at all, These provisions impose no death duties:

they have nothing to do with death, except as death fixes

a date for collection.

In the Knowlton case and in the Trust Co. ¢. Buener

case no question of retroactivity was present. The lan

guage weed om those cases had to do with prospective site.

Glhioms.

— oan

The tax in neither of those cases was inevitable, as

in the present case. In each case the taxpayers’ volition

had a chance to operate. In the Eisner case, last above,

this fact is brought out by the observation of Mr. Justice

Holmes as to the testator. He Says at page 349, **He (the

testator) knows the law and the consequences of the dis-

position that he makes.’’ Again in the Frick case (supra),

at page 251, this Court said that the tax ‘‘would be

to impose an unexpected liability that if known might

have induced those concerned to avoid it and to use their

money in other ways". These, we submit, constitute vital

differences between those cases and the present case.

In the case at bar we have an absolutely inevitable

tax. The 1918 law was not in existence when this trust

was created. The situation was bevond recall years before

the law was passed. The decedent did not know the 1918

Estate Tax Law because when she consummated her con-

tract there was no estate tax law of any sort to be known.

She neither knew nor could know either the law or ‘‘the

consequences of the disposition’ that she made.

We are here suggesting no departure from the doe.

trine of stare decisis, We do not believe any decisions

of any Court of last resort have ever held constitutional

4 law similar to the retroactive provisions of this law.

But we submit that regardless of how often other phases

of this or any other similar statute may have been held

to le constitutional, if a new state of facts be presented

showing that the particular clause of the statute

here

under consideration may

result in the infringement of a“

constitutional right of the latest litigant, the question

must be examined in the hight of the novel facts, and the

constitutionality of the statute as applied to this situation

determined.

Such cases as Brushaber ¢. mon Pacific Ry. Co.,

40 U.S. 1 (1915), upholding the

validity of income tax

PER LLB IED IDE LAA SLORY aes

ee,

laws which are partly retroactive, are not authority for

retroactive so-called excise taxes. Under the Sixteenth

Amendment, Congress has power to levy income taxes,

without apportionment, regardless of the fact of their

being direct. An income tar is the only direct tax which

need not be apportioned. We are not concerned here with

the question of whether permissible direct taxes, viz., in-

come taxes, may also be retroactive.

We have been considering the tax as one collected

from the estate, Suppose a case where the estate is in.

sufficient and collection is made from the beneficiary. In

so far as the tax is collected from the beneficiary of life

insurance or of a gift, it is clearly a direct tax. It has

been expressly held that a tax on taking Possession of

one’s oWn property is a direct tax; Dawson v. Kentucky

Instilleries Co., supra; Craig v. Taylor & Sons, supra;

Thompson we. Kreutoer, supra; Thompson ov. MeLeod,

supra.

The celebrated New York case, Matter of Pell, dis

cussed tm/ra, is a convincing authority on this point.

In re Craig's Estate, 97 App. Div. 289, 89 N.Y.

S. 971 (1904) (Affd. 181 N.Y, 551), involved a trust

almost identical with the Reed trust. In holding the N.Y,

statute taxing this trust unconstitutional, the Court said

at page I96:

“When the right is conferred by a lawfully

executed grant or contract it is property, and not «

privilege, and as such is protected from legislative

encroachment by constitutional guaranties."’

If a tax on the privilege of taking possession of prop.

erty already owned is a direct tax, a fortiori, a tax on

the estate of a decedent who exercises no privilege at all

in connection with the property is a direct tax.

EO PRES PRLS FOS Petes eR BERGE SPIRES i VTS RRR CRE we Hts orp MESON

If this tax on past transfers is valid, Congress can in

effect levy a direct tax without apportionment on any and

all property in this country simply by putting it in the

form of a retroactive excise tax, For example, Congress

could tax all foreign made goods now in this country by

calling it an excise on the past importation or on the past

purchase of imported goods. Or Congress could levy a

tax on all real estate by calling it an excise on the last

recorded transfer of every parcel of real property. Such

taxes would be the very things which the framers of the

Constitution sought to prohibit by two distinct provisions.

But the substance of constitutional restrictions cannot be

nullified by indirect means. The Child Labor Tax Case,

supra; Hill v, Wallace, 259 VU. S. 44 (1922). The direct

tax provisions of the Constitution must be given some

substantial meaning and effect. The test of absolute and

nnavoidable demand is the only test which conforms with

history, with the adjudicated cases and with the purpose

of these restrictions. Unless two express provisions of

the Constitution are to be rendered meaningless and of

no effect, there seems to be no escape from the conclusion

that the tax in the case at bar is an unconstitutional di-

rect tax,

These constitutional restrictions must be given some

real effect. As said in Pollock v. Farmers Loan and Trust

Company, supra, at page S83;

“But the acceptance of the rule of apportion.

ment was one of the compromises which made the

adoption of the Constitution possible, and secured

the creation of that dual form of government, so

elastic and so strong, which has thus far survived

in unabated vigor, If, by calling a tax indirect

When it is essentially direct, the rule of protection

could be frittered away, one of the great landmarks

defining the boundary between the nation and the

“= ONES Ea oO An RG NR

states of which it is composed, would have dis.

appeared and with it one of the bulwarks of pri

Vate rights and private property.”

A tate and iluminating opinion on this law as a di

rect tax is found in Pree vo. Bowers (2nd Ct. C. C. A.

6-126), 12 FL (2nd) 625, where Judge Hough said, p. 62s;

**Further, « tax on a transfer by A, but meas

ured by anything other than the estate of A, may

be a duty or exeise in form, but it is a palpable

effort to tax something other than the transfer.

In this case the effort is to tax in 1922 in respect

of saumething untaxable in 110, Cf. Lewellyn ¢.

Frick, 268 U.S. 238, at 251, 45 S. Ct. 487, 69 L

bal “34,

“Tf at as said that Congress might have taxed

the 1910 transfer, and therefore cam tax at even im

vel, the answer is that nothing of the kind has

been attempted. There is ne tax now laid on the

transfer of 1910, nor the property transferred

Could Congress in P22 have laid a tax on Mr

Nash because he gave away $200,080 an 1910 Tf

that te assumed as pormaitele, it is met possible that

the tax so land, and computed on the gilt, ite credits

ami gains, could ever be an excise on the transfer

**Mut af the tan be land as it actually has been,

and called an exeime on the transfer of something

elae, the name is merely false, there i no excuse,

ated the exaction falls into the category of unap

portioned direet taxes, We think this an effort to

use a constitutional power as a hook on which to

hang a cloak that conewals Gneonstitutional action.

There ve no real difference between disguising the

direct tax under the name of duty, and laying a

tax in order generally to regulate some sulpect

wi.

taxable, but not otherwise subject to national regu-

lation. The real purpose is dealt with, notwith-

standing the cloak. The Child Labor Case, 259

US. 20,42 8. Ct. 449, 66 L. Ka. 817, is the leading

example,

“Tt follows that we think there was no ‘inter.

est’ shown in Mr. Nash, justifving the tax laid:

but, if the statute required the tax as laid, then the

exaction Was arbitrary and unconstitutional, "’

We submit that just as an income tax is a direct tax

a judicial conclusion upon which the states have now

put the stamp of their approval through the ratification

of the Sixteenth Amendment —so is a AX upon a past gift

adirect tax and, unless apportioned, violative of the Con

stitution,

(BH) THE RETROACTIVE PROVISIONS OF SHCTION 402

OF THE 1918 PRepriaL ESTATE TAY LAW

VIOLATE THE MIPTH AMENDMENT.

We shall contend in this pertion of our brief that

this fax on A past completed transfer of Property amounts

to an arbitrary exaction and operates to deprive the Coo

lidge Estate of property without due process of law.

In similar cases the Government has several times

argued that the Fifth Amendment is not a limit on the

axing power of Congress, so a brief discussion may not

he out of place

We know of no actual decision of this Court holding

that outside of the prohibition of export taxes and the

Peyuirements of apportionment of direct taxes, and of

wuformity of indirect taxves Congress may act without

restriction in taxation matters, A Federal tax law which

afforded the faXpaver ne opportunity to bee heard, would

certainly be held to be bad as a taking without due proc

——

a ee

To the same effect are Carrol ¢. Greenwich Ins. Co.,

19) US. 401, 410 (1904), and Ee Parte Kemmler, 136

US. 456 (ISSO).

Nor is there any ground for saying that the taxing

power of Congress is greater than that of the states. As

pointed out by Mr. Justice Holmes in Chanler v. Kelsey,

2 US. 466, 480 (1907). the power of the states to im

°° * the power

pose death duties “is mere unlimited than

of the United States to levy an inheritance tax'’. This is

obvious because the power to umpose death duties ts hased

upon the power to regulate the devolution at death—a

power resting exclusively in the states

The vast weight of authority holds that retroactive

inheritance tax laws of the states similar to the Federal

act now under «discussion are unconstitutional ander the

provisions of the Fourteenth Amendment as a taking of

property without doe process of law, or a taking of pri

Vale property for petatelie use without just COM petisation

Matter of Pell, OO N.Y. App. Div. 286, 171 N.Y. 48,

is the leading case on this subject and is umportant for its

hokling that the tax was a direct tax as well as for its

holding that the tax was uncoonstitational The testator

died in ISO, creating by will a life estate followed by a

remaitaler, The life tenant died in TSW after the passage

of a New York inheritance tax law expressly taxing all

remainders which did net come into actusl possession of

enjoyment until after the passage of the act. It was un

disputed that the remainders were eXpressiv taxalde

under the atatate. The appellate division of the Supreme

Court recogniand that the tax could not be sustained as

at inheritance tax but held the tax te he valid as a direct

tax, saying (@) N.Y. App. Div. at pp. 288, Qt)

eel? we could conclude utuder the Transfer Tas

Act, that nething could be taxed bat the mght of

suceession, then it would follow in this case, as the

PEL LIS ARON IT RNR BRI ON ME ISB ene en RRP areas Nea yrs ‘ ; - — nasimeenne sna tf

—

right to succession passed in 1863, that the prop-

erty here involved was not taxable * * © Here

this tax must be supported, if at all, upon the the-

ory that it is a tax upon property. ° © ®.

“What the legislature here intends is to tax

property * * * Tt eould not very well tax the

right of suceession, for that had taken place years

before the Tax Act was passed; and we think,

therefore, that the tax can only be supported upon

the principle that it is a tax on property.”?

On un appeal by the executor the Court of Appeals

agreed with the lower court that the law was unconstitu-

tonal as a succession tax: the Court said (171 N.Y. DD):

“This court and the Supreme Court of the

United States have held in numerous cases that the

trauster tax is not imposed upon property, but

upon the right of suecession. It therefore follows

that, where there was a complete vesting of a resid

wary estate before the enactment of the transfer

{aX statute, it cannet he reached by that form of

taxation. In the case before us it is an undisputed

fact that these remainders had Vested in 1863, and

the only contingency leading to their divesting was

the death of a remainderman in the lifetime of a

life tenant, in which event the children of the one

so dying would be substituted. If these estates in

remainder were vested prior to the enactment of

the transfer tax act. there could be in no legal sense

a transfer of the property at the time of Possession

and enjoyment. This being so, fo Impose a tax

based on the sue ession would be to diminish the

Value of these vested estates, to impair the obliga

tion of aw contract, and take Private property for

pubhe use without compensation. "’

ee N,

But the Court reversed the judgment upon the ground

that, as a matter of construction, the legislature did pot

intend to impose a direct tax and, therefore, the law could

not be upheld as a direct tax.

At page 56, the Court said:

We are of the opinion that it is a violent pore

sumption as to the intention of the legislature +)

constrde an act, which is avowedly designed to tay

the succession of property, on the death of its

owner, as a direct tax."’

The Court then held that even eonstrued as a dircet

tax it would he invalid

Iu ve Cracng’s Bstate. ‘wera, involved a transfer ip

tended to take effeet at cleath etecutead vears befor: the

taxing law was passed In holding the tax uneOnstity

tional, the court said (97 App. Div. 206);

The underlying prineipl: which supports the

tax is that such right is not) natural one but i. os

fact a privilege only, and that the authority ov

ferring the privilege may MBporse conditions upon

ite exercise, But when the privilege has Pipened

into a right if is too late tu impose conditions of

the character in question; and when the right is

conferred by a lawfully exeeuted grant or contract

fois property, and net a privilege, and as such is

protected from legislative encroachment by oonst:

tutional guaranties *’

In Mamt © Weebl, 174 Calif 26, eapra, the decedent

nade a conveyanee of land to his wife, placing the dead

in escrow for delivery upon his death After the dee

was made, and prior to the decedent's death, a retroactive

statute Was pasemd tasing transfers intended to take

effet in possession of enjoyment at or after the Kraniors

death, Chief Justice Angellotti said ip. Stet)

PME APR cs NAY aS GES fiat oe wom ; . / i 4 " ; : CK ae b oe

—_

7 on

"We have then the case of a kraut of land so

executed and delivered on April 12, 1905, as to be

fully operative and effective on that date to vest a

present title in the grantee, subject only to a life

interest in the grantor: ‘an executed conveyance’

(Estate of Cornelius, 151 Cal. 550) of this property

in fee simple absolute, subject only to this life

interest. Could the legislature subsequently law-

fully impose a succession fax upon this fully exe

cuted transfer of fitle, such tax accruing at the

termination of the Krantor’s reserved life estate,

sunply because in the meantime the grantee was

debarred by the inter, ening life estate from actual

possession of the property conveyed and the other

meidents of a life estate? Tt appears to us that to

state the question is to answer it. The succession

to the property by the grantee which is the thing

attempted to be taxed, was complete upon the de.

livery of the deed in escrow, notwithstanding the

reservation of the life estate. The Whole estate

conveyed vested irrey oeably in interest at once, not

withstanding that actual possession of the property

itself anal enjoyment of the profits thereof were

deferred until the death of the life tenant. His

denth added nothing to the tithe theretofore ac

quired by the grantee, and there was no transfer

Of any property im any legal sense at the fime of

suck death, ar ato any time sUlmeQuent to the de

livery in escrow, The right of the grantee to have

actual physical possession of the property itself

and enjoyment of the other incidents of an estate

for Life upon the death of the life tenant was abso-

lutely vested by the delivery of the deed in escrow,

and nondefeasible, and the legislature could not

therenfter lawfully destroy, impair, or burden this

Property right under the guise of a succession tax

Oh Kocount of the transfer.’ (Italics ours.)

Pate y ne Vee py dre Be

Lacey v. State Treasurer, 152 lowa 477, 132 N. W.

S43 (1911), held unconstitutional a retroactive tax on a

transfer intended to take effect in possession at death.

The court said (p. 483):

“If the right to the property passed by the

conveyance bevond the control of the grantor, it

Was a Vested right; it Was het a mere eXpectancs,

like the prospective right of an heir, or the inchoate

right of a wife, and it was therefore not subject lu

burdens which the legislature might attempt to um

purne bes retrospaectss « laws

legislation imposing a collateral inheritance tax

upon interests im remainder, which have becom:

vested would be unconmstitutional,”’

State ©. Probate Court, 102 Minn. 268, 113 N. W. sss

(1907), was a sumilar holding The court said:

“That law is prospective in its operation, and

it ts bevond the pewer of the state, even if if se

desired, to subject to its operation property which

the owner in gum] faith disposed of before his

death "’

Im ve Hoastom’s Estate, 120 Atl 267, 276 Pa

(1923): on TYIS deewdent and ber hushand created a trust,

reserving life estates te themselves with a remainder te

one Freeman, Prer to decedent's death the Penney}

Vania inheritance tax law was amended so as to increase

the rates of tax. The lower court held that this truet

fumd could not be taxed at the higher rate) The Sopreme

Court samply quoted the opimeon below, affirming at.) Thu

opinion says.

“The clam of the commonwealth to tax this

trust estate af 10 per cent. under the Acts of June

ov, 1919 (PL. S52; Pal St, 1920, © AMGS et nex),

LEP OLRM TIN Gah aco ~- we: 4 ee tom wk aos

3 we

—

a Ae

und May 4, 1921 (P. L. 341), is not supported by

the authorities, nor is it agreeable with just prin-

ciples of taxation. The grantor in the deed parted

with her tithe before the passage of either of these

acts of assembly. She reserved no right of revo-

cation, ner did she retain the right of control: for

her power exerciseable jointly with ‘the trustee te

change investments jis a very different thing: the

terms of the trust were unchangeable. The deed

Was net executed with any intent to defraud the

commonwealth or to evade the law, nor was it

made in such contemplation of death as to bring it

within any applicable decision. As soon as the

deed was executed, Freeman had a vested right in

the property, only defeasible in case of his death

(which has not oecurred), when it would pass under

his will, and his Prospective right would have

pissed by huis assignment to others. Serrill's ks

tate, 1 Wkiv. Notes Cas. 470: Wickersham 's Ap

peal, 18 Wkly. Notes Cas. oe ee

“Nor can it: be successfully argued that the

favs netoon the transfer of title to the property,

but on the transfer of enjyovinent, for, as if seems

to us, the act means by this the right of enjoyment,

and this was vested under the deed. If the {ax is

imposed when enjovment is perfected by actual

possession, and this theory is carried to its logical

conclusion, it would seem that, if during the admin

istration of an estate delays occur, as they neces

sardy must, and if before actual distribution is

Made the rate of taxation ix changed, a legacy

would be taxed at the changed rate, which would

appear to be a reductio ad absurdum."'

In re Lanemg'’s Estate, 182 N. Y. 238, 74 N. BE. ga

(1905), is @ similar holding. The Court said:

—

The law sanctioned the gift of Mr. Suffern

when it was made, and the law cannot cut down the

gift by imposing a transfer tax when there was no

transfer.”’

People v. Trust Company of Amenca, 2005 N.Y. 74,

WSN. BE. 207 (1912). The New York law unposed a tax on

future advances made under existing mortgages. The

state sought by this suit to collect a tax from the mort

gagees on additional bonds issued ander the terms of

mertgage executed before the law was passed. In hold

ing the tax invalid, the Court said:

The legislature could not impose a tax upon

the defendant for a transaction which at the time

it was effected was subject to no tax.’

To the same effect are the following cases

Miller v. MelLaughlin, 141 Mich. 425; 14 N W

ces CTR);

(‘commonwealth vo Wellford, 114 Va. 272.

S. b 17 (1913),

In re Vamdertult’s Betate, 172 N.Y. 69; G4 N

Be 782 (1);

In re Lyon's Eetate, 235 N.Y. 28; 155 NE

247 (1922);

In re Felton’s bistate, 176 Cal O83, 105 Tae

M2 (1917);

State v. Safe Drequenst & Trust Co, 132 Md

251; 10 Atl 425 (1918);

In re Hitehin’s Estate, 97 App. Inv. Gia. #

N. ¥. SS. Liles (14M);

In re Ripley's Batate, 122 App Div. 419, 16

N.Y. SS. 866 (197);

In re Haggerty, 128 App Inv. 679, 112 N.Y

1017 (190m),

er ee

In re Chapman, 133 App. Div. 337; 117 N. Y.

S. 679 (1909);

In re Smith, 150 App. Div. 805; 135 N. Y. s.

240) (1912);

In re Webber, 151 App. Div. 539; 136 N.Y. 8.

aS (1912);

Commonwealth v. MeCauley's Executors, 166

Ky. 450; 178 SW. 411 (1915):

Eury'’s Exeeutors v. State, 72 Ohio St. 448: 74

N. EF. 650 (1905).

The Pell case has been cited and followed innumer

able times by the courts of New York and other states

and its authority has never been weakened. The case was

cited with approval by Mr. Justice Holmes in Chander v.

Kelsey, supra. This was a dissenting opinion concurred

im ty

Mr. Justice Moody bat the portion of the opinion

‘hich we quote Was in no way contrary to the decision

of the majority of the court. In this opinion, Mr. Justice

Holmes said at 51 1. Ed. sao.

“Tf, then, a given state tax must be held to be

A succession tax in order to maintain its validity,

orafanm fact it is held to be a succession tax by

the state court of which it is the province to decide

that matter, it follows that such a tax cannot he

levied except where there js a succession, and when

same clement or step necessary to complete it still

is Wanting when the tax law goes into effect. If

some element is wanting at that time, the sneces

sion depends, for taking effect, on the continuance

of the permission to succeed or grant of the right

on the part of the state; and as the grant may be

withdrawn, ot may be qualified by a tax. But if

there is no succession, or if the succession has fully

Vested, of has passed bevond dependence upon the

Y Tyla

—

continuing of the state's permission or grant, an

attempt to levy a tax under the power to regulate

succession would be an attempt to appropriate

property in a way which the Mth Amendment has

heen construed to forbid. No matter what other

taxes might be levied, a succession tax could yor

be, and so it has heen decided in New York. Re

Pell, 171 N. ¥. 48, 55, 57 L. R.A. 540, SO Am St

Rep 791, 63 N. B78; Re Seaman, 147 N.Y. 69.

41 N. E. 401."

The Pell ense was also cited with approval in ap

other Federal case entitled Blaw ¢. Harold, 150 Fed. js

(12904). In that case the deeedent had entered into »

partnership with his sen and three other persons Dece

dent's share in the partnership was to pass to his son on

decedent's death After the partnership agreement had

heen entered into and shertivy before the decedent died,

Congress passed the Act of ISS which imposed an inher

ttance tax on transfers intended to take effeet at death

The Government taxed the son the share in th partner

sup which he received by the deewdent’s death and suit

was brought to reover the amount of this tax. The Cir

euit Court held that the tax was illegal, Judge Cross «ay

ing at page JT:

7 8 8 “My conclusion upon this branch of the

subject, therefore, ws that the partnership agree

Inent was an irrevocable self executing contract:

but whether self «executing or net, upen ite delivery

DeWitt € Blair, had vested rights thereunder om

the interest of John L Blair in the partnership

property, defeamble only upon the survivorship of

Jobn L Biasr, terverned the partoershipy period, which

rights could not be divested by hum by will of

otherwise, Such being the case, the tax imposed

thereon was unwarranted and illegal. *’

—_— =

This decision was affirmed by the Circuit Court of

Appeals for the Third Circuit, 158 Fed. S04 (1907). At

page 806 Judge Dallas said-

“It cannot be supposed that this partnership

agreement was designed to circumvent 4 statute

enacted several years after it: was made. It was

entered into in good faith, and tne rights of the

plaintiff then accrued. As was said by the learned

District Judge, ‘they were absolute and irrevocable

so far as the parties were concerned, and were con

tingent only upon the happening of an event which

did happen’. They were aequired by contract, and

not by gift made by last will and testament, or

otherwise."’

Most of the above cases dealt with inheritance rather

than with estate taxes; taxes on the right to receive

rather than on the right to transmit. By analogy the even

mere ar trary exaction from the decedent's estate is a

fortions invalid. The reasoning of the above cases that

there can he no succession tax Where there is no sneces

sion is directly applicable to the case at bar.

In Noowlton Moore, supra, speaking of death

duties, the Court said at page 7s:

“CM course, they concern the passing of prop

erty by death, for if there was no property to

transmit, there would he nothing upon which the

tax levied on the occasion of death could he com

puted. ’’

In Wardell ¢. Blum, 276 Fed. 226 (1921), the Cirenit

Court of Appeals of the Ninth Cireuit, in holding that a

wife's share in community property was not taxable as

a part of her husband's estate under the 1916 Federal

Law, said at page 227.

ions i Pee

aa oe

“‘All inheritance taxes are imposed on the

transfer of the net estate of the ‘deceased’, from

Which the conclusion is inevitable that the prop.

erty upon which such a tax is imposed must, jp

truth, be the property of the deceased.”

These authorities are directly applicable to the pres

ent case where the property taxed did not pass at death,

Was not a part of the decedent’. estate and, in fact, had

been disposed of long prior to the decedent's death.

The following Federal authorities are pertinent to

this discussion.

Chase vo. U. S., 222 Fed. 593 (1915). Indian land al

realloted pursuant to an act of Congress. In holding

that this act was unconstitutional and could not impair

the rights of the original allottee, Judge Sanborn of the

Sth Cireuit Court of Appeals said:

a Pe eT

**No act of Congress or legislative fiat consti

tutes due process of law, Whereby a vested right 1D

or tithe to property mav he either seriously im

paired or destroved."’

Wagener «. Beans, 10 US OSS, 42 Lawyers’ Ed

1154 (1898). A Territorial Law of Mareh 5, 1805, ay

thorized counties in Oklahoma to collect takes Upon per

sonal property kept on Tndian reservations within the

county limits, Defendants, acting under an Oklahoma law,

attempted to collect taxes on cattle in the Indian reser

vation for ISUZ, 1892, 1844 and pSO% PlaintifY sued to

enjoin defendants from collecting taxes except for the

year 1898) and thereafter, Both parties appenled

Afirmed In delivering the opamon, Mr. Justice

Shiras said (42 L. Ed. 1156).

. acta —

IES te BOGS ELI HSI DT TEE AS ANE Meh ROL AEE ean ral tgs ted Sg

“It remains to consider the appeal of the tay

ing aathorities of Canadian county

“They object, in the first place, to that portion

of the decree below which restrains them from the

collection of taxes for the year 1892, 1893, and 1894.

They point to a provision contained in the act of

Mareh 5, 1895, enabling the special assessor to

fssess OF reassess property that at any time has,

by oversight or negligence, or for any other cause,

escaped taxation: and they contend that the act of

189) Was an amendatory statute, and intended to

cure & supposed defect in the then existing laws,

and cases are cited jn Which it has been held that

such curative statutes can have a retroactive effect,

and enable the wuthorities to assess and collect

taXes On property which should have been thereto

fore dssessed,

“It is sufficient to Say that, prior to the puss

age of the act of Mareh 5, IS9S, there eXisted no

power in the authorities of Canadian county to tax

property within the attached reservation. Such

authority was first given by that act, and could only

be validly exercised on property subjected to its

terms after its enactment."

The impropriety of reaching hack into the past to

make past transactions bear the burden of Government

Is well iPustrated by the cuse of Forbes Pioneer Boat

Line «. Board of Commuasstoners, 208 U. 8. 338, 66 LL. Ed.

647 (1922). The state of Florida unlawfully collected a

toll from plaintiff for passage through a canal lock.

Thereafter a law Was passed purporting to Validate the

collection of the toll, Plaintiff sned to recover the amount

collected from him and claimed that the law Violated the

ith Amendment. The Supreme Court reversed a judg

Ment in favor of the state Mr. Justice Holmes said at

page 33a.

NAME EEN

———

ec 8 * if the legislature of Florida had at.

tempted to make the plaintiff! pay in 1919 for pas.

sage through the lock of a canal that took place

before 1917, without any promise of reward, there

is nothing in the case as it stands to indicate that

it could have done se any more effectively than it

could have made a man pay a baker for a xratu

tous deposit of rolls.’

In Frew e. Bowers, supra, the opinion of Judge

Hand, Pp. BOO, goes eXpressly on the ground that See. 402

(ce) violates the Sth Amendment,

(OC) THE RETROACTIVE PrRovEstoNs Ob THE tuts bNTarE TAN

LAW VEOLATS Tem pt SDAMPENTAL GoNche.

TIONS OF PRED GON RRAMENT.

There has Krown up in the decisions of this

Court, and other courts, a Kroup oof pronounce

ments to the effect that there are certain things that

the legislative beds may net do simply because they

are too arbitrary, too unreasonable. too unthinkable to

be sanctione! by the fundamental and guiding principles

of civilized society, We believe that these proheunce

iments may be properly classified as a body of principles

formulated under that Wisely elastic phrase “due process

of law'', but for the purpose of emphasis we shall discuss

them under the foregoing heading

The existence of such a lumitation on constitutional

power has been recognized in the following cases

Calder v. Ball, 3 Dallas (86 (17as).

Osborn v. Nicholson, 13 Wall, 634 (1872)

Terrett v. Taylor, 13 US. 43 (1815)

— 6] —

Retroactive laws have long been recognized as arbj-

trary in character. In Shwab p. Doyle, supra, this Court

expressed itself in no uncertain terms regarding retro.

active laws when it quoted with “pproval the following

language of Justice Story (page 534):

**Retrospective laws ure, indeed, kenerally yy

Just; and, as has been forcibly said, neither accord

With sound legislation nor With the fundamental

principles of the social compact.”?

This was said in answer to the Government's conten

ton that the 1916 Estate Tax Law be given a retroactive

effect.

When we come to the subject of taxation, the uheay-

stitutionality of arbitrary laws may be placed upon an

additional ground. The Xing power of Congress is a

kranted power, It embraces only contributions for the

support of the Government and only sueh of these cor

tnbutions as come Within the conception of taxation,

Thus the power of eminent domain and the power to

FeqWisition supplies in war time are not embraced within

the meaning of taxation In the Pollock cause, supra, Mr.

Justice Field said at lo7 US. fae.

**But there ar other considerations ayainst

the law Which are equally decisive, They relate to

the uniformity and equalty pequired in al] tuda

tron, national and state: to the mvalidity of taxa

hen by the United States of the income of the

bends and securities of the states and of thei

Municipal bodies: and thy invalidity of the taxation

Of the salaries of the Judges of the United States

ecurts

ee stated by Counsel ‘There Is no sneh

thing in the theory of our hational eovernument as

UnhmMited power of axation in Congress There

Are imitations, as he justly Observes, of its powers

arising out of the essential nature of all free goy-

ermments; there are reservations of individual

rights, without which society could not exist, and

which are respected by every government. The

right of taxation is subject to these limitations.’

Citizens Sav. L. Asso. of Cleveland v. Topeka, 87

U.S. 20 Wall, 655 (222455), and Parkersburg y.

Brown, 106 U.S. 487 (37 :238).""

“The inherent and fundamental nature and

character of a tax is that of a contribution to the

suppert of the government, levied upon the prin

eiple of equal and uniform apportionment among

the persons taxed, and any other exaction does not

cote within the legal definition of a tax.

**This inherent limitation upon the taxing pow

er forbids the imposition of taxes which are up

equal in their operation upon similar kinds of

property, necessarily strikes down the gross and

arbitrary distinctions in the income law as passed

by Congress The law, as we have seen, distin

guishes in the taxation between corporations by

exempting the property of some of them from taxa

tion and levying the tax on the property of others

when the corporations do not materially differ from

one another in the character of their business or in

the protection required by the government. Trifing

differences in therr mules of business, but not in

their resulis, are made the ground and oocasion of

the greatest possilde differences in the amount of

taxes levied upen ther income, showing that the

action of the legislative power upon them has been

arbitrary amd capricious and seametimes meres

fanesful."’

Attorney General Olney and Assistant Attorney Gen

eral Whitney, in their argument in the Pollock case, ad

— i

mitted this inherent limitation on the general taxing

power, See 157 U.S. at page 507, and 107 U.S. at page

474, where Mr. Whitney said:

“there is, however, a certain degree of

uniformity involved in the very word ‘tax’: a uni-

furmity requirement involved in the definition of

that word and guaranteed by the Fifth Amendment

to the Constitution. * * A special tax cannot

be laid upon A simply because he is A and not B.

Such a law would be an attempt to exercise not a

taxing power, but the power of eminent domain,

and would require compensation for the property

taken. Thus the constitution of Pennsylvania pro-

Vides that taxes shall he ‘uniform on the same class

of subjects’: while the Supreme Court of that State

has decided that this requirement is merely declara.

tory. Aulty Roup's Case, 82 Penn. St. aii.**

Cooley on Constitutional Limitations (7th Ed), at

peige GQ) RUVS:

‘Having thus indicated the eXtent of the tax

ing power, jt is hecessary to add that certain ele.

ments are essential in all taxation, and that it will

not follow as of course, because the power is so

Vast, that everything whieh may be done under

pretense of its exercise will leave the citizen with.

out redress, even though there be no conflict with

express constitutional inhibitions. Everything that

tay be done under the name of taxation is not

hecessarily mw tax: and it may happen that an

oppressive burden Imposed by the rovernment,

when it comes to he carefully scrutinized, will

Prove, instead of a tax, to be an unlawful confisea

hon of property, unwarranted by any principle of

constitutional government.’

‘nell

Cooley says on page 41 of his work on Taxation:

**Vast as is the power of the government to

levy taxes upon its citizens, there are nevertheless

limitations upon it of a very distinct and positive

character, which inhere in the very nature of the

power itself. Some of these limitations are com

monly declared in the written constitutions, but the

declaration is rather from abundant caution than

from necessity, as the limitations are equally im

perative whether thas declared or not.’’

In Savings & Loan Association + Tepeha, 20 Wall.

5, 22 L. Ed. 455 (1874), in speaking of the taxing power,

Mr. Justice Miller said at 22 1. Ed. 461:

‘There are limitations on such prrwer Which

Krow out of the essential nature of all free gos

erninents

The Child Labor Tar Case. raped, is a striking illus

tration of the inherent limitations of the taxing power

AKMITHAKY PRATUROS OF THR TAY

(ine of the worst features of the tax involved in the

ease at bar is that it amounts to making A payoa tax on

H's property. Is such an exaction Within any conce:y

able meaning of the word farafion? Ewen if it falix with

ih this power of taxation is it not se artutrary as to Is

unconetitutional’ There ean be but one aAnaewer ta these

‘questions

21 L. Eel. S97 (1873). This suit was brought to colleet «

tax on interest paid to the City of Baltimore on Mowe’

mivaneed to aid the construction of the railrond The tax

Was to te collected from the railroad and deducted from

the interest paul to the City In holding that this tas

was unconstitutional because really laid on the Cit y, Mr.

Justice Hunt said (2) 1, Ed. 599) ;

— 65 —

"A tax is understood to he a charge, a pe-

cunlary burden, for the support of Government,

Of all burdens Imposed upon mankind that of

erinding taxation js the most cruel, If is not taxa-

tion that Government should take from one the

profits and gains of another. That js taxation

Which compels one to pay for the support of the

Government from his own eains and of his own

property "'

In Hartman ¢. Greenhow, 102 U- S. 672 (1881). the

question Was as to the Validity of a statute requiring

fax on bonds to he deducted from coupons pavable to

bearer, where the coupons had been originally attached

to the bonds, but had later been separated and were held

by a different: owner. The court, speaking Unanimoushs

by Mr. Justice Pield, said (p. GS4)-

“And surely it is not NeCessary to argne that

an-act which requires the holder of one contract to

Pay the taxes levied Upon another contract held by

a stranger cannot he ‘Ustained. Such an act is not

ut legitimate exercise of the taXing power: it under

takes to impose Bpen one the burden which should

fall, if at all, upon another *

If it is net legitimate te require the holder of rm

Coupon to Pay the tay levied upon a bond with which it

once at least Was fonnected, it surely is Net legitimate to

require the executor Of an estate to pay the tax Upon

Property which has no cebhection whatever with the ex

tate.

In the oft Quoted passage from the Knowlton ‘ase,

Chief Justice White sad at JT8 US 76.

—_ oe

“The tax is on each separate legacy or dis

tributive share, but the rate is measured by the

whole estate. In other words, the construction pro.

ceeds upon the assumption that Congress intended

to tax the separate legacies, not by their own value,

but by that of a whelly distinct and separate thing

But this is equivalent to saying that the principle

underlying the asserted interpretation is that the

house of A, which is only worth $1,000, may be

taxed, but that the rate of the tax is to be deter

mined by attributing to A’s house the value of B's |

house, which may be worth a hundred fold the |

amount. The gross inequalities which must in

evitably result from the admission of this theory

are readily illustrated. Thus a person dying and

leaving an estate of $10 500, bequeaths to a hos

pital Sliema The rate of tax would he five per

cent, and the amount of tax S000. Another person

lies at the same time, leaves an estate of Slew iee

amd beyueaths $10,000 to the same institution. The

rate of tax would be 12's per cent, and the amount

of the tax $1,250. It would thas come to puss that

the same perc, eecupying the same relation, and

taking in the same character two equal sums from

two different persons, would pavoin the one case

more than twice the tax that he would in the

other *’

Aud at page 77

“Tt may be doubted by some, aside from ex

press constitutional restrictions, whether the taxa

tion by Congress of the property of one person, ac

companied with an arbutrary provision that the rate

of tax shall be fixed with reference to the sum of the

property of anether, thus bringing about the pro

found inequality which we have noticed, would not

bes

transcend the limitations arising from those funda-

mental conceptions of free rovernment which under-

lie all constitutional systems."’

A similar tax was held unconstitutional in Black v.

State, 13 Wis. 205; 89 Now, 522 (1902), and in State v.

Ferris, 53 Ohio St. 314, 41 N. EL 579 (1895),

The statute under consideration in the present case

provides that the tax may be collected from the transferee

if there are insufficient funds in the hands of the executor.

Where the tax is collected from the transferee exactly the

same situation arises that was condemned in the three

cases last cited. Since the tax cannot constitutionally be

collected from the transferee, the scheme of taxation pro-

vided by Congress fails and it is extremely doubtful

Whether the statute could be partially upheld so as to

justify a retroactive tay collected from the executor, as

in the present case, However, we give no further con

sideration to this pout because the tax is equally bad

when collected from the estate,

To compel executors to pay a tax in respect to prop-

erty which is not, and never has heen, a part of the estate

under administration, of which the executors have never

had possession or tithe, and with which the decedent long

shee parted. and which Property Was vested in third per

sens, Amounts to nothing more or less than making A pay

4 14x On property owned by B.

ne of the most unfair features of this tax is the

fact that it is figured on the value of the property on the

date of death This makes the tax in the Reed case

almost double what it would be if it were based on the

Value of the Preperty at the time of the transfer which

ie taxed. The Supreme Court of Cahfornia in Chambers

t. Lamb, 1 Cal. 261, Joe Pace. 33 (1921), held that this

could not be done The case involy ed a transfer made in

— ae

contemplation of death after the passage of the state

inheritance tax law. At decedent's death, the property

was of much greater value. The statute does not seem

to have made it absolutely clear whether the property

was to be valued at the date of death. The Court held

that the property must be valued at the date of the trans

fer, Judge Lennon in delivering the opinion said at

page S4:

“Coneisely stated, the basis for the measure

ment of the tax is the market value of that whieh

changes hands as the result of the act of transfer

Applying these provisions and definitions to the

imstant case, the tax is mmposed upen the market

Value of the real property passing by the deed of

William PD. Lamb. $194,775 was the value of the

property whieh thus passed to the transferee

While the property had attained the value of $212,

775 at the time of the death of the transferor, the

additional $15,000) was not part of the value of the

property “passing” from the grantor to the grantee.

it Was an inerease in Value subsequent to the trans

fer and during a period when the transferee was

the owner thereof The value of the property

passing between the partios being the basis for the

tax, the inerease in value after the actual vesting

of rights under the transfer is not to be rated as

part of the taxable value.’

The fact that the tax is ‘due and parvable’

upen the death of the transferor is not inconsistent

with the rule that the liability for the tax attaches

Whenever the transfer is completed The Ua Pree

ton of a tax and its maturity are commonly re

carded as distinct and separate stages in the prem

ese of taxation '

RIL BS Canbrmetey nen Won. poe ass q bay il

—

This case shows the absolute absurdity and incon.

sistency in the present method of valuation.

(nue or two hypothetical cases may help to illustrate

the injustice of the statute under consideration,

Suppose a farmer in Texas in 1907 had conveyed to

a trustee land at that time Worth $10,000, and had re.

served to himself the income therefrom for life with the

remainder over to an invalid nephew, Thereafter the

farmer accumulated for his wife and children property

worth $100,000 and died after the passage of the 1918

Estate Tax Law. [py the meantime, the land placed jn

trust has been found to contain oil and is Worth $2,000,000

at the time of his death. Applying the law as it has heen

apphed in the case at bar, the farmer's gross estate would

he valued at $2. 00.000), Sw) would he exempted and

Assuming no debts or Other deductions, his net estute

would be $2,050,000, Thy estate tax would amount to

approximately $160,000, Thi. would take all the property

in the hands of the executor and leave a deficit of SO0 000)

to be collected from the nephew or the trustee, The

farmer's wife and children would be Je

‘ft penniless as a

result of this retroactive taxation,

Sew Villes et al. tv. af 5. U. a ('t. of Ch, No.

D809 (6 14 26)

Vary the foregoing case by the assumption that the

trustee, shortly after receiving the cony eyance of the land

and before the discos ry of oil, sold this land and, under

his power to reinvest, bought S10 worth of covery

Ment bonds Let the other facts remain the same. In this

mstanee, all the property left in the estate would bn

appled on the tax, the nephew would have to Eive up to

the Government the Value of the Gov erament bonds and,

under the literal wording of Section 4, both the trustee

and the hephew Would be }™ reonally liable for the SOO 000)

—

at eee

balance of the tax. The fortuitous jump in values, in

uring solely te the benefit of the man who purchased these

lands from the trustee, would result through the retro.

active application of this tax law in this incredible jn.

justice.

As we have shown heretofore in this brief, the Go

ernment has at different times used two different methods

of computing the tax. In the case at bar, the tax was

figured on the value at the date of decedent's death of the

property originally put into the trust although some of

that property had been disposed of by the trustee prior

to the decedent's death. Clearly the property whieh had

been disposed of and was net in the trust fund at the

tume of the decedent's death could have no possible rela

tion te the transfer of property at decedent's death or

to the deemlent’s estate. If that property had been sold

by the trustee to John Doe and had thereafter greatly

increased in value the estate would, nevertheless, have to

pay a tax based on John Doe's good fortune. This Met hind

of computing the tax is the methad which the statute pre

seribes im clear terms

tn the other hand, in the Reed case the tax was com

puted on the value at the date of dewedent’s death of the

property at that time in the trust fund although some of

this property had never heen owned of transferres| by the

decedent bat had heen purchases] bey the trustee, Is there

any possble reasoning by which an estate tax or any

other kind of transfer tax can be based on property never

ownel or transferred *

A consideration of the actual effect of computing the

tax on the inerease] value at the date of death brings to

hght all the inconsistencies, aleurdities and injustice of

this tax. The value has no relation whatever to the ol ject

of taxation

—

It is immaterial whether such an exaction be termed a

confiscation rather than a tax, or be held to violate the

Fifth Amendment, or be held a violation of ‘Those fun-

damental conceptions of free eoverument which underlie

all constitutional systems,’ (Aunvuwlton v. Moore, 178

US. 41,77.) In any event, it is an unreasonable and un-

warranted exercise of legislative power and not the legiti-

mate use of the taxing power,

HI.

SECTION 40 ¢e), REASONABLY CONSTRUED,

DOES NOT APPLY To TRANSACTIONS TAK.

ING PLACE PRIOR TO THE 1916 ESTATE

TAN LAW,

As previously stated, we believe that the constity

tional questions gare conclusive in this case, We recog.

nize, however, that this Court has uniformly sought

le aveid the necessity of passing upon the constitutionality

of acts of Congress by seeking out some ground for eo

struingy a statute so as not to raise the question of eon

sUtutionality,

In recognition of this established attitude on the part

of this Court, we submit that, reasonably construed,

the section of the 14] Statute under discussion may

be held to be retroactive only so far hack as Septem

ber 4 1916, the date of Piissage of the 19]1G Act. The

Court will bear in mind that under the fuets before it in the

ase at bar, all the gifts to the trust were completed before

the 1916 estate tax law was Passed. By the construction

we are suggesting, we do not Wish to be understood to

argue that such construction would obviate constitutional

difficulties in a case where the gifts took place after Sep

tembn 4 TG, bae before the PMissage of the ]4]s law.

That situation, however, is not new before the Court and

—

waits:

may be dealt with when it arises. So far as the case at

bar is concerned, the construction we are suggesting makes

wholly unnecessary the determination of any constitu.

tional question.

We have shown that the first estate tax statute to be

enacted by Congress was that of S16; that from and after

the date of its enaetment, for the first time, citizens of the

United States were actually or constructively put on their

hotice as to this new taxation polley of the Federal Goy

ernment. Any man giving away or willing away his prop

erty after that date did se with a knowledge of what his

aets might involve. The Si wab case determined that that

statute was only prospective in its operation,

When Congress came to pass the 19IS estate tax law,

it used the following language in Section 401;

‘That (in lie u of the tax imposed by Title I

of the Revenue Act of 1916, as amended, and in

leew of the tax Imposed by Tithe IX of the Reve.

nue Act of 1917) a tax equal te the sum,’ ete.

This language links the ISIS statute to the 1916 stat

ute amd was used brs Congress prior to the decision of

this Court in the Shwah case: therefore jt could not have

been inserted for the purpose of getting away from the

effect of the decision of this Court,

The 1918 Statute contained two new paragraphs.

These are See. 402, (e) and (f), and read as follows:

“(e) To the extent of ANY property passing

under a general power of appointment exercised by

the decedent (1) by will, or (2) by deed executed

in contemplation of, or intended to take effect in

Possession OF enjoyment at or after, his death,

except in case of a bona fide sale for a fair con.

sideration in money or Money's worth: and

—

“(f) To the extent of the amount receivable

by the executor as insurance under policies taken

out by the decedent upon his own life; and to the

extent of the excess over $40,000 of the amount re-

ceivable by all other beneficiaries as insurance

under policies taken out by the decedent upon his

own life.”

Paragraphs (e) and (f) of Section 402 were not in the

16 law and in spite of the fact that the retroactive lan-

guage in Section (¢), i. e., ‘whether such transfer or trust

is made or created before or after the Passage of this Act’’,

was first inserted jn Section (¢) when it was re-enacted in

IYIS, such retroactive language was not put in either See.

fe) and (f) were evidently inserted for the purpose of

closing other possible channels for evading the estate tax

law, just as Nection (e) Was originally placed in the 1916

law for a similar purpose,

It is, therefore, obvious that as to the hew transac.

tious, such as those covered by Sections (e) and (f),

Congress intended ne retrowetivity (see Lews Nyn ov.

Frick); that is, Congress did not make any express retro-

wetive provisions covering any items made taxable for

the first time. But as to transactions such as those coy

ered by Seetion (e). it intended some retroactivity. The

reasonable inference is that w hen S‘ongress put in express

retroactive language to cover transactions taxable under

an earher law and at the same time omitted retroactive

language covering transactions made taxable for the first

time, Congress did not intend to reach transactions ef

fected at a time when they were non-taxable. In other

Words, Seetions (eo) and (f), covering new subject matter

and operating only prospectively, needed no retroactive

language, wherens Section (ec), which had breveeny in effect

since September, 1916, required it,

ee SE

The chief injustice of retroactivity, upon which we

have dwelt at length in the earlier portions of this brief,

is obviated if Section 402 (ce) be made retroactive only

to September, 1916, because from and after that date

Prospective taxpayers had their warning. If the retro.

active scope be limited to 1916, the most odious feature

of retroactivity is eliminated the tax does not *UmMpose

an unexpected liability that, if known, might have induced

those concerned to aveid it, and to use their money jn

other ways." (Lewellyn oe. Frick.) Not so if it be given

& greater retroactivity.

This Court itself has expressed doubt as to the limits

of retroactivity of such a statute. In Sheab rv. Doyle,

this Court held that the 1916 law was prospective, basing

its decision partly upon the ground that if retroactivity

Were conceded it was doubtful how far hack it would go,

(on this point the Court said at page 335:

The circumstances of this case impel to such

selection. Uf refroactioty he accepted, what shal!

mark sts lemst?’’ (tallies ours}

When it in noted that the 1916 law used the words

“has al any time made a transtfer’’, it is apparent that

the Court was not merely adopting the literal meaning

of the words of the statute, but was applying legal rules

of construction to reach a reasonable result.

To concede indefinite retrogetivity, a construction for

Which Government's counsel contended, is so shocking to

one's sense of fairness and justioe that a construction

should certainly be sought which will averd any such

conclusion

Under Seetion 42 (6) of the IIS Act it is purmertile

to find a limit preventing unreasonable retroactivity by

adopting the date of enactment of the 1916 Act as a break

date. This does no violence to the statutory language

_ io —

it gives a meaning to it, but confines its operation within

reasonable limits.

We shall now call attention briefly to certain rules

which this Court has from time to time laid down, They

have been repeatedly enunciated, but we select only a few

typical CUSES:

First, in cases of doubt, taxation statutes shall be re-

solved in faver of the taxpayer and against the Gov.

ernment.

Second, retroactive laws are abhorrent, and if pos.

sible a retronetive construction will be avoided.

Third, in order to avoid the necessity of passing

upon the constitutionality of an act of Congress, the courts

will resort to a reasonable, as opposed to a literal, con.

struction of the statute.

In Gould v. Gould, 245 U.S. 151, it was held that

alimeny did not come within the terms of the items de-

scribed as ‘income’ in the Income Tax Act of 1913.

Mr. Justice McReynolds stated in the opinion, at p. 153:

“In the interpretation of statutes levying taxes

itis the established rule not to extend their provi

sions, by implication, bevond the clear import of

the language used, or to enlarge their operations

so oas to embrace matters not specifically pointed

out. du case af doubt they are construed most

‘tronaly agamst the aevernment, and im favor of

the citizen."” (Htalies ours.)

“Tt is a principle which has always been held

sacred in the United States, that laws by whieh

human action is to be regulated, look forward, not

backward; and are never to be construed retro

ae ae

spectively unless the language of the Act shall ren-

der such construction mdispensable.”’ — (Italies

ours. }

To construe the parenthetical language in Section +r

(¢) as reaching hack seventeen or se venty Vears

IS Cer

tainly not an ‘tindispensable’’ construction.

In delivering the opinion in Southwestern Coal & lm

provement Co. ev. McBride, 185 U.S. 49 (1902), Mr. Jus

tice White, at page 503, says:

“We adopt the reasoning of the court below

on the subject. The court said (48 C. C. A. 632,

WM Ped. 473);

‘**The function of the legislature is to pre

seribe rules to operate upon the actions and rights

of citizens om the fuflure While, in the absence af

4 coustitutional inhibition, the legislature may wive

to some of ifs acts a retrospective operation, the

intention to do so must he clearly eXpressed. or

necessarily impled from what is expressed: and,

assuming the legislature to possess the power, its

act will net be construed to impair or destroy a

Vested right under a valid contract umless if is «

framed as te preclude any other mflcrpretation |

(Ttahes ours.)

Can it be said that the language in Section nr

precludes the interpretation we have suggested, i

the retroactivity be limited! to the period subsequent to

September 0 1916 Our suggested

seaine theaning {to the word **hefore’’

Ce §

ititerpretation gives

It does Tint viol iow

to that language

Umon P. BR. RB. Co. &. Laramic Stock Vards Co, 233

U.S. 190, SAL. Ed. 179 (1913) in volved ejectment to nm

eover land which was part of plaintiff's right of Was

Defendant claimed as adverse Possenaor §

for the pericd

require] by the state law. The land was not oruginalls

—

subject to adverse possession because the fee was in the

United States, but in 1912 Congress passed a law pro-

viding:

“That in all instances in which title or owner.

ship of any part of said right of Way heretofore

mentioned is claimed as against said corporations

or either of them, or the Successors or assigns of

any of them, by or through adverse Possession of

the character and duration preseribed by the laws

of the state in whieh the land is situated, such ad

verse possession shall have the same effect as

though the land embraced within the lines of said

right of way had been kranted by the United States

absolutely or in fee instead of being kranted as a

right of way.’

Plaintiff claimed that this statute Was not retroactive

and, if so, was Wheonstitutional.

On demurrer to the answer, judyment was given for

defendant Reversed on the ground that the statute

should not he construed to be retrouctive.,

Mr. Justice MeKenna said at 227 0 S. 194.

*Constrnetion, therefore, becomes NECERSUTY,

and the first rile of eonstruction is that legislation

must be considered as addressed to the future, not

to the past 7h, rule is one of aby (ous justice, and

Prevents the issonmHG af a quality os lect fo acts

me conduct whirh they did wot have or did not con

femplate when they were performed. The rule has

Perens expressed in Varving degrees of Strength, but

alwave of ene import, that a relraspectsre operation

will wot be aiven to “statute which interferes with

antecedent rights, or by whieh human action js

regulated, unless «uch he ‘the unequivocal and

tm tlerible IMpert of the terms, and the manifest

imtention of the legislature’ " (Citing cases. )

(Italics ours.)

At page 200 he said:

“In Sohn eo. Waterson, 17 Wall. O96, 21 LL. Ed.

737, the questions we are now discussing came up

for consideration. We there expressed, in con.

sidering a statute of limitations whose litera! in

terpretation would have had the effect of making

it applicable to actions which had acerued prier to

its pissage, the rule against retrospective opers

tion—-the injustice and unconstitutionalitw. of it

We said that a statute of limitations mav affect

actions whieh have acerued as well as those to

acerve, and ‘whether it does or not will depend

upen the language of the act and = the Apparent

intent of the legislature to be gathered therefrom.’

But it was said that, errn agains! a lite ral interpre

fation of the terms of the statute, ‘it will be pre

sumed that such was not the intent of the lewisla

ture, Sach an intent would he anconstitudional T

arowd such a resulf. and to oer the statute a cos

struction that will enable ut to stand, courts hase

geen th a proaspectiee operation.’ "" (Italies ours )

Cmon Pate RCo. 6. Snow, DUS tM, OS TL Ba

IM (1913), was a companion case to UPR Cos Lava

mie Stock Yards Co, and invelved the same question Ty

hekiing that the statute should mot be construed toa he

retroactive, Mr. Jasties MeKenna said, at 207 US 213:

"Courts wall eof as we have seen, enforce a iif

eral wmeferprelalion when hy dowmgq 80 antecedent

rights are affccted of human conduct gitrn a com

soqurhcr ff did wot intend Such a purprrmse thy

courte refuse to assign to the legislatare utiless

compelled by language explicit’ and Mn perative

Ami we have pointed oat that we are regelles! from

#4 doing by grave doubts of ite lewality ae weil!

of ita pUstiow These considerations Heed net

pone

further expanded. Their strength has been pointed

out and their sufficiency to prevail over a literal

interpretation of a statute.” (Italies ours, )

It is obvious frem the last two cases cited that a

literal interpretation does not hind the courts where such

literal interpretation rises serious constitutional ques

tions, Ty Lewellyn r. Frick, supra, Mr. Justice Holmes

said, at page O5]-

**Acts of Convress are to be coustrued, if pros

sible, in such a Wave as to avoid grave doubts of

this kind.’*

The established practice of this Court to avoid giv

ing fo 4 statute a coustruction whieh involves constity

honal difficulties Was only recently again affirmed by

Mr. Justice Van Devanter in Panama Railroad Co. t.

Johnsen, 4 (". S. 375 (1924). as follows (p. 800):

** Bat, “is this Court often has held, “a statute

Must be construed, if fairly possible, so us to avoid

not only the conclusion that jt Is unconstitutional,

but alse grave doubts on that score’."’

In A neweltion Moore, VIRUS 41, at pave 77, the

Court said

“We are therefore hound to give heed to the

rule that where a particular eoustruction of a stat

ule will oecasion Freat tnconvenjence or produce

mequahty and justice, that view is to he avoided

if another and more reasotnhle interpretation is

Present in the Statute ""

In U.S. +. Kirby. 74) 8 #82, 19 1. Ed. 278 (1868).

the holding of the mise is shown in the following language

of Mr. Justice Field at 19 1, Bd osc

“AH laws should receive a sensible eonstrue

ton. General terms should be «eo limited in their ap

Pheation as net te lead to inJUstioe, Oppression, or

— ee

an absurd consequence. It will, always, therefore,

be presumed that the Legislature intended exces)

tions to its language, which would avoid results

of this character. The reason of the law, in such

cases, should prevail over its letter,

The common sense of man approves the judy

Ment mentioned by Puffendorf, that the Bolognian

law which enacted, ‘That whoever drew blood in the

streets should be punished with the utmost sever

ity’, did not extend to the surgeon who opened the

vein of a person that fell down in the street in

a fit The same COMMING setse aoceptis the ruliny,

eited by Plowden, that the Statute of 1 Edwani Il,

Which enacts that a prsener who breaks prison

shall be guilty of a felony, does not extend to «

Prisener whe breaks out when the prison is on

fire—‘for he is not to he hanged because he would

het stay to be burnt’. And we think that a like

eutnen seuse will sanction the ruling we make,

that the Act of Congress which punishes the ol,

‘truction or retarding of the passage of the ma

or its earner, does not apply to a case of tempo

rary detention of the mur] Chtised by the arrest of

‘*

the carrier upon an indictment for murder

We find the ‘rule of reason”, eo called, in the mat

ter of Satulory construction applied bey this Court

in the celebrated cases of Mandard (hl Company of Nex

Jersey tr. Uo weled Slates, 221 U.S. 1 (1910) and Co msted

States + fmrriwcan Tohacen Co, PIU S. 1065 (1910),

and in the earlier cnse of ¢ hutch of the Holy Trimity

Umited States, 1430S $57 (3892) In the last nated

case, the court was passing Gye the statute prohibiting

the importation of aliens under contract to perform labor

amd the question was whether or mot this statute «hould

he applied to an Finelish elergyman who had come to

serve a New York church under contract. Mr Justice

Brewer, at page 227 of 26 I, Fal, said

“It must be conceded that the act of the cor.

poration is within the letter of this section.”’

— pa

After stating the argument, the Justice goes on to

say:

“Tt is a familiar rule that a thing may be with.

in the letter of the statute and wet not within the

‘fatute, because not within its spirit, nor within

the intention of its makers."’ (Ttalies ours.)

And later on he Sas:

“As said in Plowden, 205: ‘From which eases

it appears that the sages of the law heretofore

have construed statutes quite contrary to the letter

in some appearance, and those statutes which com.

prebend all things in the letter they have ex.

pounded to extend to but some things, and those

Which generally prohibit all people from doing such

an act they have interpreted to permit some people

to do it; and those which include every person in

the letter they have adjudged to reach to some

persons only, which expositions have always heen

founded upon the intent of the Legislature, which

they have collected sometimes by considering the

Case and necessity of making the Act, sometimes

by comparing one part of the Aet with another,

and sometimes by foreign circumstances,’

And at page 229

“*Aguin, another guide to the Meaning of a

Statute is found in the evil whieh it is designed to

remedy: and for this the eourt properly looks at

contemporaneous 6 ents, the situation as it existed,

and as it was pressed upon the attention of the

legislative bawdy ne

— @-—

agmnet the gevernment and im fever of the tatpurer.

sowomd, that retroactive ewmetrietson sheraled be si euwlert

anless ne other reasonable ewnetruction ean be found.

third, that the literal construction Reed met bee mebeoptest

where # reasonable construction will obviate the teweseity

of deciding grave constitutional questions, The eonstruc

then we have urged gives some Meaning to the retroactive

parenthetical clause When carefully considered, the

cases of Shwal + Dowle and Lewellan Frick clearly

sustain such a construction A hasty perusal of the «tat

ute may leave at first the impression that the tetremetiy ity

of the statute is unlimited hat o Mere careful ewnside ra

tuom shows that the construction far Sherk we counter?

= Set only cumsestent with the wemiing «f the statuty.

bat conforms te the leenslatixve intent ame ws im fart the

meet twasenahiy comstrarten whorh can be aihotet

Sere ae vinlenewe Se lemeusee anel ae applied Se tle feere

am the cow af Ber. exenis & harwiness amd am injuntin

foeen sir The ewurte mat che nk

= =

CONLIN

‘his af ci. Pepe Bee af Brac Tas be

PPG RG-enlc oe « “tien «rh 2 cas oe

‘Dem Ttanefere aml afr emmipioter’ hefner tlhe encaert

Ment ef the low Ti+ 28 = sheolore anet BBY otra f-

& lnates pen te the eC PETeT Be ooftien of eTeatine ag of

fotercnge the *Teating «of » tasahl- “Taetoom Ef tate.

him metely fewunee af the pest eterriae of ome of the

attributes of the ownership eof property it therefore

falle in the ategery of direct taxes steed being BAP pror

Tete is Gneonstifutional

These retrenetive PTON tstots TI pre Consequences

uprrns the |e witimate, Prier sets of men utterly bevond their

Prrssibile contemplation As a result, Preperty is taken

utler the guise af taxation and taken in a Wav whieh

Vielates the fratee! ernie nt an! Conceptions of organized seaebety

We contend that this * a taking in viclation of the Fifth

Ame tetmment uf the @ coms ti teat icon

Bre “etter sree! re ceseary The Almacschey chrom peed a eur

mm before nor “tes wml ewtiewalen? th. future from u~x

Fhe w hulle we Meee of hitman Efe is Waek wed at em this

Reme This fas its od, aOtaaws ami i+ apparent baad

See «ft thes faurks te pTeoutneet te keaom These timte

Se amremoe Theor afisers. quake thear Gecsaenm, cheer be.

Tenet eter comer of cwmdduct amd aneter am the Sacte of

peewras cwmdtanm, mundified Be. seme «teat penmibin ¥e

he chemés tui gtr of & cow os Oe The Sate

S wemmee oo DT quale 2 ett op the Soom of o

feet Sie eomlies with Ge ee 2S Se pecte ex i--

peegests amike certian specced comiifines, beth coc

wrt tise anh wmawaihir ote fnew of trceeniic Sie

aete om Re echt of cnelitiene peewent te fer i BRT. chp

lowe them eumfing are ceml inte her true So evtace |

tos lew etinfe them of ontil sine seare Ieter Sie |

dees art kaw sheat it. becnaee i i+ gnknowshle se

makes her caleulations and arrances her affairs in neres

sary wgnetance of what ie to he She deew net Vale

There i nothing te attempt to evade. Then in 1916, of

1918, a Congress comes into leing and by the enactment

of a law gives a quality te the acts of this woman never

intemde! of guessed at by her and fastens Upon these

acts serous consequences which were never in her con

templation

Was it pet the recegnition of such possi bulities im

analogous situations, that put inte the Comstitution the

Taft. m the Chadd Labor Tar Caw. sopra, sand at 256

crs»

“~The differen betecem « tas and o pentaty

oe eters fie ult te define ~

Tike <leet of the tae oe the come at Ber oe te penal

fot Psa lett

Dee wet the gee ueme of the State ends Me TE

tem ~Sretewaed the Lamtiatnee eremng fremp thee funds

Serttel woregtoue «6 free geeetemest whee unde l al

“ne oe aml «1 Aeepe *

Hemwns pp Reavers

4 Carmen reese

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