# Amicus Curiae Brief — Nichols v. Coolidge > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386006_0706%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1927 - **Citation:** 274 U.S. 531 ## Text — INDEX. PAGE 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 (C) It violates the fundamental concep. 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) 52 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 ts 2. bw the trester These hed newer been ened of trans ferred by the dener, bet were taxed ae « part of the o tate Ae ? 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. I. 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 a 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 a 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 i) i tt i | i : i i il ft | i ' ir +t { | | 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. (C) THE MEASUREMENT THRORY oF THE 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 aa ae 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. re -~ 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 le _— 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 —— wi ‘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 r 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 a , 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 —_— en 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 —