Amicus Curiae Brief — Blodgett v. Holden

Supreme Court brief1927

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Text

‘lb’, FIIED

oct 3 1927

a F CHARL ES TIME ( ROPLED

eeen |

IN THE

Supreme Court of the United States

ChoTonen Trem, 1027

No. 154

JOUN Wo BLODGETT,

Plaintiff in-Ervor,

CHARLES HOLDEN, U.S. Collector of Internal Revenue

for the Fourth Colleetion District of Michigan,

lictendantan Error

ON CERTIFICATE FroM Titk UNrTeD STATES Cinctrir Court

oF APPEALS Por THE SIXTH Circturr

MOTION FOR LEAVE TO FILE BRIEF AS

AMICI CURIAE AND BRIEF.

—————— —_- ——- a ————————

Joun W. Tbaves.

MontToomenry BO ANGELL.

Biount Rats,

Office A TPO) Addrens.

44 Wall Street,

Borough of Manhattan,

New York City

Pie ee

PEI

PAGE

RD a sa awh spaces pnbaesvss.cencetomes ° iii

I Scab dba pivegsdusei neue bebe seneasedaen iv

Motion for Leave to File Brief us Amici Curtae........ 1

Notice of Motion for Leave to File Brief as Ames

Curwe .... Lcideceanaes 3

Consent of solicit iter » General | to I ile Bris Da veeveuaeeas 4

Consent of Counsel for Plaintif-inerror to File Brief. . a

ee ey ED <5 hk bp cewe ches dndnhépnseds ts (i

Be Sena daesatnen cdanencecsedenve> avsdesaes 7

SN Crees dnewcs eens cdo raw dees kee 9

AKGUMENT:

1. The powers of Congress to tax and the limitations

imposed thereon are set forth with particularity in

Ee Perr ete rn Pry ere 1]

Il. The gift tax is a direet tax and since not appor-

tioned is unconstifutional oo 00000000000... vee ee

(1) The distinetion between a direct tax and an

indirect or excise tax is fundamental. A

direct tax is one levied on the general owner-

ship of property: an indirect tax is one on the

evVercise of mathe pai ticular pri ile qeoor voca

tion, enjoyment of some special use. oo... .. Iz

(2) A tax upon any essential incident of owner:

ship is a tax upon the ownership of property,

OT A EG Gs i na sctccanreduaccsss es 17

(3) The natural and universally recognized right

to relinquish the ownership of property by

gift is an essential attribute of property and

inseparable from ownership... .. ee ere

Dine

PAGE

(4) The fact that the act purports to tax not the

property given but the transfer of the prop

erty does not the less make the tax a direct

tax. : Terr rcrree ee cra te 6.4 eae = é

(5) A gift tax is novel to English and American

jurisprudence. It was for the first time made

a part of the fiscal system of any nation in

1924. It was entirely unknown to legislators

or economists at the time the Constitution

WE NEE as preci dacsncvbicuseccavishee ae

Ill. Even if the gift tax is an indirect tax when applied

prospectively, its retroactive application results in

taxing property directly, and since not apportioned

it is unconstitutional ax applied retroactively. AD

Conclusion ae Pere ry rr Se ee eee ee |

Appendix ‘2

;

wt te ie Ee Oe dt at en , ” , i

: Bein

EEE en ee ee ee

iii

Table of Cases.

PAGE

Anderson v. MeNeir, 16 F. (2d) 970.............25. 30. 26

Billings v. United States, 232 UL S. 261.000... 1S, 31, 33, 42

Board of Commissioners v. Rocky Mt. News Printing Co.,

ee Oe Co eich is sud xs oak sa cn See cer. case 23

Brown v. Maryland, 12 Wheat. 419.................. 21

Brushaber v. Union Pace. RL R. Co. 240 UL S012... 14

Buchanan v. Warley, 245 UL 8. 60. 74...000..0...... 22. 29

Craig v. Taylor & Sons, 192 Ky. 36.................. 13

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

13, 14, 25, 29, 37, 44, 45

Eisner v. Macomber, 252 U. &. 189.................. 13

Flint v. Stone Tracy Co., 220 U.S. 107.000.000.000... 15

Clemet . Fume, £60 i. H. BOB, AFB... onc ccccncuncncs Pa

Grand Rapids Booming Co. v. Jarvis, 20 Mich. 308, 320 18

Hylton v. United States, 3 Dall i711. 0.000.000.0000... 14

Kansas City Ry. Co. v. Botkin, 240 U.S. 227.0000... 29

Reeney v. New York, 222 U. 8. 525...............28, 88 49

Knowlton v. Moore, 178 UL S. 4100000020... 13, 15, 28, 36

Kuhn v. Common Council, 70 Mich. 534.............. 23

Magoun v. Hlinois Trust & Savings Kank, 170 US. 288 2S

MeCray v. United States, 195 U. 8. 27....00..00000.. 15

MeNeir v. Anderson, 10 F. (2d) 813......... 25, 32. 33, 37

New York Trust Company v. Eisner, 256 U. 8. 345.

OR cnc ohana saved ee ee 15, 28, 36, 37, 44

Nichols v. Coolidge, U. 8. Supreme Court No. 88, decided

NO Wg IS Sos ee ook KG ESA aks e aka eieKee 27, 35, 39

Nicol v. Ames, 173 U.S. 509, 515, 516... 0.12. 15, 27. 37, 45

Patton v. Brady, 184 UL 8. GOS... odd 15, 33, 42

Pollock v. Farmers’ Loan & Trust Company, 157 U. 8.

Ss CARS R eee ee GCA a oe ee bok vcibeucets 14, 25, 37, 46

Pollock v, Farmers’ Loan & Trust Company ( Rehearing),

Bir Rs enzo URh ek G ores uo eiee eee 13, 41

PAGE

Powell v. Pennsylvania, 127 U.S. 678, GS4............ 29

Schlesinger v. Wisconsin, 270 UL SB. 2800000002... 34, 35

Scholey v. Rew, 25 Wall 331... .. ry ee io ae

Thomas v. United Stutes, 192 U.S. 364, 370000000... 14, 15

Thompson v. MeLeod, 112 Miss, 385, 73 So. 195.0... 14, 20

Thompson v. Kreutzer, 112 Miss. 165, 167, 72 So. SOL. 15, 20

Todd v. Wick Bros , 36 Ohio State 380, 385000000000... 23

United States v. Perkins, 163 UL S. 6250000000000... 15, 2s

Veazie Bank v. Fenno, § Wall. 5338........0..0.0.0....... 1h

Wrynehamer v. The People, 18 N.Y. 378, 3060000000... 25

Commentaries.

Blackstone, Brook 1, Chap Ios). poeta Aaa a 21

Coke on Littleton, Lib 1, Chap. d, See 1, po debooo.... ul

Corpus Juria, 12, p. 945, $450... .. 0.6. ce ee eee oD

Kant, Critique of Reason... Pee ee oe Is

Kent's Commentaries, Part IV. pp. 820, 501. 0... oe

Rutherford, Institutes of Natural Law, 1799 Cho 3. po S40 22

Sugden, Treating on Powers, Sth Edo po dt4.0.0 0000..0°0 22

IN THE

Supreme Court of the United States

OcToBER TERM, 1927.

JOHN W. BLopvGetTt,

Plaintiff-in-Error,

against

) Ne. 154.

CHARLES HoLpen, U. 8. Collector of Inter-

nal Revenue for the Fourth Collection |

District of Michigan, |

Defendant-in-Error. }

MOTION FOR LEAVE TO FILE BRIEF AS

AMICI CURIAE.

To THE HONORABLE THE SUPREME CoURT OF THE UNITED

STATES :

The undersigned, as counsel for William C. Ca: .on in the

case of William C. Cannon vy. United States now pending in

the Court of Claims of the United States, respectfully move

this Honorable Court for leave to file the accompanying brief

in this case ag amici curtac.

There is now pending in the Court of Claims the case of

Wilham C. Cannon vy. United States, No. E-595, wherein the

undersigned appears as counsel for the claimant. The sole

ixsue raised in such case is the constitutionality of the Fed.

eral gift tax provisions of the Revenue Act of 1924. The case

was set for hearing before the Court of Claims on January 3,

1927, but on being advised that the Circuit Court of Appeals

for the Sixth Circuit a few dave before had asked instruc-

tions of this Honorable Court upon the constitutionality of

the Federal gift tax for its guidance in the Blodgett case, the

Court of Claims refused to hear the Cannon case and trans-

ferred it to the general calendar, pending the decision of tis

Honorable Court on the questions certified,

WHEKEPOKE, motion is respectfully made for pertiussion to

file the accompanying brief,

Joun Wo Davis,

MontuoomMeny Bo ANGELL.

Bretxr Rats.

Attorneys for Willtam ©) Cannon

ee ee

PERRET SRR RN lc Ne cin Hr 20° Gt EA

IN THE

SUPREME COURT OF THE UNITED STATES

OcTOBER TERM, 1927.

Joun W. BLopveert,

Plaintiff-in-Error,

against

CuUARLES HoLpEN, U.S. Collector of Inter- / NO. 154.

nal Revenue for the Fourth Collection

District of Michigan,

Defendant-in-Error.

NOTICE OF MOTION FOR LEAVE TO FILE

BRIEF AS 4MICI CURIAE.

Sigs :

PLEASE TAKE NOTICE that upon the annexed motion for

leave to file brief as amict cure and brief, the undersigned

will move this Honorable Court at the October Term, 1927,

thereof, to be held in the Capitol at the City of Washington,

District of Columbia, on the 3rd day of October, 1927, at. the

opening of court on that day or as soon thereafter as counsel

can be heard for permission to file a brief as amtct curiae in

thix case.

Dated, New York, August 28, 1927

Jon W. Davis,

MoNTooOMERY Bo ANGELL,

Biowunt Rau,

14 Wall Street,

Borough of Manhattan,

New York City.

To:

THE HoNoRaAnLe THE Soliermor GENERAL

or THE UNITED STATEs,

Department of Justice,

Washington, Do ©

Mark Nomis, Bsq.,

Attorney at Law,

Girand Rapids, Michigan

Consent of Solicitor General to File Brief.

Departinent WMS EP

Justice

rick OF TITER Saticrtiok GENrKAL

Washington, DD

August 26, 1027

Moutgomers BooAngeli, Rosy,

co Davie, Polk, Wardwell, Gardiner & Reed,

44 Wall Street,

New York City.

lu re Bliuadgett \. Holden, No

ho). Octoher Term, 1427

Dear Sir

In reply to vour letter of the Zin instant, vou are ads ised

that this office has no objection to the Mling of a brief by Mr

Davie and vou as amict carer in the above cane.

When your brief is in final print, please send this office

aeveral copies

Very truly vours,

‘Signed: Gasianew To Lrsye,

Acting Solicitor General

Consent of Counsel for Plaintiff-in-Error.

to File Brief.

Nokgis, McPienson, Haku ngron & Warr

Attorneys & Counsellors

1107-1111 Grand Rapids Savings if dg.

Grand Rapids, Mich.

September 2, 1927.

Messrs. Davis, Polk, Wardwell. Gardiner & Reed,

44 Wall Street,

New York, New York.

Gentlemen -

In regard to your filing a brief as friend of the court in

the case of Blodgett ve Holden. Please be advised that as

counsel for plaintiff in-error I consent to your doing so.

I thank you for the copy of the brief forwarded to me.

Yours very truly,

(Signed; Magk Noxgrus.

MNW

IN THE

SUPREME COURT OF THE UNITED STATES

Octoren Team, 1027.

Joun WW. Bouoborerr,

Plaimetffin brror, |

agaist

, No. LDA.

CHagtes Hotpen, U.S. Collector of Inter-

nal Revenue for the Fourth Collection

District of Michigan,

Defendant in Error

BRIEF AS t1MICi CURIAF.

The Questions Presented.

It is proposed in thas brief to consider only those funda

mental questions of law upon which the conclusions of this

Honorable Court in reaching its decision herein must be

predicated The discussion will be limited to a consideration

ef the following point.

The Federal gift tax imposes! by Sections 319 to 324 of the

Revenue Act of 192 bis a dineet tax and sinee not apportioned |

is unconstitutional |

“

Even if the gift tax is an indirect tax when applied pros

peetively, ite retrospective application rewultsa in taxing prop

erty directly, and since not apportioned it is unconstitutional

as applied retroactively

The Statute.

Title III, Part I] of the Revenue Act of 1924, in Section

319 thereof, imposes a graduated tax ranging from 1% on tax-

able gifts of less than $50,000 to 40°. on taxable gifts exceed-

ing $10,000,000, as follows:

“For the calendar year 1924 and each calendar year

thereafter, a tax equal to the sum of the following is

hereby imposed upon the transfer by a resident by gift

during such calendar year of any property wherever situ-

ated, whether made directly or indirectly, and upon the

transfer by a nowresident by gift during such calendar

year of any property situated within the United States,

whether made directly or indirectly.”

It is provided in Section 320 that:

“If the gift is made in property, the fair market value

thereof at the date of the gift shall be considered the

amount of the gift.

And further:

“Where property is sold or exchanged for less than a

fair consideration in money or moneys worth, then the

amount by which the fair market value of the property

exceeded the consideration received shall, for the purpose

of the tax imypesed by Section 319, be deemed a gift, and

shall be ineluded in computing the amount of gifts made

during the calendar vear.”

Section S2f makes provision for certain specific deductions

in the case (a) of a resident, and (bh) of a non-resident.

Section $22 provides that in case the donor of a gift subject

to tax under Section 319 dies and the amount of such gift is

properly included in the decedent's gross estate, the amount

of gift tax shall be credited against and applied as a reduction

of the estate tax.

Section 323 and Section 324 are ax followr:

Spe 42d. Any person who within the vear 1924 or any

calendar year thereafter makes any gift or gifts in excess

of the deductions allowed by section 321 shall, on or be-

fore the 15th day of March, file with the collector a return

under oath in duplicate, listing and setting forth therein

all gifts and contributions made by him during such ca!

endar year (other than the gifts specitied in paragraph

(3) of sulelivision (a) and in paragraph ¢2) of wulsdivs

sion (bs of section S21), and the fair market value there

of when made, and al all sales and exchanges of prop

erty owned by him made within such year for less than a

fair consideration in money or money's worth, stating

therein the fair market value of the property so sold or

exchanged and that of the consideration received by him,

both as of the date of such sale or exchange

See 3260 The tax imposed by section S19 shall be pood

by the donor on or before the 15th day of March, and

shall be assessed, collected, and paid in the same manner

and subjewt, in se far as applicable, to the same provi

sions of law as the tax imposed by section SO]

From these provisions it will be apparent that the Act im

poses

(1d) A general tas on a// gifts of any property hevecee ut

wated. and that whether the gift i» made dereotly or wadore: tly,

(2) The tax is « graduated tax based on the value of the

property given,

(3) The tax is imposed on the donor and is applicable to

any person “who within the year 1924 or any calendar year

thereafter” makes ony gift in excess of the deduction» a!

lowed, and

(4) The tar is levied! against resident donors regantless of

where the property is located i ¢, whether within or without

the United States, and aguinet non resident donors as to any

property located in the United States at the time of the gift

What could possibly be broader than these provision» of

law? Every concetvatle kind of transfer falls within its

terme The tax ie not imposed on a limited clase of transfers

OPT or aren

but is levied generally on all transfers of any kind or variety

of property, wheresoever made, the sole limitation being that

it applies only to transfers by way of gift.

It should be remembered that although the present Act al-

lows certain exemptions, such as a specific credit of $50,000

and a deduction for charitable gifts, the constitutionality of

the tax as a gift tax is unaffected by these provisions. If it is

constitutional to tax a gift in excess of $50,000, it is equally

constitutional to tax a gift of $1. and if it is constitutional

to tax a gift to a stranger, it ix equally constitutional to tax

a gift to a charitable or religious institution.

SYNOPSIS OF ARGUMENT.

The powers of Congress to tax and the limita-

tions imposed thereon are set forth with par-

ticularity in the Constitution.

The gift tax is a direct tax and since not

apportioned is unconstitutional.

THE DISTINCTION BETWEEN A DIRECT TAX AND AN IN-

DIRECT OR EXCISE TAX IS FUNDAMENTAL A DIRECT TAX

IS ONE LEVIED ON THE GENERAL OWNERSHIP OF PROP-

ERTY; AN INDIRECT TAX IS ONE ON THE EXERCISE OF SOME

PARTICULAR PRIVILEGE OR VOCATION, OR THE ENJOYMENT

OF SOME SPECIAL USE

A TAX UPON ANY ESSENTIAL INCIDENT OF OWNERSHIP

18 A TAX UPON THE OWNERSHIP OF PROPERTY, AND SO A

DIRECT TAX

——

i3)

THE NATURAL AND UNIVERSALLY RECOGNIZED RIGHT TO

RELINQUISH THE OWNERSHIP OF PROPERTY BY GIFT IS AN

ESSENTIAL ATTRIBUTE OF PROPERTY AND INSEPARABLE

FROM OWNERSHIP

(4)

THE FACT THAT THE ACT PURPORTS TO TAX NOT THE

PROPERTY GIVEN BUT THE TRANSFER OF THE PROPERTY

DOES NOT THE LESS MAKE THE TAX A DIRECT TAX

A GIFT TAX 18 NOVEL TO ENGLISH AND AMERICAN JURIS

PREDENCE IT WAS FOR THE FIRST TIME MADE A PART OF

THE FISCAL SYSTEM OF ANY NATION IN 1924 IT WAS EN

TIRELY UNKNOWN TO LEGISLATORS OR ECONOMISTS AT

THE TIME THE CONSTITUTION WAS ADOPTED

Itt.

Even if the gift tax is an indirect tax when

applied prospectively. its retroactive applica-

tion results in taxing property directly, and

since not apportioned it is unconstitutional as

applied retroactively.

Iv.

Conclusion.

ARGUMENT.

The powers of Congress to tax and the limita-

tions imposed thereon are set forth with par-

ticularity in the Constitution.

The taxing powers granted tou Congress and the exvent and

limitations thereof are set forth in the Constitution of the

United States in no uncertain terms. These are:

Article 1, Section &, Clause 1:

“To lay and collect Taxes, Duties, Imposts and Ex-

cises, to pay the Debts and provide for the common De-

fense and general Welfare of the United States; but all

Duties, Imposts and Excises shall be uniform throughout

the United States.”

Article I, Section 2, Clause 3:

“Representatives and direct taxes shall be apportioned

among the several States which may be included within

this Union, according to their respective Numbers, which

shall be determined by adding to the whole Number of

free Persons, including those bound to Service for a Term

of Years, and excluding Indians not taxed, three-fifths of

all other persons.”

Article 1, Section 9, Clause 4:

“No capitation, or other direct, Tax shall be laid, un-

less in Proportion to the Census or Enumeration herein

before directed to be taken.”

Article I, Section 9, Clause 5:

“No Tax or Duty shall be laid on Articles exported

from any State.”

The foregoing requirements are categorical and permit of

no modification It lies within the scope of congressional

MBPS Ase ss

activity to impose direct taxes and to lay and collect imposts

and excises. Direct taxes must, however, be apportioned in

accordance with the census; indirect or excise taxes must be

uniform throughout the United States; no tax or duty what:

soever may be laid upon articles exported from any stite

The requirement that direct taxes shall be apportioned ap

pears twice, once in the affirmative and once in the negative

form. The emphasis given by this repetition is) perhaps

unique in the entire instrument .

II.

The gift tax is a direct tax and since not

apportioned is unconstitutional.

tl)

THE DISTINCTION BETWEEN A DIKECT TAX AND AN IN-

DIRECT OR EXCISE TAX IS FUNDAMENTAL, A DIRECT TAX

IS ONE LEVIED ON THE GENERAL OWNERSHIP OF PROP-

ERTY; AN INDIRECT TAX IS ONE ON THE EXERCISE OF SOME

PARTICULAR PRIVILEGE OF VOCATION, OR THE FNJOYMENT

OF SOME SPECIAL US?

The distinction between a direct tax and an indirect: or

excise tax is fundamental in Constitutional law, However

diffleult the task in any given case may be, the Courts must

recognize and enforce the distinction, for, as Mr. Justice Peck

ham put it in Nicol v. Ames, 173 U.S. 509, 515, “The com-

mands of the Constitution in this, as in all other respects,

must be obeved; direct taxes must be apportioned, while in

direct taxes roust be uniform throughout the United States”

In the beginning the line of demarkation was very indis

tinet. Alexander Hamilton complained that “Tt is a matter

of regret that terms so uncertain and vague in so important

a point are to be found in th. Constitution.” But gradually,

by succesding decisions of the Supreme Court, a line has be

come worn, Which while perhaps not susceptible of easy ayy

Pa tp

plication, serves as a clear indication of the difference in class-

ification. The rule may be expressed thus: A tax on the per-

son or on his property by reason of general ownership is a

direct ix; a tax on the exercise of some particular privilege

or vocation, or the enjoyment of some special uxe of the

property in an indirect: tax.

The legal definitions, while not as helpful as the decided

cases, indicate the fundamental difference between the two

classes of Laxes and are worth some attention. In Eisner vy.

Macomber, 252 U. 8. 189, after asserting that Congress had

power to tax shareholders upon their property interests in

shares of corporations, the Supreme Court continued (p.

217):

“But that this would be taxation of property because

of ownership, and hence would require apportionment

* ° * is settled beyond peradventure by previous deci-

sions of this Court.”

Again in Dawson v. Kentucky Distilleries Co., 255 U. 8.

288, the Court said (p. 294):

“To levy a tax by reason of ownership of property is

to tax the property.”

And in Anowlton v. Moore, 178 U. 8. 41, Mr. Justice

White, who vehemently dissented in the two Pollock v. Farm-

ers’ Loan & Trust Co. cases, 157 U. 8. 429 and 158 U. 8S. 601,

conceded that taxes “which are the essential equivalent of a

tax on property generally, real or personal, solely because of

its ownership” are direct taxes, Only as recently as 1921 has

the Supreme Court of Kentucky given voice to this rule when

in Craig v. Taylor & Sona, 192 Ky. 36, it was said (p. 39):

“The mere right to own and hold property cannot be

made the subject of excises, since the levying of a tax by

reason of ownership of property is to tax the property.”

Again, the Supreme Qourt of Mississippi has mid in Thomp-

eon V. Kreutzer, (Mias.) 72 So. 891:

“No definidon of property can be framed which does

bot include the right of ownership. Consequently, no

tax can be loposed on the right of ownership, which is

not alsuv a aX on property.”

On the other hand, Mr Chief Justice Paller’s definition

of an excise tax in Thomas vo bo ntted Ntates, 192 UL S. 36.,

370, is fairly comprehensive

“There is no oecasion to attempt to confine the words

duties imposts amd exercises to the late of precise deti

nition We think that they were used oomprelensively

to cover customs and excise duties imiprasent On diniporta

tion, consumption, manufeeture and sale of certain com

montities, privileges, parceahor business transactions, vo

cations, Occtipations and the like.”

But the actual decisions on the cases themselves more

clearly indicate the line of demarkation. On the one hand a

poll or capitation tax and a tax on land are direct: taxes

Hylton vo lasted States, & Teall UT), Pollock vo Farmers’

Loan d& Trust Co (UST US 429, 148 US. GOL: Brushaher \

Umon Pac RR Co, 20U SL So is a tax on income

derived from real or personal property (Pollock vo Farmers.

Loan & Trust Co, supra, Brusheber vo Union Pac ROR Co.

supral,ataxon the right to take possession of whistev from

a bende! warvhouse (Dawson Vo Nentucky Diatilleris Co

(245 US USS) a taxon a stock dividend (Fiserv. Macom

her 2S2U SISO) a taxon the extraction of turpentine from

trees | Thompson Vo MeLeod, 112 Misw 383, 72 Sa 19%) In

every instance the tax in question was imposed solely by ree

son of the general ow sership of the property

Where, however, the tax is not upon the general avenershin

of property but upon the exercise of some partioular proesle oe

oF spre wi ue to which the Property ts peut, then the tar is

an indireet or excise tax For instance, a tax upon earrioges

kept for private use was held to be an excise tax, Hylton \

Casted States 2 Dall 171) So also was a tax upon the pris

ee agp

ilege of Issuing bank notes ( Veazie Bank v. Fenno, 8 Wall.

533), a stamp tax on the sale of commodities on boards of

trade and exchanges (Nicol v. Ames, 173 U.S. 409). death

duties on the succession, inheritance and transfer of property

at death (United States v. Perkins, 163 U.S. 625: Knowlton

Vv. Moore, TS UL S41: New York Trust Co. v. Eisner, 256

US. 345), a tax on tobacco manufactured for consumption

Imposed at a period intermediate the commencement of man-

ufacture and the final consumption of the article (Patton v.

Brady, 184 U8. GOS), a tax upon the sales of shares of stock

in corporations (Thomas v. United States, 192 U.S. 363). a

tax on the carrying on of a business in corporate form (flint

\. Stone Tracy Co. 220 US. 1074. 4 tax on colored oleomar

garin « MeCray vo United States, 195 US. 27). a tax upon

the use of foreign built vachts (Billings v. United States, 232

oS. 2614 Inevery instance the tax was upon some peculiar

privilege enjoyed or special use undertaken.

In Anowlton Vv. Moore, supra, the court said (p. St) that

@ tax on legacies Was an excise tax “because of the particular

occasion which gives rise to its levy”. In the Patton case,

supra, involving atax on the manufacture and sale of tobacco,

the tax was upheld as an indirect tax because it was a tax

fp 619) “on certain kinds of property, having reference to

their origin and their intended use”. In the Thomas CARE,

supra, the tax on the sale of shares of stock represented by

certificates Was held an excise tax on the ground that (p.

S71) “the sale of stocks is a particular business transaction

in the exercise of the privilege afforded by the laws in respect

to corporations of disposing of property in the form of cer.

tifleates”, In the Stone Trae y Company case, supra, where

a tax on carrying on business in a corporate capacity was up-

held as an exeise tax, the Court said (po 151):

“The tax under consideration, as we have construed

the statute, may be described as an excise upon the par

Hieular privilege of doing business in a corporate ca-

paicity, ie. with the advantages which arise from cor

porate or quasi corporate organization ; or, when applied

tw insurance companies, for doing the business of such

companies. * * * If business is not done in the manner

described in the statute, no tax ix payable.”

And aguin (p. 150):

“In the present case, the tax is not payable unless there

be a carrying on or doing of business in the designated

vapacity, and this is made the oecasion for the Gax, meas

ured by the standard prescribed * °°"

And again ¢p. 151):

“The difference between the acts [1 e., receiving in

come and doing business] is not merely nominal, but

resta upon substantial differences between the mere own:

ership of property and the actual doing of business ta a

certain way.” (Ttalics ours.)

Perhaps the best statement of the distinction between dircet

and indirect taxes is that given by Mr. Justice Peckham in

Newol vo Ames, supea, where he xaid (p. S21):

“A tax upon the privilege of selling property at the

exchange and of thus using the facilities there offered in

accomplishing the sale differs radically from a tax upon

every male made in any place. The latter tax is really and

practically upon property. /f takes no notice of any kind

of proesiege or faciiity, and the fact of sale 14 alone re

garded.” (Italics ours.)

Thus, in the Aullings case, eupra, where a tax on the use

of forvign built vachts was held an excise tax, what the stat

ute taxed was not the ownership of the vacht, but the par j

tiowler wae of the vacht for pleasure purposes, that is, the tax

was imposed upon the wae of the vacht aaa yacht. Ruch a tax

is quite different from a general tax on all income from prop

erty, as in the Pollock cases, or a tax on obtaining possession

of property, asin the Acntucky Dhatilenes case, or it im sul>

mitted, a general tax on the disposal of any and every kind

of property. as in the instant case

From the foregoing it is apparent that a tax is on property

when it is levied because of the mere ownership of such prop-

erty. Now ownership means nothing more nor less than the

relationship of the owner to the thing. Property has no value

in the eyes of the law, except in so far as it confers advan-

tages upon the owner. Or as Alexander Hamilton put it:

“What in fact is property, but a fiction, without the beneficial

use Of it?” Consequently, as Mr. Justice Brandeis said in

the Kentucky Distilleries case, supra, page 294, “To levy a

tax by reason of ownership of property ix to tax the property”.

This being the case, how shall we determine and define taxes

which fall upon the ownership of property, as distinguished

from excise taxes upon some particular privilege or special

use to which that property is put?

(2)

A TAX UPON ANY ESSENTIAL INCIDENT OF OWNERSHIP

IS A TAX UPON THE OWNERSHIP OF PROPERTY, AND SO A

DIRECT TAX.

Both on principle and authority, a tax which is levied upon

one or more of the essential incidents of ownership is a tax

upon ownership and so a direct tax. It is this principle

which the Supreme Court established beyond peradventure in

the two Pollock cases, and if there is anything left of the

decision in those cases, this principle must be taken as funda-

mental.

Prior to the decision in the two Pollock casese it had gen-

erally been considered that only a poll or capitation tax or a

“tax on land”, as the expression went, were direct taxes.

This limitation the Supreme Court refused to accept, but,

sweeping aside with some impatience the loose expression “a

tax on land”, it showed by clear analysis that it is impossible

to conceive of taxing a thing except by taxing one or all of

the casential incidents of the ownership of that thing, and

that one of those essential incidents was the right to receive

the income derived from the property owned. Obviously, Uhat

which primarily gives value to property is the rents and prof-

ita derived therefrom. “We find it impossible,” said the Court

in the course of its opinion on rehearing (158 U. 8. 601, 628),

“to hold that a fundamental rejuisidion [i ¢, the requirement

that direct taxes be apportioned), deemed so important as to

be enforced by two provisions, one affirmative and one nega

tive, can be refined away by forced distinctions between that

which gives value to property, and the property itself.”

Property in the abstract is meaningless. Property is in re-

ality nothing more nor less than the sum of those fundamental

inosdents which the law has always recognize! as attaching to

the owner of property. Grand Rapiuls Rooming Co. vy. Jarvis,

30 Mich 30S, $200 In his Critique of Pure Reason Emanuel

Kant endeavored to distinguish between the “ding an-sich”

er the thing in itself, and its external attributes, such as

shape, color, ete, He sought to show that there is something

beyond and in addition to the physical attributes of an ob

ject. This may be well enough for philosophers and meta

physicians, but such a conception is quite foreign to our daily

life and certainly has no place in the theory of the law. Those

rights which attach to what we call ownership themselves are

ownership in legul cognizance. Take, for example, a chair

The chair is of value to ite owner not because of the “thing

im atwelf’, but benatuwe of the fact that it servos a particutar

use, or is pleasing te the eve. or may be sold and ite value

realignd in another thing more desirable Bevond what thes:

external qualities may give, the owner of the chair has

nothing

The Supreme Court of Michigan, in Grand Rapida Room

ing Co Vv. Jarre, eupra, p 320, expreseed it in this way

“Of what does property practically consist but of the

incidents which the law has recognized as attached to the

title, or right of property? Is not the idea of property

in, or tithe to the lands, apart from, and stripped of all

ita incidents, a purely metaphysical abstraction, as im

material and ueelees to the owner as ‘the stuff that

_—

dreams are made of Is it not a much less injury to him,

if it can injure him at all, to deprive him of this abstrac-

tion, than of the incidents of property, which alone ren-

der it practically valuable to him? * * * Property does

not consist merely of the right to the ultimate particles

of matter of which it may be composed, * * * but of

those properties of matter which can be rendered mani-

fest to our senses and made to contribute to our wants or

our enjoyments.”

What we call “property” is that which attaches to owner-

ship and gives it value. It is nothing more nor less than the

opportunity secured to the owner freely to enjoy undisturbed

and without restraint, those fundamental qualities of general

ownership which the law has recognized from its early be

KINDINES, MaMely, possession, use, the receipt of rents and

profits (or income) and the power of disposal A tax upon

any or all of these fundamental attributes of property is a

faX Upon the property itself, and consequently a direct tax

within the meaning of the Constitution.

Since the decision in the Pollock case this doctrine has

been accepted and applied in other cases. In the Kentucky

Thatillertes case, supra, a tax upon the owners’ act in taking

possession of his own property wax held to be a tax on prop-

erty. Justice Brandeis in the course of his opinion quoted

with approval from the decision of the Court below (p. 294):

“The thing really taxed is the act of the owner in tak-

ing 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., consump:

ion, sale or keeping for future consumption or sale.

°° * The whole value of the whiskey depends upon the

owner's right to get it from the place where the law has

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

value”.

In the course of his opinion, Justice Brandeis cited two

Mississippi cases which are particularly pertinent. In

——n

Thompson V. Kreutzer, 112 Miss. 105, 72 So. 891, the Supreme

Court of Mississippi said (p. 167):

“A tax on a thing is a tax on all its essential at-

tributes; and a tax on an essential attribute of a thing

is a tax on the thing itself ° * © No definition of prop

erty can be framed which does not include the right of

ownership. Consequently, no tax can be imposed on the

right of ownership, which is not also a tax on property”

In the second case, Thompson Vv. McLeod, 112 Miss, 383, 73

So. 193, it was held that a statute imposing a tax upon the

extraction of turpentine from any trees in the state was a

property tax tn the course of its opinion the Court sud ¢p

SSS):

“This act strikes down the inherent right of the prop

erty 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 vinevard has

to pluck his own grapes, Tt would be the same thing to

require a privilege tax as a precedent right of the owner

to pull the ripe pecans from the pecan orchard or to

enjoy a drink of pure water from the cool spring of the

old homestead.”

In view of these expressions of judicial opinion, it is net

surprising to find that the dixposal of property by sale is like

wise considered one of the fundamental incidents of owner

ship, and a tax on the sale is a tax on the property. In dis

tinguishing the tax under consideration in Vico! vo Ames.

supra, from a general tax on all sales, Justice Peckham said

in part ip Soke

“A tax upon the privilege of selling property at the

exchange and of thus using the facilities there offered in

accomplishing the sale differs radically from a tax upon

ecery male made in any place The latter tax is really

and practically upon property It takes no notice of

any kind of privilege or facility, and the fact of a aale vs

slone rrgarded” (Vtalice oura)

No less a jurist than Chief Justice Marshall has recognized

the same principle. In Brown v. Maryland, 12 Wheat. 419,

the Chief Justice said (p. 444):

“All must perceive, that a tax on the sale of an article,

imported only for sale, ix a tax on the article itself.”

Thus, one of the essential incidents of ownership is the en-

joyment of the rents and profits (/’ollock v. Farmers’ Loan

& Trust Co., supra): another is the right of possession (Ken

tucky Distilleries case, supra); a third is the right of free

disposition by sale (Nicol \. Ames, supra). A tax on any one

of these essential incidents of ownership is a tax on the prop-

erty and so « direct tax.

(3)

THE NATURAL ANI UNIVERSALLY RECOGNIZED RIGHT TO

RELINQUISH THE OWNERSHIP OF PROPERTY BY GIFT IS AN

ESSENTIAL ATTRIBUTE OF PROPERTY AND INSEPARABLE

FROM OWNERSHIP

The incidents of ownership are manifold, but those funda-

mental incidents which give to property its very meaning

stand out sharply. To repeat, they are the enjoyment of pos-

session with the right of user, the receipt of rents and profits

or income, if any, and the power of free disposal, whether by

sale, by gift, by abandonment or by destruction, These three

essential incidents of ownership have their roots deep in the

common Liw,

In Coke on Littleton, it is said, Lib. 1, Chap. 1, Sec. 1, p.

“If a man seized of lands in fee, by his deed granteth

the profits of those lands, to have and to hold to him

and his heires, and maketh livery secundum formam

chartac, the whole land itselfe doth passe; for what is the

land but the profits thereof?”

And in Blackstone we find the following: (1) Wend. Black-

stone's Commentaries, Chap. 1, p. 138) °

“The third absolute right inberent in every English

man, is that of property, which consists in the free use,

enjoyment and disposal of all his acquisitions, without

any control or diminution, save only by the laws of the

land.”

Again in Kent's Commentaries (lith Edition), Part LV,

pp. 320, SOL, it is said

“The exclusive right of using and transfering property

follows, as a natural consequence, from the perception

and admission of the right itself”

And again at page $26

“The power of alienation of property is a necessary

incident te the right of property, and was dictated by

mutual oonuvenience and mutual wants”

The Court of Appeals of New York put it in even stronger

language (Genet \) Hunt, Lik NY. ids, 170)

“An ubrestrictald power to appoint a fee in land * * *

is equivalent to ownership ”

And Sugden in his Treatiue on Porwcers, Sth Edo p S14, said

“A general power [of alienation) is * * ° tantamount

to a limitation in fee”

Rutherforth in his /eatitutes of Natural Law (1799 Ch. 3,

p SB), in speaking of the ownership of things, says that no

one can prevent the owner

“from disposing of them as he pleases, so that property

° * * contains not only a right to use thease things, but

a right to Limp of them either by exchanging them

for other things, or by giving them away te any person,

Without any valuable consideration in return, or even

throwing them away”

In Ruchanan v Warley, 245 US OO. T4. the Supreme

Court of the Unite! States eaid

“Property is more than the mere thing which a person

owns. It is elementary that it includes the right to ac-

quire, use, and dispose of it. The Constitution protects

these essential attributes of property.”

Property, said the Supreme Court of Ohio, “in a strict legal

sense * * * consists in the right to * * * use, enjoyment and

disposition” (Todd v. Wick Bros., 36 Ohio State 370, 385).

“The absolute right of private property consists in the free

use, enjoyment, and disposal of all one’s acquisitions. * * *

The right of property includes the right to dispose of it ac-

cording to the will of the owner” (Board of Commissioners

Vv Rocky Mt. News Printing Co. G1 Pac. 194, 496). “Prop

erty does not consist merely of the title and possession. It

includes the right * * © to sell and transfer it” (AuAn v.

Common Council, 70 Mich. 534).

Perhaps the best statement of the right is found in Wyne.-

hamer Vv. The People, BN. Y. 378, 396:

“Nor can I find any definition of property which does

not include the power of disposition and sale, as well as

the right of private use and enjoyment. Thus Blackstone

save (1 Com. 138): “The third absolute right of every

Englishman is that of property, which consists in the

free use, enjoyment and dtsposal of all his acquisitions,

without any control or diminution, save only by the laws

of the land” Chancellor Kent says ¢2 Com., 320): ‘The

exclusive right of using and transferring property fol-

lows as a natural consequence from the perception and

admission of the right itself” And again (p. 326): ‘The

power of alienation of property is a necessary incident to

the right, and was dictated by mutual convenience and

mutual wants” By another author, property is defined

as an ‘exclusive right to things, containing not only a

right to use those things, but a right to dispose of them.

either by exchanging them for other things, or giving

them away to any other person without consideration, or

even throwing them away” * * © These definitions are

in accordance with the general sense of mankind. In-

deed, if any one can define property eliminated of its at

tributes, incapable of sale, and placed without the pro-

tection of law, it were well that the attempt should be

made.”

It cannot be denied that the right to transfer property |)

sale for a consideration is one of the fundamental incidents

of ownership. Without it, property would have no value. Is

the natural and universally recognized right to transfer by

gift any the less an essential incident of ownership? No

valid distinction can be made between these kinds of transfer

As Kent said in his commentaries, the power of alienation is

oue of the inherent rights of property. That power is not

dependent upon whether it is exercised for a consideration or

by way of gift. The law is not interested in the motive in the

making of a transfer. It merely insists that the right to dis

pose, in whatever manner the owner may desire, is a funda.

imental incident to the ownership of property. The depriva

tion of that right is as serious in the eves of the law as the

deprivation of the enjoyment of the rents and profits. A tax

on the disposition by gift or abandonment is a tax upon the

property itself.

This must needs be the case. Value in the eves of the law

is not necessarily money value. Value in the eves of the law

is that quality which makes property desirable. Property i«

just as much desirable on account of the inherent right of gis

ing it aways as of disposing of at by sale for a consideration

One man may find value in his accumulated earnings on a:

count of the pleasure and enjoyment in giving them to his

neighbor, or to charity, or to his children, while another man

finds it in welling such property at what we commonly call «

profit.

Judge Raymond, in his opinion below, holding the gift tax

constitutional, admits that a tax upon such of the incidents

of ownership as the rights ter porsmene sel], prlesige hewpe or

enjoy is a tax upon one of the fundamental incidents of prop

erty and «0 is a dirert tax, but denies that a tax on the dis

—

posal of property by way of gift is a direct tax. He under-

takes to sustain this distinction in part on the ground that a

tax on a gift does not impose a burden on the value of prop-

erty as does a tax on the disposal by sale for a consideration.

We submit that in this Judge Raymond has taken much too

sordid a view of the law. In a legal sense, the right to dispose

of property by gift is as valuable to the owner as the right

to the rents and profits, or the right to realize gain on a sale.

The law does not measure the owner's right in terms of money.

It respects the value attaching to the right of disposal what-

ever form that disposal may take, whether that of a sale for

profit, or of a gift, or through destruction,

In the McLeod case, supra, a statute taxing the extraction

of turpentine from trees was held a tax on property. Can it

be that the tax in question, although a direct tax in the event

tie turpentine was sold, is an excise tax when the turpentine

ix extracted and delivered by way of gift to a neighbor? Ifa

tux ix direet when laid on the plucking of one’s own grapes

from a vineyard, is it an indirect tax when such plucking is

followed by a gift of the grapes to a neighbor? If the ripe

frait of one’s trees were pulled and given to a weary traveller,

would the tax on such an aet be an excise tax as a mere priv-

Hege. and net a direet tax on the orchard?

The Cireuit.Court of Appeals for the Second Circuit re-

versed the decision of Judge Augustus Hand in the District

Court in the ease of MeNew vo Anderson, 10 F. ¢2di 813,

and held that the gift tax was constitutional. Anderson V.

McNewr, 16 Fo ¢2tds 9700) Judge Manton, in his opinion in

that case, attempts to distinguish the case of Pollock N.

Farmers Loan and Trust Company, supra, and the case of

Dawson Vo Kentucky Distilleries, supra, on the ground that

in those cases the tax fell upon incidents of ownership so es

sential that it would have been “impossible to use the prop

erty at all without incurring the tax”. Proceeding further

the learned Judge says that “it cannot be successfully con-

tended that the right to give away property exhausts those

interests which together constitute the rights of property,

80 as to amount to the taking of the property”.

The statement of the learned Judge taken at its face value

obviously proves too much. A tax, in order to be a property

tax, need not encroach upon every essential incident of own-

ership. In the Pollock case a tax which fell upon but a single

incident of ownership, namely, the right to receive the rents

and profits or income, was held to be a tax upon property,

and therefore a direct tax. In the Kentucky Distilleries case

a tax which fell upon another essential incident of owner.

ship, yet but one, namely, the right to possession, was held

to be a tax upon property. It is quite obvious that if an

owner of property is deprived of, or grants away, a single

incident of ownership, he does not thereby lose or divest him.

self of the other incidents, no matter how essential the inci-

dent which he has lost may be. If he grants away his right

to the income, he still retains the right to possess, the right to

use, the right to dispose, etc. If he makes a bailment, or a

lease for years, granting away his right to possession, he still

retains the other incidents of ownership.

Can it be that Judge Manton is attempting to establish a

hierarchy among the fundamental incidents of ownership? Is

the right to the income or the right to possession more inmpor

tant in the eves of the law, than the right freely to dispose of

one’s property? The conception of such a gradation of dig

nity is indeed novel in the light of the authorities cited at

pages 21 ef «eq. herein,

We submit that there is no valid distinction between the

Pollock case and the Kentucky Distilleries case, and the in-

stant case. The right of an owner freely to dispose of his ’

property stands upon the same level as the right to income

and the right to possession. If a tax which falls upon the

right to income or upon the right to possession is a tax on

general ownership, and so a direct tax, it must necessarily

follow that a tax which falls upon the right of free disposition

is also a tax on general ownership, and so a direct tax.

(4)

THE FACT THAT THE ACT PURPORTS TO TAX NOT THE

PROPERTY GIVEN BUT THE TRANSFER OF THE PROPERTY

DOES NOT THE LESS MAKE THE TAX A DIRECT TAX.

Taxation is an eminently practical matter which touches

the humblest of our citizens and does not permit of fine dis-

tinctions or metaphysical subtleties. In Nicol y. Ames, supra

(p. 516), it was said:

“Taxation is eminently practical, and is in fact brought

to every man’s door, and for the purpose of deciding upon

its validity a tax should be regarded in its actual, prac-

tical result, rather than with reference to those theoreti-

cal or abstract ideas whose correctness is the subject of

dispute and contradiction among those who are experts

in the science of political economy.”

In the recent case of Nichols v. Coolidge, decided by the

Supreme Court of the United States on May 31, 1927, wherein

it was held that Section 402 (c¢) of the Revenue Act of 1918,

in so far as it requires the inclusion in gross estate of the

value of property transferred by a decedent prior to its pas:

sage merely because the conveyance Was intended to take

effect in enjoyment after his death, is unconstitutional, Jus-

tice MeRevnolds said:

“Taxes are very real things and statutes imposing

them are estimated by practical results.”

For all practical purposes the tax in question, whether it

may be said to attach to the right of transfer or to the trans-

fer ax such, is a tax imposed upon and tending to rest rict by

its levy the disposal of property by way of gift. In making

the gift the donor is merely exercising one of his fundamental

rights. He is not availing himself of any privilege conferred

by Government, such as exists where the title passes from the

dead to the living by inheritance or succession, or where a

buciness is being carried on in a corporate capacity, or where

the privilege of using a certain exchange is exercised in mak-

ing a sale, or where a foreign built yacht is being used for

pleasure. In all such instances the tax is either upon some

particular privilege or some more or leas restricted way of

using the particular object. Here the tax seeks out and im-

poses a burden directly upon one of the natural and univer.

sally recognized rights of ownership in all property of any

kind or variety. The donor in making the gift is acting upon

no license; he is merely exercising a right incidental to own-

ership. He is not holding or using his property pursuant to

any Governmental sanction, nor is it necessary for him to

secure consent of Government in making the gift.

But it is urged that the wording of the statute must deter-

mine to some extent the nature of the tax, and since the tax

is “upon the transfer”, it is a tax upon a privilege, the priv

ilege of making the gift, likening the tax to a tax upon in

heritances and successions.

The fallacy of this argument is at once obvious. In the

case of inheritances and successions, a real pricilege is availed

of when the property passes on to the living. No one has the

natural right to assign over his property to another by will or

inheritance without the consent of the sovereign. Upon death

the government might intervene and claim the property of

the deceased, for the dead have no rights. If, therefore, ax a

matter of grace, the state permits such devolution of prop

erty, it is by way of granting a privilege, which it may with

hold. The so-called “right of succession” being thus in reality

a privilege conferred, a tax on succession quite properly is an

excise or privilege tax. That this is the theory of the deci

sions is beyond question. Aaowlton v. Moore, eupra; United

States v. Perkina, awpra; New York Trust Co. v. Eianer,

265 U. 8. 345; Magoun v. [Mlinoia Truet & Savings Rank, 170

U.S. 283; Keeney vo New York, 222 UL 8. 525.

The disposal of property infer cieos by gift is funda

mentally different. Here there is a true righ!, natural to al!

persons and universally recognized as such in civilized s#o-

_—_————

cieties. It does not lie within the power of the sovereign to

deny to the owner this right of disposal. The courts and the -

legislatures of our several states as well as the Federal Gov-

ernment must recognize it, and the Constitution of the United

States in the Sth and 14th Amendments fully protects and en-

forces it. Buchanan v. Warley, supra, 74; Powell v. Pennsyl-

vania, 127 U.S. GTS, GS4; 12 Corpus Juris, p. 945, $459 and

cases cited, The power of disposal by wey of gift ix one of the

essential attributes of property inseparably bound up with

ownership. Congress no doubt may tax the exercise of such

power of disposal, but if it does, no matter what the tax is

called, it is a tax on property, and the tax must be appor-

tioned.

For in tax matters it is the substance, not the form, which

controls; how the legislature classifies the tax is immaterial.

It is the nature of the tax itself which determines its constitu-

tional classification. In considering certain refinements of

argument in the Pollock cases, the Supreme Court said :

“But constitutional provisions cannot be thus evaded.

It ix the substance and not the form which controls, as

hax indeed been established by repeated decisions of this

court.”

Again, the same court in the course of its decision in Kansaa

City Ry. Co. ¥. Botkin, 240 U. 8. 227, said (p. 235)

“Undoubtedly, a tax may be in form a privilege tax,

and, yet, in substance, may be a tax on property.”

Again, in Daron Vv. Kentucky Distilleries Co., supra, Jus-

tice Brandeis said (p. 292):

“The name by which the tax is described in the statute

ix, of course, immaterial. Its character must be deter-

mined by its incidents.”

The argument that the gift tax i* a tax not upon the prop-

erty given, but upon the dissevered act of transfer seems to

underlie the decision of Judge Raymond sustaining the gift

tax in the Court below, and also the decision of Judge Man-

ton sustaining the gift tax in Anderson v. McNetr, supra.

Judge Manton says, at page 973:

“This gift tax is not imposed because of general own.

ership of the he teanic Tut Because of the happentig of

alr-event. e transfer _of the property by gift: gives

rise to its levy.” sre boas

Judge Raymond, in his opinion, concedes that the test is

whether or not the particular tax in question is imposed “be

cause of the general ownership of property”. He concedes

that if the tax fell upon such of the incidents of ownership as

“the rights to possess, sell, pledge, keep or enjoy”, the tax

would be a direct tax, and even concedes that if the tax were

upon the right to transfer by gift it would be a direct tax.

But he maintains the gift tax “is imposed only after the ac

tual transfer”, that it is not on the right to transfer but

“upon the transfer after the title and ownership of the donor

has ceased by reason of a gift.” He then continues:

“Unless this distinction is kept clearly in view, the

mind is constantly tempted to revert to the thought that

the tax is upon the righf to transfer by gift. If it were

the latter, the tax could only be imposed during actual

ownership because the right to transfer terminates: by

the transfer itself.”

He then adds, himself realising that the attempted distin:

tion is netaphyaical to a degree

“This distinction is neither technical nor fanciful”

How technical and fanciful is the distinction, a cursory ex

amination will indicate

Judge Raymond asserts that the tax is not upon the night

to transfer by gift but upon the transfer itself, that is, as he

himself sulweyjuent!y states in the course of his decision, it is

upon the exercise of the right to transfer. Although the act

specifically imposes the tax on the donor, he says that the tax

is not levied upon any of the incidents of ownership in the

hands of the donor, because it is only imposed when the

transfer to the donee is complete, and at that time the title

and ownership of the donor has ceased.

The very statement of the proposition leaves one consider-

ably confused. The tax is not a tax on the right of transfer

because it attaches only after the transfer has taken place,

and on the consummation of the transfer the right of transfer

no longer exists. It is rather upon the erercise of the right.

But the exercise of the right is likewise lost upon the transfer

of the property. At this point the argument has become so

refined that it disappears into thin air, leaving the mind in

utter confusion! Whether the tax be upon the act of transfer

or the right of transfer or the erercise of the right of transfer,

as a practical matter the imposition of the tax is a burden

upon and directly restricts the exercise of a very fundamental

incident of ownership, namely, the very enjoyment of prop-

erty through its disposal hy gift to another.

The learned District Judge seeks aid and comfort for these

fine spun distinctions by a reference to certain statements of

Chief Justice White in Billings v. U. &., supra, wherein the

learned Chief Justice attempted to make a distinction between

the use of property in what he called its purely passive or

subjective sense, as distinguished from use in the active or

objective sense, that is, in the words of the Chief Justice, “the

outward and distinet exercise of a right which ownership con-

fers but which would not necessarily be exerted by the mere

fact of ownership.”

Grasping this distinction as lending assistance to his own

theory, Judge Raymond, after quoting at some length from

the opinion, continues:

“In the present case the subjective or passive right to

make a gift of property is not taxed. Tt is the acti or

objective exercise of the right which is taxed.”

With all due respect, such refinements of thought may well

be left to those who are enguged in less practical questions

than those of present day taxation. It is hard to conceive of

@ more “active” or “objective” use of property than the en-

joyment of the rents and profits, the very existence of which

presupposes some form of objective activity. Yet the Pollock

cases squarely hold that a tax on such a use is a direct tax.

The distinction between the Billings case and the instant

case, if the fortiner needs to be distinguished, is well stated by

Judge Augustus N. Hand, in McNew v. Anderson, 10 F. (2d)

S13, Sl4, wherein it is said:

“Billings v. United States, 232 U.S. 261, is not in

point, for the use of a yacht for pleasure was not only

distinguished by the Supreme Court in the opinion of the

Chief Justice from the sum total of the rights of disp.

sition and ownership of the yacht, but it may perhaps

also be said that many rights in ships have historically

been treated as excisable The laws for registry, clear

ance and all kinds of regulative provisions appear to

place such property peculiarly within governmental con

trol and regulation, so that the subjection of the use of

it to an excise tax cannot be regarded as extraordinary ~

In helding the Statute here in question unconstitutional,

the learned Judge mantel § P side

“There is, | believe, no case where such a tax as the

one now under consideration has been regarded as a tax

upon an exercise or privilege. So far as I can discover,

it is a form of taxation new in both America and Furop«

Testamentary gifts and gifts in contemplation of death

have been both in England and in the United States

treated as excises and subjected to taxation upon that

theory If there is anything left of the general views of

the court in Pollock v. Farmers Loan & Trust Co, 15s

U.S. 601, as to the nature of so called direct taxes, a tar

upon a gift not made in contemplation of death and not

to take effect upon death would seem to be necessarily

_——,

a direct tax imposed upon the donor purely as the owner

of property.”

This is a clear statement and carries conviction. There is

no need here for metaphysical distinctions or nice refinements.

Judge Augustus N. Hand continues (p. S15):

“The tax under consideration seems to have ho more

warrant than that before the Supreme Court in the re-

cent case of Dawson v. Kentucky Distilleries Co., 255 U.

S. 288. There the tax was described as a license tax on

persons engaged in the business of owning and storing

whiskey in bonded warehouses. The Supreme Court,

however, held that the tax was really one on the right to

take possession and remove whiskey from a bonded ware-

house and was a direct tax upon property and not upon

an occupation or license.”

No doubt, the Government will endeavor to rely upon such

cases as Billings v. United States, supra, Patton v. Brady,

supra, and perhaps Keeney V. New York, supra. These cases,

it is submitted, are not in point. They are so aptly distin-

guished by Judge Augustus N. Hand in MeNeir v. Anderson,

supra. (the full opinion in which is annexed hereto as an

appendix) that we do not deem it necessary to do more than

refer to that opinion

Both Judge Rayinond im his decision im the Court below

and Judge Learned Hand in his concurring opinion in the

We Vew case in the Cireuit Court of Appeals for the Second

Cirenit. endeavored to fortify the position taken on the

ground that the gift! tix wis ene ted ax a corollary of the

estate tax and in order to insure its efleacy.

“The object of the gift’ tax”, said Judge Raymond, “un

doubtedly was to make effective the provisions of the income

tax and the estate tax on thei applieation to large estates os

Later in the course of his decision he save that the gift) tax

“jx merely corollary to the estate tax imposed in Part T of

Tithe TIL of the Revenne Act of 1994 °° © Beeanse it was

regarded by Congress as Loiv« essential to preserve the

efficacy of the estate tax it Was sometimes referred to as the

‘mother’ of that tax”, and “Its substantial object’ was to

prevent the widespread evasion of the estate tax and high

surtaxes of the income tax law.” He then proceeds “Would

not Congress have the right to say, in view of the history of

evasion connected with the estate tax, that gifts of trope

than $50,000 in any one vear shall be conclusively presumed

to be made with an attempt to evade the estate tax and to

pose an excise tax thereon?”

In passing, it should be noted that whatever the purpose

of Congress in enacting the gift tax in PO24, at the present

time Congress does not consider such a tax NECESSIEY for

the effective administration of the Pederal Estate Tax, for

the gift tax was repealed by the new Revenue Act of 126

as of January 1, 1026, while the Pederal Estate Tax was con

tinued as before

But even assuming that the gift tax was enacted as a

necessary corollary of the Pederal Estate Tax, its constitu

tionality is not assumed for that reason. Justice Holmes said

in his dissenting opinion im S« Alestnger Vo Wiaconsin, 2700

8. 230, 241

“The law allows a penumbra to be embraced that goes

hevond the ontline of its object in onler that the object

may be secunesd ”

Be that as it mas, the majority of this Court in that vers

case refuses) te sustain a Gaxing act whieh overstepped the

power of the State Legislature although vigorously defended

on the ground that the law was necessary in order to make

effective a tax which it lay within the power of the Legis

lature to 1) pose

In the ScAlesinger case it appeared that the Wisconsin

Estate Tax Law impose! an estate tax upon gifts made in

contemplation of death and the presumption of intention was

trade conclusive if the gift was made within six vears of the

TARE &

—7—7~nN"

death, although there was no relation between the gift and

the death in point of fact. This provision of the Wisconsin

Statute this Court held unconstitutional, Contention was

made that such a conclusive presumption Was necessary to

prevent evasion of the estate (ax. This Court in considering

and rejecting such a contention said in part Cp. 240):

“The presumption and consequent taxation are de-

fended upon the theory that, exercising judgment and

discretion, the legislature found them necessary in order

to prevent evasion of inheritance taxes. °° * Rights

guaranteed by the Federal Constitution are not to be so

lightly treated; they are superior to this supposed neces-

sity. The State is forbidden to deny due process of law

or the equal protection of the laws for any purpose what-

roever.”

And in the more recent case of Vichals v. Coolidge. Na. 8%,

decided May 31, 1927, Justice McReynolds said :

“But under the mere guise of reaching something with-

in its powers Congress may not lay a charge upon what

is beyond them.”

The same reasoning is applicable here. While Congress has

the power to levy a tax upon the privilege of succession, it

cannot in an effort to make that tax more efficacious, reach

hevond its power and impose, without apportionment, a tax

which falls upon the general ownership of property. An at-

tempt by Congress to impose a direct tax, without apportion-

ment, cannot be justified by the assertion that the tax is being

imposed in order to aid in the effective administration of an

indirect tax

In answer to these who regard the question as involving i

difference in degree rather than in kind, it os enough to say

that the gift tax is even more remote in its relation to the tax

on the transfer of property by death than were the provisions

before the Court in the Schlesinger case and in the Coolidge

cast.

(5)

A GIFT TAX IS NOVEL TO ENGLISH AND AMERICAN JURIS-

PRUDENCE. IT WAS FOR THE FIRST TIME MADE A PART OF

THE FISCAL SYSTEM OF ANY NATION IN 1924 IT WAS

ENTIRELY UNKNOWN TO LEGISLATORS OR ECONOMISTS AT

THE TIME THE CONSTITUTION WAS ADOPTED.

When in 1787 the Constitution was formally adopted by its

Tramers, not only was a tax on gifts of property not known

but it was entirely beyond conception that such a tax would

ever be imposed. A tax of this nature was totally foreign to

the common law. Taxes on the use of private carriages, taxes

on tobacco and spirituous liquors and on occupations or priv-

ileges of many kinds had been recognized and accepted as ex-

cises for many years. But it is safe to say that neither the

legislators nor the economists of those days, even in their

urgent newl te raise revenue for the depleted coffers of

the new Government, ever thought of imposing a tax on all

gifts made by its citizens. Surely this condition of affairs at

the time the Constitution was passed bears directly upon its

interpretation. Justice Holmes in the opinion in New York

Trust Cov. Fisner, 206 US SAD, 349, recognized that the

question of taxation is largely historical, With respect to the

attempted distinction between the tax on the privilege of

transmitting and the tax on the privilege of receiving, he

said

“But that matter also is disposed of by Anow/lton \

Voore, not by an attempt to make some scientific distine

tion, which would be at least dificult, but on an interpre

tation of language by its traditional use——on the prac-

tical and historical ground that this kind of tax alway«

has been regarded as the antithesis of a direct tax. ‘has

ever been treated as a duty or excise, because of the

particular occasion which gives rise to ite levy’ 17s

Ct 8 sa”

And then he added thie peculiarly pertinent oleervation

“Upon this point a page of history is worth a volume

of logic ~

The instant case may well be dixposed of ov this simple yet

fundamental principle. Not only was a gift tax never con-

ceived at the time of the Constitution was adopted, but no one

ever thought of levying such a tax until a few months prior

to the passage of the Revenue Act of 1924. This fact alone

is sufficient to make a court pause before holding constitu-

tional such a novel invention. Judge Angustus Hand in

deciding the MeNew case largely rested his decision upon

this historical background, for after indicating that the tax

in question clearly is a tax on property within the rule laid

down in the Pollock case and the Kentucky Diatillerics case,

and after quoting from Justice Holmes’ statement in New

York Trust Co. \. Eisner, supra, he concluded his opinion

with the following language:

“The fact is that there ix no ‘page of history’ or even

a line of history where such a tax as this has been ever

foreshadowed, and if the reasoning of Pollock v. Farmers

Loan & Trust Co., supra, is to stand, 1 cannot see how

this tax can be defended, which would not seen: to be an

excise or license tax for the privilege of doing something,

but a tax upon a necessary incideyt of the ownership of

property, which has not héen apportioned, and is there-

fore, forbidden by Article 1, Section 2, Clause 3, of the

Federal Constitution. The classification of subjects of

taxation ix not scientific but largely historical, and a tax

upon an ordinary transfer of personal property infer

viros unconnected with the conduct of any business

would seem to be a direct tax, if anything can be, under

definitions that have been generally accepted. See Pol-

lock V. Favmere Loan & Trust Co., kupra, Nicol v. Ames,

173 U. &. 509, and Dawson v. Kentucky Diatilleries Co.,

eupre.”

irl.

If the gift tax is an indirect tax when applied

prospectively, its retroactive application re-

sults in taxing property directly, and since not

apportioned it is unconstitutional as applied

retroactively.

In the instant case a substantial part of the gifts were made

prior to the enactment of the law on June 2, 1924, and after

January 1, 1924. This fact is of course unimportant if the

Act imposing the tax is held unconstitutional on account of

the nature of the tax. But even if the gift Gax could be consid

ered an excise tax when applied prospectively, so far as

levied or attempted to be levied on gifts made before June 2,

1924, it is a direct tax as to such gifts and, since not appor-

tioned, it is unconstitutional.

We only mention this point to raise it, and do not propose

to argue it at length. The very nature of an excise or indirect

tax forbids its retroactive operation without apportionment

To impose a tax upon the privilege of making a transfer after

the transfer is completed leaves no choice by the taxpayer as

to whether he will or will not exercise the privilege, and ren

ders the tax unavoidable Pt thereta loses one of the essential

charecteristicos of an indirect or exeise tax and in fact be

comes a direct levy either upon the property itself because of

ownership, or apon the person of the donor

At the time the event oecurred which subsequently occa

sioned the tax, no statute imposing the tax was in force. The

privilege of transfer (if it was a privilege), had been exer

cised, and the gift completed without the exaction of a toll in

the form of a tax. Now, long after the event, a tax is levied

on the past act of transfer Such a tax is the antithesi« of

an excise or privilege tax. It is a direct tax imposed upon

the donor solely by reason of his previous ownership of the

property, and since unapportioned, its levy and collection is

on oo en od Oe re a

unconstitutional. It should be remembered that the tax in

Nichols vy. Coolidge, supra, was held invalid as an excise be

cause, in the words of Justice McReynolds, “the amount is

made to depend upon past lawful transactions, not testa-

mentary in character and beyond recall.”

Conclusion.

In conclusion, it is respectfully submitted that the provi-

sions of Title III, Part I], of the Revenue Act of 1924, are

unconstitutional as applied both prospectively and retrospec-

tively.

DAVIS, PoLK, WARDWELL, GARDINER & REED,

Attorneys for Claimant,

Office & Post Office Address,

15 Broad Street,

Borough of Manhattan,

New York, N. Y.

Joun W. Davis,

MonTGOMERY B. ANGELL,

BLounT RALLs,

Of Counsel.

APPENDIX.

McNem v. ANDERSON, Collector,*®

(U.S. District Court, Southern District of New York,

decided Feb. 15, 1926)

Statement of Facts.

On the Sth day of January, 1924, the plaintiff, George Me-

Neir, hereinafter called the Donor, executed a deed of trust to

the Farmers Loan & Trust Company providing that they

should hold certain securities in trust to divide the same into

three equal parts and to collect and to receive the income

thereof and to apply the same one part to the use of the

Denor’s wife during the term of her natural life, another

part to the use of Burrows MeNeir, a son of the Donor, dur-

ing the term of his natural life, and the third part to the use

of Thomas Shepard McNeir, a son of the Donor during the

term of his natural life. There were further trusts created

for the grandchildren of the Donor, and, if the wife and the

sons of the Donor should die before him leaving no issue, the

trust deed provided for the payment over to the principal to

the Donor, if then living, and, if not ther living, one-half to

Georgetown University, and the other half to those persons

who would be entitled to receive the same if the Donor had

died possessed of the personal property a resident of the State

of New York and intestate. The securities embraced in the

deed of trust were of the value of $806,100, and were trans.

ferred to the trustee on January 8, 1924. On December 15,

16 and 22, 1924, the Donor made certain other gifts to his

children Burrows and Thomas Shepard MeNeir, and to one

William MeNeir, of the value altogether of $4,300. On Janu-

ary 22, 1925, be executed a return for Federal Gift Tax and

paid under protest a gift tax as axsexsed amounting to $47,

*This decision was reversed by the Circuit Court of Appeals, Second

Circuit, in Anderaos Vo MeNewr, 16 Fo (2d) 970 The opinions of Judge

Manton and Judge Learned Hand are dimussed in the brief proper

—_,

os, A refunding claim was rejected and thereafter this ac-

tion to recover the tax was brought in this court February

7, 1925. The defendant thereafter moved to dismiss the com-

plaint which set forth the above facts upon the ground that

it did not contain facts sufficient to constitute a cause of

action.

Opinion.

Augustus N. Hand, District Judge :—

The gift tax was imposed under Section 319 of the Revenue

Act of 1924, which provides that:

“For the calendar year 1924, and each calendar year

thereafter, a tax equal to the sum of the following is

hereby imposed upon the transfer by a resident by gift

during such calendar year of any property wherever sit-

uated whether made directly or indirectly and upon the

transfer by a non-resident by gift during such calendar

year of any property situated within the United States

whether made directly or indirectly * * *.”

I shall not discuss whether the gift tax is unconstitutional

or inapplicable because applied retroactively or because not

uniform throughout the United States, or because the classi-

fieation is unreasonable. If the tax be held a direct tax which

inust be apportioned among the several States, as I believe it

must be, it will be unnecessary to consider the other objec:

tions which the plaintiff has raised.

There ix, 1 believe, no case where such a tax as the one now

under consideration has been regarded as a tax upon an excise

or privilege. So far as Tecan discover, it is a form of taxation

new in both America and Europe. Testamentary gifts and

gifts in contemplation of death have been both in England

and in the United States treated as excises and subjected to

taxation upon that theory. Tf there is anything left of the

general views of the court in Pollock v. Farmers Loan & Trust

Company, 258 U.S. 601, as to the nature of so-called direct

taxes, the tax upon a gift not made in contemplation of death

and not to take effeet upon death would seem to be necessarily

a direct tax iinposed upon the Donor purely as the owner of

property. Billings vo United States, 282 U.S. 261, is not in

point, for the use of a vacht for pleasure was not only dis-

tinguished by the Supreme Court in the opinion of the Chief

Justice from the sum total of the rights of disposition and

oWnership of the vacht, but it may perhaps also be said that

many rights in ships have historically been Created as ex

clsable. The hows for registry, clearance and all kinds of

regulative provisions appear Co place such property peculiarly

within governmental control and regulation so that the sub

jection of the use of it to an excise tax cannot be regarded

us extraordinary, The case of Patton vo Brady, 184 U.S) 60s

is also not in point. There there was a tax upon tobacco

manufactured for cotsutuption imiposed at a period interme

diate the commencement of manufacture and the final con-

sumption of the article Such a tax had been appled to to

bacco in England prior to the adoption of the Constitution

and was held by the Supreme Court to have come within the

definition of an excise tax

The Government cites the language of Mr. Justice Lamar

in Keeney » New York, 222 US. S25, where a statute of New

York providing for a transfer tax upon property passing by

deed of a resident and intended to take effeet in Possesston or

enjoyment at or after death of the grantor is discussed In

that case the testatrix, Mra Keeney, four years before her

death had conveyed certain property to trustees in trust te

divide the net income between herself and her three children

daring the term of her life. and upon her death to transfer

the principal te her children, or their issue The argument

was tnade that the case was different from one where prop

erty was transferred in contemplation of death because ther

Was no euch contemplation that a gift made inter vivos to

take effect Upen death was not within the tranefers which

could be taxet by the State as a privilege and that the tax

therefore was subject to the ordinary limitations of a property

tax. Mr. Justice Lamar in upholding the tax said :

“But, if any such distinction could be made between

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

plaintiffs in the present case. There is no natural right

to create artificial and technical estates with limitations

over, nor has the remainderman any more right to suc-

ceed to the possession of property under such deeds than

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

quiring property by such an instrument is as much de-

pendent upon the law as that of acquiring property by

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

have frequently been classed with death duties, legacy

and inheritance taxes. Some statutes go further than

that of New York, and tax gratuitous acquisitions under

marriage settlements, trust conveyances, oP other instru-

ments where the transfer of property takes effect upon

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

whomseever ”

He went on to sav that the Internal Revenue Act of 1864

“imposed a succession UaXx on ‘all dispositions of real

estate, taking effect upon the death of any person”.

and cited the case of Scholey vo Rew, 25 Wall. 331, at p. 347.

This remark about the effect of the Internal Revenue Act of

IS64, and the suggestion that it extended to transfers inter

vives to take effect on the death of persons other than the

grantor was made in arguends and Was unnecessary to the

disposition of the Kenney case Certainly the case of Scholey

v Rew, supra, invelved no such interpretation, but whether or

net xuch ean be reganded as the proper construction of the

Internal Revenue Act of 1864, there may well be a difference

in classification between a tax upon a transfer of property

upon the death of a person, whether he be the grantor or a

third ; oon, and the taxing of a gift inter vivos at a time

when it is entirely unconnected with any devolution of prop

erty by death

The question involved in the present case does not re-

semble that considered in the Keeney case for there the tax

was upon the transfer of an estate at the time of the death

of the settlor which had been held in trust for her life use.

Here it is imposed upon a transfer inter vivos and not upon

a transfer at the time of the death of anyone.

The tax under consideration seems to have no more war.

rant than that before the Supreme Court in the recent case

of Dawson vo Kentucky Distilleries, 255 UL S. 288. There the

tax was described as a license tax of persons engaged in the

business of owning and storing whiskey in bonded ware

houses. The Supreme Court, however, held that the tax was

really one on the right to take possession and remove whiskey

from a bonded warehouse and was a direet tax upon prop-

erty and not upon an occupation or license. Mr. Justice

Brandeis said in the opinion :

“To lews iat tax by reason of ow nership of property Is to

tax the property. © © © Tt cannot be made an occupation

or leense tax by calling it so.”

In New York Trust Company vo Bisner, 256 Ul So at po 349,

Mr. Justice Holmes mentioned the argument that the Federal

estate tax if treated as levied upon the transfer of the de-

eedent’s estate on his death would be direet, and therefore

void for want of appointment and said:

“But that matter © © © is disposed of by Knowlton s

Moore, pot by an attempt to make some selentifie dis

tinction, which would be at leaxst diMeult, but an an in

terpretation of language by its traditional use oon the

practical and historical ground that this kind of tax

always has been regarded as the antithesis of a direct

tax; ‘has ever bewn treated as a duty of excise, because of

the particular occasion which gives rise to its levy" 17s

U.S 8183 Upon this point a page of history is worth

a volume of logic.”

The fact is that there is no “page of histery” or even line

of history where such a tax as this has been ever foreshad

owed, and if the reasoning of Pollock v. Farmers Loan &

Trust Co., supra, is to stand, IT cannot see how this tax can be

defended which would not seem to be an excise or license tax

for the privilege of doing something, but a tax upon a Heces-

sary incident of the ownership of property which has not been

apportioned and is, therefore, forbidden by Article 1, Section

” Clause 3, of the Federal Constitution. The classification of

subjects of taxation is not scientifie but largely historical, and

a tax upon an ordinary transfer of personal property inter

vivos unconnected with the conduct of any business would

seem to be a direct tax, if anything can be, under definitions

that have been generally accepted. See Pollock v. Farmers’

Loan & Trust Company, supra; Nicol v. Ames, 173 UL 8. 509,

and Dawson v. Kentucky Distilleries, supra.

The motion by the collector to dismiss the complaint is

accordingly denied.

(01819)

Pr FEA F

INDEX TO ARGUMENT.

1. THE TAX IS INAPPLICABLE TO PAST GIFTS.

Page

A tax on gitts “lor the year iusy appires in future only i

Other sectian tact unequivocally shaw retrospective intent lack

vt _

Isclated tulls tsumumated tf i th vild met be retrospec-

‘ a

Previousl acquired hie memtict Os that tuncd 2

Here! amitinis priviiey fount tiied A transactions wholly can

11. IF APPLIED TO PAST GIFTS THE TAX WOULD

BE UNCONSTITUTIONAL.

GPR Ae hee

past and tually completed trans nocannot be made excisable

Ai wh ‘ t ‘ » 3

An attemp's t Cale Wa

. ‘

ot!

ij t€

Ihe va ! wi

lll THE TAX IS ARBITRARY AND UNREASON.

ABLE BECAUSE GRADUATED AND OTHER.

WISE LACKING IN UNIFORMITY

sraduaste , me to forts per ‘ n piits of § um» and cr

INDEX TO ARGU MENT—Continued.

The act artatrarily discrummates between resident and non resudent

citizgets

lhe act makes an arbutears amd unreanmiable discrummation based

wpe the ammount ot malivudual getts $cc except

1V A TAX ON GIVING IS A TAX ON PROPERTY.

BEING A TAX ON AN ESSENTIAL ATTRIBUTE

OF PROPERTY

Broperts the sam ot ite essential attri

All ate wxndents are Gevessary th ts ea stetae -

Liepe vatnes of & siti eit preqertts vs pHivatue 14 t

ett. »

Any substantial unter te ¢ . 5 ta

L me compensated aster forest wit the tv th 4 é

wt diegenal ma, te 4itim ate gi

Leeprivats i «et an eesettia!l attri este t proqerts cpr ivati '

progett.

A tan 16) af) exsettial wm ober & %a8 (ai pet ger’.

Laderts wu hades the ryt tiogersal ot grogert

Those am essentia tert, guarantees? ta ‘ eth an

The ccmstitutog protest essetitial a ot ge

There are fights ot progert. ay a»? « a part of properts

tue atl a tas etre a tas 5 ‘

A tee of) Ghee ib a ‘ a’

A tae the ent? tre °c +. 4

A tat ugee: evers sale mma 4 power ‘ ‘ s a

ye pt gett. ‘ _% fms i . 4

inabirect taees are tases om prov emes 6 a tole tears

, J

hue reese ‘atre

INDEX TO ARGUMENT—Continued

V. THE RIGHTS TO GIVE IS NOT A PRIVILEGE

TAXABLE BY CONGRESS.

The gilt tax i not an mbhertance tax

Certam typrcal business taxes noted

bundamental distunctias to piwe as to exercise an ordimary and im

dispensable right inherent a property itselt

CASES.

Billings v United States, 232 US) 261 (igi)

Buchanan v Warley, 245 lS Go (1917)

Dawson v Kentucky Distilleries Company. ess LS) a8 (1001)

Plint vy Stone Tracy Company, 220 US tur (agit)

Frew v Bowers, 12 Fo (ad) 25 ( 1g26)

Grand Kapeds Booming Cov Jarvis, te Mich jak yao casey)

Leebre v Wilkinson, Par roxas Vol TL Ccammerce Clearing

Muuse, Unabridged Federal Tax servue, iyer

Lewellya v brick, 28 US sah Ciuess

McCray v United States iys LoS ar (tung)

Nochols vw Cowlaige (May gist suet, MoKeynolds J)

Newly Ames itp lS wy can bye)

Nunpemacher v Wilhinsa Par cogp Vol Til ¢ ommerce ( fearing

House, Unabridged Federal Tax Serve iget

Pacthe Insurance ( company y Soule 7 Wallace g16 ¢r8as)

Pattos v Brady, iMg US fees (tye)

Pealaaty v United States cgi UN can gS Ciery

Peuple vw Ot woN Yo gh co cama)

Pollak vw Farmers’ Loar A Truss ¢ - doy i iByt) 368

CS at (aye)

Vortemuath Harter Lami A Hote! ¢ » i ser OS gl

(igea)

Powell © Penmiuytvanca iat tS m8 tag CMR)

Schieunger «© Wiseanun stu lo oS ae (tue

Shwabs Dhoyle ait Ss cay cag ciuee)

Speechies Sugar Ket ( wempany vy Mat lau ive t Rit ( bipag

Thamar s (OS tgs bo oS wt (ayy)

Treat» White ifs US oty ttm)

Uo oS wv Meth. 5 Cramch way gty (rhe)

Nease Bank v beta, & Wallace a4 (1Ms,)

Willams vw McCaughs i> Fed (2) ayo (ice

Woemetamer » People ra Yo ot pa ike

tov

eg Tt ae

~—

Kents Commentaries

ACTS CITED.

Act of 1924, Sec jo2 (h)

QUOTATIONS.

Part Vip 320

(v)

Page

IN THE

supreme Court of the United States.

No 154. Oetober Term, 1927.

JOHN W. BLODGETT,

Plantiff.in Error,

CHARLES HOLDEN,

Comseton oy Dnrennan Revenve,

Defendant in Fever.

Benen ve othe Distrie: Cover ron THE Western

Joie ree Y «st Mi HIALAN,.

BRIEF OF AMICI CURIAE SUR QUESTIONS

CERTIFIED.

1 THE TAX IS INAPPLICABLE TO PAST GIFTS.

Seetion 2) ef the Revenue Act of 1924, 43 Stat.

$92. reads as follows: ‘*For the year 1924 ae

tax is hereby imposed upon the transfer by

a resident by gift during such calendar year of any

property 7" “Phe Act does not sity ‘*whether such trans

fer be made before or after the passage of this Act.”

Phe umimnediate question is whether the quoted tax ap

plies to gifts consummated before the passage of the

Act

Statutes, and especially lasing statutes, are rot

to be construed retroactively if such a construction can

reasonably be averted Thus, in Lewellgn ve Prod,

968 U'. 8S. 238 (2025), the (joverninent urged that the

Revenue Act of 11 ineluded the value of imeurance

‘Sunder policies taken out by the deced ort upon huis

own life.” including policies taken out prior tee thie tan

ing Act) This court held that the Act didi net apply

to the avails of pohoies taken out before the passace

of the Act) Mr. Justice HHaolames saad, at pocuate pi) oe

“Not ents are steel doubt: avoided bos cou

strung the statute as referring only to Uriatisae

trons taking place after it Was puarne d, but the gen

eral prmeipue “that laws are thot Ta baer Certs? tere a

as apply inet to cusses which afore before their

purssage us press rved, when to disregare it would

Ie to utipese an uneapected halulity that rf known

might have rmduced those coteent ef to wverned it

and to use their mouey in other ways ie

Again, ‘*Laws ate teat te lu cotsideted me agp

ing to cases © hich afrese ft fore their puescagre Thiers

that anctetitien ter ole arts eden lared'” . Shual % Jdeowe

234 1. 8. SS. 34 (1920)

“Words in a statute ought net te have aw retrospees

tive operation, unless they are so clear, strong, and

imperative that ne other meaning can be annered to

them’: | OS vo Heth, 3 Cranch 208, 415 ¢1S)

In Willeame vy Met sughn, Vi Fed (ld) ou ee

ts be RK PD Ba, Diekinesen, Jt was held that a

tar on life memberships did pet appey te life member

ships porchased prior te the passage of the taring

Act

There is nothing te show an actual intent on the

part af (sengre as to tay pitts comyus toad due faire the

was passed. On the contrary, when Congress desired

to tux transactions completed before the Act, it said

so in no uncertain terms:

“Subdivisions (b), (e), (d), (e), (f) and (g)

of this section shall apply to the transfers, trusts,

estates, interests, rights, powers and relinquish:

ment of powers, as severally enumerated and de-

ceribed there:m, whether made, created, arising,

existing, exercised, or relinquished before or after

the enagtment of this Act.”

(Act of 1924, See. 302 (h).)

No such language is used as to gifts

Il IF APPLIED TO PAST GIFTS THE TAX

WOULD BE UNCONSTITUTIONAL.

It is beyond question that if the Act in question

is to be apphed retroactively, the result will be to tax

the exercise of a power and right which was completed

hefore the passage of the Act. This is exactly the

came as saying, “You must pay ten dollars now be

cause you Walked across Sixteenth Street yesterday,

although yesterday Niatcenth Street was free to all.*’

Such a tax is unconstitutional,

In Nurnemacher vo Wilkinson and Le Febre v.

Wilkemson, pur. «Oho, Vol PL Commerce Clearing

Honse, Unabridged Federal Tax Service, 127, in giv

ing judgment ter the defendant, Judge Geiger said in

peart

- the whole proposition comes down

te the single direct statement; can ah excise tax

be effective other than an fufure? se

It seems absurd to say that the

Nunnemacher and Le Feber donors should be told

on dune 2. 1924, that they are now subject to ay

excise upon an act wholly beyond their power to

revoke, recall, or do a thing in respect of what they

had previously done; and how then can you escape

the idea, although it is called an excise, that it is

nothing more or less than a direct) tax, either

Against their property or against them, in respect

of a completed transaction, which, if 1 might put

it that way, at the time Congress passed the law

Was no longer, as to them, excisable ?"’

Again, in Brea vo Bowers, 12 Fo (2d) 625 (Loe),

a settior created an irrevocable trust before the en

actment of the taxing statute and twelve vears hefore

his death The United States attempted to levy a

tax upen this, on the ground that at was a transfer

“intended to take effect in possession or enjovment at

er after his death,”’ because he had reere:vod the in

come for life The Cireuit Court of Appeals (2a Cir

curt) held, in an vpunton bey Hough, OJ. that the tas

sO Mpa was uneonstitutronal The Court said. on

p. ns

‘In this case the effort is to tax in 122 jn

res pert of something untaxable aon 1O]0 ('f

Lewellgw vy Prck, 208 US 248 at 25) Tf ut he

sand that Congress might have taxed the 10

transfer, and therefore can fax it even in 1922,

the auswer is that nothing of the kind has been

attetnpted There ss no tax now Jaid on the trans

fer of 1U10, nor the property transferred Could

Congress in PWT have laid a taxon Miro Nash he

cause he gave away S20HKOGm in TUL0T Tf that he

assumed as possible. stirs met possible that the tar

so lard, and computed on the gift, ite credits and

Kaine, could coer be am creise om the framster Raut

sf the fag be land as sf ax tually kas heen, and calicd

am cree, om the transfer of something elec. the

mame sc mcrely faler, there as we erersee, amd the

eractiom falle umfo the category of wrapporfroned

duveet tazes We think thie an effort te use a con

etitutional power as a hook on whieh to hang a

cloak that conceals unconetitutional action There

Hy)

is ne real difference between disguising this direct

tax under the name of a duty, and laying a tax in

order generally to regulate some subject taxable,

but net otherwise subject to national regulation.

The real prurperse os dealt) with, notwithstanding

the cloak The Child Labor Cases, 259 U.S) Zo,

is the leading example

In the foregeme case the Government stipulated

that the writ of ers te that Court mught be dismissed

mm Siew of the deeasien of this Court in Nichols s

(ooledae (May List, 127, MeReynolds, J), holding

iivalid Seetron 42 Ce) of the Net of February 24, 119

moo far ae at reyuites that there stall be tueluded in

Kross estate the value of properties transterred by a

tlecech tt peraeet fee ats poe scagre

It may te contended that the cases of Fliat

Stone Tracy Company, 2200 S017 CISTD) and Be!

mos Vo Ul wited States, 232 US. YL C1914) are con

trary to the principles gust set forth But in each ease

the tax Was upon a comfmmng act (in the Pliaf case,

prot the privilege of doung business in corporate form,

ated in the Milling. cuse, upeen the use of foreign bait

daehted. amd @as unposed annually, without pro rat

ing as te time. dn cach case alse the tar as imposed”

operated om futuro, because it applied te a state of

facts continuing im existence affer it Was puussed. OM

course, the lumypune charge por agama in these cases

was unfait But that faet is ne precedent in faver of

the tax mow on assue, becuuse the principe of thavee

cares cannot be extended to uphold an ‘excme”’ upMen a

single consummated past transaction

It the Gevernment cannet by artiutrary flat oay

that that whieh has been a part of an estate remains as

& part ot the estate for taxation purposes, a forfeona,

the Government cannet by arbitrary flat bring back the

past ated make “excisable ° water whoeh has long since

Getic aver the

It is whelly unreasonable, arbitrary and subvert

sive: cof liberty fae Gapmome ecm pe fume a graduated

tax on completed acts of generosity not taxable when

they Were i" rrormed All retroactive laws are abeleat

reat. Ne pact ‘transaction’ should be exerald It

net the avt of a free gevernument, but an act of

tvranns, to erdam that a riaht free when exercised

earoa Telroactive burden.

Ill THE TAX IS ARBITRARY AND UNREASON

ABLE BECAUSE GRADUATED AND OTHER

WISE LACKING IN UNIFORMITY.

Phe tax imposed by the Act varies from ‘C1 per

eentom of the amount of taxable gifts mot in excess of

SNe te de per centum of the amount by whieh

the taxable gifts etewed Speiemmeime’ CNeetion ST)

It is, then, a graduated tax Such a taxis unconstity

tional

Phe State of Wiscensin umposed a pradusated tax

pen inberitanees, mneluding all transfers morlis causa

Phe Net proveded that tranmsters within sin vears of

the transferor’. «death were to te conclusively pre

sumed to have been made in contemplation of death

sme V. Wascccmain ie S we obeli, MeRewnolds,

Thue (aurt held the Statute gneenstitutional: Sv hdes

Ciifte inion cor within sia vears of death,

binst fact made without conte myplation thereof,

are fir<¢ coor ett th oe) pete sith { ta has heen mat

card to aetualties, while ike gifts

‘ reg

trigcde wth

at other times are not thus treated There is ne

ackesjuats iupeie for thie hietinection Seoondls,

Duey Ane Stoner cen to Geancatan Tarn Warten

Corte Nor Pecreery Br Lam on Ata. Girtrs on,

Ixecwern Dow Awsy Girt Werner Tewtawrstany

‘

RT Pte et

It is significant that Mr. Justice Holmes, though

dissenting, said nothing on the subject of graduated

taxes Which conthets with that statement in the opin

ion of the Court.

Moreover the Act discriminates between residents

and non residents. A resident citizen is allowed a gen

eral exemption of 200,000, No such exemption is al

lowed toa nen resident. (Section O21.) This is purely

arbitrary Gin the other hand there is a diserimina

fiom against the resident citizen. He is taxed on all

transfers of ‘property wherever situated,” while the

non resident eitiven is taxed only on transfers of

“property situated wefhion the Unated States” (See.

S19) Thos an American citizen, resident in hurepe,

may remove all his personal property and give it

away and aver the gift tax; but a resident eitizen

eannet do this A resident eitizen must pay a gift

taxon his transfer of French real estate: a non-resi

dent mead reat

In addition the tax makes an arbitrary diserimina

tion based upon the amount of individual gifts. ‘Gifts

the aggregate amount of whieh to any one person does

pet exceed Soa per annum are cxempt Dee

may be equally divided between 102 peaple without tax

Vf divided equally amongst Tal peersans, the donor ts

tarvalbk The foregoing would seem to be not only un

reasonable but reasanless

IV. A TAX ON GIVING IS A TAX ON PROPERTY.

Property ina thing is the sum of the nights, priv

Hleges, powers and aummutities which the owner of the

thing lawfully enjoys in respect to it. Property is the

sum oof its essential attributes In

(sraned Rapids Boomina ¢ mpany Vv. Jar

ris, SO Mich S08, S20 (1874). it was

sand

“OW what dees property practically consist

hutof the meadents which the law has recognized

as attached! to the tith, or meht of property! Is

pet the ulea ef property on, or tithe te the lands,

apart from, and stripped of all its inendents, a

purely tre tiageh seal abstraction, as tummaterial

stud useless te the owner as ‘the staff that dreams

are made of’ *"*

Amd all the imendents of property are hecessary

te its exrstence Take away a single one and what is

left is ne lenwer property As the Court of Appeals

of New York sand in

Wiynehamee vB ple, VEN, Y. 308, 308

(188)

“When «a law annihilates the value of prop

erty, ated stripe at ef ite attributes, by which alone

if as chostinartiishes!d as prteeqeerty, the owner os de

privet ef ot aecerding to the plainest mterpreta

trem **

The attributes of property need not all be taken,

it ts eterueh of . be taken

Petemoath Harhoe Land & Hotel Oo 4

i SS Sov’. S 337 (1922):

Peahady vy SS THT 8 Sth, Sts CPt

Sheeting over lane

In New Vork at is held that the erection of an

elevated railway was o eubetantial duminution of the

property reaght. of the adpumnge owners, for which

thes were entithed ty compensation in eminent domain

pote coder *

fares Usetropeltan Ble ated Radway ¢

Soper Ct 616 ASN) DS CoN),

Nfoew % Vow ) ei ij ‘ ale iy h ‘ “at

N ¥ tol «dse2)

PIA DT OR me cn " > S

—

Mexico has recently adopted laws requiring for-

eign owners of petroleum rights to apply for conces

sions; but these concessions may not be granted except

te Mexteans, or to Mexiean companmes owned 1 per

cont, by Meaieans, The State Department has pre

tested, wefer alia, because of the deprivation of prop

erty imvelved in limiting the right of disposition to

Mexican buyers. International law protects not

merely the fee. but the neht of enjoyment, meluding

the rycht of cispeosttien.

('r as Was sand in

People ©. Otis, WON Y. 48, 52 (IS82):

“Peprivima an canes of properta of ome of

tis essenteal afferhule s, ts deprivina ham «of hits

propertas

Amd Chancellor Kent says (Commentaries, Part

Vip. Sau):

The exelusive rght of using and transfer

ring property follows as a natural consequence of

the perception and admission of the right itself.**

This Court recognizes these rights of property. It

sand, in Powell vo Deansyleanea, 127 U.S. G78, GN

(TSS, )

“The main prepesition advanced by defend

aut is that bas enjoyment, upon terms of equality

with all ethers om similar cireumstanees, of the

privilege of pursuing an ordinary calling or trade,

nod af see guarrirey, hekding and welling property, Is

anessential partet bis riaeht~ of liberty and prop

erty, as guatantesd by the Fourteenth Amend

tMetit The Court necedes to this veneral prop

exitien as cmmbextving a seund principle of

constitutional law ”*

Amiin Nuchanan v Warleg, 345 US Ge (1917),

the Court sand, at prente ai

“Property is mere than the mere thing which

a person owns. It is elementary that it includes

the right to aeqaire, use and dispose of it. The

Constitution protects these essential attributes of

property."

Certain rights of property are so fundamental

that their sutm constitutes property itself. A tax on

the exercise of any one of them is a direct tax upon

property

Polhokh vo Farmers’ Loan and Trust Co,

m7 S 424, 18 TOS. OO (PSO).

Sinee © Lat Upeon the right to receive the imeome

ef a property as a direst tax, a forfionn a tax upon the

right to dispose of property by giftis a direct tan;

the roght te give property away is even more int

mately wrapped up with the nature of property

itself than the mght to receive the imeeme of prop

erts

Again, in Phan son Kentucky Destillentes Com

ogny 2d SS. 288 CTD), this Supreme Court held

that a man has the raght te take possession of hes

pregeerts, heldmme that a tax on the maht te remove

whiskhes from a bended warehouse, where if was re

quitesd by law to be placed, was a chireet tan

In Net vo Ames, 15 tS. fw, D2) CPSs), Me

Justice Peckham sand

“A tax upen every sale made in any place

we really anal practic ally tipeern property

While this was sand by way of dictum, it is a very

gercative statement that An owner of property has a

right to ee!

ee he . : 7 = , wa

V. THE RIGHT TO GIVE IS NOT A PRIVILEGE

TAXABLE BY CONGRESS.

All indirect taxes are taxes on privileges of one

kind or another. Broadly speaking, they fall into two

classes: (a) aherttance tases, Used as a generic term

to inelude inheritance taxes proper, legacy taxes and

estate taxes; (hb) business tases,

(a) The gift tax is not within the former. It ap-

plies generally. There are special provisions directly

apploable te gatts mortis causa: Shwab v. Doyle, 258

U.S. 5929 (1922).

th) As typical examples of business taxes may

be noted taxes:

1 On the privilege of engaging in the insurance

business (measured by gross receipts): Pacific Ins. Co,

vo Soule, 7 Wallace 4235 (1808).

2. On the privilege of a state bank to issue bank

notes for use as curreney: Veazwe Bank vo Peano, 8

Wallace 525 (1869).

&. Om the privilege of doing business at ‘tex

changes’ a war tax: Nacel vo Ames, 173 U.S. Soy

CTSu%).

4. Om the privilege of selling ‘‘ealls’’ for stock:

Treat. White UST ULS Joa cise)

Db Om the privilege of selling tobuceo: Matton v.

Brady, 184 U.S. Gos (1902).

6. On the privilege of disposing of property in

the form of certificates Cot stock): Thomas v. US

W2 US. B68 (LMS),

SRN

7. On the privilege of engaging in the sugar re

fining business: Spreekles Sugar Ret. Conv. WeClain,

me US. Bad Cro).

8 On the privilege of engaging in the business of

mukily Gaecmirgarine : Md 'ray v. U. S., 199 U.S. 27

(TSH).

OO. the privilege of doing business in the form

o Aver poruation Bimt vi Stone Tracy C+ es s.

hy (ddd)

The distinetion between these and all other prvi

lewe tuXes is obvious. To give is to eXeretse an ordi

nary and indispensable right inherent in property it

sel! Phe right to regulate and tun the transmission

of property by death is whelly different The right

to regulate and tax business is also wholly different

CONCLUSION.

‘Lowi and taxation are tet always bedfellows.”°

But should net the rule of reason apply im entorcma

constitational limitations upon the power of govern

ment? And should net this rule apply even in a tax

couse?

It was of the essence of the ormgitnal compuct that

the Congress should have ne power te devy a direct

tax without apportionment Prom the point of view of

eeOMN Trt) setine and stibsatatice thie Coat vress has Vier

lated the compact lf gee osity is to be taxed at all,

the prerwer is corre testers velusivels te the States

Some subject matters of taxation besides land should

le within the ke ! leive Jurischietion ‘ { the States

The confhiets in our dual government, unless cor

rectly resolved, will breed unteld hardship and ex

pretense Thus, the deevsrom in Marwel! Buabec, 20

U.S. 525 (1919), (from which Mr. Justice Holmes,

Mr. Justice Van Devanter, Mr. Justice MeReynolds

und the late Chief Justice dissented), that State A

may tax the estate of a decedent elsewhere domiciled

merely because a part of the estate is invested in the

stock of a corporation of State A, has had far reaching

and disastrous consequences.

Property is of the essence of civilization: the

power to wive is of the essence of property: whatever

takes away or taxes that right to give is a direet bur-

den upen property qua property. The gift tax is a

direct tax.

IRA JEWEL. WILLIAMS,

NATHAN GLICKSMAN,

LOUIS QUARLES,

Amici Curia.

lea Jewrta, Winniams, Ja,

Brown & WitaiaMs,

GiicksMaNn & Gorn,

Links, Spooner & Quances,

Of Counsel,

SER TELIRD NE WOR ITS NATE PTEMBER ORM ES AT EEN CIN CG St REN RCT EE AO BE

POINTS OF ARGUMENT.

Facts

Poaxy Lo Property construed the gift) tax levied

by Part TL of Tithe 3 of the Revenne

Act of 1924 is not retroactive

Por: EL If the statute is construed to apply te

wifts which were completed prior to

the enactment of the statute, it is un

constitutional

A. ‘The imposition of a tax upon pet

cons by reason of gifts made by

them prior to the effective date of

the Act is not taxation but an ar

hitrary exaction and a taking of

property in violation of the Fifth

Amendment eee

BooOf the statute he construed to have

retrospective application, it is it

direct: tax

This Court, so far as we have

Leen able to ascertain, has never

vet upheld ao retroactive excise

upon a single event oF hapeper

ing as upon a aft by transfer

completed prior to the enactment

of the taxing statute

Peon: TDL The gift tax isa direet tax, and, not

heing apportioned as required by the

Constitution, is void whether it be ap

plied retrospectively oy prospectively.

‘AGE

Taxes on property or an element

of property are direct taxes

The mght of gift is an essential

element of property ............

(a) Property is defined as owner

ship or dominion; the legal

right to the possession, use,

enjoyment and disposal of a

ib) The right of disposal as well

as that of use and enjoyment

is inherent in and is an essen

tial element of property

(ce) The right of gift is an essen

tial element of property. It

inheres in each the right of

disposal, the right of use, and

the neht of enjoyment

A tax npon the right of gift is a

tax upon property and, therefore,

direct :

If taxes in form indirect extend bx

vend the limits within whieh ind:

rect lates may appropriately oper

ate, they lose their character as

indirect taxes and become direct

No sennd distinction can be drawn

hetwewn a tax oon the transfer of

property by gift and a tax on the

right of gift or on the property

given

The gift tax cannot he supporte!

a* indirect ts the application of

any of thdse teats. which are some

times considered hy the courts

fa) The test of whether the tax i.

an absolute and unavoidable

demand

(bh) There is no historical basis for

declaring the tax in guestion

to he an excise or indirect tay

eee

PAGE

The gift tax does not fall within

indirect taxes as that term ix de

fined by economists .. - 63

S. The gift tax is not analogous to in

heritance and estate taxes yor

taxes on gifts intended to take ef

fect i possession or enjoyment at

or after the death of the donor, or

made in contemplation of death.

nor may it be defended as an an

eillary to the estate tax t4

4 If the purpose and effect of the gift

taxis to compe ‘], subje et to the mm

position of a penalty tax, the re

tention intact of large estates, in

order that neither the higher rates

of the income fax nor the Federal

histate Tax mia \ hae avoided, then

the wift tax must be considered i

direct tax saad 68

Poss TV. Ewen af the tax is held to he iudirect it

is, neverthele ss, vord lecuuse

The wifft tax statute ts «lise ritinators,

artatrary and capricions

Che gift tax is not uniform within the

meaning of that term as if is used

in the Constitation with re lation to

indirect taxes re

The law is so indefinite and uncertain

i oats operation that it cannot be

enforced

sates ROONGAL SANE

en i

4 plage ate 8 Lasete

Parva:

Last or Cases Crrep is Tatts Brirr.

Billings © US. C1914), 032 U.S. 26)

Hlair ¢ Pereld (17), 1) Fed. 1

Bleadgett © Helden, 11 Fed. (2d) se . ee

Hoard of Com’rs ©. Rocky Mountain News P aa

Tron ee BD | Pac, #4 (Colo)

Howman « Continental GH} Co. (1M21), any 1)

od.

rcushaher ¢. Unien Pac. R. B. Ce. (1916),

.&. 3

Buchanan ¢ Warley (1917), 245 US. 0

sar tieagte Rintate (125), eae T mY. Si

arter Whatcom (HIS), a. No if 482

hater elses C1 SUS. 406

Praegageee W. start bid K it tos Englewood

ecting Rus Ce ¢yssey, PPS Ht. 375

- =a *- =

Child Laher Cases (1922), 229 U.S. 2D; 2a U.S

44 18,

tollateral Inherttance Tax (1806), 8S Me yay

Commonwealth © MeCaules’s BRaeceuter 166 hy

Cummenwealth + Wellford (1013), 114 Va 372

Craig, Matter of 41904), 97 App Div. ose a,

t'raig Pavior & Sens cffly, 12 Rev 6

in Kentucky Distillerses Co. @1421), 2 fy

28 mh, SH, ES

Batons. BC. & MOR. (1872), SIN. He

Boicdmmar Martioes c2rs ise tl So Scs

bocsties Macemter ©1421 , a2 ft S. Ist -1.

burs © State (1905), 72 Chie St. 448

bachange Bank + Hines (183 (thie St. 7

Flint Stone Tracy (o ci)ds, oo tC. 8. 105

a0, ae.

" Riuswe ra, 12 Feel 4) ely

Frick « Pennesivania (125), WAT SS 4.2

“a

1, Tt

ai, =

PAGE

Galveston R. R. Co. c. Texas 210 U.S. 217... 3

Gould ve. Gould (1917), 245 U.S. 1S)... 6... eee 4

Grand Rapids Booming Co. ¢. Jarvis (1874),

Seen pe A cKee es onda ORE OE REDS 40

Gulf Colo. & Santa Fe Ry. Co. ¢. Ellis (1897),

165 U.S. 150 ; 14,72

Hamilton ©. Kentucky Distilleries Co. (1919), 2ol

US. 146 i a ee ita cairns tala ka 19

Heeht Ps Malle mae) i, Ss 144 . , ss P "6

Herriot! ¢ Patton ¢1ve2), <p ery 648 Severs 11

Hill «. Wallaee (1422), 25 al ; : ‘ «sk 42, OO

Hovex oc. The DeLong H. & ‘ on (1914), 21)

he ee eer eT ; ry

Hunt) Wareht (1917), 174 € al. mn) 10

diay ties | Qiuaha Street R. Co. C1S0S), 53 Neb. 631 ts

Knowlten ©. Moore (1900), 178 U.S. 41. .21, DW, 51, 04, 13

Knox oo Me Kiiliwott (1922), 258 U.S. O46. . 6

Kuhn «. Conumon Council CPS88), 70 Mich. 034 43

Keeney ¢. N.Y. 222 U.S. 525 65

Liawees State Treasurer (1911), lor Towa 407. 11

Lansing, Matter of (10a), 182 N. ¥ is 10, 12

lakebre 3 Wilkinson, (unre porte i) Commerce

Clearima House, Bo T. AL & Fed. Ct. Service,

pp. ebed ated : ay J4

Lavy Wardel] (1022), Zo8 UL S. O42 6

lawellya brick (ie ae 268 U.S. 238 7,8, 10

von, In re (iv22), 283 N.Y. 208... 10)

Mawoun + HL Savings & Trust Co. (18%S), 170

U.S. 283 can 64,72, 705

Met ray , s.. 19 U. BS. 2... ; q)

MeKelwax, Matter of (1917), 221. N.Y. 15 lu

MeoNeat Anderson 16 ked. (Jd) a7u0 4%. G3, Ob, 7a

Miller ©. Melaughdin (1905), 141 Mich. 425 10

Milligan, box parte (1800), 4 Wall 3 1

National Bank « LoS. cise, 1d . &. 3 0)

“OY. Trost Co. t. Basner (1921), 2o6 0. 8.

51, 62, 64, OF

RT Mannie tes CMTE, carte a,

Sa:

ewes

Sota PRES

raut

Nichols « Cochdge (1927), 71 Lo Ed. 797

JD, 16, 17, 29, 31, 58

Nicol «. Ames ( Iss) 175 US. ow TAN, 4, 5D

Panama Railroad Company ¢. Johnsen, 264 U.S.

S75 taaiaae a oe fees © 2 ‘

Patton «. Brady (lu), 184 US. Gos 26, 28, 51,61

Pell, Matter of, (Mur) 171 N.Y. 4s ia lu

People ¢) Common Counel (i888), SS No W. 470

(Mieh > ieee : 4

People ex rel. Manhattan Sav. Trast ¢. Otis (IS82),

‘NY 45 ; yr x 4.

Pollock «¢ Parmers Loan & Tr Co, 158 US. Gt

4, 21, $2, 4s

Bers therleds MeArthur, J Pet 417. 454 4

Schlesinger Wiscenen, 270 US. 280 1.

Shwahs. Dove (iWo29, 258 US. oe 6, 23, 4s

Sherman « bider (1862), 24N. ¥. Jel 0

Smith + (Camplell (1825), WON O Sud au

Seuthern Ky +) Green (ives Zie TLS fom 13.73

Spite kles Suger Refining Co ¢ Mit lain, ig? tS

“ of

State + Protate Court of Washington Co «lays,

herd Minn ~ lw

State Safe Deposit (1918), 12 Mao 25) lt

Stauffer, Saewesenen of (10071, 110 La Go 11

Stun kelale Inscrance (oo (1874), 2) Wall 320 ‘M2;

Themas+s Ut SS (ites) 1920 SS Sat ee | ee

D hieetaa pence MeLownl (1916), 112 Mise Sect “4

Prusier « Crooks YU SS 475 are a

Dance & De Banton, 721. Mal out fete, Dah

Croom P KR Coa + Snew, 231 U So 2 Sed. Ba

Isé .

1 nyrene I’ i er | aramie Stack Varad (Compt ‘,

a1. S oe 4

—

Union Trust Co. « Wardell (1922), 258 UL S

United States . Cohen firecery Co. (1920), 255

FF PP re re eae

United States «. Field (1921), 255 U. 237...

United] States ¢ Givelet, 232 U. s_ 243, 58 L Ea 610

Lnited States vo Heth (1806). 3 Craneh (7 U- Ss.)

we [Ache e ARORA hee ee Ooo elke ae

M4 ne ek ae

United States ¢ Phellis, 257 U. s. lis...

Ll tated States Wigglesworth, 2 Story eu

Vandert It, Matter of (140m). AG! NN. yoou

Viewunie Mah « Fenne, sW all, D13

Ws teediarner People, } N y a7

Tra ties

Blackstone, Commentaries

Kent, (omoouentaries

Kickertan, Svsetema de Lime ipeliria Politica

Kutherterd, Institutes of Natural Law

41,:

41),

SUPREME COURT OF THE UNITED STATES,

Ocropek Term 1927.

Jour W, BLopGErt,

Plaintiff in krror,

agamst

! ; . Docker No, 77%.

Cnanies Howoesx, as Collector of In

ternal Revenue for the Fourth Col.

lection District of Michigan,

Defendant in- Error.

ON CERTIFICATE PROM THE UNITED STATES CIRCUIT COURT

OF APPEALS POR THE SINTH CIRCUIT.

BRIEF OF C. ALEXANDER CAPRON AND RUSSELL L.

BRADFORD AS AMICI CURIAE AND ON BEHALF OF

GEORGE McNEIR.

The undersigned, C. Alexander Capron and Russell

Ll. Bradford, upon leave of this Court granted on May

16th, M27, submit the following brief, as amici curtae,

and on behalf of George MeNeir, the plaintiff in McNeru

vo Anderson, which case is pending in this Court upon

writvef certiorari to the United States Cireuit Court of

Nye als for the Second Cireurt (Docket No, G66),

With the exception of one point the questions pre

sented in Blodgett vo Holden are substantially the same

questions presented in the case of MeNeuw v. Anderson,

In the ease of Blodgett .. Holden the gift consisted in

the main part of state and municipal bonds. The gifts

| in the MeNec case were of cash and corporate stocks.

: In view of the practical identity of the questions pre-

a sented we shall address our argument to the court us

4 though we were arguing the questions incident to and

3 presented by the case of MeNeir vo Anderson.

(on January Sth, 1924, and prior not only to the enact

ment of the Revenue Act of June 2nd, 1924, but prior to

its introduction in Congress, and to any public discussion,

so far as we are advised, of a tax upon gifts, George

MeNeir transferred by deed of trust to The Farmers’

Loan and Trust Company, as Trustee, certain shares of

stock having a then market value of $806,400.00.) He

made certain other transfers or gifts of cash during 1924,

those made before the effective date of the Gitt Tax Act

being in the sum of $600.00, and those made subsequenth

amounting to $3,700.00. During that year he also made

gifts in the sum of $12,411.50 to charitable, religious, edu

cational and scientific organizations but these were ex

empted from the tax by the Act. The total of the gifts

amounted to $822,121.50. Deducting the exemptions,

amounting to $12,411.50 and the $50,000.00 personal ex

emption to residents of the United States, left a balance

of $760,700.00 which was alleged to be subject to the tax,

and the tax thereon of $47,284.00 was collected over the

protest of, and under duress upon, MeNeir by the co!

lector of internal revenue. (See Transcript of Record,

p. 56). An action to recover the tax was brought in the

United States District Court for the Southern District

3 of New York on February 7th, 1925. The collector there

é after moved to dismiss the complaint which set forth the

: above facts upon the ground that it did not state facts

: sufficient to constitute a cause of action.

SS ab is Rthaghaes ate

—_

The United States District Court for the Southern

District of New York declared the statute unconstitu-

tional on February 15, 1926 (10 Fed. (2d) 813). The

United States Circuit Court of Appeals for the Second

Circuit upon writ of error reversed the decision of the

District Court (16 Fed. (2) 970). This court granted a

writ of certiorari on March 21st, 1927, and upon subse

quent motion made by counsel] for the said plaintiff to

advance the said cause to be heard with that of Blodgett

v. Holden, on May 16th, 1927 denied the said motion, but

granted leave to counsel to file a brief as amicus curiae

in the case of Blodgett v. Holden, the case now in suit.

The MeNetr case presents the following issues which

are also incident to Blodgett v. Holden :—

inst: May the provisions of Part I, Title II] of the

Revenue Act of 1924 (Sections 319-324 inclusive), prop-

erly construed, be applied to gifts by transfer completed

prior to the enactment of the said Revenue Act of 1924

on June 2nd, 1924! (Not certified in Blodgett v. Holden.)

Sreoonp: If the said Act is retroactive in terms, is

it constitutional when applied to gifts by transfer com-

pleted prior to its effective date?

Tui: Is not a tax upon gifts iter vivos, and not

in contemplation of death, a direct tax within the mean-

ing of the Constitution and thus unconstitutional because

net apportioned f

Fovrru: Without regard to the power of Congress

to impose a tax upon gifts, is not the statute in suit un-

constitutional because of lack of uniformity and because

of its capricious and arbitrary provisions?

Barer =

A LEDER SPREADER AL ENN

DHA ERSE

POINT I.

Properly construed the gift tax levied by Part Il of

Title 3 of the Revenue Act of 1924 is not retroactive.

It is a canon of statutory interpretation that taxing

acts in case of doubt are construed most strongly against

the taxing power and in favour of the taxpayer. Cnited

States \. Wigglesworth, 2 Story 3, B. GG. S00; Blair vy.

Herald, (1907) 150 Fed. 199, OL: Eidman vo Martine:

(1902) IS UL S. OTS; United States vo Freld (1921) 255

U.S. 257; Geuld vo Gould (1917) 245 U.S. 151, 153.

It is also a cardinal principle of the law that all legis

lation having to do with human conduct should be con

strued if possible as having only a prospective effect

Chief Justice Marshall in Reynolds vo McArthur, 2 Pet.

417, 454, said:

“dtas a principle which bas always been held

sacred in the United States, that laws by which

;

. t :

human action oo te te regulated,

}

leok forwarad-

not backwards, and are mever to be construed

retrospasctiveds, Uifiless this fatiguage ot tte \

sfickii refticder stbeh: Caomrist ruthie Utichimpetiniatele

In Uo nson Pactte Radroad Cov. Laramie Stock Yards

(1913) 221 US. 180 at po 1) Mr. Justice McKenna ex

pressed the same thought in the following language

‘Construction, therefore, becomes Hhecessary,

and the first rule of construction is that legisla

thom tiust fa considered as addressed to the fu

ture, net ta the past The rule is one of o

‘

Vices tripe dae fetiel yirs rents the “assigti

4 hinge of a

quality or effect to acts or conduct which they did

net have or did net contemplate when thes wer

performed The rule hine been expressed nm Vary

tig abegrees af strength fut alwave of cre omipeart,

that a retrospective operation will not be given

ty» a statute which interferes with antecedent

rights or by which human action is regulated, un.

less such be ‘the unequivocal and inflerible import

of the terms, and the manifest intention of the

le atslature . United States v. Heth, 3 Cranch, 399,

415, 2 L. Ed. 483; Reynolds v. McArthur, 2 Pet.

417; United States vo American Sugar Refining

Company, 202 U.S. 563, S77: Windtree, Admr.

Vv. Northern Pacific Rwy. Company, 227 U.S.

YOO." (Htalies ours.)

This Court also said in U.S. v. Heth (1806) 3 Craneh

(7 U.S.) 309, 418:

“Words in a statute ought not to have a retro.

spective operation, unless they are so clear, strona,

and imperatire, that noe other meaning can be an-

We subanit that oa proper nod reasonable construction

of the statute in suit CSeetion SW. Revenue Act of 1924)

is that ot has appleation only to all gifts made during

‘the ealenda: veut W224 after the effective date of the

That this as the correet coustruction of the aet ts

indicated not oonty by the provisions of the act itself,

but also ba the amendatory act of 16 Section 1104 of

the Revenue Aet of 1024 stated, ‘Except as otherwise

provaded, this wet shall take effect upon its enactment.”

It was otherwise provided in Tithe TD relating to in

come takes Section LSS provided the ineome tax

provisions should take effeet as of January Ist, 124

It was alse otherwise provided in Tithe VITL, relating to

stump taxes. Seetion SOO made the new stamp taxes

effective thirty days atter the enactment of the act. But

there is ne provision that the gitt tax law shall take effect

except at the date of the enactment of the law, to wit,

on June 2. 1924.

That Congress intended that that law should take

effect only on dune 2. 124. and should not relate to gifts

panacea

io ce

made prior thereto, is shown by the provisions of the

amendatory act of 1926. Section 319 of the law of 19024

specified the rates of the tax or gifts. Section 324 of

the Revenue Act of 1926 amended Section 319 by reducing

the rates of tax. Congress provided in subdivision (bh)

of Section 324 of the 1926 Act, that this reduction in rates

should take effect as of June 2. 1924. Thus we find that

if gifts made prior to June 2, 1924, were subjected to a

gift tax, they are to be taxed at the rate originally spec:

fied in the 1924 Revenue Act, whereas the gifts made after

June 2. 1924, are to be taxed at the reduced rates ory

Viousivy, Congress did not intend to so provide

It is also signifieant that it was specifically provider

that the income tax provisions of the 1924 Revenue Act

should take effect as of January Ist, 1924 Why was this

done, if the provisions relating to the income collected

during the taxable vear, or during the calendar year, must

he construed as referring to the income collected during

the entire calendar or taxable year.

The provisions of the Fede ral Restate Tax Act of 11

were held by this court net to he so strotg, clear and

unperative as to render unavoidable a construction that

transfers completed prior to the effective date of the

act were within the provisions of the law

Shewah v. Doyle (1922) Los US. 520;

Union Trust Co. of San Franctsen vo Wardell

(1922) 268 U.S. 537;

Leow v. Wardell (W922) 28 US. O42,

Knog v. McEligott (1922) BSUS S46

In the first three of the above cases, this court con

strued the words ‘‘any transfer of which the decedent

has af amy time made a transfer’’ etc as having no ap

plication to transfers made prior to the passage of the

Act. And this notwithstanding the Federal Estate Tax

Act of September Sth, 1916 (See Section 201, Revenue

Act of 1916, Title II, 39 Stat. 777-780) had provided

definitely ‘‘that a tax * * ° is imposed upon the trans-

fer of the net estate of every decedent dying after the

passage of this Act * * °’’, and by virtue of Section 202

had defined what property or elements constituted the

gross estate, and had said that the estate should include

‘Any transfer of which the decedent has at any time

made a transfer, etc."’

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

likewise construed the language of the Revenue Act of

February 24, 1919 (40 Stat. 1057) Section 402 (b) as hav-

ing no application to insurance taken out by the decedent

upon his own life payable to specifically named bene-

ficiaries, when the policies were taken out prior to the

passage of the Act in question.

It is the established practice of this court to avoid

giving to a statute a construction which involves consti-

tutional difficulties and doubts, if another and reasonable

construction Hyp A be given it. Panama R. R. Co. v. John-

som, 2640. », 890, Sov. Jim ty Moy, 241 U.S

304, 401; eesey v. De Long H. & FB. Co. 211 N.Y. 410,

and Lewellyn vy. Frick (1925) 268 U.S. 238, 251. In the

latter case the Court, throngh Mr. Deation Holmes, said

(yp. 251-252):

‘Acts of Congress are to be construed af pos

sihle In such a Way as to —7 grave doubts 4

this kind. Panama R. RCo. v. Johnson, 264 VU.

374, 300, Not only are sue h ‘doubts avoided ‘

construing the statute as referring only to trans

actions taking place after it was passed, but the

general principle ‘that the laws are not to be con

sidered as applying to cases which arose before

their passage’ is preserved, when to disregard it

would be to impose an unexpected lability that if

known might have induced those concerned to

md it and to use their money in other ways.""

By construing the law as subjecting to the tax only

such gifts as were made after June 2, 1924, grave doubt

a acn eens cece |

Air pat att Balabas RERS

Bri We Sete aris

Dead

Mae be

tae

‘ike

LEN saan Buk 2

as to the constitutionality of the statute upon one score

will be relieved. Such construction will preserve the

general principle ‘‘that laws are not to be considered a>

applying to cases which arose before their passage,” wd

te unexpected liability will be imposed on persons whe

made gifts before that date, ‘that, if Known, might have

induced those concerned to avoid it and to use thes

money in other ways.’” Llewellyn v. Prick, 268 US. 25s,

202.

A literal interpretation will not be given to a statuts

when by doing so antecedent rights are affected or hu

man conduct given a consequence it did not intend. In

Union PR. Coov. Snow (1913), 231 U.S. 204, 215, Mr

Justice MeKenna said:

‘Courts will not, as we have seen, omforce a

iteval mferpretation whee by demag se antecedent!

rights ave affected of human comduct geten a com

sequence uf ded mot tnfend. Such a purpose the

courte refuse to assign to the legislature unless

compelled by language exphet and imperative

And we have pointed out that we are repelled from

doing se by grave doubts of its legality as well as

of ites justice, These considerations need mot be

further expanded Their strength has been

pointed out, and thear suflerency to precail ocr a

inferal safer pretation of 4 statute.’’ (Italies ours

We submit Congress intended that only gifts mack

after the effective date asf the act shouted bn subject te

the tax, and that this construction should be given te the

statute by the courts

—

POINT II.

If the statute is construed to apply to gifts which were

completed prior to the enactment of the statute, it is

unconstitutional.

Retrospective laws, it has been said, are net only un

just but do net conform with the social compact When

they are punitive they are directly forbidden by the Con

stitution and are called «4 post facto luws (Art. 1. Sex

%) An excise tax connotes the absence of an absolute

and unavoidable demand. (Thomas v. United States, 12

U.S. 363; Flint vo Stone Tracy Co, 220 US. 107: 2

hah 8. The Farmers’ Loan and Trust Company, V7 US

420 and 158 US. GoD). Tt is a perivile we Tax amd ¢ .

must, in order to justify the validity of its impo.

comprehend ut election or discretion or choses

exercise of a privilege, by the person subjecting bom

to the tax. If there be no election, no discretion. ef

or privilege er option that may be availed of, «

» i

privilege bas already ripened into a right (see Wattes

Crara (1904) 97 AOD. 280 TSP N.Y. OTD), then there is

nothing upen which the tax ean fasten. In other words

if the privilege or the act is fart accompli, to cull the tay

an eXecise upen semething that is no longer a privilege ts

a contradiction m terms

It wonld secm patent that an excise tax must rest uper

excrsnide act and that if there is no such act per

fortoe! affer the taxing statute takes effect, there ean

lo thee TAN That this is so has been reeagnized bw this

eoeurt and by the courts of the various states when at

tetnypets have been mace by the states to impose exeise

er opdirect faves upen transactions or transfers com

pleted before the effective date of the taxing statute

The state courts, when death duties or inberitance

taacs were sought to be apphed retrospectively, have,

Sy Ee ly) AAT Ly GPE AE Re erates ER OS a

yaeiagulnes,

Co sitet oe

LORRI than ate Awa

with practical unanimity, decided that such legislation

is unconstitutional, The leading case and one that has

been cited by the Supreme Court of the Ugited States

(Chanler \. Kelsey, (1907) 205 US. 466, 480; Lewellyn vy.

FProk (1925) 268 US. 238, 251) is the case of Matter of

Pell (dwey WTN.Y. 48. The statute involved in the Pe //

case Was one in terms imposing a tax upon the coming

into actual possession or enjoyment of remainders or

estates in expectaney, which had vested prior to June

Sth, Iss) The New York Court of Appeal held the

statute to be unconstitutional, The Court said, at pp.

ao ab

“It, therefore, follows that where there was

a complete vesting of a residuary estate before the

enactment of the transfer tax statute, it cannot be

reached by that form of taxation ° ° ° 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

tite of possession and enjoyment.”

It is now definitely settled that a state may not im

pose a succession or transfer tax or an excise where the

properts has vested or been transferred prior to the en

actment of the statute. See Matter of Vanderbilt (14s

W2N YY. 60; Matter of Crag, (14) 97 AOD ws, aff'd

on opinion belaw TSEN Yo 351; Matter of Lansing (100)

IS2N Yo 258: da re Lyon (1922) ISR NY. 208: Andres

Carnecaw state, aff'd Court of Appeals 256 NOY S17,

Matter of MceNelway (VU17) 221 N Yo, 1

The highest courts of other states have followed the

Pell case and have, in stubsxtance, held that if there i ne

succession of no transfer after the effective date of the

Act, the death duty of succession tax may net appls

Hunts Weekt (1917) 174 Cal. 205, 162 Pac 629. State s

Prohate Court of Washington County (1907) 102 Minn

fm. Miller vo MeLaughlom (1900) 141 Mich 425. Fury

v. State (1905) 72 Ohio St. 448; State v. Safe Depost f

——

Trust Co. (1918) 182 Md. 251; Lacey v. State Treasurer

(1911) 152 lowa 477; Herriott v. Patton (1902) 115 lowa

O48; Commonwealth v. Welford (1913) 114 Va. 372; Sue-

cesstom of Stauffer (1907) 119 La. 66, 70; In re Collateral

luheritance Tax (1896) 88 Maine D&87; Carter vo Whit.

comb (1908) 74 NH. 482; Commonwealth vo McCauley's

Baccuter, 166 Ky. 450,

That a transfer or a succession tax, whether the

trauster tax be one imposed upon transfers infer civos or

imposed upon transfers by death, must have a transfer

ora succession upon Which the tax can fasten, was tersely

expressed by Mr. Justice Holmes in his dissenting opin

ion in Chanler vy. Kelsey, 205 U.S. 466, where be said at

}). 48t1-

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

a succession tax in order to maintain its validity,

orofin faet itis held to be a succession tax by the

state court of whieh it is the province to decide

that matter, it follows that such a tax cannot be

levied except Where there is a succession, and when

some element 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 succes

sion depends, for taking effect, on the continuance

of the permission to sueceed or grant of the right

on the part oof the State; and. as the grant mas

be Withdrawn, it may be qualified by a tax. Buf

fo there ts me successton, or af the succession

has fully este lf, on has prasse l heyond de pond

Mpa the comtennang of the State's pera

aor grant, an attempt tu lery a tar under

thie powcr fa re qulate succession would be an at

fempl fo appropriate property in a wau which the

Fourteenth Amendment has been construcd to for

ied No matter what other taxes might be levied,

uo succession tax could not be, and so it has been

decided im New York. Matter of Pell, J71 N.Y.

48,55; Matter of Seaman, 147 N.Y. 69."" ( Italies

ours}

These words seem entirely appropriate in connection

with the Gitt Tax Act of 1924 if we substitute in place of

the word ‘‘suecession’’ the words ‘transfer by gift''. Mr.

Justice Holmes there recognized and expressed the prin

ciple that a tax Upon a succession which had been com

pleted would not be a tax upon the succession. It is, of

course, equally true that an attempt to assess a tax upon

a gift by transfer that has been completed, that is a past

gift. cannot be sustained as a tax upen the gift or upon

the transfer, The same thought is again asserted in

BProkv. Pewnsoleama, 268 US. 473, when the Court said

at page 442. in respect of the Pennsylvama Inheritance

Tax Law

‘The Pennsylvania statute is a tas law, not an

escheat law. This as made plain bys tts terms and

by the opamoen of the State Court Phe tan whieh

im peses is nef a properts tax, bat one lad on

the tranefer of peoeperts on the death of the owner

* * But te wnpose either tax the State must

have sariedietion aver the thing that om taned, ane

to utnpese eather without sgeh jgurisdietion is mere

e\tertion and mm centravention of due process «of

law.*’

An exere, as heretofore stated, and as we conceive it,

can telate only te the exereise of some privilege, of some

permission granted by law, and compre hemds the ele

ments of option or chore; after the privilege has been

avatied ef ot may ne longer be the object of an excise

The privilege having ceased to exist, of the act being

un prosaible then to etereme, there remains hoe act or pris)

lege, er ordinance of gevernment or heense of law to eX

ope **Where there i no transfer there i no tax amd a

transfer made betere the passage of the Act relating te

of Lanna, (1G) SEN Yo ts, 247.)

In the Lansing case the Court of Appeals of New

York said, at page 245

sau ——

‘Now, suppose that the state at the time

it imposed the mberitanee tax instead of enacting

that statute had forbidden the making of wills and

succession in case of iMitestacy, itself taking all

the property that a decedent might leave at the

time of his death, such a statute could have no pos

sible efleet on Mors. MeViekar’s rights, for those

rights had been acquired long before. Therefore,

What privilege did she get at that time from the

state for whieh it can charge or impose a taxt"’

If what was a privilege (assuming that the right of

gift ever Was a privilege) is no longer a privilege, and

has become a right, it is teo late te galvanize the dead

privilege inte life for the purpose of compelling revenue.

“When the priviege has ripened inte a right it is too

late to umpose conditions of the character in question.”’

(Matter of Crag, 47 ALD 280, aff'd ISD N.Y. 551).

The Congress may not turn back the tide of time and

say that the thing, the act, that occurred yesterday oc

curs today, or reach back inte the remote past and by

its touch. its legislative fiat, quicken the departed non

eXistent act of anether year inte a living act of the pres

ent, merely to satisfy the demands of revenue. Prop

erty and persons may be taxed and the right to impose

the tax lies with the Congress. Of course, the property

transferred by gift may be taxed, but the nmposition of

a tax on such property, simply because of the manner

in Which at was transferred, would not be a proper classifi

cation but an artutrary selection, and thus void and un

coustitutional Sumilarly the person who made the trans

fer might be taxed, but similarly Congress could not

impose a capitation tax upen a person simply by reason

of the fact that he had done a lawful act which was not

subject to tax at the time he performed it, for this would

iw arlatrary selection and net proper classification

There is ne greater propriety in the assessment of a

tax directly, upen a persen ty reason of his having

: taken part in a lawful transaction at some past time than

: there is in imposing a tax upon redheaded men simply

because thes are redheaded men. (Ciulf, Calo. & Santa

Fe Ry. Co oy. Elles (IS97) 165 US. 150, 155),

tax upon persons by reason of

gifts made by them prior to the effective date of the

Act is not taxation but an arbitrary exaction and a

taking of property im violation of the Fifth Amend-

ment.

“Arbitrary selection, it has been said, cannot be

] justified by calling it classifieation.”’ (Southern Ru. Ce,

\. Coreene, 210 Ls. fim), 417).

Te impose a tax upen gifts made five months and

two dass before the Net took effect and to exclude from

the operation of the Net gifts whieh were made five

— oe

tenths ated three davs or five sears armed two days before

; the Aet took effeet is an arbitrary selection and net

| classification, amd attempts to CaN persons or acts se at

batrarils selected have been condemned brn this Court,

It was such arfatrary selection asin the statute im suit

that commpredle do this Court in Nechle singer NN. Wisconsin

(ive, Zee Ss She te held unconstitutional a statute

of Wiseonsin whieh umposed a tax upon all gifts made

within sax sears of death Such a tax was not classifica

thon but arbatrars selection and thus offended the Four

teenth Amendment to the Constitution, Mr. Justice

Mo Ht. . tiholeds said at ht ie 240:

‘The Court below declared that a tax on gifts

er cteos only could not be so laid as to hit those

thade within sia sears of the donor's death and

exempt all others this would be ‘wholly arbi

trars” We agree with this view and are of opinion

that such a classifieation would be in pelsaana con

thet with the Fourteenth Amendment.’ (Ttahes

ours:

Bc Sapa WET LM A MR NATUR PLA wna RE Ds oh eye NE SOE RLF oh A hia

ove;

There does not seem to us any distinction between the

arbitrary selection of those making gifts within six years

of death under the Wisconsin statute and the arbitrary

selection of those who have made gifts within five months

and two days under the Federal statute. Both statutes

undertake to select a determinable few for the imposition

of the tax and leave free all others. This, the court said

was such a classification as would be in plain conflict with

the Fourteenth Amendment, We submit that it is such

a classification, if it be classification at all, as would be in

plain coutlict also with the Fifth Amendment.

The acts of the Congress are just as amenable to the

coustitution as the acts of the state legislatures, and

When the Congress transcends its power, or undertakes

to Impose taxation not based upon some reasonable

classification but upon its whim or caprice, this court

has declared that such a tax is a violation of the Fifth

Amendment, for such a tax would amount to nothing

more nor Jess than an arbitrary selection of the subjects

of tax.

In Coolidae ¥. Nichols (71 L. hed. 797) (not vet pub

lished an the official reporter), the court. tlatfooted|y

stated that Congress could not impose a retroactive ex

else Upon a sitile act or event completed before the im

position of such excise,

The Government had contended that the Federal

estate Tax Act of 1918 (Sections 401, 402 (¢) and 409)

did tet impose a tax upon transfers completed prior to

the enactment of the Act, but imposed a tax only upon the

estate that passed at death, measured by including in the

gross estate, property transferred by the decedent prior

to the enaetment of the tax law. The court rejected the

argument of counsel that the statute did not impose a tax

upen the transfers completed prior to the Act for it

said, referring to Section 402:

‘The language of this section inhibits the con-

clusion that only subsequent transfers are to be

ineluded.”*

and the court further said:

‘The language of the statute is not consistent

with the idea that it utilizes the gross estate

merely to measure a proper charge upon the trans

fer by death. See Lewellyn vc. Frick, supra."’

The court then continued and stated:

Frick ¢. Pennsylvania, 268 U.S. 473-494, re

jected a somewhat similar claim, and said: ‘Of

course, this was but the equivalent of saying that

it was admissible to measure the tax by a standard

which took no account of the distinction between

what the State had power to tax and what it had

no power to tax, and which necessarily operated to

make the amount of the tax just what it would

have been had the State’s power included what

was excluded by the Constitution. This ground,

in our opinion, is not tenable. It would open the

way for easily doing indirectly what is forbidden

to be done directly, and would render important

constitutional limitations of no avail."’

The court then further proceeded to say :

Certainly, Congress may lay an excise upon

the transfer of property by death reckoned upon

the value of the interest which passes thereby.

Hut under the mere guise of reaching something

within its powers Congress may not lay a charge

upon what ts beyond them. Taxes are very real

things and statutes imposing them are estimated

by practical results."' (Itahes ours.)

The court there definitely recognized that the statute

itself undertook to impose a tax upon the transfer made

prior to death as a part of the estate of the decedent.

—,

This the court said was beyond the power of the Con-

gress.

The court then took up the question of the measure-

ment theory advanced by the Government, that is, that

the tax is not upon the transfer prior to death or apon

the value of the property so transferred, but was upon

the property that passed by death measured by the value

of the property that had passed prior thereto, together

with the property that passed at death. Such a basis this

Court held was a violation of the Fifth Amendment. Mr.

Justice McReynolds said (at page 802) :

This Court has recognized that a statute pur-

porting to tax may be so arbitrary and capricious

us to amount to confiscation and offend the 5th

Amendment. Brushaber «. Union P. R. Co., 240 U.

S. 1, 24, 60 L. Ed. 493, 504, L. R. A. 1917 D, 414, 36

Sup. Ct. Rep. 236, Aun. Cas. 1917 B, 713; Barclay

& Co. +. Edwards, 267 U.S. 442, 450, 69 L. Ed. 703,

706, 40 Sup. Ct. Rep. 348. See also Knowlton ve.

Moore, 178 U.S. 41, 77, 44 L. Ed. 969, 984, 20 Sup.

Ct. Rep. 747. And we must conclude that Sec.

402 (¢) of the statute here under consideration, in

<o fur as it requires that there shall be ineluded in

the gross estate the value of property transferred

by a decedent prior to its passage merely because

the conveyance was intended to take effect in pos-

session or enjoyment at or after his death, is arbi-

trary, capricious and amounts to confiscation.”’

Could anything be more arbitrary and capricious than

to select a determinable group already in existence,

(namely, those who made gifts from January Ist to June

Ist, 1924) and subject them to tax, and leave exempt and

free of the tax, all those who had done the same thing

prior to January Ist, 19247 We submit that whether the

attempted tax be direct or indirect, it is nevertheless an

unavoidable demand, with no basis of classification, and

is imposed upon an arbitrarily selected few. This is

selection of the most definite kind. It is arbitrary and

capricious to the highest degree. The tax is made to

depend upon the sport of fortune (Frew v. Bowers, 12

Fed. (2) 625) or upon the whim of Congress as to what

date its retrospect may be made to apply.

As shown in the statement of facts, Mr. McNeir made

vifts after the passage of the act in question, amounting

to $5,700. The tax imposed amounted to $7,284. It is

obvious that only by including the gift made by Mr.

MeNeir on January Sth, 1924, could such a tax be com

puted. No more graphic example could be presented of

the absurdity of the position of the government that 4

tax upen one transaction upon which Congress may la)

an exeise, may be measured by including therein trans

actions which it is beyond the power of Congress to tax.

The government has not had the temerity in this case to

advance such an argument as the figures show that it

would te utterly fallacious.

The tax as imposed is not only arbitrary and ca

pricious, and thus a violation of the due process of law

clause of the Fifth Amendment, but it is also in violation

of that amendment because it is a taking of private prop

erty for public purposes without Just compensation.

Before Jane 2nd, 1924, there was no law or ordinance:

in respect of gifts inter civos, either State or Federal

From January Ist to June 2nd, 1924, and every year

prior to that as far as 1789 a gift might be made witheut

let or hindrance by law. There is no regulatory power

in Congress over gifts and that it may not regulate ty

taxation what it may not regulate directly is settled by

this Court. (Child Labor cases (1922), 259 U.S. 2H,

Haul v. Wallace (1922), 259 US. 44; Truster vo Crooks

(1926), 289 US. 475.) Therefore when the Congres»

on June 2nd, 124, says that all who have done with their

property during the elapsed period of the year 1924 what

they had an unregulatable right to do, shall hand over a

6s sae ieee ae ea ea eRe ere ete

portion either of that property or the property they have

remaining, it has done nothing more or less than demand

the private property of the citizen. Such a demand is

sequestration. It is not even the exercise of the power

of eminent domain, for even that power may not be exer-

cised by the Government without compensation for the

property taken. No power lies in the Congress to con

fiscate or to sequester property, without just compensa

tion therefor. Even during the stress and exigency of

war property may not be taken for public purposes with

out Just compensation to the owner, or without due proc

ess of law. Cha parte Milligan (1866), 4 Wall 2, 1217;

VS. vy. Russell (1871), 13 Wall 623, 627; Hamilton v.

Kentuc ky Distdlertes Co. (1919), 251 U. S. 146, 155, 156;

US oy. Cohen Grocery Co. (1920), 255 U.S. 81, 88.)

If Congress may not during war times, when the very

life of government may be in jeopardy, take the property

of its citizens without compensation, then clearly the

Government may pot in peace times, under the guise and

cloak of an excise, take the property, not of all its citizens

in uniform sums, but of a determinable few arbitrarily

selected for the purpose. Selected by the whim and ca-

price of Congress; selected because they had, before the

law Was passed, ridden a horse, attended the theatre, or

made a gift. A tax so imposed is whimsicality run mad.

A tax so imposed is a direct taking of property, is con

fixcation; so imposed it is repugnant to the Fifth Amend

ment to the Constitution.

B. If the statute be construed to have retrospective ap-

plication, it is a direct tax.

the Constitution of the United States prohibited it from

iMiposing only one tax, that is a tax upon exports (Art.

1, See 4 CLO) and laid down two regulatory provisions

as tothe imposition of the two great divisions of taxation,

that is, the umposition of direct taxes on the one hand

In giving the power to the Congress to impose taxes

ery Se ee

Peat

APTS PUC OR SO RAR ste tes eae

and the imposition of indirect taxes on the other hand.

Duties, imposes and excises, that is, indirect taxes, must

be uniform throughout the United States and this um

formity has been held to be a geographical uniformity.

Direct taxes must be apportioned amiony the several

states in accordance with the provisions of Art. 1, See. 2,

Ch Sand See. Cl 4 of the Constitution. So unportuant

Was this inhibitory regulation upon the Federal Congres-

iti thie stnpersitionty of direet taxes considered at the time

the Constitution was drafted, it was twice « vpressed,

ete prosativens amd onee me wativels, the enis Gecasian of

adupleation in that whele imstrument, :

If the tax im suit be direet then it is uncenstitutienal

If the tax retroactively imposed, looking at the substance

and practical results of the tay law, and net at the form

of the statute, is an absolute and unavoidable demana,

then the tax is a direct tax. If the element of absolute

and unavoidable demand is present in the rmipaaet of the

tax, then, as this Court has held, the tax becomes a direct

tar.

In Thomas vo United States, 2 US. S05, this Court,

through Chief Justice Poicen, said at pase SFL:

The sale of stavks as a particular business

franeaetion mm the exererse of the peravile ve afforded

by the laws in respert to corporations of cisposing

of property it: the forty oof certificates The ~tumyp

adduts is comfsmgent on fie hay poenmimngal the erent

sale and the clement of abselule and una i

ie demand is lacking.’’ (Ptahes ours.)

[fo the same effect this Court, im Flint vo Stone Traca

‘ (2119, TOUS. Wee, Dod, esting the Thomas case,

sand

“The requirement to pay such taxes invels

the eterciss of perv alegtes, ted thie element! i ales

lufe and ana lable demand is lacking Vf teu

tiem 5m tent cdevte iti the Mmanher deseribed i? vide

statute, ne taxis pavable””

If a tax may not be shifted regardless of whether

some direct taxes may or may not be shifted, and amounts

to an absolute and unavoidable demand, then the tax must

be declared by the Courts to be direet and to be void if

net apportioned. CPolleek vo The Farmers’ Loan and

Trust Company, 1O8 ULS. GOL.)

If there be nothing to transfer after the effective date

of the Act. and if there be no act of transferring, then

there is nothing upon which the tax can fasten. Mr.

Chiet Justice Wire, deciding Aneowlton vo Moore (1900),

WSUS. 4), said:

would be nothing upen whieh the tax levied on the

ocenston of death could be computed.’’

Phe same as teue cu the appheation of the Gift Tax Act

of TAM. Tt there he ne transferring, there would be no

act to Wleeh the tax could apply. Hf the tax be said to

bees tapecany thie past act af giving, then there would be no

yo the term of the operation of the statute

for that act ef giving, that exercise of the right of gift,

had ceased If the tan as retrospectively applied is not

upon the giving, asin truth and fact it cannot be and re

maith an oexcise, then at must be either on the donor per

eenaliv, whieh tn substamee would be a capitation tax, or

upeen the property transferred, in either of which cases

the tax would offend agaimst the constitutional restric

biadis.

The tax is, in effect, as retrospectively applied, direct

apen the persen of the giver, Tle is immediately and

fefimite’s singled ont by the language of the statute and

dled pon to pas a tax, without having at any time had

an coption or election or a choice as to whether er not he

would anh ct himself to the tax. If this he net an alse

ute and unavoidable demand, then we submit that we find

toalMeult to canoeve of a case of an absolute and un

wordable demand of a tax.

aid

If the Congress of the United States has the power to

impose a so-called excise upon a gift completed prior to

the enactment of the Act, then the Congress unquesticn

ably may impose a tax upon every gift made by every

individual since the adoption of the Constitution of thus

Country. If the statute may be read that the Congress

imposed a tax upon all gifts made during the calendar

vear 1924 and the intention of Congress was that the im

pact of the tax should apply to transfers completed tx

fore the enactment of the Act, then it could equally as

well have passed a statute reading that for the calendar

vear IS9O (or e go ISTO) and each calendar year ther

after a tax shall be imposed upon all gifts by transtes

The amount of the exemption is a question of statutory

grace It has nothing to do with the validity or invalidity

of the tax. If retroactive application of the statute may

apply for a period of five months and two days, then

there is ne limit to the retrospect with which a statute

may apply. Ina constitutional sense a retrospective ay

plication of five months and two days may not be disti

yuished from a pee rion| of retroactivity covering twentys,

thirty or forty years past.

The Gevernment in the argument of Easner \ Ma

comber (19214 252 . & 1 abandoned its contention

that stock dividends constituted income per se and troed

to uphold the provisions fer the taxation of steck dis

dends upen the ground that the tax was an excise upon

the past aceumulation of profits and imposed at the tom:

of the translation of the past accumulation into a stock

dividend. This court denied this contention and stated

that while the Congress could impose a tax upon the past

aceumulated ineame at the time of the translation of i

inte a stock dividend, such a tax would be a direct tar

spen property and must he apportioned in accordance

with the provisions of the Constitation The court sand,

at page 217 >--

**That Congress has power to tax sharehold-

ers upon their property interests in the stock of

corporations is beyond question; and that such

interest might be valued in view of the condition

of the company, including its accumulated and un

divided profits, is equally clear. But that this

would be taxation of property because of owner-

ship, and he wer would require apportionm nt un

der the provisions of the Constiiation, is settled

hegond peradventure by previous decisions of this

Court.”” (Italies ours.)

That a tax upon a single act or event completed be

fore the enactment of the law imposing the tax could only

be upheld as a direct tax was probably the thought that

created such misgivings in the mind of Mr. Justice Me

Renna, When considering Schwab vo Doyle, supra. He

said at pr. O0D:

“Tt retrowetitity be accepted, what shall mark

its lamat!) The Cireuit Court of Appeals found the

interrogation net troublesome. It said: ‘Con-

gress would, we think, scarcely be impressed with

a practical likelhood that a transfer made many

sears before a grantor’s death (say 25 vears, to

use plaintiff's suggestion) would be judicially

found to be made in contemplation of death under

the legal definition applheable thereto, and without

the aid of the two vears proma facie provision.” In

other words, the sense of courts and juries, good

or otherwise, might, against the words of the stat

ute, and against what might be the evidence in the

ease, Ubbelped by the presumption declared, fix the

sears of its retrospect. This would seem to make

the difficulty or case of proof a substitute fer the

condition which the statute makes necessary to the

imposition of the tax; that is, the disposition with

whieh the transfer is made; and certainly whether

that disposition exist at an instant before death or

vears before death, it is a condition of the tay.

The construction of the Government is more

tenable though more unrestrained. Tt accepted in

Qipad rere

St ei H

The ales gsieeth « lowed aaty ioe OW it? thee fallaw rhe

hold consistency, at the oral argument, the chal.

lenge of twenty-five years, and a ruling of the

Commissioner of Internal Revenue, in bolder con

fidenee, extends the statute to ‘transfers of any

kind made in contemplation of death af anu fone

whatsoever Gtalics ours) prier to September 5,

1916." The sole test in the opinion of that officer

ix ‘the date of the death of the decedent.’ He

fixes no period to the retrospect he declares, but

reserves, if he he taken at his word, the tranasters

ef all times to the demands of revenue In this

there is much to allure an administrative officer.

Indeed, its simplicity attracts anyone. It removes

puzzle from construction and perplexity and pet

tinence on account of the distance of death trom

the transfer, risking ne chances of courts of

juries, in repugnatce oF revolt, taking liberties

with the act toe relieve from its exactions to satisfy

the «hemar ds of revenue

** And this, we repeat, ts in accord with pri:

ple ard mutheorsts It as the proclamation af hati

that a statute should not be given a retrospective

operation unless its words make that imperative

and this cantnet beer sata cof this words of the Act o

September 8, 1916 ”

Certainly the United States Pixtrict Court for the

Eastern District of Wisconsin contd conceive of nething

more direct than the retrospectiy els applied tax involved

this ait, for the eourt there snid th La Ke dige \ Hy

iti

Loncom and Nannecmacher s Wilkinson (reported in Com

merece Clearing House, Board of Tax Appeals and Fed

eral Court Service, 1926, pages TOT, TATA)

SRR Thee etry

“The Court: Tthonk Mr. Ghekstan os right

mes ptt that the ahaole pereaqocm i tian cothies dow!

the single djreet «tatement, Can an exerse tas te

effective other than mm fulure

The case comes here re alls with the mecessity,

ae ] might nAN, of de« pding the case definitels The

proposition that is presented here rests ultimately

upon the definitive inclusion or exclusion of ele-

ments and ingredients in what is called an ‘excise’;

I mean, the so-called burden which we term an

exeise; and it would seem to me that the implica.

tion is that as between the Government and the

subject who is expected to be reached by the law,

either in respect of his property, or as we might

say, of his conduet, of his movements, that will be

open to choice; the implication in an excise not

theretofore existing or not theretofore exacted, to

the subject is: ‘If you want to do this particular

thing, vou can do it with the burden attaching to

you, Which we will now impose on you.’

‘Then, in the case of a gift, as in the case of cer

tain other taxes that are not direct taxes, the sub

ject can take his choice. If he wants to do it he

must submit to the burden which the law imposes

apen the doing of the act; but, when it appears

that the aet has been fully completed prior to the

passage of the law, why of course the burden is

imposed without the choice of rehef by concluding

not to exercise the privilege.

Now, when that is se, the question is particu

larly asked. Here are the gifts made in February

and May, 1024, prior to the passage of this act. I

seems absurd to say that the Nonnemacher and

Lefelber donors should be told on June 2. 1024, that

they are now subjected to an excise upon an act

wholly bevond their power to revoke, recall, or do

a thing im respect of what they had previously

deve: and how then ean vou escape the idea, al

theugh it is called an excise, that it is nothing more

or less than a direet tax, either against their prop

erty or against them, in respect of a completed

transaction, whieh, af T might put it that way, at

the time Congress passed the law was no longer,

as to them, ercisable?

lam impressed with the fundamental character

of that question; that the plaintiffs can well urge

tat the thresheld of these CASOR: and heing de

eided favorably to them dispenses with the neces

sity of considering or, much less, determining the

validity of the law outside of that; and the plain.

tiffs may take a judgment in each of the cases.”’

(ltalies the Court's.)

The following cases are commonly cited by the Gov

ernment in support of its position that Congress has un

limited power to unpose retroactive excise Lakes:

Flint v. Stone Tracy Co. (19W) 220 US. 107; Hecht

v. Malley, 265 U.S. 144; Brushaber vo Union Pate ROK

Co. (1916) 240 US. 1; Stockdale v. Insurance Co. (1875)

2) Wall. 323; Patton v. Brady (1902) 184 U.S. Gos; Bel!

omags \ Uweted States (1914) 232 US. 261.

The facts in these cases do not support the conten

then

In Plimt \) Stome Tracg

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