# Amicus Curiae Brief — Blodgett v. Holden > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386006_0743%3A3 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1927 - **Citation:** 275 U.S. 142 ## 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, \s 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 Se 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 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 iv 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 3 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 A Consent of Solicitor General to File Brief. Departinent WMS EP of 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 5 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 6 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 i 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. 1 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 7 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. on 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 S 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. I. 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 —— 10 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. et 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 gg 13 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: M4 “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 15 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 16 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 17 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 18 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 _— 19 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 20 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. 4b “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 23 “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 ' 24 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 — 25 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 so 26 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. 27 (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 28 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- _—_———— 29 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 30 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 31 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.” 32 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 _——, 33 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 34 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" 35 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 ~ $7 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 39 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. ES ey td 40 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 —_, 41 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 42 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 43 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 44 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 1 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 3 Ai wh ‘ t ‘ » 3 An attemp's t Cale Wa . ‘ ot! ij t€ te 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, t 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 3 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 4 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 b 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 S — a] 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 a 10 “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 11 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 12 7. On the privilege of engaging in the sugar re fining business: Spreekles Sugar Ret. Conv. WeClain, me US. Bad Cro). y 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 13 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 14 il 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 44 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: iv 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. C 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 4. 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 Ss 4 “a yi 1} 1, Tt a ai, = Vv 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), 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 Thempeon © Krautrer « Iwles, D2 Mise 10% we Teed «© Woek Brow (1852). S) Cthie Se Te ts 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 ©. Bennett (1914), 222 U.S. ‘2. United States . Cohen firecery Co. (1920), 255 FF PP re re eae United States ©. Daugherty, 269 C. S. . TTTTT 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 United States ©. Jum Fuey Moy (1916), 241 UL S M4 ne ek ae l nitedd States ©. Perkins (18%), 163 U, Ss. ¢ 52%) United States ¢ Phellis, 257 U. s. lis... United States ©. Russell (1871). 13 Wall G23 . 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 a » 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 —_ 3 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 ov 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- nexved to them. * * © ©" (Ttahes ours). 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 6 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 7 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 bc LEN saan Buk 2 8 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 Farme [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386006_0743%3A3. Public record. Not legal advice.