Case Title: Rigby v. Clayton

Citation: 164 S.E.2d 7, 274 N.C. 465

Docket Number: 

State: north-carolina

Court: North Carolina Supreme Court

Date: 1968-11-20T00:00:00Z

Document:
164 S.E.2d 7 (1968) 274 N.C. 465 Mary Sue RIGBY, Executrix under the Will of Dan Williams Rigby, and Mary Sue Rigby, Individually v. I. L. CLAYTON, Commissioner of Revenue of North Carolina. No. 444. Supreme Court of North Carolina. November 20, 1968. *9 Adams & Dearman and Raymer, Lewis & Eisele, Statesville, for plaintiff, appellant. Atty. Gen., T. Wade Bruton and Asst. Atty. Gen., Myron Banks, for defendant, appellee. BRANCH, Justice. G.S. § 105-21 provides: As originally passed in 1921, G.S. § 105-21 applied only to non-specific bequests or devises of North Carolina property from the estates of nonresident decedents. In 1925 the statute was amended so as to include both specific and non-specific bequests and devises, and in 1937 was amended so as to include all decedents, resident and nonresident, whose estates consisted of property both in and out of the State. Appellant, in attacking the constitutionality of G.S. § 105-21, strongly contended before the Court of Appeals that the statute was unconstitutional, in that it violated the "due process" clauses of the Fifth and Fourteenth Amendments of the U. S. Constitution and Article I, Section 17 of the Constitution of North Carolina, and that it denied equal protection of the laws in violation of the Fourteenth Amendment of the United States Constitution, and that it violated Article 5, Section 3 of the North Carolina Constitution by an arbitrary and capricious classification for the purpose of taxation. The decision of the North Carolina Court of Appeals is founded principally upon the *10 case of Maxwell v. Bugbee, 250 U.S. 525, 40 S. Ct. 2, 63 L. Ed. 1124, in which the Supreme Court of the United States considered the constitutionality of a New Jersey statute that was in substance the same as G.S. § 105-21 before its 1925 and 1937 amendments. In Maxwell v. Bugbee, Justice Day, speaking for majority of the Court, stated: Appellant, on the other hand, relied heavily on the cases of Frick v. Pennsylvania, 268 U.S. 473, 45 S. Ct. 603, 69 L. Ed. 1058, and Treichler v. Wisconsin, 338 U.S. 251, 70 S. Ct. 1, 94 L. Ed. 37. Further review and discussion of the history of G.S. § 105-21 and the cases cited in reference to the controlling force of Maxwell v. Bugbee would be merely an affectation of learning, since we conclude that the Court of Appeals correctly distinguished the cases cited by appellant in reaching its conclusion that Maxwell v. Bugbee is still the prevailing law. We agree with the Court of Appeals that the 1925 Amendment did not affect the applicability of Maxwell v. Bugbee and that the 1937 Amendment, from the point of view of removing any distinction contained in the statute as between residents and nonresidents, strengthened the constitutionality of G.S. § 105-21. It is further observed that long before the decision in Maxwell v. Bugbee it was well settled in North Carolina that the type of tax here challenged was not a tax on property but on transmission of property from the dead to the living. In re Morris' Estate, 138 N.C. 259, 50 S.E. 682. The "due process" provisions of the Federal or State Constitution are not violated by the use of value of the entire estate, wherever located, to determine the rate of the tax to be applied to the transfer of property within the state; nor is it contended or shown that the procedural rights of notice and hearing are denied by the statute. City of Randleman v. Hinshaw, 267 N.C. 136, 147 S.E.2d 902. The main force of appellant's brief and argument to this Court is directed to the contentions that the statute violated the Fourteenth Amendment "equal protection" clause and Article V, Section 3 of the North Carolina Constitution by establishing an arbitrary and capricious classification for methods of determining a tax rate which was based on whether a beneficiary received property from an estate comprised of property solely within the state or property within and outside of the state. The equality and uniformity required by our State Constitution in property taxation does not apply to inheritance or succession taxation. In re Morris' Estate, supra; Pullen v. Wake County Com'rs, 66 N.C. 361. The reason for this rule *11 is clearly set forth in the case of In re Morris' Estate, supra, as follows: See also Magoun v. Illinois Trust and Savings Bank, 170 U.S. 283, 18 S. Ct. 594, 42 L. Ed. 1037, and United States v. Perkins, 163 U.S. 625, 16 S. Ct. 1073, 41 L. Ed. 287. Although the Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same, when the validity of a tax statute is challenged on the ground of discrimination by arbitrary classification, it becomes the duty of the court to ascertain if, in fact, there is a difference in the classes taxed. Lenoir Finance Co. v. Currie, 254 N.C. 129, 118 S.E.2d 543. The Legislature is given the widest latitude in making the distinctions which are bases for classification, and they will not be disturbed unless they are capricious, arbitrary and unjustified by reason. Snyder v. Maxwell, 217 N.C. 617, 9 S.E.2d 19. Nor will occasional inequalities and hardships resulting from the application of the statute defeat the law unless it be shown that they result from hostile discrimination. Leonard v. Maxwell, 216 N.C. 89, 3 S.E.2d 316. Considering the constitutional requirements that the equal protection clause of the Fourtenth Amendment places on state authorities to tax, the U. S. Supreme Court, in the case of Magoun v. Illinois Trust and Savings Bank, supra, stated: In Stebbins v. Riley, 268 U.S. 137, 45 S. Ct. 424, 69 L. Ed. 884, the U. S. Supreme Court considered a California statute which imposed a tax on the transfer of property and forbade the deduction of the Federal estate tax in levying the amount of the State inheritance tax. In Stebbins, appellants contended that the statute violated the "equal protection" and "uniformity" provisions of the Federal Constitution because it imposed a much larger proportionate tax on the succession to a residuum of a large estate than of a smaller estate, although the residuary legacies were equal in each instance. Appellant contended that there was an arbitrary discrimination and a denial of equal protection, in that inequality resulted depending upon the size of the estate from which a legacy was *12 received. The United States Supreme Court, holding the statute to be constitutional, stated: The classification which appellant attacks as arbitrary and capricious lies in the difference in the method of arriving at the rate of tax applied to heirs or legatees receiving property from estates consisting of property lying both within North Carolina and outside of North Carolina, as distinguished from the method of arriving at the rate of tax applied to heirs or legatees receiving property from estates consisting of property lying wholly within North Carolina. G.S. § 105-2 expressly imposes a tax "upon the transfer of any property, real or personal * * *." (Emphasis ours) The transfer of property contemplates both the legal power to transmit property at death and the privilege of receiving property. A state may consider the composition and character of the entire estate as well as the amount passing to the individual legatees or heirs under its intestate or testamentary laws as a basis for classification, without imposing an arbitrary classification or without violating the "equal protection" or "uniformity" provisions of the State or U. S. Constitution. Such a classification bears a reasonable and substantial relation to the succession of property, and we recognize the imposition of a tax on the succession of property as a proper subject of taxation by the State. In re Morris' Estate, supra. In determining whether there is some difference which bears a reasonable and proper relationship to the attempted classification in a statute, the reviewing court must be able to see that the enacting legislature could regard it as reasonable and proper without doing violence to common sense. In other words, there must be enough reason for it to support an argument. People ex rel. Farrington v. Mensching, 187 N.Y. 8, 79 N.E. 884, 10 L.R.A., N.S., 625. Thus, in addition to the exercise of their legislative prerogative of considering both the entire estate as well as the amount passing to individual legatees as a basis for classification, it may be *13 argued that the classification is a reasonable and valid exercise of legislative judgment in avoiding inequality in taxation by preventing the disposition of property in other states in order to obtain rates of taxation lower than those enjoyed by legatees or heirs taking from an estate where all the property is located in North Carolina. Such a classification is founded in fact upon a difference in classes taxed and is clearly uniform and equal as to members of the same class. We conclude that the classification is not "so wholly arbitrary and unreasonable as to be beyond the legislative authority of the state." Maxwell v. Bugbee, supra. Thus, recognizing the prevailing law that a state may levy inheritance or succession taxes on property within its authority at a rate which considers the entire estate (a part of which is located outside the state) in arriving at the amount of the tax, Maxwell v. Bugbee, supra, we hold that the North Carolina Legislature did not exceed its powers in enacting G.S. § 105-21. The decision of the Court of Appeals is Affirmed.