Source: https://www.legalcrystal.com/case/94353/stebbins-hurley-vs-riley
Timestamp: 2019-04-25 14:23:32+00:00

Document:
the residuary estate were equal in each instance. Held consistent with the due process and equal protection clauses of the Fourteenth Amendment. P. 268 U. S. 140 .
2. There are too elements in the transfer of decedent's estate, exercise of the legal power to transmit at death and privilege of succession, and both may be made the basis of classification in a single state taxing statute, so that the amount of tax which a legatee shall pay may be made to depend both on the total net amount of the decedent's estate subject to the jurisdiction of the state and passing under its inheritance and testamentary laws and the amount of the legacy to which the legatee succeeds under those laws. P. 268 U. S. 144 .
Error to a judgment of the Supreme Court of California sustaining, on review, a judgment of the Superior Court confirming an assessment of inheritance taxes.
"In determining the market value of the property transferred, no deduction shall be made for any inheritance tax or estate tax paid to the government of the United States."
The decedent left a gross estate exceeding $1,800,000, on which the federal estate tax amounted to the sum of $128,730.08. In fixing the amount of inheritance tax due to the State of California upon the residuary legacies, the state tax appraiser, acting pursuant to the provisions of Subdivision 10 of § 2, did not deduct the amount of federal estate tax. In consequence, the total amount of state tax assessed upon the residuary estate was $37,699.30 greater than it would have been had the federal estate tax been deducted from the residuum of the estate before fixing the amount of the state tax. The Superior Court of San Francisco County, having jurisdiction in the premises, confirmed the tax, and the Supreme Court of California, on writ of error, held that the tax was in accordance with the laws and the Constitution of California, and was not a denial of due process or equal protection of the laws under the Fourteenth Amendment of the Constitution of the United States. Stebbins v. Riley, 191 Cal. 591.
from the application of the taxing statute to successions, there is a denial of the equal protection of the laws. On the other hand, it is urged that the so-called "right" of acquiring property by devise or descent is not a property right, but a mere privilege, the creature of state law, and the authority which confers it may impose conditions upon its exercise; that, in consequence, the state may tax the privilege, discriminating not only between the status of those who inherit and the amounts which they thus acquire, but discriminating likewise between inheritances or legacies of like amount which are transmitted from estates of varying size, if the discrimination is based upon or bears some reasonable relation to the size of the whole estate transmitted on the death of the decedent. In presenting this aspect of the case, it was argued by the appellant, on the one hand, that there was a natural right to inheritance entitled to the protection of the due process clause of the Fourteenth Amendment, and by the appellee, on the other, that the legislative authority could deny wholly the privilege of inheritance, and consequently could place unlimited burdens upon it.
There is much in judicial opinion to suggest that a state may impose any condition it chooses on the privilege of taking property by will or descent, or, indeed, that it may abolish that privilege altogether, and, for this reason, that a state is untrammeled in its power to tax the privilege. See Mager v. Grima, 8 How. 490; United States v. Perkins, 163 U. S. 625 ; Knowlton v. Moore, 178 U. S. 41 , at page 178 U. S. 55 ; Campbell v. California, 200 U. S. 87 , at page 200 U. S. 94 .
"results in such flagrant and palpable inequality between the burden imposed and the benefit received as to amount to the arbitrary taking of property without compensation -- 'to spoliation under the guise of exerting the power of taxing' -- citing Bell's Gap R. Co. v. Pennsylvania, 137 U. S. 232 , 137 U. S. 237 ; Henderson Bridge Co. v. Henderson City, 173 U. S. 592 , 173 U. S. 615 ; Wagner v. Baltimore, 239 U. S. 207 , 239 U. S. 220 ."
The subject matter of an inheritance taxing statute may be either the transmission or the exercise of the legal power of transmission of property by will or descent ( United States v. Perkins, 163 U. S. 625 , 163 U. S. 629 ; Plummer v. Coler, 178 U. S. 115 , 178 U. S. 125 ; New York Trust Co. v. Eisner, 256 U. S. 345 ), or it may be the legal privilege of taking property by devise or descent ( Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283 ; Knowlton v. Moore, 178 U. S. 41 ; Campbell v. California, 200 U. S. 87 ).
to the amount of the legacy received by persons of the same class. Magoun v. Illinois Trust & Savings Bank, supra. It may fix a succession tax which imposes a tax upon inheritances to brothers and sisters and not on those to daughters-in law and sons-in law. Campbell v. California, supra.
"It only prescribes that that law have the attribute of equality of operation, and equality of operation does not mean indiscriminate operation on persons merely as such, but on persons according to their relations. In some circumstances, it may not tax A more than B, but if A be of a different trade or profession than B, it may. . . . In other words, the state may distinguish, select, and classify objects of legislation, and necessarily this power must have a wide range of discretion."
The taxing statute may therefore make a classification for purposes of fixing the amount or incidence of the tax, provided only that all persons subjected to such legislation within the classification are treated with equality, and provided further that the classification itself be rested upon some ground of difference having a fair and substantial relation to the object of the legislation. Magoun v. Illinois Trust & Savings Bank, supra; F. S. Royster Guano Co. v. Virginia, 253 U. S. 412 .
and not tax securities for payment of money; it may allow deductions for indebtedness, or not allow them. All such regulations, and those of like character, so long as they proceed within reasonable limits and general usage, are within the discretion of the state legislature or the people of the state in framing their Constitution."
Bell's Gap R. Co. v. Pennsylvania, 134 U. S. 232 , at 134 U. S. 237 .
It is not necessary that the basis of classification should be deducible from the nature of the thing classified. It is enough that the classification is reasonably founded in the "purposes and policies of taxation." Watson v. Comptroller, 254 U. S. 122 . It is not open to objection unless it precludes the assumption that the classification was made in the exercise of legislative judgment and discretion. Campbell v. California, supra.
Unquestionably the operation of subdivision 10 of § 2 of the California Inheritance Act of 1917, now under consideration, may result in inequalities in the incidence of taxation. The requirement that the federal estate tax shall not be deducted in fixing the state inheritance tax imposes a much larger proportionate tax on the succession to a residuum of a large estate than a smaller estate, although the residuary estate and the residuary legacy be equal in each instance.
California to be a succession tax. Estate of Miller, 184 Cal. 678. That statute contained no express provision prohibiting the deduction of federal estate taxes before fixing the state tax on legacies, and that court held, adopting the principle of construction applied in Knowlton v. Moore, supra, that the true effect of the California Inheritance Tax Act, being that of a tax on succession, the federal tax must be deducted in order to determine the amount on which the state tax should be based. It is true, too, that the California Inheritance Tax Act of 1917 provides for a graduated tax dependent upon the size of the legacy, and discriminates between different classes of persons receiving the legacy, provisions which are characteristic of laws levying the tax upon successions. But § 2 of that Act expressly imposes the tax "upon the transfer of any property" of the character described in the Act, and subdivision 3 of § 1 of the Act provides that the word "transfer," as used in this Act shall be "taken to include the passing of property or any interest therein" in the manner provided in the Act. Subdivision 10 of § 2, which is new, in its practical operation makes the amount of the tax dependent to some extent upon the amount of the decedent's estate which passes, since the federal estate tax which under that provision may not be deducted in fixing the state tax is assessed upon the whole estate. To that extent the statute establishes a classification based on the amount of the estate passing under the power of disposition at the time of death, as well as the classification, based upon the amount of the legacy received, contained in other provisions of the taxing law.
may be made the basis of classification. We can perceive no reason why both may not be made the basis of classification in a single taxing statute, so that the amount of tax which the legatee shall pay may be made to depend both on the total net amount of the decedent's estate subject to the jurisdiction of the state and passing under its inheritance and testamentary laws and the amount of the legacy to which the legatee succeeds under those laws. Such a classification is not, on its face, unreasonable. The discrimination is one which bears a substantial relationship to the exercise of the power of disposition by the testator. It is one of the elements in the transfer which is made the subject of taxation. The adoption of the discrimination does not preclude the assumption that the legislature, in enacting the taxing statute, did not act arbitrarily or without the exercise of judgment or discretion which rightfully belong to it, and we can find in it no basis for holding the statue unconstitutional.
and not of constitutional power. Here, the construction of the taxing act is not open to question. Its meaning and application have been determined by the Supreme Court of California, and by its determination we are bound. We hold that, in enacting it, the legislature did not exceed its constitutional power.

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