Source: https://supreme.justia.com/cases/federal/us/233/434/
Timestamp: 2019-04-21 10:10:21+00:00

Document:
The provision in the New York Inheritance Tax Statute imposing a transfer tax on property within the state belonging to a nonresident at the time of his death is not unconstitutional under the due process clause of the Fourteenth Amendment as applied to promissory notes the makers of which are nonresidents of that state. Buck v. Beach, 206 U. S. 392, distinguished.
The facts, which involve the power of a state to tax promissory notes located in the state although neither the owner nor the maker are residents thereof, are stated in the opinion.
confirmed the appraiser's report, and his order was affirmed by the appellate division and the Court of Appeals. 143 App.Div. 327, 202 N.Y. 550. The executors contend that the tax deprives them of their property without due process of law.
In support of this position, it was argued that, if bonds were subject to taxation simply because of their presence within the jurisdiction, it was due to the survival of primitive notions that identified the obligation with the parchment or paper upon which they were written; that bills and notes had a different history, and that there was no ground for extending the conceptions of the infancy of the race to them. It was pointed out that the power to tax simple contracts depends upon power over the person of one of the parties, and does not attach to documentary evidence of such contracts that may happen to be within the jurisdiction. Cases were cited in which this Court has pronounced bills and notes to be only evidences of the simple contracts that they express (Pelham v. Way, 15 Wall.196; Wyman v. Halstead, 109 U. S. 654, 109 U. S. 656), and the precise issue was thought to be disposed of by Buck v. Beach, 206 U. S. 392. We shall discuss this case, but for the moment it is enough to say that, for the purposes of argument, we assume that bills and notes stand as mere evidences at common law.
a tax on the value of the contract because it happened to be found in the testator's New York strong box. But it is plain that bills and notes, whatever they may be called, come very near to identification with the contract that they embody. An indorsement of the paper carries the contract to the indorser. An indorsement in blank passes the debt from hand to hand so that whoever has the paper has the debt. It is true that, in some cases, there may be a recovery without producing and surrendering the paper, but so may there be upon a bond in modern times. It is not primitive tradition alone that gives their peculiarities to bonds, but a tradition laid hold of, modified and adapted to the convenience and understanding of businessmen. The same convenience and understanding apply to bills and notes, as no one would doubt in the case of bank notes, which technically do not differ from others. It would be an extraordinary deduction from the Fourteenth Amendment to deny the power of a state to adopt the usages and views of businessmen in a statute on the ground that it was depriving them of their property without due process of law. The necessity of caution in cutting down the power of taxation on the strength of the Fourteenth Amendment often has been adverted to. Louisville & Nashville R. Co. v. Barber Asphalt Paving Co., 197 U. S. 430, 197 U. S. 434. Unless we are bound by authority, we think the statute, so far as we now are concerned with it, plainly within the power of the state to pass.
As to authority, it has been asserted or implied, again and again, that the states had the power to deal with negotiable paper on the footing of situs.
"It is well settled that bank bills and municipal bonds are in such a concrete, tangible form that they are subject to taxation where found, irrespective of the domicil of the owner; . . . notes and mortgages are of the same nature . . . we see no reason why a state may not declare that, if found within its limits, they shall be subject to taxation."
Orleans v. Stempel, 175 U. S. 309, 175 U. S. 322-323; Bristol v. Washington County, 177 U. S. 133, 177 U. S. 141; State Board of Assessors v. Comptoir National d'Escompte, 191 U. S. 388, 191 U. S. 403-404; Metropolitan Life Insurance Co. v. New Orleans, 205 U. S. 395, 205 U. S. 400-402. This is the established law unless it has been overthrown by the decision in Buck v. Beach, supra.
No such effect should be attributed to that case. The Ohio notes in Buck's hands that were held not to be taxable in Indiana were moved backward and forward between Ohio and Indiana with the intent to avoid taxation in either state. 206 U.S. 206 U. S. 402. They really were in Ohio hands for business purposes (id., 206 U. S. 395), and sending them to Indiana was spoken of by Mr. Justice Peckham as improper and unjustifiable, id., 206 U. S. 402. Their absence from Ohio evidently was regarded as a temporary absence from home. Id., 206 U. S. 404. And the conclusion is carefully limited to a refusal to hold the presence of the notes "under the circumstances already stated" to amount to the presence of property within the state. A distinction was taken between the presence sufficient for a succession tax like that in this case, and that required for a property tax such as then was before the Court, and the only point decided was that the notes had no such presence in Indiana as to warrant a property tax. See New York & Hudson River R. Co. v. Miller, 202 U. S. 584, 202 U. S. 597. If Buck v. Beach is not to be distinguished on one of the foregoing grounds, as some of us think that it can be, we are of opinion that it must yield to the current of authorities to which we have referred.
In the case at bar it must be taken that the safe deposit box in which the notes were found was their permanent resting place, and therefore that the power of the state so repeatedly asserted in our decisions could come into play.
I concur in the result, but cannot concur in the reasoning of the opinion, or rather, its controlling proposition, unmodified. I might pass it by in silence if it did not have larger consequence than the decision of the pending case. The opinion is rested on the proposition, said to be based on authority, that the states have power to deal "with negotiable paper on the footing of situs" -- that is, to regard such paper so far concrete and tangible as to be of itself a subject of taxation, irrespective of the domicil of its owner, or, I add, the locality of the debt which it represents. For the proposition announced, Mr. Justice Brewer, in New Orleans v. Stempel, 175 U. S. 309, is quoted from. Other cases are cited, and it is said to be established law unless it has been overthrown by the decision in Buck v. Beach, 206 U. S. 392. I refrain from meeting the judgment of my brethren by simply opposing assertion, and I feel constrained to review the cases, including Buck v. Beach. I will do so in the order of their decision.
"All bills receivable, obligations or credits arising from the business done in the state are hereby declared assessable within this state, and at the business domicil of said nonresident, his agent or representative."
"the situs of the loans and credits was in New York, the place of residence of the guardian and wards, and therefore, being loans and credits without the State of Louisiana, they were not subject to taxation therein."
The question presented by the contention, this Court said, was whether, under the statute as interpreted by the supreme court of the state, the properties were subject to taxation, and, if so subject, whether any rights secured by the federal Constitution were thereby infringed. The tax was sustained, but it will be observed that negotiable paper was not assessed at all or dealt with as an entity separate from what it represented. The notes which represented the credits taxed were, it is true, in New Orleans, but in possession of the agent of Stempel. Not they, but the rights of which they were the evidence, were taxed. The broad declaration, therefore, that negotiable paper had such tangibility as to be of itself a taxable entity was not called for. The true value of the case and its application to the case at bar can be estimated when we consider the other cases.
to avail themselves for their own benefit of the laws of a state in the conduct of business within its limits, and then to escape their due contribution to the public needs through action of this sort, whether taken for convenience or by design."
P. 177 U. S. 144.
"From these cases, it may be taken as the settled law of this Court that there is no inhibition in the federal Constitution against the right of the state to tax property in the shape of credits where the same are evidenced by notes or obligations held within the state, in the hands of an agent of the owner for the purpose of collection or renewal with a view to new loans and carrying on such transactions as a permanent business."
P. 191 U. S. 403.
In Metropolitan Life Insurance Co. v. New Orleans, 205 U. S. 395, the assessment was also under the act passed on in the Stempel case. I will not pause to detail the facts. It is enough to say that the credits taxed were loans (evidenced by notes) by the insurance company to its policyholders in Louisiana. The tax was not eo nomine on the notes, but was expressed to be on "credits, money loaned, bills receivable," etc., and its amount was ascertained by computing the sum of the face value of all the notes held by the company at the time of the assessment.
designed by the law is the fair average of the capital employed in the business." In other words, the investments in the state were taxed, and the legality of the tax was determined by their situs, not by the locality of the notes which represented them, the notes being in New York at the home of the insurance company.
It was the situs of the debt which determined the legality of the taxation in all of the cases, and united them under the principle expressed in Metropolitan Life Insurance Co. v. New Orleans, that the law regards the place of the origin of negotiable paper as its true home, to which it will return to be paid, and its temporary absence can be left out of account. They do not support the broad proposition that to negotiable paper can be ascribed such tangibility and entity as so to make it a taxable object of itself in a jurisdiction other than that of the obligation it represents. This broad generality is necessary to sustain the tax in the present case if it can be regarded a direct tax on property, for Illinois, not New York, is the situs of the debts of which the notes taxed are the evidence, and of the mortgages which secure them.
That broad proposition was asserted in Buck v. Beach and rejected. The notes involved had their origin in Ohio, and represented investments in that state. Their owner died, and one of the two trustees of his will resided in Indiana. The notes were kept in the custody of the latter, except that, at the time of assessment of taxes in that state, they were sent to Ohio, and, after the lapse of a few days, returned to him. They were taxed in Indiana. The tax was sustained by the state supreme court, but declared invalid by this Court.
within the jurisdiction of that state, so that such debts could be therein taxed."
P. 206 U. S. 400.
"There are no cases in this Court where an assessment such as the one before us has been involved. We have not had a case where neither the party assessed nor the debtor was a resident of or present in the state where the tax was imposed, and where no business was done therein by the owner of the notes or his agent relating in any way to the capital evidenced by the notes assessed for taxation. We cannot assent to the doctrine that the mere presence of evidences of debt, such as these notes, under the circumstances already stated, amounts to the presence of property within the state."
And it was pointed out that the prior cases, which were specifically reviewed, gave no support to the rejected doctrine. It was not overlooked that certain specialty debts, state and municipal bonds and circulating notes of banking institutions, have sometimes been treated as property where they were found, though removed from the domicil of the owner, and State Tax on Foreign-held Bonds, 15 Wall. 300, 82 U. S. 324, was cited. Promissory notes were held not to be within the rule.
It is, however, asserted that the circumstances of the case showed that the notes were fugitives from taxation, alternately from Indiana and Ohio, and that their stay in Indiana was in evasion of their obligations to Ohio, and was "a transit, although prolonged." But the bad motive of the possessor of the notes was not made a ground of decision. If the court felt a retributive impulse to deny the notes sanctuary in Indiana, it was suppressed. The court declared that the motive for sending the notes to Indiana was of no consequence, and that the attempt to escape proper taxation in Ohio did not confer jurisdiction on Indiana to tax them (page 206 U. S. 402).
"The foundation upon which such acts rest is different from that which exists where the assessment is levied upon property. The succession or inheritance tax is not a tax upon property, as has been frequently held by this Court, Knowlton v. Moore, 178 U. S. 41; Blackstone v. Miller, 188 U. S. 189, and therefore the decisions arising under such inheritance tax cases are not in point."
The tax under review is of that kind. In other words, it is not a tax on property, but a tax upon the transfer of the property by the will of the testator of plaintiffs in error, as provided by the laws of the state. The will was probated in Connecticut, where the deceased was a resident, but ancillary letters of administration were issued to plaintiffs in error by the Surrogates' Court, County of New York, State of New York, and the taxed notes were part of the property disposed of by his will. It appears, therefore, that the property is in the control of the courts of New York. In other words, the laws of New York are invoked, accomplish its transfer, and subject it to the dispositions of the will, and make effectual the purposes of the testator. Blackstone v. Miller, supra.
I am dealing with the power of taxation under our decisions. If there be injustice in its exercise by measuring the tax by the value of the credits represented by the notes, it is an injustice which this Court cannot redress.
I am authorized to say that MR. JUSTICE PITNEY concurs in this opinion.
transfer taxes on notes as to direct taxes, and that therefore the judgment in the present case should be reversed.
I am authorized to say that the CHIEF JUSTICE and MR. JUSTICE VAN DEVANTER concur in this dissent.

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