Source: https://supreme.justia.com/cases/federal/us/281/586/
Timestamp: 2019-04-23 02:32:34+00:00

Document:
A resident of Illinois, dying there, willed all her property to her son, also a resident of that state. The will was probated in Illinois, and an inheritance tax was there laid upon all her intangible personalty, wherever situate. At the time of her death, she owned credits for cash deposited in banks located in Missouri, and coupon bonds of the United States and promissory notes, all physically within that state. Some of the notes had been executed by citizens of Missouri, and some were secured on lands there. Held that the credits, bonds, and notes were not within the jurisdiction of Missouri for taxation purposes, and that to enforce Missouri transfer or inheritance taxes reckoned upon their value would violate the due process clause of the Fourteenth Amendment. P. 281 U. S. 591.
Appeal from a judgment of the Supreme Court of Missouri, which reversed a judgment of the state Circuit Court and sustained an inheritance tax, assessed by the Probate Court, which the Circuit Court, on appeal, had found invalid.
The validity of § 558, R.S. of Missouri.1919, was duly challenged in the court below; by the judgment there, the rights of the parties were finally determined; the cause is properly here on appeal.
While a resident of Quincy, Adams county, Illinois, Carrie Pool Baldwin died October 4, 1926. By will, she left all her property to Thomas A. Baldwin, her son, a resident of the same place, and appointed him sole executor. The will was duly probated at her residence, and, under the statute of Illinois, an inheritance tax was there laid upon the value of all her intangible personalty, wherever situated.
States and sundry promissory notes which were then physically within that state. Most of these notes were executed by citizens of Missouri, and the larger part were secured by liens upon lands lying therein.
Under § 558, R.S.1919 * (copied in margin) the state of Missouri demanded transfer or inheritance taxes reckoned upon the value of all the above described property. No denial of this claim was made in respect of the real estate; but as to the personalty it was resisted upon the ground that the property was not within the jurisdiction of the state for taxation purposes and to enforce the demand would violate the due process clause of the Fourteenth Amendment.
The Lewis County Circuit Court declared the transfer of the personal property not subject to taxation; the Supreme Court reached a different conclusion, and directed payment.
It does not appear and is not claimed that either the decedent or her son ever resided in Missouri. The record discloses nothing tending to show that the personal property had been given a business situs in that state.
"In recent cases we have held, for the purpose of property tax, that the situs of a credit is the domicile of the creditor. . . ."
"If we could apply the same rule to an inheritance tax, we might have less difficulty in disposing of this case. The inheritance tax statute, Article XXI, c. 1, . . . R.S.1919, provides an entirely independent method of ascertaining the property subject to inheritance tax from that applicable for general tax. The definition of the term 'property' in the last section, 589, of that Article, makes inapplicable any definition relating to general property tax. An inheritance tax is not a property tax, but an excise tax, or a tax upon succession. In re Zook's Estate, 317 Mo. 986, 296 S.W. 780, and cases cited. . . ."
"These notes, bonds, and cash were all in the possession of the administrator in Missouri. For what purpose they were in Missouri is not shown. We cannot assume that they were in the State of Missouri for the purpose of escaping taxation in the State of Illinois. It is a reasonable inference that the cash and notes in such large quantities in Missouri, when none of it was held in Illinois, was retained in this state for the purpose of investment. They may have established a business situs in this state, in which case it would be subject to a general tax, as well as the inheritance tax. . . ."
jurisdiction of the state, and property subject to the transfer tax. It would have been a proper subject of inquiry by the trial court to determine how and why and under what conditions these evidences of debt were in this state, but, whatever the determination of that question, the property was legally within the jurisdiction of the Probate Court of Lewis county in this state, and subject to the tax."
The challenged judgment rests upon the broad theory that a state may lay succession or inheritance taxes measured by the value of any deposits in local banks passing from a nonresident decedent; also upon the value of bonds issued by the United States and promissory notes executed by individual citizens of the state when devised by such nonresident if these bonds or notes happen to be found within the confines of the state when death occurs. The cause was decided below prior to our determination of Farmers' Loan & Trust Co. v. Minnesota, 280 U. S. 204. Blackstone v. Miller, 188 U. S. 189, was cited in support of the conclusion reached. Considering Farmers' Loan & Trust Co. v. Minnesota and previous opinions there referred to, the theory upon which the court below proceeded is untenable, and its judgment must be reversed.
Ordinarily, bank deposits are mere credits, and, for purposes of ad valorem taxation, have situs at the domicile of the creditor only. The same general rule applies to negotiable bonds and notes, whether secured by liens on real estate or otherwise.
upon real estate situated in the state in which the debtor resides."
"The question does not seem to us to be very difficult of solution. The creditor, it is conceded, is a permanent resident within the jurisdiction of the state imposing the tax. The debt is property in his hands, constituting a portion of his wealth, from which he is under the highest obligation, in common with his fellow citizens of the same state, to contribute for the support of the government whose protection he enjoys."
"That debt, although a species of intangible property, may, for purposes of taxation, if not for all others, be regarded as situated at the domicile of the creditor. It is nonetheless property because its amount and maturity are set forth in a bond. That bond, wherever actually held or deposited, is only evidence of the debt, and, if destroyed, the debt -- the right to demand payment of the money loaned, with the stipulated interest -- remains. Nor is the debt, for the purposes of taxation, affected by the fact that it is secured by mortgage upon real estate situated in Illinois. The mortgage is but a security for the debt, and, as held in State Tax on Foreign-held Bonds, supra, [15 Wall. 300], the right of the creditor"
"etc. Cooley on Taxation, 15, 63, 134, 270. The debt, then, having its situs at the creditor's residence, both he and it are, for the purposes of taxation, within the jurisdiction of the state."
bonds are not thus distinguishable from other choses in action. It is not enough to show that the written or printed evidence of ownership may, by the law of the state in which they are physically present, be permitted to be taken in execution or dealt with as reaching that of which they are evidence, even without the presence of the owner. While bonds often are so treated, they are nevertheless, in their essence, only evidences of debt. The Supreme Court of Errors expressly admits that they are choses in action. Whatever incidental qualities may be added by usage of business or by statutory provision, this characteristic remains, and shows itself by the fact that their destruction physically will not destroy the debt which they represent. They are representative, and not the thing itself."
We find nothing to exempt the effort to tax the transfer of the deposits in Missouri banks from the principle applied in Farmers' Loan & Trust Co. v. Minnesota, supra. So far as disclosed by the record, the situs of the credit was in Illinois, where the depositor had her domicile. There, the property interest in the credit passed under her will, and there the transfer was actually taxed. This passing was properly taxable at that place, and not otherwhere.
The bonds and notes, although physically within Missouri, under our former opinions were choses in action with situs at the domicile of the creditor. At that point, they too passed from the dead to the living, and there this transfer was actually taxed. As they were not within Missouri for taxation purposes, the transfer was not subject to her power. Rhode Island Trust Co. v. Doughton, 270 U. S. 69.
double taxation -- by two states on the same transfer -- should be sustained in order to prevent escape from liability in exceptional cases. We cannot assent. In Schlesinger v. Wisconsin, 270 U. S. 230, 270 U. S. 240, a similar notion was rejected.
"The presumption and consequent taxation are defended upon the theory that, exercising judgment and discretion, the legislature found them necessary in order to prevent evasion of inheritance taxes. That is to say, 'A' may be required to submit to an exactment forbidden by the Constitution if this seems necessary in order to enable the state readily to collect lawful charges against 'B.' Rights guaranteed by the federal Constitution are not to be so lightly treated; they are superior to this supposed necessity. The state is forbidden to deny due process of law or the equal protection of the laws for any purpose whatsoever."
If the possibility of evasion be considered from a practical standpoint, then the federal estate tax law, under which credit is only allowed where a tax is paid to the state, § 1093, Title 26, U.S.C., must be given due weight. Also the significance of the adoption of reciprocal exemption laws by most of the states, Farmers' Loan & Trust Co. v. Minnesota, supra, cannot be disregarded.
Normally, as in the present instance, the state of the domicile enforces its own tax, and we need not now consider the possibility of establishing a situs in another state by one who should undertake to arrange for succession there, and thus defeat the collection of the death duties prescribed at his domicile.
This cause does not involve the right of a state to tax either the interest which a mortgagee, as such, may have in lands lying therein or the transfer of that interest.
Reversed. The cause will be remanded to the Supreme Court of Missouri for further proceedings not inconsistent with this opinion.
and the tax was warranted by decisions of this Court. Liverpool & London & Globe Ins. Co. v. Assessors for the Parish of Orleans, 221 U. S. 346, 221 U. S. 354-355; Wheeler v. Sohmer, 233 U. S. 434. (I suppose that these cases and many others now join Blackstone v. Miller on the Index Expurgatorius -- but we need an authoritative list.) It seems to me to be exceeding our powers to declare such a tax a denial of due process of law.
And what are the grounds? Simply, so far as I can see, that it is disagreeable to a bond owner to be taxed in two places. Very probably it might be good policy to restrict taxation to a single place, and perhaps the technical conception of domicil may be the best determinant. But it seems to me that, if that result is to be reached, it should be reached through understanding among the states, by uniform legislation or otherwise, not by evoking a constitutional prohibition from the void of "due process of law" when logic, tradition, and authority have united to declare the right of the state to lay the now prohibited tax.
state; Savings Society v. Multnomah County, 169 U. S. 421, upholding a tax measured by a nonresident's notes, secured by mortgages on land within the taxing state; or Bristol v. Washington County, 177 U. S. 133, and Metropolitan Life Insurance Co. v. New Orleans, 205 U. S. 395, upholding a tax upon intangibles having a "business situs" within the taxing state, but owned by a nonresident. These cases rest upon principles other than those applied in Blackstone v. Miller, and are not dependent upon it for support.
It is true that the bonds and notes located in Missouri are choses in action, rights in which may be transferred at the domicile of the owner as well as in any other state in which he may chance to be. But the transfer made there is not completely effected without their delivery, which ordinarily can be compelled only in Missouri and in accordance with its laws. If negotiable, which, so far as appears, some of them were, their transfer by delivery within Missouri could defeat the transfer made in Illinois. When secured by mortgage on real estate, the transfer of the security, which is an inseparable incident of the chose in action, Carpenter v. Longan, 16 Wall. 271; Lipscomb v. Talbott, 243 Mo. 1, 31, may be affected by the recording laws, availed of only through the recording facilities where the land is located. See Pickett v. Barron, 29 Barb. 505; Curtis v. Moore, 152 N.Y. 159, 163.
of the laws of both, does not seem to me so oppressive or arbitrary as to infringe constitutional limitations.
Taxation is a practical matter, and if, in the choice of the rule we adopt, we may, as the Court has said in Farmers' Loan & Trust Co. v. Minnesota, give some consideration to its practical effect, we ought not, I think, to overturn long established rules governing the constitutional power to tax without some consideration of the necessity and of all consequences of the change. Under the law as it has been, no one need subject himself to double taxation by keeping his securities in a state different from his domicile or by seeking the protection of its laws for his mortgage investments. But it is a practical consideration of some moment that taxation becomes increasingly difficult if the securities of a nonresident may not be taxed where located, and where alone they may be reached, but where the courts are not open to the tax gatherers of the domicile. See Moore v. Mitchell, ante, p. 281 U. S. 18; 30 F.2d 600; Colorado v. Harbeck, 232 N.Y. 71.
"It is a reasonable inference that the cash and notes in such large quantities in Missouri, when none of it was held in Illinois, was retained in this state for the purpose of investment. They may have established a business situs in this state. . . ."
establish its unconstitutionality. Upon this ambiguous record, it is for the appellant to show that the stock and bonds subjected to the tax had no business situs within the taxing jurisdiction. See Corporation Commission of Oklahoma v. Lowe, ante, p. 281 U. S. 431; Toombs v. Citizens Bank of Waynesboro, post, p. 281 U. S. 643.
MR. JUSTICE HOLMES and MR. JUSTICE BRANDEIS join in this opinion.
"A tax shall be and is hereby imposed upon the transfer of any property, real, personal, or mixed, or any interest therein or income therefrom, in trust or otherwise, to persons, institutions, associations, or corporations not hereinafter exempted, in the following cases: when the transfer is by will or by the intestate laws of this state from any person dying possessed of the property while a resident of the state. When the transfer is by will, or intestate law of property within the state or within the jurisdiction of the state and decedent was a nonresident of the state at the time of his death. When the transfer is made by a resident or by a nonresident when such nonresident's property is within this state, or within its jurisdiction, by deed, grant, bargain, sale or gift made in contemplation of the death of grantor, vendor or donor, or intending to take effect in possession or enjoyment at or after such death. Every transfer by deed, grant, bargain, sale or gift made within two years prior to the death of grantor, vendor or donor, of a material part of his estate or in the nature of a final disposition or distribution thereof without an adequate valuable consideration shall be construed to have been made in contemplation of death within the meaning of this section. Such tax shall be imposed when any person, association, institution, or corporation actually comes into the possession and enjoyment of the property, interest therein, or income therefrom, whether the transfer thereof is made before or after the passage of this act: Provided, that property which is actually vested in such persons or corporations before this act takes effect shall not be subject to the tax."

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