Source: https://www.law.cornell.edu/supremecourt/text/316/174
Timestamp: 2019-04-19 18:56:42+00:00

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Respondents sought a declaratory judgment in the Utah court holding that the transfer of the shares was not subject to tax by Utah under the provisions of its inheritance tax law. 2 The trial court entered judgment for respondents. The Supreme Court of Utah, under the compulsion of First National Bank of Boston v. State of Maine, 284 U.S. 312, 52 S.Ct. 174, 76 L.Ed. 313, 77 A.L.R. 1401, affirmed Aldrich v. State Tax Comm., Utah, 116 P.2d 923. We granted the petition for certiorari so that the constitutional basis of First National Bank of Boston v. State of Maine could be reexamined in the light of such recent decisions as Curry v. McCanless, 307 U.S. 357, 59 S.Ct. 900, 83 L.Ed. 1339, 123 A.L.R. 162, and Graves v. Elliott, 307 U.S. 383, 59 S.Ct. 913, 83 L.Ed. 1356. And see Commonwealth v. Stewart, 338 Pa. 9, 12 A.2d 444, affirmed 312 U.S. 649, 61 S.Ct. 445, 85 L.Ed. 1101.
It was that view which we followed in the Curry case. We held there that the Fourteenth Amendment did not prevent both Alabama and Tennessee from imposing death taxes upon the transfer of an interest in intangibles held in trust by an Alabama trustee but passing under the will of a beneficiary decedent domiciled in Tennessee. We stated that rights to intangibles 'are but relationships between persons, natural or corporate, which the law recognizes by attaching to them certain sanctions enforceable in courts. The power of government over them and the protection which it gives them cannot be exerted through control of a physical thing. They can be made effective only through control over and protection afforded to those persons whose relationships are the origin of the rights. * * * Obviously, as sources of actual or potential wealthwhich is an appropriate measure of any tax imposed on ownership or its exercisethey cannot be dissociated from the persons from whose relationships they are derived. These are not in any sense fictions. They are indisputable realities.' 307 U.S. page 366, 59 S.Ct. page 905, 83 L.Ed. 1339, 123 A.L.R. 162. We held that the power to tax intangibles was not restricted to one State whether 'we regard the right of a state to tax as founded on power over the object taxed, as declared by Chief Justice Marshall in McCulloch v. Maryland, supra, through dominion over tangibles or over persons whose relationships are the source of intangible rights; or on the benefit and protection conferred by the taxing sovereignty, or both'. 307 U.S. pages 367, 368, 59 S.Ct. page 906, 83 L.Ed. 1339, 123 A.L.R. 162. And we added: 'Shares of corporate stock may be taxed at the domicile of the shareholder and also at that of the corporation which the taxing state has created and controls; and income may be taxed both by the state where it is earned and by the state of the recipient's domicile. Protection, benefit, and power over the subject matter are not confined to either state.' 307 U.S. page 368, 59 S.Ct. page 906, 83 L.Ed. 1339, 123 A.L.R. 162. In the recent case of State of Wisconsin v. J. C. Penney Co., 311 U.S. 435, 444, 61 S.Ct. 246, 249, 85 L.Ed. 267, 130 A.L.R. 1229, we gave renewed expression to the same view: 'A state is free to pursue its own fiscal policies, unembarrassed by the Constitution, if by the practical operation of a tax the state has exerted its power in relation to opportunities which it has given, to protection which it has afforded, to benefits which it has conferred by the fact of being an orderly, civilized society.' And see Graves v. Schmidlapp, 315 U.S. 657, 62 S.Ct. 870, 86 L.Ed. -, decided March 30, 1942.
This phase of the taxing power, rooted in the established practices of the States in common with other governments, was not suddenly abrogated on July 28, 1868, when the Fourteenth Amendment became the law of the land. On the contrary, taxes based on the States' power over corporations of their own creation thereafter became an increasingly familiar source of revenue. Of course, the Due Process Clause has its application to the taxing powers of the Statesa State cannot tax a stranger for something that it has not given him. When a State gives nothing in return for exacting a tax it may be said that there is no 'jurisdiction to tax'. But that phrase obscures rather than enlightens, for it only states a result and does not analyze the Constitutional problem. The right of a State to tax the effective acquisition of membership in a domestic corporation, wherever the piece of paper representing such a taxable interest may be physically located,the immediate question before uswas not doubted until the decision of this Court only ten years ago in First National Bank of Boston v. State of Maine, 284 U.S. 312, 52 S.Ct. 174, 76 L.Ed. 313, 77 A.L.R. 1401. That decision, as was made clear in its dissent, was an unwarranted deviation from unbroken legal history and fiscal practice. Drawn as the decision was 'from the void of 'due process of law' when logic, tradition and authority have united to declare the right of the State to lay' such a tax (Holmes, J., dissenting in Baldwin v. State of Missouri, 281 U.S. 586, 596, 50 S.Ct. 436, 439, 74 L.Ed. 1056, 72 A.L.R. 1303), due regard for the Constitution demands that the deviation be not perpetuated and that the power erroneously withdrawn from the States be again recognized.
It may well be that the last word has not been aid by the various devices now availablethrough uniform and reciprocal legislation, through action by the States under the Compact Clause, Art. I, Sec. 10, Cl. 3, or through whatever other means statesmen may devisefor distributing wisely the total national income for governmental purposes as between the States and the Nation. But even if it were possible to make the needed adjustments in the fiscal relations of the States to one another and to the federal government through the process of episodic litigationwhich to me seems most illadapted for devising fiscal policiesit is enough that our Constitutional system denies such a function to this Court.
State taxation of transfer by death of intangible property is in something of a jurisdictional snarl, to the solution of which this Court owes all that it has of wisdom and power. The theoretical basis of some decisions in the very practical matter of taxation is not particularly satisfying. 1 But a switch of abstract concepts is hardly to be expected without at least careful consideration of its impact on the very practical and concrete problems of states and taxpayers. Weighing the highly doctrinaire reasons advanced for this decision against its practical effects on our economy and upon our whole constitutional law of state taxation, I can see nothing in the Court's decision more useful than the proverbial leap from the frying pan into the fire.
This older rule ascribed a fictional consequence to the domicile of a natural person; it is overruled by ascribing a fictional consequence to the domicile of an artificial corporation. The older rule emphasized dominance by the individual over his intangible property the tax situs of which followed the domicile of its owner. Today's new rule emphasizes the dominance of the corporation, a creature of the legal imagination. 2 To this fictional personality it ascribes a hypothetical 'domicile' in a place where it has but a fraction of its property and conducts only its formal corporate activities; and on the union of these two fictions it permits the chartering state to tax the estates of persons who never lived or did business therein. The reasoning back of the holding is this: Because Utah issued a charter to a corporation, which issued stock to a nonresident, which changed hands at his death, which required a transfer on the corporation's books, which transfer was permitted by Utah law, Utah got jurisdiction to tax succession to the stock. It is really as remote as that.
The road continued to be a national problem as well as a national enterprise. President Cleveland recommended to Congress in his message of December 3, 1894 consideration of reorganization. 10 The steps taken by the Government were reported to the Congress by President McKinley in his annual messages of 1897, 1898, and 1899. He reported the sale of the Union Pacific main line under the decree of the United States Court for the District of Nebraska on November 1 and 2, 1897, 11 Utah, on July 1, 1897, granted a charter to the present Union Pacific Railroad Company, as the Federal Government or any one of several state governments might have done. It has become one of the great and stable transportation systems of the United States.
If it had only the 'opportunities' and 'benefits' conferred by Utah and only the properties protected by her laws, the Union Pacific would cut little figure either in transportation or finance. It holds its stockholders' meetings in that State. But it maintains no executive office or stock transfer office in Utah. Its executive and stock transfer offices are in New York City. Its stocks are listed on the New York, Boston, London, and Amsterdam stock exchanges. Over 200,000 shares of its stock were traded on the New York Stock Exchange in 1939. 12 Its western operating office is not in Utah, but in Omaha, Nebraska. It is stipulated that less than 9% of its 9877 miles of trackage are in Utah and that during 1939, the railway operating revenue from Utah intra-state business plus the Utah proportion on a mileage basis of its interstate business was 8.97% of the entire gross operating revenues of the company.
2. To subject intangible property to many more sources of taxation than other wealth prejudices its relation to other investments and other wealth by a discrimination which has no basis in the function that intangibles perform for our present society. 15 Intangibles, except for government issues, are an outgrowth of our modern corporation system. Of relatively recent growth, the corporation has become almost the unit of organization of our economic life. Whether for good or ill, the stubborn fact is that in our present system the corporation carries on the bulk of production and transportation, is the chief employer of both labor and capital, pays a large part of our taxes, and is an economic institution of such magnitude and importance that there is no present substitute for it except the state itself. Except for the easy circulation and ready acceptability of pieces of paper characterized as stocks or bonds, this existing system could not function. It is these intangible symbols or tokens which give liquidity and modibility to otherwise fixed underlying plant assets, which give ready negotiability to fractional interests therein that would otherwise transfer with difficulty, and which divide among many both benefits and risks from aggregation of properties whose successful functioning for society requires unified management of the bulk. The amount of plant and material and goods in process, working capital, good will, and organization at any time devoted to enterprise substantially will depend upon the willingness of the public to stand in the position of stockholder or bondholder. When this Court determines that the effect of owning this type of circulating medium is to subject the estate of the owner to an inheritance tax from every state that chartered one of the companies in which he has invested, it imposes a handicap on such ownership that is substantial and influential upon our economy.
Not one substantial evil is said by the opinion in this case to flow from the rule being upset, and evils of some magnitude admittedly follow from the one being reinstated. These consequences the Court declines even to consider, although they bear upon a segment of our economy bigger than the national debt 16 and affect more persons than are now in the armed forces. 17 Intangibles constitute well above 50% of all property transferred by death 18 and an even greater proportion of that transferred by gift, which I assume is equally vulnerable to this tax. 19 The gravity of subjecting such extensive interests to complex, confusing, and overlapping tax jurisdictions should be weighed against the reasons advanced for the change.
Moreover, the burdens imposed by this type of taxation are unequal and capricious and in inverse order to the ability of the estate to pay. I suppose we need have little anxiety about Mr. Harkness's $87,000,000 net estate with its $1,000,000 investment in Union Pacific stock. As we have pointed out, it is not he, but the State of New York, that will pay this tax to the State of Utah. And if New York had no provision in its statutes for credit and Mr. Harkness could have foreseen the shift of position of this Court, it is not likely that he would have been caught with the tax. Those who have large estates and watchful lawyers will find ways of minimizing these burdens. But Mr. Harkness is not a typical Union Pacific stockholder. In 1939, the Union Pacific had 50,131 stockholders. 20 The many small stockholders cannot afford professional counsel or evasion devices. The burden of reports and appraisals and foreign tax proceedings bears heavily upon them because of the relatively small amount involved in their transfers. The new tax we have authorized undermines the principle of graduation of tax burdens in proportion to ability to pay. No tax laid on anything less than the total net worth of the estate can be graduated even roughly according to the principle which progressive modern taxation strives to heed. The imposition of unpredictable assessments from many sources makes it impossible for the state of domicile to make intelligent use of its own taxing power as an instrument of enlightened social policy. Chaos serves no social end.
4. An unfortunate aspect of this decision is that in common with other judge-made law it has retroactive effect. Consequently, inequalities and injustices will be suffered by states as well as by individuals. For example, the State of New York has written into its own Constitution the limitations on its taxing power which this Court had established by the decision we now overrule. 21 Until it can adjust its constitutional provisions, such a state may not take advantage of the tax privileges the Court confers today, although other states may do so. We have not been advised as to the number of states which have repealed or modified reciprocity or credit provisions in their own statutes or constitutions in reliance upon the decision we overrule. Credit provisions contained in statutes may be the foundation for claims for refund against domiciliary states as chartering states proceed to take advantage of the privilege of retroactive taxation accorded them by this decision. Estates closed and distributed under existing laws become indebted by force of this decision to chartering states on claims for transfer tax that may have existed in the state statutes but had never been suspected of having constitutional validity. For what periods these claims may have vitality depends on state statutes of limitation. Whether personal liability may be asserted against executors and administrators for failure to pay taxes that our decisions did not tolerate at the time the estates were closed likewise depends on the laws of the chartering states. With confidence we may anticipate that this decision will produce much confusion, some controversy between the states, and a lusty crop of litigation.
Despite today's decision, I trust this Court does not intend to say that might always makes right in the matter of taxation. I hope there is agreement, though unexpressed, that there are limits, and that our problem is to search out and mark those limits. One way to go about it is to say that those states can tax which have the physical power to do so and have conferred some benefits or protection on the taxpayer. Of course there is nothing in the Constitution about this, but that is a criticism that can be directed at any test that I can think of. My difficulty is that on its faceand as so far appliedthis test comes out to the point where might does make right. For in a very real sense every state and territory in the Union has conferred very real benefits upon every inhabitant of the Union. Some states have seen to it that our food is properly produced and inspected; others have fostered and protected the industry upon which we are utterly dependent for the ordinary conveniences of life and for life itself. All of them have yielded up men to provide government at home and to repel the enemy abroad. I am the very real debtor, but am frank enough to say I hope not a potential taxpayer, of all.
Sandburg, Abraham LincolnThe War Years, Vol. 1, 510. See also Vol. 2, 461, for an account of Lincoln's selection of the location of its eastern terminal.
The burdens imposed by the present decision are cumulative and must be considered in relation to taxation of intangibles in some circumstances by states other than that of domicile (Curry v. McCanless, 307 U.S. 357, 59 S.Ct. 900, 83 L.Ed. 1339, 123 A.L.R. 162; Graves v. Elliott, 307 U.S. 383, 59 S.Ct. 913, 83 L.Ed. 1356) and also in reference to the closing of the federal courts to both state and taxpayers where different state courts make inconsistent findings on domicile resulting in estate taxation by two or more states. Commonwealth of Massachusetts v. State of Missouri, 308 U.S. 1, 60 S.Ct. 39, 84 L.Ed. 3; State of Texas v. State of Florida, 306 U.S. 398, 59 S.Ct. 563, 83 L.Ed. 817, 121 A.L.R. 1179; Worcester County Trust Co. v. Riley, 302 U.S. 292, 58 S.Ct. 185, 82 L.Ed. 268; State of New Jersey v. Commonwealth of Pennsylvania, 287 U.S. 580, 53 S.Ct. 313, 77 L.Ed. 508; Dorrance v. Commonwealth of Pennsylvania, 287 U.S. 660, 53 S.Ct. 222, 77 L.Ed. 570, and Id., 288 U.S. 617, 53 S.Ct. 507, 77 L.Ed. 990, certiorari denied to review In re Dorrance's Estate, 309 Pa. 151, 163 A. 303; Hill v. Martin, 296 U.S. 393, 56 S.Ct. 278, 80 L.Ed. 293; Dorrance v. Martin, 298 U.S. 678, 56 S.Ct. 949, 80 L.Ed. 1399, certiorari denied to review Dorrance v. Thayer-Martin, 116 N.J.L. 362, 184 A. 743; Sargent and Tweed, Death and Taxes are CertainBut What of Domicile? 53 Harvard Law Review 68; cf. Treinies v. Sunshine Mining Co., 308 U.S. 66, 60 S.Ct. 44, 84 L.Ed. 85.
I know of no accurate calculation of the number of persons who hold stocks or bonds. Many estimates are extravagant and include an enormous amount of duplicationsfor example, the aggregate of stockholders' lists of all corporations. I think the estimate of Berle and Means as of 1927 that between four and six million persons owned stocks, including an estimated two million employee or customer stockholders, is a reasonable one. The Modern Corporation and Private Property (1934) 374. Many are, of course, also bondholders, and the number to be added after allowing for duplication is difficult to estimate. It must also, of course, be borne in mind that this includes many very small holdings and that such statistics are of little value in considering the relative benefits from such holdings derived by those in different income brackets.
TREICHLER v. STATE OF WISCONSIN.
STANDARD OIL CO. v. STATE OF NEW JERSEY, by PARSONS, Attorney General of State of New Jersey.

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