Source: https://supreme.justia.com/cases/federal/us/331/486/
Timestamp: 2019-04-22 08:35:21+00:00

Document:
1. A Rhode Island municipality assessed a tax against a resident of Rhode Island for half the value of intangibles held jointly by him and a resident of New York as trustees under the will of a resident of New York. The evidences of the intangible property were at all times in New York, and the life beneficiary of the trust resided there, the future beneficiaries being undetermined. The Rhode Island resident did not actually exercise his powers as trustee in Rhode Island.
Held: the tax did not violate the due process clause of the Fourteenth Amendment. Pp. 331 U. S. 491-498.
2. So long as a state chooses to tax the value of intangibles as a part of a taxpayer's wealth, the location of evidences of ownership is immaterial. P. 331 U. S. 492.
3. Since intangibles have no real situs, the domicile of the owner is the nearest approximation, although other taxing jurisdictions may also have power to tax the same intangibles. P. 331 U. S. 493.
4. Since normally intangibles are subject to the immediate control of the owner, this close relationship between intangibles and the owner furnishes an adequate basis for the tax on the owner by the state of his residence as against any attack for violation of the Fourteenth Amendment. P. 331 U. S. 493.
5. The same rules apply to the taxation of intangibles held by a trustee as assets of a trust, since the trustee can sue and be sued as such and in this way the state of his residence affords him protection as the owner of intangibles. Pp. 331 U. S. 493-496.
6. Brooke v. Norfolk, 277 U. S. 27; Safe Deposit & Trust Co. v. Virginia, 280 U. S. 83; Graves v. Schmidlapp, 315 U. S. 657, distinguished. Pp. 331 U. S. 496-497.
7. It is not constitutionally significant that the Rhode Island trustee is not the sole trustee of the New York trust, since the tax was only upon his proportionate interest, as a trustee, in the res, and he possessed an interest in the intangibles sufficient to support a proportional tax for the benefit and protection afforded to that interest in Rhode Island. P. 331 U. S. 498.
8. State courts are the final judicial authority upon the meaning of statutes of their states; but where their judgments collide with rights secured by the Federal Constitution, this Court has power to protect or enforce such rights. Pp. 331 U. S. 489, 331 U. S. 497.
71 R.I. 477, 47 A.2d 625, affirmed.
The Supreme Court of Rhode Island sustained a tax against a resident of Rhode Island for one-half of the value of intangibles held jointly by him and a resident of New York as trustees of a New York trust, and remanded the case to the Superior Court of Newport County, Rhode Island. 71 R.I. 477, 47 A.2d 625. On appeal to this Court, aff'd, p. 331 U. S. 498.
Appellants are testamentary trustees of George H. Warren, who died a resident of New York. His will was duly probated in that state and letters testamentary issued to appellants as executors. A duly authenticated copy of said will was filed and recorded in Rhode Island, and there letters testamentary were also issued. Letters of trusteeship were granted to appellants by a surrogate's court in New York. None was needed or asked for or granted by Rhode Island. At all times pertinent to this appeal, appellants, as trustees under the will, held intangible personalty for the benefit of Constance W. Warren for her life and then to certain as yet undetermined future beneficiaries.
The evidences of the intangible property in the estate of George H. Warren and in the trust in question were at all times in New York. The life beneficiary and one of the trustees are residents of New York. The other trustee resides in Rhode Island. During the period in question, he did not, however, exercise his powers, as trustee, in Rhode Island.
valorem taxes in another state. [Footnote 4] The same concession was made in the Supreme Court of Rhode Island. [Footnote 5] We therefore restrict our discussion and determination to the issue presented by appellants' insistence that Rhode Island cannot constitutionally collect this tax because the state rendered no equivalent for its exaction in protection of or benefit to the trust fund.
of a state's authority in the exercise of its revenue raising powers.
the tax of the domiciliary state. As a matter of fact, there is more reason for the domiciliary state of the owner of the intangibles than for any other taxing jurisdiction to collect a property tax on the intangibles. Since the intangibles themselves have no real situs, the domicile of the owner is the nearest approximation, although other taxing jurisdictions may also have power to tax the same intangibles. [Footnote 15] Normally, the intangibles are subject to the immediate control of the owner. This close relationship between the intangibles and the owner furnishes an adequate basis for the tax on the owner by the state of his residence as against any attack for violation of the Fourteenth Amendment. The state of the owner's residence supplies the owner with the benefits and protection inherent in the existence of an organized government. He may choose to expand his activities beyond its borders, but the state of his residence is his base of operations. It is the place where he exercises certain privileges of citizenship and enjoys the protection of his domiciliary government. Does a similar relationship exist between a trustee and the intangibles of a trust?
the residence of the beneficiary is the controlling factor. [Footnote 24] The trustee is suable like any other obligor. There is no provision of the federal Constitution which forbids suits in state courts against a resident trustee of a trust created under the laws of a sister state. Consequently, we must conclude that Rhode Island does offer benefit and protection through its law to the resident trustee, as the owner of intangibles. And, while it may logically be urged that these benefits and protection are no more than is offered a resident owner of land or chattels, permanently out of the state, the same reasons, hereinbefore stated on pages 331 U. S. 492 and 493, apply that permit state property taxation of a resident owner of intangibles which denying a state power to tax similarly the resident's out-of-state realty.
"Fifth. Intangible personal property held in trust by any executor, administrator, or trustee, whether under an express or implied trust, the income of which is to be paid to any other person, shall be taxed to such executor, administrator, or trustee in the town where such other person resides; but if such other person resides out of the state, then in the town where the executor, administrator, or trustee resides, and if there be more than one such executor, administrator, or trustee, then in equal proportions to each of such executors, administrators, and trustees in the towns where they respectively reside."
General Laws of Rhode Island 1938, c. 31, § 14; c. 545, § 6, as amended by c. 941, Public Laws of Rhode Island 1940; Greenough v. Tax Assessors, 71 R.I. 477, 47 A.2d 625.
Chase Securities Corp. v. Donaldson, 325 U. S. 304, 325 U. S. 311; see Huddleston v. Dwyer, 322 U. S. 232, 322 U. S. 237; American Federation of Labor v. Watson, 327 U. S. 582, 327 U. S. 595.
See McKinney's Consolidated Laws of New York, Tax Law, §§ 3, 350(7), 365, 369, 377. Fidelity & Columbia Trust Co. v. Louisville, 245 U. S. 54. Compare Blackstone v. Miller, 188 U. S. 189; Curry v. McCanless, 307 U. S. 357, 307 U. S. 363; Graves v. Elliott, 307 U. S. 383; Graves v. Schmidlapp, 315 U. S. 657; State Tax Commission v. Aldrich, 316 U. S. 174, 316 U. S. 177, with Farmers Loan & Trust Co. v. Minnesota, 280 U. S. 204; First National Bank v. Maine, 284 U. S. 312.
Greenough v. Tax Assessors, 71 R.I. 477, 488, 47 A.2d 625.
Compare Harrison v. Commissioner of Corporations and Taxation, 272 Mass. 422, 172 N.E. 605.
Compare Mr. Justice Holmes' dissent, Baldwin v. Missouri, 281 U. S. 586.
State Tax Commission of Utah v. Aldrich, 316 U. S. 174, 316 U. S. 181.
See Lawrence v. State Tax Commission, 286 U. S. 276, 286 U. S. 279. Art. I, § 10, cl. 2 and 3, contain limitations on a state's power to levy import or export or tonnage duties.
Union Refrigerator Transit Co. v. Kentucky, 199 U. S. 194, 199 U. S. 202; Frick v. Pennsylvania, 268 U. S. 473, 268 U. S. 488; Cream of Wheat Co. v. Grand Forks, 253 U. S. 325, 253 U. S. 328-329; Curry v. McCanless, 307 U. S. 357, 307 U. S. 363-365, and note 3; see Wisconsin v. J. C. Penney Co., 311 U. S. 435, 311 U. S. 444; State Tax Commission v. Aldrich, 316 U. S. 174, 316 U. S. 178.
Even where our cases have spoken of power over the person as though it alone might be a sufficient justification for ad valorem taxation of a resident on tangibles outside the taxing jurisdiction, the language was used in instances where there were other bases for the tax. State Tax on Foreign-Held Bonds, 15 Wall. 300, 82 U. S. 319; Southern Pacific Co. v. Kentucky, 222 U. S. 63, 222 U. S. 76; Pearson v. McGraw, 308 U. S. 313, 308 U. S. 318.
See discussion in Northwest Airlines v. Minnesota, 322 U. S. 292.
Kirtland v. Hotchkiss, 100 U. S. 491; Fidelity & Columbia Trust Co. v. Louisville, 245 U. S. 54; compare Blodgett v. Silberman, 277 U. S. 1, 277 U. S. 8-12; Maguire v. Trefry, 253 U. S. 12; Curry v. McCanless, 307 U. S. 357, 307 U. S. 365-368; Wisconsin v. J. C. Penney Co., 311 U. S. 435, 311 U. S. 444; State Tax Commission v. Aldrich, 316 U. S. 174, 316 U. S. 180.
Kirtland v. Hotchkiss, 100 U. S. 491. Compare New York ex rel. Cohn v. Graves, 300 U. S. 308.
See Curry v. McCanless, 307 U. S. 357, 307 U. S. 365-368; Wheeling Steel Corp. v. Fox, 298 U. S. 193. Certain evidences of indebtedness have been held sufficient in themselves to justify a state's imposition of a succession tax upon their nonresident owner. Wheeler v. New York, 233 U. S. 434.
See Hutchison v. Ross, 262 N.Y. 381, 393, 187 N.E. 65.
Brown v. Fletcher, 235 U. S. 589, 235 U. S. 598-600; Blair v. Commissioner, 300 U. S. 5, 300 U. S. 13.
Scott, Trusts (1939) 487, 1469 et seq.; Williston, Contracts (1936) § 312; 1 Bogert, Trusts and Trustees (1935), § 146.
"A trustee may be defined generally as a person in whom some estate interest or power in or affecting property is vested for the benefit of another. When an agent contracts in the name of his principal, the principal contracts, and is bound, but the agent is not. When a trustee contracts as such, unless he is bound, no one is bound, for he has no principal. The trust estate cannot promise; the contract is therefore the personal undertaking of the trustee. As a trustee holds the estate, although only with the power and for the purpose of managing it, he is personally bound by the contracts he makes as trustee, even when designating himself as such."
Lazenby v. Codman, 28 F.Supp. 949; Prudential Ins. Co. v. Land Estates, 31 F.Supp. 845; Peyser v. American Security & Trust Co., 70 App.D.C. 349, 107 F.2d 625.
Roger Williams Nat. Bank v. Groton Manufacturing Co., 16 R.I. 504, 17 A. 170.
Warren v. Goodloe's Ex'r, 230 Ky. 514, 520, 20 S.W.2d 278.
Scott, Trusts, § 244 et seq. and § 268.
Scott, Trusts, § 267 et seq. See Ballentine v. Eaton, 297 Mass. 389, 8 N.E.2d 808; O'Brien v. Jackson, 167 N.Y. 31, 60 N.E. 238.
Bullard v. Cisco, 290 U. S. 179, 290 U. S. 190. See Memphis Street R. Co. v. Moore, 243 U. S. 299.
The power of a state to tax the equitable interest of a beneficiary in such circumstances was not presented. Id., pp. 280 U. S. 92 and 280 U. S. 95.
Goodsite v. Lane, 139 F. 593, holds that a state property tax on a trustee's intangibles for the sole reason that he resides in the taxing state in invalid. It would seem this was so decided because of the Fourteenth Amendment. We do not think this case gives proper recognition to the state's power to tax the owner of the legal title to the res.
The state statute taxing property to trustee validly applies to the resident trustee: Welch v. Boston, 221 Mass. 155, 109 N.E. 174; Harvard Trust Co. v. Commissioner of Taxation, 284 Mass. 225, 20, 187 N.E . 596; Mackay v. San Francisco, 128 Cal. 678, 61 P. 382; Millsaps v. Jackson, 78 Miss. 537, 30 So. 756; McLellan v. Concord, 78 N.H. 89, 97 A. 552; Florida v. Beardsley, 77 Fla. 803, 82 So. 794.
The state tax statute is inapplicable to the resident trustee: In re Dorrance's Estate, 333 Pa. 162, 3 A.2d 682; Commonwealth v. Peebles, 134 Ky. 121, 135, 119 S.W. 774; Darrow v. Coleman, 119 N.Y. 137, 23 N.E. 488; Rand v. Pittsfield, 70 N.H. 530, 49 A. 88. Newsomb v. Paige, 224 Mass. 516, 113 N.E. 458, and Harrison v. Commissioner, 272 Mass. 422, 428, 429, 172 N.E. 605, declined taxation on the ground of comity, and thus distinguished Welch v. Boston, supra.
Scott, Trusts, §§ 88.1, 103; 1 Bogert, Trusts and Trustees, § 145.
Scott, Trusts, § 194; Brennan v. Willson, 71 N.Y. 502; Fritz v. City Trust Co., 72 App.Div. 532, 76 N.Y.S 625, aff'd, 173 N.Y. 622, 66 N.E. 1109; In re Campbell's Estate, 171 Misc. 750, 13 N.Y.S.2d 773.
The state courts have reached varying conclusions under their statutes: see People ex rel. Beaman v. Feitner, 168 N.Y. 360, 61 N.E. 280; Mackay v. San Francisco, 128 Cal. 678, 61 P. 382; McLellan v. Concord, 78 N.H. 89, 97 A. 552; In re Dorrance's Estate, 333 Pa. 162, 3 A.2d 682, 127 A.L.R. 366; Neweomb v. Paige, 224 Mass. 516, 113 N.E. 458; Harrison v. Commissioner, 272 Mass. 422, 430, 431, 172 N.E. 605.
In view of the dissents elicited by the Court's opinion, I should like to state why I join it.
own it, legally speaking, in a fiduciary capacity. It is not questioned that the intangible assets in controversy could be included in the measure of the tax against the person of this trustee if he owned them outright. The doctrine that the power of taxation does not extend to chattels permanently situated outside a State, though the owner was within it, Union Refrigerator Transit Co. v. Kentucky, 199 U. S. 194; Frick v. Pennsylvania, 268 U. S. 473, is inapplicable. The tax is challenged, as wanting in "due process," because the Rhode Island resident is merely trustee of these intangibles, and the pieces of paper that evidence them are kept outside the State.
Rhode Island's system of taxing its residents -- subjecting them to the same measure for ascertaining their ability to pay whether they hold property for themselves or for others -- long antedated the Fourteenth Amendment. Rhode Island has imposed this tax, "it may be presumed, for the general advantages of living within the jurisdiction." Fidelity & Columbia Trust Co. v. Louisville, 245 U. S. 54, 245 U. S. 58. It can hardly be deemed irrational to say, as Rhode Island apparently has said for a hundred years, that those advantages may be roughly measured, for fiscal purposes, by the wealth which a person controls, whatever his ultimate beneficial interest in the property.
"The Fourteenth Amendment , itself a historical product, did not destroy history for the States and substitute mechanical compartments of law all exactly alike."
Jackman v. Rosenbaum Co., 260 U. S. 22, 260 U. S. 31.
constitutionality, and not the form in which a State has cast a tax. Lawrence v. State Tax Commission, 286 U. S. 276, 286 U. S. 280; Wisconsin v. J. C. Penney Co., 311 U. S. 435, 311 U. S. 443 et seq.. Whether a Rhode Island trustee can go against his trust estate for the amount of the tax which Rhode Island exacts from him is of no concern to Rhode Island. Rhode Island's power to tax its residents is not contingent upon it. A trusteeship is a free undertaking.
If Rhode Island had laid a tax on one of its citizens individually, I should think it unassailable, even if the basis for taxing him was that he held this trusteeship and perhaps the tax on him could be measured by the value of the trust estate. In that case, the state would tax only its own citizen. One is pretty much at the mercy of his own state as to the events or relationship for which it will tax him. If it wants to make the holding of a trusteeship taxable, I know of no federal grounds of objection. But that is not what is being done, nor what this decision authorizes.
If Rhode Island had taxed the individual, he might have sought reimbursement from the estate. Whether the estate was chargeable would be left to determination by the courts of the state supervising the trust. They might consider the nature of the tax to be a personal charge, as an income tax would doubtless be. Or they might find it to be an expense of administration, such as a transfer tax, and properly to be borne by the fund. But here, no such decision is left to the courts which control the fund -- the tax is laid on the trustee as such -- the estate is the taxpayer.
in New York and the trustees derive their authority, powers, and title from its courts, and to them must account.
I had not supposed that a trust fund became taxable in every state in which one of its trustees may reside. Of course, in this instance it is proposed to tax only one-half of the estate, as only one of the two trustees is resident in Rhode Island. But this seems to be an act of grace, if there is a right to tax at all. The trustee has no power over, or title to, any fraction of the trust property that he does not have over all of it. If mere residence of a trustee is such a conductor of state authority that through him it reaches the estate, I see no reason why it should stop at a part, nor indeed why a trustee subject to the taxing power of several states, cf. Texas v. Florida, 306 U. S. 398, may not also subject the trust fund to several state taxes by merely moving about.
The decision is a hard blow to the practice of naming individual trustees. It seems to me that there is no power in the state to lay the tax on the trust funds, despite unquestionable authority to tax its own citizen-trustee individually.
MR. JUSTICE RUTLEDGE with whom THE CHIEF JUSTICE concurs, dissenting.
I am in agreement with the views expressed by MR. JUSTICE JACKSON, except that I intimate no opinion concerning whether Rhode Island could lay a tax upon one of its residents for the privilege of acting as one of two or more trustees when the state's only connection with the trust arises from the fact of his residence. This is not such a case.
events or property is essentially a practical matter, and one of degree, depending upon the existence of sufficient factual connections, having economic and legal effects, between the taxing state and the subject of the tax. I do not think the mere fact that one of a number of trustees resides in a state, without more, is a sufficiently substantial connection to justify a levy by that state upon the trust corpus by an ad valorem tax, either fractional or on the entirety of the res.
It may become necessary for claimants, beneficiaries, or others to sue the trustee in Rhode Island, or perhaps for him to join with other trustees in suing third persons there about trust matters. To that extent, benefit and protection may be conferred upon the trust. But those needs may arise in connection with any sort of business or activity, trust or other, located and conducted outside the state as largely as this trust's affairs. I had not supposed that merely keeping open the state's courts to such claims would furnish a sufficient basis for bringing within its taxing grasp all property affected by the claims' assertion. That the trust res here consists of intangibles does not seem to me a sufficiently substantial factor, in the circumstances presented, to justify so wide a reach of the state's taxing arm.
should be required to sustain the state's power to tax the trust res, whether for all or only a fraction of its value.
Finally, whatever might be true of a single trustee or of several residing in a single state, I should doubt the thesis that the interest of one of two or more trustees in a trust is more substantial than that of a beneficiary or receives greater protection or benefit from the state of his residence. And, if the beneficiary's residence alone is insufficient to sustain a state's power to tax the corpus of the trust, cf. Brooke v. Norfolk, 277 U. S. 27, * it would seem that the mere residence of one of a number of trustees hardly would supply a firmer foundation.
* But cf. Holmes, J., dissenting in Safe Deposit & Trust Co. v. Virginia, 280 U. S. 83, 280 U. S. 96.

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