Source: https://www.law.cornell.edu/supremecourt/text/307/357/
Timestamp: 2016-08-29 05:26:21
Document Index: 314889850

Matched Legal Cases: ['§ 8835', '§ 237', '§ 344', '§ 524', '§ 104', '§ 993', '§ 8835', '§ 10418']

CURRY, State Tax Com'r of Alabama, et al. v. McCANLESS, Com'r of Finance and Taxation of Tennessee. | LII / Legal Information Institute
Supreme Court aboutsearch liibulletin subscribe previews CURRY, State Tax Com'r of Alabama, et al. v. McCANLESS, Com'r of Finance and Taxation of Tennessee.
307 U.S. 357 (59 S.Ct. 900, 83 L.Ed. 1339)
[HTML] Appeal from the Supreme Court of the State of Tennessee.
Syllabus from pages 357-359 intentionally omitted
The present suit was brought by the two executors in a chancery court of Tennessee against appellants, comprising the State Tax Commission of Alabama, and appellee, Commissioner of Finance and Taxation of the State of Tennessee, who are charged with the duty of collecting inheritance or succession taxes in their respective states. The bill of complaint prayed a declaratory judgment pursuant to the Tennessee Declaratory Judgments Act, Tennessee Code 1932, §§ 88358847, determining what portions of the estate of decedent are taxable by the State of Tennessee and what portions by the State of Alabama. Appellants and appellee appeared and by their answers and by stipulation recited in detail the facts already stated and admitted that the taxing officials of each state had imposed or asserted the right to impose an inheritance or death transfer tax on the trust property passing under decedent's will.
The chancery court of Tennessee decreed that the State of Alabama could lawfully impose the tax and that the inheritance tax law of Tennessee violated the Fourteenth Amendment in so far as it purported to impose a tax measured by the trust property disposed of by decedent's will. The Supreme Court of Tennessee reversed, and entered its decree declaring the trust property disposed of by decedent's will to be 'taxable in Tennessee and not taxable in Alabama for purposes of death succession or transfer taxes.' Nashville Trust Co. v. Stokes, Tenn., 118 S.W.2d 228. The case comes here on an appeal from this decree taken by the taxing officials of Alabama under § 237(a) of the Judicial Code, 28 U.S.C. 344(a), 28 U.S.C.A. § 344(a).
The doctrine, of recent origin, that the Fourteenth Amendment precludes the taxation of any interest in the same intangible in more than one state has received support to the limited extent that it was applied in Farmers' Loan & Trust Co. v. Minnesota, 280 U.S. 204, 50 S.Ct. 98, 74 L.Ed. 371, 65 A.L.R. 1000; Baldwin v. Missouri, 281 U.S. 586, 50 S.Ct. 436, 74 L.Ed. 1056, 72 A.L.R. 1303; First National Bank v. Maine, 284 U.S. 312, 52 S.Ct. 174, 76 L.Ed. 313, 77 A.L.R. 1401. Still more recently this Court has declined to give it completely logical application.
That rights in tangiblesland and chattelsare to be regarded in many respects as localized at the place where the tangible itself is located for purposes of the jurisdiction of a court to make disposition of putative rights in them, for purposes of conflict of laws, and for purposes of taxation, is a doctrine generally accepted both in the common law and other legal systems before the adoption of the Fourteenth Amendment and since.
Originating, it has been thought, in the tendency of the mind to identify rights with their physical subjects, see Salmond, Jurisprudence (2nd ed.) 398, its survival and the consequent cleavage between the rules of law applicable to tangibles and those relating to intangibles are attributable to the exclusive dominion exerted over the tangibles themselves by the government within whose territorial limits they are found. Green v. Van Buskirk, 7 Wall. 139, 150, 19 L.Ed. 109; Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565; Arndt v. Griggs, 134 U.S. 316, 320, 321, 10 S.Ct. 557, 558, 559, 33 L.Ed. 918. See McDonald v. Mabee, 243 U.S. 90, 91, 37 S.Ct. 343, 61 L.Ed. 608, L.R.A.1917F, 458; cf. Harris v. Balk, 198 U.S. 215, 222, 25 S.Ct. 625, 626, 49 L.Ed. 1023, 3 Ann.Cas. 1084; Frick v. Pennsylvania, supra, 268 U.S. 497, 45 S.Ct. 607, 69 L.Ed. 1058, 42 A.L.R. 316. The power of government and its agencies to possess and to exclude others from possessing tangibles, and thus to exclude them from enjoying rights in tangibles located within its territory, affords adequate basis for an exclusive taxing jurisdiction. When we speak of the jurisdiction to tax land or chattels as being exclusively in the state where they are physically located, we mean no more than that the benefit and protection of laws enabling the owner to enjoy the fruits of his ownership and the power to reach effectively the interests protected, for the purpose of subjecting them to payment of a tax, are so narrowly restricted to the state in whose territory the physical property is located as to set practical limits to taxation by others. Other states have been said to be without jurisdiction and so without constitutional power to tax tangibles if, because of their location elsewhere, those states can afford no substantial protection to the rights taxed and cannot effectively lay hold of any interest in the property in order to compel payment of the tax. See Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194, 202, 26 S.Ct. 36, 50 L.Ed. 150, 4 Ann.Cas. 493; Frick v. Pennsylvania, 268 U.S. 473, 489 et seq., 45 S.Ct. 603, 604, 69 L.Ed. 1058, 42 A.L.R. 316.
Very different considerations, both theoretical and practical, apply to the taxation of intangibles, that is, rights which are not related to physical things. Such rights 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. See Chicago, R.I. & P.R. Co. v. Sturm, 174 U.S. 710, 716, 19 S.Ct. 797, 799, 43 L.Ed. 1144; Harris v. Balk, 198 U.S. 215, 222, 25 S.Ct. 625, 626, 49 L.Ed. 1023, 3 Ann.Cas. 1084. 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.
In cases where the owner of intangibles confines his activity to the place of his domicile it has been found convenient to substitute a rule for a reason, cf. New York ex rel. Cohn v. Graves, 300 U.S. 308, 313, 57 S.Ct. 466, 467, 81 L.Ed. 666, 108 A.L.R. 721; First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 241, 57 S.Ct. 677, 680, 81 L.Ed. 1061, 113 A.L.R. 228, by saying that his intangibles are taxed at their situs and not elsewhere, or, perhaps less artificially, by invoking the maxim mobilia sequuntur personam, Blodgett v. Silberman, supra; Baldwin v. Missouri, supra, which means only that it is the identity or association of intangibles with the person of their owner at his domicile which gives jurisdiction to tax. But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or property within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains, and the rule is not even a workable substitute for the reasons which may exist in any particular case to support the constitutional power of each state concerned to tax. 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, it is undeniable that the state of domicile is not deprived, by the taxpayer's activities elsewhere, of its constitutional jurisdiction to tax, and consequently that there are many circumstances in which more than one state may have jurisdiction to impose a tax and measure it by some or all of the taxpayer's intangibles. 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. The taxpayer who is domiciled in one state but carries on business in another is subject to a tax there measured by the value of the intangibles used in his business. New Orleans v. Stempel, 175 U.S. 309, 20 S.Ct. 110, 44 L.Ed. 174; Bristol v. Washington County, 177 U.S. 133, 20 S.Ct. 585, 44 L.Ed. 701; State Board of Assessors v. Comptoir National, 191 U.S. 388, 24 S.Ct. 109, 48 L.Ed. 232; Metropolitan Life Insurance Co. v. New Orleans, 205 U.S. 395, 27 S.Ct. 499, 51 L.Ed. 853; Liverpool & London & Globe Ins. Co. v. Board, 221 U.S. 346, 31 S.Ct. 550, 55 L.Ed. 762, L.R.A.1915C, 903; Wheeling Steel Corp. v. Fox, 298 U.S. 193, 56 S.Ct. 773, 80 L.Ed. 1143; cf. Blodgett v. Silberman, supra; Baldwin v. Missouri, supra. But taxation of a corporation by a state where it does business, measured by the value of the intangibles used in its business there, does not preclude the state of incorporation from imposing a tax measured by all its intangibles. Cream of Wheat Co. v. County of Grand Forks, supra, 253 U.S. 329, 40 S.Ct. 559, 64 L.Ed. 931;
see Fidelity & Columbia Trust Co. v. Louisville, 245 U.S. 54, 38 S.Ct. 40, 62 L.Ed. 145, L.R.A.1918C, 124.
For purposes of taxation, a general power of appointment, of which the testatrix here was both donor and donee, has hitherto been regarded by this Court as equivalent to ownership of the property subject to the power. Chanler v. Kelsey, 205 U.S. 466, 27 S.Ct. 550, 51 L.Ed. 882; Bullen v. Wisconsin, supra, 240 U.S. 630, 36 S.Ct. 474, 60 L.Ed. 830; Chase National Bank v. United States, 278 U.S. 327, 338, 49 S.Ct. 126, 128, 73 L.Ed. 405, 63 A.L.R. 388; see Gray, Rule Against Perpetuities (3d ed. 1916), § 524.
Whether the appointee derives title from the donor, under the common law theory, or from the donee by virtue of the exercise of the power, is here immaterial. In either event the trustee's title under the will was derived from decedent, domiciled in Tennessee. Cf. Wachovia Bank & Trust Co. v. Doughton, 272 U.S. 567, 47 S.Ct. 202, 71 L.Ed. 413. There is no conflict here between the laws of the two states affecting the transmission of the trust property. The title of the trustee under the original Alabama trust came to an end upon the exercise of the testatrix's power of appointment; and although the trustee after her death still had title to the securities, it was in by a new title as legatee under her will, and a new beneficial interest was created, both derived through the exercise of her power of disposition. The resulting situation was no different from what it would have been if she had bequeathed the intangibles upon a new trust to a new and different trustee, either within or without the state of Alabama. So far as the power of Tennessee to tax the exercise of the power of appointment is concerned, there is no substantial difference between the present case and any other case in which at the moment of death the evidences of intangibles passing under the will of a decedent domiciled in one state are physically present in another. See Blodgett v. Silberman, supra; Baldwin v. Missouri, supra.
It has hitherto been the accepted law of this Court that the state of domicile may constitutionally tax the exercise or non-exercise at death of a general power of appointment, by one who is both donor and donee of the power, relating to securities held in trust in another state. Bullen v. Wisconsin, supra. If it be thought that it is identity of the intangibles with the person of the owner at the place of his domicile which gives power over them and hence 'jurisdiction to tax', and this is the reason underlying the maxim mobilia sequuntur personam, it is certain here that the intangibles for some purposes are identified with the trustee, their legal owner, at the place of its domicile and that in another and different relationship and for a different purposethe exercise of the power of disposition at death, which is the equivalent of ownershipthey are identified with the place of domicile of the testatrix, Tennessee. In effecting her purposes, the testatrix brought some of the legal interests which she created within the control of one state by selecting a trustee there and others within the control of the other state by making her domicile there. She necessarily invoked the aid of the law of both states, and her legatees, before they can secure and enjoy the benefits of succession, must invoke the law of both.
We can find nothing in the history of the Fourteenth Amendment and no support in reason, principle, or authority for saying that it prohibits either state, in the circumstances of this case, from laying the tax. On the contrary this Court, in sustaining the tax at the place of domicile in a case like the present, has declared that both the decedent's domicile and that of the trustee are free to tax. Bullen v. Wisconsin, supra, 240 U.S. 631, 36 S.Ct. 474, 60 L.Ed. 830; cf. Keeney v. Comptroller of New York, 222 U.S. 525, 537, 32 S.Ct. 105, 108, 56 L.Ed. 299, 38 L.R.A.,N.S., 1139; Guaranty Trust Co. v. Blodgett, 287 U.S. 509, 53 S.Ct. 244, 77 L.Ed. 463. That has remained the law of this Court until the present moment, and we see no reason for discarding it now. We find it impossible to say that taxation of intangibles can be reduced in every case to the mere mechanical operation of locating at a single place, and there taxing, every legal interest growing out of all the complex legal relationships which may be entered into between persons. This is the case because in point of actuality those interests may be too diverse in their relationships to various taxing jurisdictions to admit of unitary treatment without discarding modes of taxation long accepted and applied before the Fourteenth Amendment was adopted, and still recognized by this Court as valid. See Paddell v. New York, supra, 211 U.S. 448, 29 S.Ct. 139, 53 L.Ed. 275, 15 Ann.Cas. 187. The Fourteenth Amendment cannot be carried out with such mechanical nicety without infringing powers which we think have not yet been withdrawn from the states. We have recently declined to press to a logical extreme the doctrine that the Fourteenth Amendment may be invoked to compel the taxation of intangibles by only a single state by attributing to them a situs within that state.
The suit was brought in a chancery court of Tennessee under the declaratory judgments act of that State.
Complainants were the Nashville Trust Company, a Tennessee corporation appointed by the will of Mrs. Grace C. Scales as executor for Tennessee, and the Title Guarantee Loan & Trust Company, which will be referred to as the Birmingham trust company, an Alabama corporation appointed as executor for that State. Defendants were the Commissioner of Finance and Taxation of Tennessee, and the members of the Alabama Tax Commission. The bill prayed that the court determine what portions of the estate are taxable by Tennessee and what portions are taxable by Alabama. The Tennessee commissioner filed answer praying declaration and decree that the securities held in Alabama are subject to the inheritance tax law of Tennessee.
The members of the Alabama commission filed their answer and a cross-bill praying decree in favor of that State and against the Birmingham trust company for the tax claimed under the laws of Alabama.
The Tennessee commissioner and the members of the Alabama commission respectively claim the right to impose an inheritance or death succession tax based upon the value of all the property held in the trust at the time of the death of Mrs. Scales. Rightly the parties agreed and the state courts assumed that, consistently with the due process clause of the Fourteenth Amendment, both States may not impose transfer taxes in respect of the same property. Frick v. Pennsylvania, 268 U.S. 473, 489494, 45 S.Ct. 603, 604606, 69 L.Ed. 1058, 42 A.L.R. 316; Farmers' Loan & Trust Co. v. Minnesota, 280 U.S. 204, 210212, 50 S.Ct. 98, 99, 100, 74 L.Ed. 371, 65 A.L.R. 1000; Baldwin v. Missouri, 281 U.S. 586, 591, 50 S.Ct. 436, 437, 74 L.Ed. 1056, 72 A.L.R. 1303; Beidler v. So. Car. Tax Commission, 282 U.S. 1, 7, 8, 51 S.Ct. 54, 55, 75 L.Ed. 131; First National Bank v. Maine, 284 U.S. 312, 328, 52 S.Ct. 174, 177, 76 L.Ed. 313, 77 A.L.R. 1401; City Bank Farmers' Trust Co. v. Schnader, 293 U.S. 112, 116, 117, 55 S.Ct. 29, 79 L.Ed. 228. See Burnet v. Brooks, 288 U.S. 378, 401, 402, 53 S.Ct. 457, 463, 464, 77 L.Ed. 844, 86 A.L.R. 747; Senior v. Braden, 295 U.S. 422, 432, 55 S.Ct. 800, 803, 79 L.Ed. 1520, 100 A.L.R. 794; Wheeling Steel Corp. v. Fox, 298 U.S. 193, 209, 210, 56 S.Ct. 773, 776, 777, 80 L.Ed. 1143; New York ex rel. Whitney v. Graves, 299 U.S. 366, 372, 57 S.Ct. 237, 238, 81 L.Ed. 285; New York ex rel. Cohn v. Graves, 300 U.S. 308, 314, 315, 57 S.Ct. 466, 468, 81 L.Ed. 666, 108 A.L.R. 721; Worcester County Trust Co. v. Riley, 302 U.S. 292, 297, 298, 58 S.Ct. 185, 187, 82 L.Ed. 268. No distinction is suggested between the securities covered by the relinquishment, January 11, 1929, of the right reserved to encroach upon and to direct transfer from the corpus and the small part to which the relinquishment did not extend. And, as the parties and the state courts have treated all alike, this Court may decide upon title and taxability as if the relinquishment covered all.
The parties agree that, upon execution of the indenture, title, possession, and control passed completely to the trustee and so continued until the death of Mrs. Scales. There being no provision authorizing revocation, the grant was irrevocable. Perry on Trusts and Trustees (7th ed.) § 104. 4 Bogert, Trusts and Trustees, § 993. Keyes v. Carleton, 141 Mass. 45, 49, 6 N.E. 524, 55 Am.Rep. 446; Ewing v. Jones, 130 Ind. 247, 254255, 29 N.E. 1057, 15 L.R.A. 75; Bath Savings Institution v. Hathorn, 88 Me. 122, 128, 129, 33 A. 836, 32 L.R.A. 377, 51 Am.St.Rep. 382; Wilson v. Anderson, 186 Pa. 531, 537, 40 A. 1096, 44 L.R.A. 542; Hellman v. McWilliams, 70 Cal. 449, 453, 11 P. 659; Strong v. Weir, 47 S.C. 307, 323, 25 S.E. 157. Unquestionably it presently vested full legal and equitable title in the trustee and beneficiaries, subject to be divested only by the exertion by Mrs. Scales of her power of appointment by will. Coolidge v. Long, 282 U.S. 582, 597, 51 S.Ct. 306, 309, 75 L.Ed. 562; Marvin v. Smith, 46 N.Y. 571, 575; Carroll v. Smith, 99 Md. 653, 658 et seq., 59 A. 131; Boone v. Davis, 64 Miss. 133, 140, 8 So. 202. That power did not amount to an estate or interest in the trust property. United States v. Field, 255 U.S. 257, 263, 41 S.Ct. 256, 257, 65 L.Ed. 617, 18 A.L.R. 1461; Porter v. Commissioner, 288 U.S. 436, 441, 53 S.Ct. 451, 452, 77 L.Ed. 880. All doubt as to that is precluded by the clause of the indenture which provides that in the absence of disposition by her will the property shall continue to be held in trust for purposes there specified.
The stock certificates, bonds or other documents evidencing the intangibles constituting the trust property were never held in Tennessee. Neither their issue or validity nor the enforcement or transfer, inter vivos or from the dead to the living, of any right attested or supported by them was at all dependent on the laws of that State.
See, in the case of income taxation, Lawrence v. State Tax Comm., 286 U.S. 276, 52 S.Ct. 556, 76 L.Ed. 1102, 87 A.L.R. 374; New York ex rel. Cohn v. Graves, 300 U.S. 308, 57 S.Ct. 466, 81 L.Ed. 666, 108 A.L.R. 721; Guaranty Trust Co. v. Virginia, 305 U.S. 19, 59 S.Ct. 1, 83 L.Ed. 16; cf. Senior v. Braden, 295 U.S. 422, 431, 432, 55 S.Ct. 800, 802, 803, 79 L.Ed. 1520, 100 A.L.R. 794. And in the case of taxation of shares of stock, see Corry v. Baltimore, 196 U.S. 466, 25 S.Ct. 297, 49 L.Ed. 556; First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 239, 240, 57 S.Ct. 677, 679, 81 L.Ed. 1061, 113 A.L.R. 228; Schuylkill Trust Co. v. Pennsylvania, 302 U.S. 506, 514516, 58 S.Ct. 295, 299, 82 L.Ed. 392.
But there are many legal interests other than conventional ownership which may be created with respect to land of such a character that they may be constitutionally subjected to taxation in states other than that where the land is situated. No one has doubted the constitutional power of a state to tax its domiciled residents on their shares of stock in a foreign corporation whose only property is real estate located elsewhere, Darnell v. Indiana, 226 U.S. 390, 33 S.Ct. 120, 57 L.Ed. 267; Hawley v. Malden, 232 U.S. 1, 34 S.Ct. 201, 58 L.Ed. 477, Ann.Cas.1916C, 842; cf. Kidd v. Alabama, 188 U.S. 730, 23 S.Ct. 401, 47 L.Ed. 669; Corry v. Baltimore, 196 U.S. 466, 25 S.Ct. 297, 49 L.Ed. 556; Cream of Wheat Co. v. County of Grand Forks, 253 U.S. 325, 329, 40 S.Ct. 558, 559, 64 L.Ed. 931; Schuylkill Trust Co. v. Pennsylvania, 302 U.S. 506, 514516, 58 S.Ct. 295, 299, 82 L.Ed. 392, or to tax a valuable contract for the purchase of land or chattels located in another state, see Citizens National Bank v. Durr, 257 U.S. 99, 108, 42 S.Ct. 15, 16, 66 L.Ed. 149; cf. Gish v. Shaver, 140 Ky. 647, 650, 131 S.W. 515; Golden v. Munsinger, 91 Kan. 820, 823, 139 P. 379; Marquette v. Michigan Iron & Land Co., 132 Mich. 130, 92 N.W. 934, or to tax a mortgage of real estate located without the state, even though the land affords the only source of payment, see Kirtland v. Hotchkiss, 100 U.S. 491, 25 L.Ed. 558; cf. Savings & Loan Society v. Multnomah County, 169 U.S. 421, 18 S.Ct. 392, 42 L.Ed. 803; Bristol v. Washington County, 177 U.S. 133, 20 S.Ct. 585, 44 L.Ed. 701; Paddell v. New York, 211 U.S. 446, 29 S.Ct. 139, 53 L.Ed. 275, 15 Ann.Cas. 187. Each of these legal interests finds its only economic source in the value of the land, and the rights which are elsewhere subjected to the tax can be brought to their ultimate fruition only through some means of control of the land itself. But the means of control may be subjected to taxation in the state of its owner whether it be a share of stock or a contract or a mortgage. There is no want of jurisdiction to tax these interests where they are owned in the sense that the state lacks power to appropriate them to the payment of the tax. No court has condemned such action as so capricious, arbitrary or oppressive as to bring it within the prohibition of the Fourteenth Amendment, for it is universally recognized that these interests are of themselves in some measure clothed with the legal incidents of property enjoyed by their owner, in the state where he resides, through the benefit and protection of its laws.
Tennessee Code, 1932, §§ 88358847.
Tennessee Code, 1932: 'Section 1259. Subdivision 1. A tax is imposed * * * upon transfers, in trust or otherwise, of the following property, or any interest therein or accrued income therefrom: (a) When the transfer is from a resident of this state. * * * (3) All intangible personal property. * * * 1260. Subdivision 2. The transfers enumerated in subdivision 1 * * * shall be taxable if made(a) By a will. * * *'
Alabama Code, 1928, §§ 1041810421.