Case Name: CITY OF ATLANTA v. STOKES et al.
Court: Supreme Court of Georgia
Jurisdiction: Georgia
Decision Date: 1932-07-20
Citations: 175 Ga. 201
Docket Number: No. 8932
Parties: CITY OF ATLANTA v. STOKES et al.
Judges: All the Justices concur, except Atlcinson and Gilbert, JJ., who dissent.
Reporter: Georgia Reports
Volume: 175
Pages: 201–232

Head Matter:
CITY OF ATLANTA v. STOKES et al.
No. 8932.
July 20, 1932.
J. L. Mayson, C. S. Winn, and J. C. Savage, for plaintiff in error.
J. C. Miner, J. A. Setze, and J. S. Hall, contra.

Opinion:
Russell, C. J.
(After stating the foregoing facts.) If the question proposed for solution in this case were whether the State alone is empowered to levy taxes upon the property of its citizens, it should of course be answered in the affirmative. But the general rule as to taxation, like every other general rule, is subject to exceptions. In a broad sense, Federal regulations as to direct taxation upon tangible property are not permissible. Except in well-defined instances, the power of levying direct taxation is a right reserved in express terms to 'all the commonwealths which as sovereign States compose this union. All the propositions so well stated in the opinion of the dissenting Justices, if confined simply to the ordinary rules governing taxation, may well be conceded. In the field of direct taxation the power of the sovereign State is supreme, except when the exercise of that supreme right brings it into collision with the operation of a government instrumentality necessary to the existence of the Federal government and the exercise of its powers upon a subject as to which exclusive jurisdiction was delegated to Congress in the constitution of 1789. In the previous utterance by this court upon the same subject now before us, in Rucker v. Merck, 172 Ga. 793 (159 S. E. 501), the decision of the majority of the court as then constituted was not based upon any power of taxation inherent in Congress; for it was not imagined that Congress, in the passage of § 9127-1/2-22 (U. S. Comp. St. 1925, 722), was attempting to impose a tax; but the court held, basing its decision upon the admitted and unlimited right of Congress to make war, that Congress had the supreme right to say (without let or hindrance of any kind from any quarter) upon what terms it would reward faithful service in time of war as an instrument for the continuance of like faithful service if the need of the future should demand. As we still see the question here involved, it is not one of taxation, but a question as to whether the Federal government has the right to determine, even to the minutest detail, what shall be the measures by which and the manner in which a war shall be begun, carried on, and concluded. To maintain the power to wage war, it is as much essential to the morale of the troops of a government that those who face death upon the field of Mars should have the right to anticipate rewards in the future (especially if they have been victorious) as to expect that they will receive the monthly compensation for service, which' must be meager indeed in instances when their lives are actually exposed to danger. It seems strange, in view of the long line of decisions on this subject, that any one can suppose, even though the power of a State to tax generally is supreme, that that power may be used to hamper, hinder, annoy, harass, and impede the Federal government in the exercise of its unlimited power to carry on war. Certainly no State should complain of the terms upon which the Federal government rewards its soldiers, when the compensation, insurance, and maintenance and support allowance given them under the Federal statute with which we are now dealing is an acquisition and addition to the property of the State, which would never have existed but for the liberality of the Federal government in grateful recognition of the services of citizens of each and all the States. The exercise of this war power does not relieve from taxation anything except the compensation which is sent into the State as a reward to soldiers for their services. If it were an attempt of the Federal government to relieve from taxation (as seems to be argued in the dissenting opinion) a portion of the property in the State previously subject to taxation, the case would be altogether different.
But let us suppose the Federal government pays a veteran a thousand dollars, which before the gift had never been subject to taxation anywhere and had never been in Georgia to be taxable, is the State injured by the governmental policy ? The Federal power to make war is, in our opinion, long enough and strong enough to impose conditions which the Federal government may think proper in order to protect the Federal bounty from deduction by the power of the State to tax. But however this may be, the practical result has not been affected by a single cent; because, if the government had not made the gift which the defendant in error in this case invested in property in Atlanta, the value represented by this gift would not have been within the jurisdiction of the city or the State. It is supposable that Congress knew that its bounty, as expressed in the Federal legislation, if not paid to the veterans in the various States, could not be subject to taxation, because the property would be non-existent, and that when Congress expressly declared that it "shall be exempt from all taxation," it was very plain that practically no interference with the taxing power of the State was effected. We advert to this merely as illustrative of the fact that under § 9127-1/2-22, supra, there is in fact no interference with the power of the State to tax. However, under the provisions of art. 1, sec. 8, par. 11, of the constitution of the United States it is perfectly plain that the same result would ensue had Congress determined upon legislation promotive of the war which might have interfered with the State's power to tax.
Let us consider the facts of this case in the light of the argument that the State has power by taxation to diminish the reward which the Federal government wishes to give its soldiers. As "the right to tax is the right to destroy," it follows that if a pensioner (moved by the desire to save something for a rainy day) were to retain in money funds paid to him by the Government in cash, without investing it, he would, in a few years, without having en- joyed the use of his Federal aid, have expended a large portion if not all of it in taxes, though he never invested any of it and had no opportunity to make a profit or sustain a loss on the original fund. It is'very plain to me that when Congress said that benefits accruing under the provisions of the World War Veterans' act should be "exempt from all taxation," Congress had no thought of affecting the existing State-taxing acts, because the gift was of something which never had been subject to taxation, and of something- which, unless transmitted by the Federal government, would never be in the State; and that Congress, under, its constitutional power to make war, certainly would have the right to say that "unless we give these benefits upon the condition that they are to be tax-free, we shall not give them at all." I contend that under the constitution Congress has the sovereign right to say just that thing. The very splendid argument of my colleague, Mr. Justice Gilbert, in support of State sovereignly, meets my highest approbation. The power under which § 9127-1/2-22 was passed was one which was incorporated in the original constitution, art. 1, sec. 8, par. II. It has never been questioned by even the most ardent States-rights men. In the exercise of the necessary instrumentalities for the functions of government, every State, every year, by grants to the Federal government of lands for various purposes, withdraws property from the tax list of the State where it is situated. In the very environs of the City of Atlanta, both at the military reservation and at the Federal prison, lie hundreds of acres which for many years paid taxes to the State of Georgia; but by the cession of this land to the United States it became tax free, not because the State does not need the taxes which were formerly paid, not because the exemption in any way interferes with the general power of the State to tax property, but because there can not be any interference in any way, by any power, State, municipal, or personal, with the Federal functions which the Federal government must be left free to exercise without any interference. Under the national banking act it has been held that the shares of stock of a national bank are exempt from State taxation, though stock in every State bank is subject to that burden.
My brothers who insist that the word "payable" has been construed as contended by them, have apparently overlooked the several decisions where equally respectable courts have holden to the contrary. In the land-grant cases, from which liberal quotations are made in the opinion of the minority, the power of Congress to make war was not in question. The land grants, if made by any power conferred by the constitution, were in the exercise of the power of Congress over interstate commerce and to make public improvements. In none of these grants was there an exemption from taxation, such as is expressly declared in the case now before us. The Supreme Court of the United States properly held that the gifts of land as made by Congress carried with them no exemption from taxation; and if Congress had intended that the land grant should be exempt from taxation, it could have provided for the benefit. These cases are not in point in the present instance, because Congress did not choose, in the exercise of whatever power it was exercising, to expressly exempt the donation from all taxation, as was expressly done in the instant case.
The conclusion of the majority in Rucker v. Merck, supra, was not hastily reached, nor was it expressed without due deliberation. It is true that no extended elaboration or explanation of the Federal statute under consideration was entered into, because sometimes the language of the statute is so plain and unambiguous that construction would seem to be unnecessary. In dealing with the case at that time, the majority of the court was of the opinion that the words "shall be exempt from all taxation," were reasonably plain. It seems now that the word "payable" is the axis upon which the wheels of construction revolve. The members of the court who differ with me say that it is obvious that this means that the proposed donations are exempt from taxation only while they remain in the hands of the government. It is true the courts of a few States have so held. The rulings are cited in the dissenting opinion. We can not join in this distinction, because we can not agree that Congress was so ignorant that they were not already acquainted with the fact that funds of the government, Us own money, in the hands of its own officers, were altogether exempt from all taxation already, without the necessity of any additional protection. In using the word "payable," the ordinary man, without consulting a dictionary, understands that the affix "able" means that which can or may be, or shall be, or must be in future paid. It therefore denotes that this money which will be paid to some one and to all of the beneficiaries of the Federal legislation, shall be exempt from all taxation after it has been paid and reaches the hands of the beneficiaries. That principle was asserted in Payne v. Jordan, 152 Ga. 367 (110 S. E. 154), in which Mr. Justice Hill, delivering the opinion of the court, held that money which had been paid to a beneficiary under this same law (and after having been paid), and the fund being no longer due (italics ours), but which had been by the beneficiary deposited with a bank, was not subject to garnishment. The opinion in that ease was participated in by Mr. Chief Justice Fish, Mr. Presiding Justice Beck, Mr. Justice Hill, and Mr. Justice Hines. It is therefore unnecessary for us to define the future aspects of the word "payable" as used in the statute before us. It needs only to be remarked in passing that the use of words denoting future action, in almost all of the penal statutes of this State, does not exempt from the punishment designed by law one who does any of the acts for which penalties are proposed in future. The case of Payne v. Jordan, 28 Ga. App. 151 (110 S. E. 452), which' was decided in accordance with answers to certified questions from the Court of Appeals, delivered by Mr. Justice Hill in Payne v. Jordan, 152 Ga. 367, and which' was followed by the opinion of Judge Bell in Payne v. Jordan, 36 Ga. App. 787 (138 S. E. 262), has been several times cited. 32 A. L. R. 356; 55 A. L. R. 612; Wilson v. Sawyer, 177 Ark. 492 (6 S. W. (2d) 825), as well as in cases hereinafter referred to. Our attention was called to this fact at the time that the Merck case was considered. Justices Atkinson and Gilbert have been consistent as to their definition of the word "payable," for they dissented in the Jordan case in 152 Ga., just as they did in Rucker v. Merck, supra. The writer was not a member of this court when the original certified question was answered in Payne v. Jordan, supra, nor was Judge Bell a member of the Court of Appeals when that court unanimously followed, in 28 Ga. App. 151 (in the opinion written by Judge Jenkins), the instructions of the majority of this court, speaking through Mr. Justice Hill.
As referring to the war power of Congress, it was said in Lajoi v. Milliken, 242 Mass. 508 (136 N. E. 419) : "The war powers of the Federal government, under Const. H. S. art. 1, § 8, are extensive, and include, not only matters specifically stated, but others reasonably implied as necessary in waging war to a successful conclusion, including the power to deal with the exigencies created by war, or arising from its inception, progress, and termination." Some decisions from courts of other jrrrisdiction have been cited by counsel to support the conclusion of plaintiff in error that the funds which' Congress declares "shall be exempt from all taxation" are only protected while they are still payable, .and not thereafter, i. e., that such funds are protected only while in the hands of the Federal government. Decisions are also cited from the Supreme Court of North Carolina, holding that property purchased with the allowances, compensation, etc., conferred by 38 H. S. C. A. § 38, p. 317, is not exempt from State taxation. The construction placed upon 9127-1/2 H. S. Comp. St. by courts of our sister States are at best but persuasive, but the opinions of courts in other jurisdictions are never conclusive. However, so far as we are able to ascertain, the far greater number of courts which have had the question now before us under review concur with us in holding that these rewards for efficient military service provided by Congress, if passed as a war measure, are relieved from all taxation. Moreover, it seems to be a general principle, well settled in Georgia, at least, that a fund or property which is once exempt retains its exemption, no matter how often the form of the property exempted may be transmuted, or how often the character of the investment is changed. The principle as stated in Corpus Juris is "Usually, where proceeds of exempt property are invested in land, the land is exempt." 25 C. J. 82, § 137. The reports of this court present a leading ease in support of this well-settled doctrine, in Johnson v. Redwine, 105 Ga. 449 (33 S. E. 676). And so were we to concede that the exemption provided by the Federal statute in question only refers to the compensation, insurance, etc., so as to protect the fund only while "payable," as that word is construed in the opinion of the minority, still the well-settled Georgia doctrine supporting Johnson v. Redwine, supra (by a long line of the decisions of this court which are cited), would still protect that reward which Congress obviously intended to be unhampered, and to be for the exclusive benefit of the beneficiaries only. As said in Broome v. Davis, 87 Ga. 584 (13 S. E. 749) : "It is settled law that property paid for in full with other property previously set apart in due and proper manner under the homestead and exemption laws, takes the place of the latter, and is impressed with the homestead character." This principle, laid down in cases involving homestead and exemption rights, is applicable to the question of exempting property which has been purchased with the proceeds of any compensation allowed for services or for injuries reecived in the course of the world war under the provisions of the world war veterans' act (38 U. S. C. A. 217, § 454; U. S. Comp. Stat. 1925, 9127-1/2). If subsequent transfers of the property are made by the Federal beneficiary, the exemption from taxation does not inhere in the property, but follows the fund into property subsequently purchased as long as the original fund can be traced and its location established by proof.
In Wilson v. Sawyer, supra, the Supreme Court of Arkansas had under consideration § 22 of the World War Veterans Act (38 U. S. C. A. 454), and held that money paid to a soldier by virtue of this act was not subject to garnishment, whether in the hands of the soldier or guardian, by reason of § 22 of the act providing that the compensation shall not be subject to the claims of creditors. We cite this case because the section of the Federal act with which we are dealing says that "The compensation, insurance, and maintenance and support allowance payable under titles n, iii, and iv, respectively, shall not be assignable, shall not be subject to the claims of creditors," as well as that it shall be exempt from all taxation. Inasmuch as the constitution forbids Congress, as a general rule, to pass any law impairing the obligation of contracts, this portion of the act would be far more objectionable than that exempting the allowance from taxation. The Arkansas court cited, in support of its decision, Payne v. Jordan, 36 Ga. App. 787 (supra), in which it was held that a house purchased with proceeds only of war-risk insurance was not subject to execution; and the Arkansas court held that funds actually paid by the government to the beneficiary of a life-insurance policy deposited in a bank are not subject to garnishment. In the opinion in Wilson v. Sawyer, supra, it was said: "We think the manifest purpose of the legislation making provision for world war veterans was to devote the benefactions there provided to the sole use of the beneficiaries, and that the same should not be subject to the demands of creditors, even after the money had come into their hands, or was held by another for their benefit." In Succession of Geier, 155 La. 167 (99 So. 26, 32 A. L. R. 353), where the question was one as to exemption from taxation as in the case at bar, the Supreme Court of Louisiana held that insurance money received under the world war insurance act was not subject to taxation. It is true that the specific point for decision before the court was as to the operation of the state inheritance tax law. But in the opinion the court expressed itself unequivocally in holding that the allotments, compensation, and insurance payable by the Federal government "shall be exempt from all taxation." Upon this subject the court said: "The terms of the act are clear and unambiguous. Summarizing its provisions, there is a positive prohibition against all taxation on money paid out by the Federal government under section 28, art. 2, 3, and 4; and the insurance provision thereof is a contract between the United States, its agents, and the persons designated in the act as the beneficiaries of deceased service men. It is a bar to all State legislation which is in conflict with it." In support of the foregoing opinion, the Louisiana court cited the decision of the Supreme Court of the United States in Plumber v. Coler, 178 U. S. 115, 117 (20 Sup. Ct. 829, 44 L. ed. 998), in which it was held: "It is not open to question that a State can not, in the exercise of the power of taxation, tax obligations of the United States." In re Harris' Estate, 229 N. W. 781-782 the Supreme Court of Minnesota held that the rule applicable to inheritance tax was likewise applicable to all forms of taxation.
The proposition seems clear, and it is certainly supported by the decisions of the Supreme Court of the United States, that the Federal government, under the provisions of the constitution of the United States, in the exercise of its exclusive prerogative to wage war, can not be interfered with by State legislation. When the Federal government, in rewarding its soldiers, determines for itself how it will expend the Federal money, and declares that this money shall be protected against transfer or diminution from any quarter, its power under the express terms of the U. S. constitution is exclusive. As said by the great Chief Justice John Marshall, in McCulloch v. Maryland, 4 Wheat. 316, 422-433 (4 L. ed. 579) : "No trace is to be found, in the constitution, of an intention to create a dependence of the government of the Union on those of the States, for the execution of the great powers assigned to it. Its means are adequate to its ends; and on those means alone was it expected to rely for the accomplishments of its ends. To impose on it the necessity of resorting to means which it can not control, which another government may furnish or withhold, would render its course precarious, the result of its measures uncertain, and create a dependence on other governments, which might disappoint its most important designs, and is incompatible with the language of the constitution. But were it otherwise, the choice of means implies a right to choose a national bank in preference to a State bank, and Congress alone can make the election. . . A law absolutely repugnant to another as entirely repeals that other as if -express terms of repeal were used. On this ground, the counsel for the bank place its claim to be exempted from the power of a State to tax its operations. There is no express provision for the case, but the claim has been sustained on a principle which so entirely pervades the constitution, is so intermixed with the materials which compose it, so interwoven with its web, so blended with its texture, as to be incapable of being separated from it, without rending it into shreds. This great principle. is, that the constitution and laws made in pursuance thereof are supreme; that they control the constitution and laws of the respective States, and can not be controlled by them. From this, which may be almost termed an axiom, other propositions are deduced as corollaries, on the truth or error of which, and on their application to this case, the cause has been supposed to depend. They are, 1st. That a power to create implies a power to preserve. 2d. That a power to destroy, if wielded by a different hand, is hostile to, and incompatible with these powers to create and to preserve. 3d. That where this repugnancy exists, that authority which is supreme must control, not yield to that over which it is supreme. These propositions, as abstract truths, would perhaps never be controverted. Their application to this case, however, has been denied; and . . a splendor of eloquence and strength of argument, seldom if ever surpassed, have been displayed. The power of Congress to create, and of course to continue, the bank, was the subject of the preceding part of this opinion; and is no longer to be considered as questionable. That the power of taxing it by the States may be exercised so as to destroy it is too obvious to be denied. But taxation is said to be an absolute power, which acknowledges no other limits than those expressly prescribed in the constitution, and, like sovereign power of every other description, is intrusted to the discretion of those who use it. But the very terms of this argument admit that the sovereignty of the State, in the article of taxation itself, is subordinate to and may be controlled by the constitution of the United States. . . In making this construction, no principle, not declared, can be admissible which would defeat the legitimate operations of a supreme government. It is of the very essence of supremacy, to remove all obstacles to its action within its sphere, and so to modify every power vested in subordinate government, as to exempt its own operations from their influence. This effect need not be stated in terms. [As it is, however, in § 9127-1/2-22, supra.] It is so involved in the declaration of supremacy, so necessarily implied in it, that the expression of it could not make it more certain. . . The argument on the part of the State of Maryland is, not that the States may directly resist a law of Congress, but that they may exercise their acknowledged powers upon it, and that the constitution leaves them this right, in the confidence that they will not abuse it. . . It is admitted that the power of taxing the people and their property is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable, to the utmost extent to which the government may choose to carry it. The only security against the abuse of this power is found in the structure of the government itself.' . . But the means employed by the government of the Union have no such security, nor is the right of a State to tax them sustained by the same theory. Those means are not given by the people of a particular State, not given them by the constituents of the legislature, which claim the right to tax them, but by the people of all the States. They are given by all, for the benefit of all — and, upon theory, should be subjected to that government only which belongs to all. . . The sovereignty of a State extends to everything which exists by its own authority, or is introduced by its permission; but does it extend to those means which are employed by Congress to carry into execution powers conferred on that body by the people of the United States. We think it demonstrable that it does not. Those powers are not given by the people of a single State. They are given by the people of the United States to a government whose laws, made in pursuance of the constitution, are declared to be supreme. Consequently, the people of a single State can not confer a sovereignty which will extend over them. . . If the States may tax one instrument employed by the government in the execution of its powers, they may tax any and every other instrument. They may tax the mail; they may tax the mint; they may tax patent-right; they may tax the papers of the custom-house; they may tax judicial process; they may tax all the means employed by the government, to an excess which would defeat all the ends of government. This was not intended by the American people. . . If the right of the States to tax the means employed by the general government be conceded, the declaration that the constitution, and the laws made in pursuance thereof, shall be the supreme law of the land, is empty and unmeaning declamation."
In Tarble's Case, 13 Wall. 397 (20 L. ed. 597), it was held that the government of the United States and the government of a State are distinct and independent of each other within their respective spheres of action, although existing and exercising their powers within the same territorial limits. Neither government can intrude within the jurisdiction, or authorize any interference therein by its judicial officers with the action of the other. But whenever any conflict arises between the enactments of the two sovereignties, or in the enforcement of their asserted authorities, those of the national government are supreme. Mr. Justice Field, delivering the opinion of the court in Tarble's case, said: "It is in the consideration of this distinct and independent character of the government of the United States, from that of the government of the several States, that the solution of the question presented in this case, and in similar cases, must be found. There are within the territorial limits of each State two governments, restricted in their spheres of action, but independent of each' other, and supreme within their respective spheres. Each has its separate departments; each has its distinct laws, and each has its own tribunals for their enforcement. Neither government can intrude within the jurisdiction, or authorize any interference therein by its judicial officers with the action of the other. The two governments in each State stand in their respective spheres of action in the same independent relation to each other, except in one particular, that they would if their authority embraced distinct territories. That particular consists in the supremacy of the authority of the United States when any conflict arises between the two governments. The constitution and the laws passed in pursuance of it are declared by the constitution itself to be the supreme law of the land, and the judges of every State are bound thereby, 'anything in the constitution or laws of any State to the contrary notwithstanding.' Whenever, therefore, any conflict arises between the enactments of the two sovereigns, or in the enforcement of th'eir asserted authorities, those of the national government must have supremacy until the validity of the different enactments and authorities can be finally determined by the tribunals of the United States. . . Now, among the powers assigned to the national government is the power 'to raise and support armies,' and the power 'to provide for the government and regulation of the land and naval forces.' The execution of these powers falls within the line of its duties; and its control over the subject is plenary and exclusive. . . It is manifest that the powers of the national government could not be exercised with energy and efficiency at all times, if its acts could be interfered with and controlled for any period by officers or tribunals of another sovereignty." See also the opinion delivered by Mr. Justice Story in Martin v. Hunter, 1 Wheat. 304, 319, 322-328 (4 L. ed. 97).
We have shown that the benefit of § 9127-1/2-22 is in the nature of a contract between the Federal government and its soldiers. It is pointed out in numerous decisions that as related to military service there is no distinction between the rules governing the inheritance taxes and taxes of other kinds. There is no difference in the Federal exemption from taxation, referred to in the statute of the United States with which we are now concerned, between funds provided for the benefit of ex-soldiers, which depend on whether it comes in monthly allotments or is the proceeds of United States life insurance. The State of Massachusetts has a statute taxing "property . . which shall pass by . . gift . . made or intended to take effect in possession or enjoyment after the death of the grantor." In Tyler v. Treasurer, 226 Mass. 306 (115 N. E. 300, L. R. A. 1917D, 633), Mr. Chief Justice Eugg, delivering the opinion, held that "The conclusion is that sums received by beneficiaries in accordance with designations made in contracts of insurance are not subject to the succession tax," citing Burrage v. Bristol County, 210 Mass. 299 (96 N. E. 719); Estate of Bullen, 143 Wis. 512, 523 (128 N. W. 109, 139 Am. St. R. 1114); In re Parsons' Estate, 117 App. Div. 521 (102 N. Y. Supp. 168); Vogel's Estate, 1 Pa. Co. Ct. 352.
In Tax Commissioner v. Rife, 119 Ohio St. 83 (162 N. E. 390), it was held that "The provisions of the world war veterans' act (38 U. S. C. A. § 421 et seq.), relating to the exemption from taxation of insurance'payable thereunder, exempt from the State inheritance tax the amount paid to the estate of a deceased soldier." The Supreme Court of Ohio therefore took the same view of the meaning of the word "payable" which this court has heretofore taken in Payne v. Jordan, and Rucker v. Merck, supra. After quoting from the statute, "That the compensation, insurance, and maintenance and support allowance payable under titles ii, hi, and iv, respectively, . . shall be exempt from all taxation" (43 Stat. at L. 607, 613 §,22, June 7, 1924, 38 U. S. C. A. § 454), Mr. Justice Day, delivering the opinion of the court, said: "This contract of insurance was between the government of the United States on one side, and the soldier, Earl Stewart, on the other side. It provided, in substance, that in the event of the death of said Earl Stewart the sum agreed upon, in stipulated amounts, should be paid to the beneficiary named in the policy. Does the fact that the United States government has taken advantage of the statutes of descent and distribution of the State of Ohio to determine who shall receive the funds in question make such fund any less a pay ment direct by the United States to such beneficiaries, provided they are within the permitted class ? . . It is the contention of the defendants in error that the amendment of March 4, 1925, was to relieve the Veterans' Bureau of the duty of electing and determining next of kin according to the laws of the soldier's domicile, and to whom the present value of the unpaid installments should be paid, and to shift that burden to the administrator appointed at the place of domicile.. The administrator thus becomes the trustee or agent of the Federal government in passing the fund arising under this policy of insurance to the members of the permitted class who are the beneficiaries thereunder. Section 22 of the war-risk insurance act has especially exempted from all taxation the allotments and family allowances, compensation, and insurance payable under the war-risk insurance act. This law was fa war measure, passed in the exercise of a power to which all other rights and powers are subservient.' In re Geier, 155 La. 167, 99 So. 26, 32 A. L. R. 353. . . The question may be stated as follows: If the payment is to the beneficiaries by the government, then under section 22 of the war-risk insurance act there can be no succession tax. If, on the other hand, the payment to the administrator of the deceased ends the connection of the government with the fund in question, then the same becomes subject to the State inheritance tax, the same as any other asset coming from whatsoever source into the hands of the administrator and would be subject to the succession tax. We can not take this view of the war-risk insurance act, and we believe that the same provides for a payment arising from a contract between the soldier and the government, which under certain circumstances inures to the benefit of the permitted class, including uncles and aunts of the deceased soldier. This right to take this property is'by virtue of a contract between the United States government and the soldier, and does not arise by reason of the statutes of descent and distribution of this State, even though the government has seen fit to distribute such fund through the agency of an administrator acting under the statutes of descent and distribution of the State of Ohio. It is reasonable to assume that the purpose of Congress in making the payment to the administrator of the deceased soldier was for the benefit of the government, to relieve the government of the necessity of selecting and determining the next of kin of the deceased soldier to whom payment should be made. . . The administrator becomes a mere trustee or conduit for the government to make the payments to the persons entitled to the same under the provisions of the Federal law. The intestate laws do not operate upon the decedent's property, but are referred to in order to determine who shall take the proceeds of the insurance. Congress had a right to adopt the course of descent prevailing in the- State of the residence of the soldier, and the proceeds of the insurance therefore pass under the Federal act, the intestate laws of Ohio being adopted as a standard or guide for ascertaining the next of kin to whom payment shall be made. The provisions of section 22 of the act of June 7, 1924, providing for exemption from taxation, must dominate over the succession tax statutes of Ohio, because of the provision of paragraph 2, art. vi of the United States constitution, providing that: 'The constitution, and the laws of the United States which shall be made in pursuance thereof, . . shall be the supreme law of the land; and the judges of every State shall be bound thereby, anything in the constitution or laws of any State to the contrary notwithstanding.' As was held by Mr. Chief Justice Marshall in McCulloch v. Maryland, 4 Wheat. 316, 436, 'The court has bestowed on this subject its most deliberate consideration. The result is a conviction that the States have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control the operations of the constitutional laws enacted by Congress to carry into execution the powers vested in the general government. This is, we think, the unavoidable consequence of that supremacy which' the constitution has declared.' " The Ohio court then proceeded to distinguish the cases in 178 U. S., cited by the minority, and said: "Entertaining the view that Congress has power to provide for payment to the next of kin of the deceased soldier in such manner as it may determine, and that such' proceedings, being for the benefit of dependents, constitute a special, distinct class of property different from a general estate of a deceased soldier, such fund, by section 22' of the act, is exempt from the inheritance tax under the Ohio statute."
The Supreme Court of West Virginia, in Watkins v. Hall 107 W. Va. 202 (147 S. E. 876), in a case involving the commuted value of a war-risk insurance policy, held that it was not subject to the State inheritance tax, and construed 38 U. S. C. A., § 421 et seq. and § 454, 514 just as they were construed in re Geier, 155 La. 167 (supra), and by the Supreme Court of Ohio in re Ohio v. Rife, supra. In re Wanzel's Estate, 295 Pa. 419 (145 Atl. 512), the Supreme Court of Pennsylvania held that under the tax exemption provided by the Federal statute monthly installments of war-risk insurance were not subject to the State inheritance tax. Chief Justice Moschzisker, delivering the opinion of the court, said: "The question involved is whether . . the fund involved can be taxed by the State. In answering this question in the affirmative, the court below relied on our decision in Oglivie's Estate, 291 Pa. 326, 139 Atl. 826, and on two New York Surrogate's Court decisions, namely, Schaeffer's Estate, 130 Mis. Rep. 436, 224 N. Y. S. 305, and Dean's Estate, 131 Mis. Rep. 125, 225 N. Y. S. 543. As to the first of the above-named cases, it is sufficient to say that no question of taxation was there involved, and, as to the others, that we do not agree with the determination there reached. Our view agrees with the decision in Tax Commissioner of Ohio v. Rife, 119 Ohio, 83, 162 N. E. 390; and since the facts there involved closely approximate those in the present case, we shall quote liberally from the opinion in that case. . . We shall quote another excerpt from Tax Commissioner of Ohio v. Eife, as amply covering a point of argument made in the instant case, that, since United States bonds held by a decedent's estate are subject to State inheritance tax, the same reasoning should make a war-risk insurance fund, such' as the one now before us, equally subject to inheritance tax. In disposing of this point the Supreme Court of Ohio said: 'Much stress is placed . . upon the cases of Plummer v. Coler, 178 U. S. 115 . . and Murdock v. Ward, 178 U. S. 139, . . in which it is held that bonds of the United States, the property of a decedent, are subject to the State inheritance tax. Of course such obligations, reciting the ordinary relation of debtor and creditor between the government and the holder thereof, are like any other property of a decedent, and pass as any other asset of his estate, and are therefore rightly subject to State inheritance tax. However, the proceeds of war-risk insurance are a definite kind of property, differing from the ordinary property of a soldier's estate, and are in the nature of a beneficence or gratuity, pension or bounty, . . a part of [the Federal government's] war policy. . . This distinct class of property is not subject to the claims of creditors, or taxation and is solely for the benefit of the soldier, his dependents and next of kin. Such assets pass . . by virtue of the Federal act, and the decisions in . . Plummer v. Coler . . and Murdock v. Ward . . do not relate to property of that character/" The Pennsylvania court cited approvingly the Geier case; supra, decided by the Supreme Court of Louisiana, and concluded by saying: "The two cases above quoted from so amply cover all the points in the case before us, it would serve no useful purpose to further elaborate our reasons for the order which we are about to make." Which order reversed the judgment of the lower court which had held that the property was not exempt from taxation.
Judgment affirmed.
All the Justices concur, except Atlcinson and Gilbert, JJ., who dissent.