Opinion ID: 25542
Heading Depth: 2
Heading Rank: 5

Heading: Constitutionality of the Estate Tax.

Text: The Estate raises a challenge to the constitutionality of the federal estate tax. It argues that the tax as applied in this case is an unconstitutional direct tax. The Estate concedes that a tax on property actually transferable to a decedent’s heirs is 18 constitutional. It asserts, however, that a tax on the portion of the estate used to pay the estate tax is an unconstitutional tax on a tax, resulting in this case in an effective rate of 92.7% on the property actually received by the heirs. The Estate contends that Congress may assess the tax only on assets that a donee actually receives through the bequest. The Constitution provides that [n]o Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken. U.S. Const. Art. I, sec. 9. This provision bars Congress from imposing a direct tax without apportioning it to the population. Congress need not, however, apportion “an excise upon . . . the shifting from one to another of any power or privilege incidental to the ownership or enjoyment of property.” Fernandez v. Wiener, 326 U.S. 340, 352 (1945) The Supreme Court has repeatedly rejected attempts to portray the estate tax as an unconstitutional direct tax. Fernandez, 326 U.S. at 352-58 (holding that the tax was not direct even though it encompassed a spouse's joint interest in the decedent's property); Tyler v. United States, 281 U.S. 497, 502-04 (1930) (same); New York Trust Co. v. Eisner, 256 U.S. 345, 348-49 (1921) (holding that the tax was not direct even though the government imposed it on the estate rather than the recipient); Knowlton v. Moore, 178 U.S. 41, 82-83 (1900) (holding that the tax was indirect even though the recipient could not shift the tax to 19 others). These decisions have instead characterized the estate tax as an indirect excise tax conditioned on the transfer of property at a grantor’s death. Congress has broad authority to impose excise estate taxes: [T]he power of Congress to impose death taxes is not limited to the taxation of transfers at death. It extends to the creation, exercise, acquisition, or relinquishment of any power or legal privilege which is incident to the ownership of property, and when any of these is occasioned by death, it may as readily be the subject of the federal tax as the transfer of the property at death. Fernandez, 326 U.S. at 352. This language facially contradicts the Estate’s argument, since it authorizes taxes not only on the transfer to the heirs but on the entire property that Helen relinquished at death. The Supreme Court’s estate tax decisions have emphasized that hypertechnical distinctions between direct and indirect taxes cannot overcome the historical treatment of the tax and practical considerations. “In determining [whether a tax is direct], no microscopic examination as to the purely economic or theoretical nature of the tax should be indulged in for the purpose of [characterizing it]. . . . Taxation is eminently practical, [and] a tax should be regarded in its actual, practical results. . . .” Knowlton, 178 U.S. at 83 (quoting Nicol v. Ames, 173 U.S. 509, 515 (1899)). See also New York Trust Co., 256 U.S. at 349 (“[The petitioner’s argument fails] not by an attempt to make some scientific distinction, which would be at least difficult, but on 20 an interpretation of language by its traditional use—on the practical and historical ground that [the estate tax] has always been regarded as the antithesis of a direct tax.”) Whether the explanations provided by the Supreme Court of the estate tax’s constitutionality are fully persuasive is beside the point for this lower court. Based on the variety of constitutional challenges to it that have been made and uniformly rejected, we see no basis for invalidating the federal estate tax.