Court Opinion

ID: 9419041
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:45:12.364916+00
Date Added: 2024-06-11T17:22:14.758806
License: Public Domain

Mr. Justice Butler,
dissenting.
The sole question is whether, on the facts about to be stated, the Tennessee inheritance tax law, consistently with the due process clause of the Fourteenth Amendment, may be extended to intangible- personal property evidenced by certificates of stock and bonds .held in Alabama.
The suit was brought in a chancery court of Tennessee under the declaratory judgments act of that State.1 Com- - *375plainants 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 Compány, 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.2 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.3
*376The parties stipulated that the facts are as stated in the pleadings. In substance they are as follows:
At all times involved in this case, Mrs. Scales was a resident of and domiciled in Tennessee. . Her brother, formerly living in Alabama, died in 1905 leaving a will that bequeathed to the Birmingham trust company stocks and bonds issued by Alabama corporations to be held in trust for the use and benefit of his widow and at her death to be delivered to Mrs. Scales. The widow died in 1917. Immediately, December 29, 1917, and without taking any of them from the possession of the trust company, Mrs.. Scales executed jointly with it an indenture covering the stocks and bonds of which she had become .owner under her brother’s will.
By paragraph 1, she transferred 50 bonds to the trust company as trustee for the use and benefit of her son and directed that it hold and manage the property and pay net income to him during his life, and that, subject to his power of disposition by will, all property belonging to the trust at the time of his death should go to his children. By paragraph 2, she transferred to the same company 50 other bonds to be held in trust for the benefit of her daughter subject to trusts, conditions, and power of testamentary appointment by her daughter like those specified in the provisions creating the trust for her son.
■ By paragraph 3, she transferred .to the same trustee the balance of the property by it to be held in trust and managed for specified uses and purposes and upon terms and conditions in substance as follows: (a) She directed the trustee to pay the income to her while she lived, (b) She reserved the right by will to dispose of all the trust property, (c) She directed that if she made no disposi*377tion by will the trustee should pay $200 per month out of income to her husband during his life and the balance of income to her son and daughter during their lives; that’ the child or children of either, if dead, should receive the share’ of income which the parent would have received if living; that one-half of the property in the trust at the time of her death be transferred to the trust created for her son; and that the other half be transferred to the trust created for her daughter, (d) She reserved power at any time that she deemed income insufficient for her support to direct the trustee to sell a part of the trust property and to give her the amount received for it, and retained the right to direct transfer to her son or daughter of any portion of the trust property, and (e) the right to direct investments. She retained authority to remove the trustee and to appoint a successor. As to nearly all the property held in trust under paragraph 3, Mrs. Scales, her son, daughter, and the trustee, January 11,1929, executed a writing releasing the power reserved to encroach on or dispose of corpus.
January 1, 1926, Mrs. Scales exerted the power by will to dispose of the trust property. Item two recites that she had reserved the right to dispose by will of property conveyed to the trustee under paragraph 3 of the trust agreement and provides: “Now,- therefore, desiring to exercise the right to dispose of the said trust property, I do hereby give, devise, and bequeath all of the property in custody of said Title Guarantee Loan & Trust Company ... at the time of my death, to the said company, as trustee, the same to be held by it in trust upon the uses and trusts, terms, conditions, and limitations hereinafter set forth in this item of my will.”
Section one of that item directs that from, the trust estate there shall be set aside property of the value of $100,000 to be held in trust as there specified for her *378daughter and her daughter’s children. Section two makes like provision for her son and his children. Section three directs that, after the trust property shall be set aside as specified in sections one and two, the balancean the hands of the trustee shall be given in equal shares to her daughter and son to be theirs absolutely.
An amendment to the answer of the members of the Alabama Tax Commission alleges, and by stipulation the other parties admit, that from the trust indenture it fully appears that the title, possession and control of the securities passed completely to the Birmingham trust company and that such was the status of the securities at the time of the death of Mrs. Scales. That amendment also alleges, and the stipulation admits, that she. never exercised the right reserved to her to remove the trustee and that the trust property could not have been removed from Alabama except upon an order of a circuit court and in compliance with the statutes of that State.4
The chancery court found that at the time of the death of Mrs. Scales the securities in question “had a legal situs analogous to the situs of tangible personal property in the State of Alabama.” It decreed that Alabama may legally impose upon them a death transfer or succession tax and that in so far as the inheritance tax law of. Tennessee attempts to impose the tax claimed by that State it vio-' lates the due process clause of the Fourteenth Amendment.
The state supreme court reversed the chancery court. It held that the securities were not so used in Alabama as to give them a situs there; that when Mrs. Scales died the situation was the same as though there never had been a trust; and that the property passed under the will as her absolute property. It entered a decree, declaring the property taxable in Tennessee and not taxable in Alabama.
*379The 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. Farmers Loan Co. v. Minnesota, 280 U. S. 204, 210-212. Baldwin v. Missouri, 281 U. S. 686, 691. Beidler v. South Carolina Tax Comm’n, 282 U. S. 1, 7-8. First National Bank v. Maine, 284 U. S. 312, 328. City Bank Co. v. Schnader, 293 U. S. 112, 116-117. See Burnet v. Brooks, 288 U. S. 378, 401-402; Senior v. Braden, 295 U. S. 422, 432; Wheeling Steel Corp. v. Fox, 298 U. S. 193, 209-210; New York ex rel. Whitney v. Graves, 299 U. S. 366, 372; New York ex rel. Cohn v. Graves, 300 U. S. 308, 314-315; Worcester County Co. v. Riley, 302 U. S. 292, 297, 298. 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. Bogert, Trusts and Trustees, § 993. Keyes v. Carleton, 141 Mass. 45, 49; 6 N. E. 524. Ewing v. Jones, 130 Ind. 247, 254-255; 29 N. E. 1057. Bath Savings Institution v. Hathorn, 88 Me. 122, 128-129; 33 A. 836. *380Wilson v. Anderson, 186 Pa. 531, 537; 40 A. 1096. 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. 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. Porter v. Commissioner, 288 U. S. 436, 441. 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 reserved authority to direct investment contemplates action as trustee and not control as owner. Reinecke v. Northern Trust Co., 278 U. S. 339, 346-347. The authority to remove the trustee and to appoint a successor detracts nothing from the plenary grant of title. See Bowditch v. Banuelos, 1 Gray 220, 230. When read as it must be in connection with the provisions of the Alabama statute above referred to, that provision of the indenture does not reserve power to remove the trust securities from the State of Alabama.
As the death of Mrs. Scales and taking effect of her will were coincident, the legal title remained in the trustee. The purposes Mrs. Scales intended to effect by the trusts defined by her will are like those she intended to serve by the trusts created by the indenture which, in absence of will, were to continue after death. Stripped of mere legalism, and taken according to substance, the will operated to amend and continue' the trusts created by the indenture. Questions of power to tax are governed by the substance of things rather than by technical rules, *381concerning title. Tyler v. United States, 281 U. S. 497, 503.
It follows that, save her right to income, Mrs. Scales, after her relinquishment, January 11, 1929, and at the time of her death, had no estate or interest in the securities held by the trustee. There is no basis for application of the .fiction mobilia sequuntur personam. Wachovia Trust Co. v. Doughton, 272 U. S. 567, 575. Brooke v. Norfolk, 277 U. S. 27, 29. Safe Deposit & T. Co. v. Virginia, 280 U. S. 83, 92, 94. McMurtry v. State, 111 Conn. 594. Estate of Bowditch, 189 Cal. 377. Matter of Canda, 197 App. Div. 597; 189 N. Y. S. 917. Cf. Bullen v. Wisconsin, 240 U. S. 625. Tennessee may not impose the inheritance tax claimed in this suit by its Commissioner of Finance and Taxation.
Moreover, if contrary to the indenture as above construed, it should be held that at the time of her death Mrs. Scales in addition to having power .of appointment by will owned an iñterest in the trust property, Tennessee would nevertheless be without power to impose a tax on the transfer of- that interest because the intangibles in question had no situs in that State.
Intangibles, like tangibles, may be so held and used outside the State of the domicil of the owner as to become taxable in the State where kept. See e. g. New Orleans v. Stempel, 175 U. S. 309. Bristol v. Washington County, 177 U. S. 133, 143 et seq. State Board of Assessors v. Comptoir National, 191 U. S. 388. Scottish Union & Nat. Ins. Co. v. Bowland, 196 U. S. 611, 619-620. Metropolitan Life Ins. Co. v. New Orleans, 205 U. S. 395, 402. Liverpool & L. & G. Ins. Co. v. Orleans Assessors, 221 U. S. 346, 353. The general rule of mobilia sequuntur personam must yield to the established fact of legal ownership, actual presence and control in a State other than that of the domicil of the owner. The phrase “business situs” as used to support jurisdiction of a State *382other than that of the domicil of the owner to impose taxes on intangible personal property is a metaphorical expression of vague signification; its meaning is not limited to investment or actual use as ah integral part of a business or activity, but may extend to the execution of trusts such as those created by the indenture and imposed on the trustee in this case. DeGanay v. Lederer, 250 U. S. 376, 381-382. New York ex rel. Whitney v. Graves, supra, 372 et seq. Wheeling Steel Corp. v. Fox, supra, 211. First Bank Stock Corp. v. Minnesota, 301 U. S. 234.
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,'5 From the beginning, the trust estate has been under the protection of, .and necessarily the trusts have been and are being executed under, the laws of Alabama unaffected by those of any other State. See Hutchison v. Ross, 262 N. Y. 381, 394; 187 N. E. 65; Sewall v. Wilmer, 132 Mass. 131, 137.
At least since 1917, Mrs. Scales had no power to remove the trust or any of the trust property from Alabama. Exertion of any right or power reserved to her by the indenture was dependent on the laws of Alabama and not upon or subject to those of Tennessee, where she happened to have her domicil. Wachovia Trust Co. v. Doughton, ubi supra. Subject to the laws of Alabama, all transactions in which the trust properties were capable of being used were identified with that State. The securities, held there not only for safekeeping but as well for collection of income and principal, and subject to sale and reinvestment of proceeds, could not be more com*383pletely localized anywhere. DeGanay v. Lederer, ubi supra.
, The judgment of the Supreme Court of Tennessee should be reversed and the case remanded to that court for further proceedings in accordance with this opinion.
Mr. Chief Justice Hughes, Mr. Justice McReyn-olds and Mr. Justice Roberts join in this opinion.

 Tennessee Code, 1932: “Section 1258. 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 . . . Section 1260. Subdivision 2. . . . The transfers enumerated in subdivsion 1 . . . shall be taxable if made — (a) By a will . . .”

 Alabama General Revenue Act, approved July 10, 1935, Art. XII, c. 2 (Acts 1935, pp. 434 et seq.): Section 347.1: “. . . there is hereby levied and imposed upon all net estates passing by will, devise, or under the intestate laws of the State of Alabama, or otherwise, which are lawfully subject to the imposition of an estate tax by the State of Alabama, a tax equal to the- full amount of State tax paid permissible when levied by and paid to the State of Alabama as a credit or deduction in computing any federal estate tax payable by such estate according to the Act of Congress in effect, on the .date of the death of the decedent, taxing such estate, with respect to the items subject to taxation in Alabama. . . .” Section 347.7: ; . all of the provisions of this Chapter shall be applicable to so much of the estates of non-resident decedents as is subject to estate tax under the Act of Congress in effect at the time of *376the death of decedent as consists of real estate or tangible personal'property located within this'State, or other item of property or interest therein lawfully subje.ct to the imposition of' an estate tax by the State of Alabama. . . .”

 Alabama Code, 1928, §§ 10418-10421.

 See footnote 4.