The statute of New York of 1896, providing for a transfer tax on
property passing by deed of a resident intended to take effect in
possession or enjoyment at or after the death of the grantor, is
not unconstitutional as taking property without due process of law,
nor does it deny the equal protection of the law by arbitrary
classification of the subject matter or by different rates of
taxation depending on the relationship of the beneficiaries to the
grantor.
The privilege of acquiring property by trust instrument taking
effect on the death of the grantor is as much dependent on the law
as that of acquiring property by inheritance, and is subject to
taxation by the state.
Where a state tax on the transfer of property does not offend
the Constitution of the United States, its validity must be
determined by the law of the state.
An excise on transfers does not become an
ad valorem
tax on the property conveyed because the amount is based on the
value of such property.
Magoun v. Illinois Trust Bank,
170 U. S. 283.
The Fourteenth Amendment does not diminish the taxing power of
the state or deprive the the power to select subjects for taxation,
but only requires that the citizen be given opportunity to be heard
on questions of liability and value, and be not arbitrarily denied
equal protection.
The Fourteenth Amendment does not require a state to tax all
transfers because it taxes some transfers.
While there can be no arbitrary classification without denying
equal protection of the law, there need not be great or conspicuous
differences in order to justify a classification.
A state may impose a graduated tax on transfers of personal
property by instrument taking effect on the grantor's death without
violating the equal protection clause.
One assessed at the lowest rate under a graduated tax statute
cannot
Page 222 U. S. 526
object to the constitutionality because others are taxed at the
higher rate.
A statute imposing a graduated tax would not necessarily be held
unconstitutional as to the initial rate even if the provisions as
to the higher rates were unconstitutional.
A state may impose a transfer tax based on personal property
passing under a trust deed to take effect at the grantor's death if
the property had its situs in that state when the deed was
made.
Where the power to tax exists, the state may fix the rate and
say when and how the amount shall be ascertained and paid, and if
the personal property has its situs in the state when the deed is
made, it may tax a transfer of personal property under a trust deed
to a resident of the state to take effect at the grantor's death
although the personal property at that time may be without the
state.
14 N.Y. 281 affirmed.
On June 13, 1903, Susan A. Keeney, a resident of New York, being
in good health, executed in Kings County a deed, whereby she
conveyed a cattle ranch in Texas and certain stocks and bonds to
the Fidelity Trust Company of Newark, New Jersey, in trust, to hold
the same during her lifetime, and to divide the net income equally
between herself and her three children, two of whom reside out of
the State of New York. The deed further provided that, after her
death, the trustees should pay the entire income, or transfer the
property, to her children, or their issue, on terms and limitations
not material to this investigation. In the deed, she "reserved the
right to revoke or alter the whole or any part of the trust
conveyance at any time after six months' notice in writing." She
died March 29, 1907, being at the time a resident of Kings County,
leaving an estate of the value of $25,000 and the three children as
sole heirs at law.
In tax proceedings, the proper officers found that the stocks
and bonds were of the then value of $773,600, one-fourth ($193,400)
being for the use of Mrs. Keeney for life and the remainder to her
children, being intended to take effect at her death. It was held
that their interest
Page 222 U. S. 527
was subject to the tax imposed by the New York statute of 1896
(May 27, 1896, Laws 1896, v. 1, c. 908, § 220, Subd. 1, 3), which
provides:
"A tax shall be and is hereby imposed upon the transfer of any
property, real or personal . . . or of any interest therein or
income therefrom, in trust or otherwise. . . . (3) When the
transfer is of property made by a resident, or by a nonresident,
when such nonresident's property is within this state, by deed,
grant, bargain, sale, or gift made in contemplation of the death of
the grantor, vendor, or donor, or intended to take effect in
possession or enjoyment at or after such death."
Mrs. Keeney's administrator and children appealed on the ground
that the taxable transfer act of New York, insofar as it imposes a
tax upon property transferred
inter vivos, violated the
Fourteenth Amendment in that it took the property without due
process of law, and the different rates of taxation and
classification were of such discriminatory a character as to deny
the equal protection of the law.
The judgment was affirmed. The case is here on writ of error
from the final order of the surrogate court, entered in pursuance
of the mandate of the Court of Appeals. 194 N.Y. 281.
Page 222 U. S. 533
MR. JUSTICE LAMAR, after making the foregoing statement,
delivered the opinion of the Court.
So much of the New York statute as imposes an inheritance tax
was sustained in
Plummer v. Coler, 178 U.
S. 115, and in several decisions of the Court of Appeals
of that state. But the plaintiffs insist that there is a radical
difference between an inheritance tax and one on transfers
inter vivos. The first, they say, is an excise imposed on
a privilege, while that complained of here is really on property,
though called a tax on a transfer. They argue that inheritance
taxes have been sustained on the ground (
United States v.
Perkins, 163 U. S. 625)
that no one has the natural right to acquire property by will or
descent, and if the state permits such acquisition, it may require
the payment of a tax as a condition precedent to the right of using
that privilege. On the other hand, they contend that the right to
convey or come into possession does not depend upon a statutory or
taxable privilege, but is a right incident to the ownership of
property, and that the tax imposed by this statute on that right is
in effect a tax on the property itself, and void because lacking in
the elements of uniformity and equality required in the assessment
of property taxes.
But if any such distinction could be made between taxing a right
and taxing a privilege, it would not avail plaintiffs in the
present case. There is no natural right to create artificial and
technical estates with limitations over, nor has the remainderman
any more right to succeed to the possession of property under such
deeds than legatees and devisees under a will. The privilege of
acquiring property by such an instrument is as much dependent upon
the law as that of acquiring property by
Page 222 U. S. 534
inheritance, and transfers by deed to take effect at death have
frequently been classed with death duties, legacy and inheritance
taxes. Some statutes go further than that of New York, and tax
gratuitous acquisitions under marriage settlements, trust
conveyances, or other instruments where the transfer of property
takes effect upon the death not merely of the grantor, but of any
person whomsoever.
This was true under the Internal Revenue Act of 1864 (June 30,
1864, 13 Stat. 223, c. 173). It imposed a succession tax on "all
dispositions of real estate, taking effect upon the death of any
person." It was not apportioned, and would have been void if a tax
on property. But it was held that "it was not a tax on land," since
"the succession or devolution of the real estate is the subject
matter of the tax . . . whether . . . effected by will, deed, or
law of descent."
Scholey v.
Rew, 23 Wall. 347, cited and followed,
Knowlton
v. Moore, 178 U. S. 41,
178 U. S.
78-81.
Wherever the amount of a tax is, as here, to be measured by the
value of property, it has been earnestly argued that it was to tax
the property itself, and that to ignore that feature is to put the
name above the fact. But when the state decides to impose such a
tax, the amount must be determined by some standard. To require the
same amount to be paid on all transfers is not so fair as to impose
the burden in proportion to the value of the property. An excise on
transfers therefore does not lose that character because the amount
to be paid is determined by the values conveyed. In view of the
decisions in
Magoun v. Illinois Trust Bank, 170 U.
S. 283, and the other cases already cited, it is
unnecessary to review the arguments
pro and
con,
and again point out the distinction which has been made and
sustained between excises and
ad valorem taxes. We
therefore accept the conclusion of the Court of Appeals of New York
that the statute of
Page 222 U. S. 535
that state imposing a tax on the transfers of property "intended
to take effect in possession or enjoyment at or after the death of
grantor" is "not a property tax, but in the nature of an excise tax
on the transfer of property." 194 N.Y. 281.
The validity of the tax must be determined by the laws of New
York. The Fourteenth Amendment does not diminish the taxing power
of the state, but only requires that, in its exercise, the citizen
must be afforded an opportunity to be heard on all questions of
liability and value, and shall not, by arbitrary and discriminatory
provisions, be denied equal protection. It does not deprive the
state of the power to select the subjects of taxation. But it does
not follow that, because it can tax any transfer (
Hatch v.
Reardon, 204 U. S.
159), it must tax all transfers, or that all must be
treated alike.
It is true that, in New York, it is as lawful to create an
estate for life, with remainder after the death of grantor, as it
is to convey in fee, or with remainder after the death of a third
person, or on the happening of a particular event. But there is a
difference in law as well as in practical effect between these
various estates. Every encouragement is given to making conveyances
in fee. But, from an early date, public policy has been opposed to
the private interest which impelled men to withdraw property from
the channels of trade and tie it up with limitations intended,
among other things, to secure to the beneficiary the use of the
property, while at the same time removing it, to some extent, from
liability for his debts. The favored transfers in fee need not be
taxed with the latter, even though the law permits their creation.
These latter estates also differ among themselves. Where the
grantor makes a transfer of property to take effect on the death of
a third person, it might, under the ruling in
Scholey v. Rew,
supra, be taxed as a devolution or succession. But under such
an instrument the grantor does not retain the use and power
during
Page 222 U. S. 536
his own lifetime, the remainder does fall in at his death, and
such conveyances would not be so often resorted to as a means of
evading the inheritance tax. 194 N.Y. 287. They are not so
testamentary in effect as those transfers wherein the grantor
provides that the property shall go to his children, or other
beneficiary at and after his death.
The New York statute recognizes this difference. It imposes a
tax on transfers by descent or will which take effect at the death
of the testator, and then a tax upon transfers made in
contemplation of death. It was but logical to take the next step
and tax transfers intended to take effect at or after the death of
the grantor even though that event was not actually impending when
the deed was signed.
There can be no arbitrary and unreasonable discrimination. But
when there is a difference, it need not be great or conspicuous in
order to warrant classification. In the present instance, and so
far as the Fourteenth Amendment is concerned, the state could put
transfers intended to take effect at the death of the grantor in a
class with transfers by descent, will, or gifts in contemplation of
the death of the donor without at the same time taxing transfers
intended to take effect on the death of some person other than the
grantor or on the happening of a certain or contingent event.
As to the other discriminatory features which, it is alleged,
operate to deny the equal protection of the law, it is sufficient
to say that it is now well settled that the state may impose a
graduated tax in this class of cases.
Magoun v. Illinois Trust
and Savings Bank, 170 U. S. 298.
The plaintiffs in error, being children of the grantor, were
assessed at the lowest rate. They are therefore not in a position
to take advantage of the fact that transfers to collaterals and
strangers in blood are, by this act, taxed at a higher rate. The
entire statute would not be invalidated
Page 222 U. S. 537
even if that feature should ultimately be held to be
discriminatory and void. 194 N.Y. 286.
The real estate and tangible property in Texas were not within
the taxing jurisdiction of the State of New York, and there was no
effort to tax the transfer of that property.
St. Louis
v. Ferry Co., 11 Wall. 430;
State
Tax on Foreign Held Bonds, 15 Wall. 319. It is
urged that, on the same principle, the stocks and bonds could not
be taxed because they were in New Jersey, in the hands of a
trustee, holding title and possession by virtue of a deed made
three years before the grantor died.
But the statute does not impose a tax on the property, but on
the transfer. The validity of that burden must be determined by the
situation as it existed in 1903, when the deed was made. At that
time, the grantor was a resident of the State of New York. This
personal property there had its situs. She there made a transfer
which was taxable regardless of the residence of the trustee or
beneficiary. The fact that the assessment and payment were
postponed until the death of the grantor would be a benefit to the
remainderman in the many instances in which values decreased. But
where the power to tax exists, it is for the state to fix the rate
and to say when and how the amount shall be ascertained and paid.
The fact that the liability was imposed when the transfer was made
in 1903, and that payment was not required until the death of
grantor in 1907 does not present any federal question.
Affirmed.
