The tax imposed by the War Revenue Act of 1898 was purely a
succession tax. It was not laid upon the entire estate, but was a
charge upon the transmission of personal property from a deceased
owner to legatees or distributees.
Personal property does not pass directly from a decedent to
legatees or distributees, but goes primarily to the executor or
administrator who passes to them the residue after settlement of
the estate.
Until in due course of the administration of an estate it has
been ascertained that a surplus remains, it cannot be said that the
legatees or distributees are certainly entitled to receive or enjoy
any part of the property, and so
held as to an estate of
one dying prior to July 1, 1902, that, until such fact was
ascertained the interests of legatees and distributees were not
absolute, but were contingent within the meaning of § 29 of the War
Revenue Act of 1898 and of § 3 of the Refunding Act of June 27,
1902.
Vanderbilt v. Eidman, 196 U.
S. 480;
Hertz v. Woodman, 218 U.
S. 205, distinguished.
49 Ct.Cl. 408 affirmed.
The facts, which involve the construction of the War Revenue Act
of 1898 and the subsequent Acts relating thereto, and their
application to inheritances, are stated in the opinion.
Page 236 U. S. 108
MR. JUSTICE VAN DEVANTER delivered the opinion of the Court.
This is a suit to recover a succession tax paid under §§ 29 and
30 of the Act of June 13, 1898, 30 Stat. 448, 464, c. 448. The
facts are these: Adelaide P. Dalzell, a
Page 236 U. S. 109
resident of Allegheny County, Pennsylvania, died intestate June
28, 1902, leaving personal property of considerable value, and
being survived by two daughters as her only next of kin. July 14,
1902, an administrator was appointed and the property was committed
to his charge for the purposes of administration. Under the local
law, the debts of the intestate and the expenses of administration
were to be paid out of the property, and what remained was to be
distributed in equal shares between the two daughters, but
distribution could not be made for several months after the
appointment of the administrator. In regular course, the debts and
expenses were ascertained and paid, and this left for distribution
property of the value of $219,341.74. The Collector of Internal
Revenue then collected from the administrator, without protest from
him, a succession tax of $3,290.12 upon the distributive shares of
the daughters, and the tax was covered into the Treasury. About
seven months after paying the tax, the administrator sought, in the
mode prescribed, to have it refunded under § 3 of the Act of June
27, 1902, 32 Stat. 406, c. 1160, but the Secretary of the Treasury
denied the application. The administrator then brought this suit,
and the Court of Claims gave judgment in his favor. 49 Ct.Cl. 408.
A reversal of the judgment is sought by the United States.
By § 29 of the Act of 1898, an executor, administrator, or
trustee having in charge any legacy or distributive share arising
from personal property, and passing from a decedent to another by
will or intestate laws, was subjected to a tax graduated according
to the value of the beneficiary's interest in the property and the
degree of his kinship to the decedent. Interests which were
contingent and uncertain were not affected, but only those whereof
the beneficiary had become invested with a present right of
possession or enjoyment.
Vanderbilt v. Eidman,
196 U. S. 480,
196 U. S.
491-495,
196 U. S. 498.
Section 29 was
Page 236 U. S. 110
repealed April 12, 1902, but the repeal was not to take effect
until July 1, 1902, and was not to prevent the collection of any
tax imposed prior to that date. 32 Stat. 96, c. 500, §§ 7, 8,
11.
As before indicated, the claimant principally relies upon § 3 of
the Act of June 27, 1902,
supra. It reads as follows:
"That in all cases where an executor, administrator, or trustee
shall have paid, or shall hereafter pay, any tax upon any legacy or
distributive share of personal property under the provisions of the
act approved June thirteenth, eighteen hundred and ninety-eight,
entitled, 'An Act to Provide Ways and Means to Meet War
Expenditures, and for Other Purposes,' and amendments thereof, the
Secretary of the Treasury be, and he is hereby, authorized and
directed to refund, out of any money in the Treasury not otherwise
appropriated, upon proper application being made to the
Commissioner of Internal Revenue, under such rules and regulations
as may be prescribed, so much of said tax as may have been
collected on contingent beneficial interests which shall not have
become vested prior to July first, nineteen hundred and two. And no
tax shall hereafter be assessed or imposed under said Act approved
June thirteenth, eighteen hundred and ninety-eight, upon or in
respect of any contingent beneficial interest which shall not
become absolutely vested in possession or enjoyment prior to said
July first, nineteen hundred and two."
In construing this section, this Court said in
Vanderbilt v.
Eidman, supra, (p.
196 U. S.
500):
"It is, we think, incontrovertible that the taxes which the
third section of the Act of 1902 directs to be refunded and those
which it forbids the collection of in the future are one and the
same in their nature. Any other view would destroy the unity of the
section and cause its provisions to produce inexplicable conflict.
From this it results that
Page 236 U. S. 111
the taxes which are directed in the first sentence to be
refunded, because they had been wrongfully collected on contingent
beneficial interests which had not become vested prior to July 1,
1902, were taxes levied on such beneficial interests as had not
become vested in possession or enjoyment prior to the date named
within the intendment of the subsequent sentence. In other words,
the statute provided for the refunding of taxes collected under the
circumstances stated, and at the same time forbade like collections
in the future."
This view was repeated in
United States v. Fidelity Trust
Co., 222 U. S. 158.
The decisive question, therefore, in the present case is whether
the beneficial interests of the daughters, upon which the tax was
collected, had become absolutely vested in possession or enjoyment
prior to July 1, 1902, or were at that time contingent. If they had
become so vested, the effort to recover the tax must fail; but, if
they were contingent, the tax must be refunded. Recognizing that
this is so, counsel for the United States insists that the
distributive interests to which the daughters succeeded became
vested in the full sense of the statute the moment the intestate
died, which was three days before July 1, 1902. The court below
rejected this contention and held that those interests did not
become so vested until the daughters were entitled to receive their
respective shares in the property remaining after the debts and
expenses were paid, which was not until several months after July
1, 1902.
The question should, of course, be determined with due regard to
the situation to which the refunding statute was addressed.
The tax imposed by the Act of 1898 was purely a succession tax,
a charge upon the transmission of personal property from a deceased
owner to legatees or distributees. It was not laid upon the entire
personal estate, or upon all
Page 236 U. S. 112
that came into the hands of the executor or administrator, but
upon "any legacies or distributive shares" in his charge "arising
from" such estate, and passing to others by will or intestate
laws.
It hardly needs statement that personal property does not pass
directly from a decedent to legatees or distributees, but goes
primarily to the executor or administrator, who is to apply it, so
far as may be necessary, in paying debts of the deceased and
expenses of administration, and is then to pass the residue, if
any, to legatees or distributees. If the estate proves insolvent,
nothing is to pass to them. So, in a practical sense, their
interests are contingent and uncertain until, in due course of
administration, it is ascertained that a surplus remains after the
debts and expenses are paid. Until that is done, it properly cannot
be said that legatees or distributees are certainly entitled to
receive or enjoy any part of the property. The only right which can
be said to vest in them at the time of the death is a right to
demand and receive at some time in the future whatever may remain
after paying the debts and expenses. But that this right was not
intended to be taxed before there was an ascertained surplus or
residue to which it could attach is inferable from the taxing act
as a whole, and especially from the provision whereby the rate of
tax was made to depend upon the value of the legacy or distributive
share.
True, by that act, the executor or administrator was required,
before surrendering a legacy or distributive share to whoever was
entitled to it, to pay the tax assessed thereon and to deduct the
amount from the particular legacy or distributive share, but this
did not mean that the tax was to be assessed or paid in the absence
of a right to immediate possession or enjoyment. On the contrary,
as was held in
Vanderbilt v. Eidman, 196
U. S. 499, it imported the existence of "a practically
contemporaneous right to receive the legacy or distributive share."
In that
Page 236 U. S. 113
case, it was said, after separately considering the several
parts of the act (p.
196 U. S.
495):
"In view of the express provisions of the statute as to
possession or enjoyment and beneficial interest and clear value,
and of the absence of any express language exhibiting an intention
to tax a mere technically vested interest in a case where the right
to possession or enjoyment was subordinated to an uncertain
contingency, it would, we think, be doing violence to the statute
to construe it as taxing such an interest before the period when
possession or enjoyment had attached."
The actual enforcement of the taxing act by the administrative
officers was not uniform as respects contingent interests. At first
the tax was regarded as not reaching them until they became
absolute, but afterwards it came to be treated as imposing the tax
at the time of the death.
The provisions of the repealing act of April 12, 1902, were such
that the tax was to be discontinued on July 1 of that year, but
without affecting its collection where the right to it became fixed
before that time. Bearing in mind that this was the situation in
which § 3 of the Act of June 27, 1902, before quoted, was enacted,
we think its meaning and purpose are plain. Briefly stated, it
deals with legacies and distributive shares upon the same plane,
treats both as "contingent" interests until they "become absolutely
vested in possession or enjoyment," directs that the tax collected
upon contingent interests not so vested prior to July 1, 1902,
shall be refunded, and forbids any further enforcement of the tax
as respects interests remaining contingent up to that date. In
other words, it recognizes that the tax was being improperly
collected upon legacies and distributive shares which were not
absolutely vested in possession or enjoyment, and, for the purpose
of avoiding the injustice that otherwise might result from this, it
requires that the tax be refunded in all instances where the
interests upon which it was collected had not become absolutely
vested in the
Page 236 U. S. 114
sense indicated before July 1, 1902, that being the time when
the tax was discontinued.
Applying this statute to the facts before stated, we see no
escape from the conclusion that the tax in question must be
refunded. It was collected upon distributive shares which neither
were nor could have been absolutely vested in possession or
enjoyment prior to July 1, 1902. The intestate's death had occurred
only three days before, no administrator had been appointed, the
debts and expenses had not been ascertained, what, if anything,
would remain after their payment was uncertain, and the time had
not come when the daughters were entitled to a distribution.
The case of
Hertz v. Woodman, 218 U.
S. 205, is cited as making for a different conclusion,
but it is without real bearing here. The refunding statute was not
there in question, and was not mentioned in the opinion. The case
came to this Court upon a certificate from the Circuit Court of
Appeals for the seventh circuit, the question certified being:
"Does the fact that the testator dies within one year
immediately prior to the taking effect of the repealing act of
April 12, 1902, relieve from taxation legacies otherwise taxable
under §§ 29 and 30 of the Act of June 13, 1898, as amended by the
Act of March 2, 1901?"
Thus, it was expressly stated that the legacies were otherwise
taxable, and the question propounded was merely whether they were
relieved from taxation by the fact that the testator died within
one year of July 1, 1902, when the repealing act took effect. The
inquiry was prompted by the provision in the amendatory act of
March 2, 1901, 31 Stat. 938, 948, c. 806, that the tax should be
due and payable one year after the death. The answer was in the
negative, it being held that the time when the tax was made due and
payable was not determinative of when it was imposed. The opinion
contains some language which, separately considered, gives color to
the present
Page 236 U. S. 115
contention of the government, but this must be read in the light
of the question presented for decision, and be taken as restrained
accordingly. Besides, the opinion approvingly refers (p.
218 U. S. 219)
to
Vanderbilt v. Eidman, supra, as having "conclusively
decided" that the tax "does not attach to legacies or distributive
shares until the right of succession becomes an absolute right of
immediate possession or enjoyment." Here, as we have said, there
was no right of immediate possession or enjoyment at the time
designated in the refunding statute.
Judgment affirmed.
MR. JUSTICE McREYNOLDS took no part in the consideration or
decision of this case.