1. The California Inheritance Tax Law of 1917, § 2, subdiv. 10,
by providing that, in determining the market value of the property
transferred for the purpose of fixing the amount of tax, no
deduction should be made of the Federal Estate Tax (assessed upon
the whole estate) resulted in a much larger proportionate tax on
the succession to the residuum of an estate when the estate was
large than when it was small, though the residuary bequest and
Page 268 U. S. 138
the residuary estate were equal in each instance.
Held
consistent with the due process and equal protection clauses of the
Fourteenth Amendment. P.
268 U. S.
140.
2. There are too elements in the transfer of decedent's estate,
exercise of the legal power to transmit at death and privilege of
succession, and both may be made the basis of classification in a
single state taxing statute, so that the amount of tax which a
legatee shall pay may be made to depend both on the total net
amount of the decedent's estate subject to the jurisdiction of the
state and passing under its inheritance and testamentary laws and
the amount of the legacy to which the legatee succeeds under those
laws. P.
268 U. S.
144.
191 Cal. 591 affirmed.
Error to a judgment of the Supreme Court of California
sustaining, on review, a judgment of the Superior Court confirming
an assessment of inheritance taxes.
MR. JUSTICE STONE delivered the opinion of the Court.
This case is here on a writ of error to the Supreme Court of
California to review the determination of that court upholding the
constitutionality of the Inheritance Tax Act of the State of
California enacted in 1917, particularly subdivision 10 of § 2 of
the Act, which prescribes the
Page 268 U. S. 139
method of determining the market value of the property
transferred, for the purpose of fixing the amount of the tax.
Subdivision 10 of § 2 reads as follows:
"In determining the market value of the property transferred, no
deduction shall be made for any inheritance tax or estate tax paid
to the government of the United States."
The decedent left a gross estate exceeding $1,800,000, on which
the federal estate tax amounted to the sum of $128,730.08. In
fixing the amount of inheritance tax due to the State of California
upon the residuary legacies, the state tax appraiser, acting
pursuant to the provisions of Subdivision 10 of § 2, did not deduct
the amount of federal estate tax. In consequence, the total amount
of state tax assessed upon the residuary estate was $37,699.30
greater than it would have been had the federal estate tax been
deducted from the residuum of the estate before fixing the amount
of the state tax. The Superior Court of San Francisco County,
having jurisdiction in the premises, confirmed the tax, and the
Supreme Court of California, on writ of error, held that the tax
was in accordance with the laws and the Constitution of California,
and was not a denial of due process or equal protection of the laws
under the Fourteenth Amendment of the Constitution of the United
States.
Stebbins v. Riley, 191 Cal. 591.
It is urged here that the California Inheritance Tax Act of 1917
is a succession tax; that the provision of the taxing law requiring
that there shall be no deduction of the federal tax in fixing the
fair value of the legacy on which the state tax is levied is an
arbitrary discrimination, bearing no relation either to the persons
succeeding to the decedent's estate or to the amount which the
taxpayer taxes by succession, and that it is accordingly a taking
of property without due process of law, and, because of the
inequalities in the amount of the tax resulting
Page 268 U. S. 140
from the application of the taxing statute to successions, there
is a denial of the equal protection of the laws. On the other hand,
it is urged that the so-called "right" of acquiring property by
devise or descent is not a property right, but a mere privilege,
the creature of state law, and the authority which confers it may
impose conditions upon its exercise; that, in consequence, the
state may tax the privilege, discriminating not only between the
status of those who inherit and the amounts which they thus
acquire, but discriminating likewise between inheritances or
legacies of like amount which are transmitted from estates of
varying size, if the discrimination is based upon or bears some
reasonable relation to the size of the whole estate transmitted on
the death of the decedent. In presenting this aspect of the case,
it was argued by the appellant, on the one hand, that there was a
natural right to inheritance entitled to the protection of the due
process clause of the Fourteenth Amendment, and by the appellee, on
the other, that the legislative authority could deny wholly the
privilege of inheritance, and consequently could place unlimited
burdens upon it.
There is much in judicial opinion to suggest that a state may
impose any condition it chooses on the privilege of taking property
by will or descent, or, indeed, that it may abolish that privilege
altogether, and, for this reason, that a state is untrammeled in
its power to tax the privilege.
See
Mager v.
Grima, 8 How. 490;
United States v.
Perkins, 163 U. S. 625;
Knowlton v. Moore, 178 U. S. 41, at
page
178 U. S. 55;
Campbell v. California, 200 U. S. 87, at
page
200 U. S.
94.
But we do not find it necessary to discuss the issue thus
raised, for it has been repeatedly held by this Court that the
power of testamentary disposition and the privilege of inheritance
are subject to state taxation and state regulation, and that
regulatory taxing provisions, even though they produce inequalities
in taxation, do not effect an unconstitutional taking of property
unless, as
Page 268 U. S. 141
was said in
Dane v. Jackson, 256 U.
S. 589,
256 U. S. 599,
the taxing statute
"results in such flagrant and palpable inequality between the
burden imposed and the benefit received as to amount to the
arbitrary taking of property without compensation -- 'to spoliation
under the guise of exerting the power of taxing' -- citing
Bell's Gap R. Co. v. Pennsylvania, 137 U. S.
232,
137 U. S. 237;
Henderson
Bridge Co. v. Henderson City, 173 U. S.
592,
173 U. S. 615;
Wagner v.
Baltimore, 239 U. S. 207,
239 U. S.
220."
The subject matter of an inheritance taxing statute may be
either the transmission or the exercise of the legal power of
transmission of property by will or descent (
United States v.
Perkins, 163 U. S. 625,
163 U. S. 629;
Plummer v. Coler, 178 U. S. 115,
178 U. S. 125;
New York Trust Co. v. Eisner, 256 U.
S. 345), or it may be the legal privilege of taking
property by devise or descent (
Magoun v. Illinois Trust &
Savings Bank, 170 U. S. 283;
Knowlton v. Moore, 178 U. S. 41;
Campbell v. California, 200 U. S. 87).
Even assuming that a state does not, under the Constitution of
the United States, possess unlimited power to curtail the power of
disposition of property at death or the privilege of receiving it
by way of inheritance, there is nevertheless no constitutional
guaranty of equality of taxation. The power of the states to
discriminate in fixing the amount and incidence of taxation upon
inheritances is undoubted. A state may levy a tax upon the power to
dispose of property by will, graduated by the size of the legacy,
and it may grant exemptions.
See Plummer v. Coler, supra;
Keeney v. Comptroller of N.Y., 222 U.
S. 525. It may discriminate between property which has
not borne its full share of taxation in the testator's lifetime and
other property passing to the same class of transferees.
Watson
v. State Comptroller, 254 U. S. 122. It
may fix a graduated succession tax even though the amount of tax
assessed does not vary in proportion
Page 268 U. S. 142
to the amount of the legacy received by persons of the same
class.
Magoun v. Illinois Trust & Savings Bank, supra.
It may fix a succession tax which imposes a tax upon inheritances
to brothers and sisters and not on those to daughters-in law and
sons-in law.
Campbell v. California, supra.
The guaranty of the Fourteenth Amendment of the equal protection
of the laws is not a guaranty of equality of operation or
application of state legislation upon all citizens of a state. As
was said in
Magoun v. Illinois Trust & Savings Bank,
supra, at
170 U. S.
293:
"It only prescribes that that law have the attribute of equality
of operation, and equality of operation does not mean
indiscriminate operation on persons merely as such, but on persons
according to their relations. In some circumstances, it may not tax
A more than B, but if A be of a different trade or profession than
B, it may. . . . In other words, the state may distinguish, select,
and classify objects of legislation, and necessarily this power
must have a wide range of discretion."
The taxing statute may therefore make a classification for
purposes of fixing the amount or incidence of the tax, provided
only that all persons subjected to such legislation within the
classification are treated with equality, and provided further that
the classification itself be rested upon some ground of difference
having a fair and substantial relation to the object of the
legislation.
Magoun v. Illinois Trust & Savings Bank,
supra; F. S. Royster Guano Co. v. Virginia, 253 U.
S. 412.
"It may, if it chooses, exempt certain classes of property from
any taxation at all, such as churches, libraries, and the property
of charitable institutions. It may impose different specific taxes
upon different trades and professions, and may vary the rates of
excise upon various products; it may tax real estate and personal
property in a different manner; it may tax visible property
only,
Page 268 U. S. 143
and not tax securities for payment of money; it may allow
deductions for indebtedness, or not allow them. All such
regulations, and those of like character, so long as they proceed
within reasonable limits and general usage, are within the
discretion of the state legislature or the people of the state in
framing their Constitution."
Bell's Gap R. Co. v. Pennsylvania, 134 U.
S. 232, at
134 U. S.
237.
It is not necessary that the basis of classification should be
deducible from the nature of the thing classified. It is enough
that the classification is reasonably founded in the "purposes and
policies of taxation."
Watson v. Comptroller, 254 U.
S. 122. It is not open to objection unless it precludes
the assumption that the classification was made in the exercise of
legislative judgment and discretion.
Campbell v. California,
supra.
Unquestionably the operation of subdivision 10 of § 2 of the
California Inheritance Act of 1917, now under consideration, may
result in inequalities in the incidence of taxation. The
requirement that the federal estate tax shall not be deducted in
fixing the state inheritance tax imposes a much larger
proportionate tax on the succession to a residuum of a large estate
than a smaller estate, although the residuary estate and the
residuary legacy be equal in each instance.
The plaintiffs in error base their argument that this is a
denial of the equal protection of the laws on the assumption that
the California inheritance tax must be dealt with exclusively as a
tax upon succession, and that, since the privilege of receiving
residuary legacies of like amounts by persons of like relationship
is subjected to unequal taxation, the inequality depending upon the
size of the estate from which the legacy is received, there is an
arbitrary discrimination and a denial of the equal protection of
the laws. It is true that the inheritance tax law of California in
force before the adoption of the law of 1917 repealing it was held
by the Supreme Court of
Page 268 U. S. 144
California to be a succession tax.
Estate of Miller,
184 Cal. 678. That statute contained no express provision
prohibiting the deduction of federal estate taxes before fixing the
state tax on legacies, and that court held, adopting the principle
of construction applied in
Knowlton v. Moore, supra, that
the true effect of the California Inheritance Tax Act, being that
of a tax on succession, the federal tax must be deducted in order
to determine the amount on which the state tax should be based. It
is true, too, that the California Inheritance Tax Act of 1917
provides for a graduated tax dependent upon the size of the legacy,
and discriminates between different classes of persons receiving
the legacy, provisions which are characteristic of laws levying the
tax upon successions. But § 2 of that Act expressly imposes the tax
"upon the
transfer of any property" of the character
described in the Act, and subdivision 3 of § 1 of the Act provides
that the word "transfer," as used in this Act shall be "taken to
include the passing of property or any interest therein" in the
manner provided in the Act. Subdivision 10 of § 2, which is new, in
its practical operation makes the amount of the tax dependent to
some extent upon the amount of the decedent's estate which passes,
since the federal estate tax which under that provision may not be
deducted in fixing the state tax is assessed upon the whole estate.
To that extent the statute establishes a classification based on
the amount of the estate passing under the power of disposition at
the time of death, as well as the classification, based upon the
amount of the legacy received, contained in other provisions of the
taxing law.
There are two elements in every transfer of a decedent's estate;
the one is the exercise of the legal power to transmit at death,
the other is the privilege of succession. Each, as we have seen, is
the subject of taxation. The incidents which attach to each, as we
have observed,
Page 268 U. S. 145
may be made the basis of classification. We can perceive no
reason why both may not be made the basis of classification in a
single taxing statute, so that the amount of tax which the legatee
shall pay may be made to depend both on the total net amount of the
decedent's estate subject to the jurisdiction of the state and
passing under its inheritance and testamentary laws and the amount
of the legacy to which the legatee succeeds under those laws. Such
a classification is not, on its face, unreasonable. The
discrimination is one which bears a substantial relationship to the
exercise of the power of disposition by the testator. It is one of
the elements in the transfer which is made the subject of taxation.
The adoption of the discrimination does not preclude the assumption
that the legislature, in enacting the taxing statute, did not act
arbitrarily or without the exercise of judgment or discretion which
rightfully belong to it, and we can find in it no basis for holding
the statue unconstitutional.
It is urged by appellants that the decision of this Court in
Knowlton v. Moore, supra, is in conflict with the
conclusion here reached. We do not so read the opinion in that
case. It was there held that an Act of Congress fixing a graduated
tax upon legacies was within the taxing power of the United States.
In construing that law, however, the question arose whether the
progressive rate of tax which it imposed upon legacies or
distributive shares of decedent's estate should be measured not
separately by the amount of each legacy or distributive share, but
by the total amount of the estate transmitted. This Court held
that, inasmuch as the statute laid down no express rule determining
the question, it would adopt the construction which produced the
least inconvenience and inequality to taxpayers, and that the tax
should therefore be measured and apportioned according to the
amount of each individual legacy, rather than the amount of the
whole estate. The question was one of construction only,
Page 268 U. S. 146
and not of constitutional power. Here, the construction of the
taxing act is not open to question. Its meaning and application
have been determined by the Supreme Court of California, and by its
determination we are bound. We hold that, in enacting it, the
legislature did not exceed its constitutional power.
Affirmed.