1. A conclusive statutory presumption that all gifts of a
material part of a decedent's estate made by him within six years
of his death were made in contemplation of death, whereby they
become subjected, without regard to his actual intent in making the
gifts, to graduated inheritance taxes, creates an arbitrary
classification and conflicts with the Fourteenth Amendment. P.
270 U. S.
239.
2. Such arbitrary classification, and consequent taxation,
cannot be sustained upon the ground that legislative discretion
found them necessary in order to prevent evasion of inheritance
taxes. P.
270 U. S.
240.
3. The state is forbidden to deny due process of law, or the
equal protection of the laws, for any purpose whatever, and a
forbidden tax cannot be enforced in order to facilitate the
collection of one properly laid.
Id.
184 Wisc. 1 reversed.
Error to a judgment of the Supreme Court of Wisconsin sustaining
an inheritance tax.
Page 270 U. S. 236
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
Section 1087-1, chapter 64ff, of the Wisconsin Statutes 1919,
provides:
"A tax shall be and is hereby imposed upon any transfer of
property, real, personal or mixed . . . to any person . . . within
the state, in the following cases, except as hereinafter
provided:"
"(1) When the transfer is by will or by the interstate laws of
this state from any person dying possessed of the property while a
resident of the state."
"(2) When a transfer is by will or interstate law, of property
within the state or within its jurisdiction and the decedent was a
nonresident of the state at the time of his death."
"(3) When the transfer is of property made by a resident or by a
nonresident when such nonresident's property is within this state,
or within its jurisdiction, 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.
Every transfer by deed, grant, bargain, sale or
gift, made within six years prior to the death of the grantor,
vendor or donor, of a material part of his estate, or in the nature
of a final disposition or distribution thereof, and without an
adequate valuable consideration, shall be construed to have been
made in contemplation of death within the meaning of this
section."
These provisions were taken from § 1, c. 44, Laws of 1903,
except that the last sentence of subdivision 3 (italicized) was
added by chapter 643, Laws of 1913.
Section 1087-2, c. 64ff, imposes taxes upon transfers described
by § 1087-1 varying from 1 to 5 percentum,
Page 270 U. S. 237
according to relationship of the parties, when the value is not
above $25,000. On larger ones, the rates are from two to five times
higher, with 15 percentum as the maximum.
"Section 1087-5 [c. 64ff]. 1. All taxes imposed by this act
shall be due and payable at the time of the transfer, except as
hereinafter provided, and every such tax shall be and remain a lien
upon the property transferred until paid, and the person to whom
the property is transferred and the administrators, executors, and
trustees of every estate so transferred shall be personally liable
for such tax until its payment."
Other provisions of c. 64ff provide for determination,
assessment, and collection of the tax. In the Revised Statutes of
1921 and 1925, c. 64ff became c. 72, and section numbers were
changed -- 1087-1 became 72.01, 1087-2 became 72.02, 1087-5 became
72.05, etc.
In
Estate of Ebeling (1919), 169 Wis. 432, the court
held:
"Section 1087-1, Stats., as amended by c. 643, Laws 1913, which
provides that gifts of a material part of a donor's estate, made
within six years prior to his death, shall be construed to have
been made in contemplation of death so far as transfer taxes are
concerned, constitutes a legislative definition of what is a
transfer in contemplation of death, and not a mere rule of law
making the fact of such gifts
prima facie evidence that
they were made in contemplation of death."
Estate of Stephenson, 171 Wis. 452, 459: A gift of
$23,000 constitutes a material part of an estate valued at more
than $1,000,000; also, gifts by decedents in contemplation of death
must be treated, for purposes of taxation, as part of their
estates.
In re Uhilein's Will, 187 Wis. 101:
"As stated in the
Schlesinger case, the statute was
enacted for the purpose of enabling the taxing officials of the
state to make an
Page 270 U. S. 238
efficient and practical administration of the inheritance tax
law. . . . It is settled in this state that the tax attaches not at
the date of the transfer of the gift, but at the date of the death
of the donor. . . . Under our decisions, the gifts that have been
made within six years of the donor's death, together with the
amount of the estate left by the donor at the time of his death,
constitute his estate, and must be administered, so far as
inheritance tax proceedings are concerned, as one estate. The tax
does not attach and become vested in the state until the death of
the donor. When the gift is made and the donee receives it, there
is no certainty that an inheritance tax will ever be levied upon
the gift."
In the present cause, the Milwaukee County Court found that
Schlesinger died testate January 3, 1921, leaving a large estate;
that, within six years, he had made four separate gifts,
aggregating more than $5,000,000, to his wife and three children;
that none of these was really made in view, anticipation,
expectation, apprehension, or contemplation of death. And it held
that, because made within six years before death, these gifts
"are by the express terms of § 72.01 [formerly § 1087-1], Clause
(3), of the statutes subject to inheritance taxes, although not in
fact made in contemplation of death."
An appropriate order so adjudged. The executors and children
appealed, the Supreme Court affirmed the order (184 Wis. 1), and
thereupon they brought the matter here.
Plaintiffs in error maintain that, as construed and applied
below, the quoted tax provisions deprive them of property without
due process of law, deny them the equal protection of the laws, and
conflict with the Fourteenth Amendment.
The supreme court of the state said:
"The tax in question is not a property tax but a tax upon the
right to receive property from a decedent. It is an excise law. . .
.
Page 270 U. S. 239
Such [legislative] intent was to tax only gifts made in
contemplation of death. That is the only class created. The
legislature says that all gifts made within six years of the
donor's death shall be construed to be made in contemplation of
death, [which means] that they shall conclusively be held to be
gifts made in contemplation of death and shall fall within the one
taxable class of gifts created by the legislature. . . . In our
case, the legislative intent, we think, is clear that the specified
gifts were to be conclusively construed to be gifts in
contemplation of death. . . . We agree with the appellants that the
classification made will not support a tax as one on gifts
inter vivos only. Under such taxation, the classification
is wholly arbitrary and void. We perceive no more reason why such
gifts
inter vivos should be taxed than gifts made within
six years of marriage or any other event. It is because only one
class of gifts closely connected with and a part of the inheritance
tax law is created that the law becomes valid. Gifts made in
contemplation of death stand in a class by themselves, and as such
they are made a part of the inheritance tax law to the end that it
may be effectively administered. We adhere to the ruling in the
Ebeling case."
No question is made of the state's power to tax gifts actually
made in anticipation of death, as though the property passed by
will or descent; nor is there denial of the power of the state to
tax gifts
inter vivos when not arbitrarily exerted.
The challenged enactment plainly undertakes to raise a
conclusive presumption that all material gifts within six years of
death were made in anticipation of it, and to lay a graduated
inheritance tax upon them without regard to the actual intent. The
presumption is declared to be conclusive, and cannot be overcome by
evidence. It is no mere
prima facie presumption of
fact.
The court below declared that a tax on gifts
inter
vivos only could not be so laid as to hit those made within
six
Page 270 U. S. 240
years of the donor's death and exempt all others -- this would
be "wholly arbitrary." We agree with this view, and are of opinion
that such a classification would be in plain conflict with the
Fourteenth Amendment. The legislative action here challenged is no
less arbitrary. Gifts
inter vivos within six years of
death, but in fact made without contemplation thereof, are first
conclusively presumed to have been so made without regard to
actualities, while like gifts at other times are not thus treated.
There is no adequate basis for this distinction. Secondly, they are
subjected to graduated taxes which could not properly be laid on
all gifts or, indeed, upon any gift without testamentary
character.
The presumption and consequent taxation are defended upon the
theory that, exercising judgment and discretion, the legislature
found them necessary in order to prevent evasion of inheritance
taxes. That is to say, "A" may be required to submit to an
exactment forbidden by the Constitution if this seems necessary in
order to enable the state readily to collect lawful charges against
"B". Rights guaranteed by the federal Constitution are not to be so
lightly treated; they are superior to this supposed necessity. The
state is forbidden to deny due process of law or the equal
protection of the laws for any purpose whatsoever.
No new doctrine was announced in
Stebbins v. Riley,
268 U. S. 137,
cited by defendant in error. A classification for purposes of
taxation must rest on some reasonable distinction. A forbidden tax
cannot be enforced in order to facilitate the collection of one
properly laid.
Mobile, etc., R. Co. v. Turnipseed,
219 U. S. 35,
219 U. S. 43,
discusses the doctrine of presumption.
The judgment of the court below must be reversed. The cause will
be remanded for further proceedings not inconsistent with this
opinion.
MR. JUSTICE SANFORD concurs in the result.
Page 270 U. S. 241
MR. JUSTICE HOLMES dissenting.
If the Fourteenth Amendment were now before us for the first
time, I should think that it ought to be construed more narrowly
than it has been construed in the past. But even now it seems to me
not too late to urge that, in dealing with state legislation upon
matters of substantive law, we should avoid with great caution
attempts to substitute our judgment for that of the body whose
business it is in the first place, with regard to questions of
domestic policy that fairly are open to debate.
The present seems to me one of those questions. I leave aside
the broader issues that might be considered and take the statute as
it is written, putting the tax on the ground of an absolute
presumption that gifts of a material part of the donor's estate
made within six years of his death were made in contemplation of
death. If the time were six months, instead of six years, I hardly
think that the power of the state to pass the law would be denied,
as the difficulty of proof would warrant making the presumption
absolute, and while I should not dream of asking where the line can
be drawn, since the great body of the law consists in drawing such
lines, yet, when you realize that you are dealing with a matter of
degree, you must realize that reasonable men may differ widely as
to the place where the line should fall. I think that our
discussion should end if we admit what I certainly believe, that
reasonable men might regard six years as not too remote. Of course,
many gifts will be hit by the tax that were made with no
contemplation of death. But the law allows a penumbra to be
embraced that goes beyond the outline of its object in order that
the object may be secured. A typical instance is the prohibition of
the sale of unintoxicating malt liquors in order to make effective
a prohibition of the sale of beer. The power "is not to be denied
simply because some innocent articles or transactions
Page 270 U. S. 242
may be found within the proscribed class."
Purity Extract
& Tonic Co. v. Lynch, 226 U. S. 192,
226 U. S. 201,
204;
Jacob Ruppert v. Caffey, 251 U.
S. 264,
251 U. S. 283.
In such cases, and they are familiar, the Fourteenth Amendment is
invoked in vain. Later cases following the principle of
Purity
Extract & Tonic Co. v. Lynch are
Hebe Co. v.
Shaw, 248 U. S. 297,
248 U. S. 303;
Pierce Oil Co. v. Hope, 248 U. S. 498,
248 U. S. 500.
See further Capital City Dairy Co. v. Ohio, 183 U.
S. 238,
183 U. S.
246.
I am not prepared to say that the Legislature of Wisconsin,
which is better able to judge than I am, might not believe, as the
supreme court of the state confidently affirms, that by far the
larger proportion of the gifts coming under the statute actually
were made in contemplation of death. I am not prepared to say that,
if the legislature held that belief, it might not extend the tax to
gifts made within six years of death in order to make sure that its
policy of taxation should not be escaped. I think that, with the
states as with Congress, when the means are not prohibited and are
calculated to effect the object, we ought not to inquire into the
degree of the necessity for resorting to them.
James Everard's
Breweries v. Day, 265 U. S. 545,
265 U. S.
559.
It may be worth noticing that the gifts of millions taxed in
this case were made from about four years before the death to a
little over one year. The statute is not called upon in its full
force in order to justify this tax. If I though it necessary, I
should ask myself whether it should not be construed as intending
to get as near to six years as it constitutionally could, and
whether it would be had for a year and a month.
MR. JUSTICE BRANDEIS and MR. JUSTICE STONE concur in this
opinion.