1. Under the principle that the subject to be taxed must be
within the jurisdiction of the state, applicable to a transfer tax
as well as to a property tax, a state may not tax the devolution of
property from a nonresident to a nonresident unless it has
jurisdiction of the property. P. 270 U. S. 80
2. Inasmuch as the property of a corporation is not owned by the
shareholder, presence of such property in a state does not give
that state jurisdiction over his shares for tax purposes. P.
270 U. S.
Page 270 U. S. 70
3. A North Carolina law purporting to tax the inheritance of
shares owned by a nonresident in any corporation of another state
having fifty percent or more of its property in North Carolina, the
assessment of the shares as compared to their full value being in
the same ratio a the value of the corporate property in the state
to all the corporate property, held
void as applied to
shares owned by a resident and citizen of Rhode Island, and passing
to his executor there, in a New Jersey corporation, where
two-thirds in value of the corporation's property was located in
North Carolina, but where the corporation was not "domesticated" by
reincorporation in North Carolina, and where there was nothing in
the statutory conditions on which it began and continued business
there suggesting that the shareholders thereby subjected their
stock to the taxing jurisdiction of that state. P. 270 U. S.
187 N.C. 263 reversed.
Error to a judgment of the Supreme Court of North Carolina
sustaining a tax on the inheritance of shares of stock.
Page 270 U. S. 77
MR. CHIEF JUSTICE TAFT delivered the opinion of the Court.
This is a writ of error to the Supreme Court of North Carolina
in a consolidation of two causes, the first being an appeal to a
superior court of the state by the plaintiff in error, the Rhode
Island Hospital Trust Company, executor of George Briggs, from an
inheritance tax assessment on the decedent's estate made by the
commissioner of revenue of North Carolina, and the second being an
action at law by the executor to recover the taxes paid by it on
the assessment under protest. The superior court held that the
inheritance taxes imposed by the commissioner of revenue of the
state were lawful, and that the executor was not entitled to
recover them back as illegally collected. The Supreme Court of
North Carolina affirmed this judgment. 187 N.C. 263.
The assignment of error of the executor is based on the
invalidity under the Fourteenth Amendment of that part of the
Revenue Act of 1919 of North Carolina, Public Laws, c. 90, § 6,
subsec. 7, which provides:
"Sec. 6. From and after the passage of this act, all real and
personal property of whatever kind and nature which shall pass by
will or by the intestate laws of this state from any person who may
die seized or possessed of the same while a resident of this state,
whether the person or persons dying seized thereof be domiciled
within or out of the state (or if the decedent was not a resident
of this state at the time of his death, such property or any part
thereof within this state), or any interest therein or income
therefrom which shall be transferred by deed, grant,
Page 270 U. S. 78
sale, or gift, made in contemplation of the death of the
grantor, bargainor, donor, or assignor, or intended to take effect
in possession or enjoyment after such death, to any person or
persons or to bodies corporate or politic, in trust or otherwise,
or by reason whereof any person or body corporate or politic shall
become beneficially entitled in possession or expectancy to any
property or the income thereof, shall be and hereby is made subject
to a tax for the benefit of the state. . . ."
"Seventh. The words 'such property or any part thereof or
interest therein within this state' shall include in its meaning
bonds and shares of stock in any incorporated company, incorporated
in any other state or country, when such incorporated company is
the owner of property in this state, and if 50 percent or more of
its property is located in this state, and when bonds or shares of
stock in any such company not incorporated in this state, and
owning property in this state, are transferred by inheritance, the
valuation upon which the tax shall be computed shall be the
proportion of the total value of such bonds or shares which the
property owned by such company in this state bears to the total
property owned by such company, and the exemptions allowed shall be
the proportion of exemptions allowed by this act, as related to the
total value of the property of the decedent."
The seventh subsection further provides:
"Any incorporated company not incorporated in this state and
owning property in this state which shall transfer on its books the
bonds or shares of stock of any decedent holder of shares of stock
in such company exceeding in par value $500, before the inheritance
tax, if any, has been paid, shall become liable for the payment of
the said tax, and any property held by such company in this state
shall be subject to execution to satisfy same. A receipt or waiver
signed by the state tax commission of North Carolina shall be full
protection for any such company in the transfer of any such stock
or bonds. "
Page 270 U. S. 79
George Briggs was a resident of the state of Rhode Island, and
domiciled therein at the time of his death. He never resided in
North Carolina. He died testate October 29, 1919, leaving a large
estate. The plaintiff, Rhode Island Hospital Trust Company, was
appointed executor of Briggs' will, and qualified as such before
the municipal court of the City of Providence, Rhode Island. Among
other personal property passing to the executor under the will were
shares of stock in the R. J. Reynolds Tobacco Company, which with
declared dividends unpaid were valued at $115,634.50. The R. J.
Reynolds Tobacco Company, hereinafter for brevity called the
Tobacco Company, is a corporation created under the laws of the
state of New Jersey. Section 1181 of the Consolidated Statutes of
North Carolina provides that every foreign corporation, before
being permitted to do business in North Carolina, shall file in the
office of the Secretary of State a copy of its charter, a statement
of the amount of its capital stock, the amount actually issued, the
principal office in North Carolina, the name of the agent in charge
of the office, the character of the business which it transacts,
and the name and post office addresses of its officers and
directors. It is required to pay, for the use of the state, 29
cents for every $1,000 of its authorized capital stock, but in no
case less than $25, nor more than $250. It may withdraw from the
state upon paying a fee of $5, and filing in the office of the
Secretary of State a statement of its wish to do so. In August,
1906, the Tobacco Company filed its application under the statute
and complied with the requirements, and a certificate granting
authority to it to do business in the state was issued. Two-thirds
in value of its entire property is in North Carolina. Since 1906,
it has regularly paid the license and franchise tax required, and
is still doing business in the state.
Briggs' certificates of stock in the Tobacco Company, passing
under his will to his executor, were, none of them,
Page 270 U. S. 80
in the state of North Carolina at the time of his death, and
never had been while they were owned by him. The Commissioner of
Revenue of the state assessed an inheritance tax upon $77,089.67
(66 2/3 percent of the total value of Briggs' stock), amounting to
$2,658.85. The plaintiff, as executor, applied to the office of the
company in New Jersey to have this stock transferred to it as
executor in compliance with the will of Briggs. The company refused
to do so on the ground that, under the law of North Carolina
already set forth, it would, by such transfer before the executor
paid the transfer tax, subject itself to a penalty which could be
exacted out of its property in that state. Thereupon the executor
paid the tax under protest, and brought suit to recover it
The question here presented is whether North Carolina can
validly impose a transfer or inheritance tax upon shares of stock
owned by a nonresident in a business corporation of New Jersey,
because the corporation does business and has two-thirds of its
property within the limits of North Carolina. We think that the law
of North Carolina, by which this is attempted, is invalid. It goes
without saying that a state may not tax property which is not
within its territorial jurisdiction. State
Tax on Foreign Held Bonds,
15 Wall. 300;
Louisville Ferry Co. v. Kentucky, 188 U.
; Delaware Railroad v. Pennsylvania,
198 U. S. 341
Union Transit Co. v. Kentucky, 199 U.
; Metropolitan Life Insurance Co. v. New
York, 205 U. S. 395
205 U. S. 399
United States v. Bennett, 232 U.
, 232 U. S. 306
International Paper Co. v. Massachusetts, 246 U.
, 246 U. S. 142
Frick v. Pennsylvania, 268 U. S. 473
268 U. S.
The tax here is not upon property, but upon the right of
succession to property, but the principle that the subject to be
taxed must be within the jurisdiction of the state applies as well
in the case of a transfer tax as in that of a property tax. A state
has no power to tax the devolution
Page 270 U. S. 81
of the property of a nonresident, unless it has jurisdiction of
the property devolved or transferred. In the matter of intangibles
like choses in action, shares of stock, and bonds, the situs of
which is with the owner, a transfer tax, of course, may be properly
levied by the state in which he resides. So too it is well
established that the state in which a corporation is organized may
provide, in creating it, for the taxation in that state of all its
shares, whether owned by residents or nonresidents. Hawley v.
Malden, 232 U. S. 1
232 U. S. 12
Hannis Distilling Co. v. Baltimore, 216 U.
, 216 U. S.
-294; Corry v. Baltimore, 196 U.
; Tappan v.
19 Wall. 490, 86 U. S.
In this case, the jurisdiction of North Carolina rests on the
claim that, because the New Jersey corporation has two-thirds of
its property in North Carolina, the state may treat shares of its
stock as having a situs in North Carolina to the extent of the
ratio in value of its property in North Carolina to all of its
property. This is on the theory that the stockholder is the owner
of the property of the corporation, and the state which has
jurisdiction of any of the corporate property has pro
jurisdiction of his shares of stock. We cannot concur in
this view. The owner of the shares of stock in a company is not the
owner of the corporation's property. He has a right to his share in
the earnings of the corporation, as they may be declared in
dividends, arising from the use of all its property. In the
dissolution of the corporation, he may take his proportionate share
in what is left, after all the debts of the corporation have been
paid and the assets are divided in accordance with the law of its
creation. But he does not own the corporate property.
In Van Allen v.
3 Wall. 573, 70 U. S. 583
the question was whether shares of stock in a national bank could
be subjected to state taxation if part or all of the capital of the
bank was invested in securities of the national
Page 270 U. S. 82
government declared by the statute authorizing them to be exempt
from taxation by state authority. It was held that they could be so
taxed. Mr. Justice Nelson, speaking for this Court, said at pp.
70 U. S.
"But, in addition to this view, the tax on the shares is not a
tax on the capital of the bank. The corporation is the legal owner
of all the property of the bank, real and personal, and within the
powers conferred upon it by the charter, and for the purposes for
which it was created, can deal with the corporate property as
absolutely as a private individual can deal with his own. This is
familiar law, and will be found in every work that may be opened on
the subject of corporations. . . ."
"The interest of the shareholder entitles him to participate in
the net profits earned by the bank in the employment of its capital
during the existence of its charter in proportion to the number of
his shares, and, upon its dissolution or termination, to his
proportion of the property that may remain of the corporation after
the payment of its debts. This a distinct independent interest or
property, held by the shareholder like any other property that may
belong to him."
The same principle is declared in Jellenik v. Huron Copper
Co., 177 U. S. 1
which it was held that shares of stock in a corporation had a situs
in the state creating the corporation so that they were there
subject to mesne process. It is approved in Farrington v.
Tennessee, 95 U. S. 679
95 U. S. 686
in Hawley v. Malden, supra
at 232 U. S. 13
Eisner v. Macomber, 252 U. S. 189
252 U. S. 208
252 U. S.
-214, and in Des Moines Nat. Bank v.
Fairweather, 263 U. S. 103
263 U. S.
In North Carolina and in some other states, the state
constitution requires all property, real and personal, to be taxed
equally. Laws have been passed exempting shares of stock in North
Carolina corporations from taxation on the ground that the property
of the corporation is taxed which is held to be equivalent to
taxing the shares.
Page 270 U. S. 83
Person v. Watts,
184 N.C. 499; Jones v. Davis,
35 Ohio St. 474. But such cases grow out of state constitutional
difficulties, and are hardly applicable to questions of state
jurisdiction of shares of foreign corporation stock. The cases of
150 N.Y. 1, and In re Culver's
145 Iowa 1, said to hold that a stockholder owns the
property of the corporation, are really authorities to the point
that shares of stock in a corporation of a state have their situs
for purposes of taxation in that state, as well as in the residence
of the owner of the shares. But whatever the view of the other
courts, that of this Court is clear: the stockholder does not own
the corporate property. Jurisdiction for tax purposes over his
shares cannot therefore be made to rest on the situs of part of the
corporate property within the taxing state. North Carolina cannot
control the devolution of New Jersey shares. That is determined by
the laws of Rhode Island, where the decedent owner lived, or by
those of New Jersey, because the shares have a situs in the state
of incorporation. There is nothing in the statutory conditions on
which the tobacco company began or continued business in North
Carolina which suggests that its shareholders subjected their stock
to the taxing jurisdiction of that state by the company's doing
Our conclusion is in accord with the great majority of cases in
the state courts where this exact question has arisen. Welch v.
223 Mass. 87; People v. Dennett,
43; State v. Dunlap,
28 Idaho 784; State v.
70 Mont. 484; In re Harkness' Estate,
107. Tyler v. Dane County,
289, Fed. 843, contains a full
and satisfactory discussion of the subject in a Wisconsin case
which has been followed by the Supreme Court of Wisconsin in
Estate of Shepard,
184 Wis. 88. See
Professor Beale, 38 Harvard Law Review, 291.
In an addendum to its opinion in this case, the Supreme Court of
North Carolina suggests that the jurisdiction of the state to tax
the shares of the New Jersey corporation
Page 270 U. S. 84
may be based on the view that the corporation has been
domesticated in North Carolina. So far as the statutes of the state
show, it has been authorized to do and does business in the state
and owns property therein and pays a fee for the permission to do
so. It has not been reincorporated in the state. It is still a
foreign corporation, and the rights of its stockholders are to be
We conclude that the statute of North Carolina above set out,
insofar as it attempts to subject the shares of stock in the New
Jersey corporation, held by a resident of Rhode Island to a
transfer tax deprives the executor of Briggs of his property
without due process of law, and is invalid.