1. In computing the tax on the transfer of the estate of a
nonresident decedent under the Revenue Act of 1924, §§ 301-304,
that part of the gross estate was to be returned and valued "which
at the time of his death is situated in the United States."
Held:
Page 288 U. S. 379
(1) That bonds of foreign governments and of foreign and
domestic corporations and stock of foreign corporations, belonging
to a nonresident alien but kept in this country at the time of his
death, should be included in the computation. Pp.
288 U. S. 386,
288 U. S. 406.
(2) A local cash deposit belonging to the decedent should
likewise be included if not "deposited with any person carrying on
the banking business," and therefore specifically excepted by §
303(e). Pp.
288 U. S. 395,
288 U. S. 406.
(3) It is to be presumed that Congress, by the phrase "situated
in the United States," meant to embrace all property, tangible or
intangible, having a situs subjecting it to the federal taxing
power, in accordance with principles declared by this Court before
the statute was passed, and it is inadmissible to restrict the
intention because of limitations on state taxing power which were
determined later. P.
288 U. S.
388.
(4) This construction is confirmed by administrative practice
and legislative history, and is not inconsistent with special
qualifying provisions found in § 303(d) and (e) of the Act. Pp.
288 U. S.
389-394.
2. Substantial reenactment in later Acts of a provision
theretofore construed in regulations of the department charged with
its administration, is persuasive evidence of legislative approval
of the regulations. P.
288 U. S.
393.
3. As a nation with all the attributes of sovereignty, the
United States is vested with all the powers of government necessary
to maintain an effective control of international relations. P.
288 U. S.
396.
4. Taxation by one nation of securities belonging to a
nonresident alien which are physically within its jurisdiction
violates no principle of international law. P.
288 U. S.
396.
5. The remedy for multiple taxation resulting from several
nations having jurisdiction to tax the same interest on distinct
grounds -- citizenship, domicile, source of income, situs -- is by
international negotiation and convention. P.
288 U. S.
399.
6. The United States is as competent as other nations to enter
into such negotiations and become a party to such conventions
unless a limitation upon its sovereign power in that regard is
necessarily found to be imposed by its own Constitution. P.
288 U. S.
400.
7. A tax by the United States on securities and bank accounts
owned by a nonresident alien but kept in this country, being within
the federal taxing power and not being arbitrary or confiscatory,
is consistent with the due process clause of the Fifth Amendment.
P.
288 U. S.
400.
Page 288 U. S. 380
8. The principle that one state of the Union may not tax
securities kept in the State but owned by a resident of another
state is a limitation due to the relation of the states to each
other in our constitutional system, and has no application to the
power of the federal government to tax the property of a
nonresident alien. Pp.
288 U. S. 400,
288 U. S.
403.
60 F.2d 890 reversed.
Certiorari, 287 U.S. 594, to review the affirmance of a judgment
sustaining a ruling of the Board of Tax Appeals, 22 B.T.A. 71,
which set aside a deficiency assessment.
Page 288 U. S. 386
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
Respondents contested the determination of the Commissioner of
Internal Revenue in including in the gross estate of decedent
certain intangible property. Decedent, who died in October, 1924,
was a subject of Great Britain and a resident of Cuba. He was not
engaged in business in the United States. The property in question
consisted of securities,
viz., bonds of foreign
corporations, bonds of foreign governments, bonds of domestic
corporations and of a domestic municipality, and stock in a foreign
corporation, and also of a balance of a cash deposit. [
Footnote 1] Some of the securities,
consisting of a stock certificate and bonds, were in the possession
of decedent's son in New York City, who
Page 288 U. S. 387
collected the income and placed it to the credit of decedent in
a New York bank. Other securities were in the possession of
Lawrence Turnure & Co., in New York City, who collected the
income and credited it to decedent's checking account, which showed
the above-mentioned balance in his favor. None of the securities
was pledged or held for any indebtedness. Finding these facts, the
Board of Tax Appeals decided that the property should not be
included in the decedent's gross estate for the purpose of the
federal estate tax (22 B.T.A. 71), and the decision was affirmed by
the Circuit Court of Appeals. 60 F.2d 890. This Court granted
certiorari, 287 U.S. 594.
The provisions governing the imposition of the tax are found in
the Revenue Act of 1924, c. 234, 43 Stat. 253, 303-307, and are set
forth in the margin. [
Footnote
2] Two questions
Page 288 U. S. 388
are presented: (1) whether the property in question is covered
by these provisions, and (2) whether, if construed to be
applicable, they are valid under the Fifth Amendment of the federal
Constitution. The decisions below answered the first question in
the negative.
First. The first question is one of legislative
intention. In the case of a nonresident of the United States, that
part of the gross estate was to be returned and valued "which at
the time of his death is situated in the United States." In
interpreting this clause, regard must be had to the purpose in
view. The Congress was exercising its taxing power. Defining the
subject of its exercise, the Congress resorted to a general
description referring to the situs of the property. The statute
made no distinction between tangible and intangible property. It
did not except intangibles. It did not except securities. Save as
stated, it did not except debts due to a nonresident from
Page 288 U. S. 389
resident debtors. As to tangibles and intangibles alike, it made
the test one of situs, and we think it is clear that the reference
is to property which, according to accepted principles, could be
deemed to have a situs in this country for the purpose of the
exertion of the federal power of taxation. Again so far as the
intention of the Congress is concerned, we think that the
principles thus impliedly invoked by the statute were the
principles theretofore declared and then held. It is quite
inadmissible to assume that the Congress exerting federal power was
legislating in disregard of existing doctrine, or to view its
intention in the light of decisions as to state power which were
not rendered until several years later. [
Footnote 3] The argument is pressed that the reference
to situs must, as to intangibles, be taken to incorporate the
principle of
mobilia sequunter personam, and thus, for
example, that the bonds here in question, though physically in New
York, should be regarded as situated in Cuba, where decedent
resided. But the Congress did not enact a maxim. When the statute
was passed, it was well established that the taxing power could
reach such securities in the view that they had a situs where they
were physically located. As securities thus actually present in
this country were regarded as having a situs here for the purpose
of taxation, we are unable to say that the Congress, in its broad
description embracing all property "situated in the United States,"
intended to exclude such securities from the gross estate to be
returned and valued.
The general clause with respect to the property of nonresidents
"situated in the United States" is found in the provisions for an
estate tax of the Revenue Act of 1916, § 203(b), 39 Stat. 778, and
was continued in the Revenue
Page 288 U. S. 390
Acts of 1918, § 403(b), 40 Stat. 1098; of 1921, § 403(b), 42
Stat. 280, and of 1924, § 303(b), the provision now under
consideration. Before the phrase was used in the Act of 1916, this
Court, in passing upon questions arising under the inheritance tax
law of June 13, 1898, § 29, 30 Stat. 464 (in a case where the
decedent had left "certain federal, municipal and corporate bonds"
in the custody of his agents in New York), recognized that the
property would not have escaped the tax, had it been imposed in apt
terms, in the view that the property was intangible, and belonged
to a nonresident.
Eidman v. Martinez, 184 U.
S. 578,
184 U. S. 582.
While that statute was found to be inapplicable, as the property
had not passed, within the limitations of the statute, "by will or
by the intestate laws of any state or territory," the opinion
conceded the power of Congress "to impose an inheritance tax upon
property in this country, no matter where owned or transmitted."
Id., p.
184 U. S. 592.
We see no reason to doubt that it was with this conception of its
power that the Congress enacted the later provisions for an estate
tax in the case of nonresidents. And, before the Revenue Act of
1921 was passed, we had stated the principles deemed controlling in
De Ganay v. Lederer, 250 U. S. 376, in
construing the provision of the Income Tax Law of 1913, 38 Stat.
166, imposing a tax upon the net income "from all property owned .
. . in the United States by persons residing elsewhere." The
decision was upon a certified question with respect to the income
of a citizen and resident of France from stocks, bonds, and
mortgages secured upon property in the United States, where the
owner's agent in the United States collected and remitted the
income and had "physical possession of the certificates of stock,
the bonds and the mortgages." The Court said:
"The question submitted comes to this: is the income from the
stock, bonds, and mortgages held by
Page 288 U. S. 391
the Pennsylvania Company [the agent], derived from property
owned in the United States? A learned argument is made to the
effect that the stock certificates, bonds, and mortgages are not
property, that they are but evidences of the ownership of interests
which are property; that the property, in a legal sense,
represented by the securities, would exist if the physical
evidences thereof were destroyed. But we are of opinion that these
refinements are not decisive of the congressional intent in using
the term 'property' in this statute. Unless the contrary appears,
statutory words are presumed to be used in their ordinary and usual
sense, and with the meaning commonly attributable to them. To the
general understanding and with the common meaning usually attached
to such descriptive terms, bonds, mortgages, and certificates of
stock are regarded as property. By state and federal statutes, they
are often treated as property, not as mere evidences of the
interest which they represent."
Having no doubt "that the securities, herein involved, are
property," the Court proceeded to the question,
"Are they property within the United States? It is insisted that
the maxim
mobilia sequuntur personam applies in this
instance, and that the situs of the property was at the domicile of
the owner in France. But this Court has frequently declared that
the maxim, a fiction at most, must yield to the facts and
circumstances of cases which require it, and that notes, bonds, and
mortgages may acquire a situs at a place other than the domicile of
the owner, and be there reached by the taxing authority."
Then, describing the location of the certificates of stock,
bonds, and mortgages in question in the possession of the agent in
Philadelphia, the Court concluded that the securities constituted
"property within the United States within the meaning of Congress
as expressed in the statute under consideration." The reference in
the statement
Page 288 U. S. 392
of this conclusion to the authority of the agent to sell,
invest, and reinvest was by way of emphasis, and is not to be taken
as importing a necessary qualification. The Court answered the
certified question in the affirmative.
Id., pp.
250 U. S.
380-383.
Under the Revenue Act of 1916, the Commissioner of Internal
Revenue ruled "that Congress has the power and evidenced an
intention" in that Act "to impose a tax upon bonds, both foreign
and domestic, owned by a nonresident decedent, which bonds are
physically situate in the United States," and that "such bonds must
be returned as a portion of his gross estate." T.D. 2530. The
regulations promulgated by the Treasury Department under the
Revenue Act of 1918, interpreting the words "situated in the United
States," contained the following:
"The situs of property, both real and personal, for the purpose
of the tax is its actual situs. Stock in a domestic corporation,
and insurance payable by a domestic insurance company, constitute
property situated in the United States, although owned by, or
payable to, a nonresident. A domestic corporation or insurance
company is one created or organized in the United States. Bonds
actually situated in the United States, moneys on deposit with
domestic banks, and moneys due on open accounts by domestic debtors
constitute property subject to tax."
Regulations No. 37, art. 60, T.D. 2378, 2910, 3145. This
provision, in substance, as to bonds and moneys due (other than
insurance moneys and bank deposits which were made the subject of a
special statutory provision), was repeated in the regulations under
the Revenue Act of 1921, as follows:
"Bonds actually within the United States, moneys due on open
accounts by domestic debtors, and stock of a corporation or
association created or organized in the United States constitute
property having its situs in the United States."
Regulations No. 63, Art. 53, T.D. 3384. We find no ground for
questioning the intention
Page 288 U. S. 393
of the Congress when, in the Revenue Act of 1924, it reenacted
the provision as to the property of nonresidents "situated in the
United States" to impose the tax with respect to bonds physically
within the United States and stock in domestic corporations.
Brewster v. Gage, 280 U. S. 327,
280 U. S.
337.
The argument is pressed that the regulations above quoted are
silent as to stock owned by nonresidents in foreign corporations
when the certificates of stock are held within the United States.
We think that the omission is inconclusive. It may be more fairly
said that the express terms of these regulations did not go far
enough, rather than that, so far as they did go, they failed to
express the legislative intent. In the view which identifies the
property interest with its physical representative, no sufficient
reason appears for holding that bonds were intended to be included,
and not certificates of stock, if these were physically in the
United States at the time of death.
See De Ganay v. Lederer,
supra; 267 U. S. U.S.
Steel Corp., 267 U. S. 22,
267 U. S. 28-29.
The regulations adopted under the Revenue Act of 1924 expanded the
provision as to the "situs of property of nonresident decedents" so
as to include stock in foreign corporations when the certificates
were held here, by providing:
"Real estate within the United States, stocks and bonds
physically in the United States at date of death, moneys due on
open accounts by domestic debtors, and stock of a corporation or
association created or organized in the United States constitute
property having a situs in the United States."
Regulations No. 68, Art. 50, T.D. 3683. The Revenue Act of 1926,
§ 303(b), 44 Stat. 73, reenacted the provision as to property of
nonresidents "situated in the United States," and the regulation
under that Act expressly embraces "certificates of stock, bonds,
bills, notes, and mortgages, physically in the United States at
date of death" as property "having a situs in the United
States,"
Page 288 U. S. 394
in addition to the clause relating to stock of domestic
corporations. Regulations No. 70, art. 50. And these provisions
have been continued.
Id., 1929 edition.
We do not find that the qualifying provisions of §§ 303(d) and
(e) of the Revenue Act of 1924 are inconsistent with the
departmental construction. Section 303(d) provided that "stock in a
domestic corporation owned and held by a nonresident decedent shall
be deemed property within the United States." Respondents point to
the absence of a similar provision as to bonds and as to stock in
foreign corporations, and invoke the maxim
expressio unius est
exclusio alterius. But the argument seems to prove too much.
It is not to be supposed that the Congress intended that stock
owned by a nonresident in a domestic corporation, where the
certificates of stock were held in the United States, were to be
subject to the tax, and that bonds of the same corporation,
similarly owned and physically in the United States, were to be
excepted.
See T.D. 2530. We think that the government's
construction of the provision is the more reasonable one, that the
place where the stock was held was not an element in the
application of § 303(d), and that this provision was designed to
insure the inclusion of the stock of a domestic corporation in all
cases, whether the certificates were physically present in the
United States or not.
Compare Corry v. Baltimore,
196 U. S. 466,
196 U. S.
473-474.
Section 303(e) provided:
"The amount receivable as insurance upon the life of a
nonresident decedent, and any moneys deposited with any person
carrying on the banking business, by or for a nonresident decedent
who was not engaged in business in the United States at the time of
his death,"
are not to be deemed "property within the United States." The
Revenue Act of 1918, § 403(b)(3), 40 Stat. 1099, had provided that
the amount receivable as insurance, where the insurer is a domestic
corporation, should be regarded
Page 288 U. S. 395
as property within the United States, and this was repealed by
the substituted provision of the Revenue Act of 1921, § 403(b)(3),
42 Stat. 280, to the contrary effect, the latter being carried
forward in the Revenue Act of 1924. It is a matter of common
knowledge that American life insurance companies were engaged in
business abroad, and no clear inference with respect to the
question now under consideration may be drawn either from the
original provision or from its repeal. [
Footnote 4] But the significance of the remaining clause
of the Act of 1921, reenacted in 1924, is apparent. This provided
for the exclusion from the gross estate of bank deposits in this
country in the circumstances stated -- deposits which, as
constituting property of nonresidents situated in the United
States, had theretofore been subject to the estate tax. [
Footnote 5] The Congress evidently
thought it necessary to make this express exception in order to
exclude such deposits from the tax, but did not provide any
exception with respect to bonds and certificates of stock
physically here.
As to decedent's deposit balance in the instant case, the Board
of Tax Appeals did not make an explicit finding that Lawrence
Turnure & Co., with whom the decedent had a checking account,
was "carrying on the banking business." The Board thought that the
point was not material. 22 B.T.A. p. 87. If that firm was engaged
in the banking business, the statute required the exclusion of the
deposit balance from the gross estate. As to the securities, in
view of the legislative history and departmental construction, we
find no basis for holding that the statute, if valid in this
application, did not require their inclusion.
Page 288 U. S. 396
Second. The question of power to lay the tax. As a
nation with all the attributes of sovereignty, the United States is
vested with all the powers of government necessary to maintain an
effective control of international relations.
Fong Yue Ting v.
United States, 149 U. S. 698,
149 U. S. 711;
Knox v. Lee,
12 Wall. 457,
79 U. S.
555-556. "We should hesitate long," we said in
Mackenzie v. Hare, 239 U. S. 299,
239 U. S. 311,
"before limiting or embarrassing such powers." So far as our
relation to other nations is concerned, and apart from any
self-imposed constitutional restriction, we cannot fail to regard
the property in question as being within the jurisdiction of the
United States -- that is, it was property within the reach of the
power which the United States by virtue of its sovereignty could
exercise as against other nations and their subjects without
violating any established principle of international law. This view
of the scope of the sovereign power in the matter of the taxation
of securities physically within the territorial limits of the
sovereign is sustained by high authority, and is a postulate of
legislative action in other countries. The subject was considered
by the House of Lords in
Winans v. Attorney General,
[1910] A.C. 27. The question was as to the liability to estate
duty, under the British Finance Act, 1894, of bonds and
certificates when these were physically situated in the United
Kingdom at the death of the owner, who was a citizen of the United
States and domiciled here. The securities were payable to bearer,
marketable on the London Stock Exchange, and passed by delivery.
The executors insisted that "the property did not pass by the law
of the United Kingdom, but by the law of the deceased's domicile;"
that "the presence in the United Kingdom of the documents of title
to the property did not create a liability to estate duty;"
that
"all the debtors on the bonds and certificates were at the time
of the death and all material times outside the
Page 288 U. S. 397
United Kingdom and beyond its jurisdiction;"
that "the marketability of a piece of paper in the United
Kingdom was not sufficient to make the debt of which it was
evidence liable to estate duty;" and that "the property was not
situate in the United Kingdom." The House of Lords was not
convinced by these contentions. The Lord Chancellor observed
that
"the property received the full protection of British laws --
which is a constant basis of taxation -- and can only be
transferred from the deceased to other persons by the authority of
a British Court."
Id., p. 30. Lord Atkinson referred to the status of the
securities under international law. "Being physically situated in
England at the time of their owner's death," said his Lordship,
"they were subject to English law and the jurisdiction of
English courts, and taxes might therefore
prima facie be
leviable upon them. . . . There does not appear,
a priori,
to be anything contrary to the principles of international law, or
hurtful to the polity of nations, in a state's taxing property
physically situated within its borders, wherever its owner may have
been domiciled at the time of his death."
Id., p. 31. And Lord Shaw of Dunfermline summed up the
application of the British acts as follows:
"In the case of an English citizen, all his property
'wheresoever situate,' subject to the exception in the act, is
aggregated, and into that aggregation -- to confine oneself to the
matter in hand -- all personal property situate out of the United
Kingdom must come unless legacy or succession duty would not have
been payable in respect thereof. In the case of the foreign
citizen, no taxation, of course, falls except upon property situate
within the United Kingdom, and I know no reason either under the
law of nations, by the custom of nations, or in the nature of
things why property within the jurisdiction of this country,
possessed and held under the protection of its laws, should not,
upon transfer from
Page 288 U. S. 398
the dead to the living, pay the same toll which would have been
paid by property enjoying the same protection but owned by a
deceased British subject."
Id., pp. 47-48. In this view, the securities were held
to be subject to the estate duty. [
Footnote 6]
In
Disconto-Gesellschaft v. United States Steel Corp.,
267 U. S. 22, a
somewhat analogous question of jurisdiction arose in relation to
the title to shares of stock of an American corporation which were
owned by German corporations, and the certificates of which had
been seized in London by the British Public Trustee appointed to be
custodian of enemy property during the late war. As was found to be
usual with shares which it was desired to deal in abroad, the
shares had been registered on the books of the American corporation
in the name of an English broker or dealer who had indorsed the
certificates in blank. The German corporations had bought the
shares and held the certificates in London. Their suit here was to
establish title, to cancel outstanding certificates, and to have
new certificates issued to them. They based their claim on the
proposition that seizure of the certificates in Great Britain did
not constitute a seizure of the shares; that the presence of the
certificates did not bring the shares within the territorial
jurisdiction of Great Britain. This Court took a different view,
and sustained the title of the British Public Trustee. The Court
thus stated the basis of its ruling:
"New Jersey having authorized this corporation, like others, to
issue certificates that so far represent the stock that ordinarily,
at least, no one can get the benefits of ownership except through
and by means of the paper, it recognizes as owner anyone to whom
the person declared
Page 288 U. S. 399
by the paper to be owner has transferred it by the indorsement
provided for wherever it takes place. It allows an indorsement in
blank, and, by its law as well as by the law of England, an
indorsement in blank authorizes anyone who is the lawful owner of
the paper to write in a name, and thereby entitle the person so
named to demand registration as owner, in his turn, upon the
corporation's books. But the question who is the owner of the paper
depends upon the law of the place where the paper is. It does not
depend upon the holder's having given value or taking without
notice of outstanding claims, but upon the things done being
sufficient by the law of the place to transfer the title. An
execution locally valid is as effectual as an ordinary purchase.
Yazoo & Mississippi Valley R. Co. v. Clarksdale,
257 U. S.
10. The things done in England transferred the title to
the Public Trustee by English law."
The Court thought it "so plain that the Public Trustee got a
title good as against the plaintiffs by the original seizure" that
it was deemed unnecessary to advert to the treaties upon which the
Public Trustee also relied, or upon the subsequent dealings between
England and Germany.
Id., p.
267 U. S.
28-29.
As jurisdiction may exist in more than one government, that is,
jurisdiction based on distinct grounds -- the citizenship of the
owner, his domicile, the source of income, the situs of the
property -- efforts have been made to preclude multiple taxation
through the negotiation of appropriate international conventions.
These endeavors, however, have proceeded upon express or implied
recognition, and not in denial, of the sovereign taxing power as
exerted by governments in the exercise of jurisdiction upon any one
of these grounds. For many years, this subject has been under
consideration by international committees of experts, and drafts of
conventions have been proposed, the advantages of which lie in the
mutual concessions or reciprocal restrictions to be voluntarily
made or accepted
Page 288 U. S. 400
by powers freely negotiating on the basis of recognized
principles of jurisdiction. [
Footnote 7] In its international relations, the United
States is as competent as other nations to enter into such
negotiations, and to become a party to such conventions, without
any disadvantage due to limitation of its sovereign power, unless
that limitation is necessarily found to be imposed by its own
Constitution.
Respondents urge that constitutional restriction precluding the
federal estate tax in question is found in the due process clause
of the Fifth Amendment. The point, being solely one of jurisdiction
to tax, involves none of the other considerations raised by
confiscatory or arbitrary legislation inconsistent with the
fundamental conceptions of justice which are embodied in the due
process clause for the protection of life, liberty, and property of
all persons, citizens and friendly aliens alike.
Russian
Volunteer Fleet v. United States, 282 U.
S. 481,
282 U. S. 489;
Nichols v. Coolidge, 274 U. S. 531,
274 U. S. 542;
Heiner v. Donnan, 285 U. S. 312,
285 U. S. 326.
If, in the instant case, the federal government had jurisdiction to
impose the tax, there is manifestly no ground for assailing it.
Knowlton v. Moore, 178 U. S. 41,
178 U. S. 109;
McCray v. United States, 195 U. S. 27,
195 U. S. 61;
Flint v. Stone Tracy Co., 220 U.
S. 107,
220 U. S.
153-154;
Brushaber v. Union Pacific R. Co.,
240 U. S. 1,
240 U. S. 24;
United States v. Doremus, 249 U. S.
86,
249 U. S. 93.
Respondents' reliance is upon the decisions of this Court with
respect to the limitation of the taxing power of the states under
the due process
Page 288 U. S. 401
clause of the Fourteenth Amendment.
Farmers Loan & Trust
Co. v. Minnesota, 280 U. S. 204;
Baldwin v. Missouri, 281 U. S. 586;
Beidler v. South Carolina Tax Commission, 282 U. S.
1;
First National Bank of Boston v. Maine,
284 U. S. 312.
They insist that the like clause of the Fifth Amendment imposes a
corresponding restriction upon the taxing power of the federal
government.
The argument is specious, but it ignores an established
distinction. Due process requires that the limits of jurisdiction
shall not be transgressed. That requirement leaves the limits of
jurisdiction to be ascertained in each case with appropriate regard
to the distinct spheres of activity of state and nation. The limits
of state power are defined in view of the relation of the states to
each other in the Federal Union. The bond of the Constitution
qualifies their jurisdiction. T his is the principle which
underlies the decisions cited by respondents. These decisions
established that proper regard for the relation of the states in
our system required that the property under consideration should be
taxed in only one state, and that jurisdiction to tax was
restricted accordingly. In
Farmers' Loan & Trust Co. v.
Minnesota, supra, the Court applied the principle to
intangibles, and, referring to the contrary view which had
prevailed, said (p.
280 U. S.
209):
"The inevitable tendency of that view is to disturb good
relations among the states and produce the kind of discontent
expected to subside after establishment of the Union. The
Federalist, No. VII. The practical effect of it has been bad;
perhaps two-thirds of the states have endeavored to avoid the evil
by resort to reciprocal exemption laws."
It was this "rule of immunity from taxation by more than one
state," deducible from the decisions in respect of various and
distinct kinds of property, that the Court applied in
First
National Bank v. Maine, supra, p.
284 U. S.
326.
As pointed out in the opinion in the
First National
Bank case, the principle has had a progressive
application.
Page 288 U. S. 402
In
Louisville & Jeffersonville Ferry Co. v.
Kentucky, 188 U. S. 385, the
question related to a ferry franchise granted by Indiana to a
Kentucky corporation which Kentucky attempted to tax. Despite the
fact that the tax was laid upon a property right belonging to a
domestic corporation, the Court held that the Fourteenth Amendment
precluded the imposition.
Id., p.
188 U. S. 398.
In
Union Refrigerator Transit Co. v. Kentucky,
199 U. S. 194, the
principle was applied to the attempted taxation by Kentucky of
tangible personal property which was owned by a domestic
corporation but had a permanent situs in another state. The Court
decided that, where tangible personal property had an actual situs
in a particular state, the power to subject it to state taxation
rested exclusively in that state, regardless of the domicile of the
owner. By
Frick v. Pennsylvania, 268 U.
S. 473, the rule became definitely fixed that, as to
tangible personal property, the power to impose a death transfer
tax was solely in the state where the property had an actual situs,
and could not be exercised by another state where the decedent was
domiciled.
See First National Bank v. Maine, supra, p.
284 U. S. 322.
The decision in
Farmers' Loan & Trust Co. v. Minnesota,
supra, overruling
Blackstone v. Miller, 188 U.
S. 189, carried forward the principle by applying it to
intangibles. The Court was of the opinion that
"the general reasons declared sufficient to inhibit taxation of
them [tangibles] by two states apply under present circumstances
with no less force to intangibles with taxable situs imposed by due
application of the legal fiction. Primitive conditions have passed;
business is now transacted on a national scale. A very large part
of the country's wealth is invested in negotiable securities whose
protection against discrimination, unjust and oppressive taxation,
is matter of the greatest moment."
280 U.S. pp.
280 U. S.
211-212.
Page 288 U. S. 403
But it has been as decisively maintained that this principle,
thus progressively applied in limiting the jurisdiction of the
states to tax, does not restrict the taxing power of the federal
government. The distinction was clearly and definitely made in
United States v. Bennett, 232 U.
S. 299. The question arose under § 37 of the Tariff Act
of August 5, 1909, 36 Stat. 112, imposing a tax upon the use of
foreign built yachts, owned or chartered by citizens of the United
States. The levy of the tax with respect to a yacht owned by a
citizen of the United States, domiciled here, but which was not
used within the jurisdiction of the United States and had its
permanent situs in a foreign country, was resisted under the due
process clause of the Fifth Amendment. The objector invoked the
doctrine, already established, which denied to a state, under the
Fourteenth Amendment, jurisdiction to tax personal property which
had a permanent situs in another state.
Union Refrigerator
Transit Co. v. Kentucky, supra. Under that doctrine, as we
have seen, it made no difference that the owner of the property was
a citizen of, or domiciled in, the state which attempted to lay the
tax. The argument was pressed that the federal statute should not
be so construed as to apply to the use of a yacht wholly beyond the
territorial limits of the United States, since, if so interpreted,
it would be repugnant to the Constitution. But the Court thought
that to apply that rule of interpretation would be to cause "an
imaginary doubt" as to the constitutionality of the statute, and
would render it necessary to give the statute "a wholly fictitious
and unauthorized meaning." We found nothing "of such gravity in the
asserted constitutional question" as to justify departing from the
evident legislative intention. Speaking through Chief Justice
White, and fully recognizing the principle applicable to the taxing
power of the states, the Court observed
Page 288 U. S. 404
that the argument involved a misapprehension not as to what had
actually been decided, but,
"in taking for granted that, because the doctrine stated has
been applied and enforced in many decisions with respect to the
taxing power of the states, that the same principle is applicable
to and controlling as to the United States in the exercise of its
powers."
"The confusion results," the Court continued,
"from not observing that the rule applied in the cases relied
upon to many forms of exertion of state taxing power is based on
the limitations on state authority to tax resulting from the
distribution of powers ordained by the Constitution. In other
words, the whole argument proceeds upon the mistaken supposition
which is sometimes indulged in that the calling into being of the
government under the Constitution had the effect of destroying
obvious powers of government, instead of preserving and
distributing such powers. The application to the states of the rule
of due process relied upon comes from the fact that their spheres
of activity are enforced and protected by the Constitution, and
therefore it is impossible for one state to reach out and tax
property in another without violating the Constitution, for where
the power of the one ends, the authority of the other begins."
"But this," the Court added, "has no application to the
government of the United States so far as its admitted taxing power
is concerned," for that power
"embraces all the attributes which appertain to sovereignty in
the fullest sense. . . . Because the limitations of the
Constitution are barriers bordering the states and preventing them
from transcending the limits of their authority, and thus
destroying the rights of other states, and at the same time saving
their rights from destruction by the other states, in other words,
of maintaining and preserving the rights of all the states, affords
no ground for constructing an imaginary constitutional barrier
Page 288 U. S. 405
around the exterior confines of the United States for the
purpose of shutting that government off from the exertion of powers
which inherently belong to it by virtue of its sovereignty."
Id., pp.
232 U. S.
305-306.
This distinction between the limitations of state jurisdiction
to tax and the broad authority of the federal government was
restated and applied in
Cook v. Tait, 265 U. S.
47,
265 U. S. 55-56,
and was again explicitly recognized in
Frick v. Pennsylvania,
supra, p.
268 U. S.
491.
The distinction cannot be regarded as limited to tangible
property. It has equal application to intangibles. It does not rest
upon the question whether the property is of the one sort or the
other, but upon the fact that the limitation of state jurisdiction
to tax does not establish the limitation of federal jurisdiction to
tax. If the federal government may rest its jurisdiction to lay its
tax upon the fact of the citizenship and domicile in this country
of the owner of tangible property, wherever that property may be
situated, although the state may not impose a like tax with respect
to property having a permanent location outside the state, the
federal government cannot be regarded as restrained in its power to
tax securities owned by a nonresident, but physically in this
country, merely because the state is debarred from laying such a
tax with respect to a nonresident of the state. The decisive point
is that the criterion of state taxing power by virtue of the
relation of the states to each other under the Constitution is not
the criterion of the taxing power of the United States by virtue of
its sovereignty in relation to the property of nonresidents. The
Constitution creates no such relation between the United States and
foreign countries as it creates between the states themselves.
Accordingly, in what has been said, we in no way limit the
authority of our decisions as to state power. We
Page 288 U. S. 406
determine national power in relation to other countries and
their subjects by applying the principles of jurisdiction
recognized in international relations. Applying those principles,
we cannot doubt that the Congress had the power to enact the
statute as we have construed and applied it to the property in
question. The securities should be included in the gross estate of
the decedent; the inclusion of the balance of the cash deposit will
depend, under the statute, upon the finding to be made with respect
to the nature of the business of the concern with which the deposit
was made.
The judgment is reversed, and the cause is remanded for further
proceedings in conformity with this opinion.
Reversed.
MR. JUSTICE BUTLER is of opinion that the statute does not
extend to the transfer of the foreign or other securities effected
by the death of decedent, Ernest Augustus Brooks, a British subject
resident of, and dying in, Cuba, and that the conclusions of the
Board of Tax Appeals and Circuit Court of Appeals are right, and
should be affirmed.
[
Footnote 1]
The property was scheduled as follows:
(a) Bonds of foreign corporations and accrued interest . . . $
24,384.97
(b) Bonds of foreign governments and accrued interest. . . .
55.610.49
(c) Bonds of domestic corporations and accrued interest. . .
400,315.32
(d) Bonds of a domestic municipality and accrued interest. .
15,073.57
(e) Stock in a foreign corporation (Cuba) . . . . . . . . .
50,000.00
(f) Cash on deposit with Lawrence Turnure & Company. . . . .
14,517.98
[
Footnote 2]
"Sec. 301. (a) In lieu of the tax imposed by Title IV of the
Revenue Act of 1921, a tax equal to the sum of the following
percentages of the value of the net estate (determined as provided
in section 303) is hereby imposed upon the transfer of the net
estate of every decedent dying after the enactment of this act, . .
. whether a resident or nonresident of the United States: [rates
follow.] . . ."
"Sec. 302. The value of the gross estate of the decedent shall
be determined by including the value at the time of his death of
all property, real or personal, tangible or intangible, wherever
situated --"
"(a) To the extent of the interest therein of the decedent at
the time of his death which after his death is subject to the
payment of the charges against his estate and the expenses of its
administration and is subject to distribution as part of his
estate; . . ."
"Sec. 303. For the purpose of the tax, the value of the net
estate shall be determined --"
"(a) In the case of a resident, by deducting from the value of
the gross estate -- . . ."
"(b) In the case of a nonresident, by deducting from the value
of that part of his gross estate which at the time of his death is
situated in the United States --"
"(1) That proportion of the deductions specified in paragraph
(1) of subdivision (a) of this section which the value of such part
bears to the value of his entire gross estate, wherever situated,
but in no case shall the amount so deducted exceed 10 percentum of
the value of that part of his gross estate which at the time of his
death is situated in the United States. . . ."
"(c) No deduction shall be allowed in the case of a nonresident
unless the executor includes in the return required to be filed
under § 304 the value at the time of his death of that part of the
gross estate of the nonresident not situated in the United
States."
"(d) For the purpose of Part I of this title, stock in a
domestic corporation owned and held by a nonresident decedent shall
be deemed property within the United States. . . ."
"(e) The amount receivable as insurance upon the life of a
nonresident decedent, and any moneys deposited with any person
carrying on the banking business, by or for a nonresident decedent
who was not engaged in business in the United States at the time of
his death, shall not, for the purpose of Part I of this title, be
deemed property within the United States. . . ."
"Sec. 304. (a). . . The executor shall also, at such times and
in such manner as may be required by regulations made pursuant to
law, file with the collector a return under oath in duplicate,
setting forth (1) the value of the gross estate of the decedent at
the time of his death or, in case of a nonresident, of that part of
his gross estate situated in the United States. . . ."
[
Footnote 3]
The case of
Blackstone v. Miller, 188 U.
S. 189, was not overruled until 1930.
See Farmers
Loan & Trust Co. v. Minnesota, 280 U.
S. 204,
280 U. S.
209.
[
Footnote 4]
See House Rep. No. 767, 65th Cong., 2d sess., p. 22;
Sen.Rep. No. 275, 67th Cong., 1st sess., p. 25; House Rep. No. 350,
67th Cong., 1st sess., p. 15.
[
Footnote 5]
See Sen.Rep. No. 275, 67th Cong., 1st sess., p. 25.
[
Footnote 6]
See also, as to taxation in Italy, U.S. Department of
Commerce's pamphlet entitled "Taxation of Business in Italy," Trade
Promotion Series -- No. 82 (1929); sub. tit. "Tax on Successions,"
p. 105; as to taxation in France,
see "French Fiscal
Legislation," Neurrisse and Bezoz (1928), pp. 151-153.
[
Footnote 7]
Publication entitled "Double Taxation Relief," Bureau of Foreign
and Domestic Commerce, Department of Commerce (January, 1928), pp.
20, 21; "Double Taxation and Tax Evasion," Report of the General
Meeting of Government Experts to League of Nations, Document C.
562, M. 178, 1928, II, 49, pp. 22-24; Fifth General Congress,
International Chamber of Commerce, Amsterdam, 1929, Resolution No.
1, Annex, p. 11; Washington Congress, 1931, International Chamber
of Commerce, Resolution No. 10, pp. 20-22.
See also
"Taxation of Foreign and National Enterprises" (League of Nations,
Geneva, 1932).