1. Decedent, domiciled in Tennessee, transferred to a trustee in
Alabama certain stocks and bonds on specific trusts. The net income
was to be paid to her during her lifetime and, upon her death, the
property was to be held in trust for specified beneficiaries. She
reserved, however, certain powers over the trustee and the handling
of the trust, and the power to dispose of the estate as she might
direct by will. Until her death, the trust was administered by the
trustee in Alabama, and the paper evidences of the intangible
property were kept there. Upon her death, in Tennessee, she
bequeathed the trust property to the same trustee to be held in
trust for the same and other beneficiaries, in different amounts
and by different estates from those provided for by the trust
indenture. By the will, she appointed a Tennessee executor "as to
all property which I may own in the Tennessee at the time of my
death," and an Alabama executor
"as to all property which I may own in the Alabama and also as
to all property which I may have the right to dispose of by last
will and testament in said state."
It was probated, and letters testamentary issued to the
respective executors, in both States.
Held, that each of the two States could
constitutionally impose a
Page 307 U. S. 358
tax on the transfer of the intangibles held by the Alabama
trustee, but passing under the will of the decedent, domiciled in
Tennessee. Pp.
307 U. S. 360,
372-
307 U. S.
373.
2. The opinion considers the grounds for the doctrine that power
to tax tangible property is confined to the State in which the
property is located. P.
307 U. S.
363.
When we speak of the jurisdiction to tax land or chattels as
being exclusively in the State where they are physically located,
we mean no more than that the benefit and protection of laws
enabling the owner to enjoy the fruits of his ownership and the
power to reach effectively the interests protected, for the purpose
of subjecting them to payment of a tax, are so narrowly restricted
to the State in whose territory the physical property is located as
to set practical limits to taxation by others. P.
307 U. S.
364.
3. Rights in intangible property are but relationships between
persons, which the law recognizes by attaching to them certain
sanctions enforceable in courts. The power of government over them
and the protection which it gives them cannot be exerted through
control of a physical thing, but can be made effective only through
control over and protection afforded to those persons whose
relationships are the origin of the rights. As sources of actual or
potential wealth -- which is an appropriate measure of any tax
imposed on ownership or its exercise -- they cannot be dissociated
from the persons from whose relationships they are derived. P.
307 U. S.
366.
4. From the beginning of our constitutional system, control over
the person at the place of his domicile and his duty there, common
to all citizens, to contribute to the support of government have
been deemed to afford an adequate constitutional basis for imposing
on him a tax on the use and enjoyment of rights in intangibles
measured by their value. P.
307 U. S.
366.
5. In cases where the owner of intangibles confines his activity
to the place of his domicile, it has been found convenient to
substitute a rule for a reason by saying that his intangibles are
taxed at their situs, and not elsewhere, or, perhaps less
artificially, by invoking the maxim
mobilia sequuntur
personam. P.
307 U. S.
367.
6. But when the taxpayer extends his activities with respect to
his intangibles so as to avail himself of the protection and
benefit of the laws of another State in such a way as to bring his
person or property within the reach of the tax gatherer there, the
reason for a single place of taxation no longer obtains, and the
rule is not
Page 307 U. S. 359
even a workable substitute for the reasons which may exist in
any particular case to support the constitutional power of each
State concerned to tax. P.
307 U. S. 367.
7. The domicile is not deprived, by the taxpayer's activities
elsewhere, of its constitutional jurisdiction to tax, and
consequently there are many circumstances in which more than one
State may have jurisdiction to impose a tax and measure it by some
or all of the taxpayer's intangibles. P.
307 U. S.
368.
8. Since Alabama may lawfully tax the property in the trustee's
hands, the Court perceives no ground for saying that the Fourteenth
Amendment forbids that State to tax the transfer of it or an
interest in it to another merely because the transfer was effected
by decedent's testamentary act in another State. P.
307 U. S.
370.
9. Exercise of the decedent's power to dispose of the
intangibles was a taxable event in Tennessee. P.
307 U. S.
371.
10. In effecting her purposes, the testatrix brought some of the
legal interests which she created within the control of one State
by selecting a trustee there, and others within the control of the
other State by making her domicile there. She necessarily invoked
the aid of the law of both States, and her legatees, before they
can secure and enjoy the benefits of succession, must invoke the
law of both. P.
307 U. S.
372.
11. The prohibition of the Fourteenth Amendment against the
taxation of property not within the taxing "jurisdiction" of a
State is not to be extended by ascribing to intangibles in every
case a locus for taxation in a single State despite the control
over them or their transmission by any other State and its
legitimate interest in taxing the one or the other. The Court can
find nothing in the history of the Fourteenth Amendment, and no
support in reason, principle, or authority, for saying that it
prohibits either State, in the circumstances of this case, from
laying the tax. Pp.
307 U. S. 373,
307 U. S.
372.
174 Tenn. 1, 118 S.W.2d 228, reversed.
Appeal taken by taxing officials of the State of Alabama from a
decree of the Supreme Court of Tennessee declaring trust property
in Alabama disposed of by a decedent's will to be subject to
succession or transfer taxation in Tennessee, but not in Alabama.
This suit was brought by the executors in the two States, praying
for a declaratory judgment.
Page 307 U. S. 360
MR. JUSTICE STONE delivered the opinion of the Court.
The questions for decision are whether the States of Alabama and
Tennessee may each constitutionally impose death taxes upon the
transfer of an interest in intangibles held in trust by an Alabama
trustee but passing under the will of a beneficiary decedent
domiciled in Tennessee, and which of the two states may tax in the
event that it is determined that only one state may
constitutionally impose the tax.
Decedent, a domiciled resident of Tennessee, by trust indenture
transferred certain stocks and bonds upon specified trusts to Title
Guarantee Loan & Trust Company, an Alabama corporation doing
business in that state. So far as now material, the indenture
provided that the net income of the trust property should be paid
over to decedent during her lifetime. She reserved the power to
remove the trustee and substitute another, which was never done;
the power to direct the sale of the trust property and the
investment of the proceeds, and the power to dispose of the trust
estate by her last will and testament, in which event it was to be
"handled and disposed of as directed" in her will. The indenture
provided further that, in default of disposition by will, the
property was to be held in trust for the benefit of her husband,
son, and daughter. Until decedent's death, the trust was
administered by the trust company in Alabama, and the
Page 307 U. S. 361
paper evidences of the intangibles held by the trustee were at
all times located in Alabama.
By her last will and testament, decedent bequeathed the trust
property to the trust company in trust for the benefit of her
husband, son, and daughter, in different amounts and by different
estates from those provided for by the trust indenture, with
remainder interests over to the children of the son and the
daughter respectively, and to his wife and her husband. By her
will, testatrix appointed a Tennessee trust company executor "as to
all property which I may own in the Tennessee at the time of my
death," and an Alabama trust company executor
"as to all property which I may own in the Alabama and also as
to all property which I may have the right to dispose of by last
will and testament in said state."
The will has been probated in Tennessee and in Alabama, and
letters testamentary have issued to the two trust companies named
as executors in the will.
The present suit was brought by the two executors in a chancery
court of Tennessee against appellants, comprising the State Tax
Commission of Alabama, and appellee, Commissioner of Finance and
Taxation of the State of Tennessee, who are charged with the duty
of collecting inheritance or succession taxes in their respective
states. The bill of complaint prayed a declaratory judgment
pursuant to the Tennessee Declaratory Judgments Act, Tennessee Code
1932, §§ 8835-8847, determining what portions of the estate of
decedent are taxable by the State of Tennessee and what portions by
the State of Alabama. Appellants and appellee appeared and, by
their answers and by stipulation, recited in detail the facts
already stated and admitted that the taxing officials of each state
had imposed or asserted the right to impose an inheritance or death
transfer tax on the trust property passing under decedent's
will.
Page 307 U. S. 362
The chancery court of Tennessee decreed that the State of
Alabama could lawfully impose the tax, and that the inheritance tax
law of Tennessee violated the Fourteenth Amendment insofar as it
purported to impose a tax measured by the trust property disposed
of by decedent's will. The Supreme Court of Tennessee reversed, and
entered its decree declaring the trust property disposed of by
decedent's will to be "taxable in Tennessee and not taxable in
Alabama for purposes of death succession or transfer taxes."
Nashville Trust Co. v. Stokes, 118 S.W.2d 228. The case
comes here on an appeal from this decree taken by the taxing
officials of Alabama under § 237(a) of the Judicial Code, 28 U.S.C.
§ 344(a).
Alabama has assessed a state inheritance tax on the trust
property pursuant to Article XII, c. 2, § 347.1
et seq.,
of its General Revenue Act. Alabama Acts 1935, p. 434
et
seq. No transfer tax has been assessed upon the property by
the Tennessee taxing officials, but they assert the right under the
Tennessee statute to tax the transfer under decedent's will of the
trust property. Sections 1259 and 1260 of the Tennessee Code of
1932 impose a tax upon the transfer at death by a resident of the
state of his intangible property wherever located, including
transfers under powers of appointment.
Both the court of chancery of Tennessee and the Supreme Court of
Tennessee, conceiving that the Fourteenth Amendment requires the
transmission at death of intangibles to be taxed at their "situs"
and there only, considered that the primary question for
determination was the situs or location to be attributed to the
intangibles of the trust estate at the time of decedent's death.
After considering all of the relevant factors, the one court
concluded that the situs of the intangibles was in Alabama, the
other that it was in Tennessee. Despite the impossibility in the
circumstances of this case of attributing a single location to that
which has no physical
Page 307 U. S. 363
characteristics and which is associated in numerous intimate
ways with both states, both courts have agreed that the Fourteenth
Amendment compels the attribution to be made, and that, once it is
established by judicial pronouncement that the intangibles are in
one state, rather than the other, the due process clause forbids
their taxation in any other.
The doctrine, of recent origin, that the Fourteenth Amendment
precludes the taxation of any interest in the same intangible in
more than one state has received support to the limited extent that
it was applied in
Farmers' Loan & Trust Co. v.
Minnesota, 280 U. S. 204;
Baldwin v. Missouri, 281 U. S. 586;
First National Bank v. Maine, 284 U.
S. 312. Still more recently, this Court has declined to
give it completely logical application. [
Footnote 1] It has never been pressed to the extreme
now urged upon us, and we think that neither reason nor authority
requires its acceptance in the circumstances of the present
case.
That rights in tangibles -- land and chattels -- are to be
regarded in many respects as localized at the place where the
tangible itself is located for purposes of the jurisdiction of a
court to make disposition of putative rights in them, for purposes
of conflict of laws, and for purposes of taxation, is a doctrine
generally accepted both in the common law and other legal systems,
before the adoption of the Fourteenth Amendment and since.
[
Footnote 2]
Page 307 U. S. 364
Originating, it has been thought, in the tendency of the mind to
identify rights with their physical subjects,
see Salmond,
Jurisprudence (2nd ed.) 398, its survival and the consequent
cleavage between the rules of law applicable to tangibles and those
relating to intangibles are attributable to the exclusive dominion
exerted over the tangibles themselves by the government within
whose territorial limits they are found.
Green v.
Van Buskirk, 7 Wall. 139,
74 U. S. 150;
Pennoyer v. Neff, 95 U. S. 714;
Arndt v. Griggs, 134 U. S. 316,
134 U. S.
320-321.
See McDonald v. Mabee, 243 U. S.
90,
243 U. S. 91;
cf. Harris v. Balk, 198 U. S. 215,
198 U. S. 222;
Frick v. Pennsylvania, supra, 268 U. S. 497.
The power of government and its agencies to possess and to exclude
others from possessing tangibles, and thus to exclude them from
enjoying rights in tangibles located within its territory, affords
adequate basis for an exclusive taxing jurisdiction. When we speak
of the jurisdiction to tax land or chattels as being exclusively in
the state where they are physically located, we mean no more than
that the benefit and protection of laws enabling the owner to enjoy
the fruits of his ownership and the power to reach effectively the
interests protected, for the purpose of subjecting them to payment
of a tax, are so narrowly restricted to the state in whose
territory the physical property is located as to set practical
limits to taxation by others. Other states have been said to be
without jurisdiction, and so without constitutional power, to tax
tangibles if, because of their location elsewhere, those states can
afford no substantial protection to the rights taxed, and cannot
effectively lay hold of any interest in the
Page 307 U. S. 365
property in order to compel payment of the tax.
See Union
Refrigerator Transit Co. v. Kentucky, 199 U.
S. 194,
199 U. S. 202;
Frick v. Pennsylvania, 268 U. S. 473,
268 U. S. 489
et seq. [
Footnote
3]
Very different considerations, both theoretical and practical,
apply to the taxation of intangibles -- that is, rights which are
not related to physical things. Such
Page 307 U. S. 366
rights are but relationships between persons, natural or
corporate, which the law recognizes by attaching to them certain
sanctions enforceable in courts. The power of government over them
and the protection which it gives them cannot be exerted through
control of a physical thing. They can be made effective only
through control over, and protection afforded to, those persons
whose relationships are the origin of the rights.
See Chicago,
R.I. & P. R. Co. v. Sturm, 174 U.
S. 710,
174 U. S. 716;
Harris v. Balk, 198 U. S. 215,
198 U. S. 222.
Obviously, as sources of actual or potential wealth -- which is an
appropriate measure of any tax imposed on ownership or its exercise
-- they cannot be dissociated from the persons from whose
relationships they are derived. These are not in any sense
fictions. They are indisputable realities.
The power to tax
"is an incident of sovereignty, and is coextensive with that to
which it is an incident. All subjects over which the sovereign
power of a state extends are objects of taxation, but those over
which it does not extend are, upon the soundest principles, exempt
from taxation."
McCulloch v.
Maryland, 4 Wheat. 316,
17 U. S. 429.
But this does not mean that the sovereign power of the state does
not extend over intangibles of a domiciled resident because they
have no physical location within its territory, or that its power
to tax is lost because we may choose to say they are located
elsewhere. A jurisdiction which does not depend on physical
presence within the state is not lost by declaring that it is
absent. From the beginning of our constitutional system, control
over the person at the place of his domicile and his duty there,
common to all citizens, to contribute to the support of government
have been deemed to afford an adequate constitutional basis for
imposing on him a tax on the use and enjoyment of rights in
intangibles measured by their value. Until this moment, that
jurisdiction has not been thought to depend on any factor other
than the domicile
Page 307 U. S. 367
of the owner within the taxing state, or to compel the
attribution to intangibles of a physical presence within its
territory, as though they were chattels, in order to support the
tax.
Carpenter v.
Pennsylvania, 17 How. 456;
Kirtland v.
Hotchkiss, 100 U. S. 491;
Hawley v. Malden, 232 U. S. 1;
Bullen v. Wisconsin, 240 U. S. 625;
Cream of Wheat Co. v. County of Grand Forks, 253 U.
S. 325;
Blodgett v. Silberman, 277 U. S.
1;
Farmers' Loan & Trust Co. v. Minnesota,
supra; Baldwin v. Missouri, supra; Beidler v. South Carolina Tax
Comm'n, 282 U. S. 1;
First National Bank v. Maine, supra; Virginia v. Imperial Coal
Sales Co., 293 U. S. 15;
Schuylkill Trust Co. v. Pennsylvania, 302 U.
S. 506.
In cases where the owner of intangibles confines his activity to
the place of his domicile, it has been found convenient to
substitute a rule for a reason,
cf. New York ex rel. Cohn v.
Graves, 300 U. S. 308,
300 U. S. 313;
First Bank Stock Corp. v. Minnesota, 301 U.
S. 234,
301 U. S. 241,
by saying that his intangibles are taxed at their situs, and not
elsewhere, or, perhaps less artificially, by invoking the maxim
mobilia sequuntur personam, Blodgett v. Silberman, supra;
Baldwin v. Missouri, supra, which means only that it is the
identity or association of intangibles with the person of their
owner at his domicile which gives jurisdiction to tax. But when the
taxpayer extends his activities with respect to his intangibles, so
as to avail himself of the protection and benefit of the laws of
another state, in such a way as to bring his person or property
within the reach of the tax gatherer there, the reason for a single
place of taxation no longer obtains, and the rule is not even a
workable substitute for the reasons which may exist in any
particular case to support the constitutional power of each state
concerned to tax. Whether we regard the right of a state to tax as
founded on power over the object taxed, as declared by Chief
Justice Marshall in
McCulloch v. Maryland, supra,
Page 307 U. S. 368
through dominion over tangibles or over persons whose
relationships are the source of intangible rights, or on the
benefit and protection conferred by the taxing sovereignty, or
both, it is undeniable that the state of domicile is not deprived,
by the taxpayer's activities elsewhere, of its constitutional
jurisdiction to tax, and consequently that there are many
circumstances in which more than one state may have jurisdiction to
impose a tax and measure it by some or all of the taxpayer's
intangibles. Shares of corporate stock may be taxed at the domicile
of the shareholder and also at that of the corporation which the
taxing state has created and controls, and income may be taxed both
by the state where it is earned and by the state of the recipient's
domicile. [
Footnote 4]
Protection, benefit, and power over the subject matter are not
confined to either state. The taxpayer who is domiciled in one
state but carries on business in another is subject to a tax there
measured by the value of the intangibles used in his business.
New Orleans v. Stempel, 175 U. S. 309;
Bristol v. Washington County, 177 U.
S. 133;
State Board of Assessors v. Comptoir
National, 191 U. S. 388;
Metropolitan Life Insurance Co. v. New Orleans,
205 U. S. 395;
Liverpool & London & Globe Ins. Co. v. Board,
221 U. S. 346;
Wheeling Steel Corp. v. Fox, 298 U.
S. 193;
cf. Blodgett v. Silberman, supra; Baldwin v.
Missouri, supra. But taxation of a corporation by a state
where it does business, measured by the value of the intangibles
used in its business there, does not preclude the state of
incorporation from imposing a tax measured by all its intangibles.
Cream of Wheat Co. v. County of Grand Forks, supra,
253 U. S. 329;
[
Footnote 5]
see Fidelity
& Columbia Trust Co. v. Louisville, 245 U. S.
54.
The practical obstacles and unwarranted curtailments of state
power which may be involved in attempting to
Page 307 U. S. 369
prevent the taxation of diverse legal interests in intangibles
in more than a single place, through first ascribing to them a
fictitious situs and then invoking the prohibition of the
Fourteenth Amendment against their taxation elsewhere, are
exemplified by the circumstances of the present case. Here, for
reasons of her own, the testatrix, although domiciled in Tennessee
and enjoying the benefits of its laws, found it advantageous to
create a trust of intangibles in Alabama by vesting legal title to
the intangibles and limited powers of control over them in an
Alabama trustee. But she also provided that, by resort to her power
to dispose of property by will, conferred upon her by the law of
the domicile, the trust could be terminated and the property pass
under the will. She thus created two sets of legal relationships
resulting in distinct intangible rights, the one embodied in the
legal ownership by the Alabama trustee of the intangibles, the
other embodied in the equitable right of the decedent to control
the action of the trustee with respect to the trust property, and
to compel it to pay over to her the income during her life, and in
her power to dispose of the property at death.
Even if we could rightly regard these various and distinct legal
interests, springing from distinct relationships, as a composite
unitary interest and ascribe to it a single location in space, it
is difficult to see how it could be said to be more in one state
than in the other, and upon what articulate principle the
Fourteenth Amendment could be thought to have withdrawn from either
state the taxing jurisdiction which it undoubtedly possessed before
the adoption of the Amendment by conferring on one state at the
expense of the other, exclusive jurisdiction to tax.
See
Paddell v. City of New York, 211 U. S. 446,
211 U. S. 448.
If the "due process" of the Fifth Amendment does not require us to
fix a single exclusive place of taxation of intangibles for the
benefit of their foreign owner, who is
Page 307 U. S. 370
entitled to its protection,
Burnet v. Brooks,
288 U. S. 378;
cf. Russian Volunteer Fleet v. United States, 282 U.
S. 481,
282 U. S. 489,
the Fourteenth can hardly be thought to make us do so here, for the
due process clause of each amendment is directed at the protection
of the individual, and he is entitled to its immunity as much
against the state as against the national government.
If taxation is but a means of distributing the cost of
government among those who are subject to its control and who enjoy
the protection of its laws,
see New York ex rel. Cohn v.
Graves, supra, 300 U. S. 313;
First Bank Stock Corp. v. Minnesota, supra, 301 U. S. 241,
legal ownership of the intangibles in Alabama by the Alabama
trustee would seem to afford adequate basis for imposing on him a
tax measured by their value. We can find no more ground for saying
that the Fourteenth Amendment relieves it, or the property which it
holds and administers in Alabama, from bearing that burden than for
saying that they are constitutionally immune from paying any other
expense which normally attaches to the administration of a trust in
that state. This Court has never denied the constitutional power of
the trustee's domicile to subject them to property taxation.
Safe Deposit & Trust Co. v. Virginia, 280 U. S.
83;
see cases collected in 30 Columbia Law Rev.
530; 2 Cooley, Taxation (8th ed.) § 602. And since Alabama may
lawfully tax the property in the trustee's hands, we perceive no
ground for saying that the Fourteenth Amendment forbids the state
to tax the transfer of it or an interest in it to another merely
because the transfer was effected by decedent's testamentary act in
another state.
No more plausible ground is assigned for depriving Tennessee of
the power to tax in the circumstances of this case. The decedent's
power to dispose of the intangibles was a potential source of
wealth which was property in her hands from which she was under the
highest obligation,
Page 307 U. S. 371
in common with her fellow citizens of Tennessee, to contribute
to the support of the government whose protection she enjoyed.
Exercise of that power, which was in her complete and exclusive
control in Tennessee, was made a taxable event by the statutes of
the state. Taxation of it must be taken to be as much within the
jurisdiction of the state as taxation of the transfer of a mortgage
on land located in another state and there subject to taxation at
its full value.
See Kirtland v. Hotchkiss, supra; cf. Paddell
v. City of New York, supra.
For purposes of taxation, a general power of appointment, of
which the testatrix here was both donor and donee, has hitherto
been regarded by this Court as equivalent to ownership of the
property subject to the power.
Chanler v. Kelsey,
205 U. S. 466;
Bullen v. Wisconsin, supra, 240 U. S. 630;
Chase National Bank v. United States, 278 U.
S. 327,
278 U. S. 338;
see Gray, Rule Against Perpetuities (3d ed.1916), § 524.
[
Footnote 6] Whether the
appointee derives title from the donor, under the common law
theory, or from the donee by virtue of the exercise of the power,
is here immaterial. In either event, the trustee's title under the
will was derived from decedent, domiciled in Tennessee.
Cf.
Wachovia Bank & Trust Co. v. Doughton, 272 U.
S. 567. There is no conflict here between the laws of
the two states affecting the transmission of the trust property.
The title of the trustee under the original Alabama trust came to
an end upon the exercise of the testatrix's power of appointment,
and, although the trustee after her death still had title to the
securities, it was in by a new title as legatee under her will, and
a new beneficial interest was created, both derived through the
exercise of her power of disposition. The resulting situation was
no different from what it would have been if she had bequeathed
the
Page 307 U. S. 372
intangibles upon a new trust to a new and different trustee,
either within or without the state of Alabama. So far as the power
of Tennessee to tax the exercise of the power of appointment is
concerned, there is no substantial difference between the present
case and any other case in which, at the moment of death, the
evidences of intangibles passing under the will of a decedent
domiciled in one state are physically present in another.
See
Blodgett v. Silberman, supra; Baldwin v. Missouri, supra.
It has hitherto been the accepted law of this Court that the
state of domicile may constitutionally tax the exercise or
nonexercise at death of a general power of appointment, by one who
is both donor and donee of the power, relating to securities held
in trust in another state.
Bullen v. Wisconsin, supra. If
it be thought that it is identity of the intangibles with the
person of the owner at the place of his domicile which gives power
over them, and hence "jurisdiction to tax," and this is the reason
underlying the maxim
mobilia sequuntur personam, it is
certain here that the intangibles for some purposes are identified
with the trustee, their legal owner at the place of its domicile
and that in another and different relationship and for a different
purpose -- the exercise of the power of disposition at death, which
is the equivalent of ownership -- they are identified with the
place of domicile of the testatrix, Tennessee. In effecting her
purposes, the testatrix brought some of the legal interests which
she created within the control of one state by selecting a trustee
there, and others within the control of the other state by making
her domicile there. She necessarily invoked the aid of the law of
both states, and her legatees, before they can secure and enjoy the
benefits of succession, must invoke the law of both.
We can find nothing in the history of the Fourteenth Amendment,
and no support in reason, principle, or authority, for saying that
it prohibits either state, in the
Page 307 U. S. 373
circumstances of this case, from laying the tax. On the
contrary, this Court, in sustaining the tax at the place of
domicile in a case like the present, has declared that both the
decedent's domicile and that of the trustee are free to tax.
Bullen v. Wisconsin, supra, 240 U. S. 631;
cf. Keeney v. Comptroller of New York, 222 U.
S. 525,
222 U. S. 537;
Guaranty Trust Co. v. Blodgett, 287 U.
S. 509. That has remained the law of this Court until
the present moment, and we see no reason for discarding it now. We
find it impossible to say that taxation of intangibles can be
reduced in every case to the mere mechanical operation of locating
at a single place, and there taxing, every legal interest growing
out of all the complex legal relationships which may be entered
into between persons. This is the case because, in point of
actuality, those interests may be too diverse in their
relationships to various taxing jurisdictions to admit of unitary
treatment without discarding modes of taxation long accepted and
applied before the Fourteenth Amendment was adopted, and still
recognized by this Court as valid.
See Paddell v. New York,
supra, 211 U. S. 448.
The Fourteenth Amendment cannot be carried out with such mechanical
nicety without infringing powers which we think have not yet been
withdrawn from the states. We have recently declined to press to a
logical extreme the doctrine that the Fourteenth Amendment may be
invoked to compel the taxation of intangibles by only a single
state by attributing to them a situs within that state. [
Footnote 7] We think it cannot be
pressed so far here.
If we enjoyed the freedom of the framers, it is possible that we
might, in the light of experience, devise a more equitable system
of taxation than that which they gave us. But we are convinced that
that end cannot be attained by the device of ascribing to
intangibles in every case a locus for taxation in a single state
despite the
Page 307 U. S. 374
multiple legal interests to which they may give rise and despite
the control over them or their transmission by any other state and
its legitimate interest in taxing the one or the other. While
fictions are sometimes invented in order to realize the judicial
conception of justice, we cannot define the constitutional guaranty
in terms of a fiction so unrelated to reality without creating as
many tax injustices as we would avoid, and without exercising a
power to remake constitutional provisions which the Constitution
has not given to the courts.
See Bristol v. Washington County,
supra, 177 U. S. 145;
Kidd v. Alabama, 188 U. S. 730,
188 U. S. 732,
quoted with approval in
Hawley v. Malden, supra,
232 U. S. 13;
Bullen v. Wisconsin, supra, 240 U. S. 630;
Fidelity & Columbia Trust Co. v. Louisville, supra,
245 U. S. 58;
Cream of Wheat Co. v. County of Grand Forks, supra,
253 U. S. 330.
So far as the decree of the Supreme Court of Tennessee denies
the power of Alabama to tax, it is
Reversed.
MR. JUSTICE REED concurs in this opinion except as to the
statement that
"taxation of a corporation by a state where it does business,
measured by the value of the intangibles used in its business
there, does not preclude the state of incorporation from imposing a
tax measured by all its intangibles."
Upon this point, he reserves his conclusion.
[
Footnote 1]
See, in the case of income taxation,
Lawrence v.
State Tax Comm'n, 286 U. S. 276;
New York ex rel. Cohn v. Graves, 300 U.
S. 308;
Guaranty Trust Co. v. Virginia,
305 U. S. 19;
cf. Senior v. Braden, 295 U. S. 422,
295 U. S.
431-432. And, in the case of taxation of shares of
stock,
see Corry v. Baltimore, 196 U.
S. 466;
First Bank Stock Corp. v. Minnesota,
301 U. S. 234,
301 U. S.
239-240;
Schuylkill Trust Co. v. Pennsylvania,
302 U. S. 506,
302 U. S.
514-516.
[
Footnote 2]
Green v. Van
Buskirk, 5 Wall. 307;
74 U. S. 7 Wall.
139;
Pennoyer v. Neff, 95 U. S. 714;
Arndt v. Griggs, 134 U. S. 316;
Fall v. Eastin, 215 U. S. 1;
Olmsted v. Olmsted, 216 U. S. 386;
United States v. Guaranty Trust Co., 293 U.
S. 340,
293 U. S.
345-346;
Paddell v. City of New York,
211 U. S. 446;
St. Louis v. Ferry
Co., 11 Wall. 423,
78 U. S. 430;
Frick v. Pennsylvania, 268 U. S. 473;
see Story, Conflict of Laws (8th ed.), §§ 550, 551; Dicey,
Conflict of Laws (5th ed.), pp. 418
et seq., 583
et
seq., 606
et seq.; 1 Beale, Conflict of Laws, § 48.1
et seq.; American Law Institute, Restatement of Conflict
of Laws, §§ 48, 49; 2 Cooley, Taxation (4th ed.), §§ 447, 451.
[
Footnote 3]
But there are many legal interests other than conventional
ownership which may be created with respect to land of such a
character that they may be constitutionally subjected to taxation
in states other than that, where the land is situated. No one has
doubted the constitutional power of a state to tax its domiciled
residents on their shares of stock in a foreign corporation whose
only property is real estate located elsewhere,
Darnell v.
Indiana, 226 U. S. 390;
Hawley v. Malden, 232 U. S. 1;
cf.
Kidd v. Alabama, 188 U. S. 730;
Corry v. Baltimore, 196 U. S. 466;
Cream of Wheat Co. v. County of Grand Forks, 253 U.
S. 325,
253 U. S. 329;
Schuylkill Trust Co. v. Pennsylvania, 302 U.
S. 506,
302 U. S.
514-516, or to tax a valuable contract for the purchase
of land or chattels located in another state,
see Citizens
National Bank v. Durr, 257 U. S. 99,
257 U. S. 108;
cf. Gish v. Shaver, 140 Ky. 647, 650, 131 S.W. 515;
Golden v. Munsinger, 91 Kan. 820, 823, 139 P. 379;
Marquette v. Michigan Iron & Land Co., 132 Mich. 130,
92 N.W. 934, or to tax a mortgage of real estate located without
the state, even though the land affords the only source of payment,
see Kirtland v. Hotchkiss, 100 U.
S. 491;
cf. Savings & Loan Society v. Multnomah
County, 169 U. S. 421;
Bristol v. Washington County, 177 U.
S. 133;
Paddell v. New York, 211 U.
S. 446. Each of these legal interests finds its only
economic source in the value of the land, and the rights which are
elsewhere subjected to the tax can be brought to their ultimate
fruition only through some means of control of the land itself. But
the means of control may be subjected to taxation in the state of
its owner whether it be a share of stock or a contract or a
mortgage. There is no want of jurisdiction to tax these interests
where they are owned in the sense that the state lacks power to
appropriate them to the payment of the tax. No court has condemned
such action as so capricious, arbitrary, or oppressive as to bring
it within the prohibition of the Fourteenth Amendment, for it is
universally recognized that these interests are of themselves in
some measure clothed with the legal incidents of property enjoyed
by their owner, in the state where he resides, through the benefit
and protection of its laws.
[
Footnote 4]
See Footnote 1
ante.
[
Footnote 5]
See also Footnote 2
ante.
[
Footnote 6]
No comparable right or power resided in the beneficiaries upon
whom a tax was sought to be levied in
Safe Deposit & Trust
Co. v. Virginia, 280 U. S. 83,
280 U. S.
91.
[
Footnote 7]
See Footnote 1
ante.
MR. JUSTICE BUTLER, dissenting.
The sole question is whether, on the facts about to be stated,
the Tennessee inheritance tax law, consistently with the due
process clause of the Fourteenth Amendment, may be extended to
intangible personal property evidenced by certificates of stock and
bonds held in Alabama.
The suit was brought in a chancery court of Tennessee under the
declaratory judgments act of that State. [
Footnote 2/1] Complainants
Page 307 U. S. 375
were the Nashville Trust Company, a Tennessee corporation
appointed by the will of Mrs. Grace C. Scales as executor for
Tennessee, and the Title Guarantee Loan & Trust Company, which
will be referred to as the Birmingham trust company, an Alabama
corporation appointed as executor for that State. Defendants were
the Commissioner of Finance and Taxation of Tennessee, and the
members of the Alabama Tax Commission. The bill prayed that the
court determine what portions of the estate are taxable by
Tennessee and what portions are taxable by Alabama. The Tennessee
commissioner filed answer praying declaration and decree that the
securities held in Alabama are subject to the inheritance tax law
of Tennessee. [
Footnote 2/2] The
members of the Alabama commission filed their answer and a
cross-bill praying decree in favor of that State and against the
Birmingham trust company for the tax claimed under the laws of
Alabama. [
Footnote 2/3]
Page 307 U. S. 376
The parties stipulated that the facts are as stated in the
pleadings. In substance, they are as follows:
At all times involved in this case, Mrs. Scales was a resident
of and domiciled in Tennessee. Her brother, formerly living in
Alabama, died in 1905 leaving a will that bequeathed to the
Birmingham trust company stocks and bonds issued by Alabama
corporations to be held in trust for the use and benefit of his
widow and at her death to be delivered to Mrs. Scales. The widow
died in 1917. Immediately, December 29, 1917, and without taking
any of them from the possession of the trust company, Mrs. Scales
executed jointly with it an indenture covering the stocks and bonds
of which she had become owner under her brother's will.
By paragraph 1, she transferred 50 bonds to the trust company as
trustee for the use and benefit of her son, and directed that it
hold and manage the property and pay net income to him during his
life, and that, subject to his power of disposition by will, all
property belonging to the trust at the time of his death should go
to his children. By paragraph 2, she transferred to the same
company 50 other bonds to be held in trust for the benefit of her
daughter subject to trusts, conditions, and power of testamentary
appointment by her daughter like those specified in the provisions
creating the trust for her son.
By paragraph 3, she transferred to the same trustee the balance
of the property by it to be held in trust and managed for specified
uses and purposes and upon terms and conditions in substance as
follows: (a) She directed the trustee to pay the income to her
while she lived. (b) She reserved the right by will to dispose of
all the trust property. (c) She directed that, if she made no
disposition
Page 307 U. S. 377
by will, the trustee should pay $200 per month out of income to
her husband during his life and the balance of income to her son
and daughter during their lives; that the child or children of
either, if dead, should receive the share of income which the
parent would have received if living; that one-half of the property
in the trust at the time of her death be transferred to the trust
created for her son, and that the other half be transferred to the
trust created for her daughter. (d) She reserved power at any time
that she deemed income insufficient for her support to direct the
trustee to sell a part of the trust property and to give her the
amount received for it, and retained the right to direct transfer
to her son or daughter of any portion of the trust property, and
(e) the right to direct investments. She retained authority to
remove the trustee and to appoint a successor. As to nearly all the
property held in trust under paragraph 3, Mrs. Scales, her son,
daughter, and the trustee, January 11, 1929, executed a writing
releasing the power reserved to encroach on or dispose of
corpus.
January 1, 1926, Mrs. Scales exerted the power by will to
dispose of the trust property. Item two recites that she had
reserved the right to dispose by will of property conveyed to the
trustee under paragraph 3 of the trust agreement, and provides:
"Now therefore desiring to exercise the right to dispose of the
said trust property, I do hereby give, devise, and bequeath all of
the property custody of said Title Guarantee Loan & Trust
Company . . . at the time of my death to the said company, as
trustee, the same to be held by it in trust upon the uses and
trusts, terms, conditions, and limitations hereinafter set forth in
this item of my will."
Section one of that item directs that from the trust estate
there shall be set aside property of the value of $100,000 to be
held in trust as there specified for her
Page 307 U. S. 378
daughter and her daughter's children. Section two makes like
provision for her son and his children. Section three directs that,
after the trust property shall be set aside as specified in
sections one and two, the balance in the hands of the trustee shall
be given in equal shares to her daughter and son to be theirs
absolutely.
An amendment to the answer of the members of the Alabama Tax
Commission alleges, and by stipulation the other parties admit,
that from the trust indenture it fully appears that the title,
possession, and control of the securities passed completely to the
Birmingham trust company and that such was the status of the
securities at the time of the death of Mrs. Scales. That amendment
also alleges, and the stipulation admits, that she never exercised
the right reserved to her to remove the trustee, and that the trust
property could not have been removed from Alabama except upon an
order of a circuit court and in compliance with the statutes of
that State. [
Footnote 2/4]
The chancery court found that, at the time of the death of Mrs.
Scales, the securities in question "had a legal situs analogous to
the situs of tangible personal property in the Alabama." It decreed
that Alabama may legally impose upon them a death transfer or
succession tax, and that, insofar as the inheritance tax law of
Tennessee attempts to impose the tax claimed by that State, it
violates the due process clause of the Fourteenth Amendment.
The state supreme court reversed the chancery court. It held
that the securities were not so used in Alabama as to give them a
situs there; that, when Mrs. Scales died, the situation was the
same as though there never had been a trust, and that the property
passed under the will as her absolute property. It entered a decree
declaring the property taxable in Tennessee, and not taxable in
Alabama.
Page 307 U. S. 379
The Tennessee commissioner and the members of the Alabama
commission respectively claim the right to impose an inheritance or
death succession tax based upon the value of all the property held
in the trust at the time of the death of Mrs. Scales. Rightly, the
parties agreed and the state courts assumed that, consistently with
the due process clause of the Fourteenth Amendment, both States may
not impose transfer taxes in respect of the same property.
Frick v. Pennsylvania, 268 U. S. 473,
268 U. S.
489-494;
Farmers' Loan & Trust Co. v.
Minnesota, 280 U. S. 204,
280 U. S.
210-212;
Baldwin v. Missouri, 281 U.
S. 586,
281 U. S. 591;
Beidler v. South Carolina Tax Comm'n, 282 U. S.
1,
282 U. S. 7-8;
First National Bank v. Maine, 284 U.
S. 312,
284 U. S. 328;
City Bank Farmers' Trust Co. v. Schnader, 293 U.
S. 112,
293 U. S.
116-117.
See Burnet v. Brooks, 288 U.
S. 378,
288 U. S.
401-402;
Senior v. Braden, 295 U.
S. 422,
295 U. S. 432;
Wheeling Steel Corp. v. Fox, 298 U.
S. 193,
298 U. S.
209-210;
New York ex rel. Whitney v. Graves,
299 U. S. 366,
299 U. S. 372;
New York ex rel. Cohn v. Graves, 300 U.
S. 308,
300 U. S.
314-315;
Worcester County Trust Co. v. Riley,
302 U. S. 292,
302 U. S.
297-298. No distinction is suggested between the
securities covered by the relinquishment, January 11, 1929, of the
right reserved to encroach upon and to direct transfer from the
corpus and the small part to which the relinquishment did not
extend. And, as the parties and the state courts have treated all
alike, this Court may decide upon title and taxability as if the
relinquishment covered all.
The parties agree that, upon execution of the indenture, title,
possession, and control passed completely to the trustee, and so
continued until the death of Mrs. Scales. There being no provision
authorizing revocation, the grant was irrevocable. Perry on Trusts
and Trustees (7th ed.) § 104. 4 Bogert, Trusts and Trustees, § 993.
Keyes v. Carleton, 141 Mass. 45, 49, 6 N.E. 524;
Ewing
v. Jones, 130 Ind. 247, 254-255, 29 N.E. 1057;
Bath
Savings Institution v. Hathorn, 88 Me. 122, 128, 129, 33 A.
836;
Page 307 U. S. 380
Wilson v. Anderson, 186 Pa. 531, 537, 40 A. 1096;
Hellman v. McWilliams, 70 Cal. 449, 453, 11 P. 659;
Strong v. Weir, 47 S.C. 307, 323, 25 S.E. 157.
Unquestionably it presently vested full legal and equitable title
in the trustee and beneficiaries, subject to be divested only by
the exertion by Mrs. Scales of her power of appointment by will.
Coolidge v. Long, 282 U. S. 582,
282 U. S. 597;
Marvin v. Smith, 46 N.Y. 571, 575;
Carroll v.
Smith, 99 Md. 653, 658
et seq., 59 A. 131;
Boone
v. Davis, 64 Miss. 133, 140, 8 So. 202. That power did not
amount to an estate or interest in the trust property.
United
States v. Field, 255 U. S. 257,
255 U. S. 263;
Porter v. Commissioner, 288 U. S. 436,
288 U. S. 441.
All doubt as to that is precluded by the clause of the indenture
which provides that, in the absence of disposition by her will, the
property shall continue to be held in trust for purposes there
specified.
The reserved authority to direct investment contemplates action
as trustee, and not control as owner.
Reinecke v. Trust
Co., 278 U. S. 339,
278 U. S.
346-347. The authority to remove the trustee and to
appoint a successor detracts nothing from the plenary grant of
title.
See Bowditch v. Banuelos, 1 Gray, Mass. 220, 230.
When read, as it must be, in connection with the provisions of the
Alabama statute above referred to, that provision of the indenture
does not reserve power to remove that trust securities from the
Alabama.
As the death of Mrs. Scales and taking effect of her will were
coincident, the legal title remained in the trustee. The purposes
Mrs. Scales intended to effect by the trusts defined by her will
are like those she intended to serve by the trusts created by the
indenture, which, in absence of will, were to continue after death.
Stripped of mere legalism, and taken according to substance, the
will operated to amend and continue the trusts created by the
indenture. Questions of power to tax are governed by the substance
of things, rather than by technical rules
Page 307 U. S. 381
concerning title.
Tyler v. United States, 281 U.
S. 497,
281 U. S.
503.
It follows that, save her right to income, Mrs. Scales, after
her relinquishment, January 11, 1929, and, at the time of her
death, had no estate or interest in the securities held by the
trustee. There is no basis for application of the fiction
mobilia sequuntur personam. Wachovia Bank & Trust
Co. v. Doughton, 272 U. S. 567,
272 U. S. 575;
Brooke v. Norfolk, 277 U. S. 27,
277 U. S. 29;
Safe Deposit & Trust Co. v. Virginia, 280 U. S.
83,
280 U. S. 92,
280 U. S. 94;
McMurtry v. State, 111 Conn. 594, 151 A. 252;
In re
Estate of Bowditch, 189 Cal. 377, 208 P. 282;
Matter of
Canda's Estate, 197 App.Div. 597, 189 N.Y.S. 917.
Cf.
Bullen v. Wisconsin, 240 U. S. 625.
Tennessee may not impose the inheritance tax claimed in this suit
by its Commissioner of Finance and Taxation.
Moreover, if, contrary to the indenture as above construed, it
should be held that, at the time of her death, Mrs. Scales, in
addition to having power of appointment by will, owned an interest
in the trust property, Tennessee would nevertheless be without
power to impose a tax on the transfer of that interest, because the
intangibles in question had no situs in that State.
Intangibles, like tangibles, may be so held and used outside the
the domicil of the owner as to become taxable in the State where
kept.
See, e.g., New Orleans v. Stempel, 175 U.
S. 309;
Bristol v. Washington County,
177 U. S. 133,
177 U. S. 143
et seq.; State Board of Assessors v. Comptoir National,
191 U. S. 388;
Scottish Union & Nat. Ins. Co. v. Bowland,
196 U. S. 611,
196 U.S. 619-620;
Metropolitan Life Ins. Co. v. New Orleans, 205 U.
S. 395,
205 U. S. 402;
Liverpool & London & Globe Ins. Co. v. Board of Orleans
Assessors, 221 U. S. 346,
221 U. S. 353.
The general rule of
mobilia sequuntur personam must yield
to the established fact of legal ownership, actual presence, and
control in a State other than that of the domicil of the owner. The
phrase "business situs," as used to support jurisdiction of a
State
Page 307 U. S. 382
other than that of the domicil of the owner to impose taxes on
intangible personal property is a metaphorical expression of vague
signification; its meaning is not limited to investment or actual
use as an integral part of a business or activity, but may extend
to the execution of trusts such as those created by the indenture
and imposed on the trustee in this case.
De Ganay v.
Lederer, 250 U. S. 376,
250 U. S.
381-382;
New York ex rel. Whitney v. Graves,
supra, 299 U. S. 372
et seq.; Wheeling Steel Corp. v. Fox, supra, 298 U. S. 211;
First Bank Stock Corp. v. Minnesota, 301 U.
S. 234.
The stock certificates, bonds, or other documents evidencing the
intangibles constituting the trust property were never held in
Tennessee. Neither their issue or validity nor the enforcement or
transfer,
inter vivos or from the dead to the living, of
any right attested or supported by them was at all dependent on the
laws of that State. [
Footnote 2/5]
From the beginning, the trust estate has been under the protection
of, and necessarily the trusts have been and are being executed
under, the laws of Alabama, unaffected by those of any other State.
See Hutchison v. Ross, 262 N.Y. 381, 394, 187 N.E. 65;
Sewall v. Wilmer, 132 Mass. 131, 137.
At least since 1917, Mrs. Scales had no power to remove the
trust or any of the trust property from Alabama. Exertion of any
right or power reserved to her by the indenture was dependent on
the laws of Alabama, and not upon or subject to those of Tennessee,
where she happened to have her domicil.
Wachovia Bank &
Trust Co. v. Doughton, ubi supra. Subject to the laws of
Alabama, all transactions in which the trust properties were
capable of being used were identified with that State. The
securities, held there not only for safekeeping but as well for
collection of income and principal, and subject to sale and
reinvestment of proceeds, could not be more completely
Page 307 U. S. 383
localized anywhere.
De Ganay v. Lederer, ubi supra.
The judgment of the Supreme Court of Tennessee should be
reversed, and the case remanded to that court for further
proceedings in accordance with this opinion.
MR. CHIEF JUSTICE HUGHES, MR. JUSTICE McREYNOLDS, and MR.
JUSTICE ROBERTS join in this opinion.
[
Footnote 2/1]
Tennessee Code, 1932, §§ 8835-8847.
[
Footnote 2/2]
Tennessee Code, 1932:
"Section 1259. Subdivision 1. A tax is imposed . . . upon
transfers, in trust or otherwise, of the following property, or any
interest therein or accrued income therefrom: (a) When the transfer
is from a resident of this state. . . . (3) All intangible personal
property. . . . Section 1260. Subdivision 2. The transfers
enumerated in subdivision 1 . . . shall be taxable if made -- (a)
By a will. . . ."
[
Footnote 2/3]
Alabama General Revenue Act, approved July 10, 1935, Art. XII,
c. 2 (Acts 1935, p. 434
et seq.): Section 347.1:
". . . there is hereby levied and imposed upon all net estates
passing by will, devise, or under the intestate laws of the
Alabama, or otherwise, which are lawfully subject to the imposition
of an estate tax by the Alabama, a tax equal to the full amount of
State tax permissible when levied by and paid to the Alabama as a
credit or deduction in computing any federal estate tax payable by
such estate according to the Act of Congress in effect, on the date
of the death of the decedent, taxing such estate, with respect to
the items subject to taxation in Alabama. . . ."
Section 347.7:
". . . all of the provisions of this Chapter shall be applicable
to so much of the estates of nonresident decedents as is subject to
estate tax under the Act of Congress in effect at the time of the
death of decedent as consists of real estate or tangible personal
property located within this State, or other item of property or
interest therein lawfully subject to the imposition of an estate
tax by the Alabama. . . ."
[
Footnote 2/4]
Alabama Code, 1928, §§ 10418-10421.
[
Footnote 2/5]
See 307
U.S. 357fn2/4|>footnote 4.