Decedent, while domiciled in Colorado, transferred to a Colorado
bank certain bonds to be held upon certain specified trusts with
specified powers in the trustee to administer, invest, reinvest,
etc. The trust indenture provided that the trustee should pay over
the income to decedent's daughter for life and afterward to the
daughter's children until each had reached the age of twenty-five
years, when a proportionate share of the principal of the trust
fund was to be paid over to such child. In default of such
children, the principal was to revert to decedent and pass under
her will. She reserved the right to remove the trustee, to change
any beneficiary of the trust, and to revoke the trust and revest
herself with the title to the property, the trustee in that event
undertaking to assign and deliver to her all the securities then
constituting the trust fund. After creating the trust, decedent
became and remained a domiciled resident of New York, where she
died without appointing new beneficiaries of the trust or revoking
it. Meanwhile, the trustee continued to administer the trust and
held possession of the bonds evidencing the intangible property of
the fund. Following her death, the taxing authorities of Colorado
assessed a tax on the transmission at death of the trust fund.
Held, that the State of New York could constitutionally
levy a
Page 307 U. S. 384
transfer tax upon the relinquishment at death of the power of
revocation, measured by the value of the intangibles.
Curry v.
McCanless, ante, p.
307 U. S. 357. P.
307 U. S.
386.
274 N.Y. 10, 634, 8 N.E.2d 42. 10 N.E.2d 587, reversed.
Certiorari, 305 U.S. 667, to review a judgment, entered on
remittitur from the Court of Appeals of New York, which reversed an
order of the Surrogates' Court confirming a transfer tax
assessment. 248 App.Div. 713, 153 Misc. 70.
MR. JUSTICE STONE delivered the opinion of the Court.
We are asked to say whether the New York may constitutionally
tax the relinquishment at death, by a domiciled resident of the
state, of a power to revoke a trust of intangibles held by a
Colorado trustee.
Decedent, in 1924, while a resident of Colorado, transferred and
delivered to Denver National Bank of Denver, Colorado, certain
bonds to be held upon specified trusts with specified powers in the
trustee to administer the trust and to invest and reinvest the
trust fund. So far as now material, the trust indenture provided
that the trustee should pay over the income to decedent's daughter
for life, and afterward to the daughter's children until
Page 307 U. S. 385
each had reached the age of twenty-five years, when a
proportionate share of the principal of the trust fund was to be
paid over to such child. In default of such children, the principal
was to revert to decedent and pass under her will. She reserved the
right to remove the trustee, to change any beneficiary of the
trust, and to revoke the trust and revest herself with the title to
the property, the trustee in that event undertaking to assign and
deliver to her all the securities then constituting the trust
fund.
After creating the trust, decedent became and remained a
domiciled resident of New York, where she died in 1931 without
appointing new beneficiaries of the trust or revoking it. Until her
death, the trust was administered by the bank at its offices in
Colorado, and the paper evidences of the intangibles -- corporate
bonds -- comprising the trust fund remained in the possession of
the trustee in Colorado.
Following her death, the taxing authorities of Colorado assessed
a tax on the transmission at death of the trust fund. Proceedings
in New York for the assessment of estate taxes on the transfer of
the trust fund at decedent's death resulted in an order of the
Surrogate confirming the assessment under §§ 249-n, 249-r of the
New York Tax Law. Consol.Laws, ch. 60.
* On appeal, the
New York
Page 307 U. S. 386
Court of Appeals,
In re Brown's Estate, 274 N.Y. 10, 8
N.E.2d 42, reversed the order of the Surrogate, holding that, so
far as the provisions of the New York Tax Law purport to include
the intangible trust property in the gross estate, they infringe
due process by imposing a tax on property whose situs is outside
the state. We granted certiorari November 14, 1938, the question
involved being of public importance.
The essential elements of the question presented here are the
same as those considered in
Curry v. McCanless, ante, p.
307 U. S. 357. As
is there pointed out, the power of disposition of property is the
equivalent of ownership. It is a potential source of wealth, and
its exercise in the case of intangibles is the appropriate subject
of taxation at the place of the domicile of the owner of the power.
The relinquishment at death, in consequence of the nonexercise in
life, of a power to revoke a trust created by a decedent is
likewise an appropriate subject of taxation.
Saltonstall v.
Saltonstall, 276 U. S. 260;
Reinecke v. Northern Trust Co., 278 U.
S. 339;
Helvering v. City Bank Farmers Trust
Co., 296 U. S. 85;
cf. Keeney v. New York, 222 U. S. 525;
Bullen v. Wisconsin, 240 U. S. 625;
Chase National Bank v. United States, 278 U.
S. 327;
Tyler v. United States, 281 U.
S. 497;
Guaranty Trust Co. v. Blodgett,
287 U. S. 509;
Porter v. Commissioner, 288 U. S. 436.
For reasons stated in our opinion in
Curry v. McCanless,
supra, we cannot say that the legal interest of decedent in
the intangibles held in trust in Colorado was so
Page 307 U. S. 387
dissociated from her person as to be beyond the taxing
jurisdiction of the state of her domicile more than her other
rights in intangibles. Her right to revoke the trust and to demand
the transmission to her of the intangibles by the trustee and the
delivery to her of their physical evidences was a potential source
of wealth, having the attributes of property. As in the case of any
other intangibles which she possessed, control over her person and
estate at the place of her domicile and her duty to contribute to
the support of government there afford adequate constitutional
basis for imposition of a tax measured by the value of the
intangibles transmitted or relinquished by her at death.
Curry
v. McCanless, supra, and cases cited.
Reversed.
* § 249-n imposes a tax at specified rates upon the net estate
of every person dying a resident of the state. For the purpose of
fixing the amount of the net estate, § 249-r includes in the value
of the gross estate of the decedent the value of all property of
the decedent "except real property situated and tangible personal
property having an actual situs outside this state,"
"3. To the extent of any interest therein of which the decedent
has at any time made a transfer, by trust or otherwise, in
contemplation of or intended to take effect in possession or
enjoyment at or after his death, including a transfer under which
the transferor has retained for his life or any period not ending
before his death (a) the possession or enjoyment of, or the income
from, the property or (b) the right to designate the persons who
shall possess or enjoy the property or the income therefrom. . .
."
"4. To the extent of any interest therein of which the decedent
has at any time made a transfer, by trust or otherwise, where the
enjoyment thereof was subject at the date of his death to any
change through the exercise of a power, either by the decedent
alone or in conjunction with any person, to alter, amend, or
revoke. . . ."
MR. CHIEF JUSTICE HUGHES, dissenting.
I think that the decision in this case pushes the fiction of
mobilia sequuntur personam to an unwarranted extreme, and
thus unnecessarily produces an unjust result.
The same property is subjected to an inheritance or transfer tax
by two States. The decedent, in 1924, while a resident of Colorado,
created a trust in certain securities, consisting of federal, state
and other bonds. The trustee was a Denver bank. The income of the
trust property was payable to the settlor's daughter during her
life, and thereafter to her children until they respectively
arrived at the age of twenty-five years, when they were to have the
principal in equal shares. If the daughter left no children, the
trust estate was to revert to the settlor. The settlor reserved the
right to change the beneficiaries, to revoke the trust, and to
remove the trustee. The legal title to the securities was thus
vested in the trustee, which entered upon its administration and
continued it both
Page 307 U. S. 388
before and after the settlor's death. There was no revocation of
the trust or change of beneficiary or trustee, or diversion of the
income from the use of the daughter, and the beneficiaries were all
living when the settlor died.
Prior to her death, the settlor removed to New York. The trust
res continued to be in Colorado. An inheritance tax upon
the decedent's property situated in Colorado, and including the
bonds held there in trust, was imposed by that State. The New York
Court of Appeals has held, and I think rightly, that this trust
property was not subject to an estate tax in New York.
In re
Brown's Estate, 274 N.Y. 10, 8 N.E.2d 42.
It is true that the Constitution of the United States contains
no specific provision against double taxation, but the Constitution
does impose limitations upon the taxing power of a State which I
think are applicable, and should prevent a double exaction in this
case.
The principle governing the application of the due process
clause of the Fourteenth Amendment to the State's taxing power is
well established. That principle, as repeatedly declared by this
Court, and apparently not disputed now, is that it is "essential to
the validity of a tax that the property shall be within the
territorial jurisdiction of the taxing power."
Union
Refrigerator Transit Co. v. Kentucky, 199 U.
S. 194,
199 U. S. 204.
What is meant is that due process in taxation requires that the
property shall be attributable to the domain of the State which
imposes the tax. This rule has its most familiar illustration in
the case of land, which, to be taxable, must be within the limits
of the taxing State. The fact that the owner is domiciled within a
State, if the land is elsewhere, does not give the State of his
domicile the authority to tax. In
Union Refrigerator Transit
Co. v. Kentucky, supra, we held that the principle against the
taxability of land within another jurisdiction applies with equal
cogency to tangible personal property having an actual situs
outside the State's domain. True, the fiction expressed in the
maxim
mobilia
Page 307 U. S. 389
sequuntur personam might have seemed to justify such a
tax on personal property by the the owner's domicile. But, as said
in
Pullman's Car Co. v. Pennsylvania, 141 U. S.
18,
141 U. S.
22:
"The old rule, expressed in the maxim
mobilia sequuntur
personam, by which personal property was regarded as subject
to the law of the owner's domicil, grew up in the Middle Ages, when
movable property consisted chiefly of gold and jewels, which could
be easily carried by the owner from place to place, or secreted in
spots known only to himself. In modern times, since the great
increase in amount and variety of personal property not immediately
connected with the person of the owner, that rule has yielded more
and more to the
lex situs -- the law of the place where
the property is kept and used."
The rule thus established that the the owner's domicile cannot
tax tangible personal property which has an actual situs in another
State was applied by this Court to an inheritance or transfer tax
in the case of
Frick v. Pennsylvania, 268 U.
S. 473. There, the Court held, without division, that to
tax the transfer of tangible personal property having an actual
situs in another State "contravenes the due process . . . clause of
the Fourteenth Amendment." The importance of this limitation of
state power is obvious in view of the interrelation of the States
under the bond of the Constitution, and of the opportunities for
oppressive taxation if States attempt to tax property or transfers
of property not properly attributable to their own domain. "The
limits of state power are defined in view of the relation of the
states to each other in the Federal Union."
Burnet v.
Brooks, 288 U. S. 378,
288 U. S.
401.
But, while the question was thus settled as to tangible personal
property, the fiction of
mobilia sequuntur personam still
persists in a general sense as to intangibles, embracing
securities, thus permitting taxation by the States of the owner's
domicile although the owner may
Page 307 U. S. 390
keep the securities in another State.
Blodgett v.
Silberman, 277 U. S. 1,
277 U. S. 9,
277 U. S. 14,
277 U. S. 16.
This general rule proceeds in the view that intangibles, as such,
are incapable of an actual physical location, and that to attribute
to them a "situs" is to indulge in a metaphor. Still, in certain
circumstances, the use of the metaphor is appropriate.
New York
ex rel. Whitney v. Graves, 299 U. S. 366,
299 U. S.
372.
The fact that this rule of convenience may generally be applied
does not justify the conclusion that intangibles can never be so
effectively localized in another State as to withdraw them from the
taxing power of the domiciliary State. The proper use of a legal
fiction is to prevent injustice, and it should not be unnecessarily
extended so as to work an injury.
Union Refrigerator Transit
Co. v. Kentucky, supra, p.
199 U. S.
208.
As we said in
Safe Deposit & Trust Co. v. Virginia,
280 U. S. 83,
280 U. S. 92,
the fiction of
mobilia sequuntur personam
"must yield to established fact of legal ownership, actual
presence and control elsewhere, and ought not to be applied if so
to do would result in inescapable and patent injustice whether
through double taxation, or otherwise."
In that case, a resident of Virginia had transferred certain
securities to the Safe Deposit & Trust Company of Baltimore in
trust for his minor sons. The donor reserved to himself a power of
revocation. He died without having exercised it. Virginia undertook
to impose an
ad valorem tax upon the entire corpus of the
trust estate, and this Court held that, as the securities were
subject to taxation in Maryland, where they were in the actual
possession of the trustee, the holder of the legal title, they had
no legal situs for taxation in Virginia "unless the legal fiction
mobilia sequuntur personam was [is] applicable and
controlling." The Virginia court had held that the two
beneficiaries, in conjunction with the administrator of the
father's estate, really owned the trust fund, and that, by reason
of the fiction, its taxable situs followed them.
Page 307 U. S. 391
This Court refused to accept that view, and denied the right of
taxation to Virginia, saying:
"It would be unfortunate, perhaps amazing, if a legal fiction
originally invented to prevent personalty from escaping just
taxation should compel us to accept the irrational view that the
same securities were within two states at the same instant, and,
because of this, to uphold a double and oppressive assessment."
That was a case of an
ad valorem property tax. But the
power to impose an inheritance or transfer tax, as well as the
power to impose an
ad valorem property tax, depends upon
the property's being attributable to the domain of the taxing
State.
Frick v. Pennsylvania, supra, p.
268 U. S.
492.
In the instant case, the legal title to the property in question
is in the Colorado trustee, the trust was created under the
Colorado law, and its administration is subject to the control of
Colorado. To say that these securities are not as effectively
localized in Colorado as were the furniture, pictures, and other
art treasures of Mr. Frick in New York and Massachusetts, where
alone their transfer could be taxed, would be to ignore realities
and to make important rights turn upon a verbal distinction.
Upon what ground, then, is it maintained that these securities
are within the taxing power of New York? Solely, it appears, upon
the ground that the indenture creating the trust in Colorado
reserved to the settlor a power of revocation. This unexercised
power is treated as carried by the settlor into New York, and hence
as bringing in its train the entire corpus of the trust property.
That results, as already noted, in giving the fiction an oppressive
operation. But, aside from that practical aspect, if, through the
trust in Colorado, the securities have been effectively localized
in that State, why should an unexercised power of revocation alter
their status? Mr. Frick did not even need to revoke an instrument,
for at
Page 307 U. S. 392
any time he could have removed his furniture and art treasures
from New York and Massachusetts to his domicile in Pennsylvania.
But that obvious control, while unexercised, did not detract from
the taxing power of the States where the property was, or permit
taxation by the domiciliary State.
It is said that the power of disposition is equivalent to
ownership, and that its relinquishment at death is an appropriate
subject of taxation. The case of federal taxation is not analogous,
as there are no state boundaries to be considered when the federal
tax is laid. Nor are state cases relevant when there is no
attempted extraterritorial application of a state statute, and it
is not necessary again to review the authorities cited in the
dissenting opinion in
Curry v. McCanless, ante, p.
307 U. S. 357. For
the present purpose, it is sufficient to note that, under the
principle established in
Frick v. Pennsylvania, supra, it
is not enough to say that a power of disposition is equivalent to
ownership, for ownership by a resident of a State gives that State
no authority to tax property not attributable to its domain. Mr.
Frick owned his property in New York and Massachusetts, but still
his own Pennsylvania could not tax its transfer.
The fundamental question is thus not one of a reserved but
unexercised power of revocation, or of an ultimate control in an
owner, but whether securities, classed as intangibles, are
necessarily and in all circumstances subject to a different rule
from that obtaining in the case of tangible personal property. It
is not perceived that there is a sound basis for such an invariable
distinction, which is foreign to common thought and practical
needs. When confronted with the question as to tangible personal
property, we did not hesitate to limit the application of the
fiction, and it is regrettable that we cannot deal with the fiction
in a similar fashion in such a case as this, where
Page 307 U. S. 393
we have an effective localization of securities through a trust
created in a State other than that of the settlor's domicile at the
time of death, and where, in that other State, the trustee holds
title and possession, and has been and is administering the trust
subject to its laws.
I think that the judgment of the Court of Appeals of New York
should be affirmed.
MR. JUSTICE McREYNOLDS, MR. JUSTICE BUTLER, and MR. JUSTICE
ROBERTS concur in this opinion.