A resident of Oregon, owning bonds in Illinois, held for him by
a trust company acting as custodian and financial agent, and having
also a checking account with the company, directed the company to
raise a specified sum of money by sale of bonds in its hands and by
use of his cash balance, and to apply that sum to the purchase of
an equal amount in Federal Reserve notes. When this had been done,
and the trust company had held the notes for a few days, he
executed in Oregon an instrument by which, in contemplation of
death, he made a transfer of the notes to the trust company, as
trustee for designated beneficiaries, reserving to himself no
interest and no power of revocation. Thereafter, the trust company
held the notes under the trust agreement for several days, and then
used them from time to time to purchase bonds for the account of
the trust. Its original engagement as custodian and agent antedated
the settlor's domicile in Oregon, and none
Page 308 U. S. 314
of the securities handled by the company was ever physically
present in that State.
that the sale of the bonds, the purchase of the
notes, and their transfer to the trustee constituted an integrated
and indivisible transaction effecting a transfer of intangibles in
contemplation of death, and that, whatever the nature of the
Federal Reserve notes -- whether tangible or intangible property --
tax upon this transfer by the State of Oregon would not contravene
the due process clause of the Fourteenth Amendment. Curry v.
McCanless, 307 U. S. 357
308 U. S.
161 Ore. 1; 86 P.2d 424; 87 P.2d 766, reversed.
p. 531, to review a judgment which
reversed in part an order of the Circuit Court of Oregon in
probate, determining an inheritance tax.
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
Hayes, respondents' decedent, died testate in 1936 and was at
the time of his death a resident of and domiciled in Oregon. In
earlier years, when he had resided in the middle west, he placed in
possession of an Illinois trust company various stocks, bonds, and
other intangibles, which trust company acted as his agent in
collecting principal and income on those securities and in the
investment of his funds. When decedent established a domicile in
Oregon in 1933, he continued that arrangement with the Illinois
trust company, with the result that those securities were always
physically present in Illinois, never in Oregon. August 8, 1935,
about six months before decedent's death, he directed the Illinois
trust company to sell and liquidate sufficient of his bonds held
Page 308 U. S. 315
agency arrangement in Illinois to procure a sum which, together
with cash balances in his checking account with the trust company,
would equal $450,000, and to purchase therewith, as his agent,
federal reserve notes of the face amount of $450,000. Between
August 8, 1935 and August 12, 1935, the Illinois trust company
complied with decedent's directions, [Footnote 1
] and, prior to August 15, 1935, it purchased
$450,000 of federal reserve notes and held them in Illinois as
agent for decedent for a few days.
On August 15, 1935, decedent executed in Oregon a trust
agreement under which the Illinois trust company was designated as
trustee, and by which decedent transferred to it as trustee the
federal reserve notes. That trust was for the benefit of certain
designated relatives, and was irrevocable. Under it, decedent
retained no interest or power whatsoever. The trust company held
those federal reserve notes under the trust agreement for about
five days. Then, from time to time after August 19, 1935, the
Illinois trust company used the federal reserve notes, pursuant to
the terms of the trust agreement, to purchase bonds and other
personal property for the account of the trust. [Footnote 2
Page 308 U. S. 316
Admittedly, Oregon had jurisdiction to tax but for the alleged
prohibition in the Fourteenth Amendment, for the statute in
question imposed a tax on intangibles as well as tangibles which
passed by deed or gift made in contemplation of the death of the
grantor. [Footnote 3
] But the
Supreme Court of Oregon held that that constitutional prohibition
was present, since neither the securities or cash used to purchase
the federal reserve notes nor the notes themselves were ever in
Oregon, but always in Illinois. Though admitting that intangibles
would have been taxable by Oregon under such circumstances, the
court, in reliance on Blodgett v. Silberman, 277 U. S.
, concluded that the federal reserve notes were
tangibles. And since decedent had retained them in Illinois for a
few days prior to August 15, 1935, without any intention of
bringing them to Oregon, they had acquired a so-called business
situs in Illinois which constitutionally prevented Oregon from
exacting a tax for their transfer. [Footnote 4
] And this conclusion was reached though
admittedly the transfer of the notes under the agreement of August
15, 1935, was made in contemplation of death. We granted
certiorari, 308 U.S. 531,
Page 308 U. S. 317
because of the importance of the constitutional question
involved and of an alleged probable conflict with the principles
underlying such decisions as Curry v. McCanless,
307 U. S. 357
We disagree with the conclusion of the Supreme Court of Oregon.
Oregon, having jurisdiction to tax by reason of the statute, was
not deprived of it by the Federal Constitution.
On the facts of this case, we believe that the various steps in
the series must be considered as constituting but one integrated
and indivisible transaction -- a transfer by decedent of
intangibles in contemplation of death. And we reach this result
though each step in the series was real, and though none was
camouflaged or concealed. For basically, the sale of intangibles,
the acquisition of federal reserve notes, and their transfer under
the agreement of August 15, 1935, were interdependent. Cf.
Groman v. Commissioner, 302 U. S. 82
Helvering v. Bashford, 302 U. S. 454
302 U. S. 455
302 U. S. 458
From decedent's point of view, completion of the series of steps
was necessary for consummation of his program to utilize $450,000
of his estate to provide for certain designated members of his
family. [Footnote 5
] Any step
short of the final transfer would not have done it. The mere sale
of the intangibles and the acquisition of the federal reserve notes
had no functional or business significance apart from the August
15, 1935 transfer. That is emphasized here because they created no
legal relations and gave rise to no vested rights interfering with
decedent's continuing power of disposition. Taken as isolated
Page 308 U. S. 318
they have meaning and significance only in relation to the third
step, a conclusion made especially evident by the close sequence of
events. Hence, it is no answer to say that, because the first two
steps were not irrevocable, but could be recalled, the third step
was not a necessary on in the series. For that is as immaterial as
is the revocability of any donor's plan to make a gift in
contemplation of death at any moment prior to its consummation.
Admittedly decedent had such a purpose on the transfer of the
notes. To hold that such purpose was not present on the sale of the
intangibles would be to isolate one part of the total transaction
and to give it significance and meaning utterly inconsistent with
the fact that the intangibles were sold for the purpose of
acquiring the notes, which, in turn, were to be placed under an
irrevocable trust. Therefore we need not consider the nature of
federal reserve notes, for in that posture of the case, their
taxability as such and in isolation from the whole transaction is
not in issue.
Hence, to hold that there is a constitutional barrier to the tax
sought to be imposed would be to make a fetish of form. It would
make the principles of the decisions of this Court on the
constitutional power to tax devoid of any reason or function apart
from a ritual of tax avoidance. Cf. Minnesota Tea Co. v.
Helvering, 302 U. S. 609
Shotwell v. Moore, 129 U. S. 590
Questions of due process are not to be treated "narrowly or
pedantically, in slavery to forms or phrases." Burnet v.
Wells, 289 U. S. 670
289 U. S.
Accordingly, the transfer was taxable on the authority of
Curry v. McCanless, supra,
and related cases. For
constitutionally, the property was "within the jurisdiction of the
state" of Oregon, since that jurisdiction is dependent not on the
physical location of the property in the state,but on control over
Page 308 U. S. 319
The judgment of the Supreme Court of Oregon is reversed, and the
cause is remanded to that court for further proceedings not
inconsistent with this opinion.
MR. JUSTICE McREYNOLDS is of the opinion that the judgment below
should be affirmed.
On the sale of bonds in the open market, the trust company
realized for decedent's account $176,062.01. On August 12, 1935,
decedent borrowed from the trust company on a demand note
$183,937.99. On that date, decedent had a balance in his checking
account with the trust company in excess of $90,000. With the funds
so obtained, the trust company purchased the $450,000 of federal
reserve notes mentioned. Between August 12, 1935, and August 29,
1935, the trust company, on directions of decedent, sold in the
open market additional bonds held by it in the agency account, and,
as proceeds of those sales were received by it, it paid off the
demand note. That note was entirely paid on August 29, 1935.
None of the property thus acquired by the trustee was ever owned
by decedent; the trustee did not purchase or acquire any of the
bonds or other assets which at any time constituted a part of the
property held by the trustee as agent for decedent under the
"All property within the jurisdiction of the state, and any
interest therein, whether belonging to the inhabitants of this
state or not, and whether tangible or intangible, which shall pass
or vest . . . by deed, grant, bargain, sale or gift, or as an
advancement or division of his or her estate made in contemplation
of the death of the grantor, . . . to any person or persons, . . .
in trust or otherwise, . . . shall be and is subject to tax at the
rate hereinafter specified in section 10-603, to be paid to the
treasurer of the state for the use of the state. . . ."
Section 10-601, Or.Code 1930.
In re Hayes' Estate,
86 P.2d 424, 87 P.2d 766. It seems
clear that the Oregon Supreme Court reached this result by reliance
on the Fourteenth Amendment and the decisions of this Court
thereunder. We do not have, therefore, a case where the state court
was merely construing its statute, nor a case where it is not clear
whether or not it was doing more than that. Cf. State Tax
Commission v. Van Cott, 306 U. S. 511
This is in accord with the treatment by the Supreme Court of
Oregon of "Dr. Hayes' plan," a "plan" which it felt compelled to
divide into separate steps by reason of the principles of decisions
of this Court dealing with business situs under the Fourteenth
Amendment. Cf. Patterson v. Alabama, 294 U.
MR. JUSTICE STONE.
I concur in the judgment of reversal on the ground that nothing
in the Constitution prevents taxation by Oregon of a gift by its
citizen of federal reserve notes located elsewhere.
While I do not question that, in the circumstances of this case,
a state could, if so advised, constitutionally tax its citizen for
action taken for no other purpose than the evasion of its taxing
statutes, no such question is, I think, presented by the record.
Discussion of it seems at most to be academic, and not to relieve
us of the duty of deciding the only federal question which could by
any possibility be said to be raised by the record -- namely,
whether the Constitution precludes taxation of the gift of the
banknotes merely because of the physical fact that they are located
without the state.
In arriving at the conclusion that the gift of federal reserve
notes located outside the state was not taxable, the Supreme Court
of Oregon necessarily construed the Oregon statute, which imposes a
tax on gifts of "all property within the jurisdiction of the state
. . . whether tangible or intangible." The court has said that the
banknotes were not within the jurisdiction of the state because
their situs was elsewhere, and that the acts of decedent in
avoiding the tax by the acquisition of property having an
extraterritorial situs were not reached for taxation by state law.
If the court did anything more than rule
Page 308 U. S. 320
that the statute, by its own terms, did not extend to the
taxation of the gift of the notes because they were located outside
the state, it held that the Fourteenth Amendment, because of that
physical fact, withholds from the state jurisdiction over the
property which the taxing statute asserts.
Petitioner asks us to determine whether that holding is correct.
He is entitled to have an answer. We do not rightly avoid giving
the answer by saying that, by some statute other than that under
review, the state could constitutionally tax its citizen for his
action in avoiding the tax by making the gift in a form of property
which is, by hypothesis, beyond the taxing power. If the state has,
by its statute, undertaken to lay a tax on gifts of banknotes
outside the state without more -- and we are without jurisdiction
if it has not -- no purpose is served by saying to the state that
it could have reached the same result by another route which, under
its laws, does not appear to be open to it.
As I am of opinion that there is nothing in the Constitution to
compel a state to treat federal reserve notes, for tax purposes, as
chattels were treated in Frick v. Pennsylvania,
268 U. S. 473
as no reason has been advanced, even in Blodgett v.
Silberman, 277 U. S. 1
277 U. S. 18
a different view, cf. Baldwin v. Missouri, 281 U.
, 281 U. S. 591
the judgment should, I think, be reversed upon that ground, rather
than upon a theory of permissible legislation, of which apparently
Oregon's tax laws do not avail.
MR. JUSTICE FRANKFURTER agrees with my views as to Oregon's
power to tax these federal reserve notes, but is of opinion that
the record sustains the ground taken in the Court's opinion.