1. The due process clause of the Fourteenth Amendment did not
preclude the New York from taxing the effective exercise, by the
will of a domiciled resident, of a general power of appointment of
which he was the donee under the will of a resident of
Massachusetts, the property appointed being intangibles held by
trustees under the donor's will.
Wachovia Bank Trudt Co v.
Daughton, 272 U. S. 567,
overruled. Pp.
315 U. S. 660,
315 U. S.
665.
2. Control by the the donee's domicile over his person and
estate and his duty to contribute to the support of government
there afford adequate constitutional basis for the imposition of a
tax. P.
315 U. S.
660.
The donee of the power the exercise of which was taxed was also
one of the trustees named by the Massachusetts will, and the paper
evidences of the intangibles, which consisted wholly of
receivables
Page 315 U. S. 658
and corporate stock and bond, were kept by him at the time of
his death and for some years before, in New York, the State of his
residence. He and other trustees accounted to a Massachusetts
probate court for the administration of the fund.
286 N.Y. 596, 35 N.E.2d 937, reversed.
Certiorari, 314 U.S. 601, to review a judgment of the Court of
Appeals of New York affirming without opinion an order of the
Surrogate's Court of the County of New York reducing an estate tax
assessment. 172 Misc. 426, 15 N.Y.S.2d 208.
MR. CHIEF JUSTICE STONE delivered the opinion of the Court.
We are asked to say whether the due process clause of the
Fourteenth Amendment precludes New York from taxing the exercise,
by a domiciled resident, of a general testamentary power of
appointment of which he was the donee under the will of a resident
of Massachusetts, the property appointed being intangibles held by
trustees under the donor's will.
Respondents' decedent died a resident of New York, where his
will was probated and letters testamentary were issued. Decedent's
father had previously died a resident of Massachusetts, where his
will had been probated. By his will, the father bequeathed his
residuary estate in trust to divide the trust fund into as many
shares as he should leave children surviving. To his son, the New
York decedent, he gave a life estate in one share and a general
power to dispose of that share "by will."
The son was also one of the three testamentary trustees. For
some years, they managed the trust property as a single trust fund,
but in 1911 his one-third share was segregated
Page 315 U. S. 659
and he was permitted by the other trustees to manage it as a
separate trust, although all continued as trustees and, as such,
accounted to the Massachusetts Probate Court for the administration
of his share of the fund. From 1918 to 1929, the New York decedent
resided in New York; from then until 1934, he resided in Illinois,
when he returned to New York where he resided until his death in
1937. Throughout, he kept in the state of his residence the paper
evidences of the intangibles comprising his share of the trust. At
the time of his death, it consisted wholly of receivables and
corporate stocks and bonds. By his will, decedent appointed his
share of the trust fund to his widow, and the New York tax
authorities, in computing the tax, included in the decedent's gross
estate the intangibles bequeathed to her under the power.
Article 10-C of the New York Tax Law, by § 249-n, imposes an
estate tax "upon the transfer of the net estate" of resident
decedents. Under this statute, the net taxable estate is arrived at
by deducting from the gross estate, as defined by § 249-r, the
specified deductions allowed by § 249-s. Section 249-r, so far as
relevant, provides:
"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. . . ."
"
* * * *"
"7. To the extent of any property passing under a general power
of appointment exercised by the decedent(a) by will. . . ."
An order of the New York Surrogate's Court,
In re Thayer's
Estate, 172 Misc. 426, 15 N.Y.S.2d 208, reduced the estate tax
assessed against the decedent's estate by excluding from his gross
estate the share of the trust fund passing to the widow by the
exercise of the power, on the ground that the state was without
constitutional authority to tax the exercise by a resident donee of
a power of appointment created by a
Page 315 U. S. 660
nonresident donor, citing
Wachovia Bank & Trust Co. v.
Doughton, 272 U. S. 567. The
New York Court of Appeals affirmed the order without opinion, 286
N.Y. 596, 35 N.E.2d 937, but certified by its remittitur that it
held that the taxing statute as sought to be applied in this
proceeding violates the Fourteenth Amendment. We granted
certiorari, 314 U.S. 601, because of the importance of the question
presented.
For purposes of estate and inheritance taxation, the power to
dispose of property at death is the equivalent of ownership.
Bullen v. Wisconsin, 240 U. S. 625;
Whitney v. State Tax Comm'n, 309 U.
S. 530,
309 U. S. 538;
see Gray, Rule Against Perpetuities, 3d ed.1916, § 524. It
is a potential source of wealth to the appointee. The disposition
of wealth effected by its exercise or relinquishment at death is
one form of the enjoyment of wealth and is an appropriate subject
of taxation. 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."
McCulloch v.
Maryland, 4 Wheat. 316,
17 U. S. 429.
Intangibles, which are legal relationships between persons and
which in fact have no geographical location, are so associated with
the owner that they and their transfer at death are taxable at the
place of his domicile where his person and the exercise of his
property rights are subject to the control of the sovereign power.
His transfer of interests in intangibles, by virtue of the exercise
of a donated power instead of that derived from ownership, stands
on the same footing. In both cases, the sovereign's control over
his person and estate at the place of his domicile and his duty to
contribute to the financial support of government there, afford
adequate constitutional basis for the imposition of a tax.
Curry v. McCanless, 307 U. S. 357;
cf. Graves v. Elliott, 307 U. S. 383.
Page 315 U. S. 661
These were not novel propositions, when they were restated in
the
McCanless and
Elliott cases, [
Footnote 1] and they were challenged then,
though unsuccessfully, only on the ground that the transfer of the
intangibles was subject to taxation in another state where they
were held in trust. But the contention that the due process clause
forecloses taxation of an interest in intangibles by the state of
its owner when they are held in trust in another state was rejected
in
Bullen v. Wisconsin, supra. In that case, a fund had
been given in trust reserving to the donor a general power of
revocation and the disposition of the trust income during life.
This Court held that, upon his death, an inheritance tax could be
levied by the state of his domicile although the trustee and the
trust fund were outside the state.
In numerous other cases, the jurisdiction to tax the use and
enjoyment of interests in intangibles, regardless of the location
of the paper evidences of them, has been thought to depend on no
factor other than the domicile of the owner within the taxing
state. And it has been held that they may be constitutionally taxed
there even though, in some instances, they may be subject to
taxation in other jurisdictions, to whose control they are subject
and whose legal protection they enjoy. [
Footnote 2] And such interests taxable
Page 315 U. S. 662
at the domicile of the owner have been deemed to include the
exercise or relinquishment of a power to dispose of intangibles.
Chanler v. Kelsey, 205 U. S. 466;
Bullen v. Wisconsin, supra; cf. Orr v. Gilman,
183 U. S. 278;
Saltonstall v. Saltonstall, 276 U.
S. 260.
Decedent's complete and exclusive power to dispose of the
intangibles at death was property in his hands in New York, where
he was domiciled.
Graves v. Elliott, supra. He there made
effective use of the power to bestow his bounty on the widow. Its
exercise by his will to make a gift was as much an enjoyment of a
property right as would have been a like bequest to his widow from
his own securities.
See Helvering v. Horst, 311 U.
S. 112,
311 U. S. 117.
For such enjoyment of property rights, through resort to New York
law, decedent was under the highest obligation to contribute to the
support of the government whose protection he enjoyed in common
with other residents. Taxation of such enjoyment of the power to
dispose of property is as much within the constitutional power of
the state of his domicile as is the taxation of the transfer at
death of intangibles which he owns.
Since it is the exercise of the power to dispose of the
intangibles which is the taxable event, the mere fact that the
power was acquired as a donation from another is without
significance. We can perceive no ground for saying that its
exercise by the donee is for that reason any the less the enjoyment
of a property right, or any the less subject to taxation at his
domicile. The source of the power by gift no more takes its
exercise by the donee out of the taxing power than the like
disposition of a chose in action
Page 315 U. S. 663
or a share of stock, ownership of which is acquired by gift.
But respondents argue that, because here the power was
bequeathed by a Massachusetts will, which placed the intangibles
subject to the power in a Massachusetts trust, there was nothing
within the jurisdiction or control of New York which could be
deemed subject to its taxing power. If by this is meant that the
power was ineffective because its exercise by the New York will did
not conform to the requirements of the will creating the power and
defining the manner of its exercise, or to the laws of
Massachusetts governing the disposition of intangibles, no such
question is before us. We must take it that the New York courts
assumed, as we do, that the power had been so exercised by the New
York will as to confer on the widow the right to demand the
property of the trustees in Massachusetts, and that, even upon that
assumption, they held that the exercise of the power in New York
could not constitutionally be taxed.
Whether the New York tax statute would apply if the New York
will were ineffective to transfer the intangibles because it failed
to comply with the requirements of the Massachusetts will or
statutes is for the New York courts to decide. Whether in such a
case the statute could be constitutionally so applied is a question
not presented by the record. But if, as is assumed, the power has
been effectively exercised, the New York will is the implement of
its exercise, made effective as a will by New York law whose aid
the decedent invoked for the exercise and enjoyment of the property
right conferred on him by the Massachusetts will. Its exercise is a
subject over which the sovereign power of taxation extends.
Admittedly, under prevailing notions of choice of law in the
courts of these two states, the law of the donor's domicile, here
Massachusetts, may be looked to in New
Page 315 U. S. 664
York in determining whether, in some respects, at least, there
has been a valid and effective execution of the power of
appointment.
Sewall v. Wilmer, 132 Mass. 131;
Hogarth-Swann v. Weed, 274 Mass. 125, 130, 174 N.E. 314;
Hillen v. Iselin, 144 N.Y. 365, 378, 39 N.E. 368;
In
re New York Life Ins. & Trust Co., 209 N.Y. 585, 103 N.E.
315. But a transfer which has in fact been effected by recourse in
part to the law of New York is not free of taxation there because
the power might have been exercised elsewhere or by some other
mode, or because it may be necessary for the transferee to invoke
the laws of Massachusetts in order to acquire control of the
property. A transfer in one state of a chose in action or a share
of stock may be taxed there even though the transferee, in order to
enjoy its benefits, must depend in part upon the law of the state
of the debtor or of the corporation.
Blodgett v.
Silberman, 277 U. S. 1,
277 U. S. 10-17.
Here, the relationship of the power to Massachusetts does not leave
New York without sufficient control over the donee and his exercise
of the power to support its constitutional authority to tax. For
the fact remains that he, as a resident, enjoying the protection of
New York's laws and owing to it the duty of financial support, has
disposed of wealth by a will executed and probated in New York with
the same result as if he had owned the property. This transmission
of wealth at death by a resident is not a forbidden source of
revenue to the state.
Wachovia Bank & Trust Co. v. Doughton, supra, on
which respondents rely, denied the constitutional power of a state
to tax the effective exercise of a testamentary power in
circumstances like the present. The only grounds for the decision
were that the intangibles held in trust in another state, which
were the subject of the power, had no situs in the state where the
domiciled testator had exercised the power by his will; that its
exercise was subject to the laws
Page 315 U. S. 665
of Massachusetts, where the will donating the power and
establishing the trust had been probated, and that no "right"
exercised by the donee was conferred by the state of his domicile
where it was exercised.
The conclusion there reached and the reasons advanced in its
support cannot be reconciled with the decision and the reasoning of
the
Bullen, the
McCanless, and the
Elliott cases. It is plain that, if appropriate emphasis
be placed on the orderly administration of justice, rather than
blind adherence to conflicting precedents, the
Wachovia
case must be overruled. There is no reason why the state should
continue to be deprived of revenue from a subject which from the
beginning has been within the reach of its taxing power, a subject
over which we cannot say the state's control has been curtailed by
the due process clause of the Fourteenth Amendment. No interest
which could be served by so rigid an adherence to
stare
decisis is superior to the demands of a system of justice
based on a considered and a consistent application of the
Constitution.
See Burnet v. Coronado Oil & Gas Co.,
285 U. S. 393,
285 U. S. 406,
footnote 1, and
cf. Helvering v. Mountain Producers Corp.,
303 U. S. 376,
303 U. S. 387.
The
Wachovia case should be, and now is, overruled, and
the constitutional power of New York to levy the present tax is
sustained.
Reversed.
MR. JUSTICE ROBERTS concurs in the result only, because he
considers himself bound by the decisions in
Curry v.
McCanless, 307 U. S. 357, and
Graves v. Elliott, 307 U. S. 383.
Otherwise he would vote to affirm.
[
Footnote 1]
See Orr v. Gilman, 183 U. S. 278;
Chanler v. Kelsey, 205 U. S. 466;
Bullen v. Wisconsin, 240 U. S. 625;
Saltonstall v. Saltonstall, 276 U.
S. 260,
276 U. S. 271;
cf. Reinecke v. Northern Trust Co., 278 U.
S. 339,
278 U. S. 345;
Chase National Bank v. United States, 278 U.
S. 327,
278 U. S. 337;
Tyler v. United States, 281 U. S. 497,
281 U. S. 503;
Porter v. Commissioner, 288 U. S. 436,
288 U. S.
444.
[
Footnote 2]
See Kirtland v. Hotchkiss, 100 U.
S. 491;
Hawley v. Malden, 232 U. S.
1;
Cream of Wheat Co. v. Grand Forks,
253 U. S. 325;
Blodgett v. Silberman, 277 U. S. 1;
Virginia v. Imperial Coal Sales Co., 293 U. S.
15;
First Bank Stock Corp. v. Minnesota,
301 U. S. 234,
301 U. S.
239-240, and cases cited;
Pennsylvania v.
Stewart, 338 Pa. 9, 12 A.2d 444,
aff'd, 312 U.S. 649;
cf. 58 U. S.
Pennsylvania, 17 How. 456 (before Fourteenth Amendment); also
Farmers' Loan & Trust Co. v. Minnesota, 280 U.
S. 204;
Baldwin v. Missouri, 281 U.
S. 586;
Beidler v. South Carolina, 282 U. S.
1 (all recognizing the power of the state of domicile to
tax). In the case of income taxation,
see 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.