1. A Rhode Island municipality assessed a tax against a resident
of Rhode Island for half the value of intangibles held jointly by
him and a resident of New York as trustees under the will of a
resident of New York. The evidences of the intangible property were
at all times in New York, and the life beneficiary of the trust
resided there, the future beneficiaries being undetermined. The
Rhode Island resident did not actually exercise his powers as
trustee in Rhode Island.
Held: the tax did not violate the due process clause of
the Fourteenth Amendment. Pp.
331 U. S.
491-498.
2. So long as a state chooses to tax the value of intangibles as
a part of a taxpayer's wealth, the location of evidences of
ownership is immaterial. P.
331 U. S.
492.
3. Since intangibles have no real situs, the domicile of the
owner is the nearest approximation, although other taxing
jurisdictions may also have power to tax the same intangibles. P.
331 U. S.
493.
Page 331 U. S. 487
4. Since normally intangibles are subject to the immediate
control of the owner, this close relationship between intangibles
and the owner furnishes an adequate basis for the tax on the owner
by the state of his residence as against any attack for violation
of the Fourteenth Amendment. P.
331 U. S.
493.
5. The same rules apply to the taxation of intangibles held by a
trustee as assets of a trust, since the trustee can sue and be sued
as such and in this way the state of his residence affords him
protection as the owner of intangibles. Pp.
331 U. S.
493-496.
6.
Brooke v. Norfolk, 277 U. S. 27;
Safe Deposit & Trust Co. v. Virginia, 280 U. S.
83;
Graves v. Schmidlapp, 315 U.
S. 657, distinguished. Pp.
331 U. S.
496-497.
7. It is not constitutionally significant that the Rhode Island
trustee is not the sole trustee of the New York trust, since the
tax was only upon his proportionate interest, as a trustee, in the
res, and he possessed an interest in the intangibles
sufficient to support a proportional tax for the benefit and
protection afforded to that interest in Rhode Island. P.
331 U. S.
498.
8. State courts are the final judicial authority upon the
meaning of statutes of their states; but where their judgments
collide with rights secured by the Federal Constitution, this Court
has power to protect or enforce such rights. Pp.
331 U. S. 489,
331 U. S.
497.
71 R.I. 477, 47 A.2d 625, affirmed.
The Supreme Court of Rhode Island sustained a tax against a
resident of Rhode Island for one-half of the value of intangibles
held jointly by him and a resident of New York as trustees of a New
York trust, and remanded the case to the Superior Court of Newport
County, Rhode Island. 71 R.I. 477, 47 A.2d 625. On appeal to this
Court,
aff'd, p.
331 U. S.
498.
Page 331 U. S. 488
MR. JUSTICE REED delivered the opinion of the Court.
Appellants are testamentary trustees of George H. Warren, who
died a resident of New York. His will was duly probated in that
state and letters testamentary issued to appellants as executors. A
duly authenticated copy of said will was filed and recorded in
Rhode Island, and there letters testamentary were also issued.
Letters of trusteeship were granted to appellants by a surrogate's
court in New York. None was needed or asked for or granted by Rhode
Island. At all times pertinent to this appeal, appellants, as
trustees under the will, held intangible personalty for the benefit
of Constance W. Warren for her life and then to certain as yet
undetermined future beneficiaries.
The evidences of the intangible property in the estate of George
H. Warren and in the trust in question were at all times in New
York. The life beneficiary and one of the trustees are residents of
New York. The other trustee resides in Rhode Island. During the
period in question, he did not, however, exercise his powers, as
trustee, in Rhode Island.
A personal property tax of $50 was assessed by the City of
Newport, Rhode Island, against the resident trustee upon one-half
of the value of the corpus of the trust. The applicable assessment
statute for
ad valorem taxes appears in the margin.
[
Footnote 1] At the time of
this assessment, the property consisted of 500 shares of the
capital stock of Standard Oil Company of New Jersey. The tax was
paid by the
Page 331 U. S. 489
trustees, and this suit instituted, under appropriate state
procedure, in the Superior Court of the County of Newport to
recover the tax from the city. The Superior Court, by decision,
denied the petition. A bill of exceptions was prosecuted by these
petitioners to the Supreme Court of Rhode Island, which overruled
the exceptions and remitted the case to the superior court.
[
Footnote 2] Thereupon,
judgment was entered for the appellees and an appeal allowed to
this Court. All questions of state procedure and of the
applicability of the state statute to the resident trustee in the
circumstances of this case were foreclosed for us by the rulings of
the Supreme Court of Rhode Island. [
Footnote 3]
The appellants' contention throughout has been that the Rhode
Island statute under which the assessment was made, if applicable
to the resident trustee, was unconstitutional under the due process
clause of the Fourteenth Amendment to the Constitution of the
United States. Their objection in the state courts and here is that
Rhode Island cannot tax the resident trustee's proportionate part
of these trust intangibles merely because that trustee resides in
Rhode Island. Such a tax, they urge, is unconstitutional under the
due process clause because it exacts payment measured by the value
of property wholly beyond the reach of Rhode Island's power and to
which that state does not give protection or benefit. Appellants
specifically disclaim reliance upon the argument that the Rhode
Island tax exposes them to the danger of other
ad
Page 331 U. S. 490
valorem taxes in another state. [
Footnote 4] The same concession was made in the
Supreme Court of Rhode Island. [
Footnote 5] We therefore restrict our discussion and
determination to the issue presented by appellants' insistence that
Rhode Island cannot constitutionally collect this tax because the
state rendered no equivalent for its exaction in protection of or
benefit to the trust fund.
For the purpose of the taxation of those resident within her
borders, Rhode Island has sovereign power unembarrassed by any
restriction except those that emerge from the Constitution. Whether
that power is exercised wisely or unwisely is the problem of each
state. It may well be that sound fiscal policy would be promoted by
a tax upon trust intangibles levied only by the state that is the
seat of a testamentary trust. [
Footnote 6] Or it may be that the actual domicile of the
trustee should be preferred for a single tax. Utilization by the
states of modern reciprocal statutory tax provisions may more
fairly distribute tax benefits and burdens, although the danger of
competitive inducements for obtaining a settlor's favor are
obvious. [
Footnote 7] But our
question here is whether or not a provision of the Constitution
forbids this tax. Neither the expediency of the levy nor its
economic effect on the economy of the taxing state is for our
consideration. [
Footnote 8] We
are dealing with the totality
Page 331 U. S. 491
of a state's authority in the exercise of its revenue raising
powers.
The Fourteenth Amendment has been held to place a limit on a
state's power to lay an
ad valorem tax on its residents.
[
Footnote 9] Previous decisions
of this Court have held that mere power over a resident does not
permit a state to exact from him a property tax on his tangible
property permanently located outside the jurisdiction of the taxing
state. [
Footnote 10] Such an
exaction, the cases teach, would violate the due process clause of
the Fourteenth Amendment, because no benefit or protection,
adequate to support a tax exaction, is furnished by the state of
residence. [
Footnote 11] The
domiciliary state of the owner of tangibles permanently located in
another state, however, may require its resident to contribute to
the government under which he lives by an income tax in which the
income from the out-of-state property is an item of the taxpayer's
gross income. It is immaterial in such a case that the property
producing the income is located in another state.
New York ex
rel. Cohn v. Graves, 300 U. S. 308.
And, where the tangible property of a corporation has no taxable
situs outside the domiciliary state, that state may tax the
tangibles because the corporation
Page 331 U. S. 492
exists under the law of its domicile.
Southern Pacific Co.
v. Kentucky, 222 U. S. 63.
[
Footnote 12]
The precedents, holding it unconstitutional for a state to tax
tangibles of a resident that are permanently beyond its boundaries,
have not been applied to intangibles where the documents of owner
interest are beyond the confines of the taxing jurisdiction or
where the choses in action are mere promises of a nonresident
without documents. [
Footnote
13] One reason that state taxation of a resident on his
intangibles is justified is that, when the taxpayer's wealth is
represented by intangibles, the tax gatherer has difficulty in
locating them, and there is uncertainty as to which taxing district
affords benefits or protection to the actual property that the
intangibles represent. There may be no "papers." If the assessment
is not made at the residence of the owner, intangibles may be
overlooked easily by other assessors of taxes. A state is dependent
upon its citizens for revenue. Wealth has long been accepted as a
fair measure of a tax assessment. As a practical mode of collecting
revenue, the states, unrestricted by the federal Constitution, have
been accustomed to assess property taxes upon intangibles "wherever
held or deposited," belonging to their citizens and regardless of
the location of the debtor. [
Footnote 14] So long as a state chooses to tax the value
of intangibles as a part of a taxpayer's wealth, the location of
the evidences of ownership is immaterial. If the location of the
documents was controlling, their transfer to another jurisdiction
would defeat
Page 331 U. S. 493
the tax of the domiciliary state. As a matter of fact, there is
more reason for the domiciliary state of the owner of the
intangibles than for any other taxing jurisdiction to collect a
property tax on the intangibles. Since the intangibles themselves
have no real situs, the domicile of the owner is the nearest
approximation, although other taxing jurisdictions may also have
power to tax the same intangibles. [
Footnote 15] Normally, the intangibles are subject to the
immediate control of the owner. This close relationship between the
intangibles and the owner furnishes an adequate basis for the tax
on the owner by the state of his residence as against any attack
for violation of the Fourteenth Amendment. The state of the owner's
residence supplies the owner with the benefits and protection
inherent in the existence of an organized government. He may choose
to expand his activities beyond its borders, but the state of his
residence is his base of operations. It is the place where he
exercises certain privileges of citizenship and enjoys the
protection of his domiciliary government. Does a similar
relationship exist between a trustee and the intangibles of a
trust?
The trustee of today moves freely from state to state. The
settlor's residence may be one state, the seat of a trust another
state, and the trustee or trustees may live in still another
jurisdiction, or may constantly change their residence. [
Footnote 16] The official life of a
trustee is, of course, different from his personal. A trust, this
Court has said, is "an abstraction." For federal income tax
purposes, it is sometimes dealt with as though it had a separate
existence.
Anderson v. Wilson, 289 U. S.
20,
289 U. S. 27.
This is because Congress
Page 331 U. S. 494
has seen fit so to deal with the trust. This entity, the trust,
from another point of view, consists of separate interests -- the
equitable interest in the
res of the beneficiary [
Footnote 17] and the legal interest
of the trustee. The legal interest of the trustee in the
res is a distinct right. It enables a settlor to protect
his beneficiaries from the burdens of ownership while the
beneficiary retained the right, through equity, to compel the legal
owner to act in accordance with his trust obligations. The trustee,
as the owner of this legal interest in the
res, may incur
obligations in the administration of the trust enforceable against
him personally. [
Footnote
18] Nothing else appearing, the trustee is personally liable at
law for contracts for the trust. [
Footnote 19] This is the rule in Rhode Island. [
Footnote 20] Specific performance
may be decreed against him. [
Footnote 21] Of course, the trustee, when acting within
his powers for the trust, is entitled to exoneration
Page 331 U. S. 495
or reimbursement, [
Footnote
22] and the trust
res may be pursued in equity by the
creditor for payment. [
Footnote
23]
The Supreme Court of Rhode Island considered the argument that
the laws of the state afforded no benefit or protection to the
resident trustee. Although nothing appeared as to any specific
benefit or protection which the trustee had actually received, it
concluded that the state was "ready, willing and capable" of
furnishing either "if requested." A resident trustee of a foreign
trust would be entitled to the same advantages from Rhode Island
laws as would any natural person there resident.
Greenough v.
Tax Assessors, supra, 488, 47 A.2d 631. There may be matters
of trust administration which can be litigated only in the courts
of the state that is the seat of the trust. For example, in the
case of a testamentary trust, the appointment of trustees,
settlement, termination, and distribution under the provisions of
the trust are to be carried out, normally, in the courts of
decedent's domicile.
See Harrison v. Commissioner of
Corporations, 272 Mass. 422, 427, 172 N.E. 605. But when
testamentary trustees reside outside of the jurisdiction of the
courts of the state of the seat of the trust, third parties dealing
with the trustee on trust matters or beneficiaries may need to
proceed directly against the trustee as an individual for matters
arising out of his relation to the trust. Or the resident trustee
may need the benefit of the Rhode Island law to enforce trust
claims against a Rhode Island resident. As the trustee is a citizen
of Rhode Island, the federal courts would not be open to the
trustee for such causes of action where the federal jurisdiction
depended upon diversity. The citizenship of the trustee, and not
the seat of the trust or
Page 331 U. S. 496
the residence of the beneficiary is the controlling factor.
[
Footnote 24] The trustee is
suable like any other obligor. There is no provision of the federal
Constitution which forbids suits in state courts against a resident
trustee of a trust created under the laws of a sister state.
Consequently, we must conclude that Rhode Island does offer benefit
and protection through its law to the resident trustee, as the
owner of intangibles. And, while it may logically be urged that
these benefits and protection are no more than is offered a
resident owner of land or chattels, permanently out of the state,
the same reasons, hereinbefore stated on pages
331 U. S. 492
and 493, apply that permit state property taxation of a resident
owner of intangibles which denying a state power to tax similarly
the resident's out-of-state realty.
No precedent from this Court called to our attention indicates
that the federal Constitution contains provisions that forbid
taxation by a state of intangibles in the hands of a resident
testamentary trustee. In
Brooke v. Norfolk, 277 U. S.
27, the state property tax there invalidated, evidently
as violative of the Fourteenth Amendment, was assessed to a life
beneficiary, on a
res, composed of intangibles, when both
the testator and the trustee were residents of another state where
the trust was administered.
Safe Deposit and Trust Company v.
Virginia, 280 U. S. 83, held
invalid a state's tax on a trust's intangibles, actually in the
hands of the nonresident trustee and not subject to the control of
the equitable owner, because it was an attempt to tax the trust
res -- intangibles actually in the hands of a nonresident
trustee. This was said to conflict with the Fourteenth Amendment as
a tax on a thing beyond the jurisdiction of the taxing state.
[
Footnote 25]
See
also
Page 331 U. S. 497
Graves v. Schmidlapp, 315 U. S. 657,
315 U. S. 663,
where the sovereign power of taxation was held to extend to a state
resident who by will disposed of intangibles held by him as trustee
with power of testamentary disposition under a nonresident trust.
Nothing in these cases leads to the conclusion that a state may not
tax intangibles in the hands of a resident trustee of an
out-of-state trust. [
Footnote
26]
State courts construe their statutes according to their
understanding of state policy, and apply them to such situations as
their interpretation of the statutory language requires. In so
adjudging, they are the final judicial authority upon the meaning
of their state law. It is only in circumstances where their
judgments collide with rights secured by the federal Constitution
that we have power to protect or enforce the federal rights. In
adjudging the taxability under state law of a resident trustee's
ownership of intangibles, without reliance upon the residence of
settlor or beneficiary or the location of the intangibles, various
conclusions have been reached under state law and without regard to
the Constitution of the United States. They are pertinent to our
problem only as illustrations of the different viewpoints of state
law. [
Footnote 27]
Page 331 U. S. 498
Nor do we think it constitutionally significant that the Rhode
Island trustee is not the sole trustee of the New York trust. The
assessment, as the statute in question required, was only upon his
proportionate interest, as a trustee, in the
res. Whatever
may have been the character of his title to the intangibles
[
Footnote 28] or the
limitations on his sole administrative power over the trust,
[
Footnote 29] the resident
trustee was the possessor of an interest in the intangibles
sufficient, as we have explained, to support a proportional tax for
the benefit and protection afforded to that interest by Rhode
Island. [
Footnote 30]
Affirmed.
[
Footnote 1]
General Laws of Rhode Island 1938, c. 30, § 9:
"
Fifth. Intangible personal property held in trust by
any executor, administrator, or trustee, whether under an express
or implied trust, the income of which is to be paid to any other
person, shall be taxed to such executor, administrator, or trustee
in the town where such other person resides; but if such other
person resides out of the state, then in the town where the
executor, administrator, or trustee resides, and if there be more
than one such executor, administrator, or trustee, then in equal
proportions to each of such executors, administrators, and trustees
in the towns where they respectively reside."
[
Footnote 2]
General Laws of Rhode Island 1938, c. 31, § 14; c. 545, § 6, as
amended by c. 941, Public Laws of Rhode Island 1940;
Greenough
v. Tax Assessors, 71 R.I. 477, 47 A.2d 625.
[
Footnote 3]
Chase Securities Corp. v. Donaldson, 325 U.
S. 304,
325 U. S. 311;
see Huddleston v. Dwyer, 322 U. S. 232,
322 U. S. 237;
American Federation of Labor v. Watson, 327 U.
S. 582,
327 U. S.
595.
[
Footnote 4]
See McKinney's Consolidated Laws of New York, Tax Law,
§§ 3, 350(7), 365, 369, 377.
Fidelity & Columbia Trust Co.
v. Louisville, 245 U. S. 54.
Compare Blackstone v. Miller, 188 U.
S. 189;
Curry v. McCanless, 307 U.
S. 357,
307 U. S. 363;
Graves v. Elliott, 307 U. S. 383;
Graves v. Schmidlapp, 315 U. S. 657;
State Tax Commission v. Aldrich, 316 U.
S. 174,
316 U. S. 177,
with Farmers Loan & Trust Co. v. Minnesota,
280 U. S. 204;
First National Bank v. Maine, 284 U.
S. 312.
[
Footnote 5]
Greenough v. Tax Assessors, 71 R.I. 477, 488, 47 A.2d
625.
[
Footnote 6]
Compare Harrison v. Commissioner of Corporations and
Taxation, 272 Mass. 422, 172 N.E. 605.
[
Footnote 7]
Compare Mr. Justice Holmes' dissent,
Baldwin v.
Missouri, 281 U. S. 586.
[
Footnote 8]
State Tax Commission of Utah v. Aldrich, 316 U.
S. 174,
316 U. S.
181.
[
Footnote 9]
See Lawrence v. State Tax Commission, 286 U.
S. 276,
286 U. S. 279.
Art. I, § 10, cl. 2 and 3, contain limitations on a state's power
to levy import or export or tonnage duties.
[
Footnote 10]
Union Refrigerator Transit Co. v. Kentucky,
199 U. S. 194,
199 U. S. 202;
Frick v. Pennsylvania, 268 U. S. 473,
268 U. S. 488;
Cream of Wheat Co. v. Grand Forks, 253 U.
S. 325,
253 U. S.
328-329;
Curry v. McCanless, 307 U.
S. 357,
307 U. S.
363-365, and note 3;
see Wisconsin v. J. C. Penney
Co., 311 U. S. 435,
311 U. S. 444;
State Tax Commission v. Aldrich, 316 U.
S. 174,
316 U. S.
178.
[
Footnote 11]
Even where our cases have spoken of power over the person as
though it alone might be a sufficient justification for
ad
valorem taxation of a resident on tangibles outside the taxing
jurisdiction, the language was used in instances where there were
other bases for the tax.
State Tax on Foreign-Held
Bonds, 15 Wall. 300,
82 U. S. 319;
Southern Pacific Co. v. Kentucky, 222 U. S.
63,
222 U. S. 76;
Pearson v. McGraw, 308 U. S. 313,
308 U. S.
318.
[
Footnote 12]
See discussion in
Northwest Airlines v.
Minnesota, 322 U. S. 292.
[
Footnote 13]
Kirtland v. Hotchkiss, 100 U.
S. 491;
Fidelity & Columbia Trust Co. v.
Louisville, 245 U. S. 54;
compare Blodgett v. Silberman, 277 U. S.
1,
277 U. S. 8-12;
Maguire v. Trefry, 253 U. S. 12;
Curry v. McCanless, 307 U. S. 357,
307 U. S.
365-368;
Wisconsin v. J. C. Penney Co.,
311 U. S. 435,
311 U. S. 444;
State Tax Commission v. Aldrich, 316 U.
S. 174,
316 U. S.
180.
[
Footnote 14]
Kirtland v. Hotchkiss, 100 U.
S. 491.
Compare New York ex rel. Cohn v.
Graves, 300 U. S. 308.
[
Footnote 15]
See Curry v. McCanless, 307 U.
S. 357,
307 U. S.
365-368;
Wheeling Steel Corp. v. Fox,
298 U. S. 193.
Certain evidences of indebtedness have been held sufficient in
themselves to justify a state's imposition of a succession tax upon
their nonresident owner.
Wheeler v. New York, 233 U.
S. 434.
[
Footnote 16]
See Hutchison v. Ross, 262 N.Y. 381, 393, 187 N.E.
65.
[
Footnote 17]
Brown v. Fletcher, 235 U. S. 589,
235 U. S.
598-600;
Blair v. Commissioner, 300 U. S.
5,
300 U. S. 13.
[
Footnote 18]
Scott, Trusts (1939) 487, 1469
et seq.; Williston,
Contracts (1936) § 312; 1 Bogert, Trusts and Trustees (1935), §
146.
[
Footnote 19]
Duvall v.
Craig, 2 Wheat. 45,
15 U. S. 56;
Taylor v. Davis, 110 U. S. 330,
110 U. S.
335:
"A trustee may be defined generally as a person in whom some
estate interest or power in or affecting property is vested for the
benefit of another. When an agent contracts in the name of his
principal, the principal contracts, and is bound, but the agent is
not. When a trustee contracts as such, unless he is bound, no one
is bound, for he has no principal. The trust estate cannot promise;
the contract is therefore the personal undertaking of the trustee.
As a trustee holds the estate, although only with the power and for
the purpose of managing it, he is personally bound by the contracts
he makes as trustee, even when designating himself as such."
Lazenby v. Codman, 28 F. Supp. 949;
Prudential Ins.
Co. v. Land Estates, 31 F. Supp. 845;
Peyser v. American
Security & Trust Co., 70 App.D.C. 349, 107 F.2d 625.
[
Footnote 20]
Roger Williams Nat. Bank v. Groton Manufacturing Co.,
16 R.I. 504, 17 A. 170.
[
Footnote 21]
Warren v. Goodloe's Ex'r, 230 Ky. 514, 520, 20 S.W.2d
278.
[
Footnote 22]
Scott, Trusts, § 244
et seq. and § 268.
[
Footnote 23]
Scott, Trusts, § 267
et seq. See Ballentine v.
Eaton, 297 Mass. 389, 8 N.E.2d 808;
O'Brien v.
Jackson, 167 N.Y. 31, 60 N.E. 238.
[
Footnote 24]
Bullard v. Cisco, 290 U. S. 179,
290 U. S. 190.
See Memphis Street R. Co. v. Moore, 243 U.
S. 299.
[
Footnote 25]
The power of a state to tax the equitable interest of a
beneficiary in such circumstances was not presented.
Id.,
pp.
280 U. S. 92 and
280 U. S.
95.
[
Footnote 26]
Goodsite v. Lane, 139 F. 593, holds that a state
property tax on a trustee's intangibles for the sole reason that he
resides in the taxing state in invalid. It would seem this was so
decided because of the Fourteenth Amendment. We do not think this
case gives proper recognition to the state's power to tax the owner
of the legal title to the
res.
[
Footnote 27]
The state statute taxing property to trustee validly applies to
the resident trustee:
Welch v. Boston, 221 Mass. 155, 109
N.E. 174;
Harvard Trust Co. v. Commissioner of Taxation,
284 Mass. 225, 20, 187 N.E . 596;
Mackay v. San Francisco,
128 Cal. 678, 61 P. 382;
Millsaps v. Jackson, 78 Miss.
537, 30 So. 756;
McLellan v. Concord, 78 N.H. 89, 97 A.
552;
Florida v. Beardsley, 77 Fla. 803, 82 So. 794.
The state tax statute is inapplicable to the resident trustee:
In re Dorrance's Estate, 333 Pa. 162, 3 A.2d 682;
Commonwealth v. Peebles, 134 Ky. 121, 135, 119 S.W. 774;
Darrow v. Coleman, 119 N.Y. 137, 23 N.E. 488;
Rand v.
Pittsfield, 70 N.H. 530, 49 A. 88.
Newsomb v. Paige,
224 Mass. 516, 113 N.E. 458, and
Harrison v. Commissioner,
272 Mass. 422, 428, 429, 172 N.E. 605, declined taxation on the
ground of comity, and thus distinguished
Welch v. Boston,
supra.
[
Footnote 28]
Scott, Trusts, §§ 88.1, 103; 1 Bogert, Trusts and Trustees, §
145.
[
Footnote 29]
Scott, Trusts, § 194;
Brennan v. Willson, 71 N.Y. 502;
Fritz v. City Trust Co., 72 App.Div. 532, 76 N.Y.S 625,
aff'd, 173 N.Y. 622, 66 N.E. 1109;
In re Campbell's
Estate, 171 Misc. 750, 13 N.Y.S.2d 773.
[
Footnote 30]
The state courts have reached varying conclusions under their
statutes:
see People ex rel. Beaman v. Feitner, 168 N.Y.
360, 61 N.E. 280;
Mackay v. San Francisco, 128 Cal. 678,
61 P. 382;
McLellan v. Concord, 78 N.H. 89, 97 A. 552;
In re Dorrance's Estate, 333 Pa. 162, 3 A.2d 682, 127
A.L.R. 366;
Neweomb v. Paige, 224 Mass. 516, 113 N.E. 458;
Harrison v. Commissioner, 272 Mass. 422, 430, 431, 172
N.E. 605.
MR. JUSTICE FRANKFURTER, concurring.
In view of the dissents elicited by the Court's opinion, I
should like to state why I join it.
Rhode Island taxes its permanent residents in proportion to the
value of their property. The State imposes the tax whether its
residents own property outright or
Page 331 U. S. 499
own it, legally speaking, in a fiduciary capacity. It is not
questioned that the intangible assets in controversy could be
included in the measure of the tax against the person of this
trustee if he owned them outright. The doctrine that the power of
taxation does not extend to chattels permanently situated outside a
State, though the owner was within it,
Union Refrigerator
Transit Co. v. Kentucky, 199 U. S. 194;
Frick v. Pennsylvania, 268 U. S. 473, is
inapplicable. The tax is challenged, as wanting in "due process,"
because the Rhode Island resident is merely trustee of these
intangibles, and the pieces of paper that evidence them are kept
outside the State.
Rhode Island's system of taxing its residents -- subjecting them
to the same measure for ascertaining their ability to pay whether
they hold property for themselves or for others -- long antedated
the Fourteenth Amendment. Rhode Island has imposed this tax, "it
may be presumed, for the general advantages of living within the
jurisdiction."
Fidelity & Columbia Trust Co. v.
Louisville, 245 U. S. 54,
245 U. S. 58. It
can hardly be deemed irrational to say, as Rhode Island apparently
has said for a hundred years, that those advantages may be roughly
measured, for fiscal purposes, by the wealth which a person
controls, whatever his ultimate beneficial interest in the
property.
"The Fourteenth Amendment , itself a historical product, did not
destroy history for the States and substitute mechanical
compartments of law all exactly alike."
Jackman v. Rosenbaum Co., 260 U. S.
22,
260 U. S.
31.
In any event, Rhode Island could, in terms, tax its residents
for acting as trustees, and determine the amount of the tax as
though a trustee owned his trust estate outright. Rhode Island has,
in effect, done so by treating all Rhode Island residents alike in
relation to their property holdings, regardless of their beneficial
interests. That is the practical operation of the statute. It is
that which controls
Page 331 U. S. 500
constitutionality, and not the form in which a State has cast a
tax.
Lawrence v. State Tax Commission, 286 U.
S. 276,
286 U. S. 280;
Wisconsin v. J. C. Penney Co., 311 U.
S. 435,
311 U. S. 443
et seq.. Whether a Rhode Island trustee can go against his
trust estate for the amount of the tax which Rhode Island exacts
from him is of no concern to Rhode Island. Rhode Island's power to
tax its residents is not contingent upon it. A trusteeship is a
free undertaking.
MR. JUSTICE JACKSON, dissenting.
If Rhode Island had laid a tax on one of its citizens
individually, I should think it unassailable, even if the basis for
taxing him was that he held this trusteeship and perhaps the tax on
him could be measured by the value of the trust estate. In that
case, the state would tax only its own citizen. One is pretty much
at the mercy of his own state as to the events or relationship for
which it will tax him. If it wants to make the holding of a
trusteeship taxable, I know of no federal grounds of objection. But
that is not what is being done, nor what this decision
authorizes.
If Rhode Island had taxed the individual, he might have sought
reimbursement from the estate. Whether the estate was chargeable
would be left to determination by the courts of the state
supervising the trust. They might consider the nature of the tax to
be a personal charge, as an income tax would doubtless be. Or they
might find it to be an expense of administration, such as a
transfer tax, and properly to be borne by the fund. But here, no
such decision is left to the courts which control the fund -- the
tax is laid on the trustee as such -- the estate is the
taxpayer.
Rhode Island claims the power to tax the estate solely because
one of its trustees resides in that state. No property is in Rhode
Island, and its courts are not supervising administration of the
trust. The estate is wholly located
Page 331 U. S. 501
in New York and the trustees derive their authority, powers, and
title from its courts, and to them must account.
I had not supposed that a trust fund became taxable in every
state in which one of its trustees may reside. Of course, in this
instance it is proposed to tax only one-half of the estate, as only
one of the two trustees is resident in Rhode Island. But this seems
to be an act of grace, if there is a right to tax at all. The
trustee has no power over, or title to, any fraction of the trust
property that he does not have over all of it. If mere residence of
a trustee is such a conductor of state authority that through him
it reaches the estate, I see no reason why it should stop at a
part, nor indeed why a trustee subject to the taxing power of
several states,
cf. Texas v. Florida, 306 U.
S. 398, may not also subject the trust fund to several
state taxes by merely moving about.
The decision is a hard blow to the practice of naming individual
trustees. It seems to me that there is no power in the state to lay
the tax on the trust funds, despite unquestionable authority to tax
its own citizen-trustee individually.
MR. JUSTICE MURPHY joins in this opinion.
MR. JUSTICE RUTLEDGE with whom THE CHIEF JUSTICE concurs,
dissenting.
I am in agreement with the views expressed by MR. JUSTICE
JACKSON, except that I intimate no opinion concerning whether Rhode
Island could lay a tax upon one of its residents for the privilege
of acting as one of two or more trustees when the state's only
connection with the trust arises from the fact of his residence.
This is not such a case.
Whether or not due process under the Fourteenth Amendment
forbids state taxation of acts, transactions,
Page 331 U. S. 502
events or property is essentially a practical matter, and one of
degree, depending upon the existence of sufficient factual
connections, having economic and legal effects, between the taxing
state and the subject of the tax. I do not think the mere fact that
one of a number of trustees resides in a state, without more, is a
sufficiently substantial connection to justify a levy by that state
upon the trust corpus by an
ad valorem tax, either
fractional or on the entirety of the
res.
It may become necessary for claimants, beneficiaries, or others
to sue the trustee in Rhode Island, or perhaps for him to join with
other trustees in suing third persons there about trust matters. To
that extent, benefit and protection may be conferred upon the
trust. But those needs may arise in connection with any sort of
business or activity, trust or other, located and conducted outside
the state as largely as this trust's affairs. I had not supposed
that merely keeping open the state's courts to such claims would
furnish a sufficient basis for bringing within its taxing grasp all
property affected by the claims' assertion. That the trust
res here consists of intangibles does not seem to me a
sufficiently substantial factor, in the circumstances presented, to
justify so wide a reach of the state's taxing arm.
Mobilia sequuntur personam has its appropriate uses for
sustaining the states' taxing powers affecting residents and their
extrastate interests. But, when it is applied to the split
ownership of a trust, not only as between trustee and beneficiary,
but also as among several trustees, to bring the trust
res
within the several states' powers of taxation, merely by virtue of
the residence in each of one trustee and nothing more, the fiction
I think is carried too far. Something more than affording a
domiciliary basis for service of process, coupled with the split
and qualified representative ownership of such a trustee,
Page 331 U. S. 503
should be required to sustain the state's power to tax the trust
res, whether for all or only a fraction of its value.
Finally, whatever might be true of a single trustee or of
several residing in a single state, I should doubt the thesis that
the interest of one of two or more trustees in a trust is more
substantial than that of a beneficiary or receives greater
protection or benefit from the state of his residence. And, if the
beneficiary's residence alone is insufficient to sustain a state's
power to tax the corpus of the trust,
cf. Brooke v.
Norfolk, 277 U. S. 27,
* it would seem
that the mere residence of one of a number of trustees hardly would
supply a firmer foundation.
*
But cf. Holmes, J., dissenting in
Safe Deposit
& Trust Co. v. Virginia, 280 U. S. 83,
280 U. S.
96.