QUERY: "Estate Tax"
Oregon Supreme Court Vols 1-325
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It is the appellants' contention that the Oregon inheritance tax is a tax on the right to receive and must be measured by the amount of the inheritance which the beneficiary actually receives; and that therefore, since § 10-603a, Oregon Code 1935 Supplement, does not permit deducting from the gross taxable estate of a decedent the amount of the federal estate tax in ascertaining the net taxable estate it is violative of the fourteenth amendment of the federal constitution, in that it deprives those entitled to a decedent's estate of property without due process of law. In other words, it is argued by the appellants that if the federal estate tax is not deducted from the gross estate, then the amount of the state inheritance tax is based not on what is actually received, but on that amount with the federal estate tax thereto added.
The appellants' contention that the amount of the federal estate tax should be deducted from the gross taxable estate in order to arrive at the net taxable estate is grounded to a large extent on the decision in In re Inman's Estate, supra, wherein this court referred to the federal estate tax as a toll gate through which all estates subject to that tax must pass before any right to the property in favor of the beneficiaries attaches. At the time that the Inman Estate case was before this court the law did not specify what deductions should be made from the gross estate, and based upon what was then understood as the intention of the legislature, it was held that the federal estate tax should be deducted before applying the rate of taxes prescribed by the Oregon inheritance tax law.
The federal estate tax is a tax on the right to transfer or transmit property at death. The Oregon inheritance tax, on the other hand, is a tax on the right or privilege of the living to receive property from the dead. The former tax looks to the estate or interest which was ended by death, and the latter to the estate which was newly created by death: N re Clark's Estate, 100 Or. 20 (195 P. 370) In re Inman's Estate, supra. Both taxes are commonly referred to as death duties, and neither is a direct tax on property nor a capitation tax: In re Inman's Estate, supra, and authorities therein cited. Both of these taxes "rest in their essence upon the principle, that death is the generating source from which the particular taxing power takes its being and that it is the power to transmit or the transmission from the dead to the living on which such taxes are more immediately rested" : Knowlton v. Moore, 178 U. S. 41 (44 L. E. 969, 20 S. Ct: 747).
Lucius Allen Lewis died testate in Portland, Oregon, September 19, 1935.
To a daughter, Clementine Lewis Bowser, he bequeathed the sum of
$10,000, and the balance of his estate he
left to the First National Bank of Portland, Oregon, in trust for his
widow, the above-named daughter and a grandson. The gross taxable estate was appraised at $187,374.18. From this amount were deducted claims against the estate
, costs of administration, the widow's allowance and other
In re Inman's Estate, supra, involved the construction of the Oregon inheritance tax law as it then existed and did not concern the constitutional right of the legislature to provide that the federal estate tax should not be deducted from the gross taxable estate in determining the net estate subject to the Oregon inheritance tax. The appellants have not called our attention to any decision holding that the legislature did not have a constitutional right to enact chapter 13 supra. They do, however, direct attention to a decision of the supreme court of the United States relating to an income tax law, which they claim is applicable by analogy to the situation before us. We shall later discuss that decision.
The court then, after quoting from Knowlton v. Moore, supra, said that in its opinion the legislature of Washington intended to tax the entire estate less certain specifically enumerated deductions, and that since the federal estate tax was not among the enumerated items to be deducted, "the state may legally collect a tax thereon". See also, in this connection: In re Estate of Heck, 120 Or. 80 (250 P. 735) In re Watkin-son's Estate, 191 Cal. 591 (217 P. 1073) Hazard v. Bliss, supra; Frick v. Pennsylvania, 268 U. S. 473 (69 L. E. 1058, 45 S. Ct. 603, 42 A. L. B. 316).
From the order and decree of the circuit court determining the net taxable estate and the amount of inheritance tax due the state the executors of the estate of Lucius Allen Lewis, deceased, have appealed, assigning as error the refusal of the circuit court to allow as a deduction from the gross taxable estate the amount paid as federal estate tax.
Prior to the passage of chapter 13, Oregon Laws 1935, it had been the practice in this state, in compliance with the decisions of this court and rules promulgated by the state treasurer, in fixing the amount of inheritance tax due the state to deduct from the gross taxable estate indebtedness owing by the decedent at the time of death, funeral expenses and expenses in connection with the administration of the estate, and a number of other items, including the amount of the United States estate tax, if any. Authority for deducting the federal estate tax.previous to the enactment of chapter 13, supra, was derived from In re Inman's Estate, 101 Or. 182 (199 P. 615, 16 A. L. R. 675).
" So far as we have been able to discover, every reported judicial opinion which recognizes and observes the well defined and universally acknowledged distinction between an estate tax and an inheritance tax, is to the effect that the federal estate tax must be deducted before measuring the amount of the state inheritance tax, unless, however, some peculiar and unusual language appearing in the state statute controls and produces a different result. [Italics supplied.] "
The construction which we have here placed on chapter 13 does not convert our inheritance tax into an estate tax, and accordingly there is no merit in the contention that since the title of the 1935 enactment does not contain any reference to an "estate" tax that act is unconstitutional as violative of § 20, article IV, Oregon constitution.
BAILEY, J. This case involves the constitutional validity of so much of chapter 13, Oregon Laws 1935 ( § 10-603a, Oregon Code 1935 Supplement), as provides that the federal estate tax shall not be deducted from the gross value of the taxable estate of a decedent in ascertaining the net value of such estate for the purpose of computing the amount of inheritance tax payable to the State of Oregon.
We therefore can see no valid objection on constitutional grounds to the action of the legislature in requiring that the tax which is imposed by paragraph 1 of § 10-603, supra, shall be based on the value of the net taxable estate as defined by chapter 13, supra, which definition does not include among the deductions permitted from the gross taxable estate the amount paid as federal estate tax.
"The contention of counsel would be pertinent here if our tax were a tax upon the property instead of upon the right to receive. The inclusion of the property or money which is consumed in the payment of the federal estate tax in computing the tax is not imposing a tax upon the right to receive that particular property, but is the imposition of a tax upon the right to receive the property which the beneficiaries actually receive."
On rehearing in In re Clark's Estate, 105 Mont. 401, 430 (74 P. (2d) 401, 414, 114 A. L. R. 496), the Supreme Court of Montana in answer to a contention similar to that made by the appellants here as to deduction of the federal,estate tax from the gross taxable estate, said:
transferred, for the purpose of fixing the amount of the state inheritance tax. The law in question expressly provided that in determining the market value of the property transferred, no deduction should be made for any inheritance tax or estate tax paid to the government of the United States. In upholding the constitutionality of the California act the United States supreme court said :
The legislature, in chapter 13, supra, directed that in ascertaining the net value of an estate for computing inheritance tax the following deductions, and no others, be made from the gross value of the taxable estate : (a) claims allowed against the estate owing at the time of death, and mortgages or other liens against the decedent's property; (b) expenses of funeral and any amount not exceeding $500 actually expended or to be expended for a monument or memorial; (c) all state, county and municipal taxes which were a lien against the property of the estate at the date of death; (d) income or gift taxes of the United States or the state of Oregon owing at the date of death, but not United States estate taxes; (e) ordinary expenses of administration, including fees allowed executors or administrators and reasonable attorneys' fees; (1) any allowance made and paid during the settlement of the estate for the support of the widow and minor children, not exceeding an aggregate of $3,500; and (g) the value of any property set aside to the surviving spouse or minor children under the provisions of § 11-402, Oregon Code 1930, not exceeding $3,000.
The rate of tax specified in paragraph 1 of this section ( § 10-603) is based on the value of the estate and not on the devises or legacies received by the individual beneficiaries named in the said paragraph. On the other hand, the beneficiaries named in paragraphs 2 and 3 of this, section are required to pay an additional tax in proportion to the amounts respectively received by them. In other words, in all instances there is exacted a tax based on the value of the entire net estate, without regard to who the beneficiaries may be or the value of the inheritance received by them. That tax, according to paragraph 1, is "in full for all inheritance tax" on such part of the estate as passes to the surviving spouse and lineal heirs of the decedent.
In the case of In re Sherwood's Estate, 122 Wash. 648 (211 P. 734), it was argued by the administrator of the estate that the Washington inheritance tax was "leviable only on the amount actually received". The court, after pointing out that the tax imposed by the statute of that state was not a tax upon the estate but a tax on the right to receive the property of the estate, stated :
The gross estate was appraised at $795,805.97. After making the deductions allowed by law the net estate amounted to $753,574.37. Specific bequests and devises aggregated $400,366.67, leaving a residuary estate of $353,207.70 before the payment of the federal estate tax. The federal estate tax amounted to $191,469.57. This latter amount was not deducted from the residuary estate before computing the amount of the state tax. In consequence, the total amount of the state tax assessed upon the distributive share of James B. O'Shea, Jr., was $38,293.92 greater than it would have been had the federal estate tax been deducted from the residuum of the estate before fixing the amount of such tax.
We can not agree with the appellants' contention that the legislature intended to limit the application of the provisions of § 20-106 to the computation of the tax under the rates specified in the first paragraph of § 20-105 and did not intend it to cover the rates specified in the second and third paragraphs of that section. The amount of the tax payable to the state under the first paragraph of § 20-105 is computed upon the net estate , as defined by § . 20-106, before distribution. Such tax, although figured upon the aggregate estate, is nevertheless a tax upon each specific gift, legacy, or inheritance. It is an inheritance tax and not an estate tax. In re Clark's Estate, 100 Or. 20, 195 P. 370; In re Tronan's Estate, supra ; In re Lewis' Estate, supra. As hereinbefore stated, we held in the case of In re Lewis' Estate that the amount of the federal estate tax was not to be deducted in determining the tax due under the first paragraph of § 20-105.
Under the rule laid down in the case of In re Inman's Estate, supra, this state also found its revenue from the state inheritance tax being greatly reduced. The United States, in computing the federal estate tax, did not take into consideration the amount of the state inheritance tax. This fact, together with the ever-increasing federal tax
, undoubtedly influenced the state legislature in the enactment of
§
20-106, supra, providing that in "ascertaining the net value of
estates
for
The federal estate tax was passed in 1916, thirteen years after Oregon had enacted its first inheritance tax law. Under the federal act no provision is made for charging the amount of the federal estate tax against the respective distributive shares. 26 U.S.C.A. § 810. Consequently, it is payable out of the residuary estate, if sufficient. In the instant case, the residuum of the estate is more than sufficient to pay the federal tax and must bear the entire burden of paying it.
We are called upon again to construe chapter 13, Oregon Laws 1935, codified as
§
§
20-106 and 20-107, 0. C. L. A. In the case of In re Lewis'
Estate
, 160 Or. 486. 85 P. (2d) 1032, it was decided that the act was
BAILEY, J. The single question here involved is whether the amount of the federal estate tax on this estate should be deducted from the residuum of the estate before computing the additional collateral inheritance tax
payable to the state of Oregon, under the second paragraph of
§
20-105, 0. C. L. A., on the distributive share of James B. O'Shea, Jr.,
nephew of the decedent. The circuit court ruled that the federal
It is doubtful if language could be used which would convey more clearly the legislative intent, that the federal estate tax should be entirely disregarded in computing the state inheritance tax, than that used in the title and body of the act. We conclude, therefore, that the state tax is to be computed under all three paragraphs of § 20-105 as though there were no law providing for a federal estate tax.
" ' So far as we have been able to discover, every reported judicial
opinion which recognizes and observes the well-defined and universally
acknowledged distinction between an estate tax and an inheritance tax
, is to the effect that the federal
In the matter of the estate of John F. O'Shea, deceased. From an order denying deduction of the amount of a federal estate tax on the estate from the residuum thereof before computing the additional collateral inheritance tax payable to Leslie M. Scott, State Treasurer, on the distributive share of James B. O'Shea, Jr., John F. O'Donnell, executor, and James B. O'Shea, Jr., administrator with the will annexed of the estate, appeal.
At the time of the enactment of chapter 13, Oregon Laws 1935 ( § § 20-106 and 20-107, 0. C. L. A.), the legislature had not specified what deductions, if any, should be made from the gross estate in order to arrive at the net taxable estate. Certain deductions, however, were allowed by the courts. In the case of In re Inman's Estate, 101 Or. 182, 199 P. 615, 16 A. L. R. 675, it was held that the federal estate tax should be deducted from the gross estate before computing the amount of the state tax. The reason given for this conclusion is stated in the following language :
It is asserted by the appellants that James B. O'Shea, Jr., would be paying an additional collateral tax on property never received by him unless the amount of the federal estate tax was first deducted from the residuary estate. A similar contention was answered in Frick v. Pennsylvania, 268 U. S. 473, 69 L. Ed. 1058, 45 S. Ct. 603, 42 A. L. B. 316, as follows :
The second paragraph of § 20-105 provides for a tax, in addition to that specified in the first paragraph, on so much of the estate as shall pass to or for the use or benefit of collateral heirs. This tax is computed upon the net value of that portion of the estate which passes to or for the use or benefit of each collateral heir and not upon the net value depleted by the amount of the federal estate tax . If there were any doubt as to the meaning of § 20-106 in its application to the second paragraph of § 20-105, and we think there is none, it is entirely removed when we consider § 20-106 in connection with the title of chapter 13, Oregon Laws 1935 [ § § 20-106 and 20-107], reading as follows : "An
"The rates of tax prescribed in the first paragraph of chapter 199, Oregon Laws, 1933 [ § 20-105 herein], shall be applied to the entire net estate remaining after allowance of the deductions hereinabove specified and the tax thus computed shall be apportioned to each distributive share of the estate in the ratio which each distributive share bears to the net estate ; provided, that the proportion of such tax found to be apportionable to devises, bequests, legacies or gifts which are exempt under the provisions of chapter 26, Oregon Laws, 1933 [ § 20-101 herein], shall not be collected."
At first, the rate of the federal tax was low, but, as time went on, it was greatly increased. Many of the states, which in the beginning had permitted the federal tax to be deducted from the gross estate before computing the state tax, have, due to the increase in the federal tax, passed legislation providing that the federal tax shall not be deducted in determining the net taxable estate.
"The objection that when no deduction is made on account of the federal tax the state tax becomes, to that extent, a tax on the federal tax, and not a tax on the transfer, is answered by what already has been said. But by way of repetition it may be observed that what the state is taxing is the transfer of particular property, not such property depleted by the federal tax. The two taxes were concurrently imposed and stand on the same plane, save as the United States possibly might have a preferred right of enforcement if the estate were insufficient to pay both."
The federal estate tax, or the tax
upon the right to transmit, is in the final analysis measured by the
net value of the old interest which ceased with death; while the
inheritance taxes, or the tax
upon the right to receive, are measured respectively by the values of
the several new interests which were created by death. The federal estate tax is taken from .the net estate
"before the distributive shares are determined rather than off the
distributive shares": Corbin v. Townshend, 92 Conn. 501 (103 Atl. 647).
The federal estate tax
paid to the national
In their petition the executors asked that the federal estate tax amounting to $25,067.36 be deducted, together with debts of the decedent, funeral charges and the like, from the gross value of the estate, be fore calculating the amount of the state inheritanbe tax. The court refused to deduct the federal estate tax before computing the state inheritance tax; and
336. The federal act of 1919 in nowise changes the nature or incidence of the tax; for this act, like the act of 1916, calls the tax an "Estate Tax" (see Title IV), and imposes "upon the transfer of the net estate of every decedent" a tax "equal to the sum of the following percentages of the value of the net estate": Section 401, Chapter 18, 40 Stats at L. 1057, 1095. It will be observed that the federal statutes, including the original act of 1916 and the latest act adopted in 1919, in express terms declare that the tax is imposed "upon the transfer of the net estate of every decedent." The only question to be asked and answered for the determination of the amount of the federal tax is : How much is the net estate of the decedent? The question to be answered is not: How much is the value of the beneficial interest which is to go to a given heir, distributee, devisee or legatee? No inquiry need be made as to how much of the estate is to be received by a given successor.
HARRIS, J.--The executors are contending that the federal estate tax
exacted under the act of Congress of September 8, 1916, Chapter 463,
Title II, Section 201, 39 Stats. at L. 736, 777, and amendatory acts,
must be deducted from the gross value of the estate before the state inheritance tax can be calculated. The state treasurer is contending that the federal estate tax
should not be deducted. If the position taken by the state treasurer is
to be approved, then the order of the court fixing the state
inheritance tax
is correct and should be affirmed
Bierstadt's Estate, 178 App. Div. 836 (166 N. Y. Supp. 169) ; but, we repeat, such adjudications are not in point because they involve two taxes which are alike in language, and touch the same thing at the same time and at the same point : In re Miller's Estate (Cal), 195 Pac. 413. So far as we have been able to discover, every reported judicial opinion which recognizes and observes the well-defined and universally acknowledged distinction between an estate tax and an inheritance tax, is to the effect that the federal estate tax must be deducted before measuring the amount of the state inheritance tax, unless, however, some peculiar and unusual language appearing in the state statute controls and produces a different result: Knight's Estate, 261 Pa. St. 537, 539 (104 Atl. 765) ; State ex rel. v. Probate Court, 139 Minn. 210 (166 N. W. 125) ; People v. Pas field, 284 Ill. 450 (120 N. E. 286, 287) ; People v. Northern Trust Co., 289 Ill: 475, 477 (124 N. E. 662, 7 A. L. R. 709) ; In re Roebling's Estate, 89 N. J. Eq. 163 (104 Atl. 295) ; Corbin v. Townshend, 92 Conn. 501 (103 Atl. 647) ; In re Miller's Estate (Cal.), 195 Pac. 413; State v. First Calumet Trust & Savings Bank (Ind. App.), 125 N. E. 200. See, also, New
Cases dealing with the question of deductibility where the only statutes involved were the inheritance tax statutes of two states or the national inheritance tax act of 1898 and a state inheritance tax statute are not in point; for the reason that in these cases the taxes considered are exactly alike as to their nature and incidence. The current of judicial opinion is divided upon the question of deductibility where property is subject to one or more inheritance tax statutes; but we need not now inquire which of the two views is the more logical, because we are now dealing with two taxes which have different points of incidence and are different in some other respects: See Blakemore and Bancroft on Inheritance Taxes, § 371. There are a few precedents which might at first blush seem to give support to the contention that the federal estate tax is not deductible; and yet on a careful examination it will be discovered that they turn upon the peculiar language of the statutes involved. Among such precedents are: Estate of Week, 169 Wis. 316 (172 N. W. 732) ; In re Sanford's Estate (Iowa), 175 N. W. 506. A few adjudications holding that the federal estate tax is not deductible reach that conclusion by applying the reasoning employed by precedents which have ruled against deductibility where the statutes involved were a state inheritance tax statute and the national inheritance tax act of 1898 (see In re
Justice BENSON 111 Re Clark's Estate, 100 Or. 20 (195 Pac. 370), the original object was never departed from but was preserved in all the amendatory legislation. It will be observed that Section 1191, Or. L., touches only property "which shall pass or vest." Our statute looks not to the estate or interest which was ended by death but to the estate or 'interest which was newly created by death. Plainly as ruled in Re Clark's Estate, 100 Or. 20 (195 Pac. 370), our statute provides for an inheritance tax and not for an estate tax.
Under date of December 16, 1920, the executors filed a petition asking the court to determine the amount of the inheritance tax to be paid to the State of Oregon. The petition showed that the estate was valued at $744,204.16; and that the indebtedness of the estate, including an allowance made to the widow, sickness and funeral charges and other claims filed against the estate, court costs, fees of attorneys and fees of executors, aggregated $82,324.05. The petition also showed that the federal estate tax amounted to $25,067.36.
No part of the federal estate' tax amounting to $25,067.36 ever passed, theoretically or actually, to the widow or daughters ; for this tax was imposed and collected before distribution, and like the old probate tax ought to be deducted from the gross estate just as expenses of administration are deducted. The share received by an heir, distributee, legatee or devisee is in the final analysis the unit by which to determine the amount of the inheritance tax. This idea is illustrated throughout the different sections of our statute ; as, for example, in Section 1196 it is declared that--
When the federal act of 1916, and its amendatory acts, and the act of 1919 are examined in the light of their history and are viewed in the light of the distinctions which have been so long observed between estate taxes on the one hand and inheritance taxes on the other hand, it is manifest that the federal tax is a pure estate tax and that it has none of the characteristics of an inheritance tax: New York
The federal statute of 1916 provided for an estate duty as distinguished from an inheritance tax. The record made of the proceedings in the national House of Representatives and in the Senate demonstrates with mathematical certainty that the framers of the statute intended to enact a law imposing a pure estate duty: In re Hamlin, 226 N. Y. 407 (124 N. E. 4, 7 A. L. R. 701) ; Plunkett v. Old Colony Trust Co., 233 Mass. 471 (124 N. E. 265, 7 A. L. R. 696). Title II of the Federal Act of 1916 is headed: "Estate Tax"; and in the second section under Title II, being Section 201 of the act, it is provided:
The federal estate tax should have been deducted before measuring the amount of the state inheritance tax. The decree is therefore modified.
The constitutionality of a federal inheritance tax is determined in Knowlton v. Moore, 178 U. S. 41 (44 L. Ed. 969, 20 Sup. Ct. Rep. 747) ; and the constitutionality of a federal estate tax is established in New York Trust Co. v. Eisner (U. S.) (65
A correct solution of the problem presented requires an examination of the act of Congress providing for what is commonly known as the federal estate tax and also an analysis of the act of our state legislature providing for inheritance taxes. At the very outset we may premise that the nature and incidence of the respective taxes are the factors which will control the final decision. We must then ascertain the nature of these taxes and discover the incidence of each tax before we can determine whether the state tax should be calculated after first deducting the federal tax. Since sometimes, as said by Mr. Justice HOLMES in New York Trust Co. v. Eisner (U. S.) (65 L. Ed. -, 41 Sup. Ct. Rep. 506), "a page of history is worth a volume of logic," it will be of material aid in arriving at a correct understanding of the act of Congress and o f our state statute if, instead of at once entering into an inquiry concerning the nature and incidence of the two taxes claiming our special attention, we first make a brief statement of the history of legislation providing for different forms of death duties.
41 Sup. Ct. Rep. 506). Nor is such a tax necessarily made a direct tax on property merely because the statute provides for a lien upon property and requires payment by the executor or administrator, as such provisions are nothing more than appropriate regulations to secure the collection of the tax: Scholey v. Rew, 23 Wall. 331 (23 L. Ed. 99). Although in our state statute, as in many inheritance tax statutes, language may be found referring to "the rates of tax on all estates," and "taxes levied on such estate," and the like, this language does not of itself make the tax a direct property tax. The value of the property is used merely as a measure of the amount of the tax to be paid, and the property is then looked to for the purpose of insuring payment, just as in a multitude of instances property is looked to for the purpose of insuring payment of debts due private persons, as, for example, money judgments. If, then, the tax is not imposed directly upon property: Upon what is the tax imposed?
The federal statutes, both the act of 1916 and that of 1919, in terms declare that a tax is imposed "upon the transfer of the net estate of every decedent." The tax is measured by the net value of the entire estate as it is assembled in a single unit and before it is broken up into parts for distribution. The federal tax attaches to the whole estate and it is an excise upon the transmission at its very beginning; but inextricably connected with the transfer at its beginning is the right to transmit; and therefore the federal tax is on the right to transmit or upon the transfer at its beginning, and not upon the right to receive; for the estate has not yet been divided and so it has not yet passed to or reached the several points where the rights of heirs, distributees, legatees and devisees to receive attach. A tax "on the transfer" is substantially a tax on the power to transmit: New York Trust Co. v. Eisner
Although, as previously explained, language may be found in our inheritance tax act, as in most of the inheritance tax statutes, such as "tax on all estates," "taxes levied on such estates," property "shall be subject to a tax," and the like, yet our statute when considered in its entirety provides for a tax which is plainly and indisputably a perfect example of an inheritance tax. The tax is on the right to receive; but the amount of the tax
so laid upon such right is measured by the value of the property to
which the right attaches. The language of our statute is "all property *
* which shall pass" to "or vest" in a given person "is subject to a tax at the rate hereinafter specified." The measure of the tax
is, then, the value of the property which passes to or vests in a given
person. The value of the property received is one of the determining
factors in the measurement of the amount
The inheritance tax law was enacted in 1903.
For a period of about twenty-five years it had been the practice of
administrative officers in this state to deduct charitable bequests from
the net estate in the computation of the tax. A different rule was followed by the auditors of the tax department after 1929. We fail to see wherein Re Estate
of Heck, 120 Or. 80 (250 P. 735), affords any reasonable basis for
change in the practice. In that case no charitable bequest was involved
and the question before the court pertained to the constitutionality of
the inheritance tax law. It is true this court therein said that the "amount of tax which a beneficiary is obliged to pay depends upon the net value of the estate
and his proportionate distributive share". However, what was said must
be read in the light of the facts before the court for consideration. In
the instant case, where a charitable bequest is involved, it would be
more accurate to say that a beneficiary is obliged to pay his
proportionate share of the
The state treasurer contends that the charitable bequest to The Portland Art Museum should not' be deducted from the net estate before computing the tax thereon, but that there should be credited against such tax the proportion thereof which the charitable bequest bears to the net estate. More specifically, in computing the tax on the net estate, the state treasurer found there was due the sum of $92,736.47. He thereupon credited against such tax the sum of $6,614.04, being the amount The Portland Art Museum would be obliged to pay if it were subject to tax, leaving a balance of $86,122.43 charged against Mary F. Failing and Henry F. Cabell in the proportion of their respective legacies to the net estate.
If the amount of the charitable bequest is included in computing the tax, the tax
which the other beneficiaries must pay is thereby increased, and,
therefore, the gift to charity is not exempted from taxation, even
though there is deducted from the total tax that proportion thereof which the amount of the charitable bequest bears to the total net estate. Take the case of a testator with a net estate of $500,000 who bequeathed $489,000 to charity and the sum of $11,000 to his son. In such a case, if the tax be computed according to the method contended for by respondent, the son will pay an inheritance tax of $385, whereas, if the charitable bequest be deducted from the net estate before computation of the tax, he will pay an inheritance tax
of $10. In arguing against the contention of appellants, counsel for
the state treasurer point to an illustrative case where a testator with
an estate of $500,000 bequeathed $250,000 to
his son and the remainder to charity. It is asserted that according to
appellants' contention, the son would pay an inheritance tax of $6,025, whereas, if the same net estate were divided equally between two sons without any charitable bequest, each son would pay a tax
of $8,762.50. Therefore, it is argued, if the method of appellants be
followed, it would result in illegal discrimination between sons who
receive the same amount of legacy. The fallacy of this argument is that,
in the illustrative cases given by the respondent
Even if it be conceded that the result obtained by the use of the Actuaries' Combined Experience Tables
In In re Lewis' Estate, 160 Or 486, 85 P2d 1032, we sustained the constitutionality of the inheritance tax law and held that the federal estate tax was not deductible in determining the basic inheritance tax. O'Donnell v. Scott, 176 Or 500, 159 P2d 198, held that no deduction was allowable from the residuum of the estate for federal estate taxes when determining the collateral tax.
These cases were followed in the recent McGinn decision, which held
that when a special fund was established by a decedent for the payment
of death duties with the residuum payable to a collateral heir, no
deduction for federal estate taxes
was allowed by the statute in the computation of the residuum. We
followed O'Donnell v. Scott, supra, in holding that the state tax
is to be computed under
Oregon State Inheritance Tax or Collateral Tax, and subject only to the payment of such collateral tax by the said Helen M. Bagg as may be due from her to the State of Oregon on account of any additional tax
on said amount because of her receiving the same from my said aunt,
then in such event, I hereby direct my said Executrix to deliver said
property to her on payment of such Collateral Tax.
However, should my said Executrix determine that said property was held
by me absolutely and that the same is subject to Federal Estate Tax, Oregon Inheritance Tax and Collateral tax on account of the same being a part of my estate,
then, in such event, I hereby give and bequeath unto the said HELEN M.
BAG-G, now of 74 Fairfield Avenue, Holyoke, Massachusetts, provided that
she survive me, the sum of $100,000.00 less whatever amount of Federal Estate Tax, State of Oregon Inheritance Tax and Collateral Tax that may be levied or assessed against my estate for her said distributive share thereof on account of my having said additional sum in my estate at the time of my death. I further direct my Executrix, hereinafter named, to compute the amount of such taxes
and to subtract the amount thereof from said sum of $100,
Federal estate tax. The State Treasurer contends that Mrs. Bagg's Oregon tax should be computed on the full $100,000 (Ab. 23), without any deduction for the Federal estate tax."
At the risk of repetition but in a search for clarity, we turn to the executrix' computation and observe that she starts with a basis of $100,000, from which $27,000 federal estate and $24,600 basic Oregon inheritance taxes and $651 of added inheritance tax are subtracted, giving a gift of approximately $48,000 to Mrs. Bagg. The $24,600 is treated as an additional gift, making $73,000 subject to the collateral tax. Seemingly, the only argument the state has with this method is that the estate ends up paying collateral taxes on the basic gift, the sum paid in basic taxes and treated as an additional gift, but avoids by its method of computation the payment of any collateral tax on the $27,000 federal estate tax. The state contends that this, in effect, gives the estate a deduction which the statute expressly forbids.
"We further agree with the executrix' analysis (Br. 12-13) of the
problem in the following respects : " ' Since it is possible to give
effect to both the
"The stipulated portion of the Federal estate tax on Mrs. Bagg's share is $27,000. The executrix contends that Mrs. Bagg's Oregon collateral inheritance tax (under paragraph (1) of ORS 118.100) should be computed on $73,000 (Ab. 18), being the full $100,000 less the $27,000 allocable share of the
The executrix supports the position that the aforementioned sum of $100,000 was a part of Miss Comings' estate and that the first paragraph of the will applies to all parties taking under it, including Mrs. Bagg. The gift to Mrs. Bagg, made in the second paragraph of Miss Comings' will, is, according to the executrix, contingent in amount and determined by deducting from $100,000 (a) the amount in which the federal estate taxes are increased by reason of the inclusion of the sum in the estate ; (b) the amount in which the Oregon inheritance tax is increased by the inclusion of the $100,000 in the estate ; and (c) the added collateral inheritance tax payable by reason of the inclusion. Summarizing, the executrix argues that the gift to Mrs. Bagg must be computed in such manner "as to leave the amount of the residue of said estate for distribution to the Trustee, so far as inheritance and estate taxes are concerned [in] the precise amount as would have been distributed to it if the estate had been reduced by $100,000.00 a moment prior to the death of the testatrix." The result of this computation is a gift of $47,699.45. The amount of state taxes paid by the estate on account of the inclusion ($24,649.25
The respondent (executrix) argues that both the first and second paragraphs must be given effect in regard to the disposition to Mrs. Bagg. Therefore, the $339,000 estate bears the death duties under the first paragraph and Mrs. Bagg is given under the second paragraph an amount contingent on the total of the taxes attributable to the presence of the $100,000 in the estate. In short, she receives, not $100,000, but a lesser amount which is calculated from the $100,000 base. There is, then, no tax computation problem but one of will interpretation, and the deductibility of the federal estate taxes is not in issue. Summing up this argument, the conclusion is that there was $100,000 in the Comings estate from which a gift was to be made to Mrs. Bagg. Miss Comings directed that all taxes should be paid from her estate, after which Mrs. Bagg was given a sum which, when added to the tax paid on account of the $100,000, would equal the latter figure.
We are not unmindful of the distinction between an estate tax , which is ♥ levied upon the estate as a whole, and an inheritance tax, which is computed upon the amount which passes to each individual heir, devisee or legatee, separately. However, it is within legislative! power to enact a statute levying a tax which has the incidents of both an estate tax and an inheritance tax. As was said by the United States Supreme Court in Stebbins v. Riley, supra:
A death 'duty, whether it be an estate tax or an inheritance ,tax, is not a direct tax upon the property. It is a charge or toll which the state makes upon the right to transmit or to receive property on the death of the owner: In re Inman's Estate, supra, and numerous authorities therein cited. The right to receive property, whether by last will and testament or by inheritance, obtains by reason of statutory enactment. It is not w a natural right: In re Inman's Estate, 101 Or: 182 -(199 Pac. 615, 16 A. L. R. 675) ; Stebbins v. Riley; 268 'U. 'S. 137 f (69 L: Ed. 884, 45 Sup. Ct. Rep;424) Maxwell v. Bugbee, 250 U. S. 525 (63 L. Ed. 1124, 40 Sup., Ct. Rep. 2) ; Knowlton v. Moore, 178 U. ,S. 41 (44 L. Ed. 969, 20 Sup. Ct. Rep. 747, see, also, Rose's U. S. Notes). If this premise be correct, it follows that the legislature which created the right may, in the exercise of its discretion, put such restrictions upon the devolution or inheritance of property as it sees fit, if not of such nature or character as 'plainly to indicate a hostile and arbitrary discrimination between beneficiaries similarly situated. It is said in Stebbins v. Riley, supra:
Appellant does not, attack the constitutionality of inheritance or estate tax laws as such. That state legislation may be enacted to levy a tax upon the right to receive property on death of its owner is no longer an open question: In re Inman's Estate, 101 Or. 182 (199 Pac. 615, 16 A. L. R. 675), and numerous cases therein cited. It is conceded that the legislature has a wide discretion in classifying objects of taxation. A classification made is not a subject for judicial review when there 'is any reasonable basis therefor. It is primarily a question for the legislature: State ex rel Evans v. Kozer, 116 Or. 581 (242 Pac. 621). Nor is complaint made as to classification of beneficiaries.
The meaning and clear intent of which is, that all of the estate which is subject to distribution under the will or inheritance laws shall, after the exemption of $10,000, pay a tax
as therein specified, and while
In each of the above cases the lineal heir receives the same amount from the estate, but in Case No. 1, pays no tax; in Case No. 2, pays $105 tax; and in Case No. 3, -pays $226.25. Can it be said that these lineal heirs who are in the same class so far as amount received from estate is concerned, stand equal before the law? It is to be observed that any lineal heir who receives the same amount from an estate of equal net value pays the same amount of tax.
It is true this court said in In re Inman's Estate, supra, that the O'regon statute is a "perfect example of an inheritance tax." Without doubt, however, the amount of tax which a beneficiary is obliged to pay depends upon the net value of the estate and his proportionate distributive share':' In re Inman's Estate, supra, and Pinkerton & Millsap's Inheritance and Estate Taxes (1926), p. 397.
The opinion in the Inman Estate case likens the matter to an erection of a toll-gate by the federal government through which all estates must pass, and before proceeding on its way to distribution to those entitled to it, an estate tax must be paid. The inheritance tax, whatever the same may ,be or however computed, is adjusted after the estate has passed this toll-gate. The Inman case held that the federal estate tax should have been deducted before measuring the amount of the state inheritance tax. The reason given was that the former attached to the whole estate while the latter was imposed only upon the distributive shares. In other words, the points of incidence of the two taxes' were different. The federal tax fell earlier in the process of devolution, had precedence in point of time and hence must first be deducted. By a parity of reasoning in the instant case, the levies of our sister states upon the portion of the property within their jurisdictions, and not in ours, operated as conditions precedent to the acquisition of authority over it by the Oregon court. The result is that those taxes necessarily had precedence, had to be paid first and must be deducted before proceeding to compute the Oregon tax on "property which shall pass" to the heirs of the decedent.
"No part of the federal estate tax * ever passed, theoretically or actually, to the widow or daughters; for this tax was imposed and collected before distribution, and like the old probate tax ought to be deducted."
In view of this last excerpt from the opinion of the court, there was no error, and none is assigned for that matter, in the deduCtion of the federal tax in the instant case. In the first place, it is agreed in the pleadings that the federal tax should be taken out. It is so ruled likewise in In re Inman's Estate, 101 Or. 182 (199 Pac. 615, 16 A. L. R. 675). Mr. Justice HARRIS, exhausting the subject with his usual acumen, held that the federal tax was an estate tax levied upon the holdings of the decedent as distinguished from the inheritance tax mentioned in our statute which is imposed upon the several amounts descending or devised to the heirs or legatees. The following excerpts from the opinion are here set down:
"If such tax is not paid within eight months from the accruing thereof, interest shall be charged and collected thereon at the rate of eight per centum per annum from the time the tax is due and payable, unless by reason of claims upon the estate, necessary litigation, or other unavoidable delay, such tax cannot be determined and paid, as herein provided, in which case interest at the rate of six per centum per annum shall be charged upon such tax from the time from the accruing thereof until the cause of such delay is removed, after which eight per centum shall be charged."
"As those states had created the corporations issuing the stocks, they had power to impose the tax and to enforce it by such means, irrespective of the decedent's domicil and the actual situs of the stock certificates. Pennsylvania's jurisdiction over the stocks necessarily was subordinate to that power. Therefore to bring them into the administration in that State it was essential that the tax be paid. The executors paid it out of moneys forming part of the estate in Pennsylvania and the stocks were thereby brought into the administration there. We think it plain that such value as the stocks had in excess of the tax is all that could be regarded as within the range of Pennsylvania's taxing power. Estate of Henry Miller, 184 Cal. 674, 683. So much of the value as was required to release the superior claim of the other States was quite beyond Pennsylvania's control. Thus the inclusion of the full value in the computation on which that State based its tax, without any deduction for the tax paid to the other States, was nothing short of applying that State's taxing power to what was not within its range. That the stocks, with their full value, were ultimately brought into the administration in that State does not help. They were brought in through the payment of the tax in the other States out of moneys of the estate in Pennsylvania. The moneys paid out just balanced the excess in stock value brought in. Yet in computing the tax in that State both were included.
The court there held, indeed, in speaking of the federal tax, that it should not be deducted any more than the state taxes on the property of the estate, but the reason given was that no distinction could be made between the two classes of tax because each sovereignty, that of the general government and that of the state, had the concurrent right to tax the same property and that no distinction could be made on any ground involved in that case. The court said:
None of these decisions arose from laws identical to the one challenged here, nor are their constitutional premises clear enough to indicate an obvious result. Maxwell in 1919 sustained a New Jersey inheritance tax levied against the transfer of the New Jersey property of nonresident decedents at a rate which was measured by the size of the entire estate. Given a progressive structure of rates, this resulted in a higher tax on the New Jersey property of an estate that had assets elsewhere than on the same amount of property of an estate that did not. Six years later, the Supreme Court held in Frick that Pennsylvania could not include in its tax on the transfer of a resident decedent's estate that part of his wealth represented by tangible property outside the state. Frick was applied in Treichlerin 1949 to strike down a Wisconsin "emergency" inheritance surtax of 30 percent beyond the 80 percent of the federal basic estate tax already "picked up" by the state, insofar as the federal tax so used as a base included tangible property outside Wisconsin. No further guidance on the precise point has appeared in the past 28 years, though there has been considerable movement in other aspects of the constitutional law of state taxation.
18 See also Pearson v. McGraw, 308 US 313, 60 S Ct 211, 84 L Ed 293, revg In re Hayes' Estate, 161 Or 1, 86 P2d 424, rehearing denied, 87 P2d 766 (1939), in which an Oregon resident sought to avoid an Oregon estate tax on $450,000 by transferring federal reserve notes rather than securities to a trustee in Illinois.
Article I, section 32, originally stated that "all taxation shall be
uniform within the territorial limits of the authority levying the tax
." It was amended in 1917 to the present form, supra note 5, which
requires uniformity of taxation only on the same class of subjects."
H.J.R. No. 16, Or Laws 1917. The same
Taking only these three decisions, it would appear that a taxing state may count the total size of an estate, including tangible property outside its borders, to increase the rate applied in taxing
the transfer of
Invocation of "due process" for this result is further complicated by
the fact that the same words in the fifth amendment do not prevent the
United States from taxing the foreign property of a taxpayer or an estate
otherwise within its jurisdiction, apparently including nonresident
citizens and land outside the United States, although the United States
has no legal power there. See United States v. Bennett, 232 US 299, 34 S
Ct 433, 58 L Ed 612 (1914); Cook v. Tait, 265 US 47, 44 S Ct 444, 68 L
Ed 895 (1924); Frick v. Pennsylvania, supra, 268 US at 491; cf. Revenue
Act of 1962, Pub. L. No. 87-834,
§
18(a), 76 Stat. 960. These decisions place the difference on the
limitations on state authority to
tax resulting from the distribution of
powers ordained by the Constitution," United States v. Bennett, 232 US
at 306,16 or on the relation of the States to each other in the Federal
Union," Burnett v. Brooks, 288 US 378, 401, 53 S Ct 457, 77 L Ed 844
(1933), again, premises of federalism that do not stem from the
fourteenth amendment. Also unenlightening are statements that due
process makes the state's power to tax
a resident by a measure that includes out-of-state assets depend, on whether the state confers
Since 1916, the federal estate tax "' [was] made a charge upon the estate, and [was] to be paid out of it by the executor substantially as other taxes and charges are paid.*" (Footnote omitted). 1 Paul, Federal Estate
& Gift Taxation, 1942,
§
13.16, page 711. No one quarrels with that statement of the obligation for the initial payment of the
tax. Except for certain specific
requirements, not pertinent here, the federal statutes have been silent
as to any responsibility for contribution to the payment of the tax by those who actually receive the property which is includable in the total property valued for estate tax
purposes. The question is : should the court, in the absence of state
or federal statute, require an equitable apportionment of the burden of
the tax amongst those takers of the property subject to the tax
? The question just stated would include the liability for contribution
Plaintiff is the administrator of the Oregon assets of the estate of Nathaniel E. Berry, deceased. In 1953, Berry created an inter vivos trust for the benefit of the employes of Equitable Savings & Loan Association, subject to certain benefits to be paid to Berry during his lifetime. The corpus of the trust was real property, of substantial value, situate in Klamath Falls. Defendants are the present trustees of the trust estate. Originally there was one trustee. In 1956, Berry died intestate. His domicile at the time of his death was in the state of Washington. The value of the inter vivos trust estate was added to his gross estate for federal tax purposes. The total federal estate tax was paid by the administrator of his estate. This action was filed to recover from defendant trustees the additional tax attributable to the enhanced value of the gross estate by the inclusion therein of the value of this trust estate. The trial court denied recovery, plaintiff appeals.
Since that decision several states have adopted apportionment statutes. The National Conference of Commissioners on Uniform State Laws have proposed for adoption a Uniform Estate Tax Apportionment Act, Report of the National Conference of Commissioners on Uniform State Laws, 1958, and, "In jurisdictions which have passed upon the question for the first time since 1942,* it is generally held that the burden of estate taxes must ultimately be borne by every part of the taxable estate and that every beneficiary must pay a pro rata share of the tax." (Footnote omitted.) Annotation 37 ALR2d 171.
We hold that the defendant trustees shall pay the pro rata portion of the estate tax attributable to the addition of the value of the trust estate to the total value of the taxable estate. It will be necessary for the trial court to determine that amount.
ment statute was repugnant to the federal estate tax statutes and, theref ore, violated the federal supremacy imposed by Article VI, Clause 2, of the Federal Constitution. The opinion in Carpenter v. Carpenter, 1954, 364 Mo 782, 267 SW2d 632, examines this historical background and explains why the doctrine of equitable apportionment is appropriately applied to these cases.
The authorities are in substantial agreement that prior to 1942 it was thought that the federal statutes which imposed the estate tax had "w preempted the field and that it was not open to the State courts to create other or different exceptions." Fleming, Apportionment of Federal Estate Taxes, 1948, 43 Ill L Rev 153, 155. This prevailing thinking caused the state courts to create a general rule that apportionment would not be allowed except when the will or other dispositive document expressly required it.(D See Annotation, 117 ALR 1191; Matter of Del Drago, 1941, 287 NY 61, 3'8 NE2d 131. The New York Court of Appeals, in Del Drago, held a New York apportion --
The original trust was created by deeds of trust. The deeds were executed by Mr. Berry and Gerda Berry, the common owners of the real property. The terms of the deeds of trust were augmented by a supplemental agreement executed by the donors and the trustee in 1955. The provisions of this supplemental agreement with respect to the payment of taxes, other than gift taxes, are inconclusive. Nor do we find in any of the trust documents any other evidence of the intent of the donors, express or implied, which could guide us to decision. The documents being absent of any showing of intent, plaintiff urges that we adopt the doctrine of equitable apportionment. The application of the concept of equitable apportionment, as it is identified and explained in cases later to be cited, would require defendant trustees to reimburse plaintiff for the enhanced federal estate tax plaintiff was obliged to pay. It is necessary, however, that we resolve the conflict of law issue before we reach the problem of apportionment.
"(b) Reimbursement out of estate. If the tax or any part thereof is paid by, or collected out of that part of the estate passing to or in the possession of, any person other than the executor in his capacity as such, such person shall be entitled to reimbursement out of any part of the estate still undistributed or by a just and equitable contribution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or prior liability for the payment of taxes, debts, or other charges against the estate, it being the purpose and intent of this subchapter that so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution."
"' By that section Congress intended to protect a distributee against bearing a greater burden of the tax than he would have sustained had the tax been carved out of the estate
prior to distribution; any doubt that this is the proper construction
is removed by the concluding clause of the section specifically stating
that it is 'the purpose and intent of this subchapter that so far as is
practicable and unless otherwise directed by the will of the decedent
the tax shall be paid out of the estate before its distribution.' Section 826(b) does not command that the tax is a non-transferable charge on the residuary estate ; to read the phrase `the tax shall be paid out of the estate' as meaning `the tax shall be paid out of the residuary estate' is to distort the plain language of the section and to create an obvious fallacy. For in some estates there may be no residue or else one too small to satisfy the tax
; resort must then be had to state law to determine whether personalty
or realty, or general, demonstrative or special legacies abate first. In
short,
§
826(b), especially when cast in the background of Congressional intent
discussed before, simply provides that, if the
tax must be collected after distribution, the final impact of the tax
shall be the same as though it had first been taken out of
"The fact that most judicial adoption of apportionment has occurred in cases involving inter vivos transfers* is not surprising, for the appeal of apportionment of estate taxes is probably greater in this area than in any other. In the typical situation, the testator has made gratuitous inter vivos transfers, direct or in trust, and then overlooked the fact that these transfers, while complete by traditional property concepts, are nevertheless subject to taxation as part of his estate at death. Consequently, what may have appeared to him to be a substantial residue will be depleted to the extent of the tax on the inter vivos transfers ; the entire testamentary scheme may even be defeated. In concluding that inter vivos transfers should bear their proportionate share of the estate taxes, the courts and legislatures have been strongly influenced by the possibility of this unforeseen distor --
any interest therein * which shall pass or vest
' by deed, grant, bargain, sale or gift ' intended to take effect in
possession or enjoyment after the death of the grantor, bargainor or
donor to any person or persons" shall be subject to the state
inheritance
tax. The inheritance tax statutes of most of the states, and the estate tax
law of the United States, contain similar provisions (see dissenting
opinion of Mr. Justice Roberts in Coolidge v. Long, 282 U. S. 582, 607
(75 L. Ed. 562, 572,,51 S. Ct. 306) ) and the courts of the country,
both federal and state, have been called upon to determine the
application of these provisions to a variety of situations in a large
number of cases with varying and inharmonious results. (See annotations,
49 A. L. R. 864; 67 A. L. R. 1247; 100 A. L. R. 1244.) This court has
had occasion to construe and apply the provision only once. In the case
of In re Estate of Wallace, 131 Or. 597 (282 P. 760), the decedent had organized a corporation to hold his real estate, which he transferred to the corporation, reserving to himself a life estate
in the conveyed property. The corporation had no other assets. He made a
gift of thirty-five of the forty-eight shares of the corporation's
capital stock to five of his children, but withheld from them the right
to vote the stock during his life. In view of the reservation of the
life estate to the donor and the fact that
he retained the right to vote the stock it was held that upon the death
of the donor the stock was subject to a payment of an inheritance tax in the hands of the transferees.
"In considering the question whether the transfer of the corpus of these
trusts was intended to take effect in possession and enjoyment at or
after death, it must
Notwithstanding some language in the opinion in the Helvering case from
which a different implication might be drawn, we think tht the attempt
to attach controlling significance to thai, decision here rests upon the
failure to give due weight to the distinction between a tax on the transfer, such as the federal estate tax, and a tax on the succession, such as the Oregon inheritance tax.
The former includes all trusts or interests in trusts passing "from the
possession, enjoyment and control of the donor at his death." Reinecke
v. Northern Trust Company, supra. As Mr. Justice Robert said in his
dissenting opinion in Coolidge v. Long, 282 U. S. 582 (75 L. Ed. 562, 51
S. Ct. 306), "The test to be applied in cases arising under the federal
estate tax
law is whether the transferror has parted with every vestige of control
over the beneficial enjoyment and possession of the property, and not
whether the beneficiary has received it." This statement was said by the
United States circuit court of appeals for the 8th district in St.
Louis Union Trust Company v. Becker, 76 Fed. (2d) 851 (affirmed in
Becker v. St. Louis Union Trust Company, supra), to be "in no way
disputed by the majority opinion". The , supreme court
Thus the supreme court has recognized that under identical circumstances a transfer may be immune from the federal estate tax and subject to the state succession tax; that, although the power of control of the property may have passed completely from the hands of the donor, the succession may remain incomplete as to the donee. The opinions of the circuit court of appeals in the Helvering and Becker cases, the former under the name of Helvering v. St. Louis Union Trust Company, 75 Fed. (2d) 416, and the latter under the name of the St. Louis Union Trust Company v. Becker, 76 Fed. (2d) 851, were both written by Circuit Judge John B. Sanborn. In the Becker case he called attention to this distinction of which we have been speaking and said :
We are not concerned here with a tax on the privilege of transmission, but with a tax on the privilege of succession. "Our statute looks not 'to the estate or interest which was ended by death, but to the estate or interest which was newly created by death." In re Inman's Estate, 101 Or. 182, 194 (199 P. 615, 16 A. L. R. 675). If the privilege of succession was not completely exercised up to the time of the death of Ignatz Lowengart, and, if, at or after his death, the beneficiaries "succeeded to an interest not previously enjoyed which bears a distinct and necessary relation to the death of the settlor" (Hackett v. Bankers Trust Company, 122 Conn. 107 (187 Atl. 653) ), then the tax was properly imposed. In determining that question "technical distinctions between vested remainders and other interests are of little avail, for the shifting of the economic benefits and burdens of property, which is the subject of a succession tax, may even in the case of a vested remainder be restricted or suspended by other legal devices." Saltonstall v. Saltonstall, 276 U. S. 260 (72 L. Ed. 565, 48 S. Ct. 225, affirming 256 Mass. 519). See Burnet v. Guggenheim, 288 U. S. 280, 283 (53 S. Ct. 369, 77 L. Ed. 748) ; McCaughn v. Girard Trust Company, 11 Fed. (2d) 520; Corliss v. Bowers, 281 U. S. 376, 378 (50 S. Ct. 336, 74 L. Ed. 916) ; In re Estate, of Schuh, Brown v. Hauck, 66 Mont. 50 (212 P. 516). The tendency of the courts in recent years has been to make "the shifting of the economic benefits and burdens" the test of liability to the tax. Reinecke v. Northern 1Trust Company, 278 U. S. 339 (73 L. Ed. 410, 49 S. Ct. 123, 66 A. L. R. 397) ; Chase National Bank v. United States, 278 U. S. 327 (73 L. Ed. 405, 49 S. Ct. 126, 63 A. L. R. 388) ; Blodgett v. Union & New Haven Trust Company, 97 Conn. 405 (116 Atl. 908) ; Blodgett v. Guaranty Trust Company, 114 Conn. 207 (158 Atl. 245) ; 14 Minn. Law Rev. 453, 462.
DuBois' Appeal, 121 Pa. 368 (15 Atl. 641), is another case involving a gift clearly taxable on other grounds but in which the court also relied on the fact that the deed provided for a reverter to the donor if the donee predeceased him, and the court's reasoning was substantially the same as that of the Massachusetts court in the case just cited. The lower New York courts apparently are at odds on the question. In the following cases the right to impose a tax because of a provision in a trust instrument for reverter to the transferor in the event of the prior death of a life tenant has been denied: In re Bowers' Estate, 195 App. Div. 548 (186 N. Y. S. 912) ; In re Wing's Estate, 190 N. Y. S. 908 ; In re Kirby's Estate, 231 N. Y. S. 408 ,(133 Misc. Rep. 152) ; In re Schweinert's Estate, 234 N. Y. S. 307 (133 Misc. Rep. 762) ; In re Barstow's Estate, 244 N. Y. S. 588 (230 App. Div. 371), affirmed without opinion 256 N. Y. 647 (177 N. 'E. 177). In In re Schermerhorn's
The court further said that it was dealing there with a succession tax and that "the distinction was there, important for it was at least doubtful whether upon the death of the settlor there was any such termination, as to him, of a power of control over the remainder such as would have been subject to a tax levied exclusively on transfers, since the power was not vested in him alone, but in him and another. See Reinecke v. Northern Trust Co." But. it was said that the rule of Saltonstall v. Saltonstall, involving a succession tax is equally applicable to a transfer tax where the power of disposition is reserved exclusively to the transferor for his own benefit. Such a power is a limitation on the gift which makes it incomplete as to the donor as well as to the donee, "and we think that the termination of such a power at death may also be the appropriate subject of a tax upon transfers."