MR. JUSTICE DOUGLAS delivered the opinion of the Court.
The sole question presented by this case is whether the State of Utah is precluded by the Fourteenth Amendment from imposing a tax upon a transfer by death of shares of stock in a Utah corporation, forming part of the estate of a decedent who, at the time of his death, was domiciled in the State of New York and held there the certificates representing those shares.
In 1940, Edward S. Harkness died testate, being at that time domiciled in New York. His estate was probated
Respondents sought a declaratory judgment in the Utah court holding that the transfer of the shares was not subject to tax by Utah under the provisions of its inheritance tax law.
There can be no doubt but that the judgment below should be affirmed if First National Bank v. Maine is to survive, as the judgment in that case prohibited the State of Maine from doing what the State of Utah is here attempting. But we do not think it should survive. And certainly it cannot if the principles which govern the Curry and Graves cases rest on firm constitutional grounds.
First National Bank v. Maine, like its forerunners Farmers Loan & Trust Co. v. Minnesota, 280 U.S. 204, and Baldwin v. Missouri, 281 U.S. 586, read into the Fourteenth Amendment a "rule of immunity from taxation by more than one state." 284 U.S. p. 326. As we said in the Curry case, that doctrine is of recent origin. Prior to 1930, when Blackstone v. Miller, 188 U.S. 189, was overruled by Farmers Loan & Trust Co. v. Minnesota, the adjudications of this Court clearly demanded a result opposite from that which obtained in First National Bank v. Maine. That was recognized by the majority in the latter case (284 U.S. p. 321) — and properly so, because Blackstone v. Miller rejected the notion that there were constitutional objections
It was that view which we followed in the Curry case. We held there that the Fourteenth Amendment did not prevent both Alabama and Tennessee from imposing death taxes upon the transfer of an interest in intangibles held in trust by an Alabama trustee but passing under the will of a beneficiary decedent domiciled in Tennessee.
Furthermore, the rule of immunity against double taxation espoused by First National Bank v. Maine, had long been rejected in other cases. Kidd v. Alabama, supra; Fort Smith Lumber Co. v. Arkansas, 251 U.S. 532; Cream of Wheat Co. v. Grand Forks, 253 U.S. 325. We rejected it again only recently. Illinois Central R. Co. v. Minnesota, 309 U.S. 157. And as we pointed out in the Curry case, the reasons why the Fifth Amendment "does not require us to fix a single exclusive place of taxation of intangibles for the benefit of their foreign owner" (Burnet v. Brooks, 288 U.S. 378) are no less cogent in case of the Fourteenth. 307 U.S. pp. 369, 370.
The recent cases to which we have alluded are all distinguishable on their facts. But their guiding principles are irreconcilable with the views expressed in First National Bank v. Maine. If we raised a constitutional barrier in this case after having let it down in the Curry case, we would indeed be drawing neat legal distinctions and refinements which certainly cannot be divined from the language of the Constitution. Certainly any differences between the shares of stock in this case and the intangibles in the Curry case do not warrant differences in constitutional treatment so as to forbid taxation by two States in the one case and to permit it in the other. If we perpetuated any such differences, we would be doing violence to the words "due process" by drawing lines where the Fourteenth Amendment fails to draw them. Furthermore, the legal interests in the intangibles here involved are as diverse as they were in the intangibles in the Curry case. And to say that these shares of stock were localized or had an exclusive situs in New York would be to indulge in the fiction which we rejected in the Curry case. Any such attempt to fix their
More specifically, if the question is "whether the state has given anything for which it can ask return" (Wisconsin v. J.C. Penney Co., supra, p. 444), or whether the transfer depends upon and involves the law of Utah for its exercise (Blackstone v. Miller), there can be no doubt that Utah is not restrained by the Fourteenth Amendment from taxing this transfer. The corporation owes its existence to Utah. Utah law defines the nature and extent of the interest of the shareholders in the corporation. Utah law affords protection for those rights. Utah has power over the transfer by the corporation of its shares of stock. Certainly that protection, benefit, and power over the shares would have satisfied the test of Blackstone v. Miller and Curry v. McCanless. But it is said that we are here interested only in the factum of the transfer, and that the stockholder in the case at bar had no need to invoke the law of Utah to effect a complete transfer of his interest. The argument is based on the fact that the transfer office is located outside Utah, and that, under the Uniform Stock Transfer Act which Utah has adopted (Rev. Stat. 1933 §§ 18-3-1 et seq.), the trend is to treat the shares as merged into the certificates in situations involving the ownership and transfer of the shares. We do not stop to analyze the many cases which have been cited, nor to speculate as to how Utah would interpret its law in this regard. Suffice it to say, that if that freedom of transfer exists as respondents claim, it stems from Utah law. It finds its ultimate source in the authority which Utah has granted. It is indeed a benefit which Utah has bestowed. For it alone Utah may constitutionally ask a return. In view of these realities, we cannot say with the majority in First National Bank v. Maine, p. 327, that a "transfer from the dead to the living of any specific property is an event
We are of course not unmindful of the notions expressed in Farmers Loan & Trust Co. v. Minnesota, and repeated in First National Bank v. Maine, that the view championed by Blackstone v. Miller disturbed the "good relations among the States" and had a "bad" practical effect which led many States "to avoid the evil by resort to reciprocal exemption laws." 280 U.S. p. 209. But, as stated by the minority in First National Bank v. Maine, "We can have no assurance that resort to the Fourteenth Amendment, as the ill-adapted instrument of such a reform, will not create more difficulties and injustices than it will remove." 284 U.S. p. 334. More basically, even though we believed that a different system should be designed to protect against multiple taxation, it is not our province to provide it. See Curry v. McCanless, supra, pp. 373-374. To do so would be to indulge in the dangerous assumption that the Fourteenth Amendment "was intended to give us carte blanche to embody our economic or moral beliefs in its prohibitions." Mr. Justice Holmes, dissenting, Baldwin v. Missouri, supra, p. 595. It would violate the first principles of constitutional adjudication to strike down state legislation on the basis of our individual views or preferences as to policy, whether the state laws deal with taxes or other subjects of social or economic legislation.
For the reasons stated, we do not think that First National Bank v. Maine should survive. We overrule it. In line with our recent decisions in Curry v. McCanless, Graves v. Elliott and Graves v. Schmidlapp, we repeat that there is no constitutional rule of immunity from taxation of intangibles by more than one State. In case of shares of stock, "jurisdiction to tax" is not restricted to the domiciliary State. Another State which has extended benefits
We reverse the judgment below and remand the cause to the Supreme Court of Utah for proceedings not inconsistent with this opinion.
MR. JUSTICE FRANKFURTER, concurring:
A case of this kind recalls us to first principles.
The taxing power is an incident of government. It does not derive from technical legal concepts. The power to tax is coextensive with the fundamental power of society over the persons and things made subject to tax. Each State of the Union has the same taxing power as an independent government, except insofar as that power has been curtailed by the federal Constitution.
The taxing power of the States was limited by the Constitution and the original ten amendments in only three respects: (1) no State can, without the consent of Congress, lay any imposts or duties on imports or exports, except as necessary for executing its inspection laws, Art. I, § 10 ; (2) no State can, without the consent of Congress, lay any tonnage duties, Art. I, § 10 ; and (3) by virtue of the Commerce Clause, Art. I, § 8 , no State can tax so as to discriminate against interstate commerce. (For present purposes, I put the Contract Clause to one side). None of these limitations touches the power of a State to create corporations and the incidental power to tax opportunities which such State-created corporations afford.
Modern enterprise often brings different parts of an organic commercial transaction within the taxing power of more than one State, as well as of the Nation. It does so because the transaction in its entirety may receive the benefits of more than one government. And the exercise by the States of their Constitutional power to tax may
"A good deal has to be read into the Fourteenth Amendment to give it any bearing upon this case." Holmes, J., dissenting in Farmers Loan Co. v. Minnesota, 280 U.S. 204, 218. We would have to read into that Amendment private notions as to tax policy. But whether a tax is wise or expedient is the business of the political branches of government, not ours. Considerations relevant to invalidation of a tax measure are wholly different from those that come into play in justifying disapproval of a tax on the score of political or financial unwisdom.
It may well be that the last word has not been said by the various devices now available — through uniform and reciprocal legislation, through action by the States under the Compact Clause, Art. I, § 10, or through whatever other means statesmen may devise — for distributing wisely the total national income for governmental purposes as between the States and the Nation. But even if it were possible to make the needed adjustments in the fiscal relations of the States to one another and to the Federal Government through the process of episodic litigation — which to me seems most ill-adapted for devising fiscal policies — it is enough that our Constitutional system denies such a function to this Court.
I agree, therefore, that First National Bank v. Maine should be overruled and that the tax imposed by Utah
MR. JUSTICE JACKSON, dissenting:
State taxation of transfer by death of intangible property is in something of a jurisdictional snarl, to the solution of which this Court owes all that it has of wisdom and power. The theoretical basis of some decisions in the very practical matter of taxation is not particularly satisfying.
There is little persuasion and certainly no compulsion in the authorities mustered by the Court's present opinion, which are either admittedly overruled cases, such as Blackstone v. Miller, 188 U.S. 189, or admittedly distinguishable ones, such as Curry v. McCanless, 307 U.S. 357; Graves v. Elliott, 307 U.S. 383; Wisconsin v. J.C. Penney Co., 311 U.S. 435. Such authorities are not impressive in vindication of such a judgment. Without discussion of the academic merits of the decision that is being overruled, I am willing to proceed on the estimate of it made at the time of its pronouncement by the present CHIEF JUSTICE, who said in his dissent: "Situs of an intangible, for taxing purposes, as the decisions of this Court, including the present one, abundantly demonstrate, is not a dominating reality, but a convenient fiction which may be judicially employed or discarded, according to the result desired." First National Bank v. Maine, 284 U.S. 312, 332. The Court now discards this fiction in favor of one calling for a different result.
This older rule ascribed a fictional consequence to the domicile of a natural person; it is overruled by ascribing a fictional consequence to the domicile of an artificial corporation. The older rule emphasized dominance by the individual over his intangible property, the tax situs of which followed the domicile of its owner. Today's new rule emphasizes the dominance of the corporation, a creature
No one questions that a State which charters a corporation, even though it amounts to no more than giving "to airy nothing a local habitation and a name," has the right to exact a charter fee, an incorporation tax, or a franchise tax from the artificial entity it has created. But that such chartering enables the taxing arm of the State to reach the estate of every stockholder, wherever he lives, and to tax the entire value of the stock because of "opportunities which it has given," "protection which it has afforded," or "benefits which it has conferred" is quite another matter. Utah is permitted to tax the full value
It would be hard to select a case that would better demonstrate the fictional basis of the Court's doctrine of benefits and protection than this case of Utah and the Union Pacific Railroad. When Utah was admitted to statehood in 1896, the Union Pacific Railroad was already old as a national institution. The first white settlement in Utah made by the Mormons was in its second year when President Taylor recommended to Congress consideration of a railroad to the Pacific as a "work of great national importance and of a value to the country which it would be difficult to estimate."
The road continued to be a national problem as well as a national enterprise. President Cleveland recommended to Congress in his message of December 3, 1894 consideration of reorganization.
If it had only the "opportunities" and "benefits" conferred by Utah and only the properties protected by her laws, the Union Pacific would cut little figure either in transportation or finance. It holds its stockholders' meetings in that State. But it maintains no executive office or stock transfer office in Utah. Its executive and stock transfer offices are in New York City. Its stocks are listed on the New York, Boston, London, and Amsterdam stock exchanges. Over 200,000 shares of its stock were traded on the New York Stock Exchange in 1939.
What gives the Union Pacific stock its value, all of which is appropriated by this decision to Utah's taxing power, is its operation in interstate commerce, a privilege which comes from the United States and one which Utah does not give or protect and could not deny. The Union Pacific system itself is in interstate operation, embracing thirteen states and drawing its business from the whole country. Approximately 37% of its total tonnage was received from connecting lines.
These facts leave nothing of Utah's claim to tax the full value of Union Pacific shares when transferred by death of a nonresident stockholder, and no basis for the Court's decision that it may do so, except the metaphysics of the corporate charter.
The theories on which this case is decided contrast sharply with certain hard facts which measure the decision's practical wisdom or lack of it.
The practical issue underlying this case is not whether the Harkness estate shall pay or avoid a transfer tax. The issue is whether Utah or New York will collect this tax. It is admitted that if this Court breathes constitutionality into this Utah tax, all that Utah gets will be credited to the Harkness estate on its tax payable in New York as the State of domicile. The right of a State to tax succession to corporate stock by death of one domiciled therein, while not abrogated, is now subjected to an interfering and overlapping right of the State which chartered the corporation to tax the same stock transfer on a different and inconsistent principle. Since the chartering State has apparently been empowered to exact its tax as a condition of permitting the transfer, the taxing power of the State of the stockholder's domicile is really subordinated and deferred to the taxing power of the chartering State. By laying its tax on the gross value transferred, irrespective of the net value of the decedent's estate, the chartering State may give its tax an effective priority of payment over the taxes laid by the domiciliary State and may collect what amounts to an inheritance tax even when there is no net estate to transfer. Thus, through the corporate charter fiction, the chartering State may thrust its own tax with extra-territorial effect between the taxing power of the State of domicile and tax resources to which that State has had, and I think should have, first and, under ordinary circumstances, exclusive resort.
2. To subject intangible property to many more sources of taxation than other wealth, prejudices its relation to other investments and other wealth by a discrimination which has no basis in the function that intangibles perform
Not one substantial evil is said by the opinion in this case to flow from the rule being upset, and evils of some magnitude admittedly follow from the one being reinstated. These consequences the Court declines even to consider, although they bear upon a segment of our economy bigger than the national debt
The revenue that the States may collect in consequence of this decision is not the measure of the burden it imposes on taxpayers. The ascertainment of taxes of this type is costly and wasteful. Such taxation frequently
Moreover, the burdens imposed by this type of taxation are unequal and capricious and in inverse order to the ability of the estate to pay. I suppose we need have little anxiety about Mr. Harkness's $87,000,000 net estate with its $1,000,000 investment in Union Pacific stock. As we have pointed out, it is not he, but the State of New York, that will pay this tax to the State of Utah. And if New York had no provision in its statutes for credit and Mr. Harkness could have foreseen the shift of position of this Court, it is not likely that he would have been caught with the tax. Those who have large estates and watchful lawyers will find ways of minimizing these burdens. But Mr. Harkness is not a typical Union Pacific stockholder. In 1939, the Union Pacific had 50,131 stockholders.
3. A large majority of the States, by experience prior to the First National Bank v. Maine decision, found the system of taxation which this Court imposes on all States today to be unworkable and to constitute a threat to the death tax on intangibles as a State source of revenue. Competitive use by the States of death taxation and immunities invited federal invasion of the field, one phase of which was the enactment by Congress of § 301, Revenue Act of 1926, sustained by this Court in Florida v. Mellon, 273 U.S. 12. There the Federal Government had laid an estate tax, but retained only 20% of the revenue and used an 80% credit provision to equalize the demands of the States. There was an uneasy premonition among the States that overlapping, capricious, and multiple taxation would lead to Federal occupation of the field. Appearing in the First National Bank case as amicus curiae, the New York State Tax Commission urged that both principle and policy prevent the levying of taxes by more than one jurisdiction, and added: "The New York Tax Commission
Farsighted States saw that the total revenue resources practically available to the States was not increased by overlapping their taxation and invading each other's domiciliary sources of taxation. Many felt that justice required credits to their own domiciled decedents' estates for taxes exacted elsewhere, and the credits granted offset largely the revenue derived from the tax. The multiple taxation added substantially to the cost of administration and to the annoyance of taxpayers. Because of these considerations, at the time of argument of First National Bank v. Maine, thirty-seven States had enacted reciprocity statutes which voluntarily renounced revenues from this type of taxation. The Court was urged to stay the hand of sister States which would not cooperate. The restraint laid by this Court in response to those appeals is now withdrawn at the behest of a State which has at no time enacted a reciprocity statute or given a credit for such taxes paid by its domiciled decedents elsewhere. We have not heard the views of any other State nor considered their concern about retaining the source of taxation opened to them. I do not doubt that today's decision will give a new impetus to Federal absorption of this revenue source and to Federal incorporation of large enterprises.
4. An unfortunate aspect of this decision is that, in common with other judge-made law, it has retroactive effect. Consequently, inequalities and injustices will be suffered by States as well as by individuals. For example, the State of New York has written into its own Constitution
The Court casts aside former limitations on state power to tax nonresidents in such terms as to leave doubt whether any legal limitations are hereafter to be recognized or applied. The opinion of the Court says that the State may "constitutionally make its exaction" "which can demonstrate `the practical fact of its power.'" The concurring opinion adds that "Each State of the Union has the same taxing power as an independent country, except insofar as that power has been curtailed by the federal Constitution," and it enumerates three limitations, each of which prohibits a kind of tax or protects kinds of business from tax; but none of them restrains taxation by reference to what we have usually expressed by "jurisdiction." It is true that the concurring opinion says that "the Due Process Clause has its application to the taxing power of the States," but we are not told what it may be, and it is difficult to conceive of a situation where it will ever be useful if it may not be considered as a test of jurisdiction to impose a tax.
Despite today's decision, I trust this Court does not intend to say that might always makes right in the matter of taxation. I hope there is agreement, though unexpressed, that there are limits, and that our problem is to search out and mark those limits. One way to go about it is to say that those States can tax which have the physical
Certain it is that while only corporate stock is expressly mentioned in the opinion or involved in the judgment today, the fiction of benefits and protection is capable of as ready adaptability to other intangible property. Our tomorrows will witness an extension of the taxing power of the chartering or issuing State to corporate bonds and bonds of States and municipalities (by overruling Farmers Loan & Trust Co. v. Minnesota, 280 U.S. 204), to bank credits for cash deposited (by overruling Baldwin v. Missouri, 281 U.S. 586), and to choses in action (by overruling Beidler v. South Carolina, 282 U.S. 1). And while today the Court sustains only a death transfer tax, its theories are equally serviceable to sustain an income or excise tax, on dividends from such stock or interest on bonds, or a sales tax, or a gift tax. Whether each chartering or issuing State will be permitted to calculate its tax on some formula that will consider the total property owned by the decedent, I do not know, but in the present
And since the Due Process Clause speaks with no more clarity as to tangible than as to intangible property, the question is opened whether our decisions as to taxation of tangible property are not due to be overhauled. And if the State of Utah is not denied jurisdiction over the transfer of this stock owned by a New York resident, it is difficult to see where the Court could find a basis for denying it jurisdiction to prescribe the rule of succession to it.
The Court, it seems to me, will be obliged to draw the line at which state power to reach nonresidents' estates and extraterritorial transactions comes to an end. I find little difficulty in concluding that exaction of a tax by a State which has no jurisdiction or lawful authority to impose it is a taking of property without due process of law. The difficulty is that the concept of jurisdiction is not defined by the Constitution. Any decision which accepts or rejects any one of the many grounds advanced as jurisdictional for state taxing purposes
I am content with existing constitutional law unless it appears more plainly that it is unsound or until it works badly in our present day and society.
MR. JUSTICE ROBERTS concurs in this opinion.
"A tax equal to the sum of the following percentages of the market value of the net estate shall be imposed upon the transfer of the net estate of every decedent, whether a resident or nonresident of this state:
"Three per cent of the amount by which the net estate exceeds $10,000 and does not exceed $25,000;
"Five per cent of the amount by which the net estate exceeds $25,000."
Sec. 80-12-3 provides:
"The value of the gross estate of a decedent shall be determined by including the value at the time of his death of all property, real or personal, within the jurisdiction of this state, and any interest therein, whether tangible or intangible, which shall pass to any person, in trust or otherwise, by testamentary disposition or by law of inheritance or succession of this or any other state or country, or by deed, grant, bargain, sale or gift made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after his death."
The Commissioner computes dividends paid in cash or assets other than stock to have been $5,013,432,827. Id. at 22.
Balance sheets were submitted by 411,941 corporations showing total assets of $300,021,727,000. Id. at 28.
The volume of intangibles afloat as a result of corporate financing is not specifically calculated, but some idea of it is gleaned from the aggregate of items as follows:
Common stocks ................... $74,791,662,000 Preferred stocks ................. 18,108,066,000 Bonds, notes and mortgages — maturity 1 year or more ... 50,278,233,000 Ibid.
The intangibles so reported included:
Capital stock in corporations ............ $1,079,231,000 State and municipal bonds ................ 242,537,000 Government bonds ......................... 148,802,000 Other bonds .............................. 164,796,000
Of course it does not follow that the same proportions hold good for estates too small to be reported under federal law. Because they would be more heavily weighted with farm and home owning, I am confident these statistics do not present proportions applicable to all transfers by death. They do, I believe, sustain the statement made in the text.
Real Estate ................................. $41,241,000 Stocks and Bonds ............................ 214,583,000 Cash ........................................ 72,390,000 Insurance ................................... 21,795,000 Miscellaneous ............................... 49,764,000
"Moneys, credits, securities and other intangible personal property within the state not employed in carrying on any business therein by the owner shall be deemed to be located at the domicile of the owner for purposes of taxation, and, if held in trust, shall not be deemed to be located in this state for purposes of taxation because of the trustee being domiciled in this state, provided that if no other state has jurisdiction to subject such property held in trust to death taxation, it may be deemed property having a taxable situs within this state for purposes of death taxation. Intangible personal property shall not be taxed ad valorem nor shall any excise tax be levied solely because of the ownership or possession thereof, except that the income therefrom may be taken into consideration in computing any excise tax measured by income generally. Undistributed profits shall not be taxed."
That decision apparently ended the necessity for reciprocal exemption and I know of none enacted since. Texas and Missouri appear to have omitted reciprocal exemption provisions in later revisions of their inheritance tax laws.
Where prescribed sources of law fail to guide the judicial process, the Swiss Civil Code provides that the judge "must pronounce judgment according to the rule which he would set up if he were legislator himself." Williams, Sources of Law in the Swiss Civil Code (1923) 34 et seq.; Schoch, The Swiss Conflict of Laws, 55 Harvard Law Review 738, 749, note 57. The Swiss may have thought a candid recognition of what necessarily is the practice would forestall judicial disclaimer of responsibility for the practical consequences of law announced.