FERNANDEZ, COLLECTOR OF INTERNAL REVENUE, v. WIENER ET AL.
No. 58
SUPREME COURT OF THE UNITED STATES
Argued November 5, 1945. - Decided December 10, 1945.
326 U.S. 340
Messrs. Sidney L. Herold and Charles E. Dunbar, Jr., with whom Mr. Esmond Phelps was on the brief, for appellees.
The Attorneys General of the States of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington filed a brief (Messrs. Max Radin and Joseph D. Brady of counsel), and by special leave of Court Mr. Radin argued the cause, on behalf of those States, as amici curiae, urging affirmance.
MR. CHIEF JUSTICE STONE delivered the opinion of the Court.
In this case the Commissioner of Internal Revenue, proceeding under
The principal questions for decision are (1) whether the power asserted by the statute, to tax the entire community interest, is within the taxing power of the United States;
Appellees, the children and sole heirs of decedent, brought this suit in the District Court for Eastern Louisiana, to recover from appellant, the collector, as an alleged overpayment, so much of the estate tax paid as is attributable to the inclusion in decedent‘s gross estate of his wife‘s share of the community property, and of all, rather than half, of the insurance money. The district court gave judgment for appellees, 60 F. Supp. 169, holding that the statute as applied violated the due process clause of the
The facts as found by the district court are not in dispute. In 1907, decedent, a resident of Louisiana, married a Louisiana resident with whom he lived in that state until his death, his wife surviving. During the marriage he carried on in Louisiana various kinds of business. With the exception of certain real estate located in Mississippi, all the property of decedent at the time of his death was held in ownership by the marital community which existed between him and his wife. At no time during the existence of the community was the wife gainfully em-
Appellees filed the federal estate tax return, in which they reported only one-half of the net value of the community property as subject to the tax. Included in the community property, and also reported to the extent of only one-half, were the proceeds of fifteen policies of insurance on the life of decedent, all of which were (a) effected by decedent during the marriage, (b) named the wife as beneficiary, and (c) reserved the right to the insured of changing the beneficiary. All of the premiums on these policies had been paid from community funds. The Commissioner assessed a deficiency in estate tax based upon appellees’ failure to include in the gross estate, subject to tax, the entire value of all the community property, and the proceeds of the fifteen insurance policies. Appellees paid the deficiency and, following rejection of their claim for refund, brought the present suit to recover the amount of the deficiency payment which has resulted in the judgment in their favor.
Section 402 of the Revenue Act of 1942 amended
“(2) Community Interests.—To the extent of the interest therein held as community property by the decedent and surviving spouse under the law of any State . . . of the United States, . . . except such part thereof as may be shown to have been received as compensation
for personal services actually rendered by the surviving spouse or derived originally from such compensation or from separate property of the surviving spouse. In no case shall such interest included in the gross estate of the decedent be less than the value of such part of the community property as was subject to the decedent‘s power of testamentary disposition.”1
The revenue laws make no provision for the distribution of the burden of the tax beyond providing that the tax shall be a lien on all of the property included in the decedent‘s gross estate.
Appellees’ argument is in substance that the nature of community property is such that husband and wife each has, by virtue of the establishment of their marital community, and from its beginning, a present half interest in such property; that the death of either effects no transfer or relinquishment of any interest in the property other than that of the half share which the decedent had before his death; and that the survivor in consequence of the deаth of the other spouse acquires no new or different interest in the property, but only retains the half share he or she had prior to the death of the other spouse. From this appellees conclude that the death of either spouse is not an event which in any case can bring more than one-half of the community property within the reach of the power to “lay and collect . . . imposts and excises” conferred on Congress by
It is also contended that the tax is not uniform as required by
It is said too that the levy is a direct tax, invalid because not apportioned (
The merits of these contentions cannot be accurately appraised without some inquiry as to the nature of respective spouses’ community property interests as defined by Louisiana law. We have had occasion in several earlier cases to make some examination of the laws governing the interests of the spouses in community property states.
By the law of Louisiana, every marital status subject to the laws of the state superinduces a partnership or community of the spouses with respect to property in the state acquired during the life of the community, unless there be at the time of the marriage a stipulation to the contrary.2 All earnings and all property acquired by the husband or wife during the life of the community become community property, with certain limited exceptions not here involved, and which need not be detailed further than to say that the spouses can acquire some separate property during marriage.3 It is said that all property acquired by the spouses during the marriage which falls into the community is “due to the joint or common efforts, labor, industry, economy, and sacrifices of the husband and wife,” and that for this reason the husband and wife each has at all times an equal present interest in an undivided half of the whole community.4 The management of the community is entrusted to the exclusive control of the husband,5 and he may deal with and dispose of community property with no liability to account to the wife so long
So long as the community continues, the wife has no control over community property. She may not give it away, nor sell it, and in general, may not bind it for the payment of her debts.8 But upon the termination of the community, she, her heirs, or other designees receive in full possession and enjoyment one-half in value of the
Examination of the legislative history of the challenged statute, as disclosed by the Committee Hearings and Reports and the Congressional debates, can leave no doubt that the purpose of Congress in enacting it was the elimination of what was believed to be an unequal distribution of the tax burdens of estate taxes which led Congress to apply to community property the principles of death taxes which it had already applied to other forms of joint ownership, on the death of either of the joint owners. The Report of the House Committee recommending the adoption of the amendment to
There is no dispute as to the construction or operation of the provisions of the statute. Appellees do not deny that the Commissioner correctly applied the statute and correctly computed the tax if the statute is valid. Here, as will presently appear, there is no basis for saying that the statute, either in its purpose or in its practical effect, operates to regulate matters whose regulation the Constitution reserved to the states. It is a revenue measure
It is true that the estate tax as originally devised and constitutionally supported was a tax upon transfers. Knowlton v. Moore, 178 U. S. 41; Y. M. C. A. v. Davis, 264 U. S. 47, 50. But the рower of Congress to impose death taxes is not limited to the taxation of transfers at death. It extends to the creation, exercise, acquisition, or relinquishment of any power or legal privilege which is incident to the ownership of property, and when any of these is occasioned by death, it may as readily be the subject of the federal tax as the transfer of the property at death. See Bromley v. McCaughn, 280 U. S. 124, 135, et seq.
Congress may tax real estate or chattels if the tax is apportioned, and without apportionment it may lay an excise upon a particular use or enjoyment of property or the shifting from one to another of any power or privilege incidental to the ownership or enjoyment of property. Bromley v. McCaughn, supra; Burnet v. Wells, 289 U. S. 670, 678; cf. Nashville, C. & St. L. R. Co. v. Wallace, 288 U. S. 249, 267-8; Henneford v. Silas Mason Co., 300 U. S. 577, 582. The power to tax the whole necessarily embraces the power to tax any of its incidents or the use or enjoyment of them. If the proрerty itself may con-
If the gift of property may be taxed, we cannot say that there is any want of constitutional power to tax the receipt of it, whether as the result of inheritance, Stebbins v. Riley, 268 U. S. 137, or otherwise, whatever name may be given to the tax, and even though the right to receive it, as distinguished from its actual receipt and possession at a future date, antedated the statute. Receipt in possession and enjoyment is as much a taxable occasion within the reach of the federal taxing power as the enjoyment of any other incident of property. The taking of possession of inherited property is one of the most ancient subjects of taxation known to the law. Such taxes existed on the European Continent and in England prior to the adoption of our Constitution.13
It is upon these principles that this Court has consistently sustained the application of estate taxes upon the death of one of the joint owners to property held in joint ownership, measured by the full value of the property so
Decision in these cases was not rested, as appellees argue, on the ground that the tax was imposed on a gift made by the husband, who had created the tenancy, viewed as a substitute for a testamentary transfer, or on any event which antedated the death of one of the joint owners. Instead, as we said in Whitney v. Tax Commission, 309 U. S. 530, 539, “the emphasis in these cases [was] on the practical effect of death in bringing about a shift in economic interest, and the power of the legislature to fasten on that shift as the occasion for a tax.” We pointed out in Tyler v. United States, supra, 503, 504, that the use, possession and enjoyment of the joint property which was joint before the death was thereby made exclusive in the survivor, and thus constituted a “definite accession to the property rights” of the survivor. These circumstances were thought sufficient to make valid the inclusion of the property in the gross estate which forms the primary basis for the measurement of the tax. And in United States v. Jacobs, supra, this Court sustained the tax, assailed on due process grounds, when applied to a joint tenancy created before the enactment of the taxing statute. We said, 306 U. S. at 371, that the subject of the tax was not the gift to the wife made by the husband‘s creation of the joint tenancy for himself and wife, but the change in possession and enjoyment of the entire property, occasioned by the death of one of the joint tenants, and that the tax was appropriately measured by the value of the entire property. “Under the statute the death of decedent is the event in respect of which the tax is laid. It is the existence of the joint tenancy at that time, and not its creation
Similarly, a tax upon the termination by death of a power to dispose of property, created before the enactment of the tax statute, does not offend due process, Reinecke v. Northern Trust Co., 278 U. S. 339, nor does a tax upon the receipt of income which was earned and due before the enactment of the taxing statute. Brushaber v. Union Pacific R. Co., supra, 20; Lynch v. Hornby, 247 U. S. 339, 343; Taft v. Bowers, 278 U. S. 470, 483, 484; Cooper v. United States, 280 U. S. 409, 411. It is the receipt in possession or enjoyment of the proceeds of a right previously acquired and vested upon which the tax is laid. Such was deemed to be the taxable event under our earlier death taxes. Clapp v. Mason, 94 U. S. 589; Vanderbilt v. Eidman, 196 U. S. 480. And see Moffitt v. Kelly, supra.
With these general principles in mind, we turn to their application to federal death taxes laid with respect to the interests in community property. As we have seen, the death of the husband of the Louisiana marital community not only operates to transfer his rights in his share of the community to his heirs or those taking under his will. It terminates his expansive and sometimes profitable control over the wife‘s share, and for the first time brings her half of the property into her full and exclusive possession, control and enjoyment. The cessation of these extensive powers of the husband, even though they were powers over property which he never “owned,” and the establishment in the wife of new powers of control over her share, though it was always hers, furnish apрropriate occasions for the imposition of an excise tax.
Similarly, with the death of the wife, her title or ownership in her share of the community property ends, and passes to her heirs or other appointees. More than this,
This redistribution of powers and restrictions upon power is brought about by death notwithstanding that the rights in the property subject to these powers and restrictions were in every sense “vested” from the moment the community began. It is enough that death brings about changes in the legal and economic relationships to the property taxed, and the earlier certainty that those changes would occur does not impair the legislative power
The principles which sustain the present tax against due process objections are precisely those which sustained the California tax, measured by the entire value of community property in Moffitt v. Kelly, supra. There the Court recognized that the surviving wife took her share of the property on her husband‘s death, not as an heir, but as an owner of an interest, the right tо which she acquired before the death and before the enactment of the taxing act. But the levy upon the entire value of the community was sustained, not as a tax upon property or the transfer of it, but as a tax upon the “vesting of the wife‘s right of possession and enjoyment arising upon the death of her husband,” which the Court deemed an appropriate subject of taxation, notwithstanding the contract, equal protection and due process clauses of the Constitution.14 So far as Coolidge v. Long, 282 U. S. 582, is inconsistent with Moffitt v. Kelly, supra, and the contentions now urged by the Government, the application of the reasoning of the Coolidge case to the taxation of joint or community interests must be taken to have been limited by our decisions in Tyler v. United States, supra, and United States v. Jacobs, supra, and the cases following them.
What we have said of the nature and incidence of the tax on community property in large measure disposes of the various other contentions of appellees. Since the levy is an excise and not a property tax, the case is not one of
We find no basis for the contention that the tax is arbitrary and capricious because it taxes transfers at death and also the shifting at death of particular incidents of property. Congress is free to tax either or both, and here it has taxed both, as it may constitutionally do, in order to accomplish “the purposes and policy of taxation” to protect the revenue and avoid an unequal distribution of the tax burden. Watson v. State Comptroller, supra.
Even if it could be thought to affect the constitutionality of the taxing statute, it is plain that the statute does not depend for its operation upon any presumption that the entire community property is owned or economiсally attributable to the spouse first to die. Save as the statute itself grants an exemption by such attribution, so
The present statute, which was enacted in order to secure a more equitable distribution of the burden of federal death taxes,15 is assailed because the tax is lacking in uniformity. But the uniformity in excise taxes exacted by the Constitution is geographical uniformity, not unifоrmity of intrinsic equality and operation. Knowlton v. Moore, supra, 83-109. The Constitution does not command that a tax “have an equal effect in each State,” id. p. 104. It has long been settled that within the meaning of the uniformity requirement a “tax is uniform when it operates with the same force and effect in every place where the subject of it is found.” Head Money Cases, 112 U. S. 580, 594. See also LaBelle Iron Works v. United States, 256 U. S. 377, 392-3; Bromley v. McCaughn, supra, 138; Steward Machine Co. v. Davis, supra, 583.
The amendment taxing community property interests is applicable throughout the territory of the United States wherever such interests may be found. There is no lack of geographical uniformity because in some states they are not found. For a taxing statute does not fall short of the prescribed uniformity because its operation and incidence may be affected by differences in state laws. Phillips v. Commissioner, 283 U. S. 589, 602; Riggs v. Del Drago, supra, 102. “Differences of state law, which may bring a person within or without the category designated by
Appellees suggest that interests in tenancies in common and limited partnerships are very like interests in community property, and that if the tax is to be uniform, the one cannot be taxed unless the others are also. But even if it be as appellees argue, that common law family partnership or other arrangements with different names can be so devised that the marital relationship is attended by the same powers and restrictions as those derived from the laws of the community property states, and that they are differently or more lightly taxed than community property interests, we find no lack of uniformity in the constitutional sense. The present amendment is geographically uniform in its application to the only subject of which it treats, community property interests, and it levies in every state an identical tax upon the subject matter includеd within its terms—defined property interests created by state law, having a common historical origin, a common name, and constituting a universally recognized distinct class of property interests.
There can be no doubt that the selection of such a class for taxation would not offend against the
Appellees’ contention that the uniformity clause precludes such classification would in effect add to the constitutional restraints upon Congress an equal protection clause more restrictive than that of the
An excise tax, which the Constitution requires to be uniform, laid upon the shifting at death of some of the incidents of property, could hardly be thought to be a direct tax which must be apportioned. See Bromley v. McCaughn, supra, 138. The contention that such a tax is direct because measured by the property whose incidents are shifted at death, was rejected in Bromley v.
The
We conclude that the tax here laid with respect to the community property infringes no constitutional provision.
The inclusion of all the proceeds of decedent‘s life in-
For reasons which we have already fully developed in this opinion, the death of the insured, since it ended his control over the disposition of the proceeds and gave his wife the present enjoyment оf them, may be constitutionally made the occasion for the imposition of an indirect tax measured by the proceeds themselves. Stebbins v. Riley, supra, 141; Chase National Bank v. United States, supra.
Reversed.
MR. JUSTICE JACKSON took no part in the consideration or decision of this case.
MR. JUSTICE DOUGLAS, concurring.
Prior to the Revenue Act of 1942 there was a great lack of uniformity among the States in the incidence of the federal estate tax. In most of the States the accumulations
“For the purpose of Federal estate taxation, husband and wife living in community-property States enjoy a prеferential treatment over those living in non-community-property States. This is due to the fact that all of the property acquired by the husband after marriage, through his own efforts, in a community-property State is treated as if one-half belonged to the wife. In non-community-property States, all such property is regarded as belonging entirely to the husband.”
There are contained in the Report tables showing the difference in the amount of the federal estate tax in the community property States and in the other States, after which the Committee makes the following comment,
“. . . in some instances there is an entire exemption from the Federal estate tax for the reason that the omission of one-half of the community property reduces the husband‘s net estate below the minimum exemption of $40,000. Moreover, this halving of community property greatly reduces the estatе tax because of the progressive rates. For example, under the present law, a net estate of $50,000 will pay an estate tax of $500 in a non-community-property State and no tax in a community-property State. An estate of $100,000 will pay a tax of $9,500 on the death of the husband in a non-community-property State and a tax of $500 on the death of the husband in a community-property State.
“If the wife dies within 5 years of her husband, the remaining $50,000 upon which the husband paid no estate
tax will be subject to an estate tax of $500. Thus, the total tax paid on this $100,000 estate in the community-property State will be $1,000 as compared with $9,500 in the non-community-property State or a tax saving of $8,500. In the case of a $5,000,000 estate, the tax saving in a community-property State will amount to as much as $485,800 and in the case of a $10,000,000 estate, the tax saving in a community-property State will amount to as much as $1,171,800.”
And see S. Rep. No. 1631, 77th Cong., 2d Sess., p. 231.
Much may be said for the community property theory that the accumulations of property during marriage are as much the product of the activities of the wife as those of the titular bread-winner. But I can see no constitutional reason why Congress may not credit them all to the husband for estate tax purposes. The character and extent of property interests under local law often determine the reach of federal tax statutes. Helvering v. Stuart, 317 U. S. 154, 161-162, and cases cited. And see Cahn, Local Law in Federal Taxation, 52 Yale L. Journ. 799. Yet that is not always so. United States v. Pelzer, 312 U. S. 399. Taxation is eminently a practical matter. Congress need not be circumscribed by whatever lines are drawn by local law. It may rely, as Tyler v. United States, 281 U. S. 497, 502-503, held, on more realistic considerations and base classifications for estate tax purposes on economic actualities. It was held, to be sure, in Hoeper v. Tax Commission, 284 U. S. 206, that a State could not assеss against the husband an income tax computed on the combined total of his and his wife‘s income. But I can see no reason why that which is in fact an economic unit may not be treated as one in law. For as Mr. Justice Holmes pointed out in his dissent, there is a community of interest “when two spouses live together and when usually each would get the benefit of the income of each without inquiry into the source.” And he went on to say
“Taxation may consider not only command over, but actual enjoyment of, the property taxed.” 284 U. S. pp. 219-220. Cf. Helvering v. Clifford, 309 U. S. 331, 335-337.
The Congress has not gone the full distance here. It has not included in one estate all the property owned by husband and wife. So far as this case is concerned, it has only included in the estate of the husband the accumulations which under the community property system are deemed to have been produced by the joint efforts of him and his wife. I can see no obstacle to that course unless it be the uniformity clause of the Constitution.
On the facts of this case the law goes no further than to eliminate the estate tax advantage which a married rancher, business man, etc., in Louisiana has over those similarly situated in the common law States. Congress, to be sure, has disregarded the manner in which Louisiana divided “ownership” of property between husband and wife. But as between husband and wife, notions of “vested interests,” “ownership,” and the like, established by local law, are no sure guide to what “belongs” to one or the other in any practical sense. We would be blind to the usual implications of the intimate relationship of marriage if we forced Congress to treat such divisions of “ownership” the same way it does divisions of “ownership” among strangers. I find no such compulsion in the Constitution.
MR. JUSTICE BLACK joins in this opinion.
Notes
“(g) Proceeds of life insurance
“(1) To the extent of the amount receivable by the executor . . .
“(2) To the extent of the amount receivable by all other beneficiaries as insurance under policies upon the life of the decedent (A) purchased with premiums, or other consideration, paid . . . by the decedent, . . . or (B) with respect to which the decedent possessed at his death any of the incidents of ownership . . .
“(4) . . . For the purposes of this subsection, premiums . . . paid with property held as community property by the insured and surviving spouse under the law of any State, . . . shall be considered to have been paid by the insured, except such part thereof as may be shown to have been received as compensation for personal services actually rendered by the surviving spouse or derived originally from such compensation or from separate property of the surviving spouse; and the term ‘incidents of ownership’ includes incidents of ownership possessed by the decedent at his death as manager of the community.”
“For the purpose of Federal estate taxation, husband and wife living in community-property States enjoy a preferential treatment over those living in non-community-property States. This is due to the fact that all of the property acquired by the husband after marriage, through his own efforts, in а community-property State is treated as if one-half belonged to the wife. In non-community-property States, all such property is regarded as belonging entirely to the husband. The difference in the amount of the Federal estate tax is enormous as shown by the following tables: . . .”
The tables show the great disparity between the estate tax levied on community property upon the death of the husband who had accumulated it and the death of the husband in like circumstances in non-community states. The tax upon an estate of $100,000 being $500 in a community property state and $9,500 in non-community property states. In the case of a $5,000,000 estate the tax saving in a community property state would amount to as much as $485,800, the saving on a $10,000,000 estate in a community property state amounting to as much as $1,171,800.
The proposed amendment, it was said, “eliminates special estate tax privileges enjoyed by decedents of community property estates.” To the same effect is S. Rep. No. 1631, 77th Cong., 2d Sess., p. 231. The inequity inherent in allowing spouses in community property states to bear a lighter tax burden than their counterparts in other states had been brought to Congressional attention on other occasions. See e. g., President Roosevelt‘s message to Congress June 1, 1937, H. Doc. No. 260, 75th Cong., 1st Sess., p. 5; also Reports to the Joint Committee on Internal Revenue Taxation, Vol. 2, Part II (1933), pp. 15, 118-121, 139-140.