287 N.Y. 61 | NY | 1941
Lead Opinion
Josephine del Drago died October 8, 1937, while a resident of New York State, leaving a last will and testament dated March 27, 1934, which was probated by the Surrogate of New York County, and Giovanni del Drago and Byron Clark, Jr., were appointed and thereupon qualified as executors of her estate. Upon an accounting by the executors to which all parties interested in the estate were parties, it appeared that, although no final determination has been made as to the amount of state and federal estate taxes properly assessable, the executors have already paid nearly $300,000 thereon out of the general assets of the estate. Before distribution to beneficiaries, the executors properly requested a determination of the question of whether the taxes so paid should be apportioned to, prorated among and deducted from the shares passing under the will to the several legatees and devisees or paid entirely from the remainder residuary estate. *66
The deceased left a substantial estate in the United States and also property in France and Italy which latter is not the subject-matter of this accounting or involved in the point to be decided. Following small specific legacies for various persons, the deceased left to her husband, Giovanni del Drago, who is domiciled in the United States, various articles of personal property and effects by the sixth clause of the will, the sum of $300,000 by the seventh clause and the life use of the residuary estate under the ninth clause of the will. By theeighth clause of the will, she left to her stepson, Marcel del Drago of Rome, Italy, the life use of $200,000 with remainder over, per stirpes, to his surviving children born in lawful wedlock and/or the children born in lawful wedlock of any such child of her stepson who should then be deceased. In the event that Marcel del Drago should leave no such children or such grandchildren surviving, the remainder was directed to pass to the children of Clemente del Drago, son of Luigi del Drago, a brother of her husband, born in lawful wedlock and/or to the children born in lawful wedlock of any deceased child or children. By the ninth clause of the will, the residue of the estate upon the death of her husband was to pass to the children born in lawful wedlock of Mario del Drago, the second son of Luigi del Drago, of Rome, Italy, and/or the children born in lawful wedlock of any such child who might then be deceased.
The will contains no direction as to how, by whom or out of what portion of her estate so devised and bequeathed the estate taxes should be paid. By objections and answer to the account, specific legatees and guardians for infant legatees have suitably put in issue the constitutionality of chapter 709 of the Laws of 1930 (Decedent Estate Law, §
Article I of the Federal Constitution contains the uniformity clause and provides that "the Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises * * *; but all Duties, Imposts and Excises shall be uniform throughout the United States * * *" and "To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers" (§ 8). Article VI contains the supremacy clause and reads in part: "This Constitution, and the Laws of the United States which shall be made in Pursuance thereof * * * shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." Section 1 of the Fourteenth Amendment to the Constitution provides, among other things, that "all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States *68 and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws."
Prior to the act of 1916, all federal acts imposing death duties made specific provision for the payment of the tax by the several legatees individually and severally out of their shares and not by the estate (1 U.S. Stat. 527, July 6, 1797; 12 U.S. Stat. 433, 485, 486, July, 1862; 13 U.S. Stat. 223, 285-291, June, 1864; 30 U.S. Stat. 448, 464-466, June, 1898, as amended by 31 U.S. Stat. 946 [1901]). They were emergency measures and made no provision for permanent excises. They provided for inheritance taxes and not estate taxes. A reading of the 1898 act would seem to indicate that the rate was based on the net estate but the individual legacies were taxed. The constitutionality of that scheme of death-duty taxation was sustained only by construction whereby it was held that the rate was fixed alone by the size of the legacy (Knowlton v. Moore,
Accordingly, by the provisions of the Revenue Act of September 8, 1916 (39 U.S. Stat. 777 et seq.; 6 U.S. Compiled Stat. 1916, ch. 10A, p. 7364, § 6336 1/2a et seq.) the Congress imposed an "estate tax" as distinguished from an "inheritance tax" on estates of deceased persons and placed the burden of the tax upon the residuary estate rather than upon legacies (Matter ofHamlin,
Under articles 10 (L. 1909, ch. 62, as amd.), and 10-A (L. 1925, ch. 143, as amd.) the New York Legislature imposed inheritance taxes upon individual legacies. Under article 10-B (L. 1925, ch. 320) it was provided that the *71 state death tax was "imposed upon the transfer of the net estate" (§ 249-a). The executor of every estate was made personally liable for the tax (§ 249-g). The executor was required to make a return within two months after the decedent's death or within a like period after qualifying as executor (§ 249-d), was forbidden finally to account unless he should have produced a final receipt or a certified copy thereof showing the payment of any taxes due (§ 249-e), was authorized to sell so much of the property of the estate as would enable him to pay the tax in the same manner provided by law for payment of a decedent's debt, and the State Tax Commissioner was authorized to maintain an action against the executor personally to recover the tax (§ 249-g). If any part of the tax was paid out of a distributive share, the person entitled to that share was entitled to reimbursement and tax upon the legacies, as such, was effectively barred (§ 249-g). It was stated to be "the purpose and intent of this article 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." (§ 249-g.) Thus state death duties for purposes of state revenue were assessable and collectible and the burden imposed in the same manner as the federal estate tax. In each sovereignty, the applicable statutes required the tax to be deducted and paid from the net estate before determination and computation of the shares payable to individual legatees.
After much agitation and effort in and out of the Legislature, a new state tax law applicable to estates of persons dying after September 1, 1930, was passed by the Legislature and became effective on that date (L. 1930, ch. 710, amdg. L. 1909, ch. 62, by adding a new article to be known as 10-C). By the provisions of the act itself, history of inheritance tax legislation of the state and proceedings antecedent to its passage, it was clearly shown that the act was passed for the purpose (1) of imposing death duties upon those who received the benefit and not upon the estate of the deceased and (2) to compel similar distribution of the *72 federal estate tax notwithstanding and in the face of the federal law to the contrary (McKinney's historical note, vol. 13, p. 420). The act required that the tax be apportioned among the beneficiaries and the order of reimbursement of the previous act was reversed. It was provided that the executor should pay the tax out of the net estate, should not make reimbursement to legatees but that he was entitled to contribution from them. It was provided that in respect to persons dying after September 1, 1930, that article should supersede any article of the Tax Law "which imposes a transfer, inheritance or estate tax" (§ 249-mm) and that no exemption provided for in any other article of the Tax Law or of any other law of the state should be construed as being applicable under the new article. The act contains in itself no provision for apportionment and distribution of the tax among the legatees or distributees. In the face of probable necessary construction and possible unconstitutionality (Knowlton v. Moore, supra), other provisions were added (§ 249-t) and the Decedent Estate Law was amended (§ 124; L. 1930, ch. 709, effective September 1, 1930), whereby the rate of the tax is fixed by the amount of the estate and the tax found due is apportioned among the various legatees according to that rate. Section 249-t of the Tax Law provides for exclusive jurisdiction in the Surrogate's Court "to finally determine the amount of the tax imposed by this article, and to fix and adjudge the proportions in which the same shall be borne by the persons interested in the estate as in section one hundred twenty-four of the decedent estate law provided." (§ 249-kk). Section 124 of the Decedent Estate Law provides that the death tax imposed shall "so far as is practicable and unless otherwise directed by the will of the decedent * * * be paid by the executor as such out of the estate before its distribution," and the executor shall not be required to distribute under the will any property with respect to which federal or state estate tax is imposed unless the amount thereof is apportioned to the distributees and such taxes are paid. Subdivision 1 of the *73 section provides a scheme for apportionment and distribution and leaves it in the hands of the Surrogate equitably to carry that scheme into effect as far as the state tax is concerned. But it does not stop there. It further provides that the estate tax paid by an executor "under the provisions of the United States revenue act of nineteen hundred twenty-six, as amended by the United States revenue act of nineteen hundred twenty-eight, or under any death tax law of the United States hereafter enacted, upon or with respect to any property required to be included in the gross estate of a decedent under the provisions of any such law, the amount of the tax so paid, except in a case where a testator otherwise directs in his will, [with an exception (L. 1940, ch. 829, § 13) not here pertinent] shall be equitably prorated among the persons interested in the estate to whom such property is or may be transferred or to whom any benefit accrues," and makes it mandatory on the executor, as to any property that does not come into his hands, "to recover from whomever is in possession, or from the persons interested in the estate, the proportionate amount of such tax payable by the persons interested in the estate with which such persons interested in the estate are chargeable under the provisions of this section, and the surrogate may by order direct the payment of such amount of tax by such persons to the executor."
The Federal Revenue Act of 1918, in essential respects similar to the act of 1916 so far as the point at issue is concerned, was held in Y.M.C.A. v. Davis (supra, p. 50) to be "an excise upon the transfer of an estate upon death of the owner" and "not a tax upon succession and receipt of benefits under the law or the will. It was death duties as distinguished from a legacy or succession tax. What this law taxes is not the interest to which the legatees and devisees succeeded on death, but the interest which ceased by reason of the death." So far as material, identical provisions are contained in the Federal Estate Tax Law applicable to the estate under consideration. Similar provisions to those contained in the 1916 act were construed *74
as above in Matter of Oakes (
"It is a principle firmly established that to the law of the State in which the land is situated we must look for the rules which govern its descent, alienation and transfer, and for the effect and construction of wills and other conveyances" (DeVaughn v. Hutchinson,
The state's right to taxation is subordinate to that of the federal government and when the latter has acted in a particular field, the full import and all the implications of that act must control. The Congress has not only acted in the field, of decedents' estate taxation to levy and collect duties but has expressly directed the manner of payment of such duties and excluded specific legatees from bearing the burden of any such levy. Such exclusion was final and conclusive and beyond the power of the state to vary or change. But if it be urged that failure of Congress to be more specific as to its purpose to exercise complete control of the incidence of the estate tax to the exclusion of state interference indicates an intent that the state might legislate on the subject, the answer is that silence does not give consent but implies only that there shall be no interference with the federal scheme (Prigg v. Pennsylvania,
16 Pet. [U.S.] 539; United States v. Snyder,
Since Congress had the power to lay and collect taxes on decedents' estates and determine where the burden should rest (New York Trust Co. v. Eisner, supra), those acts are the supreme law of the land and the state legislative acts in question, if in conflict with the federal law, are a nullity though enacted in the exercise of concurrent and not controverted powers (Gibbons v. Ogden, 9 Wheat. [U.S.] 1, 24, 211;Florida v. Mellon,
In neither of the cases relied upon, in part at least, by the learned Surrogate (Matter of Scott,
The question of the justice or equity of placing the burden upon the residuary estate is entirely irrelevant to the question under consideration. Whether it is just and equitable in all cases to impose the tax upon the estate as a whole and not upon the specific legatees on the benefits they *79
derive from the estate is a matter admitting of wide diversity of opinion. It is not the province of the courts to resolve that conflict. "The Congress has spoken and it is our function to interpret, not to legislate" (Matter of Hamlin,
It follows that in so far as section 124 of the Decedent Estate Law or section 249-t of article 10-C of the State Tax Law authorize, require or direct distribution and apportionment of the federal estate taxes levied and to be levied upon the estate of the deceased among the legatees, they are repugnant to the provisions of the Federal Estate Tax Act of 1926 and amendments thereto, the Congress being competent to legislate on the subject of estate excises, and to the uniformity and supremacy clauses of the Federal Constitution and are, therefore, unconstitutional. Since what we have said above is decisive of the issue here involved, it is unnecessary to consider other grounds of unconstitutionality which appellants urge. The question of the repugnancy of the legislative acts to the New York State Constitution is not before us on this record and nothing said above is to be considered an expression of opinion on that subject. *80
The order of the Surrogate's Court should be reversed, with costs in this court and in the Surrogate's Court to each party appearing and filing a separate brief payable out of the estate and the matter remitted to the Surrogate's Court to proceed in accordance with this opinion.
Dissenting Opinion
The appellants are general legatees under the will of Josephine del Drago. Over their objection the Surrogate, in this accounting proceeding, prorated the federal estate tax equitably "among the persons interested in the estate" and ordered the executor to charge the prorated amounts against the persons so interested, including appellants. All this was in obedience to the command of section 124 of the Decedent Estate Law, applicable to this estate, since testatrix did not direct otherwise in her will. In this court there is raised by appellants only one objection to this prorating and apportionment, namely, that section 124, in so far as it directs such prorating and apportionment, is invalid as being in conflict with the "Supremacy Clause" of the Federal Constitution (Art. VI, cl. 2).
The estate of Josephine del Drago became subject at her death to a tax imposed by the United States on the estates of decedents. No one questions that the tax so imposed is a true estate tax, falling on the estate itself and payable from the estate, and is not an inheritance tax which falls on the separate shares of the estate which go to the several beneficiaries. It is an excise tax laid upon the privilege of transmitting property rights at death. (Matter of Vanderbilt,
In affirming the decision of the Circuit Court of Appeals inEdwards v. Slocum, the Supreme Court (
We need not take time for a careful inquiry as to whether or not these expressions in the federal decisions are dicta. Dicta or not, binding on us or not, they cannot be ignored, particularly when they have been so long regarded as stating the law, and when they agree with the expressed views of the members of Congress and with the logic of the situation. Why should Congress concern itself as to the ultimate resting place of this tax? Having seen to it that the federal government's toll shall always be taken before the beneficiaries divide up the estate, having commanded the executor to pay the tax before the distribution begins, and having provided adequate penalties for his failure so to do, what matters it to Congress how local law afterwards apportions the tax among the legatees or devisees? Long before the turn of the legatees and devisees comes, the United States Collector of Internal Revenue has gotten the government's tax money and closed the books on the estate. Thus in no real or reasonable sense can it be said that a later apportionment interferes with the enforcement of the Federal Tax Law, or modifies or changes that tax.
Early in the history of the federal statute, and before New York State had an apportionment statute, this court held that the executor was bound to charge the whole federal tax to the residue, as the state law then stood. (Matter of Hamlin,
Even without a state prorating statute, there are cases where, mathematically, the tax cannot be paid out of the residue, but must be charged immediately on the several bequests or devises. Suppose a case where there is no residue, as where the general legacies equal or exceed the actual net estate. In such a case the executor, paying the federal tax from the "net estate," is in fact deducting it from the amount available for the general legacies. Would he then not have to prorate it against those legacies, whether or not any statute so directed?
The Hamlin case (supra) and the later cases of Farmers'Loan Trust Co. v. Winthrop (
Section 124, so proposed, was enacted by the Legislature and became effective in 1930. At least one other state, Pennsylvania, has a similar prorating statute (Pennsylvania Stat. Annotated [Purdon], tit. 20, § 844), passed in 1937. So far as appears, no court, state or federal, has ever held that a state is without power to pass such an act. The constitutionality of section 124 as against other claims of invalidity was upheld by this court inMatter of Scott (
We do not find here any such interference by the state with the federal taxing power, or any attempt by the state statute to assert supremacy. We see no possible conflict between the command of the federal estate tax statute that, unless otherwise directed by the will, the tax be paid out of the net estate and the provision of section 124 that, unless otherwise directed by the will, the tax be *85
apportioned. We have shown, above, that the interest and activity of the United States ceases when the executor has paid the tax, that the federal statute not only does not make the tax a non-transferable charge on the residue, but does not command payment from the residue at all. How then can there be any conflict? Surely appellants are not claiming that the field of estate taxation is one altogether sacred to the federal power, or that it is one of those fields from which the states are excluded, once Congress has entered in. Both the national and the state governments have power to impose such taxes (Snyder v.Bettman,
Finally, there is a strong presumption in favor of a state statute, that it conforms to, and does not conflict with, the Federal Constitution. "Doubts on this point are to be resolved in favor of, and not against, the State" (Corporation Commission
v. Lowe,
The order of the Surrogate should be affirmed, with costs against appellants.
FINCH, LEWIS and CONWAY, JJ., concur with RIPPEY, J.; DESMOND, J., dissents in opinion in which LEHMAN, Ch. J., and LOUGHRAN, J., concur.
Order reversed, etc. (See