166 Misc. 333 | N.Y. Sur. Ct. | 1938
The State Tax Commission heretofore appealed from the order of this court dated September 1, 1937, which was entered on the report of the appraiser and which exempted the estate from estate tax. The State Tax Commission did not notice its own appeal for argument. The appeal was brought on by the estate representative. On the argument it was contended by the attorney for the State Tax Commission that Matter of Rueff (157 Misc. 680; affd., without opinion, 249 App. Div. 617; appeal dismissed, 273 N. Y. 530) had been overruled by Matter of Lagergren (276 id. 184) and that in consequence of the last cited decision
It is necessary first to consider what actually was decided in Matter of Lagergren. If that case has in fact overruled Matter of Bueff this court must sustain the appeal. If the question is still open this court should dismiss the appeal and expedite final determination of the question in our appellate courts. Matter of Lagergren dealt with a state of facts which differed materially from the state of facts in Matter of Rueff. It is the viewpoint of this court that this difference on the facts makes the decision in Matter of Lagergren inapplicable to the facts here. It is conceded that the facts here are in principle the same as those presented in Matter of Rueff. Here it is unchallenged that the deductions commanded by the statute (Tax Law, § 249-s) when applied to the value of the property tangibly within this State leave a deficit. That was the Case in Matter of Rueff and this court said in that case: “No tax can be assessed on a deficit.” In Matter of Lagergren on the contrary the opinion of the court (p. 191) expressly says: “ In the present case the estate (exclusive of intangibles) is $521,984.60 after all deductions are made.” In other words, the facts in Matter of Lagergren were such that after the. mandate of the statute as to deductions had been obeyed and after the intangibles had been excluded there was still a balance concededly subject to tax. The only question presented in Matter of Lagergren was whether or not the formula prescribed by section 249-p of the Tax Law could validly be applied to that concededly taxable balance. The Court of Appeals held that it could be so applied. In the course of the opinion in Matter of Lagergren (p. 190) the court said: “ It follows that the statute before us must here be upheld as written and that the tax assessed by the original * * * order is payable to this State.” (Emphasis supplied.) It seems to this court that in Matter of Lagergren the court expressly limited its decision to the precise facts then before it and that the use of the word “ here, ” which has been italicized by this court for the sake of emphasis, was intended to limit the ruling of the appellate court as to validity of the statute to a situation in which there was in all events a taxable balance and where the only question was one of rate of tax. Plainly there is a vast difference between rate of tax and taxability. The Rueff case said that there was no room for application of a rate when the exclusion of the intangibles resulted in a deficit and hence a lack of taxability.
It seems to this court that the memorandum in the Bueff case accompanying the dismissal of the appeal by the Court of Appeals
Proceeding from this concept of the decision in Matter of Lagergren this court restates its view already expressed in Matter of Rueff that the statutory direction respecting deductions is absolute. Deductions are not to be proportioned to the values of property inside and outside the State respectively. This court further holds, as in Matter of Rueff, that when a question of taxability is involved the value of the intangibles must be excluded since this State has no power to tax them. It is the view of this court that the Tax Law of this State can be construed and should be construed in the light of the mandate of the Constitution of the United States which limits the taxing power of this State. So construed the Tax Law does not impose a tax at all when after making the deductions directed by the Tax Law and excluding the intangibles there is a deficit. This is the same construction of the Tax Law which was made in the Rueff case. The Court of Appeals in dismissing the appeal in that case recognized that there had been a construction of the Tax Law in the Rueff case. It did not say whether the construction was valid or erroneous. It said merely that the Court of Appeals had no power to pass on the question in the state of the record in the Rueff case.
The validity of applying the Tax Law formula to an admittedly taxable balance is held by the Court of Appeals in Matter of Lagergren to have been established by Great Atlantic & Pacific Tea Co. v. Grosjean (301 U. S. 412). The United States Supreme Court at the
It is provided in article 10-A of the Tax Law (§ 248-a) that in the case of estates coming within the operation of article 10-A the deductions shall be prorated. There can be no doubt that' such proration is valid. The deductions prescribed for estates which come under the operation of article 10-C of the Tax Law are not prorated. The directions as to deductions are mandatory in respect of such estates.When that mandate is obeyed and when the intangibles are excluded as required by decisions of the United States Supreme Court there is here left no balance of property to be taxed. It is argued by the protagonists for the point of view advanced by the State Tax Commission that the provisions of article 10-C found in sections 249-p and 249-s should be read together and that when so read they constitute the equivalent of the proration of deductions found in section 248-a of article 10-A. Perhaps the best exposition of the argument is to be found in the note in 45 Yale Law Journal (p. 930), headed: “ State Estate Taxation of Non-resident Decedents.” The writer of this note was obviously-familiar with the New York law. He finds an approximately equal burden in the Rueff case whether the proration principle of article 10-A or the tax formula in article 10-C be used. The writer is candid, however, and admits that that result was reached in his consideration of the Rueff case only because of the particular amounts involved in the Rueff. estate. He conceded that his argument of approximately equal burden
The law can be construed as it was construed in Matter of Rueff to impose no tax where by reason of exclusion of the intangibles the entire estate within the taxing power of New York is less than the mandatory deductions under section 249-s. If the Tax Law be so construed it conforms to the limitations prescribed by the Supreme Court of the United States. This court is of opinion that it should be so construed.
Suggestion was made on the argument by the representative of the State Tax Commission that this court should sustain the appeal in any event since the State needs tax money. Little comment is required on this point of view. As was stated respecting a different tax law by Hubbs, J., in the recent case of Howitt v. Street & Smith Publications, Inc. (276 N. Y. 345): “ if there is ambiguity it should be interpreted in favor of the taxpayer.” No tax should be exacted from the citizen unless the right thereto is established. When the right is established the courts must and do enforce promptly the right of the sovereignty to the tax. The courts scrutinize the claim of right, however. An estate tax is a special and not a general tax. The laws imposing special taxes are to
Entertaining the views expressed above, the court dismisses the appeal of the State Tax Commission and holds that the order exempting the estate from tax was right.
Submit, on notice, order accordingly.