| U.S. Circuit Court for the District of Eastern New York | Nov 7, 1900
A testatrix, sojourning in the state of New York, duly made her last will, which was admitted to probate in the county of Kings, in that state, where the person confirmed as executor resided. The testatrix was a creditor of persons residing in such county, and the owner of some shares of stock and bonds issued by American corporations. The executor collected the debt, and received the shares and bonds. The will gave all the estate to the testatrix’s daughter, and on such gift the collector of internal revenue of the district embracing Kings county laid and collected a tax under the war revenue act of 1898. This action is to recover the sum paid under protest, and the present questions arise upon demurrer that the complaint does not state a cause of action. The plaintiff alleges that the gift was not subject to the tax because it was made by a woman, who was a resident of, and domiciled in, Prance, to her daughter, who was a resident of, and domiciled in, Germany. The complaint does not indicate whether the testatrix or her daughter ever resided within the United States. However, from statements made upon the argument and in the briefs submitted, if not from the allegations of the-complaint, the court may interpret the complaint as declaring that the testatrix, formerly an American citizen, married a French citizen, that thereafter her residence was abroad, and that for several years immediately preceding her death it had been in France. By the several statutes of America, France, and Great Britain, the marriage of a citizen of such country with an alien wife confers upon the latter the citizenship of the husband; and this policy of three great powers, in connection with section 1999 of the Revised Statutes, which proclaims that expatriation is an inherent right, establishes that the political status of the wife follows that of her husband, with the modification that there must be withdrawal from
Hence the discussion will be undertaken at the outstart upon the assumption that the gift was by a nonresident alien to a nonresident alien. It is undoubtedly true that neither a state legislature nor congress may lay an inheritance tax unless it has the jurisdiction of the donor or donee or the property donated. In the present case there is no dominion over the donor or the legatee. Hence there can be no proper tax unless there is a relation to the property justifying it. It will be assumed for the moment that the property was within the state of New York. In such case the state of Yew York could lay a direct tax upon it, which would be a usual exercise of the power of taxation. But the inheritance tax laid by the state is not based upon the theory of direct taxation of the property. It has been deemed a tax on the transmission of the property, based upon the right of the state to regulate the disposition of the same upon the owner’s death. While the United States has no such power of regulation, yet it may lay a tax similar to that here involved upon property of a nonresident which was in the state at the time of his death. This follows from the statement of principles in Knowlton v. Moore, 178 U.S. 41" court="SCOTUS" date_filed="1900-05-14" href="https://app.midpage.ai/document/knowlton-v-moore-95281?utm_source=webapp" opinion_id="95281">178 U. S. 41, 20 Sup. Ct. 747, 44 L. Ed. 969" court="SCOTUS" date_filed="1900-05-14" href="https://app.midpage.ai/document/knowlton-v-moore-95281?utm_source=webapp" opinion_id="95281">44 L. Ed. 969.
The next inquiry, then, is, was the property within the state of New York? The property consisted of a certificate of stock issued by a new York corporation, bonds and coupons of corporations within one of the states, and an account current against citizens of New York. An account owing by a resident of the United States to a resident citizen of France does not and cannot have a situs in the state of New York, but its situs is that of its owner. There is no property here. What there is of properly is abroad. The complaint states that the property taxed was in the state of New York at the decedent’s death. This could not be true of a simple indebtedness to an alien, actually resident abroad at the time of his death. Such property is incapable of a situs apart from its owner, and is in this regard unlike public bonds and circulating notes of banking institutions (In re State Tax on Foreign-Held Bonds, 82 U.S. 300" court="SCOTUS" date_filed="1873-03-10" href="https://app.midpage.ai/document/case-of-the-state-tax-on-foreign-held-bonds-railroad-company-v-pennsylvania-88608?utm_source=webapp" opinion_id="88608">82 U. S. 300, 324, 21 L. Ed. 179); or bonds of private corporations (In re Whiting’s Estate, 150 N.Y. 27" court="NY" date_filed="1896-10-06" href="https://app.midpage.ai/document/in-re-the-appraisal-for-taxation-of-the-estate-of-whiting-3608293?utm_source=webapp" opinion_id="3608293">150 N. Y. 27, 44 N. E. 715, 34 L. R. A. 232); or certificates of stock (In re Bronson’s Estate, 150 N.Y. 1" court="NY" date_filed="1896-10-06" href="https://app.midpage.ai/document/in-re-the-appraisal-for-taxation-of-the-property-of-bronson-3578679?utm_source=webapp" opinion_id="3578679">150 N. Y. 1, 44 N. E. 707, 34 L. R. A. 238; Tappan v. Bank, 86 U.S. 490" court="SCOTUS" date_filed="1874-04-13" href="https://app.midpage.ai/document/tappan-v-merchants-national-bank-88889?utm_source=webapp" opinion_id="88889">86 U. S. 490, 22 L. Ed. 189); or tangible property, such as goods and chattels
In Re State Tax on Foreign-Held Bonds, 82 U.S. 300" court="SCOTUS" date_filed="1873-03-10" href="https://app.midpage.ai/document/case-of-the-state-tax-on-foreign-held-bonds-railroad-company-v-pennsylvania-88608?utm_source=webapp" opinion_id="88608">82 U. S. 300, 21 L. Ed. 179, Mr. Justice Field said:
“But debts owing by corporations, like debts owing by individuals, are not property of the debtors in any sense. They are obligations of tHe debtors, and only possess value in the hands of the creditors. With them they are nroperty, and in their hands they may be taxed. To call debts property of tlio debtors is simply to misuse terms. All the property there can be, in the nature of things, in debts of corporations, belongs to the creditors, to whom they are payable, and follows their domicile, wherever that may be. Their debts can have no locality separate from the parties to whom they are due. * * ⅜ It is undoubtedly true that the actual situs of personal property which has a visible and tangible existence, and not the domicile of its owner, will, in many cases, determine the state in which it may be .taxed. The same thing is true of irablic securities consisting of state bonds and bonds of municipal .bodies, and circulating notes of banking institutions. The former, by general usage, have acquired the character of, and are treated as, property in the place where they are found, though removed from the domicile of the owner. The latter are treated and pass as money wherever they are. But other personal property, consisting of bonds, mortgages, and debts generally, has no situs independent of the domicile of the owner, and certainly can have none where the instruments, as in the present case, constituting the evidences of debt, are not separated from the possession of the owners.”
The learned judge also illustrates by authorities, of which People v. Eastman, 25 Cal. 603, is a type, that a mortgage has no existence independent of the thing secured by it; that a payment of a debt discharges the mortgage; that the thing secured is intangible, and has no situs distinct and apart from the residence of the holder, but pertains to and follows the person. It may be observed that in the ease then before the court the bonds were beyond the territorial jurisdiction of the taxing power.
The court of appeals of Hew York has determined that, when the owner is a nonresident, bonds of domestic corporations are taxable under the New York transfer act, if they are in fact in thé state for safe-keeping, but not when they are actually without the state; and that the stock of such corporations is taxable in New York, irrespective of the actual situs of the certificate, and that deposits with a domestic trust company are taxable, although technically the property of the nonresident is a mere indebtedness from the trust company. See In re Bronson, 150 N.Y. 1" court="NY" date_filed="1896-10-06" href="https://app.midpage.ai/document/in-re-the-appraisal-for-taxation-of-the-property-of-bronson-3578679?utm_source=webapp" opinion_id="3578679">150 N. Y. 1, 44 N. E. 707, 34 L. R. A. 238; In re Whiting’s Estate, 150 N.Y. 27" court="NY" date_filed="1896-10-06" href="https://app.midpage.ai/document/in-re-the-appraisal-for-taxation-of-the-estate-of-whiting-3608293?utm_source=webapp" opinion_id="3608293">150 N. Y. 27, 44 N. E. 715, 34 L. R, A. 232; In re Morgan’s Estate, 150 N.Y. 35" court="NY" date_filed="1896-10-06" href="https://app.midpage.ai/document/in-re-the-appraisal-for-taxation-of-the-estate-of-morgan-3596565?utm_source=webapp" opinion_id="3596565">150 N. Y. 35, 44 N. E. 1126; In re Houdayer, 150 N.Y. 37" court="NY" date_filed="1896-10-06" href="https://app.midpage.ai/document/in-re-the-appraisal-for-taxation-of-the-estate-of-houdayer-3608183?utm_source=webapp" opinion_id="3608183">150 N. Y. 37, 44 N. E. 718, 34 L. R. A. 235: Obviously the legislature in this instance left none of its taxing power unexercised, and expressed a policy to exact duties from such nonresidents as should lend their credit to the local enterprises of the state, provided the
Section 29 of the act of 1898, now under consideration, provides:
“That any person or persons having in charge or trust, as administrators, executors, or trustees, any legacies or distributive shares arising from personal property, * * * passing, after the passage of this act, from any person possessed of such property, either by will or by the intestate laws of any state or territory, or any personal property or interest therein, transferred by 'deed, grant, bargain, sale, or gift, made or intended to take effect in possession pr enjoyment after the death of the grantor or bargainer, to any person or persons, or to any body or bodies, politic or corporate, in trust or otherwise, shall be, and hereby are, made subject to a duty or tax, to be paid to the United States, as follows; that is to say,” etc. 30 Stat. 464.
. It is undoubted that the statute did not intend to subject to the tax the property when transmitted by will, unless in the absence of such will it would be distributable under “the intestate laws of any .state or territory.” The present property, in the absence of the will, would not have been distributed according to the intestate laws of the state ,of New York, but pursuant to the statute of distribution of the country where the deceased resided. Hence not only is there present the presumption that there was no intention to tax the intangible personal property of a nonresident alien, but a declaration, in simple words, that only such property may be taxed under the act as would pass under the intestate laws of the state, which necessarily excludes all personal property that would not so pass. It is not jurisdiction over the fund for the purposes of administration that determines its taxable quality, but the statute embodies the theory that usually underlies all inheritance taxes, viz. transmission of title by virtue of the law of a state or territory within the jurisdiction of the taxing power. Has the state undertaken to appoint persons to whom such property shall be dis-
“Except where special provision is otherwise made hy law, the validity and effect of a testamentary disposition of any other property situated within the state, and the ownership and disposition of such property, where it is not disposed of by will, are regulated l>y the laws of the state or country of which the decedent was a resident; at the time of his death.”
¡Section 2701 provides that the court having—
“Tnrisdioiion of an action to procure an accounting, or a judgment construing the will, may, in a proper case, by its judgment or decree, direct a person, to whom ancillary letters are issued as prescribed in this article, to pay, out of the money or the avails of the property, received by him under the ancillary letters, and with which he is chargeable upon his accounting, the debts of the decedent, due to creditors residing within the state; or, if the amount of all the decedent’s debts, here and elsewhere, exceeds Ihe amount of all the decedent's personal property, applicable thereto, to pay sueli a sum to each, creditor, residing within the slate, as equals that creditor’s share of all the distributable assets, or to distribute the same among legatees or next of kin, or otherwise dispose of the same, as justice requires.”
The defendant urges that the last section shows—
“The state’s purpose to retain control of the nonresident decedent’s property, giving the surrogate’s court, or any other court of the state which has jurisdiction of the action, full power to administer the estate of the decedent here, not only as it affects the rights of the state under the transfer tax act and otherwise, but also as between the parties interested, including resident creditors of the deceased, and his legatees or next of kin themselves; and that section 2694 regulates the succession to the property of deceased nonresidents, and provides a definite rule for the settlement of their estates. As to real property, it declares that the validity and effect of a testamentary disposition of real properly, or the course of its descent, where it is not disposed of by will, shall be regulated by the laws of the state, without regard to the residence of the decedent. However, with regard to personal properly (which is included in the term ‘other property’), it provides that the validity and effect of a testamentary disposition by a nonresident of personal property situated within the stale, or its distribution where not disposed of by will, shall bo regulated by the laws of the slate or country of which ihe decedent was a resident at the time of his death, except where otherwise prescribed by the law of ibis state. The purpose of the legislature is apparent in adopting this section. Tt is imended to regulate the succession to the property of deceased nonresidents, and provide a rule by which our courts could administer the property of such nonresident decedents, located in tills state, and to retain control of the same. It makes the law of the testator’s residence or domicile the law of this state, for the purpose of administering the nonresident decedent’s property; and a legacy, etc., of nonresident’s property, situated within this state, thus passes ‘either by will or the intestate laws’ of that state, as the case may be; for otherwise the laws of such other state or such foreign country could have no operation or effect within this state.”
The answer to this is clear. The title to the estate transmitted springs from the foreign, not the domestic, law. The statute in this regard is declaratory.
“Eor several hundred, years upon the Continent, and in England, from reported cases, for a hundred years, the rule has been that personal property, in eases of intestacy, is to be distributed by the law of the domicile of the intestate at the time of his death. It has been universal for so long a time that it may now be said to be a part of the jus gentium. Lord Thurlow speaks of it as such in the house of lords, in the case of Bruce v. Bruce [2 Bos. & P. 229, note]. Erskine, in his Institutes of the Law of Scotland (book 3, p. 644, tit. 9, §' 4), says this rule is founded on the laws of nations.”
Mr. Justice Wayne calls attention to one of the reasons for the rule given by Lord Hardwicke, in these words, so pertinent to the present controversy:
“A contrary rule would be extremely mischievous, and would affect our commerce. No foreigner could deal in our funds but at the peril of his effects going according to our laws, and not those of his own country.”
In Dammert v. Osborn, 141 N.Y. 564" court="NY" date_filed="1894-01-23" href="https://app.midpage.ai/document/dammert-v--osborn-3627080?utm_source=webapp" opinion_id="3627080">141 N. Y. 564, 567, 35 N. E. 1088, 1089, it is said:
“The fundamental error that pervades all the reasoning of the learned counsel on this subject is to be found in the assumption that the courts of this state can annul a disposition of personal property in a foreign will, valid by the law of the domicile, and distribute the -property to claimants here, contrary to the terms of such disposition, as interpreted by the law under which it was made. No controlling authority can be found in support of such a proposition.”
In Cross v. Trust Co., 131 N.Y. 330" court="NY" date_filed="1892-03-01" href="https://app.midpage.ai/document/cross-v-united-states-trust-co-3606363?utm_source=webapp" opinion_id="3606363">131 N. Y. 330, 339, 30 N. E. 125, 127, 15 L. R. A. 606, 608, Judge O’Brien states:
“It is a general and universal rule that personal property has no locality. It is subject to the law of the owner’s domicile as well in respect to a disposition of it by act inter vivos as to its transmission by last will and testament and by succession upon the owner dying intestate. This is, in substance, the language in which Judge Denio stated the law in this court, and which he concisely and clearly extracted from the authorities cited by him. Parsons v. Lyman, 20 N. Y. 112. The learned judge added that ‘the principle, no doubt, has its foundation in international comity, but it is equally obligatory, as a rule of decision on the courts, as any legal rule of purely domestic origin. It does not belong to the judges to recognize or to deny the rights which individuals may claim under it at their pleasure or caprice; but, it having obtained the force of law by user and acquiescence, it belongs only to the political government of the state to change it whenever a change becomes desirable.’ * ⅜ ⅜ Should our legislature deem it for the public good to repeal the statute relating to wills, and to provide that all property should, upon the death of the owner, pass under the laws of intestacy, a disposition by will of personal property, actually within the territory of the state, but owned by a person domiciled in another state, would still be valid, providing it was valid by the law which governed the owner.”
These quotations are> not made because the rule stated by them is in doubt, but for the purpose of meeting the suggestion of the defendant that the Code of Civil Procedure is the primary source of the power to transmit or of the power to receive. Such statute is merely declaratory of the law. It is not the source of title, but simply points out in general terms where the courts shall look for the law which governs the transmission of the title.
Lastly, the authority for the construction adopted is ample. The war revenue act of 1898, so far as it imposes a legacy tax, as appears in Knowlton v. Moore, 178 U.S. 41" court="SCOTUS" date_filed="1900-05-14" href="https://app.midpage.ai/document/knowlton-v-moore-95281?utm_source=webapp" opinion_id="95281">178 U. S. 41, 20 Sup. Ct. 747, 44 L.