Nashville Trust Co. v. Stokes

• Decision Date: 02 July 1938
• Parties: NASHVILLE TRUST CO. et al. v. STOKES, Com'r of Finance and Taxation, et al.
• Court: Tennessee Supreme Court

118 S.W.2d 228

174 Tenn. 1

NASHVILLE TRUST CO. et al. v. STOKES, Com'r of Finance and Taxation, et al.

Supreme Court of Tennessee.

July 2, 1938

Appeal from Chancery Court, Davidson County; R. B. C. Howell Chancellor.

Suit by the Nashville Trust Company and others against Walter Stokes Commissioner of Finance and Taxation, and others to obtain a declaration under the Declaratory Judgments Act concerning whether the State of Tennessee or the State of Alabama was entitled to levy and collect taxes on certain intangibles belonging to a resident of Tennessee, but in the hands of a trustee in Alabama. From the decree rendered, the named defendant appeals.

Reversed and rendered.

Roy H Beeler, Atty. Gen. of Tennessee, and Edwin F. Hunt and Dudley Porter, Jr., Asst. Attys. Gen., for the State of Tennessee.

A. A Carmichael, Atty. Gen. of Alabama, and Ray Rushton, of Montgomery, Ala., for the State of Alabama.

DeHAVEN Justice.

The question to be determined in this cause is the taxable situs of certain intangible personal property belonging to Mrs. Grace C. Scales, a resident of Tennessee, and placed by her in the hands of the Title Guarantee Loan & Trust Company, an Alabama corporation with its principal place of business at Birmingham in that State, under a trust agreement executed by her in December, 1917, and amended in 1929, naming her son and daughter as beneficiaries.

Mrs. Scales was domiciled in Tennessee for many years and until the time of her death in 1936. Both the State of Tennessee and the State of Alabama asserted the right to levy and collect inheritance or death transfer taxes on the intangibles in the hands of the trustee in Alabama. The bill herein was filed under the Declaratory Judgments Act, Code 1932, § 8835 et seq., and the declaration sought is which of these states is entitled to levy and collect such taxes on the property in question. It is agreed that both states may not tax the property.

It appears that the Title Guarantee Loan & Trust Company had possession of the securities here involved, as trustee, under the provisions of the will of a brother of Mrs. Scales, by the terms of which the securities became the property of Mrs. Scales on the death of the widow of the brother. These securities were never taken from the physical possession of the trustee of Mrs. Scales, but remained in its possession under the terms of the trust agreement executed by Mrs. Scales in December, 1917. Under this agreement, Mrs. Scales did "grant, sell, transfer, assign and deliver" to the trustee the securities in question, with power to "hold, manage and look after" the same. Mrs. Scales reserved to herself (1) the net income for life; (2) the right to direct the sale of any or all the securities in the trust and reinvestment of the same, but providing that "all property acquired by any reinvestment to be held under the terms and conditions of the trust created by this paragraph"; (3) the right to remove the trustee and substitute another, which was never exercised; (4) the right to dispose of all the trust property by last will and testament; and (5) the right to direct any encroachment upon the corpus of the trust at any time that in her opinion the net income from the property was insufficient for her comfortable support and maintenance; but by an amendment in 1929 Mrs. Scales extinguished her right to encroach upon the corpus with reference to certain bonds of the Pratt Consolidated Coal Company, which bonds constitute the major portion of the trust property.

Mrs. Scales, by last will and testament dated January 1, 1926, made disposition of the securities in the hands of the trustee, and directed that the same remain in the hands of the trustee for the benefit of certain persons named in the will. She appointed the Nashville Trust Company, a corporation, executor "as to all property which I may own in the State of Tennessee at the time of my death; and I appoint the Title Guarantee Loan & Trust Company, a corporation of Birmingham, Alabama, as executor of this will as to all property which I may own in the State of Alabama and also as to all property which I may have the right to dispose of by last will and testament in said state."

The chancellor found and decreed that under the facts set up in the pleadings and admitted by stipulation that the securities in the hands of the Title Guarantee Loan & Trust Company, as trustee, at the time of the death of Mrs. Scales had a legal situs analogous to the situs of tangible personal property in the State of Alabama and were subject to the death transfer or successive tax of that state. He further held and decreed that the inheritance tax law of Tennessee, in so far as it attempts to impose a tax upon transfer by a resident of Tennessee of "all intangible personal property" (Code, § 1259) is unconstitutional and void under the facts of this cause as a violation of the due process clause of the 14th Amendment to the Federal Constitution, U.S.C.A.Const. Amend. 14.

From this decree Walter Stokes, Jr., Commissioner of Finance and Taxation of Tennessee, has appealed to this court, and by proper assignments asserts that the chancellor was in error in finding and decreeing as above set out.

State taxation of anything not within its jurisdiction is in violation of the 14th Amendment. Farmers' Loan & Trust Co. v. Minnesota, 280 U.S. 204, 50 S.Ct. 98, 74 L.Ed. 371, 65 A.L.R. 1000. Under the ancient maxim mobilia sequuntur personam, the situs of personal property is, generally speaking, the domicile of the owner. Blodgett v. Silberman, 277 U.S. 1, 48 S.Ct. 410, 72 L.Ed. 749; First National Bank v. Maine, 284 U.S. 312, 52 S.Ct. 174, 76 L.Ed. 313, 77 A.L.R. 1401. In the latter case, after pointing out that due to the vast increase in the extent and variety of tangible personal property not immediately connected with the person of the owner, the maxim has gradually yielded to the law of the place where the property is kept and used, the court said (page 178):

"But in respect of intangible property, the rule is still convenient and useful, if not always necessary; and it has been adhered to as peculiarly applicable to that class of property."

And in Blodgett v. Silberman, supra, in determining the taxable situs of certain intangibles, the court said (page 413):

"At common law the maxim 'mobilia sequuntur personam' applied. There has been discussion and criticism of the application and enforcement of that maxim, but it is so fixed in the common law of this country and of England, in so far as it relates to intangible property, including choses in action, without regard to whether they are evidenced in writing or otherwise and whether the papers evidencing the same are found in the state of

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