City Bank Farmers' Trust Co. v. New York Cent. R. Co. (In re King's Will)

• Decision Date: 11 February 1930
• Citation: 253 N.Y. 49,170 N.E. 489
• Parties: CITY BANK FARMERS' TRUST CO. v. NEW YORK CENT. R. CO. In re KING'S WILL.
• Court: New York Court of Appeals Court of Appeals

253 N.Y. 49

170 N.E. 489

CITY BANK FARMERS' TRUST CO.

v. NEW YORK CENT. R. CO.In re KING'S WILL.

Court of Appeals of New York.

Feb. 11, 1930.

Action by the City Bank Farmers' Trust Company, formerly known as the Farmers' Loan & Trust Company, as executor of the last will and testament of Francis T. King, deceased, against the New York Central Railroad Company. From a judgment of the Appellate Division (226 App. Div. 864, 234 N. Y. S. 785) affirming a declaratory judgment of the Supreme Court at Special Term (134 Misc. Rep. 778, 236 N. Y. S. 250), defendant appeals.

Judgments of the Appellate Division and that of the Special Term both reversed, and a new trial granted.

Appeal from Supreme Court, Appellate Division, First Department.

William Mann and Charles C. Paulding, both of New York City, for appellant.

Charles Angulo and James D. Ouchterloney, both of New York City, for respondent.

Hamilton Ward, Atty. Gen. (Amos D. Moscrip, of Albany, and Henry S. Manley, of Delmar, of counsel), for intervener State of New York.

Cyrus E. Woods, Atty. Gen. (Philip S. Moyer, Deputy Atty. Gen., and Alfred Yankauer, of New York City, of counsel), for Commonwealth of Pennsylvania, amicus curiae.

Francis Smyth, of New York City, for Farmers' Loan & Trust Co. amicus curiae.

CARDOZO, C. J.

The plaintiff, the executor of the will of Francis T. King, has sought and obtained a declaratory judgment whereby the defendant, the New York Central Railroad Company, is found to be subject to a duty to transfer shares of stock forming part of the estate of the testator without exacting proof of the payment of transfer taxes thereon to the commonwealth of Pennsylvania.

Plaintiff's testator died on August 4, 1927, a resident of the state of New York. Included in his estate was a certificate for 100 shares of the stock of the New York Central Railroad Company, which is a domestic corporation, but is also incorporated under the laws of Pennsylvania and other states. The plaintiff presented this certificate to the defendant at a transfer office in New York, and requested that it be transferred upon the corporate books to the name of the plaintiff as executor of the will. The defendant, believing the stock to be subject to the payment of a tax under the laws of Pennsylvania, declined to make the transfer without the waiver or consent of the commonwealth of Pennsylvania by its auditor general. This action was brought to declare the rights of the parties as to the matters in controversy.

Pennsylvania, though imposing a tax upon the transfer by will of shares belonging to nonresidents in Pennsylvania corporations, is one of a group of states subjecting such transfers to the rule of reciprocity.

‘Personal property of a non-resident decedent made taxable under this section shall not be subject to the tax so imposed if a like exemption is made by the laws of the State or country of the decedent's residence in favor of residents of this Commonwealth.’ Pennsylvania Inheritance Tax Law, § 1, as amended by act of May 14, 1925, P. L. 717, 718.

New York announced its adherence to the rule of reciprocity by a statute effective July 1, 1925 (Laws of [253 N.Y. 53]1925, c. 143). The section embodying the change was part of a revision of the Tax Law (Consol. Laws, c. 60), and was numbered 248-p. In July, 1927, other sections of the statute were adjudged void by this court as in conflict with limitations of the Federal Constitution. Smith v. Loughman, 245 N. Y. 486, 157 N. E. 753, certiorari denied 275 U. S. 560, 48 S. Ct. 119, 72 L. Ed. 426. The defendant insists that the section embodying the rule of reciprocity fell with those condemned. The plaintiff insists that it may be severed from the void, and through such severance survives.

Until the adoption of the act of 1925, transfer taxes upon the estates of residents and nonresidents were regulated in New York by a single article of the Tax Law, which was designated 10. Two reforms had been advocated by students of finance. Each was designed to correct abuses that had developed in the collection of taxes from the estates of nonresidents. The one, known as the Matthews plan, was proposed in 1921 at a meeting of the National Conference of the National Tax Association. By this the representatives of nonresident estates might elect to pay a flat rate upon the gross amount of the taxable property in states other than the domicile. They would save thereby the expense and annoyance of a computation of the net value in foreign jurisdictions. Cf. Smith v. Loughman, supra, 245 N. Y. pages 489, 490, 157 N. E. 753. The other plan, known as the reciprocity movement, had its origin at a meeting of the same association in 1924. By this it was proposed that taxes upon transfers by nonresidents be abolished altogether, at least as to intangibles, in return for a reciprocal exemption at the jurisdiction of the domicile. The movement spread apace, accelerated by a growing sense of the evils of multiple taxation. Cf. Farmers' Loan & Trust Co. v. Minnesota, 280 U. S. 204, 50 S. Ct. 98, 74 L. Ed. 371, per McReynolds, J. We find a statement in the briefs that, in one form or another, provision has been made for reciprocal exemptions in thirty-seven states. Even between foreign countries there is a movement in the same direction.

New York in 1925 attempted to enact into law both measures of reform, the Matthews plan for a simplified assessment, and the plan for the adoption of the rule of reciprocity. We summarized in Smith v. Loughman, supra, the scheme of the revision. The tax upon transfers by will or intestate succession, where the owner of the property was at death a resident of the state, was to be governed by article 10. It was substantially what it had been before. The tax upon transfers by nonresidents was to be governed by a new article, known as 10-A. Sections 248 to 248-o prescribe the method of assessment to be followed when a tax is to be laid. Section 248-p prescribes a rule of reciprocity whereby taxation is renounced. We quote it for greater certainty.

‘§ 248-p. Reciprocity. The tax imposed by this article in respect of personal property (except tangible personal property having an actual situs in this state) shall not be payable (1) if the transferor is a resident of a state or territory of the United States which at the time of the transfer did not impose a transfer tax or death tax of any character in respect of personal property of residents of this state (except tangible personal property having an actual situs in such state or territory) or (2) if the laws of the state or territory of residence of the transferor at the time of the transfer contained a reciprocal provision under which nonresidents were exempted from transfer taxes or death taxes of every character in respect of personal property (except tangible personal property having an actual situs therein) providing the state or territory of residence of such nonresidents allowed a similar exemption to residents of the state or territory of residence of such transferor. For the purposes of this section the District of Columbia shall be considered a territory of the United States.’

Nothing decided or suggested in Smith v. Loughman, supra, has any bearing upon the binding force of this rule of reciprocity. We held that the sections of the new article fixing the rate of the tax upon transfers by nonresidents were in violation of article 4; § 2, of the Federal Constitution, since the rate in many instances was higher for nonresidents than it was for residents. This was hostile discrimination at war with the declaration of the Constitution that the citizens of each state shall be entitled to the privileges and immunities of citizens in the several states. We did not hold, and the reason of the decision does not support a holding, that there is any infirmity in a statute whereby a citizen of another state, instead of being subjected to burdens heavier than those of residents, is declared under the rule of reciprocity to be exempt from taxes altogether. The spheres of thought are independent. They do not even overlap.

We think the failure of those sections of the revision of 1925, which define the tax to be imposed upon transfers by residents of other states not adhering to the rule of reciprocity, does not involve the failure of the section, which says that, in respect of transfers of intangibles by residents of other states adhering to that rule, there shall be no tax in any amount. The provisions are severable, and one can stand without the other. People ex rel. Alpha Portland Cement Co. v. Knapp, 230 N. Y. 48, 60, 129 N. E. 202;Field v. Clark, 143 U. S. 649, 696, 12 S. Ct. 495, 36 L. Ed. 294;Loeb v. Columbia Township Trustees, 179 U. S. 472, 490, 21 S. Ct. 174, 45 L. Ed. 280;El Paso & N. E. R. Co. v. Gutierrez, 215 U. S. 87, 96, 97, 30 S. Ct. 21, 54 L. Ed. 106. Clearly this is so if we view the parts of the statute without reference to verbal niceties, but rather in their logical relation as means directed to an end. One set of sections is aimed at residents of those states that have failed to give effect by their laws to the rule of reciprocity. The other section is aimed at residents of other states, the members of the group where reciprocity prevails. There is no sensible reason why a change in the tax to be paid by residents of the one group should destroy an exemption enjoyed by residents of the other. This being so, it is plain that severance must follow unless the Legislature has said in terms too clear for misconstruction that none shall be permitted.

We are told by the appellants that this is what was done. The burden of their argument is cast upon the opening words. Section 248-p. The opening words are that the tax ‘imposed by this article’ shall not be payable if the domiciliary state allows a reciprocal exemption. The argument runs thus: The tax ‘imposed by this article’ has failed; a tax at another rate is now exacted in its place;...