Beck v. State

• Decision Date: 17 April 1928
• Citation: 196 Wis. 242,219 N.W. 197
• Parties: BECK ET AL. v. STATE.
• Court: Wisconsin Supreme Court

196 Wis. 242

219 N.W. 197

BECK ET AL.

v.STATE.^a1

Supreme Court of Wisconsin.

March, 6, 1928.

Dissenting Opinion April 17, 1928.

Action by donees of Patrick Cudahy, deceased, to recover inheritance taxes alleged to have been unlawfully imposed upon certain gifts made by said Patrick Cudahy within 6 years prior to his death. A demurrer to the answer of the defendant is overruled.

Eschweiler, J., dissenting.Lines, Spooner & Quarles, of Milwaukee (Malcolm K. Whyte, of Milwaukee, of counsel), and Louis A. Dahlman and George Ballhorn, both of Milwaukee, guardians ad litem, for plaintiffs.

John W. Reynolds, Atty. Gen., Franklin E. Bump, Asst. Atty. Gen., and Eugene Wengert, Dist. Atty., Daniel W. Sullivan, Corporation Counsel, and C. Stanley Perry, Asst. Dist. Atty., all of Milwaukee, for the State.

OWEN, J.

On July 24, 1920, and within one year after the death of Patrick Cudahy, deceased, the executors of his estate paid to the treasurer of Milwaukee county the sum of $222,237.49, the estimated amount of the inheritance tax due from the estate to the state of Wisconsin and to the county of Milwaukee. This payment was accompanied by a formal protest. Thereafter, and in due course, the amount of the inheritance tax was determined by the county court of Milwaukee county. The tax as so determined included a tax upon certain gifts made by said Patrick Cudahy to his relatives within 6 years of his death. In determining such tax, the county court gave full effect to the statute then existing (section 72.01 [3], Statutes of 1925), which required every gift made within 6 years prior to the death of the donor to be construed to have been made in contemplation of death. The Supreme Court of the United States declared this statute unconstitutional in the case of Schlesinger v. Wisconsin, 270 U. S. 230, 46 S. Ct. 260, 70 L. Ed. 557, 43 A. L. R. 1224. This action was prompted by that decision.

We find at least two insuperable obstacles to plaintiffs' recovery: First, the payment of the tax was a voluntary payment; and, second, the determination of the tax by the county court is res adjudicata, and cannot be attacked in this action.

Under our law, the inheritance tax is determined by the county court, upon which court is conferred jurisdiction to hear and determine all questions arising under the provisions of the inheritance tax laws. Section 72.12, Stats. All taxes imposed are due and payable at the time of the transfer, which occurs at the death of the grantor. Section 72.05. If the tax is paid within one year from the accruing thereof, a discount of 5 per centum is allowed. If such tax is not paid within 18 months from the accruing thereof, interest is charged at the rate of 10 per centum per annum from the time the tax accrued:

“Unless by reason of claims made upon the estate, necessary litigation or other unavoidable cause of delay, such tax shall not be determined and paid as herein provided, in which case interest at the rate of six per centum per annum shall be charged upon such tax from the accrual thereof until the cause of such delay is removed, after which ten per centum shall be charged.” Section 72.06.

The tax in this case was paid within one year after the death of the grantor by the executors of the estate. As a result thereof, the estate was allowed a discount of 5 per centum. There was no threat made to collect the tax. There was no coercion by the state acting through any tax collector. It was evidently paid for the purpose of procuring the 5 per centum discount.

[1] It is fundamental that, in order to constitute an involuntary payment, there must be some form of coercion. This coercion may be in the form of a threat on the part of the tax collector to make levy on the goods of the taxpayer if he does not pay, or it may be in the nature of heavy penalties visited by law upon the taxpayer in case of nonpayment. In this case there was no threat on the part of any one to make levy or pursue any other remedy for the purpose of making collection of the tax. If we find any coercion here, it must be due to the penalties resulting from a failure to pay the tax. Whatever penalties result from such failure will be found in section 72.06, already referred to. That provides for interest at the rate of 10 per centum per annum, if the tax is not paid within 18 months from the date of the transfer. That rate of interest does not obtain, however, if, by reason of claims made upon the estate, necessary litigation, or other inevitable cause or delay, such tax shall not be determined, but in such case interest at the rate of 6 per centum per annum only shall be charged.

[2][3]Section 72.08 provides for the refunding of taxes erroneously paid, “provided, however, that all applications for such refunding of erroneous taxes shall be made within one year from the payment thereof, or within one year after the reversal or modification of the order fixing such tax.” This plainly recognizes the right of an appeal from an order of the county court fixing the amount of the inheritance tax chargeable against an estate. This right has frequently been invoked. State v. Thompson, 154 Wis. 320, 142 N. W. 647, 46 L. R. A. (N. S.) 790, Ann. Cas. 1915B, 1084;Estate of Smith, 161 Wis. 588, 155 N. W. 109;Estate of Week, 169 Wis. 316, 172 N. W. 732;Estate of Ebeling, 169 Wis. 432, 172 N. W. 734, 4 A. L. R. 1519;Estate of Stephenson, 171 Wis. 452, 177 N. W. 579;Estate of Schlesinger, 184 Wis. 1, 199 N. W. 951. An appeal from that order, conductedin good faith, certainly constitutes necessary litigation within the meaning of the provisions of section 72.06. Had the plaintiffs or others interested in the determination of the tax in the Patrick Cudahy estate appealed from the order of the county court fixing the inheritance tax, there would have followed an interest charge of 6 per centum only. This is the only penalty that would have resulted from the nonpayment of the tax until it was finally and conclusively determined in orderly judicial proceedings. This is but the legal rate of interest provided for the withholding of any money which should be paid.

[4] We have been cited to no authority holding that a payment made to avoid the legal rate of interest constitutes an involuntary payment. The law could not tolerate such a rule. Business settlements would have no finality. Every note or other indebtedness could be paid under protest for the purpose of preserving any possible defense which the future might reveal, keeping alive actions to recover the amount paid for a period of 6 years. This would subject business men to limitless, contingent liabilities, and render the solvency or financial status of business institutions unascertainable. Furthermore, although we would not hold it indispensable in all cases, a penalty imposed for nonpayment is more readily construed as coercion in cases where the taxpayer has no opportunity to establish the illegality of the tax except in an action to recover back the money paid. Atchison, etc., Ry. Co. v. O'Connor, 223 U. S. 280, 32 S. Ct. 216, 56 L. Ed. 436, Ann. Cas. 1913C, 1050.

[5] In the instant case, the estate did urge the illegality of the tax before the county court, but the contention was not pressed by an appeal from the order of that court. This remedy was open and available to all who were interested in the determination of the tax. This remedy was accompanied by no greater penalty than that which follows a contest upon a promissory note. More than this, there is much reason to believe that the payment was made at the time, not for the purpose of avoiding a penalty, but to secure a discount. Taxes paid for such purpose are never held to be involuntary payments. Atchison, etc., Ry. Co. v. City of Humboldt, 87 Kan. 1, 123 P. 727, 41 L. R. A. (N. S.) 175;City of Louisville v. Becker, 139 Ky. 17, 129 S. W. 311, 28 L. R. A. (N. S.) 1045;Lee v. Templeton, 13 Gray (Mass.) 476. Of such a payment, under an identical statute, the New York Appellate Court said: “Such payment is purely voluntary; the state neither invites nor compels it.” Socolow v. Murphy, 219 App. Div. 184, 186, 219 N. Y. S. 78, at page 81. However, we do not rest our conclusion upon the premise that the purpose of the payment was to secure the discount. We have rather rested it upon the hypothesis that it was made to avoid the most drastic penalty that can be read out of the statute. That penalty is interest at the rate of 6 per centum per annum. A payment to avoid such a penalty does not constitute an involuntary payment, even though accompanied by a formal protest.

That the judgment or order of the county court determining the amount of the inheritance tax due and owing from the estate to the state is res adjudicata, conclusive between the parties, and immune from collateral attack, is freely conceded, unless such judgment is void. The plaintiffs contend that the order or judgment of the county court determining the amount of the inheritance tax is void because the court was without jurisdiction, because there was a denial of due process of law, and because the order is based upon an unconstitutional statute.

[6]Section 72.12 of the Statutes confers upon county courts jurisdiction “to hear and determine all questions arising under the provisions of the inheritance tax laws and to do any act in relation thereto authorized by law to be done by a county court in other matters or proceedings coming within its jurisdiction.” The law confers jurisdiction to hear and determine all questions arising under its provisions. It is difficult to see how a broader jurisdiction could be conferred upon any court upon a given subject. It is all-inclusive. Jurisdiction has been defined as the “power to entertain the suit, consider the merits, and render a binding decision thereon; and by merits we mean the various elements which enter into or qualify the plaintiff's right to the relief sought.” General Investment Co. v. New York Central R....