Frost v. Commissioner of Corporations & Taxation

• Decision Date: 08 March 1973
• Citation: 363 Mass. 235,293 N.E.2d 862
• Parties: Thomas Bell FROST, executor, v. COMMISSIONER OF CORPORATIONS & TAXATION (and a companion case 1 ).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 862

293 N.E.2d 862

363 Mass. 235

Thomas Bell FROST, executor, v. COMMISSIONER OF CORPORATIONS & TAXATION (and a companion case ¹).

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Dec. 7, 1972.

Decided March 8, 1973.

Richard Wait, Boston, for S. Parkman Shaw and another, trustees (Edward F. Hines, Jr., Boston, for Thomas Bell Frost, executor, with him).

Charles M. Furcolo, Deputy Asst. Atty. Gen., for the Commissioner of Corporations and Taxation.

Before TAURO, C.J., and BRAUCHER, HENNESSEY, KAPLAN and WILKINS, JJ.

WILKINS, Justice.

These cases present constitutional questions arising from the provisions of G.L. c. 65A, § 1, which in certain circumstances impose estate taxes on the transfer of intangible personal property 'within the commonwealth' of persons who have died and Taxation. similarly impose such taxes on the transfer of such intangible personal property of persons who have died as residents of other States. ²

THE KUHN ESTATE.

The first proceeding involves the Massachusetts intangible assets of Timothy P. Kuhn (Kuhn) who died in November, 1968, a citizen of the United States and 'a resident and domiciliary' of Rome, Italy. At the time of his death he left no real or tangible personal property of any value in the Commonwealth. He did own intangible property, valued for Federal estate tax purposes at approximately $513,000, consisting of '(1) a joint interest in certain shares of stock held in a brokerage account with W. E. Hutton & Co., Boston, within the County of Suffolk; (2) stock, bonds and cash held in a brokerage account with Gardner & Preston Moss, Inc., Boston, within the county of Suffolk; and (3) cash on deposit with State Street Bank & Trust Co., Boston, within the County of Suffolk.' Kuhn's gross estate for Federal estate tax purposes was approximately $669,000. Under § 2011 of the Int.Rev.Code of 1954 (as amended through 26 U.S.C. § 2011 (1970)), $13,060.42 was the maximum allowable credit against the Federal estate tax for estate, inheritance, legacy or succession taxes actually paid to any State, Territory or the District of Columbia, in respect of the property included in Kuhn's gross estate for Federal estate tax purposes. Except for the payment of $10,022.57 to the Commonwealth as the amount due under G.L. c. 65A, § 1, no other estate, inheritance, legacy or succession taxes have been paid to any State, Territory or the District of Columbia in respect of the property included in Kuhn's gross estate for Federal estate tax purposes.

This petition in equity for abatement of taxes comes to us on a reservation and report by a judge of the Probate Court for a determination, on the pleadings and a statement of agreed facts, whether all or any part of the payment of $10,022.57 made to the Commonwealth should be abated.

Kuhn's executor argues that under the due process clause of the Fourteenth Amendment to the Federal Constitution it is impermissible for the Commonwealth to impose any tax on Kuhn's intangible assets held in Massachusetts brokerage accounts and in a Massachusetts bank. Further, relying on the equal protection clause of the Fourteenth Amendment to the Federal Constitution and certain provisions of the State Constitution, ³ Kuhn's executor contends that it is unconstitutional to impose a tax on the transfer of intangible assets of those nonresidents who are domiciliaries of other countries when no such tax is imposed as to the transfer of intangible assets of deceased residents of other States.

LADY BATEMAN'S TRUST.

The second proceeding involves the propriety of the taxes levied under G.L. c. 65A, § 1, on the transfer of the assets held by the trustees of an inter vivos trust following the death of the settlor, Marian Lady Bateman. In 1904, the decedent (then Marian G. Knapp and an American citizen), in anticipation of her marriage to Lord Bateman, executed an indenture of trust in Boston. Since its creation, one of the trustees of the trust has been a Massachusetts resident, and the securities representing the corpus of the trust have been kept in Boston. On her marriage, Lady Bateman became a British subject. She died in 1970, a long-time resident of Monaco and still a British citizen. Her will was admitted to probate in Monaco. Under the terms of the trust, after an annuity for Lord Bateman, the net income was payable to Lady Bateman during her life. She retained a power of appointment as to the distribution of the trust assets on her death. ⁴

Under § 2101 of the Int.Rev.Code of 1954 (as amended through 26 U.S.C. § 2101 (1970)), concerning the taxation of the estate of 'every decedent nonresident not a citizen of the United States,' the transfer of the trust assets at the death of Lady Bateman was subject to Federal estate taxes. On the date of her death the trust corpus was of a value in excess of $4,000,000. The gross Federal estate tax was approximately $743,000, prior to any credit for any Massachusetts inheritance or estate taxes. No other estate, inheritance, legacy, or succession taxes have been paid by the trustees to any State, Territory or the District of Columbia as to property included in Lady Bateman's gross estate. Under § 2102 of the Int.Rev.Code of 1954 (as amended through 26 U.S.C. § 2102 (1970)), the maximum credit allowable was $254,462.37 for the amount of any State death taxes. The trustees paid that amount ($254,462.37) to the Commonwealth and claimed it as a credit against the Federal estate tax (paying only the net amount to the United States). Then, as the Bateman trustees state in their brief, they 'learned (to their horror) that the federal Internal Revenue Service had taken the position that in the situation described in this record no estate tax was payable to Massachusetts by reason of G.L. c. 65A, § 1 . . . and consequently that no credit against the gross federal estate tax was available under IRC § 2102.' In March, 1972, the trustees filed a petition for instructions in the Probate Court. They alleged that it was 'a matter of indifference to the petitioners whether said amount ($254,462.37) was payable by them . . . to the Commonwealth or to the . . . United States, but it is essential that it be authoritively (sic) determined whether or not the amount paid to the Commonwealth was owed by them to the Commonwealth.' In addition to instructions, they requested that the payment to Massachusetts be abated to the extent that the tax was assessed without authority of law. The United States was named as a respondent but declined to waive its sovereign immunity, and its plea to the jurisdiction was sustained. ⁵

The proceeding brought by Lady Bateman's trustees comes to us on a reservation and report by the Probate Court for a determination on the petition (as amended), the answer of the Commissioner of Corporations and Taxation (Commissioner), a statement of agreed facts, the plea of the United States of America and the interlocutory decree sustaining that plea. The Bateman trustees argue that the discrimination in G.L. c. 65A, § 1, between those nonresidents who live in other countries and those nonresidents who live in other States is unlawful as a denial of equal protection of the laws guaranteed under the Fourteenth Amendment to the Constitution of the United States and under art. 10 of the Massachusetts Declaration of Rights. ⁶

DUE PROCESS OF LAW.

The executor of the Kuhn estate argues that the imposition of a tax on the transfer of its Massachusetts intangibles would violate the due process provisions of the Fourteenth Amendment to the Constitution of the United States because those intangibles were not within the taxing jurisdiction of the Commonwealth. ⁷ Our task is to determine whether the tax imposed by G.L. c. 65A, § 1, on the Massachusetts intangibles in the Kuhn estate reaches beyond constitutionally permissible limits.

Although the pattern of treatment by the Supreme Court of the United States of the right of a State to impose an inheritance tax with respect to tangible personal property is firmly established to the effect that such a tax may be imposed only by the State where the tangible personal property is situated, ⁸ the treatment by the Supreme Court of inheritance taxes as to intangibles has not been as consistent, Initially, power of a State over the intangible property justified an inheritance tax upon its transfer. See Blackstone v. Miller, 188 U.S. 189, 23 S.Ct. 277, 47 L.Ed. 439 (New York inheritance tax on a New York bank deposit owned by an Illinois resident held to be proper because New York had power over the person of the debtor); Wheeler v. Sohmer, 233 U.S. 434, 34 S.Ct 607, 58 L.Ed. 1030 (New York tax on promissory notes made by nonresidents of New York, owned by a nonresident but situated in a New York safe deposit box, held to be proper because the evidences of indebtedness were in New York). ⁹

In 1930, the United States Supreme Court changed its earlier view concerning the right of a State to impose death taxes on intangibles owned by a nonresident decedent. In Farmers' Loan & Trust Co. v. Minnesota, 280 U.S. 204, 50 S.Ct. 98, 74 L.Ed. 371, the court overruled Blackstone v. Miller, 188 U.S. 189, 23 S.Ct. 277, 47 L.Ed. 439, and held that Minnesota could not constitutionally impose an inheritance tax on bonds and certificates of indebtedness issued by the State of Minnesota (and certain of its political subdivisions) which were owned by a New York decedent and kept in New York. The court concluded that the possibility of dual taxation should be forbidden for intangibles just as it had been for tangible personal property. Id. at 212, 50 S.Ct. 98. Other decisions resting on the same reasoning followed rather promptly after the Farmers' Loan & Trust Co. case. See Baldwin v. Missouri, 281 U.S. 586, 50 S.Ct. 436, 74 L.Ed. 1056 (bonds, notes and cash on deposit in bank accounts of an Illinois decedent which were present in Missouri not properly taxable by Missouri); Beidler v....