Gates v. Bank of Commerce & Trust Co.

• Decision Date: 29 June 1931
• Docket Number: 61
• Citation: 47 S.W.2d 806,185 Ark. 502
• Parties: GATES v. BANK OF COMMERCE & TRUST COMPANY
• Court: Arkansas Supreme Court

47 S.W.2d 806

185 Ark. 502

GATES v. BANK OF COMMERCE & TRUST COMPANY

No. 61

Supreme Court of Arkansas

June 29, 1931

Appeal from Jefferson Circuit Court; T. G. Parham, Judge; reversed.

STATEMENT OF FACTS.

Appellee instituted this proceeding in the probate court of Jefferson County, Arkansas, against appellant under the provisions of § 12 of act 106 of the Acts of 1929 for the refund of inheritance taxes claimed to have been illegally collected.

The record shows that Nellie Hicks Hunter died testate in the State of Tennessee, and the Bank of Commerce & Trust Company was duly appointed as the executor and trustee of her estate. At the time of her death, she owned capital stock in the Hicks Realty Company, a corporation duly organized under the laws of the State of Arkansas, and engaged in business in Pine Bluff, Jefferson County, Arkansas, to the amount of $ 70,600. Under the provisions of her will, which was duly probated in Shelby County, Tennessee, and in Jefferson County, Arkansas, there was paid upon the estate of Nellie Hicks Hunter as inheritance tax the sum of $ 7,796.88. The greater part of this amount was paid as the succession tax on her capital stock in the aforementioned corporation. The Hicks Realty Company did business in Jefferson County Arkansas, and all its property was situated there. Certificates of corporate stock were issued to Nellie Hicks in the sum of $ 51,220.30, and all these certificates of stock were in her possession in Shelby County, Tennessee, at the time of her death.

The probate court held that the claim for the refund in the amount of $ 7,196.86 should be allowed, and that the amount as reduced should be paid to appellee. An appeal was duly prosecuted to the circuit court, and the case was tried there upon the state of facts above recited. It was adjudged in the circuit court that appellee should recover from appellant the sum of $ 7,252.88, and appellant was ordered to issue a voucher for the payment of said judgment upon the funds designated for that purpose. The case is here on appeal.

Judgment reversed and cause remanded.

Hal L. Norwood, Attorney General, Walter L. Pope, Assistant, David A. Gates, and George Vaughan, for appellant.

John F. Park and Bridges, McGaughy & Bridges, for appellee.

OPINION

HART, C. J., (after stating the facts).

It is the settled law that inheritance taxes are not levied upon property, but upon the privilege or right of succession to it. State v. Handlin, 100 Ark. 175, 139 S.W. 1112; McDaniel v. Byrkett, 120 Ark 295, 179 S.W. 491; Rhode Island Hospital Trust Co. v. Doughton, 270 U.S. 69, 46 S.Ct. 256, 70 L.Ed. 475; and Blodgett v. Silberman, 277 U.S. 1, 48 S.Ct. 410, 72 L.Ed. 749.

These cases sustain the principle that, while an inheritance tax is not upon property but upon the right of succession to property, yet the principle is that the subject to be taxed must be within the jurisdiction of the State, as well in the case of a transfer tax as in that of a property tax. The reason is that the State has no power to tax the devolution of the property of a nonresident unless it has jurisdiction of the property devolved or transferred.

It is conceded by the parties that a right to a refund of the tax depends upon the validity of subdivision C of § 10,218 of Crawford & Moses' Digest. The subsection provides for an inheritance tax upon the transfer of shares of stock of all corporations organized and existing under the laws of the State, certificates of which shares of stock shall be within or without the State.

Counsel for appellee seek to uphold the judgment of the circuit court upon the rule or maxim, Mobilia sequunter personam, as applied by the Supreme Court of the United States in several recent cases. In the Farmers Loan & Trust Co. v. Minnesota, 280 U.S. 204, 50 S.Ct. 98, 74 L.Ed. 371, it was held that negotiable bonds and certificates issued by the State and certain municipal corporations of Minnesota were not subject to an inheritance tax in the State of Minnesota, the owner having died testate and residing in the State of New York. The court applied the rule, Mobilia sequunter personam, and treated the bonds and certificates of indebtedness as localized at the creditor's domicile for taxation purposes. Consequently, it was held that their situs for taxation being in another State, they were taxable there, and not in the State of Minnesota where they were issued. The court proceeded upon the theory that the bonds and certificates of indebtedness were only evidence of the debts; and, when carried by the owner to another State, their situs as debts took the domicile of the owner, and that their testamentary transfer might be taxed only in the State where they were found. The reason was that their legal situs as debts was at the creditor's domicile, and they were taxable as property there. The logical result was that the taxation upon the right of succession to the property must be laid in the State where the owner of the property resided at the time of his death and where the property had its legal situs.

In the case of Baldwin v. Missouri, 281 U.S. 586, 50 S.Ct. 436, 74 L.Ed. 1056, a resident of the State of Illinois died there owning certain bank deposits in banks located in the State of Missouri and certain coupon bonds of the United States and promissory notes on deposit for safe keeping in the State of Missouri. It was held that the State of Missouri could not levy a tax upon the succession to this property because its legal situs followed that of its owner and was in the State of Illinois. The court said that bank deposits were mere credits, and for purposes of ad valorem taxation have their situs at the domicile of the creditor only. The certificate of deposit was merely the evidence of title of the owner of the deposit, and he might carry that with him wherever he went. So, too, the notes and United States coupon bonds, under the rule that the situs of personal property follows the owner, acquired a legal situs in the place where he resided. Under that rule, they were taxable as property at the owner's domicile, which became their legal situs, and the succession tax should have been laid in the State where the owner of these evidences of debt resided. If the evidences of debt had been destroyed, the right of the owner to demand payment of the debts would have remained. The court, in effect, held that the decedent was a creditor to whom the obligors in the various bonds were indebted and to whom the banks in which he had deposited money were indebted. The extent and terms of the obligations were evidenced by the bonds and by the certificates of deposit. The local situs was at the creditor's domicile; and, being choses in action with situs at the domicile of the creditor, they were taxable as property there. Then, too, as said by the court in the case last cited, at that place they pass from the dead to the living, there this transfer was actually taxed. Because they were not within the State of Missouri for taxation purposes, that State had no power to levy a transfer tax.

Again, in Beidler v. South Carolina Tax Commission, 282 U.S. 1, 51 S.Ct. 54, 75 L.Ed. 131, dividends due from a South Carolina corporation were held not subject to a transfer tax in the State of South Carolina where the creditor of the corporation died in Chicago, Illinois, testate, and was a resident of that State at the time of his death. The court said that, although the corporate property was situated in the State of South Carolina, that State had no jurisdiction to impose a transfer tax upon the debt owed by the corporation to a nonresident. In this connection, it may be stated that the payment of a succession tax to the State of South Carolina with respect to the shares of stock owned by the nonresident testator in the domestic corporation in the State of South Carolina was not contested by the executors. This shows that they recognized that the corporation was a creature of the State of South Carolina, and that the shares of stock were property there under the laws of that State. While there was no adjudication to that effect, still it is worthy of note that the executors recognized this to be the law.

This brings us to a consideration of the question whether the shares of stock in the present case, under the principles of law above announced, had a legal situs in the State of Tennessee where their owner resided and died. In short, the question presents itself, is the situs of the property owned by a shareholder in a State where the corporation exists or at the domicile of the shareholder. Corporate shares of stock are property within the broad meaning of that term. Certificates of stock in the hands of their holder represent the number of shares which the corporation certifies that he is entitled to and are mere evidence of his title. In the case of bonds and certificates of deposit in a bank, the certificates represent but a property in the debt and that follows the creditor's person. Not so in the case of certificates of shares of stock in a corporation. The corporation is the creature of State laws, and those who become its members and shareholders are subject to the operation of these laws.

Under our Constitution, private corporations may be formed under general laws, which may be from time to time altered or repealed. Article 12, § 6, of the Constitution of 1874. So, too, our Constitution makes all property subject to taxation except certain property specifically exempted, about which we have no concern in the present case. Article 16 § 5, of the Constitution of 1874. Corporate property is not exempt from taxation under our Constitution, and § 6 of the same article provides that all laws exempting property from taxation other than as...