In re Lund's Estate, 28420.

• Decision Date: 15 May 1931
• Docket Number: No. 28420.,28420.
• Citation: 183 Minn. 368,236 N.W. 626
• Parties: IN RE LUND'S ESTATE BENSON v. STATE.
• Court: Minnesota Supreme Court

236 N.W. 626

183 Minn. 368

IN RE LUND'S ESTATE BENSON v. STATE.

No. 28420.

Supreme Court of Minnesota.

May 15, 1931.

Appeal from District Court, Ramsey County; Charles Bechhoefer, Judge.

Proceeding by E. F. Benson, as administrator de bonis non with the will annexed of the estate of A. W. Lund, deceased, opposed by the State to have shares of stock in Minnesota corporations exempted from payment of inheritance tax. The trial court found for the state, and petitioner appeals.

Affirmed.

John A. Pearson, of St. Paul, and White & White, of River Falls, Wis., for appellant.

Henry N. Benson, Atty. Gen., and John F. Bonner, Asst. Atty. Gen., for the State.

LORING, J.

A. W. Lund, a resident of River Falls, Wis., died in December, 1929, leaving a large estate, part of which consisted of common and preferred shares of stock in Minnesota corporations which have their only place of business and substantially all their property in Minnesota. The state of Minnesota seeks to impose its inheritance tax upon the transfer of such shares. The trial court found in favor of the state, and the personal representative of Lund's estate has appealed.

The appellant contends that the imposition of the tax is in violation of the Fourteenth Amendment to the Constitution of the United States and relies principally upon Farmers' Loan & Trust Co. v. Minnesota, 280 U. S. 204, 50 S. Ct. 98, 74 L. Ed. 371, 65 A. L. R. 1000. In that case the court held that Minnesota could not impose its inheritance tax upon bonds and certificates of indebtedness of the state and two of its municipalities owned by a nonresident at the time of his death. It held that no state could tax anything not within its jurisdiction without violating the Fourteenth Amendment, and it reasoned that debts have a situs at the domicile of the creditor and not at that of the debtor, in the absence of evidence that they have become an integral part of some local business in another state. The decision comments upon the impropriety of double taxation based upon inconsistent theories of the situs of property, but the principle is recognized that, if the state of the deceased's domicile imposes a tax upon property not within its jurisdiction, it does not thereby deprive the state in which the property is actually located of its right to tax, citing Coe v. Errol, 116 U. S. 517, 524, 6 S. Ct. 475, 29 L. Ed. 715, 717. Therefore, in the case at bar we are not concerned with the fact that Wisconsin has imposed its inheritance tax upon these shares of stock in the Minnesota corporations. We are solely interested in the situs of a nonresident shareholder's property in a Minnesota corporation whose business is conducted and substantially all of whose property is within this state. If Minnesota has this property within its jurisdiction so that it may impose its inheritance tax upon its transfer, it remains for other forums to determine whether the state of its owner's domicile may also impose a tax.

Sections 2292 and 2302, Mason's Minn. St. 1927, provide for a tax upon the transfer of property, by will or intestate law, within the state or its jurisdiction, although the decedent be a nonresident and specifically prohibit the transfer by Minnesota corporations of shares of stock standing in the names of nonresident decedents without the consent of the Attorney General to be given only upon the payment of the tax. In our opinion these statutes in effect create a lien in favor of the state upon the interest in the corporation represented by the shares. Frick v. Pennsylvania, 268 U. S. 473, 45 S. Ct. 603, 607, 69 L. Ed. 1058, 42 A. L. R. 316, 325.

This court has definitely held that shares of stock in Minnesota corporations, although held by nonresidents, have a situs within the jurisdiction of this state and are subject to the Minnesota inheritance tax. State ex rel. Graff v. Probate Court, 128 Minn. 371-380, 150 N. W. 1094, L. R. A. 1916A, 901; State ex rel. Bodman v. Probate Court, 142 Minn. 415, 418, 419, 172 N. W. 318. In our opinion there is a clear distinction between debts as represented by bonds or certificates, and the capital stock, either common or preferred, of a corporation. A debtor obviously has no property interest in the debt he owes which would give it a situs at his domicile. The creditor has the property interest in the debt, and hence the property is localized at his domicile. Cleveland, P. & A. R. Co. v. Pennsylvania, 15 Wall. 300, 320, 21 L. Ed. 179, 187. A share of stock is not a mere debt or obligation of the corporation, it represents the interest of its owner in the corporation itself and entitles him to his share of the profits, and of the ultimate assets in case of dissolution. State ex rel. Bodman v. Probate Court, supra; In re Bronson, 150 N. Y. 1, 44 N. E. 707, 34 L. R. A. 238, 242, 55 Am. St. Rep. 632; In re Palmer, 183 N. Y. 238, 76 N. E. 16; Rhode Island Hospital Trust Co. v. Doughton, 270 U. S. 69, 81, 46 S. Ct. 256, 70 L. Ed. 475, 43 A. L. R. 1374, 1379; Van Allen v. Assessors, 3 Wall. 573, 583, 18 L. Ed. 229, 234; Farrington v. Tennessee, 95 U. S. 679, 686, 24 L. Ed. 558, 560; Beidler v South Carolina Tax Commission, 282 U. S. 1, 51 S. Ct. 54, 75 L. Ed. ___.

Whatever nomenclature we apply to the character of a shareholder's interest, it is a property interest in the corporation itself which can effectively be transferred only under the protection and by authority of the laws of the state whose creature the corporation is. State ex rel. v. Probate Court, 128 Minn. 382, 150 N. W. 1094, L. R. A. 1916A, 901; Welch v. Treasurer, 223 Mass. 87, 111 N. E. 774; State v. First Nat. Bank of Boston (Me.) 154 A. 103, 106. This is true even where a transfer may be effected through a transfer agent outside the state. State ex rel. Bodman v. Probate Court, supra.

The Supreme Court of the United States has frequently held that the situs of shares of stock in a domestic corporation is, for the purposes of taxation, in the state where the corporation is organized. This is certainly true where its business is wholly carried on, as in the case at bar, in the state where it is organized.

In the case of Corry v. Baltimore, 196 U. S. 466, 477, 25 S. Ct. 297, 300, 49 L. Ed. 556, it was held that Maryland could impose a tax on the stock of a domestic corporation held by a nonresident and create a personal liability on the part of the stockholder to pay the same. The court, in holding that such an exercise of power was not a violation of the Fourteenth Amendment, said: "Certainly, the exercise of such a power is no broader than the well-recognized right of a state to affix to the holding of stock in a domestic corporation a liability on a nonresident as well as a resident stockholder, in personam, in favor of the ordinary creditors of the corporation." See, also, ...