In re McKennan's Estate
| Decision Date | 23 February 1911 |
| Citation | 130 N.W. 33,27 S.D. 136 |
| Parties | IN THE MATTER OF THE ESTATE OF HELEN G. McKENNAN, Deceased. E. A. SHERMAN et al., Executor, Plaintiffs and appellants, v. STATE OF SOUTH DAKOTA, Defendant and respondent. |
| Court | South Dakota Supreme Court |
This is an appeal from the circuit court of Minnehaha county involving the constitutionality of the inheritance tax law of this state as contained in chapter 54, Sess. Laws 1905. The cause is now before this court upon rehearing. Decision and judgment of this court were entered May 10, 1910, reversing the judgment of the lower court, and which decision appears in 25 S.D. 369, 126 N.W. 611. A general statement of the facts will be found in the former decision.
Prior to her death, Helen G. McKennan disposed of her property by certain deeds and a will. The trial court, in substance, made the following findings of fact and conclusions of law: On September 6, 1906, the said Helen G. McKennan, in contemplation of death, made and executed to the First Congregational Church of Sioux Falls a warranty deed to certain lands therein described, which deed was fully acknowledged and delivered in escrow with definite and irrevocable instructions in writing that the same, immediately upon her death, be delivered to the grantee. She died on September 29, 1906. The deed was at once delivered and placed of record. Such church is a religious corporation, and the conveyance so made was made and received with the purpose and intent that such property should be used exclusively for religious and charitable purposes. The church society has since sold such lands for $5,000, and has used the proceeds in the construction of a church building for such society, which building was used exclusively for religious purposes. Said land so conveyed was of the value of $5,000. On the 6th day of September, 1906, in contemplation of death, Helen G. McKennan made and executed to the city of Sioux Falls a deed of a certain tract of land, such deed conditioned that said land was to be used and kept as a public park for the benefit of the public, but with power on the part of the city to sell such part of the tract as should seem to it necessary for the purpose of improving the remainder. This deed was also placed in escrow under the same conditions as the deed above mentioned, and in the same manner was delivered and placed of record. Certain parts of said land have been sold under the power contained in said deed. The value of the land was $17,000. At the time of the death of Helen G. McKennan, she left property, real and personal, other than above mentioned, to the value of $32,000, some $5,000 of which was money on hand. Certain claims have been filed against the estate, which are in litigation and which are not yet adjudicated. The will provided that, after the payment of legacies and debts, the remainder of the property should be devised to one Sherman, who was the executor, to be held by him in trust, to be sold and converted and the proceeds therefrom paid over to certain trustees for the purpose of constructing and maintaining a public hospital in the city of Sioux Falls, which said trust was one exclusively for charitable purposes.
As conclusions of law, the court found that the property conveyed to the church society was subject to tax on the valuation of $4,900 at the rate of 4 per cent.; that the property conveyed to the city was subject to a tax on a valuation of $15,900 at the rate of 6 per cent.; that the real estate devised in trust was subject to a tax on a valuation of $31,380 subject to a reduction by allowance of further claims, such tax to be at a rate of 8 per cent.; that the church society was liable for the tax on its property, and the executor and trustee in his official capacity liable for the tax on the residue. Decree was entered in conformity with such findings and conclusions; said decree containing a direction and an order to the church society and to the city to pay the tax to the county treasurer, and a direction and order to the trustee to retain the tax on the residue until the claims against the estate should be adjudicated.
Section 1, c. 54, Laws 1905, provides:
"That all property, real, personal and mixed which shall pass by will or by the intestate laws of this state, or according to the provision of any statute in this state, from any person who may die seised or possessed of the same while a resident of this state, or if decedent was not a resident of this state, at the time of his death, which property, or any part thereof, shall be within this State, or any interest therein or income therefrom which shall be transferred by deed, grant, sale or gift made in contemplation of the death of the grantor, or bargainor or giver, or intended to take effect in possession or enjoyment after such death, to any person or persons or to any body politic or corporate in trust or otherwise, or by reason whereof any person or any body politic or corporate shall become beneficially entitled, in possession or expectancy, to any property or income thereof, shall be and is subject to a tax at the rate hereinafter specified, to be paid to the treasurer of the proper county for the use of the state, and all heirs, legatees and devisees, administrators, executors and trustees shall be liable for any and all such taxes until the same shall have been paid as hereinafter directed."
This statute also then divides those by whom such taxable estates are received into three general classes, viz.: (1) Near relations; (2) distant relations; (3) strangers, with a different rate of taxation upon the value of the estate transmitted to each class. As will be observed, the basis of this classification is relationship. It will also be observed that under this classification near relations pay a tax of 1 per cent. of the net value of the estate transmitted and received, after deducting the provided for exemption; distant relations pay a tax of 2 per cent. of the net value of the estate transmitted and received after deducting the provided for exemption; strangers pay taxes varying from 4 to 10 per cent. of the net value of the estate transmitted and received after deducting the exemption. It will also be observed that, as between these different classes, there is not uniformity or equality of the per cent. or rate of taxation, but each class pays a different rate and a tax different in amount, even though the estate transmitted to an individual within each class might be of the same value. Again, this statute in question subdivides the third class (strangers) into four subclasses, viz.: (1) Estates of the value of $10,000 or less, paying a tax of 4 per cent. of the net value of the estate transmitted, less the exemption; (2) estates over $10,000 and not exceeding $20,000, paying a tax of 6 per cent.; (3) estates over $20,000 and not exceeding $50,000, paying a tax of 8 per cent.; (4) estates over $50,000 paying a tax of 10 per cent. These four subclasses are not based on relationship, but purely and solely on the progressive amount or graduated value of the estate transmitted to each individual receiver thereof. As between these four different classes there is the same lack of uniformity and equality in rate or per cent. of taxation that exists between the three prior mentioned classes based on relationship.
All courts and all governments conceive that the transmission of property occasioned by death, although differing from tax on property as such, is nevertheless a usual subject of taxation. It is the succession or transmission or receipt of property occasioned by death that is subject to the tax. It is the privilege of succeeding to or inheriting the property of a deceased person, and not the property itself, which is thus transmitted, that is taxed. In the consideration of this subject the distinction between an inheritance tax as such and a property tax as such must at all times be kept in view. Constitutions, statutes, arguments, and reasoning, applicable to a property tax are not always germane or applicable to the consideration of an inheritance tax. It seems to be generally held that the provisions of a Constitution, such as section 2, Art. 11, of our state Constitution, have no applicability to or effect upon an inheritance tax law such as the one now under consideration, but that such provisions relate solely to property taxation. Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969; Magoun v. Illinois Trust & Savings Bank, 170 U.S. 283, 18 S.Ct. 594, 42 L.Ed. 1037; In re Fox's Estate, 154 Mich. 5, 117 N.W. 558; 12 Current Law, p. 2081; Nunnemacher v. State, 129 Wis. 190, 108 N.W. 627, 9 L.R.A. (N.S.) 121; State v. Guilbert, 70 Ohio St. 229, 71 N.E. 636, 1 Am. & Eng. Ann. Cas. 25; In re Watson, 17 S.D. 486, 97 N.W. 463.
The Legislature of this state had the undoubted right to create the inheritance law contained in chapter 54, Laws 1905, unless prohibited by some federal or state constitutional provision (Magoun v. Illinois Trust & Savings Bank, 170 U.S. 283, 292, 18 S.Ct. 594, 42 L.Ed. 1037; Booth's Ex. v. Commonwealth, 130 Ky. 88, 113 S.W. 61), and we must look to some other constitutional provision than that relating to property taxation to find the constitutional prohibition, if any such exists. It is contended that section 17, art. 6, contained in the Bill of Rights in our state Constitution, which provides that "No tax or duty shall be imposed without the ,consent of the people ... and all taxation shall be equal and uniform," prohibits the statute in...
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