Larson v. MacMiller

• Decision Date: 09 April 1920
• Docket Number: 3439
• Citation: 189 P. 579,56 Utah 84
• Court: Utah Supreme Court
• Parties: LARSON, State Treasurer, v. MacMILLER et al

189 P. 579

56 Utah 84

LARSON, State Treasurer, v. MacMILLER et al

No. 3439

Supreme Court of Utah

April 9, 1920

Appeal from District Court, Third District, Salt Lake County; Wm. H Bramel, Judge.

Action by Daniel O. Larson, Treasurer of the State of Utah, against John W. MacMiller and another, as executors of estate of Harry S. Harkness, deceased. Judgment for plaintiff for part of sum claimed, and plaintiff appeals.

REVERSED, WITH DIRECTIONS.

Dan B Shields, Atty. Gen., and James H. Wolfe, O. C. Dalby, and H Van Dam, Jr., Asst. Attys. Gen., for appellant.

Williams & Williams, of Salt Lake City, for respondents.

WEBER, J. CORFMAN, C. J., and FRICK, GIDEON, and THURMAN, JJ., concur.

OPINION

WEBER, J.

Harry S. Harkness, a resident of New York City, died there January 23, 1919. According to the complaint herein a portion of the personal property of the deceased consisted of 2,000 shares of common stock of the Union Pacific Railroad Company, a Utah corporation, the market value of which on the date of decedent's death was $ 254,250. It is to collect the amount plaintiff claims to be due to the state of Utah as an inheritance tax on this stock that this action was brought.

The defendants, who are the executors of the estate of said Harkness, have answered, and denied that the deceased owned stock in the Union Pacific Railroad Company of the market value of $ 254,250, or that he had any interest in any such stock at that time in any value in excess of $ 121,722.66; but it is admitted that the deceased at the time of his death was the owner of an equity of redemption in 2,000 shares of the common stock of the Union Pacific Railroad Company, the said deceased in his lifetime having pledged the 2,000 shares of stock, being all the shares of stock in the Union Pacific Railroad in which the deceased at the time of his death had any interest, to Jessup & Lamont, copartners resident and doing business in the state and city of New York. It is further admitted in the answer that there is due the state of Utah, as an inheritance tax upon the interest owned in such stock by deceased at the time of his death, the sum of $ 3,366.36 and no more. Defendants offered to submit to entry of judgment against the estate of said Harkness for the last-named sum.

The facts necessary to reach a decision in this case were mutually agreed upon in a stipulation of facts. These facts are incorporated in the court's findings as follows:

"(1) That the total amount of the estate of said Harry S. Harkness, deceased, at the time of his death, was $ 15,111,106.40.

"(2) That the total indebtedness of the said deceased at the time of his death, including the amount owing Jessup & Lamont, was $ 4,740,169.40.

"(3) That at the date of his death the said deceased was indebted to the firm of Jessup & Lamont, of New York City, in the sum of $ 2,051,835.93, which is a part of the indebtedness of said estate, and that to secure the said indebtedness the said deceased in his lifetime had pledged to the said Jessup & Lamont securities amounting in value at the time of his death to the sum of $ 3,936,087.62, which securities were a part of the assets of said estate at the time of decedent's death.

"(4) That amongst the securities so pledged were 2,000 shares of the common stock of the Union Pacific Railroad Company, being all of the shares of the said company in which the deceased at the time of his death had any interest or estate, and that said Union Pacific stock was by the terms of said pledge subject to sale upon default of payment for the discharge of said indebtedness; that such default had not occurred and said stock was not sold at the time of decedent's death; that the said stock at the date of the death of said decedent was of the market value of $ 254,250; and that the excess value of said stock, over and above the indebtedness secured by it, was $ 121,722.66."

From the above facts the court found as conclusions of law:

"That the defendants are liable for the inheritance tax provided by the Laws of Utah upon the sum of $ 121,722.66 only, that being the value of the interest owned by the deceased at the date of his death in the said 2,000 shares of the common stock of the Union Pacific Railroad Company.

"That said sum is subject to the deductions provided by the Inheritance Tax Law, to wit, $ 10,000 provided by section 3185 of the Complied Laws of Utah 1917, and the further sum of $ 38,395.37 authorized by the provisions of section 3212 of said Complied Laws, leaving a balance upon which the said tax is to be computed of $ 73,327.29; and that the tax, under the Statutes of Utah, upon said sums amounts to $ 3,366.36.

"That the said plaintiff is entitled to judgment against the said defendants for the said sum of $ 3,366.36 and costs to be taxed."

From the judgment in accordance with the conclusions of law plaintiff appeals.

The following succinct statement of the issues in this case is taken from respondent's brief:

"The one difference, then, between the parties to this action is as to the application of the provisions of the Inheritance Tax Law of the state of Utah to the facts existing in this case as they have been agreed upon by and between the parties.

"The position taken by the State Treasurer is that under that law the estate of Harry S. Harkness should pay an inheritance tax upon the full market value (after deducting the proportion of debts as provided in section 3212, C. L. of Utah 1917) of the 2,000 shares of Union Pacific Railroad Company stock, free from all incumbrances, and regardless of the fact that at the time of the decedent's death it was subject to a pledge to secure certain indebtedness contracted by said deceased in his lifetime; the excess value of said stock over and above the indebtedness secured by it being, according to the stipulation, $ 121,722.66.

"The position of the defendants and respondents, executors of the estate of Harry S. Harkness, is that the estate is subject to pay an inheritance tax to the state of Utah only upon the amount or value of the said stock over and above the amount of the indebtedness for which it was given as security (after deducting the proportion of debts as provided in the said section 3212, C. L. of Utah 1917), which amount is, according to the respondents, the value of the interest owned by Harkness at his death in and to all the property owned by him and subject to inheritance taxation in Utah."

When considering the subject of inheritance taxes, it is necessary to keep in mind that such taxes are not levied upon property, but are taxes upon the succession (Dixon v. Ricketts, 26 Utah 215, 72 P. 947), and that, in order to obtain a basis for the succession or inheritance tax, property not in itself taxable by the state may be used as a measure of the tax imposed (Maxwell et al. v. Bugbee, 250 U.S. 525, 40 S.Ct. 2, 63 L.Ed. 1124).

One of the questions in this case is whether Harkness owned all this stock at the time of his death or only part of it. It is conceded that ownership was in Harkness, but it is insisted that the brokers, because of their possession as pledgees had an "interest" in the stock and owned part of it. Their "interest" certainly was not in Utah, and it is the property that has its situs in Utah that must be taken as the basis for estimating the transfer or inheritance tax. All of the stock is here on the books of the Union Pacific Railroad Company. All of it was in the name of Harkness at the time of his death--he owned it all. If Harkness did not own it within the purview of the inheritance tax law, who did? If one of the firm of Jessup & Lamont, the brokers, had died, leaving a one-half interest in a note for which this stock had been hypothecated as collateral, would his interest in a debt for which the stock was security be subject to the payment of an inheritance tax in Utah? Why not, if he in fact owned an interest in the stock? But owning no interest in the stock, in the sense that the word "interest" is used in the inheritance tax law, having no share in it--no proprietary right-- there would be no transfer or inheritance tax to pay on the stock because the situs of the debt is not in Utah, and the value of the stock could not be used as a basis for a transfer tax because the broker had no proprietary interest, no part ownership, in the stock within the purview of the inheritance tax law. No one would say that the broker's estate could be charged with an inheritance tax under the laws of Utah...