Owens v. Fosdick

• Decision Date: 18 May 1943
• Citation: 13 So.2d 700,153 Fla. 17
• Parties: OWENS, Tax Assessor, et al. v. FOSDICK.
• Court: Florida Supreme Court

13 So.2d 700

153 Fla. 17

OWENS, Tax Assessor, et al. v. FOSDICK.

Florida Supreme Court

May 18, 1943

Rehearing Denied June 15, 1943.

Walton, Lantaff, Atkins & Carson, Miller Walton, and S. O. Carson, all of Miami, and Keen & Allen, J. Velma Keen and A. Frank O'Kelley, Jr., all of Tallahassee, for petitioners.

Jerome D Gedney, of West Palm Beach, for respondents.

Joseph F Gunster, of West Palm Beach, amicus curiae.

SEBRING, Justice.

This case is before the Court on a petition for interlocutory certiorari to review an order of the Circuit Court of Palm Beach County denying a motion to dismiss a bill of complaint filed by the respondent, Emily Bedford Fosdick, joined by her husband Paulding Fosdick.

The suit is one essentially for the determination of the validity of an intangible personal property tax assessed pursuant to the Intangible Personal Property Tax Law of 1941, F.S.A. § 199.01 et seq. The statute in question defines intangible personal property as 'all personal property which is not in itself intrinsically valuable but which derives its chief value from that which it represents.' Sec. 199.01, F.S.1941, F.S.A § 199.01. Among the intangible personal property which the statute says shall be taxed is 'the beneficial interest of residents of Florida in trust estates of all kinds when the trustee resides outside of the State of Florida, or if the trustee is a corporation and has its principal places of business outside of the State of Florida, * * *.' Sec. 199.02, F.S.1941, F.S.A. § 199.02. It is required that such intangible personal property shall be assessed at its full cash value. Sec. 199.05, F.S.1941, F.S.A. § 199.05. The Comptroller of the State is empowered to make such rules and regulations as may be necessary to carry out and execute the intent of the statute. Sec. 199.03, F.S.1941, F.S.A. § 199.03. The challenged tax was imposed on Emily Bedford Fosdick, as one of the beneficiaries of certain foreign trusts, under authority of the statute.

From the bill of complaint in the case it appears that the respondent, Emily Bedford Fosdick, is a resident of Florida. As one of the beneficiaries, she is entitled to receive a portion of the net income from eight separate trust estates for life. The trusts were created outside of the State. The settlors were nonresidents. The legal title to all assets of the trust, consisting of stocks and bonds, is held by a corporate trustee having its principal place of business in New York. The trusts are irrevocable. The absolute management and control of the trust funds is in the corporate trustee. Mrs. Fosdick has no incident of ownership in the corpus of the estate, such as a power of revocation, or power of appointment by will, or otherwise. Seven of the trust instruments contain limited spendthrift clauses. It is an express condition of the trust indentures that Emily Bedford Fosdick shall receive her proportionate share of net income, only if she be living at the time of distribution. At her death, designated remaindermen take principal and income.

Emily Bedford Fosdick received her first distribution of income under the trust instruments, during the year 1941. The tax in question was assessed on January 1, 1942, the sole property right taxed being the privilege of receiving income for life from the trust fund. In accordance with rules promulgated by the State Comptroller, the present worth of the right or privilege was determined by the process of capitalizing the net income which Mrs. Fosdick had received for 1941, according to her life expectancy. The tax for 1942 was laid on the capital sum thus found.

The tax is objected to on the ground that it amounts to taxation of income, contrary to section 11 of Article IX of the Constitution of Florida, which provides that 'No taxes upon inheritances or upon the income of residents or citizens of this State shall be levied by the State of Florida, or under its authority, * * *.'

The respondent, Emily Bedford Fosdick, maintains that a tax on the present worth of the property right to receive future income amounts, in practical effect, to a tax on income itself, which is prohibited by the Constitutional limitation on the taxing power. The taxing authorities say that the tax is not one laid on income, but on the privilege of receiving income, which, they submit, is a very valuable species of property distinct from income itself. The question, therefore, is whether under the facts of this case the taxation of the beneficiary's right to receive net income for life from the trusts in question can be distinguished from taxation of the income, which is prohibited by the Florida Constitution.

The issue being thus clearly defined, it becomes our duty to ascertain for ourselves upon what the tax is laid, keeping in mind that the nature of the tax must be determined by its operation rather than by its terminology. Education Films Corp. v. Ward, 282 U.S. 379, 51 S.Ct. 170, 75 L.Ed. 400, 71 A.L.R. 1226.

The tax assessor leans heavily on Wood v. Ford, 148 Fla. 66, 3 So.2d 490, as upholding the validity of the tax on the property right or interest here involved. At first reading the cited case seems to support the contention--in principle, at least. We think, however, that closer perusal will reveal a clear distinction between that case and the one before us now.

In the Ford case, supra, this Court had occasion to consider whether or not the State of Florida had the power to tax the property interest of a resident cestui que trust in and to certain personal property held in trust in New York for his sole use and benefit, as against the contention that such a levy would impose the burden on the beneficiary of paying taxes upon the trust res in which he had not property interest. The Court rejected the contention that the laying of the tax would have the result suggested, pointing out that under the terms of the trust instrument the cestui que trust had such a present, vested equitable life estate, right or interest in the trust fund--separate and distinct from the trust fund itself--as amounted to intangible personal property under the intangible personal property tax law then in force and effect in the State; and that it was this right, estate, or interest that was being taxed. The proposition that the tax was violative of Section 11, Article IX of the Florida Constitution forbidding taxation of incomes was not raised, and, of course, was not decided.

The deed of trust in the Ford case was executed in New York State. The donor and the trustee were domiciled there. The trust properties were bonds and other securities, which, presumably, were negotiable. The donor reserved no rights or interests with reference to the trust property. The trust was irrevocable. The inherent power of the cestui que trust to alienate his interest in the trust fund was not restrained. The trustee had only the naked legal title, and was charged with the duty of administering the fund for the sole benefit, support, and maintenance of the cestui que trust during his lifetime. The net income was payable to the cestui que trust at stated intervals, as he might request. In the event that the net income proved to be, or became, insufficient or inadequate for the suitable support of the...