R.I. Hosp. Trust Co v. Doughton

• Decision Date: 27 February 1924
• Docket Number: (No. 249.)
• Court: North Carolina Supreme Court
• Parties: RHODE ISLAND HOSPITAL TRUST CO. v. DOUGHTON, Commissioner of Revenue.

121 S.E. 741

RHODE ISLAND HOSPITAL TRUST CO.

v.DOUGHTON, Commissioner of Revenue.

(No. 249.)

Supreme Court of North Carolina.

Feb. 27, 1924.

(187 N. C.)

[Ed. Note.—For other definitions, see Words and-Phrases, First and Second Series, Inheritance Tax.]

[Ed. Note.—For other definitions, see Words and Phrases, Second Series, Transfer Tax.]

Clark, C. J., dissenting.

Appeal from Superior Court, Wake County; Cranmer, Judge.

Action by the Rhode Island Hospital Trust Company, executor, against R. A. Doughton, Commissioner of Revenue of North Carolina. Judgment of nonsuit, and plaintiff appeals. Affirmed.

Civil action to recover the amount of an inheritance tax, or transfer tax, paid by plaintiff under protest and sought to be regained by this suit.

Tillinghast & Collins, of Providence, R. I., Pou, Bailey & Pou, of Raleigh, and Colin McRae Makepeace, of Providence, R. I., for appellant.

J. S. Manning, Atty. Gen., and Frank Nash, Asst Atty. Gen., for appellee.

STACY, J. [1] The Rhode Island Hospital Trust Company of Providence, R. I., executor under the will of George Briggs, deceased, brings this suit to recover of the defendant, commissioner of revenue of North Carolina, the sum of $2,658.85, being the amount exacted by the defendant and paid by the plaintiff, involuntarily and under protest, by way of an inheritance tax, or a transfer tax, on shares of stock owned by decedent at the time of his death, in the R. J. Reynolds Tobacco Company, a corporation chartered under the laws of the state of New Jersey, and domesticated in the state of North Carolina under C. S. § 1181, with its principal place of business in this state and with two-thirds of the total value of its property located herein. The said corporation maintains a transfer office in the city of New York, and the paper certificates representing the shares of stock owned by the decedent at the time of his death have never been in this state. George Briggs was not a resident of North Carolina, but during his lifetime, or at least the latter part thereof, he resided in the state of Rhode Island and was a citizen of that state at the time of his death, October 29, 1919. None of the beneficiaries under his will live in North Carolina. The question, therefore, directly presented is whether the Legislature of this state can impose an inheritance tax, or a transfer tax, upon the right of nonresident legatees or distributees to take by will, or to receive under the intestate laws of another state, from a nonresident testator or intestate, shares of stock, in the R. J. Reynolds Tobacco Company, and to require the payment of such tax as a condition precedent to the right to have said stock transferred on the books of the corporation. A satisfactory answer to this question would seem to necessitate an examination into the basic character of the tax imposed.

But before entering upon an investigation of thin nature, we observe a suggestion by the plaintiff that the statute in question, chapter 90, Public Laws, 1919, now C. S. § 7772 et seq., does not warrant the interpretation placed upon it by the defendant and the State Tax Commission. This position, on the argument, was not made the subject of serious debate. Indeed, we think there is but little room for construction. The statute undertakes to impose an inheritance tax upon the transfer of all real and personal property of every kind and description and "such property or any part thereof or interest therein within this state, " which shall pass by will, or by operation of law from a testator to his legatees or devisees, or from an intestate to his heirs or distributees; and section 6, in part, provides:

"The words 'such property or any part thereof or interest therein within this state' shall include in its meaning bonds and shares of stock in any incorporated company, incorporated in any other state or country, when such incorporated company is the owner of property in this state, and if 50 per cent, or more of its property is located in this state, and when bonds or shares of stock in any such company not incorporated in this state, and owning property in this state, are transferred by inheritance, the valuation upon which the tax shall be computed shall be the proportion of the total value of such bonds or shares which the property owned by such company in this state bears to the total property owned by such company, and the exemptions allowed shall be the proportion of exemptions allowed by this act, as related to the total value of the property of the decedent."

It is clear, we think, from the language used, that the Legislature intended to levy the tax imposed and which is sought to be recovered in this suit.

Plaintiff's next position is that, if the law is to be construed so as to authorize an imposition of the tax in question, then the statute is unconstitutional both under article 1, § 17, of the state Constitution, and also under the Fourteenth Amendment to the Constitution of the United States. This brings us to a consideration of the nature of the tax in dispute.

There has been and still is some slight difference of opinion among courts as to the exact nature of an inheritance tax. It is agreed, however, that such a tax is levied, not upon the property itself, but upon its transfer, change of ownership, or devolution. The principal difference arises over the question as to whether the tax is laid on the privilege of transmitting property or on the privilege of receiving the property so transmitted. Prentiss v. Eisner (C. C. A.) 267 Fed. 16. The former is sometimes called a "transmission tax" or "legacy tax, " while the latter is usually styled a "succession tax." But in each instance, it is generally conceded that the tribute or contribution exacted before the property can pass from the dead to the living, or from the testator to the objects of his bounty, has some of the characteristics of an excise or custom duty. It is a ransom or toll levied upon the right to transmit or upon the right to receive property, the tranmission or receipt of which is occasioned by death. In re Inman, 101 Or. 182, 199 Pac. 615, 16 A. L. R. 675.

In this state, the particular tax now in question is imposed upon the right of succession. "We do not regard the tax in question as a tax on property, but rather as a tax imposed on the succession; on the right of the legatee to take under the will, or of acollateral distribution in the case of intestacy. * * * Neither can it be held a tax on property merely because the amount of the tax is measured by the value of the property." Rodman, J., in Pullen v. Com'rs, 66 N. C. 363.

"The theory on which taxation of this kind on the devolution of estates is based and its legality upheld is clearly established and is founded upon two principles: (1) A succession tax is a tax on the right of succession to property, and not on the property itself. (2) The right to take property by devise or descent is not one of the natural rights of man but is the creature of the law." Brown, J., in Re Morris' Estate, 138 N. C. 262, 50 S. E. 683. See, also, Corp. Com. v. Dunn, 174 N. C. 679, 94 S. E. 481, L. R. A. 1918F, 498, Ann. Cas. 1918D, 1086; Norris v. Durfey, 168 N. C. 321, 84 S. E. 687; In re Inheritance Tax, 168 N. C. 356, 84 S. E. 360; Shaw v. Bridgers, 161 N. C. 247, 76 S. E. 827.

It clearly appears, we think, from the language of the statute under which the present tax is imposed, that the Legislature intended to levy an inheritance tax, with certain exceptions, on the succession or devolution of all real and personal property, of every kind and description within the jurisdiction of the state, and upon any interest therein, whether owned by a resident or nonresident at the time of his death.

It is universally conceded that a state may levy an inheritance tax on the transfer by will or devolution of all property within the power of its reach, whether such property be real or personal, tangible or intangible, corporeal or incorporeal. Hooper v. Shaw, 176 Mass. 190, 57 N. E. 361; Morrow v. Durant, 140 Iowa, 437, 118 N. W. 781, 23 L. R. A. (N. S.) 474, 17 Ann. Cas. 850; Neilson v. Russell, 76 N. J. Law, 27, 69 Atl. 476; Plummer v. Coler, 178 U. S. 115, 20 Sup. Ct. 829, 44 L. Ed. 998; note 127 Am. St. Rep. 1059; 26 R. C. L. 208. Construing the succession tax law of Massachusetts, Knowlton, C. J., in Kinney v. Treasurer & Receiver Gen., 207 Mass. 368, 93 N. E. 5S6, 35 L. R. A. (N. S.) 784, Ann. Cas. 1912A, 902, said:

"This language indicates an intention on the part of the Legislature to tax all property that it has the power to tax. The statute is as broad as the jurisdiction of the commonwealth."

And the same may be said of the North Carolina statute.

It is equally well established that a state tax on property must be limited to property within the territorial jurisdiction of the state. "Property situated without that jurisdiction Is beyond the state's taxing power, and the exaction of a tax upon it is in violation of the Fourteenth Amendment to the Constitution." Metropolitan Life Ins. Co. v. New Orleans, 205 U. S. 395, 27 Sup. Ct. 499, 51 L. Ed. 853; Wallace v. Hines, 253 U. S. 66, 40 Sup. Ct. 435, 64 L. Ed. 782; Western Un ion Tel. Co. v. Kansas, 216 U. S. 1, 30 Sup. Ct. 190, 54 L. Ed. 355; Tappan v. Merchants' Nat. Bank, 19 Wall, 490, 22 L Ed. 189.

But the tax now under consideration is not a direct tax on property. It is a tax imposed upon the transfer, transaction, or right of succession, and is merely measured in amount by the value of the property transferred. Estate v. Bullen, 143 Wis. 512, 128 N. W. 109; Magoun v. Bank, 170 U. S. 29S, 18 Sup. Ct. 594, 42 L. Ed. 1037; U. S. v. Perkins, 163 U. S. 625, 16 Sup. Ct. 1073, 41 L. Ed. 287; Nettleton's Appeal, 76 Conn. 242, 56 Atl. 505; Thompson v. Kidder, 74 N. H. 92, 65 Atl. 392, 12 Ann. Cas. 948; Minot v. Winthrop, 102 Mass. 118, 38 N. E. 512, 26 L R. A. 259; State v. Hamlin, 86 Me. 503, 30 Atl. 76, 25 L. R. A. 632, 41 Am. St. Rep. 509. It ...