Salomon v. State Tax Commission of New York Simonson v. Same, s. 79

• Decision Date: 18 February 1929
• Docket Number: 80,Nos. 79,s. 79
• Citation: 49 S.Ct. 192,278 U.S. 484,73 L.Ed. 464
• Parties: SALOMON et al. v. STATE TAX COMMISSION OF NEW YORK. SIMONSON et al. v. SAME
• Court: U.S. Supreme Court

278 U.S. 484

49 S.Ct. 192

73 L.Ed. 464

SALOMON et al.

v STATE TAX COMMISSION OF NEW YORK.

SIMONSON et al.

v. SAME.

Nos. 79, 80.

Argued Nov. 28, 1928.

Decided Feb. 18, 1929.

Messrs. Charles Angulo and Edward H. Blanc, both of New York City, for plaintiffs in error Salomon's executors.

Mr. Abraham L. Gutman, of New York City, for plaintiff in error Simonson's executors.

Messrs. Seth T. Cole, of Albany, N. Y., and A. Welles Stump, of New York City, for defendant in error.

Mr. Justice BRANDEIS delivered the opinion of the Court.

These cases, which were argued together, present the question whether the provision in the New York Transfer Law for taxing the transfer of contingent remainders violates the due process clause or the equal protection clause of the Fourteenth Amendment. That statute imposes a graduated succession tax. On the transfer of life estates and vested remainders the tax is measured by their respective values as of the testator's death and are payable then. The tax on the transfer of contingent remainders is not payable until the death of the life tenant; and it is measured by the value at the testator's death of the estate transferred, undiminished by the value of the intervening life estate. For the due payment of the deferred tax the executor must furnish adequate security. The amount of the security is fixed by a temporary taxing order. Laws of 1925, c. 144, §§ 1, 2, amending sections 230 and 241 of Tax Law (Consol. Laws, c. 60).

It will be sufficient to state the facts and proceedings in the Salomon Case. Meyer Hecht died in 1925 a resident of New York. He bequeathed his residuary estate in trust to his widow for life; and upon her death one equal share thereof to each child then living and to the then living issue per stirpes of each deceased child. The value of the residue as of the testator's death was appraised at $322,094.37. The then value of the widow's life estate therein, computed according to the standard mortality tables using 5 per cent. interest, was appraised at $124,957; the tax then payable was assessed thereon, and no objection is made thereto. If the future interests had been vested remainders, the tax thereon would have been payable then on an appraisal of $197,137.37; that is, on the difference between the then value of the residue and the then value of the life estate. The future interests were all contingent. The tax was not payable until the death of the life tenant. The temporary taxing order appraised their aggregate value at the widow's death as $322,094.37; that is, at the value of the residue undiminished by the value of the life estate. Security for the future payment of the tax was required to be given as the statute requires. An appeal from the appraisal was denied by the surrogate of New York county. Matter of Hecht's Estate, 127 Misc. Rep. 211, 216 N. Y. S. 321. His judgment was affirmed by the Appellate Division of the Supreme Court, 219 App. Div. 656, 220 N. Y. S. 325. Its judgment was affirmed by the Court of Appeals, without opinion, 246 N. Y. 602, 159 N. E. 668; and by the remittitur it became the judgment of the Surrogate's Court. That judgment is final within the meaning of section 237(a) of the Judicial Code, as amended by the Act of February 13, 1925, c. 229, 43 Stat. 937, 28 USCA § 344(a). Compare Wheeler v. Sohmer, 233 U. S. 434, 34 S. Ct. 607, 58 L. Ed. 1030; Watson v. State Comptroller, 254 U. S. 122, 41 S. Ct. 43, 65 L. Ed. 170. The constitutional claims were duly made below, and the case is properly here.

The need of a peculiar provision for taxing the transfer of contingent remainders arises from the fact that the New York law imposes a graduated tax. The rates differ according to the amount or value of the gift to the particular beneficiary and also according to his relationship to the decedent. The lowest rate payable by a lineal descendant is 1 per cent.; the highest, 4 per cent. The lowest rate payable by a stranger is 5 per cent.; the highest, 8 per cent. As the remainders are contingent, it is impossible to know, before the contingency happens, in whom the remainders will vest; and it may be impossible to determine until then the relationship of the beneficiaries to the testator and the portions of the estate which they will respectively receive. Thus the rate of taxation will remain uncertain. For this reason, the statute postpones until the contingency happens both the definitive assessment of the tax on the transfer of the contingent remainders and the payment thereof. In respect to vested remainders, there is no obstacle to requiring both assessment and payment of this graduated tax as of the testator's death. The amount of the tax can be determined then, because it is known who the vested remaindermen are, what the share of each is and what his relationship to the testator was. And the value of the remainders as of the testator's death is likewise known, being the difference between the then value of the property transferred and the computed value of the life estate.

The need of a special provision for the taxation in respect to contingent remainders and the reasonableness of the particular measure adopted in 1925 appear from the history of the legislation. Since the enactment of the Transfer Tax Law in 1885 (chapter 483), the aim of the Legislature has been at all times to adopt a method of laying the tax which would be fair to both the life tenant and the future interest and would protect the revenues of the state. From time to time, various methods for doing this were tried. Experience revealed their defects. Under the original law and the early amendments, the transfers to contingent remaindermen were not taxable upon the testator's death. Matter of Cager, 111 N. Y. 343, 18 N. E. 866. They were taxable at the time when they vested in possession. Matter of Stewart, 131 N. Y. 274, 30 N. E. 184, 14 L. R. A. 836. And the tax then payable was computed upon the value, as of the testator's death, of the property transferred, less the value of the intervening life estate. Matter of Sloane's Estate, 154 N. Y. 109, 47 N. E. 978. Under this method the revenue derived from the tax on the contingent remainder was less than it would have been had the remainder been a vested one. For the state lost the benefit of the money during the period intervening between the death of the testator and that of the life tenant. To overcome this loss to the state and the discrimination thereby in favor of the contingent remaindermen, the Legislature provided by chapter 284 of the Laws of 1897 that the tax payable on the vesting of the contingent remainder should be measured by the full value of the property as of the testator's death, without deducting the value of the intervening life estate. Matter of Seligmann's Estate, 219 N. Y. 656, 114 N. E. 853. This statute, while on its face eliminating the discrimination in favor of contingent remaindermen, was found to result in serious loss of revenue to the state. Taxes escaped collection when they became due, because it proved to be impossible to ascertain currently when the contingencies happened and hence when a tax became payable. To remedy this defect, it was provided by chapter 76 of the Laws of 1899 that the tax must be paid upon the testator's death, and that it should then be paid out of the corpus of the estate at the highest applicable rate, with a provision for paying to the remainderman the surplus with interest if it should prove that a lower rate was applicable. Matter of Vander- bilt's Estate, 172 N. Y. 69, 64 N. E. 782. This provision, while fully safeguarding the state's revenues, favored the remainderman at the expense of the life tenant. Matter of Brez's Estate, 172 N. Y. 609, 64 N. E. 958. For under this provision the life tenant lost the income on the full amount deducted to ensure payment of the tax on the contingent remainder; and the remainderman received from the state, with interest, such part thereof as proved not to be required for the ultimate payment of the tax. Thereupon some relief to the life tenant was afforded by chapter 800 of the Laws of 1911. But it was not until the act of 1925 here challenged provided for appraisal of the remainder as stated, that the Legislature succeeded in devising a means of laying the tax which operated justly as between life tenant and remaindermen and safeguarded the state's revenues.

First. The contention that the method of taxation prescribed violates the due process clause rests upon the assertion that in...