Sammond v. Wis. Tax Comm'n (In re Nieman's Estate)

• Decision Date: 10 January 1939
• Citation: 283 N.W. 452,230 Wis. 23
• Parties: In re NIEMAN'S ESTATE. SAMMOND et al. v. WISCONSIN TAX COMMISSION et al.
• Court: Wisconsin Supreme Court

230 Wis. 23

283 N.W. 452

In re NIEMAN'S ESTATE.SAMMOND et al.

v.WISCONSIN TAX COMMISSION et al.

Supreme Court of Wisconsin.

Jan. 10, 1939.

Appeal from a judgment of the County Court of Milwaukee County; M. S. Sheridan, Judge.

Affirmed.

Proceedings for determination of the inheritance tax on the estate of Lucius W. Nieman, deceased. From the judgment of the court fixing the tax upon stock of The Milwaukee Journal Company bequeathed by the will of the deceased the beneficiaries of the stock appeal.

Lucius W. Nieman died October 1, 1935. By his will he bequeathed to Geo. P. Miller and his successor trustees 1,100 shares, a controlling interest, of the stock of The Journal Company, a corporation, publisher of The Milwaukee Journal, a newspaper of which the testator had for many years owned the controlling interest and the policy of which he had controlled and directed. The Journal Company besides owning the newspaper owned the radio station, W.T.M.J. The will directed the trustees to sell the stock “as soon as practicable,” but within five years (1) after the death of his wife or (2) after his wife and niece Faye McBeath should have directed its sale in writing, and in making such sale the trustees were not to be bound to sell the stock to the persons or corporation who might bid or be willing to offer the highest price therefor, but might sell the same to such persons or corporations as in the judgment of the trustee would “carry out the ideals and principles” which the testator had always attempted to maintain and support during his lifetime in the conduct of the paper. The trustee might in his or their discretion sell the stock for cash or credit or both and upon such terms as he or they might determine. In giving the trustees the powers conferred the testator had in mind, as declared in his will, “the peculiar situation of a corporation conducting a newspaper.” The Milwaukee Journal had, the will declared, “public responsibilities which it ought to maintain, and for the carrying out of the purposes of such a newspaper and the fulfillment of its public responsibilities, as well as for the efficient management of the corporation owning the newspaper continuity of control is essential.”

Upon the sale of the stock the trustees were directed to hold the entire net proceeds during the life of his wife, Agnes Wahl Nieman, if the sale was made during her life, and at her death, or if the stock should not then be sold, to pay or transfer one-half thereof to her heirs, assignees or personal representatives, and one-half to Faye McBeath, or in case of her death to her heirs, personal representatives and assigns.

Mrs. Nieman died February 5, 1936, before the stock was sold, and Edwin S. Mack and First Wisconsin Trust Company were appointed executors of her will. By her will she made the President and Fellows of Harvard College her residuary legatee and only the beneficiaries are interested in the sale price of the stock. Geo. P. Miller died before the testator and the First Wisconsin Trust Company and Frederic Sammond were appointed administrators with the will annexed of the Lucius W. Nieman estate, and the Trust Company and Edwin S. Mack were appointed trustees of the trust created by his will. They will be hereinafter referred to as the “trustees.”

The trustees began investigation as to the value and negotiations for the sale of the stock shortly after the death of the testator, and on March 2, 1936, contracted, subject to the approval of the court, to sell the whole 1,100 shares as a single transaction, 650 to The Journal Company and 450 to Faye McBeath at an agreed price of $3,500 per share. On application to the court this sale was approved after full hearing on December 16, 1936, by the court, Judge McDonald presiding. The court then adjudged that price to be “a fair and reasonable price to be paid by purchasers who, in the judgment of said trustees, will discharge those public responsibilities in the maintenance of a newspaper of independence and force devoted to those ideals for the civic and moral life of the community, and in carrying out of those ideals and principles which are contemplated by said will.” The state or the inheritance tax authorities were not party to the proceedings before Judge McDonald. When the inheritance tax proceedings came on before Judge Sheridan, counsel for the beneficiaries took the position that the base of the tax computation was what the stock would sell for in view of the restrictions upon its sale, that is, not what the highest bidder would pay, but what it would sell for to persons who would continue the policies of Mr. Nieman in the conduct of the paper and carry out the ideals and fulfill the responsibilities of a newspaper as declared in his will, and that in no case could the value for taxing purposes exceed the $3,500 per share at which the stock was actually sold; that the beneficiaries should be taxed at most on what they actually received or what the stock might have been sold for under the restricted field of buyers as limited by the will. The state took the position that the market value of the stock at the time of the testator's death should be taken as the basis of taxation; that the testator, by restricting the field of purchasers, could not deprive the state of the right given by the statute to impose the tax upon the market value of the stock at the time of the death. The trial court upheld the general contention of the state and fixed the value of the stock, upon the evidence received at the hearing, at $4,500 per share and imposed the tax accordingly. The tax was computed on the value fixed by the court without deducting the amount of the federal estate tax paid on the stock. Other material facts are stated in the opinion.

Miller, Mack & Fairchild, J. G. Hardgrove, and Shea & Hoyt, all of Milwaukee, for appellants.

Orland S. Loomis, Atty. Gen., N. S. Boardman, Asst. Atty. Gen., Neil Conway, Inh. Tax Counsel, of Madison, and Albert B. Houghton, Public Adm'r, of Milwaukee, for respondents.

FOWLER, Justice.

As appears from the preceding statement the case involves an inheritance tax which was computed on the market value of stock transferred by the will of the testator at the time of the testator's death as determined by the court and without deducting the amount of the federal estate tax imposed on the same transfer of the stock. The contention of the appellants is that the tax should have been computed on the value of the property actually received by the beneficiaries, because one cannot be taxed on anything he does not receive. On this hypothesis, the appellants rest two propositions,-that the beneficiaries of the stock transfer cannot be taxed on the amount of the federal tax because they never received it and that to hold otherwise would render the inheritance tax statute void as depriving the beneficiaries of property without due process and denying them equality before the law.

The tax involved was imposed pursuant to sec. 72.01, Stats., which imposes a tax “upon any transfer of property, real, personal or mixed, or any interest therein *** (1) when the transfer is by will.” Sec. 72.01 (8), Stats., reads that “The tax so imposed shall be upon the clear market value of such property at the rates hereinafter prescribed and only upon the excess of the exemptions hereinafter granted.”

It was held in 1919 in Estate of Weeks, 169 Wis. 316, 172 N.W. 732, that the valuation to be taken as the basis of computation of the inheritance tax is the clear market value of the inheritance as of the instant of the decedent's death. That ruling has been adhered to ever since, and was reiterated in In re Kootz' Will, Wis., 280 N.W. 672. In the Kootz Case the question was carefully reconsidered. We will not go over any of the matters discussed in the opinions in either of those cases. There is now raised the question of the constitutionality of the statute which we declined to consider directly in the Kootz Case because it was not raised by the appellants therein, although it was urged by counsel for the appellants herein in a brief filed as amici curiae. We will here pass upon the question of constitutionality.

The constitutional argument of appellants' counsel may be briefly stated as follows: No executor or administrator can pay any other debt until the debts due the United States out of the estate are paid; U.S. Code, Title 31, Ch. 6, secs. 191 and 192, 31 U.S.C.A. §§ 191, 192; the estate tax must be paid before the estate is distributed; Title 26, sec. 426 (b); the word “debts” includes taxes; Price v. U. S., 269 U.S. 492, 46 S.Ct. 180, 70 L.Ed. 373; and because the federal estate tax law is constitutional and therefore the supreme law of the land the taxes thereby imposed take precedence over the taxing power of the state. Florida v. Mellon, 273 U.S. 12, 17, 47 S.Ct. 265, 71 L.Ed. 511. Being a debt the federal tax must be deducted just as any other debt of the decedent is deducted. The recipient does not receive the amount of the federal tax any more than he receives the amount of the other debts of the decedent and to tax him on what he does not receive, is not due process.

[1][2][3][4][5]It is quite true that, generally speaking, as illustrated in bankruptcy or receivership proceedings, a tax due from the bankrupt or debtor to the United States is a debt, and so in the federal estate tax proceedings is an income tax or other species of unpaid tax imposed on a decedent by the United States prior to his death. But the federal estate tax statute, Title 26, sec. 413 (b) provides that a state inheritance tax actually paid by a resident of a state may be deducted from the federal estate tax on the inheritance. In the face of this it can hardly be contended that the ruling of Florida v. Mellon, supra, if as stated, so applies as to compel a state to defer the payment of such a tax until after the federal estate tax is paid, or in any way to give...