Shepard v. State

• Decision Date: 12 March 1924
• Citation: 184 Wis. 88,197 N.W. 344
• Parties: SHEPARD ET AL. v. STATE. SHEPARD ET AL. v. HARPER, PUBLIC ADMINISTRATOR.
• Court: Wisconsin Supreme Court

184 Wis. 88

197 N.W. 344

SHEPARD ET AL.

v.STATE.

SHEPARD ET AL.

v.HARPER, PUBLIC ADMINISTRATOR.

Supreme Court of Wisconsin.

Feb. 12, 1924.

Dissenting Opinion March 12, 1924.

Action Consolidated with Appeal from Dane County Court; Hon. A. G. Zimmerman, Judge.

Original action by John A. Shepard and another, as executors of the last will of Annie Rockwell Shepard, deceased, against the state of Wisconsin, to which was joined an appeal from an order in an action by the same plaintiffs against John C. Harper, Public Administrator, directing payment of an inheritance tax. Order appealed from reversed, and judgment entered for plaintiffs.

Original action brought in this court to recover the amount of an inheritance tax paid to the state of Wisconsin by the plaintiffs under protest. Joined with this action is an appeal from an order of the county court of Dane county directing such inheritance tax to be paid. The issues involved in the two proceedings are the same.

The facts necessary to show the questions of substantive law to be decided by the court are as follows: Annie Rockwell Shepard, a resident of New Jersey died in said state in 1921, leaving a will naming plaintiffs as executors. The will was duly probated, and plaintiffs were appointed as executors and qualified as such.

At the time of her death the decedent had no property, real or personal, situated in this state, but she owned a certain number of shares of preferred stock and a certain number of shares of the common stock in the Goodyear Rubber Company, a New York corporation. The Goodyear Rubber Company has its principal place of business in the state of New York, but at the time of the death of the decedent and for a number of years prior thereto it was duly licensed to do and did business in this state, and had personal property therein.

At the time of the death of the decedent the certificate for the above-mentioned shares of stock were in her actual, physical possession in New Jersey, and ever since the qualification of plaintiffs as executors have been and are now in their possession in New Jersey, as executors. The county court found plaintiffs liable for an inheritance tax of $7,147.92 under the provisions of section 72.11, subd. 3, of the Stats. 1921. The amount was paid under protest, and this action was brought to recover it from the state alleging it to have been illegally exacted. Other appropriate allegations showing plaintiffs' compliance with all conditions precedent to maintain the action are contained in the complaint. The state demurred to the complaint on the ground, among others, that it does not state facts sufficient to constitute a cause of action, and plaintiffs, as before stated, appealed from the order directing them to pay the tax.

Crownhart, J., dissenting.Bloodgood, Kemper & Bloodgood, of Milwaukee (Jackson B. Kemper, of Milwaukee, of counsel), for appellants.

Herman L. Ekern, Atty. Gen., Franklin E. Bump, Asst. Atty. Gen., and John Harrington, Inheritance tax counsel, of Madison, for respondents.

Edwin M. Ashcraft, of Chicago, Ill., and Sanborn, Blake & Aberg, of Madison, amici curiæ.

VINJE, C. J. (after stating the facts as above).

The question to be solved is whether this state can lawfully impose an inheritance tax on the transfer of shares of stock, owned and possessed by a nonresident, in a corporation organized and having its principal place of business in another state, but having property and being licensed to do business in this state.

Before proceeding to answer the question it is deemed desirable to state some fundamental and well-established principles of law that will serve to delimit the field of inquiry and to act as landmarks pointing out the path that leads to the correct answer. No attempt will be made to establish the soundness of these principles, because they have been firmly incorporated into the jurisprudence of our state by numerous and unbroken decisions, and are, with few, if any, exceptions the accepted law in state and federal courts alike. By a close adherence to fundamental principles long and circuitous routes that often lead astray may be avoided, and in the light of such principles arguments that seem laden with an obscure potency dissipate like mists before the morning sun. Among such principles involved are these:

[1] (1) An inheritance or succession tax is a tax on the right to receive property from a decedent. It attaches to a person and not to property or to an interest in property, though it is imposed and enforced through a control of the transfer of the property. The only other relation that the property has to it is that its value measures the amount of the tax. Nunnemacher v. State, 129 Wis. 190, 108 N. W. 627, 9 L. R. A. (N. S.) 121, 9 Ann. Cas. 711;Montague v. State, 163 Wis. 58, 157 N. W. 508.

[2][3] (2) The property of a corporation is its property and not that of the stockholders. There is a fundamental difference between the capital of a corporation and its capital stock. The former belongs to the corporation; the latter, when issued, to the stockholders. The former may be either real or personal property; the latter, when issued, is always personal property. See cases and statutes cited, infra.

[4][5] (3) The state must have jurisdiction of the subject-matter of the tax. Such subject-matter is the transfer of title to property from a decedent to another. If the state has nothing to do with such transfer it has no jurisdiction to impose an inheritance tax. Its right to impose the tax springs from its right to prescribe reasonable conditions for permitting and making the transfer. Our state cannot deny the right of transfer altogether, because the right to inherit is held to be a natural right subject only to reasonable restrictions. Nunnemacher v. State, 129 Wis. 190, 108 N. W. 627, 9 L. R. A. (N. S.) 121, 9 Ann. Cas. 711. If the property transferred is in this state, it can tax the right to its succession, because it controls and has jurisdiction of the property to be transferred. Or, when a resident of this state dies possessed of property, the state can impose a tax, because it has jurisdiction of the estate of the deceased. Section 72.01, Stats. 1923. But if the decedent was not a resident of the state at the time of his death and the person receiving it is a nonresident and the property to be transferred is without the state, then there is no right to tax because the subject-matter is beyond the jurisdiction of the court. Either the property transferred must be within the state or the decedent must have died a resident thereof, or some recourse to the courts or laws of our state must be necessary to secure the transfer in order to confer jurisdiction to impose a valid tax. Section 72.01, Stats. 1923.

[6] Applying the facts of the present case to the above-stated principles of judicial and statutory law, we find (1) that the property to be transferred was not within the state; it was in New Jersey; (2) that the decedent was not a resident of this state at the time of her death, but of New Jersey, and the persons to whom transfers were made were nonresidents; (3) that no recourse to the laws of this state was necessary to secure the transfer of the property. New York, the home of the corporation, could authorize the transfer of the stock. Under such circumstances it has uniformly been held that the state acquires no jurisdiction to tax. Bronson's Estate, 150 N. Y. 8, 44 N. E. 707, 34 L. R. A. 238, 55 Am. St. Rep. 632;In re McMullen's Estate, 199 App. Div. 393, 192 N. Y. Supp. 49, affirmed in 236 N. Y. 266, 142 N. E. 518, on the ground that there was no transfer of property within the state; Welch v. Treasurer, 223 Mass. 87, 111 N. E. 774;Tyler v. Dane Co. (D. C.) 289 Fed. 843;Oakman v. Small, 282 Ill. 360, 118 N. E. 775;State v. Dunlap, 28 Idaho, 784, 156 Pac. 1141, Ann. Cas. 1918A, 546;In re Harkness' Estate, 83 Okl. 107, 204 Pac. 911;section 72.01, subds. 1, 2, 3; Gleason and Otis, Inheritance Tax (2d Ed.) 74, 320.

The opinion might well close here, were it not for some contentions made by the state that deserve more detailed consideration.

[7] The Attorney General, in arguing that an affirmative answer to the question is the only correct one that can be given, relies principally upon two statutory provisions, both of which he claims are constitutional enactments. The first is subd. 3 of section 72.11, Stats. 1923, which provides that--

“Where stocks, bonds, mortgages, or other securities of corporations organized under the laws of this state or of foreign corporations owning property or doing business in this state shall have been transferred by a non-resident decedent, the tax shall be upon such proportion of the value thereof as the property of such corporation in this state bears to the total property of the corporation issuing such stocks, bonds, mortgages, or other securities.”

The second is section 226.02, Stats. 1923, formerly section 1770b, providing the conditions upon which foreign corporations may do business within this state.

Our present inheritance law was first enacted in 1903 and has since been amended in various matters. Subdivision 3 quoted above was an amendment made in 1913. It will be noticed that it is essentially a declaration of a rule of computation in certain cases, and not a declaration of a liability to an inheritance tax. The declaration of liability is found in section 72.01, and in the first three subdivisions thereof. They read, omitting exception:

“A tax shall be and is hereby imposed upon any transfer of property, real, personal or mixed, or any interest therein, or income therefrom in trust or otherwise, to any person, association or corporation, * * * within the state, in the following cases, except as hereinafter provided: (1) While a resident of state. When the transfer is by will or by the intestate laws of this state from any person dying possessed of the property while a resident of the state. (2)...