Sherman v. State (In re McKennan's Estate)

• Decision Date: 10 May 1910
• Citation: 126 N.W. 611,25 S.D. 369
• Parties: In re McKENNAN'S ESTATE. SHERMAN et al. v. STATE.
• Court: South Dakota Supreme Court

25 S.D. 369

126 N.W. 611

In re McKENNAN'S ESTATE.SHERMAN et al.

v.STATE.

Supreme Court of South Dakota.

May 10, 1910.

Appeal from Circuit Court, Minnehaha County.

In the matter of the assessment of an inheritance tax upon the estate of Helen G. McKennan, deceased. From an order of the Circuit Court on Appeal from the County Court, declaring the estate subject to the tax, E. A. Sherman, executor, and others, appeal. Reversed, with directions.

Haney, J., dissenting.Boyce & Warren, Aikens & Judge, and Sioux K. Grigsby, for appellants.

S. W. Clark, Atty. Gen., and Alpha F. Orr, State's Atty., for the State.

WHITING, P. J.

This action was brought to test the constitutionality of chapter 54 of the Session Laws of 1905, being the act commonly known as the “inheritance or succession tax law.”

The will of one Helen G. McKennan was, on the 13th of October, 1906, admitted to probate by the county court of Minnehaha county. The provisions of such will were set forth in certain findings of fact made by such county court, which findings will be hereinafter referred to. It appears that in September, 1907, the executor of, and trustee under, the above-mentioned will, learning that the county court was about to appoint an appraiser under the provisions of the above-mentioned law in order to have the property of the estate appraised for the purpose of assessing the tax under such law, presented to such court a petition setting forth the facts hereinafter stated, and, claiming that, under such facts, the property of such estate was exempt from taxation under said inheritance tax law, asked the court to refrain from the appointment of an appraiser, and also asked the court to adjudge that certain lands conveyed to the city of Sioux Falls and to the First Congregational Church were not part of such estate. The court, in pursuance of such statute, issued a citation to all the parties interested asking them to show cause why such property should not be appraised and the inheritance tax imposed upon such property. In answering such order, the interested parties raised, among others, the questions hereinafter discussed. A stipulation as to the value of the several parts of the estate was entered into, and thus the necessity for appointment of appraiser was waived. The said county court appraised the estate and made findings of facts and conclusions of law.

Such findings of fact, so far as they are material, are, in substance, as follows: The deceased left a will which had been duly admitted to probate. An executor had been appointed, had qualified, and letters had issued to him. On September 6, 1906, the said Helen G. McKennan, in contemplation of death, had made and executed to the First Congregational Church of Sioux Falls, S. D., a warranty deed to certain lands therein described, which deed was duly acknowledged and delivered in escrow with definite and irrevocable instructions in writing that the same, immediately upon her death, be delivered to the grantee. She died on September 29, 1906. The deed was at once delivered and placed of record. Such church was a religious corporation, and the conveyance so made was made and received with the purpose and intent that such property should be used exclusively for religious and charitable purposes. The church society had since sold such lands for $5,000 and had used the proceeds in the construction of a church building for such society, which building was used exclusively for religious purposes. Said land so conveyed was and now is of the value of $5,000. On said September 6, 1906, in contemplation of death, said Helen G. McKennan made and executed to the city of Sioux Falls, S. D., a deed to a certain tract of land, such deed conditioned that said land was to be used and kept as a public park for the benefit of the public, but with power on the part of the city to sell such part of the tract as should seem to it necessary for the purpose of improving the remainder. This deed was also placed in escrow under the same conditions as the deed above mentioned, and, in the same manner, was delivered and placed of record. Certain parts of said last-mentioned land have been sold under the power contained in such deed. The value of the land was and is $17,000. At the time of her death said Helen G. McKennan left propertyreal and personal, other than above mentioned, to the value of $32,000, some $5,000 of which was money on hand. Certain claims have been filed against the estate, which claims are in litigation and not yet adjudicated. The will provided that, after the payment of legacies and debts, the remainder of the property should be devised to one Sherman, who was the executor, to be held by him in trust, to be sold and converted and the proceeds therefrom paid over to certain trustees, for the purpose of constructing and maintaining a public hospital in the city of Sioux Falls, S. D., which said trust was one exclusively for charitable purposes.

As conclusions of law, the court found that the property conveyed to the church society was subject to tax on the valuation of $4,900 at the rate of 4 per cent.; that the property conveyed to the city was subject to a tax on a valuation of $15,900 at the rate of 6 per cent.; that the real estate devised in trust was subject to a tax on a valuation of $31,380 subject to a reduction by allowance of further claims, such tax to be at a rate of 8 per cent.; that the church society was liable for the payment of the tax against the property conveyed to it; that the city was liable for the tax on its property, and the executor and trustee in his official capacity liable for the tax on the residue. Decree was entered in conformity with such findings and conclusions; said decree containing a direction and an order to the church society and to the city to pay the tax to the county treasurer, and a direction and order to the trustee to retain the tax on the residue until the claims against the estate should be adjudicated.

The city, church society, executor, and trustees appealed to the circuit court upon questions of both law and fact. In the circuit court it was stipulated that the case be determined upon the findings made by the county court, which findings were, in accordance therewith, adopted by the circuit court. The court made conclusions similar to those of the county court, except that it directed the sale of the lands, conveyed to the city, for the payment of the tax, and further provided, in relation to the tax upon the residue in the hands of the executor and trustees, that, if the claims thereafter allowed should reduce the net amount in his hands below $20,000 but in excess of $10,000, they should pay the tax at a rate of 6 per cent., and, if reduced to $10,000, at a rate of 4 per cent., and a decree was entered in accordance with such findings and conclusions, from which decree appeal was taken to this court.

Several assignments of error are found in the record herein, nearly all of which are based upon the alleged unconstitutionality of the law herein involved. Several grounds of unconstitutionality are set forth rendering it necessary to consider fully the said law.

Our law is, in a general way, similar to those of many other states; but it appears to have been copied after that of the state of Illinois. The parts material for our consideration in discussing the assignments hereinafter discussed provide for a division of the beneficiaries into three classes: First, those closely related to the deceased, and as to this class the rate of tax shall be $1 on every $100 of the clear market value of the property received by each person, with a proviso that, in case of estates of $20,000 or less transferred to the widow of the deceased, or of $5,000 to any one of the other parties named in such class, the same shall be exempt from such tax, and in any case there shall be such exemptions allowed from the estate passing to such parties; second, those persons more remotely related to the deceased, and, as to this class, the tax shall be $2 on every $100 of the clear market value of the property received by each person, with a proviso that there shall be an exemption from such tax in favor of each of said persons of $500; third, all beneficiaries not included in either of the others, and, as to this class, the law provides that the rate shall be as follows: “On each and every one hundred dollars of the clear market value of all property and at the same rate for any less amount on all estates of ten thousand dollars and less, four dollars; on all estates of over ten thousand dollars, and not exceeding twenty thousand dollars, six dollars; on all estates over twenty thousand dollars and not exceeding fifty thousand dollars, *** eight dollars; and on all estates over fifty thousand dollars, ten dollars. Estates of the clear market value of one hundred dollars, transferred to each of the parties mentioned in the last-named class, shall be exempt.”

Before entering upon a discussion of the propositions raised by appellants' assignments, it is well to consider briefly the intrinsic nature of this method of raising revenues. The interpretation of, and construction to be put upon, the class of legislation now before us, has demanded the attention of the courts in probably the great majority of the states as well as that of the federal courts. This has been true especially in the more recent years, which fact might lead one to suppose that this is some new method of taxation. Such, however, is far from the fact. An investigation shows that such method of raising revenue has been recognized and enforced for centuries, and especially in European countries; and that in this country it is found in state legislation as far back as the early part of the nineteenth century. Though it has not generally been resorted to by the states until quite recently, the federal government has had legislation of this nature for nearly or quite a half century....