Untermyer v. State Tax Commission

• Decision Date: 09 October 1942
• Docket Number: 6359
• Citation: 129 P.2d 881,102 Utah 214
• Court: Utah Supreme Court
• Parties: UNTERMYER et al. v. STATE TAX COMMISSION et al

129 P.2d 881

102 Utah 214

UNTERMYER et al. v. STATE TAX COMMISSION et al

No. 6359

Supreme Court of Utah

October 9, 1942

Appeal from District Court, Third District, Salt Lake County Clarence E. Baker, Judge.

Action by Alvin Untermyer, and others, executors of the estate of Samuel Untermyer, deceased, against the State Tax Commission of Utah and another to recover inheritance taxes paid under protest. From a judgment for plaintiffs, defendants appeal.

Reversed and remanded.

Grover A. Giles, Atty. Gen., Calvin L. Rampton, Deputy Atty. Gen and Grant A. Brown, J. Lambert Gibson, and Garfield O Anderson, all of Salt Lake City, for appellant.

Critchlow & Critchlow, George A. Critchlow and Bert A. Lewis, all of Salt Lake City, for respondents.

LARSON Justice. McDONOUGH, J., WOLFE, Justice, concurring. MOFFAT, C. J., concurs in the result. PRATT, J., on leave of absence.

OPINION

LARSON, Justice.

This cause was previously before this court, Aldrich v. State Tax Comm., 102 Utah 226, 116 P.2d 923, where the facts are fully stated. Under compulsion of the decision of the United States Supreme Court in First National Bank v. Maine, 284 U.S. 312, 52 S.Ct. 174, 76 L.Ed. 313, 77 A. L. R. 1401, this court held that the tax infringed the due process clause of the Federal Constitution, and affirmed judgment against the tax commission. On certiorari the United States Supreme Court overruled the First National Bank v. Maine case, reversed the judgment herein and remanded the cause to this court for further proceedings not inconsistent therewith. State Tax Comm. v. Aldrich, 316 U.S. 174, 62 S.Ct. 1008, 86 L.Ed. [1358] . . . We are now called upon to make an examination and formal ruling on the questions as to whether, under the statute and the Constitution of Utah, the commission is entitled to exact the tax. The following questions call for answer.

1. Is the devolution here involved taxable within the terms of the Utah Inheritance Tax Law? Or more specifically stated: Was the property devolved, to wit, the property represented by the shares of Union Pacific stock, "within the jurisdiction of this state" at the time of decedent's death?

2. Does the tax on this devolution violate the due process clause, Section 7 of Article I of the state constitution?

3. Does the tax on the devolution violate the uniformity clause, Section 24 of Article I of the state constitution?

We will consider them in order.

1. Untermyers contend: (a) That the devolution is not within the terms of the Utah Inheritance Tax Law, because the certificates representing the shares of Union Pacific stock which passed by the devolution were not physically within the State of Utah; (b) That if it be held that the phrase of the statute, "within the jurisdiction of this state" be held to have been intended to include such property as this, then the statute was amended by implication to exclude it by the enactment in 1927 of the Uniform Stock Transfer Law. Title 18, Chapter 3, R. S. U. 1933.

That the holder of stock in a domestic corporation has a species of intangible property within the state of incorporation which is subject to taxation by such state is well settled by the authorities. Where a state statute purports to exact a tax in respect to devolution of all property within the state, it is generally held that the tax is payable on stock in a domestic corporation held without the state by a non-resident even in the absence of any element other than the domestic character of the corporation to give the property a situs within the state. McDougald v. Lilienthal, 174 Cal. 698, 164 P. 387, L.R.A. 1917F, 267; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743, 25 L.R.A., N.S., 384; Greves v. Shaw, 173 Mass. 205, 53 N.E. 372. The Massachusetts court stated in the case last cited:

"There can be no doubt that stock in corporations organized under the laws of this commonwealth * * * is property within the jurisdiction of the commonwealth, within the meaning of this statute [Cases cited] Such a corporation, being in a sense a citizen of this state, and having an abiding place here akin to the domicile of a natural person, is subject to the jurisdiction of the commonwealth, and is in fact within the commonwealth. The stockholders are the proprietors of the corporation, which is itself the proprietor of the property owned and used for the ultimate benefit of the stockholders. While the corporation has a full and complete legal title to the corporate property, its ownership is in a sense fiduciary; for, on winding up its affairs, the surplus after the payment of debts must be divided among the stockholders. * * * That the certificates in the present case were in the state of New York at the time of the death of the testatrix is immaterial."

State ex rel. Graff v. Probate Court, 128 Minn. 371, 150 N.W. 1094, L.R.A. 1916A, 901; In re Bronson's Estate, 150 N.Y. 1, 44 N.E. 707, 55 Am. St. Rep. 632, 34 L.R.A. 238; Nickel v. State, 43 Nev. 12, 45, 177 P. 409, 185 P. 565, affirmed 256 U.S. 222, 41 S.Ct. 467, 65 L.Ed. 900; Memphis Trust Co. v. Speed, 114 Tenn. 677, 88 S.W. 321. The principle recognized by this court in Larson v. MacMiller, 56 Utah 84, 189 P. 579. See, also, Maxwell v. Bugbee, 250 U.S. 525, 40 S.Ct. 2, 63 L.Ed. 1124; Frick v. Pennsylvania, 268 U.S. 473, 45 S.Ct. 603, 69 L.Ed. 1058, 42 A. L. R. 316; Rhode Island Hospital Trust Co. v. Doughton, 270 U.S. 69, 46 S.Ct. 256, 258, 70 L.Ed. 475, 43 A. L. R. 1374, where the court said:

"The tax here is not upon property, but upon the right of succession to property; but the principle that the subject to be taxed must be within the jurisdiction of the state applies as well in the case of a transfer tax as in that of a property tax. A state has no power to tax the devolution of the property of a nonresident, unless it has jurisdiction of the property devolved or transferred. In the matter of intangibles, like choses in action, shares of stock, and bonds, the situs of which is with the owner, a transfer tax, of course, may be properly levied by the state in which he resides. So, too, it is well established that the state in which a corporation is organized may provide, in creating it, for the taxation in that state of all shares, whether owned by residents or nonresidents. [Cases cited"]

And again at 270 U.S. 69 at page 83, 46 S.Ct. 256 at page 259, 70 L.Ed. 475, 43 A. L. R. 1374, the court said, referring to jurisdiction for the purpose of taxing the devolution of the shares of stock:

"That is determined by the laws of Rhode Island where the decedent owner lived or by those of New Jersey, because the shares have a situs in the state of incorporation."

See, also, Blackstone v. Miller, 188 U.S. 189, 23 S.Ct. 277, 47 L.Ed. 439; Baker v. Baker, Eccles & Company, 242 U.S. 394, 37 S.Ct. 152, 61 L.Ed. 386; Corry v. Baltimore, 196 U.S. 466, 25 S.Ct. 297, 49 L.Ed. 556; Graves v. Schmidlapp, 315 U.S. 657, 62 S.Ct. 870, 86 L.Ed. [1097] . . .; State of Wisconsin v. J. C. Penney Co., 311 U.S. 435, 61 S.Ct. 246, 85 L.Ed. 267, 130 A. L. R. 1229. That this stock had a taxable interest in Utah was recognized by the Supreme Court of the United States in its decision in the instant case, supra. See, also, annotation in 42 A. L. R. 365.

The provisions of our Inheritance Tax Law pertinent to this problem are found in Sections 80-12-2 and 80-12-3, R. S. U. 1933, as amended. These provisions have existed in our Inheritance Tax Law from the time it was first enacted. The material portions of these sections read as follows:

80-12-2: "A tax equal to the sum of the following percentages of the market value of the net estate shall be imposed upon the transfer of the net estate of every decedent, whether a resident or nonresident of this state: * * *."

80-12-3: "The value of the gross estate of a decedent shall be determined by including the value at the time of his death of all property, real or personal, within the jurisdiction of this state, and any interest therein, whether tangible or intangible, which shall pass to any person, in trust or otherwise, by testamentary disposition or by law of inheritance or succession of this or any other state or country, or by deed, grant, bargain, sale or gift made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after his death."

It is thus seen that the statute contemplates the taxation of every conceivable type of interest within the jurisdiction of the State of Utah which is transferred as a result of the death of the owner.

It follows that the devolution here involved is subject to tax unless the enactment of the Uniform Stock Transfer Law, Chapter 55, Laws of Utah 1927, p. 82, in 1927, by necessary implication modified the Inheritance Tax Law so as to exclude such stocks from the tax. In this connection it is interesting to note that in the Revision of 1933, the legislature while readopting the Uniform Stock Transfer Law Title 18, Chapter 3, R. S. U. 1933, also re-enacted without change the Inheritance Tax Statute Title 80, Chapter 12, R. S. U. 1933.

The argument is that by the adoption of the Uniform Stock Transfer Law the state relinquished its power and jurisdiction over shares of stock where neither the owner nor the certificate is within its borders, and so lost its power to tax the transfer or devolution. Counsel argue that since the Uniform Stock Transfer Act permits attachment or levy of execution on stock only by seizure of the certificate, the stock or interest of the stockholder in the corporation does not exist independent of the certificate. Therefore it can have no situs except the situs of the certificate. The certificate thus actually becomes the property, and not the evidence or proof...