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tax should be imposed in the same location as the general property tax.

As this paper has now been extended beyond my original intention, I am not attempting to outline a procedure for dealing with securities of corporations having property in many states, such as the Western Union Telegraph Company. The Wisconsin proportion in that company is very small, only 2.40%. On a transfer of less than $50,000 it is not worth attention. These are details touching only a trifling fraction of property passing at death. They can be taken care of after the big problems are settled.

There is an old stanza with these lines:

"If half the wealth bestowed on camps and courts

Were given to redeem the human mind from error,
There were no need for arsenals and forts."

So it is with this problem. If half the mental energy given to beating some other state out of taxes to which it is equitably entitled and to beating estates out of two, three or more taxes, were given to devising inexpensive ways of reaching only once that very small fraction of the nation's property represented by interstate stocks and bonds, we should receive great praise from the widows and orphans, executors and administrators, and the courts.

CHAIRMAN MCKENZIE: The subject is now open for general discussion.

CAPTAIN W. P. WHITE: I can see no justice in a tax that is imposed upon the estate of a husband and wife when the husband dies, and I can see still less justice when the wife dies. Husband and wife may own a great deal of property in common. It may be a joint production of both; it may be the production of one; then one of these individuals dies, and I don't see anything but the strong arm of the state stepping in and saying that it has a right to part of that property, because one of the owners has departed. The device of inheritance taxes is perhaps necessary in cases where the tax applies at the death of an individual who bore very little tax during life, but it never was reasonable as between husband and wife. The rule in regard to the situs of real estate and tangible personal property is all right, but intangible personal property ought not to be taxed, except at situs. The expense incident thereto takes away from the heirs a great part of their property, and it is not fair. It destroys the initiative; the incentive for saving, which men inherently feel in protecting the lives or welfare of their children. If we are going to have such laws, we are going to devise methods of escaping them. You cannot touch it when we give it away in such form that the law cannot reach it. We can sell our property for less than it is worth, and that will be

done. If you want to destroy property, go ahead with your inheritance taxation. The wealth of Great Britain has been destroyed by that very simple method, and Great Britain, instead of being a very wealthy nation, is gradually going down, until she will be one of the poorest nations on the face of the globe, due to the fact that they have inheritance taxation, and they will have taxed their wealth off the face of the earth.

CHAIRMAN MCKENZIE: Any other discussion?

ALBERT HANDY: Mr. Chairman, just a few words. I am very much impressed indeed by Mr. Harrington's plan. When he submitted it to me, I wrote him that he should present it to this conference. I thought it an excellent plan, if carried to a logical conclusion. In the event that it is done, it must be done by legislation, but in order that legislation shall prevail, constitutional safeguards must be broken down. If, for instance, we allow the State of Wisconsin, we will say, to tax stock of a New York corporation, owned by a resident of the State of New Jersey, merely because that corporation owns property in the State of Wisconsin, then you are destroying constitutional safeguards which prohibit the taxation of property which has no situs whatever in the state. It must be clearly understood that the corporation and the property are two separate and distinct entities. A right of ownership in a corporation is not similar to a partnership right. It is simply an intangible right to receive at certain times certain dividends from the corporation, and in the event that the corporation is dissolved, to have a proper distributive share of the assets of the corporation. The owner of the stock hasn't a particle of right in any particular property owned by the corporation; and you might just as well say that if ninety-five per cent of the property of a corporation was located in Wisconsin, and five per cent in Ohio, the ownership of the five per cent of stock is vested entirely and completely in Ohio. That is my sole objection to this proposal of Mr. Harrington's; that he will do away with a very important constitutional safeguard, which is necessary in order to protect us from undue taxation.

In that connection Mr. Harrington remarked that in New York they were beginning to see the light, and that in 1921 they passed a law which would permit the taxation of stock of a foreign corporation owned by a non-resident decedent, when that corporation owned real property in the state. I want to add in that connection, that that statute has been declared unconstitutional by the appellate division of our supreme court. That makes five states of the Union which have declared the taxation by one state of stock of a foreign corporation, owned by a non-resident decedent, simply because that corporation owns property in the state, to be invalid

and unconstitutional, and those are the only five states in which it has reached the highest court of the state. I thank you, gentlemen. (The statement by Mr. Handy, referred to by Mr. Belknap, is as follows.-Ed.)



Prentice-Hall Inheritance Tax Service

In this connection it may be stated that the right of the state to impose an inheritance tax exists only in cases where there is jurisdiction. This problem of jurisdiction may be considered under three heads. One, jurisdiction over the person of the decedent; two, jurisdiction over the person of the beneficiary; three, jurisdiction over the property. The first two factors may be eliminated from consideration and the issue then resolves itself into a question of whether the state has such jurisdiction over the property of the decedent as to enable it to impose a tax.

The limitations upon the taxing power are these: The state may not tax directly or indirectly real property located beyond its borders, even though owned by its citizens, nor may it impose a tax on personal property without the state, owned by a non-resident. We are then confronted with the question as to the status of the stock owned by a non-resident decedent in a foreign corporation having property within the state. It appears that an inheritance tax may be supported upon two theories-either it is an excise tax. imposed upon the privilege of transmitting or receiving property upon the death of the owner or it is a regulation of the right to take property by devise or descent, and hence any regulation, whereby the privilege or right is made subject to conditions or limitations is justified. What privilege then is granted by the state in which the property of the foreign corporation, the stock of which is owned by a non-resident decedent and which passes to non-resident beneficiaries, is located? Unless some right or privilege is granted, there is no jurisdiction to levy the tax. It has been contended, in support of the tax, that, as the price for the privilege of doing business or owning land in the state, a foreign corporation may be burdened with any condition to which a domestic corporation might be subjected. Doubtless many cases may be cited in support of the general proposition involved, but a careful examination in these cases will clearly indicate that they are not

in point. Even a cursory analysis shows that the tax is not a limitation placed upon the corporation, but upon its shareholders, and therefore the statement that corporations are not citizens and, as such, entitled to the full privileges of citizens of the several states within the meaning of article 4, section 2, of the federal Constitution has no relevancy; in fact, the persons subjected to tax, being citizens, would unquestionably be entitled to the constitutional protection. It is, for the sake of argument, not denied that the state might require a report of all transfers from the estates of decedents to the beneficiaries or legal representatives, or possibly even require the corporation to maintain a duplicate transfer register in the state; in fact, North Carolina does require certain information of this nature to be furnished by all foreign corporations doing business within the state, but it is necessary to draw a clear line of demarcation between regulation of the corporation and regulation of the individual stockholders of that corporation. The one is but a creature of the law and has no legal rights, except those conferred upon it by statute; the other is a citizen, entitled to the protection and privileges with which he has been hedged around by the constitution.

There is no analogy between the imposition of a franchise tax on a foreign corporation owning property or doing business in the state, and the imposition of an inheritance tax upon the transfer of stock of the same corporation from a non-resident decedent to a non-resident beneficiary. The question is not a novel one in our courts. Massachusetts, Illinois and Idaho have all held that such a tax was beyond the jurisdiction of the state to impose. In Massachusetts the question arose as to whether or not reciprocal exemp tions might be allowed, in a case where Michigan had imposed a tax upon the stock of a foreign corporation transferring stock of a foreign corporation owned by a non-resident decedent, where the corporation owned property in Michigan. The supreme court of Massachusetts held that this was an invalid impost (Welch v. Burrell, Treasurer, 223 Mass. 87). In Illinois it has been decided in several cases that such a tax was illegal (People v. Dennett, 276 Ill. 43; Oakman v. Small, 282 Ill. 360. In Idaho the same question arose in the case of State ex rel. Peterson v. Dunlap (156 Pac. 1141), which involved the Harriman estate. In this case the tax was attempted to be imposed by reason of the fact that the Harriman estate owned stock of the Union Pacific Railroad Company, which corporation in turn owned stock in the Oregon Short Line Railroad Company, both of which were foreign corporations. The latter corporation, however, had property in Idaho. The court held that such a tax might not be imposed. In two of the cases above cited there was no specific statute providing that the imposition of a tax upon the stock of a foreign corporation, owned by a

non-resident decedent, when such corporation owned property in the taxing state. Such a statute, however, exists in Oklahoma, and it was decided by the supreme court of that state, within the last year, that this statutory provision could not be upheld (Harkness' Estate, 204 Pac. 911). A similar ruling has been made by the appellate division of the New York supreme court (McMullen's Estate, 192 N. Y. Supp. 49). Two cases are now ending - one in Wisconsin (Taylor v. Dane Co., U. S. Dist. Ct.), the other in North Carolina (R. I. Trust Co. v. Watts, Wake County Superior Court) -to test the validity of such a provision.

It is then to be noted that the invalidity of such a provision has been asserted by every court of appellate jurisdiction, where the issue has been tried, and it cannot be doubted that its unconstitutionality will finally be declared by the United States Supreme Court.

JOSEPH S. MATTHEWS of New Hampshire: I think we all sympathize with Mr. Harrington's desire to simplify the administration of the inheritance tax law. That is what we are all looking for. but it seems to me that his plan, under the laws as they now exist, while it may be very desirable, is legally impossible. The courts of two states have held practically to that effect. The New Jersey court has held that the state of New Jersey has not the power to tax the passing of personal property of a non-resident from the deceased to his heirs or legatees; that when a tax is assessed upon the personal property of non-residents, it is assessed upon the right to take property away from the state, and while it may be called a legacy tax, it is not such in fact; it is simply a tax upon the right of the executor to take the property out of New Jersey and remove it to the state of domicile.

In my own state the court has held that the transfer taxes levied upon the property of our residents by other states cannot affect the distribution of the property in our state, otherwise than to reduce the amount of property in the hands of the executors for distribution; that the laws of the other states have no force in New Hampshire as regards the distribution of estates, or the taxes that shall be levied upon the legatees in the course of such distribution. In other words, if New Jersey assesses a tax upon personal property in that state belonging to a resident of New Hampshire passing by will, because some of the cash legacies would be taxable under the laws of New Jersey, those legatees are not charged with that tax when the distribution is made in New Hampshire, because the New Hampshire court holds that the law of New Jersey has no force in New Hampshire, but those legatees receive their legacies in full, and the charge falls upon the residuary legatee, simply because the total estate is reduced by the amount of the tax and there is so much less to go to the residuary legatee.

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