178 U.S. 115
HARRY PLUMMER, as Executor of the Last Will and Testament of Joseph Plummer, Plff. in Err.,
BIRD S. COLER, Comptroller of the City of New York.
Argued February 27, 28, 1900.
Decided May 14, 1900.
Joseph Plummer, a citizen and resident of New York, died October 28, 1898, leaving a last will whereby he bequeathed to Harry Plummer, his executor, $40,000 in United States bonds, issued under the funding act of 1870, in trust, to hold the same during the lifetime of Ella Plummer Brown, daughter of the testator, and to pay the income thereof to her during her life, and at her death to divide the same between and amongst her issue then living.
The value of this life interest was computed by the appraisers at the sum of $16,120, and a tax of $161.20 was imposed thereon by the surrogate of the county of New York. From this appraisal and the order imposing the tax an appeal was taken to the surrogate's court of the county and state of New York, where the following stipulation was filed:
On December 22, 1899, the surrogate's court affirmed the appraisal and the order imposing a tax. Thereupon Harry Plummer, executor, appealed to the appellate division of the supreme court of the state of New York, which court on January 5, 1900, affirmed the order of the surrogate and the decree of the surrogate's court. From this decree of the appellate division of the supreme court an appeal was taken to the courtof appeals of the state of New York, where, on January 8, 1900, the proceedings and order of the surrogate and the decree of the appellate division were affirmed.
In the notice of appeal to the surrogate's court and in that of the appeal to the court of appeals the grounds of appeal were stated to be the invalidity of the statute of New York purporting [178 U.S. 115, 117] to impose a tax upon a transfer by legacy of bonds of the United States, and the invalidity of the statute of the state of New York and of the authority exercised thereunder by the appraiser and the surrogate, in so far as United States bonds were concerned. And the appellant specially set up and claimed a title, right, privilege, and immunity under the Constitution of the United States, and under the statute of the United States in respect to the exemption of said bonds from state taxation in any form.
On January 9, 1900, a writ of error was sued out from this court. sued out from this court.
Messrs. William V. Rowe, Treadwell Cieveland, Horace Russell, and Evarts, Choate, & Beaman for plaintiff in error.
Messrs. Jabish Holmes, Jr., and Edgar J. Levey for defendant in error.
Mr. justice Shiras delivered the opinion of the court:
In this case we are called upon to consider the question whether, under the inheritance tax laws of a state, a tax may be validly imposed on a legacy consisting of United States bonds issued under a statute declaring them to be exempt from state taxation in any form.
It is not open to question that a state cannot, in the exercise of the power of taxation, tax obligations of the United States. Weston v. Charleston, 2 Pet. 449, 7 L. ed. 481; New York ex rel. Bank of Commerce v. Commissioners of Taxes, 2 Black, 620, 17 L. ed. 451; Home Ins. Co. v. New York, 134 U.S. 598 , 33 L. ed. 1029, 10 Sup. Ct. Rep. 593.
So, likewise, it is settled law that bonds issued by a state, or under its authority by its public municipal bodies, are not taxable by the United States. Mercantile Bank v. New York, 121 U.S. 138 , 30 L. ed. 895, 7 Sup. Ct. Rep. 826; Pollock v. Farmers' Loan & T. Co. 157 U.S. 429, 583 , 39 S. L. ed. 759, 820, 15 Sup. Ct. Rep. 673.
The reasoning upon which these two lines of decision proceed is the same, namely, as was said by Mr. Justice Nelson, in The Collector [178 U.S. 115, 118] v. Day, 11 Wall. 113, 124, sub nom. Buffington v. Day, 20 L. ed. 122, 126: 'The general government and the states, although both exist within the same territorial limits, are separate and distinct sovereignties, acting separately and independently of each other within their respective spheres. The former in its appropriate sphere is supreme; but the states within the limits of their powers not granted, or, in the language of the Tenth Amendment, 'reserved,' are as independent of the general government as that government within its sphere is independent of the states;' and, as was said by Mr. Chief Justice Fuller, in Pollock v. Farmers' Loan & T. Co. 157 U.S. 537 , 39 L. ed. 763, 15 Sup. Ct. Rep. 673: 'As the states cannot tax the powers, the operations, or the property of the United States, nor the means which they employ to carry their powers into execution, so it has been held that the United States have no power under the Constitution to tax either the instrumentalities or the property of a state.'
As, then, for the reasons advanced and applied in the previous cases, it is not within the power of a state to tax Federal securities, it was not necessary for Congress, in order to secure such immunity, to declare in terms, in the act of July 14, 1870, and on the face of the bonds issued thereunder, that the principal and interest were exempt from taxation in any form by or under state, municipal, or local authority. Such a declaration did not operate to withdraw from the states any power or right previously possessed, nor to create, as between the states and the holders of the bonds, any contractual relation. It doubtless may be regarded as a legitimate mode of advising purchasers of such bonds of their immunity from state taxation, and of manifesting that Congress did not intend to waive this immunity, as it had done in the case of naio nal banks, which are admittedly governmental instrumentalities.
With these concessions made, we are brought to the pivotal question in the case, and that question is thus presented in the second point discussed in the brief filed for the plaintiff in error. 'If the question of the right of the state to impose the tax now in question be considered merely with reference to the inherent lack of power of the state to impose such a tax, because of the provisions of the Constitution of the United States bearing upon [178 U.S. 115, 119] that question, without any aid from the statute of the United States under which these bonds were issued, or the exemption clause contained in the bonds, we conceive it to be entirely clear that the tax in question is unconstitutional, because impairing and burdening the borrowing power of the United States.' Or, as stated elsewhere in the brief: 'The states have no power to impose any tax or other burden which would have the effect to prevent or hinder the government of the United States from borrowing such amounts of money as it may require for its purposes, on terms as beneficial and favorable to itself, in all respects, as it could do if no such tax were imposed by the state.'
It will be observed that these propositions concede that the tax law of the state of New York in question does not expressly, or by necessary implication, propose to tax Federal securities. It is only when and if, in applying that law to the estates of decedents, such estates are found to consist wholly or partly of United States bonds, that the reasoning of the plaintiff in error, assailing the validity of the statute, can have any application. And the contention is that individuals, in forming or creating their estates, will or may be deterred from offering terms, in the purchasing of such bonds, as favorable as they otherwise might do, if they are bound to know that such portion of their estates as consists of such bonds is to be included, equally with other property, in the assessment of an inheritance tax.
Before addressing ourselves directly to the discussion of these propositions we shall briefly review the decisions in whose light they must be determined.
And, first, what is the voice of the state courts?
A detailed examination of the state decisions is unnecessary, because it is admitted in the brief of the plaintiff in error that in many, if not in most, of the states of the Union inheritance or succession tax laws, similar to the New York statute in question, are and have been long in operation, and that the question of their validity, in cases like the present, has always heretofore been determined by the state courts against the United States. We cannot, however, accede to the suggestion in the brief that [178 U.S. 115, 120] the state decisions are entitled to but little consideration, for the reason that 'they are the determinations of a distinct sovereignty, adjudicating upon the rights of the nation, and naturally jealous of their own.' Undoubtedly, in a case like the present, the national law is paramount, and its final exposition is for this court. Still, for reasons too obvious to require statement, the decisions of the state courts, particularly if they are uniform and concur in their reasoning, are worthy of respectful consideration, even if the question be, at last, a Federal one.
Without attempting a rehearsal of the state decisions, we may profitably examine the reasons and conclusions of several of the leading state courts.
A statute of Massachusetts of 1862 provided that every institution for savings, incorporated under that laws of that state, should pay a tax on account of its depositors, on the average amount of its deposits. The Provident Institution of Savings, a corporation having no property except its deposits and the property in which they were invested, and authorized by the general statute of Massachusetts to receive money on deposit and to invest its deposits in securities of the United States, had on deposit on the 1st day of My, 1865, $8,047,652-of which $1,327,000 stood invested in public funds of the United States, exempt by law of the United States from taxation under state authority. The company declined to pay that portion of the tax on its property invested in United States bonds. On suit brought by the commonwealth to recover the same, the supreme judicial court of Massachusetts, regarding the tax as one on franchise, and not on property, held the tax to be lawful. Com. v. Provident Inst. for Savings, 12 Allen, 312.
By a subsequent statute of 1864, chap. 208, corporation shaving capital stock divided into shares were required to pay a tax of a certain percentage upon 'the excess of the market value' of all such stock over the value of its real estate and machinery. The Hamilton Manufacturing Company refused to pay the tax upon that portion of its property which was invested in United States securities, because, by the act of Congress authorizing their issue, they were exempt from taxation by state authority. [178 U.S. 115, 121] It was held by the supreme judicial court of Massachusetts that the tax was to be regarded as a tax on the franchise and privileges of the corporation, and was lawful so far as related to Federal securities. Com. v. Hamilton Mfg. Co. 12 Allen, 300.
The legislature of Connecticut in 1863 enacted that the savings banks in the state should annually pay to the treasurer of the state a sum equal to 3/4 of 1 per cent on the total amount of deposits. The 'Society for Savings,' a corporation of Connecticut, refused to pay the tax upon that portion of its deposits which was invested in United States bonds declared by act of Congress to be exempt from taxation by state authority.
On a suit brought by Coite, treasurer of the state, to recover the tax thus withheld, the supreme court of Connecticut decided that the tax in question was not a tax on property, but on the corporation as such, and rendered judgment accordingly for the plaintiff. Coite v. Society for Savings, 32 Conn. 173.
In Pennsylvania it has been repeatedly held that the collateral inheritance law of that state, imposing a tax upon the total amount of the estates of decedents, is valid, although the estate may consist in whole or in part of United States bonds; and this upon the principle that what is called a collateral inheritance tax is a bonus, exacted from the collateral kindred and others, as the conditions on which they may be admitted to take the estate left by a deceased relative or testator; that the estate does not belong to them, except as a right to it is conferred by the state; that the right of the owner to transfer it to another after death, or of kindred to succeed, is the result of municipal regulation, and must, consequently, be enjoyed subject to such conditions as the state sees fit to impose. Strode v. Com. 52 Pa. 181; Clymer v. Com. 52 Pa. 186.
In Virginia the highest court of the state has construed a similar statute as imposing the tax, not upon the property, but upon the privilege of acquiring it by will or under the intestate laws. Eyre v. Jacob, 14 Gratt. 422, 73 Am. Dec. 367; Miller v. Com. 27 Gratt. 110. [178 U.S. 115, 122] The supreme court of Illinois has held valid a statute of that state, entitled 'An Act to Tax Gifts, Legacies, and Inheritances in Certain Cases, and to Provide for the Collection of the Same.' Ill. Rev. Stat. 1895, chap. 120. The constitutionality of the act was denied, because of the alleged want of reasonableness in its classification of those subject to the tax and the want of equality in the amounts imposed. But the supreme court held that an inheritance tax is a tax, not upon property, but on the succession, and that the right to take property by devise or descent is the creature of the law, a privilege, and that the authority which confers the privilege may impose conditions upon it. Kochersperger v. Drake, 167 Ill. 122, 41 L. R. A. 446, 47 N. E. 321.
By an act of the legislature of New Yok (Laws 1881, chap. 361, 3), it was enacted that 'every corporation, joint-stock company, or association whatever, now or hereafter incorporated or organized under any law of this state, . . . shall be subject to and pay a tax, as a tax upon its corporate franchise or business, into the treasury of the state, annually, to be computed as follows: If the dividend or dividends made or declared by such corporation, joint-stock company, or association during any year ending with the first day of November, amount to six or more than six per centum upon the par value of its capital stock, then the tax to be at the rate of one quarter mill upon the capital stock for each one per centum of dividends so made or declared,' etc.
The Home Insurance Company, a corporation of the state of New York, having a capital stock of $3,000,000, declared a dividend of 10 per cent for the year 1881. During the year 1881 the company had part of its capital invested in United States bonds, exempt from state taxation. The amount so invested changed from $3,000,000 to $1,940,000 in such bonds during the year 1881. The company, in tendering payment of its tax, claimed that so much of the laws of New York as required a tax to be paid upon the capital stock of the company, without deducting from the amount so to be paid that part invested in bonds of the United States, was unconstitutional and void. In an action brought to recover such unpaid portion of the tax, the supreme court of New York, at general term, [178 U.S. 115, 123] adjudged that the company was liable to pay such tax; and this judgment was affirmed by the court of appeals. The view of those courts was that, the tax being upon the franchise of the company, it mattered not how its capital stock or property may be invested, whether in United States securities or otherwise. People v. Home Ins. Co. 92 N. Y. 328.
In Monroe County Sav. Bank v. Rochester, 37 N. Y. 365, it was said:
In Re Sherman, 153 N. Y. 1, 46 N. E. 1032, it was said by the court of appeals of New York, per Chief Judge Andrews, that--
And in the case in hand, the very matter of complaint is that the courts of the state of New York held that, under the laws of that state, an inheritance tax can be validly assessed [178 U.S. 115, 125] against the entire estate of a decedent, although composed in greater part of United States bonds; and the language of the surrogate, affirmed by the court of appeals, was as follows:
The decisions of the state courts may be summarized by the statement that it is competent for the legislature of a state to impose a tax upon the franchises of the corporations of the state, and upon the estates of decedents resident therein, and in assessing such taxes and as a basis to establish the amount of such assessments, to include the entire property of such corporations and decedents, although composed, in whole or in part, of United States bonds; and that the theory upon which this can be done consistently with the Constitution and laws of the United States is that such taxes are to be regarded as imposed, not upon the property, the amount of which is referred to as regulating the amount of the taxes, but upon franchises and privileges derived from the state.
Let us now proceed to a similar survey of the Federal authorities on this subject.
Mager v. Grima, 8 How. 490, 12 L. ed. 1168, was a case where, by the law of Louisiana, a tax of 10 per cent was imposed on legacies, when the legatee is neither a citizen of the United States nor domiciled in that state, and the executor of the deceased or other person charged with the administration of the estate was directed to pay the tax to the state treasurer.Fe lix Grima was the executor of John Mager, and retained the amount of the tax in order to pay it over as the law directed. Suit was brought by a legatee to recover it, upon the ground that the act of Louisiana was repugnant to the Constitution of the United States. The validity of the act was sustained by [178 U.S. 115, 126] the state courts, and the cause was brought to this court. The judgment of the state courts was here affirmed, and it was said, in the opinion delivered by Chief Justice Taney:
In Van Allen v. The Assessors, 3 Wall. 573, sub nom. Churchill v. Utica, 18 L. ed. 229, it was held that it was competent for Congress to authorize the states to tax the shares of banking associations organized under the act of June 3, 1864, without regard to the fact that a part or the whole of the capital of such association was invested in national securities declared by the statutes authorizing them to be 'exempt from taxation by or under state authority.' This decision has ever since been acted upon, and its authority has never been questioned by any court, and from it we learn that there is no undeviating policy that, at all times and in all circumstances, the tax system of the states shall not extend to Federal securities.
The next cases to be noted are: Society for Savings v. Coite, 6 Wall. 594, 18 L. ed. 897; Provident Inst. for Savings v. Massachusetts, 6 Wall. 611, 18 L. ed. 907; and Hamilton Mfg. Co. v. Massachusetts, 6 Wall. 632, 18 L. ed. 904.
In these cases this court affirmed the supreme courts of Connecticut and Massachusetts in holding that state taxes may be imposed, the amount of which may be determined by the aggregate [178 U.S. 115, 127] amount of the property or capital stock of banking and manufacturing companies, even if such property or capital stock includes United States bonds issued under a statute declaring them exempt from taxation under state authority.
As we have already seen, when referring to the state decisions, the reasoning upon which the state courts proceeded in the case of corporations was that such taxes were to be deemed as laid, not upon the bonds as property, but upon the franchise to do business as a corporation or association derived from the state. This reasoning was approved from this court; and it may be observed in passing that, as appears in the reports of the arguments of counsel, the contention so strongly pressed in the present case, namely, that under no form can Federal securities be practically rendered by state legislation less valuable, was fully argued. See also the case of Scholey v. Rew, 23 Wall. 331, 23 L. ed. 99.
Next worthy of notice is the case of Home Ins. Co. v. New York, 134 U.S. 594 , 33 L. ed. 1025, 10 Sup. Ct. Rep. 593. It came here on error to the supreme court of the state of New York, whose judgment had been affirmed by the court of appeals, and was twice argued. The question considered was whether a statute of the state ofNe w York was valid in respect to imposing a tax upon a New York corporation, measured and regulated by the amount of its annual dividends, where those dividends were partly composed of interest of United States bonds owned by the corporation.
As we have heretofore stated, the state courts answered this question in the affirmative, basing their decision upon the proposition that the tax was imposed as a tax upon corporate franchises or privileges, and that such a tax was not invalidated by the circumstance that the measure of its amount was fixed by the amount of the annual dividends of the company partly derived from the interest of United States bonds. 92 N. Y. 328.
In this court the question was elaborately argued, as may be seen in the first report of the case in 119 U.S. 129 , 30 L. ed. 350, 8 Sup. Ct. Rep. 1385; and it was again contended that the case fell within the principle of public policy that the states have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control the operations [178 U.S. 115, 128] of the instrumentalities of the national government, and also that the tax in question was repugnant to the Fourteenth Amendment of the Constitution of the United States.
The reasoning of the state court was substantially approved and their judgment sustaining the validity of the state statute was affirmed. Some of the observations of the opinion of the court, delivered by Mr. Justice Field, may be appropriately quoted:
And, after citing and commenting upon the previous cases from Connecticut and Massachusetts, the court said: 'In this case we hold, as well upon general principles as upon the authority of the first two cases cited from 6 Wallace, that the tax for which the suit is brought is not a tax on the capital stock or property of the company, but upon its corporate franchise, and is not therefore subject to the objection stated by counsel, because a portion of its capital stock is invested in securities of the United States.'
In United States v. Perkins, 163 U.S. 625 , 41 L. ed. 287, 16 Sup. Ct. Rep. 1073, the question was whether personal property bequeathed by will to the United States was subject to an inheritance tax under the law of the state of New York.
The facts of the case were that on William W. Merriam, a resident of the state of New York, left a last will and testament, by which he devised and bequeathed all his estate, real and personal, to the United States. The surrogate assessed an [178 U.S. 115, 130] inheritance tax of $3,964.23 upon the personal property included in said bequest. Upon appeal to the general term of the supreme court the order of the surrogate's court was affirmed, and upon a further appeal to the court of appeals the judgment of the supreme court was affirmed, and the cause was brought to this court.
It was contended that, upon principle, property of the United States was not subject to state taxation; but it was held by this court, affirming the judgment of the courts below, that the tax was not open to the objection that it was an attempt to tax the property of the United States, since the tax was imposed upon the legacy before it reached the hands of the legatee; that the legacy became the property of the United States after it had suffered a diminution to the amount of the tax, and that it was only upon such a condition that the legislature assented to a bequest of it.
The reasoning of the court may be manifested by the following excerpts from the opinion delivered by Mr. Justice Brown:
One of the propositions recognized in that case applicable to the present one is that a state tax that would be invalid if imposed directly on a legacy to the United States, may be valid if the amount of the tax is taken out of the legacy before it reaches the hands of the government-the theory of such a view apparently being that the property rights of the government do not attach until after the tax has been pid , or until the condition imposed by the tax law of the state has been complied with. Such is also the case in respect to the legacy to Ella Plummer Brown, as the statute in question distinctly makes it the duty of the executor to pay the amount of the tax before the legacy passes to the legatee.
In New York v. Roberts, 171 U.S. 658 , 43 L. ed. 323, 19 Sup. Ct. Rep. 58, an effort was made to have a tax imposed against corporations based upon 'capital employed within the state' declared invalid, in that particular [178 U.S. 115, 133] case, because a portion of such capital consisted of imported goods in original packages; and this court said:
In Magoun v. Illinois Trust & Sav. Bank, 170 U.S. 283 , 42 L. ed. 1037, 18 Sup. Ct. Rep. 594, the validity of the inheritance tax law of Illinois was assailed because of inequalities and discriminations so great as to amount to a deprivation of property and to a denial of the equal protection of the laws. The law in question had been upheld by the supreme court of the state in the case of Kochersperger v. Drake, 167 Ill. 122, 41 L. R. A. 446, 47 N. E. 321, hereinbefore referred to.
This court held that the law was one within the competency of the legislature of the state to make, and that it did not conflict in any wise with the provisions of the Constitution of the United States. In the course of the discussion, Mr. Justice McKenna, who delivered the opinion of the court, said:
In closing our review of the Federal decisions the case of Wallace v. Myers, 38 Fed. Rep. 184, may be properly referred to,-especially as it has been cited with approval by this court in United States v. Perkins, 163 U.S. 625, 629 , 41 S. L. ed. 287, 288, 16 Sup. Ct. Rep. 1073
The question involved was the very one we are now considering, namely, the validity of the inheritance tax law of the state of New York when applied to a legacy consisting of United States bonds. In his opinion Circuit Judge Wallace reviewed many of the state and Federal decisions heretofore referred to, and reached the concluson that the tax was to be regarded as imposed, not on the bonds, but upon the privilege of acquiring property by will or inheritance, and that where the property of the decedent included United States bonds, the tax may be assessed upon the basis of their value.
We think the conclusion fairly to be drawn from the state and Federal cases is that the right to take property by will or descent is derived from and regulated by municipal law; that, in assessing a tax upon such right or privilege, the state may lawfully measure or fix the amount of the tax by referring to the value of the property passing; and that the incidental fact that such property is composed, in whole or in part, of Federal securities, does not invalidate the tax or the law under which it is imposed.
Passing from the authorities, let us briefly consider some of the arguments advanced in the able and interesting brief filed in behalf of the plaintiff in error.
The propositions chiefly relied on are, first, that an inheritance tax, if assessed upon a legacy or interest composed of United States bonds, is within the very letter of the United States statute which declares that such bonds 'shall be exempt from taxation in any form by or under state, municipal, or local [178 U.S. 115, 135] authority;' and, second, that the tax in question is unconstitutional, because impairing and burdening the borrowing power of the United States.
But if the first proposition is sound and decisive of the question in this case, then it must follow that the cases in which this court has held that, in assessing a tax upon corporate franchises, the amount of such a tax may be based upon the entire property or capital possessed by the corporation, even when composed in whole or in part of United States bonds, must be overruled. Plainly in those cases, as in this, there was taxation in a form, and in them, as in this, the amount of the tax was reached by including in the assessment United States bonds.
So that we return to the authorities, by which it has been established that a tax upon a corporate franchise, or upon the privilege of taking under the statutes of wills and of descents, is a tax, not upon United States bonds if they happen to compose a part of the capital of a corporation or a part of the property of a decedent, but upon rights and privileges created and regulated by the state.
The second proposition relied on, namely, that to permit taxation of the character we are considering would operate as a burden upon the borrowing power of the United States, cannot be so readily disposed of. Still, we think some observations can be made which will show that the mischief which it is claimed will follow if such statutes be sustained as valid is by no means so great or important as supposed.
And here, again, it is obvious that to affirm the second proposition will require an overruling of our previous cases. For, on principle, if a tax on inheritances, composed in whole or in part of Federal securities, would, by deterring individuals from investing therein, and, by thus lessening the demand for such securities, be regarded as therefore unlawful, it must likewise follow that, for the same reasons, a tax upon corporate franchises measured by the value of the corporation's property, composed in whole or in part of United States bonds, would also be unlawful.
To escape from this conclusion, it is contended, in the argument of the plaintiff in error, that, conceding that such taxes [178 U.S. 115, 136] may be valid as imposed on corporate franchises, and permitting our decisions in such cases to stand, yet that the case of the estates of decedents is different; that individual persons will be driven to consider, when making their investments, whether they can rely on their legatees or heirs receiving United States bonds unimpaired by state action in the form of taxation; and that if it should be held by this court that such taxation is lawful, capital would not be invested in United States on terms as favorable as if we er e to hold otherwise.
This is only to state the proposition over again. For, if it were our duty to hold that taxation of inheritances, in the cases where United States bonds pass, is unlawful because it might injuriously affect the demand for such securities, it would equally be our duty to condemn all state laws which would deter those who form corporations from investing any portion of the corporate property in United States bonds.
In fact, the mischief, if it exists at all and is not merely fanciful, might be supposed to be much greater in the case of state laws taxing franchises than the case of taxing the estates of decedents. So small now is the income derivable from Federal securities that few individuals, and those only of great wealth, can afford to invest in them; and the demand for them is mostly confined to banking associations and to large trading and manufacturing companies which invest their surplus in securities that can be readily and quickly converted into cash. Moreover, no inconsiderable portion of the United States loans is taken and held, as everyone knows, in foreign countries, where doubtless it is subjected to municipal taxation.
While we cannot take judicial notice of the comparative portions of the government securities held by individuals, by corporations, and by foreigners, we still may be permitted to perceive that the mischief to our national credit, so feelingly deplored in the briefs, caused by state taxation upon estates of decedents, would be inappreciable, and too remote and uncertain to justify us now in condemning the tax system of the state of New York.
It is further contended that there is a vital difference between the individual and the corporation; that the individual exists [178 U.S. 115, 137] and carries on his operations under natural power and of common right, while the corporation is an artificial being, created by the state and dependent upon the state for the continuance of its existence, and subject to regulations and to the imposition of burdens upon it by the state, not at all applicable to natural persons.
Without undertaking to go beyond what has already been decided by this court in Mager v. Grima, 8 How. 490, 12 L. ed. 1168; in Scholey v. Rew, 23 Wall. 331, 23 L. ed. 99, and in United States v. Perkins, 163 U.S. 625 , 41 L. ed. 287, 16 Sup. Ct. Rep. 1073, and in the other cases heretofore cited, we may regard it as established that the relation of the individual citizen and resident to the state in such that his right, as the owner of property, to direct its descent by will, or by permitting its descent to be regulated by the statute, and his right, as legatee, devisee, or heir, to receive the property of his testator or ancestor, are rights derived from and regulated by the state, and we are unable to perceive any sound distinction that can be drawn between the power of the state in imposing taxes upon franchises of corporations, composed of individual persons, and in imposing taxes upon the right or privilege of individuals to avail themselves of the right to grant and to receive property under the statutes regulating the descent of the property of decedents. And, at all events, the mischief apprehended, of impairing the borrowing power of the government by state taxation, is the same whether that taxation be imposed upon corporate franchises or upon the privilege created and regulated by the statutes of inheritance.
Again, it is urged that the pecuniary amount of the state tax which is to be set aside is of no legal consequence; that any amount, however inconsiderable, is an interference with the constitutional rights of the United States, and must therefore be annulled by the judgment of this court. Of course, nobody would attempt to affirm that an unconstitutional tax could be sustained by claiming that, in a particular case, the tax was insignificant in amount.
But when the effort is made, as is the case here, to establish the unconstitutional character of a particular tax by claiming [178 U.S. 115, 138] that its remote effect will be to impair the borrowing power of the government, courts, in overturning statutes long extablished and within the ordinary sphere of state legislation, ought to have something more substantial to act upon than mere conjecture. The injury ought to be obvious and appreciable. It may be opportune to mention that, even while we have been considering this case, the United States government has negotiated a public loan of large amount at a lower rate of interest than ever before known. From this it may be permissible to infer that the existence of legislation, whether state or Federal, including Federal securities as part of the mass of private property subject to inheritance taxes, has not practically injured or impaired the borrowing power of the government.
The contention of the plaintiff in error that taxation of the estates of decedents, in any form, and however slight, is invalid, if United States bonds are included in the appraisement, seems to be unreasonable. Suppose a decedent's estate consisted wholly of United States securities, could it reasonably be claimed that the charges and expenses of administration, imposed under the laws of the state, would not be payable out of the funds of the estate? If the estate were a small one, such expenses might require the application of all the Federal securities. If the estate were a large one, the expenses attendant upon administration would be proportionately large, to be raised out of the Federal securities. It is not sufficient to say that such expenses are in the nature of statutory debts, and that the question of the exemption of United States bonds cannot arise until after the debts of the estate shall have been paid. For, after all, what is an inheritance tax but a debt exacted by the state for protection afforded during the lifetime of the decedent? It is often impracticable to secure from living persons their fair share of contribution to maintain the administration of the state, and such laws seem intended to enable to secure payment from the estate of the citizen when his final account is settled with the state. Nor can it be readily supposed that such obligations can be evaded or defeated by the particular form in which the property of the decedent was invested. [178 U.S. 115, 139] Upon the whole, we think that the decision of the courts below was correct, and the judgment is therefore affirmed.
Mr. Justice White dissents.
Mr. Justice Peckham took no part in the decision.