Black v. State

89 N.W. 522, 113 Wis. 205, 1902 Wisc. LEXIS 90

• Court: Wisconsin Supreme Court
• Decided: February 18, 1902
• Status: Published

Opinions

WiNsnow, J.

In the present case eh. 355, Laws of 1899, entitled “An act for a tax on gifts, inheritances', bequests and legacies in certain cases,” is attacked as unconstitutional. The act in question provides for the imposition of a tax upon any transfer of personal property of the value of $10,000 or over, or of any interest therein or income therefrom, in trust or otherwise, to any persons or corporations, except corporations organized for religions, charitable, or educational purposes, which use the transferred property solely for such purposes, in the following eases: (1) 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 this, state; (2) when the transfer is by will or intestate law of property within this state, the deceased being a nonresident at death; (3) when the transfer is made by a resident or by a nonresident, the nonresident’s property being within the state, by bargain, sale, or gift made in contemplation of the death of the vendor or donor, or intended to take effect at or after such death. The act further provides that the tax shall be imposed when any beneficiary is entitled to such, property by any such transfer, whether made before or after the passage of the act, and that the tax shall be at the rate of five per centum per annum upon the clear* market value of the property transferred, except that when the property passes to the decedent’s father, mother, husband, wife, child, brother, sister, and certain other specified near relatives, it shall not be taxed unless of the value of $10,000 or more, and then only at the rate of one per centum upon the clear market value thereof. The law also provides that such' tax shall be a lien upon the property transferred until the tax is paid, and contains full and specific administrative provisions regulating the manner in which it is to be collected, the appraisal of the property, and the powers and duties of district attorneys, the county courts, and the secretary of state in the matter of making collection of such taxes. All taxes so collected, less expenses of collection, are to be paid into the state treasury, to be used for the expenses of the state government, and for such other purposes as the legislature shall direct, but the county treasurer is to retain for the use of his county fifteen per cent, of any tax collected in his county. Sec. 19 of the • act, among other definitions, defines the words “estate” and “property,” as used in the act, to mean the property or interest therein of the testatoi*, intestate, grantor, bargainor or vendor, and not the property or interest passing to individual legatees, devisees, heirs, next of kin, donees, or vendees. A number of sections of the act were amended by ch. 245, Laws of 1901, but none of the amendments affect in any material respect the provisions of the law which are attacked in this case, and hence it is not deemed necessary to state the effect of the amendments.

The tax which this law authorized is what is generally known as an “inheritance” or “succession” tax. Such taxes are very ancient in origin, and have been long in use, especially in European states. The states of the Union have been singularly slow in adopting such laws, "but the number of states to adopt and enforce them is increasing year by year.

To review the history of such legislation.would he a mere affectation of learning, and would serve no useful purpose in the decision of this case. The Wisconsin tax commission, in their report submitted to the legislature in the year 1898, justly say:

“It is very clear that the overwhelming weight of judicial authority sustains legislation of this character, and equally clpar that, in the wealthiest and also the most progressive states, statutes exist or are being enacted for the collection of succession taxes.”

It was doubtless in response to the favorable recommendation of the commission that the present law was passed at the following session of the legislature. Examination of the law shows that it is in all essential respects a literal copy of the New York law (eh. 399, Laws of 1892, as amended), with the important exceptions that in the New York law all transfers to collateral kindred and strangers of the value of $500 or over are taxed, while in the Wisconsin law such transfers are not taxed unless they equal or exceed $10,000, and that in New York the tax is imposed upon transfers of both real and personal property, while in Wisconsin it is confined to personal property alone. Sec. 19 of the Wisconsin law, so far as it defines the words “estate” and “property,” is identical with sec. 22 of the New York law. It will be well to ascertain at the outset what construction had been placed upon the New York law before we adopted it, because, upon very familiar principles, so far as the provisions are identical, or substantially so, such construction must be followed here. The law first appeared upon the statute books of New York as ch. 483, Laws of 1885, and it was then purely a law taxing collateral inheritances or transfers exceeding $500, at the rate of five per cent. Inheritances or transfers to lineal descendants and certain near relatives were entirely excepted from its operation. This law was challenged as unconstitutional in In re Will of McPherson, 104 N. Y. 306. The principal grounds upon which it was challenged were (1) that it violated a clause of the New York constitution providing that every law imposing a tax “shall distinctly state the tax and the object to which it is to be applied”; (2) that it did not provide for notice or opportunity to be heard, and so was not “due process of law”; and (3) that it conferred prohibited powers upon surrogates’ courts. All these objections were overruled, and the law sustained. The question whether it was a tax on property, or a tax upon the succession or devolution of property, was not decided. It is said that in either case it is constitutional, because it has never been questioned that the legislature may tax sales of property, incomes, acquisitions, and transfers of property, and that, if it be regarded as a tax on property, then it is free from objection if it be equally imposed and properly apportioned upon all property of the class to which it belongs. The act was amended by ch. 113, Laws of 1887, but not in any respect material to the present discussion. It still remained purely a collateral inheritance tax law. Two cases were decided immediately following the amendment, viz., In re Cager’s Will, 111 N. Y. 344, and In re Estate of Howe, 112 N. Y. 100 ;'but the only material question decided in these eases was that the $500 limitation in the act referred to the portion of the property passing to the legatee or beneficiary, and not to the whole estate left by the testator or grantor. Then followed, after an interval, the case of In re Estate of Swift, 137 N. Y. 77, in which it was distinctly held that the tax is not a tax on property, but on the right of succession or devolution. The first case arising under the law of 1892, which, as has been said, is the prototype of our own law, was the case of In re Hoffman’s Estate, 143 N. Y. 327, in which it was held that the tax was still upon the right of succession, and not upon the property of the decedent’s estate, but that by sec. 22 of tbe act (corresponding to sec. 19 of our act) tbe construction given to tbe previous law in tbe Gager and Howe Oases, to tbe effect that tbe limitation of $500 applied i» tbe individual shares received, and not to tbe whole estate of tbe grantor, was reversed, and that tbe limitation under the act of 1892 applied to tbe aggregate value of all tbe property transferred, and not to tbe separate value of each individual transfer. In tbe case of In re Dows’s Estate, 167 N. Y. 227 (decided two years after our statute was passed), it was again held that tbe tax was a tax on tbe right of succession, - and not on the property. It is not believed that there are other cases in New York throwing light upon tbe question. There is one respect in which we receive help from tbe New York decisions, and that is as to tbe construction of sec. 19 of our act which defines “estate” and “property.” Tbe New York courts having held before our adoption of tbe section that it operated to apply the limitations of tbe act to tbe aggregate value of tbe entire property or estate transferred, and not to tbe share of each individual beneficiary, we must and do apply tbe same construction to tbe section.

In other respects, however, tbe New York decisions give us little, if any, help. Tbe only time that tbe question of constitutionality was considered by that court was in tbe early ease of In re McPherson, supra; and tbe law then challenged was tbe collateral inheritance law of 1885, which simply levied a tax of five per cent on all collateral inheritances or transfers exceeding $500 in amount. This was a uniform tax without discrimination, upon all persons belonging to a certain and properly defined class. Were this tbe law now on our statute books, we should have no difficulty in sustaining it, even under our own constitution. It seems to have been attacked on grounds entirely foreign to tbe present discussion, arising out of provisions of tbe constitution of New York which are peculiar to itself. Tbe constitution of that state contains no provisions as to uniformity of taxation, although it does contain tbe usual guaranties of equality before tbe law of all citizens. Const N. Y. art. I, sees. 1-6.- Whether tbe act of 1892 in any respect violates such rule of equality, or infringes upon tbe fourteenth amendment to tbe constitution of tbe United States, which prohibits any state from denying “to any person within its jurisdiction the equal protection of the' laws” are questions which have never been raised or passed upon in the state of New York, so far as we are able to ascertain.

Taking the law, then, with this construction of the words “estate” and “property,” we are to consider the question as to its constitutionality. The appellants’ claim is that the act violates sec. 1, art. VIII of our constitution, providing that “the rule of taxation shall be uniform and taxes shall be levied upon such property as the legislature shall provide”; also that it denies the equal protection of the laws, in violation of the fourteenth amendment to the federal constitution.

In entering upon the discussion of this question, the appellants’ -counsel, with characteristic candor and fairness, concedes (1) that there is no objection to a succession tax, as such, and that it is not a tax on the property of the estate already taxed; (2) that the right or privilege of receiving property upon the death of the former owner is so far different from other property or subjects of taxation that it may well be classed by itself; (3) that a classification which makes differences between descendants, collateral relatives, and strangers to the blood is founded in reason, and may be sustained; but he says that all who fall within any one class must be treated by the same rule, and, if they are not so treated, the law is discriminating and arbitrary, and under it not only is the provision requiring uniformity of taxation violated, but men do not stand equal before the law.

There are two ways in which it is said that this law discriminates between members of the same class: First. No tax is to be collected unless the value of the whole estate transferred equals or exceeds $10,000, but, if it does exceed $10,000, then the tax is to be paid upon the whole property. Thus while one collateral heir, who receives $9,900 from one estate, pays nothing, another, belonging to the same class, who receives just $10,000 from another estate, is required to. pay a tax upon his whole legacy. This is said not to be exemption, but unjust discrimination. Second. Suppose A. and B. die possessed of estates of the net value of $9,900 and $10,100, respectively, and each having made a will bequeathing his property to collateral kindred in the same class; the man who- receives $2,000 under A.’s will pays no tax, while the man who receives $2,000 under B.’s will is obliged to pay a tax, though each is of kin in the same degree to his respective testator, and hence belongs to the same class.

These contentions are met by the respondents by the proposition that only taxes levied upon property are required to be uniform; this is a tax upon a privilege granted by law, namely, the privilege of inheriting property or receiving the same by will; the privilege is not a natural right, but purely a privilege granted by law, and it may be modified or repealed at the will of the legislature, subject only to constitutional provisions.

The result of this doctrine, if logically carried out, seems to be that the legislature may take away the right of inheritance and the right of disposing of property by will, entirely, and provide that, after payment of debts, all the property of á deceased person shall revert-to the state, unless there is some direct constitutional provision preventing such a law. This is certainly a startling proposition. It seems to have been first formulated in the case of Eyre v. Jacob, 14 Grat. 430, where the court says:

“The legislature might, if it saw proper, restrict the succession to a decedent’s estate by devise or descent to a particular class of his kindred, — say, to his lineal descendants or ascendants; it might impose terms or conditions upon which collateral relations may be permitted to take it; or it may to-morrow, if it please, absolutely repeal tbe statute of wills and that of descents and distributions, and declare that upon the death of a party his property shall be applied to the payment of his debts, and the residue appropriated to public uses.”

The language used was simply by way of argument. No such law was before the court, nor has such a law as the one supposed been before any court since that time, though the idea expressed by the Virginia court has been referred to several times by other courts. Mager v. Grima, 8 How. 490; Magoun v. Ill. T. & S. Bank, 170 U. S. 283; State v. Hamlin, 86 Me. 495. When such a law presents itself to any court of last resort, it will deserve very serious consideration before it can be approved. We intimate no opinion upon the proposition, — certainly no favorable opinion. It is enough for the purposes of the present case that it be held, in accordance with the law as laid down by the great weight of authority, and as conceded by the appellants, that reasonable succession taxes are unobjectionable, provided no constitutional inhibition be violated.

Starting from this basis, and considering the question of the supposed unlawful discrimination or lack of uniformity in the provisions of the law, we find, in the first place, no direct adjudications upon the subject in our own court. The cases of Wis. Cent. R. Co. v. Taylor Co. 52 Wis. 37; and State ex rel. Sanderson v. Mann, 16 Wis. 469, are cited as affecting in some degree the questions in the present case, but examination shows that neither of them has more than a remote bearing thereon. In the first case cited it was held that, under the constitutional mandate as- to taxation, the legislature may prescribe the property to be taxed, and prescribe the rule by which it is to be taxed, subject to the limitation that the rule must be uniform, and that it was competent for the legislature to’ place certain lands.held in trust by the state for the railway company in a class, and exempt tbem from taxation for a term of years; that this was classification founded on rational grounds and was not arbitrary discrimination. It is uniformity of rule, and not uniformity of subjects, which the constitution requires. Subjects may be classified, and, if the classification be reasonable and founded on rational grounds, it will be sustained. In the second case cited it was held that a law imposing a tax upon estates, regardless of their solvency, in counties having more than 150,000' population, was a special law for the assessment and collection of taxes, applicable only to Milwaukee county, and void under the constitutional provision that such laws shall be uniform in their operation throughout the state. It was said that the law in question was not a succession tax, because imposed on the whole estate, regardless of solvency; that a succession tax is essentially- a tax on the transmission of property, and not, properly speaking, a tax upon the property transmitted; and the question whether a succession tax could lawfully be imposed under our constitution was expressly left undecided.

Thus the principle was recognized in the Sanderson Gase which is universally laid down in the authorities, — that a succession tax is a tax on the privilege of receiving property, and not a tax upon property. As said by the supreme court of the United States in Magoun v. Ill. T. & S. Bank, 170 U. S. 283, concerning such taxes:

“An inheritance tax is not one on property, but on the succession. The right to take property by devise or descent is the creature of the law, and not a natural right, — a privilege, — and therefore the authority which confers it may impose conditions upon it. From these principles it is deduced that the states may tax the privilege, discriminate between relatives, and between these and strangers, and grant exemptions, and are not precluded from this power by the provisions of the respective state constitutions requiring uniformity and equality of taxation.”

It is really not a matter of great importance in this ease _ to decide wh.etb.er an inheritance tax is subject to the constitutional provision that the rule of taxation shall be uniform. Considering the clause without undue refinement of reasoning, it is difficult to see why it does not apply to an inheritance or succession tax. It is true such a tax is called an excise in the decisions. An excise is a duty levied on articles of sale or manufacture, upon licenses to pursue certain trades or deal in certain commodities, upon official privileges-, etc. Cooley, Taxation (2nd ed.), 4. But when such duty is levied upon a trade, occupation, or privilege as a means of producing, revenue alone, and not in exercise of the police power, it is, to all intents and purposes, an exercise of the taxing power,, and no good reason is perceived why such taxation is not included within the taxation referred to in the constitution in the clause quoted. The argument against this position is that the words immediately following this clause, namely, “and taxes shall be levied upon such ‘property as the legisr lature shall prescribe,” indicate that it is a taxation of property alone which the section covers. The history of the two clauses given by the present Chief Justice in the ease of Wis. Cent. R. Co. v. Taylor Co. 52 Wis. 37, perhaps affords some color to the idea that it is the taxation of property alone which is referred to by the section. We do not regard this question, however, as one of supreme importance in this case. Grant, if you please, that such taxation as the present be not included in the word taxation as used in the constitutional provision quoted; there is still the fourteenth amendment to the federal constitution to be considered; there is still the principle upon which every constitution in the Union is founded to- be reckoned with, namely, the principle that all men are equal before the law, and that life, liberty, and property are secured to all alike. The emphatic protest against special privileges to any favored persons or class .of persons may he found in varying terms in all of our constitutions. Our fathers came here to escape the reign of privilege, and they made equality before the law tbe very corner stone of tbeir plan of government. In our own constitution it is thus expressed, in seo. 1, art. I:

“All men are born equally free and independent, and have certain inherent rights; among these are life, liberty and the pursuit of happiness; to secure these rights, governments are instituted among men deriving their just powers from the consent of the governed.”

This may be said to be somewhat vague and general,— somewhat in the nature of a rhetorical flourish; but when it is said that all men equally free have the inherent rights of life, liberty, and the pursuit of happiness, it is certain that it is not meant that some have or may have greater privileges before the law than others. The phrase must mean equality before the law, if it means anything.

The idea is expressed more happily in the fourteenth amendment, where it is said that no state shall deny to any person within its jurisdiction the “equal protection of the law.” A tax law which mates unjust discrimination, — which taxes one person at one rate, and another one, within the same class and under like circumstances, at another rate, or exempts him altogether,— denies the equal protection of the laws. This must be self-evident. There may indeed be classification ; and if the classification be founded upon real differences, affording rational grounds for a distinction, such classification will not violate the rule of uniformity and equality. So, also*, there may be exemption, but the exemption must be reasonable in amount, and founded, also, on rational grounds.

These, then, are the vital questions in this ease: (1) Is the exemption of all estates under $10,000 'in value reasonable? And (2) is the attempted classification a legal and rational one ? As to the exemption, we confess that, especially with regard to devises or transfers to strangers and collaterals, it seems very large. It is much larger than is allowed by most of tbe inheritance laws in' other states. In New York tbe exemption in such cases is only $500, while in case of devises or transfers to lineal descendants and other near relatives it is $10,000. In most of the other state laws where exemptions are allowed, they run from $250 to $1,000, but in Massachusetts the exemption limit is fixed at $10,000, and in Montana at $7,500. Both of these last-named laws have been sustained by the courts of last resort in the states respectively, in which they were enacted, and in both cases the question of exemption was raised and discussed. Minot v. Winthrop, 162 Mass. 113; Gelsthorpe v. Furnell, 20 Mont. 299. In Massachusetts, it is true, there was m> constitutional provision of uniformity governing the tax, but in Montana there is a constitutional provision requiring a uniform rate of taxation. In both cases cited, the exemption was sustained on the ground that the cost of administration of small estates is proportionately larger than that of large estates, and that this operates to diminish the amounts received by beneficiaries, and that it appears that such laws have usually granted exemptions, and that the amount of exemption is peculiarly a subject for the exercise of legislative discretion. In our state the right to make reasonable exemptions in tax laws has always been recognized, and, of course, the legislature must be the first judge as to the proper amount thereof. No court will assume to say that the legislature is wrong m its judgment as to the amount, unless such error appears so clearly as to leave no reasonable doubt. So, while we would have been better pleased had the exemption been more nearly in accord with the general rates of exemption as fixed in other laws, we do not feel that we can say, in opposition to the judgment of the legislature, that the amount fixed is unreasonable.

Passing then to the question of classification, we reach really the crucial point of the case. We have endeavored to give this subject the most careful thought and investigation, Rut we Rave Reen unaRle to convince ourselves tRat tRe attempted classification in tRis law answers tRe requirements of legal and constitutional classification. It is a trite expression tRat classification, in order to Re legal, must Re rational; it must Re founded upon real differences of situation or condition, wRicR Rear a just and proper relation to tRe attempted classification, and reasonably justify a difference of rule. It is well settled tRat tRere may justly Re classification Retween lineal descendants, collateral relatives,1 and strangers; eacR may Re made a class and a different rule applied, Reeause tRere are real differences of situation and in tRe considerations applicaRle to tRe various classes. It Ras been decided, also, that a progressive law wRicR levies one rate of tax on.all receiving over $10,000 and not exceeding $20,000, and a RigRer rate on all receiving over $20,000 and not over $50,000, and so on upwards, is a valid law, and tRat sucia classification does not violate tRe rule of equality, Reeause tRe classes are proper classes, and all members of a given class are treated alike. Magoun v. Ill. T. & S. Bank, 170 U. S. 283.

TRis latter provision is not involved in tRe present case, as tRere is no such element in our law. But wRile classification is proper, tRere must always Re uniformity within tRe class. If persons under tRe same circumstances and conditions are treated differently, tRere is arbitrary discrimination, and not classification.

It is claimed tRat sucR is tRe effect of tRe present law, and we can see no escape from tRe conclusion. People in tRe same class are subject to different rules, some being exempt and some being taxed. TRis results from tRe peculiar provisions of sec. 19 of tRe law, wRicR defines “estate” and “property” as construed by tRe New York courts before we borrowed tRe law. As already pointed out, under. tRis provision tRe $10,000 limitation or exemption is Rased on tRe size of tRe wRole property devised or granted, and not upon the amount received by each individual legatee or grantee. Thus it results that one collateral relative, receiving a legacy of $2,000 from one testator, whose estate amounts to but $9,500, pays no tax, while another collateral relative in the same degree, receiving a legacy of $2,000 from another testator whose estate amounts to $10,500, is obliged to pay a tax. Here is unlawful discrimination, pure and simple. No rational distinction or difference can be drawn between the two legatees simply because the estates from which their legacies come are of slightly different size. They are both within the same class, surrounded by the same conditions, and receiving the same benefits. One pays a tax, and the other does not. This is not the equal protection of the laws.

We have reached this conclusion reluctantly. We should far rather have sustained the law, but the conclusion has been forced upon us. We agree with the general principles which have been approved by the overwhelming weight of authority in the courts of this country with reference to inheritance or succession tax laws. Those principles are, in brief, that such taxes are taxes upon the right to receive property, and not upon property itself; that classification between lineals and collateral relatives and strangers does not violate the rule of uniformity, nor the principle of the equal protection of the laws; and that reasonable exemption of small estates also may be allowed without violating uniformity. We have been compelled to condemn the present law, notwithstanding the foregoing general conclusions in favor of the validity of such laws in general, because, under its peculiar provisions, unlawful discrimination necessarily results between beneficiaries in the same class.

We have not attempted to review the authorities in the various states, although the. field is a broad and interesting one. Among the authorities which will be found to be of value in the consideration of the questions involved, the following may be named in addition to those already cited in this opinion: Scholey v. Rew, 23 Wall. 331; U. S. v. Perkins, 163 U. S. 625; Plummer v. Coler, 178 U. S. 115; Kochersperger v. Drake, 167 Ill. 122; State v. Alston, 94 Tenn. 674; In re Wilmerding’s Estate, 117 Cal. 281; In re Stanford’s Estate, 126 Cal. 112; Union T. Co. v. Durfee (Mich.), 84 N. W. Rep. 1101; State ex rel. Fath v. Henderson, 160 Mo. 190; State ex rel. Garth v. Switzler, 143 Mo. 287; State v. Ferris, 53 Ohio St. 314; Curry v. Spencer, 61 N. H. 630; Strode v. Comm. 52 Pa. St. 181; State v. Dalrymple, 70 Md. 294; Dope’s Estate, 191 Pa. St. 1.

The view we have taken of the constitutional question involved renders unnecessary the .consideration of any other questions in the case.

By the Court. — Judgment reversed, and action remanded to the circuit court of Milwaukee county, with directions to that court to reverse the judgment of the county court and render judgment in accordance with this opinion.