Opinion by
Mr. Justice Mitchell,
The first and most important question in this case is the liability of testator’s lands in Virginia to assessment for collateral inheritance tax. The effort of a state to impose a tax which must in effect come out of land beyond its boundaries, however indirect or ingenious the mode of exaction, has always been a matter of very questionable jurisdiction. It is universally conceded that the tax cannot be laid directly, and nowhere is this rule stated more positively than in our own cases. See Bittinger’s Estate, 129 Pa. 338; Com. v. Coleman’s Admr., 52 Pa. 468; Drayton’s Appeal, 61 Pa. 172. And the collateral inheritance tax, being a tax on the property passing from the decedent, and not a mere • succession duty imposed on the recipient, (Bittinger’s Est., supra), is within the defect of power to impose it on land outside of the state.
The border line however is reached when property which is in fact real estate is to be treated as personalty under the doctrine of equitable conversion. On this subject two conflicting views have been entertained by different courts. In Custance v. Bradshaw, 4 Hare, 315, land was held by a partnership, and the interest of one partner who had died was sold to another [345]*345■partner. It was claimed, that this interest was personalty and liable to probate duty. But Vice Chancellor Wigram held that conversion being an equitable fiction would only be carried to the extent necessary to accomplish the equitable result aimed at, and “would not alter the nature of the property for the purpose only of subjecting it to fiscal claims to which at law it was not liable in its existing state.” More recent English cases have somewhat modified this decision so far as relates to land held by partners for partnership purposes. See Dos Passos on Inheritance Tax Law, sec. 46b, and 82 Am. Law Reg. N. S. 474, note by Mr. Howard W. Page. But the Court of Appeals of New York adopted the same view as late as 1893. Matter of Swift’s Est., 137 N. Y. 77; and Matter of Curtis’ Est., 142 N. Y. 219, where it was said, “ It was never intended by the law to tax a theory having no real substance behind it,” and •quoting Swift’s Est., supra, “ the question of taxation is one of fact, and cannot turn on theories or fictions.”
In Pennsylvania however the other view was taken in Miller v. Com., 111 Pa. 321, where it was held that, as the testator •had peremptorily directed a sale of the land and the distribution of the proceeds, the doctrine of conversion applied, and the actual situs of the land was immaterial, as what passed under the will was not the land but the proceeds, which were personalty, and liable to the tax. The same rule was followed in Williamson’s Est., 153 Pa. 508. These cases rest on the basis that the testator intended and directed not a merely nominal or limited conversion but an actual conversion by sale, and the blending of the proceeds with his other personalty for purposes of administration under his will. The action of the court in dating such conversion from the instant of death was but the application of the general rule that what is to be done must be treated in equity as done already. Though this argument is severely technical, and therefore questionable in regard to jurisdiction to tax land in fact situated in another state, yet it has the merit of being unanswerably logical if the premise be once accepted. This court has followed the argument unswervingly to its logical conclusion, even when the result seemed contrary to the express legislative policy of the state. Thus in Coleman’s Estate, 159 Pa. 231, where land in Pennsylvania was owned by a testator in New York whose will made an equitable [346]*346conversion, the logical corollary of Miller v. Com. was accepted and the land was held to have become personalty and to follow the owner’s domicile, and therefore not to be taxable here.
All onr cases agree that the status of the property at the instant of death must govern the question of tax, both as to liability and amount: Drayton’s App., 61 Pa. 172; Mellon’s App., 114 Pa. 564; Williamson’s Est., 153 Pa. 508, 521. Where, therefore, the conversion is not imperative, but only permissive and rests in the discretion of the executors or others, it does not become operative until the exercise of the discretion, and in the meantime the land retains its normal character: Drayton’s Appeal, supra; Miller v. Com., 111 Pa. 321.
For the same reasons, where the conversion though imperative is not in presentí but in futuro, it goes into effect only from the happening of the stipulated contingency. This brings us to the exact question now before us, and we find it expressly decided in the last case on the subject, Hale’s Estate, 161 Pa. 181. The testator left lands in Missouri to his wife for her life, and upon her death, directed his executors to sell them and invest the proceeds in mortgages in St. Louis and pay the income therefrom to collaterals. It was held by the orphans’ cotirt of Philadelphia that the proceeds were not taxable and the decision was affirmed. The auditing judge put his conclusion directly on the postponement of the conversion, and though the court in banc referred to the additional circumstance that the proceeds were to be invested in mortgages in St. Louis, yet it is clear that that was not a material point in the ratio decidendi. Mortgages, no matter what the situs of the land pledged, are personal property, and if the conversion had been immediate, no direction as to the investment of the proceeds could have exempted them from the tax. The ground of the decision, which is the logical result of the principles adopted in all the preceding cases, is that the tax is assessable at the instant of death, and where the conversion is not referable to that same instant, as where it is to take place only in the discretion of the executors, or a fortiori where it is postponed by the express direction of the testator, the land in the meantime retains its real character, and being outside the state is not subject to taxation.
In the present case the testator postponed the sale for twenty [347]*347years, and there was therefore no conversion when the tax upon the estate accrued. The assignments of error to the tax on the lands in Virginia and West Virginia are therefore sustained.
The other assignments may be more briefly considered. It appears that the testator was educating a number of young persons at the time of his death, and provided in his will for the continuance of their education and the payment to each upon graduation of 1500. We have not been convinced that there was any element of contract in these cases, or that the court committed any error in appraising the charges as legacies. The objection that the tax was directed to he paid by the executors out of the general funds of the estate and not by the legatees is, under the special provisions of this will, a merely formal and immaterial error. The present proceeding is not in any sense for distribution but merely for appraisement to ascertain the amount of tax due. Ultimately, so far at least as relates to the five hundred dollar gift at graduation, it will have to be paid by the legatees or deducted by the trustees before distribution. But the expenses of schooling are directed by the will to be paid out of the testator’s estate, and.the present setting apart of a sum for that purpose has no effect heyond fixing the amount of tax.
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Opinion by
Mr. Justice Mitchell,
The first and most important question in this case is the liability of testator’s lands in Virginia to assessment for collateral inheritance tax. The effort of a state to impose a tax which must in effect come out of land beyond its boundaries, however indirect or ingenious the mode of exaction, has always been a matter of very questionable jurisdiction. It is universally conceded that the tax cannot be laid directly, and nowhere is this rule stated more positively than in our own cases. See Bittinger’s Estate, 129 Pa. 338; Com. v. Coleman’s Admr., 52 Pa. 468; Drayton’s Appeal, 61 Pa. 172. And the collateral inheritance tax, being a tax on the property passing from the decedent, and not a mere • succession duty imposed on the recipient, (Bittinger’s Est., supra), is within the defect of power to impose it on land outside of the state.
The border line however is reached when property which is in fact real estate is to be treated as personalty under the doctrine of equitable conversion. On this subject two conflicting views have been entertained by different courts. In Custance v. Bradshaw, 4 Hare, 315, land was held by a partnership, and the interest of one partner who had died was sold to another [345]*345■partner. It was claimed, that this interest was personalty and liable to probate duty. But Vice Chancellor Wigram held that conversion being an equitable fiction would only be carried to the extent necessary to accomplish the equitable result aimed at, and “would not alter the nature of the property for the purpose only of subjecting it to fiscal claims to which at law it was not liable in its existing state.” More recent English cases have somewhat modified this decision so far as relates to land held by partners for partnership purposes. See Dos Passos on Inheritance Tax Law, sec. 46b, and 82 Am. Law Reg. N. S. 474, note by Mr. Howard W. Page. But the Court of Appeals of New York adopted the same view as late as 1893. Matter of Swift’s Est., 137 N. Y. 77; and Matter of Curtis’ Est., 142 N. Y. 219, where it was said, “ It was never intended by the law to tax a theory having no real substance behind it,” and •quoting Swift’s Est., supra, “ the question of taxation is one of fact, and cannot turn on theories or fictions.”
In Pennsylvania however the other view was taken in Miller v. Com., 111 Pa. 321, where it was held that, as the testator •had peremptorily directed a sale of the land and the distribution of the proceeds, the doctrine of conversion applied, and the actual situs of the land was immaterial, as what passed under the will was not the land but the proceeds, which were personalty, and liable to the tax. The same rule was followed in Williamson’s Est., 153 Pa. 508. These cases rest on the basis that the testator intended and directed not a merely nominal or limited conversion but an actual conversion by sale, and the blending of the proceeds with his other personalty for purposes of administration under his will. The action of the court in dating such conversion from the instant of death was but the application of the general rule that what is to be done must be treated in equity as done already. Though this argument is severely technical, and therefore questionable in regard to jurisdiction to tax land in fact situated in another state, yet it has the merit of being unanswerably logical if the premise be once accepted. This court has followed the argument unswervingly to its logical conclusion, even when the result seemed contrary to the express legislative policy of the state. Thus in Coleman’s Estate, 159 Pa. 231, where land in Pennsylvania was owned by a testator in New York whose will made an equitable [346]*346conversion, the logical corollary of Miller v. Com. was accepted and the land was held to have become personalty and to follow the owner’s domicile, and therefore not to be taxable here.
All onr cases agree that the status of the property at the instant of death must govern the question of tax, both as to liability and amount: Drayton’s App., 61 Pa. 172; Mellon’s App., 114 Pa. 564; Williamson’s Est., 153 Pa. 508, 521. Where, therefore, the conversion is not imperative, but only permissive and rests in the discretion of the executors or others, it does not become operative until the exercise of the discretion, and in the meantime the land retains its normal character: Drayton’s Appeal, supra; Miller v. Com., 111 Pa. 321.
For the same reasons, where the conversion though imperative is not in presentí but in futuro, it goes into effect only from the happening of the stipulated contingency. This brings us to the exact question now before us, and we find it expressly decided in the last case on the subject, Hale’s Estate, 161 Pa. 181. The testator left lands in Missouri to his wife for her life, and upon her death, directed his executors to sell them and invest the proceeds in mortgages in St. Louis and pay the income therefrom to collaterals. It was held by the orphans’ cotirt of Philadelphia that the proceeds were not taxable and the decision was affirmed. The auditing judge put his conclusion directly on the postponement of the conversion, and though the court in banc referred to the additional circumstance that the proceeds were to be invested in mortgages in St. Louis, yet it is clear that that was not a material point in the ratio decidendi. Mortgages, no matter what the situs of the land pledged, are personal property, and if the conversion had been immediate, no direction as to the investment of the proceeds could have exempted them from the tax. The ground of the decision, which is the logical result of the principles adopted in all the preceding cases, is that the tax is assessable at the instant of death, and where the conversion is not referable to that same instant, as where it is to take place only in the discretion of the executors, or a fortiori where it is postponed by the express direction of the testator, the land in the meantime retains its real character, and being outside the state is not subject to taxation.
In the present case the testator postponed the sale for twenty [347]*347years, and there was therefore no conversion when the tax upon the estate accrued. The assignments of error to the tax on the lands in Virginia and West Virginia are therefore sustained.
The other assignments may be more briefly considered. It appears that the testator was educating a number of young persons at the time of his death, and provided in his will for the continuance of their education and the payment to each upon graduation of 1500. We have not been convinced that there was any element of contract in these cases, or that the court committed any error in appraising the charges as legacies. The objection that the tax was directed to he paid by the executors out of the general funds of the estate and not by the legatees is, under the special provisions of this will, a merely formal and immaterial error. The present proceeding is not in any sense for distribution but merely for appraisement to ascertain the amount of tax due. Ultimately, so far at least as relates to the five hundred dollar gift at graduation, it will have to be paid by the legatees or deducted by the trustees before distribution. But the expenses of schooling are directed by the will to be paid out of the testator’s estate, and.the present setting apart of a sum for that purpose has no effect heyond fixing the amount of tax. If more money is required for such expenses the executors will have to supply it, and if the whole sum now fixed tpon should not be needed, the surplus will remain part of the general fund, notwithstanding its present designation as a special fund for that purpose. So far therefore as the tax is assessed upon the expenses of education it would seem that it must be borne by the estate, not only primarily but altogether, as the education is directed to be given not at a fixed sum but without restriction as to cost, and the tax on the gift is a necessary and legitimate part of such cost.
The further question argued, whether the tax is now due and payable is not raised by this record. This appeal is by the executors and trustees, and it does not appear that they have any interest in the question. The tax, whether due now or in future, is payable by the devisees and legatees and they are not before us. The executors are nowhere made chargeable with the tax until the distribution, at which time under sect. 5 of the Act of May 6,1887, P. L. 79, they are required to deduct it from the payment to the legatees, and in case of failure to do so they and their sureties are chargeable with the amount. [348]*348But it does not appear that any distribution has been made, or that the time for it has yet arrived. If distribution is unduly delayed the commonwealth under section 15, of the act of 1887 may have a citation to the executors to file an account, or to show cause why the tax should not be paid. By this section the commonwealth, as to the tax, is put upon the same footing as a legatee or creditor with a right to enforce distribution at the proper time. If legacies have been paid and the tax deducted but not paid over the executors are immediately chargeable with it, and if legacies are due and properly payable, but not yet paid, it would seem that the commowealth is entitled to insist on the immediate deduction of the tax by the executors and its payment. But except under such circumstances the executors are not chargeable with the tax and the commonwealth must look to the legatees for- its payment.
As already said the legatees are not before us, and it does not appear whether or not they have had any notice of the appraisement. The statute makes no express provision for notice to them, but it gives them a right of appeal, and it would therefore be proper if not requisite that the court should see that notice and a hearing are given. Without such notice and hearing, it is not consistent with the universal .principles of law that the parties charged should be affected by the adjudication. But no such question arises in the present case. Nor is any question on the construction of the will now determined. The appraisement is for the ascertainment of the value of the estate with reference to the amount of tax due the state. It has nothing to do with distribution. Where devises or legacies are given, some of which are taxable and some not, the construction of the will may come into question in a proceeding like the present, but only incidentally in order to determine the limits and value of the taxable class. That is the meaning of the words in section 12 of the act of 1887 that on appeal the courts “ shall have jurisdiction to determine all questions of valuation and of the liability of the appraised e¡state.for such tax.” In this respect the act of 1887 altered the previous law as declared by this court in Stinger v. Com., 26 Pa. 422. But none of these questions will be presented for adjudication until the proper parties are before us.
The decree is reversed and the appraisement directed to be readjusted on the principles herein stated.