Cornell University Library The original of tliis bool< is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924020038695 Cornell University Library KF 6585.Z95B21 1917 Inheritance taxes for Investors :some pr 3 1924 020 038 695 INHERITANCE TAXES FOR INVESTORS INHERITANCE TAXES FOR INVESTORS Some practical notes on the inheritance tax laws of each of the States of the United States, with particular reference to their application to non-resident investors BY HUGH RA.NCROFr (Of the Massachusetts Bar) SECOND EDITION EKVISBD TO JANUAET 1, 1917 BOSTON AND NEW TOBK HOUGHTON MIFFLIN COMPANY 1917 '^'7?Z2 7 COFYRI6HT, I9II, BY BOSTON NEWS BUREAU COMPANY COPYRIGHT, I917, BY HUGH BANCROFT ALL RIGHTS RSSERVED Published May iqij PREFACE TO FIRST EDITION This is a collection of a series of articles published in the Boston News Bureau in February and March, 1911. They were prepared for the purpose of showing to in- vestors how seriously they may be affected by the inher- itance tax laws of every State in the country as well as the one in which they happen to live. It was also hoped that they might be of some help to the movement for the adoption of a uniform law that will do away with the double taxation which is such a frequent result of the working of the present laws. The articles are reproduced with almost no change in substance, and in the order in which they were first printed. The fact that they were originally a series of newspaper articles accounts for the prevalence of the editorial "we." Though this is intended to be only a handbook for in- vestors and those called upon to advise about invest- ments, it is hoped that it may be found useful as well by attorneys who wish to obtain some familiarity with the situation. For that reason, citations have been made of some of the more important cases. In preparing these articles the statutes were examined to January 1, 1911, and there have been no material changes since then. H. B. March 15, 1911. PREFACE TO SECOND EDITION Since these articles were first published, the inher- itance tax laws of most States have been materially changed. Most of the work of revision to include leg- islation to January 1, 1917, has been done by my col- league, Arthiu: W. Blakemore, Esq., of the Massa- chusetts Bar. H. B. CONTENTS I. Recent Development op Inheritance Taxa- tion 1 n. Inheritance Tax Laws now enacted by Fortt- THBEE States — Direct and Collateral In- heritances DISTINGUISHED 4 ni. Rates of Tax and Exemptions .... 6 rV. The States which tax Securities owned by Non-Residents 9 V. Some General Rules — Hardships on Non- residents EST administering the Law . 13 VI. The States which have no Inheritance Tax Law 17 Vn. The States which have Inheritance Tax Laws 19 Vni. The Federal Law: A Unique Document . 96 IX. A Movement for a Uniform Inheritance Tax Law 100 X. Some Matters not touched upon — The Po- sition op Trust Certificates — ■ Some Ef- forts to avoid Double Taxation . . . 104 XI. Canada 109 List op Corporations 113 List op State Officials 127 List op Canadian Officials . . . . I . 129 Index 131 INHEKITANOE TAXES CHAPTER I RECENT DEVELOPMENT OP INHERITANCE TAXATION Theee are few questions so important to far-sighted investors as that of inheritance taxes, and there are few subjects so Uttle understood. This is not in the least, sur- prising. A survey of the situation in the United States is Uke a journey through a chaos, peopled by sovereign States, each, wolf-hke, seeking some pretext to take for itself a bite out of every estate that comes along. Most of the inheritance tax legislation is new — the acts in nineteen States were passed in 1909 and 1910, and important amendments or entirely new acts have been passed in most of the States since that time. Much of this legislation is ill-considered: a State enacts a law patterned after that of another without having much idea of what it means; difPerent officials in the same State read the law differently; and many of the most important questions have not yet been passed upon by the courts. Until a comparatively short time ago few States taxed inheritances. Those that did were modest in their demands, and the payment of an inheritance tax to any except the deceased's home State was almost unknown. Now all but five States have an inheritance tax law of some sort. Twenty-five per cent is regarded as an equitable figure for large estates in some quarters, and tax attorneys are employed to try to collect from estates 2 INHERITANCE TAXES of men who never lived in a State and never owned a bit of property physically within the State. Most of these laws have been passed within a dozen years, and under them the claim has been quite gener- ally asserted and enforced that the State of incorpora- tion is entitled to an inheritance tax on stock owned by a non-resident, and in some cases on bonds as well. As the State of residence (with few exceptions) in no way relinquishes or modifies its tax on this account, it has become fairly common for estates to pay inheritance taxes twice on the same shares of stock. Even this is not enough. A corporation is organized in one State, does all its business in another, and the stock- holder Kves in a third. We find the second State in sev- eral instances seeking to tax the shares as well as the other two. If such a corporation owns property in sev- eral States there are splendid possibilities for the tax- gatherers, though no State, in the case of a corporation organized elsewhere, has gone further than to claim a tax based on the proportion of the value of the property within the State to the entire property of the corpora- tion. On the other hand, some States allow credit for pay- ments made to other States; exempted amounts are often so liberal that ordinary investment holdings es- cape; and taxes on property going to near relatives are frequently not onerous. Collateral relatives and strangers seem to be generally considered fair game, and two States, Iowa and North Dakota, have singled out the non-resident aUen, one for a twenty per cent tax, the other for twenty-five per cent. It must be noted that the tendency during the last few years seems to be setting strongly toward sanity INHERITANCE TAXES 3 under the leadership of the great Eastern States. The fact that States Uke New York, Connecticut, Massa- chusetts, New Hampshire, and Vermont have very re- cently abandoned double taxation of personal property has already had some effect on the Western lawmakers, and will doubtless eventually lead to a universal adop- tion of the principles laid down in these new statutes. There still remains, however, a distinct and natural line of cleavage between the Eastern or creditor States and the Western or debtor States in this particular. Notable recent developments are the attempt to ex- tend the tax to insurance policies in Massachusetts and Wisconsin and to interests in co-tenancy in Massachu- setts and New York. The recent federal law, drafted on novel lines, proba- bly opens a new chapter in the theory and history of the subject.' In the preparation of this new edition, the statutes and decisions of all the States have been examined down to January 1, 1917. As the courts in most of the States have not passed upon the questions that most affect non- residents, and the language of the statutes themselves is seldom specific as to their application to non-residents, information has been sought — often in vain — from the Tax Commissioner, Attorney-General, or other appro- priate oflScer to find out how the tax authorities in each State are construing their own law. In very few States is there any well-established practice in inheritance tax matters, and many of the present ruUngs may be changed at any time by the courts or by the tax author- ities themselves. > See post, p. 96 et seq. CHAPTER II INHERITANCE TAX LAWS NOW ENACTED BY FORTY- THREE STATES — DIRECT AND COLLATERAL INHERITANCES DISTINGUISHED Before entering the maze of inheritance tax legisla- tion, the investor can somewhat simpUfy his problem by a process of ehmination. Inheritance tax laws, as a rule, tax all property, real or personal, situated within the State, whether owned by a resident or non-resident, and also personal property of a resident which is situated without the State. Such laws have been enacted by all but five States, and the District of Columbia. The investor may then become fully posted as to the future of his estate, so far as the States of the Union are concerned, by the study of forty-three enactments, adding Hawaii and Porto Rico if he chooses. There is yet a chance that his labors may be further simplified, for eleven of the States exempt direct inheritances and tax only collateral inheritances. By a direct inheritance is meant, usually, property passing to a father, mother, husband, wife, child (includ- ing adopted child), and lineal descendant. Some States include brothers and sisters and also the wife of a son and husband of a daughter. By a collateral inheritance is meant property passing to other more distant rela- tives or to strangers. If the investor is satisfied to have his property "stay in the family," he may reduce his labors to the study of thirty-two enactments, besides the federal tax under the revenue law of 1916. INHERITANCE TAXES 5 The following table indicates what States have an inheritance tax, what States tax direct inheritances, and what States tax collateral inheritances. stale Alabama Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Elansas •-■* Kentucky IjOuisiana* .......... Maine Maryland MassachuflettB Michigan Minnesota Mississippi Missouri Montana Ifebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina. North Dakota Ohio Oklahoma Oregon Fenusylrania Porto Bico Bhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington "West Virginia Wisconsin Wyoming United States iT^eriiance tax lawt No Yea Yes Yes Tes Yes Yes No No Yes Yea Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yea Yes Yes Yea Yea No Yes Yea Yea Yes Yea Yea Yes Yes Yes No Yes Yea Yea Yea Yes Yes Yea Yea Yea Yea Yea Direct inherit- ance tax f No Yea Yes Yea Yea Yea No No No Yea Yea Yes Yea Yea No Yes Yes Yea Yea No Yea Yes Yea No No Yea Yea Yea No Yea No Yea Yes Yea No Yea Yea No Yea Yea No Yea Yea No Yes No No Yea Yes Yea Yea Tax on estate Collateral in- herUance tax t No Yea Yea Yea Yea Yes Yea No No Yea Yea Yea Yea Yea Yea Yea Yea Yea Yea Yes Yes Yea Yea No Yea Yea Yea Yea Yea Yea No Yea Yea Yea Yea Yea Yea Yea Yea Yes No Yea Yea Yes Yea Yea Yea Yea Yea Yea Yes CHAPTER III RATES OF TAX AND EXEMPTIONS The principle of exempting small inheritances from any tax is very generally recognized, but there is, as might be expected, a wide diversity in the amount of the exemption and in the rates of tax. In nearly every State direct inheritances are treated much more liberally than collateral inheritances, both as to rates and as to exemptions. Eleven of the forty-three States with inheritance tax laws exempt direct inheritances altogether. All but Utah tax direct inheritances at a lower rate, and grant larger exemptions to direct inheritances than to collat- eral inheritances. As many of the States have complicated schemes of graduated rates and exemptions, there is some difficulty in presenting a simple, comparative table. The ap- pended table shows the extreme range of rates and exemptions. On direct inheritances one per cent is the favorite rate, and ten thousand dollars is the common exemp- tion. The husband or wife and children are most favored where there are graduated rates, and large inheritances are taxed more than small ones. On collateral inheritances the common minimum rate is five per cent, with maximum rates running up to ten, fifteen, and in California thirty per cent. Exemptions seldom exceed five hundred dollars. When the rates and exemptions are graduated, nearness of relationship INHERITANCE TAXES 7 is usually considered, and the heavy rates are imposed on large inheritances. It is almost invariably the size of the inheritance, not the size of the estate, that determines the tax. Thus, an estate of thirty thousand dollars passing in three equal shares to the widow and two children, in a State with an exemption of ten thousand dollars, would pay no tax; that is, unless property is specifically devised, it is usually taxed as though a "pro-rata share were given to each beneficiary of the estate. The table follows: — StatM Direct inheritances Collateral inheriioTicea Bate (per cent) Exemption Sate (per cent) • ExempHon 1 1-8 1-15 2-4 1-4 1 2 1-3 1-2 1-3 1-3 2 1-2 1-7 1 l-^ 1 Not taxed Not taxed $5000 $1000-$3000 $10,000-$24,000 $10,000 $10,0000 Not taxed Not taxed Not taxed $5000 $5000 $1000-$4000 $20,000 $2000-$10,000 Not taxed Not taxed $5000-«10,000 $10,000 $500-$10,000 Not taxed $1000-$10,000 $2000-$5000 $3000-$10,000 Not taxed Not taxed $7500 2^6 3-24 3-30 3-10 3-8 1-5 5 6 li-15 2-10 li-15 5 3-15 li-16 5 4-7 5 3-10 5 3-15 6 6 Not taxed Alaska t Arizona +*^ Not taxed $500 $500 $5O0-$200O $500 Colorado ° $500-$3000o $500 District of Columbia. . Florida Not taxed Georgia ^ Nothing $500 $500-$2000 $500-$2000 $100-$500 $1000 $20O-$S00O $50O-$200O Nothing $500 ]U^ine $500 Massachusetts $1000 $100 $100-$1000 Not taxed Nothing Montana* $500 * The exemption in the States marked with an asterisk has been construed to apply to the estate as a whole rather than to individual shares. t The exemption in the States marked with a dagger depends in part on the size of the estate as a whole, and in part on the size of the individual share. ° In the above States the distinction between direct and collateral inheritances ie not exactly followed in making the rates of tax. a Only one exemption allowed in each class. 6 Iowa taxes non-resident aliens 10-20 per cent. c Louisiana exempts property that boro its just proportion of taxes during own* er's life. INHERITANCE TAXES states Nebraska Nevada* New Hampshire^. New Jersey New Mexico NewTork" North Carolina . . . Nortb Dakota d.. Ohio* Oklahoma Oregon^ , Fennsylvania. — Porto Kico Rhode Island/.... South Carolina . . • South Dakota . . . . Tennessee* Texas Utah* Vermont Virginia Washington * West Virginia.... Wisconsin Wyoming * United States — Direct inheriiancet Rate (percent) 1 1-5 li 1-4 1-5 1-3 1-4 1 1-4 i-3 1-3 l-U 3I5 1 1-3 1-3 2 Exemption $10,000 810,000-*20,000 Not taxed $6000 Not taxed $S0O-«6000 S2000-$10,000 $10,000-t20,000 Not taxed $5000-$15,000 $6000 Not taxed $200-$500D $25,000 Not taxed $3000-$10,000 $10,000 Not taxed $10,000 Not taxed Not taxed $10,000 $10,000-$15,000 $2000-$10,000 $10,000 Collateral inheritances Kate {per cent) 2-6 2-26 6 2-5 2-8 3-9 li-15 6 5-10 2-6 6 3-12 5-8 li-15 6 2-12 3-6 6 5 3-12 3-16 li-16 6 $500-$2000 Nothing-$10,000 Nothing $500 Not taxed $500 Nothing Nothing-$600 $500 $2600 $50O-«200O $250 $200 SIOOO Not taxed $100-$1000 $260 $500-$2000 $10,000 Nothing Nothing Nothing Nothing $100-$500 $600 Tax is on estates of residents exceeding $50,000, 1^15 per cent. No exemption to non-residents. * The exemption in the States marked with an asterisk has been construed to apply to the estate as a whole rather than to individual shares. ° In the above States the distinction between direct and collateral inheritances is not exactly followed in making the rates of tax. d North Dakota taxes non-resident aliens 25 per cent. e Oregon exempts entire estate if less than $10,000, direct ; $500 to $5000 collat- eral. / Rhode Island also imposes a tax on the net estate of \ pei cent ; exemption, $5000. CHAPTER IV THE STATES WHICH TAX SECURITIES OWNED BY NON-RESIDENTS The States that have inheritance tax laws, as a rule, tax all property that is situated in the State, whether the owner was a resident or not. Herein lies the importance to the investor of an ac- quaintance with the inheritance tax laws of the States other than the one in which he Hves, especially because most States do not confine themselves to property phy- sically within the State. These States treat shares in corporations organized under their laws as subject to an inheritance tax, though held without the State by a non-resident. This is on the theory that as the corporation itself is a creature of the State, its shares are subject to the jurisdiction of the State, wherever owned. As the State of residence taxes such stock, the result is that two States tax the same succession. The Supreme Court of the United States, though recognizing the hard- ship of the practice, has decided that the Constitution does not prohibit such double taxation.* Collection of this tax is usually enforced by holding the corporation itself responsible if it permits the trans- fer of stock for a foreign executor or administrator before the tax is paid. The mere location of a transfer oflBce in the State may necessitate a waiver, as some corporations » Blackstone ». Miller, 188 U.S. 189. 10 INHERITANCE TAXES StaiM Are shares of non^esi- dents in local corpora- tions subject to tax t Is tax claimed on stock of foreign corporations owning property in Slate if Alabama Arizona •*{ , ArkansaB t California +** Colorado }" Connecticut X Delaware Florida Georgia Idaho} Illinois J** Indiana Iowa i Kansas { Kentucky +•• Louisiana **t Maine X Maryland MassachuBetts t. . . . Michigan t** Minnesota X MiaeouriJ Mississippi Montana X Nebraska X ' Nevada X New Hampshire X • New Jersey J New Mexico New York t North Carolina t** North Dakota**... Ohio Oklahoma X Oregont FennsylTaniat. ... Forto Rico < Rhode Island South Carolina South Dakota t*». Tennessee X** Texas •• Utah} Vermont} No Yes Tea Tea Tea No No No Tea No No No No No Yea Yea Yea No No Yes No No No No • Yea No No No No No Yea No Yea No No No No No No No Mo * This question does not seem to have been raised or passed upon in the States marked with an asterisk. § In the States so marked it was apparently the opinion of their tax officials in 1916 that they were not entitled to collect such a tax, and we do not know that the law is now being construed differentlpr. Their laws, however, are practically identic cal with the laws of States which claim this tax, and, moreover, contain a provision for enforcing its collection. } In States so marked a corporation transferring stock or delivering securities is held responsible itself, if the mheritance tax has not been paid. •* These States also tax registered bonds of local corporations owned by non-resi- dents. a Only when the corporation has taxable property in Maine exceeding one thou- sand dollars in value. There is also a reciprocity clause exempting residents al States which exempt Maine decedents. A New York taxes such transfers of business corpoiations in proportion to the New York real estate they hold. INHERITANCE TAXES 11 Staiet Are shara ofium^etU deiiU in local corpora- tioru tuioeci to tax f Is lax claimed on stock of foreign corporations owning property in Slate f No Tea Tea Yea Tea No No Ho No 4 United Statea, — See p St. 1912, Special Session, c. 15. 20 INHERITANCE TAXES The State is collecting a tax on the stock of domestic corporations owned by non-residents and on stock of foreign corporations owning property in the State and on real estate in the State belonging to non-residents. The representative of a non-resident decedent is obhged to make affidavit showing the total assets and debts and expenses of the estate and details of the beneficiaries, but need not file an inventory of the whole estate. 2. Arkansas an example of tjnfatrness Arkansas adopted a collateral inheritance tax in 1901 and extended the tax to direct inheritances in 1907. The statute was entirely redrafted in 1913 ^ for the pur- pose of readjusting the progressive rates substantially in accordance with the Wisconsin law. The following taxes are imposed: — To widow ' or minor child — Not exceeding $3000 exempt $ 3000 to $ 5000 1% 5000 to 10,000 2% 10,000 to 30,000 3% 30,000 to 50,000 4% 50,000 to 100,000 5% 100,000 to 600,000 6% 500,000 to 1,000,000 7% Exceeding 1,000,000 8% To parent, husband, wife, child, brother, sister, wife or widow of son, or husband of daughter, or child adopted or mutually acknowledged, or to any lineal descendant of decedent — ' St. 1913, c. 197. ' A widow's dower is not taxable. McDaniel v. Byrkett, 179 S.W. 491. INHERITANCE TAXES 21 Not exceeding $1000 exempt $ 1000 to $ 5000 1% 5000 to 10,000 2% 10,000 to 30,000 3% 30,000 to 50,000 4% 50,000 to 100,000 5% 100,000 to 500,000 6% 500,000 to 1,000,000 7% Exceeding 1,000,000 8% To all others — Not exceeding $500 exempt $ 500 to $ 5000 3% 5000 to 10,000 6% 10,000 to 30,000 9% 30,000 to 50,000 12% 50,000 to 100,000 15% 100,000 to 500,000 18% 500,000 to 1,000,000 21% Exceeding 1,000,000 24% Friends of tax reform may well grieve over the tend- encies shown in the amendment of 1915,^ whereby stock and even bonds of foreign corporations belonging to non-resident decedents are subject to the inheritance tax when the corporations own property in the State, although the new act does provide, as a concession to fairness, that the stock or bonds shall be valued at that proportion of the true value which the physical property of such corporation located in the State bears to the total physical property of the corporation. This provision seems aimed at mining and irrigation companies operat- ing in the State. An amendment in 1915 ^ contains the curious provi- sion that if the assessment of the tax would leave sums 1 St. 1915, c. 231, § 1. ' St. 1915, c. 231, § 2. As to figuring exemptions under the act of 1909 see McDaniel v. Harm, 179 S.W. 337. 22 INHERITANCE TAXES equal to or in excess of the exemptions, the tax shall be paid on the value of the entire estate without deducting the exemption. The new law holds responsible for the collection of the tax not only Arkansas corporations transferring their own stock, but also any safe-deposit company, cor- poration, bank, or other institution, person, or corpora- tion having in possession or control securities, deposits, or other assets of a decedent. 3. California a neas approach to confiscation California adopted a collateral inheritance tax in 1893,1 following the old New York law. A direct inherit- ance tax act was passed in 1905,^ and amended in 1909,' 1911,^ 1913,5 and 1915 ^ increasing both the progressive rates and the exemptions. The progressive rates are levied in each instance only on the excess above the amount taxed at the next lower rate. The following taxes are imposed: — Direct inheritances including husband, wife, lineal issue, lineal ancestor, adopted child, mutually acknowledged child in certain cases, or issue of such adopted or acknowledged child — Not exceeding $25,000 1% $ 25,000 to $ 50,000 2% 50,000 to 100,000 4% 100,000 to 200,000 7% 200,000 to 500,000 10% 500,000 to 1,000,000 12% Over $1,000,000 15% » St. 1893, c. 168. 2 St. 1905, c. 314. 8 St. 1909, c. 337. * St. 1911, c. 394 and c. 395. ' St. 1913, c. 595. « St. 1916, c. 189. INHERITANCE TAXES 23 Exemptions — To widow or minor child, $24,000. To any other in above class, $10,000. Collaterals including brother or sister or their descendant, wife or widow of a son or husband of a daughter — Not exceeding $25,000 3% $ 25,000 to $ 50,000 6% 50,000 to 100,000 9% 100,000 to 200,000 12% 200,000 to 500,000 15% 500,000 to 1,000,000 20% Over $1,000,000 25% Exemption, $2000. To brother or sister of father or mother or descend- ant of such brother or sister — Not exceedmg $25,000 4% $ 25,000 to $ 50,000 8% 50,000 to 100,000 10% 100,000 to 200,000 15% 200,000 to 500,000 20% 500,000 to 1,000,000 25% Over $1,000,000 30% Exemption, $1000. To any other relatives or strangers — Not exceeding $25,000 5% $ 25,000 to $ 50,000 10% 50,000 to 100,000 15% 100,000 to 200,000 20% 200,000 to 500,000 25% Over $500,000 30% Exemption, $500. The exemptions apply to each individual share, not to the estate as a whole. The Supreme Court of California has decided that the tax is on the excess over the exemption, not, as in many 24 INHERITANCE TAXES States, on the entire inheritance if it exceeds the exemp- tion. ^ The exemption, however, does not affect the computation of the progressive rates, as it is deducted from the first $25,000 in each distributive share and not from the distributive share as a whole. So if a benefi- ciary receives $30,000, and the exemption is $10,000, he will be taxed on $15,000 at the primary rate and on $5000 at the higher rate." California taxes stock of a California corporation owned by a non-resident at its full value without deduc- tion for its proportion of the debts and expenses of ad- ministration.* This is merely another example of the injustice of the Cahfornia law. The State authorities contend that a tax is due upon stock of foreign corporations owning property in the State, but there has been no decision of the Supreme Court on the subject.^ Real estate in the State belonging to a non-resident decedent is subject to tax. Bonds of a non-resident, temporarily in the State at his death, are not for that reason taxable,' but the State is levying a tax on bonds of Cahfornia corporations owned by non- resident decedents. Corporations and individuals delivering or transferring certificates or assets of a non-resident estate are responsi- ble for the tax. It is not the practice to require a com- plete inventory of a non-resident's estate. A representa- tive of such estate must file an affidavit showing facts concerning residence and date of death of decedent, the value and items of his California property, data con- » In re Bull's Estate, 163 Cal. 715; In re Timken's Estate, 158 Cal. 51. * See Blakemore and Bancroft on Inheritance Taxes, p. 325. ' McDougal V. Low, 127 Pac. 1027. < See ante, p. 12. 6 In re McCahill's Estate, 153 Pac. 930. INHERITANCE TAXES 25 cerning the beneficiaries and as to whether decedent had made transfers of his property in contemplation of death. 4. Colorado Colorado enacted an inheritance tax in 1901,' amended in 1902,^ using the Illinois statute of 1895 as a model. It was radically amended in 1909 ^ and 1913.* The following taxes are imposed: — Direct inheritances including father, mother, hus- band, wife, child, brother, sister, wife or widow of a son or husband of a daughter or adopted child in certain cases or any Uneal descendant of the decedent — Under $10,000 only if the share is in perpe- tuity exempt Not exceedmg $100,000 2% $100,000 to $200,000 3% Exceeding 200,000 4% Collateral inheritances, including uncle, aunt, nephew, niece or any lineal descendant of the same — Not exceedmg $20,000 3% $20,000 to $ 50,000 4% 50,000 to 100,000 5% Exceeding $100,000 6% In aU other cases — Not exceeding $10,000 4% $10,000 to $ 20,000 5% 20,000 to 50,000 6% 50,000 to 100,000 8% Exceeding $100,000 10% Exemption in aU cases except direct inherit- ances, $500. If, however, amount exceeds $500, tax is charged on the full amount. 1 St. 1901, c. 94. 2 St. 1902, L-. 3, held constitutional in In re Magnes, 32 Colo. 527. 3 St. 1909, c. 193. * St. 1913, c. 136. 26 INHEEITANCE TAXES Colorado taxes stock owned by a non-resident in a Colorado corporation or in a foreign corporation also incorporated in the State, or where articles of incorpora- tion are filed or it is doing business in the State having general or transfer oflBces or property in the State. The tax is also figured upon all bonds, mortgages, or securi- ties, or interest in any such corporation secured upon property or franchises in the State. The exemptions are figured on the share of each bene- ficiary. The State does not prorate the exemption in cases of non-resident decedents, but allows the full ex- emption to each. The State claims and collects a tax on real estate situated in Colorado belonging to a non- resident decedent. Executors, administrators, and trustees are bound to pay the tax before transfer of property. A provision, which has become very popular recently, requires any corporation or individual about to transfer property to give ten days' notice to the Attorney-General of the time and place of the transfer. The representatives of the estates of decedents are required to file complete inven- tories of all their property wherever situated. 5. Connecticut a state which has abolished double taxation of property of non-residents Connecticut adopted a collateral inheritance tax in 1889 and extended it to direct heirs in 1897. The State Supreme Court decided that the personal property of a non-resident was not taxable under this statute, but that the law as amended in 1903 included such property. ^ ' Gallup's Appeal, 76 Conn. 617. As to constitutionality see Net- tleton's Appeal, 76 Conn. 235; Hopkins' Appeal, 77 Conn. 644. INHERITANCE TAXES 27 There were important revisions in 1907 and 1909, and in 1913 an entirely new act ' was passed abolishing en- tirely the taxation of intangible property of the estates of non-resident decedents and avoiding double taxation of such property. This State, therefore, now claims no tax on the transfer of stock in Connecticut corporations owned by non-residents. Mr. Corbin, the very able Tax Commissioner of the State, complained very vigorously in his biennial report for 1913-14 that this law was hastily drawn; that the rates were too low and the exemptions too high, with the result that the receipts from inheritance taxes since 1911 had declined forty per cent. He also complained of the system of having the law administered and appraisals made under the direction of the one hundred and thir- teen probate judges in the State, and advocated a central administration like that in Massachusetts, New York, and other States. As a result the Legislature passed a new law in 1915 ^ materially increasing the rates and reducing the exemptions, and giving the tax commis- sioners power to institute proceedings in the Probate Courts to fix the tax. The following taxes are imposed: ' — Direct inheritances, including those to parent, grandparent, wife, lineal descendant, adopted child or his lineal descendant, and adopting parent — Not exceeding $10,000 exempt $ 10,000 to $ 50,000 1% 50,000 to 250,000 2% 250,000 to 1,000,000 3% Over $1,000,000 4% » St. 1913, c. 231. 2 St. 1916, c. 332. ' St. 1915, c. 332. 28 INHERITANCE TAXES V Collaterals, mcluding husband or wife of child of decedent, stepchild, brother or sister of full or half blood, or any descendant of such brother or sister — Not exceeding $3000 exempt $ 3000 to $ 25,000 3% 25,000 to 50,000 5% 50,000 to 250,000 6% 250,000 to 1,000,000 7% Exceeding $1,000,000 8% All others — Not exceeding $500 exempt $ 500 to $ 50,000 5% 50,000 to 250,000 6% 250,000 to 1,000,000 7% Over $1,000,000 8% The law contains a provision, not found in any other State we believe, that only one exemption for each class shall apply to the net estate passing to all beneficiaries in that class. In the case of the estates of non-resident decedents, leaving real estate or tangible personal prop- erty in the State, only such percentage of the exemptions shall apply as the estate in Connecticut is of the entire estate. The act of 1913 provided that any person or corpora- tion that transfers or delivers any taxable property of a non-resident without the permission of the Tax Com- missioners is subject to a penalty of three times the amount of the tax. This clause is not incorporated in the act of 1915, but as the act of 1913 is not expressly repealed it would seem to be still in effect. The representatives of non-resident decedents are re- quired to furnish the Tax Commissioner the following in- formation: An inventory of all property in Connecticut; a certified copy of the appointment of the executor or INHERITANCE TAXES 29 administrator; a certified copy of the detailed inventory of the estate wherever situated; and the name, relation- ship to the decedent, and amount each beneficiary other than lineals receives of the property actually or constructively in the State of Connecticut. 6. Delaware Delaware adopted a collateral inheritance tax in 1869.' In 1883'' its apphcation was limited to strangers in blood. In 1909 ' the present act was adopted, and was sKghtly amended as to relatives of the haK blood in 1913.* The following taxes are imposed: — Direct inheritances exempt (to parents, grandparents, husband, wife, child, adopted child or lineal descendant) Brother, sister of the whole or half blood, and de- scendant of brother or sister 1% Brother or sister of father or mother and their descendants 2% Brother or sister of grandfather or grandmother and their descendants 3% More distant collateral relations and strangers in blood 5% The exemption is $500 and applies to individual shares. Where the value of the interest passing exceeds $500, only the excess is subject to tax. No tax is now claimed on stock of Delaware corpora- tions owned by non-resident decedents, but no investor should rely on this practice, as the Delaware statute 1 Del. St. vol. 13, c. 390. ^ Del. St. vol. 17, c. 8, 11. » St. 1909, c. 225, p. 514. * St. 1913, c. 269. The present act is contained in Del. Rev. St. of '1915, §§ 146-152. 30 INHERITANCE TAXES seems to furnish ample authority for such a tax and is in fact identical with other statutes — that of New Hampshire, for example — where such a tax has been exacted. The reason given for the Delaware position is that stocks and bonds of corporations are exempt from taxa- tion in Delaware. But if their tax is, like other inherit- ance taxes, a tax on the transfer and not on property, this makes no difference.^ There seems to be as yet no judicial decision in Delaware on the question. 7. Georgia Georgia is one of the most recent States to fall in line by enacting an inheritance tax in 1913 ^ of a very fair and moderate nature. The following taxes are imposed: — Parents, husband, wife, child, brother, sister, wife or widow of a son, adopted child or lineal descendant 1% Exemption, $5000, the tax being imposed only on the excess over the exemption. The exemption is figured on each individual interest and not on the entire estate. AU other relatives and strangers (with no exemp- tion) 6% We are advised by the Comptroller-General that the act is confined in its operation to property within the jurisdiction of the State; that property passing by will of a non-resident to a citizen of Georgia would not be subject to the tax, but property in Georgia passing to a non-resident would be. Hence stock owned by non- resident decedents in Georgia corporations is subject ' See Blakemore and Bancroft on Inheritance Taxes, §§9, 264. " St. 1913, No. 259, p. 91. INHERITANCE TAXES 31 to the tax, but the State is not now collecting a tax on registered bonds issued by Georgia corporations owned by non-residents. Executors are required to file an inventory of taxable property in the Court of Ordinary having jurisdiction within three months of appointment, under a penalty not to exceed $1000! The act has been sustained as a tax on a privilege and not on property.' 8. Idaho Idaho in 1907 copied the former California law almost verbatim. The following taxes are imposed: ^ — To husband, wife, lineal issue, lineal ancestor, child adopted or mutually acknowledged or any lineal issue of such child — Not exceeding $25,000 1% $ 25,000 to $ 50,000 l|% 50,000 to 100,000 2% 100,000 to 500,000 2|% Exceeding 500,000 3% Exemptions — To widow or minor child, $10,000. To all others in above class, $4000. To brother or sister or descendant of same, wife or widow of son or husband of daughter — Not exceeding $25,000. l|% $ 25,000 to $ 50,000 2|% 50,000 to 100,000 3% 100,000 to 500,000 3f% Exceeding 500,000 4|% Exemption, $2000. » Martin v. PoUock, 87 S.E. 793. > St. 1907, c. 78. Idaho Revised Code, Title 10. c. 6, §§ 1873-1897. 32 INHERITANCE TAXES To brother or sister of father or mother or descend- ant of such brother or sister — Not exceeding $25,000 3% $ 25,000 to $ 50,000 4j% 50,000 to 100,000 6% 100,000 to 500,000 7|% Exceeding 500,000 9% Exemption, $1500. To brother or sister of grandfather or grandmother or descendant of such brother or sister — Not exceeding $25,000 4% $ 25,000 to $ 50,000 6% 50,000 to 100,000 8% 100,000 to 500,000 10% Exceeding 500,000 12% Exemption, $1000. To all others — Not exceeding $25,000 5% $ 25,000 to $ 50,000 7|% 50,000 to 100,000 10% 100,000 to 500,000 12j% Exceeding 500,000 15% Exemption, $500. The tax has been very carelessly enforced in the past by county officials, but the new Tax Commissioners are making strenuous efforts to enliven what has been in most counties of the State a dead letter. They even claimed a tax on transfers of stock of non-residents in a foreign corporation owning property in the State, but have been defeated before the State Court.' The act specifically covers all property within the State belonging to non-residents, which would seem to cover stock in Idaho corporations owned by non- residents. ^ State V. Dunlap, 156 Fac. 1141. See also, ante, p. 12. INHERITANCE TAXES 33 The statute contains the common provision holding the corporation responsible for the tax if it transfers such stock before the inheritance tax is paid. 9. Illinois Illinois adopted a tax on all kinds of inheritances in 1895, which included progressive rates applying to dis- tant relatives and strangers, with a maximum of six per cent.* The constitutionality of the statute was sus- tained in the Illinois Supreme Court. ^ Later the ques- tion was raised in the Supreme Court of the United States, which, in a very far-reaching decision, held that progressive taxation and substantial exemptions do not infringe the equal protection of the laws guaranteed by the Fourteenth Amendment.* The following taxes are now imposed: * — Direct inheritances, including those to father, mother, husband, wife, child, brother, sister, wife or widow of son, husband of daughter, adopted or acknowledged child, lineal descendant — Under $20,000 exempt From $20,000 to $100,000 1% Over $100,000 2% ($20,000 is always exempt and only the ex- cess over this amount is taxed.) Collateral inheritances — Inheritances to uncle, aunt, niece, nephew and their lineal descendants — 1 Laws of 1895, p. 301. 2 Kochersperger v. Drake, 167 111. 122. » Magoun v. Illinois Trust & Savings Bank, 170 U.S. 283. See also Billings V. Illinois, 188 U.S. 97. « Rev. Stats. 1909, c. 120, §§ 366-388; St. 1909, p. 311; St. 1913, p. 513; St. 1915, p. 572. The law is valid. People v. Starring, 113 N.E. 627. 34 INHERITANCE TAXES Under $2000 exempt From $2000 to $20,000 2% Over $20,000 4% ($2000 is always exempt and only the excess over this amount is taxed.) All other inheritances — Under $500 exempt From $ 500 to $ 10,000 3% From 10,000 to 20,000 4% From 20,000 to 50,000 5% From 50,000 to 100,000 6% Over 100,000 10% The exemptions apply to the individual shares, not to the estate as a whole. The exemption of $20,000 is the most Uberal given to direct heirs in any State. The rate is figured on the amount subject to tax above the exemp- tion. So, v/here the value of property passing to the wife subject to the tax is less than $100,000, the tax is one per cent, although the total value of the property received, including that exempt, exceeds $100,000.' A bank deposit of a non-resident in Illinois, and both stocks and bonds of an Illinois corporation, kept by a non-resident in a safe-deposit box in Illinois, are subject to the inheritance tax, but stocks and bonds of foreign corporations owned by a non-resident so kept in a safe- deposit box are not subject to the tax.^ Illinois requires the executor or administrator of a non-resident estate to answer, under oath, a printed list of questions before consent is given to the transfer of any lUinois stocks; but this does not necessarily involve setting forth an inventory of the entire estate. lUinois taxes stock and bonds in Illinois corporations » In re Ullmann's Estate, 105 N.E. 292. < People V. Griffith, 245 lU. 532. INHERITANCE TAXES 36 owned by non-residents wherever held. If the corpora- tion transfers the stock without notifying the tax au- thorities, it is made liable for the tax and is subject to a penalty as well. The State has been collecting a tax where a foreign corporation owns property in the State and the stock belonged to a non-resident decedent, but can hardly do so in the future in view of a recent decision very prop- erly holding such tax illegal. ^ Local real estate of non-residents is taxable, but the act does not cover a resident's interest in real estate situated in another State.^ A widow's award is taxable.' 10. Indiana Not until 1913 did Indiana at last follow the exam- ple of other States of the Middle West by passing an inheritance tax law with progressive rates and other customary modern provisions.* The following taxes are imposed: — To husband, wife, lineal issue, lineal ancestor, child adopted or mutually acknowledged, or its lineal issue — Not exceeding $25,000 1% $ 25,000 to $ 50,000 1§% 50,000 to 100,000 2% 100,000 to 500,000 g|% Exceeding 500,000 3% Exemptions — To widow, $10,000. To others in this class, i ' People V. Dennett, 114 N.E. 423, relying on People v. Griffith, 245 111. 532. See also ante, p. 12. ^ People V. Kellogg, 268 111. 489. , » People V. Forsyth, 112 N.E. 378. * St. 1913, c. 47. 36 INHERITANCE TAXES To brother or sister of decedent or descendant of brother or sister, wife or widow of a son, husband of a daughter — Not exceeding $25,000 1^% $ 25,000 to $ 50,000 2i% 50,000 to 100,000 3% 100,000 to 500,000 3|% Exceeding 500,000 4|% Exemptions, $500. To brother or sister of father or mother or descend- ant of such brother or sister — Not exceeding $25,000 3% $ 25,000 to $ 50,000 4j% 50,000 to 100,000 6% 100,000 to 500,000 7|% Exceeding 500,000 9% Exemptions, $250. To brother or sister of grandfather or grandmother or descendant of such brother or sister — Not exceeding $25,000 4% $ 25,000 to $ 50,000 6% 50,000 to 100,000 8% 100,000 to 500,000 10% Exceeding 500,000 12% Exemption. $150. To other relatives and strangers — Not exceeding $25,000 5% $ 25,000 to $ 50,000 7|% 50,000 to 100,000 10% 100,000 to 500,000 12j% Exceeding 500,000 15% Exemption, $100. The act follows the recent tendency to avoid double taxation by limiting the tax to tangible property within the State of non-residents, and therefore no tax is claimed on stock of Indiana corporations owned by non-residents INHERITANCE TAXES 37 or on stock of foreign corporations simply because they own property in the State. A tax is, however, claimed on real estate in Indiana belonging to non-resident decedents. The State authorities are courteously issu- ing to non-resident executors a waiver with the names of the securities left blank to faciUtate transfer. The exemptions are figured on each share of bene- ficiaries. 11. Iowa dischimination against the non-besident ALIEN Iowa adopted a collateral inheritance tax in 1896,* which has been frequently amended. The act of 1911 ^ compiled the existing law, which was amended in 1913 ' by a provision releasing real estate sold under order of court. Inheritances to father, mother, husband, wife, lineal descendant, adopted child, or lineal descendant of adopted child are exempt. The following taxes are imposed: * — Collateral inheritances — Inheritances to other relatives and strangers except non-resident aliens 5% Exemption, $1000. Inheritances to brothers or sisters who are non- resident aliens 10% Inheritances to more distant relatives or stran- gers who are non-resident aliens 20% The exemption applies to the estate as a whole rather than to the individual shares.' The validity of this dis- criminatory tax against non-resident aliens has not been I St. 1896, c. 28. » St. 1911, c. 68. 3 St. 1913, c. 120. See also St. 1913, c. 121. * St. 1911, c. 68. ^ Herriott ». Bacon, 110 Iowa, 348. 38 INHERITANCE TAXES passed upon by the courts, but it would be very surpris- ing if it should not be held that it is in violation of most of the present treaties with the important foreign coun- tries.* Iowa taxes stock of an Iowa corporation owned by a non-resident,^ and the corporation is held responsible for the tax. The State formerly claimed, but is not now col- lecting, a tax upon stock of a non-resident in a foreign corporation which owns property in Iowa. The State, however, has gone as far as any in claiming a tax on money invested in the State. In a recent case a Florida woman loaned money on Iowa mortgages, through an Iowa agent who kept the notes and other se- curities in Wisconsin, and the court sustained the claim of an Iowa inheritance tax on the ground that the securities had a "business situs" in Iowa.' The statute has recently been attacked and sustained in a decision upholding the progressive rates and the exemption of direct inheritances.* Real estate situated in the State belonging to a non- resident decedent is subject to tax. Where a part of the estate goes to direct heirs and a part to collateral and no specific disposition is made, the tax is apportioned. Safe-deposit companies and kindred institutions are made liable for the tax unless they notify the State Treas- urer before delivering over securities to the representa- tive of an estate. The form of return now in use calls for only a list of * See In re Anderson, 147 N.W. 1098, where the court holds this provision not to be in conflict with the Danish treaty of 1857. It has been held void as to English subjects (McKeon u. Brown, 149 N.W. 693), but good as to Swedes {In re Peterson's Estate, 161 N.W. 66). 2 Estate of Culver, 123 N.W. 743. » In re Adams, 149 N.W. 631. * In re Peterson, 161 N.W. 66. INHERITANCE TAXES 39 stock in Iowa corporations, money or securities within the State, and real estate. 12. Kansas Kansas adopted a tax on all inheritances in 1909, which was, however, repealed in 1913 to make way for a new law to be passed, but the members of the Legisla- ture could not agree on its terms and adjourned without action. The omission was remedied in 1915^ by the passage of an act modeled in part on the former stat- ute, omitting, however, the tax on direct inheritances and the former reciprocal provision to avoid double taxa- tion on the estates of non-residents. The following taxes are imposed: — Inheritances to surviving spouse, lineal ancestors, lineal descendants, adopted child or children or their lineal descendants, wife or widow of a son, or husband of a daughter exempt Inheritances to brothers and sisters of decedent — Under $5000 exempt On excess over $5000 — On the first $25,000 3% On the second $25,000 5% On the next $50,000 7^% On the next $400,000 10% On all over $500,000 12j% Inheritances to all other relatives and strangers — On the first $25,000 5% On the next $25,000 7|% On the next $50,000 10% On the next $400,000 12|% On aU over $500,000 15% No tax is imposed on any interest valued at less than $200 after exemptions are al- lowed. 1 St. 1915, c. 357. 40 INHERITANCE TAXES It will be noted that this is a true progressive tax to which little constitutional objection can be made, as the higher rate is in each case imposed only on the excess over the amounts stated.* Kansas is collecting the tax on stock of domestic cor- porations owned by non-residents, except that, where shares are held by a domestic railroad company, which corporation is also incorporated in another State, the tax is divided according to the mileage of the railroad in the respective States. The law also contains a "ratio provision" similar to that in New Jersey.^ The State does not tax stock of foreign corporations simply because they own property in the State. Ex- emptions are allowed to individual beneficiaries and are deducted from their shares. Real estate in the State belonging to non-residents is taxed. 13. Kentucky Kentucky adopted a collateral inheritance tax in 1906 ' which remained unchanged till 1916,* when the State adopted a modern progressive tax of a drastic nature. The new progressive rates are as follows: — Direct inheritances, including husband, wife, lineal issue, lineal ancestor, adopted child — Not exceeding $25,000 1% $ 25,000 to $ 50,000 l|% 50,000 to 100,000 2% 100,000 to 500,000 2j% Exceeding 500,000 3% 1 It should be noted that the law of 1909, of similar import to that of 1915, has recently been upheld, though attacked as not uniform or equal in rates or exemptions. State v. Cline, 91 Kan. 416. » See post, p. 64. ' St. 1906, c. 22. art. 19. « St. 1916, c. 26. INHERITANCE TAXES 41 Exemptions — ■ To widow and each minor child, $10,000. To all others in this class, $5000 each. To brother, sister, or their descendants, widow of son or husband of daughter — Not exceeding $25,000 l|% $ 25,000 to $ 50,000 2i% 50,000 to 100,000 3% 100,000 to 500,000 3f% Exceeding 500,000 41% Exemption, $2000. I To brother or sister of father or mother or descend- '- ant of such brother or sister — Not exceeding $25,000 3% $ 25,000 to $ 50,000 4^% 50,000 to 100,000 6% 100,000 to 500,000 7|% Exceeding 500,000 9% Exemption, $1500. To brother or sister of grandfather or grandmother or descendant of such brother or sister — Not exceeding $25,000 4% $ 25,000 to $ 50,000 6% 50,000 to 100,000 8% 100,000 to 500,000 10% Exceeding 500,000 12% Exemption, $1000. To other relatives or strangers — Not exceeding $25,000 5% $ 25,000 to $ 50,000 7|% 50,000 to 100,000 10% 100,000 to 500,000 124% Exceeding 500,000 15% Exemption, $500. The progressive rates are imposed only on the excess above the sum taxed at the next lower rate and the exemptions are deducted from the first $25,000, 42 mHERITANCE TAXES The tax is being levied on stock in a Kentucky corporation owned by a non-resident.^ So, where a Kentucky trust company holds property of a non- resident as trustee to hold and manage for her during her life, the tax is due,^ but not simply because the estate of a non-resident is administered by an executor who is a resident of Kentucky.' The Attorney-General advises us, under date of Feb- ruary 17, 1917, that he is "inclined to the opinion" that the new law of 1916 covers bonds of non-residents is- sued by Kentucky corporations although there has been no decision as yet. 14. Louisiana exempts property that has borne its share of taxation — formerly discriminated against aliens Five States — California, Louisiana, Iowa, North Dakota, and Washington — have at some time dis- criminated severely against non-resident aliens. Such tax has been repealed in California, Louisiana, and Washington; the attempt to revive it in Louisiana has been found invalid; and it still stands only in Iowa and North Dakota. Louisiana was the second State to tax inheritances. This was in the form of a tax of ten per cent imposed on estates passing to non-resident aliens, which was enacted in 1828.^ This remained in force until 1877 and an at- tempt to revive it in 1894 was declared void.^ ' The former law was held not to apply to this case. Comm. v. Southern Pacific Ry., 150 Ky. 97. * Barclay v. Comm., 156 Ky. 455. 3 Coimn. V. Peebles, 134 Ky. 121. « Acts 1828, No. 95, §§ 1, 2. 5 Succession of Sala, 60 La. An. 1009. INHERITANCE TAXES 43 Its constitutionality was sustained in the Supreme Court of the United States, which held that as a State has the power to forbid an alien to take any property whatever situated within its hmits, it may impose any tax it chooses as a condition to allowing an alien to suc- ceed to property.' The Supreme Court of the United States also held that the statute did not conflict with a treaty with Wiirttemberg which had evidently been in- tended to secure equal treatment for aliens and residents.* Yet the Louisiana Supreme Court decided that the stat- ute conflicted with a similar treaty with France and so could not apply to French citizens.* The constitution of 1898 authorizes a direct inherit- ance tax of not over three per cent with a minimum exemption of $10,000, and a collateral inheritance tax of not over ten per cent.^ The next article of the constitution is as follows: "The tax provided for in the preceding article shall not be en- forced when the property donated or inherited shall have borne its just proportion of taxes prior to the time of such donation or inheritance." ^ It is a stock argument in defence of an inheritance tax that it reaches much property that has escaped taxation during the owner's lifetime, without considering that it equally reaches property that has not escaped. Louisiana, by exempting property that has borne its proper burden, is the only State in the coimtry that is honest in this respect.® One ' Mager v. Grima, 8 How. 490. ' Frederickson v. Louisiana, 23 How. 445. " Succession of Dufour, 10 La. An. 391. * La. Const., Art. 235. « La. Const., Art. 236. ' But see Succession of Kohn, 115 La. An. 71, holding that the taxation of corporate stock franchises and property is not a taxation of the shares held by individual shareholders, and therefore these 44 INHERITANCE TAXES result of this provision is that no inheritance tax is fig- ured on real estate on which the local annual taxes have been paid. The present law was adopted in 1904, and modified in 1906, 1912, and 1914. The amendment of 1912 classi- fied the surviving husband or wife of the decedent with direct descendants.' The following taxes are imposed:'' — Direct inheritances, including those to direct de- scendants and direct ascendants and surviving husband or wife 2% Exemption, $10,000. Collateral inheritances, including collateral rela- tions and strangers '. . . B% No exemption. The exemption applies to the individual shares, not to the estate as a whole, but if the share exceeds the ex- emption it is subject to the tax, not only for the excess, but on the whole amount. An amendment to the constitution authorizing a pro- gressive tax was rejected by the voters in 1912.' We are informed that Louisiana is taxing stock of a Louisiana corporation owned by a non-resident and also stock of foreign corporations owning property in Lou- isiana. The statute provides that no bank having money or securities shall turn them over, and no corpora- tion, the stock or registered bonds of which are owned by the deceased, shall deliver or transfer the same to any heir until the tax is paid.* shares are not exempt from the operation of the inheritance tax law of 1904. 1 St. 1912, c. 42. " St. 1904, c. 45; St. 1906, c. 109; St. 1912, c. 42. » St. 1912, 0. 12, Extra Session, Art. ra, 7. « St. 1914, c. 801. INHERITANCE TAXES 45 15. Maine Maine began to tax collateral inheritances in 1893 * and direct inheritances in 1909.^ The following taxes are now imposed: ' — Direct inheritances — Inheritances to husband, wife, father, mother, chUd, adopted child or adoptive parent — Not exceedmg $50,000 1% $50,000 to $100,000 1^% Over $100,000 2% Exemption, $10,000. Inheritances to hneal ancestor (except parents), lineal descendant (except children), wife or widow of son, husband of daughter — Under $50,000 1% $50,000 to $100,000 1|% Over $100,000 2% Exemption, $500. Collateral inheritances — Inheritances to brother, sister, uncle, aunt, nephew, niece, cousin — Not exceedmg $50,000 4% $50,000 to $100,000 4|% Over $100,000 5% Exemption, $500. All other inheritances — Not exceedmg $50,000 5% $50,000 to $100,000 6% Over $100,000 7% Exemption, $500. Exemptions apply to each individual inheritance and not to the estate as a whole.* Probate Courts have charge of inheritance tax matters. 1 St. 1893, c. 146. ^ St. 1909, c. 186, 187. » Rev. St., c. 8, §§ 69-97, as amended by St. 1905, c. 124; St. 1909, c. 186, 187; St. 1911, c. 163; St. 1913, c. 128, 190. * State V. Hamlin, 86 Me. 495. 46 INHERITANCE TAXES Former uncertainties in the interpretation of the law seem to have been cured by recent legislation ^ which provides clearly that the tax is levied only on the excess over the exemption in each case and that the progressive rate is placed on the whole inheritance. There was formerly some question whether in large inheritances the progressive rate was assessed only on the excess over the minimum figure or on the whole inheritance. Maine has taken an advanced position in trying to avoid double taxation. Property of a resident situated outside the State, if taxed by another State or country, is taxed in Maine only for the difference if the Maine tax is the greater.^ Property of a non-resident within the jurisdiction of Maine, if subject to a tax in his home State or country, pays to Maine only so much as the Maine tax may be in excess of the tax in the place of residence. Maine is taxing stock of Maine corporations owned by non-residents, and the corporation is responsible for the tax, except that under the provisions of a recent reciprocity amendment' any personal property in Maine of a non-resident is free of tax if the non-resident lived in a State which assesses no inheritance tax on personal property of Maine decedents. The tax may be levied although the certificate itself is actually outside the State at the time of death. Maine protects its popularity as a State for the incorporation of business corporations by non-residents by providing that stock of a non-resident decedent in a Maine cor- poration is not taxable unless the corporation has tan- gible property in Maine exceeding one thousand dollars in value. » St. 1911. c. 163. 2 § 89. » St. 1913, c. 190. INHERITANCE TAXES 47 Exemptions of non-residents are only that proportion of the whole exempted amomits as the amount of the estate of the non-resident in the State bears to the total value of his estate.* Stock of a non-resident in railroad or street railway, telegraph, or telephone companies incorporated in Maine and also in some other State or country (Boston and Maine Railroad, for example) is assessed only on such portion of its value as is proportional to that portion of the company's lines lying within the State. Real es- tate in Maine of a non-resident decedent is subject to assessment. 16. Mabtland Maryland adopted a collateral inheritance tax in 1844.'' The present tax is on collateral inheritances only, the rate is uniformly five per cent, with an exemption of $500, which applies to the estate as a whole, not to in- dividual shares. No tax is levied on an inheritance to father, mother, husband, wife, child, or lineal descend- ant.* It would seem that Maryland formerly attempted to tax shares of Maryland corporations owned by non- residents, but they are not now considered taxable. Securities of a non-resident deposited in Maryland for safe-keeping are taxable,* as are also bequests to charitable corporations.' Executors or administrators of non-residents must give four weeks' notice by adver- ' St. 1913, c. 190. For discussion of similar provisions and their validity see ante, p. li. 2 St. 1844, c. 237, upheld in Tyson v. State, 28 Md. 677. ' Code of 1910, Art. 81, § 120 et seq. * State V. Dalrymple, 70 Md. 294. 5 Washington County Hospital ». Mealey, 121 Md. 274. 48 INHERITANCE TAXES tising before transferring stock.' The executors' and administrators' commissions are also taxed. Real estate of a non-resident in Maryland is taxable. 17. Massachusetts a state which favors non-residents Massachusetts first adopted a collateral inheritance tax in 1891 ^ and a direct inheritance tax in 1907.' It seems to be the custom to change the law annually,* the last amendment being in 1916.° The main new feature of the law is the extension of the tax over interests ac- cruing by survivorship in any form of joint ownership to which the decedent contributed. The new rates are as follows: — To husband, wife, parent, child, grandchild, adopted child or adoptive parent — Not exceeding $25,000 1% $25,000to$ 50,000 2% 50,000 to 250,000 4% 250,000to 1,000,000 5% Exceeding 1,000,000 6% Exemption, to husband, wife, parent, child, adopted child, adoptive parent, $10,000. To all others, $1000. To lineal ancestor or descendant not included in above class, a wife or widow of a son, husband of a daughter, lineal descendant of adopted child or lineal ancestor of adoptive parent — > Code of 1910, Art. 93, §§ 78, 79. ' ' St. 1891, c. 425, upheld in Minot v. Winthrop, 162 Mass. 113; Crocker ». Shaw, 174 Mass. 266. ' St. 1907, c. 563. • See, for example, St. 1909, c. 490, pt. 4; St. 1911, c. 502, 651; St. 1912, c. 678; St. 1913, c. 498, 689; St. 1914, c. 462, 563; St. 1915, c. 64, 152. * St. 1916, c. 268, increasing previous rates. INHERITANCE TAXES 49 Not exceeding $10,000 1% $ 10,000 to $ 25,000 2% 25,000 to 50,000 4% 50,000 to 250,000 5% 250,000 to 1,000,000 6% Exceeding 1,000,000 7% Exemption, $1000. To brother, sister, stepchild, stepparent, half brother, half sister, nephew, or niece — Not exceeding $10,000 3% $ 10,000 to $ 25,000 5% 25,000 to 50,000 7% 50,000 to 250,000 8% 250,000 to 1,000,000 9% Exceeding 1,000,000 10% Exemption, $1000. To all others — Not exceeding $10,000 5% $ 10,000 to $ 25,000 6% 25,000 to 50,000 7% 50,000 to 250,000 8% 250,000 to 1,000,000 9% Exceeding 1,000,000 10% Exemption, $1000. Exemptions apply to each individual inheritance and not to the estate as a whole. It should be noted that the tax, where levied, is on the full amount without deduct- ing the exemption. Thus a bequest of $10,000 by a resi- dent to a child would be taxed nothing, a bequest of $20,000 would be taxed $200, one per cent on the full $20,000. But the tax must not reduce the inheritance below the exempted figure, so an inheritance of $10,001 would pay only $1.^ ' See Davis v. Stevens, 208 Mass. 343; Callahan ». Woodbridge, 171 Mass. 595; Attorney-General v. Barney, 211 Mass. 134. 50 INHERITANCE TAXES The tax is not claimed on stock of foreign corporations owning property in the State unless such stock is held by the estates of resident decedents, although real estate in Massachusetts, or any interest therein belonging to a non-resident is subject to the tax.' This was accom- plished in 1912 by an amendment exempting all per- sonal property of a non-resident. Massachusetts has thus followed the lead of New York in taking the last step to eliminate the evils of double taxation, and has gone beyond New York by relieving from tax tangible as well as intangible personal property of non-residents. Shares in voluntary associations, such as Massachu- setts Gas and Massachusetts Electric, and also shares in local real estate trusts, are treated like stock in Massa- chusetts corporations,^ except that the Tax Commis- sioner claims a tax on shares in local real estate trusts belonging to non-residents, on the ground that under the decisions they constitute interests in real estate. The tax cannot be collected unless notice of its levy is sent to the representative of the estate of the deceased person,' but a decree of distribution of the Probate Court does not free the representative of the estate from liability for the tax.^ ^ St. 1912, c. 678. A very learned opinion concerning the applica- tion of the former law to the property of non-residents may be found in Bliss v. Stevens, 221 Mass. 201. The coiurt holds notes held by a non-resident made by a partnership doing business in Massachusetts and other States to be non-taxable, and registered bonds of the Com- monwealth to be taxable except for the reciprocal clause of the old act which it construes. See also Borden v. Burrill, 221 Mass. 212, and Clark V. Treasurer, 218 Mass. 292. 2 Peabody v. Treasurer, 215 Mass. 129. A mortgage held by a non-resident on Massachusetts real estate is also taxable. Hawkridge v. Burrill, 223 Mass. 134. ' Attorney-General ». Roche, 219 Mass. 601. * Attorney-General v. Rafferty, 209 Mass. 321. . INHERITANCE TAXES 51 The Tax Commissioner has authority to compound the tax only in case of uncertain contingent interests. The State reserves the right, in allowing deductions for taxes paid to other States by the estates of residents, to decide whether such taxes were "legally" imposed and has recently refused to allow as a deduction a Mich- igan tax imposed on the transfer of stock in a Wisconsin corporation, which tax was based solely on the fact that the corporation owned property in the State of Michi- gan. ' The Tax Commissioner was attempting to levy the tax on the transfer of insurance policies, but the Probate Court ruled against this contention and the same result was reached before the Supreme Court.^ 18. Michigan Michigan's first inheritance tax law enacted in 1893 was held unconstitutional.^ The present statute dates from 1899,* with important amendments in 1903, 1907, and 1909. An interesting feature is that in the case of direct inheritances, personal property only is taxed. The following taxes are imposed: ^ — Direct inheritances, including inheritances to grandparents, parents, husband, wife, child, brother, sister, wife or widow of son, husband of ' Welch V. Burrill, 223 Mass. 87. The Tax Commissioner is also re- fusing to recognize the New Jersey taxes as legal deductions in certain cases, especially as to widows. 2 Tyler v. Treasurer (Mass. 1917), 115 N.E. 300. ' Chambe ». Judge, 100 Michigan, 112. " For constitutionality see Union Trust Co. v. Judge, 125 Mich. 487. ' P.A. 1899, No. 188; P.A. 1903, No. 195; P.A. 1907, Nos. 155 and 238; P.A. 1909, Nos. 44 and 298; P.A. 1911, Nos. 73 and 265; P.A. 1913, Nos. 17 and 30; P.A. 1915, Nos. 195 and 198. 62 INHERITANCE TAXES daughter, adopted or mutually acknowledged child, lineal descendant 1% Exemptions, real estate, personal property up to $2000; to wife, $5000. Collateral inheritances, including all other inherit- ances .■ . . . 6% Exemption, $100. The exemptions apply to individual shares, not to the estate as a whole, but when the share exceeds the ex- emption the whole share is taxed in case of direct in- heritances. Michigan taxes stock of a Michigan corporation owned by a non-resident wherever held. It taxes regis- tered bonds of a Michigan corporation as well. A person or corporation that transfers or delivers securities or assets of a non-resident before the tax is paid is respon- sible for the tax. This provision was recently held not to render a Michigan corporation liable for transfers of its stock held by non-resident decedents,^ but the law has been amended to render the corporation liable for such transfers.* Michigan taxes stock or bonds of a foreign corpora- tion owned by a non-resident if the certificates are kept in Michigan. Stock belonging to a non-resident of a foreign corporation owning property in the State ' and real estate in the State, the property of a non-resident, are also taxable. 1 People V. Quincy Mining Co., 143 N.W. 640. » St. 1915, c. 195. » This tax was held illegal in Welch v. Burrill, 223 Mass. 87. See ante, p. 12. INHERITANCE TAXES 53 19. Minnesota Minnesota has had much difficulty in getting an in- heritance tax that would satisfy the courts. Graduated probate fees similar to those in Wisconsin, first adopted in 1875 ' and extended in 1885,^ were held unconstitu- tional.* The same fate successively befell the inherit- ance tax laws of 1897/ 1901,« and 1902.« The act adopted in 1905^ survived,* but none too easily. A restrictive constitutional amendment adopted in 1894, which the Legislature persisted in disregarding, was supplanted in 1906 ' by another amendment, which, we are advised by the Attorney-General, leaves no limitation or restriction on the Legislature as to inheritance tax statutes, as it restricts all limitations of authority to property taxes. The present law was passed in 1911'" and slightly- amended in 1913,^1 and was enacted in response to a demand of the State Tax Commission to differentiate between direct and collateral inheritances. There was some doubt whether such a distinction would be valid in view of the requirement of "uniformity" in the con- stitution; but the new law has recently been sustained in all respects. ''' ' St. 1875, c. 37. 2 St. 1885, c. 103. » State ». Gorman, 40 Minn. 23i?. * St. 1897, c. 293, declared void in exempting real property and for other reasons in Drew v. Tiflt, 79 Minn. 175. = St. 1901, c. 255, declared void in State v. Bazille, 87 Minn. 500. » St. 1902, c. 3, declared void in State v. Harvey, 90 Minn. 180. ' St. 1905, u. 288. ' State ». Bazille, 97 Minn. 11. 5 St. 1905, c. 168. i» St. 1911, c. 209, 372. " St. 1913, c. 455, 565, 574. 12 State V. Probate Court, 150 N.W. 1094. This decision covers a variety of subjects and extends the principles of Blackstone v. Miller, 188 U.S. 189, as to the taxable situs of debts due decedent. In this case 54 INHERITANCE TAXES The following taxes are imposed: — To wife or lineal descendant — Not exceeding $15,000 1% $15,000 to $ 30,000 l5% 30,000 to 50,000 2% '. 50,000 to 100,000 2|% Exceeding 100,000 3% Exemption, $10,000. To husband, lineal ancestor or child adopted or acknowledged or his issue — Not exceeding $15,000 l2% $15,000 to $ 30,000 2i% 30,000 to 50,000 3% 50,000 to 100,000 3f% Exceeding 100,000 4|% Exemptions — To husband, adopted child, or issue, $10,000. To lineal ancestor, $3000. To brother or sister or descendant, wife or widow of a son or husband of a daughter — Not exceeding $15,000 3% $15,000 to $ 30,000 4j% 30,000 to 50,000 6% 50,000 to 100,000 7|% Exceeding 100,000 9% Exemption, $1000. ' To brother or sister of father or mother or descend- ant — Not exceeding $15,000 4% $15,000 to $ 30,000 6% 30,000 to 50,000 8% 50,000 to 100,000 10% Exceeding 100,000 12% Exemption, $250. the relator interposed the constitutional objections upheld in the New Jersey cases of Dixon v. Russell, 79 N. J.L. 490, and Neilson v. Russell, 76 N.J.L. 655, but the court declined to follow the New Jersey prece- dents. INHERITANCE TAXES 55 To all other relatives or strangers (except chari- ties) — Not exceeding $15,000 5% $15,000 to $ 30,000 7j% 30,000 to 50,000 10% 50,000 to 100,000 12|% Exceeding 100,000 15% Exemption, $100. To educational or charitable institutions — Not exceeding $15,000 2% $15,000 to $ 30,000 3% 30,000 to 50,000 4% 50,000 to 100,000 5% Exceeding 100,000 6% Exemption, $2500. The exemption is given in each case to the individ- ual beneficiary. Non-residents fare as badly as in most States. The stock in domestic corporations owned by the estates of non-residents is subject to the tax,' and even the exer- cise by a resident of a power of appointment created by the will of a non-resident concerning property outside the State is taxable.^ So debts owed by residents to the estates of non-residents are taxable,' but mortgage bonds of a Minnesota railroad corporation owned by a non-resident decedent passing to non-residents are not taxable, although the mortgage covers Minnesota real estate.* The State authorities have recently begun to tax trust certificates, such as Great Northern Ore certificates, in the same class as shares of stock. The question is now > State V. Probate Court, 150 N.W. 1094. ' State ». Probate Court, 124 Minn. 508. » State V. Probate Court, 128 Minn. 371. * In re Ward's Estate, 157 N.W. 1076. 56 INHERITANCE TAXES being litigated in a case which will probably be decided during the spring of 1917. A reciprocal provision favoring non-residents, passed in 1911, was repealed in 1913. The State does not, how- ever, go so far as to tax transfers of stock in foreign cor- porations belonging to non-residents simply on the ground that it owns property and does business in the State. Real estate in the State belonging to a non- resident is taxable. A non-resident executor is required to file an affidavit attaching a copy of the wiU and details of all property in the State, the total valuation of all real and personal property of the decedent, and details of the beneficiaries. The new act contains the provision, which has re- cently become very popular, forbidding safe-deposit or other companies holding securities or assets of a dece- dent to deliver them until notice of the time and place of the intended transfer has been served on the Attorney- General. Corporations transferring their stock without the assent of the State authorities are liable for the tax. 20. Missouri Missouri's first attempt at a collateral inheritance tax in 1895 was held unconstitutional.' A second attempt in 1899 fared better." Collateral inheritances only are taxed. The rate is uniformly five per cent and there is no amount exempted. The inheritances exempt are those to father, mother, husband, wife, lineal descendant, and adopted child.' An interesting detail is that the proceeds of the tax are » State V. Switzler, 143 Mo. 287. ' State V. Henderson, 160 Mo. 190. ' Rev. Stat. 1909, c. 2, Art. 14, §§309-331. See St. 1915, pp. 92, 93. INHERITANCE TAXES 57 devoted to the support of the University of Missouri, providing a sort of compulsory bequest for higher educa- tion from every estate. Missouri taxes stock of a Missouri corporation owned by a non-resident; but does not claim a tax on the stock owned by non-residents in foreign corporations simply because the corporations own property in the State, al- though the State does tax real estate in the State be- longing to non-residents, and it apparently taxes stock of a foreign corporation owned by a non-resident if the stock certificate is kept in Missouri. A debt due from a resident to the estate of a non-resident is subject to the tax.^ The court in an early opinion ^ seems to have disap- proved of the progressive rate, so it is doubtful if any legislation in that direction would be upheld until the Missouri constitution is changed. 21. Montana Montana's inheritance tax was adopted in 1897,' and was a close copy of the New York act of 1885. The statute is peculiar in that direct descendants are not assessed on real estate, while collaterals are, although the act is so poorly framed that it took a decision of the Supreme Court to establish this.* A widow's allowance is not taxable. ' The tax is upheld as being on the right to receive and not on the estate. ° » State V. Bunce, 187 Mo. App. 607. « State V. Switzler, 143 Mo. 287. ' St. 1897, p. 83, now Rev. Code of 1907, §§ 7724-7751. For con- stitutionality see Gelsthorpe v. Purnell, 20 Mont. 299. « Hinds V. Wilcox, 22 Mont. 4. 6 In re Blackburn's Estate, 152 Pac. 31. • In re Blackburn's Estate, 152 Pac. 31. 58 INHERITANCE TAXES The following taxes are imposed: — On personal property of father, mother, husband, wife, child, brother, sister, wife, or widow of a son or husband of a daughter, adopted or mutually acknowledged child or lineal descendant 1% Exemption, $7500. On real and personal property of all other bene- ficiaries 5% Exemption, $500. The exemptions apply to the estate as a whole, not to the individual share, and if the total value of the estate is above the exemption, none of the exemptions apply. ^ Montana is collecting the tax on stock in Montana corporations owned by non-residents, but not on a non- resident's stock in foreign corporations owning property in the State. The tax is claimed on real estate in Mon- tana belonging to non-residents. The representative of the estate of a non-resident must file an affidavit showing details of stock and other personal property in the State and the total value of the assets and debts, but need not file a complete inven- tory of the estate. 22. Nebraska Nebraska enacted its inheritance tax in 1901.* The following taxes are imposed: * — Direct inheritances, including those to father, mother, husband, wife, child, brother, sister, 1 See State v. District Court, 41 Mont. 357. ' For constitutionality see State v. Vinsonhaler, 74 Neb. 675. ' Compiled Stats. (1905) c. 77, Art. vin, §§ 5176 to 6196, as amended by St. 1907, e. 103, 104; St. 1911, c. 107; St. 1913, c. 14, 48; St. 1915, c. 113. INHERITANCE TAXES 69 wife or widow of son, husband of daughter, adopted or acknowledged child, lineal descend- ant — Under $10,000 exempt Excess over $10,000 1% Collateral inheritances — Inheritances to uncle, aunt, niece, nephew and lineal descendant of same — Under $2000 exempt Excess over $2000 2% All other inheritances — Under $5000 2% $ 5,000 to $10,000 3% 10,000 to 20,000 4% 20,000 to 50,000 5% Over $50,000 6% Exemption, $500. The exemptions apply to each individual share rather than to the estate as a whole, though the language creat- ing the $500 exemption is ambiguous. '^ The statutory interests of husband and wife are exempt. ^ It is a fair construction of the statute that stock in a Nebraska corporation owned by a non-resident is sub- ject to the tax, especially as there is a provision holding the corporation responsible if it transfers stock for a foreign executor before the tax is paid, if it has knowl- edge that the stock is subject to tax. The tax authorities are not collecting a tax on such stock at present if the certificate is kept outside the State. The office of the Attorney-General suggests * that no court has jurisdiction to assess an inheritance tax except ' See State v. Vinsonhaler, 74 Neb. 675. « In re Strahan's Estate, 142 N.W. 678; In re Sanford's Estate, 91 Neb. 752. 3 Under date of February 2, 1917. 60 INHERITANCE TAXES the County Court of the residence of the decedent or the County Court of the county in which he left real estate, and therefore an inheritance tax might be levied on stock in a Nebraska corporation belonging to a non- resident only if he left real estate in the State to give the County Court jurisdiction. 23. Nevada Nevada first enacted an inheritance tax in 1913 ' with high progressive rates. The following taxes are imposed: — To husband, wife, lineal issue or lineal ancestor, or child adopted or mutually acknowledged or its lineal issue — Not exceeding $25,000 1% $ 25,000 to $ 50,000 2% 50,000 to 100,000 3% 100,000 to 500,000 4% Exceeding 500,000 5% Exemptions: To widow or minor child, $20,000; all others in this class, $10,000. To brother or sister or descendant of brother or sister, wife or widow of son or husband of daughter — Not exceeding $25,000 2% $ 25.000 to $ 50,000 4% 50,000 to 100,000 6% 100,000 to 500,000 8% Exceeding > 500,000 10% Exemption, $10,000. To brother or sister of father or mother or descend- ant of such brother or sister — Not exceeding $25,000 3% $25,000 to $ 50,000 6% 50,000 to 100,000 9% > St. 1913, c. 266. INHERITANCE TAXES 61 $100,000 to $500,000 12% Exceeding 500,000 15% Exemption, $5000. To brother or sister of grandfather or grandmother or descendant of such brother or sister — Not exceeding $25,000 4% $ 25,000 to $ 50,000 8% 50,000 to 100,000 12% 100,000 to 500,000 16% Exceeding 500,000 20% No exemption. To all others — Not exceeding $25,000 6% $ 25,000 to $ 50,000 10% 50,000 to 100,000 15% 100,000 to 500,000 20% Exceeding 500,000 25% No exemption. The exemptions are figured by the tax authorities on the whole estate, although it would seem at least doubt- ful whether they should not be reckoned on the share of each beneficiary. There is as yet no authoritative deci- sion on the point. The transfer of stock in a Nevada corporation belong- ing to a non-resident is taxed, as is stock in a foreign corporation owning property in the State when the stock belongs to a non-resident.' Real estate in the State belonging to a non-resident is also subject to tax. 24. New Hampshire a eecent convert to tax reform New Hampshire's first inheritance tax, one per cent on collateral inheritances, enacted in 1878, was held unconstitutional in 1882.^ ^ As to validity of such tax, see ante p. 12. * Curry v. Spencer, 61 N.H. 624. 62 INHERITANCE TAXES An amendment to the constitution in 1903 paved the way for the present collateral inheritance tax enacted in 1905,1 and amended in 1909,^ 1911,' and 1915.^ This last amendment has placed the State in Hne with the cause of fairness in taxation by doing away entirely with the taxation of personal property of non-residents. The tax includes property passing by will made in pursuance of contract as well as gratuitous bequests.' The law formerly provided for the proportionate tax- ing of shares of stock of non-resident decedents of rail- road, telegraph, and telephone companies incorporated in both New Hampshire and some other State, but now instead any real estate or interest therein of non-resi- dents is taxed, and the efEect of the new law is to abolish inheritance taxation on the stock and bonds of domestic corporations held by non-residents. The new law pro- vides that real estate in New Hampshire of a non-resi- dent decedent may be transferred on adjustment of the tax with the State treasurer without the trouble and expense of ancillary administration. This is an example which might well be followed in some of our Western States. The future development of inheritance taxes in New Hampshire has been left in an uncertain condition by its Supreme Court, which in 1911 was asked its opinion of the vahdity of certain proposed legislation. The court repKed that the inheritance tax need not be proportional and that classification by relationship would be proper, ' The act of 1905, c. 40, was upheld in Thompson v. £idder, 74 N.H. 89. » St. 1909, 0. 104. » St. 1911, 0. 42. * St. 1915, c. 106. Other minor amendments were also made in 1907. » Carter ». Craig, 90 Atl. 598. INHERITANCE TAXES 63 but as to the validity of progressive rates the court was divided and declined to express any opinion.^ The tax is on collateral inheritances only, the rate is uniformly five per cent, and no amount is exempt. No tax is levied on an inheritance to father, mother, hus- band, wife, lineal descendant, brother, sister, adopted child, lineal descendant of adopted child, wife or widow of son, husband of daughter. It is the practice to require a complete inventory of a non-resident's estate. 25. New Jersey taxes all inheritances — a trade with informers New Jersey had a collateral inheritance tax from 1892 ^ to 1914 when direct inheritances were first taxed and a moderate progressive rate imposed. The following taxes are now collected: ' — To husband, wife, child or issue of child, adopted child or his issue or mutually acknowledged chUd — Not exceeding $5000 exempt $ 5,000 to $ 50,000 1% 50,000 to 150,000 1|% 150,000 to 250,000 2% Over $250,000 3% To father, mother, brother, sister, wife or widow of a son or husband of a daughter — Not exceeding $5000 exempt i to $50,000 2% 1 Opinion of Justices, 79 Atl. 490. * St. 1892, c. 122. ' St. 1914, c. 151, upheld in Howell v. Edwards, 96 Atl. 186. The progressive rates in the act of 1914 were construed in Torrance v. Edwards, 99 Atl. 136. 64 INHERITANCE TAXES $ 50,000 to $150,000 2|% 150,000 to 250,000 3% Over $250,000 4% AH others except domestic charities and public insti- tutions are taxed at the uniform rate of five per cent on amounts exceeding $500. Exemptions are figured on the individual share of each beneficiary. In 1908 the Court of Appeals of New Jersey decided that under the law of 1894 stock in a New Jersey cor- poration belonging to a testator domiciled in a foreign country was not taxable.' Under the present law New Jersey is taxing stock in a New Jersey corporation owned by a non-resident. A corporation which transfers such stock without permis- sion from the Comptroller is responsible for the tax and subject to a penalty as well. An appeal from a decision* of the Supreme Court upholding this tax under the pres- ent law is now pending, and the attorneys acting for the taxpayer are so confident of success that we suggest that the tax be paid under protest or that payment be de- layed until the decision is rendered. The ground of attack is that the ratio provision covering exemptions lacks uniformity.' In such a case the tax on the portion of the estate in New Jersey is that proportion of the tax which the estate would have had to pay if the deceased had been a resident of New Jersey which the New Jersey portion of the estate bears to the entire estate.* 1 Neason p. Russell, 76 N.J. L. 655. » Maxwell v. Edwards, 99 Atl. 138. See Senff v. Edwards, 88 Atl. 1026; Hopper v. Edwards, 96 Atl. 667. ' See further, ante, p. 12. * See St. 1915, c. 392. The Massachusetts tax commissioner is ob- jecting to the New Jersey method of apportioning the tax and is INHERITANCE TAXES 65 The effect of the present law is that the only prop- erty of non-residents subject to tax is real estate and tangible personal property in the State and stock of domestic corporations. No tax is laid on the transfer of stock of foreign cor- porations owning property in the State when the dece- dent is a non-resident, although New Jersey real estate owned by non-resident decedents is subject to the tax. Bonds and mortgages belonging to a non-resident covering New York real estate were held taxable in a recent case where they were physically in New Jersey at the death of the owner. ^ The State does not, however, claim a tax on registered bonds issued by a New Jersey corporation owned by a non-resident decedent. Stocks pledged by the testator are not taxable.^ The act of 1914 ' imposed the duty on banks and safe- deposit companies of giving the Attorney-General ten days' notice before transferring securities to the execu- tors of a decedent. The period in which a discount is allowed for prompt payment was also reduced from one year to six months.^ An amendment in 1914,° designed to facilitate the transfer of stock, provided that the Comptroller might issue a waiver on receipt of five per cent of the value of the stock or property of the non-resident, and should then refund any sum later found to be in excess of the tax. If the entire estate of a non-resident passes to exempt refusing to allow the full tax paid as a deduction in some cases, es- pecially as to widows. 1 Hopper V. Edwards, 96 Atl. 667. 2 Security Trust Co. v. Edwards, 99 Atl. 133. » St. 1914, c. 151. See St. 1916, c. 392. * St. 1916, c. 331. ' St. 1914. c. 68. 66 INHERITANCE TAXES heirs, the executor or administrator must file with the Comptroller a copy of the will, if any, and an aflSdavit setting forth the names and relationship of the bene- ficiaries, whereupon a waiver will be issued permitting any New Jersey stock to be transferred. If any portion of a non-resident's estate goes to other than exempt heirs, it is necessary to file in addition a complete inventory of the estate, and details of debts and expenses of administration. The Comptroller is authorized to make an arrange- ment to pay a percentage of the tax that may be col- lected to any person giving information about estates of residents that have not taken out administration within one year after the date of death, and estates of non- residents that have any property taxable in the State if the tax is not paid within three months after the death. We know of no other State which has entered into such a partnership with informers. An important principle has recently been laid down by New Jersey's highest court, that where a legatee dies before transfer of stock bequeathed no inheritance tax can be laid on his estate, as it had no interest in the stock before transfer.^ If this decision, that only one transfer tax can be levied on each transfer, is followed in other States it will often prevent the injustice of succes- sive taxes on the same stock where members of a family die in quick succession, especially if the executor of the first beneficiary is not too hasty in asking for transfer. » Miller v. Edwards, 89 Atl. 987. INHERITANCE TAXES 67 26. New York a state which has recently modified its extreme position New York has had a collateral inheritance tax since 1885, ■■ a direct inheritance tax on personal property since 1891 2 and on real estate since 1903.* Until 1910 the rate was one per cent on direct inheritances, and five per cent on collateral inheritances. In that year the State passed a drastic progressive tax running up to twenty- five per cent and bearing heavily on non-residents.^ The law had an immediate effect, according to the State Comptroller, in causing wealthy men to take up their residence in other States and in diverting investors from stock in New York corporations. As the result of a strong protest from various interests and a message from the Governor the law was repealed in 1911^ and replaced by an eminently fair statute which stood until 1916,* when new acts were passed increasing the rates to some extent. The following taxes are imposed: ' — To father, mother, husband, wife, child or adopted child — Not exceeding $25,000 1% $25,000 to $100,000 2% 1 St. 1885, c. 483. ' St. 1891, c. 215. ' St. 1903, c. 41. As to the constitutionality of the New York acts see Matter of McPherson, 104 N.Y. 306; Matter of Keeney, 194 N.Y. 281; Orr v. Gilman, 183 U.S. 278; Beers v. Glynn, 211 U.S. 477. * St. 1910, c. 706. » St. 1911, c. 732. ' St. 1916, c. 548, in effect May 15, 1916. The tax is on the right of succession and not on property. In re Terry, 218 N.Y. 218. ' St. 1916, c. 548, in effect May 15, 1916. Only the property in excess of the primary limit is taxed at the secondary rate. In re Jourdon's Estate, 135 N.Y.S. 172. 161 App. Div. 8. As to the 68 INHERITANCE TAXES $100,000 to $200,000 3% Exceeding 200,000 4% Exemption, $5000. The same rates as above are imposed on other lineal descendants with an exemption of $500. To brother, sister, wife or widow of son or husband of daughter or to mutually acknowledged child — Not exceeding $25,000 2% $ 25,000 to $100,000 3% 100,000 to 200,000 4% Exceedmg 200,000 5% Exemption, $500. To all others — Not exceeding $25,000 5% $ 25,000 to $100,000 6% 100,000 to 200,000 7% Exceeding 200,000 8% Exemption, $500. Real estate in the State belonging to non-residents is taxable if its value exceeds the exemptions allowed. In all cases the authorities require an affidavit from the representative of the non-resident showing: — ■ (1) Name and residence of decedent at time of death, with date of decedent's death. (2) Shares of stock of various New York corporations owned by the decedent; also shares of stock of corporations hav- ing a transfer ofl&ce in this State. (3) Bonds, foreign or domestic, physically present within this State at the time of decedent's death. (4) Bank stock and cash on deposit in any savings bank or other institution in this State. (5) Real property in this State owned by decedent — giving a brief description of each parcel, and the estimated value thereof. progressive rate on a widow's bequest see In re Elletson's Estate, 136 N.Y.S. 456, 76 Misc. Rep. 632. INHEEITANCE TAXES 69 (6) Any property, real or personal, or any interest therein other than the above within the State of New York, and the values thereof, including interest in co-partneiship doing business in this State. (7) The names and total amount of interest of the persons or corporations receiving any part of decedent's estate or any life estate therein, or annuity; and the relation- ship of such persons to the decedent — if a corporation, whether foreign or domestic. If from this affidavit it appears that the estate is ex- empt, consent to transfer of stock in a New York corpor- ation is immediately forwarded. The simplicity of this procedure should commend itself to lawmakers in those States which require the estates of non-residents to go to aJl the expense and delay incident to taking out ancillary probate to obtain any transfer no matter how small. New York is not one of the States that tries to collect a tax on the shares of corporations not organized imder its laws, but owning property in the State. In the case of corporations organized under New York laws and the laws of other States as well, — such as Boston & Albany, — the stock is taxed on the proportionate value of the property in New York.* An amendment in 1915 ' provided where a non-resi- dent decedent owns stocks, bonds, notes, or other evi- dences of an interest ia a corporation other than a moneyed corporation or a railway or transjwrtation, pubhc service or manufacturing corporation, that such stock is liable to taxation in the proportion the value of the real estate owned by the corporation ia New York or the value of the entire property of a partnership located in New York bears to its whole property wher- 1 Matter of Cooley, 186 N.Y. 220; Matter of Thayer, 193 N.Y. 430. » St. 1915. c. 664. See St. 1916, c. 323, § 83. 70 INHERITANCE TAXES ever situated. This amendment does not alter the spirit of the law, but was passed, as we are informed by the State comptroller, to reach corporations apparently organized to evade the law in respect to real property. 27. North Carolina North Carolina had a collateral inheritance tax from 1847' to 1874. A modest tax was imposed on both direct and collateral inheritances in 1897.^ In 1901 the rates were substantially increased and made progressive with a maximum of fifteen per cent.' This enactment was much more radical than that adopted by any of the States up to that time, but almost duplicated the na- tional inheritance tax of 1898, which was then in force. The law has since been amended lowering the maximum tax to nine per cent and strengthening the administra- tive features of the tax.* The following taxes are now imposed: — Direct inheritances, including lineal issue, lineal ancestor, adopted child,^ husband, wife — Above exemption up to $25,000 1% Excess over $ 25,000 and up to $100,000 2% Excess over 100,000 and up to 250,000 3% Excess over 250,000 and up to 600,000 4% Excess over 500,000 6% Exemptions — widows, $10,000; child under 21, $5000. All other beneficiaries in this class, $2000, provided grandchildren shall be allowed the single exemption of the child they represent. 1 St. 1847, i;. 72. 2 St. 1897, c. 168. " St. 1901, c. 9. § 12. * St. 1911, c. 46; St. 1913, c. 201; St. 1915, c. 285, § 6. ' As to who is a mutually acknowledged child see In re White's Estate. 84 S.E. 360. INHERITANCE TAXES 71 Collaterals, including brother or sister or their descendants — Twenty-five thousand dollars or less 3% Excess over $ 25,000 and up to $100,000 4% Excess over 100,000 and up to 250,000 5% Excess over 250,000 and up to 500,000 6% Excess over 500,000 7% No exemption. All others — Twenty-five thousand dollars or less 5% Excess over $ 25,000 and up to $100,000 6% Excess over 100,000 and up to 250,000 7% Excess over 250,000 and up to 500,000 8% Excess over 500,000 9% No exemption. The exemption applies to each individual share and not to the estate as a whole. North Carolina taxes stock in a North Carolina cor- poration owned by a non-resident. It holds the corpora- tion responsible if it permits the transfer of such stock before the tax is paid. The statute applies to the trans- fer by the corporation of bonds as well, and a tax is being collected on bonds of North Carolina corporations owned by non-residents. The tax is not claimed on stock of foreign corporations owning property in the State, but does apply to either real or personal property situ- ated in the State and belonging to non-residents.^ 28. NoETH Dakota North Dakota adopted a collateral inheritance tax in 1903,^ which in 1913 ' was extended to direct inherit- ances. The new act is at a progressive rate and classifies 1 Norris v. Durfey, 84 S.E. 687. 2 St. 1903, c. 171. = St. 1913, c. 185. See Malin v. La Moure County, 145 N.W. 682. 72 INHERITANCE TAXES the various degrees of relationship more minutely than does any other State. The authors of the bill seem in fact to have taken so much pains with this feature that they omitted entirely transfers to strangers in blood of the decedent, although the State Tax Commission is col- lecting tax on such transfers. A specially heavy rate of twenty-five per cent is im- posed on aliens, which provision is, to say the least, of doubtful vaKdity and certainly could not be enforced against the citizens of countries having treaty rights to equaUty of taxation.' The following taxes are imposed: — Direct inheritances, to husband or wife, father, mother, lineal descendant, adopted child or his lineal descendant — Not exceeding $100,000 1% $100,000 to $250,000 2% 250,000 to 500,000 2|% Over $500,000 3% Exemptions — To husband or wife, $20,000. To others in this class, $10,000. Collateral inheritances, to brother or sister, wife or widow of a son, or husband of a daughter of decedent — Not exceeding $25,000 1§% $ 25,000 to $ 50,000 2|% 50,000 to 100,000 3% 100,000 to 500,000 3f% Over $500,000 4f% Exemption, $500. • See Blakemore and Bancroft on Inheritance Taxes, § 61. The Secretary of State of the United States has recently ruled that Canada has never accepted the treaty of March 2, 1899, and therefore this alien tax is enforceable against Canadians. This seems fair, as many Canadian acts also discriminate against aliens. INHERITANCE TAXES 73 To brother or sister of father or mother or descend- ant — Not exceeding $25,000 3% $ 25,000 to $ 50,000 4^% 50,000 to 100,000 6% 100,000 to 500,000 7i% Over $500,000 9% No exemption. To any other collateral relative or to blood of dece- dent or body politic or corporate — Not exceeding $25,000 5% $ 25,000 to $ 50,000 6% 50,000 to 100,000 9% 100,000 to 500,000 12% Over $500,000 15% No exemption. To aliens or corporations organized outside the United States 25% The exemptions are based on the individual shares and not on the entire estate. A local court has recently held that no property of non-residents can be taxed under this law save stocks or bonds of foreign or domestic corporations. This is on account of a curious provision of the act taxing a trans- fer "of property within the State or its jurisdiction, whether the ownership of or interest in such property be evidenced by certificate of stock or bonds of foreign or domestic corporations and the decedent was a non- resident." North Dakota, therefore, is specially severe on non-residents, taxing their stock in North Dakota corporations and also their stock in foreign corporations which own property in the State. "^ The new act contains an attempt to protect residents from double taxation by exempting tangible personal * As to the validity of this tax see ante, p. 12. 74 INHERITANCE TAXES property of a resident decedent when the property is located without the State and has there paid a tax, pro- vided the laws of that State allow a like exemption. This is a curious inversion of the usual reciprocal provi- sion applicable to the property of non-residents. 29. Ohio Ohio imposed a collateral inheritance tax in 1893.* In 1894 ^ it was the first State to tax direct inheritances, and was also the first State to adopt rates increasing progressively according to the size of the estate. The act was held unconstitutional in 1895,* on account of the progressive feature, and because it was not provided that the exemption ($20,000) should be deducted from all estates exceeding that amount. This decision has not been generally followed in other jurisdictions. In 1904 * a uniform tax of two per cent was imposed on direct inheritances with an exemption of $300. This was repealed in 1906.^ At present collateral inheritances only are taxed. The rate is uniformly five per cent and the exemption is $500, which applies to the estate as a whole, not to the indi- vidual shares. The inheritances which are altogether exempt are those to father, mother, husband, wife, lineal descendant, or adopted child. A peculiar provision * directs that where a life estate or term for years is given to exempt heirs and the re- mainder to collaterals or strangers the value of the prior estate together with $500 shall be deducted from the appraisal of the property. » St. 1893, p. 14. ' St. 1894, p. 166. » State V. Ferris, 53 Ohio St. 314. * St. 1904, p. 398. " St. 1906, p. 229. ' » St. 1913, p. 463. INHERITANCE TAXES 75 Stock in an Ohio corporation owned by a non-resident is not taxed, but Ohio real estate owned by a non-resi- dent is subject to the inheritance tax. 30. Oklahoma Oklahoma did not wait long after its admission to the Union before adopting an inheritance tax law. This act, passed in 1908,^ apparently provided for arithmetical progression in the rate of tax according to the value of the share up to one hundred per cent, but the Supreme Court sheared off this feature by some judicious inter- pretation,'' whereupon the Legislature passed an en- tirely new statute' with high progressive rates, framed in accordance with the Wisconsin law. The proportional taxation of intangible property of non-residents is effected by defining intangible as tangible property. It provides for the following taxes : — Direct inheritances, including father, mother, husband, wife, child, brother, sister, wife or widow of a son, or husband of a daughter, or to adopted or mutually acknowledged child, or to lineal descendant — Not exceeding $25,000 1% $25,000 to $ 50,000 2% 50,000 to 100,000 3% Exceeding 100,000 4% Exemptions — To wife, $15,000. To chUd, $10,000. To others in this class, ! 1 St. 1907-08, 0. 81, Art 11. Compiled Laws of 1909, Art. xiv, §§ 7712-7737. « McGannon v. State, 33 Okl. 143. « St. 1915, c. 393. 76 INHERITANCE TAXES Collateral inheritances and strangers — Not exceeding $2500 exempt $ 2500 to $ 25,000 5% 25,000 to 50,000 6% 50,000 to 100,000 8% Exceeding 100,000 10% The stock of foreign corporations doing business or owning property in the State is assessed in proportion to its percentage of business in the State. The corpora- tions are liable for the collection of the tax as usual. Stock in Oklahoma corporations owned by non- residents is of course taxable, and no safe-deposit com- pany, bank, corporation, or person having securities or assets of a decedent can deliver the same, without per- sonal liability, unless first giving ten days' notice to the Attorney-General of the time and place of transfer. The new act appears to follow the vicious provision of the Michigan law requiring ancillary probate in Okla- homa in order to settle the tax on estates of non-resi- dents. This means various attorneys' and court fees all out of proportion in most cases to the amount involved. It is an entirely unnecessary hardship on the estates of non-residents, but a boon to struggling Oklahoma law- yers. When great States like New Jersey collect annu- ally huge sums without any such procedure, is there any real reason for the requirement in Oklahoma? 31. Oregon Oregon enacted its inheritance tax in 1903,^ using the Illinois statute of 1895 as a model. It has since been substantially amended.^ 1 St. 1903, p. 49. 2 St. 1905, c. 178, 309; St. 1909, c. 15, 211. Cf. St. 1915, c. 42, as to lien and limitations. INHERITANCE TAXES 77 The following taxes are imposed: * — Direct inheritances, including inheritances to grandparent, parent, husband, wife, child, brother, sister, wife or widow of son, husband of daughter, adopted or acknowledged child, lineal descendant ly. Exemption, estates less than $10,000 not taxed. Tax is on excess over $5000 to each person. Collateral inheritances — Inheritances to uncle, aunt, nephew, niece and their lineal descendants 2% Exemption, estates less than $5000 are not taxed. Tax is on excess over $2000 to each person. All other inheritances — Under $10,000 3% From $10,000 to $20,000 4% From 20,000 to 50,000 5% Over $50,000 6% Exemption — Tax is levied only when the inheritance exceeds $500; estates less than $500 axe not taxed. Stock in an Oregon corporation owned by a non- resident is subject to the tax, but stock in foreign cor- porations owned by non-residents is not taxed simply because the corporation owns property in the State. Oregon real estate is subject to the tax, although owned by non-residents. The exemptions are figured on the share of each beneficiary. A corporation is responsible if it transfers any taxable securities for a non-resident before the tax is paid. Every estate is required to file a complete inventory. 1 St. 1905, c. 178, 309; St. 1909, c. 15, 211. Cf. St. 1916. c. 42. as to lien and limitations. 78 INHERITANCE TAXES 32. Pennsylvania the pioneer whose intelligent example has found scant following Pennsylvania, the first State to enact an inheritance tax law, is one of the few States which have shown sanity in legislation and interpretation. Direct inheritances and the personal property of non-residents are very properly let alone, and the law has heen so construed as to avoid double taxation. The original law was enacted in Pennsylvania in 1826, and, with very few changes, it is the law to-day. The law was codified in 1887,' and slightly amended in 1905 " and in 1911.s Collateral inheritances only are taxed. The rate is uniformly five per cent and the exemption is $250. The inheritances not taxed are those to father, mother, hus- band, wife, child, adopted child,' step-child,^ illegiti- mate child taking from its mother,* lineal descendant, children of former husband or wife,* and daughter-in- law. It has been held that inheritances to a grandpar- ent, and a son's widow who has remarried, are taxable.' No attempt is made to tax stock in Pennsylvania cor- porations owned by a non-resident, and securities kept in the State by a non-resident are not subject to the tax.* This has been an important factor in the great growth of the safe-deposit business of the Philadelphia trust companies. » Act of May 6, 1887, P.L. 79. ' Act of April 22, 1905, P.L. 258. » St. 1911, p. 112. * Com. V. Randall, 225 Pa. 197. » Com. V. Mackey, 222 Pa. St. 613, 72 AU. 250; St. 1901, c. 325. » St. 1905, c. 181. ' McDowell I). Adams, 45 Pa. 430; Com. t>. Nancrede, 32 Pa. 389; Com. V. Powell, 51 Pa. 438. 8 Orcutt's Appeal, 97 Pa. 179. INHERITANCE TAXES 79 There was a case where a non-resident had an agent in Pennsylvania with very broad powers to buy and sell securities, in which it was held that the securities held by the agent were taxable in Pennsylvania.'^ It was later pointed out that this case must rest on its own peculiar facts and does not affect the general Pennsylvania doc- trine that securities of a non-resident, though physically within the State, are not subject to the inheritance tax.^ This does not apply to tangible personal property within the State.* Real estate in Pennsylvania is subject to the tax, although owned or possessed by a non-resident de- cedent, uidess converted into personalty by a direction in the will to sell it,* while real estate of a resident not situated in the State is not subject to tax.* It is refreshing to find the courts in at least one State insisting that, if personal property of residents held out- side of the State is to be taxed on the theory that per- sonal property follows the domicile of the owner, the logi- cal consequence of the theory is that personal property of non-residents within the State is not taxable.^ Mis- souri and Pennsylvania seem to be the only States in this country which maintain the doctrine that the inherit- ance tax is a tax on property rather than on the transfer.' A direct inheritance tax law passed in 1897, and im- posing a uniform tax of two per cent on personal prop- erty only, was held unconstitutional.' 1 Lewis's Estate, 203 Pa. 211. 2 Schoenberger's Estate, 221 Pa. 112. 3 Small's Appeal, 161 Pa. 1. * Schoenberger's Estate, 221 Pa. 112. » In re Mart, 240 Pa. 38; In re Crozer's Estate, 97 Atl. 1047, where it is not sold for payment of legacies. » Cf. Coleman's Estate, 159 Pa. 231. ' Cf . Blakemore and Bancroft on Inheritance Taxes, § 9. » Cope's Estate, 191 Pa. 1. 80 INHERITANCE TAXES It is somewhat interesting to find that the Pennsyl- vania law — which is moderate in its demands, exempts direct inheritances altogether, and lets non-residents alone — has produced from $1,000,000 to $1,500,000 annually for many years, a much greater sum than the inheritance tax law of any of the other States except New York has been reaUzing. It may be noted that Pennsylvania has enacted a stock transfer tax which went into effect January I, 1916.' 33. Porto Rico Porto Rico has had a progressive inheritance tax since 1901 imposed only on real estate in Porto Rico, whether belonging to residents or not, and on personal property of residents.^ The following taxes are now imposed: — To husband and wife, all lineal descendants, whether legitimate or illegitimate — Not exceeding $5000 1% $ 5000 to $ 20,000 1|% 20,000 to 50,000 2% 50,000 to 100,000 3% Exceeding 100,000 4% Exemptions — To wife, child, grandchild, or adopted child of male decedent, $5000. To all others, $200. To all others — Not exceeding $5000 3% $ 5000 to $ 20,000 4|% 20,000 to 50,000 ; . 6% 50,000 to 100,000 9% Exceeding 100,000 12% Exemption, I » St. 1915, p. 828. " Porto Rico Rev. St. of 1911, §§ 3075-3086; St. 1916, c. 62. INHERITANCE TAXES 81 Exemptions are to be deducted from each share in estimating the taxes. The progressive rate is in each case only on the excess above the amount Hmited at the lower rate. One pecuUar feature of this law is that the commis- sions or compensation of an executor, administrator, or trustee are treated as a legacy and subject to tax as such. Taxes are payable to the treasurer. 34. Rhode Island This State has at last followed its New England neighbors and imposed an inheritance tax with gradu- ated rates, and with two outstanding features, one of which is without precedent. The law imposes two sepa- rate taxes — one on the right to transfer and the other on the right to receive. The first is imposed on the estate and the second on the share of the beneficiary. The law also includes the so-called ratio provision in the treat- ment of the estates of non-residents, which is of doubtful validity.' This allows a non-resident only such propor- tion of the exemption as the value of his real estate in Rhode Island bears to his entire estate wherever located and applies both to the estate tax and to the beneficiary tax. The tax on non-residents is confined, however, to interests in real estate. The statute ^ imposes the following rates: — • . On the right to transfer the net estate |% Exemption, $5000. On the right to receive — To grandparent, parent, husband, wife, child, brother, sister, nephew, niece, wife or widow of 1 See ante, p. 12. " St. 1916. c. 1339. 82 INHERITANCE TAXES son, husband oi widower of daughter, or any child adopted or acknowledged, or any lineal descendant — Not exceeding $50,000 f% $ 50,000 to $ 250,000 1% 250,000 to 500,000 li% 500,000 to 750,000 2% 750,000 to 1,000,000 2^% Exceeding, 1,000,000 3% Exemption, $25,000. To all others — Not exceeding $50,000 5% $50,000 to $ 250,000 6% 250,000 to 1,000,000 7% Exceeding 1,000,000 8% Exemption, $1000. 35. South Dakota This State first adopted an inheritance tax in 1905,^ which has been recently upheld.^ Entirely new acts were passed in 1913 ' and 1915 * embodying the progres- sive rate and other modern features and very closely following the Minnesota statute. The following taxes are imposed: — To wife or lineal issue — Not exceeding $15,000 1% $15,000 to $ 30,000 li% 30,000 to 60,000 2% 60,000 to 100,000 2^% Exceeding 100,000 3% Exemption, $10,000. To husband, lineal ancestor, child adopted or acknowledged, or its issue — Not exceeding $15,000 1§% $15,000 to $ 30,000 2i% 1 St. 1906, 0. 54. 2 /„ ,e McKennon, 130 N.^. S3. > St. 1913, 0. 243. • St. 1915, c. 217. INHERITANCE TAXES 83 $30,000 to $ 50,000 3% 50,000 to 100,000 3f% Exceeding 100,000 4|% Exemptions — To lineal ancestor $3000. To all others in above class, $10,000. To brother or sister or descendant, wife or widow of son or husband of daughter — Not exceeding $15,000 3% $15,000 to $ 30,000 4i% 30,000 to 50,000 6% 50,000 to 100,000 7|% Exceeding 100,000 9% Exemption, $1000. To brother or sister of father or mother or de- scendant — Not exceeding $15,000 4% $15,000 to $ 30,000 6% 30,000 to 50,000 8% 50,000 to 100,000 10% Exceeding 100,000 12% Exemption, $250. To other relatives or strangers — ■ Not exceeding $15,000 5% $15,000 to $ 30,000 7|% 30,000 to 50,000 10% 50,000 to 100,000 12f % Exceeding 100,000 15% Exemption, $100. This State is now, under the guidance of its Tax Com- mission, collecting tax on stock in South Dakota cor- porations owned by non-resident decedents, and also seems to be taxing bonds issued by domestic corpora- tions held by non-resident decedents. The application required for transfer provides for the disclosure of the following by non-residents: — Stock in South Dakota corporations. Safety-deposit boxes in South Dakota. 84 INHERITANCE TAXES Bonds issued by South Dakota debtors. Mortgages on local real estate. Money within the State. Interest in local partnership or association. Claims or debts due from residents of South Dakota. Bank deposits in local banks in the name of the decedent, jointly or in trust. South Dakota real estate. Property in South Dakota transferred in contemplation of death. 36. Tennessee Tennessee adopted a collateral inheritance tax in 1891 * and extended the tax to direct inheritances in 1909.2 The following taxes are imposed: — Inheritances to parent, husband, wife, child (but not adopted child), lineal descendant — Under $10,000 exempt $10,000 to $20,000 1% Over $20,000 1|% All other inheritances 5% (Provided that no estate valued at less than $250 shall be subject to tax.) The statute is constitutional even in the peculiar pro- visions as to exemptions.* The exemptions and the rates apply to the size of the whole estate and not of the indi- vidual share of the beneficiary. » St. 1891, u. 25. See St. 1893, c. 174, which with amendments b still the law. * St. 1909, c. 479. The exemption to direct inheritances was altered from $5000 to $10,000 by St. 1915, c. 83. As to collection by proceedings within one year see Deen v. Cren- shaw, 158 S.W. 987. 3 State V. Alston, 94 Tenn. 674. INHERITANCE TAXES 85 The taxing authorities are collecting a tax on the transfer of stock in domestic corporations owned by non- residents and the tax appKes to any property in the State belonging to non-residents. The tax is now being claimed on bonds issued by Tennessee corporations owned by non-resident decedents. In appraising the share of an annuitant the annuity tables are not conclusive, but the health, habits, and occupation of the annuitant should be considered.* A statute ^ exempting religious, literary, and charit- able corporations was held unconstitutional by the Supreme Court.* 37. Texas Texas adopted a collateral inheritance tax in 1907. Inheritances to father, mother, husband, wife, and direct lineal descendant * are exempt. The following taxes are imposed: * — Inheritances to lineal ancestor (except father or mother), brother or sister and lineal descendant of same — Under $ 2000 exempt Excess over 2000 up to $ 10,000 2% Excess over 10,000 up to 25,000 2|% Excess over 25,000 up to 50,000 3% Excess over 50,000 up to 100,000 3|% Excess over 100,000 up to 500,000 4% Excess over 500,000 5% 1 Crenshaw v. Knight, 156 S.W. 468. 2 St. 1903, c. 561. * In re Speed, unreported. * An adopted child is exempt as a lineal descendant. State ». Yturria, 189 S.W. 291. 6 General Laws of Texas, p. 496; Acts First Called Session, 30th Legislature (1907), c. 21. 86 INHERITANCE TAXES Inheritances to uncle or aunt or their lineal de- scendants — Under $ 1000 exempt Excess over 1000 up to $ 10,000 3% Excess over 10,000 up to 25,000 4% Excess over 25,000 up to 50,000 5% Excess over 50,000 up to 100,000 6% Excess over 100,000 up to 500,000 7% Excess over 500,000 8% All other inheritances — Under $ 500 exempt Excess over 500 up to $ 10,000 4% Excess over 10,000 up to 25,000 5|% Excess over 25,000 up to 50,000 7% Excess over 50,000 up to 100,000 8|% Excess over 100,000 up to 500,000 10% Excess over 500,000 12% The exemption applies to each individual share, not to the estate as a whole. Texas is now claiming a tax on stock of a Texas cor- poration owned by a non-resident, although there is no provision for collecting such a tax through the corpora- tion, such as is usually found. A tax is claimed on bonds issued by Texas corporations held by non-resident decedents though some corporations will transfer regis- tered bonds without obtaining waivers. An attempt to pass a new law in 1915 failed. 38. Utah Utah has had an inheritance tax since 1901,' amended in 1915 ^ by lowering the rate on small shares. All in- heritances are taxed at the same rate. 1 St. 1901, c. 62, amended by St. 1903, c. 93; St. 190S, c. 119. This act is modelled after tbe Iowa statute and is constitutional, Dixon v. Ricketts, 26 Utah, 215. ' St. 1915, c. 98. See also St. 1916, c. 28. INHERITANCE TAXES 87 The following taxes are imposed: — Exemption, $10,000. $10,000 to $25,000 8% Exceeding $25,000 5% The exemption is figured on the amount of the whole estate and not of the individual share,' and the progres- sive rate should be figured in the same way. A widow's interest above her statutory third is subjeqt to tax." Utah is collecting the tax on the stock of domestic corporations owned by non-residents, but not on stock of a foreign corporation owned by non-residents simply because it owns property in the State. Real estate in the State belonging to non-residents is taxable. The State does not, we are advised by the Attorney- General, under date of February 21, 1917, "assume to collect an inheritance tax from estates owning reg- istered bonds of Utah corporations, when said bonds were not physically within this State at the time of the death of the owner." S9. Vebmont A STATE WHICH LEADS IN REFORM Vermont's first collateral inheritance tax was enacted in 1896 ' and substantially amended in 1904. Its main features are very similar to the New Hampshire statute. The tax is on collateral inheritances only, the rate is uniformly five per cent, and no amount is exempt. No tax is levied on an inheritance to father, mother, hus- band, wife, lineal descendant, stepchild, adopted child, > Dixon V. Ricketts, 26 Utah, 216. ' In re Bullen's Estate, 151 Pac. 633. > For constitutionality see Hickok's Estate, 78 Vt. 260. 88 INHERITANCE TAXES child of stepchild or of adopted child, wife or widow of son, husband of daughter.* Vermont in 1912 took the last step toward fairness to non-residents by Umiting the tax on transfers of personal property to resident decedents.^ This ehminates the tax on stock in domestic corporations held by non- residents. A reciprocal provision, that the law should not apply to property located in another State or coun- try unless there exists in such other State or country a reciprocal law similar to the Vermont act,' was repealed in 1915.* If any inheritance tax has been paid by either a resi- dent or non-resident to any other State or Government, except the United States, on account of the transfer of securities, bank deposits, or other assets, the Vermont tax is limited to an amount suflScient to make the total tax five per cent. Vermont does not tax the bank deposits of a Vermont resident in another State and this would seem to apply to seciurities outside the State as well.* 40. ViKGINU The conservative influence of Pennsylvania has ex- tended to the three neighboring States of Delaware, Maryland, and Virginia. These States do not tax direct inheritances and do not tax stock in corporations or- ganized under their laws that is owned by non-residents. Virginia adopted a collateral inheritance tax in 1844. Its last legislation was in 1910.' The tax is on collateral ' Public Stats, c. 38, §§ 821-901, as amended by Acts 1908, No. 31. approved January 28, 1909; St. 1912, c. 60; St. 1915, c. 61. » St. 1912, c. 60. » St. 1912, c. 60, § 5. * St. 1915, c. 61. 6 Joyslin's Estate, 76 Vt. 88. ' Acts 1910, c. 148, amending Acts 1903, c. 148, § 44. For constitu- INHERITANCE TAXES 89 inheritances only, the rate is uniformly five per cent, and there is no amount exempted. The tax is not levied on an inheritance to grandparents, parents, husband, wife, brother, sister, or lineal descendant. Stock of Vir- ginia corporations owned by non-residents is not tax- able. 41. Washington Washington adopted an inheritance tax in 1901,' with important amendments in 1905 ^ and 1907.' The following taxes are imposed: * — Direct inheritances — Including inheritances to father, mother, hus- band, wife, lineal descendant, adopted child, lineal descendant of adopted child — Not exceeding $10,000 exempt Excess over $10,000 1% Collateral inheritances — Inheritances to collateral heirs to and including the third degree of relationship — Not exceeding $50,000 3% Excess over $ 50,000 up to $100,000 4|% Excess over 100,000 6% Inheritances to collateral heirs beyond the third degree, or strangers — Not exceeding $50,000 6% Excess over $ 50,000 up to $100,000 9% Excess over 100,000 12% tionality of state inheritance tax see Miller v. Com., 27 Gratt. 109, and Eyre v. Jacob, 14 Gratt. 422. Right of cities to levy such tax is denied; Peters v. Lynchbtn'g, 76 Va. 927; Wytheville v. Johnson, 108 Va. 589. The tax on remainders is considered in Com. v. Wellford, 76 S.E. 917. 1 St. 1901, c. 55, held constitutional in State v. Clark, 30 Wash. 439. The law applies to testate as well as intestate estates, although the word "inheritances" was used in the title. In re White, 42 Wash. 360. 2 St. 1905, c. 93, 114. 2 St. 1907, c. 217. * Revenue Laws 1907, §§ 204-221. The twenty-five per cent tax on collateral aliens was repealed by St. 1911, c. 19. 90 INBDERITANCE TAXES The exemption under direct inheritances applies to the estate as a whole, not to individual shares, and if the Washington portion of the estate of a non-resident is less than this amount, the estate is not taxed. Washington taxes stock, but not bonds,' of a Wash- ington corporation owned by a non-resident, but does not tax stock in foreign corporations which have prop- erty in the State when the stock is owned by non- residents. Real estate in the State belonging to a non- resident is taxed. It is not the practice to require an inventory of the entire estate before permitting the corporation to transfer stock owned by a deceased non- resident. 42. West Virginia West Virginia adopted a collateral inheritance tax in 1887 and extended it to direct inheritances in 1907. The following taxes are imposed: ^ — , Direct inheritances — Inheritance to widow, Under $ 15,000 exempt Excess over 15,000 up to $ 35,000 1% Excess over 25,000 up to 60,000 l|% Excess over 60,000 up to 100,000 2% Excess over 100,000 up to 600,000 2^% Excess over 600,000 3% Inheritances to husband, child, lineal descendant, lineal ancestor. Under $10,000 exempt Excess over 10,000 up to $25,000 1% * The State Board of Tax Commissioners rules, under date of Jan- uary 25, 1917, that a bond is not an "obligation" in the State within the meaning of the statute. 2 West Vbginia Code, c. 33; Code Supplement (1909), c. 83; Acts 1907, c. 36; Acts 1909, c. 63; Acts 1913, c. 25. INHERITANCE TAXES 91 Excess over $ 25,000 up to $ 50,000 1^% Excess over 50,000 up to 100,000 2% Excess over 100,000 up to 500,000 2§% Excess over 500,000 3% Collateral inheritances — Inheritances to brother or sister (not including half blood). Under $25,000 3% Excess over 25,000 up to $ 50,000, 4|% Excess over 60,000 up to 100,000 6% Excess over 100,000 up to 500,000 7|% Excess over 500,000 . . 9% All other inheritances. Under $25,000 5% Excess over 25,000 up to $ 50,000 7j% Excess over 50,000 up to 100,000 10% Excess over 100,000 up to 500,000 12^% Excess over 500,000 15% The exemptions apply to the individual shares, not to the estate as a whole. The State is collecting the inherit- ance tax on stock of corporations organized under the laws of West Virginia belonging to non-residents, but not on bonds of non-residents issued by West Virginia corporations where the bonds were not in the State at the date of the decedent's death. The following property of all non-residents is speci- fically made taxable: all real estate and tangible prop- erty including money on deposit within the State; all intangible personal property including bonds, securities, shares of stock, and choses in action, the evidence of ownership of which is actually within the State; stock in West Virginia corporations whether the certificates are within or without the State. The retaliative provision designed to avoid double taxation of non-resident securi- ties has been omitted.^ > St. 1913, c. 25. 92 INHERITANCE TAXES Double taxation of personal property belonging to a resident of the State, but kept outside the State, is avoided by a provision that if such property has been taxed in other States West Virginia will not tax it, unless the outside tax is less than the West Virginia tax, and then West Virginia collects only the difference.^ A corporation is responsible for the tax if it transfers securities before the tax is paid if it had reasonable cause to know that the property was subject to the tax. It is not the practice to require an inventory of the estate of a non-resident. 43. Wisconsin Wisconsin's first inheritance tax law, passed in 1868, amounted to little more than a sliding scale of probate fees, and after various amendments was declared uncon- stitutional.^ A genuine inheritance tax, enacted in 1899, was declared unconstitutional because the exemption applied to the estate as a whole, not to the individual shares.' Finally in 1903 the Legislature passed an act which satisfied the constitutional requirements.* The following taxes are imposed: ' — Direct inheritances — Inheritance to widow — First $10,000 exempt Excess over 10,000 up to $25,000 1% 1 Sec. 6. ' State ». Mann, 76 Wis. 469. - Black V. State, 113 Wis. 206. * Nmmemacher v. State, 1889 Wis. 190. ' Laws 1903, c. 44, 249; Laws 1905, c. 96; Laws 1907, c. 600; Laws 1909, c. 38, 504; Wisconsin Statutes, §§ 1087-1 to 1087-24 inc., 162, 3818, 3813a, and 3871a. St. 1911, c. 460, 530; St. 1913, c. 627, 643, 763; St. 1916, c. 253, 498. Tax on transfer resulting from failure to appoint is valid under St. 1913, §§ 1087-1. Montague v. State, 167 N.W. 608. INHERITANCE TAXES 93 Excess over $ 25,000 up to $ 50,000 1§% Excess over 50,000 up to 100,000 2% Excess over 100,000 up to 500,000 2^% Excess over 500,000 3% Inheritances to husband, lineal issue, lineal an- cestor, adopted or mutually acknowledged child and lineal issue of such child — First $ 2,000 exempt Excess over 2,000 up to $ 25,000 1% Excess over 25,000 up to 50,000 . . . ; 1|% Excess over 50,000 up to 100,000 2% Excess over 100,000 up to 500,000 2|% Excess over 500,000 3% , Collateral inheritances — Inheritances to brother, sister, or their descend- ants, wife or widow of son, husband of daugh- ter — First $ 500 exempt Excess over 500 up to $ 25,000 1|% Excess over 25,000 up to 50,000 2j% Excess over 50,000 up to 100,000 3% Excess over 100,000 up to 500,000 3|% Excess over 500,000 4|% Inheritances to brother or sister of father or mother or their descendants — First $ 250 exempt Excess over 250 up to $ 25,000 3% Excess over 25,000 up to 50,000 4§% Excess over 50,000 up to 100,000 6% Excess over 100,000 up to 500,000 7|% Excess over 500,000 9% Inheritances to brother or sister of grandfather or grandmother or their descendants — First $ 150 exempt Excess over 150 up to $ 25,000 4% Excess over 25,000 up to 50,000 6% Excess over 50,000 up to 100,000 8% Excess over 100,000 up to 500,000 10% Excess over 500,000 12% 94 INHERITANCE TAXES All other inheritances — First $ 100 exempt Excess over 100 up to $ 25,000 5% Excess over 25,000 up to 50.000 7|% Excess over 50,000 up to 100,000 10% Excess over 100,000 up to 600,000 l^% Excess over 500,000 15% The exemption applies to each individual share, not to the estate as a whole. If the Wisconsin portion of an inheritance is less than the exempted amount, Wisconsin imposes no tax. The exemption is apportioned to the share of the Wisconsin property of a resident as com- pared with his share of the whole estate, as no tax is levied on property of a resident decedent located with- out the State when the transfer of such property is sub- ject to an inheritance tax where located, which tax has been paid; provided such property is not outside the State temporarily and provided the laws of the State where it is located allow a like exemption. This provi- sion was added in 1913 as a step toward avoiding double taxation.* This State makes a special point of prompt issue of waivers for transfer in the estates of non-residents. Wisconsin is notable as being the first to attempt by direct statute to impose an inheritance tax on insurance policies. These are generally held not to be a part of the estate,'' but a recent statute ' provides that insurance payable upon the death of any person shall be deemed part of his estate and subject to tax as such. Wisconsin taxes stock in a Wisconsin corporation owned by a non-resident. So stock of a non-resident in a » St. 1913, c. 627, §2. ' Cf. Blakemoie and Bancroft on Inheritance Taxes, p. 94. Tyler «. Treasurer (Mass. 1917), US N.E. 300. ' St. 1915. C. 253. INHERITANCE TAXES 95 foreign corporation owning property in Wisconsin is also taxable.^ The law provides for the payment of such tax at a value proportionate to the Wisconsin property as compared to the entire property of the corporation. So the real estate of a non-resident is subject to tax. A corporation or individual that transfers or delivers any securities or assets of a non-resident without first notifying the Attorney-General, and then receiving his permission to do so, is responsible for the tax. It is not the practice to require a complete inventory of a non- resident's estate. 44. Wyoming Wyoming adopted an inheritance tax in 1903, which was modified in 1909. The following taxes are imposed: " — Direct inheritances, including inheritances to father, mother, husband, wife, child, brother, sister, wife or widow of son, husband of daugh- ter, adopted or acknowledged child, lineal de- scendant — If entire estate is under $10,000 exempt On excess over $10,000 2% Collateral inheritances, including all other in- heritances 5% If entire estate is under $500 it is not taxed. Wyoming is now collecting a tax on stock of a Wyom- ing corporation owned by a non-resident if the stock certificate is kept outside the State, and the statute contains the usual provision holding the corporation responsible for the collection of the tax. * That such tax is illegal, see ante, p. 12, ' Compiled Statutes (1910), c. 165. CHAPTER VIII THE FEDERAL LAW: A UNIQUE DOCUMENT Congress, on September 8, 1916, enacted, in a time of peace and prosperity, an inheritance tax law in many respects of a novel character. It was drafted and pushed through Congress during the heat of a Presi- dential campaign by the Democrats and opposed by the RepubUcans as a strict party measure as a part of a general omnibus bill for overcoming a large deficit in the National Treasury. It had always been taken for granted that inheritance taxes should in normal times be left to the States and only enacted by the Federal Government as an emer- gency measure as was done during the Civil and the Spanish Wars. This new law overturns this precedent, and it was even predicted in the congressional debates that all inheritance taxation would be shortly taken over by the Federal authority, the proceeds paid to the Na- tional Government, and among the States. The new law is fundamentally different from existing legislation in that it is imposed on the estate itself in- stead of on each distributive share.* The drastic provi- sions for collection require the executor, within thirty days of his appointment or of coming into possession of any property of the decedent, to give notice to the col- lector, to make returns of the gross and net estate where 1 The only precedent in this country for this provision seems to be the recent Rhode Island law of 1916. See ante, p. 81. The early probate fees were of a difierent nature. INHERITANCE TAXES 97 the gross estate exceeds $60,000, or where the estate is subject to tax, and further provides that the tax is due one year after the decedent's death, and ninety days later the collector shall, in case of non-payment, com- mence proceedings to sell the assets of the estate "unless there is reasonable cause for further delay." The tax remains a hen on the "gross estate" of the decedent for ten years after his death and is a lien on all property transferred by the decedent within two years before his death, except in case of a bona-fide sale for a fair consideration. The latter provision seems to place on the parties the burden of proving that a sale was bona fide. The result may well be that wealthy men may have difficulty in selling their property, as cautious convey- ancers might properly require evidence of record that a conveyance was made " for a fair consideration," in or- der to guard against this lien. The rates are progressive and based solely on the size of the net estate and not on the size of the distributive shares or the relationship of the beneficiaries. They are as follows on residents: — ■ Not exceeding $50,000 exempt $ 50,000 to $ 150,000 2% 150,000 to 250,000 3% 250,000 to 450,000 4% 450,000 to 1,000,000 5% 1,000,000 to 2,000,000 6% 2,000,000 to 3,000,000 7% 3,000,000 to 4,000,000 8% 4,000,000 to 5,000,000 9% Exceeding 5,000,000 10% The progressive rates in each case are imposed only on that portion of the estate exceeding the lower rate. For example, in an estate of $300,000, $50,000 is exempt. 98 INHERITANCE TAXES $100,000 is taxable at 2 per cent, $100,000, at 3 per cent, and $50,000 at 4 per cent. Non-residents are entitled to no exemption, but must pay 1 per cent on the first $50,000 and the progressive rates applied to residents, but the tax is levied only on the property located in the United States.' Congress amended this law on March 3, 1917, by im- posing the following rates " upon the transfer of the net estate of every decedent dying after the passage of this act, whether a resident or non-resident of the United States": — Not exceeding $50,000 1§% $ 50,000 to $ 160,000 8% 150,000 to 250,000 4|% 250,000 to 450,000 6% 450,000 to 1,000,000 7|% 1,000,000 to 2,000,000 9% 2,000,000 to 3,000,000 10^% 3,000,000 to 4,000,000 12% 4,000,000 to 5,000,000 13^% Exceedmg 5,000,000 15% The net estate is defined by the original act to include only values over $50,000 of the estates of residents, so this act continues the exemption of $50,000 and in- creases the rates fifty per cent. The same discrimination against non-residents is continued, as they are allowed no exemptions. There would appear to be the gravest doubt as to the constitutionality of the law, with little guide in the way of precedents, as it seems to have been framed without any reference to prior National or State legislation on the subject. Two obvious attacks on the law are, first, ' This feature of the tax appears to be a clear violation of certain treaties. Cf. Blakemore and Bancroft on Inheritance Taxes, § 61. ^ INHERITANCE TAXES 99 that it is a direct tax,' and as such should be apportioned among the several States; and second, that making its graduated tax depend on the size of the estate rather than on the size of the distributive share is so grossly unfair as to be void as lacking in uniformity, for which view there are various precedents.^ One curious effect of the law is that it bears solely on the residue, and as probably nine wills out of ten leave the residue to the wife or children of the testator, this results in a tax on lineals exempting collaterals and strangers. The law as first passed was expected to yield an an- nual revenue of $54,000,000, while all the States to- gether have been collecting only $28,000,000 annually from this source. ^ As to what is a direct tax on inheritances, see Cotton e. Bex (1914), A.C. 176. ' See, for example. Black c. State, 113 Wis. 205. CHAPTER IX A MOVEMENT FOR A UNIFORM INHERITANCE TAX LAW The demand for a uniform inheritance tax law found expression in the report of a committee on the subject made to the Fourth International Tax Conference held at Milwaukee, Wisconsin, in the summer of 1910. Thirty-five States, two Canadian Provinces, and sixteen universities were represented by officially appointed delegates. At the first conference in 1907 the following resolution had been adopted: — WniaiEAa, the principles of international and interstate comity require that the same property should not be taxed by two jurisdictions at the same time, and the laws for taxa- tion of the transfer of property at death commonly trans- gresses these principles, be it Resolved, that succession and inheritance tax laws should be so amended that the same property shall not be taxed by two jurisdictions at the death of the owner. At the second conference in 1908 a committee was ap- pointed to prepare a model bill which would accomplish this result. This committee included: — Honorable William H. Corbin, State Tax Commis- sioner of Connecticut. Professor Charles J. Bullock, Harvard University. Honorable Lawson Piu-dy, President of the Depart- ment of Taxes, New York City. Mr. A. C. Pleydell, Secretary, New York Tax Reform Association. INHERITANCE TAXES Mr. E. L. Heydecker, Assistant Tax Commissipndc New York City. Professor Joseph H. Underwood, University of Montana. Professor S. S. Huebner, University of Pennsylvania. The committee aimed to produce a bill imposing a reasonable tax which would provide a fair revenue and also a tax definitely fixed and easily computed. The tax proposed is graded as to relationship and progressive as to the amount of the inheritance, and is based on the value of each inheritance, not on the total value of the estate. It avoids double taxation of securities by pro- posing that they should be taxed only at the residence of the owner. "Tangible property" is defined to mean corporeal property, such as real estate and goods, wares, and mer- chandise. "Intangible property" is defined to mean incorporeal property, including money, deposits in bank, shares of stock, bonds, notes, credits, evidences of an interest in property, and evidences of debt. The proposed law then provides that a resident shall pay an inheritance tax on all his intangible property and on his tangible property situated within the State, and that a non-resident shall pay an inheritance tax only on tangible property within the State. The classification and rates proposed are as follows: — ■ Direct inheritances, including those to father, mother, husband, wife, child, brother, sister, wife or widow of son, husband of daughter, adopted or mutually acknowledged child, lineal descendant — Under $2500 (to each heir) exempt Excess over $ 2500 up to $ 25,000 1% Excess over 25,000 up to 250,000 2% 102 INHERITANCE TAXES Excess over $ 250,000 up to $1.000,000 S% Excess over 1,000,000 4% Collateral inheritances, including all other in- heritances — Under $500 (to each heir) exempt Excess over $ 500 up to $ 10,000 2% Excess over 10,000 up to 26,000 3% Excess over 25,000 up to 100,000 6% Excess over 100,000 up to 1,000,000 10% Excess over 1,000,000 15% The conference recommended to every one of the States the adoption of such a bill. Whatever difference of opinion there may be as to the rates suggested, there certainly can be no sound excuse for not adopting the provisions that eliminate double taxation. To obtain uniform legislation, concerted action throughout the country is necessary, as it was, for ex- ample, in the adoption of the uniform " Negotiable In- struments Act." The power to impose an inheritance tax is shared by the States and the Federal Government independently so that Federal legislation cannot accom- plish uniformity. Incidentally, the Tax Conference has taken a very decided position that the Federal Government should not exercise its power to levy an inheritance tax, but should leave this tax to the States, which action did not avail, however, in preventing the Federal act of 1916. The opinion of the Association has been recently formulated by its committee as follows: ' — First. Inheritance taxes must be levied by a given State only with reference to such property as devolves in accordance with its laws. 1 Proceedings, National Tax Association, 1914. INHERITANCE TAXES 103 Second. Real estate and tangibles can have but one situs; namely, the place or places of location. Third. Intangibles as such have no taxable situs, but should subject their owner at his domicile to taxation reasonably proportional to the income he derives. The proceedings of this Association have already had considerable effect in stopping the riot of double and triple taxation. Its recommendations have been already followed, in whole or in part, in Connecticut, New Hampshire, Colorado, Arkansas, South Dakota, North Dakota, and New York, while Massachusetts and Ver- mont have gone beyond the scheme of the Association by exempting all personalty of non-residents. The latest suggestion toward uniformity in inherit- ance taxation is that made recently by Professor Selig- man, and discussed in Congress during the debate on the Revenue Law of 1916, that all inheritance taxes should be collected solely by the National Government under a Federal law and that the proceeds should be distrib- uted equitably between the Federal Government and the several States. This large increase in Federal activi- ties would certainly eliminate the evils of double taxa- tion, but would be a long step away from the American ideal of local self-sufficiency and toward centralized con- trol. It may well be that we are now so commercially interdependent that our forefathers' notions of State con- trol of local affairs, especially of taxation, are no longer apt and that the future will see an entire readjustment of inheritance and income taxes. CHAPTER X SOME MATTERS NOT TOUCHED UPON — THE POSITION OF TRUST CERTIFICATES — SOME EFFORTS TO AVOID DOUBLE TAXATION The ptirpose of the foregoing chapters has been only to indicate to investors in a general way how their securi- ties may be affected by inheritance tax laws, especially of States other than the ones in which they reside. For that reason many matters of considerable importance have not even been touched upon. The position of bequests for religious, charitable, or educational purposes has not been gone into. Such be- quests are commonly exempt from inheritance tax, though usually the bequest is exempt only if the money is to be spent in the State. No attempt has been made to deal with the compli- cated details involved in computing the inheritance tax where property is left in trust, or otherwise, to one per- son for life and then passes to some one else. Nor has there been any attempt to go into questions of administrative details, such as who determines the tax, who collects the tax, and when it is due. There is usually some advantage in prompt payment and a pen- alty in the way of excessive interest if payment is de- layed beyond a certain time. From numerous inquiries that we have received it seems that there is some confusion as to the basis of the computation of the inheritance tax on securities. Many INHERITANCE TAXES 105 people have an idea that the tax is based on their par value. Such is not the case. The tax on all property is based upon its real or market value at the time of death.i There is much imcertainty as to the status of trust cer- tificates like Great Northern Ore certificates. It has been noted that Massachusetts treats very similar or- ganizations, such as Massachusetts Electric and Massa- chusetts Gas, as standing on the same footing with Massachusetts corporations, although they are not in- corporated and their shares represent only a beneficial interest in property held by trustees. As to the status of Great Northern Ore certificates (it will be remem- bered that the Great Northern Railway is a Minnesota corporation), we are advised by the office of the At- torney-General of Minnesota, under date of February 19, 1917, that they have been taxing such certificates in the same manner as shares of stock during the past year. There is a case pending in the District Court of Ramsey County involving the validity of such tax which will probably be tried during the spring of 1917. As has been noted, very few of the many questions that arise have been settled by the courts. Where a question has not been passed upon by the courts, it may be safely assumed that the tax authorities will construe it in such a way as to get a tax for the State and the big- gest one possible. To this situation is due much of the irritation occasioned by the operation of inheritance tax laws. Though a State may make the most preposterous claims, it is often cheaper to pay than to fight, but there is gradually accumulating an amount of righteous indig- nation that will certainly result in the substitution of at ^ Hooper v. Bradford, 178 Mass. 95. 106 INHERITANCE TAXES least common decency for highway robbery in the ad- ministration of inheritance tax laws. There have been some interesting efforts to meet the injustice of these laws. An expedient that is finding in- creasing favor with investors is to keep their stock certi- ficates of foreign corporations in the name of their banker or broker. This seems not only an effective, but a square and legitimate method of preventing the outrage of double taxation. The only possible pretext that a State has for levying an inheritance tax on stock of a do- mestic corporation, owned by a non-resident, is that ordinarily it is necessary to resort to the protection of the laws of the State to transfer the securities, but if securities are held in such a way that it is not necessary to transfer them in settling an estate, the State of in- corporation certainly has no moral or legal right to a transfer tax. Another device which has been sometimes, upheld is to make deposits or keep stock in the name of two indi- viduals, as the husband and wife, and the survivor. Such transfers have, however, been directly taxed by statute in Massachusetts and New York and have been found taxable in some other States. The creation of a trust does not seem an effective means for avoiding inheritance taxes, as the imposition of an inheritance tax by the State of the domicile on a trust fund kept in another State over which fimd the decedent reserves complete control is upheld in a recent decision by our highest court. ^ A simple method of avoiding the payment of a collat- eral inheritance tax, in a State which does not tax direct inheritances, is found in an Iowa case in which the col- » Bullen V. Wisconsin, 36 U.S. Sup. Ct. Rep. 473. INHERITANCE TAXES 107 lateral legatees, and others interested in the will, all united in renouncing the provisions of the will and agree- ing that the property might be distributed as in the case of intestacy. The court upheld their right to do this, with the result that the property passed entirely to direct heirs and the State got no tax. Though it was fairly evident that there was some sort of an under- standing that the collateral legatees should not suffer by their renxmciation, the effect of such an understanding was not passed upon by the court.^ Other people have tried incorporating themselves into a holding company. To a man holding securities in cor- porations of numerous States, this plan has much to commend it. On his death his estate consists simply of the shares of the holding company in whose treasury are held his other securities. In a Minnesota case a man incorporated himself, turned over all his property to the corporation, issued the stock to his family in the propor- tions in which he wished them to share his property on his death, and then had the property leased by the cor- poration back to him for his life. This family did not pay any inheritance tax.^ Such devices are, however, not common, and only worth while for large estates. For the estate of ordinary size inheritance taxation is frequently not taxation, but legalized or "officialized" robbery. We have spoken of double and triple taxation. If a man lives in one State and has stock in a corporation organized in another State, which does all its business in a third State, and keeps his stock in a safe-deposit box in a fourth State, his estate may be obhged to pay a full ' In re Stone, 132 Iowa, 136. « State V. Probate Court, 102 Minn. 268. 108 INHERITANCE TAXES inheritance tax four times. The first State may be any one of forty-three; the second State, any one of at least twenty-eight; the third, any one of thirteen; ^ and the fourth, any one of half a dozen. ' Such tax is, however, illegal. See anie, p. 12. CHAPTER XI CANADA CoRPOBATiONS may be organized either under the laws of the Dominion or under the laws of the different Provinces. The Provinces have the power to incorporate companies, and these companies have power to do busi- ness anywhere they wish. Apparently there is no differ- ence, so far as succession duties go, whether the com- panies are incorporated imder the laws of a Province or under the laws of the Dominion. The Dominion Government collects no tax, but the Provinces do. The local law does not allow transfers of stock without the payment of succession duties to the Province in which the registry oflBce of the company is located. The fact that the companies are incorporated by the Dominion Government apparently makes no difference. This might raise an important constitutional question as to whether or not the Provinces have power to tax such transfers, but the courts have held that the Provinces have the power to impose a license fee on a company incorporated by the Dominion doing business within the separate Provinces, so, on the same principle, it would seem that the taxation would be held constitu- tional. An American estate owning stock of Canadian Pacific, which is incorporated by the Dominion Government, would have to pay succession duties to the Province of Quebec, where there is a registry office; that is, if the stock was on the Quebec registry. Canadian Pacific also no INHERITANCE TAXES has a registry in London, and if the stock was on the London registry, this, of course, would not apply. A resident of Montreal who owns shares or bonds of an American raihoad would pay an inheritance tax to the Province of Quebec in addition to what he might have to pay in the States. Two important cases respecting Canadian inheritance taxes have recently been decided by the Enghsh Privy Council. In the first,' the estate of a resident of Nova Scotia was held liable to a succession tax in New Bruns- wick on a deposit in the New Brunswick branch of the Bank of British North America. The court holds this deposit to be a simple contract debt taxable at the resi- dence of the debtor. This decision would seem to lend countenance to the double taxation of bonds in this coimtry. Another and even more important case,'' recently de- cided by the same learned tribunal, holds that the Que- bec statute does not apply to movable property outside the Province. The Privy Council goes on to hold that, as under the British North America Act of 1867 the Canadian Provinces have authority to levy only direct taxes, the Quebec inheritance tax law is not a direct tax and is consequently void, at least so far as it applies to property outside the Province. The decision is of funda- mental importance and should be carefully studied, as it almost seems to lay the axe at the whole inheritance tax system of Canada.^ ' Rex V. Lovitt, 1912, A.C. 212. " Cotton v. Rex, 1914, A.C. 176. ' The principal other Canadian cases are as follows: — Attorney-General ». Newman, 1 O.L.R. (Ont.) 61. In re McDonald, 9 B.C.R. 174. Lambe v. Manuel, 1903, App. Cas. 68. Woodworth v. Attorney-General, 1908, App. Cas. 508. INHERITANCE TAXES 111 According to our ideas an inheritance tax is an excise * and it is almost impossible to conceive of it as a direct tax, but the new Quebec act of 1914 has been sustained as being a direct tax.^ Features of the Canadian laws are their discrimination against aliens and the fact that they are drawn to cover bonds as well as stocks issued by Canadian corporations held by aliens. Quebec, for example, is exacting a high rate on the transfer of registered bonds of aUens issued by Quebec corporations. Canadian securities are cer- tairdy not attractive to American investors from the standpoint of inheritance taxes. An outstanding feature of the Canadian acts is their complicated system of exemptions based chiefly on the value of the whole estate, and in some cases both on the value of the whole estate and on the size of the individ- ual share. We have outlined the situation as best we can in the following table: — IKreot inheritanca Collateral inheritances Rate (per cent) Exemption Bate (per cent) Exemption Alberta,. lj-14e li-5 1-9 IJ-S* 2J-5 li-15 li-2i li-8 li-5 82000 6-?25,000a 25,000 a 2000 6- 25,000 a 200 6- 60,000 a 600 6- 25,000 a 3006- 25,000 a 10,000 a 16,000 a 5000 6- 26,000 o 5-16 6-10 1-16 5-10* 6-10 6-17i 2i-7i 6-16 6-10 $5000 o British Columbia Manitoba New Brunswick 5000 o 4000 a $200 6- 5000 a 600 6- 5000 a 300 6- 5000 o Prince Edward Island 3000 a Saskatchewan 2006- BOOOa * To persons residing out of ProTince rate is doubled. a Exemption figured on Talue of whole estate. 6 Exemption of individual share. c Rate is slightly higher where beneficiaries are non-residents. 1 Cf. Welch V. Burrm, 223 Mass. 87, 96. 2 Desjardins v. Eeid, (1914) 21 R. de J. 145. The validity and effect of the Quebec act is still, in May, 1917, the subject of litiga- tion, and we therefore suggest the payment of the tax only after proper protest. (,Ed.) LIST OF CORPORATIONS The following is a list of some of the more prominent com- panies, showing the State in which they are incorporated, and the exchange where their securities are traded in. Those marked * are not corporations, but joint-stock companies or volimtary associations. stale where Name of company Stock Exchange incorporated or organized Acme Tea Company New York, Philadelphia Pennsylvania AcuBhnet Mills Massachusetts Adams Express New York New York* Adventure Copper Boston Michigan ^tna Explosiyes N.Y. Ourb, Boston Curb New York Ahmeek Mining Boston Michigan Ajax Rubber New York New York Alaska Gold New York, Boston Maine Alaaka-Juneau Gold New York West Virginia Algomah Mining Boston Michigan Allis-Ghalmers New York Delaware Allouez Mining Boston Michigan American Agricultural Chemical New York, Boston Connecticut American Bank Note New York New York American Beet Sugar New York New Jersey American Book New York American Brake Shoe and Foundry ....New York New Jersey American Brass Connecticut American and British Manufacturing. . . New York Curb New York American Can New York, Chicago New Jersey American Gar and Foundry New York New Jei:;Bey American Chicle New Jersey American Cities New York, New Orleans New Jersey American Cotton Oil New York New Jersey American Express New York New York* American Glue Massachusetts American Hide and Leather New York New Jersey American Ice Securities New York New Jersey American Light and Traction New York New Jersey American Linen Massachusetts American Linseed New York New Jersey American Locomotive New York New York American Malt New York New Jersey American Manufacturing Massachusetts American Piano Boston New Jersey American Pneumatic Service Boston Delaware American Power and Light Maine American Radiator Chicago New Jersey American Railways Philadelphia New Jersey American Screw Rhode Island American Sewer Pipe Pittsburgh, Cleveland New Jersey American Shipbuilding Chicago New Jersey American Smelters Securities New York, Boston New Jersey American Smelting and Refining New York New Jersey 114 UST OF CORPORATIONS State where Name of company Stock Exchange incorporated or organized American Snuff New York New Jersey American Soda Fountain. New Jeisey American Steel Foundries .New York New Jersey American Sugar New York, Boston New Jersey American Sumatra Tobacco New York Curb.... Georgia American Telegraph and Cable New York New York American Telephone and Telegraph. . . .New York, Boston, Chicago, Philadelphia, Washington, B.C. ..New York American Thread New Jersey American Tobacco New York New Jersey American Typefounders Chicago New Jersey American Woolen New York, Boston Massachusette American Writing Paper New York, New York Curb New Jersey American Zinc New York, Boston i... Maine Ames Shovel and Tool New Jersey Amoske^ Manufacturing Boston New Hampshire Anaconda Copper New York, Boston Montana Androscoggin MUla Maine Anglo-American Oil New York Curb England Ann Arbor Railroad New York Michigan Arizona Commercial Mining Boston Maine Arkansas Southwestern Arkansas Arkwright Mills < Massachusetts Arlington Mills . .' Massachusetts Armour and Company Illinois Arnold Mining Boston Michigan Associated Bry Goods New York Virginia Associated Oil Los Angeles California Atchison, Topeka & Santa F6 New York, Boston Kansas Atlanta, Birmingham & Atlantic New York Georgia Atlantic Coast Inne New York, Baltimore, Philadelphia. Virginia Atlantic, Gulf & West Indies New York, Boston Maine Atlantic Mills Rhode Island Atlantic Mining Michigan Atlantic Refining New York Curb Pennsylvania Atlas Portland Cement Pennsylvania Atlas Powder Belaware Automatic Weighing Machine New York Autosales Gum and Chocolate , , New York Babcock and Wilcox Company New Jersey Baker (Walter) Company Massachusetts Baldwin Locomotive Works New York, Philadelphia Pennsylvania Baltimore & Ohio New York, Baltimore . . . Maryland, Virginia Bangor & Aroostook Maine Barnaby Manufacturing Massachusetts Barnard Manufacturing Massachusetts Barrett Company of New Jersey New York New Jersey Bates Manufacturing Maine Batopilas Mining New York, Boston New York Bay State Street Railway Boston Massachusetts Berkshire Cotton Manu&icturing Massachusetts Bethlehem Steel New York New Jersey Bigelow Carpet Massachusetts Bingham Mines Boston Curb Maine Birmingham Railway, Light and Power. .New Orleans, LouiaviUe Alabama Bliss (E. W.) Company West Virginia Booth Fisheries New York, Chicago Belaware Boott Mills Massachusetts Borden's Condensed Milk New Jersey Borden Manufacturing. Massacbusetto Borne-Scrymser New York Curb New Jersey Boston & Albany Boston.... Massachusetts, New York LIST OF CORPORATIONS 115 State where Name of company Stock Exchange incorporated or organized BoBton & Lowell Boston Massachusetts Boston & Maine Boston Mass., N.H., Me. Boston and Montana Development New York Curb, Boston Curb Montana Boston & Providence Boston, Providence Massachusetts Boston & Worcester Boston Massachusetts Boston Belting , Massachusetts Boston Duck Massachusetts Boston Elevated Boston Massachusetts Boston Land Boston Massachusetts* Boston, Revere Beach & Lynn Boston Massachusetts Boston Suburban Electric Boston Massachusetts* Boston Wharf Massachusetts Boston Woven Hose , Massachusetts Braden Copper Mines New York Curb Delaware Brill (J. G.) Company Philadelphia Pennsylvania Brooklyn Rapid Transit New York New York Brooklyn Union Gas New York New York Brown Shoe New York : New York Buckeye Pipe Line New York Curb Ohio Buffalo, Rochester & Pittsburgh New York New York, Pennsylvania Bums Bros, Inc New York New Jersey Bush Terminal New York New York Butler Mill Massachusetts Butte-Balaklava Boston Arizona Butte & Superior New York, Boston Arizona Butterick Company New York New York California Petroleum New York Virginia Calumet and Arizona Mining Boston Arizona Calumet and Hecla Boston Michigan Cambria Steel Philadelphia Pennsylvania Canadian Car and Foundry New York Curb. Montreal, Toronto Dominion of Canada Canadian Pacific New York, Montreal, Toronto Dominion of Canada Canadian Southern New York Dominion of Canada Capital Traction Washington District of Columbia Car Light and Power New York Curb Maine Case (J. L) Company New York Wisconsin Centennial Copper Boston Michigan Central Coal and Coke New York, Philadelphia, St. Louis. Missouri Central Foundry New York Curb Maine Central of Georgia Railway New York Georgia Central Leather New York, Boston New Jersey Central Pacific Utah Central Railroad of New Jersey New York, Philadelphia New Jersey Central Vermont RailvTay Boston Vermont Central & Soiith American Telegraph. . New York New York Cerro de Pasco Copper New York.. New York Chalmers Motor Detroit Michigan Chandler Motor Car New York Ohio Chapman Valve Massachusetts Chesapeake & Ohio New York Virginia, West Virginia Chesebrough Manufacturing New York Curb New York Chevrolet Motor New York Curb Delaware Chicago & Alton New York Illinois Chicago & Eastern niinois New York Illinois Chicago & Northwestern New York Illinois, Wisconsin, Michigan Chicago, Burlington & Quincy New York, Chicago, Boston Illinois Chicago Elevated Railways , Massachusetts Chicago Great Western New York Illinois Chicago Junction Railways and Union Stock Yards Boston :New Jersey 116 LIST OF COEPORATIONS State where Narne of company Stock Exchange incorporated or organized Chicago, Milwaukee & St. Paul New York WisconBin Chicago Pneumatic Tool ■ Chicago New Jersey Chicago Railways Chicago Illinoia Chicago, Rock Island & Pacific Ry New York IllinoiB, Iowa Chicago, St. Paul, Minneapolis & Omaha New Yoik 'Wisconsin Chicago Telephone Chicago Illinoia Chicago Utilities Maine Chicopee Manufacturing MassachusettB Childs Company New York Chile Copper. New York, Boston Delaware Chino Copper New York, Boston Maine Cincinnati, Hamilton & Dayton Ohio OleTeland, Cincinnati, Chicago & St. Louis ....'. New York Ohio, Indiana Cluett, Peahody New York New York Colonial Oil New York Curb New Jersey Colorado Fuel and Iron < .. . ..New York Colorado Colorado & Southern New York Colorado Columbia Ghus and Blectric .New York, Pittsburgh West Virginia Commonwealth-Edison Chicago Illinois Computing — Tabulating — Recording.. New York New York Concord & Claremont (B. & M.) New Hampshire Concord & Montreal (B. &M.) Boston New Hampshire Concord & Portsmouth