There is universal and well founded complaint that the labors of those employed in settling estates of decedents holding diversifed investments become increasingly difficult and costly as the several State legislatures from year to year, innovate or extend the scope of existing inheritance tax statutes with intent to reach all transfers of property which may be said to have its situs in the taxing State.

Nowadays, perhaps, it is too much to expect that law makers, intent upon producing adequate revenues for the ever enlarging activities of government, should have a proper regard for the conservation of those resources of wealth upon the continuance of which they must rely for future levies; otherwise, the repeated warnings of sound economy and the urgent recommendations of those bodies charged with special investigation of the subject, would be given more heed when they point out the limits, beyond which taxation of the transfer of property of non-residents within the jurisdiction, on the ground of situs, may not be imposed with wisdom.

It is not only that the resulting tax is burdensome in amount which gives rise to dissatisfaction, for in many cases it may be less than what ordinarily would be charged for the services rendered in its adjustment. Complaint is as likely to be heard on the score of annoyance and delay, or often loss of market, caused by the necessity for preparing and filing returns in several jurisdictions before the release of securities can be effected. Nor do the difficulties cease there in those States,

among them New York, where it is required that in the absence of a direction in the will to the contrary, the foreign, as well as the domiciliary inheritance taxes paid must be prorated against the interest of each beneficiary instead of being allowed as a general administration expense upon accounting. The resulting diminution of legacies, seldom foreseen in making specific provision for legatees, often defeats the intent of the testator.

Double Taxation Unsound and Impolitic

There is unanimity of opinion among those who have given the subject consideration, that the double taxation of the transfer of property of decedents-here upon the theory of domicile and there upon the theory of situsshould be avoided as being unsound in economics and unsafe as a matter of policy. Uniform legislation, providing for the levying of inheritance taxes upon personal property only by the State of the domicile of its former owner, has been urged as one course open to accomplish relief. Another suggestion of characteristic merit comes from Professor Seligman in a paper appearing recently in The New Republic wherein this eminent authority advocates the program of a National Inheritance Tax Law, in place of the present separate State laws, with the further provision that the yield be divided between the National Government and the States, upon a basis of the proportion contributed by each State.

While some movement toward uniformity of legislation is observable, notably in the statutes of Connecticut, Massachusetts, Pennsylvania,

and, to a limited extent, in New York, the mutual jealousies to be overcome will not serve to hasten that consummation. On the contrary, the failure of more States to fall into line for uniformity gives cause for restiveness among some of the others which have already adopted the principle. For instance, in a recent report to the Legislature, the New York State Comptroller recommends the complete reimposition of the taxes on non-resident estates.

It is undeniable that the adoption of either of the plans above proposed would serve to abate the present nuisance but it occurs to make inquiry as to what, if anything, can be done meanwhile by way of amelioration or in encouragement of a disposition favoring the readier acceptance of the uniformity plan by those States which continue to indulge in the practice of double taxation.

Double Taxation Also Unprofitable

If no attention be given to the effective argument used to induce the New York Legislature to exempt in large part the transfers of property of non-residents, i. e., that such taxation tended to drive capital and property from the State, more especially in view of the high progressive rates of the statute then obtaining, powerful reinforcement is at hand in a circumstance which seems to have escaped general observation: the failure of statutes imposing such taxes, operating within legitimate bounds, to produce revenues commensurate with the cost of collection. Should the resident taxpayers of the State which taxes non-residents, become convinced that the game is not worth the candle, it would be, it is believed, at least one step toward the adoption of the desired uniform legislation.

In the first place, it is generally understood that statutes exacting inheritance taxes from the transfers of property of both residents and non-residents upon the conflicting theories of domicile in the one case and situs in the other, nevertheless, in order to meet constitutional requirements must bear equally upon the taxpayer in both cases. The exemption of resident estates and, simultaneously, the taxation of the property of non-resident estates, could be viewed with no more toleration than discrimination or disparity in the amount of the tax in like cases where both classes of estates are. subject to assessment.

Thus, when it is considered that most of the statutes now in force in the several States in providing for the computation of the tax, allow for liberal exemptions and fix graded rates (which is the same thing in another guise, since the lower are exempted from the greater rates of the higher grades) based upon the

value of the separate beneficial interests, it will readily be seen that a relatively smaller revenue will accrue from non-resident estates.

Smaller Units in Non-resident Estates

The reason for this is that the estate of the non-resident, considered as a unit for the purpose of the tax, will be only the fraction of the whole represented by the extent of the property having its situs within the jurisdiction, whereas the whole estate of the resident will bear the burden as a unit.

In illustration, take the case of a non-resident decedent whose total estate is valued at $100,000, of which $10,000 represents investments in shares of New Jersey corporations, the whole passing to a widow and one child equally; the New Jersey statute allows an exemption of $5,000 to both widow and child, and, therefore, the total of exemptions equals the value of the property within the jurisdiction and there should be no tax. On the other hand an estate of a resident decedent of like value passing in like manner would yield a tax of $900 under that statute, the excess over the exemption of $5,000 to each beneficiary amounting to $90,000 being taxable at one per centum (1%).

The assertion is ventured that the average estate will be found to be so diversely invested that, allowing for exemptions, there should be no tax payable in any State outside of the State of domicile particularly if the estate is distributable to or two more beneficiaries. Even in the estates of very rich decedents it will generally happen that the fractional part within any State other than that of the domicile, will be comparatively small and subject to further reduction by the allowance of a proportionate part of the debts and administration expenses and in some jurisdictions the deduction in toto of such obligations as may owing to residents of the taxing State.

Greater Proportionate Expenses of Collection

be

The conclusion is inevitable that the taxation of the property of non-residents by such statutes, upon the ground of situs, results in increasing the number and reducing the size of taxable estates with a consequent reduction in the amount of tax collected and an increase in the cost of collection, inasmuch as the bulk of the litigation and most of the difficulties encountered in the administration of such inclusive statutes are traceable to the taxation of non-residents and relate to questions which would never ordinarily arise in the application of the law to estates of resident decedents.

The full significance of this fact will be

realized upon consideration of the recently issued joint report of the Chamber of Commerce and the Bar Association of the State of New York, in co-operation for the prevention of unnecessary litigation at the source, which is based upon the reported decisions in Abbott's New York Digest, from which it appears that twenty-five (25) per cent. of the total litigation concerning taxes is attributable to the inheritance tax laws.

"Ratio Provisions" Unlawfully Augment Tax

As if in recognition of the foregoing, several of the States have either incorporated in their statutes a "Ratio Provision" which serves to render all estates of non-residents owning property within their jurisdiction apparently liable to some tax, however small, no matter what the proportionate value of each distributive share of the beneficiaries in the property within the taxing State may be, or, without specific warrant of statute, so administer their laws as to produce such a result.

An example of the statutory provision to this effect is found in the New Jersey Act at the end of Section 12:

"A tax shall be assessed on the transfer of property made subject to tax as aforesaid, in this State, of a non-resident decedent if all or any part of the estate of such decedent, wherever situated, shall pass to persons or corporations taxable under this act, which tax shall bear the same ratio to the entire tax which the said estate would have been subject to under this act if such nonresident decedent had been a resident of this State, and all his property, real and personal, had been located within this State, as such taxable property within this State bears to the entire estate, wherever situated; provided, that nothing in this clause contained shall apply to any specific bequest or devise of any property in this State."

Applying this provision to the supposititious estate given above in illustration, where the total estate of the non-resident decedent is valued at $100,000 of which $10,000 represented investment in shares of New Jersey corporations, the whole estate passing to a widow and one child equally and the statutory exemptions being $5,000 to each, it will be found upon computation that the non-resident estate would be required to pay a tax of $90 upon the transfer of the property having its situs in New Jersey, instead of being exempt under what has been stated and would seem to be a proper construction of the statute, if that claim may be made without presumption in the absence of a decided case in that jurisdiction. The incorporators of the "Ratio Provision," it may not be gainsaid, disregarded the constitutional

requirement of according parity of exemptions to non-residents as to residents inasmuch as the function of the Ratio Provision above quoted is not only to prorate the tax but in effect to prorate the exemptions, so that the widow and child of the non-resident decedent are allowed exemptions only of $500 instead of the $5,000 exemptions accorded to the widow and child of the resident decedent.

In other jurisdictions the same result is obtained in the absence of statute, by the procedure adopted by taxing authorities in the course of computation.

Process of Computation Results in Excessive Tax

Prior to the decisions of Attorney-General vs. Barney (Reported 211 Mass. 134), the Massachusetts taxing officials administered their statute so as to produce a like proration and when the practice was questioned the only defense that could be offered was that the practice had been so long indulged in that it was protected by prescription. In condemnation the court says:

"The word 'estate' in the connection in which it is used means, and can only mean, property in this Commonwealth. It necessarily follows that in determining whether 'a bequest, devise or distributive share' is or is not exempt the tax commissioner has no right to take into account the amount received by the devisees or distributees from property situated in another State or country. To do so would be to tax the devisee or distributee indirectly for such property to an amount equal to the amount of the exemption here, and would be contrary to the principle on which the legacy and suc cession tax is based, which is that it is 'an excise tax upon the privilege of passing title to property on the death of its owner'(Kingsbury vs. Chapin, 196 Mass. 533, 537). In order to be valid the tax must be levied by the authority that confers the privilege upon property which passes by virtue of the privilege. (Our italics.) In the present case we discover no such ambiguity in the meaning of the statute as to justify as an aid to construction a resort to the practice of the officers charged with its execution, even if we assume that the practice had been sufficiently long continued to render it otherwise admissible."

The language of the opinion, above quoted, to the effect that to be valid the tax must be levied by the authority that confers the privilege upon property which passes by virtue of the privilege, brings to mind another practice which has become prevalent in various States. Strange as it may seem, claims for taxes are

now enforced upon the transfer of property of non-resident decedents which has no situs at all within the taxing State!

Illegal Taxation of Property Outside the State Reference is had particularly to the statutes of New York, Illinois and Wisconsin. The New York statute still provides for a tax. (Italics not in statute):

"When the transfer is by will or intestate law, of tangible property within the State or of any intangible property, if evidenced by or consisting of shares of stock, bonds, notes or other evidences of interest in any corporation, joint stock company or association wherever incorporated or organized, except a corporation, foreign or domestic, or joint stock company or association constituting, being or in the nature of a moneyed corporation, a railroad or transportation corporation, or a public service or manufacturing corporation as defined and classified by the laws of this State, and the property represented by such shares of stock, bonds, notes or other evidences of interest consists of real property which is located wholly or partly, within the State of New York, or of an interest in any partnership business conducted, wholly or partly, within the State of New York, in such proportion as the value of the real property of such corporation, joint stock company or association, or as the value of the entire property of such partnership located in the State of New York bears to the value of the entire property of such corporation, joint stock company association or partnership, and the decedent was a non-resident of the State at the time of his death.”—(Subdivision 2, Section 220 of Article 10 of the Tax Law).

Wisconsin Also Taxes Property Beyond
Jurisdiction

or

administrator, or trustee shall assign or transfer any stock or obligations in this State standing in the name of a decedent or in trust for a decedent, liable to any such tax, the tax shall be paid to the treasurer of the proper county or the State treasurer on the transfer thereof. "Non-resident decedent; notice of transfer; order of court. 2. No safe deposit company, bank, or other institution, person or persons, holding securities or assets of a non-resident decedent, nor any foreign or domestic corporation doing business within this State in which a non-resident decedent held stock at his decease, shall deliver or transfer the same to the executors, administrators or legal representatives of said decedent, or upon their order or request, unless notice of the time and place of such intended transfer be served, etc., etc., nor any foreign or domestic corporation, deliver or transfer any securities or assets of the estate of a non-resident decedent without retaining a sufficient portion, etc., etc."

"Corporate property to be apportioned. 3. Where stocks, bonds, mortgages, or other securities of corporations organized under the laws of this State or of foreign corporations owning property or doing business in this State shall have been transferred by a non-resident decedent, the tax shall be upon such proportion of the value thereof as the property of such corporation in this State bears to the total property of the corporation issuing such stocks, bonds, mortgages, or other securities."-(Ch. 763, S. I. 1913).

4. "Holding company; apportionment. If any stocks, bonds, mortgages, or other securities of a holding company or other corporation are based upon or represent in whole or in part the value of any stocks, bonds, mortgages, or other securities of a Wisconsin corporation or a corporation owning property in this State, either directly or indirectly, the transfer of the stocks, bonds, mortgages, or other securities of such holding company or other corporation shall be subject to the inheritance tax in the proportion which the Wisconsin property bears to the total property represented by or subject to the total stocks, bonds, mortgages, or other securities of which those so transferred are a part."-(Ch. 763, S. 1, 1913). (Italics not in statute).

Illinois One of the Chief Offenders

The Illinois statute contains nothing on its face to indicate that taxation of property outside the State is contemplated but nevertheless a tax is exacted upon the transfer of prop

erty beyond the jurisdiction in the course of adjustment of the tax upon the transfer of property which is properly taxable as being within the State.

Messrs. Blakemore & Bancroft, in their work on Inheritance Taxes (First edition, pp. 404405) say, in relation to the Illinois statute:

"The exemptions apply to the individual shares, not to the estate as a whole. The exemption of $20,000 is the most liberal given to direct heirs in any State.

*

"Illinois is taxing stock, owned by nonresidents, of foreign corporations that own property in Illinois. We are informed by the tax authorities 'that it depends upon the conditions under which the property is held here as to whether a claim would be made.' We have yet to learn, however, of any condition under which such stock would not be taxed.

"There seems to be more complaint made against the treatment of non-resident estates by Illinois than in the case of any other of the States, not even excepting New York. It refuses to apportion the tax on such stocks as Illinois Central, organized under the laws of Illinois and extending through several other States, while at the same time insisting on an apportionment of such stocks as Rock Island, which are incorporated in other States but have some of their line in Illinois.

"On this subject the inheritance tax attorney for Illinois, says: "The rates of taxation in New York, New Jersey and all other Eastern States, as well as all States in the Union which have inheritance tax laws, embody rates of taxation greatly in excess of those provided in the inheritance tax laws of this State. The exemptions provided by our law are so large and liberal that 90 per cent. at least of all of the securities transferred (owned at death by non-resident decedent) are not taxable at all.'"

The confession of the Illinois Inheritance Tax attorney would seem to be corroborative of the present writer's assertion that the effect of the individual exemptions accorded to nonresident estates is likely to relieve them of the tax entirely. The percentage of securities transferred free from the claim of taxes in the State of Illinois, might easily rise to 100 per cent. if taxation under that statute were confined to property actually having its situs in the State.

Expression of Opinion by Courts of Massachusetts

The practice of imposing taxes upon the transfer of shares of stock in foreign corporations upon the basis of the situs of property

of the corporations within the taxing State, in the case of non-resident decedents, has not yet been questioned in any case, decided by the courts of those jurisdictions imposing such taxes so far as can be learned but when the question shall be directly presented the result is presaged by the decision of the Supreme Judicial Court of Massachusetts in Welch vs. Burrill (111 N. E. Rep. 774). In that case the representatives of the decedent, who was a resident of Massachusetts, paid the tax demanded by the State of Michigan, under a statute similar to that of Wisconsin, upon the transfer of shares of stock in a company organized in Wisconsin and then claimed that such payment should be allowed in abatement of the Massachusetts tax, as provided by the domiciliary statute. In disallowing their claim the court says:

"So far as jurisdiction to tax is concerned, the question whether the property was legally subject to a similar tax in another State is one to be decided by the courts of this commonwealth if it has not been decided by the Supreme Court of the United States.

"Jurisdiction for the purpose of imposing a succession tax exists only when the exercise of some essential incident in the transfer of the title depends for its legality upon the law of the State levying the tax. (Citing cases). Situs of the shares of stock within the taxing State is the foundation of jurisdiction to tax. That situs ordinarily can be only at the domicile of the owner or at the domicile of the corporation. (Citing cases). Doubtless shares of stock have a situs sufficient to justify the imposition of a succession tax both at the domicile of the owner of the stock and at the domicile of the corporation. Moody vs. Shaw (173 Mass. 375, 53 N. E. 891). It commonly has been supposed that the certificate of stock in a corporation can have no independent situs, dependent upon its physical location, apart from the domicile of the corporation or of the owner. As a general proposition in the absence of special circumstances, that has been decided in this commonwealth. (Citing cases). If, possibly, in some jurisdiction or for some purposes, or by express statute, it may be where the certificate of stock is physically (citing cases) that does not help in the present case. Where none of these elements are found, there can be no situs for purposes of a succession tax. Jurisdiction is a matter of power over the particular res or subject. Lamar vs. U. S. (240 U. S. 60, 64; 36 Sup. Ct. 255, 60 L. Ed- -). The opportunity to exert mere physical force over other property of the estate of a dece