(157.)

Collection district of Hawaii.

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

To collectors of internal revenue:

Washington, D. C., June 14, 1900.

Under section 87 of the act of April 30, 1900, a new internal-revenue district, comprising the Territory of Hawaii, and to be known as the District of Hawaii, is constituted, to take effect from and including this date, with headquarters at Honolulu.

Pending the qualification of the collector appointed for said district, the office and district will be in charge of Deputy Collector Robert N. Frick, who has been designated as deputy collector in charge of the District of Hawaii.

G. W. WILSON, Commissioner.

LEGACIES AND DISTRIBUTIVE SHARES.

(7.) Legacy tax.

A bequest to a priest for the purpose of paying for masses not exempt from legacy law.

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

Washington, D. C., January 6, 1900.

SIR: In reply to a letter addressed to this office by Mr. M. J. Howley, of Cairo, Ill., under date of the 12th ultimo, who has to-day been referred to you, asking whether or not a bequest of a sum of money to a priest for the purpose of paying for masses is liable to legacy tax, you will please advise him in the affirmative.

Paragraph 5, section 29 of the act of June 13, 1898, contains only one provision of the subject of exemption from legacy tax, namely, legacies to a husband or a wife.

Respectfully,

Mr. WILLIAM H. POWELL,

4

G. W. WILSON, Commissioner.

Collector Thirteenth District, East St. Louis, Ill.

(129.)

Legacy tax-Opinions of the United States Supreme Court.

The act of June 13, 1898, declared constitutional. The tax is not direct within the meaning of the Constitution, but, on the contrary, is a duty or excise. The uniformity clause of the Constitution relates only to geographical uniformity.

The phrase "whole amount of such personal property as aforesaid " relates to the sum of each legacy or distributive share considered separately. Legacies not exceeding $10,000 are not taxed. The rate of tax is progressively increased by the amount of each separate legacy or distributive share, and not by the whole amount of the personal estate of the deceased from which the legacies or distributive shares were derived.

The proposition that bonds of the United States and the income therefrom are not lawfully taxable under an inheritance-tax law of the United States, because exempted by contract from such tax, has been decided not to be well founded, in the case of Murdock, executor, v. John G. Ward, collector.

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

Washington, D. C., May 15, 1900.

To collectors of internal revenue and others concerned :

The following opinions of the United States Supreme Court, relating to the constitutionality of the internal-revenue legacy-tax law, etc., are published for the information of internal-revenue officers and others concerned.

G. W. WILSON, Commissioner.

SUPREME COURT OF THE UNITED STATES.-No. 387.-OCTOBER TERM,

1899.

Eben J. Knowlton and Thomas A. Buffum, Executors of the Last Will and Testament of Edwin F. Knowlton, Deceased, Plaintiffs in Error, v. Frank E. Moore, United States Collector of Internal Revenue, First Collection District, State of New York.

In error to the circuit court of the United States for the eastern district of New York.

[May 14, 1900.]

Mr. Justice WHITE delivered the opinion of the court.

The act of Congress of June, 1898, which is usually spoken of as the war-revenue act (30 Stat., 448), imposes various stamp duties and other taxes. Sections 29 and 30 of the statute, which are therein prefaced by the heading "Legacies and Distributive Shares of Personal Property," provide for the assessment and collection of the particular taxes which are described in the sections in question. To determine the issues which arise on this record it is necessary to decide whether the taxes imposed are void because repugnant to the Constitution of the United States, and if they be valid, to ascertain and define their true import.

The controversy was thus engendered: Edwin F. Knowlton died in October, 1898, in the borough of Brooklyn, State of New York, where he was domiciled. His will was probated, and the executors named therein were duly qualified. As a preliminary to the assessment of the taxes imposed by the provisions of the statute, the collector of internal

revenue demanded of the executors that they make a return showing the amount of the personal estate of the deceased, and disclosing the legatees and distributees thereof. The executors, asserting that they were not obliged to make the return because of the unconstitutionality of sections 29 and 30 of the statute, nevertheless complied, under protest. The report disclosed that the personal estate was appraised at $2,624,029.63, and afforded full information as to those entitled to take the same. The amount of the tax assessed was the sum of $43,084.67. This was reached according to the computation shown in the table which is printed in the margin. (a)

It is apparent from the table that the collector, whilst levying the tax on the legacies and distributive shares, or the right to receive the same, yet, for the purpose of fixing the rate of the tax, took into view the whole of the personal estate of the deceased-that is, whilst the tax was laid upon the legacies, the rate thereof was fixed by a separate and distinct right or thing, the entire personal estate of the deceased. The executors protested against the entire tax, and also as to the method by which it was assessed. The grounds of the protest were as follows:

"1. The provisions of the act of Congress under which it is sought to impose, assess, and collect the said tax or duty are in violation of the provisions of Article I, sections 8 and 9, of the Constitution of the United States, and are therefore void.

"2. The legacies to George W. Knowlton, Charlotte A. Batchelor, the Unitarian Church of West Upton, Mass., each amount to less than $10,000, and are not subject to any tax or duty under the said provisions of the said act of Congress, even if such provisions be not unconstitutional and void.

"3. The legacy to Eben J. Knowlton, a brother of the testator, amounts to only $100,000, and under the said provisions of the said act should

be taxed at the rate of $1.12 per $100, and not at the rate of $2.25 per $100, even if said act be not unconstitutional and void."

Demand having been made by the collector for the payment, accompanied with a threat to distrain in case of refusal, the tax was paid under written protest, which repeated the grounds above stated. In the receipt given it was recited that the tax had been paid under protest to avoid the use of compulsory process. A petition for refunding was subsequently presented by the executors, in which the grounds of the protest were reiterated. The Commissioner of Internal Revenue having made an adverse ruling, the present suit was commenced to recover the amount paid. The facts as to the assessment and collection of the taxes were averred, and the refusal of the Internal Revenue Commissioner to refund was alleged. The petition for refunding was made a part of the pleadings. The right to repayment was based upon the averment that the sections of the statute, under authority of which the amount had been assessed and collected, were unconstitutional. The circuit court sustained a demurrer, on the ground that no cause of action was alleged. The claim was rejected, and the suit was dismissed with costs.

The questions which arise on this writ of error, to review the judgment of the circuit court, are fourfold: "First, that the taxes should have been refunded because they were direct taxes, and not being apportioned were hence repugnant to Article I, section 8, of the Constitution of the United States; second, if the taxes were not direct, they were levied on rights created solely by State law, depending for their continued existence on the consent of the several States, a volition which Congress has no power to control, and as to which it could not, therefore, exercise its taxing authority; third, if the taxes were not direct, and were not assessed upon objects or rights which were beyond the reach of Congress, nevertheless the taxes were void, because they were not uniform throughout the United States, as required by Article I, section 9, of the Constitution of the United States; fourth, because, although the taxes be held to have been in all respects constitutional, nevertheless they were illegal, since in their assessment the rate of the tax was determined by the aggregate amount of the personal estate of the deceased, and not by the sum of the legacies or distributive shares, or the right to take the same, which were the objects upon which by law the taxes were placed.

Although it may be, in the abstract, an analysis of these questions, in logical sequence, would require a consideration of the propositions in the order just stated, we shall not do so for the following reasons: The inquiry whether the taxes are direct or indirect must involve the prior determination of the objects or rights upon which by law they are imposed and assessed, since it becomes essential primarily to know what the law assesses and taxes in order to completely learn the nature of the burden. So, also, to solve the contention as to want of uniformity, it is requisite to understand not only the objects or rights which are taxed, but the method ordained by the statute for assessing and collecting. This must be the case, since uniformity, in whatever aspect it be considered, involves knowledge as to the operation of the taxing law, an understanding of which can not be arrived at without a clear conception of what the law commands to be done. For these reasons we shall first, in a general way, consider upon what rights or objects death duties, as they are termed in England, are imposed. Having, from a review of the history of such taxes, reached a conclusion on this subject, we shall decide whether Congress has power to levy such taxes. This being

settled, we shall analyze the particular act under review, for the purpose of ascertaining the precise form of tax for which it provides and the mode of assessment which it directs. These questions being disposed of, we shall determine whether the taxes which the act imposes are void, because not apportioned or for the want of uniformity.

It is conceded on all sides that the levy and collection of some form of death duty is provided by the sections of the law in question. Bearing this in mind, the exact form of the tax and the method of its assessment need not be presently defined, since doing so appropriately belongs to the more specific interpretation of the statute to which we shall hereafter direct our attention. Taxes of this general character are universally deemed to relate, not to property eo nomine, but to its passage by will or by descent in cases of intestacy, as distinguished from taxes imposed on property, real or personal as such, because of its ownership and possession. In other words, the public contribution which death duties exact is predicted on the passing of property as the result of death, as distinct from a tax on property disassociated from its transmission or receipt by will, or as the result of intestacy. Such taxes so considered were known to the Roman law and the ancient law of the continent of Europe. (Smith's Wealth of Nations, London ed. of 1811, vol. 3, p. 311.) Continuing the rule of the ancient French law, at the present day in France inheritance and legacy taxes are enforced, being collectible as stamp duties. They are included officially under the general denomination of indirect taxes, for the reason that all inheritance and legacy taxes are considered as levied on the "occasion of a particular isolated act." This view of the inheritance and legacy tax conforms to the official definition of indirect taxes, among which inheritance and legacy taxes are classed, which prevails in France at the present day. The definition is as follows:

"Direct taxes bear immediately upon persons, upon the possession and enjoyments of rights; indirect taxes are levied upon the happening of an event or an exchange."

In Germany and other continental countries in various forms death duties are enforced, in the main, by way of stamp duties. They are there, both in theory and in practice, treated as resulting from the occasion of death, and hence as not legally equivalent with taxes levied on property merely because of its ownership. (Cohn's Science of Finance [Veblen's translation], secs. 282, 283, 350; Dos Passos' Inheritance Tax Law, sec. 1.)

The term "death duties," by which inheritance and legacy taxes, in whatever form imposed, are described in England, indicates the generic nature of such taxes. In Hanson's Death Duties (p. 1) it is said: "Historically, probate duty is the oldest form of death duty, having been established in 1694." The probate duty thus referred to was a fixed tax dependent on the sum of the personal estate within the jurisdiction of the probate court, payable on the grant of letters of probate by means of stamp duties, and was treated as an expense of administration to be deducted out of the residue of the estate. In 1780 this tax was supplemented by what became known as a legacy tax, at first collected by means of a stamp affixed to the receipt, evidencing the payment of a legacy or share in the personal property of a deceased person. It is unnecessary to consider the change in the mere form of this latter tax. The tax was not deducted as an expense of administration, but was charged and collected upon the passing of the individual legacies or interests upon which it was imposed. In 1853 the probate duty tax and