Magoun v. Illinois Trust Savings Bank/Opinion of the Court
Legacy and inheritance taxes are not new in our laws. They have existed in Pennsylvania for over 60 years, and have been enacted in other states. They are not new in the laws of other countries. In Tennessee v. Alston, 94 Tenn. 674, 30 S. W. 750, Judge Wilkes gave a short history of them, as follows: 'Such taxes were recognized by the Roman law. 1 Gibbon's Decline and Fall of the Roman Empire, pp. 163, 164. They were adopted in England in 1780, and have been much extended since that date. Dowell's History of Taxation in England, 148; Acts 20 Geo. III. c. 28, 45 Geo. III. c. 28, and 16 & 17 Vict. c. 51; Green v. Craft, 2 H. Bl. 30; Hill v. Atkinson, 2 Mer. 45. Such taxes are now in force generally in the countries of Europe. Review of Reviews, Feb., 1893. In the United States they were enacted in Pennsylvania in 1826; Maryland, 1844; Delaware, 1869; West Virginia, 1887, and still more recently in Connecticut, New Jersey, Ohio, Maine, Massachusetts, 1891; Tennessee in 1891 (chapter 25, now repealed by chapter 174,-Acts 1893). They were adopted in North Carolina in 1846, but repealed in 1883; were enacted in Virginia in 1844, repealed in 1855, re-enacted in 1863, and repealed in 1884.' Other states have also enacted them,-Minnesota, by constitutional provision.

The constitutionality of the taxes has been declared, and the principles upon which they are based explained, in U.S. v. Perkins, 163 U.S. 625, 628, 16 Sup. Ct. 1073; Strode v. Com., 52 Pa. St. 181; Eyre v. Jacob, 14 Grat. 422; Schoolfield v. Lynchburg, 78 Va. 366; Maryland v. Dalrymple, 70 Md. 298, 17 Atl. 82; Clapp v. Mason, 94 U.S. 587; In re Merriam's Estate, 141 N. Y. 479, 36 N. E. 505; Maine v. Hamlin, 86 Me. 495, 30 Atl. 76; Tennessee v. Alston, 94 Tenn. 674, 30 S. W. 750; In re Wilmerding's Estate, 117 Cal. 281, 49 Pac. 181; Dos P. Inh. Tax Law, 20; Minot v. Winthrop, 162 Mass. 113, 38 N. E. 512; Gelsthorpe v. Furnell (Mont.) 51 Pac. 267. See, also, Scholey v. Rew, 23 Wall. 331.

It is not necessary to review these cases, or state at length the reasoning by which thy  are supported. They are based on two principles: (1) An inheritance tax is not one on property, but one on the succession; (2) the right to take property by devise or descent is the creature of the law, and not a natural right,-a privilege,-and therefore the authority which confers it may impose conditions upon it. From these principles it is deduced that the states may tax the privilege, discriminate between relatives, and between these and strangers, and grant exemptions, and are not precluded from this power by the provisions of the respective state constitutions requiring uniformity and equality of taxation.

The second principle was given prominence in the arguments at bar. The appellee claimed that the power of the state could be exerted to the extent of making the state the heir to everybody, and the appellant asserted a natural right of children to inherit. Of the former proposition we are not required to express an opinion. Nor, indeed, of the latter, for appellant conceded that testamentary disposition and inheritance were subject to regulation. However, as pertinent to the subject, decisions of this court may be cited.

In U.S. v. Fox, 94 U.S. 315-321, a law of the state of New York confining devises to natural persons and corporations created under its laws was considered, and a devise of land to the United States was held void. The court said:

'The power of the state to regulate the tenure of real property within her limits, and the modes of its acquisition and transfer, and the rules of its descent, and the extent to which a testamentary disposition of it may be exercised by its owners, is undoubted. It is an established principle of law, everywhere recognized, arising from the necessity of the case, that the disposition of immovable property, whether by deed, descent, or by any other mode, is exclusively subject to the government within whose jurisdiction the property is situated. McCormick v. Sullivant, 10 Wheat. 202.

*     *     *

'Statutes of wills, as is justly observed by the court of appeals, are enabling acts, and prior to the statute of 33 Hen. VIII. there was no general power at common law to devise lands. The power was opposed to the feudal policy of holding lands inalienable without the consent of the lord. The English statute of wills became a part of the law of New York upon the adoption of her constitution in 1777, and, with some modification in its language, remains so at this day. Every person must therefore devise his lands in that state within the limitations of the statute, or he cannot devise them at all. His power is bounded by its conditions.'

In Mager v. Grima, 8 How. 493, there was considered the validity of a law of Louisiana imposing a tax of 10 per cent. upon legacies, when the legatee was neither a citizen of the United States, nor domiciled therein. Mr. Chief Justice Taney considered the legal question of easy solution, and disposed of it summarily. He said: 'This is a plain case, and when the facts are stated the questions of law way be easily disposed of in a few words.' After stating the case briefly, he further said:

'Now, the law in question is nothing more than an exercise of the power, which every state and sovereignty possesses, of regulating the manner and terms upon which property, real or personal, within its dominion, may be transmitted by last will and testament, or by inheritance, and of prescribing who shall and who shall not be capable of taking it. Every state or nation may unquestionably refuse to allow an alien to take either real or personal property situated within its limits, either as heir or legatee, and may, if it think proper, direct that property so descending or bequeathed shall belong to the state. In many of the state of this Union at this day real property devised to an alien is liable to escheat. And, if a state may deny the privilege altogether, it follows that, when it grants it, it may annex to the grant any conditions which it supposes to be required by its ine rests or policy. This has been done by Louisiana. The right to take has been given to the alien, subject to the deduction of 10 per cent. for the use of the state.'

'In some of the states, laws have been passed at different times imposing a tax similar to the one now in question upon its own citizens, as well as foreigners, and the constitutionality of these laws has never been questioned. And, if a state may impose it upon its own citizens, it will hardly be contended that aliens are entitled to exemption, and that their property in our own country is not liable to the same burdens that may lawfully be imposed upon that of our own citizens.

'We see no objection to such a tax, whether imposed on citizens and aliens alike, or upon the latter exclusively.'

In U.S. v. Perkins, 163 U.S. 625-631, 16 Sup. Ct. 1073, the inheritance tax law of the state of New York was involved. Mr, Justice Brown, speaking for this court, said:

'While the laws of all civilized states recognize in every citizen the absolute right to his own earnings, and the enjoyment of his own property, and the increase thereof, during his life, except so far as the state may require him to contribute his share for public expenses, the right to dispose of his property by will has always been considered purely a creature of statute, and within legislative control. 'By the common law, as it stood in the reign of Henry II., a man's goods were to be divided into three equal parts, of which one went to his heirs or lineal descendants, another to his wife, and a third was at his own disposal; or, if he died without a wife, he might then dispose of one moiety, and the other went to his children; and so, e converso, if he had no children, the wife was entitled to one moiety, and he might bequeath the other; but, if he died without either wife or issue, the whole was at his own disposal.' 2 Bl. Comm. 492.

'Prior to the statute of wills, enacted in the reign of Henry VIII., the right to a testamentary disposition of the property did not extend to real estate at all, and as to personal estate was limited as above stated. Although these restrictions have long since been abolished in England, and never existed in this country, except in Louisiana, the right of a widow to her dower, and to a share in the personal estate, is ordinarily secured to her by statute.

'By the Code of Napoleon, gifts of property, whether by acts inter vivos or by will, must not exceed one-half the estate if the testator leave but one child, one-third if he leaves two children, and one-fourth if he leaves three or more. If he have no children, but leaves ancestors, both in the paternal and maternal line, he may give away but one-half of his property, and but threefourths if he have ancestors in but one line. By the law of Italy, one-half of a testator's property must be distributed equally among all his children. The other half he may leave to his eldest son, or to whomsoever he pleases. Similar restrictions upon the power of a disposition by will are found in the codes of other continental countries, as well as in the state of Louisiana. Though the general consent of the most enlightened nations has from the earliest period recognized a natural right in children to inherit the property of the parents, we know of no legal principle to prevent the legislature from taking away or limiting the right of testamentary disposition, or imposing such conditions upon its exercise as it may deem conducive to public good.'

Against the cases sustaining inheritance taxes, and their classifications and exemptions, appellants cite Wisconsin v. Mann, 76 Wis. 469, 45 N. W. 526, and 46 N. W. 51; Minnesota v. Gorman, 40 Minn. 232, 41 N. W. 948; Curry v. Spencer, 61 N. H. 624; Ohio v. Ferris, 53 Ohio St. 314, 41 N. E. 579; and Missouri v. Switzer (lately decided; Mo. Sup.) 45 S. W. 245.

These cases are not in all points irreconcilable with those first cited. Curry v. Spencer is extreme. It was held that an exception from an otherwise general inheritance law of legacies of husband or wife, children or grandchildren, of the person who died last seised, offended the rigid uniformity of the constitution of that state, and its bill of rights. The court, however, said, speaking by Blodgett, J.: 'It is not questioned that the power to tax is vested in the legislature; that it is unrestricted, except when opposed to some provision of the federal or state constitution; and that it extends to every trade or occupation, to every object of industry, use, or enjoyment, and to every species of possession.' And quoting 2 Bl. Comm. 12, he further said: 'Wills, and therefore testaments and rights of inheritances and successions, are all of them creatures of the civil or municipal laws, and accordingly are in all respects regulated by them.'

In Wisconsin v. Mann and Minnesota v. Gorman, the distinction between a tax on successions and one on property was not necessary to observe. Minnesota v. Gorman, however, may be claimed as deciding that a tax based on the value of the estates is contrary to the rule of equality; also, that exemptions are. Ohio v. Ferris and Missouri v. Switzer do not oppose the principles upon which inheritance taxes are sustained, but only decide that the statutes passed on were repugnant to equality and uniformity of taxation as prescribed by the state constitutions. They are authority against the Illinois statute. But it is not necessary to dwell on the points of agreement of the cases. Our inquiry must be, not what will satisfy the provisions of the state constitutions, but what will satisfy the rule of the federal constitution. The power of the states over successions may be as plenary in the abstract as appellees contend for. Nevertheless it must be exerted within the limitations of that constitution. If the power of devise or of inheritance be a privilege, it must be conferred or regulated by equal laws.

This brings us to the law in controversy. The appellant attacks both its principles and its provisions,-its principles as necessarily arbitrary, and its provisions as causing discriminations and creating inequality in the burdens of taxation.

Is the act open to this criticism? The clause of the fourteenth amendment especially invoked is that which prohibits a state denying to any citizen the equal protection of the laws. What satisfies this equality has not been, and probably never can be, precisely defined. Generally it has been said that it 'only requires the same means and methods to be applied impartially to all the constituents of a class, so that the law shall operate equally and uniformly upon all persons in similar circumstances.' Kentucky Railroad Tax Cases, 115 U.S. 321, 6 Sup. Ct. 57. It does not prohibit legislation which is limited either in the objects to which it is directed, or by the territory within which it is to operate. It merely requires that all persons subjected to such legislation shall be treated alike under like circumstances and conditions, both in the privilege conferred and the liabilities imposed. Hayes v. Missouri, 120 U.S. 68, 7 Sup. Ct. 350. Similar citations could be multiplied. But what is the test of likeness and unlikeness of circumstances and conditions? These expressions have almost the generality of the principle they are used to expound, and yet they are definite steps to precision and usefulness of definition, when connected with the facts of the cases in which they are employed. With these for illustration, it may be safely said that the rule prescribes no rigid equality, and permits to the discretion and wisdom of the state a wide latitude, as far as interference by this court is concerned. Nor with the impolicy of a law has it concern. Mr. Justice Field said in Mobile v. Kimball, 102 U.S. 704, that this court is not a harbor in which can be found a refuge from illadvised, unequal, and oppressive state legislation. And he observed in another case: 'It is hardly necessary to say that hardship, impolicy. or injustice of state laws is not necessarily an b jection to their constitutional validity.'

The rule therefore is not a substitute for municipal law. It only prescribes that that law have the attribute of equality of operation, and equality of operation does not mean indiscriminate operation on persons, merely as such, but on persons according to their relations. In some circumstances it may not tax A. more than B.; but, if A. be of a different trade or profession than B., it may. And, in matters not of taxation, if A. be a different kind of corporation than B., it may subject A. to a different rule of responsibility to servants than B. (Railway Co. v. Mackey, 127 U.S. 205, 8 Sup. Ct. 1161), and to a different measure of damages than B. (Railway Co. v. Beckwith, 129 U.S. 26, 9 Sup. Ct. 207). And it permits special legislation in all of its varieties. Railway Co. v. Mackey, 127 U.S. 205, 8 Sup. Ct. 1161; Railway Co. v. Herrick, 127 U.S. 210, 8 Sup. Ct. 1176; Duncan v. Missouri, 152 U.S. 377, 14 Sup. Ct. 570.

In other words, the state may distinguish, select, and classify objects of legislation, and necessarily this power must have a wide range of discretion. It is not without limitation, of course. 'Clear and hostile discriminations against particular persons and classes, especially such as are of unusual character, unknown to the practice of our governments, might be obnoxious to the constitutional prohibition,' said Mr. Justice Bradley in Bell's Gap R. Co. v. Pennsylvania, 134 U.S. 232-240, 10 Sup. Ct. 533.

And Mr. Justice Brewer, in Railroad Co. v. Ellis, 165 U.S. 150, 17 Sup. Ct. 255, after a careful consideration of many cases, said: 'It is apparent that the mere fact of classification is not sufficient to relieve a statute from the reach of the equality clause of the fourteenth amendment, and that in all cases it must appear, not only that a classification has been made, but also that it is one based upon some reasonable ground,-some difference which bears a just and proper relation to the attempted classification, and is not a mere arbitrary selection.'

Two principles, therefore, must be reconciled in the Illinois inheritance law, if it is to be sustained,-the equality of protection of the laws guarantied by the fourteenth amendment, and the power of the state to classify persons and property. The latter principle needs further consideration. What test is there of the reasonableness of a classification,-of one based upon 'some difference which bears a just and proper relation to the attempted classification, and is not a mere arbitrary selection'? Legislation special in character is not forbiddeb by it, as we have seen. Treating mechanics as a class, and giving them a lien for the amount of their work, has been held reasonable. Charging a railroad corporation, and not other corporations or persons, with an attorney's fee, has been held unreasonable; yet the former would seem to be as much an exclusive favor as the latter an exclusive burden.

Of taxation (and the case at bar is of taxation) Mr. Justice Bradley said in Bell's Gap R. Co. v. Pennsylvania, supra, and Mr. Chief Justice Fuller in Giozza v. Tiernan, 148 U.S. 657, 13 Sup. Ct. 721, that the fourteenth amendment was not intended to compel the state to adopt an iron rule of equal taxation. The range of the state's power was expressed by Mr. Justice Bradley, as follows: 'It may, if it chooses, exempt certain classes of property from any taxation at all, such as churches, libraries, and the property of charitable institutions. It may impose different specific taxes upon different trades and professions, and vary the rates of excise upon various products. It may tax real estate and personal property in a different manner. It may tax visible property only, and not tax securities for payment of money. It may allow deductions for indebtedness, or not allow them. All such regulations, and those of like character, so long as they proceed within reasonable limits and general usage, are within the discretion of the state legs lature, or the people of the state framing their constitution.'

And so Mr. Justice Miller, speaking for the court in Davidson v. New Orleans, 96 U.S. 97. said: 'The federal constitution imposes no restraints on the state in regard to unequal taxation.'

The court, through Mr. Justice Lamar, in Express Co. v. Seibert, 142 U.S. 339, 12 Sup. Ct. 250, was equally emphatic. He said on page 351, 142 U.S., and on page 253, 12 Sup. Ct.: 'This court has repeatedly laid down the doctrine that diversity of taxation, both with respect to the amount imposed and the various species of property selected either for bearing its burdens, or from being exempt from them, is not inconsistent with a perfect uniformity and equality of taxation, in the proper sense of those terms, and that a system which imposes the same tax upon every species of property, irrespective of its nature or condition or class, will be destructive of the principles of uniformity and equality in taxation, and of a just adaptation of property to its burdens.' And it was said in Merchants' & Manufacturers' Nat. Bank v. Pennsylvania, 167 U.S. 461, 17 Sup. Ct. 829: 'Indeed, this whole argument of a right under the federal constitution to challenge the tax law on the ground of inequality in the burdens resulting from the operation of the law is put at rest by the decision in Bell's Gap R. Co. v. Pennsylvania.'

There is therefore no precise application of the rule of reasonableness of classification, and the rule of equality permits many practical inequalities. And necessarily so. In a clssification for governmental purposes there cannot be an exact exclusion or inclusion of persons and things. Bearing these considerations in mind, we can solve the questions in controversy.

There are three main classes in the Illinois statute; the first and second being based, respectively, on lineal and collateral relationship to the testator or interstate, and the third being composed of strangers to his blood, and distant relatives. The latter is again divided into four subclasses, dependent upon the amount of the estate received. The first two classes therefore depend on substantial differences; differences which may distinguish them from each other, and them or either of them from the other class; differences, therefore, which 'bear a just and proper relation to the attempted classification,'-the rule expressed in Railroad Co. v. Ellis, supra. And, if the constituents of each class are affected alike, the rule of equality prescribed by the cases is satisfied. In other words, the law operates 'equally and uniformly upon all persons in similar circumstances.'

But the appellant asserts discrimination, and claims that the exemptions produce the greatest inequality. As stated above, the supreme court of the state of Illinois passed on and sustained the law in the Drake Case; and, claiming the opinion for support, the appellant contends that there are two distinct systems and principles applied in the act,-the one basing the tax on the amount received or the value of the privilege of succession; the other basing the tax upon the estate owned by the decedent, irrespective of the amount or value of the legacy. And discriminations hence resulting, or rather which are claimed as hence resulting, are detailed.

We, however, do not read the opinion as counsel do. In answer to the objection that the statute offended against uniformity or proportion to valuation as prescribed by the constitution of Illinois, the court said:

'That statute provides certain classes of property, which was a part of an estate, shall be exempt from taxation under these provisions; and when the legislature provides other classes of property, some of which shall pay one dollar per hundred, others two, others three, and others four, and still others five, and again others six dollars, per hundred, six different classes are created, under and by which a tax is levied by valuation on the right of succession to a separate class of proe rty.

'The class on which a tax is thus levied is general, uniform, and pertains to all species of property included within that class. A tax which affects the property within a specific class is uniform as to the class, and there is no provision of the constitution which precludes legislative action from assessing tax on that particular class. By this act of the legislature six classes of property are created, heretofore absolutely unknown. It is those classes of property depending upon the estate owned by one dying possessed thereof which the state may regulate as to its descent and the right to devise. The tax assessed on classes thus created is absolutely unifrom on the classes upon which it operates, and, under the provisions of the statute, is to be determined by valuation, so that every person and corporation shall pay a tax in proportion to the value of his, her, or its property inherited; and it is not inconsistent with the principle of taxation fixed by the constitution, and is clearly within the sections of the constitution quoted. No want of uniformity with one living who owns property can be urged as a reason why the statute makes an inconsistent rule. No person inherits properity, or can take by devise, excent by the statute; and the state, having power to regulate this question, may create classes, and provide for uniformity with reference to classes which were before unknown.'

The words which we have italicized are urged to support appellant's contention, but it is manifest that they do not do so, when considered in relation to that which precedes and follows them; and it is therefore the estates which descend or are received which the court decides are new property, and which are to pay a tax in proportion to their value.

Appellant, however, says: 'The progression is likewise unnecessarily arbitrary if we take the view that the tax is levied on the amount received. * * * Under such an assumption, those taking the larger amounts are required to pay a larger rate on the same sums upon which those taking smaller sums pay a smaller rate; that is to say one who receives a legacy of $10,000 pays 3 per cent., or $300, thus receiving $9,700 net, while one receiving a legacy of $10,001 pays 4 per cent. on the whole amount, or $400.04, thus receiving $9,600.96,-$99.04 less than the one whose legacy was actually $1 less valuable. This method is applied throughout the class. Other examples might be stated.'

The reasoning of appellant is based on the view that the tax is one on property, instead of one on the succession, as held by the supreme court of the state. Being on the succession, the court further held, as we have seen, that the latter is to be regarded as new property, and the $20,000 and other property not taxed are not, therefore, exemptions.

In this view, the Illinois court is in harmony with the majority of other courts of the country. We concur in the reasoning. It is true that the amount of the exemption is greater in the Illinois law than in any other, but the right to exempt cannot depend on that. Whether it shall be $20,000, as in Illinois law, or $10,000, as in that of Massachusetts, or other amounts as in other laws, must depend upon the judgment of the legislature of each state, and cannot be subject to judicial review. If such review could ascertain the factors of judgment, and could apply them with indisputable wisdom to the different conditions existing, it would be outside of its province to do so. That, manifestly, is a legislative, not a judicial, function.

The first and second cases, therefore, of the statute, depend on substantial distinctions, and their classifications are not arbitrary. Nor do the exemptions of the statute render its operation unequal, within the meaning of the fourteenth amendment. 'The right to make exemptions is involved in the right to select the subjects of taxation, and apportion the public burdens among them, and must consequently be understood to exist in the lawmaking power wherever it has no  in terms been taken away. To some extent it must exist always, for the selection of subjects of taxation is of itself an exemption of what is not selected.' Cooley, Tax'n, 200. See, also, the remarks of Mr. Justice Bradley in Bell's Gap R. Co. v. Pennsylvania, supra.

The provisions of the statute in regard to the tax on legacies to strangers to the blood of an intestate need further comment. These provisions are as follows:

'On each and every hundred dollars of the clear market value of all property and at the same rate for any less amount; on all estates of ten thousand dollars and less, three dollars; on all estates of over ten thousand dollars and not exceeding twenty thousand dollars, four dollars; on all estates over twenty thousand dollars and not exceeding fifty thousand dollars, five dollars, and on all estates over fifty thousand dollars, six dollars: provided, that an estate in the above case which may be valued at a less sum than five hundred dollars shall not be subject to any duty or tax.'

There are four classes created, and manifestly there is equality between the members of each class. Inequality is only found by comparing the members of one class with those of another. It is illustrated by appellant as follows: One who receives a legacy of $10,000 pays 3 per cent., or $300, thus receiving $9,700 net, while one receiving a legacy of $10,001 pays 4 per cent. on the whole amount, or $400.04, thus receiving $9,600.96, or $99.04 less than the one whose legacy was actually $1 less valuable. This method is applied throughout the class.

These, however, are conceded to be extreme illustrations, and we think, therefore, that they furnish no test of the practical operation of the classification. When the legacies differ in substantial extent, if the rate increases, the benefit increases to greater degree.

If there is unsoundness, it must be in the classification. The members of each class are treated alike; that is to say, all who inherit $10,000 are treated alike,-all who inherit any other sum are treated alike. There is equality, therefore, within the classes. If there is inequality, it must be because the members of a class are arbitrarily made such, and burdened as such, upon no distinctions justifying it. This is claimed. It is said that the tax is not in proportion to the amount but yaries with the amounts arbitrarily fixed, and hence that an inheritance of $10,000 or less pays 3 per cent., and that one over $10,000 pays, not 3 per cent. on $10,000, and an increased percentage on the excess over $10,000, but an increased percentage on the $10,000 as well as on the excess; and it is said, as we have seen, that in consequence one who is given a legacy of $10,001 by the deduction of the tax receives $99.04 less than one who is given a legacy of $10,000. But neither case can be said to be contrary to the rule of equality of the fourteenth amendment. That rule does not require, as we have seen, exact equality of taxation. It only requires that the law imposing it shall operate on all alike, under the same circumstances. The tax is not on money; it is on the right to inherit, and hence a condition of inheritance, and it may be graded according to the value of that inheritance. The condition is not arbitrary because it is determined by that value; it is not unequal in operation because it does not levy the same percentage on every dollar,-does not fail to treat 'all alike under like circumstances and conditions, both in the privilege conferred and the liabilities imposed.' The jurisdiction of courts is fixed by amounts. The right of appeal is. As was said at bar, the congress of the United States has classified the right of suitors to come into the United States courts by amounts. Regarding these alone, there is the same inequality that is urged against classification of the Illinois law. All license laws and all specific taxes have in them an element of inequality. Nevertheless they are universally imposed, and their legality has e ver been questioned. We think the classification of the Illinois law was in the power of the legislature to make, and the decree of the circuit court is affirmed.

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