are based on the business of that year, and we are without information as to appellant's business and return upon it in the intervening years. We think it clear that no case is presented which would warrant interference by this Court with the order below denying interlocutory relief. Affirmed. MR. JUSTICE MCREYNOLDS concurs in the result. CHASE NATIONAL BANK ET AL. v. UNITED STATES. CERTIFICATE FROM THE COURT OF CLAIMS. No. 77. Argued November 27, 28, 1928.-Decided January 2, 1929. Section 401 of the Revenue Act of 1921 imposes a tax on 'the transfer of the net estate of every decedent" dying after the passage of the Act, and § 402 provides that in valuing the gross estate from which the net is computed, there shall be included the amount, over an exemption, receivable by beneficiaries as insurance under policies taken out by the decedent upon his own life. After the effective date of the Act the decedent in this case procured policies on his life payable to others but reserving to himself the right to change beneficiaries, and paid the premiums until his death. The transfer tax assessed under the Act included an amount imposed by reason of the inclusion in his estate of the proceeds of the policies less exemption. Held: (1) This part of the tax is not a direct tax on the policies or their proceeds, but is a tax on the privilege of transferring property of a decedent at death. Pp. 333 et seq. (2) The termination at death of the power of the decedent to change beneficiaries and the consequent passing to the designated beneficiaries of all rights under the policies freed from the possibility of its exercise, is the legitimate subject of a transfer tax. P. 334. (3) The fact that the proceeds of the policies were not transferred to the beneficiaries from the decedent, but from the insurer, does not make the tax one on property. The word "transfer " in the statute, and the privilege which may constitutionally be taxed as an excise, includes the transfer of property procured Argument for the Plaintiffs. 278 U.S. through expenditures by the decedent with the purpose, effected by his death, of having it pass to another. P. 337. (4) In reaching this conclusion, it is of some significance that by the local law applicable to the insurer and the insured in this case, the beneficiaries' rights in the policies and their proceeds are deemed to be the proceeds of the premiums paid by the insured, and, as such, recoverable by one having an equitable claim on the premiums. P. 337. (5) Termination of the power of control at the time of death inures to the benefit of him who owns the property subject to the power and thus brings about, at death, the completion of that shifting of the economic benefits of property which is the real subject of the tax, just as effectively as would its exercise. P. 338. (6) The statutory method of fixing the tax and securing its payment is not objectionable, as arbitrary, under the Fifth Amendment even though the tax, both on the beneficiaries of the insurance and on those who share in the decedent's estate, is larger than it would be if the insurance proceeds were dealt with separately in taxing their transfer instead of being included in the gross estate from which the net estate, subject to graduated tax rates, is determined. P. 338. RESPONSE to questions certified by the Court of Claims in a suit by executors to recover money paid as part of an estate tax. Messrs. Dallas S. Townsend and Wm. Marshall Bullitt, with whom Mr. Henry Walton Proffitt was on the brief, for The Chase National Bank et al. The policies were the property of the beneficiaries and no part of the estate. Tyler v. Treasurer and Receiver General, 226 Mass. 306; Matter of Voorhees, 200 App. Div. (N. Y.) 259; Wagner v. Thieriot, 203 App. Div. (N. Y.) 757; Washington Central Bank v. Hume, 128 U. S. 195. The tax imposed is a direct tax on property by virtue of its ownership and is void because not apportioned. Eisner v. Macomber, 252 U. S. 189; Dawson v. Kentucky Distilleries Co., 255 U. S. 288; Pollock Case, 157 U. S. 429; Knowlton v. Moore, 178 U. S. 41; Flint v. Stone 327 Argument for the Plaintiffs. Tracy Co., 220 U. S. 150; Brushaber v. Union Pacific, 240 U. S. 19; United States v. Supplee-Biddle Co., 265 U. S. 189; Frick v. Lewellyn, 298 Fed. 803, affirmed upon another ground, 268 U. S. 238. The tax is not an "excise" tax within any definition ever suggested by this Court. Knowlton v. Moore, 178 U. S. 41; Scholey v. Rew, 23 Wall. 331; Pollock v. Farmers Loan & Trust Co., 157 U. S. 429; Hertz v. Woodman, 218 U. S. 205; Y. M. C. A. v. Davis, 264 U. S. 47; Edwards v. Slocum, 264 U. S. 61. The numerous decisions of this Court in federal inheritance tax cases establish the following propositions: 1. That the federal inheritance tax-whether a legacy tax as in the 1898 Act, or a net estate tax as in the 1921 Act-was held to be an excise solely because it was imposed upon the interest of the decedent which ceased by reason of death and thereupon passed to a beneficiary— from the dead to the living. 2. The property with respect to which the tax is imposed must be property of the decedent, who directed its disposition after his own death either (1) by intestacy, will, or deed to take effect at death, or (2) by conferring a power of appointment on another to dispose of it at such other's death. 3. The sole basis of sustaining such taxes as "excises " is that there is no inherent right in a decedent to direct the disposition of his property after his death; and that as the State alone authorizes or protects such disposition, it can attach to such privilege any condition it chooses, and that the federal tax is simply imposed on the exercise of the privilege. The tax complained of in this case does not come within the definition of an "excise" tax: 1. Mr. Brown had no interest which could or did cease at his death and no interest passed from him to any beneficiary upon his death since their interest in the policies had vested in them some years previous to his death. Argument for the Plaintiffs. 278 U.S. 2. Mr. Brown neither owned the policies, nor did he exercise by will or deed to take effect at death, any rights of ownership over these policies; he neither disposed of them nor authorized another to dispose of them; there was no cessation of his interest upon his death, and no transfer of such interest to another, since the property rights in the policies were already in the beneficiaries prior to his death. 3. The falling in of these insurance policies upon Mr. Brown's death was not in any sense the exercise of a privilege granted by the State. A contract to pay money was merely performed. This was no tax on a privilege, it was a tax on the inherent and essential element of ownership, i. e., the right to take possession of one's own property, and as such was a tax on property. The tax is so unreasonably determined that it is void, even though considered as an excise tax. It lacks equality, universality and uniformity. The statute arbitrarily makes something a part of Mr. Brown's estate which is not part of it. Mr. Brown during his lifetime could not gain possession of the proceeds of these policies, nor could he by his will exercise rights of ownership over these proceeds. The plaintiff executors had no right or power over the proceeds. The tax is assessed in this instance on Mr. Brown's estate. The statute attempts to give the executors a cause of action against the beneficiaries to recover the amount of tax paid. The cause of action is inadequate since the executors under the statute cannot recover from the beneficiaries the full amount of the tax paid by reason of these proceeds. A mere cause of action to recover a part of the tax paid is not the equivalent of immunity from taxation. The constitutional limitations on the power of taxation must be strictly complied with, and the power to tax cannot be made the means of imposing upon one man the burden which should be borne by another. Loan Ass'n v. 327 Argument for the Plaintiffs. Topeka, 20 Wall. 655; United States v. Railroad Co., 17 Wall. 322; Hartman v. Greenhow, 102 U. S. 672. There are numerous decisions of this and other courts, sustaining excise taxes which are measured by the value or extent of tax-exempt property or property which would not of itself be taxable. It will be observed from an examination of these cases that the property which is there used as a measure of the tax is property belonging to the taxpayer against whom the tax is assessed. There is no suggestion in any language ever used by this Court that Congress has power to impose a tax on A measured by property which does not belong to A and over which A has no control, but which belongs exclusively to B. See Wardell v. Blum, 276 Fed. 226; Frew v. Bowers, 12 F. (2d) 625. The executors of the estate of Mr. Brown cannot be distinguished from other executors and estates by reason of the policies of insurance not payable to them which are here involved, which they do not own, with reference to which they did nothing and could do nothing, and by which they did not in any way benefit. The most that can be said in favor of the tax here in question is that it is a tax on the amount received by Mrs. Brown and her two children and that the executors are made the collectors of the tax for the United States. We invite attention, however, to the fact that the Act attempts to give the executors the right to recover only a part of the amount which the estate has to pay. No argument can escape the bare fact that the tax on the surviving beneficiary of the policy is to be determined by the wealth of the insured decedent. If Mrs. Brown and the Brown children were taxed at the "estate tax " progressive rates on the insurance received, they would pay about $1,500 and $750 each respectively, or $3,000 in all. But merely because they held insurance on a wellto-do man's life, the tax is $9,146.76. |