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United States v. Kingsley

Decided: November 4, 1963.

UNITED STATES OF AMERICA AND THE HOWARD SAVINGS INSTITUTION, EXECUTOR UNDER THE LAST WILL AND TESTAMENT OF WILLIAM O. FLORSTEDT, DECEASED, APPELLANTS,
v.
WILLIAM KINGSLEY, ACTING DIRECTOR, DIVISION OF TAXATION, DEPARTMENT OF THE TREASURY OF THE STATE OF NEW JERSEY, RESPONDENT. IN THE MATTER OF THE TRANSFER INHERITANCE TAX ASSESSMENT IN THE ESTATE OF WILLIAM O. FLORSTEDT, DECEASED



For modification -- Chief Justice Weintraub, and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. Opposed -- None. The opinion of the court was delivered by Francis, J.

Francis

[41 NJ Page 77] William O. Florstedt, a resident of Ocean Grove, Monmouth County, New Jersey, died testate on December 9, 1961. His will was duly probated, and by its terms the residuary estate was devised and bequeathed to the "United States Government * * * to be used as the * * *

Government may see fit for the national defense of the country." The residuary estate was valued at $138,611.21, and the Acting Director of the Division of Taxation determined that it was subject to tax under the New Jersey Transfer Inheritance Tax law, N.J.S.A. 54:34-1a. Accordingly, a tax of $10,883.42 was assessed against the United States and paid under protest pending appeal to the Superior Court, Appellate Division. We certified the appeal on our own motion before it was reached for argument there.

The controlling statute, N.J.S.A. 54:34-1, provides that:

"* * * a tax shall be and is hereby imposed at the rates set forth in section 54:34-2 of this Title upon the transfer of property, real or personal, of the value of five hundred dollars ($500) or over, or of any interest therein or income therefrom, in trust or otherwise, to or for the use of any transferee, distributee or beneficiary in the following cases:

a. Where real or tangible personal property situated in this State or intangible personal property wherever situated is transferred by will or by the intestate laws of this State from a resident of this State dying seized or possessed thereof. * * *"

Subsections a, b and c of N.J.S.A. 54:34-2 fix the rates of taxation for transfers to certain relatives of a decedent and to religious or charitable institutions. The tax in this instance was assessed under subsection d which taxes all other transfers on any amount up to $900,000 at 8%. The United States not only asserts an immunity from the entire assessment but contends also that even if a tax may be imposed, the rate should be that applicable to transfers of property passing in trust for an exclusively charitable use or purpose, namely, 5%. We shall deal with the latter issue in due course.

There is no doubt that the United States has the right and the authority to receive the Florstedt legacy as an incident of its national sovereignty and to use the proceeds in the discharge of the specified governmental function. Nor can it be questioned that under the supremacy clause of the Federal Constitution, Article 6, and the almost legendary interpretation thereof written by Chief Justice Marshall in M'Culloch v. Maryland, 4 Wheat. 316, 17 U.S. 316, 4 L. Ed. 579 (1819),

a state has no power by taxation or otherwise to impede or burden the ordinary functions of the national government. So the United States claims here that since the inheritance tax has been spoken of by the New Jersey courts as a succession tax, a tax on the privilege of succession, and operates ultimately in reduction of the testamentary legacy, it is a direct tax on the property of the United States and constitutes an improper curtailment of the right of the national government to receive that form of revenue. The contention cannot be accepted; it attaches too much significance to descriptive labels, and ignores basic concepts which appear to have long since achieved recognition at both state and national levels.

The authority to control, permit, regulate and condition the testate and intestate transmission and devolution of a domiciliary's property within the jurisdiction of a state resides in the state. The doctrine has been recognized in a long line of cases that such authority is part of the residue of sovereignty retained by the states, and insured by the Tenth Amendment of the Federal Constitution. United States v. Fox, 94 U.S. 315, 24 L. Ed. 192 (1877); United States v. Perkins, 163 U.S. 625, 16 S. Ct. 1073, 41 L. Ed. 287 (1896); Magoun v. Illinois Trust & Savings Bank, 170 U.S. 283, 18 S. Ct. 594, 42 L. Ed. 1037 (1898); Plummer v. Coler, 178 U.S. 115, 20 S. Ct. 829, 44 L. Ed. 998 (1900); Snyder v. Bettman, 190 U.S. 249, 23 S. Ct. 803, 47 L. Ed. 1035 (1903); Maxwell v. Bugbee, 250 U.S. 525, 40 S. Ct. 2, 63 L. Ed. 1124 (1919); United States v. Burnison, 339 U.S. 87, 70 S. Ct. 503, 94 L. Ed. 675 (1950). The right of a citizen to dispose of his property by will has always been deemed a legislative creation. The state may regulate the manner and terms upon which his property, both real and personal, within its jurisdiction may be transmitted by will or by inheritance. It may prescribe who shall take, and who shall not be capable of taking, the property. And the privilege of transmission of property by will or by intestacy may be made subject to such terms as in the judgment of the state will serve the public good. Accordingly, exercise of the privilege may

be conditioned on the payment of taxes. In effect, the state says to a testator: "You may devise or bequeath your property but in return for the privilege of doing so, a tax must be paid, the amount of which shall depend on the value of the property you devise or bequeath and on the relationship to you of the devisee or legatee you select."

In the ordinary sense, then, the tax is not on the property passing under the will, nor is it on the person receiving it. The tax is the price laid upon the testator in return for the right of disposition. It represents the legislative intention that a person taking advantage of the right conferred upon him shall pay a certain premium for its enjoyment. The burden comes into being and attaches itself to the testator's property immediately upon his death. It has been described as "a debt exacted by the state for protection afforded during the lifetime of the decedent." Plummer v. Coler, supra (178 U.S., at p. 138, 20 S. Ct., at pp. 837, 838, 44 L. Ed. 998). And so the legacy or devise does not pass to the beneficiary until it has yielded its contribution to the state. See, R.S. 54:35-2, 6. It becomes his property only after it has "suffered a diminution" in the amount of the tax. United States v. Perkins, supra (163 U.S., at pp. 628, 630, 16 S. Ct., at pp. 1074, 1075, 41 L. Ed. 287).

The United States suggests that because the New Jersey cases speak of the inheritance tax in question as being on the privilege of succession, Hartford v. Martin, 122 N.J.L. 283, 286 (E. & A. 1939), and since they declare that the tax comes out of the bequest to the legatee, In re Roebling's Estate, 89 N.J. Eq. 163 (Prerog. 1918), it is in fact a tax on the property of the federal sovereignty and therefore violates the supremacy clause. More specifically, the claim is that the State is reaching into the hands of the national sovereign and extracting property which came there in the normal and legitimate exercise of a function of government. But, as has been indicated ...


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