CHAPTER XXV

THE FACTOR OF SITUS

$233. Meaning of "Situs." "Situs" is a Latin word meaning location. The word has a very important place in the study of inheritance and estate taxes, because the jurisdiction in which property has its taxable situs determines the law (and consequently the rates and conditions) under which its transfer is taxable.

The matter of situs in connection with the federal estate tax develops into a question of whether the property is located for transfer tax purposes in the States, the Territories of Alaska and Hawaii, and the District of Columbia, this being the federal estate tax description of the United States as given in Article 5 of Regulations 68. Situs therefore does not bother most persons in connection with the federal tax, because the holdings of most persons the transfer of whose property is subject to that tax are entirely in the above area. The transfer could not by any stretch of the imagination be considered as taxable by any other nation. Situs in connection with the federal tax is discussed in § 255.

In connection with the state taxes the question is as to the particular state or states in which the property has its taxable situs. The state laws in their references to situs seem very peculiar to persons who are unfamiliar with them (and, indeed, very erratic to persons who are fully acquainted with them).

In the first place the rules of situs are applied differently to tangible property, whether real or personal, than to intangible property. Nearly all the complications are found in the treatment of situs in connection with intangible property. In the study of this matter it will be found that the courts of the various states have decided fundamental questions in diametrically opposite ways, so that the only method of determining the practice on mooted questions is to look up the rules of the different states. Many matters have not yet been passed on by the courts on some states, and it will be found that in these states the taxing officials are proceeding more or less consistently along certain lines pending the time when the courts are asked to interpret the statute.

In the simple case, where the decedent has a compact estate consisting of the real estate on which he lives, the usual household furriture, cash in bank, and possibly some livestock, an automobile, etc., there are few complications, but there are numerous estates that are by no means so simple. In addition to the family home there are frequently investments in city lots in other states, or a safety deposit vault may be

rented in the banking house in the nearest large city, which may be in another state.

§ 234. Real Property. The transfer of realty is covered by the death duties of only the state in which the real estate is located. If the decedent owned real estate in another state than that in which he was a resident, no tax on the transfer of this realty will be levied by the state of his residence. The courts are unanimous to this effect. In an Illinois case which covers a great many of the points of special interest in reference to situs it was held that

for inheritance tax purposes the State takes an interest, at death, in all the property of a resident decedent within its jurisdiction and in all his personal property wherever it is located; but real property in another State is not subject to an Illinois inheritance tax, whether the title thereto passes by will or by the law of descent of the foreign State.1

§ 235. Situs of Personalty. The old theory of personalty, developed from the days when men carried on their backs all the personal property which they owned, is that personalty follows its owner and has its situs at the domicile of its owner, no matter what its actual location. Because of this fact that personalty has its situs at the decedent's residence, whereas the situs of realty is its actual location, realty left by an intestate decedent in a state other than his residence does not always descend to the same relatives who receive his personalty in the same state in which the realty is located. Since the realty has its situs in the state in which it is located, it descends under the laws of that state; because the personalty has its situs in the state of its owner's domicile, it is distributed under those laws. Prior to June of 1925 it had always been held that the transfer of personalty was, therefore, taxable by the state of the deceased owner's last residence.

The succession takes place and is governed by the law of the domicile; and, if the actual situs is in a foreign country, the courts of that country cannot annul the succession established by the law of the domicile.3

And our succession tax is computed with reference to the value of the whole beneficial succession which passes by force of our law and payment of the tax thus computed is required from the principal administrator although some portion may be actually received by a beneficiary at the hands of an ancillary administrator.4

1 People v. Kellogg, 268 Ill. 489, 109 N. E. 304. See also Gallup's Appeal, 76 Conn. 617, 57 Atl. 699; Lorillard v. People, 6 Dem. Surr. 268; Succession of Westfeldt, 122 La. 836, 48 So. 281; Matter of Swift, 137 N. Y. 77, 32 N. E. 1096; Marr's Estate, 240 Pa. St. 38, 87 Atl. 621.

2 Snyder v. Bettman, 190 U. S. 429, 23 S. Ct. 803.

3 Dammert v. Osborn, 141 N. Y. 564, 35 N. E. 1088. Cited in Frothingham v. Shaw, 175 Mass. 59, 55 N. E. 623.

4 Hopkins' Appeal, 77 Conn. 644, 653, 60 Atl. 657.

At the same time transfers of personalty were taxed also by the states in which the personalty was located on the theory that it was only through the courts of those states that the domiciliary representative could enforce his authority over the distribution of that property. The rule that personalty follows its owner, and is where its owner is (called the "doctrine of mobilia") was abrogated at least to that extent.

The Legislature intended, as I think, to repeal the maxim mobilia personam sequuntur so far as it was an obstacle, and to leave it unchanged, so far as it was an aid, to the imposition of a transfer tax upon all property in any respect subject to the laws of this state.5

§ 236.

Double Taxation. Of course the result of these rules was that the same transfer was taxed more than once, but there is nothing in the constitution prohibiting double taxation. The ruling case is a decision of the United States Supreme Court. The decedent, a resident of Illinois, had almost five million dollars on deposit in a New York bank. Both states taxed the transfer. The court said:

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No doubt this power on the part of two states to tax on different and more or less inconsistent principles leads to some hardship. It may be regretted also that one and the same state should be seen taxing on the one hand according to the fact of power and on the other, at the same time, according to the fiction that, in successions after death, mobilia sequuntur personam and domicile governs the whole. But these inconsistencies infringe no rule of constitutional law. If the transfer of the deposit necessarily depends upon and involves the law of New York for its exercise, or, in other words, if the transfer is subject to the power of the State of New York, then New York may subject the transfer to a tax. But it is plain that the transfer does depend upon the law of New York, not because of any theoretical speculation concerning the whereabouts of the debt, but because of the practical fact of its power over the person of the debtor. What gives the debt validity? Nothing but the fact that the law of the place where the debtor is will make him pay.6

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§ 237. Frick v. Pennsylvania. It is the principle of double taxation which has brought death duties into such popular disfavor. When states found that because of their power over the property itself they could tax the transfer of the local personalty of a nonresident decedent they stalked into the new pasture with a violence that has brought down the displeasure of the owners. It has been felt that unless a curb was put upon this trend, the eventual result would be a lessening

5 Matter of Whiting, 150 N. Y. 27, 30. See also Blackstone v. Miller, 188 U. S. 189, 23 S. Ct. 277; Davis v. Upson, 230 Ill. 327, 82 N. E. 824; Colorado v. Harbeck, 232 N. Y. 71, 133 N. E. 357; Succession of Popp, 146 La. 464, 83 So. 765.

6 Blackstone v. Miller, 188 U. S. 189, 204, 23 S. Ct. 277; affirming Matter of Blackstone, 171 N. Y. 682, 64 N. E. 1118; affirming 69 N. Y. App. Div. 127, 74 N. Y. Supp. 508. See also Matter of Houdayer, 150 N. Y. 37, 44 N. E. 718.

of the flow of capital between the states, and a consequent lessening in the financing of new industries and development of older ones. This curb was furnished to a certain extent by a decision of the United States Supreme Court, handed down on June 1, 1925, in the case of Frick v. Pennsylvania, in which the court entirely upset the age-old doctrine as to the situs of personalty and held that taxes on tangible personalty or its transfer could be levied by only the state in which the property had its actual, physical situs. The decision is generally considered so revolutionary that it is quoted below at some length.

Henry C. Frick, domiciled in Pennsylvania, died testate December 2, 1919, leaving a large estate. By his will he disposed of the entire estate-giving about 53 per cent for charitable and public purposes and passing the rest to or for the use of individual beneficiaries. Besides real and personal property in Pennsylvania, the estate included tangible personalty having an actual situs in New York, tangible personalty having a like situs in Massachusetts, and various stocks in corporations of States other than Pennsylvania. The greater part of the tangible personalty in New York, having a value of $13,132,391, was given to a corporation of that State for the purposes of a public art gallery, and the other part, having a value of $77,818.75, to decedent's widow. The tangible personalty in Massachusetts, having a value of $325,534.25, was also given to the widow. The will was probated in Pennsylvania, and letters testamentary were granted there. It was also proved in New York and Massachusetts, and ancillary letters were granted in those States. Under the Laws of the United States the executors were required to pay to it, and did pay, an estate tax of $6,338,898.68; and under the laws of Kansas, West Virginia and other States they were required to pay to such States, and did pay, large sums in taxes imposed as a prerequisite to an effective transfer from a non-resident deceased of stocks in corporations of those States.

The Pennsylvania statute provides that where a person domiciled in that State dies seized or possessed of property, real or personal, a tax shall be laid on the transfer of the property from him by will or intestate laws, whether the property be in that State or elsewhere.

In applying this statute to the Frick estate the taxing officers included the value of the tangible personalty in New York and Massachusetts in the clear value on which they computed the tax.

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The plaintiffs in error are the executors and an interested legatee. They contended in the State court, and contend here, that in so far as the Pennsylvania statute attempts to tax the transfer of tangible personal property having an actual situs in States other than Pennsylvania, it transcends the power of that State, and thereby contravenes the due process of law clause of the Fourteenth Amendment to the Constitution of the United States.

This precise question has not been presented to this Court before, but there are many decisions dealing with cognate questions which point the way to its solution. These decisions show, first, that the exaction by a State of a tax which it is without power to impose is a taking of property without due process of law in violation of the Fourteenth Amendment; secondly, that while a State may so shape its tax laws as to reach every object which is under its jurisdiction, it cannot give them any extra-territorial operation; and, thirdly, that as respects tangible personal property having an actual situs in a particular State, the power to subject it to State taxation rests exclusively in that State, regardless of the

domicile of the owner. Cleveland, Painesville and Ashtabula R. R. Company v. Pennsylvania, 15 Wall. 300, 319, 325; Louisville and Jeffersonville Ferry Company v. Kentucky, 188 U. S. 385, 396; Old Dominion Steamship Company v. Virginia, 198 U. S. 299; Delaware, Lackawanna and Western R. R. Co. v. Pennsylvania, 198 U. S. 341, 356; Union Refrigerator Transit Company v. Kentucky, 199 U. S. 194; Western Union Telegraph Company v. Kansas, 216 U. S. 1, 38; International Paper Company v. Massachusetts, 246 U. S. 135, 142.

In Union Refrigerator Transit Company v. Kentucky the question presented was whether, consistently with the restriction imposed by the due process of law clause of the Fourteenth Amendment, the State of Kentucky could tax a corporation of that State upon its tangible personal property having an actual situs in other States. The question was much considered, prior cases were reviewed, and a negative answer was given. The grounds of the decision are reflected in the following excerpts from the opinion:

"It is also essential to the validity of a tax that the property shall be within the territorial jurisdiction of the taxing power. Not only is the operation of State laws limited to persons and property within the boundaries of the State, but property which is wholly and exclusively within the jurisdiction of another State, receives none of the protection for which the tax is supposed to be the compensation. This rule receives its most familiar illustration in the cases of land which, to be taxable, must be within the limits of the State. Indeed, we know of no case where a legislature has assumed to impose a tax upon land within the jurisdiction of another State, much less where such action has been defended by any court. It is said by this court in the Foreign-held Bond case, 15 Wall. 300, 319, that no adjudication should be necessary to establish so obvious a proposition as that property lying beyond the jurisdiction of a State is not a subject upon which her taxing power can be legitimately exercised. The argument against the taxability of land within the jurisdiction of another State applies with equal cogency to tangible personal property beyond the jurisdiction. It is not only beyond the sovereignty of the taxing State, but does not and cannot receive protection under its laws.

"The arguments in favor of the taxation of intangible property at the domicile of the owner have no application to tangible property. The fact that such property is visible, easily found and difficult to conceal, and the tax readily collectible, is so cogent an argument for its taxation at its situs, that of late there is a general consensus of opinion that it is taxable in the State where it is permanently located and employed and where it receives its entire protection, irrespective of the domicile of the owner.

"The adoption of a general rule that tangible personal property in other States may be taxed at the domicile of the owner involves possibilities of an extremely serious character. Not only would it authorize the taxation of furniture and other property kept at country houses in other States or even in foreign countries, (and) of stocks of goods and merchandise kept at branch establishments when already taxed at the State of their situs, but of that enormous mass of personal property belonging to railways and other corporations which might be taxed in the State where they are incorporated, though their charters contemplated the construction and operation of roads wholly outside the State, and sometimes across the continent, and when in no other particular they are subject to its laws and entitled to its protection.''

In United States v. Bennet, 232 U. S. 299, 306, where this Court had occasion to explain the restrictive operation of the due process of law clause of the Fourteenth Amendment, as applied to the taxation by one State of property in another, and to distinguish the operation of the like clause of the Fifth Amend