or cousin of the decedent, being more distantly related than a widow or child thereof, pays higher rates of taxes. In a few States, however, practically all relatives are placed in one class and pay the same rates of tax regardless of the degree of relationship; but in these States the exception, and not the rule, prevails.

In some of the States the classes of beneficiaries are designated as class 1, class 2, class 3, etc., while in others they are referred to as class A, class B, class C, etc.; and for this reason 1 and A, 2 and B, 3 and C, etc., will necessarily be used interchangeably in discussing the several classes.

The laws of the several States imposing inheritance taxes are not at all uniform either as to the number of classes of beneficiaries, or as to the relationship of the beneficiaries in each class to the decedent. In 7 States there are 2 classes of beneficiaries; in 17 States there are 3 classes; in 9 States, 4 classes; in 4 States, 5 classes; and in 1 State, Iowa, there are 7 classes. New Hampshire, since it has only one class of beneficiaries for taxing purposes, is not included in the States just mentioned.

Of the 38 States (excluding New Hampshire) mentioned in the paragraph next preceding, the father, mother, husband, wife, and children, of decedent, will be found in class A in 34 of such States, or in the class which pays the lowest rates of taxes. In Kentucky, the surviving spouse and children comprise class A, and the parents comprise class B. In Delaware, the husband and wife are the only beneficiaries of class A, with the parents, grandparents, and children belonging to class B. In both Minnesota and South Dakota, the wife and children are in class A, and the husband and ancestors are in class B.

In 23 of said 38 States, the grandparents will be found in the class A beneficiaries; in 11 States, they will be found in class B; and in 4 States, they will be found in class C.

Exemptions

It can be stated, as a general rule, that all transfers of property to corporations or associations organized for religious, charitable, educational, scientific, cemetery, or other general welfare purposes, or to or for the United States, or to or for the use of the State or any county, city, town, or other political subdivision therein, for public purposes, are exempt from inheritance taxes. The State of Pennsylvania is a notable exception to this rule, the transfers exempted being those to a municipality, corporation, or unincorporated body, for the sole use of the public by way of free exhibition within this State. The few other States falling within the exception to this rule restrict the transfers for only one or two of the purposes mentioned. Some of the States granting these exemptions stipulate that the corporation or organization to which the property is transferred must be created or existing under the laws of the State granting the exemption, or that the property transferred must be for use within such State, and, in some instances, both such conditions are stipulated. At least 28 of the States have either one or both of these conditions, or one or more similar conditions.

The inheritance tax laws of the several States are not at all uniform so far as exemptions accorded the individual beneficiaries are concerned. This is due, in part, to the fact that exemptions are usually allowed to classes of beneficiaries as distinguished from individual

beneficiaries, and the classifications are neither standardized nor uniform. The beneficiaries of class B in one State, for instance, might be found in class C in another State, and in class D in a third State. In view of this situation, it becomes necessary to compare the exemption accorded an individual beneficiary in one State with that accorded individuals of relative positions in other States. To some extent, this is done in the paragraph following.

Eight of the States imposing inheritance taxes grant a more liberal exemption to widows than to other beneficiaries. The amounts so exempted range from $6,000 in Arkansas to $75,000 in Kansas, with one State granting an exemption of $24,000; one State, $20,000; one State, $17,500; and three States, $15,000. Five States allow larger exemptions to the widows and minor children than are allowed to other beneficiaries. In four of such States the exemption is $10,000, and in the fifth State it is $5,000. Four States grant a larger exemption to the widow or widower of the decedent than is granted to other beneficiaries. These exemptions are $10,000, $20,000, $30,000, and $40,000. In 19 States the widow is allowed the same exemption as are other beneficiaries of class A. Of these 19 States, 4 grant an exemption of $5,000; 11 grant an exemption of $10,000; 2, $20,000; and 2, $25,000. New Hampshire imposes no tax on class A beneficiaries, and, therefore, no exemption is necessary. Maryland grants an exemption of $500 to all beneficiaries. Pennsylvania grants an exemption of $500 to widows or children.

Rates of Tax

So far as estate taxes are concerned, all beneficiaries are treated alike; that is, the rates are the same, regardless of each beneficiary's relationship to the decedent. Such rates, however, do advance as the size of the estate or interest increases. To this extent the estate tax is progressive. The inheritance tax is progressive in two ways: The rates advance as the size of each beneficiary's interest increases, and, also, as the degree of his relationship to the decedent becomes more remote, but there is at least one exception to this rule. In New Hampshire, for instance, there are two classes of beneficiaries, A and B. Class A consists of the husband, wife, lineal descendant, and adopted child, of decedent, but all transfers of property thereto are exempt. Class B consists of all other beneficiaries, or those not in class A, and members of this class pay a flat rate of 81⁄2 percent of the value of all property transferred thereto. This is probably the only State in which the inheritance tax is not progressive to any extent.

There are other States, however, in which the rates progress as the degree of relationship becomes more remote, but do not progress as the size of the estate or interest increases. In these States, flat rates are imposed on all amounts transferred, as follows:

In the above States it will be noted that although there is not a great variation between the rates imposed by such States on beneficiaries of classes A and C, there is a marked variation so far as beneficiaries of class B are concerned. The table shows that in the District of Columbia beneficiaries of class B pay at the rate of 3 percent on all amounts transferred thereto, while in Pennsylvania they pay 10 percent on the same amounts; but since the beneficiaries in this class are not the same relatives in the two States, the variation is not as great as it first appears. Class C beneficiaries in the District of Columbia are about the same, so far as relationship is concerned, as are class B beneficiaries in Pennsylvania; therefore, the rates imposed upon such class C beneficiaries should be compared with those imposed upon such class B beneficiaries, but not until there is considered the exemption of $1,000 granted the former and no exemption granted the latter. There are three States in which both progressive and flat rates prevail; that is, the progressive rates apply to one or more classes of beneficiaries, and the flat rates apply to other classes. In Iowa, for instance, the first three classes pay in proportion to the amounts transferred thereto; while classes 4, 5, 6, and 7 pay flat rates of 10, 15, 10, and 20 percent, respectively, on amounts so transferred. In Nebraska, classes A and B pay flat rates of 1 and 4 percent, respectively; while class C pays rates graduated from 4 percent on amounts not over $5,000 to 12 percent on amounts in excess of $50,000. In Vermont, the rates payable by class A are graduated from 1 percent on amounts not over $25,000 to 5 percent on amounts in excess of $250,000; while class B pays a flat rate of 5 percent on all amounts.

Thirty of the thirty-nine States employ the progressive principle entirely; that is, the rates increase as the size of the interest, or as the amount of property, passing to each beneficiary increases, and also, as each beneficiary's degree of relationship to the decedent becomes more remote. In 12 of these 30 States, the rates are imposed upon the same gradations of interests or amounts for all classes of beneficiaries in each particular State, while in the remaining 18 States, the same gradations do not apply to all such classes.

Disposition of Proceeds

Of the 48 States imposing these taxes, only 8 have provisions in the laws digested herein whereby the counties or other civil subdivisions share in the distribution of the proceeds of such taxes. In most of these States the laws imposing the taxes specify that the proceeds shall be paid into the State treasury, or into the general revenue fund of the State, or that they are for the use of the State. In a few instances, however, the laws imposing the taxes make no specific disposition of the proceeds; and it is assumed that such proceeds, according to the constitution or general laws of the State, are paid into the general fund of the State. Three States, however, as shown in the paragraph following, use the proceeds of this tax, or a part thereof, for purposes other than general State uses; and it is not at all unusual for a State to appropriate such proceeds, or a portion thereof, for purposes other than general State uses.

In Michigan, the entire proceeds of the inheritance and estate taxes are paid to the State, but are used thereby in paying interest upon the primary school, university, and other educational funds, and the interest and principal of the State debt, in the order recited, until the

extinguishment of the State debt, other than the amounts due to educational funds, when they then constitute a part of the primary school interest fund. In California, 95 percent of the amount collected each year as inheritance and estate taxes is paid into the general fund of the State and 5 percent is paid into the teachers' permanent fund for retirement purposes. In Montana, the proceeds of the inheritance taxes are distributed 50 percent to the general fund of the State, 25 percent to the common school interest and income fund, and 25 percent to the common school equalization fund.

The 8 States which share the proceeds of these taxes with the counties or other civil subdivisions make the following provisions:

In Nebraska, each county retains the full amount of all inheritance taxes collected therein, but the county board is required to expend the same for relief purposes only. This, however, is a temporary provision which expires March 1, 1939, after which date such amount is to be expended by said board for the improvement of county roads.

In North Dakota, each county retains, for its general fund, 65 percent of all inheritance taxes collected therein.

In Ohio, 50 percent of the gross amount collected as inheritance and estate taxes is for the use of the municipal corporation or township in which the tax originates, but the law designates the purpose or purposes for which such amount may be used.

In Idaho, 10 percent of the inheritance taxes is paid into the current expense fund of the county in which collected; in Minnesota, the same percentage is returned to each such county for the benefit of the county revenue fund; and in South Dakota, each such county retains the same percentage for its general fund.

In Wisconsin, each county retains, for use of the county, 7% percent of the amount of inheritance tax collected therein; but this does not apply to the emergency tax, the proceeds of which are used by the State for relief purposes.

In New Jersey, there is paid to the respective county treasurers, at the close of each fiscal year, 5 percent of the inheritance taxes collected from property of resident decedents. All estate taxes, however, are for the use of the State.

Estate Taxes

In the States levying estate taxes, the rates, with few exceptions, are sufficient to absorb the Federal credit allowed, with no additional burden being imposed upon the estate. The exceptions to this rule are found in Arizona, New York (temporary rates), and North Dakota. In one or two other States partial exceptions exist; that is, the rates on some of the amounts are less, and on others they are greater, than the rates sufficient to absorb the Federal credit.

Exemptions

The exemptions in most of the States levying estate taxes are the same as are allowed under the Federal act. In a few States, however, other amounts are in effect. Two States allow $10,000; one allows $15,000; and one, $25,000. In two other States a maximum of $20,000 is allowed the husband or wife, while lesser amounts are allowed other designated beneficiaries.

Gift Tax

In five of the six States imposing gift taxes, the rates of taxes and the classifications of beneficiaries are the same, or practically so, as are found in the respective States' inheritance tax laws, although there are slight variations so far as exemptions are concerned. Oregon, however, has three classes of beneficiaries for the inheritance taxes with a rate schedule applicable to each class, but levies the gift taxes at the same rates upon all donees.

INHERITANCE, Estate, and GIFT TAXES LEVIED BY STATES