learning, and would serve no useful purpose in the decision of this case. The Wisconsin tax commission in their report submitted to the legislature in the ear 1898, justly say, 'It is very clear that the overwhelming weight of judicial authority sustains legislation of this character, and equally clear that, in the wealthiest and also the most progressive states, statutes exist or are being enacted for the collection of succession taxes.' It was doubtless in response to the favorable recommendation of the commission that the present law was passed at the following session of the legislature. Examination of the law shows that it is in all essential respects a literal copy of the New York law. A tax law which makes unjust discrimination, which taxes one person at one rate, and another one, within the same class and under like circumstances at another rate, or exempts him altogether denies the equal protection of the laws. This must be self-evident. There may indeed be classification; and if the classification be founded upon real differences, affording rational grounds for a distinction, such classification will not violate the rule of uniformity and equality. So, also, there may be exemption, but the exemption must be reasonable in amount, and founded, also, on rational grounds.

These, then, are the vital questions in this case: (1) Is the exemption of all estates under $10,000 in value reasonable? And (2) is the attempted classification a legal and rational one? As to the exemption, we confess that, especially with regard to devises or transfers to strangers and collaterals, it seems very large. It is much larger than is allowed by most of the inheritance laws in other states. In New York the exemption in such cases is only $500, while in case of devises or transfers to lineal descendants and other near relatives it is $10,000. In most of the other state laws where exemptions are allowed, they run from $250 to $1,000; but in Massachusetts the exemption limit is fixed at $10,000, and in Montana at $7,500. Both of these last-named laws have been sustained by the courts of last resort in the states, respectively, in which they were enacted, and in both cases the question of exemption was raised and discussed. Minot v. Winthrop, 162 Mass. 113, 38 N. E. 512, 26 L. R. A. 259; Gelsthorpe v. Furnell, 20 Mont. 299, 51 Pac. 267, 39 L. R. A. 170. In Massachusetts, it is true, there was no constitutional provision of uniformity governing the tax, but in Montana there is a constitutional provision requiring a uniform rate of taxation. In both cases cited, the exemption was sustained on the ground that the cost of administration of small estates is proportionately larger than that of large estates,

and that this operates to diminish the amounts received by beneficiaries, and that it appears that such laws have usually granted exemptions, and that the amount of exemption is peculiarly a subject for the exercise of legislative discretion. In our state the right to make reasonable exemptions in tax laws has always been recognized, and, of course, the legislature must be the first judge as to the proper amount thereof. No court will assume to say that the legislature is wrong in its judgment as to the amount, unless such error appears so clearly as to leave no reasonable doubt. So, while we would have been better pleased had the exemption been more nearly in accord with the general rates of exemption as fixed in other laws, we do not feel that we can say, in opposition to the judgment of the legislature, that the amount fixed is unreasonable.

Passing then to the question of classification, we reach really the crucial point of the case. We have endeavored to give this subject the most careful thought and investigation, but we have been unable to convince ourselves that the attempted classification in this law answers the requirements of legal and constitutional classification. It is a trite expression that classification, in order to be legal, must be rational; it must be founded upon real differences of situation or condition, which bear a just and proper relation to the attempted classification, and reasonably justify a difference of rule. It is well settled that there may justly be classification between lineal descendants, collateral relatives, and strangers; each may be made a class, and a different rule applied, because there are real differences of situation and in the considerations applicable to the various classes. It has been decided, also, that a progressive law which · levies one rate of tax on all receiving over $10,000 and not exceeding $20,000 and a higher rate on all receiving over $20,000 and not over $50,000, and so on upwards, is a valid law, and that such classification does not violate the rule of equality, because the classes are proper classes, and all members of a given class are treated alike. Magoun v. Bank, 170 U. S., 283.

"This latter provision is not involved in the present case, as there is no such element in our law. But while classification is proper, there must always be uniformity within the class. If persons under the same circumstances and conditions are treated differently, there is arbitrary discrimination, and not classification. It is claimed that such is the effect of the present law, and we can see no escape from the conclusion. People in the same class are subject to different rules, some being exempt and some being taxed. This results from the peculiar

provsions of section 19 of the law, which defines 'estate' and 'property' as construed by the New York courts before we borrowed the law. As already pointed out, under this provision the $10,000 limitation or exemption is based on the size of the whole property devised or granted, and not upon the amount received by each individual legatee or grantee. Thus it results that one collateral relative, receiving a legacy of $2,000 from one testator, whose estate amounts to but $9,500, pays no tax, while another collateral relative in the same degree, receiving a legacy of $2,000 from another testator whose estate amounts to $10,500 is obliged to pay a tax. Here is unlawful discrimination, pure and simple. No rational distinction or difference can be drawn between the two legatees simply because the estate from which their legacies came are of slightly different size. They are both within the same class, surrounded by the same conditions, and receiving the same benefits. One pays a tax, and the other does not. This is not the equal protection of the laws."

The court thus in the Black case have decided that an inheritance tax making just classifications of persons under like conditions and circumstances with reasonable exemptions is not obnoxious to the constitutional rule of uniformity and equality before the law. In determining the form and character of the proposed legislation for the taxation of property transmitted by will or intestacy, it is important that the views of the court be carefully understood so that the law will be in harmony with the state constitution and will not by any gross inequality transcend the limitations arising from those fundamental conceptions of free government, which underlie all constitutional sys

tems.

The reference to the decision is for the purpose of presenting a just and proper classification of direct and collateral heirs, the amount of exemption, the legal theory and the wisdom and expediency of the law, and the progressive rate of the tax permissible as estates increase in value from small to large amounts. It is also clear that the exemptions should not be so large or unreasonable that the law will be condemned on that ground.

Legal Theory for the Tax.

In concluding the discussion of the questions involved in the construction of the act in controversy the true theory upon which the inheritance tax is based is stated by the court in the Black case as follows:

"We have reached this conclusion reluctantly. We should far rather have sustained the law, but the conclusion has been forced upon us. We agree with the general principles which have been approved by the overwhelming weight of authority in the courts of this country, with reference to inheritance or succession tax laws. Those principles are, in brief, that such taxes are taxes upon the right to receive property, and not upon property itself; that classification between lineals and collateral relatives and strangers does not violate the rule of uniformity, nor the principle of the equal protection of the laws; and that reasonable exemption of small estates also may be allowed without violating uniformity. We have been compelled to condemn the present law, nothwithstanding the foregoing general conclusions in favor of the validity of such laws in general, because, under its peculiar provisions, unlawful discrimination necessarily results between beneficiaries in the same class."

PROPOSED LAW.

The acts creating the commission and enlarging their powers provide "they shall formulate and recommend such legislation as may be found necessary to prevent the evasion of just and equal taxation and for the improvement of the system of taxation in the state."

While the act of Congress was in force inheritances were taxed by the federal government and again by the states. The repeal of the federal tax or duty on legacies and distributive shares of personal property, opens a clear field to the states for the imposition of taxes on lines approved by the best thinkers in law, economics, and finance. We have carefully examined the systems in force in other states and countries with the view of formulating a measure in accord with modern methods of taxation and such as will tend to ameliorate the unsatisfactory conditions arising out of the administration of the general property tax.

It may be said in extenuation of this somewhat lengthy discussion of the subject that the legislature should be fully advised of the progress in other states and countries to the end that if the taxation of inheritances is continued in this state, a just, rational and progressive system may be adopted which in scope and efficiency will conform to the best modern methods. and lay the foundation for tax reform in other directions.

The discussion of classifications, exemptions, rates and the progressive character of the proposed measure will be postponed until after the outline of the bill is stated. The administrative provisions regulating the mode of collecting the tax are similar to those in the laws of 1899 and 1901 with necessary amendments, and are too voluminous to be inserted in this report.

The Provisions.

The essential parts of the bill are in substance as follows: A bill for a tax on gifts, inheritances, bequests, legacies, devises and successions in certain cases.

SECTION 1. A tax shall be and is hereby imposed on the transfer of any property, real, personal or mixed, or any interest therein, or income therefrom, in trust or otherwise to any person, association or corporation except corporations of this state organized under its laws solely for religious, charitable or educational purposes which shall use the property so transferred exclusively for the purposes of their organization, in the following cases:

(1) When the transfer is by will or by the intestate laws of this state from any person dying possessed of the property while a resident of the state.

(2) When a transfer is by will or intestate law of property within the state or within its jurisdiction and the decedent was a nonresident of the state at the time of his death.

(3) When the transfer of property is made by a resident or by a nonresident when such nonresident's property is within this state, or within its jurisdiction by deed, grant, bargain, sale or gift, made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after such death.

(4) Such tax shall be imposed when any such person or cor poration becomes beneficially entitled, in possession or expectancy to any property or the income thereof, by any such trans