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ST. LOUIS, MO., MAY 22, 1911.

THE PRESENCE IN A STATE OF EVIDENCES OF DEBT AS MAKING THEM PROPERTY SUBJECT TO INHERITANCE TAX.

The case of Wheeler v. Sohmer, Comptroller, 34 Sup. Ct., handed down on April 20, 1914, and not yet reported, seems one of the most important cases on the question of situs of property for taxation that has lately appeared. Strange to say, however, the court is so divided upon the question, that there is no majority view upon any determinative question.

Justice Holmes, who writes the main opinion, is dissented from as to his reasoning by five of the bench, two of whom, however, agree with his conclusion, that the tax was properly laid, because it was a succession or inheritance tax, and the other three rejecting both his reasoning and conclusion.

The facts of this case show, that deceased, who was not a resident of New York, had at the time of his death in a safe deposit box in New York certain promissory notes made by a resident of Chicago, secured by mortgages of Chicago land to Illinois trustees and other promissory notes of a railroad, a corporation of Virginia. New York court held the notes subject to the New York transfer

tax.

Justice Holmes, with whom concur both in his reasoning and conclusion Justices Day, Hughes and Lurton, treats the question solely from the standpoint of the constitutional power of a state to give to bills and notes found therein the character of property for the purposes of taxation.

He says: "It has been asserted or implied again and again that the states had the power to deal with negotiable paper on the footing of situs," and he

quotes from New Orleans v. Stempfel, 175 U. S. 309 as follows: "It is well settled that bank bills and municipal bonds are in such concrete tangible form that they are subject to taxation where found, irrespective of the domicile of the owner. *** Notes and mortgages are of the same nature. *** We see no reason why a state may not declare that if found within its limits they should be subject to taxation." He observes that: "This is the established law unless it has been overthrown by the decision in Buck v. Beach, 206 U. S. 392." This case he distinguishes, as Ohio notes were held not taxable in Indiana because their absence from, Ohio "evidently was regarded as a temporary absence from home."

Justice McKenna, with whom concurs Justice Whitney, agrees to the conclusion of taxability under the New York statute, on the theory that in an inheritance or succession tax the rule is different than in ordinary taxability of property.

Justice Lamar, with whom agreed the Chief Justice and Justice Van Devanter, said: "I concur in Mr. Justice McKenna's analysis of Buck v. Beach and the other cases, but am of the opinion that the principle there decided applies as well to inheritance and transfer taxes on notes as to direct taxes, and that therefore, the judgment in the present case should be reversed."

In Buck V. Beach, Justice Peckham said: "The sole question then for this court is whether the mere presence of the notes in Indiana constituted debts of which the notes were the written evi

dence, property within the jurisdiction. of that state, so that such debts could be therein taxed." He reviewed former cases and said: "We have not had a case where neither the party assessed nor the debtor was a resident of or present in the state where the tax was imposed, and where no business was done therein by the owner of the notes or his agent re

lating in any way to the capital evidenced by the notes assessed for taxation."

It seems strange that Justice Peckham could be speaking in this way, if he regarded at all the circumstance of which Justice Holmes speaks. The reasoning of the latter justice seems like finding in a case some circumstance to which a distinction could have been drawn but was not, and resting an interpretation of a decision in the case upon the distinction which he has for the first time figured out for himself.

But the case of Buck v. Beach, so says Justice McKenna: "In effect, reserved from its principle inheritance or succession taxing acts by rejecting as not in point cases which involved them. We said, "The foundation upon which such acts rest is different from that which exists where the assessment is levied upon property. The succession or inheritance tax is not a tax upon property, as has been frequently held by this court, Knowlton V. Moore, 178 U. S. 41; Blackstone v. Miller, 188 U. S. 189, and therefore, the decisions arising under such inheritance tax cases are not in point." "

The way of making the transfer tax take hold in this case was through ancillary administration in New York, whereby "the property is in the control of the courts of New York. In other words, the laws of New York are invoked, accomplish its transfer and subject it to the dispositions of the will and make effectual the purposes of the tes

tator."

Knowlton v. Moore, supra, was a case in which the opinion was written by Justice, now Chief Justice, White, and it concerned a case where the general principle of a succession tax, as being not a tax upon property, but upon the right to dispose of property, was sustained, the property affected being of a deceased resident of New York where the tax was claimed.

In Blackstone v. Miller, supra, it was held that a deposit by a citizen of Illinois for fourteen months was there long enough for New York to find it was not in transitu in such sense as to withdraw it from the taxing power of the state. The opinion was by Justice Holmes and there seems in that case as in this case no distinction between succession and other taxes, at least no sharply drawn distinction, though it was said: "Power over the person of the debtor confers jurisdiction. And this being so we perceive no better reason for denying the right of New York to impose a succession tax on debts owed by its citizens than upon tangible within the state at the chattels found time of the death." Justice White dissented.

This case does not help Justice McKenna, but puts a succession tax case upon the same sort of basis for the tax taking hold as is the case with any other tax. The deposit was a debt by a New York citizen or corporation to an Illinois citizen and the court says, in effect, its situs was in New oYrk.

Here, however, ancillary administration is the connecting link between the tax and the subject matter thereof. By it the laws of New York are said to be invoked to accomplish the transfer of the property "and subject it to the dispositions of the will and make effectual the purposes of the testator." Does it do any such thing? A foreign administrator has nothing to do with the will or its purpose being carried into effect. He accounts to the administrator of the domicil, who executes the will. His duties are purely perfunctory. He is but an agent to reduce to possession and account to his principal.

It seems a strained construction that this should bring property under a succession tax, and harder still to see why, if such a tax applies a general tax would not also apply. Indeed, we think it could

be better argued that a general rather than a succession tax would apply. If the latter is but a tax upon privilege, the state of the ancillary administration can legitimately know nothing of its exercise in a foreign jurisdiction, but it may know of property one of its officers holds within its borders and which its courts handle.

We conclude, therefore, that in this case it is no more certain that Justice Holmes and those who agree with him would accept Justice McKenna's view of the law, than that Justice McKenna would accept his, and this case really settles no principle at all.

NOTES OF IMPORTANT DECISIONS.

CONSTITUTIONAL LAW RIGHT OF STATE TO FIX INSURANCE RATES.-By a majority decision of six to three, Justice Lamar dissenting, and the Chief Justice and Justice Van Devanter agreeing with him, the Supreme Court sustains the constitutionality of a Kansas statute for the regulation and control of the rates of premiums for fire insurance and to prevent discriminations therein. German Alliance Ins. Co. v. Lewis, 34 Sup. Ct. XLVI Chicago Legal News, 313.

It has long been held that insurance could be regulated and it has been, and it seems to us no great step from regulation to the fixing of rates. Indeed, it might be claimed that the right to fix rates is a prime factor in adequate regulation, and, if so, the state, which has the power to say upon what terms one may write insurance or hold himself out to write it, may tell him he cannot write it at all unless he charges a certain rate.

Justice McKenna states very admirably this feature of the business of insurance on which the right to fix rates may be placed. "The contracts of insurance may be said to be interdependent. They cannot be regarded singly or isolatedly, and the effect of their relation is to create a fund of assurance and credit, the companies becoming the depositories of the money of the insured, possessing great power thereby and charged with great responsibility. How necessary their solvency is, is manifest. On the other hand, to the insured, insurance is an asset, a basis of credit. It is practically a necessity to business activity and enterprise. It is, therefore, essentially differ

ent from ordinary commercial transactions, and, as we have seen, according to the sense of the world from the earliest times-certainly the sense of the modern world-is of the greatest public concern."

In 76 Cent. L. J., 166, is found a discussion under the title: "Franchise in Conducting the Business of Insurance and Regulation of Its Rates," and there it was contended, and authority cited for the contention, that qualifications to make insurance contracts could be prescribed and from this deduction was drawn that there existed the right to fix the rate. It was further contended the public had the right to take steps to maintain the solvency of insurance companies. The contracts of these companies have been legislated about in so many ways that the old idea of such a contract being a private matter has long been lost sight of. Each ruling, however, as the case here considered involves, strongly points the way to reversal of such cases as Paul v. Virginia, in which insurance was considered in an isolated way and outside of interstate

commerce.

EXTRADITION-FUGITIVE FROM JUSTICE MAY BE HELD REASONABLE TIME ON ARREST WITHOUT WARRANT.-In Union Pacific R. Co. v. Belek, 211 Fed. 699, it was claimed that a state officer of Idaho had no duty to arrest a fugitive felon, because the statutes of that state providing for arrest and removal in extradition proceedings require that a written complaint must be first filed in the demanding state and then a warrant must issue in the state where the fugitive is and no arrest can be made except under such warrant. The court said, however, that: "The authority to hold one in proceedings instituted under such statutes is quite distinct from the authority to make a preliminary arrest, until a proper complaint can be made and a warrant obtained. The authority to hold a prisoner for a reasonable time for such proceedings to be instituted, has been many times affirmed. See 2 Moore on Extradition § § 591595. The power of the proper peace officer to make arrest, without a warrant, of a fugitive from justice, provided he has reasonable cause to believe he has committed a felony, has also been declared," citing several state

cases.

There is not much in strict legal logic to sustain such an arrest, but it is a power that has been exercised out of the necessity of the case. Thus the Court supposes a case where a crime is near a state line and an offender steps across, when he has committed it in