Opinion
Decided May 12, 1930.
Taxation — Inheritance or succession — Nonresident decedent — Deposit in Ohio bank nontaxable — Ohio national bank stock in New York taxable — Deposit in bank creates merely relationship of debtor and creditor — Deposit is bank's property — Depositor has right of ownership in intangible chose in action — Ohio bank deposit of nonresident decedent, governed by New York laws — "Property within this state," construed — Taxation statutes reasonably construed — Constitutional law — Taxation of nonresident's bank deposit unconstitutional, but taxation of stock valid — Sections 5331 and 5332, General Code — Section 19, Article I, Constitution — Article XIV, Amendments to U.S. Constitution.
1. State held unauthorized to impose inheritance tax in respect of bank deposit, in Ohio bank, of nonresident decedent domiciled in other state, documentary evidence of deposit being likewise there (Section 5331 and Section 5332, par. 2, General Code; Article I, Section 19, Constitution).
2. Money deposit in bank creates merely relationship of debtor and creditor.
3. Money deposit in bank is property of bank, depositor having right of ownership in intangible chose in action.
4. As regards inheritance tax, succession to bank deposit, in Ohio bank, of decedent domiciled in New York, is governed by laws of New York (Section 5331 and Section 5332, par. 2, General Code).
5. "Property within this state," as used in inheritance tax statute, when referring to tangible property, means property physically located in Ohio (Section 5331 and Section 5332, par. 2, General Code).
6. "Property within this state" in inheritance tax statute, when referring to intangible property of decedent dying in 1925, means that succession thereto is for any purpose governed by laws of Ohio (Section 5331 and Section 5332, par. 2, General Code).
7. Taxation must be viewed from practical standpoint, and laws appertaining thereto should be construed and applied to avoid, so far as possible, unreasonable and unjust consequences.
8. Taxation of Ohio bank deposit of nonresident decedent, documentary evidence of deposit being without state, held unconstitutional (Section 5331 and Section 5332, par. 2, General Code, Art. I, Section 19, Constitution; 14th Amendment, U.S. Constitution).
9. Taxation of nonresident decedent's stock in national bank situated in Ohio, certificate of stock being without state, held constitutional (Section 5331 and Section 5332, par. 2, General Code; Art. I, Section 19, Constitution; 14th Amendment, U.S. Constitution).
ERROR: Court of Appeals for Cuyahoga county.
Messrs. Baker, Hostetler Sidlo and Mr. Howard F. Burns, for plaintiffs in error.
Mr. Gilbert Bettman, attorney general, Mr. Arthur Krause and Mr. R.D. Metzner, for defendants in error.
This cause is here on error proceedings from the common pleas court of Cuyahoga county, and the pendency of the cause in that court arose from an appeal from the order of the probate court imposing the inheritance tax upon the estate of Fred E. Bright, a resident of the state of New York, domiciled there at the time of his death, which occurred on October 7, 1925. The common pleas court reversed the decision of the probate court as to certain bank deposits, and affirmed that court with respect to 55 shares of stock in the Central National Bank Savings Trust Company, of Cleveland, Ohio, valued at $15,125. The holding of the probate court was to the effect that the money of the estate, due from the Cleveland banks and trust companies, was not taxable, but as to the Central National Bank Savings Trust Company stock held that the same was taxable, and the inheritance tax was computed accordingly; and, on March 1, 1928, the exceptions of the executor and legatees were disposed of and the amount of tax was thereupon determined.
Prior to and at the time of the death of the decedent the certificates of stock in question were in the safe deposit box of the decedent in New York City, and the documentary evidence of the deposits was likewise in his possession.
When decedent died there was cash in the Guardian Trust Company of Cleveland, Ohio, in the sum of $102,255.53; in the Union Trust Company of Cleveland, Ohio, $255,000; and in the Central National Bank Savings Trust Company, Cleveland, Ohio, $322,791.73, making in all deposits a total of $680,047.26.
The rules of the depositaries provided that deposits were not payable on demand, but only after sixty days notice to the institution.
The tax commission held that both of the items of property noted above were subject to taxation in Ohio, and the executor and legatees, who were also residents and domiciled in the city and state of New York, excepted to the ruling of the probate court on the grounds that the Ohio law in fact did not impose any tax upon the property in question, and that, if the Ohio statute was operative in favor of the tax, it was in violation of the Constitutions of the state of Ohio and of the United States, because it deprived the executor and legatees of their estate without due process and in violation of the rights of private property and, also, that the method employed by the tax commission in Ohio was improper, inaccurate, and unlawful.
The probate court after holding as above noted on March 1, 1928, at its next term, on May 22, 1928, granted a motion filed by the tax commission to vacate the entry of March 1, 1928, holding the stock taxable and the money nontaxable, but on the same date the probate court made an order identical in substance with the former order of March 1, 1928, so that both decisions of the probate court were alike. This situation would not be referred to were it not for the fact that one of the assignments of error is that by reason of this change of entry the probate court committed error by vacating the first entry.
Upon appeal and error proceedings by the tax commission and the executor and legatees, the three causes, the appeal of the tax commission, of the estate, and the error proceedings of the estate, were consolidated, and thus heard as one case by the common pleas court, which decided that the probate court committed no error in the vacation of its judgment after term without the basis of statutory grounds, that the appeal by the tax commission was lawfully perfected, and consequently the tax commission was entitled to have the common pleas court pass upon the issues. The common pleas court also held as noted, that the method of computing the tax by the tax commission and probate court was in conformity to the statute, and to the facts, as they appeared in the record. Therefore there comes before us in review the question whether the common pleas court committed error in its holdings.
Counsel for the tax commission assert that the state of Ohio has the right under the statute and authorities to impose an inheritance tax upon the savings bank deposits notwithstanding they belong to a nonresident decedent, and the executor and legatees claim that under the law and the facts the contrary is true. In other words, they assert that it is contrary to the Federal and State Constitutions to impose an inheritance tax upon the property in question.
Were it not for the decision of the Supreme Court of the United States in Farmers' Loan Trust Co., Exr., v. Minnesota, 280 U.S. 204, 50 S. Ct., 98, 74 L. Ed., 190, decided January 6, 1930, the case of Blackstone v. Miller, 188 U.S. 189, 23 S. Ct., 277, 47 L. Ed., 439, would be controlling, which latter position is asserted by the tax commission, notwithstanding the Minnesota case just noted. Our judgment is, however, that Blackstone v. Miller has been definitely, explicitly, and irrevocably overruled by the Minnesota case in the decision of the United States Supreme Court of January 6, 1930.
Blackstone v. Miller was the ruling case unquestionably until the decision in the Minnesota case. Blackstone, the testator, was domiciled at the time of his death in the state of Illinois, and amongst his property were a debt of $10,000, owing by a New York firm, and the sum of $4,800,000 on deposit in New York state with a trust company, and the holding in the case is that the imposition of the transfer or inheritance tax by New York state was not a violation of the Constitution of the United States, although Mr. Justice White dissented from the decision.
The gist of the decision in the Minnesota case is that a state is without power to impose an inheritance tax with respect to intangible property of a nonresident decedent merely because the debtor is within the jurisdiction of such state.
In Farmers' Loan Trust Co., Exr., v. Minnesota, supra, the vital facts are that one Taylor died while having his domicile and residence in New York state, where he kept and owned certain bonds and certificates of indebtedness issued by the state of Minnesota and the cities of St. Paul and Minneapolis, and the total amount of this property was about $300,000. Minnesota urged the right to impose an inheritance tax in that state because the debtor resided therein, and the state consequently had control over it. The Supreme Court of the United States held the imposition of such a tax unconstitutional, and thereby the decision of the Minnesota Supreme Court was reversed. The opinion was written by Mr. Justice McReynolds, and there was added a concurring opinion by Mr. Justice Stone, and, to show the futile effect of Blackstone v. Miller, we quote from the decision of both Mr. Justice McReynolds and Mr. Justice Stone:
Mr. Justice McReynolds:
"Blackstone v. Miller, supra, and certain approving opinions, lend support to the doctrine that ordinarily choses in action are subject to taxation both at the debtor's domicile and at the domicile of the creditor; that two States may tax on different and more or less inconsistent principles the same testamentary transfer of such property without conflict with the Fourteenth Amendment. The inevitable tendency of that view is to disturb good relations among the States and produce the kind of discontent expected to subside after establishment of the Union. The Federalist, No. VII. The practical effect of it has been bad; perhaps two-thirds of the States have endeavored to avoid the evil by resort to reciprocal exemption laws. It has been stoutly assailed on principle. Having reconsidered the supporting arguments in the light of our more recent opinions, we are compelled to declare it untenable. Blackstone v. Miller no longer can be regarded as a correct exposition of existing law; and to prevent misunderstanding it is definitely overruled. * * *
"Taxation is an intensely practical matter and laws in respect of it should be construed and applied with a view of avoiding, so far as possible, unjust and oppressive consequences. We have determined that in general intangibles may be properly taxed at the domicile of their owner and we can find no sufficient reason for saying that they are not entitled to enjoy an immunity against taxation at more than one place similar to that accorded to tangibles. The difference between the two things, although obvious enough, seems insufficient to justify the harsh and oppressive discrimination against intangibles contended for on behalf of Minnesota."
Mr. Justice Stone:
"Even though the contract transferred was called into existence by the laws of Minnesota, its obligation cannot be constitutionally impaired or withdrawn from the protection which those laws gave it at its inception. See Provident Savings Society v. Kentucky, 239 U.S. 103, 113, 114 [ 36 S. Ct., 34, 60 L. Ed., 167, L.R.A., 1916C, 572]; Bedford v. Eastern Building Loan Association, 181 U.S. 227 [ 21 S. Ct., 597, 45 L. Ed., 834]. And while the creditor may rely on Minnesota law to enforce the debt, that may be equally true of the law of any other state where the debtor or his property may be found. So far as the transfer, as distinguished from the contract itself, is concerned, it is New York law and not that of Minnesota which, by generally accepted rules, is applied there and receives recognition elsewhere. See Bullen v. Wisconsin, 240 U.S. 625, 631 [ 36 S. Ct., 473, 60 L. Ed., 830]; Russell v. Grigsby [C.C.A.] 168 Fed. 577; Lee v. Abdy, 17 Q.B. Div. 309; Miller v. Campbell, 140 N.Y. 457, 460 [ 35 N.E. 651]; Spencer v. Myers, 150 N.Y. 269 [ 44 N.E. 942, 34 L.R.A., 175, 55 Am. St. Rep., 675]. Once the bonds had passed beyond the state and were acquired by an owner domiciled elsewhere, the law of Minnesota neither protected nor could it withhold the power of transfer or prescribe its terms."
It is urged by counsel for the tax commission that the Minnesota case, decided January 6, 1930, by the Supreme Court of the United States, cannot be recognized as binding because the issue is limited to the taxation of bonds belonging to a nonresident decedent, but it appears to us that the Supreme Court of the United States, in recognizing no distinction in principle between the bank deposits involved in Blackstone v. Miller and the bonds in the Minnesota case, intended without qualification to render ineffective the doctrine laid down in Blackstone v. Miller.
The ruling in the Minnesota case of last January, in our judgment, has application from its very language to all choses in action, whether they are bank deposits, bonds or other forms of intangible securities.
In the face of the Minnesota decision, it would logically result that an adherence still to Blackstone v. Miller would be a violation of Section 19, Article I, of the Constitution of Ohio, which holds that "private property shall ever be held inviolate." Southern Gum Co. v. Laylin, Secy. of State, 66 Ohio St. 578, 64 N.E. 564.
The state of Ohio undoubtedly has no right to impose a tax upon the privilege of transfer, because the Supreme Court of the United States holds that the state of Ohio confers no privilege with respect to the succession to that class of property under discussion. If the state of Ohio confers no privilege as to succession, it cannot put a tax upon a privilege which it cannot confer.
Under the decisions in Ohio it is well settled that money deposits in bank create merely a relationship of debtor and creditor, and that the money is the property of the bank, the depositor having the right of ownership in an intangible chose in action. Cleveland Western Coal Co. v. O'Brien, Treas., 98 Ohio St. 14, 120 N.E. 214, 215, holds: "Money received by a bank on deposit becomes the property of the bank, and its relation to the depositor is that of debtor, and not of bailee or trustee of the money. Bank v. Brewing Co., 50 Ohio St. 152, 33 N.E. 1054, 40 Am. St. Rep., 660." It further holds that "it is a debt which * * * is intangible in its nature and for the purposes of taxation its situs is the residence of the creditor, and not that of the debtor."
In Cassidy v. Ellerhorst, 110 Ohio St. 535, at page 541, 144 N.E. 252, 254, 42 A.L.R., 372, it was held that "it is not the property, but the `succession thereto,' which must become the basis of the inquiry," and this doctrine leads us to the conclusion that in the instant case the succession is not governed by the law of Ohio, but by the laws of the state of New York.
It is well in the discussion of the case at bar to keep in mind Section 5332, and paragraph 2 thereof, as well as Section 5331, General Code, because it will be seen that a tax is levied upon the succession to property passing in trust or otherwise, when the succession is by will or intestate laws of this state or another state or county to property within this state, from a person who was not residing in the latter state at the time of his death. It becomes necessary to determine the interpretation of the phrase, "property within this state," and upon a further reading of these sections that term, when tangible property is referred to, means physically located in Ohio, and, when intangible property is referred to, means that the succession thereto is for any purpose governed by the laws of this state.
If the bank deposits create merely the relationship of debtor and creditor, and the bank is the owner of the deposits, and only becomes a debtor of the creditor, then it logically follows that, inasmuch as the creditor is simply a creditor, he does not own the property and therefore no tax can be imposed upon the property because he has no ownership therein, but, on the contrary, another than he is the bona fide and lawful owner.
The case of Tax Commission of Ohio v. Farmers Loan Trust Co., 119 Ohio St. 410, 164 N.E. 423, 60 A.L.R., 546, decided October 31, 1928, we think is very applicable to the case at bar and involves the same sort of an estate as the Minnesota case above noted. From a reading of the syllabus we find that registered bonds of Ohio municipalities, held by a nonresident of Ohio at the time of his death, and which descend or are bequeathed to a nonresident of Ohio, are not "within the state" within the meaning of Sections 5331 and 5332, General Code, and thus are not subject to the succession tax. Again on page 413 of 119 Ohio State, 164 N.E. 423, just noted, we find language applicable to the case at bar:
"It is not contended by any one that that language would include simple contract debts, promissory notes, either with or without collateral, bonds of private corporations, or coupon bonds of municipalities. The tax commission does not ground its claims upon the power of the state over the debtor. Such a claim would result in all bonds, registered and unregistered, as well as simple contract debts, being held subject to the succession tax. If registered municipal bonds are held to be subject to the tax, it must be on the ground that the act of registration makes them `subject to or governed by the law of this state.'"
From a reading of the above excerpt it is clear that the court definitely holds that the residence of the debtor in Ohio, or the jurisdiction the state has over the debtor, cannot and does not create a chose in action authorizing the imposition of the inheritance tax in Ohio, and, if this language has any meaning, its force and effect is that the imposition of an inheritance tax by Ohio upon the deposits in question in the case at bar has no foundation in law. There are many other authorities of a like nature.
In the Farmers' Loan Co. v. Minnesota case, we have kept in mind the reasoning of the Supreme Court as evidenced by the conclusions written in the different paragraphs of the syllabus, and we note in the fifth paragraph the following significant language:
"The Court can find no sufficient reason for saying that intangible property is not entitled to enjoy an immunity from being taxed at more than one place similar to that accorded to tangible property."
This syllabus is peculiarly impressionable because it may be urged that in the Farmers' Loan case, supra, the intangibles were municipal bonds and certificates of indebtedness of the state, and that there is a distinction between such property and bank deposits, but it should be noted that in the syllabus quoted the Supreme Court extends the same immunity to intangible property as that accorded to tangible property, and thus in no uncertain manner sweeps away the alleged distinction.
In the discussion of the case at bar, we also keep in mind the application of elementary rules. Why should the same property be taxed twice? Why should one pay for a thing more than once? Why should there be a repetition of purchasing when it means the increasing of the burden to the extent that the result is unjust and oppressive? Taxation must be viewed from the practical standpoint, and the laws appertaining thereto should be construed and applied to avoid, as far as possible, any unreasonable and unjust consequence. This doctrine was the reverse of the principles laid down in Blackstone v. Miller, supra, and, because the structure of that case was founded upon double taxation, it was definitely overruled in the Farmers' Loan case, supra.
In the opinion Mr. Justice McReynolds stated, in substance, that in the argument of that case four different views concerning the situs for taxation of negotiable public obligations had been advanced in argument. One relates to the domicile of the owner, another to the debtor's domicile, the third to where the instruments were found, and the fourth concerns the jurisdiction, where the owner had caused them to become integral parts of a localized business, and the learned Justice concluded, in substance, with the observation that, if a state can adopt any of these forms of taxation, the same bonds and obligations may be declared present for taxation purposes in two, three, or four places at the same time; and the climax of his observation is found in the following language: "Such a startling possibility suggests a wrong premise."
Hence it is our conclusion with reference to the $680,047.26, the amount of money on deposit, that the court of common pleas is in error in reversing the decision of the probate court with respect to the deposits, and our holding is that the taxation of this property is contrary to the Federal and State Constitutions, in line with the reasoning and decision in Farmers' Loan Trust Co., Exr., v. Minnesota, supra.
Now coming to the question whether the stock of the Central National Bank is subject to the inheritance tax, it is our judgment, from an examination of the law and the record, that the judgment of the common pleas court should be affirmed, which is in accordance with the judgment of the probate court, and the reason for this holding we find in the second paragraph of the syllabus of the Farmers' Loan Trust Co. case, supra, which reads:
"When negotiable bonds and certificates of indebtedness issued by a State or her municipality and not used in business in that State, are owned, at the time of his death, by a person domiciled in another State in which they are kept, an attempt of the State in which they were issued to tax their transfer by inheritance is repugnant to the Fourteenth Amendment. Blackstone v. Miller, 188 U.S. 189, overruled P., 209 [ 23 S. Ct., 277, 47 L. Ed., 439]."
While it is true that the Central National Bank is created under the National Bank Act, and is not a corporation of Ohio, yet under its charter its locus is Cleveland, within the state of Ohio, and its assets are property used in business in that state. It will be seen by the syllabus in question that it is only the law of the case when the property is not used in business in Ohio. While the certificate of stock was in New York, the property which it represents was part of the capital assets of the bank, and in use and operation for the transaction of the banking business within the state of Ohio. If the decedent, Bright, had owned all the stock of the Central National Bank, we think there could be no question raised effectively against the imposition of the tax, notwithstanding the residence and domicile of the owner of the certificate of the stock were in the state of New York, and, if we look at paragraph 6 of the syllabus, it will be observed that this section now under discussion is not disposed of, because that part of the syllabus is as follows:
"This case does not present the question whether choses in action that have acquired a situs for taxation other than at the domicile of their owner through having become integral parts of some local business, may be taxed a second time at his domicile."
Now coming to the question whether there was error in the method employed by the probate and common pleas courts in computing the ratio of the Ohio succession to the gross succession, it is our judgment that the judgment of the common pleas court with respect to this question should be affirmed, which is in line with the decision of the probate court.
Thus holding, the judgment of the lower court is hereby reversed as to the deposits noted, and affirmed as to the certificate of stock in question and the method of computation. With respect to the judgment of the lower court as to bank deposits, we not only reverse the judgment, but, inasmuch as the ultimate facts are conceded, we render final judgment upon that issue for the plaintiffs in error.
Judgment accordingly.
VICKERY, P.J., and LEVINE, J., concur.