Opinion
Argued November 17, 1910
Decided January 10, 1911
Thomas B. Casey and John S. Jenkins for appellant. John L. Cadwalader for respondent.
The Appellate Division has affirmed a determination of the surrogate of New York county that "bonds and other property, located outside of this state" at the date of the death of Mrs. Sheldon, a non-resident of this state, and transferred by her will, in the exercise of a power of appointment contained in the will of Daniel B. Fearing, were not subject to a transfer tax. Upon this appeal by the comptroller of the state, it is argued, in the first place, that the trust property, which was appointed by Mrs. Sheldon's will, "was property of a resident decedent, * * * and, consequently, taxable here, wheresoever situated." In the second place, it is argued that bonds, secured by mortgages of real estate situated in this state, of which the trust estate was principally composed, "although the instruments evidencing them are outside of the state, constitute taxable property."
Daniel B. Fearing died in 1870, a resident of this state, leaving a will; by which a trust was created for the life of his daughter, Amey R. Sheldon, for her benefit. She was given the power to appoint by will the persons, to whom the trustees were to set over the remainder of the trust estate upon her death, in the event of her dying without issue. At the time of her death Mrs. Sheldon was, and had been for many years, a resident of the State of Rhode Island, and her will was there admitted to probate. She left no issue and her exercise of the power of appointment conferred by her father's will was in accord with its provisions. The surviving trustee of Fearing's will was, also, a resident of the same state. The trust estate, which was disposed of by the provisions of Mrs. Sheldon's will, wholly, consisted of bonds, secured by mortgages of real estate. The mortgages were, mainly, of real estate within this state, but none of them, or of the bonds, was, or had been, kept here.
Mr. Fearing died many years before the enactment of any statute charging the succession to estates of deceased persons with a tax. After such an enactment was placed upon the statute books, it was not until 1897 that property, passing through the execution of a power of appointment created by will, was subjected to taxation when the will had become operative before the passage of the Tax Law. Chapter 284 of the Laws of 1897 added to the Transfer Tax Law the following provision: "Whenever any person or corporation shall exercise a power of appointment derived from any disposition of property made either before or after the passage of this act, such appointment when made shall be deemed a transfer taxable under the provisions of this act in the same manner as though the property to which such appointment relates belonged absolutely to the donee of such power and had been bequeathed or devised by such donee by will; and whenever any person or corporation possessing such a power of appointment so derived shall omit or fail to exercise the same within the time provided therefor in whole or in part a transfer taxable under the provisions of this act shall be deemed to take place to the extent of such omissions or failure, in the same manner as though the persons or corporations thereby becoming entitled to the possession or enjoyment of the property to which such power related had succeeded thereto by a will of the donee of the power failing to exercise such power, taking effect at the time of such omission or failure." (Section 220, subd. 5.) No language could more clearly disclose the legislative intent that property thereafter to pass by the exercise of a power of appointment should be taxed, irrespective of the time when the instrument creating the power was executed. Such an appointment to others was, for the purposes of taxation, to be deemed the equivalent of a bequest, or devise, by the donee of the power of property belonging to the donee. Prior to this amendment of the Transfer Tax Law, there was no provision for the taxation of transfers under powers of appointment; but, with the passage of the amendment, the privilege of exercising the power by will was subjected to the charge of a tax upon the right of the appointees to take. Whereas, previously, the source of the appointee's right of succession was deemed to be in the will creating the power of appointment; thereafter, it was to be deemed to be in the execution of the power itself. The actual transfer effected by the exercise of the power was to be taxed. The legislature, in the exercise of its control over testamentary dispositions of property, could validly burden such transfers with a tax, regardless of the technical source of the title of the appointee under the rules of the common law. (See Matter of Dows, 167 N.Y. 227; Matter of Delano, 176 ib. 486.) As Mrs. Sheldon, in making a will, exercised a privilege granted by the laws of her own state, and not by those of this state, the transfers of property effected thereby were beyond the reach of our tax laws. The state had no dominion over the property transferred.
The second proposition urged by the comptroller presents no new question. It is covered by our decision in Matter of Bronson, ( 150 N.Y. 1). The contention that, as the mortgages, which were given to secure the payment of the bonds transferred by Mrs. Sheldon's will, were of real estate in this state, the bonds represented investments taxable here, was disposed of by that case. The provision of the Transfer Tax Law, which was then under consideration, was that "a tax shall be and is hereby imposed upon the transfer of any property * * * when the transfer is by will, or intestate law, of property within the state, and the decedent was a non-resident of the state at the time of his death." (L. 1892, ch. 399, sec. 1.) This provision of the law has not been changed since its enactment in 1892. In the Bronson case, the testator was a resident of the state of Connecticut and a part of the residuary estate disposed of by his will consisted in shares of the capital stock, and in the bonds, of corporations incorporated under the laws of this state; all of which were in the testator's possession at his domicile. We held the shares of stock to be taxable, as representing distinct interests of the holder in the corporate property; but the bonds were held not to be subject to any tax. It was considered that they did not represent "property within the state" and, therefore, were not property over which this state had any jurisdiction for the purposes of taxation. The reasoning, upon which this conclusion was reached, is as effective in the present case. Whether the bonds are secured, as in the Bronson case, by mortgages of corporate property, or, as in the present case, by mortgages of the property of individuals, they represent, equally, debts of their makers, which, as choses in action, under the general rule of law, are inseparable from the personality of the owner. Under that rule, as it was said in the Foreign Held Bonds Case, (15 Wall. 300, 320), of the bonds there, they "can have no locality separate from the parties to whom they are due," and the legal situs of the indebtedness, which they represent, is fixed by the domicile of the creditor. The legal title to these bonds in question was transferred by force of the laws of Rhode Island. As their legal and actual situs was in a foreign state, upon no theory were they within the operation of our Transfer Tax Law. I am unable to perceive the force of any argument, which seeks to find in the feature of the mortgage a reason for limiting the rule of law applied by us in the Bronson case. If bonds issued by domestic corporations upon the security of mortgages of the corporate property are not subject to taxation, when in the hands and physical possession of a non-resident decedent, as we have decided in that case, then the bonds passing under Mrs. Sheldon's will cannot be reached for taxation. In the Whiting case ( 150 N.Y. 27) decided at the same time as was the Bronson Case, it was expressly stated that the bonds there in question were subject to taxation "on account of their physical presence in this state." There is no sound distinction between this case and the Bronson case, which, as I view them, commends itself to the judgment.
I, therefore, advise that we should affirm the order appealed from.
CULLEN, Ch. J., WERNER, WILLARD BARTLETT and CHASE, JJ., concur; VANN, J., dissents; HAIGHT, J., not voting.
Order affirmed, with costs.