May 26, 1933.
Appeals from the District Court of the United States for the Northern District of Illinois, Eastern Division; Charles Edgar Woodward, Judge.
Separate actions by the Continental Illinois Bank Trust Company, executor of the estate of Victor F. Lawson, deceased, by the Northern Trust Company and another, executors of the estate of Catherine Bennett, deceased, and by William D. Dean, administrator with the will annexed of the estate of Robert J. Bassett, deceased, against the United States of America, which were heard together. From adverse judgment, the Continental Illinois Bank Trust Company, as executor, appeals, and the United States of America cross-appeals, and from judgments for the defendant [ 60 F.2d 1063], the other plaintiffs separately appeal.
Causes numbered 4872, 4874 and 4875 were brought under section 1025(c), ch. 234 of the Act of June 2, 1924, 43 Stat. 348, as amended February 24, 1925, ch. 309, 43 Stat. 972 ( 28 USCA § 41(20). They were suits to recover certain estate taxes paid by the representatives of the several estates referred to, which taxes were assessed and collected under and by virtue of the Revenue Act of 1924, ch. 234, §§ 301(a), and 302(a) and (b), 26 USCA §§ 1092 note, 1094 note. Cause No. 4873 is the cross appeal of the Government from the judgment rendered in cause No. 4872, and the Government is hereinafter referred to as cross-appellant as distinguished from the other appellants. The causes were heard at the same time and were submitted to the court without a jury. The estates involved are hereinafter referred to respectively as the Lawson, Bennett, and Bassett estates.
Revenue Act of 1924, ch. 234, 43 Stat. 253:
"Sec. 301. (a) In lieu of the tax imposed by Title IV of the Revenue Act of 1921, a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 303 [section 1095 of this title]) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this Act, * * * whether a resident or nonresident of the United States. * * *"
Section 302. "The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated —
"(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate;
"(b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, curtesy, or by virtue of a statute creating an estate in lieu of dower or curtesy."
Victor F. Lawson died testate in Cook county, Illinois, August 19, 1925. The return for the estate tax was filed on August 19, 1926, and showed real estate in Illinois valued at $778,542.68, real estate in Wisconsin valued at $484,500, and other property which with the real estate made a gross estate valued at $21,559,940.78. Deductions for costs, charitable bequests, and other charges amounted to $15,397,133.12, leaving a net estate of $6,162,807.66. On this a tax of $655,546.15 was paid on August 19, 1926, and on January 30, 1928, an alleged deficiency was paid in the sum of $18,612.55, which included the sum of $1,514.50 as interest. The executor of the estate filed suit to recover the taxes so paid, basing his claim for refund on the following grounds:
1. As to the entire amount, the unconstitutionality of the Revenue Act of 1924.
2. As to the real estate located in Illinois and Wisconsin, the fact that in those states real estate of a decedent is not necessarily subject to payment of charges against his estate and the expenses of administration.
3. As to the sum of $7,162.65 and interest from the time of payment of that amount, the fact that it was paid on certain property which was held to belong to Iver Norman Lawson rather than to the decedent in the case of Lawson v. Illinois Merchants Trust Co., 337 Ill. 49, 168 N.E. 681.
The court found and adjudged against the executor of the Lawson estate on its first and second contentions, and rendered judgment for it on its third contention in the sum of $9,165.19, and from that judgment both parties have appealed.
In the Bennett and Bassett estates each decedent was a resident of Illinois and died testate in the respective years, 1925 and 1926. Each owned real estate in Illinois at the time of death, and each left more than sufficient personal property to pay all debts and costs of administration. Returns were made for the purpose of determining the estate tax, and in each case, the Government included the value of the real estate in the gross estate, and the tax thus calculated was paid by the representatives of the respective estates. The suits to recover were based upon the first two grounds as set forth in the Lawson petition, and the court rendered judgment against the claimants.
William B. Hale, Calvin F. Selfridge, and George Fiedler, all of Chicago, Ill., for Continental Illinois Bank Trust Co. et al.
Dwight H. Green, U.S. Atty., of Chicago, Ill. (C.M. Charest, Gen. Counsel, Bureau of Internal Revenue, and T.H. Lewis, Jr., Sp. Atty., Bureau of Internal Revenue, both of Washington, D.C., of counsel), for the United States.
Before EVANS and SPARKS, Circuit Judges, and LINDLEY, District Judge.
It is first contended by appellants that section 302(a) of the Revenue Act of 1924, supra, is violative of article 1, § 8, cl. 1, of the Constitution of the United States which provides that all duties, imposts and excises shall be uniform throughout the United States. It is admitted that such required uniformity is geographical and not intrinsic. It is not contended by appellants that the alleged lack of geographical uniformity appears upon the face of the statute. They argue, however, that it arises by virtue of a decision of the United States Supreme Court in Crooks v. Harrelson, 282 U.S. 55, 51 S. Ct. 49, 75 L. Ed. 156, which held that a decedent's real estate under the laws of Missouri was not subject to the payment of expenses of administration and for that reason could not be included in the gross estate of a resident of that State for the purpose of computing estate taxes. Hence appellants insist that the taxes laid under the section referred to are not geographically uniform because the enactment does not include a decedent's real estate in Missouri.
"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States."
"* * * Differences of state law, which may bring a person within or without the category designated by Congress as taxable, may not be read into the Revenue Act to spell out a lack of uniformity."
In Knowlton v. Moore, 178 U.S. 41, at page 106, 20 S. Ct. 747, 773, 44 L. Ed. 969, the subject of geographical uniformity was quite exhaustively treated, and Mr. Justice White there speaking for the Court used the following language:
"Though there is a provision that all duties, imposts, and excises shall be uniform — that is, to be laid to the same amount on the same articles in each state — yet this will not prevent Congress from having it in their power to cause them to fall very unequally and much heavier on some states than on others, because these duties may be laid on articles but little or not at all used in some other states, and of absolute necessity for the use and consumption of others; in which case, the first would pay little or no part of the revenue arising therefrom, while the whole or nearly the whole of it would be paid by the last. * * *"
In Patton v. Brady, Executrix, 184 U.S. 608, 22 S. Ct. 493, 46 L. Ed. 713, the tax assessed was an excise on tobacco which was held valid. The Court quoted with approval the following language from the Head Money Cases, 112 U.S. 580, 5 S. Ct. 247, 252, 28 L. Ed. 798, "`The tax is uniform when it operates with the same force and effect in every place where the subject of it is found.'"
In Florida v. Mellon, 273 U.S. 12, 47 S. Ct. 265, 266, 71 L. Ed. 511, it was contended that because the State of Florida did not impose an inheritance tax, the Federal Estate Tax Act was unconstitutional in that it allowed as a credit against the federal estate tax the inheritance taxes paid to the states, and that resident decedents of Florida were thus treated differently from decedents who were residents of other states which had inheritance tax laws. The Court held the act valid, saying,
"The contention that the federal tax is not uniform, because other states impose inheritance taxes while Florida does not, is without merit. Congress cannot accommodate its legislation to the conflicting or dissimilar laws of the several states nor, control the diverse conditions to be found in the various states which necessarily work unlike results from the enforcement of the same tax. All that the Constitution (article 1, § 8, cl. 1) requires is that the law shall be uniform in the sense that by its provisions the rule of liability shall be alike in all parts of the United States."
"The extent and incidence of federal taxes not infrequently are affected by differences in state laws; but such variations do not infringe the constitutional prohibitions against delegation of the taxing power or the requirement of geographical uniformity." (Citing Florida v. Mellon, supra; Crooks v. Harrelson, supra; Poe v. Seaborn, supra; and comparing Head Money Cases, supra, and Clark Distilling Co. v. Western Maryland Ry. Co., 242 U.S. 311, 37 S. Ct. 180, 61 L. Ed. 326, L.R.A. 1917B, 1218, Ann. Cas. 1917B, 845.
If, when the Federal Estate Tax Act was enacted, the laws of every state had provided that all property of each decedent, real or personal, should be subject to the payment of the charges against his estate and the expenses of administration and also be subject to distribution as part of his estate, the question of geographical uniformity would not have arisen. But if the contention of appellants were sound, then the subsequent enactment of any state to the effect that resident decedents' real estate should not be subject to the charges, or expenses of administration, or to distribution, as provided in the federal act, would render the federal act unconstitutional for lack of geographical uniformity. In other words, an admittedly constitutional federal enactment would be rendered unconstitutional by a subsequent state enactment. The time of such state enactment is not of importance, and the cases cited do not support appellants' contention.
Appellants recognize the principle that without offense to the constitution, an excise may be based directly upon and related directly to state laws where those laws are of the essence of the thing taxed. See Flint v. Stone Tracy Co., 220 U.S. 107, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312. They contend, however, that the classification in the federal statute is not of the essence of the thing taxed. In this we think they are in error. The thing taxed is the transfer of the certain net estates. The limitation is to the extent of the interest of the decedent in such estates which is subject to the payment of charges against his estate and the expenses of its administration, and which is subject to distribution as part of his estate. The basis of the classification is the relation of the property to the estate, and it is of the essence of the thing taxed.
It is contended by appellants that the trial court erred in holding that real estate in Illinois was properly included in the gross estate. This question was decided by this court adversely to their contention, March 10, 1933, in Re Estate of Edward M. Marble (National Bank of the Republic of Chicago v. Commissioner of Internal Revenue), 64 F.2d 745.
Cross-appellant contends that the trial court erred in permitting the Lawson estate to amend its petition, and in rendering judgment thereon for that estate in the sum of $9,165.19. It is disclosed by the record that the third ground of recovery was based on the alleged fact that there was included in the gross estate of Victor F. Lawson certain real estate which belonged to Iver Norman Lawson. Appellant had in its claim for refund attacked the validity of the entire assessment, and under one paragraph of the claim had asserted as a basis for such invalidity that the Commissioner had wrongfully included "certain real estate and personal property" which belonged to Iver Norman Lawson. In the specific description of such property in the claim, however, only two tracts of real estate were described. By the order allowing the filing of the amended petition, within the period within which appellant might have filed an amended claim for refund, appellant was permitted to enlarge the description by including a third parcel. It is cross-appellant's contention now that no recovery can be had as to such third parcel in view of the fact that its specific description was omitted from the claim for refund. We consider the principles laid down in United States v. Memphis Cotton Oil Co., 288 U.S. 62, 53 S. Ct. 278, 77 L. Ed. 619, as determining this question adversely to such contention.