A husband signed an agreement to pay an annuity through a trustee to the wife, and by his will he created a trust in his executors to continue the annuity in case she refused a gross sum allowed her in the will. The court holds that this direction as to the trust in the will is not taxable, as it is no transfer and confers no benefit upon the widow. It is simply a direction of the testator as to the manner in which his estate shall be administered. In re Daniell, 40 Misc. Rep. 329, 81 N. Y. Suppl. 1033.

CHAPTER XXXII.

EXEMPTIONS IN GENERAL.

239. Validity.

§ 240. Validity of Tax on Whole Estate which Exceeds the Exemption. 241. Construction.

242. No Implied Exemptions.

§ 243. Whether Based on Estates of Beneficiaries or of Decedents.

244. Whether Calculated on Whole Estate or on Portion within

State.

§ 245. Real as well as Personal Property Considered.

§ 246. Amounts Reckoned without Deduction for Tax or Expenses.

§ 247. Amounts Reckoned with Discount for Delay in Payment. § 248. When Legacy Payable in Instalments.

249. In Case of Progressive Rates.

$250. Effect of General Tax Exemptions.

§ 251. Of Persons Exempt under General Law.

252. Testing Status of Corporation.—When Exempt by General Law. § 253. Exemption of Property Otherwise Taxed.

254. Interests under Powers.

$255. Remainder may be Liable Although Prior Estate Exempt. 256. "Persons" Includes Corporations.

257. Foreign Corporations.

258. Gift to Foreign Corporation for Domestic Use.

259. Corporation Chartered in more than one State. 260. Effect of Use Made of Funds.

261. Special Exemptions.

Sec. 239. Validity.

1

2

Exemptions, although liberal in amount, have been almost universally upheld as within the legislative power to classify the subjects of taxation, although the exemption is greater to one class than to another, as there is as much authority to make exemptions from this tax as from any other. The fact that the expense of administering small estates is proportionally greater than large ones has often been considered.5 Exemptions have been upset as violating the rule of uniformity, however, under the peculiar wording of certain constitutions.6

1In re Wilmerding, 117 Cal. 281, 49 P. 181. Booth v. Commonwealth, 130 Ky. 88, 113 S. W. 61 ($500). Thompson v. Kidder, 74 N. H. 89, 97, 65 A. 392. State

v. Guilbert, 70 Ohio St. 229, 255, 71 N. E. 636. State v. Alston, 94 Tenn. 674 ($250). In re Hickok, 78 Vt. 259, 265, 62 A. 724 ($2,100). Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283, 287.

Reason for Rule. It was contended that the Ohio act was not uniform in that it exempts from its operation all inheritances which do not exceed $3,000 in value and imposes a burden on such as are above that sum. The court says: "We think there are two answers to this objection. The person who inherits six thousand dollars has three thousand exempt; the person who inherits three thousand dollars has three thousand dollars exempt. They are on a perfect equality in that regard. The same reasoning applies where it happens that the smaller inheritance falls below three thousand dollars. As well might it be urged that the law which exempts from execution homesteads of the heads of families of one thousand dollars in value is invalid on the ground of inequality of privilege because one debtor's homestead may not reach one thousand dollars in value while that of another may. It is to be borne in mind that the act does not create a classification of persons for the purpose of imposing a tax on that class. It is not a tax on persons at all. If it is felt more by some than by others this is owing merely to the fact of the differing circumstances which surround the different persons. No person, nor no set of persons, is selected arbitrarily or otherwise for the imposition of burdens or for relieving of burdens." Furthermore, the court holds that as the tax is an excise tax and the authority to impose the tax is conferred by the general grant of legislative power, the selection of the subjects on which the tax will be imposed must be within the legislative competency. To say that the mere fact of inclusion in the one case and exclusion in the other constitutes a reason for holding the law invalid, is to say that no excise tax can be lawfully levied upon any privilege until all privileges on which it would be possible to lay such tax have been included within its terms. If this proposition were established it is difficult to say why it would not invalidate all the excise laws of the state, many of which have been subjected to judicial scrutiny and have been sustained. State v. Guilbert, 70 Ohio St. 229, 250, 71 N. E. 636.

An exemption of the estates taken by inheritance valued at less than $500 is constitutional. "As this tax is not upon property, but upon the right of succession, the constitutional provision that all property shall be taxed according to its value is inapplicable. The right of the legislature to impose an excise tax includes the right to select the subjects upon which it shall be imposed." There is no constitutional requirement that it shall be imposed upon every inheritance and the judgment of the legislature in that respect is not open to review by the courts. It may have considered that the expense of valuation of an estate less than $500 rendered the exemption wise. In re Wilmerding's Estate, 117 Cal. 281, 49 P. 181.

Succession of Frigalo, 123 La. Ann. 71, 48 S. 652 ($10,000). Minot v. Winthrop, 162 Mass. 113, 123, 26 L. R. A. 259 ($10,000). Gelsthorpe v. Furnell, 20 Mont. 299, 51 P. 267, 39 L. R. A. 170 ($7,500). Thompson v. Kidder, 74 N. H. 89, 97, 65 A. 392. Black v. State, 113 Wis. 205, 218, 89 N. W. 522, 90 Am. St. Rep. 853 ($10,000). Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283,

18 Sup. Ct. 594, 42 L. Ed. 1037. See further, s. 62, n. 2.

A Legislative Function. Although it is true that the amount of the exemption is greater in the Illinois law than in any other, the right to exempt cannot

depend on that as that is a legislative and not a judicial function. Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283, 298, 300, 18 Sup. Ct. 594, 42 L. Ed. 1037.

3 State v. Clark, 30 Wash. 439, 71 P. 20, 23 ($10,000 to lineals). See, also, cases cited under two preceding notes. Contra, Drew v. Tifft, 79 Minn. 175, 81 N. W. 839, 47 L. R. A. 525, 79 Am. St. Rep. 446 ($10,000 to lineals and $5,000 to collaterals void under the wording of the Minnesota constitution that the tax is to be laid on inheritances above a fixed and specified sum).

A Union Trust Co. v. Durfee, 125 Mich. 487, 84 N. W. 1101, 7 Detroit Leg. N. 597. 'Minot v. Winthrop, 162 Mass. 113, 124, 26 L. R. A. 259 (Lathrop, J., dissenting). State v. Alston, 94 Tenn. 674, 30 S. W. 750, 28 L. R. A. 178.

State v. Gorman, 40 Minn. 232, 41 N. W. 948, 2 L. R. A. 701. (Here the statute purported to exact arbitrary probate fees, and the court regarded an exemption of $2,000 as without justification under the equality requirements of the state constitution.) Drew v. Tifft, 79 Minn. 175, 81 N. W. 839, 47 L. R. A. 525, 79 Am. St. Rep. 446. ($10,000 to lineals and $5,000 to collaterals void under the wording of the Minnesota constitution that the tax is to be laid on inheritances above a fixed and specified sum.) State v. Ferris, 53 Ohio St. 314, 41 N. E. 579, 30 L. R. A. 218. In re Cope, 191 Pa. St. 1, 43 A. 79, 29 Pittsb. Leg. J. N. S. 379, 45 L. R. A. 316, 71 Am. St. Rep. 749, 44 Wkly. Notes Cas. 89. (This decision is based on the peculiar Pennsylvania theory that the inheritance tax is a property tax and is not of assistance in other jurisdictions.) [Retroactive law as affecting exemptions, see ante, ss. 79, 88.]

Sec. 240. Validity of Tax on Whole Estate which Exceeds the Exemption.

The tax is commonly held valid, although imposed on the whole inheritance, where it exceeds the exemption,' although the contrary result has been reached on the ground that the tax was not uniform unless confined to the excess above the exemption.2

1 Appeal of Nettleton, 76 Conn. 235, 241, 56 A. 565 (holding exemption arbitrary and unreasonable but valid). Gilbertson v. McAuley, 117 Iowa 522, 91 N. W. 788. In re Fox, 154 Mich. 5. State v. District Court, 41 Mont. 357, 109 P. 438, 440. In re Sherwell, 125 N. Y. 376, 26 N. E. 464, affirming 12 N. Y. Suppl. 200, reversing 11 N. Y. Suppl. 897. In re McKennan, 25 S. D. 369, 126 N. W. 611, 616, reversed on rehearing 130 N. W. 33. State v. Alston, 94 Tenn. 674, 30 S. W. 750, 28 L. R. A. 178.

2 Drew v. Tifft, 79 Minn. 175, 81 N. W. 839, 47 L. R. A. 525, 79 Am. St. Rep. 446. State v. Bazille, 87 Minn. 500, 92 N. W. 415, 94 Am. St. Rep. 718. State v. Ferris, 53 Ohio St. 314, 41 N. E. 579, 30 L. R. A. 218. See Beals v. State, 139 Wis. 544, 554, 121 N. W. 347. State v. Handlin, (Ark. 1911,) 139 S. W. 1112 (upholding law exempting portion of bequest above $50,000). See further, s. 62, n. 6. Doctrine Stated. The right or privilege of receiving or succeeding to property is valuable in proportion to the value of the property received. It cannot be consistently said that the right to receive twenty thousand dollars is of no value, and that the right to receive twenty thousand and one dollars is of the value of two hundred dollars and one cent.

Again, he who uses the right or privilege of receiving property of the value of twenty thousand and one dollars and pays therefor a tax of two hundred dollars and one cent, is not equally benefited for the tax paid as he who uses the same right or privilege of receiving property of the value of twenty thousand dollars without paying any tax whatever for the use of such right. State v. Ferris, 53 Ohio St. 314, 41 N. E. 579, 30 L. R. A. 218.

It is often said that exemptions should be strictly construed,' especially against an exemption yielding absurd results, but we believe the true rule is that, as the inheritance tax is a special tax, the intention to impose it in any case must be clearly expressed and words of exception should be liberally construed.3 Charitable bequests, however, should be upheld and given effect whenever possible, and the fact that the statute may exempt these bequests from the payment of the inheritance tax is no reason for departing from or modifying this ancient rule of construction favoring charitable gifts. Exemptions should be given the same construction as similar language in general tax laws.5 Exemptions, like other tax laws, are prospectively construed."

1In re Bull's Estate, 153 Cal. 715, 96 P. 366. State v. N. Y. Meeting of Friends, 61 N. J. Eq. 620, 48 A. 227. In re Vineland Historical and Antiquarian Society, 66 N. J. Eq. 291, 56 A. 1039. In re Stewart, 131 N. Y. 274, 281, 30 N. E. 184, 14 L. R. A. 836. In re Davis, 98 N. Y. App. Div. 546, 90 N. Y. Suppl. 244. Barringer v. Cowan, 55 N. C. 436. In re Hickok, 78 Vt. 259, 62 A. 724. See further, ante, s. 32.

“Exemption is a matter of grace on the part of the legislature and cannot be claimed beyond the extent to which a law-making body has seen fit to allow it." In re Timken's Estate, 158 Cal. 51, 109 P. 608.

In re Bull, 153 Cal. 715, 96 P. 366.

In re Mergentime, 195 N. Y. 572, 88 N. E. 1125, affirming 129 N. Y. App. Div. 367, 113 N. Y. Suppl. 948. Matter of Enston, 113 N. Y. 174, 21 N. E. 87, 3 L. R. A. 464. Matter of Fayerweather, 143 N. Y. 114, 38 N. E. 278. Harbeck, 161 N. Y. 211, 55 N. E. 850.

Matter of

...

“It is an old familiar rule of the English courts, applicable to all forms of taxation, and particularly special taxes, that the sovereign is bound to express its intention to tax in clear and unambiguous language, and that a liberal construction be given to words of exception confining the operation of duty, .. though the rule regarding exemptions from general laws imposing taxes may be different." Per Brown, J., in Eidman v. Martinez, 184 U. S. 578, 583, 22 Sup. Ct. 515, 46 L. Ed. 697, where the court quotes as sustaining its doctrine In re Howell, 147 Pa. St. 164, 23 A. 403. In re Cager, 111 N. Y. 343, 18 N. E. 866. Knowlton v. Moore, 178 U. S. 41, 20 Sup. Ct. 747, 44 L. Ed. 969.

4 In re Graves, 242 III. 23, 89 N. E. 672, 34 A. S. R. 302.