[222 U.S. 525, 526] On June 13, 1903, Susan A. Keeney, a resident of New York, being in good health, executed in Kings county a deed, whereby she conveyed a cattle ranch in Texas and certain stocks and bonds to the Fidelity Trust Company of Newark, New Jersey, in trust, to hold the same during her lifetime, and to divide the net income equally between herself and her three children, two of whom reside out of the state of New York. The deed further provided that after her death the trustees should pay the entire income, or transfer the property, to her children, or their issue, on terms and limitations not material to this investigation. In the deed she 'reserved the right to revoke or alter the whole or any part of the trust conveyance, at any time after six months' notice in writing.' She died March 29, 1907, being at the time a resident of Kings county, leaving an estate of the value of $25,000 and the three children as sole heirs at law.
In tax proceedings the proper officers found that the stocks and bonds were of the then value of $773,600, one fourth ($193,400) being for the use of Mrs. Keeney for life, and the remainder to her children, being intended to take effect at her death. It was held that their in- [222 U.S. 525, 527] terest was subject to the tax imposed by the New York statute of 1896, which provides:
Mrs. Keeney's administrator and children appealed on the ground that the taxable transfer act of New York, in so far as it imposes a tax upon property transferred inter vivos, violated the 14th Amendment, in that it took the property without due process of law, and the different rates of taxation and classification were of such discriminatory a character as to deny the equal protection of the law.
The judgment was affirmed. The case is here on writ of error from the final order of the surrogate court, entered in pursuance of the mandate of the court of appeals. 194 N. Y. 281, 87 N. E. 428.
Messrs. George F. Canfield and Karl T. Frederick for plaintiffs in error.
[222 U.S. 525, 529] Mr. William Law Stout for defendant in error.
Mr. Justice Lamar, after making the foregoing statement, delivered the opinion of the court:
So much of the New York statute as imposes an inheritance tax was sustained in Plummer v. Coler, 178 U.S. 115 , 44 L. ed. 998, 20 Sup. Ct. Rep. 829, and in several decisions of the court of appeals of that state. But the plaintiffs insist that there is a radical difference between an inheritance tax and one on transfers inter vivos. The first, they say, is an excise imposed on a privilege; while that complained of here is really on property, though called a tax on a transfer. They argue that inheritance taxes have been sustained on the ground (United States v. Perkins, 163 U.S. 625 , 41 L. ed. 287, 16 Sup. Ct. Rep. 1073) that no one has the natural right to acquire property by will or descent, and if the state permits such acquisition, it may require the payment of a tax as a condition precedent to the right of using that privilege. On the other hand, they contend that the right to convey or come into possession does not depend upon a statutory or taxable privilege, but is a right incident to the ownership of property, and that the tax imposed by this statute on that right is in effect a tax on the property itself, and void because lacking in the elements of uniformity and equality required in the assessment of property taxes.
But, if any such distinction could be made between taxing a right and taxing a privilege, it would not avail plaintiffs in the present case. There is no natural right to create artificial and technical estates with limitations over, nor has the remainderman any more right to succeed to the possession of property under such deeds than legatees and devisees under a will. The privilege of acquiring property by such an instrument is as much dependent upon the law as that of acquiring property by [222 U.S. 525, 534] inheritance, and transfers by deed to take effect at death have frequently been classed with death duties, legacy and inheritance taxes. Some statutes go further than that of New York, and tax gratuitous acquisitions under marriage settlements, trust conveyances, or other instruments where the transfer of property takes effect upon the death, not merely of the grantor, but of any person whomsoever.
This was true under the internal revenue act of 1864 [13 Stat. at L. 223, chap. 173]. It imposed a succession tax on 'all dispositions of real estate, taking effect upon the death of any person.' It was not apportioned, and would have been void if a tax on property. But it was held that 'it was not a tax on land,' since 'the succession or devolution of the real estate is the subject-matter of the tax . . . whether . . . effected by will, deed, or law of descent.' Scholey v. Rew, 23 Wall. 347, 23 L. ed. 101, cited and followed, Knowlton v. Moore, 178 U.S. 78 -81, 44 L. ed. 984-986, 20 Sup. Ct. Rep. 747.
Wherever the amount of a tax is, as here, to be measured by the value of property, it has been earnestly argued that it was to tax the property itself, and that to ignore that feature is to put the name above the fact. But when the state decides to impose such a tax, the amount must be determined by some standard. To require the same amount to be paid on all transfers is not so fair as to impose the burden in proportion to the value of the property. An excise on transfers, therefore, does not lose that character because the amount to be paid is determined by the values conveyed. In view of the decisions in Magoun v. Illinois Trust & Sav. Bank, 170 U.S. 283 , 42 L. ed. 1037, 18 Sup. Ct. Rep. 594, and the other cases already cited, it is unnecessary to review the arguments pro and con, and again point out the distinction which has been made and sustained between excises and ad valorem taxes. We therefore accept the conclusion of the court of appeals of New York, that the statute of [222 U.S. 525, 535] that state imposing a tax on the transfers of property 'intended to take effect in possession or enjoyment at or after the death of grantor' is 'not a property tax, but in the nature of an excise tax on the transfer of property.' 194 N. Y. 281, 87 N. E. 428.
The validity of the tax must be determined by the laws of New York. The 14th Amendment does not diminish the taxing power of the state, but only requires that, in its exercise, the citizen must be afforded an opportunity to be heard on all questions of liability and value, and shall not, by arbitrary and discriminatory provisions, be denied equal protection. It does not deprive the state of the power to select the subjects of taxation. But it does not follow that because it can tax any transfer (New York ex rel. Hatch v. Reardon, 204 U.S. 159 , 51 L. ed. 422, 27 Sup. Ct. Rep. 188), that it must tax all transfers, or that all must be treated alike.
It is true that in New York it is as lawful to create an estate for life, with remainder after the death of grantor, as it is to convey in fee, or with remainder after the death of a third person, or on the happening of a particular event. But there is a difference in law as well as in practical effect between these various estates. Every encouragement is given to making conveyances in fee. But, from an early date, public policy has been opposed to the private interest which impelled men to withdraw property from the channels of trade and tie it up with limitations intended, among other things, to secure to the beneficiary the use of the property, while at the same time removing it, to some extent, from liability for his debts. The favored transfers in fee need not be taxed with the latter, even though the law permits their creation. These latter estates also differ among themselves. Where the grantor makes a transfer of property to take effect on the death of a third person, it might, under the ruling in Scholey v. Rew, supra, be taxed as a devolution or succession. But under such an instrument the grantor does not retain the use and power during [222 U.S. 525, 536] his own lifetime, the remainder does fall in at his death, and such conveyances would not be so often resorted to as a means of evading the inheritance tax. 194 N. Y. 287, 87 N. E. 428. They are not so testamentary in effect as those transfers wherein the grantor provides that the property shall go to his children, or other beneficiary, at and after his death.
The New York statute recognizes this difference. It imposes a tax on transfers by descent, or will, which take effect at the death of the testator; and then a tax upon transfers made in contemplation of death. It was but logical to take the next step, and tax transfers intended to take effect at or after the death of the grantor, even though that event was not actually impending when the deed was signed.
There can be no arbitrary and unreasonable discrimination. But when there is a difference, it need not be great or conspicuous in order to warrant classification. In the present instance, and so far as the 14th Amendment is concerned, the state could put transfers intended to take effect at the death of the grantor in a class with transfers by descent, will, or gifts in contemplation of the death of the donor, without, at the same time, taxing transfers intended to take effect on the death of some person other than the grantor, or on the happening of a certain or contingent event.
As to the other discriminatory features which, it is alleged, operate to deny the equal protection of the law, it is sufficient to say that it is now well settled that the state may impose a graduated tax in this class of cases. Magoun v. Illinois Trust & Sav. Bank, 170 U.S. 298 , 42 L. ed. 1044, 18 Sup. Ct. Rep. 594. The plaintiffs in error, being children of the grantor, were assessed at the lowest rate. They are therefore not in a position to take advantage of the fact that transfers to collaterals and strangers in blood are, by this act, taxed at a higher rate. The entire statute would not be invalidated [222 U.S. 525, 537] even if that feature should ultimately be held to be discriminatory and void. 194 N. Y. 286, 87 N. E. 428.
The real estate and tangible property in Texas were not within the taxing jurisdiction of the state of New York, and there was no effort to tax the transfer of that property. St. Louis v. Wiggins Ferry Co. 11 Wall. 430, 20 L. ed. 194; State Tax on Foreign-held Bonds, 15 Wall. 319, 21 L. ed. 186. It is urged that, on the same principle, the stocks and bonds could not be taxed because they were in New Jersey, in the hands of a trustee, holding title and possession by virtue of a deed made three years before the grantor died.
But the statute does not impose a tax on the property, but on the transfer. The validity of that burden must be determined by the situation as it existed in 1903, when the deed was made. At that time the grantor was a resident of the state of New York. This personal property there had its situs. She there made a transfer, which was taxable, regardless of the residence of the trustee or beneficiary. The fact that the assessment and payment were postponed until the death of the grantor would be a benefit to the remainderman in the many instances in which values decreased. But where the power to tax exists, it is for the state to fix the rate and to say when and how the amount shall be ascertained and paid. The fact that the liability was imposed when the transfer was made, in 1903, and that payment was not required until the death of grantor, in 1907, does not present any Federal question.