County Bd. of Tax Sup'rs of Jefferson Co. v. Helm , 297 Ky. 803 ( 1944 )

I am unable to concur in the majority opinion for two reasons: First, there is no real distinction between the case now before us and Button v. Hikes, 296 Ky. 163,176 S.W.2d 112; and secondly, I am quite confident that the opinion in the Hikes case is correct in holding that it never was the intention of the framers of our Constitution that life insurance policies should be taxed.

In each case the widow had the right to certain income, or interest, on the principal represented by the policies, and it is the right to that income that is sought to be taxed here as it was there.

It was strongly urged by the taxing authorities in the Hikes case, as it is here, that no attempt is being made to tax life insurance policies, and that the tax gatherers are reaching only for the proceeds of the policies which remain in the hands of the insurance company after the death of the insured and before same are delivered to the beneficiary according to the terms of the policies. There is no difference between taxing an insurance policy and taxing the proceeds of that policy, for it is known by all people that life insurance is not for the benefit of the insured but for the beneficiary. The Hikes opinion convincingly demonstrates that the doctrine of contemporaneous construction clearly shows it was not the intention of the framers of our Constitution to tax life insurance policies or the proceeds thereof.

There is only one way in which the first Sutcliffe case,283 Ky. 274, 140 S.W.2d 1028, can be differentiated from the Hikes case, and that is the latter involves life insurance policies which are exempt from taxation under our Constitution. To my mind, this is not only a sound but a wholesome distinction. The same reasoning differentiates Evans v. Boyle County Board of Education, 296 Ky. 353, 177 S.W.2d 137, from the Hikes case.

It is intimated by the majority opinion that the Hikes case is not sound and will be overruled the next time the question is presented. Perhaps so, as it is evident there is a present lack of stability in court decisions which brought forth this remark by Mr. Justice Roberts in his dissent in Smith v. Allwright, 64 S. Ct. 757, 768:

"The reason for my concern is that the instant decision, overruling that announced about nine years ago, tends to bring adjudications of this tribunal into the same class as a restricted railroad ticket, good for this day and train only. I have no assurance, in view of current decisions, that the opinion announced today may not shortly be repudiated and overruled by justices who deem they have new light on the subject."

Should the Hikes case be overruled, a grave mistake will be made and a great injustice done the owners and beneficiaries of more than half a million insurance policies now in force in Kentucky. It is to be hoped it will stand until this important and far-reaching question can be submitted to the people by way of a constitutional amendment, whereby they can speak directly and with certainty on the subject.

Courts seldom acknowledge that they are not immune to the consequences of their decisions, nor should they be when it comes to taxing life insurance which so vitally affects the financial security of so many of our citizens. The Hikes opinion points out that the taxes, together with interest and penalties, against such insurance as was there attempted to be taxed would consume the benefits under such policies for approximately seven years. Here, Mr. Helm died in 1939 and such tax interest and penalties will consume approximately three and a half years' income which he intended to go to his widow. It will not do to say that the tax collectors will not exact the last farthing, because it is not certain that under the law (Shipp v. Rodes, 219 Ky. 349, 293 S.W. 543), it is not their duty to do so in the event this right is taxable. Now more than ever before taxes must be treated as of paramount importance. Recently a citizen of the United States died leaving on deposit $26,521.05 in a bank at Toronto, Canada. The United States tax authorities claimed $14,741.10, those of Canada $14,009.09, leaving nothing for the heirs and leaving the decedent owing $2,229.14 in taxes.

If Mrs. Helm's right to collect interest on this insurance is subject to taxation, then the cash surrender value of every life insurance policy now in force in this State may be taxed. And it is the duty of the taxing authorities to tax all life insurance if they tax any. It is not logical to say that here the policies had matured and the proceeds for that reason are taxable, and in the next breath say the cash surrender value of a policy is beyond taxation because the policy has not matured. By the very terms of a life insurance policy the cash surrender value thereof has matured and is payable after due notice. Indeed, it is the cash surrender value upon which the company pays annual dividends to policyholders. For the purpose of taxation, what is the distinction between annual dividends, or interest, paid on the cash surrender value of the policy and the annual interest paid Mrs. Helm on the principal of her policies? There is none.

The majority opinion here, as did the dissent in the Hikes case, says there is no distinction to be drawn between Mrs. Helm's right to this interest and her right to collect interest on a promissory note executed to her by an insurance company for money which she had loaned it evidenced by a note. But my brethren lose sight of the fact that Mrs. Helm is collecting interest on the life insurance of her deceased husband which had never left the company's hands and has never come into her possession. In KRS 297.140 and 297.150, as construed by this court in Parks v. Parks' Ex'rs., 288 Ky. 350, 156 S.W.2d 90, 138 A.L.R. 782, there is exempt to the widow and her children the proceeds of the husband's life insurance from the claims of creditors on the theory than a man's life is no part of his assets, and his wife and little children should not be turned into the street after he had attempted to make provision for them after death through life insurance.

Wilkin v. Board of Commissioners, 77 Okl. 88, 186 P. 474, is easily distinguished from the instant case. There the policies were surrendered to the company and it issued to the beneficiary certain evidences of semiannual payments to be made over a period of 20 years. The Oklahoma statute expressly said such annuities are subject to taxation. It is not unworthy of notice that the rate applied by the lower Oklahoma court netted the state in taxation more of the annuities than was received by the beneficiary.