State ex rel. Peterson v. Dunlap

MORGAN, J.

This is a special proceeding commenced in this court by the state of Idaho ex rel. Joseph EL Peterson, attorney general, against R. El. Dunlap, as probate judge of Ada county, Mary W. Harriman, in her individual capacity and as executrix of the last will and testament of E. H. Harriman, deceased, and the Oregon Short Line Railroad Company, to procure the issuance of a writ of mandate commanding the probate judge to enter judgment on the pleadings and to proceed to appoint a competent person to appraise the property of the Oregon Short Line Railroad Company within the state of Idaho as the same existed on September 9, 1909, and particularly the interest therein of E. H. Harriman, according to a motion made and overruled in a proceeding initiated by the Idaho Tax Commission and pending in the probate court to collect a tax upon the transfer of the interest in the property of the railroad company situated within the state of Idaho, and held by Mr. Harriman at the time of his death.

The material facts disclosed by the record before us, which contains copies of all pleadings and papers filed in the probate court, are that E. H. Harriman died on September 9, 1909, leaving his entire estate, by will, to Mary W. Harriman, his widow; that at the time of his death he was, and for more than five years prior thereto had been, a citizen and resident of the state of New York; that neither E. H. Harriman nor Mary W. Harriman has ever been a citizen or resident of Idaho; that the Oregon Short Line Railroad Company is, and on September 9, 1909, was, a corporation organized and existing under and by virtue of the laws of the state of Utah, and is, and was, the owner of a large amount of real estate and personal property within the state of Idaho, and that the Union Pacific Railroad Company is, and on September 9, 1909, was, a corporation organized and existing under and by virtue of the laws of the state of Utah and owned, not as a holding corporation, but absolutely, the entire capital stock of the Oregon Short Line Railroad Company; that at the time of his death E. H. Harriman was the owner of certain shares of stock, both common and'preferred, of the Union Pacific Railroad- Company, which passed to Mary W. Harriman by his will, but that he was not the owner of any property within the state of Idaho other than his interest in the holdings of the Oregon Short Line Railroad Company, as evidenced by his certificates of stock in the Union Pacific Railroad Company. It further appears that no proceedings have ever been commenced under the laws of the state of Idaho to probate the will, or the estate, or to affect the transfer of the shares of stock in question, and that a transfer tax thereon has been exacted by and paid to the states of New York and Utah.

The answers of Mrs. Harriman and of the Oregon Short Line Railroad Company, filed in the probate court, admitted the material facts relied upon by plaintiff, and a motion for judgment on the pleadings and for the appointment of a suitable person to appraise the property was made and was by the court overruled, whereupon this proceeding was commenced and an alternative writ of mandate was issued.

At the outset of the consideration of this case two jurisdictional questions arose. First, has this court jurisdiction, by mandate, to compel an inferior court to enter a particular order, or judgment, or to rectify an erroneous one? Second, has the probate court jurisdiction to enter the judgment which it is sought in this proceeding to require it to enter 1

In order to eliminate the complication presented by the question first above stated the parties have stipulated that the court may regard the petition filed herein as an application for, and the answer as a return to, a writ of review, and may proceed herein as if the procedure on certiorari, or writ of review, had been adopted in the first instance. This proceeding will be treated in conformity to the stipulation.

The second question goes to the jurisdiction of the probate court over the subject matter of the proceeding, the appointment of a suitable person to appraise the property, and jurisdiction, in that particular, cannot be conferred by stipulation. Where there is want of jurisdiction of the subject matter a judgment is void, and consent of the parties cannot impart validity to it. (7 R. C. L. 1039.) The jurisdiction of the probate court is limited and defined by sec. 21, art. 5, of the constitution as follows: ‘ ‘ The probate courts shall be courts of record, and shall have original jurisdiction in all matters of probate, settlement of estates of deceased persons, and appointment of guardians; also, jurisdiction to hear and determine all civil cases wherein the debt or damage claimed, does not exceed the sum of five hundred dollars, exclusive of interest and concurrent jurisdiction with justices of the peace in criminal cases. ’ ’

Construing the foregoing section this court, in Dewey v. Schreiber Implement Co., 12 Ida. 280, 85 Pac. 921, said: “We do not think that the framers of the constitution intended to grant equity jurisdiction to probate courts outside of whatever equity jurisdiction they may have in all matters of probate, settlement of estates of deceased persons and appointment of guardians.” And in case of Estate of McVay (on rehearing), 14 Ida. 64, 93 Pac. 31, it is said: “An examination of sees. 20 and 21, art. 5, of the constitution, discloses at once the fact that the framers of that instrument saw fit to classify ‘matters of probate, settlement of estates of deceased persons and appointment of guardians’ as separate, distinct and aside from ‘ cases at law and in equity, ’ over which they gave the district court ‘original jurisdiction,’ ” Idaho Trust Co. v. Miller, 16 Ida. 308, 102 Pac. 360, was a case wherein a claim had been presented to the administrator of an estate and disallowed; action was thereafter commenced in the district court to recover $1,077.91, being the amount claimed to be due, and the contention was made that the probate court has exclusive original jurisdiction in all probate matters, and for that reason the district court was without jurisdiction to try the action. Disposing of that contention this court decided, as follows: “Under the provisions of sec. 20, art. 5, of the constitution of Idaho, the district court has original jurisdiction in all cases both in law and equity, but does not have original jurisdiction in matters of probate and settlement of estates of deceased persons, as by the provisions of section 21, article 5, of the constitution, original jurisdiction of those matters has been given to the probate court. Those proceedings are not ‘cases’ in law or equity, as said term is used in said sec. 20 of the constitution. Under the provisions of said sec. 20, the district court had original jurisdiction to try the case at bar and the probate court had no jurisdiction whatever to try it.”

We are convinced from an examination of the statute that it was not the intention of the legislature to attempt to provide for the appointment of an appraiser, under the circumstances disclosed by this application, but that it authorized such appointment, by the probate court, only in cases where proceedings to probate an estate are pending, or where the decedent has left an estate subject to probate in Idaho.

It is provided in sec. 1886, Rev. Codes, as follows:

“When the value of any inheritance, devise, bequest or other interest subject to the payment of said tax is uncertain, the probate court in which the probate proceedings are pending, on the application of any interested party, or on its own motion, shall appoint some competent person to appraise, as often as and whenever occasion may require, whose duty it shall be forthwith to give such notice, by mail, to all persons known to have or claim an interest in such property, and to. such persons as the court may by order direct, of the time and place at which he will appraise such property, and at such time and place to appraise the same and make a report thereof, in writing, to said court, together with such other facts in relation thereto as said court may by order require to be filed with the clerk of said court; and from this report the said court shall, by order, forthwith assess and fix the market value of all inheritances, devises, bequests or other interests, and the tax to which the same is liable, and shall immediately cause notice thereof to be given, by mail, to all parties known to be interested therein.....”

Since no proceeding is pending in Ada county to probate the estate of the late E'. H. Harriman, and since he does not appear to have left an estate in Idaho subject to settlement under our laws, and since the proceeding commenced in the probate court does not involve the appointment of a guardian, nor in any particular come within the prescribed limits of the jurisdiction of that court as defined by see. 21, art. 5, of the constitution, we conclude that said court was without jurisdiction to entertain such proceeding or to enter the judgment desired by plaintiff.

This ease has been very fully briefed and ably presented in oral arguments by counsel for both parties, who desire a decision upon the merits, and, while a majority of the court has reached the conclusion that the probate court is without jurisdiction to enter the judgment desired by plaintiff we have concluded, because the question is of considerable public importance, to set forth our views upon the right of the state to exact an inheritance tax under the laws of Idaho applied to the facts disclosed by the record.

The facts have been heretofore stated. The law pursuant to which this tax is sought to be collected is to be found in sec. 1873, Rev. Codes, which is as follows: “All property which shall pass, by will or by the intestate laws of this state, from any person who may die seised or possessed of the same while a resident of this state, or if such decedent was not a resident of this state at the time of death, which property, or any part thereof, shall be within this state, or any interest therein, or income therefrom, which shall be transferred by deed, grant, sale or gift, made in contemplation of the death of the grantor, vendor or bargainor, or intended to take effect in possession or enjoyment after such death, to any person or persons, or to any body politic or corporate, in trust, or otherwise, or by reason whereof any person or body politic or corporate shall become beneficially entitled, in possession or expectancy, to any property, or to the income thereof, shall be and is subject to a tax hereinafter provided for, to be paid to the treasurer of the proper county, as hereinafter directed for the benefit of the general fund of this state, to be used for all the purposes for which said fund is available. And the county treasurer shall, upon the receipt of said tax, pay the same to the state treasurer and take duplicate receipts thereof, one of which the county treasurer shall retain, and transmit the other to the state auditor, and receive from him credit for the amount thereof on his account; and such tax shall be and remain a lien upon the property passed or transferred until paid, and the person to whom the property passes or is transferred, and all administrators, executors and trustees of every estate so transferred or passed, shall be liable for any and all such taxes until the same shall have been paid as hereinafter directed. The tax so imposed shall be upon the market value of such property at the rates hereinafter prescribed, and only upon the excess over the exemptions hereinafter granted.”

It will be observed that the right to collect transfer tax upon inheritance is limited to cases where property “shall pass, by will or by the intestate laws of this state, from any person who may die seised or possessed of the same while a resident of this state, or if such decedent was not a resident of this state at the time of his death, which property, or any part thereof, shall be within this state.....” Then follows a provision governing cases where property has been transferred by deed, grant, sale or gift made in contemplation of death, and which can have no application to the facts in this case.

The stock in the Union Pacific Railroad Company passed, not by the intestate laws of this state, but by will. However, in order to enable Idaho to exact payment of the tax the property must have been so situated that in the absence of a will it would have passed according to our intestate laws. The words “property which shall pass by will” are limited by the words “or the intestate laws of this state,” and the tax is not payable because the owner of the property died testate if it would not be payable had he died intestate. The right to exact the tax, in either event, is dependent upon the jurisdiction of the state over the transfer.

Construing see. 29 of the "War Revenue Act of June 13, 1898, providing for inheritance tax upon personal property passing “either by will or by the intestate laws of any state or territory,” it is held in case of Eidman v. Martinez, 184 U. S. 578, 22 Sup. Ct. 515, 46 L. ed. 697, that the words “passing by will” are limited by the subsequent words “or by the intestate laws of any state or territory.”

In delivering the opinion of the court in that case, Mr. Justice Brown said: ‘ ‘ The question involved in this case, however, arose under the act of June 30, 1864 (13 Stat. at L. 285, chap. 173), before Mr. Justice Gray of this court, while holding the circuit court for Massachusetts, in United States v. Hunnewell, 13 Fed. 617. Section 124 of that act imposed a duty on legacies or distributive shares arising from personal property passing -from any' person possessed of such property, either by will, or by the intestate laws of any state or territory. The action was brought to recover the tax upon American securities bequeathed by a French citizen domiciled in France to a son who was also domiciled there. The will was executed in conformity with the French law and was duly proved there, though a local executor was appointed by the probate court in Boston to transfer to the legatee the securities in question. It was held that sec. 124 did not make the duty payable when the person possessed of such property died testate if it would not be payable if such person died intestate; and as if the deceased had died intestate her son would not have taken a distributive share by the intestate laws of any state or territory, his rights were the same if he took by will. In other words, that the words ‘either by will or by the intestate laws of any state or territory’ must be construed together, and would apply only to wills executed within any state or territory of the United States. ’ ’

In a note to the opinion in case of Sherman v. State (In re McKennan’s Estate), 25 S. D. 369, 126 N. W. 611, decided by the supreme court of South Dakota and reported in 33 L. R. A., N. S., 606, a great number of authorities are cited in support of the doctrine that an inheritance tax is a tax upon the right to transfer property by the testator or intestate and to receive it by the heir, devisee or legatee and not upon the property itself. Therein it is said: “The authorities are unanimous upon the proposition that an inheritance tax is neither a property nor a personal tax, and in all the eases herein cited it is so declared; and though, as will hereafter appear, there is some little conflict as to what the tax is really levied upon, the overwhelming weight of authority supports the rule that such tax is a bonus in the nature of an excise or duty exacted by the'State for the privilege granted by its laws of inheriting or succeeding to property on the death of the owner.” (People v. Palmer’s Estate, 25 Colo. App. 450, 139 Pac. 554; Neilson v. Russell, 76 N. J. L. 655, 131 Am. St. 673, 71 Atl. 286, 19 L. R. A., N. S., 887; Kingsbury v. Chapin, 196 Mass. 533, 82 N. E. 700, 13 Ann. Cas. 738; State v. Probate Court, 124 Minn. 508, Ann. Cas. 1915B, 861, 145 N. W. 390, 50 L. R. A., N. S., 262; In re Dows’ Estate, 167 N. Y. 227, 88 Am. St. 509, 60 N. E. 439, 52 L. R. A. 533; In re Merriam’s Estate, 141 N. Y. 479, 36 N. E. 505; People v. Griffith, 245 Ill. 532, 92 N. E. 313; Frothingham v. Shaw, 175 Mass. 59, 78 Am. St. 475, 55 N. E. 623; Clymer v. Commonwealth, 52 Pa. St. 185; Eidman v. Martinez, supra; English v. Crenshaw, 120 Tenn. 531, 127 Am. St. 1025, 110 S. W. 210, 17 L. R. A., N. S., 753; In re Hartman’s Estate, 70 N. J. Eq. 664, 62 Atl. 560.)

Shares of stock in a corporation are very generally held to be subject to inheritance tax in the state which created the corporation, regardless of the domicile of the owner of the shares, and some highly respectable authorities hold that a state may tax the transfer under the will of a nonresident of debts due the decedent from its citizens, and that succession to tangible chattels may be taxed wherever they are found, although also taxable in the state wherein was the domicile of the owner at the time of his death. A leading case so holding is Blackstone v. Miller, 188 U. S. 189, 23 Sup. Ct. 277, 47 L. ed. 439, which was a case wherein the right of the state of New York to collect a tax upon the inheritance of money deposited in a bank in that state, and belonging to the estate of a decedent who was a resident of Illinois at the time of his death, was called in question. The tax was sustained upon the theory that the transfer depended upon the law of New York. The court said: “If the transfer of the deposit necessarily depends upon and involves the' law of New York for its exercise, or, in other words, if the transfer is subject to the power of the state of New York, then New York may subject the transfer to a tax. (Citing authorities.) But it is plain -that the transfer does depend upon the law of New York not because of any theoretical speculation concerning the whereabouts of the debt, but because of the practical fact of its power over the person of the debtor.” Further on in the opinion it is said: ‘ ‘ The fact that two states dealing each with its own law of succession, both of which the plaintiff in error has to invoke for her rights, have taxed the right which they respectively confer, gives no cause for complaint on constitutional grounds. (Citing authorities.) The universal succession is taxed in one state, the singular succession is taxed in another. The plaintiff has to make out her right under both in order to get the money.”

. In this case the physical property situated in Idaho did not belong to the decedent, nor did he own an interest in it which was subject to succession under the laws of Idaho. It was the property of the Oregon Short Line Railroad Company. Decedent’s property consisted of shares of capital stock in a foreign corporation, even the certificates of which were held outside the state, which shares were intangible personal property the succession to which was in no way affected by our laws, neither can we, by any stretch of the imagination, conceive of a condition arising whereby the aid of our laws might be invoked in order to reduce the inherited property to possession.

It is urged with great earnestness that because the property of the Oregon Short Line Railroad Company is in Idaho, the interest therein of decedent, at the time of his death, evidenced by his shares of stock in the Union Pacific Railroad Company, is subject to inheritance tax here. There is no foundation for the argument.

While the situs of property is a controlling factor when the right to levy and collect a property tax is under consideration, it must be remembered that an inheritance or succession tax is not a tax upon property, but is “ a bonus in the nature of an excise or duty exacted by the state for the privilege granted by its laws of inheriting or succeeding to property on the death of the owner,” and that in considering whether or not such a bonus is due, the location of the property is material only when it invests the state with jurisdiction to control the right to make the transfer by inheritance or succession.

Those contending for the exaction of this tax because decedent was, at the time of his death, the owner of stock in a foreign corporation which was the owner of stock in another foreign corporation which was the owner of property in Idaho, base their contention, whether they know it or not, upon the theory that it is a property tax and not a tax upon a right which our state has by its laws granted to make the transfer. A theory which finds neither support nor sympathy among authorities.

Shares of stock in a corporation are personal property and descend according to the laws of the state which was the domicile of the owner at the time of his death, and the certificates of shares of corporate stock, which constitute evidence of ownership, are transferred according to the laws of the state wherein the corporation was organized.

Sec. 2747, Rev. Codes, provides: “Whenever the capital stock of any corporation is divided into shares, and certificates therefor are issued, such shares of stock are personal property, and may be transferred by indorsement by the signature of the proprietor, or his attorney, or legal representative, and delivery of the certificate; but such transfer is not valid except between the parties thereto, until the same is so entered upon the books of the corporation as to show the name of the parties by and to whom transferred, the numher and designation of the shares, and the date of entry. Corporations may, by by-laws, provide that no transfer of their stock shall be made upon their books until all indebtedness to the corporation of the person in whose name the stock stands, whether for assessments, calls or otherwise, is paid. ’ ’

In 7 R. C. L. (p. 196), sec. 166, it is said:

“Nature of Property in Shares. — The tangible property of a corporation and the shares of stock therein are separate and distinct kinds of property and belong to different owners/ the first being the property of the artificial person — the corporation — the latter the property of the individual owner. An assignment of corporate property does not carry the capital stock with it. Although incorporeal in their nature the shares are personal property. A certificate of stock in a land company is not title to land but a mere chose in action.” (Watson v. Molden, 10 Ida. 570, 79 Pac. 503; Lipscomb’s Admr. v. Condon, 56 W. Va. 416, 107 Am. St. 938, 49 S. E. 392, 67 L. R. A. 670; Ankeny v. Blakley, 44 Or. 78, 74 Pac. 485; Tregear v. Etiwanda Water Co., 76 Cal. 537, 9 Am. St. 245, 18 Pac. 658; Mattingly v. Roach, 84 Cal. 207, 23 Pac. 1117; Estate of Oliver, 136 Pa. St. 43, 20 Am. St. 894, 20 Atl. 527, 9 L. R. A. 421; Jellinik v. Huron Copper Min. Co., 177 U. S. 1, 20 Sup. Ct. 559, 44 L. ed. 647; Lowndes v. Cooch, 87 Md. 478, 39 Atl. 1045, 40 L. R. A. 380; Mann v. Carter, 74 N. H. 345, 68 Atl. 130, 15 L. R. A., N. S., 150; Seward v. City of Rising Sun, 79 Ind. 351; McKeen v. County of Northampton, 49 Pa. St. 519, 88 Am. Dec. 515.)

In the case last above cited Mr. Justice Agnew, delivering the opinion of the court, said: “The interest which an owner of shares has in the stock of a corporation is personal. Whithersoever he goes it accompanies him, and when he dies his domicile governs its succession. It goes to his executor or administrator, and not to the heirs, and is carried into the inventory of his personal effects. When it is argued, therefore, that the foundry, machine-shop, and other estate of the corporation, being within the state of New Jersey, are subject wholly to the same exclusive state jurisdiction there which we claim for this state 'over property within its territory, another ownership is stated and a new issue introduced. But to that property the defendant below has no title; his title being in the shares he holds, and not in the property of the corporation. No execution against him there would sell a spark of right to it, nor would his heirs at law succeed to any estate in it. Unquestionably it may be taxed as the property of the corporation in New Jersey; but the ownership there is that of the corporation, the legal entity, and not of the natural persons who own the shares of its stock.” Further on in the opinion it is said: “We have authorities directly upon this question deciding the principle, though upon a different species of tax — the collateral inheritance tax. (In re Short's Estate, 16 Pa. St. 63.) The decedent, a resident of Philadelphia, owned half a million of dollars in stocks and corporations of other states, and bonds of the state of Kentucky, and a bank deposit in New York; all were held to be subject to the collateral inheritance tax here. ’ ’

There are numerous authorities holding the rule that the situs of personal property is the domicile of the owner to be a fiction which must yield when it appears that the property is actually located in another jurisdiction. This doctrine, while sound, is subject to the limitation placed upon it by the New York court of appeals in Matter of Enston, 113 N. Y. 174, 21 N. E. 87, 3 L. R. A. 464, wherein it is said: “It is a general rule of law that such property attends the owner and has its situs at his domicile. It is true that that is a fiction of the law, but it is a fiction which must prevail unless there is something in the policy of the statute or its language which shows a different legislative intent. ’ ’

It may be said with confidence that nothing appears in the policy of our statute, or its language, which shows a legislative intent to depart from the general rule, but the contrary does appear. Sec. 3095 of our Rev. Codes provides: “If there is no law to the contrary in the place where personal property is situated, it is deemed to follow the person of its owner and is governed by the law of his domicile.”

It was said by the supreme court of California in Re Estate of Apple, Deceased, 66 Cal. 432, 6 Pac. 7: “While each state will deal with the property of a decedent within its jurisdiction, so far as creditors are concerned, according to its pleasure, the universal rule is that, in the absence of positive law to the contrary, distribution of the decedent’s personal estate will be governed by the law of his actual domicile at the time of his death. (Redf., Wills, 905; Schouler, Exrs. & Admrs., see. 16; 2 Greenl. Ev., secs. 668, 671.” See, also, McKeen v. County of Northampton, supra; Whitney v. Dodge, 105 Cal. 192, 38 Pac. 636; Douglas v. Douglas, 22 Ida. 336, 125 Pac. 796; and Lowndes v. Cooch, supra.)

Sec. 1873, Rev. Codes, was construed by this court in case of Kohny v. Dunbar, 21 Ida. 258, Ann. Cas. 1913D, 492, 121 Pac. 544, 39 L. R. A., N. S., 1107, in which it was said: “It necessarily follows from the plain wording of the statute that this tax is laid upon the transfer of any and all property ‘which shall pass by will or by the intestate laws of this state.’ The vital question then to be determined is whether the one-half interest which the wife has in the community property passes to her by will or by the intestate laws of the state.” The court held that it did not so pass and that, therefore, the tax could not be exacted.

While the facts of this ease are not identical with those of that last above cited, the same principle is involved, and the vital question therein propounded is equally pertinent here.

From the foregoing discussion the following deductions may be made: First, E. H. Harriman was, at the time of his death, a resident of the state of New York; second, the inheritance with respect to which the tax is sought to be exacted consists of stock in a foreign corporation which is the owner of the stock of another foreign corporation which is the owner of property in Idaho, and as such is personal property subject to descent and inheritance according to the laws of succession of the state of his domicile; third, our law provides for the collection of an inheritance tax only in cases where it is within the jurisdiction of the state to govern the transfer of property passing by will or by the intestate laws of Idaho; fourth, an inheritance tax is not a property tax but is a bonus exacted by the state for the privilege granted by its laws of inheriting property on the death of its owner; fifth, the state of Idaho in this case granted no privilege of inheritance, nor has it been, nor will it be, necessary to ask its permission or invoke the aid of its laws to transfer the property in question by inheritance.

We conclude that the state of Idaho is without right to exact an inheritance tax in this case.

The writ heretofore issued is quashed and the proceeding is dismissed. Costs are awarded to the defendants.

Budge, J., concurs.