This is an appeal from the affirmance of an order of the surrogate of Kings county imposing a transfer tax upon the estate of Susan A. Keeney, a resident of that county, who died in 1907. In June, 1903, the deceased, by a deed of trust, transferred to the Fidelity Trust Company of Newark, New Jersey, certain personal property consisting of bonds and stock upon trust to pay to her during life one-quarter of the income, and the remaining three-quarters to her three children, and after her death to continue to pay the income or transfer the principal to her said children or their issue as in said deed provided. It was not contended before
the surrogate that three-fourths of the trust estate, the income of which was payable to the intestate's children, were subject to a transfer tax (Matter of Masury, 28 App. Div. 580), but it was insisted that the remaining one-fourth, the income of which was reserved to the intestate during life, was subject to the tax, and the surrogate so held. From that decree the administrator of the estate appealed.
It is settled by the decisions of this court that under the terms of the statute this share was subject to taxation. (Matterof Green, 153 N.Y. 223, 228; Matter of Brandreth, 169 id. 437;Matter of Cornell, 170 id. 423.) This proposition the learned counsel for the administrator concedes, but at all stages of the proceeding he has challenged the validity of the act, claiming that it is unconstitutional and void. That is the question with which we have now to deal. In entering upon its discussion it must be first borne in mind that the tax sought to be imposed is not a property tax, but in the nature of an excise tax, to wit, on the transfer of property. "A tax is a property tax when imposed by reason of the ownership of property; a transfer tax when imposed on the method of its acquisition." (Matter ofVanderbilt, 172 N.Y. 69, 74.) It is not an inheritance or succession tax, but it is not necessary that it should be such to support the statute imposing it. In the recent case of People exrel. Hatch v. Reardon (184 N.Y. 431) the validity of a statute imposing a tax upon the sale or transfer of shares of stock was upheld, and our decision was affirmed by the Supreme Court of the United States (204 U.S. 152). Hence there can be no doubt of the power of the state to impose a tax on transfers of other kinds of property. The appellant does not gainsay this general doctrine, but he urges that the statute now before us is unconstitutional as involving an "arbitrary, discriminatory and unequal tax upon the transfer of property" in two respects. First, that the rate of tax varies according to the relation the grantee bears to the grantor, and, second, that it singles out for taxation transfers where a life estate is reserved to the grantor, leaving all other transfers or conveyances exempt.
As to the first objection, the grantees in the deed in this case being children of the grantor are subject to the lowest rate of taxation (with the exception of certain exemptions which would not invalidate the law, Beers v. Glynn, 211 U.S. 477), and we cannot see that they have any valid cause for complaint that other grantees are subjected to a higher rate. That objection, if tenable, could be taken only by grantees taxed at the higher rate, and even if good would not render the statute void in entirety. It may be also observed that if the statute is to be construed as applicable only to voluntary transfers or gifts, as to which we express no opinion, the discrimination between relatives and strangers would seem to meet the approval of even the dissenting justice in Magoun v. Illinois T. S. Bank
(170 U.S. 283).
As to the second objection, that the statute taxes transfers only of one character, exempting others, we do not think that the discrimination is so unreasonable that the statute can be pronounced invalid. The right and power of governments to single out certain classes of objects for taxation, leaving other classes exempt or taxed at a different rate, or in a different manner, is unquestionable. (Beers v. Glynn, supra.) Such power has been exercised by all governments from the earliest times. It is subject, however, to the qualification that the classification must not be, as said by Judge VANN in People exrel. Farrington v. Mensching (187 N.Y. 8, 16), "so purely arbitrary as to have no reason, not even an insufficient or merely plausible reason, to justify it." We think that there are sufficient reasons to support the classification made by the statute; at least that the classification cannot be said to be devoid of reasonable ground on which to rest. Inheritance tax laws have been very generally adopted throughout the states of the Union. A substantial part of the revenue necessary to support their governments is now derived from that source. A not wholly unnatural desire exists among owners of property to avoid the imposition of inheritance taxes upon the estates they may leave, so that such estates may pass to the objects of their bounty unimpaired.
It is a matter of common knowledge that for this purpose trusts or other conveyances are made whereby the grantor reserves to himself the beneficial enjoyment of his estate during life. Were it not for the provision of the statute which is challenged, it is clear that in many cases the estate on the death of the grantor would pass free from tax to the same persons who would take it had the grantor made a will or died intestate. It is true that an ingenious mind may devise other means of avoiding an inheritance tax, but the one commonly used is a transfer with reservation of a life estate. We think this fact justified the legislature in singling out this class of transfers as subject to a special tax.
It is also urged that the trust property was at the time of the intestate's death in another state with the legal title in the trustee. This does not affect the liability of the transfer to taxation. The liability in this case accrued at the time of transfer, no matter when imposed. The imposition of it after the death of the intestate is in conformity with the practice adopted in the Green, Brandreth and Cornell cases, already cited. It was not claimed that at that time the deceased was not a resident of this state, nor that the property was not within this state, and the transfer here made. The trust deed recites that the grantor was of the borough of Brooklyn. The copy which appears in the record does not contain the signature of the grantor, nor is the acknowledgment filled out, but it would appear from the blank that the deed was to be executed and acknowledged within this state. In the objections filed to the appraiser's report no claim is made to the contrary and we must, therefore, assume that the transfer was made within this state.
The order appealed from should be affirmed, with costs.
EDWARD T. BARTLETT, VANN, WERNER, HISCOCK and CHASE, JJ., concur; WILLARD BARTLETT, J., absent.
Order affirmed.