State ex rel. Hickox v. Widule

Maeshall, J.

(concurring). Because of some changes in the statute, the question here, in respect to which the justices are divided, as to the proper solution of it and again as to the reasons for the conclusion reached by the majority, may not arise again. However, I prefer to state, of record, my reasons for such conclusion. I think the decision is right, tested by the plain letter of the statute, and right by the previous decisions of this court, so far as the subject has been dealt with.

In what I shall say, the prospective annual payments out. of income will be treated as annuity payments, though tech- . nically not such, but that is immaterial.

The income of a trust fund received by an executor is liable to an income tax under sec. 1087m — 10, Stats. State ex rel. Field v. Widule, 161 Wis. 393 , 154 N. W. 696 ; Field v. Milwaukee, 161 Wis. 393 , 154 N. W. 698 ; and State ex rel. Kempsmith v. Widule, 161 Wis. 389 , 154 N. W. 695 , did not deal with that-question. The subject there, particularly treated in the latter case, was whether the annuitant, who had paid an inheritance tax on the value, in prmsent% of the prospective payments, was assessable for an income tax on the payments when received. That was resolved in the negative on the plain words of the statute, reference being1 had to sec. 1081- — 1, Stats. 1913, providing that an inheritance tax shall he assessed on “any transfer of property, . . . or income therefrom in trust or otherwise;” sub. (4),. sec. 1081 — 1, providing that such tax shall be imposed when the beneficiary becomes “entitled, in possession or expectancy, to any property or the income thereof,” by transfer by will or the intestate laws of the state; sub. 1, sec. 1087 — 5, providing that the inheritance tax, subject to some exceptions, “shall be due and payable at the time of the transfer;” sub. 4,. *117 5, sec. 1087 — 15, providing for valuation, in prcesenti, of the right to receive an inheritance, the possession and enjoyment being postponed; sec. 1087 — 9, affording the beneficiary, in such a case, the right to postpone payment of the tax until acquirement of the property in possession, or to pay at the time of transfer of the right; and sub. (i), sec. 1087m — 4, expressly exempting from income taxes “all inheritances, devises and bequests received during the year which are subject to and have complied with the inheritance tax laws of the state.” That left untouched the question now raised and it was expressly reserved by the words “Whether the income of the estate paid ... to the annuitant should form part of the taxable income” to the trustee “is not affected by what is here’ decided.”

The question so reserved is expressly dealt with by sub. 5,, see. 1087m — 10, which requires every person acting in a fiduciary capacity to return the amount of income received by him as such during the year and that he “shall be liable to assessment and taxation therefor, subject to the deductions and exemptions provided in this chapter” (referring to see. 1087m — 4 as to deductions which, at the time of the tax here [see Stats. 1913], specified, at sub. (i), “All inheritances, devises and bequests received during the year which are subject to and have complied with the inheritance tax laws of this state;” and referring to sec. 1087m — 5 for exemptions, which does not include the particular matter), and followed,, as a concluding part of the sentence by these ■ significant words: "provided, that such deductions or exemptions have not been claimed by or for such person, ward or beneficiary in another capacity

To overlook the quoted condition in connection with the proviso, would naturally lead to a misunderstanding of the legislative purpose. There is the condition that “All inheritances, devises and bequests received during the year which are subject to and have complied with the inheritance tax *118 laws of tbis state” wbicb is true of tbe particular inheritance, the annuitant having paid an inheritance tax on the full value, in prcesenii, of her prospective annual payments, and the saving words to the effect that, the condition shall not apply and the trust fund income less expenses of administration shall be dealt with in its entirety, if the deduction, to wit, in this case, the annuity payment has “been claimed” by the annuitant “in another capacity

The particular .payment to the annuitant being exempt from an income tax in her hands, and it having been paid to her for the year previous to the one in which the return was made, it must be presumed, since the case proceeded from the start on that theory, that she did not return the same for income tax; in other words that she claimed it as a deduction in her capacity as a beneficiary who, as to such payment, had “complied with the inheritance tax laws of this state” as provided in sub. (i), sec. 1087m — 4, Stats. 1913. Having done so, according to the plain language of the above quoted proviso, in sub. 5, sec. 1087 — -10, the executor was not entitled to deduct such payment from the income received by him as a fiduciary. It was subj ect to an income tax in his hands as the tax commission held.

In dealing with the subject here discussed, danger of confusion and error would exist if the income of the trust fund were not considered apart from the corpus of such fund. They are entirely separate. The fact that an inheritance tax is assessable upon the value, in prcesenti, of the prospective payments to the annuitant out of the income, does not militate against assessment of such a tax upon the corpus; each, as a separate thing, is so assessable under sec. 1087 — 1.. There is nothing in the statute warranting the deduction of the value, in prcesenti> of the future income thereof or therefrom and only assessing a transfer tax upon the residue. Otherwise the entire principal of the fund might be in excess of the present value of the prospective future payments out of the income thereof and such principal finally go to the re- *119 maindermen free from any inheritance tax. The statute contains a complete system for inheritance taxes upon the principal of an estate, and where it is held in trust for payment of income to some person or persons, but ultimately to go to another, for an inheritance tax upon the whole estate, and upon the prospective income also, payment, whether of principal or income, to be postponed until right of possession and enjoyment commences with the option to have the future prospective benefits appraised and to pay the tax presently on the value so fixed. Sec. 108? — 9. So, in this case, though the annuitant has paid an inheritance tax on the value of the prospective annuity payments, those who will be entitled to take the principal when the time arrives for them to come into possession thereof, will he chargeable with an inheritance tax thereon.

Thus it will he seen that the position of counsel for respondent, that appellant’s claim, if allowed, will result in double taxation, in that it will impose an inheritance tax and also an income tax on the bequest to Mrs. Field is untenable. The value of the prospective annuity payments, as before indicated, is no part of the corpus. It is a thing of itself. The inheritance tax upon that, expressly exempts it from income taxes against the annuitant. The former is exempt from income taxes, while the latter is not. The tax as to him is part of the expense of administration. In case of its resulting in not leaving sufficient net income to pay the annuity, which is not the case here, the beneficiary would, logically, not receive the full amount of her bequest, because it is to be paid out of the net income.

Viwje, J.

I concur in the foregoing opinion of Mr. Justice MARSHALL.

Siebeoker, J.

(concurring). I concur in the result of the decision of this ease upon the ground that the tax commission properly assessed an income tax on the $6,500 in *120 come in tbe bands of tbe testamentary trustee under tbe will of Samuel A. Eield, deceased. In arriving at this conclusion, I conclude that within tbe decision of this court in State ex rel. Field v. Widule and in Field v. Milwaukee, both reported in 161 Wis. 393 , 154 N. W. 696, 698 , an income tax is assessable against tbe trustee under tbe reservation in tbe court’s opinion in State ex rel. Kempsmith v. Widule, 161 Wis. 389 , 154 N. W. 695 , decided at tbe same time tbe Field Gases were decided, and which case, as pointed out by tbe court, ruled tbe Field Cases.

I am, however, constrained upon re-examination of tbe question determined in tbe Field and Kempsmith Cases to call attention to what I am now persuaded is an erroneous construction of tbe inheritance and income tax laws as applied in those cases. It was held, as is accurately and fully expressed in tbe syllabus of tbe Kempsmith Case, that

“Tbe yearly payments to an annuitant by trustees out of tbe income of property given to them by will for that purpose are not taxable as income of the annuitant, where the inheritance tax ivas duly paid upon the interest of the annuitant in the estate of the testator. Such an annuity is subject to the Inheritance Tax Law, and tbe value in prcesenti of tbe right to receive it may properly be appraised under sub. 4, 5, see. 1087 — 15, Stats.”

I am of tbe opinion that tbe legislative intent expressed in the statutes governing those decisions is that “tbe yearly payments to an annuitant, by trustees out of tbe income of tbe property given to them by will for tbe purpose” are taxable as income in tbe bands of tbe trustee or annuitant, and that an inheritance tax paid by such an annuitant, based on the value of the ñght to receive it at tbe time of tbe testator’s death, does not operate to exempt tbe trustees or annuitant from income taxation under sub. (i), sec. 1087m — 4, Stats. Tbe court in tbe opinion in the Kempsmith Case, following the Nunnemacher Case, 129 Wis. 190 , 108 N. W. 627 , and *121 Estate of Bullen, 143 Wis. 512 , 128 N. W. 109 , declared that the inheritance tax is not a tax upon property bnt upon the right to receive property. In the case of State v. Pabst, 139 Wis. 561 , 121 N. W. 351 , it was recognized that the provisions of onr Inheritance Tax Law were substantially those of the New York transfer tax law, and the construction given the law by the court of New York is to be resorted to for aid in administering the law by the courts of this state, and the case of Matter of Westurn, 152 N. Y. 93 , 46 N. E. 317 , was followed in this:

“The devolution of the property and the right of the state have their origin at the same moment of time. The ascertainment of the value of the taxable interest and the fixing of the tax necessarily takes place subsequent to the death. But the guide is the value at the time of the death, when the interests were acquired.”

It is also held in the Pabst Case that the statute requires “that the tax at the prescribed rates shall be upon the clear market value of the property transferred, exclusive of the exemption. The context of the law expresses as its purpose and object that the tax shall be imposed on the transfer at the time of the death of the decedent and rest as a lien on the property so transferred until paid.” Sub. 1, sec. 1087 — 5, provides, “. . . every such tax shall be and remain a lien upon the property transferred until paid, and the person to whom the property is transferred and the administrators, executors and trustees of every estate so transferred shall be personally liable for such tax until its payment.” The clear implication of this provision and the whole scheme of the administrative provisions of the statutes are that the tax is levied and rests on existing property which may be seized and taken to satisfy the tax if not paid. The procedure of taxing officers in this and other cases before the courts shows that in administering the law they have interpreted it to mean that the tax on devolution of property by will or the *122 intestate laws of tbe state must be levied upon tbe body of tbe estate wben tbe persons and corporations become beneficially entitled in possession or expectancy to tbe property or tbe income thereof, and wben sucb property is transferred by way of testamentary trusts (except those exempted) tbe transfer is subject to tbe tax as though tbe property went direct to those having a beneficial interest thereto. It is manifest from tbe terms of these provisions of tbe law that tbe tax is in fact one on tbe transfer of tbe corpus of such estate. In pursuance of this rule and practice tbe tax commissioners levied a transfer tax on tbe body *of tbe estate of Samuel A. Field, deceased, which included tbe interest Mrs. Field bad therein under tbe will granting her an annual fixed amount out of the income produced by such estate. Tbe rule adopted by tbe taxing officers is to malee the total of tbe various interests and estates which is divided equal to tbe present market value of tbe entire existing corpus of tbe estate and then levy tbe tax against tbe various interests in tbe proportion of tbe present values of each of sucb interests in tbe estate. Tbe result in tbe instant case was that Mrs. Field was required to pay her distributive share of tbe inheritance tax assessed upon tbe corpus of tbe testator’s estate as one of tbe beneficial owners thereof, which tbe county court found to be $520.20, based on tbe market value of her interest in tbe estate, namely, $32,821. I am persuaded that tbe taxing officers have executed tbe statute as tbe legislature intended, and that this court erred in its decision in tbe Kemp-smith and Field Gases in which it was held that tbe beneficial interest in tbe form of an annual income devised to the widows of tbe testators bad been subjected to an inheritance tax. I am convinced now that tbe inheritance tax paid by or on behalf of the testator’s widow as a beneficiary of tbe estate was not a tax on the value of tbe widow’s future income as part of the corpus of tbe estate, but a tax on tbe corpus of tbe testator’s estate to ascertain tbe distributive share of tbe in *123 heritance tax, imposed by law on tbe devolution of tbe estate. Under tbis administration of tbe Inheritance Tax Law tbe income produced by sucb estate bas paid no inheritance tax and hence was subject to an income tax prescribed by secs. 1087 — 1 to 1087 — 3, Stats. Although tbe decisions in tbe Kempsmith and Field Oases, heretofore decided in tbis court, cannot be altered, I am of tbe view that tbis court then erred in tbe construction of tbe Inheritance Tax Law there involved and'that tbis is an opportune and appropriate occasion to correct sucb error.

RoseNBErey, J.

I concur in tbe foregoing opinion of Mr. Justice SlEBECKER.