Gates v. Bank of Commerce & Trust Co.

Hart, C. J., (after stating the facts). It is the settled law that inheritance taxes are not levied upon property, but upon the privilege or right of succession to it. State v. Handlin, 100 Ark. 175, 139 S. W. 1112; McDaniel v. Byrkett, 120 Ark. 295, 179 S. W. 491; Rhode Island Hospital Trust Co. v. Doughton, 270 U. S. 69, 46 S. Ct. 256; and Blodgett v. Silberman, 277 U. S. 1, 48 S. Ct. 410. These cases sustain the principle that, while an inheritance tax is not upon property but upon the right of succession to property, yet the principle is that the subject to be taxed “must be within the jurisdiction of the State, as well in the case of a transfer tax as in that of a property tax. The reason is that the State has no power to tax the devolution of the property of a nonresident unless it has jurisdiction of the property devolved or transferred. It is conceded by the parties that a right to a refund of the tax depends upon the validity of subdivision C of § 10,218 of Crawford & Moses’ Digest. The subsection provides for an inheritance tax upon the transfer of shares of stock of all corporations organized and existing under the laws of the State, certificates of which shares of stock shall be within or without the State. Counsel for appellee seek to uphold the judgment of the circuit court upon the rule or maxim, Mobilia sequunter personam, as applied by the Supreme Court of the United States in several recent cases. In the Farmers’ Loan & Trust Co. v. Minnesota, 280 U. S. 204, 50 S. Ct. 98, it was held that negotiable bonds and certificates issued by the State and certain municipal corporations of Minnesota were not subject to an inheritance tax in the State of Minnesota, the owner having died testate and residing in the State of New York. The court applied the rule, Moioilia sequunter personam, and treated the bonds and certificates of indebtedness as localized at the creditor’s domicile for taxation purposes. Consequently, it was held that their situs for taxation being in another. State, they were taxable there, and not in the State of Minnesota where they were issued. The court proceeded upon the theory that the" bonds and certificates of indebtedness were only evidence of the debts; and, when carried by the owner to another State, their situs as debts took the domicile of the owner, and that their testamentary transfer might be taxed only in the State where they were found. The reason was that their legal situs as debts was at the creditor’s domicile, and they were taxable as property there. The logical result was that the taxation upon the right of succession to the property must be laid in the State where the owner of the property resided at the time of his death and where the property had its legal situs. In the case of Baldwin v. Missouri, 281 U. S. 586, 50 S. Ct. 436, a resident of the State of Illinois died there owning certain bank -deposits in 'banks located in the State of Missouri and certain coupon bonds of the United States and promissory notes on deposit for safe keeping in the State of Missouri. It was held that the State of Missouri could not levy a tax upon the succession to this property because its legal situs followed that of its owner and was in the State of Illinois. The court said that bank deposits were mere credits,''and for purposes of ad valorem taxation have their situs at the domicile of the creditor only. The certificate of deposit was merely the evidence -of title of the owner of the deposit, and he might carry that with him wherever he went. So, too, the notes and United States coupon bonds, under the rule that the situs of personal property follows the owner, acquired a legal situs in the place where he resided. Under that rule, they were taxable as property at the owner’s domicile, which became their legal situs, and the succession tax should have been laid in the State where the owner of these evidences of debt resided. If the evidences of debt had been destroyed, the right of the owner to demand payment of the debts would have remained. The court, in effect, held that the decedent was a creditor to whom the obligors in the various bonds were indebted and to whom the banks in which he had deposited money were indebted. The extent and terms of the obligations were evidenced by the bonds and by the certificates of deposit. The local situs was at the creditor’s domicile; and, being choses in action with situs at the domicile of the creditor, they were taxable -as property there. Then, too, as said by the court in the case last cited, at that place they pass from the dead to the living, there this transfer was actually taxed. Because they were not within the State of Missouri for taxation purposes, that State had no power to levy a transfer tax. Again, in Beidler v. South Carolina Tax Commission, 282 U. S. 1, 51 S. Ct. 154, 75 Law Ed. 69, dividends due from a South Carolina corporation were held not subject to a transfer tax in the State of South 'Carolina where the creditor of the corporation died in Chieag’o, Illinois, testate, and was a resident of that State at the time of his death. The court said that, although the corporate property was situated in the State of South Carolina, that State had no jurisdiction to impose a transfer tax upon the debt owed by the corporation to a nonresident. In this connection, it may be stated that the payment of a. succession tax to the State of South Carolina with respect to the shares of stock owned by the nonresident testator in the domestic corporation in the State of South Carolina was not contested by the executors. This shows that they recognized that the.corporation was a creature of the State of South Carolina, and that the shares of stock were property there under the laws of that State. While there was no adjudication to that effect, still it is worthy of note that the executors recognized this to' be the law. This brings us to a consideration of the question whether the shares of stock in the present case, under the principles of law above announced, had a legal situs in the State of Tennessee where their owner resided and died. In short, the question presents itself, is the situs of the property owned by a shareholder in a State where the corporation exists or at the domicile of the shareholder. Corporate shares of stock are property within the broad meaning of that term. Certificates of stock in the hands of their holder represent the number of shares which the corporation certifies that he is entitled to and are mere evidence of his title. In the case of bonds and certificates of deposit in a bank, the certificates represent but a property in the debt and that follows the creditor’s person. Not so in the case of certificates of shares of stock in a corporation. The corporation is the creature of State laws, and those who become its members and shareholders are subject to the operation of these laws. Under our Constitution, private corporations may be formed under general laws, which may be from time to time altered or repealed. Article 12, § 6, of the Constitution of 1874. So, too, our Constitution makes all property subject to taxation except certain property specifically exempted, about which we have no concern in the present case. Article 16, § 5, of the Constitution of 1874. Corporate property is not exempt from taxation under our Constitution, and § 6 of the same article provides that all laws exempting property from taxation other than as provided in the Constitution are void. In Hawley v. Malden, 232 U. S. 1, 34 S. Ct. 201, it was said that undoubtedly the State in which a corporation is organized may provide in creating- it for the taxation in that State of all its shares, whether owned by residents or nonresidents, and Corry v. Baltimore, 196 U. S. 467, 25 S. Ct. 297, was cited as sustaining the holding. The reason that the State has such power is by virtue of the authority of the statute creating the corporation to determine- the basis of organization and the liability of shareholders. If it be said that the situs of the shares of stock of a corporation should follow the owner, then grave inequalities might arise in the matter. Business corporations might be organized in this State almost wholly upon foreign capital with a few shares held in the name of resident directors, and yet none of these shares of stock held by nonresidents, however valuable, would be subject to a property tax. As we have already seen, if they followed the situs of their owner, they may be taxed as property where the owner resided and not in the State where the corporation was created and upon whose laws they relied for the conduct of their business. This would necessarily result in unfair discrimination against resident stockholders. This court is committed to the rule that shares of stock of a domestic corporation organized under the laws of this State and doing business here may be taxed as property in this State. Harris Lumber Co. v. Grandstaff, 78 Ark. 187, 95 S. W. 772; Dallas County v. Banks, 87 Ark. 484, 113 S. W. 37; Dallas County v. Home Fire Ins. Co., 97 Ark. 254, 133 S. W. 1113; Fort Smith Lumber Co. v. State, 138 Ark. 581, 211 S. W. 662, affirmed in 251 U. S. 532, 40 S. Ct. 304. If the shares of stock may be taxed as property, whether held by residents or nonresidents, such shares will remain as property here until the death of the owner and then pass to the successor subject to the transfer laws of this State. We are of the opinion that the situs of shares of stock of a domestic corporation is permanently fixed by the Constitution and laws under which they are created and transact their business, and that there is no reason to apply the rule that they follow the owner’s domicile. It is urged that a transfer tax might, also, he levied by the State of Tennessee where the testator resided, and thus the shares would be subjected to double taxation. This court is not concerned with that question. The principal issue before us is whether or not shares of stock acquire a situs where the owner resides and should be taxed as property there. If so, then it would seem that a transfer tax should also be levied in the State where the owner resided. On the other hand, if the situs of the property owned by the shareholder in a corporation remains in the State where the corporation was organized and under whose laws it exists and transacts its business, then the situs of the property is where the corporation exists and not that of the domicile of the shareholder. This being so, the transfer tax levied by this State would be valid and enforceable, for the reason that the shares of stock would pass from the dead to the living here. We think that the shares of stock in a corporation organized under the laws of this State and belonging to a nonresident decedent are property within the jurisdiction of this State and are subject to our laws relating to an ad valorem tax on property and to an inheritance tax upon the death of the owner. A recent case holding that shares of stock in a corporation organized under the laws of the taxing State are subject to a transfer or inheritance tax in the case of a nonresident decedent owner is State ex rel. Attorney General v. First National Bank of Boston, 130 Me. 123, 154 Atl. 103. In that case, the court quoted with approval from Rhode Island Hospital Trust Co. v Doughton, 270 U. S. 69, 46 S. Ct. 256, the following: “In the matter of intangibles, like choses in action, shares of stock, and bonds, the situs of which is with the owner, a transfer tax, of course, may properly be levied by the State in which he resides. So, too, it is well established that the State in which a corporation is organized may provide, in creating it, for the taxation in that State of all its shares, whether owned by residents or nonresidents.” Therefore, we hold in the present case that the inheritance or transfer tax was collected under a valid statute, and that appellee was not entitled to a refund of it under the provisions of § 12, of act 106 passed by the Legislature of 1929. See Acts of 1929, vol. 1, page 526. We do not think that such an act violates the provisions of the Fourteenth Amendment to the Constitution of the United States. Therefore, the judgment will be reversed, and the cause will be remanded with directions to order to be dismissed the complaint of appellee and for other proceedings according to law.