Halstead v. Pratt

OPINION OF THE COURT BY FREAR, C.J. (Galbraith, J., dissenting.) This is a submission on agreed facts. Robert Halstead died June 14, 1900. On June 1, 1901, his son, the plaintiff, received $20,691.17 as his distributive share of the estate. The administrator had previously (May 23, 1901) paid the federal succession tax of $155.10 on this share under Section 29 of the Act of June 13, 1898, 30 Sts. at L. 464. This share was not taxable under the territorial succession tax law, Civ. L. Sec. 910. The question is whether or not it is taxable as part of the plaintiffs [39] income for the year ending June 30, 1901, under the territorial income tax law, Act 20, Laws of 1901. It is contended first that this inheritance is expressly excepted from the 'operation of the Act by the last proviso in Section 4, “that in assessing the income of any person or corporation there shall not be included * * * any bequest or inheritance otherwise taxed as such.” As shown above, this inheritance is not otherwise taxable as such under the territorial laws, and although, as also shown above, it was otherwise taxed as such under the federal laws, the legislature evidently did not intend to except inheritances taxed under those laws. It seems to be conceded that the exception in the statute would not be applicable if the country in which the inheritance was otherwise taxed were a foreign country, or even if the statute' were a state law as distinguished from a territorial law and the law under which the inheritance was otherwise taxed were a federal law, and yet the language of the statute if taken literally would apply in such cases as well as in the present case. The fact that the relation of a territory differs in some respects from that of a state to the federal government forms no basis for a distinction in respect to-the question now under consideration. So far as the federal government is concerned, the territorial legislature could have, legislated either way upon this question as fully as a state legislature could, and both state and territorial legislatures are equally bound by the federal inheritance tax law and equally pre-. sumed to know what that law is. The question is not what the legislature could do, but what it did do — a question of construction and not of power. The general rule is that a statute should be construed with reference to the system of laws of which it is a part, unless a contrary intention clearly appears. If this were not so, statutes would often have to be given absurd constructions, for they often do not contain express provisions as to the extent of their operation in this respect. The intention of the legislature in this instance was to provide revenue for the government of the territory irrespective of what taxes were paid to other governments. This intention would limit the rea [40] soai for the exemption to inheritances otherwise taxed by the territorial government. It is contended secondly that, even if the case' does not come within the exception, still it does not come within the main provisions of the statute, for the reason that the inheritance was acquired, not when it was actually received, but when the intestate died, which was before the beginning of the year for which the tax was levied. Section 1 provides that, “From and after the first of July, A. D. 1901, there shall be levied, assessed, collected and paid annually upon the gains, profits and income, •over and above one thousand dollars, derived * * * from all property owned, and every business, trade, profession, employment or vocation carried on in the Territory * * * a tax of two per cent, on the amount so derived during the year preceding.” Section 2 provides that, “In estimating the gains, profits and income, * * * there shall be included * * * money and the value of all personal property acquired by gift or inheritance * * * .” The> question is whether an inheritance from one who died before the year began but actually received during the year was “acquired” during the year within the meaning of the statute. It is contended that the legal title passed upon the death of the intestate and that therefore that should be regarded as the date upon which the inheritance was acquired, as has been held under some succession tax laws. Succession tax laws are variously worded. It is within the power of the legislature to> provide either that the tax shall be assessed as of the date of the decedent’s death or that it shall be assessed as of the time when it is received. Some succession tax laws are drawn one way, some the other way. It is merely a question of the intention of the legislature: The question here is not how this or that succession tax law has been construed, but how this income tax law should be construed. It would seem more natural and just to- assess inheritances as income when actually received or at least when payable than when ■only the'legal title passes and when it remains a matter of doubt whether any, or how much, will ever be received. In some cases [41] this could not bo known until the amount of outstanding debts or the validity of outstanding claims is ascertained. The title to the inheritance passes subject to these. The income, tax statute as a whole would seem to favor this construction. Foster & Abbot, Income Tax Law of 1894, commenting on a clause in the same language as the one now -under consideration, say that “it may well be argued that personal property is not ‘acquired’ until it is received.” Hatch & Sillimam, and B. L. Marx for plaintiff. Robertson & Wilder for defendant. It may be noticed that the only income covered by Section 1 is that derived from property and business, &c., and that since an inheritance is not derived from either of those sources, it is not covered at all by Section 1. But we presume that, construing all parts of the Act together, Section 3 may be regarded as enlarging Section 1 so as to include inheritances. It is conceded that the amount of the succession tax paid to the federal government should first be deducted and the tax in question be levied on the balance only. Hooper v. Shaw, 57 N. E. (Mass.) 361. In our opinion the distributive share in question, less the amount of the federal succession tax, is subject to taxation under the income tax law. Judgment accordingly. •