U.S. Supreme Court
Keeney v. New York, 222 U.S. 525 (1912)
Keeney v. New York
Argued December 6, 1911
Decided January 9, 1912
222 U.S. 525
The statute of New York of 1896, providing for a transfer tax on property passing by deed of a resident intended to take effect in possession or enjoyment at or after the death of the grantor, is not unconstitutional as taking property without due process of law, nor does it deny the equal protection of the law by arbitrary classification of the subject matter or by different rates of taxation depending on the relationship of the beneficiaries to the grantor.
The privilege of acquiring property by trust instrument taking effect on the death of the grantor is as much dependent on the law as that of acquiring property by inheritance, and is subject to taxation by the state.
Where a state tax on the transfer of property does not offend the Constitution of the United States, its validity must be determined by the law of the state.
An excise on transfers does not become an ad valorem tax on the property conveyed because the amount is based on the value of such property. Magoun v. Illinois Trust Bank, 170 U. S. 283.
The Fourteenth Amendment does not diminish the taxing power of the state or deprive the the power to select subjects for taxation, but only requires that the citizen be given opportunity to be heard on questions of liability and value, and be not arbitrarily denied equal protection.
The Fourteenth Amendment does not require a state to tax all transfers because it taxes some transfers.
While there can be no arbitrary classification without denying equal protection of the law, there need not be great or conspicuous differences in order to justify a classification.
A state may impose a graduated tax on transfers of personal property by instrument taking effect on the grantor's death without violating the equal protection clause.
One assessed at the lowest rate under a graduated tax statute cannot chanroblesvirtualawlibrary
object to the constitutionality because others are taxed at the higher rate.
A statute imposing a graduated tax would not necessarily be held unconstitutional as to the initial rate even if the provisions as to the higher rates were unconstitutional.
A state may impose a transfer tax based on personal property passing under a trust deed to take effect at the grantor's death if the property had its situs in that state when the deed was made.
Where the power to tax exists, the state may fix the rate and say when and how the amount shall be ascertained and paid, and if the personal property has its situs in the state when the deed is made, it may tax a transfer of personal property under a trust deed to a resident of the state to take effect at the grantor's death although the personal property at that time may be without the state.
14 N.Y. 281 affirmed.
On June 13, 1903, Susan A. Keeney, a resident of New York, being in good health, executed in Kings County a deed, whereby she conveyed a cattle ranch in Texas and certain stocks and bonds to the Fidelity Trust Company of Newark, New Jersey, in trust, to hold the same during her lifetime, and to divide the net income equally between herself and her three children, two of whom reside out of the State of New York. The deed further provided that, after her death, the trustees should pay the entire income, or transfer the property, to her children, or their issue, on terms and limitations not material to this investigation. In the deed, she "reserved the right to revoke or alter the whole or any part of the trust conveyance at any time after six months' notice in writing." She died March 29, 1907, being at the time a resident of Kings County, leaving an estate of the value of $25,000 and the three children as sole heirs at law.
In tax proceedings, the proper officers found that the stocks and bonds were of the then value of $773,600, one-fourth ($193,400) being for the use of Mrs. Keeney for life and the remainder to her children, being intended to take effect at her death. It was held that their interest chanroblesvirtualawlibrary
was subject to the tax imposed by the New York statute of 1896 (May 27, 1896, Laws 1896, v. 1, c. 908, § 220, Subd. 1, 3), which provides:
"A tax shall be and is hereby imposed upon the transfer of any property, real or personal . . . or of any interest therein or income therefrom, in trust or otherwise. . . . (3) When the transfer is of property made by a resident, or by a nonresident, when such nonresident's property is within this state, by deed, grant, bargain, sale, or gift made in contemplation of the death of the grantor, vendor, or donor, or intended to take effect in possession or enjoyment at or after such death."
Mrs. Keeney's administrator and children appealed on the ground that the taxable transfer act of New York, insofar as it imposes a tax upon property transferred inter vivos, violated the Fourteenth Amendment in that it took the property without due process of law, and the different rates of taxation and classification were of such discriminatory a character as to deny the equal protection of the law.
The judgment was affirmed. The case is here on writ of error from the final order of the surrogate court, entered in pursuance of the mandate of the Court of Appeals. 194 N.Y. 281. chanroblesvirtualawlibrary