Court of Appeal

State of Colorado v. Harbeck

232 N. Y. 71, 133 N.E. 357 N.Y.

Nov. 22, 1921.

Judgment of the Appellate Division reversed, and that of the Trial Term affirmed.

[**357] [*72]  Appeal from Supreme Court, Appellate Division, First Department.

[**358]  Theodore N. Ripsom and James P. Niemann, both of New York City, for appellants Kate A. Harbeck and another.

[*76]  George L. Shearer and Harry K. Davenport, both of New York City, for appellant U. S. Trust Co. of New York.

[*75]  Alfred S. Brown and William L. Greenfogel, both of New York City, for appellants William H. Harbeck and another.

[*76]  Bertrand L. Pettigrew, of New York City (George W. Thomas, of New York City, and Victor E. Keyes, Atty. Gen., of Colorado, of counsel), for State of Colorado.

[*79]  JUDGE:  POUND, J.

This action was brought to recover an inheritance tax upon the estate of John H. Harbeck, deceased. Harbeck was a resident of Boulder, Colo. In October, 1910, he left his home in Colorado with the intention of going abroad. About a month later, while en route, in the city of New York, he died. On March 28, 1911, his will and four codicils were admitted to probate in New York county, and letters testamentary thereunder were issued to the widow, who was also the principal legatee under said will. The defendants Alfred S. Brown and Francis B. Clark are legatees under the codicils. The defendant the United States Trust Company is the trustee under certain trusts created by the will for the benefit of the defendant William Henry Harbeck. Transfer tax proceedings were had in New York, and taxes assessed as upon the estate of a nonresident and paid. The executrix filed her account July 8, 1913, which was settled and allowed March 10, 1914. No provision was made for payment of a transfer tax to the state of Colorado, which had no notice of the proceedings in New York.

After the executrix had accounted and the estate had been distributed in New York, the state of Colorado instituted proceedings in its courts to assess a transfer tax under its laws upon the estate. An appraisal was had February 28, 1916, notice having been given by mail to all defendants as required by its law. The inheritance tax laws of Colorado provide (Laws of 1902, c. 3, as amended by Laws 1907, c. 214, § 1, and Laws 1909, c. 193, § 2) that the tax shall thereupon be immediately due and payable and remain a lien on the property transferred until paid. It is  [*80]  further provided (section 1) that all legatees and executors shall be liable for such taxes until the same have been paid “as hereinafter directed.&#!48; The tax was assessed as upon the estate of a resident and notice of assessment given to all the defendants as required by the statute, and such notice was in fact received by them. The amount of such tax was upwards of $55,000. No appeal was taken under the Colorado statute to review the assessment. The estate thus assessed for taxation consisted of stocks, bonds, and credits of the value of nearly $3,000,000, none of which were physically present in Colorado at the time of decedent&#!46;s death nor have since come into the state. None of the defendants appeared in the Colorado tax proceedings. In February, 1916, an administrator with the will annexed of decedent was appointed and qualified in Colorado and continued to act as such. At the time the Colorado proceedings were instituted and this proceeding begun none of the defendants were residents of Colorado.

This action was thereafter begun in the Supreme Court of the state of New York, by the state of Colorado against the executrix and legatees to recover the amount of the transfer tax, the total amount from the executrix, and from each defendant the amount assessed upon his legacy. The Trial Term dismissed the complaint on the ground that the collection of the tax could not be enforced by action in the state of New York. The Appellate Division reversed the judgment of the trial court, and granted judgment against the defendants in the amount of nearly $100,000 on the ground that, the tax having been regularly fixed and assessed under the laws of Colorado, and defendants having received their legacies under the laws of the state of Colorado providing for the transmission of the estates of decedents by will, they assumed the statutory obligation to pay the tax thereon, and made it their contractual obligation; that the payment of the tax by the beneficiaries is a duty  [*81]  imposed upon the right to acquire, and that the principle of comity between states demands that the courts of New York should assume jurisdiction and enforce the obligation.

The question is whether the inheritance tax of Colorado may, consistently with the due process clauses of the United State Constitution, be collected extraterritorially, by suit against the beneficiaries. Maxwell v. Bugbee, 250 U. S. 525, 539, 40 Sup. Ct. 2, 63 L. Ed. 1124.

The court must read the Colorado statute as it is written. It imposes a special burden upon the right of succession to secure public revenue for governmental purposes. Brown v. Elder, 32 Colo. 527, 77 Pac. 853; Macky&#!46;s Estate, 46 Colo. 79, 102 Pac. 1075, 23 L. R. A. (N. S.) 1207. Not only must the transfer tax be assessed in accordance with the statute, but the method of collection provided by law must be followed. A fair and reasonable construction of the statute in consonancy with the legislative intention does not permit its enlargement to reach those who assert their freedom from liability under the due process clause of the United States Constitution.  [**359]  The only intent of the Legislature that the court can discern is that the tax should be collected in accordance with the statute, not otherwise. Matter of Gould, 156 N. Y. 423, 425, 51 N. E. 287. Irregular assessments and unauthorized methods of collection may not be justified by pointing out difficulties in the practical application of the statute as written and appealing to the moral sense to meet the objection that no legal liability has been established against the beneficiaries. No substitute for the statutory method of collecting taxes, as such method is expressed or fairly implied, may be invoked either in the state of Colorado or elsewhere.

It is urged that the legatee becomes liable to pay the tax as upon an implied contract when he accepts the legacy under the will of a resident of Colorado, and that he may be sued in the courts of another state wherever jurisdiction  [*82]  of the person may be obtained. But taxes are not debts or contracts. No contractual or quasi contractual obligation to pay arises out of the assessment of a tax. City of Rochester v. Bloss, 185 N. Y. 42, 47, 77 N. E. 794, 6 L. R. A. (N. S.) 694, 7 Ann. Cas. 15; Meriwether v. Garrett, 102 U. S. 472, 513, 26 L. Ed. 197.

The enforcement of revenue laws rests, not on consent, but on force and authority. Liability to pay is “a consequence imposed by fiat.” A transfer tax is a tax on the succession or the right to receive the bequest, based on the value of the succession, but it is assessed against and paid by persons, and it may not be collected from persons or out of property beyond the state&#!46;s jurisdiction. Maxwell v. Bugbee, supra. No personal liability based upon the receipt of a legacy arises except under the provisions of the Colorado statute (section 1) that the person to whom the property is transferred shall be personally liable for the tax until its payment, and that liability is purely local and statutory.

The theory that a contract or implied promise or obligation to pay, enforceable by action in this state, springs from the Colorado statute, is fallacious for a further reason. Colorado had acquired no control either of the property of the Harbeck estate or of its owners. The executrix paid the legacies by virtue of the authority vested in her on the probate of the will by the state of New York, without invoking any privilege or sanction conferred upon her by Colorado. Testator&#!46;s right to make a valid will of his personal property which was in the state of New York did not rest on the laws of Colorado nor make the Colorado statute of wills the source of the legatees’ title. “The question of the jurisdiction of the state to tax is one of fact, and cannot turn upon theories or fictions.” Matter of Swift, 137 N. Y. 77, 86, 32 N. E. 1096, 1098 (18 L. R. A. 709). &#!47;It was never intended by the law to tax a theory having no real substance behind it.” Matter of Curtis, 142 N. Y. 219, 223, 36 N. E. 887, 888.

Cases of stockholders’ liability for corporate debts  [*83]  under foreign statutes which rest on the stockholders&#!46; contract are not in point. Howarth v. Angle, 162 N. Y. 179, 56 N. E. 489, 47 L. R. A. 725. Cf. Marshall v. Sherman, 148 N. Y. 9, 42 N. E. 419, 34 L. R. A. 757, 51 Am. St. Rep. 654. Workmen&#!46;s compensation laws have been held to enter into the contract of employment without the state. Matter of Post v. Burger & Gohlke, 216 N. Y. 544, 111 N. E. 351, Ann. Cas. 1916B, 158. The right of a New York administrator to sue on a foreign death statute rests on the transitory obligation arising out of a personal injury which follows the person, and for sound reasons of public policy may be enforced wherever the person may be found. Loucks v. Standard Oil Co., 224 N. Y. 99, 110, 120 N. E. 198. These authorities are clearly distinguishable from the case at bar.

Although a liability to pay the tax exists under the Colorado statute, jurisdiction and power to enforce the liability in the New York tribunal must be established. Under the due process clause of the United States Constitution, where the delinquents are nonresidents of the taxing state and outside its jurisdiction, so that no personal liability or enforceable duty may be established as against them, and where the property involved is without the taxing state, so that no res exists upon which the taxing state may impose a lien, the state is powerless to collect the tax in its own courts, and powerless to invoke the aid of a sister state to collect its revenue. Pennoyer v. Neff, 95 U. S. 714, 24 L. Ed. 565; Dewey v. City of Des Moines, 173 U. S. 193, 19 Sup. Ct. 379, 43 L. Ed. 665; City of New York v. McLean, 170 N. Y. 374, 387, 388, 63 N. E. 380; Matter of Maltbie v. Lobsitz Mills Co., 223 N. Y. 227, 119 N. E. 389.

But plaintiff contends that by the application of a familiar fiction of law the legal situs of decedent&#!46;s personal property attaches to his domicile in Colorado, although the property was in every reasonable sense within the state of New York, where the stocks, bonds, and credits were kept, and that Colorado has an enforceable lien thereon by virtue of the taxing order. A sufficient answer to this contention is that the judgment in suit imposes a personal liability only, and enforces no lien.  [*84]  A further answer is that mobilia sequuntur personam  [**360]  is not an exclusive rule of universal application, nor does it transfer property into the foreign from the domestic jurisdiction. It is a rule of convenience merely, permitting taxation at the domicile of the owner of personal property which may at the same time be subject to taxation where the property itself is permanently located. Pullman&#!46;s Palace Car Co. v. Pennsylvania, 141 U. S. 18, 22, 11 Sup. Ct. 876, 35 L. Ed. 613; Union Refrigerator Transit Co. v. Commonwealth of Kentucky, 199 U. S. 194, 206, 26 Sup. Ct. 36, 50 L. Ed. 150, 4 Ann. Cas. 493; People ex rel. Hoyt v. Commissioners of Taxes, 23 N. Y. 224, 227; Maxwell v. Bugbee, supra.

This state taxes the succession of personal property of nonresidents according to the actual situs of the thing (Matter of Romaine, 127 N. Y. 80, 89, 27 N. E. 759, 12 L. R. A. 401), and our courts may not say that the assets of the estate are at the same time actually within and without the state of New York. The tangible res was therefore at all times in New York and not in Colorado.

If these general and well-recognized principles of taxation are by any process of reasoning to be considered inapplicable to the collection of transfer taxes, a sufficient answer to the contention of the state of Colorado remains. When a statutory method of enforcing the collection of a tax is provided which requires judicial action before the liability of the taxpayer is finally fixed, it is exclusive, and must be followed. That it cannot be followed does not alter the case. The order which was entered in Colorado in the proceeding to fix the tax on notice by mail to defendants did not terminate a suit or controversy between parties, and is not a judgment either in personam or in rem. People v. Kellogg, 268 Ill. 489, 109 N. E. 304. After the tax has been assessed by the preliminary order no person can be compelled to pay it until a citation issued out of a Colorado court having jurisdiction has been regularly served on him and he has had an opportunity to be heard. Unless this notice is given, the constitutional right to due process of law is invaded. Matter of McPherson, 104 N. Y.  [*85]  306, 321, 10 N. E. 685, 58 Am. Rep. 502. The Colorado statute thus provides (Laws 1913, c. 136, §§ 18, 19) for a proceeding to collect the tax, subsequent to the assessment, on notice to the persons interested in the property, in the nature of an action in rem. “A statutory remedy or proceeding cannot be enlarged by construction nor be made available or valid except by strictly following the directions of the act.” Matter of Maltbie v. Lobsitz Mills Co., 223 N. Y. 232, 119 N. E. 389, supra; Oakman v. Small, 282 Ill. 360, 118 N. E. 775.

But it is urged that the right of the state of Colorado to maintain an action for the collection of the tax when the special remedy is ineffective is upheld by its local laws (Pinnacle Gold Min. Co. v. People, 58 Colo. 86, 143 Pac. 837); that the Colorado statute provides that the Attorney General may collect the tax in “any other manner as may be provided in this act or by law&#!48; (Act of 1913, c. 136, § 13); i. e., by a common-law action. This contention also is unsound. The attempt to give such a statutory provision extraterritorial effect would conflict with another well-settled principle of private international law which precludes one state from acting as a collector of taxes for a sister state and from enforcing its penal or revenue laws as such. The rule is universally recognized that the revenue laws of one state have no force in another. The remedy is a part of the law, and we are once more brought to face the doctrine that the taxing power of the state is by the federal Constitution limited to persons and property within its jurisdiction. Wisconsin v. Pelican Ins. Co., 127 U. S. 265., 8 Sup. Ct. 1370, 32 L. Ed. 239; Marshall v. Sherman, 148 N. Y. 24-26, 42 N. E. 419, 34 L. R. A. 757, 51 Am. St. Rep. 654, supra; Loucks v. Standard Oil Co., 224 N. Y. 102, 120 N. E. 198; Walker v. Treasurer, etc., 221 Mass. 600, 109 N. E. 647; City of New York v. McLean, supra.

The judgment of the Appellate Division should be reversed and that of the Trial Term affirmed, with costs in this court and in the Appellate Division.

CRANE, J. (concurring in result).

I agree with the result in this case on the ground that I can find no  [*86]  authority in the Inheritance Tax Law of the state of Colorado for this action.

HISCOCK, C. J., and HOGAN, CARDOZO, McLAUGHLIN, and ANDREWS, JJ., concur with POUND, J.

CRANE, J., concurs in result in memorandum.

Judgment accordingly.