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Knowlton v. Moore - 178 U.S. 41, 20 S. Ct. 747 (1900)

Rule:

Death duties rest in their essence upon the principle that death is the generating source from which the particular taxing power takes its being and that it is the power to transmit, or the transmission from the dead to the living, on which such taxes are more immediately rested.

Facts:

The plaintiffs in error were the executors of the will of Edwin F. Knowlton, of Brooklyn, New York. The defendant in error was the United States Collector of Internal Revenue for the First Collection District for the State of New York. Mr. Knowlton died at Brooklyn in October, 1898, and his will was duly proved. Under the portion of the act of Congress of June 13, 1898, the United States Collector of Internal Revenue demanded of the executors a return, showing the amount of the personal estate of the deceased, and the legatees and distributees thereof. This return the excutors made under protest, asserting that the Act of June 13 was unconstitutional. This return showed that the personal estate amounted to over $2.5 million, and that there were several legacies, ranging from under $10,000 each to over $1,500,000. The collector levied the tax on the legacies and distributive shares, but for the purpose of fixing the rate of the tax considered the whole of the personal estate of the deceased as fixing the rate for each, and not the amount coming to each individual legatee under the will. As the rates under the statute were progressive from a low rate on legacies amounting to $10,000, to a high rate on those exceeding $1,000,000, this decision greatly increased the aggregate amount of the taxation. The executors protested on the grounds (1) that the provisions of the Act were unconstitutional; (2) that legacies amounting to less than $10,000, were not subject to any tax or duty; (3) that a legacy of $100,000, taxed at the rate of $2.25 per $100, was only subject to the rate of $1.12 1/2. Demand having been made by the collector for payment, payment was made under protest; and, after the Commissioner of Internal Revenue had refused to refund any of it, the executors commenced suit to recover the amount so paid. The Circuit Court sustained a demurrer upon the ground that no cause of action was alleged, and dismissed the suit.

Issue:

Did the circuit court err in denying relief?

Answer:

Yes

Conclusion:

The United States Supreme Court held that the Act was constitutional, but that the circuit court erred in denying any relief. The taxes should not have been levied upon the whole personal estate of the deceased. Instead, the taxes should have only considered the amount coming to each individual legatee. The executors were entitled to recover so much of the tax as resulted from taxing legacies not exceeding $10,000 and from increasing the tax rate with reference to the whole amount of the personal estate of the deceased.

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