27, 79 L. J. K. B. N. S. 156, 101 L. T. N. S. 754, 26 Times L. R. 133, 54 Sol. Jo. 133, 47 Scot. L. R. 593; Hanson, Death Duties, 6th ed. pp. 20, 128; Soward L. & Pr. Estate Duty, p. 4; Knowlton v. Moore, 178 U. S. 41, 57, 44 L. ed. 969, 976, 20 Sup. Ct. Rep. 747; Indian Territory Illuminating Oil Co. v. Oklahoma, 240 U. S. 522, 530, 60 L. ed. 779, 783, 36 Sup. Ct. Rep. 453; Stratton Claimants v. Morris Claimants (Dibrell v. Lanier) 89 Tenn. 497, 12 L.R.A. 70, 15 S. W. 87; Maine v. Grand Trunk R. Co. 142 U. S. 217, 35 L. ed. 994, 3 Inters. Com. Rep. 807, 12 Sup. Ct. Rep. 121, 163; St. Louis v. United R. Co. 263 Mo. 444, 174 S. W. 78; Kane v. State, 81 N. J. L. 594, L.R.A.1917B, 553, 80 Atl. 453, Ann. Cas. 1912D, 237; Flint v. Stone Tracy Co. 220 U. S. 107, 55 L. ed. 389, 31 Sup. Ct. Rep. 342, Ann. Cas. 1912B, 1312.

The measurement of the tax by the mass of the net estate produces profound inequality between persons circumstanced alike, or standing in the same relation.

515, affirmed in 204 U. S. 152, 51 L. eð. 415, 27 Sup. Ct. Rep. 188, 9 Ann. Cas. 736; Magoun v. Illinois Trust & Sav. Bank, 170 U. S. 283, 288, 42 L. ed. 1037, 1040, 18 Sup. Ct. Rep. 594; Hayes v. Missouri, 120 U. S. 68, 30 L. ed. 578, 7 Sup. Ct. Rep. 350; Gulf, C. & S. F. R. Co. v. Ellis, 165 Ú. S. 150, 41 L. ed. 666, 17 Sup. Ct. Rep. 255; Barbier v. Connolly, 113 U. S. 27, 28 L. ed. 923, 5 Sup. Ct. Rep: 351; Cooley, Taxn. 3d ed. 76, 260; Black v. State, 113 Wis. 205, 90 Am. St. Rep. 853, 89 N. W. 522; State ex rel. Garth v. Switzler, 143 Mo. 287, 40 L.R.A. 280, 65 Am. St. Rep. 653, 45 S. W. 245; State ex rel. Schwartz v. Ferris, 53 Ohio St. 314, 30 L.R.A. 218, 41 N. E. 579; State ex rel. Sanderson v. Mann, 76 Wis. 469, 45 N. W. 526, 46 N. W. 51; State ex rel. Davidson v. Gorman, 40 Minn. 232, 2 L.R.A. 701, 41 N. W. 948; Clark v. Titusville, 184 U. S. 329, 46 L. ed. 569, 22 Sup. Ct. Rep. 382; Western U. Teleg. Co. v. Kansas, 216 U. S. 1, 54 L. ed. 355, 30 Sup. Ct. Rep. 190; Gloucester Ferry Co. v. Pennsylvania, 114 U. S. 196, 29 L. ed. 158, 1 Inters. Com. Rep. 382, 5 Sup. Ct. Rep. 826; Philadelphia & S. Mail S. S. Co. v. Pennsylvania, 122 U. S. 326, 30 L. ed. 1200, 1 Inters. Com. Rep. 308, 7 Sup. Ct. Rep. 1118; Meyer v. Wells, F. & Co. 223 U. S. 298, 56 L. ed. 445, 32 Sup. Ct. Rep. 218; Galveston, H. & S. A. R. Co. v. Texas, 210 U. S. 217, 52 L. ed. 1031, 28 Sup. Ct. Rep. 638; Fargo v. Hart, 193 U. S. 490, 48 L. ed. 761, 24 Sup. Ct. Rep. 498; Home Ins. Co. v. New York, 143 U. S. 594, 33 L. ed. 1025, 10 Sup. Ct. Rep. 593; Billings v. Illinois, 188 U. S. 97, 47 L. ed. 400, 23 Sup. Ct. Rep. 272; People ex rel. Phillips v. Raynes, 136 App. Div. 417, 120 N. Y. Supp. 1053, affirmed in 198 N. Y. 539, 92 N. E. 1097; People ex rel. Farrington v. Mensching, 187 N. Y. 8, 10 L.R.A. (N.S.) 625, 79 N. E. 884, 10 Ann. Cas. 101; State ex rel. Wyatt v. Ashbrook, 154 Mo. 375, 48 L.R.A. 265, 77 Am. St. Rep. 765, 55 S. W. 627; Danville v. Shelton, S.76 Va. 325; Banger's Appeal, 109 Pa. 79; Re Ruan Street, 132 Pa. 257, 7 L.R.A. 193, 19 Atl. 219; Com. ex rel. Fertig v. Patton, 88 Pa. 258; Grim v. Weissenberg School Dist. 57 Pa. 433, 98 Am. Dec. 237; Stanley v. Albany County, 121 U. S. 535, 550, 30 L. ed. 1000, 1003, 7 Sup. Ct. Rep. 1234; Cotting v. Kansas City Stock Yards Co. (Cotting v. Godard) 183 U. S. 79, 110, 46 L. ed. 92, 109, 22 Sup. Ct. Rep. 30.

Re Ramsdill, 190 N. Y. 496, 18 L.R.A. (N.S.) 946, 83 N. E. 584; Plunkett v. Old Colony Trust Co. 233 Mass. 471, 7 A.L.R. 696, 124 N. E. 265; Re Hamlin, 7 A.L.R. 701 and note, 226 N. Y. 407, 124 N. E. 4; Knowlton v. Moore, 178 U. S. 41, 74, 76, 44 L. ed. 969, 983, 984, 20 Sup. Ct. Rep. 747.

The tax is not laid with reference to the ability of the person upon whom the burden falls to bear the same, because there is no sense of proportion between the burden and the value of the benefit.

Union Refrigerator Transit Co. v. Kentucky, 199 U. S. 194, 203, 50 L. ed. 150, 153, 26 Sup. Ct. Rep. 36, 4 Ann. Cas. 493; Political Economy Bk. 5, chap. 51, § 2; Knowlton v. Moore, supra; Seligman, Essays in Taxn. 21, 82; Monticello Distilling Co. v. Baltimore, 90 Md. 416, 45 Atl. 210; State ex rel. Garth v. Switzler, 143 Mo. 287, 40 L.R.A. 280, 65 Am. St. Rep. 653, 45 W. 245; State ex rel. Schwartz v. Ferris, 53 Ohio St. 314, 30 L.R.A. 218, 41 N. E. 579; Cooley, Taxn. 3d ed. 12.

The act is entirely wanting in proper basis for classification, and sensibly violates fundamental principles underlying just taxation in the utter disregard of the interests of persons patently present in the subject taxed.

The 5th Amendment stands as a con

People ex rel. Hatch v. Reardon, 184 N. Y. 431. 8 L.R.A.(N.S.) 314, 112 Am. St. Rep. 628, 77 N. E. 970. 6 Ann. Cas.dition upon which the power to tax may

be exercised, and because of the inequality and capricious operation produced, the act must stand condemned as in violation of that amendment.

Hurtado v. California, 110 U. S. 516, 534, 28 L. ed. 232, 238, 4 Sup. Ct. Rep. 111, 292; Re Kemmler, 136 U. S. 436, 34 L. ed. 519, 10 Sup. Ct. Rep. 930; Duncan v. Missouri, 152 U. S. 377, 382, 38 L. ed. 485, 487, 14 Sup. Ct. Rep. 570; Connolly v. Union Sewer Pipe Co. 184 U. S. 540, 559, 560, 46 L. ed. 679, 689, 690, 22 Sup. Ct. Rep. 431; Cooley, Const. Lim. 6th ed. p. 598; McCray v. United States, 195 U. S. 27, 61, 49 L. ed. 78, 97, 24 Sup. Ct. Rep. 769, 1 Ann. Cas. 561; Gibbons v. Ogden, 9 Wheat. 1, 199, 205, 6 L. ed. 23, 70, 72; Lottery Case (Champion v. Ames) 188 U. S. 321, 47 L. ed. 492, 23 Sup. Ct. Rep. 321, 13 Am. Crim. Rep. 561; Spencer v. Merchant, 125 U. S. 345, 31 L. ed. 763, 8 Sup. Ct. Rep. 921; Ambrosini v. United States, 187 U. S. 1, 47 L. ed. 49, 23 Sup. Ct. Rep. 1, 12 Am. Crim. Rep. 699; United States v. Baltimore & O. R. Co. 17 Wall. 322, 21 L. ed. 597; Collector v. Day (Buffington v. Day) 11 Wall. 113, 20 L. ed. 122; Knowlton v. Moore, 178 U. S. 41, 57, 74, 44 L. ed. 969, 976, 983, 20 Sup. Ct. Rep. 747; Hammer v. Dagenhart, 247 U. S. 251, 62 L. ed. 1101, 3 A.L.R. 649, 38 Sup. Ct. Rep. 529, Ann. Cas. 1918E, 724; Pervear v. Massachusetts, 5 Wall. 475, 18 L. ed. 608; License Tax Cases, 5 Wall. 462, 18 L. ed. 497; United States v. Jones, 109 U. S. 513, 27 L. ed. 1015, 3 Sup. Ct. Rep. 346; Brushaber v. Union P. R. Co. 240 U. S. 1, 24, 60 L. ed. 493, 504, L.R.A.1917D, 414, 36 Sup. Ct. Rep. 236, Ann. Cas. 1917B, 713.

Solicitor General Frierson argued the cause and filed a brief for defendant in

error:

The tax in question is a death duty, and rests upon the power to transmit, or the transmission from the dead to the living.

erty from the dead to the living is subject to exclusive regulation by the states. Knowlton v. Moore, supra.

The imposition of an estate tax by the Federal government is no more an interference with the power of the states to regulate the descent and distribution of estates than is the imposition of a legacy tax. Ibid.

Conceding that a legacy tax imposed by the Federal government is not a direct tax, it follows that an inheritance tax is likewise not a direct tax. Ibid.

Since the tax is imposed upon the right to transmit, and not upon the right to receive, the question as to how it affects what would otherwise be received by particular legatees or devisees is wholly unimportant.

State succession and inheritance taxes are not deductible for the purpose of determining the value of the net estate.

Re Penfold, 216 N. Y. 163, 110 N. E. 497, Ann. Cas. 1916A, 783: Re Gihon, 169 N. Y. 443, 62 N. E. 561; Smith v. Browning, 225 N. Y. 358, 122 N. E. 217; United States v. Perkins, 163 U. S. 625, 41 L. ed. 287, 16 Sup. Ct. Rep. 1073.

Mr. Justice Holmes delivered the opinion of the court:

This is suit brought by the executors of one Purdy to recover an estate tax levied under the Act of Congress of September 8, 1916, chap. 463, Title 2, § 201, 39 Stat. at L. 756, 777, Comp. Stat. §§ 6336a, 63364b, Fed. Stat. Anno. Supp. 1918, p. 305, and paid under duress on December 14, 1917. According to the complaint, Purdy died leaving a will and codicil directing that all succession, inheritance, and transfer taxes should be paid out of the residuary estate, which was bequeathed to the descendants of his brother. The value of the residuary estate was $427,414.96, subject to some administration expenses. The executors had been required to pay and had paid inheritance and succession taxes to New York ($32,988.97) and other states ($4,780.91), amounting in all to $37,769.88. The gross estate, as defined in § 202 of the act of Congress, was $769,799.39; funeral expenses and expenses of administration, except the above taxes, $61,322.08; leaving a net value for the payment of legacies, except as reduced Death duties, in general, when levied by the taxes of the United States, of by the Federal government, are not sub- $670,707.43. The plaintiffs were comjeet to constitutional objection upon the pelled to pay $23,910.77 to the United ground that the transmission of prop-States, no deduction of any part of the

Knowlton v. Moore, 178 U. S. 41, 44 L. ed. 969, 20 Sup. Ct. Rep. 747.

Death duties, in general, when levied by the Federal government, are not subject to constitutional objection upon the ground that they are direct taxes and cannot be imposed without apportion

ment.

License Tax Cases, 5 Wall. 462, 471, 18 L. ed. 497, 500; Knowlton v. Moore,

supra.

above-mentioned $37,769.88 being al-, the tax [348] shall be paid out of the iowed. They allege that the act of Con- estate before its distribution." These gress is unconstitutional, and also that provisions are assailed by the plaintiffs it was misconstrued in not allowing a in error as an unconstitutional interdeduction of state inheritance and suc- ference with the rights of the states to cession taxes as charges within the regulate descent and distribution, as unmeaning of § 203. On demurrer the dis- equal, and as a direct tax, not apportrict court dismissed the suit. tioned as the Constitution requires.

act

a transfer while it is being effectuated by the state itself, and therefore is an intrusion upon its processes; whereas a legacy tax is not imposed until the process is complete. An analogy is sought in the difference between the attempt of a state to tax commerce among the states and its right after the goods have become mingled with the general stock in the state. A consideration of the parallel is enough to detect the fallacy. A tax that was directed solely against goods imported into the state, and that was determined by the fact of importation, would be no better after the goods were at rest in the state than before. It would be as much an interference with commerce in one case as in the other. I. M. Darnell & Son Co. v. Memphis, 208 U. S. 113, 52 L. ed. 413, 28 Sup. Ct. Rep. 247; Welton v. Missouri, 91 U. S. 275, 23 L. ed. 347. Conversely, if a tax on the property distributed by the laws of a state, determined by the fact that distribution has been accomplished, is valid, a tax determined by the fact that distribution is about to begin is no greater interference and is equally good.

By 201 of the act, "a tax The statement of the constitutional equal to the following percentages of the objections urged imports on its face a value of the net estate, to be [347] de- distinction that, if correct, evidently termined as provided in section two hun- hitherto has escaped this court. See dred and three, is hereby imposed upon United States v. Field, Feb. 28, 1921 the transfer of the net estate of every [255 U. S. 257, ante, 617, 4.L.R. decedent dying after the passage of this 41 Sup. Ct. Rep. 256]. It is admitted, with percentages rising as since Knowlton v. Moore, 178 U. from 1 per centum of the amount S. 41, 44 L. ed. 969, 20 Sup. Ct. of the net estate not in excess of Rep. 747, it has to be, that the United $50,000 to 10 per centum of the States has power to tax legacies, but amount in excess of $5,000,000. Sec- it is said that this tax is cast upon tion 202 gives the mode of determining the value of the gross estate. Then, by § 203, it is enacted: "That for the purpose of the tax the value of the net estate shall be determined-(a) In the case of a resident, by deducting from the value of the gross estate (1) such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, and from theft, when such losses are not compensated for by insurance or otherwise, support during the settlement of the estate of those dependent upon the decedent, and such other charges against the estate as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered; and (2) an exemption of $50,000." The tax is to be due in one year after the decedent's death. § 204. Within thirty days after qualifying, the executor is to give written notice to the collector, and later to make return of the gross estate, deductions allowed, net estate, and the tax payable thereon. § 205. The executor is to pay the tax. § 207. The tax is a lien for ten years on the gross estate except such part as is paid out for allowed charges, § 209, and, if not paid within sixty days after it is due, is to be collected by a suit to subject the decedent's property to be sold. § 208. In case of collection from some person other than the executor, the same section provides for contribution from or marshaling of persons subject to equal or prior liability, "it being the purpose and intent of this title that so far as is practicable and unless other wise directed by the will of the decedent

Knowlton v. Moore, 178 U. S. 41, supra, dealt, it is true, with a legacy tax. But the tax was met with the same objection: that it usurped or interfered with the exercise of state powers, and the answer to the objection was based upon general considerations, and treated the "power to transmit [349] or the transmission or receipt of property by death" as all standing on the same footing. 178 U. S. 57, 59. After the elaborate discussion that the subject received in that case, we think it unnecessary to dwell upon matters that in principle were disposed of there, The same may be said of the

argument that the tax is direct, and, AMERICAN BANK & TRUST COMPANY et al., Appts., therefore is void for want of apportionment. It is argued that when the

V.

(See S. C. Reporter's ed. 350-359.)

Removal of causes
Federal corporation.

suit against a

tax is on the privilege of receiving, the FEDERAL RESERVE BANK OF ATLANTA, GEORGIA, et al. be tax is indirect because it may avoided; whereas here the tax is ineviBut that table, and therefore direct. matter also is disposed of by Knowlton v. Moore, not by an attempt to make some scientific distinction, which would be at least difficult, but on an interpretation of language by its traditional use, -on the practical and historical ground that this kind of tax always has been regarded as the antithesis of a direct tax,-"has ever been treated as a duty or excise, because of the particular occasion which gives rise to its levy." 178 U. S. 81-83. Upon this point a page of history is worth a volume of logic.

The inequalities charged upon the statute, if there is an intestacy, are all inequalities in the amounts that beneficiaries might receive in case of estates of different values, of different proportions between real and personal estate, and of different numbers of recipients; or, if there is a will, affect legatees. As to the inequalities in case of a will, they must be taken to be contemplated by the testator. He knows the law and the consequences of the disposition that he makes. As to intestate successors, the tax is not imposed upon them, but precedes them; and the fact that they may receive less or different sums because of the statute does not concern the United States.

There remains only the construction of the act. The argument against its constitutionality is based upon a premise that is unfavorable to the contention of the plaintiffs in error upon this point. For if the tax attaches to the estate before distribution,-if it is a tax on the right [350] to transmit, or on the transmission at its beginning, obviously it attaches to the whole estate, except so far as the statute sets a limit. "Charges against the estate," as pointed out by the court below, are only charges that affect the estate as a whole, and therefore do not include taxes on the right of individual beneficiaries. This reasoning excludes not only the New York succession tax, but those paid to other states, which can stand no better than that paid in New York. What amount New York may take as the basis of taxation, and questions of priority between the United States and the state, are not open in this

1. A suit in which the principal defendant was incorporated under the laws of the United States is removable from a state to a Federal district court.

[For other cases, see Removal of Causes, IV.

g, in Digest Sup. Ct. 1908.] Federal courts

jurisdiction

under Federal law.

suit

2. A suit against a corporation incor-
porated under the laws of the United States
is one arising under those laws, within the
meaning of the Federal Judicial Code, § 24,
defining the original jurisdiction of the
Federal district courts.
[For other cases, see Courts, 576-596, in

Digest Sup. Ct. 1908.]
Federal courts

jurisdiction against Federal reserve bank.

suit

3. The Federal reserve banks created after the Judicial Code was enacted are not "national banking associations" within the meaning of the provision of § 24 of the Code, that, for jurisdictional purposes, such associations are to be deemed citizens of the states in which they are respectively located.

[For other cases,

see Courts, 576-596, in

Digest Sup. Ct. 1908.]

4. Federal reserve banks exceed their

powers by accumulating checks on state country banks, not members of the Federal reserve system, until they reach a large amount, and then causing them to be presented for payment over the counter, or, by other devices, requiring payment in cash, so as to compel such banks to maintain so much cash in their vaults as to drive them out of business, or force them, if able, to submit to the scheme to compel them to become members of the Federal reserve system, or at least to open a nonmember clearing account, which necessitates the maintenance of a larger reserve, and hence diminishes the lending power of such banks, so that, with the loss of the profit caused by the clearing of bank checks and drafts at par, some of such banks will be driven

Note. On removal of causes where Federal Constitution, statute, or treaty comes in question-see notes to Little York Gold Washing & Water Co. v. Keyes, 24 L. ed. U. S. 656; Butler v. National Home, 36 L. ed. U. S. 346; Torrence v. Shedd, 36 L. ed. U. S. 528; Ferguson v. Ross, 3 L.R.A. 322, and Austin v. Gagan, 5 L.R.A. 476.

983

out of business, and the income of all will P. R. Co. 15 C. C. A. 167, 32 U. S. App. be diminished. 372, 68 Fed. 2.

Argued April 13 and 14, 1921. Decided laws; and, since the passage of such