Opinion
March 4, 1927.
Appeal from Supreme Court of New York County.
William H. King of counsel [ Norman E. Gatens with him on the brief; George P. Nicholson, Corporation Counsel, attorney], for the appellants.
Mansfield Ferry of counsel [ Taylor, Blanc, Capron Marsh, attorneys], for the respondent.
The main question presented is the correctness of the ruling of the Special Term that the Federal inheritance tax should be deducted under the provisions of section 6 Tax of the Tax Law (as amd. by Laws of 1914, chap. 277) in determining the amount of property upon which the executors can be assessed for personal property tax. The respondent claims that because the Federal Inheritance Tax Law makes the executors personally liable for this tax, the tax is a debt within the meaning of section 6 Tax of the Tax Law.
General taxes are not debts "within the meaning of such word as commonly used. * * * They are forced contributions." ( City of Rochester v. Bloss, 185 N.Y. 42.)
It has been held by the Special Term in People ex rel. New Mutual Gas Light Co. v. Cantor (N.Y.L.J. Jan. 13, 1922, p. 1308) that accrued taxes are not a debt that may be deducted under section 6 Tax of the Tax Law. It is there pointed out that the origin of the provision permitting this deduction was to prevent the double taxation that would result if under the former state of the law the debt itself were taxed as property in the hands of the creditor and the debtor was at the same time not allowed to deduct it from the amount of his personal property.
In Baker v. City of East Orange ( 96 N.J. Law, 267) it was expressly held that a tax could not be deducted under the provisions of a similar statute, and while the holding was based also on the ground that the deduction provision of the New Jersey statute is confined to debts due to residents of the State, it rests equally upon the fundamental ground that a tax is not a debt.
The cases and statutes relied on by the respondent fall generally into two classes. For the most part they are opinions or statutes in which a tax is classified as a debt solely for the purpose of the protection of the State or the Federal government. Examples of this are the Surrogate's Court Act, section 212, where a tax is described as a preferred debt, and Price v. United States (___ U.S. ___), where it was held that the word "debts" as used in Revised Statutes, section 3466, includes taxes. That section provides that whenever any person indebted to the United States is insolvent, in insolvency proceedings the debts due to the United States shall be first satisfied. The court points out that the historical origin of this section was from statutes enacted for the collection of taxes, and holds that the word "debts" there was inclusive of any obligation due to the government, inasmuch as the purpose of the statute was to give the government a preference. ( Matter of Carnegie Trust Co., 151 App. Div 606, 610.) Other cases cited relate to controversies between life tenant and remainderman with respect to the question whether taxes should be set off against the corpus or the income of an estate. In many of these opinions the tax is inexactly referred to as a "debt," where the connotation clearly indicates that the word was used as the equivalent of a liability.
The Federal inheritance tax is not deductible as a debt under section 6 Tax of the Tax Law. We think, however, that attorney's fees should be treated as debts.
In the Seligman case, since the non-resident coexecutor clearly exercised control, the assessment can be levied on only one-half of the personal property of the estate.
The orders appealed from should be reversed, with ten dollars costs and disbursements, and the assessments reinstated to the extent indicated in this opinion.
DOWLING, P.J., FINCH and McAVOY, JJ., concur; MERRELL, J., dissents and votes for affirmance.
In each case: Order reversed, with ten dollars costs and disbursements, and the assessments reinstated to the extent indicated in opinion. Settle order on notice.