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ARMISTICE DAY

BY HUMBERT WOLFE

I HEARD the trumpets crying 'Lights out! Lights out!'
and the sun was quenched like a dead candle. The stars
drew night, like a film, across their eyes, and from without
a ship I knew not went sailing, muffled to her spars.

She had no name and no beauty. She was not of those

ships, like armfuls of white fire carelessly tossed on the sea, tossed like a great unintelligible flower, a blind white rose.

She was a black ship, that went sailing, a strange ship to me.

She carried the hope of the world in her hold like a bale, and the thin notes of the trumpets were her long wake.

She was unimaginably empty, bitter, and stale,

and the sea of dark that she sailed was more bitter for her sake.

And the trumpets cried 'Lights out! Lights out!' And I listened to their cadence echoing in the hearts of all the lost.

'Lights out! Lights out!' they answered, and the words glistened like a firefly dancing between the ribs of a ghost.

'Lights out!' and the trumpets were silent. But out in the dark the black ship sailed, and those on the further shore

cried as they saw at her masthead glitter a single spark,

and the spark died with the trumpets, and they cried no more.

THE NEEDLE'S EYE

BY RAYMOND EDWARDS HUNTINGTON

'It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God.'

Without irreverence or disrespect for the Scriptures let us change this colorful statement so that it shall read: 'It is easier for a camel to go through the eye of a needle, than for a rich man to avoid death taxes.'

Let us picture the needle's eye as the inheritance-tax situation through which estates must pass before they can be distributed to expectant heirs. How much of the estate will be torn or rubbed off in passing through the needle's eye?

The Revenue Act of 1926, with its welcome and material reduction in the Federal Estate Tax, received widespread publicity and the impression is almost universally prevalent that the needle's eye has been enlarged to so comfortable a degree that the subject of death taxes should now be considered of trifling weight, not worthy of serious study. The increase in the Federal exemption from $50,000 to $100,000 automatically removed a vast number of estates from Federal taxation, while the reduction in rates by the Government still further lulled the public into believing that death taxes were slowly but certainly passing out of style.

So far as estates of $100,000 or less are concerned, the situation was vastly improved by the passage of the Revenue Act. But, directly this act became a law, there crept quietly and inevitably into the scene a joker. First one state,

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then another and another, without the blowing of trumpets and with a minimum of publicity, inserted this joker on its statutes until now its application is so frequent and its extension so evident to those conversant with death taxes that the man of affairs should be brought face to face with the needle's eye. What has happened to it? It appears to be larger. Is it?

One of the most potent arguments brought to bear upon the former Federal Estate Tax was the fact that it originated as a war measure and was an invasion into the field of States' rights. Uncle Sam was said to be poaching upon private domains. He should get out and stay out. Death taxes should be imposed by the states and by the states alone.

In increasing the exemption and in reducing the rates the Federal Government made great strides toward quitting this field of taxation. The ink was hardly dry on the Revenue Act of 1926, however, before New Jersey enacted legislation taking advantage of the new 80 per cent credit allowed by the Government. Quick on the trigger as was New Jersey, she was closely followed by similar legislation on the part of Georgia, Virginia, New York, and Massachusetts. From then on, several other states have eyed these green pastures so recently left by the Government and enacted legislation which has legalized the grazing of these fertile fields.

The trend is unmistakable. Whereas

for a brief time the needle's eye was enlarged, the states are now fully alive to the situation and the opportunity. Many of them have already, by one method or another, availed themselves of an unusual situation. To themselves they said, 'We need the money. Our new law will not increase the tax burden on the estate; it will merely bring in to us what would have formerly gone to the Government. We will take what the Government leaves.' Thus in many states the needle's eye has resumed much its former size. It still scrapes off most effectively material portions of the estate which passes through.

Prior to the passage of the Revenue Act of 1926 the needle's eye was in twilight. Many of the shadows that served to make mysterious this field of taxation have been dispelled. There has been no sadness of farewell as certain of the more vexatious phases passed.

Wisconsin gives us a good picture of the passing of the shadows. From the inheritance-tax standpoint she has long been known as an 'unfavorable' state. In the rapaciousness of her death taxes there was a mediæval flavor. She went so far as to hold that a gift made within six years of death should be considered to have been made in contemplation of death and was therefore taxable. Having pushed the pendulum of taxation beyond the limits of justice, the reaction was inevitable. In the case of Schlesinger v. The State of Wisconsin, Wisconsin courts sustained the validity of the Wisconsin inheritance-tax law. Carried to the Supreme Court of the United States, the decision of the Supreme Court of Wisconsin was reversed, making this section of Wisconsin's inheritance-tax laws invalid. Thus an unreasonable and unjust law was wiped from the slate in a state where vision has been sadly lacking in the framing of inheritance-tax legislation.

For a number of years there was a

small group of states which had gone to the extreme in their endeavor to extend the scope of their inheritance taxes. In this group was North Carolina, mentioned not because her laws were worse than others in this group, but because in her courts a legal battle began which ended in the Supreme Court of the United States on March 1, 1926.

The case of Rhode Island Hospital Trust Company v. Doughton has had such far-reaching effects upon the deathtax situation in other states that a brief sketch may picture the passing of this shadow. Among others, North Carolina held taxable in the estate of a nonresident decedent the shares of a foreign corporation owning property or doing business in the state. Consider the breadth of this law. Many corporations do a national business, owning property in many states and entering every state so far as the transaction of business is concerned. Under this law, shares of such corporations became taxable in the estate of a nonresident.

George Briggs lived and died in Rhode Island, leaving a large estate. He never lived in North Carolina. The Rhode Island Hospital Trust Company, as executor under Briggs's will, found among his personal property a block of Tobacco stock amounting to over $100,000. The Tobacco Company is incorporated under the laws of New Jersey. Two-thirds in value of the entire property of the Tobacco Company is in North Carolina. On this basis North Carolina taxed the estate a little over $2000, assessing the tax upon twothirds the value of the Tobacco stock.

Thanks to the fighting blood of the executor, this case was carried to the Supreme Court of the United States, where Chief Justice Taft, in a refreshingly clear opinion, declared the North Carolina law invalid. In effect, North Carolina held that the owner of shares of stock in a corporation was for that

reason part owner of the property of that corporation. Our Supreme Court held this line of reasoning unsound and declared that the owner of stock in a corporation is not to that extent the owner of the property of that company.

This decision in favor of the Briggs estate has been a milestone marking the progress of more favorable legislation in death taxes, because it affected not alone North Carolina, but each of the states which had similar statutes, which with the handing down of this decision became at once invalid.

A glimpse of the wide influence of this decisive ruling of the Supreme Court is had when we note that it affected, directly or indirectly, such states as Arizona, Arkansas, Louisiana, Texas, Utah, West Virginia, California, Colorado, Iowa, Minnesota, Montana, New Mexico, Oklahoma, Mississippi, and Tennessee, among others.

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But these are the lesser shadows.

Always the worst pinch in passing through the eye of the needle was the paying of the multiple tax. The double tax is still inevitable in estates of over $100,000 in the great majority of our states. A little over a year ago triple taxation in the larger estates was a matter to be expected under the then laws. It was the overlapping tax, by the state of residence, the Federal Government, and then by one or more foreign states, which lined the eye of the needle with thorns. In this, the most vicious phase of the old laws, there has been a marked change for the better.

By far the most popular method of killing the multiple tax has been the enactment of reciprocal exemption legislation. To illustrate: Massachusetts says to New York, 'I will agree not to tax the heirs of New Yorkers on the stock of Massachusetts corporations

which they are to inherit if you will agree to extend the same courtesy to residents of Massachusetts.' New York and Massachusetts both agree. Before New York and Massachusetts became 'reciprocal' the following situation was not only possible but common. Jones, a New Yorker, died leaving an estate of several hundred thousand. In the estate was a block of about $25,000 in stock of the Edison Electric Illuminating Company of Boston, a Massachusetts corporation. Under the old laws this stock felt the pinch of the eye of the needle, for it was taxed, first by the Federal Government, then by New York and by Massachusetts. Under the present situation the triple tax has passed in this specific example, as Massachusetts has exempted this stock in favor of the New York estate.1

New York, Massachusetts, Pennsylvania, and Connecticut were among the leaders in enacting reciprocal exemptions. The change that took place in New Jersey is especially interesting because of the fact that formerly she was known as an 'unfavorable' state as regards death taxes, while at the same time she was the state of incorporation of many companies most attractive from the standpoint of the investor. In fact, if an investor was discriminating in his selection of choice investments, he was certain to have in his

1 Another thorn appears in the eye of the needle as we go to press. New York drops from the reciprocal group of states. A recent decision of the Court of Appeals holds unconstitutional the transfer tax on the property of nonresident decedents. It so happens that the reciprocal exemption clause falls within that portion of the law which has been held unconstitutional. Hence, until this is remedied, New York becomes an unfavorable state to the nonresident, and in estates of over $100,000 a triple tax is possible. This decision also bears directly upon the estates of residents in that they may be liable to taxation in any of the strictly reciprocal states. A multitude of investors will watch this complicated situation with interest.

list of holdings the stocks of more than one New Jersey company, thereby aggravating the position of his family on the inheritance-tax situation.

New Jersey solved the problem without reciprocal exemptions. Her solution was simple, direct, effective. She said in substance: 'We will not tax the transfer of stock of domestic corporations in nonresident estates.' She takes no recognition of any reciprocal legislation, in that she does not confine her exemption to a group of reciprocal states. From an 'unfavorable' state she has turned to the right-about and is now demurely seated in the front row of the 'favorable.'

Without regard to the order of their happening, let us see how other thorns in the multiple-tax group have been removed from the needle's eye. In February of this year we learn that the following states had legislation pending, which if passed would bring them into the reciprocal group: California, Indiana, Maryland, Missouri, New Hampshire, Oregon, South Carolina, Illinois, and Maine. In April Colorado passed a new inheritance-tax law taking much the same broad position as did New Jersey, in that she does not now tax the intangible personal property of a nonresident.

At about the same time Ohio became reciprocal as of June 30, 1927. Maine's gesture toward reciprocity is futuristic, in that her law making her reciprocal does not become effective until July 1, 1928. Translating this into terms that the investor may understand, it means just this. If you live in New York and happen to own stock in a Maine corporation, such as the United States Smelting Company, and die before July 1, 1928, it is quite possible that your family would have to pay a double tax, perhaps a triple tax, on the Maine stock. The triple tax would occur if your estate was much over

$100,000, as the Federal Estate Tax would then appear. The double tax would come from Maine and New York, the state of residence. Thus until July 1, 1928, Maine cannot be regarded as a favorable state, and stocks in Maine corporations should be handled with care by elderly investors.

New Hampshire, a sister state, passed reciprocal exemption legislation, whereas Massachusetts, one of the pioneers in the reciprocal group, went a step beyond reciprocity by exempting nonresident decedents on all property within the state excepting only real estate and interests therein and tangible personal property. Here rises an interesting legal question yet to be decided. Have Massachusetts and New Jersey, in going a step beyond reciprocity, disqualified themselves with the group of states which are strictly reciprocal? From a technical standpoint they are no longer reciprocal, yet it would be a penny-pinching practice to exclude them from the reciprocal exemption privilege solely because they had taken a step in advance of the majority of states.

Maryland joined the reciprocal group of states as of June 1, 1927, while North Carolina dispelled a local shadow by exempting from death taxes gifts to charitable, religious, and educational institutions organized in or disbursing in that state.

Turning aside from the reciprocal exemption, in two states we find an economic awakening that is significant. In Pennsylvania we find the Tax Commission taking a farsighted position as regards inheritance taxes. The Commission argues that death taxes, being a capital levy, should be strictly so regarded. Moneys collected from this source should be added to the capital of the state and not dissipated in current expenses. It is interesting to note that at this time we also find a bill before

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