§ 145.

CHAPTER IX.

EXEMPTION OF CHARITIES.

Charitable Uses and Institutions, in General.

Foreign Charitable Institutions, in General.

Foreign Charities-Constitutionality of Discrimination.
Educational Institutions.

§ 146.

§ 147.

§ 148.

§ 149.

Religious Institutions.

§ 150.

§ 151.

§ 152.

Cemetery Association.

Institutions for Support of the Aged or Indigent.
Hospitals and Infirmaries.

§ 153. Masses for Repose of Souls.

§ 154. Societies for Prevention of Cruelty.

§ 145. Charitable Uses and Institutions, in General. A few of the inheritance tax statutes make no exemption in favor of charities, or institutions of a benevolent, educational, or religious character. In holding charities subject to inheritance taxation, where the statute does not expressly confer an exemption, the courts argue that the tax is on the transmission, or is a diminution of the amount that would otherwise pass, and that it is not a tax on the property of the charity. Hence it is affirmed that such a tax is not against public policy because aimed at a fund given to a charitable or educational purpose, nor is it forbidden by a general law that the property of a charity is exempt from taxation. This line of rea

1 Seavell v. Arnold, 131 Ky. 426, 115 S. W. 232; Estate of Finnen, 196 Pa. 72, 46 Atl. 269; Miller v. Commonwealth, 27 Gratt. (Va.) 110. Said the Kentucky court, in the above case, "the tax is not levied upon the fund, but upon its transmission, and hence the argument that it is against the policy of the law to levy a tax upon a fund devised to a public school has no bearing upon the case at bar, for the reason that this fund does not become a fund devoted to the maintenance of a school until the law relative to its transmission has been complied with. The tax must be paid before the fund in question can become the property of the school or be devoted to educational purposes."

And in the above Pennsylvania case the court said: "It is very manifest from the language of the statute that the subject of the

soning is in harmony with the general disposition of the judicial mind to bring all transfers of property within the operation of the inheritance tax law unless the exemption is unmistakably pronounced by the legislature.

The majority of the statutes expressly exempt transmissions to certain classes of charities from inheritance taxation, but in some of the states a tendency is taxation enacted is the whole estate or interest that passes to the persons who are the recipients, and the duty imposed is five per cent of the whole amount, and there can be no discharge from the liability for the amount of the same except by actual payment of the whole of the tax. There is no kind of exception, qualification, condition or reservation as to what it is that is the subject of the tax. It is the whole of the estate that passes. There is no exemption from the tax in favor of charities. That which the legatee gets and keeps is the aggregate sum bequeathed, less the amount of the tax. The tax must be retained by the person who has the decedent's property in charge. It is therefore not a tax upon the property or money bequeathed, but a diminution of the amount that otherwise would pass under the will or other conveyance, and hence that which the legatee really receives is not taxed at all. It is that which is left after the tax has been taken off. It is only imposed once, and that is before the legacy has reached the legatee and before it has become his property. If the tax were a continuing charge imposed year by year after the ownership of the legacy has become vested in the legatee, there would then be room for the claim that it is free because of its charitable character. Being held for charitable purposes, it would come within the description of property exempted from taxation for that reason. But it is quite clear that it cannot have the benefit of that privilege while it is in a state of transition and before it has become ultimately vested in the possession of the owner."

2 Balch v. Attorney General, 174 Mass. 144, 54 N. E. 490; Carter v. Whitcomb, 74 N. H. 482, 17 L. R. A., N. S., 733, 69 Atl. 779; Estate of Vassar, 58 Hun, 378, 12 N. Y. Supp. 203; Estate of Howell, 34 Misc. Rep. 40, 69 N. Y. Supp. 505; Estate of Crouse, 34 Misc. Rep. 670, 70 N. Y. Supp. 731.

The German Benevolent Society of San Francisco is not subject to the inheritance tax: Estate of Fretz, 5 Cof. Pro. 432.

"The organized charities and benevolent agencies which actually relieve human misery, and labor in unselfish devotion to improve the moral and physical condition of mankind, are alike the fruits and aids of good government, and to exempt their property-usually the gifts of the benevolent-from the burdens of taxation is scarcely

observable toward restricting the exemption within narrower bounds than those formerly set.

The exemption under the Massachusetts statute of "charitable, educational, or religious societies or institutions, the property of which is exempt by law from taxation," is confined to societies or institutions the property of which is exempt from taxation by the laws of that state. But if a bequest is to an institution whose property is generally exempt from less the duty than the privilege of the enlightened legislator. Clearly this exemption should be placed upon broad, equitable grounds, quite above the injurious imputations sometimes resulting from individual or special exemptions. We suppose this spirit prevailed in framing the exemptions relating to these charities and benevolent agencies": Estate of Huntington, 168 N. Y. 399, 61 N. E. 643, per Justice Landon.

In this case the New York court of appeals holds that the provisions of the tax law of 1896, exempting the property of charitable corporations and associations from taxation, supersede and by implication repeal the provisions of all special acts exempting the property of such corporations and associations, and legacies to them, as well as to all such corporations and associations claiming exemptions under subdivision 7, vesting after chapter 382 of the Laws of 1900, amending article 10 of the tax law, relating to taxes upon transfers of property, took effect, are subject to the transfer tax. See, also, Estate of Howell, 34 Misc. Rep. 40, 69 N. Y. Supp. 505.

None of the New York enactments relating to bequests for charitable purposes have brought within the exemption gifts to a person. The addition of the word "association" in the general exemption section does not extend the application to a bequest to trustees: Estate of Graves, 66 App. Div. 267, 72 N. Y. Supp. 815.

A bequest to a charitable corporation is taxable unless the provisions of its charter or a special enactment shows an exemption: Estate of Kavanaghs, 6 N. Y. Supp. 669. But the rule that statutes of exemption are to be strictly construed does not require that only such societies be deemed exempt as are declared to be by their charters; it is enough if the society claiming the exemption belongs to a class exempted by general statute: Estate of Miller, 5 Dem. Sur. (N. Y.) 132.

3 Carter v. Whitcomb, 74 N. H. 482, 17 L. R. A., N. S., 733, 69 Atl. 779; Estate of Crouse, 34 Misc. Rep. 670, 70 N. Y. Supp. 731.

4 Minot v. Winthrop, 162 Mass. 113, 26 L. R. A. 259, 38 N. E. 512; Rice v. Bradford, 180 Mass. 545, 63 N. E. 7, applying the rule to a bequest to Bowdoin College in Maine.

taxation, it is not material whether or not the particular gift, when in the hands of the institution, will be exempt from yearly taxation under general laws." And the fact that the society may hold some property which is not used directly in carrying on its charitable work, and therefore is subject to general taxation, does not preclude it from claiming exemption from the inheritance tax.

Legislative enactments exempting transfers to charities are given a prospective operation; they are not

First Universalist Soc. v. Bradford, 185 Mass. 310, 70 N. E. 204; Carter v. Whitcomb, 74 N. H. 482, 17 L. R. A., N. S., 733, 69 Atl. 779.

6 Carter v. Whitcomb, 74 N. H. 482, 17 L. R. A., N. S., 733, 69 Atl. 779. To quote from this case: "Most charitable institutions whose property 'is devoted exclusively to the uses and purposes of public charity,' and is exempt from taxation, may own property not exclusively devoted to charity which is subject to the general tax burden. The use that is made of the property determines the question of its taxability. . . . . In consideration of public benefits conferred by such establishments, and in view of the fact that their property is substantially used directly in the promotion of public charity, is unproductive of profit or gain, and is not when so used taxable, it was the policy of the legislature to exempt them from the burden of the inheritance tax. If their general property is exempt from taxation under existing statutes, general or special, bequests to them are not taxable merely because it appears that they own incidentally property that is taxable. Nor does it appear that the legislature intended that a legacy to a charitable association should be subject to the succession tax if, when received, it might be invested in taxable property. The sole test suggested by the language of the statute in its application to the subject matter is to ascertain whether the legatee is a charitable, educational, or religious society, whose property, when used exclusively in carrying out the purposes of the association, is exempt from taxation. It is the character of the institution, the purposes it was organized to accomplish, and its liability or nonliability to taxation from property devoted to those purposes, that determine whether it falls within or without the exception provided in the inheritance tax law. This result accords with the view adopted by the court in First Universalist Soc. v. Bradford, 185 Mass. 310, 70 N. E. 204, in which a construction was given to a statute of that state which is identical with the statute in question. With reference to the clause under consideration, the court says: 'But we are of opinion that the ex

retrospective so as to exempt bequests subject to the inheritance tax at the time of the death of the testator."

"A charity, in a legal sense, may be defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government. It is immaterial whether the purpose is called charitable in the gift itself, if it is so described as to show that it is charitable in its nature.'' 8 It has always been the policy of the law to uphold charitable bequests and give effect to them emption depends upon the question: Is the society or institution one whose property is generally exempt from taxation? and that the question is not: Is the property which passes to the society or institution one which will be exempt from yearly taxation under general laws?' This decision was rendered in 1904; and, as our inheritance tax law of 1905 was evidently copied from the Massachusetts statute, it is not improbable that that construction of the exception was understood by the legislature and adopted as part of the statute: Mann v. Carter, 74 N. H. 345, 15 L. R. A., N. S., 150, 68 Atl. 130. If the legatee would be exempt from taxa. tion upon property directly devoted to its public charity, it is not subject to the inheritance tax, though it in fact may own taxable property at the death of the testatrix, and may intend to invest the proceeds of the legacy in taxable property."

The New Hampshire statute was amended in 1907 so as to restrict the exemption.

7 Sherrill v. Christ Church, 121 N. Y. of Wolfe, 2 Con. 600, 15 N. Y. Supp. 539.

701, 25 N. E. 50; Estate See sec. 36, ante.

8 Jackson v. Phillips, 96 Mass. (14 Allen) 539; Estate of Lennon, 152 Cal. 327, 125 Am. St. Rep. 58, 14 Ann. Cas. 1024, 92 Pac. 870; Estate of Graves, 242 Ill. 23, 134 Am. St. Rep. 302, 17 Ann. Cas. 137, 24 L. R. A., N. S., 283, 89 N. E. 672.

The status of a corporation, as charitable or otherwise, is to be determined by the act of incorporation, not by proof of what it has assumed to do: Estate of White, 118 App. Div. 869, 103 N. Y. Supp. 688; Estate of Moses, 138 App. Div. 525, 123 N. Y. Supp. 443, 447.