James Clark McReynolds

“ Similarly, I do not doubt that a state may tax the income of its citizen derived from land in another state. The right to impose the tax is founded upon the power to exact it, coupled with the protection which the state affords to the taxpayer in the receipt and enjoyment of his income. ”

“ If we look to substance rather than form, to the principles which underlie and justify the taxing power, rather than to descriptive terminology which, merely as a matter of convenience, we may apply to the interest taxed, it would seem to be as much subject to the taxing power as any other intangible interest brought within the control and protection of the state, even though its ultimate economic enjoyment may be dependent wholly on property located and taxed elsewhere. ”

“ Only by resort to subtle refinements of legal doctrine, devised without reference to the problems of taxation and irrelevant to them, or by treating the Fourteenth Amendment as an instrument for giving effect to our own peculiar convictions of what is morally or economically desirable, is it possible to sustain the taxation of the one and not the other. ”

“ The beneficiaries have no right to possession or to partition of the property, and can maintain no action at law with respect to it. They cannot be assessed, and incur no liability by virtue of the administration of the trust estate. The trust certificates are freely transferable, as are shares of stock in a corporation. The rights of the beneficiaries are so identified with the certificates that they may be transferred only on surrender of the certificate to the trustee. ”

“ In every practical aspect-and taxation is a practical matter the trust certificate holder stands in the same relationship to the land as the stockholder of a landowning corporation. It is not denied that the petitioner receives as much benefit and protection from the state of Ohio with respect to his certificates as does the owner of corporate stock, or that his interest is as much within the reach of the state power. ”

“ The beneficiaries have none of the incidents of legal ownership. They can neither take nor defend possession of the land. But they are clothed with rights in personam, in form both contractual and equitable, enforceable against the trustee by suit in equity for an accounting, to compel performance of the trust or to restrain breaches of it. ”

“ The fact that the certificates are taxed, and the owners of interests in trusts of land not represented by certificates are untaxed, plainly involves no forbidden discrimination. The owners of transferable certificates, representing an equitable interest in a trust of land divided into shares, enjoy privileges and advantages not attaching to other forms of ownership, which are an adequate basis for a difference in taxation. ”

“ Each of these legal interests, it is true, finds its only economic source in the value of the land, and the rights which are elsewhere subjected to the tax can be brought to their ultimate economic fruition only through some means of control of the land itself. ”

“ Tax laws are neither contracts nor penal laws. The obligation to pay taxes arises from the unilateral action of government in the exercise of the most plenary of sovereign powers, that to raise revenue to defray the expenses of government and to distribute the burden among those who must bear it. ”

“ The present tax, measured by income, is upon intangible property interests owned by a citizen of Ohio. They are represented by transferable certificates, issued, by trustees of land, under contracts by which each trustee undertakes to hold the title of specified lands in trust for the benefit of the certificate holders ”

“ While certificates and declarations vary in some details, they represent beneficial interests which, for present purposes, are not substantially unlike. Each trustee holds only one piece of land and is free from control by the beneficiaries. ”

“ The following excerpts are from the headnotes of its opinion which in Ohio constitute the law of the case:
'Land trust certificates in the following trusts (the seven described above) , are mere evidences of existing rights to participate in the net rentals of the real estate being administered by the respective trusts.
'Ascribing to such certificates all possible virtue, the holder thereof is at best the owner of equitable interests in real estate divided into shares evidenced by transferable certificates. ”

“ Section 5638 imposed upon productive investments a tax amounting to 5 per centum of their income yield; and section 5389 defined 'income yield' so as to include the aggregate income paid by the trustee to the holder, etc. Pertinent portions of sections 5388 and 5389 are in the margin. [2]
Appellant owned transferable certificates showing that he was beneficiary under seven separate declarations of trust, and entitled to stated portions of rents derived from specified parcels and land-some within Ohio, some without. ”