In the Matter of the Petition of WAYNE HUBBS, Treasurer of the State of Arizona, for Special Letters of Administration on the Estate of THOMAS HIGGINS, Deceased.
WAYNE HUBBS, Treasurer of the State of Arizona, Appellee THE HIGGINS ESTATE, a Corporation, and MARGARET A. KEARNEY, Appellants,
APPEAL from orders of the Superior Court of the County of Cochise. Albert M. Sames, Judge. Reversed and remanded.
Messrs. Ellinwood & Ross, Mr. John Mason Ross, Mr. John E. Sanders and Mr. James S. Casey, for Appellants.
Mr. K. Berry Peterson, former Attorney General, and Mr. Charles L. Strouss, Special Counsel Inheritance Tax Collector, for Appellee.
[41 Ariz. 468] McALISTER, J.
This appeal involves the validity of an inheritance tax on a transfer of real property in this state and owned at the time by a resident of California, one Thomas Higgins. The superior court held the transfer taxable and determined the amount of the tax, and it is this order, as well as that denying respondent's application for a rehearing, that this court is asked to review.
In the early 80's, the record discloses, Thomas Higgins arrived in Arizona and became in succession a prospector, a miner and a mine operator. He located a number of claims in the Warren District of Cochise county and sold many of them to the large operating companies in and around Bisbee. As a result of his years of efforts in this line of work he accumulated a substantial fortune and in 1902 took up his residence in Los Angeles, California, where in the succeeding years he invested rather heavily in city real estate.
In 1914 he organized under the laws of that state a corporation known as "The Higgins Estate," hereinafter referred to as the corporation, with a capital stock of 100,000 shares of the par value of $ 10 each, and deeded to it a large portion of his California property, which in the judgment of those connected with the corporation made its assets worth around two and one-half million dollars and gave its stock a cash value in excess of $25 a share. With the exception of a very few shares, the stock was issued to Thomas Higgins as consideration for the property he conveyed to the corporation, but within a short time thereafter, being unmarried and without [41 Ariz. 469] lineal descendants, he began to make gifts of this stock to his relatives, the sons and daughters, or their issue, of two brothers, one of whom, John Higgins, resided in Ireland and the other, Bartholomew Higgins, in Australia, and before two years had passed he had given them the entire 100,000 shares. He did not, however, deliver it to them but placed it in escrow with the president of the corporation and directed in each escrow agreement, which was signed by the donee designated therein, that it should not be delivered before 1935, and that none of it should, prior to this date, be sold, transferred, assigned, pledged or hypothecated to any person other than a stockholder, the purpose being to keep the stock in the possession and control of the family.
Among the properties he did not convey to the corporation at that time was a group of ten patented mining claims located in the Warren District of Cochise county, this state, known as the Higgins Mine, which he had owned for years, even before moving to California. He was working it profitably through leases when the corporation was organized in 1914 and doubtless felt that, due to his many years of experience in the mining business, he could operate it to better advantage than could the corporation, none of whose directors or stockholders were mining people. But, whatever may have been his reason for not then conveying it, along with the other property, he did do so about three years later. The record discloses that on September 24th of that year he wrote the corporation a letter in which he inclosed two checks signed by himself for the aggregate sum of $150,000 and a deed conveying to it the ten patented mining claims composing the Higgins group and at its close stated that he was willing to take, as consideration for the deed and checks inclosed therewith, 30,000 shares of the capital stock of the corporation [41 Ariz. 470] and a life estate in the above-described mining claims. The original 100,000 shares had, as just stated, been issued and were then outstanding; hence, it was necessary that its capital stock be increased 30,000 shares before this offer could be accepted. However, after considering the proposition two or three days the corporation accepted it on September 28, 1917, retained the deed and the checks, reconveyed to Thomas Higgins immediately a life estate in the mine and issued to him, or rather to persons nominated by him, in January following the 30,000 shares of stock. Those he named as transferees of this additional stock were the identical persons he had given the original 100,000 shares to, except one John J. Higgins, a son of the brother in Ireland, who became the recipient of 4,000 shares, and the terms under which he directed it transferred to them were likewise the same as those governing the gifts of that stock.
He continued to operate the mine until his death on March 15, 1920, but after his passing the corporation itself worked it until October of that year, when, due to the fact that the war price for copper was no longer obtainable, it decided to and did cease operations. However, in May, 1922, it gave the Phelps-Dodge Corporation an option to purchase the mine for a consideration of $1,250,000 and on July 3d following this option was exercised and by February 1, 1924, the last
installment of the purchase price had been paid and the deed delivered.
No steps were taken by anyone up to January, 1924, to have the estate of Thomas Higgins in Arizona probated, so in that month Wayne Hubbs, the State Treasurer, filed a petition in the superior court of Cochise county asking that he be appointed special administrator of the estate for the purpose of collecting the inheritance tax due the state as a result [41 Ariz. 471] of the transfer of the Higgins Mine to the corporation. From an order holding the transfer taxable and fixing the value of the property of the estate of Thomas Higgins in Arizona subject to inheritance tax to be $1,127,484.25 and determining the amount of the tax due thereon to be $66,849.05 with interest at six per cent. from March 15, 1920, and directing its payment, the Higgins Estate and Margaret A. Kearney, a surviving niece of Thomas Higgins, who answered the petition by demurring thereto, by objecting to the jurisdiction of the court and by filing a plea in bar of the proceeding, appeal.
The fourteen errors assigned raise first the controlling proposition in the case, and that is the taxability of the transfer of the Higgins Mine to the corporation. It is the contention of appellants that the transfer was purely a commercial transaction in which adequate consideration passed and, therefore, was not taxable under the inheritance tax laws of this state which tax only transfers testamentary in character. Appellee upon the other hand takes the position, as did the trial court, that the transfer, though in form a commercial transaction, was in reality a testamentary disposition and, therefore, taxable. If appellants' contention is correct they are entitled to a reversal and a discussion of any other question involved in the appeal is unnecessary; but if it is not and the transfer is subject to a tax, it will then become necessary to determine what valuation upon the mine should have been used as a basis for the tax, -- that at the time of the transfer or that at the time of the death of Thomas Higgins. And whichever is held to be the correct one the further question remains, whether the evidence is such that the court could have ascertained from it the proper valuation.
[41 Ariz. 472] The inheritance tax statute in force when the transfer of the Higgins Mine to the corporation was made and also when the grantor, Thomas Higgins, died, paragraph 4995, ...