Nielsen v. Johnson
Headline: Court strikes down Iowa’s discriminatory inheritance tax on property of a Danish citizen, protecting nonresident Danish heirs from a 10% levy and enforcing treaty protections.
Holding: The Court held that the 1826 treaty with Denmark bars Iowa from collecting a discriminatory inheritance tax on the estate of a Danish citizen dying in Iowa, and it reversed the state court’s judgment.
- Prevents states from imposing higher inheritance taxes on foreign nonresident heirs under similar treaties.
- Allows Danish nonresident heirs to receive inheritances without the 10% Iowa levy.
- Affirms that international treaties can override inconsistent state tax laws.
Summary
Background
Anders Anderson was a citizen of Denmark living in Iowa who died in 1923. His sole heir was his mother, a resident and citizen of Denmark. Iowa law taxed estates that passed to alien nonresident relatives at 10%, while similar small estates to resident parents could be tax free. The heir argued the 1826 treaty between the United States and Denmark forbade such discriminatory taxes.
Reasoning
The Court examined Article 7 of the 1826 treaty and the diplomatic history showing the treaty aimed to prevent taxes like the old European droit de détraction — a tax on inheritances of foreigners. The Court explained treaties must be read broadly to effect their purpose. Because the decedent was a Danish citizen owning property in Iowa, the treaty’s protection applied and covered taxes that in practice operate like removal or inheritance duties. The Court concluded the Iowa statute discriminated against foreign heirs and therefore conflicted with the treaty, so the state judgment upholding the tax was reversed.
Real world impact
Practically, the ruling prevents Iowa from collecting the 10% inheritance levy from a Danish nonresident heir in this case and limits states from imposing similar discriminatory taxes when an applicable treaty protects the foreign heir. The decision emphasizes that international treaty promises can override conflicting state tax rules, and it protects foreign heirs covered by the treaty from having inheritances reduced by such levies.
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