Frick v. Pennsylvania

Background

A wealthy man domiciled in Pennsylvania died in 1919 leaving a large estate. His will disposed of property in Pennsylvania and significant tangible belongings in New York and Massachusetts, plus many stocks in corporations of other states. Pennsylvania’s tax law taxed transfers of a domiciliary’s property wherever it was located and computed the tax without deducting federal or other states’ transfer taxes. Pennsylvania tax officials included the out-of-state tangible property and refused deductions; the Pennsylvania Supreme Court upheld that action, and the executors appealed here.

Reasoning

The Court asked whether Pennsylvania could reach tangible property that was physically in other states. Relying on prior decisions, the Court explained that the state where tangible property actually sits has exclusive power to regulate and tax it. Allowing the domiciliary state to count or tax that out-of-state property would be an improper extraterritorial reach. The Court held Pennsylvania could not tax the transfers of the tangible items in New York and Massachusetts, and that Pennsylvania could not include full stock values without deducting transfer taxes imposed by other states. By contrast, the Court found no constitutional requirement that Pennsylvania deduct the federal estate tax when computing its own transfer tax, since both taxes operate concurrently under each government’s taxing power.

Real world impact

The decision protects property physically located in one state from being taxed by the decedent’s domiciliary state. Executors must account for other states’ transfer taxes when valuing out-of-state stocks for state transfer taxes. The Court reversed the Pennsylvania judgment in these cases, limiting how states may measure and collect estate transfer taxes.